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. 1|Page 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 2|Page 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. 3|Page 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 4|Page 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. 5|Page 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 6|Page 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 7|Page 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 8|Page 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 9|Page 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. 98 | P a g e 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 99 | P a g e 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. 100 | P a g e 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. 19 101 | P a g e 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. 102 | P a g e .... 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 103 | P a g e 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 104 | P a g e 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 106 | P a g e 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. 219 | P a g e 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 220 | P a g e 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 221 | P a g e 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. 222 | P a g e 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 223 | P a g e "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 224 | P a g e 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 225 | P a g e 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. 226 | P a g e 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 227 | P a g e 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 470 | P a g e 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 471 | P a g e 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 472 | P a g e 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, 473 | P a g e