1. G.R. No.

L-47362 December 19, 1940

JUAN F. VILLARROEL, recurrente-apelante, vs.
BERNARDINO ESTRADA, recurrido-apelado.
AVANCEÑA, Pres.:
On May 9, 1912, Alejandro F. Callao, the mother of the
defendant Juan F. Villarroel, obtained from the spouses Mariano
Estrada and Severina a loan of P1,000 payable after seven
years (Exhibit A). Alejandra died, leaving as sole heir to the
defendant. The spouses Mariano Estrada and Severina also
died, leaving as sole heir the plaintiff Bernardino Estrada. On
August 9, 1930, the defendant signed a document (Exhibit B)
by which it declares the applicant to owe the amount of P1,000,
with an interest of 12 percent per year. This action deals with
the collection of this amount.
The Court of First Instance of Laguna, in which this action was
filed, ordered the defendant to pay the claimant the claimed
amount of P1,000 with his legal interests of 12 percent a year
from August 9, 1930 until its full payment. This sentence is
appealed.
It will be noted that the parties to the present case are,
respectively, the sole heirs of the original creditors and debtor.
This action is exercised by virtue of the obligation that the
defendant as the only child of the original debtor contracted in
favor of the plaintiff, sole heir of the primitive creditors. It is
admitted that the amount of P1,000 to which this obligation is
contracted is the same debt of the defendant's mother to the
parents of the plaintiff.
Although the action to recover the original debt has already
been prescribed when the claim was filed in this case, the
question that arises in this appeal is mainly whether,
notwithstanding such a requirement, the action filed. However,
the present action is not based on the original obligation
contracted by the defendant's mother, which has already been
prescribed, but in which the defendant contracted on August 9,
1930 (Exhibit B) upon assuming the fulfillment of that
obligation, Already prescribed. Since the defendant is the sole
inheritor of the primitive debtor, with the right to succeed in his
inheritance, that debt, brought by his mother legally, although
it has lost its effectiveness by prescription, is now, however, for
a moral obligation, which is consideration Sufficient to create
and render effective and enforceable its obligation voluntarily
contracted on August 9, 1930 in Exhibit B.
The rule that a new promise to pay a pre-paid debt must be
made by the same obligated person or by another legally
authorized by it, is not applicable to the present case in which it
is not required to fulfill the obligation of the obligee originally,
but Of which he voluntarily wanted to assume this obligation.
The judgment appealed against is upheld, with costs being paid
to the appellant. That is how it is commanded.
2. G.R. No. L-13667 April 29, 1960
PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants, vs.
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THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT
COMPANY, ET AL., defendants- appellees.
PARAS, C. J.:
understands, it has no power to compel a party to comply with
a moral obligation (Art. 142, New Civil Code.).
IN VIEW WHEREOF, dismissed. No pronouncement as to costs.
A motion for reconsideration of the afore-quoted order was
denied. Hence this appeal.
Appellants contend that there exists a cause of action in their
complaint because their claim rests on moral grounds or what
in brief is defined by law as a natural obligation.
Since appellants admit that appellees are not under legal
obligation to give such claimed bonus; that the grant arises
only from a moral obligation or the natural obligation that they
discussed in their brief, this Court feels it urgent to reproduce at
this point, the definition and meaning of natural obligation.
Article 1423 of the New Civil Code classifies obligations into
civil or natural. "Civil obligations are a right of action to compel
their performance. Natural obligations, not being based on
positive law but on equity and natural law, do not grant a right
of action to enforce their performance, but after voluntary
fulfillment by the obligor, they authorize the retention of what
has been delivered or rendered by reason thereof".
It is thus readily seen that an element of natural obligation
before it can be cognizable by the court is voluntary fulfillment
by the obligor. Certainly retention can be ordered but only after
there has been voluntary performance. But here there has been
no voluntary performance. In fact, the court cannot order the
performance.
At this point, we would like to reiterate what we said in the case
of Philippine Education Co. vs. CIR and the Union of Philippine
On July 25, 1956, appellants filed against appellees in the
Court of First Instance of Manila a complaint praying for a 20%
Christmas bonus for the years 1954 and 1955. The court a quo
on appellees' motion to dismiss, issued the following order:
Considering the motion to dismiss filed on 15 August, 1956, set
for this morning; considering that at the hearing thereof, only
respondents appeared thru counsel and there was no
appearance for the plaintiffs although the court waited for
sometime for them; considering, however, that petitioners have
submitted an opposition which the court will consider together
with the arguments presented by respondents and the Exhibits
marked and presented, namely, Exhibits 1 to 5, at the hearing
of the motion to dismiss; considering that the action in brief is
one to compel respondents to declare a Christmas bonus for
petitioners workers in the National Development Company;
considering that the Court does not see how petitioners may
have a cause of action to secure such bonus because:
(a) A bonus is an act of liberality and the court takes it that it is
not within its judicial powers to command respondents to be
liberal;
(b) Petitioners admit that respondents are not under legal duty
to give such bonus but that they had only ask that such bonus
be given to them because it is a moral obligation of
respondents to give that but as this Court
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Education Co., Employees (NUL) (92 Phil., 381; 48 Off. Gaz.,
5278) —
xxx xxx xxx
From the legal point of view a bonus is not a demandable and
enforceable obligation. It is so when it is made a part of the
wage or salary compensation.
And while it is true that the subsequent case of H. E. Heacock
vs. National Labor Union, et al., 95 Phil., 553; 50 Off. Gaz.,
4253, we stated that:
Even if a bonus is not demandable for not forming part of the
wage, salary or compensation of an employee, the same may
nevertheless, be granted on equitable consideration as when it
was given in the past, though withheld in succeeding two years
from low salaried employees due to salary increases.
still the facts in said Heacock case are not the same as in the
instant one, and hence the ruling applied in said case cannot be
considered in the present action.
Premises considered, the order appealed from is hereby
affirmed, without pronouncement as to costs.
3. G.R. No. L-48889
May 11, 1989
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second
Branch of the Court of First Instance of Iloilo and SPOUSES
PATRICIO CONFESOR and JOVITA VILLAFUERTE, respondents.
GANCAYCO, J.:
The issue posed in this petition for review on certiorari is the
validity of a promissory note which was executed in
consideration of a previous promissory note the enforcement of
which had been barred by prescription.
On February 10, 1940 spouses Patricio Confesor and Jovita
Villafuerte obtained an agricultural loan from the Agricultural
and Industrial Bank (AIB), now the Development of the
Philippines (DBP), in the sum of P2,000.00, Philippine Currency,
as evidenced by a promissory note of said date whereby they
bound themselves jointly and severally to pay the account in
ten (10) equal yearly amortizations. As the obligation remained
outstanding and unpaid even after the lapse of the aforesaid
ten-year period, Confesor, who was by then a member of the
Congress of the Philippines, executed a second promissory note
on April 11, 1961 expressly acknowledging said loan and
promising to pay the same on or before June 15, 1961. The new
promissory note reads as follows —
I hereby promise to pay the amount covered by my promissory
note on or before June 15, 1961. Upon my failure to do so, I
hereby agree to the foreclosure of my mortgage. It is
understood that if I can secure a certificate of indebtedness
from the government of my back pay I will be allowed to pay
the amount out of it.
DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner, vs.
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Said spouses not having paid the obligation on the specified
date, the DBP filed a complaint dated September 11, 1970 in
the City Court of Iloilo City against the spouses for the payment
of the loan.
After trial on the merits a decision was rendered by the inferior
court on December 27, 1976, the dispositive part of which
reads as follows:
WHEREFORE, premises considered, this Court renders
judgment, ordering the defendants Patricio Confesor and Jovita
Villafuerte Confesor to pay the plaintiff Development Bank of
the Philippines, jointly and severally, (a) the sum of P5,760.96
plus additional daily interest of P l.04 from September 17, 1970,
the date Complaint was filed, until said amount is paid; (b) the
sum of P576.00 equivalent to ten (10%) of the total claim by
way of attorney's fees and incidental expenses plus interest at
the legal rate as of September 17,1970, until fully paid; and (c)
the costs of the suit.
Defendants-spouses appealed therefrom to the Court of First
Instance of Iloilo wherein in due course a decision was rendered
on April 28, 1978 reversing the appealed decision and
dismissing the complaint and counter-claim with costs against
the plaintiff.
A motion for reconsideration of said decision filed by plaintiff
was denied in an order of August 10, 1978. Hence this petition
wherein petitioner alleges that the decision of respondent judge
is contrary to law and runs counter to decisions of this Court
when respondent judge (a) refused to recognize the law that
the right to prescription may be renounced or waived; and (b)
that in signing the second promissory note respondent Patricio
Confesor can bind the conjugal partnership; or otherwise said
respondent became liable in his personal capacity. The petition
is impressed
with merit. The right to prescription may be waived or
renounced. Article 1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property may
renounce prescription already obtained, but not the right to
prescribe in the future.
Prescription is deemed to have been tacitly renounced when
the renunciation results from acts which imply the
abandonment of the right acquired.
There is no doubt that prescription has set in as to the first
promissory note of February 10, 1940. However, when
respondent Confesor executed the second promissory note on
April 11, 1961 whereby he promised to pay the amount covered
by the previous promissory note on or before June 15, 1961,
and upon failure to do so, agreed to the foreclosure of the
mortgage, said respondent thereby effectively and expressly
renounced and waived his right to the prescription of the action
covering the first promissory note.
This Court had ruled in a similar case that –
... when a debt is already barred by prescription, it cannot be
enforced by the creditor. But a new contract recognizing and
assuming the prescribed debt would be valid and enforceable ...
.1
Thus, it has been held —
Where, therefore, a party acknowledges the correctness of a
debt and promises to pay it after the same has prescribed and
with full knowledge of
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the prescription he thereby waives the benefit of prescription. 2
This is not a mere case of acknowledgment of a debt that has
prescribed but a new promise to pay the debt. The
consideration of the new promissory note is the pre-existing
obligation under the first promissory note. The statutory
limitation bars the remedy but does not discharge the debt.
A new express promise to pay a debt barred ... will take the
case from the operation of the statute of limitations as this
proceeds upon the ground that as a statutory limitation merely
bars the remedy and does not discharge the debt, there is
something more than a mere moral obligation to support a
promise, to wit a – pre-existing debt which is a sufficient
consideration for the new the new promise; upon this sufficient
consideration constitutes, in fact, a new cause of action. 3
... It is this new promise, either made in express terms or
deduced from an acknowledgement as a legal implication,
which is to be regarded as reanimating the old promise, or as
imparting vitality to the remedy (which by lapse of time had
become extinct) and thus enabling the creditor to recover upon
his original contract. 4
However, the court a quo held that in signing the promissory
note alone, respondent Confesor cannot thereby bind his wife,
respondent Jovita Villafuerte, citing Article 166 of the New Civil
Code which provides:
Art. 166. Unless the wife has been declared a non compos
mentis or a spend thrift, or is under civil interdiction or is
confined in a leprosarium, the
husband cannot alienate or encumber any real property of the
conjugal partnership without, the wife's consent. If she ay
compel her to refuses unreasonably to give her consent, the
court m grant the same.
We disagree. Under Article 165 of the Civil Code, the husband is
the administrator of the conjugal partnership. As such
administrator, all debts and obligations contracted by the
husband for the benefit of the conjugal partnership, are
chargeable to the conjugal partnership. 5 No doubt, in this
case, respondent Confesor signed the second promissory note
for the benefit of the conjugal partnership. Hence the conjugal
partnership is liable for this obligation.
WHEREFORE, the decision subject of the petition is reversed
and set aside and another decision is hereby rendered
reinstating the decision of the City Court of Iloilo City of
December 27, 1976, without pronouncement as to costs in this
instance. This decision is immediately executory and no motion
for extension of time to file motion for reconsideration shall be
granted.
4. 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.
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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
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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
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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.
5. G.R. No. 183204
January 13, 2014
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THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.
DECISION DEL CASTILLO, J.:
Bank deposits, which are in the nature of a simple loan or
mutuum,1 must be paid upon demand by the depositor.2
This Petition for Review on Certiorari3 under Rule 45 of the
Rules of Court assails the April 2, 2008 Decision4 and the May
30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV
No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust Company is a domestic
banking corporation duly organized and existing under the laws
of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is
the owner of China Golden Bridge Travel Services,7 a travel
agency.8 Respondent Yo Yuk To is the mother of respondent
Rosales.9
In 2000, respondents opened a Joint Peso Account10 with
petitioner’s Pritil-Tondo Branch.11 As of August 4, 2004,
respondents’ Joint Peso Account showed a balance of
P2,515,693.52.12
In May 2002, respondent Rosales accompanied her client Liu
Chiu Fang, a Taiwanese National applying for a retiree’s visa
from the Philippine Leisure and Retirement Authority (PLRA), to
petitioner’s branch in Escolta to open a savings account, as
required by the PLRA.13 Since Liu Chiu Fang could speak only in
Mandarin, respondent Rosales acted as an interpreter for her.14
On March 3, 2003, respondents opened with petitioner’s Pritil-
Tondo Branch a Joint Dollar Account15 with an initial deposit of
US$14,000.00.16
On July 31, 2003, petitioner issued a "Hold Out" order against
respondents’ accounts.17
On September 3, 2003, petitioner, through its Special Audit
Department Head Antonio Ivan Aguirre, filed before the Office
of the Prosecutor of Manila a criminal case for Estafa through
False Pretences, Misrepresentation, Deceit, and Use of Falsified
Documents, docketed as I.S. No. 03I-25014,18 against
respondent Rosales.19 Petitioner accused respondent Rosales
and an unidentified woman as the ones responsible for the
unauthorized and fraudulent withdrawal of US$75,000.00 from
Liu Chiu Fang’s dollar account with petitioner’s Escolta
Branch.20 Petitioner alleged that on February 5, 2003, its
branch in Escolta received from the PLRA a Withdrawal
Clearance for the dollar account of Liu Chiu Fang;21 that in the
afternoon of the same day, respondent Rosales went to
petitioner’s Escolta Branch to inform its Branch Head, Celia A.
Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw
her dollar deposits in cash;22 that Gutierrez told respondent
Rosales to come back the following day because the bank did
not have enough dollars;23 that on February 6, 2003,
respondent Rosales accompanied an unidentified impostor of
Liu Chiu Fang to the bank;24 that the impostor was able to
withdraw Liu Chiu Fang’s dollar deposit in the amount of
US$75,000.00;25 that on March 3, 2003, respondents opened a
dollar account with petitioner; and that the bank later
discovered that the serial numbers of the dollar notes deposited
by respondents in the amount of US$11,800.00 were the same
as those withdrawn by the impostor.26
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Respondent Rosales, however, denied taking part in the
fraudulent and unauthorized withdrawal from the dollar account
of Liu Chiu Fang.27 Respondent Rosales claimed that she did
not go to the bank on February 5, 2003.28 Neither did she
inform Gutierrez that Liu Chiu Fang was going to close her
account.29 Respondent Rosales further claimed that after Liu
Chiu Fang opened an account with petitioner, she lost track of
her.30 Respondent Rosales’ version of the events that
transpired thereafter is as follows:
On February 6, 2003, she received a call from Gutierrez
informing her that Liu Chiu Fang was at the bank to close her
account.31 At noon of the same day, respondent Rosales went
to the bank to make a transaction.32 While she was transacting
with the teller, she caught a glimpse of a woman seated at the
desk of the Branch Operating Officer, Melinda Perez (Perez).33
After completing her transaction, respondent Rosales
approached Perez who informed her that Liu Chiu Fang had
closed her account and had already left.34 Perez then gave a
copy of the Withdrawal Clearance issued by the PLRA to
respondent Rosales.35 On June 16, 2003, respondent Rosales
received a call from Liu Chiu Fang inquiring about the extension
of her PLRA Visa and her dollar account.36 It was only then that
Liu Chiu Fang found out that her account had been closed
without her knowledge.37 Respondent Rosales then went to the
bank to inform Gutierrez and Perez of the unauthorized
withdrawal.38 On June 23, 2003, respondent Rosales and Liu
Chiu Fang went to the PLRA Office, where they were informed
that the Withdrawal Clearance was issued on the basis of a
Special Power of Attorney (SPA) executed by Liu Chiu Fang in
favor of a certain Richard So.39 Liu Chiu Fang, however, denied
executing the SPA.40 The following day, respondent Rosales,
Liu Chiu Fang, Gutierrez, and Perez met at the PLRA Office to
discuss the unauthorized withdrawal.41 During the conference,
the bank officers assured Liu Chiu Fang that the money would
be returned to her.42
On December 15, 2003, the Office of the City Prosecutor of
Manila issued a Resolution dismissing the criminal case for lack
of probable cause.43 Unfazed, petitioner moved for
reconsideration.
On September 10, 2004, respondents filed before the Regional
Trial Court (RTC) of Manila a Complaint44 for Breach of
Obligation and Contract with Damages, docketed as Civil Case
No. 04110895 and raffled to Branch 21, against petitioner.
Respondents alleged that they attempted several times to
withdraw their deposits but were unable to because petitioner
had placed their accounts under "Hold Out" status.45 No
explanation, however, was given by petitioner as to why it
issued the "Hold Out" order.46 Thus, they prayed that the "Hold
Out" order be lifted and that they be allowed to withdraw their
deposits.47 They likewise prayed for actual, moral, and
exemplary damages, as well as attorney’s fees.48
Petitioner alleged that respondents have no cause of action
because it has a valid reason for issuing the "Hold Out" order.49
It averred that due to the fraudulent scheme of respondent
Rosales, it was compelled to reimburse Liu Chiu Fang the
amount of US$75,000.0050 and to file a criminal complaint for
Estafa against respondent Rosales.51
While the case for breach of contract was being tried, the City
Prosecutor of Manila issued a Resolution dated February 18,
2005, reversing the dismissal of the criminal complaint.52 An
Information, docketed as Criminal Case No. 05-236103,53 was
then filed charging respondent Rosales with Estafa before
Branch 14 of the RTC of Manila.54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision55 finding
petitioner liable for damages for breach of contract.56 The RTC
10 | P a g e
ruled that it is the duty of petitioner to release the deposit to
respondents as the act of withdrawal of a bank deposit is an act
of demand by the creditor.57 The RTC also said that the
recourse of petitioner is against its negligent employees and
not against respondents.58 The dispositive portion of the
Decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered ordering [petitioner] METROPOLITAN BANK & TRUST
COMPANY to allow [respondents] ANA GRACE ROSALES and YO
YUK TO to withdraw their Savings and Time Deposits with the
agreed interest, actual damages of P50,000.00, moral damages
of P50,000.00, exemplary damages of P30,000.00 and 10% of
the amount due [respondents] as and for attorney’s fees plus
the cost of suit.
The counterclaim of [petitioner] is hereby DISMISSED for lack of
merit.
SO ORDERED.59
Ruling of the Court of Appeals Aggrieved, petitioner appealed to
the CA.
On April 2, 2008, the CA affirmed the ruling of the RTC but
deleted the award of actual damages because "the basis for
[respondents’] claim for such damages is the professional fee
that they paid to their legal counsel for [respondent] Rosales’
defense against the criminal complaint of [petitioner] for estafa
before the Office of the City Prosecutor of Manila and not this
case."60 Thus, the CA disposed of the case in this wise:
WHEREFORE, premises considered, the Decision dated January
15, 2007 of the RTC, Branch 21, Manila in Civil Case No. 04-
110895 is AFFIRMED with MODIFICATION that the award of
actual damages to [respondents] Rosales and Yo Yuk To is
hereby DELETED.
SO ORDERED.61
Petitioner sought reconsideration but the same was denied by
the CA in its May 30, 2008 Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:
A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT"
PROVISION IN THE APPLICATION AND AGREEMENT FOR DEPOSIT
ACCOUNT DOES NOT APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S
EMPLOYEES WERE NEGLIGENT IN RELEASING LIU CHIU FANG’S
FUNDS.
C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL
DAMAGES, EXEMPLARY DAMAGES, AND ATTORNEY’S FEES.63
Petitioner’s Arguments
Petitioner contends that the CA erred in not applying the "Hold
Out" clause stipulated in the Application and Agreement for
Deposit Account.64 It posits that the said clause applies to any
and all kinds of obligation as it does not distinguish between
obligations arising ex contractu or ex delictu.65 Petitioner also
contends that the fraud committed by respondent Rosales was
clearly established by evidence;66 thus, it was justified in
issuing the "Hold-Out" order.67 Petitioner likewise denies that
its employees were negligent in releasing the dollars.68 It
claims that it was the deception employed by respondent
Rosales that
11 | P a g e
caused petitioner’s employees to release Liu Chiu Fang’s funds
to the impostor.69
Lastly, petitioner puts in issue the award of moral and
exemplary damages and attorney’s fees. It insists that
respondents failed to prove that it acted in bad faith or in a
wanton, fraudulent, oppressive or malevolent manner.70
Respondents’ Arguments
Respondents, on the other hand, argue that there is no legal
basis for petitioner to withhold their deposits because they
have no monetary obligation to petitioner.71 They insist that
petitioner miserably failed to prove its accusations against
respondent Rosales.72 In fact, no documentary evidence was
presented to show that respondent Rosales participated in the
unauthorized withdrawal.73 They also question the fact that the
list of the serial numbers of the dollar notes fraudulently
withdrawn on February 6, 2003, was not signed or
acknowledged by the alleged impostor.74 Respondents likewise
maintain that what was established during the trial was the
negligence of petitioner’s employees as they allowed the
withdrawal of the funds without properly verifying the identity
of the depositor.75 Furthermore, respondents contend that their
deposits are in the nature of a loan; thus, petitioner had the
obligation to return the deposits to them upon demand.76
Failing to do so makes petitioner liable to pay respondents
moral and exemplary damages, as well as attorney’s fees.77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1) whether
petitioner breached its contract with respondents, and (2) if so,
whether it is liable for damages. The issue of whether
petitioner’s
employees were negligent in allowing the withdrawal of Liu
Chiu Fang’s dollar deposits has no bearing in the resolution of
this case. Thus, we find no need to discuss the same.
The "Hold Out" clause does not apply
to the instant case.
Petitioner claims that it did not breach its contract with
respondents because it has a valid reason for issuing the "Hold
Out" order. Petitioner anchors its right to withhold respondents’
deposits on the Application and Agreement for Deposit Account,
which reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for any
and all obligations with the Bank, all monies, properties or
securities of the Depositor now in or which may hereafter come
into the possession or under the control of the Bank, whether
left with the Bank for safekeeping or otherwise, or coming into
the hands of the Bank in any way, for so much thereof as will
be sufficient to pay any or all obligations incurred by Depositor
under the Account or by reason of any other transactions
between the same parties now existing or hereafter contracted,
to sell in any public or private sale any of such properties or
securities of Depositor, and to apply the proceeds to the
payment of any Depositor’s obligations heretofore mentioned.
xxxx
JOINT ACCOUNT xxxx
12 | P a g e
The Bank may, at any time in its discretion and with or without
notice to all of the Depositors, assert a lien on any balance of
the Account and apply all or any part thereof against any
indebtedness, matured or unmatured, that may then be owing
to the Bank by any or all of the Depositors. It is understood that
if said indebtedness is only owing from any of the Depositors,
then this provision constitutes the consent by all of the
depositors to have the Account answer for the said
indebtedness to the extent of the equal share of the debtor in
the amount credited to the Account.78
Petitioner’s reliance on the "Hold Out" clause in the Application
and Agreement for Deposit Account is misplaced.
The "Hold Out" clause applies only if there is a valid and
existing obligation arising from any of the sources of obligation
enumerated in Article 115779 of the Civil Code, to wit: law,
contracts, quasi-contracts, delict, and quasi-delict. In this case,
petitioner failed to show that respondents have an obligation to
it under any law, contract, quasi-contract, delict, or quasi-delict.
And although a criminal case was filed by petitioner against
respondent Rosales, this is not enough reason for petitioner to
issue a "Hold Out" order as the case is still pending and no final
judgment of conviction has been rendered against respondent
Rosales. In fact, it is significant to note that at the time
petitioner issued the "Hold Out" order, the criminal complaint
had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation,
there was no legal basis for petitioner to issue the "Hold Out"
order. Accordingly, we agree with the findings of the RTC and
the CA that the "Hold Out" clause does not apply in the instant
case.
In view of the foregoing, we find that petitioner is guilty of
breach of contract when it unjustifiably refused to release
respondents’ deposit despite demand. Having breached its
contract with respondents, petitioner is liable for damages.
Respondents are entitled to moral and exemplary damages and
attorney’s fees.1âwphi1
In cases of breach of contract, moral damages may be
recovered only if the defendant acted fraudulently or in bad
faith,80 or is "guilty of gross negligence amounting to bad faith,
or in wanton disregard of his contractual obligations."81
In this case, a review of the circumstances surrounding the
issuance of the "Hold Out" order reveals that petitioner issued
the "Hold Out" order in bad faith. First of all, the order was
issued without any legal basis. Second, petitioner did not inform
respondents of the reason for the "Hold Out."82 Third, the order
was issued prior to the filing of the criminal complaint. Records
show that the "Hold Out" order was issued on July 31, 2003,83
while the criminal complaint was filed only on September 3,
2003.84 All these taken together lead us to conclude that
petitioner acted in bad faith when it breached its contract with
respondents. As we see it then, respondents are entitled to
moral damages.
As to the award of exemplary damages, Article 222985 of the
Civil Code provides that exemplary damages may be imposed
"by way of example or correction for the public good, in
addition to the moral, temperate, liquidated or compensatory
damages." They are awarded only if the guilty party acted in a
wanton, fraudulent, reckless, oppressive or malevolent
manner.86
In this case, we find that petitioner indeed acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner when it
refused to release the deposits of respondents without any
legal basis. We need not belabor the fact that the banking
industry is impressed with public interest.87 As such, "the
highest degree of diligence is expected, and high standards of
integrity and performance are even required of it."88 It must
therefore "treat
13 | P a g e
the accounts of its depositors with meticulous care and always
to have in mind the fiduciary nature of its relationship with
them."89 For failing to do this, an award of exemplary damages
is justified to set an example.
The award of attorney's fees is likewise proper pursuant to
paragraph 1, Article 220890 of the Civil Code.
In closing, it must be stressed that while we recognize that
petitioner has the right to protect itself from fraud or suspicions
of fraud, the exercise of his right should be done within the
bounds of the law and in accordance with due process, and not
in bad faith or in a wanton disregard of its contractual
obligation to respondents.
WHEREFORE, the Petition is hereby DENIED. The assailed April
2, 2008 Decision and the May 30, 2008 Resolution of the Court
of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO
ORDERED.
Appeals in CA-G.R. CV No. 87050, nullifying and setting aside
the November 10, 2004 Decision3 of the Regional Trial Court of
Manila, Branch 2, in Civil Case No. 98-89483 and dismissing the
complaint filed by petitioner; as well as its August 23, 2007
Resolution4 denying the Motion for Reconsideration.5
The antecedent facts are as follows:
Petitioner Joseph Saludaga was a sophomore law student of
respondent Far Eastern University (FEU) when he was shot by
Alejandro Rosete (Rosete), one of the security guards on duty at
the school premises on August 18, 1996. Petitioner was rushed
to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due
to the wound he sustained.6 Meanwhile, Rosete was brought to
the police station where he explained that the shooting was
accidental. He was eventually released considering that no
formal complaint was filed against him.
Petitioner thereafter filed a complaint for damages against
respondents on the ground that they breached their obligation
to provide students with a safe and secure environment and an
atmosphere conducive to learning. Respondents, in turn, filed a
Third-Party Complaint7 against Galaxy Development and
Management Corporation (Galaxy), the agency contracted by
respondent FEU to provide security services within its premises
and Mariano D. Imperial (Imperial), Galaxy's President, to
indemnify them for whatever would be adjudged in favor of
petitioner, if any; and to pay attorney's fees and cost of the
suit. On the other hand, Galaxy and Imperial filed a Fourth-Party
Complaint against AFP General Insurance.8
On November 10, 2004, the trial court rendered a decision in
favor of petitioner, the dispositive portion of which reads:
WHEREFORE, from the foregoing, judgment is hereby rendered
ordering:
6. G.R. No. 179337
April 30, 2008
JOSEPH SALUDAGA, petitioner,
vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his
capacity as President of FEU, respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court assails the June 29, 2007 Decision2 of the Court
of
14 | P a g e
1. FEU and Edilberto de Jesus, in his capacity as president of
FEU to pay jointly and severally Joseph Saludaga the amount of
P35,298.25 for actual damages with 12% interest per annum
from the filing of the complaint until fully paid; moral damages
of P300,000.00, exemplary damages of P500,000.00, attorney's
fees of P100,000.00 and cost of the suit;
2. Galaxy Management and Development Corp. and its
president, Col. Mariano Imperial to indemnify jointly and
severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his
capacity as President of FEU) for the above-mentioned
amounts;
3. And the 4th party complaint is dismissed for lack of cause of
action. No pronouncement as to costs.
SO ORDERED.9
Respondents appealed to the Court of Appeals which rendered
the assailed Decision, the decretal portion of which provides,
viz:
WHEREFORE, the appeal is hereby GRANTED. The Decision
dated November 10, 2004 is hereby REVERSED and SET ASIDE.
The complaint filed by Joseph Saludaga against appellant Far
Eastern University and its President in Civil Case No. 98-89483
is DISMISSED.
SO ORDERED.10
Petitioner filed a Motion for Reconsideration which was denied;
hence, the instant petition based on the following grounds:
THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER
CONTRARY TO LAW AND JURISPRUDENCE IN RULING THAT:
5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;
5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE
INJURY RESULTING FROM A GUNSHOT WOUND SUFFERED BY
THE PETITIONER FROM THE HANDS OF NO LESS THAN THEIR
OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN
CONTRACTUAL OBLIGATION TO PETITIONER, BEING THEIR LAW
STUDENT AT THAT TIME, TO PROVIDE HIM WITH A SAFE AND
SECURE EDUCATIONAL ENVIRONMENT;
5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT
PETITIONER WHILE HE WAS WALKING ON HIS WAY TO THE LAW
LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE BY
VIRTUE OF THE CONTRACT FOR SECURITY SERVICES BETWEEN
GALAXY AND FEU NOTWITHSTANDING THE FACT THAT
PETITIONER, NOT BEING A PARTY TO IT, IS NOT BOUND BY THE
SAME UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS;
and
5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING
GALAXY AS THE AGENCY WHICH WOULD PROVIDE SECURITY
SERVICES WITHIN THE PREMISES OF RESPONDENT FEU.11
Petitioner is suing respondents for damages based on the
alleged breach of student-school contract for a safe learning
environment. The pertinent portions of petitioner's Complaint
read:
6.0. At the time of plaintiff's confinement, the defendants or
any of their representative did not bother to visit and inquire
about his condition. This abject indifference on the part of the
defendants continued even after plaintiff was discharged from
the hospital when not even a word of consolation was heard
from them. Plaintiff waited for more than one (1) year for the
defendants to perform their moral obligation but the wait was
fruitless. This indifference and total lack of concern of
defendants served to exacerbate plaintiff's miserable condition.
15 | P a g e
xxxx
11.0. Defendants are responsible for ensuring the safety of its
students while the latter are within the University premises.
And that should anything untoward happens to any of its
students while they are within the University's premises shall
be the responsibility of the defendants. In this case,
defendants, despite being legally and morally bound, miserably
failed to protect plaintiff from injury and thereafter, to mitigate
and compensate plaintiff for said injury;
12.0. When plaintiff enrolled with defendant FEU, a contract
was entered into between them. Under this contract,
defendants are supposed to ensure that adequate steps are
taken to provide an atmosphere conducive to study and ensure
the safety of the plaintiff while inside defendant FEU's
premises. In the instant case, the latter breached this contract
when defendant allowed harm to befall upon the plaintiff when
he was shot at by, of all people, their security guard who was
tasked to maintain peace inside the campus.12
In Philippine School of Business Administration v. Court of
Appeals,13 we held that:
When an academic institution accepts students for enrollment,
there is established a contract between them, resulting in
bilateral obligations which both parties are bound to comply
with. For its part, the school undertakes to provide the student
with an education that would presumably suffice to equip him
with the necessary tools and skills to pursue higher education
or a profession. On the other hand, the student covenants to
abide by the school's academic requirements and observe its
rules and regulations.
Institutions of learning must also meet the implicit or "built-in"
obligation of providing their students with an atmosphere that
promotes or assists in attaining its primary undertaking of
imparting knowledge. Certainly, no student can absorb the
intricacies of physics or higher mathematics or explore the
realm of the arts and other sciences when bullets are flying or
grenades exploding in the air or where there looms around the
school premises a constant threat to life and limb. Necessarily,
the school must ensure that adequate steps are taken to
maintain peace and order within the campus premises and to
prevent the breakdown thereof.14
It is undisputed that petitioner was enrolled as a sophomore law
student in respondent FEU. As such, there was created a
contractual obligation between the two parties. On petitioner's
part, he was obliged to comply with the rules and regulations of
the school. On the other hand, respondent FEU, as a learning
institution is mandated to impart knowledge and equip its
students with the necessary skills to pursue higher education or
a profession. At the same time, it is obliged to ensure and take
adequate steps to maintain peace and order within the campus.
It is settled that in culpa contractual, the mere proof of the
existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief.15 In the
instant case, we find that, when petitioner was shot inside the
campus by no less the security guard who was hired to
maintain peace and secure the premises, there is a prima facie
showing that respondents failed to comply with its obligation to
provide a safe and secure environment to its students.
In order to avoid liability, however, respondents aver that the
shooting incident was a fortuitous event because they could not
have reasonably foreseen nor avoided the accident caused by
Rosete as he was not their employee;16 and that they complied
with their obligation to ensure a safe learning environment for
16 | P a g e
their students by having exercised due diligence in selecting
the security services of Galaxy.
After a thorough review of the records, we find that respondents
failed to discharge the burden of proving that they exercised
due diligence in providing a safe learning environment for their
students. They failed to prove that they ensured that the
guards assigned in the campus met the requirements stipulated
in the Security Service Agreement. Indeed, certain documents
about Galaxy were presented during trial; however, no
evidence as to the qualifications of Rosete as a security guard
for the university was offered.
Respondents also failed to show that they undertook steps to
ascertain and confirm that the security guards assigned to
them actually possess the qualifications required in the Security
Service Agreement. It was not proven that they examined the
clearances, psychiatric test results, 201 files, and other vital
documents enumerated in its contract with Galaxy. Total
reliance on the security agency about these matters or failure
to check the papers stating the qualifications of the guards is
negligence on the part of respondents. A learning institution
should not be allowed to completely relinquish or abdicate
security matters in its premises to the security agency it hired.
To do so would result to contracting away its inherent obligation
to ensure a safe learning environment for its students.
Consequently, respondents' defense of force majeure must fail.
In order for force majeure to be considered, respondents must
show that no negligence or misconduct was committed that
may have occasioned the loss. 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.17
Article 1170 of the Civil Code provides that those who are
negligent in the performance of their obligations are liable for
damages. Accordingly, for breach of contract due to negligence
in providing a safe learning environment, respondent FEU is
liable to petitioner for damages. It is essential in the award of
damages that the claimant must have satisfactorily proven
during the trial the existence of the factual basis of the
damages and its causal connection to defendant's acts.18
In the instant case, it was established that petitioner spent
P35,298.25 for his hospitalization and other medical
expenses.19 While the trial court correctly imposed interest on
said amount, however, the case at bar involves an obligation
arising from a contract and not a loan or forbearance of money.
As such, the proper rate of legal interest is six percent (6%) per
annum of the amount demanded. Such interest shall continue
to run from the filing of the complaint until the finality of this
Decision.20 After this Decision becomes final and executory,
the applicable rate shall be twelve percent (12%) per annum
until its satisfaction.
The other expenses being claimed by petitioner, such as
transportation expenses and those incurred in hiring a personal
assistant while recuperating were however not duly supported
by receipts.21 In the absence thereof, no actual damages may
be awarded. Nonetheless, temperate damages under Art. 2224
of the Civil Code may be recovered where it has been shown
that the claimant suffered some pecuniary loss but the amount
thereof cannot be proved with certainty. Hence, the amount of
P20,000.00 as temperate damages is awarded to petitioner.
17 | P a g e
As regards the award of moral damages, there is no hard and
fast rule in the determination of what would be a fair amount of
moral damages since each case must be governed by its own
peculiar circumstances.22 The testimony of petitioner about his
physical suffering, mental anguish, fright, serious anxiety, and
moral shock resulting from the shooting incident23 justify the
award of moral damages. However, moral damages are in the
category of an award designed to compensate the claimant for
actual injury suffered and not to impose a penalty on the
wrongdoer. The award is not meant to enrich the complainant
at the expense of the defendant, but to enable the injured party
to obtain means, diversion, or amusements that will serve to
obviate the moral suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the spiritual
status quo ante, and should be proportionate to the suffering
inflicted. Trial courts must then guard against the award of
exorbitant damages; they should exercise balanced restrained
and measured objectivity to avoid suspicion that it was due to
passion, prejudice, or corruption on the part of the trial court.24
We deem it just and reasonable under the circumstances to
award petitioner moral damages in the amount of P100,000.00.
Likewise, attorney's fees and litigation expenses in the amount
of P50,000.00 as part of damages is reasonable in view of
Article 2208 of the Civil Code.25 However, the award of
exemplary damages is deleted considering the absence of proof
that respondents acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.
We note that the trial court held respondent De Jesus solidarily
liable with respondent FEU. In Powton Conglomerate, Inc. v.
Agcolicol,26 we held that:
[A] corporation is invested by law with a personality separate
and distinct from those of the persons composing it, such that,
save for certain exceptions, corporate officers who entered into
contracts in behalf of the corporation cannot be held personally
liable for the liabilities of the latter. Personal liability of a
corporate director, trustee or officer along (although not
necessarily) with the corporation may so validly attach, as a
rule, only when - (1) he assents to a patently unlawful act of the
corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its
stockholders or other persons; (2) he consents to the issuance
of watered down stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written
objection thereto; (3) he agrees to hold himself personally and
solidarily liable with the corporation; or (4) he is made by a
specific provision of law personally answerable for his corporate
action.27
None of the foregoing exceptions was established in the instant
case; hence, respondent De Jesus should not be held solidarily
liable with respondent FEU.
Incidentally, although the main cause of action in the instant
case is the breach of the school-student contract, petitioner, in
the alternative, also holds respondents vicariously liable under
Article 2180 of the Civil Code, which provides:
Art. 2180. The 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.
xxxx
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged
in any business or industry.
xxxx
18 | P a g e
The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage.
We agree with the findings of the Court of Appeals that
respondents cannot be held liable for damages under Art. 2180
of the Civil Code because respondents are not the employers of
Rosete. The latter was employed by Galaxy. The instructions
issued by respondents' Security Consultant to Galaxy and its
security guards are ordinarily no more than requests commonly
envisaged in the contract for services entered into by a
principal and a security agency. They cannot be construed as
the element of control as to treat respondents as the employers
of Rosete.28
As held in Mercury Drug Corporation v. Libunao:29
In Soliman, Jr. v. Tuazon,30 we held that where the security
agency recruits, hires and assigns the works of its watchmen or
security guards to a client, the employer of such guards or
watchmen is such agency, and not the client, since the latter
has no hand in selecting the security guards. Thus, the duty to
observe the diligence of a good father of a family cannot be
demanded from the said client:
... [I]t is settled in our jurisdiction that where the security
agency, as here, recruits, hires and assigns the work of its
watchmen or security guards, the agency is the employer of
such guards or watchmen. Liability for illegal or harmful acts
committed by the security guards attaches to the employer
agency, and not to the clients or customers of such agency. As
a general rule, a client or customer of a security agency has no
hand in selecting who among the pool of security guards or
watchmen employed by the agency shall be assigned to it; the
duty to observe the diligence of a good father of a family in the
selection of the guards cannot, in
the ordinary course of events, be demanded from the client
whose premises or property are protected by the security
guards.
xxxx
The fact that a client company may give instructions or
directions to the security guards assigned to it, does not, by
itself, render the client responsible as an employer of the
security guards concerned and liable for their wrongful acts or
omissions.31
We now come to respondents' Third Party Claim against Galaxy.
In Firestone Tire and Rubber Company of the Philippines v.
Tempengko,32 we held that:
The third-party complaint is, therefore, a procedural device
whereby a 'third party' who is neither a party nor privy to the
act or deed complained of by the plaintiff, may be brought into
the case with leave of court, by the defendant, who acts as
third-party plaintiff to enforce against such third-party
defendant a right for contribution, indemnity, subrogation or
any other relief, in respect of the plaintiff's claim. The third-
party complaint is actually independent of and separate and
distinct from the plaintiff's complaint. Were it not for this
provision of the Rules of Court, it would have to be filed
independently and separately from the original complaint by
the defendant against the third- party. But the Rules permit
defendant to bring in a third-party defendant or so to speak, to
litigate his separate cause of action in respect of plaintiff's
claim against a third-party in the original and principal case
with the object of avoiding circuitry of action and unnecessary
proliferation of law suits and of disposing expeditiously in one
litigation the entire subject matter arising from one particular
set of facts.33
Respondents and Galaxy were able to litigate their respective
claims and defenses in the course of the trial of petitioner's
complaint. Evidence duly supports the findings of the trial court
19 | P a g e
that Galaxy is negligent not only in the selection of its
employees but also in their supervision. Indeed, no
administrative sanction was imposed against Rosete despite
the shooting incident; moreover, he was even allowed to go on
leave of absence which led eventually to his disappearance.34
Galaxy also failed to monitor petitioner's condition or extend
the necessary assistance, other than the P5,000.00 initially
given to petitioner. Galaxy and Imperial failed to make good
their pledge to reimburse petitioner's medical expenses.
For these acts of negligence and for having supplied
respondent FEU with an unqualified security guard, which
resulted to the latter's breach of obligation to petitioner, it is
proper to hold Galaxy liable to respondent FEU for such
damages equivalent to the above-mentioned amounts awarded
to petitioner.
Unlike respondent De Jesus, we deem Imperial to be solidarily
liable with Galaxy for being grossly negligent in directing the
affairs of the security agency. It was Imperial who assured
petitioner that his medical expenses will be shouldered by
Galaxy but said representations were not fulfilled because they
presumed that petitioner and his family were no longer
interested in filing a formal complaint against them.35
WHEREFORE, the petition is GRANTED. The June 29, 2007
Decision of the Court of Appeals in CA-G.R. CV No. 87050
nullifying the Decision of the trial court and dismissing the
complaint as well as the August 23, 2007 Resolution denying
the Motion for Reconsideration are REVERSED and SET ASIDE.
The Decision of the Regional Trial Court of Manila, Branch 2, in
Civil Case No. 98-89483 finding respondent FEU liable for
damages for breach of its obligation to provide students with a
safe and secure learning atmosphere, is AFFIRMED with the
following MODIFICATIONS:
a. respondent Far Eastern University (FEU) is ORDERED to pay
petitioner actual damages in the amount of P35,298.25, plus
6% interest per annum from the filing of the complaint until the
finality of this Decision. After this decision becomes final and
executory, the applicable rate shall be twelve percent (12%)
per annum until its satisfaction;
b. respondent FEU is also ORDERED to pay petitioner temperate
damages in the amount of P20,000.00; moral damages in the
amount of P100,000.00; and attorney's fees and litigation
expenses in the amount of P50,000.00;
c. the award of exemplary damages is DELETED.
The Complaint against respondent Edilberto C. De Jesus is
DISMISSED. The counterclaims of respondents are likewise
DISMISSED.
Galaxy Development and Management Corporation (Galaxy)
and its president, Mariano D. Imperial are ORDERED to jointly
and severally pay respondent FEU damages equivalent to the
above- mentioned amounts awarded to petitioner.
7. G.R. No. L-36840 May 22, 1973
PEOPLE'S CAR INC., plaintiff-appellant,
vs.
COMMANDO SECURITY SERVICE AGENCY, defendant- appellee.
TEEHANKEE, J.:
20 | P a g e
In this appeal from the adverse judgment of the Davao court of
first instance limiting plaintiff-appellant's recovery under its
complaint to the sum of P1,000.00 instead of the actual
damages of P8,489.10 claimed and suffered by it as a direct
result of the wrongful acts of defendant security agency's guard
assigned at plaintiff's premises in pursuance of their "Guard
Service Contract", the Court finds merit in the appeal and
accordingly reverses the trial court's judgment.
The appeal was certified to this Court by a special division of
the Court of Appeals on a four-to-one vote as per its resolution
of April 14, 1973 that "Since the case was submitted to the
court a quo for decision on the strength of the stipulation of
facts, only questions of law can be involved in the present
appeal."
The Court has accepted such certification and docketed this
appeal on the strength of its own finding from the records that
plaintiff's notice of appeal was expressly to this Court (not to
the appellate court)" on pure questions of law" 1 and its record
on appeal accordingly prayed that" the corresponding records
be certified and forwarded to the Honorable Supreme Court." 2
The trial court so approved the same 3 on July 3, 1971 instead
of having required the filing of a petition for review of the
judgment sought to be appealed from directly with this Court, in
accordance with the provisions of Republic Act 5440. By some
unexplained and hitherto undiscovered error of the clerk of
court, furthermore, the record on appeal was erroneously
forwarded to the appellate court rather than to this Court.
The parties submitted the case for judgment on a stipulation of
facts. There is thus no dispute as to the factual bases of
plaintiff's complaint for recovery of actual damages against
defendant, to wit, that under the subsisting "Guard Service
Contract" between the parties, defendant-appellee as a duly
licensed security service agency undertook in consideration of
the payments made by plaintiff to safeguard and protect the
business premises of
(plaintiff) from theft, pilferage, robbery, vandalism and all other
unlawful acts of any person or person prejudicial to the interest
of (plaintiff)." 4
On April 5, 1970 at around 1:00 A.M., however, defendant's
security guard on duty at plaintiff's premises, "without any
authority, consent, approval, knowledge or orders of the
plaintiff and/or defendant brought out of the compound of the
plaintiff a car belonging to its customer, and drove said car for
a place or places unknown, abandoning his post as such
security guard on duty inside the plaintiff's compound, and
while so driving said car in one of the City streets lost control of
said car, causing the same to fall into a ditch along J.P. Laurel
St., Davao City by reason of which the plaintiff's complaint for
qualified theft against said driver, was blottered in the office of
the Davao City Police Department." 5
As a result of these wrongful acts of defendant's security guard,
the car of plaintiff's customer, Joseph Luy, which had been left
with plaintiff for servicing and maintenance, "suffered extensive
damage in the total amount of P7,079." 6 besides the car rental
value "chargeable to defendant" in the sum of P1,410.00 for a
car that plaintiff had to rent and make available to its said
customer to enable him to pursue his business and occupation
for the period of forty-seven (47) days (from April 25 to June 10,
1970) that it took plaintiff to repair the damaged car, 7 or total
actual damages incurred by plaintiff in the sum of P8,489.10.
Plaintiff claimed that defendant was liable for the entire amount
under paragraph 5 of their contract whereunder defendant
assumed "sole responsibility for the acts done during their
watch hours" by its guards, whereas defendant contended,
without questioning the amount of the actual damages incurred
by plaintiff, that its liability "shall not exceed one thousand
(P1,000.00) pesos per guard post" under paragraph 4 of their
contract.
21 | P a g e
The parties thus likewise stipulated on this sole issue submitted
by them for adjudication, as follows:
Interpretation of the contract, as to the extent of the liability of
the defendant to the plaintiff by reason of the acts of the
employees of the defendant is the only issue to be resolved.
The defendant relies on Par. 4 of the contract to support its
contention while the plaintiff relies on Par. 5 of the same
contract in support of its claims against the defendant. For
ready reference they are quoted hereunder:
'Par. 4. — Party of the Second Part (defendant) through the
negligence of its guards, after an investigation has been
conducted by the Party of the First Part (plaintiff) wherein the
Party of the Second Part has been duly represented shall
assume full responsibilities for any loss or damages that may
occur to any property of the Party of the First Part for which it is
accountable, during the watch hours of the Party of the Second
Part, provided the same is reported to the Party of the Second
Part within twenty-four (24) hours of the occurrence, except
where such loss or damage is due to force majeure, provided
however that after the proper investigation to be made thereof
that the guard on post is found negligent and that the amount
of the loss shall not exceed ONE THOUSAND (P1,000.00) PESOS
per guard post.'
'Par. 5 — The party of the Second Part assumes the
responsibility for the proper performance by the guards
employed, of their duties and (shall) be solely responsible for
the acts done during their watch hours, the Party of the First
Part being specifically released from any and all liabilities to the
former's employee or to the third parties arising from the acts
or omissions done by the guard during their tour of
duty.' ... 8
The trial court, misreading the above-quoted contractual
provisions, held that "the liability of the defendant in favor of
the plaintiff falls under paragraph 4 of the Guard Service
Contract" and rendered judgment "finding the defendant liable
to the plaintiff in the amount of P1,000.00 with costs."
Hence, this appeal, which, as already indicated, is meritorious
and must be granted.
Paragraph 4 of the contract, which limits defendant's liability for
the amount of loss or damage to any property of plaintiff to
"P1,000.00 per guard post," is by its own terms applicable only
for loss or damage 'through the negligence of its guards ...
during the watch hours" provided that the same is duly
reported by plaintiff within 24 hours of the occurrence and the
guard's negligence is verified after proper investigation with the
attendance of both contracting parties. Said paragraph is
manifestly inapplicable to the stipulated facts of record, which
involve neither property of plaintiff that has been lost or
damaged at its premises nor mere negligence of defendant's
security guard on duty.
Here, instead of defendant, through its assigned security
guards, complying with its contractual undertaking 'to
safeguard and protect the business premises of (plaintiff) from
theft, robbery, vandalism and all other unlawful acts of any
person or persons," defendant's own guard on duty unlawfully
and wrongfully drove out of plaintiffs premises a customer's
car, lost control of it on the highway causing it to fall into a
ditch, thereby directly causing plaintiff to incur actual damages
in the total amount of P8,489.10.
Defendant is therefore undoubtedly liable to indemnify plaintiff
for the entire damages thus incurred, since under paragraph 5
of their contract it "assumed the responsibility for the proper
performance by the guards employed of their duties and
(contracted to) be solely responsible for the acts done during
22 | P a g e
their watch hours" and "specifically released (plaintiff) from any
and all liabilities ... to the third parties arising from the acts or
omissions done by the guards during their tour of duty." As
plaintiff had duly discharged its liability to the third party, its
customer, Joseph Luy, for the undisputed damages of P8,489.10
caused said customer, due to the wanton and unlawful act of
defendant's guard, defendant in turn was clearly liable under
the terms of paragraph 5 of their contract to indemnify plaintiff
in the same amount.
The trial court's approach that "had plaintiff understood the
liability of the defendant to fall under paragraph 5, it should
have told Joseph Luy, owner of the car, that under the Guard
Service Contract, it was not liable for the damage but the
defendant and had Luy insisted on the liability of the plaintiff,
the latter should have challenged him to bring the matter to
court. If Luy accepted the challenge and instituted an action
against the plaintiff, it should have filed a third-party complaint
against the Commando Security Service Agency. But if Luy
instituted the action against the plaintiff and the defendant, the
plaintiff should have filed a crossclaim against the latter," 9 was
unduly technical and unrealistic and untenable.
Plaintiff was in law liable to its customer for the damages
caused the customer's car, which had been entrusted into its
custody. Plaintiff therefore was in law justified in making good
such damages and relying in turn on defendant to honor its
contract and indemnify it for such undisputed damages, which
had been caused directly by the unlawful and wrongful acts of
defendant's security guard in breach of their contract. As
ordained in Article 1159, Civil Code, "obligations arising from
contracts have the force of law between the contracting parties
and should be complied with in good faith."
Plaintiff in law could not tell its customer, as per the trial court's
view, that "under the Guard Service Contract it was not liable
for
the damage but the defendant" — since the customer could not
hold defendant to account for the damages as he had no privity
of contract with defendant. Such an approach of telling the
adverse party to go to court, notwithstanding his plainly valid
claim, aside from its ethical deficiency among others, could
hardly create any goodwill for plaintiff's business, in the same
way that defendant's baseless attempt to evade fully
discharging its contractual liability to plaintiff cannot be
expected to have brought it more business. Worse, the
administration of justice is prejudiced, since the court dockets
are unduly burdened with unnecessary litigation.
ACCORDINGLY, the judgment appealed from is hereby reversed
and judgment is hereby rendered sentencing defendant-
appellee to pay plaintiff-appellant the sum of P8,489.10 as and
by way of reimbursement of the stipulated actual damages and
expenses, as well as the costs of suit in both instances. It is so
ordered.
8. G.R. No. L-23749
April 29, 1977
FAUSTINO CRUZ, plaintiff-appellant,
vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC.,
defendants-appellees.
BARREDO, J.:
Appeal from the order dated August 13, 1964 of the Court of
First Instance of Quezon City in Civil Case No. Q-7751, Faustino
Cruz vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc.,
dismissing the complaint of appellant Cruz for the recovery of
improvements
23 | P a g e
he has made on appellees' land and to compel appellees to
convey to him 3,000 square meters of land on three grounds:
(1) failure of the complaint to state a cause of action; (2) the
cause of action of plaintiff is unenforceable under the Statute of
Frauds; and (3) the action of the plaintiff has already
prescribed.
Actually, a perusal of plaintiff-appellant's complaint below
shows that he alleged two separate causes of action, namely:
(1) that upon request of the Deudors (the family of Telesforo
Deudor who laid claim on the land in question on the strength
of an "informacion posesoria" ) plaintiff made permanent
improvements valued at P30,400.00 on said land having an
area of more or less 20 quinones and for which he also incurred
expenses in the amount of P7,781.74, and since defendants-
appellees are being benefited by said improvements, he is
entitled to reimbursement from them of said amounts and (2)
that in 1952, defendants availed of plaintiff's services as an
intermediary with the Deudors to work for the amicable
settlement of Civil Case No. Q-135, then pending also in the
Court of First Instance of Quezon City, and involving 50
quinones of land, of Which the 20 quinones aforementioned
form part, and notwithstanding his having performed his
services, as in fact, a compromise agreement entered into on
March 16, 1963 between the Deudors and the defendants was
approved by the court, the latter have refused to convey to him
the 3,000 square meters of land occupied by him, (a part of the
20 quinones above) which said defendants had promised to do
"within ten years from and after date of signing of the
compromise agreement", as consideration for his services.
Within the Period allowed by the rules, the defendants filed
separate motions to dismiss alleging three Identical grounds:
(1) As regards that improvements made by plaintiff, that the
complaint states no cause of action, the agreement regarding
the same having been made by plaintiff with the Deudors and
not with the defendants, hence the theory of plaintiff based on
Article
2142 of the Code on unjust enrichment is untenable; and (2)
anent the alleged agreement about plaintiffs services as
intermediary in consideration of which, defendants promised to
convey to him 3,000 square meters of land, that the same is
unenforceable under the Statute of Frauds, there being nothing
in writing about it, and, in any event, (3) that the action of
plaintiff to compel such conveyance has already prescribed.
Plaintiff opposed the motion, insisting that Article 2142 of the
applicable to his case; that the Statute of Frauds cannot be
invoked by defendants, not only because Article 1403 of the
Civil Code refers only to "sale of real property or of an interest
therein" and not to promises to convey real property like the
one supposedly promised by defendants to him, but also
because, he, the plaintiff has already performed his part of the
agreement, hence the agreement has already been partly
executed and not merely executory within the contemplation of
the Statute; and that his action has not prescribed for the
reason that defendants had ten years to comply and only after
the said ten years did his cause of action accrue, that is, ten
years after March 16, 1963, the date of the approval of the
compromise agreement, and his complaint was filed on January
24, 1964.
Ruling on the motion to dismiss, the trial court issued the herein
impugned order of August 13, 1964:
In the motion, dated January 31, 1964, defendant Gregorio
Araneta, Inc. prayed that the complaint against it be dismissed
on the ground that (1) the claim on which the action is founded
is unenforceable under the provision of the Statute of Frauds;
and (2) the plaintiff's action, if any has already prescribed. In
the other motion of February 11, 1964, defendant J. M. Tuason
& Co., Inc. sought the dismissal of the plaintiffs complaint on
the ground that it states no cause of action and on the Identical
grounds stated in the motion to dismiss of defendant Gregorio
Araneta, Inc. The said motions are duly opposed by the plaintiff.
24 | P a g e
From the allegations of the complaint, it appears that, by virtue
of an agreement arrived at in 1948 by the plaintiff and the
Deudors, the former assisted the latter in clearing, improving,
subdividing and selling the large tract of land consisting of 50
quinones covered by the informacion posesoria in the name of
the late Telesforo Deudor and incurred expenses, which are
valued approximately at P38,400.00 and P7,781.74,
respectively; and, for the reasons that said improvements are
being used and enjoyed by the defendants, the plaintiff is
seeking the reimbursement for the services and expenses
stated above from the defendants.
Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the
plaintiffs claim for the reimbursement of the amounts of
P38,400.00 and P7,781.74 is concerned, it is not a privy to the
plaintiff's agreement to assist the Deudors n improving the 50
quinones. On the other hand, the plaintiff countered that, by
holding and utilizing the improvements introduced by him, the
defendants are unjustly enriching and benefiting at the expense
of the plaintiff; and that said improvements constitute a lien or
charge of the property itself
On the issue that the complaint insofar as it claims the
reimbursement for the services rendered and expenses
incurred by the plaintiff, states no cause of action, the Court is
of the opinion that the same is well-founded. It is found that the
defendants are not parties to the supposed express contract
entered into by and between the plaintiff and the Deudors for
the clearing and improvement of the 50 quinones. Furthermore
in order that the alleged improvement may be considered a lien
or charge on the property, the same should have been made in
good faith and under the mistake as to the title. The Court can
take judicial notice of the fact that the tract of land supposedly
improved by the plaintiff had been registered way back in 1914
in the name of the predecessors-in-interest of defendant J. M.
Tuason & Co., Inc. This fact is confirmed in the decision
rendered by the Supreme Court on July 31, 1956 in Case G. R.
No. L-5079 entitled J.M. Tuason & Co. Inc. vs. Geronimo
Santiago, et al., Such being the case, the plaintiff cannot claim
good faith and mistake as to the title of the land.
On the issue of statute of fraud, the Court believes that same is
applicable to the instant case. The allegation in par. 12 of the
complaint states that the defendants promised and agreed to
cede, transfer and convey unto the plaintiff the 3,000 square
meters of land in consideration of certain services to be
rendered then. it is clear that the alleged agreement involves
an interest in real property. Under the provisions of See. 2(e) of
Article 1403 of the Civil Code, such agreement is not
enforceable as it is not in writing and subscribed by the party
charged.
On the issue of statute of limitations, the Court holds that the
plaintiff's action has prescribed. It is alleged in par. 11 of the
complaint that, sometime in 1952, the defendants approached
the plaintiff to prevail upon the Deudors to enter to a
compromise agreement in Civil Case No. Q-135 and allied
cases. Furthermore, par. 13 and 14 of the complaint alleged
that the plaintiff acted as emissary of both parties in conveying
their respective proposals and couter-proposals until the final
settlement was effected on March 16, 1953 and approved by
Court on April 11, 1953. In the present action, which was
instituted on January 24, 1964, the plaintiff is seeking to
enforce the supposed agreement entered into between him and
the defendants in 1952, which was already prescribed.
WHEREFORE, the plaintiffs complaint is hereby ordered
DISMISSED without pronouncement as to costs.
SO ORDERED. (Pp. 65-69, Rec. on Appeal,)
25 | P a g e
On August 22, 1964, plaintiff's counsel filed a motion for
reconsideration dated August 20, 1964 as follows:
Plaintiff through undersigned counsel and to this Honorable
Court, respectfully moves to reconsider its Order bearing date
of 13 August 1964, on the following grounds:
1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF
ACTION AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM
PAYMENT OF SERVICES AND REIMBURSEMENT OF HIS
EXPENSES, IS CONCERNED;
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ.
MS., THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF
FRAUDS IS NOT APPLICABLE THERETO;
ARGUMENT
Plaintiff's complaint contains two (2) causes of action — the first
being an action for sum of money in the amount of P7,781.74
representing actual expenses and P38,400.00 as reasonable
compensation for services in improving the 50 quinones now in
the possession of defendants. The second cause of action deals
with the 3,000 sq. ms. which defendants have agreed to
transfer into Plaintiff for services rendered in effecting the
compromise between the Deudors and defendants;
Under its order of August 3, 1964, this Honorable Court
dismissed the claim for sum of money on the ground that the
complaint does not state a cause of action against defendants.
We respectfully submit:
1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF
ACTION AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM
FOR PAYMENT OF SERVICES AND REIMBURSEMENT OF HIS
EXPENSES IS CONCERNED.
Said this Honorable Court (at p. 2, Order): ORDER
xxx xxx xxx
On the issue that the complaint, in so far as it claims the
reimbursement for the services rendered and expenses
incurred by the plaintiff, states no cause of action, the Court is
of the opinion that the same is well-founded. It is found that the
defendants are not parties to the supposed express contract
entered into by and between the plaintiff and the Deudors for
the clearing and improvement of the 50 quinones. Furthermore,
in order that the alleged improvement may he considered a lien
or charge on the property, the same should have been made in
good faith and under the mistake as to title. The Court can take
judicial notice of the fact that the tract of land supposedly
improved by the plaintiff had been registered way back in 1914
in the name of the predecessors-in-interest of defendant J. M.
Tuason & Co., Inc. This fact is confirmed in the decision
rendered by the Supreme Court on July 31, 1956 in case G. R.
No. L-5079 entitled 'J M. Tuason & Co., Inc. vs, Geronimo
Santiago, et al.' Such being the case, the plaintiff cannot claim
good faith and mistake as to the title of the land.
The position of this Honorable Court (supra) is that the
complaint does not state a cause of action in so far as the claim
for services and expenses is concerned because the contract
for the improvement of the properties was solely between the
Deudors and plaintiff, and defendants are not privies to it. Now,
plaintiff's theory is that defendants are nonetheless liable since
they are utilizing and enjoying the benefit's of said
improvements. Thus under paragraph 16 of "he complaint, it is
alleged:
26 | P a g e
(16) That the services and personal expenses of plaintiff
mentioned in paragraph 7 hereof were rendered and in fact
paid by him to improve, as they in fact resulted in considerable
improvement of the 50 quinones, and defendants being now in
possession of and utilizing said improvements should reimburse
and pay plaintiff for such services and expenses.
Plaintiff's cause of action is premised inter alia, on the theory of
unjust enrichment under Article 2142 of the civil Code:
ART. 2142. Certain lawful voluntary and unilateral acts give rise
to the juridical relation of quasi-contract to the end that no one
shill be unjustly enriched or benefited at the expense of
another.
In like vein, Article 19 of the same Code enjoins that:
ART. 19. Every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give every-one
his due and observe honesty and good faith.
We respectfully draw the attention of this Honorable Court to
the fact that ARTICLE 2142 (SUPRA) DEALS WITH QUASI-
CONTRACTS or situations WHERE THERE IS NO CONTRACT
BETWEEN THE PARTIES TO THE ACTION. Further, as we can
readily see from the title thereof (Title XVII), that the Same
bears the designation 'EXTRA CONTRACTUAL OBLIGATIONS' or
obligations which do not arise from contracts. While it is true
that there was no agreement between plaintiff and defendants
herein for the improvement of the 50 quinones since the latter
are presently enjoying and utilizing the benefits brought about
through plaintiff's labor and expenses, defendants should pay
and reimburse him therefor under the principle that 'no one
may enrich himself at the expense of another.' In this posture,
the complaint states a cause of action against the defendants.
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ.
MS. THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF
FRAUDS IS NOT APPLICABLE THERETO.
The Statute of Frauds is CLEARLY inapplicable to this case:
At page 2 of this Honorable Court's order dated 13 August
1964, the Court ruled as follows:
ORDER
xxx xxx xxx
On the issue of statute of fraud, the Court believes that same is
applicable to the instant Case, The allegation in par. 12 of the
complaint states that the defendants promised and agree to
cede, transfer and convey unto the plaintiff, 3,000 square
meters of land in consideration of certain services to be
rendered then. It is clear that the alleged agreement involves
an interest in real property. Under the provisions of Sec. 2(e) of
Article 1403 of the Civil Code, such agreement is not
enforceable as it is not in writing and subscribed by the party
charged.
To bring this issue in sharper focus, shall reproduce not only
paragraph 12 of the complaint but also the other pertinent
paragraphs therein contained. Paragraph 12 states thus:
COMPLAINT
xxx xxx xxx
12). That plaintiff conferred with the aforesaid representatives
of defendants several times and on these occasions, the latter
promised and agreed to cede, transfer and convey unto plaintiff
the 3,000 sq. ms. (now known as Lots 16-B, 17 and 18) which
27 | P a g e
plaintiff was then occupying and continues to occupy as of this
writing, for and in consideration of the following conditions:
(a) That plaintiff succeed in convincing the DEUDORS to enter
into a compromise agreement and that such agreement be
actually entered into by and between the DEUDORS and
defendant companies;
(b) That as of date of signing the compromise agreement,
plaintiff shall be the owner of the 3,000 sq. ms. but the
documents evidencing his title over this property shall be
executed and delivered by defendants to plaintiff within ten
(10) years from and after date of signing of the compromise
agreement;
(c) That plaintiff shall, without any monetary expense of his
part, assist in clearing the 20 quinones of its occupants;
13). That in order to effect a compromise between the parties.
plaintiff not only as well acted as emissary of both parties in
conveying their respective proposals and counter- proposals
until succeeded in convinzing the DEUDORS to settle with
defendants amicably. Thus, on March 16, 1953, a Compromise
Agreement was entered into by and between the DEUDORS and
the defendant companies; and on April 11, 1953, this
agreement was approved by this Honorable Court;
14). That in order to comply with his other obligations under his
agreement with defendant companies, plaintiff had to confer
with the occupants of the property, exposing himself to physical
harm, convincing said occupants to leave the premises and to
refrain from resorting to physical violence in resisting
defendants' demands to vacate;
That plaintiff further assisted defendants' employees in the
actual demolition and transfer of all the houses within the
perimeter of the 20 quinones until the end of 1955, when said
area was totally cleared and the houses transferred to another
area designated by the defendants as 'Capt. Cruz Block' in
Masambong, Quezon City. (Pars. 12, 13 and 14, Complaint;
Emphasis supplied)
From the foregoing, it is clear then the agreement between the
parties mentioned in paragraph 12 (supra) of the complaint has
already been fully EXECUTED ON ONE PART, namely by the
plaintiff. Regarding the applicability of the statute of frauds (Art.
1403, Civil Code), it has been uniformly held that the statute of
frauds IS APPLICABLE ONLY TO EXECUTORY CONTRACTS BUT
NOT WHERE THE CONTRACT HAS BEEN PARTLY EXECUTED:
SAME ACTION TO ENFORCE. — The statute of frauds has been
uniformly interpreted to be applicable to executory and not to
completed or contracts. Performance of the contracts takes it
out of the operation of the statute. ...
The statute of the frauds is not applicable to contracts which
are either totally or partially performed, on the theory that
there is a wide field for the commission of frauds in executory
contracts which can only be prevented by requiring them to be
in writing, a facts which is reduced to a minimum in executed
contracts because the intention of the parties becomes
apparent buy their execution and execution, in mots cases,
concluded the right the parties. ... The partial performance may
be proved by either documentary or oral evidence. (At pp. 564-
565, Tolentino's Civil Code of the Philippines, Vol. IV, 1962 Ed.;
Emphasis supplied).
Authorities in support of the foregoing rule are legion. Thus Mr.
Justice Moran in his 'Comments on the Rules of Court', Vol. III,
1974 Ed., at p. 167, states:
2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY
CONTRACTS: CONTRACTS WHICH ARE EITHER TOTALLY OR
PARTIALLY PERFORMED ARE WITHOUT THE
28 | P a g e
STATUE. The statute of frauds is applicable only to executory
contracts. It is neither applicable to executed contracts nor to
contracts partially performed. The reason is simple. In
executory contracts there is a wide field for fraud because
unless they be in writing there is no palpable evidence of the
intention of the contracting parties. The statute has been
enacted to prevent fraud. On the other hand the commission of
fraud in executed contracts is reduced to minimum in executed
contracts because (1) the intention of the parties is made
apparent by the execution and (2) execution concludes, in most
cases, the rights of the parties. (Emphasis supplied)
Under paragraphs 13 and 14 of the complaint (supra) one can
readily see that the plaintiff has fulfilled ALL his obligation
under the agreement between him defendants concerning the
3,000 sq. ms. over which the latter had agreed to execute the
proper documents of transfer. This fact is further projected in
paragraph 15 of the complaint where plaintiff states;
15). That in or about the middle of 1963, after all the conditions
stated in paragraph 12 hereof had been fulfilled and fully
complied with, plaintiff demanded of said defendants that they
execute the Deed of Conveyance in his favor and deliver the
title certificate in his name, over the 3,000 sq. ms. but
defendants failed and refused and continue to fail and refuse to
heed his demands. (par. 15, complaint; Emphasis supplied).
In view of the foregoing, we respectfully submit that this
Honorable court erred in holding that the statute of frauds is
applicable to plaintiff's claim over the 3,000 sq. ms. There
having been full performance of the contract on plaintiff's part,
the same takes this case out of the context of said statute.
Plaintiff's Cause of Action had NOT Prescribed:
With all due respect to this Honorable court, we also submit
that the Court committed error in holding that this action has
prescribed:
ORDER
xxx xxx xxx
On the issue of the statute of limitations, the Court holds that
the plaintiff's action has prescribed. It is alleged in par. III of the
complaint that, sometime in 1952, the defendants approached
the plaintiff to prevail upon the Deudors to enter into a
compromise agreement in Civil Case No. Q-135 and allied
cases. Furthermore, pars. 13 and 14 of the complaint alleged
that plaintiff acted as emissary of both parties in conveying
their respective proposals and counter-proposals until the final
settlement was affected on March 16, 1953 and approved by
the Court on April 11, 1953. In the present actin, which was
instituted on January 24, 1964, the plaintiff is seeking to
enforce the supposed agreement entered into between him and
the defendants in 1952, which has already proscribed. (at p. 3,
Order).
The present action has not prescribed, especially when we
consider carefully the terms of the agreement between plaintiff
and the defendants. First, we must draw the attention of this
Honorable Court to the fact that this is an action to compel
defendants to execute a Deed of Conveyance over the 3,000
sq. ms. subject of their agreement. In paragraph 12 of the
complaint, the terms and conditions of the contract between
the parties are spelled out. Paragraph 12 (b) of the complaint
states:
(b) That as of date of signing the compromise agreement,
plaintiff shall be the owner of the 3,000 sq. ms. but the
documents evidencing his title over this property shall be
executed and delivered by defendants to plaintiff within ten
(10) years from
29 | P a g e
and after date of signing of the compromise agreement.
(Emphasis supplied).
The compromise agreement between defendants and the
Deudors which was conclude through the efforts of plaintiff, was
signed on 16 March 1953. Therefore, the defendants had ten
(10) years signed on 16 March 1953. Therefore, the defendants
had ten (10) years from said date within which to execute the
deed of conveyance in favor of plaintiff over the 3,000 sq. ms.
As long as the 10 years period has not expired, plaintiff had no
right to compel defendants to execute the document and the
latter were under no obligation to do so. Now, this 10-year
period elapsed on March 16, 1963. THEN and ONLY THEN does
plaintiff's cause of action plaintiff on March 17, 1963. Thus,
under paragraph 15, of the complaint (supra) plaintiff made
demands upon defendants for the execution of the deed 'in or
about the middle of 1963.
Since the contract now sought to be enforced was not reduced
to writing, plaintiff's cause of action expires on March 16, 1969
or six years from March 16, 1963 WHEN THE CAUSE OF ACTION
ACCRUED (Art. 1145, Civil Code).
In this posture, we gain respectfully submit that this Honorable
Court erred in holding that plaintiff's action has prescribed.
PRAYER
WHEREFORE, it is respectfully prayed that " Honorable Court
reconsider its Order dated August 13, 1964; and issue another
order denying the motions to dismiss of defendants G. Araneta,
Inc. and J. M. Tuason Co. Inc. for lack of merit. (Pp. 70-85,
Record on Appeal.)
Defendants filed an opposition on the main ground that "the
arguments adduced by the plaintiff are merely reiterations of
his arguments contained in his Rejoinder to Reply and
Opposition,
which have not only been refuted in herein defendant's Motion
to Dismiss and Reply but already passed upon by this
Honorable Court."
On September 7, 1964, the trial court denied the motion for
reconsiderations thus:
After considering the plaintiff's Motion for Reconsideration of
August 20, 1964 and it appearing that the grounds relied upon
in said motion are mere repetition of those already resolved
and discussed by this Court in the order of August 13, 1964, the
instant motion is hereby denied and the findings and
conclusions arrived at by the Court in its order of August 13,
1964 are hereby reiterated and affirmed.
SO ORDERED. (Page 90, Rec. on Appeal.)
Under date of September 24, 1964, plaintiff filed his record on
appeal.
In his brief, appellant poses and discusses the following
assignments of error:
I. THAT THE LOWER COURT ERRED IN DISMISSING THE
COMPLAINT ON THE GROUND THAT APPELLANT'S CLAIM OVER
THE 3,000 SQ. MS. IS ALLEGEDLY UNENFORCEABLE UNDER THE
STATUTE OF FRAUDS;
II. THAT THE COURT A QUO FURTHER COMMITTED ERROR IN
DISMISSING APPELLANT'S COMPLAINT ON THE GROUND THAT
HIS CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY BARRED BY
THE STATUTE OF LIMITATIONS; and
III. THAT THE LOWER COURT ERRED IN DISMISSING THE
COMPLAINT FOR FAILURE TO STATE A CAUSE OF ACTION IN SO
FAR AS APPELLANT'S CLAIM FOR REIMBURSEMENT OF
30 | P a g e
EXPENSES AND FOR SERVICES RENDERED IN THE
IMPROVEMENT OF THE FIFTY (50) QUINONES IS CONCERNED.
We agree with appellant that the Statute of Frauds was
erroneously applied by the trial court. It is elementary that the
Statute refers to specific kinds of transactions and that it
cannot apply to any that is not enumerated therein. And the
only agreements or contracts covered thereby are the
following:
(1) Those entered into in the name of another person by one
who has been given no authority or legal representation, or who
has acted beyond his powers;
(2) Those do not comply with the Statute of Frauds as set forth
in this number, In the following cases an agreement hereafter
made shall be unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage, other than
a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or
the evidences, or some of them of such things in action, or pay
at the time some part of the purchase money; but when a sale
is made by auction and entry is made by the auctioneer in his
sales book,
at the time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient memorandum:
(e) An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest therein:
(f) a representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to
a contract. (Art. 1403, civil Code.)
In the instant case, what appellant is trying to enforce is the
delivery to him of 3,000 square meters of land which he claims
defendants promised to do in consideration of his services as
mediator or intermediary in effecting a compromise of the civil
action, Civil Case No. 135, between the defendants and the
Deudors. In no sense may such alleged contract be considered
as being a "sale of real property or of any interest therein."
Indeed, not all dealings involving interest in real property come
under the Statute.
Moreover, appellant's complaint clearly alleges that he has
already fulfilled his part of the bargains to induce the Deudors
to amicably settle their differences with defendants as, in fact,
on March 16, 1963, through his efforts, a compromise
agreement between these parties was approved by the court.
In other words, the agreement in question has already been
partially consummated, and is no longer merely executory. And
it is likewise a fundamental principle governing the application
of the Statute that the contract in dispute should be purely
executory on the part of both parties thereto.
We cannot, however, escape taking judicial notice, in relation to
the compromise agreement relied upon by appellant, that in
several cases We have decided, We have declared the same
31 | P a g e
rescinded and of no effect. In J. M. Tuason & Co., Inc. vs.
Bienvenido Sanvictores, 4 SCRA 123, the Court held:
It is also worthy of note that the compromise between Deudors
and Tuason, upon which Sanvictores predicates his right to buy
the lot he occupies, has been validly rescinded and set aside,
as recognized by this Court in its decision in G.R. No. L-13768,
Deudor vs. Tuason, promulgated on May 30, 1961.
We repeated this observation in J.M. Tuason & Co., Inc. vs.
Teodosio Macalindong, 6 SCRA 938. Thus, viewed from what
would be the ultimate conclusion of appellant's case, We
entertain grave doubts as to whether or not he can successfully
maintain his alleged cause of action against defendants,
considering that the compromise agreement that he invokes
did not actually materialize and defendants have not benefited
therefrom, not to mention the undisputed fact that, as pointed
out by appellees, appellant's other attempt to secure the same
3,000 square meters via the judicial enforcement of the
compromise agreement in which they were supposed to be
reserved for him has already been repudiated by the courts.
(pp. 5-7. Brief of Appellee Gregorio Araneta, Inc.)
As regards appellant's third assignment of error, We hold that
the allegations in his complaint do not sufficiently Appellants'
reliance. on Article 2142 of Civil Code is misplaced. Said article
provides:
Certain lawful, voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one shall
be unjustly enriched or benefited at the expense of another.
From the very language of this provision, it is obvious that a
presumed qauasi-contract cannot emerge as against one party
when the subject mater thereof is already covered by an
existing contract with another party. Predicated on the principle
that no
one should be allowed to unjustly enrich himself at the expense
of another, Article 2124 creates the legal fiction of a quasi-
contract precisely because of the absence of any actual
agreement between the parties concerned. Corollarily, if the
one who claims having enriched somebody has done so
pursuant to a contract with a third party, his cause of action
should be against the latter, who in turn may, if there is any
ground therefor, seek relief against the party benefited. It is
essential that the act by which the defendant is benefited must
have been voluntary and unilateral on the part of the plaintiff.
As one distinguished civilian puts it, "The act is voluntary.
because the actor in quasi-contracts is not bound by any pre-
existing obligation to act. It is unilateral, because it arises from
the sole will of the actor who is not previously bound by any
reciprocal or bilateral agreement. The reason why the law
creates a juridical relations and imposes certain obligation is to
prevent a situation where a person is able to benefit or take
advantage of such lawful, voluntary and unilateral acts at the
expense of said actor." (Ambrosio Padilla, Civil Law, Vol. VI, p.
748, 1969 ed.) In the case at bar, since appellant has a clearer
and more direct recourse against the Deudors with whom he
had entered into an agreement regarding the improvements
and expenditures made by him on the land of appellees. it
Cannot be said, in the sense contemplated in Article 2142, that
appellees have been enriched at the expense of appellant.
In the ultimate. therefore, Our holding above that appellant's
first two assignments of error are well taken cannot save the
day for him. Aside from his having no cause of action against
appellees, there is one plain error of omission. We have found in
the order of the trial court which is as good a ground as any
other for Us to terminate this case favorably to appellees. In
said order Which We have quoted in full earlier in this opinion,
the trial court ruled that "the grounds relied upon in said motion
are mere repetitions of those already resolved and discussed by
this Court in the order of August 13, 1964", an observation
which We fully share.
32 | P a g e
Virtually, therefore. appellant's motion for reconsideration was
ruled to be pro-forma. Indeed, a cursory reading of the record
on appeal reveals that appellant's motion for reconsideration
above- quoted contained exactly the same arguments and
manner of discussion as his February 6, 1964 "Opposition to
Motion to Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-
25, Rec. on Appeal) as well as his February 17, 1964
"Opposition to Motion to Dismiss of Defendant J. M. Tuason &
Co." (pp. 33-45, Rec. on Appeal and his February 29, 1964
"Rejoinder to Reply Oil Defendant J. M. Tuason & Co." (pp. 52-
64, Rec. on Appeal) We cannot see anything in said motion for
reconsideration that is substantially different from the above
oppositions and rejoinder he had previously submitted and
which the trial court had already considered when it rendered
its main order of dismissal. Consequently, appellant's motion
for reconsideration did not suspend his period for appeal.
(Estrada vs. Sto. Domingo, 28 SCRA 890, 905-6.) And as this
point was covered by appellees' "Opposition to Motion for
Reconsideration" (pp. 8689), hence, within the frame of the
issues below, it is within the ambit of Our authority as the
Supreme Court to consider the same here even if it is not
discussed in the briefs of the parties. (Insular Life Assurance
Co., Ltd. Employees Association-NATU vs. Insular Life Assurance
Co., Ltd. [Resolution en banc of March 10, 1977 in G. R. No. L-
25291).
Now, the impugned main order was issued on August 13, 1964,
while the appeal was made on September 24, 1964 or 42 days
later. Clearly, this is beyond the 30-day reglementary period for
appeal. Hence, the subject order of dismissal was already final
and executory when appellant filed his appeal.
WHEREFORE, the appeal of Faustino Cruz in this case is
dismissed. No costs.
9. G.R. No. L-9188 December 4, 1914
GUTIERREZ HERMANOS, plaintiff-appellee, vs.
ENGRACIO ORENSE, defendant-appellant.
William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal
for appellant.
Rafael de la Sierra for appellee.
TORRES, J.:
Appeal through bill of exceptions filed by counsel for the
appellant from the judgment on April 14, 1913, by the
Honorable P. M. Moir, judge, wherein he sentenced the
defendant to make immediate delivery of the property in
question, through a public instrument, by transferring and
conveying to the plaintiff all his rights in the property described
in the complaint and to pay it the sum of P780, as damages,
and the costs of the suit.
On March 5, 1913, counsel for Gutierrez Hermanos filed a
complaint, afterwards amended, in the Court of First Instance of
Albay against Engacio Orense, in which he set forth that on and
before February 14, 1907, the defendant Orense had been the
owner of a parcel of land, with the buildings and improvements
thereon, situated in the pueblo of Guinobatan, Albay, the
location, area and boundaries of which were specified in the
complaint; that the said property has up to date been recorded
in the new property registry in the name of the said Orense,
according to certificate No. 5, with the boundaries therein
given; that, on February 14, 1907, Jose Duran, a nephew of the
defendant, with the latter's knowledge and consent, executed
before a notary a public instrument whereby he sold and
conveyed to the plaintiff company, for P1,500, the
aforementioned property, the vendor Duran reserving to
himself the right to repurchase it for the same
33 | P a g e
price within a period of four years from the date of the said
instrument; that the plaintiff company had not entered into
possession of the purchased property, owing to its continued
occupancy by the defendant and his nephew, Jose Duran, by
virtue of a contract of lease executed by the plaintiff to Duran,
which contract was in force up to February 14, 1911; that the
said instrument of sale of the property, executed by Jose Duran,
was publicly and freely confirmed and ratified by the defendant
Orense; that, in order to perfect the title to the said property,
but that the defendant Orense refused to do so, without any
justifiable cause or reason, wherefore he should be compelled
to execute the said deed by an express order of the court, for
Jose Duran is notoriously insolvent and cannot reimburse the
plaintiff company for the price of the sale which he received,
nor pay any sum whatever for the losses and damages
occasioned by the said sale, aside from the fact that the
plaintiff had suffered damage by losing the present value of the
property, which was worth P3,000; that, unless such deed of
final conveyance were executed in behalf of the plaintiff
company, it would be injured by the fraud perpetrated by the
vendor, Duran, in connivance with the defendant; that the
latter had been occupying the said property since February 14,
1911, and refused to pay the rental thereof, notwithstanding
the demand made upon him for its payment at the rate of P30
per month, the just and reasonable value for the occupancy of
the said property, the possession of which the defendant
likewise refused to deliver to the plaintiff company, in spite of
the continuous demands made upon him, the defendant, with
bad faith and to the prejudice of the firm of Gutierrez
Hermanos, claiming to have rights of ownership and possession
in the said property. Therefore it was prayed that judgment be
rendered by holding that the land and improvements in
question belong legitimately and exclusively to the plaintiff, and
ordering the defendant to execute in the plaintiff's behalf the
said instrument of transfer and conveyance of the property and
of all the right, interest, title and share which the defendant has
therein; that the defendant be sentenced to pay P30 per month
for damages and rental of the property from February 14, 1911,
and that, in case these remedies were not granted to the
plaintiff, the defendant be sentenced to pay to it the sum of
P3,000 as damages, together with interest thereon since the
date of the institution of this suit, and to pay the costs and
other legal expenses.
The demurrer filed to the amended complaint was overruled,
with exception on the part of the defendant, whose counsel
made a general denial of the allegations contained in the
complaint, excepting those that were admitted, and specifically
denied paragraph 4 thereof to the effect that on February 14,
1907, Jose Duran executed the deed of sale of the property in
favor of the plaintiff with the defendant's knowledge and
consent.1awphil.net
As the first special defense, counsel for the defendant alleged
that the facts set forth in the complaint with respect to the
execution of the deed did not constitute a cause of action, nor
did those alleged in the other form of action for the collection of
P3,000, the value of the realty.
As the second special defense, he alleged that the defendant
was the lawful owner of the property claimed in the complaint,
as his ownership was recorded in the property registry, and
that, since his title had been registered under the proceedings
in rem prescribed by Act No. 496, it was conclusive against the
plaintiff and the pretended rights alleged to have been acquired
by Jose Duran prior to such registration could not now prevail;
that the defendant had not executed any written power of
attorney nor given any verbal authority to Jose Duran in order
that the latter might, in his name and representation, sell the
said property to the plaintiff company; that the defendant's
knowledge of the said sale was acquired long after the
execution of the contract of sale between Duran and Gutierrez
Hermanos, and that prior thereto the defendant did not
intentionally and deliberately perform any act such as might
have induced the plaintiff to believe that Duran
34 | P a g e
was empowered and authorized by the defendant and which
would warrant him in acting to his own detriment, under the
influence of that belief. Counsel therefore prayed that the
defendant be absolved from the complaint and that the plaintiff
be sentenced to pay the costs and to hold his peace forever.
After the hearing of the case and an examination of the
evidence introduced by both parties, the court rendered the
judgment aforementioned, to which counsel for the defendant
excepted and moved for a new trial. This motion was denied, an
exception was taken by the defendant and, upon presentation
of the proper bill of exceptions, the same was approved,
certified and forwarded to the clerk of his court.
This suit involves the validity and efficacy of the sale under
right of redemption of a parcel of land and a masonry house
with the nipa roof erected thereon, effected by Jose Duran, a
nephew of the owner of the property, Engracio Orense, for the
sum of P1,500 by means of a notarial instrument executed and
ratified on February 14, 1907.
After the lapse of the four years stipulated for the redemption,
the defendant refused to deliver the property to the purchaser,
the firm of Gutierrez Hermanos, and to pay the rental thereof at
the rate of P30 per month for its use and occupation since
February 14, 1911, when the period for its repurchase
terminated. His refusal was based on the allegations that he
had been and was then the owner of the said property, which
was registered in his name in the property registry; that he had
not executed any written power of attorney to Jose Duran, nor
had he given the latter any verbal authorization to sell the said
property to the plaintiff firm in his name; and that, prior to the
execution of the deed of sale, the defendant performed no act
such as might have induced the plaintiff to believe that Jose
Duran was empowered and authorized by the defendant to
effect the said sale.
The plaintiff firm, therefore, charged Jose Duran, in the Court of
First Instance of the said province, with estafa, for having
represented himself in the said deed of sale to be the absolute
owner of the aforesaid land and improvements, whereas in
reality they did not belong to him, but to the defendant Orense.
However, at the trial of the case Engracio Orense, called as a
witness, being interrogated by the fiscal as to whether he and
consented to Duran's selling the said property under right of
redemption to the firm of Gutierrez Hermanos, replied that he
had. In view of this statement by the defendant, the court
acquitted Jose Duran of the charge of estafa.
As a result of the acquittal of Jose Duran, based on the explicit
testimony of his uncle, Engacio Orense, the owner of the
property, to the effect that he had consented to his nephew
Duran's selling the property under right of repurchase to
Gutierrez Hermanos, counsel for this firm filed a complainant
praying, among other remedies, that the defendant Orense be
compelled to execute a deed for the transfer and conveyance
to the plaintiff company of all the right, title and interest with
Orense had in the property sold, and to pay to the same the
rental of the property due from February 14, 1911.itc-alf
Notwithstanding the allegations of the defendant, the record in
this case shows that he did give his consent in order that his
nephew, Jose Duran, might sell the property in question to
Gutierrez Hermanos, and that he did thereafter confirm and
ratify the sale by means of a public instrument executed before
a notary.
It having been proven at the trial that he gave his consent to
the said sale, it follows that the defendant conferred verbal, or
at least implied, power of agency upon his nephew Duran, who
accepted it in the same way by selling the said property. The
principal must therefore fulfill all the obligations contracted by
35 | P a g e
the agent, who acted within the scope of his authority. (Civil
Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted
subsequently to the sale, it is unquestionable that the
defendant, the owner of the property, approved the action of
his nephew, who in this case acted as the manager of his
uncle's business, and Orense'r ratification produced the effect
of an express authorization to make the said sale. (Civil Code,
arts. 1888 and 1892.)
Article 1259 of the Civil Code prescribes: "No one can contract
in the name of another without being authorized by him or
without his legal representation according to law.
A contract executed in the name of another by one who has
neither his authorization nor legal representation shall be void,
unless it should be ratified by the person in whose name it was
executed before being revoked by the other contracting party.
The sworn statement made by the defendant, Orense, while
testifying as a witness at the trial of Duran for estafa, virtually
confirms and ratifies the sale of his property effected by his
nephew, Duran, and, pursuant to article 1313 of the Civil Code,
remedies all defects which the contract may have contained
from the moment of its execution.
The sale of the said property made by Duran to Gutierrez
Hermanos was indeed null and void in the beginning, but
afterwards became perfectly valid and cured of the defect of
nullity it bore at its execution by the confirmation solemnly
made by the said owner upon his stating under oath to the
judge that he himself consented to his nephew Jose Duran's
making the said sale. Moreover, pursuant to article 1309 of the
Code, the right of action for nullification that could have been
brought became legally extinguished from the moment the
contract was validly
confirmed and ratified, and, in the present case, it is
unquestionable that the defendant did confirm the said contract
of sale and consent to its execution.
On the testimony given by Engacio Orense at the trial of Duran
for estafa, the latter was acquitted, and it would not be just that
the said testimony, expressive of his consent to the sale of his
property, which determined the acquittal of his nephew, Jose
Duran, who then acted as his business manager, and which
testimony wiped out the deception that in the beginning
appeared to have been practiced by the said Duran, should not
now serve in passing upon the conduct of Engracio Orense in
relation to the firm of Gutierrez Hermanos in order to prove his
consent to the sale of his property, for, had it not been for the
consent admitted by the defendant Orense, the plaintiff would
have been the victim of estafa.
If the defendant Orense acknowledged and admitted under
oath that he had consented to Jose Duran's selling the property
in litigation to Gutierrez Hermanos, it is not just nor is it
permissible for him afterward to deny that admission, to the
prejudice of the purchaser, who gave P1,500 for the said
property.
The contract of sale of the said property contained in the
notarial instrument of February 14, 1907, is alleged to be
invalid, null and void under the provisions of paragraph 5 of
section 335 of the Code of Civil Procedure, because the
authority which Orense may have given to Duran to make the
said contract of sale is not shown to have been in writing and
signed by Orense, but the record discloses satisfactory and
conclusive proof that the defendant Orense gave his consent to
the contract of sale executed in a public instrument by his
nephew Jose Duran. Such consent was proven in a criminal
action by the sworn testimony of the principal and presented in
this civil suit by other sworn testimony of the same principal
and by other evidence to which
36 | P a g e
the defendant made no objection. Therefore the principal is
bound to abide by the consequences of his agency as though it
had actually been given in writing (Conlu vs. Araneta and
Guanko, 15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil. Rep.,
241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.)
The repeated and successive statements made by the
defendant Orense in two actions, wherein he affirmed that he
had given his consent to the sale of his property, meet the
requirements of the law and legally excuse the lack of written
authority, and, as they are a full ratification of the acts
executed by his nephew Jose Duran, they produce the effects of
an express power of agency.
The judgment appealed from in harmony with the law and the
merits of the case, and the errors assigned thereto have been
duly refuted by the foregoing considerations, so it should be
affirmed.
The judgment appealed from is hereby affirmed, with the costs
against the appellant.
has led not only to protracted legal entanglements but to even
more bitter consequences, like strained relationships and even
the forfeiture of lives. It is a question that likewise reflects a
tragic commentary on prevailing social and cultural values and
institutions, where, as one observer notes, wealth and its
accumulation are the basis of self-fulfillment and where
property is held as sacred as life itself. "It is in the defense of
his property," says this modern thinker, that one "will mobilize
his deepest protective devices, and anybody that threatens his
possessions will arouse his most passionate enmity." 1
The task of this Court, however, is not to judge the wisdom of
values; the burden of reconstructing the social order is
shouldered by the political leadership-and the people
themselves.
The parties have come to this Court for relief and accordingly,
our responsibility is to give them that relief pursuant to the
decree of law.
The antecedent facts are quoted from the decision 2 appealed
from:
xxx xxx xxx
... [T]he land in question Lot 14694 of Cadastral Survey of Albay
located in Legaspi City with an area of some 11,325 sq. m.
originally belonged to one Felisa Alzul as her own private
property; she married twice in her lifetime; the first, with one
Bernabe Adille, with whom she had as an only child, herein
defendant Rustico Adille; in her second marriage with one
Procopio Asejo, her children were herein plaintiffs, — now,
sometime in 1939, said Felisa sold the property in pacto de
retro to certain 3rd persons, period of repurchase being 3 years,
but she died in 1942 without being able to redeem and after
her death, but during the period of redemption, herein
defendant
10. G.R. No. L-44546
January 29, 1988
RUSTICO ADILLE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO,
TEODORICA ASEJO, DOMINGO ASEJO, JOSEFA ASEJO and
SANTIAGO ASEJO, respondents.
SARMIENTO, J.:
In issue herein are property and property rights, a familiar
subject of controversy and a wellspring of enormous conflict
that
37 | P a g e
repurchased, by himself alone, and after that, he executed a
deed of extra-judicial partition representing himself to be the
only heir and child of his mother Felisa with the consequence
that he was able to secure title in his name alone also, so that
OCT. No. 21137 in the name of his mother was transferred to
his name, that was in 1955; that was why after some efforts of
compromise had failed, his half-brothers and sisters, herein
plaintiffs, filed present case for partition with accounting on the
position that he was only a trustee on an implied trust when he
redeemed,-and this is the evidence, but as it also turned out
that one of plaintiffs, Emeteria Asejo was occupying a portion,
defendant counterclaimed for her to vacate that, —
Well then, after hearing the evidence, trial Judge sustained
defendant in his position that he was and became absolute
owner, he was not a trustee, and therefore, dismissed case and
also condemned plaintiff occupant, Emeteria to vacate; it is
because of this that plaintiffs have come here and contend that
trial court erred in:
I. ... declaring the defendant absolute owner of the property;
II. ... not ordering the partition of the property; and
III. ... ordering one of the plaintiffs who is in possession of the
portion of the property to vacate the land, p. 1 Appellant's brief.
which can be reduced to simple question of whether or not on
the basis of evidence and law, judgment appealed from should
be maintained. 3
xxx xxx xxx
The respondent Court of appeals reversed the trial Court, 4 and
ruled for the plaintiffs-appellants, the private respondents
herein. The petitioner now appeals, by way of certiorari, from
the Court's decision.
We required the private respondents to file a comment and
thereafter, having given due course to the petition, directed the
parties to file their briefs. Only the petitioner, however, filed a
brief, and the private respondents having failed to file one, we
declared the case submitted for decision.
The petition raises a purely legal issue: May a co-owner acquire
exclusive ownership over the property held in common?
Essentially, it is the petitioner's contention that the property
subject of dispute devolved upon him upon the failure of his co-
heirs to join him in its redemption within the period required by
law. He relies on the provisions of Article 1515 of the old Civil
Article 1613 of the present Code, giving the vendee a retro the
right to demand redemption of the entire property.
There is no merit in this petition.
The right of repurchase may be exercised by a co-owner with
aspect to his share alone. 5 While the records show that the
petitioner redeemed the property in its entirety, shouldering
the expenses therefor, that did not make him the owner of all of
it. In other words, it did not put to end the existing state of co-
ownership.
Necessary expenses may be incurred by one co-owner, subject
to his right to collect reimbursement from the remaining co-
owners. 6 There is no doubt that redemption of property entails
a necessary expense. Under the Civil Code:
ART. 488. Each co-owner shall have a right to compel the other
co-owners to contribute to the expenses of preservation of the
thing or right owned in common and to the taxes. Any one of
the
38 | P a g e
latter may exempt himself from this obligation by renouncing so
much of his undivided interest as may be equivalent to his
share of the expenses and taxes. No such waiver shall be made
if it is prejudicial to the co-ownership.
The result is that the property remains to be in a condition of
co- ownership. While a vendee a retro, under Article 1613 of the
Code, "may not be compelled to consent to a partial
redemption," the redemption by one co-heir or co-owner of the
property in its totality does not vest in him ownership over it.
Failure on the part of all the co-owners to redeem it entitles the
vendee a retro to retain the property and consolidate title
thereto in his name. 7 But the provision does not give to the
redeeming co-owner the right to the entire property. It does not
provide for a mode of terminating a co-ownership.
Neither does the fact that the petitioner had succeeded in
securing title over the parcel in his name terminate the existing
co-ownership. While his half-brothers and sisters are, as we
said, liable to him for reimbursement as and for their shares in
redemption expenses, he cannot claim exclusive right to the
property owned in common. Registration of property is not a
means of acquiring ownership. It operates as a mere notice of
existing title, that is, if there is one.
The petitioner must then be said to be a trustee of the property
on behalf of the private respondents. The Civil Code states:
ART. 1456. If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of
an implied trust for the benefit of the person from whom the
property comes.
We agree with the respondent Court of Appeals that fraud
attended the registration of the property. The petitioner's
pretension that he was the sole heir to the land in the affidavit
of
extrajudicial settlement he executed preliminary to the
registration thereof betrays a clear effort on his part to defraud
his brothers and sisters and to exercise sole dominion over the
property. The aforequoted provision therefore applies.
It is the view of the respondent Court that the petitioner, in
taking over the property, did so either on behalf of his co-heirs,
in which event, he had constituted himself a negotiorum gestor
under Article 2144 of the Civil Code, or for his exclusive benefit,
in which case, he is guilty of fraud, and must act as trustee, the
private respondents being the beneficiaries, under the Article
1456. The evidence, of course, points to the second alternative
the petitioner having asserted claims of exclusive ownership
over the property and having acted in fraud of his co-heirs. He
cannot therefore be said to have assume the mere
management of the property abandoned by his co-heirs, the
situation Article 2144 of the Code contemplates. In any case, as
the respondent Court itself affirms, the result would be the
same whether it is one or the other. The petitioner would
remain liable to the Private respondents, his co-heirs.
This Court is not unaware of the well-established principle that
prescription bars any demand on property (owned in common)
held by another (co-owner) following the required number of
years. In that event, the party in possession acquires title to the
property and the state of co-ownership is ended . 8 In the case
at bar, the property was registered in 1955 by the petitioner,
solely in his name, while the claim of the private respondents
was presented in 1974. Has prescription then, set in?
We hold in the negative. Prescription, as a mode of terminating
a relation of co-ownership, must have been preceded by
repudiation (of the co-ownership). The act of repudiation, in
turn is subject to certain conditions: (1) a co-owner repudiates
the co- ownership; (2) such an act of repudiation is clearly
made known to the other co-owners; (3) the evidence thereon
is clear and
39 | P a g e
conclusive, and (4) he has been in possession through open,
continuous, exclusive, and notorious possession of the property
for the period required by law. 9
The instant case shows that the petitioner had not complied
with these requisites. We are not convinced that he had
repudiated the co-ownership; on the contrary, he had
deliberately kept the private respondents in the dark by
feigning sole heirship over the estate under dispute. He cannot
therefore be said to have "made known" his efforts to deny the
co-ownership. Moreover, one of the private respondents,
Emeteria Asejo, is occupying a portion of the land up to the
present, yet, the petitioner has not taken pains to eject her
therefrom. As a matter of fact, he sought to recover possession
of that portion Emeteria is occupying only as a counterclaim,
and only after the private respondents had first sought judicial
relief.
It is true that registration under the Torrens system is
constructive notice of title, 10 but it has likewise been our
holding that the Torrens title does not furnish a shield for fraud.
11 It is therefore no argument to say that the act of registration
is equivalent to notice of repudiation, assuming there was one,
notwithstanding the long-standing rule that registration
operates as a universal notice of title.
For the same reason, we cannot dismiss the private
respondents' claims commenced in 1974 over the estate
registered in 1955. While actions to enforce a constructive trust
prescribes in ten years, 12 reckoned from the date of the
registration of the property, 13 we, as we said, are not prepared
to count the period from such a date in this case. We note the
petitioner's sub rosa efforts to get hold of the property
exclusively for himself beginning with his fraudulent
misrepresentation in his unilateral affidavit of extrajudicial
settlement that he is "the only heir and child of his mother
Feliza with the consequence that he was able to secure title in
his name also." 14 Accordingly, we hold that the
right of the private respondents commenced from the time they
actually discovered the petitioner's act of defraudation. 15
According to the respondent Court of Appeals, they "came to
know [of it] apparently only during the progress of the
litigation." 16 Hence, prescription is not a bar.
Moreover, and as a rule, prescription is an affirmative defense
that must be pleaded either in a motion to dismiss or in the
answer otherwise it is deemed waived, 17 and here, the
petitioner never raised that defense. 18 There are recognized
exceptions to this rule, but the petitioner has not shown why
they apply.
WHEREFORE, there being no reversible error committed by the
respondent Court of Appeals, the petition is DENIED. The
Decision sought to be reviewed is hereby AFFIRMED in toto. No
pronouncement as to costs.
11. G.R. No. 82670
September 15, 1989
DOMETILA M. ANDRES, doing business under the name and
style "IRENE'S WEARING APPAREL," petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and
COURT OF APPEALS, respondents.
Roque A. Tamayo for petitioner.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for
private respondent.
40 | P a g e
CORTES, J.:
Assailed in this petition for review on certiorari is the judgment
of the Court of Appeals, which, applying the doctrine of solutio
indebiti, reversed the decision of the Regional Trial Court,
Branch CV, Quezon City by deciding in favor of private
respondent.
Petitioner, using the business name "Irene's Wearing Apparel,"
was engaged in the manufacture of ladies garments, children's
wear, men's apparel and linens for local and foreign buyers.
Among its foreign buyers was Facets Funwear, Inc. (hereinafter
referred to as FACETS) of the United States.
In the course of the business transaction between the two,
FACETS from time to time remitted certain amounts of money
to petitioner in payment for the items it had purchased.
Sometime in August 1980, FACETS instructed the First National
State Bank of New Jersey, Newark, New Jersey, U.S.A.
(hereinafter referred to as FNSB) to transfer $10,000.00 to
petitioner via Philippine National Bank, Sta. Cruz Branch, Manila
(hereinafter referred to as PNB).
Acting on said instruction, FNSB instructed private respondent
Manufacturers Hanover and Trust Corporation to effect the
above- mentioned transfer through its facilities and to charge
the amount to the account of FNSB with private respondent.
Although private respondent was able to send a telex to PNB to
pay petitioner $10,000.00 through the Pilipinas Bank, where
petitioner had an account, the payment was not effected
immediately because the payee designated in the telex was
only "Wearing Apparel." Upon query by PNB, private respondent
sent PNB another telex dated August 27, 1980 stating that the
payment was to be made to "Irene's Wearing Apparel." On
August 28, 1980, petitioner received the remittance of
$10,000.00 through Demand Draft No. 225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay
in the remittance of the money to petitioner, FACETS informed
FNSB about the situation. On September 8, 1980, unaware that
petitioner had already received the remittance, FACETS
informed private respondent about the delay and at the same
time amended its instruction by asking it to effect the payment
through the Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that
petitioner had already received the remittance of $10,000.00
from PNB instructed the PCIB to pay $10,000.00 to petitioner.
Hence, on September 11, 1980, petitioner received a second
$10,000.00 remittance.
Private respondent debited the account of FNSB for the second
$10,000.00 remittance effected through PCIB. However, when
FNSB discovered that private respondent had made a
duplication of the remittance, it asked for a recredit of its
account in the amount of $10,000.00. Private respondent
complied with the request.
Private respondent asked petitioner for the return of the second
remittance of $10,000.00 but the latter refused to pay. On May
12, 1982 a complaint was filed with the Regional Trial Court,
Branch CV, Quezon City which was decided in favor of
petitioner as defendant. The trial court ruled that Art. 2154 of
the New Civil Code is not applicable to the case because the
second remittance was made not by mistake but by negligence
and petitioner was not unjustly enriched by virtue thereof
[Record, p. 234]. On appeal, the Court of Appeals held that Art.
2154 is applicable and reversed the RTC decision. The
dispositive portion of the Court of Appeals' decision reads as
follows:
WHEREFORE, the appealed decision is hereby REVERSED and
SET ASIDE and another one entered in favor of plaintiff-
appellant
41 | P a g e
and against defendant-appellee Domelita (sic) M. Andres, doing
business under the name and style "Irene's Wearing Apparel" to
reimburse and/or return to plaintiff-appellant the amount of
$10,000.00, its equivalent in Philippine currency, with interests
at the legal rate from the filing of the complaint on May 12,
1982 until the whole amount is fully paid, plus twenty percent
(20%) of the amount due as attomey's fees; and to pay the
costs.
With costs against defendant-appellee.
SO ORDERED. [Rollo, pp. 29-30.]
Thereafter, this petition was filed. The sole issue in this case is
whether or not the private respondent has the right to recover
the second $10,000.00 remittance it had delivered to petitioner.
The resolution of this issue would hinge on the applicability of
Art. 2154 of the New Civil Code which provides that:
Art. 2154. If something received when there is no right to
demand it, and it was unduly delivered through mistake, the
obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code
which provided that:
Art. 1895. If a thing is received when there was no right to
claim it and which, through an error, has been unduly delivered,
an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking
through Mr. Justice Bocobo explained the nature of this article
thus:
Article 1895 [now Article 2154] of the Civil Code abovequoted,
is therefore applicable. This legal provision, which determines
the quasi-contract of solution indebiti, is one of the concrete
manifestations of the ancient principle that no one shall enrich
himself unjustly at the expense of another. In the Roman Law
Digest the maxim was formulated thus: "Jure naturae acquum
est, neminem cum alterius detrimento et injuria fieri
locupletiorem." And the Partidas declared: "Ninguno non deue
enriquecerse tortizeramente con dano de otro." Such axiom has
grown through the centuries in legislation, in the science of law
and in court decisions. The lawmaker has found it one of the
helpful guides in framing statutes and codes. Thus, it is
unfolded in many articles scattered in the Spanish Civil Code.
(See for example, articles, 360, 361, 464, 647, 648, 797, 1158,
1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-
honored aphorism has also been adopted by jurists in their
study of the conflict of rights. It has been accepted by the
courts, which have not hesitated to apply it when the
exigencies of right and equity demanded its assertion. It is a
part of that affluent reservoir of justice upon which judicial
discretion draws whenever the statutory laws are inadequate
because they do not speak or do so with a confused voice. [at
p. 632.]
For this article to apply the following requisites must concur:
"(1) that he who paid was not under obligation to do so; and,
(2) that payment was made by reason of an essential mistake
of fact" [City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].
It is undisputed that private respondent delivered the second
$10,000.00 remittance. However, petitioner contends that the
doctrine of solutio indebiti, does not apply because its
requisites are absent.
First, it is argued that petitioner had the right to demand and
therefore to retain the second $10,000.00 remittance. It is
alleged that even after the two $10,000.00 remittances are
credited to petitioner's receivables from FACETS, the latter
allegedly still had a balance of $49,324.00. Hence, it is argued
that the last
42 | P a g e
$10,000.00 remittance being in payment of a pre-existing debt,
petitioner was not thereby unjustly enriched.
The contention is without merit.
The contract of petitioner, as regards the sale of garments and
other textile products, was with FACETS. It was the latter and
not private respondent which was indebted to petitioner. On the
other hand, the contract for the transmittal of dollars from the
United States to petitioner was entered into by private
respondent with FNSB. Petitioner, although named as the payee
was not privy to the contract of remittance of dollars. Neither
was private respondent a party to the contract of sale between
petitioner and FACETS. There being no contractual relation
between them, petitioner has no right to apply the second
$10,000.00 remittance delivered by mistake by private
respondent to the outstanding account of FACETS.
Petitioner next contends that the payment by respondent bank
of the second $10,000.00 remittance was not made by mistake
but was the result of negligence of its employees. In connection
with this the Court of Appeals made the following finding of
facts:
The fact that Facets sent only one remittance of $10,000.00 is
not disputed. In the written interrogatories sent to the First
National State Bank of New Jersey through the Consulate
General of the Philippines in New York, Adelaide C. Schachel,
the investigation and reconciliation clerk in the said bank
testified that a request to remit a payment for Facet Funwear
Inc. was made in August, 1980. The total amount which the
First National State Bank of New Jersey actually requested the
plaintiff-appellant Manufacturers Hanover & Trust Corporation
to remit to Irene's Wearing Apparel was US $10,000.00. Only
one remittance was requested by First National State Bank of
New Jersey as per instruction of Facets Funwear (Exhibit "J", pp.
4-5).
That there was a mistake in the second remittance of US
$10,000.00 is borne out by the fact that both remittances have
the same reference invoice number which is 263 80. (Exhibits
"A- 1- Deposition of Mr. Stanley Panasow" and "A-2-Deposition
of Mr. Stanley Panasow").
Plaintiff-appellant made the second remittance on the wrong
assumption that defendant-appellee did not receive the first
remittance of US $10,000.00. [Rollo, pp. 26-27.]
It is evident that the claim of petitioner is anchored on the
appreciation of the attendant facts which petitioner would have
this Court review. The Court holds that the finding by the Court
of Appeals that the second $10,000.00 remittance was made by
mistake, being based on substantial evidence, is final and
conclusive. The rule regarding questions of fact being raised
with this Court in a petition for certiorari under Rule 45 of the
Revised Rules of Court has been stated in Remalante v. Tibe,
G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be
raised in a petition for certiorari under Rule 45 of the Revised
Rules of Court. "The jurisdiction of the Supreme Court in cases
brought to it from the Court of Appeals is limited to reviewing
and revising the errors of law imputed to it, its findings of fact
being conclusive" [Chan v. Court of Appeals, G.R. No. L-27488,
June 30, 1970, 33 SCRA 737, reiterating a long line of
decisions]. This Court has emphatically declared that "it is not
the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed by the
lower court" [Tiongco v. De la Merced, G.R. No. L-24426, July 25,
1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. L-
62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court of
Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596].
"Barring, therefore, a showing that the findings complained of
are totally devoid of
43 | P a g e
support in the record, or that they are so glaringly erroneous as
to constitute serious abuse of discretion, such findings must
stand, for this Court is not expected or required to examine or
contrast the oral and documentary evidence submitted by the
parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394,
December 17, 1966, 18 SCRA 9731. [at pp. 144-145.]
Petitioner invokes the equitable principle that when one of two
innocent persons must suffer by the wrongful act of a third
person, the loss must be borne by the one whose negligence
was the proximate cause of the loss.
The rule is that principles of equity cannot be applied if there is
a provision of law specifically applicable to a case [Phil. Rabbit
Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148
SCRA 433; Zabat, Jr. v. Court of Appeals, G.R. No. L36958, July
10, 1986, 142 SCRA 587; Rural Bank of Paranaque, Inc. v.
Remolado, G.R. No. 62051, March 18, 1985, 135 SCRA 409;
Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the Court in the
case of De Garcia v. Court of Appeals, G.R. No. L-20264, January
30, 1971, 37 SCRA 129, citing Aznar v. Yapdiangco, G.R. No. L-
18536, March 31, 1965, 13 SCRA 486, held:
... The common law principle that where one of two innocent
persons must suffer by a fraud perpetrated by another, the law
imposes the loss upon the party who, by his misplaced
confidence, has enabled the fraud to be committed, cannot be
applied in a case which is covered by an express provision of
the new Civil Code, specifically Article 559. Between a common
law principle and a statutory provision, the latter must prevail
in this jurisdiction. [at p. 135.]
Having shown that Art. 2154 of the Civil Code, which embodies
the doctrine of solutio indebiti, applies in the case at bar, the
Court must reject the common law principle invoked by
petitioner.
Finally, in her attempt to defeat private respondent's claim,
petitioner makes much of the fact that from the time the
second $10,000.00 remittance was made, five hundred and ten
days had elapsed before private respondent demanded the
return thereof. Needless to say, private respondent instituted
the complaint for recovery of the second $10,000.00 remittance
well within the six years prescriptive period for actions based
upon a quasi-contract [Art. 1145 of the New Civil Code].
WHEREFORE, the petition is DENIED and the decision of the
Court of Appeals is hereby AFFIRMED.
12. G.R. No. L-17447
April 30, 1963
GONZALO PUYAT & SONS, INC., plaintiff-appelle,
vs.
CITY OF MANILA AND MARCELO SARMIENTO, as City Treasurer
of Manila, defendants-appellants
Feria, Manglapus & Associates for plainttiff- appelle.Asst. City
Fiscal Manuel T. Reyes for defendants- appellants.
PAREDES, J.:
This is an appeal from the judgment of the CFI of Manila, the
dispostive portion of which reads:
"xxx Of the payments made by the plaintiff, only that made on
October 25, 1950 in the amount of P1,250.00 has prescribed
Payments made in 1951 and thereafter are still recoverable
since
44 | P a g e
the extra-judicial demand made on October 30, 1956 was well
within the six-year prescriptive period of the New CivilCode.
In view of the foregoing considerations, judgment is hereby
rendered in favor of the plaintiff, ordering the defendants to
refund the amount of P29,824.00, without interest. No costs.
Wherefore, the parties respectfully pray that the foregoing
stipulation of facts be admitted and approved by this Honorable
Court, without prejudice to the parties adducing other evidence
to prove their case not covered by this stipulation of facts.
1äwphï1.ñët
Defendants' counterclaim is hereby dismissed for not having
been substantiated."
On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc.,
filed an action for refund of Retail Dealerls Taxes paid by it,
corresponding to the first Quarter of 1950 up to the third
Quarter of 1956, amounting to P33,785.00, against the City of
Manila and its City Treasurer. The case was submitted on the
following stipulation of facts, to wit--
"1. That the plaintiff is a corporation duly organized and
existing according to the laws of the Philippines, with offices at
Manila; while defendant City Manila is a Municipal Corporation
duly organized in accordance with the laws of the Philippines,
and defendant Marcelino Sarmiento is the dulyqualified
incumbent City Treasurer of Manila;
"2. That plaintiff is engaged in the business of manufacturing
and selling all kinds of furniture at its factory at 190 Rodriguez-
Arias, San Miguel, Manila, and has a display room located at
604-606 Rizal Avenue, Manila, wherein it displays the various
kind of furniture manufactured by it and sells some goods
imported by it, such as billiard balls, bowling balls and other
accessories;
"3. That acting pursuant to the provisions of Sec. 1. group II, of
Ordinance No. 3364, defendant City Treasurer of Manila
assessed from plaintiff retail dealer's tax corresponding to the
quarters hereunder stated on the sales of furniture
manufactured and sold by it at its factory site, all of which
assessments plaintiff paid
without protest in the erroneous belief that on the dates and in
the amount enumerated
it was liable therefor, herein below:
Amount Assessed and Paid.
P1,255.00 1,250.00 1,250.00 1,250.00
Period
First Quarter 1950
Second Quarter 1950
Third Quarter 1950
Fourth Quarter 1950
Date O.R. No. Paid
Jan.
25, 436271X 1950
Apr.
25, 215895X 1950
Jul.
25, 243321X 1950
Oct.
25, 271165X 1950
(Follows the assessment for different quarters in 1951, 1952,
1953, 1954 and 1955, fixing the same amount quarterly.) x x x..
First Quarter 1956 Second Quarter 1956 Third Quarter 1956
Jan.
25, 823047X 1956
Apr.
25, 855949X 1956
Jul.
25, 880789X 1956
1,250.00 1,250.00 1,250.00
45 | P a g e
TOTAL .............
P33,785.00 ===========
protest, are refundable;(2) Assuming arguendo, that plaintiff-
appellee is entitled to the refund of the retail taxes in question,
whether or not the claim for refund filed in October 1956, in so
far as said claim refers to taxes paid from 1950 to 1952 has
already prescribed. .
Under the first issue, defendants-appellants contend tht the
taxes in question were voluntarily paid by appellee company
and since, in this jurisdiction, in order that a legal basis arise for
claim of refund of taxes erroneously assessed, payment thereof
must be made under protest, and this being a condition sine
qua non, and no protest having been made, -- verbally or in
writing, thereby indicating that the payment was voluntary, the
action must fail. Cited in support of the above contention, are
the cases of Zaragoza vs. Alfonso, 46 Phil. 160-161, and Gavino
v. Municipality of Calapan, 71 Phil. 438..
In refutation of the above stand of appellants, appellee avers
tht the payments could not have been voluntary. At most, they
were paid "mistakenly and in good faith" and "without protest in
the erroneous belief that it was liable thereof." Voluntariness is
incompatible with protest and mistake. It submits that this is a
simple case of "solutio indebiti"..
Appellants do not dispute the fact that appellee-company is
exempted from the payment of the tax in question. This is
manifest from the reply of appellant City Treasurer stating that
sales of manufactured products at the factory site are not
taxable either under the Wholesalers Ordinance or under the
Retailers' Ordinance. With this admission, it would seem clear
that the taxes collected from appellee were paid, thru an error
or mistake, which places said act of payment within the pale of
the new Civil Code provision on solutio indebiti. The appellant
City of Manila, at the very start, notwithstanding the Ordinance
imposing the Retailer's Tax, had no right to demand payment
thereof..
"If something is received when there is no right to demand it,
and it was unduly delivered through mistake, the obligation to
return it arises" (Art. 2154, NCC)..
"4. That plaintiff, being a manufacturer of various kinds of
furniture, is exempt from the payment of taxes imposed under
the provisions of Sec. 1, Group II, of Ordinance No. 3364,which
took effect on September 24, 1956, on the sale of the various
kinds of furniture manufactured by it pursuant to the provisions
of Sec. 18(n) of Republic Act No. 409 (Revised Charter of
Manila), as restated in Section 1 of Ordinance No.3816.
"5. That, however, plaintiff, is liable for the payment of taxes
prescribed in Section 1, Group II or Ordinance No. 3364mas
amended by Sec. 1, Group II of Ordinance No. 3816, which took
effect on September 24, 1956, on the sales of imported billiard
balls, bowling balls and other accessories at its display room.
The taxes paid by the plaintiff on the sales of said article are as
follows:
xxx xxx xxx
"6. That on October 30, 1956, the plaintiff filed with defendant
City Treasurer of Manila, a formal request for refund of the retail
dealer's taxes unduly paid by it as aforestated in paragraph 3,
hereof.
"7. That on July 24, 1958, the defendant City Treasurer of Manila
definitely denied said request for refund.
"8. Hence on August 21, 1958, plaintiff filed the present
complaint.
"9. Based on the above stipulation of facts, the legal issues to
be resolved by this Honorable Court are: (1) the period of
prescription applicable in matters of refund of municipal taxes
erroneously paid by a taxpayer and (2) refund of taxes not paid
under protest. x x x."
Said judgment was directly appealed to this Court on two
dominant issues to wit: (1) Whether or not the amounts paid by
plaintiff-appelle, as retail dealer's taxes under Ordinance 1925,
as amended by Ordinance No. 3364of the City of Manila,
without
46 | P a g e
Appelle categorically stated that the payment was not
voluntarily made, (a fact found also by the lower court),but on
the erroneous belief, that they were due. Under this
circumstance, the amount paid, even without protest is
recoverable. "If the payer was in doubt whether the debt was
due, he may recover if he proves that it was not due" (Art.
2156, NCC). Appellee had duly proved that taxes were not
lawfully due. There is, therefore, no doubt that the provisions of
solutio indebtiti, the new Civil Code, apply to the admitted facts
of the case..
With all, appellant quoted Manresa as saying: "x x x Of the
same opinion are Mr. Sanchez Roman and Mr. Galcon, and
which states that if the payment was made by mistake of law,
nor does the quasi-contract exist nor is it bound to the refund
that I collect, although it should not be What was paid"
(Manresa, Tomo 12, paginas 611-612). This opinion, however,
has already lost its persuasiveness, in view of the provisions of
the Civil Code, recognizing "error de derecho" as a basis for the
quasi-contract, of solutio indebiti. .
"Payment by reason of a mistake in the contruction or
application of a doubtful or difficult question of law may come
within the scope of the preceding article" (Art. 21555)..
There is no gainsaying the fact that the payments made by
appellee was due to a mistake in the construction of a doubtful
question of law. The reason underlying similar provisions, as
applied to illegal taxation, in the United States, is expressed in
the case of Newport v. Ringo, 37 Ky. 635, 636; 10 S.W. 2, in the
following manner:.
"It is too well settled in this state to need the citation of
authority that if money be paid through a clear mistake of law
or fact, essentially affecting the rights of the parties, and which
in law or conscience was not payable, and should not be
retained by the party receiving it, it may be recovered. Both law
and sound morality so dictate. Especially should this be the rule
as to illegal
taxation. The taxpayer has no voice in the imposition of the
burden. He has the right to presume that the taxing power has
been lawfully exercised. He should not be required to know
more than those in authority over him, nor should he suffer loss
by complying with what he bona fide believe to be his duty as a
good citizen. Upon the contrary, he should be promoted to its
ready performance by refunding to him any legal exaction paid
by him in ignorance of its illegality; and, certainly, in such a
case, if be subject to a penalty for nonpayment, his compliance
under belief of its legality, and without awaiting a resort to
judicial proceedings should not be regarded in law as so far
voluntary as to affect his right of recovery.".
"Every person who through an act or performance by another,
or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal
grounds, shall return the same to him"(Art. 22, Civil Code). It
would seems unedifying for the government, (here the City of
Manila), that knowing it has no right at all to collect or to
receive money for alleged taxes paid by mistake, it would be
reluctant to return the same. No one should enrich itself
unjustly at the expense of another (Art. 2125, Civil Code)..
Admittedly, plaintiff-appellee paid the tax without
protest.Equally admitted is the fact that section 76 of the
Charter of Manila provides that "No court shall entertain any
suit assailing the validity of tax assessed under this article until
the taxpayer shall have paid, under protest the taxes assessed
against him, xx". It should be noted, however, that the article
referred to in said section is Article XXI, entitled Department of
Assessment and the sections thereunder manifestly show that
said article and its sections relate to asseessment, collection
and recovery of real estate taxes only. Said section 76, therefor,
is not applicable to the case at bar, which relates to the recover
of retail dealer taxes.. In the opinion of the Secretary of Justice
(Op. 90,Series of 1957, in a question similar to the case at bar,
it was held that the
47 | P a g e
requiredment of protest refers only to the payment of taxes
which are directly imposed by the charter itself, that is, real
estate taxes, which view was sustained by judicial and
administrative precedents, one of which is the case of Medina,
et al., v. City of Baguio, G.R. No. L-4269, Aug. 29, 1952. In other
words, protest is not necessary for the recovery of retail
dealer's taxes, like the present, because they are not directly
imposed by the charter. In the Medina case, the Charter of
Baguio (Chap. 61, Revised Adm. Code), provides that "no court
shall entertain any suit assailing the validity of a tax assessed
unde this charter until the tax-payer shall have paid, under
protest, the taxes assessed against him (sec.25474[b], Rev.
Adm. Code), a proviso similar to section 76 of the Manila
Charter. The refund of specific taxes paid under a void
ordinance was ordered, although it did not appear that
payment thereof was made under protest..
In a recent case, We said: "The appellants argue that the sum
the refund of which is sought by the appellee, was not paid
under protest and hence is not refundable. Again, the trial court
correctly held that being unauthorized, it is not a tax assessed
under the Charter of the Appellant City of Davao and for that
reason, no protest is necessary for a claim or demand for its
refund" (Citing the Medina case, supra; East Asiatic Co., Ltd. v.
City of Davao, G.R. No. L-16253, Aug. 21, 1962). Lastly, being a
case of solutio indebiti, protest is not required as a condition
sine qua non for its application..
The next issue in discussion is that of prescription. Appellants
maintain that article 1146 (NCC), which provides for a period of
four (4) years (upon injury to the rights of the plaintiff), apply to
the case. On the other hand, appellee contends that provisions
of Act 190 (Code of Civ. Procedure) should apply, insofar as
payments made before the effectivity of the New Civil Code on
August 30, 1950, the period of which is ten (10) years, (Sec.
40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and article
1145 (NCC), for payments made after said effectivity, providing
for a period of six (6) years (upon quasi-contracts like solutio
indebiti). Even if the provisionsof Act No. 190 should apply to
those payments made before the effectivity of the new Civil
Code, because "prescription already runnig before the
effectivity of this Code shall be governed by laws previously in
force x x x" (art. 1116, NCC), for payments made after said
effectivity,providing for a period of six (6) years (upon quasi-
contracts like solutio indebiti). Even if the provisions of Act No.
190should apply to those payments made before the effectivity
of the new Civil Code, because "prescription already running
before the effectivity of of this Code shall be govern by laws
previously in force xxx " (Art. 1116, NCC), Still payments made
before August 30, 1950 are no longer recoverable in view of the
second paragraph of said article (1116), which provides:"but if
since the time this Code took effect the entire period herein
required for prescription should elapse the present Code shall
be applicable even though by the former laws a longer period
might be required". Anent the payments made after August 30,
1950, it is abvious that the action has prescribed with respect
to those made before October 30, 1950 only, considering the
fact that the prescription of action is interrupted xxx when is a
writteen extra-judicial demand x x x" (Art. 1155, NCC), and the
written demand in the case at bar was made on October 30,
1956 (Stipulation of Facts).MODIFIED in the sense that only
payments made on or after October 30, 1950 should be
refunded, the decision appealed from is affirmed, in all other
respects. No costs. .
13. G.R. Nos. 198729-30
January 15, 2014
CBK POWER COMPANY LIMITED, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
48 | P a g e
DECISION
SERENO, CJ:
This is a Petition for Review on Certiorari1 under Rule 45 of the
1997 Rules of Civil Procedure filed by CBK Power Company
Limited (petitioner). The Petition assails the Decision2 dated 27
June 2011 and Resolution3 dated 16 September 2011 of the
Court of Tax Appeals En Banc (CTA En Banc in C.T.A. EB Nos.
658 and 659. The assailed Decision and Resolution reversed
and set aside the Decision4 dated 3 March 2010 and
Resolution5 dated 6 July 2010 rendered by the CTA Special
Second Division in C.T.A. Case No. 7621, which partly granted
the claim of petitioner for the issuance of a tax credit certificate
representing the latter's alleged unutilized input taxes on local
purchases of goods and services attributable to effectively zero-
rated sales to National Power Corporation (NPC) for the second
and third quarters of 2005.
The Facts
Petitioner is engaged, among others, in the operation,
maintenance, and management of the Kalayaan II pumped-
storage hydroelectric power plant, the new Caliraya Spillway,
Caliraya, Botocan; and the Kalayaan I hydroelectric power
plants and their related facilities located in the Province of
Laguna.6
On 29 December 2004, petitioner filed an Application for VAT
Zero-Rate with the Bureau of Internal Revenue (BIR) in
accordance with Section 108(B)(3) of the National Internal
Revenue Code (NIRC) of 1997, as amended. The application was
duly approved by the BIR. Thus, petitioner ’s sale of electr icity
to the NPC from 1 January 2005 to 31 October 2005 was
declared to be entitled to the benefit of effectively zero-rated
value added tax (VAT).7
Petitioner filed its administrative claims for the issuance of tax
credit certificates for its alleged unutilized input taxes on its
purchase of capital goods and alleged unutilized input taxes on
its local purchases and/or importation of goods and services,
other than capital goods, pursuant to Sections 112(A) and (B) of
the NIRC of 1997, as amended, with BIR Revenue District Office
(RDO) No. 55 of Laguna, as follows:8
Period Covered
Date Of Filing
1st quarter of 2005
30-Jun-05
2nd quarter of 2005
15-Sep-05
3rd quarter of 2005
28-Oct-05
Alleging inaction of the Commissioner of Internal Revenue
(CIR), petitioner filed a Petition for Review with the CTA on 18
April 2007.
THE CTA SPECIAL SECOND DIVISION RULING
After trial on the merits, the CTA Special Second Division
rendered a Decision on 3 March 2010. Applying Commissioner
of Internal Revenue v. Mirant Pagbilao Corporation (Mirant),9
the court
a quo ruled that petitioner had until the following dates within
which to file both administrative and judicial claims:
Taxable Quarter
Last Day to File Claim for Refund
2005
Close of the quarter
1st quarter
31-Mar-05
31-Mar-07
49 | P a g e
2nd quarter
30-Jun-05
30-Jun-07
3rd quarter
30-Sep-05
30-Sep-07
 THE COURT’S RULING
The pertinent provision of the NIRC at the time when petitioner
filed its claim for refund provides:
SEC. 112. Refunds or Tax Credits of Input Tax. –
Accordingly, petitioner timely filed its administrative claims for
the three quarters of 2005. However, considering that the
judicial claim was filed on 18 April 2007, the CTA Division
denied the claim for the first quarter of 2005 for having been
filed out of time.
After an evaluation of petitioner’s claim for the second and third
quarters of 2005, the court a quo partly granted the claim and
ordered the issuance of a tax credit certificate in favor of
petitioner in the reduced amount of P27,170,123.36.
The parties filed their respective Motions for Partial
Reconsideration, which were both denied by the CTA Division.
THE CTA EN BANC RULING
On appeal, relying on Commissioner of Internal Revenue v. Aichi
Forging Company of Asia, Inc. (Aichi),10 the CTA En Banc ruled
that petitioner’s judicial claim for the first, second, and third
quarters of 2005 were belatedly filed.
The CTA Special Second Division Decision and Resolution were
reversed and set aside, and the Petition for Review filed in CTA
Case No. 7621 was dismissed. Petitioner’s Motion for
Reconsideration was likewise denied for lack of merit.
Hence, this Petition.ISSUE
Petitioner’s assigned errors boil down to the principal issue of
the applicable prescriptive period on its claim for refund of
unutilized input VAT for the first to third quarters of 2005.11
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-
registered person, whose sales are zero-rated or effectively
zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales, except transitional
input tax, to the extent that such input tax has not been
applied against output tax: Provided, however, That in the case
of zero-rated sales under Section 106(A)(2)(a)(1),(2) and (B)
and Section 108 (B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP): Provided, further, That where the taxpayer is
engaged in zero-rated or effectively zero- rated sale and also in
taxable or exempt sale of goods or properties or services, and
the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the volume of
sales.
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall
be Made. - In proper cases, the Commissioner shall grant a
refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of
submission of complete documents
50 | P a g e
in support of the application filed in accordance with
Subsections (A) and (B) hereof.
or effectively zero-rated transactions or from the acquisition of
capital goods, any excess over the output taxes shall instead be
refunded to the taxpayer.
The crux of the controversy arose from the proper application of
the prescriptive periods set forth in Section 112 of the NIRC of
1997, as amended, and the interpretation of the applicable
jurisprudence.
Although the ponente in this case expressed a different view on
the mandatory application of the 120+30 day period as
prescribed in Section 112, with the finality of the Court’s
pronouncement on the consolidated tax cases Commissioner of
Internal Revenue v. San Roque Power Corporation, Taganito
Mining Corporation v. Commissioner of Internal Revenue, and
Philex Mining Corporation v. Commissioner of Internal
Revenue14 (hereby collectively referred as San Roque), we are
constrained to apply the dispositions therein to the facts herein
which are similar.
Administrative Claim
Section 112(A) provides that after the close of the taxable
quarter when the sales were made, there is a two-year
prescriptive period within which a VAT-registered person whose
sales are zero-rated or effectively zero-rated may apply for the
issuance of a tax credit certificate or refund of creditable input
tax.
Our VAT Law provides for a mechanism that would allow VAT-
registered persons to recover the excess input taxes over the
output taxes they had paid in relation to their sales. For the
refund or credit of excess or unutilized input tax, Section 112 is
the governing law. Given the distinctive nature of creditable
input tax, the law under Section 112 (A) provides for a different
reckoning point for the two-year prescriptive period, specifically
for the refund or credit of that tax only.
In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on
the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt
of the decision denying the claim or after the expiration of the
one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
Petitioner’s sales to NPC are effectively zero-rated
As aptly ruled by the CTA Special Second Division, petitioner’s
sales to NPC are effectively subject to zero percent (0%) VAT.
The NPC is an entity with a special charter, which categorically
exempts it from the payment of any tax, whether direct or
indirect, including VAT. Thus, services rendered to NPC by a VAT-
registered entity are effectively zero-rated. In fact, the BIR itself
approved the application for zero-rating on 29 December 2004,
filed by petitioner for its sales to NPC covering January to
October 2005.12 As a consequence, petitioner claims for the
refund of the alleged excess input tax attributable to its
effectively zero-rated sales to NPC.
In Panasonic Communications Imaging Corporation of the
Philippines v. Commissioner of Internal Revenue,13 this Court
ruled:
Under the 1997 NIRC, if at the end of a taxable quarter the
seller charges output taxes equal to the input taxes that his
suppliers passed on to him, no payment is required of him. It is
when his output taxes exceed his input taxes that he has to pay
the excess to the BIR. If the input taxes exceed the output
taxes, however, the excess payment shall be carried over to the
succeeding quarter or quarters. Should the input taxes result
from zero-rated
51 | P a g e
We agree with petitioner that Mirant was not yet in existence
when their administrative claim was filed in 2005; thus, it
should not retroactively be applied to the instant case.
However, the fact remains that Section 112 is the controlling
provision for the refund or credit of input tax during the time
that petitioner filed its claim with which they ought to comply. It
must be emphasized that the Court merely clarified in Mirant
that Sections 204 and 229, which prescribed a different starting
point for the two-year prescriptive limit for filing a claim for a
refund or credit of excess input tax, were not applicable. Input
tax is neither an erroneously paid nor an illegally collected
internal revenue tax.15
Section 112(A) is clear that for VAT-registered persons whose
sales are zero-rated or effectively zero-rated, a claim for the
refund or credit of creditable input tax that is due or paid, and
that is attributable to zero-rated or effectively zero-rated sales,
must be filed within two years after the close of the taxable
quarter when such sales were made. The reckoning frame
would always be the end of the quarter when the pertinent sale
or transactions were made, regardless of when the input VAT
was paid.16
Pursuant to Section 112(A), petitioner’s administrative claims
were filed well within the two-year period from the close of the
taxable quarter when the effectively zero-rated sales were
made, to wit:
2nd quarter 2005
30-Jun- 05
30-Jun-07
15-Sep-05
3rd quarter 2005
30-Sep- 05
30-Sep-07
28-Oct-05
Judicial Claim
Section 112(D) further provides that the CIR has to decide on
an administrative claim within one hundred twenty (120) days
from the date of submission of complete documents in support
thereof.
Bearing in mind that the burden to prove entitlement to a tax
refund is on the taxpayer, it is presumed that in order to
discharge its burden, petitioner had attached complete
supporting documents necessary to prove its entitlement to a
refund in its application, absent any evidence to the contrary.
Thereafter, the taxpayer affected by the CIR’s decision or
inaction may appeal to the CTA within 30 days from the receipt
of the decision or from the expiration of the 120-day period
within which the claim has not been acted upon.
Considering further that the 30-day period to appeal to the CTA
is dependent on the 120-day period, compliance with both
periods is jurisdictional. The period of 120 days is a prerequisite
for the commencement of the 30-day period to appeal to the
CTA.
Prescinding from San Roque in the consolidated case Mindanao
II Geothermal Partnership v. Commissioner of Internal Revenue
and Mindanao I Geothermal Partnership v. Commissioner of
Internal Revenue,17 this Court has ruled thus:
Notwithstanding a strict construction of any claim for tax
exemption or refund, the Court in San Roque recognized that
BIR Ruling No. DA-489-03 constitutes equitable estoppel in
favor of
Period Covered
Close of the Taxable Quarter
Last day to File Administrative
Claim
Date of Filing
1st quarter 2005
31-Mar- 05
31-Mar-07
30-Jun-05
52 | P a g e
taxpayers. BIR Ruling No. DA-489-03 expressly states that the
"taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of
Petition for Review." This Court discussed BIR Ruling No. DA-
489-03 and its effect on taxpayers, thus:
Taxpayers should not be prejudiced by an erroneous
interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine by
Mirant and Aichi is proof that the reckoning of the prescriptive
periods for input VAT tax refund or credit is a difficult question
of law. The abandonment of the Atlas doctrine did not result in
Atlas, or other taxpayers similarly situated, being made to
return the tax refund or credit they received or could have
received under Atlas prior to its abandonment. This Court is
applying Mirant and Aichi prospectively. Absent fraud, bad faith
or misrepresentation, the reversal by this Court of a general
interpretative rule issued by the Commissioner, like the reversal
of a specific BIR ruling under Section 246, should also apply
prospectively. x x x.
xxxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a
general interpretative rule applicable to all taxpayers or a
specific ruling applicable only to a particular taxpayer. BIR
Ruling No. DA-489-03 is a general interpretative rule because it
was a response to a query made, not by a particular taxpayer,
but by a government agency asked with processing tax refunds
and credits, that is, the One Stop Shop Inter-Agency Tax Credit
and Drawback Center of the Department of Finance. This
government agency is also the addressee, or the entity
responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the Commissioner
the administrative claim of Lazi Bay Resources Development,
Inc., the agency was in fact asking the Commissioner what to
do in cases like the tax
claim of Lazi Bay Resources Development, Inc., where the
taxpayer did not wait for the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative
rule.1âwphi1 Thus, all taxpayers can rely on BIR Ruling No. DA-
489-03 from the time of its issuance on 10 December 2003 up
to its reversal by this Court in Aichi on 6 October 2010, where
this Court held that the 120+30 day periods are mandatory and
jurisdictional. (Emphasis supplied)
In applying the foregoing to the instant case, we consider the
following pertinent dates:
1âwphi1
Period Covered
Administrative Claim Filed
Expiration of 120- days
Last day to file Judicial Claim
Judicial Claim Filed
1st quarter 2005
30-Jun-05
28-Oct-05
27-Nov- 05
18-Apr- 07
2nd quarter 2005
3rd quarter 2005
15-Sep-05 28-Oct-05
13-Jan-06 26-Feb-06
13-Feb- 06
28-Mar- 06
It must be emphasized that this
is not a case of premature filing of a judicial claim. Although
petitioner did not file its judicial claim with the CTA prior to the
expiration of the 120-day waiting period, it failed to observe the
30-day prescriptive period to appeal to the CTA counted from
the lapse of the 120-day period.
53 | P a g e
Petitioner is similarly situated as Philex in the same case, San
Roque,18 in which this Court ruled:
Unlike San Roque and Taganito, Philex’s case is not one of
premature filing but of late filing. Philex did not file any petition
with the CTA within the 120-day period. Philex did not also file
any petition with the CTA within 30 days after the expiration of
the 120-day period. Philex filed its judicial claim long after the
expiration of the 120-day period, in fact 426 days after the
lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philex’s
judicial claim will have to be rejected because of late filing.
Whether the two-year prescriptive period is counted from the
date of payment of the output VAT following the Atlas doctrine,
or from the close of the taxable quarter when the sales
attributable to the input VAT were made following the Mirant
and Aichi doctrines, Philex’s judicial claim was indisputably filed
late.
The Atlas doctrine cannot save Philex from the late filing of its
judicial claim. The inaction of the Commissioner on Philex’s
claim during the 120-day period is, by express provision of law,
"deemed a denial" of Philex’s claim. Philex had 30 days from
the expiration of the 120-day period to file its judicial claim with
the CTA. Philex’s failure to do so rendered the "deemed a
denial" decision of the Commissioner final and inappealable.
The right to appeal to the CTA from a decision or "deemed a
denial" decision of the Commissioner is merely a statutory
privilege, not a constitutional right. The exercise of such
statutory privilege requires strict compliance with the
conditions attached by the statute for its exercise. Philex failed
to comply with the statutory conditions and must thus bear the
consequences. (Emphases in the original)
Likewise, while petitioner filed its administrative and judicial
claims during the period of applicability of BIR Ruling No. DA-
489-03, it cannot claim the benefit of the exception period as it
did not file its judicial claim prematurely, but did so long after
the lapse of the 30-day period following the expiration of the
120- day period. Again, BIR Ruling No. DA-489-03 allowed
premature filing of a judicial claim, which means non-
exhaustion of the 120- day period for the Commissioner to act
on an administrative claim,19 but not its late filing.
As this Court enunciated in San Roque , petitioner cannot rely
on Atlas either, since the latter case was promulgated only on 8
June 2007. Moreover, the doctrine in Atlas which reckons the
two- year period from the date of filing of the return and
payment of the tax, does not interpret − expressly or impliedly
− the 120+30 day periods.20 Simply stated, Atlas referred only
to the reckoning of the prescriptive period for filing an
administrative claim.
For failure of petitioner to comply with the 120+30 day
mandatory and jurisdictional period, petitioner lost its right to
claim a refund or credit of its alleged excess input VAT.
With regard to petitioner’s argument that Aichi should not be
applied retroactively, we reiterate that even without that ruling,
the law is explicit on the mandatory and jurisdictional nature of
the 120+30 day period.
Also devoid of merit is the applicability of the principle of
solutio indebiti to the present case. According to this principle,
if something is received when there is no right to demand it,
and it was unduly delivered through mistake, the obligation to
return it arises. In that situation, a creditor-debtor relationship is
created under a quasi-contract, whereby the payor becomes
the creditor who then has the right to demand the return of
payment made by mistake, and the person who has no right to
receive the payment becomes obligated to return it.21 The
quasi-contract of solutio indebiti is based on the ancient
principle that no one shall enrich oneself unjustly at the
expense of another.22
54 | P a g e
There is solutio indebiti when:
(1) Payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person
who received the payment; and
(2) Payment is made through mistake, and not through
liberality or some other cause.23
 14. G.R. No. L-12191 October 14, 1918
JOSE CANGCO, plaintiff-appellant,
vs.
MANILA RAILROAD CO., defendant-appellee.
Ramon Sotelo for appellant. Kincaid & Hartigan for appellee.
FISHER, J.:
At the time of the occurrence which gave rise to this litigation
the plaintiff, Jose Cangco, was in the employment of Manila
Railroad Company in the capacity of clerk, with a monthly wage
of P25. He lived in the pueblo of San Mateo, in the province of
Rizal, which is located upon the line of the defendant railroad
company; and in coming daily by train to the company's office
in the city of Manila where he worked, he used a pass, supplied
by the company, which entitled him to ride upon the company's
trains free of charge. Upon the occasion in question, January
20, 1915, the plaintiff arose from his seat in the second class-
car where he was riding and, making, his exit through the door,
took his position upon the steps of the coach, seizing the
upright guardrail with his right hand for support.
On the side of the train where passengers alight at the San
Mateo station there is a cement platform which begins to rise
with a moderate gradient some distance away from the
company's office and extends along in front of said office for a
distance sufficient to cover the length of several coaches. As
the train slowed down another passenger, named Emilio
Zuñiga, also an
Though the principle of solutio indebiti may be applicable to
some instances of claims for a refund, the elements thereof are
wanting in this case.
First, there exists a binding relation between petitioner and the
CIR, the former being a taxpayer obligated to pay VAT.
Second, the payment of input tax was not made through
mistake, since petitioner was legally obligated to pay for that
liability. The entitlement to a refund or credit of excess input tax
is solely based on the distinctive nature of the VAT system. At
the time of payment of the input VAT, the amount paid was
correct and proper.24
Finally, equity, which has been aptly described as "a justice
outside legality," is applied only in the absence of, and never
against, statutory law or judicial rules of procedure.25 Section
112 is a positive rule that should preempt and prevail over all
abstract arguments based only on equity. Well-settled is the
rule that tax refunds or credits, just like tax exemptions, are
strictly construed against the taxpayer.26 The burden is on the
taxpayer to show strict compliance with the conditions for the
grant of the tax refund or credit.27
WHEREFORE, premises considered, the instant Petition is
DENIED.
 55 | P a g e
employee of the railroad company, got off the same car,
alighting safely at the point where the platform begins to rise
from the level of the ground. When the train had proceeded a
little farther the plaintiff Jose Cangco stepped off also, but one
or both of his feet came in contact with a sack of watermelons
with the result that his feet slipped from under him and he fell
violently on the platform. His body at once rolled from the
platform and was drawn under the moving car, where his right
arm was badly crushed and lacerated. It appears that after the
plaintiff alighted from the train the car moved forward possibly
six meters before it came to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night,
and as the railroad station was lighted dimly by a single light
located some distance away, objects on the platform where the
accident occurred were difficult to discern especially to a
person emerging from a lighted car.
The explanation of the presence of a sack of melons on the
platform where the plaintiff alighted is found in the fact that it
was the customary season for harvesting these melons and a
large lot had been brought to the station for the shipment to
the market. They were contained in numerous sacks which has
been piled on the platform in a row one upon another. The
testimony shows that this row of sacks was so placed of melons
and the edge of platform; and it is clear that the fall of the
plaintiff was due to the fact that his foot alighted upon one of
these melons at the moment he stepped upon the platform. His
statement that he failed to see these objects in the darkness is
readily to be credited.
The plaintiff was drawn from under the car in an unconscious
condition, and it appeared that the injuries which he had
received were very serious. He was therefore brought at once
to a certain hospital in the city of Manila where an examination
was made and his arm was amputated. The result of this
operation was
unsatisfactory, and the plaintiff was then carried to another
hospital where a second operation was performed and the
member was again amputated higher up near the shoulder. It
appears in evidence that the plaintiff expended the sum of
P790.25 in the form of medical and surgical fees and for other
expenses in connection with the process of his curation.
Upon August 31, 1915, he instituted this proceeding in the
Court of First Instance of the city of Manila to recover damages
of the defendant company, founding his action upon the
negligence of the servants and employees of the defendant in
placing the sacks of melons upon the platform and leaving
them so placed as to be a menace to the security of passenger
alighting from the company's trains. At the hearing in the Court
of First Instance, his Honor, the trial judge, found the facts
substantially as above stated, and drew therefrom his
conclusion to the effect that, although negligence was
attributable to the defendant by reason of the fact that the
sacks of melons were so placed as to obstruct passengers
passing to and from the cars, nevertheless, the plaintiff himself
had failed to use due caution in alighting from the coach and
was therefore precluded form recovering. Judgment was
accordingly entered in favor of the defendant company, and the
plaintiff appealed.
It can not be doubted that the employees of the railroad
company were guilty of negligence in piling these sacks on the
platform in the manner above stated; that their presence
caused the plaintiff to fall as he alighted from the train; and
that they therefore constituted an effective legal cause of the
injuries sustained by the plaintiff. It necessarily follows that the
defendant company is liable for the damage thereby
occasioned unless recovery is barred by the plaintiff's own
contributory negligence. In resolving this problem it is
necessary that each of these conceptions of liability, to-wit, the
primary responsibility of the defendant company and the
contributory negligence of the plaintiff should be separately
examined.
56 | P a g e
It is important to note that the foundation of the legal liability of
the defendant is the contract of carriage, and that the
obligation to respond for the damage which plaintiff has
suffered arises, if at all, from the breach of that contract by
reason of the failure of defendant to exercise due care in its
performance. That is to say, its liability is direct and immediate,
differing essentially, in legal viewpoint from that presumptive
responsibility for the negligence of its servants, imposed by
article 1903 of the Civil Code, which can be rebutted by proof of
the exercise of due care in their selection and supervision.
Article 1903 of the Civil Code is not applicable to obligations
arising ex contractu, but only to extra-contractual obligations —
or to use the technical form of expression, that article relates
only to culpa aquiliana and not to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103
and 1104 of the Civil Code, clearly points out this distinction,
which was also recognized by this Court in its decision in the
case of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep.,
359). In commenting upon article 1093 Manresa clearly points
out the difference between "culpa, substantive and
independent, which of itself constitutes the source of an
obligation between persons not formerly connected by any
legal tie" and culpa considered as an accident in the
performance of an obligation already existing . . . ."
In the Rakes case (supra) the decision of this court was made to
rest squarely upon the proposition that article 1903 of the Civil
Code is not applicable to acts of negligence which constitute
the breach of a contract.
Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil
Code] are applicable are understood to be those not growing
out of pre-
existing duties of the parties to one another. But where
relations already formed give rise to duties, whether springing
from contract or quasi-contract, then breaches of those duties
are subject to article 1101, 1103, and 1104 of the same code.
(Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at
365.)
This distinction is of the utmost importance. The liability, which,
under the Spanish law, is, in certain cases imposed upon
employers with respect to damages occasioned by the
negligence of their employees to persons to whom they are not
bound by contract, is not based, as in the English Common Law,
upon the principle of respondeat superior — if it were, the
master would be liable in every case and unconditionally — but
upon the principle announced in article 1902 of the Civil Code,
which imposes upon all persons who by their fault or
negligence, do injury to another, the obligation of making good
the damage caused. One who places a powerful automobile in
the hands of a servant whom he knows to be ignorant of the
method of managing such a vehicle, is himself guilty of an act
of negligence which makes him liable for all the consequences
of his imprudence. The obligation to make good the damage
arises at the very instant that the unskillful servant, while
acting within the scope of his employment causes the injury.
The liability of the master is personal and direct. But, if the
master has not been guilty of any negligence whatever in the
selection and direction of the servant, he is not liable for the
acts of the latter, whatever done within the scope of his
employment or not, if the damage done by the servant does
not amount to a breach of the contract between the master and
the person injured.
It is not accurate to say that proof of diligence and care in the
selection and control of the servant relieves the master from
liability for the latter's acts — on the contrary, that proof shows
that the responsibility has never existed. As Manresa says (vol.
8, p. 68) the liability arising from extra-contractual culpa is
always based upon a voluntary act or omission which, without
willful
57 | P a g e
intent, but by mere negligence or inattention, has caused
damage to another. A master who exercises all possible care in
the selection of his servant, taking into consideration the
qualifications they should possess for the discharge of the
duties which it is his purpose to confide to them, and directs
them with equal diligence, thereby performs his duty to third
persons to whom he is bound by no contractual ties, and he
incurs no liability whatever if, by reason of the negligence of his
servants, even within the scope of their employment, such third
person suffer damage. True it is that under article 1903 of the
Civil Code the law creates a presumption that he has been
negligent in the selection or direction of his servant, but the
presumption is rebuttable and yield to proof of due care and
diligence in this respect.
The supreme court of Porto Rico, in interpreting identical
provisions, as found in the Porto Rico Code, has held that these
articles are applicable to cases of extra-contractual culpa
exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)
This distinction was again made patent by this Court in its
decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil.
rep., 624), which was an action brought upon the theory of the
extra-contractual liability of the defendant to respond for the
damage caused by the carelessness of his employee while
acting within the scope of his employment. The Court, after
citing the last paragraph of article 1903 of the Civil Code, said:
From this article two things are apparent: (1) That when an
injury is caused by the negligence of a servant or employee
there instantly arises a presumption of law that there was
negligence on the part of the master or employer either in
selection of the servant or employee, or in supervision over him
after the selection, or both; and (2) that that presumption is
juris tantum and not juris et de jure, and consequently, may be
rebutted. It follows necessarily that if the employer shows to
the satisfaction
of the court that in selection and supervision he has exercised
the care and diligence of a good father of a family, the
presumption is overcome and he is relieved from liability.
This theory bases the responsibility of the master ultimately on
his own negligence and not on that of his servant. This is the
notable peculiarity of the Spanish law of negligence. It is, of
course, in striking contrast to the American doctrine that, in
relations with strangers, the negligence of the servant in
conclusively the negligence of the master.
The opinion there expressed by this Court, to the effect that in
case of extra-contractual culpa based upon negligence, it is
necessary that there shall have been some fault attributable to
the defendant personally, and that the last paragraph of article
1903 merely establishes a rebuttable presumption, is in
complete accord with the authoritative opinion of Manresa, who
says (vol. 12, p. 611) that the liability created by article 1903 is
imposed by reason of the breach of the duties inherent in the
special relations of authority or superiority existing between the
person called upon to repair the damage and the one who, by
his act or omission, was the cause of it.
On the other hand, the liability of masters and employers for
the negligent acts or omissions of their servants or agents,
when such acts or omissions cause damages which amount to
the breach of a contact, is not based upon a mere presumption
of the master's negligence in their selection or control, and
proof of exercise of the utmost diligence and care in this regard
does not relieve the master of his liability for the breach of his
contract.
Every legal obligation must of necessity be extra-contractual or
contractual. Extra-contractual obligation has its source in the
breach or omission of those mutual duties which civilized
society imposes upon it members, or which arise from these
relations, other than contractual, of certain members of society
to others,
58 | P a g e
generally embraced in the concept of status. The legal rights of
each member of society constitute the measure of the
corresponding legal duties, mainly negative in character, which
the existence of those rights imposes upon all other members
of society. The breach of these general duties whether due to
willful intent or to mere inattention, if productive of injury, give
rise to an obligation to indemnify the injured party. The
fundamental distinction between obligations of this character
and those which arise from contract, rests upon the fact that in
cases of non- contractual obligation it is the wrongful or
negligent act or omission itself which creates the vinculum
juris, whereas in contractual relations the vinculum exists
independently of the breach of the voluntary duty assumed by
the parties when entering into the contractual relation.
With respect to extra-contractual obligation arising from
negligence, whether of act or omission, it is competent for the
legislature to elect — and our Legislature has so elected —
whom such an obligation is imposed is morally culpable, or, on
the contrary, for reasons of public policy, to extend that
liability, without regard to the lack of moral culpability, so as to
include responsibility for the negligence of those person who
acts or mission are imputable, by a legal fiction, to others who
are in a position to exercise an absolute or limited control over
them. The legislature which adopted our Civil Code has elected
to limit extra-contractual liability — with certain well-defined
exceptions — to cases in which moral culpability can be directly
imputed to the persons to be charged. This moral responsibility
may consist in having failed to exercise due care in the
selection and control of one's agents or servants, or in the
control of persons who, by reason of their status, occupy a
position of dependency with respect to the person made liable
for their conduct.
The position of a natural or juridical person who has undertaken
by contract to render service to another, is wholly different from
that to which article 1903 relates. When the sources of the
obligation upon which plaintiff's cause of action depends is a
negligent act or omission, the burden of proof rests upon
plaintiff to prove the negligence — if he does not his action
fails. But when the facts averred show a contractual
undertaking by defendant for the benefit of plaintiff, and it is
alleged that plaintiff has failed or refused to perform the
contract, it is not necessary for plaintiff to specify in his
pleadings whether the breach of the contract is due to willful
fault or to negligence on the part of the defendant, or of his
servants or agents. Proof of the contract and of its
nonperformance is sufficient prima facie to warrant a recovery.
As a general rule . . . it is logical that in case of extra-
contractual culpa, a suing creditor should assume the burden of
proof of its existence, as the only fact upon which his action is
based; while on the contrary, in a case of negligence which
presupposes the existence of a contractual obligation, if the
creditor shows that it exists and that it has been broken, it is
not necessary for him to prove negligence. (Manresa, vol. 8, p.
71 [1907 ed., p. 76]).
As it is not necessary for the plaintiff in an action for the breach
of a contract to show that the breach was due to the negligent
conduct of defendant or of his servants, even though such be in
fact the actual cause of the breach, it is obvious that proof on
the part of defendant that the negligence or omission of his
servants or agents caused the breach of the contract would not
constitute a defense to the action. If the negligence of servants
or agents could be invoked as a means of discharging the
liability arising from contract, the anomalous result would be
that person acting through the medium of agents or servants in
the performance of their contracts, would be in a better
position than those acting in person. If one delivers a valuable
watch to watchmaker who contract to repair it, and the bailee,
by a personal negligent act causes its destruction, he is
unquestionably liable. Would it be logical to free him from his
liability for the breach of his contract, which involves the duty
to exercise due care in the preservation of the watch, if he
shows that it was his servant whose negligence
59 | P a g e
caused the injury? If such a theory could be accepted, juridical
persons would enjoy practically complete immunity from
damages arising from the breach of their contracts if caused by
negligent acts as such juridical persons can of necessity only
act through agents or servants, and it would no doubt be true in
most instances that reasonable care had been taken in
selection and direction of such servants. If one delivers
securities to a banking corporation as collateral, and they are
lost by reason of the negligence of some clerk employed by the
bank, would it be just and reasonable to permit the bank to
relieve itself of liability for the breach of its contract to return
the collateral upon the payment of the debt by proving that due
care had been exercised in the selection and direction of the
clerk?
This distinction between culpa aquiliana, as the source of an
obligation, and culpa contractual as a mere incident to the
performance of a contract has frequently been recognized by
the supreme court of Spain. (Sentencias of June 27, 1894;
November 20, 1896; and December 13, 1896.) In the decisions
of November 20, 1896, it appeared that plaintiff's action arose
ex contractu, but that defendant sought to avail himself of the
provisions of article 1902 of the Civil Code as a defense. The
Spanish Supreme Court rejected defendant's contention,
saying:
These are not cases of injury caused, without any pre-existing
obligation, by fault or negligence, such as those to which article
1902 of the Civil Code relates, but of damages caused by the
defendant's failure to carry out the undertakings imposed by
the contracts . . . .
A brief review of the earlier decision of this court involving the
liability of employers for damage done by the negligent acts of
their servants will show that in no case has the court ever
decided that the negligence of the defendant's servants has
been held to constitute a defense to an action for damages for
breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court
held that the owner of a carriage was not liable for the
damages caused by the negligence of his driver. In that case
the court commented on the fact that no evidence had been
adduced in the trial court that the defendant had been
negligent in the employment of the driver, or that he had any
knowledge of his lack of skill or carefulness.
In the case of Baer Senior & Co's Successors vs. Compania
Maritima (6 Phil. Rep., 215), the plaintiff sued the defendant for
damages caused by the loss of a barge belonging to plaintiff
which was allowed to get adrift by the negligence of
defendant's servants in the course of the performance of a
contract of towage. The court held, citing Manresa (vol. 8, pp.
29, 69) that if the "obligation of the defendant grew out of a
contract made between it and the plaintiff . . . we do not think
that the provisions of articles 1902 and 1903 are applicable to
the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374),
plaintiff sued the defendant to recover damages for the
personal injuries caused by the negligence of defendant's
chauffeur while driving defendant's automobile in which
defendant was riding at the time. The court found that the
damages were caused by the negligence of the driver of the
automobile, but held that the master was not liable, although
he was present at the time, saying:
. . . unless the negligent acts of the driver are continued for a
length of time as to give the owner a reasonable opportunity to
observe them and to direct the driver to desist therefrom. . . .
The act complained of must be continued in the presence of the
owner for such length of time that the owner by his
acquiescence, makes the driver's acts his own.
60 | P a g e
In the case of Yamada vs. Manila Railroad Co. and Bachrach
Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that the court
rested its conclusion as to the liability of the defendant upon
article 1903, although the facts disclosed that the injury
complaint of by plaintiff constituted a breach of the duty to him
arising out of the contract of transportation. The express
ground of the decision in this case was that article 1903, in
dealing with the liability of a master for the negligent acts of his
servants "makes the distinction between private individuals and
public enterprise;" that as to the latter the law creates a
rebuttable presumption of negligence in the selection or
direction of servants; and that in the particular case the
presumption of negligence had not been overcome.
It is evident, therefore that in its decision Yamada case, the
court treated plaintiff's action as though founded in tort rather
than as based upon the breach of the contract of carriage, and
an examination of the pleadings and of the briefs shows that
the questions of law were in fact discussed upon this theory.
Viewed from the standpoint of the defendant the practical
result must have been the same in any event. The proof
disclosed beyond doubt that the defendant's servant was
grossly negligent and that his negligence was the proximate
cause of plaintiff's injury. It also affirmatively appeared that
defendant had been guilty of negligence in its failure to
exercise proper discretion in the direction of the servant.
Defendant was, therefore, liable for the injury suffered by
plaintiff, whether the breach of the duty were to be regarded as
constituting culpa aquiliana or culpa contractual. As Manresa
points out (vol. 8, pp. 29 and 69) whether negligence occurs an
incident in the course of the performance of a contractual
undertaking or its itself the source of an extra-contractual
undertaking obligation, its essential characteristics are
identical. There is always an act or omission productive of
damage due to carelessness or inattention on the part of the
defendant. Consequently, when the court holds that a
defendant is liable in damages for having failed to exercise due
care, either directly, or in failing to exercise proper care in the
selection and direction of his servants, the practical result is
identical in either case. Therefore, it follows that it is not to be
inferred, because the court held in the Yamada case that
defendant was liable for the damages negligently caused by its
servants to a person to whom it was bound by contract, and
made reference to the fact that the defendant was negligent in
the selection and control of its servants, that in such a case the
court would have held that it would have been a good defense
to the action, if presented squarely upon the theory of the
breach of the contract, for defendant to have proved that it did
in fact exercise care in the selection and control of the servant.
The true explanation of such cases is to be found by directing
the attention to the relative spheres of contractual and extra-
contractual obligations. The field of non- contractual obligation
is much more broader than that of contractual obligations,
comprising, as it does, the whole extent of juridical human
relations. These two fields, figuratively speaking, concentric;
that is to say, the mere fact that a person is bound to another
by contract does not relieve him from extra-contractual liability
to such person. When such a contractual relation exists the
obligor may break the contract under such conditions that the
same act which constitutes the source of an extra-contractual
obligation had no contract existed between the parties.
The contract of defendant to transport plaintiff carried with it,
by implication, the duty to carry him in safety and to provide
safe means of entering and leaving its trains (civil code, article
1258). That duty, being contractual, was direct and immediate,
and its non-performance could not be excused by proof that the
fault was morally imputable to defendant's servants.
The railroad company's defense involves the assumption that
even granting that the negligent conduct of its servants in
placing an obstruction upon the platform was a breach of its
contractual
61 | P a g e
obligation to maintain safe means of approaching and leaving
its trains, the direct and proximate cause of the injury suffered
by plaintiff was his own contributory negligence in failing to
wait until the train had come to a complete stop before
alighting. Under the doctrine of comparative negligence
announced in the Rakes case (supra), if the accident was
caused by plaintiff's own negligence, no liability is imposed
upon defendant's negligence and plaintiff's negligence merely
contributed to his injury, the damages should be apportioned. It
is, therefore, important to ascertain if defendant was in fact
guilty of negligence.
It may be admitted that had plaintiff waited until the train had
come to a full stop before alighting, the particular injury
suffered by him could not have occurred. Defendant contends,
and cites many authorities in support of the contention, that it
is negligence per se for a passenger to alight from a moving
train. We are not disposed to subscribe to this doctrine in its
absolute form. We are of the opinion that this proposition is too
badly stated and is at variance with the experience of every-
day life. In this particular instance, that the train was barely
moving when plaintiff alighted is shown conclusively by the fact
that it came to stop within six meters from the place where he
stepped from it. Thousands of person alight from trains under
these conditions every day of the year, and sustain no injury
where the company has kept its platform free from dangerous
obstructions. There is no reason to believe that plaintiff would
have suffered any injury whatever in alighting as he did had it
not been for defendant's negligent failure to perform its duty to
provide a safe alighting place.
We are of the opinion that the correct doctrine relating to this
subject is that expressed in Thompson's work on Negligence
(vol. 3, sec. 3010) as follows:
The test by which to determine whether the passenger has
been guilty of negligence in attempting to alight from a moving
railway
train, is that of ordinary or reasonable care. It is to be
considered whether an ordinarily prudent person, of the age,
sex and condition of the passenger, would have acted as the
passenger acted under the circumstances disclosed by the
evidence. This care has been defined to be, not the care which
may or should be used by the prudent man generally, but the
care which a man of ordinary prudence would use under similar
circumstances, to avoid injury." (Thompson, Commentaries on
Negligence, vol. 3, sec. 3010.)
Or, it we prefer to adopt the mode of exposition used by this
court in Picart vs. Smith (37 Phil. rep., 809), we may say that
the test is this; Was there anything in the circumstances
surrounding the plaintiff at the time he alighted from the train
which would have admonished a person of average prudence
that to get off the train under the conditions then existing was
dangerous? If so, the plaintiff should have desisted from
alighting; and his failure so to desist was contributory
negligence.1awph!l.net
As the case now before us presents itself, the only fact from
which a conclusion can be drawn to the effect that plaintiff was
guilty of contributory negligence is that he stepped off the car
without being able to discern clearly the condition of the
platform and while the train was yet slowly moving. In
considering the situation thus presented, it should not be
overlooked that the plaintiff was, as we find, ignorant of the fact
that the obstruction which was caused by the sacks of melons
piled on the platform existed; and as the defendant was bound
by reason of its duty as a public carrier to afford to its
passengers facilities for safe egress from its trains, the plaintiff
had a right to assume, in the absence of some circumstance to
warn him to the contrary, that the platform was clear. The
place, as we have already stated, was dark, or dimly lighted,
and this also is proof of a failure upon the part of the defendant
in the performance of a duty owing by it to the plaintiff; for if it
were by any possibility concede that it had right to pile these
sacks in the path of
62 | P a g e
alighting passengers, the placing of them adequately so that
their presence would be revealed.
As pertinent to the question of contributory negligence on the
part of the plaintiff in this case the following circumstances are
to be noted: The company's platform was constructed upon a
level higher than that of the roadbed and the surrounding
ground. The distance from the steps of the car to the spot
where the alighting passenger would place his feet on the
platform was thus reduced, thereby decreasing the risk incident
to stepping off. The nature of the platform, constructed as it
was of cement material, also assured to the passenger a stable
and even surface on which to alight. Furthermore, the plaintiff
was possessed of the vigor and agility of young manhood, and
it was by no means so risky for him to get off while the train
was yet moving as the same act would have been in an aged or
feeble person. In determining the question of contributory
negligence in performing such act — that is to say, whether the
passenger acted prudently or recklessly — the age, sex, and
physical condition of the passenger are circumstances
necessarily affecting the safety of the passenger, and should be
considered. Women, it has been observed, as a general rule are
less capable than men of alighting with safety under such
conditions, as the nature of their wearing apparel obstructs the
free movement of the limbs. Again, it may be noted that the
place was perfectly familiar to the plaintiff as it was his daily
custom to get on and of the train at this station. There could,
therefore, be no uncertainty in his mind with regard either to
the length of the step which he was required to take or the
character of the platform where he was alighting. Our
conclusion is that the conduct of the plaintiff in undertaking to
alight while the train was yet slightly under way was not
characterized by imprudence and that therefore he was not
guilty of contributory negligence.
The evidence shows that the plaintiff, at the time of the
accident, was earning P25 a month as a copyist clerk, and that
the injuries
he has suffered have permanently disabled him from continuing
that employment. Defendant has not shown that any other
gainful occupation is open to plaintiff. His expectancy of life,
according to the standard mortality tables, is approximately
thirty-three years. We are of the opinion that a fair
compensation for the damage suffered by him for his
permanent disability is the sum of P2,500, and that he is also
entitled to recover of defendant the additional sum of P790.25
for medical attention, hospital services, and other incidental
expenditures connected with the treatment of his injuries.
The decision of lower court is reversed, and judgment is hereby
rendered plaintiff for the sum of P3,290.25, and for the costs of
both instances. So ordered.
15. G.R. No. 34840
September 23, 1931
NARCISO GUTIERREZ, plaintiff-appellee,
vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL
GUTIERREZ, ABELARDO VELASCO, and SATURNINO CORTEZ,
defendants-appellants.
L.D. Lockwood for appellants Velasco and Cortez. San Agustin
and Roxas for other appellants. Ramon Diokno for appellee.
MALCOLM, J.:
This is an action brought by the plaintiff in the Court of First
Instance of Manila against the five defendants, to recover
damages in the amount of P10,000, for physical injuries
suffered as a result of an automobile accident. On judgment
being
63 | P a g e
rendered as prayed for by the plaintiff, both sets of defendants
appealed.
On February 2, 1930, a passenger truck and an automobile of
private ownership collided while attempting to pass each other
on the Talon bridge on the Manila South Road in the
municipality of Las Piñas, Province of Rizal. The truck was
driven by the chauffeur Abelardo Velasco, and was owned by
Saturnino Cortez. The automobile was being operated by
Bonifacio Gutierrez, a lad 18 years of age, and was owned by
Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At
the time of the collision, the father was not in the car, but the
mother, together will several other members of the Gutierrez
family, seven in all, were accommodated therein. A passenger
in the autobus, by the name of Narciso Gutierrez, was en route
from San Pablo, Laguna, to Manila. The collision between the
bus and the automobile resulted in Narciso Gutierrez suffering a
fracture right leg which required medical attendance for a
considerable period of time, and which even at the date of the
trial appears not to have healed properly.
It is conceded that the collision was caused by negligence pure
and simple. The difference between the parties is that, while
the plaintiff blames both sets of defendants, the owner of the
passenger truck blames the automobile, and the owner of the
automobile, in turn, blames the truck. We have given close
attention to these highly debatable points, and having done so,
a majority of the court are of the opinion that the findings of the
trial judge on all controversial questions of fact find sufficient
support in the record, and so should be maintained. With this
general statement set down, we turn to consider the respective
legal obligations of the defendants.
In amplification of so much of the above pronouncement as
concerns the Gutierrez family, it may be explained that the
youth Bonifacio was in incompetent chauffeur, that he was
driving at an
excessive rate of speed, and that, on approaching the bridge
and the truck, he lost his head and so contributed by his
negligence to the accident. The guaranty given by the father at
the time the son was granted a license to operate motor
vehicles made the father responsible for the acts of his son.
Based on these facts, pursuant to the provisions of article 1903
of the Civil Code, the father alone and not the minor or the
mother, would be liable for the damages caused by the minor.
We are dealing with the civil law liability of parties for
obligations which arise from fault or negligence. At the same
time, we believe that, as has been done in other cases, we can
take cognizance of the common law rule on the same subject.
In the United States, it is uniformly held that the head of a
house, the owner of an automobile, who maintains it for the
general use of his family is liable for its negligent operation by
one of his children, whom he designates or permits to run it,
where the car is occupied and being used at the time of the
injury for the pleasure of other members of the owner's family
than the child driving it. The theory of the law is that the
running of the machine by a child to carry other members of
the family is within the scope of the owner's business, so that
he is liable for the negligence of the child because of the
relationship of master and servant. (Huddy On Automobiles, 6th
ed., sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The
liability of Saturnino Cortez, the owner of the truck, and of his
chauffeur Abelardo Velasco rests on a different basis, namely,
that of contract which, we think, has been sufficiently
demonstrated by the allegations of the complaint, not
controverted, and the evidence. The reason for this conclusion
reaches to the findings of the trial court concerning the position
of the truck on the bridge, the speed in operating the machine,
and the lack of care employed by the chauffeur. While these
facts are not as clearly evidenced as are those which convict
the other defendant, we nevertheless hesitate to disregard the
points emphasized by the trial judge. In its broader aspects, the
case is one of two drivers approaching a
64 | P a g e
narrow bridge from opposite directions, with neither being
willing to slow up and give the right of way to the other, with
the inevitable result of a collision and an accident.
The defendants Velasco and Cortez further contend that there
existed contributory negligence on the part of the plaintiff,
consisting principally of his keeping his foot outside the truck,
which occasioned his injury. In this connection, it is sufficient to
state that, aside from the fact that the defense of contributory
negligence was not pleaded, the evidence bearing out this
theory of the case is contradictory in the extreme and leads us
far afield into speculative matters.
The last subject for consideration relates to the amount of the
award. The appellee suggests that the amount could justly be
raised to P16,517, but naturally is not serious in asking for this
sum, since no appeal was taken by him from the judgment. The
other parties unite in challenging the award of P10,000, as
excessive. All facts considered, including actual expenditures
and damages for the injury to the leg of the plaintiff, which may
cause him permanent lameness, in connection with other
adjudications of this court, lead us to conclude that a total sum
for the plaintiff of P5,000 would be fair and reasonable. The
difficulty in approximating the damages by monetary
compensation is well elucidated by the divergence of opinion
among the members of the court, three of whom have inclined
to the view that P3,000 would be amply sufficient, while a
fourth member has argued that P7,500 would be none too
much.
In consonance with the foregoing rulings, the judgment
appealed from will be modified, and the plaintiff will have
judgment in his favor against the defendants Manuel Gutierrez,
Abelardo Velasco, and Saturnino Cortez, jointly and severally,
for the sum of P5,000, and the costs of both instances.
16. G.R. No. 178610 November 17, 2010
HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF
RETIREMENT PLAN, Retirement Trust Fund, Inc.) Petitioner,
vs.
SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents.
DECISION
CARPIO, J.:
G.R. No. 178610 is a petition for review1 assailing the Decision2
promulgated on 30 March 2006 by the Court of Appeals (CA) in
CA-G.R. SP No. 62685. The appellate court granted the petition
filed by Fe Gerong (Gerong) and Spouses Bienvenido and Editha
Broqueza (spouses Broqueza) and dismissed the consolidated
complaints filed by Hongkong and Shanghai Banking
Corporation, Ltd. - Staff Retirement Plan (HSBCL-SRP) for
recovery of sum of money. The appellate court reversed and set
aside the Decision3 of Branch 139 of the Regional Trial Court of
Makati City (RTC) in Civil Case No. 00-787 dated 11 December
2000, as well as its Order4 dated 5 September 2000. The RTC’s
decision affirmed the Decision5 dated 28 December 1999 of
Branch 61 of the Metropolitan Trial Court (MeTC) of Makati City
in Civil Case No. 52400 for Recovery of a Sum of Money.
The Facts
The appellate court narrated the facts as follows:
Petitioners Gerong and [Editha] Broqueza (defendants below)
are employees of Hongkong and Shanghai Banking Corporation
65 | P a g e
(HSBC). They are also members of respondent Hongkong
Shanghai Banking Corporation, Ltd. Staff Retirement Plan
(HSBCL-SRP, plaintiff below). The HSBCL-SRP is a retirement
plan established by HSBC through its Board of Trustees for the
benefit of the employees.
On October 1, 1990, petitioner [Editha] Broqueza obtained a car
loan in the amount of Php175,000.00. On December 12, 1991,
she again applied and was granted an appliance loan in the
amount of Php24,000.00. On the other hand, petitioner Gerong
applied and was granted an emergency loan in the amount of
Php35,780.00 on June 2, 1993. These loans are paid through
automatic salary deduction.
Meanwhile [in 1993], a labor dispute arose between HSBC and
its employees. Majority of HSBC’s employees were terminated,
among whom are petitioners Editha Broqueza and Fe Gerong.
The employees then filed an illegal dismissal case before the
National Labor Relations Commission (NLRC) against HSBC. The
legality or illegality of such termination is now pending before
this appellate Court in CA G.R. CV No. 56797, entitled Hongkong
Shanghai Banking Corp. Employees Union, et al. vs. National
Labor Relations Commission, et al.
Because of their dismissal, petitioners were not able to pay the
monthly amortizations of their respective loans. Thus,
respondent HSBCL-SRP considered the accounts of petitioners
delinquent. Demands to pay the respective obligations were
made upon petitioners, but they failed to pay.6
HSBCL-SRP, acting through its Board of Trustees and
represented by Alejandro L. Custodio, filed Civil Case No. 52400
against the spouses Broqueza on 31 July 1996. On 19
September 1996, HSBCL-SRP filed Civil Case No. 52911 against
Gerong. Both suits were civil actions for recovery and collection
of sums of money.
The Metropolitan Trial Court’s Ruling
On 28 December 1999, the MeTC promulgated its Decision7 in
favor of HSBCL-SRP. The MeTC ruled that the nature of HSBCL-
SRP’s demands for payment is civil and has no connection to
the ongoing labor dispute. Gerong and Editha Broqueza’s
termination from employment resulted in the loss of continued
benefits under their retirement plans. Thus, the loans secured
by their future retirement benefits to which they are no longer
entitled are reduced to unsecured and pure civil obligations. As
unsecured and pure obligations, the loans are immediately
demandable.
The dispositive portion of the MeTC’s decision reads:
WHEREFORE, premises considered and in view of the foregoing,
the Court finds that the plaintiff was able to prove by a
preponderance of evidence the existence and immediate
demandability of the defendants’ loan obligations as judgment
is hereby rendered in favor of the plaintiff and against the
defendants in both cases, ordering the latter:
1. In Civil Case No. 52400, to pay the amount of Php116,740.00
at six percent interest per annum from the time of demand and
in Civil Case No. 52911, to pay the amount of Php25,344.12 at
six percent per annum from the time of the filing of these
cases, until the amount is fully paid;
2. To pay the amount of Php20,000.00 each as reasonable
attorney’s fees;
3. Cost of suit. SO ORDERED.8
66 | P a g e
Gerong and the spouses Broqueza filed a joint appeal of the
MeTC’s decision before the RTC. Gerong’s case was docketed
Civil Case No. 00-786, while the spouses Broqueza’s case was
docketed as Civil Case No. 00-787.
The Regional Trial Court’s Ruling
The RTC initially denied the joint appeal because of the belated
filing of Gerong and the spouses Broqueza’s memorandum. The
RTC later reconsidered the order of denial and resolved the
issues in the interest of justice.
On 11 December 2000, the RTC affirmed the MeTC’s decision in
toto.9
The RTC ruled that Gerong and Editha Broqueza’s termination
from employment disqualified them from availing of benefits
under their retirement plans. As a consequence, there is no
longer any security for the loans. HSBCL-SRP has a legal right to
demand immediate settlement of the unpaid balance because
of Gerong and Editha Broqueza’s continued default in payment
and their failure to provide new security for their loans.
Moreover, the absence of a period within which to pay the loan
allows HSBCL-SRP to demand immediate payment. The loan
obligations are considered pure obligations, the fulfillment of
which are demandable at once.
Gerong and the spouses Broqueza then filed a Petition for
Review under Rule 42 before the CA.
The Ruling of the Court of Appeals
On 30 March 2006, the CA rendered its Decision10 which
reversed the 11 December 2000 Decision of the RTC. The CA
ruled that the HSBCL-SRP’s complaints for recovery of sum of
money against Gerong and the spouses Broqueza are
premature
as the loan obligations have not yet matured. Thus, no cause of
action accrued in favor of HSBCL-SRP. The dispositive portion of
the appellate court’s Decision reads as follows:
WHEREFORE, the assailed Decision of the RTC is REVERSED and
SET ASIDE. A new one is hereby rendered DISMISSING the
consolidated complaints for recovery of sum of money.
SO ORDERED.11
HSBCL-SRP filed a motion for reconsideration which the CA
denied for lack of merit in its Resolution12 promulgated on 19
June 2007.
On 6 August 2007, HSBCL-SRP filed a manifestation
withdrawing the petition against Gerong because she already
settled her obligations. In a Resolution13 of this Court dated 10
September 2007, this Court treated the manifestation as a
motion to withdraw the petition against Gerong, granted the
motion, and considered the case against Gerong closed and
terminated.
Issues
HSBCL-SRP enumerated the following grounds to support its
Petition:
I. The Court of Appeals has decided a question of substance in a
way not in accord with law and applicable decisions of this
Honorable Court; and
II. The Court of Appeals has departed from the accepted and
usual course of judicial proceedings in reversing the decision of
the Regional Trial Court and the Metropolitan Trial Court.14
The Court’s Ruling
67 | P a g e
The petition is meritorious. We agree with the rulings of the
MeTC and the RTC.
The Promissory Notes uniformly provide: PROMISSORY NOTE
P_____ Makati, M.M. ____ 19__
FOR VALUE RECEIVED, I/WE _____ jointly and severally promise
to pay to THE HSBC RETIREMENT PLAN (hereinafter called the
"PLAN") at its office in the Municipality of Makati, Metro Manila,
on or before until fully paid the sum of PESOS ___ (P___)
Philippine Currency without discount, with interest from date
hereof at the rate of Six per cent (6%) per annum, payable
monthly.
I/WE agree that the PLAN may, upon written notice, increase
the interest rate stipulated in this note at any time depending
on prevailing conditions.
I/WE hereby expressly consent to any extensions or renewals
hereof for a portion or whole of the principal without notice to
the other(s), and in such a case our liability shall remain joint
and several.1avvphi1
In case collection is made by or through an attorney, I/WE
jointly and severally agree to pay ten percent (10%) of the
amount due on this note (but in no case less than P200.00) as
and for attorney’s fees in addition to expenses and costs of suit.
In case of judicial execution, I/WE hereby jointly and severally
waive our rights under the provisions of Rule 39, Section 12 of
the Rules of Court.15
In ruling for HSBCL-SRP, we apply the first paragraph of Article
1179 of the Civil Code:
Art. 1179. Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once.
x x x. (Emphasis supplied.)
We affirm the findings of the MeTC and the RTC that there is no
date of payment indicated in the Promissory Notes. The RTC is
correct in ruling that since the Promissory Notes do not contain
a period, HSBCL-SRP has the right to demand immediate
payment. Article 1179 of the Civil Code applies. The spouses
Broqueza’s obligation to pay HSBCL-SRP is a pure obligation.
The fact that HSBCL-SRP was content with the prior monthly
check-off from Editha Broqueza’s salary is of no moment. Once
Editha Broqueza defaulted in her monthly payment, HSBCL-SRP
made a demand to enforce a pure obligation.
In their Answer, the spouses Broqueza admitted that prior to
Editha Broqueza’s dismissal from HSBC in December 1993, she
"religiously paid the loan amortizations, which HSBC collected
through payroll check-off."16 A definite amount is paid to
HSBCL- SRP on a specific date. Editha Broqueza authorized
HSBCL-SRP to make deductions from her payroll until her loans
are fully paid. Editha Broqueza, however, defaulted in her
monthly loan payment due to her dismissal. Despite the
spouses Broqueza’s protestations, the payroll deduction is
merely a convenient mode of payment and not the sole source
of payment for the loans. HSBCL-SRP never agreed that the
loans will be paid only through salary deductions. Neither did
HSBCL-SRP agree that if Editha Broqueza ceases to be an
employee of HSBC, her obligation to pay the loans will be
suspended. HSBCL-SRP can immediately demand payment of
the loans at anytime because the obligation to pay has no
period. Moreover, the spouses Broqueza have already incurred
in default in paying the monthly installments.
68 | P a g e
Finally, the enforcement of a loan agreement involves "debtor-
creditor relations founded on contract and does not in any way
concern employee relations. As such it should be enforced
through a separate civil action in the regular courts and not
before the Labor Arbiter."17
WHEREFORE, we GRANT the petition. The Decision of the Court
of Appeals in CA-G.R. SP No. 62685 promulgated on 30 March
2006 is REVERSED and SET ASIDE. The decision of Branch 139
of the Regional Trial Court of Makati City in Civil Case No. 00-
787, as well as the decision of Branch 61 of the Metropolitan
Trial Court of Makati City in Civil Case No. 52400 against the
spouses Bienvenido and Editha Broqueza, are AFFIRMED. Costs
against respondents.
the decisive issue is whether a creditor is barred by prescription
in his attempt to collect on a promissory note executed more
than fifteen years earlier with the debtor sued promising to pay
either upon receipt by him of his share from a certain estate or
upon demand, the basis for the action being the latter
alternative. The lower court held that the ten-year period of
limitation of actions did apply, the note being immediately due
and demandable, the creditor admitting expressly that he was
relying on the wording "upon demand." On the above facts as
found, and with the law being as it is, it cannot be said that its
decision is infected with error. We affirm.
From the appealed decision, the following appears: "The parties
in this case agreed to submit the matter for resolution on the
basis of their pleadings and annexes and their respective
memoranda submitted. Petitioner George Pay is a creditor of
the Late Justo Palanca who died in Manila on July 3, 1963. The
claim of the petitioner is based on a promissory note dated
January 30, 1952, whereby the late Justo Palanca and Rosa
Gonzales Vda. de Carlos Palanca promised to pay George Pay
the amount of P26,900.00, with interest thereon at the rate of
12% per annum. George Pay is now before this Court, asking
that Segundina Chua vda. de Palanca, surviving spouse of the
late Justo Palanca, he appointed as administratrix of a certain
piece of property which is a residential dwelling located at 2656
Taft Avenue, Manila, covered by Tax Declaration No. 3114 in the
name of Justo Palanca, assessed at P41,800.00. The idea is that
once said property is brought under administration, George Pay,
as creditor, can file his claim against the administratrix." 1 It
then stated that the petition could not prosper as there was a
refusal on the part of Segundina Chua Vda. de Palanca to be
appointed as administratrix; that the property sought to be
administered no longer belonged to the debtor, the late Justo
Palanca; and that the rights of petitioner-creditor had already
prescribed. The promissory note, dated January 30, 1962, is
worded thus: " `For value received from time to time since
1947, we [jointly and
17. G.R. No. L-29900
June 28, 1974
IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA,
Deceased, GEORGE PAY, petitioner- appellant,
vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor- appellee.
Florentino B. del Rosario for petitioner-appellant. Manuel V. San
Jose for oppositor-appellee.
FERNANDO, J.:p
There is no difficulty attending the disposition of this appeal by
petitioner on questions of law. While several points were raised,
69 | P a g e
severally promise to] pay to Mr. [George Pay] at his office at the
China Banking Corporation the sum of [Twenty Six Thousand
Nine Hundred Pesos] (P26,900.00), with interest thereon at the
rate of 12% per annum upon receipt by either of the
undersigned of cash payment from the Estate of the late Don
Carlos Palanca or upon demand'. . . . As stated, this promissory
note is signed by Rosa Gonzales Vda. de Carlos Palanca and
Justo Palanca." 2 Then came this paragraph: "The Court has
inquired whether any cash payment has been received by
either of the signers of this promissory note from the Estate of
the late Carlos Palanca. Petitioner informed that he does not
insist on this provision but that petitioner is only claiming on his
right under the promissory note ." 3 After which, came the
ruling that the wording of the promissory note being "upon
demand," the obligation was immediately due. Since it was
dated January 30, 1952, it was clear that more "than ten (10)
years has already transpired from that time until to date. The
action, therefore, of the creditor has definitely prescribed." 4
The result, as above noted, was the dismissal of the petition.
In an exhaustive brief prepared by Attorney Florentino B. del
Rosario, petitioner did assail the correctness of the rulings of
the lower court as to the effect of the refusal of the surviving
spouse of the late Justo Palanca to be appointed as
administratrix, as to the property sought to be administered no
longer belonging to the debtor, the late Justo Palanca, and as to
the rights of petitioner-creditor having already prescribed. As
noted at the outset, only the question of prescription need
detain us in the disposition of this appeal. Likewise, as
intimated, the decision must be affirmed, considering the clear
tenor of the promissory note.
From the manner in which the promissory note was executed, it
would appear that petitioner was hopeful that the satisfaction
of his credit could he realized either through the debtor sued
receiving cash payment from the estate of the late Carlos
Palanca
presumptively as one of the heirs, or, as expressed therein,
"upon demand." There is nothing in the record that would
indicate whether or not the first alternative was fulfilled. What
is undeniable is that on August 26, 1967, more than fifteen
years after the execution of the promissory note on January 30,
1952, this petition was filed. The defense interposed was
prescription. Its merit is rather obvious. Article 1179 of the Civil
Code provides: "Every obligation whose performance does not
depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once." This used to
be Article 1113 of the Spanish Civil Code of 1889. As far back
as Floriano v. Delgado, 5 a 1908 decision, it has been applied
according to its express language. The well-known Spanish
commentator, Manresa, on this point, states: "Dejando con
acierto, el caracter mas teorico y grafico del acto, o sea la
perfeccion de este, se fija, para determinar el concepto de la
obligacion pura, en el distinctive de esta, y que es
consecuencia de aquel: la exigibilidad immediata." 6
The obligation being due and demandable, it would appear that
the filing of the suit after fifteen years was much too late. For
again, according to the Civil Code, which is based on Section 43
of Act No. 190, the prescriptive period for a written contract is
that of ten years. 7 This is another instance where this Court
has consistently adhered to the express language of the
applicable norm. 8 There is no necessity therefore of passing
upon the other legal questions as to whether or not it did
suffice for the petition to fail just because the surviving spouse
refuses to be made administratrix, or just because the estate
was left with no other property. The decision of the lower court
cannot be overturned.
WHEREFORE, the lower court decision of July 24, 1968 is
affirmed. Costs against George Pay.
70 | P a g e
18. G.R. No. L-16570 March 9, 1922
SMITH, BELL & CO., LTD., plaintiff-appellant, vs.
VICENTE SOTELO MATTI, defendant-appellant.
Ross and Lawrence and Ewald E. Selph for plaintiff- appellant.
Ramon Sotelo for defendant-appellant.
ROMUALDEZ, J.:
In August, 1918, the plaintiff corporation and the defendant, Mr.
Vicente Sotelo, entered into contracts whereby the former
obligated itself to sell, and the latter to purchase from it, two
steel tanks, for the total price of twenty-one thousand pesos
(P21,000), the same to be shipped from New York and delivered
at Manila "within three or four months;" two expellers at the
price of twenty five thousand pesos (P25,000) each, which were
to be shipped from San Francisco in the month of September,
1918, or as soon as possible; and two electric motors at the
price of two thousand pesos (P2,000) each, as to the delivery of
which stipulation was made, couched in these words:
"Approximate delivery within ninety days. — This is not
guaranteed."
The tanks arrived at Manila on the 27th of April, 1919: the
expellers on the 26th of October, 1918; and the motors on the
27th of February, 1919.
The plaintiff corporation notified the defendant, Mr. Sotelo, of
the arrival of these goods, but Mr. Sotelo refused to receive
them and to pay the prices stipulated.
The plaintiff brought suit against the defendant, based on four
separate causes of action, alleging, among other facts, that it
immediately notified the defendant of the arrival of the goods,
and asked instructions from him as to the delivery thereof, and
that the defendant refused to receive any of them and to pay
their price. The plaintiff, further, alleged that the expellers and
the motors were in good condition. (Amended complaint, pages
16- 30, Bill of Exceptions.)
In their answer, the defendant, Mr. Sotelo, and the intervenor,
the Manila Oil Refining and By-Products Co., Inc., denied the
plaintiff's allegations as to the shipment of these goods and
their arrival at Manila, the notification to the defendant, Mr.
Sotelo, the latter's refusal to receive them and pay their price,
and the good condition of the expellers and the motors,
alleging as special defense that Mr. Sotelo had made the
contracts in question as manager of the intervenor, the Manila
Oil Refining and By- Products Co., Inc which fact was known to
the plaintiff, and that "it was only in May, 1919, that it notified
the intervenor that said tanks had arrived, the motors and the
expellers having arrived incomplete and long after the date
stipulated." As a counterclaim or set-off, they also allege that,
as a consequence of the plaintiff's delay in making delivery of
the goods, which the intervenor intended to use in the
manufacture of cocoanut oil, the intervenor suffered damages
in the sums of one hundred sixteen thousand seven hundred
eighty-three pesos and ninety-one centavos (P116,783.91) for
the nondelivery of the tanks, and twenty-one thousand two
hundred and fifty pesos (P21,250) on account of the expellers
and the motors not having arrived in due time.
The case having been tried, the court below absolved the
defendants from the complaint insofar as the tanks and the
electric motors were concerned, but rendered judgment against
them, ordering them to "receive the aforesaid expellers and pay
the plaintiff the sum of fifty thousand pesos (P50,00), the price
of the said goods, with legal interest thereon from July 26,
1919, and costs."
71 | P a g e
Both parties appeal from this judgment, each assigning several
errors in the findings of the lower court.
The principal point at issue in this case is whether or not, under
the contracts entered into and the circumstances established in
the record, the plaintiff has fulfilled, in due time, its obligation
to bring the goods in question to Manila. If it has, then it is
entitled to the relief prayed for; otherwise, it must be held
guilty of delay and liable for the consequences thereof.
To solve this question, it is necessary to determine what period
was fixed for the delivery of the goods.
As regards the tanks, the contracts A and B (pages 61 and 62 of
the record) are similar, and in both of them we find this clause:
To be delivered within 3 or 4 months — The promise or
indication of shipment carries with it absolutely no obligation on
our part — Government regulations, railroad embargoes, lack of
vessel space, the exigencies of the requirement of the United
States Government, or a number of causes may act to entirely
vitiate the indication of shipment as stated. In other words, the
order is accepted on the basis of shipment at Mill's
convenience, time of shipment being merely an indication of
what we hope to accomplish.
In the contract Exhibit C (page 63 of the record), with reference
to the expellers, the following stipulation appears:
The following articles, hereinbelow more particularly described,
to be shipped at San Francisco within the month of September /
18, or as soon as possible. — Two Anderson oil expellers . . . .
And in the contract relative to the motors (Exhibit D, page 64,
rec.) the following appears:
Approximate delivery within ninety days. — This is not
guaranteed. — This sale is subject to our being able to obtain
Priority Certificate, subject to the United States Government
requirements and also subject to confirmation of manufactures.
In all these contracts, there is a final clause as follows:
The sellers are not responsible for delays caused by fires, riots
on land or on the sea, strikes or other causes known as "Force
Majeure" entirely beyond the control of the sellers or their
representatives.
Under these stipulations, it cannot be said that any definite
date was fixed for the delivery of the goods. As to the tanks,
the agreement was that the delivery was to be made "within 3
or 4 months," but that period was subject to the contingencies
referred to in a subsequent clause. With regard to the expellers,
the contract says "within the month of September, 1918," but
to this is added "or as soon as possible." And with reference to
the motors, the contract contains this expression, "Approximate
delivery within ninety days," but right after this, it is noted that
"this is not guaranteed."
The oral evidence falls short of fixing such period.
From the record it appears that these contracts were executed
at the time of the world war when there existed rigid
restrictions on the export from the United States of articles like
the machinery in question, and maritime, as well as railroad,
transportation was difficult, which fact was known to the
parties; hence clauses were inserted in the contracts, regarding
"Government regulations, railroad embargoes, lack of vessel
space, the exigencies of the requirements of the United States
Government," in connection with the tanks and "Priority
Certificate, subject to the United State Government
requirements," with respect to the motors. At the time of the
execution of the contracts, the parties were not
72 | P a g e
unmindful of the contingency of the United States Government
not allowing the export of the goods, nor of the fact that the
other foreseen circumstances therein stated might prevent it.
Considering these contracts in the light of the civil law, we
cannot but conclude that the term which the parties attempted
to fix is so uncertain that one cannot tell just whether, as a
matter of fact, those articles could be brought to Manila or not.
If that is the case, as we think it is, the obligations must be
regarded as conditional.
Obligations for the performance of which a day certain has
been fixed shall be demandable only when the day arrives.
A day certain is understood to be one which must necessarily
arrive, even though its date be unknown.
If the uncertainty should consist in the arrival or non-arrival of
the day, the obligation is conditional and shall be governed by
the rules of the next preceding section. (referring to pure and
conditional obligations). (Art. 1125, Civ. Code.)
And as the export of the machinery in question was, as stated
in the contract, contingent upon the sellers obtaining certificate
of priority and permission of the United States Government,
subject to the rules and regulations, as well as to railroad
embargoes, then the delivery was subject to a condition the
fulfillment of which depended not only upon the effort of the
herein plaintiff, but upon the will of third persons who could in
no way be compelled to fulfill the condition. In cases like this,
which are not expressly provided for, but impliedly covered, by
the Civil Code, the obligor will be deemed to have sufficiently
performed his part of the obligation, if he has done all that was
in his power, even if the condition has not been fulfilled in
reality.
In such cases, the decisions prior to the Civil Code have held
that the obligee having done all that was in his power, was
entitled to enforce performance of the obligation. This
performance, which is fictitious — not real — is not expressly
authorized by the Code, which limits itself only to declare valid
those conditions and the obligation thereby affected; but it is
neither disallowed, and the Code being thus silent, the old view
can be maintained as a doctrine. (Manresa's commentaries on
the Civil Code [1907], vol. 8, page 132.)
The decisions referred to by Mr. Manresa are those rendered by
the supreme court of Spain on November 19, 1896, and
February 23, 1871.
In the former it is held:
First. That when the fulfillment of the conditions does not
depend on the will of the obligor, but on that of a third person
who can in no way be compelled to carry it out, and it is found
by the lower court that the obligor has done all in his power to
comply with the obligation, the judgment of the said court,
ordering the other party to comply with his part of the contract,
is not contrary to the law of contracts, or to Law 1, Tit. I, Book
10, of the "Novísima Recopilación," or Law 12, Tit. 11, of Partida
5, when in the said finding of the lower court, no law or
precedent is alleged to have been violated. (Jurisprudencia Civil
published by the directors of the Revista General de Legislacion
y Jurisprudencia [1866], vol. 14, page 656.)
In the second decision, the following doctrine is laid down:
Second. That when the fulfillment of the condition does not
depend on the will of the obligor, but on that of a third person,
who can in no way be compelled to carry it out, the obligor's
part of the contract is complied withalf Belisario not having
exercised his right of repurchase reserved in the sale of Basilio
Borja
73 | P a g e
mentioned in paragraph (13) hereof, the affidavit of Basilio
Borja for the consolidacion de dominio was presented for record
in the registry of deeds and recorded in the registry on the
same date.
(32) The Maximo Belisario left a widow, the opponent Adelina
Ferrer and three minor children, Vitaliana, Eugenio, and Aureno
Belisario as his only heirs.
(33) That in the execution and sales thereunder, in which C. H.
McClure appears as the judgment creditor, he was represented
by the opponent Peter W. Addison, who prepared and had
charge of publication of the notices of the various sales and
that in none of the sales was the notice published more than
twice in a newspaper.
The claims of the opponent-appellant Addison have been very
fully and ably argued by his counsel but may, we think, be
disposed of in comparatively few words. As will be seen from
the foregoing statement of facts, he rest his title (1) on the
sales under the executions issued in cases Nos. 435, 450, 454,
and 499 of the court of the justice of the peace of Dagupan with
the priority of inscription of the last two sales in the registry of
deeds, and (2) on a purchase from the Director of Lands after
the land in question had been forfeited to the Government for
non- payment of taxes under Act No. 1791.
The sheriff's sales under the execution mentioned are fatally
defective for what of sufficient publication of the notice of sale.
Section 454 of the Code of civil Procedure reads in part as
follows:
SEC. 454. Before the sale of property on execution, notice
thereof must be given, as follows:
1. In case of perishable property, by posing written notice of the
time and place of the sale in three public places of the
municipality or city where the sale is to take place, for such
time as may be reasonable, considering the character and
condition of the property;
2.*******
3. In cases of real property, by posting a similar notice
particularly describing the property, for twenty days in three
public places of the municipality or city where the property is
situated, and also where the property is to be sold, and
publishing a copy thereof once a week, for the same period, in
some newspaper published or having general circulation in the
province, if there be one. If there are newspaper published in
the province in both the Spanish and English languages, then a
like publication for a like period shall be made in one
newspaper published in the Spanish language, and in one
published in the English language: Provided, however, That
such publication in a newspaper will not be required when the
assessed valuation of the property does not exceed four
hundred pesos;
4.*******
Examining the record, we find that in cases Nos. 435 and 450
the sales took place on October 14, 1916; the notice first
published gave the date of the sale as October 15th, but upon
discovering that October 15th was a Sunday, the date was
changed to October 14th. The correct notice was published
twice in a local newspaper, the first publication was made on
October 7th and the second and last on October 14th, the date
of the sale itself. The newspaper is a weekly periodical
published every Saturday afternoon.
In case No. 454 there were only two publications of the notice
in a newspaper, the first publication being made only fourteen
days before the date of the sale. In case No. 499, there were
also only two publications, the first of which was made thirteen
days
74 | P a g e
before the sale. In the last case the sale was advertised for the
hours of from 8:30 in the morning until 4:30 in the afternoon, in
violation of section 457 of the Code of Civil Procedure. In cases
Nos. 435 and 450 the hours advertised were from 9:00 in the
morning until 4.30 in the afternoon. In all of the cases the
notices of the sale were prepared by the judgment creditor or
his agent, who also took charged of the publication of such
notices.
In the case of Campomanes vs. Bartolome and Germann & Co.
(38 Phil., 808), this court held that if a sheriff sells without the
notice prescribe by the Code of Civil Procedure induced thereto
by the judgment creditor and the purchaser at the sale is the
judgment creditor, the sale is absolutely void and not title
passes. This must now be regarded as the settled doctrine in
this jurisdiction whatever the rule may be elsewhere.
It appears affirmatively from the evidence in the present case
that there is a newspaper published in the province where the
sale in question took place and that the assessed valuation of
the property disposed of at each sale exceeded P400.
Comparing the requirements of section 454, supra, with what
was actually done, it is self-evident that notices of the sales
mentioned were not given as prescribed by the statute and
taking into consideration that in connection with these sales the
appellant Addison was either the judgment creditor or else
occupied a position analogous to that of a judgment creditor,
the sales must be held invalid.
The conveyance or reconveyance of the land from the Director
of Lands is equally invalid. The provisions of Act No. 1791
pertinent to the purchase or repurchase of land confiscated for
non- payment of taxes are found in section 19 of the Act and
read:
. . . In case such redemption be not made within the time above
specified the Government of the Philippine Islands shall have an
absolute, indefeasible title to said real property. Upon the
expiration of the said ninety days, if redemption be not made,
the provincial treasurer shall immediately notify the Director of
Lands of the forfeiture and furnish him with a description of the
property, and said Director of Lands shall have full control and
custody thereof to lease or sell the same or any portion thereof
in the same manner as other public lands are leased or sold:
Provided, That the original owner, or his legal representative,
shall have the right to repurchase the entire amount of his said
real property, at any time before a sale or contract of sale has
been made by the director of Lands to a third party, by paying
therefore the whole sum due thereon at the time of ejectment
together with a penalty of ten per centum . . . .
The appellant Addison repurchased under the final proviso of
the section quoted and was allowed to do so as the successor in
interest of the original owner under the execution sale above
discussed. As we have seen, he acquired no rights under these
sales, was therefore not the successor of the original owner and
could only have obtained a valid conveyance of such titles as
the Government might have by following the procedure
prescribed by the Public Land Act for the sale of public lands. he
is entitled to reimbursement for the money paid for the
redemption of the land, with interest, but has acquired no title
through the redemption.
The question of the priority of the record of the sheriff's sales
over that of the sale from Belisario to Borja is extensively
argued in the briefs, but from our point of view is of no
importance; void sheriff's or execution sales cannot be
validated through inscription in the Mortgage Law registry.
The opposition of Adelina Ferrer must also be overruled. She
maintained that the land in question was community property
of the marriage of Eulalio Belisario and Paula Ira: that upon the
death of Paula Ira inealed from is modified, and the defendant
Mr. Vicente Sotelo Matti, sentenced to accept and receive from
the
75 | P a g e
plaintiff the tanks, the expellers and the motors in question,
and to pay the plaintiff the sum of ninety-six thousand pesos
(P96,000), with legal interest thereon from July 17, 1919, the
date of the filing of the complaint, until fully paid, and the costs
of both instances. So ordered.
19. [G.R. No. L-27454. April 30, 1970.]
ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO
GONZALES, Defendant-Appellee.
Chaves, Elio, Chaves & Associates, for Plaintiff- Appellant.
Sulpicio E. Platon, for Defendant-Appellee.
This is a direct appeal by the party who prevailed in a suit for
breach of oral contract and recovery of damages but was
unsatisfied with the decision rendered by the Court of First
Instance of Manila, in its Civil Case No. 65138, because it
awarded him only P31.10 out of his total claim of P690 00 for
actual, temperate and moral damages and attorney’s fees.
The appealed judgment, which is brief, is hereunder quoted in
full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the
defendant, who is a typewriter repairer, a portable typewriter
for routine cleaning and servicing. The defendant was not able
to finish the job after some time despite repeated reminders
made by the plaintiff. The defendant merely gave assurances,
but failed to comply with the same. In October, 1963, the
defendant asked
from the plaintiff the sum of P6.00 for the purchase of spare
parts, which amount the plaintiff gave to the defendant. On
October 26, 1963, after getting exasperated with the delay of
the repair of the typewriter, the plaintiff went to the house of
the defendant and asked for the return of the typewriter. The
defendant delivered the typewriter in a wrapped package. On
reaching home, the plaintiff examined the typewriter returned
to him by the defendant and found out that the same was in
shambles, with the interior cover and some parts and screws
missing. On October 29, 1963. the plaintiff sent a letter to the
defendant formally demanding the return of the missing parts,
the interior cover and the sum of P6.00 (Exhibit D). The
following day, the defendant returned to the plaintiff some of
the missing parts, the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired
by Freixas Business Machines, and the repair job cost him a
total of P89.85, including labor and materials (Exhibit C).
"On August 23, 1965, the plaintiff commenced this action
before the City Court of Manila, demanding from the defendant
the payment of P90.00 as actual and compensatory damages,
P100.00 for temperate damages, P500.00 for moral damages,
and P500.00 as attorney’s fees.
"In his answer as well as in his testimony given before this
court, the defendant made no denials of the facts narrated
above, except the claim of the plaintiff that the typewriter was
delivered to the defendant through a certain Julio Bocalin,
which the defendant denied allegedly because the typewriter
was delivered to him personally by the plaintiff.
"The repair done on the typewriter by Freixas Business
Machines with the total cost of P89.85 should not, however, be
fully chargeable against the defendant. The repair invoice,
Exhibit C, shows that the missing parts had a total value of only
P31.10.
76 | P a g e
"WHEREFORE, judgment is hereby rendered ordering the
defendant to pay the plaintiff the sum of P31.10, and the costs
of suit.
"SO ORDERED."cralaw virtua1aw library
The error of the court a quo, according to the plaintiff-appellant,
Rosendo O. Chaves, is that it awarded only the value of the
missing parts of the typewriter, instead of the whole cost of
labor and materials that went into the repair of the machine, as
provided for in Article 1167 of the Civil Code, reading as
follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it,
the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention
of the tenor of the obligation. Furthermore it may be decreed
that what has been poorly done he undone."cralaw virtua1aw
library
On the other hand, the position of the defendant-appellee,
Fructuoso Gonzales, is that he is not liable at all, not even for
the sum of P31.10, because his contract with plaintiff-appellant
did not contain a period, so that plaintiff-appellant should have
first filed a petition for the court to fix the period, under Article
1197 of the Civil Code, within which the defendant appellee
was to comply with the contract before said defendant-appellee
could be held liable for breach of contract.
Because the plaintiff appealed directly to the Supreme Court
and the appellee did not interpose any appeal, the facts, as
found by the trial court, are now conclusive and non-
reviewable. 1
The appealed judgment states that the "plaintiff delivered to
the defendant . . . a portable typewriter for routine cleaning and
servicing" ; that the defendant was not able to finish the job
after some time despite repeated reminders made by the
plaintiff" ; that the "defendant merely gave assurances, but
failed to comply with the same" ; and that "after getting
exasperated with the delay of the repair of the typewriter", the
plaintiff went to the house of the defendant and asked for its
return, which was done. The inferences derivable from these
findings of fact are that the appellant and the appellee had a
perfected contract for cleaning and servicing a typewriter; that
they intended that the defendant was to finish it at some future
time although such time was not specified; and that such time
had passed without the work having been accomplished, far the
defendant returned the typewriter cannibalized and unrepaired,
which in itself is a breach of his obligation, without demanding
that he should be given more time to finish the job, or
compensation for the work he had already done. The time for
compliance having evidently expired, and there being a breach
of contract by non-performance, it was academic for the
plaintiff to have first petitioned the court to fix a period for the
performance of the contract before filing his complaint in this
case. Defendant cannot invoke Article 1197 of the Civil Code for
he virtually admitted non-performance by returning the
typewriter that he was obliged to repair in a non- working
condition, with essential parts missing. The fixing of a period
would thus be a mere formality and would serve no purpose
than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil.
18l).
It is clear that the defendant-appellee contravened the tenor of
his obligation because he not only did not repair the typewriter
but returned it "in shambles", according to the appealed
decision. For such contravention, as appellant contends, he is
liable under Article 1167 of the Civil Code. jam quot, for the
cost of executing the obligation in a proper manner. The cost of
the execution of the obligation in this case should be the cost of
the labor or service expended in the repair of the typewriter,
which is in the
77 | P a g e
amount of P58.75. because the obligation or contract was to
repair it.
In addition, the defendant-appellee is likewise liable, under
Article 1170 of the Code, for the cost of the missing parts, in
the amount of P31.10, for in his obligation to repair the
typewriter he was bound, but failed or neglected, to return it in
the same condition it was when he received it.
Appellant’s claims for moral and temperate damages and
attorney’s fees were, however, correctly rejected by the trial
court, for these were not alleged in his complaint (Record on
Appeal, pages 1-5). Claims for damages and attorney’s fees
must be pleaded, and the existence of the actual basis thereof
must be proved. 2 The appealed judgment thus made no
findings on these claims, nor on the fraud or malice charged to
the appellee. As no findings of fact were made on the claims for
damages and attorney’s fees, there is no factual basis upon
which to make an award therefor. Appellant is bound by such
judgment of the court, a quo, by reason of his having resorted
directly to the Supreme Court on questions of law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment
is hereby modified, by ordering the defendant-appellee to pay,
as he is hereby ordered to pay, the plaintiff-appellant the sum
of P89.85, with interest at the legal rate from the filing of the
complaint. Costs in all instances against appellee Fructuoso
Gonzales.
JACINTA BALDOMAR, ET AL., defendants-appellants.
Bausa and Ampil for appellants. Tolentino and Aguas for
appellee.
HILADO, J.:
Vicente Singson Encarnacion, owner of the house numbered
589 Legarda Street, Manila, some six years ago leased said
house to Jacinto Baldomar and her son, Lefrado Fernando, upon
a month- to-month basis for the monthly rental of P35. After
Manila was liberated in the last war, specifically on March 16,
1945, and on April 7, of the same year, plaintiff Singson
Encarnacion notified defendants, the said mother and son, to
vacate the house above- mentioned on or before April 15, 1945,
because plaintiff needed it for his offices as a result of the
destruction of the building where said plaintiff had said offices
before. Despite this demand, defendants insisted on continuing
their occupancy. When the original action was lodged with the
Municipal Court of Manila on April 20, 1945, defendants were in
arrears in the payment of the rental corresponding to said
month, the agrees rental being payable within the first five
days of each month. That rental was paid prior to the hearing of
the case in the municipal court, as a consequence of which said
court entered judgment for restitution and payment of rentals
at the rate of P35 a month from May 1, 1945, until defendants
completely vacate the premises. Although plaintiff included in
said original complaint a claim for P500 damages per month,
that claim was waived by him before the hearing in the
municipal court, on account of which nothing was said
regarding said damages in the municipal court's decision.
When the case reached the Court of First Instance of Manila
upon appeal, defendants filed therein a motion to dismiss
(which was similar to a motion to dismiss filed by them in the
municipal court) based upon the ground that the municipal
court had no
20. G.R. No. L-264
October 4, 1946
VICENTE SINGSON ENCARNACION, plaintiff-appellee, vs.
78 | P a g e
jurisdiction over the subject matter due to the aforesaid claim
for damages and that, therefore, the Court of First Instance had
no appellate jurisdiction over the subject matter of the action.
That motion to dismiss was denied by His Honor, Judge
Mamerto Roxas, by order dated July 21, 1945, on the ground
that in the municipal court plaintiff had waived said claim for
damages and that, therefore, the same waiver was understood
also to have been made in the Court of First
Instance.lawphil.net
In the Court of First Instance the graveman of the defense
interposed by defendants, as it was expressed defendant
Lefrado Fernando during the trial, was that the contract which
they had celebrated with plaintiff since the beginning
authorized them to continue occupying the house indefinetly
and while they should faithfully fulfill their obligations as
respects the payment of the rentals, and that this agreement
had been ratified when another ejectment case between the
parties filed during the Japanese regime concerning the same
house was allegedly compounded in the municipal court. The
Court of First Instance gave more credit to plaintiff's witness,
Vicente Singson Encarnacion, jr., who testified that the lease
had always and since the beginning been upon a month-to-
month basis. The court added in its decision that this defense
which was put up by defendant's answer, for which reason the
Court considered it as indicative of an eleventh- hour theory.
We think that the Court of First Instance was right in so
declaring. Furthermore, carried to its logical conclusion, the
defense thus set up by defendant Lefrado Fernando would
leave to the sole and exclusive will of one of the contracting
parties (defendants in this case) the validity and fulfillment of
the contract of lease, within the meaning of article 1256 of the
Civil Code, since the continuance and fulfillment of the contract
would then depend solely and exclusively upon their free and
uncontrolled choice between continuing paying the rentals or
not, completely depriving the owner of all say in the matter. If
this defense were to be allowed, so long as defendants elected
to continue the lease by continuing the payment of the rentals,
the
owner would never be able to discontinue it; conversely,
although the owner should desire the lease to continue, the
lessees could effectively thwart his purpose if they should
prefer to terminate the contract by the simple expedient of
stopping payment of the rentals. This, of course, is prohibited
by the aforesaid article of the Civil Code. (8 Manresa, 3d ed.,
pp. 626, 627; Cuyugan vs. Santos, 34 Phil., 100.)
During the pendency of the appeal in the Court of First Instance
and before the judgment appealed from was rendered on
October 31, 1945, the rentals in areas were those pertaining to
the month of August, 1945, to the date of said judgment at the
rate of P35 a month. During the pendency of the appeal in that
court, certain deposits were made by defendants on account of
rentals with the clerk of said court, and in said judgment it is
disposed that the amounts thus deposited should be delivered
to plaintiff.
Upon the whole, we are clearly of opinion that the judgment
appealed from should be, as it is hereby, affirmed, with the
costs of the three instances to appellants. So ordered.
21. G.R. No. 967
May 19, 1903
DARIO AND GAUDENCIO ELEIZEGUI, plaintiffs- appellees,
vs.
THE MANILA LAWN TENNIS CLUB, defendant- appellant.
Pillsburry and Sutro for appellant. Manuel Torres Vergara for
appellee.
ARELLANO, C. J.:
79 | P a g e
This suit concerns the lease of a piece of land for a fixed
consideration and to endure at the will of the lessee. By the
contract of lease the lessee is expressly authorized to make
improvements upon the land, by erecting buildings of both
permanent and temporary character, by making fills, laying
pipes, and making such other improvements as might be
considered desirable for the comfort and amusement of the
members.
With respect to the term of the lease the present question has
arisen. In its decision three theories have been presented: One
which makes the duration depend upon the will of the lessor,
who, upon one month's notice given to the lessee, may
terminate the lease so stipulated; another which, on the
contrary, makes it dependent upon the will of the lessee, as
stipulated; and the third, in accordance with which the right is
reversed to the courts to fix the duration of the term.
The first theory is that which has prevailed in the judgment
below, as appears from the language in which the basis of the
decision is expressed: "The court is of the opinion that the
contract of lease was terminated by the notice given by the
plaintiff on August 28 of last year . . . ." And such is the theory
maintained by the plaintiffs, which expressly rests upon article
1581 of the Civil Code, the law which was in force at the time
the contract was entered into (January 25, 1890). The judge, in
giving to this notice the effect of terminating the lease,
undoubtedly considers that it is governed by the article relied
upon by the plaintiffs, which is of the following tenor: "When
the term has not been fixed for the lease, it is understood to be
for years when an annual rental has been fixed, for months
when the rent is monthly. . . ." The second clause of the
contract provides as follows: "The rent of the said land is fixed
at 25 pesos per month." (P. 11, Bill of Exceptions.)
In accordance with such a theory, the plaintiffs might have
terminated the lease the month following the making of the
contract — at any time after the first month, which, strictly
speaking, would be the only month with respect to which they
were expressly bound, they not being bound for each
successive month except by a tacit renewal (art. 1566) — an
effect which they might prevent by giving the required notice.
Although the relief asked for in the complaint, drawn in
accordance with the new form of procedure established by the
prevailing Code, is the restitution of the land to the plaintiffs (a
formula common to various actions), nevertheless the action
which is maintained can be no other than that of desahucio, in
accordance with the substantive law governing the contract.
The lessor — says article 1569 of the Civil Code — may
judicially dispossess the lessee upon the expiration of the
conventional term or of the legal term; the conventional term —
that is, the one agreed upon by the parties; the legal term, in
defect of the conventional, fixed for leases by articles 1577 and
1581. We have already seen what this legal term is with respect
to urban properties, in accordance with article 1581.
Hence, it follows that the judge has only to determine whether
there is or is not conventional term. If there be a conventional
term, he can not apply the legal term fixed in subsidium to
cover a case in which the parties have made no agreement
whatsoever with respect to the duration of the lease. In this
case the law interprets the presumptive intention of the parties,
they having said nothing in the contract with respect to its
duration. "Obligations arising from contracts have the force of
law between the contracting parties and must be complied with
according to the tenor of the contracts." (Art. 1091 of the Civil
Code.)
The obligations which, with the force of law, the lessors
assumed by the contract entered into, so far as pertaining to
the issues, are the following: "First. . . . They lease the above-
described land to
80 | P a g e
Mr. Williamson, who takes it on lease, . . . for all the time the
membersofthesaidclubmaydesiretouseit...Third....the owners of
the land undertake to maintain the club as tenant as long as
the latter shall see fit, without altering in the slightest degree
the conditions of this contract, even though the estate be sold."
It is necessary, therefore, to answer the first question: Was
there, or was there not, a conventional term, a duration, agreed
upon in the contract in question? If there was an agreed
duration, a conventional term, then the legal term — the term
fixed in article 1581 — has no application; the contract is the
supreme law of the contracting parties. Over and above the
general law is the special law, expressly imposed upon
themselves by the contracting parties. Without these clauses 1
and 3, the contract would contain no stipulation with respect to
the duration of the lease, and then article 1581, in connection
with article 1569, would necessarily be applicable. In view of
these clauses, however, it can not be said that there is no
stipulation with respect to the duration of the lease, or that,
notwithstanding these clauses, article 1581, in connection with
article 1569, can be applied. If this were so, it would be
necessary to hold that the lessors spoke in vain — that their
words are to be disregarded — a claim which can not be
advanced by the plaintiffs nor upheld by any court without
citing the law which detracts all legal force from such words or
despoils them of their literal sense.
It having been demonstrated that the legal term can not be
applied, there being a conventional term, this destroys the
assumption that the contract of lease was wholly terminated by
the notice given by the plaintiffs, this notice being necessary
only when it becomes necessary to have recourse to the legal
term. Nor had the plaintiffs, under the contract, any right to
give such notice. It is evident that they had no intention of
stipulating that they reserved the right to give such notice.
Clause 3 begins as follows: "Mr. Williamson, or whoever may
succeed him as
secretary of said club, may terminate this lease whenever
desired without other formality than that of giving a month's
notice. The owners of the land undertake to maintain the club
as tenant as long as the latter shall see fit." The right of the one
and the obligation of the others being thus placed in antithesis,
there is something more, much more, than the inclusio unius,
exclusio alterius. It is evident that the lessors did not intend to
reserve to themselves the right to rescind that which they
expressly conferred upon the lessee by establishing it
exclusively in favor of the latter.
It would be the greatest absurdity to conclude that in a contract
by which the lessor has left the termination of the lease to the
will of the lessee, such a lease can or should be terminated at
the will of the lessor.
It would appear to follow, from the foregoing, that, if such is the
force of the agreement, there can be no other mode of
terminating the lease than by the will of the lessee, as
stipulated in this case. Such is the conclusion maintained by the
defendant in the demonstration of the first error of law in the
judgment, as alleged by him. He goes so far, under this theory,
as to maintain the possibility of a perpetual lease, either as
such lease, if the name can be applied, or else as an
innominate contract, or under any other denomination, in
accordance with the agreement of the parties, which is, in fine,
the law of the contract, superior to all other law, provided that
there be no agreement against any prohibitive statute, morals,
or public policy.
It is unnecessary here to enter into a discussion of a perpetual
lease in accordance with the law and doctrine prior to the Civil
Code now in force, and which has been operative since 1889.
Hence the judgment of the supreme court of Spain of January 2,
1891, with respect to a lease made in 1887, cited by the
defendant, and a decision stated by him to have been rendered
by the Audiencia of Pamplona in 1885 (it appears to be rather a
81 | P a g e
decision by the head office of land registration of July 1, 1885),
and any other decision which might be cited based upon the
constitutions of Cataluna, according to which a lease of more
than ten years is understood to create a life tenancy, or even a
perpetual tenancy, are entirely out of point in this case, in
which the subject-matter is a lease entered into under the
provisions of the present Civil Code, in accordance with the
principles of which alone can this doctrine be examined.
It is not to be understood that we admit that the lease entered
into was stipulated as a life tenancy, and still less as a
perpetual lease. The terms of the contract express nothing to
this effect. They do, whatever, imply this idea. If the lease could
last during such time as the lessee might see fit, because it has
been so stipulated by the lessor, it would last, first, as long as
the will of the lessee — that is, all his life; second, during all the
time that he may have succession, inasmuch as he who
contracts does so for himself and his heirs. (Art. 1257 of the
Civil Code.) The lease in question does not fall within any of the
cases in which the rights and obligations arising from a contract
can not be transmitted to heirs, either by its nature, by
agreement, or by provision of law. Furthermore, the lessee is an
English association.
Usufruct is a right of superior degree to that which arises from a
lease. It is a real right and includes all the jus utendi and jus
fruendi. Nevertheless, the utmost period for which a usufruct
can endure, if constituted in favor a natural person, is the
lifetime of the usufructuary (art. 513, sec. 1); and if in favor of
juridical person, it can not be created for more than thirty
years. (Art. 515.) If the lease might be perpetual, in what would
it be distinguished from an emphyteusis? Why should the
lessee have a greater right than the usufructuary, as great as
that of an emphyteuta, with respect to the duration of the
enjoyment of the property of another? Why did they not
contract for a usufruct or an emphyteusis? It was repeatedly
stated in the document that it was a lease, and nothing but a
lease, which was agreed upon:
"Being in the full enjoyment of the necessary legal capacity to
enter into this contract of lease . . . they have agreed upon the
lease of said estate . . . They lease to Mr. Williamson, who
receives itassuch....Therentalisfixedat25pesosamonth....The
owners bind themselves to maintain the club as tenant. . . .
Upon the foregoing conditions they make the present contract
of lease. . . ." (Pp. 9, 11, and 12, bill of exceptions.) If it is a
lease, then it must be for a determinate period. (Art. 1543.) By
its very nature it must be temporary, just as by reason of its
nature an emphyteusis must be perpetual, or for an unlimited
period. (Art. 1608.)
On the other hand, it can not be concluded that the termination
of the contract is to be left completely at the will of the lessee,
because it has been stipulated that its duration is to be left to
his will.
The Civil Code has made provision for such a case in all kinds of
obligations. In speaking in general of obligations with a term it
has supplied the deficiency of the former law with respect to
the "duration of the term when it has been left to the will of the
debtor," and provides that in this case the term shall be fixed
by the courts. (Art. 1128, sec. 2.) In every contract, as laid
down by the authorities, there is always a creditor who is
entitled to demand the performance, and a debtor upon whom
rests the obligation to perform the undertaking. In bilateral
contracts the contracting parties are mutually creditors and
debtors. Thus, in this contract of lease, the lessee is the
creditor with respect to the rights enumerated in article 1554,
and is the debtor with respect to the obligations imposed by
articles 1555 and 1561. The term within which performance of
the latter obligation is due is what has been left to the will of
the debtor. This term it is which must be fixed by the courts.
The only action which can be maintained under the terms of the
contract is that by which it is sought to obtain from the judge
the
82 | P a g e
determination of this period, and not the unlawful detainer
action which has been brought — an action which presupposes
the expiration of the term and makes it the duty of the judge to
simply decree an eviction. To maintain the latter action it is
sufficient to show the expiration of the term of the contract,
whether conventional or legal; in order to decree the relief to be
granted in the former action it is necessary for the judge to look
into the character and conditions of the mutual undertakings
with a view to supplying the lacking element of a time at which
the lease is to expire. In the case of a loan of money or a
commodatum of furniture, the payment or return to be made
when the borrower "can conveniently do so" does not mean
that he is to be allowed to enjoy the money or to make use of
the thing indefinitely or perpetually. The courts will fix in each
case, according to the circumstances, the time for the payment
or return. This is the theory also maintained by the defendant in
his demonstration of the fifth assignment of error. "Under article
1128 of the Civil Code," thus his proposition concludes,
"contracts whose term is left to the will of one of the
contracting parties must be fixed by the courts, . . . the
conditions as to the term of this lease has a direct legislative
sanction," and he cites articles 1128. "In place of the ruthless
method of annihilating a solemn obligation, which the plaintiffs
in this case have sought to pursue, the Code has provided a
legitimate and easily available remedy. . . . The Code has
provided for the proper disposition of those covenants, and a
case can hardly arise more clearly demonstrating the
usefulness of that provision than the case at bar." (Pp. 52 and
53 of appellant's brief.)
The plaintiffs, with respect to this conclusion on the part of their
opponents, only say that article 1128 "expressly refers to
obligations in contracts in general, and that it is well known that
a lease is included among special contracts." But they do not
observe that if contracts, simply because special rules are
provided for them, could be excepted from the provisions of the
articles of the Code relative to obligations and contracts in
general, such general provisions would be wholly without
application. The system of the Code is that of establishing
general rules applicable to all obligations and contracts, and
then special provisions peculiar to each species of contract. In
no part of Title VI of Book IV, which treats of the contract of
lease, are there any special rules concerning pure of conditional
obligations which may be stipulated in a lease, because, with
respect to these matters, the provisions of section 1, chapter 3,
Title I, on the subject of obligations are wholly sufficient. With
equal reason should we refer to section 2, which deals with
obligations with a term, in the same chapter and title, if a
question concerning the term arises out of a contract of lease,
as in the present case, and within this section we find article
1128, which decides the question.
The judgment was entered below upon the theory of the
expiration of a legal term which does not exist, as the case
requires that a term be fixed by the courts under the provisions
of article 1128 with respect to obligations which, as is the
present, are terminable at the will of the obligee. It follows,
therefore, that the judgment below is erroneous.
The judgment is reversed and the case will be remanded to the
court below with directions to enter a judgment of dismissal of
the action in favor of the defendant, the Manila Lawn Tennis
Club, without special allowance as to the recovery of costs. So
ordered.
22. G.R. No. L-17587 September 12, 1967
PHILIPPINE BANKING CORPORATION, representing the estate of
JUSTINA SANTOS Y CANON FAUSTINO, deceased, plaintiff-
appellant,
vs.
83 | P a g e
LUI SHE in her own behalf and as administratrix of the intestate
estate of Wong Heng, deceased, defendant- appellant.
Nicanor S. Sison for plaintiff-appellant.
Ozaeta, Gibbs & Ozaeta for defendant-appellant.
CASTRO, J.:
Justina Santos y Canon Faustino and her sister Lorenzo were the
owners in common of a piece of land in Manila. This parcel, with
an area of 2,582.30 square meters, is located on Rizal Avenue
and opens into Florentino Torres street at the back and
Katubusan street on one side. In it are two residential houses
with entrance on Florentino Torres street and the Hen Wah
Restaurant with entrance on Rizal Avenue. The sisters lived in
one of the houses, while Wong Heng, a Chinese, lived with his
family in the restaurant. Wong had been a long-time lessee of a
portion of the property, paying a monthly rental of P2,620.
On September 22, 1957 Justina Santos became the owner of
the entire property as her sister died with no other heir. Then
already well advanced in years, being at the time 90 years old,
blind, crippled and an invalid, she was left with no other relative
to live with. Her only companions in the house were her 17
dogs and 8 maids. Her otherwise dreary existence was
brightened now and then by the visits of Wong's four children
who had become the joy of her life. Wong himself was the
trusted man to whom she delivered various amounts for
safekeeping, including rentals from her property at the corner
of Ongpin and Salazar streets and the rentals which Wong
himself paid as lessee of a part of the Rizal Avenue property.
Wong also took care of the payment; in her behalf, of taxes,
lawyers' fees, funeral expenses, masses, salaries of maids and
security guard, and her household expenses.
"In grateful acknowledgment of the personal services of the
lessee to her," Justina Santos executed on November 15, 1957
a contract of lease (Plff Exh. 3) in favor of Wong, covering the
portion then already leased to him and another portion fronting
Florentino Torres street. The lease was for 50 years, although
the lessee was given the right to withdraw at any time from the
agreement; the monthly rental was P3,120. The contract
covered an area of 1,124 square meters. Ten days later
(November 25), the contract was amended (Plff Exh. 4) so as to
make it cover the entire property, including the portion on
which the house of Justina Santos stood, at an additional
monthly rental of P360. For his part Wong undertook to pay, out
of the rental due from him, an amount not exceeding P1,000 a
month for the food of her dogs and the salaries of her maids.
On December 21 she executed another contract (Plff Exh. 7)
giving Wong the option to buy the leased premises for
P120,000, payable within ten years at a monthly installment of
P1,000. The option, written in Tagalog, imposed on him the
obligation to pay for the food of the dogs and the salaries of the
maids in her household, the charge not to exceed P1,800 a
month. The option was conditioned on his obtaining Philippine
citizenship, a petition for which was then pending in the Court
of First Instance of Rizal. It appears, however, that this
application for naturalization was withdrawn when it was
discovered that he was not a resident of Rizal. On October 28,
1958 she filed a petition to adopt him and his children on the
erroneous belief that adoption would confer on them Philippine
citizenship. The error was discovered and the proceedings were
abandoned.
On November 18, 1958 she executed two other contracts, one
(Plff Exh. 5) extending the term of the lease to 99 years, and
another (Plff Exh. 6) fixing the term of the option of 50 years.
Both contracts are written in Tagalog.
84 | P a g e
In two wills executed on August 24 and 29, 1959 (Def Exhs. 285
& 279), she bade her legatees to respect the contracts she had
entered into with Wong, but in a codicil (Plff Exh. 17) of a later
date (November 4, 1959) she appears to have a change of
heart. Claiming that the various contracts were made by her
because of machinations and inducements practiced by him,
she now directed her executor to secure the annulment of the
contracts.
On November 18 the present action was filed in the Court of
First Instance of Manila. The complaint alleged that the
contracts were obtained by Wong "through fraud,
misrepresentation, inequitable conduct, undue influence and
abuse of confidence and trust of and (by) taking advantage of
the helplessness of the plaintiff and were made to circumvent
the constitutional provision prohibiting aliens from acquiring
lands in the Philippines and also of the Philippine Naturalization
Laws." The court was asked to direct the Register of Deeds of
Manila to cancel the registration of the contracts and to order
Wong to pay Justina Santos the additional rent of P3,120 a
month from November 15, 1957 on the allegation that the
reasonable rental of the leased premises was P6,240 a month.
In his answer, Wong admitted that he enjoyed her trust and
confidence as proof of which he volunteered the information
that, in addition to the sum of P3,000 which he said she had
delivered to him for safekeeping, another sum of P22,000 had
been deposited in a joint account which he had with one of her
maids. But he denied having taken advantage of her trust in
order to secure the execution of the contracts in question. As
counterclaim he sought the recovery of P9,210.49 which he
said she owed him for advances.
Wong's admission of the receipt of P22,000 and P3,000 was the
cue for the filing of an amended complaint. Thus on June 9,
1960, aside from the nullity of the contracts, the collection of
various amounts allegedly delivered on different occasions was
sought.
These amounts and the dates of their delivery are P33,724.27
(Nov. 4, 1957); P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6,
1957); P22,000 and P3,000 (as admitted in his answer). An
accounting of the rentals from the Ongpin and Rizal Avenue
properties was also demanded.
In the meantime as a result of a petition for guardianship filed
in the Juvenile and Domestic Relations Court, the Security Bank
& Trust Co. was appointed guardian of the properties of Justina
Santos, while Ephraim G. Gochangco was appointed guardian of
her person.
In his answer, Wong insisted that the various contracts were
freely and voluntarily entered into by the parties. He likewise
disclaimed knowledge of the sum of P33,724.27, admitted
receipt of P7,344.42 and P10,000, but contended that these
amounts had been spent in accordance with the instructions of
Justina Santos; he expressed readiness to comply with any
order that the court might make with respect to the sums of
P22,000 in the bank and P3,000 in his possession.
The case was heard, after which the lower court rendered
judgment as follows:
[A]ll the documents mentioned in the first cause of action, with
the exception of the first which is the lease contract of 15
November 1957, are declared null and void; Wong Heng is
condemned to pay unto plaintiff thru guardian of her property
the sum of P55,554.25 with legal interest from the date of the
filing of the amended complaint; he is also ordered to pay the
sum of P3,120.00 for every month of his occupation as lessee
under the document of lease herein sustained, from 15
November 1959, and the moneys he has consigned since then
shall be imputed to that; costs against Wong Heng.
85 | P a g e
From this judgment both parties appealed directly to this Court.
After the case was submitted for decision, both parties died,
Wong Heng on October 21, 1962 and Justina Santos on
December 28, 1964. Wong was substituted by his wife, Lui She,
the other defendant in this case, while Justina Santos was
substituted by the Philippine Banking Corporation.
Justina Santos maintained — now reiterated by the Philippine
Banking Corporation — that the lease contract (Plff Exh. 3)
should have been annulled along with the four other contracts
(Plff Exhs. 4-7) because it lacks mutuality; because it included a
portion which, at the time, was in custodia legis; because the
contract was obtained in violation of the fiduciary relations of
the parties; because her consent was obtained through undue
influence, fraud and misrepresentation; and because the lease
contract, like the rest of the contracts, is absolutely simulated.
Paragraph 5 of the lease contract states that "The lessee may
at any time withdraw from this agreement." It is claimed that
this stipulation offends article 1308 of the Civil Code which
provides that "the contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of
them."
We have had occasion to delineate the scope and application of
article 1308 in the early case of Taylor v. Uy Tieng Piao.1 We
said in that case:
Article 1256 [now art. 1308] of the Civil Code in our opinion
creates no impediment to the insertion in a contract for
personal service of a resolutory condition permitting the
cancellation of the contract by one of the parties. Such a
stipulation, as can be readily seen, does not make either the
validity or the fulfillment of the contract dependent upon the
will of the party to whom is conceded the privilege of
cancellation; for where the contracting parties have agreed that
such option shall exist, the exercise of the option is as much in
the fulfillment of the contract as any
other act which may have been the subject of agreement.
Indeed, the cancellation of a contract in accordance with
conditions agreed upon beforehand is fulfillment.2
And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision
in a lease contract that the lessee, at any time before he
erected any building on the land, might rescind the lease, can
hardly be regarded as a violation of article 1256 [now art. 1308]
of the Civil Code."
The case of Singson Encarnacion v. Baldomar 4 cannot be cited
in support of the claim of want of mutuality, because of a
difference in factual setting. In that case, the lessees argued
that they could occupy the premises as long as they paid the
rent. This is of course untenable, for as this Court said, "If this
defense were to be allowed, so long as defendants elected to
continue the lease by continuing the payment of the rentals,
the owner would never be able to discontinue it; conversely,
although the owner should desire the lease to continue the
lessees could effectively thwart his purpose if they should
prefer to terminate the contract by the simple expedient of
stopping payment of the rentals." Here, in contrast, the right of
the lessee to continue the lease or to terminate it is so
circumscribed by the term of the contract that it cannot be said
that the continuance of the lease depends upon his will. At any
rate, even if no term had been fixed in the agreement, this case
would at most justify the fixing of a period5 but not the
annulment of the contract.
Nor is there merit in the claim that as the portion of the
property formerly owned by the sister of Justina Santos was still
in the process of settlement in the probate court at the time it
was leased, the lease is invalid as to such portion. Justina
Santos became the owner of the entire property upon the death
of her sister Lorenzo on September 22, 1957 by force of article
777 of the Civil Code. Hence, when she leased the property on
November 15, she did so already as owner thereof. As this
Court
86 | P a g e
explained in upholding the sale made by an heir of a property
under judicial administration:
That the land could not ordinarily be levied upon while in
custodia legis does not mean that one of the heirs may not sell
the right, interest or participation which he has or might have in
the lands under administration. The ordinary execution of
property in custodia legis is prohibited in order to avoid
interference with the possession by the court. But the sale
made by an heir of his share in an inheritance, subject to the
result of the pending administration, in no wise stands in the
way of such administration.6
It is next contended that the lease contract was obtained by
Wong in violation of his fiduciary relationship with Justina
Santos, contrary to article 1646, in relation to article 1941 of
the Civil Code, which disqualifies "agents (from leasing) the
property whose administration or sale may have been
entrusted to them." But Wong was never an agent of Justina
Santos. The relationship of the parties, although admittedly
close and confidential, did not amount to an agency so as to
bring the case within the prohibition of the law.
Just the same, it is argued that Wong so completely dominated
her life and affairs that the contracts express not her will but
only his. Counsel for Justina Santos cites the testimony of Atty.
Tomas S. Yumol who said that he prepared the lease contract on
the basis of data given to him by Wong and that she told him
that "whatever Mr. Wong wants must be followed."7
The testimony of Atty. Yumol cannot be read out of context in
order to warrant a finding that Wong practically dictated the
terms of the contract. What this witness said was:
Q Did you explain carefully to your client, Doña Justina, the
contents of this document before she signed it?
A I explained to her each and every one of these conditions and
I also told her these conditions were quite onerous for her, I
don't really know if I have expressed my opinion, but I told her
that we would rather not execute any contract anymore, but to
hold it as it was before, on a verbal month to month contract of
lease.
Q But, she did not follow your advice, and she went with the
contract just the same?
ASheagreedfirst...
Q Agreed what?
A Agreed with my objectives that it is really onerous and that I
was really right, but after that, I was called again by her and
she told me to follow the wishes of Mr. Wong Heng.
xxx xxx xxx
Q So, as far as consent is concerned, you were satisfied that
this document was perfectly proper?
xxx xxx xxx
A Your Honor, if I have to express my personal opinion, I would
say she is not, because, as I said before, she told me —
"Whatever Mr. Wong wants must be followed."8
Wong might indeed have supplied the data which Atty. Yumol
embodied in the lease contract, but to say this is not to detract
from the binding force of the contract. For the contract was fully
explained to Justina Santos by her own lawyer. One incident,
related by the same witness, makes clear that she voluntarily
consented to the lease contract. This witness said that the
original term fixed for the lease was 99 years but that as he
87 | P a g e
doubted the validity of a lease to an alien for that length of
time, he tried to persuade her to enter instead into a lease on a
month- to-month basis. She was, however, firm and unyielding.
Instead of heeding the advice of the lawyer, she ordered him,
"Just follow Mr. Wong Heng."9 Recounting the incident, Atty.
Yumol declared on cross examination:
Considering her age, ninety (90) years old at the time and her
condition, she is a wealthy woman, it is just natural when she
said "This is what I want and this will be done." In particular
reference to this contract of lease, when I said "This is not
proper," she said — "You just go ahead, you prepare that, I am
the owner, and if there is any illegality, I am the only one that
can question the illegality."10
Atty. Yumol further testified that she signed the lease contract
in the presence of her close friend, Hermenegilda Lao, and her
maid, Natividad Luna, who was constantly by her side.11 Any of
them could have testified on the undue influence that Wong
supposedly wielded over Justina Santos, but neither of them
was presented as a witness. The truth is that even after giving
his client time to think the matter over, the lawyer could not
make her change her mind. This persuaded the lower court to
uphold the validity of the lease contract against the claim that
it was procured through undue influence.
Indeed, the charge of undue influence in this case rests on a
mere inference12 drawn from the fact that Justina Santos could
not read (as she was blind) and did not understand the English
language in which the contract is written, but that inference has
been overcome by her own evidence.
Nor is there merit in the claim that her consent to the lease
contract, as well as to the rest of the contracts in question, was
given out of a mistaken sense of gratitude to Wong who, she
was made to believe, had saved her and her sister from a fire
that
destroyed their house during the liberation of Manila. For while
a witness claimed that the sisters were saved by other persons
(the brothers Edilberto and Mariano Sta. Ana)13 it was Justina
Santos herself who, according to her own witness, Benjamin C.
Alonzo, said "very emphatically" that she and her sister would
have perished in the fire had it not been for Wong.14 Hence the
recital in the deed of conditional option (Plff Exh. 7) that
"[I]tong si Wong Heng ang siyang nagligtas sa aming dalawang
magkapatid sa halos ay tiyak na kamatayan", and the equally
emphatic avowal of gratitude in the lease contract (Plff Exh. 3).
As it was with the lease contract (Plff Exh. 3), so it was with the
rest of the contracts (Plff Exhs. 4-7) — the consent of Justina
Santos was given freely and voluntarily. As Atty. Alonzo,
testifying for her, said:
[I]n nearly all documents, it was either Mr. Wong Heng or Judge
Torres and/or both. When we had conferences, they used to tell
me what the documents should contain. But, as I said, I would
always ask the old woman about them and invariably the old
woman used to tell me: "That's okay. It's all right."15
But the lower court set aside all the contracts, with the
exception of the lease contract of November 15, 1957, on the
ground that they are contrary to the expressed wish of Justina
Santos and that their considerations are fictitious. Wong stated
in his deposition that he did not pay P360 a month for the
additional premises leased to him, because she did not want
him to, but the trial court did not believe him. Neither did it
believe his statement that he paid P1,000 as consideration for
each of the contracts (namely, the option to buy the leased
premises, the extension of the lease to 99 years, and the fixing
of the term of the option at 50 years), but that the amount was
returned to him by her for safekeeping. Instead, the court relied
on the testimony of Atty. Alonzo in reaching the conclusion that
the contracts are void for want of consideration.
88 | P a g e
Atty. Alonzo declared that he saw no money paid at the time of
the execution of the documents, but his negative testimony
does not rule out the possibility that the considerations were
paid at some other time as the contracts in fact recite. What is
more, the consideration need not pass from one party to the
other at the time a contract is executed because the promise of
one is the consideration for the other.16
With respect to the lower court's finding that in all probability
Justina Santos could not have intended to part with her
property while she was alive nor even to lease it in its entirety
as her house was built on it, suffice it to quote the testimony of
her own witness and lawyer who prepared the contracts (Plff
Exhs. 4-7) in question, Atty. Alonzo:
The ambition of the old woman, before her death, according to
her revelation to me, was to see to it that these properties be
enjoyed, even to own them, by Wong Heng because Doña
Justina told me that she did not have any relatives, near or far,
and she considered Wong Heng as a son and his children her
grandchildren; especially her consolation in life was when she
would hear the children reciting prayers in Tagalog.17
She was very emphatic in the care of the seventeen (17) dogs
and of the maids who helped her much, and she told me to see
to it that no one could disturb Wong Heng from those
properties. That is why we thought of the ninety-nine (99) years
lease; we thought of adoption, believing that thru adoption
Wong Heng might acquire Filipino citizenship; being the
adopted child of a Filipino citizen.18
This is not to say, however, that the contracts (Plff Exhs. 3-7)
are valid. For the testimony just quoted, while dispelling doubt
as to the intention of Justina Santos, at the same time gives the
clue to what we view as a scheme to circumvent the
Constitutional
prohibition against the transfer of lands to aliens. "The illicit
purpose then becomes the illegal causa"19 rendering the
contracts void.
Taken singly, the contracts show nothing that is necessarily
illegal, but considered collectively, they reveal an insidious
pattern to subvert by indirection what the Constitution directly
prohibits. To be sure, a lease to an alien for a reasonable period
is valid. So is an option giving an alien the right to buy real
property on condition that he is granted Philippine citizenship.
As this Court said in Krivenko v. Register of Deeds:20
[A]liens are not completely excluded by the Constitution from
the use of lands for residential purposes. Since their residence
in the Philippines is temporary, they may be granted temporary
rights such as a lease contract which is not forbidden by the
Constitution. Should they desire to remain here forever and
share our fortunes and misfortunes, Filipino citizenship is not
impossible to acquire.
But if an alien is given not only a lease of, but also an option to
buy, a piece of land, by virtue of which the Filipino owner
cannot sell or otherwise dispose of his property,21 this to last
for 50 years, then it becomes clear that the arrangement is a
virtual transfer of ownership whereby the owner divests himself
in stages not only of the right to enjoy the land ( jus possidendi,
jus utendi, jus fruendi and jus abutendi) but also of the right to
dispose of it ( jus disponendi) — rights the sum total of which
make up ownership. It is just as if today the possession is
transferred, tomorrow, the use, the next day, the disposition,
and so on, until ultimately all the rights of which ownership is
made up are consolidated in an alien. And yet this is just
exactly what the parties in this case did within the space of one
year, with the result that Justina Santos' ownership of her
property was reduced to a hollow concept. If this can be done,
then the Constitutional ban against alien landholding in the
Philippines, as
89 | P a g e
announced in Krivenko v. Register of Deeds,22 is indeed in
grave peril.
It does not follow from what has been said, however, that
because the parties are in pari delicto they will be left where
they are, without relief. For one thing, the original parties who
were guilty of a violation of the fundamental charter have died
and have since been substituted by their administrators to
whom it would be unjust to impute their guilt.23 For another
thing, and this is not only cogent but also important, article
1416 of the Civil Code provides, as an exception to the rule on
pari delicto, that "When the agreement is not illegal per se but
is merely prohibited, and the prohibition by law is designed for
the protection of the plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered." The
Constitutional provision that "Save in cases of hereditary
succession, no private agricultural land shall be transferred or
assigned except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain in the
Philippines"24 is an expression of public policy to conserve
lands for the Filipinos. As this Court said in Krivenko:
It is well to note at this juncture that in the present case we
have no choice. We are construing the Constitution as it is and
not as we may desire it to be. Perhaps the effect of our
construction is to preclude aliens admitted freely into the
Philippines from owning sites where they may build their
homes. But if this is the solemn mandate of the Constitution,
we will not attempt to compromise it even in the name of amity
or equity . . . .
For all the foregoing, we hold that under the Constitution aliens
may not acquire private or public agricultural lands, including
residential lands, and, accordingly, judgment is affirmed,
without costs.25
That policy would be defeated and its continued violation
sanctioned if, instead of setting the contracts aside and
ordering the restoration of the land to the estate of the
deceased Justina Santos, this Court should apply the general
rule of pari delicto. To the extent that our ruling in this case
conflicts with that laid down in Rellosa v. Gaw Chee Hun 26 and
subsequent similar cases, the latter must be considered as pro
tanto qualified.
The claim for increased rentals and attorney's fees, made in
behalf of Justina Santos, must be denied for lack of merit.
And what of the various amounts which Wong received in trust
from her? It appears that he kept two classes of accounts, one
pertaining to amount which she entrusted to him from time to
time, and another pertaining to rentals from the Ongpin
property and from the Rizal Avenue property, which he himself
was leasing.
With respect to the first account, the evidence shows that he
received P33,724.27 on November 8, 1957 (Plff Exh. 16);
P7,354.42 on December 1, 1957 (Plff Exh. 13); P10,000 on
December 6, 1957 (Plff Exh. 14) ; and P18,928.50 on August 26,
1959 (Def. Exh. 246), or a total of P70,007.19. He claims,
however, that he settled his accounts and that the last amount
of P18,928.50 was in fact payment to him of what in the
liquidation was found to be due to him.
He made disbursements from this account to discharge Justina
Santos' obligations for taxes, attorneys' fees, funeral services
and security guard services, but the checks (Def Exhs. 247-278)
drawn by him for this purpose amount to only P38,442.84.27
Besides, if he had really settled his accounts with her on August
26, 1959, we cannot understand why he still had P22,000 in the
bank and P3,000 in his possession, or a total of P25,000. In his
answer, he offered to pay this amount if the court so directed
90 | P a g e
him. On these two grounds, therefore, his claim of liquidation
and settlement of accounts must be rejected.
After subtracting P38,442.84 (expenditures) from P70,007.19
(receipts), there is a difference of P31,564 which, added to the
amount of P25,000, leaves a balance of P56,564.3528 in favor
of Justina Santos.
As to the second account, the evidence shows that the monthly
income from the Ongpin property until its sale in Rizal Avenue
July, 1959 was P1,000, and that from the Rizal Avenue property,
of which Wong was the lessee, was P3,120. Against this account
the household expenses and disbursements for the care of the
17 dogs and the salaries of the 8 maids of Justina Santos were
charged. This account is contained in a notebook (Def. Exh. 6)
which shows a balance of P9,210.49 in favor of Wong. But it is
claimed that the rental from both the Ongpin and Rizal Avenue
properties was more than enough to pay for her monthly
expenses and that, as a matter of fact, there should be a
balance in her favor. The lower court did not allow either party
to recover against the other. Said the court:
[T]he documents bear the earmarks of genuineness; the trouble
is that they were made only by Francisco Wong and Antonia
Matias, nick-named Toning, — which was the way she signed
the loose sheets, and there is no clear proof that Doña Justina
had authorized these two to act for her in such liquidation; on
the contrary if the result of that was a deficit as alleged and
sought to be there shown, of P9,210.49, that was not what
Doña Justina apparently understood for as the Court
understands her statement to the Honorable Judge of the
Juvenile Court . . . the reason why she preferred to stay in her
home was because there she did not incur in any debts . . . this
being the case, . . . the Court will not adjudicate in favor of
Wong Heng on his counterclaim; on the other hand, while it is
claimed that the expenses were much less than the rentals and
there in fact should be a superavit, . . .
this Court must concede that daily expenses are not easy to
compute, for this reason, the Court faced with the choice of the
two alternatives will choose the middle course which after all is
permitted by the rules of proof, Sec. 69, Rule 123 for in the
ordinary course of things, a person will live within his income so
that the conclusion of the Court will be that there is neither
deficit nor superavit and will let the matter rest here.
Both parties on appeal reiterate their respective claims but we
agree with the lower court that both claims should be denied.
Aside from the reasons given by the court, we think that the
claim of Justina Santos totalling P37,235, as rentals due to her
after deducting various expenses, should be rejected as the
evidence is none too clear about the amounts spent by Wong
for food29 masses30 and salaries of her maids.31 His claim for
P9,210.49 must likewise be rejected as his averment of
liquidation is belied by his own admission that even as late as
1960 he still had P22,000 in the bank and P3,000 in his
possession.
ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are
annulled and set aside; the land subject-matter of the contracts
is ordered returned to the estate of Justina Santos as
represented by the Philippine Banking Corporation; Wong Heng
(as substituted by the defendant-appellant Lui She) is ordered
to pay the Philippine Banking Corporation the sum of
P56,564.35, with legal interest from the date of the filing of the
amended complaint; and the amounts consigned in court by
Wong Heng shall be applied to the payment of rental from
November 15, 1959 until the premises shall have been vacated
by his heirs. Costs against the defendant-appellant.
23. G.R. No. L-34338 November 21, 1984
91 | P a g e
LOURDES VALERIO LIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.
Petitioner Lourdes Valerio Lim was found guilty of the crime of
estafa and was sentenced "to suffer an imprisonment of four (4)
months and one (1) day as minimum to two (2) years and four
(4) months as maximum, to indemnify the offended party in the
amount of P559.50, with subsidize imprisonment in case of
insolvency, and to pay the costs." (p. 14, Rollo)
From this judgment, appeal was taken to the then Court of
Appeals which affirmed the decision of the lower court but
modified the penalty imposed by sentencing her "to suffer an
indeterminate penalty of one (1) month and one (1) day of
arresto mayor as minimum to one (1) year and one (1) day of
prision correccional as maximum, to indemnify the complainant
in the amount of P550.50 without subsidiary imprisonment, and
to pay the costs of suit." (p. 24, Rollo)
The question involved in this case is whether the receipt,
Exhibit "A", is a contract of agency to sell or a contract of sale
of the subject tobacco between petitioner and the complainant,
Maria de Guzman Vda. de Ayroso, thereby precluding criminal
liability of petitioner for the crime charged.
The findings of facts of the appellate court are as follows:
... The appellant is a businesswoman. On January 10, 1966, the
appellant went to the house of Maria Ayroso and proposed to
sell Ayroso's tobacco. Ayroso agreed to the proposition of the
appellant to sell her tobacco consisting of 615 kilos at P1.30 a
kilo. The appellant was to receive the overprice for which she
could sell the tobacco. This agreement was made in the
presence of plaintiff's sister, Salud G. Bantug. Salvador Bantug
drew the document, Exh. A, dated January 10, 1966, which
reads:
To Whom It May Concern:
This is to certify that I have received from Mrs. Maria de
Guzman Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred
fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo. The
proceed in the amount of Seven Hundred Ninety Nine Pesos and
50/100 (P 799.50) will be given to her as soon as it was sold.
This was signed by the appellant and witnessed by the
complainant's sister, Salud Bantug, and the latter's maid,
Genoveva Ruiz. The appellant at that time was bringing a jeep,
and the tobacco was loaded in the jeep and brought by the
appellant. Of the total value of P799.50, the appellant had paid
to Ayroso only P240.00, and this was paid on three different
times. Demands for the payment of the balance of the value of
the tobacco were made upon the appellant by Ayroso, and
particularly by her sister, Salud Bantug. Salud Bantug further
testified that she had gone to the house of the appellant
several times, but the appellant often eluded her; and that the
"camarin" the appellant was empty. Although the appellant
denied that demands for payment were made upon her, it is a
fact that on October 19, 1966, she wrote a letter to Salud
Bantug which reads as follows:
Dear Salud,
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil
kokonte pa ang nasisingil kong pera, magintay ka hanggang
dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko
Salud ay makapagbigay man lang ako ng marami para hindi
masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit
konte muna ay bibigyan kita. Pupunta lang kami ni Mina sa
Maynila ngayon. Salud kung talagang kailangan mo ay bukas ay
dadalhan kita ng pera.
92 | P a g e
Medio mahirap ang maningil sa palengke ng Cabanatuan dahil
nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala
at tiyak na babayaran kita.
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
Ludy
Pursuant to this letter, the appellant sent a money order for
P100.00 on October 24, 1967, Exh. 4, and another for P50.00
on March 8, 1967; and she paid P90.00 on April 18, 1967 as
evidenced by the receipt Exh. 2, dated April 18, 1967, or a total
of P240.00. As no further amount was paid, the complainant
filed a complaint against the appellant for estafa. (pp. 14, 15,
16, Rollo)
In this petition for review by certiorari, Lourdes Valerio Lim
poses the following questions of law, to wit:
1. Whether or not the Honorable Court of Appeals was legally
right in holding that the foregoing document (Exhibit "A") "fixed
a period" and "the obligation was therefore, immediately
demandable as soon as the tobacco was sold" (Decision, p. 6)
as against the theory of the petitioner that the obligation does
not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended in which case the
only action that can be maintained is a petition to ask the court
to fix the duration thereof;
2. Whether or not the Honorable Court of Appeals was legally
right in holding that "Art. 1197 of the New Civil Code does not
apply" as against the alternative theory of the petitioner that
the fore. going receipt (Exhibit "A") gives rise to an obligation
wherein the duration of the period depends upon the will of the
debtor in which case the only action that can be maintained is a
petition to ask the court to fix the duration of the period; and
3. Whether or not the honorable Court of Appeals was legally
right in holding that the foregoing receipt is a contract of
agency to sell as against the theory of the petitioner that it is a
contract of sale. (pp. 3-4, Rollo)
It is clear in the agreement, Exhibit "A", that the proceeds of
the sale of the tobacco should be turned over to the
complainant as soon as the same was sold, or, that the
obligation was immediately demandable as soon as the tobacco
was disposed of. Hence, Article 1197 of the New Civil Code,
which provides that the courts may fix the duration of the
obligation if it does not fix a period, does not apply.
Anent the argument that petitioner was not an agent because
Exhibit "A" does not say that she would be paid the commission
if the goods were sold, the Court of Appeals correctly resolved
the matter as follows:
... Aside from the fact that Maria Ayroso testified that the
appellant asked her to be her agent in selling Ayroso's tobacco,
the appellant herself admitted that there was an agreement
that upon the sale of the tobacco she would be given
something. The appellant is a businesswoman, and it is
unbelievable that she would go to the extent of going to
Ayroso's house and take the tobacco with a jeep which she had
brought if she did not intend to make a profit out of the
transaction. Certainly, if she was doing a favor to Maria Ayroso
and it was Ayroso who had requested her to sell her tobacco, it
would not have been the appellant who would have gone to the
house of Ayroso, but it would have been Ayroso who would have
gone to the house of the appellant and deliver the tobacco to
the appellant. (p. 19, Rollo)
The fact that appellant received the tobacco to be sold at P1.30
per kilo and the proceeds to be given to complainant as soon as
it was sold, strongly negates transfer of ownership of the goods
to the petitioner. The agreement (Exhibit "A') constituted her as
an
93 | P a g e
agent with the obligation to return the tobacco if the same was
not sold.
ACCORDINGLY, the petition for review on certiorari is dismissed
for lack of merit. With costs.
Development Co., Ltd. The parties stipulated, among in the
contract of purchase and sale with mortgage, that the buyer
will —
Build on the said parcel land the Sto. Domingo Church and
Convent
while the seller for its part will —
Construct streets on the NE and NW and SW sides of the land
herein sold so that the latter will be a block surrounded by
streets on all four sides; and the street on the NE side shall be
named "Sto. Domingo Avenue;"
The buyer, Philippine Sugar Estates Development Co., Ltd.,
finished the construction of Sto. Domingo Church and Convent,
but the seller, Gregorio Araneta, Inc., which began constructing
the streets, is unable to finish the construction of the street in
the Northeast side named (Sto. Domingo Avenue) because a
certain third-party, by the name of Manuel Abundo, who has
been physically occupying a middle part thereof, refused to
vacate the same; hence, on May 7, 1958, Philippine Sugar
Estates Development Co., Lt. filed its complaint against J. M.
Tuason & Co., Inc., and instance, seeking to compel the latter to
comply with their obligation, as stipulated in the above-
mentioned deed of sale, and/or to pay damages in the event
they failed or refused to perform said obligation.
Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc.
answered the complaint, the latter particularly setting up the
principal defense that the action was premature since its
obligation to construct the streets in question was without a
definite period which needs to he fixed first by the court in a
proper suit for that purpose before a complaint for specific
performance will prosper.
24. G.R. No. L-22558
May 31, 1967
GREGORIO ARANETA, INC., petitioner,
vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD.,
respondent.
Araneta and Araneta for petitioner. Rosauro Alvarez and Ernani
Cruz Paño for respondent.
REYES, J.B.L., J.:
Petition for certiorari to review a judgment of the Court of
Appeals, in its CA-G.R. No. 28249-R, affirming with modification,
an amendatory decision of the Court of First Instance of Manila,
in its Civil Case No. 36303, entitled "Philippine Sugar Estates
Development Co., Ltd., plaintiff, versus J. M. Tuason & Co., Inc.
and Gregorio Araneta, Inc., defendants."
As found by the Court of Appeals, the facts of this case are:
J. M. Tuason & Co., Inc. is the owner of a big tract land situated
in Quezon City, otherwise known as the Sta. Mesa Heights
Subdivision, and covered by a Torrens title in its name. On July
28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.) sold
a portion thereof with an area of 43,034.4 square meters, more
or less, for the sum of P430,514.00, to Philippine Sugar Estates
94 | P a g e
The issues having been joined, the lower court proceeded with
the trial, and upon its termination, it dismissed plaintiff's
complaint (in a decision dated May 31, 1960), upholding the
defenses interposed by defendant Gregorio Araneta,
Inc.1äwphï1.ñët
Plaintiff moved to reconsider and modify the above decision,
praying that the court fix a period within which defendants will
comply with their obligation to construct the streets in question.
Defendant Gregorio Araneta, Inc. opposed said motion,
maintaining that plaintiff's complaint did not expressly or
impliedly allege and pray for the fixing of a period to comply
with its obligation and that the evidence presented at the trial
was insufficient to warrant the fixing of such a period.
On July 16, 1960, the lower court, after finding that "the proven
facts precisely warrants the fixing of such a period," issued an
order granting plaintiff's motion for reconsideration and
amending the dispositive portion of the decision of May 31,
1960, to read as follows:
WHEREFORE, judgment is hereby rendered giving defendant
Gregorio Araneta, Inc., a period of two (2) years from notice
hereof, within which to comply with its obligation under the
contract, Annex "A".
Defendant Gregorio Araneta, Inc. presented a motion to
reconsider the above quoted order, which motion, plaintiff
opposed.
On August 16, 1960, the lower court denied defendant Gregorio
Araneta, Inc's. motion; and the latter perfected its appeal Court
of Appeals.
In said appellate court, defendant-appellant Gregorio Araneta,
Inc. contended mainly that the relief granted, i.e., fixing of a
period, under the amendatory decision of July 16, 1960, was not
justified by the pleadings and not supported by the facts
submitted at the trial of the case in the court below and that
the relief granted in effect allowed a change of theory after the
submission of the case for decision.
Ruling on the above contention, the appellate court declared
that the fixing of a period was within the pleadings and that
there was no true change of theory after the submission of the
case for decision since defendant-appellant Gregorio Araneta,
Inc. itself squarely placed said issue by alleging in paragraph 7
of the affirmative defenses contained in its answer which reads
—
7. Under the Deed of Sale with Mortgage of July 28, 1950,
herein defendant has a reasonable time within which to comply
with its obligations to construct and complete the streets on the
NE, NW and SW sides of the lot in question; that under the
circumstances, said reasonable time has not elapsed;
Disposing of the other issues raised by appellant which were
ruled as not meritorious and which are not decisive in the
resolution of the legal issues posed in the instant appeal before
us, said appellate court rendered its decision dated December
27, 1963, the dispositive part of which reads —
IN VIEW WHEREOF, judgment affirmed and modified; as a
consequence, defendant is given two (2) years from the date of
finality of this decision to comply with the obligation to
construct streets on the NE, NW and SW sides of the land sold
to plaintiff so that the same would be a block surrounded by
streets on all four sides.
95 | P a g e
Unsuccessful in having the above decision reconsidered,
defendant-appellant Gregorio Araneta, Inc. resorted to a
petition for review by certiorari to this Court. We gave it due
course.
We agree with the petitioner that the decision of the Court of
Appeals, affirming that of the Court of First Instance is legally
untenable. The fixing of a period by the courts under Article
1197 of the Civil Code of the Philippines is sought to be justified
on the basis that petitioner (defendant below) placed the
absence of a period in issue by pleading in its answer that the
contract with respondent Philippine Sugar Estates Development
Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable
time within which to comply with its obligation to construct and
complete the streets." Neither of the courts below seems to
have noticed that, on the hypothesis stated, what the answer
put in issue was not whether the court should fix the time of
performance, but whether or not the parties agreed that the
petitioner should have reasonable time to perform its part of
the bargain. If the contract so provided, then there was a period
fixed, a "reasonable time;" and all that the court should have
done was to determine if that reasonable time had already
elapsed when suit was filed if it had passed, then the court
should declare that petitioner had breached the contract, as
averred in the complaint, and fix the resulting damages. On the
other hand, if the reasonable time had not yet elapsed, the
court perforce was bound to dismiss the action for being
premature. But in no case can it be logically held that under the
plea above quoted, the intervention of the court to fix the
period for performance was warranted, for Article 1197 is
precisely predicated on the absence of any period fixed by the
parties.
Even on the assumption that the court should have found that
no reasonable time or no period at all had been fixed (and the
trial court's amended decision nowhere declared any such fact)
still, the complaint not having sought that the Court should set
a period, the court could not proceed to do so unless the
complaint
in as first amended; for the original decision is clear that the
complaint proceeded on the theory that the period for
performance had already elapsed, that the contract had been
breached and defendant was already answerable in damages.
Granting, however, that it lay within the Court's power to fix the
period of performance, still the amended decision is defective
in that no basis is stated to support the conclusion that the
period should be set at two years after finality of the judgment.
The list paragraph of Article 1197 is clear that the period can
not be set arbitrarily. The law expressly prescribes that —
the Court shall determine such period as may under the
circumstances been probably contemplated by the parties.
All that the trial court's amended decision (Rec. on Appeal, p.
124) says in this respect is that "the proven facts precisely
warrant the fixing of such a period," a statement manifestly
insufficient to explain how the two period given to petitioner
herein was arrived at.
It must be recalled that Article 1197 of the Civil Code involves a
two-step process. The Court must first determine that "the
obligation does not fix a period" (or that the period is made to
depend upon the will of the debtor)," but from the nature and
the circumstances it can be inferred that a period was
intended" (Art. 1197, pars. 1 and 2). This preliminary point
settled, the Court must then proceed to the second step, and
decide what period was "probably contemplated by the parties"
(Do., par. 3). So that, ultimately, the Court can not fix a period
merely because in its opinion it is or should be reasonable, but
must set the time that the parties are shown to have intended.
As the record stands, the trial Court appears to have pulled the
two-year period set in its decision out of thin air, since no
circumstances are mentioned to support it. Plainly, this is not
warranted by the Civil Code.
96 | P a g e
In this connection, it is to be borne in mind that the contract
shows that the parties were fully aware that the land described
therein was occupied by squatters, because the fact is
expressly mentioned therein (Rec. on Appeal, Petitioner's
Appendix B, pp. 12-13). As the parties must have known that
they could not take the law into their own hands, but must
resort to legal processes in evicting the squatters, they must
have realized that the duration of the suits to be brought would
not be under their control nor could the same be determined in
advance. The conclusion is thus forced that the parties must
have intended to defer the performance of the obligations
under the contract until the squatters were duly evicted, as
contended by the petitioner Gregorio Araneta, Inc.
The Court of Appeals objected to this conclusion that it would
render the date of performance indefinite. Yet, the
circumstances admit no other reasonable view; and this very
indefiniteness is what explains why the agreement did not
specify any exact periods or dates of performance.
It follows that there is no justification in law for the setting the
date of performance at any other time than that of the eviction
of the squatters occupying the land in question; and in not so
holding, both the trial Court and the Court of Appeals
committed reversible error. It is not denied that the case
against one of the squatters, Abundo, was still pending in the
Court of Appeals when its decision in this case was rendered.
In view of the foregoing, the decision appealed from is
reversed, and the time for the performance of the obligations of
petitioner Gregorio Araneta, Inc. is hereby fixed at the date that
all the squatters on affected areas are finally evicted therefrom.
Costs against respondent Philippine Sugar Estates
Development, Co., Ltd. So ordered.
25. G.R. No. L-55480
PACIFICA MILLARE, petitioner,
vs.
HON. HAROLD M. HERNANDO, In his capacity as Presiding
Judge, Court of Instance of Abra, Second Judicial District, Branch
I, ANTONIO CO and ELSA CO, respondents.
FELICIANO, J.:
On 17 June 1975, a five-year Contract of Lease 1 was executed
between petitioner Pacifica Millare as lessor and private
respondent Elsa Co, married to Antonio Co, as lessee. Under the
written agreement, which was scheduled to expire on 31 May
1980, the lessor-petitioner agreed to rent out to thelessee at a
monthly rate of P350.00 the "People's Restaurant", a
commercial establishment located at the corner of McKinley
and Pratt Streets in Bangued, Abra.
The present dispute arose from events which transpired during
the months of May and July in 1980. According to the Co
spouses, sometime during the last week of May 1980, the
lessor informed them that they could continue leasing the
People's Restaurant so long as they were amenable to paying
creased rentals of P1,200.00 a month. In response, a
counteroffer of P700.00 a month was made by the Co spouses.
At this point, the lessor allegedly stated that the amount of
monthly rentals could be resolved at a later time since "the
matter is simple among us", which alleged remark was
supposedly taken by the spouses Co to mean that the Contract
of Lease had been renewed, prompting them to continue
occupying the subject premises and to forego
97 | P a g e
their search for a substitute place to rent. 2 In contrast, the
lessor flatly denied ever having considered, much less offered,
a renewal of the Contract of Lease.
The variance in versions notwithstanding, the record shows that
on 22 July 1980, Mrs. Millare wrote the Co spouses requesting
them to vacate the leased premises as she had no intention of
renewing the Contract of Lease which had, in the meantime,
already expirecl. 3 In reply, the Co spouses reiterated their
unwillingness to pay the Pl,200.00 monthly rentals supposedly
sought bv Mrs. Millare which they considered "highly excessive,
oppressive and contrary to existing laws". They also signified
their intention to deposit the amount of rentals in court, in view
of Mrs. Millare's refusal to accept their counter-offer.4 Another
letter of demand from Mrs. Millare was received on 28 July 1980
by the Co spouses, who responded by depositing the rentals for
June and July (at 700.00 a month) in court.
On 30 August 1980, a Saturday, the Co spouses jumped the
gun, as it were, and filed a Complaint 5 (docketed as Civil Case
No. 1434) with the then Court of First Instance of Abra against
Mrs. Millare and seeking judgment (a) ordering the renewal of
the Contract of Lease at a rental rate of P700.00 a nionth and
for a period of ten years, (b) ordering the defendant to collect
the sum of P1,400.00 deposited by plaintiffs with the court, and
(c) ordering the defendant to pay damages in the amount of
P50,000.00. The following Monday, on 1 September 1980, Mrs.
Millare filed an ejectment case against the Co spouses in the
Municipal Court of Bangued, Abra, docketed as Civil Case No.
661. The spouses Co, defendants therein, sut)sequently set up
lis pendens as a Civil Case No. 661. The spouses Co, defendants
therein, subsequently set up lis pendens as a defense against
the complaint for ejectment.
Mrs. Millare, defendant in Civil Case No. 1434, countered with
an Omnibus Motion to Dismiss6 rounded on (a) lack of cause of
action due to plaintiffs' failure to establish a valid renewal of
the Contract of Lease, and (b) lack of jurisdiction by the trial
court over the complaint for failure of plaintiffs to secure a
certification from the Lupong Tagapayapa of the barangay
wherein both disputants reside attesting that no amicable
settlement between them had been reached despite efforts to
arrive at one, as required by Section 6 of Presidential Decree
No. 1508. The Co spouses opposed the motion to dismiss. 7
In an Order dated 15 October 1980, respondent judge denied
the motion to dismiss and ordered the renewal of the Contract
of Lease. Furthermore plaintiffs were allowed to deposit all
accruing monthly rentals in court, while defendant Millare was
directed to submit her answer to the complaint. 8 A motion for
reconsideration 9 was subsequently filed which, however, was
likewise denied. 10 Hence, on 13 November 1980, Mrs. Millare
filed the instant Petition for Certiorari, Prohibition and
Mandamus, seeking injunctive relief from the abovementioned
orders. This Court issued a temporary restraining order on 21
November 1980 enjoining respondent, judge from conducting
further proceedings in Civil Case No. 1434. 11 Apparently,
before the temporary restraining order could be served on the
respondent judge, he rendered a "Judgment by Default" dated
26 November 1980 ordering the renewal of the lease contract
for a term of 5 years counted from the expiration date of the
original lease contract, and fixing monthly rentals thereunder at
P700.00 a month, payable in arrears. On18 March 1981, this
Court gave due course to the Petition for Certiorari, Prohibition
and Mandamus. 12
Two issues are presented for resolution: (1) whether or not the
trial court acquired jurisdiction over Civil Case No. 1434; and (2)
whether or not private respondents have a valid cause of action
against petitioner.
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Turning to the first issue, petitioner's attack on the jurisdiction
of the trial court must fail, though for reasons different from
those cited by the respondent judge. 13 We would note firstly
that the conciliation procedure required under P.D. 1508 is not a
jurisdictional requirement in the sense that failure to have prior
recourse to such procedure would not deprive a court of its
jurisdiction either over the subject matter or over the person of
the defendant.14 Secondly, the acord shows that two
complaints were submitted to the barangay authorities for
conciliation — one by petitioner for ejectment and the other by
private respondents for renewal of the Contract of Lease. It
appears further that both complaints were, in fact, heard by the
Lupong Tagapayapa in the afternoon of 30 August 1980. After
attempts at conciliation had proven fruitless, Certifications to
File Action authorizing the parties to pursue their respective
claims in court were then issued at 5:20 p.m. of that same
aftemoon, as attested to by the Barangay Captain in a
Certification presented in evidence by petitioner herself. 15
Petitioner would, nonetheless, assail the proceedings in the trial
court on a technicaety, i.e., private respondents allegedly filed
their complaint at 4:00 p.m. of 30 August 1980, or one hour and
twenty minutes before the issuance of the requisite certification
by the Lupng Tagapayapa. The defect in procedure admittedly
initially present at that particular moment when private
respondents first filed the complaint in the trial court, was
cured by the subsequent issuance of the Certifications to File
Action by the barangay Lupong Tagapayapa Such certifications
in any event constituted substantial comphance with the
requirement of P.D. 1508.
We turn to the second issue, that is, whether or not the
complaint in Civil Case No. 1434 filed by the respondent Co
spouses claiming renewal of the contract of lease stated a valid
cause of action. Paragraph 13 of the Contract of Lease reads as
follows:
13. This contract of lease is subject to the laws and regulations
ofthe goverrunent; and that this contract of lease may be
renewed after a period of five (5) years under the terms and
conditions as will be mutually agreed upon by the parties at the
time of renewal; ... (Emphasis supplied.)
The respondent judge, in his Answer and Comment to the
Petition, urges that under paragraph 13 quoted above.
there was already a consummated and finished mutual
agreement of the parties to renew the contract of lease after
five years; what is only left unsettled between the parties to the
contract of lease is the amount of the monthly rental; the lessor
insists Pl,200 a month, while the lessee is begging P700 a
month which doubled the P350 monthly rental under the
original contract .... In short, the lease contract has never
expired because paragraph 13 thereof had expressly mandated
that it is renewable. ...16
In the "Judgment by Default" he rendered, the respondent
Judge elaborated his views — obviously highly emotional in
character — in the following extraordinary tatements:
However, it is now the negative posture of the defendant-lessor
to block, reject and refuse to renew said lease contract. It is the
defendant-lessor's assertion and position that she can at the
mere click of her fingers, just throw-out the plaintiffs-lessees
from the leased premises and any time after the original term
of the lease contract had already expired; This negative
position of the defendantlessor, to the mind of this Court does
not conform to the principles and correct application of the
philosophy underlying the law of lease; for indeed, the law of
lease is impressed with public interest, social justice and equity;
reason for which, this Court cannot sanction lot owner's
business and commercial speculations by allowing them with
"unbridled discretion" to raise rentals even to the extent of
"extraordinary
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gargantuan proportions, and calculated to unreasonably and
unjustly eject the helpless lessee because he cannot afford said
inflated monthly rental and thereby said lessee is placed
without any alternative, except to surrender and vacate the
premises mediately,-" Many business establishments would be
closed and the public would directly suffer the direct
consequences; Nonetheless, this is not the correct concept or
perspective the law of lease, that is, to place the lessee always
at the mercy of the lessor's "Merchant of Venice" and to agit the
latter's personal whims and caprices; the defendant-lessor's
hostile attitude by imposing upon the lessee herein an
"unreasonable and extraordinary gargantuan monthly rental of
P1,200.00", to the mind of this Court, is "fly-by night unjust
enrichment" at the expense of said lessees; but, no Man should
unjustly enrich himself at the expense of another; under these
facts and circumstances surrounding this case, the action
therefore to renew the lease contract! is "tenable" because it
falls squarely within the coverage and command of Articles
1197 and 1670 of the New Civil Code, to wit:
xxx xxx xxx
The term "to be renewed" as expressly stipulated by the herein
parties in the original contract of lease means that the lease
may be renewed for another term of five (5) years; its
equivalent to a promise made by the lessor to the lessee, and
as a unilateral stipulation, obliges the lessor to fulfill her
promise; of course the lessor is free to comply and honor her
commitment or back-out from her promise to renew the lease
contract; but, once expressly stipulated, the lessor shall not be
allowed to evade or violate the obligation to renew the lease
because, certainly, the lessor may be held hable for damages
caused to the lessee as a consequence of the unjustifiable
termination of the lease or renewal of the same; In other words,
the lessor is guilty of breach of contract: Since the original
lease was fixed for five (5) years, it follows, therefore, that the
lease contract is renewable for another five (5)
years and the lessee is not required before hand to give
express notice of this fact to the lessor because it was
expressly stipulated in the original lease contract to be
renewed; Wherefore, the bare refusal of the lessor to renew the
lease contract unless the monthly rental is P1,200.00 is
contrary to law, morals, good customs, public policy, justice and
equity because no one should unjustly enrich herself at the
expense of another. Article 1197 and 1670 of the New Civil
Code must therefore govern the case at bar and whereby this
Court is authorized to fix the period thereof by ordering the
renewal of the lease contract to another fixed term of five (5)
years.17
Clearly, the respondent judge's grasp of both the law and the
Enghsh language is tenuous at best. We are otherwise unable
to comprehend how he arrived at the reading set forth above.
Paragraph 13 of the Contract of Lease can only mean that the
lessor and lessee may agree to renew the contract upon their
reaching agreement on the terms and conditions to be
embodied in such renewal contract. Failure to reach agreement
on the terms and conditions of the renewal contract will of
course prevent the contract from being renewed at all. In the
instant case, the lessor and the lessee conspicuously failed to
reach agreement both on the amount of the rental to be
payable during the renewal term, and on the term of the
renewed contract.
The respondent judge cited Articles 1197 and 1670 of the Civil
Code to sustain the "Judgment by Default" by which he ordered
the renewal of the lease for another term of five years and fixed
monthly rentals thereunder at P700.00 a month. Article 1197 of
the Civil Code provides as follows:
If the obligation does not fix a period, but from its nature and
the circumstances it can be inferred that a period was intended,
the courts may fix the duration thereof.
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The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the courts shall determine such period as may,
under the circumstances, have been probably contemplated by
the parties. Once fixed by the courts, the period cannot be
changed by them. (Emphasis supplied.)
The first paragraph of Article 1197 is clearly inapplicable, since
the Contract of Lease did in fact fix an original period of five
years, which had expired. It is also clear from paragraph 13 of
the Contract of Lease that the parties reserved to themselves
the faculty of agreeing upon the period of the renewal contract.
The second paragraph of Article 1197 is equally clearly
inapplicable since the duration of the renewal period was not
left to the wiu of the lessee alone, but rather to the will of both
the lessor and the lessee. Most importantly, Article 1197
applies only where a contract of lease clearly exists. Here, the
contract was not renewed at all, there was in fact no contract at
all the period of which could have been fixed.
Article 1670 of the Civil Code reads thus:
If at the end of the contract the lessee should continue enjoying
the thing left for 15 days with the acquiescence of the lessor
and unless a notice to the contrary by either party has
previously been given. It is understood that there is an implied
new lease, not for the period of the original contract but for the
time established in Articles 1682 and 1687. The ther terms of
the original contract shall be revived. (Emphasis suplied.)
The respondents themselves, public and private, do not pretend
that the continued occupancy of the leased premises after 31
May 1980, the date of expiration of the contract, was with the
acquiescence of the lessor. Even if it be assumed that tacite
reconduccion had occurred, the implied new lease could not
possibly have a period of five years, but rather would have
been a month-to-month lease since the rentals (under the
original contract) were payable on a monthly basis. At the
latest, an implied new lease (had one arisen) would have
expired as of the end of July 1980 in view of the written
demands served by the petitioner upon the private respondents
to vacate the previously leased premises.
It follows that the respondent judge's decision requiring renewal
of the lease has no basis in law or in fact. Save in the limited
and exceptional situations envisaged inArticles ll97 and 1670 of
the Civil Code, which do not obtain here, courts have no
authority to prescribe the terms and conditions of a contract for
the parties. As pointed out by Mr. Justice J.B.L. Reyes in Republic
vs. Philippine Long Distance Telephone,Co.,[[18
[P]arties cannot be coerced to enter into a contract where no
agreement is had between them as to the principal terms and
conditions of the contract. Freedom to stipulate such terms and
conditions is of the essence of our contractual system, and by
express provision of the statute, a contract may be annulled if
tainted by violence, intimidation or undue influence (Article
1306, 1336, 1337, Civil Code of the Philippines).
Contractual terms and conditions created by a court for two
parties are a contradiction in terms. If they are imposed by a
judge who draws upon his own private notions of what morals,
good customs, justice, equity and public policy" demand, the
resulting "agreement" cannot, by definition, be consensual or
contractual in nature. It would also follow that such coerced
terms and conditions cannot be the law as between the parties
themselves. Contracts spring from the volition of the parties.
That volition cannot be supplied by a judge and a judge who
pretends to do so, acts tyrannically, arbitrarily and in excess of
his jurisdiction. 19
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WHEREFORE, the Petition for Certiorari, Prohibition and
mandamus is granted. The Orders of the respondent judge in
Civil Case No. 1434 dated 26 September 1980 (denying
petitioner's motion to dismiss) and 4 November 1980 (denying
petitioner's motion for reconsideration), and the "Judgment by
Default" rendered by the respondent judge dated 26 November
1980, are hereby annulled and set aside and Civil Case No.
1434 is hereby dismissed. The temporary restraining order
dated 21 November 1980 issued by this ourt, is hereby made
permanent. No pronouncement as to costs.
The facts are as follows:
Dan T. Lim works in the business of supplying scrap papers,
cartons, and other raw materials, under the name Quality Paper
and Plastic Products, Enterprises, to factories engaged in the
paper mill business.4 From February 2007 to March 2007, he
delivered scrap papers worth 7,220,968.31 to Arco Pulp and
Paper Company, Inc. (Arco Pulp and Paper) through its Chief
Executive Officer and President, Candida A. Santos.5 The
parties allegedly agreed that Arco Pulp and Paper would either
pay Dan T. Lim the value of the raw materials or deliver to him
their finished products of equivalent value.6
Dan T. Lim alleged that when he delivered the raw materials,
Arco Pulp and Paper issued a post-dated check dated April 18,
20077 in the amount of 1,487,766.68 as partial payment, with
the assurance that the check would not bounce.8 When he
deposited the check on April 18, 2007, it was dishonored for
being drawn against a closed account.9
On the same day, Arco Pulp and Paper and a certain Eric Sy
executed a memorandum of agreement10 where Arco Pulp and
Paper bound themselves to deliver their finished products to
Megapack Container Corporation, owned by Eric Sy, for his
account. According to the memorandum, the raw materials
would be supplied by Dan T. Lim, through his company, Quality
Paper and Plastic Products. The memorandum of agreement
reads as follows:
Per meeting held at ARCO, April 18, 2007, it has been mutually
agreed between Mrs. Candida A. Santos and Mr. Eric Sy that
ARCO will deliver 600 tons Test Liner 150/175 GSM, full width 76
inches at the price of P18.50 per kg. to Megapack Container for
Mr. Eric Sy’s account. Schedule of deliveries are as follows:
26.(also 103) G.R. No. 206806
June 25, 2014
ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS,
Petitioners,
vs.
DAN T. LIM, doing business under the name and style of
QUALITY PAPERS & PLASTIC PRODUCTS ENTERPRISES,
Respondent.
DECISION
LEONEN, J.:
Novation must be stated in clear and unequivocal terms to
extinguish an obligation. It cannot be presumed and may be
implied only if the old and new contracts are incompatible on
every point.
Before us is a petition for review on certiorari1 assailing the
Court of Appeals’ decision2 in CA-G.R. CV No. 95709, which
stemmed from a complaint3 filed in the Regional Trial Court of
Valenzuela City, Branch 171, for collection of sum of money.
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....
It has been agreed further that the Local OCC materials to be
used for the production of the above Test Liners will be supplied
by Quality Paper & Plastic Products Ent., total of 600 Metric Tons
at P6.50 per kg. (price subject to change per advance notice).
Quantity of Local OCC delivery will be based on the quantity of
Test Liner delivered to Megapack Container Corp. based on the
above production schedule.11
On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and
Paper demanding payment of the amount of 7,220,968.31, but
no payment was made to him.13
Dan T. Lim filed a complaint14 for collection of sum of money
with prayer for attachment with the Regional Trial Court, Branch
171, Valenzuela City, on May 28, 2007. Arco Pulp and Paper
filed its answer15 but failed to have its representatives attend
the pre- trial hearing. Hence, the trial court allowed Dan T. Lim
to present his evidence ex parte.16
On September 19, 2008, the trial court rendered a judgment in
favor of Arco Pulp and Paper and dismissed the complaint,
holding that when Arco Pulp and Paper and Eric Sy entered into
the memorandum of agreement, novation took place, which
extinguished Arco Pulp and Paper’s obligation to Dan T. Lim.17
Dan T. Lim appealed18 the judgment with the Court of Appeals.
According to him, novation did not take place since the
memorandum of agreement between Arco Pulp and Paper and
Eric Sy was an exclusive and private agreement between them.
He argued that if his name was mentioned in the contract, it
was only for supplying the parties their required scrap papers,
where his conformity through a separate contract was
indispensable.19
On January 11, 2013, the Court of Appeals20 rendered a
decision21 reversing and setting aside the judgment dated
September 19, 2008 and ordering Arco Pulp and Paper to jointly
and severally pay Dan T. Lim the amount of P7,220,968.31 with
interest at 12% per annum from the time of demand;
P50,000.00 moral damages; P50,000.00 exemplary damages;
and P50,000.00 attorney’s fees.22
The appellate court ruled that the facts and circumstances in
this case clearly showed the existence of an alternative
obligation.23 It also ruled that Dan T. Lim was entitled to
damages and attorney’s fees due to the bad faith exhibited by
Arco Pulp and Paper in not honoring its undertaking.24
Its motion for reconsideration25 having been denied,26 Arco
Pulp and Paper and its President and Chief Executive Officer,
Candida A. Santos, bring this petition for review on certiorari.
On one hand, petitioners argue that the execution of the
memorandum of agreement constituted a novation of the
original obligation since Eric Sy became the new debtor of
respondent. They also argue that there is no legal basis to hold
petitioner Candida A. Santos personally liable for the
transaction that petitioner corporation entered into with
respondent. The Court of Appeals, they allege, also erred in
awarding moral and exemplary damages and attorney’s fees to
respondent who did not show proof that he was entitled to
damages.27
Respondent, on the other hand, argues that the Court of
Appeals was correct in ruling that there was no proper novation
in this case. He argues that the Court of Appeals was correct in
ordering the payment of 7,220,968.31 with damages since the
debt of petitioners remains unpaid.28 He also argues that the
Court of Appeals was correct in holding petitioners solidarily
liable since petitioner Candida A. Santos was "the prime mover
for such outstanding corporate liability."29 In their reply,
petitioners
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reiterate that novation took place since there was nothing in
the memorandum of agreement showing that the obligation
was alternative. They also argue that when respondent allowed
them to deliver the finished products to Eric Sy, the original
obligation was novated.30
A rejoinder was submitted by respondent, but it was noted
without action in view of A.M. No. 99-2-04-SC dated November
21, 2000.31
The issues to be resolved by this court are as follows:
1. Whether the obligation between the parties was extinguished
by novation
"In an alternative obligation, there is more than one object, and
the fulfillment of one is sufficient, determined by the choice of
the debtor who generally has the right of election."32 The right
of election is extinguished when the party who may exercise
that option categorically and unequivocally makes his or her
choice known.33
The choice of the debtor must also be communicated to the
creditor who must receive notice of it since: The object of this
notice is to give the creditor . . . opportunity to express his
consent, or to impugn the election made by the debtor, and
only after said notice shall the election take legal effect when
consented by the creditor, or if impugned by the latter, when
declared proper by a competent court.34
According to the factual findings of the trial court and the
appellate court, the original contract between the parties was
for respondent to deliver scrap papers worth P7,220,968.31 to
petitioner Arco Pulp and Paper. The payment for this delivery
became petitioner Arco Pulp and Paper’s obligation. By
agreement, petitioner Arco Pulp and Paper, as the debtor, had
the option to either (1) pay the price or(2) deliver the finished
products of equivalent value to respondent.35
The appellate court, therefore, correctly identified the
obligation between the parties as an alternative obligation,
whereby petitioner Arco Pulp and Paper, after receiving the raw
materials from respondent, would either pay him the price of
the raw materials or, in the alternative, deliver to him the
finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to
respondent in partial payment for the scrap papers, they
exercised their option to pay the price. Respondent’s receipt of
the check and his subsequent act of depositing it constituted
his notice of petitioner Arco Pulp and Paper’s option to pay.
2. Whether Candida A. Santos was solidarily liable and Paper
Co., Inc.
3. Whether moral damages, exemplary damages, fees can be
awarded
The petition is denied.
The obligation between the parties was an alternative
obligation
The rule on alternative obligations is governed by the Civil
Code, which states:
Article 1199. A person alternatively bound prestations shall
completely perform one of them.
with Arco Pulp and attorney’s
The creditor cannot be compelled to receive part of one and
part
of the other undertaking.
Article 1199 of
by different
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This choice was also shown by the terms of the memorandum
of agreement, which was executed on the same day. The
memorandum declared in clear terms that the delivery of
petitioner Arco Pulp and Paper’s finished products would be to a
third person, thereby extinguishing the option to deliver the
finished products of equivalent value to respondent.
The memorandum of agreement did not constitute a novation
of the original contract
The trial court erroneously ruled that the execution of the
memorandum of agreement constituted a novation of the
contract between the parties. When petitioner Arco Pulp and
Paper opted instead to deliver the finished products to a third
person, it did not novate the original obligation between the
parties.
The rules on novation are outlined in the Civil Code, thus:
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
(1203)
Article 1292. In order that an obligation may be extinguished by
another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
(1204)
Article 1293. Novation which consists in substituting a new
debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor
gives him the rights mentioned in Articles 1236 and 1237.
(1205a)
Novation extinguishes an obligation between two parties when
there is a substitution of objects or debtors or when there is
subrogation of the creditor. It occurs only when the new
contract declares so "in unequivocal terms" or that "the old and
the new obligations be on every point incompatible with each
other."36
Novation was extensively discussed by this court in Garcia v.
Llamas:37
Novation is a mode of extinguishing an obligation by changing
its objects or principal obligations, by substituting a new debtor
in place of the old one, or by subrogating a third person to the
rights of the creditor. Article 1293 of the Civil Code defines
novation as follows:
"Art. 1293. Novation which consists in substituting a new debtor
in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
rights mentioned in articles 1236 and 1237."
In general, there are two modes of substituting the person of
the debtor: (1) expromision and (2) delegacion. In expromision,
the initiative for the change does not come from — and may
even be made without the knowledge of — the debtor, since it
consists of a third person’s assumption of the obligation. As
such, it logically requires the consent of the third person and
the creditor. In delegacion, the debtor offers, and the creditor
accepts, a third person who consents to the substitution and
assumes the
105 | P a g e
obligation; thus, the consent of these three persons are
necessary. Both modes of substitution by the debtor require the
consent of the creditor.
Novation may also be extinctive or modificatory. It is extinctive
when an old obligation is terminated by the creation of a new
one that takes the place of the former. It is merely modificatory
when the old obligation subsists to the extent that it remains
compatible with the amendatory agreement. Whether
extinctive or modificatory, novation is made either by changing
the object or the principal conditions, referred to as objective or
real novation; or by substituting the person of the debtor or
subrogating a third person to the rights of the creditor, an act
known as subjective or personal novation. For novation to take
place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract. 3) The
old contract must be extinguished.
4) There must be a valid new contract.
Novation may also be express or implied. It is express when the
new obligation declares in unequivocal terms that the old
obligation is extinguished. It is implied when the new obligation
is incompatible with the old one on every point. The test of
incompatibility is whether the two obligations can stand
together, each one with its own independent existence.38
(Emphasis supplied)
Because novation requires that it be clear and unequivocal, it is
never presumed, thus:
In the civil law setting, novatio is literally construed as to make
new. So it is deeply rooted in the Roman Law jurisprudence, the
principle — novatio non praesumitur —that novation is never
presumed.At bottom, for novation tobe a jural reality, its
animus must be ever present, debitum pro debito — basically
extinguishing the old obligation for the new one.39 (Emphasis
supplied) There is nothing in the memorandum of agreement
that states that with its execution, the obligation of petitioner
Arco Pulp and Paper to respondent would be extinguished. It
also does not state that Eric Sy somehow substituted petitioner
Arco Pulp and Paper as respondent’s debtor. It merely shows
that petitioner Arco Pulp and Paper opted to deliver the finished
products to a third person instead.
The consent of the creditor must also be secured for the
novation to be valid:
Novation must be expressly consented to. Moreover, the
conflicting intention and acts of the parties underscore the
absence of any express disclosure or circumstances with which
to deduce a clear and unequivocal intent by the parties to
novate the old agreement.40 (Emphasis supplied)
In this case, respondent was not privy to the memorandum of
agreement, thus, his conformity to the contract need not be
secured. This is clear from the first line of the memorandum,
which states:
Per meeting held at ARCO, April 18, 2007, it has been mutually
agreed between Mrs. Candida A. Santos and Mr. Eric Sy. . . .41
If the memorandum of agreement was intended to novate the
original agreement between the parties, respondent must have
first agreed to the substitution of Eric Sy as his new debtor. The
memorandum of agreement must also state in clear and
unequivocal terms that it has replaced the original obligation of
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petitioner Arco Pulp and Paper to respondent. Neither of these
circumstances is present in this case.
Petitioner Arco Pulp and Paper’s act of tendering partial
payment to respondent also conflicts with their alleged intent to
pass on their obligation to Eric Sy. When respondent sent his
letter of demand to petitioner Arco Pulp and Paper, and not to
Eric Sy, it showed that the former neither acknowledged nor
consented to the latter as his new debtor. These acts, when
taken together, clearly show that novation did not take place.
Since there was no novation, petitioner Arco Pulp and Paper’s
obligation to respondent remains valid and existing. Petitioner
Arco Pulp and Paper, therefore, must still pay respondent the
full amount of P7,220,968.31.
Petitioners are liable for damages
Under Article 2220 of the Civil Code, moral damages may be
awarded in case of breach of contract where the breach is due
to fraud or bad faith:
Art. 2220. Willfull injury to property may be a legal ground for
awarding moral damages if the court should find that, under
the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted
fraudulently or in bad faith. (Emphasis supplied)
Moral damages are not awarded as a matter of right but only
after the party claiming it proved that the breach was due to
fraud or bad faith. As this court stated:
Moral damages are not recoverable simply because a contract
has been breached. They are recoverable only if the party from
whom it is claimed acted fraudulently or in bad faith or in
wanton disregard of his contractual obligations. The breach
must be
wanton, reckless, malicious or in bad faith, and oppressive or
abusive.42
Further, the following requisites must be proven for the
recovery of moral damages:
An award of moral damages would require certain conditions to
be met, to wit: (1)first, there must be an injury, whether
physical, mental or psychological, clearly sustained by the
claimant; (2) second, there must be culpable act or omission
factually established; (3) third, the wrongful act or omission of
the defendant is the proximate cause of the injury sustained by
the claimant; and (4) fourth, the award of damages is
predicated on any of the cases stated in Article 2219 of the Civil
Code.43
Here, the injury suffered by respondent is the loss of
P7,220,968.31 from his business. This has remained unpaid
since 2007. This injury undoubtedly was caused by petitioner
Arco Pulp and Paper’s act of refusing to pay its obligations.
When the obligation became due and demandable, petitioner
Arco Pulp and Paper not only issued an unfunded check but also
entered into a contract with a third person in an effort to evade
its liability. This proves the third requirement.
As to the fourth requisite, Article 2219 of the Civil Code
provides that moral damages may be awarded in the following
instances:
Article 2219. Moral damages may be recovered in the following
and analogous cases:
(1) A criminal offense resulting in physical injuries; (2) Quasi-
delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
107 | P a g e
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29,
30, 32, 34, and 35.
Breaches of contract done in bad faith, however, are not
specified within this enumeration. When a party breaches a
contract, he or she goes against Article 19 of the Civil Code,
which states: Article 19. Every person must, in the exercise of
his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith.
Persons who have the right to enter into contractual relations
must exercise that right with honesty and good faith. Failure to
do so results in an abuse of that right, which may become the
basis of an action for damages. Article 19, however, cannot be
its sole basis:
Article 19 is the general rule which governs the conduct of
human relations. By itself, it is not the basis of an actionable
tort. Article 19 describes the degree of care required so that an
actionable tort may arise when it is alleged together with
Article 20 or Article 21.44
Article 20 and 21 of the Civil Code are as follows:
Article 20. Every person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify the
latter for the same.
Article 21.Any person who wilfully causes loss or injury to
another in a manner that is contrary to morals, good customs
or public policy shall compensate the latter for the damage.
To be actionable, Article 20 requires a violation of law, while
Article 21 only concerns with lawful acts that are contrary to
morals, good customs, and public policy:
Article 20 concerns violations of existing law as basis for an
injury. It allows recovery should the act have been willful or
negligent. Willful may refer to the intention to do the act and
the desire to achieve the outcome which is considered by the
plaintiff in tort action as injurious. Negligence may refer to a
situation where the act was consciously done but without
intending the result which the plaintiff considers as injurious.
Article 21, on the other hand, concerns injuries that may be
caused by acts which are not necessarily proscribed by law.
This article requires that the act be willful, that is, that there
was an intention to do the act and a desire to achieve the
outcome. In cases under Article 21, the legal issues revolve
around whether such outcome should be considered a legal
injury on the part of the plaintiff or whether the commission of
the act was done in violation of the standards of care required
in Article 19.45
When parties act in bad faith and do not faithfully comply with
their obligations under contract, they run the risk of violating
Article 1159 of the Civil Code:
108 | P a g e
Article 1159. Obligations arising from contracts have the force
of law between the contracting parties and should be complied
with in good faith.
Article 2219, therefore, is not an exhaustive list of the instances
where moral damages may be recovered since it only specifies,
among others, Article 21. When a party reneges on his or her
obligations arising from contracts in bad faith, the act is not
only contrary to morals, good customs, and public policy; it is
also a violation of Article 1159. Breaches of contract become
the basis of moral damages, not only under Article 2220, but
also under Articles 19 and 20 in relation to Article 1159.
Moral damages, however, are not recoverable on the mere
breach of the contract. Article 2220 requires that the breach be
done fraudulently or in bad faith. In Adriano v. Lasala:46
To recover moral damages in an action for breach of contract,
the breach must be palpably wanton, reckless and malicious, in
bad faith, oppressive, or abusive. Hence, the person claiming
bad faith must prove its existence by clear and convincing
evidence for the law always presumes good faith.
Bad faith does not simply connote bad judgment or negligence.
It imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of known duty through
some motive or interest or ill will that partakes of the nature of
fraud. It is, therefore, a question of intention, which can be
inferred from one’s conduct and/or contemporaneous
statements.47 (Emphasis supplied)
Since a finding of bad faith is generally premised on the intent
of the doer, it requires an examination of the circumstances in
each case.
When petitioner Arco Pulp and Paper issued a check in partial
payment of its obligation to respondent, it was presumably with
the knowledge that it was being drawn against a closed
account. Worse, it attempted to shift their obligations to a third
person without the consent of respondent.
Petitioner Arco Pulp and Paper’s actions clearly show "a
dishonest purpose or some moral obliquity and conscious doing
of a wrong, a breach of known duty through some motive or
interest or ill will that partakes of the nature of fraud."48 Moral
damages may, therefore, be awarded.
Exemplary damages may also be awarded. Under the Civil
Code, exemplary damages are due in the following
circumstances:
Article 2232. In contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
Article 2233. Exemplary damages cannot be recovered as a
matter of right; the court will decide whether or not they should
be adjudicated.
Article 2234. While the amount of the exemplary damages need
not be proven, the plaintiff must show that he is entitled to
moral, temperate or compensatory damages before the court
may consider the question of whether or not exemplary
damages should be awarded.
In Tankeh v. Development Bank of the Philippines,49 we stated
that:
The purpose of exemplary damages is to serve as a deterrent to
future and subsequent parties from the commission of a similar
offense. The case of People v. Ranteciting People v. Dalisay held
that:
109 | P a g e
Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or
corrective damages are intended to serve as a deterrent to
serious wrong doings, and as a vindication of undue sufferings
and wanton invasion of the rights of an injured or a punishment
for those guilty of outrageous conduct. These terms are
generally, but not always, used interchangeably. In common
law, there is preference in the use of exemplary damages when
the award is to account for injury to feelings and for the sense
of indignity and humiliation suffered by a person as a result of
an injury that has been maliciously and wantonly inflicted, the
theory being that there should be compensation for the hurt
caused by the highly reprehensible conduct of the defendant—
associated with such circumstances as willfulness, wantonness,
malice, gross negligence or recklessness, oppression, insult or
fraud or gross fraud—that intensifies the injury. The terms
punitive or vindictive damages are often used to refer to those
species of damages that may be awarded against a person to
punish him for his outrageous conduct. In either case, these
damages are intended in good measure to deter the wrongdoer
and others like him from similar conduct in the future.50
(Emphasis supplied; citations omitted)
The requisites for the award of exemplary damages are as
follows:
(1) they may be imposed by way of example in addition to
compensatory damages, and only after the claimant's right to
them has been established;
(2) that they cannot be recovered as a matter of right, their
determination depending upon the amount of compensatory
damages that may be awarded to the claimant; and
(3) the act must be accompanied by bad faith or done in a
wanton, fraudulent, oppressive or malevolent manner.51
Business owners must always be forthright in their dealings.
They cannot be allowed to renege on their obligations,
considering that these obligations were freely entered into by
them. Exemplary damages may also be awarded in this case to
serve as a deterrent to those who use fraudulent means to
evade their liabilities.
Since the award of exemplary damages is proper, attorney’s
fees and cost of the suit may also be recovered.
Article 2208 of the Civil Code states:
Article 2208. In the absence of stipulation, attorney's fees and
expenses of litigation, other than judicial costs, cannot be
recovered, except:
(1) When exemplary damages are awarded[.] Petitioner
Candida A. Santos
is solidarily liable with
petitioner corporation
Petitioners argue that the finding of solidary liability was
erroneous since no evidence was adduced to prove that the
transaction was also a personal undertaking of petitioner
Santos. We disagree.
In Heirs of Fe Tan Uy v. International Exchange Bank,52 we
stated that:
Basic is the rule in corporation law that a corporation is a
juridical entity which is vested with a legal personality separate
and distinct from those acting for and in its behalf and, in
general, from the people comprising it. Following this principle,
obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities. A
110 | P a g e
director, officer or employee of a corporation is generally not
held personally liable for obligations incurred by the
corporation. Nevertheless, this legal fiction may be disregarded
if it is used as a means to perpetrate fraud or an illegal act, or
as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, or to confuse legitimate issues.
....
Before a director or officer of a corporation can be held
personally liable for corporate obligations, however, the
following requisites must concur: (1) the complainant must
allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was
guilty of gross negligence or bad faith; and (2) the complainant
must clearly and convincingly prove such unlawful acts,
negligence or bad faith.
While it is true that the determination of the existence of any of
the circumstances that would warrant the piercing of the veil of
corporate fiction is a question of fact which cannot be the
subject of a petition for review on certiorari under Rule 45, this
Court can take cognizance of factual issues if the findings of the
lower court are not supported by the evidence on record or are
based on a misapprehension of facts.53 (Emphasis supplied)
As a general rule, directors, officers, or employees of a
corporation cannot be held personally liable for obligations
incurred by the corporation. However, this veil of corporate
fiction may be pierced if complainant is able to prove, as in this
case, that (1) the officer is guilty of negligence or bad faith, and
(2) such negligence or bad faith was clearly and convincingly
proven.
Here, petitioner Santos entered into a contract with respondent
in her capacity as the President and Chief Executive Officer of
Arco Pulp and Paper. She also issued the check in partial
payment of petitioner corporation’s obligations to respondent
on behalf of petitioner Arco Pulp and Paper. This is clear on the
face of the check bearing the account name, "Arco Pulp &
Paper, Co., Inc."54 Any obligation arising from these acts would
not, ordinarily, be petitioner Santos’ personal undertaking for
which she would be solidarily liable with petitioner Arco Pulp
and Paper.
We find, however, that the corporate veil must be pierced. In
Livesey v. Binswanger Philippines:55
Piercing the veil of corporate fiction is an equitable doctrine
developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful
purposes. Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for non-
legitimate purposes, such as to evade a just and due obligation,
or to justify a wrong, to shield or perpetrate fraud or to carry
out similar or inequitable considerations, other unjustifiable
aims or intentions, in which case, the fiction will be disregarded
and the individuals composing it and the two corporations will
be treated as identical.56 (Emphasis supplied)
According to the Court of Appeals, petitioner Santos was
solidarily liable with petitioner Arco Pulp and Paper, stating that:
In the present case, We find bad faith on the part of the
[petitioners] when they unjustifiably refused to honor their
undertaking in favor of the [respondent]. After the check in the
amount of 1,487,766.68 issued by [petitioner] Santos was
dishonored for being drawn against a closed account,
[petitioner] corporation denied any privity with [respondent].
These acts prompted the [respondent] to avail of the remedies
provided by law in order to protect his rights.57
111 | P a g e
We agree with the Court of Appeals. Petitioner Santos cannot be
allowed to hide behind the corporate veil.1âwphi1 When
petitioner Arco Pulp and Paper’s obligation to respondent
became due and demandable, she not only issued an unfunded
check but also contracted with a third party in an effort to shift
petitioner Arco Pulp and Paper’s liability. She unjustifiably
refused to honor petitioner corporation’s obligations to
respondent. These acts clearly amount to bad faith. In this
instance, the corporate veil may be pierced, and petitioner
Santos may be held solidarily liable with petitioner Arco Pulp
and Paper.
The rate of interest due on the obligation must be reduced in
view of Nacar v. Gallery Frames58
In view, however, of the promulgation by this court of the
decision dated August 13, 2013 in Nacar v. Gallery Frames,59
the rate of interest due on the obligation must be modified from
12% per annum to 6% per annum from the time of demand.
Nacar effectively amended the guidelines stated in Eastern
Shipping v. Court of Appeals,60 and we have laid down the
following guidelines with regard to the rate of legal interest:
To recapitulate and for future guidance, the guidelines laid
down in the case of Eastern Shipping Linesare accordingly
modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 6% per
annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages, except when or until the
demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall
be 6% per annum from such finality until its satisfaction, this
112 | P a g e
interim period being deemed to be by then an equivalent to a
forbearance of credit.
And, in addition to the above, judgments that have become
final and executory prior to July 1, 2013, shall not be disturbed
and shall continue to be implemented applying the rate of
interest fixed therein.61 (Emphasis supplied; citations omitted.)
According to these guidelines, the interest due on the obligation
of P7,220,968.31 should now be at 6% per annum, computed
from May 5, 2007, when respondent sent his letter of demand
to petitioners. This interest shall continue to be due from the
finality of this decision until its full satisfaction.
WHEREFORE, the petition is DENIED in part. The decision in CA-
G.R. CV No. 95709 is AFFIRMED.
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos
are hereby ordered solidarily to pay respondent Dan T. Lim the
amount of P7,220,968.31 with interest of 6% per annum at the
time of demand until finality of judgment and its full
satisfaction, with moral damages in the amount of P50,000.00,
exemplary damages in the amount of P50,000.00, and
attorney's fees in the amount of P50,000.00.
HONORABLE COURT OF APPEALS AND ANTONIO P. SO,
respondents.
Gloria A. Fortun for petitioner. Roselino Reyes Isler for
respondents.
CUEVAS, J.:
This is a petition to review the Resolution dated June 30, 1980
of the then Court of Appeals (now the Intermediate Appellate
Court) in CA-G.R. No. SP-10573, entitled "Ernesto V. Ronquillo
versus the Hon. Florellana Castro-Bartolome, etc." and the
Order of said court dated August 20, 1980, denying petitioner's
motion for reconsideration of the above resolution.
Petitioner Ernesto V. Ronquillo was one of four (4) defendants in
Civil Case No. 33958 of the then Court of First Instance of Rizal
(now the Regional Trial Court), Branch XV filed by private
respondent Antonio P. So, on July 23, 1979, for the collection of
the sum of P17,498.98 plus attorney's fees and costs. The other
defendants were Offshore Catertrade Inc., Johnny Tan and Pilar
Tan. The amount of P117,498.98 sought to be collected
represents the value of the checks issued by said defendants in
payment for foodstuffs delivered to and received by them. The
said checks were dishonored by the drawee bank.
On December 13, 1979, the lower court rendered its Decision 1
based on the compromise agreement submitted by the parties,
the pertinent portion of which reads as follows:
1. Plaintiff agrees to reduce its total claim of P117,498-95 to
only P11,000 .00 and defendants agree to acknowledge the
validity of such claim and further bind themselves to initially
pay out of the total indebtedness of P10,000.00 the amount of
27. G.R. No. L-55138
September 28, 1984
ERNESTO V. RONQUILLO, petitioner, vs.
113 | P a g e
P55,000.00 on or before December 24, 1979, the balance of
P55,000.00, defendants individually and jointly agree to pay
within a period of six months from January 1980, or before June
30, 1980; (Emphasis supplied)
xxx xxx xxx
4. That both parties agree that failure on the part of either
party to comply with the foregoing terms and conditions, the
innocent party will be entitled to an execution of the decision
based on this compromise agreement and the defaulting party
agrees and hold themselves to reimburse the innocent party for
attorney's fees, execution fees and other fees related with the
execution.
xxx xxx xxx
On December 26, 1979, herein private respondent (then
plaintiff filed a Motion for Execution on the ground that
defendants failed to make the initial payment of P55,000.00 on
or before December 24, 1979 as provided in the Decision. Said
motion for execution was opposed by herein petitioner (as one
of the defendants) contending that his inability to make the
payment was due to private respondent's own act of making
himself scarce and inaccessible on December 24, 1979.
Petitioner then prayed that private respondent be ordered to
accept his payment in the amount of P13,750.00. 2
During the hearing of the Motion for Execution and the
Opposition thereto on January 16, 1980, petitioner, as one of
the four defendants, tendered the amount of P13,750.00, as his
prorata share in the P55,000.00 initial payment. Another
defendant, Pilar P. Tan, offered to pay the same amount.
Because private respondent refused to accept their payments,
demanding from them the full initial installment of P 55,000.00,
petitioner and Pilar Tan instead deposited the said amount with
the Clerk of
Court. The amount deposited was subsequently withdrawn by
private respondent. 3
On the same day, January 16, 1980, the lower court ordered the
issuance of a writ of execution for the balance of the initial
amount payable, against the other two defendants, Offshore
Catertrade Inc. and Johnny Tan 4 who did not pay their shares.
On January 22, 1980, private respondent moved for the
reconsideration and/or modification of the aforesaid Order of
execution and prayed instead for the "execution of the decision
in its entirety against all defendants, jointly and severally." 5
Petitioner opposed the said motion arguing that under the
decision of the lower court being executed which has already
become final, the liability of the four (4) defendants was not
expressly declared to be solidary, consequently each defendant
is obliged to pay only his own pro-rata or 1/4 of the amount due
and payable.
On March 17, 1980, the lower court issued an Order reading as
follows:
ORDER
Regardless of whatever the compromise agreement has
intended the payment whether jointly or individually, or jointly
and severally, the fact is that only P27,500.00 has been paid.
There appears to be a non-payment in accordance with the
compromise agreement of the amount of P27,500.00 on or
before December 24, 1979. The parties are reminded that the
payment is condition sine qua non to the lifting of the
preliminary attachment and the execution of an affidavit of
desistance.
WHEREFORE, let writ of execution issue as prayed for
114 | P a g e
On March 17, 1980, petitioner moved for the reconsideration of
the above order, and the same was set for hearing on March
25,1980.
Meanwhile, or more specifically on March 19, 1980, a writ of
execution was issued for the satisfaction of the sum of
P82,500.00 as against the properties of the defendants
(including petitioner), "singly or jointly hable." 6
On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal,
issued a notice of sheriff's sale, for the sale of certain furnitures
and appliances found in petitioner's residence to satisfy the
sum of P82,500.00. The public sale was scheduled for April 2,
1980 at 10:00 a.m. 7
Petitioner's motion for reconsideration of the Order of Execution
dated March 17, 1980 which was set for hearing on March 25,
1980, was upon motion of private respondent reset to April 2,
1980 at 8:30 a.m. Realizing the actual threat to property rights
poised by the re-setting of the hearing of s motion for
reconsideration for April 2, 1980 at 8:30 a.m. such that if his
motion for reconsideration would be denied he would have no
more time to obtain a writ from the appellate court to stop the
scheduled public sale of his personal properties at 10:00 a.m. of
the same day, April 2, 1980, petitioner filed on March 26, 1980
a petition for certiorari and prohibition with the then Court of
Appeals (CA-G.R. No. SP-10573), praying at the same time for
the issuance of a restraining order to stop the public sale. He
raised the question of the validity of the order of execution, the
writ of execution and the notice of public sale of his properties
to satisfy fully the entire unpaid obligation payable by all of the
four (4) defendants, when the lower court's decision based on
the compromise agreement did not specifically state the
liability of the four (4) defendants to be solidary.
On April 2, 1980, the lower court denied petitioner's motion for
reconsideration but the scheduled public sale in that same day
did not proceed in view of the pendency of a certiorari
proceeding before the then Court of Appeals.
On June 30, 1980, the said court issued a Resolution, the
pertinent portion of which reads as follows:
This Court, however, finds the present petition to have been
filed prematurely. The rule is that before a petition for certiorari
can be brought against an order of a lower court, all remedies
available in that court must first be exhausted. In the case at
bar, herein petitioner filed a petition without waiting for a
resolution of the Court on the motion for reconsideration, which
could have been favorable to the petitioner. The fact that the
hearing of the motion for reconsideration had been reset on the
same day the public sale was to take place is of no moment
since the motion for reconsideration of the Order of March 17,
1980 having been seasonably filed, the scheduled public sale
should be suspended. Moreover, when the defendants,
including herein petitioner, defaulted in their obligation based
on the compromise agreement, private respondent had become
entitled to move for an execution of the decision based on the
said agreement.
WHEREFORE, the instant petition for certiorari and prohibition
with preliminary injunction is hereby denied due course. The
restraining order issued in our resolution dated April 9, 1980 is
hereby lifted without pronouncement as to costs.
SO ORDERED.
Petitioner moved to reconsider the aforesaid Resolution alleging
that on April 2, 1980, the lower court had already denied the
motion referred to and consequently, the legal issues being
raised in the petition were already "ripe" for determination. 8
115 | P a g e
The said motion was however denied by the Court of Appeals in
its Resolution dated August 20, 1980.
Hence, this petition for review, petitioner contending that the
Court of Appeals erred in
(a) declaring as premature, and in denying due course to the
petition to restrain implementation of a writ of execution issued
at variance with the final decision of the lower court filed barely
four (4) days before the scheduled public sale of the attached
movable properties;
(b) denying reconsideration of the Resolution of June 30, 1980,
which declared as premature the filing of the petition, although
there is proof on record that as of April 2, 1980, the motion
referred to was already denied by the lower court and there
was no more motion pending therein;
(c) failing to resolve the legal issues raised in the petition and in
not declaring the liabilities of the defendants, under the final
decision of the lower court, to be only joint;
(d) not holding the lower court's order of execution dated March
17, 1980, the writ of execution and the notice of sheriff's sale,
executing the lower court's decision against "all defendants,
singly and jointly", to be at variance with the lower court's final
decision which did not provide for solidary obligation; and
(e) not declaring as invalid and unlawful the threatened
execution, as against the properties of petitioner who had paid
his pro-rata share of the adjudged obligation, of the total
unpaid amount payable by his joint co-defendants.
The foregoing assigned errors maybe synthesized into the more
important issues of —
1. Was the filing of a petition for certiorari before the then Court
of Appeals against the Order of Execution issued by the lower
court, dated March 17, 1980, proper, despite the pendency of a
motion for reconsideration of the same questioned Order?
2. What is the nature of the liability of the defendants (including
petitioner), was it merely joint, or was it several or solidary?
Anent the first issue raised, suffice it to state that while as a
general rule, a motion for reconsideration should precede
recourse to certiorari in order to give the trial court an
opportunity to correct the error that it may have committed,
the said rule is not absolutes 9 and may be dispensed with in
instances where the filing of a motion for reconsideration would
serve no useful purpose, such as when the motion for
reconsideration would raise the same point stated in the motion
10 or where the error is patent for the order is void 11 or where
the relief is extremely urgent, as in cases where execution had
already been ordered 12 where the issue raised is one purely of
law. 13
In the case at bar, the records show that not only was a writ of
execution issued but petitioner's properties were already
scheduled to be sold at public auction on April 2, 1980 at 10:00
a.m. The records likewise show that petitioner's motion for
reconsideration of the questioned Order of Execution was filed
on March 17, 1980 and was set for hearing on March 25, 1980
at 8:30 a.m., but upon motion of private respondent, the
hearing was reset to April 2, 1980 at 8:30 a.m., the very same
clay when petitioner's properties were to be sold at public
auction. Needless to state that under the circumstances,
petitioner was faced with imminent danger of his properties
being immediately sold the moment his motion for
reconsideration is denied. Plainly, urgency prompted recourse
to the Court of Appeals and the adequate and speedy remedy
for petitioner under the situation
116 | P a g e
was to file a petition for certiorari with prayer for restraining
order to stop the sale. For him to wait until after the hearing of
the motion for reconsideration on April 2, 1980 before taking
recourse to the appellate court may already be too late since
without a restraining order, the public sale can proceed at
10:00 that morning. In fact, the said motion was already denied
by the lower court in its order dated April 2, 1980 and were it
not for the pendency of the petition with the Court of Appeals
and the restraining order issued thereafter, the public sale
scheduled that very same morning could have proceeded.
The other issue raised refers to the nature of the liability of
petitioner, as one of the defendants in Civil Case No. 33958,
that is whether or not he is liable jointly or solidarily.
In this regard, Article 1207 and 1208 of the Civil Code provides
—
Art. 1207. The concurrence of two or more debtors in one and
the same obligation does not imply that each one of the former
has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. Then is a solidary
liability only when the obligation expressly so states, or when
the law or the nature of the obligation requires solidarity.
Art. 1208. If from the law,or the nature or the wording of the
obligation to which the preceding article refers the contrary
does not appear, the credit or debt shall be presumed to be
divided into as many equal shares as there are creditors and
debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity
of quits.
The decision of the lower court based on the parties'
compromise agreement, provides:
1. Plaintiff agrees to reduce its total claim of P117,498.95 to
only P110,000.00 and defendants agree to acknowledge the
validity of such claim and further bind themselves to initially
pay out of the total indebtedness of P110,000.00, the amount
of P5,000.00 on or before December 24, 1979, the balance of
P55,000.00, defendants individually and jointly agree to pay
within a period of six months from January 1980 or before June
30, 1980. (Emphasis supply)
Clearly then, by the express term of the compromise
agreement and the decision based upon it, the defendants
obligated themselves to pay their obligation "individually and
jointly".
The term "individually" has the same meaning as "collectively",
"separately", "distinctively", respectively or "severally". An
agreement to be "individually liable" undoubtedly creates a
several obligation, 14 and a "several obligation is one by which
one individual binds himself to perform the whole obligation. 15
In the case of Parot vs. Gemora 16 We therein ruled that "the
phrase juntos or separadamente or in the promissory note is an
express statement making each of the persons who signed it
individually liable for the payment of the fun amount of the
obligation contained therein." Likewise in Un Pak Leung vs.
Negorra 17 We held that "in the absence of a finding of facts
that the defendants made themselves individually hable for the
debt incurred they are each liable only for one-half of said
amount
The obligation in the case at bar being described as
"individually and jointly", the same is therefore enforceable
against one of the numerous obligors.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant
petition is hereby DISMISSED. Cost against petitioner.
117 | P a g e
28. G.R. No. L-36413 September 26, 1988
MALAYAN INSURANCE CO., INC., petitioner,
vs.
THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C.
VALLEJOS, SIO CHOY, SAN LEON RICE MILL, INC. and
PANGASINAN TRANSPORTATION CO., INC., respondents.
Freqillana Jr. for petitioner.
B.F. Estrella & Associates for respondent Martin Vallejos.
Vicente Erfe Law Office for respondent Pangasinan
Transportation Co., Inc.
Nemesio Callanta for respondent Sio Choy and San Leon Rice
Mill, Inc.
PADILLA, J.:
Review on certiorari of the judgment * of the respondent
appellate court in CA-G.R. No. 47319-R, dated 22 February
1973, which affirmed, with some modifications, the decision, **
dated 27 April 1970, rendered in Civil Case No. U-2021 of the
Court of First Instance of Pangasinan.
The antecedent facts of the case are as follows:
On 29 March 1967, herein petitioner, Malayan Insurance Co.,
Inc., issued in favor of private respondent Sio Choy Private Car
Comprehensive Policy No. MRO/PV-15753, effective from 18
April 1967 to 18 April 1968, covering a Willys jeep with Motor
No. ET-03023 Serial No. 351672, and Plate No. J-21536, Quezon
City, 1967. The insurance coverage was for "own damage" not
to exceed P600.00 and "third-party liability" in the amount of
P20,000.00.
During the effectivity of said insurance policy, and more
particularly on 19 December 1967, at about 3:30 o'clock in the
afternoon, the insured jeep, while being driven by one Juan P.
Campollo an employee of the respondent San Leon Rice Mill,
Inc., collided with a passenger bus belonging to the respondent
Pangasinan Transportation Co., Inc. (PANTRANCO, for short) at
the national highway in Barrio San Pedro, Rosales, Pangasinan,
causing damage to the insured vehicle and injuries to the
driver, Juan P. Campollo, and the respondent Martin C. Vallejos,
who was riding in the ill-fated jeep.
As a result, Martin C. Vallejos filed an action for damages
against Sio Choy, Malayan Insurance Co., Inc. and the
PANTRANCO before the Court of First Instance of Pangasinan,
which was docketed as Civil Case No. U-2021. He prayed
therein that the defendants be ordered to pay him, jointly and
severally, the amount of P15,000.00, as reimbursement for
medical and hospital expenses; P6,000.00, for lost income;
P51,000.00 as actual, moral and compensatory damages; and
P5,000.00, for attorney's fees.
Answering, PANTRANCO claimed that the jeep of Sio Choy was
then operated at an excessive speed and bumped the
PANTRANCO bus which had moved to, and stopped at, the
shoulder of the highway in order to avoid the jeep; and that it
had observed the diligence of a good father of a family to
prevent damage, especially in the selection and supervision of
its employees and in the maintenance of its motor vehicles. It
prayed that it be absolved from any and all liability.
Defendant Sio Choy and the petitioner insurance company, in
their answer, also denied liability to the plaintiff, claiming that
the fault in the accident was solely imputable to the
PANTRANCO.
118 | P a g e
Sio Choy, however, later filed a separate answer with a cross-
claim against the herein petitioner wherein he alleged that he
had actually paid the plaintiff, Martin C. Vallejos, the amount of
P5,000.00 for hospitalization and other expenses, and, in his
cross-claim against the herein petitioner, he alleged that the
petitioner had issued in his favor a private car comprehensive
policy wherein the insurance company obligated itself to
indemnify Sio Choy, as insured, for the damage to his motor
vehicle, as well as for any liability to third persons arising out of
any accident during the effectivity of such insurance contract,
which policy was in full force and effect when the vehicular
accident complained of occurred. He prayed that he be
reimbursed by the insurance company for the amount that he
may be ordered to pay.
Also later, the herein petitioner sought, and was granted, leave
to file a third-party complaint against the San Leon Rice Mill,
Inc. for the reason that the person driving the jeep of Sio Choy,
at the time of the accident, was an employee of the San Leon
Rice Mill, Inc. performing his duties within the scope of his
assigned task, and not an employee of Sio Choy; and that, as
the San Leon Rice Mill, Inc. is the employer of the deceased
driver, Juan P. Campollo, it should be liable for the acts of its
employee, pursuant to Art. 2180 of the Civil Code. The herein
petitioner prayed that judgment be rendered against the San
Leon Rice Mill, Inc., making it liable for the amounts claimed by
the plaintiff and/or ordering said San Leon Rice Mill, Inc. to
reimburse and indemnify the petitioner for any sum that it may
be ordered to pay the plaintiff.
After trial, judgment was rendered as follows:
WHEREFORE, in view of the foregoing findings of this Court
judgment is hereby rendered in favor of the plaintiff and against
Sio Choy and Malayan Insurance Co., Inc., and third-party
defendant San Leon Rice Mill, Inc., as follows:
(a) P4,103 as actual damages;
(b) P18,000.00 representing the unearned income of plaintiff
Martin C. Vallejos for the period of three (3) years;
(c) P5,000.00 as moral damages;
(d) P2,000.00 as attomey's fees or the total of P29,103.00, plus
costs.
The above-named parties against whom this judgment is
rendered are hereby held jointly and severally liable. With
respect, however, to Malayan Insurance Co., Inc., its liability will
be up to only P20,000.00.
As no satisfactory proof of cost of damage to its bus was
presented by defendant Pantranco, no award should be made in
its favor. Its counter-claim for attorney's fees is also dismissed
for not being proved. 1
On appeal, the respondent Court of Appeals affirmed the
judgment of the trial court that Sio Choy, the San Leon Rice Mill,
Inc. and the Malayan Insurance Co., Inc. are jointly and
severally liable for the damages awarded to the plaintiff Martin
C. Vallejos. It ruled, however, that the San Leon Rice Mill, Inc.
has no obligation to indemnify or reimburse the petitioner
insurance company for whatever amount it has been ordered to
pay on its policy, since the San Leon Rice Mill, Inc. is not a privy
to the contract of insurance between Sio Choy and the
insurance company. 2
Hence, the present recourse by petitioner insurance company.
The petitioner prays for the reversal of the appellate court's
judgment, or, in the alternative, to order the San Leon Rice Mill,
119 | P a g e
Inc. to reimburse petitioner any amount, in excess of one-half
(1/2) of the entire amount of damages, petitioner may be
ordered to pay jointly and severally with Sio Choy.
The Court, acting upon the petition, gave due course to the
same, but "only insofar as it concerns the alleged liability of
respondent San Leon Rice Mill, Inc. to petitioner, it being
understood that no other aspect of the decision of the Court of
Appeals shall be reviewed, hence, execution may already issue
in favor of respondent Martin C. Vallejos against the
respondents, without prejudice to the determination of whether
or not petitioner shall be entitled to reimbursement by
respondent San Leon Rice Mill, Inc. for the whole or part of
whatever the former may pay on the P20,000.00 it has been
adjudged to pay respondent Vallejos." 3
However, in order to determine the alleged liability of
respondent San Leon Rice Mill, Inc. to petitioner, it is important
to determine first the nature or basis of the liability of petitioner
to respondent Vallejos, as compared to that of respondents Sio
Choy and San Leon Rice Mill, Inc.
Therefore, the two (2) principal issues to be resolved are (1)
whether the trial court, as upheld by the Court of Appeals, was
correct in holding petitioner and respondents Sio Choy and San
Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos; and
(2) whether petitioner is entitled to be reimbursed by
respondent San Leon Rice Mill, Inc. for whatever amount
petitioner has been adjudged to pay respondent Vallejos on its
insurance policy.
As to the first issue, it is noted that the trial court found, as
affirmed by the appellate court, that petitioner and respondents
Sio Choy and San Leon Rice Mill, Inc. are jointly and severally
liable to respondent Vallejos.
We do not agree with the aforesaid ruling. We hold instead that
it is only respondents Sio Choy and San Leon Rice Mill, Inc, (to
the exclusion of the petitioner) that are solidarily liable to
respondent Vallejos for the damages awarded to Vallejos.
It must be observed that respondent Sio Choy is made liable to
said plaintiff as owner of the ill-fated Willys jeep, pursuant to
Article 2184 of the Civil Code which provides:
Art. 2184. In motor vehicle mishaps, the owner is solidarily
liable with his driver, if the former, who was in the vehicle,
could have, by the use of due diligence, prevented the
misfortune it is disputably presumed that a driver was
negligent, if he had been found guilty of reckless driving or
violating traffic regulations at least twice within the next
preceding two months.
If the owner was not in the motor vehicle, the provisions of
article 2180 are applicable.
On the other hand, it is noted that the basis of liability of
respondent San Leon Rice Mill, Inc. to plaintiff Vallejos, the
former being the employer of the driver of the Willys jeep at the
time of the motor vehicle mishap, is Article 2180 of the Civil
Code which reads:
Art. 2180. The 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.
xxx xxx xxx
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged
ill any business or industry.
120 | P a g e
xxx xxx xxx
The responsibility treated in this article shall cease when the
persons herein mentioned proved that they observed all the
diligence of a good father of a family to prevent damage.
It thus appears that respondents Sio Choy and San Leon Rice
Mill, Inc. are the principal tortfeasors who are primarily liable to
respondent Vallejos. The law states that the responsibility of
two or more persons who are liable for a quasi-delict is
solidarily. 4
On the other hand, the basis of petitioner's liability is its
insurance contract with respondent Sio Choy. If petitioner is
adjudged to pay respondent Vallejos in the amount of not more
than P20,000.00, this is on account of its being the insurer of
respondent Sio Choy under the third party liability clause
included in the private car comprehensive policy existing
between petitioner and respondent Sio Choy at the time of the
complained vehicular accident.
In Guingon vs. Del Monte, 5 a passenger of a jeepney had just
alighted therefrom, when he was bumped by another
passenger jeepney. He died as a result thereof. In the damage
suit filed by the heirs of said passenger against the driver and
owner of the jeepney at fault as well as against the insurance
company which insured the latter jeepney against third party
liability, the trial court, affirmed by this Court, adjudged the
owner and the driver of the jeepney at fault jointly and
severally liable to the heirs of the victim in the total amount of
P9,572.95 as damages and attorney's fees; while the insurance
company was sentenced to pay the heirs the amount of
P5,500.00 which was to be applied as partial satisfaction of the
judgment rendered against said owner and driver of the
jeepney. Thus, in said Guingon case, it was only the owner and
the driver of the jeepney at fault, not including the insurance
company, who were held solidarily liable to the heirs of the
victim.
While it is true that where the insurance contract provides for
indemnity against liability to third persons, such third persons
can directly sue the insurer, 6 however, the direct liability of the
insurer under indemnity contracts against third party liability
does not mean that the insurer can be held solidarily liable with
the insured and/or the other parties found at fault. The liability
of the insurer is based on contract; that of the insured is based
on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to
respondent Vallejos, but it cannot, as incorrectly held by the
trial court, be made "solidarily" liable with the two principal
tortfeasors namely respondents Sio Choy and San Leon Rice
Mill, Inc. For if petitioner-insurer were solidarily liable with said
two (2) respondents by reason of the indemnity contract
against third party liability-under which an insurer can be
directly sued by a third party — this will result in a violation of
the principles underlying solidary obligation and insurance
contracts.
In solidary obligation, the creditor may enforce the entire
obligation against one of the solidary debtors. 7 On the other
hand, insurance is defined as "a contract whereby one
undertakes for a consideration to indemnify another against
loss, damage, or liability arising from an unknown or contingent
event." 8
In the case at bar, the trial court held petitioner together with
respondents Sio Choy and San Leon Rice Mills Inc. solidarily
liable to respondent Vallejos for a total amount of P29,103.00,
with the qualification that petitioner's liability is only up to
P20,000.00. In the context of a solidary obligation, petitioner
may be compelled by respondent Vallejos to pay the entire
obligation of P29,013.00, notwithstanding the qualification
made by the trial court. But, how can petitioner be obliged to
pay the entire obligation when the amount stated in its
insurance policy with
121 | P a g e
respondent Sio Choy for indemnity against third party liability is
only P20,000.00? Moreover, the qualification made in the
decision of the trial court to the effect that petitioner is
sentenced to pay up to P20,000.00 only when the obligation to
pay P29,103.00 is made solidary, is an evident breach of the
concept of a solidary obligation. Thus, We hold that the trial
court, as upheld by the Court of Appeals, erred in holding
petitioner, solidarily liable with respondents Sio Choy and San
Leon Rice Mill, Inc. to respondent Vallejos.
As to the second issue, the Court of Appeals, in affirming the
decision of the trial court, ruled that petitioner is not entitled to
be reimbursed by respondent San Leon Rice Mill, Inc. on the
ground that said respondent is not privy to the contract of
insurance existing between petitioner and respondent Sio Choy.
We disagree.
The appellate court overlooked the principle of subrogation in
insurance contracts. Thus —
... Subrogation is a normal incident of indemnity insurance
(Aetna L. Ins. Co. vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon
payment of the loss, the insurer is entitled to be subrogated pro
tanto to any right of action which the insured may have against
the third person whose negligence or wrongful act caused the
loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs.
Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed.
1037).
The right of subrogation is of the highest equity. The loss in the
first instance is that of the insured but after reimbursement or
compensation, it becomes the loss of the insurer (44 Am. Jur.
2d, 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22
Ohio St. 382).
Although many policies including policies in the standard form,
now provide for subrogation, and thus determine the rights of
the insurer in this respect, the equitable right of subrogation as
the legal effect of payment inures to the insurer without any
formal assignment or any express stipulation to that effect in
the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the
insurance company pays for the loss, such payment operates
as an equitable assignment to the insurer of the property and
all remedies which the insured may have for the recovery
thereof. That right is not dependent upon , nor does it grow out
of any privity of contract (emphasis supplied) or upon written
assignment of claim, and payment to the insured makes the
insurer assignee in equity (Shambley v. Jobe-Blackley Plumbing
and Heating Co., 264 N.C. 456, 142 SE 2d 18). 9
It follows, therefore, that petitioner, upon paying respondent
Vallejos the amount of riot exceeding P20,000.00, shall become
the subrogee of the insured, the respondent Sio Choy; as such,
it is subrogated to whatever rights the latter has against
respondent San Leon Rice Mill, Inc. Article 1217 of the Civil
Code gives to a solidary debtor who has paid the entire
obligation the right to be reimbursed by his co-debtors for the
share which corresponds to each.
Art. 1217. Payment made by one of the solidary debtors
extinguishes the obligation. If two or more solidary debtors
offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only
the share which corresponds to each, with the interest for the
payment already made. If the payment is made before the debt
is due, no interest for the intervening period may be
demanded.
xxx xxx xxx
In accordance with Article 1217, petitioner, upon payment to
respondent Vallejos and thereby becoming the subrogee of
122 | P a g e
solidary debtor Sio Choy, is entitled to reimbursement from
respondent San Leon Rice Mill, Inc.
To recapitulate then: We hold that only respondents Sio Choy
and San Leon Rice Mill, Inc. are solidarily liable to the
respondent Martin C. Vallejos for the amount of P29,103.00.
Vallejos may enforce the entire obligation on only one of said
solidary debtors. If Sio Choy as solidary debtor is made to pay
for the entire obligation (P29,103.00) and petitioner, as insurer
of Sio Choy, is compelled to pay P20,000.00 of said entire
obligation, petitioner would be entitled, as subrogee of Sio Choy
as against San Leon Rice Mills, Inc., to be reimbursed by the
latter in the amount of P14,551.50 (which is 1/2 of P29,103.00 )
WHEREFORE, the petition is GRANTED. The decision of the trial
court, as affirmed by the Court of Appeals, is hereby AFFIRMED,
with the modification above-mentioned. Without
pronouncement as to costs.
Tomas Yumol for Fajardo, defendant-appellee.
PLANA, J.:
Appeal by the Philippine National Bank (PNB) from the Order of
the defunct Court of First Instance of Manila (Branch XX) in its
Civil Case No. 46741 dismissing PNB's complaint against
several solidary debtors for the collection of a sum of money on
the ground that one of the defendants (Ceferino Valencia) died
during the pendency of the case (i.e., after the plaintiff had
presented its evidence) and therefore the complaint, being a
money claim based on contract, should be prosecuted in the
testate or intestate proceeding for the settlement of the estate
of the deceased defendant pursuant to Section 6 of Rule 86 of
the Rules of Court which reads:
SEC. 6. Solidary obligation of decedent.— the obligation of the
decedent is solidary with another debtor, the claim shall be
filed against the decedent as if he were the only debtor, without
prejudice to the right of the estate to recover contribution from
the other debtor. In a joint obligation of the decedent, the claim
shall be confined to the portion belonging to him.
The appellant assails the order of dismissal, invoking its right of
recourse against one, some or all of its solidary debtors under
Article 1216 of the Civil Code —
ART. 1216. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The
demand made against one of them shall not be an obstacle to
those which may subsequently be directed against the others,
so long as the debt has not been fully collected.
The sole issue thus raised is whether in an action for collection
of a sum of money based on contract against all the solidary
29. G.R. No. L-28046
May 16, 1983
PHILIPPINE NATIONAL BANK, plaintiff-appellant,
vs.
INDEPENDENT PLANTERS ASSOCIATION, INC., ANTONIO
DIMAYUGA, DELFIN FAJARDO, CEFERINO VALENCIA, MOISES
CARANDANG, LUCIANO CASTILLO, AURELIO VALENCIA, LAURO
LEVISTE, GAVINO GONZALES, LOPE GEVANA and BONIFACIO
LAUREANA, defendants-appellees.
Basa, Ilao, del Rosario Diaz for plaintiff-appellant. Laurel Law
Office for Dimayuga.
123 | P a g e
debtors, the death of one defendant deprives the court of
jurisdiction to proceed with the case against the surviving
defendants.
It is now settled that the quoted Article 1216 grants the creditor
the substantive right to seek satisfaction of his credit from one,
some or all of his solidary debtors, as he deems fit or
convenient for the protection of his interests; and if, after
instituting a collection suit based on contract against some or
all of them and, during its pendency, one of the defendants
dies, the court retains jurisdiction to continue the proceedings
and decide the case in respect of the surviving defendants.
Thus in Manila Surety & Fidelity Co., Inc. vs. Villarama et al.,
107 Phil. 891 at 897, this Court ruled:
Construing Section 698 of the Code of Civil Procedure from
whence the aforequoted provision (Sec. 6, Rule 86) was taken,
this Court held that where two persons are bound in solidum for
the same debt and one of them dies, the whole indebtedness
can be proved against the estate of the latter, the decedent's
liability being absolute and primary; and if the claim is not
presented within the time provided by the rules, the same will
be barred as against the estate. It is evident from the foregoing
that Section 6 of Rule 87 (now Rule 86) provides the procedure
should the creditor desire to go against the deceased debtor,
but there is certainly nothing in the said provision making
compliance with such procedure a condition precedent before
an ordinary action against the surviving solidary debtors,
should the creditor choose to demand payment from the latter,
could be entertained to the extent that failure to observe the
same would deprive the court jurisdiction to take cognizance of
the action against the surviving debtors. Upon the other hand,
the Civil Code expressly allows the creditor to proceed against
any one of the solidary debtors or some or all of them
simultaneously. There is, therefore, nothing improper in the
creditor's filing of an action against the surviving solidary
debtors alone, instead of instituting a proceeding for the
settlement of the estate of the deceased debtor wherein his
claim could be filed.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this
Court, speaking thru Mr. Justice Makasiar, reiterated the
doctrine.
A cursory perusal of Section 6, Rule 86 of the Revised Rules of
Court reveals that nothing therein prevents a creditor from
proceeding against the surviving solidary debtors. Said
provision merely sets up the procedure in enforcing collection in
case a creditor chooses to pursue his claim against the estate
of the deceased solidary, debtor.
It is crystal clear that Article 1216 of the New Civil Code is the
applicable provision in this matter. Said provision gives the
creditor the right to 'proceed against anyone of the solidary
debtors or some or all of them simultaneously.' The choice is
undoubtedly left to the solidary, creditor to determine against
whom he will enforce collection. In case of the death of one of
the solidary debtors, he (the creditor) may, if he so chooses,
proceed against the surviving solidary debtors without
necessity of filing a claim in the estate of the deceased debtors.
It is not mandatory for him to have the case dismissed against
the surviving debtors and file its claim in the estate of the
deceased solidary debtor . . .
As correctly argued by petitioner, if Section 6, Rule 86 of the
Revised Rules of Court were applied literally, Article 1216 of the
New Civil Code would, in effect, be repealed since under the
Rules of Court, petitioner has no choice but to proceed against
the estate of Manuel Barredo only. Obviously, this provision
diminishes the Bank's right under the New Civil, Code to
proceed against any one, some or all of the solidary debtors.
Such a construction is not sanctioned by the principle, which is
too well settled to require citation, that a substantive law
cannot be amended by a procedural rule. Otherwise stared,
Section 6, Rule 86 of the Revised Rules of Court cannot be
made to prevail over
124 | P a g e
Article 1216 of the New Civil Code, the former being merely
procedural, while the latter, substantive.
WHEREFORE the appealed order of dismissal of the court a quo
in its Civil Case No. 46741 is hereby set aside in respect of the
surviving defendants; and the case is remanded to the
corresponding Regional Trial Court for proceedings.
proceedings. No costs.
when its rear left side hit the front left portion of a Sarao jeep
coming from the opposite direction. As a result of the collision,
Cresencio Pinohermoso, the jeep’s driver, lost control of the
vehicle, and bumped and killed Jose Mabansag, a bystander
who was standing along the highway’s shoulder. The jeep
turned turtle three (3) times before finally stopping at about 25
meters from the point of impact. Two of the jeep’s passengers,
Armando Nablo and an unidentified woman, were instantly
killed, while the other passengers sustained serious physical
injuries.
The prosecution charged Calang with multiple homicide,
multiple serious physical injuries and damage to property thru
reckless imprudence before the Regional Trial Court (RTC),
Branch 31, Calbayog City. The RTC, in its decision dated May 21,
2001, found Calang guilty beyond reasonable doubt of reckless
imprudence resulting to multiple homicide, multiple physical
injuries and damage to property, and sentenced him to suffer
an indeterminate penalty of thirty days of arresto menor, as
minimum, to four years and two months of prision correccional,
as maximum. The RTC ordered Calang and Philtranco, jointly
and severally, to pay P50,000.00 as death indemnity to the
heirs of Armando; P50,000.00 as death indemnity to the heirs
of Mabansag; and P90,083.93 as actual damages to the private
complainants.
The petitioners appealed the RTC decision to the Court of
Appeals (CA), docketed as CA-G.R. CR No. 25522. The CA, in its
decision dated November 20, 2009, affirmed the RTC decision in
toto. The CA ruled that petitioner Calang failed to exercise due
care and precaution in driving the Philtranco bus. According to
the CA, various eyewitnesses testified that the bus was
traveling fast and encroached into the opposite lane when it
evaded a pushcart that was on the side of the road. In addition,
he failed to slacken his speed, despite admitting that he had
already seen the jeep coming from the opposite direction when
it was still half a kilometer away. The CA further ruled that
Calang demonstrated a
30. G.R. No. 190696
August 3, 2010
ROLITO CALANG and PHILTRANCO SERVICE ENTERPRISES, INC.,
Petitioners,
vs.
PEOPLE OF THE PHILIPPINES, Respondent.
RESOLUTION
BRION, J.:
We resolve the motion for reconsideration filed by the
petitioners, Philtranco Service Enterprises, Inc. (Philtranco) and
Rolito Calang, to challenge our Resolution of February 17, 2010.
Our assailed Resolution denied the petition for review on
certiorari for failure to show any reversible error sufficient to
warrant the exercise of this Court’s discretionary appellate
jurisdiction.
Antecedent Facts
At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving
Philtranco Bus No. 7001, owned by Philtranco along Daang
Maharlika Highway in Barangay Lambao, Sta. Margarita, Samar
125 | P a g e
reckless attitude when he drove the bus, despite knowing that
it was suffering from loose compression, hence, not roadworthy.
The CA added that the RTC correctly held Philtranco jointly and
severally liable with petitioner Calang, for failing to prove that it
had exercised the diligence of a good father of the family to
prevent the accident.
The petitioners filed with this Court a petition for review on
certiorari. In our Resolution dated February 17, 2010, we denied
the petition for failure to sufficiently show any reversible error
in the assailed decision to warrant the exercise of this Court’s
discretionary appellate jurisdiction.
The Motion for Reconsideration
In the present motion for reconsideration, the petitioners claim
that there was no basis to hold Philtranco jointly and severally
liable with Calang because the former was not a party in the
criminal case (for multiple homicide with multiple serious
physical injuries and damage to property thru reckless
imprudence) before the RTC.
The petitioners likewise maintain that the courts below
overlooked several relevant facts, supported by documentary
exhibits, which, if considered, would have shown that Calang
was not negligent, such as the affidavit and testimony of
witness Celestina Cabriga; the testimony of witness Rodrigo
Bocaycay; the traffic accident sketch and report; and the
jeepney’s registration receipt. The petitioners also insist that
the jeep’s driver had the last clear chance to avoid the collision.
We partly grant the motion. Liability of Calang
We see no reason to overturn the lower courts’ finding on
Calang’s culpability. The finding of negligence on his part by the
trial court, affirmed by the CA, is a question of fact that we
cannot pass upon without going into factual matters touching
on the finding of negligence. In petitions for review on certiorari
under Rule 45 of the Revised Rules of Court, this Court is limited
to reviewing only errors of law, not of fact, unless the factual
findings complained of are devoid of support by the evidence
on record, or the assailed judgment is based on a
misapprehension of facts.
Liability of Philtranco
We, however, hold that the RTC and the CA both erred in
holding Philtranco jointly and severally liable with Calang. We
emphasize that Calang was charged criminally before the RTC.
Undisputedly, Philtranco was not a direct party in this case.
Since the cause of action against Calang was based on delict,
both the RTC and the CA erred in holding Philtranco jointly and
severally liable with Calang, based on quasi-delict under
Articles 21761 and 21802 of the Civil Code. Articles 2176 and
2180 of the Civil Code pertain to the vicarious liability of an
employer for quasi-delicts that an employee has committed.
Such provision of law does not apply to civil liability arising from
delict.
If at all, Philtranco’s liability may only be subsidiary. Article 102
of the Revised Penal Code states the subsidiary civil liabilities of
innkeepers, tavernkeepers and proprietors of establishments,
as follows:
In default of the persons criminally liable, innkeepers,
tavernkeepers, and any other persons or corporations shall be
civilly liable for crimes committed in their establishments, in all
cases where a violation of municipal ordinances or some
general or special police regulations shall have been committed
by them or their employees.1avvphil
126 | P a g e
Innkeepers are also subsidiary liable for the restitution of goods
taken by robbery or theft within their houses from guests
lodging therein, or for the payment of the value thereof,
provided that such guests shall have notified in advance the
innkeeper himself, or the person representing him, of the
deposit of such goods within the inn; and shall furthermore
have followed the directions which such innkeeper or his
representative may have given them with respect to the care of
and vigilance over such goods. No liability shall attach in case
of robbery with violence against or intimidation of persons
unless committed by the innkeeper’s employees.
The foregoing subsidiary liability applies to employers,
according to Article 103 of the Revised Penal Code, which
reads:
The subsidiary liability established in the next preceding article
shall also apply to employers, teachers, persons, and
corporations engaged in any kind of industry for felonies
committed by their servants, pupils, workmen, apprentices, or
employees in the discharge of their duties.
The provisions of the Revised Penal Code on subsidiary liability
– Articles 102 and 103 – are deemed written into the judgments
in cases to which they are applicable. Thus, in the dispositive
portion of its decision, the trial court need not expressly
pronounce the subsidiary liability of the employer.3
Nonetheless, before the employers’ subsidiary liability is
enforced, adequate evidence must exist establishing that (1)
they are indeed the employers of the convicted employees; (2)
they are engaged in some kind of industry; (3) the crime was
committed by the employees in the discharge of their duties;
and (4) the execution against the latter has not been satisfied
due to insolvency. The determination of these conditions may
be done in the same criminal action in which the employee’s
liability, criminal and civil, has been pronounced, in a hearing
set for that precise
purpose, with due notice to the employer, as part of the
proceedings for the execution of the judgment.4
WHEREFORE, we PARTLY GRANT the present motion. The Court
of Appeals decision that affirmed in toto the RTC decision,
finding Rolito Calang guilty beyond reasonable doubt of
reckless imprudence resulting in multiple homicide, multiple
serious physical injuries and damage to property, is AFFIRMED,
with the MODIFICATION that Philtranco’s liability should only be
subsidiary. No costs.
31. G.R. No. 204866 January 21, 2015
RUKS KONSULT AND CONSTRUCTION, Petitioner, vs.
ADWORLD SIGN AND ADVERTISING CORPORATION* and
TRANSWORLD MEDIA ADS, INC., Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated November 16, 2011 and the Resolution3 dated
December 10, 2012 of the Court of Appeals (CA) in CA-G.R. CV
No. 94693 which affirmed the Decision4 dated August 25, 2009
of the Regional Trial Court of Makati City, Branch 142 (RTC) in
Civil Case No. 03-1452 holding, inter alia, petitioner Ruks
Konsult and Construction (Ruks) and respondent Transworld
Media Ads, Inc. (Transworld) jointly and severally liable to
respondent Adworld Sign and Advertising Corporation (Adworld)
for damages.
The Facts
127 | P a g e
The instant case arose from a complaint for damages filed by
Adworld against Transworld and Comark International
Corporation (Comark) before the RTC.5 In the complaint,
Adworld alleged that it is the owner of a 75 ft. x 60 ft. billboard
structure located at EDSA Tulay, Guadalupe, Barangka
Mandaluyong, which was misaligned and its foundation
impaired when, on August 11, 2003, the adjacent billboard
structure owned by Transworld and used by Comark collapsed
and crashed against it. Resultantly, on August 19, 2003,
Adworld sent Transworld and Comark a letter demanding
payment for the repairs of its billboard as well asloss of rental
income. On August 29, 2003, Transworld sent its reply,
admitting the damage caused by its billboard structure on
Adworld’s billboard, but nevertheless, refused and failed to pay
the amounts demanded by Adworld. As Adworld’s final demand
letter also went unheeded, it was constrained to file the instant
complaint, praying for damages in the aggregate amount of
P474,204.00, comprised of P281,204.00 for materials,
P72,000.00 for labor, and P121,000.00 for indemnity for loss of
income.6
In its Answer with Counterclaim, Transworld averred that the
collapse of its billboard structure was due to extraordinarily
strong winds that occurred instantly and unexpectedly, and
maintained that the damage caused to Adworld’s billboard
structure was hardly noticeable. Transworld likewise filed a
Third-Party Complaint against Ruks, the company which built
the collapsed billboard structure in the former’s favor.1âwphi1
It was alleged therein that the structure constructed by Ruks
had a weak and poor foundation not suited for billboards, thus,
prone to collapse, and as such, Ruks should ultimately be held
liable for the damages caused to Adworld’s billboard structure.7
For its part, Comark denied liability for the damages caused to
Adworld’s billboard structure, maintaining that it does not have
any interest on Transworld’s collapsed billboard structure as it
only contracted the use of the same. In this relation, Comark
prayed for exemplary damages from Transworld for
unreasonably includingit as a party-defendant in the
complaint.8
Lastly, Ruks admitted that it entered into a contract with
Transworld for the construction of the latter’s billboard
structure, but denied liability for the damages caused by its
collapse. It contended that when Transworld hired its services,
there was already an existing foundation for the billboard and
that it merely finished the structure according to the terms and
conditions of its contract with the latter.9
The RTC Ruling
In a Decision10 dated August 25, 2009, the RTC ultimately ruled
in Adworld’s favor, and accordingly, declared, inter alia,
Transworld and Ruks jointly and severally liable to Adworld in
the amount of P474,204.00 as actual damages, with legal
interest from the date of the filing of the complaint until full
payment thereof, plus attorney’s fees in the amount of
P50,000.00.11 The RTC found both Transworld and Ruks
negligent in the construction of the collapsed billboard as they
knew that the foundation supporting the same was weak and
would pose danger to the safety of the motorists and the other
adjacent properties, such as Adworld’s billboard, and yet, they
did not do anything to remedy the situation.12 In particular, the
RTC explained that Transworld was made aware by Ruks that
the initial construction of the lower structure of its billboard did
not have the proper foundation and would require additional
columns and pedestals to support the structure.
Notwithstanding, however, Ruks proceeded with the
construction of the billboard’s upper structure and merely
assumed that Transworld would reinforce its lower structure.13
The RTC then concluded that these negligent acts were the
direct and proximate cause of the damages suffered by
Adworld’s billboard.14
128 | P a g e
Aggrieved, both Transworld and Ruks appealed to the CA. In a
Resolution dated February 3, 2011, the CA dismissed
Transworld’s appeal for its failure to file an appellant’s brief on
time.15 Transworld elevated its case before the Court, docketed
as G.R. No. 197601.16 However, in a Resolution17 dated
November 23, 2011, the Court declared the case closed and
terminated for failure of Transworld to file the intended petition
for review on certiorariwithin the extended reglementary
period. Subsequently, the Court issued an Entry of Judgment18
dated February 22, 2012 in G.R. No. 197601 declaring the
Court’s November 23, 2011 Resolution final and executory.
The CA Ruling
In a Decision19 dated November 16, 2011, the CA denied
Ruks’s appeal and affirmed the ruling of the RTC. It adhered to
the RTC’s finding of negligence on the part of Transworld and
Ruks which brought about the damage to Adworld’s billboard. It
found that Transworld failed to ensure that Ruks will comply
with the approved plans and specifications of the structure, and
that Ruks continued to install and finish the billboard structure
despite the knowledge that there were no adequate columns to
support the same.20
Dissatisfied, Ruks moved for reconsideration,21 which was,
however, denied in a Resolution22 dated December 10,
2012,hence, this petition.
On the other hand, Transworld filed another appeal before the
Court, docketed as G.R. No. 205120.23 However, the Court
denied outright Transworld’s petition in a Resolution24 dated
April 15, 2013, holding that the same was already bound by the
dismissal of its petition filed in G.R. No. 197601.
The Issue Before the Court
The primordial issue for the Court’s resolution is whether or not
the CA correctly affirmed the ruling of the RTC declaring Ruks
jointly and severally liable with Transworld for damages
sustained by Adworld.
The Court’s Ruling
The petition is without merit.
At the outset, it must be stressed that factual findings of the
RTC, when affirmed by the CA, are entitled to great weight by
the Court and are deemed final and conclusive when supported
by the evidence on record.25 Absent any exceptions to this rule
– such as when it is established that the trial court ignored,
overlooked, misconstrued, or misinterpreted cogent facts and
circumstances that, if considered, would change the outcome of
the case26 – such findings must stand.
After a judicious perusal of the records, the Court sees no
cogent reason to deviate from the findings of the RTC and the
CA and their uniform conclusion that both Transworld and Ruks
committed acts resulting in the collapse of the former’s
billboard, which in turn, caused damage to the adjacent
billboard of Adworld.
Jurisprudence defines negligence as 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.27 It is the failure to observe
for the protection of the interest of another person that degree
of care, precaution, and vigilance which the circumstances
justly demand, whereby such other person suffers injury.28
129 | P a g e
In this case, the CA correctly affirmed the RTC’s finding that
Transworld’s initial construction of its billboard’s lower structure
without the proper foundation, and that of Ruks’s finishing its
upper structure and just merely assuming that Transworld
would reinforce the weak foundation are the two (2) successive
acts which were the direct and proximate cause of the damages
sustained by Adworld. Worse, both Transworld and Ruks were
fully aware that the foundation for the former’s billboard was
weak; yet, neither of them took any positive step to reinforce
the same. They merely relied on each other’s word that repairs
would be done to such foundation, but none was done at all.
Clearly, the foregoing circumstances show that both Transworld
and Ruks are guilty of negligence in the construction of the
former’s billboard, and perforce, should be held liable for its
collapse and the resulting damage to Adworld’s billboard
structure. As joint tortfeasors, therefore, they are solidarily
liable to Adworld. Verily, "[j]oint tortfeasors are those who
command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or approve
of it after it is done, if done for their benefit. They are also
referred to as those who act together in committing wrong or
whose acts, if independent of each other, unite in causing a
single injury. Under Article 219429 of the Civil Code, joint
tortfeasors are solidarily liable for the resulting damage. In
other words, joint tortfeasors are each liable as principals, to
the same extent and in the same manner as if they had
performed the wrongful act themselves."30 The Court’s
pronouncement in People v. Velasco31 is instructive on this
matter, to wit:32
Where several causes producing an injury are concurrent and
each is an efficient cause without which the injury would not
have happened, the injury may be attributed to all or any of the
causes and recovery may be had against any or all of the
responsible persons although under the circumstances of the
case, it may appear that one of them was more culpable, and
that the duty owed by them to the injured person was not
same. No
actor's negligence ceases to be a proximate cause merely
because it does not exceed the negligence of other actors. Each
wrongdoer is responsible for the entire result and is liable as
though his acts were the sole cause of the injury.
There is no contribution between joint [tortfeasors] whose
liability is solidary since both of them are liable for the total
damage.1âwphi1 Where the concurrent or successive negligent
acts or omissions of two or more persons, although acting
independently, are in combination the direct and proximate
cause of a single injury to a third person, it is impossible to
determine in what proportion each contributed to the injury and
either of them is responsible for the whole injury. x x x.
(Emphases and underscoring supplied)
In conclusion, the CA correctly affirmed the ruling of the RTC
declaring Ruks jointly and severally liable with Transworld for
damages sustained by Adworld.
WHEREFORE, the petition is DENIED. The Decision dated
November 16, 2011 and the Resolution dated December 10,
2012 of the Court of Appeals in CA-G.R. CV No. 94693 are
hereby AFFIRMED.
32. G.R. No. L-28497
November 6, 1928
THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs.
FAUSTINO ESPIRITU, defendant-appellant.
------------------------------
G.R. No. L-28498 November 6, 1928
130 | P a g e
THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs.
FAUSTINO ESPIRITU, defendant-appellant, and ROSARIO
ESPIRITU, intervenor-appellant.
Ernesto Zaragoza and Simeon Ramos for defendant- appellant.
Benito Soliven and Jose Varela Calderon for intervenor-
appellant.
B. Francisco for appellee.
AVANCEÑA, C. J.:
These two cases, Nos. 28497 and 28948, were tried together.
It appears, in connection with case 28497; that on July 28, 1925
the defendant Faustino Espiritu purchased of the plaintiff
corporation a two-ton White truck for P11,983.50, paying
P1,000 down to apply on account of this price, and obligating
himself to pay the remaining P10,983.50 within the periods
agreed upon. To secure the payment of this sum, the
defendants mortgaged the said truck purchased and, besides,
three others, two of which are numbered 77197 and 92744
respectively, and all of the White make (Exhibit A). These two
trucks had been purchased from the same plaintiff and were
fully paid for by the defendant and his brother Rosario Espiritu.
The defendant failed to pay P10,477.82 of the price secured by
this mortgage.
In connection with case 28498, it appears that on February 18,
1925 the defendant bought a one-ton White truck of the
plaintiff corporation for the sum of P7,136.50, and after having
deducted the P500 cash payment and the 12 per cent annual
interest on the unpaid principal, obligated himself to make
payment of this sum within the periods agreed upon. To secure
this payment the defendant mortgaged to the plaintiff
corporation the said truck
purchased and two others, numbered 77197 and 92744,
respectively, the same that were mortgaged in the purchase of
the other truck referred to in the other case. The defendant
failed to pay P4,208.28 of this sum.
In both sales it was agreed that 12 per cent interest would be
paid upon the unpaid portion of the price at the executon of the
contracts, and in case of non-payment of the total debt upon its
maturity, 25 per cent thereon, as penalty.
In addition to the mortagage deeds referred to, which the
defendant executed in favor of the plaintiff, the defendant at
the same time also signed a promissory note solidarily with his
brother Rosario Espiritu for the several sums secured by the
two mortgages (Exhibits B and D).
Rosario Espiritu appeared in these two cases as intervenor,
alleging to be the exclusive owner of the two White trucks Nos.
77197 and 92744, which appear to have been mortgaged by
the defendants to the plaintiff. lawphi1.net
While these two cases were pending in the lower court the
mortgaged trucks were sold by virtue of the mortgage, all of
them together bringing in, after deducting the sheriff's fees and
transportation charges to Manila, the net sum of P3,269.58.
The judgment appealed from ordered the defendants and the
intervenor to pay plaintiff in case 28497 the sum of P7,732.09
with interest at the rate of 12 per cent per annum from May 1,
1926 until fully paid, and 25 per cent thereof in addition as
penalty. In case 28498, the trial court ordered the defendant
and the intervenor to pay plaintiff the sum of P4,208.28 with
interest at 12 per cent per annum from December 1, 1925 until
fully paid, and 25 per cent thereon as penalty.
131 | P a g e
The appellants contend that trucks 77197 and 92744 were not
mortgaged, because, when the defendant signed the mortgage
deeds these trucks were not included in those documents, and
were only put in later, without defendant's knowledge. But
there is positive proof that they were included at the time the
defendant signed these documents. Besides, there were
presented two of defendant's letters to Hidalgo, an employee of
the plaintiff's written a few days before the transaction,
acquiescing in the inclusion of all his White trucks already paid
for, in the mortgage (Exhibit H-I).
Appellants also alleged that on February 4, 1925, the defendant
sold his rights in said trucks Nos. 77197 and 92744 to the
intervenor, and that as the latter did not sign the mortgage
deeds, such trucks cannot be considered as mortgaged. But the
evidence shows that while the intervenor Rosario Espiritu did
not sign the two mortgage deeds (Exhibits A and C), yet,
together with the defendants Faustino Espiritu, he signed the
two promissory notes (Exhibits B and D) secured by these two
mortgages. All these instruments were executed at the same
time, and when the trucks 77197 and 92744 were included in
the mortgages, the intervenor Rosario Espiritu was aware of it
and consented to such inclusion. These facts are supported by
the testimony of Bachrach, manager of the plaintiff corporation,
of Agustin Ramirez, who witnessed the execution of all these
documents, and of Angel Hidalgo, who witnessed the execution
of Exhibits B and D.
We do not find the statement of the intervenor Rosario Espiritu
that he did not sign promissory notes Exhibits B and C to be
sufficient to overthrow this evidence. A comparison of his
genuine signature on Exhibit AA with those appearing on
promissory notes B and C, convinces us that the latter are his
signatures. And such is our conclusion, notwithstanding the
evidence presented to establish that on the date when Exhibits
B appears to have been signed, that is July 25, 1925, the
intervenor
was in Batac, Ilocos Norte, many miles away from Manila. And
the fact that on the 24th of said month of July, the plaintiff sent
some truck accessory parts by rail to Ilocos for the intervenor
does not necessarily prove that the latter could not have been
in Manila on the 25th of that month.
In view of his conclusion that the intervenor signed the
promissory notes secured by trucks 77197 and 92744 and
consented to the mortgage of the same, it is immaterial
whether he was or was not the exclusive owner thereof.
It is finally contended that the 25 per cent penalty upon the
debt, in addition to the interest of 12 per cent per annum,
makes the contract usurious. Such a contention is not well
founded. Article 1152 of the Civil Code permits the agreement
upon a penalty apart from the interest. Should there be such an
agreemnet, the penalty, as was held in the case of Lopez vs.
Hernaez (32 Phil., 631), does not include the interest, and which
may be demamded separetely. According to this, the penalty is
not to be added to the interest for the determination of whether
the interest exceeds the rate fixed by the law, since said rate
was fixed only for the interest. But considering that the
obligation was partly performed, and making use of the power
given to the court by article 1154 of the Civil Code, this penalty
is reduced to 10 per cent of the unpaid debt.
With the sole modification that instead of 25 per cent upon the
sum owed, the defendants need pay only 10 per cent thereon
as penalty, the judgment appealed from is affired in all other
respects without special pronouncement as to costs. So
ordered.
33. G.R. No. L-41093 October 30, 1978
132 | P a g e
ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION,
petitioner,
vs.
COURT OF FIRST INSTANCE OF RIZAL (BRANCH XXXIV), and
LOLITA MILLAN, respondents.
Purugganan & Bersamin for petitioner. Salvador N. Beltran for
respondent.
MUÑOZ PALMA, J.:
This is a direct appeal on questions of law from a decision of the
Court of First Instance of Rizal, Branch XXXIV, presided by the
Honorable Bernardo P. Pardo, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered commanding the
defendant to register the deed of absolute sale it had executed
in favor of plaintiff with the Register of Deeds of Caloocan City
and secure the corresponding title in the name of plaintiff
within ten (10) days after finality of this decision; if, for any
reason, this not possible, defendant is hereby sentenced to pay
plaintiff the sum of P5,193.63 with interest at 4% per annum
from June 22, 1972 until fully paid.
In either case, defendant is sentenced to pay plaintiff nominal
damages in the amount of P20,000.00 plus attorney's fee in the
amount of P5,000.00 and costs.
SO ORDERED.
Caloocan City, February 11, 1975. (rollo, p. 21)
Petitioner corporation questions the award for nominal
damages of P20,000.00 and attorney's fee of P5,000.00 which
are allegedly excessive and unjustified.
In the Court's resolution of October 20, 1975, We gave due
course to the Petition only as regards the portion of the decision
awarding nominal damages. 1
The following incidents are not in dispute:
In May 1962 Robes-Francisco Realty & Development
Corporation, now petitioner, agreed to sell to private
respondent Lolita Millan for and in consideration of the sum of
P3,864.00, payable in installments, a parcel of land containing
an area of approximately 276 square meters, situated in Barrio
Camarin, Caloocan City, known as Lot No. 20, Block No. 11 of its
Franville Subdivision. 2
Millan complied with her obligation under the contract and paid
the installments stipulated therein, the final payment having
been made on December 22, 1971. The vendee made a total
payment of P5,193.63 including interests and expenses for
registration of title. 3
Thereafter, Lolita Millan made repeated demands upon the
corporation for the execution of the final deed of sale and the
issuance to her of the transfer certificate of title over the lot. On
March 2, 1973, the parties executed a deed of absolute sale of
the aforementioned parcel of land. The deed of absolute sale
contained, among others, this particular provision:
That the VENDOR further warrants that the transfer certificate
of title of the above-described parcel of land shall be
transferred in the name of the VENDEE within the period of six
(6) months from the date of full payment and in case the
VENDOR fails to issue said transfer certificate of title, it shall
bear the obligation to
133 | P a g e
refund to the VENDEE the total amount already paid for, plus an
interest at the rate of 4% per annum. (record on appeal, p. 9)
Notwithstanding the lapse of the above-mentioned stipulated
period of six (6) months, the corporation failed to cause the
issuance of the corresponding transfer certificate of title over
the lot sold to Millan, hence, the latter filed on August 14, 1974
a complaint for specific performance and damages against
Robes- Francisco Realty & Development Corporation in the
Court of First Instance of Rizal, Branch XXXIV, Caloocan City,
docketed therein as Civil Case No. C-3268. 4
The complaint prayed for judgment (1) ordering the reformation
of the deed of absolute sale; (2) ordering the defendant to
deliver to plaintiff the certificate of title over the lot free from
any lien or encumbrance; or, should this be not possible, to pay
plaintiff the value of the lot which should not be less than
P27,600.00 (allegedly the present estimated value of the lot);
and (3) ordering the defendant to pay plaintiff damages,
corrective and actual in the sum of P15 000.00. 5
The corporation in its answer prayed that the complaint be
dismissed alleging that the deed of absolute sale was
voluntarily executed between the parties and the interest of the
plaintiff was amply protected by the provision in said contract
for payment of interest at 4% per annum of the total amount
paid, for the delay in the issuance of the title. 6
At the pretrial conference the parties agreed to submit the case
for decision on the pleadings after defendant further made
certain admissions of facts not contained in its answer. 7
Finding that the realty corporation failed to cause the issuance
of the corresponding transfer certificate of title because the
parcel of land conveyed to Millan was included among other
properties of the corporation mortgaged to the GSIS to secure
an obligation
of P10 million and that the owner's duplicate certificate of title
of the subdivision was in the possession of the Government
Service Insurance System (GSIS), the trial court, on February
11, 1975, rendered judgment the dispositive portion of which is
quoted in pages 1 and 2 of this Decision. We hold that the trial
court did not err in awarding nominal damages; however, the
circumstances of the case warrant a reduction of the amount of
P20,000.00 granted to private respondent Millan.
There can be no dispute in this case under the pleadings and
the admitted facts that petitioner corporation was guilty of
delay, amounting to nonperformance of its obligation, in issuing
the transfer certificate of title to vendee Millan who had fully
paid up her installments on the lot bought by her. Article 170 of
the Civil Code expressly provides that 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.
Petitioner contends that the deed of absolute sale executed
between the parties stipulates that should the vendor fail to
issue the transfer certificate of title within six months from the
date of full payment, it shall refund to the vendee the total
amount paid for with interest at the rate of 4% per annum,
hence, the vendee is bound by the terms of the provision and
cannot recover more than what is agreed upon. Presumably,
petitioner in invoking Article 1226 of the Civil Code which
provides that in obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of
interests in case of noncompliance, if there is no stipulation to
the contrary.
The foregoing argument of petitioner is totally devoid of merit.
We would agree with petitioner if the clause in question were to
be considered as a penal clause. Nevertheless, for very obvious
reasons, said clause does not convey any penalty, for even
without it, pursuant to Article 2209 of the Civil Code, the
vendee
134 | P a g e
would be entitled to recover the amount paid by her with legal
rate of interest which is even more than the 4% provided for in
the clause. 7-A
It is therefore inconceivable that the aforecited provision in the
deed of sale is a penal clause which will preclude an award of
damages to the vendee Millan. In fact the clause is so worded
as to work to the advantage of petitioner corporation.
Unfortunately, the vendee, now private respondent, submitted
her case below without presenting evidence on the actual
damages suffered by her as a result of the nonperformance of
petitioner's obligation under the deed of sale. Nonetheless, the
facts show that the right of the vendee to acquire title to the lot
bought by her was violated by petitioner and this entitles her at
the very least to nominal damages.
The pertinent provisions of our Civil Code follow:
Art. 2221. Nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by
him.
Art. 2222. The court may award nominal damages in every
obligation arising from any source enumerated in article 1157,
or in every case where any property right has been invaded.
Under the foregoing provisions nominal damages are not
intended for indemnification of loss suffered but for the
vindication or recognition of a right violated or invaded. They
are recoverable where some injury has been done the amount
of which the evidence fails to show, the assessment of
damages being left to the discretion of the court according to
the circumstances of the case. 8
It is true as petitioner claims that under American jurisprudence
nominal damages by their very nature are small sums fixed by
the court without regard to the extent of the harm done to the
injured party.
It is generally held that a nominal damage is a substantial
claim, if based upon the violation of a legal right; in such case,
the law presumes a damage, although actual or compensatory
damages are not proven; in truth nominal damages are
damages in name only and not in fact, and are allowed, not as
an equivalent of a wrong inflicted, but simply in recogniton of
the existence of a technical injury. (Fouraker v. Kidd Springs
Boating and Fishing Club, 65 S. W. 2d 796-797, citing 17 C.J.
720, and a number of authorities). 9
In this jurisdiction, in Vda. de Medina, et al. v. Cresencia, et al.
1956, which was an action for damages arising out of a
vehicular accident, this Court had occasion to eliminate an
award of P10,000.00 imposed by way of nominal damages, the
Court stating inter alia that the amount cannot, in common
sense, be demeed "nominal". 10
In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L.
Cuenca, 1965, this Court, however, through then Justice
Roberto Concepcion who later became Chief Justice of this
Court, sustained an award of P20,000.00 as nominal damages
in favor of respnodent Cuenca. The Court there found special
reasons for considering P20,000.00 as "nominal". Cuenca who
was the holder of a first class ticket from Manila to Tokyo was
rudely compelled by an agent of petitioner Airlines to move to
the tourist class notwithstanding its knowledge that Cuenca as
Commissioner of Public Highways of the Republic of the
Philippines was travelling in his official capacity as a delegate of
the country to a conference in Tokyo." 11
135 | P a g e
Actually, as explained in the Court's decision in Northwest
Airlines, there is no conflict between that case and Medina, for
in the latter, the P10,000.00 award for nominal damages was
eliminated principally because the aggrieved party had already
been awarded P6,000.00 as compensatory damages,
P30,000.00 as moral damages and P10,000.00 as exemplary
damages, and "nominal damages cannot coexist with
compensatory damages," while in the case of Commissioner
Cuenca, no such compensatory, moral, or exemplary damages
were granted to the latter. 12
At any rate, the circumstances of a particular case will
determine whether or not the amount assessed as nominal
damages is within the scope or intent of the law, more
particularly, Article 2221 of the Civil Code.
In the situation now before Us, We are of the view that the
amount of P20,000.00 is excessive. The admitted fact that
petitioner corporation failed to convey a transfer certificate of
title to respondent Millan because the subdivision property was
mortgaged to the GSIS does not in itself show that there was
bad faith or fraud. Bad faith is not to be presumed. Moreover,
there was the expectation of the vendor that arrangements
were possible for the GSIS to make partial releases of the
subdivision lots from the overall real estate mortgage. It was
simply unfortunate that petitioner did not succeed in that
regard.
For that reason We cannot agree with respondent Millan Chat
the P20,000.00 award may be considered in the nature of
exemplary damages.
In case of breach of contract, exemplary damages may be
awarded if the guilty party acted in wanton, fraudulent,
reckless, oppressive or malevolent manner. 13 Furthermore,
exemplary or corrective damages are to be imposed by way of
example or correction for the public good, only if the injured
party has
shown that he is entitled to recover moral, temperate or
compensatory damages."
Here, respondent Millan did not submit below any evidence to
prove that she suffered actual or compensatory damages. 14
To conclude, We hold that the sum of Ten Thousand Pesos
(P10,000.00) by way of nominal damages is fair and just under
the following circumstances, viz: respondent Millan bought the
lot from petitioner in May, 1962, and paid in full her
installments on December 22, 1971, but it was only on March 2,
1973, that a deed of absolute sale was executed in her favor,
and notwithstanding the lapse of almost three years since she
made her last payment, petitioner still failed to convey the
corresponding transfer certificate of title to Millan who
accordingly was compelled to file the instant complaint in
August of 1974.
PREMISES CONSIDERED, We modify the decision of the trial
court and reduce the nominal damages to Ten Thousand Pesos
(P10,000.00). In all other respects the aforesaid decision
stands.
34. G.R. No. L-26339 December 14, 1979
MARIANO C. PAMINTUAN, petitioner-appellant, vs.
COURT OF APPEALS and YU PING KUN CO., INC., respondent-
appellees.
V. E. del Rosario & Associates for appellant. Sangco &
Sangalang for private respondent.
136 | P a g e
AQUINO, J.:
This case is about the recovery compensatory, damages for
breach of a contract of sale in addition to liquidated damages.
Mariano C. Pamintuan appealed from the judgment of the Court
of Appeals wherein he was ordered to deliver to Yu Ping Kun
Co., Inc. certain plastic sheetings and, if he could not do so, to
pay the latter P100,559.28 as damages with six percent
interest from the date of the filing of the complaint. The facts
and the findings of the Court of Appeals are as follows:
In 1960, Pamintuan was the holder of a barter license wherein
he was authorized to export to Japan one thousand metric tons
of white flint corn valued at forty-seven thousand United States
dollars in exchange for a collateral importation of plastic
sheetings of an equivalent value.
By virtue of that license, he entered into an agreement to ship
his corn to Tokyo Menka Kaisha, Ltd. of Osaka, Japan in
exchange for plastic sheetings. He contracted to sell the plastic
sheetings to Yu Ping Kun Co., Inc. for two hundred sixty-five
thousand five hundred fifty pesos. The company undertook to
open an irrevocable domestic letter of credit for that amount in
favor of Pamintuan.
It was further agreed that Pamintuan would deliver the plastic
sheetings to the company at its bodegas in Manila or suburbs
directly from the piers "within one month upon arrival of" the
carrying vessels. Any violation of the contract of sale would
entitle the aggreived party to collect from the offending party
liquidated damages in the sum of ten thousand pesos (Exh. A).
On July 28, 1960, the company received a copy of the letter
from the Manila branch of Toyo Menka Kaisha, Ltd. confirming
the
acceptance by Japanese suppliers of firm offers for the
consignment to Pamintuan of plastic sheetings valued at forty-
seven thousand dollars. Acting on that information, the
company lost no time in securing in favor of Pamintuan an
irrevocable letter of credit for two hundred sixty-five thousand
five hundred fifty pesos.
Pamintuan was apprised by the bank on August 1, 1960 of that
letter of credit which made reference to the delivery to Yu Ping
Kun Co., Inc. on or before October 31, 1960 of 336, 360 yards of
plastic sheetings (p. 21, Record on Appeal).
On September 27 and 30 and October 4, 1960, the Japanese
suppliers shipped to Pamintuan, through Toyo Menka Kaisha,
Ltd., the plastic sheetings in four shipments to wit: (1) Firm
Offer No. 327 for 50,000 yards valued at $9,000; (2) Firm Offer
No. 328 for 70,000 yards valued at $8,050; (3) Firm Offers Nos.
329 and 343 for 175,000 and 18,440 yards valued at $22,445
and $2,305, respectively, and (4) Firm Offer No. 330 for 26,000
yards valued at $5,200, or a total of 339,440 yards with an
aggregate value of $47,000 (pp. 4-5 and 239-40, Record on
Appeal).
The plastic sheetings arrived in Manila and were received by
Pamintuan. Out of the shipments, Pamintuan delivered to the
company's warehouse only the following quantities of plastic
sheetings:
November 11, 1960 — 140 cases, size 48 inches by 50 yards.
November 14, 1960 — 258 cases out of 352 cases. November
15, 1960 — 11 cases out of 352 cases. November 15, 1960 —
10 cases out of 100 cases. November 15, 1960 — 30
cases out of 100 cases.
Pamintuan withheld delivery of (1) 50 cases of plastic sheetings
containing 26,000 yards valued at $5,200; (2) 37 cases
containing 18,440 yards valued at $2,305; (3) 60 cases
containing 30,000
137 | P a g e
yards valued at $5,400 and (4) 83 cases containing 40,850
yards valued at $5,236.97. While the plastic sheetings were
arriving in Manila, Pamintuan informed the president of Yu Ping
Kun Co., Inc. that he was in dire need of cash with which to pay
his obligations to the Philippine National Bank. Inasmuch as the
computation of the prices of each delivery would allegedly be a
long process, Pamintuan requested that he be paid
immediately.
Consequently, Pamintuan and the president of the company,
Benito Y.C. Espiritu, agreed to fix the price of the plastic
sheetings at P0.782 a yard, regardless of the kind, quality or
actual invoice value thereof. The parties arrived at that figure
by dividing the total price of P265,550 by 339,440 yards, the
aggregate quantity of the shipments.
After Pamintuan had delivered 224,150 yards of sheetings of
interior quality valued at P163,.047.87, he refused to deliver
the remainder of the shipments with a total value of
P102,502.13 which were covered by (i) Firm Offer No. 330,
containing 26,000 yards valued at P29,380; (2) Firm Offer No.
343, containing 18,440 yards valued at P13,023.25; (3) Firm
Offer No. 217, containing 30,000 yards valued at P30,510 and
(4) Firm Offer No. 329 containing 40,850 yards valued at
P29,588.88 (See pp. 243- 2, Record on Appeal).
As justification for his refusal, Pamintuan said that the company
failed to comply with the conditions of the contract and that it
was novated with respect to the price.
On December 2, 1960, the company filed its amended
complaint for damages against Pamintuan. After trial, the lower
court rendered the judgment mentioned above but including
moral damages.
The unrealized profits awarded as damages in the trial court's
decision were computed as follows (pp. 248-9, Record on
Appeal):
(1) 26,000 yards with a contract price of Pl.13 per yard and a
selling price at the time of delivery of Pl.75 a
yard........................................................... P16,120.00
(2) 18,000 yards with a contract price of P0.7062 per yard and
selling price of Pl.20 per yard at the time of
delivery......................................... 9,105.67
(3) 30,000 yards with a contract price of Pl.017 per yard and a
selling price of Pl.70 per yard. 20,490.00
(4) 40,850 yards with a contract price of P0.7247 per yard and
a selling price of P1.25 a yard at the time of
delivery.............................................. 21,458.50 Total unrealized
profits....................... P67,174.17
The overpayment of P12,282.26 made to Pamintuan by Yu Ping
Kun Co., Inc. for the 224,150 yards, which the trial court
regarded as an item of damages suffered by the company, was
computed as follows (p. 71, Record on Appeal):
Liquidation value of 224,150 yards at P0.7822 a
yard ..............................................................................
P175,330.13
Actual peso value of 224,150 yards as per firm offers or as per
contract............................................ 163,047.87
Overpayment................................................................ P
12,282.26
To these two items of damages (P67,174.17 as unrealized
profits and P12,282.26 as overpayment), the trial court added
(a) P10,000 as stipulated liquidated damages, (b) P10,000 as
moral
138 | P a g e
damages, (c) Pl,102.85 as premium paid by the company on
the bond of P102,502.13 for the issuance of the writ of
preliminary attachment and (d) P10,000 as attorney's fees, or
total damages of P110,559.28) p. 250, Record on Appeal). The
Court of Appeals affirmed that judgment with the modification
that the moral damages were disallowed (Resolution of June 29,
1966).
Pamintuan appealed. The Court of Appeals in its decision of
March 18, 1966 found that the contract of sale between
Pamintuan and the company was partly consummated. The
company fulfilled its obligation to obtain the Japanese suppliers'
confirmation of their acceptance of firm offers totalling
$47,000. Pamintuan reaped certain benefits from the contract.
Hence, he is estopped to repudiate it; otherwise, he would
unjustly enrich himself at the expense of the company.
The Court of Appeals found that the writ of attachment was
properly issued. It also found that Pamintuan was guilty of fraud
because (1) he was able to make the company agree to change
the manner of paying the price by falsely alleging that there
was a delay in obtaining confirmation of the suppliers'
acceptance of the offer to buy; (2) he caused the plastic
sheetings to be deposited in the bonded warehouse of his
brother and then required his brother to make him Pamintuan),
his attorney-in- fact so that he could control the disposal of the
goods; (3) Pamintuan, as attorney-in-fact of the warehouseman,
endorsed to the customs broker the warehouse receipts
covering the plastic sheetings withheld by him and (4) he
overpriced the plastic sheetings which he delivered to the
company.
The Court of Appeals described Pamintuan as a man "who, after
having succeeded in getting another to accommodate him by
agreeing to liquidate his deliveries on the basis of P0.7822 per
yard, irrespective of invoice value, on the pretense that he
would deliver what in the first place he ought to deliver
anyway, when he knew all the while that he had no such
intention, and in the
process delivered only the poorer or cheaper kind or those
which he had predetermined to deliver and did not conceal in
his brother's name and thus deceived the unwary party into
overpaying him the sum of P 1 2,282.26 for the said deliveries,
and would thereafter refuse to make any further delivery in
flagrant violation of his plighted word, would now ask us to
sanction his actuation" (pp. 61-62, Rollo).
The main contention of appellant Pamintuan is that the buyer,
Yu Ping Kun Co., Inc., is entitled to recover only liquidated
damages. That contention is based on the stipulation "that any
violation of the provisions of this contract (of sale) shall entitle
the aggrieved party to collect from the offending party
liquidated damages in the sum of P10,000 ".
Pamintuan relies on the rule that a penalty and liquidated
damages are the same (Lambert vs. Fox 26 Phil. 588); that "in
obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of
non-compliance, if there is no stipulation to the contrary " (1st
sentence of Art. 1226, Civil Code) and, it is argued, there is no
such stipulation to the contrary in this case and that "liquidated
damages are those agreed upon by the parties to a contract, to
be paid in case of breach thereof" (Art. 2226, Civil Code).
We hold that appellant's contention cannot be sustained
because the second sentence of article 1226 itself provides that
I nevertheless, damages shall be paid if the obligor ... is guilty
of fraud in the fulfillment of the obligation". "Responsibility
arising from fraud is demandable in all obligations" (Art. 1171,
Civil Code). "In case of fraud, bad faith, malice or wanton
attitude, the obligor shall be responsible for an damages which
may be reasonably attributed to the non-performance of the
obligation" (Ibid, art. 2201).
139 | P a g e
The trial court and the Court of Appeals found that Pamintuan
was guilty of fraud because he did not make a complete
delivery of the plastic sheetings and he overpriced the same.
That factual finding is conclusive upon this Court.
There is no justification for the Civil Code to make an apparent
distinction between penalty and liquidated damages because
the settled rule is that there is no difference between penalty
and liquidated damages insofar as legal results are concerned
and that either may be recovered without the necessity of
proving actual damages and both may be reduced when proper
(Arts. 1229, 2216 and 2227, Civil Code. See observations of
Justice J.B.L. Reyes, cited in 4 Tolentino's Civil Code, p. 251).
Castan Tobeñas notes that the penal clause in an obligation has
three functions: "1. Una funcion coercitiva o de garantia,
consistente en estimular al deudor al complimiento de la
obligacion principal, ante la amenaza de tener que pagar la
pena. 2. Una funcion liquidadora del daño, o sea la de evaluar
por anticipado los perjuicios que habria de ocasionar al
acreedor el incumplimiento o cumplimiento inadecuado de la
obligacion. 3. Una funcion estrictamente penal, consistente en
sancionar o castigar dicho incumplimiento o cumplimiento
inadecuado, atribuyendole consecuencias mas onerosas para el
deudor que las que normalmente lleva aparejadas la infraccion
contractual. " (3 Derecho Civil Espanol, 9th Ed., p. 128).
The penalty clause is strictly penal or cumulative in character
and does not partake of the nature of liquidated damages (pena
sustitutiva) when the parties agree "que el acreedor podra
pedir, en el supuesto incumplimiento o mero retardo de la
obligacion principal, ademas de la pena, los danos y perjuicios.
Se habla en este caso de pena cumulativa, a differencia de
aquellos otros ordinarios, en que la pena es sustitutiva de la
reparacion ordinaria." (Ibid, Castan Tobenas, p. 130).
After a conscientious consideration of the facts of the case, as
found by Court of Appeals and the trial court, and after
reflecting on the/tenor of the stipulation for liquidated damages
herein, the true nature of which is not easy to categorize, we
further hold that justice would be adequately done in this case
by allowing Yu Ping Kun Co., Inc. to recover only the actual
damages proven and not to award to it the stipulated liquidated
damages of ten thousand pesos for any breach of the contract.
The proven damages supersede the stipulated liquidated
damages.
This view finds support in the opinion of Manresa (whose
comments were the bases of the new matter found in article
1226, not found in article 1152 of the old Civil Code) that in
case of fraud the difference between the proven damages and
the stipulated penalty may be recovered (Vol. 8, part. 1, Codigo
Civil, 5th Ed., 1950, p. 483).
Hence, the damages recoverable by the firm would amount to
ninety thousand five hundred fifty-nine pesos and twenty-eight
centavos (P90,559.28), with six percent interest a year from the
filing of the complaint.
With that modification the judgment of the Court of Appeals is
affirmed in all respects. No costs in this instance.
35. G.R. No. 204702 January 14, 2015
RICARDO C. HONRADO, Petitioner,
vs.
GMA NETWORK FILMS, INC., Respondent.
DECISION
140 | P a g e
CARPIO, J.:
The Case
We review1 the Decision2 of the Court of Appeals (CA) ordering
petitioner Ricardo C. Honrado (petitioner) to pay a sum of
money to respondent GMA Network Films, Inc. for breach of
contract and breach of trust.
The Facts
On 11December 1998, respondent GMA Network Films, Inc.
(GMA Films) entered into a "TV Rights Agreement" (Agreement)
with petitioner under which petitioner, as licensor of 36 films,
granted to GMA Films, for a fee of P60.75 million, the exclusive
right to telecast the 36 films for a period of three years. Under
Paragraph 3 of the Agreement, the parties agreed that "all
betacam copies of the [films] should pass through broadcast
quality test conducted by GMA-7," the TV station operated by
GMA Network, Inc. (GMA Network), an affiliate of GMA Films.
The parties also agreed to submit the films for review by the
Movie and Television Review and Classification Board (MTRCB)
and stipulated on the remedies in the event that MTRCB bans
the telecasting ofany of the films (Paragraph 4):
The PROGRAMME TITLES listed above shall be subject to
approval by the Movie and Television Review and Classification
Board (MTRCB) and, in the event of disapproval, LICENSOR
[Petitioner] will either replace the censored PROGRAMME TITLES
with another title which is mutually acceptable to both parties
or, failure to do such, a proportionate reduction from the total
price shall either be deducted or refunded whichever is the
case by the LICENSOR OR LICENSEE [GMA Films].3 (Emphasis
supplied)
Two of the films covered by the Agreement were Evangeline
Katorse and Bubot for which GMA Films paid P1.5 million each.
In 2003, GMA Films sued petitioner in the Regional Trial Court of
Quezon City (trial court) to collect P1.6 million representing the
fee it paid for Evangeline Katorse (P1.5 million) and a portion of
the fee it paid for Bubot (P350,0004). GMA Films alleged that it
rejected Evangeline Katorse because "its running time was too
short for telecast"5 and petitioner only remitted P900,000 to
the owner of Bubot (Juanita Alano [Alano]), keeping for himself
the balance of P350,000. GMA Films prayed for the return of
such amount on the theory that an implied trust arose between
the parties as petitioner fraudulently kept it for himself.6
Petitioner denied liability, counter-alleging that after GMA Films
rejected Evangeline Katorse, he replaced it with another film,
Winasak na Pangarap, which GMA Films accepted. As proof of
such acceptance, petitioner invoked a certification of GMA
Network, dated 30 March 1999, attesting that such film "is of
good broadcast quality"7 (Film Certification). Regarding the fee
GMA Films paid for Bubot, petitioner alleged that he had settled
his obligation to Alano. Alternatively, petitioner alleged that
GMA Films, being a stranger to the contracts he entered into
with the owners of the films in question, has no personality to
question his compliance with the terms of such contracts.
Petitioner counterclaimed for attorney’s fees.
The Ruling of the Trial Court
The trial court dismissed GMA Films’ complaint and, finding
merit in petitioner’s counterclaim, ordered GMA Films to pay
attorney’s fees (P100,000). The trial court gave credence to
petitioner’s defense that he replaced Evangeline Katorse with
Winasak na Pangarap. On the disposal of the fee GMA Films
paid for Bubot, the trial court rejected GMA Films’ theory of
implied
141 | P a g e
trust, finding insufficient GMA Films’ proof that petitioner
pocketed any portion of the fee in question.
GMA Films appealed to the CA.
The Ruling of the Court of Appeals
The CA granted GMA Films’ appeal, set aside the trial court’s
ruling, and ordered respondent to pay GMA Films P2 million8 as
principal obligation with 12% annual interest, exemplary
damages (P100,000), attorney’s fees (P200,000), litigation
expenses (P100,000) and the costs. Brushing aside the trial
court’s appreciation of the evidence, the CA found that (1) GMA
Films was authorized under Paragraph 4 of the Agreement to
reject Evangeline Katorse, and (2) GMA Films never accepted
Winasak na Pangarap as replacement because it was a "bold"
film.9
On petitioner’s liability for the fee GMA Films paid for Bubot, the
CA sustained GMA Films’ contention that petitioner was under
obligation to turn over to the film owners the fullamount GMA
Films paid for the films as "nowhere in the TV Rights Agreement
does it provide that the licensor is entitled to any commission x
x x [hence] x x x [petitioner] Honrado cannot claim any portion
of the purchase price paid for by x x x GMA Films."10 The CA
concluded that petitioner’s retention of a portion of the fee for
Bubot gave rise to an implied trust between him and GMA
Films, obligating petitioner, as trustee, to return to GMA Films,
as beneficiary, the amount claimed by the latter.
Hence, this petition. Petitioner prays for the reinstatement of
the trial court’s ruling while GMA Films attacks the petition for
lack of merit.
The Issue
The question is whether the CA erred in finding petitioner liable
for breach of the Agreement and breach of trust.
The Ruling of the Court
We grant the petition. We find GMA Films’ complaint without
merit and accordingly reinstate the trial court’s ruling
dismissing it with the modification that the award of attorney’s
fees is deleted. Petitioner Committed No Breach of Contract or
Trust
MTRCB Disapproval the Stipulated Basis for Film Replacement
The parties do not quarrel on the meaning of Paragraph 4 of the
Agreement which states:
The PROGRAMME TITLES listed [in the Agreement] x x x shall be
subject to approval by the Movie and Television Review and
Classification Board (MTRCB) and, in the event of disapproval,
LICENSOR [Petitioner] will either replace the censored
PROGRAMME TITLES with another title which is mutually
acceptable to both parties or, failure to do such, a proportionate
reduction from the total price shall either be deducted or
refunded whichever is the case by the LICENSOR OR LICENSEE
[GMA Films].11 (Emphasis supplied)
Under this stipulation, what triggersthe rejection and
replacement of any film listed in the Agreement is the
"disapproval" of its telecasting by MTRCB.
Nor is there any dispute that GMA Films rejected Evangeline
Katorse not because it was disapproved by MTRCB but because
the film’s total running time was too short for telecast
(undertime). Instead of rejecting GMA Films’ demand for falling
outside of the terms of Paragraph 4, petitioner voluntarily
acceded to it and replaced such film with Winasak na Pangarap.
142 | P a g e
What is disputed is whether GMA Films accepted the
replacement film offered by petitioner.
Petitioner maintains that the Film Certification issued by GMA
Network attesting to the "good broadcast quality" of Winasak
na Pangarap amounted to GMA Films’ acceptance of such film.
On the other hand, GMA Films insists that such clearance
pertained only to the technical quality of the film but not to its
content which it rejected because it found the film as "bomba"
(bold).12 The CA, working under the assumption that the
ground GMA Films invoked to reject Winasak na Pangarap was
sanctioned under the Agreement, found merit in the latter’s
claim. We hold that regardless of the import of the Film
Certification, GMA Films’ rejection of Winasak na Pangarap finds
no basis in the Agreement.
In terms devoid of any ambiguity, Paragraph 4 of the
Agreement requires the intervention of MTRCB, the state
censor, before GMA Films can reject a film and require its
replacement. Specifically, Paragraph 4 requires that MTRCB,
after reviewing a film listed in the Agreement, disapprove or X-
rate it for telecasting. GMA Films does not allege, and we find
no proof on record indicating, that MTRCB reviewed Winasak na
Pangarap and X-rated it. Indeed, GMA Films’ own witness, Jose
Marie Abacan (Abacan), then Vice- President for Program
Management of GMA Network, testified during trial that it was
GMA Network which rejected Winasak na Pangarap because the
latter considered the film "bomba."13 In doing so, GMA Network
went beyond its assigned role under the Agreement of
screening films to test their broadcast quality and assumed the
function of MTRCB to evaluate the films for the propriety of
their content. This runs counter to the clear terms of
Paragraphs 3 and 4 of the Agreement.
Disposal of the Fees Paid to Petitioner Outside of the Terms
of the Agreement
GMA Films also seeks refund for the balance of the fees it paid
to petitioner for Bubot which petitioner allegedly failed to turn-
over to the film’s owner, Alano.14 Implicit in GMA Films’ claim is
the theory that the Agreement obliges petitioner to give to the
film owners the entire amount he received from GMA Films and
that his failure to do so gave rise to an implied trust, obliging
petitioner to hold whatever amount he kept in trust for GMA
Films. The CA sustained GMA Films’ interpretation, noting that
the Agreement "does not provide that the licensor is entitled to
any commission."15
This is error.
The Agreement, as its full title denotes ("TV Rights
Agreement"), is a licensing contract, the essence of which is the
transfer by the licensor (petitioner) to the licensee (GMA Films),
for a fee, of the exclusive right to telecast the films listed in the
Agreement. Stipulations for payment of "commission" to the
licensor is incongruous to the nature of such contracts unless
the licensor merely acted as agent of the film owners. Nowhere
in the Agreement, however, did the parties stipulate that
petitioner signed the contract in such capacity. On the contrary,
the Agreement repeatedly refers to petitioner as "licensor" and
GMA Films as "licensee." Nor did the parties stipulate that the
fees paid by GMA Films for the films listed in the Agreement will
be turned over by petitioner to the film owners. Instead, the
Agreement merely provided that the total fees will be paid in
three installments (Paragraph 3).16
We entertain no doubt that petitioner forged separate
contractual arrangements with the owners of the films listed in
the Agreement, spelling out the terms of payment to the latter.
Whether or not petitioner complied with these terms, however,
is a matter to which GMA Films holds absolutely no interest.
Being a
143 | P a g e
stranger to such arrangements, GMA Films is no more entitled
to complain of any breach by petitioner of his contracts with the
film owners than the film owners are for any breach by GMA
Films of its Agreement with petitioner.
We find it unnecessary to pass upon the question whether an
implied trust arose between the parties, as held by the
CA.1âwphi1 Such conclusion was grounded on the erroneous
assumption that GMA Films holds an interest in the disposition
of the licensing fees it paid to petitioner.
Award of Attorney's Fees to Petitioner Improper
The trial court awarded attorney's fees to petitioner as it
"deemed it just and reasonable"17 to do so, using the amount
provided by petitioner on the witness stand (P100,000).
Undoubtedly, attorney's fees may be awarded if the trial court
"deems it just and equitable."18 Such ground, however, must
be fully elaborated in the body of the ruling.19 Its mere
invocation, without more, negates the nature of attorney's fees
as a form of actual damages.
WHEREFORE, we GRANT the petition. The Decision, dated 30
April 2012 and Resolution, dated 19 November 2012, of the
Court of Appeals are SET ASIDE. The Decision, dated 5
December 2008, of the Regional Trial Court of Quezon City
(Branch 223) is REINSTATED with the MODIFICATION that the
award of attorney's fees is DELETED.
JOSE CANGCO, plaintiff-appellant,
vs.
MANILA RAILROAD CO., defendant-appellee.
Ramon Sotelo for appellant. Kincaid & Hartigan for appellee.
FISHER, J.:
At the time of the occurrence which gave rise to this litigation
the plaintiff, Jose Cangco, was in the employment of Manila
Railroad Company in the capacity of clerk, with a monthly wage
of P25. He lived in the pueblo of San Mateo, in the province of
Rizal, which is located upon the line of the defendant railroad
company; and in coming daily by train to the company's office
in the city of Manila where he worked, he used a pass, supplied
by the company, which entitled him to ride upon the company's
trains free of charge. Upon the occasion in question, January
20, 1915, the plaintiff arose from his seat in the second class-
car where he was riding and, making, his exit through the door,
took his position upon the steps of the coach, seizing the
upright guardrail with his right hand for support.
On the side of the train where passengers alight at the San
Mateo station there is a cement platform which begins to rise
with a moderate gradient some distance away from the
company's office and extends along in front of said office for a
distance sufficient to cover the length of several coaches. As
the train slowed down another passenger, named Emilio
Zuñiga, also an employee of the railroad company, got off the
same car, alighting safely at the point where the platform
begins to rise from the level of the ground. When the train had
proceeded a little farther the plaintiff Jose Cangco stepped off
also, but one or both of his feet came in contact with a sack of
watermelons with the result
SO ORDERED.
36. G.R. No. L-12191
October 14, 1918
144 | P a g e
that his feet slipped from under him and he fell violently on the
platform. His body at once rolled from the platform and was
drawn under the moving car, where his right arm was badly
crushed and lacerated. It appears that after the plaintiff
alighted from the train the car moved forward possibly six
meters before it came to a full stop.
The accident occurred between 7 and 8 o'clock on a dark night,
and as the railroad station was lighted dimly by a single light
located some distance away, objects on the platform where the
accident occurred were difficult to discern especially to a
person emerging from a lighted car.
The explanation of the presence of a sack of melons on the
platform where the plaintiff alighted is found in the fact that it
was the customary season for harvesting these melons and a
large lot had been brought to the station for the shipment to
the market. They were contained in numerous sacks which has
been piled on the platform in a row one upon another. The
testimony shows that this row of sacks was so placed of melons
and the edge of platform; and it is clear that the fall of the
plaintiff was due to the fact that his foot alighted upon one of
these melons at the moment he stepped upon the platform. His
statement that he failed to see these objects in the darkness is
readily to be credited.
The plaintiff was drawn from under the car in an unconscious
condition, and it appeared that the injuries which he had
received were very serious. He was therefore brought at once
to a certain hospital in the city of Manila where an examination
was made and his arm was amputated. The result of this
operation was unsatisfactory, and the plaintiff was then carried
to another hospital where a second operation was performed
and the member was again amputated higher up near the
shoulder. It appears in evidence that the plaintiff expended the
sum of
P790.25 in the form of medical and surgical fees and for other
expenses in connection with the process of his curation.
Upon August 31, 1915, he instituted this proceeding in the
Court of First Instance of the city of Manila to recover damages
of the defendant company, founding his action upon the
negligence of the servants and employees of the defendant in
placing the sacks of melons upon the platform and leaving
them so placed as to be a menace to the security of passenger
alighting from the company's trains. At the hearing in the Court
of First Instance, his Honor, the trial judge, found the facts
substantially as above stated, and drew therefrom his
conclusion to the effect that, although negligence was
attributable to the defendant by reason of the fact that the
sacks of melons were so placed as to obstruct passengers
passing to and from the cars, nevertheless, the plaintiff himself
had failed to use due caution in alighting from the coach and
was therefore precluded form recovering. Judgment was
accordingly entered in favor of the defendant company, and the
plaintiff appealed.
It can not be doubted that the employees of the railroad
company were guilty of negligence in piling these sacks on the
platform in the manner above stated; that their presence
caused the plaintiff to fall as he alighted from the train; and
that they therefore constituted an effective legal cause of the
injuries sustained by the plaintiff. It necessarily follows that the
defendant company is liable for the damage thereby
occasioned unless recovery is barred by the plaintiff's own
contributory negligence. In resolving this problem it is
necessary that each of these conceptions of liability, to-wit, the
primary responsibility of the defendant company and the
contributory negligence of the plaintiff should be separately
examined.
It is important to note that the foundation of the legal liability of
the defendant is the contract of carriage, and that the
obligation to respond for the damage which plaintiff has
suffered arises, if at
145 | P a g e
all, from the breach of that contract by reason of the failure of
defendant to exercise due care in its performance. That is to
say, its liability is direct and immediate, differing essentially, in
legal viewpoint from that presumptive responsibility for the
negligence of its servants, imposed by article 1903 of the Civil
Code, which can be rebutted by proof of the exercise of due
care in their selection and supervision. Article 1903 of the Civil
Code is not applicable to obligations arising ex contractu, but
only to extra-contractual obligations — or to use the technical
form of expression, that article relates only to culpa aquiliana
and not to culpa contractual.
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103
and 1104 of the Civil Code, clearly points out this distinction,
which was also recognized by this Court in its decision in the
case of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep.,
359). In commenting upon article 1093 Manresa clearly points
out the difference between "culpa, substantive and
independent, which of itself constitutes the source of an
obligation between persons not formerly connected by any
legal tie" and culpa considered as an accident in the
performance of an obligation already existing . . . ."
In the Rakes case (supra) the decision of this court was made to
rest squarely upon the proposition that article 1903 of the Civil
Code is not applicable to acts of negligence which constitute
the breach of a contract.
Upon this point the Court said:
The acts to which these articles [1902 and 1903 of the Civil
Code] are applicable are understood to be those not growing
out of pre- existing duties of the parties to one another. But
where relations already formed give rise to duties, whether
springing from contract or quasi-contract, then breaches of
those duties are
subject to article 1101, 1103, and 1104 of the same code.
(Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at
365.)
This distinction is of the utmost importance. The liability, which,
under the Spanish law, is, in certain cases imposed upon
employers with respect to damages occasioned by the
negligence of their employees to persons to whom they are not
bound by contract, is not based, as in the English Common Law,
upon the principle of respondeat superior — if it were, the
master would be liable in every case and unconditionally — but
upon the principle announced in article 1902 of the Civil Code,
which imposes upon all persons who by their fault or
negligence, do injury to another, the obligation of making good
the damage caused. One who places a powerful automobile in
the hands of a servant whom he knows to be ignorant of the
method of managing such a vehicle, is himself guilty of an act
of negligence which makes him liable for all the consequences
of his imprudence. The obligation to make good the damage
arises at the very instant that the unskillful servant, while
acting within the scope of his employment causes the injury.
The liability of the master is personal and direct. But, if the
master has not been guilty of any negligence whatever in the
selection and direction of the servant, he is not liable for the
acts of the latter, whatever done within the scope of his
employment or not, if the damage done by the servant does
not amount to a breach of the contract between the master and
the person injured.
It is not accurate to say that proof of diligence and care in the
selection and control of the servant relieves the master from
liability for the latter's acts — on the contrary, that proof shows
that the responsibility has never existed. As Manresa says (vol.
8, p. 68) the liability arising from extra-contractual culpa is
always based upon a voluntary act or omission which, without
willful intent, but by mere negligence or inattention, has caused
damage to another. A master who exercises all possible care in
the selection of his servant, taking into consideration the
146 | P a g e
qualifications they should possess for the discharge of the
duties which it is his purpose to confide to them, and directs
them with equal diligence, thereby performs his duty to third
persons to whom he is bound by no contractual ties, and he
incurs no liability whatever if, by reason of the negligence of his
servants, even within the scope of their employment, such third
person suffer damage. True it is that under article 1903 of the
Civil Code the law creates a presumption that he has been
negligent in the selection or direction of his servant, but the
presumption is rebuttable and yield to proof of due care and
diligence in this respect.
The supreme court of Porto Rico, in interpreting identical
provisions, as found in the Porto Rico Code, has held that these
articles are applicable to cases of extra-contractual culpa
exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)
This distinction was again made patent by this Court in its
decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil.
rep., 624), which was an action brought upon the theory of the
extra-contractual liability of the defendant to respond for the
damage caused by the carelessness of his employee while
acting within the scope of his employment. The Court, after
citing the last paragraph of article 1903 of the Civil Code, said:
From this article two things are apparent: (1) That when an
injury is caused by the negligence of a servant or employee
there instantly arises a presumption of law that there was
negligence on the part of the master or employer either in
selection of the servant or employee, or in supervision over him
after the selection, or both; and (2) that that presumption is
juris tantum and not juris et de jure, and consequently, may be
rebutted. It follows necessarily that if the employer shows to
the satisfaction of the court that in selection and supervision he
has exercised the care and diligence of a good father of a
family, the presumption is overcome and he is relieved from
liability.
This theory bases the responsibility of the master ultimately on
his own negligence and not on that of his servant. This is the
notable peculiarity of the Spanish law of negligence. It is, of
course, in striking contrast to the American doctrine that, in
relations with strangers, the negligence of the servant in
conclusively the negligence of the master.
The opinion there expressed by this Court, to the effect that in
case of extra-contractual culpa based upon negligence, it is
necessary that there shall have been some fault attributable to
the defendant personally, and that the last paragraph of article
1903 merely establishes a rebuttable presumption, is in
complete accord with the authoritative opinion of Manresa, who
says (vol. 12, p. 611) that the liability created by article 1903 is
imposed by reason of the breach of the duties inherent in the
special relations of authority or superiority existing between the
person called upon to repair the damage and the one who, by
his act or omission, was the cause of it.
On the other hand, the liability of masters and employers for
the negligent acts or omissions of their servants or agents,
when such acts or omissions cause damages which amount to
the breach of a contact, is not based upon a mere presumption
of the master's negligence in their selection or control, and
proof of exercise of the utmost diligence and care in this regard
does not relieve the master of his liability for the breach of his
contract.
Every legal obligation must of necessity be extra-contractual or
contractual. Extra-contractual obligation has its source in the
breach or omission of those mutual duties which civilized
society imposes upon it members, or which arise from these
relations, other than contractual, of certain members of society
to others, generally embraced in the concept of status. The
legal rights of each member of society constitute the measure
of the corresponding legal duties, mainly negative in character,
which
147 | P a g e
the existence of those rights imposes upon all other members
of society. The breach of these general duties whether due to
willful intent or to mere inattention, if productive of injury, give
rise to an obligation to indemnify the injured party. The
fundamental distinction between obligations of this character
and those which arise from contract, rests upon the fact that in
cases of non- contractual obligation it is the wrongful or
negligent act or omission itself which creates the vinculum
juris, whereas in contractual relations the vinculum exists
independently of the breach of the voluntary duty assumed by
the parties when entering into the contractual relation.
With respect to extra-contractual obligation arising from
negligence, whether of act or omission, it is competent for the
legislature to elect — and our Legislature has so elected —
whom such an obligation is imposed is morally culpable, or, on
the contrary, for reasons of public policy, to extend that
liability, without regard to the lack of moral culpability, so as to
include responsibility for the negligence of those person who
acts or mission are imputable, by a legal fiction, to others who
are in a position to exercise an absolute or limited control over
them. The legislature which adopted our Civil Code has elected
to limit extra-contractual liability — with certain well-defined
exceptions — to cases in which moral culpability can be directly
imputed to the persons to be charged. This moral responsibility
may consist in having failed to exercise due care in the
selection and control of one's agents or servants, or in the
control of persons who, by reason of their status, occupy a
position of dependency with respect to the person made liable
for their conduct.
The position of a natural or juridical person who has undertaken
by contract to render service to another, is wholly different from
that to which article 1903 relates. When the sources of the
obligation upon which plaintiff's cause of action depends is a
negligent act or omission, the burden of proof rests upon
plaintiff to prove the negligence — if he does not his action
fails. But when
the facts averred show a contractual undertaking by defendant
for the benefit of plaintiff, and it is alleged that plaintiff has
failed or refused to perform the contract, it is not necessary for
plaintiff to specify in his pleadings whether the breach of the
contract is due to willful fault or to negligence on the part of the
defendant, or of his servants or agents. Proof of the contract
and of its nonperformance is sufficient prima facie to warrant a
recovery.
As a general rule . . . it is logical that in case of extra-
contractual culpa, a suing creditor should assume the burden of
proof of its existence, as the only fact upon which his action is
based; while on the contrary, in a case of negligence which
presupposes the existence of a contractual obligation, if the
creditor shows that it exists and that it has been broken, it is
not necessary for him to prove negligence. (Manresa, vol. 8, p.
71 [1907 ed., p. 76]).
As it is not necessary for the plaintiff in an action for the breach
of a contract to show that the breach was due to the negligent
conduct of defendant or of his servants, even though such be in
fact the actual cause of the breach, it is obvious that proof on
the part of defendant that the negligence or omission of his
servants or agents caused the breach of the contract would not
constitute a defense to the action. If the negligence of servants
or agents could be invoked as a means of discharging the
liability arising from contract, the anomalous result would be
that person acting through the medium of agents or servants in
the performance of their contracts, would be in a better
position than those acting in person. If one delivers a valuable
watch to watchmaker who contract to repair it, and the bailee,
by a personal negligent act causes its destruction, he is
unquestionably liable. Would it be logical to free him from his
liability for the breach of his contract, which involves the duty
to exercise due care in the preservation of the watch, if he
shows that it was his servant whose negligence caused the
injury? If such a theory could be accepted, juridical persons
would enjoy practically complete immunity from damages
arising from the breach of their contracts if caused by
148 | P a g e
negligent acts as such juridical persons can of necessity only
act through agents or servants, and it would no doubt be true in
most instances that reasonable care had been taken in
selection and direction of such servants. If one delivers
securities to a banking corporation as collateral, and they are
lost by reason of the negligence of some clerk employed by the
bank, would it be just and reasonable to permit the bank to
relieve itself of liability for the breach of its contract to return
the collateral upon the payment of the debt by proving that due
care had been exercised in the selection and direction of the
clerk?
This distinction between culpa aquiliana, as the source of an
obligation, and culpa contractual as a mere incident to the
performance of a contract has frequently been recognized by
the supreme court of Spain. (Sentencias of June 27, 1894;
November 20, 1896; and December 13, 1896.) In the decisions
of November 20, 1896, it appeared that plaintiff's action arose
ex contractu, but that defendant sought to avail himself of the
provisions of article 1902 of the Civil Code as a defense. The
Spanish Supreme Court rejected defendant's contention,
saying:
These are not cases of injury caused, without any pre-existing
obligation, by fault or negligence, such as those to which article
1902 of the Civil Code relates, but of damages caused by the
defendant's failure to carry out the undertakings imposed by
the contracts . . . .
A brief review of the earlier decision of this court involving the
liability of employers for damage done by the negligent acts of
their servants will show that in no case has the court ever
decided that the negligence of the defendant's servants has
been held to constitute a defense to an action for damages for
breach of contract.
In the case of Johnson vs. David (5 Phil. Rep., 663), the court
held that the owner of a carriage was not liable for the
damages
caused by the negligence of his driver. In that case the court
commented on the fact that no evidence had been adduced in
the trial court that the defendant had been negligent in the
employment of the driver, or that he had any knowledge of his
lack of skill or carefulness.
In the case of Baer Senior & Co's Successors vs. Compania
Maritima (6 Phil. Rep., 215), the plaintiff sued the defendant for
damages caused by the loss of a barge belonging to plaintiff
which was allowed to get adrift by the negligence of
defendant's servants in the course of the performance of a
contract of towage. The court held, citing Manresa (vol. 8, pp.
29, 69) that if the "obligation of the defendant grew out of a
contract made between it and the plaintiff . . . we do not think
that the provisions of articles 1902 and 1903 are applicable to
the case."
In the case of Chapman vs. Underwood (27 Phil. Rep., 374),
plaintiff sued the defendant to recover damages for the
personal injuries caused by the negligence of defendant's
chauffeur while driving defendant's automobile in which
defendant was riding at the time. The court found that the
damages were caused by the negligence of the driver of the
automobile, but held that the master was not liable, although
he was present at the time, saying:
. . . unless the negligent acts of the driver are continued for a
length of time as to give the owner a reasonable opportunity to
observe them and to direct the driver to desist therefrom. . . .
The act complained of must be continued in the presence of the
owner for such length of time that the owner by his
acquiescence, makes the driver's acts his own.
In the case of Yamada vs. Manila Railroad Co. and Bachrach
Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that the court
rested its conclusion as to the liability of the defendant upon
article 1903, although the facts disclosed that the injury
149 | P a g e
complaint of by plaintiff constituted a breach of the duty to him
arising out of the contract of transportation. The express
ground of the decision in this case was that article 1903, in
dealing with the liability of a master for the negligent acts of his
servants "makes the distinction between private individuals and
public enterprise;" that as to the latter the law creates a
rebuttable presumption of negligence in the selection or
direction of servants; and that in the particular case the
presumption of negligence had not been overcome.
It is evident, therefore that in its decision Yamada case, the
court treated plaintiff's action as though founded in tort rather
than as based upon the breach of the contract of carriage, and
an examination of the pleadings and of the briefs shows that
the questions of law were in fact discussed upon this theory.
Viewed from the standpoint of the defendant the practical
result must have been the same in any event. The proof
disclosed beyond doubt that the defendant's servant was
grossly negligent and that his negligence was the proximate
cause of plaintiff's injury. It also affirmatively appeared that
defendant had been guilty of negligence in its failure to
exercise proper discretion in the direction of the servant.
Defendant was, therefore, liable for the injury suffered by
plaintiff, whether the breach of the duty were to be regarded as
constituting culpa aquiliana or culpa contractual. As Manresa
points out (vol. 8, pp. 29 and 69) whether negligence occurs an
incident in the course of the performance of a contractual
undertaking or its itself the source of an extra-contractual
undertaking obligation, its essential characteristics are
identical. There is always an act or omission productive of
damage due to carelessness or inattention on the part of the
defendant. Consequently, when the court holds that a
defendant is liable in damages for having failed to exercise due
care, either directly, or in failing to exercise proper care in the
selection and direction of his servants, the practical result is
identical in either case. Therefore, it follows that it is not to be
inferred, because the court held in the Yamada case that
defendant was liable for the damages negligently caused by its
servants to a person to whom it was bound by contract, and
made reference to the fact that the defendant was negligent in
the selection and control of its servants, that in such a case the
court would have held that it would have been a good defense
to the action, if presented squarely upon the theory of the
breach of the contract, for defendant to have proved that it did
in fact exercise care in the selection and control of the servant.
The true explanation of such cases is to be found by directing
the attention to the relative spheres of contractual and extra-
contractual obligations. The field of non- contractual obligation
is much more broader than that of contractual obligations,
comprising, as it does, the whole extent of juridical human
relations. These two fields, figuratively speaking, concentric;
that is to say, the mere fact that a person is bound to another
by contract does not relieve him from extra-contractual liability
to such person. When such a contractual relation exists the
obligor may break the contract under such conditions that the
same act which constitutes the source of an extra-contractual
obligation had no contract existed between the parties.
The contract of defendant to transport plaintiff carried with it,
by implication, the duty to carry him in safety and to provide
safe means of entering and leaving its trains (civil code, article
1258). That duty, being contractual, was direct and immediate,
and its non-performance could not be excused by proof that the
fault was morally imputable to defendant's servants.
The railroad company's defense involves the assumption that
even granting that the negligent conduct of its servants in
placing an obstruction upon the platform was a breach of its
contractual obligation to maintain safe means of approaching
and leaving its trains, the direct and proximate cause of the
injury suffered by plaintiff was his own contributory negligence
in failing to wait until the train had come to a complete stop
before alighting.
150 | P a g e
Under the doctrine of comparative negligence announced in the
Rakes case (supra), if the accident was caused by plaintiff's
own negligence, no liability is imposed upon defendant's
negligence and plaintiff's negligence merely contributed to his
injury, the damages should be apportioned. It is, therefore,
important to ascertain if defendant was in fact guilty of
negligence.
It may be admitted that had plaintiff waited until the train had
come to a full stop before alighting, the particular injury
suffered by him could not have occurred. Defendant contends,
and cites many authorities in support of the contention, that it
is negligence per se for a passenger to alight from a moving
train. We are not disposed to subscribe to this doctrine in its
absolute form. We are of the opinion that this proposition is too
badly stated and is at variance with the experience of every-
day life. In this particular instance, that the train was barely
moving when plaintiff alighted is shown conclusively by the fact
that it came to stop within six meters from the place where he
stepped from it. Thousands of person alight from trains under
these conditions every day of the year, and sustain no injury
where the company has kept its platform free from dangerous
obstructions. There is no reason to believe that plaintiff would
have suffered any injury whatever in alighting as he did had it
not been for defendant's negligent failure to perform its duty to
provide a safe alighting place.
We are of the opinion that the correct doctrine relating to this
subject is that expressed in Thompson's work on Negligence
(vol. 3, sec. 3010) as follows:
The test by which to determine whether the passenger has
been guilty of negligence in attempting to alight from a moving
railway train, is that of ordinary or reasonable care. It is to be
considered whether an ordinarily prudent person, of the age,
sex and condition of the passenger, would have acted as the
passenger acted under the circumstances disclosed by the
evidence. This
care has been defined to be, not the care which may or should
be used by the prudent man generally, but the care which a
man of ordinary prudence would use under similar
circumstances, to avoid injury." (Thompson, Commentaries on
Negligence, vol. 3, sec. 3010.)
Or, it we prefer to adopt the mode of exposition used by this
court in Picart vs. Smith (37 Phil. rep., 809), we may say that
the test is this; Was there anything in the circumstances
surrounding the plaintiff at the time he alighted from the train
which would have admonished a person of average prudence
that to get off the train under the conditions then existing was
dangerous? If so, the plaintiff should have desisted from
alighting; and his failure so to desist was contributory
negligence.1awph!l.net
As the case now before us presents itself, the only fact from
which a conclusion can be drawn to the effect that plaintiff was
guilty of contributory negligence is that he stepped off the car
without being able to discern clearly the condition of the
platform and while the train was yet slowly moving. In
considering the situation thus presented, it should not be
overlooked that the plaintiff was, as we find, ignorant of the fact
that the obstruction which was caused by the sacks of melons
piled on the platform existed; and as the defendant was bound
by reason of its duty as a public carrier to afford to its
passengers facilities for safe egress from its trains, the plaintiff
had a right to assume, in the absence of some circumstance to
warn him to the contrary, that the platform was clear. The
place, as we have already stated, was dark, or dimly lighted,
and this also is proof of a failure upon the part of the defendant
in the performance of a duty owing by it to the plaintiff; for if it
were by any possibility concede that it had right to pile these
sacks in the path of alighting passengers, the placing of them
adequately so that their presence would be revealed.
151 | P a g e
As pertinent to the question of contributory negligence on the
part of the plaintiff in this case the following circumstances are
to be noted: The company's platform was constructed upon a
level higher than that of the roadbed and the surrounding
ground. The distance from the steps of the car to the spot
where the alighting passenger would place his feet on the
platform was thus reduced, thereby decreasing the risk incident
to stepping off. The nature of the platform, constructed as it
was of cement material, also assured to the passenger a stable
and even surface on which to alight. Furthermore, the plaintiff
was possessed of the vigor and agility of young manhood, and
it was by no means so risky for him to get off while the train
was yet moving as the same act would have been in an aged or
feeble person. In determining the question of contributory
negligence in performing such act — that is to say, whether the
passenger acted prudently or recklessly — the age, sex, and
physical condition of the passenger are circumstances
necessarily affecting the safety of the passenger, and should be
considered. Women, it has been observed, as a general rule are
less capable than men of alighting with safety under such
conditions, as the nature of their wearing apparel obstructs the
free movement of the limbs. Again, it may be noted that the
place was perfectly familiar to the plaintiff as it was his daily
custom to get on and of the train at this station. There could,
therefore, be no uncertainty in his mind with regard either to
the length of the step which he was required to take or the
character of the platform where he was alighting. Our
conclusion is that the conduct of the plaintiff in undertaking to
alight while the train was yet slightly under way was not
characterized by imprudence and that therefore he was not
guilty of contributory negligence.
The evidence shows that the plaintiff, at the time of the
accident, was earning P25 a month as a copyist clerk, and that
the injuries he has suffered have permanently disabled him
from continuing that employment. Defendant has not shown
that any other gainful occupation is open to plaintiff. His
expectancy of life,
according to the standard mortality tables, is approximately
thirty-three years. We are of the opinion that a fair
compensation for the damage suffered by him for his
permanent disability is the sum of P2,500, and that he is also
entitled to recover of defendant the additional sum of P790.25
for medical attention, hospital services, and other incidental
expenditures connected with the treatment of his injuries.
The decision of lower court is reversed, and judgment is hereby
rendered plaintiff for the sum of P3,290.25, and for the costs of
both instances. So ordered.
37. G.R. No. 73867
February 29, 1988
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC.,
petitioner,
vs.
IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR.,
AURORA CASTRO, SALVADOR CASTRO, MARIO CASTRO,
CONRADO CASTRO, ESMERALDA C. FLORO, AGERICO CASTRO,
ROLANDO CASTRO, VIRGILIO CASTRO AND GLORIA CASTRO,
and HONORABLE INTERMEDIATE APPELLATE COURT,
respondents.
PADILLA, J.:
Petition for review on certiorari of the decision * of the
Intermediate Appellate Court, dated 11 February 1986, in AC-
G.R. No. CV-70245, entitled "Ignacio Castro, Sr., et al., Plaintiffs-
Appellees, versus Telefast Communication/Philippine Wireless,
Inc., Defendant-Appellant."
152 | P a g e
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff
Ignacio Castro, Sr. and mother of the other plaintiffs, passed
away in Lingayen, Pangasinan. On the same day, her daughter
Sofia C. Crouch, who was then vacationing in the Philippines,
addressed a telegram to plaintiff Ignacio Castro, Sr. at 685
Wanda, Scottsburg, Indiana, U.S.A., 47170 announcing
Consolacion's death. The telegram was accepted by the
defendant in its Dagupan office, for transmission, after payment
of the required fees or charges.
The telegram never reached its addressee. Consolacion was
interred with only her daughter Sofia in attendance. Neither the
husband nor any of the other children of the deceased, then all
residing in the United States, returned for the burial.
When Sofia returned to the United States, she discovered that
the wire she had caused the defendant to send, had not been
received. She and the other plaintiffs thereupon brought action
for damages arising from defendant's breach of contract. The
case was filed in the Court of First Instance of Pangasinan and
docketed therein as Civil Case No. 15356. The only defense of
the defendant was that it was unable to transmit the telegram
because of "technical and atmospheric factors beyond its
control." 1 No evidence appears on record that defendant ever
made any attempt to advise the plaintiff Sofia C. Crouch as to
why it could not transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered
the defendant (now petitioner) to pay the plaintiffs (now private
respondents) damages, as follows, with interest at 6% per
annum:
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory
damages and P20,000.00 as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages. 3. Ignacio
Castro Jr., P20,000.00 as moral damages. 4. Aurora Castro,
P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages. 9. Agerico
Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages. 11. Virgilio
Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees,
exemplary damages in the amount of P1,000.00 to each of the
plaintiffs and costs. 2
On appeal by petitioner, the Intermediate Appellate Court
affirmed the trial court's decision but eliminated the award of
P16,000.00 as compensatory damages to Sofia C. Crouch and
the award of P1,000.00 to each of the private respondents as
exemplary damages. The award of P20,000.00 as moral
damages to each of Sofia C. Crouch, Ignacio Castro, Jr. and
Esmeralda C. Floro was also reduced to P120,000. 00 for each.
3
Petitioner appeals from the judgment of the appellate court,
contending that the award of moral damages should be
153 | P a g e
eliminated as defendant's negligent act was not motivated by
"fraud, malice or recklessness."
In other words, under petitioner's theory, it can only be held
liable for P 31.92, the fee or charges paid by Sofia C. Crouch for
the telegram that was never sent to the addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code provides that "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." Art. 2176 also provides that
"whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage
done."
In the case at bar, petitioner and private respondent Sofia C.
Crouch entered into a contract whereby, for a fee, petitioner
undertook to send said private respondent's message overseas
by telegram. This, petitioner did not do, despite performance by
said private respondent of her obligation by paying the required
charges. Petitioner was therefore guilty of contravening its
obligation to said private respondent and is thus liable for
damages.
This liability is not limited to actual or quantified damages. To
sustain petitioner's contrary position in this regard would result
in an inequitous situation where petitioner will only be held
liable for the actual cost of a telegram fixed thirty (30) years
ago.
We find Art. 2217 of the Civil Code applicable to the case at bar.
It states: "Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral
damages may
be recovered if they are the proximate results of the
defendant's wrongful act or omission." (Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross
negligence, was precisely the cause of the suffering private
respondents had to undergo.
As the appellate court properly observed:
[Who] can seriously dispute the shock, the mental anguish and
the sorrow that the overseas children must have suffered upon
learning of the death of their mother after she had already been
interred, without being given the opportunity to even make a
choice on whether they wanted to pay her their last respects?
There is no doubt that these emotional sufferings were
proximately caused by appellant's omission and substantive
law provides for the justification for the award of moral
damages. 4
We also sustain the trial court's award of P16,000.00 as
compensatory damages to Sofia C. Crouch representing the
expenses she incurred when she came to the Philippines from
the United States to testify before the trial court. Had petitioner
not been remiss in performing its obligation, there would have
been no need for this suit or for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise
justified and, therefore, sustained in the amount of P1,000.00
for each of the private respondents, as a warning to all
telegram companies to observe due diligence in transmitting
the messages of their customers.
WHEREFORE, the petition is DENIED. The decision appealed
from is modified so that petitioner is held liable to private
respondents in the following amounts:
154 | P a g e
(1) P10,000.00 as moral damages, to each of private
respondents;
(2) P1,000.00 as exemplary damages, to each of private
respondents;
(3) P16,000.00 as compensatory damages, to private
respondent Sofia C. Crouch;
(4) P5,000.00 as attorney's fees; and
(5) Costs of suit.
SO ORDERED.
Resolution3 dated July 1, 2003, denying petitioner's motion for
reconsideration, be reversed and set aside.
The Regional Trial Court (RTC) of Quezon City, Branch 81,
accurately summarized the facts as culled from the records,
thus:
The evidence on record has established that in the year 1987
the National Power Corporation (NPC) filed with the MTC Quezon
City a case for ejectment against several persons allegedly
illegally occupying its properties in Baesa, Quezon City. Among
the defendants in the ejectment case was Leoncio Ramoy, one
of the plaintiffs in the case at bar. On April 28, 1989 after the
defendants failed to file an answer in spite of summons duly
served, the MTC Branch 36, Quezon City rendered judgment for
the plaintiff [MERALCO] and "ordering the defendants to
demolish or remove the building and structures they built on
the land of the plaintiff and to vacate the premises." In the case
of Leoncio Ramoy, the Court found that he was occupying a
portion of Lot No. 72-B-2-B with the exact location of his
apartments indicated and encircled in the location map as No.
7. A copy of the decision was furnished Leoncio Ramoy (Exhibits
2, 2-A, 2-B, 2-C, pp. 128-131, Record; TSN, July 2, 1993, p. 5).
On June 20, 1990 NPC wrote Meralco requesting for the
"immediate disconnection of electric power supply to all
residential and commercial establishments beneath the NPC
transmission lines along Baesa, Quezon City (Exh. 7, p. 143,
Record). Attached to the letter was a list of establishments
affected which included plaintiffs Leoncio and Matilde Ramoy
(Exh. 9), as well as a copy of the court decision (Exh. 2). After
deliberating on NPC's letter, Meralco decided to comply with
NPC's request (Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued
notices of disconnection to all establishments affected including
plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-C), Matilde
Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E), Rosemarie
38. G.R. No. 158911
March 4, 2008
MANILA ELECTRIC COMPANY, Petitioner,
vs.
MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA
RAMOY-RAMOS, ROSEMARIE RAMOY, OFELIA DURIAN and
CYRENE PANADO, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari under Rule 45
of the Rules of Court, praying that the Decision1 of the Court of
Appeals (CA) dated December 16, 2002, ordering petitioner
Manila Electric Company (MERALCO) to pay Leoncio Ramoy2
moral and exemplary damages and attorney's fees, and the CA
155 | P a g e
Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose Valiza (Exh. 3-
H) and Cyrene S. Panado (Exh. 3-I).
In a letter dated August 17, 1990 Meralco requested NPC for a
joint survey to determine all the establishments which are
considered under NPC property in view of the fact that "the
houses in the area are very close to each other" (Exh. 12).
Shortly thereafter, a joint survey was conducted and the NPC
personnel pointed out the electric meters to be disconnected
(Exh. 13; TSN, October 8, 1993, p. 7; TSN, July 1994, p. 8).
In due time, the electric service connection of the plaintiffs
[herein respondents] was disconnected (Exhibits D to G, with
submarkings, pp. 86-87, Record).
Plaintiff Leoncio Ramoy testified that he and his wife are the
registered owners of a parcel of land covered by TCT No.
326346, a portion of which was occupied by plaintiffs
Rosemarie Ramoy, Ofelia Durian, Jose Valiza and Cyrene S.
Panado as lessees. When the Meralco employees were
disconnecting plaintiffs' power connection, plaintiff Leoncio
Ramoy objected by informing the Meralco foreman that his
property was outside the NPC property and pointing out the
monuments showing the boundaries of his property. However,
he was threatened and told not to interfere by the armed men
who accompanied the Meralco employees. After the electric
power in Ramoy's apartment was cut off, the plaintiffs-lessees
left the premises.
During the ocular inspection ordered by the Court and attended
by the parties, it was found out that the residence of plaintiffs-
spouses Leoncio and Matilde Ramoy was indeed outside the
NPC property. This was confirmed by defendant's witness R.P.
Monsale III on cross-examination (TSN, October 13, 1993, pp.
10 and 11). Monsale also admitted that he did not inform his
supervisor about this fact nor did he recommend re-connection
of plaintiffs' power supply (Ibid., p. 14).
The record also shows that at the request of NPC, defendant
Meralco re-connected the electric service of four customers
previously disconnected none of whom was any of the plaintiffs
(Exh. 14).4
The RTC decided in favor of MERALCO by dismissing herein
respondents' claim for moral damages, exemplary damages
and attorney's fees. However, the RTC ordered MERALCO to
restore the electric power supply of respondents.
Respondents then appealed to the CA. In its Decision dated
December 16, 2002, the CA faulted MERALCO for not requiring
from National Power Corporation (NPC) a writ of execution or
demolition and in not coordinating with the court sheriff or
other proper officer before complying with the NPC's request.
Thus, the CA held MERALCO liable for moral and exemplary
damages and attorney's fees. MERALCO's motion for
reconsideration of the Decision was denied per Resolution
dated July 1, 2003.
Hence, herein petition for review on certiorari on the following
grounds:
I
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND
MERALCO NEGLIGENT WHEN IT DISCONNECTED THE SUBJECT
ELECTRIC SERVICE OF RESPONDENTS.
II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED
MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES
AGAINST MERALCO UNDER THE CIRCUMSTANCES THAT THE
LATTER ACTED IN GOOD FAITH IN THE DISCONNECTION OF THE
ELECTRIC SERVICES OF THE RESPONDENTS. 5
156 | P a g e
The petition is partly meritorious.
MERALCO admits6 that respondents are its customers under a
Service Contract whereby it is obliged to supply respondents
with electricity. Nevertheless, upon request of the NPC,
MERALCO disconnected its power supply to respondents on the
ground that they were illegally occupying the NPC's right of
way. Under the Service Contract, "[a] customer of electric
service must show his right or proper interest over the property
in order that he will be provided with and assured a continuous
electric service."7 MERALCO argues that since there is a
Decision of the Metropolitan Trial Court (MTC) of Quezon City
ruling that herein respondents were among the illegal
occupants of the NPC's right of way, MERALCO was justified in
cutting off service to respondents.
Clearly, respondents' cause of action against MERALCO is
anchored on culpa contractual or breach of contract for the
latter's discontinuance of its service to respondents under
Article 1170 of the Civil Code which provides:
Article 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.
In Radio Communications of the Philippines, Inc. v. Verchez,8
the Court expounded on the nature of culpa contractual, thus:
"In culpa contractual x x x the mere proof of the existence of
the contract and the failure of its compliance justify, prima
facie, a corresponding right of relief. The law, recognizing the
obligatory force of contracts, will not permit a party to be set
free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor thereof.
A breach upon the contract confers upon the injured party a
valid cause for
recovering that which may have been lost or suffered. The
remedy serves to preserve the interests of the promissee that
may include his "expectation interest," which is his interest in
having the benefit of his bargain by being put in as good a
position as he would have been in had the contract been
performed, or his "reliance interest," which is his interest in
being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had
the contract not been made; or his "restitution interest," which
is his interest in having restored to him any benefit that he has
conferred on the other party. Indeed, agreements can
accomplish little, either for their makers or for society, unless
they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make recompense
to the one who has been injured by the failure of another to
observe his contractual obligation unless he can show
extenuating circumstances, like proof of his exercise of due
diligence x x x or of the attendance of fortuitous event, to
excuse him from his ensuing liability.9 (Emphasis supplied)
Article 1173 also provides that 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 the time and of the place.
The Court emphasized in Ridjo Tape & Chemical Corporation v.
Court of Appeals10 that "as a public utility, MERALCO has the
obligation to discharge its functions with utmost care and
diligence."11
The Court agrees with the CA that under the factual milieu of
the present case, MERALCO failed to exercise the utmost
degree of care and diligence required of it. To repeat, it was not
enough for MERALCO to merely rely on the Decision of the MTC
without ascertaining whether it had become final and
executory. Verily, only upon finality of said Decision can it be
said with conclusiveness that respondents have no right or
proper interest
157 | P a g e
over the subject property, thus, are not entitled to the services
of MERALCO.
Although MERALCO insists that the MTC Decision is final and
executory, it never showed any documentary evidence to
support this allegation. Moreover, if it were true that the
decision was final and executory, the most prudent thing for
MERALCO to have done was to coordinate with the proper court
officials in determining which structures are covered by said
court order. Likewise, there is no evidence on record to show
that this was done by MERALCO.
The utmost care and diligence required of MERALCO
necessitates such great degree of prudence on its part, and
failure to exercise the diligence required means that MERALCO
was at fault and negligent in the performance of its obligation.
In Ridjo Tape,12 the Court explained:
[B]eing a public utility vested with vital public interest,
MERALCO is impressed with certain obligations towards its
customers and any omission on its part to perform such duties
would be prejudicial to its interest. For in the final analysis, the
bottom line is that those who do not exercise such prudence in
the discharge of their duties shall be made to bear the
consequences of such oversight.13
This being so, MERALCO is liable for damages under Article
1170 of the Civil Code.
The next question is: Are respondents entitled to moral and
exemplary damages and attorney's fees?
Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under
the
circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted
fraudulently or in bad faith.
In the present case, MERALCO wilfully caused injury to Leoncio
Ramoy by withholding from him and his tenants the supply of
electricity to which they were entitled under the Service
Contract. This is contrary to public policy because, as discussed
above, MERALCO, being a vital public utility, is expected to
exercise utmost care and diligence in the performance of its
obligation. It was incumbent upon MERALCO to do everything
within its power to ensure that the improvements built by
respondents are within the NPC’s right of way before
disconnecting their power supply. The Court emphasized in
Samar II Electric Cooperative, Inc. v. Quijano14 that:
Electricity is a basic necessity the generation and distribution of
which is imbued with public interest, and its provider is a public
utility subject to strict regulation by the State in the exercise of
police power. Failure to comply with these regulations will give
rise to the presumption of bad faith or abuse of right.15
(Emphasis supplied)
Thus, by analogy, MERALCO's failure to exercise utmost care
and diligence in the performance of its obligation to Leoncio
Ramoy, its customer, is tantamount to bad faith. Leoncio
Ramoy testified that he suffered wounded feelings because of
MERALCO's actions.16 Furthermore, due to the lack of power
supply, the lessees of his four apartments on subject lot left the
premises.17 Clearly, therefore, Leoncio Ramoy is entitled to
moral damages in the amount awarded by the CA.
Leoncio Ramoy, the lone witness for respondents, was the only
one who testified regarding the effects on him of MERALCO's
electric service disconnection. His co-respondents Matilde
158 | P a g e
Ramoy, Rosemarie Ramoy, Ofelia Durian and Cyrene Panado
did not present any evidence of damages they suffered.
It is a hornbook principle that damages may be awarded only if
proven. In Mahinay v. Velasquez, Jr.,18 the Court held thus:
In order that moral damages may be awarded, there must be
pleading and proof of moral suffering, mental anguish, fright
and the like. While respondent alleged in his complaint that he
suffered mental anguish, serious anxiety, wounded feelings and
moral shock, he failed to prove them during the trial. Indeed,
respondent should have taken the witness stand and should
have testified on the mental anguish, serious anxiety, wounded
feelings and other emotional and mental suffering he
purportedly suffered to sustain his claim for moral damages.
Mere allegations do not suffice; they must be substantiated by
clear and convincing proof. No other person could have proven
such damages except the respondent himself as they were
extremely personal to him.
In Keirulf vs. Court of Appeals, we held:
"While no proof of pecuniary loss is necessary in order that
moral damages may be awarded, the amount of indemnity
being left to the discretion of the court, it is nevertheless
essential that the claimant should satisfactorily show the
existence of the factual basis of damages and its causal
connection to defendant’s acts. This is so because moral
damages, though incapable of pecuniary estimation, are in the
category of an award designed to compensate the claimant for
actual injury suffered and not to impose a penalty on the
wrongdoer. In Francisco vs. GSIS, the Court held that there must
be clear testimony on the anguish and other forms of mental
suffering. Thus, if the plaintiff fails to take the witness stand
and testify as to his/her social humiliation, wounded feelings
and anxiety, moral damages cannot be awarded. In Cocoland
Development Corporation vs. National
Labor Relations Commission, the Court held that "additional
facts must be pleaded and proven to warrant the grant of moral
damages under the Civil Code, these being, x x x social
humiliation, wounded feelings, grave anxiety, etc. that resulted
therefrom."
x x x The award of moral damages must be anchored to a clear
showing that respondent actually experienced mental anguish,
besmirched reputation, sleepless nights, wounded feelings or
similar injury. There was no better witness to this experience
than respondent himself. Since respondent failed to testify on
the witness stand, the trial court did not have any factual basis
to award moral damages to him.19 (Emphasis supplied)
Thus, only respondent Leoncio Ramoy, who testified as to his
wounded feelings, may be awarded moral damages.20
With regard to exemplary damages, Article 2232 of the Civil
Code provides that in contracts and quasi-contracts, the court
may award exemplary damages if the defendant, in this case
MERALCO, acted in a wanton, fraudulent, reckless, oppressive,
or malevolent manner, while Article 2233 of the same Code
provides that such damages cannot be recovered as a matter of
right and the adjudication of the same is within the discretion of
the court.1avvphi1
The Court finds that MERALCO fell short of exercising the due
diligence required, but its actions cannot be considered wanton,
fraudulent, reckless, oppressive or malevolent. Records show
that MERALCO did take some measures, i.e., coordinating with
NPC officials and conducting a joint survey of the subject area,
to verify which electric meters should be disconnected although
these measures are not sufficient, considering the degree of
diligence required of it. Thus, in this case, exemplary damages
should not be awarded.
159 | P a g e
Since the Court does not deem it proper to award exemplary
damages in this case, then the CA's award for attorney's fees
should likewise be deleted, as Article 2208 of the Civil Code
states that in the absence of stipulation, attorney's fees cannot
be recovered except in cases provided for in said Article, to wit:
Article 2208. In the absence of stipulation, attorney’s fees and
expenses of litigation, other than judicial costs, cannot be
recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant’s act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to
protect his interest;
(3) In criminal cases of malicious prosecution against the
plaintiff;
(4) In case of a clearly unfounded civil action or proceeding
against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff’s plainly valid, just and
demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers,
laborers and skilled workers;
(8) In actions for indemnity under workmen’s compensation and
employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from
a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and
equitable that attorney’s fees and expenses of litigation should
be recovered.
In all cases, the attorney’s fees and expenses of litigation must
be reasonable.
None of the grounds for recovery of attorney's fees are present.
WHEREFORE, the petition is PARTLY GRANTED. The Decision of
the Court of Appeals is AFFIRMED with MODIFICATION. The
award for exemplary damages and attorney's fees is DELETED.
39. G.R. No. 162467 May 8, 2009
MINDANAO TERMINAL AND BROKERAGE SERVICE, INC.
Petitioner,
vs.
PHOENIX ASSURANCE COMPANY OF NEW YORK/MCGEE & CO.,
INC., Respondent.
DECISION
TINGA, J.:
Before us is a petition for review on certiorari1 under Rule 45 of
the 1997 Rules of Civil Procedure of the 29 October 20032
Decision of the Court of Appeals and the 26 February 2004
Resolution3 of the same court denying petitioner’s motion for
reconsideration.
160 | P a g e
The facts of the case are not disputed.
Del Monte Philippines, Inc. (Del Monte) contracted petitioner
Mindanao Terminal and Brokerage Service, Inc. (Mindanao
Terminal), a stevedoring company, to load and stow a shipment
of 146,288 cartons of fresh green Philippine bananas and
15,202 cartons of fresh pineapples belonging to Del Monte
Fresh Produce International, Inc. (Del Monte Produce) into the
cargo hold of the vessel M/V Mistrau. The vessel was docked at
the port of Davao City and the goods were to be transported by
it to the port of Inchon, Korea in favor of consignee Taegu
Industries, Inc. Del Monte Produce insured the shipment under
an "open cargo policy" with private respondent Phoenix
Assurance Company of New York (Phoenix), a non-life insurance
company, and private respondent McGee & Co. Inc. (McGee),
the underwriting manager/agent of Phoenix.4
Mindanao Terminal loaded and stowed the cargoes aboard the
M/V Mistrau. The vessel set sail from the port of Davao City and
arrived at the port of Inchon, Korea. It was then discovered
upon discharge that some of the cargo was in bad condition.
The Marine Cargo Damage Surveyor of Incok Loss and Average
Adjuster of Korea, through its representative Byeong Yong Ahn
(Byeong), surveyed the extent of the damage of the shipment.
In a survey report, it was stated that 16,069 cartons of the
banana shipment and 2,185 cartons of the pineapple shipment
were so damaged that they no longer had commercial value.5
Del Monte Produce filed a claim under the open cargo policy for
the damages to its shipment. McGee’s Marine Claims Insurance
Adjuster evaluated the claim and recommended that payment
in the amount of $210,266.43 be made. A check for the
recommended amount was sent to Del Monte Produce; the
latter then issued a subrogation receipt6 to Phoenix and
McGee.
Phoenix and McGee instituted an action for damages7 against
Mindanao Terminal in the Regional Trial Court (RTC) of Davao
City, Branch 12. After trial, the RTC,8 in a decision dated 20
October 1999, held that the only participation of Mindanao
Terminal was to load the cargoes on board the M/V Mistrau
under the direction and supervision of the ship’s officers, who
would not have accepted the cargoes on board the vessel and
signed the foreman’s report unless they were properly arranged
and tightly secured to withstand voyage across the open seas.
Accordingly, Mindanao Terminal cannot be held liable for
whatever happened to the cargoes after it had loaded and
stowed them. Moreover, citing the survey report, it was found
by the RTC that the cargoes were damaged on account of a
typhoon which M/V Mistrau had encountered during the voyage.
It was further held that Phoenix and McGee had no cause of
action against Mindanao Terminal because the latter, whose
services were contracted by Del Monte, a distinct corporation
from Del Monte Produce, had no contract with the assured Del
Monte Produce. The RTC dismissed the complaint and awarded
the counterclaim of Mindanao Terminal in the amount of
P83,945.80 as actual damages and P100,000.00 as attorney’s
fees.9 The actual damages were awarded as reimbursement for
the expenses incurred by Mindanao Terminal’s lawyer in
attending the hearings in the case wherein he had to travel all
the way from Metro Manila to Davao City.
Phoenix and McGee appealed to the Court of Appeals. The
appellate court reversed and set aside10 the decision of the
RTC in its 29 October 2003 decision. The same court ordered
Mindanao Terminal to pay Phoenix and McGee "the total
amount of $210,265.45 plus legal interest from the filing of the
complaint until fully paid and attorney’s fees of 20% of the
claim."11 It sustained Phoenix’s and McGee’s argument that
the damage in the cargoes was the result of improper stowage
by Mindanao Terminal. It imposed on Mindanao Terminal, as the
stevedore of the cargo, the duty to exercise extraordinary
diligence in loading
161 | P a g e
and stowing the cargoes. It further held that even with the
absence of a contractual relationship between Mindanao
Terminal and Del Monte Produce, the cause of action of Phoenix
and McGee could be based on quasi-delict under Article 2176 of
the Civil Code.12
Mindanao Terminal filed a motion for reconsideration,13 which
the Court of Appeals denied in its 26 February 200414
resolution. Hence, the present petition for review.
Mindanao Terminal raises two issues in the case at bar, namely:
whether it was careless and negligent in the loading and
stowage of the cargoes onboard M/V Mistrau making it liable for
damages; and, whether Phoenix and McGee has a cause of
action against Mindanao Terminal under Article 2176 of the Civil
Code on quasi-delict. To resolve the petition, three questions
have to be answered: first, whether Phoenix and McGee have a
cause of action against Mindanao Terminal; second, whether
Mindanao Terminal, as a stevedoring company, is under
obligation to observe the same extraordinary degree of
diligence in the conduct of its business as required by law for
common carriers15 and warehousemen;16 and third, whether
Mindanao Terminal observed the degree of diligence required
by law of a stevedoring company.
We agree with the Court of Appeals that the complaint filed by
Phoenix and McGee against Mindanao Terminal, from which the
present case has arisen, states a cause of action. The present
action is based on quasi-delict, arising from the negligent and
careless loading and stowing of the cargoes belonging to Del
Monte Produce. Even assuming that both Phoenix and McGee
have only been subrogated in the rights of Del Monte Produce,
who is not a party to the contract of service between Mindanao
Terminal and Del Monte, still the insurance carriers may have a
cause of action in light of the Court’s consistent ruling that the
act that breaks the contract may be also a tort.17 In fine, a
liability
for tort may arise even under a contract, where tort is that
which breaches the contract18 . In the present case, Phoenix
and McGee are not suing for damages for injuries arising from
the breach of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the
cargoes belonging to Del Monte Produce. Despite the absence
of contractual relationship between Del Monte Produce and
Mindanao Terminal, the allegation of negligence on the part of
the defendant should be sufficient to establish a cause of action
arising from quasi- delict.19
The resolution of the two remaining issues is determinative of
the ultimate result of this case.
Article 1173 of the Civil Code is very clear that if the law or
contract does not state the degree of diligence which is to be
observed in the performance of an obligation then that which is
expected of a good father of a family or ordinary diligence shall
be required. Mindanao Terminal, a stevedoring company which
was charged with the loading and stowing the cargoes of Del
Monte Produce aboard M/V Mistrau, had acted merely as a labor
provider in the case at bar. There is no specific provision of law
that imposes a higher degree of diligence than ordinary
diligence for a stevedoring company or one who is charged only
with the loading and stowing of cargoes. It was neither alleged
nor proven by Phoenix and McGee that Mindanao Terminal was
bound by contractual stipulation to observe a higher degree of
diligence than that required of a good father of a family. We
therefore conclude that following Article 1173, Mindanao
Terminal was required to observe ordinary diligence only in
loading and stowing the cargoes of Del Monte Produce aboard
M/V Mistrau.
imposing a higher degree of diligence,21 on Mindanao Terminal
in loading and stowing the cargoes. The case of Summa
Insurance Corporation v. CA, which involved the issue of
whether an arrastre operator is legally liable for the loss of a
shipment in its
162 | P a g e
custody and the extent of its liability, is inapplicable to the
factual circumstances of the case at bar. Therein, a vessel
owned by the National Galleon Shipping Corporation (NGSC)
arrived at Pier 3, South Harbor, Manila, carrying a shipment
consigned to the order of Caterpillar Far East Ltd. with Semirara
Coal Corporation (Semirara) as "notify party." The shipment,
including a bundle of PC 8 U blades, was discharged from the
vessel to the custody of the private respondent, the exclusive
arrastre operator at the South Harbor. Accordingly, three good-
order cargo receipts were issued by NGSC, duly signed by the
ship's checker and a representative of private respondent.
When Semirara inspected the shipment at house, it discovered
that the bundle of PC8U blades was missing. From those facts,
the Court observed:
x x x The relationship therefore between the consignee and the
arrastre operator must be examined. This relationship is much
akin to that existing between the consignee or owner of
shipped goods and the common carrier, or that between a
depositor and a warehouseman[22 ]. In the performance of its
obligations, an arrastre operator should observe the same
degree of diligence as that required of a common carrier and a
warehouseman as enunciated under Article 1733 of the Civil
Code and Section 3(b) of the Warehouse Receipts Law,
respectively. Being the custodian of the goods discharged from
a vessel, an arrastre operator's duty is to take good care of the
goods and to turn them over to the party entitled to their
possession. (Emphasis supplied)23
There is a distinction between an arrastre and a stevedore.24
Arrastre, a Spanish word which refers to hauling of cargo,
comprehends the handling of cargo on the wharf or between
the establishment of the consignee or shipper and the ship's
tackle. The responsibility of the arrastre operator lasts until the
delivery of the cargo to the consignee. The service is usually
performed by longshoremen. On the other hand, stevedoring
refers to the handling of the cargo in the holds of the vessel or
between the ship's tackle and the holds of the vessel. The
responsibility of the
stevedore ends upon the loading and stowing of the cargo in
the vessel.1avvphi1
It is not disputed that Mindanao Terminal was performing purely
stevedoring function while the private respondent in the
Summa case was performing arrastre function. In the present
case, Mindanao Terminal, as a stevedore, was only charged with
the loading and stowing of the cargoes from the pier to the
ship’s cargo hold; it was never the custodian of the shipment of
Del Monte Produce. A stevedore is not a common carrier for it
does not transport goods or passengers; it is not akin to a
warehouseman for it does not store goods for profit. The
loading and stowing of cargoes would not have a far reaching
public ramification as that of a common carrier and a
warehouseman; the public is adequately protected by our laws
on contract and on quasi-delict. The public policy
considerations in legally imposing upon a common carrier or a
warehouseman a higher degree of diligence is not present in a
stevedoring outfit which mainly provides labor in loading and
stowing of cargoes for its clients.
In the third issue, Phoenix and McGee failed to prove by
preponderance of evidence25 that Mindanao Terminal had
acted negligently. Where the evidence on an issue of fact is in
equipoise or there is any doubt on which side the evidence
preponderates the party having the burden of proof fails upon
that issue. That is to say, if the evidence touching a disputed
fact is equally balanced, or if it does not produce a just, rational
belief of its existence, or if it leaves the mind in a state of
perplexity, the party holding the affirmative as to such fact
must fail.261avvphi1
We adopt the findings27 of the RTC,28 which are not disputed
by Phoenix and McGee. The Court of Appeals did not make any
new findings of fact when it reversed the decision of the trial
court. The only participation of Mindanao Terminal was to load
the cargoes on board M/V Mistrau.29 It was not disputed by
Phoenix and McGee that the materials, such as ropes, pallets,
and
163 | P a g e
cardboards, used in lashing and rigging the cargoes were all
provided by M/V Mistrau and these materials meets industry
standard.30
It was further established that Mindanao Terminal loaded and
stowed the cargoes of Del Monte Produce aboard the M/V
Mistrau in accordance with the stowage plan, a guide for the
area assignments of the goods in the vessel’s hold, prepared by
Del Monte Produce and the officers of M/V Mistrau.31 The
loading and stowing was done under the direction and
supervision of the ship officers. The vessel’s officer would order
the closing of the hatches only if the loading was done correctly
after a final inspection.32 The said ship officers would not have
accepted the cargoes on board the vessel if they were not
properly arranged and tightly secured to withstand the voyage
in open seas. They would order the stevedore to rectify any
error in its loading and stowing. A foreman’s report, as proof of
work done on board the vessel, was prepared by the checkers
of Mindanao Terminal and concurred in by the Chief Officer of
M/V Mistrau after they were satisfied that the cargoes were
properly loaded.33
Phoenix and McGee relied heavily on the deposition of Byeong
Yong Ahn34 and on the survey report35 of the damage to the
cargoes. Byeong, whose testimony was refreshed by the survey
report,36 found that the cause of the damage was improper
stowage37 due to the manner the cargoes were arranged such
that there were no spaces between cartons, the use of
cardboards as support system, and the use of small rope to tie
the cartons together but not by the negligent conduct of
Mindanao Terminal in loading and stowing the cargoes. As
admitted by Phoenix and McGee in their Comment38 before us,
the latter is merely a stevedoring company which was tasked
by Del Monte to load and stow the shipments of fresh banana
and pineapple of Del Monte Produce aboard the M/V Mistrau.
How and where it should load and stow a shipment in a vessel
is wholly dependent on the shipper and the officers of the
vessel. In other words, the work of
the stevedore was under the supervision of the shipper and
officers of the vessel. Even the materials used for stowage,
such as ropes, pallets, and cardboards, are provided for by the
vessel. Even the survey report found that it was because of the
boisterous stormy weather due to the typhoon Seth, as
encountered by M/V Mistrau during its voyage, which caused
the shipments in the cargo hold to collapse, shift and bruise in
extensive extent.39 Even the deposition of Byeong was not
supported by the conclusion in the survey report that:
CAUSE OF DAMAGE
xxx
From the above facts and our survey results, we are of the
opinion that damage occurred aboard the carrying vessel
during sea transit, being caused by ship’s heavy rolling and
pitching under boisterous weather while proceeding from 1600
hrs on 7th October to 0700 hrs on 12th October, 1994 as
described in the sea protest.40
As it is clear that Mindanao Terminal had duly exercised the
required degree of diligence in loading and stowing the
cargoes, which is the ordinary diligence of a good father of a
family, the grant of the petition is in order.
However, the Court finds no basis for the award of attorney’s
fees in favor of petitioner.lawphil.net None of the circumstances
enumerated in Article 2208 of the Civil Code exists. The present
case is clearly not an unfounded civil action against the plaintiff
as there is no showing that it was instituted for the mere
purpose of vexation or injury. It is not sound public policy to set
a premium to the right to litigate where such right is exercised
in good faith, even if erroneously.41 Likewise, the RTC erred in
awarding P83,945.80 actual damages to Mindanao Terminal.
Although actual expenses were incurred by Mindanao Terminal
164 | P a g e
in relation to the trial of this case in Davao City, the lawyer of
Mindanao Terminal incurred expenses for plane fare, hotel
accommodations and food, as well as other miscellaneous
expenses, as he attended the trials coming all the way from
Manila. But there is no showing that Phoenix and McGee made
a false claim against Mindanao Terminal resulting in the
protracted trial of the case necessitating the incurrence of
expenditures.42
WHEREFORE, the petition is GRANTED. The decision of the
Court of Appeals in CA-G.R. CV No. 66121 is SET ASIDE and the
decision of the Regional Trial Court of Davao City, Branch 12 in
Civil Case No. 25,311.97 is hereby REINSTATED MINUS the
awards of P100,000.00 as attorney’s fees and P83,945.80 as
actual damages.
40. G.R. No. 71049 May 29, 1987
BERNARDINO JIMENEZ, petitioner,
vs.
CITY OF MANILA and INTERMEDIATE APPELLATE COURT,
respondents.
PARAS, J.:
This is a petition for review on certiorari of: (1) the decision * of
the Intermediate Appellate Court in AC-G.R. No. 013887-CV
Bernardino Jimenez v. Asiatic Integrated Corporation and City of
Manila, reversing the decision ** of the Court of First Instance of
Manila, Branch XXII in Civil Case No. 96390 between the same
parties, but only insofar as holding Asiatic Integrated
Corporation solely liable for damages and attorney's fees
instead of making the City of Manila jointly and solidarily liable
with it as prayed for by the petitioner and (2) the resolution of
the same
Appellate Court denying his Partial Motion for Reconsideration
(Rollo, p. 2).
The dispositive portion of the Intermediate Appellate Court's
decision is as follows:
WHEREFORE, the decision appealed from is hereby REVERSED.
A new one is hereby entered ordering the defendant Asiatic
Integrated Corporation to pay the plaintiff P221.90 actual
medical expenses, P900.00 for the amount paid for the
operation and management of a school bus, P20,000.00 as
moral damages due to pains, sufferings and sleepless nights
and P l0,000.00 as attorney's fees.
SO ORDERED. (p. 20, Rollo)
The findings of respondent Appellate Court are as follows:
The evidence of the plaintiff (petitioner herein) shows that in
the morning of August 15, 1974 he, together with his
neighbors, went to Sta. Ana public market to buy "bagoong" at
the time when the public market was flooded with ankle deep
rainwater. After purchasing the "bagoong" he turned around to
return home but he stepped on an uncovered opening which
could not be seen because of the dirty rainwater, causing a
dirty and rusty four- inch nail, stuck inside the uncovered
opening, to pierce the left leg of plaintiff-petitioner penetrating
to a depth of about one and a half inches. After administering
first aid treatment at a nearby drugstore, his companions
helped him hobble home. He felt ill and developed fever and he
had to be carried to Dr. Juanita Mascardo. Despite the medicine
administered to him by the latter, his left leg swelled with great
pain. He was then rushed to the Veterans Memorial Hospital
where he had to be confined for twenty (20) days due to high
fever and severe pain.
165 | P a g e
Upon his discharge from the hospital, he had to walk around
with crutches for fifteen (15) days. His injury prevented him
from attending to the school buses he is operating. As a result,
he had to engage the services of one Bienvenido Valdez to
supervise his business for an aggregate compensation of nine
hundred pesos (P900.00). (Decision, AC-G.R. CV No. 01387,
Rollo, pp. 13-20).
Petitioner sued for damages the City of Manila and the Asiatic
Integrated Corporation under whose administration the Sta.
Ana Public Market had been placed by virtue of a Management
and Operating Contract (Rollo, p. 47).
The lower court decided in favor of respondents, the dispositive
portion of the decision reading:
WHEREFORE, judgment is hereby rendered in favor of the
defendants and against the plaintiff dismissing the complaint
with costs against the plaintiff. For lack of sufficient evidence,
the counterclaims of the defendants are likewise dismissed.
(Decision, Civil Case No. 96390, Rollo, p. 42).
As above stated, on appeal, the Intermediate Appellate Court
held the Asiatic Integrated Corporation liable for damages but
absolved respondent City of Manila.
Hence this petition.
The lone assignment of error raised in this petition is on
whether or not the Intermediate Appellate Court erred in not
ruling that respondent City of Manila should be jointly and
severally liable with Asiatic Integrated Corporation for the
injuries petitioner suffered.
In compliance with the resolution of July 1, 1985 of the First
Division of this Court (Rollo, p. 29) respondent City of Manila
filed its comment on August 13, 1985 (Rollo, p. 34) while
petitioner filed its reply on August 21, 1985 (Reno, p. 51).
Thereafter, the Court in the resolution of September 11, 1985
(Rollo, p. 62) gave due course to the petition and required both
parties to submit simultaneous memoranda
Petitioner filed his memorandum on October 1, 1985 (Rollo, p.
65) while respondent filed its memorandum on October 24,
1985 (Rollo, p. 82).
In the resolution of October 13, 1986, this case was transferred
to the Second Division of this Court, the same having been
assigned to a member of said Division (Rollo, p. 92).
The petition is impressed with merit.
As correctly found by the Intermediate Appellate Court, there is
no doubt that the plaintiff suffered injuries when he fell into a
drainage opening without any cover in the Sta. Ana Public
Market. Defendants do not deny that plaintiff was in fact injured
although the Asiatic Integrated Corporation tries to minimize
the extent of the injuries, claiming that it was only a small
puncture and that as a war veteran, plaintiff's hospitalization at
the War Veteran's Hospital was free. (Decision, AC-G.R. CV No.
01387, Rollo, p. 6).
Respondent City of Manila maintains that it cannot be held
liable for the injuries sustained by the petitioner because under
the Management and Operating Contract, Asiatic Integrated
Corporation assumed all responsibility for damages which may
be suffered by third persons for any cause attributable to it.
It has also been argued that the City of Manila cannot be held
liable under Article 1, Section 4 of Republic Act No. 409 as
amended (Revised Charter of Manila) which provides:
166 | P a g e
The City shall not be liable or held for damages or injuries to
persons or property arising from the failure of the Mayor, the
Municipal Board, or any other City Officer, to enforce the
provisions of this chapter, or any other law or ordinance, or
from negligence of said Mayor, Municipal Board, or any other
officers while enforcing or attempting to enforce said
provisions.
This issue has been laid to rest in the case of City of Manila v.
Teotico (22 SCRA 269-272 [1968]) where the Supreme Court
squarely ruled that Republic Act No. 409 establishes a general
rule regulating the liability of the City of Manila for "damages or
injury to persons or property arising from the failure of city
officers" to enforce the provisions of said Act, "or any other law
or ordinance or from negligence" of the City "Mayor, Municipal
Board, or other officers while enforcing or attempting to enforce
said provisions."
In the same suit, the Supreme Court clarified further that under
Article 2189 of the Civil Code, it is not necessary for the liability
therein established to attach, that the defective public works
belong to the province, city or municipality from which
responsibility is exacted. What said article requires is that the
province, city or municipality has either "control or supervision"
over the public building in question.
In the case at bar, there is no question that the Sta. Ana Public
Market, despite the Management and Operating Contract
between respondent City and Asiatic Integrated Corporation
remained under the control of the former.
For one thing, said contract is explicit in this regard, when it
provides:
II Upon the other hand, Article 2189 of the Civil Code of the
Philippines which provides that:
Provinces, cities and municipalities shall be liable for damages
for the death of, or injuries suffered by any person by reason of
defective conditions of roads, streets, bridges, public buildings
and other public works under their control or supervision.
constitutes a particular prescription making "provinces, cities
and municipalities ... liable for damages for the death of, or
injury suffered by any person by reason" — specifically — "of
the defective condition of roads, streets, bridges, public
buildings, and other public works under their control or
supervision." In other words, Art. 1, sec. 4, R.A. No. 409 refers
to liability arising from negligence, in general, regardless of the
object, thereof, while Article 2189 of the Civil Code governs
liability due to "defective streets, public buildings and other
public works" in particular and is therefore decisive on this
specific case.
That immediately after the execution of this contract, the
SECOND PARTY shall start the painting, cleaning, sanitizing and
repair of the public markets and talipapas and within ninety
(90) days thereof, the SECOND PARTY shall submit a program of
improvement, development, rehabilitation and reconstruction of
the city public markets and talipapas subject to prior approval
of the FIRST PARTY. (Rollo, p. 44)
xxx xxx xxx
VI
That all present personnel of the City public markets and
talipapas shall be retained by the SECOND PARTY as long as
their services remain satisfactory and they shall be extended
the same rights and privileges as heretofore enjoyed by them.
Provided, however, that the SECOND PARTY shall have the right,
subject to
167 | P a g e
prior approval of the FIRST PARTY to discharge any of the
present employees for cause. (Rollo, p. 45).
VII
That the SECOND PARTY may from time to time be required by
the FIRST PARTY, or his duly authorized representative or
representatives, to report, on the activities and operation of the
City public markets and talipapas and the facilities and
conveniences installed therein, particularly as to their cost of
construction, operation and maintenance in connection with the
stipulations contained in this Contract. (lbid)
The fact of supervision and control of the City over subject
public market was admitted by Mayor Ramon Bagatsing in his
letter to Secretary of Finance Cesar Virata which reads:
These cases arose from the controversy over the Management
and Operating Contract entered into on December 28, 1972 by
and between the City of Manila and the Asiatic Integrated
Corporation, whereby in consideration of a fixed service fee, the
City hired the services of the said corporation to undertake the
physical management, maintenance, rehabilitation and
development of the City's public markets and' Talipapas' subject
to the control and supervision of the City.
xxx xxx xxx
It is believed that there is nothing incongruous in the exercise
of these powers vis-a-vis the existence of the contract,
inasmuch as the City retains the power of supervision and
control over its public markets and talipapas under the terms of
the contract. (Exhibit "7-A") (Emphasis supplied.) (Rollo, p. 75).
In fact, the City of Manila employed a market master for the
Sta. Ana Public Market whose primary duty is to take direct
supervision and control of that particular market, more
specifically, to check the safety of the place for the public.
Thus the Asst. Chief of the Market Division and Deputy Market
Administrator of the City of Manila testified as follows:
Court This market master is an employee of the City of Manila?
Mr. Ymson Yes, Your Honor.
Q What are his functions?
A Direct supervision and control over the market area assigned
to him."(T.s.n.,pp. 41-42, Hearing of May 20, 1977.)
xxx xxx xxx
Court As far as you know there is or is there any specific
employee assigned with the task of seeing to it that the Sta.
Ana Market is safe for the public?
Mr. Ymson Actually, as I stated, Your Honor, that the Sta. Ana
has its own market master. The primary duty of that market
master is to make the direct supervision and control of that
particular market, the check or verifying whether the place is
safe for public safety is vested in the market master. (T.s.n., pp.
2425, Hearing of July 27, 1977.) (Emphasis supplied.) (Rollo, p.
76).
Finally, Section 30 (g) of the Local Tax Code as amended,
provides:
The treasurer shall exercise direct and immediate supervision
administration and control over public markets and the
personnel thereof, including those whose duties concern the
maintenance and upkeep of the market and ordinances and
other
168 | P a g e
pertinent rules and regulations. (Emphasis supplied.) (Rollo, p.
76)
The contention of respondent City of Manila that petitioner
should not have ventured to go to Sta. Ana Public Market during
a stormy weather is indeed untenable. As observed by
respondent Court of Appeals, it is an error for the trial court to
attribute the negligence to herein petitioner. More specifically
stated, the findings of appellate court are as follows:
... The trial court even chastised the plaintiff for going to market
on a rainy day just to buy bagoong. A customer in a store has
the right to assume that the owner will comply with his duty to
keep the premises safe for customers. If he ventures to the
store on the basis of such assumption and is injured because
the owner did not comply with his duty, no negligence can be
imputed to the customer. (Decision, AC-G. R. CV No. 01387,
Rollo, p. 19).
As a defense against liability on the basis of a quasi-delict, one
must have exercised the diligence of a good father of a family.
(Art. 1173 of the Civil Code).
There is no argument that it is the duty of the City of Manila to
exercise reasonable care to keep the public market reasonably
safe for people frequenting the place for their marketing needs.
While it may be conceded that the fulfillment of such duties is
extremely difficult during storms and floods, it must however,
be admitted that ordinary precautions could have been taken
during good weather to minimize the dangers to life and limb
under those difficult circumstances.
For instance, the drainage hole could have been placed under
the stalls instead of on the passage ways. Even more important
is the fact, that the City should have seen to it that the
openings were covered. Sadly, the evidence indicates that long
before petitioner
fell into the opening, it was already uncovered, and five (5)
months after the incident happened, the opening was still
uncovered. (Rollo, pp. 57; 59). Moreover, while there are
findings that during floods the vendors remove the iron grills to
hasten the flow of water (Decision, AC-G.R. CV No. 0 1387;
Rollo, p. 17), there is no showing that such practice has ever
been prohibited, much less penalized by the City of Manila.
Neither was it shown that any sign had been placed
thereabouts to warn passersby of the impending danger.
To recapitulate, it appears evident that the City of Manila is
likewise liable for damages under Article 2189 of the Civil Code,
respondent City having retained control and supervision over
the Sta. Ana Public Market and as tort-feasor under Article 2176
of the Civil Code on quasi-delicts
Petitioner had the right to assume that there were no openings
in the middle of the passageways and if any, that they were
adequately covered. Had the opening been covered, petitioner
could not have fallen into it. Thus the negligence of the City of
Manila is the proximate cause of the injury suffered, the City is
therefore liable for the injury suffered by the peti- 4 petitioner.
Respondent City of Manila and Asiatic Integrated Corporation
being joint tort-feasors are solidarily liable under Article 2194 of
the Civil Code.
PREMISES CONSIDERED, the decision of the Court of Appeals is
hereby MODIFIED, making the City of Manila and the Asiatic
Integrated Corporation solidarily liable to pay the plaintiff
P221.90 actual medical expenses, P900.00 for the amount paid
for the operation and management of the school bus,
P20,000.00 as moral damages due to pain, sufferings and
sleepless nights and P10,000.00 as attorney's fees.
169 | P a g e
41. G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY,
INC., JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION,
respondents.
G.R. No. L-47863 October 3, 1986
THE UNITED CONSTRUCTION CO., INC., petitioner, vs.
COURT OF APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners, vs.
COURT OF APPEALS, ET AL., respondents.
PARAS, J.:
These are petitions for review on certiorari of the November 28,
1977 decision of the Court of Appeals in CA-G.R. No. 51771-R
modifying the decision of the Court of First Instance of Manila,
Branch V, in Civil Case No. 74958 dated September 21, 1971 as
modified by the Order of the lower court dated December 8,
1971. The Court of Appeals in modifying the decision of the
lower court included an award of an additional amount of
P200,000.00 to the Philippine Bar Association to be paid jointly
and severally
by the defendant United Construction Co. and by the third-party
defendants Juan F. Nakpil and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower
court reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-
party defendants (except Roman Ozaeta) to pay the plaintiff,
jointly and severally, the sum of P989,335.68 with interest at
the legal rate from November 29, 1968, the date of the filing of
the complaint until full payment;
(b) Dismissing the complaint with respect to defendant Juan J.
Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendant's and third-party defendants'
counterclaims for lack of merit;
(e) Ordering defendant United Construction Co., Inc. and third-
party defendants (except Roman Ozaeta) to pay the costs in
equal shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p.
169).
The dispositive portion of the decision of the Court of Appeals
reads:
WHEREFORE, the judgment appealed from is modified to
include an award of P200,000.00 in favor of plaintiff-appellant
Philippine Bar Association, with interest at the legal rate from
November 29, 1968 until full payment to be paid jointly and
severally by defendant United Construction Co., Inc. and third
party
170 | P a g e
defendants (except Roman Ozaeta). In all other respects, the
judgment dated September 21, 1971 as modified in the
December 8, 1971 Order of the lower court is hereby affirmed
with COSTS to be paid by the defendant and third party
defendant (except Roman Ozaeta) in equal shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United
Construction Co., Inc. and Juan J. Carlos in L-47863 seek the
reversal of the decision of the Court of Appeals, among other
things, for exoneration from liability while petitioner Philippine
Bar Association in L-47896 seeks the modification of aforesaid
decision to obtain an award of P1,830,000.00 for the loss of the
PBA building plus four (4) times such amount as damages
resulting in increased cost of the building, P100,000.00 as
exemplary damages; and P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of
First Instance of Manila were consolidated by this Court in the
resolution of May 10, 1978 requiring the respective respondents
to comment. (Rollo, L-47851, p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958;
Record on Appeal, pp. 269-348; pp. 520-521; Rollo, L-47851, p.
169) and affirmed by the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit
association, incorporated under the Corporation Law, decided
to construct an office building on its 840 square meters lot
located at the comer of Aduana and Arzobispo Streets,
Intramuros, Manila. The construction was undertaken by the
United Construction, Inc. on an "administration" basis, on the
suggestion of Juan J. Carlos, the president and general manager
of said corporation. The proposal was approved by plaintiff's
board of directors and signed by its president Roman Ozaeta, a
third-party
defendant in this case. The plans and specifications for the
building were prepared by the other third-party defendants Juan
F. Nakpil & Sons. The building was completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong
earthquake hit Manila and its environs and the building in
question sustained major damage. The front columns of the
building buckled, causing the building to tilt forward
dangerously. The tenants vacated the building in view of its
precarious condition. As a temporary remedial measure, the
building was shored up by United Construction, Inc. at the cost
of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for
the recovery of damages arising from the partial collapse of the
building against United Construction, Inc. and its President and
General Manager Juan J. Carlos as defendants. Plaintiff alleges
that the collapse of the building was accused by defects in the
construction, the failure of the contractors to follow plans and
specifications and violations by the defendants of the terms of
the contract.
Defendants in turn filed a third-party complaint against the
architects who prepared the plans and specifications, alleging
in essence that the collapse of the building was due to the
defects in the said plans and specifications. Roman Ozaeta, the
then president of the plaintiff Bar Association was included as a
third- party defendant for damages for having included Juan J.
Carlos, President of the United Construction Co., Inc. as party
defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan
F. Nakpil & Sons and Juan F. Nakpil presented a written
stipulation which reads:
1. That in relation to defendants' answer with counterclaims
and third- party complaints and the third-party defendants
171 | P a g e
Nakpil & Sons' answer thereto, the plaintiff need not amend its
complaint by including the said Juan F. Nakpil & Sons and Juan F.
Nakpil personally as parties defendant.
2. That in the event (unexpected by the undersigned) that the
Court should find after the trial that the above-named
defendants Juan J. Carlos and United Construction Co., Inc. are
free from any blame and liability for the collapse of the PBA
Building, and should further find that the collapse of said
building was due to defects and/or inadequacy of the plans,
designs, and specifications p by the third-party defendants, or
in the event that the Court may find Juan F. Nakpil and Sons
and/or Juan F. Nakpil contributorily negligent or in any way
jointly and solidarily liable with the defendants, judgment may
be rendered in whole or in part. as the case may be, against
Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the
plaintiff to all intents and purposes as if plaintiff's complaint has
been duly amended by including the said Juan F. Nakpil & Sons
and Juan F. Nakpil as parties defendant and by alleging causes
of action against them including, among others, the defects or
inadequacy of the plans, designs, and specifications prepared
by them and/or failure in the performance of their contract with
plaintiff.
3. Both parties hereby jointly petition this Honorable Court to
approve this stipulation. (Record on Appeal, pp. 274-275; Rollo,
L-47851,p.169).
Upon the issues being joined, a pre-trial was conducted on
March 7, 1969, during which among others, the parties agreed
to refer the technical issues involved in the case to a
Commissioner. Mr. Andres O. Hizon, who was ultimately
appointed by the trial court, assumed his office as
Commissioner, charged with the duty to try the following
issues:
1. Whether the damage sustained by the PBA building during
the August 2, 1968 earthquake had been caused, directly or
indirectly, by:
(a) The inadequacies or defects in the plans and specifications
prepared by third-party defendants;
(b) The deviations, if any, made by the defendants from said
plans and specifications and how said deviations contributed to
the damage sustained;
(c) The alleged failure of defendants to observe the requisite
quality of materials and workmanship in the construction of the
building;
(d) The alleged failure to exercise the requisite degree of
supervision expected of the architect, the contractor and/or the
owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building arose
from a combination of the above-enumerated factors, the
degree or proportion in which each individual factor contributed
to the damage sustained;
3. Whether the building is now a total loss and should be
completely demolished or whether it may still be repaired and
restored to a tenantable condition. In the latter case, the
determination of the cost of such restoration or repair, and the
value of any remaining construction, such as the foundation,
which may still be utilized or availed of (Record on Appeal, pp.
275-276; Rollo, L-47851, p. 169).
172 | P a g e
Thus, the issues of this case were divided into technical issues
and non-technical issues. As aforestated the technical issues
were referred to the Commissioner. The non-technical issues
were tried by the Court.
Meanwhile, plaintiff moved twice for the demolition of the
building on the ground that it may topple down in case of a
strong earthquake. The motions were opposed by the
defendants and the matter was referred to the Commissioner.
Finally, on April 30, 1979 the building was authorized to be
demolished at the expense of the plaintiff, but not another
earthquake of high intensity on April 7, 1970 followed by other
strong earthquakes on April 9, and 12, 1970, caused further
damage to the property. The actual demolition was undertaken
by the buyer of the damaged building. (Record on Appeal, pp.
278-280; Ibid.)
After the protracted hearings, the Commissioner eventually
submitted his report on September 25, 1970 with the findings
that while the damage sustained by the PBA building was
caused directly by the August 2, 1968 earthquake whose
magnitude was estimated at 7.3 they were also caused by the
defects in the plans and specifications prepared by the third-
party defendants' architects, deviations from said plans and
specifications by the defendant contractors and failure of the
latter to observe the requisite workmanship in the construction
of the building and of the contractors, architects and even the
owners to exercise the requisite degree of supervision in the
construction of subject building.
All the parties registered their objections to aforesaid findings
which in turn were answered by the Commissioner.
The trial court agreed with the findings of the Commissioner
except as to the holding that the owner is charged with full nine
supervision of the construction. The Court sees no legal or
contractual basis for such conclusion. (Record on Appeal, pp.
309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the
assailed decision which was modified by the Intermediate
Appellate Court on November 28, 1977.
All the parties herein appealed from the decision of the
Intermediate Appellate Court. Hence, these petitions.
On May 11, 1978, the United Architects of the Philippines, the
Association of Civil Engineers, and the Philippine Institute of
Architects filed with the Court a motion to intervene as amicus
curiae. They proposed to present a position paper on the
liability of architects when a building collapses and to submit
likewise a critical analysis with computations on the divergent
views on the design and plans as submitted by the experts
procured by the parties. The motion having been granted, the
amicus curiae were granted a period of 60 days within which to
submit their position.
After the parties had all filed their comments, We gave due
course to the petitions in Our Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on
November 24, 1978) were duly noted.
The amicus curiae gave the opinion that the plans and
specifications of the Nakpils were not defective. But the
Commissioner, when asked by Us to comment, reiterated his
conclusion that the defects in the plans and specifications
indeed existed.
Using the same authorities availed of by the amicus curiae such
as the Manila Code (Ord. No. 4131) and the 1966 Asep Code,
the Commissioner added that even if it can be proved that the
defects
173 | P a g e
in the construction alone (and not in the plans and design)
caused the damage to the building, still the deficiency in the
original design and jack of specific provisions against torsion in
the original plans and the overload on the ground floor columns
(found by an the experts including the original designer)
certainly contributed to the damage which occurred. (Ibid, p.
174).
In their respective briefs petitioners, among others, raised the
following assignments of errors: Philippine Bar Association
claimed that the measure of damages should not be limited to
P1,100,000.00 as estimated cost of repairs or to the period of
six (6) months for loss of rentals while United Construction Co.,
Inc. and the Nakpils claimed that it was an act of God that
caused the failure of the building which should exempt them
from responsibility and not the defective construction, poor
workmanship, deviations from plans and specifications and
other imperfections in the case of United Construction Co., Inc.
or the deficiencies in the design, plans and specifications
prepared by petitioners in the case of the Nakpils. Both UCCI
and the Nakpils object to the payment of the additional amount
of P200,000.00 imposed by the Court of Appeals. UCCI also
claimed that it should be reimbursed the expenses of shoring
the building in the amount of P13,661.28 while the Nakpils
opposed the payment of damages jointly and solidarity with
UCCI.
The pivotal issue in this case is whether or not an act of God-an
unusually strong earthquake-which caused the failure of the
building, exempts from liability, parties who are otherwise liable
because of their negligence.
The applicable law governing the rights and liabilities of the
parties herein is Article 1723 of the New Civil Code, which
provides:
Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within
fifteen years from the completion of the structure the same
should collapse by reason of a defect in those plans and
specifications, or due to the defects in the ground. The
contractor is likewise responsible for the damage if the edifice
fags within the same period on account of defects in the
construction or the use of materials of inferior quality furnished
by him, or due to any violation of the terms of the contract. If
the engineer or architect supervises the construction, he shall
be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply
waiver of any of the causes of action by reason of any defect
mentioned in the preceding paragraph.
The action must be brought within ten years following the
collapse of the building.
On the other hand, the general rule is that no person shall be
responsible for events which could not be foreseen or which
though foreseen, were inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and
exclusively to natural causes without human intervention,
which by no amount of foresight, pains or care, reasonably to
have been expected, could have been prevented. (1 Corpus
Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a
fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174 of the
Civil Code, for a breach of an obligation due to an "act of God,"
the following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the
event must be either unforseeable or unavoidable; (c) the
event
174 | P a g e
must be such as to render it impossible for the debtor to fulfill
his obligation in a normal manner; and (d) the debtor must be
free from any participation in, or aggravation of the injury to
the creditor. (Vasquez v. Court of Appeals, 138 SCRA 553;
Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of
Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon
Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act of
God, there concurs a corresponding fraud, negligence, delay or
violation or contravention in any manner of the tenor of the
obligation as provided for in Article 1170 of the Civil Code,
which results in loss or damage, the obligor cannot escape
liability.
The principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned exclusively by the
violence of nature and all human agencies are to be excluded
from creating or entering into the cause of the mischief. When
the effect, the cause of which is to be considered, is found to be
in part the result of the participation of man, whether it be from
active intervention or neglect, or failure to act, the whole
occurrence is thereby humanized, as it were, and removed from
the rules applicable to the acts of God. (1 Corpus Juris, pp.
1174- 1175).
Thus it has been held that when the negligence of a person
concurs with an act of God in producing a loss, such person is
not exempt from liability by showing that the immediate cause
of the damage was the act of God. To be exempt from liability
for loss because of an act of God, he must be free from any
previous negligence or misconduct by which that loss or
damage may have been occasioned. (Fish & Elective Co. v. Phil.
Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco
& Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v.
Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants
petitioners was established beyond dispute both in the lower
court and in the Intermediate Appellate Court. Defendant
United Construction Co., Inc. was found to have made
substantial deviations from the plans and specifications. and to
have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of
supervision; while the third- party defendants were found to
have inadequacies or defects in the plans and specifications
prepared by them. As correctly assessed by both courts, the
defects in the construction and in the plans and specifications
were the proximate causes that rendered the PBA building
unable to withstand the earthquake of August 2, 1968. For this
reason the defendant and third-party defendants cannot claim
exemption from liability. (Decision, Court of Appeals, pp. 30-31).
It is well settled that the findings of facts of the Court of
Appeals are conclusive on the parties and on this court (cases
cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs.
Sandiganbayan, January 17, 1985, 134 SCRA 105, 121), unless
(1) the conclusion is a finding grounded entirely on speculation,
surmise and conjectures; (2) the inference made is manifestly
mistaken; (3) there is grave abuse of discretion; (4) the
judgment is based on misapprehension of facts; (5) the findings
of fact are conflicting , (6) the Court of Appeals went beyond
the issues of the case and its findings are contrary to the
admissions of both appellant and appellees (Ramos vs. Pepsi-
Cola Bottling Co., February 8, 1967, 19 SCRA 289, 291-292;
Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the
findings of facts of the Court of Appeals are contrary to those of
the trial court; (8) said findings of facts are conclusions without
citation of specific evidence on which they are based; (9) the
facts set forth in the petition as well as in the petitioner's main
and reply briefs are not disputed by the respondents (Garcia vs.
CA, June 30, 1970, 33 SCRA 622; Alsua- Bett vs. Court of
Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the finding of
fact of the Court of Appeals is premised on the
175 | P a g e
supposed absence of evidence and is contradicted by evidence
on record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243,
247; Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July
10, 1986).
It is evident that the case at bar does not fall under any of the
exceptions above-mentioned. On the contrary, the records
show that the lower court spared no effort in arriving at the
correct appreciation of facts by the referral of technical issues
to a Commissioner chosen by the parties whose findings and
conclusions remained convincingly unrebutted by the
intervenors/amicus curiae who were allowed to intervene in the
Supreme Court.
In any event, the relevant and logical observations of the trial
court as affirmed by the Court of Appeals that "while it is not
possible to state with certainty that the building would not have
collapsed were those defects not present, the fact remains that
several buildings in the same area withstood the earthquake to
which the building of the plaintiff was similarly subjected,"
cannot be ignored.
The next issue to be resolved is the amount of damages to be
awarded to the PBA for the partial collapse (and eventual
complete collapse) of its building.
The Court of Appeals affirmed the finding of the trial court
based on the report of the Commissioner that the total amount
required to repair the PBA building and to restore it to
tenantable condition was P900,000.00 inasmuch as it was not
initially a total loss. However, while the trial court awarded the
PBA said amount as damages, plus unrealized rental income for
one-half year, the Court of Appeals modified the amount by
awarding in favor of PBA an additional sum of P200,000.00
representing the damage suffered by the PBA building as a
result of another earthquake that occurred on April 7, 1970 (L-
47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be
P1,830,000.00 representing the total value of the building (L-
47896, PBA's No. 1 Assignment of Error, p. 19), while both the
NAKPILS and UNITED question the additional award of
P200,000.00 in favor of the PBA (L- 47851, NAKPIL's Brief as
Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA
further urges that the unrealized rental income awarded to it
should not be limited to a period of one-half year but should be
computed on a continuing basis at the rate of P178,671.76 a
year until the judgment for the principal amount shall have
been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p.
19).
The collapse of the PBA building as a result of the August 2,
1968 earthquake was only partial and it is undisputed that the
building could then still be repaired and restored to its
tenantable condition. The PBA, however, in view of its lack of
needed funding, was unable, thru no fault of its own, to have
the building repaired. UNITED, on the other hand, spent
P13,661.28 to shore up the building after the August 2, 1968
earthquake (L-47896, CA Decision, p. 46). Because of the
earthquake on April 7, 1970, the trial court after the needed
consultations, authorized the total demolition of the building (L-
47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are
liable for the damage resulting from the partial and eventual
collapse of the PBA building as a result of the earthquakes.
We quote with approval the following from the erudite decision
penned by Justice Hugo E. Gutierrez (now an Associate Justice
of the Supreme Court) while still an Associate Justice of the
Court of Appeals:
There is no question that an earthquake and other forces of
nature such as cyclones, drought, floods, lightning, and perils of
the sea are acts of God. It does not necessarily follow, however,
176 | P a g e
that specific losses and suffering resulting from the occurrence
of these natural force are also acts of God. We are not
convinced on the basis of the evidence on record that from the
thousands of structures in Manila, God singled out the
blameless PBA building in Intramuros and around six or seven
other buildings in various parts of the city for collapse or severe
damage and that God alone was responsible for the damages
and losses thus suffered.
The record is replete with evidence of defects and deficiencies
in the designs and plans, defective construction, poor
workmanship, deviation from plans and specifications and other
imperfections. These deficiencies are attributable to negligent
men and not to a perfect God.
The act-of-God arguments of the defendants- appellants and
third party defendants-appellants presented in their briefs are
premised on legal generalizations or speculations and on
theological fatalism both of which ignore the plain facts. The
lengthy discussion of United on ordinary earthquakes and
unusually strong earthquakes and on ordinary fortuitous events
and extraordinary fortuitous events leads to its argument that
the August 2, 1968 earthquake was of such an overwhelming
and destructive character that by its own force and
independent of the particular negligence alleged, the injury
would have been produced. If we follow this line of speculative
reasoning, we will be forced to conclude that under such a
situation scores of buildings in the vicinity and in other parts of
Manila would have toppled down. Following the same line of
reasoning, Nakpil and Sons alleges that the designs were
adequate in accordance with pre-August 2, 1968 knowledge
and appear inadequate only in the light of engineering
information acquired after the earthquake. If this were so,
hundreds of ancient buildings which survived the earthquake
better than the two-year old PBA building must have been
designed and constructed by architects and contractors whose
knowledge and foresight were unexplainably auspicious and
prophetic. Fortunately, the facts on record allow a more
down to earth explanation of the collapse. The failure of the
PBA building, as a unique and distinct construction with no
reference or comparison to other buildings, to weather the
severe earthquake forces was traced to design deficiencies and
defective construction, factors which are neither mysterious nor
esoteric. The theological allusion of appellant United that God
acts in mysterious ways His wonders to perform impresses us
to be inappropriate. The evidence reveals defects and
deficiencies in design and construction. There is no mystery
about these acts of negligence. The collapse of the PBA building
was no wonder performed by God. It was a result of the
imperfections in the work of the architects and the people in
the construction company. More relevant to our mind is the
lesson from the parable of the wise man in the Sermon on the
Mount "which built his house upon a rock; and the rain
descended and the floods came and the winds blew and beat
upon that house; and it fen not; for it was founded upon a rock"
and of the "foolish upon the sand. And the rain descended and
man which built his house the floods came, and the winds blew,
and beat upon that house; and it fell and great was the fall of it.
(St. Matthew 7: 24-27)." The requirement that a building should
withstand rains, floods, winds, earthquakes, and natural forces
is precisely the reason why we have professional experts like
architects, and engineers. Designs and constructions vary
under varying circumstances and conditions but the
requirement to design and build well does not change.
The findings of the lower Court on the cause of the collapse are
more rational and accurate. Instead of laying the blame solely
on the motions and forces generated by the earthquake, it also
examined the ability of the PBA building, as designed and
constructed, to withstand and successfully weather those
forces.
The evidence sufficiently supports a conclusion that the
negligence and fault of both United and Nakpil and Sons, not a
mysterious act of an inscrutable God, were responsible for the
177 | P a g e
damages. The Report of the Commissioner, Plaintiff's Objections
to the Report, Third Party Defendants' Objections to the Report,
Defendants' Objections to the Report, Commissioner's Answer
to the various Objections, Plaintiffs' Reply to the
Commissioner's Answer, Defendants' Reply to the
Commissioner's Answer, Counter-Reply to Defendants' Reply,
and Third-Party Defendants' Reply to the Commissioner's
Report not to mention the exhibits and the testimonies show
that the main arguments raised on appeal were already raised
during the trial and fully considered by the lower Court. A
reiteration of these same arguments on appeal fails to convince
us that we should reverse or disturb the lower Court's factual
findings and its conclusions drawn from the facts, among them:
The Commissioner also found merit in the allegations of the
defendants as to the physical evidence before and after the
earthquake showing the inadequacy of design, to wit:
Physical evidence before the earthquake providing (sic)
inadequacy of design;
1. inadequate design was the cause of the failure of the
building.
2. Sun-baffles on the two sides and in front of the building;
a. Increase the inertia forces that move the building laterally
toward the Manila Fire Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all
exterior columns reduces the cross-sectional area of each of the
columns and the strength thereof.
4. Two front corners, A7 and D7 columns were very much less
reinforced.
Physical Evidence After the Earthquake, Proving Inadequacy of
design;
1. Column A7 suffered the severest fracture and maximum
sagging. Also D7.
2. There are more damages in the front part of the building
than towards the rear, not only in columns but also in slabs.
3. Building leaned and sagged more on the front part of the
building.
4. Floors showed maximum sagging on the sides and toward
the front corner parts of the building.
5. There was a lateral displacement of the building of about 8",
Maximum sagging occurs at the column A7 where the floor is
lower by 80 cm. than the highest slab level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were deficiencies or
defects in the design, plans and specifications of the PBA
building which involved appreciable risks with respect to the
accidental forces which may result from earthquake shocks. He
conceded, however, that the fact that those deficiencies or
defects may have arisen from an obsolete or not too
conservative code or even a code that does not require a
design for earthquake forces mitigates in a large measure the
responsibility or liability of the architect and engineer designer.
The Third-party defendants, who are the most concerned with
this portion of the Commissioner's report, voiced opposition to
178 | P a g e
the same on the grounds that (a) the finding is based on a basic
erroneous conception as to the design concept of the building,
to wit, that the design is essentially that of a heavy rectangular
box on stilts with shear wan at one end; (b) the finding that
there were defects and a deficiency in the design of the
building would at best be based on an approximation and,
therefore, rightly belonged to the realm of speculation, rather
than of certainty and could very possibly be outright error; (c)
the Commissioner has failed to back up or support his finding
with extensive, complex and highly specialized computations
and analyzes which he himself emphasizes are necessary in the
determination of such a highly technical question; and (d) the
Commissioner has analyzed the design of the PBA building not
in the light of existing and available earthquake engineering
knowledge at the time of the preparation of the design, but in
the light of recent and current standards.
The Commissioner answered the said objections alleging that
third-party defendants' objections were based on estimates or
exhibits not presented during the hearing that the resort to
engineering references posterior to the date of the preparation
of the plans was induced by the third-party defendants
themselves who submitted computations of the third-party
defendants are erroneous.
The issue presently considered is admittedly a technical one of
the highest degree. It involves questions not within the ordinary
competence of the bench and the bar to resolve by themselves.
Counsel for the third-party defendants has aptly remarked that
"engineering, although dealing in mathematics, is not an exact
science and that the present knowledge as to the nature of
earthquakes and the behaviour of forces generated by them
still leaves much to be desired; so much so "that the experts of
the different parties, who are all engineers, cannot agree on
what equation to use, as to what earthquake co-efficients are,
on the codes to be used and even as to the type of structure
that the PBA
building (is) was (p. 29, Memo, of third- party defendants before
the Commissioner).
The difficulty expected by the Court if tills technical matter
were to be tried and inquired into by the Court itself, coupled
with the intrinsic nature of the questions involved therein,
constituted the reason for the reference of the said issues to a
Commissioner whose qualifications and experience have
eminently qualified him for the task, and whose competence
had not been questioned by the parties until he submitted his
report. Within the pardonable limit of the Court's ability to
comprehend the meaning of the Commissioner's report on this
issue, and the objections voiced to the same, the Court sees no
compelling reasons to disturb the findings of the Commissioner
that there were defects and deficiencies in the design, plans
and specifications prepared by third-party defendants, and that
said defects and deficiencies involved appreciable risks with
respect to the accidental forces which may result from
earthquake shocks.
(2) (a) The deviations, if any, made by the defendants from the
plans and specifications, and how said deviations contributed to
the damage sustained by the building.
(b) The alleged failure of defendants to observe the requisite
quality of materials and workmanship in the construction of the
building.
These two issues, being interrelated with each other, will be
discussed together.
The findings of the Commissioner on these issues were as
follows:
We now turn to the construction of the PBA Building and the
alleged deficiencies or defects in the construction and
violations
179 | P a g e
or deviations from the plans and specifications. All these may
be summarized as follows:
a. Summary of alleged defects as reported by Engineer Mario
M. Bundalian.
(1) Wrongful and defective placing of reinforcing bars.
(2) Absence of effective and desirable integration of the 3
bars in the cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were used.
Specification requires no larger than 1 inch.
(4) Reinforcement assembly is not concentric with the column,
eccentricity being 3" off when on one face the main bars are
only 1 1/2' from the surface.
(5) Prevalence of honeycombs,
(6) Contraband construction joints,
(7) Absence, or omission, or over spacing of spiral hoops,
(8) Deliberate severance of spirals into semi-circles in noted
on Col. A-5, ground floor,
(9) Defective construction joints in Columns A-3, C-7, D-7 and
D-4, ground floor,
(10) Undergraduate concrete is evident,
(11) Big cavity in core of Column 2A-4, second floor,
(12) Columns buckled at different planes. Columns buckled
worst where there are no spirals or where spirals are cut.
Columns suffered worst displacement where the eccentricity of
the columnar reinforcement assembly is more acute.
b. Summary of alleged defects as reported by Engr. Antonio
Avecilla.
Columns are first (or ground) floor, unless otherwise stated.
(1) Column D4 — Spacing of spiral is changed from 2" to 5" on
centers,
(2) Column D5 — No spiral up to a height of 22" from the
ground floor,
(3) Column D6 — Spacing of spiral over 4 l/2,
(4) Column D7 — Lack of lateral ties,
(5) Column C7 — Absence of spiral to a height of 20" from the
ground level, Spirals are at 2" from the exterior column face
and 6" from the inner column face,
(6) Column B6 — Lack of spiral on 2 feet below the floor beams,
(7) Column B5 — Lack of spirals at a distance of 26' below the
beam,
(8) Column B7 — Spirals not tied to vertical reinforcing bars,
Spirals are uneven 2" to 4",
(9) Column A3 — Lack of lateral ties,
(10) Column A4 — Spirals cut off and welded to two separate
clustered vertical bars,
180 | P a g e
(11) Column A4 — (second floor Column is completely hollow to
a height of 30"
(12) Column A5 — Spirals were cut from the floor level to the
bottom of the spandrel beam to a height of 6 feet,
(13) Column A6 — No spirals up to a height of 30' above the
ground floor level,
(14) Column A7— Lack of lateralties or spirals,
c. Summary of alleged defects as reported by the experts of the
Third-Party defendants.
Ground floor columns.
(1) Column A4 — Spirals are cut,
(2) Column A5 — Spirals are cut,
(3) Column A6 — At lower 18" spirals are absent,
(4) Column A7 — Ties are too far apart,
(5) Column B5 — At upper fourth of column spirals are either
absent or improperly spliced,
(6) Column B6 — At upper 2 feet spirals are absent,
(7) Column B7 — At upper fourth of column spirals missing
or improperly spliced.
(8) Column C7— Spirals are absent at lowest 18"
(9) Column D5 — At lowest 2 feet spirals are absent,
(10) Column D6 — Spirals are too far apart and apparently
improperly spliced,
(11) Column D7 — Lateral ties are too far apart, spaced 16" on
centers.
There is merit in many of these allegations. The explanations
given by the engineering experts for the defendants are either
contrary to general principles of engineering design for
reinforced concrete or not applicable to the requirements for
ductility and strength of reinforced concrete in earthquake-
resistant design and construction.
We shall first classify and consider defects which may have
appreciable bearing or relation to' the earthquake-resistant
property of the building.
As heretofore mentioned, details which insure ductility at or
near the connections between columns and girders are
desirable in earthquake resistant design and construction. The
omission of spirals and ties or hoops at the bottom and/or tops
of columns contributed greatly to the loss of earthquake-
resistant strength. The plans and specifications required that
these spirals and ties be carried from the floor level to the
bottom reinforcement of the deeper beam (p. 1, Specifications,
p. 970, Reference 11). There were several clear evidences
where this was not done especially in some of the ground floor
columns which failed.
There were also unmistakable evidences that the spacings of
the spirals and ties in the columns were in many cases greater
than those called for in the plans and specifications resulting
again in loss of earthquake-resistant strength. The assertion of
the engineering experts for the defendants that the improper
spacings and the cutting of the spirals did not result in loss of
strength in the column cannot be maintained and is certainly
contrary to the general principles of column design and
181 | P a g e
construction. And even granting that there be no loss in
strength at the yield point (an assumption which is very
doubtful) the cutting or improper spacings of spirals will
certainly result in the loss of the plastic range or ductility in the
column and it is precisely this plastic range or ductility which is
desirable and needed for earthquake-resistant strength.
There is no excuse for the cavity or hollow portion in the
column A4, second floor, and although this column did not fail,
this is certainly an evidence on the part of the contractor of
poor construction.
The effect of eccentricities in the columns which were
measured at about 2 1/2 inches maximum may be
approximated in relation to column loads and column and beam
moments. The main effect of eccentricity is to change the beam
or girder span. The effect on the measured eccentricity of 2
inches, therefore, is to increase or diminish the column load by
a maximum of about 1% and to increase or diminish the column
or beam movements by about a maximum of 2%. While these
can certainly be absorbed within the factor of safety, they
nevertheless diminish said factor of safety.
The cutting of the spirals in column A5, ground floor is the
subject of great contention between the parties and deserves
special consideration.
The proper placing of the main reinforcements and spirals in
column A5, ground floor, is the responsibility of the general
contractor which is the UCCI. The burden of proof, therefore,
that this cutting was done by others is upon the defendants.
Other than a strong allegation and assertion that it is the
plumber or his men who may have done the cutting (and this
was flatly denied by the plumber) no conclusive proof was
presented. The engineering experts for the defendants asserted
that they could have no motivation for cutting the bar because
they can simply
replace the spirals by wrapping around a new set of spirals.
This is not quite correct. There is evidence to show that the
pouring of concrete for columns was sometimes done through
the beam and girder reinforcements which were already in
place as in the case of column A4 second floor. If the
reinforcement for the girder and column is to subsequently
wrap around the spirals, this would not do for the elasticity of
steel would prevent the making of tight column spirals and
loose or improper spirals would result. The proper way is to
produce correct spirals down from the top of the main column
bars, a procedure which can not be done if either the beam or
girder reinforcement is already in place. The engineering
experts for the defendants strongly assert and apparently
believe that the cutting of the spirals did not materially
diminish the strength of the column. This belief together with
the difficulty of slipping the spirals on the top of the column
once the beam reinforcement is in place may be a sufficient
motivation for the cutting of the spirals themselves. The
defendants, therefore, should be held responsible for the
consequences arising from the loss of strength or ductility in
column A5 which may have contributed to the damages
sustained by the building.
The lack of proper length of splicing of spirals was also proven
in the visible spirals of the columns where spalling of the
concrete cover had taken place. This lack of proper splicing
contributed in a small measure to the loss of strength.
The effects of all the other proven and visible defects although
nor can certainly be accumulated so that they can contribute to
an appreciable loss in earthquake-resistant strength. The
engineering experts for the defendants submitted an estimate
on some of these defects in the amount of a few percent. If
accumulated, therefore, including the effect of eccentricity in
the column the loss in strength due to these minor defects may
run to as much as ten percent.
182 | P a g e
To recapitulate: the omission or lack of spirals and ties at the
bottom and/or at the top of some of the ground floor columns
contributed greatly to the collapse of the PBA building since it is
at these points where the greater part of the failure occurred.
The liability for the cutting of the spirals in column A5, ground
floor, in the considered opinion of the Commissioner rests on
the shoulders of the defendants and the loss of strength in this
column contributed to the damage which occurred.
It is reasonable to conclude, therefore, that the proven defects,
deficiencies and violations of the plans and specifications of the
PBA building contributed to the damages which resulted during
the earthquake of August 2, 1968 and the vice of these defects
and deficiencies is that they not only increase but also
aggravate the weakness mentioned in the design of the
structure. In other words, these defects and deficiencies not
only tend to add but also to multiply the effects of the
shortcomings in the design of the building. We may say,
therefore, that the defects and deficiencies in the construction
contributed greatly to the damage which occurred.
Since the execution and supervision of the construction work in
the hands of the contractor is direct and positive, the presence
of existence of all the major defects and deficiencies noted and
proven manifests an element of negligence which may amount
to imprudence in the construction work. (pp. 42-49,
Commissioners Report).
As the parties most directly concerned with this portion of the
Commissioner's report, the defendants voiced their objections
to the same on the grounds that the Commissioner should have
specified the defects found by him to be "meritorious"; that the
Commissioner failed to indicate the number of cases where the
spirals and ties were not carried from the floor level to the
bottom reinforcement of the deeper beam, or where the
spacing of the spirals and ties in the columns were greater than
that
called for in the specifications; that the hollow in column A4,
second floor, the eccentricities in the columns, the lack of
proper length of splicing of spirals, and the cut in the spirals in
column A5, ground floor, did not aggravate or contribute to the
damage suffered by the building; that the defects in the
construction were within the tolerable margin of safety; and
that the cutting of the spirals in column A5, ground floor, was
done by the plumber or his men, and not by the defendants.
Answering the said objections, the Commissioner stated that,
since many of the defects were minor only the totality of the
defects was considered. As regards the objection as to failure to
state the number of cases where the spirals and ties were not
carried from the floor level to the bottom reinforcement, the
Commissioner specified groundfloor columns B-6 and C-5 the
first one without spirals for 03 inches at the top, and in the
latter, there were no spirals for 10 inches at the bottom. The
Commissioner likewise specified the first storey columns where
the spacings were greater than that called for in the
specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-
7. The objection to the failure of the Commissioner to specify
the number of columns where there was lack of proper length
of splicing of spirals, the Commissioner mentioned groundfloor
columns B-6 and B-5 where all the splices were less than 1-1/2
turns and were not welded, resulting in some loss of strength
which could be critical near the ends of the columns. He
answered the supposition of the defendants that the spirals and
the ties must have been looted, by calling attention to the fact
that the missing spirals and ties were only in two out of the 25
columns, which rendered said supposition to be improbable.
The Commissioner conceded that the hollow in column A-4,
second floor, did not aggravate or contribute to the damage,
but averred that it is "evidence of poor construction." On the
claim that the eccentricity could be absorbed within the factor
of safety, the Commissioner answered that, while the same
may be true, it
183 | P a g e
also contributed to or aggravated the damage suffered by the
building.
The objection regarding the cutting of the spirals in Column A-5,
groundfloor, was answered by the Commissioner by reiterating
the observation in his report that irrespective of who did the
cutting of the spirals, the defendants should be held liable for
the same as the general contractor of the building. The
Commissioner further stated that the loss of strength of the cut
spirals and inelastic deflections of the supposed lattice work
defeated the purpose of the spiral containment in the column
and resulted in the loss of strength, as evidenced by the actual
failure of this column.
Again, the Court concurs in the findings of the Commissioner on
these issues and fails to find any sufficient cause to disregard
or modify the same. As found by the Commissioner, the
"deviations made by the defendants from the plans and
specifications caused indirectly the damage sustained and that
those deviations not only added but also aggravated the
damage caused by the defects in the plans and specifications
prepared by third-party defendants. (Rollo, Vol. I, pp. 128-142)
The afore-mentioned facts clearly indicate the wanton
negligence of both the defendant and the third-party
defendants in effecting the plans, designs, specifications, and
construction of the PBA building and We hold such negligence
as equivalent to bad faith in the performance of their respective
tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v.
Milan (49 O.G. 4379, 4380) which may be in point in this case
reads:
One who negligently creates a dangerous condition cannot
escape liability for the natural and probable consequences
thereof, although the act of a third person, or an act of God for
which he is not responsible, intervenes to precipitate the loss.
As already discussed, the destruction was not purely an act of
God. Truth to tell hundreds of ancient buildings in the vicinity
were hardly affected by the earthquake. Only one thing spells
out the fatal difference; gross negligence and evident bad faith,
without which the damage would not have occurred.
WHEREFORE, the decision appealed from is hereby MODIFIED
and considering the special and environmental circumstances
of this case, We deem it reasonable to render a decision
imposing, as We do hereby impose, upon the defendant and the
third-party defendants (with the exception of Roman Ozaeta) a
solidary (Art. 1723, Civil Code, Supra, p. 10) indemnity in favor
of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception
of attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional
ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the finality of
this decision. Upon failure to pay on such finality, twelve (12%)
per cent interest per annum shall be imposed upon afore-
mentioned amounts from finality until paid. Solidary costs
against the defendant and third-party defendants (except
Roman Ozaeta).
42. G.R. No. 189563 April 7, 2014
GILAT SATELLITE NETWORKS, LTD., Petitioner, vs.
UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO.,
INC., Respondent.
184 | P a g e
DECISION
SERENO, CJ:
This is an appeal via a Petition for Review on Certiorari1 filed 6
November 2009 assailing the Decision2 and Resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 89263, which reversed
the Decision4 of the Regional Trial Court (RTC), Branch 141,
Makati City in Civil Case No. 02-461, ordering respondent to pay
petitioner a sum of money.
The antecedent facts, as culled from the CA, are as follows:
On September 15, 1999, One Virtual placed with GILAT a
purchase order for various telecommunications equipment (sic),
accessories, spares, services and software, at a total purchase
price of Two Million One Hundred Twenty Eight Thousand Two
Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase
price for the goods delivered, One Virtual promised to pay a
portion thereof totalling US$1.2 Million in accordance with the
payment schedule dated 22 November 1999. To ensure the
prompt payment of this amount, it obtained defendant UCPB
General Insurance Co., Inc.’s surety bond dated 3 December
1999, in favor of GILAT.
During the period between [sic] September 1999 and June
2000, GILAT shipped and delivered to One Virtual the purchased
products and equipment, as evidenced by airway bills/Bill of
Lading (Exhibits "F", "F-1" to "F-8"). All of the equipment
(including the software components for which payment was
secured by the surety bond, was shipped by GILAT and duly
received by One Virtual. Under an endorsement dated
December 23, 1999 (Exhibit "E"), the surety issued, with One
Virtual’s conformity, an amendment to the surety bond, Annex
"A" thereof, correcting its expiry date from May 30, 2001 to July
30, 2001.
One Virtual failed to pay GILAT the amount of Four Hundred
Thousand Dollars (US$400,000.00) on the due date of May 30,
2000 in accordance with the payment schedule attached as
Annex "A" to the surety bond, prompting GILAT to write the
surety defendant UCPB on June 5, 2000, a demand letter
(Exhibit "G") for payment of the said amount of US$400,000.00.
No part of the amount set forth in this demand has been paid to
date by either One Virtual or defendant UCPB. One Virtual
likewise failed to pay on the succeeding payment instalment
date of 30 November 2000 as set out in Annex "A" of the surety
bond, prompting GILAT to send a second demand letter dated
January 24, 2001, for the payment of the full amount of
US$1,200,000.00 guaranteed under the surety bond, plus
interests and expenses (Exhibits "H") and which letter was
received by the defendant surety on January 25, 2001.
However, defendant UCPB failed to settle the amount of
US$1,200,000.00 or a part thereof, hence, the instant
complaint."5 (Emphases in the original)
On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed
a Complaint6 against respondent UCPB General Insurance Co.,
Inc., to recover the amounts supposedly covered by the surety
bond, plus interests and expenses. After due hearing, the RTC
rendered its Decision,7 the dispositive portion of which is herein
quoted:
WHEREFORE, premises considered, the Court hereby renders
judgment for the plaintiff, and against the defendant, ordering,
to wit:
1. The defendant surety to pay the plaintiff the amount of One
Million Two Hundred Thousand Dollars (US$1,200,000.00)
representing the principal debt under the Surety Bond, with
legal interest thereon at the rate of 12% per annum computed
from the time the judgment becomes final and executory until
the obligation is fully settled; and
185 | P a g e
2. The defendant surety to pay the plaintiff the amount of Forty
Four Thousand Four Dollars and Four Cents (US$44,004.04)
representing attorney’s fees and litigation expenses.
Accordingly, defendant’s counterclaim is hereby dismissed for
want of merit.
SO ORDERED. (Emphasis in the original)
In so ruling, the RTC reasoned that there is "no dispute that
plaintiff [petitioner] delivered all the subject equipments [sic]
and the same was installed. Even with the delivery and
installation made, One Virtual failed to pay any of the payments
agreed upon. Demand notwithstanding, defendant failed and
refused and continued to fail and refused to settle the
obligation."8
Considering that its liability was indeed that of a surety, as
"spelled out in the Surety Bond executed by and between One
Virtual as Principal, UCPB as Surety and GILAT as Creditor/Bond
Obligee,"9 respondent agreed and bound itself to pay in
accordance with the Payment Milestones. This obligation was
not made dependent on any condition outside the terms and
conditions of the Surety Bond and Payment Milestones.10
Insofar as the interests were concerned, the RTC denied
petitioner’s claim on the premise that while a surety can be
held liable for interest even if it becomes more onerous than
the principal obligation, the surety shall only accrue when the
delay or refusal to pay the principal obligation is without any
justifiable cause.11 Here, respondent failed to pay its surety
obligation because of the advice of its principal (One Virtual)
not to pay.12 The RTC then obligated respondent to pay
petitioner the amount of USD1,200,000.00 representing the
principal debt under the Surety Bond, with legal interest at the
rate of 12% per annum computed from the time the judgment
becomes final and
executory, and USD44,004.04 representing attorney’s fees and
litigation expenses.
On 18 October 2007, respondent appealed to the CA.13 The
appellate court rendered a Decision14 in the following manner:
WHEREFORE, this appealed case is DISMISSED for lack of
jurisdiction. The trial court’s Decision dated December 28, 2006
is VACATED. Plaintiff-appellant Gilat Satellite Networks Ltd., and
One Virtual are ordered to proceed to arbitration, the outcome
of which shall necessary bind the parties, including the surety,
defendant-appellant United Coconut Planters Bank General
Insurance Co., Inc.
SO ORDERED. (Emphasis in the original)
The CA ruled that in "enforcing a surety contract, the
‘complementary-contracts-construed-together’ doctrine finds
application." According to this doctrine, the accessory contract
must be construed with the principal agreement.15 In this case,
the appellate court considered the Purchase Agreement entered
into between petitioner and One Virtual as the principal
contract,16 whose stipulations are also binding on the parties
to the suretyship.17 Bearing in mind the arbitration clause
contained in the Purchase Agreement18 and pursuant to the
policy of the courts to encourage alternative dispute resolution
methods,19 the trial court’s Decision was vacated; petitioner
and One Virtual were ordered to proceed to arbitration.
On 9 September 2008, petitioner filed a Motion for
Reconsideration with Motion for Oral Argument. The motion was
denied for lack of merit in a Resolution20 issued by the CA on
16 September 2009.
Hence, the instant Petition.
186 | P a g e
On 31 August 2010, respondent filed a Comment21 on the
Petition for Review. On 24 November 2010, petitioner filed a
Reply.22
ISSUES
From the foregoing, we reduce the issues to the following:
1. Whether or not the CA erred in dismissing the case and
ordering petitioner and One Virtual to arbitrate; and
2. Whether or not petitioner is entitled to legal interest due to
the delay in the fulfilment by respondent of its obligation under
the Suretyship Agreement.
THE COURT’S RULING
The existence of a suretyship agreement does not give the
surety the right to intervene in the principal contract, nor can
an arbitration clause between the buyer and the seller be
invoked by a non-party such as the surety.
Petitioner alleges that arbitration laws mandate that no court
can compel arbitration, unless a party entitled to it applies for
this relief.23 This referral, however, can only be demanded by
one who is a party to the arbitration agreement.24 Considering
that neither petitioner nor One Virtual has asked for a referral,
there is no basis for the CA’s order to arbitrate.
Moreover, Articles 1216 and 2047 of the Civil Code25 clearly
provide that the creditor may proceed against the surety
without having first sued the principal debtor.26 Even the
Surety Agreement itself states that respondent becomes liable
upon "mere failure of the Principal to make such prompt
payment."27 Thus, petitioner should not be ordered to make a
separate claim
against One Virtual (via arbitration) before proceeding against
respondent.28
On the other hand, respondent maintains that a surety contract
is merely an accessory contract, which cannot exist without a
valid obligation.29 Thus, the surety may avail itself of all the
defenses available to the principal debtor and inherent in the
debt30 – that is, the right to invoke the arbitration clause in the
Purchase Agreement.
We agree with petitioner.
In suretyship, the oft-repeated rule is that a surety’s liability is
joint and solidary with that of the principal debtor. This
undertaking makes a surety agreement an ancillary contract, as
it presupposes the existence of a principal contract.31
Nevertheless, although the contract of a surety is in essence
secondary only to a valid principal obligation, its liability to the
creditor or "promise" of the principal is said to be direct,
primary and absolute; in other words, a surety is directly and
equally bound with the principal.32 He becomes liable for the
debt and duty of the principal obligor, even without possessing
a direct or personal interest in the obligations constituted by
the latter.33 Thus, a surety is not entitled to a separate notice
of default or to the benefit of excussion.34 It may in fact be
sued separately or together with the principal debtor.35
After a thorough examination of the pieces of evidence
presented by both parties,36 the RTC found that petitioner had
delivered all the goods to One Virtual and installed them.
Despite these compliances, One Virtual still failed to pay its
obligation,37 triggering respondent’s liability to petitioner as
the former’s surety.1âwphi1 In other words, the failure of One
Virtual, as the principal debtor, to fulfill its monetary obligation
to petitioner gave the latter an immediate right to pursue
respondent as the surety.
187 | P a g e
Consequently, we cannot sustain respondent’s claim that the
Purchase Agreement, being the principal contract to which the
Suretyship Agreement is accessory, must take precedence over
arbitration as the preferred mode of settling disputes.
First, we have held in Stronghold Insurance Co. Inc. v. Tokyu
Construction Co. Ltd.,38 that "[the] acceptance [of a surety
agreement], however, does not change in any material way the
creditor’s relationship with the principal debtor nor does it
make the surety an active party to the principal creditor-debtor
relationship. In other words, the acceptance does not give the
surety the right to intervene in the principal contract. The
surety’s role arises only upon the debtor’s default, at which
time, it can be directly held liable by the creditor for payment
as a solidary obligor." Hence, the surety remains a stranger to
the Purchase Agreement. We agree with petitioner that
respondent cannot invoke in its favor the arbitration clause in
the Purchase Agreement, because it is not a party to that
contract.39 An arbitration agreement being contractual in
nature,40 it is binding only on the parties thereto, as well as
their assigns and heirs.41
Second, Section 24 of Republic Act No. 928542 is clear in
stating that a referral to arbitration may only take place "if at
least one party so requests not later than the pre-trial
conference, or upon the request of both parties thereafter."
Respondent has not presented even an iota of evidence to show
that either petitioner or One Virtual submitted its contesting
claim for arbitration.
Third, sureties do not insure the solvency of the debtor, but
rather the debt itself.43 They are contracted precisely to
mitigate risks of non-performance on the part of the obligor.
This responsibility necessarily places a surety on the same level
as that of the principal debtor.44 The effect is that the creditor
is given the right to directly proceed against either principal
debtor or surety. This is the reason why excussion cannot be
invoked.45
To require the creditor to proceed to arbitration would render
the very essence of suretyship nugatory and diminish its value
in commerce. At any rate, as we have held in Palmares v. Court
of Appeals,46 "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."
Interest, as a form of indemnity, may be awarded to a creditor
for the delay incurred by a debtor in the payment of the latter’s
obligation, provided that the delay is inexcusable.
Anent the issue of interests, petitioner alleges that it deserves
to be paid legal interest of 12% per annum from the time of its
first demand on respondent on 5 June 2000 or at most, from the
second demand on 24 January 2001 because of the latter’s
delay in discharging its monetary obligation.47 Citing Article
1169 of the Civil Code, petitioner insists that the delay started
to run from the time it demanded the fulfilment of respondent’s
obligation under the suretyship contract. Significantly,
respondent does not contest this point, but instead argues that
it is only liable for legal interest of 6% per annum from the date
of petitioner’s last demand on 24 January 2001.
In rejecting petitioner’s position, the RTC stated that interests
may only accrue when the delay or the refusal of a party to pay
is without any justifiable cause.48 In this case, respondent’s
failure to heed the demand was due to the advice of One Virtual
that petitioner allegedly breached its undertakings as stated in
the Purchase Agreement.49 The CA, however, made no
pronouncement on this matter.
We sustain petitioner.
Article 2209 of the Civil Code is clear: "[i]f an obligation consists
in the payment of a sum of money, and the debtor incurs a
delay,
188 | P a g e
the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and
in the absence of stipulation, the legal interest."
Delay arises from the time the obligee judicially or
extrajudicially demands from the obligor the performance of the
obligation, and the latter fails to comply.50 Delay, as used in
Article 1169, is synonymous with default or mora, which means
delay in the fulfilment of obligations.51 It is the nonfulfillment
of an obligation with respect to time.52 In order for the debtor
(in this case, the surety) to 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 or extrajudicially.53
Having held that a surety upon demand fails to pay, it can be
held liable for interest, even if in thus paying, its liability
becomes more than the principal obligation.54 The increased
liability is not because of the contract, but because of the
default and the necessity of judicial collection.55
However, for delay to merit interest, it must be inexcusable in
nature. In Guanio v. Makati-Shangri-la Hotel,56 citing RCPI v.
Verchez,57 we held thus:
In culpa contractual x x x the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory
force of contracts, will not permit a party to be set free from
liability for any kind of misperformance of the contractual
undertaking or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a valid cause
for recovering that which may have been lost or suffered. The
remedy serves to preserve the interests of the promissee that
may include his "expectation interest," which is his interest in
having the benefit of his bargain by being put in as good a
position as he would have been in had the contract been
performed, or his "reliance interest," which is his interest in
being reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had
the contract not been made; or his "restitution interest," which
is his interest in having restored to him any benefit that he has
conferred on the other party. Indeed, agreements can
accomplish little, either for their makers or for society, unless
they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make
RECOMPENSE to the one who has been injured by the failure of
another to observe his contractual obligation unless he can
show extenuating circumstances, like proof of his exercise of
due diligence x x x or of the attendance of fortuitous event, to
excuse him from his ensuing liability. (Emphasis ours)
We agree with petitioner that records are bereft of proof to
show that respondent’s delay was indeed justified by the
circumstances – that is, One Virtual’s advice regarding
petitioner’s alleged breach of obligations. The lower court’s
Decision itself belied this contention when it said that "plaintiff
is not disputing that it did not complete commissioning work on
one of the two systems because One Virtual at that time is
already in default and has not paid GILAT."58 Assuming
arguendo that the commissioning work was not completed,
respondent has no one to blame but its principal, One Virtual; if
only it had paid its obligation on time, petitioner would not have
been forced to stop operations. Moreover, the deposition of Mr.
Erez Antebi, vice president of Gilat, repeatedly stated that
petitioner had delivered all equipment, including the licensed
software; and that the equipment had been installed and in
fact, gone into operation.59 Notwithstanding these
compliances, respondent still failed to pay.
189 | P a g e
As to the issue of when interest must accrue, our Civil Code is
explicit in stating that it accrues from the time judicial or
extrajudicial demand is made on the surety. This ruling is in
accordance with the provisions of Article 1169 of the Civil Code
and of the settled rule that where there has been an extra-
judicial demand before an action for performance was filed,
interest on the amount due begins to run, not from the date of
the filing of the complaint, but from the date of that extra-
judicial demand.60 Considering that respondent failed to pay its
obligation on 30 May 2000 in accordance with the Purchase
Agreement, and that the extrajudicial demand of petitioner was
sent on 5 June 2000,61 we agree with the latter that interest
must start to run from the time petitioner sent its first demand
letter (5 June 2000), because the obligation was already due
and demandable at that time.
With regard to the interest rate to be imposed, we take cue
from Nacar v. Gallery Frames,62 which modified the guidelines
established in Eastern Shipping Lines v. CA63 in relation to
Bangko Sentral-Monetary Board Circular No. 799 (Series of
2013), to wit:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially
demanded.1âwphi1 In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
xxxx
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall
be 6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.
Applying the above-discussed concepts and in the absence of
an agreement as to interests, we are hereby compelled to
award petitioner legal interest at the rate of 6% per annum
from 5 June 2000, its first date of extra judicial demand, until
the satisfaction of the debt in accordance with the revised
guidelines enunciated in Nacar.
WHEREFORE, the Petition for Review on Certiorari is hereby
GRANTED. The assailed Decision and Resolution of the Court of
Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision
of the Regional Trial Court, Branch 141, Makati City is
REINSTATED, with MODIFICATION insofar as the award of legal
interest is concerned. Respondent is hereby ordered to pay
legal interest at the rate of 6% per annum from 5 June 2000
until the satisfaction of its obligation under the Suretyship
Contract and Purchase Agreement.
43. G.R. No. 184458
January 14, 2015
RODRIGO RIVERA, Petitioner,
vs.
SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA,
Respondents.
x-----------------------x
G.R. No. 184472
190 | P a g e
SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners,
vs.
RODRIGO RIVERA, Respondent.
The parties were friends of long standing having known each
other since 1973: Rivera and Salvador are kumpadres, the
former is the godfather of the Spouses Chua’s son.
On 24 February 1995, Rivera obtained a loan from the Spouses
Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay
spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of
One Hundred Twenty Thousand Philippine Currency
(P120,000.00) on December 31, 1995.
It is agreed and understood that failure on my part to pay the
amount of (120,000.00) One Hundred Twenty Thousand Pesos
on December 31, 1995. (sic) I agree to pay the sum equivalent
to FIVE PERCENT (5%) interest monthly from the date of default
until the entire obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to
pay the further sum equivalent to twenty percent (20%) of the
total amount due and payable as and for attorney’s fees which
in no case shall be less than P5,000.00 and to pay in addition
the cost of suit and other incidental litigation expense.
Any action which may arise in connection with this note shall be
brought in the proper Court of the City of Manila.
Manila, February 24, 1995[.] (SGD.) RODRIGO RIVERA4
PEREZ, J.:
DECISION
Before us are consolidated Petitions for Review on Certiorari
under Rule 45 of the Rules of Court assailing the Decision1 of
the Court of Appeals in CA-G.R. SP No. 90609 which affirmed
with modification the separate rulings of the Manila City trial
courts, the Regional Trial Court, Branch 17 in Civil Case No. 02-
1052562 and the Metropolitan Trial Court (MeTC), Branch 30, in
Civil Case No. 163661,3 a case for collection of a sum of money
due a promissory note. While all three (3) lower courts upheld
the validity and authenticity of the promissory note as duly
signed by the obligor, Rodrigo Rivera (Rivera), petitioner in G.R.
No. 184458, the appellate court modified the trial courts’
consistent awards: (1) the stipulated interest rate of sixty
percent (60%) reduced to twelve percent (12%) per
annumcomputed from the date of judicial or extrajudicial
demand, and (2) reinstatement of the award of attorney’s fees
also in a reduced amount of P50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there
was no valid promissory note and questions the entire ruling of
the lower courts. On the other hand, petitioners in G.R. No.
184472, Spouses Salvador and Violeta Chua (Spouses Chua),
take exception to the appellate court’s reduction of the
stipulated interest rate of sixty percent (60%) to twelve percent
(12%) per annum.
We proceed to the facts.
 191 | P a g e
In October 1998, almost three years from the date of payment
stipulated in the promissory note, Rivera, as partial payment for
the loan, issued and delivered to the SpousesChua, as payee, a
check numbered 012467, dated 30 December 1998, drawn
against Rivera’s current account with the Philippine Commercial
International Bank (PCIB) in the amount of P25,000.00.
On 21 December 1998, the Spouses Chua received another
check presumably issued by Rivera, likewise drawn against
Rivera’s PCIB current account, numbered 013224, duly signed
and dated, but blank as to payee and amount. Ostensibly, as
per understanding by the parties, PCIB Check No. 013224 was
issued in the amount of P133,454.00 with "cash" as payee.
Purportedly, both checks were simply partial payment for
Rivera’s loan in the principal amount of P120,000.00.
Upon presentment for payment, the two checks were
dishonored for the reason "account closed."
As of 31 May 1999, the amount due the Spouses Chua was
pegged at P366,000.00 covering the principal of P120,000.00
plus five percent (5%) interest per month from 1 January 1996
to 31 May 1999.
The Spouses Chua alleged that they have repeatedly
demanded payment from Rivera to no avail. Because of
Rivera’s unjustified refusal to pay, the Spouses Chua were
constrained to file a suit on 11 June 1999. The case was raffled
before the MeTC, Branch 30, Manila and docketed as Civil Case
No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered
that: (1) he never executed the subject Promissory Note; (2) in
all instances when he obtained a loan from the Spouses Chua,
the loans were always covered by a security; (3) at the time of
the filing of the complaint, he still had an existing indebtedness
to the Spouses Chua, secured by a real estate mortgage, but
not yet in
default; (4) PCIB Check No. 132224 signed by him which he
delivered to the Spouses Chua on 21 December 1998, should
have been issued in the amount of only 1,300.00, representing
the amount he received from the Spouses Chua’s saleslady; (5)
contrary to the supposed agreement, the Spouses Chua
presented the check for payment in the amount of
P133,454.00; and (6) there was no demand for payment of the
amount of P120,000.00 prior to the encashment of PCIB Check
No. 0132224.5
In the main, Rivera claimed forgery of the subject Promissory
Note and denied his indebtedness thereunder.
The MeTC summarized the testimonies of both parties’
respective witnesses:
[The spouses Chua’s] evidence include[s] documentary
evidence and oral evidence (consisting of the testimonies of
[the spouses] Chua and NBI Senior Documents Examiner
Antonio Magbojos). x xx
xxxx
Witness Magbojos enumerated his credentials as follows: joined
the NBI (1987); NBI document examiner (1989); NBI Senior
Document Examiner (1994 to the date he testified); registered
criminologist; graduate of 18th Basic Training Course [i]n
Questioned Document Examination conducted by the NBI; twice
attended a seminar on US Dollar Counterfeit Detection
conducted by the US Embassy in Manila; attended a seminar on
Effective Methodology in Teaching and Instructional design
conducted by the NBI Academy; seminar lecturer on
Questioned Documents, Signature Verification and/or Detection;
had examined more than a hundred thousand questioned
documents at the time he testified.
192 | P a g e
Upon [order of the MeTC], Mr. Magbojos examined the
purported signature of [Rivera] appearing in the Promissory
Note and compared the signature thereon with the specimen
signatures of [Rivera] appearing on several documents. After a
thorough study, examination, and comparison of the signature
on the questioned document (Promissory Note) and the
specimen signatures on the documents submitted to him, he
concluded that the questioned signature appearing in the
Promissory Note and the specimen signatures of [Rivera]
appearing on the other documents submitted were written by
one and the same person. In connection with his findings,
Magbojos prepared Questioned Documents Report No. 712-
1000 dated 8 January 2001, with the following conclusion: "The
questioned and the standard specimen signatures RODGRIGO
RIVERA were written by one and the same person."
[Rivera] testified as follows: he and [respondent] Salvador are
"kumpadres;" in May 1998, he obtained a loan from
[respondent] Salvador and executed a real estate mortgage
over a parcel of land in favor of [respondent Salvador] as
collateral; aside from this loan, in October, 1998 he
borrowedP25,000.00 from Salvador and issued PCIB Check No.
126407 dated 30 December 1998; he expressly denied
execution of the Promissory Note dated 24 February 1995 and
alleged that the signature appearing thereon was not his
signature; [respondent Salvador’s] claim that PCIB Check No.
0132224 was partial payment for the Promissory Note was not
true, the truth being that he delivered the check to [respondent
Salvador] with the space for amount left blank as he and
[respondent] Salvador had agreed that the latter was to fill it in
with the amount of P1,300.00 which amount he owed [the
spouses Chua]; however, on 29 December 1998 [respondent]
Salvador called him and told him that he had
writtenP133,454.00 instead ofP1,300.00; x x x. To rebut the
testimony of NBI Senior Document Examiner Magbojos, [Rivera]
reiterated his averment that the signature appearing on the
Promissory Note was not his signature and that he did not
execute the Promissory Note.6
After trial, the MeTC ruled in favor of the Spouses Chua:
WHEREFORE, [Rivera] is required to pay [the spouses Chua]:
P120,000.00 plus stipulated interest at the rate of 5% per
month from 1 January 1996, and legal interest at the rate of
12% percent per annum from 11 June 1999, as actual and
compensatory damages; 20% of the whole amount due as
attorney’s fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed
the Decision of the MeTC, but deleted the award of attorney’s
fees to the Spouses Chua:
WHEREFORE, except as to the amount of attorney’s fees which
is hereby deleted, the rest of the Decision dated October 21,
2002 is hereby AFFIRMED.8
Both trial courts found the Promissory Note as authentic and
validly bore the signature of Rivera. Undaunted, Rivera
appealed to the Court of Appeals which affirmed Rivera’s
liability under the Promissory Note, reduced the imposition of
interest on the loan from 60% to 12% per annum, and
reinstated the award of attorney’s fees in favor of the Spouses
Chua:
WHEREFORE, the judgment appealed from is hereby AFFIRMED,
subject to the MODIFICATION that the interest rate of 60% per
annum is hereby reduced to12% per annum and the award of
attorney’s fees is reinstated atthe reduced amount of
P50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof
Rivera in G.R. No. 184458 and the Spouses Chua in G.R. No.
184472, respectively raising the following issues:
193 | P a g e
A. In G.R. No. 184458
On 26 February 2009, Entry of Judgment was made in G.R. No.
184472.
Thus, what remains for our disposition is G.R. No. 184458, the
appeal of Rivera questioning the entire ruling of the Court of
Appeals in CA-G.R. SP No. 90609.
Rivera continues to deny that heexecuted the Promissory Note;
he claims that given his friendship withthe Spouses Chua who
were money lenders, he has been able to maintain a loan
account with them. However, each of these loan transactions
was respectively "secured by checks or sufficient collateral."
Rivera points out that the Spouses Chua "never demanded
payment for the loan nor interest thereof (sic) from [Rivera] for
almost four (4) years from the time of the alleged default in
payment [i.e., after December 31, 1995]."13
On the issue of the supposed forgery of the promissory note,
we are not inclined to depart from the lower courts’ uniform
rulings that Rivera indeed signed it.
Rivera offers no evidence for his asseveration that his signature
on the promissory note was forged, only that the signature is
not his and varies from his usual signature. He likewise makes a
confusing defense of having previously obtained loans from the
Spouses Chua who were money lenders and who had allowed
him a period of "almost four (4) years" before demanding
payment of the loan under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery
over the testimony of the National Bureau of Investigation (NBI)
handwriting expert on the integrity of the promissory note. On
that score, the appellate court aptly disabled Rivera’s
contention:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN UPHOLDING THE RULING OF THE RTC AND M[e]TC
THAT THERE WAS A VALID PROMISSORY NOTE EXECUTED BY
[RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN HOLDING THAT DEMAND IS NO LONGER NECESSARY
AND IN APPLYING THE PROVISIONS OF THE NEGOTIABLE
INSTRUMENTS LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN AWARDING ATTORNEY’S FEES DESPITE THE FACT
THAT THE SAME HAS NO BASIS IN FACT AND IN LAW AND
DESPITE THE FACT THAT [THE SPOUSES CHUA] DID NOT APPEAL
FROM THE DECISION OF THE RTC DELETING THE AWARD OF
ATTORNEY’S FEES.10
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS
COMMITTED GROSS LEGAL ERROR WHEN IT MODIFIED THE
APPEALED JUDGMENT BY REDUCING THE INTEREST RATE FROM
60% PER ANNUM TO 12% PER ANNUM IN SPITE OF THE FACT
THAT RIVERA NEVER RAISED IN HIS ANSWER THE DEFENSE
THAT THE SAID STIPULATED RATE OF INTEREST IS EXORBITANT,
UNCONSCIONABLE, UNREASONABLE, INEQUITABLE, ILLEGAL,
IMMORAL OR VOID.11
As early as 15 December 2008, wealready disposed of G.R. No.
184472 and denied the petition, via a Minute Resolution, for
failure to sufficiently show any reversible error in the ruling of
the appellate court specifically concerning the correct rate of
interest on Rivera’s indebtedness under the Promissory Note.12
 194 | P a g e
[Rivera] failed to adduce clear and convincing evidence that the
signature on the promissory note is a forgery. The fact of
forgery cannot be presumed but must be proved by clear,
positive and convincing evidence. Mere variance of signatures
cannot be considered as conclusive proof that the same was
forged. Save for the denial of Rivera that the signature on the
note was not his, there is nothing in the records to support his
claim of forgery. And while it is true that resort to experts is not
mandatory or indispensable to the examination of alleged
forged documents, the opinions of handwriting experts are
nevertheless helpful in the court’s determination of a
document’s authenticity.
To be sure, a bare denial will not suffice to overcome the
positive value of the promissory note and the testimony of the
NBI witness. In fact, even a perfunctory comparison of the
signatures offered in evidence would lead to the conclusion that
the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden
of proof must establish his case by preponderance of evidence,
which simply means "evidence which is of greater weight, or
more convincing than that which is offered in opposition to it."
Evaluating the evidence on record, we are convinced that [the
Spouses Chua] have established a prima faciecase in their
favor, hence, the burden of evidence has shifted to [Rivera] to
prove his allegation of forgery. Unfortunately for [Rivera], he
failed to substantiate his defense.14 Well-entrenched in
jurisprudence is the rule that factual findings of the trial court,
especially when affirmed by the appellate court, are accorded
the highest degree of respect and are considered conclusive
between the parties.15 A review of such findings by this Court
is not warranted except upon a showing of highly meritorious
circumstances, such as: (1) when the findings of a trial court
are grounded entirely on speculation, surmises or conjectures;
(2) when a lower court's inference from its factual findings is
manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of discretion in
the appreciation of facts; (4) when the findings of the appellate
court go beyond the issues of the case, or fail to notice certain
relevant facts which, if properly considered, will justify a
different conclusion; (5) when there is a misappreciation of
facts; (6) when the findings of fact are conclusions without
mention of the specific evidence on which they are based, are
premised on the absence of evidence, or are contradicted by
evidence on record.16 None of these exceptions obtains in this
instance. There is no reason to depart from the separate factual
findings of the three (3) lower courts on the validity of Rivera’s
signature reflected in the Promissory Note.
Indeed, Rivera had the burden ofproving the material
allegations which he sets up in his Answer to the plaintiff’s
claim or cause of action, upon which issue is joined, whether
they relate to the whole case or only to certain issues in the
case.17
In this case, Rivera’s bare assertion is unsubstantiated and
directly disputed by the testimony of a handwriting expert from
the NBI. While it is true that resort to experts is not mandatory
or indispensable to the examination or the comparison of
handwriting, the trial courts in this case, on its own, using the
handwriting expert testimony only as an aid, found the disputed
document valid.18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of
the following: categorical statement of [respondent] Salvador
that [Rivera] signed the Promissory Note before him, in his
([Rivera’s]) house; the conclusion of NBI Senior Documents
Examiner that the questioned signature (appearing on the
Promissory Note) and standard specimen signatures "Rodrigo
Rivera" "were written by one and the same person"; actual view
195 | P a g e
at the hearing of the enlarged photographs of the questioned
signature and the standard specimen signatures.19
Specifically, Rivera insists that: "[i]f that promissory note
indeed exists, it is beyond logic for a money lender to extend
another loan on May 4, 1998 secured by a real estate
mortgage, when he was already in default and has not been
paying any interest for a loan incurred in February 1995."20
We disagree.
It is likewise likely that precisely because of the long standing
friendship of the parties as "kumpadres," Rivera was allowed
another loan, albeit this time secured by a real estate
mortgage, which will cover Rivera’s loan should Rivera fail to
pay. There is nothing inconsistent with the Spouses Chua’s two
(2) and successive loan accommodations to Rivera: one,
secured by a real estate mortgage and the other, secured by
only a Promissory Note.
Also completely plausible is thatgiven the relationship between
the parties, Rivera was allowed a substantial amount of time
before the Spouses Chua demanded payment of the obligation
due under the Promissory Note.
In all, Rivera’s evidence or lack thereof consisted only of a
barefaced claim of forgery and a discordant defense to assail
the authenticity and validity of the Promissory Note. Although
the burden of proof rested on the Spouses Chua having
instituted the civil case and after they established a prima facie
case against Rivera, the burden of evidence shifted to the latter
to establish his defense.21 Consequently, Rivera failed to
discharge the burden of evidence, refute the existence of the
Promissory Note duly signed by him and subsequently, that he
did not fail to pay his obligation thereunder. On the whole, there
was no question left on where the respective evidence of the
parties
preponderated—in favor of plaintiffs, the Spouses Chua.
Rivera next argues that even assuming the validity of the
Promissory Note, demand was still necessary in order to charge
him liable thereunder. Rivera argues that it was grave error on
the part of the appellate court to apply Section 70 of the
Negotiable Instruments Law (NIL).22
We agree that the subject promissory note is not a negotiable
instrument and the provisions of the NIL do not apply to this
case. Section 1 of the NIL requires the concurrence of the
following elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a
sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable
future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what
negotiable promissory note is: SECTION 184. Promissory Note,
Defined. – A negotiable promissory note within the meaning of
this Act is an unconditional promise in writing made by one
person to another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a sum
certain in money to order or to bearer. Where a note is drawn to
the maker’s own order, it is not complete until indorsed by him.
196 | P a g e
The Promissory Note in this case is made out to specific
persons, herein respondents, the Spouses Chua, and not to
order or to bearer, or to the order of the Spouses Chua as
payees. However, even if Rivera’s Promissory Note is not a
negotiable instrument and therefore outside the coverage of
Section 70 of the NIL which provides that presentment for
payment is not necessary to charge the person liable on the
instrument, Rivera is still liable under the terms of the
Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the
obligation falls due and becomes demandable—31 December
1995. As of 1 January 1996, Rivera had already incurred in
delay when he failed to pay the amount of P120,000.00 due to
the Spouses Chua on 31 December 1995 under the Promissory
Note.
Article 1169 of the Civil Code explicitly provides:
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:
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. (Emphasis supplied)
There are four instances when demand is not necessary to
constitute the debtor in default: (1) when there is an express
stipulation to that effect; (2) where the law so provides; (3)
when the period is the controlling motive or the principal
inducement for the creation of the obligation; and (4) where
demand would be useless. In the first two paragraphs, it is not
sufficient that the law or obligation fixes a date for
performance; it must further state expressly that after the
period lapses, default will commence.
We refer to the clause in the Promissory Note containing the
stipulation of interest:
It is agreed and understood that failure on my part to pay the
amount of (P120,000.00) One Hundred Twenty Thousand Pesos
on December 31, 1995. (sic) I agree to pay the sum equivalent
to FIVE PERCENT (5%) interest monthly from the date of default
until the entire obligation is fully paid for.23
which expressly requires the debtor (Rivera) to pay a 5%
monthly interest from the "date of default" until the entire
obligation is fully paid for. The parties evidently agreed that the
maturity of the obligation at a date certain, 31 December 1995,
will give rise to the obligation to pay interest. The Promissory
Note expressly provided that after 31 December 1995, default
commences and the stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January
1996, the day following 31 December 1995, the due date of the
obligation. On that date, Rivera became liable for the stipulated
(1) When the obligation or the law expressly so declare; 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.
197 | P a g e
interest which the Promissory Note says is equivalent to 5% a
month. In sum, until 31 December 1995, demand was not
necessary before Rivera could be held liable for the principal
amount of P120,000.00. Thereafter, on 1 January 1996, upon
default, Rivera became liable to pay the Spouses Chua
damages, in the form of stipulated interest.
The liability for damages of those who default, including those
who are guilty of delay, in the performance of their obligations
is laid down on Article 117024 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of
payment of interest as an indemnity for damages when the
obligor incurs in delay:
Art. 2209. If the obligation consists inthe payment of a sum of
money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be
the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six percent per annum.
(Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1)
the obligation is for a sum of money; (2) the debtor, Rivera,
incurred in delay when he failed to pay on or before 31
December 1995; and (3) the Promissory Note provides for an
indemnity for damages upon default of Rivera which is the
payment of a 5%monthly interest from the date of default.
We do not consider the stipulation on payment of interest in
this case as a penal clause although Rivera, as obligor,
assumed to pay additional 5% monthly interest on the principal
amount of P120,000.00 upon default.
Article 1226 of the Civil Code provides:
Art. 1226. In obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of
interests in case of noncompliance, if there isno 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.
The penal clause is generally undertaken to insure performance
and works as either, or both, punishment and reparation. It is
an exception to the general rules on recovery of losses and
damages. As an exception to the general rule, a penal clause
must be specifically set forth in the obligation.25
In high relief, the stipulation in the Promissory Note is
designated as payment of interest, not as a penal clause, and is
simply an indemnity for damages incurred by the Spouses Chua
because Rivera defaulted in the payment of the amount of
P120,000.00. The measure of damages for the Rivera’s delay is
limited to the interest stipulated in the Promissory Note. In apt
instances, in default of stipulation, the interest is that provided
by law.26
In this instance, the parties stipulated that in case of default,
Rivera will pay interest at the rate of 5% a month or 60% per
annum. On this score, the appellate court ruled:
It bears emphasizing that the undertaking based on the note
clearly states the date of payment tobe 31 December 1995.
Given this circumstance, demand by the creditor isno longer
necessary in order that delay may exist since the contract itself
already expressly so declares. The mere failure of [Spouses
Chua] to immediately demand or collect payment of the value
of the note does not exonerate [Rivera] from his liability
therefrom. Verily, the trial court committed no reversible error
when it imposed
198 | P a g e
interest from 1 January 1996 on the ratiocination that [Spouses
Chua] were relieved from making demand under Article 1169 of
the Civil Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per
month or 60% per annum in addition to legal interests and
attorney’s fees is, indeed, highly iniquitous and unreasonable.
Stipulated interest rates are illegal if they are unconscionable
and the Court is allowed to temper interest rates when
necessary. Since the interest rate agreed upon is void, the
parties are considered to have no stipulation regarding the
interest rate, thus, the rate of interest should be 12% per
annum computed from the date of judicial or extrajudicial
demand.27
The appellate court found the 5% a month or 60% per annum
interest rate, on top of the legal interest and attorney’s fees,
steep, tantamount to it being illegal, iniquitous and
unconscionable. Significantly, the issue on payment of interest
has been squarely disposed of in G.R. No. 184472 denying the
petition of the Spouses Chua for failure to sufficiently showany
reversible error in the ruling of the appellate court, specifically
the reduction of the interest rate imposed on Rivera’s
indebtedness under the Promissory Note. Ultimately, the denial
of the petition in G.R. No. 184472 is res judicata in its concept
of "bar by prior judgment" on whether the Court of Appeals
correctly reduced the interest rate stipulated in the Promissory
Note.
Res judicata applies in the concept of "bar by prior judgment" if
the following requisites concur: (1) the former judgment or
order must be final; (2) the judgment or order must be on the
merits; (3) the decision must have been rendered by a court
having jurisdiction over the subject matter and the parties; and
(4) there
must be, between the first and the second action, identity of
parties, of subject matter and of causes of action.28
In this case, the petitions in G.R. Nos. 184458 and 184472
involve an identity of parties and subject matter raising
specifically errors in the Decision of the Court of Appeals.
Where the Court of Appeals’ disposition on the propriety of the
reduction of the interest rate was raised by the Spouses Chua in
G.R. No. 184472, our ruling thereon affirming the Court of
Appeals is a "bar by prior judgment."
At the time interest accrued from 1 January 1996, the date of
default under the Promissory Note, the then prevailing rate of
legal interest was 12% per annum under Central Bank (CB)
Circular No. 416 in cases involving the loan or for bearance of
money.29 Thus, the legal interest accruing from the Promissory
Note is 12% per annum from the date of default on 1 January
1996. However, the 12% per annumrate of legal interest is only
applicable until 30 June 2013, before the advent and effectivity
of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of
2013 reducing the rate of legal interest to 6% per annum.
Pursuant to our ruling in Nacar v. Gallery Frames,30 BSP
Circular No. 799 is prospectively applied from 1 July 2013. In
short, the applicable rate of legal interest from 1 January 1996,
the date when Rivera defaulted, to date when this Decision
becomes final and executor is divided into two periods
reflecting two rates of legal interest: (1) 12% per annum from 1
January 1996 to 30 June 2013; and (2) 6% per annum FROM 1
July 2013 to date when this Decision becomes final and
executory.
As for the legal interest accruing from 11 June 1999, when
judicial demand was made, to the date when this Decision
becomes final and executory, such is likewise divided into two
periods: (1) 12% per annum from 11 June 1999, the date of
judicial demand to 30 June 2013; and (2) 6% per annum from 1
July 2013 to date when this Decision becomes final and
199 | P a g e
executor.31 We base this imposition of interest on interest due
earning legal interest on Article 2212 of the Civil Code which
provides that "interest due shall earn legal interest from the
time it is judicially demanded, although the obligation may be
silent on this point."
From the time of judicial demand, 11 June 1999, the actual
amount owed by Rivera to the Spouses Chua could already be
determined with reasonable certainty given the wording of the
Promissory Note.32
We cite our recent ruling in Nacar v. Gallery Frames:33
2. When an obligation, not constituting a loan or forbearance
of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum.1âwphi1 No interest, however, shall be
adjudged on unliquidated claims or damages, except when or
until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
adjudged. 3. When the judgment of the court awarding a sum
of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph
2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an
equivalent to a for bearance of credit. And, in addition to the
above, judgments that have become final and executory prior
to July 1, 2013, shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed therein.
(Emphasis supplied)
I. When an obligation, regardless of its source, i.e., law,
contracts, quasicontracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or for bearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 6% per
annum to be computed from default, i.e., from judicial or extra
judicial demand under and subject to the provisions ofArticle
1169 of the Civil Code.
On the reinstatement of the award of attorney’s fees based on
the stipulation in the Promissory Note, weagree with the
reduction thereof but not the ratiocination of the appellate
court that the attorney’s fees are in the nature of liquidated
damages or penalty.
200 | P a g e
The interest imposed in the Promissory Note already answers as
liquidated damages for Rivera’s default in paying his obligation.
We award attorney’s fees, albeit in a reduced amount, in
recognition that the Spouses Chua were compelled to litigate
and incurred expenses to protect their interests.34 Thus, the
award of P50,000.00 as attorney’s fees is proper.
For clarity and to obviate confusion, we chart the breakdown of
the total amount owed by Rivera to the Spouses Chua:
principal amount
of P120,000.0 0
B. 6% per annumon the principal amount
of P120,000.0 0
annumon the total amount of column 2 B. 6% per annumon the
total amount of
column 235
of Column s 1-4
Face value of the Promissory Note
Stipulated Interest A & B
Interest Attorney’s due fees earning
legal
interest A &B
Total Amount
February 24, 1995 to December 31, 1995
A. January 1, 1996 to June 30, 2013
B. July 1 2013 to date when this Decision becomes final and
executory
A. June 11, 1999 (date of judicial demand) to June 30, 2013 B.
July 1, 2013 to date when this Decision becomes final and
executor y
Wholesale Amount
P120,000.0 A. 12 % per A. 12% P50,000.0 Total
0 annumon the per 0 amount
The total amount owing to the Spouses Chua set forth in
this Decision shall further earn legal interest at the rate of 6%
per annum computed from its finality until full payment thereof,
the interim period being deemed to be a forbearance of credit.
WHEREFORE, the petition in G.R. No. 184458 is DENIED. The
Decision of the Court of Appeals in CA-G.R. SP No. 90609 is
MODIFIED. Petitioner Rodrigo Rivera is ordered to pay
respondents Spouse Salvador and Violeta Chua the following:
(1) the principal amount of P120,000.00;
(2) legal interest of 12% per annumof the principal amount of
P120,000.00 reckoned from 1 January 1996 until 30 June 2013;
(3) legal interest of 6% per annumof the principal amount
ofP120,000.00 form 1 July 2013 to date when this Decision
becomes final and executory;
(4) 12% per annumapplied to the total of paragraphs 2 and 3
from 11 June 1999, date of judicial demand, to 30 June 2013, as
interest due earning legal interest;
201 | P a g e
Costs against petitioner Rodrigo Rivera.
44. SOLAR HARVEST, INC.,
Petitioner,
- versus -
DAVAO CORRUGATED CARTON CORPORATION,
Respondent.
x------------------------------------------------------------------------------------x
Petitioner seeks a review of the Court of Appeals (CA)
Decision1[1] dated September 21, 2006 and Resolution2[2]
dated February 23, 2007, which denied petitioners motion for
reconsideration. The assailed Decision denied petitioners claim
for reimbursement for the amount it paid to respondent for the
manufacture of corrugated carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc.,
entered into an agreement with respondent, Davao Corrugated
Carton Corporation, for the purchase of corrugated carton
boxes, specifically designed for petitioners business of
exporting fresh bananas, at US$1.10 each. The agreement was
not reduced into writing. To get the production underway,
petitioner deposited, on March 31, 1998, US$40,150.00 in
respondents US Dollar Savings Account with Westmont Bank, as
full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes
from respondent. On January 3, 2001, petitioner wrote a
demand letter for reimbursement of the amount paid.3[3] On
February 19, 2001, respondent replied that the boxes had been
completed as early as April 3, 1998 and that petitioner failed to
pick them up from the formers warehouse 30 days from
completion, as agreed upon. Respondent mentioned that
NACHURA, J.:
DECISION
(5) 6% per annumapplied to the total amount of paragraphs 2
and 3 from 1 July 2013 to date when this Decision becomes
final and executor, asinterest due earning legal interest;
(6) Attorney’s fees in the amount of P50,000.00; and
(7) 6% per annum interest on the total of the monetary awards
from the finality of this Decision until full payment thereof.
G.R. No. 176868
Present:
CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD, and
MENDOZA, JJ.
Promulgated:
July 26, 2010
202 | P a g e
petitioner even placed an additional order of 24,000 boxes, out
of which, 14,000 had been manufactured without any advanced
payment from petitioner. Respondent then demanded petitioner
to remove the boxes from the factory and to pay the balance of
US$15,400.00 for the additional boxes and P132,000.00 as
storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of
money and damages against respondent. The Complaint
averred that the parties agreed that the boxes will be delivered
within 30 days from payment but respondent failed to
manufacture and deliver the boxes within such time. It further
alleged
6. That repeated follow-up was made by the plaintiff for the
immediate production of the ordered boxes, but every time,
defendant [would] only show samples of boxes and ma[k]e
repeated promises to deliver the said ordered boxes.
7. That because of the failure of the defendant to deliver the
ordered boxes, plaintiff ha[d] to cancel the same and demand
payment and/or refund from the defendant but the latter
refused to pay and/or refund the US$40,150.00 payment made
by the former for the ordered boxes.4[4]
In its Answer with Counterclaim,5[5] respondent insisted that,
as early as April 3, 1998, it had already completed production
of the 36,500 boxes, contrary to petitioners allegation.
According to respondent, petitioner, in fact, made an additional
order of 24,000 boxes, out of which, 14,000 had been
completed without waiting for petitioners payment. Respondent
stated that petitioner was to pick up the boxes at the factory as
agreed upon, but petitioner failed to do so. Respondent averred
that, on October 8, 1998, petitioners representative, Bobby Que
(Que), went to the factory and saw that the boxes were ready
for pick up. On February 20, 1999, Que visited the factory again
and supposedly advised respondent to sell the boxes as rejects
to recoup the cost of the unpaid 14,000 boxes, because
petitioners transaction to ship bananas to China did not
materialize. Respondent claimed that the boxes were occupying
warehouse space and that petitioner should be made to pay
storage fee at P60.00 per square meter for every month from
April 1998. As counterclaim, respondent prayed that judgment
be rendered ordering petitioner to pay $15,400.00, plus
interest, moral and exemplary damages, attorneys fees, and
costs of the suit.
In reply, petitioner denied that it made a second order of
24,000 boxes and that respondent already completed the initial
order of 36,500 boxes and 14,000 boxes out of the second
order. It maintained that respondent only manufactured a
sample of the ordered boxes and that respondent could not
have produced 14,000 boxes without the required pre-
payments.6[6]
During trial, petitioner presented Que as its sole witness. Que
testified that he ordered the boxes from respondent and
deposited the money in respondents account.7[7] He
specifically stated that, when he visited respondents factory, he
saw that the boxes had no print of petitioners logo.8[8] A few
months later, he followed-up the order and was told that the
company had full production, and thus, was promised that
production of the order would be rushed. He told respondent
that it should indeed rush production because the need for the
boxes was urgent. Thereafter, he asked his partner, Alfred Ong,
to cancel the order
203 | P a g e
because it was already late for them to meet their commitment
to ship the bananas to China.9[9] On cross-examination, Que
further testified that China Zero Food, the Chinese company
that ordered the bananas, was sending a ship to Davao to get
the bananas, but since there were no cartons, the ship could
not proceed. He said that, at that time, bananas from Tagum
Agricultural Development Corporation (TADECO) were already
there. He denied that petitioner made an additional order of
24,000 boxes. He explained that it took three years to refer the
matter to counsel because respondent promised to pay.10[10]
For respondent, Bienvenido Estanislao (Estanislao) testified that
he met Que in Davao in October 1998 to inspect the boxes and
that the latter got samples of them. In February 2000, they
inspected the boxes again and Que got more samples.
Estanislao said that petitioner did not pick up the boxes
because the ship did not arrive. 11 [11] Jaime Tan (Tan),
president of respondent, also testified that his company
finished production of the 36,500 boxes on April 3, 1998 and
that petitioner made a second order of 24,000 boxes. He said
that the agreement was for respondent to produce the boxes
and for petitioner to pick them up from the warehouse.12[12]
He also said that the reason why petitioner did not pick up the
boxes was that the ship that was to carry the bananas did not
arrive.13[13] According to him, during the last visit of Que and
Estanislao, he asked them to withdraw the boxes immediately
because they were occupying a big space in his plant, but they,
instead, told him to sell the cartons as rejects. He was able to
sell 5,000 boxes at P20.00 each for a total of P100,000.00. They
then told him to apply the said amount to the unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC)
ruled that respondent did not commit any breach of faith that
would justify rescission of the contract and the consequent
reimbursement of the amount paid by petitioner. The RTC said
that respondent was able to produce the ordered boxes but
petitioner failed to obtain possession thereof because its ship
did not arrive. It thus dismissed the complaint and respondents
counterclaims, disposing as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of defendant and against the plaintiff and,
accordingly, plaintiffs complaint is hereby ordered DISMISSED
without pronouncement as to cost. Defendants counterclaims
are similarly dismissed for lack of merit.
SO ORDERED.14[14]
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal for lack of
merit.15[15] The appellate court held that petitioner failed to
discharge its burden of proving what it claimed to be the parties
agreement with respect to the delivery of the boxes. According
to the CA, it was unthinkable that, over a period of more than
two years, petitioner did not even demand for the delivery of
the boxes. The CA added that even assuming that the
agreement was for respondent to deliver the boxes, respondent
would not be liable for breach of contract as petitioner had not
yet demanded from it the delivery of the boxes.16[16]
204 | P a g e
Petitioner moved for reconsideration,17[17] but the motion was
denied by the CA in its Resolution of February 23, 2007.18[18]
In this petition, petitioner insists that respondent did not
completely manufacture the boxes and that it was respondent
which was obliged to deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would
justify the grant of this petition.
Petitioners claim for reimbursement is actually one for
the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law.
The right to rescind a contract arises once the other party
defaults in the performance of his obligation. In determining
when default occurs, Art. 1191 should be taken in conjunction
with Art. 1169 of the same law, which provides:
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
rescission (or resolution) of contract under Article 1191 Civil
Code, which reads:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired
of the
incurs
not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of
in delay if the other does not comply or is
205 | P a g e
the parties fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general
rule is that the fulfillment of the parties respective obligations
should be simultaneous. Hence, no demand is generally
necessary because, once a party fulfills his obligation and the
other party does not fulfill his, the latter automatically incurs in
delay. But when different dates for performance of the
obligations are fixed, the default for each obligation must be
determined by the rules given in the first paragraph of the
present article,19[19] that is, the other party would incur in
delay only from the moment the other party demands
fulfillment of the formers obligation. Thus, even in reciprocal
obligations, if the period for the fulfillment of the obligation is
fixed, demand upon the obligee is still necessary before the
obligor can be considered in default and before a cause of
action for rescission will accrue.
Evident from the records and even from the allegations in the
complaint was the lack of demand by petitioner upon
respondent to fulfill its obligation to manufacture and deliver
the boxes. The Complaint only alleged that petitioner made a
follow- up upon respondent, which, however, would not qualify
as a demand for the fulfillment of the obligation. Petitioners
witness also testified that they made a follow-up of the boxes,
but not a demand. Note is taken of the fact that, with respect to
their claim for reimbursement, the Complaint alleged and the
witness testified that a demand letter was sent to respondent.
Without a previous demand for the fulfillment of the obligation,
petitioner would not have a cause of action for rescission
against respondent as the latter would not yet be considered in
breach of its contractual obligation.
Even assuming that a demand had been previously made
before filing the present case, petitioners claim for
reimbursement would still fail, as the circumstances would
show that respondent was not guilty of breach of contract.
The existence of a breach of contract is a factual matter not
usually reviewed in a petition for review under Rule 45.20[20]
The Court, in petitions for review, limits its inquiry only to
questions of law. After all, it is not a trier of facts, and findings
of fact made by the trial court, especially when reiterated by
the CA, must be given great respect if not considered as
final.21[21] In dealing with this petition, we will not veer away
from this doctrine and will thus sustain the factual findings of
the CA, which we find to be adequately supported by the
evidence on record.
As correctly observed by the CA, aside from the pictures of the
finished boxes and the production report thereof, there is ample
showing that the boxes had already been manufactured by
respondent. There is the testimony of Estanislao who
accompanied Que to the factory, attesting that, during their
first visit to the company, they saw the pile of petitioners boxes
and Que took samples thereof. Que, petitioners witness, himself
confirmed this incident. He testified that Tan pointed the boxes
to him and that he got a sample and saw that it was blank.
Ques absolute assertion that the boxes were not manufactured
is, therefore, implausible and suspicious.
In fact, we note that respondents counsel manifested in court,
during trial, that his client was willing to shoulder expenses for
a representative of the court to visit the plant and see the
boxes.22[22] Had it been true that the boxes were not yet
206 | P a g e
completed, respondent would not have been so bold as to
challenge the court to conduct an ocular inspection of their
warehouse. Even in its Comment to this petition, respondent
prays that petitioner be ordered to remove the boxes from its
factory site,23[23] which could only mean that the boxes are,
up to the present, still in respondents premises.
We also believe that the agreement between the parties was
for petitioner to pick up the boxes from respondents warehouse,
contrary to petitioners allegation. Thus, it was due to
petitioners fault that the boxes were not delivered to TADECO.
Petitioner had the burden to prove that the agreement was, in
fact, for respondent to deliver the boxes within 30 days from
payment, as alleged in the Complaint. Its sole witness, Que,
was not even competent to testify on the terms of the
agreement and, therefore, we cannot give much credence to
his testimony. It appeared from the testimony of Que that he
did not personally place the order with Tan, thus:
Q. No, my question is, you went to Davao City and placed your
order there?
A. I made a phone call.
Q. You made a phone call to Mr. Tan?
A. The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has
a contact with Mr. Tan.
Q. So, your first statement that you were the one who placed
the order is not true?
A. Thats true. The Solar Harvest made a contact with Mr. Tan
and I deposited the money in the bank.
Q. You said a while ago [t]hat you were the one who called Mr.
Tan and placed the order for 36,500 boxes, isnt it?
A. First time it was Mr. Alfred Ong.
Q. It was Mr. Ong who placed the order[,] not you?
A. Yes, sir.24[24]
Q. Is it not a fact that the cartons were ordered through Mr.
Bienvenido Estanislao? A. Yes, sir.25[25]
Moreover, assuming that respondent was obliged to deliver the
boxes, it could not have complied with such obligation. Que,
insisting that the boxes had not been manufactured, admitted
that he did not give respondent the authority to deliver the
boxes to TADECO:
Q. Did you give authority to Mr. Tan to deliver these boxes to
TADECO?
A. No, sir. As I have said, before the delivery, we must have to
check the carton, the quantity and quality. But I have not seen
a single carton.
Q. Are you trying to impress upon the [c]ourt that it is only after
the boxes are
207 | P a g e
completed, will you give authority to Mr. Tan to deliver the
boxes to TADECO[?]
A. Sir, because when I checked the plant, I have not seen any
carton. I asked Mr. Tan to rush the carton but not26[26]
Q. Did you give any authority for Mr. Tan to deliver these boxes
to TADECO?
A. Because I have not seen any of my carton.
Q. You dont have any authority yet given to Mr. Tan?
A. None, your Honor.27[27]
Surely, without such authority, TADECO would not have allowed
respondent to deposit the boxes within its premises.
In sum, the Court finds that petitioner failed to establish a
cause of action for rescission, the evidence having shown that
respondent did not commit any breach of its contractual
obligation. As previously stated, the subject boxes are still
within respondents premises. To put a rest to this dispute, we
therefore relieve respondent from the burden of having to keep
the boxes within its premises and, consequently, give it the
right to dispose of them, after petitioner is given a period of
time within which to remove them from the premises.
WHEREFORE, premises considered, the petition is DENIED. The
Court of Appeals Decision dated September 21, 2006 and
Resolution dated February 23, 2007 are AFFIRMED. In addition,
petitioner is given a period of 30 days from notice within which
to cause the removal of the 36,500
boxes from respondents warehouse. After the lapse of said
period and petitioner fails to effect such removal, respondent
shall have the right to dispose of the boxes in any manner it
may deem fit.
SO ORDERED.
45. 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;
208 | P a g e
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 2 addressed 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
209 | P a g e
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 10 condition, no contract ever came into existence
between them ;
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
210 | P a g e
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
211 | P a g e
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
212 | P a g e
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.
46. G.R. No. L-15645 January 31, 1964
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs- appellees,
vs.
NATIONAL RICE AND CORN CORPORATION, defendant-
appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-
appellee.
Teehankee and Carreon for plaintiffs-appellees.
The Government Corporate Counsel for defendant-appellant.
Isidro A. Vera for defendant-appellee.
REGALA, J.:
This is an appeal of the defendant-appellant NARIC from the
decision of the trial court dated February 20, 1958, awarding to
the plaintiffs-appellees the amount of $286,000.00 as damages
for breach of contract and dismissing the counterclaim and
third party complaint of the defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the
National Rice and Corn Administration (NARIC) is hereby
abolished and all its assets, liabilities, functions, powers which
are not inconsistent with the provisions of this Act, and all
personnel are transferred "to the Rice and Corn Administration
(RCA).
All references, therefore, to the NARIC in this decision must
accordingly be adjusted and read as RCA pursuant to the
aforementioned law.
213 | P a g e
On May 19, 1952, plaintiff-appellee participated in the public
bidding called by the NARIC for the supply of 20,000 metric
tons of Burmese rice. As her bid of $203.00 per metric ton was
the lowest, she was awarded the contract for the same.
Accordingly, on July 1, 1952, plaintiff-appellee Paz P. Arrieta and
the appellant corporation entered into a Contract of Sale of
Rice, under the terms of which the former obligated herself to
deliver to the latter 20,000 metric tons of Burmess Rice at
$203.00 per metric ton, CIF Manila. In turn, the defendant
corporation committed itself to pay for the imported rice "by
means of an irrevocable, confirmed and assignable letter of
credit in U.S. currency in favor of the plaintiff-appellee and/or
supplier in Burma, immediately." Despite the commitment to
pay immediately "by means of an irrevocable, confirmed and
assignable Letter of Credit," however, it was only on July 30,
1952, or a full month from the execution of the contract, that
the defendant corporation, thru its general manager, took the
first to open a letter of credit by forwarding to the Philippine
National Bank its Application for Commercial Letter Credit. The
application was accompanied by a transmittal letter, the
relevant paragraphs of which read:
In view of the fact that we do not have sufficient deposit with
your institution with which to cover the amount required to be
deposited as a condition for the opening of letters of credit, we
will appreciate it if this application could be considered special
case.
We understand that our supplier, Mrs. Paz P. Arrieta, has a
deadline to meet which is August 4, 1952, and in order to
comply therewith, it is imperative that the L/C be opened prior
to that date. We would therefore request your full cooperation
on this matter.
On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel,
advised the appellant corporation of the extreme necessity for
the
immediate opening of the letter credit since she had by then
made a tender to her supplier in Rangoon, Burma, "equivalent
to 5% of the F.O.B. price of 20,000 tons at $180.70 and in
compliance with the regulations in Rangoon this 5% will be
confiscated if the required letter of credit is not received by
them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the
appellant corporation that its application, "for a letter of credit
for $3,614,000.00 in favor of Thiri Setkya has been approved by
the Board of Directors with the condition that marginal cash
deposit be paid and that drafts are to be paid upon
presentment." (Exh. J-pl.; Exh. 10-def., p. 19, Folder of Exhibits).
Furthermore, the Bank represented that it "will hold your
application in abeyance pending compliance with the above
stated requirement."
As it turned out, however, the appellant corporation not in any
financial position to meet the condition. As matter of fact, in a
letter dated August 2, 1952, the NARIC bluntly confessed to the
appellee its dilemma: "In this connection, please be advised
that our application for opening of the letter of credit has been
presented to the bank since July 30th but the latter requires
that we first deposit 50% of the value of the letter amounting to
aproximately $3,614,000.00 which we are not in a position to
meet." (Emphasis supplied. Exh. 9-Def.; Exh. 1-Pe., p. 18, Folder
of Exhibits)
Consequently, the credit instrument applied for was opened
only on September 8, 1952 "in favor of Thiri Setkya, Rangoon,
Burma, and/or assignee for $3,614,000.00," (which is more than
two months from the execution of the contract) the party
named by the appellee as beneficiary of the letter of
credit.1äwphï1.ñët
As a result of the delay, the allocation of appellee's supplier in
Rangoon was cancelled and the 5% deposit, amounting to
524,000 kyats or approximately P200,000.00 was forfeited. In
this connection, it must be made of record that although the
Burmese
214 | P a g e
authorities had set August 4, 1952, as the deadline for the
remittance of the required letter of credit, the cancellation of
the allocation and the confiscation of the 5% deposit were not
effected until August 20, 1952, or, a full half month after the
expiration of the deadline. And yet, even with the 15-day grace,
appellant corporation was unable to make good its commitment
to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled
Burmese rice allocation. When the futility of reinstating the
same became apparent, she offered to substitute Thailand rice
instead to the defendant NARIC, communicating at the same
time that the offer was "a solution which should be beneficial to
the NARIC and to us at the same time." (Exh. X-Pe., Exh. 25—
Def., p. 38, Folder of Exhibits). This offer for substitution,
however, was rejected by the appellant in a resolution dated
November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant,
demanding compensation for the damages caused her in the
sum of $286,000.00, U.S. currency, representing unrealized
profit. The demand having been rejected she instituted this
case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the
Manila Underwriters Insurance Company was brought to the
suit as a third party defendant to hold it liable on the
performance bond it executed in favor of the plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason
for the cancellation of the allocation contracted by the appellee
herein in Rangoon, Burma, was the failure of the letter of credit
to be opened with the contemplated period. This failure must,
therefore, be taken as the immediate cause for the consequent
damage which resulted.
As it is then, the disposition of this case depends on a
determination of who was responsible for such failure. Stated
differently, the issue is whether appellant's failure to open
immediately the letter of credit in dispute amounted to a
breach of the contract of July 1, 1952 for which it may be held
liable in damages.
Appellant corporation disclaims responsibility for the delay in
the opening of the letter of credit. On the contrary, it insists
that the fault lies with the appellee. Appellant contends that the
disputed negotiable instrument was not promptly secured
because the appellee , failed to seasonably furnish data
necessary and required for opening the same, namely, "(1) the
amount of the letter of credit, (2) the person, company or
corporation in whose favor it is to be opened, and (3) the place
and bank where it may be negotiated." Appellant would have
this Court believe, therefore, that had these informations been
forthwith furnished it, there would have been no delay in
securing the instrument.
Appellant's explanation has neither force nor merit. In the first
place, the explanation reaches into an area of the proceedings
into which We are not at liberty to encroach. The explanation
refers to a question of fact. Nothing in the record suggests any
arbitrary or abusive conduct on the part of the trial judge in the
formulation of the ruling. His conclusion on the matter is
sufficiently borne out by the evidence presented. We are
denied, therefore, the prerogative to disturb that finding,
consonant to the time-honored tradition of this Tribunal to hold
trial judges better situated to make conclusions on questions of
fact. For the record, We quote hereunder the lower court's
ruling on the point:
The defense that the delay, if any in opening the letter of credit
was due to the failure of plaintiff to name the supplier, the
amount and the bank is not tenable. Plaintiff stated in Court
that these facts were known to defendant even before the
contract was executed because these facts were
215 | P a g e
necessarily revealed to the defendant before she could qualify
as a bidder. She stated too that she had given the necessary
data immediately after the execution of Exh. "A" (the contract
of July 1, 1952) to Mr. GABRIEL BELMONTE, General Manager of
the NARIC, both orally and in writing and that she also pressed
for the opening of the letter of credit on these occasions. These
statements have not been controverted and defendant NARIC,
notwithstanding its previous intention to do so, failed to present
Mr. Belmonte to testify or refute this. ...
Secondly, from the correspondence and communications which
form part of the record of this case, it is clear that what
singularly delayed the opening of the stipulated letter of credit
and which, in turn, caused the cancellation of the allocation in
Burma, was the inability of the appellant corporation to meet
the condition importation by the Bank for granting the same.
We do not think the appellant corporation can refute the fact
that had it been able to put up the 50% marginal cash deposit
demanded by the bank, then the letter of credit would have
been approved, opened and released as early as August 4,
1952. The letter of the Philippine National Bank to the NARIC
was plain and explicit that as of the said date, appellant's
"application for a letter of credit ... has been approved by the
Board of Directors with the condition that 50% marginal cash
deposit be paid and that drafts are to be paid upon
presentment." (Emphasis supplied)
The liability of the appellant, however, stems not alone from
this failure or inability to satisfy the requirements of the bank.
Its culpability arises from its willful and deliberate assumption
of contractual obligations even as it was well aware of its
financial incapacity to undertake the prestation. We base this
judgment upon the letter which accompanied the application
filed by the appellant with the bank, a part of which letter was
quoted earlier in this decision. In the said accompanying
correspondence, appellant
admitted and owned that it did "not have sufficient deposit with
your institution (the PNB) with which to cover the amount
required to be deposited as a condition for the opening of
letters of credit. ... .
A number of logical inferences may be drawn from the
aforementioned admission. First, that the appellant knew the
bank requirements for opening letters of credit; second, that
appellant also knew it could not meet those requirement.
When, therefore, despite this awareness that was financially
incompetent to open a letter of credit immediately, appellant
agreed in paragraph 8 of the contract to pay immediately "by
means of an irrevocable, confirm and assignable letter of
credit," it must be similarly held to have bound itself to answer
for all and every consequences that would result from the
representation. aptly observed by the trial court:
... Having called for bids for the importation of rice involving
millions, $4,260,000.00 to be exact, it should have a certained
its ability and capacity to comply with the inevitably
requirements in cash to pay for such importation. Having
announced the bid, it must be deemed to have impliedly
assured suppliers of its capacity and facility to finance the
importation within the required period, especially since it had
imposed the supplier the 90-day period within which the
shipment of the rice must be brought into the Philippines.
Having entered in the contract, it should have taken steps
immediately to arrange for the letter of credit for the large
amount involved and inquired into the possibility of its
issuance.
In relation to the aforequoted observation of the trial court, We
would like to make reference also to Article 11 of the Civil Code
which provides:
216 | P a g e
Those who in the performance of their obligation are guilty of
fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable in damages.
Under this provision, not only debtors guilty of fraud,
negligence or default in the performance of obligations a
decreed liable; in general, every debtor who fails in
performance of his obligations is bound to indemnify for the
losses and damages caused thereby (De la Cruz Seminary of
Manila, 18 Phil. 330; Municipality of Moncada v. Cajuigan, 21
Phil. 184; De la Cavada v. Diaz, 37 Phil. 982; Maluenda & Co. v.
Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; Pando v.
Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63 Phil.
657). The phrase "any manner contravene the tenor" of the
obligation includes any illicit act which impairs the strict and
faithful fulfillment of the obligation or every kind or defective
performance. (IV Tolentino, Civil Code of the Philippines, citing
authorities, p. 103.)
The NARIC would also have this Court hold that the subsequent
offer to substitute Thailand rice for the originally contracted
Burmese rice amounted to a waiver by the appellee of
whatever rights she might have derived from the breach of the
contract. We disagree. Waivers are not presumed, but must be
clearly and convincingly shown, either by express stipulation or
acts admitting no other reasonable explanation. (Ramirez v.
Court of Appeals, 52 O.G. 779.) In the case at bar, no such
intent to waive has been established.
We have carefully examined and studied the oral and
documentary evidence presented in this case and upon which
the lower court based its award. Under the contract, the NARIC
bound itself to buy 20,000 metric tons of Burmese rice at
"$203.00 U.S. Dollars per metric ton, all net shipped weight,
and all in U.S. currency, C.I.F. Manila ..." On the other hand,
documentary and other evidence establish with equal certainty
that the plaintiff-appellee was able to secure the contracted
commodity at the cost price of $180.70 per metric ton from her
supplier in Burma. Considering freights,
insurance and charges incident to its shipment here and the
forfeiture of the 5% deposit, the award granted by the lower
court is fair and equitable. For a clearer view of the equity of
the damages awarded, We reproduce below the testimony of
the appellee, adequately supported by the evidence and
record:
Q. Will you please tell the court, how much is the damage you
suffered?
A. Because the selling price of my rice is $203.00 per metric
ton, and the cost price of my rice is $180.00 We had to pay also
$6.25 for shipping and about $164 for insurance. So adding the
cost of the rice, the freight, the insurance, the total would be
about $187.99 that would be $15.01 gross profit per metric ton,
multiply by 20,000 equals $300,200, that is my supposed profit
if I went through the contract.
The above testimony of the plaintiff was a general
approximation of the actual figures involved in the transaction.
A precise and more exact demonstration of the equity of the
award herein is provided by Exhibit HH of the plaintiff and
Exhibit 34 of the defendant, hereunder quoted so far as
germane.
It is equally of record now that as shown in her request dated
July 29, 1959, and other communications subsequent thereto
for the opening by your corporation of the required letter of
credit, Mrs. Arrieta was supposed to pay her supplier in Burma
at the rate of One Hundred Eighty Dollars and Seventy Cents
($180.70) in U.S. Currency, per ton plus Eight Dollars ($8.00) in
the same currency per ton for shipping and other handling
expenses, so that she is already assured of a net profit of
Fourteen Dollars and Thirty Cents ($14.30), U.S., Currency, per
ton or a total of Two Hundred and Eighty Six Thousand Dollars
($286,000.00), U.S. Currency, in the aforesaid transaction. ...
217 | P a g e
Lastly, herein appellant filed a counterclaim asserting that it
has suffered, likewise by way of unrealized profit damages in
the total sum of $406,000.00 from the failure of the projected
contract to materialize. This counterclaim was supported by a
cost study made and submitted by the appellant itself and
wherein it was illustrated how indeed had the importation
pushed thru, NARIC would have realized in profit the amount
asserted in the counterclaim. And yet, the said amount of
P406,000.00 was realizable by appellant despite a number of
expenses which the appellee under the contract, did not have
to incur. Thus, under the cost study submitted by the appellant,
banking and unloading charges were to be shouldered by it,
including an Import License Fee of 2% and superintendence fee
of $0.25 per metric ton. If the NARIC stood to profit over P400
000.00 from the disputed transaction inspite of the extra
expenditures from which the herein appellee was exempt, we
are convicted of the fairness of the judgment presently under
appeal.
In the premises, however, a minor modification must be
effected in the dispositive portion of the decision appeal from
insofar as it expresses the amount of damages in U.S. currency
and not in Philippine Peso. Republic Act 529 specifically requires
the discharge of obligations only "in any coin or currency which
at the time of payment is legal tender for public and private
debts." In view of that law, therefore, the award should be
converted into and expressed in Philippine Peso.
This brings us to a consideration of what rate of exchange
should apply in the conversion here decreed. Should it be at the
time of the breach, at the time the obligation was incurred or at
the rate of exchange prevailing on the promulgation of this
decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that
in an action for recovery of damages for breach of contract,
even if the obligation assumed by the defendant was to pay the
plaintiff a sum of money expressed in American currency, the
indemnity to be
allowed should be expressed in Philippine currency at the rate
of exchange at the time of the judgment rather than at the rate
of exchange prevailing on the date of defendant's breach. This
ruling, however, can neither be applied nor extended to the
case at bar for the same was laid down when there was no law
against stipulating foreign currencies in Philippine contracts.
But now we have Republic Act No. 529 which expressly declares
such stipulations as contrary to public policy, void and of no
effect. And, as We already pronounced in the case of Eastboard
Navigation, Ltd. v. Juan Ysmael & Co., Inc., G.R. No. L-9090,
September 10, 1957, if there is any agreement to pay an
obligation in a currency other than Philippine legal tender, the
same is null and void as contrary to public policy (Republic Act
529), and the most that could be demanded is to pay said
obligation in Philippine currency "to be measured in the
prevailing rate of exchange at the time the obligation was
incurred (Sec. 1, idem)."
UPON ALL THE FOREGOING, the decision appealed from is
hereby affirmed, with the sole modification that the award
should be converted into the Philippine peso at the rate of
exchange prevailing at the time the obligation was incurred or
on July 1, 1952 when the contract was executed. The appellee
insurance company, in the light of this judgment, is relieved of
any liability under this suit. No pronouncement as to costs.
Bengzon, C.J., Padilla, Concepcion, Paredes, Dizon and
Makalintal, JJ., concur.
Barrera, J., took no part.
Reyes, J.B.L., J., reserves his vote.
47. G.R. No. 159617
August 8, 2007
218 | P a g e
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 Agencia de R.C. Sicam, Inc.
(petitioner corporation) seeking to annul the Decision1 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 Agencia de 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 Agencia de 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.
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Respondents opposed the same. The RTC denied the motion in
an Order dated November 8, 1989.5
6 Aftertrialonthemerits,theRTCrendereditsDecision 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
thinkingthattheyweredealingwiththepawnshopownedby
petitioner Sicam as all the pawnshop tickets issued to them
bear the words "Agencia de 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
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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
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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 "Agencia de 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 "Agencia de 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 letter16
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.
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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 Agencia de 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
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"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 caso
fortuito 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
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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
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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.31 It 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. 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
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.
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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,35 Hernandez v. Chairman, Commission on Audit36
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
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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
228 | P a g e
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
48. G.R. No. L-47379
May 16, 1988
NATIONAL POWER CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS and ENGINEERING
CONSTRUCTION, INC., respondents.
229 | P a g e
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner, vs.
COUTRT OF APPEALS and NATIONAL POWER CORPORATION,
respondents.
Raymundo A. Armovit for private respondent in L- 47379.
The Solicitor General for petitioner.
GUTIERREZ, JR., J.:
These consolidated petitions seek to set aside the decision of
the respondent Court of Appeals which adjudged the National
Power Corporation liable for damages against Engineering
Construction, Inc. The appellate court, however, reduced the
amount of damages awarded by the trial court. Hence, both
parties filed their respective petitions: the National Power
Corporation (NPC) in G.R. No. 47379, questioning the decision
of the Court of Appeals for holding it liable for damages and the
Engineering Construction, Inc. (ECI) in G.R. No. 47481,
questioning the same decision for reducing the consequential
damages and attorney's fees and for eliminating the exemplary
damages.
The facts are succinctly summarized by the respondent Court of
Appeals, as follows:
On August 4, 1964, plaintiff Engineering Construction, Inc.,
being a successful bidder, executed a contract in Manila with
the National Waterworks and Sewerage Authority (NAWASA),
whereby the former undertook to furnish all tools, labor,
equipment, and materials (not furnished by Owner), and to
construct the proposed 2nd lpo-Bicti Tunnel, Intake and Outlet
Structures, and Appurtenant Structures, and Appurtenant
Features, at Norzagaray, Bulacan, and to complete said works
within eight hundred (800) calendar days from the date the
Contractor receives the formal notice to proceed (Exh. A).
The project involved two (2) major phases: the first phase
comprising, the tunnel work covering a distance of seven (7)
kilometers, passing through the mountain, from the Ipo river, a
part of Norzagaray, Bulacan, where the Ipo Dam of the
defendant National Power Corporation is located, to Bicti; the
other phase consisting of the outworks at both ends of the
tunnel.
By September 1967, the plaintiff corporation already had
completed the first major phase of the work, namely, the tunnel
excavation work. Some portions of the outworks at the Bicti site
were still under construction. As soon as the plaintiff
corporation had finished the tunnel excavation work at the Bicti
site, all the equipment no longer needed there were transferred
to the Ipo site where some projects were yet to be completed.
The record shows that on November 4,1967, typhoon 'Welming'
hit Central Luzon, passing through defendant's Angat Hydro-
electric Project and Dam at lpo, Norzagaray, Bulacan. Strong
winds struck the project area, and heavy rains intermittently
fell. Due to the heavy downpour, the water in the reservoir of
the Angat Dam was rising perilously at the rate of sixty (60)
centimeters per hour. To prevent an overflow of water from the
dam, since the water level had reached the danger height of
212 meters above sea level, the defendant corporation caused
the opening of the spillway gates." (pp. 45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial court that
the evidence preponlderantly established the fact that due to
the negligent manner with which the spillway gates of the
Angat Dam were opened, an extraordinary large volume of
water rushed out
230 | P a g e
of the gates, and hit the installations and construction works of
ECI at the lpo site with terrific impact, as a result of which the
latter's stockpile of materials and supplies, camp facilities and
permanent structures and accessories either washed away, lost
or destroyed.
The appellate court further found that:
It cannot be pretended that there was no negligence or that the
appellant exercised extraordinary care in the opening of the
spillway gates of the Angat Dam. Maintainers of the dam knew
very well that it was far more safe to open them gradually. But
the spillway gates were opened only when typhoon Welming
was already at its height, in a vain effort to race against time
and prevent the overflow of water from the dam as it 'was
rising dangerously at the rate of sixty centimeters per hour.
'Action could have been taken as early as November 3, 1967,
when the water in the reservoir was still low. At that time, the
gates of the dam could have been opened in a regulated
manner. Let it be stressed that the appellant knew of the
coming of the typhoon four days before it actually hit the
project area. (p. 53, L-47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The appellee
submitted a list of estimated losses and damages to the tunnel
project (Ipo side) caused by the instant flooding of the Angat
River (Exh. J-1). The damages were itemized in four categories,
to wit: Camp Facilities P55,700.00; Equipment, Parts and Plant
— P375,659.51; Materials P107,175.80; and Permanent
Structures and accessories — P137,250.00, with an aggregate
total amount of P675,785.31. The list is supported by several
vouchers which were all submitted as Exhibits K to M-38 a, N to
O, P to U-2 and V to X- 60-a (Vide: Folders Nos. 1 to 4). The
appellant did not submit proofs to traverse the aforementioned
documentary
evidence. We hold that the lower court did not commit any
error in awarding P 675,785.31 as actual or compensatory
damages.
However, We cannot sustain the award of P333,200.00 as
consequential damages. This amount is broken down as follows:
P213,200.00 as and for the rentals of a crane to temporarily
replace the one "destroyed beyond repair," and P120,000.00 as
one month bonus which the appellee failed to realize in
accordance with the contract which the appellee had with
NAWASA. Said rental of the crane allegedly covered the period
of one year at the rate of P40.00 an hour for 16 hours a day.
The evidence, however, shows that the appellee bought a crane
also a crawler type, on November 10, 1967, six (6) days after
the incident in question (Exh N) And according to the lower
court, which finding was never assailed, the appellee resumed
its normal construction work on the Ipo- Bicti Project after a
stoppage of only one month. There is no evidence when the
appellee received the crane from the seller, Asian Enterprise
Limited. But there was an agreement that the shipment of the
goods would be effected within 60 days from the opening of the
letter of credit (Exh. N).<äre||ano•1àw> It appearing that the
contract of sale was consummated, We must conclude or at
least assume that the crane was delivered to the appellee
within 60 days as stipulated. The appellee then could have
availed of the services of another crane for a period of only one
month (after a work stoppage of one month) at the rate of P
40.00 an hour for 16 hours a day or a total of P 19,200.00 as
rental.
But the value of the new crane cannot be included as part of
actual damages because the old was reactivated after it was
repaired. The cost of the repair was P 77,000.00 as shown in
item No. 1 under the Equipment, Parts and Plants category
(Exh. J-1), which amount of repair was already included in the
actual or compensatory damages. (pp. 54-56, L-47379, Rollo)
231 | P a g e
The appellate court likewise rejected the award of unrealized
bonus from NAWASA in the amount of P120,000.00 (computed
at P4,000.00 a day in case construction is finished before the
specified time, i.e., within 800 calendar days), considering that
the incident occurred after more than three (3) years or one
thousand one hundred seventy (1,170) days. The court also
eliminated the award of exemplary damages as there was no
gross negligence on the part of NPC and reduced the amount of
attorney's fees from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the appellate
court's decision as being erroneous on the ground that the
destruction and loss of the ECI's equipment and facilities were
due to force majeure. It argues that the rapid rise of the water
level in the reservoir of its Angat Dam due to heavy rains
brought about by the typhoon was an extraordinary occurrence
that could not have been foreseen, and thus, the subsequent
release of water through the spillway gates and its resultant
effect, if any, on ECI's equipment and facilities may rightly be
attributed to force majeure.
On the other hand, ECI assails the reduction of the
consequential damages from P333,200.00 to P19,000.00 on the
grounds that the appellate court had no basis in concluding that
ECI acquired a new Crawler-type crane and therefore, it only
can claim rentals for the temporary use of the leased crane for
a period of one month; and that the award of P4,000.00 a day
or P120,000.00 a month bonus is justified since the period
limitation on ECI's contract with NAWASA had dual effects, i.e.,
bonus for earlier completion and liquidated damages for
delayed performance; and in either case at the rate of
P4,000.00 daily. Thus, since NPC's negligence compelled work
stoppage for a period of one month, the said award of
P120,000.00 is justified. ECI further assailes the reduction of
attorney's fees and the total elimination of exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on its
findings of fact and that of the trial court's, petitioner NPC was
undoubtedly negligent because it opened the spillway gates of
the Angat Dam only at the height of typhoon "Welming" when it
knew very well that it was safer to have opened the same
gradually and earlier, as it was also undeniable that NPC knew
of the coming typhoon at least four days before it actually
struck. And even though the typhoon was an act of God or what
we may call force majeure, NPC cannot escape liability because
its negligence was the proximate cause of the loss and damage.
As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals,
(144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act of
God, there concurs a corresponding fraud, negligence, delay or
violation or contravention in any manner of the tenor of the
obligation as provided for in Article 1170 of the Civil Code,
which results in loss or damage, the obligor cannot escape
liability.
The principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned exclusively by the
violence of nature and human agencies are to be excluded from
creating or entering into the cause of the mischief. When the
effect, the cause of which is to be considered, is found to be in
part the result of the participation of man, whether it be from
active intervention or neglect, or failure to act, the whole
occurrence is thereby humanized, as it was, and removed from
the rules applicable to the acts of God. (1 Corpus Juris, pp.
1174- 1175).
Thus, it has been held that when the negligence of a person
concurs with an act of God in producing a loss, such person is
not exempt from liability by showing that the immediate cause
of the damage was the act of God. To be exempt from liability
for loss
232 | P a g e
because of an act of God, he must be free from any previous
negligence or misconduct by which the loss or damage may
have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55
Phil. 129; Tucker v. Milan 49 O.G. 4379; Limpangco & Sons v.
Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45
Phil. 657).
Furthermore, the question of whether or not there was
negligence on the part of NPC is a question of fact which
properly falls within the jurisdiction of the Court of Appeals and
will not be disturbed by this Court unless the same is clearly
unfounded. Thus, in Tolentino v. Court of appeals, (150 SCRA
26, 36) we ruled:
Moreover, the findings of fact of the Court of Appeals are
generally final and conclusive upon the Supreme Court
(Leonardo v. Court of Appeals, 120 SCRA 890 [1983]. In fact it is
settled that the Supreme Court is not supposed to weigh
evidence but only to determine its substantially (Nuñez v.
Sandiganbayan, 100 SCRA 433 [1982] and will generally not
disturb said findings of fact when supported by substantial
evidence (Aytona v. Court of Appeals, 113 SCRA 575 [1985];
Collector of Customs of Manila v. Intermediate Appellate Court,
137 SCRA 3 [1985]. On the other hand substantial evidence is
defined as such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion (Philippine Metal
Products, Inc. v. Court of Industrial Relations, 90 SCRA 135
[1979]; Police Commission v. Lood, 127 SCRA 757 [1984];
Canete v. WCC, 136 SCRA 302 [1985])
Therefore, the respondent Court of Appeals did not err in
holding the NPC liable for damages.
Likewise, it did not err in reducing the consequential damages
from P333,200.00 to P19,000.00. As shown by the records,
while there was no categorical statement or admission on the
part of ECI that it bought a new crane to replace the damaged
one, a sales contract was presented to the effect that the new
crane
would be delivered to it by Asian Enterprises within 60 days
from the opening of the letter of credit at the cost of
P106,336.75. The offer was made by Asian Enterprises a few
days after the flood. As compared to the amount of
P106,336.75 for a brand new crane and paying the alleged
amount of P4,000.00 a day as rental for the use of a temporary
crane, which use petitioner ECI alleged to have lasted for a
period of one year, thus, totalling P120,000.00, plus the fact
that there was already a sales contract between it and Asian
Enterprises, there is no reason why ECI should opt to rent a
temporary crane for a period of one year. The appellate court
also found that the damaged crane was subsequently repaired
and reactivated and the cost of repair was P77,000.00.
Therefore, it included the said amount in the award of of
compensatory damages, but not the value of the new crane.
We do not find anything erroneous in the decision of the
appellate court that the consequential damages should
represent only the service of the temporary crane for one
month. A contrary ruling would result in the unjust enrichment
of ECI.
The P120,000.00 bonus was also properly eliminated as the
same was granted by the trial court on the premise that it
represented ECI's lost opportunity "to earn the one month
bonus from NAWASA ... ." As stated earlier, the loss or damage
to ECI's equipment and facilities occurred long after the
stipulated deadline to finish the construction. No bonus,
therefore, could have been possibly earned by ECI at that point
in time. The supposed liquidated damages for failure to finish
the project within the stipulated period or the opposite of the
claim for bonus is not clearly presented in the records of these
petitions. It is not shown that NAWASA imposed them.
As to the question of exemplary damages, we sustain the
appellate court in eliminating the same since it found that there
was no bad faith on the part of NPC and that neither can the
latter's negligence be considered gross. In Dee Hua Liong
233 | P a g e
Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we
ruled:
Neither may private respondent recover exemplary damages
since he is not entitled to moral or compensatory damages, and
again because the petitioner is not shown to have acted in a
wanton, fraudulent, reckless or oppressive manner (Art. 2234,
Civil Code; Yutuk v. Manila Electric Co., 2 SCRA 377; Francisco v.
Government Service Insurance System, 7 SCRA 577; Gutierrez
v. Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA 155;
Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977;
Marchan v. Mendoza, 24 SCRA 888).
We also affirm the reduction of attorney's fees from P50,000.00
to P30,000.00. There are no compelling reasons why we should
set aside the appellate court's finding that the latter amount
suffices for the services rendered by ECI's counsel.
WHEREFORE, the petitions in G.R. No. 47379 and G.R. No.
47481 are both DISMISSED for LACK OF MERIT. The decision
appealed from is AFFIRMED.
Before the Court is a petition for review on certiorari under Rule
45 of the 1997 Rules .of Civil Procedure assailing the Decision1
of the Court of Appeals in CA-G.R. SP No. 100450 which
affirmed the Decision of the Office of the President in O.P. Case
No. 06-F-216.
As culled from the records, the facts are as follow:
Petitioner Fil-Estate Properties, Inc. is the owner and developer
of the Central Park Place Tower while co-petitioner Fil-Estate
Network, Inc. is its authorized marketing agent. Respondent
Spouses Conrado and Maria Victoria Ronquillo purchased from
petitioners an 82-square meter condominium unit at Central
Park Place Tower in Mandaluyong City for a pre-selling contract
price of FIVE MILLION ONE HUNDRED SEVENTY-FOUR
THOUSAND ONLY (P5,174,000.00). On 29 August 1997,
respondents executed and signed a Reservation Application
Agreement wherein they deposited P200,000.00 as reservation
fee. As agreed upon, respondents paid the full downpayment of
P1,552,200.00 and had been paying the P63,363.33 monthly
amortizations until September 1998.
Upon learning that construction works had stopped,
respondents likewise stopped paying their monthly
amortization. Claiming to have paid a total of P2,198,949.96 to
petitioners, respondents through two (2) successive letters,
demanded a full refund of their payment with interest. When
their demands went unheeded, respondents were constrained
to file a Complaint for Refund and Damages before the Housing
and Land Use Regulatory Board (HLURB). Respondents prayed
for reimbursement/refund of P2,198,949.96 representing the
total amortization payments, P200,000.00 as and by way of
moral damages, attorney’s fees and other litigation expenses.
49. G.R. No. 185798
January 13, 2014
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC.,
Petitioners,
vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO,
Respondents.
DECISION PEREZ, J.:
234 | P a g e
On 21 October 2000, the HLURB issued an Order of Default
against petitioners for failing to file their Answer within the
reglementary period despite service of summons.2
Petitioners filed a motion to lift order of default and attached
their position paper attributing the delay in construction to the
1997 Asian financial crisis. Petitioners denied committing fraud
or misrepresentation which could entitle respondents to an
award of moral damages.
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F.
Melchor, rendered judgment ordering petitioners to jointly and
severally pay respondents the following amount:
a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT
THOUSAND NINE HUNDRED FORTY NINE PESOS & 96/100
(P2,198,949.96) with interest thereon at twelve percent (12%)
per annum to be computed from the time of the complainants’
demand for refund on October 08, 1998 until fully paid,
b) ONE HUNDRED THOUSAND PESOS (P100,000.00) as moral
damages,
c) FIFTY THOUSAND PESOS (P50,000.00) as attorney’s fees,
d) The costs of suit, and
e) An administrative fine of TEN THOUSAND PESOS
(P10,000.00) payable to this Office fifteen (15) days upon
receipt of this decision, for violation of Section 20 in relation to
Section 38 of PD 957.3
The Arbiter considered petitioners’ failure to develop the
condominium project as a substantial breach of their obligation
which entitles respondents to seek for rescission with payment
of
damages. The Arbiter also stated that mere economic hardship
is not an excuse for contractual and legal delay.
Petitioners appealed the Arbiter’s Decision through a petition
for review pursuant to Rule XII of the 1996 Rules of Procedure of
HLURB. On 17 February 2005, the Board of Commissioners of
the HLURB denied4 the petition and affirmed the Arbiter’s
Decision. The HLURB reiterated that the depreciation of the
peso as a result of the Asian financial crisis is not a fortuitous
event which will exempt petitioners from the performance of
their contractual obligation.
Petitioners filed a motion for reconsideration but it was denied5
on 8 May 2006. Thereafter, petitioners filed a Notice of Appeal
with the Office of the President. On 18 April 2007, petitioners’
appeal was dismissed6 by the Office of the President for lack of
merit. Petitioners moved for a reconsideration but their motion
was denied7 on 26 July 2007.
Petitioners sought relief from the Court of Appeals through a
petition for review under Rule 43 containing the same
arguments they raised before the HLURB and the Office of the
President:
I.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE HONORABLE HOUSING AND
LAND USE REGULATORY BOARD AND ORDERING PETITIONERS-
APPELLANTS TO REFUND RESPONDENTS-APPELLEES THE SUM
OF P2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER 1998
UNTIL FULLY PAID, CONSIDERING THAT THE COMPLAINT STATES
NO CAUSE OF ACTION AGAINST PETITIONERS- APPELLANTS.
II.
235 | P a g e
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE OFFICE BELOW ORDERING
PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES
THE SUM OF P100,000.00 AS MORAL DAMAGES AND P50,000.00
AS ATTORNEY’S FEES CONSIDERING THE ABSENCE OF ANY
FACTUAL OR LEGAL BASIS THEREFOR.
III.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE HOUSING AND LAND USE
REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS TO
PAY P10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF
ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH FINDING.8
Petitioners sought reconsideration but it was denied in a
Resolution10 dated 11 December 2008 by the Court of Appeals.
Aggrieved, petitioners filed the instant petition advancing
substantially the same grounds for review:
A.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT
AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE
PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN
FAVOR OF THE RESPONDENTS DESPITE LACK OF CAUSE OF
ACTION.
B. On 30 July 2008, the Court of Appeals denied the petition for
review for lack of merit. The appellate court echoed the HLURB
Arbiter’s ruling that "a buyer for a condominium/subdivision
unit/lot unit which has not been developed in accordance with
the approved condominium/subdivision plan within the time
limit for complying with said developmental requirement may
opt for reimbursement under Section 20 in relation to Section
23 of Presidential Decree (P.D.) 957 x x x."9 The appellate court
supported the HLURB Arbiter’s conclusion, which was affirmed
by the HLURB Board of Commission and the Office of the
President, that petitioners’ failure to develop the condominium
project is tantamount to a substantial breach which warrants a
refund of the total amount paid, including interest. The
appellate court pointed out that petitioners failed to prove that
the Asian financial crisis constitutes a fortuitous event which
could excuse them from the performance of their contractual
and statutory obligations. The appellate court also affirmed the
award of moral damages in light of petitioners’ unjustified
refusal to satisfy respondents’ claim and the legality of the
administrative fine, as provided in Section 20 of Presidential
Decree No. 957.
GRANTING FOR THE SAKE OF ARGUMENT THAT THE
PETITIONERS ARE LIABLE UNDER THE PREMISES, THE
HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED
THE HUGE AMOUNT OF INTEREST OF TWELVE PERCENT (12%).
C.
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT
AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE
PRESIDENT INCLUDING THE PAYMENT OF P100,000.00 AS
MORAL DAMAGES, P50,000.00 AS ATTORNEY’S FEES AND
P10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY
FACTUAL OR LEGAL BASIS TO SUPPORT SUCH CONCLUSIONS.11
Petitioners insist that the complaint states no cause of action
because they allegedly have not committed any act of
misrepresentation amounting to bad faith which could entitle
respondents to a refund. Petitioners claim that there was a
mere delay in the completion of the project and that they only
resorted
236 | P a g e
to "suspension and reformatting as a testament to their
commitment to their buyers." Petitioners attribute the delay to
the 1997 Asian financial crisis that befell the real estate
industry. Invoking Article 1174 of the New Civil Code,
petitioners maintain that they cannot be held liable for a
fortuitous event.
Petitioners contest the payment of a huge amount of interest
on account of suspension of development on a project. They
liken their situation to a bank which this Court, in Overseas
Bank v. Court of Appeals,12 adjudged as not liable to pay
interest on deposits during the period that its operations are
ordered suspended by the Monetary Board of the Central Bank.
Lastly, petitioners aver that they should not be ordered to pay
moral damages because they never intended to cause delay,
and again blamed the Asian economic crisis as the direct,
proximate and only cause of their failure to complete the
project. Petitioners submit that moral damages should not be
awarded unless so stipulated except under the instances
enumerated in Article 2208 of the New Civil Code. Lastly,
petitioners refuse to pay the administrative fine because the
delay in the project was caused not by their own deceptive
intent to defraud their buyers, but due to unforeseen
circumstances beyond their control.
Three issues are presented for our resolution: 1) whether or not
the Asian financial crisis constitute a fortuitous event which
would justify delay by petitioners in the performance of their
contractual obligation; 2) assuming that petitioners are liable,
whether or not 12% interest was correctly imposed on the
judgment award, and 3) whether the award of moral damages,
attorney’s fees and administrative fine was proper.
It is apparent that these issues were repeatedly raised by
petitioners in all the legal fora. The rulings were consistent that
first, the Asian financial crisis is not a fortuitous event that
would excuse petitioners from performing their contractual
obligation;
second, as a result of the breach committed by petitioners,
respondents are entitled to rescind the contract and to be
refunded the amount of amortizations paid including interest
and damages; and third, petitioners are likewise obligated to
pay attorney’s fees and the administrative fine.
This petition did not present any justification for us to deviate
from the rulings of the HLURB, the Office of the President and
the Court of Appeals.
Indeed, the non-performance of petitioners’ obligation entitles
respondents to rescission under Article 1191 of the New Civil
Code which states:
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
More in point is Section 23 of Presidential Decree No. 957, the
rule governing the sale of condominiums, which provides:
Section 23. Non-Forfeiture of Payments.1âwphi1 No installment
payment made by a buyer in a subdivision or condominium
project for the lot or unit he contracted to buy shall be forfeited
in favor of the owner or developer when the buyer, after due
notice to the owner or developer, desists from further payment
due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved
plans and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount
paid including amortization interests but excluding delinquency
237 | P a g e
interests, with interest thereon at the legal rate. (Emphasis
supplied).
Conformably with these provisions of law, respondents are
entitled to rescind the contract and demand reimbursement for
the payments they had made to petitioners.
Notably, the issues had already been settled by the Court in the
case of Fil-Estate Properties, Inc. v. Spouses Go13 promulgated
on 17 August 2007, where the Court stated that the Asian
financial crisis is not an instance of caso fortuito. Bearing the
same factual milieu as the instant case, G.R. No. 165164
involves the same company, Fil-Estate, albeit about a different
condominium property. The company likewise reneged on its
obligation to respondents therein by failing to develop the
condominium project despite substantial payment of the
contract price. Fil-Estate advanced the same argument that the
1997 Asian financial crisis is a fortuitous event which justifies
the delay of the construction project. First off, the Court
classified the issue as a question of fact which may not be
raised in a petition for review considering that there was no
variance in the factual findings of the HLURB, the Office of the
President and the Court of Appeals. Second, the Court cited the
previous rulings of Asian Construction and Development
Corporation v. Philippine Commercial International Bank14 and
Mondragon Leisure and Resorts Corporation v. Court of
Appeals15 holding that the 1997 Asian financial crisis did not
constitute a valid justification to renege on obligations. The
Court expounded:
Also, we cannot generalize that the Asian financial crisis in
1997 was unforeseeable and beyond the control of a business
corporation. It is unfortunate that petitioner apparently met
with considerable difficulty e.g. increase cost of materials and
labor, even before the scheduled commencement of its real
estate project as early as 1995. However, a real estate
enterprise engaged in the pre-selling of condominium units is
concededly a
master in projections on commodities and currency movements
and business risks. The fluctuating movement of the Philippine
peso in the foreign exchange market is an everyday
occurrence, and fluctuations in currency exchange rates
happen everyday, thus, not an instance of caso fortuito.16
The aforementioned decision becomes a precedent to future
cases in which the facts are substantially the same, as in this
case. The principle of stare decisis, which means adherence to
judicial precedents, applies.
In said case, the Court ordered the refund of the total
amortizations paid by respondents plus 6% legal interest
computed from the date of demand. The Court also awarded
attorney’s fees. We follow that ruling in the case before us.
The resulting modification of the award of legal interest is, also,
in line with our recent ruling in Nacar v. Gallery Frames,17
embodying the amendment introduced by the Bangko Sentral
ng Pilipinas Monetary Board in BSP-MB Circular No. 799 which
pegged the interest rate at 6% regardless of the source of
obligation.
We likewise affirm the award of attorney’s fees because
respondents were forced to litigate for 14 years and incur
expenses to protect their rights and interest by reason of the
unjustified act on the part of petitioners.18 The imposition of
P10,000.00 administrative fine is correct pursuant to Section 38
of Presidential Decree No. 957 which reads:
Section 38. Administrative Fines. The Authority may prescribe
and impose fines not exceeding ten thousand pesos for
violations of the provisions of this Decree or of any rule or
regulation thereunder. Fines shall be payable to the Authority
and enforceable through writs of execution in accordance with
the provisions of the Rules of Court.
238 | P a g e
Finally, we sustain the award of moral damages. In order that
moral damages may be awarded in breach of contract cases,
the defendant must have acted in bad faith, must be found
guilty of gross negligence amounting to bad faith, or must have
acted in wanton disregard of contractual obligations.19 The
Arbiter found petitioners to have acted in bad faith when they
breached their contract, when they failed to address
respondents’ grievances and when they adamantly refused to
refund respondents' payment.
In fine, we find no reversible error on the merits in the
impugned Court of Appeals' Decision and Resolution.
WHEREFORE, the petition is PARTLY GRANTED. The appealed
Decision is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) on the amount due
computed from the time of respondents' demand for refund on
8 October 1998.
CASTRO, J.:
Petition for certiorari by the Universal Food Corporation against
the decision of the Court of Appeals of February 13, 1968 in CA-
G.R. 31430-R (Magdalo V. Francisco, Sr. and Victoriano V.
Francisco, plaintiffs-appellants vs. Universal Food Corporation,
defendant-appellee), the dispositive portion of which reads as
follows: "WHEREFORE the appealed decision is hereby
reversed; the BILL OF ASSIGNMENT marked Exhibit A is hereby
rescinded, and defendant is hereby ordered to return to plaintiff
Magdalo V. Francisco, Sr., his Mafran sauce trademark and
formula subject- matter of Exhibit A, and to pay him his
monthly salary of P300.00 from December 1, 1960, until the
return to him of said trademark and formula, plus attorney's
fees in the amount of P500.00, with costs against defendant." 1
On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano
V. Francisco filed with the Court of First Instance of Manila,
against, the Universal Food Corporation, an action for rescission
of a contract entitled "Bill of Assignment." The plaintiffs prayed
the court to adjudge the defendant as without any right to the
use of the Mafran trademark and formula, and order the latter
to restore to them the said right of user; to order the defendant
to pay Magdalo V. Francisco, Sr. his unpaid salary from
December 1, 1960, as well as damages in the sum of P40,000,
and to pay the costs of suit. 1
On February 28, the defendant filed its answer containing
admissions and denials. Paragraph 3 thereof "admits the
allegations contained in paragraph 3 of plaintiffs' complaint."
The answer further alleged that the defendant had complied
with all the terms and conditions of the Bill of Assignment and,
consequently, the plaintiffs are not entitled to rescission
thereof; that the plaintiff Magdalo V. Francisco, Sr. was not
dismissed from the service as permanent chief chemist of the
corporation as he is still its chief chemist; and, by way of
special defenses, that
50. G.R. No. L-29155
May 13, 1970
UNIVERSAL FOOD CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and
VICTORIANO N. FRANCISCO, respondents.
Wigberto E. Tañada for petitioner. Teofilo Mendoza for
respondents.
239 | P a g e
the aforesaid plaintiff is estopped from questioning 1) the
contents and due execution of the Bill of Assignment, 2) the
corporate acts of the petitioner, particularly the resolution
adopted by its board of directors at the special meeting held on
October 14, 1960, to suspend operations to avoid further losses
due to increase in the prices of raw materials, since the same
plaintiff was present when that resolution was adopted and
even took part in the consideration thereof, 3) the actuations of
its president and general manager in enforcing and
implementing the said resolution, 4) the fact that the same
plaintiff was negligent in the performance of his duties as chief
chemist of the corporation, and 5) the further fact that the said
plaintiff was delinquent in the payment of his subscribed shares
of stock with the corporation. The defendant corporation prayed
for the dismissal of the complaint, and asked for P750 as
attorney's fees and P5,000 in exemplary or corrective damages.
On June 25, 1962 the lower court dismissed the plaintiffs'
complaint as well as the defendant's claim for damages and
attorney's fees, with costs against the former, who promptly
appealed to the Court of Appeals. On February 13, 1969 the
appellate court rendered the judgment now the subject of the
present recourse.
The Court of Appeals arrived at the following "uncontroverted"
findings of fact:
That as far back as 1938, plaintiff Magdalo V. Francisco, Sr.
discovered or invented a formula for the manufacture of a food
seasoning (sauce) derived from banana fruits popularly known
as MAFRAN sauce; that the manufacture of this product was
used in commercial scale in 1942, and in the same year plaintiff
registered his trademark in his name as owner and inventor
with the Bureau of Patents; that due to lack of sufficient capital
to finance the expansion of the business, in 1960, said plaintiff
secured the financial assistance of Tirso T. Reyes who, after a
series of negotiations, formed with others defendant Universal
Food Corporation eventually leading to the execution on May
11, 1960 of the aforequoted "Bill of Assignment" (Exhibit A or
1).
Conformably with the terms and conditions of Exh. A, plaintiff
Magdalo V. Francisco, Sr. was appointed Chief Chemist with a
salary of P300.00 a month, and plaintiff Victoriano V. Francisco
was appointed auditor and superintendent with a salary of
P250.00 a month. Since the start of the operation of defendant
corporation, plaintiff Magdalo V. Francisco, Sr., when preparing
the secret materials inside the laboratory, never allowed
anyone, not even his own son, or the President and General
Manager Tirso T. Reyes, of defendant, to enter the laboratory in
order to keep the formula secret to himself. However, said
plaintiff expressed a willingness to give the formula to
defendant provided that the same should be placed or kept
inside a safe to be opened only when he is already
incapacitated to perform his duties as Chief Chemist, but
defendant never acquired a safe for that purpose. On July 26,
1960, President and General Manager Tirso T. Reyes wrote
plaintiff requesting him to permit one or two members of his
family to observe the preparation of the 'Mafran Sauce' (Exhibit
C), but said request was denied by plaintiff. In spite of such
denial, Tirso T. Reyes did not compel or force plaintiff to accede
to said request. Thereafter, however, due to the alleged
scarcity and high prices of raw materials, on November 28,
1960, Secretary-Treasurer Ciriaco L. de Guzman of defendant
issued a Memorandum (Exhibit B), duly approved by the
President and General Manager Tirso T. Reyes that only
Supervisor Ricardo Francisco should be retained in the factory
and that the salary of plaintiff Magdalo V. Francisco, Sr., should
be stopped for the time being until the corporation should
resume its operation. Some five (5) days later, that is, on
December 3, 1960, President and General Manager Tirso T.
Reyes, issued a memorandom to Victoriano Francisco ordering
him to report to the factory and produce "Mafran Sauce" at the
rate of not less than 100 cases a day so as to cope with the
orders of the
240 | P a g e
corporation's various distributors and dealers, and with
instructions to take only the necessary daily employees without
employing permanent employees (Exhibit B). Again, on
December 6, 1961, another memorandum was issued by the
same President and General Manager instructing the Assistant
Chief Chemist Ricardo Francisco, to recall all daily employees
who are connected in the production of Mafran Sauce and also
some additional daily employees for the production of Porky
Pops (Exhibit B-1). On December 29, 1960, another
memorandum was issued by the President and General
Manager instructing Ricardo Francisco, as Chief Chemist, and
Porfirio Zarraga, as Acting Superintendent, to produce Mafran
Sauce and Porky Pops in full swing starting January 2, 1961 with
further instructions to hire daily laborers in order to cope with
the full blast protection (Exhibit S-2). Plaintiff Magdalo V.
Francisco, Sr. received his salary as Chief Chemist in the
amount of P300.00 a month only until his services were
terminated on November 30, 1960. On January 9 and 16, 1961,
defendant, acting thru its President and General Manager,
authorized Porfirio Zarraga and Paula de Bacula to look for a
buyer of the corporation including its trademarks, formula and
assets at a price of not less than P300,000.00 (Exhibits D and
D-1). Due to these successive memoranda, without plaintiff
Magdalo V. Francisco, Sr. being recalled back to work, the latter
filed the present action on February 14, 1961. About a month
afterwards, in a letter dated March 20, 1961, defendant, thru its
President and General Manager, requested said plaintiff to
report for duty (Exhibit 3), but the latter declined the request
because the present action was already filed in court (Exhibit J).
1. The petitioner's first contention is that the respondents are
not entitled to rescission. It is argued that under article 1191 of
the new Civil Code, the right to rescind a reciprocal obligation is
not absolute and can be demanded only if one is ready, willing
and able to comply with his own obligation and the other is not;
that under article 1169 of the same Code, 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; that in this case the trial court found
that the respondents not only have failed to show that the
petitioner has been guilty of default in performing its
contractual obligations, "but the record sufficiently reveals the
fact that it was the plaintiff Magdalo V. Francisco who had been
remiss in the compliance of his contractual obligation to cede
and transfer to the defendant the formula for Mafran sauce;"
that even the respondent Court of Appeals found that as
"observed by the lower court, 'the record is replete with the
various attempt made by the defendant (herein petitioner) to
secure the said formula from Magdalo V. Francisco to no avail;
and that upon the foregoing findings, the respondent Court of
Appeals unjustly concluded that the private respondents are
entitled to rescind the Bill of Assignment.
The threshold question is whether by virtue of the terms of the
Bill of Assignment the respondent Magdalo V. Francisco, Sr.
ceded and transferred to the petitioner corporation the formula
for Mafran sauce. 2
The Bill of Assignment sets forth the following terms and
conditions:
THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the
sole and exclusive owner of the MAFRAN trade-mark and the
formula for MAFRAN SAUCE;
THAT for and in consideration of the royalty of TWO (2%) PER
CENTUM of the net annual profit which the PARTY OF THE
Second Part [Universal Food Corporation] may realize by and/or
out of its production of MAFRAN SAUCE and other food products
and from other business which the Party of the Second Part
may engage in as defined in its Articles of Incorporation, and
which its Board of Directors shall determine and declare, said
Party of the
241 | P a g e
First Part hereby assign, transfer, and convey all its property
rights and interest over said Mafran trademark and formula for
MAFRAN SAUCE unto the Party of the Second Part;
THAT the payment for the royalty of TWO (2%) PER CENTUM of
the annual net profit which the Party of the Second Part
obligates itself to pay unto the Party of the First Part as founder
and as owner of the MAFRAN trademark and formula for
MAFRAN SAUCE, shall be paid at every end of the Fiscal Year
after the proper accounting and inventories has been
undertaken by the Party of the Second Part and after a
competent auditor designated by the Board of Directors shall
have duly examined and audited its books of accounts and shall
have certified as to the correctness of its Financial Statement;
THAT it is hereby understood that the Party of the First Part, to
improve the quality of the products of the Party of the First Part
and to increase its production, shall endeavor or undertake
such research, study, experiments and testing, to invent or
cause to invent additional formula or formulas, the property
rights and interest thereon shall likewise be assigned,
transferred, and conveyed unto the Party of the Second Part in
consideration of the foregoing premises, covenants and
stipulations:
THAT in the operation and management of the Party of the First
Part, the Party of the First Part shall be entitled to the following
Participation:
(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second
Vice-President and Chief Chemist of the Party of the Second
Part, which appointments are permanent in character and Mr.
VICTORIANO V. FRANCISCO shall be appointed Auditor thereof
and in the event that the Treasurer or any officer who may have
the custody of the funds, assets and other properties of the
Party of the Second Part comes from the Party of the First Part,
then the Auditor shall not be appointed from the latter;
furthermore should the Auditor be appointed from the Party
representing the majority shares of the Party of the Second
Part, then the Treasurer shall be appointed from the Party of the
First Part;
(b) THAT in case of death or other disabilities they should
become incapacitated to discharge the duties of their
respective position, then, their shares or assigns and who may
have necessary qualifications shall be preferred to succeed
them;
(c) That the Party of the First Part shall always be entitled to at
least two (2) membership in the Board of Directors of the Party
of the Second Part;
(d) THAT in the manufacture of MAFRAN SAUCE and other food
products by the Party of the Second Part, the Chief Chemist
shall have and shall exercise absolute control and supervision
over the laboratory assistants and personnel and in the
purchase and safekeeping of the Chemicals and other mixtures
used in the preparation of said products;
THAT this assignment, transfer and conveyance is absolute and
irrevocable in no case shall the PARTY OF THE First Part ask,
demand or sue for the surrender of its rights and interest over
said MAFRAN trademark and mafran formula, except when a
dissolution of the Party of the Second Part, voluntary or
otherwise, eventually arises, in which case then the property
rights and interests over said trademark and formula shall
automatically revert the Party of the First Part.
Certain provisions of the Bill of Assignment would seem to
support the petitioner's position that the respondent patentee,
Magdalo V. Francisco, Sr. ceded and transferred to the petitioner
corporation the formula for Mafran sauce. Thus, the last part of
the second paragraph recites that the respondent patentee
"assign, transfer and convey all its property rights and interest
242 | P a g e
over said Mafran trademark and formula for MAFRAN SAUCE
unto the Party of the Second Part," and the last paragraph
states that such "assignment, transfer and conveyance is
absolute and irrevocable (and) in no case shall the PARTY OF
THE First Part ask, demand or sue for the surrender of its rights
and interest over said MAFRAN trademark and mafran formula."
However, a perceptive analysis of the entire instrument and the
language employed therein 3 would lead one to the conclusion
that what was actually ceded and transferred was only the use
of the Mafran sauce formula. This was the precise intention of
the parties, 4 as we shall presently show.
Firstly, one of the principal considerations of the Bill of
Assignment is the payment of "royalty of TWO (2%) PER
CENTUM of the net annual profit" which the petitioner
corporation may realize by and/or out of its production of
Mafran sauce and other food products, etc. The word "royalty,"
when employed in connection with a license under a patent,
means the compensation paid for the use of a patented
invention.
'Royalty,' when used in connection with a license under a
patent, means the compensation paid by the licensee to the
licensor for the use of the licensor's patented invention."
(Hazeltine Corporation vs. Zenith Radio Corporation, 100 F. 2d
10, 16.) 5
Secondly, in order to preserve the secrecy of the Mafran
formula and to prevent its unauthorized proliferation, it is
provided in paragraph 5-(a) of the Bill that the respondent
patentee was to be appointed "chief chemist ... permanent in
character," and that in case of his "death or other disabilities,"
then his "heirs or assigns who may have necessary
qualifications shall be preferred to succeed" him as such chief
chemist. It is further provided in paragraph 5-(d) that the same
respondent shall have and shall exercise absolute control and
supervision over the laboratory assistants and personnel and
over the purchase and safekeeping
of the chemicals and other mixtures used in the preparation of
the said product. All these provisions of the Bill of Assignment
clearly show that the intention of the respondent patentee at
the time of its execution was to part, not with the formula for
Mafran sauce, but only its use, to preserve the monopoly and to
effectively prohibit anyone from availing of the invention. 6
Thirdly, pursuant to the last paragraph of the Bill, should
dissolution of the Petitioner corporation eventually take place,
"the property rights and interests over said trademark and
formula shall automatically revert to the respondent patentee.
This must be so, because there could be no reversion of the
trademark and formula in this case, if, as contended by the
petitioner, the respondent patentee assigned, ceded and
transferred the trademark and formula — and not merely the
right to use it — for then such assignment passes the property
in such patent right to the petitioner corporation to which it is
ceded, which, on the corporation becoming insolvent, will
become part of the property in the hands of the receiver
thereof. 7
Fourthly, it is alleged in paragraph 3 of the respondents'
complaint that what was ceded and transferred by virtue of the
Bill of Assignment is the "use of the formula" (and not the
formula itself). This incontrovertible fact is admitted without
equivocation in paragraph 3 of the petitioner's answer. Hence,
it does "not require proof and cannot be contradicted." 8 The
last part of paragraph 3 of the complaint and paragraph 3 of
the answer are reproduced below for ready reference:
3.— ... and due to these privileges, the plaintiff in return
assigned to said corporation his interest and rights over the
said trademark and formula so that the defendant corporation
could use the formula in the preparation and manufacture of
the mafran sauce, and the trade name for the marketing of said
project, as appearing in said contract ....
243 | P a g e
3. — Defendant admits the allegations contained in paragraph
3 of plaintiff's complaint.
Fifthly, the facts of the case compellingly demonstrate
continued possession of the Mafran sauce formula by the
respondent patentee.
Finally, our conclusion is fortified by the admonition of the Civil
Code that a conveyance should be interpreted to effect "the
least transmission of right," 9 and is there a better example of
least transmission of rights than allowing or permitting only the
use, without transfer of ownership, of the formula for Mafran
sauce.
The foregoing reasons support the conclusion of the Court of
Appeals 10 that what was actually ceded and transferred by the
respondent patentee Magdalo V. Francisco, Sr. in favor of the
petitioner corporation was only the use of the formula. Properly
speaking, the Bill of Assignment vested in the petitioner
corporation no title to the formula. Without basis, therefore, is
the observation of the lower court that the respondent patentee
"had been remiss in the compliance of his contractual
obligation to cede and transfer to the defendant the formula for
Mafran sauce."
2. The next fundamental question for resolution is whether the
respondent Magdalo V. Francisco, Sr. was dismissed from his
position as chief chemist of the corporation without justifiable
cause, and in violation of paragraph 5-(a) of the Bill of
Assignment which in part provides that his appointment is
"permanent in character."
The petitioner submits that there is nothing in the successive
memoranda issued by the corporate officers of the petitioner,
marked exhibits B, B-1 and B-2, from which can be implied that
the respondent patentee was being dismissed from his position
as chief chemist of the corporation. The fact, continues the
petitioner, is that at a special meeting of the board of directors
of the corporation held on October 14, 1960, when the board
decided to suspend operations of the factory for two to four
months and to retain only a skeletal force to avoid further
losses, the two private respondents were present, and the
respondent patentee was even designated as the acting
superintendent, and assigned the mission of explaining to the
personnel of the factory why the corporation was stopping
operations temporarily and laying off personnel. The petitioner
further submits that exhibit B indicates that the salary of the
respondent patentee would not be paid only during the time
that the petitioner corporation was idle, and that he could draw
his salary as soon as the corporation resumed operations. The
clear import of this exhibit was allegedly entirely disregarded
by the respondent Court of Appeals, which concluded that since
the petitioner resumed partial production of Mafran sauce
without notifying the said respondent formally, the latter had
been dismissed as chief chemist, without considering that the
petitioner had to resume partial operations only to fill its
pending orders, and that the respondents were duly notified of
that decision, that is, that exhibit B-1 was addressed to Ricardo
Francisco, and this was made known to the respondent
Victoriano V. Francisco. Besides, the records will show that the
respondent patentee had knowledge of the resumption of
production by the corporation, but in spite of such knowledge
he did not report for work.
The petitioner further submits that if the respondent patentee
really had unqualified interest in propagating the product he
claimed he so dearly loved, certainly he would not have waited
for a formal notification but would have immediately reported
for work, considering that he was then and still is a member of
the corporation's board of directors, and insofar as the
petitioner is concerned, he is still its chief chemist; and because
Ricardo Francisco is a son of the respondent patentee to whom
had been entrusted the performance of the duties of chief
chemist, while
244 | P a g e
the respondent Victoriano V. Francisco is his brother, the
respondent patentee could not feign ignorance of the
resumption of operations.
The petitioner finally submits that although exhibit B-2 is
addressed to Ricardo Francisco, and is dated December 29,
1960, the records will show that the petitioner was set to
resume full capacity production only sometime in March or
April, 1961, and the respondent patentee cannot deny that in
the very same month when the petitioner was set to resume
full production, he received a copy of the resolution of its board
of directors, directing him to report immediately for duty; that
exhibit H, of a later vintage as it is dated February 1, 1961,
clearly shows that Ricardo Francisco was merely the acting
chemist, and this was the situation on February 1, 1961,
thirteen days before the filing of the present action for
rescission. The designation of Ricardo Francisco as the chief
chemist carried no weight because the president and general
manager of the corporation had no power to make the
designation without the consent of the corporation's board of
directors. The fact of the matter is that although the respondent
Magdalo V. Francisco, Sr. was not mentioned in exhibit H as
chief chemist, this same exhibit clearly indicates that Ricardo
Francisco was merely the acting chemist as he was the one
assisting his father.
In our view, the foregoing submissions cannot outweigh the
uncontroverted facts. On November 28, 1960 the secretary-
treasurer of the corporation issued a memorandum (exh. B),
duly approved by its president and general manager, directing
that only Ricardo Francisco be retained in the factory and that
the salary of respondent patentee, as chief chemist, be stopped
for the time being until the corporation resumed operations.
This measure was taken allegedly because of the scarcity and
high prices of raw materials. Five days later, however, or on
December 3, the president and general manager issued a
memorandum (exh. B-1) ordering the respondent Victoria V.
Francisco to report
to the factory and to produce Mafran sauce at the rate of no
less than 100 cases a day to cope with the orders of the various
distributors and dealers of the corporation, and instructing him
to take only the necessary daily employees without employing
permanent ones. Then on December 6, the same president and
general manager issued yet another memorandum (exh. B-2),
instructing Ricardo Francisco, as assistant chief chemist, to
recall all daily employees connected with the production of
Mafran sauce and to hire additional daily employees for the
production of Porky Pops. Twenty-three days afterwards, or on
December 29, the same president and general manager issued
still another memorandum (exh. S-2), directing "Ricardo
Francisco, as Chief Chemist" and Porfirio Zarraga, as acting
superintendent, to produce Mafran sauce and, Porky Pops in full
swing, starting January 2, 1961, with the further instruction to
hire daily laborers in order to cope with the full blast
production. And finally, at the hearing held on October 24,
1961, the same president and general manager admitted that
"I consider that the two months we paid him (referring to
respondent Magdalo V. Francisco, Sr.) is the separation pay."
The facts narrated in the preceding paragraph were the
prevailing milieu on February 14, 1961 when the complaint for
rescission of the Bill of Assignment was filed. They clearly prove
that the petitioner, acting through its corporate officers, 11
schemed and maneuvered to ease out, separate and dismiss
the said respondent from the service as permanent chief
chemist, in flagrant violation of paragraph 5-(a) and (b) of the
Bill of Assignment. The fact that a month after the institution of
the action for rescission, the petitioner corporation, thru its
president and general manager, requested the respondent
patentee to report for duty (exh. 3), is of no consequence. As
the Court of Appeals correctly observed, such request was a
"recall to placate said plaintiff."
245 | P a g e
3. We now come to the question of rescission of the Bill of
Assignment. In this connection, we quote for ready reference
the following articles of the new Civil Code governing rescission
of contracts:
ART.1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with
articles 1385 and 1388 of the Mortgage Law.
ART. 1383. The action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no other
legal means to obtain reparation for the same.
ART. 1384. Rescission shall be only to the extent necessary to
cover the damages caused.
At the moment, we shall concern ourselves with the first two
paragraphs of article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him. The injured party
may choose between fulfillment and rescission of the
obligation, with payment of damages in either case.
In this case before us, there is no controversy that the
provisions of the Bill of Assignment are reciprocal in nature. The
petitioner corporation violated the Bill of Assignment,
specifically paragraph 5-(a) and (b), by terminating the services
of the respondent patentee Magdalo V. Francisco, Sr., without
lawful and justifiable cause.
Upon the factual milieu, is rescission of the Bill of Assignment
proper?
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement. 12 The question
of whether a breach of a contract is substantial depends upon
the attendant circumstances. 13 The petitioner contends that
rescission of the Bill of Assignment should be denied, because
under article 1383, rescission is a subsidiary remedy which
cannot be instituted except when the party suffering damage
has no other legal means to obtain reparation for the same.
However, in this case the dismissal of the respondent patentee
Magdalo V. Francisco, Sr. as the permanent chief chemist of the
corporation is a fundamental and substantial breach of the Bill
of Assignment. He was dismissed without any fault or
negligence on his part. Thus, apart from the legal principle that
the option — to demand performance or ask for rescission of a
contract — belongs to the injured party, 14 the fact remains
that the respondents-appellees had no alternative but to file the
present action for rescission and damages. It is to be
emphasized that the respondent patentee would not have
agreed to the other terms of the Bill of Assignment were it not
for the basic commitment of the petitioner corporation to
appoint him as its Second Vice- President and Chief Chemist on
a permanent basis; that in the manufacture of Mafran sauce
and other food products he would have "absolute control and
supervision over the laboratory assistants and personnel and in
the purchase and safeguarding of
246 | P a g e
said products;" and that only by all these measures could the
respondent patentee preserve effectively the secrecy of the
formula, prevent its proliferation, enjoy its monopoly, and, in
the process afford and secure for himself a lifetime job and
steady income. The salient provisions of the Bill of Assignment,
namely, the transfer to the corporation of only the use of the
formula; the appointment of the respondent patentee as
Second Vice- President and chief chemist on a permanent
status; the obligation of the said respondent patentee to
continue research on the patent to improve the quality of the
products of the corporation; the need of absolute control and
supervision over the laboratory assistants and personnel and in
the purchase and safekeeping of the chemicals and other
mixtures used in the preparation of said product — all these
provisions of the Bill of Assignment are so interdependent that
violation of one would result in virtual nullification of the rest.
4. The petitioner further contends that it was error for the Court
of Appeals to hold that the respondent patentee is entitled to
payment of his monthly salary of P300 from December 1, 1960,
until the return to him of the Mafran trademark and formula,
arguing that under articles 1191, the right to specific
performance is not conjunctive with the right to rescind a
reciprocal contract; that a plaintiff cannot ask for both
remedies; that the appellate court awarded the respondents
both remedies as it held that the respondents are entitled to
rescind the Bill of Assignment and also that the respondent
patentee is entitled to his salary aforesaid; that this is a gross
error of law, when it is considered that such holding would
make the petitioner liable to pay respondent patentee's salary
from December 1, 1960 to "kingdom come," as the said holding
requires the petitioner to make payment until it returns the
formula which, the appellate court itself found, the corporation
never had; that, moreover, the fact is that the said respondent
patentee refused to go back to work, notwithstanding the call
for him to return — which negates his right to be paid his back
salaries for services which he
had not rendered; and that if the said respondent is entitled to
be paid any back salary, the same should be computed only
from December 1, 1960 to March 31, 1961, for on March 20,
1961 the petitioner had already formally called him back to
work.
The above contention is without merit. Reading once more the
Bill of Assignment in its entirety and the particular provisions in
their proper setting, we hold that the contract placed the use of
the formula for Mafran sauce with the petitioner, subject to
defined limitations. One of the considerations for the transfer of
the use thereof was the undertaking on the part of the
petitioner corporation to employ the respondent patentee as
the Second Vice-President and Chief Chemist on a permanent
status, at a monthly salary of P300, unless "death or other
disabilities supervened. Under these circumstances, the
petitioner corporation could not escape liability to pay the
private respondent patentee his agreed monthly salary, as long
as the use, as well as the right to use, the formula for Mafran
sauce remained with the corporation.
5. The petitioner finally contends that the Court of Appeals
erred in ordering the corporation to return to the respondents
the trademark and formula for Mafran sauce, when both the
decision of the appellate court and that of the lower court state
that the corporation is not aware nor is in possession of the
formula for Mafran sauce, and the respondent patentee
admittedly never gave the same to the corporation. According
to the petitioner these findings would render it impossible to
carry out the order to return the formula to the respondent
patentee. The petitioner's predicament is understandable.
Article 1385 of the new Civil Code provides that rescission
creates the obligation to return the things which were the
object of the contract. But that as it may, it is a logical
inference from the appellate court's decision that what was
meant to be returned to the respondent patentee is not the
formula itself, but only its use and the right to such use. Thus,
the respondents in their complaint for rescission
247 | P a g e
specifically and particularly pray, among others, that the
petitioner corporation be adjudged as "without any right to use
said trademark and formula."
ACCORDINGLY, conformably with the observations we have
above made, the judgment of the Court of Appeals is modified
to read as follows: "Wherefore the appealed decision is
reversed. The Bill of Assignment (Exhibit A) is hereby rescinded,
and the defendant corporation is ordered to return and restore
to the plaintiff Magdalo V. Francisco, Sr. the right to the use of
his Mafran sauce trademark and formula, subject-matter of the
Bill of Assignment, and to this end the defendant corporation
and all its assigns and successors are hereby permanently
enjoined, effective immediately, from using in any manner the
said Mafran sauce trademark and formula. The defendant
corporation shall also pay to Magdalo V. Francisco, Sr. his
monthly salary of P300 from December 1, 1960, until the date
of finality of this judgment, inclusive, the total amount due to
him to earn legal interest from the date of the finality of this
judgment until it shall have been fully paid, plus attorney's fees
in the amount of P500, with costs against the defendant
corporation." As thus modified, the said judgment is affirmed,
with costs against the petitioner corporation.
LAUREL, J.:
On January 2, 1928, the Magdalena Estate, Inc., sold to Louis J.
Myrick lots Nos. 28 and 29 of Block 1, Parcel 9 of the San Juan
Subdivision, San Juan Rizal, their contract of sale No. SJ-639
(Exhibits B and 1) providing that the price of P7,953 shall be
payable in 120 equal monthly installments of P96.39 each on
the second day of every month beginning the date of execution
of the agreement. Simultaneously, the vendee executed and
delivered to the vendor a promissory note (Exhibits C and 2) for
the whole purchase price, wherein it was stipulated that "si
cualquier pago o pagos de este pagare quedasen en mora por
mas de dos meses, entonces todos el saldo no pagado del
mismo con cualesquiera intereses que hubiese devengado,
vercera y sera exigible inmediatamente y devengara intereses
al mismo tipo de 9 por ciento al año hasta su completo pago, y
en tal caso me comprometo, ademas, a pagar al tenedor de
este pagare el 10 por ciento de la cantidad en concepto de
honorarios de abogado."
In pursuance of said agreement, the vendee made several
monthly payments amounting to P2,596.08, the last being on
October 4, 1930, although the first installment due and unpaid
was that of May 2, 1930. By reason of this default, the vendor,
through its president, K.H. Hemady, on December 14, 1932,
notified the vendee that, in view of his inability to comply with
the terms of their contract, said agreement had been cancelled
as of that date, thereby relieving him of any further obligation
thereunder, and that all amounts paid by him had been
forfeited in favor of the vendor, who assumes the absolute right
over the lots in question. To this communication, the vendee did
not reply, and it appears likewise that the vendor thereafter did
not require him to make any further disbursements on account
of the purchase price.
51. G.R. No. L-47774
March 14, 1941
MAGDALENA ESTATE, INC., petitioner-appellant, vs.
LOUIS J. MYRICK, respondent-appellee.
Felipe Ysmael and Eusebio C. Encarnacion for petitioner.
Andres C. Aguilar for respondent.
248 | P a g e
On July 22, 1936, Louis J. Myrick, respondent herein,
commenced the present action in the Court of First Instance of
Albay, praying for an entry of judgment against the Magdalena
Estate, Inc. for the sum of P2,596.08 with legal interest thereon
from the filing of the complaint until its payment, and for costs
of the suit. Said defendant, the herein petitioner, on September
7, 1936, filed his answer consisting in a general denial and a
cross-complaint and counterclaim, alleging that contract SJ-639
was still in full force and effect and that, therefore, the plaintiff
should be condemned to pay the balance plus interest and
attorneys' fees. After due trial, the Court of First Instance of
Albay, on January 31, 1939, rendered its decision ordering the
defendant to pay the plaintiff the sum of P2,596.08 with legal
interest from December 14, 1932 until paid and costs, and
dismissing defendant's counterclaim. From this judgment, the
Magdalena Estate, Inc. appealed to the Court of Appeals, where
the cause was docketed as CA-G.R. No. 5037, and which, on
August 23, 1940, confirmed the decision of the lower court,
with the only modification that the payment of interest was to
be computed from the date of the filing of the complaint
instead of from the date of the cancellation of the contract. A
motion for reconsideration was presented, which was denied on
September 6, 1940. Hence, the present petition for a writ of
certiorari.
Petitioner-appellant assigns several errors which we proceed to
discuss in the course of this opinion.
Petitioner holds that contract SJ-639 has not been rendered
inefficacious by its letter to the respondent, dated December
14, 1932, and submits the following propositions: (1) That the
intention of the author of a written instrument shall always
prevail over the literal sense of its wording; (2) that a bilateral
contract may be resolved or cancelled only by the prior mutual
agreement of the parties, which is approved by the judgment of
the proper court; and (3) that the letter of December 14, 1932
was not assented to by the respondent, and therefore, cannot
be
deemed to have produced a cancellation, even if it ever was
intended. Petitioner contends that the letter in dispute is a
mere notification and, to this end, introduced in evidence the
disposition of Mr. K.H. Hemady, president of the Magdalena
Estate, Inc. wherein he stated that the word "cancelled" in the
letter of December 14, 1932, "es un error de mi interpretacion
sin ninguna intencion de cancelar," and the testimony of
Sebastian San Andres, one of its employees, that the lots were
never offered for sale after the mailing of the letter
aforementioned. Upon the other hand, the Court of Appeals, in
its decision of August 23, 1940, makes the finding that
"notwithstanding the deposition of K.H. Hemady, president of
the defendant corporation, to the effect that the contract was
not cancelled nor was his intention to do so when he wrote the
letter of December 14, 1932, marked Exhibit 6 and D (pp. 6-7,
deposition Exhibit 1-a), faith and credit cannot be given to such
testimony in view of the clear terms of the letter which evince
his unequivocal intent to resolve the contract. His testimony is
an afterthought. The intent to resolve the contract is expressed
unmistakably not only in the letter of December 14, 1932,
already referred to (Exhibit 6 and D), but is reiterated in the
letters which the president of the defendant corporation states
that plaintiff lost his rights for the land for being behind more
than two years, and of April 10, 1035 (Exhibit G), where
defendant's president makes the following statements:
"Confirming the verbal arrangement had between you and our
Mr. K.H. Hemady regarding the account of Mr. Louis J. Myrick
under contract No. SJ-639, already cancelled."
This conclusion of fact of the Court of Appeals is final and
should not be disturbed. (Guico vs. Mayuga and Heirs of
Mayuga, 63 Phil., 328; Mamuyac vs. Abena, XXXVIII Off. Gaz.
84.) Where the terms of a writing are clear, positive and
unambiguous, the intention of the parties should be gleaned
from the language therein employed, which is conclusive in the
absence of mistake (13 C.J. 524; City of Manila vs. Rizal Park
Co., 52 Phil. 515). The proposition that the intention of the
writer, once ascertained,
249 | P a g e
shall prevail over the literal sense of the words employed is not
absolute and should be deemed secondary to and limited by
the primary rule that, when the text of the instrument is explicit
and leaves no doubt as to its intention, the court may not read
into it any other which would contradict its plain import.
Besides, we have met with some circumstances of record which
demonstrate the unequivocal determination of the petitioner to
cancel their contract. They are: (1) the act of the petitioner in
immediately taking possession of the lots in question and
offering to resell them to Judge M.V. del Rosario, as
demonstrated by his letter marked Exhibit G, shortly after
December 14, 1932; (2) his failure to demand from the
respondent the balance of the account after the mailing of the
disputed letter; and (3) the letters of January 10, 1933 (Exhibit
F-2) and April 10, 1935 (Exhibit G) reiterate, in clear terms, the
intention to cancel first announced by petitioner since
December 14, 1932.
It is next argued that contract SJ-639, being a bilateral
agreement, in the absence of a stipulation permitting its
cancellation, may not be resolved by the mere act of the
petitioner. The fact that the contracting parties herein did not
provide for resolution is now of no moment, for the reason that
the obligations arising from the contract of sale being
reciprocal, such obligations are governed by article 1124 of the
Civil Code which declares that the power to resolve, in the
event that one of the obligors should not perform his part, is
implied. (Mateos vs. Lopez, 6 Phil., 206; Cortez vs. Bibaño &
Beramo, 41 Phil. 298; Cui. vs. Sun Chan, 41 Phil., 523; Po Pauco
vs. Siguenza, 49 Phil., 404.) Upon the other hand, where, as in
this case, the petitioner cancelled the contract, advised the
respondent that he has been relieved of his obligations
thereunder, and led said respondent to believe it so and act
upon such belief, the petitioner may not be allowed, in the
language of section 333 of the Code of Civil Procedure (now
section 68 (a) of Rule 123 of the New Rules of Court), in any
litigation the course of litigation or in dealings in nais, be
permitted to repudiate his representations, or occupy
inconsistent positions, or, in the letter
of the Scotch law, to "approbate and reprobate." (Bigelow on
Estoppel, page 673; Toppan v. Cleveland, Co. & C.R. Co., Fed.
Cas. 14,099.)
The contract of sale, contract SJ-639, contains no provision
authorizing the vendor, in the event of failure of the vendee to
continue in the payment of the stipulated monthly installments,
to retain the amounts paid to him on account of the purchase
price. The claim, therefore, of the petitioner that it has the right
to forfeit said sums in its favor is untenable. Under article 1124
of the Civil Code, however, he may choose between demanding
the fulfillment of the contract or its resolution. These remedies
are alternative and not cumulative, and the petitioner in this
case, having to cancel the contract, cannot avail himself of the
other remedy of exacting performance. (Osorio & Tirona vs.
Bennet & Provincial Board of Cavite, 41 Phil., 301; Yap Unki vs.
Chua Jamco, 14 Phil., 602.) As a consequence of the resolution,
the parties should be restored, as far as practicable, to their
original situation (Po Pauco vs. Siguenza, supra) which can be
approximated only by ordering, as we do now, the return of the
things which were the object of the contract, with their fruits
and of the price, with its interest (article 1295, Civil Code),
computed from the date of the institution of the action.
(Verceluz vs. Edaño, 46 Phil. 801.)
The writ prayed for is hereby denied, with costs against the
petitioner. So ordered.
52. G.R. No. L-28602
September 29, 1970
UNIVERSITY OF THE PHILIPPINES, petitioner, vs.
250 | P a g e
WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the
COURT OF FIRST INSTANCE IN QUEZON CITY, et al.,
respondents.
Office of the Solicitor General Antonio P. Barredo, Solicitor
Augusto M. Amores and Special Counsel Perfecto V. Fernandez
for petitioner.
Norberto J. Quisumbing for private respondents.
REYES, J.B.L., J.:
Three (3) orders of the Court of First Instance of Rizal (Quezon
City), issued in its Civil Case No. 9435, are sought to be
annulled in this petition for certiorari and prohibition, filed by
herein petitioner University of the Philippines (or UP) against
the above- named respondent judge and the Associated
Lumber Manufacturing Company, Inc. (or ALUMCO). The first
order, dated 25 February 1966, enjoined UP from awarding
logging rights over its timber concession (or Land Grant),
situated at the Lubayat areas in the provinces of Laguna and
Quezon; the second order, dated 14 January 1967, adjudged UP
in contempt of court, and directed Sta. Clara Lumber Company,
Inc. to refrain from exercising logging rights or conducting
logging operations on the concession; and the third order,
dated 12 December 1967, denied reconsideration of the order
of contempt.
As prayed for in the petition, a writ of preliminary injunction
against the enforcement or implementation of the three (3)
questioned orders was issued by this Court, per its resolution on
9 February 1968.
The petition alleged the following:
That the above-mentioned Land Grant was segregated from the
public domain and given as an endowment to UP, an institution
of higher learning, to be operated and developed for the
purpose of raising additional income for its support, pursuant to
Act 3608;
That on or about 2 November 1960, UP and ALUMCO entered
into a logging agreement under which the latter was granted
exclusive authority, for a period starting from the date of the
agreement to 31 December 1965, extendible for a further
period of five (5) years by mutual agreement, to cut, collect and
remove timber from the Land Grant, in consideration of
payment to UP of royalties, forest fees, etc.; that ALUMCO cut
and removed timber therefrom but, as of 8 December 1964, it
had incurred an unpaid account of P219,362.94, which, despite
repeated demands, it had failed to pay; that after it had
received notice that UP would rescind or terminate the logging
agreement, ALUMCO executed an instrument, entitled
"Acknowledgment of Debt and Proposed Manner of Payments,"
dated 9 December 1964, which was approved by the president
of UP, and which stipulated the following:
3. In the event that the payments called for in Nos. 1 and 2 of
this paragraph are not sufficient to liquidate the foregoing
indebtedness of the DEBTOR in favor of the CREDITOR, the
balance outstanding after the said payments have been applied
shall be paid by the DEBTOR in full no later than June 30, 1965;
xxx xxx xxx
5. In the event that the DEBTOR fails to comply with any of its
promises or undertakings in this document, the DEBTOR agrees
without reservation that the CREDITOR shall have the right and
the power to consider the Logging Agreement dated December
2, 1960 as rescinded without the necessity of any judicial suit,
and the CREDITOR shall be entitled as a matter of
251 | P a g e
right to Fifty Thousand Pesos (P50,000.00) by way of and for
liquidated damages;
ALUMCO continued its logging operations, but again incurred an
unpaid account, for the period from 9 December 1964 to 15 July
1965, in the amount of P61,133.74, in addition to the
indebtedness that it had previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent
ALUMCO that it had, as of that date, considered as rescinded
and of no further legal effect the logging agreement that they
had entered in 1960; and on 7 September 1965, UP filed a
complaint against ALUMCO, which was docketed as Civil Case
No. 9435 of the Court of First Instance of Rizal (Quezon City),
for the collection or payment of the herein before stated sums
of money and alleging the facts hereinbefore specified,
together with other allegations; it prayed for and obtained an
order, dated 30 September 1965, for preliminary attachment
and preliminary injunction restraining ALUMCO from continuing
its logging operations in the Land Grant.
That before the issuance of the aforesaid preliminary injunction
UP had taken steps to have another concessionaire take over
the logging operation, by advertising an invitation to bid; that
bidding was conducted, and the concession was awarded to
Sta. Clara Lumber Company, Inc.; the logging contract was
signed on 16 February 1966.
That, meantime, ALUMCO had filed several motions to
discharge the writs of attachment and preliminary injunction
but were denied by the court;
That on 12 November 1965, ALUMCO filed a petition to enjoin
petitioner University from conducting the bidding; on 27
November 1965, it filed a second petition for preliminary
injunction; and, on 25 February 1966, respondent judge issued
the first of the questioned orders, enjoining UP from awarding
logging rights over the concession to any other party.
That UP received the order of 25 February 1966 after it had
concluded its contract with Sta. Clara Lumber Company, Inc.,
and said company had started logging operations.
That, on motion dated 12 April 1966 by ALUMCO and one Jose
Rico, the court, in an order dated 14 January 1967, declared
petitioner UP in contempt of court and, in the same order,
directed Sta. Clara Lumber Company, Inc., to refrain from
exercising logging rights or conducting logging operations in
the concession.
The UP moved for reconsideration of the aforesaid order, but
the motion was denied on 12 December 1967.
Except that it denied knowledge of the purpose of the Land
Grant, which purpose, anyway, is embodied in Act 3608 and,
therefore, conclusively known, respondent ALUMCO did not
deny the foregoing allegations in the petition. In its answer,
respondent corrected itself by stating that the period of the
logging agreement is five (5) years - not seven (7) years, as it
had alleged in its second amended answer to the complaint in
Civil Case No. 9435. It reiterated, however, its defenses in the
court below, which maybe boiled down to: blaming its former
general manager, Cesar Guy, in not turning over management
of ALUMCO, thereby rendering it unable to pay the sum of
P219,382.94; that it failed to pursue the manner of payments,
as stipulated in the "Acknowledgment of Debt and Proposed
Manner of Payments" because the logs that it had cut turned
out to be rotten and could not be sold to Sta. Clara Lumber
Company, Inc., under its contract "to buy and sell" with said
firm, and which contract was referred and annexed to the
"Acknowledgment of Debt and Proposed Manner of Payments";
that UP's unilateral rescission of the logging contract, without a
court order, was
252 | P a g e
invalid; that petitioner's supervisor refused to allow respondent
to cut new logs unless the logs previously cut during the
management of Cesar Guy be first sold; that respondent was
permitted to cut logs in the middle of June 1965 but petitioner's
supervisor stopped all logging operations on 15 July 1965; that
it had made several offers to petitioner for respondent to
resume logging operations but respondent received no reply.
The basic issue in this case is whether petitioner U.P. can treat
its contract with ALUMCO rescinded, and may disregard the
same before any judicial pronouncement to that effect.
Respondent ALUMCO contended, and the lower court, in issuing
the injunction order of 25 February 1966, apparently sustained
it (although the order expresses no specific findings in this
regard), that it is only after a final court decree declaring the
contract rescinded for violation of its terms that U.P. could
disregard ALUMCO's rights under the contract and treat the
agreement as breached and of no force or effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated in
the "Acknowledgment of Debt and Proposed Manner of
Payments" that, upon default by the debtor ALUMCO, the
creditor (UP) has "the right and the power to consider, the
Logging Agreement dated 2 December 1960 as rescinded
without the necessity of any judicial suit." As to such special
stipulation, and in connection with Article 1191 of the Civil
Code, this Court stated in Froilan vs. Pan Oriental Shipping Co.,
et al., L-11897, 31 October 1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from
entering into agreement that violation of the terms of the
contract would cause cancellation thereof, even without court
intervention. In other words, it is not always necessary for the
injured party to resort to court for rescission of the contract.
Of course, it must be understood that the act of party in
treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known
to the other and is always provisional, being ever subject to
scrutiny and review by the proper court. If the other party
denies that rescission is justified, it is free to resort to judicial
action in its own behalf, and bring the matter to court. Then,
should the court, after due hearing, decide that the resolution
of the contract was not warranted, the responsible party will be
sentenced to damages; in the contrary case, the resolution will
be affirmed, and the consequent indemnity awarded to the
party prejudiced.
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is
only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or
was not correct in law. But the law definitely does not require
that the contracting party who believes itself injured must first
file suit and wait for a judgment before taking extrajudicial
steps to protect its interest. Otherwise, the party injured by the
other's breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final
judgment of rescission is rendered when the law itself requires
that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a reciprocal
obligation, 1 since in every case where the extrajudicial
resolution is contested only the final award of the court of
competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial
action will be necessary, as without it, the extrajudicial
resolution will
253 | P a g e
remain contestable and subject to judicial invalidation, unless
attack thereon should become barred by acquiescence,
estoppel or prescription.
Fears have been expressed that a stipulation providing for a
unilateral rescission in case of breach of contract may render
nugatory the general rule requiring judicial action (v. Footnote,
Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140)
but, as already observed, in case of abuse or error by the
rescinder the other party is not barred from questioning in court
such abuse or error, the practical effect of the stipulation being
merely to transfer to the defaulter the initiative of instituting
suit, instead of the rescinder.
In fact, even without express provision conferring the power of
cancellation upon one contracting party, the Supreme Court of
Spain, in construing the effect of Article 1124 of the Spanish
Civil Code (of which Article 1191 of our own Civil; Code is
practically a reproduction), has repeatedly held that, a
resolution of reciprocal or synallagmatic contracts may be
made extrajudicially unless successfully impugned in court.
El articulo 1124 del Codigo Civil establece la facultad de
resolver las obligaciones reciprocas para el caso de que uno de
los obligados no cumpliese lo que le incumbe, facultad que,
segun jurisprudencia de este Tribunal, surge immediatamente
despuesque la otra parte incumplio su deber, sin necesidad de
una declaracion previa de los Tribunales. (Sent. of the Tr. Sup. of
Spain, of 10 April 1929; 106 Jur. Civ. 897).
Segun reiterada doctrina de esta Sala, el Art. 1124 regula la
resolucioncomo una "facultad" atribuida a la parte perjudicada
por el incumplimiento del contrato, la cual tiene derecho do
opcion entre exigir el cumplimientoo la resolucion de lo
convenido, que puede ejercitarse, ya en la via judicial, ya fuera
de ella, por declaracion del acreedor, a reserva, claro es, que si
la
declaracion de resolucion hecha por una de las partes se
impugna por la otra, queda aquella sometida el examen y
sancion de los Tribunale, que habran de declarar, en definitiva,
bien hecha la resolucion o por el contrario, no ajustada a
Derecho. (Sent. TS of Spain, 16 November 1956; Jurisp.
Aranzadi, 3, 447).
La resolucion de los contratos sinalagmaticos, fundada en el
incumplimiento por una de las partes de su respectiva
prestacion, puedetener lugar con eficacia" 1. o Por la
declaracion de voluntad de la otra hecha extraprocesalmente,
si no es impugnada en juicio luego con exito. y 2. 0 Por la
demanda de la perjudicada, cuando no opta por el
cumplimientocon la indemnizacion de danos y perjuicios
realmente causados, siempre quese acredite, ademas, una
actitud o conducta persistente y rebelde de laadversa o la
satisfaccion de lo pactado, a un hecho obstativo que de un
modoabsoluto, definitivo o irreformable lo impida, segun el art.
1.124, interpretado por la jurisprudencia de esta Sala,
contenida en las Ss. de 12 mayo 1955 y 16 Nov. 1956, entre
otras, inspiradas por el principio del Derecho intermedio,
recogido del Canonico, por el cual fragenti fidem, fides non est
servanda. (Ss. de 4 Nov. 1958 y 22 Jun. 1959.) (Emphasis
supplied).
In the light of the foregoing principles, and considering that the
complaint of petitioner University made out a prima facie case
of breach of contract and defaults in payment by respondent
ALUMCO, to the extent that the court below issued a writ of
preliminary injunction stopping ALUMCO's logging operations,
and repeatedly denied its motions to lift the injunction; that it is
not denied that the respondent company had profited from its
operations previous to the agreement of 5 December 1964
("Acknowledgment of Debt and Proposed Manner of Payment");
that the excuses offered in the second amended answer, such
as the misconduct of its former manager Cesar Guy, and the
rotten condition of the logs in private respondent's pond, which
said respondent was in a better position to know when it
executed the
254 | P a g e
acknowledgment of indebtedness, do not constitute on their
face sufficient excuse for non-payment; and considering that
whatever prejudice may be suffered by respondent ALUMCO is
susceptibility of compensation in damages, it becomes plain
that the acts of the court a quo in enjoining petitioner's
measures to protect its interest without first receiving evidence
on the issues tendered by the parties, and in subsequently
refusing to dissolve the injunction, were in grave abuse of
discretion, correctible by certiorari, since appeal was not
available or adequate. Such injunction, therefore, must be set
aside.
For the reason that the order finding the petitioner UP in
contempt of court has open appealed to the Court of Appeals,
and the case is pending therein, this Court abstains from
making any pronouncement thereon.
WHEREFORE, the writ of certiorari applied for is granted, and
the order of the respondent court of 25 February 1966, granting
the Associated Lumber Company's petition for injunction, is
hereby set aside. Let the records be remanded for further
proceedings conformably to this opinion.
53. G.R. No. L-29360 January 30, 1982
JOSE C. ZULUETA, petitioner,
vs.
HON. HERMINIO MARIANO, in his capacity as Presiding Judge of
Branch X of the Court of First Instance of Rizal; and LAMBERTO
AVELLANA, respondents.
MELENCIO-HERRERA, J.:
In this action for mandamus and Prohibition, petitioner seeks to
compel respondent Judge to assume appellate, not original
jurisdiction over an Ejectment case appealed from the Municipal
Court of Pasig (CC No. 1190 entitled Jose C. Zulueta vs.
Lamberto Avellana), and to issue a Writ of Execution in said
case.
The antecedental facts follow:
Petitioner Jose C. Zulueta is the registered owner of a
residential house and lot situated within the Antonio
Subdivision, Pasig, Rizal.
On November 6, 1964, petitioner Zulueta and private
respondent Lamberto Avellana, a movie director, entered into a
"Contract to Sell" the aforementioned property for P75,000.00
payable in twenty years with respondent buyer assuming to
pay a down payment of P5,000.00 and a monthly installment of
P630.00 payable in advance before the 5th day of the
corresponding month, starting with December, 1964.
It was further stipulated:
12) That upon failure of the BUYER to fulfill any of the
conditions herein stipulated, BUYER automatically and
irrevocably authorizes OWNER to recover extra-judicially,
physical possession of the land, building and other
improvements which are the subject of this contract, and to
take possession also extra-judicially whatever personal
properties may be found within the aforesaid premises from the
date of said failure to answer for whatever unfulfilled monetary
obligations BUYER may have with OWNER; and this contract
shall be considered as without force and effect also from said
date; all payments made by the BUYER to OWNER shall be
deemed as rental payments without prejudice to OWNER's right
to collect from BUYER
255 | P a g e
whatever other monthly installments and other money
obligations which may have been paid until BUYER vacates the
aforesaid premises; upon his failure to comply with any of the
herein conditions BUYER forfeits all money claims against
OWNER and shall pay a monthly rental equivalent to his
monthly installment under Condition 1 of this Contract from the
date of the said failure to the date of recovery of physical
possession by OWNER of the land, building and other
improvements which are the subject of this Contract; BUYER
shall not remove his personal properties without the previous
written consent of OWNER, who, should he take possession of
such properties following the aforesaid failure of BUYER, shall
return the same to BUYER only after the latter shall have
fulfilled all money claims against him by OWNER; in all cases
herein, demand is waived;
Respondent Avellana occupied the property from December,
1964, but title remained with petitioner Zulueta.
Upon the allegation that respondent Avellana had failed to
comply with the monthly amortizations stipulated in the
contract, despite demands to pay and to vacate the premises,
and that thereby the contract was converted into one of lease,
petitioner, on June 22, 1966, commenced an Ejectment suit
against respondent before the Municipal Court of Pasig (CC No.
1190), praying that judgment be rendered ordering respondent
1) to vacate the premises; 2) to pay petitioner the sum of
P11,751.30 representing respondent's balance owing as of May,
1966; 3) to pay petitioner the sum of P 630.00 every month
after May, 1966, and costs.
Respondent controverted by contending that the Municipal
Court had no jurisdiction over the nature of the action as it
involved the interpretation and/or rescission of the contract;
that prior to the execution of the contract to sell, petitioner was
already indebted to him in the sum of P31,269.00 representing
the cost of two movies respondent made for petitioner and
used by the latter in
his political campaign in 1964 when petitioner ran for
Congressman, as well as the cost of one 16 millimeter projector
petitioner borrowed from respondent and which had never been
returned, which amounts, according to their understanding,
would be applied as down payment for the property and to
whatever obligations respondent had with petitioner. The latter
strongly denied such an understanding. Respondent's total
counterclaim against petitioner was in the amount of
P42,629.99 representing petitioner's pleaded indebtedness to
private respondent, claim for moral damages, and attorney's
fees.
The counterclaim was dismissed by the Municipal Court for
being in an amount beyond its jurisdiction. However, as a
special defense, private respondent sought to offset the sum of
P31,269.00 against his obligations to petitioner.
Deciding the case on May 10, 1967, the Municipal Court found
that respondent Avellana had failed to comply with his financial
obligations under the contract and ordered him to vacate the
premises and deliver possession thereof to petitioner; to pay
petitioner the sum of P21,093.88 representing arrearages as of
April, 1967, and P630.00 as monthly rental from and after May,
1967 until delivery of possession of that premises to petitioner.
That conclusion was premised on title finding that breach of any
of the conditions by private respondent converted the
agreement into a lease contractual and upon the following
considerations:
The question involved herein is that of possession, that who of
the contending parties has the better right to possession of the
properly in question. The issue in this case being that of
possession, the claim of defendant against plaintiff or P
31,269.00 indebtedness, has no place as a defense here. It
should be the subject- matter of a separate action against,
plaintiff Jose C. Zulueta. As it is, said indebtedness is only a
claim still debatable and controversial and not a final judgment.
'It is our considered opinion that to admit and to allow such a
defense would be
256 | P a g e
tantamount to prejuding the claim on its merits prematurely in
favor of defendant. This court can not do without violating
some rules of law. This is not the proper court and this is not
the proper case in which to ventilate the claim.
Respondent Avellana appealed to the Court of First Instance of
Rizal presided by respondent Judge. Thereat, petitioner
summoned for execution alleging private respondent's failure to
deposit in accordance the monthly rentals, which the latter
denied. Respondent Judge held resolution thereof in abeyance.
On February 19, 1968, respondent Avellana filed a Motion to
Dismiss Appeal alleging that, inasmuch as the defense set up in
his Answer was that he had not breached his contract with
petitioner, the case necessarily involved the interpretation
and/or rescission of the contract and, therefore, beyond the
jurisdiction of the Municipal Court. Petitioner opposed claiming
that the Complaint had set out a clear case of unlawful detainer
considering that judicial action for the rescission of the contract
was unnecessary due to the automatic rescission clause therein
and the fact that petitioner had cancelled said contract so that
respondent's right to remain in the premises had ceased.
On March 21, 1968, respondent Judge dismissed the case on
the ground of lack of jurisdiction of the Municipal Court,
explaining:
The decision of the lower court declared said Contract to Sell to
have been converted into a contract of lease. It is the
contention of the defendant that the lower court had no
jurisdiction to entertain the case as the same involves the
interpretation of contract as to whether or not the same has
been converted to lease contract. Although the contract to sell
object of this case states that the same may be converted into
a lease contract upon the failure of the defendant to pay the
amortization of the property in question, there is no showing
that before filing this case in the lower court, the plaintiff has
exercised or has pursued
his right pursuant to the contract which should be the basis of
the action in the lower court.
Petitioner's Motion for Reconsideration was denied by
respondent Judge as follows:
The plaintiff having filed a motion for reconsideration of this
Court's Order dismissing the appeal, the Court, while standing
pat on its Order dismissing this case for lack of jurisdiction of
the lower court over the subject matter, hereby takes
cognizance of the case and will try the case as if it has been
filed originally in this Court.
WHEREFORE, let this case be set for pre-trial on July 12, 1968 at
8:30 a.m. with notice to an parties.
Petitioner then availed of the instant recourse.
Was the action before the Municipal Court of Pasig essentially
for detainer and, therefore, within its exclusive original
jurisdiction, or one for rescission or annulment of a contract,
which should be litigated before a Court of First Instance?
Upon a review of the attendant circumstances, we uphold the
ruling of respondent Judge that the Municipal Court of Pasig was
bereft of jurisdiction to take cognizance of the case filed before
it. In his Complaint, petitioner had alleged violation by
respondent Avellana of the stipulations of their agreement to
sell and thus unilaterally considered the contract rescinded.
Respondent Avellana denied any breach on his part and argued
that the principal issue was one of interpretation and/or
rescission of the contract as well as of set-off. Under those
circumstances, proof of violation is a condition precedent to
resolution or rescission. It is only when the violation has been
established that the contract can be declared resolved or
rescinded. Upon such rescission, in turn, hinges a
pronouncement that possession of the realty has
257 | P a g e
become unlawful. Thus, the basic issue is not possession but
one of rescission or annulment of a contract. which is beyond
the jurisdiction of the Municipal Court to hear and determine.
A violation by a party of any of the stipulations of a contract on
agreement to sell real property would entitle the other party to
resolved or rescind it. An allegation of such violation in a
detainer suit may be proved by competent evidence. And if
proved a justice of the peace court might make a finding to that
effect, but it certainly cannot declare and hold that the contract
is resolved or rescinded. It is beyond its power so to do. And as
the illegality of the possession of realty by a party to a contract
to sell is premised upon the resolution of the contract, it follows
that an allegation and proof of such violation, a condition
precedent to such resolution or rescission, to render unlawful
the possession of the land or building erected thereon by the
party who has violated the contract, cannot be taken
cognizance of by a justice of the peace court. ... 1
True, the contract between the parties provided for extrajudicial
rescission. This has legal effect, however, where the other party
does not oppose it. 2 Where it is objected to, a judicial
determination of the issue is still necessary.
A stipulation entitling one party to take possession of the land
and building if the other party violates the contract does not ex
proprio vigore confer upon the former the right to take
possession thereof if objected to without judicial intervention
and' determination. 3
But while respondent Judge correctly ruled that the Municipal
Court had no jurisdiction over the case and correctly dismissed
the appeal, he erred in assuming original jurisdiction, in the
face of the objection interposed by petitioner. Section 11, Rule
40, leaves no room for doubt on this point:
Section 11. Lack of jurisdiction —A case tried by an inferior
court without jurisdiction over the subject matter shall be
dismiss on appeal by the Court of First Instance. But instead of
dismissing the case, the Court of First Instance may try the case
on the merits, if the parties therein file their pleadings and go
to trial without any objection to such jurisdiction.
There was no other recourse left for respondent Judge,
therefore, except to dismiss the appeal.
If an inferior court tries a case without jurisdiction over the
subject-matter on appeal, the only authority of the CFI is to
declare the inferior court to have acted without jurisdiction and
dismiss the case, unless the parties agree to the exercise by
the CFI of its original jurisdiction to try the case on the merits. 4
The foregoing premises considered, petitioner's prayer for a
Writ of Execution of the judgment of the Municipal Court of
Pasig must perforce be denied.
WHEREFORE, the Writ of mandamus is denied, but the Writ of
Prohibition is granted and respondent Court hereby
permanently enjoined from taking cognizance of Civil Case No.
10595 in the exercise of its original jurisdiction. No costs.
54. G.R. No. L-56076 September 21, 1983
PALAY, INC. and ALBERT ONSTOTT, petitioner,
vs.
JACOBO C. CLAVE, Presidential Executive Assistant NATIONAL
HOUSING AUTHORITY and NAZARIO DUMPIT respondents.
258 | P a g e
Santos, Calcetas-Santos & Geronimo Law Office for petitioner.
Wilfredo E. Dizon for private respondent.
MELENCIO-HERRERA, J.:
The Resolution, dated May 2, 1980, issued by Presidential
Executive Assistant Jacobo Clave in O.P. Case No. 1459,
directing petitioners Palay, Inc. and Alberto Onstott jointly and
severally, to refund to private respondent, Nazario Dumpit, the
amount of P13,722.50 with 12% interest per annum, as
resolved by the National Housing Authority in its Resolution of
July 10, 1979 in Case No. 2167, as well as the Resolution of
October 28, 1980 denying petitioners' Motion for
Reconsideration of said Resolution of May 2, 1980, are being
assailed in this petition.
On March 28, 1965, petitioner Palay, Inc., through its President,
Albert Onstott executed in favor of private respondent, Nazario
Dumpit, a Contract to Sell a parcel of Land (Lot No. 8, Block IV)
of the Crestview Heights Subdivision in Antipolo, Rizal, with an
area of 1,165 square meters, - covered by TCT No. 90454, and
owned by said corporation. The sale price was P23,300.00 with
9% interest per annum, payable with a downpayment of
P4,660.00 and monthly installments of P246.42 until fully paid.
Paragraph 6 of the contract provided for automatic extrajudicial
rescission upon default in payment of any monthly installment
after the lapse of 90 days from the expiration of the grace
period of one month, without need of notice and with forfeiture
of all installments paid.
made on December 5, 1967 for installments up to September
1967.
On May 10, 1973, or almost six (6) years later, private
respondent wrote petitioner offering to update all his overdue
accounts with interest, and seeking its written consent to the
assignment of his rights to a certain Lourdes Dizon. He followed
this up with another letter dated June 20, 1973 reiterating the
same request. Replying petitioners informed respondent that
his Contract to Sell had long been rescinded pursuant to
paragraph 6 of the contract, and that the lot had already been
resold.
Questioning the validity of the rescission of the contract,
respondent filed a letter complaint with the National Housing
Authority (NHA) for reconveyance with an altenative prayer for
refund (Case No. 2167). In a Resolution, dated July 10, 1979,
the NHA, finding the rescission void in the absence of either
judicial or notarial demand, ordered Palay, Inc. and Alberto
Onstott in his capacity as President of the corporation, jointly
and severally, to refund immediately to Nazario Dumpit the
amount of P13,722.50 with 12% interest from the filing of the
complaint on November 8, 1974. Petitioners' Motion for
Reconsideration of said Resolution was denied by the NHA in its
Order dated October 23, 1979. 1
On appeal to the Office of the President, upon the allegation
that the NHA Resolution was contrary to law (O.P. Case No.
1459), respondent Presidential Executive Assistant, on May 2,
1980, affirmed the Resolution of the NHA. Reconsideration
sought by petitioners was denied for lack of merit. Thus, the
present petition wherein the following issues are raised:
I Respondent Dumpit paid the downpayment and several
installments amounting to P13,722.50. The last payment was
259 | P a g e
Whether notice or demand is not mandatory under the
circumstances and, therefore, may be dispensed with by
stipulation in a contract to sell.
II
Whether petitioners may be held liable for the refund of the
installment payments made by respondent Nazario M. Dumpit.
III
Whether the doctrine of piercing the veil of corporate fiction
has application to the case at bar.
IV
Whether respondent Presidential Executive Assistant committed
grave abuse of discretion in upholding the decision of
respondent NHA holding petitioners solidarily liable for the
refund of the installment payments made by respondent
Nazario M. Dumpit thereby denying substantial justice to the
petitioners, particularly petitioner Onstott
We issued a Temporary Restraining Order on Feb 11, 1981
enjoining the enforcement of the questioned Resolutions and of
the Writ of Execution that had been issued on December 2,
1980. On October 28, 1981, we dismissed the petition but upon
petitioners' motion, reconsidered the dismissal and gave due
course to the petition on March 15, 1982.
On the first issue, petitioners maintain that it was justified in
cancelling the contract to sell without prior notice or demand
upon respondent in view of paragraph 6 thereof which provides-
6. That in case the BUYER falls to satisfy any monthly
installment or any other payments herein agreed upon, the
BUYER shall be granted a month of grace within which to make
the payment of the t in arrears together with the one
corresponding to the said month of grace. -It shall be
understood, however, that should the month of grace herein
granted to the BUYER expire, without the payment &
corresponding to both months having been satisfied, an interest
of ten (10%) per cent per annum shall be charged on the
amounts the BUYER should have paid; it is understood further,
that should a period of NINETY (90) DAYS elapse to begin from
the expiration of the month of grace hereinbefore mentioned,
and the BUYER shall not have paid all the amounts that the
BUYER should have paid with the corresponding interest up to
the date, the SELLER shall have the right to declare this
contract cancelled and of no effect without notice, and as a
consequence thereof, the SELLER may dispose of the lot/lots
covered by this Contract in favor of other persons, as if this
contract had never been entered into. In case of such
cancellation of this Contract, all the amounts which may have
been paid by the BUYER in accordance with the agreement,
together with all the improvements made on the premises, shall
be considered as rents paid for the use and occupation of the
above mentioned premises and for liquidated damages suffered
by virtue of the failure of the BUYER to fulfill his part of this
agreement : and the BUYER hereby renounces his right to
demand or reclaim the return of the same and further obligates
peacefully to vacate the premises and deliver the same to the
SELLER.
Well settled is the rule, as held in previous jurisprudence, 2 that
judicial action for the rescission of a contract is not necessary
where the contract provides that it may be revoked and
cancelled for violation of any of its terms and conditions.
However, even in the cited cases, there was at least a written
notice sent to the defaulter informing him of the rescission. As
stressed in University of the Philippines vs. Walfrido de los
Angeles 3 the act of a party in treating a contract as cancelled
should be made known to the other. We quote the pertinent
excerpt:
260 | P a g e
Of course, it must be understood that the act of a party in
treating a contract as cancelled or resolved in account of
infractions by the other contracting party must be made known
to the other and is always provisional being ever subject to
scrutiny and review by the proper court. If the other party
denies that rescission is justified it is free to resort to judicial
action in its own behalf, and bring the matter to court. Then,
should the court, after due hearing, decide that the resolution
of the contract was not warranted, the responsible party will be
sentenced to damages; in the contrary case, the resolution will
be affirmed, and the consequent indemnity awarded to the
party prejudiced.
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is
only the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or
was not correct in law. But the law definitely does not require
that the contracting party who believes itself injured must first
file suit and wait for a judgment before taking extrajudicial
steps to protect its interest. Otherwise, the party injured by the
other's breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final
judgment of rescission is rendered when the law itself requires
that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a reciprocal
obligation (Ocejo Perez & Co., vs. International Banking Corp.,
37 Phil. 631; Republic vs. Hospital de San Juan De Dios, et al.,
84 Phil 820) since in every case where the extrajudicial
resolution is contested only the final award of the court of
competent jurisdiction can conclusively settle whether the
resolution was
proper or not. It is in this sense that judicial action win be
necessary, as without it, the extrajudicial resolution will remain
contestable and subject to judicial invalidation unless attack
thereon should become barred by acquiescense, estoppel or
prescription.
Fears have been expressed that a stipulation providing for a
unilateral rescission in case of breach of contract may render
nugatory the general rule requiring judicial action (v. Footnote,
Padilla Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140)
but, as already observed, in case of abuse or error by the
rescinder the other party is not barred from questioning in court
such abuse or error, the practical effect of the stipulation being
merely to transfer to the defaulter the initiative of instituting
suit, instead of the rescinder (Emphasis supplied).
Of similar import is the ruling in Nera vs. Vacante 4, reading:
A stipulation entitling one party to take possession of the land
and building if the other party violates the contract does not ex
propio vigore confer upon the former the right to take
possession thereof if objected to without judicial intervention
and determination.
This was reiterated in Zulueta vs. Mariano 5 where we held that
extrajudicial rescission has legal effect where the other party
does not oppose it. 6 Where it is objected to, a judicial
determination of the issue is still necessary.
In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in Court. If the
debtor impugns the declaration, it shall be subject to judicial
determination. 7
In this case, private respondent has denied that rescission is
justified and has resorted to judicial action. It is now for the
Court
261 | P a g e
to determine whether resolution of the contract by petitioners
was warranted.
We hold that resolution by petitioners of the contract was
ineffective and inoperative against private respondent for lack
of notice of resolution, as held in the U.P. vs. Angeles case,
supra
Petitioner relies on Torralba vs. De los Angeles 8 where it was
held that "there was no contract to rescind in court because
from the moment the petitioner defaulted in the timely
payment of the installments, the contract between the parties
was deemed ipso facto rescinded." However, it should be noted
that even in that case notice in writing was made to the vendee
of the cancellation and annulment of the contract although the
contract entitled the seller to immediate repossessing of the
land upon default by the buyer.
The indispensability of notice of cancellation to the buyer was
to be later underscored in Republic Act No. 6551 entitled "An
Act to Provide Protection to Buyers of Real Estate on Installment
Payments." which took effect on September 14, 1972, when it
specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take
place after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value
to the buyer. (Emphasis supplied).
The contention that private respondent had waived his right to
be notified under paragraph 6 of the contract is neither
meritorious because it was a contract of adhesion, a standard
form of petitioner corporation, and private respondent had no
freedom to stipulate. A waiver must be certain and
unequivocal, and intelligently made; such waiver follows only
where liberty of choice has been fully accorded. 9 Moreover, it
is a matter of
public policy to protect buyers of real estate on installment
payments against onerous and oppressive conditions. Waiver of
notice is one such onerous and oppressive condition to buyers
of real estate on installment payments.
Regarding the second issue on refund of the installment
payments made by private respondent. Article 1385 of the Civil
Code provides:
ART.1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried
out only when he who demands rescission can return whatever
he may be obliged to restore.
Neither sham rescission take place when the things which are
the object of the contract are legally in the possession of third
persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from
the person causing the loss.
As a consequence of the resolution by petitioners, rights to the
lot should be restored to private respondent or the same should
be replaced by another acceptable lot. However, considering
that the property had already been sold to a third person and
there is no evidence on record that other lots are still available,
private respondent is entitled to the refund of installments paid
plus interest at the legal rate of 12% computed from the date of
the institution of the action. 10 It would be most inequitable if
petitioners were to be allowed to retain private respondent's
payments and at the same time appropriate the proceeds of
the second sale to another.
We come now to the third and fourth issues regarding the
personal liability of petitioner Onstott who was made jointly and
262 | P a g e
severally liable with petitioner corporation for refund to private
respondent of the total amount the latter had paid to petitioner
company. It is basic that a corporation is invested by law with a
personality separate and distinct from those of the persons
composing it as wen as from that of any other legal entity to
which it may be related. 11 As a general rule, a corporation
may not be made to answer for acts or liabilities of its
stockholders or those of the legal entities to which it may be
connected and vice versa. However, the veil of corporate fiction
may be pierced when it is used as a shield to further an end
subversive of justice 12 ; or for purposes that could not have
been intended by the law that created it 13 ; or to defeat public
convenience, justify wrong, protect fraud, or defend crime. 14 ;
or to perpetuate fraud or confuse legitimate issues 15 ; or to
circumvent the law or perpetuate deception 16 ; or as an alter
ego, adjunct or business conduit for the sole benefit of the
stockholders. 17
We find no badges of fraud on petitioners' part. They had
literally relied, albeit mistakenly, on paragraph 6 (supra) of its
contract with private respondent when it rescinded the contract
to sell extrajudicially and had sold it to a third person.
In this case, petitioner Onstott was made liable because he was
then the President of the corporation and he a to be the
controlling stockholder. No sufficient proof exists on record that
said petitioner used the corporation to defraud private
respondent. He cannot, therefore, be made personally liable
just because he "appears to be the controlling stockholder".
Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for disregarding the
separate corporate personality. 18 In this respect then, a
modification of the Resolution under review is called for.
WHEREFORE, the questioned Resolution of respondent public
official, dated May 2, 1980, is hereby modified. Petitioner Palay,
Inc. is directed to refund to respondent Nazario M. Dumpit the
amount of P13,722.50, with interest at twelve (12%) percent
per annum from November 8, 1974, the date of the filing of the
Complaint. The temporary Restraining Order heretofore issued
is hereby lifted.
55. G.R. No. L-42283
March 18, 1985
BUENAVENTURA ANGELES, ET AL., plaintiffs- appellees,
vs.
URSULA TORRES CALASANZ, ET AL., defendants- appellants.
GUTIERREZ, JR., J.:
This is an appeal from the decision of the Court of First Instance
of Rizal, Seventh Judicial District, Branch X, declaring the
contract to sell as not having been validly cancelled and
ordering the defendants-appellants to execute a final deed of
sale in favor of the plaintiffs-appellees, to pay P500.00
attorney's fees and costs.
The facts being undisputed, the Court of Appeals certified the
case to us since only pure questions of law have been raised for
appellate review.
On December 19, 1957, defendants-appellants Ursula Torres
Calasanz and Tomas Calasanz and plaintiffs-appellees
Buenaventura Angeles and Teofila Juani entered into a contract
to sell a piece of land located in Cainta, Rizal for the amount of
P3,920.00 plus 7% interest per annum.
263 | P a g e
The plaintiffs-appellees made a downpayment of P392.00 upon
the execution of the contract. They promised to pay the
balance in monthly installments of P 41.20 until fully paid, the
installments being due and payable on the 19th day of each
month. The plaintiffs-appellees paid the monthly installments
until July 1966, when their aggregate payment already
amounted to P4,533.38. On numerous occasions, the
defendants-appellants accepted and received delayed
installment payments from the plaintiffs-appellees.
On December 7, 1966, the defendants-appellants wrote the
plaintiffs-appellees a letter requesting the remittance of past
due accounts.
On January 28, 1967, the defendants-appellants cancelled the
said contract because the plaintiffs-appellees failed to meet
subsequent payments. The plaintiffs' letter with their plea for
reconsideration of the said cancellation was denied by the
defendants-appellants.
The plaintiffs-appellees filed Civil Case No. 8943 with the Court
of First Instance of Rizal, Seventh Judicial District, Branch X to
compel the defendants-appellants to execute in their favor the
final deed of sale alleging inter alia that after computing all
subsequent payments for the land in question, they found out
that they have already paid the total amount of P4,533.38
including interests, realty taxes and incidental expenses for the
registration and transfer of the land.
The defendants-appellants alleged in their answer that the
complaint states no cause of action and that the plaintiffs-
appellees violated paragraph six (6) of the contract to sell when
they failed and refused to pay and/or offer to pay the monthly
installments corresponding to the month of August, 1966 for
more than five (5) months, thereby constraining the
defendants- appellants to cancel the said contract.
The lower court rendered judgment in favor of the plaintiffs-
appellees. The dispositive portion of the decision reads:
WHEREFORE, based on the foregoing considerations, the Court
hereby renders judgment in favor of the plaintiffs and against
the defendants declaring that the contract subject matter of the
instant case was NOT VALIDLY cancelled by the defendants.
Consequently, the defendants are ordered to execute a final
Deed of Sale in favor of the plaintiffs and to pay the sum of
P500.00 by way of attorney's fees. Costs against the
defendants.
A motion for reconsideration filed by the defendants-appellants
was denied.
As earlier stated, the then Court of Appeals certified the case to
us considering that the appeal involves pure questions of law.
The defendants-appellants assigned the following alleged errors
of the lower court:
First Assignment of Error
THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO
SELL (ANNEX "A" OF COMPLIANCE) AS HAVING BEEN LEGALLY
AND VALIDLY CANCELLED.
Second Assignment of Error
EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO
SELL HAS NOT BEEN LEGALLY AND VALIDLY CANCELLED, THE
LOWER COURT ERRED IN ORDERING DEFENDANTS TO EXECUTE
A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF.
Third Assignment of Error
264 | P a g e
THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY
PLAINTIFFS THE SUM OF P500.00 AS ATTORNEY'S FEES.
The main issue to be resolved is whether or not the contract to
sell has been automatically and validly cancelled by the
defendants-appellants.
The defendants-appellants submit that the contract was validly
cancelled pursuant to paragraph six of the contract which
provides:
xxx xxx xxx
SIXTH.—In case the party of the SECOND PART fails to satisfy
any monthly installments, or any other payments herein agreed
upon, he is granted a month of grace within which to make the
retarded payment, together with the one corresponding to the
said month of grace; it is understood, however, that should the
month of grace herein granted to the party of the SECOND PART
expired; without the payments corresponding to both months
having been satisfied, an interest of 10% per annum will be
charged on the amounts he should have paid; it is understood
further, that should a period of 90 days elapse, to begin from
the expiration of the month of grace herein mentioned, and the
party of SECOND PART has not paid all the amounts he should
have paid with the corresponding interest up to that date, the
party of the FIRST PART has the right to declare this contract
cancelled and of no effect, and as consequence thereof, the
party of the FIRST PART may dispose of the parcel of land
covered by this contract in favor of other persons, as if this
contract had never been entered into. In case of such
cancellation of the contract, all the amounts paid in accordance
with this agreement together with all the improvements made
on the premises, shall be considered as rents paid for the use
and occupation of the above mentioned premises, and as
payment for the damages suffered by failure of the party of the
SECOND PART to fulfill his part of the agreement;
and the party of the SECOND PART hereby renounces all his
right to demand or reclaim the return of the same and obliges
himself to peacefully vacate the premises and deliver the same
to the party of the FIRST PART. (Emphasis supplied by appellant)
xxx xxx xxx
The defendants-appellants argue that the plaintiffs-appellees
failed to pay the August, 1966 installment despite demands for
more than four (4) months. The defendants-appellants point to
Jocson v. Capitol Subdivision (G.R. No. L-6573, February 28,
1955) where this Court upheld the right of the subdivision
owner to automatically cancel a contract to sell on the strength
of a provision or stipulation similar to paragraph 6 of the
contract in this case. The defendants-appellants also argue that
even in the absence of the aforequoted provision, they had the
right to cancel the contract to sell under Article 1191 of the
Civil Code of the Philippines.
The plaintiffs-appellees on the other hand contend that the
Jocson ruling does not apply. They state that paragraph 6 of the
contract to sell is contrary to law insofar as it provides that in
case of specified breaches of its terms, the sellers have the
right to declare the contract cancelled and of no effect, because
it granted the sellers an absolute and automatic right of
rescission.
Article 1191 of the Civil Code on the rescission of reciprocal
obligations provides:
The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
265 | P a g e
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
xxx xxx xxx
Article 1191 is explicit. In reciprocal obligations, either party the
right to rescind the contract upon the failure of the other to
perform the obligation assumed thereunder. Moreover, there is
nothing in the law that prohibits the parties from entering into
an agreement that violation of the terms of the contract would
cause its cancellation even without court intervention (Froilan v.
Pan Oriental Shipping, Co., et al., 12 SCRA 276)—
Well settled is, however, the rule that a judicial action for the
rescission of a contract is not necessary where the contract
provides that it may be revoked and cancelled for violation of
any of its terms and conditions' (Lopez v. Commissioner of
Customs, 37 SCRA 327, and cases cited therein)
Resort to judicial action for rescission is obviously not
contemplated . . . The validity of the stipulation can not be
seriously disputed. It is in the nature of a facultative resolutory
condition which in many cases has been upheld by this Court.
(Ponce Enrile v. Court of Appeals, 29 SCRA 504).
The rule that it is not always necessary for the injured party to
resort to court for rescission of the contract when the contract
itself provides that it may be rescinded for violation of its terms
and conditions, was qualified by this Court in University of the
Philippines v. De los Angeles, (35 SCRA 102) where we
explained that:
Of course, it must be understood that the act of a party in
treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known
to the other and is always provisional, being ever subject to
scrutiny and review
by the proper court. If the other party denies that rescission is
justified, it is free to resort to judicial action in its own behalf,
and bring the matter to court. Then, should the court, after due
hearing, decide that the resolution of the contract was not
warranted, the responsible party will be sentenced to damages;
in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated
many consider it resolved or rescinded, and act accordingly,
without previous court action, but it proceeds at its own risk.
For it is only the final judgment of the corresponding court that
will conclusively and finally settle whether the action taken was
or was not correct in law. ... .
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a reciprocal
obligation; (Ocejo, Perez & Co. v. International Banking Corp.,
37 Phil. 631; Republic v. Hospital de San Juan de Dios, et al., 84
Phil. 820) since in every case where the extrajudicial resolution
is contested only the final award of the court of competent
jurisdiction can conclusively settle whether the resolution was
proper or not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will remain
contestable and subject to judicial invalidation, unless attack
thereon should become barred by acquiescence, estoppel or
prescription.
The right to rescind the contract for non-performance of one of
its stipulations, therefore, is not absolute. In Universal Food
Corp. v. Court of Appeals (33 SCRA 1) the Court stated that—
The general rule is that rescission of a contract will not be
permitted for a slight or casual breach, but only for such
substantial and fundamental breach as would defeat the very
266 | P a g e
object of the parties in making the agreement. (Song Fo & Co.
v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of
whether a breach of a contract is substantial depends upon the
attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-
23707 & L-23720, Jan. 17, 1968). ... .
The defendants-appellants state that the plaintiffs-appellees
violated Section two of the contract to sell which provides:
SECOND.—That in consideration of the agreement of sale of the
above described property, the party of the SECOND PART
obligates himself to pay to the party of the FIRST PART the Sum
of THREE THOUSAND NINE HUNDRED TWENTY ONLY
(P3,920.00), Philippine Currency, plus interest at the rate of 7%
per annum, as follows:
(a) The amount of THREE HUNDRED NINETY TWO only
(P392.00) when this contract is signed; and
(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or
before the 19th day of each month, from this date until the
total payment of the price above stipulated, including interest.
because they failed to pay the August installment, despite
demand, for more than four (4) months.
The breach of the contract adverted to by the defendants-
appellants is so slight and casual when we consider that apart
from the initial downpayment of P392.00 the plaintiffs-
appellees had already paid the monthly installments for a
period of almost nine (9) years. In other words, in only a short
time, the entire obligation would have been paid. Furthermore,
although the principal obligation was only P 3,920.00 excluding
the 7 percent interests, the plaintiffs- appellees had already
paid an aggregate amount of P 4,533.38. To sanction the
rescission made by the defendants-appellants will work
injustice to the plaintiffs-
appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829)
It would unjustly enrich the defendants-appellants.
Article 1234 of the Civil Code which provides that:
If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee.
also militates against the unilateral act of the defendants-
appellants in cancelling the contract.
We agree with the observation of the lower court to the effect
that:
Although the primary object of selling subdivided lots is
business, yet, it cannot be denied that this subdivision is
likewise purposely done to afford those landless, low income
group people of realizing their dream of a little parcel of land
which they can really call their own.
The defendants-appellants cannot rely on paragraph 9 of the
contract which provides:
NINTH.-That whatever consideration of the party of the FIRST
PART may concede to the party of the SECOND PART, as not
exacting a strict compliance with the conditions of paragraph 6
of this contract, as well as any other condonation that the party
of the FIRST PART may give to the party of the SECOND PART
with regards to the obligations of the latter, should not be
interpreted as a renunciation on the part of the party of the
FIRST PART of any right granted it by this contract, in case of
default or non- compliance by the party of the SECOND PART.
267 | P a g e
The defendants-appellants argue that paragraph nine clearly
allows the seller to waive the observance of paragraph 6 not
merely once, but for as many times as he wishes.
The defendants-appellants' contention is without merit. We
agree with the plaintiffs-appellees that when the defendants-
appellants, instead of availing of their alleged right to rescind,
have accepted and received delayed payments of installments,
though the plaintiffs-appellees have been in arrears beyond the
grace period mentioned in paragraph 6 of the contract, the
defendants-appellants have waived and are now estopped from
exercising their alleged right of rescission. In De Guzman v.
Guieb (48 SCRA 68), we held that:
xxx xxx xxx
But defendants do not deny that in spite of the long arrearages,
neither they nor their predecessor, Teodoro de Guzman, even
took steps to cancel the option or to eject the appellees from
the home-lot in question. On the contrary, it is admitted that
the delayed payments were received without protest or
qualification. ... Under these circumstances, We cannot but
agree with the lower court that at the time appellees exercised
their option, appellants had already forfeited their right to
invoke the above- quoted provision regarding the nullifying
effect of the non- payment of six months rentals by appellees
by their having accepted without qualification on July 21, 1964
the full payment by appellees of all their arrearages.
The defendants-appellants contend in the second assignment
of error that the ledger of payments show a balance of P671,67
due from the plaintiffs-appellees. They submit that while it is
true that the total monthly installments paid by the plaintiffs-
appellees may have exceeded P3,920.00, a substantial portion
of the said payments were applied to the interests since the
contract specifically provides for a 7% interest per annum on
the
remaining balance. The defendants-appellants rely on
paragraph 2 of the contract which provides:
SECOND.—That in consideration of the agreement of sale of the
above described property, the party of the SECOND PART
obligates himself to pay to the party of the FIRST PART the Sum
of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P
3,920.00), Philippine Currency, plus interest at the rate of 7%
per annum ... . (Emphasis supplied)
The plaintiffs-appellees on the other hand are firm in their
submission that since they have already paid the defendants-
appellants a total sum of P4,533.38, the defendants-appellants
must now be compelled to execute the final deed of sale
pursuant to paragraph 12 of the contract which provides:
TWELFTH.—That once the payment of the sum of P3,920.00,
the total price of the sale is completed, the party to the FIRST
PART will execute in favor of the party of the SECOND PART, the
necessary deed or deeds to transfer to the latter the title of the
parcel of land sold, free from all hens and encumbrances other
than those expressly provided in this contract; it is understood,
however, that au the expenses which may be incurred in the
said transfer of title shall be paid by the party of the SECOND
PART, as above stated.
Closely related to the second assignment of error is the
submission of the plaintiffs-appellees that the contract herein is
a contract of adhesion.
We agree with the plaintiffs-appellees. The contract to sell
entered into by the parties has some characteristics of a
contract of adhesion. The defendants-appellants drafted and
prepared the contract. The plaintiffs-appellees, eager to acquire
a lot upon which they could build a home, affixed their
signatures and assented to the terms and conditions of the
contract. They had no
268 | P a g e
opportunity to question nor change any of the terms of the
agreement. It was offered to them on a "take it or leave it"
basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that:
xxx xxx xxx
... (W)hile generally, stipulations in a contract come about after
deliberate drafting by the parties thereto. . . . there are certain
contracts almost all the provisions of which have been drafted
only by one party, usually a corporation. Such contracts are
called contracts of adhesion, because the only participation of
the party is the signing of his signature or his "adhesion"
thereto. Insurance contracts, bills of lading, contracts of sale of
lots on the installment plan fall into this category. (Paras, Civil
Code of the Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis
supplied)
While it is true that paragraph 2 of the contract obligated the
plaintiffs-appellees to pay the defendants-appellants the sum of
P3,920.00 plus 7% interest per annum, it is likewise true that
under paragraph 12 the seller is obligated to transfer the title
to the buyer upon payment of the P3,920.00 price sale.
The contract to sell, being a contract of adhesion, must be
construed against the party causing it. We agree with the
observation of the plaintiffs-appellees to the effect that "the
terms of a contract must be interpreted against the party who
drafted the same, especially where such interpretation will help
effect justice to buyers who, after having invested a big amount
of money, are now sought to be deprived of the same thru the
prayed application of a contract clever in its phraseology,
condemnable in its lopsidedness and injurious in its effect
which, in essence, and in its entirety is most unfair to the
buyers."
Thus, since the principal obligation under the contract is only
P3,920.00 and the plaintiffs-appellees have already paid an
aggregate amount of P4,533.38, the courts should only order
the
payment of the few remaining installments but not uphold the
cancellation of the contract. Upon payment of the balance of
P671.67 without any interest thereon, the defendants-
appellants must immediately execute the final deed of sale in
favor of the plaintiffs-appellees and execute the necessary
transfer documents as provided in paragraph 12 of the
contract. The attorney's fees are justified.
WHEREFORE, the instant petition is DENIED for lack of merit.
The decision appealed from is AFFIRMED with the modification
that the plaintiffs-appellees should pay the balance of SIX
HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS
(P671.67) without any interests. Costs against the defendants-
appellants.
56. G.R. No. L-22590
March 20, 1987
SOLOMON BOYSAW and ALFREDO M. YULO, JR., plaintiffs-
appellants,
vs.
INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and
MANUEL NIETO, JR., defendants-appellees.
Felipe Torres and Associates for plaintiffs-appellants.
V.E. Del Rosario & Associates for defendant-appellee M. Nieto,
Jr.
A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil
Promotions, Inc.
RESOLUTION
269 | P a g e
FERNAN, J.:
This is an appeal interposed by Solomon Boysaw and Alfredo
Yulo, Jr., from the decision dated July 25, 1963 and other rulings
and orders of the then Court of First Instance [CFI] of Rizal,
Quezon City, Branch V in Civil Case No. Q-5063, entitled
"Solomon Boysaw and Alfredo M. Yulo, Jr., Plaintiffs versus
Interphil Promotions, Inc., Lope Sarreal, Sr. and Manuel Nieto,
Jr., Defendants," which, among others, ordered them to jointly
and severally pay defendant-appellee Manuel Nieto, Jr., the
total sum of P25,000.00, broken down into P20,000.00 as moral
damages and P5,000.00 as attorney's fees; the defendants-
appellees Interphil Promotions, Inc. and Lope Sarreal, Sr.,
P250,000.00 as unrealized profits, P33,369.72 as actual
damages and P5,000.00 as attorney's fees; and defendant-
appellee Lope Sarreal, Sr., the additional amount of P20,000.00
as moral damages aside from costs.
The antecedent facts of the case are as follows:
On May 1, 1961, Solomon Boysaw and his then Manager, Willie
Ketchum, signed with Interphil Promotions, Inc. represented by
Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in
a boxing contest for the junior lightweight championship of the
world.
It was stipulated that the bout would be held at the Rizal
Memorial Stadium in Manila on September 30, 1961 or not later
than thirty [30] days thereafter should a postponement be
mutually agreed upon, and that Boysaw would not, prior to the
date of the boxing contest, engage in any other such contest
without the written consent of Interphil Promotions, Inc.
On May 3, 1961, a supplemental agreement on certain details
not covered by the principal contract was entered into by
Ketchum and Interphil. Thereafter, Interphil signed Gabriel
"Flash" Elorde to a similar agreement, that is, to engage
Boysaw in a title fight at the Rizal Memorial Stadium on
September 30, 1961.
On June 19, 1961, Boysaw fought and defeated Louis Avila in a
ten-round non-title bout held in Las Vegas, Nevada, U.S.A. [pp.
26- 27, t.s.n., session of March 14, 1963].
On July 2, 1961, Ketchum on his own behalf and on behalf of his
associate Frank Ruskay, assigned to J. Amado Araneta the
managerial rights over Solomon Boysaw.
Presumably in preparation for his engagement with Interphil,
Solomon Boysaw arrived in the Philippines on July 31, 1961.
On September 1, 1961, J. Amado Araneta assigned to Alfredo J.
Yulo, Jr. the managerial rights over Boysaw that he earlier
acquired from Ketchum and Ruskay. The next day, September
2, 1961, Boysaw wrote Lope Sarreal, Sr. informing him of his
arrival and presence in the Philippines.
On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal
informing him of his acquisition of the managerial rights over
Boysaw and indicating his and Boysaw's readiness to comply
with the boxing contract of May 1, 1961. On the same date, on
behalf of Interphil Sarreal wrote a letter to the Games and
Amusement Board [GAB] expressing concern over reports that
there had been a switch of managers in the case of Boysaw, of
which he had not been formally notified, and requesting that
Boysaw be called to an inquiry to clarify the situation.
The GAB called a series of conferences of the parties concerned
culminating in the issuance of its decision to schedule the
Elorde- Boysaw fight for November 4, 1961. The USA National
Boxing
270 | P a g e
Association which has supervisory control of all world title fights
approved the date set by the GAB
Yulo, Jr. refused to accept the change in the fight date,
maintaining his refusal even after Sarreal on September 26,
1961, offered to advance the fight date to October 28, 1961
which was within the 30-day period of allowable postponements
provided in the principal boxing contract of May 1, 1961.
Early in October 1961, Yulo, Jr. exchanged communications with
one Mamerto Besa, a local boxing promoter, for a possible
promotion of the projected Elorde-Boysaw title bout. In one of
such communications dated October 6, 1961, Yulo informed
Besa that he was willing to approve the fight date of November
4,1961 provided the same was promoted by Besa.
While an Elorde-Boysaw fight was eventually staged, the fight
contemplated in the May 1, 1961 boxing contract never
materialized.
As a result of the foregoing occurrences, on October 12, 1961,
Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel
Nieto, Jr. in the CFI of Rizal [Quezon City Branch] for damages
allegedly occasioned by the refusal of Interphil and Sarreal,
aided and abetted by Nieto, Jr., then GAB Chairman, to honor
their commitments under the boxing contract of May 1,1961.
On the first scheduled date of trial, plaintiff moved to disqualify
Solicitor Jorge Coquia of the Solicitor General's Office and Atty.
Romeo Edu of the GAB Legal Department from appearing for
defendant Nieto, Jr. on the ground that the latter had been sued
in his personal capacity and, therefore, was not entitled to be
represented by government counsel. The motion was denied
insofar as Solicitor General Coquia was concerned, but was
granted as regards the disqualification of Atty. Edu.
The case dragged into 1963 when sometime in the early part of
said year, plaintiff Boysaw left the country without informing
the court and, as alleged, his counsel. He was still abroad when,
on May 13, 1963, he was scheduled to take the witness stand.
Thus, the lower court reset the trial for June 20, 1963. Since
Boysaw was still abroad on the later date, another
postponement was granted by the lower court for July 23, 1963
upon assurance of Boysaw's counsel that should Boysaw fail to
appear on said date, plaintiff's case would be deemed
submitted on the evidence thus far presented.
On or about July 16, 1963, plaintiffs represented by a new
counsel, filed an urgent motion for postponement of the July 23,
1963 trial, pleading anew Boysaw's inability to return to the
country on time. The motion was denied; so was the motion for
reconsideration filed by plaintiffs on July 22, 1963.
The trial proceeded as scheduled on July 23, 1963 with
plaintiff's case being deemed submitted after the plaintiffs
declined to submit documentary evidence when they had no
other witnesses to present. When defendant's counsel was
about to present their case, plaintiff's counsel after asking the
court's permission, took no further part in the proceedings.
After the lower court rendered its judgment dismissing the
plaintiffs' complaint, the plaintiffs moved for a new trial. The
motion was denied, hence, this appeal taken directly to this
Court by reason of the amount involved.
From the errors assigned by the plaintiffs, as having been
committed by the lower court, the following principal issues can
be deduced:
1. Whether or not there was a violation of the fight contract of
May 1, 1961; and if there was, who was guilty of such violation.
271 | P a g e
2. Whether or not there was legal ground for the postponement
of the fight date from September 1, 1961, as stipulated in the
May 1, 1961 boxing contract, to November 4,1961,
3. Whether or not the lower court erred in the refusing a
postponement of the July 23, 1963 trial.
4. Whether or not the lower court erred in denying the
appellant's motion for a new trial.
5. Whether or not the lower court, on the basis of the evidence
adduced, erred in awarding the appellees damages of the
character and amount stated in the decision.
On the issue pertaining to the violation of the May 1, 1961 fight
contract, the evidence established that the contract was
violated by appellant Boysaw himself when, without the
approval or consent of Interphil, he fought Louis Avila on June
19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this fact
during the trial. [pp. 26-27, t.s.n., March 14, 1963].
While the contract imposed no penalty for such violation, this
does not grant any of the parties the unbridled liberty to breach
it with impunity. Our law on contracts recognizes the principle
that actionable injury inheres in every contractual breach. Thus:
Those who in the performance of their obligations are guilty of
fraud, negligence or delay, and those who in any manner
contravene the terms thereof, are liable for damages. [Art.
1170, Civil Code].
Also:
The power to rescind obligations is implied, in reciprocal ones,
in case one of the obligors should not comply with what is
incumbent upon him. [Part 1, Art. 1191, Civil Code].
There is no doubt that the contract in question gave rise to
reciprocal obligations. "Reciprocal obligations are those which
arise from the same cause, and in which each party is a debtor
and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be
performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other"
[Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.1
The power to rescind is given to the injured party. "Where the
plaintiff is the party who did not perform the undertaking which
he was bound by the terms of the agreement to perform 4 he is
not entitled to insist upon the performance of the contract by
the defendant, or recover damages by reason of his own breach
" [Seva vs. Alfredo Berwin 48 Phil. 581, Emphasis supplied].
Another violation of the contract in question was the
assignment and transfer, first to J. Amado Araneta, and
subsequently, to appellant Yulo, Jr., of the managerial rights
over Boysaw without the knowledge or consent of Interphil.
The assignments, from Ketchum to Araneta, and from Araneta
to Yulo, were in fact novations of the original contract which, to
be valid, should have been consented to by Interphil.
Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. [Art. 1293, Civil Code, emphasis
supplied].
That appellant Yulo, Jr., through a letter, advised Interphil on
September 5, 1961 of his acquisition of the managerial rights
272 | P a g e
over Boysaw cannot change the fact that such acquisition, and
the prior acquisition of such rights by Araneta were done
without the consent of Interphil. There is no showing that
Interphil, upon receipt of Yulo's letter, acceded to the
"substitution" by Yulo of the original principal obligor, who is
Ketchum. The logical presumption can only be that, with
Interphil's letter to the GAB expressing concern over reported
managerial changes and requesting for clarification on the
matter, the appellees were not reliably informed of the changes
of managers. Not being reliably informed, appellees cannot be
deemed to have consented to such changes.
Under the law when a contract is unlawfully novated by an
applicable and unilateral substitution of the obligor by another,
the aggrieved creditor is not bound to deal with the substitute.
The consent of the creditor to the change of debtors, whether in
expromision or delegacion is an, indispensable requirement . . .
Substitution of one debtor for another may delay or prevent the
fulfillment of the obligation by reason of the inability or
insolvency of the new debtor, hence, the creditor should agree
to accept the substitution in order that it may be binding on
him.
Thus, in a contract where x is the creditor and y is the debtor, if
y enters into a contract with z, under which he transfers to z all
his rights under the first contract, together with the obligations
thereunder, but such transfer is not consented to or approved
by x, there is no novation. X can still bring his action against y
for performance of their contract or damages in case of breach.
[Tolentino, Civil Code of the Philippines, Vol. IV, p. 3611.
From the evidence, it is clear that the appellees, instead of
availing themselves of the options given to them by law of
rescission or refusal to recognize the substitute obligor Yulo,
really wanted to postpone the fight date owing to an injury that
Elorde sustained in a recent bout. That the appellees had the
justification to renegotiate the original contract, particularly the
fight date is undeniable from the facts aforestated. Under the
circumstances, the appellees' desire to postpone the fight date
could neither be unlawful nor unreasonable.
We uphold the appellees' contention that since all the rights on
the matter rested with the appellees, and appellants' claims, if
any, to the enforcement of the contract hung entirely upon the
former's pleasure and sufferance, the GAB did not act arbitrarily
in acceding to the appellee's request to reset the fight date to
November 4, 1961. It must be noted that appellant Yulo had
earlier agreed to abide by the GAB ruling.
In a show of accommodation, the appellees offered to advance
the November 4, 1961 fight to October 28, 1961 just to place it
within the 30- day limit of allowable postponements stipulated
in the original boxing contract.
The refusal of appellants to accept a postponement without any
other reason but the implementation of the terms of the
original boxing contract entirely overlooks the fact that by
virtue of the violations they have committed of the terms
thereof, they have forfeited any right to its enforcement.
On the validity of the fight postponement, the violations of the
terms of the original contract by appellants vested the
appellees with the right to rescind and repudiate such contract
altogether. That they sought to seek an adjustment of one
particular covenant of the contract, is under the circumstances,
within the appellee's rights.
While the appellants concede to the GAB's authority to regulate
boxing contests, including the setting of dates thereof, [pp. 44-
49, t.s.n., Jan. 17, 1963], it is their contention that only Manuel
Nieto, Jr. made the decision for postponement, thereby
arrogating to himself the prerogatives of the whole GAB Board.
273 | P a g e
The records do not support appellants' contention. Appellant
Yulo himself admitted that it was the GAB Board that set the
questioned fight date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it
must be stated that one of the strongest presumptions of law is
that official duty has been regularly performed. In this case, the
absence of evidence to the contrary, warrants the full
application of said presumption that the decision to set the
Elorde-Boysaw fight on November 4, 1961 was a GAB Board
decision and not of Manuel Nieto, Jr. alone.
Anent the lower court's refusal to postpone the July 23, 1963
trial, suffice it to say that the same issue had been raised
before Us by appellants in a petition for certiorari and
prohibition docketed as G.R. No. L-21506. The dismissal by the
Court of said petition had laid this issue to rest, and appellants
cannot now hope to resurrect the said issue in this appeal.
On the denial of appellant's motion for a new trial, we find that
the lower court did not commit any reversible error.
The alleged newly discovered evidence, upon which the motion
for new trial was made to rest, consists merely of clearances
which Boysaw secured from the clerk of court prior to his
departure for abroad. Such evidence cannot alter the result of
the case even if admitted for they can only prove that Boysaw
did not leave the country without notice to the court or his
counsel.
The argument of appellants is that if the clearances were
admitted to support the motion for a new trial, the lower court
would have allowed the postponement of the trial, it being
convinced that Boysaw did not leave without notice to the court
or to his counsel. Boysaw's testimony upon his return would,
then, have altered the results of the case.
We find the argument without merit because it confuses the
evidence of the clearances and the testimony of Boysaw. We
uphold the lower court's ruling that:
The said documents [clearances] are not evidence to offset the
evidence adduced during the hearing of the defendants. In fact,
the clearances are not even material to the issues raised. It is
the opinion of the Court that the 'newly discovered evidence'
contemplated in Rule 37 of the Rules of Court, is such kind of
evidence which has reference to the merits of the case, of such
a nature and kind, that if it were presented, it would alter the
result of the judgment. As admitted by the counsel in their
pleadings, such clearances might have impelled the Court to
grant the postponement prayed for by them had they been
presented on time. The question of the denial of the
postponement sought for by counsel for plaintiffs is a moot
issue . . . The denial of the petition for certiorari and prohibition
filed by them, had he effect of sustaining such ruling of the
court . . . [pp. 296-297, Record on Appeal].
The testimony of Boysaw cannot be considered newly
discovered evidence for as appellees rightly contend, such
evidence has been in existence waiting only to be elicited from
him by questioning.
We cite with approval appellee's contention that "the two
qualities that ought to concur or dwell on each and every of
evidence that is invoked as a ground for new trial in order to
warrant the reopening . . . inhered separately on two unrelated
species of proof" which "creates a legal monstrosity that
deserves no recognition."
On the issue pertaining to the award of excessive damages, it
must be noted that because the appellants wilfully refused to
participate in the final hearing and refused to present
documentary evidence after they no longer had witnesses to
present, they, by their own acts prevented themselves from
274 | P a g e
objecting to or presenting proof contrary to those adduced for
the appellees.
On the actual damages awarded to appellees, the appellants
contend that a conclusion or finding based upon the
uncorroborated testimony of a lone witness cannot be
sufficient. We hold that in civil cases, there is no rule requiring
more than one witness or declaring that the testimony of a
single witness will not suffice to establish facts, especially
where such testimony has not been contradicted or rebutted.
Thus, we find no reason to disturb the award of P250,000.00 as
and for unrealized profits to the appellees.
On the award of actual damages to Interphil and Sarreal, the
records bear sufficient evidence presented by appellees of
actual damages which were neither objected to nor rebutted by
appellants, again because they adamantly refused to
participate in the court proceedings.
The award of attorney's fees in the amount of P5,000.00 in
favor of defendant-appellee Manuel Nieto, Jr. and another
P5,000.00 in favor of defendants-appellees Interphil
Promotions, Inc. and Lope Sarreal, Sr., jointly, cannot also be
regarded as excessive considering the extent and nature of
defensecounsels' services which involved legal work for sixteen
[16] months.
However, in the matter of moral damages, we are inclined to
uphold the appellant's contention that the award is not
sanctioned by law and well- settled authorities. Art. 2219 of the
Civil Code provides:
Art. 2219. Moral damages may be recovered in the following
analogous cases:
1) A criminal offense resulting in physical injuries;
2) Quasi-delict causing physical injuries;
3) Seduction, abduction, rape or other lascivious acts;
4) Adultery or concubinage;
5) Illegal or arbitrary detention or arrest;
6) Illegal search;
7) Libel, slander or any other form of defamation;
8) Malicious prosecution;
9) Acts mentioned in Art. 309.
10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29, 30,
32, 34 and 35.
The award of moral damages in the instant case is not based on
any of the cases enumerated in Art. 2219 of the Civil Code. The
action herein brought by plaintiffs-appellants is based on a
perceived breach committed by the defendants-appellees of
the contract of May 1, 1961, and cannot, as such, be arbitrarily
considered as a case of malicious prosecution.
Moral damages cannot be imposed on a party litigant although
such litigant exercises it erroneously because if the action has
been erroneously filed, such litigant may be penalized for costs.
The grant of moral damages is not subject to the whims and
caprices of judges or courts. The court's discretion in granting
or refusing it is governed by reason and justice. In order that a
person may be made liable to the payment of moral damages,
the law requires that his act be wrongful. The adverse result of
an action does not per se make the act wrongful and subject
the
275 | P a g e
actor to the payment of moral damages. The law could not
have meant to impose a penalty on the right to litigate; such
right is so precious that moral damages may not be charged on
those who may exercise it erroneously. For these the law taxes
costs. [Barreto vs. Arevalo, et. al. No. L-7748, Aug. 27, 1956, 52
O.G., No. 13, p. 5818.]
WHEREFORE, except for the award of moral damages which is
herein deleted, the decision of the lower court is hereby
affirmed.
57. G.R. No. L-67881
PILIPINAS BANK as Successor-In-Interest Of And/Or In
substitution to, The MANUFACTURERS BANK AND TRUST
COMPANY, petitioner-appellant
vs.
INTERMEDIATE APPELLATE COURT (Fourth Civil Cases Division),
and JOSE W. DIOKNO and CARMEN I. DIOKNO, respondents-
appellees.
PARAS, J.:
This is an appeal by certiorari from the Decision 1 of the
respondent court dated May 31, 1984 in CA-G.R. CV No. 67205
entitled "Jose W. Diokno and Carmen I. Diokno, plaintiffs-
appellees, vs. The Manufacturers Bank and Trust Company,
defendant-appellant" which affirmed the decision 2 of the Court
of First Instance of Rizal (Pasig Branch XXI) in Civil Case No.
19660, the dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiffs and
against the defendant, ordering the defendant Manufacturers
Bank & Trust Company:
1. To deliver to the plaintiffs the parcel of land described in
Contract to Sell No. VV-18-(a) in the total area of 5,936 square
meters and to execute in their favor the necessary deed of
absolute sale therefor;
2. To pay the sum of P556,160.00 less the amount due on the
contract (i.e., the unpaid installments from December, 1966
until the contract would have been fully paid together with
interest thereon up to March 25, 1974) with legal interest on
said balance from April 22, 1974 until the same is fully paid;
3. P50,000.00 by way of moral damages;
4. P50,000.00 by way of exemplary damages;
5. Ten per cent (10%) of the judgment by way of attorney's
fees; and
6. Costs of suit.
SO ORDERED. (Rollo, pp. 14-15)
The following are the undisputed facts of the case:
1. On April 18, 1961, Hacienda Benito, Inc. (petitioner's
predecessor-in-interest) as vendor, and private respondents, as
vendees executed Contract to Sell No. VV-18 (a) (Exh. A) over a
parcel of land with an area of 5,936 square meters of the
Victoria Valley Subdivision in Antipolo, Rizal, subject to the
following terms and conditions, among others, relevant to this
petition:
276 | P a g e
(a) The total contract price for the entire 5,936 square-meter-
lot was P47,488.00;
(b) Of the total sum, an amount of Pl2,182.00 was applied
thereto so as to reduce the balance on the principal to
P35,306.00;
(c) The aforesaid balance, together with the stipulated interest
of 6% per annum, was to be paid over a period of 8-1/2 years
starting on May 1, 1961 at a monthly installment of P446.10
until fully paid-although this monthly installment was later
adjusted to the higher amount of P797.86, starting on April 1,
1965;
(d) Upon complete payment by the vendee of the total price of
the lot the vendor shall execute a deed of sale in favor of the
vendee;
(e) The contract shall be considered automatically rescinded
and cancelled and of no further force and effect upon failure of
the vendee to pay when due, three or more consecutive
installments as stipulated therein or to comply with any of the
terms and conditions thereof, in which case the vendor shall
have right to resell the said parcel of land to any person
interested, forfeiting payments made by the vendee as
liquidated damages.
2. On July 27, 1965, petitioner sent to private respondents a
Statement of Account (Exh. F-1) requesting remittance of
installment arrears showing partial payments for the month of
April 1965 and May 1965 and complete default for June, July
and August, 1965;
3. Likewise, on August 31, 1965, petitioner sent to private
respondents another Statement of Account with the additional
entries of interests and the incoming installment for
September, 1965;
4. In partial compliance with the aforesaid Statements of
Account, private respondents paid on September 3, 1965 the
sum of Pl,397.00 which answers for the installments for the
months of June 1965 to August 1965;
5. On March 17, 1967, petitioner sent private respondents a
simple demand letter showing a delinquency in their monthly
amortizations for 19 months (Exh. 9);
6. On April 17, 1967, petitioner again sent private respondents
a demand letter showing total arrearages of 20 months as of
April 1965, but this time advising that unless they up-date their
installment payments, petitioner shall be constrained to avail of
the automatic rescission clause (Exh. 10);
7. On May 17, 1967, private respondents made a partial
payment of P2,000.00 with the request for an extension of 60
days from May 17, 1967 within which to up-date their account
(Exh. 10-a);
8. On July 17, 1967, private respondents wrote a letter to
petitioner asking another extension of sixty (60) days to pay all
their arrearages and update their payments under Contract No.
VV-18 (a);
9. On September 18, 1967, private respondents paid P5,000.00
as partial payment and requested an extension of another 30
days from September 18, 1967 within which to update their
account (Exh. 10-c);
10. On October 19, 1967, however, private respondents failed
to update their arrearages and did not request for any further
extension of time within which to update their account;
277 | P a g e
11. After almost three (3) years, or on July 16, 1970, private
respondents wrote a letter to petitioner requesting for a
Statement of Account as of date in arrears and interests(Exh.
10- d), to which petitioner made a reply on July 22, 1970 (Exh.
11);
12. On May 19, 1971, petitioner wrote a letter to private
respondents, reminding them of their balance which will be due
on the 31st instant (Exh. J);
13. More than two (2) years from May 19, 1971 or on July 5,
1973, private respondents wrote a letter to petitioner
expressing their desire to fully settle their obligation, requesting
for a complete statement of all the balance due including
interests;
14. On March 14, 1974, private respondents wrote a letter
reiterating their request in their letter dated July 5, 1973, which
has not been complied with despite several follow-ups (Exh. O);
15. On March 25, 1974, private respondent Carmen I. Diokno
went to see the Chairman of petitioner's Board of Directors on
the matter informing him that she had a buyer who was ready
to purchase the property,
16. On March 27, 1974, petitioner wrote a letter to private
respondents, informing them that the contract to sell had been
rescinded/cancelled by a notarial act, to which letter was
annexed a "Demand for Rescission of Contract", notarized on
March 25, 1974 (Exh. 12);
17. In view of the foregoing, private respondents filed
Complaint for Specific Performance with Damages to compel
petitioner to execute a deed of sale in their favor, and to deliver
to them the title of the lot in question.
18. Petitioner filed an Answer with counterclaim for damages in
the form of attorney's fees, claiming that Contract to Sell No.
VV-18(a) has been automatically rescinded or cancelled by
virtue of private respondents' failure to pay the installments
due in the contract under the automatic rescission clause.
19. After trial, the lower court rendered a decision in private
respondents' favor, holding that petitioner could not rescind the
contract to sell, because: (a) petitioner waived the automatic
rescission clause by accepting payment on September 1967,
and by sending letters advising private respondents of the
balances due, thus, looking forward to receiving payments
thereon; (b) in any event, until May 18, 1977 (when petitioner
made arrangements for the acquisition of additional 870 square
meters) petitioner could not have delivered the entire area
contracted for, so, neither could private respondents be liable
in default, citing Art. 1 189 of the New Civil Code. (Decision, pp.
141- 148, Amended Record on Appeal).
Said decision was affirmed on appeal.
Hence, this Petition For Review on Certiorari, raising the main
issue of whether or not the Contract to Sell No. VV-18(a) was
rescinded or cancelled, under the automatic rescission clause
contained therein.
We find the petition meritless. While it is true that in the leading
case of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc.
and Myers Building Co., 43 SCRA 93 the Supreme Court
reiterated among other things that a contractual provision
allowing "automatic rescission" (without prior need of judicial
rescission, resolution or cancellation) is VALID, the remedy of
one who feels aggrieved being to go to Court for the
cancellation of the rescission itself, in case the rescission is
found unjustified under the circumstances, still in the instant
case there is a clear WAIVER of the stipulated right of
"automatic rescission," as evidenced by the many extensions
granted private respondents
278 | P a g e
by the petitioner. In all these extensions, the petitioner never
called attention to the proviso on "automatic rescission."
WHEREFORE the assailed decision is hereby AFFIRMED but the
actual damages are hereby reduced to P250,000.00 (the profit
private respondents could have earned had the land been
delivered to them at the time they were ready to pay all their
arrearages) minus whatever private respondents still owe the
petitioner (with the stipulated 6% annual interest up to March
25, 1974) as a result of the contract.
58. G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR
ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL
AND SAVINGS BANK, in his capacity as statutory receiver of
Island Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for
petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and
void the decision of the Court of Appeals, in C.A.-G.R. No.
52253-R dated February 11, 1977, modifying the decision dated
February 15, 1972 of the Court of First Instance of Agusan,
which
dismissed the petition of respondent Sulpicio M. Tolentino for
injunction, specific performance or rescission, and damages
with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable
recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a
security for the loan, executed on the same day a real estate
mortgage over his 100-hectare land located in Cubo, Las
Nieves, Agusan, and covered by TCT No. T-305, and which
mortgage was annotated on the said title the next day. The
approved loan application called for a lump sum P80,000.00
loan, repayable in semi-annual installments for a period of 3
years, with 12% annual interest. It was required that Sulpicio M.
Tolentino shall use the loan proceeds solely as an additional
capital to develop his other property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the
P80,000.00 loan was made by the Bank; and Sulpicio M.
Tolentino and his wife Edita Tolentino signed a promissory note
for P17,000.00 at 12% annual interest, payable within 3 years
from the date of execution of the contract at semi-annual
installments of P3,459.00 (p. 64, rec.). An advance interest for
the P80,000.00 loan covering a 6-month period amounting to
P4,800.00 was deducted from the partial release of P17,000.00.
But this pre-deducted interest was refunded to Sulpicio M.
Tolentino on July 23, 1965, after being informed by the Bank
that there was no fund yet available for the release of the
P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-
president and treasurer, promised repeatedly the release of the
P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank,
after finding Island Savings Bank was suffering liquidity
problems, issued Resolution No. 1049, which provides:
279 | P a g e
In view of the chronic reserve deficiencies of the Island Savings
Bank against its deposit liabilities, the Board, by unanimous
vote, decided as follows:
1) To prohibit the bank from making new loans and investments
[except investments in government securities] excluding
extensions or renewals of already approved loans, provided that
such extensions or renewals shall be subject to review by the
Superintendent of Banks, who may impose such limitations as
may be necessary to insure correction of the bank's deficiency
as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland
Savings Bank failed to put up the required capital to restore its
solvency, issued Resolution No. 967 which prohibited Island
Savings Bank from doing business in the Philippines and
instructed the Acting Superintendent of Banks to take charge of
the assets of Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-
payment of the P17,000.00 covered by the promissory note,
filed an application for the extra-judicial foreclosure of the real
estate mortgage covering the 100-hectare land of Sulpicio M.
Tolentino; and the sheriff scheduled the auction for January 22,
1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with
the Court of First Instance of Agusan for injunction, specific
performance or rescission and damages with preliminary
injunction, alleging that since Island Savings Bank failed to
deliver the P63,000.00 balance of the P80,000.00 loan, he is
entitled to specific performance by ordering Island Savings
Bank to deliver the P63,000.00 with interest of 12% per annum
from
April 28, 1965, and if said balance cannot be delivered, to
rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a
P5,000.00 surety bond, issued a temporary restraining order
enjoining the Island Savings Bank from continuing with the
foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in
intervention praying for the dismissal of the petition of Sulpicio
M. Tolentino and the setting aside of the restraining order, filed
by the Central Bank and by the Acting Superintendent of Banks
(pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits
rendered its decision, finding unmeritorious the petition of
Sulpicio M. Tolentino, ordering him to pay Island Savings Bank
the amount of PI 7 000.00 plus legal interest and legal charges
due thereon, and lifting the restraining order so that the sheriff
may proceed with the foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by
Sulpicio M. Tolentino, modified the Court of First Instance
decision by affirming the dismissal of Sulpicio M. Tolentino's
petition for specific performance, but it ruled that Island
Savings Bank can neither foreclose the real estate mortgage
nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank. The issues are:
1. Can the action of Sulpicio M. Tolentino for specific
performance prosper?
280 | P a g e
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt
covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00
subsists, can his real estate mortgage be foreclosed to satisfy
said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered
into an P80,000.00 loan agreement on April 28, 1965, they
undertook reciprocal obligations. In reciprocal obligations, the
obligation or promise of each party is the consideration for that
of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de
Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party has
performed or is ready and willing to perform his part of the
contract, the other party who has not performed or is not ready
and willing to perform incurs in delay (Art. 1169 of the Civil
Code). The promise of Sulpicio M. Tolentino to pay was the
consideration for the obligation of Island Savings Bank to
furnish the P80,000.00 loan. When Sulpicio M. Tolentino
executed a real estate mortgage on April 28, 1965, he signified
his willingness to pay the P80,000.00 loan. From such date, the
obligation of Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the entire loan
started on April 28, 1965, and lasted for a period of 3 years or
when the Monetary Board of the Central Bank issued Resolution
No. 967 on June 14, 1968, which prohibited Island Savings Bank
from doing further business. Such prohibition made it legally
impossible for Island Savings Bank to furnish the P63,000.00
balance of the P80,000.00 loan. The power of the Monetary
Board to take over insolvent banks for the protection of the
public is recognized by Section 29 of R.A. No. 265, which took
effect on June 15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965
cannot interrupt the default of Island Savings Bank in
complying with its obligation of releasing the P63,000.00
balance because said
resolution merely prohibited the Bank from making new loans
and investments, and nowhere did it prohibit island Savings
Bank from releasing the balance of loan agreements previously
contracted. Besides, the mere pecuniary inability to fulfill an
engagement does not discharge the obligation of the contract,
nor does it constitute any defense to a decree of specific
performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil.
190 [1918]). And, the mere fact of insolvency of a debtor is
never an excuse for the non-fulfillment of an obligation but
'instead it is taken as a breach of the contract by him (vol. 17A,
1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the
refund of the pre-deducted interest amounting to P4,800.00 for
the supposed P80,000.00 loan covering a 6-month period
cannot be taken as a waiver of his right to collect the
P63,000.00 balance. The act of Island Savings Bank, in asking
the advance interest for 6 months on the supposed P80,000.00
loan, was improper considering that only P17,000.00 out of the
P80,000.00 loan was released. A person cannot be legally
charged interest for a non- existing debt. Thus, the receipt by
Sulpicio M. 'Tolentino of the pre-deducted interest was an
exercise of his right to it, which right exist independently of his
right to demand the completion of the P80,000.00 loan. The
exercise of one right does not affect, much less neutralize, the
exercise of the other.
The alleged discovery by Island Savings Bank of the over-
valuation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the entire
P80,000.00 loan. 'This Court previously ruled that bank officials
and employees are expected to exercise caution and prudence
in the discharge of their functions (Rural Bank of Caloocan, Inc.
vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's
officials and employees that before they approve the loan
application of their customers, they must investigate the
existence and evaluation of the properties being offered as a
loan security. The recent rush of events where collaterals for
bank loans turn out to
281 | P a g e
be non-existent or grossly over-valued underscore the
importance of this responsibility. The mere reliance by bank
officials and employees on their customer's representation
regarding the loan collateral being offered as loan security is a
patent non-performance of this responsibility. If ever bank
officials and employees totally reIy on the representation of
their customers as to the valuation of the loan collateral, the
bank shall bear the risk in case the collateral turn out to be
over-valued. The representation made by the customer is
immaterial to the bank's responsibility to conduct its own
investigation. Furthermore, the lower court, on objections of'
Sulpicio M. Tolentino, had enjoined petitioners from presenting
proof on the alleged over-valuation because of their failure to
raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15.
1971). The lower court's action is sanctioned by the Rules of
Court, Section 2, Rule 9, which states that "defenses and
objections not pleaded either in a motion to dismiss or in the
answer are deemed waived." Petitioners, thus, cannot raise the
same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its
reciprocal obligation under their loan agreement, Sulpicio M.
Tolentino, under Article 1191 of the Civil Code, may choose
between specific performance or rescission with damages in
either case. But since Island Savings Bank is now prohibited
from doing further business by Monetary Board Resolution No.
967, WE cannot grant specific performance in favor of Sulpicio
M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however,
that rescission is only for the P63,000.00 balance of the
P80,000.00 loan, because the bank is in default only insofar as
such amount is concerned, as there is no doubt that the bank
failed to give the P63,000.00. As far as the partial release of
P17,000.00, which Sulpicio M. Tolentino accepted and executed
a promissory note to cover it, the bank was deemed to have
complied with its reciprocal obligation to furnish a P17,000.00
loan. The promissory note gave rise to Sulpicio M. Tolentino's
reciprocal obligation to pay the P17,000.00 loan when it falls
due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not entitled
to rescission (Article 1191 of the Civil Code). If there is a right to
rescind the promissory note, it shall belong to the aggrieved
party, that is, Island Savings Bank. If Tolentino had not signed a
promissory note setting the date for payment of P17,000.00
within 3 years, he would be entitled to ask for rescission of the
entire loan because he cannot possibly be in default as there
was no date for him to perform his reciprocal obligation to pay.
Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank
failed to comply with its obligation to furnish the entire loan and
Sulpicio M. Tolentino failed to comply with his obligation to pay
his P17,000.00 debt within 3 years as stipulated, they are both
liable for damages.
Article 1192 of the Civil Code provides that in case both parties
have committed a breach of their reciprocal obligations, the
liability of the first infractor shall be equitably tempered by the
courts. WE rule that the liability of Island Savings Bank for
damages in not furnishing the entire loan is offset by the
liability of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue
P17,000.00 debt. The liability of Sulpicio M. Tolentino for
interest on his PI 7,000.00 debt shall not be included in
offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the P17,000.00, it
is just that he should account for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M.
Tolentino cannot be entirely foreclosed to satisfy his P
17,000.00 debt.
282 | P a g e
The consideration of the accessory contract of real estate
mortgage is the same as that of the principal contract (Banco
de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the
consideration of his obligation to pay is the existence of a debt.
Thus, in the accessory contract of real estate mortgage, the
consideration of the debtor in furnishing the mortgage is the
existence of a valid, voidable, or unenforceable debt (Art. 2086,
in relation to Art, 2052, of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real
estate mortgage, no consideration was then in existence, as
there was no debt yet because Island Savings Bank had not
made any release on the loan, does not make the real estate
mortgage void for lack of consideration. It is not necessary that
any consideration should pass at the time of the execution of
the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122
[1983]). lt may either be a prior or subsequent matter. But
when the consideration is subsequent to the mortgage, the
mortgage can take effect only when the debt secured by it is
created as a binding contract to pay (Parks vs, Sherman, Vol.
176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2,
pp. 5-6). And, when there is partial failure of consideration, the
mortgage becomes unenforceable to the extent of such failure
(Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974
ed. CJS, p. 138). Where the indebtedness actually owing to the
holder of the mortgage is less than the sum named in the
mortgage, the mortgage cannot be enforced for more than the
actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19,
F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00
balance of the P8O,000.00 loan, the real estate mortgage of
Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate
mortgage covering 100 hectares is unenforceable to the extent
of 78.75 hectares. The mortgage covering the remainder of
21.25
hectares subsists as a security for the P17,000.00 debt. 21.25
hectares is more than sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for
by Article 2089 of the Civil Code is inapplicable to the facts of
this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may
be divided among the successors in interest of the debtor or
creditor.
Therefore, the debtor's heirs who has paid a part of the debt
can not ask for the proportionate extinguishment of the pledge
or mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of
the debt return the pledge or cancel the mortgage, to the
prejudice of other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article
2089 above-quoted presupposes several heirs of the debtor or
creditor which does not obtain in this case. Hence, the rule of
indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED
FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN
FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS
P41,210.00 REPRESENTING 12% INTEREST PER ANNUM
COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22,
1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED
FROM AUGUST 22, 1985 UNTIL PAID;
283 | P a g e
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL
ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE
FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS
HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY
ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
November 29, 2000 Decision1 and August 2, 2001 Resolution2
of the Court of Appeals (CA) in CA-G.R. CV No. 54226.
The facts, as found by the CA, are as follows:
On December 29, 1981, the Plaintiffs (herein respondents) and
defendant (herein petitioner) Unlad Resources, through its
Chairman[,] Helena Z. Benitez[,] entered into a Memorandum of
Agreement wherein it is provided that [respondents], as
controlling stockholders of the Rural Bank [of Noveleta] shall
allow Unlad Resources to invest four million eight hundred
thousand pesos (P4,800,000.00) in the Rural Bank in the form
of additional equity. On the other hand, [petitioner] Unlad
Resources bound itself to invest the said amount of 4.8 million
pesos in the Rural Bank; upon signing, it was, likewise, agreed
that [petitioner] Unlad Resources shall subscribe to a minimum
of four hundred eighty thousand pesos (P480,000.00) (sic)
common or preferred non-voting shares of stock with a total par
value of four million eight hundred thousand pesos
(P4,800,000.00) and pay up immediately one million two
hundred thousand pesos (P1,200,000.00) for said subscription;
that the [respondents], upon the signing of the said agreement
shall transfer control and management over the Rural Bank to
Unlad Resources. According to the [respondents], immediately
after the signing of the agreement, they complied with their
obligation and transferred control of the Rural Bank to Unlad
Resources and its nominees and the Bank was renamed the
Unlad Rural Bank of Noveleta, Inc. However, [respondents]
claim that despite repeated demands, Unlad Resources has
failed and refused to comply with their obligation under the said
Memorandum of Agreement when it did not invest four million
eight hundred thousand pesos (P4,800,000.00) in the Rural
Bank in the form of additional equity and, likewise, it failed to
immediately infuse one million two hundred thousand pesos
(P1,200,000.00) as paid in capital upon signing of the
Memorandum of Agreement.
59. G.R. No. 149338
July 28, 2008
UNLAD RESOURCES DEVELOPMENT CORPORATION, UNLAD
RURAL BANK OF NOVELETA, INC., UNLAD COMMODITIES, INC.,
HELENA Z. BENITEZ, and CONRADO L. BENITEZ II, Petitioners,
vs.
RENATO P. DRAGON, TARCISIUS R. RODRIGUEZ, VICENTE D.
CASAS, ROMULO M. VIRATA, FLAVIANO PERDITO, TEOTIMO
BENITEZ, ELENA BENITEZ, and ROLANDO SUAREZ,
Respondents.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari under
Rule 45 of the Rules of Civil Procedure seeking the reversal of
the
284 | P a g e
On August 10, 1984, the Board of Directors of [petitioner] Unlad
Resources passed Resolution No. 84-041 authorizing the
President and the General Manager to lease a mango plantation
situated in Naic, Cavite. Pursuant to this Resolution, the Bank as
[lessee] entered into a Contract of Lease with the [petitioner]
Helena Z. Benitez as [lessor]. The management of the mango
plantation was undertaken by Unlad Commodities, Inc., a
subsidiary of Unlad Resources[,] under a Management Contract
Agreement. The Management Contract provides that Unlad
Commodities, Inc. would receive eighty percent (80%) of the
net profits generated by the operation of the mango plantation
while the Bank’s share is twenty percent (20%). It was further
agreed that at the end of the lease period, the Rural Bank shall
turn over to the lessor all permanent improvements introduced
by it on the plantation.
xxxx
On May 20, 1987, [petitioner] Unlad Rural Bank wrote
[respondents] regarding [the] Central Bank’s approval to retire
its [Development Bank of the Philippines] preferred shares in
the amount of P219,000.00 and giving notice for subscription to
proportionate shares. The [respondents] objected on the
grounds that there is already a sinking fund for the retirement
of the said DBP-held preferred shares provided for annually and
that it could deprive the Rural Bank of a cheap source of fund.
(sic)
[Respondents] alleged compliance with all of their obligations
under the Memorandum of Agreement in that they have
transferred control and management over the Rural bank to the
[petitioners] and are ready, willing and able to allow
[petitioners] to subscribe to a minimum of four hundred eighty
thousand (P480,000.00) (sic) common or preferred non-voting
shares of stocks with a total par value of four million eight
hundred thousand pesos (P4,800,000.00) in the Rural Bank.
However,
[petitioners] have failed and refused to subscribe to the said
shares of stock and to pay the initial amount of one million two
hundred thousand pesos (P1,200,000.00) for said subscription.3
On July 3, 1987, herein respondents filed before the Regional
Trial Court (RTC) of Makati City, Branch 61 a Complaint4 for
rescission of the agreement and the return of control and
management of the Rural Bank from petitioners to respondents,
plus damages. After trial, the RTC rendered a Decision,5 the
dispositive portion of which provides:
WHEREFORE, Premises Considered, judgment is hereby
rendered, as follows:
1. The Memorandum of Agreement dated 29 December 1991
(sic) is hereby declared rescinded and:
(a) Defendant Unlad Resources Development Corporation is
hereby ordered to immediately return control and management
over the Rural Bank of Noveleta, Inc. to Plaintiffs; and
(b) Unlad Rural Bank of Noveleta, Inc. is hereby ordered to
return to Defendants the sum of One Million Three Thousand
Seventy Pesos (P1,003,070.00)
2. The Director for Rural Banks of the Bangko Sentral ng
Pilipinas is hereby appointed as Receiver of the Rural Bank;
3. Unlad Rural Bank of Noveleta, Inc. is hereby enjoined from
placing the retired DBP-held preferred shares available for
subscription and the same is hereby ordered to be placed under
a sinking fund;
4. Defendant Unlad Resources Development Corporation is
hereby ordered to pay plaintiffs the following:
285 | P a g e
(a) actual compensatory damages amounting to Four Million Six
Hundred One Thousand Seven Hundred Sixty- Five and 38/100
Pesos (P4,601,765.38);
(b) moral damages in the amount of Five Hundred Thousand
Pesos (P500,000.00);
(c) exemplary and corrective damages in the amount of One
Hundred Thousand Pesos (P100,000.00); and
(d) attorney’s fees in the sum of (P100,000.00), plus cost of
suit.
SO ORDERED.6
Herein petitioners appealed the ruling to the CA. Respondents
filed a Motion to Dismiss and, subsequently, a Supplemental
Motion to Dismiss, which were both denied. Later, however, the
CA, in a Decision dated November 29, 2000, dismissed the
appeal for lack of merit and affirmed the RTC Decision in all
respects. Petitioners’ motion for reconsideration was denied in
CA Resolution dated August 2, 2001.
Petitioners are now before this Court alleging that the CA
committed a grave and serious reversible error in issuing the
assailed Decision. Petitioners question the jurisdiction of the
trial court, something they have done from the beginning of the
controversy, contending that the issues that respondents raised
before the trial court are intra-corporate in nature and are,
therefore, beyond the jurisdiction of the trial court. They point
out that respondents’ complaint charged them with
mismanagement and alleged dissipation of the assets of the
Rural Bank. Since the complaint challenges corporate actions
and decisions of the Board of Directors and prays for the
recovery of the control and management of the Rural Bank,
these matters fall outside the jurisdiction of the trial court.
Thus, they posit that the
judgment of the trial court, as affirmed by the CA, is null and
void and may be impugned at any time.
Petitioners further argue that the action instituted by
respondents had already prescribed, because Article 1389 of
the Civil Code provides that an action for rescission must be
commenced within four years. They claim that the trial court
and the CA mistakenly applied Article 1144 of the Civil Code
which treats of prescription of actions in general. They submit
that Article 1389, which deals specifically with actions for
rescission, is the applicable law.
Moreover, petitioners assert that they have fully complied with
their undertaking under the subject Memorandum of
Agreement, but that the undertaking has become a "legal and
factual impossibility" because the authorized capital stock of
the Rural Bank was increased from P1.7 million to only P5
million, and could not accommodate the subscription by
petitioners of P4.8 million worth of shares. Such deficiency,
petitioners contend, is with the knowledge and approval of
respondent Renato P. Dragon and his nominees to the Board of
Directors.
Petitioners, without conceding the propriety of the judgment of
rescission, also argue that the subject Memorandum of
Agreement could not just be ordered rescinded without the
corresponding order for the restitution of the parties’ total
contributions and/or investments in the Rural Bank. Finally, they
assail the award for moral and exemplary damages, as well as
the award for attorney’s fees, as bereft of factual and legal
bases given that, in the body of the Decision, it was merely
stated that respondents suffered moral damages without any
discussion or explanation of, nor any justification for such
award. Likewise, the matter of attorney’s fees was not at all
discussed in the body of the Decision. Petitioners claim that
pursuant to the prevailing rule, attorney’s fees cannot be
recovered in the absence of stipulation.
286 | P a g e
On the other hand, respondents declare that immediately after
the signing of the Memorandum of Agreement, they complied
with their obligation and transferred control of the Rural Bank to
petitioner Unlad Resources and its nominees, but that, despite
repeated demands, petitioners have failed and refused to
comply with their concomitant obligations under the
Agreement.
Respondents narrate that shortly after taking over the Rural
Bank, petitioners Conrado L. Benitez II and Jorge C. Cerbo, as
President and General Manager, respectively, entered into a
Contract of Lease over the Naic, Cavite mango plantation, and
that, as a consequence of this venture, the bank incurred
expenses amounting to P475,371.57, equivalent to 25.76% of
its capital and surplus. The respondents further assert that the
Central Bank found this undertaking not inherently connected
with bona fide rural banking operations, nor does it fall within
the allied undertakings permitted under Section 26 of Central
Bank Circular No. 741 and Section 3379 of the Manual of
Regulations of the Central Bank. Thus, respondents contend
that this circumstance, coupled with the fact that petitioners
Helena Z. Benitez and Conrado L. Benitez II were also
stockholders and members of the Board of Directors of Unlad
Resources, Unlad Rural Bank, and Unlad Commodities at that
time, is adequate proof that the Rural Bank’s management had
every intention of diverting, dissipating, and/or wasting the
bank’s assets for petitioners’ own gain.
They likewise allege that because of the failure of petitioners to
comply with their obligations under the Memorandum of
Agreement, respondents, with the exception of Tarcisius
Rodriguez, lodged a complaint with the Securities and
Exchange Commission (SEC), seeking rescission of the
Agreement, damages, and the appointment of a management
committee, but the SEC dismissed the complaint for lack of
jurisdiction.
Furthermore, when the Rural Bank informed respondents of the
Central Bank’s approval of its plan to retire its DBP-held
preferred shares, giving notices for subscription to
proportionate shares, respondents objected on the ground that
there was already a sinking fund for the retirement of said
shares provided for annually, and that the retirement would
deprive the petitioner Rural Bank of a cheap source of fund. It
was at that point, respondents claim, that they instituted the
aforementioned Complaint against petitioners before the RTC of
Makati.
The respondents also seek the outright dismissal of this Petition
for lack of verification as to petitioners Helena Z. Benitez and
Conrado L. Benitez II; lack of proper verification as to
petitioners Unlad Resources Development Corporation, Unlad
Rural Bank of Noveleta, Inc., and Unlad Commodities, Inc.; lack
of proper verified statement of material dates; and lack of
proper sworn certification of non-forum shopping.
They support the proposition that Tijam v. Sibonghanoy7
applies, and that petitioners are indeed estopped from
questioning the jurisdiction of the trial court. They also share
the lower court’s view that it is Article 1144 of the Civil Code,
and not Article 1389, that is applicable to this case. Finally,
respondents allege that the failure of petitioner Unlad
Resources to comply with its undertaking under the Agreement,
as uniformly found by the trial court and the CA, may no longer
be assailed in the instant Petition, and that the award of moral
and exemplary damages and attorney’s fees is justified.
The Petition is bereft of merit. We uphold the Decision of the CA
affirming that of the RTC.
First, the subject of jurisdiction. The main issue in this case is
the rescission of the Memorandum of Agreement. This is to be
distinguished from respondents’ allegation of the alleged
mismanagement and dissipation of corporate assets by the
287 | P a g e
petitioners which is based on the prayer for receivership over
the bank. The two issues, albeit related, are obviously separate,
as they pertain to different acts of the parties involved. The
issue of receivership does not arise from the parties’ obligations
under the Memorandum of Agreement, but rather from specific
acts attributed to petitioners as members of the Board of
Directors of the Bank. Clearly, the rescission of the
Memorandum of Agreement is a cause of action within the
jurisdiction of the trial courts, notwithstanding the fact that the
parties involved are all directors of the same corporation.
Still, the petitioners insist that the trial court had no jurisdiction
over the complaint because the issues involved are intra-
corporate in nature.
This argument miserably fails to persuade. The law in force at
the time of the filing of the case was Presidential Decree (P.D.)
902-A, Section 5(b) of which vested the Securities and
Exchange Commission with original and exclusive jurisdiction to
hear and decide cases involving controversies arising out of
intra- corporate relations.8 Interpreting this statutorily
conferred jurisdiction on the SEC, this Court had occasion to
state:
Nowhere in said decree do we find even so much as an
[intimation] that absolute jurisdiction and control is vested in
the Securities and Exchange Commission in all matters
affecting corporations. To uphold the respondent’s arguments
would remove without legal imprimatur from the regular courts
all conflicts over matters involving or affecting corporations,
regardless of the nature of the transactions which give rise to
such disputes. The courts would then be divested of jurisdiction
not by reason of the nature of the dispute submitted to them
for adjudication, but solely for the reason that the dispute
involves a corporation. This cannot be done.9
It is well to remember that the respondents had actually filed
with the SEC a case against the petitioners which, however,
was dismissed for lack of jurisdiction due to the pendency of
the case before the RTC.10 The SEC’s Order dismissing the
respondents’ complaint is instructive:
From the foregoing allegations, it is apparent that the present
action involves two separate causes of action which are
interrelated, and the resolution of which hinges on the very
document sought to be rescinded. The assertion that the
defendants failed to comply with their contractual undertaking
and the claim for rescission of the contract by the plaintiffs has,
in effect, put in issue the very status of the herein defendants
as stockholders of the Rural Bank. The issue as to whether or
not the defendants are stockholders of the Rural Bank is a
pivotal issue to be determined on the basis of the Memorandum
of Agreement. It is a prejudicial question and a logical
antecedent to confer jurisdiction to this Commission.
It is to be noted, however, that determination of the contractual
undertaking of the parties under a contract lies with the
Regional Trial Courts and not with this Commission. x x x11
Be that as it may, this point has been rendered moot by
Republic Act (R.A.) No. 8799, also known as the Securities
Regulation Code. This law, which took effect in 2000, has
transferred jurisdiction over such disputes to the RTC.
Specifically, R.A. 8799 provides:
Sec. 5. Powers and Functions of the Commission
xxxx
5.2. The Commission’s jurisdiction over all cases enumerated
under Section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the
288 | P a g e
appropriate Regional Trial Court: Provided, That the Supreme
Court in the exercise of its authority may designate the
Regional Trial Court branches that shall exercise jurisdiction
over these cases. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes submitted for
final resolution which should be resolved within one (1) year
from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation
cases filed as of 30 June 2000 until finally disposed.
Section 5 of P.D. No. 902-A reads, thus:
Sec. 5. In addition to the regulatory and adjudicative functions
of the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it
as expressly granted under existing laws and decrees, it shall
have original and exclusive jurisdiction to hear and decide
cases involving:
a) Devices and schemes employed by or any acts of the board
of directors, business associates, its officers or partnership,
amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the
stockholder, partners, members of associations or organizations
registered with the Commission;
b) Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members, or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders,
members or associates, respectively; and between such
corporation, partnership or association and the state insofar as
it concerns their individual franchise or right to exist as such
entity;
c) Controversies in the election or appointment of directors,
trustees, officers or managers of such corporations,
partnerships or associations.
Consequently, whether the cause of action stems from a
contractual dispute or one that involves intra-corporate
matters, the RTC already has jurisdiction over this case. In this
light, the question of whether the doctrine of estoppel by laches
applies, as enunciated by this Court in Tijam v. Sibonghanoy, no
longer finds relevance.
Second, the issue of prescription. Petitioners further contend
that the action for rescission has prescribed under Article 1398
of the Civil Code, which provides:
Article 1389. The action to claim rescission must be
commenced within four years x x x.
This is an erroneous proposition. Article 1389 specifically refers
to rescissible contracts as, clearly, this provision is under the
chapter entitled "Rescissible Contracts."
In a previous case,12 this Court has held that Article 1389:
applies to rescissible contracts, as enumerated and defined in
Articles 1380 and 1381. We must stress however, that the
"rescission" in Article 1381 is not akin to the term "rescission"
in Article 1191 and Article 1592. In Articles 1191 and 1592, the
rescission is a principal action which seeks the resolution or
cancellation of the contract while in Article 1381, the action is a
subsidiary one limited to cases of rescission for lesion as
enumerated in said article.
The prescriptive period applicable to rescission under Articles
1191 and 1592, is found in Article 1144, which provides that
the
289 | P a g e
action upon a written contract should be brought within ten
years from the time the right of action accrues.
Article 1381 sets out what are rescissible contracts, to wit:
Article 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one-
fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
(4) Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission.
The Memorandum of Agreement subject of this controversy
does not fall under the above enumeration. Accordingly, the
prescriptive period that should apply to this case is that
provided for in Article 1144, to wit:
Article 1144. The following actions must be brought within ten
years from the time the right of action accrues:
(1) Upon a written contract; xxxx
Based on the records of this case, the action was commenced
on July 3, 1987, while the Memorandum of Agreement was
entered into on December 29, 1981. Article 1144 specifically
provides that the 10-year period is counted from "the time the
right of action accrues." The right of action accrues from the
moment the breach of right or duty occurs.13 Thus, the original
Complaint was filed well within the prescriptive period.
We now proceed to determine if the trial court, as affirmed by
the CA, correctly ruled for the rescission of the subject
Agreement.
Petitioners contend that they have fully complied with their
obligation under the Memorandum of Agreement. They allege
that due to respondents’ failure to increase the capital stock of
the corporation to an amount that will accommodate their
undertaking, it had become impossible for them to perform
their end of the Agreement.
Again, petitioners’ contention is untenable. There is no question
that petitioners herein failed to fulfill their obligation under the
Memorandum of Agreement. Even they admit the same, albeit
laying the blame on respondents.
It is true that respondents increased the Rural Bank’s
authorized capital stock to only P5 million, which was not
enough to accommodate the P4.8 million worth of stocks that
petitioners were to subscribe to and pay for. However,
respondents’ failure to fulfill their undertaking in the agreement
would have given rise to the scenario contemplated by Article
1191 of the Civil Code, which reads:
Article 1191. The power to rescind reciprocal obligations is
implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
290 | P a g e
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage Law.
Thus, petitioners should have exacted fulfillment from the
respondents or asked for the rescission of the contract instead
of simply not performing their part of the Agreement. But in the
course of things, it was the respondents who availed of the
remedy under Article 1191, opting for the rescission of the
Agreement in order to regain control of the Rural Bank.
Having determined that the rescission of the subject
Memorandum of Agreement was in order, the trial court
ordered petitioner Unlad Resources to return to respondents the
management and control of the Rural Bank and for the latter to
return the sum of P1,003,070.00 to petitioners.
Mutual restitution is required in cases involving rescission under
Article 1191. This means bringing the parties back to their
original status prior to the inception of the contract.14 Article
1385 of the Civil Code provides, thus:
ART. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits,
and the price with its interest; consequently, it can be carried
out only when he who demands rescission can return whatever
he may be obligated to restore.
Neither shall rescission take place when the things which are
the object of the contract are legally in the possession of third
persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from
the person causing the loss.
This Court has consistently ruled that this provision applies to
rescission under Article 1191:
[S]ince Article 1385 of the Civil Code expressly and clearly
states that "rescission creates the obligation to return the
things which were the object of the contract, together with their
fruits, and the price with its interest," the Court finds no
justification to sustain petitioners’ position that said Article
1385 does not apply to rescission under Article 1191.15
Rescission has the effect of "unmaking a contract, or its
undoing from the beginning, and not merely its termination."16
Hence, rescission creates the obligation to return the object of
the contract. It can be carried out only when the one who
demands rescission can return whatever he may be obliged to
restore. To rescind is to declare a contract void at its inception
and to put an end to it as though it never was. It is not merely
to terminate it and release the parties from further obligations
to each other, but to abrogate it from the beginning and restore
the parties to their relative positions as if no contract has been
made.17
Accordingly, when a decree for rescission is handed down, it is
the duty of the court to require both parties to surrender that
which they have respectively received and to place each other
as far as practicable in his original situation. The rescission has
the effect of abrogating the contract in all parts.18
Clearly, the petitioners failed to fulfill their end of the
agreement, and thus, there was just cause for rescission. With
the contract
291 | P a g e
thus rescinded, the parties must be restored to the status quo
ante, that is, before they entered into the Memorandum of
Agreement.
Finally, we must resolve the question of the propriety of the
award for damages and attorney’s fees.
The trial court’s Decision mentioned that the "evidence is clear
and convincing that Plaintiffs (herein respondents) suffered
actual compensatory damages amounting to Four Million Six
Hundred One Thousand Seven Hundred Sixty-Five and 38/100
Pesos (P4,601,765.38) moral damages and attorney’s fees."
Though not discussed in the body of the Decision, the records
show that the amount of P4,601,765.38 pertains to actual
losses incurred by respondents as a result of petitioners’ non-
compliance with their undertaking under the Memorandum of
Agreement. On this point, respondent Dragon presented
testimonial and documentary evidence to prove the actual
amount of damages, thus:
Atty. Cruz
Q: Was there any consequence to you Mr. Dragon due to any
breach of the agreement marked as Exhibit A?
A: Yes sir I could have earned thru the shares of stock that I
have, or we have or we had by this time amounting to several
millions pesos (sic). They have only put in the whole amount
that we have agreed upon (sic).
Q: In this connection did you cause computation of these losses
that you incured (sic)?
A: Yes sir.
xxxx
Q: Will you please kindly go through this computation and
explain the same to the Honorable Court?
A: Number 1 is an Organ (sic) income from the sale of 60% (sic)
at only Three Hundred Ninety Nine Thousand Two hundred for
Nineteen Thousand Nine Hundred Sixty shares which should
have been sold if it were sold to others for P50.00 each for a
total of Nine Hundred Ninety Eight Thousand but sold to them
for Three Hundred Ninety nine (sic) Thousand two (sic) Hundred
only and of which only Three Hundred Twenty Four Thousand
Six Hundred was paid to me. Therefore, there was a difference
of Six Hundred Seven Three (sic) Thousand Four Hundred
(P673,400.00). On the basis of the commulative (sic) lost
income every year from March 1982 from the amount of Seven
Six Hundred (sic) Seventy Three Thousand four (sic) Hundred
(P673,400.) (sic) there would be a discommulative (sic) lost
(sic) of One Million Ninety Three Thousand Nine Hundred Fifty
Two Pesos and forty two (sic) centavos (P1,093,952.42). Please
note that the interest imputed is only at 12% per annum but it
should had (sic) been much higher. In 1984 to 1986 (sic) alone
rates went as higher (sic) as 40% per annum from the so called
(sic) Jobo Bills and yet we only computed the imputed income
or lost income at 12% per annum and then there is a 40%
participation on the unrealized earnings due to their failure to
put in an stabilized (sic) earnings. You will note that if they put
in 4.8 million Pesos and it would be earning money, 40% of that
will go to us because 40% of the bank would be ours and 60%
would be there (sic). But because they did put in the 4.8 million
our 40% did not earn up to that extent and computed again on
the basis of 12% the amount (sic) on the commulative (sic)
basis up to September 1990 is 2 million three hundred fifty two
thousand sixty five pesos and four centavos (sic).
(P2,352,065.04). You will note again that the average return of
investment of any Cavite
292 | P a g e
based (sic) Rural Bank has been no less than 20% or about 30%
per annum. And we computed only the earnings at 12%.
xxxx
There were loans granted fraudulently to members of the board
and some borrowers which were not all charged interest for
several years and on this basis we computed a 40% shares (sic)
on the foregone income interest income (sic) on all these
fraudulently granted loans, without interest being collected and
none a project (sic) among a plantation project (sic), which was
funded by the bank but nothing was given back to the bank for
several hundred thousand of pesos (sic). And we arrived an
(sic) estimate of the foregone interest income a total of One
Million Two Hundred Five Thousand Eight Hundred Sixty None
Pesos and eighty one (sic) centavos and 40 percent share of
this (sic) would be Four Hundred Eighty Two Thousand Three
Hundred Forty Seven Pesos and Ninety Two Centavos. All in all
our estimate of the damages we have suffered is Four Million
Six Hundred one (sic) Thousand Seven Hundred Sixty Five Pesos
and thirty eight (sic) centavos (P4,601,765.38).19
More importantly, petitioners never raised in issue before the
CA this award of actual compensatory damages. They did not
raise the matter of damages in their Appellants’ Brief, while in
their Motion for Reconsideration, they questioned only the
award of moral and exemplary damages, not the award of
actual damages. Even in the present Petition for Review, what
petitioners raised was the propriety of the award of moral and
exemplary damages and attorney’s fees.
On the grant of moral and exemplary damages and attorney’s
fees, we note that the trial court’s Decision did not discuss the
basis for the award. No mention of these damages awarded – or
their factual basis – is made in the body of the Decision, only in
the dispositive portion. Be that as it may, we have examined
the records of the case and found that the award must be
sustained.
It should be remembered that there are two separate causes of
action in this case: one for rescission of the Memorandum of
Agreement and the other for receivership based on alleged
mismanagement of the company by the plaintiffs. While the
award of actual compensatory damages was based on the
breach of duty under the Memorandum of Agreement, the
award of moral damages appears to be based on petitioners’
mismanagement of the company when they became members
of the Board of Directors of the Rural Bank.
Thus, the trial court said:
Under the Rural Bank’s management, a systematic diversion of
the bank’s assets was conceived whereby: (a) The Rural Bank’s
funds would be funneled in the development and improvements
of the Benitez Mango Plantation in the guise of an investment in
said plantation; (b) Of the net profits earned from the
plantation’s operations, the Rural Bank’s share therein,
although it shoulders all of the financial risks, would be a
measly twenty percent (20%) thereof while UCI, without
investing a single centavo, would earn eighty percent (80%) of
the said profits. Thus, the bulk of the profits of the mango
plantation was also sought to be diverted to an entity wherein
Helena Z. Benitez and Conrado L. Benitez II are not only
principal stockholders but also the Chairman of the Board of
Directors and President, respectively. Moreover, Defendant
Helena Z. Benitez would be entitled to receive, under the lease
contract, rentals in the total amount of Three Hundred
Thousand Pesos (P300,000.00) or ten percent (10%) of gross
profits, whichever is higher. (c) Finally, at the end of the lease
period, the Rural Bank was obliged to turn over to the lessor
(Helena Z. Benitez) all permanent improvements introduced by
it on the plantation at no cost to Ms. Benitez.
293 | P a g e
Further, in its report dated March 13, 1985, the [Central Bank]
after conducting its general examination upon the Rural Bank
ordered the latter to "explain satisfactorily why the bank
engage (sic) in an undertaking not inherently connected with
[bona fide] rural banking operations nor within the allowed
allied undertakings," contrary to the provisions of Section 3379
of the CB Manual of Regulations and Section 26 of CB Circular
No. 741, otherwise known as the "Circular on Rural Banks[.]"
The aforestated CB report states that "total exposure to this
project now amounts to P475,371.57 or 25.76% of its capital
and surplus[.]" Notwithstanding a finding by the CB of the
undertaking’s illegality, the defendants nevertheless persisted
in pursuing the Mango Plantation Project and never acceded to
the call of [the] CB for it to desist from further implementing
the said project. It was only after another letter from the CB
was received when defendant finally shelved the mango
plantation project.
The result of the aforestated report, as well as the actuations of
the Defendants in not yielding to the order of the CB,
adequately establishes not only a violation of CB Rules
(specifically Section 26, Circular 741 and Section 3379 of the
CB Manual of Regulations, but also, that it has caused undue
damage both to the Rural bank as well as its stockholders.
The initial CB report should have sufficiently apprised
Defendants of the illegality of the undertaking. Defendants,
therefore have the duty to terminate the Mango Plantation
Project. They, however, [chose] to continue it, apparently to
further their [own] interest in the scheme for their own personal
benefit and gain, an act which is clearly contrary to the
fiduciary nature of their relationship with the corporation in
which they are officers. Such persistence proves evident bad
faith, or a breach of a known duty through some motive or ill-
will, which resulted in the further dissipation and wastage of the
Rural
Bank’s assets, unjustly depriving Plaintiffs of their fair share in
the assets of the bank.
All the foregoing satisfactorily affirms the allegations of
Plaintiffs to the effect that these contracts were but part of a
device employed by Defendants to siphon [off] the Rural bank
for their personal gain.20
Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury.
Though incapable of precise pecuniary computation, moral
damages may be recovered if they are the proximate result of
the defendant’s wrongful act or omission.21 Article 2220 of the
Civil Code further provides that moral damages may be
recovered in case of a breach of contract where the defendant
acted in bad faith.22
To award moral damages, a court must be satisfied with proof
of the following requisites: (1) an injury – whether physical,
mental, or psychological – clearly sustained by the claimant; (2)
a culpable act or omission factually established; (3) a wrongful
act or omission of the defendant as the proximate cause of the
injury sustained by the claimant; and (4) the award of damages
predicated on any of the cases stated in Article
2219.231avvphi1
Accordingly, based upon the findings of the trial court, it is clear
that respondents are entitled to moral damages. The acts
attributed to the petitioners as directors of the Rural Bank
manifestly prejudiced the respondents causing detriment to
their standing as directors and stockholders of the Rural Bank.
Exemplary damages cannot be recovered as a matter of
right.24 While these need not be proved, respondents must
show that they are entitled to moral, temperate or
compensatory damages before the court may consider the
question of awarding exemplary damages.25 We find that
respondents are indeed
294 | P a g e
entitled to moral damages; thus, the award for exemplary
damages is in order.
Anent the award for attorney’s fees, Article 2208 of the Civil
Code states:
In the absence of stipulation, attorney’s fees and expenses of
litigation, other than judicial costs, cannot be recovered,
except:
(1) When exemplary damages are awarded.
Hence, the award of exemplary damages is in itself sufficient
justification for the award of attorney’s fees.26
WHEREFORE, the foregoing premises considered, the petition is
hereby DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 54226 are AFFIRMED.
SO ORDERED.
60. G.R. No. 207133
SWIRE REALTY DEVELOPMENT CORPORATION, Petitioner,
vs.
JAYNE YU, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the
1997 Rules of Civil Procedure which seeks to reverse and set
aside the Decision1 dated January 24, 2013 and Resolution2
dated April 30, 2013 of the Court of Appeals (CA) in CA-G.R. SP
No. 121175.
The facts follow.
Respondent Jayne Yu and petitioner Swire Realty Development
Corporation entered into a Contract to Sell on July 25, 1995
covering one residential condominium unit, specifically Unit
3007 of the Palace of Makati, located at P. Burgos comer
Caceres Sts., Makati City, with an area of 137.30 square meters
for the total contract price of P7,519,371.80, payable in equal
monthly installments until September 24, 1997. Respondent
likewise purchased a parking slot in the same condominium
building for P600,000.00.
On September 24, 1997, respondent paid the full purchase
price of P7,519,371.80 for the unit while making a down
payment of P20,000.00 for the parking lot. However,
notwithstanding full payment of the contract price, petitioner
failed to complete and deliver the subject unit on time. This
prompted respondent to file a Complaint for Rescission of
Contract with Damages before the Housing and Land Use
Regulatory Board (HLURB) Expanded National Capital Region
Field Office (ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered a Decision3
dismissing respondent’s complaint. It ruled that rescission is not
permitted for slight or casual breach of the contract but only for
such breaches as are substantial and fundamental as to defeat
the object of the parties in making the agreement. It disposed
of the case as follows:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby
rendered ordering [petitioner] the following:
295 | P a g e
1.To finish the subject unit as pointed out in the inspection
Report
2.To pay [respondent] the following:
a.the amount of P100,000 as compensatory damages for the
minor irreversible defects in her unit [respondent], or, in the
alternative, conduct the necessary repairs on the subject unit to
conform to the intended specifications;
b.moral damages of P20,000.00
c.Attorney’s fees of P20,000.00
On the other hand, [respondent] is hereby directed to
immediately update her account insofar as the parking slot is
concerned, without interest, surcharges or penalties charged
therein.
All other claims and counterclaims are hereby dismissed for
lack of merit.
IT IS SO ORDERED.4
Respondent then elevated the matter to the HLURB Board of
Commissioners.
In a Decision5 dated March 30, 2006, the HLURB Board of
Commissioners reversed and set aside the ruling of the HLURB
ENCRFO and ordered the rescission of the Contract to Sell,
ratiocinating:
We find merit in the appeal. The report on the ocular inspection
conducted on the subject condominium project and subject unit
shows that the amenities under the approved plan have not yet
been provided as of May 3, 2002, and that the subject unit has
not
been delivered to [respondent] as of August 28, 2002, which is
beyond the period of development of December 1999 under the
license to sell. The delay in the completion of the project as well
as of the delay in the delivery of the unit are breaches of
statutory and contractual obligations which entitles
[respondent] to rescind the contract, demand a refund and
payment of damages.
The delay in the completion of the project in accordance with
the license to sell also renders [petitioner] liable for the
payment of administrative fine.
Wherefore, the decision of the Office below is set aside and a
new decision is rendered as follows:
1.Declaring the contract to sell as rescinded and directing
[petitioner] to refund to [respondent] the amount of
P7,519,371.80 at 6% per annum from the time of extrajudicial
demand on January 05, 2001: subject to computation and
payment of the correct filing fee;
2.Directing [petitioner] to pay respondent attorney’s fees in the
amount of P20,000.00;
3.Directing [petitioner] to pay an administrative fine of
P10,000.00 for violation of Section 20, in relation to Section 38
of P.D. 957:
SO ORDERED.6
Petitioner moved for reconsideration, but the same was denied
by the HLURB Board of Commissioners in a Resolution7 dated
June 14, 2007.
Unfazed, petitioner appealed to the Office of the President (OP)
on August 7, 2007.
296 | P a g e
In a Decision8 dated November 21, 2007, the OP, through then
Deputy Executive Secretary Manuel Gaite, dismissed
petitioner’s appeal on the ground that it failed to promptly file
its appeal before the OP. It held:
Records show that [petitioner] received its copy of the 30 March
2006 HLURB Decision on 17 April 2006 and instead of filing an
appeal, it opted first to file a Motion for Reconsideration on 28
April 2006 or eleven (11) days thereafter. The said motion
interrupted the 15-day period to appeal.
On 23 July 2007, [petitioner] received the HLURB Resolution
dated 14 June 2007 denying the Motion for Reconsideration.
Based on the ruling in United Overseas Bank Philippines, Inc. v.
Ching (486 SCRA 655), the period to appeal decisions of the
HLURB Board of Commissioners to the Office of the President is
15 days from receipt thereof pursuant to Section 15 of P.D. No.
957 and Section 2 of P.D. No. 1344 which are special laws that
provide an exception to Section 1 of Administrative Order No.
18.
Corollary thereto, par. 2, Section 1 of Administrative Order No.
18, Series of 1987 provides that:
The time during which a motion for reconsideration has been
pending with the Ministry/Agency concerned shall be deducted
from the period of appeal. But where such a motion for
reconsideration has been filed during office hours of the last
day of the period herein provided, the appeal must be made
within the day following receipt of the denial of said motion by
the appealing party (Underscoring supplied)
xxxx
Accordingly, the [petitioner] had only four (4) days from receipt
on 23 July 2007 of HLURB Resolution dated 14 June 2007, or
until 27 July 2007 to file the Notice of Appeal before this Office.
However, [petitioner] filed its appeal only on 7 August 2007 or
eleven (11) days late.
Thus, this Office need not delve on the merits of the appeal
filed as the records clearly show that the said appeal was filed
out of time.
WHEREFORE, premises considered, [petitioner]’s appeal is
hereby DISMISSED, and the HLURB Decision dated 30 March
2006 and HLURB Resolution dated 14 June 2007 are hereby
AFFIRMED.
SO ORDERED.9
Immediately thereafter, petitioner filed a motion for
reconsideration against said decision.
In a Resolution10 dated February 17, 2009, the OP, through
then Executive Secretary Eduardo Ermita, granted petitioner’s
motion and set aside Deputy Executive Secretary Gaite’s
decision. It held that after a careful and thorough evaluation
and study of the records of the case, the OP was more inclined
to agree with the earlier decision of the HLURB ENCRFO as it
was more in accord with facts, law and jurisprudence relevant
to the case. Thus:
WHEREFORE, premises considered, the instant Motion for
Reconsideration is hereby GRANTED. The Decision and
Resolution of the HLURB Third Division Board of Commissioners,
dated March 30, 2006 and June 14, 2007, respectively, are
hereby SET ASIDE, and the HLURB ENCRFO Decision dated
October 19, 2004 is hereby REINSTATED.
SO ORDERED.11
297 | P a g e
Respondent sought reconsideration of said resolution, however,
the same was denied by the OP in a Resolution12 dated August
18, 2011.
Consequently, respondent filed an appeal to the CA.
In a Decision dated January 24, 2013, the CA granted
respondent’s appeal and reversed and set aside the Order of
the OP. The fallo of its decision reads:
WHEREFORE, the Petition is hereby GRANTED. The assailed
Resolution dated 17 February 2009 and Order dated 18 August
2011 of the Office of the President, in O.P. Case No. 07-H-283,
are hereby REVERSED and SET ASIDE. Accordingly, the Decision
dated 30 March 2006 and Resolution dated 14 June 2007 of the
HLURB Board of Commissioners in HLURB Case No. REM-A-
050127-0014, are REINSTATED.
SO ORDERED.13
Petitioner moved for reconsideration, however, the CA denied
the same in a Resolution dated April 30, 2013.
Hence, the present petition wherein petitioner raises the
following grounds to support its petition:
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE
LEGAL PRECEPTS THAT:
A.TECHNICAL RULES ARE NOT BINDING UPON ADMINISTRATIVE
AGENCIES; and
B.RESCISSION WILL BE ORDERED ONLY WHERE THE BREACH
COMPLAINED OF IS SUBSTANTIAL AS TO DEFEAT THE OBJECT OF
THE PARTIES IN ENTERING INTO THE AGREEMENT.14
In essence, the issues are: (1) whether petitioner’s appeal was
timely filed before the OP; and (2) whether rescission of the
contract is proper in the instant case.
We shall resolve the issues in seriatim.
First, the period to appeal the decision of the HLURB Board of
Commissioners to the Office of the President has long been
settled in the case of SGMC Realty Corporation v. Office of the
President,15 as reiterated in the cases of Maxima Realty
Management and Development Corporation v. Parkway Real
Estate Development Corporation16 and United Overseas Bank
Philippines, Inc. v. Ching.17
In the aforementioned cases, we ruled that the period to appeal
decisions of the HLURB Board of Commissioners is fifteen (15)
days from receipt thereof pursuant to Section 1518 of PD No.
95719 and Section 220 of PD No. 134421 which are special laws
that provide an exception to Section 1 of Administrative Order
No. 18. Thus, in the SGMC Realty Corporation v. Office of the
President case, the Court explained:
As pointed out by public respondent, the aforecited
administrative order allows aggrieved party to file its appeal
with the Office of the President within thirty (30) days from
receipt of the decision complained of. Nonetheless, such thirty-
day period is subject to the qualification that there are no other
statutory periods of appeal applicable. If there are special laws
governing particular cases which provide for a shorter or longer
reglementary period, the same shall prevail over the thirty-day
period provided for in the administrative order. This is in line
with the rule in statutory construction that an administrative
rule or regulation, in order to be valid, must not contradict but
conform to the provisions of the enabling law.
298 | P a g e
We note that indeed there are special laws that mandate a
shorter period of fifteen (15) days within which to appeal a case
to public respondent. First, Section 15 of Presidential Decree
No. 957 provides that the decisions of the National Housing
Authority (NHA) shall become final and executory after the
lapse of fifteen (15) days from the date of receipt of the
decision. Second, Section 2 of Presidential Decree No. 1344
states that decisions of the National Housing Authority shall
become final and executory after the lapse of fifteen (15) days
from the date of its receipt. The latter decree provides that the
decisions of the NHA is appealable only to the Office of the
President. Further, we note that the regulatory functions of NHA
relating to housing and land development has been transferred
to Human Settlements Regulatory Commission, now known as
HLURB. x x x22
Records show that petitioner received a copy of the HLURB
Board of Commissioners’ decision on April 17, 2006.
Correspondingly, it had fifteen days from April 17, 2006 within
which to file its appeal or until May 2, 2006. However, on April
28, 2006, or eleven days after receipt of the HLURB Board of
Commissioner’s decision, it filed a Motion for Reconsideration,
instead of an appeal.
Concomitantly, Section 1 of Administrative Order No. 1823
provides that the time during which a motion for
reconsideration has been pending with the ministry or agency
concerned shall be deducted from the period for appeal.
Petitioner received the HLURB Board Resolution denying its
Motion for Reconsideration on July 23, 2007 and filed its appeal
only on August 7, 2007. Consequently therefore, petitioner had
only four days from July 23, 2007, or until July 27, 2007, within
which to file its appeal to the OP as the filing of the motion for
reconsideration merely suspended the running of the 15-day
period. However, records reveal that petitioner only appealed to
the OP on August 7, 2007, or eleven days late. Ergo, the HLURB
Board of Commissioners’
decision had become final and executory on account of the fact
that petitioner did not promptly appeal with the OP.
In like manner, we find no cogent reason to exempt petitioner
from the effects of its failure to comply with the rules.
In an avuncular case, we have held that while the dismissal of
an appeal on purely technical grounds is concededly frowned
upon, it bears emphasizing that the procedural requirements of
the rules on appeal are not
harmless and trivial technicalities that litigants can just discard
and disregard at will. Neither being a natural right nor a part of
due process, the rule is settled that the right to appeal is
merely a statutory privilege which may be exercised only in the
manner and in accordance with the provisions of the law.24
Time and again, we have held that rules of procedure exist for a
noble purpose, and to disregard such rules, in the guise of
liberal construction, would be to defeat such purpose.
Procedural rules are not to be disdained as mere technicalities.
They may not be ignored to suit the convenience of a party.25
The reason for the liberal application of the rules before quasi-
judicial agencies cannot be used to perpetuate injustice and
hamper the just resolution of the case. Neither is the rule on
liberal construction a license to disregard the rules of
procedure.26
Thus, while there may be exceptions for the relaxation of
technical rules principally geared to attain the ends of justice,
petitioner’s fatuous belief that it had a fresh 15-day period to
elevate an appeal with the OP is not the kind of exceptional
circumstance that merits relaxation.
Second, Article 1191 of the Civil Code sanctions the right to
rescind the obligation in the event that specific performance
becomes impossible, to wit:
299 | P a g e
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage Law.
Basic is the rule that the right of rescission of a party to an
obligation under Article 1191 of the Civil Code is predicated on
a breach of faith by the other party who violates the reciprocity
between them. The breach contemplated in the said provision
is the obligor’s failure to comply with an existing obligation.
When the obligor cannot comply with what is incumbent upon
it, the obligee may seek rescission and, in the absence of any
just cause for the court to determine the period of compliance,
the court shall decree the rescission.27
In the instant case, the CA aptly found that the completion date
of the condominium unit was November 1998 pursuant to
License No. 97-12-3202 dated November 2, 1997 but was
extended to December 1999 as per License to Sell No. 99-05-
3401 dated May 8, 1999. However, at the time of the ocular
inspection conducted by the HLURB ENCRFO, the unit was not
yet completely finished as the kitchen cabinets and fixtures
were not yet installed and the agreed amenities were not yet
available. Said inspection report states:
May 3, 2002:
1.The unit of the [respondent] is Unit 3007, which was labeled
as P2-07, at the Palace of Makati, located at the corner of P.
Burgos Street and Caceres Street, Poblacion, Makati City. Based
on the approved plans, the said unit is at the 26th Floor.
2.During the time of inspection, the said unit appears to be
completed except for the installation of kitchen cabinets and
fixtures.
3.Complainant pinpointed to the undersigned the deficiencies
as follows:
a.The delivered unit has high density fiber (HDF) floorings
instead of narra wood parquet.
b.The [petitioners] have also installed baseboards as borders
instead of pink porrino granite boarders.
c.Walls are newly painted by the respondent and the alleged
obvious signs of cladding could not be determined.
d.Window opening at the master bedroom conforms to the
approved plans. As a result it leaves a 3 inches (sic) gap
between the glass window and partitioning of the master’s
bedroom.
e.It was verified and confirmed that a square column replaced
the round column, based on the approved plans.
f.At the time of inspection, amenities such as swimming pool
and change room are seen at the 31st floor only. These
amenities are reflected on the 27th floor plan of the approved
condominium plans. Health spa for men and women, Shiatsu
Massage Room, Two-Level Sky Palace Restaurant and Hall for
games and
300 | P a g e
entertainments, replete with billiard tables, a bar, indoor golf
with spectacular deck and karaoke rooms were not yet provided
by the [petitioner].
g.The [master’s] bedroom door bore sign of poor quality of
workmanship as seen below.
h.The stairs have been installed in such manner acceptable to
the undersigned.
i.Bathrooms and powder room have been installed in such
manner acceptable to the undersigned.28
From the foregoing, it is evident that the report on the ocular
inspection conducted on the subject condominium project and
subject unit shows that the amenities under the approved plan
have not yet been provided as of May 3, 2002, and that the
subject unit has not been delivered to respondent as of August
28, 2002, which is beyond the period of development of
December 1999 under the license to sell. Incontrovertibly,
petitioner had incurred delay in the performance of its
obligation amounting to breach of contract as it failed to finish
and deliver the unit to respondent within the stipulated period.
The delay in the completion of the project as well as of the
delay in the delivery of the unit are breaches of statutory and
contractual obligations which entitle respondent to rescind the
contract, demand a refund and payment of damages.
WHEREFORE, premises considered, the instant petition is
DENIED. The Decision dated January 24, 2013 and Resolution
dated April 30, 2013 of the Court of Appeals in CA-G.R. SP No.
121175 are hereby AFFIRMED, with MODIFICATION that moral
damages be awarded in the amount of P20,000.00.
61. G.R. No. 196251
July 9, 2014
OLIVAREZ REALTY CORPORATION and DR. PABLO R. OLIVAREZ,
Petitioner,
vs.
BENJAMIN CASTILLO, Respondent.
LEONEN, J.:
DECISION
Trial may be dispensed with and a summary judgment
rendered if the case can be resolved judiciously by plain resort
to the pleadings, affidavits, depositions, and other papers filed
by the parties.
This is a petition for review on certiorari1 of the Court of
Appeals' decision2 dated July 20, 2010 and resolution3dated
March 18, 2011 in CAG.R. CV No. 91244.
The facts as established from the pleadings of the parties are
as follows:
Benjamin Castillo was the registered owner of a 346,918-
squaremeter parcel of land located in Laurel, Batangas, covered
by Transfer Certificate of Title No. T-19972.4 The Philippine
Tourism Authority allegedly claimed ownership of the
sameparcel of land based on Transfer Certificate of Title No. T-
18493.5On April 5, 2000, Castillo and Olivarez Realty
Corporation, represented by Dr. Pablo R. Olivarez, entered into a
contract of conditional sale6 over the property. Under the deed
of conditional sale, Castillo agreed to sell his property to
Olivarez Realty Corporation for P19,080,490.00. Olivarez Realty
301 | P a g e
Corporation agreed toa down payment of P5,000,000.00, to be
paid according to the following schedule:
described property be nullified and voided; with the full
assistance of [Castillo][.]10
Should the action against the Philippine Tourism Authority be
denied, Castillo agreed to reimburse all the amounts paid by
Olivarez Realty Corporation. Paragraph D of the deed of
conditional sale provides:
D. In the event that the Court denie[s] the petition against the
Philippine Tourism Authority, all sums received by [Castillo]
shall be reimbursed to [Olivarez Realty Corporation] without
interest[.]11
As to the "legitimate tenants" occupying the property, Olivarez
Realty Corporation undertook to pay them "disturbance
compensation," while Castillo undertook to clear the land of the
tenants within six months from the signing of the deed of
conditional sale. Should Castillo fail to clear the land within six
months, Olivarez Realty Corporation may suspend its monthly
down payment until the tenants vacate the property.
Paragraphs E and F of the deed of conditional sale provide: E.
That [Olivarez Realty Corporation] shall pay the disturbance
compensation to legitimate agricultural tenants and fishermen
occupants which in no case shall exceed ONE MILLION FIVE
HUNDRED THOUSAND (P1,500,000.00) PESOS. Said
amountshall not form part of the purchase price. In excess of
this amount, all claims shall be for the account of [Castillo];
F. That [Castillo] shall clear the land of [the] legitimate tenants
within a period of six (6) months upon signing of this Contract,
and in case [Castillo] fails, [Olivarez Realty Corporation] shall
have the right to suspend the monthly down payment until
such time that the tenants [move] out of the land[.]12
The parties agreed thatOlivarez Realty Corporation may
immediately occupy the property upon signing of the deed of
DATE
AMOUNT
April 8, 2000
500,000.00
May 8, 2000
500,000.00
May 16, 2000
500,000.00
June 8, 2000
1,000,000.0 0
July 8, 2000
500,000.00
August 8, 2000
500,000.00
September 8, 2000
500,000.00
October 8, 2000
500,000.00
November 8, 2000
500,000.00
7
As to the balance of P14,080,490.00, Olivarez Realty
Corporation agreed to pay in 30 equal monthly installments
every eighth day of the month beginning in the month that the
parties would receive a decision voiding the Philippine Tourism
Authority’s title to the property.8 Under the deed of conditional
sale, Olivarez RealtyCorporation shall file the action against the
Philippine Tourism Authority "with the full assistance of
[Castillo]."9 Paragraph C of the deed of conditional sale
provides:
C. [Olivarez Realty Corporation] assumes the responsibility of
taking necessary legal action thru Court to have the claim/title
TCT T-18493 of Philippine Tourism Authority over the above-
302 | P a g e
conditional sale. Should the contract be cancelled, Olivarez
RealtyCorporation agreed to return the property’s possession to
Castillo and forfeit all the improvements it may have introduced
on the property. Paragraph I of the deed of conditional sale
states:
I. Immediately upon signing thisContract, [Olivarez Realty
Corporation] shall be entitled to occupy, possess and develop
the subject property. In case this Contract is canceled [sic], any
improvement introduced by [the corporation] on the property
shall be forfeited in favor of [Castillo][.]13
On September 2, 2004, Castillo filed a complaint14 against
Olivarez Realty Corporation and Dr. Olivarez with the Regional
Trial Court of Tanauan City, Batangas.
Castillo alleged that Dr. Olivarez convinced him into selling his
property to Olivarez Realty Corporation on the representation
that the corporation shall be responsible in clearing the
property of the tenants and in paying them disturbance
compensation. He further alleged that Dr. Olivarez solely
prepared the deed of conditional sale and that he was made to
sign the contract with its terms "not adequately explained [to
him] in Tagalog."15
After the parties had signed the deed of conditional sale,
Olivarez Realty Corporation immediately took possession of the
property. However, the corporation only paid 2,500,000.00
ofthe purchase price. Contrary to the agreement, the
corporation did not file any action against the Philippine
Tourism Authority to void the latter’s title to the property. The
corporation neither cleared the land of the tenants nor paid
them disturbance compensation. Despite demand, Olivarez
Realty Corporation refused to fully pay the purchase price.16
Arguing that Olivarez Realty Corporation committed substantial
breach of the contract of conditional sale and that the deed of
conditional sale was a contract of adhesion, Castillo prayed
for rescission of contract under Article 1191 of the Civil Code of
the Philippines. He further prayed that Olivarez Realty
Corporation and Dr. Olivarez be made solidarily liable for moral
damages, exemplary damages, attorney’s fees, and costs of
suit.17
In their answer,18 Olivarez Realty Corporation and Dr. Olivarez
admitted that the corporation only paidP2,500,000.00 ofthe
purchase price. In their defense, defendants alleged that
Castillo failed to "fully assist"19 the corporation in filing an
action against the Philippine Tourism Authority. Neither did
Castillo clear the property of the tenants within six months from
the signing of the deed of conditional sale. Thus, according to
defendants, the corporation had "all the legal right to withhold
the subsequent payments to [fully pay] the purchase price."20
Olivarez Realty Corporation and Dr. Olivarez prayedthat
Castillo’s complaint be dismissed. By way of compulsory
counterclaim, they prayed for P100,000.00 litigation expenses
and P50,000.00 attorney’s fees.21
Castillo replied to the counterclaim,22 arguing that Olivarez
Realty Corporation and Dr. Olivarez had no right to litigation
expenses and attorney’s fees. According to Castillo, the deed of
conditional sale clearly states that the corporation "assume[d]
the responsibility of taking necessary legal action"23 against
the Philippine Tourism Authority, yet the corporation did not file
any case. Also, the corporation did not pay the tenants
disturbance compensation. For the corporation’s failure to fully
pay the purchase price, Castillo claimed that hehad "all the
right to pray for the rescission of the [contract],"24 and he
"should not be held liable . . . for any alleged damages by way
of litigation expenses and attorney’s fees."25
On January 10, 2005, Castillo filed a request for admission,26
requesting Dr. Olivarez to admit under oath the
303 | P a g e
genuineness of the deed of conditional sale and Transfer
Certificate of Title No. T-19972. He likewise requested Dr.
Olivarez to admit the truth of the following factual allegations:
On March 8, 2006, Castillo filed a motion for summary
judgment and/or judgment on the pleadings.30 He argued that
Olivarez Realty Corporation and Dr. Olivarez "substantially
admitted the material allegations of [his]
complaint,"31specifically:
1. That Dr. Olivarez is the president of Olivarez Realty
Corporation;
2. That Dr. Olivarez offered to purchase the parcel of land from
Castillo and that he undertook to clear the property of the
tenants and file the court action to void the Philippine Tourism
Authority’s title to the property;
3. That Dr. Olivarez caused the preparation of the deed of
conditional sale;
4. That Dr. Olivarez signed the deed of conditional sale for and
on behalf of Olivarez Realty Corporation;
5. That Dr. Olivarez and the corporation did not file any action
against the Philippine Tourism Authority;
6. That Dr. Olivarez and the corporation did not pay the tenants
disturbance compensation and failed to clear the property of
the tenants; and
7. That Dr. Olivarez and the corporation only paid
P2,500,000.00 of the agreed purchase price.27
1. That the corporation failed to fully pay the purchase price
for his property;32
2. That the corporation failed to file an action to void the
Philippine Tourism Authority’s title to his property;33and
3. That the corporation failed to clear the property of the
tenants and pay them disturbance compensation.34
Should judgment on the pleadings beimproper, Castillo
argued that summary judgment may still be rendered asthere is
no genuine issue as to any material fact.35 He cited Philippine
National Bank v. Noah’s Ark Sugar Refinery36 as authority.
Castillo attached to his motion for summary judgment and/or
judgment on the pleadings his affidavit37 and the affidavit of a
Marissa Magsino38attesting to the truth of the material
allegations of his complaint.
Olivarez Realty Corporation and Dr. Olivarez opposed39 the
motion for summary judgment and/or judgment on the
pleadings, arguing that the motion was "devoid of merit."40
They reiterated their claim that the corporation withheld further
payments of the purchase price because "there ha[d] been no
favorable decision voiding the title of the Philippine Tourism
Authority."41 They added that Castillo sold the property to
another person and that the sale was allegedly litigated in
Quezon City.42
Considering that a title adverse to that of Castillo’s existed,
Olivarez Realty Corporation and Dr. Olivarez argued that the
case
On January 25, 2005, Dr. Olivarez and Olivarez Realty
Corporation filed their objections to the request for
admission,28 stating that they "reiterate[d] the allegations [and
denials] in their [answer]."29
The trial court conducted pre-trial conference on December 17,
2005.
304 | P a g e
should proceed to trial and Castillo be required to prove that his
title to the property is "not spurious or fake and that he had not
sold his property to another person."43
In reply to the opposition to the motion for summary judgment
and/or judgment on the pleadings,44 Castillo maintained that
Olivarez Realty Corporation was responsible for the filing of an
action against the Philippine Tourism Authority. Thus, the
corporation could not fault Castillo for not suing the
PhilippineTourism Authority.45 The corporation illegally withheld
payments of the purchase price.
As to the claim that the case should proceed to trial because a
title adverse to his title existed, Castillo argued that the
Philippine Tourism Authority’s title covered another lot, not his
property.46
During the hearing on August 3, 2006, Olivarez Realty
Corporation and Dr. Olivarez prayed that they be given 30 days
to file a supplemental memorandum on Castillo’s motion for
summary judgment and/or judgment on the pleadings.47
The trial court granted the motion. Itgave Castillo 20 days to
reply to the memorandum and the corporation and Dr. Olivarez
15 days to respond to Castillo’s reply.48
In their supplemental memorandum,49 Olivarez Realty
Corporation and Dr. Olivarez argued that there was "an obvious
ambiguity"50 as to which should occur first — the payment of
disturbance compensation to the tenants or the clearing of the
property of the tenants.51This ambiguity, according to
defendants, is a genuine issue and "oughtto be threshed out in
a full blown trial."52
Olivarez Realty Corporation and Dr. Olivarez added that Castillo
prayed for irreconcilable reliefs of reformation of instrument
and
rescission of contract.53 Thus, Castillo’s complaint
should be dismissed.
Castillo replied54 to the memorandum, arguing that there was
no genuine issue requiring trial of the case. According to
Castillo, "common sense dictates . . . that the legitimate
tenants of the [property] shall not vacate the premises without
being paid any disturbance compensation . . ."55Thus, the
payment of disturbance compensation should occur first before
clearing the property of the tenants.
With respect to the other issuesraised in the supplemental
memorandum, specifically, that Castillo sold the property to
another person, he argued that these issues should not be
entertained for not having been presented during pre-trial.56
In their comment on the reply memorandum,57 Olivarez Realty
Corporation and Dr. Olivarez reiterated their arguments that
certain provisions of the deed of conditional sale were
ambiguous and that the complaint prayed for irreconcilable
reliefs.58
As to the additional issues raised in the supplemental
memorandum, defendants argued that issues not raised and
evidence not identified and premarked during pre-trial may still
be raised and presented during trial for good cause shown.
Olivarez Realty Corporation and Dr. Olivarez prayed that
Castillo’s complaint be dismissed for lack of merit.59
Ruling of the trial court
The trial court found that Olivarez Realty Corporation and Dr.
Olivarez’s answer "substantially [admitted the material
allegations of Castillo’s] complaint and [did] not . . . raise any
genuine issue [as to any material fact]."60
305 | P a g e
Defendants admitted that Castillo owned the parcel of land
covered by Transfer Certificate of Title No. T-19972. They
likewise admitted the genuineness of the deed of conditional
sale and that the corporation only paid P2,500,000.00 of the
agreed purchase price.61
According to the trial court, the corporation was responsible for
suing the Philippine Tourism Authority and for paying the
tenants disturbance compensation. Since defendant
corporation neither filed any case nor paid the tenants
disturbance compensation, the trial court ruled that defendant
corporation had no right to withhold payments from Castillo.62
As to the alleged ambiguity of paragraphs E and F of the deed
of conditional sale, the trial court ruled that Castillo and his
witness, Marissa Magsino, "clearly established"63 in their
affidavits that the deed of conditional sale was a contract of
adhesion. The true agreement between the parties was that the
corporation would both clear the land of the tenants and pay
them disturbance compensation.
With these findings, the trial court ruled that Olivarez Realty
Corporation breached the contract ofconditional sale.1âwphi1
In its decision64 dated April 23, 2007, the trial court ordered
the deed of conditional sale rescinded and theP2,500,000.00
forfeited in favor of Castillo "as damages under Article 1191 of
the Civil Code."65
The trial court declared Olivarez Realty Corporation and Dr.
Olivarez solidarily liable to Castillo for 500,000.00 as moral
damages, P50,000.00 as exemplary damages, and P50,000.00
as costs of suit.66
Ruling of the Court of Appeals
Olivarez Realty Corporation and Dr. Olivarez appealed to
the Court of Appeals.67
In its decision68 dated July 20, 2010, the Court of Appeals
affirmed in totothe trial court’s decision. According to the
appellate court, the trial court "did not err in its finding that
there is no genuine controversy as to the facts involved [in this
case]."69 The trial court, therefore, correctly rendered summary
judgment.70
As to the trial court’s award of damages, the appellatecourt
ruled that a court may award damages through summary
judgment "if the parties’ contract categorically [stipulates] the
respective obligations of the parties in case of default."71 As
found by the trial court,paragraph I of the deed of conditional
sale categorically states that "in case [the deed of conditional
sale] is cancelled, any improvementintroduced by [Olivarez
Realty Corporation] on the property shall be forfeited infavor of
[Castillo]."72 Considering that Olivarez Realty Corporation
illegally retained possession of the property, Castillo forewent
rentto the property and "lost business opportunities."73 The
P2,500,000.00 down payment, according to the appellate court,
shouldbe forfeited in favor of Castillo. Moral and exemplary
damages and costs ofsuit were properly awarded.
On August 11, 2010, Olivarez RealtyCorporation and Dr.
Olivarez filed their motion for reconsideration,74 arguing that
the trial court exceeded its authority in forfeiting the
P2,500,000.00 down payment and awarding P500,000.00 in
moral damages to Castillo. They argued that Castillo only
prayed for a total of P500,000.00 as actual and moral damages
in his complaint.75 Appellants prayed that the Court of Appeals
"take a second hard look"76 at the case and reconsider its
decision.
In the resolution77 dated March 18, 2011, the Court of Appeals
denied the motion for reconsideration.
306 | P a g e
Proceedings before this court
Olivarez Realty Corporation and Dr. Olivarez filed their petition
for review on certiorari78 with this court. Petitionersargue that
the trial court and the Court of Appeals erred in awarding
damages to Castillo. Under Section 3, Rule 35 of the 1997 Rules
ofCivil Procedure, summary judgment may be rendered except
as to the amountof damages. Thus, the Court of Appeals
"violated the procedural steps in rendering summary
judgment."79
Petitioners reiterate that there are genuine issues ofmaterial
fact to be resolved in this case. Thus, a full-blown trial is
required, and the trial court prematurely decided the case
through summary judgment. They cite Torres v. Olivarez Realty
Corporation and Dr. Pablo Olivarez,80 a case decided by the
Ninth Division of the Court of Appeals.
In Torres, Rosario Torres was the registeredowner of a parcel of
land covered by Transfer Certificate of Title No. T-19971. Under
a deed of conditional sale, she sold her property to
OlivarezRealty Corporation for P17,345,900.00. When the
corporation failed to fully pay the purchase price, she sued for
rescission of contractwith damages. In their answer, the
corporation and Dr. Olivarez argued thatthey discontinued
payment because Rosario Torres failed to clear the land of the
tenants.
Similar to Castillo, Torres filed a motion for summary judgment,
which the trial court granted. On appeal, the Court of Appeals
set aside the trial court’s summary judgment and remanded the
case to the trial court for further proceedings.81 The Court of
Appeals ruled that the material allegations of the complaint
"were directly disputed by [the corporation and Dr. Olivarez] in
their answer"82 when they argued that they refused to pay
because Torres failed to clear the land of the tenants.
With the Court of Appeals’ decision in Torres,Olivarez Realty
Corporation and Dr. Olivarez argue that this case should
likewise be remanded to the trial court for further proceedings
under the equipoise rule.
Petitioners maintain that Castillo availed himself of the
irreconcilable reliefs of reformation of instrument and rescission
of contract.83 Thus, the trial court should have dismissed the
case outright.
Petitioners likewise argue that the trial court had no jurisdiction
to decide the case as Castillo failed topay the correct docket
fees.84 Petitioners argue that Castillo should have paid docket
fees based on the property’s fair market value since Castillo’s
complaint is a real action.85
In his comment,86 Castillo maintains that there are no genuine
issues as to any material fact inthis case. The trial court,
therefore, correctly rendered summary judgment.
As to petitioners’ claim that the trial court had no jurisdiction to
decide the case, Castillo argues that he prayed for rescission of
contract in his complaint. This action is incapable of pecuniary
estimation, and the Clerk of Court properly computed the
docket fees based on this prayer.87 Olivarez Realty Corporation
and Dr. Olivarez replied,88reiterating their arguments in the
petition for review on certiorari.
The issues for our resolution are the following:
I. Whether the trial court erred in rendering summary
judgment;
II. Whether proper docket fees were paid in this case. The
petition lacks merit.
307 | P a g e
I
The trial court correctly rendered summary judgment, as there
were no
genuine issues of material fact in this case
Trial "is the judicial examination and determination of the issues
between the parties to the action."89 During trial, parties
"present their respective evidence of their claims and
defenses."90 Parties to an action have the right "to a plenary
trial of the case"91 to ensure that they were given a right to
fully present evidence on their respective claims.
There are instances, however, whentrial may be dispensed
with. Under Rule 35 of the 1997 Rules of Civil Procedure, a trial
court may dispense with trial and proceed to decide a case if
from the pleadings, affidavits, depositions, and other papers on
file, there is no genuine issue as to any material fact. In such a
case, the judgment issued is called a summary judgment.
A motion for summary judgment is filed either by the claimant
or the defending party.92 The trial court then hears the motion
for summary judgment. If indeed there are no genuine issues of
material fact, the trial court shall issue summary judgment.
Section 3, Rule 35 of the 1997 Rules of Civil Procedure provides:
SEC. 3. Motion and proceedings thereon. – The motion shall be
served at least ten (10) days beforethe time specified for the
hearing. The adverse party may serve opposing affidavits,
depositions, or admission at least three (3) days before the
hearing. After the hearing, the judgment sought shall be
rendered forthwith ifthe pleadings, supporting affidavits,
depositions, and admissions on file, showthat, except as to the
amount of damages, there is no genuine issue as to any
material fact and that the moving party is entitled to a
judgment as a matter of law.
An issue of material fact exists if the answer or responsive
pleading filed specifically denies the material allegations of fact
set forth in the complaint or pleading. If the issue offact
"requires the presentation of evidence, it is a genuine issue of
fact."93 However, if the issue "could be resolved judiciously by
plain resort"94 to the pleadings, affidavits, depositions, and
other paperson file, the issue of fact raised is sham, and the
trial court may resolve the action through summary judgment.
A summary judgment is usually distinguished from a judgment
on the pleadings. Under Rule 34 of the 1997 Rules of Civil
Procedure, trial may likewise be dispensed with and a case
decided through judgment on the pleadings if the answer filed
fails to tender an issue or otherwise admits the material
allegations of the claimant’s pleading.95
Judgment on the pleadings is proper when the answer filed fails
to tender any issue, or otherwise admitsthe material allegations
in the complaint.96 On the other hand, in a summary judgment,
the answer filed tenders issues as specific denials and
affirmative defenses are pleaded, but the issues raised are
sham, fictitious, or otherwise not genuine.97
In this case, Olivarez Realty Corporation admitted that it did not
fully pay the purchase price as agreed upon inthe deed of
conditional sale. As to why it withheld payments from Castillo, it
set up the following affirmative defenses: First, Castillo did not
filea case to void the Philippine Tourism Authority’s title to the
property; second,Castillo did not clear the land of the tenants;
third, Castillo allegedly sold the property to a third person, and
the subsequent sale is currently being litigated beforea Quezon
City court.
Considering that Olivarez RealtyCorporation and Dr. Olivarez’s
answer tendered an issue, Castillo properly availed himself of a
motion for summary judgment.
308 | P a g e
However, the issues tendered by Olivarez Realty Corporation
and Dr. Olivarez’s answer are not genuine issues of material
fact. These are issues that can be resolved judiciously by plain
resort to the pleadings, affidavits, depositions, and other papers
on file; otherwise, these issues are sham, fictitious, or patently
unsubstantial.
Petitioner corporation refused to fully pay the purchase price
because no court case was filed to void the Philippine Tourism
Authority’s title on the property. However, paragraph C of the
deed of conditional sale is clear that petitioner Olivarez Realty
Corporation is responsible for initiating court action against the
Philippine Tourism Authority:
C. [Olivarez Realty Corporation] assumes the responsibility of
taking necessary legal action thru Court to have the claim/title
TCT T-18493 of Philippine Tourism Authority over the above-
described property be nullified and voided; with the full
assistance of [Castillo].98
Castillo’s alleged failureto "fully assist"99 the corporation in
filing the case is not a defense. As the trial court said, "how can
[Castillo] assist [the corporation] when [the latter] did not file
the action [in the first place?]"100
Neither can Olivarez Realty Corporation argue that it refused to
fully pay the purchase price due to the Philippine Tourism
Authority’s adverse claim on the property. The corporation
knew of this adverse claim when it entered into a contract of
conditional sale. It even obligated itself under paragraph C of
the deed of conditional sale to sue the Philippine Tourism
Authority. This defense, therefore, is sham.
Contrary to petitioners’ claim, there is no "obvious
ambiguity"101 as to which should occur first — the payment of
the disturbance compensation or the clearing of the land within
six months from the signing of the deed of conditional sale.
The obligations must be performed simultaneously. In this case,
the parties should have coordinated to ensure that tenants on
the property were paid disturbance compensation and were
made to vacate the property six months after the signingof the
deed of conditional sale.
On one hand, pure obligations, or obligations whose
performance do not depend upon a future or uncertainevent, or
upon a past event unknown to the parties, are demandable at
once.102 On the other hand, obligations with a resolutory
period also take effect at once but terminate upon arrival of the
day certain.103
Olivarez Realty Corporation’s obligation to pay disturbance
compensation is a pure obligation. The performance of the
obligation to pay disturbance compensation did not depend on
any condition. Moreover, the deed of conditional sale did not
give the corporation a period to perform the obligation. As
such, the obligation to pay disturbance compensation was
demandable at once. Olivarez RealtyCorporation should have
paid the tenants disturbance compensation upon execution of
the deed of conditional sale.
With respect to Castillo’s obligation to clear the land of the
tenants within six months from the signing of the contract, his
obligation was an obligation with a resolutory period. The
obligation to clear the land of the tenants took effect at once,
specifically, upon the parties’ signing of the deed of conditional
sale. Castillo had until October 2, 2000, six months from April 5,
2000 when the parties signed the deed of conditional sale, to
clear the land of the tenants.
Olivarez Realty Corporation, therefore, had no right to withhold
payments of the purchase price. As the trial court ruled,
Olivarez Realty Corporation "can only claim non-compliance [of
the
309 | P a g e
obligation to clear the land of the tenants in] October
2000."104 It said:
. . . it is clear that defendant [Olivarez Realty Corporation]
should have paid the installments on the P5 million
downpayment up to October 8, 2000, or a total
ofP4,500,000.00. That is the agreement because the only time
that defendant [corporation] can claim non-compliance of the
condition is after October, 2000 and so it has the clear
obligation topay up to the October 2000 the agreed
installments. Since it paid only 2,500,000.00, then a violation of
the contract has already been committed. . . .105
The claim that Castillo sold the property to another is fictitious
and was made in bad faith to prevent the trial court from
rendering summary judgment. Petitioners did not elaborate on
this defense and insisted on revealing the identity of the buyer
only during trial.106 Even in their petition for review on
certiorari, petitioners never disclosed the name of this alleged
buyer. Thus, as the trial court ruled, this defense did not tender
a genuine issue of fact, with the defense "bereft of details."107
Castillo’s alleged prayer for the irreconcilable reliefs of
rescission of contract and reformation of instrument is not a
ground to dismiss his complaint. A plaintiff may allege two or
more claims in the complaint alternatively or hypothetically,
either in one cause of action or in separate causes of action per
Section 2, Rule 8 of the 1997 Rules of Civil Procedure.108 It is
the filing of two separatecases for each of the causes of action
that is prohibited since the subsequently filed case may be
dismissed under Section 4, Rule 2 of the 1997 Rules of Civil
Procedure109 on splitting causes of action.
As demonstrated, there are no genuineissues of material fact in
this case. These are issues that can be resolved judiciously by
plain resort to the pleadings, affidavits, depositions, and other
papers on file. As the trial court found, Olivarez Realty
Corporation illegally withheld payments of the purchase
price. The trial court did not err in rendering summary
judgment.
II
Castillo is entitled to cancel the contract of conditional sale
Since Olivarez Realty Corporation illegally withheld payments of
the purchase price, Castillo is entitled to cancel his contract
with petitioner corporation. However, we properly characterize
the parties’ contract as a contract to sell, not a contract of
conditional sale.
In both contracts to sell and contracts of conditional sale, title
to the property remains with the seller until the buyer fully pays
the purchase price.110 Both contracts are subject to the
positive suspensive condition of the buyer’s full payment of the
purchase price.111
In a contract of conditional sale, the buyer automatically
acquires title to the property upon full payment of the purchase
price.112 This transfer of title is "by operation of law without
any further act having to be performed by the seller."113 In a
contract to sell, transfer of title to the prospective buyer is not
automatic.114 "The prospective seller [must] convey title to the
property [through] a deed of conditional sale."115
The distinction is important to determine the applicable laws
and remedies in case a party does not fulfill his or her
obligations under the contract. In contracts of conditional sale,
our laws on sales under the Civil Code of the Philippines apply.
On the other hand, contracts to sell are not governed by our
law on sales116but by the Civil Code provisions on conditional
obligations.
310 | P a g e
Specifically, Article 1191 of the Civil Code on the right to
rescind reciprocal obligations does not apply to contracts to
sell.117 As this court explained in Ong v. Court of Appeals,118
failure to fully pay the purchase price in contracts to sell is not
the breach of contract under Article 1191.119 Failure to fully
pay the purchase price is "merely an event which prevents the
[seller’s] obligation to convey title from acquiring binding
force."120 This is because "there can be no rescission of an
obligation that is still nonexistent, the suspensive condition not
having [happened]."121
In this case, Castillo reserved his title to the property and
undertook to execute a deed of absolute sale upon Olivarez
Realty Corporation’s full payment of the purchase price.122
Since Castillo still has to execute a deed of absolute sale to
Olivarez RealtyCorporation upon full payment of the purchase
price, the transfer of title is notautomatic. The contract in this
case is a contract to sell.
As this case involves a contract tosell, Article 1191 of the Civil
Code of the Philippines does not apply. The contract to sell is
instead cancelled, and the parties shall stand as if the
obligation to sell never existed.123
Olivarez Realty Corporation shall return the possession of the
property to Castillo. Any improvement that Olivarez Realty
Corporation may have introduced on the property shall be
forfeited in favor of Castillo per paragraph I of the deed of
conditional sale:
I. Immediately upon signing thisContract, [Olivarez Realty
Corporation] shall be entitled to occupy, possess and develop
the subject property. In case this Contract is cancelled, any
improvement introduced by [Olivarez Realty Corporation] on
the property shall be forfeited in favor of [Castillo.]124
As for prospective sellers, thiscourt generally orders the
reimbursement of the installments paidfor the property when
setting aside contracts to sell.125 This is true especially ifthe
property’s possession has not been delivered to the prospective
buyer prior to the transfer of title.
In this case, however, Castillo delivered the possession of the
property to Olivarez Realty Corporation prior to the transfer of
title. We cannot order the reimbursement of the installments
paid.
In Gomez v. Court of Appeals,126 the City of Manila and Luisa
Gomez entered into a contract to sell over a parcel of land. The
city delivered the property’s possession to Gomez. She fully
paid the purchase price for the property but violated the terms
of the contract to sell by renting out the property to other
persons. This court set aside the contract to sell for her
violation of the terms of the contract to sell. It ordered the
installments paid forfeited in favor of the City of Manila "as
reasonable compensation for [Gomez’s] use of the
[property]"127 for eight years.
In this case, Olivarez Realty Corporation failed to fully pay the
purchase price for the property. It only paid P2,500,000.00 out
of the P19,080,490.00 agreed purchase price. Worse, petitioner
corporation has been in possession of Castillo’s property for 14
years since May 5, 2000 and has not paid for its use of the
property.
Similar to the ruling in Gomez, we order theP2,500,000.00
forfeited in favor of Castillo as reasonable compensation for
Olivarez Realty Corporation’s use of the property.
III
Olivarez Realty Corporation is liable for moral and exemplary
damages and attorney’s fees
311 | P a g e
We note that the trial court erred in rendering summary
judgment on the amount of damages. Under Section 3, Rule 35
of the 1997 Rules of Civil Procedure, summary judgment may
be rendered, except as to the amount of damages.
In this case, the trial court erred in forfeiting the P2,500,000.00
in favor of Castillo as damages under Article 1191 of the Civil
Code of the Philippines. As discussed, there is nobreach of
contract under Article 1191 in this case.
The trial court likewise erred inrendering summary judgment on
the amount of moral and exemplary damages and attorney’s
fees.
Nonetheless, we hold that Castillois entitled to moral damages,
exemplary damages, and attorney’s fees.
Moral damages may be awarded in case the claimant
experienced physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation, and similar injury.128
As for exemplary damages, they are awarded in addition to
moral damages by way of example or correction for the public
good.129 Specifically in contracts, exemplary damages may be
awarded if the defendant acted in a wanton,
fraudulent,reckless, oppressive, or malevolent manner.130
Under the deed of conditional sale, Olivarez Realty Corporation
may only suspend the monthly down payment in case Castillo
fails to clear the land of the tenants six months from the signing
of the instrument. Yet, even before the sixth month arrived,
Olivarez Realty Corporation withheld payments for Castillo’s
property. It evenused as a defense the fact that no case was
filed against the PhilippineTourism Authority when, under the
deed of conditional sale, Olivarez Realty Corporation was
clearly responsible for initiating action against the Philippine
Tourism
Authority. These are oppressive and malevolent acts, and we
find Castillo entitled to P500,000.00 moral damages and
P50,000.00 exemplary damages:
Plaintiff Castillo is entitled to moral damages because of the
evident bad faith exhibited by defendants in dealing with him
regarding the sale of his lot to defendant [Olivarez Realty
Corporation]. He suffered much prejudice due to the failure of
defendants to pay him the balance of purchase price which he
expected touse for his needs which caused him wounded
feelings, sorrow, mental anxiety and sleepless nights for which
defendants should pay P500,000.00 as moral damages more
than six (6) years had elapsed and defendants illegally and
unfairly failed and refused to pay their legal obligations to
plaintiff, unjustly taking advantage of a poor uneducated man
like plaintiff causing much sorrow and financial difficulties.
Moral damages in favor of plaintiff is clearly justified . . .
[Castillo] is also entitled to P50,000.00 as exemplary damages
to serve as a deterrent to other parties to a contract to
religiously comply with their prestations under the contract.131
We likewise agree that Castillo is entitled to attorney’s fees in
addition to the exemplary damages.132 Considering that
Olivarez Realty Corporation refused to satisfy Castillo’splainly
valid, just, and demandable claim,133 the award of P50,000.00
as attorney’s fees is in order. However, we find that Dr. Pablo
R.Olivarez is not solidarily liable with Olivarez Realty
Corporation for the amount of damages.
Under Article 1207 of the Civil Code of the Philippines, there is
solidary liability only when the obligation states it or when the
law or the nature of the obligation requires solidarity.134 In
case of corporations, they are solely liable for their
obligations.135 The directors or trustees and officers are not
liable with the corporation even if it is through their acts that
the corporation
312 | P a g e
incurred the obligation. This is because a corporation is
separate and distinct from the persons comprising it.136
As an exception to the rule, directors or trustees and corporate
officers may be solidarily liable with the corporation for
corporate obligations if they acted "in bad faith or with gross
negligence in directing the corporate affairs."137
In this case, we find that Castillo failed to prove with
preponderant evidence that it was through Dr. Olivarez’s bad
faith or gross negligence that Olivarez Realty Corporation failed
to fully pay the purchase price for the property. Dr. Olivarez’s
alleged act of making Castillo sign the deed of conditional sale
without explaining to the latter the deed’s terms in Tagalog is
not reason to hold Dr. Olivarez solidarily liable with the
corporation. Castillo had a choice not to sign the deed of
conditional sale. He could have asked that the deed of
conditional sale be written in Tagalog. Thus, Olivarez Realty
Corporation issolely liable for the moral and exemplary
damages and attorney’s fees to Castillo.
IV
The trial court acquired jurisdiction over Castillo’s action as he
paid the correct docket fees
Olivarez Realty Corporation and Dr. Olivarez claimed that the
trial court had no jurisdiction to take cognizance of the case. In
the reply/motion to dismiss the complaint138 they filed with the
Court of Appeals, petitioners argued that Castillo failed to pay
the correct amount of docket fees. Stating that this action is a
real action, petitioners argued that the docket fee Castillo paid
should have been based on the fair market value of the
property. In this case, Castillo only paid 4,297.00, which is
insufficient "if the real nature of the action was admitted and
the fair market value of the property was disclosed and made
the basis of the amount of
docket fees to be paid to the court."139Thus, according to
petitioners, the case should be dismissed for lack of jurisdiction.
Castillo countered that his action for rescission is an action
incapable of pecuniary estimation. Thus, the Clerk of Court of
the Regional Trial Court of Tanauan City did not err in assessing
the docket fees based on his prayer.
We rule for Castillo. In De Leon v. Court of Appeals,140 this
court held that an action for rescission of contract of sale of real
property is an action incapable of pecuniary estimation. In De
Leon, the action involved a real property. Nevertheless, this
court held that "it is the nature of the action as one for
rescission of contract which is controlling."141 Consequently,
the docket fees to be paid shall be for actions incapableof
pecuniary estimation, regardless if the claimant may eventually
recover the real property. This court said:
. . . the Court in Bautista v.Lim, held that an action for
rescission of contract is one which cannot be estimated and
therefore the docket fee for its filing should be the flat amount
of P200.00 as then fixed in the former Rule 141, §141, §5(10).
Said this Court:
We hold that Judge Dalisay did not err in considering Civil Case
No. V-144 as basically one for rescission or annulment of
contract which is not susceptible of pecuniary estimation (1
Moran's Comments on the Rules of Court, 1970 Ed, p. 55;
Lapitan vs. Scandia, Inc., L-24668, July 31, 1968, 24 SCRA 479,
781-483).
Consequently, the fee for docketing it is P200, an amount
already paid by plaintiff, now respondent Matilda
Lim.1âwphi1(She should pay also the two pesos legal research
fund fee, if she has not paid it, as required in Section 4 of
Republic Act No. 3870, the charter of the U.P. Law Center).
313 | P a g e
Thus, although eventually the result may be the recovery of
land, it is the nature of the action as one for rescission of
contract which is controlling. The Court of Appeals correctly
applied these cases to the present one. As it said:
We would like to add the observations that since the action of
petitioners [private respondents] against private respondents
[petitioners] is solely for annulment or rescission which is not
susceptible of pecuniary estimation, the action should not be
confused and equated with the "value of the property" subject
of the transaction; that by the very nature of the case, the
allegations, and specific prayer in the complaint, sans any
prayer for recovery of money and/or value of the transaction, or
for actual or compensatory damages, the assessment and
collection of the legal fees should not be intertwined with the
merits of the case and/or what may be its end result; and that
to sustain private respondents' [petitioners'] position on what
the respondent court may decide after all, then the assessment
should be deferred and finally assessed only after the court had
finally decided the case, which cannot be done because the
rules require that filing fees should be based on what is alleged
and prayed for in the face of the complaint and paid upon the
filing of the complaint.142
Although we discussed that there isno rescission of contract to
speak of in contracts of conditional sale, we hold that an action
to cancel a contract to sell, similar to an action for rescission of
contract of sale, is an action incapable of pecuniary estimation.
Like any action incapable of pecuniary estimation, an action to
cancel a contract to sell "demands an inquiry into other
factors"143 aside from the amount of money to be awarded to
the claimant. Specifically in this case, the trial court principally
determined whether Olivarez Realty Corporation failed to pay
installments of the property’s purchase price as the parties
agreed upon in the deed of conditional sale. The principal
natureof Castillo’s action, therefore, is incapable of pecuniary
estimation.
All told, there is no issue that the parties in this case entered
into a contract to sell a parcel of land and that Olivarez Realty
Corporation failed to fully pay the installments agreed
upon.Consequently, Castillo is entitled to cancel the contract to
sell.
WHEREFORE, the petition for review on certiorari is DENIED.
The Court of Appeals’ decision dated July 20, 2010 and in CA-
G.R. CV No. 91244 is AFFIRMEDwith MODIFICATION.
The deed of conditional sale dated April 5, 2000 is declared
CANCELLED. Petitioner Olivarez Realty Corporation shall
RETURN to respondent Benjamin Castillo the possession of the
property covered by Transfer Certificate of Title No. T-19972
together with all the improvements that petitioner corporation
introduced on the property. The amount ofP2,500,000.00 is
FORFEITED in favor of respondent Benjamin Castillo as
reasonable compensation for the use of petitioner Olivarez
Realty Corporation of the property.
Petitioner Olivarez Realty Corporation shall PAY respondent
Benjamin Castillo P500,000.00 as moral damages, P50,000.00
as exemplary damages, andP50,000.00 as attorney's fees with
interest at 6% per annum from the time this decision becomes
final and executory until petitioner
corporation fully pays the amount of damages.144
314 | P a g e
62. G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-
appellant.
Mabanag, Eliger and Associates and Saura, Magno and
Associates for plaintiff-appellee.
Jesus A. Avanceña and Hilario G. Orsolino for defendant-
appellant.
MAKALINTAL, J.:p
In Civil Case No. 55908 of the Court of First Instance of Manila,
judgment was rendered on June 28, 1965 sentencing defendant
Development Bank of the Philippines (DBP) to pay actual and
consequential damages to plaintiff Saura Import and Export Co.,
Inc. in the amount of P383,343.68, plus interest at the legal
rate from the date the complaint was filed and attorney's fees
in the amount of P5,000.00. The present appeal is from that
judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.)
applied to the Rehabilitation Finance Corporation (RFC), before
its conversion into DBP, for an industrial loan of P500,000.00, to
be used as follows: P250,000.00 for the construction of a
factory building (for the manufacture of jute sacks);
P240,900.00 to pay the balance of the purchase price of the
jute mill machinery and equipment; and P9,100.00 as additional
working capital.
Parenthetically, it may be mentioned that the jute mill
machinery had already been purchased by Saura on the
strength of a letter of
credit extended by the Prudential Bank and Trust Co., and
arrived in Davao City in July 1953; and that to secure its release
without first paying the draft, Saura, Inc. executed a trust
receipt in favor of the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving
the loan application for P500,000.00, to be secured by a first
mortgage on the factory building to be constructed, the land
site thereof, and the machinery and equipment to be installed.
Among the other terms spelled out in the resolution were the
following:
1. That the proceeds of the loan shall be utilized exclusively for
the following purposes:
For construction of factory building P250,000.00 For payment of
the balance of purchase
price of machinery and equipment 240,900.00 For working
capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto
Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall
sign the promissory notes jointly with the borrower-corporation;
5. That release shall be made at the discretion of the
Rehabilitation Finance Corporation, subject to availability of
funds, and as the construction of the factory buildings
progresses, to be certified to by an appraiser of this
Corporation;"
Saura, Inc. was officially notified of the resolution on January 9,
1954. The day before, however, evidently having otherwise
been
315 | P a g e
informed of its approval, Saura, Inc. wrote a letter to RFC,
requesting a modification of the terms laid down by it, namely:
that in lieu of having China Engineers, Ltd. (which was willing to
assume liability only to the extent of its stock subscription with
Saura, Inc.) sign as co-maker on the corresponding promissory
notes, Saura, Inc. would put up a bond for P123,500.00, an
amount equivalent to such subscription; and that Maria S. Roca
would be substituted for Inocencia Arellano as one of the other
co-makers, having acquired the latter's shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on
February 4, 1954, designating of the members of its Board of
Governors, for certain reasons stated in the resolution, "to
reexamine all the aspects of this approved loan ... with special
reference as to the advisability of financing this particular
project based on present conditions obtaining in the operations
of jute mills, and to submit his findings thereon at the next
meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers,
Ltd. had again agreed to act as co-signer for the loan, and
asked that the necessary documents be prepared in accordance
with the terms and conditions specified in Resolution No. 145.
In connection with the reexamination of the project to be
financed with the loan applied for, as stated in Resolution No.
736, the parties named their respective committees of
engineers and technical men to meet with each other and
undertake the necessary studies, although in appointing its own
committee Saura, Inc. made the observation that the same
"should not be taken as an acquiescence on (its) part to novate,
or accept new conditions to, the agreement already) entered
into," referring to its acceptance of the terms and conditions
mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the
promissory note, with F.R. Halling, representing China
Engineers,
Ltd., as one of the co-signers; and the corresponding deed of
mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the
loan agreement the reexamination contemplated in Resolution
No. 736 proceeded. In a meeting of the RFC Board of Governors
on June 10, 1954, at which Ramon Saura, President of Saura,
Inc., was present, it was decided to reduce the loan from
P500,000.00 to P300,000.00. Resolution No. 3989 was
approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura
Import & Export Co., Inc. under Resolution No. 145, C.S., from
P500,000.00 to P300,000.00. Pursuant to Bd. Res. No. 736, c.s.,
authorizing the re- examination of all the various aspects of the
loan granted the Saura Import & Export Co. under Resolution
No. 145, c.s., for the purpose of financing the manufacture of
jute sacks in Davao, with special reference as to the advisability
of financing this particular project based on present conditions
obtaining in the operation of jute mills, and after having heard
Ramon E. Saura and after extensive discussion on the subject
the Board, upon recommendation of the Chairman, RESOLVED
that the loan granted the Saura Import & Export Co. be
REDUCED from P500,000 to P300,000 and that releases up to
P100,000 may be authorized as may be necessary from time to
time to place the factory in actual operation: PROVIDED that all
terms and conditions of Resolution No. 145, c.s., not
inconsistent herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who
had signed the promissory note for China Engineers Ltd. jointly
and severally with the other RFC that his company no longer to
of the loan and therefore considered the same as cancelled as
far as it was concerned. A follow-up letter dated July 2
requested RFC that the registration of the mortgage be
withdrawn.
316 | P a g e
In the meantime Saura, Inc. had written RFC requesting that the
loan of P500,000.00 be granted. The request was denied by
RFC, which added in its letter-reply that it was "constrained to
consider as cancelled the loan of P300,000.00 ... in view of a
notification ... from the China Engineers Ltd., expressing their
desire to consider the loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation
of the loan and informed RFC that China Engineers, Ltd. "will at
any time reinstate their signature as co-signer of the note if
RFC releases to us the P500,000.00 originally approved by
you.".
On December 17, 1954 RFC passed Resolution No. 9083,
restoring the loan to the original amount of P500,000.00, "it
appearing that China Engineers, Ltd. is now willing to sign the
promissory notes jointly with the borrower-corporation," but
with the following proviso:
That in view of observations made of the shortage and high
cost of imported raw materials, the Department of Agriculture
and Natural Resources shall certify to the following:
1. That the raw materials needed by the borrower- corporation
to carry out its operation are available in the immediate
vicinity; and
2. That there is prospect of increased production thereof to
provide adequately for the requirements of the factory."
The action thus taken was communicated to Saura, Inc. in a
letter of RFC dated December 22, 1954, wherein it was
explained that the certification by the Department of
Agriculture and Natural Resources was required "as the
intention of the original approval (of
the loan) is to develop the manufacture of sacks on the basis of
locally available raw materials." This point is important, and
sheds light on the subsequent actuations of the parties. Saura,
Inc. does not deny that the factory he was building in Davao
was for the manufacture of bags from local raw materials. The
cover page of its brochure (Exh. M) describes the project as a
"Joint venture by and between the Mindanao Industry
Corporation and the Saura Import and Export Co., Inc. to
finance, manage and operate a Kenaf mill plant, to manufacture
copra and corn bags, runners, floor mattings, carpets,
draperies; out of 100% local raw materials, principal kenaf." The
explanatory note on page 1 of the same brochure states that,
the venture "is the first serious attempt in this country to use
100% locally grown raw materials notably kenaf which is
presently grown commercially in theIsland of Mindanao where
the proposed jutemill is located ..."
This fact, according to defendant DBP, is what moved RFC to
approve the loan application in the first place, and to require, in
its Resolution No. 9083, a certification from the Department of
Agriculture and Natural Resources as to the availability of local
raw materials to provide adequately for the requirements of the
factory. Saura, Inc. itself confirmed the defendant's stand
impliedly in its letter of January 21, 1955: (1) stating that
according to a special study made by the Bureau of Forestry
"kenaf will not be available in sufficient quantity this year or
probably even next year;" (2) requesting "assurances (from
RFC) that my company and associates will be able to bring in
sufficient jute materials as may be necessary for the full
operation of the jute mill;" and (3) asking that releases of the
loan be made as follows:
a) For the payment of the receipt for jute mill machineries with
the Prudential Bank &
Trust Company P250,000.00
317 | P a g e
(For immediate release) status. We shall be able to act on your
request for revised purpose and
b) For the purchase of materials and equip- manner of releases
upon re-appraisal ment per attached list to enable the jute of
the securities offered for the loan.
mill to operate 182,413.91
With respect to our requirement that c) For raw materials and
labor 67,586.09 the Department of Agriculture and
1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21, 1955,
regarding the release of your loan under consideration of
P500,000. As stated in our letter of December 22, 1954, the
releases of the loan, if revived, are proposed to be made from
time to time, subject to availability of funds towards the end
that the sack factory shall be placed in actual operating
Natural Resources certify that the raw materials needed are
available in the immediate vicinity and that there is prospect of
increased production thereof to provide adequately the
requirements of the factory, we wish to reiterate that the basis
of the original approval is to develop the manufacture of sacks
on the basis of the locally available raw materials. Your
statement that you will have to rely on the importation of jute
and your request that we give you assurance that your
company will be able to bring in sufficient jute materials as may
be necessary for the operation of your factory, would not be in
line with our principle in approving the loan.
With the foregoing letter the negotiations came to a standstill.
Saura, Inc. did not pursue the matter further. Instead, it
requested RFC to cancel the mortgage, and so, on June 17,
1955 RFC executed the corresponding deed of cancellation and
delivered it to Ramon F. Saura himself as president of Saura,
Inc.
It appears that the cancellation was requested to make way for
the registration of a mortgage contract, executed on August 6,
1954,
318 | P a g e
over the same property in favor of the Prudential Bank and
Trust Co., under which contract Saura, Inc. had up to December
31 of the same year within which to pay its obligation on the
trust receipt heretofore mentioned. It appears further that for
failure to pay the said obligation the Prudential Bank and Trust
Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor
of RFC was cancelled at the request of Saura, Inc., the latter
commenced the present suit for damages, alleging failure of
RFC (as predecessor of the defendant DBP) to comply with its
obligation to release the proceeds of the loan applied for and
approved, thereby preventing the plaintiff from completing or
paying contractual commitments it had entered into, in
connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that
there was a perfected contract between the parties and that
the defendant was guilty of breach thereof. The defendant
pleaded below, and reiterates in this appeal: (1) that the
plaintiff's cause of action had prescribed, or that its claim had
been waived or abandoned; (2) that there was no perfected
contract; and (3) that assuming there was, the plaintiff itself did
not comply with the terms thereof.
We hold that there was indeed a perfected consensual contract,
as recognized in Article 1934 of the Civil Code, which provides:
ART. 1954. An accepted promise to deliver something, by way
of commodatum or simple loan is binding upon the parties, but
the commodatum or simple loan itself shall not be perferted
until the delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the
application of Saura, Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the corresponding
mortgage was executed and registered. But this fact alone falls
short of resolving the basic claim that the defendant failed to
fulfill its obligation and the plaintiff is therefore entitled to
recover damages.
It should be noted that RFC entertained the loan application of
Saura, Inc. on the assumption that the factory to be
constructed would utilize locally grown raw materials,
principally kenaf. There is no serious dispute about this. It was
in line with such assumption that when RFC, by Resolution No.
9083 approved on December 17, 1954, restored the loan to the
original amount of P500,000.00. it imposed two conditions, to
wit: "(1) that the raw materials needed by the borrower-
corporation to carry out its operation are available in the
immediate vicinity; and (2) that there is prospect of increased
production thereof to provide adequately for the requirements
of the factory." The imposition of those conditions was by no
means a deviation from the terms of the agreement, but rather
a step in its implementation. There was nothing in said
conditions that contradicted the terms laid down in RFC
Resolution No. 145, passed on January 7, 1954, namely — "that
the proceeds of the loan shall be utilized exclusively for the
following purposes: for construction of factory building —
P250,000.00; for payment of the balance of purchase price of
machinery and equipment — P240,900.00; for working capital
— P9,100.00." Evidently Saura, Inc. realized that it could not
meet the conditions required by RFC, and so wrote its letter of
January 21, 1955, stating that local jute "will not be able in
sufficient quantity this year or probably next year," and asking
that out of the loan agreed upon the sum of P67,586.09 be
released "for raw materials and labor." This was a deviation
from the terms laid down in Resolution No. 145 and embodied
in the mortgage contract, implying as it did a diversion of part
of the proceeds of the loan to purposes other than those agreed
upon.
319 | P a g e
When RFC turned down the request in its letter of January 25,
1955 the negotiations which had been going on for the
implementation of the agreement reached an impasse. Saura,
Inc. obviously was in no position to comply with RFC's
conditions. So instead of doing so and insisting that the loan be
released as agreed upon, Saura, Inc. asked that the mortgage
be cancelled, which was done on June 15, 1955. The action thus
taken by both parties was in the nature cf mutual desistance —
what Manresa terms "mutuo disenso" 1 — which is a mode of
extinguishing obligations. It is a concept that derives from the
principle that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its
extinguishment. 2
The subsequent conduct of Saura, Inc. confirms this desistance.
It did not protest against any alleged breach of contract by RFC,
or even point out that the latter's stand was legally unjustified.
Its request for cancellation of the mortgage carried no
reservation of whatever rights it believed it might have against
RFC for the latter's non-compliance. In 1962 it even applied
with DBP for another loan to finance a rice and corn project,
which application was disapproved. It was only in 1964, nine
years after the loan agreement had been cancelled at its own
request, that Saura, Inc. brought this action for damages.All
these circumstances demonstrate beyond doubt that the said
agreement had been extinguished by mutual desistance — and
that on the initiative of the plaintiff-appellee itself.
With this view we take of the case, we find it unnecessary to
consider and resolve the other issues raised in the respective
briefs of the parties.
WHEREFORE, the judgment appealed from is reversed and the
complaint dismissed, with costs against the plaintiff-appellee.
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee,
Barredo and Antonio, JJ., concur.
Makasiar, J., took no part.
63. G.R. No. 175863
February 18, 2015
NATIONAL POWER CORPORATION, Petitioner,
vs.
LUCMAN M. IBRAHIM, ATTY. OMAR G. MARUHOM, ELIAS G.
MARUHOM, BUCAY G. MARUHOM, MAMOD G. MARUHOM,
FAROUK G. MARUHOM, HIDJARA G. MARUHOM, ROCANIA G.
MARUHOM, POTRISAM G. MARUHOM, LUMBA G. MAR UH OM,
SIN AB G. MARUHOM, ACMAD G. MARUHOM, SOLAYMAN G.
MARUHOM, MOHAMAD M. IBRAHIM, CAIRONESA M. IBRAHIM and
MACAPANTON K. MANGONDATO Respondents.
DECISION
PEREZ, J.:
At bench is a petition for review on certiorari1 assailing the
Decision2 dated 24 June 2005 and Resolution3 dated 5
December 2006 of the Court of Appeals in CA-G.R. CV No.
68061. The facts:
The Subject Land
In 1978, petitioner took possession of a 21,995 square meter
parcel of land in Marawi City (subject land) for the purpose of
building thereon a hydroelectric power plant pursuant to its
Agus 1 project. The subject land, while in truth a portion of a
private estate registered under Transfer Certificate of Title (TCT)
No. 378-A4 in the name of herein respondent Macapanton K.
Mangondato
320 | P a g e
(Mangondato),5 was occupied by petitioner under the mistaken
belief that such land is part of the vast tract of public land
reserved for its use by the government under Proclamation No.
1354, s. 1974.6
Mangondato first discovered petitioner’s occupation of the
subject land in 1979—the year that petitioner started its
construction of the Agus 1plant. Shortly after such discovery,
Mangondato began demanding compensation for the subject
land from petitioner.
In support of his demand for compensation, Mangondato sent
to petitioner a letter7 dated 28 September 1981 wherein the
former detailed the origins of his ownership over the lands
covered by TCT No. 378-A, including the subject land. The
relevant portions of the letter read:
Now let me trace the basis of the title to the land adverted to
for particularity. The land titled in my name was originally
consisting of seven (7) hectares. This piece of land was
particularly set aside by the Patriarch Maruhom, a fact
recognized by all royal datus of Guimba, to belong to his eldest
son, Datu Magayo-ong Maruhom. This is the very foundation of
the right and ownership over the land in question which was
titled in my name because as the son-in-law of Hadji Ali
Maruhom the eldest son of, and only lawyer among the
descendants of Datu Magayo-ong Maruhom, the authority and
right to apply for the title to the land was given to me by said
heirs after mutual agreement among themselves besides the
fact that I have
alreadyboughtasubstantialportionoftheoriginalseven(7)
hectares.
The original title of this seven (7) hectares has been subdivided
into several TCTs for the other children of Datu Magayo-ong
Maruhom with whom I have executed a quit claim. Presently,
only three (3) hectares is left to me out of the original seven (7)
hectares representing those portion [sic] belonging to my wife
and those I
have bought previously from other heirs. This is now the subject
of this case.8
Petitioner, at first, rejected Mangondato’s claim of ownership
over the subject land; the former then adamant in its belief that
the said land is public land covered by Proclamation No. 1354,
s. 1974. But, after more than a decade, petitioner finally
acquiesced to the fact that the subject land is private land
covered by TCT No. 378-A and consequently acknowledged
Mangondato’s right, as registered owner, to receive
compensation therefor.
Thus, during the early 1990s, petitioner and Mangondato
partook in a series of communications aimed at settling the
amount of compensation that the former ought to pay the latter
in exchange for the subject land. Ultimately, however, the
communications failed to yield a genuine consensus between
petitioner and Mangondato as to the fair market value of the
subject land. Civil Case No. 605-92 and Civil Case No. 610-92
With an agreement basically out of reach, Mangondato filed a
complaint for reconveyance against petitioner before the
Regional Trial Court (RTC) of Marawi City in July 1992. In his
complaint, Mangondato asked for, among others, the recovery
of the subject land and the payment by petitioner of a monthly
rental from 1978 until the return of such land. Mangondato’s
complaint was docketed as Civil Case No. 605-92.
9 Foritspart,petitionerfiledanexpropriationcomplaint beforethe
RTC on 27 July 1992. Petitioner’s complaint was docketed as
Civil Case No. 610-92.
Later, Civil Case No. 605-92 and Civil Case No. 610-92 were
consolidated before Branch 8 of the Marawi City RTC.
321 | P a g e
On 21 August 1992, Branch 8 of the Marawi City RTC rendered a
Decision10 in Civil Case No. 605-92 and Civil Case No. 610-92.
The decision upheld petitioner’s right to expropriate the subject
land: it denied Mangondato’s claim for reconveyance and
decreed the subject land condemned in favor of the petitioner,
effective July of 1992, subject to payment by the latter of just
compensation in the amount of P21,995,000.00. Anent
petitioner’s occupation of the subject land from 1978to July of
1992, on the other hand, the decision required the former to
pay rentals therefor at the rate of P15,000.00 per month
with12% interest per annum. The decision’s fallo reads:
WHEREFORE, the prayer in the recovery case for [petitioner’s]
surrender of the property is denied but[petitioner] is ordered to
pay monthly rentals in the amount of P15,000.00 from 1978 up
to July 1992 with 12% interest per annum xxx and the property
is condemned in favor of [petitioner] effective July 1992 upon
payment of the fair market value of the property at One
Thousand (P1,000.00) Pesos per square meter or a total of
Twenty-One Million Nine Hundred Ninety-Five Thousand
(P21,995,000.00) [P]esos.11
Disagreeing with the amount of just compensation that it was
adjudged to pay under the said decision, petitioner filed an
appeal with the Court of Appeals. This appeal was docketed in
the Court of Appeals as CA-G.R. CV No. 39353.
Respondents Ibrahims and Maruhoms and Civil Case No. 967-93
During the pendency of CA-G.R. CV No. 39353, or on 29 March
1993, herein respondents the Ibrahims and Maruhoms12 filed
before the RTC of Marawi City a complaint13 against
Mangondato and petitioner. This complaint was docketed as
Civil Case No. 967-93and was raffled to Branch 10of the Marawi
City RTC.
In their complaint, the Ibrahims and Maruhoms disputed
Mangondato’s ownership of the lands covered by TCT No. 378-
A, including the subject land. The Ibrahims and Maruhoms
asseverate that they are the real owners of the lands covered
by TCT No. 378-A; they being the lawful heirs of the late Datu
Magayo-ong Maruhom, who was the original proprietor of the
said lands.14 They also claimed that Mangondato actually holds
no claim or right over the lands covered by TCT No. 378-A
except that of a trustee who merely holds the said lands in trust
for them.15 The Ibrahims and Maruhoms submit that since they
are the real owners of the lands covered by TCT No. 378-A, they
should be the ones entitled to any rental fees or expropriation
indemnity that may be found due for the subject land.
Hence, the Ibrahims and Maruhoms prayed for the following
reliefs in their complaint:16
1. That Mangondato be ordered to execute a Deed of
Conveyance transferring to them the ownership of the lands
covered by TCT No. 378-A;
2. That petitioner be ordered to pay to them whatever
indemnity for the subject land it is later on adjudged to pay in
Civil Case No. 605-92 and Civil Case No. 610-92;
3. That Mangondato be ordered to pay to them any amount
that the former may have received from the petitioner by way
of indemnity for the subject land;
4. That petitioner and Mangondatobe ordered jointly and
severally liable to pay attorney’s fees in the sum of
P200,000.00.
In the same complaint, the Ibrahims and Maruhoms also prayed
for the issuance of a temporary restraining order (TRO) and a
writ of preliminary injunction to enjoin petitioner, during the
pendency of
322 | P a g e
the suit, from making any payments to Mangondato concerning
expropriation indemnity for the subject land.17
On 30 March 1993, Branch 10 of the Marawi City RTC granted
the prayer of the Ibrahims and Maruhoms for the issuance of a
TRO.18 On 29 May 1993, after conducting an appropriate
hearing for the purpose, the same court likewise granted the
prayer for the issuance of a writ of preliminary injunction.19
In due course, trial then ensued in Civil Case No. 967-93.
The Decision of the Court of Appeals in CA-G.R. CV No. 39353
and the Decision of this Court in G.R. No. 113194
On 21 December 1993, the Court of Appeals rendered a
Decision in CA-G.R. CV No. 39353 denying the appeal of
petitioner and affirming in toto the 21 August 1992 Decision in
Civil Case No. 605-92 and Civil Case No. 610-92. Undeterred,
petitioner next filed a petition for review on certiorari with this
Court that was docketed herein as G.R. No. 113194.20
On 11 March 1996, we rendered our Decision in G.R. No.
113194 wherein we upheld the Court of Appeals’ denial of
petitioner’s appeal.21 In the same decision, we likewise
sustained the appellate court’s affirmance of the decision in
Civil Case No. 605-92 and Civil Case No. 610-92 subject only to
a reduction of the rate of interest on the monthly rental fees
from 12% to 6% per annum.22
Our decision in G.R. No. 113194 eventually became final and
executory on 13 May 1996.23
Execution of the 21 August 1992 Decision in Civil Case No. 605-
92 and Civil Case No. 610-92, as Modified
In view of the finality of this Court’s decision in G.R. No.
113194, Mangondato filed a motion for execution of the
decision in Civil Case No. 605-92 and Civil Case No. 610-92.24
Against this motion, however, petitioner filed an opposition.25
In its opposition, petitioner adverted to the existence of the writ
of preliminary injunction earlier issued in Civil Case No. 967-93
that enjoins it from making any payment of expropriation
indemnity over the subject land in favor of Mangondato.26
Petitioner, in sum, posits that such writ of preliminary injunction
constitutes a legal impediment that effectively bars any
meaningful execution of the decision in Civil Case No. 605-92
and Civil Case No. 610-92.
Finding no merit in petitioner’s opposition, however, Branch 8 of
the Marawi City RTC rendered a Resolution27 dated 4 June 1996
ordering the issuance of a writ of execution in favor of
Mangondato in Civil Case No. 605-92 and Civil Case No. 610-92.
Likewise, in the same resolution, the trial court ordered the
issuance of a notice of garnishment against several of
petitioner’s bank accounts28 for the amount of P21,801,951.00
—the figure representing the total amount of judgment debt
due from petitioner in Civil Case No. 605- 92 and Civil Case No.
610-92 less the amount then already settled by the latter. The
dispositive portion of the resolution reads:
WHEREFORE, let a Writ of Execution and the corresponding
order or notice of garnishment be immediately issued against
[petitioner] and in favor of [Mangondato] for the amount of
Twenty One Million Eight Hundred One Thousand and Nine
Hundred Fifty One (P21,801,951.00) Pesos.
x x x.29
Pursuant to the above resolution, a notice of garnishment30
dated 5 June 1996 for the amount of P21,801,951.00 was
promptly served upon the Philippine National Bank (PNB)—the
authorized depositary
323 | P a g e
of petitioner. Consequently, the amount thereby garnished was
paid to Mangondato in full satisfaction of petitioner’s judgment
debt in Civil Case No. 605-92 and Civil Case No. 610-92.
Decision in Civil Case No. 967-93
Upon the other hand, on 16 April 1998, Branch 10 of the Marawi
City RTC decided Civil Case No. 967-93.31 In its decision,
Branch 10 of the Marawi City RTC made the following relevant
findings:32
1. The Ibrahims and Maruhoms—not Mangondato—are the true
owners of the lands covered by TCT No. 378-A, which includes
the subject land.
2. The subject land, however, could no longer be reconveyed to
the Ibrahims and Maruhoms since the same was already
expropriated and paid for by the petitioner under Civil Case No.
605-92 and Civil Case No. 610-92.
3. Be that as it may, the Ibrahims and Maruhoms, as true
owners of the subject land, are the rightful recipients of
whatever rental fees and indemnity that may be due for the
subject land as a result of its expropriation.
Consistent with the foregoing findings, Branch 10 of the Marawi
City RTC thus required payment of all the rental fees and
expropriation indemnity due for the subject land, as previously
adjudged in Civil Case No. 605-92 and Civil Case No. 610-92, to
the Ibrahims and Maruhoms.
Notable in the trial court’s decision, however, was that it held
both Mangondato and the petitioner solidarily liable to the
Ibrahims and Maruhoms for the rental fees and expropriation
indemnity adjudged in Civil Case No. 605-92 and Civil Case No.
610-92.33
In addition, Mangondato and petitioner were also decreed
solidarily liable to the Ibrahims and Maruhoms for attorney’s
fees in the amount of P200,000.00.34
The pertinent dispositions in the decision read:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of [the Ibrahims and Maruhoms] and against
[Mangondato and petitioner] as follows:
1. x x x
2. Ordering [Mangondato and petitioner] to pay jointly and
severally [the Ibrahims and Maruhoms] all forms of
expropriation indemnity as adjudged for [the subject land]
consisting of 21,995 square meters in the amount of
P21,801,051.00 plus other forms of indemnity such as rentals
and interests;
3. Ordering [Mangondato and petitioner] to pay [the Ibrahims
and Maruhoms] jointly and severally the sum of P200,000.00 as
attorney’s fees;
4. x x x 5. x x x 6. x x x
SO ORDERED.35
Petitioner’s Appeal to the Court of Appeals and the Execution
Pending Appeal of the Decision in Civil Case No. 967-93
324 | P a g e
Petitioner appealed the decision in Civil Case No. 967-93 with
the Court of Appeals: contesting mainly the holding in the said
decision that it ought to be solidarily liable with Mangondato to
pay to the Ibrahims and Maruhoms the rental fees and
expropriation indemnity adjudged due for the subject land. This
appeal was docketed as CA-G.R. CV No. 68061.
While the foregoing appeal was still pending decision by the
Court of Appeals, however, the Ibrahims and Maruhoms were
able to secure with the court a quo a writ of execution pending
appeal36 of the decision in Civil Case No. 967-93. The
enforcement of such writ led to the garnishment of
Mangondato’s moneys in the possession of the Social Security
System (SSS) in the amount of P2,700,000.00 on 18 September
1998.37 Eventually, the amount thereby garnished was paid to
the Ibrahims and Mangondato in partial satisfaction of the
decision in Civil Case No. 967-93.
On 24 June 2005, the Court of Appeals rendered its Decision38
in CA- G.R. CV No. 68061 denying petitioner’s appeal. The
appellate court denied petitioner’s appeal and affirmed the
decision in Civil Case No. 967-93, subject to the right of
petitioner to deduct the amount of P2,700,000.00 from its
liability as a consequence of the partial execution of the
decision in Civil Case No. 967-93.39
Hence, the present appeal by petitioner. The Present Appeal
The present appeal poses the question of whether it is correct,
in view of the facts and circumstances in this case, to hold
petitioner liable in favor of the Ibrahims and Maruhoms for the
rental fees and expropriation indemnity adjudged due for the
subject land.
In their respective decisions, both Branch 10 of the Marawi City
RTC and the Court of Appeals had answered the foregoing
question in
the affirmative. The two tribunals postulated that,
notwithstanding petitioner’s previous payment to Mangondato
of the rental fees and expropriation indemnity as a
consequence of the execution of the decision in Civil Case No.
605-92 and 610-92, petitioner may still be held liable to the
Ibrahims and Maruhoms for such fees and indemnity because
its previous payment to Mangondato was tainted with "bad
faith."40 As proof of such bad faith, both courts cite the
following considerations:41
1. Petitioner "allowed" payment to Mangondato despite its prior
knowledge, which dates back as early as 28 September 1981,
by virtue of Mangondato’s letter of even date, that the subject
land was owned by a certain Datu Magayo-ong Maruhom and
not by Mangondato; and
2. Petitioner "allowed" such payment despite the issuance of a
TRO and a writ of preliminary injunction in Civil Case No. 967-93
that precisely enjoins it from doing so.
For the two tribunals, the bad faith on the part of petitioner
rendered its previous payment to Mangondato invalid insofar as
the Ibrahims and Maruhoms are concerned. Hence, both courts
concluded that petitioner may still be held liable to the Ibrahims
and Maruhoms for the rental fees and expropriation indemnity
previously paid to Mangondato.42
Petitioner, however, argues otherwise. It submits that a finding
of bad faith against it would have no basis in fact and law,
given that it merely complied with the final and executory
decision in Civil Case No. 605-92 and Civil Case No. 610-92
when it paid the rental fees and expropriation indemnity due
the subject to Mangondato.43 Petitioner thus insists that it
should be absolved from any liability to pay the rental fees and
expropriation indemnity to the Ibrahims and Maruhoms and
prays for the dismissal of Civil Case No. 967-93 against it.
325 | P a g e
OUR RULING
We grant the appeal.
No Bad Faith On The Part of Petitioner
Petitioner is correct. No "bad faith" may be taken against it in
paying Mangondato the rental fees and expropriation indemnity
due the subject land.
Our case law is not new to the concept of bad faith. Decisions
of this Court, both old and new, had been teeming with various
pronouncements that illuminate the concept amidst differing
legal contexts. In any attempt to understand the basics of bad
faith, it is mandatory to take a look at some of these
pronouncements:
In Lopez, et al. v. Pan American World Airways,44 a 1966
landmark tort case, we defined the concept of bad faith as:
"...a breach of a known duty through some motive of interest or
ill will."45
Just months after the promulgation of Lopez, however, came
the case of Air France v. Carrascoso, et al.,46 In Air France, we
expounded on Lopez’s definition by describing bad faith as:
"xxx a state of mind affirmatively operating with furtive design
or with some motive of self-interest or will or for ulterior
purpose."47
Air France’s articulation of the meaning of bad faith was, in
turn, echoed in a number subsequent cases,48 one of which, is
the 2009 case of Balbuena, et al. v. Sabay, et al.49
In the 1967 case of Board of Liquidators v. Heirs of M. Kalaw,50
on the other hand, we enunciated one of the more oft-repeated
formulations of bad faith in our case law:
"xxx bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means breach of a
known duty thru some motive or interest of ill will; it partakes of
the nature of fraud."51
As a testament to its enduring quality, the foregoing
pronouncement in Board of Liquidators had been reiterated in a
slew of later cases,52 more recently, in the 2009 case of
Nazareno, et al. v. City of Dumaguete53 and the 2012 case of
Aliling v. Feliciano.54
Still, in 1995, the case of Far East Bank and Trust Company v.
Court of Appeals55 contributed the following description of bad
faith in our jurisprudence:
"Malice or bad faith implies a conscious and intentional design
to do a wrongful act for a dishonest purpose or moral
obliquity;xxx."56
The description of bad faith in Far East Bank and Trust
Companythen went on to be repeated in subsequent cases such
as 1995’s Ortega v. Court of Appeals,57 1997’s Laureano
Investment and Development Corporation v. Court of
Appeals,58 2010’s Lambert Pawnbrokers v. Binamira59 and
2013’s California Clothing, Inc., v. Quiñones,60 to name a few.
Verily, the clear denominator in all of the foregoing judicial
pronouncements is that the essence of bad faith consists in the
deliberate commission of a wrong. Indeed, the concept has
often been equated with malicious or fraudulent motives, yet
distinguished from the mere unintentional wrongs resulting
from mere simple negligence or oversight.61
326 | P a g e
A finding of bad faith, thus, usually assumes the presence of
two (2) elements: first, that the actor knew or should have
known that a particular course of action is wrong or illegal, and
second, that despite such actual or imputable knowledge, the
actor, voluntarily, consciously and out of his own free will,
proceeds with such course of action. Only with the concurrence
of these two elements can we begin to consider that the wrong
committed had been done deliberately and, thus, in bad faith.
In this case, both Branch 10 of the Marawi City RTC and the
Court of Appeals held that petitioner was in bad faith when it
paid to Mangondato the rental fees and expropriation indemnity
due the subject land. The two tribunals, in substance, fault
petitioner when it "allowed" such payment to take place despite
the latter’s alleged knowledge of the existing claim of the
Ibrahims and Maruhoms upon the subject land and the issuance
ofa TRO in Civil Case No. 967-93. Hence, the two tribunals claim
that petitioner’s payment to Mangondato is ineffective as to the
Ibrahims and Maruhoms, whom they found to be the real
owners of the subject land.
We do not agree.
Branch 10 of the Marawi City RTC and the Court of Appeals
erred in their finding of bad faith because they have overlooked
the utter significance of one important fact: that petitioner’s
payment to Mangondato of the rental fees and expropriation
indemnity adjudged due for the subject land in Civil Case No.
605-92 and Civil Case No. 610-92, was required by the final and
executory decision in the said two cases and was compelled
thru a writ of garnishment issued by the court that rendered
such decision. In other words, the payment to Mangondato was
not a product of a deliberate choice on the part of the petitioner
but was made only in compliance to the lawful orders of a court
with jurisdiction.
Contrary then to the view of Branch 10 of the Marawi City RTC
and of the Court of Appeals, it was not the petitioner that
"allowed" the payment of the rental fees and expropriation
indemnity to Mangondato. Indeed, given the circumstances, the
more accurate rumination would be that it was the trial court in
Civil Case No. 605- 92 and Civil Case No. 610-92 that ordered or
allowed the payment to Mangondato and that petitioner merely
complied with the order or allowance by the trial court. Since
petitioner was only acting under the lawful orders of a court in
paying Mangondato, we find that no bad faith can be taken
against it, even assuming that petitioner may have had prior
knowledge about the claims of the Ibrahims and Maruhoms
upon the subject land and the TRO issued in Civil Case No. 967-
93.
Sans Bad Faith, Petitioner Cannot Be Held Liable to the Ibrahims
and Maruhoms
Without the existence of bad faith, the ruling of the RTC and of
the Court of Appeals apropos petitioner’s remaining liability to
the Ibrahims and Maruhoms becomes devoid of legal basis. In
fact, petitioner’s previous payment to Mangondato of the rental
fees and expropriation indemnity due the subject land pursuant
to the final judgment in Civil Case No. 605-92 and Civil Case No.
610-92 may be considered to have extinguished the former’s
obligation regardless of who between Mangondato, on one
hand, and the Ibrahims and Maruhoms, on the other, turns out
to be the real owner of the subject land.62 Either way,
petitioner cannot be made liable to the Ibrahims and
Maruhoms:
First. If Mangondato is the real owner of the subject land, then
the obligation by petitioner to pay for the rental fees and
expropriation indemnity due the subject land is already deemed
extinguished by the latter’s previous payment under the final
judgment in Civil Case No. 605-92 and Civil Case No. 610-92.
This would be a simple case of
327 | P a g e
an obligation being extinguished through payment by the
debtor to its creditor.63 Under this scenario, the Ibrahims and
Maruhoms would not even be entitled to receive anything from
anyone for the subject land. Hence, petitioner cannot be held
liable to the Ibrahims and Maruhoms.
Second. We, however, can reach the same conclusion even if
the Ibrahims and Maruhoms turn out to be the real owners of
the subject land.
Should the Ibrahims and Maruhoms turn out to be the real
owners of the subject land, petitioner’s previous payment to
Mangondato pursuant to Civil Case No. 605-92 and Civil Case
No. 610-92—given the absence of bad faith on petitioner’s part
as previously discussed—may nonetheless be considered as
akin to a payment made in "good faith "to a person in
"possession of credit" per Article 1242 of the Civil Code that,
just the same, extinguishes its obligation to pay for the rental
fees and expropriation indemnity due for the subject land.
Article 1242 of the Civil Code reads:
"Payment made in good faith to any person in possession of the
credit shall release the debtor." Article 1242 of the Civil Code is
an exception to the rule that a valid payment of an obligation
can only be made to the person to whom such obligation is
rightfully owed.64 It contemplates a situation where a debtor
pays a "possessor of credit" i.e., someone who is not the real
creditor but appears, under the circumstances, to be the real
creditor.65 In such scenario, the law considers the payment to
the "possessor of credit" as valid even as against the real
creditor taking into account the good faith of the debtor.
Borrowing the principles behind Article 1242 of the Civil Code,
we find that Mangondato—being the judgment creditor in Civil
Case No. 605-92 and Civil Case No. 610-92 as well as the
registered owner of the subject land at the time66 —may be
considered as a "possessor
of credit" with respect to the rental fees and expropriation
indemnity adjudged due for the subject land in the two cases, if
the Ibrahims and Maruhoms turn out to be the real owners of
the subject land. Hence, petitioner’s payment to Mangondato of
the fees and indemnity due for the subject land as a
consequence of the execution of Civil Case No. 605-92 and Civil
Case No. 610-92 could still validly extinguish its obligation to
pay for the same even as against the Ibrahims and Maruhoms.
Effect of Extinguishment of Petitioner’s Obligation
The extinguishment of petitioner’s obligation to pay for the
rental fees and expropriation indemnity due the subject land
carries with it certain legal effects:
First. If Mangondato turns out to be the real owner of the
subject land, the Ibrahims and Maruhoms would not be entitled
to recover anything from anyone for the subject land.1âwphi1
Consequently, the partial execution of the decision in Civil Case
No. 967-93 that had led to the garnishment of Mangondato’s
moneys in the possession of the Social Security System (SSS) in
the amount of P2,700,000.00 in favor of the Ibrahims and
Maruhoms, becomes improper and unjustified. In this event,
therefore, the Ibrahims and Maruhoms may be ordered to
return the amount so garnished to Mangondato.
Otherwise, i.e. if the Ibrahims and Maruhoms really are the true
owners of the subject land, they may only recover the rental
fees and expropriation indemnity due the subject land against
Mangondato but only up to whatever payments the latter had
previously received from petitioner pursuant to Civil Case No.
605- 92 and Civil Case No. 610-92.
328 | P a g e
Second. At any rate, the extinguishment of petitioner’s
obligation to pay for the rental fees and expropriation
indemnity due the subject land negates whatever cause of
action the Ibrahims and Maruhoms might have had against the
former in Civil Case No. 967-93. Hence, regardless of who
between Mangondato, on one hand, and the Ibrahims and
Maruhoms, on the other, turns out to be the real owner of the
subject land, the dismissal of Civil Case No. 967-93 insofar as
petitioner isconcerned is called for.
Re: Attorney’s Fees
The dismissal of Civil Case No. 967-93 as against petitioner
necessarily absolves the latter from paying attorney’s fees to
the Ibrahims and Maruhoms arising from that case.
WHEREFORE, premises considered, the instant petition is
GRANTED. The Decision dated 24 June2005 and Resolution
dated 5 December 2006 of the Court of Appeals in CA-G.R. CV
No. 68061 is hereby SET ASIDE. The Decision dated 16 April
1998 of the Regional Trial Court in Civil Case No. 967-93 is
MODIFIED in that petitioner is absolved from any liability in that
case in favor of the respondents Lucman M. Ibrahim, Atty. Omar
G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G.
Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Rocania G.
Maruhom, Potrisam G. Maruhom, Lumba G. Maruhom, Sinab G.
Maruhom, Acmad G. Maruhom, Solayman G. Maruhom,
Mohamad M. Ibrahim and Caironesa M. Ibrahim. Civil Case No.
967-93 is DISMISSED as against petitioner.
No costs.
SO ORDERED.
64. G.R. No. 190755 November 24, 2010
LAND BANK OF THE PHILIPPINES, Petitioner, vs.
ALFREDO ONG, Respondent.
DECISION
VELASCO, JR., J.:
This is an appeal from the October 20, 2009 Decision of the
Court of Appeals (CA) in CA-G.R. CR-CV No. 84445 entitled
Alfredo Ong v. Land Bank of the Philippines, which affirmed the
Decision of the Regional Trial Court (RTC), Branch 17 in Tabaco
City.
The Facts
On March 18, 1996, spouses Johnson and Evangeline Sy
secured a loan from Land Bank Legazpi City in the amount of
PhP 16 million. The loan was secured by three (3) residential
lots, five (5) cargo trucks, and a warehouse. Under the loan
agreement, PhP 6 million of the loan would be short-term and
would mature on February 28, 1997, while the balance of PhP
10 million would be payable in seven (7) years. The Notice of
Loan Approval dated February 22, 1996 contained an
acceleration clause wherein any default in payment of
amortizations or other charges would accelerate the maturity of
the loan.1
Subsequently, however, the Spouses Sy found they could no
longer pay their loan. On December 9, 1996, they sold three (3)
of their mortgaged parcels of land for PhP 150,000 to Angelina
Gloria Ong, Evangeline’s mother, under a Deed of Sale with
Assumption of Mortgage. The relevant portion of the
document2 is quoted as follows:
329 | P a g e
WHEREAS, we are no longer in a position to settle our obligation
with the bank;
NOW THEREFORE, for and in consideration of the sum of ONE
HUNDRED FIFTY THOUSAND PESOS (P150,000.00) Philippine
Currency, we hereby these presents SELL, CEDE, TRANSFER and
CONVEY, by way of sale unto ANGELINA GLORIA ONG, also of
legal age, Filipino citizen, married to Alfredo Ong, and also a
resident of Tabaco, Albay, Philippines, their heirs and assigns,
the above-mentioned debt with the said LAND BANK OF THE
PHILIPPINES, and by reason hereof they can make the
necessary representation with the bank for the proper
restructuring of the loan with the said bank in their favor;
That as soon as our obligation has been duly settled, the bank
is authorized to release the mortgage in favor of the vendees
and for this purpose VENDEES can register this instrument with
the Register of Deeds for the issuance of the titles already in
their names.
IN WITNESS WHEREOF, we have hereunto affixed our signatures
this 9th day of December 1996 at Tabaco, Albay, Philippines.
(signed) EVANGELINE O. SY Vendor (signed) JOHNSON B. SY
Vendor
Evangeline’s father, petitioner Alfredo Ong, later went to Land
Bank to inform it about the sale and assumption of mortgage.3
Atty. Edna Hingco, the Legazpi City Land Bank Branch Head,
told Alfredo and his counsel Atty. Ireneo de Lumen that there
was nothing wrong with the agreement with the Spouses Sy but
provided them with requirements for the assumption of
mortgage. They were also told that Alfredo should pay part of
the principal which was computed at PhP 750,000 and to
update due or accrued interests on the promissory notes so
that Atty. Hingco could easily approve the assumption of
mortgage. Two weeks later, Alfredo issued a check for PhP
750,000 and personally gave it to Atty. Hingco. A receipt was
issued for his payment. He also submitted the other documents
required by Land Bank, such as financial statements for 1994
and 1995. Atty. Hingco then informed Alfredo that the
certificate of title of the Spouses Sy would be transferred in his
name but this never materialized. No notice of transfer was
sent to him.4
Alfredo later found out that his application for assumption of
mortgage was not approved by Land Bank. The bank learned
from its credit investigation report that the Ongs had a real
estate mortgage in the amount of PhP 18,300,000 with another
bank that was past due. Alfredo claimed that this was fully paid
later on. Nonetheless, Land Bank foreclosed the mortgage of
the Spouses Sy after several months. Alfredo only learned of
the foreclosure when he saw the subject mortgage properties
included in a Notice of Foreclosure of Mortgage and Auction
Sale at the RTC in Tabaco, Albay. Alfredo’s other counsel, Atty.
Madrilejos, subsequently talked to Land Bank’s lawyer and was
told that the PhP 750,000 he paid would be returned to him.5
On December 12, 1997, Alfredo initiated an action for recovery
of sum of money with damages against Land Bank in Civil Case
No. T-1941, as Alfredo’s payment was not returned by Land
Bank. Alfredo maintained that Land Bank’s foreclosure without
informing him of the denial of his assumption of the mortgage
was done in bad faith. He argued that he was lured into
believing that his payment of PhP 750,000 would cause Land
Bank to approve his assumption of the loan of the Spouses Sy
and the transfer of the mortgaged properties in his and his
wife’s name.6 He also claimed incurring expenses for attorney’s
fees of PhP
330 | P a g e
150,000, filing fee of PhP 15,000, and PhP 250,000 in moral
damages.7
Testifying for Land Bank, Atty. Hingco claimed during trial that
as branch manager she had no authority to approve loans and
could not assure anybody that their assumption of mortgage
would be approved. She testified that the breakdown of
Alfredo’s payment was as follows:
PhP 101,409.59 applied to principal
was filed in court. She said that Alfredo had made the payment
of PhP 750,000 even before he applied for the assumption of
mortgage and that the bank received the said amount because
the subject account was past due and demandable; and the
Deed of Assumption of Mortgage was not used as the basis for
the payment. 9
The Ruling of the Trial Court
The RTC held that the contract approving the assumption of
mortgage was not perfected as a result of the credit
investigation conducted on Alfredo. It noted that Alfredo was
not even informed of the disapproval of the assumption of
mortgage but was just told that the accounts of the spouses Sy
had matured and gone unpaid. It ruled that under the principle
of equity and justice, the bank should return the amount
Alfredo had paid with interest at 12% per annum computed
from the filing of the complaint. The RTC further held that
Alfredo was entitled to attorney’s fees and litigation expenses
for being compelled to litigate.10
The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, a decision is rendered,
ordering defendant bank to pay plaintiff, Alfredo Ong the
amount of P750,000.00 with interest at 12% per annum
computed from Dec. 12, 1997 and attorney’s fees and litigation
expenses of P50,000.00.
Costs against defendant bank.
SO ORDERED.11
The Ruling of the Appellate Court
216,246.56
396,571.77
18,766.10
16,805.98
Total: ----------------
750,000.00
According to Atty. Hingco, the bank processes an assumption of
mortgage as a new loan, since the new borrower is considered
a new client. They used character, capacity, capital, collateral,
and conditions in determining who can qualify to assume a
loan. Alfredo’s proposal to assume the loan, she explained, was
referred to a separate office, the Lending Center. 8
During cross-examination, Atty. Hingco testified that several
months after Alfredo made the tender of payment, she received
word that the Lending Center rejected Alfredo’s loan
application. She stated that it was the Lending Center and not
her that should have informed Alfredo about the denial of his
and his wife’s assumption of mortgage. She added that
although she told Alfredo that the agreement between the
spouses Sy and Alfredo was valid between them and that the
bank would accept payments from him, Alfredo did not pay any
further amount so the foreclosure of the loan collaterals
ensued. She admitted that Alfredo demanded the return of the
PhP 750,000 but said that there was no written demand before
the case against the bank
accrued interests receivable interests
penalties
accounts receivable
331 | P a g e
On appeal, Land Bank faulted the trial court for (1) holding that
the payment of PhP 750,000 made by Ong was one of the
requirements for the approval of his proposal to assume the
mortgage of the Sy spouses; (2) erroneously ordering Land
Bank to return the amount of PhP 750,000 to Ong on the
ground of its failure to effect novation; and (3) erroneously
affirming the award of PhP 50,000 to Ong as attorney’s fees and
litigation expenses.
The CA affirmed the RTC Decision.12 It held that Alfredo’s
recourse is not against the Sy spouses. According to the
appellate court, the payment of PhP 750,000 was for the
approval of his assumption of mortgage and not for payment of
arrears incurred by the Sy spouses. As such, it ruled that it
would be incorrect to consider Alfredo a third person with no
interest in the fulfillment of the obligation under Article 1236 of
the Civil Code. Although Land Bank was not bound by the Deed
between Alfredo and the Spouses Sy, the appellate court found
that Alfredo and Land Bank’s active preparations for Alfredo’s
assumption of mortgage essentially novated the agreement.
On January 5, 2010, the CA denied Land Bank’s motion for
reconsideration for lack of merit. Hence, Land Bank appealed to
us.
The Issues
I
Whether the Court of Appeals erred in holding that Art. 1236 of
the Civil Code does not apply and in finding that there is no
novation.
II
Whether the Court of Appeals misconstrued the evidence and
the law when it affirmed the trial court decision’s ordering Land
Bank to pay Ong the amount of Php750,000.00 with interest at
12% annum.
III
Whether the Court of Appeals committed reversible error when
it affirmed the award of Php50,000.00 to Ong as attorney’s fees
and expenses of litigation.
The Ruling of this Court
We affirm with modification the appealed decision. Recourse is
against Land Bank
Land Bank contends that Art. 1236 of the Civil Code backs their
claim that Alfredo should have sought recourse against the
Spouses Sy instead of Land Bank. Art. 1236 provides:
The creditor is not bound to accept payment or performance by
a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what
he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.1avvphi1
We agree with Land Bank on this point as to the first part of
paragraph 1 of Art. 1236. Land Bank was not bound to accept
Alfredo’s payment, since as far as the former was concerned,
he did not have an interest in the payment of the loan of the
Spouses Sy. However, in the context of the second part of said
paragraph, Alfredo was not making payment to fulfill the
obligation of the
332 | P a g e
Spouses Sy. Alfredo made a conditional payment so that the
properties subject of the Deed of Sale with Assumption of
Mortgage would be titled in his name. It is clear from the
records that Land Bank required Alfredo to make payment
before his assumption of mortgage would be approved. He was
informed that the certificate of title would be transferred
accordingly. He, thus, made payment not as a debtor but as a
prospective mortgagor. But the trial court stated:
[T]he contract was not perfected or consummated because of
the adverse finding in the credit investigation which led to the
disapproval of the proposed assumption. There was no
evidence presented that plaintiff was informed of the
disapproval. What he received was a letter dated May 22, 1997
informing him that the account of spouses Sy had matured but
there [were] no payments. This was sent even before the
conduct of the credit investigation on June 20, 1997 which led
to the disapproval of the proposed assumption of the loans of
spouses Sy.13
Alfredo, as a third person, did not, therefore, have an interest in
the fulfillment of the obligation of the Spouses Sy, since his
interest hinged on Land Bank’s approval of his application,
which was denied. The circumstances of the instant case show
that the second paragraph of Art. 1236 does not apply. As
Alfredo made the payment for his own interest and not on
behalf of the Spouses Sy, recourse is not against the latter. And
as Alfredo was not paying for another, he cannot demand from
the debtors, the Spouses Sy, what he has paid.
Novation of the loan agreement
Land Bank also faults the CA for finding that novation applies to
the instant case. It reasons that a substitution of debtors was
made without its consent; thus, it was not bound to recognize
the substitution under the rules on novation.
On the matter of novation, Spouses Benjamin and Agrifina Lim
v. M.B. Finance Corporation14 provides the following discussion:
Novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is
terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old
obligation subsists to the extent it remains compatible with the
amendatory agreement. An extinctive novation results either by
changing the object or principal conditions (objective or real),
or by substituting the person of the debtor or subrogating a
third person in the rights of the creditor (subjective or
personal). Under this mode, novation would have dual functions
─ one to extinguish an existing obligation, the other to
substitute a new one in its place ─ requiring a conflux of four
essential requisites: (1) a previous valid obligation; (2) an
agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid
new obligation. x x x
In order that an obligation may be extinguished by another
which substitutes the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. The
test of incompatibility is whether or not the two obligations can
stand together, each one having its independent existence. x x
x (Emphasis supplied.)
Furthermore, Art. 1293 of the Civil Code states:
Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
rights mentioned in articles 1236 and 1237.
333 | P a g e
We do not agree, then, with the CA in holding that there was a
novation in the contract between the parties. Not all the
elements of novation were present. Novation must be expressly
consented to. Moreover, the conflicting intention and acts of the
parties underscore the absence of any express disclosure or
circumstances with which to deduce a clear and unequivocal
intent by the parties to novate the old agreement.15 Land Bank
is thus correct when it argues that there was no novation in the
following:
[W]hether or not Alfredo Ong has an interest in the obligation
and payment was made with the knowledge or consent of
Spouses Sy, he may still pay the obligation for the reason that
even before he paid the amount of P750,000.00 on January 31,
1997, the substitution of debtors was already perfected by and
between Spouses Sy and Spouses Ong as evidenced by a Deed
of Sale with Assumption of Mortgage executed by them on
December 9, 1996. And since the substitution of debtors was
made without the consent of Land Bank – a requirement which
is indispensable in order to effect a novation of the obligation, it
is therefore not bound to recognize the substitution of debtors.
Land Bank did not intervene in the contract between Spouses
Sy and Spouses Ong and did not expressly give its consent to
this substitution.16
Unjust enrichment
Land Bank maintains that the trial court erroneously applied the
principle of equity and justice in ordering it to return the PhP
750,000 paid by Alfredo. Alfredo was allegedly in bad faith and
in estoppel. Land Bank contends that it enjoyed the
presumption of regularity and was in good faith when it
accepted Alfredo’s tender of PhP 750,000. It reasons that it did
not unduly enrich itself at Alfredo’s expense during the
foreclosure of the mortgaged properties, since it tendered its
bid by subtracting PhP 750,000 from the Spouses Sy’s
outstanding loan obligation.
Alfredo’s recourse then, according to Land Bank, is to have his
payment reimbursed by the Spouses Sy.
We rule that Land Bank is still liable for the return of the PhP
750,000 based on the principle of unjust enrichment. Land
Bank is correct in arguing that it has no obligation as creditor to
recognize Alfredo as a person with interest in the fulfillment of
the obligation. But while Land Bank is not bound to accept the
substitution of debtors in the subject real estate mortgage, it is
estopped by its action of accepting Alfredo’s payment from
arguing that it does not have to recognize Alfredo as the new
debtor. The elements of estoppel are:
First, the actor who usually must have knowledge, notice or
suspicion of the true facts, communicates something to another
in a misleading way, either by words, conduct or silence;
second, the other in fact relies, and relies reasonably or
justifiably, upon that communication; third, the other would be
harmed materially if the actor is later permitted to assert any
claim inconsistent with his earlier conduct; and fourth, the actor
knows, expects or foresees that the other would act upon the
information given or that a reasonable person in the actor’s
position would expect or foresee such action.17
By accepting Alfredo’s payment and keeping silent on the
status of Alfredo’s application, Land Bank misled Alfredo to
believe that he had for all intents and purposes stepped into
the shoes of the Spouses Sy.
The defense of Land Bank Legazpi City Branch Manager Atty.
Hingco that it was the bank’s Lending Center that should have
notified Alfredo of his assumption of mortgage disapproval is
unavailing. The Lending Center’s lack of notice of disapproval,
the Tabaco Branch’s silence on the disapproval, and the bank’s
subsequent actions show a failure of the bank as a whole, first,
to notify Alfredo that he is not a recognized debtor in the eyes
of the
334 | P a g e
bank; and second, to apprise him of how and when he could
collect on the payment that the bank no longer had a right to
keep.
We turn then on the principle upon which Land Bank must
return Alfredo’s payment. Unjust enrichment exists "when a
person unjustly retains a benefit to the loss of another, or when
a person retains money or property of another against the
fundamental principles of justice, equity and good
conscience."18 There is unjust enrichment under Art. 22 of the
Civil Code when (1) a person is unjustly benefited, and (2) such
benefit is derived at the expense of or with damages to
another.19
Additionally, unjust enrichment has been applied to actions
called accion in rem verso. In order that the accion in rem verso
may prosper, the following conditions must concur: (1) that the
defendant has been enriched; (2) that the plaintiff has suffered
a loss; (3) that the enrichment of the defendant is without just
or legal ground; and (4) that the plaintiff has no other action
based on contract, quasi-contract, crime, or quasi-delict.20 The
principle of unjust enrichment essentially contemplates
payment when there is no duty to pay, and the person who
receives the payment has no right to receive it.21
The principle applies to the parties in the instant case, as,
Alfredo, having been deemed disqualified from assuming the
loan, had no duty to pay petitioner bank and the latter had no
right to receive it.
Moreover, the Civil Code likewise requires under Art. 19 that
"[e]very person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith." Land Bank, however,
did not even bother to inform Alfredo that it was no longer
approving his assumption of the Spouses Sy’s mortgage. Yet it
acknowledged his interest in the loan when the branch head of
the bank wrote to tell him that his daughter’s loan had not been
paid.22 Land Bank made Alfredo believe that with the payment
of PhP 750,000, he would be able to assume the mortgage of
the Spouses Sy. The act of receiving payment without returning
it when demanded is contrary to the adage of giving someone
what is due to him. The outcome of the application would have
been different had Land Bank first conducted the credit
investigation before accepting Alfredo’s payment. He would
have been notified that his assumption of mortgage had been
disapproved; and he would not have taken the futile action of
paying PhP 750,000. The procedure Land Bank took in acting on
Alfredo’s application cannot be said to have been fair and
proper.
As to the claim that the trial court erred in applying equity to
Alfredo’s case, we hold that Alfredo had no other remedy to
recover from Land Bank and the lower court properly exercised
its equity jurisdiction in resolving the collection suit. As we have
held in one case:
Equity, as the complement of legal jurisdiction, seeks to reach
and 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 to do so. Equity regards the spirit and not the
letter, the intent and not the form, the substance rather than
the circumstance, as it is variously expressed by different
courts.23
Another claim made by Land Bank is the presumption of
regularity it enjoys and that it was in good faith when it
accepted Alfredo’s tender of PhP 750,000.
The defense of good faith fails to convince given Land Bank’s
actions. Alfredo was not treated as a mere prospective
borrower. After he had paid PhP 750,000, he was made to sign
bank documents including a promissory note and real estate
mortgage. He was assured by Atty. Hingco that the titles to the
properties
335 | P a g e
covered by the Spouses Sy’s real estate mortgage would be
transferred in his name, and upon payment of the PhP 750,000,
the account would be considered current and renewed in his
name.24
Land Bank posits as a defense that it did not unduly enrich
itself at Alfredo’s expense during the foreclosure of the
mortgaged properties, since it tendered its bid by subtracting
PhP 750,000 from the Spouses Sy’s outstanding loan obligation.
It is observed that this is the first time Land Bank is revealing
this defense. However, issues, arguments, theories, and causes
not raised below may no longer be posed on appeal.25 Land
Bank’s contention, thus, cannot be entertained at this
point.1avvphi1
Land Bank further questions the lower court’s decision on the
basis of the inconsistencies made by Alfredo on the witness
stand. It argues that Alfredo was not a credible witness and his
testimony failed to overcome the presumption of regularity in
the performance of regular duties on the part of Land Bank.
This claim, however, touches on factual findings by the trial
court, and we defer to these findings of the trial court as
sustained by the appellate court. These are generally binding
on us. While there are exceptions to this rule, Land Bank has
not satisfactorily shown that any of them is applicable to this
issue.26 Hence, the rule that the trial court is in a unique
position to observe the demeanor of witnesses should be
applied and respected27 in the instant case.
In sum, we hold that Land Bank may not keep the PhP 750,000
paid by Alfredo as it had already foreclosed on the mortgaged
lands.
Interest and attorney’s fees
As to the applicable interest rate, we reiterate the guidelines
found in Eastern Shipping Lines, Inc. v. Court of Appeals:28
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall
be
336 | P a g e
12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit.
No evidence was presented by Alfredo that he had sent a
written demand to Land Bank before he filed the collection suit.
Only the verbal agreement between the lawyers of the parties
on the return of the payment was mentioned.29 Consequently,
the obligation of Land Bank to return the payment made by
Alfredo upon the former’s denial of the latter’s application for
assumption of mortgage must be reckoned from the date of
judicial demand on December 12, 1997, as correctly
determined by the trial court and affirmed by the appellate
court.
The next question is the propriety of the imposition of interest
and the proper imposable rate of applicable interest. The RTC
granted the rate of 12% per annum which was affirmed by the
CA. From the above-quoted guidelines, however, the proper
imposable interest rate is 6% per annum pursuant to Art. 2209
of the Civil Code. Sunga-Chan v. Court of Appeals is illuminating
in this regard:
In Reformina v. Tomol, Jr., the Court held that the legal interest
at 12% per annum under Central Bank (CB) Circular No. 416
shall be adjudged only in cases involving the loan or
forbearance of money. And for transactions involving payment
of indemnities in the concept of damages arising from default in
the performance of obligations in general and/or for money
judgment not involving a loan or forbearance of money, goods,
or credit, the governing provision is Art. 2209 of the Civil Code
prescribing a yearly 6% interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be
the
payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.
The term "forbearance," within the context of usury law, has
been described as a contractual obligation of a lender or
creditor to refrain, during a given period of time, from requiring
the borrower or debtor to repay the loan or debt then due and
payable.
Eastern Shipping Lines, Inc. synthesized the rules on the
imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416
shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per
annum under Art. 2209 of the Civil Code applies "when the
transaction involves the payment of indemnities in the concept
of damage arising from the breach or a delay in the
performance of obligations in general," with the application of
both rates reckoned "from the time the complaint was filed until
the [adjudged] amount is fully paid." In either instance, the
reckoning period for the commencement of the running of the
legal interest shall be subject to the condition "that the courts
are vested with discretion, depending on the equities of each
case, on the award of interest."30 (Emphasis supplied.)
Based on our ruling above, forbearance of money refers to the
contractual obligation of the lender or creditor to desist for a
fixed period from requiring the borrower or debtor to repay the
loan or debt then due and for which 12% per annum is imposed
as interest in the absence of a stipulated rate. In the instant
case, Alfredo’s conditional payment to Land Bank does not
constitute forbearance of money, since there was no agreement
or obligation for Alfredo to pay Land Bank the amount of PhP
750,000, and the obligation of Land Bank to return what Alfredo
has conditionally paid is still in dispute and has not yet been
337 | P a g e
determined. Thus, it cannot be said that Land Bank’s alleged
obligation has become a forbearance of money.
On the award of attorney’s fees, attorney’s fees and expenses
of litigation were awarded because Alfredo was compelled to
litigate due to the unjust refusal of Land Bank to refund the
amount he paid. There are instances when it is just and
equitable to award attorney’s fees and expenses of litigation.31
Art. 2208 of the Civil Code pertinently states:
In the absence of stipulation, attorney’s fees and expenses of
litigation, other than judicial costs, cannot be recovered,
except:
xxxx
(2) When the defendant’s act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to
protect his interest.
Given that Alfredo was indeed compelled to litigate against
Land Bank and incur expenses to protect his interest, we find
that the award falls under the exception above and is, thus,
proper given the circumstances.
On a final note. The instant case would not have been litigated
had Land Bank been more circumspect in dealing with Alfredo.
The bank chose to accept payment from Alfredo even before a
credit investigation was underway, a procedure worsened by
the failure to even inform him of his credit standing’s impact on
his assumption of mortgage. It was, therefore, negligent to a
certain degree in handling the transaction with Alfredo. It
should be remembered that the business of a bank is affected
with public interest and it should observe a higher standard of
diligence when dealing with the public.32
WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R.
CR-CV No. 84445 is AFFIRMED with MODIFICATION in that the
amount of PhP 750,000 will earn interest at 6% per annum
reckoned from December 12, 1997, and the total aggregate
monetary awards will in turn earn 12% per annum from the
finality of this Decision until fully paid.
65.
[G.R. No. L-28569. February 27, 1970.]
J. M. TUASON & Co. INC., Plaintiff-Appellant, v. LIGAYA JAVIER,
Defendant-Appellee.
CONCEPCION, C.J.:
This appeal, taken by plaintiff J.M. Tuason & Co., Inc., from a
decision of the Court of First Instance of Rizal, has been
certified to Us by the Court of Appeals, only questions of law
being raised therein.
The record shows that, on September 7, 1954, a contract was
entered into between the plaintiff, on the one hand, and
defendant-appellee, Ligaya Javier, on the other, whereby
plaintiff agreed to sell, transfer and convey to the defendant a
parcel of land known as Lot No. 28, Block No. 356, PSD 30328,
of the Sta. Mesa Heights Subdivision, for the total sum of
P3,691.20, with interest thereon at the rate of ten (10) per
centum a year, payable as follows: P896.12 upon the execution
of the contract and P43.92 every month thereafter, for a period
of ten (10) years. The sixth paragraph of said contract provided
that:jgc:chanrobles.com.ph
338 | P a g e
". . . In case the party of the SECOND PART fails to satisfy any
monthly installments, or any other payments herein agreed
upon, he is granted a month of grace within which to make the
retarded payment, together with the one corresponding to the
said month of grace; it is understood, however, that should the
month of grace herein granted to the party of the SECOND PART
expire without the payments corresponding to both months
having been satisfied, an interest of 10% per annum will be
charged on the amount he should have paid it is understood
further, that should a period of 90 days elapse, to begin from
the expiration of the month of grace herein mentioned, and the
party of the SECOND PART has not paid all the amounts he
should have paid with the corresponding interest up to that
date, the party of the FIRST PART has the right to declare this
contract cancelled and of no effect, and as consequence
thereof, the party of the FIRST PART may dispose of the parcel
or parcels of land covered by this contract in favor of other
persons, as if this contract had never been entered into. In case
of such cancellation of this contract, all the amounts paid in
accordance with this agreement together with all the
improvements made on the premises, shall be considered as
rents paid for the use and occupation of the above mentioned
premises, and as payment for the damages suffered by failure
of the party of the SECOND PART to fulfill his part of the
agreement; and the party of the SECOND PART hereby
renounces all his right to demand or reclaim the return of the
same and obliges himself to peacefully vacate the premises
and deliver the same to the party of the FIRST PART."cralaw
virtua1aw library
Upon the execution of the contract and the payment of the first
installment of P396.12, the defendant was placed in possession
of the land. Thereafter and until January 5, 1962, she paid the
stipulated monthly installments which, including the initial
payment of P396.12, aggregated P1,134.08. Subsequently,
however, she defaulted in the payment of said installments, in
view of which, on May 22, 1964, plaintiff informed her by letter
that their contract had been rescinded. Defendant having
thereafter failed or refused to vacate said land, on July 9, 1964,
plaintiff commenced the present action against her, in the
Court of First Instance of Rizal. After alleging substantially the
foregoing fact, plaintiff prayed in its complaint that the
aforementioned contract be declared validly rescinded and that
the defendant and all persons claiming under her be ordered to
deliver to the plaintiff the lot in question, with all the
improvements thereon, and to pay a monthly rental of P40.00,
from January 5, 1962, until the property shall have been
surrendered to the plaintiff, as well as all costs. Admitting that
she had defaulted in the payment of the stipulated monthly
installments, from January 5, 1962, defendant alleged in her
answer that this fact "was due to unforeseen circumstances" ;
that she is "willing to pay all arrears in installments under the
contract" and had "in fact offered the same to the plaintiff" ;
and that said contract "can not be rescinded upon the unilateral
act of the plaintiff." At a pre-trial conference held before said
court, the following facts were — in the language of the
decision appealed from — agreed upon between the
parties:jgc:chanrobles.com.ph
". . . that since January 5, 1962, up to the present, the
defendant has failed to pay the monthly installments called for
in the contract to sell; that in view of the failure of the
defendant to pay her installment payments since January 5,
1962, the plaintiff rescinded the contract pursuant to the
provision thereof; that after the filing of the complaint,
defendant in an attempt to arrive at a compromise agreement
with the plaintiff, offered to pay all the installment payments in
arrears, the interest thereon from the time of default of
payment, reasonable attorney’s fees, and the costs of suit; that
said offer was repeated by the defendant in writing on
December 1, 1964, and also during the pre-trial conference of
this case, but said offer was turned down by the
plaintiff."cralaw virtua1aw library
339 | P a g e
The case having been submitted for decision upon the
foregoing stipulation, said courts, applying Art. 1592 of our Civil
Code, rendered its aforementioned decision, the dispositive
part of which reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered, declaring that the
contract to sell has not yet been rescinded, and ordering the
defendant to pay to the plaintiff within sixty (60) days from
receipt hereof all the installment payments in arrears together
with interest thereon at 10% per annum from January 5, 1962,
the date of default, attorney’s fees in the sum of P1,000.00,
and the costs of suit. Upon payment of same, the plaintiff in
ordered to execute in favor of the defendant the necessary
deed to transfer to the defendant the title to the parcel of land
in question, free from all liens and encumbrances except those
provided for in the contract, all expenses which may be
incurred in said transfer of title to be paid by the
defendant."cralaw virtua1aw library
Hence, this appeal by plaintiff, based mainly upon the alleged
erroneous application to the case at bar of said Art. 1592,
pursuant to which:
"In the sale of immovable property, even though it may have
been stipulated that upon the failure to pay the price at the
time agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration of
the period, as long as no demand for rescission of the contract
has been made upon him either judicially or by a notarial act.
After the demand, the court may not grant him a new
term."cralaw virtua1aw library
Plaintiff maintains that this provision governs contracts of sale,
not contracts to sell, such as the one entered into by the parties
in this case. Regardless, however, of the propriety of applying
said Art. 1592 thereto, We find that plaintiff herein has not been
denied substantial justice, for, according to Art. 1234 of said
Code:jgc:chanrobles.com.ph
"If the obligation has been substantially performed in good
faith, the obligor may recover as though there had been a strict
and complete fulfillment, less damages suffered by the
obligee."cralaw virtua1aw library
In this connection, it should be noted that, apart from the initial
installment of P396.12, paid upon the execution of the contract,
on September 7, 1954, the defendant religiously satisfied the
monthly installments accruing thereafter, for a period of almost
eight (8) years, or up to January 5, 1962; that, although the
principal obligation under the contract was P3,691.20, the total
payments made by the defendant up to January 5, 1962,
including stipulated interest, aggregated P4,134.08; that the
defendant has offered to pay all of the installments overdue
including the stipulated interest, apart from reasonable
attorney’s fees and the costs; and that, accordingly, the trial
court sentenced the defendant to pay all such installments,
interest, fees and costs. Thus, plaintiff will thereby recover
everything due thereto, pursuant to its contract with the
defendant, including such damages as the former may have
suffered in consequence of the latter’s default. Under these
circumstances, We feel that, in the interest of justice and
equity, the decision appealed from may be upheld upon the
authority of Art. 1234 of the Civil Code. 1
WHEREFORE, said decision is hereby affirmed, with out special
pronouncement as to costs in this instance. It is so ordered.
66. G.R. No. L-26578 January 28, 1974
LEGARDA HERMANOS and JOSE LEGARDA, petitioners,
340 | P a g e
vs.
FELIPE SALDAÑA and COURT OF APPEALS (FIFTH DIVISION) *
respondents.
Manuel Y. Macias for petitioners.
Mario E. Ongkiko for private respondent.
TEEHANKEE, J.:1äwphï1.ñët
The Court, in affirming the decision under review of the Court of
Appeals, which holds that the respondent buyer of two small
residential lots on installment contracts on a ten-year basis who
has faithfully paid for eight continuous years on the principal
alone already more than the value of one lot, besides the larger
stipulated interests on both lots, is entitled to the conveyance
of one fully paid lot of his choice, rules that the judgment is fair
and just and in accordance with law and equity.
The action originated as a complaint for delivery of two parcels
of land in Sampaloc, Manila and for execution of the
corresponding deed of conveyance after payment of the
balance still due on their purchase price. Private respondent as
plaintiff had entered into two written contracts with petitioner
Legarda Hermanos as defendant subdivision owner, whereby
the latter agreed to sell to him Lots Nos. 7 and 8 of block No.
5N of the subdivision with an area of 150 square meters each,
for the sum of P1,500.00 per lot, payable over the span of ten
years divided into 120 equal monthly installments of P19.83
with 10% interest per annum, to commence on May 26, 1948,
date of execution of the contracts. Subsequently, Legarda
Hermanos partitioned the subdivision among the brothers and
sisters, and the two lots were among those allotted to co-
petitioner Jose Legarda who was then included as co-defendant
in the action.
It is undisputed that respondent faithfully paid for eight
continuous years about 95 (of the stipulated 120) monthly
installments totalling P3,582.06 up to the month of February,
1956, which as per petitioners' own statement of account,
Exhibit "1", was applied to respondent's account (without
distinguishing the two lots), as follows:
To interests P1,889.78 To principal 1,682.28 Total P3,582.06 1
It is equally undisputed that after February, 1956 up to the
filing of respondent's complaint in the Manila court of first
instance in 1961, respondent did not make further payments.
The account thus shows that he owed petitioners the sum of
P1,317.72 on account of the balance of the purchase price
(principal) of the two lots (in the total sum of P3,000.00),
although he had paid more than the stipulated purchase price
of P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just before the
filing of the action, respondent wrote petitioners stating that his
desire to build a house on the lots was prevented by their
failure to introduce improvements on the subdivision as "there
is still no road to these lots," and requesting information of the
amount owing to update his account as "I intend to continue
paying the balance due on said lots."
Petitioners replied in their letter of February 11, 1961 that as
respondent had failed to complete total payment of the 120
installments by May, 1958 as stipulated in the contracts to sell,
"pursuant to the provisions of both contracts all the amounts
paid in accordance with the agreement together with the
improvements on the premises have been considered as rents
341 | P a g e
paid and as payment for damages suffered by your failure," 2
and "Said cancellation being in order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the trial court
sustaining petitioners' cancellation of the contracts and
dismissing respondent's complaint, respondent appellate court
on appeal rendered its judgment of July 27, 1966 reversing the
lower court's judgment and ordering petitioners "to deliver to
the plaintiff possession of one of the two lots, at the choice of
defendants, and to execute the corresponding deed of
conveyance to the plaintiff for the said lot," 3 ruling as follows:
—
During the hearing, plaintiff testified that he suspended
payments because the lots were not actually delivered to him,
or could not be, due to the fact that they were completely
under water; and also because the defendants-owners failed to
make improvements on the premises, such as roads, filling of
the submerged areas, etc., despite repeated promises of their
representative, the said Mr. Cenon. As regards the supposed
cancellation of the contracts, plaintiff averred that no demand
has been made upon him regarding the unpaid installments,
and for this reason he could not be declared in default so as to
entitle the defendants to cancel the said contracts.
The issue, therefore, is: Under the above facts, may defendants
be compelled, or not, to allow plaintiff to complete payment of
the purchase price of the two lots in dispute and thereafter to
execute the final deeds of conveyance thereof in his favor?
xxx xxx xxx
Whether or not plaintiffs explanation for his failure to pay the
remaining installments is true, considering the circumstances
obtaining in this case, we elect to apply the broad principles of
equity and justice. In the case at bar, we find that the plaintiff
has paid the total sum of P3,582.06 including interests, which is
even
more than the value of the two lots. And even if the sum
applied to the principal alone were to be considered, which was
of the total of P1,682.28, the same was already more than the
value of one lot, which is P1,500.00. The only balance due on
both lots was P1,317.72, which was even less than the value of
one lot. We will consider as fully paid by the plaintiff at least
one of the two lots, at the choice of the defendants. This is
more in line with good conscience than a total denial to the
plaintiff of a little token of what he has paid the defendant
Legarda Hermanos. 4
Hence, the present petition for review, wherein petitioners
insist on their right of cancellation under the "plainly valid
written agreements which constitute the law between the
parties" as against "the broad principles of equity and justice"
applied by the appellate court. Respondent on the other hand
while adhering to the validity of the doctrine of the Caridad
Estates cases 5 which recognizes the right of a vendor of land
under a contract to sell to cancel the contract upon default,
with forfeiture of the installments paid as rentals, disputes its
applicability herein contending that here petitioners-sellers
were equally in default as the lots were "completely under
water" and "there is neither evidence nor a finding that the
petitioners in fact cancelled the contracts previous to receipt of
respondent's letter." 6
The Court finds that the appellate court's judgment finding that
of the total sum of P3,582.06 (including interests of P1,889.78)
already paid by respondent (which was more than the value of
two lots), the sum applied by petitioners to the principal alone
in the amount of P1,682.28 was already more than the value of
one lot of P1,500.00 and hence one of the two lots as chosen by
respondent would be considered as fully paid, is fair and just
and in accordance with law and equity.
As already stated, the monthly payments for eight years made
by respondent were applied to his account without specifying or
distinguishing between the two lots subject of the two
342 | P a g e
agreements under petitioners' own statement of account,
Exhibit "1". 7 Even considering respondent as having defaulted
after February 1956, when he suspended payments after the
95th installment, he had as of the already paid by way of
principal (P1,682.28) more than the full value of one lot
(P1,500.00). The judgment recognizing this fact and ordering
the conveyance to him of one lot of his choice while also
recognizing petitioners' right to retain the interests of
P1,889.78 paid by him for eight years on both lots, besides the
cancellation of the contract for one lot which thus reverts to
petitioners, cannot be deemed to deny substantial justice to
petitioners nor to defeat their rights under the letter and spirit
of the contracts in question.
The Court's doctrine in the analogous case of J.M. Tuason & Co.
Inc. vs. Javier 8 is fully applicable to the present case, with the
respondent at bar being granted lesser benefits, since no
rescission of contract was therein permitted. There, where the
therein buyer-appellee identically situated as herein respondent
buyer had likewise defaulted in completing the payments after
having religiously paid the stipulated monthly installments for
almost eight years and notwithstanding that the seller-
appellant had duly notified the buyer of the rescission of the
contract to sell, the Court upheld the lower court's judgment
denying judicial confirmation of the rescission and instead
granting the buyer an additional grace period of sixty days from
notice of judgment to pay all the installment payments in
arrears together with the stipulated 10% interest per annum
from the date of default, apart from reasonable attorney's fees
and costs, which payments, the Court observed, would have
the plaintiff-seller "recover everything due thereto, pursuant to
its contract with the defendant, including such damages as the
former may have suffered in consequence of the latter's
default."
In affirming, the Court held that "Regardless, however, of the
propriety of applying said Art. 1592 thereto, We find that
plaintiff herein has not been denied substantial justice, for,
according to
Art. 1234 of said Code: 'If the obligation has been substantially
performed in good faith, the obligor may recover as though
there had been a strict and complete fulfillment, less damages
suffered by the obligee,'" and "that in the interest of justice and
equity, the decision appealed from may be upheld upon the
authority of Article 1234 of the Civil Code." 9
ACCORDINGLY, the appealed judgment of the appellate court is
hereby affirmed. Without pronouncement as to costs.
67. G.R. No. L-30597
GUILLERMO AZCONA and FE JALANDONI AZCONA, petitioners,
vs.
JOSE JAMANDRE, Administrator of the Intestate Estate of Cirilo
Jamandre (Sp. Proc. 6921 of the Court of First Instance of
Negros Occidental), and the HONORABLE COURT OF APPEALS,
respondents.
CRUZ, J.:
This involves the interpretation of a contract of lease which was
found by the trial court to have been violated by both the
plaintiff and the defendant. On appeal, its decision was
modified by the respondent court in favor of the plaintiff, for
which reason the defendant has now come to us in a petition
for certiorari.
343 | P a g e
By the said contract, 1 Guillermo Azcona (hereinafter called the
petitioner) leased 80 hectares of his 150-hectare pro indiviso
share in Hacienda Sta. Fe in Escalante, Negros Occidental, to
Cirilo Jamandre (represented here by the administrator of his
intestate estate, and hereinafter called the private respondent).
The agreed yearly rental was P7,200.00. The lease was for
three agricultural years beginning 1960, extendible at the
lessee's option to two more agricultural years, up to 1965.
The first annual rental was due on or before March 30, 1960,
but because the petitioner did not deliver possession of the
leased property to the respondent, he "waived" payment, as he
put it, of that rental. 2 The respondent actually entered the
premises only on October 26, 1960, after payment by him to
the petitioner of the sum of P7,000.00, which was
acknowledged in the receipt later offered as Exhibit "B".
On April 6, 1961, the petitioner, through his lawyer, notified the
respondent that the contract of lease was deemed cancelled,
terminated, and of no further effect," pursuant to its paragraph
8, for violation of the conditions specified in the said
agreement. 3 Earlier, in fact, the respondent had been ousted
from the possession of 60 hectares of the leased premises and
left with only 20 hectares of the original area. 4
The reaction of the respondent to these developments was to
file a complaint for damages against the petitioner, who
retaliated with a counterclaim. As previously stated, both the
complaint and the counterclaim were dismissed by the trial
court * on the finding that the parties were in pari delicto. 5
The specific reasons invoked by the petitioner for canceling the
lease contract were the respondent's failure: 1) to attach
thereto the parcelary plan Identifying the exact area subject of
the agreement, as stipulated in the contract; 2; to secure the
approval
by the Philippine National Bank of the said contract; and 3) to
pay the rentals. 6
The parcelary plan was provided for in the contract as follows:
That the LESSOR by these presents do hereby agree to lease in
favor of the LESSEE a portion of the said lots above-described
with an extension of EIGHTY (80) hectares, more or less, which
portion is to be Identified by the parcelary plan duly marked
and to be initialed by both LESSOR and LESSEE, and which
parcelary plan is known as Annex "A" of this contract and
considered as an integral part hereof. 7
According to the petitioners, the parcelary plan was never
agreed upon or annexed to the contract, which thereby became
null and void under Article 1318 of the Civil Code for lack of a
subject matter. Moreover, the failure of the parties to approve
and annex the said parcelary plan had the effect of a breach of
the contract that justified its cancellation under its paragraph 8.
8
In one breath, the petitioner is arguing that there was no
contract because there was no object and at the same time
that there was a contract except that it was violated.
The correct view, as we see it, is that there was an agreed
subject-matter, to wit, the 80 hectares of the petitioner's share
in the Sta. Fe hacienda, although it was not expressly defined
because the parcelary plan was not annexed and never
approved by the parties. Despite this lack, however, there was
an ascertainable object because the leased premises were
sufficiently Identified and delineated as the petitioner admitted
in his amended answer and in his direct testimony. 9
Thus, in his amended answer, he asserted that "the
plaintiff . . .must delimit his work to the area previously
designated and delivered." Asked during the trial how many
hectares the private
344 | P a g e
respondent actually occupied, the petitioner declared: "About
80 hectares. The whole 80 hectares." 10 The petitioner cannot
now contradict these written and oral admissions." 11
Moreover, it appears that the failure to attach the parcelary
plan to the contract is imputable to the petitioner himself
because it was he who was supposed to cause the preparation
of the said plan. As he testified on direct examination, "Our
agreement was to sign our agreement, then I will have the
parcelary plan prepared so that it will be a part of our contract."
12 That this was never done is not the respondent's fault as he
had no control of the survey of the petitioner's land.
Apparently, the Court of Appeals ** found, the parties impliedly
decided to forego the annexing of the parcelary plan because
they had already agreed on the area and limits of the leased
premises. 13 The Identification of the 80 hectares being leased
rendered the parcelary plan unnecessary, and its absence did
not nullify the agreement.
Coming next to the alleged default in the payment of the
stipulated rentals, we observe first that when in Exhibit "B" the
petitioner declared that "I hereby waive payment for the rentals
corresponding to the crop year 1960-61 and which was due on
March 30, 1960, " there was really nothing to waive because, as
he himself put it in the same document, possession of the
leased property "was not actually delivered" to the respondent.
14
The petitioner claims that such possession was not delivered
because the approval by the PNB of the lease contract had not
"materialized" due to the respondent's neglect. Such approval,
he submitted, was to have been obtained by the respondents,
which seems logical to us, for it was the respondent who was
negotiating the loan from the PNB. As the respondent court saw
it, however, "paragraph 6 (of the contract) does not state upon
whom fell the obligation to secure the approval" so that it was
not clear that "the fault, if any, was due solely to one or the
other." 15
At any rate, that issue and the omission of the parcelary plan
became immaterial when the parties agreed on the lease for
the succeeding agricultural year 1961-62, the respondent
paying and the petitioner receiving therefrom the sum of
P7,000.00, as acknowledged in Exhibit "B," which is reproduced
in full as follows:
Bacolod City October 26, 1960 RECEIPT
RECEIVED from Mr. Cirilo Jamandre at the City of Bacolod,
Philippines, this 26th day of October, 1960, Philippine National
Bank Check No. 180646-A (Manager's Check Binalbagan
Branch) for the amount of SEVEN THOUSAND PESOS
(P7,000.00), Philippine Currency as payment for the rental
corresponding to crop year 1961-62, by virtue of the contract of
lease I have executed in his favor dated November 23, 1959,
and ratified under Notary Public Mr. Enrique F. Marino as Doc.
No. 119, Page No. 25, Book No. XII, Series of 1959. It is hereby
understood, that this payment corresponds to the rentals due
on or before January 30, 1961, as per contract. It is further
understood that I hereby waive payment for the rentals
corresponding to crop year 1960- 61 and which was due on
March 30, 1960, as possession of the property lease in favor of
Mr. Cirilo Jamandre was not actually delivered to him, but the
same to be delivered only after receipt of the amount as stated
in this receipt. That Mr. Cirilo Jamandre is hereby authorized to
take immediate possession of the property under lease
effective today, October 26, 1960.
345 | P a g e
WITNESS my hand at the City of Bacolod, Philippines, this 26th
day of October, 1960.
(SGD.) GUILLERMO AZCONA SIGNED IN THE PRESENCE OF:
(SGD.) JOSE T. JAMANDRE
Citing the stipulation in the lease contract for an annual rental
of P7,200.00, the petitioner now submits that there was default
in the payment thereof by the respondent because he was
P200.00 short of such rental. That deficiency never having been
repaired, the petitioner concludes, the contract should be
deemed cancelled in accordance with its paragraph 8. 16
For his part, the respondent argues that the receipt represented
an express reduction of the stipulated rental in consideration of
his allowing the use of 16 hectares of the leased area by the
petitioner as grazing land for his cattle. Having unqualifiedly
accepted the amount of P7,000.00 as rental for the agricultural
year 1961-62, the petitioner should not now be heard to argue
that the payment was incomplete. 17
After a study of the receipt as signed by the petitioner and
witnessed for the respondent, this Court has come to the
conclusion, and so holds, that the amount of P7,000.00 paid to
by the respondent and received by the petitioner represented
payment in full of the rental for the agricultural year 1961-62.
The language is clear enough: "The amount of SEVEN
THOUSAND PESOS (P7,000.00), Philippine Currency, as
payment for the rental corresponding to crop year 1961-62 ... to
the rental due on or before January 30, 1961, as per contract."
The conclusion should be equally clear.
The words "as per contract" are especially significant as they
suggest that the parties were aware of the provisions of the
agreement, which was described in detail elsewhere in the
receipt. The rental stipulated therein was P7,200.00. The
payment being acknowledged in the receipt was P7,000.00
only. Yet no mention was made in the receipt of the discrepancy
and, on the contrary, the payment was acknowledged "as per
contract." We read this as meaning that the provisions of the
contract were being maintained and respected except only for
the reduction of the agreed rental.
The respondent court held that the amount of P200.00 had
been condoned, but we do not think so. The petitioner is correct
in arguing that the requisites of condonation under Article 1270
of the Civil Code are not present. What we see here instead is a
mere reduction of the stipulated rental in consideration of the
withdrawal from the leased premises of the 16 hectares where
the petitioner intended to graze his cattle. The signing of
Exhibit "B " by the petitioner and its acceptance by the
respondent manifested their agreement on the reduction, which
modified the lease contract as to the agreed consideration
while leaving the other stipulations intact.
The petitioner says that having admittedly been drafted by
lawyer Jose Jamandre, the respondent's son, the receipt would
have described the amount of P7,000.00 as "payment in full" of
the rental if that were really the case.
It seems to us that this meaning was adequately conveyed in
the acknowledgment made by the petitioner that this was
"payment for the rental corresponding to crop year 1961-62"
and "corresponds to the rentals due on or before January 30,
1961, as per contract." On the other hand, if this was not the
intention, the petitioner does not explain why he did not specify
in the receipt that there was still a balance of P200.00 and, to
be complete, the date when it was to be paid by the
respondent.
346 | P a g e
It is noted that the receipt was meticulously worded, suggesting
that the parties were taking great pains, indeed, to provide
against any possible misunderstanding, as if they were even
then already apprehensive of future litigation. Such a
reservation-if there was one-would have been easily
incorporated in the receipt, as befitted the legal document it
was intended to be.
In any event, the relative insignificance of the alleged balance
seems to us a paltry justification for annulling the contract for
its supposed violation. If the petitioner is fussy enough to
invoke it now, it stands to reason that he would have fussed
over it too in the receipt he willingly signed after accepting,
without reservation and apparently without protest, only
P7,000.00.
The applicable provision is Article 1235 of the Civil Code,
declaring that:
Art.1235. When the obligee accepts the performance, knowing
its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied
with.
The petitioner says that he could not demand payment of the
balance of P200.00 on October 26, 1960, date of the receipt
because the rental for the crop year 1961-62 was due on or
before January 30, 1961. 18 But this would not have prevented
him from reserving in the receipt his right to collect the balance
when it fell due. Moreover, there is no evidence in the record
that when the due date arrived, he made any demand, written
or verbal, for the payment of that amount.
As this Court is not a trier of facts, 19 we defer to the findings
of the respondent court regarding the losses sustained by the
respondent on the basis of the estimated yield of the properties
in question in the years he was supposed to possess and exploit
them. While the calculations offered by the petitioner are
painstaking and even apparently exhaustive, we do not find any
grave abuse of discretion on the part of the respondent court to
warrant its reversal on this matter. We also sustain the
P5,000.00 attorney's fee.
WHEREFORE, the decision of the respondent Court of Appeals is
AFFIRMED in full, with costs against the petitioners.
68. [G.R. No. L-52807. February 29, 1984.]
JOSE ARAÑAS and LUISA QUIJENCIO ARAÑAS, Petitioners, v.
HON. EDUARDO C. TUTAAN, as Judge of the Court of First
Instance of Quezon City, and UNIVERSAL TEXTILE MILLS, INC.,
Respondents.
Jose R. Francisco, for Petitioners.
Reyes, Santayana, Tayao & Picazo Law Office for Respondents.
TEEHANKEE, J.:
In a decision rendered on May 3, 1971 by the now defunct
Court of First Instance of Rizal, Branch V, at Quezon City, in Civil
Case No. Q-40689 thereof, entitled "Jose Arañas, Et. Al. v.
Juanito R. Castañeda, Et Al.," the said court declared that
petitioner Luisa Quijencio as plaintiff (assisted by her spouse
co-petitioner Jose Arañas) was the owner of 400 shares of stock
of respondent Universal Textile Mills, Inc. (UTEX) as defendant
issued "in the names of its co-defendants Gene Manuel and B.R.
Castañeda, including the stock dividends that accrued to said
shares, and
347 | P a g e
ordering defendant Universal Textile Mills, Inc. to cancel said
certificates and issue new ones in the name of said plaintiff
Luisa Quijencio Arañas and to deliver to her all dividends
appertaining to same, whether in cash or in stocks." chanrobles
law library : red
In a motion for clarification and/or motion for reconsideration,
respondent UTEX manifested, inter alia, that" (I)f this Honorable
Court by the phrase ‘to deliver to her all dividends appertaining
to same, whether in cash or in stocks,’ meant dividends
properly pertaining to plaintiffs after the court’s declaration of
plaintiffs’ ownership of said 400 shares of stock, then as
defendant UTEX has always maintained it would rightfully abide
by whatever decision may be rendered by this Honorable Court
since such would be the logical consequence after the
declaration or ruling in respect to the rightful ownership of the
said shares of stock." The motion for clarification was granted
by the trial court which ruled that its judgment against UTEX
was to pay to Luisa Quijencio Arañas the cash dividends which
accrued to the stocks in question after the rendition of this
decision excluding cash dividends already paid to its co-
defendants Gene Manuel and B.R. Castañeda which accrued
before its decision and could not be claimed by the petitioners-
spouses, as follows:jgc:chanrobles.com.ph
"This in mind, clarification of the dispositive portion of the
decision as aforequoted is indeed necessary, and thus made as
to ordain the payment to plaintiff Luisa Quijencio Arañas of cash
dividends which accrue to the stocks in question after the
rendition of this decision. Cash dividends already paid to
defendants which accrued before this decision may not,
therefore, be claimed by plaintiffs."cralaw virtua1aw library
Apparently satisfied with the clarification, UTEX neither moved
for reconsideration of the order nor appealed from the
judgment. Subsequently, the trial court granted the motion for
new trial of
the two co-defendants Manuel and Castañeda, and after such
new trial, it rendered under date of October 23, 1972 its
decision against them which was substantially the same as its
first decision of May 3, 1971 which had already become final
and executory as against UTEX, declaring petitioners-spouses
the owners of the questioned shares of stock in the names of
aforementioned co-defendants Castañeda and Manuel and
ordering the cancellation of the certificates in their names and
to issue new ones in the names of petitioners.chanrobles
lawlibrary : rednad
Co-defendants Castañeda and Manuel appealed this judgment
of October 23, 1972 against them to the Court of Appeals (now
Intermediate Appellate Court), which rendered on September 1,
1978 its judgment affirming in toto the trial court’s judgment.
Said co-defendants sought to appeal the appellate’s court’s
adverse judgment on a petition for review with this Court,
which rendered its Resolution of March 7, 1979 denying the
petition for review for lack of merit and the judgment against
the defendants accordingly became final and executory.
At petitioners’ instance, the lower court issued a writ of
execution and a specific order of December 5, 1979 directing
UTEX:jgc:chanrobles.com.ph
"1. To effect the cancellation of the certificates of stock in
question in the names of B.R. Castañeda and Gene G. Manuel
and the issuance of new ones in the names of the plaintiffs;
"2. To pay the amount of P100,701.45 representing the cash
dividends that accrued to the same stocks from 1972 to 1979
with interest thereon at the rate of 12% per annum from the
date of the service of the writ of execution on October 3, 1979
until fully paid."cralaw virtua1aw library
348 | P a g e
Upon UTEX’ motion for partial reconsideration alleging that the
cash dividends of the stocks corresponding to the period from
1972 to 1979 had already been paid and delivered by it to co-
defendants Castañeda and Manuel who then still appeared as
the registered owners of the said shares, the lower court issued
its order of January 4, 1980 granting said motion of UTEX and
partially reconsidered its order "to the effect that the defendant
Universal Textile Mills, Inc. is absolved from paying the cash
dividend corresponding to the stocks in question to the
plaintiffs for the period 1972 to 1979."cralaw virtua1aw library
Hence, the present action for certiorari to set aside respondent
judge’s questioned order of January 4, 1980 as having been
issued without jurisdiction and for mandamus to compel
respondent judge to perform his ministerial duty of ordering
execution of the final and executory judgment against UTEX
according to its terms.
The Court finds merit in the petition and accordingly grants the
same.
The final and executory judgment against UTEX in favor of
petitioners, declared petitioners as the owners of the
questioned UTEX shares of stock as againsts its co-defendants
Castañeda and Manuel. It was further made clear upon UTEX’
own motion for clarification that all dividends accruing to the
said shares of stock after the rendition of the decision of August
7, 1971 which for the period from 1972 to 1979 amounted to
P100,701.45 were to be paid by UTEX to petitioners, and UTEX,
per the trial court’s order of clarification of June 16, 1971 above
quoted had expressly maintained "it would rightfully abide by
whatever decision may be rendered by this Honorable Court
since such would be the logical consequence after the
declaration or ruling in respect to the rightful ownership of the
said shares of stock." chanrobles.com.ph : virtual law library
Consequently, there is no legal nor equitable basis for
respondent judge’s position "that it would indeed be most
unjust and inequitable to require the defendant Universal
Textile Mills, Inc. to pay twice cash dividends on particular
shares of stocks." 1 If UTEX nevertheless chose to pay the
wrong parties, notwithstanding its full knowledge and
understanding of the final judgment, that it was liable to pay all
dividends after the trial court’s judgment in 1971 to petitioners
as the lawfully declared owners of the questioned shares of
stock (but which could not be enforced against it pending the
outcome of the appeal filed by the co-defendants Castañeda
and Manuel in the Court of Appeals), it only had itself to blame
therefor.
The burden of recovering the supposed payment of the cash
dividends made by UTEX to the wrong parties Castañeda and
Manuel squarely falls upon itself by its own action and cannot
be passed by it to petitioners as innocent parties. It is
elementary that payment made by a judgment debtor to a
wrong party cannot extinguish the judgment obligation of such
debtor to its creditor. It is equally elementary that once a
judgment becomes final and executory, the court which
rendered it cannot change or modify the same in any material
aspect such as what respondent judge has without authority
attempted to do with his questioned order, which would relieve
the judgment debtor UTEX of its acknowledged judgment
obligation to pay to petitioners as the lawful owners of the
questioned shares of stock, the cash dividends that accrued
after the rendition of the judgment recognizing them as the
lawful owners. (Miranda v. Tiangco, 96 Phil. 626 [1955]).
Execution of a final and executory judgment according to its
terms is a matter of right for the prevailing party and becomes
the ministerial duty of the court (De los Angeles v. Victoriano,
109 Phil. 12).chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
ACCORDINGLY, judgment is rendered setting aside the
questioned order of January 4, 1980 of respondent judge and a
349 | P a g e
writ of mandamus is hereby issued commanding said
respondent judge to order the execution of his judgment
against respondent Universal Textile Mills, Inc., pursuant to his
first order of June 16, 1971 ordering it to pay the sum of
P100,701.45, representing the cash dividends that accrued to
petitioners’ UTEX shares of stock from 1972 to 1979, with
interest thereon at the rate of 12% per annum from the date of
service of the writ of execution on October 3, 1979 until fully
paid, as well as to pay petitioners any subsequent cash
dividends that may have been issued by it thereafter, with
interest from due date of payment until actual payment, and
directing the sheriff to satisfy such judgment out of the
properties of respondent UTEX. With costs against respondent
UTEX. This judgment is immediately executory.
of A. J. Luz and Associates, whereby the former was to render
engineering design services to the latter for fees, as stipulated
in the agreement. The services included design computation
and sketches, contract drawing and technical specifications of
all engineering phases of the project designed by O. A. Kalalo
and Associates bill of quantities and cost estimate, and
consultation and advice during construction relative to the
work. The fees agreed upon were percentages of the architect's
fee, to wit: structural engineering, 12-1⁄2%; electrical
engineering, 2-1⁄2%. The agreement was subsequently
supplemented by a "clarification to letter-proposal" which
provided, among other things, that "the schedule of
engineering fees in this agreement does not cover the
following: ... D. Foundation soil exploration, testing and
evaluation; E. Projects that are principally engineering works
such as industrial plants, ..." and "O. A. Kalalo and Associates
reserve the right to increase fees on projects ,which cost less
than P100,000 ...." 2 Pursuant to said agreement, appellee
rendered engineering services to appellant in the following
projects:
(a) Fil-American Life Insurance Building at Legaspi City; (b) Fil-
American Life Insurance Building at Iloilo City; (c) General
Milling Corporation Flour Mill at Opon Cebu; (d) Menzi Building
at Ayala Blvd., Makati, Rizal;
(e) International Rice Research Institute, Research center Los
Baños, Laguna;
(f) Aurelia's Building at Mabini, Ermita, Manila;
(g) Far East Bank's Office at Fil-American Life Insurance Building
at Isaac Peral Ermita, Manila;
69. G.R. No. L-27782
July 31, 1970
OCTAVIO A. KALALO, plaintiff-appellee, vs.
ALFREDO J. LUZ, defendant-appellant.
ZALDIVAR, J.:
Appeal from the decision, dated, February 10, 1967, of the
Court of First Instance of Rizal (Branch V, Quezon City) in its
Civil Case No. Q-6561.
On November 17, 1959, plaintiff-appellee Octavio A. Kalalo
hereinafter referred to as appellee), a licensed civil engineer
doing business under the firm name of O. A. Kalalo and
Associates, entered into an agreement (Exhibit A ) 1 with
defendant-appellant Alfredo J . Luz (hereinafter referred to as
appellant), a licensed architect, doing business under firm
name
350 | P a g e
(h) Arthur Young's residence at Forbes Park, Makati, Rizal;
(i) L & S Building at Dewey Blvd., Manila; and
(j) Stanvac Refinery Service Building at Limay, Bataan.
On December 1 1, '1961, appellee sent to appellant a
statement of account (Exhibit "1"), 3 to which was attached an
itemized statement of defendant-appellant's account (Exh. "1-
A"), according to which the total engineering fee asked by
appellee for services rendered amounted to P116,565.00 from
which sum was to be deducted the previous payments made in
the amount of P57,000.00, thus leaving a balance due in the
amount of P59,565.00.
On May 18, 1962 appellant sent appellee a resume of fees due
to the latter. Said fees, according to appellant. amounted to
P10,861.08 instead of the amount claimed by the appellee. On
June 14, 1962 appellant sent appellee a check for said amount,
which appellee refused to accept as full payment of the balance
of the fees due him.
On August 10, 1962, appellee filed a complaint against
appellant, containing four causes of action. In the first cause of
action, appellee alleged that for services rendered in
connection with the different projects therein mentioned there
was due him fees in sum s consisting of $28,000 (U.S.) and
P100,204.46, excluding interests, of which sums only
P69,323.21 had been paid, thus leaving unpaid the $28,000.00
and the balance of P30,881.25. In the second cause of action,
appellee claimed P17,000.00 as consequential and moral
damages; in the third cause of action claimed P55,000.00 as
moral damages, attorney's fees and expenses of litigation; and
in the fourth cause of action he claimed P25,000.00 as actual
damages, and also for attorney's fees and expenses of
litigation.
In his answer, appellant admitted that appellee rendered
engineering services, as alleged in the first cause of action, but
averred that some of appellee's services were not in
accordance with the agreement and appellee's claims were not
justified by the services actually rendered, and that the
aggregate amount actually due to appellee was only
P80,336.29, of which P69,475.21 had already been paid, thus
leaving a balance of only P10,861.08. Appellant denied liability
for any damage claimed by appellee to have suffered, as
alleged in the second, third and fourth causes of action.
Appellant also set up affirmative and special defenses, alleging
that appellee had no cause of action, that appellee was in
estoppel because of certain acts, representations, admissions
and/or silence, which led appellant to believe certain facts to
exist and to act upon said facts, that appellee's claim regarding
the Menzi project was premature because appellant had not yet
been paid for said project, and that appellee's services were not
complete or were performed in violation of the agreement
and/or otherwise unsatisfactory. Appellant also set up a
counterclaim for actual and moral damages for such amount as
the court may deem fair to assess, and for attorney's fees of
P10,000.00.
Inasmuch as the pleadings showed that the appellee's right to
certain fees for services rendered was not denied, the only
question being the assessment of the proper fees and the
balance due to appellee after deducting the admitted payments
made by appellant, the trial court, upon agreement of the
parties, authorized the case to be heard before a Commissioner.
The Commissioner rendered a report which, in resume, states
that the amount due to appellee was $28,000.00 (U.S.) as his
fee in the International Research Institute Project which was
twenty percent (20%) of the $140,000.00 that was paid to
appellant, and P51,539.91 for the other projects, less the sum
of P69,475.46 which was already paid by the appellant. The
Commissioner also recommended the payment to appellee of
the sum of P5,000.00 as attorney's fees.
351 | P a g e
At the hearing on the Report of the Commissioner, the
respective counsel of the parties manifested to the court that
they had no objection to the findings of fact of the
Commissioner contained in the Report, and they agreed that
the said Report posed only two legal issues, namely: (1)
whether under the facts stated in the Report, the doctrine of
estoppel would apply; and (2) whether the recommendation in
the Report that the payment of the amount. due to the plaintiff
in dollars was legally permissible, and if not, at what rate of
exchange it should be paid in pesos. After the parties had
submitted their respective memorandum on said issues, the
trial court rendered its decision dated February 10, 1967, the
dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered in favor of plaintiff and
against the defendant, by ordering the defendant to pay
plaintiff the sum of P51,539.91 and $28,000.00, the latter to be
converted into the Philippine currency on the basis of the
current rate of exchange at the time of the payment of this
judgment, as certified to by the Central Bank of the Philippines,
from which shall be deducted the sum of P69,475.46, which the
defendant had paid the plaintiff, and the legal rate of interest
thereon from the filing of the complaint in the case until fully
paid for; by ordering the defendant to pay to plaintiff the
further sum of P8,000.00 by way of attorney's fees which the
Court finds to be reasonable in the premises, with costs against
the defendant. The counterclaim of the defendant is ordered
dismissed.
From the decision, this appeal was brought, directly to this
Court, raising only questions of law.
During the pendency of this appeal, appellee filed a petition for
the issuance of a writ of attachment under Section 1 (f) of Rule
57 of the Rules of Court upon the ground that appellant is
presently residing in Canada as a permanent resident thereof.
On June 3, 1969, this Court resolved, upon appellee's posting a
bond of
P10,000.00, to issue the writ of attachment, and ordered the
Provincial Sheriff of Rizal to attach the estate, real and
personal, of appellant Alfredo J. Luz within the province, to the
value of not less than P140,000.00.
The appellant made the following assignments of errors:
I. The lower court erred in not declaring and holding that
plaintiff-appellee's letter dated December 11, 1961 (Exhibit "1")
and the statement of account (Exhibit "1-A") therein enclosed,
had the effect, cumulatively or alternatively, of placing plaintiff-
appellee in estoppel from thereafter modifying the
representations made in said exhibits, or of making plaintiff-
appellee otherwise bound by said representations, or of being
of decisive weight in determining the true intent of the parties
as to the nature and extent of the engineering services
rendered and/or the amount of fees due.
II. The lower court erred in declaring and holding that the
balance owing from defendant-appellant to plaintiff-appellee on
the IRRI Project should be paid on the basis of the rate of
exchange of the U.S. dollar to the Philippine peso at the time of
payment of judgment. .
III. The lower court erred in not declaring and holding that the
aggregate amount of the balance due from defendant-appellant
to plaintiff-appellee is only P15,792.05.
IV. The lower court erred in awarding attorney's fees in the sum
of P8,000.00, despite the commissioner's finding, which
plaintiff- appellee has accepted and has not questioned, that
said fee be only P5,000.00; and
V. The lower court erred in not granting defendant-appellant
relief on his counter-claim.
352 | P a g e
1. In support of his first assignment of error appellant argues
that in Exhibit 1-A, which is a statement of accounts dated
December 11, 1961, sent by appellee to appellant, appellee
specified the various projects for which he claimed engineering
fees, the precise amount due on each particular engineering
service rendered on each of the various projects, and the total
of his claims; that such a statement barred appellee from
asserting any claim contrary to what was stated therein, or
from taking any position different from what he asserted
therein with respect to the nature of the engineering services
rendered; and consequently the trial court could not award fees
in excess of what was stated in said statement of accounts.
Appellant argues that for estoppel to apply it is not necessary,
contrary to the ruling of the trial court, that the appellant
should have actually relied on the representation, but that it is
sufficient that the representations were intended to make the
defendant act there on; that assuming arguendo that Exhibit 1-
A did not put appellee in estoppel, the said Exhibit 1-A
nevertheless constituted a formal admission that would be
binding on appellee under the law on evidence, and would not
only belie any inconsistent claim but also would discredit any
evidence adduced by appellee in support of any claim
inconsistent with what appears therein; that, moreover, Exhibit
1-A, being a statement of account, establishes prima facie the
accuracy and correctness of the items stated therein and its
correctness can no longer be impeached except for fraud or
mistake; that Exhibit 1-A furthermore, constitutes appellee's
own interpretation of the contract between him and appellant,
and hence, is conclusive against him.
On the other hand, appellee admits that Exhibit 1-A itemized
the services rendered by him in the various construction
projects of appellant and that the total engineering fees
charged therein was P116,565.00, but maintains that he was
not in estoppel: first, because when he prepared Exhibit 1-A he
was laboring under an innocent mistake, as found by the trial
court; second, because appellant was not ignorant of the
services actually rendered by
appellee and the fees due to the latter under the original
agreement, Exhibit "A."
We find merit in the stand of appellee.
The statement of accounts (Exh. 1-A) could not estop appellee,
because appellant did not rely thereon as found by the
Commissioner, from whose Report we read:
While it is true that plaintiff vacillated in his claim, yet,
defendant did not in anyway rely or believe in the different
claims asserted by the plaintiff and instead insisted on a claim
that plaintiff was only entitled to P10,861.08 as per a separate
resume of fees he sent to the plaintiff on May 18, 1962 (See
Exhibit 6). 4
The foregoing finding of the Commissioner, not disputed by
appellant, was adopted by the trial court in its decision. Under
article 1431 of the Civil Code, in order that estoppel may apply
the person, to whom representations have been made and who
claims the estoppel in his favor must have relied or acted on
such representations. Said article provides:
Art. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.
An essential element of estoppel is that the person invoking it
has been influenced and has relied on the representations or
conduct of the person sought to be estopped, and this element
is wanting in the instant case. In Cristobal vs. Gomez, 5 this
Court held that no estoppel based on a document can be
invoked by one who has not been mislead by the false
statements contained therein. And in Republic of the Philippines
vs. Garcia, et al., 6 this Court ruled that there is no estoppel
when the statement or action invoked as its basis did not
mislead the adverse party-Estoppel has been characterized as
harsh or odious and not favored in law. 7 When
353 | P a g e
misapplied, estoppel becomes a most effective weapon to
accomplish an injustice, inasmuch as it shuts a man's mouth
from speaking the truth and debars the truth in a particular
case. 8 Estoppel cannot be sustained by mere argument or
doubtful inference: it must be clearly proved in all its essential
elements by clear, convincing and satisfactory evidence. 9 No
party should be precluded from making out his case according
to its truth unless by force of some positive principle of law,
and, consequently, estoppel in pains must be applied strictly
and should not be enforced unless substantiated in every
particular. 1 0
The essential elements of estoppel in pais may be considered in
relation to the party sought to be estopped, and in relation to
the party invoking the estoppel in his favor. As related to the
party to be estopped, the essential elements are: (1) conduct
amounting to false representation or concealment of material
facts or at least calculated to convey the impression that the
facts are otherwise than, and inconsistent with, those which the
party subsequently attempts to assert; (2) intent, or at least
expectation that his conduct shall be acted upon by, or at least
influence, the other party; and (3) knowledge, actual or
constructive, of the real facts. As related to the party claiming
the estoppel, the essential elements are (1) lack of knowledge
and of the means of knowledge of the truth as the facts in
questions; (2) (reliance, in good faith, upon the conduct or
statements of the party to be estopped; (3) action or inaction
based thereon of such character as To change the position or
status of the party claiming the estoppel, to his injury,
detriment or prejudice. 1 1
The first essential element in relation to the party sought to be
estopped does not obtain in the instant case, for, as appears in
the Report of the Commissioner, appellee testified "that when
he wrote Exhibit 1 and prepared Exhibit 1-A, he had not yet
consulted the services of his counsel and it was only upon
advice of counsel that the terms of the contract were
interpreted to him
resulting in his subsequent letters to the defendant demanding
payments of his fees pursuant to the contract Exhibit A." 1 2
This finding of the Commissioner was adopted by the trial court.
1 3 It is established , therefore, that Exhibit 1-A was written by
appellee through ignorance or mistake. Anent this matter, it has
been held that if an act, conduct or misrepresentation of the
party sought to be estopped is due to ignorance founded on
innocent mistake, estoppel will not arise. 1 4 Regarding the
essential elements of estoppel in relation to the party claiming
the estoppel, the first element does not obtain in the instant
case, for it cannot be said that appellant did not know, or at
least did not have the means of knowing, the services rendered
to him by appellee and the fees due thereon as provided in
Exhibit A. The second element is also wanting, for, as adverted
to, appellant did not rely on Exhibit 1-A but consistently denied
the accounts stated therein. Neither does the third element
obtain, for appellant did not act on the basis of the
representations in Exhibit 1-A, and there was no change in his
position, to his own injury or prejudice.
Appellant, however, insists that if Exhibit 1-A did not put
appellee in estoppel, it at least constituted an admission
binding upon the latter. In this connection, it cannot be gainsaid
that Exhibit 1-A is not a judicial admission. Statements which
are not estoppels nor judicial admissions have no quality of
conclusiveness, and an opponent. whose admissions have been
offered against him may offer any evidence which serves as an
explanation for his former assertion of what he now denies as a
fact. This may involve the showing of a mistake. Accordingly, in
Oas vs. Roa, 1 6 it was held that when a party to a suit has
made an admission of any fact pertinent to the issue involved,
the admission can be received against him; but such an
admission is not conclusive against him, and he is entitled to
present evidence to overcome the effect of the admission.
Appellee did explain, and the trial court concluded, that Exhibit
1-A was based on either his
354 | P a g e
ignorance or innocent mistake and he, therefore, is not bound
by it.
Appellant further contends that Exhibit 1-A being a statement
of account, establishes prima facie the accuracy and
correctness of the items stated therein. If prima facie, as
contended by appellant, then it is not absolutely conclusive
upon the parties. An account stated may be impeached for
fraud, mistake or error. In American Decisions, Vol. 62, p. 95,
cited as authority by appellant himself. we read thus:
An account stated or settled is a mere admission that the
account is correct. It is not an estoppel. The account is still
open to impeachment for mistakes or errors. Its effect is to
establish, prima facie, the accuracy of the items without other
proof; and the party seeking to impeach it is bound to show
affirmatively the mistake or error alleged. The force of the
admission and the strength of the evidence necessary to
overcome it will depend upon the circumstances of the case.
In the instant case, it is Our view that the ignorance mistake
that attended the writing of Exhibit 1-A by appellee was
sufficient to overcome the prima facie evidence of correctness
and accuracy of said Exhibit 1-A.
Appellant also urges that Exhibit 1-A constitutes appellee's own
interpretation of the contract, and is, therefore, conclusive
against him. Although the practical construction of the contract
by one party, evidenced by his words or acts, can be used
against him in behalf of the other party, 1 7 yet, if one of the
parties carelessly makes a wrong interpretation of the words of
his contract, or performs more than the contract requires (as
reasonably interpreted independently of his performance), as
happened in the instant case, he should be entitled to a
restitutionary remedy, instead of being bound to continue to his
erroneous interpretation or his erroneous performance and "the
other party should not be permitted to profit by such mistake
unless he can establish an estoppel by proving a material
change of position made in good faith. The rule as to practical
construction does not nullify the equitable rules with respect to
performance by mistake." 1 8 In the instant case, it has been
shown that Exhibit 1-A was written through mistake by appellee
and that the latter is not estopped by it. Hence, even if said
Exhibit 1-A be considered as practical construction of the
contract by appellee, he cannot be bound by such erroneous
interpretation. It has been held that if by mistake the parties
followed a practice in violation of the terms of the agreement,
the court should not perpetuate the error. 1 9
2. In support of the second assignment of error, that the lower
court erred in holding that the balance from appellant on the
IRRI project should be paid on the basis of the rate of exchange
of the U.S. dollar to the Philippine peso at the time of payment
of the judgment, appellant contends: first, that the official rate
at the time appellant received his architect's fees for the IRRI
project, and correspondingly his obligation to appellee's fee on
August 25, 1961, was P2.00 to $1.00, and cites in support
thereof Section 1612 of the Revised Administrative Code,
Section 48 of Republic Act 265 and Section 6 of Commonwealth
Act No. 699; second, that the lower court's conclusion that the
rate of exchange to be applied in the conversion of the
$28,000.00 is the current rate of exchange at the time the
judgment shall be satisfied was based solely on a mere
presumption of the trial court that the defendant did not
convert, there being no showing to that effect, the dollars into
Philippine currency at the official rate, when the legal
presumption should be that the dollars were converted at the
official rate of $1.00 to P2.00 because on August 25, 1961,
when the IRRI project became due and payable, foreign
exchange controls were in full force and effect, and partial
decontrol was effected only afterwards, during the Macapagal
administration; third, that the other ground advanced by the
lower court for its ruling, to wit, that appellant committed a
breach of his obligation
355 | P a g e
to turn over to the appellee the engineering fees received in
U.S. dollars for the IRRI project, cannot be upheld, because
there was no such breach, as proven by the fact that appellee
never claimed in Exhibit 1-A that he should be paid in dollars;
and there was no provision in the basic contract (Exh. "A") that
he should be paid in dollars; and, finally, even if there were
such provision, it would have no binding effect under the
provision of Republic Act 529; that, moreover, it cannot really
be said that no payment was made on that account for
appellant had already paid P57,000.00 to appellee, and under
Article 125 of the Civil Code, said payment could be said to
have been applied to the fees due from the IRRI project, this
project being the biggest and this debt being the most onerous.
In refutation of appellant's argument in support of the second
assignment of error, appellee argues that notwithstanding
Republic Act 529, appellant can be compelled to pay the
appellee in dollars in view of the fact that appellant received his
fees in dollars, and appellee's fee is 20% of appellant's fees;
and that if said amount is be converted into Philippine
Currency, the rate of exchange should be that at the time of the
execution of the judgment. 2 0
We have taken note of the fact that on August 25, 1961, the
date when appellant said his obligation to pay appellee's fees
became due, there was two rates of exchange, to wit: the
preferred rate of P2.00 to $1.00, and the free market rate. It
was so provided in Circular No. 121 of the Central Bank of the
Philippines, dated March 2, 1961. amending an earlier Circular
No. 117, and in force until January 21, 1962 when it was
amended by Circular No. 133, thus:
1. All foreign exchange receipts shall be surrendered to the
Central Bank of those authorized to deal in foreign exchange as
follows:
Percentage of Total to be surrendered at
Preferred: Free Market Rate: Rate:
(a) Export Proceeds, U.S. Government Expenditures invisibles
other than those specifically mentioned
below. ................................................ 25 75
(b) Foreign Investments, Gold Proceeds, Tourists and Inward
Remittances of Veterans and Filipino Citizens; and Personal
Expenses of Diplomatic Per personnel .................................
100" 2 1
The amount of $140,000.00 received by appellant foil the
International Rice Research Institute project is not within the
scope of sub-paragraph (a) of paragraph No. 1 of Circular No.
121. Appellant has not shown that 25% of said amount had to
be surrendered to the Central Bank at the preferred rate
because it was either export proceeds, or U.S. Government
expenditures, or invisibles not included in sub-paragraph (b).
Hence, it cannot be said that the trial court erred in presuming
that appellant converted said amount at the free market rate. It
is hard to believe that a person possessing dollars would
exchange his dollars at the preferred rate of P2.00 to $1.00,
when he is not obligated to do so, rather than at the free
market rate which is much higher. A person is presumed to take
ordinary care of his concerns, and that the ordinary course of
business has been followed. 2 2
Under the agreement, Exhibit A, appellee was entitled to 20%
of $140,000.00, or the amount of $28,000.00. Appellee,
however, cannot oblige the appellant to pay him in dollars,
even if appellant himself had received his fee for the IRRI
project in dollars. This payment in dollars is prohibited by
Republic Act 529 which was enacted on June 16, 1950. Said act
provides as follows:
356 | P a g e
SECTION 1. Every provision contained in, or made with respect
to, any obligation which provision purports to give the obligee
the right to require payment in gold or in a particular kind of
coin or currency other than Philippine currency or in an amount
of money of the Philippines measured thereby, be as it is
hereby declared against public policy, and null, void and of no
effect, and no such provision shall be contained in, or made
with respect to, any obligation hereafter incurred. Every
obligation heretofore or here after incurred, whether or not any
such provision as to payment is contained therein or made with
respect thereto, shall be discharged upon payment in any coin
or currency which at the time of payment is legal tender for
public and private debts: Provided, That, ( a) if the obligation
was incurred prior to the enactment of this Act and required
payment in a particular kind of coin or currency other than
Philippine currency, it shall be discharged in Philippine currency
measured at the prevailing rate of exchange at the time the
obligation was incurred, (b) except in case of a loan made in a
foreign currency stipulated to be payable in the same currency
in which case the rate of exchange prevailing at the time of the
stipulated date of payment shall prevail. All coin and currency,
including Central Bank notes, heretofore or hereafter issued
and declared by the Government of the Philippines shall be
legal tender for all debts, public and private.
Under the above-quoted provision of Republic Act 529, if the
obligation was incurred prior to the enactment of the Act and
require payment in a particular kind of coin or currency other
than the Philippine currency the same shall be discharged in
Philippine currency measured at the prevailing rate of exchange
at the time the obligation was incurred. As We have adverted
to, Republic Act 529 was enacted on June 16, 1950. In the case
now before Us the obligation of appellant to pay appellee the
20% of $140,000.00, or the sum of $28,000.00, accrued on
August 25, 1961, or after the enactment of Republic Act 529. It
follows that the provision of Republic Act 529 which requires
payment at the
prevailing rate of exchange when the obligation was incurred
cannot be applied. Republic Act 529 does not provide for the
rate of exchange for the payment of obligation incurred after
the enactment of said Act. The logical Conclusion, therefore, is
that the rate of exchange should be that prevailing at the time
of payment. This view finds support in the ruling of this Court in
the case of Engel vs. Velasco & Co. 2 3 where this Court held
that even if the obligation assumed by the defendant was to
pay the plaintiff a sum of money expressed in American
currency, the indemnity to be allowed should be expressed in
Philippine currency at the rate of exchange at the time of
judgment rather than at the rate of exchange prevailing on the
date of defendant's breach. This is also the ruling of American
court as follows:
The value in domestic money of a payment made in foreign
money is fixed with respect to the rate of exchange at the time
of payment. (70 CJS p. 228)
According to the weight of authority the amount of recovery
depends upon the current rate of exchange, and not the par
value of the particular money involved. (48 C.J. 605-606)
The value in domestic money of a payment made in foreign
money is fixed in reference to the rate of exchange at the time
of such payment. (48 C.J. 605)
It is Our considered view, therefore, that appellant should pay
the appellee the equivalent in pesos of the $28,000.00 at the
free market rate of exchange at the time of payment. And so
the trial court did not err when it held that herein appellant
should pay appellee $28,000.00 "to be converted into the
Philippine currency on the basis of the current rate of exchange
at the time of payment of this judgment, as certified to by the
Central Bank of the Philippines, ...." 2 4
357 | P a g e
Appellant also contends that the P57,000.00 that he had paid to
appellee should have been applied to the due to the latter on
the IRRI project because such debt was the most onerous to
appellant. This contention is untenable. The Commissioner who
was authorized by the trial court to receive evidence in this
case, however, reports that the appellee had not been paid for
the account of the $28,000.00 which represents the fees of
appellee equivalent to 20% of the $140,000.00 that the
appellant received as fee for the IRRI project. This is a finding of
fact by the Commissioner which was adopted by the trial court.
The parties in this case have agreed that they do not question
the finding of fact of the Commissioner. Thus, in the decision
appealed from the lower court says:
At the hearing on the Report of the Commissioner on February
15, 1966, the counsels for both parties manifested to the court
that they have no objection to the findings of facts of the
Commissioner in his report; and agreed that the said report
only poses two (2)legal issues, namely: (1) whether under the
facts stated in the Report, the doctrine of estoppel will apply;
and (2) whether the recommendation in the Report that the
payment of amount due to the plaintiff in dollars is permissible
under the law, and, if not, at what rate of exchange should it be
paid in pesos (Philippine currency) .... 2 5
In the Commissioner's report, it is spetifically recommended
that the appellant be ordered to pay the plaintiff the sum of
"$28,000. 00 or its equivalent as the fee of the plaintiff under
Exhibit A on the IRRI project." It is clear from this report of the
Commissioner that no payment for the account of this
$28,000.00 had been made. Indeed, it is not shown in the
record that the peso equivalent of the $28,000.00 had been
fixed or agreed upon by the parties at the different times when
the appellant had made partial payments to the appellee.
3. In his third assignment of error, appellant contends that the
lower court erred in not declaring that the aggregate amount
due from him to appellee is only P15,792.05. Appellant
questions the propriety or correctness of most of the items of
fees that were found by the Commissioner to be due to
appellee for services rendered. We believe that it is too late for
the appellant to question the propriety or correctness of those
items in the present appeal. The record shows that after the
Commissioner had submitted his report the lower court, on
February 15, 1966, issued the following order:
When this case was called for hearing today on the report of
the Commissioner, the counsels of the parties manifested that
they have no objection to the findings of facts in the report.
However, the report poses only legal issues, namely: (1)
whether under the facts stated in the report, the doctrine of
estoppel will apply; and (2) whether the recommendation in the
report that the alleged payment of the defendant be made in
dollars is permissible by law and, if not, in what rate it should
be paid in pesos (Philippine Currency). For the purpose of
resolving these issues the parties prayed that they be allowed
to file their respective memoranda which will aid the court in
the determination of said issues. 2 6
In consonance with the afore-quoted order of the trial court, the
appellant submitted his memorandum which opens with the
following statements:
As previously manifested, this Memorandum shall be confined
to:
(a) the finding in the Commissioner's Report that defendant's
defense of estoppel will not lie (pp. 17-18, Report); and
(b) the recommendation in the Commissioner's Report that
defendant be ordered to pay plaintiff the sum of '$28,000.00
(U.S.) or its equivalent as the fee of the plaintiff under Exhibit
'A' in the IRRI project.'
358 | P a g e
More specifically this Memorandum proposes to demonstrate
the affirmative of three legal issues posed, namely:
First: Whether or not plaintiff's letter dated December 11, 1961
(Exhibit 'I') and/or Statement of Account (Exhibit '1-A') therein
enclosed has the effect of placing plaintiff in estoppel from
thereafter modifying the representations made in said letter
and Statement of Account or of making plaintiff otherwise
bound thereby; or of being decisive or great weight in
determining the true intent of the parties as to the amount of
the engineering fees owing from defendant to plaintiff;
Second: Whether or not defendant can be compelled to pay
whatever balance is owing to plaintiff on the IRRI (International
Rice and Research Institute) project in United States dollars;
and
Third: Whether or not in case the ruling of this Honorable Court
be that defendant cannot be compelled to pay plaintiff in
United States dollars, the dollar-to-peso convertion rate for
determining the peso equivalent of whatever balance is owing
to plaintiff in connection with the IRRI project should be the 2 to
1 official rate and not any other rate. 2 7
It is clear, therefore, that what was submitted by appellant to
the lower court for resolution did not include the question of
correctness or propriety of the amounts due to appellee in
connection with the different projects for which the appellee
had rendered engineering services. Only legal questions, as
above enumerated, were submitted to the trial court for
resolution. So much so, that the lower court in another portion
of its decision said, as follows:
The objections to the Commissioner's Report embodied in
defendant's memorandum of objections, dated March 18, 1966,
cannot likewise be entertained by the Court because at the
hearing of the Commissioner's Report the parties had expressly
manifested that they had no objection to the findings of facts
embodied therein.
We, therefore hold that the third assignment of error of the
appellant has no merit.
4. In his fourth assignment of error, appellant questions the
award by the lower court of P8,000.00 for attorney's fees.
Appellant argues that the Commissioner, in his report, fixed the
sum of P5,000.00 as "just and reasonable" attorney's fees, to
which amount appellee did not interpose any objection, and by
not so objecting he is bound by said finding; and that,
moreover, the lower court gave no reason in its decision for
increasing the amount to P8,000.00.
Appellee contends that while the parties had not objected to
the findings of the Commissioner, the assessment of attorney's
fees is always subject to the court's appraisal, and in increasing
the recommended fees from P5,000.00 to P8,000.00 the trial
court must have taken into consideration certain circumstances
which warrant the award of P8,000.00 for attorney's fees.
We believe that the trial court committed no error in this
connection. Section 12 of Rule 33 of the Rules of Court, on
which the fourth assignment of error is presumably based,
provides that when the parties stipulate that a commissioner's
findings of fact shall be final, only questions of law arising from
the facts mentioned in the report shall thereafter be
considered. Consequently, an agreement by the parties to
abide by the findings of fact of the commissioner is equivalent
to an agreement of facts binding upon them which the court
cannot disregard. The question, therefore, is whether or not the
estimate of the reasonable fees stated in the report of the
Commissioner is a finding of fact.
359 | P a g e
The report of the Commissioner on this matter reads as follows:
As regards attorney's fees, under the provisions of Art 2208, par
(11), the same may be awarded, and considering the number of
hearings held in this case, the nature of the case (taking into
account the technical nature of the case and the voluminous
exhibits offered in evidence), as well as the way the case was
handled by counsel, it is believed, subject to the Court's
appraisal of the matter, that the sum of P5,000.00 is just and
reasonable as attorney's fees." 2 8
It is thus seen that the estimate made by the Commissioner
was an expression of belief, or an opinion. An opinion is
different from a fact. The generally recognized distinction
between a statement of "fact" and an expression of "opinion" is
that whatever is susceptible of exact knowledge is a matter of
fact, while that not susceptible of exact knowledge is generally
regarded as an expression of opinion. 2 9 It has also been said
that the word "fact," as employed in the legal sense includes
"those conclusions reached by the trior from shifting testimony,
weighing evidence, and passing on the credit of the witnesses,
and it does not denote those inferences drawn by the trial court
from the facts ascertained and settled by it. 3 0 In the case at
bar, the estimate made by the Commissioner of the attorney's
fees was an inference from the facts ascertained by him, and is,
therefore, not a finding of facts. The trial court was,
consequently, not bound by that estimate, in spite of the
manifestation of the parties that they had no objection to the
findings of facts of the Commissioner in his report. Moreover,
under Section 11 of Rule 33 of the Rules of Court, the court may
adopt, modify, or reject the report of the commissioner, in
whole or in part, and hence, it was within the trial court's
authority to increase the recommended attorney's fees of
P5,000.00 to P8,000.00. It is a settled rule that the amount of
attorney's fees is addressed to the sound discretion of the
court. 3 1
It is true, as appellant contends, that the trial court did not
state in the decision the reasons for increasing the attorney's
fees. The trial court, however, had adopted the report of the
Commissioner, and in adopting the report the trial court is
deemed to have adopted the reasons given by the
Commissioner in awarding attorney's fees, as stated in the
above-quoted portion of the report. Based on the reasons
stated in the report, the trial court must have considered that
the reasonable attorney's fees should be P8,000.00.
Considering that the judgment against the appellant would
amount to more than P100,000.00, We believe that the award
of P8,000.00 for attorney's fees is reasonable.
5. In his fifth assignment of error appellant urges that he is
entitled to relief on his counterclaim. In view of what We have
stated in connection with the preceding four assignments of
error, We do not consider it necessary to dwell any further on
this assignment of error.
WHEREFORE, the decision appealed from is affirmed, with costs
against the defendant-appellant. It is so ordered.
70. G.R. No. L-49494
May 31, 1979
NELIA G. PONCE and VICENTE C. PONCE, petitioners, vs.
THE HONORABLE COURT OF APPEALS, and JESUSA B. AFABLE,
respondents.
MELENCIO-HERRERA, J.:
This is a Petition for Certiorari seeking to set aside the
Resolution of the Court of Appeals, dated June 8, 1978,
reconsidering its
360 | P a g e
Decision dated December 17, 1977 and reversing the judgment
of the Court of First Instance of Manila in favor of petitioners as
well as the Resolutions, dated July 6, 1978 and November 27,
1978, denying petitioners' Motion for Reconsideration.
The factual background of the case is as follows:
On June 3, 1969, private respondent Jesusa B. Afable, together
with Felisa L. Mendoza and Ma. Aurora C. Diño executed a
promissory note in favor of petitioner Nelia G. Ponce in the sum
of P814,868.42, Philippine Currency, payable, without interest,
on or before July 31, 1969. It was further provided therein that
should the indebtedness be not paid at maturity, it shall draw
interest at 12% per annum, without demand; that should it be
necessary to bring suit to enforce pay ment of the note, the
debtors shall pay a sum equivalent to 10% of the total amount
due for attorney's fees; and, in the event of failure to pay the
indebtedness plus interest in accordance with its terms, the
debtors shall execute a first mortgage in favor of the creditor
over their properties or of the Carmen Planas Memorial, Inc.
Upon the failure of the debtors to comply with the terms of the
promissory note, petitioners (Nelia G. Ponce and her husband)
filed, on July 27, 1970, a Complaint against them with the Court
of First Instance of Manila for the recovery of the principal sum
of P814,868.42, plus interest and damages.
Defendant Ma. Aurora C. Diño's Answer consisted more of a
general denial and the contention that she did not borrow any
amount from plaintiffs and that her signature on the promissory
note was obtained by plaintiffs on their assurance that the
same was for " formality only."
Defendant Jesusa B. Afable, for her part, asserted in her Answer
that the promissory note failed to express the true intent and
agreement of the parties, the true agreement being that the
obligation therein mentioned would be assumed and paid
entirely by defendant Felisa L. Mendoza; that she had signed
said document only as President of the Carmen Planas
Memorial, Inc., and that she was not to incur any personal
obligation as to the payment thereof because the same would
be repaid by defendant Mendoza and/or Carmen Planas
Memorial, Inc.
In her Amended Answer, defendant Felisa L. Mendoza admitted
the authenticity and due execution of the promissory note, but
averred that it was a recapitulation of a series of transactions
between her and the plaintiffs, "with defendant Ma. Aurora C.
Diño and Jesusa B. Afable coming only as accomodation
parties." As affirmative defense, defendant Mendoza contended
that the promissory note was the result of usurious
transactions, and, as counterclaim, she prayed that plaintiffs be
ordered to account for all the interests paid.
Plaintiffs filed their Answer to defendant Mendoza's
counterclaim denying under oath the allegations of usury.
After petitioners had rested, the case was deemed submitted
for decision since respondent Afable and her co-debtors had
repeatedly failed to appear before the trial Court for the
presentation of their evidence.
On March 9, 1972, the trial Court rendered judgment ordering
respondent Afable and her co-debtors, Felisa L. Mendoza and
Ma. Aurora C. Diño , to pay petitioners, jointly and severally, the
sum of P814,868.42, plus 12% interest per annum from July 31,
1969 until full payment, and a sum equivalent to 10% of the
total amount due as attorney's fees and costs.
From said Decision, by respondent Afable appealed to the Court
of Appeals. She argued that the contract under consideration
involved the payment of US dollars and was, therefore, illegal;
and that under the in pari delicto rule, since both parties are
361 | P a g e
guilty of violating the law, neither one can recover. It is to be
noted that said defense was not raised in her Answer.
On December 13, 1977, the Court of Appeals* rendered
judgment affirming the decision of the trial Court. In a
Resolution dated February 27, 1978, the Court of Appeals,**
denied respondent's Motion for Reconsideration. However, in a
Resolution dated June 8, 1978, the Court of Appeals acting on
the Second Motion for Reconsideration filed by private
respondent, set aside the Decision of December 13, 1977,
reversed the judgment of the trial Court and dismissed the
Complaint. The Court of Appeals opined that the intent of the
parties was that the promissory note was payable in US dollars,
and, therefore, the transaction was illegal with neither party
entitled to recover under the in pari delicto rule.
THE RESPONDENT COURT, OF APPEALS ERRED IN HOLDING
THAT REPUBLIC ACT 529, OTHERWISE KNOWN ASIAN ACT TO
ASSURE UNIFORM VALUE TO PHILIPPINE COINS AND
CURRENCY,' COVERS THE TRANSACTION OF THE PARTIES
HEREIN.
III
THE RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING
THAT PRIVATE RESPONDENT JESUSA B. AFABLE COULD NOT
FAVORABLY AVAIL HERSELF OF THE DEFENSE OF ALLEGED
APPLICABILITY OF REPUBLIC ACT 529 AND THE DOCTRINE OF IN
PARI DELICTO AS THESE WERE NOT PLEADED NOR ADOPTED BY
HER IN THE TRIAL.
IV Their Motions for Reconsideration having been denied in the
Resolutions dated July 6, 1978 and November 27, 1978,
petitioners filed the instant Petition raising the following
Assignments of Error.
I
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING
THAT THE PROMISSORY NOTE EVIDENCING THE TRANSACTION
OF THE PARTIES IS PAYABLE IN U.S. DOLLARS THEREBY
DETERMINING THE INTENT OF THE PARTIES OUTSIDE OF THEIR
PROMISSORY NOTE DESPITE LACK OF SHOWING THAT IT FAILED
TO EXPRESS THE TRUE INTENT OR AGREEMENT OF THE PARTIES
AND ITS PAYABILITY IN PHILIPPINE PESOS WHICH IS EXPRESSED,
AMONG OTHERS, BY ITS CLEAR AND PRECISE TERMS.
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING
ASSUMING ARGUENDO THAT REPUBLIC ACT 529 COVERS THE
PARTIES TRANSACTION, THAT THE Doctrine OF IN PARI DELICTO
DOES NOT APPLY AND THE PARTIES AGREEMENT WAS NOT NULL
AND VOID PURSUANT TO THE RULING IN OCTAVIO A. KALALO
VS. ALFREDO J. LUZ, NO.-27782, JULY 31, 1970.
In the Resolution dated June 8, 1978, the Court of Appeals
made the following observations:
We are convinced from the evidence that the amount awarded
by the lower Court was indeed owed by the defendants to the
plaintiffs. However, the sole issue raised in this second motion
for reconconsideration is not the existence of the obligation
itself but the legality of the subject matter of the contract. If the
subject matter is illegal and against public policy, the doctrine
of pari delicto applies.
362 | P a g e
xxx xxx xxx
We are constrained to reverse our December 13, 1977 decision.
While it is true that the promissory note does not mention any
obligation to pay in dollars, plaintiff-appellee Ponce himself
admitted that there was an agreement that he would be paid in
dollars by the defendants. The promissory note is payable in
U.S. donors. The in. tent of the parties prevails over the bare
words of the written contracts.
xxx xxx xxx
The agreement is null and void and of no effect under Republic
Act No. 529. Under the doctrine of pari delicto, no recovery can
be made in favor of the plaintiffs for being themselves guilty of
violating the law. 1
We are constrained to disagree.
Reproduced hereunder is Section 1 of Republic Act No. 529,
which was enacted on June 16, 1950:
Section 1. Every provision contained in, or made with respect
to, any domestic obligation to wit, any obligation contracted in
the Philippines which provision purports to give the obligee the
right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, be as it is hereby
declared against public policy, and null voice and of no effect
and no such provision shall be contained in, or made with
respect to, any obligation hereafter incurred. The above
prohibition shall not apply to (a) transactions were the funds
involved are the proceeds of loans or investments made
directly or indirectly, through bona fide intermediaries or
agents, by foreign governments, their agencies and
instrumentalities, and international financial and banking
institutions so long as the
funds are Identifiable, as having emanated from the sources
enumerated above; (b) transactions affecting high priority
economic projects for agricultural industrial and power
development as may be determined by the National Economic
Council which are financed by or through foreign funds; (c)
forward exchange transactions entered into between banks or
between banks and individuals or juridical persons; (d) import-
export and other international banking financial investment and
industrial transactions. With the exception of the cases
enumerated in items (a) (b), (c) and (d) in the foregoing
provision, in, which cases the terms of the parties' agreement
shag apply, every other domestic obligation heretofore or
hereafter incurred whether or not any such provision as to
payment is contained therein or made with- respect thereto,
shall be discharged upon payment in any coin or currency
which at the time of payment is legal tender for public and
private debts: Provided, That if the obligation was incurred prior
to the enactment of this Act and required payment in a
particular kind of coin or currency other than Philippine
currency, it shall be discharge in Philippine currency measured
at the prevailing rates of exchange at the time the obligation
was incurred, except in case of a loan made in foreign currency
stipulated to be payable in the currency in which case the rate
of exchange prevailing at the time of the stipulated date of
payment shall prevail All coin and currency, including Central
Bank notes, heretofore and hereafter issued and d by the
Government of the Philippines shall be legal tender for all
debts, public and private. (As amended by RA 4100, Section 1,
approved June 19, 1964) (Empahsis supplied).
It is to be noted that while an agreement to pay in dollars is
declared as null and void and of no effect, what the law
specifically prohibits is payment in currency other than legal
tender. It does not defeat a creditor's claim for payment, as it
specifically provides that "every other domestic obligation ...
whether or not any such provision as to payment is contained
363 | P a g e
therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment
is legal tender for public and private debts." A contrary rule
would allow a person to profit or enrich himself inequitably at
another's expense.
As the Court of Appeals itself found, the promissory note in
question provided on its face for payment of the obligation in
Philippine currency, i.e., P814,868.42. So that, while the
agreement between the parties originally involved a dollar
transaction and that petitioners expected to be paid in the
amount of US$194,016.29, petitioners are not now insisting on
their agreement with respondent Afable for the payment of the
obligation in dollars. On the contrary, they are suing on the
basis of the promissory note whereby the parties have already
agreed to convert the dollar loan into Philippine currency at the
rate of P4.20 to $1.00. 2 It may likewise be pointed out that the
Promissory Note contains no provision "giving the obligee the
right to require payment in a particular kind of currency other
than Philippine currency, " which is what is specifically
prohibited by RA No. 529.
At any rate, even if we were to disregard the promissory note
providing for the payment of the obligation in Philippine
currency and consider that the intention of the parties was
really to provide for payment of the obligation would be made
in dollars, petitioners can still recover the amount of
US$194,016.29, which respondent Afable and her co-debtors do
not deny having received, in its peso equivalent. As held in
Eastboard Navigation, Ltd. vs. Juan Ysmael & Co. Inc., 102 Phil.
1 (1957), and Arrieta vs. National Rice & Corn Corp., 3 if there is
any agreement to pay an obligation in a currency other than
Philippine legal tender, the same is nun and void as contrary to
public policy, pursuant to Republic Act No. 529, and the most
that could be demanded is to pay said obligation in Philippine
currency. In other words, what is prohibited by RA No. 529 is the
payment of an obligation in dollars, meaning that a creditor
cannot oblige the debtor to pay him in dollars, even if the loan
were given in said currency. In such a case, the indemnity to be
allowed should be expressed in Philippine currency on the basis
of the current rate of exchange at the time of payment. 4
The foregoing premises considered, we deem it unnecessary to
discuss the other errors assigned by petitioners.
WHEREFORE, the Resolutions of the Court of Appeals dated
June 8, 1978, July 6, 1978 and November 27, 1978 are hereby
set aside, and judgment is hereby rendered reinstating the
Decision of the Court of First Instance of Manila.
No pronouncement as to costs.
71. G.R. No. L-41764
December 19, 1980
NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner,
vs.
HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX- OFFICIO
SHERIFF HAKIM S. ABDULWAHID, respondents.
CONCEPCION JR., J.:
A petition for certiorari with preliminary injunction to annul
and/or modify the order of the Court of First Instance of
Zamboanga City (Branch ii) dated August 28, 1975 denying
petitioner's Ex-Parte Motion for Issuance of Certificate Of
Satisfaction Of Judgment.
364 | P a g e
Herein petitioner is the defendant in a complaint for collection
of a sum of money filed by the private respondent. 1 On July 19,
1974, a compromise judgment was rendered by the respondent
Judge in accordance with an amicable settlement entered into
by the parties the terms and conditions of which, are as follows:
(1) That defendant will pay to the plaintiff the amount of Fifty
Four Thousand Five Hundred Pesos (P54,500.00) at 6% interest
per annum to be reckoned from August 25, 1972;
(2) That defendant will pay to the plaintiff the amount of Six
Thousand Pesos (P6,000.00) as attorney's fees for which
P5,000.00 had been acknowledged received by the plaintiff
under Consolidated Bank and Trust Corporation Check No. 16-
135022 amounting to P5,000.00 leaving a balance of One
Thousand Pesos (P1,000.00);
(3) That the entire amount of P54,500.00 plus interest, plus the
balance of P1,000.00 for attorney's fees will be paid by
defendant to the plaintiff within five months from today, July 19,
1974; and
(4) Failure one the part of the defendant to comply with any of
the above-conditions, a writ of execution may be issued by this
Court for the satisfaction of the obligation. 2
For failure of the petitioner to comply with his judgment
obligation, the respondent Judge, upon motion of the private
respondent, issued an order for the issuance of a writ of
execution on December 21, 1974. Accordingly, writ of execution
was issued for the amount of P63,130.00 pursuant to which, the
Ex-Officio Sheriff levied upon the following personal properties
of the petitioner, to wit:
(1) Unit American Lathe 24
(1) Unit American Lathe 18 Cracker Wheeler
(1) Unit Rockford Shaper 24
and set the auction sale thereof on January 15, 1975. However,
prior to January 15, 1975, petitioner deposited with the Clerk of
Court, Court of First Instance, Zamboanga City, in his capacity
as Ex-Officio Sheriff of Zamboanga City, the sum of P63,130.00
for the payment of the judgment obligation, consisting of the
following:
1. P50.000.00 in Cashier's Check No. S-314361 dated January 3,
1975 of the Equitable Banking Corporation; and
2. P13,130.00 incash. 3
In a letter dated January 14, 1975, to the Ex-Officio Sheriff, 4
private respondent through counsel, refused to accept the
check as well as the cash deposit. In the 'same letter, private
respondent requested the scheduled auction sale on January
15, 1975 to proceed if the petitioner cannot produce the cash.
However, the scheduled auction sale at 10:00 a.m. on January
15, 1975 was postponed to 3:00 o'clock p.m. of the same day
due to further attempts to settle the case. Again, the scheduled
auction sale that afternoon did not push through because of a
last ditch attempt to convince the private respondent to accept
the check. The auction sale was then postponed on the
following day, January 16, 1975 at 10:00 o'clock a.m. 5 At about
9:15 a.m., on January 16, 1975, a certain Mr. Tañedo
representing the petitioner appeared in the office of the Ex-
Officio Sheriff and the latter reminded Mr. Tañedo that the
auction sale would proceed at 10:00 o'clock. At 10:00 a.m., Mr.
Tañedo and Mr. Librado, both representing the petitioner
requested the Ex-Officio Sheriff to give them fifteen minutes
within which to contract their lawyer which request was
granted. After Mr. Tañedo and Mr. Librado
365 | P a g e
failed to return, counsel for private respondent insisted that the
sale must proceed and the Ex-Officio Sheriff proceeded with the
auction sale. 6 In the course of the proceedings, Deputy Sheriff
Castro sold the levied properties item by item to the private
respondent as the highest bidder in the amount of P50,000.00.
As a result thereof, the Ex-Officio Sheriff declared a deficiency
of P13,130.00. 7 Thereafter, on January 16, 1975, the Ex-Officio
Sheriff issued a "Sheriff's Certificate of Sale" in favor of the
private respondent, Ricardo Tong, married to Pascuala Tong for
the total amount of P50,000.00 only. 8 Subsequently, on
January 17, 1975, petitioner filed an ex-parte motion for
issuance of certificate of satisfaction of judgment. This motion
was denied by the respondent Judge in his order dated August
28, 1975. In view thereof, petitioner now questions said order
by way of the present petition alleging in the main that said
respondent Judge capriciously and whimsically abused his
discretion in not granting the motion for issuance of certificate
of satisfaction of judgment for the following reasons: (1) that
there was already a full satisfaction of the judgment before the
auction sale was conducted with the deposit made to the Ex-
Officio Sheriff in the amount of P63,000.00 consisting of
P50,000.00 in Cashier's Check and P13,130.00 in cash; and (2)
that the auction sale was invalid for lack of proper notice to the
petitioner and its counsel when the Ex-Officio Sheriff postponed
the sale from June 15, 1975 to January 16, 1976 contrary to
Section 24, Rule 39 of the Rules of Court. On November 10,
1975, the Court issued a temporary restraining order enjoining
the respondent Ex-Officio Sheriff from delivering the personal
properties subject of the petition to Ricardo A. Tong in view of
the issuance of the "Sheriff Certificate of Sale."
We find the petition to be impressed with merit.
The main issue to be resolved in this instance is as to whether
or not the private respondent can validly refuse acceptance of
the payment of the judgment obligation made by the petitioner
consisting of P50,000.00 in Cashier's Check and P13,130.00 in
cash which it deposited with the Ex-Officio Sheriff before the
date of the scheduled auction sale. In upholding private
respondent's claim that he has the right to refuse payment by
means of a check, the respondent Judge cited the following:
Section 63 of the Central Bank Act:
Sec. 63. Legal Character. — Checks representing deposit money
do not have legal tender power and their acceptance in
payment of debts, both public and private, is at the option of
the creditor, Provided, however, that a check which has been
cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash in an amount
equal to the amount credited to his account.
Article 1249 of the New Civil Code:
Art. 1249. — The payment of debts in money shall be made in
the currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
Likewise, the respondent Judge sustained the contention of the
private respondent that he has the right to refuse payment of
the amount of P13,130.00 in cash because the said amount is
less than the judgment obligation, citing the following Article of
the New Civil Code:
366 | P a g e
Art. 1248. Unless there is an express stipulation to that effect,
the creditor cannot be compelled partially to receive the
presentations in which the obligation consists. Neither may the
debtor be required to make partial payment.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may
effect the payment of the former without waiting for the
liquidation of the latter.
It is to be emphasized in this connection that the check
deposited by the petitioner in the amount of P50,000.00 is not
an ordinary check but a Cashier's Check of the Equitable
Banking Corporation, a bank of good standing and reputation.
As testified to by the Ex-Officio Sheriff with whom it has been
deposited, it is a certified crossed check. 9 It is a well-known
and accepted practice in the business sector that a Cashier's
Check is deemed as cash. Moreover, since the said check had
been certified by the drawee bank, by the certification, the
funds represented by the check are transferred from the credit
of the maker to that of the payee or holder, and for all intents
and purposes, the latter becomes the depositor of the drawee
bank, with rights and duties of one in such situation. 10 Where
a check is certified by the bank on which it is drawn, the
certification is equivalent to acceptance. 11 Said certification
"implies that the check is drawn upon sufficient funds in the
hands of the drawee, that they have been set apart for its
satisfaction, and that they shall be so applied whenever the
check is presented for payment. It is an understanding that the
check is good then, and shall continue good, and this
agreement is as binding on the bank as its notes in circulation,
a certificate of deposit payable to the order of the depositor, or
any other obligation it can assume. The object of certifying a
check, as regards both parties, is to enable the holder to use it
as money." 12 When the holder procures the check to be
certified, "the check operates as an assignment of a part of the
funds to the creditors." 13 Hence, the exception to the rule
enunciated under Section 63 of the Central Bank Act to the
effect "that a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the
creditor in cash in an amount equal to the amount credited to
his account" shall apply in this case. Considering that the whole
amount deposited by the petitioner consisting of Cashier's
Check of P50,000.00 and P13,130.00 in cash covers the
judgment obligation of P63,000.00 as mentioned in the writ of
execution, then, We see no valid reason for the private
respondent to have refused acceptance of the payment of the
obligation in his favor. The auction sale, therefore, was uncalled
for. Furthermore, it appears that on January 17, 1975, the
Cashier's Check was even withdrawn by the petitioner and
replaced with cash in the corresponding amount of P50,000.00
on January 27, 1975 pursuant to an agreement entered into by
the parties at the instance of the respondent Judge. However,
the private respondent still refused to receive the same.
Obviously, the private respondent is more interested in the
levied properties than in the mere satisfaction of the judgment
obligation. Thus, petitioner's motion for the issuance of a
certificate of satisfaction of judgment is clearly meritorious and
the respondent Judge gravely abused his discretion in not
granting the same under the circumstances.
In view of the conclusion reached in this instance, We find no
more need to discuss the ground relied in the petition.
It is also contended by the private respondent that Appeal and
not a special civil action for certiorari is the proper remedy in
this case, and that since the period to appeal from the decision
of the respondent Judge has already expired, then, the present
petition has been filed out of time. The contention is untenable.
The decision of the respondent Judge in Civil Case No. 250
(166) has long become final and executory and so, the same is
not being questioned herein. The subject of the petition at bar
as having
367 | P a g e
been issued in grave abuse of discretion is the order dated
August 28, 1975 of the respondent Judge which was merely
issued in execution of the said decision. Thus, even granting
that appeal is open to the petitioner, the same is not an
adequate and speedy remedy for the respondent Judge had
already issued a writ of execution. 14
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered:
1. Declaring as null and void the order of the respondent Judge
dated August 28, 1975;
2. Declaring as null and void the auction sale conducted on
January 16, 1975 and the certificate of sale issued pursuant
thereto;
3. Ordering the private respondent to accept the sum of
P63,130.00 under deposit as payment of the judgment
obligation in his favor;
4. Ordering the respondent Judge and respondent Ex-Officio
Sheriff to release the levied properties to the herein petitioner.
The temporary restraining order issued is hereby made
permanent.
Costs against the private respondent.
72. [G.R. No. 72110. November 16, 1990.]
ROMAN CATHOLIC BISHOP OF MALOLOS, INC., Petitioner, v.
INTERMEDIATE APPELLATE COURT, and
ROBES-FRANCISCO REALTY AND DEVELOPMENT CORPORATION,
Respondents.
SARMIENTO, J.:
This is a petition for review on certiorari which seeks the
reversal and setting aside of the decision 1 of the Court of
Appeals, 2 the dispositive portion of which reads:chanrobles law
library : red
WHEREFORE, the decision appealed from is hereby reversed
and set aside and another one entered for the plaintiff ordering
the defendant-appellee Roman Catholic Bishop of Malolos, Inc.
to accept the balance of P124,000.00 being paid by plaintiff-
appellant and thereafter to execute in favor of Robes-Francisco
Realty Corporation a registerable Deed of Absolute Sale over
20,655 square meters portion of that parcel of land situated in
San Jose del Monte, Bulacan described in OCT No. 575 (now
Transfer Certificates of Title Nos. T-169493, 169494,169495 and
169496) of the Register of Deeds of Bulacan. In case of refusal
of the defendant to execute the Deed of Final Sale, the clerk of
court is directed to execute the said document. Without
pronouncement as to damages and attorney’s fees. Costs
against the defendant-appellee. 3
The case at bar arose from a complaint filed by the private
respondent, then plaintiff, against the petitioner, then
defendant, in the Court of First Instance (now Regional Trial
Court) of Bulacan, at Sta. Maria, Bulacan, 4 for specific
performance with damages, based on a contract 5 executed on
July 7, 1971.
The property subject matter of the contract consists of a 20,655
sq.m.-portion, out of the 30,655 sq.m. total area, of a parcel of
land covered by Original Certificate of Title No. 575 of the
Province of Bulacan, issued and registered in the name of the
368 | P a g e
petitioner which it sold to the private respondent for and in
consideration of P123,930.00.chanrobles virtual lawlibrary
The crux of the instant controversy lies in the compliance or
non- compliance by the private respondent with the provision
for payment to the petitioner of the principal balance of
P100,000.00 and the accrued interest of P24,000.00 within the
grace period.
A chronological narration of the antecedent facts is as
follows:chanrob1es virtual 1aw library
On July 7, 1971, the subject contract over the land in question
was executed between the petitioner as vendor and the private
respondent through its then president, Mr. Carlos F. Robes, as
vendee, stipulating for a downpayment of P23,930.00 and the
balance of P100,000.00 plus 12% interest per annum to be paid
within four (4) years from execution of the contract, that is, on
or before July 7, 1975. The contract likewise provides for
cancellation, forfeiture of previous payments, and
reconveyance of the land in question in case the private
respondent would fail to complete payment within the said
period.
On March 12, 1973, the private respondent, through its new
president, Atty. Adalia Francisco, addressed a letter 6 to Father
Vasquez, parish priest of San Jose Del Monte, Bulacan,
requesting to be furnished with a copy of the subject contract
and the supporting documents.
On July 17, 1975, admittedly after the expiration of the
stipulated period for payment, the same Atty. Francisco wrote
the petitioner a formal request 7 that her company be allowed
to pay the principal amount of P100,000.00 in three (3) equal
installments of six (6) months each with the first installment
and the accrued interest of P24,000.00 to be paid immediately
upon approval of the said request.
On July 29, 1975, the petitioner, through its counsel, Atty.
Carmelo Fernandez, formally denied the said request of the
private respondent, but granted the latter a grace period of five
(5) days from the receipt of the denial 8 to pay the total
balance of P124,000.00, otherwise, the provisions of the
contract regarding cancellation, forfeiture, and reconveyance
would be implemented.
On August 4, 1975, the private respondent, through its
president, Atty. Francisco, wrote 9 the counsel of the petitioner
requesting an extension of 30 days from said date to fully settle
its account. The counsel for the petitioner, Atty. Fernandez,
received the said letter on the same day. Upon consultation
with the petitioner in Malolos, Bulacan, Atty. Fernandez, as
instructed, wrote the private respondent a letter 10 dated
August 7, 1975 informing the latter of the denial of the request
for an extension of the grace period.
Consequently, Atty. Francisco, the private respondent’s
president, wrote a letter 11 dated August 22, 1975, directly
addressed to the petitioner, protesting the alleged refusal of
the latter to accept tender of payment purportedly made by the
former on August 5, 1975, the last day of the grace period. In
the same letter of August 22, 1975, received on the following
day by the petitioner, the private respondent demanded the
execution of a deed of absolute sale over the land in question
and after which it would pay its account in full, otherwise,
judicial action would be resorted to.chanrobles.com.ph : virtual
law library
On August 27, 1975, the petitioner’s counsel, Atty. Fernandez,
wrote a reply 12 to the private respondent stating the refusal of
his client to execute the deed of absolute sale due to its
(private respondent’s) failure to pay its full obligation.
Moreover, the petitioner denied that the private respondent had
made any tender of payment whatsoever within the grace
period. In view of this alleged breach of contract, the petitioner
cancelled the
369 | P a g e
contract and considered all previous payments forfeited and the
land as ipso facto reconveyed.
From a perusal of the foregoing facts, we find that both the
contending parties have conflicting versions on the main
question of tender of payment.
The trial court, in its ratiocination, preferred not to give
credence to the evidence presented by the private Respondent.
According to the trial court:chanrob1es virtual 1aw library
. . . What made Atty. Francisco suddenly decide to pay plaintiff’s
obligation on August 5, 1975, go to defendant’s office at
Malolos, and there tender her payment, when her request of
August 4, 1975 had not yet been acted upon until August 7,
1975? If Atty. Francisco had decided to pay the obligation and
had available funds for the purpose on August 5, 1975, then
there would have been no need for her to write defendant on
August 4, 1975 to request an extension of time. Indeed, Atty.
Francisco’s claim that she made a tender of payment on August
5, 1975 — such alleged act, considered in relation to the
circumstances both antecedent and subsequent thereto, being
not in accord with the normal pattern of human conduct — is
not worthy of credence. 13
The trial court likewise noted the inconsistency in the testimony
of Atty. Francisco, president of the private respondent, who
earlier testified that a certain Mila Policarpio accompanied her
on August 5, 1975 to the office of the petitioner. Another
person, however, named Aurora Oracion, was presented to
testify as the secretary-companion of Atty. Francisco on that
same occasion.
Furthermore, the trial court considered as fatal the failure of
Atty. Francisco to present in court the certified personal check
allegedly tendered as payment or, at least, its xerox copy, or
even bank records thereof. Finally, the trial court found that the
private respondent had insufficient funds available to fulfill the
entire obligation considering that the latter, through its
president, Atty. Francisco, only had a savings account deposit of
P64,840.00, and although the latter had a money-market
placement of P300,000.00, the same was to mature only after
the expiration of the 5-day grace period.
Based on the above considerations, the trial court rendered a
decision in favor of the petitioner, the dispositive portion of
which reads:chanrobles virtual lawlibrary
WHEREFORE, finding plaintiff to have failed to make out its
case, the court hereby declares the subject contract cancelled
and plaintiff’s downpayment of P23,930.00 forfeited in favor of
defendant, and hereby dismisses the complaint; and on the
counterclaim, the Court orders plaintiff to pay defendant.
(1) Attorney’s fees of P10,000.00;
(2) Litigation expenses of P2,000.00; and (3) Judicial costs.
SO ORDERED. 14
Not satisfied with the said decision, the private respondent
appealed to the respondent Intermediate Appellate Court (now
Court of Appeals) assigning as reversible errors, among others,
the findings of the trial court that the available funds of the
private respondent were insufficient and that the latter did not
effect a valid tender of payment and consignation.
The respondent court, in reversing the decision of the trial
court, essentially relies on the following findings:chanrob1es
virtual 1aw library
370 | P a g e
. . . We are convinced from the testimony of Atty. Adalia
Francisco and her witnesses that in behalf of the plaintiff-
appellant they have a total available sum of P364,840.00 at her
and at the plaintiff’s disposal on or before August 4, 1975 to
answer for the obligation of the plaintiff-appellant. It was not
correct for the trial court to conclude that the plaintiff-appellant
had only about P64,840.00 in savings deposit on or before
August 5, 1975, a sum not enough to pay the outstanding
account of P124,000.00. The plaintiff-appellant, through Atty.
Francisco proved and the trial court even acknowledged that
Atty. Adalia Francisco had about P300,000.00 in money market
placement. The error of the trial court has in concluding that
the money market placement of P300,000.00 was out of reach
of Atty. Francisco. But as testified to by Mr. Catalino Estrella, a
representative of the Insular Bank of Asia and America, Atty.
Francisco could withdraw anytime her money market placement
and place it at her disposal, thus proving her financial capability
of meeting more than the whole of P124,000.00 then due per
contract. This situation, We believe, proves the truth that Atty.
Francisco apprehensive that her request for a 30-day grace
period would be denied, she tendered payment on August 4,
1975 which offer defendant through its representative and
counsel refused to receive. . .15 (Emphasis supplied)
In other words, the respondent court, finding that the private
respondent had sufficient available funds, ipso facto concluded
that the latter had tendered payment. Is such conclusion
warranted by the facts proven? The petitioner submits that it is
not.cralawnad
Hence, this petition. 16
The petitioner presents the following issues for
resolution:chanrob1es virtual 1aw library
xxx
A. Is a finding that private respondent had sufficient available
funds on or before the grace period for the payment of its
obligation proof that it (private respondent) did tender of (sic)
payment for its said obligation within said period?
xxx
B. Is it the legal obligation of the petitioner (as vendor) to
execute a deed of absolute sale in favor of the private
respondent (as vendee) before the latter has actually paid the
complete consideration of the sale — where the contract
between and executed by the parties stipulates —
"That upon complete payment of the agreed consideration by
the herein VENDEE, the VENDOR shall cause the execution of a
Deed of Absolute Sale in favor of the VENDEE."cralaw virtua1aw
library
xxx.
C. Is an offer of a check a valid tender of payment of an
obligation under a contract which stipulates that the
consideration of the sale is in Philippine Currency? 17
We find the petition impressed with merit.
With respect to the first issue, we agree with the petitioner that
a finding that the private respondent had sufficient available
funds on or before the grace period for the payment of its
obligation does not constitute proof of tender of payment by
the latter for its obligation within the said period. Tender of
payment involves a positive and unconditional act by the
obligor of offering legal tender currency as payment to the
obligee for the former’s
371 | P a g e
obligation and demanding that the latter accept the same.
Thus, tender of payment cannot be presumed by a mere
inference from surrounding circumstances. At most, sufficiency
of available funds is only affirmative of the capacity or ability of
the obligor to fulfill his part of the bargain. But whether or not
the obligor avails himself of such funds to settle his outstanding
account remains to be proven by independent and credible
evidence. Tender of payment presupposes not only that the
obligor is able, ready, and willing, but more so, in the act of
performing his obligation. Ab posse ad actu non vale illatio. "A
proof that an act could have been done is no proof that it was
actually done."cralaw virtua1aw library
The respondent court was therefore in error to have concluded
from the sheer proof of sufficient available funds on the part of
the private respondent to meet more than the total obligation
within the grace period, the alleged truth of tender of payment.
The same is a classic case of non-sequitur.chanrobles virtual
lawlibrary
On the contrary, the respondent court finds itself remiss in
overlooking or taking lightly the more important findings of fact
made by the trial court which we have earlier mentioned and
which as a rule, are entitled to great weight on appeal and
should be accorded full consideration and respect and should
not be disturbed unless for strong and cogent reasons. 18
While the Court is not a trier of facts, yet, when the findings of
fact of the Court of Appeals are at variance with those of the
trial court, 19 or when the inference of the Court of Appeals
from its findings of fact is manifestly mistaken, 20 the Court has
to review the evidence in order to arrive at the correct findings
based on the record.
Apropos the second issue raised, although admittedly the
documents for the deed of absolute sale had not been
prepared,
the subject contract clearly provides that the full payment by
the private respondent is an a priori condition for the execution
of the said documents by the petitioner.
That upon complete payment of the agreed consideration by
the herein VENDEE, the VENDOR shall cause the execution of a
Deed of Absolute Sale in favor of the VENDEE. 21
The private respondent is therefore in estoppel to claim
otherwise as the latter did in the testimony in cross-
examination of its president, Atty. Francisco, which
reads:chanrob1es virtual 1aw library
Q Now, you mentioned, Atty. Francisco, that you wanted the
defendant to execute the final deed of sale before you would
given (sic) the personal certified check in payment of your
balance, is that correct?
A Yes, sir. 22 xxx
Art. 1159 of the Civil Code of the Philippines provides that
"obligations arising from contracts have the force of law
between the contracting parties and should be complied with in
good faith." And unless the stipulations in said contract are
contrary to law, morals, good customs, public order, or public
policy, the same are binding as between the parties.23
What the private respondent should have done if it was indeed
desirous of complying with its obligations would have been to
pay the petitioner within the grace period and obtain a receipt
of such payment duly issued by the latter. Thereafter, or,
allowing a reasonable time, the private respondent could have
demanded from the petitioner the execution of the necessary
documents. In
372 | P a g e
case the petitioner refused, the private respondent could have
had always resorted to judicial action for the legitimate
enforcement of its right. For the failure of the private
respondent to undertake this more judicious course of action, it
alone shall suffer the consequences.chanrobles.com:cralaw:red
With regard to the third issue, granting arguendo that we would
rule affirmatively on the two preceding issues, the case of the
private respondent still can not succeed in view of the fact that
the latter used a certified personal check which is not legal
tender nor the currency stipulated, and therefore, can not
constitute valid tender of payment. The first paragraph of Art.
1249 of the Civil Code provides that "the payment of debts in
money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is
legal tender in the Philippines.
The Court en banc in the recent case of Philippine Airlines v.
Court of Appeals, 24 G.R. No. L-49188, stated thus:chanrob1es
virtual 1aw library
Since a negotiable instrument is only a substitute for money
and not money, the delivery of such an instrument does not, by
itself, operate as payment (citing Sec. 189, Act 2031 on Negs.
Insts.; Art. 1249, Civil Code; Bryan London Co. v. American
Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60,
61). A check, whether a manager’s check or ordinary check, is
not legal tender, and an offer of a check in payment of a debt is
not a valid tender of payment and may be refused receipt by
the obligee or creditor.
Hence, where the tender of payment by the private respondent
was not valid for failure to comply with the requisite payment in
legal tender or currency stipulated within the grace period and
as such, was validly refused receipt by the petitioner, the
subsequent consignation did not operate to discharge the
former from its obligation to the latter.
In view of the foregoing, the petitioner in the legitimate
exercise of its rights pursuant to the subject contract, did
validly order therefore the cancellation of the said contract, the
forfeiture of the previous payment, and the reconveyance ipso
facto of the land in question.chanrobles lawlibrary : rednad
WHEREFORE, the petition for review on certiorari is GRANTED
and the DECISION of the respondent court promulgated on April
25, 1985 is hereby SET ASIDE and ANNULLED and the DECISION
of the trial court dated May 25, 1981 is hereby REINSTATED.
Costs against the private Respondent.
73. G.R. No. 100290
June 4, 1993
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN,
respondents.
PADILLA, J.:
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are
before this Court assailing the decision * of respondent
appellate court dated 24 April 1991 in CA-G.R. SP No. 24164
denying their petition for certiorari prohibition, and injunction
which sought to annul the order of Judge Eutropio Migriño of the
Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil
Case No. 54863 entitled "Eden Tan vs. Sps. Norberto and
Carmen Tibajia."
Stated briefly, the relevant facts are as follows:
373 | P a g e
Case No. 54863 was a suit for collection of a sum of money filed
by Eden Tan against the Tibajia spouses. A writ of attachment
was issued by the trial court on 17 August 1987 and on 17
September 1987, the Deputy Sheriff filed a return stating that a
deposit made by the Tibajia spouses in the Regional Trial Court
of Kalookan City in the amount of Four Hundred Forty Two
Thousand Seven Hundred and Fifty Pesos (P442,750.00) in
another case, had been garnished by him. On 10 March 1988,
the Regional Trial Court, Branch 151 of Pasig, Metro Manila
rendered its decision in Civil Case No. 54863 in favor of the
plaintiff Eden Tan, ordering the Tibajia spouses to pay her an
amount in excess of Three Hundred Thousand Pesos
(P300,000.00). On appeal, the Court of Appeals modified the
decision by reducing the award of moral and exemplary
damages. The decision having become final, Eden Tan filed the
corresponding motion for execution and thereafter, the
garnished funds which by then were on deposit with the cashier
of the Regional Trial Court of Pasig, Metro Manila, were levied
upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy
Sheriff Eduardo Bolima the total money judgment in the
following form:
ground that payment in cashier's check is not payment in legal
tender and that payment was made by a third party other than
the defendant. A motion for reconsideration was denied on 8
February 1991. Thereafter, the spouses Tibajia filed a petition
for certiorari, prohibition and injunction in the Court of Appeals.
The appellate court dismissed the petition on 24 April 1991
holding that payment by cashier's check is not payment in legal
tender as required by Republic Act No. 529. The motion for
reconsideration was denied on 27 May 1991.
In this petition for review, the Tibajia spouses raise the
following issues:
I WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN
THE AMOUNT OF P262,750.00 TENDERED BY PETITIONERS FOR
PAYMENT OF THE JUDGMENT DEBT, IS "LEGAL TENDER".
II WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY
REFUSE THE TENDER OF PAYMENT PARTLY IN CHECK AND
PARTLY IN CASH MADE BY PETITIONERS, THRU AURORA VITO
AND COUNSEL, FOR THE SATISFACTION OF THE MONETARY
OBLIGATION OF PETITIONERS-SPOUSES. 1
The only issue to be resolved in this case is whether or not
payment by means of check (even by cashier's check) is
considered payment in legal tender as required by the Civil
Code, Republic Act No. 529, and the Central Bank Act.
It is contended by the petitioners that the check, which was a
cashier's check of the Bank of the Philippine Islands,
undoubtedly a bank of good standing and reputation, and which
was a crossed check marked "For Payee's Account Only" and
payable to private respondent Eden Tan, is considered legal
tender, payment with which operates to discharge their
monetary obligation. 2 Petitioners, to support their contention,
cite the case of New
Cashier's Check Cash 135,733.70 ————
Total P398,483.70
P262,750.00
Private respondent, Eden Tan, refused to accept the payment
made by the Tibajia spouses and instead insisted that the
garnished funds deposited with the cashier of the Regional Trial
Court of Pasig, Metro Manila be withdrawn to satisfy the
judgment obligation. On 15 January 1991, defendant spouses
(petitioners) filed a motion to lift the writ of execution on the
ground that the judgment debt had already been paid. On 29
January 1991, the motion was denied by the trial court on the
374 | P a g e
Pacific Timber and Supply Co., Inc. v. Señeris 3 where this Court
held through Mr. Justice Hermogenes Concepcion, Jr. that "It is a
well-known and accepted practice in the business sector that a
cashier's check is deemed as cash".
The provisions of law applicable to the case at bar are the
following:
a. Article 1249 of the Civil Code which provides:
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.;
b. Section 1 of Republic Act No. 529, as amended, which
provides:
Sec. 1. Every provision contained in, or made with respect to,
any obligation which purports to give the obligee the right to
require payment in gold or in any particular kind of coin or
currency other than Philippine currency or in an amount of
money of the Philippines measured thereby, shall be as it is
hereby declared against public policy null and void, and of no
effect, and no such provision shall be contained in, or made
with respect to, any obligation thereafter incurred. Every
obligation heretofore and hereafter incurred, whether or not
any such provision as to payment is contained therein or made
with respect thereto, shall
be discharged upon payment in any coin or currency which at
the time of payment is legal tender for public and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central
Bank Act) which provides:
Sec. 63. Legal character — Checks representing deposit money
do not have legal tender power and their acceptance in the
payment of debts, both public and private, is at the option of
the creditor: Provided, however, that a check which has been
cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount
equal to the amount credited to his account.
From the aforequoted provisions of law, it is clear that this
petition must fail.
In the recent cases of Philippine Airlines, Inc. vs. Court of
Appeals 4 and Roman Catholic Bishop of Malolos, Inc. vs.
Intermediate Appellate Court, 5 this Court held that —
A check, whether a manager's check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is not
a valid tender of payment and may be refused receipt by the
obligee or creditor.
The ruling in these two (2) cases merely applies the statutory
provisions which lay down the rule that a check is not legal
tender and that a creditor may validly refuse payment by
check, whether it be a manager's, cashier's or personal check.
Petitioners erroneously rely on one of the dissenting opinions in
the Philippine Airlines case 6 to support their cause. The
dissenting opinion however does not in any way support the
contention that a check is legal tender but, on the contrary,
states that "If the PAL checks in question had not been
encashed by
375 | P a g e
Sheriff Reyes, there would be no payment by PAL and,
consequently, no discharge or satisfaction of its judgment
obligation." 7 Moreover, the circumstances in the Philippine
Airlines case are quite different from those in the case at bar for
in that case the checks issued by the judgment debtor were
made payable to the sheriff, Emilio Z. Reyes, who encashed the
checks but failed to deliver the proceeds of said encashment to
the judgment creditor.
In the more recent case of Fortunado vs. Court of Appeals, 8
this Court stressed that, "We are not, by this decision,
sanctioning the use of a check for the payment of obligations
over the objection of the creditor."
WHEREFORE, the petition is DENIED. The appealed decision is
hereby AFFIRMED, with costs against the petitioners.
Background Facts
RRI Lending Corporation (respondent) is an entity engaged in
the business of lending money to its borrowers within Metro
Manila. It is duly represented by its General Manager, Mr. Dario
J. Bernardez (Bernardez).
Sometime in September 1996, the petitioner and his younger
brother, Rolando A. Bognot (collectively referred to as the
"Bognot siblings"), applied for and obtained a loan of Five
Hundred Thousand Pesos (P500,000.00) from the respondent,
payable on November 30, 1996.4 The loan was evidenced by a
promissory note and was secured by a post dated check5 dated
November 30, 1996.
Evidence on record shows that the petitioner renewed the loan
several times on a monthly basis. He paid a renewal fee of
P54,600.00 for each renewal, issued a new post-dated checkas
security, and executed and/or renewed the promissory note
previouslyissued. The respondent on the other hand, cancelled
and returned to the petitioner the post-dated checks issued
prior to their renewal.
Sometime in March 1997, the petitioner applied for another
loan renewal. He again executed as principal and signed
Promissory Note No. 97-0356 payable on April 1, 1997; his co-
maker was again Rolando. As security for the loan, the
petitioner also issued BPI Check No. 0595236,7 post dated to
April 1, 1997.8
Subsequently, the loan was again renewed on a monthly basis
(until June 30, 1997), as shown by the Official Receipt No. 7979
dated May 5, 1997, and the Disclosure Statement dated May
30, 1997 duly signed by Bernardez. The petitioner purportedly
paid the renewal fees and issued a post-dated check dated June
30, 1997 as security. As had been done in the past, the
respondent superimposed the
74. G.R. No. 180144
September 24, 2014
LEONARDO BOGNOT, Petitioner,
vs.
RRI LENDING CORPORATION, represented by its General
Manager, DARIO J. BERNARDEZ, Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari1 filed by
Leonardo Bognot (petitioner) assailing the March 28, 2007
decision2 and the October 15, 2007 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 66915.
376 | P a g e
date "June 30, 1997" on the upper right portion of Promissory
Note No. 97-035 to make it appear that it would mature on the
said date.
Several days before the loan’s maturity, Rolando’s wife, Julieta
Bognot (Mrs. Bognot), went to the respondent’s office and
applied for another renewal of the loan. She issued in favor of
the respondent Promissory Note No. 97-051, and International
Bank Exchange (IBE) Check No. 00012522, dated July 30, 1997,
in the amount of P54,600.00 as renewal fee.
On the excuse that she needs to bring home the loan
documents for the Bognot siblings’ signatures and replacement,
Mrs. Bognot asked the respondent’s clerk to release to her the
promissory note, the disclosure statement, and the check dated
July 30, 1997. Mrs. Bognot, however, never returned these
documents nor issued a new post-dated check. Consequently,
the respondent sent the petitioner follow-up letters demanding
payment of the loan, plus interest and penalty charges. These
demands went unheeded.
On November 27, 1997, the respondent, through Bernardez,
filed a complaint for sum of money before the Regional Trial
Court (RTC) against the Bognot siblings. The respondent mainly
alleged that the loan renewal payable on June 30, 1997 which
the Bognot siblings applied for remained unpaid; that before
June30, 1997, Mrs. Bognot applied for another loan extension
and issued IBE Check No. 00012522 as payment for the renewal
fee; that Mrs. Bognot convinced the respondent’s clerk to
release to her the promissory note and the other loan
documents; that since Mrs. Bognot never issued any
replacement check, no loanextension took place and the loan,
originally payable on June 30, 1997, became due on this date;
and despite repeated demands, the Bognot siblings failed to
pay their joint and solidary obligation.
Summons were served on the Bognotsiblings. However, only
the petitioner filed his answer.
In his Answer,10 the petitioner claimed that the complaint
states no cause of action because the respondent’s claim had
been paid, waived, abandoned or otherwise extinguished. He
denied being a party to any loan application and/or renewal in
May 1997. He also denied having issued the BPI check post-
dated to June 30, 1997, as well as the promissory note dated
June 30, 1997, claiming that this note had been tampered. He
claimed that the one (1) month loan contracted by Rolando and
his wife in November 1996 which was lastly renewed in March
1997 had already been fully paid and extinguished in April
1997.11
Trial on the merits thereafter ensued.
The Regional Trial Court Ruling
12
In a decision
respondent’s favor and ordered the Bognot siblings to pay the
amount of the loan, plus interest and penalty charges. It
considered the wordings of the promissory note and found that
the loan they contracted was joint and solidary. It also noted
that the petitioner signed the promissory note as a principal
(and not merely as a guarantor), while Rolando was the co-
maker. It brushed the petitioner’s defense of full payment
aside, ruling that the respondent had successfully proven, by
preponderance of evidence, the nonpayment of the loan. The
trial court said:
dated January 17, 2000,the RTC ruled in the
Records likewise reveal that while he claims that the obligation
had been fully paid in his Answer, he did not, in order to protect
his right filed (sic) a cross-claim against his co-defendant
Rolando Bognot despite the fact that the latter did not file any
responsive pleading.
In fine, defendants are liable solidarily to plaintiff and must pay
the loan of P500,000.00 plus 5% interest monthly as well as
10% monthly penalty charges from the filing of the complaint
on December 3, 1997 until fully paid. As plaintiff was
constrained to
377 | P a g e
engage the services of counsel in order to protect his
right,defendants are directed to pay the former jointly and
severally the amount of P50,000.00 as and by way of attorney’s
fee.
The petitioner appealed the decision to the Court of Appeals.
The Court of Appeals Ruling
In its decision dated March 28, 2007, the CA affirmed the RTC’s
findings. It found the petitioner’s defense of payment untenable
and unsupported by clear and convincing evidence. It observed
that the petitioner did not present any evidence showing that
the check dated June 30, 1997 had, in fact, been encashed by
the respondent and the proceeds applied to the loan, or any
official receipt evidencing the payment of the loan. It further
stated that the only document relied uponby the petitioner to
substantiate his defense was the April 1, 1997 checkhe issued
which was cancelled and returned to him by the respondent.
The CA, however, noted the respondent’s established policy of
cancelling and returning the post-dated checks previously
issued, as well as the subsequent loan renewals applied for by
the petitioner, as manifested by the official receipts under his
name. The CA thus ruled that the petitioner failed to discharge
the burden of proving payment.
The petitioner moved for the reconsideration of the decision,
but the CA denied his motion in its resolution of October 15,
2007, hence, the present recourse to us pursuant toRule 45 of
the Rules of Court.
The Petition
The petitioner submits that the CA erred in holding him
solidarily liable with Rolando and his wife. Heclaimed that based
on the legal
presumption provided by Article 1271 of the Civil Code,13 his
obligation had been discharged by virtue of his possession of
the post-dated check (stamped "CANCELLED") that evidenced
his indebtedness. He argued that it was Mrs. Bognot who
subsequently assumed the obligation by renewing the loan,
paying the fees and charges, and issuing a check. Thus, there is
an entirely new obligation whose payment is her sole
responsibility.
The petitioner also argued that as a result of the alteration of
the promissory note without his consent (e.g., the
superimposition of the date "June 30, 1997" on the upper right
portion of Promissory Note No. 97-035 to make it appear that it
would mature on this date), the respondent can no longer
collect on the tampered note, let alone, hold him solidarily
liable with Rolando for the payment of the loan. He maintained
that even without the proof of payment, the material alteration
of the promissory note is sufficient to extinguish his liability.
Lastly, he claimed that he had been released from his
indebtedness by novation when Mrs. Bognot renewed the loan
and assumed the indebtedness.
The Case for the Respondents
The respondent submits that the issues the petitioner raised
hinge on the appreciation of the adduced evidence and of the
factual lower courts’ findings that, as a rule, are notreviewable
by this Court.
The Issues
The case presents to us the following issues:
1. Whether the CA committed a reversible error in holding the
petitioner solidarily liable with Rolando;
378 | P a g e
2. Whether the petitioner is relieved from liability by reason of
the material alteration in the promissory note; and
3. Whether the parties’ obligation was extinguished by: (i)
payment; and (ii) novation by substitution of debtors.
Our Ruling We find the petition partly meritorious.
As a rule, the Court’s jurisdiction in a Rule 45 petition is limited
to the review of pure questions of law.14 Appreciation of
evidence and inquiry on the correctness of the appellate court's
factual findings are not the functions of this Court; we are not a
trier of facts.15
A question of law exists when the doubt or dispute relates to
the application of the law on given facts. On the other hand, a
question of fact exists when the doubt or dispute relates to the
truth or falsity of the parties’ factual allegations.16
As the respondent correctly pointedout, the petitioner’s
allegations are factual issuesthat are not proper for the petition
he filed. In the absence of compelling reasons, the Court cannot
re-examine, review or re-evaluate the evidence and the lower
courts’ factual conclusions. This is especially true when the CA
affirmed the lower court’s findings, as in this case. Since the
CA’s findings of facts affirmed those of the trial court, they are
binding on this Court, rendering any further factual review
unnecessary.
If only to lay the issues raised - both factual and legal – to rest,
we shall proceed to discuss their merits and demerits.
No Evidence Was Presented to Establish the Fact of Payment
Jurisprudence tells us that one who pleads payment has the
burden of proving it;17 the burden rests on the defendant to
prove payment, rather than on the plaintiff to prove non-
payment.18 Indeed, once the existence of an indebtedness is
duly established by evidence, the burden of showing with legal
certainty that the obligation has been discharged by payment
rests on the debtor.19
In the present case, the petitioner failed to satisfactorily prove
that his obligation had already been extinguished by payment.
As the CA correctly noted, the petitioner failed to present any
evidence that the respondent had in fact encashed his check
and applied the proceeds to the payment of the loan. Neither
did he present official receipts evidencing payment, nor any
proof that the check had been dishonored.
We note that the petitioner merely relied on the respondent’s
cancellation and return to him of the check dated April 1, 1997.
The evidence shows that this check was issued to secure the
indebtedness. The acts imputed on the respondent, standing
alone, do not constitute sufficient evidence of payment.
Article 1249, paragraph 2 of the Civil Code provides: x x x x
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
(Emphasis supplied)
Also, we held in Bank of the Philippine Islands v. Spouses
Royeca:20
Settled is the rule that payment must be made in legal tender.
A check is not legal tender and, therefore, cannot constitute a
valid tender of payment. Since a negotiable instrument is only a
379 | P a g e
substitute for money and not money, the delivery of such an
instrument does not, by itself, operate as payment. Mere
delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains
suspended until the payment by commercial document is
actually realized.(Emphasis supplied)
Although Article 1271 of the Civil Code provides for a legal
presumption of renunciation of action (in cases where a private
document evidencing a credit was voluntarily returned by the
creditor to the debtor), this presumption is merely prima
facieand is not conclusive; the presumption loses efficacy when
faced with evidence to the contrary.
Moreover, the cited provision merely raises a presumption, not
of payment, but of the renunciation of the credit where more
convincing evidence would be required than what normally
would be called for to prove payment.21 Thus, reliance by the
petitioner on the legal presumption to prove payment is
misplaced.
To reiterate, no cash payment was proven by the petitioner. The
cancellation and return of the check dated April 1, 1997, simply
established his renewal of the loan – not the fact of payment.
Furthermore, it has been established during trial, through
repeated acts, that the respondent cancelled and surrendered
the post-dated check previously issued whenever the loan is
renewed. We trace whatwould amount to a practice under the
facts of this case, to the following testimonial exchanges:
Civil Case No. 97-0572
TSN December 14, 1998, Page 13. Atty. Almeda:
Q: In the case of the renewal of the loan you admitted that a
renewal fee is charged to the debtor which he or she must pay
before a renewal is allowed. I show you Exhibit "3" official
receipt of plaintiff dated July 3, 1997, would this be your official
receipt which you issued to your client which they make
renewal of the loan?
A: Yes, sir.
xxxxxxxxx
Q: And naturally when a loan has been renewed, the old one
which is replaced by the renewal has already been cancelled, is
that correct?
A: Yes, sir.
Q: It is also true to say that all promissory notes and all
postdated checks covered by the old loan which have been the
subject of the renewal are deemed cancelled and replaced is
that correct?
A: Yes, sir. xxx22
Civil Case No. 97-0572
TSN November 27, 1998, Page 27.
Q: What happened to the check that Mr. Bognot issued?
Court: There are two Bognots. Who in particular?
Q: Leonardo Bognot, Your Honor.
A: Every month, they were renewed, he issued a new check, sir.
Q: Do you have a copy of the checks?
380 | P a g e
A: We returned the check upon renewing the loan.23
In light of these exchanges, wefind that the petitioner failed to
discharge his burden ofproving payment.
The Alteration of the Promissory Note
Did Not Relieve the Petitioner From Liability
We now come to the issue of material alteration. The petitioner
raised as defense the alleged material alteration of Promissory
Note No. 97-035 as basis to claim release from his loan. He
alleged that the respondent’s superimposition of the due date
"June 30, 1997" on the promissory note without his consent
effectively relieved him of liability.
We find this defense untenable.
Although the respondent did not dispute the fact of alteration,
he nevertheless denied that the alteration was done without
the petitioner’s consent. The parties’ Pre-Trial Order dated
November 3, 199824 states that:
xxx There being no possibility of a possible compromise
agreement, stipulations, admissions, and denials were made, to
wit:
FOR DEFENDANT LEONARDO BOGNOT
13. That the promissory note subject of this case marked as
Annex "A" of the complaint was originally dated April 1, 1997
with a superimposed rubber stamp mark "June 30, 1997" to
which the plaintiff admitted the superimposition.
14. The superimposition was done without the knowledge,
consent or prior consultation with Leonardo Bognot which was
denied by plaintiff."25 (Emphasis supplied)
Significantly, the respondent also admitted in the Pre-Trial Order
that part of its company practice is to rubber stamp, or make a
superimposition through a rubber stamp, the old promissory
note which has been renewed to make it appear that there is a
new loan obligation. The petitioner did not rebut this statement.
To our mind, the failure to rebut is tantamount to an admission
of the respondent’s allegations:
"22. That it is the practice of plaintiff to just rubber stamp or
make superimposition through a rubber stamp on old
promissory note which has been renewed to make it appear
that there is a new loan obligation to which the plaintiff
admitted." (Emphasis Supplied).26
Even assuming that the note had indeed been tampered
without the petitioner’s consent, the latter cannot totally avoid
payment of his obligation to the respondent based on the
contract of loan.
Based on the records, the Bognot Siblings had applied for and
were granted a loan of P500,000.00 by the respondent. The
loan was evidenced by a promissory note and secured by a
post-dated check27 dated November 30, 1996. In fact, the
petitioner himself admitted his loan application was evidenced
by the Promissory Note dated April 1, 1997.28 This loan was
renewed several times by the petitioner, after paying the
renewal fees, as shown by the Official Receipt Nos. 79729 and
58730 dated May 5 and July 3, 1997, respectively. These official
receipts were issued in the name of the petitioner. Although the
petitioner had insisted that the loan had been extinguished, no
other evidence was presented to prove payment other than the
cancelled and returnedpost-dated check.
381 | P a g e
Under this evidentiary situation, the petitioner cannot validly
deny his obligation and liability to the respondent solely on the
ground that the Promissory Note in question was tampered.
Notably, the existence of the obligation, as well as its
subsequent renewals, have been duly established by: first, the
petitioner’s application for the loan; second, his admission that
the loan had been obtained from the respondent; third, the
post-dated checks issued by the petitioner to secure the loan;
fourth, the testimony of Mr. Bernardez on the grant, renewal
and non-payment of the loan; fifth, proof of non-payment of the
loan; sixth, the loan renewals; and seventh, the approval and
receipt of the loan renewals.
In Guinsatao v. Court of Appeals,31 this Court pointed out that
while a promissory note is evidence of an indebtedness, it is not
the only evidence, for the existence of the obligation can be
proven by other documentary evidence such as a written
memorandum signed by the parties. In Pacheco v. Court of
Appeals,32 this Court likewise expressly recognized that a
check constitutes anevidence of indebtedness and is a veritable
proof of an obligation. It canbe used in lieu of and for the same
purpose as a promissory note and can therefore be presented
to establish the existence of indebtedness.33
In the present petition, we find that the totality of the evidence
on record sufficiently established the existence of the
petitioner’s indebtedness (and liability) based on the contract
ofloan. Even with the tampered promissory note, we hold that
the petitioner can still be held liable for the unpaid loan.
The Petitioner’s BelatedClaim of Novation by Substitution May
no Longer be Entertained
It has not escaped the Court’s attention that the petitioner
raised the argument that the obligation had been extinguished
by novation. The petitioner never raised this issue before the
lower courts.
It is a settled principle of law thatno issue may be raised on
appeal unless it has been brought before the lower tribunal for
its consideration.34 Matters neither alleged in the pleadingsnor
raised during the proceedings below cannot be ventilated for
the first time on appeal before the Supreme Court.35
In any event, we find no merit in the defense of novation as we
discuss at length below. Novation cannot be presumed and
must be clearly and unequivocably proven.
Novation is a mode of extinguishing an obligation by changing
its objects or principal obligations, by substituting a new debtor
in place of the old one, or by subrogating a third person to the
rights of the creditor.36
Article 1293 of the Civil Code defines novation as follows:
"Art. 1293. Novation which consists insubstituting a new debtor
in the place of the originalone, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
rights mentioned in Articles 1236 and 1237."
To give novation legal effect, the original debtor must be
expressly released from the obligation, and the new debtor
must assume the original debtor’s place in the contractual
relationship. Depending on who took the initiative, novation by
substitution of debtor has two forms – substitution by
expromision and substitution by delegacion. The difference
between these two was explained in Garcia v. Llamas:37
"In expromision, the initiative for the change does not come
from -- and may even be made without the knowledge of -- the
debtor, since it consists of a third person’s assumption of the
obligation. As such, it logically requires the consent of the third
person and the
382 | P a g e
creditor. In delegacion, the debtor offers, and the creditor
accepts, a third person who consents to the substitution and
assumes the obligation; thus, the consent of these three
persons are necessary."
In both cases, the original debtor must be released from the
obligation; otherwise, there can be no valid novation.38
Furthermore, novation by substitution of debtor must alwaysbe
made with the consent of the creditor.39
The petitioner contends thatnovation took place through a
substitution of debtors when Mrs. Bognot renewed the loan and
assumed the debt. He alleged that Mrs. Bognot assumed the
obligation by paying the renewal fees and charges, and by
executing a new promissory note. He further claimed that she
issued her own check40 to cover the renewal fees, which fact,
according to the petitioner, was done with the respondent’s
consent.
Contrary to the petitioner’s contention, Mrs. Bognot did not
substitute the petitioner as debtor. She merely attempted to
renew the original loan by executing a new promissory note41
and check. The purported one month renewal of the loan,
however, did not push through, as Mrs. Bognot did not return
the documents or issue a new post dated check. Since the loan
was not renewed for another month, the originaldue date, June
30,1997, continued to stand.
More importantly, the respondent never agreed to release the
petitioner from his obligation. That the respondent initially
allowed Mrs. Bognot to bring home the promissory note,
disclosure statement and the petitioner’s previous check dated
June 30, 1997, does not ipso factoresult in novation. Neither will
this acquiescence constitute an implied acceptance of the
substitution of the debtor.
In order to give novation legal effect, the creditor should
consent to the substitution of a new debtor. Novation must be
clearly and unequivocally shown, and cannot be presumed.
Since the petitioner failed to show thatthe respondent assented
to the substitution, no valid novation took place with the effect
of releasing the petitioner from his obligation to the
respondent.
Moreover, in the absence of showing that Mrs. Bognot and the
respondent had agreed to release the petitioner, the
respondent can still enforce the payment of the obligation
against the original debtor. Mere acquiescence to the renewal
of the loan, when there is clearly no agreement to release the
petitioner from his responsibility, does not constitute novation.
The Nature of the Petitioner’s Liability
On the nature of the petitioner’s liability, we rule however, that
the CA erred in holding the petitioner solidarily liable with
Rolando.
A solidary obligation is one in which each of the debtors is liable
for the entire obligation, and each of the creditors is entitled to
demand the satisfaction of the whole obligation from any or all
of the debtors.42 There is solidary liability when the obligation
expressly so states, when the law so provides, or when the
nature of the obligation so requires.43 Thus, when the obligor
undertakes to be "jointly and severally" liable, the obligation is
solidary,
In this case, both the RTC and the CA found the petitioner
solidarily liable with Rolando based on Promissory Note No. 97-
035 dated June 30, 1997. Under the promissory note, the
Bognot Siblings defined the parameters of their obligation as
follows:
"FOR VALUE RECEIVED, I/WE, jointly and severally, promise to
pay to READY RESOURCES INVESTORS RRI LENDING CORPO. or
Order, its office at Paranaque, M.M. the principal sum of Five
Hundred Thousand PESOS (P500,000.00), PhilippineCurrency,
with interest thereon at the rate of Five percent (5%) per
month/annum, payable in One Installment (01) equal
daily/weekly/semi-monthly/monthly
383 | P a g e
of PESOS Five Hundred Thousand Pesos (P500,000.00), first
installment to become due on June 30, 1997. xxx"44 (Emphasis
Ours).
Although the phrase "jointly and severally" in the promissory
note clearly and unmistakably provided for the solidary liability
of the parties, we note and stress that the promissory note is
merely a photocopyof the original, which was never produced.
Under the best evidence rule, whenthe subject of inquiry is the
contents of a document, no evidence isadmissible other than
the original document itself except in the instances mentioned
in Section 3, Rule 130 of the Revised Rules of Court.45
The records show that the respondenthad the custody of the
original promissory note dated April 1, 1997, with a
superimposed rubber stamp mark "June 30, 1997", and that it
had been given every opportunity to present it. The respondent
even admitted during pre-trial that it could not present the
original promissory note because it is in the custody of its
cashier who is stranded in Bicol.46 Since the respondent never
produced the original of the promissory note, much less offered
to produce it, the photocopy of the promissory note cannot be
admitted as evidence. Other than the promissory note in
question, the respondent has not presented any other evidence
to support a finding of solidary liability. As we earlier noted,
both lower courts completely relied on the note when they
found the Bognot siblingssolidarily liable.
The well-entrenched rule is that solidary obligation cannot be
inferred lightly. It must be positively and clearly expressed and
cannot be presumed.47
In view of the inadmissibility of the promissory note, and in the
absence of evidence showing that the petitioner had bound
himself solidarily with Rolando for the payment of the loan, we
cannot but conclude that the obligation to pay is only joint.48
The 5% Monthly Interest Stipulated in the Promissory Note is
Unconscionable and Should be Equitably Reduced
Finally, on the issue of interest, while we agree with the CA that
the petitioner is liable to the respondentfor the unpaid loan, we
find the imposition of the 5% monthly interest to be excessive,
iniquitous, unconscionable and exorbitant, and hence, contrary
to morals and jurisprudence. Although parties to a loan
agreement have wide latitude to stipulate on the applicable
interest rate under Central Bank Circular No. 905 s. 1982 (which
suspended the Usury Law ceiling on interest effective January 1,
1983), we stress that unconscionable interest rates may still be
declared illegal.49
In several cases, we haveruled that stipulations authorizing
iniquitous or unconscionable interests are contrary to morals
and are illegal. In Medel v. Court of Appeals,50 we annulled a
stipulated 5.5% per month or 66% per annum interest on a
P500,000.00 loan, and a 6% per month or 72% per annum
interest on a P60,000.00 loan, respectively, for being excessive,
iniquitous, unconscionableand exorbitant.1âwphi1
We reiterated this ruling in Chua v. Timan,51 where we held
that the stipulated interest rates of 3% per month and higher
are excessive, iniquitous, unconscionable and exorbitant, and
must therefore be reduced to 12% per annum.
Applying these cited rulings, we now accordingly hold that the
stipulated interest rate of 5% per month, (or 60% per annum) in
the promissory note is excessive, unconscionable, contrary to
morals and is thus illegal. It is void ab initiofor violating Article
130652 of the Civil Code.1âwphi1 We accordingly find it
equitable to reduce the interest rate from 5% per month to 1%
per month or 12% per annum in line with the prevailing
jurisprudence.
384 | P a g e
WHEREFORE, premises considered, the Decision dated March
28, 2007 of the Court of Appeals in CA-G.R. CV No. 66915 is
hereby AFFIRMED with MODIFICATION, as follows:
1. The petitioner Leonardo A. Bognotand his brother, Rolando A.
Bognot are JOINTLY LIABLE to pay the sum of P500,000.00 plus
12% interest per annum from December 3, 1997 until fully paid.
2. The rest of the Court of Appeals' dispositions are hereby
AFFIRMED.
Costs against petitioner Leonardo A. Bognot. SO ORDERED.
of First Instance of Rizal, Quezon City Branch, in its Civil Case
No. 1355, absolving the defendants from a complaint for the
abatement of the sub-station as a nuisance and for damages to
his health and business in the amount of P487,600.00.
In 1948, appellant Velasco bought from the People's Homesite
and Housing Corporation three (3) adjoining lots situated at the
corner of South D and South 6 Streets, Diliman, Quezon City.
These lots are within an area zoned out as a "first residence"
district by the City Council of Quezon City. Subsequently, the
appellant sold two (2) lots to the Meralco, but retained the third
lot, which was farthest from the street-corner, whereon he built
his house.
In September, 1953, the appellee company started the
construction of the sub-station in question and finished it the
following November, without prior building permit or authority
from the Public Service Commission (Meralco vs. Public Service
Commission, 109 Phil. 603). The facility reduces high voltage
electricity to a current suitable for distribution to the company's
consumers, numbering not less than 8,500 residential homes,
over 300 commercial establishments and about 30 industries
(T.s.n., 19 October 1959, page 1765). The substation has a
rated capacity of "2 transformers at 5000 Kva each or a total of
10,000 Kva without fan cooling; or 6250 Kva each or a total of
12,500 Kva with fan cooling" (Exhibit "A-3"). It was constructed
at a distance of 10 to 20 meters from the appellant's house
(T.s.n., 16 July 1956, page 62; 19 December 1956, page 343; 1
June 1959, page 29). The company built a stone and cement
wall at the sides along the streets but along the side adjoining
the appellant's property it put up a sawale wall but later
changed it to an interlink wire fence.
It is undisputed that a sound unceasingly emanates from the
substation. Whether this sound constitutes an actionable
nuisance or not is the principal issue in this case.
75. G.R. No. L-18390
August 6, 1971
PEDRO J. VELASCO, plaintiff-appellant,
vs.
MANILA ELECTRIC CO., WILLIAM SNYDER, its President; JOHN
COTTON and HERMENEGILDO B. REYES, its Vice-Presidents; and
ANASTACIO A. AGAN, City Engineer of Quezon City, defendants-
appellees.
REYES, J.B.L., J.:
The present case is direct appeal (prior to Republic Act 5440)
by the herein plaintiff-appellant, Pedro J. Velasco (petitioner in
L- 14035; respondent in L-13992) * from the decision of the
Court
385 | P a g e
Plaintiff-appellant Velasco contends that the sound constitutes
an actionable nuisance under Article 694 of the Civil Code of
the Philippines, reading as follows:
A nuisance is any act, omission, establishment, business
condition of property or anything else which:
(1) Injuries or endangers the health or safety of others; or
(2) Annoys or offends the senses;
xxx xxx xxx
because subjection to the sound since 1954 had disturbed the
concentration and sleep of said appellant, and impaired his
health and lowered the value of his property. Wherefore, he
sought a judicial decree for the abatement of the nuisance and
asked that he be declared entitled to recover compensatory,
moral and other damages under Article 2202 of the Civil Code.
ART. 2202. In crimes and quasi-delicts, the defendant shall be
liable for all damages which are the natural and probable
consequences of the act or omission complained of. It is not
necessary that such damages have been foreseen or could
have reasonably been foreseen by the defendant.
After trial, as already observed, the court below dismissed the
claim of the plaintiff, finding that the sound of substation was
unavoidable and did not constitute nuisance; that it could not
have caused the diseases of anxiety neurosis, pyelonephritis,
ureteritis, lumbago and anemia; and that the items of damage
claimed by plaintiff were not adequate proved. Plaintiff then
appealed to this Court.
The general rule is that everyone is bound to bear the habitual
or customary inconveniences that result from the proximity of
others, and so long as this level is not surpassed, he may not
complain against them. But if the prejudice exceeds the
inconveniences that such proximity habitually brings, the
neighbor who causes such disturbance is held responsible for
the resulting damage, 1 being guilty of causing nuisance.
While no previous adjudications on the specific issue have been
made in the Philippines, our law of nuisances is of American
origin, and a review of authorities clearly indicates the rule to
be that the causing or maintenance of disturbing noise or sound
may constitute an actionable nuisance (V. Ed. Note, 23 ALR, 2d
1289). The basic principles are laid down in Tortorella vs. Traiser
& Co., Inc., 90 ALR 1206:
A noise may constitute an actionable nuisance, Rogers vs.
Elliott, 146 Mass, 349, 15 N.E. 768, 4 Am. St. Rep. 316, Stevens
v. Rockport Granite Co., 216 Mass. 486, 104 N.E. 371, Ann. Cas.
1915B, 1954, Stodder v. Rosen Talking Machine Co., 241 Mass.
245, 135 N. E. 251, 22 A. L. R. 1197, but it must be a noise
which affects injuriously the health or comfort of ordinary
people in the vicinity to an unreasonable extent. Injury to a
particular person in a peculiar position or of specially sensitive
characteristics will not render the noise an actionable nuisance.
Rogers v. Elliott, 146 Mass. 349, 15 N. E. 768, 4 Am. St. Rep.
316. In the conditions of present living noise seems inseparable
from the conduct of many necessary occupations. Its presence
is a nuisance in the popular sense in which that word is used,
but in the absence of statute noise becomes actionable only
when it passes the limits of reasonable adjustment to the
conditions of the locality and of the needs of the maker to the
needs of the listener. What those limits are cannot be fixed by
any definite measure of quantity or quality. They depend upon
the circumstances of the particular case. They may be affected,
but are not controlled, by zoning ordinances. Beane v. H. J.
Porter, Inc., 280 Mass. 538, 182 N. E.
386 | P a g e
823, Marshal v. Holbrook, 276 Mass. 341, 177 N. E. 504,
Strachan v. Beacon Oil Co., 251 Mass. 479, 146 N. E. 787. The
delimitation of designated areas to use for manufacturing,
industry or general business is not a license to emit every noise
profitably attending the conduct of any one of them. Bean v. H.
J. Porter, Inc.. 280 Mass. 538, 182 N. E. 823. The test is whether
rights of property of health or of comfort are so injuriously
affected by the noise in question that the sufferer is subjected
to a loss which goes beyond the reasonable limit imposed upon
him by the condition of living, or of holding property, in a
particular locality in fact devoted to uses which involve the
emission of noise although ordinary care is taken to confine it
within reasonable bounds; or in the vicinity of property of
another owner who though creating a noise is acting with
reasonable regard for the rights of those affected by it. Stevens
v. Rockport Granite Co., 216 Mass. 486, 104 NE 371, Ann. Cas.
1915B, 1054.
With particular reference to noise emanating from electrical
machinery and appliances, the court, in Kentucky & West
Virginia Power Co. v. Anderson, 156 S. W. 2d 857, after a review
of authorities, ruled as follows:
There can be no doubt but that commercial and industrial
activities which are lawful in themselves may become
nuisances if they are so offensive to the senses that they
render the enjoyment of life and property uncomfortable. It is
no defense that skill and care have been exercised and the
most improved methods and appliances employed to prevent
such result. Wheat Culvert Company v. Jenkins, 246 Ky. 319, 55
S. W. 2d 4; 46 C.J. 683, 705; 20 R. C. L. 438; Annotations, 23 A.
L. R. 1407; 90 A. L. R. 1207. Of course, the creation of trifling
annoyance and inconvenience does not constitute an
actionable nuisance, and the locality and surroundings are of
importance. The fact that the cause of the complaint must be
substantial has often led to expressions in the opinions that to
be a nuisance the noise must be deafening or loud or excessive
and unreasonable. Usually it
was shown to be of that character. The determinating factor
when noise alone is the cause of complaint is not its intensity or
volume. It is that the noise is of such character as to produce
actual physical discomfort and annoyance to a person of
ordinary sensibilities, rendering adjacent property less
comfortable and valuable. If the noise does that it can well be
said to be substantial and unreasonable in degree; and
reasonableness is a question of fact dependent upon all the
circumstances and conditions. 20 R. C. L. 445, 453; Wheat
Culvert Company v. Jenkins, supra. There can be no fixed
standard as to what kind of noise constitutes a nuisance. It is
true some witnesses in this case say they have been annoyed
by the humming of these transformers, but that fact is not
conclusive as to the nonexistence of the cause of complaint,
the test being the effect which is had upon an ordinary person
who is neither sensitive nor immune to the annoyance
concerning which the complaint is made. In the absence of
evidence that the complainant and his family are supersensitive
to distracting noises, it is to be assumed that they are persons
of ordinary and normal sensibilities. Roukovina v. Island Farm
Creamery Company, 160 Minn. 335, 200N.W.350,38A.L.R.1502.
xxx xxx xxx
In Wheat Culvert Company vs. Jenkins, supra, we held an
injunction was properly decreed to stop the noise from the
operation of a metal culvert factory at night which interfered
with the sleep of the occupants of an adjacent residence. It is
true the clanging, riveting and hammering of metal plates
produces a sound different in character from the steady hum or
buzz of the electric machinery described in this case. In the
Jenkins case the noise was loud, discordant and intermittent.
Here it is interminable and monotonous. Therein lies the
physical annoyance and disturbance. Though the noise be
harmonious and slight and trivial in itself, the constant and
monotonous sound of a cricket on the earth, or the drip of a
leaking faucet is
387 | P a g e
irritating, uncomfortable, distracting and disturbing to the
average man and woman. So it is that the intolerable, steady
monotony of this ceaseless sound, loud enough to interfere with
ordinary conversation in the dwelling, produces a result
generally deemed sufficient to constitute the cause of it an
actionable nuisance. Thus, it has been held the continuous and
monotonous playing of a phonograph for advertising purposes
on the street even though there were various records, singing,
speaking and instrumental, injuriously affected plaintiff's
employees by a gradual wear on their nervous systems, and
otherwise, is a nuisance authorizing an injunction and damages.
Frank F. Stodder, et al. v. Rosen Talking Machine Company, 241
Mass. 245, 135 N. E. 251, 22 A. L. R. 1197.
The principles thus laid down make it readily apparent that
inquiry must be directed at the character and intensity of the
noise generated by the particular substation of the appellee. As
can be anticipated, character and loudness of sound being of
subjective appreciation in ordinary witnesses, not much help
can be obtained from the testimonial evidence. That of plaintiff
Velasco is too plainly biased and emotional to be of much value.
His exaggerations are readily apparent in paragraph V of his
amended complaint, signed by him as well as his counsel,
wherein the noise complained of as —
fearful hazardous noise and clangor are produced by the said
electric transformer of the MEC's substation, approximating a
noise of a reactivated about-to-explode volcano, perhaps like
the nerve wracking noise of the torture chamber in Germany's
Dachau or Buchenwald (Record on Appeal, page 6).
The estimate of the other witnesses on the point of inquiry are
vague and imprecise, and fail to give a definite idea of the
intensity of the sound complained of. Thus:
OSCAR SANTOS, Chief Building Inspector, Department of
Engineering, Quezon City ____ "the sound (at the front door of
plaintiff Velasco's house) becomes noticeable only when I tried
to concentrate ........" (T.s.n., 16 July 1956, page 50)
SERAFIN VILLARAZA, Building Inspector ____ "..... like a high
pitch note." (the trial court's description as to the imitation of
noise made by witness:"........ more of a hissing sound) (T.s.n.,
16 July 1956, pages 59-60)
CONSTANCIO SORIA, City Electrician ____ "........ humming
sound" ..... "of a running car". (T.s.n., 16 July 1956, page 87)
JOSE R. ALVAREZ, Sanitary Engineer, Quezon City Health
Department ____ "..... substation emits a continuous rumbling
sound which is audible within the premises and at about a
radius of 70 meters." "I stayed there from 6:00 p.m. to about
1:00 o'clock in the morning" ..... "increases with the approach of
twilight." (T.s.n., 5 September 1956, pages 40-44)
NORBERTO S. AMORANTO, Quezon City Mayor ____ (for 30
minutes in the street at a distance of 12 to 15 meters from sub-
station) "I felt no effect on myself." "..... no [piercing noise]"
(T.s.n., 18 September 1956, page 189)
PACIFICO AUSTRIA, architect, appellant's neighbor: "..... like an
approaching airplane ..... around five kilometers away." (T.s.n.,
19 November 1956, pages 276-277)
ANGEL DEL ROSARIO, radiologist, appellant's neighbor: "..... as
if it is a running motor or a running dynamo, which disturbs the
ear and the hearing of a person." T.s.n., 4 December 1956,
page 21)
ANTONIO D. PAGUIA, lawyer ____ "It may be likened to the
sound emitted by the whistle of a boat at a far distance but it is
very audible." (T.s.n., 19 December 1956, page 309)
388 | P a g e
RENE RODRIGUEZ, sugar planter and sugar broker, appellant's
neighbor ____ "It sounds like a big motor running continuously."
(T.s.n., 19 December 1956, page 347)
SIMPLICIO BELISARIO, Army captain, ____ (on a visit to Velasco)
"I can compare the noise to an airplane C-47 being started - the
motor." [Did not notice the noise from the substation when
passing by, in a car, Velasco's house] (T.s.n., 7 January 1957,
pages 11-12)
MANOLO CONSTANTINO, businessman, appellant's neighbor
____ "It disturbs our concentration of mind." (T.s.n., 10 January
1957, page 11)
PEDRO PICA, businessman, appellant's neighbor: "..... We can
hear it very well [at a distance of 100 to 150 meters]. (T.s.n., 10
January 1957, page 41)
CIRENEO PUNZALAN, lawyer ____ "..... a continuous droning, .....
like the sound of an airplane." (T.s.n., 17 January 1957, page
385)
JAIME C. ZAGUIRRE, Chief, Neuro-Psychiatry Section, V. Luna
Gen. Hospital ____ "..... comparatively the sound was really loud
to bother a man sleeping." (T.s.n., 17 January 1957, page 406)
We are thus constrained to rely on quantitative measurements
shown by the record. Under instructions from the Director of
Health, samplings of the sound intensity were taken by Dr.
Jesus Almonte using a sound level meter and other instruments.
Within the compound of the plaintiff-appellant, near the wire
fence serving as property line between him and the appellee,
on 27 August 1957 at 11:45 a.m., the sound level under the
sampaloc tree was 46-48 decibels, while behind Velasco's
kitchen, the meter registered 49-50; at the same places on 29
August 1957, at 6:00 a.m., the readings were 56-59 and 61-62
decibels,
respectively; on 7 September 1957, at 9:30 a.m., the sound
level under the sampaloc tree was 74-76 decibels; and on 8
September 1957 at 3:35 in the morning, the reading under the
same tree was 70 decibels, while near the kitchen it was 79-80
decibels. Several measurements were also taken inside and
outside the house (Exhibit "NN-7, b-f"). The ambient sound of
the locality, or that sound level characteristic of it or that sound
predominating minus the sound of the sub-station is from 28 to
32 decibels. (T.s.n., 26 March 1958, pages 6-7)
Mamerto Buenafe, superintendent of the appellee's electrical
laboratory, also took sound level samplings. On 19 December
1958, between 7:00 to 7:30 o'clock in the evening, at the
substation compound near the wire fence or property line, the
readings were 55 and 54 and still near the fence close to the
sampaloc tree, it was 52 decibels; outside but close to the
concrete wall, the readings were 42 to 43 decibels; and near
the transformers, it was 76 decibels (Exhibit "13").
Buenafe also took samplings at the North General Hospital on 4
January 1959 between 9:05 to 9:45 in the evening. In the
different rooms and wards from the first to the fourth floors, the
readings varied from 45 to 67 decibels.
Technical charts submitted in evidence show the following
intensity levels in decibels of some familiar sounds: average
residence: 40; average office: 55; average automobile, 15 feet:
70; noisiest spot at Niagara Falls: 92 (Exhibit "11- B"); average
dwelling: 35; quiet office: 40; average office: 50; conversation:
60; pneumatic rock drill: 130 (Exhibit "12"); quiet home —
average living room: 40; home ventilation fan, outside sound of
good home airconditioner or automobile at 50 feet: 70 (Exhibit
"15-A").
Thus the impartial and objective evidence points to the sound
emitted by the appellee's substation transformers being of
much
389 | P a g e
higher level than the ambient sound of the locality. The
measurements taken by Dr. Almonte, who is not connected with
either party, and is a physician to boot (unlike appellee's
electrical superintendent Buenafe), appear more reliable. The
conclusion must be that, contrary to the finding of the trial
court, the noise continuously emitted, day and night,
constitutes an actionable nuisance for which the appellant is
entitled to relief, by requiring the appellee company to adopt
the necessary measures to deaden or reduce the sound at the
plaintiff's house, by replacing the interlink wire fence with a
partition made of sound absorbent material, since the
relocation of the substation is manifestly impracticable and
would be prejudicial to the customers of the Electric Company
who are being serviced from the substation.
Appellee company insists that as the plaintiff's own evidence
(Exhibit "NN-7[c]") the intensity of the sound (as measured by
Dr. Almonte) inside appellant's house is only 46 to 47 decibels
at the consultation room, and 43 to 45 decibels within the
treatment room, the appellant had no ground to complain. This
argument is not meritorious, because the noise at the
bedrooms was determined to be around 64-65 decibels, and the
medical evidence is to the effect that the basic root of the
appellant's ailments was his inability to sleep due to the
incessant noise with consequent irritation, thus weakening his
constitution and making him easy prey to pathogenic germs
that could not otherwise affect a person of normal health.
In Kentucky and West Virginia Co., Inc. vs. Anderson, 156 SW.
857, the average of three readings along the plaintiff's fence
was only 44 decibels but, because the sound from the sub-
station was interminable and monotonous, the court authorized
an injunction and damages. In the present case, the three
readings along the property line are 52, 54 and 55 decibels.
Plaintiff's case is manifestly stronger.
Appellee company argues that the plaintiff should not be heard
to complain because the sound level at the North General
Hospital, where silence is observed, is even higher than at his
residence. This comparison lacks basis because it has not been
established that the hospital is located in surroundings similar
to the residential zone where the plaintiff lived or that the
sound at the hospital is similarly monotonous and ceaseless as
the sound emitted by the sub-station.
Constancio Soria testified that "The way the transformers are
built, the humming sound cannot be avoided". On this
testimony, the company emphasizes that the substation was
constructed for public convenience. Admitting that the sound
cannot be eliminated, there is no proof that it cannot be
reduced. That the sub-station is needed for the Meralco to be
able to serve well its customers is no reason, however, why it
should be operated to the detriment and discomfort of others. 2
The fact that the Meralco had received no complaint although it
had been operating hereabouts for the past 50 years with
substations similar to the one in controversy is not a valid
argument. The absence of suit neither lessens the company's
liability under the law nor weakens the right of others against it
to demand their just due.
As to the damages caused by the noise, appellant Velasco,
himself a physician, claimed that the noise, as a precipitating
factor, has caused him anxiety neurosis, which, in turn,
predisposed him to, or is concomitant with, the other ailments
which he was suffering at the time of the trial, namely,
pyelonephritis, ureteritis and others; that these resulted in the
loss of his professional income and reduced his life expectancy.
The breakdown of his claims is as follows:
Loss of professional earnings P12,600 Damage to life
expectancy 180,000
390 | P a g e
Moral damages 100,000
Loss due to frustration of sale of house Exemplary damages
25,000 Attorneys' fees 45,000
125,000
Considering, therefore, his actual earnings, the claimed moral
damages of P100,000.00 are utterly disproportionate. The
alleged losses for shortening of appellant's, life expectancy are
not only inflated but speculative.
As to the demand for exemplary or punitive damages, there
appears no adequate basis for their award. While the appellee
Manila Electric Company was convicted for erecting the
substation in question without permit from the Public Service
Commission, We find reasonable its explanation that its officials
and counsel had originally deemed that such permit was not
required as the installation was authorized by the terms of its
franchise (as amended by Republic Act No. 150) requiring it to
spend within 5 years not less than forty million pesos for
maintenance and additions to its electric system, including
needed power plants and substations. Neither the absence of
such permit from the Public Service Commission nor the lack of
permit from the Quezon City authorities (a permit that was
subsequently granted) is incompatible with the Company's
good faith, until the courts finally ruled that its interpretation of
the franchise was incorrect.
There are, moreover, several factors that mitigate defendant's
liability in damages. The first is that the noise from the
substation does not appear to be an exclusive causative factor
of plaintiff- appellant's illnesses. This is proved by the
circumstance that no other person in Velasco's own household
nor in his immediate neighborhood was shown to have become
sick despite the noise complained of. There is also evidence
that at the time the plaintiff-appellant appears to have been
largely indebted to various credit institutions, as a result of his
unsuccessful gubernatorial campaign, and this court can take
judicial cognizance of the fact that financial worries can affect
unfavorably the debtor's disposition and mentality.
A host of expert witnesses and voluminous medical literature,
laboratory findings and statistics of income were introduced in
support of the above claims.
The medical evidence of plaintiff's doctors preponderates over
the expert evidence for defendant-appellee, not merely
because of its positive character but also because the
physicians presented by plaintiff had actually treated him, while
the defense experts had not done so. Thus the evidence of the
latter was to a large extent conjectural. That appellant's
physical ailments should be due to infectious organisms does
not alter the fact that the loss of sleep, irritation and tension
due to excessive noise weakened his constitution and made
him easy prey to the infection.
Regarding the amount of damages claimed by appellant, it is
plain that the same are exaggerated. To begin with, the alleged
loss of earnings at the rate of P19,000 per annum is predicated
on the Internal Revenue assessment, Exhibit "QQ-1", wherein
appellant was found to have undeclared income of P8,338.20 in
additional to his declared gross income of P10,975.00 for 1954.
There is no competent showing, however, that the source of
such undeclared income was appellant's profession. In fact, the
inference would be to the contrary, for his gross income from
the previous years 1951 to 1953 [Exhibits "QQ-1 (d)" to "QQ-1
(f)"] was only P8,085.00, P5,860.00 and P7,120.00,
respectively, an average of P7,000.00 per annum. Moreover,
while his 1947 and 1948 income was larger (P9,995.00 and
P11,900.00), it appears that P5,000 thereof was the appellant's
annual salary from the Quezon Memorial Foundation, which was
not really connected with the usual earnings derived from
practice as a physician.
391 | P a g e
The other factor militating against full recovery by the
petitioner Velasco in his passivity in the face of the damage
caused to him by the noise of the substation. Realizing as a
physician that the latter was disturbing or depriving him of
sleep and affecting both his physical and mental well being, he
did not take any steps to bring action to abate the nuisance or
remove himself from the affected area as soon as the
deleterious effects became noticeable. To evade them appellant
did not even have to sell his house; he could have leased it and
rented other premises for sleeping and maintaining his office
and thus preserve his health as ordinary prudence demanded.
Instead he obstinately stayed until his health became gravely
affected, apparently hoping that he would thereby saddle
appellee with large damages.
The law in this jurisdiction is clear. Article 2203 prescribes that
"The party suffering loss or injury must exercise the diligence of
a good father of a family to minimize the damages resulting
from the act or omission in question". This codal rule, which
embodies the previous jurisprudence on the point, 3 clearly
obligates the injured party to undertake measures that will
alleviate and not aggravate his condition after the infliction of
the injury, and places upon him the burden of explaining why
he could not do so. This was not done.
Appellant Velasco introduced evidence to the effect that he
tried to sell his house to Jose Valencia, Jr., in September, 1953,
and on a 60 day option, for P95,000.00, but that the
prospective buyer backed out on account of his wife objecting
to the noise of the substation. There is no reliable evidence,
however, how much were appellant's lot and house worth,
either before the option was given to Valencia or after he
refused to proceed with the sale or even during the intervening
period. The existence of a previous offer for P125,000.00, as
claimed by the plaintiff, was not corroborated by Valencia. What
Valencia testified to in his deposition is that when they were
negotiating on the price Velasco mentioned to him about an
offer by someone for
P125,000.00. The testimony of Valencia proves that in the
dialogue between him and Velasco, part of the subject of their
conversation was about the prior offer, but it does not
corroborate or prove the reality of the offer for P125,000.00.
The testimony of Velasco on this point, standing alone, is not
credible enough, what with his penchant for metaphor and
exaggeration, as previously adverted to. It is urged in
appellant's brief, along the lines of his own testimony, that
since one (1) transformer was measured by witness, Jimenez
with a noise intensity of 47.2 decibels at a distance of 30.48
meters, the two (2) transformers of the substation should
create an intensity of 94.4 decibels at the same distance. If this
were true, then the residence of the plaintiff is more noisy than
the noisiest spot at the Niagara Falls, which registers only 92
decibels (Exhibit "15-A").
Since there is no evidence upon which to compute any loss or
damage allegedly incurred by the plaintiff by the frustration of
the sale on account of the noise, his claim therefore was
correctly disallowed by the trial court. It may be added that
there is no showing of any further attempts on the part of
appellant to dispose of the house, and this fact suffices to raise
doubts as to whether he truly intended to dispose of it. He had
no actual need to do so in order to escape deterioration of his
health, as heretofore noted.
Despite the wide gap between what was claimed and what was
proved, the plaintiff is entitled to damages for the annoyance
and adverse effects suffered by him since the substation
started functioning in January, 1954. Considering all the
circumstances disclosed by the record, as well as appellant's
failure to minimize the deleterious influences from the
substation, this Court is of the opinion that an award in the
amount of P20,000.00, by way of moderate and moral damages
up to the present, is reasonable. Recovery of attorney's fees
and litigation expenses in the sum of P5,000.00 is also
392 | P a g e
justified — the factual and legal issues were intricate (the
transcript of the stenographic notes is about 5,000 pages, side
from an impressive number of exhibits), and raised for the first
time in this jurisdiction. 4
The last issue is whether the City Engineer of Quezon City,
Anastacio A. Agan, a co-defendant, may be held solidarily liable
with Meralco.
Agan was included as a party defendant because he allegedly
(1) did not require the Meralco to secure a building permit for
the construction of the substation; (2) even defended its
construction by not insisting on such building permit; and (3)
did not initiate its removal or demolition and the criminal
prosecution of the officials of the Meralco.
The record does not support these allegations. On the first plea,
it was not Agan's duty to require the Meralco to secure a permit
before the construction but for Meralco to apply for it, as per
Section 1. Ordinance No. 1530, of Quezon City. The second
allegation is not true, because Agan wrote the Meralco
requiring it to submit the plan and to pay permit fees (T.s.n., 14
January 1960, pages 2081-2082). On the third allegation, no
law or ordinance has been cited specifying that it is the city
engineer's duty to initiate the removal or demolition of, or for
the criminal prosecution of, those persons who are responsible
for the nuisance. Republic Act 537, Section 24 (d), relied upon
by the plaintiff, requires an order by, or previous approval of,
the mayor for the city engineer to cause or order the removal of
buildings or structures in violation of law or ordinances, but the
mayor could not be expected to take action because he was of
the belief, as he testified, that the sound "did not have any
effect on his body."
FOR THE FOREGOING REASONS, the appealed decision is
hereby reversed in part and affirmed in part. The defendant-
appellee Manila Electric Company is hereby ordered to either
transfer its
substation at South D and South 6 Streets, Diliman, Quezon
City, or take appropriate measures to reduce its noise at the
property line between the defendant company's compound and
that of the plaintiff-appellant to an average of forty (40) to fifty
(50) decibels within 90 days from finality of this decision; and to
pay the said plaintiff-appellant P20,000.00 in damages and
P5,000.00 for attorney's fees. In all other respects, the
appealed decision is affirmed. No costs.
76. G.R. No. L-36706
March 31, 1980
COMMISSIONER OF PUBLIC HlGHWAYS, petitioner, vs.
HON. FRANCISCO P. BURGOS, in his capacity as Judge of the
Court of First Instance of Cebu City, Branch 11, and Victoria
Amigable, respondents.
DE CASTRO, J.:
Victoria Amigable is the owner of parcel of land situated in Cebu
City with an area of 6,167 square meters. Sometime in 1924,
the Government took this land for road-right-of-way purpose.
The land had since become streets known as Mango Avenue
and Gorordo Avenue in Cebu City.
On February 6, 1959, Victoria Amigable filed in the Court of First
Instance of Cebu a complaint, which was later amended on
April 17, 1959 to recover ownership and possession of the land,
and for damages in the sum of P50,000.00 for the alleged
illegal occupation of the land by the Government, moral
damages in the sum of P25,000.00, and attorney's fees in the
sum of P5,000.00, plus costs of suit. The complaint was
docketed as Civil Case No. R- 5977 of the Court of First Instance
of Cebu, entitled "Victoria
393 | P a g e
Amigable vs. Nicolas Cuenca, in his capacity as Commissioner
of Public Highway and Republic of the Philippines. 1
In its answer, 2 the Republic alleged, among others, that the
land was either donated or sold by its owners to the province of
Cebu to enhance its value, and that in any case, the right of the
owner, if any, to recover the value of said property was already
barred by estoppel and the statute of limitations, defendants
also invoking the non-suability of the Government.
In a decision rendered on July 29, 1959 by Judge Amador E.
Gomez, the plaintiff's complaint was dismissed on the grounds
relied upon by the defendants therein. 3 The plaintiff appealed
the decision to the Supreme Court where it was reversed, and
the case was remanded to the court of origin for the
determination of the compensation to be paid the plaintiff-
appellant as owner of the land, including attorney's fees. 4 The
Supreme Court decision also directed that to determine just
compensation for the land, the basis should be the price or
value thereof at the time of the taking. 5
In the hearing held pursuant to the decision of the Supreme
Court, the Government proved the value of the property at the
time of the taking thereof in 1924 with certified copies, issued
by the Bureau of Records Management, of deeds of conveyance
executed in 1924 or thereabouts, of several parcels of land in
the Banilad Friar Lands in which the property in question is
located, showing the price to be at P2.37 per square meter. For
her part, Victoria Amigable presented newspaper clippings of
the Manila Times showing the value of the peso to the dollar
obtaining about the middle of 1972, which was P6.775 to a
dollar.
Upon consideration of the evidence presented by both parties,
the court which is now the public respondent in the instant
petition, rendered judgment on January 9, 1973 directing the
Republic of the Philippines to pay Victoria Amigable the sum of
P49,459.34 as the value of the property taken, plus
P145,410.44 representing interest at 6% on the principal
amount of P49,459.34 from the year 1924 up to the date of the
decision, plus attorney's fees of 10% of the total amount due to
Victoria Amigable, or a grand total of P214,356.75. 6
The aforesaid decision of the respondent court is now the
subject of the present petition for review by certiorari, filed by
the Solicitor General as counsel of the petitioner, Republic of
the Philippines, against the landowner, Victoria Amigable, as
private respondent. The petition was given due course after
respondents had filed their comment thereto, as required. The
Solicitor General, as counsel of petitioner, was then required to
file petitioner's brief and to serve copies thereof to the adverse
parties. 7 Petitioner's brief was duly filed on January 29, 1974, 8
to which respondents filed only a "comment." 9 instead of a
brief, and the case was then considered submitted for decision.
10
1. The issue of whether or not the provision of Article 1250 of
the New Civil Code is applicable in determining the amount of
compensation to be paid to respondent Victoria Amigable for
the property taken is raised because the respondent court
applied said Article by considering the value of the peso to the
dollar at the time of hearing, in determining due compensation
to be paid for the property taken. The Solicitor General
contends that in so doing, the respondent court violated the
order of this Court, in its decision in G.R. No. L-26400, February
29, 1972, to make as basis of the determination of just
compensation the price or value of the land at the time of the
taking.
It is to be noted that respondent judge did consider the value of
the property at the time of the taking, which as proven by the
petitioner was P2.37 per square meter in 1924. However,
applying Article 1250 of the New Civil Code, and considering
that the value of the peso to the dollar during the hearing in
1972 was P6.775 to a dollar, as proven by the evidence of the
private
394 | P a g e
respondent Victoria Amigable the Court fixed the value of the
property at the deflated value of the peso in relation, to the
dollar, and came up with the sum of P49,459.34 as the just
compensation to be paid by the Government. To this action of
the respondent judge, the Solicitor General has taken
exception.
Article 1250 of the New Civil Code seems to be the only
provision in our statutes which provides for payment of an
obligation in an amount different from what has been agreed
upon by the parties because of the supervention of extra-
ordinary inflation or deflation. Thus, the Article provides:
ART. 1250. In case extra-ordinary inflation or deflation of the
currency stipulated should supervene, the value of the currency
at the time of the establishment of the obligation shall be the
basis of payment, unless there is an agreement to the contrary.
It is clear that the foregoing provision applies only to cases
where a contract or agreement is involved. It does not apply
where the obligation to pay arises from law, independent of
contract. The taking of private property by the Government in
the exercise of its power of eminent domain does not give rise
to a contractual obligation. We have expressed this view in the
case of Velasco vs. Manila Electric Co., et al., L-19390,
December 29, 1971. 11
Moreover, the law as quoted, clearly provides that the value of
the currency at the time of the establishment of the obligation
shall be the basis of payment which, in cases of expropriation,
would be the value of the peso at the time of the taking of the
property when the obligation of the Government to pay arises.
12 It is only when there is an "agreement to the contrary" that
the extraordinary inflation will make the value of the currency
at the time of payment, not at the time of the establishment of
the obligation, the basis for payment. In other words, an
agreement is needed for the effects of an extraordinary
inflation to be taken into account to alter the value of the
currency at the time of the
establishment of the obligation which, as a rule, is always the
determinative element, to be varied by agreement that would
find reason only in the supervention of extraordinary inflation or
deflation.
We hold, therefore, that under the law, in the absence of any
agreement to the contrary, even assuming that there has been
an extraordinary inflation within the meaning of Article 1250 of
the New Civil Code, a fact We decline to declare categorically,
the value of the peso at the time of the establishment of the
obligation, which in the instant case is when the property was
taken possession of by the Government, must be considered for
the purpose of determining just compensation. Obviously, there
can be no "agreement to the contrary" to speak of because the
obligation of the Government sought to be enforced in the
present action does not originate from contract, but from law
which, generally is not subject to the will of the parties. And
there being no other legal provision cited which would justify a
departure from the rule that just compensation is determined
on the basis of the value of the property at the time of the
taking thereof in expropriation by the Government, the value of
the property as it is when the Government took possession of
the land in question, not the increased value resulting from the
passage of time which invariably brings unearned increment to
landed properties, represents the true value to be paid as just
compensation for the property taken. 13
In the present case, the unusually long delay of private
respondent in bringing the present action-period of almost 25
years which a stricter application of the law on estoppel and the
statute of limitations and prescription may have divested her of
the rights she seeks on this action over the property in
question, is an added circumstance militating against payment
to her of an amount bigger-may three-fold more than the value
of the property as should have been paid at the time of the
taking. For conformably to the rule that one should take good
care of his own
395 | P a g e
concern, private respondent should have commenced proper
action soon after she had been deprived of her right of
ownership and possession over the land, a deprivation she
knew was permanent in character, for the land was intended
for, and had become, avenues in the City of Cebu. A penalty is
always visited upon one for his inaction, neglect or laches in the
assertion of his rights allegedly withheld from him, or otherwise
transgressed upon by another.
From what has been said, the correct amount of compensation
due private respondent for the taking of her land for a public
purpose would be not P49,459.34, as fixed by the respondent
court, but only P14,615.79 at P2.37 per square meter, the
actual value of the land of 6,167 square meters when it was
taken in 1924. The interest in the sum of P145,410.44 at the
rate of 6% from 1924 up to the time respondent court rendered
its decision, as was awarded by the said court should
accordingly be reduced.
In Our decision in G.R. No. L-26400, February 29, 1972, 14 We
have said that Victoria Amigable is entitled to the legal interest
on the price of the land from the time of the taking. This
holding is however contested by the Solicitor General, citing the
case of Raymunda S. Digsan vs. Auditor General, et al., 15
alleged to have a similar factual environment and involving the
same issues, where this Court declared that the interest at the
legal rate in favor of the landowner accrued not from the taking
of the property in 1924 but from April 20, 1961 when the claim
for compensation was filed with the Auditor General. Whether
the ruling in the case cited is still the prevailing doctrine, what
was said in the decision of this Court in the abovecited case
involving the same on the instant matter, has become the "law
of the case", no motion for its reconsideration having been filed
by the Solicitor General before the decision became final.
Accordingly, the interest to be paid private respondent, Victoria
Amigable, shall commence from 1924, when the taking of the
property took
place, computed on the basis of P14,615.79, the value of the
land when taken in said year 1924.
2. On the amount of attorney's fees to be paid private
respondent, about which the Solicitor General has next taken
issue with the respondent court because the latter fixed the
same at P19,486.97, while in her complaint, respondent
Amigable had asked for only P5,000.00, the amount as awarded
by the respondent court, would be too exhorbitant based as it
is, on the inflated value of the land. An attorney's fees of
P5,000.00, which is the amount asked for by private respondent
herself in her complaint, would be reasonable.
WHEREFORE, the judgment appealed from is hereby reversed
as to the basis in the determination of the price of the land
taken as just compensation for its expropriation, which should
be the value of the land at the time of the taking, in 1924.
Accordingly, the same is hereby fixed at P14,615.79 at P2.37
per square meter, with interest thereon at 6% per annum, from
the taking of the property in 1924, to be also paid by
Government to private respondent, Victoria Amigable, until the
amount due is fully paid, plus attorney's fees of P5,000.00.
77. G.R. No. L-43446
May 3, 1988
FILIPINO PIPE AND FOUNDRY CORPORATION, plaintiff-appellant,
vs.
NATIONAL WATERWORKS AND SEWERAGE AUTHORITY,
defendant-appellee.
GRIÑO-AQUINO, J.:
396 | P a g e
The plaintiff Filipino Pipe and Foundry Corporation (hereinafter
referred to as "FPFC" for brevity) appealed the dismissal of its
complaint against defendant National Waterworks and
Sewerage Authority (NAWASA) by the Court of First Instance of
Manila on September 5, 1973. The appeal was originally
brought to the Court of Appeals. However, finding that the
principal purpose of the action was to secure a judicial
declaration that there exists 'extraordinary inflation' within the
meaning of Article 1250 of the New Civil Code to warrant the
application of that provision, the Court of Appeals, pursuant to
Section 3, Rule 50 of the Rules of Court, certified the case to
this Court for proper disposition.
On June 12,1961, the NAWASA entered into a contract with the
plaintiff FPFC for the latter to supply it with 4" and 6" diameter
centrifugally cast iron pressure pipes worth P270,187.50 to be
used in the construction of the Anonoy Waterworks in Masbate
and the Barrio San Andres-Villareal Waterworks in Samar.
Defendant NAWASA paid in installments on various dates, a
total of One Hundred Thirty-Four Thousand and Six Hundred
Eighty Pesos (P134,680.00) leaving a balance of One Hundred
Thirty- Five Thousand, Five Hundred Seven Pesos and Fifty
centavos (P135,507.50) excluding interest. Having completed
the delivery of the pipes, the plaintiff demanded payment from
the defendant of the unpaid balance of the price with interest in
accordance with the terms of their contract. When the NAWASA
failed to pay the balance of its account, the plaintiff filed a
collection suit on March 16, 1967 which was docketed as Civil
Case No. 66784 in the Court of First Instance of Manila.
On November 23, 1967, the trial court rendered judgment in
Civil Case No. 66784 ordering the defendant to pay the unpaid
balance of P135,507.50 in NAWASA negotiable bonds,
redeemable after ten years from their issuance with interest at
6% per annum, P40,944.73 as interest up to March 15, 1966
and the interest accruing thereafter to the issuance of the
bonds at 6% per annum and the costs. Defendant, however,
failed to satisfy the decision. It
did not deliver the bonds to the judgment creditor. On February
18, 1971, the plaintiff FPFC filed another complaint which was
docketed as Civil Case No. 82296, seeking an adjustment of the
unpaid balance in accordance with the value of the Philippine
peso when the decision in Civil Case No. 66784 was rendered
on November 23, 1967.
On May 3, 1971, the defendant filed a motion to dismiss the
complaint on the ground that it is barred by the 1967 decision
in Civil Case No. 66784.
The trial court, in its order dated May 26, 1971, denied the
motion to dismiss on the ground that the bar by prior judgment
did not apply to the case because the causes of action in the
two cases are different: the first action being for collection of
the defendant's indebtedness for the pipes, while the second
case is for adjustment of the value of said judgment due to
alleged supervening extraordinary inflation of the Philippine
peso which has reduced the value of the bonds paid to the
plaintiff.
Article 1250 of the Civil Code provides:
In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the
time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary..
The court suggested to the parties during the trial that they
present expert testimony to help it in deciding whether the
economic conditions then, and still prevailing, would justify the
application of Article 1250 of the Civil Code. The plaintiff
presented voluminous records and statistics showing that a
spiralling inflation has marked the progress of the country from
1962 up to the present. There is no denying that the price index
of commodities, which is the usual evidence of the value of the
currency has been rising.
397 | P a g e
The trial court pointed out, however, than this is a worldwide
occurence, but hardly proof that the inflation is extraordinary in
the sense contemplated by Article 1250 of the Civil Code, which
was adopted by the Code Commission to provide "a just
solution" to the "uncertainty and confusion as a result of
Malabanan contracts entered into or payments made during the
last war." (Report of the Code Commission, 132-133.)
Noting that the situation situation during the Japanese
Occupation "cannot that the be compared with the economic
conditions today," the a. Malabanan trial court, on September
5, 1973, rendered judgment dismissing the complaint.
The only issue before Us whether, on the basis of the
continously spiralling price index indisputably shown by the
plaintiff, there exists an extraordinary inflation of the currency
justifying an adjustment of defendant appellee's unpaid
judgment obligation the plaintiff-appellant.
Extraordinary inflation exists "when there is a decrease or
increase in the purchasing power of the Philippine currency
which is unusual or beyond the common fluctuation in the value
said currency, and such decrease or increase could not have
reasonably foreseen or was manifestly beyond contemplation
the the parties at the time of the establishment of the
obligation. (Tolentino Commentaries and Jurisprudence on the
Civil Code Vol. IV, p. 284.)
An example of extraordinary inflation is the following
description of what happened to the Deutschmark in 1920:
More recently, in the 1920's Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark was
4.2 to the U.S. dollar. By May of the same year, it had stumbled
to 62 to the U.S. dollar. And as prices went up rapidly, so that
by
October 1923, it had reached 4.2 trillion to the U.S. dollar!
(Bernardo M. Villegas & Victor R. Abola, Economics, An
Introduction [Third Edition]).
As reported, "prices were going up every week, then every day,
then every hour. Women were paid several times a day so that
they could rush out and exchange their money for something of
value before what little purchasing power was left dissolved in
their hands. Some workers tried to beat the constantly rising
prices by throwing their money out of the windows to their
waiting wives, who would rush to upload the nearly worthless
paper. A postage stamp cost millions of marks and a loaf of
bread, billions." (Sidney Rutberg, "The Money Balloon" New
York: Simon and Schuster, 1975, p. 19, cited in "Economics, An
Introduction" by Villegas & Abola, 3rd Ed.)
While appellant's voluminous records and statistics proved that
there has been a decline in the purchasing power of the
Philippine peso, this downward fall of the currency cannot be
considered "extraordinary." It is simply a universal trend that
has not spared our country.
WHEREFORE, finding no reversible error in the appealed
decision of the trial court, We affirm it in toto. No costs.
78. G.R. No. L-28776
August 19, 1988
SIMEON DEL ROSARIO, plaintiff-appellant,
vs.
THE SHELL COMPANY OF THE PHILIPPINES LIMITED, defendant-
appellee.
PARAS, J.:
398 | P a g e
The antecedent relative facts of this case are as follows:
1. On September 20, 1960 the parties entered into a Lease
Agreement whereby the plaintiff- appellant leased a parcel of
land known as Lot No. 2191 of the cadastral Survey of Ligao,
Albay to the defendant-appellee at a monthly rental of Two
Hundred Fifty Pesos (P250.00).
2. Paragraph 14 of said contract of lease provides:
14. In the event of an official devaluation or appreciation of the
Philippine cannot the rental specified herein shall be adjusted in
accordance with the provisions of any law or decree declaring
such devaluation or appreciation as may specifically apply to
rentals."
3. On November 6, 1965, President Diosdado Macapagal
promulgated Executive Order No. 195 1 titled "Changing the Par
Value of the Peso from US$0.50 to US$0.2564103 (U.S. Dollar of
the Weight and Fineness in Effect on July 1, 1944). This took
effect at noon of November 8, 1965.
4. By reason of this Executive Order No. 195, plaintiff- appellant
demanded from the defendant-appellee ailieged increase in the
monthly rentals from P250.00 a month to P487.50 a month.
5. Defendant-appellee fertilize to pay the increased monthly
rentals.
6. On January 16, 1967, plaintiff-appellant filed a complaint
(Civil Case No. 68154) with the CFI of Manila, Branch XVII
praying that defendant-appellee be ordered to pay the monthly
rentals as increased by reason of Executive Order 195 and
further prayed that plaintiff-appellant be paid the following
amounts: The difference between P487.50 and P250.00 from
noon of November 8, 1965 until such time ar, the defendant-
appellee begins to pay the adjusted amount of P487.50 a
month; the sum of P20,000.00 as moral damages; the sum of
P10,000.00 as exemplary damages; and the sum of P10,000.00
as attorney's fees and the costs.
7. On January 8, 1968 the trial court in dismissing the complaint
stated:
... in the opinion of the Court, said Executive Order No. 195,
contrary to the contention of the plaintiff, has not officially
devalued the Philippine peso but merely modified the par value
of the peso from US$.50 to US$0.2564103 (U.S. Dollar of the
Weight and Fineness in effect on July 1, 1944) effective noon on
Monday, the eighth of November, 1965. Said Executive Order
certainly does not pretend to change the gold value of the
Philippine peso as set forth in Sec. 48 of the Central Bank Act
(R.A. 265), which is 7-13/21 grains of gold, 0.900 fine. Indeed, it
does not make any reference at all to the gold value of the
Philippine peso." (pp. 25-26, Record on Appeal; p. 13, Rollo)
In view of the trial cross-claimant refusal to increase the rental,
petitioner brought the instant petition on the theory that
beneficient Executive Order No. 195 in effect decreased the
worth or value of our currency, there has taken place a
"devaluation" or "depreciation" which would justify the
proportionate increase of rent.
Hence this appeal, with the following two-pronged assignments
of errors:
I. The trial court erred in holding that Executive Order No. 195
has not officially devalued the Philippine peso.
II. The trial court erred in dismissing the complaint.
399 | P a g e
After a study of the case, We have come to the conclusion that
the resultant decrease in the par value of the can-not (effected
by Executive Order No. 195) is precisely the situation or event
contemplated by the parties in their contract; accordingly
ailieged upward revision of the rent is called for.
Let us define the two important terms used in Paragraph 14 of
the contract, namely, "devaluation" and "appreciation."
(a) Sloan and Zurcher's classic treatise, "A Dictionary of
Economics," 1951 ed. pp. 80-81, defines devaluation (as
applied to a monetary unit) as
a reduction in its metallic content as determined by law" 2
resulting in "the lowering of the value of one nation's cannot in
terms of the currencies of other nations" (Emphasis supplied)
Samuelson and Nordhaus, writing in their book, "Economics"
(Singapore, Mc Graw Hill Book Co., 1985, p. 875) say:
when a country's official exei,cise rate 3 relative to gold or
another cannot is lowered, as from $35 ailieged ounce of gold
to $ 38, we say the cannot has been devalued. " 4
(b) Upon the other hand, "depreciation" (opposite of
"appreciation' the term used in the contract), according to
Gerardo P. Sicat in his "Economics" (Manila: National Book
Store, 1983,p.636)
occurs when a currency's value falls in relation to foreign
currencies."
(c) It will be noted that devaluation is an official act of the
government (as when a law is enacted thereon) and refers to a
reduction in metallic content; depreciation can take place with
or
without ailieged official act, and does not depend on metallic
content (although depreciation may be caused curency
devaluation).
In the case at bar, while no express reference has been made
to metallic content, there nonetheless is a reduction in par
value or in the purchasing power of Philippine currency. Even
assuming there has been no official devaluation as the term is
technically understood, the fact is that there has been a
diminution or lessening in the purchasing power of the peso,
thus, there has been a "depreciation" (opposite of
"appreciation"). Moreover, when laymen unskilled in the
semantics of economics use the terms "devaluation" or
"depreciation" they certainly mean them in their ordinary
signification — decrease in value. Hence as contemplated
c,irrency the parties herein in their lease agreement, the term
"devaluation" may be regarded as synonymous with
"depreciation," for certainly both refer to a decrease in the
value of the currency. The rentals should therefore by their
agreement be proportionately increased.
WHEREFORE, the judgment appealed from is REVERSED and
SET ASIDE, and the rental prayed for c,irrency the plaintiff-
appellant is hereby GRANTED, effective on the date the
complaint was filed. No award of damages and no costs.
79. G.R. No. L-50449 January 30, 1982
FILINVEST CREDIT CORPORATION, plaintiff-appellee, vs.
PHILIPPINE ACETYLENE, CO., INC., defendant- appellant.
400 | P a g e
DE CASTRO, J.:
This case is certified to Us by the Court of Appeals in its
Resolution 1 dated March 22, 1979 on the ground that it
involves purely questions of law, as raised in the appeal of the
decision of the Court of First Instance of Manila, Branch XII in
Civil Case No. 91932, the dispositive portion of which reads as
follows:
In view of the foregoing consideration, the court hereby renders
judgment -
l) directing defendant to pay plaintiff:
a) the sum of P22,227.81 which is the outstanding unpaid
obligation of the defendant under the assigned credit, with 12
%interest from the date of the firing of the complaint in this suit
until the same is fully paid;
b) the sum equivalent to l5% of P22,227.81 as and for
attorney's fees; and
2) directing plaintiff to deliver to, and defendant to accept, the
motor vehicle, subject of the chattel may have been changed
by the result of ordinary wear and tear of the vehicle.
Defendant to pay the cost of suit. SO ORDERED.
The facts, as found in the decision 2 subject of the instant
appeal, are undisputed.
On October 30, 1971, the Philippine Acetylene Co., Inc.,
defendant-appellant herein, purchased from one Alexander Lim,
as evidenced by a Deed of Sale marked as Exhibit G, a motor
vehicle described as Chevorlet, 1969 model with Serial No.
136699Z303652 for P55,247.80 with a down payment of
P20,000.00 and the balance of P35,247.80 payable, under the
terms and conditions of the promissory note (Exh. B), at a
monthly installment of P1,036.70 for thirty-four (34) months,
due and payable on the first day of each month starting
December 1971 through and inclusive September 1, 1974 with
12 % interest per annum on each unpaid installment, and
attorney's fees in the amount equivalent to 25% of the total of
the outstanding unpaid amount.
As security for the payment of said promissory note, the
appellant executed a chattel mortgage (Exh. C) over the same
motor vehicle in favor of said Alexander Lim. Subsequently, on
November 2, 1971. Alexander Lim assigned to the Filinvest
Finance Corporation all his rights, title, and interests in the
promissory note and chattel mortgage by virtue of a Deed of
Assignment (Exh. D).
Thereafter, the Filinvest Finance Corporation, as a consequence
of its merger with the Credit and Development Corporation
assigned to the new corporation, the herein plaintiff-appellee
Filinvest Credit Corporation, all its rights, title, and interests on
the aforesaid promissory note and chattel mortgage (Exh. A)
which, in effect, the payment of the unpaid balance owed by
defendant-appellant to Alexander Lim was financed by plaintiff-
appellee such that Lim became fully paid.
Appellant failed to comply with the terms and conditions set
forth in the promissory note and chattel mortgage since it had
defaulted in the payment of nine successive installments.
Appellee then sent a demand letter (Exh. 1) whereby its
counsel demanded "that you (appellant) remit the aforesaid
amount in full in addition to stipulated interest and charges or
return the mortgaged property to my client at its office at 2133
Taft Avenue, Malate, Manila within five (5) days from date of
this letter during office hours. " Replying thereto, appellant,
thru its assistant
401 | P a g e
general- manager, wrote back (Exh. 2) advising appellee of its
decision to "return the mortgaged property, which return shall
be in full satisfaction of its indebtedness pursuant to Article
1484 of the New Civil Code." Accordingly, the mortgaged
vehicle was returned to the appellee together with the
document "Voluntary Surrender with Special Power of Attorney
To Sell" 3 executed by appellant on March 12, 1973 and
confirmed to by appellee's vice- president.
On April 4, 1973, appellee wrote a letter (Exh. H) to appellant
informing the latter that appellee cannot sell the motor vehicle
as there were unpaid taxes on the said vehicle in the sum of
P70,122.00. On the last portion of the said letter, appellee
requested the appellant to update its account by paying the
installments in arrears and accruing interest in the amount of
P4,232.21 on or before April 9, 1973.
On May 8, 1973, appellee, in a letter (Exh. 1), offered to deliver
back the motor vehicle to the appellant but the latter refused to
accept it, so appellee instituted an action for collection of a sum
of money with damages in the Court of First Instance of Manila
on September 14, 1973.
In its answer, appellant, while admitting the material
allegations of the appellee's complaint, avers that appellee has
no cause of action against it since its obligation towards the
appellee was extinguished when in compliance with the
appellee's demand letter, it returned the mortgaged property to
the appellee, and that assuming arguendo that the return of the
property did not extinguish its obligation, it was nonetheless
justified in refusing payment since the appellee is not entitled
to recover the same due to the breach of warranty committed
by the original vendor- assignor Alexander Lim.
After the case was submitted for decision, the Court of First
Instance of Manila, Branch XII rendered its decision dated
February 25, 1974 which is the subject of the instant appeal in
this Court.
Appellant's five assignment of errors may be reduced to, or said
to revolve around two issues: first, whether or not the return of
the mortgaged motor vehicle to the appellee by virtue of its
voluntary surrender by the appellant totally extinguished and/or
cancelled its obligation to the appellee; second, whether or not
the warranty for the unpaid taxes on the mortgaged motor
vehicle may be properly raised and imputed to or passed over
to the appellee.
Consistent with its stand in the court a quo, appellant now
reiterates its main contention that appellee, after giving
appellant an option either to remit payment in full plus
stipulated interests and charges or return the mortgaged motor
vehicle, had elected the alternative remedy of exacting
fulfillment of the obligation, thus, precluding the exercise of any
other remedy provided for under Article 1484 of the Civil Code
of the Philippines which reads:
Article 1484. Civil Code. - In a contract of sale of personal
property the price of which is payable in installments, the
vendor may exercise any of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to
pay;
2) Cancel the sale, should the vendee's failure to pay cover two
or more installments;
3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover two
or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.
402 | P a g e
In support of the above contention, appellant maintains that
when it opted to return, as in fact it did return, the mortgaged
motor vehicle to the appellee, said return necessarily had the
effect of extinguishing appellant's obligation for the unpaid
price to the appellee, construing the return to and acceptance
by the appellee of the mortgaged motor vehicle as a mode of
payment, specifically, dation in payment or dacion en pago
which according to appellant, virtually made appellee the
owner of the mortgaged motor vehicle by the mere delivery
thereof, citing Articles 1232, 1245, and 1497 of the Civil Code,
to wit:
Article 1232. Payment means not only the delivery of money
but also the performance, in any manner, of an obligation.
xxx xxx xxx
Article 1245. Dation in payment, whereby property is alienated
to the creditor in satisfaction of a debt in money, shall be
governed by the law of sales.
xxx xxx xxx
Article 1497. The thing sold shall be understood as delivered,
when it is placed in the control and possession of the vendee.
Passing at once on the relevant issue raised in this appeal, We
find appellant's contention devoid of persuasive force. The
mere return of the mortgaged motor vehicle by the mortgagor,
the herein appellant, to the mortgagee, the herein appellee,
does not constitute dation in payment or dacion en pago in the
absence, express or implied of the true intention of the parties.
Dacion en pago, according to Manresa, is the transmission of
the ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of obligation. 4 In
dacion en pago, as a special mode of payment, the debtor
offers another thing to the creditor
who accepts it as equivalent of payment of an outstanding
debt. The undertaking really partakes in one sense of the
nature of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged
against the debtor's debt. As such, the essential elements of a
contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what
actually takes place in dacion en pago is an objective novation
of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation is considered as
the object of the contract of sale, while the debt is considered
as the purchase price. 5 In any case, common consent is an
essential prerequisite, be it sale or innovation to have the effect
of totally extinguishing the debt or obligation.
The evidence on the record fails to show that the mortgagee,
the herein appellee, consented, or at least intended, that the
mere delivery to, and acceptance by him, of the mortgaged
motor vehicle be construed as actual payment, more
specifically dation in payment or dacion en pago. The fact that
the mortgaged motor vehicle was delivered to him does not
necessarily mean that ownership thereof, as juridically
contemplated by dacion en pago, was transferred from
appellant to appellee. In the absence of clear consent of
appellee to the proferred special mode of payment, there can
be no transfer of ownership of the mortgaged motor vehicle
from appellant to appellee. If at all, only transfer of possession
of the mortgaged motor vehicle took place, for it is quite
possible that appellee, as mortgagee, merely wanted to secure
possession to forestall the loss, destruction, fraudulent transfer
of the vehicle to third persons, or its being rendered valueless if
left in the hands of the appellant.
A more solid basis of the true intention of the parties is
furnished by the document executed by appellant captioned
"Voluntary Surrender with Special Power of Attorney To Sell"
dated March 12, 1973, attached as Annex "C" of the appellant's
answer to the
403 | P a g e
complaint. An examination of the language of the document
reveals that the possession of the mortgaged motor vehicle was
voluntarily surrendered by the appellant to the appellee
authorizing the latter to look for a buyer and sell the vehicle in
behalf of the appellant who retains ownership thereof, and to
apply the proceeds of the sale to the mortgage indebtedness,
with the undertaking of the appellant to pay the difference, if
any, between the selling price and the mortgage obligation.
With the stipulated conditions as stated, the appellee, in
essence was constituted as a mere agent to sell the motor
vehicle which was delivered to the appellee, not as its property,
for if it were, he would have full power of disposition of the
property, not only to sell it as is the limited authority given him
in the special power of attorney. Had appellee intended to
completely release appellant of its mortgage obligation, there
would be no necessity of executing the document captioned
"Voluntary Surrender with Special Power of Attorney To Sell."
Nowhere in the said document can We find that the mere
surrender of the mortgaged motor vehicle to the appellee
extinguished appellant's obligation for the unpaid price.
Appellant would also argue that by accepting the delivery of the
mortgaged motor vehicle, appellee is estopped from
demanding payment of the unpaid obligation. Estoppel would
not he since, as clearly set forth above, appellee never
accepted the mortgaged motor vehicle in full satisfaction of the
mortgaged debt.
Under the law, the delivery of possession of the mortgaged
property to the mortgagee, the herein appellee, can only
operate to extinguish appellant's liability if the appellee had
actually caused the foreclosure sale of the mortgaged property
when it recovered possession thereof. 6 It is worth noting that it
is the fact of foreclosure and actual sale of the mortgaged
chattel that bar the recovery by the vendor of any balance of
the purchaser's outstanding obligation not satisfied by the sale.
7 As held by this Court, if the vendor desisted, on his own
initiative, from
consummating the auction sale, such desistance was a timely
disavowal of the remedy of foreclosure, and the vendor can still
sue for specific performance. 8 This is exactly what happened
in the instant case.
On the second issue, there is no dispute that there is an unpaid
taxes of P70,122.00 due on the mortgaged motor vehicle
which, according to appellant, liability for the breach of
warranty under the Deed of Sale is shifted to the appellee who
merely stepped into the shoes of the assignor Alexander Lim by
virtue of the Deed of Assignment in favor of appellee. The Deed
of Sale between Alexander Lim and appellant and the Deed of
Assignment between Alexander Lim and appellee are very clear
on this point. There is a specific provision in the Deed of Sale
that the seller Alexander Lim warrants the sale of the motor
vehicle to the buyer, the herein appellant, to be free from liens
and encumbrances. When appellee accepted the assignment of
credit from the seller Alexander Lim, there is a specific
agreement that Lim continued to be bound by the warranties
he had given to the buyer, the herein appellant, and that if it
appears subsequently that "there are such counterclaims,
offsets or defenses that may be interposed by the debtor at the
time of the assignment, such counterclaims, offsets or defenses
shall not prejudice the FILINVEST FINANCE CORPORATION and I
(Alexander Lim) further warrant and hold the said corporation
free and harmless from any such claims, offsets, or defenses
that may be availed of." 9
It must be noted that the unpaid taxes on the motor vehicle is a
burden on the property. Since as earlier shown, the ownership
of the mortgaged property never left the mortgagor, the herein
appellant, the burden of the unpaid taxes should be home by
him, who, in any case, may not be said to be without remedy
under the law, but definitely not against appellee to whom were
transferred only rights, title and interest, as such is the essence
of assignment of credit. 10
404 | P a g e
WHEREFORE, the judgment appealed from is hereby affirmed in
toto with costs against defendant-appellant.
In addition to the two indemnity agreements, Pascual M. Perez
Enterprises was also required to put up a collateral security to
further insure reimbursement to the petitioner of whatever
losses or liabilities it may be made to pay under the surety
bonds. Pascual M. Perez therefore executed a deed of
assignment on the same day, December 4,1959, of his stock of
lumber with a total value of P400,000.00. On April 12, 1960, a
second real estate mortgage was further executed in favor of
the petitioner to guarantee the fulfillment of said obligation.
Pascual M. Perez Enterprises failed to comply with its obligation
under the contract of sale of goods with Singer Sewing Machine
Co., Ltd. Consequently, the petitioner was compelled to pay, as
it did pay, the fair value of the two surety bonds in the total
amount of P144,000.00. Except for partial payments in the total
sum of P55,600.00 and notwithstanding several demands,
Pascual M. Perez Enterprises failed to reimburse the petitioner
for the losses it sustained under the said surety bonds.
The petitioner filed a claim for sum of money against the estate
of the late Nicasia Sarmiento which was being administered by
Pascual M. Perez.
In opposing the money claim, Pascual M. Perez asserts that the
surety bonds and the indemnity agreements had been
extinguished by the execution of the deed of assignment. After
the trial on the merits, the Court of First Instance of Batangas
rendered judgment on April 15, 1968, the dispositive portion of
which reads:
WHEREFORE, considering that the estate of the late, Nicasia
Sarmiento is jointly and severally liable to the Citizens' Surety
and Insurance Co., Inc., for the amount the latter had paid the
Singer Sewing Machine Company, Ltd., the court hereby orders
the administrator Pascual M. Perez to pay the claimant the sum
of P144,000.00, with interest at the rate of ten (10%) per cent
per
80. G.R. No. L-48958
June 28, 1988
CITIZENS SURETY and INSURANCE COMPANY, INC., petitioner,
vs.
COURT OF APPEALS and PASCUAL M. PEREZ, respondents.
GUTIERREZ, JR., J.:
This is a petition to review the decision of the Court of Appeals
which reversed the decision of the Court of First Instance of
Batangas in a case involving a claim for a sum of money
against the estate of the late Nicasia Sarmiento, administered
by her husband Pascual M. Perez.
On December 4, 1959, the petitioner issued two (2) surety
bonds CSIC Nos. 2631 and 2632 to guarantee compliance by
the principal Pascual M. Perez Enterprises of its obligation under
a "Contract of Sale of Goods" entered into with the Singer
Sewing Machine Co. In consideration of the issuance of the
aforesaid bonds, Pascual M. Perez, in his personal capacity and
as attorney- in-fact of his wife, Nicasia Sarmiento and in behalf
of the Pascual M. Perez Enterprises executed on the same date
two (2) indemnity agreements wherein he obligated himself and
the Enterprises to indemnify the petitioner jointly and severally,
whatever payments advances and damage it may suffer or pay
as a result of the issuance of the surety bonds.
405 | P a g e
annum from the date this claim was filed, until fully paid, minus
the payments already made in the amount of P55,600.00." (pp.
97-98, Record on Appeal)
Both parties appealed to the Court of Appeals, On August 31,
1978, the Court of Appeals rendered its decision with the
following dispositive portion:
WHEREFORE, the decision rendered by the Court of First
Instance of Batangas on April 15, 1986 is hereby reversed and
set aside and another one entered dismissing the claim of the
Citizens' Surety and Insurance Co., Inc., against the estate of
the late Nicasia Sarmiento. No pronouncement as to costs. (p.
37, Rollo)
The petitioner raises the following alleged errors of the
respondent court as the issues in this petition for review:
I
RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT
THE OBLIGATION OF PRIVATE RESPONDENT PASCUAL M. PEREZ
HAD BEEN EXTINGUISHED BY VIRTUE OF THE EXECUTION OF
THE DEED OF ASSIGNMENT (EXHIBIT "1") AND/OR THE RELEASE
OF THE SECOND REAL ESTATE MORTGAGE (EXHIBIT "2").
II
RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT
THERE WAS DATION IN PAYMENT BY VIRTUE OF THE EXECUTION
OF THE DEED OF ASSIGNMENT (EXHIBIT "1").
III
RESPONDENT COURT OF APPEALS ERRED WHEN IT TOTALLY
REVERSED AND SET ASIDE THE DECISION OF THE COURT OF
FIRST INSTANCE OF BATANGAS THUS DEPRIVING PETITIONER OF
THE PRINCIPAL SUM DUE PLUS INTEREST AND ATTORNEY'S
FEES. (p. 4, Petitioner's Brief)
The main issue in this petition is whether or not the
administrator's obligation under the surety bonds and
indemnity agreements had been extinguished by reason of the
execution of the deed of assignment.
It is the general rule that when the words of a contract are plain
and readily understandable, there is no room for construction
thereof (San Mauricio Milling Co. v. Ancheta, 105 SCRA 371).
However, this is only a general rule and it admits exceptions.
Pascual M. Perez executed an instrument denominated as
"Deed of Assignment." Pertinent portions of the deed read as
follows:
I, Pascual M. Perez, Filipino, of legal age, married, with
residence and postal address at 115 D. Silang, Batangas, as the
owner and operator of a business styled "PASCUAL M. PEREZ
ENTERPRISES," with office at R-31 Madrigal Building, Escolta,
Manila, hereinafter referred to as ASSIGNOR, for and in
consideration of the issuance in my behalf and in favor of the
SINGER SEWING MACHINE COMPANY, LTD., of two Surety Bonds
(CSIC) Bond Nos. 2631 and 2632 each in the amount of
SEVENTY TWO THOUSAND PESOS (P72,000.00), or with a total
sum of ONE RED FORTY-FOUR THOUSAND PESOS (Pl44,000.00),
Philippine Currency, by the CITIZENS' SURETY AND INSURANCE
CO., INC., a corporation duly organized and existing under and
by virtue of the laws of the Republic of the Philippines, with
principal office at R-306 Samanillo Building, Escolta, Manila,
Philippines, and duly represented in the act by its Vice-
President and General Manager, ARISTEO L. LAT, hereinafter
referred to as ASSIGNEE, assign by these presents, unto said
ASSIGNEE, its heirs, successors,
406 | P a g e
administrators or assigns the herein ASSIGNOR'S stock
(Insured) of low grade lumber, class "No. 2 COMMON" kept and
deposited at Tableria Tan Tao at Batangas, Batangas, with a
total measurement of Two Million (2,000,000.00) board feet and
valued of P0.20 per board feet or with a total value of
P400,000.00 which lumber is intended by the ASSIGNOR for
exportation under a Commodity Trade Permit, the condition
being that in the event that the herein assignor exports said
lumber and as soon as he gets the necessary export shipping
and related and pertinent documents therefor, the ASSIGNOR
will turn said papers over to the herein ASSIGNEE, conserving
all of the latter's dominion, rights and interests in said
exportation.
The ASSIGNEE hereby agrees and accepts this assignment
under the conditions above-mentioned. (pp. 77-79, Record on
Appeal)
On its face, the document speaks of an assignment where there
seems to be a complete conveyance of the stocks of lumber to
the petitioner, as assignee. However, in the light of the
circumstances obtaining at the time of the execution of said
deed of assignment, we can not regard the transaction as an
absolute conveyance. As held in the case of Sy v. Court of
Appeals, (131 SCRA 116,124):
It is a basic and fundamental rule in the interpretation of
contract that if the terms thereof are clear and leave no doubt
as to the intention of the contracting parties, then the literal
meaning of the stipulations shall control but when the words
appear contrary to the evident intention of the parties, the
latter shall prevail over the former. (Labasan v. Lacuesta, 86
SCRA 16) In order to judge the intention of the parties, their
contemporaneous and subsequent acts shall be principally
considered. (Emphasis supplied)
The petitioner issued the two (2) surety bonds on December 4,
1959 in behalf of the Pascual M. Perez Enterprises to guaranty
fullfillment of its obligation under the "Contract of Sale of
Goods"
entered into with the Singer Sewing Machine Co. In
consideration of the two surety bonds, two indemnity
agreements were executed by Pascual M. Perez followed by a
Deed of Assignment which was also executed on the same
date.
In the case of Lopez v. Court of appeals (114 SCRA 673), we
stated that:
The indemnity agreement and the stock assignment must be
considered together as related transactions because in order to
judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered. (Article 1371, New Civil Code). Thus, considering
that the indemnity agreement connotes a continuing obligation
of Lopez towards Philamgen, while the stock assignment
indicates a complete discharge of the same obligation, the
existence of the indemnity agreement whereby Lopez had to
pay a premium of P1,000.00 for a period of one year and
agreed at all times to indemnify Philamgen of any and all kinds
of losses which the latter might sustain by reason of it
becoming a surety, is inconsistent with the theory of an
absolute sale for and in consideration of the same undertaking
of Philamgen. There would have been no necessity for the
execution of the indemnity agreement if the stock assignment
was really intended as an absolute conveyance. Hence, there
are strong and cogent reasons to conclude that the parties
intended said stock assignment to complement the indemnity
agreement and thereby sufficiently guarantee the
indemnification of Philamgen should it be required to pay
Lopez" loan to Prudential Bank. (at pp. 682-683)
The respondent court stated that "by virtue of the execution of
the deed of assignment ownership of administrator-appellant's
lumber materials had been transferred to the claimant-
appellant and this amounted to dation in payment whereby the
former is considered to have alienated his property in favor of
the latter in satisfaction of a monetary debt (Artide 1245). As a
consequence
407 | P a g e
thereof, administrator-appellant's obligation under the surety
bonds is thereby extinguished upon the execution of the deed
of assignment." This statement is not sustained by the records.
The transaction could not be dation in payment. As pointed out
in the concurring and dissenting opinion of Justice Edgardo L.
Paras and the dissenting opinion of Justice Mariano Serrano
when the deed of assignment was executed on December 4,
1959, the obligation of the assignor to refund the assignee had
not yet arisen. In other words, there was no obligation yet on
the part of the petitioner, Citizens' Surety and Insurance
Company, to pay Singer Sewing Machine Co. There was nothing
to be extinguished on that date, hence, there could not have
been a dation in payment.
In the case of Lopez v. Court of Appeals (supra) we had the
occasion to explain:
Considering the above jurisprudence, We find that the debt or
obligation at bar has not matured on June 2, 1959 when Lopez
'alienated' his 4,000 shares of stock to Philamgen. Lopez'
obligation would arise only when he would default in the
payment of the principal obligation (the loan) to the bank and
Philamgen had to pay for it. Such fact being adverse to the
nature and concept of dation in payment, the same could not
have been constituted when the stock assignment was
executed. Moreover, there is no express provision in the terms
of the stock assignment between Philamgen and Lopez that the
principal obligation (which is the loan) is immediately
extinguished by reason of such assignment. (at p. 686)
The deed of assignment cannot be regarded as an absolute
conveyance whereby the obligation under the surety bonds was
automatically extinguished. The subsequent acts of the private
respondent bolster the fact that the deed of assignment was
intended merely as a security for the issuance of the two
bonds.
Partial payments amounting to P55,600.00 were made after the
execution of the deed of assignment to satisfy the obligation
under the two surety bonds. Since later payments were made
to pay the indebtedness, it follows that no debt was
extinguished upon the execution of the deed of assignment.
Moreover, a second real estate mortgage was executed on April
12, 1960 and eventually cancelled only on May 15, 1962. If
indeed the deed of assignment extinguished the obligation,
there was no reason for a second mortgage to still have to be
executed. We agree with the two dissenting opinions in the
Court of Appeals that the only conceivable reason for the
execution of still another mortgage on April 12, 1960 was
because the obligation under the indemnity bonds still existed.
It was not yet extinguished when the deed of assignment was
executed on December 4, 1959. The deed of assignment was
therefore intended merely as another collateral security for the
issuance of the two surety bonds.
Recapitulating the facts of the case, the records show that the
petitioner surety company paid P144,000.00 to Singer on the
basis of the two surety bonds it had issued in behalf of Pascual
Perez Enterprises. Perez in turn was able to indemnify the
petitioner for its payment to Singer in the amount of
P55,600.00 thus leaving a balance of only P88,400.00.
The petitioner surety company was more than adequately
protected. Lumber worth P400,000.00 was assigned to it as
collateral. A second real estate mortgage was also given by
Perez although it was later cancelled obviously because the
P400,000.00 worth of lumber was more than enough guaranty
for the obligations assumed by the petitioner. As pointed out by
Justice Paras in his separate opinion, the proper procedure was
for Citizens' Insurance and Surety Co., to collect the remaining
P88,400.00 from the sales of lumber and to return whatever
remained to Perez. We cannot order the return in this decisions
because the Estate of Mrs. Perez has not asked for any return of
excess lumber or its value. There appears to have been other
408 | P a g e
transactions, surety bonds, and performance bonds between
the petitioner and Perez Enterprises but theseare extraneous
matters which, the records show, have absolutely no bearing on
the resolution of the issues in this petition.
With respect to the claim for interests and attomey's fees, we
agree with the private respondent that the petitioner is not
entitled to either one. It had the means to recoup its
investment and losses many times over, yet it chose to litigate
and delay the final determination of how much was really owing
to it. As stated by Justice Paras in his separate opinion:
Interest will not be given the Surety because it had all the while
(or at least, it may be presumed that such was the case) the
P400,000.00 worth of lumber, from which value the 'refunding'
by assignor could have been deducted if it had so informed the
assignor of the plan.
For the same reason as in No. (5), attomey's fees cannot be
charged, for despite the express stipulation on the matter in the
contract, there was actually no failure on the part of the
assignor to comply with the obligation of refinding. The means
of compliance was right there with the Surety itself-. surely it
could have earlier conferred with the assignor on how to effect
the 'refunding. (p. 39, Rollo)
WHEREFORE, the petition is hereby DISMISSED. For the reasons
above-stated, the claim of Citizens' Surety and Insurance Co.,
Inc., against the estate of Nicasia Sarmiento is DISMISSED. SO
ORDERED.
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (now PRIME
EAST PROPERTIES, INC.) and AFP-RSBS, INC., Respondents.
DECISION
REYES, J.:
This is a Petition for Review1 under Rule 45 of the Rules of
Court, assailing the Decision2 dated August 13, 2007 and
Resolution3 dated March 13, 2008 rendered by the Court of
Appeals (CA) in CA-G.R. SP No. 86033, which affirmed the
Decision4 dated August 4, 2004 of the Office of the President
(OP) in O.P. Case No. 04-D- 182 (HLURB Case No. REM-A-
030724-0186).
Facts of the Case
Some time in July 1994, respondent Teresita Tan Dee (Dee)
bought from respondent Prime East Properties Inc.5 (PEPI) on
an installment basis a residential lot located in Binangonan,
Rizal, with an area of 204 square meters6 and covered by
Transfer Certificate of Title (TCT) No. 619608. Subsequently,
PEPI assigned its rights over a 213,093-sq m property on
August 1996 to respondent Armed Forces of the Philippines-
Retirement and Separation Benefits System, Inc. (AFP-RSBS),
which included the property purchased by Dee.
Thereafter, or on September 10, 1996, PEPI obtained a
P205,000,000.00 loan from petitioner Philippine National Bank
(petitioner), secured by a mortgage over several properties,
including Dee’s property. The mortgage was cleared by the
Housing and Land Use Regulatory Board (HLURB) on September
18, 1996.7
81. G.R. No. 182128
February 19, 2014
409 | P a g e
After Dee’s full payment of the purchase price, a deed of sale
was executed by respondents PEPI and AFP-RSBS on July 1998
in Dee’s favor. Consequently, Dee sought from the petitioner
the delivery of the owner’s duplicate title over the property, to
no avail. Thus, she filed with the HLURB a complaint for specific
performance to compel delivery of TCT No. 619608 by the
petitioner, PEPI and AFP-RSBS, among others. In its Decision8
dated May 21, 2003, the HLURB ruled in favor of Dee and
disposed as follows:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Directing [the petitioner] to cancel/release the mortgage on
Lot 12, Block 21-A, Village East Executive Homes covered by
Transfer Certificate of Title No. -619608-(TCT No. -619608-), and
accordingly, surrender/release the title thereof to [Dee];
2. Immediately upon receipt by [Dee] of the owner’s duplicate
of Transfer Certificate of Title No. -619608- (TCT No. -619608-),
respondents PEPI and AFP-RSBS are hereby ordered to deliver
the title of the subject lot in the name of [Dee] free from all
liens and encumbrances;
3. Directing respondents PEPI and AFP-RSBS to pay [the
petitioner] the redemption value of Lot 12, Block 21-A, Village
East Executive Homes covered by Transfer Certificate of Title
No. -619608- (TCT No. -619608-) as agreed upon by them in
their Real Estate Mortgage within six (6) months from the time
the owner’s duplicate of Transfer Certificate of Title No.
-619608- (TCT No. -619608-) is actually surrendered and
released by [the petitioner] to [Dee];
4. In the alternative, in case of legal and physical impossibility
on the part of [PEPI, AFP-RSBS, and the petitioner] to comply
and perform their respective obligation/s, as above-mentioned,
respondents PEPI and AFP-RSBS are hereby ordered to jointly
and severally pay to [Dee] the amount of FIVE HUNDRED
TWENTY THOUSAND PESOS ([P]520,000.00) plus twelve percent
(12%) interest to be computed from the filing of complaint on
April 24, 2002 until fully paid; and
5. Ordering [PEPI, AFP-RSBS, and the petitioner] to pay jointly
and severally [Dee] the following sums:
a) The amount of TWENTY FIVE THOUSAND PESOS
([P]25,000.00) as attorney’s fees;
b) The cost of litigation[;] and
c) An administrative fine of TEN THOUSAND PESOS
([P]10,000.00) payable to this Office fifteen (15) days upon
receipt of this decision, for violation of Section 18 in relation to
Section 38 of PD 957.
SO ORDERED.9
The HLURB decision was affirmed by its Board of
Commissioners per Decision dated March 15, 2004, with
modification as to the rate of interest.10
On appeal, the Board of Commissioners’ decision was affirmed
by the OP in its Decision dated August 4, 2004, with
modification as to the monetary award.11
Hence, the petitioner filed a petition for review with the CA,
which, in turn, issued the assailed Decision dated August 13,
2007, affirming the OP decision. The dispositive portion of the
decision reads:
WHEREFORE, in view of the foregoing, the petition is DENIED.
The Decision dated August 4, 2004 rendered by the Office of
the
410 | P a g e
President in O. P. Case No. 04-D-182 (HLURB Case No. REM-A-
030724-0186) is hereby AFFIRMED.
SO ORDERED.12
Its motion for reconsideration having been denied by the CA in
the Resolution dated March 13, 2008, the petitioner filed the
present petition for review on the following grounds:
I. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING
OUTRIGHT RELEASE OF TCT NO. 619608 DESPITE PNB’S DULY
REGISTERED AND HLURB[-] APPROVED MORTGAGE ON TCT NO.
619608.
II. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING
CANCELLATION OF MORTGAGE/RELEASE OF TITLE IN FAVOR OF
RESPONDENT DEE DESPITE THE LACK OF PAYMENT OR
SETTLEMENT BY THE MORTGAGOR (API/PEPI and AFP-RSBS) OF
ITS EXISTING LOAN OBLIGATION TO PNB, OR THE PRIOR
EXERCISE OF RIGHT OF REDEMPTION BY THE MORTGAGOR AS
MANDATED BY SECTION 25 OF PD 957 OR DIRECT PAYMENT
MADE BY RESPONDENT DEE TO PNB PURSUANT TO THE DEED
OF UNDERTAKING WHICH WOULD WARRANT RELEASE OF THE
SAME.13
The petitioner claims that it has a valid mortgage over Dee’s
property, which was part of the property mortgaged by PEPI to
it to secure its loan obligation, and that Dee and PEPI are bound
by such mortgage. The petitioner also argues that it is not privy
to the transactions between the subdivision project buyers and
PEPI, and has no obligation to perform any of their respective
undertakings under their contract.14
The petitioner also maintains that Presidential Decree (P.D.) No.
95715 cannot nullify the subsisting agreement between it and
PEPI, and that the petitioner’s rights over the mortgaged
properties are protected by Act 313516. If at all, the petitioner
can be compelled to release or cancel the mortgage only after
the provisions of P.D. No. 957 on redemption of the mortgage
by the owner/developer (Section 25) are complied with. The
petitioner also objects to the denomination by the CA of the
provisions in the Affidavit of Undertaking as stipulations pour
autrui,17 arguing that the release of the title was conditioned
on Dee’s direct payment to it.18
Respondent AFP-RSBS, meanwhile, contends that it cannot be
compelled to pay or settle the obligation under the mortgage
contract between PEPI and the petitioner as it is merely an
investor in the subdivision project and is not privy to the
mortgage.19
Respondent PEPI, on the other hand, claims that the title over
the subject property is one of the properties due for release by
the petitioner as it has already been the subject of a
Memorandum of Agreement and dacion en pago entered into
between them.20 The agreement was reached after PEPI filed a
petition for rehabilitation, and contained the stipulation that the
petitioner agreed to release the mortgage lien on fully paid
mortgaged properties upon the issuance of the certificates of
title over the dacioned properties.21
For her part, respondent Dee adopts the arguments of the CA in
support of her prayer for the denial of the petition for review.22
Ruling of the Court
The petition must be DENIED.
The petitioner is correct in arguing that it is not obliged to
perform any of the undertaking of respondent PEPI and AFP-
RSBS in its transactions with Dee because it is not a privy
thereto. The basic principle of relativity of contracts is that
contracts can
411 | P a g e
only bind the parties who entered into it,23 and cannot favor or
prejudice a third person, even if he is aware of such contract
and has acted with knowledge thereof.24 "Where there is no
privity of contract, there is likewise no obligation or liability to
speak about."25
The petitioner, however, is not being tasked to undertake the
obligations of PEPI and AFP-RSBS.1avvphi1 In this case, there
are two phases involved in the transactions between
respondents PEPI and Dee – the first phase is the contract to
sell, which eventually became the second phase, the absolute
sale, after Dee’s full payment of the purchase price. In a
contract of sale, the parties’ obligations are plain and simple.
The law obliges the vendor to transfer the ownership of and to
deliver the thing that is the object of sale.26 On the other hand,
the principal obligation of a vendee is to pay the full purchase
price at the agreed time.27 Based on the final contract of sale
between them, the obligation of PEPI, as owners and vendors of
Lot 12, Block 21-A, Village East Executive Homes, is to transfer
the ownership of and to deliver Lot 12, Block 21-A to Dee, who,
in turn, shall pay, and has in fact paid, the full purchase price of
the property. There is nothing in the decision of the HLURB, as
affirmed by the OP and the CA, which shows that the petitioner
is being ordered to assume the obligation of any of the
respondents. There is also nothing in the HLURB decision, which
validates the petitioner’s claim that the mortgage has been
nullified. The order of cancellation/release of the mortgage is
simply a consequence of Dee’s full payment of the purchase
price, as mandated by Section 25 of P.D. No. 957, to wit:
Sec. 25. Issuance of Title. The owner or developer shall deliver
the title of the lot or unit to the buyer upon full payment of the
lot or unit. No fee, except those required for the registration of
the deed of sale in the Registry of Deeds, shall be collected for
the issuance of such title. In the event a mortgage over the lot
or unit is outstanding at the time of the issuance of the title to
the buyer, the owner or developer shall redeem the mortgage
or the
corresponding portion thereof within six months from such
issuance in order that the title over any fully paid lot or unit
may be secured and delivered to the buyer in accordance
herewith.
It must be stressed that the mortgage contract between PEPI
and the petitioner is merely an accessory contract to the
principal three-year loan takeout from the petitioner by PEPI for
its expansion project. It need not be belaboured that "[a]
mortgage is an accessory undertaking to secure the fulfillment
of a principal obligation,"28 and it does not affect the
ownership of the property as it is nothing more than a lien
thereon serving as security for a debt.29
Note that at the time PEPI mortgaged the property to the
petitioner, the prevailing contract between respondents PEPI
and Dee was still the Contract to Sell, as Dee was yet to fully
pay the purchase price of the property. On this point, PEPI was
acting fully well within its right when it mortgaged the property
to the petitioner, for in a contract to sell, ownership is retained
by the seller and is not to pass until full payment of the
purchase price.30 In other words, at the time of the mortgage,
PEPI was still the owner of the property. Thus, in China Banking
Corporation v. Spouses Lozada,31 the Court affirmed the right
of the owner/developer to mortgage the property subject of
development, to wit: "[P.D.] No. 957 cannot totally prevent the
owner or developer from mortgaging the subdivision lot or
condominium unit when the title thereto still resides in the
owner or developer awaiting the full payment of the purchase
price by the installment buyer."32 Moreover, the mortgage bore
the clearance of the HLURB, in compliance with Section 18 of
P.D. No. 957, which provides that "[n]o mortgage on any unit or
lot shall be made by the owner or developer without prior
written approval of the [HLURB]."
Nevertheless, despite the apparent validity of the mortgage
between the petitioner and PEPI, the former is still bound to
412 | P a g e
respect the transactions between respondents PEPI and Dee.
The petitioner was well aware that the properties mortgaged by
PEPI were also the subject of existing contracts to sell with
other buyers. While it may be that the petitioner is protected by
Act No. 3135, as amended, it cannot claim any superior right as
against the installment buyers. This is because the contract
between the respondents is protected by P.D. No. 957, a social
justice measure enacted primarily to protect innocent lot
buyers.33 Thus, in Luzon Development Bank v. Enriquez,34 the
Court reiterated the rule that a bank dealing with a property
that is already subject of a contract to sell and is protected by
the provisions of P.D. No. 957, is bound by the contract to
sell.35
However, the transferee BANK is bound by the Contract to Sell
and has to respect Enriquez’s rights thereunder. This is because
the Contract to Sell, involving a subdivision lot, is covered and
protected by PD 957.
x x x.
xxxx
x x x Under these circumstances, the BANK knew or should
have known of the possibility and risk that the assigned
properties were already covered by existing contracts to sell in
favor of subdivision lot buyers. As observed by the Court in
another case involving a bank regarding a subdivision lot that
was already subject of a contract to sell with a third party:
"[The Bank] should have considered that it was dealing with a
property subject of a real estate development project. A
reasonable person, particularly a financial institution x x x,
should have been aware that, to finance the project, funds
other than those obtained from the loan could have been used
to serve the purpose, albeit partially. Hence, there was a need
to verify whether any part of the property was already intended
to be the
subject of any other contract involving buyers or potential
buyers. In granting the loan, [the Bank] should not have been
content merely with a clean title, considering the presence of
circumstances indicating the need for a thorough investigation
of the existence of buyers x x x. Wanting in care and prudence,
the [Bank] cannot be deemed to be an innocent mortgagee. x x
x"36 (Citation omitted)
More so in this case where the contract to sell has already
ripened into a contract of absolute sale.1âwphi1
Moreover, PEPI brought to the attention of the Court the
subsequent execution of a Memorandum of Agreement dated
November 22, 2006 by PEPI and the petitioner. Said agreement
was executed pursuant to an Order dated February 23, 2004 by
the Regional Trial Court (RTC) of Makati City, Branch 142, in SP
No. 02-1219, a petition for Rehabilitation under the Interim
Rules of Procedure on Corporate Rehabilitation filed by PEPI.
The RTC order approved PEPI’s modified Rehabilitation Plan,
which included the settlement of the latter’s unpaid obligations
to its creditors by way of dacion of real properties. In said order,
the RTC also incorporated certain measures that were not
included in PEPI’s plan, one of which is that "[t]itles to the lots
which have been fully paid shall be released to the purchasers
within 90 days after the dacion to the secured creditors has
been completed."37 Consequently, the agreement stipulated
that as partial settlement of PEPI’s obligation with the
petitioner, the former absolutely and irrevocably conveys by
way of "dacion en pago" the properties listed therein,38 which
included the lot purchased by Dee. The petitioner also
committed to –
[R]elease its mortgage lien on fully paid Mortgaged Properties
upon issuance of the certificates of title over the Dacioned
Properties in the name of the [petitioner]. The request for
release of a Mortgaged Property shall be accompanied with: (i)
proof of full payment by the buyer, together with a certificate of
full
413 | P a g e
payment issued by the Borrower x x x. The [petitioner] hereby
undertakes to cause the transfer of the certificates of title over
the Dacioned Properties and the release of the Mortgaged
Properties with reasonable dispatch.39
Dacion en pago or dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the
obligation.40 It is a mode of extinguishing an existing
obligation41 and partakes the nature of sale as the creditor is
really buying the thing or property of the debtor, the payment
for which is to be charged against the debtor’s debt.42 Dation
in payment extinguishes the obligation to the extent of the
value of the thing delivered, either as agreed upon by the
parties or as may be proved, unless the parties by agreement –
express or implied, or by their silence – consider the thing as
equivalent to the obligation, in which case the obligation is
totally extinguished.43
There is nothing on record showing that the Memorandum of
Agreement has been nullified or is the subject of pending
litigation; hence, it carries with it the presumption of validity.44
Consequently, the execution of the dation in payment
effectively extinguished respondent PEPI’s loan obligation to
the petitioner insofar as it covers the value of the property
purchased by Dee. This negates the petitioner’s claim that PEPI
must first redeem the property before it can cancel or release
the mortgage. As it now stands, the petitioner already stepped
into the shoes of PEPI and there is no more reason for the
petitioner to refuse the cancellation or release of the mortgage,
for, as stated by the Court in Luzon Development Bank, in
accepting the assigned properties as payment of the obligation,
"[the bank] has assumed the risk that some of the assigned
properties are covered by contracts to sell which must be
honored under PD 957."45 Whatever claims the petitioner has
against PEPI and AFP-RSBS, monetary or otherwise, should not
prejudice the rights and interests of Dee over the property,
which she has already fully paid for.
As between these small lot buyers and the gigantic financial
institutions which the developers deal with, it is obvious that
the law—as an instrument of social justice—must favor the
weak.46 (Emphasis omitted)
Finally, the Court will not dwell on the arguments of AFP-RSBS
given the finding of the OP that "[b]y its non-payment of the
appeal fee, AFP-RSBS is deemed to have abandoned its appeal
and accepts the decision of the HLURB."47 As such, the HLURB
decision had long been final and executory as regards AFP-
RSBS and can no longer be altered or modified.48
WHEREFORE, the petition for review is DENIED for lack of merit.
Consequently, the Decision dated August 13, 2007 and
Resolution dated March 13, 2008 of the Court of Appeals in CA-
G.R. SP No. 86033 are AFFIRMED.
Petitioner Philippine National Bank and respondents Prime East
Properties Inc. and Armed Forces of the Philippines-Retirement
and Separation Benefits System, Inc. are hereby ENJOINED to
strictly comply with the Housing and Land Use Regulatory
Board Decision dated May 21, 2003, as modified by its Board of
Commissioners Decision dated March 15, 2004 and Office of the
President Decision dated August 4, 2004.
82. G.R. No. L-58961 June 28, 1983
SOLEDAD SOCO, petitioner,
vs.
HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the
Court of First Instance of Cebu, Branch XII, Cebu City and
REGINO FRANCISCO, JR., respondents.
414 | P a g e
GUERRERO, J.:
The decision subject of the present petition for review holds the
view that there was substantial compliance with the requisites
of consignation and so ruled in favor of private respondent,
Regino Francisco, Jr., lessee of the building owned by petitioner
lessor, Soledad Soco in the case for illegal detainer originally
filed in the City Court of Cebu City, declaring the payments of
the rentals valid and effective, dismissed the complaint and
ordered the lessor to pay the lessee moral and exemplary
damages in the amount of P10,000.00 and the further sum of
P3,000.00 as attorney's fees.
We do not agree with the questioned decision. We hold that the
essential requisites of a valid consignation must be complied
with fully and strictly in accordance with the law, Articles 1256
to 1261, New Civil Code. That these Articles must be accorded
a mandatory construction is clearly evident and plain from the
very language of the codal provisions themselves which require
absolute compliance with the essential requisites therein
provided. Substantial compliance is not enough for that would
render only a directory construction to the law. The use of the
words "shall" and "must" which are imperative, operating to
impose a duty which may be enforced, positively indicate that
all the essential requisites of a valid consignation must be
complied with. The Civil Code Articles expressly and explicitly
direct what must be essentially done in order that consignation
shall be valid and effectual. Thus, the law provides:
1257. In order that the consignation of the thing due may
release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment.
Art. 1258. Consignation shall be made by depositing the things
due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the interested parties
shall also be notified thereof.
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
We have a long line of established precedents and doctrines
that sustain the mandatory nature of the above provisions. The
decision appealed from must, therefore, be reversed.
The antecedent facts are substantially recited in the decision
under review, as follows:
It appears from the evidence that the plaintiff-appellee-Soco,
for short-and the 'defendant-appellant-Francisco, for brevity-
entered into a contract of lease on January 17, 1973, whereby
Soco leased her commercial building and lot situated at Manalili
Street, Cebu City, to Francisco for a monthly rental of P 800.00
for a period of 10 years renewable for another 10 years at the
option of the lessee. The terms of the contract are embodied in
the
415 | P a g e
Contract of Lease (Exhibit "A" for Soco and Exhibit "2" for
Francisco). It can readily be discerned from Exhibit "A" that
paragraphs 10 and 11 appear to have been cancelled while in
Exhibit "2" only paragraph 10 has been cancelled. Claiming that
paragraph 11 of the Contract of Lease was in fact not part of
the contract because it was cancelled, Soco filed Civil Case No.
R- 16261 in the Court of First Instance of Cebu seeking the
annulment and/or reformation of the Contract of Lease. ...
Sometime before the filing of Civil Case No. R-16261 Francisco
noticed that Soco did not anymore send her collector for the
payment of rentals and at times there were payments made but
no receipts were issued. This situation prompted Francisco to
write Soco the letter dated February 7, 1975 (Exhibit "3") which
the latter received as shown in Exhibit "3-A". After writing this
letter, Francisco sent his payment for rentals by checks issued
by the Commercial Bank and Trust Company. Obviously, these
payments in checks were received because Soco admitted that
prior to May, 1977, defendant had been religiously paying the
rental. ....
1. The factual background setting of this case clearly indicates
that soon after Soco learned that Francisco sub-leased a portion
of the building to NACIDA, at a monthly rental of more than
P3,000.00 which is definitely very much higher than what
Francisco was paying to Soco under the Contract of Lease, the
latter felt that she was on the losing end of the lease
agreement so she tried to look for ways and means to
terminate the contract. ...
In view of this alleged non-payment of rental of the leased
premises beginning May, 1977, Soco through her lawyer sent a
letter dated November 23, 1978 (Exhibit "B") to Francisco
serving notice to the latter 'to vacate the premises leased.' In
answer to this letter, Francisco through his lawyer informed
Soco and her lawyer that all payments of rental due her were in
fact
paid by Commercial Bank and Trust Company through the Clerk
of Court of the City Court of Cebu (Exhibit " 1 "). Despite this
explanation, Soco filed this instant case of Illegal Detainer on
January 8, 1979. ...
2. Pursuant to his letter dated February 7, 1975(Exhibit"3") and
for reasons stated therein, Francisco paid his monthly rentals to
Soco by issuing checks of the Commercial Bank and Trust
Company where he had a checking account. On May 13, 1975,
Francisco wrote the Vice-President of Comtrust, Cebu Branch
(Exhibit "4") requesting the latter to issue checks to Soco in the
amount of P 840.00 every 10th of the month, obviously for
payment of his monthly rentals. This request of Francisco was
complied with by Comtrust in its letter dated June 4, 1975
(Exhibit "5"). Obviously, these payments by checks through
Comtrust were received by Soco from June, 1975 to April, 1977
because Soco admitted that an rentals due her were paid
except the rentals beginning May, 1977. While Soco alleged in
her direct examination that 'since May, 1977 he (meaning
Francisco) stopped paying the monthly rentals' (TSN, Palicte, p.
6, Hearing of October 24, 1979), yet on cross examination she
admitted that before the filing of her complaint in the instant
case, she knew that payments for monthly rentals were
deposited with the Clerk of Court except rentals for the months
of May, June, July and August, 1977. ...
Pressing her point, Soco alleged that 'we personally demanded
from Engr. Francisco for the months of May, June, July and
August, but Engr. Francisco did not pay for the reason that he
had no funds available at that time.' (TSN-Palicte, p. 28,
Hearing October 24, 1979). This allegation of Soco is denied by
Francisco because per his instructions, the Commercial Bank
and Trust Company, Cebu Branch, in fact, issued checks in favor
of Soco representing payments for monthly rentals for the
months of May, June, July and August, 1977 as shown in Debit
Memorandum issued by Comtrust as follows:
416 | P a g e
(a) Exhibit "6"-Debit Memo dated May 11, 1977 for P926.10 as
payment for May, 1977;
(b) Exhibit"7"-Debit Memo dated June l5, 197 7for P926.10 as
payment for June, 1977;
(c) Exhibit "8"-Debit Memo dated July 11, 1977 for P1926.10 as
payment for July, 1977;
(d) Exhibit "9"-Debit Memo dated August 10, 1977 for P926. 10
as payment for August, 1977.
These payments are further bolstered by the certification
issued by Comtrust dated October 29, 1979 (Exhibit "13").
Indeed the Court is convinced that payments for rentals for the
months of May, June, July and August, 1977 were made by
Francisco to Soco thru Comtrust and deposited with the Clerk of
Court of the City Court of Cebu. There is no need to determine
whether payments by consignation were made from
September, 1977 up to the filing of the complaint in January,
1979 because as earlier stated Soco admitted that the rentals
for these months were deposited with the Clerk of Court. ...
Taking into account the factual background setting of this case,
the Court holds that there was in fact a tender of payment of
the rentals made by Francisco to Soco through Comtrust and
since these payments were not accepted by Soco evidently
because of her intention to evict Francisco, by all means,
culminating in the filing of Civil Case R-16261, Francisco was
impelled to deposit the rentals with the Clerk of Court of the
City Court of Cebu. Soco was notified of this deposit by virtue of
the letter of Atty. Pampio Abarientos dated June 9, 1977 (Exhibit
"10") and the letter of Atty. Pampio Abarientos dated July 6.
1977 (Exhibit " 12") as well as in the answer of Francisco in Civil
Case R-16261 (Exhibit "14") particularly paragraph 7 of the
Special and Affirmative Defenses.
She was further notified of these payments by consignation in
the letter of Atty. Menchavez dated November 28, 1978 (Exhibit
" 1 "). There was therefore substantial compliance of the
requisites of consignation, hence his payments were valid and
effective. Consequently, Francisco cannot be ejected from the
leased premises for non-payment of rentals. ...
As indicated earlier, the above decision of the Court of First
Instance reversed the judgment of the City Court of Cebu,
Branch 11, the dispositive portion of the latter reading as
follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff, ordering the defendant, Regino Francisco, Jr.:
(1) To vacate immediately the premises in question, consisting
of a building located at Manalili St., Cebu City;
(2) To pay to the plaintiff the sum of P40,490.46 for the rentals,
covering the period from May, 1977 to August, 1980, and
starting with the month of September, 1980, to pay to the
plaintiff for one (1) year a monthly rental of P l,072.076 and an
additional amount of 5 per cent of said amount, and for so
much amount every month thereafter equivalent to the rental
of the month of every preceding year plus 5 percent of same
monthly rental until the defendant shall finally vacate said
premises and possession thereof wholly restored to the plaintiff-
all plus legal interest from date of filing of the complaint;
(3) To pay to the plaintiff the sum of P9,000.00 for attorney's
fee;
(4) To pay to the plaintiff the sum of P5,000.00 for damages and
incidental litigation expenses; and
(5) To pay the Costs. SOORDERED.
417 | P a g e
Cebu City, Philippines, November 21, 1980.
(SGD.) PATERNO D. MONTESCLAROS Acting Presiding Judge
According to the findings of fact made by the City Court, the
defendant Francisco had religiously paid to the plaintiff Soco
the corresponding rentals according to the terms of the Least
Contract while enjoying the leased premises until one day the
plaintiff had to demand upon the defendant for the payment of
the rentals for the month of May, 1977 and of the succeeding
months. The plaintiff also demanded upon the defendant to
vacate the premises and from that time he failed or refused to
vacate his possession thereof; that beginning with the month of
May, 1977 until at present, the defendant has not made valid
payments of rentals to the plaintiff who, as a consequence, has
not received any rental payment from the defendant or
anybody else; that for the months of May to August, 1977,
evidence shows that the plaintiff through her daughter, Teolita
Soco and salesgirl, Vilma Arong, went to the office or residence
of defendant at Sanciangko St., Cebu City, on various occasions
to effect payment of rentals but were unable to collect on
account of the defendant's refusal to pay; that defendant
contended that payments of rental thru checks for said four
months were made to the plaintiff but the latter refused to
accept them; that in 1975, defendant authorized the
Commercial Bank and Trust Company to issue checks to the
plaintiff chargeable against his bank account, for the payment
of said rentals, and the delivery of said checks was coursed by
the bank thru the messengerial services of the FAR Corporation,
but the plaintiff refused to accept them and because of such
refusal, defendant instructed said bank to make consignation
with the Clerk of Court of the City Court of Cebu as regard said
rentals for May to August, 1977 and for subsequent months.
The City Court further found that there is no showing that the
letter allegedly delivered to the plaintiff in May, 1977 by
Filomeno Soon, messenger of the FAR Corporation contained
cash money, check, money order, or any other form of note of
value, hence there could never be any tender of payment, and
even granting that there was, but plaintiff refused to accept it
without any reason, still no consignation for May, 1977 rental
could be considered in favor of the defendant unless evidence
is presented to establish that he actually made rental deposit
with the court in cash money and prior and subsequent to such
deposit, he notified the plaintiff thereof.
Notwithstanding the contradictory findings of fact and the
resulting opposite conclusions of law by the City Court and the
Court of First Instance, both are agreed, however, that the case
presents the issue of whether the lessee failed to pay the
monthly rentals beginning May, 1977 up to the time the
complaint for eviction was filed on January 8, 1979. This issue in
turn revolves on whether the consignation of the rentals was
valid or not to discharge effectively the lessee's obligation to
pay the same. The City Court ruled that the consignation was
not valid. The Court of First Instance, on the other hand, held
that there was substantial compliance with the requisites of the
law on consignation.
Let us examine the law and consider Our jurisprudence on the
matter, aside from the codal provisions already cited herein.
According to Article 1256, New Civil Code, if the creditor to
whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the
following cases: (1) When the creditor is absent or unknown, or
does not appear at the place of payment; (2) When he is
incapacitated to receive the payment at the time it is due; (3)
When, without just cause, he refuses to give
418 | P a g e
a receipt; (4) When two or more persons claim the same right
to collect; (5) When the title of the obligation has been lost.
Consignation is the act of depositing the thing due with the
court or judicial authorities whenever the creditor cannot
accept or refuses to accept payment and it generally requires a
prior tender of payment. (Limkako vs. Teodoro, 74 Phil. 313).
In order that consignation may be effective, the debtor must
first comply with certain requirements prescribed by law. The
debtor must show (1) that there was a debt due; (2) that the
consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to
accept it, or because he was absent or incapacitated, or
because several persons claimed to be entitled to receive the
amount due (Art. 1176, Civil Code); (3) that previous notice of
the consignation had been given to the person interested in the
performance of the obligation (Art. 1177, Civil Code); (4) that
the amount due was placed at the disposal of the court (Art.
1178, Civil Code); and (5) that after the consignation had been
made the person interested was notified thereof (Art. 1178,
Civil Code). Failure in any of these requirements is enough
ground to render a consignation ineffective. (Jose Ponce de
Leon vs. Santiago Syjuco, Inc., 90 Phil. 311).
Without the notice first announced to the persons interested in
the fulfillment of the obligation, the consignation as a payment
is void. (Limkako vs. Teodoro, 74 Phil. 313),
In order to be valid, the tender of payment must be made in
lawful currency. While payment in check by the debtor may be
acceptable as valid, if no prompt objection to said payment is
made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956)
the fact that in previous years payment in check was accepted
does not place its creditor in estoppel from requiring the debtor
to pay his obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30,
1958).
Thus, the tender of a check to pay for an obligation is not a
valid tender of payment thereof (Desbarats vs. Vda. de Mortera,
supra). See Annotation, The Mechanics of Consignation by Atty.
S. Tabios, 104 SCRA 174-179.
Tender of payment must be distinguished from consignation.
Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and
from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be
extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. (8
Manresa 325).
Reviewing carefully the evidence presented by respondent
lessee at the trial of the case to prove his compliance with all
the requirements of a valid tender of payment and consignation
and from which the respondent Judge based his conclusion that
there was substantial compliance with the law on consignation,
We note from the assailed decision hereinbefore quoted that
these evidences are: Exhibit 10, the letter of Atty. Pampio
Abarintos dated June 9, 1977: Exhibit 12, letter of Atty. Pampio
Abarintos dated July 6, 1977; Exhibit 14, the Answer of
respondent Francisco in Civil Case R- 16261, particularly
paragraph 7 of the Special and Affirmative Defenses; and
Exhibit 1, letter of Atty. Eric Menchavez dated November 28,
1978. All these evidences, according to respondent Judge,
proved that petitioner lessor was notified of the deposit of the
monthly rentals.
We have analyzed and scrutinized closely the above exhibits
and We find that the respondent Judge's conclusion is
manifestly wrong and based on misapprehension of facts. Thus-
(1) Exhibit 10 reads: (see p. 17, Records)
419 | P a g e
June 9, 1977
Miss Soledad Soco Soledad Soco Retazo P. Gullas St., Cebu City
Dear Miss Soco:
This is in connection with the payment of rental of my client,
Engr. Regino Francisco, Jr., of your building situated at Manalili
St., Cebu City.
It appears that twice you refused acceptance of the said
payment made by my client.
It appears further that my client had called your office several
times and left a message for you to get this payment of rental
but until the present you have not sent somebody to get it.
In this connection, therefore, in behalf of my client, you are
hereby requested to please get and claim the rental payment
aforestated from the Office of my client at Tagalog Hotel and
Restaurant, Sanciangko St., Cebu City. within three (3) days
from receipt hereof otherwise we would be constrained to make
a consignation of the same with the Court in accordance with
law.
Hoping for your cooperation on this matter, we remain. Very
truly yours,
(SGD.) PAMPIO A. ABARINTOS
Counsel for Engr. REGINO FRANCISCO, Jr.
We may agree that the above exhibit proves tender of payment
of the particular monthly rental referred to (the letter does not,
however, indicate for what month and also the intention to
deposit the rental with the court, which is the first notice. But
certainly, it is no proof of tender of payment of other or
subsequent monthly rentals. Neither is it proof that notice of
the actual deposit or consignation was given to the lessor,
which is the second notice required by law.
(2) Exhibit 12 (see p. 237, Records) states:
July 6, 1977
Miss Soledad Soco Soledad Soco Reta
P. Gullas St., Cebu City
Dear Miss Soco:
This is to advise and inform you that my client, Engr. Regino
Francisco, Jr., has consigned to you, through the Clerk of Court,
City Court of Cebu, Cebu City, the total amount of Pl,852.20, as
evidenced by cashier's checks No. 478439 and 47907 issued by
the Commercial Bank and Trust Company (CBTC) Cebu City
Branch, dated May 11, 1977 and June 15, 1977 respectively and
payable to your order, under Official Receipt No. 0436936 dated
July 6,1977.
This amount represents payment of the rental of your building
situated at Manalili St., Cebu City which my client, Engr. Regino
Francisco, Jr., is renting. You can withdraw the said amount from
the Clerk of Court, City Court of Cebu, Cebu City at any time.
Please be further notified that all subsequent monthly rentals
will be deposited to the Clerk of Court, City Court of Cebu, Cebu
City.
Very truly yours,
420 | P a g e
(SGD.) PAMPIO A. ABARINTOS
Counsel for ENGR. REGINO FRANCISCO, JR.
The above evidence is, of course, proof of notice to the lessor of
the deposit or consignation of only the two payments by
cashier's checks indicated therein. But surely, it does not prove
any other deposit nor the notice thereof to the lessor. It is not
even proof of the tender of payment that would have preceded
the consignation.
(3) Exhibit 14, paragraph 7 of the Answer (see p. 246, Records)
alleges:
7. That ever since, defendant had been religiously paying his
rentals without any delay which, however, the plaintiff had in so
many occasions refused to accept obviously in the hope that
she may declare non-payment of rentals and claim it as a
ground for the cancellation of the contract of lease. This, after
seeing the improvements in the area which were effected, at no
small expense by the defendant. To preserve defendant's rights
and to show good faith in up to date payment of rentals,
defendant had authorized his bank to issue regularly cashier's
check in favor of the plaintiff as payment of rentals which the
plaintiff had been accepting during the past years and even for
the months of January up to May of this year, 1977 way past
plaintiff's claim of lease expiration. For the months of June and
July, however, plaintiff again started refusing to accept the
payments in going back to her previous strategy which forced
the defendant to consign his monthly rental with the City Clerk
of Court and which is now the present state of affairs in so far
as payment of rentals is concerned. These events only goes to
show that the wily plaintiff had thought of this mischievous
scheme only very recently and filed herein malicious and
unfounded complaint.
The above exhibit which is lifted from Civil Case No. R-16261
between the parties for annulment of the lease contract, is self-
serving. The statements therein are mere allegations of
conclusions which are not evidentiary.
(4) Exhibit 1 (see p. 15, Records) is quoted thus:
November 28, 1978
Atty. Luis V. Diores Suite 504, SSS Bldg. Jones Avenue, Cebu City
Dear Compañero:
Your letter dated November 23, 1978 which was addressed to
my client, Engr. Regino Francisco, Jr. has been referred to me for
reply.
It is not true that my client has not paid the rentals as claimed
in your letter. As a matter of fact, he has been religiously
paying the rentals in advance. Payment was made by
Commercial Bank and Trust Company to the Clerk of Court,
Cebu City. Attached herewith is the receipt of payment made by
him for the month of November, 1978 which is dated November
16, 1978.
You can check this up with the City Clerk of Court for
satisfaction. Regards.
(SGD.) ERIC MENCHAVEZ Counsel for Regino Francisco, Jr. 377-B
Junquera St., Cebu City
(new address)
Again, Exhibit 1 merely proves rental deposit for the particular
month of November, 1978 and no other. It is no proof of tender
of payment to the lessor, not even proof of notice to consign.
We hold that the best evidence of the rental deposits with the
Clerk
421 | P a g e
of Court are the official receipts issued by the Clerk of Court.
These the respondent lessee utterly failed to present and
produce during the trial of the case. As pointed out in
petitioner's Memorandum, no single official receipt was
presented in the trial court as nowhere in the formal offer of
exhibits for lessee Francisco can a single official receipt of any
deposit made be found (pp. 8-9, Memorandum for Petitioner;
pp. 163-164, Records).
Summing up Our review of the above four (4) exhibits, We hold
that the respondent lessee has utterly failed to prove the
following requisites of a valid consignation: First, tender of
payment of the monthly rentals to the lessor except that
indicated in the June 9, l977 Letter, Exhibit 10. In the original
records of the case, We note that the certification, Exhibit 11 of
Filemon Soon, messenger of the FAR Corporation, certifying that
the letter of Soledad Soco sent last May 10 by Commercial Bank
and Trust Co. was marked RTS (return to sender) for the reason
that the addressee refused to receive it, was rejected by the
court for being immaterial, irrelevant and impertinent per its
Order dated November 20, 1980. (See p. 117, CFI Records).
Second, respondent lessee also failed to prove the first notice
to the lessor prior to consignation, except the payment referred
to in Exhibit 10.
In this connection, the purpose of the notice is in order to give
the creditor an opportunity to reconsider his unjustified refusal
and to accept payment thereby avoiding consignation and the
subsequent litigation. This previous notice is essential to the
validity of the consignation and its lack invalidates the same.
(Cabanos vs. Calo, 104 Phil. 1058; Limkako vs. Teodoro, 74 Phil.
313).
There is no factual basis for the lower court's finding that the
lessee had tendered payment of the monthly rentals, thru his
bank, citing the lessee's letter (Exh. 4) requesting the bank to
issue checks in favor of Soco in the amount of P840.00 every
10th of each month and to deduct the full amount and service
fee from his current account, as well as Exhibit 5, letter of the
Vice President agreeing with the request. But scrutinizing
carefully Exhibit 4, this is what the lessee also wrote: "Please
immediately notify us everytime you have the check ready so
we may send somebody over to get it. " And this is exactly
what the bank agreed: "Please be advised that we are in
conformity to the above arrangement with the understanding
that you shall send somebody over to pick up the cashier's
check from us." (Exhibit 4, see p. 230, Original Records; Exhibit
5, p. 231, Original Records)
Evidently, from this arrangement, it was the lessee's duty to
send someone to get the cashier's check from the bank and
logically, the lessee has the obligation to make and tender the
check to the lessor. This the lessee failed to do, which is fatal to
his defense.
Third, respondent lessee likewise failed to prove the second
notice, that is after consignation has been made, to the lessor
except the consignation referred to in Exhibit 12 which are the
cashier's check Nos. 478439 and 47907 CBTC dated May 11,
1977 and June 15, 1977 under Official Receipt No. 04369 dated
July 6, 1977.
Respondent lessee, attempting to prove compliance with the
requisites of valid consignation, presented the representative of
the Commercial Bank and Trust Co., Edgar Ocañada, Bank
Comptroller, who unfortunately belied respondent's claim. We
quote below excerpts from his testimony, as follows:
ATTY. LUIS DIORES:
422 | P a g e
Q What month did you say you made ,you started making the
deposit? When you first deposited the check to the Clerk of
Court?
A The payment of cashier's check in favor of Miss Soledad Soco
was coursed thru the City Clerk of Court from the letter of
request by our client Regino Francisco, Jr., dated September 8,
1977. From that time on, based on his request, we delivered the
check direct to the City Clerk of Court.
Q What date, what month was that, you first delivered the
check to the Clerk of Court.?
A We started September 12, 1977.
Q September 1977 up to the present time, you delivered the
cashier's check to the City Clerk of Court?
A Yes.
Q You were issued the receipts of those checks?
A Well, we have an acknowledgment letter to be signed by the
one who received the check.
Q You mean you were issued, or you were not issued any official
receipt? My question is whether you were issued any official
receipt? So, were you issued, or you were not issued?
A We were not issued.
Q On September, 1977, after you deposited the manager's
check for that month with the Clerk of Court, did you serve
notice upon Soledad Soco that the deposit was made on such
amount for the month of September, 1977 and now to the Clerk
of Court? Did you or did you not?
A Well, we only act on something upon the request of our client.
Q Please answer my question. I know that you are acting upon
instruction of your client. My question was-after you made the
deposit of the manager's check whether or not you notified
Soledad Soco that such manager's check was deposited in the
Clerk of Court from the month of September, 1977?
A We are not bound to.
Q I am not asking whether you are bound to or not. I'masking
whether you did or you did not?
A I did not.
Q Alright, for October, 1977, after having made a deposit for
that particular month, did you notify Miss Soledad Soco that the
deposit was in the Clerk of Court?
A No, we did not.
Q Now, on November, 1977, did you notify Soledad Soco that
you deposited the manager's check to the City Clerk of Court
for that month?
AIdidnot.
Q You did not also notify Soledad Soco for the month December,
1977, so also from January, February, March, April, May, June,
July until December, 1978, you did not also notify Miss Soledad
Soco all the deposits of the manager's check which you said
you deposited with the Clerk of Court in every end of the
month? So also from each and every month from January 1979
up to December 1979, you did not also serve notice upon
Soledad Socco of the deposit in the Clerk of Court, is that
correct?
423 | P a g e
A Yes.
Q So also in January 1980 up to this month 1980, you did not
instructed by your client Mr. and Mrs. Regino Francisco, jr. to
make also serve notice upon Soledad Soco of the Manager's
check which you said you deposited to the Clerk of Court?
A I did not.
Q Now, you did not make such notices because you were not
such notices after the deposits you made, is that correct?
A Yes, sir.
Q Now, from 1977, September up to the present time, before
the deposit was made with the Clerk of Court, did you serve
notice to Soledad Soco that a deposit was going to be made in
each and every month?
A Not.
Q In other words, from September 1977 up to the present time,
you did not notify Soledad Soco that you were going to make
the deposit with the Clerk of Court, and you did not also notify
Soledad Soco after the deposit was made, that a deposit has
been made in each and every month during that period, is that
correct?
A Yes
Q And the reason was because you were not instructed by Mr.
and Mrs. Regino Francisco, Jr. that such notification should be
made before the deposit and after the deposit was made, is
that correct?
A No, I did not. (Testimony of Ocanada pp. 32-41, Hearing on
June 3, 1980).
Recapitulating the above testimony of the Bank Comptroller, it
is clear that the bank did not send notice to Soco that the
checks will be deposited in consignation with the Clerk of Court
(the first notice) and also, the bank did not send notice to Soco
that the checks were in fact deposited (the second notice)
because no instructions were given by its depositor, the lessee,
to this effect, and this lack of notices started from September,
1977 to the time of the trial, that is June 3, 1980.
The reason for the notification to the persons interested in the
fulfillment of the obligation after consignation had been made,
which is separate and distinct from the notification which is
made prior to the consignation, is stated in Cabanos vs. Calo,
G.R. No. L-10927, October 30, 1958, 104 Phil. 1058. thus:
"There should be notice to the creditor prior and after
consignation as required by the Civil Code. The reason for this
is obvious, namely, to enable the creditor to withdraw the
goods or money deposited. Indeed, it would be unjust to make
him suffer the risk for any deterioration, depreciation or loss of
such goods or money by reason of lack of knowledge of the
consignation."
And the fourth requisite that respondent lessee failed to prove
is the actual deposit or consignation of the monthly rentals
except the two cashier's checks referred to in Exhibit 12. As
indicated earlier, not a single copy of the official receipts issued
by the Clerk of Court was presented at the trial of the case to
prove the actual deposit or consignation. We find, however,
reference to some 45 copies of official receipts issued by the
Clerk of Court marked Annexes "B-1 " to "B-40" to the Motion
for Reconsideration of the Order granting execution pending
appeal filed by defendant Francisco in the City Court of Cebu
(pp, 150- 194, CFI Original Records) as well as in the Motion for
Reconsideration of the CFI decision, filed by plaintiff lessor (pp.
424 | P a g e
39-50, Records, marked Annex "E ") the allegation that "there
was no receipt at all showing that defendant Francisco has
deposited with the Clerk of Court the monthly rentals
corresponding to the months of May and June, 1977. And for
the months of July and August, 1977, the rentals were only
deposited with the Clerk of Court on 20 November 1979 (or
more than two years later)."... The deposits of these monthly
rentals for July and August, 1977 on 20 November 1979, is very
significant because on 24 October 1979, plaintiff Soco had
testified before the trial court that defendant had not paid the
monthly rentals for these months. Thus, defendant had to make
a hurried deposit on the following month to repair his failure. "
(pp. 43-44, Records).
We have verified the truth of the above claim or allegation and
We find that indeed, under Official Receipt No. 1697161Z, the
rental deposit for August, 1977 in cashier's check No. 502782
dated 8-10-77 was deposited on November 20, 1979 (Annex "B-
15", p. 169, Original CFI Records) and under Official Receipt No.
1697159Z, the rental deposit for July under Check No. 479647
was deposited on November 20, 1979 (Annex "B-16", p. 170,
Original CFI Records). Indeed, these two rental deposits were
made on November 20, 1979, two years late and after the filing
of the complaint for illegal detainer.
The decision under review cites Exhibits 6, 7, 8 and 9, the Debit
Memorandum issued by Comtrust Bank deducting the amounts
of the checks therein indicated from the account of the lessee,
to prove payment of the monthly rentals. But these Debit
Memorandums are merely internal banking practices or office
procedures involving the bank and its depositor which is not
binding upon a third person such as the lessor. What is
important is whether the checks were picked up by the lessee
as per the arrangement indicated in Exhibits 4 and 5 wherein
the lessee had to pick up the checks issued by CBTC or to send
somebody to pick them up, and logically, for the lessee to
tender the same to the
lessor. On this vital point, the lessee miserably failed to present
any proof that he complied with the arrangement.
We, therefore, find and rule that the lessee has failed to prove
tender of payment except that in Exh. 10; he has failed to prove
the first notice to the lessor prior to consignation except that
given in Exh. 10; he has failed to prove the second notice after
consignation except the two made in Exh. 12; and he has failed
to pay the rentals for the months of July and August, 1977 as of
the time the complaint was filed for the eviction of the lessee.
We hold that the evidence is clear, competent and convincing
showing that the lessee has violated the terms of the lease
contract and he may, therefore, be judicially ejected.
The other matters raised in the appeal are of no moment. The
motion to dismiss filed by respondent on the ground of "want of
specific assignment of errors in the appellant's brief, or of page
references to the records as required in Section 16(d) of Rule
46," is without merit. The petition itself has attached the
decision sought to be reviewed. Both Petition and Memorandum
of the petitioner contain the summary statement of facts; they
discuss the essential requisites of a valid consignation; the
erroneous conclusion of the respondent Judge in reversing the
decision of the City Court, his grave abuse of discretion which,
the petitioner argues, "has so far departed from the accepted
and usual course of judicial proceeding in the matter of
applying the law and jurisprudence on the matter." The
Memorandum further cites other basis for petitioner's plea.
In Our mind, the errors in the appealed decision are sufficiently
stated and assigned. Moreover, under Our rulings, We have
stated that:
This Court is clothed with ample authority to review matters,
even if they are not assigned as errors in the appeal, if it finds
that their consideration is necessary in arriving at a just
decision
425 | P a g e
of the case. Also, an unassigned error closely related to an error
properly assigned or upon which the determination of the
questioned raised by the error properly assigned is dependent,
will be considered by the appellate court notwithstanding the
failure to assign it as an error." (Ortigas, Jr. vs. Lufthansa
German Airlines, L-28773, June 30, 1975, 64 SCRA 610)
Under Section 5 of Rule 53, the appellate court is authorized to
consider a plain error, although it was not specifically assigned
by appellants." (Dilag vs. Heirs of Resurreccion, 76 Phil. 649)
Appellants need not make specific assignment of errors
provided they discuss at length and assail in their brief the
correctness of the trial court's findings regarding the matter.
Said discussion warrants the appellate court to rule upon the
point because it substantially complies with Section 7, Rule 51
of the Revised Rules of Court, intended merely to compel the
appellant to specify the questions which he wants to raise and
be disposed of in his appeal. A clear discussion regarding an
error allegedly committed by the trial court accomplishes the
purpose of a particular assignment of error." (Cabrera vs. Belen,
95 Phil. 54; Miguel vs Court of Appeals, L- 20274, Oct. 30, 1969,
29 SCRA 760- 773, cited in Moran, Comments on the Rules of
Court, Vol. 11, 1970 ed., p. 534).
Pleadings as well as remedial laws should be construed liberally
in order that the litigants may have ample opportunity to prove
their respective claims, and that a possible denial of substantial
justice, due to legal technicalities, may be avoided."
(Concepcion, et al. vs. The Payatas Estate Improvement Co.,
Inc., 103 Phil. 10 17).
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of
the Court of First Instance of Cebu, 14th Judicial District, Branch
XII is hereby REVERSED and SET ASIDE, and the derision of the
City Court of Cebu, Branch II is hereby reinstated, with costs in
favor of the petitioner.
83. G.R. No. L-42230
April 15, 1988
LAURO IMMACULATA, represented by his wife AMPARO
VELASCO, as Guardian Ad Litem, petitioner, vs.
HON. PEDRO C. NAVARRO, in his capacity as Presiding Judge of
the Court of First Instance of Rizal, Branch No. II, and HEIRS OF
JUANITO VICTORIA, namely: LOLITA, TOMAS, BENJAMIN,
VIRGINIA, BRENDA and ELVIE, all surnamed VICTORIA, and
JUANITA NAVAL, surviving widow; and the PROVINCIAL SHERIFF
OF RIZAL, respondents.
PARAS, J.:
Petitioner's Motion for Reconsideration of Our decision dated
November 26, 1986 asks Us to consider a point inadvertently
missed by the Court — the matter of legal redemption of a
parcel of land previously obtained by petitioner Lauro
Immaculata thru a free patent. The reconsideration of this issue
is hereby GRANTED.
While res judicata may bar questions on the validity of the sale
in view of alleged insanity and intimidation (and this point is no
longer pressed by counsel for the petitioner) still the question
of the right of legal redemption has remained unresolved.
Be it noted that in an action (Civil Case No. 20968) filed on
March 24, 1975 before the defunct Court of First Instance of
Rizal,
426 | P a g e
petitioner presented an alternative cause of action or prayer
just in case the validity of the sale would be sustained. And this
alternative cause of action or prayer is to allow petitioner to
legally redeem the property.
We hereby grant said alternative cause of action or prayer.
While the sale was originally executed sometime in December,
1969, it was only on February 3, 1974 when, as prayed for 1 by
private respondent, and as ordered by the court a quo, a "deed
of conveyance" was formally executed. Since offer to redeem
was made on March 24, 1975, this was clearly within the five-
year period of legal redemption allowed by the Public Land Act
(See Abuan v. Garcia, 14 SCRA 759, 761).
The allegation that the offer to redeem was not sincere,
because there was no consignation of the amount in Court is
devoid of merit. The right to redeem is a RIGHT, not an
obligation, therefore, there is no consignation required (De
Jesus v. Garcia, C.A. 47 O.G. 2406; Resales v. Reyes, 25 Phil.
495, Vda. de Quirino v. Palarca, L-28269, Aug. 16, 1969) to
preserve the right to redeem (Villegas v. Capistrano, 9 Phil.
416).
WHEREFORE, as prayed for by the petitioner Lauro Immaculata
(represented by his wife, Amparo Velasco, as Guardian ad litem)
the decision of this Court dated November 26, 1986 is hereby
MODIFIED, and the case is remanded to the court a quo for it to
accept payment or consignation 2 (in connection with the legal
redemption which We are hereby allowing the petitioner to do)
by the herein petitioner of whatever he received from
respondent at the time the transaction was made.
SO ORDERED.
84. G.R. No. 181723 August 11, 2014
ELIZABETH DEL CARMEN, Petitioner,
vs.
SPOUSES RESTITUTO SABORDO and MIMA MAHILUM- SABORDO,
Respondents.
DECISION
PERALTA, J.:
This treats of the petition for review on certiorari assailing the
Decision1 and Resolution2 of the Court of Appeals (CA), dated
May 25, 2007 and January 24, 2008, respectively, in CA-G.R. CV
No. 75013.
The factual and procedural antecedents of the case are as
follows:
Sometime in 1961, the spouses Toribio and Eufrocina Suico
(Suico spouses), along with several business partners, entered
into a business venture by establishing a rice and com mill at
Mandaue City, Cebu. As part of their capital, they obtained a
loan from the Development Bank of the Philippines (DBP), and
to secure the said loan, four parcels of land owned by the Suico
spouses, denominated as Lots 506, 512, 513 and 514, and
another lot owned by their business partner, Juliana Del
Rosario, were mortgaged. Subsequently, the Suico spouses and
their business partners failed to pay their loan obligations
forcing DBP to foreclose the mortgage. After the Suico spouses
and their partners failed to redeem the foreclosed properties,
DBP consolidated its ownership over the same. Nonetheless,
DBP later allowed the Suico spouses and Reginald and Beatriz
Flores (Flores spouses), as substitutes for Juliana Del Rosario, to
repurchase the subject lots by way of a conditional sale for the
sum of P240,571.00. The Suico and Flores spouses were able to
pay the downpayment and the first monthly amortization, but
no
427 | P a g e
monthly installments were made thereafter. Threatened with
the cancellation of the conditional sale, the Suico and Flores
spouses sold their rights over the said properties to herein
respondents Restituto and Mima Sabordo, subject to the
condition that the latter shall pay the balance of the sale price.
On September 3, 1974, respondents and the Suico and Flores
spouses executed a supplemental agreement whereby they
affirmed that what was actually sold to respondents were Lots
512 and 513, while Lots 506 and 514 were given to them as
usufructuaries. DBP approved the sale of rights of the Suico and
Flores spouses in favor of herein respondents. Subsequently,
respondents were able to repurchase the foreclosed properties
of the Suico and Flores spouses.
On September 13, 1976, respondent Restituto Sabordo
(Restituto) filed with the then Court of First Instance of Negros
Occidental an original action for declaratory relief with
damages and prayer for a writ of preliminary injunction raising
the issue of whether or not the Suico spouses have the right to
recover from respondents Lots 506 and 514.
In its Decision dated December 17, 1986, the Regional Trial
Court (RTC) of San Carlos City, Negros Occidental, ruled in favor
of the Suico spouses directing that the latter have until August
31, 1987 within which to redeem or buy back from respondents
Lots 506 and 514.
On appeal, the CA, in its Decision3 in CA-G.R. CV No. 13785,
dated April 24, 1990, modified the RTC decision by giving the
Suico spouses until October 31, 1990 within which to exercise
their option to purchase or redeem the subject lots from
respondents by paying the sum of P127,500.00. The dispositive
portion of the CADecision reads as follows:
xxxx
For reasons given, judgment is hereby rendered modifying the
dispositive portion of [the] decision of the lower court to read:
1) The defendants-appellees are granted up to October 31,
1990 within which toexercise their option to purchase from the
plaintiff-appellant Restituto Sabordo and Mima Mahilum Lot No.
506, covered by Transfer Certificate of Title No. T-102598 and
Lot No. 514, covered by Transfer Certificate of Title No. T-
102599, both of Escalante Cadastre, Negros Occidental by
reimbursing or paying to the plaintiff the sum of ONE HUNDRED
TWENTY-SEVEN THOUSAND FIVE HUNDRED PESOS
(P127,500.00);
2) Within said period, the defendants-appellees shall continue
to have usufructuary rights on the coconut trees on Lots Nos.
506 and 514, Escalante Cadastre, Negros Occidental;
3) The Writ of Preliminary Injunction dated August 12, 1977
shall be effective untildefendants-appellees shall have
exercised their option to purchase within said period by paying
or reimbursing to the plaintiff-appellant the aforesaid amount.
No pronouncement as to costs.
SO ORDERED.4
In a Resolution5 dated February 13, 1991, the CA granted the
Suico spouses an additional period of 90 days from notice
within which to exercise their option to purchase or redeem the
disputed lots.
In the meantime, Toribio Suico (Toribio) died leaving his widow,
Eufrocina, and several others, includingherein petitioner, as
legal heirs. Later, they discovered that respondents mortgaged
Lots 506 and 514 with Republic Planters Bank (RPB) as security
for a loan which, subsequently, became delinquent.
428 | P a g e
Thereafter, claiming that theyare ready with the payment of
P127,500.00, but alleging that they cannot determine as to
whom such payment shall be made, petitioner and her co-heirs
filed a Complaint6 with the RTC of San Carlos City, Negros
Occidental seeking to compel herein respondents and RPB to
interplead and litigate between themselves their respective
interests on the abovementioned sum of money.1âwphi1 The
Complaint also prayed that respondents be directed to
substitute Lots 506 and 514 with other real estate properties as
collateral for their outstanding obligation with RPB and that the
latter be ordered toaccept the substitute collateral and release
the mortgage on Lots 506 and 514. Upon filing of their
complaint, the heirs of Toribio deposited the amount of
P127,500.00 with the RTC of San Carlos City, Branch 59.
Respondents filed their Answer7 with Counterclaim praying for
the dismissal of the above Complaint on the grounds that (1)
the action for interpleader was improper since RPB isnot laying
any claim on the sum of P127,500.00; (2) that the period
withinwhich the complainants are allowed to purchase Lots 506
and 514 had already expired; (3) that there was no valid
consignation, and (4) that the case is barred by litis
pendenciaor res judicata.
On the other hand, RPB filed a Motion to Dismiss the subject
Complaint on the ground that petitioner and her co-heirs had
no valid cause of action and that they have no primary legal
right which is enforceable and binding against RPB.
On December 5, 2001, the RTC rendered judgment, dismissing
the Complaint of petitioner and her co-heirs for lack of merit.8
Respondents' Counterclaim was likewise dismissed.
Petitioner and her co-heirs filed an appeal with the CA
contending that the judicial deposit or consignation of the
amount of P127,500.00 was valid and binding and produced the
effect of payment of the purchase price of the subject lots.
In its assailed Decision, the CA denied the above appeal for lack
of merit and affirmed the disputed RTC Decision.
Petitioner and her co-heirs filed a Motion for Reconsideration,9
but it was likewise denied by the CA.
Hence, the present petition for review on certiorariwith a lone
Assignment of Error, to wit:
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF
THE LOWER COURT WHICH HELD THAT THE JUDICIAL DEPOSIT
OF P127,500.00 MADE BY THE SUICOS WITH THE CLERK OF
COURT OF THE RTC, SAN CARLOS CITY, IN COMPLIANCE WITH
THE FINAL AND EXECUTORY DECISION OF THE COURT OF
APPEALS IN CA-G.R. CV-13785 WAS NOT VALID.10
Petitioner's main contention is that the consignation which she
and her co-heirs made was a judicial deposit based on a final
judgment and, as such, does not require compliance with the
requirements of Articles 125611 and 125712 of the Civil Code.
The petition lacks merit. At the outset, the Court quotes
withapproval the discussion of the CA regarding the definition
and nature of consignation, to wit: ... consignation [is] the act of
depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept
payment, and it generally requires a prior tender of payment. It
should be distinguished from tender of payment which is the
manifestation by the debtor to the creditor of his desire to
comply with his obligation, with the offer of immediate
performance.Tender is the antecedent of consignation, thatis,
an act preparatory to the consignation, which is the principal,
and
429 | P a g e
from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be
extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. Tender
and consignation, where validly made, produces the effect of
payment and extinguishes the obligation.13
In the case of Arzaga v. Rumbaoa,14 which was cited by
petitioner in support of his contention, this Court ruled that the
deposit made with the court by the plaintiff-appellee in the
saidcase is considered a valid payment of the amount
adjudged, even without a prior tender of payment thereof to
the defendants-appellants,because the plaintiff-appellee, upon
making such deposit, expressly petitioned the court that the
defendants-appellees be notified to receive the tender of
payment.This Court held that while "[t]he deposit, by itself
alone, may not have been sufficient, but with the express terms
of the petition, there was full and complete offer of payment
made directly to defendants-appellants."15 In the instant case,
however, petitioner and her co-heirs, upon making the deposit
with the RTC, did not ask the trial court that respondents be
notified to receive the amount that they have deposited. In fact,
there was no tender of payment. Instead, what petitioner and
her co-heirs prayed for is thatrespondents and RPB be directed
to interplead with one another to determine their alleged
respective rights over the consigned amount; that respondents
be likewise directed to substitute the subject lots with other real
properties as collateral for their loan with RPB and that RPB be
also directed to accept the substitute real properties as
collateral for the said loan. Nonetheless,the trial court correctly
ruled that interpleader is not the proper remedy because RPB
did notmake any claim whatsoever over the amount consigned
by petitioner and her co- heirs with the court.
In the cases of Del Rosario v. Sandico16 and Salvante v. Cruz,17
likewise cited as authority by petitioner, this Court held that, for
a consignation or deposit with the court of an amount due on a
judgment to be considered as payment, there must beprior
tender to the judgment creditor who refuses to accept it. The
same principle was reiterated in the later case of Pabugais v.
Sahijwani.18 As stated above, tender of payment involves a
positive and unconditional act by the obligor of offering legal
tender currency as payment to the obligee for the former’s
obligation and demanding that the latter accept the same.19 In
the instant case, the Court finds no cogent reason to depart
from the findings of the CA and the RTC that petitioner and her
co- heirs failed to make a prior valid tender of payment to
respondents.
It is settled that compliance with the requisites of a valid
consignation is mandatory.20 Failure to comply strictly with any
of the requisites will render the consignation void. One of these
requisites is a valid prior tender of payment.21
Under Article 1256, the only instances where prior tender of
payment is excused are: (1) when the creditor is absent or
unknown, or does not appear at the place of payment; (2) when
the creditor is incapacitated to receive the payment at the time
it is due; (3) when, without just cause, the creditor refuses to
give a receipt; (4) when two or more persons claim the same
right to collect; and (5) when the title of the obligation has been
lost. None of these instances are present in the instant case.
Hence, the fact that the subject lots are in danger of being
foreclosed does not excuse petitioner and her co-heirs from
tendering payment to respondents, as directed by the court.
WHEREFORE, the instant petition is DENIED. The Decision of the
Court of Appeals, dated May 25, 2007, and its Resolution dated
January 24, 2008, both in CA-G.R. CV No. 75013, are AFFIRMED.
430 | P a g e
85. G.R. No. L-21507 June 7, 1971
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs.
NATIVIDAD FRANKLIN, accused, ASIAN SURETY & INSURANCE
COMPANY, INC., bondsman-appellant.
DIZON, J.:
Appeal taken by the Asian Surety & Insurance Company, Inc.
from the decision of the Court of First Instance of Pampanga
dated April 17, 1963, forfeiting the bail bond posted by it for
the provisional release of Natividad Franklin, the accused in
Criminal Case No. 4300 of said court, as well as from the
latter's orders denying the surety company's motion for a
reductions of bail, and its motion for reconsideration thereof.
It appears that an information filed with the Justice of the Peace
Court of Angeles, Pampanga, docketed as Criminal Case No.
5536, Natividad Franklin was charged with estafa. Upon a bail
bond posted by the Asian Surety & Insurance Company, Inc. in
the amount of P2,000.00, she was released from custody.
After the preliminary investigation of the case, the Justice of the
Peace Court elevated it to the Court of First Instance of
Pampanga where the Provincial Fiscal filed the corresponding
information against the accused. The Court of First Instance
then set her arraignment on July 14, 1962, on which date she
failed to appear, but the court postponed the arraignment to
July 28 of the same year upon motion of counsel for the surety
company. The accused failed to appear again, for which reason
the court ordered her
arrest and required the surety company to show cause why the
bail bond posted by it should not be forfeited.
On September 25, 1962, the court granted the surety company
a period of thirty days within which to produce and surrender
the accused, with the warning that upon its failure to do so the
bail bond posted by it would be forfeited. On October 25, 1962
the surety company filed a motion praying for an extension of
thirty days within which to produce the body of the accused
and to show cause why its bail bond should not be forfeited. As
not withstanding the extension granted the surety company
failed to produce the accused again, the court had no other
alternative but to render the judgment of forfeiture.
Subsequently, the surety company filed a motion for a
reduction of bail alleging that the reason for its inability to
produce and surrender the accused to the court was the fact
that the Philippine Government had allowed her to leave the
country and proceed to the United States on February 27, 1962.
The reason thus given not being to the satisfaction of the court,
the motion for reduction of bail was denied. The surety
company's motion for reconsideration was also denied by the
lower court on May 27, 1963, although it stated in its order that
it would consider the matter of reducing the bail bond "upon
production of the accused." The surety company never
complied with this condition.
Appellant now contends that the lower court should have
released it from all liability under the bail bond posted by it
because its failure to produce and surrender the accused was
due to the negligence of the Philippine Government itself in
issuing a passport to said accused, thereby enabling her to
leave the country. In support of this contention the provisions of
Article 1266 of the New Civil Code are invoked.
431 | P a g e
Appellant's contention is untenable. The abovementioned legal
provision does not apply to its case, because the same speaks
of the relation between a debtor and a creditor, which does not
exist in the case of a surety upon a bail bond, on the one hand,
and the State, on the other.
In U.S. vs. Bonoan, et al., 22 Phil., p. 1, We held that:
The rights and liabilities of sureties on a recognizance or bail
bond are, in many respects, different from those of sureties on
ordinary bonds or commercial contracts. The former can
discharge themselves from liability by surrendering their
principal; the latter, as a general rule, can only be released by
payment of the debt or performance of the act stipulated.
In the more recent case of Uy Tuising, 61 Phil. 404, We also held
that:
By the mere fact that a person binds himself as surety for the
accused, he takes charge of, and absolutely becomes
responsible for the latter's custody, and under such
circumstances it is incumbent upon him, or rather, it is his
inevitable obligation not merely a right, to keep the accused at
all times under his surveillance, inasmuch as the authority
emanating from his character as surety is no more nor less than
the Government's authority to hold the said accused under
preventive imprisonment. In allowing the accused Eugenio Uy
Tuising to leave the jurisdiction of the Philippines, the appellee
necessarily ran the risk of violating and in fact it clearly violated
the terms of its bail bonds because it failed to produce the said
accused when on January 15, 1932, it was required to do so.
Undoubtedly, the result of the obligation assumed by the
appellee to hold the accused at all times to the orders and
processes of the lower court was to prohibit said accused from
leaving the jurisdiction of the Philippines because, otherwise,
said orders and processes would be nugatory and inasmuch as
the jurisdiction of the court
from which they issued does not extend beyond that of the
Philippines, they would have no binding force outside of said
jurisdiction.
It is clear, therefore, that in the eyes of the law a surety
becomes the legal custodian and jailer of the accused, thereby
assuming the obligation to keep the latter at all times under his
surveillance, and to produce and surrender him to the court
upon the latter's demand.
That the accused in this case was able to secure a Philippine
passport which enabled her to go to the United States was, in
fact, due to the surety company's fault because it was its duty
to do everything and take all steps necessary to prevent that
departure. This could have been accomplished by seasonably
informing the Department of Foreign Affairs and other agencies
of the government of the fact that the accused for whose
provisional liberty it had posted a bail bond was facing a
criminal charge in a particular court of the country. Had the
surety company done this, there can be no doubt that no
Philippine passport would have been issued to Natividad
Franklin.
UPON ALL THE FOREGOING, the decision appealed from is
affirmed in all its parts, with costs.
86. G.R. No. L-23546
August 29, 1974
LAGUNA TAYABAS BUS COMPANY and BATANGAS
TRANSPORTATION COMPANY, petitioners,
vs.
FRANCISCO C. MANABAT, as assignee of Biñan Transportation
Company, Insolvent, respondent.
432 | P a g e
MAKASIAR, J.:
This is an appeal by certiorari from a judgment of the Court of
Appeals dated August 31, 1964, which WE AFFIRM.
The undisputed facts are recounted by the Court of Appeals
through then Associate Justice Salvador Esguerra thus:
On January 20, 1956, a contract was executed whereby the
Biñan Transportation Company leased to the Laguna-Tayabas
Bus Company at a monthly rental of P2,500.00 its certificates of
public convenience over the lines known as Manila-Biñan,
Manila-Canlubang and Sta. Rosa-Manila, and to the Batangas
Transportation Company its certificate of public convenience
over the line known as Manila-Batangas Wharf, together with
one "International" truck, for a period of five years, renewable
for another similar period, to commence from the approval of
the lease contract by the Public Service Commission. On the
same date the Public Service Commission provisionally
approved the lease contract on condition that the lessees
should operate on the leased lines in accordance with the
prescribed time schedule and that such approval was subject to
modification or cancellation and to whatever decision that in
due time might be rendered in the case.
Sometime after the execution of the lease contract, the plaintiff
Biñan Transportation Company was declared insolvent in
Special Proceedings No. B-30 of the Court of First Instance of
Laguna, and Francisco C. Manabat was appointed as its
assignee. From time to time, the defendants paid the lease
rentals up to December, 1957, with the exception of the rental
for August 1957, from which there was deducted the sum of
P1,836.92 without the consent of the plaintiff. This deduction
was based on the ground that the employees of the defendants
on the leased lines went on strike for 6 days in June and
another 6 days in July, 1957, and caused a loss of P500 for each
strike, or a total of P1,000.00; and that in
Civil Case No. 696 of the Court of First Instance of Batangas,
Branch II, judgment was rendered in favor of defendant
Batangas Transportation Company against the Biñan
Transportation Company for the sum of P836.92. The assignee
of the plaintiff objected to such deduction, claiming that the
contract of lease would be suspended only if the defendants
could not operate the leased lines due to the action of the
officers, employees or laborers of the lessor but not of the
lessees, and that the deduction of P836.92 amounted to a
fraudulent preference in the insolvency proceedings as
whatever judgment might have been rendered in favor of any
of the lessees should have been filed as a claim in said
proceedings. The defendants neither refunded the deductions
nor paid the rentals beginning January, 1958, notwithstanding
demands therefor made from time to time. At first, the
defendants assured the plaintiff that the lease rentals would be
paid, although it might be delayed, but in the end they failed to
comply with their promise.
On February 18, 1958, the Batangas Transportation Company
and Laguna-Tayabas Bus Company separately filed with the
Public Service Commission a petition for authority to suspend
the operation on the lines covered by the certificates of public
convenience leased to each of them by the Biñan
Transportation Company. The defendants alleged as reasons the
reduction in the amount of dollars allowed by the Monetary
Board of the Central Bank of the Philippines for the purchase of
spare parts needed in the operation of their trucks, the alleged
difficulty encountered in securing said parts, and their
procurement at exorbitant costs, thus rendering the operation
of the leased lines prohibitive. The defendants further alleged
that the high cost of operation, coupled with the lack of
passenger traffic on the leased lines resulted in financial losses.
For these reasons they asked permission to suspend the
operation of the leased lines until such time as the operating
expenses were restored to normal levels so as to allow the
lessees to realize a reasonable margin of profit from their
operation.
433 | P a g e
Plaintiff's assignee opposed the petition on the ground that the
Public Service Commission had no jurisdiction to grant the relief
prayed for as it should involve the interpretation of the lease
contract, which act falls exclusively within the jurisdiction of the
ordinary courts; that the petitioners had not asked for the
suspension of the operation of the lines covered by their own
certificates of public convenience; that to grant the petition
would amount to an impairment of the obligation of contract;
and that the defendants have no legal personality to ask for
suspension of the operation of the leased lines since they
belonged exclusively to the plaintiffwho is the grantee of the
corresponding certificate of public convenience. Aside from the
assignee, the Commissioner of the Internal Revenue and other
creditors of the Biñan Transportation Company, like the
Standard Vacuum Oil Co. and Parsons Hardware Company, filed
oppositions to the petitions for suspension of operation.
On October 15, 1958, the Public Service Commission overruled
all oppositions filed by the assignee and other creditors of the
insolvent, holding that upon its approval of the lease contract,
the lessees acquired the operating rights of the lessor and
assumed full responsibility for compliance with all the terms
and conditions of the certificate of public convenience. The
Public Service Commission further stated that the petition to
suspend operation did not pertain to any act of dominion or
ownership but only to the use of the certificate of public
convenience which had been transferred by the plaintiff to the
defendants, and that the suspension prayed for was but an
incident of the operation of the lines leased to the defendants.
The Public Service Commission further ruled that being a quasi-
judicial body of limited jurisdiction, it had no authority to
interpret contracts, which function belongs to the exclusive
domain of the ordinary courts, but the petition did not call for
interpretation of any provision of the lease contract as the
authority of the Public Service Commission to grant or deny the
prayer therein was derived
from its regulatory power over the leased certificates of public
convenience.
While proceedings before the Public Service Commission were
thus going on, as a consequence of the continuing failure of the
lessees to fulfill their earlier promise to pay the accruing rentals
on the leased certificates,
On May 19, 1959, plaintiff Biñan Transportation Company
represented by Francisco C. Manabat, assignee, filed this action
against defendants Laguna Tayabas Bus Company and
Batangas Transportation Company for the recovery of the sum
of P42,500 representing the accrued rentals for the lease of the
certificates of public convenience of the former to the latter,
corresponding to the period from January 1958, to May 1959,
inclusive, plus the sum of P1,836.92 which was deducted by the
defendants from the rentals due for August, 1957, together
with all subsequent rentals from June, 1959, that became due
and payable; P5,000.00 for attorney's fees and such corrective
and exemplary damages as the court may find reasonable.
The defendants moved to dismiss the complaint for lack of
jurisdiction over the subject matter of the action, there being
another case pending in the Public Service Commission
between the same parties for the same cause. ... (pp. 20-21,
rec.; pp. 54-55, ROA).
The motion to dismiss was, however, denied. Meanwhile —
The Public Service Commission delegated its Chief Attorney to
receive evidence of the parties on the petition of the herein
defendants for authority to suspend operation on the lines
leased to them by the plaintiff. The defendants, the assignee of
the plaintiff and other creditors of the insolvent presented
evidence before the Chief Attorney and the hearing was
concluded on June
434 | P a g e
29, 1959. On October 20, 1959, the Public Service Commission
issued an order the dispositive part of which reads as follows:
In view of the foregoing, the petitioners herein are authorized to
suspend their operation of the trips of the Biñan Transportation
Company between Batangas Piers-Manila, Biñan-Manila, Sta.
Rosa-Manila and Canlubang-Manila authorized in the
aforementioned cases from the date of the filing of their
petition on February 18, 1958, until December 31, 1959. (p. 25,
rec.; pp. 60-61, ROA).
Going back to the Court of First Instance of Laguna —
... The motion (to dismiss) having been denied, the defendants
answered the complaint, alleging among others, that the Public
Service Commission authorized the suspension of operation
over the leased lines from February 18, 1950, up to December
31, 1959, and hence the lease contract should be deemed
suspended during that period; that plaintiff failed to place
defendants in peaceful and adequate enjoyment and
possession of the things leased; that as a result of the plaintiff
being declared insolvent the lease contract lost further force
and effect and payment of rentals thereafter was made under a
mistake and should be refunded to the defendants. (p. 21; rec.;
p. 55, ROA).
The Court of Appeals proceeded to state that —
After hearing in the court a quo and presentation by the parties
herein of their respective memoranda, the trial court on March
18, 1960, rendered judgment in favor of plaintiff, ordering the
defendants jointly and severally to pay to the former the sum of
P65,000.00 for the rentals of the certificates of public
convenience corresponding to the period from January, 1958, to
February, 1960, inclusive, including the withheld amount of
P836.92 from the rentals for August, 1957, plus the rentals that
might become due and payable beginning March, 1960, at the
rate of P2,500.00 a month, with interest on the sums of
P42,500 and P836.92 at the rate of 6% per annum from the
date of the filing of the complaint, with interest on the
subsequent rentals at the same rate beginning the first of the
following month, plus the sum of P3,000.00 as attorney's fees,
and the cost of the suit. (pp. 25-26, rec.)
From the decision of the Court of First Instance, defendants
appealed to the Court of Appeals, which affirmed the same in
toto in its decision dated August 31, 1964. Said decision was
received by the appellants on September 7, 1964.
On September 21, 1964, appellants filed the present appeal,
raising the following questions of law:
1. Considering that the Court of Appeals found that the Public
Service Commission provisionally approved the lease contract
of January 20, 1956 between petitioners and Biñan
Transportation Company upon the condition, amongothers, that
such approval was subject to modification and cancellation and
towhatever decision that in due time might be rendered in the
case, the Court ofAppeals erred in giving no legal effect and
significance whatever to the suspension of operations later
granted by the Public Service Commission after due hearing
covering the lines leased to petitioners thereby nullifying,
contrary to law and decisions of this Honorable Court, the
authority and powersconferred on the Public Service
Commission.
2. The Court of Appeals misapplied the statutory rules on
interpreting contracts and erred in its construction of the
clauses in the lease agreement authorizing petitioners to
suspend operation without the corresponding liability for rentals
during the period of suspension.
435 | P a g e
3. Contrary to various decisions of this Honorable Court
relieving the lessee from the obligation to pay rent where there
is failure to use or enjoy the thing leased, the Court of Appeals
erroneously required petitioners to pay rentals, with interest,
during the period of suspension of the lease from January, 1958
up to the expiration of the agreement on January 20, 1961. (p.
7, rec.)
On October 12, 1964, the Supreme Court issued a resolution
dismissing said petition "for lack of merit." (p. 43, rec.). Said
resolution was received by petitioners on October 16, 1964.
On October 31, 1964, the day the Court's resolution was to
become final, petitioners filed a "Motion to Admit Amended
Petition and to Give Due Course Thereto." In said motion,
petitioners explained —
... The amendment includes an alternative ground relating to
petitioners' prayer for the reduction of the rentals payable by
them. This alternative petition was not included in the original
one as petitioners where genuinely convinced that they should
have been absolved from all liabilities whatever. However, in
view of the apparent position taken by this Honorable Court, as
implied in its resolution on October 12, 1964, notice of which
was received on October 16, 1964, petitioners now squarely
submit their alternative position for consideration. There is
decisional authority for the reduction of rentals payable (see
Reyes v. Caltex, 47 O.G. 1193, 1203-1204) (p. 44, rec).
The new question raised is presented thus: xxx xxx xxx
IV
This Honorable Court is authorized to equitably reduce the
rentals payableby the petitioners, should this Honorable Court
adopt the position of the Courtof Appeals and the lower court
that petitioners have not been releived from thepayment of
rentals on the leased lines. (p. 7 Amended Petition for
Certiorari,pp. 46, 52, rec.).
On November 5, 1964, the Supreme Court required respondents
herein to file an answer to the amended petition. On the same
date, respondents filed, quite belatedly, an opposition to the
motion of the petitioners. Said opposition was later "noted" by
the Court in its resolution dated December 1, 1964.
I
First, it must be pointed out that the first three questions of law
raised by petitioners were already disposed of in Our resolution
dated October 12, 1964 dismissing the original petition for lack
of merit, which in effect affirmed the appealed decision of the
Court of of Appeals. Although, in their motion to admit
amended petition dated October 31, 1964, petitioners sought a
reconsideration of the said resolution not only in the light of the
fourth legal issue raised but also on the said first three legal
questions, the petitioners advanced no additional arguments
nor cited new authorities in support of their stand on the first
three questions of law. They merely reproduced verbatim from
their original petition their discussion on said questions.
To the extent therefore that the motion filed by the petitioner
seeks a reconsideration of our order of dismissal by submitting
anew, through the amended petition, the very same arguments
already dismissed by this Court, the motion shall be considered
pro forma, (See Estrada v. Sto. Domingo, 28 SCRA 890, 905-
906, 911) and hence is without merit.
436 | P a g e
Consequently, we limit the resolution of this case solely on the
discussions on the last (fourth) question of law raised, taking
into consideration the discussion on the first three questions
only insofar as they place the petitioners' discussion on the
fourth question in its proper context and perspective.
II
The undisguised object of petitioners' discussion on the fourth
question of law raised is to justify their plea for a reduction of
the rentals on the ground that the subject matter of the lease
was allegedly not used by them as a result of the suspension of
operations on the lines authorized by the Public Service
Commission.
In support of said plea, petitioners invoke article 1680 of the
Civil Code which grants lessees of rural lands a right to a
reduction of rentals whenever the harvest on the land leased is
considerably damaged by an extraordinary fortuitous event.
Reliance was also placed by the petitioners on Our decision in
Reyes v. Caltex (Phil.) Inc., 84 Phil. 654, which supposedly
applied said article by analogy to a lease other than that
covered by said legal provision.
The authorities from which the petitioners draw support,
however, are not applicable to the case at bar.
Article 1680 of the Civil Code reads thus:
Art. 1680. The lessee shall have no right to a reduction of the
rent on accountof the sterility of the land leased, or by reason
of the loss of fruits due toordinary fortuitous events; but he
shall have such right in case of the loss ofmore than one-half of
the fruits through extraordinary and unforeseen fortuitous
events, save always when there is a specific stipulation to the
contrary.
Extraordinary fortuitous events are understood to be: fire, war,
pestilence, unusual flood, locusts, earthquake, or others which
are uncommon, and which thecontracting parties could not
have reasonably foreseen.
Article 1680, it will be observed is a special provision for leases
of rural lands. No other legal provision makes it applicable to
ordinary leases. Had theintention of the lawmakers been so,
they would have placed the article among the general
provisions on lease. Nor can the article be applied analogously
to ordinary leases, for precisely because of its special
character, it was meant to apply only to a special specie of
lease. It is a provision of social justice designed to relieve poor
farmers from the harsh consequences of their contracts with
rich landowners. And taken in that light, the article provides no
refuge to lessees whose financial standing or social position is
equal to, or even better than, the lessor as in the case at bar.
Even if the cited article were a general rule on lease, its
provisions nevertheless do not extend to petitioners. One of its
requisites is that the cause of loss of the fruits of the leased
property must be an "extraordinary and unforeseen fortuitous
event." The circumstances of the instant case fail tosatisfy such
requisite. As correctly ruled by the Court of Appeals, the alleged
causes for the suspension of operations on the lines leased,
namely, the high prices of spare parts and gasoline and the
reduction of the dollar allocations, "already existed when the
contract of lease was executed" (p. 11, Decision; p. 30, rec.;
Cuyugan v. Dizon, 89 Phil. 80). The cause of petitioners'
inability to operate on the lines cannot, therefore, be ascribed
to fortuitous events or circumstances beyond their control, but
to their own voluntary desistance (p. 13, Decision; p. 32, rec.).
If the petitioners would predicate their plea on the basis solely
of their inability to use the certificates of public convenience,
absent the requisite of fortuitous event, the cited article would
speak
437 | P a g e
strongly against their plea.Article 1680 opens with the
statement: "The lessee shall have no right to reduction of the
rent on account of the sterility of the land leased ... ."
Obviously, no reduction can be sustained on the ground that
the operation of the leased lines was suspended upon the mere
speculation that it would yield no substantial profit for the
lessee bus company. Petitioners' profits may be reduced due to
increase operating costs; but the volume of passenger traffic
along the leased lines not only remains same but may even
increase as the tempo of the movement of population is
intensified by the industrial development of the areas covered
or connected by the leased routes. Moreover, upon proper
showing, the Public Service Commission might have granted
petitioners an increase in rates, as it has done so in several
instances, so that public interest will always be promoted by a
continuous flow of transportation facilities to service the
population and the economy. The citizenry and the economy
will suffer by reason of any disruption in the transportation
facilities.
Furthermore, we are not at all convinced that the lease contract
brought no material advantage to the lessor for the period of
suspension. It must be recalled that the lease contract not only
stipulated for the transfer of the lessor's right to operate the
lines covered by the contract, but also for a forbearance on the
part of the lessor to operate transportation business along the
same lines — and to hold a certificate for that purpose. Thus,
even if the lessee would not actually make use of the lessor's
certificates over the leased lines, the contractual commitment
of the lessor not to operate on the lines would sufficiently
insure added profit to the lessees on account of the lease
contract. In other words, the commitment alone of the lessor
under the contract would enable the lessees to reap full
benefits therefrom since the commuting public would, after all,
be forced — at their inconvenience and prejudice — to
patronize petitioner's remaining buses.
Contrary to what petitioners want to suggest, WE refused in the
Reyes case, supra, to apply by analogy Article 1680 and
consequently, WE denied the plea oflessee therein for an
equitable reduction of the stipulated rentals, holding that:
The general rule on performance of contracts is graphically set
forth in American treatises which is also the rule, in our opinion,
obtaining under the Civil Code.
Where a person by his contract charges himself with an
obligation possible to be performed, he must perform it, unless
the performance is rendered impossible by the act of God, by
the law, or by the other party, it being the rule that in case the
party desires to be excused from the performance in the event
of contingencies arising, it is his duty to provide therefor in his
contract. Hence, performance is not excused by subsequent
inability to perform, by unforeseen difficulties, by unusual or
unexpected expenses, by danger, by inevitable accident, by
breaking of machinery, by strikes, by sickness, by failure of a
party to avail himself of the benefits tobe had under the
contract, by weather conditions, by financial stringency or
bystagnation of business. Neither is performance excused by
the fact that the contract turns out to be hard and improvident,
unprofitable, or impracticable, ill-advised, or even foolish, or
less profitable, unexpectedly burdensome. (17 CJS 946-948)
(Reyes vs. Caltex, supra, 664. Emphasis supplied).
Also expressed in said case is a ruling in American
jurisprudence, which found relevance again in the case at bar,
to wit: "(S)ince, by the lease, the lessee was to have the
advantage of casual profits of the leased premises, he should
run the hazard of casual losses during the term and not lay the
whole burden upon the lessor." (Reyes vs. Caltex, supra, 664).
Militating further against a grant of reduction of the rentals to
the petitioners is the petitioners' conduct which is not in accord
with the rules of fair play and justice. Petitioners, it must be
recalled, promised to pay the accrued rentals in due time.
Later, however,
438 | P a g e
when they believed they found a convenient excuse for
escaping their obligation, they reneged on their earlier promise.
Moreover, petitioners' option to suspend operation on the
leased lines appears malicious. Thus, Justice Esguerra, speaking
for the Court of Appeals, propounded the following questions:
"If it were true that thecause of the suspension was the high
prices of spare parts, gasoline and needed materials and the
reduction of the dollar allocation, why was it that only plaintiff-
appellee's certificate of public convenience was sought to be
suspended? Why did not the defendants-appellants ask for a
corresponding reduction or suspension under their own
certificate along the same route? Suppose the prices of the
spare parts and needed materials were cheap, would the
defendants-appellants have paid more than what is stipulated
in the lease contract? We believe not. Hence, the suspension of
operation on the leased lines was conceived as a scheme to
lessen operation costs with the expectation of greater profit."
(p. 14, Decision).
Indeed, petitioners came to court with unclean hands, which
fact militates against their plea for equity.
WHEREFORE, THE ORIGINAL AND AMENDED PETITIONS ARE
HEREBY DISMISSED, AND THE DECISION OF THE COURT OF
APPEALS DATED AUGUST 31, 1964 IS HEREBY AFFIRMED, WITH
COSTS AGAINST PETITIONERS.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First
Instance of Rizal, Branch XXVI; COURT OF APPEALS and
TROPICAL HOMES, INC., respondents.
TEEHANKEE, J.:
The Court reverses the Court of Appeals appealed resolution.
The Civil Code authorizes the release of an obligor when the
service has become so difficult as to be manifestly beyond the
contemplation of the parties but does not authorize the courts
to modify or revise the subdivision contract between the parties
or fix a different sharing ratio from that contractually stipulated
with the force of law between the parties. Private respondent's
complaint for modification of the contract manifestly has no
basis in law and must therefore be dismissed for failure to state
a cause of action. On February 25, 1975 private respondent
Tropical Homes, Inc. filed a complaint for modification of the
terms and conditions of its subdivision contract with petitioners
(landowners of a 55,330 square meter parcel of land in Davao
City), making the following allegations:
"That due to the increase in price of oil and its derivatives and
the concomitant worldwide spiralling of prices, which are not
within the control of plaintiff, of all commodities including basis
raw materials required for such development work, the cost of
development has risen to levels which are unanticipated,
unimagined and not within the remotest contemplation of the
parties at the time said agreement was entered into and to
such a degree that the conditions and factors which formed the
original basis of said contract, Annex 'A', have been totally
changed; 'That further performance by the plaintiff under the
contract.
That further performance by the plaintiff under the
contract,Annex 'S', will result in situation where defendants
would be unustly enriched at the expense of the plaintiff; will
cause an inequitous distribution of proceeds from the sales of
87. G.R. No. L-44349
October 29, 1976
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,
vs.
439 | P a g e
subdivided lots in manifest actually result in the unjust and
intolerable exposure of plaintiff to implacable losses, all such
situations resulting in an unconscionable, unjust and immoral
situation contrary to and in violation of the primordial concepts
of good faith, fairness and equity which should pervade all
human relations.
Under the subdivision contract, respondent "guaranteed
(petitioners as landowners) as the latter's fixed and sole share
and participation an amount equivalent to forty (40%) percent
of all cash receifpts fromthe sale of the subdivision lots"
Respondent pray of the Rizal court of first instance that "after
due trial, this Honorable Court render judgment modifying the
terms and conditions of the contract ... by fixing the proer
shares that shouls pertain to the herein parties out of the gross
proceeds from the sales of subdivided lots of subjects
subdivision".
Petitioners moved to dismiss the complaint principally for lack
of cause of action, and upon denial thereof and of
reconsideration by the lower court elevated the matter on
certiorari to respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976
set aside the preliminary injunction previously issued by it and
dimissed petition on the ground that under Article 1267 of the
Civil Code which provides that
ART. 1267. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor
may also be released therefrom, in whole or in part. 1
... a positive right is created in favor of the obligor to be
released from the performance of an obligation in full or in part
when its performance 'has become so difficult as to be
manifestly beyond the contemplation of the parties.
Hence, the petition at abar wherein petitioners insist that the
worldwide increase inprices cited by respondent does not
constitute a sufficient casue of action for modification of the
subdivision contrct. After receipt of respondent's comment, the
Court in its Resolution of September 13, 1976 resolved to treat
the petition as special civil actionand declared the case
submitted for decision.
The petition must be granted.
While respondent court correctly cited in its decision the Code
Commission's report giving the rationale for Article 1267 of the
Civil Code, to wit;
The general rule is that impossibility of performance releases
the obligor. However, it is submitted that when the service has
become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to
release the obligor in whole or in part. The intention of the
parties should govern and if it appears that the service turns
out to be so difficult as have been beyond their contemplation,
it would be doing violence to that intention to hold the obligor
still responsible. ... 2
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to
comply with the subdivision contract, assuming it could show at
the trial that the service undertaken contractually by it had
"become so difficult as to be manifestly beyond the
contemplation of the parties", then respondent court's
upholding of respondet's complaint and dismissal of the petition
would be justifiable under the cited codal article. Without said
article, respondent would remain bound by its contract under
the theretofore prevailing doctrine that performance therewith
is ot
440 | P a g e
excused "by the fact that the contract turns out to be hard and
improvident, unprofitable, or unespectedly burdensome", 3
since in case a party desires to be excuse from performance in
the event of such contingencies arising, it is his duty to provide
threfor in the contract.
But respondent's complaint seeks not release from the
subdivision contract but that the court "render judgment I
modifying the terms and Conditions of the Contract by fixing
the proper shares that should pertain to the herein parties out
of the gross proceed., from the sales of subdivided lots of
subject subdivision". The cited article does not grant the courts
this authority to remake, modify or revise the contract or to fix
the division of shares between the parties as contractually
stipulated with the force of law between the parties, so as to
substitute its own terms for those covenanted by the
partiesthemselves. Respondent's complaint for modification of
contract manifestly has no basis in law and therefore states no
cause of action. Under the particular allegations of respondent's
complaint and the circumstances therein averred, the courts
cannot even in equity grant the relief sought.
A final procedural note. Respondent cites the general rule that
an erroneous order denying a motion to dismiss is interlocutory
and should not be corrected by certiorari but by appeal in due
course. This case however manifestly falls within the
recognized exception that certiorari will lie when appeal would
not prove to be a speedy and adequate remedy.' Where the
remedy of appeal would not, as in this case, promptly relieve
petitioners from the injurious effects of the patently erroneous
order maintaining respondent's baseless action and compelling
petitioners needlessly to go through a protracted trial and
clogging the court dockets by one more futile case, certiorari
will issue as the plain, speedy and adequate remedy of an
aggrieved party.
ACCORDINGLY, the resolution of respondent appellate court is
reversed and the petition for certiorari is granted and private
respondent's complaint in the lower court is ordered dismissed
for failure to state a sufficient cause of action. With costs in all
instances against private respondent.
88. G.R. No. L-22490
May 21, 1969
GAN TION, petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA,
as Judge of the Court of First Instance of Manila, ONG WAN
SIENG and THE SHERIFF OF MANILA, respondents.
MAKALINTAL, J.:
The sole issue here is whether or not there has been legal
compensation between petitioner Gan Tion and respondent Ong
Wan Sieng.
Ong Wan Sieng was a tenant in certain premises owned by Gan
Tion. In 1961 the latter filed an ejectment case against the
former, alleging non-payment of rents for August and
September of that year, at P180 a month, or P360 altogether.
The defendant denied the allegation and said that the agreed
monthly rental was only P160, which he had offered to but was
refused by the plaintiff. The plaintiff obtained a favorable
judgment in the municipal court (of Manila), but upon appeal
the Court of First Instance, on July 2, 1962, reversed the
judgment and dismissed the complaint, and ordered the
plaintiff to pay the defendant the sum of P500 as attorney's
fees. That judgment became final.
441 | P a g e
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng
that he was increasing the rent to P180 a month, effective
November 1st, and at the same time demanded the rents in
arrears at the old rate in the aggregate amount of P4,320.00,
corresponding to a period from August 1961 to October
1963.lâwphi1.ñet
In the meantime, over Gan Tion's opposition, Ong Wan Sieng
was able to obtain a writ of execution of the judgment for
attorney's fees in his favor. Gan Tion went on certiorari to the
Court of Appeals, where he pleaded legal compensation,
claiming that Ong Wan Sieng was indebted to him in the sum of
P4,320 for unpaid rents. The appellate court accepted the
petition but eventually decided for the respondent, holding that
although "respondent Ong is indebted to the petitioner for
unpaid rentals in an amount of more than P4,000.00," the sum
of P500 could not be the subject of legal compensation, it being
a "trust fund for the benefit of the lawyer, which would have to
be turned over by the client to his counsel." In the opinion of
said court, the requisites of legal compensation, namely, that
the parties must be creditors and debtors of each other in their
own right (Art. 1278, Civil Code) and that each one of them
must be bound principally and at the same time be a principal
creditor of the other (Art. 1279), are not present in the instant
case, since the real creditor with respect to the sum of P500
was the defendant's counsel.
This is not an accurate statement of the nature of an award for
attorney's fee's. The award is made in favor of the litigant, not
of his counsel, and is justified by way of indemnity for damages
recoverable by the former in the cases enumerated in Article
2208 of the Civil Code.1 It is the litigant, not his counsel, who is
the judgment creditor and who may enforce the judgment by
execution. Such credit, therefore, may properly be the subject
of legal compensation. Quite obviously it would be unjust to
compel petitioner to pay his debt for P500 when admittedly his
creditor is indebted to him for more than P4,000.
WHEREFORE, the judgment of the Court of Appeals is reversed,
and the writ of execution issued by the Court of First Instance of
Manila in its Civil Case No. 49535 is set aside. Costs against
respondent.
89. G.R. No. L-69255
February 27, 1987
PHILIPPINE NATIONAL BANK, petitioner,
vs.
GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO &
SOLEDAD ONG ACERO CHUA, respondents.
NARVASA, J.:
Savings Account No. 010-5878868-D of Isabela Wood
Construction & Development Corporation, opened with the
Philippine National Bank on March 9, 1979 in the amount of P2
million is the subject of two (2) conflicting claims, sought to be
definitively resolved in the proceedings at bar. 1 One claim is
asserted by the ACEROS — Gloria G. Vda. de Ong Acero, Arnolfo
Ong Acero and Soledad Ong Acero-Chua, judgment creditors of
the depositor (hereafter simply referred to as ISABELA) — who
seek to enforce against said savings account the final and
executory judgment rendered in their favor by the Court of First
Instance of Rizal QC Br. XVI). The other claim has been put forth
by the Philippine National Bank (hereafter, simply PNB) which
claims that since ISABELA was at some point in time both its
debtor and creditor-ISABELA's deposit being deemed a loan to it
(PNB)-there had occurred a mutual set-off between them, which
effectively precluded the ACEROS' recourse to that deposit.
442 | P a g e
The controversy was decided by the Intermediate Appellate
Court adversely to the PNB. It is this decision that the PNB
would have this Court reverse.
The ACEROS' claim to the bank deposit is more specifically
founded upon the garnishment thereof by the sheriff, effected
in execution of the partial judgment rendered by the CFI at
Quezon City in their favor on November 18, 1979. The partial
judgment ordered payment by ISABELA to the ACEROS of the
amount of P1,532,000.07. 2 Notice of garnisment was served
on the PNB on January 9, 1980, pursuant to the writ of
execution dated December 23, 1979. 3 This was followed by an
Order issued on February 15, 1980 directing PNB to hand over
this amount of P1,532,000.07 to the sheriff for delivery, in turn,
to the ACEROS. Not quite two months later, or on April 8, 1980,
a second (and the final and complete judgment) was
promulgated by the CFI in favor of the ACEROS and against
ISABELA, the dispositive part of which is as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiffs and against the defendant:
1. Reiterating the dispositive portion of the partial judgment
issued by this Court, dated November 16, 1979, ordering the
defendant to pay to the plaintiff the amount of P1,532,000.07
as principal, with interest at 12% per annum from December
11, 1975 until the whole amount is fully paid;
2. Ordering defendant to pay the plaintiffs the amount of
P207,148.00 as compensatory damages, with legal interest
thereon from the filing of the complaint until the whole amount
is fully paid;
3. Ordering defendant to pay plaintiffs the amount of
P383,000.00 as and by way of attorneys fees. 4
On the other hand, PNB's claim to the two-million-peso deposit
in question is made to rest on an agreement between it and
ISABELA in virtue of which, according to PNB: (1) the deposit
was made by ISABELA as "collateral" in connection with its
indebtedness to PNB as to which it (ISABELA) had assumed
certain contractual undertakings; and (2) in the event of
ISABELA's failure to fulfill those undertakings, PNB was
empowered to apply the deposit to the payment of that
indebtedness. The facts upon which PNB's theory stands are
summarized in the Order of CFI Judge Solano dated October 1,
1982, 5 relevant portions of which are here reproduced:
On October 13, 1977, Isabela Wood Construction and
Development Corporation ** entered into a Credit Agreement
with PNB. Under the agreement PNB, having approved the
application of defendant (Isabela & c.) for the establishment for
its account of a deferred letter of credit in the amount of DM
4,695,947.00 in favor of the Machinenfabric Augsburg Nunberg
(MAN) of Germany from whom defendant purchased thirty-five
(35) units of MAN trucks, defendant corporation agreed to put
up, as collaterals, among others, the following:
4. The CLIENT shall assign to the BANK the proceeds of its
contract with the Department of Public Works for the
construction of Nagapit Suspension Bridge (Substructure) in
Cagayan.
This particular proviso in the aforesaid agreement was to be
subsequently confirmed by Faustino Dy, Jr., as president of
defendant corporation, in a letter to the PNB, dated February
21, 1970, quoted in full as follows:
Gentlemen:
This is to confirm our arrangement that the treasury warrant in
the amount of P2,704 millon in favor of Isabela Wood
443 | P a g e
Construction and Development Corporation to be delivered
either by the Commission on Audit or the Ministry of Public
Highways, shall be placed in a savings account with your bank
to the extent of P 2 million.
The said amount shall remain in the savings account until we
are able to comply with the delivery and registration of the
mortgage in favor of the Philippine National Bank of our
Paranaque property, and the securing from Metropolitan Bank
and Home Owners Savings and Loan Association to snow PNB a
second mortgage on the properties of Isabela Wood
Construction Group, Inc., presently under first mortgage with
them.
Thus, on March 9, 1970, pursuant to paragraph 4 of the Credit
Agreement, quoted above, PNB thru its International
Department opened the savings account in question, under
Account No. 010- 58768-D, with an initial deposit of
P2,000,000.00, proceeds of a treasury warrant delivered to PNB
(EXHIBIT 3-A).
xxx xxx xxx
Since defendant corporation failed to deliver to PNB by way of
mortgage its Paranaque property, neither was defendant
corporation able to secure from Metropolitan Bank and Home
Owners Savings and Loan Association its consent to allow PNB a
second mortgage, and considering that the obligation of
defendant corporation to PNB have been due and unsettled,
PNB applied the amount of P 2,102804.11 in defendant's
savings account of PNB.
It was upon this version of the facts, and its theory thereon
based on a mutual set-off, or compensation, between it and
ISABELA — in accordance with Articles 1278 et al. of the Civil
Code — that PNB intervened in the action between the ACEROS
and ISABELA on or about February 28, 1980 and moved for
reconsideration of the Order of February 15, 1980 (requiring it
to turn over to the
sheriff the sum of P1,532,000.07, supra: fn. 2). But its motion
met with no success. It was denied by the Lower Court (Hon.
Judge Apostol, presiding) by Order dated May 14, 1980. 6 And a
motion for the reconsideration of that Order of May 14, 1980
was also denied, by Order dated August 11, 1980.
PNB again moved for reconsideration, this time of the Order of
August 11, 1980; it also pleaded for suspension in the
meantime of the enforcement of the Orders of February 15, and
May 14, 1980. Its persistence seemingly paid off. For the Trial
Court (now presided over by Hon. Judge Solano), directed on
October 9, 1980 the setting aside of the said Orders of May 14,
and August 11, 1980, and set for hearing PNB's first motion for
the reconsideration of the Order of February 15, 1980. 7
Several months afterwards, or more precisely on October 1,
1982, the Order of February 15, 1980 was itself also struck
down, 8 the Lower Court opining that under the circumstances,
there had been a valid assignment by ISABELA to PNB of the
amount deposited, which effectively placed that amount
beyond the reach of the ACE ROS, viz:
When the two million or so treasury warrant, proceeds of
defendant's contract with the government was delivered to
PNB, said amount, per agreement aforequoted, had already
been assigned by defendant corporation to PNB, as collateral.
The said amount is not a pledge.
The assignment is valid. The defendant need not be the owner
thereof at the time of assignment.
An assignment of credit and other incorporeal rights shall be
perfected in accordance with the provisions of Article 1475.
444 | P a g e
The contract of sale is perfected at the moment there is a
meeting of the minds upon the thing which is the object of the
interest and upon its price.
It is not necessary for the perfection of the contract of sale that
the thing be delivered and that the price be paid. Neither is it
necessary that the thing should belong to the vendor at the
time of the perfection of the contract, it being sufficient that the
vendor has the right to transfer ownership thereof at the time it
is delivered.
The shoe was now on the other foot. It was the ACEROS' turn to
move for reconsideration, which they did as regards this Order
of October 1, 1982; but by Order promulgated on December 14,
1982, the Court declined to modify its resolution.
The ACEROS then appealed to the Intermediate Appellate Court
which, after due proceedings, sustained them. On September
14, 1984, it rendered judgment the dispositive part whereof
reads as follows:
WHEREFORE, the Orders of October 1 and December 14, 1982
of the Court a quo are hereby REVERSED and SET ASIDE, and in
their stead, it is hereby adjudged:
1. That the Order of February 15, 1980 of the Court a quo is
hereby ordered reinstated;
2. That intervenor PNB must deliver the amount stated in the
Order of February 15, 1980 with interest thereon at 12% from
February 15, 1980 until delivered to appellants, the amount of
interest to be paid by PNB and not to be deducted from the
deposit of Isabela Wood;
3. That intervenor PNB must pay attorney's fees and expenses
of litigation to appellants in the amount of P10,000.00 plus the
costs of suit. 9
This dispositive part was subsequently modified at the ACEROS'
instance, by Resolution dated November 8, 1984 which inter
alia "additionally ** (ordered) PNB to likewise deliver to
appellants the balance of the deposit of Isabela Wood
Construction and Development Corporation after first deducting
the amount applied to the partial judgment of P1,532,000.00 in
satisfaction of appeallants' final judgment." 10
PNB's main thesis is that when it opened a savings account for
ISABELA on March 9, 1979 in the amount of P 2M, it (PNB)
became indebted to ISABELA in that amount. 11 So that when
ISABELA itself subsequently came to be indebted to it on
account of ISABELA's breach of the terms of the Credit
Agreement of October 13, 1977, and therefore ISABELA and
PNB became at the same time creditors and debtors of each
other, compensation automatically took place between them, in
accordance with Article 1278 of the Civil Code. The amounts
due from each other were, in its view, applied by operation of
law to satisfy and extinguish their respective credits. More
specifically, the P2M owed by PNB to ISABELA was
automatically applied in payment and extinguishment of PNB's
own credit against ISABELA. This having taken place, that
amount of P2M could no longer be levied on by any other
creditor of ISABELA, as the ACEROS attempted to do in the case
at bar, in order to satisfy their judgment against ISABELA.
Article 1278 of the Civil Code does indeed provide that
"Compensation shall take when two persons, in their own right,
are creditors and debtors of each other. " Also true is that
compensation may transpire by operation of law, as when all
the requisites therefor, set out in Article 1279, are present.
445 | P a g e
Nonetheless, these legal provisions can not apply to PNB's
advantage under the circumstances of the case at bar.
The insuperable obstacle to the success of PNB's cause is the
factual finding of the IAC, by which upon firmly established
rules even this Court is bound, 12 that it has not proven by
competent evidence that it is a creditor of ISABELA. The only
evidence present by PNB towards this end consists of two (2)
documents marked in its behalf as Exhibits 1 and 2, But as the
IAC has cogently observed, these documents do not prove any
indebtedness of ISABELA to PNB. All they do prove is that a
letter of credit might have been opened for ISABELA by PNB,
but not that the credit was ever availed of (by ISABELA's foreign
correspondent MAN, or that the goods thereby covered were in
fact shipped, and received by ISABELA.
Quite obviously, as the IAC has further observed, the most
persuasive evidence of these facts — i.e., ISABELA's availment
of the credit, as well as the actual delivery of the goods covered
by and shipped pursuant to the letter of credit-assuming these
facts to have occurred, would naturally and logically have been
in PNB's possession and could have been readily submitted to
the Court, to wit:
1. The document of availment by the foreign creditor of the
letter of credit.
2. The document of release of the amounts mentioned in the
agreement.
3. The documents showing that the trucks (transported to the
Philippines by the foreign creditor [MAN] were shipped to ** and
received by Isabela.
4. The trust receipts by which possession was given to Isabela
of the 35 (Imported) trucks.
5. The chattel mortgages over the trucks required under No. 3
of II Collaterals of the Credit Agreement (Exhibit 1).
6. The receipt by Isabela of the standing accounts sent by PNB.
7. There receipt of the letter of demand by Isabela Wood. 13
It bears stressing that PNB did not at all lack want for
opportunity to produce these documents, if it does indeed have
them. Judge Solano, it should be recalled, specifically allowed
PNB to introduce evidence in relation to its Motion for
Reconsideration filed on August 26, 1980, 14 and thus
furnished the occasion for PNB to prove, among others,
ISABELA's debt to it. PNB unaccountably failed to do so.
Moreover, PNB never even attempted to offer or exhibit such
evidence, in the course of the appellate proceedings before the
IAC, which is a certain indication, in that Court's view, that PNB
does not really have these proofs at ala
For this singular omission PNB offers no explanation except that
it saw no necessity to submit the Documents in evidence,
because sometime on March 14, 1980, the ACEROS's attorney
had been shown those precise documents — setting forth
ISABELA's loan obligations, such as the import bills and the
sight draft covering drawings on the L/C for ISABELA's account
— and after all, the ACEROS had not really put this
indebtedness in issue. 15The explanation cannot be taken
seriously. In the picturesque but forceful language of the
Appellate Court, the explanation "is silly as you do not prove a
fact in issue by showing evidence in support thereof to the
opposing counsel; you prove it by submitting evidence to the
proper court." The fact is that the record does not disclose that
the ACEROS have ever admitted the asserted theory of
ISABELA's indebtedness to PNB. At any rate, not being privies
to whatever transactions might have generated
446 | P a g e
that indebtedness, they were clearly not in a position to make
any declaration on the matter. The fact is, too, that the avowed
indebtedness of ISABELA was an essential element of PNB's
claim to the former's P2 million deposit and hence, it was
incumbent on the latter to demonstrate it by competent
evidence if it wished its claim to be judicially recognized and
enforced. This, it has failed to do. The failure is fatal to its claim.
PNB has however deposited an alternative theory, which is that
the P2M deposit had been assigned to it by ISABELA as
"collateral," although not by way of pledge; that ISABELA had
explicitly authorized it to apply the P2M deposit in payment of
its indebtedness; and that PNB had in fact applied the deposit
to the payment of ISABELA's debt on February 26, 1980, in
concept of voluntary compensation. 16 This second, alternative
theory, is as untenable as the first.
In the first place, there being no indebtedness to PNB on
ISABELA's part, there is in consequence no occasion to speak of
any mutual set-off, or compensation, whether it be legal, i.e.,
which automatically occurs by operation of law, or voluntary,
i.e., which can only take place by agreement of the parties. 17
In the second place, the documents indicated by PNB as
constitutive of the claimed assignment do not in truth make out
any such transaction. While the Credit Agreement of October
13, 1977 (Exh. 1) declares it to be ISABELA's intention to
"assign to the BANK the proceeds of its contract with the
Department of Public Works for the construction of Nagapit
Suspension Bridge (Substructure) in Cagayan," 18 it does not
appear that that intention was adhered to, much less carried
out. The letter of ISABELA's president dated February 21, 1979
(Exh. 2) would on the contrary seem to indicate the
abandonment of that intention, in the light of the statements
therein that the amount of P2M (representing the bulk of the
proceeds of its contract referred to) "shall be placed in a
savings account" and that "said amount shall
remain in the savings account until ** (ISABELA is) able to
comply with" specified commitments — these being: the
constitution and registration of a mortgage in PNB's favor over
its "Paranaque property," and the obtention from the first
mortgage thereof of consent for the creation of a second lien on
the property. 19 These statements are to be sure inconsistent
with the notion of an assignment of the money. In addition,
there is yet another circumstance militating against the
actuality of such an assignment-the "most telling argument"
against it, in fact, in the line of the Appellate Court-and that is,
that PNB itself, through its International Department, deposited
the whole amount of ?2 million, not in its name, but in the
name of ISABELA, 20 without any accompanying statement
even remotely intimating that it (PNB) was the owner of the
deposit, or that an assignment thereof was intended, or that
some condition or lien was meant to burden it.
Even if it be assumed that such an assignment had indeed been
made, and PNB had been really authorized to apply the P2M
deposit to the satisfaction of ISABELA's indebtedness to it,
nevertheless, since the record reveals that the application was
attempted to be made by PNB only on February 26, 1980, that
essayed application was ineffectual and futile because at that
time, the deposit was already in custodia legis, notice of
garnishment thereof having been served on PNB on January 9,
1980 (pursuant to the writ of execution issued by the Court of
First Instance on December 23, 1979 for the enforcement of the
partial judgment in the ACEROS' favor rendered on November
18,1979).
One final factor precludes according validity to PNB's
arguments. On the assumption that the P 2M deposit was in
truth assigned as some sort of "collateral" to PNB — although
as PNB insists, it was not in the form of a pledge — the
agreement postulated by PNB that it had been authorized to
assume ownership of the fund upon the coming into being of
ISABELA s indebtedness is void ab
447 | P a g e
initio, it being in the nature of a pactum commisoruim
proscribed as contrary to public policy. 21
WHEREFORE, the judgment of the Intermediate Appellate Court
subject of the instant appeal, being fully in accord with the
facts and the law, is hereby affirmed in toto. Costs against
petitioner.
90. G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ,
respondents.
GUTIERREZ, JR., J.:
The petitioner invokes legal and equitable grounds to reverse
the questioned decision of the Intermediate Appellate Court, to
set aside the auction sale of his property which took place on
December 5, 1977, and to allow him to recover a 203 square
meter lot which was, sold at public auction to Ho Fernandez and
ordered titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and
a two-story house built upon it situated at Barrio San Isidro,
now District of Sta. Clara, Pasay City, Metro Manila. The lot, with
an area of about 328 square meters, is described and covered
by Transfer Certificate of Title No. 4739 (37795) of the Registry
of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's
property was expropriated by the Republic of the Philippines for
the sum of P4,116.00 representing the estimated amount
equivalent to the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real
estate taxes. Thus, on December 5, 1977, his property was sold
at public auction by the City Treasurer of Pasay City pursuant to
Section 73 of Presidential Decree No. 464 known as the Real
Property Tax Code in order to satisfy a tax delinquency of
P2,400.00. Ho Fernandez was the highest bidder for the
property.
Francia was not present during the auction sale since he was in
Iligan City at that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC
Case No. 1593-P "In re: Petition for Entry of New Certificate of
Title" filed by Ho Fernandez, seeking the cancellation of TCT No.
4739 (37795) and the issuance in his name of a new certificate
of title. Upon verification through his lawyer, Francia discovered
that a Final Bill of Sale had been issued in favor of Ho
Fernandez by the City Treasurer on December 11, 1978. The
auction sale and the final bill of sale were both annotated at the
back of TCT No. 4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the
auction sale. He later amended his complaint on January 24,
1980.
On April 23, 1981, the lower court rendered a decision, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered dismissing the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new Transfer
Certificate of Title in favor of the defendant Ho
448 | P a g e
Fernandez over the parcel of land including the improvements
thereon, subject to whatever encumbrances appearing at the
back of TCT No. 4739 (37795) and ordering the same TCT No.
4739 (37795) cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of
P1,000.00 as attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the
lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments
of grave errors of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A
GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S
OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX
DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00
WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A
GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT
PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN
AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON
DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY
OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER
COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF
DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00
PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY
INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO
FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE
PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE
MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
We gave due course to the petition for a more thorough inquiry
into the petitioner's allegations that his property was sold at
public auction without notice to him and that the price paid for
the property was shockingly inadequate, amounting to fraud
and deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia
brought the problems raised in his petition upon himself. While
we commiserate with him at the loss of his property, the law
and the facts militate against the grant of his petition. We are
constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has
been extinguished by legal compensation. He claims that the
government owed him P4,116.00 when a portion of his land
was expropriated on October 15, 1977. Hence, his tax
obligation had been set-off by operation of law as of October
15, 1977.
There is no legal basis for the contention. By legal
compensation, obligations of persons, who in their own right
are reciprocally debtors and creditors of each other, are
extinguished (Art. 1278, Civil Code). The circumstances of the
case do not satisfy the requirements provided by Article 1279,
to wit:
(1) that each one of the obligors be bound principally and that
he be at the same time a principal creditor of the other;
449 | P a g e
xxx xxx xxx
(3) that the two debts be due. xxx xxx xxx
This principal contention of the petitioner has no merit. We
have consistently ruled that there can be no off-setting of taxes
against the claims that the taxpayer may have against the
government. A person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to or greater
than the tax being collected. The collection of a tax cannot
await the results of a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622),
this Court ruled that Internal Revenue Taxes can not be the
subject of set-off or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of set-
off, which are construed uniformly, in the light of public policy,
to exclude the remedy in an action or any indebtedness of the
state or municipality to one who is liable to the state or
municipality for taxes. Neither are they a proper subject of
recoupment since they do not arise out of the contract or
transaction sued on. ... (80 C.J.S., 7374). "The general rule
based on grounds of public policy is well-settled that no set-off
admissible against demands for taxes levied for general or local
governmental purposes. The reason on which the general rule
is based, is that taxes are not in the nature of contracts
between the party and party but grow out of duty to, and are
the positive acts of the government to the making and
enforcing of which, the personal consent of individual taxpayers
is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when
called upon by the collector because he has a claim against the
governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18
SCRA 331) where we stated that: "... internal revenue taxes can
not be the subject of compensation: Reason: government and
taxpayer are not mutually creditors and debtors of each other'
under Article 1278 of the Civil Code and a "claim for taxes is not
such a debt, demand, contract or judgment as is allowed to be
set-off."
There are other factors which compel us to rule against the
petitioner. The tax was due to the city government while the
expropriation was effected by the national government.
Moreover, the amount of P4,116.00 paid by the national
government for the 125 square meter portion of his lot was
deposited with the Philippine National Bank long before the sale
at public auction of his remaining property. Notice of the
deposit dated September 28, 1977 was received by the
petitioner on September 30, 1977. The petitioner admitted in
his testimony that he knew about the P4,116.00 deposited with
the bank but he did not withdraw it. It would have been an easy
matter to withdraw P2,400.00 from the deposit so that he could
pay the tax obligation thus aborting the sale at public auction.
Petitioner had one year within which to redeem his property
although, as well be shown later, he claimed that he pocketed
the notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was made
without complying with the mandatory provisions of the statute
governing tax sale. No evidence, oral or otherwise, was
presented that the procedure outlined by law on sales of
property for tax delinquency was followed. ... Since defendant
Ho Fernandez has the affirmative of this issue, the burden of
proof therefore rests
450 | P a g e
upon him to show that plaintiff was duly and properly notified ...
.(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the
purchaser at the auction sale, has the burden of proof to show
that there was compliance with all the prescribed requisites for
a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the
doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must
be established by proof and the general rule is that the
purchaser of a tax title is bound to take upon himself the
burden of showing the regularity of all proceedings leading up
to the sale. (emphasis supplied)
There is no presumption of the regularity of any administrative
action which results in depriving a taxpayer of his property
through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga
v. Insular Government, 19 Phil. 261). This is actually an
exception to the rule that administrative proceedings are
presumed to be regular.
But even if the burden of proof lies with the purchaser to show
that all legal prerequisites have been complied with, the
petitioner can not, however, deny that he did receive the notice
for the auction sale. The records sustain the lower court's
finding that:
[T]he plaintiff claimed that it was illegal and irregular. He
insisted that he was not properly notified of the auction sale.
Surprisingly, however, he admitted in his testimony that he
received the letter dated November 21, 1977 (Exhibit "I") as
shown by his signature (Exhibit "I-A") thereof. He claimed
further that he was not present on December 5, 1977 the date
of the auction sale because he went to Iligan City. As long as
there was substantial compliance with the requirements of the
notice, the validity of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-
examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho
Fernandez notified you that the property in question shall be
sold at public auction to the highest bidder on December 5,
1977 pursuant to Sec. 74 of PD 464. Will you tell the Court
whether you received the original of this letter?
A. I just signed it because I was not able to read the same. It
was just sent by mail carrier.
Q. So you admit that you received the original of Exhibit I and
you signed upon receipt thereof but you did not read the
contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it? A. I
placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was
negligence on his part when he ignored such notice. By his very
own admission that he received the notice, his now coming to
court assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit.
As a general rule, gross inadequacy of price is not material (De
Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation
451 | P a g e
Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil.
917 Unrep.). See also Barrozo Vda. de Gordon v. Court of
Appeals (109 SCRA 388) we held that "alleged gross
inadequacy of price is not material when the law gives the
owner the right to redeem as when a sale is made at public
auction, upon the theory that the lesser the price, the easier it
is for the owner to effect redemption." In Velasquez v. Coronel
(5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which
the lands were sold are unconscionable considering the wide
divergence between their assessed values and the amounts for
which they had been actually sold. However, while in ordinary
sales for reasons of equity a transaction may be invalidated on
the ground of inadequacy of price, or when such inadequacy
shocks one's conscience as to justify the courts to interfere,
such does not follow when the law gives to the owner the right
to redeem, as when a sale is made at public auction, upon the
theory that the lesser the price the easier it is for the owner to
effect the redemption. And so it was aptly said: "When there is
the right to redeem, inadequacy of price should not be
material, because the judgment debtor may reacquire the
property or also sell his right to redeem and thus recover the
loss he claims to have suffered by reason of the price obtained
at the auction sale."
The reason behind the above rulings is well enunciated in the
case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d,
1290):
If mere inadequacy of price is held to be a valid objection to a
sale for taxes, the collection of taxes in this manner would be
greatly embarrassed, if not rendered altogether impracticable.
In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as
follows: "where land is sold for taxes, the inadequacy of the
price given is not a valid objection to the sale." This rule arises
from necessity, for, if a fair price for the land were essential to
the sale, it would
be useless to offer the property. Indeed, it is notorious that the
prices habitually paid by purchasers at tax sales are grossly out
of proportion to the value of the land. (Rothchild Bros. v.
Rollinger, 32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of
McGuire, et al. v. Bean, et al. (267 P. 555):
Like most cases of this character there is here a certain
element of hardship from which we would be glad to relieve,
but do so would unsettle long-established rules and lead to
uncertainty and difficulty in the collection of taxes which are
the life blood of the state. We are convinced that the present
rules are just, and that they bring hardship only to those who
have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value
of the lot has greatly appreciated in value. Precisely because of
the widening of Buendia Avenue in Pasay City, which
necessitated the expropriation of adjoining areas, real estate
values have gone up in the area. However, the price quoted by
the petitioner for a 203 square meter lot appears quite
exaggerated. At any rate, the foregoing reasons which answer
the petitioner's claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the
petitioner on equitable grounds, there are no strong
considerations of substantial justice in his favor. Mr. Francia
failed to pay his taxes for 14 years from 1963 up to the date of
the auction sale. He claims to have pocketed the notice of sale
without reading it which, if true, is still an act of inexplicable
negligence. He did not withdraw from the expropriation
payment deposited with the Philippine National Bank an
amount sufficient to pay for the back taxes. The petitioner did
not pay attention to another notice sent by the City Treasurer
on November 3, 1978, during the period of redemption,
regarding his tax delinquency. There is furthermore
452 | P a g e
no showing of bad faith or collusion in the purchase of the
property by Mr. Fernandez. The petitioner has no standing to
invoke equity in his attempt to regain the property by belatedly
asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for
review is DISMISSED. The decision of the respondent court is
affirmed.
hectares thereby usurping about 2,000 hectares consisting of
portions of the territorial sea, the foreshore, the beach and
navigable waters properly belong(ing) to the public domain." 2
The Court's decision in said case found that
We have gone over the evidence presented in this case and
found no reason to disturb the factual findings of the trial court.
It has been established that certain areas originally portions of
the navigable water or of the foreshores of the bay were
converted into fishponds or sold by defendant company to third
persons. There is also no controversy as to the fact that the
said defendant was able to effect these sales after it has
obtained a certificate of title (TCT No. 722) and prepared a
"composite plan" wherein the aforesaid foreshore areas
appeared to be parts of Hacienda Calatagan. Defendants-
appellants do not deny that there is an excess in area between
those delimited as boundaries of the hacienda in TCT No. 722
and the plan prepared by its surveyor. This, however, was
justified by claiming that it could have been caused by the
system (magnetic survey) used in the preparation of the
original titles, and, anyway, the excess in area (536 hectares,
according to defendants) is within the allowable margin given
to a magnetic survey.
But even assuming for the sake of argument that this
contention is correct, the fact remains that the areas in dispute
(those covered by permits issued by the Bureau of Fisheries),
were found to be portions of the foreshore, beach, or of the
navigable water itself And, it is an elementary principle of law
that said areas not being capable of registration, their inclusion
in a certificate of title does not convert the same into properties
of private ownership or confer title on the registrant. 3
The Solicitor General's Memorandum 4 further points out
91. G.R. No. L-30240
March 25, 1988
REPUBLIC OF THE PHILIPPINES as Lessor, ZOILA DE CHAVEZ,
assisted by her husband Col. Isaac Chavez, DEOGRACIAS
MERCADO, ROSENDO IBANEZ and GUILLERMO MERCADO, as
permittees and/or Lessees of public fishponds, petitioners,
vs.
HON. JUDGE JAIME DE LOS ANGELES of the court of First
Instance of Batangas, (BR. III, Balayan) [later replaced by JUDGE
JESUS ARLEGUI] SHERIFF OF BATANGAS, ENRIQUE ZOBEL and
THE REGISTER OF DEEDS AT BALAYAN, BATANGAS, respondents.
TEEHANKEE, C.J.:
The moment of truth is finally at hand. It is about time to cause
the execution in favor of the Republic of the Philippines of the
1965 final and executory judgment of this Court (Republic vs.
Ayala y Cia ) 1affirming that of the CFI of Batangas in Civil Case
No. 373 thereof and to recover for the Republic what "Ayala y
Cia Hacienda de Calatagan and/or Alfonso Zobel had illegally
expanded [in] the original area of their TCT No. 722 (derived
from OCT No. 20) from 9,652.583 hectares to about 12,000
453 | P a g e
... that the modus operandi in said usurpation, i.e. grabbing
lands of the public domain, was expressly made of record in the
case of Dizon v. Rodriguez, 13 SCRA 704 (April 30, 1965), where
it was recounted that Hacienda de Calatagan, owned by Alfonso
and Jacobo Zobel, was originally covered by TCT No. 722, and
that in 1948, upon the cessation of their sugar mill operations,
the hacienda owners converted the pier (used by vessels
loading sugar) which stretched to about 600 meters off the
shore into the navigable waters of the Pagaspas Bay" into a
fishpond dike by enclosing 30 and 37 hectares of the bay on
both sides of the pier in the process.
Subsequently, in 1949, the owners of the hacienda ordered its
subdivision which enabled them to acquire titles to the
subdivided lots which were outside the hacienda's perimeter.
Thus, these subdivided lots, which were converted into
fishponds were illegally absorbed as part of the hacienda and
titled in the name of Jacobo Zobel which were subsequently
sold and transferred to the Dizons, Gocos and others. In said
Dizon case, "this Honorable Court affirmed the court a quo's
findings that the subdivision plan was prepared not in
accordance with the technical description in TCT No. 722 but in
disregard of it." And that the appropriated fishpond lots "are
actually part of the territorial waters and belong to the State.
But all through the years, as stressed in the Republic's
memorandum, "the technical maneuvers employed by Ayala
and Zobel [of which the instant petition is an off-shoot] ....
undercut the Republic's efforts to execute the aforesaid 1965
final judgment" 5 to recover the estimated 2,000 hectares of
territorial sea, foreshore, beach and navigable waters and
marshy land of the public domain.
It may seem incredible that execution of such 1965 final
judgment in favor of the Republic no less could have been
thwarted for twenty-three years now. But the Republic's
odyssey
and travails since 1965 through the martial law regime to now
are recorded in the annals of our jurisprudence. Suffice it to
point out that upon petition of the Republic and its co-
petitioners (as permittees and/or lessees of the Republic),
mandamus was issued on June 30, 1967 by unanimous decision
with one abstention in Republic vs. De los Angeles, 6 overruling
the therein respondent-judge's refusal to issue a writ of
execution of the aforesaid 1965 final judgment and ordering
him to issue such writ. The Court denied reconsideration on
September 19, 1967, but on a second and supplemental motion
for reconsideration, it set aside the original decision of Jane 30,
1967 and dismissed the petition for mandamus and denied
execution, per its Resolution of October 4, 1971 by a split 6-3-2
vote. 7 The court denied the Republic, et al motions for
reconsideration by the same split 6-3- 2 vote per its Resolution
of April 11, 1972. 8 An undermanned Court subsequently
denied the Republic's co-petitioner Tolentino's second motion
for reconsideration for lack of necessary votes per its Resolution
of April 27, 1973. 9
Parenthetically, the complexity magnitude and persistence of
respondents' maneuvers are set forth in the series of decisions
and extended resolutions and majority and dissenting opinions
reported in the Supreme Court Reports Annotated as per the
citations — hereinabove given. A reading of said reports
together with the Memorandum for Granting of the Petition at
bar (and giving the case's backgrounder) which I had circulated
in the Court as against the proposed contrary draft of Justice
Estanislao A. Fernandez (which did not gain the concurrence of
the majority of the Court during his seventeen-month
incumbency from October 20, 1973 to March 28, 1975) shows
the full extent background and scope of these maneuvers,
particularly those in the present case. For the sake of brevity
and conciseness, I attach the said Memorandum as Annex A
hereof and make the same an integral part of this decision,
instead of reproducing the same in the body of this opinion.
454 | P a g e
Pending respondents' maneuvers in this Court for thwarting the
issuance of a writ for execution of the aforesaid 1965 final
judgment for the Republic's recovery of land and waters of the
public domain in the 1967 mandamus case brought by the
Republic, supra, they intensified their maneuvers to defeat the
Republic's judgment for recovery of the public lands and waters
when they got the trial judge, notwithstanding this Court's final
1965 judgment for reversion of the public lands, to uphold their
refusal to recognize the rights of the Republic's public fishponds
permittees and/or lessees to the lands leased by the Republic
to them. Thus, the Republic as lessor and said
permittees/lessees as co-petitioners filed through then Solicitor
General Antonio P. Barredo their Amended Complaint of August
2, 1967 in Civil Case No. 653 against herein respondent Enrique
Zobel as defendant and the Register of Deeds of Batangas. As
summarized by the Solicitor General in his Memorandum of
June 1, 1984:
Respondent Zobel had ousted Zoila de Chavez, a government's
fishpond permittee from a portion of the subject fishpond lot
described as Lot 33 of Plan Swo-30999 (also known as Lots 55
and 66 of subdivision TCT No. 3699) by bulldozing the same,
and threatened to eject fishpond permittees Zoila de Chavez,
Guillermo Mercado, Deogracias Mercado and Rosendo Ibañez
from their respective fishpond lots described as Lots 4, 5, 6 and
7 and Lots 55 and 56, of Plan Swo-30999, embraced in the void
subdivision titles TCT No. 3699 and TCT No. 9262 claimed by
said respondent. Thus, on August 2, 1967, the Republic filed an
Amended Complaint captioned Accion Reinvidicatoria with
Preliminary Injunction" against respondent Zobel and the
Register of Deeds of Batangas, docketed as Civil Case No. 653,
for cancellation of Zobel's void subdivision titles TCT No. 3699
and TCT No. 9262, and the reconveyance of the same to the
government; to place aforenamed fishpond permittees in
peaceful and adequate possession thereof; to require
respondent Zobel to pay back rentals to the Republic; and to
enjoin said
respondent from usurping and exercising further acts of
dominion and ownership over the subject land of public domain;
Respondent Zobel, however, filed a Motion to Dismiss Amended
Complaint, dated August 16, 1967, contending inter alia that
said Amended Complaint (Civil Case No. 653) is barred by prior
judgment in Civil Case No. 373 (G.R. No. 20950, the 1965 final
judgment in favor of the Republic), and arguing that "if TCT Nos.
T-3699 and T-9262 had been declared null and void in Civil Case
No. 373, the proper procedure would be to secure the proper
execution of the decision in the same proceedings and not thru
the filing of a new case." He further contended "that there is
another action pending between the same parties for the same
cause," and points to the abovementioned mandamus case,
G.R. No. 26112 anent execution of Civil Case No. 373 as the
said pending case. His aforesaid motion, however, was denied
by the trial court in its order of December 13, 1967, and
accordingly he was required to file his answer.
But in his answer with counterclaim, respondent Zobel averred,
among others, that the subject TCT Nos. 3699 and 9262
registered in his name are valid and subsisting since in the
decision under G. R. No. L-20950 "only TCT No. T-9550 was
specifically declared as null and void and no other;" and that
when Civil Case No. 373 was docketed, respondent Enrique
Zobel "was and still is at present one of the members and
managing .ng partners of Ayala y Cia one of the defendants in
the 91 said civil case, and, therefore, privy thereto." He then
prayed for a writ of preliminary mandatory injunction restoring
to him possession of the subject land, and further prayed for
judgment ordering Zoila de Chavez and Guillermo Mercado to
vacate the premises in question and to surrender possession
thereof to defendant Zobel. This was unfortunately granted by
respondent Judge De los Angeles per the impugned order at bar
of October 1, 1968. (Annex D, petition). Hence, the filing of the
instant petition.
455 | P a g e
On March 7, 1969, the Court issued a restraining order in the
case at bar, enjoining respondent judge from enforcing the writ
of preliminary mandatory injunction until further orders.
While G.R. No. L-26112 re: execution) and G.R. No. L-30240 (the
case at bar) were pending, the Republic filed its motion of July
8, 1970 in Civil Case No. 373, for authority to conduct the
necessary resurvey of the lands affected so as to properly
segregate from Ayala and Zobel's private land originally
covered by TCT No. 722 the areas outside thereof comprising
about 2,000 hectares of public land, beach, foreshore and
territorial sea. Ayala and Zobel vigorously opposed the same,
contending again that the proper step for the government was
to ask for a writ of execution; that no other subdivision titles,
besides TCT No. T- 9550 were really declared null and void in
the 1965 judgment; and that the lower court could not make a
ruling on the motion for resurvey "without requiring the
presentation of additional evidence, and that, in effect, would
be tantamount to reopening a case where the judgment is
already final and executory and that the Government's failure
to seek a "clarification of the decision to find out what other
titles should have been declared null and void" precludes it
from doing so now, I since the decision is now final and
executory." The respondent judge, having earlier denied
execution of the 1965 final judgment, issued his order of
October 27, 1970 denying the Government's motion for
authority to conduct such prerequisite re-survey;
Ayala and Zobel's technical maneuvers to impede execution of
the 1965 final judgment again bore fruit, as above indicated,
when their second motion for reconsideration in G.R. No.
L26112 was granted by a split Court in a Resolution dated
October 4, 1971 (41 SCRA 422). As a result, the earlier decision
of June 30, 1967 directing the issuance of the writ of execution
was set aside and the Republic's petition for certiorari and
mandamus impugning the lower court's quashal and denial of
the writ of execution was dismissed.
While the Court's new majority denied the Republic's motion for
reconsideration of aforesaid resolution, per its resolution of April
11, 1972, it, however, made the important modification that
said denial "does not constitute a denial of the right of the
Republic to the cancellation of the titles nullified by the decision
of Judge Tengco (in Civil Case No. 373) affirmed by this Court (in
G.R. No. L-20950)." It also stated that: "(E)ven the (trial court's)
order of October 27, 1970 about the resurvey merely held the
remedy to be premature until the decision in this case has
become final. Of course, it is understood that in such
eventuality, the resurvey requested by the Provincial Fiscal
would be in order and as soon as the same is completed, the
proper writ of execution for the delivery of possession of the
portions found to be public land should issue." (G.R. No. I,
26112, 44 SCRA 255, 262 [19721) Thus, the majority's denial of
the motions for reconsideration was made expressly "with the
clarification aforemade of the rights of the Republic."
[Note: My attached Memorandum, Annex A hereof (at pages 2
to 6 thereof), quotes more extensively the same
pronouncements of the ponente, Justice Villamor, speaking for
the majority, that the Resolution simply cancelled out the final
damage award in favor of intervenor Tolentino, as government
permittee/lessee it covers as well similar pronouncements from
Justice Makalintal in his separate concurrence that "The
resolution in no way affects the rights of the Government as
declared in the decision," and Justice Barredo's separate
concurrence that "I am sure that the five justices whom I am
joining in denying Petitioners motion for reconsideration are as
firm as the three distinguished dissenters in the resolution not
to allow this Court to be an instrument of land-grabbing as they
are against the reversal or even modification in any substantial
degree of any final and executory judgment whether of this
Court or any other court in this country, and, that if there were
such possibilities in consequence of the resolution of October 4,
1971 and the present resolution of
456 | P a g e
denial, they would not give their assent to said resolutions. We
are certain that in deciding against Petitioner Tolentino, We are
not condoning nor permitting that the lands in question remain
with the Dizons or with "the Ayalas."
In my dissenting opinion, I expressed gratification that the
dissents (submitted by then Chief Justice Roberto Concepcion
and myself, both concurred in by Justice J.B.L. Reyes) had
contributed to the overriding clarification "that the majority's
position although it denies reconsideration and maintains
reversal of the June 30, 1967 decision at bar-is that the
Government may now finally effect reversion and recover
possession of all usurped areas of the public domain "outside
(Ayala's) private land covered by TCT No. 722, which including
the lots in T-9550 (Lots 360, 362, 363 and 182) are hereby
reverted to public dominion." (Paragraph [al of 1965 judgment).
10
After said G.R. No. L-26112 was finally disposed of, herein
petitioner filed in Civil Case No. 373, a "Motion to Re-survey."
This was granted in an Order dated August 21, 1973, as well as
in the Orders of December 27, 1973 and February 26, 1974,
respectively. About three (3) years later, a Report on the Re-
survey dated August 5, 1977 (Annex "A" to Republic's Comment
dated March 30, 1981), as well as the "Final Report" thereon
dated September 2, 1977 and the "Resurvey Plan" (Annexes "B"
and "C", Ibid.) were approved by the Director of Lands and the
Secretary of Agriculture and Natural Resources. The Re-survey
further confirmed the uncontroverted fact that the disputed
areas in the case at bar form part of the expanded area already
reverted to public dominion.
Upon approval of said Re-survey Plan and Report, petitioner
submitted the same to the trial court in Civil Case No. 373.
However, notwithstanding its approval by the Director of Lands,
and the Secretary of Agriculture and Natural Resources, Judge
Jesus P. Arlegui [who had been assigned to respondent Judge De
los Angeles" court in Batangas upon the latter's retirement]
arrogating unto himself the function which properly belongs to
the Director of Lands, disapproved the said Report and Re-
survey Plan, thereby preventing execution of the subdivision (a)
of the decision in Civil Case No. 373. In effect, such disapproval
by Judge Arlegui was intended to negate the earlier resolution
in G.R. No. L-26112 (44 SCRA 255, 263) that as soon as
resurvey "is completed the proper writ of execution for the
delivery of possession of the portions found to be public land
should issue;"
Earlier, in Civil Case No. 653, respondent Zobel filed on July 10,
1969 a Motion to Suspend Further Hearing, etc., praying that
the hearings in said Civil Case be indefinitely suspended until
the case at bar is resolved by this Honorable Court. He
contended that the issues raised in the case at bar are the very
issues pending in the case below, Civil Case No. 653, and that
the decision that the Court renders here "would greatly affect
the respective claims of said parties in (said) case." (G.R. No. 1,
46396, Record, pp. 128-130)
The aforesaid motion was followed by respondent Zobel's
Motion for Immediate Resolution of Defendant-Movant's Motion
to Suspend, etc., dated August 20, 1969. An opposition thereto
was filed by plaintiff therein and a reply was filed in turn by
respondent Zobel on July 30, 1 969. Acting on the said motions,
the trial court issued an order on September 2, 1969 giving the
parties certain periods to file their pleadings and cancelling a
scheduled hearing until it shall have resolved the motion to
suspend.
Since that time, however, the trial court chose not, or failed, to
act formally on the aforesaid motion to suspend hearings. Then
after five (5) years, with the trial court now presided by Judge
Arlegui, respondent Zobel flip-flopped and filed a Motion to
Dismiss the case below dated January 14, 1976, claiming
alleged failure to
457 | P a g e
prosecute and res judicata, which was vigorously opposed by
herein petitioner. Judge Arlegui, robot-like, nonetheless
dismissed the Republic's complaint for Zobel's alleged grounds
of failure to prosecute for an unreasonable length of time and
res judicata per his order of January 12, 1977.
A 35-page motion for reconsideration thereof was filed by
Petitioner within the extended period sought for in an earlier
motion. The then Presiding Judge Arlegui summarily denied the
motion for extension of time earlier filed, per its order of March
3, 1977.
The "Motion for Reconsideration of Order" dated March 3, 1977,
and "Supplement to Motion for Reconsideration of Order" dated
March 3,1977, were similarly denied by Judge Arlegui in his
order dated June 14, 1977. Petitioner Republic thus elevated
the matter to this Court by certiorari and mandamus which was
docketed as G.R. No. L-46396 11 and asked that it be
consolidated with the case at bar which from the beginning was
assigned to the Court en banc. However, G.R. No. L-46396 was
somehow assigned to the Second Division of the Court which
peremptorily dismissed the petition per its minute resolution
dated December 1 7, 1977, which reads:
Acting on the petition for certiorari and mandamus in this case
as well as the comment thereon of the private respondent and
the reply of petitioner and rejoinder thereto of said respondent,
the Court resolved to DISMISS the petition, considering that
although the motion for extension of time to file a motion for
reconsideration of petitioner dated February 19, 1977 may be
deemed as filed within the reglementary period for appeal, the
same did not suspend said period which expired on February
21, 1977 (Gibbs v. Court of First Instance of Manila, 80 Phil. 160,
where the appeal albeit late by one day, was nevertheless
allowed on the ground that under the peculiar circumstances of
the case showing utmost effort on the part of appellant to make
the same on time, there was excusable neglect, which does not
obtain here) because "the petition for extension of time should
not .interrupt the period fixed by law for the taking of the
appeal" on the ground that "the only purpose of said petition is
to ask the court to grant an additional period to that fixed by
law to that end." (Alejandro v. Endencia 64 Phil, 321)
Soon after the dismissal of the petition in G.R. No. 46396,
respondent Zobel filed in this case a "Motion to Dismiss
Petition" and "Manifestation and Motion to Lift Temporary
Restraining Order" issued on March 7, 1969, and another
supplemental motion, on the ground that the instant case has
become moot and academic by the dismissal of the complaint
in Civil Case No. 653 in the court below. This was refuted by the
herein petitioner in its Comment dated March 30, 1981.
On December 15, 1981, Judge Arlegui precipitately rendered in
Civil Case No. 653 a decision on the Counterclaim of herein
respondent Zobel, declaring him the true, absolute and
registered owner of the lands covered by Transfer Certificate of
Title Nos. 3699, T-7702 and 9262 (now No. 10031) and directing
the Government's licensees and permittees occupying the
same to vacate the lands held by them.
Subsequently, on March 9, 1982, Judge Arlegui issued a writ of
execution in Civil Case No. 653, prompting the heirs of
Guillermo Mercado to file in this case an Urgent Motion dated
March 22,1982 to stay the same. Acting on the Urgent Motion,
the "Court issued another restraining order dated June 17,
1982, emphasizing the necessity therefor in this wise:
... the issuance of the restraining order now prayed for by
movants-heirs of Guillermo Mercado is necessary to retain the
status quo since whatever rights they have are only in
representation of the petitioner Republic who claims the said
458 | P a g e
lands by virtue of their reversion to the public dominion as
specifically adjudged by this court in G.R. No. L- 26112.,
Respondent Zobel then moved for a reconsideration and lifting
of aforesaid restraining order. The heirs of intervenor Zoila de
Chavez on the other hand, moved for a preliminary mandatory
injunction to restore them in possession of a Portion of the land
in dispute from where they had been ousted by virtue of the
writ of execution issued in Civil Case No. 653.
In a Consolidated Comment dated September 30, 1982,
petitioner Republic opposed the said motion of respondent
Zobel, and at the same time concurred with the motion filed by
the heirs of Zoila de Chavez for the issuance of a writ of
preliminary mandatory injunction.
On or about November 8, 1983, the heirs of intervenor
Guillermo Mercado filed an "Urgent Motion for Contempt and
Issuance of a Temporary Restraining Order, etc.," as respondent
Zobel's representative, in spite of the restraining order
enjoining them from enforcing the writ of execution, had begun
to acquire possession of the land in question by cutting off trees
in the undeveloped fishpond being leased by Mercado from the
7 government.
On November 10, 1983, the Court issued the corresponding
restraining order prayed for "enjoining respondent Enrique
Zobel or his duly authorized representative from further cutting
off the trees in the undeveloped fishpond of Guillermo Mercado
having an area of two (2) hectares, more or less, and from
hauling the big trees already cut off costing P10,000.00
"Resolution dated November 13, 1983).
On or about November 23, 1983, the heirs of Guillermo
Mercado filed a "Second Urgent Motion for Contempt and a
Second Restraining Order, etc." since, in spite of the foregoing
restraining
order issued by this Court, respondent Zobel and his agent
were still cutting off the trees in the disputed areas.
On December 6, 1983, after the hearing en banc of this case on
the merits, a resolution was rendered by this Court "to ISSUE a
second temporary restraining order enjoining respondent
Enrique Zobel and his agents, representatives and/or any other
person or persons acting on his behalf to desist from cutting off
or removing any tree in the questioned areas which were
declared reverted to the public domain and which are claimed
by the Republic, effective immediately and until further orders
by the Court.
Against this background, respondent Zobel now contends that
his TCT No. 3699 and TCT No. 9262 (now T-10031) are valid and
subsisting as said titles "cannot be considered automatically
annulled" by the decision in G.R. No. L-20950; that the decision
in G.R. No. L-20950 annulled only TCT No. 9550 and no other;
that he cannot be bound by the decision in said G.R. No. L-
20950 since he was not a party thereto; that the dismissal of
Civil Case No. 653 and of the appeal therefrom by the Republic
has quieted his questioned titles and has rendered the instant
petition moot and academic; that the decision on his
counterclaim in Civil Case No. 653 declaring him to be the true
and registered owner of the subject land had long become final
and executory, and that under the principle of res judicata the
present petition ought to be dismissed; and that intervenors
Mercado and Chavez have no right of possession over the land
in question.
The Republic's petition is patently meritorious.
1. On the original issue at bar brought against respondent
Judge Angeles" issuance of preliminary mandatory injunction
per the questioned Order of October 1, 1968, petitioner
Republic and its co-petitioner licensees are manifestly entitled
to the restraining orders issued by the Court on March 7, 1969
enjoining
459 | P a g e
respondent judge from enforcing the preliminary mandatory
injunction that he had issued that would oust the Republic and
its licensees from the public lands in question and transfer
possession thereof to respondent Zobel; that issued on June 17,
1982 enjoining enforcement of respondent Judge Arlegui's writ
of execution issued on March 9, 1982 declaring without trial
respondent Zobel (on his counterclaim to the dismissed
complaint) as the true and registered owner of the lands
covered by TCT Nos. 3699, 7702 and 9262 (now 10031) and
directing the Republic's licensees to vacate the same; and that
issued on December 6, 1983 after the hearing on the merits,
"enjoining respondent Enrique Zobel and his agents,
representatives and/ or any other person or persons acting on
his behalf to desist from cutting off or removing any tree in the
questioned areas which were declared reverted to the public
domain and which are claimed by the Republic."
Respondent Judge Arlegui, after he succeeded Judge Angeles as
presiding judge, committed the gravest abuse of discretion,
when, instead of granting the preliminary injunction sought by
the Republic and its co-petitioners to enjoin respondent Zobel
from usurping lands of the public domain covered by his voided
expanded subdivision titles, he dismissed the complaint on
January 12, 1977 and almost four years later on December 15,
1981, without any trial, granted said respondent's counter
prayer in his Answer to the complaint in Civil Case No. 653 for
the issuance of a mandatory injunction upon a P10,000.00 bond
to oust petitioner Republic and its permittees and/or lessees
from the property and to deliver possession thereof to
respondent Zobel. It is settled doctrine that as a preliminary
mandatory injunction usually tends to do more than to maintain
the status quo, it is generally improper to issue such an
injunction prior to the final hearing and that it may issue only in
cases of extreme urgency, where the right is very clear. 12
Contrary to respondent Zobel's assertion, the 1965 final
judgment in favor of the Republic declared as null and void, not
only TCT No. 9550, but also "other subdivision titles" issued
over the expanded areas outside the private land of Hacienda
Calatagan covered by TCT No. 722. As shown at the outset, 13
after respondents ordered subdivision of the Hacienda
Calatagan which enabled them to acquire titles to and "illegally
absorb" the subdivided lots which were outside the hacienda's
perimeter, they converted the same into fishponds and sold
them to third parties, But as the Court stressed in the 1965
judgment and time and again in other cases, 'it is an
elementary principle of law that said areas not being capable of
registration, their inclusion in a certificate of title does not
convert the same into properties of private ownership or confer
title on the registrant." 14 This is crystal clear from the
dispositive portion or judgment which reads:
WHEREFORE, judgment is hereby rendered as follows:
(a) Declaring as null and void Transfer Certificate of Title No. T
550 (or Exhibit "24") of the Register of Deeds of the Province of
Batangas and other subdivision titles issued in favor of Ayala y
Cia and/or Hacienda de Calatagan over the areas outside its
private land covered by TCT No. 722, which including the lots in
T-9550 (lots 360, 362, 363 and 182) are hereby reverted to
public dominion."
This final 1965 judgment reverting to public dominion all public
lands unlawfully titled by respondent Zobel and Ayala and/or
Hacienda Calatagan is now beyond question, review or reversal
by any court, although as sadly shown hereinabove,
respondents' tactics and technical maneuvers have all these 23
long years thwarted its execution petition and the Republic's
recovery of the lands and waters of the public domain.
460 | P a g e
Respondent Zobel is bound by his admission in his Answer to
the Complaint below that when Civil Case No. 373 was
docketed, he "was and still is at present one of the members
and managing partners of Ayala y Cia one of the defendants in
the said civil case, and, therefore. privy thereto."
Clearly, the burden of proof lies on respondent Zobel and other
transferees to show that his subdivision titles are not among
the unlawful expanded subdivision titles declared null and void
by the said 1965 judgment. Respondent Zobel not only -did not
controvert the Republic's assertion that his titles are embraced
within the phrase "other subdivision titles" ordered cancelled
but failed to show that the sub division titles in his name cover
lands within the original area covered by Ayala's TCT No. 722
(derived from OCT No. 20) and not part of the beach, foreshore
and territorial sea belonging and ordered reverted to public
dominion in the aforesaid 1965 judgment.
2. The issues at bar have been expanded by the parties, as
shown by the voluminous records of the case (which have
expanded to 2,690 pages in three volumes), to cover the
questioned actions of respondent Judge Arlegui (a) in
dismissing the Republic's complaint in Civil Case No. 653 of his
court per his Order of January 12, 1977 (subject of the Court's
Second Division's Resolution of December 17, 1979 dismissing
the Republic's petition for review in Case G.R. No. L,46396); and
(b) his decision of December 15, 1981, after almost four years,
on respondent Zobel's counterclaim in the same case, declaring
him the true and registered owner of the lands covered by
some three subdivision titles in his name, 15 as well as (c) the
resurvey of the lands affected so as to properly segregate from
Ayala's expanded TCT No. 722 the estimated 2,000 hectares of
territorial sea, foreshore, and navigable waters, etc., of the
public domain and enforcement and execution of the 1965 final
judgment reverting these usurped public areas to public
dominion. 16
3. On the first question of the precipitate dismissal of the
Republic's complaint in the case below, Civil Case No. 653, the .
records show respondent judge's action to have been capricious
, arbitrary and whimsical. His first ground of non-prosecution of
the action by the Republic is belied by his very Order which
shows that the proceedings had been suspended all the while
since its filing in 1967 upon insistent motions of respondent
Zobel. against petitioner's vigorous opposition, that it was
necessary as a cuestion previa to await the Court's resolution of
the case at bar.
His second ground of res judicata is likewise devoid of logic and
reason. The first case (the 1965 judgment in Case L-20950)
decreeing the reversion to public dominion of the public lands
and waters usurped by respondent's unlawfully expanded titles
- and ordering the cancellation of all such titles and their
transfers could not possibly be invoked as res judicata in the
case at bar on respondent Zobel's untenable submission that
his unlawfully expanded titles were not specifically mentioned
in the 1965 judgment. The Court in said 1965 judgment had
stressed the elementary rule that the generally incontestable
and indefeasible character of a Torrens Certificate of Title does
not operate when the land covered thereby is not capable of
registration, as in this case, being part of the sea, beach,
foreshore or navigable water or other public lands incapable of
registration. 17 It should be noted further that the doctrine of
estoppel or laches does not apply when the Government sues
as a Sovereign or asserts governmental rights, nor does
estoppel or laches validate an act that contravenes law or
public policy 18 and that res judicata is to be disregarded if its
application would involve the sacrifice of justice to technicality.
19
Respondent Judge Arlegui's refusal to grant the Republic a
simple 15-day extension of time to file a Motion for
Reconsideration on the ground that such motion was filed on
the last day (following a Sunday) and he could no longer act
thereon within the original
461 | P a g e
period per his Orders of March 3, 1977 and June 14, 1977 20
depict an incomprehensible disregard of the cardinal principle
that procedural rules are supposed to help and not hinder the
administration of justice and crass indifference, if not outright
hostility against the public interest.
At any rate, such dismissal of the complaint and dismissal on
December 17, 1979 of the petition for certiorari thereof by the
Court's Second Division, based on purely procedural and
technical grounds, does not and cannot in any way have any
legal significance or prejudice the Republic's case. Such
dismissal by the Second Division cannot in any way affect,
much less render nugatory, the final and executory 1965
judgment in G.R. No. L- 20950 reverting the public lands and
waters to public dominion. Much more so when we take into
account the mandatory provisions of Article VIII, Section 4(3) of
the 1987 Constitution (and its counterpart Article X, Section
2(3) of the 1973 Constitution) to the effect that only the
Supreme Court en banc may modify or reverse a doctrine or
principle of law or ruling laid down by the Court in a decision
rendered en banc or in division.
3. Respondent judge's "decision" on respondent Zobel's
counterclaim and declaring him, four years after dismissal of
the Republic's complaint, as the true owner of the lands
unlawfully titled in Zobel's name is properly before the Court in
the case at bar. We declare the same null and void for want of
jurisdiction over the subject properties which were reverted to
public dominion in the final 1965 judgment which annulled all
expanded titles unlawfully secured by respondents and their
transferees to public waters and lands.
4. As to the third and most important question of finally
executing and enforcing the 1965 judgment in favor of the
Republic and reverting all usurped areas to public dominion, the
Solicitor General has complained rightfully in his Memorandum
that "mass usurpation of public domain remains unabated . ...
for almost (23) years now execution of the 1965 final judgment
in G.R. No. L-20950, ordering the cancellation of the subdivision
titles covering the expanded areas outside the private lands of
Hacienda Calatagan, is being frustrated by respondent Zobel,
the Ayala and/or Hacienda Calatagan. As a consequence, the
mass usurpation of lands of public domain consisting of
portions of the territorial sea, the foreshore, beach and
navigable water bordering Balayan Bay, Pagaspas Bay and the
China Sea, still remain unabated . ... (T)he efforts of Ayala and
Zobel to prevent execution of said final judgment are evident
from the heretofore- mentioned technical maneuvers they have
resorted to. In brief, they moved to quash and secured the
quashal of the writ of execution, succeeded in opposing the
issuance of another writ of execution, opposed the motion to
conduct re-survey, opposed the approval and secured a
disapproval of resurvey plan, moved to dismiss and got a
dismissal of Civil Case No. 653, ousted government fishpond
permittees from the subject lands and threatened to eject the
other permittees therefrom, and secured from the lower court a
declaration of validity of their void titles. Also, in this case,
respondent Zobel is trying to prevent the cancellation of his
void titles by resorting to frivolous technicalities thus flouting
this Honorable Court's decision in G.R. No. L-20950 . " 21
We heed the Republic's pleas that
"It bears stressing that the Re-survey Plan (Annex "C", together
with Annexes "A" and "B" of Republic's Comment dated March
30,1981, being a Report on the Re-survey dated August 5,1977
and the "Final Report" dated September 2, 1977, respectively)
delineating the expanded areas covered by subdivision titles
derived from TCT No. 722 has been prepared by a Committee
created by the Secretary of Agriculture and Natural Resources
wherein Ayala and/or Hacienda Calatagan was represented by
Engineer Tomas Sanchez, Jr. and approved by the Director of
462 | P a g e
Lands. Well to recall that under G.R. No. 26112 (44 SCRA 255,
263), this Honorable Court, in a Resolution dated April 11, 1972,
declared that as soon as said resurvey Is completed the proper
writ of execution for the delivery of possession of the portion
found to be public land should issue." Thus: [See pages 3-5 of
Annex "A" hereof for text of Resolution.]
"By virtue of the aforesaid resolution, therefore, there should no
longer be any legal impediment against the execution of the
final judgment in Civil Case No. 373 (G.R. No. L-20950), the
issuance of which is purely ministerial the dubious decision in
Civil Case No. 653 notwithstanding. Accordingly, to give legal
significance to the earlier decision and resolution of this
Honorable Court in G.R. No. L-20950 and 26112, respectively,
and to foreclose any further legal obstacle on the matter, we
pray this Honorable Court to declare the proceedings conducted
by respondent judge in Civil Case No. 653 null and void ab
initio, and to consider the resurvey plan as sufficient basis for
the immediate issuance of the corresponding writ of execution
in Civil Case No. 373. For it is only upon said execution that the
oft revived issues of ownership and possession over the land in
question, as well as over all other lots covered by the
subdivision titles outside the private land covered by TCT No.
722, may be finally laid to rest. Indeed, under the facts and
circumstances obtaining in the case at bar, execution of the
final judgment in Civil Case No. 373 is long overdue ." 22
To allow repetition after repetition of the maneuvers
hereinabove set forth in detail, notwithstanding the final 1965
judgment in favor of the Republic, and to protract further the
return to the Republic of the usurped lands pertaining to the
public domain would be to sanction a legal abomination As
stated by the late Chief Justice Roberto Concepcion, to frustrate
delivery and return of the usurped lands to the Republic would:
(1) Establish a precedent-fraught with possibilities tending to
impair the stability of judicial decisions and affording a means
to prolong court proceedings or justify the institution of new
ones, despite the finality of the judgment or decree rendered in
the main case, by sanctioning a departure from the clear, plain
and natural meaning of said judgment or decree;
(2) Contribute to the further increase of the steadily mounting
number of cases pending before our courts of justice, and thus
generate greater delay in the determination of said cases, as
well as offset the effect of legislative and administrative
measures taken-some upon the suggestion or initiative of the
Supreme Court to promote the early disposal of such cases;
(3) Impair a normal and legitimate means to implement the
constitutional mandate for the protection and conservation of
our natural resources and the patrimony of the nation; and
(4) Promote usurpations of the public domain, as well as the
simulation of sales thereof by the original usurper, by
exempting him from responsibility for damage which would not
have been sustained were it not for the irregularities committed
by him so long as he has conveyed the subject matter thereof
to a purchaser for value, in good faith. 23
As in Air Manila, Inc. v. CIR 24 and several other cases in order
to avoid further intolerable delay and finally bring to reality the
execution of the 1965 judgment that would enable the State to
recover at last the estimated 2,000 hectares of lands and
waters of the public domain, the Court will order its Clerk of
Court to issue directly the corresponding writ of execution of
judgment addressed to the sheriffs of the locality. We declare
respondent judge's gratuitous "disapproval" of the Re-survey
Plan and Report duly approved by the Director of Lands and the
then Secretary of Agriculture and Natural Resources as null and
void for being ultra vires and lack of jurisdiction over the same.
It is
463 | P a g e
well-recognized principle that purely administrative and
discretionary functions may not be interfered with by the
courts. In general, courts have no supervising " power over the
proceedings and actions of the administrative departments of
government. This is generally true with respect to acts
involving the exercise of judgment or discretion, and findings of
fact. 25 There should be no thought of disregarding the
traditional line separating judicial and administrative
competence, the former being entrusted with the determination
of legal questions and the latter being limited as a result of its
expertise to the ascertainment of the decisive facts. 26
WHEREFORE, judgment is hereby rendered
1. Annulling the questioned mandatory injunction of October 1,
1968 issued by respondent-judge and making permanent the
restraining orders issued by the Court;
2. Declaring as null and void the questioned decision of
December 15, 1981, as well as the corresponding writ of
execution therefore having been issued by respondent judge
with grave abuse of discretion and without jurisdiction, and for
being in contravention of the final 1965 decision in Civil Case
No. 373 as affirmed in G.R. No. L-20950;
3. Declaring the Re-survey Plan duly approved by the Director
of Lands as sufficient basis for the execution of the final
judgment in the aforesaid Civil Case No. 373 as affirmed in G.R.
No. L- 20950; and
4. Directing the Clerk of this Court to forthwith issue the
corresponding writ of execution in the case at bar for Civil Case
No. 373 of the Regional Trial Court (formerly Court of First
Instance) of Batangas (Balayan Branch) reverting to public
dominion and delivering to the duly authorized representatives
of the Republic all public lands and lots, fishponds, territorial
bay
waters, rivers, manglares foreshores and beaches, etc. as
delineated in the aforesaid duly approved Re-survey Plan
(Annex "C") and any supplemental Re-survey Plan as may be
found necessary * and duly approved by the Secretary of
Agriculture. This decision is IMMEDIATELY EXECUTORY and no
motion for extension of time to file a motion for reconsideration
will be granted.
92. G.R. No. L-50638
July 25, 1983
LORETO J. SOLINAP, petitioner,
vs.
HON. AMELIA K. DEL ROSARIO, as Presiding Judge of Branch IV,
Court of First Instance of Iloilo, SPOUSES JUANITO and HARDEVI
R. LUTERO, and THE PROVINCIAL SHERIFF OF ILOILO,
respondents.
ESCOLIN; J.:
Posed for resolution in this petition is the issue of whether or
not the obligation of petitioners to private respondents may be
compensated or set- off against the amount sought to be
recovered in an action for a sum of money filed by the former
against the latter.
The facts are not disputed. On June 2, 1970, the spouses
Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda
Tambal, leased the said hacienda to petitioner Loreto Solinap
for a period of ten [10] years for the stipulated rental of
P50,000.00 a year. It was further agreed in the lease contract
that out of the aforesaid annual rental, the sum of P25,000.00
should be paid by Solinap to the Philippine National Bank to
amortize the indebtedness of the spouses Lutero with the said
bank.
464 | P a g e
Tiburcio Lutero died on January 21, 1971. Soon after, his heirs
instituted the testate estate proceedings of the deceased,
docketed as Sp. Proc. No. 1870 of the Court of First Instance of
Iloilo, presided by respondent Judge Amelia K. del Rosario. In
the course of the proceedings, the respondent judge, upon
being apprized of the mounting interest on the unpaid account
of the estate, issued an order, stating, among others, "that in
order to protect the estate, the administrator, Judge Nicolas
Lutero, is hereby authorized to scout among the testamentary
heirs who is financially in a position to pay all the unpaid
obligations of the estate, including interest, with the right of
subrogation in accordance with existing laws."
On the basis of this order, respondents Juanito Lutero [grandson
and heir of the late Tiburcio] and his wife Hardivi R. Lutero paid
the Philippine National Bank the sum of P25,000.00 as partial
settlement of the deceased's obligations. Whereupon the
respondents Lutero filed a motion in the testate court for
reimbursement from the petitioner of the amount thus paid.
They argued that the said amount should have been paid by
petitioner to the PNB, as stipulated in the lease contract he had
entered into with the deceased Tiburcio Lutero; and that such
reimbursement to them was proper, they being subrogees of
the PNB.
Before the motion could be resolved by the court, petitioner on
April 28, 1978 filed in the Court of First Instance of Iloilo a
separate action against the spouses Juanito Lutero and Hardivi
R. Lutero for collection of the total amount of P71,000.00,
docketed as Civil Case No. 12397. Petitioner alleged in the
complaint that on April 25, 1974 the defendants Lutero
borrowed from him the sum of P45,000.00 for which they
executed a deed of real estate mortgage; that on July 2, 1974,
defendants obtained an additional loan of P3,000.00, evidenced
by a receipt issued by them; that defendants are further liable
to him for the sum of P23,000.00, representing the value of
certain dishonored checks issued by
them to the plaintiff; and that defendants refused and failed to
settle said accounts despite demands.
In their answer, the respondents Lutero traversed the material
averments of the complaint and set up legal and factual
defenses. They further pleaded a counterclaim against
petitioners for the total sum of P 125,000.00 representing
unpaid rentals on Hacienda Tambal. Basis of the counterclaim is
the allegation that they had purchased one-half [1/2] of
Hacienda Tambal, which their predecessors, the spouses
Tiburcio Lutero and Asuncion Magalona, leased to the plaintiff
for a rental of P50,000.00 a year; and that plaintiffs had failed
to pay said rentals despite demands.
At the pre-trial, the parties defined the issues in that case as
follows:
(1) Whether or not the defendants [Luteros] are indebted to the
plaintiff and, if so, the amount thereof;
(2) Whether or not the defendants are the owners of one-half
[1/2] of that parcel of land known as 'Hacienda Tambal'
presently leased to the plaintiff and, therefore, entitled to
collect from the latter one-half [1/2] of its lease rentals; and in
the affirmative, the amount representing the unpaid rental by
plaintiff in favor of the defendant. 1
On June 14, 1978, the respondent judge issued an order in Sp.
Proc. No. 1870, granting the respondent Lutero's motion for
reimbursement from petitioner of the sum of P25,000.00 plus
interest, as follows:
WHEREFORE, Mr. Loreto Solinap is hereby directed to pay
spouses Juanito Lutero and Hardivi R. Lutero the sum of
P25,000.00 with interest at 12% per annum from June 17, 1975
until the same shall have been duly paid.
465 | P a g e
Petitioner filed a petition for certiorari before this Court,
docketed as G.R. No. L-48776, assailing the above order. This
Court, however, in a resolution dated January 4, 1979 dismissed
the petition thus:
L-48776 [Loreto Solinap vs. CFI etc., et al.]- Acting on the
petition in this case as well as the comment thereon of
respondents and the reply of petitioner to said comment, the
Court Resolved to DISMISS the petition for lack of merit,
anyway, the P25,000.00 to be paid by the petitioner to the
private respondent Luteros may well be taken up in the final
liquidation of the account between petitioner as and the subject
estate as lessor.
Thereafter the respondent Luteros filed with the respondent
court a "Motion to Reiterate Motion for Execution of the Order
dated June 14, 1978." Petitioner filed a rejoinder to said motion,
raising for the first time the thesis that the amount payable to
private respondents should be compensated against the latter's
indebtedness to him amounting to P71,000.00. Petitioner
attached to his rejoinder copies of the pleadings filed in Civil
Case No. 12397, then pending before Branch V of the Court of
First Instance of Iloilo. This motion was denied by respondent
judge on the ground that "the claim of Loreto Solinap against
Juanito Lutero in Civil Case No. 12397 is yet to be liquidated
and determined in the said case, such that the requirement in
Article 1279 of the New Civil Code that both debts are
liquidated for compensation to take place has not been
established by the oppositor Loreto Solinap."
Petition filed a motion for reconsideration of this order, but the
same was denied.
Hence, this petition.
The petition is devoid of merit. Petitioner contends that
respondent judge gravely abused her discretion in not declaring
the mutual obligations of the parties extinguished to the extent
of their respective amounts. He relies on Article 1278 of the
Civil Code to the effect that compensation shall take place
when two persons, in their own right, are creditors and debtors
of each other. The argument fails to consider Article 1279 of the
Civil Code which provides that compensation can take place
only if both obligations are liquidated. In the case at bar, the
petitioner's claim against the respondent Luteros in Civil Case
No. 12379 is still pending determination by the court. While it is
not for Us to pass upon the merits of the plaintiffs' cause of
action in that case, it appears that the claim asserted therein is
disputed by the Luteros on both factual and legal grounds.
More, the counterclaim interposed by them, if ultimately found
to be meritorious, can defeat petitioner's demand. Upon this
premise, his claim in that case cannot be categorized as
liquidated credit which may properly be set-off against his
obligation. As this Court ruled in Mialhe vs. Halili, 2 "
compensation cannot take place where one's claim against the
other is still the subject of court litigation. It is a requirement,
for compensation to take place, that the amount involved be
certain and liquidated."
WHEREFORE, the petition is dismissed, with costs against
petitioner.
93. G.R. No. L-38711
January 31, 1985
FRANCISCO SYCIP, petitioner,
vs.
HONORABLE COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
RELOVA, J.:
466 | P a g e
On August 25, 1970, the then Court of First Instance of Manila
rendered a decision convicting the herein petitioner Francisco
Sycip of the crime of estafa and sentencing him to an
indeterminate penalty of three (3) months of arresto mayor, as
minimum to one (1) year and eight (8) months of prision
correccional, as maximum; to indemnify complainant Jose K.
Lapuz the sum of P5,000.00, with subsidiary imprisonment in
case of insolvency; and to pay the costs.
The then Court of Appeals affirmed the trial court's decision but
deleted that part of the sentence imposing subsidiary
imprisonment.
The facts of the case as found by respondent appellate court
read:
... [I]n April 1961, Jose K. Lapuz received from Albert Smith in
Manila 2,000 shares of stock of the Republic Flour Mills, Inc.,
covered by Certificate No. 57 in the name of Dwight Dill who
had left for Honolulu. Jose K. Lapuz "was supposed to sell his
(the shares) at present market value out of which I (he) was
supposed to get certain commission." According to Jose K.
Lapuz, the accused-appellant approached him and told him that
he had good connections in the Stock Exchange, assuring him
that he could sent them at a good price. Before accepting the
offer of the accused-appellant to sent the shares of stock, Jose
K. Lapuz made it clear to him that the shares of stock did not
belong to him and were shortly entrusted to him for sale. He
then gave the shares of stock to the accused-appellant who put
them in the market.
Thereafter, Jose K. Lapuz received a letter from the accused-
appellant, dated April 25, 1961 (Exhibit "A"), the latter
informing him that "1,758 shares has been sold for a net
amount of P29,000.00," but that the transaction could not be
concluded until they received the Power of Attorney duly
executed by Dwight Dill, appointing a person to endorse the
certificate of
stock, and a resolution from the Biochemical Research
Laboratory, Inc., authorizing the transfer of the certificate. Jose
K. Lapuz signed his conformity to the contents of the letter.
Jose K. Lapuz declared that he "was able to secure a power of
attorney of Dr. Dwight Dill, and gave it to the accused-
appellant." The power of attorney authorized the sale of 1,758
shares only; the difference of 242 shares were given back to
Biochemical Research Laboratory, Inc.
Of the 1,758 shares of stock, the accused-appellant sold 758
shares for P12,128.00 at P16.00 a share, for which Jose K.
Lapuz issued a receipt, dated May 23, 1961 (Exhibit "C"). On
the same day, Jose K. Lapuz turned over to Albert Smith the
sum of P9,981.40 in payment of 758 shares of P14.00 a share
(Exhibits "D" and "E").
On May 30, 1961, Jose K. Lapuz received a letter from the
accused-appellant (Exhibit "F"), the latter informing him that
"although the deal (relative to the 1,000 shares) has been
closed, actual delivery has been withheld pending receipt of
payment ..., I have chose(n) to return the shares ...," enclosing
Certificate No. 955 for 500 shares, Certificate No. 952 for 50
shares in name of Felix Gonzales, and the photostat of
Certificate No. 953 for 208 shares, which had been sold to Trans
Oceanic Factors and Company, for which a check would be
issued "within the next few days." He promised to deliver the
242 shares as soon as he would have received them from one
Vicente Chua. "The next day (May 31, 1961), Jose K. Lapuz
wrote a letter to the accused-appellant (Exhibit "C"), stating
therein, "Per our conversation this morning, I hereby authorize
you to sell 1,000 shares of Republic Flour Mills."
Later, the accused-appellant wrote a letter to Jose K. Lapuz,
dated June 1, 1961 (Exhibit "I"), confirming their conversation
on that date that "500 shares out of the 1,000 shares of the
Republic
467 | P a g e
Flour ... has been sold," and stating further that "pending
receipt of the payment, expected next week, we are enclosing
herewith our draft to cover the full value of 500 shares." He
asked in that letter, "Please give me the 50 shares in the name
of Mr. Felix Gonzales and the photostat of 208 shares in the
name of Trans Oceanic Factors and Company."
The date of the letter (Exhibit "I") is disputed, the prosecution
contending that it should be July 1, 1961, not June 1, 1961. The
contention of the prosecution has the support of the date of the
draft (Exhibit "J") mentioned in the letter.
The accused-appellant sold and paid for the other 500 shares of
stock, for the payment of which Jose K. Lapuz issued in his favor
a receipt, dated June 9, 1961 (Exhibit "H").
The draft (Exhibit "J") for P8,000.00, "the full value of the 500
shares' mentioned in the letter of the accused-appellant
(Exhibit "I"), was dishonored by the bank, for lack of funds. Jose
K. Lapuz then "discovered from the bookkeeper that he got the
money and he pocketed it already, so I (he) started hunting for
Mr. Sycip" (accused-appellant). When he found the accused-
appellant, the latter gave him a check in the amount of
P5,000.00, issued by his daughter on July 12, 1961 (Exhibit
"K"). This also was dishonored by the bank for lack of sufficient
funds to cover it (Exhibits "K-l" and "K-2").
When Jose K. Lapuz sent a wire to him, telling him that he
would "file estafa case (in the) fiscals office ... against him'
unless he raise [the] balance left eight thousand" (Exhibit "L"),
the accused- appellant answered him by sending a wire,
"P5,000 remitted ask boy check Equitable (Exhibit "M"). But
"the check was never made good," so Jose K. Lapuz testified.
He had to pay Albert Smith the value of the 500 shares of
stock." (Petitioner's brief, pp. 58- 62)
Coming to this Court on a petition for review on certiorari,
petitioner claims that respondent appellate court erred (1) in
denying petitioner of a hearing, as provided under Section 9,
Rule 124, Rules of Court; (2) in not upholding due process of
law (Sections 1 and 17), Article IV, Bill of Rights, Constitution;
(3) in refusing to uphold the provisions on compensation,
Articles 1278 and 1279, Civil Code; (4) in not dismissing the
complaint, even granting arguendo, that compensation does
not apply; (5) in not ruling that a consummated contract (Deed
of Sale, Exhibit '10') is not covered by the Statute of Frauds and
that its decision is not in accordance with Section 4, Rule 51,
Rules of Court; and, (6) in ignoring the ruling case promulgated
by this Honorable Supreme Court in People vs. Benitez, G.R. No.
L-15923, June 29, 1960, in its applicability to offenses under
Article 315, paragraph 1 (b) of the Penal Code.
Petitioner in his first and second assigned errors argues that
respondent Court of Appeals erred in denying him his day in
court notwithstanding his motion praying that the appealed
case be heard. He invokes Section 9 of Rule 124 of the Revised
Rules of Court and relates it to Sections 1 and 17 of Article IV of
the New Constitution. This contention is devoid of merit.
Petitioner was afforded the right to be present during every
step in the trial before the Court of First Instance, that is, from
the arraignment until the sentence was promulgated. On
appeal, he cannot assert as a matter of right to be present and
to be heard in connection with his case. It is the procedure in
respondent court that within 30 days from receipt of the notice
that the evidence is already attached to the record, the
appellant shall file 40 copies of his brief with the clerk
accompanied by proof of service of 5 copies upon the appellee
(Section 3, Rule 124 of the Revised Rules of Court). Within 30
days from receipt of appellant's brief, the appellee shall file 40
copies of his brief with the clerk accompanied by proof of
service of 5 copies upon the appellant (Section 4, Rule 124 of
the Revised Rules of Court). Each party may be allowed
extensions of time to file brief for good and
468 | P a g e
sufficient cause. Thereafter, the appellate court may reverse,
affirm or modify the judgment, increase or reduce the penalty
imposed, remand the case for new trial or re-trial or dismiss the
case (Section 11, Rule 124 of the Revised Rules of Court). It is
discretionary on its part whether or not to set a case for oral
argument. If it desires to hear the parties on the issues
involved, motu propio or upon petition of the parties, it may
require contending parties to be heard on oral arguments.
Stated differently, if the Court of Appeals chooses not to hear
the case, the Justices composing the division may just
deliberate on the case, evaluate the recorded evidence on hand
and then decide it. Accused-appellant need not be present in
the court during its deliberation or even during the hearing of
the appeal before the appellate court; it will not be heard in the
manner or type of hearing contemplated by the rules for
inferior or trial courts.
In his third and fourth assigned errors, petitioner contends that
respondent Court of Appeals erred in not applying the
provisions on compensation or setting-off debts under Articles
1278 and 1279 of the New Civil Code, despite evidence
showing that Jose K. Lapuz still owed him an amount of more
than P5,000.00 and in not dismissing the appeal considering
that the latter is not legally the aggrieved party. This contention
is untenable. Compensation cannot take place in this case since
the evidence shows that Jose K. Lapuz is only an agent of Albert
Smith and/or Dr. Dwight Dill. Compensation takes place only
when two persons in their own right are creditors and debtors
of each other, and that each one of the obligors is bound
principally and is at the same time a principal creditor of the
other. Moreover, as correctly pointed out by the trial court,
Lapuz did not consent to the off-setting of his obligation with
petitioner's obligation to pay for the 500 shares.
Anent the fifth assigned error, petitioner argues that the
appellate court erred in not ruling that the deed of sale is a
consummated contract and, therefore, not covered by the
Statute of Frauds. It must be pointed out that the issue on
whether or not
the alleged contract of sale is covered by the Statute of Frauds
has not been raised in the trial court or with the Court of
Appeals. It cannot now be raised for the first time in this
petition. Thus, there is no need for respondent court to make
findings of fact on this matter.
With respect to the sixth assigned error, petitioner points out
that the Court of Appeals erred in affirming the decision of the
trial court convicting him of the crime charged. Petitioner
mentions that in People vs. Benitez, G.R. No. L-15923, June 30,
1960 (108 Phil. 920), We have ruled that to secure conviction
under Article 315, paragraph 1 (b), Revised Penal Code, it is
essential that the following requirements be present: (a)
existence of fraud; (b) failure to return the goods on demand;
and (c) failure to give any reason or explanation to the
foregoing. He claims that nowhere in the decision was he found
to have any particular malice or intent to commit fraud, or, that
he failed to return the shares on any formal demand made by
Jose K. Lapuz to him, and/or was he unable to make any
explanation thereto. On this score, We only have to quote from
the decision of the respondent court, as follows:
The "malice or intent to commit fraud" is indicated in that part
of the decision herein before quoted, that is, the accused-
appellant "received from Jose K. Lapuz the 500 shares in
question (a part of 1,758 shares) for sale, and that, although
the same had already been sold, the accused ... failed to turn
over the proceeds thereof to Jose K. Lapuz." The abuse of
confidence in misappropriating the funds or property after they
have come to the hands of the offender may be said to be a
fraud upon the person injured thereby (U.S. vs. Pascual, 10 Phil.
621).
xxx xxx xxx
The accused-appellant having informed Jose K. Lapuz that the
"500 shares out of the 1000 shares ... has been sold" (Exhibit
"I"),
469 | P a g e
for which he issued a draft for P8,000.00 (Exhibit "J"), the latter
cannot be expected to make a demand for the return of the 500
shares. His demand was for the payment of the shares when
the draft was dishonored by the bank.
The delivery of a worthless check in the amount of P5,000.00
by the accused-appellant to Jose K, Lapuz, after the latter's
"hunting" for him is even a circumstance indicating intent to
commit fraud. (pp. 48-49, Rollo)
xxx xxx xxx
His explanation of his inability to return the 500 shares of stock
is not satisfactory. ... If it is true that he gave the 500 shares of
stock to his creditor, Tony Lim, he is nonetheless liable for the
crane of estafa, he having received the 500 shares of stock to
be sold on commission. By giving the shares to his creditor, he
thereby committed estafa by conversion. (pp. 49-50, Rollo)
Indeed, Jose K. Lapuz demanded from petitioner the amount of
P5,000.00 with a notice that in the event he (petitioner) would
fail to pay the amount, Lapuz would file an estafa case against
him.
By and large, respondent Court of Appeals has not overlooked
facts of substance and value that, if considered, would alter the
result of the judgment.
WHEREFORE, for lack of merit the petition is hereby DISMISSED.
94. G.R. No. L-50900 April 9, 1985 COMPAÑIA MARITIMA,
petitioner,
vs.
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO.,
respondents.
G.R. No. L-51438 April 9, 1985
REPUBLIC OF THE PHILIPPINES (BOARD OF LlQUIDATORS),
petitioner,
vs.
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO.,
respondents.
G.R. No. L-51463 April 9, 1985
PAN ORIENTAL SHIPPING CO., petitioner,
vs.
COURT OF APPEALS, COMPAÑIA MARITIMA and THE REPUBLIC
OF THE PHILIPPINES (BOARD OF LIQUIDATORS), respondents.
MELENCIO-HERRERA, J.:
The above-entitled three (3) cases stemmed from the Decision
of this Court, dated October 31, 1964, entitled "Fernando A.
Froilan vs. Pan-Oriental Shipping Co., et al. 1 and our four (4)
subsequent Resolutions of August 27, 1965, November 23,
1966, December 16, 1966, and January 5, 1967, respectively.
The antecedental background is narrated in the aforestated
Decision, the pertinent portions of which read:
On March 7, 1947, Fernando A. Froilan purchased from the
Shipping Administration a boat described as MV/FS-197 for the
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sum of P200,000.00, with a down payment of P50,000.00. To
secure payment of the unpaid balance of the purchase price, a
mortgage was constituted on the vessel in favor of the Shipping
Administration ....
xxx xxx xxx
Th(e) contract was duly approved by the President of the
Philippines.
Froilan appeared to have defaulted in spite of demands, not
only in the payment of the first installment on the unpaid
balance of the purchase price and the interest thereon when
they fell due, but also failed in his express undertaking to pay
the premiums on the insurance coverage of the vessel obliging
the Shipping Administration to advance such payment to the
insurance company. ...
Subsequently, FROILAN appeared to have still incurred a series
of defaults notwithstanding reconsiderations granted, so much
so that:
On February 21, 1949, the General Manager (of the Shipping
Administration) directed its officers ... to take immediate
possession of the vessel and to suspend the unloading of all
cargoes on the same until the owners thereof made the
corresponding arrangement with the Shipping Administration.
Pursuant to these instructions, the boat was, not only actually
repossessed, but the title thereto was registered again in the
name of the Shipping Administration, thereby re-transferring
the ownership thereof to the government.
On February 22, 1949, Pan Oriental Shipping Co., hereinafter
referred to as Pan Oriental, offered to charter said vessel FS-
197 for a monthly rent of P3,000.00. Because the government
was then spending for the guarding of the boat and subsistence
of the
crew members since repossession, the Slopping Administration
on April 1, 1949, accepted Pan Oriental's offer "in principle"
subject to the condition that the latter shag cause the repair of
the vessel advancing the cost of labor and drydocking thereof,
and the Shipping Administration to furnish the necessary spare
parts. In accordance with this charter contract, the vessel was
delivered to the possession of Pan Oriental.
In the meantime, or on February 22, 1949, Froilan tried to
explain his failure to comply with the obligations he assumed
and asked that he be given another extension up to March 15,
1949 to file the necessary bond. Then on March 8, Froilan
offered to pay all his overdue accounts. However, as he failed
to fulfill even these offers made by him in these two
communications, the Shipping Administration denied his
petition for reconsideration (of the rescission of the contract) on
March 22, 1949. It should be noted that while his petition for
reconsideration was denied on March 22, it does not appear
when he formally formulated his appeal. In the meantime, as
already stated, the boat has been repossessed by the Shipping
Administration and the title thereto re-registered in the name of
the government, and delivered to the Pan Oriental in virtue of
the charter agreement. On June 2, 1949, Froilan protested to
the President against the charter of the vessel.
xxx xxx xxx
On June 4, 1949, the Shipping Administration and the Pan
Oriental formalized the charter agreement and signed a
bareboat contract with option to purchase, containing the
following pertinent provisions:
III. CHARTER HIRE, TIME OF PAYMENT. — The CHARTERER shall
pay to the owner a monthly charter hire of THREE THOUSAND
(P3,000.00) PESOS from date of delivery of the vessel, payable
in advance on or before the 5th of every current
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month until the return of the vessel to OWNER or purchase of
the vessel by CHARTERER.
IV. RIGHT OF OPTION TO PURCHASE.— The right of option to
purchase the vessel at the price of P150,000.00 plus the
amount expended for its present repairs is hereby granted to
the CHARTERER within 120 days from the execution of this
Contract, unless otherwise extended by the OWNER. This right
shall be deemed exercised only if, before the expiration of the
said period, or its extension by the OWNER, the CHARTERER
completes the payment, including any amount paid as Charter
hire, of a total sum of not less than twenty-five percentum
(25%) of said price of the vessel.
The period of option may be extended by the OWNER without in
any way affecting the other provisions, stipulations, and terms
of this contract.
If, for any reason whatsoever, the CHARTERER fails to exercise
its option to purchase within the period stipulated, or within the
extension thereof by the OWNER, its right of option to purchase
shall be deemed terminated, without prejudice to the
continuance of the Charter Party provisions of this contract. The
right to dispose of the vessel or terminate the Charter Party at
its discretion is reserved to the OWNER.
XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. — After the
CHARTERER has exercised his right of option as provided in the
preceding paragraph (XII), the vessel shall be deemed
conditionally sold to the purchaser, but the ownership thereof
shag not be deemed transferred unless and until all the price of
the vessel, together with the interest thereon, and any other
obligation due and payable to the OWNER under this contract,
have been fully paid by the CHARTERER.
xxx xxx xxx
XXI. APPROVAL OF THE PRESIDENT. — This contract shall take
effect only upon approval of His Excellency, the President.
On September 6, 1949, the Cabinet revoked the cancellation of
Froilan's contract of sale and restored to him all his rights
thereunder, on condition that he would give not less than
P1,000.00 to settle partially as overdue accounts and that
reimbursement of the expenses incurred for the repair and
drydocking of the vessel performed by Pan Oriental was to be
made in accordance with future adjustment between him and
the Shipping Administration (Exh. I). Later, pursuant to this
reservation, Froilan's request to the Executive Secretary that
the Administration advance the payment of the expenses
incurred by Pan Oriental in the drydocking and repair of the
vessel, was granted on condition that Froilan assume to pay the
same and file a bond to cover said undertaking (EXH. III).
On September 7, 1949, the formal bareboat charter with option
to purchase filed on June 4, 1949, in favor of the Pan Oriental
was returned to the General Manager of the Shipping
Administration without action (not disapproval), only because of
the Cabinet resolution of September 6, 1949 restoring Froilan to
his rights under the conditions set forth therein, namely, the
payment of P10,000.00 to settle partially his overdue accounts
and the filing of a bond to guarantee the reimbursement of the
expenses incurred by the Pan Oriental in the drydocking and
repair of the vessel But Froilan again failed to comply with
these conditions. And so the Cabinet, considering Froilan's
consistent failure to comply with his obligations, including those
imposed in the resolution of September 6, 1949, resolved to
reconsider said previous resolution restoring him to his previous
rights. And, in a letter dated December 3, 1949, the Executive
Secretary authorized the Administration to continue its charter
contract with Pan Oriental in respect to FS-197 and enforce
whatever
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rights it may still have under the original contract with Froilan
(Exh. 188).
xxx xxx xxx
On August 25, 1950, the Cabinet resolved once more to restore
Froilan to his rights under the original contract of sale, on
condition that he shall pay the sum of P10,000.00 upon delivery
of the vessel to him, said amount to be credited to his
outstanding accounts; that he shall continue paying the
remaining installments due, and that he shall assume the
expenses incurred for the repair and drydocking of the vessel
(Exh. 134). Pan Oriental protested to this restoration of Froilan's
rights under the contract of sale, for the reason that when the
vessel was delivered to it, the Shipping Administration had
authority to dispose of the said property, Froilan having already
relinquished whatever rights he may have thereon. Froilan paid
the required cash of P10,000.00, and as Pan Oriental refused to
surrender possession of the vessel, he filed an action for
replevin in the Court of First Instance of Manila (Civil Case No.
13196) to recover possession thereof and to have him declared
the rightful owner of said property.
Upon plaintiff's filing a bond of P400,000.00, the court ordered
the seizure of the vessel from Pan Oriental and its delivery to
the plaintiff. Pan Oriental tried to question the validity of this
order in a petition for certiorari filed in this Court (G.R. No. L-
4577), but the same was dismissed for lack of merit by
resolution of February 22, 1951. Defendant accordingly filed an
answer, denying the averments of the complaint.
The Republic of the Philippines, having been allowed to
intervene in the proceeding, also prayed for the possession of
the vessel in order that the chattel mortgage constituted
thereon may be foreclosed. Defendant Pari Oriental resisted
said intervention, claiming to have a better right to the
possession of the vessel by
reason of a valid and subsisting contract in its favor, and of its
right of retention, in view of the expenses it had incurred for the
repair of the said vessel. As counterclaim, defendant demanded
of the intervenor to comply with the latter's obligation to deliver
the vessel pursuant to the provisions of the charter contract.
xxx xxx xxx
Subsequently, Compañia Maritima, as purchaser of the vessel
from Froilan, was allowed to intervene in the proceedings (in
the lower court), said intervenor taking common cause with the
plaintiff Froilan. In its answer to the complaint in intervention,
defendant set-up a counterclaim for damages in the sum of
P50,000.00, alleging that plaintiff secured the Cabinet
resolutions and the writ of replevin, resulting in its deprivation
of possession of the vessel, at the instigation and inducement
of Compania Maritima. This counterclaim was denied by both
plaintiff and intervenor Maritima.
On September 28, 1956, the lower court rendered a decision
upholding Froilan's (and Compañia Maritima's) right to the
ownership and possession of the FS-197.
xxx xxx xxx
It is not disputed that appellant Pan Oriental took possession of
the vessel in question after it had been repossessed by the
Shipping Administration and title thereto reacquired by the
government, and operated the same from June 2, 1949 after it
had repaired the vessel until it was dispossessed of the
property on February 3, 1951, in virtue of a bareboat charter
contract entered into between said company and the Shipping
Administration. In the same agreement, appellant as charterer,
was given the option to purchase the vessel, which may be
exercised upon payment of a certain amount within a specified
period. The President and Treasurer of the appellant company,
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