[G.R. No. 112733. October 24, 1997] ROMERO, J.: PEOPLES INDUSTRIAL AND COMMERCIAL CORPORATION, petitioner, vs.

COURT OF APPEALS AND MAR-ICK INVESTMENT CORPORATION, respondents. This petition for review on certiorari of the Decision[1] of the Court of Appeals arose from the complaint for accion publiacana de posesionover several subdivision lots that was premised on the automatic cancellation of the contracts to sell those lots. Private respondents Mar-ick Investment Corporation is the exclusive and registered owner of Mar-ick Subdivision in Barrio Buli, Cainta, Rizal. On May 29, 1961, private respondents entered into six (6) agreements with petitioner Peoples Industrial and Commercial Corporation whereby it agreed to sell to petitioner six (6) subdivision lots.[2] Except for Lot No. 8 that has an area of 253 square meters, all the lots measure 240 square meters each. Five of the agreements, involving Lots. Nos. 3, 4, 5, 6 and 7, similarly stipulate that the petitioner agreed to pay private respondents for each lot, the amount of P 7,333.20 with a down payment of P 480.00. The balance of P 6,853.20 shall be payable in 120 equal monthly installments of P 57.11 every 30th of the month, for a period of ten years. With respect to Lot No. 8, the parties agreed to the purchase price of P7,730.00. With a down payment of P506.00 and equal monthly installments of P60.20. All the agreements have the following provisions: 9. Should the PURCHASER fail to make the payment of any of the monthly installments as agreed herein, within One Hundred Twenty (120) days from its due date, this contract shall, by the mere fact of nonpayment, expire by it self and become null and void without necessity of notice to the PURCHASER or of any judicial declaration to the effect, and any and all sums of money paid under this contract shall be considered and become rentals on the property, and in this event, the PURCHASER should he/she be in possession of the property shall become a mere intruder or unlawful detainer of the same and may be ejected therefrom by means provided by law for trespassers or unlawful detainers. Immediately after the expiration of the 120 days provided for in this clause, the OWNER shall be at liberty to dispose of and sell said parcel of land to any other person in the same manner as if this contract had never been executed or entered into. The breach by the PURCHASER of any of the conditions considered herein shall have the same effect as non-payment of the installments of the purchase price. In any of the above cases the PURCHASER authorizes the OWNER or her representative to enter into the property to take possession of the same and take whatever action is necessary or advisable to protect its rights and interest in the property , and nothing that may be done or made by the PURCHASER shall be considered as revoking this authority or a denial thereof.[3] After the lapse of ten years, however, petitioner still had not fully paid for the six lots; It had paid only the down payment and eight (8) installments, even after private respondents had given petitioner a grace period of four months to pay the arrears.[4] As of May 1, 1980, the total amount due to private respondents under the contract was P214,418.00.[5] In this letter of March 30, 1980 to Mr. Tomas Siatianum (Siatianun) who signed the agreements for petitioner, private respondents counsel protested petitioners encroachment upon a portion of its subdivision particularly Lots Nos. 2, 3, 4, 5, 6, 7, and 8. A portion of the letter reads: Examinations conducted on the records of said lots revealed that you once contracted to purchase said lots but your contracts were cancelled for nonpayment of the stipulated installments. Desirous of maintaining good and neighborly relations with you, we caused to send you this formal demand for you to remove your said wall within fifteen (15) days from your receipt hereof, otherwise, much to our regret, we shall be constrained to seek redress before the courts and at the same time charge you with reasonable rentals for the use said lots at the rate of One (P1.00) Peso per square meter per month until you shall have finally removed said wall.[6] Private respondent reiterated its protest against the encroachment in a letter dated February 16, 1981.[7] It added that petitioner had failed to abide by its promise to remove the encroachment, or to purchase the lots involved at the current price or pay the rentals on the basis of the total area occupied, all within a short period of time. It also demanded the removal of the illegal constructions on the property that had prejudiced the subdivision and its neighbors.

After a series of negotiations between the parties, they agreed to enter into a new contract to sell[8] involving seven (7) lots, namely, Lots Nos. 2, 3, 4, 5, 6, 7 and 8, with a total area of 1,693 square meters. The contract stipulates that the previous contracts involving the same lots (actually minus Lot No.2) have been cancelled due to the failure of the PURCHASER to pay the stipulated installments. It states further that the new contract was entered into to avoid litigation, considering that the PURCHASER has already made use of the premises since 1981 to the present without paying the stipulated installments. The parties agreed that the contract price would be P423,250.00 with a down payment ofP42,325.00 payable upon the signing of the contract and the balance of P380,925.00 payable in fortyeight (48) equal monthly amortization payments of P7,935.94. The new contract bears the date of October 11, 1983 but neither of the parties signed it. Thereafter, Tomas Siatianum issued the following checks in the total amount of P37,642.72 to private respondent: (a) dated March 4, 1984 for P10,000.00; (b) dated March 31, 1984 forP10,000.00; (c) dated April 30, 1984 for P 10,000.00 ; (d) dated May 31, 1984 for P 7,079.00, and (e) dated May 31, 1984 for P563.72.[9] Private respondent received but did not encash those checks. Instead, on July 12, 1984 it filed in the Regional Trial Court of Antipolo, Rizal, a complaint for accion publicianan de posesion against petitioner and Tomas Siatianum, as president and majority stockholder of petitioner.[10]It prayed that petitioner be ordered to removed the wall on the premises and to surrender in possession of lots Nos. 2 to 8 of Block 11 of the Mar-ick subdivision, and that petitioner and Tomas Siatianum be ordered to pay: (a) P259,074.00 as reasonable rentals for the use of the lots from 1961, plus P1,680,074.00 per month from July 1, 1984 up to and until the premises shall have been vacated and the wall demolished; (b)P10,000.00 as attorneys fees; (c) moral and exemplary damages, and (d)costs of suit. In the alternative , the complaint prayed that should the agreements be deemed not automatically cancelled, the same agreements should be declared null and void. In due course, the lower court[11] rendered a decision finding that the original agreements of the parties were validly cancelled in accordance with provision No.9 of each agreement. The parties did not enter into a new contract in accordance with Art. 1403 (2) of the Civil Code as the parties did not sign the draft contract. Receipt by private respondent of the five checks could not amount to perfection of the contract because private respondent never encash and benefited from those checks. Furthermore, there was no meeting of the minds between the parties because Art 1475 of the Civil Code should be read with the Statute of Frauds that requires the embodiment of the contract in a note or memorandum. The lower court opined that the checks represented the deposit under the new contract because petitioner failed to prove that those were monthly installments that private respondent refused to accept. What petitioner prove instead was the fact that it was not able to pay the rest of the installments because of a strike, fire and storm that affected its operations. Be that is as it may, what was clearly proven was that both parties negotiated a new contract after the termination of the first. Thus, the fact that the parties tried to negotiate a new contract indicated that they considered that first contract as already cancelled. With respect to petitioners allegation on a "free right-of-way constituted on Lot No. 2, the lower court found that the agreement thereon was oral and not in writing. As such, it was not in accordance with Art. 749 of the Civil Code requiring that, to be valid, a donation must be in a public document. Consequently, because of the principle against unjust enrichment, petitioner must pay rentals for the occupancy of the property. The lower court disposed of the case as follows: IN VIEW OF ALL THE FOREGOING, Defendant Corporation is hereby directed to return subjects Nos. 2, 3, 4, 5, 6, 7, and 8 to Plaintiff Corporation, and to pay the latter the following amounts: 1. reasonable rental of P1.00 per square meter per month from May 29,1961, for Lots Nos. 3, 4, 5, 6, 7, and 8, and from July 21, 1984, for lot No. 2, up to the date they will vacate said lots. The amount of P4,735.21 (Exhibit R) already paid by defendant corporation to plaintiff corporation for the six (6) lots under the original contracts shall be deducted from the said rental; 2. attorneys fees in the amount of P10,000.00; and 3. costs of the suit. SO ORDERED." Petitioner elevated the case to the Court of Appeals. However, or October 16, 1992, the Court of Appeals affirmed in toto the lower courts decision. Petitioners

motion for reconsideration having been denied, it instituted the instant petition for review on certiorari raising the following issues for resolution: (1) whether or not the lower court had jurisdiction over the subject matter of the case in view of the provisions of Republic Act No. 6552 and Presidential Decree No. 1344; (2) whether or not there was a perfected and enforceable contract of sale (sic) on October 11, 1983 which modified the earlier contracts to sell which had not been validly rescinded; (3) whether or not there was a valid grant of right of way involving Lot No. 2 in favor of petitioner; and (4) whether or not there was justification for the grant of rentals and the award of attorneys fees in favor of private respondent.[12] The issue of jurisdiction has been precluded by the principle of estoppel. It is settled that lack of jurisdiction may be assailed at any stage of the proceedings. However, a partys participation therein the issue.[13] Petitioner undoubtedly has actively participated in the proceedings from its inception to date. In its answer to the complaint, petitioner did not assail the lower court jurisdiction ; instead, it prayed for affirmative relief.[14]Even after the lower court had decided against it, petitioner continued to affirm the lower courts jurisdiction by elevating the decision to the appellate court,[15] hoping to obtain a favorable decision but the Court Of Appeals affirmed the court a quos ruling. Then and only then did petitioner raise the issue of jurisdiction-in its motion for reconsideration of the appellate courts decision. Such a practice, according to Tijam v.Sibonghanoy,[16] cannot be countenanced for reasons of public policy. Granting, however, that the issue was raised seasonably at the first opportunity, still, petitioner has incorrectly considered as legal bases for its position on the issue of jurisdiction the provisions of P.D. Nos. 957 and 1344 and Republic Act No. 6552 P.D. No. 957, the Subdivision and Condominium Buyers Protective Decree which took effect upon its approval on July 12, 1976, vest upon the National Housing Authority (NHA) exclusive jurisdiction to regulate the real estate trade and business in accordance with the provisions of the same decree.[17] P.D. No. 1344, issued on April 2, 1978, empowered the National Housing Authority to issue a writ of execution in the enforcement of its decisions under P.D. No. 957. These decrees, however, were not yet in existence when private respondents invoked provision No. 9 of the agreements of contracts to sell and cancelled these in October 1971.[18] Article 4 of the Civil Code provides that laws shall have no retroactive effect unless the contrary is provided. Thus, it is necessary that an express provision for its retroactive application must be made in law.[19] There being no such provision in both P.D. Nos. 957 and 1344, these decrees cannot be applied to a situation that occurred years before their promulgation. Moreover, granting that said decreed indeed provide for a retroactive application, still, these may not applied in this case. The contracts to sell of 1961 were cancelled in virtue of provision No. 9 thereof to which the parties voluntarily bound themselves. In Manila Bay Club Corp. v. Court of Appeals,[20] this Court interpreted as requiring mandatory compliance by the parties, a provision in a lease contract that failure or neglect to perform or comply with any of the covenants, conditions, agreements or restrictions stipulated shall result in the automatic termination and cancellation of the lease. The Court added: x x x . Certainly, there is nothing wrong if the parties to the lease contract agreed on certain mandatory provisions concerning their respective rights and obligations, such as the procurement of insurance and the rescission clause. For it is well to recall that contracts are respected as thelaw between the contracting parties, and they may establish such stipulations, clauses, terms and conditions as they may want to include. As long as such agreements are not contrary to law, moral, good customs, public policy or public order they shall have the force of law between them. Consequently, when petitioner failed to abide by its obligation to pay the installments in accordance with the contracts to sell, provision No. 9 automatically took effect. That private respondent failed to observe Section 4 of Republic Act No. 6552, the Realty installment Buyer Protection Act, is if no moment. That section provides that (I)f the buyers fails to pay the installment due at the expiration of the grace period, the seller may cancel the contract 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. Private respondents cancellation of the agreements without a duly notarized demand for rescission did not mean that it violated said provision of law. Republic Act No. 6552 was approved on August 26, 1972, long after provision No.9 of the contracts to sell had become automatically operational. As with P.D. Nos. 957 and 1344, Republic act No. 6552

does not expressly provide for its retroactive application and, therefore, it could not have encompassed the cancellation of the contracts to sell in this case. At this juncture, it is apropos to stress that the 1961 agreements are contracts to sell and not contracts of sale. The distinction between these contracts is graphically depicted in Adelfa Properties, Inc. v. Court of Appeals,[21] as follows: x x x . The distinction between the two is important for in a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until the full payment of the price , such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. That the agreements of 1961 are contracts to sell is clear from the following provisions thereof: 3. Title to said parcel of land shall remain in the name of the OWNER until complete payment by the PURCHASER of all obligations herein stipulated, at which time the OWNER agrees to execute a final deed of sale in favor of the PURCHASER and cause the issuance of a certificate of title in the name of the latter, free from liens and encumbrances except those provided in the Land Registration Act, those imposed by the authorities, and those contained in Clauses Nos. Five (5) and Six (6) of this agreement. xxx xxx x x x.

4. The PURCHASER shall be deemed for all purpose to take possession of the parcel of land upon payment of the down or first payment; provided, however, that his/her possession under this section shall be only of the that of a tenant or lessee and subject to ejectment proceeding during all the period of this agreement. 5.The parcel of land subject of this agreement shall be used by the PURCHASER exclusively for legal purposes, and he shall not be entitled to take or remove soil, stones, or gravel from it or any other lots belonging to the owner. Hence, being contracts to sell, article 592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable.[22] Neither may petitioner claim ignorance of the cancellation of the contracts. Aside from his letters of March 30, 1980 and February 16, 1981, private respondents counsel. Atty. Manuel Villamor, had sent petitioner other formal protest and demands.[23] These letters adequately satisfied the notice requirement stipulated in provision No.9 of the contracts to sell. If petitioner had not agreed to the automatic and extrajudicial cancellation of the contracts, it could have gone to court to impugn the same but it did not. Instead, it sought to enter into a new contract to sell, thereby confirming its veracity and validity of the extrajudicial rescission.[24] Had not private respondent filed the accion publiciana de posesion, petitioner would have remained silent about the whole situation. It is now estopped from questioning the validity of the cancellation of the contracts. An unopposed rescission of a contract has a legal effects.[25] Petitioners reliance on the portion of the Court of Appeals Decision stating that private respondent had not made known to petitioner its supposed rescission of the contract,[26] is misplaced. Moreover, it quoted only the portion that appears favorable to its case. To be sure, the Court of Appeals quoted provision No. 9 which requires that actual cancellation shall take place thirty days from receipt by the buyer of the notice of cancellation or demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value, and added that R.A. 6552 even more underscored the indispensability of such notice to the defaulting buyer. However, the same appellate court continued: The absence of the aforesaid notice in the case at bar in the forms respectively deemed efficacious before and after the passage of R.A. 6552 does not, however,necessarily impress merit in the appellants position. Extrajudicial rescission, after all, has legal effect where the other party does not oppose it (Zulueta vs. Mariano, 111 SCRA 206; Nera vs. Vacante, 3 SCRA 505; Magdalena Estate vs. Myrick, 71 Phil.344). Where it is objected to, a judicial determination of the issue is still necessary. In other words resolutions of reciprocal contracts

maybe made extrajudicially unlesssuccess fully impugned in court. If the debtor impugns the declaration it shall be subject to judicial determination (Jison vs. court of Appeals,164 SCRA 339, citing Palay Inc. vs. Clave, supra; Univ. of the Philippines vs. Angeles , supra). In its July 5, 1984 complaint, the appellee had, in fact, significantly prayed for the cancellation of the said sales agreement in the alternative (p. 4, orig. rec.)[27] (Italics supplied.) Moreover, private respondents act of cancelling the contracts to sell was not done arbitrarily. The record shows that private respondent dealt with petitioner with admirable patience, probably in view of the strike, the fire in 1968 that burned petitioners factory, and the typhoon in 1970.[28] It exercised its contractual authority to cancel the agreements only after petitioner had reneged in its obligation after paying only eight (8) installments. When the contracts matured, it still gave petitioner a grace period of four (4) months within which to comply with its obligations. It considered the contracts cancelled only as of October 1971 or several years after petitioners last installment payment[29] and definitely more than ten years after the agreements were entered into. Because the contracts to sell had long been cancelled when private respondents filed the accion publiciana de posesion on July 12, 1984, it was the proper Regional Trial Court that had jurisdiction over the case. By then, there was no more installment buyer and seller relationship to speak of. It had been recuded to a mere case of an owner claiming possession of its property that had long been illegally withheld from it by another. Petitioner alleges that there was a new perfected and enforceable contract of sale" between the parties in October 1983 for two reasons. First, it paid private respondent the down payment or deposit of Contract[30] through the five checks. Second, the receipt signed by private respondents representatives satisfies the requirement of a note or memorandum under Article 1403 (2) of the Civil Code because it states the object of the contract (six lots of Mar-Ick Subdivision measuring 1,453 square meters), the price (P250.00 per square meter with a down payment of 10% or P 37,542.72), and the receipt itself opens with a statement referring to the purchase of the six lots of Mar-Ick Subdivision.[31] The contract of October 1983 which respondents offered in evidence as Exhibit S, is entitled CONTRACT TO SELL. While the title of a contract is not controlling, its stipulations confirm the nature of that contract. Thus, it provides: 5. Title to said parcels of land shall remain in the name of the OWNER until complete payment by the PURCHASER of all obligations herein stipulated, at which time, the OWNER agrees to execute a final deed of sale in favor of the PURCHASER and cause the issuance of certificates of title in the name of the latter, free from all liens and encumbrances except those provided in the Land Registration Act, those imposed by the authorities, and those contained in the stipulation that follow. Under the law, there is a binding contract between the parties whose minds met on a certain matter notwithstanding that they did not affix their signature to its written form. In the case at the bar, it was private respondents company lawyer and sole witness, Atty. Manuel Villamayor, who volunteered that after the cancellation of the 1961 agreements, the parties should negotiate and enter into a new agreement based on the current price or at P400.00 per square meter. However, there was a hitch in the negotiations because after he had drafted the contract and sent it to the petitioner, the latter deposited a check for down payment but its representative refused to sign the prepared contract.[32] Private respondent even offered the contract to sell as its Exhibit S.[33] In the absence of proof to the contrary, this draft contract may be deemed to embody the agreement of the parties. Moreover, when Tomas Siatianun, petitioner president, testified, private respondent cross-examined him as regards to the October 1983 contract.[34] Private respondents did not and has not denied the existence of that contract. Under these facts, therefore, the parties may ideally be considered as having perfected the contract of October 1983. Again in Adelfa Properties, Inc. v. Court of Appeals, the Court said that x x x a contract, like a contract to sell, involves a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Contracts, in general, are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute.[35] Moreover, private respondents offer to sell and petitioners acceptance thereof are manifest in the documentary evidence presented the (5) checks[36] that,

through Atty. Villamayor, it admitted as the down payment under the October 1983 contract. Private respondents intentional non- encashment of the check cannot serve to belie the fact of its tender as down payment. For its part, petitioner presented Exhibit 10, a receipt dated February 28, 1984, showing that private respondents authorized representative received the total amount of P37,642.72 represented by said five checks as deposit of Contract (sic). As this Court also held in the Adelfa Properties case, acceptance may be evidenced by some acts or conduct communicated to the offeror, either in a formal or an informal manner, that clearly manifest the intention of determination to accept the offer to buy or sell.[37] Justice and equity, however, will not be served by a positive ruling on the perfection and performance of the contract to sell. There are facts on record proving that, after all, the parties had not arrived at a definite agreement. By Atty. Villamayors admission, the checks were not encashed because Tomas Siatianun did not sign the draft contract that he had prepared.[38] On his part, Tomac Siatianun explained that he did not sign the contract because it covered seven (7) lots while their agreement was only for six (6) lots. According to him, private respondent had conceded that Lot No. 2 was meant for petitioners right of way[39] and, therefore, it could not have been part of the properties it wanted to buy. It is on record, moreover, that the only agreement that the parties arrived at in a conference at the Silahis Hotel was the price indicated in the draft contract.[40] The number of lots to be sold is a material component of the contract to sell. Without an agreement on the matter, the parties may not in any way be considered as having arrived at a contract under the law. The parties failure to agree on a fundamental provision of the contract was aggravated by petitioners failure to deposit the installments agreed upon. Neither did it attempt to make a consignation of installments. This Courts disquisition on the matter in the Adelfa Properties case is relevant. Thus: The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. Besides, a mere tender of payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioners obligation to pay the balance of the purchase price. The rule is different in case of an option contract or in legal redemption or in a sale with right to repurchase, wherein consignation is not necessary because this cases involves an exercise of a right privilege (to buy, redeem, or repurchase) rather than the discharge of the obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provision on consignation are not applicable when there is no obligation to pay. A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of the privilege or a right. Consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation.[41] (Underscoring supplied.) As earlier noted, petitioner did not lift a finger towards the performance of the contract other than the tender of down payment. There is no record that it even bothered to tender payment of the installments or to amend the contract to reflect the true intention of the parties as regards the number of lots to be sold. Indeed, by petitioners inaction, private respondents may not be judicially enjoined to validate a contract that the former appeared to have taken for granted. As in the earlier agreements, petitioner ignored opportunities to resuscitate a contract to sell that was rendered moribund and inoperative by its inaction. In view of the foregoing, there is no need to discuss the issue of whether or not there was a valid grant of right of way in favor of the petitioners. Suffice it to say that the documentary evidence offered by the petitioner on the matter manifest that the right of way on an unidentified property was granted in April 1961 by private respondents board of directors to W. Ick & Sons, Inc. and Julian Martinez.[42] On May 12, 1961, Fritz Ick, the president of W. Ick & Sons, Inc., in turn indorsed the unidentified property to petitioner.[43] What needs stressing is that the installment paid by the petitioner on the land should be deemed rentals in accordance with provision No.9, as well as by law. Article 1486 of the Civil Code provides that a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances.[44] The down payment and the eight (8) installments paid by the petitioner on the six lots under the 1961 agreements amount to P5,672.00. The lots, including Lot No. 2, adjoins petitioners Vetsin and oil factories constructed on a 20,111-square-meter land that petitioner likewise bought from private respondent. Obviously, petitioner made use of the lots not only the construction of the factories but also during its operations as an oil factory. Petitioner enclosed the area with a fence and made construction thereon. It is, therefore, not unconscionable to allow respondents rentals on the lots are correctly decreed by the lower court.

As to attorneys fees, Article 2208 of the Civil Code allows the award of such fees when its claimants is compelled to litigate with third persons or to incur expenses to protect its just and valid claim. In view of petitioners rejection of private respondents demands for rentals[45]and its unjustified refusal to settle private respondents claims,[46] the award of attorneys fees of P10,000.00 is more than just and reasonable.[47] WHEREFORE, the instant petition for review on certiorari is hereby denied and the questioned Decision of the Court of Appeals is AFFIRMED. This Decision is immediately executory. Cost against petitioner. G.R. No. L-29280 August 11, 1988 PARAS, J.: PEOPLE'S BANK AND TRUST COMPANY, vs. SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP, defendants-appellants. This is an appeal from the decision dated May 16, 1968 rendered by the Court of First Instance of Manila, Branch XII in Civil Case No. 68095, the decretal portion of which states: IN VIEW OF THE FOREGOING, judgment is rendered sentencing all the defendants to pay the plaintiff jointly and severally the sum of P601,633.01 with interest thereon at the rate of 11% per annum from June 17, 1967, until the whole amount is paid, plus 10% of the total amount due for attorney's fees and the costs of suit. Should the defendants fail to pay the same to the plaintiff, then it is ordered that all the effects, materials and stocks covered by the chattel mortgages be sold at public auction in conformity with the Provisions of Sec. 14 of the Chattel Mortgage Law, and the proceeds thereof applied to satisfy the judgment herein rendered. The counterclaim of the defendants, upon the evidence presented and in the light of the authorities above cited, is dismissed for lack of merit. SO ORDERED (pp. 89-90, Record on Appeal; p. 15, Rollo) The facts of the case based on the statement of facts, made by the trial court in its decision as cited in the briefs of both parties are as follows: This is an action for foreclosure of chattel mortgage executed in favor of the plaintiff by the defendant Syvel's Incorporated on its stocks of goods, personal properties and other materials owned by it and located at its stores or warehouses at No. 406, Escolta, Manila; Nos. 764-766 Rizal Avenue, Manila; Nos. 10-11 Cartimar Avenue, Pasay City; No. 886 Nicanor Reyes, Sr. (formerly Morayta), Manila; as evidenced by Annex"A."The chattel mortgage was duly registered in the corresponding registry of deeds of Manila and Pasay City. The chattel mortgage was in connection with a credit commercial line in the amount of P900,000.00 granted the said defendant corporation, the expiry date of which was May 20, 1966. On May 20, 1965, defendants Antonio V. Syyap and Angel Y. Syyap executed an undertaking in favor of the plaintiff whereby they both agreed to guarantee absolutely and unconditionally and without the benefit of excussion the full and prompt payment of any indebtedness to be incurred on account of the said credit line. Against the credit line granted the defendant Syvel's Incorporated the latter drew advances in the form of promissory notes which are attached to the complaint as Annexes "C" to "l." In view of the failure of the defendant corporation to make payment in accordance with the terms and conditions agreed upon in the Commercial Credit Agreement the plaintiff started to foreclose extrajudicially the chattel mortgage. However, because of an attempt to have the matter settled, the extra-judicial foreclosure was not pushed thru. As no payment had been paid, this case was even tually filed in this Court. On petition of the plaintiff based on the affidavits executed by Mr. Leopoldo R. Rivera, Assistant Vice President of the plaintiff bank and Atty. Eduardo J. Berenguer on January 12, 1967, to the effect, among others, that the defendants are disposing of their properties with intent to defraud their creditors, particularly the plaintiff herein, a preliminary writ of attachment was issued. As a consequence of the issuance of the writ of attachment, the defendants, in their answer to the complaint set up a compulsory counterclaim for damages. After the filing of this case in this court and during its pendency defendant Antonio v. Syyap proposed to have the case settled amicably and to that end a conference was held in which Mr. Antonio de las Alas, Jr., Vice President of the Bank, plaintiff, defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. Syyap requested that the plaintiff dismiss this case because he did not want to have the goodwill of Syvel's Incorporated impaired, and offered to execute a real estate mortgage on his real property located in Bacoor, Cavite. Mr. De las Alas consented, and so the Real Estate Mortgage, marked as Exhibit A, was executed by the defendant Antonio V. Syyap and his wife Margarita Bengco Syyap on June

22, 1967. In that deed of mortgage, defendant Syyap admitted that as of June 16, 1967, the indebtedness of Syvel's Incorporated was P601,633.01, the breakdown of which is as follows: P568,577.76 as principal and P33,055.25 as interest. Complying with the promise of the plaintiff thru its Vice President to ask for the dismissal of this case, a motion to dismiss this case without prejudice was prepared, Exhibit C, but the defendants did not want to agree if the dismissal would mean also the dismissal of their counterclaim Against the plaintiff. Hence, trial proceeded. As regards the liabilities of the defendants, there is no dispute that a credit line to the maximum amount of P900,000.00 was granted to the defendant corporation on the guaranty of the merchandise or stocks in goods of the said corporation which were covered by chattel mortgage duly registered as required by law. There is likewise no dispute that the defendants Syyap guaranteed absolutely and unconditionally and without the benefit of excussion the full and prompt payment of any indebtedness incurred by the defendant corporation under the credit line granted it by the plaintiff. As of June 16, 1967, its indebtedness was in the total amount of P601,633.01. This was admitted by defendant Antonio V. Syyap in the deed of real estate mortgage executed by him. No part of the amount has been paid by either of the defendants. Hence their liabilities cannot be questioned. (pp. 3-6, Brief for Appellee; p. 26, Rollo) In their brief, appellants assign the following errors: I The lower court erred in not holding that the obligation secured by the Chattel Mortgage sought to be foreclosed in the above-entitled case was novated by the subsequent execution between appellee and appellant Antonio V, Syyap of a real estate mortgage as additional collateral to the obligation secured by said chattel mortgage. II The lower court erred in not dismissing the above-entitled case and in finding appellants liable under the complaint. III The lower court erred in not holding that the writ of preliminary attachment is devoid of any legal and factual basis whatsoever. IV The lower court erred in dismissing appellants'counterclaim and in not holding appellee liable to appellants for the consequent damages arising out of a wrongful attachment. (pp. 1-2, Brief for the Appellants, p. 25, Rollo) Appellants admit that they are indebted to the appellee bank in the amount of P601,633.01, breakdown of which is as follows: P568,577.76 as principal and P33,055.25 as interest. After the filing of the case and during its pendency, defendant Antonio V. Syyap proposed to have the case amicably settled and for that purpose a conference was held in which Mr. Antonio de las Alas, Jr., Vice President of plaintiff People's Bank and Trust Company, defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. Syyap requested that the plaintiff dismiss this case as he did not want to have the goodwill of Syvel's Incorporated impaired, and offered to execute a real estate mortgage on his real property located in Bacoor, Cavite. Mr. de las Alas consented, and so the Real Estate Mortgage (Exhibit "A") was executed by defendant Antonio Syyap and his wife Margarita Bengco Syyap on June 22, 1967. Defendants did not agree with plaintiffs motion to dismiss which included the dismissal of their counterclaim and filed instead their own motion to dismiss (Record on Appeal, pp. 68-72) on the ground that by the execution of said real estate mortgage, the obligation secured by the chattel mortgage subject of this case was novated, and therefore, appellee's cause of action thereon was extinguished. In an Order dated September 23, 1967, the motion was denied for not being well founded (record on Appeal, p. 78). Appellants contention is without merit.

Novation takes place when the object or principal condition of an obligation is changed or altered. It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility between the old and the new obligations in every aspect (Goni v. CA, 144 SCRA 223 [1986]; National Power Corp. v. Dayrit, 125 SCRA 849 [1983]). In the case at bar, there is nothing in the Real Estate Mortgage which supports appellants'submission. The contract on its face does not show the existence of an explicit novation nor incompatibility on every point between the "old and the "new" agreements as the second contract evidently indicates that the same was executed as new additional security to the chattel mortgage previously entered into by the parties. Moreover, records show that in the real estate mortgage, appellants agreed that the chattel mortgage "shall remain in full force and shall not be impaired by this (real estate) mortgage." The pertinent provision of the contract is quoted as follows:

Appellants having failed to adduce evidence of bad faith or malice on the part of appellee in the procurement of the writ of preliminary attachment, the claim of the former for damages is evidently negated. In fact, the allegations in the appellee's complaint more than justify the issuance of the writ of attachment. PREMISES CONSIDERED, this appeal is DISMISSED for lack of merit and the judgment appealed from is AFFIRMED. G.R. No. 83271 May 8, 1991 VICTOR D. YOUNG and JOHNNY YOUNG, petitioners, vs. COURT OF APPEALS, as nominal party respondent, and FAUSTA B. JAGDON, AMPARO R. CASAFRANCA and MIGUELA R. JARIOL, respondents. Ramires, Corro & Associates for petitioners. Navarro Law Office collaborating counsel for petitioners.

That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book No. I, Series of 1965, Notary Public Jose C. Merris, Manila); real estate mortgage executed by Angel V. Syyap and Rita V. Syyap (Doc. No. 441, Page No. 90, Book No. I, Series of 1965, Notary Public Jose C. Merris, Manila) shall remain in full force and shall not be impaired by this mortgage (par. 5, Exhibit"A," Emphasis ours). It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken as additional security for the performance of the contract (Bank of P.I. v. Herrige, 47 Phil. 57). In the determination of the legality of the writ of attachment by the Court of First Instance of Manila, it is a well established rule that the grant or denial of a writ of attachment rests upon the sound discretion of the court. Records are bereft of any evidence that grave abuse of discretion was committed by respondent judge in the issuance of the writ of attachment. Appellants contend that the affidavits of Messrs. Rivera and Berenguer on which the lower court based the issuance of the writ of preliminary attachment relied on the reports of credit investigators sent to the field and not on the personal knowledge of the affiants. Such contention deserves scant consideration. Evidence adduced during the trial strongly shows that the witnesses have personal knowledge of the facts stated in their affidavits in support of the application for the writ. They testified that Syvel's Inc. had disposed of all the articles covered by the chattel mortgage but had not remitted the proceeds to appellee bank; that the Syvel's Stores at the Escolta, Rizal Avenue and Morayta Street were no longer operated by appellants and that the latter were disposing of their properties to defraud appellee bank. Such testimonies and circumstances were given full credit by the trial court in its decision (Brief for Appellee, p. 14). Hence, the attachment sought on the ground of actual removal of property is justified where there is physical removal thereof by the debtor, as shown by the records (McTaggert v. Putnam Corset Co., 8 N.Y. S 800 cited in Moran, Comments on the Rules of Court, 1970 Ed., Vol. 3, p. 7). Besides, the actuations of appellants were clearly seen by the witnesses who "saw a Fiat Bantam Car-Fiat Car, a small car and about three or four persons hurrying; they were carrying goods coming from the back portion of this store of Syvels at the Escolta, between 5:30 and 6:00 o'clock in the evening." (Record on Appeal, pp. 45-46). Therefore, "the act of debtor (appellant) in taking his stock of goods from the rear of his store at night, is sufficient to support an attachment upon the ground of the fraudulent concealment of property for the purpose of delaying and defrauding creditors." (4 Am. Jur., 841 cited in Francisco, Revised Rules of Court, Second Edition, 1985, p. 24). In any case, intent to defraud may be and usually is inferred from the facts and circumstances of the case; it can rarely be proved by direct evidence. It may be gleaned also from the statements and conduct of the debtor, and in this connection, the principle may be applied that every person is presumed to intend the natural consequences of his acts (Francisco, Revised Rules of Court, supra, pp. 24-25), In fact the trial court is impressed "that not only has the plaintiff acted in perfect good faith but also on facts sufficient in themselves to convince an ordinary man that the defendants were obviously trying to spirit away a port;.on of the stocks of Syvel's Incorporated in order to render ineffectual at least partially anyjudgment that may be rendered in favor of the plaintiff." (Decision; Civil Case No. 68095; Record on Appeal, pp. 88-89).

Manuel V Trinidad and Efren V. Ramirez for private respondents.

CRUZ, J.:p On November 7, 1961, the estates of Humiliano Rodriguez and Timoteo Rodriguez leased to Victor D. Young a parcel of land consisting of 840 square meters and located at Colon Street, Cebu City, on which the latter's building, then known as Liza Theater (later renamed Nation Theater), was standing. The contract of lease contained the following stipulation: (8) That at the end of this lease contract or after the twenty-first (21st) year, the LESSORS may purchase the LIZA THEATRE building (excluding movie projectors, equipment, and other movables of the business of the LESSEE) at their option from the LESSEE by paying the market value thereof if acceptable to the LESSEE; provided, however, that if the LESSORS do not exercise this option to buy, the LESSEE shall continue for another period of TWENTY-ONE (21) YEARS and the rental will be agreed upon by the parties with the prevailing rental of properties near the premises as the basis. On December 18, 1961, exactly the same contract was again executed by the same parties, except that the estate of Humiliano Rodriguez was this time represented by Antolin A. Jariol, instead of Miguela Rodriguez, as one of the signatories. During the period of the lease, the two estates were finally settled, and the land leased to Victor Young was distributed among Fausta R. Jagdon, Amparo R. Casafranca, Miguela R. Jariol, the herein private respondents, and Teresita R. Natividad. Natividad later sold her share, consisting of 223 square meters, to Johnny Young, son of Victor D. Young. On November 5, 1982, or two days before the expiration of the first contract, the heirs (except Natividad) filed a suit for specific performance against Victor D. Young to compel him to sell to them his theater-building for P 135,000.00. They tendered this amount with the clerk of court by way of consignation. They also sued Victor Young's son, Johnny, as an unwilling co-plaintiff. The defendants contended that the plaintiffs had no cause of action because the complaint was premature. The lease contract of November 7, 1961, had been novated by the second lease contract dated December 18, 1961; hence, the lease was terminated on December 18, 1982, and not November 7, 1982. Moreover, even if the lease ended on November 7, 1982, the action brought by the respondent on November 5, 1982, was still premature because the plaintiffs had not yet then notified Victor Young of the exercise of their option. The lease expired without a valid exercise of the option and the lease contract was thus renewed for another 21 years. In his decision dated May 28, 1986, Judge Ramon Am. Torres of the Regional Trial Court of Cebu found in favor of the plaintiffs and held that there was no novation. The second contract was executed merely to substitute the correct signatory. As

there was no express stipulation therein that it superseded and replaced the first contract, the complaint was not prematurely filed. The dispositive portion of the decision read: WHEREFORE, judgment is hereby rendered: (a) declaring the sum of P250,000.00 as the fair market value of the building known as the Liza Theatre (Nation Theatre); (b) declaring the plaintiffs as the legal owners of the said building when they shall have paid the defendant Victor Young the sum of P250,000.00; (c) ordering the defendant Victor Young to pay the plaintiffs the sum of P50,000.00 as moral damages, Pl0,000.00 as attorney's fees for Fausta R. Jagdon and another P 10,000.00 as attorney's fees for the other plaintiffs and costs of the suit; (d) ordering the defendant Johnny Young to pay his proportionate share of the sum of P250,000.00 as well as in the sum of P20,000.00 incurred by the plaintiffs as attorney's fees. SO ORDERED. On appeal, the decision was modified by the respondent court 1 which, while agreeing that there was no novation of the first contract, declared that the original period of the lease was extended by the second contract. It did not find that the complaint was premature because although the action below had been filed a month early, the question became moot and academic when Victor D. Young declared in his letter dated November 9, 1982, his refusal to sell the building in question. This stand was confirmed in the answer he filed on December 7, 1982, in which he rejected the plaintiffs' offer of P135,000.00. The respondent court also held that the plaintiffs' complaint could be considered originally as an action for declaratory relief, which was later converted into an ordinary action for specific performance. It is this decision that is now questioned in this petition for review. Law and jurisprudence on the concept and effects of novation are well settled in this jurisdiction. In Caneda, Jr. v.Court of Appeals, 2 we held: Novation has been defined as the extinguishment of an obligation by a subsequent one which terminates it, either by changing its object or principal conditions, referred to as objective or real novation or by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor, also called as subjective or personal novation. But as explained by this Court, novation is never presumed; it must be explicitly stated or there must be a manifest incompatibility between the old and the new obligations in every aspect. The test of incompatibility between two obligations or contracts, is whether or not they can stand together, each one having an independent existence. If they cannot, they are incompatible, and the later obligation novates the first. (Emphasis supplied.) A careful examination of the text of the two contracts will show that the only change introduced in the second contract was the substitution by Antolin A. Jariol of his wife Miguela as signatory for the estate of Humiliano Rodriguez. There was no express declaration in the second contract that it was novating the first. To determine if there was at least an implied novation because of a clear incompatibility between the old and new contracts, we apply the rule that In order that there may be implied novation arising from incompatibility of the old and new obligations, the change must refer to the object, the cause, or the principal conditions of the obligation. In other words, there must be an essential change. There was clearly no implied novation for lack of an essential change in the object, cause, or principal conditions of the obligation. At most, the substitution of a signatory in the second contract can be considered only an accidental

modification which, according to Tolentino, "does not extinguish an existing obligation. When the changes refer to secondary agreements, and not to the object or principal conditions of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation."3 Hence, he concludes, "it is not proper to consider an obligation novated by unimportant modifications which do not alter its essence." 4 There being no novation, the lease is properly deemed to have commenced on November 7, 1961, and so ended 21 years later on November 7, 1982. It is significant that it was in fact from this first date that Victor Young effectively started as lessee. We do not agree with the respondent court that there was an extension of the period of lease in the second contract. As earlier explained, the only reason for the execution of the second contract was to change the signatory. There is no clear showing from the language of that contract that the parties intended to extend the lease for one month. According to Article 1370 of the new Civil Code: If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. But although the lease contract was not novated or extended, the action for specific performance was still premature because it was filed before the petitioner was given a chance to refuse the option. The complaint was filed on November 5, 1982, and it was only on the following day, or on November 6, 1982, that the plaintiffs informed Victor Young of their decision to buy the theater-building. The tender of the purchase price is further proof of the fact that Victor Young was informed of that decision only on November 6, 1982. The action was premature not because the option was exercised prior to the expiration of the lease but because the complaint was filed before the defendant could reject the lessors' offer. No right of the plaintiffs had as yet been violated when they filed their complaint on November 5, 1982. Since a "cause of action" requires, as essential elements, not only a legal right of the plaintiff and a correlative obligation of the defendant but also "an act or omission of the defendant in violation of said legal right," the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty. 5 Therefore unless the plaintiff has a valid and subsisting cause of action at the time his action is commenced, the defect cannot be cured or remedied by the acquisition or accrual of one while the action is pending, and a supplemental complaint or an amendment setting up such after-accrued cause of action is not permissible. 6(Emphasis supplied.) The Court adds that even if the case was prematurely filed, it did not follow that the option was not properly exercised. An option may be exercised at any time before the expiration of the period agreed upon. An "option" is defined as a contract granting a person the privilege to buy or not to buy certain objects at any time within the agreed period at a fixed price. 7 It is settled that when the offer has stated a fixed period for acceptance, the offeree may accept at any time until such period expires. 8 The ruling of the respondent court that the complaint for specific performance could be originally regarded as a petition for declaratory relief is not acceptable. The Rules of Court provide that an action for declaratory relief may be filed by "any person" 9 and does not say it may be initiated by the court itself motu proprio. More importantly, there was as yet no refusal or denial by the defendants of the plaintiffs' claimed right to buy the theater-building when the complaint was filed on November 5, 1986. In fact, as previously noted, it was only the following day that the defendants were informed of the plaintiffs' decision to exercise their option under the contract. Before that date, there was no uncertainty about the said option to justify the filing of a petition for declaratory relief. Hence, there was no cause of action to support a declaratory relief proceeding. We dismiss out of hand the argument that the merger of the character of the lessor and the lessee in Johnny Young resulted in the extinguishment of the right

to the option to buy. It is utterly fallacious. Victor Young did not purchase any portion of the land covered by the lease; it was his son, Johnny Young, who did. The sale to the son of part of the land under lease to the father did not extinguish the plaintiffs' option to buy, which was enforceable against Victor D. Young and no other. The respondent court rejected the petitioner's contention that the case has become moot and academic because the theater subject of the option was no longer existing, having been gutted by fire. Its reason was that there was no adequate evidence of such destruction. On the contrary, the record contains a certificate from the Deputy Chief of Constabulary that the building was indeed burned to the ground on January 31, 1987. 10 This fact indeed rendered the action for specific performance no longer viable. Since the action filed by the private respondents was premature, they are not entitled to any award of damages. Neither may the petitioners recover on their counterclaim because the private respondents filed their complaint in the honest belief that they had a right to the relief they were seeking. Attorney's fees are also not due to either of the parties because it has not been shown that any of them acted "in a wanton, fraudulent, reckless, oppressive, or malevolent manner." The parties must therefore bear their own costs. WHEREFORE, the challenged decision is SET ASIDE and a new judgment is rendered: (a) DISMISSING the complaint for specific performance; (b) DECLARING the lease terminated as of November 7, 1982; and (c) ORDERING petitioner Victor D. Young to vacate the leased premises. It is so ordered. [G.R. No. 145441. April 26, 2005]

2. The VENDORS hereby warrant valid title to, and peaceful possession of the property herein sold subject to the encumbrance hereinbefore mentioned. 3. This instrument shall be subject to the Consent of the Philippine Savings Bank. 4. All expenses relative to this instrument including documentary stamps, registration fees, transfer taxes and other charges shall be for the account of the VENDEES.[6] Thereafter, the 3 parcels of land purchased by the Galicias, together with another property, were in turn mortgaged by them to secure a P2,600,000.00 loan which they obtained from PSBank. Specifically, the mortgaged properties include TCT Nos. N-36192, N-36193, N-36194, (formerly TCT Nos. N-6162, N-8552 and 469843, respectively) and 75584.[7] This loan is evidenced by Promissory Note LC-79-36.[8] On March 12, 1979, Maalac paid PSBank P919,698.11 which corresponds to the value of the parcels of land covered by TCT Nos. N-36192, N-36193, and N-36194, now registered in the name of the spouses Galicia. Accordingly, PSBank executed a partial release of the real estate mortgage covered by the aforesaid properties.[9] On August 25, 1981, the spouses Galicia obtained a second loan from PSBank in the amount of P3,250,000.00 for which they executed Promissory Note LC No. 81108. They also executed a Real Estate Mortgage in favor of the bank covering TCT Nos. N-36192, N-36193, N-36194, 75584 and 87690.[10] Since Maalac defaulted again in the payment of their loan installments and despite repeated demands still failed to pay their past due obligation which now amounted to P1,804,241.76, PSBank filed with the Office of the Provincial Sheriff of Rizal a petition for extrajudicial foreclosure of their 5 remaining mortgaged properties, specifically those covered by TCT Nos. 417012, N-1347, N-1348, N3267, and 343593. Despite several postponements of the public auction sale, Maalac still failed to pay their mortgage obligation. Thus, on May 3, 1982, the foreclosure sale of the subject real properties proceeded with PSBank as the highest bidder in the amount of P2,185,225.76.[11] On the same date, the Certificate of Sale was issued by the Acting Ex-Oficio Provincial Sheriff for Rizal province.[12] Maalac failed to redeem the properties hence titles thereto were consolidated in the name of PSBank and new certificates of title were issued in favor of the bank, namely, TCT No. N-79995 in lieu of TCT No. 343593; TCT No. 79996 in lieu of TCT No. 417012; TCT No. 79997 in lieu of TCT No. N-3267; TCT No. N-79998 in lieu of TCT No. N-1347; and TCT No. N-79999 in lieu of TCT No. N-1348. On December 16, 1983, Maalac wrote the Chairman of the Board of PSBank asking information on their request for the partial release of the mortgage covered by TCT Nos. N-36192, N-36193, N-36194, and 417012 (now TCT No. 79996). TCT Nos. 36192, 36193, and 36194 were registered in the name of the Galicias, and mortgaged to partially secure their outstanding loan from the bank. Enclosed in the same letter is a Cashiers Check for P1,200,000.00 with a notation which reads: Re: Payment to effect release of TCT Nos. N-36192, 36193, and 36194 under loan account of Spouses Igmedio and Dolores Galicia; and TCT No. 417012 under Loan Account of Spouses Rodolfo and Rosita Maalac. Upon receipt of the check, PSBanks Acting Manager Lino L. Macasaet issued a typewritten receipt with the inscription:[13] Received from Sps. Rodolfo and Rosita Maalac and Sps. Igmidio and Dolores Galicia PCIB Check No. 002133 in the amount of One Million Two Hundred Thousand Pesos Only (P1,200,000.00). It is understood however, that receipt of said check is not a commitment on the part of the Bank to release the Four (4) TCTs requested to be released on your letter dated 19 December 1983. On December 19, 1983, the bank applied P1,000,000.00 of the P1,200,000.00 to the loan account of the Galicias as payment for the arrearages in interest and the remaining P200,000.00 thereof was applied to the expenses relative to the account of Maalac.[14] On May 23, 1985, the bank sold the property covered by TCT No. 79996 (previously TCT No. 343593) to Ester Villanueva who thereafter sold it to Maalac. On October 30, 1985, the land covered by TCT No. 79995 was sold by the bank to Teresita Jalbuena.

PHILIPPINE SAVINGS BANK, petitioner, vs. SPS. RODOLFO C. MAALAC, JR. and ROSITA P. MAALAC,respondents. YNARES-SANTIAGO, J.: This appeal by certiorari[1] assails the decision of the Court of Appeals dated October 12, 2000 in CA-G.R. CV No. 50292[2] which affirmed with modifications the decision of the Regional Trial Court of Pasig, Branch 161[3] dated April 27, 1993 in Civil Case No. 53967 which ordered the annulment of the Certificate of Sale involving TCT Nos. N-1347, N-1348 and N-3267 issued in favor of petitioner Philippine Savings Bank (PSBank) and dismissing Land Registration Case No. R3951. The facts as culled from the records are as follows: On October 8, 1976, respondent-spouses Rodolfo and Rosita Maalac (Maalac) obtained a P1,300,000.00 loan from PSBank covered by promissory note L.C. No. 76-269. As security for the loan, Maalac executed a Real Estate Mortgage in favor of the bank over 8 parcels of land covered by TCT Nos. 417012, N-1348, N1347, N-3267, N-8552, N-6162, 469843 and 343593. In view of Maalacs inability to pay the loan installments as they fell due, their loan obligation was restructured on October 13, 1977. Accordingly, Maalac signed another promissory note denominated as LC No. 77-232 for P1,550,000.00 payable to the order of PSBank with interest rate of 19% annum.[4] To secure the payment of the restructured loan, Maalac executed a Real Estate Mortgage dated October 13, 1977 in favor of PSBank over the same aforementioned 8 real properties. On March 5, 1979, Maalac and spouses Igmidio and Dolores Galicia, with the prior consent of PSBank,[5] entered into a Deed of Sale with Assumption of Mortgage involving 3 of the mortgaged properties covered by TCT Nos. N-6162 (now N-36192), N-8552 (now TCT No. N-36193), and 469843 (now TCT No. N36194). The Deed of Sale with Assumption of Mortgage contained the following stipulations: 1. The VENDEES shall assume as they hereby assume as part of the purchase price, the amount of P550,000.00, representing the portion of the mortgaged obligation of the VENDORS in favor of the Philippine Savings Bank, which is secured by that Real Estate Mortgage contract mentioned in the Second Whereas Clause hereof covering among others the above-described parcels of land under the same terms and conditions as originally constituted.

Thereafter, or on October 20, 1986, Maalac instituted an action for damages, docketed as Civil Case No. 53967, before the Regional Trial Court of Pasig, Branch 161, against PSBank and its officers namely Cezar Valenzuela, Alfredo Barretto and Antonio Viray, and spouses Alejandro and Teresita Jalbuena. The bank also filed a petition, docketed as LRC Case No. R-3951, before the Regional Trial Court of Pasig, Branch 159, for the issuance of a writ of possession against the properties covered by TCT Nos. N-79997, N-79998, and N-79999 (formerly TCT Nos. N-3267, N-1347, and N-1348) and the ejectment of the respondents. In an order dated January 2, 1989, the trial court consolidated LRC Case No. R3951 with Civil Case No. 53967. On April 27, 1993, a judgment was rendered the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered ordering: For Civil Case No. 53967 1. The annulment of the Certificate of Sale issued by the acting Ex-Oficio Provincial Sheriff of Rizal on May 3, 1982 involving Transfer Certificate of Title Nos. N-1347-Rizal, N-1348-Rizal and N-3267-Rizal and the Contract to Sell executed by defendant PSB in favor of defendants spouses Alejandro Jalbuena and Teresita Jalbuena involving the real property covered by Transfer Certificate of Title No. N79995; and, 2. The dismissal of counterclaims for lack of merit.

suit in a court of justice by which one party prosecutes another for the enforcement or protection of a right, or a prevention of a wrong. Citing A.G. Development Corp. v. Court of Appeals,[18] petitioner posits that LRC Case No. R3951, being summary in nature and not being an action within the contemplation of the Rules of Court, should not have been consolidated with Civil Case No. 53967. We do not agree. In Active Wood Products Co., Inc. v. Court of Appeals,[19] this Court also deemed it proper to consolidate Civil Case No. 6518-M, which was an ordinary civil action, with LRC Case No. P-39-84, which was a petition for the issuance of a writ of possession. The Court held that while a petition for a writ of possession is an ex parte proceeding, being made on a presumed right of ownership, when such presumed right of ownership is contested and is made the basis of another action, then the proceedings for writ of possession would also become groundless. The entire case must be litigated and if need be must be consolidated with a related case so as to thresh out thoroughly all related issues. In the same case, the Court likewise rejected the contention that under the Rules of Court only actions can be consolidated. The Court held that the technical difference between an action and a proceeding, which involve the same parties and subject matter, becomes insignificant and consolidation becomes a logical conclusion in order to avoid confusion and unnecessary expenses with the multiplicity of suits. In the instant case, the consolidation of Civil Case No. 53967 with LRC Case No. R3951 is more in consonance with the rationale behind the consolidation of cases which is to promote a more expeditious and less expensive resolution of the controversy than if they were heard independently by separate branches of the trial court. Hence, the technical difference between Civil Case No. 53967 and LRC Case No. R-3951 must be disregarded in order to promote the ends of justice. Petitioner also contends that the Court of Appeals committed reversible error in applying the doctrine laid down in Barican v. Intermediate Appellate Court.[20] It insists on the application of the general rule that it is ministerial upon the court to issue a writ of possession on the part of the purchaser in a foreclosure sale. It argues that the Barican doctrine is inapplicable because the sale with assumption of mortgage in the present case involves properties different from those which are the subject of the writ of possession while in Barican, the assumption of mortgage refers to the same property subject of the writ of possession. We recall that the Court of Appeals applied the Barican doctrine based on the following factual similarities between the two cases, thus:[21] In Civil Case No. C-11232, the petitioner-spouses claim ownership of the foreclosed property against the respondent bank and Nicanor Reyes to whom the former sold the property by negotiated sale; the complaint alleged that the DBP knew the assumption of mortgage between the mortgagors and the petitionerspouses and the latter have paid to the respondent bank certain amounts to update the loan balances of the mortgagors and transfer and restructuring fees which payments are duly receipted; the petitioner-spouses were already in possession of the property since September 28, 1979 and long before the respondent bank sold the same property to respondent Nicanor Reyes on October 28, 1984; and the respondent bank never took physical possession of the property. In a similar manner, the following facts were duly established in the case at bench: 1. The petition for issuance of the writ of possession was only filed sometime in May 1988 although the right of redemption lapsed as early as May 7, 1983; 2. Appellant bank neither obtained physical possession of the properties nor did they file any action for ejectment against the plaintiffs-appellants; 3. On December 16, 1983, the plaintiffs-appellants issued a check in favor of the appellant bank to effect the release of TCT Nos. 36192, 36193, 36194 and 417012 which was applied by appellant bank to the plaintiffs-appellants account and that of the Galicias and; 4. Appellant bank executed a Deed of Absolute Sale over TCT No. 79996 (formerly TCT No. 417012) on May 23, 1985 in favor of a certain Elsa Calusa Villanueva who thereafter sold it back to the plaintiffs-appellants. Hence, the same ruling in the Barican case should be applied, that is, the obligation of a court to issue a writ of possession in favor of the purchaser in a foreclosure of mortgage case ceases to be ministerial. We agree with the petitioner. While indeed the two cases demonstrate palpable similarities, the Court of Appeals overlooked essential differences that would render the Barican doctrine inapplicable to the instant case. In Barican, the issuance of the writ of possession was deferred because a pending action for the declaration of ownership over the foreclosed property was made by an adverse claimant who was in possession of the subject property. Clearly, the rights of the third parties, who are plaintiffs in the pending civil case, would be adversely affected with the implementation of the writ. In the instant case, the petitioner bank became the absolute owner of the properties subject of the writ of possession, after they were foreclosed, and titles thereto were consolidated in the name of the bank. It sufficiently established its

For Land Registration Case No. R-3951 3. The dismissal of the petition for lack of merit.

No costs. SO ORDERED.[15] The Court of Appeals affirmed with modification the decision of the trial court, the decretal portion of which reads: WHEREFORE, the decision appealed from is AFFIRMED with the modification that the defendant-appellant Philippine Savings Bank is directed to indemnify the plaintiffs-appellants in the amount of Two Hundred Thousand Pesos (200,000.00) each as moral damages. Costs against the defendant-appellant bank. SO ORDERED.[16] Hence the instant petition which raises the following issues: THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY PROBABLY NOT IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT WHEN IT: a.] HELD THAT THE GENERAL RULE WITH RESPECT TO THE ISSUANCE OF WRITS OF POSSESSION SHOULD NOT BE APPLIED IN THIS CASE, AND WHAT SHOULD INSTEAD BE APPLIED IS THE EXCEPTION ENUNCIATED IN VACA VS. COURT OF APPEALS, 234 SCRA 146; b.] UPHELD THE CONSOLIDATION OF CIVIL CASE NO. 53967 WITH LRC CASE NO. 3951 WHEN PROCEDURALLY THOSE TWO PROCEEDINGS COULD SCARCELY BE CONSOLIDATED; c.] HELD THAT SUPPOSEDLY THERE WAS A NOVATION OF THE PREVIOUS MORTGAGE OF THE PROPERTIES WHEN IN TRUTH AND IN FACT THE MORTGAGE HAD ALREADY CEASED TO EXIST, THAT IS, THE MORTGAGE HAD BECOME NULL AND VOID AS THE SAME HAD BEEN FORECLOSED BY PETITIONER; d.] AWARDED MORAL DAMAGES IN FAVOR OF RESPONDENTS.[17]

Petitioner claims that the Court of Appeals erred in sustaining the trial courts order consolidating Civil Case No. 53967 with LRC Case No. R-3951, arguing that consolidation is proper only when it involves actions, which means an ordinary

ownership over the parcels of land subject of the writ of possession, by presenting in evidence the Certificate of Sale,[22] Affidavit of Consolidation of Ownership,[23] and copies of new TCTs of the foreclosed properties in the name of the petitioner.[24] Unlike in Barican, the ownership of the foreclosed properties are not open to question the ownership thereof being established by competent evidence. Moreover, as earlier pointed out by the petitioner, the parcels of land subject of the writ of possession are different from those sold by the petitioner bank to Jalbuena and Villanueva. Hence, unlike in the Barican case, the implementation of the writ will not affect the rights of innocent third persons. On the issue of novation, the Court of Appeals held that novation occurred when PSBank applied P1,000,000.00 of the P1,200,000.00 PCIB Check No. 002133 tendered by Maalac to the loan account of the Galicias and the remaining P200,000.00 thereof to Maalacs account. It held that when the bank applied the amount of the check in accordance with the instructions contained therein, there was novation of the previous mortgage of the properties. It further observed that the bank was fully aware that the issuance of the check was conditional hence, when it made the application thereof, it agreed to be bound by the conditions imposed by Maalac.[25] Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting another in place of the debtor, or by subrogating a third person in the rights of the creditor. In order for novation to take place, the concurrence of the following requisites is indispensable: 1. There must be a previous valid obligation, 2. There must be an agreement of the parties concerned to a new contract, 3. There must be the extinguishment of the old contract, and 4. There must be the validity of the new contract.[26] The elements of novation are patently lacking in the instant case. Maalac tendered a check for P1,200,000.00 to PSBank for the release of 4 parcels of land covered by TCT Nos. N-36192, 36193, and 36194, under the loan account of the Galicias and 417012 (now TCT No. 79996) under the loan account of Maalac. However, while the bank applied the tendered amount to the accounts as specified by Maalac, it nevertheless refused to release the subject properties. Instead, it issued a receipt with a notation that the acceptance of the check is not a commitment on the part of the bank to release the 4 TCTs as requested by Maalac. From the foregoing, it is obvious that there was no agreement to form a new contract by novating the mortgage contracts of the Maalacs and the Galicias. In accepting the check, the bank only acceded to Maalacs instruction on whose loan accounts the proceeds shall be applied but rejected the other condition that the 4 parcels of land be released from mortgage. Clearly, there is no mutual consent to replace the old mortgage contract with a new obligation. 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. Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unmistakable. The extinguishment of the old obligation by the new one is a necessary element of novation, which may be effected either expressly or impliedly. The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations.[27] A fortiori, 3 of the 4 properties sought to be released from mortgage, namely, TCT Nos. N-36192, N-36193, and N-36194, have already been sold by Maalac to Galicia and are now registered in the name of the latter who thereafter mortgaged the same as security to a separate loan they obtained from the bank. Thus, without the consent of PSBank as the mortgagee bank, Maalac, not being a party to the mortgage contract between the Galicias and the bank, cannot demand much less impose upon the bank the release of the subject properties. Unless there is a stipulation to the contrary, the release of the mortgaged property can only be made upon the full satisfaction of the loan obligation upon which the mortgage attaches. Unfortunately, Maalac has not shown that the P1,000,000.00 was sufficient to cover not only the accrued interests but also the entire indebtedness of the Galicias to the bank.

Neither can Maalac be deemed substitute debtor within the contemplation of Article 1293 of the Civil Code, which states that: Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made 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.[28] In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the formers place in the relation. Novation is never presumed. Consequently, that which arises from a purported change in the person of the debtor must be clear and express. It is thus incumbent on Maalac to show clearly and unequivocally that novation has indeed taken place.[29] In Magdalena Estates Inc. v. Rodriguez,[30] we held that the mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from responsibility, does not constitute a novation, and the creditor can still enforce the obligation against the original debtor. Maalac has not shown by competent evidence that they were expressly taking the place of Galicia as debtor, or that the latter were being released from their solidary obligation. Nor was it shown that the obligation of the Galicias was being extinguished and replaced by a new one. The existence of novation must be shown in clear and unmistakable terms. Likewise, we hold that Maalac cannot demand to repurchase the foreclosed piece of land covered by TCT No. 417012 (now TCT No. 79996) from the bank. Its foreclosure and the consolidation of ownership in favor of the bank and the resultant cancellation of mortgage effectively cancelled the mortgage contract between Maalac and the bank. Insofar as TCT No. 417012 is concerned, there is no more existing mortgage to speak of. As the absolute owner of the foreclosed property, the petitioner has the discretion to reject or accept any offer to repurchase. Granting arguendo that a new obligation was established with the acceptance by the bank of the PCIB Check and its application to the loan account of Maalac on the condition that TCT No. 417012 would be released, this new obligation however could not supplant the October 13, 1977 real estate mortgage executed by Maalac, which, by all intents and purposes, is now a defunct and non-existent contract. As mentioned earlier, novation cannot be presumed. We however sustain the award of moral damages. While the bank had the legal basis to withhold the release of the mortgaged properties, nevertheless, it was not forthright and was lacking in candor in dealing with Maalac. In accepting the PCIB Check, the bank knew fully well that the payment was conditioned on its commitment to release the specified properties. At the first instance, the bank should not have accepted the check or returned the same had it intended beforehand not to honor the request of Maalac. In accepting the check and applying the proceeds thereof to the loan accounts of Maalac and Galicia, the former were led to believe that the bank was favorably acting on their request. In justifying the award of moral damages, the Court of Appeals correctly observed that there is the unjustified refusal of the appellant bank to make a definite commitment while profiting from the proceeds of the check by applying it to the principal and the interest of the Galicias and plaintiff-appellants.[31] Moral damages are meant to compensate the claimant for any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation and similar injuries unjustly caused. Although incapable of pecuniary estimation, the amount must somehow be proportional to and in approximation of the suffering inflicted. Moral damages are not punitive in nature and were never intended to enrich the claimant at the expense of the defendant. There is no hard-and-fast rule in determining what would be a fair and reasonable amount of moral damages, since each case must be governed by its own peculiar facts. Trial courts are given discretion in determining the amount, with the limitation that it should not be palpably and scandalously excessive. Indeed, it must be commensurate to the loss or injury suffered.[32] Respondent Rosita Maalac has adequately established the factual basis for the award of moral damages when she testified that she suffered mental anguish and social humiliation as a result of the failure of the bank to release the subject properties or its failure to return the check despite its refusal to make a definite commitment to comply with the clearly-stated object of the payment. Respondent Rodolfo Maalac however is not similarly entitled to moral damages. The award of moral damages must be anchored on a clear showing that he 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 Rodolfo Maalac failed to testify on

the witness stand, the trial court did not have any factual basis to award moral damages to him.[33] Indeed, respondent Rodolfo Maalac 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. Nevertheless, we find the award of P200,000.00 excessive and unconscionable. As we said, moral damages are not intended to enrich the complainant at the expense of the defendant. Rather, these are awarded only to enable the injured party to obtain means, diversions or amusements that will serve to alleviate the moral suffering that resulted by reason of the defendants culpable action. The purpose of such damages is essentially indemnity or reparation, not punishment or correction. In other words, the award thereof is aimed at a restoration within the limits of the possible, of the spiritual status quo ante; therefore, it must always reasonably approximate the extent of injury and be proportional to the wrong committed.[34] The award of P50,000.00 as moral damages is reasonable under the circumstances.[35] WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated October 12, 2000 in CA-G.R. CV No. 50292 is REVERSED and SET ASIDE. The petitioner Philippine Savings Bank is DIRECTED to indemnify respondent Rosita P. Maalac in the amount of P50,000.00 as moral damages. The Regional Trial Court of the City of Pasig, Branch 161 is ORDERED to issue a writ of possession in favor of Philippine Savings Bank. No costs. [G.R. No. 136729. September 23 ,2003]

stipulated rate of 16% per annum and stipulated penalty charges of 16% per annum computed from January 1, 1985 until the amount is fully paid. With costs. SO ORDERED.[7] The trial court observed that if Roxas really intended to sign the instruments merely in his capacity as President of Astro, then he should have signed only once in the promissory note.[8] On appeal, the Court of Appeals affirmed the RTC decision agreeing with the trial court that Roxas failed to explain satisfactorily why he had to sign twice in the contract and therefore the presumption that private transactions have been fair and regular must be sustained.[9] In the present petition, the principal issue to be resolved is whether or not Roxas should be jointly and severally liable (solidary) with Astro for the sum awarded by the RTC. The answer is in the affirmative. Astros loan with Philtrust Bank is secured by three promissory notes. These promissory notes are valid and binding against Astro and Roxas. As it appears on the notes, Roxas signed twice: first, as president of Astro and second, in his personal capacity. In signing his name aside from being the President of Asro, Roxas became a co-maker of the promissory notes and cannot escape any liability arising from it. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers,[10] promising that they will pay to the order of the payee or any holder according to its tenor.[11] Thus, even without the phrase personal capacity, Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal. Unnoticed by both the trial court and the Court of Appeals, a closer examination of the signatures affixed by Roxas on the promissory notes, Exhibits A-4 and 3A and B-4 and 4-A readily reveals that portions of his signatures covered portions of the typewritten words personal capacity indicating with certainty that the typewritten words were already existing at the time Roxas affixed his signatures thus demolishing his claim that the typewritten words were just inserted after he signed the promissory notes. If what he claims is true, then portions of the typewritten words would have covered portions of his signatures, and not vice versa. As to the third promissory note, Exhibit C-4 and 5-A, the copy submitted is not clear so that this Court could not discern the same observations on the notes, Exhibits A-4 and 3-A and B-4 and 4-A. Nevertheless, the following discussions equally apply to all three promissory notes. The three promissory notes uniformly provide: FOR VALUE RECEIVED, I/We jointly, severally and solidarily, promise to pay to PHILTRUST BANK or order...[12] An instrument which begins with I, We, or Either of us promise to pay, when signed by two or more persons, makes them solidarily liable. [13] Also, the phrase joint and several binds the makers jointly and individually to the payee so that all may be sued together for its enforcement, or the creditor may select one or more as the object of the suit.[14] Having signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro. Roxas claim that the phrases in his personal capacity and in his official capacity were inserted on the notes without his knowledge was correctly disregarded by the RTC and the Court of Appeals. It is not disputed that Roxas does not deny that he signed the notes twice. As aptly found by both the trial and appellate court, Roxas did not offer any explanation why he did so. It devolves upon him to overcome the presumptions that private transactions are presumed to be fair and regular[15] and that a person takes ordinary care of his concerns.[16] Aside from his self-serving allegations, Roxas failed to prove the truth of such allegations. Thus, said presumptions prevail over his claims. Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not equivalent to proof under our Rules of Court.[17] Roxas is the President of Astro and reasonably, a businessman who is presumed to take ordinary care of his concerns. Absent any countervailing evidence, it cannot be gainsaid that he will not sign document without first informing himself of its contents and consequences. Clearly, he knew the nature of the transactions and documents involved as he not only executed these notes on two different dates but he also executed, and again, signed twice, a continuing Surety ship

ASTRO ELECTRONICS CORP. and PETER ROXAS, petitioner, vs. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, respondent. DECISION AUSTRIA-MARTINEZ, J.: Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court is the decision of the Court of Appeals in CA-G.R. CV No. 41274,[1] affirming the decision of the Regional Trial Court (Branch 147) of Makati, then Metro Manila, whereby petitioners Peter Roxas and Astro Electronics Corp. (Astro for brevity) were ordered to pay respondent Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee), jointly and severally, the amount of P3,621,187.52 with interests and costs. The antecedent facts are undisputed. Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to P3,000,000.00 with interest and secured by three promissory notes: PN NO. PFX-254 dated December 14, 1981 for P600,000.00, PN No. PFX-258 also dated December 14, 1981 for P400,000.00 and PN No. 15477 dated August 27, 1981 for P2,000,000.00. In each of these promissory notes, it appears that petitioner Roxas signed twice, as President of Astro and in his personal capacity.[2] Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety.[3] Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astros loan,[4] subject to the condition that upon payment by Philguanrantee of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro.[5] As a result of Astros failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC of Makati. In his Answer, Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed the same in blank and the phrases in his personal capacity and in his official capacity were fraudulently inserted without his knowledge.[6] After trial, the RTC rendered its decision in favor of Philguarantee with the following dispositive portion: WHEREFORE, in view of all the foregoing, the Court hereby renders judgment in favor or (sic) the plaintiff and against the defendants Astro Electronics Corporation and Peter T. Roxas, ordering the then (sic) to pay, jointly and severally, the plaintiff the sum of P3,621.187.52 representing the total obligation of defendants in favor of plaintiff Philguarantee as of December 31, 1984 with interest at the

Agreement notarized on July 31, 1981, wherein he guaranteed, jointly and severally with Astro the repayment of P3,000,000.00 due to Philtrust. Such continuing suretyship agreement even re-enforced his solidary liability Philtrust because as a surety, he bound himself jointly and severally with Astros obligation.[18] Roxas cannot now avoid liability by hiding under the convenient excuse that he merely signed the notes in blank and the phrases in personal capacity and in his official capacity were fraudulently inserted without his knowledge. Lastly, Philguarantee has all the right to proceed against petitioner, it is subrogated to the rights of Philtrust to demand for and collect payment from both Roxas and Astro since it already paid the value of 70% of roxas and Astro Electronics Corp.s loan obligation. In compliance with its contract of Guarantee in favor of Philtrust. Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights.[19] It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts.[20] Instances of legal subrogation are those provided in Article 1302 of the Civil Code. Conventional subrogation, on the other hand, is that which takes place by agreement of the parties.[21] Roxas acquiescence is not necessary for subrogation to take place because the instant case is one of the legal subrogation that occurs by operation of law, and without need of the debtors knowledge.[22] Further, Philguarantee, as guarantor, became the transferee of all the rights of Philtrust as against Roxas and Astro because the guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor.[23] WHEREFORE, finding no error with the decision of the Court of Appeals dated December 10, 1998, the same is hereby AFFIRMED in toto G.R. No. 90634-35 June 6, 1990 CARMELCRAFT CORPORATION &/OR CARMEN V. YULO, President and General Manager, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, CARMELCRAFT EMPLOYEES UNION, PROGRESSIVE FEDERATION OF LABOR, represented by its Local President GEORGE OBANA, respondents. Tee, Tomas & Associates for petitioners. Raul E. Espinosa for private respondents.

The rest of the disposition stand. 2 We do not find that the above decision is tainted with grave abuse of discretion. On the contrary, it is comformable to the pertinent laws and the facts clearly established at the hearing. The reason invoked by the petitioner company to justify the cessation of its operations is hardly credible; in fact, it is preposterous when viewed in the light of the other relevent circumstances. Its justification is that it sustained losses in the amount of P 1,603.88 as of December 31, 1986 . 3 There is no report, however, of its operations during the period after that date, that is, during the succeeding seven and a half months before it decided to close its business. Significantly, the company is capitalized at P 3 million . 4 Considering such a substantial investment, we hardly think that a loss of the paltry sum of less than P 2,000.00 could be considered serious enough to call for the closure of the company. We agree with the public respondent that the real reason for the decision of the petitioners to cease operations was the establishment of respondent Carmelcraft Employees Union. It was apparently unwelcome to the corporation, which would rather shut down than deal with the union. There is the allegation from the private respondent that the company had suggested that it might decide not to close the business if the employees were to affiliate with another union which the management preferred. 5 This allegation has not been satisfactorily disproved. At any rate, the finding of the NLRC is more believable than the ground invoked by the petitioners. Notably, this justification was made only eight months after the alleged year-end loss and shortly after the respondent union filed a petition for certification election. The act of the petitioners was an unfair labor practice prohibited by Article 248 of the Labor Code, to wit: ART. 248. Unfair labor practices of employers.-It shall be unlawful for an employer to commit any of the following unfair labor practice: (a) To interfere with, restrain or coerce employees in the exercise of their right to self-organization; More importantly, it was a defiance of the constitutional provision guaranteeing to workers the right to self-organization and to enter into collective bargaining with management through the labor union of their own choice and confidence. 6 The determination to cease operations is a prerogative of management that is usually not interfered with by the State as no business can be required to continue operating at a loss simply to maintain the workers in employment. 7 That would be a taking of property without due process of law which the employer has a right to resist. But where it is manifest that the closure is motivated not by a desire to avoid further losses but to discourage the workers from organizing themselves into a union for more effective negotiations with the management, the State is bound to intervene. And, indeed, even without such motivation, the closure cannot be justified because the claimed losses are obviously not serious. In this situation, the employees are entitled to separation pay at the rate of one-half month for every year of service under Art. 283 of the Labor Code. The contention of the petitioners that the employees are estopped from claiming the alleged unpaid wages and other compensation must also be rejected. This claim is based on the waivers supposedly made by the complainants on the understanding that "the management will implement prospectively all benefits under existing labor standard laws." The petitioners argue that this assurance provided the consideration that made the quitclaims executed by the employees valid. They add that the waivers were made voluntarily and contend that the contract should be respected as the law between the parties. Even if voluntarily executed, agreements are invalid if they are contrary to public policy. This is elementary. The protection of labor is one of the policies laid down by the Constitution not only by specific provision but also as part of social justice. The Civil Code itself provides: ART. 6. Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals, or good customs, or prejudicial to a third person with a right recognized by law.

CRUZ, J.: The Court is appalled by the degree of bad faith that has characterized the petitioners' treatment of their employees. It borders on puredisdain. And on top of this, they now have the temerity to seek from us a relief to which they are clearly not entitled. The petition must be dismissed. The record shows that after its registration as a labor union, the Camelcraft Employees Union sought but did not get recognition from the petitioners. Consequently, it filed a petition for certification election in June 1987. On July 13, 1987, Camelcraft Corporation, through its president and general manager, Carmen Yulo, announced in a meeting with the employees that it would cease operations on August 13, 1987, due to serious financial losses. Operations did cease as announced. On August 17, 1987, the union filed a complaint with the Department of Labor against the petitioners for illegal lockout, unfair labor practice and damages, followed the next day with another complaint for payment of unpaid wages, emergency cost of living allowances, holiday pay, and other benefits. On November 29, 1988, the Labor Arbiter declared the shutdown illegal and violative of the employees' right to self-organization. The claim for unpaid benefits was also granted. 1 After reviewing the decision on appeal, the respondent NLRC declared: WHEREFORE, premises considered, the appealed decision is modified. In addition to the underpayment in their wages, emergency living allowance, 13th month pay, legal holiday pay and premium pay for holidays for a period of three years, the respondents are ordered to pay complainants their separation pay equivalent to one-month pay for every year of service, a fraction of six months or more shall be considered as one (1) whole year.

ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. The subordinate position of the individual employee vis-a-vis management renders him especially vulnerable to its blandishments and importunings, and even intimidations, that may result in his improvidently if reluctantly signing over benefits to which he is clearly entitled. Recognizing this danger, we have consistently held that quitclaims of the workers' benefits win not estop them from asserting them just the same on the ground that public policy prohibits such waivers. That the employee has signed a satisfaction receipt does not result in a waiver; the law does not consider as valid any agreement to receive less compensation than what a worker is entitled to recover. A deed of release or quitclaim cannot bar an employee from demanding benefits to which he is legally entitled. 8 Release and quitclaim is inequitable and incongruous to the declared public policy of the State to afford protection to labor and to assure the rights of workers to security of tenure. 9 We find also untenable the contention of Carmen Yulo that she is not liable for the acts of the petitioner company, assuming it had acted illegally, because the Carmelcraft Corporation is a distinct and separate entity with a legal personality of its own. Yulo claims she is only an agent of the company carrying out the decisions of its board of directors. We do not agree. Our finding is that she is in fact and legal effect the corporation, being not only its president and general manager but also its owner. 10 Moreover, and this is a no less important consideration, she is raising this issue only at this tardy hour, when she should have invoked this argument earlier, when the case was being heard before the labor arbiter and later m the NLRC. It is too late now to shunt these responsibilities to the company after she herself had been found liable. All told, the conduct of the petitioners toward the employees has been less than commendable. Indeed, it is reprehensible. First, the company inveigled them to waive their claims to compensation due them on the promise that future benefits would be paid (and to make matters worse, there is no showing that they were indeed paid). Second, it refused to recognize the respondent union, suggesting to the employees that they join another union acceptable to management. Third, it threatened the employees with the closure of the company and then actually did so when the employees insisted on their demands. All these acts reflect on the bona fides of the petitioners and unmistakably indicate their ill will toward the employees. The petitioners obviously regard the private respondents as mere servants simply because they are paid employees. That is a mistake. Laborers are not just hired help to be exploited, without the right to defend and improve their interest . The working class is an equal partner of management and should always be treated as such. The more labor is prevented from pursuing its legitimate demands for its protection and enhancement, the more it is likely to lose faith in our free institutions and to incline toward Ideologies offering a more if deceptive regime. One way of disabusing our working men and women of this delusion is to assure them that under our form of government, the interests of labor deserve and will get proper recognition from an enlightened and compassionate management, no less than the total sympathy of a solicitous State. WHEREFORE, the petition is DISMISSED and the challenged decision is AFFIRMED, with costs against the petitioner. It is so ordered. G.R. No. 135149 July 25, 2006

CORONA, J.: In this petition for review on certiorari from a decision1 and a resolution2 of the Court of Appeals, petitioner assails as contrary to public policy a particular stipulation contained in the terms and conditions governing the use of his Bankard credit card. The facts of the case follow.3 On August 20, 1982, petitioner Manuel Acol applied with respondent for a Bankard credit card and extension.4Both were issued to him shortly thereafter. For several years, he regularly used this card, purchasing from respondent's accredited establishments and paying the corresponding charges for such purchases. Late in the evening of April 18, 1987, petitioner discovered the loss of his credit card. After exhausting all efforts to find it, the first hour of the following day, April 19, 1987, a Sunday, he called up respondent's office and reported the loss. The representative he spoke to told him that his card would be immediately included in the circular of lost cards. Again, on April 20, 1987, petitioner called up respondent to reiterate his report on the loss of his card. He inquired if there were other requirements he needed to comply with in connection with the loss. Respondent's representative advised him to put into writing the notice of loss and to submit it, together with the extension cards of his wife and daughter. Petitioner promptly wrote a letter dated April 20, 1987 confirming the loss and sent it to respondent which received it on April 22, 1987. On April 21, 1987, a day before receiving the written notice, respondent issued a special cancellation bulletin informing its accredited establishments of the loss of the cards of the enumerated holders, including petitioner's. Unfortunately, it turned out that somebody used petitioner's card on April 19 and 20, 1987 to buy commodities worth P76,067.28. The accredited establishments reported the invoices for such purchases to respondent which then billed petitioner for that amount. Petitioner informed respondent he would not pay for the purchases made after April 19, 1987, the day he notified respondent of the loss. Immediately after receiving his statement of account for the period ending April 30, 1987, petitioner confirmed his exceptions to the billing in writing. At first, respondent agreed to reverse the disputed billings, pending the result of an investigation of petitioner's account. After the investigation and review, the respondent, through its Executive Vice-President and General Manager, Atty. Serapio S. Gabriel, confirmed that it was not the petitioner who used his Bankard on April 19 and 20, 1987. Nonetheless, respondent reversed its earlier position to delete the disputed billings and insisted on collecting within 15 days from notice. It alleged that it was the most "practicable procedure and policy of the company." It cited provision no. 1 of the "Terms and Conditions Governing The Issuance and Use of the Bankard" found at the back of the application form: xxx Holder's responsibility for all charges made through the use of the card shall continue until the expiration or its return to the Card Issuer or until a reasonable time after receipt by the Card Issuer of written notice of loss of the Card and its actual inclusion in the Cancellation Bulletin. xxx Petitioner, through his lawyer, wrote respondent to deny liability for the disputed charges. In short order, however, respondent filed suit in the Regional Trial Court (RTC) of Manila5 against petitioner for the collection ofP76,067.28, plus interest and penalty charges.6 After considering the evidence, the trial court dismissed the case and ordered the respondent-plaintiff to pay petitioner attorney's fees of P10,000 and the costs of the suit.7 The RTC denied respondent's motion for reconsideration.8 Respondent appealed to the Court of Appeals, which, while not disputing factual findings, reversed the RTC ruling and held petitioner liable for the P76,067.28. The

MANUEL C. ACOL, substituted by MANUEL RAYMOND ACOL, petitioner, vs. PHILIPPINE COMMERCIAL CREDIT CARD INCORPORATED, respondent. DECISION

Court of Appeals denied petitioner's motion for reconsideration. Thus, this petition. The basic issue in this case is whether or not the contested provision in the contract (provision no. 1 of the Terms and Conditions) was valid and binding on the petitioner, given that the contract was one of adhesion. The petition has merit. The facts of this case are virtually identical with those of Ermitao v. Court of Appeals.9 In that case, petitioner-extension cardholder Manuelita Ermitao lost her card on the night of August 29, 1989 when her bag was snatched in Makati. That very same evening, she reported the loss and immediately thereafter sent written notice to the respondent credit card company, BPI Express Card Corp. (BECC). The verbal and written notices notwithstanding, respondent insisted on billing petitioner Luis Ermitao, Manuelita's husband and the principal cardholder, for purchases made after the date of the loss totalling P3,197.70. To justify the billing, respondent BECC cited the following stipulation in their contract: In the event the card is lost or stolen, the cardholder agrees to immediately report its loss or theft in writing to BECCpurchases made/incurred arising from the use of the lost/stolen card shall be for the exclusive account of the cardholder and the cardholder continues to be liable for the purchases made through the use of the lost/stolen BPI Express Card until after such notice has been given to BECC and the latter has communicated such loss/theft to its member establishments.(emphasis ours) It is worth noting that, just like the assailed provision in this case, the stipulation devised by respondent BECC required two conditions before the cardholder could be relieved of responsibility from unauthorized charges: (1) the receipt by the card issuer of a written notice from the cardholder regarding the loss and (2) the notification to the issuer's accredited establishments regarding such loss. We struck down this stipulation as contrary to public policy and granted the Ermitaos' petition: Prompt notice by the cardholder to the credit card company of the loss or theft of his card should be enough to relieve the former of any liability occasioned by the unauthorized use of his lost or stolen card. The questioned stipulation in this case, which still requires the cardholder to wait until the credit card company has notified all its member-establishments, puts the cardholder at the mercy of the credit card company which may delay indefinitely the notification of its members to minimize if not to eliminate the possibility of incurring any loss from unauthorized purchases. Or, as in this case, the credit card company may for some reason fail to promptly notify its members through absolutely no fault of the cardholder. To require the cardholder to still pay for the unauthorized purchases after he has given prompt notice of the loss or theft of his card to the credit card company would simply be unfair and unjust. The Court cannot give its assent to such a stipulation which could clearly run against public policy. (emphasis ours) In this case, the stipulation in question is just as repugnant to public policy as that in Ermitao. As petitioner points out, the effectivity of the cancellation of the lost card rests on an act entirely beyond the control of the cardholder. Worse, the phrase "after a reasonable time" gives the issuer the opportunity to actually profit from unauthorized charges despite receipt of immediate written notice from the cardholder. Under such a stipulation, petitioner could have theoretically done everything in his power to give respondent the required written notice. But if respondent took a "reasonable" time (which could be indefinite) to include the card in its cancellation bulletin, it could still hold the cardholder liable for whatever unauthorized charges were incurred within that span of time. This would have been truly iniquitous, considering the amount respondent wanted to hold petitioner liable for. Article 1306 of the Civil Code10 prohibits contracting parties from establishing stipulations contrary to public policy. The assailed provision was just such a stipulation. It is without any hesitation therefore that we strike it down.

WHEREFORE, the petition is hereby GRANTED. The assailed decision of the Court of Appeals in CA-G.R. CV No. 39590 is reversed. The decision of the Regional Trial Court of Manila on September 30, 1991 in Civil Case No. 88-44115 is REINSTATED and the complaint filed by Philippine Commercial Credit Card Incorporated against petitioner is dismissed. G.R. No. 163512 February 28, 2007 TIU, Petitioner

DAISY B. vs. PLATINUM PLANS PHIL., INC., Respondent. DECISION QUISUMBING, J.:

For review on certiorari are the Decision1 dated January 20, 2004 of the Court of Appeals in CA-G.R. CV No. 74972, and its Resolution2 dated May 4, 2004 denying reconsideration. The Court of Appeals had affirmed the decision3 dated February 28, 2002 of the Regional Trial Court (RTC) of Pasig City, Branch 261, in an action for damages, ordering petitioner to pay respondent P100,000 as liquidated damages. The relevant facts are as follows: Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the pre-need industry. From 1987 to 1989, petitioner Daisy B. Tiu was its Division Marketing Director. On January 1, 1993, respondent re-hired petitioner as Senior Assistant VicePresident and Territorial Operations Head in charge of its Hongkong and Asean operations. The parties executed a contract of employment valid for five years.4 On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became the Vice-President for Sales of Professional Pension Plans, Inc., a corporation engaged also in the pre-need industry. Consequently, respondent sued petitioner for damages before the RTC of Pasig City, Branch 261. Respondent alleged, among others, that petitioners employment with Professional Pension Plans, Inc. violated the non-involvement clause in her contract of employment, to wit: 8. NON INVOLVEMENT PROVISION The EMPLOYEE further undertakes that during his/her engagement with EMPLOYER and in case of separation from the Company, whether voluntary or for cause, he/she shall not, for the next TWO (2) years thereafter, engage in or be involved with any corporation, association or entity, whether directly or indirectly, engaged in the same business or belonging to the same pre-need industry as the EMPLOYER. Any breach of the foregoing provision shall render the EMPLOYEE liable to the EMPLOYER in the amount of One Hundred Thousand Pesos (P100,000.00) for and as liquidated damages.5 Respondent thus prayed for P100,000 as compensatory damages; P200,000 as moral damages; P100,000 as exemplary damages; and 25% of the total amount due plus P1,000 per counsels court appearance, as attorneys fees. Petitioner countered that the non-involvement clause was unenforceable for being against public order or public policy: First, the restraint imposed was much greater than what was necessary to afford respondent a fair and reasonable protection. Petitioner contended that the transfer to a rival company was an accepted practice in the pre-need industry. Since the products sold by the companies were more or less the same, there was nothing peculiar or unique to protect. Second, respondent did not invest in petitioners training or improvement. At the time petitioner was recruited, she already possessed the knowledge and expertise required in the pre-need industry and respondent benefited tremendously from it. Third, a strict application of the non-involvement clause would amount to a deprivation of petitioners right to engage in the only work she knew. In upholding the validity of the non-involvement clause, the trial court ruled that a contract in restraint of trade is valid provided that there is a limitation upon either time or place. In the case of the pre-need industry, the trial court found the two-

year restriction to be valid and reasonable. The dispositive portion of the decision reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to pay the following: 1. the amount of One Hundred Thousand Pesos (P100,000.00) for and as damages, for the breach of the non-involvement provision (Item No. 8) of the contract of employment; 2. costs of suit. There being no sufficient evidence presented to sustain the grant of attorneys fees, the Court deems it proper not to award any. SO ORDERED.6 On appeal, the Court of Appeals affirmed the trial courts ruling. It reasoned that petitioner entered into the contract on her own will and volition. Thus, she bound herself to fulfill not only what was expressly stipulated in the contract, but also all its consequences that were not against good faith, usage, and law. The appellate court also ruled that the stipulation prohibiting non-employment for two years was valid and enforceable considering the nature of respondents business. Petitioner moved for reconsideration but was denied. Hence, this appeal by certiorari where petitioner alleges that the Court of Appeals erred when: A. *IT SUSTAINED+ THE VALIDITY OF THE NON-INVOLVEMENT CLAUSE IN PETITIONERS CONTRACT CONSIDERING THAT THE PERIOD FIXED THEREIN IS VOID FOR BEING OFFENSIVE TO PUBLIC POLICY B. *IT SUSTAINED+ THE AWARD OF LIQUIDATED DAMAGES CONSIDERING THAT IT BEING IN THE NATURE OF A PENALTY THE SAME IS EXCESSIVE, INIQUITOUS OR UNCONSCIONABLE7 Plainly stated, the core issue is whether the non-involvement clause is valid. Petitioner avers that the non-involvement clause is offensive to public policy since the restraint imposed is much greater than what is necessary to afford respondent a fair and reasonable protection. She adds that since the products sold in the preneed industry are more or less the same, the transfer to a rival company is acceptable. Petitioner also points out that respondent did not invest in her training or improvement. At the time she joined respondent, she already had the knowledge and expertise required in the pre-need industry. Finally, petitioner argues that a strict application of the non-involvement clause would deprive her of the right to engage in the only work she knows. Respondent counters that the validity of a non-involvement clause has been sustained by the Supreme Court in a long line of cases. It contends that the inclusion of the two-year non-involvement clause in petitioners contract of employment was reasonable and needed since her job gave her access to the companys confidential marketing strategies. Respondent adds that the noninvolvement clause merely enjoined her from engaging in pre-need business akin to respondents within two years from petitioners separation from respondent. She had not been prohibited from marketing other service plans. As early as 1916, we already had the occasion to discuss the validity of a noninvolvement clause. In Ferrazzini v. Gsell,8 we said that such clause was unreasonable restraint of trade and therefore against public policy. InFerrazzini, the employee was prohibited from engaging in any business or occupation in the Philippines for a period of five years after the termination of his employment contract and must first get the written permission of his employer if he were to do so. The Court ruled that while the stipulation was indeed limited as to time and space, it was not limited as to trade. Such prohibition, in effect, forces an employee to leave the Philippines to work should his employer refuse to give a written permission.

In G. Martini, Ltd. v. Glaiserman,9 we also declared a similar stipulation as void for being an unreasonable restraint of trade. There, the employee was prohibited from engaging in any business similar to that of his employer for a period of one year. Since the employee was employed only in connection with the purchase and export of abaca, among the many businesses of the employer, the Court considered the restraint too broad since it effectively prevented the employee from working in any other business similar to his employer even if his employment was limited only to one of its multifarious business activities. However, in Del Castillo v. Richmond,10 we upheld a similar stipulation as legal, reasonable, and not contrary to public policy. In the said case, the employee was restricted from opening, owning or having any connection with any other drugstore within a radius of four miles from the employers place of business during the time the employer was operating his drugstore. We said that a contract in restraint of trade is valid provided there is a limitation upon either time or place and the restraint upon one party is not greater than the protection the other party requires. Finally, in Consulta v. Court of Appeals,11 we considered a non-involvement clause in accordance with Article 130612 of the Civil Code. While the complainant in that case was an independent agent and not an employee, she was prohibited for one year from engaging directly or indirectly in activities of other companies that compete with the business of her principal. We noted therein that the restriction did not prohibit the agent from engaging in any other business, or from being connected with any other company, for as long as the business or company did not compete with the principals business. Further, the prohibition applied only for one year after the termination of the agents contract and was therefore a reasonable restriction designed to prevent acts prejudicial to the employer. Conformably then with the aforementioned pronouncements, a non-involvement clause is not necessarily void for being in restraint of trade as long as there are reasonable limitations as to time, trade, and place. In this case, the non-involvement clause has a time limit: two years from the time petitioners employment with respondent ends. It is also limited as to trade, since it only prohibits petitioner from engaging in any pre-need business akin to respondents.1awphi1.net More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations Head in charge of respondents Hongkong and Asean operations, she had been privy to confidential and highly sensitive marketing strategies of respondents business. To allow her to engage in a rival business soon after she leaves would make respondents trade secrets vulnerable especially in a highly competitive marketing environment. In sum, we find the noninvolvement clause not contrary to public welfare and not greater than is necessary to afford a fair and reasonable protection to respondent.13 In any event, Article 1306 of the Civil Code provides that parties to a contract may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Article 115914 of the same Code also provides that obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Courts cannot stipulate for the parties nor amend their agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so would be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and effect thereto.15 Not being contrary to public policy, the non-involvement clause, which petitioner and respondent freely agreed upon, has the force of law between them, and thus, should be complied with in good faith.16 Thus, as held by the trial court and the Court of Appeals, petitioner is bound to pay respondent P100,000 as liquidated damages. While we have equitably reduced liquidated damages in certain cases,17 we cannot do so in this case, since it appears that even from the start, petitioner had not shown the least intention to fulfill the non-involvement clause in good faith. WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 20, 2004, and the Resolution dated May 4, 2004, of the Court of Appeals in CAG.R. CV No. 74972, are AFFIRMED. Costs against petitioner. G.R. No. 156966 : May 7, 2004

PILIPINO TELEPHONE TECSON, Respondent. DECISION VITUG, J.: The facts, by and large, are undisputed.

CORPORATION, Petitioner, v. DELFINO

A contract of adhesion is just as binding as ordinary contracts. It is true that this Court has, on occasion, struck down such contracts as being assailable when the weaker party is left with no choice by the dominant bargaining party and is thus completely deprived of an opportunity to bargain effectively. Nevertheless, contracts of adhesion are not prohibited even as the courts remain careful in scrutinizing the factual circumstances underlying each case to determine the respective claims of contending parties on their efficacy. In the case at bar, respondent secured six (6) subscription contracts for cellular phones on various dates.It would be difficult to assume that, during each of those times, respondent had no sufficient opportunity to read and go over the terms and conditions embodied in the agreements. Respondent continued, in fact, to acquire in the pursuit of his business subsequent subscriptions and remained a subscriber of petitioner for quite sometime. In Development Bank of the Philippines vs. National Merchandising Corporation,5 the contracting parties, being of age and businessmen of experience, were presumed to have acted with due care and to have signed the assailed documents with full knowledge of their import. The situation would be no less true than that which obtains in the instant suit. The circumstances in Sweet Lines, Inc. vs. Teves,6 wherein this Court invalidated the venue stipulation contained in the passage ticket, would appear to be rather peculiar to that case. There, the Court took note of an acute shortage in inter-island vessels that left passengers literally scrambling to secure accommodations and tickets from crowded and congested counters. Hardly, therefore, were the passengers accorded a real opportunity to examine the fine prints contained in the tickets, let alone reject them. A contract duly executed is the law between the parties, and they are obliged to comply fully and not selectively with its terms. A contract of adhesion is no exception.7 WHEREFORE, the instant petition is GRANTED, and the questioned decision and resolution of the Court of Appeals in CA-G.R. SP No. 68104 are REVERSED and SET ASIDE. Civil Case No. 5572 pending before the Regional Trial Court of Iligan City, Branch 4, is DISMISSED without prejudice to the filing of an appropriate complaint by respondent against petitioner with the court of proper venue. No costs. G.R. No. 118248 April 5, 2000

On various dates in 1996, Delfino C. Tecson applied for six (6) cellular phone subscriptions with petitioner Pilipino Telephone Corporation (PILTEL), a company engaged in the telecommunications business, which applications were each approved and covered, respectively, by six mobiline service agreements. On 05 April 2001, respondent filed with the Regional Trial Court of Iligan City, Lanao Del Norte, a complaint against petitioner for a Sum of Money and Damages. Petitioner moved for the dismissal of the complaint on the ground of improper venue, citing a common provision in the mobiline service agreements to the effect that Venue of all suits arising from this Agreement or any other suit directly or indirectly arising from the relationship between PILTEL and subscriber shall be in the proper courts of Makati, Metro Manila. Subscriber hereby expressly waives any other venues.1 In an order, dated 15 August 2001, the Regional Trial Court of Iligan City, Lanao del Norte, denied petitioners motion to dismiss and required it to file an answer within 15 days from receipt thereof. Petitioner PILTEL filed a motion for the reconsideration, through registered mail, of the order of the trial court.In its subsequent order, dated 08 October 2001, the trial court denied the motion for reconsideration. Petitioner filed a petition for certiorari under Rule 65 of the Revised Rules of Civil Procedure before the Court of Appeals. The Court of Appeals, in its decision of 30 April 2002, saw no merit in the petition and affirmed the assailed orders of the trial court. Petitioner moved for a reconsideration, but the appellate court, in its order of 21 January 2003, denied the motion. There is merit in the instant petition. Section 4, Rule 4, of the Revised Rules of Civil Procedure2 allows the parties to agree and stipulate in writing, before the filing of an action, on the exclusive venue of any litigation between them. Such an agreement would be valid and binding provided that the stipulation on the chosen venue is exclusive in nature or in intent, that it is expressed in writing by the parties thereto, and that it is entered into before the filing of the suit. The provision contained in paragraph 22 of the Mobile Service Agreement, a standard contract made out by petitioner PILTEL to its subscribers, apparently accepted and signed by respondent, states that the venue of all suits arising from the agreement, or any other suit directly or indirectly arising from the relationship between PILTEL and subscriber, shall be in the proper courts of Makati, Metro Manila. The added stipulation that the subscriber expressly waives any other venue3 should indicate, clearly enough, the intent of the parties to consider the venue stipulation as being preclusive in character. The appellate court, however, would appear to anchor its decision on the thesis that the subscription agreement, being a mere contract of adhesion, does not bind respondent on the venue stipulation. Indeed, the contract herein involved is a contract of adhesion. But such an agreement is not per se inefficacious. The rule instead is that, should there be ambiguities in a contract of adhesion, such ambiguities are to be construed against the party that prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations must be held controlling.4

DKC HOLDINGS CORPORATION,petitioner, vs. COURT OF APPEALS, VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA, DISTRICT III, respondents. YNARES-SANTIAGO, J. This is a petition for review on certiorari seeking the reversal of the December 5, 1994 Decision of the Court of Appeals in CA-G.R. CV No. 40849 entitled "DKC Holdings Corporation vs. Victor U. Bartolome, et al.",1 affirming in toto the January 4, 1993 Decision of the Regional Trial Court of Valenzuela, Branch 172,2 which dismissed Civil Case No. 3337-V-90 and ordered petitioner to pay P30,000.00 as attorney's fees. The subject of the controversy is a 14,021 square meter parcel of land located in Malinta, Valenzuela, Metro Manila which was originally owned by private respondent Victor U. Bartolome's deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of one of the textile plants of petitioner and, as such, was seen by the latter as a potential warehouse site. On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with Encarnacion Bartolome, whereby petitioner was given the option to lease or lease with purchase the subject land, which option must be exercised within a period of two years counted from the signing of the Contract. In turn, petitioner undertook to pay P3,000.00 a month as consideration for the reservation of its option. Within the two-year period, petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome of its desire to exercise its option. The contract also provided that in case petitioner chose to lease the property, it may take actual possession of the premises. In such an event, the lease shall be for a period of six years, renewable for another six years, and the monthly rental fee shall be P15,000.00 for the first six years and P18,000.00 for the next six years, in case of renewal.

Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion until her death in January 1990. Thereafter, petitioner coursed its payment to private respondent Victor Bartolome, being the sole heir of Encarnacion. Victor, however, refused to accept these payments. Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the properties of Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds cancelled Transfer Certificate of Title No. B-37615 and issued Transfer Certificate of Title No. V-14249 in the name of Victor Bartolome. On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising its option to lease the property, tendering the amount of P15,000.00 as rent for the month of March. Again, Victor refused to accept the tendered rental fee and to surrender possession of the property to petitioner. Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking Corporation, Cubao Branch, in the name of Victor Bartolome and deposited therein the P15,000.00 rental fee for March as well as P6,000.00 reservation fees for the months of February and March. Petitioner also tried to register and annotate the Contract on the title of Victor to the property. Although respondent Register of Deeds accepted the required fees, he nevertheless refused to register or annotate the same or even enter it in the day book or primary register.1wphi1.nt Thus, on April 23, 1990, petitioner filed a complaint for specific performance and damages against Victor and the Register of Deeds,3 docketed as Civil Case No. 3337-V-90 which was raffled off to Branch 171 of the Regional Trial Court of Valenzuela. Petitioner prayed for the surrender and delivery of possession of the subject land in accordance with the Contract terms; the surrender of title for registration and annotation thereon of the Contract; and the payment of P500,000.00 as actual damages, P500,000.00 as moral damages, P500,000.00 as exemplary damages and P300,000.00 as attorney's fees. Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss4 was filed by one Andres Lanozo, who claimed that he was and has been a tenant-tiller of the subject property, which was agricultural riceland, for forty-five years. He questioned the jurisdiction of the lower court over the property and invoked the Comprehensive Agrarian Reform Law to protect his rights that would be affected by the dispute between the original parties to the case. On May 18, 1990, the lower court issued an Order5 referring the case to the Department of Agrarian Reform for preliminary determination and certification as to whether it was proper for trial by said court. On July 4, 1990, the lower court issued another Order6 referring the case to Branch 172 of the RTC of Valenzuela which was designated to hear cases involving agrarian land, after the Department of Agrarian Reform issued a lettercertification stating that referral to it for preliminary determination is no longer required. On July 16, 1990, the lower court issued an Order denying the Motion to Intervene,7 holding that Lanozo's rights may well be ventilated in another proceeding in due time. After trial on the merits, the RTC of Valenzuela, Branch 172 rendered its Decision on January 4, 1993, dismissing the Complaint and ordering petitioner to pay Victor P30,000.00 as attorney's fees. On appeal to the CA, the Decision was affirmed in toto. Hence, the instant Petition assigning the following errors: (A) FIRST ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PROVISION ON THE NOTICE TO EXERCISE OPTION WAS NOT TRANSMISSIBLE.

(B) SECOND ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE NOTICE OF OPTION MUST BE SERVED BY DKC UPON ENCARNACION BARTOLOME PERSONALLY. (C) THIRD ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACT WAS ONE-SIDED AND ONEROUS IN FAVOR OF DKC. (D) FOURTH ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE EXISTENCE OF A REGISTERED TENANCY WAS FATAL TO THE VALIDITY OF THE CONTRACT. (E) FIFTH ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PLAINTIFFAPPELLANT WAS LIABLE TO DEFENDANT-APPELLEE FOR ATTORNEY'S FEES.8 The issue to be resolved in this case is whether or not the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with petitioner was terminated upon her death or whether it binds her sole heir, Victor, even after her demise. Both the lower court and the Court of Appeals held that the said contract was terminated upon the death of Encarnacion Bartolome and did not bind Victor because he was not a party thereto. Art. 1311 of the Civil Code provides, as follows Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. xxx xxx xxx The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law. In the case at bar, there is neither contractual stipulation nor legal provision making the rights and obligations under the contract intransmissible. More importantly, the nature of the rights and obligations therein are, by their nature, transmissible. The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows: Among contracts which are intransmissible are those which are purely personal, either by provision of law, such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated that contracts for the payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate. Thus, where the client in a contract for professional services of a lawyer died, leaving minor heirs, and the lawyer, instead of presenting his claim for professional services under the contract to the probate

court, substituted the minors as parties for his client, it was held that the contract could not be enforced against the minors; the lawyer was limited to a recovery on the basis of quantum meruit.9 In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal qualification of one or both parties, the agreement is of a personal nature, and terminates on the death of the party who is required to render such service." 10 It has also been held that a good measure for determining whether a contract terminates upon the death of one of the parties is whether it is of such a character that it may be performed by the promissor's personal representative. Contracts to perform personal acts which cannot be as well performed by others are discharged by the death of the promissor. Conversely, where the service or act is of such a character that it may as well be performed by another, or where the contract, by its terms, shows that performance by others was contemplated, death does not terminate the contract or excuse nonperformance. 11 In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner upon the exercise by the latter of its option to lease the same may very well be performed by her heir Victor. As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." 12 In 1952, it was ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the reconveyance had not been made, the heirs can be compelled to execute the proper deed for reconveyance. This was grounded upon the principle that heirs cannot escape the legal consequence of a transaction entered into by their predecessor-in-interest because they have inherited the property subject to the liability affecting their common ancestor. 13 It is futile for Victor to insist that he is not a party to the contract because of the clear provision of Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and binding as against him. 14 This is clear from Paraaque Kings Enterprises vs. Court of Appeals, 15 where this Court rejected a similar defense With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal. In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy. In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death of a party does not excuse nonperformance of a contract which involves a property right, and the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract. 16 Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the subject Contract of Lease with Option to Buy. That being resolved, we now rule on the issue of whether petitioner had complied with its obligations under the contract and with the requisites to exercise its option. The payment by petitioner of the reservation fees during the two-year period within which it had the option to lease or purchase the property is not disputed. In fact, the payment of such reservation fees, except those for February and March, 1990 were admitted by Victor. 17 This is clear from the transcripts, to wit

ATTY. MOJADO: One request, Your Honor. The last payment which was allegedly made in January 1990 just indicate in that stipulation that it was issued November of 1989 and postdated January 1990 and then we will admit all. COURT: All reservation fee? ATTY. MOJADO: Yes, Your Honor. COURT: All as part of the lease? ATTY. MOJADO: Reservation fee, Your Honor. There was no payment with respect to payment of rentals.18 Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the same in China Bank Savings Account No. 1-04-02558-I-1, in the name of Victor as the sole heir of Encarnacion Bartolome, 19 for the months of March to July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn over the subject property. 20 Likewise, petitioner complied with its duty to inform the other party of its intention to exercise its option to lease through its letter dated Match 12, 1990, 21 well within the two-year period for it to exercise its option. Considering that at that time Encarnacion Bartolome had already passed away, it was legitimate for petitioner to have addressed its letter to her heir. It appears, therefore, that the exercise by petitioner of its option to lease the subject property was made in accordance with the contractual provisions. Concomitantly, private respondent Victor Bartolome has the obligation to surrender possession of and lease the premises to petitioner for a period of six (6) years, pursuant to the Contract of Lease with Option to Buy. Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in the present petition. We note that the Motion to Intervene and to Dismiss of the alleged tenant, Andres Lanozo, was denied by the lower court and that such denial was never made the subject of an appeal. As the lower court stated in its Order, the alleged right of the tenant may well be ventilated in another proceeding in due time. WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional Trial Court of Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and a new one rendered ordering private respondent Victor Bartolome to: (a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of Title No. V-14249 by way of lease to petitioner and to perform all obligations of his predecessor-in-interest, Encarnacion Bartolome, under the subject Contract of Lease with Option to Buy; (b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent Register of Deeds for registration and annotation thereon of the subject Contract of Lease with Option to Buy; (c) pay costs of suit. Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject Contract of Lease with Option to Buy at the back of Transfer Certificate of Title No. V-14249 upon submission by petitioner of a copy thereof to his office.

G.R.

No.

118248

April

5,

2000

DKC HOLDINGS CORPORATION,petitioner, vs. COURT OF APPEALS, VICTOR U. BARTOLOME and REGISTER OF DEEDS FOR METRO MANILA, DISTRICT III, respondents. YNARES-SANTIAGO, J. This is a petition for review on certiorari seeking the reversal of the December 5, 1994 Decision of the Court of Appeals in CA-G.R. CV No. 40849 entitled "DKC Holdings Corporation vs. Victor U. Bartolome, et al.",1 affirming in toto the January 4, 1993 Decision of the Regional Trial Court of Valenzuela, Branch 172,2 which dismissed Civil Case No. 3337-V-90 and ordered petitioner to pay P30,000.00 as attorney's fees. The subject of the controversy is a 14,021 square meter parcel of land located in Malinta, Valenzuela, Metro Manila which was originally owned by private respondent Victor U. Bartolome's deceased mother, Encarnacion Bartolome, under Transfer Certificate of Title No. B-37615 of the Register of Deeds of Metro Manila, District III. This lot was in front of one of the textile plants of petitioner and, as such, was seen by the latter as a potential warehouse site. On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with Encarnacion Bartolome, whereby petitioner was given the option to lease or lease with purchase the subject land, which option must be exercised within a period of two years counted from the signing of the Contract. In turn, petitioner undertook to pay P3,000.00 a month as consideration for the reservation of its option. Within the two-year period, petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome of its desire to exercise its option. The contract also provided that in case petitioner chose to lease the property, it may take actual possession of the premises. In such an event, the lease shall be for a period of six years, renewable for another six years, and the monthly rental fee shall be P15,000.00 for the first six years and P18,000.00 for the next six years, in case of renewal. Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion until her death in January 1990. Thereafter, petitioner coursed its payment to private respondent Victor Bartolome, being the sole heir of Encarnacion. Victor, however, refused to accept these payments. Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the properties of Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds cancelled Transfer Certificate of Title No. B-37615 and issued Transfer Certificate of Title No. V-14249 in the name of Victor Bartolome. On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising its option to lease the property, tendering the amount of P15,000.00 as rent for the month of March. Again, Victor refused to accept the tendered rental fee and to surrender possession of the property to petitioner. Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking Corporation, Cubao Branch, in the name of Victor Bartolome and deposited therein the P15,000.00 rental fee for March as well as P6,000.00 reservation fees for the months of February and March. Petitioner also tried to register and annotate the Contract on the title of Victor to the property. Although respondent Register of Deeds accepted the required fees, he nevertheless refused to register or annotate the same or even enter it in the day book or primary register.1wphi1.nt Thus, on April 23, 1990, petitioner filed a complaint for specific performance and damages against Victor and the Register of Deeds,3 docketed as Civil Case No. 3337-V-90 which was raffled off to Branch 171 of the Regional Trial Court of Valenzuela. Petitioner prayed for the surrender and delivery of possession of the subject land in accordance with the Contract terms; the surrender of title for registration and annotation thereon of the Contract; and the payment of P500,000.00 as actual damages, P500,000.00 as moral damages, P500,000.00 as exemplary damages and P300,000.00 as attorney's fees. Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss4 was filed by one Andres Lanozo, who claimed that he was and has been a tenant-tiller of the subject property, which was agricultural riceland, for forty-five

years. He questioned the jurisdiction of the lower court over the property and invoked the Comprehensive Agrarian Reform Law to protect his rights that would be affected by the dispute between the original parties to the case. On May 18, 1990, the lower court issued an Order5 referring the case to the Department of Agrarian Reform for preliminary determination and certification as to whether it was proper for trial by said court. On July 4, 1990, the lower court issued another Order6 referring the case to Branch 172 of the RTC of Valenzuela which was designated to hear cases involving agrarian land, after the Department of Agrarian Reform issued a lettercertification stating that referral to it for preliminary determination is no longer required. On July 16, 1990, the lower court issued an Order denying the Motion to Intervene,7 holding that Lanozo's rights may well be ventilated in another proceeding in due time. After trial on the merits, the RTC of Valenzuela, Branch 172 rendered its Decision on January 4, 1993, dismissing the Complaint and ordering petitioner to pay Victor P30,000.00 as attorney's fees. On appeal to the CA, the Decision was affirmed in toto. Hence, the instant Petition assigning the following errors: (A) FIRST ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PROVISION ON THE NOTICE TO EXERCISE OPTION WAS NOT TRANSMISSIBLE. (B) SECOND ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE NOTICE OF OPTION MUST BE SERVED BY DKC UPON ENCARNACION BARTOLOME PERSONALLY. (C) THIRD ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACT WAS ONE-SIDED AND ONEROUS IN FAVOR OF DKC. (D) FOURTH ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE EXISTENCE OF A REGISTERED TENANCY WAS FATAL TO THE VALIDITY OF THE CONTRACT. (E) FIFTH ASSIGNMENT OF ERROR THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PLAINTIFFAPPELLANT WAS LIABLE TO DEFENDANT-APPELLEE FOR ATTORNEY'S FEES.8 The issue to be resolved in this case is whether or not the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with petitioner was terminated upon her death or whether it binds her sole heir, Victor, even after her demise.

Both the lower court and the Court of Appeals held that the said contract was terminated upon the death of Encarnacion Bartolome and did not bind Victor because he was not a party thereto. Art. 1311 of the Civil Code provides, as follows Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. xxx xxx xxx The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law. In the case at bar, there is neither contractual stipulation nor legal provision making the rights and obligations under the contract intransmissible. More importantly, the nature of the rights and obligations therein are, by their nature, transmissible. The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows: Among contracts which are intransmissible are those which are purely personal, either by provision of law, such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom, such as those requiring special personal qualifications of the obligor. It may also be stated that contracts for the payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate. Thus, where the client in a contract for professional services of a lawyer died, leaving minor heirs, and the lawyer, instead of presenting his claim for professional services under the contract to the probate court, substituted the minors as parties for his client, it was held that the contract could not be enforced against the minors; the lawyer was limited to a recovery on the basis of quantum meruit.9 In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of special knowledge, genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal qualification of one or both parties, the agreement is of a personal nature, and terminates on the death of the party who is required to render such service." 10 It has also been held that a good measure for determining whether a contract terminates upon the death of one of the parties is whether it is of such a character that it may be performed by the promissor's personal representative. Contracts to perform personal acts which cannot be as well performed by others are discharged by the death of the promissor. Conversely, where the service or act is of such a character that it may as well be performed by another, or where the contract, by its terms, shows that performance by others was contemplated, death does not terminate the contract or excuse nonperformance. 11 In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner upon the exercise by the latter of its option to lease the same may very well be performed by her heir Victor. As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." 12 In 1952, it was ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the reconveyance had not been made, the heirs can be compelled to execute the proper deed for reconveyance. This was grounded upon the principle that heirs cannot escape the legal consequence of a transaction entered into by their predecessor-in-interest because they have inherited the property subject to the liability affecting their common ancestor. 13 It is futile for Victor to insist that he is not a party to the contract because of the clear provision of Article 1311 of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and binding as against him. 14 This is clear from Paraaque Kings Enterprises vs. Court of Appeals, 15 where this Court rejected a similar defense

With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal. In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy. In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death of a party does not excuse nonperformance of a contract which involves a property right, and the rights and obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract. 16 Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the subject Contract of Lease with Option to Buy. That being resolved, we now rule on the issue of whether petitioner had complied with its obligations under the contract and with the requisites to exercise its option. The payment by petitioner of the reservation fees during the two-year period within which it had the option to lease or purchase the property is not disputed. In fact, the payment of such reservation fees, except those for February and March, 1990 were admitted by Victor. 17 This is clear from the transcripts, to wit ATTY. MOJADO: One request, Your Honor. The last payment which was allegedly made in January 1990 just indicate in that stipulation that it was issued November of 1989 and postdated January 1990 and then we will admit all. COURT: All reservation fee? ATTY. MOJADO: Yes, Your Honor. COURT: All as part of the lease? ATTY. MOJADO: Reservation fee, Your Honor. There was no payment with respect to payment of rentals.18 Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the same in China Bank Savings Account No. 1-04-02558-I-1, in the name of Victor as the sole heir of Encarnacion Bartolome, 19 for the months of March to July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn over the subject property. 20 Likewise, petitioner complied with its duty to inform the other party of its intention to exercise its option to lease through its letter dated Match 12, 1990, 21 well within the two-year period for it to exercise its option. Considering that at that time Encarnacion Bartolome had already passed away, it was legitimate for petitioner to have addressed its letter to her heir.

It appears, therefore, that the exercise by petitioner of its option to lease the subject property was made in accordance with the contractual provisions. Concomitantly, private respondent Victor Bartolome has the obligation to surrender possession of and lease the premises to petitioner for a period of six (6) years, pursuant to the Contract of Lease with Option to Buy. Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in the present petition. We note that the Motion to Intervene and to Dismiss of the alleged tenant, Andres Lanozo, was denied by the lower court and that such denial was never made the subject of an appeal. As the lower court stated in its Order, the alleged right of the tenant may well be ventilated in another proceeding in due time. WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional Trial Court of Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and a new one rendered ordering private respondent Victor Bartolome to: (a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of Title No. V-14249 by way of lease to petitioner and to perform all obligations of his predecessor-in-interest, Encarnacion Bartolome, under the subject Contract of Lease with Option to Buy; (b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent Register of Deeds for registration and annotation thereon of the subject Contract of Lease with Option to Buy; (c) pay costs of suit. Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject Contract of Lease with Option to Buy at the back of Transfer Certificate of Title No. V-14249 upon submission by petitioner of a copy thereof to his office. G.R. No. 140182. April 12, 2005 TANAY RECREATION CENTER CORP., Petitioner, vs. CATALINA MATIENZO FAUSTO PACUNAYEN, Respondents. DECISION AUSTRIA-MARTINEZ, J.: Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto,[1] under a Contract of Lease executed on August 1, 1971. On this property stands the Tanay Coliseum Cockpit operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration. The contract also provided that should Fausto decide to sell the property, petitioner shall have the 'priority right to purchase the same.[2] On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease.[3] However, it was Fausto's daughter, respondent Anunciacion F. Pacunayen, who replied, asking that petitioner remove the improvements built thereon, as she is now the absolute owner of the property.[4] It appears that Fausto had earlier sold the property to Pacunayen on August 8, 1990, for the sum of P10,000.00 under a 'Kasulatan ng Bilihan Patuluyan ng Lupa, [5] and title has already been transferred in her name under Transfer Certificate of Title (TCT) No. M-35468.[6] Despite efforts, the matter was not resolved. Hence, on September 4, 1991, petitioner filed an Amended Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction, docketed as Civil Case No. 372-M.[7] In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale as the latter acknowledged her ownership when it merely asked for a renewal of the lease. According to respondent, when they met to discuss the matter, petitioner did not demand for the exercise of its option to purchase the property, and it even asked for grace period to vacate the premises.[8] AND FAUSTO + and DEVELOPMENT ANUNCIACION

After trial on the merits, the Regional Trial Court of Morong, Rizal (Branch 78), rendered judgment extending the period of the lease for another seven years from August 1, 1991 at a monthly rental of P10,000.00, and dismissed petitioner's claim for damages.[9] On appeal, docketed as CA-G.R. CV No. 43770, the Court of Appeals (CA) affirmed with modifications the trial court's judgment per its Decision dated June 14, 1999.[10] The dispositive portion of the decision reads: WHEREFORE, the appealed decision is AFFIRMED AND ACCORDINGLY MODIFIED AS DISCUSSED. Furthermore, we resolved: 1.0. That TRCDC VACATE the leased premises immediately; 2.0. To GRANT the motion of Pacunayen to allow her to withdraw the amount of P320,000.00, deposited according to records, with this court. 3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING regarding the amounts it had already deposited (for unpaid rentals for the extended period of seven [7] years of the contract of lease). In case it had not yet completed its deposit, to immediately pay the remaining balance to Pacunayen. 4.0. To order TRCDC to PAY the amount of P10,000.00 as monthly rental, with regard to its continued stay in the leased premises even after the expiration of the extended period of seven (7) years, computed from August 1, 1998, until it finally vacates therefrom. SO ORDERED.[11] In arriving at the assailed decision, the CA acknowledged the priority right of TRCDC to purchase the property in question. However, the CA interpreted such right to mean that it shall be applicable only in case the property is sold to strangers and not to Fausto's relative. The CA stated that '(T)o interpret it otherwise as to comprehend all sales including those made to relatives and to the compulsory heirs of the seller at that would be an absurdity, and 'her (Fausto's ) only motive for such transfer was precisely one of preserving the property within her bloodline and that someone administer the property.[12] The CA also ruled that petitioner already acknowledged the transfer of ownership and is deemed to have waived its right to purchase the property.[13] The CA even further went on to rule that even if the sale is annulled, petitioner could not achieve anything because the property will be eventually transferred to Pacunayen after Fausto's death.[14] Petitioner filed a motion for reconsideration but it was denied per Resolution dated September 14, 1999.[15] Dissatisfied, petitioner elevated the case to this Court on petition for review on certiorari, raising the following grounds: THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN HOLDING THAT THE CONTRACTUAL STIPULATION GIVING PETITIONER THE PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES SHALL ONLY APPLY IF THE LESSOR DECIDES TO SELL THE SAME TO STRANGERS; THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN HOLDING THAT PETITIONER'S PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES IS INCONSEQUENTIAL.[16] The principal bone of contention in this case refers to petitioner's priority right to purchase, also referred to as the right of first refusal. Petitioner's right of first refusal in this case is expressly provided for in the notarized 'Contract of Lease dated August 1, 1971, between Fausto and petitioner, to wit: 7. That should the LESSOR decide to sell the leased premises, the LESSEE shall have the priority right to purchase the same;[17]

When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first offer shall be in his favor.[18] Petitioner's right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration for the lease includes the consideration for the right of first refusal[19] and is built into the reciprocal obligations of the parties. It was erroneous for the CA to rule that the right of first refusal does not apply when the property is sold to Fausto's relative.[20] When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon. As such, there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement, except when it fails to express the true intent and agreement of the parties.[21] In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It simply means that should Fausto decide to sell the leased property during the term of the lease, such sale should first be offered to petitioner. The stipulation does not provide for the qualification that such right may be exercised only when the sale is made to strangers or persons other than Fausto's kin. Thus, under the terms of petitioner's right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said offer was rejected by petitioner. Pursuant to their contract, it was essential that Fausto should have first offered the property to petitioner before she sold it to respondent. It was only after petitioner failed to exercise its right of first priority could Fausto then lawfully sell the property to respondent. The rule is that a sale made in violation of a right of first refusal is valid. However, it may be rescinded, or, as in this case, may be the subject of an action for specific performance.[22] In Riviera Filipina, Inc. vs. Court of Appeals ,[23]the Court discussed the concept and interpretation of the right of first refusal and the consequences of a breach thereof, to wit: . . . It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie where the Court held that a lease with a proviso granting the lessee the right of first priority 'all things and conditions being equal meant that there should be identity of the terms and conditions to be offered to the lessee and all other prospective buyers, with the lessee to enjoy the right of first priority. A deed of sale executed in favor of a third party who cannot be deemed a purchaser in good faith, and which is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of Frauds but rescissible under Articles 1380 to 1381 (3) of the New Civil Code. Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals , the Court en banc departed from the doctrine laid down in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a contract of sale which violated the right of first refusal. The Court held that the so-called 'right of first refusal cannot be deemed a perfected contract of sale under Article 1458 of the New Civil Code and, as such, a breach thereof decreed under a final judgment does not entitle the aggrieved party to a writ of execution of the judgment but to an action for damages in a proper forum for the purpose. In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. , the Court en banc reverted back to the doctrine in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred right by the contract. Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of Appeals , the Court affirmed the nature of and the concomitant rights and obligations of parties under a right of first refusal. The Court, summarizing the rulings inGuzman, Bocaling & Co. v. Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. , held that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the properties for the price for which they were finally sold to a third person should have likewise been first offered to the former. Further, there should be identity of terms and conditions to be offered to the buyer holding a right of first refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. The prevailing doctrine therefore, is that a right of first refusal means identity of terms and conditions to be offered to the lessee and all other prospective buyers

and a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible.[24] It was also incorrect for the CA to rule that it would be useless to annul the sale between Fausto and respondent because the property would still remain with respondent after the death of her mother by virtue of succession, as in fact, Fausto died in March 1996, and the property now belongs to respondent, being Fausto's heir.[25] For one, Fausto was bound by the terms and conditions of the lease contract. Under the right of first refusal clause, she was obligated to offer the property first to petitioner before selling it to anybody else. When she sold the property to respondent without offering it to petitioner, the sale while valid is rescissible so that petitioner may exercise its option under the contract. With the death of Fausto, whatever rights and obligations she had over the property, including her obligation under the lease contract, were transmitted to her heirs by way of succession, a mode of acquiring the property, rights and obligation of the decedent to the extent of the value of the inheritance of the heirs. Article 1311 of the Civil Code provides: ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the property he received from the decedent. A lease contract is not essentially personal in character.[26] Thus, the rights and obligations therein are transmissible to the heirs. The general rule is that heirs are bound by contracts entered into by their predecessors-in-interest except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3) provision of law.[27] In this case, the nature of the rights and obligations are, by their nature, transmissible. There is also neither contractual stipulation nor provision of law that makes the rights and obligations under the lease contract intransmissible. The lease contract between petitioner and Fausto is a property right, which is a right that passed on to respondent and the other heirs, if any, upon the death of Fausto. In DKC Holdings Corporation vs. Court of Appeals,[28] the Court held that the Contract of Lease with Option to Buy entered into by the late Encarnacion Bartolome with DKC Holdings Corporation was binding upon her sole heir, Victor, even after her demise and it subsists even after her death. The Court ruled that: . . . Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is also valid and binding as against him. This is clear from Paraaque Kings Enterprises vs. Court of Appeals, where this Court rejected a similar defenseWith respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal. In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first option to buy.[29] (Emphasis supplied) Likewise in this case, the contract of lease, with all its concomitant provisions, continues even after Fausto's death and her heirs merely stepped into her shoes.[30] Respondent, as an heir of Fausto, is therefore bound to fulfill all its terms and conditions.

There is no personal act required from Fausto such that respondent cannot perform it. Fausto's obligation to deliver possession of the property to petitioner upon the exercise by the latter of its right of first refusal may be performed by respondent and the other heirs, if any. Similarly, nonperformance is not excused by the death of the party when the other party has a property interest in the subject matter of the contract.[31] The CA likewise found that petitioner acknowledged the legitimacy of the sale to respondent and it is now barred from exercising its right of first refusal. According to the appellate court: Second, when TRCDC, in a letter to Fausto, signified its intention to renew the lease contract, it was Pacunayen who answered the letter on June 19, 1991. In that letter Pacunayen demanded that TRCDC vacate the leased premises within sixty (60) days and informed it of her ownership of the leased premises. The pertinent portion of the letter reads: Furtherly, please be advised that the land is no longer under the absolute ownership of my mother and the undersigned is now the real and absolute owner of the land. Instead of raising a howl over the contents of the letter, as would be its expected and natural reaction under the circumstances, TRCDC surprisingly kept silent about the whole thing. As we mentioned in the factual antecedents of this case, it even invited Pacunayen to its special board meeting particularly to discuss with her the renewal of the lease contract. Again, during that meeting, TRCDC did not mention anything that could be construed as challenging Pacunayen's ownership of the leased premises. Neither did TRCDC assert its priority right to purchase the same against Pacunayen.[32] The essential elements of estoppel are: (1) conduct of a party 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 this conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts.[33] The records are bereft of any proposition that petitioner waived its right of first refusal under the contract such that it is now estopped from exercising the same. In a letter dated June 17, 1991, petitioner wrote to Fausto asking for a renewal of the term of lease.[34] Petitioner cannot be faulted for merely seeking a renewal of the lease contract because obviously, it was working on the assumption that title to the property is still in Fausto's name and the latter has the sole authority to decide on the fate of the property. Instead, it was respondent who replied, advising petitioner to remove all the improvements on the property, as the lease is to expire on the 1st of August 1991. Respondent also informed petitioner that her mother has already sold the property to her.[35] In order to resolve the matter, a meeting was called among petitioner's stockholders, including respondent, on July 27, 1991, where petitioner, again, proposed that the lease be renewed. Respondent, however, declined. While petitioner may have sought the renewal of the lease, it cannot be construed as a relinquishment of its right of first refusal. Estoppel must be intentional and unequivocal.[36] Also, in the excerpts from the minutes of the special meeting, it was further stated that the possibility of a sale was likewise considered.[37] But respondent also refused to sell the land, while the improvements, 'if for sale shall be subject for appraisal.[38] After respondent refused to sell the land, it was then that petitioner filed the complaint for annulment of sale, specific performance and damages.[39] Petitioner's acts of seeking all possible avenues for the amenable resolution of the conflict do not amount to an intentional and unequivocal abandonment of its right of first refusal. Respondent was well aware of petitioner's right to priority of sale, and that the sale made to her by her mother was merely for her to be able to take charge of the latter's affairs. As admitted by respondent in her Appellee's Brief filed before the CA, viz.: After June 19, 1991, TRCDC invited Pacunayen to meeting with the officers of the corporation. . . . In the same meeting, Pacunayen's attention was called to the provision of the Contract of Lease had by her mother with TRCDC, particularly paragraph 7 thereof, which states:

7. That should the lessor decide to sell the leased premises, the LESSEE shall have the priority right to purchase the same. Of course, in the meeting she had with the officers of TRCDC, Pacunayen explained that the sale made in her favor by her mother was just a formality so that she may have the proper representation with TRCDC in the absence of her parents, more so that her father had already passed away, and there was no malice in her mine (sic) and that of her mother, or any intention on their part to deceive TRCDC. All these notwithstanding, and for her to show their good faith in dealing with TRCDC, Pacunayen started the ground work to reconvey ownership over the whole land, now covered by Transfer Certificare (sic) of Title No. M-259, to and in the name of her mother (Fausto), but the latter was becoming sickly, old and weak, and they found no time to do it as early as they wanted to.[40] (Emphasis supplied) Given the foregoing, the 'Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8, 1990 between Fausto and respondent must be rescinded. Considering, however, that Fausto already died on March 16, 1996, during the pendency of this case with the CA, her heirs should have been substituted as respondents in this case. Considering further that the Court cannot declare respondent Pacunayen as the sole heir, as it is not the proper forum for that purpose, the right of petitioner may only be enforced against the heirs of the deceased Catalina Matienzo Fausto, represented by respondent Pacunayen. In Paraaque Kings Enterprises, Inc. vs. Court of Appeals ,[41] it was ruled that the basis of the right of the first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. It is only after the grantee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the grantee. The circumstances of this case, however, dictate the application of a different ruling. An offer of the property to petitioner under identical terms and conditions of the offer previously given to respondent Pacunayen would be inequitable. The subject property was sold in 1990 to respondent Pacunayen for a measly sum of P10,000.00. Obviously, the value is in a small amount because the sale was between a mother and daughter. As admitted by said respondent, 'the sale made in her favor by her mother was just a formality so that she may have the proper representation with TRCDC in the absence of her parents[42] Consequently, the offer to be made to petitioner in this case should be under reasonable terms and conditions, taking into account the fair market value of the property at the time it was sold to respondent. In its complaint, petitioner prayed for the cancellation of TCT No. M-35468 in the name of respondent Pacunayen,[43] which was issued by the Register of Deeds of Morong on February 7, 1991.[44] Under ordinary circumstances, this would be the logical effect of the rescission of the 'Kasulatan ng Bilihan Patuluyan ng Lupabetween the deceased Fausto and respondent Pacunayen. However, the circumstances in this case are not ordinary. The buyer of the subject property is the seller's own daughter. If and when the title (TCT No. M-35468) in respondent Pacunayen's name is cancelled and reinstated in Fausto's name, and thereafter negotiations between petitioner and respondent Pacunayen for the purchase of the subject property break down, then the subject property will again revert to respondent Pacunayen as she appears to be one of Fausto's heirs. This would certainly be a winding route to traverse. Sound reason therefore dictates that title should remain in the name of respondent Pacunayen, for and in behalf of the other heirs, if any, to be cancelled only when petitioner successfully exercises its right of first refusal and purchases the subject property. Petitioner further seeks the award of the following damages in its favor: (1) P100,000.00 as actual damages; (2)P1,100,000.00 as compensation for lost goodwill or reputation; (3) P100,000.00 as moral damages; (4) P100,000.00 as exemplary damages; (5) P50,000.00 as attorney's fees; (6) P1,000.00 appearance fee per hearing; and (7) the costs of suit.[45] According to petitioner, respondent's act in fencing the property led to the closure of the Tanay Coliseum Cockpit and petitioner was unable to conduct cockfights and generate income of not less than P100,000.00 until the end of September 1991, aside from the expected rentals from the cockpit space lessees in the amount of P11,000.00.[46] Under Article 2199 of the Civil Code, it is provided that: Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly

proved. Such compensation is referred to as actual or compensatory damages.(Emphasis supplied) The rule is that actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. It must point out specific facts, which could afford a basis for measuring whatever compensatory or actual damages are borne.[47] In the present case, there is no question that the Tanay Coliseum Cockpit was closed for two months and TRCDC did not gain any income during said period. But there is nothing on record to substantiate petitioner's claim that it was bound to lose some P111,000.00 from such closure. TRCDC's president, Ambrosio Sacramento, testified that they suffered income losses with the closure of the cockpit from August 2, 1991 until it re-opened on October 20, 1991.[48] Mr. Sacramento, however, cannot state with certainty the amount of such unrealized income.[49]Meanwhile, TRCDC's accountant, Merle Cruz, stated that based on the corporation's financial statement for the years 1990 and 1991,[50] they derived the amount of P120,000.00 as annual income from rent.[51] From said financial statement, it is safe to presume that TRCDC generated a monthly income of P10,000.00 a month (P120,000.00 annual income divided by 12 months). At best therefore, whatever actual damages that petitioner suffered from the cockpit's closure for a period of two months can be reasonably summed up only to P20,000.00. Such award of damages shall earn interest at the legal rate of six percent (6%) per annum, which shall be computed from the time of the filing of the Complaint on August 22, 1991, until the finality of this decision. After the present decision becomes final and executory, the rate of interest shall increase to twelve percent (12%) per annum from such finality until its satisfaction, this interim period being deemed to be equivalent to a forbearance of credit.[52]This is in accord with the guidelines laid down by the Court in Eastern Shipping Lines, Inc. vs. Court of Appeals,[53]regarding the manner of computing legal interest, viz.: 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 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 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.[54] Petitioner also claims the amount of P1,100,000.00 as compensation for lost goodwill or reputation. It alleged that 'with the unjust and wrongful conduct of the defendants as above-described, plaintiff stands to lose its goodwill and reputation established for the past 20 years.[55]

An award of damages for loss of goodwill or reputation falls under actual or compensatory damages as provided in Article 2205 of the Civil Code, to wit: Art. 2205. Damages may be recovered: (1) For loss or impairment of earning capacity in cases of temporary or permanent personal injury; (2) For injury to the plaintiff's business standing or commercial credit. Even if it is not recoverable as compensatory damages, it may still be awarded in the concept of temperate or moderate damages.[56] In arriving at a reasonable level of temperate damages to be awarded, trial courts are guided by the ruling that: . . . There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For instance, injury to one's commercial credit or to the goodwill of a business firm is often hard to show certainty in terms of money. Should damages be denied for that reason? The judge should be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer, without redress from the defendant's wrongful act. (Araneta v. Bank of America, 40 SCRA 144, 145)[57] In this case, aside from the nebulous allegation of petitioner in its amended complaint, there is no evidence on record, whether testimonial or documentary, to adequately support such claim. Hence, it must be denied. Petitioner's claim for moral damages must likewise be denied. The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only by one having a nervous system.[58] Petitioner being a corporation,[59] the claim for moral damages must be denied. With regard to the claim for exemplary damages, it is a requisite in the grant thereof that the act of the offender must be accompanied by bad faith or done in wanton, fraudulent or malevolent manner.[60] Moreover, where a party is not entitled to actual or moral damages, an award of exemplary damages is likewise baseless.[61] In this case, petitioner failed to show that respondent acted in bad faith, or in wanton, fraudulent or malevolent manner. Petitioner likewise claims the amount of P50,000.00 as attorney's fees, the sum of P1,000.00 for every appearance of its counsel, plus costs of suit. It is well settled that no premium should be placed on the right to litigate and not every winning party is entitled to an automatic grant of attorney's fees. The party must show that he falls under one of the instances enumerated in Article 2208 of the Civil Code. In this case, since petitioner was compelled to engage the services of a lawyer and incurred expenses to protect its interest and right over the subject property, the award of attorney's fees is proper. However there are certain standards in fixing attorney's fees, to wit: (1) the amount and the character of the services rendered; (2) labor, time and trouble involved; (3) the nature and importance of the litigation and business in which the services were rendered; (4) the responsibility imposed; (5) the amount of money and the value of the property affected by the controversy or involved in the employment; (6) the skill and the experience called for in the performance of the services; (7) the professional character and the social standing of the attorney; and (8) the results secured, it being a recognized rule that an attorney may properly charge a much larger fee when it is contingent than when it is not.[62] Considering the foregoing, the award of P10,000.00 as attorney's fees, including the costs of suit, is reasonable under the circumstances. WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. The Court of Appeals' Decision dated June 14, 1999 in CA-G.R. CV No. 43770 is MODIFIED as follows: (1) the 'Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8, 1990 between Catalina Matienzo Fausto and respondent Anunciacion Fausto Pacunayen is hereby deemed rescinded;

(2) The Heirs of the deceased Catalina Matienzo Fausto who are hereby deemed substituted as respondents, represented by respondent Anunciacion Fausto Pacunayen, are ORDERED to recognize the obligation of Catalina Matienzo Fausto under the Contract of Lease with respect to the priority right of petitioner Tanay Recreation Center and Development Corp. to purchase the subject property under reasonable terms and conditions; (3) Transfer Certificate of Title No. M-35468 shall remain in the name of respondent Anunciacion Fausto Pacunayen, which shall be cancelled in the event petitioner successfully purchases the subject property; (4) Respondent is ORDERED to pay petitioner Tanay Recreation Center and Development Corporation the amount of Twenty Thousand Pesos (P20,000.00) as actual damages, plus interest thereon at the legal rate of six percent (6%) 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; and, (5) Respondent is ORDERED to pay petitioner the amount of Ten Thousand Pesos (P10,000.00) as attorney's fees, and to pay the costs of suit. (6) Let the case be remanded to the Regional Trial Court, Morong, Rizal (Branch 78) for further proceedings on the determination of the 'reasonable terms and conditions' of the offer to sell by respondents to petitioner, without prejudice to possible mediation between the parties. The rest of the unaffected dispositive portion of the Court of Appeals' Decision is AFFIRMED.