G.R. No. 92013 July 25, 1990 SALVADOR H. LAUREL, petitioner, vs.

RAMON GARCIA, as head of the Asset Privatization Trust, RAUL MANGLAPUS, as Secretary of Foreign Affairs, and CATALINO MACARAIG, as Executive Secretary, respondents. G.R. No. 92047 July 25, 1990 DIONISIO S. OJEDA, petitioner, vs. EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION TRUST CHAIRMAN RAMON T. GARCIA, AMBASSADOR RAMON DEL ROSARIO, et al., as members of the PRINCIPAL AND BIDDING COMMITTEES ON THE UTILIZATION/DISPOSITION PETITION OF PHILIPPINE GOVERNMENT PROPERTIES IN JAPAN,respondents. Arturo M. Tolentino for petitioner in 92013. GUTIERREZ, JR., J.: These are two petitions for prohibition seeking to enjoin respondents, their representatives and agents from proceeding with the bidding for the sale of the 3,179 square meters of land at 306 Roppongi, 5-Chome Minato-ku Tokyo, Japan scheduled on February 21, 1990. We granted the prayer for a temporary restraining order effective February 20, 1990. One of the petitioners (in G.R. No. 92047) likewise prayes for a writ of mandamus to compel the respondents to fully disclose to the public the basis of their decision to push through with the sale of the Roppongi property inspire of strong public opposition and to explain the proceedings which effectively prevent the participation of Filipino citizens and entities in the bidding process. The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard by the Court on March 13, 1990. After G.R. No. 92047, Ojeda v. Secretary Macaraig, et al. was filed, the respondents were required to file a comment by the Court's resolution dated February 22, 1990. The two petitions were consolidated on March 27, 1990 when the memoranda of the parties in the Laurel case were deliberated upon. The Court could not act on these cases immediately because the respondents filed a motion for an extension of thirty (30) days to file comment in G.R. No. 92047, followed by a second motion for an extension of another thirty (30) days which we granted on May 8, 1990, a third motion for extension of time granted on May 24, 1990 and a fourth motion for extension of time which we granted on June 5, 1990 but calling the attention of the respondents to the length of time the petitions have been pending. After the comment was filed, the petitioner in G.R. No. 92047 asked for thirty (30) days to file a reply. We noted his motion and resolved to decide the two (2) cases. I The subject property in this case is one of the four (4) properties in Japan acquired by the Philippine government under the Reparations Agreement entered into with Japan on May 9, 1956, the other lots being: (1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo which has an area of approximately 2,489.96 square meters, and is at present the site of the Philippine Embassy Chancery; (2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area of around 764.72 square meters and categorized as a commercial lot now being used as a warehouse and parking lot for the consulate staff; and (3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara, Nada-ku, Kobe, a residential lot which is now vacant. The properties and the capital goods and services procured from the Japanese government for national development projects are part of the indemnification to the Filipino people for their losses in life and property and their suffering during World War II. The Reparations Agreement provides that reparations valued at $550 million would be payable in twenty (20) years in accordance with annual schedules of procurements to be fixed by the Philippine and Japanese governments (Article 2, Reparations Agreement). Rep. Act No. 1789, the Reparations Law, prescribes the national policy on procurement and utilization of reparations and development loans. The procurements are divided into those for use by the government sector and those for private parties in projects as the then National Economic Council shall determine. Those intended for the private sector shall be made available by sale to Filipino citizens or to one hundred (100%) percent Filipino-owned entities in national development projects. The Roppongi property was acquired from the Japanese government under the Second Year Schedule and listed under the heading "Government Sector", through Reparations Contract No. 300 dated June 27, 1958. The Roppongi property consists of the land and building "for the Chancery of the Philippine Embassy" (Annex M-D to Memorandum for Petitioner, p. 503). As intended, it became the site of the Philippine Embassy until the latter was transferred to Nampeidai on July 22, 1976 when the Roppongi building needed major repairs. Due to the failure of our government to provide necessary funds, the Roppongi property has remained undeveloped since that time. A proposal was presented to President Corazon C. Aquino by former Philippine Ambassador to Japan, Carlos J. Valdez, to make the property the subject of a lease agreement with a Japanese firm - Kajima Corporation which shall construct two (2) buildings in Roppongi and one (1) building in Nampeidai and renovate the present Philippine Chancery in Nampeidai. The consideration of the construction would be the lease to the foreign corporation of one (1) of the buildings to be constructed in Roppongi and the two (2) buildings in Nampeidai. The other building in Roppongi shall then be used as the Philippine Embassy Chancery. At the end of the lease period, all the three leased buildings shall be occupied and used by the Philippine government. No change of ownership or title shall occur. (See Annex "B" to Reply to Comment) The Philippine government retains the title all throughout the lease period and thereafter. However, the government has not acted favorably on this proposal which is pending approval and ratification between the parties. Instead, on August 11, 1986, President Aquino created a committee to study the disposition/utilization of Philippine government

properties in Tokyo and Kobe, Japan through Administrative Order No. 3, followed by Administrative Orders Numbered 3-A, B, C and D. On July 25, 1987, the President issued Executive Order No. 296 entitling non-Filipino citizens or entities to avail of separations' capital goods and services in the event of sale, lease or disposition. The four properties in Japan including the Roppongi were specifically mentioned in the first "Whereas" clause. Amidst opposition by various sectors, the Executive branch of the government has been pushing, with great vigor, its decision to sell the reparations properties starting with the Roppongi lot. The property has twice been set for bidding at a minimum floor price of $225 million. The first bidding was a failure since only one bidder qualified. The second one, after postponements, has not yet materialized. The last scheduled bidding on February 21, 1990 was restrained by his Court. Later, the rules on bidding were changed such that the $225 million floor price became merely a suggested floor price. The Court finds that each of the herein petitions raises distinct issues. The petitioner in G.R. No. 92013 objects to the alienation of the Roppongi property to anyone while the petitioner in G.R. No. 92047 adds as a principal objection the alleged unjustified bias of the Philippine government in favor of selling the property to non-Filipino citizens and entities. These petitions have been consolidated and are resolved at the same time for the objective is the same - to stop the sale of the Roppongi property. The petitioner in G.R. No. 92013 raises the following issues: (1) Can the Roppongi property and others of its kind be alienated by the Philippine Government?; and (2) Does the Chief Executive, her officers and agents, have the authority and jurisdiction, to sell the Roppongi property? Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning the authority of the government to alienate the Roppongi property assails the constitutionality of Executive Order No. 296 in making the property available for sale to non-Filipino citizens and entities. He also questions the bidding procedures of the Committee on the Utilization or Disposition of Philippine Government Properties in Japan for being discriminatory against Filipino citizens and Filipino-owned entities by denying them the right to be informed about the bidding requirements. II In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property and the related lots were acquired as part of the reparations from the Japanese government for diplomatic and consular use by the Philippine government. Vice-President Laurel states that the Roppongi property is classified as one of public dominion, and not of private ownership under Article 420 of the Civil Code (See infra). The petitioner submits that the Roppongi property comes under "property intended for public service" in paragraph 2 of the above provision. He states that being one of public dominion, no ownership by any one can attach to it, not even by the State. The Roppongi and related properties were acquired for "sites for chancery, diplomatic, and consular quarters, buildings and other improvements" (Second Year Reparations Schedule). The petitioner states that they continue to be intended for a necessary service. They are held by the State in anticipation of an opportune use. (Citing 3 Manresa 65-66). Hence, it cannot be appropriated, is outside the commerce of man, or to put it in more simple terms, it cannot be alienated nor be the subject matter of contracts (Citing Municipality of Cavite v. Rojas, 30 Phil. 20 [1915]). Noting the non-use of the Roppongi property at the moment, the petitioner avers that the same remains property of public dominion so long as the government has not used it for other purposes nor adopted any measure constituting a removal of its original purpose or use. The respondents, for their part, refute the petitioner's contention by saying that the subject property is not governed by our Civil Code but by the laws of Japan where the property is located. They rely upon the rule of lex situs which is used in determining the applicable law regarding the acquisition, transfer and devolution of the title to a property. They also invoke Opinion No. 21, Series of 1988, dated January 27, 1988 of the Secretary of Justice which used the lex situs in explaining the inapplicability of Philippine law regarding a property situated in Japan. The respondents add that even assuming for the sake of argument that the Civil Code is applicable, the Roppongi property has ceased to become property of public dominion. It has become patrimonial property because it has not been used for public service or for diplomatic purposes for over thirteen (13) years now (Citing Article 422, Civil Code) and because the intention by the Executive Department and the Congress to convert it to private use has been manifested by overt acts, such as, among others: (1) the transfer of the Philippine Embassy to Nampeidai (2) the issuance of administrative orders for the possibility of alienating the four government properties in Japan; (3) the issuance of Executive Order No. 296; (4) the enactment by the Congress of Rep. Act No. 6657 [the Comprehensive Agrarian Reform Law] on June 10, 1988 which contains a provision stating that funds may be taken from the sale of Philippine properties in foreign countries; (5) the holding of the public bidding of the Roppongi property but which failed; (6) the deferment by the Senate in Resolution No. 55 of the bidding to a future date; thus an acknowledgment by the Senate of the government's intention to remove the Roppongi property from the public service purpose; and (7) the resolution of this Court dismissing the petition in Ojeda v. Bidding Committee, et al., G.R. No. 87478 which sought to enjoin the second bidding of the Roppongi property scheduled on March 30, 1989. III In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on the constitutionality of Executive Order No. 296. He had earlier filed a petition in G.R. No. 87478 which the Court dismissed on August 1, 1989. He now avers that the executive order contravenes the constitutional mandate to conserve and develop the national patrimony stated in the Preamble of the 1987 Constitution. It also allegedly violates: (1) The reservation of the ownership and acquisition of alienable lands of the public domain to Filipino citizens. (Sections 2 and 3, Article XII, Constitution; Sections 22 and 23 of Commonwealth Act 141).
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(2) The preference for Filipino citizens in the grant of rights, privileges and concessions covering the national economy and patrimony (Section 10, Article VI, Constitution);

(3) The protection given to Filipino enterprises against unfair competition and trade practices; (4) The guarantee of the right of the people to information on all matters of public concern (Section 7, Article III, Constitution); (5) The prohibition against the sale to non-Filipino citizens or entities not wholly owned by Filipino citizens of capital goods received by the Philippines under the Reparations Act (Sections 2 and 12 of Rep. Act No. 1789); and (6) The declaration of the state policy of full public disclosure of all transactions involving public interest (Section 28, Article III, Constitution). Petitioner Ojeda warns that the use of public funds in the execution of an unconstitutional executive order is a misapplication of public funds He states that since the details of the bidding for the Roppongi property were never publicly disclosed until February 15, 1990 (or a few days before the scheduled bidding), the bidding guidelines are available only in Tokyo, and the accomplishment of requirements and the selection of qualified bidders should be done in Tokyo, interested Filipino citizens or entities owned by them did not have the chance to comply with Purchase Offer Requirements on the Roppongi. Worse, the Roppongi shall be sold for a minimum price of $225 million from which price capital gains tax under Japanese law of about 50 to 70% of the floor price would still be deducted. IV The petitioners and respondents in both cases do not dispute the fact that the Roppongi site and the three related properties were through reparations agreements, that these were assigned to the government sector and that the Roppongi property itself was specifically designated under the Reparations Agreement to house the Philippine Embassy. The nature of the Roppongi lot as property for public service is expressly spelled out. It is dictated by the terms of the Reparations Agreement and the corresponding contract of procurement which bind both the Philippine government and the Japanese government. There can be no doubt that it is of public dominion unless it is convincingly shown that the property has become patrimonial. This, the respondents have failed to do. As property of public dominion, the Roppongi lot is outside the commerce of man. It cannot be alienated. Its ownership is a special collective ownership for general use and enjoyment, an application to the satisfaction of collective needs, and resides in the social group. The purpose is not to serve the State as a juridical person, but the citizens; it is intended for the common and public welfare and cannot be the object of appropration. (Taken from 3 Manresa, 66-69; cited in Tolentino, Commentaries on the Civil Code of the Philippines, 1963 Edition, Vol. II, p. 26). The applicable provisions of the Civil Code are: ART. 419. Property is either of public dominion or of private ownership. ART. 420. The following things are property of public dominion (1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges constructed by the State, banks shores roadsteads, and others of similar character; (2) Those which belong to the State, without being for public use, and are intended for some public service or for the development of the national wealth. ART. 421. All other property of the State, which is not of the character stated in the preceding article, is patrimonial property. The Roppongi property is correctly classified under paragraph 2 of Article 420 of the Civil Code as property belonging to the State and intended for some public service. Has the intention of the government regarding the use of the property been changed because the lot has been Idle for some years? Has it become patrimonial? The fact that the Roppongi site has not been used for a long time for actual Embassy service does not automatically convert it to patrimonial property. Any such conversion happens only if the property is withdrawn from public use (Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]). A property continues to be part of the public domain, not available for private appropriation or ownership until there is a formal declaration on the part of the government to withdraw it from being such (Ignacio v. Director of Lands, 108 Phil. 335 [1960]). The respondents enumerate various pronouncements by concerned public officials insinuating a change of intention. We emphasize, however, that an abandonment of the intention to use the Roppongi property for public service and to make it patrimonial property under Article 422 of the Civil Code must be definite Abandonment cannot be inferred from the non-use alone specially if the non-use was attributable not to the government's own deliberate and indubitable will but to a lack of financial support to repair and improve the property (See Heirs of Felino Santiago v. Lazaro, 166 SCRA 368 [1988]). Abandonment must be a certain and positive act based on correct legal premises. A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of the Roppongi property's original purpose. Even the failure by the government to repair the building in Roppongi is not abandonment since as earlier stated, there simply was a shortage of government funds. The recent Administrative Orders authorizing a study of the status and conditions of government properties in Japan were merely directives for investigation but did not in any way signify a clear intention to dispose of the properties. Executive Order No. 296, though its title declares an "authority to sell", does not have a provision in its text expressly authorizing the sale of the four properties procured from Japan for the government sector. The executive order does not declare that the properties lost

their public character. It merely intends to make the properties available to foreigners and not to Filipinos alone in case of a sale, lease or other disposition. It merely eliminates the restriction under Rep. Act No. 1789 that reparations goods may be sold only to Filipino citizens and one hundred (100%) percent Filipino-owned entities. The text of Executive Order No. 296 provides: Section 1. The provisions of Republic Act No. 1789, as amended, and of other laws to the contrary notwithstanding, the above-mentioned properties can be made available for sale, lease or any other manner of disposition to nonFilipino citizens or to entities owned by non-Filipino citizens. Executive Order No. 296 is based on the wrong premise or assumption that the Roppongi and the three other properties were earlier converted into alienable real properties. As earlier stated, Rep. Act No. 1789 differentiates the procurements for the government sector and the private sector (Sections 2 and 12, Rep. Act No. 1789). Only the private sector properties can be sold to end-users who must be Filipinos or entities owned by Filipinos. It is this nationality provision which was amended by Executive Order No. 296. Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one of the sources of funds for its implementation, the proceeds of the disposition of the properties of the Government in foreign countries, did not withdraw the Roppongi property from being classified as one of public dominion when it mentions Philippine properties abroad. Section 63 (c) refers to properties which are alienable and not to those reserved for public use or service. Rep Act No. 6657, therefore, does not authorize the Executive Department to sell the Roppongi property. It merely enumerates possible sources of future funding to augment (as and when needed) the Agrarian Reform Fund created under Executive Order No. 299. Obviously any property outside of the commerce of man cannot be tapped as a source of funds. The respondents try to get around the public dominion character of the Roppongi property by insisting that Japanese law and not our Civil Code should apply. It is exceedingly strange why our top government officials, of all people, should be the ones to insist that in the sale of extremely valuable government property, Japanese law and not Philippine law should prevail. The Japanese law - its coverage and effects, when enacted, and exceptions to its provision is not presented to the Court It is simply asserted that the lex loci rei sitae or Japanese law should apply without stating what that law provides. It is a ed on faith that Japanese law would allow the sale. We see no reason why a conflict of law rule should apply when no conflict of law situation exists. A conflict of law situation arises only when: (1) There is a dispute over the title or ownership of an immovable, such that the capacity to take and transfer immovables, the formalities of conveyance, the essential validity and effect of the transfer, or the interpretation and effect of a conveyance, are to be determined (See Salonga, Private International Law, 1981 ed., pp. 377-383); and (2) A foreign law on land ownership and its conveyance is asserted to conflict with a domestic law on the same matters. Hence, the need to determine which law should apply. In the instant case, none of the above elements exists. The issues are not concerned with validity of ownership or title. There is no question that the property belongs to the Philippines. The issue is the authority of the respondent officials to validly dispose of property belonging to the State. And the validity of the procedures adopted to effect its sale. This is governed by Philippine Law. The rule of lex situs does not apply. The assertion that the opinion of the Secretary of Justice sheds light on the relevance of the lex situsrule is misplaced. The opinion does not tackle the alienability of the real properties procured through reparations nor the existence in what body of the authority to sell them. In discussing who are capableof acquiring the lots, the Secretary merely explains that it is the foreign law which should determinewho can acquire the properties so that the constitutional limitation on acquisition of lands of the public domain to Filipino citizens and entities wholly owned by Filipinos is inapplicable. We see no point in belaboring whether or not this opinion is correct. Why should we discuss who can acquire the Roppongi lot when there is no showing that it can be sold? The subsequent approval on October 4, 1988 by President Aquino of the recommendation by the investigating committee to sell the Roppongi property was premature or, at the very least, conditioned on a valid change in the public character of the Roppongi property. Moreover, the approval does not have the force and effect of law since the President already lost her legislative powers. The Congress had already convened for more than a year. Assuming for the sake of argument, however, that the Roppongi property is no longer of public dominion, there is another obstacle to its sale by the respondents. There is no law authorizing its conveyance. Section 79 (f) of the Revised Administrative Code of 1917 provides Section 79 (f ) Conveyances and contracts to which the Government is a party. In cases in which the Government of the Republic of the Philippines is a party to any deed or other instrument conveying the title to real estate or to any other property the value of which is in excess of one hundred thousand pesos, the respective Department Secretary shall prepare the necessary papers which, together with the proper recommendations, shall be submitted to the Congress of the Philippines for approval by the same. Such deed, instrument, or contract shall be executed and signed by the President of the Philippines on behalf of the Government of the Philippines unless the Government of the Philippines unless the authority therefor be expressly vested by law in another officer. (Emphasis supplied) The requirement has been retained in Section 48, Book I of the Administrative Code of 1987 (Executive Order No. 292). SEC. 48. Official Authorized to Convey Real Property. Whenever real property of the Government is authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government by the following: (1) For property belonging to and titled in the name of the Republic of the Philippines, by the President, unless the authority therefor is expressly vested by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the name of any political subdivision or of any corporate agency or instrumentality, by the executive head of the agency or instrumentality. (Emphasis supplied) It is not for the President to convey valuable real property of the government on his or her own sole will. Any such conveyance must be authorized and approved by a law enacted by the Congress. It requires executive and legislative concurrence. Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of the sale of the Roppongi property does not withdraw the property from public domain much less authorize its sale. It is a mere resolution; it is not a formal declaration abandoning the public character of the Roppongi property. In fact, the Senate Committee on Foreign Relations is conducting hearings on Senate Resolution No. 734 which raises serious policy considerations and calls for a fact-finding investigation of the circumstances behind the decision to sell the Philippine government properties in Japan. The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass upon the constitutionality of Executive Order No. 296. Contrary to respondents' assertion, we did not uphold the authority of the President to sell the Roppongi property. The Court stated that the constitutionality of the executive order was not the real issue and that resolving the constitutional question was "neither necessary nor finally determinative of the case." The Court noted that "[W]hat petitioner ultimately questions is the use of the proceeds of the disposition of the Roppongi property." In emphasizing that "the decision of the Executive to dispose of the Roppongi property to finance the CARP ... cannot be questioned" in view of Section 63 (c) of Rep. Act No. 6657, the Court did not acknowledge the fact that the property became alienable nor did it indicate that the President was authorized to dispose of the Roppongi property. The resolution should be read to mean that in case the Roppongi property is re-classified to be patrimonial and alienable by authority of law, the proceeds of a sale may be used for national economic development projects including the CARP. Moreover, the sale in 1989 did not materialize. The petitions before us question the proposed 1990 sale of the Roppongi property. We are resolving the issues raised in these petitions, not the issues raised in 1989. Having declared a need for a law or formal declaration to withdraw the Roppongi property from public domain to make it alienable and a need for legislative authority to allow the sale of the property, we see no compelling reason to tackle the constitutional issues raised by petitioner Ojeda. The Court does not ordinarily pass upon constitutional questions unless these questions are properly raised in appropriate cases and their resolution is necessary for the determination of the case (People v. Vera, 65 Phil. 56 [1937]). The Court will not pass upon a constitutional question although properly presented by the record if the case can be disposed of on some other ground such as the application of a statute or general law (Siler v. Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission v. Pullman Co., 312 U.S. 496 [1941]). The petitioner in G.R. No. 92013 states why the Roppongi property should not be sold: The Roppongi property is not just like any piece of property. It was given to the Filipino people in reparation for the lives and blood of Filipinos who died and suffered during the Japanese military occupation, for the suffering of widows and orphans who lost their loved ones and kindred, for the homes and other properties lost by countless Filipinos during the war. The Tokyo properties are a monument to the bravery and sacrifice of the Filipino people in the face of an invader; like the monuments of Rizal, Quezon, and other Filipino heroes, we do not expect economic or financial benefits from them. But who would think of selling these monuments? Filipino honor and national dignity dictate that we keep our properties in Japan as memorials to the countless Filipinos who died and suffered. Even if we should become paupers we should not think of selling them. For it would be as if we sold the lives and blood and tears of our countrymen. (Rollo- G.R. No. 92013, p.147) The petitioner in G.R. No. 92047 also states: Roppongi is no ordinary property. It is one ceded by the Japanese government in atonement for its past belligerence for the valiant sacrifice of life and limb and for deaths, physical dislocation and economic devastation the whole Filipino people endured in World War II. It is for what it stands for, and for what it could never bring back to life, that its significance today remains undimmed, inspire of the lapse of 45 years since the war ended, inspire of the passage of 32 years since the property passed on to the Philippine government. Roppongi is a reminder that cannot should not be dissipated ... (Rollo-92047, p. 9) It is indeed true that the Roppongi property is valuable not so much because of the inflated prices fetched by real property in Tokyo but more so because of its symbolic value to all Filipinos veterans and civilians alike. Whether or not the Roppongi and related properties will eventually be sold is a policy determination where both the President and Congress must concur. Considering the properties' importance and value, the laws on conversion and disposition of property of public dominion must be faithfully followed. WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ of prohibition is issued enjoining the respondents from proceeding with the sale of the Roppongi property in Tokyo, Japan. The February 20, 1990 Temporary Restraining Order is made PERMANENT. SO ORDERED.

G.R. No. L-35529 July 16, 1984 NORA CANSING SERRANO, petitioner, vs. COURT OF APPEALS and SOCIAL SECURITY COMMISSION, respondents.

MAKASIAR, J., Chairman: This petition for certiorari seeks to review the decision of the then Court of Appeals (now Intermediate Appellate Court under BP 129) dated August 31, 1972, affirming the validity of the resolution of the Social Security Commission denying favorable consideration of the claim for benefits of the petitioner under the Group Redemption Insurance plan of the Social Security System (SYSTEM). The dispositive portion of the respondent Court's decision reads as follows: WHEREFORE, the Court hereby upholds the validity of the appealed resolution No. 1365, dated December 24, 1968, of appellee Social Security Commission; without pronouncement as to costs (p. 31, Rec.). The undisputed facts are as follows: On or about January 1, 1965, upon application of the SYSTEM, Group Mortgage Redemption Policy No. GMR-1 was issued by Private Life Insurance Companies operating in the Philippines for a group life insurance policy on the lives of housing loan mortgagors of the SYSTEM. Under this Group Mortgage Redemption scheme, a grantee of a housing loan of the SYSTEM is required to mortgage the house constructed out of the loan and the lot on which it stands. The SYSTEM takes a life insurance on the eligible mortgagor to the extent of the mortgage indebtedness such that if the mortgagor dies, the proceeds of his life insurance under the Group Redemption Policy will be used to pay his indebtedness to the SYSTEM and the deceased's heirs will thereby be relieved of the burden of paying for the amortization of the deceased's still unpaid loan to the SYSTEM (p. 25, rec.). Petitioner herein is the widow of the late Bernardo G. Serrano, who, at the time of his death, was an airline pilot of Air Manila, Inc. and as such was a member of the Social Security System. On November 10, 1967, the SYSTEM approved the real estate mortgage loan of the late Bernardo G. Serrano for P37,400.00 for the construction of the applicant's house (pp. 25-26, rec.). On December 26, 1967, a partial release in the amount of P35,400.00 was effected and devoted to the construction of the house (p. 2, rec.). As a consequence, a mortgage contract was executed in favor of the SYSTEM by the late Captain Serrano with his wife as comortgagor. On March 8, 1968, Captain Serrano died in a plane crash and because of his death, the SYSTEM closed his housing loan account to the released amount of P35,400.00 (p. 26, rec.). On December 2, 1968, the petitioner sent a letter addressed to the Chairman of the Social Security Commission requesting that the benefits of the Group Mortgage Redemption Insurance be extended to her. The letter of the petitioner was referred to the Administrator of the SYSTEM, who recommended its disapproval on the ground that the late Captain Serrano was not yet covered by the Group Mortgage Redemption Insurance policy at the time of his death on March 8, 1968. In its resolution No. 1365 dated December 24, 1968, the Social Security Commission sustained the said stand of the SYSTEM and thereby formally denied the request of the petitioner (p. 26, rec.). On appeal to the then Court of Appeals, the respondent Court affirmed the decision of the Social Security Commission. Hence, this petition. The only issue to be resolved is the correctness of the interpretation given by the respondent Commission which was upheld by the respondent Court as to the applicability of the Mortgage Redemption Insurance plan particularly on when coverage on the life of the mortgagor commences. Article II (Insurance Coverage) of the Group Mortgage Redemption Police No. GMR-1 provides: Section 1. Eligibility. Every mortgagor who is not over age 65 nearest birthday at the time the Mortgage Loan is granted (or, in the case of a Mortgagor applying for insurance coverage on a Mortgage Loan granted before the Date of Issue, at the time he makes such application) and who would not be over 75 nearest birthday on the date on which the original term of the Mortgage Loan expires shall be eligible for insurance coverage under this Policy, provided that if the total indebtedness to the Creditor under the new Mortgage Loan and the outstanding balance of any prior Mortgage Loan or Loans insured hereunder, exceeds P70,000.00, he will be eligible for insurance coverage up to this maximum limit only. Co-makers or co-signers of mortgage contract are not eligible for coverage under this Policy. Section 2. Mode of Acceptance. Any Mortgagor who is eligible for coverage on or after the Date of Issue shall be automatically insured, subject to the amount of insurance limit in Section 1 hereof, without proof of insurability provided that he is not more than age 60 nearest birthday at the time the Mortgage Loan is granted. Such a mortgagor who is over age 60 nearest birthday at the time the Mortgage Loan is granted may be accepted for insurance only subject to the submission of evidence of insurability satisfactory to the Subscribing Companies.

Any eligible Mortgagor who was already a Mortgagor before the Date of Issue shall be automatically insured, subject to the amount of insurance limit in Section 1 hereof, without proof of insurability provided that he is not more than age 60 nearest birthday on the Date of Issue and that he makes written application to the Creditor for coverage within ninety (90) days from the Date of Issue. If such a Mortgagor applies for coverage after ninety (90) days from the Date of Issue. he may be accepted for insurance upon written application therefor, subject to the submission of evidence of insurability to the Subscribing Companies. Section 3. Effective Date of Insurance. The insurance on the life of each eligible Mortgagor Loan or partial release of Mortgage Loan accepted for coverage who becomes a Mortgagor on or after the Date of Issue shall take effect from the beginning of the amortization period of such Mortgage Loan or partial release of Mortgage Loan. The beginning of the amortization period as used herein shall mean the first day of the month preceding the month in which the first monthly amortization payment falls due. It is hereby understood that before any release on any approved Mortgage Loan is made by the Creditor, the requisites binding the Mortgagor and the Creditor as regards to said Mortgage Loan shall have been completed xxx xxx xxx (pp. 59-60, rec.; emphasis supplied). A careful analysis of the provisions leads to the conclusion that the respondent Court of Appeals erred in construing the effectivity date of insurance coverage from the beginning of the amortization period of the loan. WE REVERSE. There can be no doubt as to the eligibility of the late Captain Serrano for coverage under Section 1 of Article II of the Group Mortgage Redemption Insurance Policy as he was a mortgagor of the Social Security System not over the age of 65 nearest his birthday at the time when the mortgage loan was granted to him (p. 26, rec.). This fact was admitted not only by the Social Security Commissi on but also accepted by the Court of Appeals. The problem manifests itself in Sections 2 and 3 of the same article of the Group Mortgage Redemption Insurance Policy. Section 2 provides that "any mortgagor who is eligible for coverage on or after the Date of Issue shall be automatically insured, ..." (emphasis supplied); while Section 3 provides that the insurance "shall take effect from the beginning of the amortization period of such Mortgage loan or partial release of Mortgage Loan " (emphasis supplied). Section 2 of Article II of the Group Mortgage Redemption Insurance Policy provides that insurance coverage shall be "automatic" and limited only by the amount of insurance and age requirement. While the same section has for its title the mode of acceptance, what is controlling is the meaning of the provision itself. The said section can only convey the Idea that the mortgagor who is eligible for coverage on or after the date of issue shall be automatically insured. The only condition is that the age requirement should be satisfied, which had been complied with by the deceased mortgagor in the instant case. Under said Section 2, mortgage redemption insurance is not just automatic; it is compulsory for all qualified borrowers. This is the same automatic redemption insurance applied to all qualified borrowers by the GSIS (Government Service Insurance System) and the DBP (Development Bank of the Philippines). Indeed, the Mortgage Redemption Insurance Policy of the GSIS provides: Sec. 2. ... This policy is granted subject to the terms and conditions set forth at the back hereof and in consideration of the application therefor and shall take effect on the date of the first date of the aforementioned loan (p. 126, CA rec.; emphasis supplied). WE take judicial notice of the Mortgage Contract being issued by the Social Security System in connection with applications for housing loans, specifically Section 16 thereof: Section 16. (a) The loan shall be secured against the death of the borrower through the Mortgage Redemption Insurance Plan; (b) Coverage shall take effect on the date of the first release voucher of the loan and shall continue until the real estate mortgage loan is fully paid; ... (emphasis supplied). However, Section 3 of Article II presents an ambiguity. The effective date of coverage can be interpreted to mean that the insurance contract takes effect "from the beginning of the amortization period of such Mortgage Loan" or "partial release of Mortgage Loan." Applying Article 1374 of the new Civil Code, the mortgagor in the instant case was already covered by the insurance upon the partial release of the loan. Article 1374, NCC, reads thus: The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. The ambiguity in Section 3 of Article II should be resolved in favor of the petitioner. "The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity" (Article 1377, Civil Code). WE have held that provisions, conditions or exceptions tending to work a forfeiture of insurance policies should be construed most strongly against those for whose benefit they are inserted, and most favorably toward those against whom they are intended to operate (Trinidad vs. Orient Protective Ass., 67 Phil. 181). While the issuance of the Group Mortgage Redemption Insurance is a contract between the Social Security System and the Private Life Insurance Companies, the fact is that the SYSTEM entered into such a contract to afford protection not only to itself should the mortgagor die before fully paying the loan but also to afford protection to the mortgagor. WE take note of the following:

I. Insurance Coverage. 1. Fire insurance. The SSS-financed house shall be covered by fire insurance equal to its appraised value or the amount of the loan, whichever is lesser. 2. Mortgage Redemption Insurance. Coverage shall be compulsory for any mortgagor who is not more than 60 years old. The insured indebtedness on the mortgage as provided in the policy shall be deemed paid upon the death of a mortgagor covered under the MRI (Employees' Benefits & Social Welfare, 1983 Rev. Ed., CBSI, pp. 50-51; emphasis supplied). It is imperative to dissect the rationale of the insurance scheme envisioned by the Social Security System. The Mortgage Redemption Insurance device is not only for the protection of the SYSTEM but also for the benefit of the mortgagor. On the part of the SYSTE M, it has to enter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence of the mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. The SYSTEM insures the payment to itself of the loan with the insurance proceeds. It also negates any future problem that can crop up should the heirs be not in a position to pay the mortgage loan. In short, the process of amortization is hastened and possible litigation in the future is avoided. In a similar vein, ample protection is given to the mortgagor under such a concept so that in the event of his death; the mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. The interpretation of the Social Security Commission goes against the very rationale of the insurance scheme. It cannot unjustly enrich itself at the expense of another (Nemo cum alterius detrimento protest). "Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith" (Article 19, Civil Code). Simply put, the SYSTEM cannot be allowed to have the advantage of collecting the insurance benefits from the private life insurance companies and at the same time avoid its responsibility of giving the benefits of the Mortgage Redemption Insurance plan to the mortgagor. The very reason for the existence of the Social Security System is to extend social benefits. For SSS to be allowed to deny benefits to its members, is certainly not in keeping with its policy "... to establish, develop, promote and perfect a sound and viable taxexempt social security service suitable to the needs of the people throughout the Philippines, which shall provide to covered employees and their families protection against the hazards of disability, sickness, old age, and death with a view to promote their well-being in the spirit of social justice" (The Social Security Law, R.A. No. 1161, as amended). To sustain the position of the SSS is to allow it to collect twice the same amount first from the insurance companies which paid to it the amount of the MRI and then from the heirs of the deceased mortgagor. This result is unconscionable as it is iniquitous. It is very clear that the spirit of social justice permeates the insurance scheme under the Group Mortgage Redemption Insurance. It is a welcome innovation in these times when the concept of social justice is not just an empty slogan nor a mere shibboleth. Social justice is explicitly institutionalized and guaranteed under the Constitution (Article II, Section 6, 1973 Constitution). The construction that would enhance the State's commitment on social justice mandates Us to hold for the petitioner. Usually, among the items to be deducted by the SYSTEM from the first release of the loan is the premium corresponding to the mortgage redemption insurance (MRI). However, if the premium corresponding to the amount to be deducted from the first release of the loan was not paid by the borrower, the deceased mortgagor, the said unpaid premium should be refunded by the heirs of the borrower. WHEREFORE, THE DECISION OF THE RESPONDENT COURT OF APPEALS AFFIRMING RESOLUTION NO. 1365 OF RESPONDENT COMMISSION IS HEREBY SET ASIDE. THE SOCIAL SECURITY SYSTEM IS HEREBY DIRECTED TO RELEASE THE PETITIONER FROM PAYING THE MORTGAGE LOAN. THE PETITIONER IS HEREBY DIRECTED TO REFUND TO THE SSS THE PREMIUM CORRESPONDING TO THE RELEASED AMOUNT, IF THE SAME HAD NOT BEEN DEDUCTED THEREFROM. NO COSTS. SO ORDERED.

G.R. No. 126486 February 9, 1998 BARONS MARKETING CORP., petitioner, vs. COURT OF APPEALS and PHELPS DODGE PHILS., INC. respondents.

KAPUNAN, J.: The instant petition raises two issues: (1) whether or not private respondent is guilty of abuse of right; and (2) whether or not private respondent is entitled to interest and attorney's fees. The facts are undisputed: On August 31, 1973, plaintiff [Phelps Dodge, Philippines, Inc. private respondent herein] appointed defendant [petitioner Barons Marketing, Corporation] as one of its dealers of electrical wires and cables effective September 1, 1973 (Exh. A). As such dealer, defendant was given by plaintiff 60 days credit for its purchases of plaintiff's electrical products. This credit term was to be reckoned from the date of delivery by plaintiff of its products to defendant (Exh. 1).

During the period covering December 1986 to August 17, 1987, defendant purchased, on credit, from plaintiff various electrical wires and cables in the total amount of P4,102,438.30 (Exh. B to K). These wires and cables were in turn sold, pursuant to previous arrangements, by defendant to MERALCO, the former being the accredited supplier of the electrical requirements of the latter. Under the sales invoices issued by plaintiff to defendant for the subject purchases, it is stipulated that interest at 12% on the amount due for attorney's fees and collection (Exh. BB). 1 On September 7, 1987, defendant paid plaintiff the amount of P300,000.00 out of its total purchases as above-stated (Exh. S), thereby leaving an unpaid account on the aforesaid deliveries of P3,802,478.20. On several occasions, plaintiff wrote defendant demanding payment of its outstanding obligations due plaintiff (Exhs. L, M, N, and P). In response, defendant wrote plaintiff on October 5, 1987 requesting the latter if it could pay its outstanding account in monthly installments of P500,000.00 plus 1% interest per month commencing on October 15, 1987 until full payment (Exh. O and O-4). Plaintiff, however, rejected defendant's offer and accordingly reiterated its demand for the full payment of defendant's account (Exh. P). 2
On 29 October 1987, private respondent Phelps Dodge Phils., Inc. filed a complaint before the Pasig Regional Trial Court against petitioner Barons Marketing Corporation for the recovery of P3,802,478.20 representing the value of the wires and cables the former had delivered to the latter, including interest. Phelps Dodge likewise prayed that it be awarded attorney's fees at the rate of 25% of the amount demanded, exemplary damages amounting to at least P100,000.00, the expenses of litigation and the costs of suit. Petitioner, in its answer, admitted purchasing the wires and cables from private respondent but disputed the amount claimed by the latter. Petitioner likewise interposed a counterclaim against private respondent, alleging that it suffered injury to its reputation due to Phelps Dodge's acts. Such acts were purportedly calculated to humiliate petitioner and constituted an abuse of rights. After hearing, the trial court on 17 June 1991 rendered its decision, the dispositive portion of which reads: WHEREFORE, from all the foregoing considerations, the Court finds Phelps Dodge Phils., Inc. to have preponderantly proven its case and hereby orders Barons Marketing, Inc. to pay Phelps Dodge the following: 1. P3,108,000.00 constituting the unpaid balance of defendant's purchases from plaintiff and interest thereon at 12% per annum computed from the respective expiration of the 60 day credit term, vis-a-vis the various sales invoices and/or delivery receipts; 2. 25% of the preceding obligation for and as attorney's fees; 3. P10,000.00 as exemplary damages;

4. Costs of suit. 3
Both parties appealed to respondent court. Private respondent claimed that the trial court should have awarded it the sum of P3,802,478.20, the amount which appeared in the body of the complaint and proven during the trial rather than P3,1081000.00 The latter amount appears in petitioner's prayer supposedly as a result of a typographical error. On the other hand, petitioner reiterated its claims for damages as a result of "creditor's abuse." It also alleged that private respondent failed to prove its cause of action against it. On 25 June 1996, the Court of Appeals rendered a decision modifying the decision of the trial court, thus: WHEREFORE, from all the foregoing considerations, the Court finds Phelps Dodge Phils., Inc. to have preponderantly proven its case and hereby orders Barons Marketing, Inc. to pay Phelps Dodge the following: 1. P3,802,478.20 constituting the unpaid balance of defendant's purchases from plaintiff and interest thereon at 12% per annum computed from the respective expiration of the 60 day credit term, vis-a-vis the various sales invoices and/or delivery receipts; and 2. 5% of the preceding obligation for and as attorney's fees.

No costs. 4
Petitioner Barons Marketing is now before this Court alleging that respondent court erred when it held (1) private respondent Phelps Dodge not guilty of "creditor's abuse," and (2) petitioner liable to private respondent for interest and attorney's fees. I Petitioner does not deny private respondent's rights to institute an action for collection and to claim full payment. Indeed, petitioner's right to file an action for collection is beyond cavil. 5 Likewise, private respondent's right to reject petitioner's offer to pay in installments is guaranteed by Article 1248 of the Civil Code which states: Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments. However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the former without waiting for the liquidation of the latter. Under this provision, the prestation, i.e., the object of the obligation, must be performed in one act, not in parts. Tolentino concedes that the right has its limitations:

Partial Prestations. Since the creditor cannot be compelled to accept partial performance, unless otherwise stipulated, the creditor who refuses to accept partial prestations does not incur in delay or mora accipiendi, except when there is abuse of right or if good faith requires acceptance. 6
Indeed, the law, as set forth in Article 19 of the Civil Code, prescribes a "primordial limitation on all rights" by setting certain standards that must be observed in the exercise thereof. 7 Thus: Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. Petitioner now invokes Article 19 and Article 21 8 of the Civil Code, claiming that private respondent abused its rights when it rejected petitioner's offer of settlement and subsequently filed the action for collection considering:

. . . that the relationship between the parties started in 1973 spanning more than 13 years before the complaint was filed, that the petitioner had been a good and reliable dealer enjoying a good credit standing during the period before it became delinquent in 1987, that the relationship between the parties had been a fruitful one especially for the private respondent, that the petitioner exerted its outmost efforts to settle its obligations and avoid a suit, that the petitioner did not evade in the payment of its obligation to the private respondent, and that the petitioner was just asking a small concession that it be allowed to liquidate its obligation to eight (8) monthly installments of P500,000.00 plus 1% interest per month on the balance which proposal was supported by post-dated checks. 9
Expounding on its theory, petitioner states: In the ordinary course of events, a suit for collection of a sum of money filed in court is done for the primary purpose of collecting a debt or obligation. If there is an offer by the debtor to pay its debt or obligation supported by post-dated checks and with provision for interests, the normal response of a creditor would be to accept the offer of compromise and not file the suit for collection. It is of common knowledge that proceedings in our courts would normally take years before an action is finally settled. It is always wiser and more prudent to accept an offer of payment in installment rather than file an action in court to compel the debtor to settle his obligation in full in a single payment. xxx xxx xxx

. . . Why then did private respondent elect to file a suit for collection rather than accept petitioner's offer of settlement, supported by post-dated checks, by paying monthly installments of P500,000.00 plus 1% per month commencing on October 15, 1987 until full payment? The answer is obvious. The action of private respondent in filling a suit for collection was an abuse of right and exercised for the sole purpose of prejudicing and injuring the petitioner. 10
Petitioner prays that the Court order private respondent to pay petitioner moral and exemplary damages, attorney's fees, as well as the costs of suit. It likewise asks that it be allowed to liquidate its obligation to private respondent, without interests, in eight equal monthly installments. Petitioner's theory is untenable. Both parties agree that to constitute an abuse of rights under Article 19 the defendant must act with bad faith or intent to prejudice the plaintiff. They cite the following comments of Tolentino as their authority:

Test of Abuse of Right. Modern jurisprudence does not permit acts which, although not unlawful, are antisocial.There is undoubtedly an abuse of right when it is exercised for the only purpose of prejudicing or injuring another. When the objective of the actor is illegitimate, the illicit act cannot be concealed under the guise of exercising a right. The principle does not permit acts which, without utility or legitimate purpose cause damage to another, because they violate the concept of social solidarity which considers law as rational and just. Hence,

every abnormal exercise of a right, contrary to its socio-economic purpose, is an abuse that will give rise to liability. The exercise of a right must be in accordance with the purpose for which it was established, and must not be excessive or unduly harsh; there must be no intention to injure another. Ultimately, however, and in practice, courts, in the sound exercise of their discretion, will have to determine all the facts and circumstances when the exercise of a right is unjust, or when there has been an abuse of right. 11
The question, therefore, is whether private respondent intended to prejudice or injure petitioner when it rejected petitioner's offer and filed the action for collection. We hold in the negative. It is an elementary rule in this jurisdiction that good faith is presumed and that the burden of proving bad faith rests upon the party alleging the same. 12 In the case at bar, petitioner has failed to prove bad faith on the part of private respondent. Petitioner's allegation that private respondent was motivated by a desire to terminate its agency relationship with petitioner so that private respondent itself may deal directly with Meralco is simply not supported by the evidence. At most, such supposition is merely speculative. Moreover, we find that private respondent was driven by very legitimate reasons for rejecting petitioner's offer and instituting the action for collection before the trial court. As pointed out by private respondent, the corporation had its own "cash position to protect in order for it to pay its own obligations." This is not such "a lame and poor rationalization" as petitioner purports it to be. For if private respondent were to be required to accept petitioner's offer, there would be no reason for the latter to reject similar offers from its other debtors. Clearly, this would be inimical to the interests of any enterprise, especially a profit-oriented one like private respondent. It is plain to see that what we have here is a mere exercise of rights, not an abuse thereof Under these circumstances, we do not deem private respondent to have acted in a manner contrary to morals, good customs or public policy as to violate the provisions of Article 21 of the Civil Code. Consequently, petitioner's prayer for moral and exemplary damages must thus be rejected. Petitioner's claim for moral damages is anchored on Article 2219 (10) of the Civil Code which states: Art. 2219. Moral damages may be recovered in the following and analogous cases: xxx xxx xxx (10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. xxx xxx xxx Having ruled that private respondent's acts did not transgress the provisions of Article 21, petitioner cannot be entitled to moral damages or, for that matter, exemplary damages. While the amount of exemplary damages need not be proved, petitioner must show that he is entitled to moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. 13 As we have observed above; petitioner has failed to discharge this burden. It may not be amiss to state that petitioner's contract with private respondent has the force of law between them. 14Petitioner is thus bound to fulfill what has been expressly stipulated therein. 15 In the absence of any abuse of right, private respondent cannot be allowed to perform its obligation under such contract in parts. Otherwise, private respondent's right under Article 1248 will be negated, the sanctity of its contract with petitioner defiled. The principle of autonomy of contracts 16 must be respected. II Under said contract, petitioner is liable to private respondent for the unpaid balance of its purchases from private respondent plus 12% interest. Private respondent's sales invoices expressly provide that:

. . . Interest at 12% per annum will be charged on all overdue account plus 25% on said amount for attorney's fees and collection. . . . 17
It may also be noted that the above stipulation, insofar as it provides for the payment of "25% on said amount for attorney's fees and collection (sic)," constitutes what is known as a penal clause. 18 Petitioner is thus obliged to pay such penalty in addition to the 12% annual interest, there being an express stipulation to that effect. Petitioner nevertheless urges this Court to reduce the attorney's fees for being "grossly excessive," "considering the nature of the case which is a mere action for collection of a sum of money." It may be pointed out however that the above penalty is supposed to answer not only for attorney's fees but for collection fees as well. Moreover:

. . . the attorneys' fees here provided is not, strictly speaking, the attorneys' fees recoverable as between attorney and client spoken of and regulated by the Rules of Court. Rather, the attorneys' fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause. It has been said that so long as such stipulation does not contravene law, morals, or public order, it is strictly binding upon defendant. The attorneys' fees so provided are awarded in favor of the litigant, not his counsel. It is the litigant, not counsel, who is the judgment creditor entitled to enforce the judgment by execution. 19
Nonetheless, courts are empowered to reduce such penalty if the same is "iniquitous or unconscionable." Article 1229 of the Civil Code states thus: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or been irregularly complied with by the debtor. Even if there has no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (Emphasis supplied.)

The sentiments of the law are echoed in Article 2227 of the same Code: Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable. It is true that we have upheld the reasonableness of penalties in the form of attorney's fees consisting of twenty-five percent (25%) of the principal debt plus interest. 20 In the case at bar, however, the interest alone runs to some four and a half million pesos (P4.5M), even exceeding the principal debt amounting to almost four million pesos (P4.0M). Twenty five percent (25%) of the principal and interest amounts to roughly two million pesos (P2M). In real terms, therefore, the attorney's fees and collection fees are manifestly exorbitant. Accordingly, we reduce the same to ten percent (10%) of the principal. Private respondent, however, argues that petitioner failed to question the award of attorney's fees on appeal before respondent court and raised the issue only in its motion for reconsideration. Consequently, petitioner should be deemed to have waived its right to question such award. Private respondent's attempts to dissuade us from reducing the penalty are futile. The Court is clothed with ample authority to review matters, even if they are not assigned as errors in their appeal, if it finds that their consideration is necessary in arriving at a just decision of the case. 21 WHEREFORE, the decision of the Court of Appeals is hereby MODIFIED in that the attorney's and collection fees are reduced to ten percent (10%) of the principal but is AFFIRMED in all other respects. SO ORDERED.

G.R. No. 85464 October 3, 1991 DAVID P. LLORENTE, petitioner, vs. THE SANDIGANBAYAN (THIRD DIVISION), and PEOPLE OF THE PHILIPPINES, respondents. Padilla Law Office for petitioner.

SAMIENTO, J.:p The petitioner questions the Decision of the Sandiganbayan * holding him civilly liable in spite of an acquittal. The facts are not disputed: Atty. Llorente was employed in the PCA, a public corporation (Sec. 1, PD 1468) from 1975 to August 31, 1986, when he resigned. He occupied the positions of Assistant Corporate Secretary for a year, then Corporate Legal Counsel until November 2, 1981, and, finally, Deputy Administrator for Administrative Services, Finance Services, Legal Affairs Departments. ... As a result of a massive reorganization in 1981, hundreds of PCA employees resigned effective October 31, 1981. Among them were Mr. Curio, Mrs. Perez, Mr. Azucena, and Mrs. Javier (TSN, Oct. 22/87, p. 2; Exhs. M-2, N-1, and O-1). They were all required to apply for PCA clearances in support of their gratuity benefits (Exhs. C, M-2, N-1, and 0-1). Condition (a) of the clearance provided: The clearance shall be signed by the PCA officers concemed only when there is no item appearing under "PENDING ACCOUNTABILITY" or after every item previously entered thereunder is fully settled. Settlement thereof shall be written in RED ink. (Exhs. D or D-1 and 1-B) After the clearance was signed by the PCA officers concerned, it was to be approved, first, by Atty. Llorente, in the case of a rank-and-file employee, or by Col. Duefias, the acting administrator, in the case of an officer, and then by Atty. Rodriguez, the corporate auditor ... Notwithstanding Condition (a) just quoted, the clearances of Mrs Perez and Mr. Azucena both dated October 30, 1981, were favorably acted upon by the CPA officers concerned, including Mrs. Sotto, acting for the accounting division, even if the clearances showed they had pending accountabilities to the GSIS and the UCPB, and subsequently approved by Attys. Llorente and Rodriguez (Exhs. M and N). Thereafter, the vouchers for their gratuity benefits, also indicating their outstanding obligations were approved, among others, by Atty Llorente, and their gratuity benefits released to them after deducting those accountabilities. ... The clearanceof Mrs. Javier of the same date of October 30, 1991 was also signed by all PCA officers concerned, including Mrs. Sotto even though the former had unsettled obligations noted thereon, viz'SIS loan P5,387.00 and UCPB car loan P19,705.00, or a total of P25,092.00, and later on approveed by Col. Dueas, Mrs Javier being an officer, and Atty. Rodriguez "Exh. (O)". Similariv the, voucher of Mrs Javier for her gratuity benefits likewise recited her accountabilities of P25,092.00 plus P92.000.00, which was handwritten. Both accounts were deducted from her gratuity benefits, and the balance released to her on November 16, 1981. The voucher passed post-audit by Atty. Rodriguez on December 1, 1981 (Exhs. L, L-1, L-2, and L-3). The said P92,000.00 was the disallowed portion of the cash advances received by Mr. Curio in connection with his duties as "super cargo" in the distribution of seed nuts throughout the country. He received them through and in the name of Mrs. Javier from the UCPB. When the amount was disallowed, the UCPB withheld from the PCA certain receivables; the latter, in turn, deducted the same amount from the gratuity benefits of Mrs. Javier, she being primarily liable therefor (Exhs, L, L-1, L-2, and L-3), At the time of the deduction, the additional liquidation papers had already been submitted and were in process. Just in case she would not be successful in having the entire amount wiped out, she requested Mr. Curio, who admittedly received it, to execute, as he did, an affidavit dated November 26, 1981, in which he assumed whatever portion thereof might not be allowed ... The clearance of Mr. Curio dated November 4,1981, (Exh. D or D-1) likewise favorably passed all officers concerned, including Mrs. Sotto, the latter signing despite the notation handwritten on December 8, 1981, that Mr. Curio had pending accountabilities, namely: GSIS loan 2,193.74, 201 accounts receivable P3,897.75, and UCPB loan P3,623.49, or a total of P10,714.78. However, when the clearance was submitted to Atty. Llorente for approval, he refused to approve it. For this reason, the clearance was held up in his office and did not reach Atty. Rodriguez, ... The reason given by Atty. Llorente was that when the clearance was presented to him on December 8, 1981, he was already aware of the affidavit dated November 26, 1981, in which Mr. Curio assumed to pay any residual liability for the disallowed cash advances, which at the time, December 8, 1981, stood at P92,000.00 (Exhs. 2 and 2-A). Moreover, Mr. Curio had other pending obligations noted on his clearance totalling Pl0,714.98 (Exh. 1-a). To justify his stand, Atty. Llorente invoked Condition (a) of the clearance (Exhs. D and I-B), which, he said, was "very stringent" and could not be interpreted in any other way ... On December 1, 1982, Mr. Curio brought the matter of his unapproved clearance to Col. Dueas (Exh. G), who referred it to the Legal Department, which was under Atty. Llorente as Deputy Administrator for legal affairs. After follow-up in that department, Mr. Curio received the answer of Col. Dueas dated February 11, 1983, saying that the clearance was being withheld until the former settled his alleged accountability for P92,000.00 reduced already to P56,000.00 (Exh. I). Mr. Curio elevated the matter to the Chairman of the PCA Board, who indorsed it to Col. Dueas, who, in turn, sent it to the Legal Department. This time the latter, through its Manager, Manuel F. Pastor, Jr., first cousin of Atty. Llorente, submitted a formal report under date of August 14, 1986, to the PCA Chairman, justifying

the action taken by Atty. Llorente and Col. Dueas (Exh. 12). The PCA Chairman did not respond in writing, but advised Mr. Curio to wait for the resolution of the Tanodbayan with which he (Mr. Curio) had filed this case initially against Atty. Llorente and, later on, against Col. Duerias also. On August 31, 1986, Atty. Llorente resigned from the PCA; the clearance, however, could not be issued because, according to the PCA Corporate Legal Counsel, Arthur J. Liquate, the PCA did not want to preempt the Tanodbayan. On November 12, 1986, the latter decided to institlite this case in court ... Nine days thereafter, or on November 21, 1986, Mr. Curio accomplished another clearance, which no longer imposed Condition (a) of his earlier clearance (Exh. E). The new clearance was approved, even if he still had pending accountabilities, totalling P10,714.78 that had remained unsettled since December 1981. His voucher was also approved, and his gratuity benefits paid to him in the middle of December 1986, after deducting those obligations (Exh. F). Nothing was mentioned anymore about the disallowed cash advances of P92,000.00, which had been reduced to P55,000.00 ...

Between December 1981 and December 1986, Mr. Curio failed to get gainful employment; as a result, his family literally went hungry, In 1981, he applied for work with the Philippine Cotton Authority, but was refused, because he could not present his PCA clearance. The same thing happened when he sought employment with the Philippine Fish Marketing Administration in January 1982. In both prospective employers, the item applied for was P2,500.00 a month. At that time, he was only about 45 years old and still competitive in the job market. But in 1986, being already past 50 years, he could no longer be hired permanently, there being a regulation to that effect. His present employment with the Philippine Ports Authority, which started on March 16, 1987, was casual for that reason. Had his gratuity benefits been paid in 1981, he would have received a bigger amount, considering that since then interest had accrued and the foreign exchange rate of the peso to the dollar had gone up ... 1
On December 10, 1986, an Information for violation of Section 3(c) of the Anti-Graft and Corrupt Practices Act was filed against the petitioner: That on or about December 8, 1981 and/or subsequent thereto, in Quezon City, Philippines, and within the jurisdiction of this Honorable Court, accused David Pastor Llorente, Deputy Administrator for the Philippine Coconut Authority (PCA), and as such was empowered among others to approve clearances of employees thereat, taking advantage of his position, through evident bad faith, did then and there, wilfully and unlawfully refuse to issue a certificate of clearance to Herminigildo M. Curio, an employee thereat, who was forced to resign as a result of the abolition of his item pursuant to the 1981 reorganization of the PCA, resulting in his deprivation to receive his gratuity benefits amounting to P29,854.90, and to secure employment with other offices to his damage and prejudice, and that of the public service. CONTRARY TO LAW.

Manila, Philippines, December 10, 1986. 2

As indicated at the outset, the Sandiganbayan acquitted the petitioner in the absence of any evidence that he acted in bad faith. 3 The Sandiganbayan cited three considerations that precluded bad faith: First, when Atty. Llorente withheld favorable action on the clearance on and after December 8, 1981, there was still the possibility, remote though it was when viewed after the fact, that the accountability, which Mrs. Javier was primarily liable therefor and which was fully settled by deduction from her gratuity benefits on November 16, 1981 (Exhs. L, L-1, L-2, and L-3), would be reinstated and charged directly to Mr. Curio, for the latter executed on November 26, 1981, an affidavit assuming responsibility for the obligation to the extent of the amount finally disallowed, and the affidavit was on December 8, 1981, already pending consideration by the PCA management (Exhs. 2 and 2-A). Second, Atty. Llorente was appointed Deputy Administrator for administrative services, finance services, and legal affairs departments only on November 2,1981 (TSN, March 9/87, p. 3). Being new in his job, it was but natural that he was zealous in the performance of his functions in fact, overzealous in the protection of the PCA interests, even if that protection was not necessary, as the P92,000.00 accountability had already been paid (See Exh. 12, 4th paragraph). Finally, Atty. Llorente was officiously, though incidentally, taking care also of the interest of Mrs. Javier who, justice and equity demanded, should not be made to shoulder the P92,000.00 unliquidated cash advances, for the reason that it was Mr. Curio who admittedly spent them or who, at the very least, should be able to get reimbursement of what she paid, totally or partially, from his gratuity benefits (See Exh. 5, pp. 2-3 ). 4 The Sandiganbayan, as we also indicated earlier, took the petitioner to task civilly, and ordered him to pay "compensatory damages" in the sum of P90,000.00. According to the Sandiganbayan, the petitioner was guilty nonetheless of abuse of right under Article 19 of the Civil Code and as a public officer, he was liable for damages suffered by the aggrieved party (under Article 27). The petitioner claims that the Sandiganbayan's Decision is erroneous even if the Sandiganbayan acquitted him therein, because he was never in bad faith as indeed found by the Sandiganbayan. Under the 1985 Rules of Criminal Procedure, amending Rules 110 through 127 of the Rules of Court, the judgment of the court shall include, in case of acquittal, and unless there is a clear showing that the act from which the civil liability might arise did not exist, "a finding on the civil liability of the accused in favor of the offended party." 5 The rule is based on the provisions of substantive law, 6 that if acquittal proceeds from reasonable doubt, a civil action, lies nonetheless. The challenged judgment found that the petitioner, in refusing to issue a certificate of clearance in favor of the private offended party, Herminigildo Curio, did not act with "evident bad faith," one of the elements of Section 3(e) of Republic Act No. 3819. 7 We agree with

tile judgment, insofar as it found lack of evident bad faith by the petitioner, for the reasons cited therein basicallv, because the petitioner was acting within the bounds of law in refusing to clear Curio although "[t]he practice was that the clearance was nevertheless approved, and then the amount of the unsettled obligation was deducted from the gratuity benefits of the employee." 8 We also agree with the Sandiganbaya (although the Sandiganbayan did not say it) that although the petitioner did not act with evident bad faith, he acted with bad faith nevertheless, for which he should respond for damages. The records show that the office practice indeed in the Philippine Coconut Authority was to clear the employee (retiree) and deduct his accountabilities from his gratuity benefits. There seems to be no debate about the existence of this practice (the petitioner admitted it later on) and in fact, he cleared three employees on the condition that their obligations should be deducted from their benefits. 9 We quote: Confronted with these evidence (sic), Atty. Llorente conceded, albeit grudgingly, the existence of the practice by the accounting division of not complying with Condition (a). He, however, claimed that he learned of the practice only during the trial of the case and that he must have inadvertently approved the clearances of Mrs. Perez, Mr. Azucena, and possibly others who were similarly situated (TSN, March 9/88,pp. 4-5). This the evidence belies. First, he himself testified that when the clearance of Mr. Curio was presented to him in December 1981, it already bore the signature of Mrs. Sotto of the accounting division and the notation set opposite her name about the outstanding accountabilities of Mr. Curio; but he (Atty. Llorente) significantly did not ask her why she signed the clearance (TSN, Nov. 24/87, pp. 24-25). Second, in that month, Atty. Llorente approved Mrs. Perez's and Mr. Azucena's vouchers showing that hey has pending obligations to the GSIS and the UCPB, which were being deducted from their gratuity benefits. Attached to those vouchers were the clearances as supporting documents (Exhs. M-2 and N-1; TSN, Dec. 7/87, pp. 13,23). And third, in the same month, Atty. Llorente was already aware of the cae of Mrs. Javier whose clearance and voucher were, according to him, preciselywithheld because of her unsettled accountability for the cash advances of P92,000.00, but here later on given due course; and her gratuity benefits released on November 16, 1981, minus that amount (TSN, Nov. 24/87, pp. 31-32; Exhs. L, L-1, L-2 and L-3).

The cash advances of P92,000.00 were the primary obligation of Mrs. Javier, since they were secured through her and in her name from the UCPB. That was why they were charged to and deducted from, her gratuity benefits. Consequently, as early as that date and in so far as the PCA and the UCPB were concerned, the accountability was already fully paid. The assumption of residual liability by Mr. Curio for the cash advances on November 26, 1981, was a matter between him and Mrs. Javier (Exhs. 2 and 2A). 10
The general rule is that this Court is bound by the findings of fact of the Sandiganbayan. 11 As we said, the acts of the petitioner were legal (that is, pursuant to procedures), as he insists in this petition, yet it does not follow, as we said, that his acts were done in good faith. For emphasis, he had no valid reason to "go legal" all of a sudden with respect to Mr. Curio, since he had cleared three employees who, as the Sandiganbayan found, "were all similarly circumstanced in that they all had pending obligations when, their clearances were filed for consideration, warranting similar official action." 12 The Court is convinced that the petitioner had unjustly discriminated against Mr. Curio. It is no defense that the petitioner was motivated by no ill-will (a grudge, according to the Sandiganbayan), since the facts speak for themselves. It is no defense either that he was, after all, complying merely with legal procedures since, as we indicated, he was not as strict with respect to the three retiring other employees. There can be no other logical conclusion that he was acting unfairly, no more, no less, to Mr. Curio. It is the essence of Article 19 of the Civil Code, under which the petitioner was made to pay damages, together with Article 27, that the performance of duty be done with justice and good faith. In the case of Velayo vs. Shell Co. of the Philippines, 13 we held the defendant liable under Article 19 for disposing of its propertv a perfectly legal act in order to escape the reach of a creditor. In two fairly more recent cases, Sevilla vs. Court of Appeals 14and Valenzuela vs. Court of Appeals, 15 we held that a principal is liable under Article 19 in terminating the agency again, a legal act when terminating the agency would deprive the agent of his legitimate business. We believe that the petitioner is liable under Article 19. The Court finds the award of P90,000.00 to be justified bv Article 2202 of the Civil Code, which holds the defendant liable for all "natural and probable" damages. Hennenegildo Cunct presented evidence that as a consequence of the petitioner's refusal to clear him, he failed to land a job at the Philippine Cotton Authority and Philippine First Marketing Authority. He also testified that a job in either office would have earned him salary of P2,500.00 a month, or P150,000.00 in five years. Deducting his probable expenses of reasonably about P1,000.00 a month or P60,000.00 in five years, the petitioner owes him a total actual damages of P90,000.00 WHEREFORE, premises considered, the Petition is DENIED. No pronouncement as to costs. IT IS SO ORDERED.

G.R. No. L-44748 August 29, 1986 RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI). petitioner, vs. COURT OF APPEALS and LORETO DIONELA, respondents. O. Pythogoras Oliver for respondents.

PARAS, J.: Before Us, is a Petition for Review by certiorari of the decision of the Court of Appeals, modifying the decision of the trial court in a civil case for recovery of damages against petitioner corporation by reducing the award to private respondent Loreto Dionela of moral damages from P40,000 to Pl5,000, and attorney's fees from P3,000 to P2,000. The basis of the complaint against the defendant corporation is a telegram sent through its Manila Office to the offended party, Loreto Dionela, reading as follows: 176 AS JR 1215PM 9 PAID MANDALUYONG JUL 22-66 LORETO DIONELA CABANGAN LEGASPI CITY WIRE ARRIVAL OF CHECK FER LORETO DIONELA-CABANGAN-WIRE ARRIVAL OF CHECK-PER 115 PM SA IYO WALANG PAKINABANG DUMATING KA DIYAN-WALA-KANG PADALA DITO KAHIT BULBUL MO (p. 19, Annex "A") Plaintiff-respondent Loreto Dionela alleges that the defamatory words on the telegram sent to him not only wounded his feelings but also caused him undue embarrassment and affected adversely his business as well because other people have come to know of said defamatory words. Defendant corporation as a defense, alleges that the additional words in Tagalog was a private joke between the sending and receiving operators and that they were not addressed to or intended for plaintiff and therefore did not form part of the telegram and that the Tagalog words are not defamatory. The telegram sent through its facilities was received in its station at Legaspi City. Nobody other than the operator manned the teletype machine which automatically receives telegrams being transmitted. The said telegram was detached from the machine and placed inside a sealed envelope and delivered to plaintiff, obviously as is. The additional words in Tagalog were never noticed and were included in the telegram when delivered. The trial court in finding for the plaintiff ruled as follows: There is no question that the additional words in Tagalog are libelous. They clearly impute a vice or defect of the plaintiff. Whether or not they were intended for the plaintiff, the effect on the plaintiff is the same. Any person reading the additional words in Tagalog will naturally think that they refer to the addressee, the plaintiff. There is no indication from the face of the telegram that the additional words in Tagalog were sent as a private joke between the operators of the defendant. The defendant is sued directly not as an employer. The business of the defendant is to transmit telegrams. It will open the door to frauds and allow the defendant to act with impunity if it can escape liability by the simple expedient of showing that its employees acted beyond the scope of their assigned tasks. The liability of the defendant is predicated not only on Article 33 of the Civil Code of the Philippines but on the following articles of said Code: ART. 19.- Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. ART. 20.-Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same. There is sufficient publication of the libelous Tagalog words. The office file of the defendant containing copies of telegrams received are open and held together only by a metal fastener. Moreover, they are open to view and inspection by third parties. It follows that the plaintiff is entitled to damages and attorney's fees. The plaintiff is a businessman. The libelous Tagalog words must have affected his business and social standing in the community. The Court fixes the amount of P40,000.00 as the reasonable amount of moral damages and the amount of P3,000.00 as attorney's fee which the defendant should pay the plaintiff. (pp. 15-16, Record on Appeal) The respondent appellate court in its assailed decision confirming the aforegoing findings of the lower court stated: The proximate cause, therefore, resulting in injury to appellee, was the failure of the appellant to take the necessary or precautionary steps to avoid the occurrence of the humiliating incident now complained of. The company had not imposed any safeguard against such eventualities and this void in its operating procedure does not speak well of its

concern for their clientele's interests. Negligence here is very patent. This negligence is imputable to appellant and not to its employees. The claim that there was no publication of the libelous words in Tagalog is also without merit. The fact that a carbon copy of the telegram was filed among other telegrams and left to hang for the public to see, open for inspection by a third party is sufficient publication. It would have been otherwise perhaps had the telegram been placed and kept in a secured place where no one may have had a chance to read it without appellee's permission. The additional Tagalog words at the bottom of the telegram are, as correctly found by the lower court, libelous per se, and from which malice may be presumed in the absence of any showing of good intention and justifiable motive on the part of the appellant. The law implies damages in this instance (Quemel vs. Court of Appeals, L-22794, January 16, 1968; 22 SCRA 44). The award of P40,000.00 as moral damages is hereby reduced to P15,000.00 and for attorney's fees the amount of P2,000.00 is awarded. (pp. 22-23, record) After a motion for reconsideration was denied by the appellate court, petitioner came to Us with the following: ASSIGNMENT OF ERRORS I The Honorable Court of Appeals erred in holding that Petitioner-employer should answer directly and primarily for the civil liability arising from the criminal act of its employee. II The Honorable Court of Appeals erred in holding that there was sufficient publication of the alleged libelous telegram in question, as contemplated by law on libel. III The Honorable Court of Appeals erred in holding that the liability of petitioner-company-employer is predicated on Articles 19 and 20 of the Civil Code, Articles on Human Relations. IV The Honorable Court of Appeals erred in awarding Atty's. fees. (p. 4, Record) Petitioner's contentions do not merit our consideration. The action for damages was filed in the lower court directly against respondent corporation not as an employer subsidiarily liable under the provisions of Article 1161 of the New Civil Code in relation to Art. 103 of the Revised Penal Code. The cause of action of the private respondent is based on Arts. 19 and 20 of the New Civil Code (supra). As well as on respondent's breach of contract thru the negligence of its own employees. 1 Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Everytime a person transmits a message through the facilities of the petitioner, a contract is entered into. Upon receipt of the rate or fee fixed, the petitioner undertakes to transmit the message accurately. There is no question that in the case at bar, libelous matters were included in the message transmitted, without the consent or knowledge of the sender. There is a clear case of breach of contract by the petitioner in adding extraneous and libelous matters in the message sent to the private respondent. As a corporation, the petitioner can act only through its employees. Hence the acts of its employees in receiving and transmitting messages are the acts of the petitioner. To hold that the petitioner is not liable directly for the acts of its employees in the pursuit of petitioner's business is to deprive the gen eral public availing of the services of the petitioner of an effective and adequate remedy. In most cases, negligence must be proved in order that plaintiff may recover. However, since negligence may be hard to substantiate in some cases, we may apply the doctrine of RES IPSA LOQUITUR (the thing speaks for itself), by considering the presence of facts or circumstances surrounding the injury. WHEREFORE, premises considered, the judgment of the appellate court is hereby AFFIRMED. SO ORDERED.

G.R. No. 165548

June 13, 2011

PHILIPPINE REALTY AND HOLDINGS CORPORATION, Petitioner, vs. LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Respondent. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 167879 LEY CONSTRUCTION AND DEVELOPMENT CORPORATION, Petitioner, vs. PHILIPPINE REALTY AND HOLDINGS CORPORATION, Respondent. DECISION SERENO, J.: These are consolidated petitions for review under Rule 45 of the New Rules of Civil Procedure filed by both parties from a Court of Appeals (CA) Decision in CA-GR No. 71293 dated 30 September 2004. This Decision reversed a Decision of the Regional Trial Court (RTC), National Capital Judicial Region (NCJR), Branch 135 in Makati City dated 31 January 2001 in Civil Case No. 96-160. The foregoing are the facts culled from the record, and from the findings of the CA and the RTC. Ley Construction and Development Corporation (LCDC) was the project contractor for the construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of PRHC, while Joselito Santos (Santos) was its general manager and vice-president for operations. Sometime between April 1988 and October 1989, the two corporations entered into four major construction projects, as evidenced by four duly notarized "construction agreements." LCDC committed itself to the construction of the buildings needed by PRHC, which in turn committed itself to pay the contract price agreed upon. These were the four construction projects the parties entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite Building: 1. Construction Agreement dated 25 April 1988 Alexandra-Cluster C involving the construction of two units of seven-storey buildings with basement at a contract price of P 68,000,000 (Project 1); 2. Construction Agreement dated 25 July 1988 Alexandra-Cluster B involving the construction of an eleven-storey twintower building with a common basement at a contract price of P 140,500,000 (Project 2); 3. Construction Agreement dated 23 November 1988 Alexandra-Cluster E involving the construction of an eleven-storey twin-tower building with common basement at a contract price of P 140,500,000 (Project 3); and 4. Construction Agreement dated 10 October 1989 Tektite Towers Phase I involving the construction of Tektite Tower Building I at Tektite Road at a contract price of P 729,138,964 (Tektite Building). The agreement covering the construction of the Tektite Building was signed by a Mr. Campos under the words "Phil. Realty & Holdings Corp." and by Santos as a witness. Manuel Ley, the president of LCDC, signed under the words "Ley Const. & Dev. Corp." The terms embodied in the afore-listed construction agreements were almost identical. Each agreement provided for a fixed price to be paid by PRHC for every project. All the aforementioned agreements contain the following provisions: ARTICLE IV CONTRACT PRICE ... ... ...

The Contract Price shall not be subject to escalation except due to work addition, (approved by the OWNER and the ARCHITECT) and to official increase in minimum wage as covered by the Labor Adjustment Clause below. All costs and expenses over and above the Contract Price except as provided in Article V hereof shall be for the account of the CONTRACTOR. It is understood that there shall be no escalation on the price of materials. However, should there be any increase in minimum daily wage level, the adjustment on labor cost only shall be considered based on conditions as stipulated below. ... ... ...

ARTICLE VII TIME OF COMPLETION ... ... ...

Should the work be delayed by any act or omission of the OWNER or any other person employed by or contracted by the OWNER in the project, including days in the delivery or (sic) materials furnished by the OWNER or others, or by any appreciable additions or alterations in the work ordered by the OWNER or the ARCHITECT, under Article V or by force majeure, war, rebellion, strikes, epidemics, fires, riots, or acts of the civil or military authorities, the CONTRACTOR shall be granted time extension.

Sometime after the execution of these agreements, two more were entered into by the parties: 1. Letter-agreement dated 24 August 1989 Project 3 for the construction of the drivers quarters in Project 3; and 2. Agreement dated 7 January 1993 Tektite Towers for the concreting works on "GL, 5, 9, & A" (ground floor to the 5th floor) of the Tektite Towers. Santos signed the letter-agreement on the construction of the drivers quarters in Project 3,1 while both he and Abcede signed the letteragreement on the concreting works on GL, 5, 9, and A, and also of Project 3. 2 In order to jump-start the construction operations, LCDC was required to submit a performance bond as provided for in the construction agreements. As stated in these agreements, as soon as PRHC received the performance bond, it would deliver its initial payment to LCDC. The remaining balance was to be paid in monthly progress payments based on actual work completed. In practice, these monthly progress payments were used by LCDC to purchase the materials needed to continue the construction of the remaining parts of the building. In the course of the construction of the Tektite Building, it became evident to both parties that LCDC would not be able to finish the project within the agreed period. Thus, through its president, LCDC met with Abcede to discuss the cause of the delay. LCDC explained that the unanticipated delay in construction was due mainly to the sudden, unexpected hike in the prices of cement and other construction materials. It claimed that, without a corresponding increase in the fixed prices found in the agreements, it would be impossible for it to finish the construction of the Tektite Building. In their analysis of the project plans for the building and of all the external factors affecting the completion of the project, the parties discovered that even if LCDC were able to collect the entire balance from the contract, the collected amount would still be insufficient to purchase all the materials needed to complete the construction of the building. Both parties agreed that their foremost objective should be to ensure that the Tektite Building project would be completed. To achieve this goal, they entered into another agreement. Abcede asked LCDC to advance the amount necessary to complete construction. Its president acceded, on the absolute condition that it be allowed to escalate the contract price. It wanted PRHC to allow the escalation and to disregard the prohibition contained in Article VII of the agreements. Abcede replied that he would take this matter up with the board of directors of PRHC. The board of directors turned down the request for an escalation agreement.3 Neither PRHC nor Abcede gave notice to LCDC of the alleged denial of the proposal. However, on 9 August 1991 Abcede sent a formal letter to LCDC, asking for its conformity, to the effect that should it infuse P36 million into the project, a contract price escalation for the same amount would be granted in its favor by PRHC.4 This letter was signed by Abcede above the title "Construction Manager," as well as by LCDC. 5 A plain reading of the letter-agreement will reveal that the blank above the words "PHIL. REALTY & HOLDINGS CORP." was never signed, 6 viz: Very truly yours, (Signed) _______________________ DENNIS Construction Manager CONFORME: (Signed) _______________________ LEY CONST. & DEV. CORP. APPROVED & ACCEPTED : _______________________ PHIL. REALTY & HOLDINGS CORP. Notwithstanding the absence of a signature above PRHCs name, LCDC proceeded with the construction of the Tektite Building, expending the entire amount necessary to complete the project. From August to December 1991, it infused amounts totaling P 38,248,463.92. These amounts were not deposited into the joint account of LCDC and PRHC, but paid directly to the suppliers upon the instruction of Santos.7 LCDC religiously submitted to PRHC monthly reports8 that contained the amounts of infusion it made from the period August 1991 to December 1991. These monthly reports all had the following heading: ... ... ...

A.

ABCEDE

MR. JOSELITO L. SANTOS VICE PRESIDENT OPERATION PHIL. REALTY & HOLDINGS CORP. 4th Floor Quad Alpha Centrum Bldg. 125 Pioneer St., Mandaluyong, M.M. T H R U : D.A. ABCEDE & ASSOCIATES Construction Managers

SUBJECT : P 36.0M INFUSION-TEKTITE TOWERS PROJECT From these monthly reports, it can be gleaned that the following were the cash infusions made by LCDC: Month August 1991 Amount PhP 6,724,632.26 Date of monthly report 15 October 19919 7 October 199110 7 November 199111 7 December 199112 9 January 199213

September 1991 PhP 7,326,230.69 October 1991 November 1991 December 1991 PhP 7,756,846.88 PhP 8,553,313.50 PhP 7,887,440.50 PhP 38,248,463.92 PRHC never replied to any of these monthly reports.

On 20 January 1992, LCDC wrote a letter addressed to Santos stating that it had already complied with its commitment as of 31 December 1991 and was requesting the release of P 2,248,463.92. It attached a 16 January 1992 letter written by D.A. Abcede & Associates, informing PRHC of the total cash infusion made by LCDC to the project, to wit: in compliance with the commitment of Ley Construction and Devt Corp. to infuse P36.00M for the above subject project x x x x x x we would like to present the total cash infusion by LCDC for the period covering the month of August, 1991 to December 1991 broken down as follows: ... ... ...

T O T A L: P 38,248,463.92 PRHC never replied to this letter. In another letter dated 7 September 1992, there was a reconciliation of accounts between the two corporations with respect to the balances due for Projects 1, 2, and 3. The reconciliation of accounts resulted in PRHC owing LCDC the sum of P 20,862,546.41, broken down as follows: Project 1 Project 2 Project 3 P 1,783,046.72 P 13,550,003.93 P 5,529,495.76 P 20,862,546.41 In a letter dated 8 September 1992,14 when 96.43% of Tektite Building had been completed, LCDC requested the release of the P 36 million escalation price. PRHC did not reply, but after the construction of the building was completed, it conveyed its decision in a letter on 7 December 1992.15 That decision was to set off, in the form of liquidated damages, its claim to the supposed liability of LCDC, to wit: ... ... ...

In this regard, please be advised that per owners decision; your claim of P 36,000,00.00 adjustment will be applied to the liquidated damages for concreting works computed in the amount of Thirty Nine Million Three Hundred Twenty Six Thousand Eight Hundred Seventeen & 15/100 (P39,326,817.15) as shown in the attached sheet. Further, the net difference P 3,326,817.15 will also be considered waived as additional consideration. ... ... ...

In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed escalation price of P36 million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the escalation price. In the same letter, it claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay P 39,326,817.15 as liquidated damages. This claim was set forth in PRHCs earlier 7 December 1992 letter. LCDC countered that there were many times when its requests for time extension although due to reasonable causes sanctioned by the construction agreement such as power failures, water supply interruption, and scarcity of construction materials were unreasonably reduced to shorter periods by PRHC. In its letter dated 9 December 1992, LCDC claimed that in a period of over two years, out of the 618 days of extension it requested, only 256 days or not even half the number of days originally requested were considered. It further claimed that its president inquired from Abcede and Santos why its requests for extension of time were not granted in full. The two, however, assured him that LCDC would not be penalized with damages for even a single day of delay, because the fact that it was working hard on the Tektite Building project was known to PRHC. 16

Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993, PRHC denied any liability. During the course of the proceedings, both parties conducted another reconciliation of their respective records. The reconciliation showed the following balances in favor of LCDC: Project 1 Project 2 Project 3 Total: P 1,703,955.07 P 13,251,152.61 P 5,529,495.76 P 20,484,603.44

In addition to the agreed-upon outstanding balance in favor of LCDC, the latter claimed another outstanding balance of P 232,367.96 in its favor for the construction of the drivers quarters in Project 3. It also further claimed the amount of P 7,112,738.82, representing the balance for the concreting works from the ground floor to the fifth floor of the Tektite Building. Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with Application for the Issuance of a Writ of Preliminary Attachment on 2 February 1996 before the RTC in Makati City docketed as Civil Case No. 96-160: WHEREFORE, it is respectfully prayed that: 1. Immediately upon the filing of this Complaint, an order of preliminary attachment be issued over defendant Philrealtys properties as security for any judgment which plaintiff may recover against said defendant; and 2. After trial, judgment be rendered as follows: 2.1. On the first, second and third alternative causes of action, (a) Ordering defendant Philrealty to pay plaintiff actual damages in the amount ofP36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; (b) In the alternative, ordering defendants Abcede and Santos to jointly and severally, in the event that they acted without necessary authority, to pay plaintiff actual damages in the amount of P36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; and (c) Ordering defendant Philrealty or defendants Abcede and Santos to pay plaintiff exemplary damages in the amount to be determined by the Honorable Court but not less thanP5,000,000.00 2.2. On the fourth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P7,112,738.82 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P1,000,000.00 2.3. On the fifth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P20,862,546.41 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in an amount to be determined by the Honorable Court but not less than P5,000,000.00. 2.4. On the sixth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P232,367.96 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P100,000.00 2.5. On the seventh cause of action, ordering defendant Philrealty and/or defendants Abcede and Santos to pay plaintiff attorneys fees in the amount of P750,000.00 and expenses of litigation in the amount of P50,000.00, plus costs. Plaintiff prays for such other just and equitable reliefs as may be warranted by the circumstances. On 23 July 1999, a joint Stipulation of Facts 17 was filed by the parties. In the said stipulation, they reconciled their respective claims on the payments made and the balances due for the construction of the Tektite Building project, Project 1, and Project 2. The reconciliation shows that the following amounts are due and/or overpaid:

Due to LCDC Tektite Building Project 1 Project 2 P1,703,955.07 P3,251,152.61 P14,955,107.68

Overpaid to LCDC P4,646,947.35

P4,646,947.35

Both parties agreed that the only remaining issues to be resolved by the court, with respect to the Tektite Building project and Projects 1 to 3, were as follows: a) The validity of Ley Constructions claim that Philrealty had granted the former a contract price escalation for Tektite To wer I in the amount of P36,000,000.00 b) The validity of the claim of Philrealty that the following amounts should be charged to Ley Construction: Payments/Advances without LCDCs conformity and recommendation of the Construction Manager, D.A. Abcede & Associates that subject items are LCDCs account: a. Esicor, Inc. waterproofing works Cluster B P1,121,000.00 b. Ideal Marketing, Inc. waterproofing works at Cluster B, Quadrant 2 P885,000.00 P2,006,000.00 c) The claim of Philrealty for liquidated damages for delay in completion of the construction as follows: d) Tektite Tower I - P39,326,817.15 Alexandra Cluster B - 12,785,000.00 Alexandra Cluster C - 1,100,000.00 and e) The claim of Ley Construction for additional sum of P2,248,463.92 which it allegedly infused for the Tektite Tower I project over and above the original P36,000,000.00 it had allegedly bound itself to infuse. 18 On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for Partial Reconsideration, which was granted. It must be noted that in the Stipulation of Facts, the parties had jointly agreed that the P7,112,738.82 unpaid account in the concreting of Tektite Building would no longer be included in the list of claims submitted to the RTC for decision. Nonetheless, this amount was still included as an award in the trial courts 7 May 2001 amended Decision, the dispositive portion of which provides: WHEREFORE, premises considered, judgment is hereby rendered: A. Dismissing the counter-claim of defendant DENNIS ABCEDE and the cross-claim of defendant JOSELITO SANTOS; and B. Ordering defendant PHILIPPINE REALTY AND HOLDING CORPORATION to pay plaintiff LEY CONSTRUCTION AND DEVELOPMENT CORPORATION: 1. P33,601,316.17, for the Tektite Tower I Project with legal interest thereon from date of the filing of the complaint until fully paid; 2. P13,251,152.61 for Alexandra Cluster B with legal interest thereon from date of the filing of the complaint until fully paid; 3. P1,703,955.07 for Alexandra Cluster C with legal interest thereon from date of the filing of the complaint until fully paid; 4. P7,112,738.82 in actual damages for the concreting works of Tektite Tower I, with legal interest thereon from the date of the filing of the complaint until fully paid; 5. P5,529,495.76 in actual damages for the construction of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid; 6. P232,367.96 in actual damages for the construction of the drivers quarters of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid; 7. P750,000.00 for attorneys fees and expenses of litigation; and 8. Costs.

SO ORDERED.19 PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CA-G.R. CV No. 71293,20 reversed the lower courts amended Decision on 30 September 2004 and ruled thus: WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May 7, 2001 amended decision are hereby REVERSED and SET ASIDE and a new one is entered: I. FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant PRHC in the amount of Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred Sixty Four 90/100 (P60,464,764.90) PESOS detailed as follows: [1] P39,326,817.15 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Tektite Tower Phase I, the length of delay having been signed and confirmed by LCDC; [2] P12,785,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Alexandra Cluster B, the length of delay having been signed and confirmed by LCDC; [3] P1,700,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff appellee LCDC in the construction of Alexandra Cluster C, the length of delay having been confirmed by LCDC; [4] P4,646,947.75 overpayment by defendant-appellant PRHC to plaintiff-appellee LCDC for the Tektite Tower Phase I Project; [5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work or plaintiff-appellee LCDC in the Alexander Cluster B Project which was paid by defendantappellant PRHC to contractor Escritor, Inc.; [6] P885,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work of plaintiff-appellee LCDC at the Alexandra Cluster B Quadrant in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Ideal Marketing Inc., and consideration. ... ... ...

In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed escalation price of P36 million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the escalation price. In the same letter, it claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay P 39,326,817.15 as liquidated damages. This claim was set forth in PRHCs earlier 7 December 1992 letter. LCDC countered that there were many times when its requests for time extension although due to reasonable causes sanctioned by the construction agreement such as power failures, water supply interruption, and scarcity of construction materials were unreasonably reduced to shorter periods by PRHC. In its letter dated 9 December 1992, LCDC claimed that in a period of over two years, out of the 618 days of extension it requested, only 256 days or not even half the number of days originally requested were considered. It further claimed that its president inquired from Abcede and Santos why its requests for extension of time were not granted in full. The two, however, assured him that LCDC would not be penalized with damages for even a single day of delay, because the fact that it was working hard on the Tektite Building project was known to PRHC. 16 Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993, PRHC denied any liability. During the course of the proceedings, both parties conducted another reconciliation of their respective records. The reconciliation showed the following balances in favor of LCDC: Project 1 Project 2 Project 3 Total: P 1,703,955.07 P 13,251,152.61 P 5,529,495.76 P 20,484,603.44

In addition to the agreed-upon outstanding balance in favor of LCDC, the latter claimed another outstanding balance of P 232,367.96 in its favor for the construction of the drivers quarters in Project 3. It also further claimed the amount of P 7,112,738.82, representing the balance for the concreting works from the ground floor to the fifth floor of the Tektite Building. Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with Application for the Issuance of a Writ of Preliminary Attachment on 2 February 1996 before the RTC in Makati City docketed as Civil Case No. 96-160: WHEREFORE, it is respectfully prayed that: 1. Immediately upon the filing of this Complaint, an order of preliminary attachment be issued over defendant Philrealtys properties as security for any judgment which plaintiff may recover against said defendant; and 2. After trial, judgment be rendered as follows: 2.1. On the first, second and third alternative causes of action,

(a) Ordering defendant Philrealty to pay plaintiff actual damages in the amount ofP36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; (b) In the alternative, ordering defendants Abcede and Santos to jointly and severally, in the event that they acted without necessary authority, to pay plaintiff actual damages in the amount of P36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; and (c) Ordering defendant Philrealty or defendants Abcede and Santos to pay plaintiff exemplary damages in the amount to be determined by the Honorable Court but not less thanP5,000,000.00 2.2. On the fourth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P7,112,738.82 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P1,000,000.00 2.3. On the fifth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P20,862,546.41 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in an amount to be determined by the Honorable Court but not less than P5,000,000.00. 2.4. On the sixth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P232,367.96 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P100,000.00 2.5. On the seventh cause of action, ordering defendant Philrealty and/or defendants Abcede and Santos to pay plaintiff attorneys fees in the amount of P750,000.00 and expenses of litigation in the amount of P50,000.00, plus costs. Plaintiff prays for such other just and equitable reliefs as may be warranted by the circumstances. On 23 July 1999, a joint Stipulation of Facts 17 was filed by the parties. In the said stipulation, they reconciled their respective claims on the payments made and the balances due for the construction of the Tektite Building project, Project 1, and Project 2. The reconciliation shows that the following amounts are due and/or overpaid: Due to LCDC Tektite Building Project 1 Project 2 P1,703,955.07 P3,251,152.61 P14,955,107.68 P4,646,947.35 Overpaid to LCDC P4,646,947.35

Both parties agreed that the only remaining issues to be resolved by the court, with respect to the Tektite Building project and Projects 1 to 3, were as follows: a) The validity of Ley Constructions claim that Philrealty had granted the former a contract price escalation for Tektite Tower I in the amount of P36,000,000.00 b) The validity of the claim of Philrealty that the following amounts should be charged to Ley Construction: Payments/Advances without LCDCs conformity and recommendation of the Construction Manager, D.A. Abcede & Associates that subject items are LCDCs account: a. Esicor, Inc. waterproofing works Cluster B P1,121,000.00 b. Ideal Marketing, Inc. waterproofing works at Cluster B, Quadrant 2 P885,000.00 P2,006,000.00 c) The claim of Philrealty for liquidated damages for delay in completion of the construction as follows: d) Tektite Tower I - P39,326,817.15 Alexandra Cluster B - 12,785,000.00

Alexandra Cluster C - 1,100,000.00 and e) The claim of Ley Construction for additional sum of P2,248,463.92 which it allegedly infused for the Tektite Tower I project over and above the original P36,000,000.00 it had allegedly bound itself to infuse. 18 On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for Partial Reconsideration, which was granted. It must be noted that in the Stipulation of Facts, the parties had jointly agreed that the P7,112,738.82 unpaid account in the concreting of Tektite Building would no longer be included in the list of claims submitted to the RTC for decision. Nonetheless, this amount was still included as an award in the trial courts 7 May 2001 amended Decision, the dispositive portion of which provides: WHEREFORE, premises considered, judgment is hereby rendered: A. Dismissing the counter-claim of defendant DENNIS ABCEDE and the cross-claim of defendant JOSELITO SANTOS; and B. Ordering defendant PHILIPPINE REALTY AND HOLDING CORPORATION to pay plaintiff LEY CONSTRUCTION AND DEVELOPMENT CORPORATION: 1. P33,601,316.17, for the Tektite Tower I Project with legal interest thereon from date of the filing of the complaint until fully paid; 2. P13,251,152.61 for Alexandra Cluster B with legal interest thereon from date of the filing of the complaint until fully paid; 3. P1,703,955.07 for Alexandra Cluster C with legal interest thereon from date of the filing of the complaint until fully paid; 4. P7,112,738.82 in actual damages for the concreting works of Tektite Tower I, with legal interest thereon from the date of the filing of the complaint until fully paid; 5. P5,529,495.76 in actual damages for the construction of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid; 6. P232,367.96 in actual damages for the construction of the drivers quarters of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid; 7. P750,000.00 for attorneys fees and expenses of litigation; and 8. Costs. SO ORDERED.19 PRHC filed a Notice of Appeal on 14 June 2001. The Court of Appeals, in CA-G.R. CV No. 71293,20 reversed the lower courts amended Decision on 30 September 2004 and ruled thus: WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May 7, 2001 amended decision are hereby REVERSED and SET ASIDE and a new one is entered: I. FINDING plaintiff-appellee LCDC LIABLE to defendant-appellant PRHC in the amount of Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred Sixty Four 90/100 (P60,464,764.90) PESOS detailed as follows: [1] P39,326,817.15 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Tektite Tower Phase I, the length of delay having been signed and confirmed by LCDC; [2] P12,785,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Alexandra Cluster B, the length of delay having been signed and confirmed by LCDC; [3] P1,700,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff appellee LCDC in the construction of Alexandra Cluster C, the length of delay having been confirmed by LCDC; [4] P4,646,947.75 overpayment by defendant-appellant PRHC to plaintiff-appellee LCDC for the Tektite Tower Phase I Project; [5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work or plaintiff-appellee LCDC in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Escritor, Inc.; [6] P885,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work of plaintiff-appellee LCDC at the Alexandra Cluster B Quadrant in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Ideal Marketing Inc., and

II. FINDING defendant-appellant PRHC LIABLE to plaintiff-appellee LCDC in the amount of Fifty Six million Seven Hundred Sixteen Thousand Nine Hundred Seventy One 40/100 (P56,716,971.40) detailed as follows: In Yao Ka Sin Trading v. Court of Appeals, et al,.43 this Court discussed the applicable rules on the doctrine of apparent authority, to wit: The rule is of course settled that "[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority with which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to exercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time." Also, "if a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the corporation will be estopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such officers or agents." 44 In Peoples Aircargo and Warehousing Co. Inc. v. Court of Appeals, et al., 45 we held that apparent authority is derived not merely from practice: Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. We rule that Santos and Abcede held themselves out as possessing the authority to act, negotiate and sign documents on behalf of PRHC; and that PRHC sanctioned these acts. It would be the height of incongruity to now allow PRHC to deny the extent of the authority with which it had clothed both individuals. We find that Abcedes role as construction manager, with regard to the construction projects, was akin to that of a general manager with regard to the general operations of the corporation he or she is representing. Consequently, the escalation agreement entered into by LCDC and Abcede is a valid agreement that PRHC is obligated to comply with. This escalation agreement whether written or verbal has lifted, through novation, the prohibition contained in the Tektite Building Agreement. In order for novation to take place, the concurrence of the following requisites is indispensable: 1. There must be a previous valid obligation. 2. The parties concerned must agree to a new contract. 3. The old contract must be extinguished. 4. There must be a valid new contract.46 All the aforementioned requisites are present in this case. The obligation of both parties not to increase the contract price in the Tektite Building Agreement was extinguished, and a new obligation increasing the old contract price by P 36 million was created by the parties to take its place. What makes this Court believe that it is incorrect to allow PRHC to escape liability for the escalation price is the fact that LCDC was never informed of the board of directors supposed non-approval of the escalation agreement until it was too late. Instead, PRHC, for its own benefit, waited for the former to finish infusing the entire amount into the construction of the building before informing it that the said agreement had never been approved by the board of directors. LCDC diligently informed PRHC each month of the partial amounts the former infused into the project. PRHC must be deemed estopped from denying the existence of the escalation agreement for having allowed LCDC to continue infusing additional money spending for its own project, when it could have promptly notified LCDC of the alleged disapproval of the proposed escalation price by its board of directors. Estoppel is an equitable principle rooted in natural justice; it is meant to prevent persons from going back on their own acts and representations, to the prejudice of others who have relied on them. 47 Article 1431 of the Civil Code provides: Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. Article 1431 is reflected in Rule 131, Section 2 (a) of the Rules of Court, viz.: Sec. 2. Conclusive presumptions. The following are instances of conclusive presumptions: (a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission be permitted to falsify it. This Court has identified the elements of estoppel as: [F]irst, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information given or that a reasonable person in the actor's position would expect or foresee such action. 48 This liability of PRHC, however, has a ceiling. The escalation agreement entered into was for P 36 millionthe maximum amount that LCDC contracted itself to infuse and that PRHC agreed to reimburse. Thus, the Court of Appeals was correct in ruling that the P 2,248,463.92 infused by LCDC over and above the P 36 million should be for its account, since PRHC never agreed to pay

anything beyond the latter amount. While PRHC benefited from this excess infusion, this did not result in its unjust enrichment, as defined by law. Unjust enrichment exists "when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience." 49 Under Art. 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to anot her.50 The term is further defined thus: Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion, or request.51 In order for an unjust enrichment claim to prosper, one must not only prove that the other party benefited from ones efforts or the obligations of others; it must also be shown that the other party was unjustly enriched in the sense that the term "unjustly" could mean "illegally" or "unlawfully."52 LCDC was aware that the escalation agreement was limited to P36 million. It is not entitled to remuneration of the excess, since it did not confer this benefit by mistake, fraud, coercion, or request. Rather, it voluntarily infused the excess amount with full knowledge that PRHC had no obligation to reimburse it. Parenthetically, we note that the CA had ruled that the 7 December 1992 letter demonstrates that PRHC treated the P 36 million as a loan deductible from the liquidated damages for which LCDC is supposedly liable. 53 It ruled that when PRHC informed LCDC that it would apply the P 36 million to the liquidated damages, PRHC, in effect, acknowledged that it was in debt to LCDC in the amount of P 36 million, and that forms the basis for PRHCs liability to LCDC for the said amount. We disagree with this analysis. In a contract of loan, ownership of the money is transferred from the lender to the borrower. 54 In this case, ownership of the P 36 million was never transferred to PRHC. As previously mentioned, such amount was paid directly to the suppliers. 55 We find that arrangement between PRHC and LCDC cannot be construed as a loan agreement but rather, it was an agreement to advance the costs of construction. In Liwanag v. Court of Appeals et al., we state: Neither can the transaction be considered a loan, since in a contract of loan once the money is received by the debtor, ownership over the same is transferred. Being the owner, the borrower can dispose of it for whatever purpose he may deem proper. In the instant petition, however, it is evident that Liwanag could not dispose of the money as she pleased because it was only delivered to her for a single purpose, namely, for the purchase of cigarettes, and if this was not possible then to return the money to Rosales. LCDC is not liable for liquidated damages for delay in the construction of the buildings for PRHC. There is no question that LCDC was not able to fully construct the Tektite Building and Projects 1, 2, and 3 on time. It reasons that it should not be made liable for liquidated damages, because its rightful and reasonable requests for time extension were denied by PRHC.56 It is important to note that PRHC does not question the veracity of the factual representations of LCDC to justify the latters requests for extension of time. It insists, however, that in any event LCDC agreed to the limits of the time extensions it granted. 57 The practice of the parties is that each time LCDC requests for more time, an extension agreement is executed and signed by b oth parties to indicate their joint approval of the number of days of extension agreed upon. The applicable provision in the parties agreements is as follows: ARTICLE VII TIME OF COMPLETION ... ... ...

Should the work be delayed by any act or omission of the OWNER or any other person employed by or contracted by the OWNER in the project, including days in the delivery or (sic) materials furnished by the OWNER or others, or by any appreciable additions or alterations in the work ordered by the OWNER or the ARCHITECT, under Article V or by force majeure, war, rebellion, strikes, epidemics, fires, riots, or acts of the civil or military authorities, the CONTRACTOR shall be granted time extension. In case the CONTRACTOR encounters any justifiable cause or reason for delay, the CONTRACTOR shall within ten (10) days, after encountering such cause of delay submit to the OWNER in writing a written request for time extension indicating therein the requested contract time extension. Failure by the CONTRACTOR to comply with this requirements (sic) will be adequate reason for the OWNER not to grant the time extension.
1avv phi1

The following table shows the dates of LCDCs letter-requests, the supposed causes justifying them, the number of days requested, and the number of days granted by PRHC and supposedly conformed to by LCDC:
1av vphi1

Cause 1 Mar 1990 14 Apr 1990 10 May 1990 9 Jul 1990

# of days requested Due to additional works and shortage of supplies and cement Shortage of cement supply Frequent power failures Bad weather which endangered the lives of the construction workers

# of days granted 30 18 10 10 11 6 2 2

("heavy winds") 4 Sep 1990 28 Feb 1991 28 Aug 1991 2 Sep 1991 13 Oct 1991 Inclement weather that endangered the lives of the construction workers 10 3 8 136 17 6

Architectural and structural revisions of R.C. beams at the 8th floor 20 level For change order work and revisions in the plans initiated by the architect and Abcedes delay in giving the revised plans to contractor Inclement weather and scarcity of cement Water supply interruption and power failures preventing the mixing of cement Typhoon Uring and water supply interruption (typhoon Uring alone caused a delay for more than 10 days due to strong and continuous rains) Inadequate supply of Portland cement and frequent power failures Inadequate supply of cement and frequent power failures 271 25 15

5 Dec 1991 2 Apr 1992 5 May 1992

15 15 17 456

2 12 12 217 20 237

additions and alterations in the work ordered by the owner and architect

108 564

As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC claiming that, in a period of over two years, only 256 out of the 618 days of extension requested were considered. We disregard these numbers presented by LCDC because of its failure to present evidence to prove its allegation. The tally that we will acceptas reflected by the evidence submitted to the lower courtis as follows: out of the 564 days requested, only 237 were considered. Essentially the same aforementioned reasons or causes are presented by LCDC as defense against liability for both Projects 1 and 2.58 In this regard, the CA ruled: Plaintiff-appellees allegation that determination by PHRC of extensions of time were unreasonable or arbitrary is untenable in the light of express provisions of the Construction Agreements which prescribed precise procedures for extensions of time. In fact the procedure is fool-proof because both OWNER and CONTRACTOR sign to indicate approval of the number of days of extension. Computation of the penalty becomes mechanical after that. Each extension as signed by the parties is a contract by itself and has the force of law between them. In fact, the parties followed that prescribed procedure strictly the CONTRACTOR first requested the OWNER to approve the number of days applied for as extension of time to finish the particular project and the OWNER will counter-offer by approving only a lower number of days extension of time for CONTRACTOR to finish the contract as recommended by the CONSTRUCTION MANAGER ABCEDE, and in the end, both CONTRACTOR and OWNER sign jointly the approved number of days agreed upon. That signed extension of time is taken to be the contract between the parties.59 The appellate court further ruled that each signed extension is a separate contract that becomes the law between the parties: 60 there is nothing arbitrary or unreasonable about the number of days extension of time because each extension is a meeting of the minds between the parties, each under joint signature OWNER and CONTRACTOR witnessed by the CONSTRUCTION MANAGER. 61 Inasmuch as LCDCs claimed exemption from liability are beyond the approved time extensions, LCDC, according to the majority of the CA, is liable therefor. Justice Juan Q. Enriquez, in his Dissenting Opinion, held that the reasons submitted by LCDC fell under the definition of force majeure.62 This specific point was not refuted by the majority. We agree with Justice Enriquez on this point and thereby disagree with the majority ruling of the CA. Article 1174 of the Civil Code provides: "Except in cases expressly specified by the law, or when it is otherwise declared by stipulation or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable." A perusal of the construction agreements shows that the parties never agreed to make LCDC liable even in cases of force majeure. Neither was the assumption of risk required. Thus, in the occurrence of events that could not be foreseen, or though foreseen were inevitable, neither party should be held responsible. Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an obligation due to an "act of God" or force majeure, the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor. 63 The shortage in supplies and cement may be characterized as force majeure. 64 In the present case, hardware stores did not have enough cement available in their supplies or stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and

interruptions of water supply all clearly fall under force majeure. Since LCDC could not possibly continue constructing the building under the circumstances prevailing, it cannot be held liable for any delay that resulted from the causes aforementioned. Further, PRHC is barred by the doctrine of promissory estoppel from denying that it agreed, and even promised, to hold LCDC free and clear of any liquidated damages. Abcede and Santos also promised that the latter corporation would not be held liable for liquidated damages even for a single day of delay despite the non-approval of the requests for extension.65 Mr. Ley testified to this fact as follows: Q: So, Mr. Witness in all those requests for extension and whenever the D.A. Abcede & Associates did not grant you the actual number of days stated in your requests for extension, what did Ley construction and Development do, if any? A: We talked to Dennis Abcede and Mr. Santos, Maam. Q: And what did you tell them? A: I will tell them why did you not grant the extension for us, Maam. Q: What was the response of Mr. Abcede and Mr. Santos? A: Mr. Abcede and Mr. Santos told me, Mr. Ley dont worry, you will not be liquidated of any single day for this because we can see that you worked so hard for this project, Maam. Q: And what did you do after you were given that response of Mr. Abcede and Mr. Santos? A: They told me you just relax and finish the project, and we will pay you up to the last centavos, Maam. Q: What did you do after taking that statement or assurance? A: As gentlemans agreement I just continued working without complaining anymore, Maam.66 The above testimony is uncontradicted. Even assuming that all the reasons LCDC presented do not qualify as fortuitous events, as contemplated by law, this Court finds that PRHC is estopped from denying that it had granted a waiver of the liquidated damages the latter corporation may collect from the former due to a delay in the construction of any of the buildings. Courts may rule on causes of action not included in the Complaint, as long as these have been proven during trial without the objection of the opposing party. PRHC argues that since the parties had already limited the issues to those reflected in their joint stipulation of facts, neither the trial court nor the appellate court has the authority to rule upon issues not included therein. Thus it was wrong for the trial court and the CA to have awarded the amounts of P 5,529,495.76 representing the remaining balance for Project 3 as well as for the P 232,367.96 representing the balance for the construction of the drivers quarters in Project 3. PRHC claims that in the Stipulation of Facts, all the issues regarding Project 3 were already made part of the computation of the balances for the other projects. It thus argues that the computation for the Tektite Building showed that the overpayment for Project 3 in the amount of P 9,531,181.80 was credited as payment for the Tektite Tower Project.67 It reasons that, considering that it actually made an overpayment for Project 3, it should not be made liable for the remaining balances for Project 3 and the drivers quarters in Project 3. 68 It is LCDCs position, however, that the Stipulation of Facts covers the balances due only for the Tektite Tower Project, Project 1, and Project 2. 69 Since Project 3 was not included in the reconciliation contained in the said stipulation, it maintains that the balance for Project 3 remains at P 5,529,495.76,70 and that the balance for the construction of the drivers quarters in Project 3 remains at P 232,367.96. On its part, LCDC disputes the deletion by the CA of the lower courts grant of the alleged P 7,112,738.82 unpaid balance for the concreting works in the Tektite Building. The CA had ruled that this cause of action was withdrawn by the parties when they d id not include it in their Joint Stipulation of Facts. LCDC argues that to the contrary, the silence of the Stipulation of Facts on this matter proves that the claim still stands.71 Considering that the unpaid balances for Project 3, its drivers quarters, and the concreting works in the Tektite Building were not covered by the Stipulation of Facts entered into by the parties, we rule that no judicial admission could have been made by LCDC regarding any issue involving the unpaid balances for those pieces of work. We affirm in this case the doctrine that courts may rule or decide on matters that, although not submitted as issues, were proven during trial. The admission of evidence, presented to support an allegation not submitted as an issue, should be objected to at the time of its presentation by the party to be affected thereby; otherwise, the court may admit the evidence, and the fact that such evidence seeks to prove a matter not included or presented as an issue in the pleadings submitted becomes irrelevant, because of the failure of the appropriate party to object to the presentation. No objection was raised when LCDC presented evidence to prove the outstanding balances for Project 3, its drivers quarters, and the concreting works in the Tektite Building. In Phil. Export and Foreign Loan Guarantee Corp. v. Phil. Infrastructures, et al., 72 this Court held: It is settled that even if the complaint be defective, but the parties go to trial thereon, and the plaintiff, without objection, introduces sufficient evidence to constitute the particular cause of action which it intended to allege in the original complaint, and the defendant voluntarily produces witnesses to meet the cause of action thus established, an issue is joined as fully and as effectively as if it had been previously joined by the most perfect pleadings. Likewise, when issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Considering the absence of timely and appropriate objections, the trial court did not err in admitting evidence of the unpaid balances for Project 3, its drivers quarters, and the concreting works in the Tektite Building. Furthermore, both the lower and the appellate courts

found that the supporting evidence presented by LCDC were sufficient to prove that the claimed amounts were due, but that they remained unpaid. LCDC should be held liable for the corrective works to redo or repair the defective waterproofing in Project 2. The waterproofing of Project 2 was not undertaken by LCDC. Instead, Vulchem Corporation (Vulchem), which was recommended by Santos and Abcede, was hired for that task. Vulchems waterproofing turned out to be defective. In order to correct or repair the defective waterproofing, PRHC had to contract the services of another corporation, which charged it P2,006,000. Denying liability by alleging that PRHC forced it into hiring Vulchem Corporation for the waterproofing works in Project 2, LCDC argues that under Article 1892, an agent is responsible for the acts of the substitute if he was given the power to appoint a substitute. Conversely, if it is the principal and not the agent who appointed the substitute, the agent bears no responsibility for the acts of the subagent.73 The provision reads: "Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute: (1) When he was not given the power to appoint one; (2) When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent." LCDC argues that because PRHC, as the principal, had designated Vulchem as sub-agent, LCDC, as the agent, should not be made responsible for the acts of the substitute, even in the instance where the latter were notoriously incompetent. 74 LCDCs reliance on Art. 1892 is misplaced. The principles of agency are not to be applied to this case, since the legal relationship between PRHC and LCDC was not one of agency, but was rather that between the owner of the project and an independent contractor under a contract of service. Thus, it is the agreement between the parties and not the Civil Code provisions on agency that should be applied to resolve this issue. Art. XIV of the Project 2 Agreement clearly states that if the contractor sublets any part of the agreement to a third party, who in effect becomes a sub-contractor, the losses or expenses that result from the acts/inactions of the sub-contractor should be for the contractors account, to wit: ARTICLE XIV ASSIGNMENT This Agreement, and/or any of the payments to be due hereunder shall not be assigned in whole or in part by the CONTRACTOR nor shall any part of the works be sublet by CONTRACTOR without the prior written consent of OWNER, and such consent shall not relieve the CONTRACTOR from full responsibility and liability for the works hereunder shall not be granted in any event until CONTRACTOR has furnished OWNER with satisfactory evidence that the Sub-Contractor is carrying ample insurance to the same extent and in the same manner as herein provided to be furnished by CONTRACTOR. If the agreement is assigned or any part thereof is sublet, CONTRACTOR shall exonerate, indemnify and save harmless the OWNER from and against any and all losses or expenses caused thereby.75 LCDC had every right to reject Vulchem as sub-contractor for the waterproofing work of Project 2 but it did not do so and proceeded to hire the latter. It is not unusual for project owners to recommend sub-contractors, and such recommendations do not diminish the liability of contractors in the presence of an Article XIV-type clause in the construction agreement. The failure of LCDC to ensure that the work of its sub-contractor is satisfactory makes it liable for the expenses PRHC incurred in order to correct the defective works of the sub-contractor. The CA did not err in ruling that the contract itself gave PRHC the authority to recover the expenses for the "re-do" works arising from the defective work of Vulchem.76 LCDC is entitled to attorneys fees and the expenses of litigation and costs. According to the CA, LCDC was not entitled to attorneys fees, because it was not the aggrieved party, but was the one that violated the terms of the construction agreements and should thus be made to pay costs. 77 LCDC claims, on the other hand, that the CA seriously erred in deleting the lower courts award of P750,000 attorneys fees and the expenses of litigation in its favor, since this award is justified under the law.78 To support its claim, LCDC cites Article 2208(5), which provides: ART. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered, except: ... ... ...

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim; ... ... ...

Attorney's fees may be awarded when the act or omission of the defendant compelled the plaintiff to incur expenses to protect the latters interest.79 In ABS-CBN Broadcasting Corp. v. CA,80 we held thus: The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than an erroneous conviction of the righteousness of his cause.

LCDC has failed to establish bad faith on the part of PRHC so as to sustain its position that it is entitled to attorneys fees. Nevertheless, the CA erred in reversing the lower courts Decision granting LCDCs claim for attorneys fees considering that the construction agreements contain a penal clause that deals with the award of attorneys fees, as follows: In the event the OWNER/CONTRACTOR institutes a judicial proceeding in order to enforce any terms or conditions of this Agreement, the CONTRACTOR/OWNER should it be adjudged liable in whole or in part, shall pay the OWNER/CONTRACTOR reasonable attorneys fees in the amount equivalent to Twenty Percent (20%) of the total amount claimed in addition to all expenses of litigation and costs of the suit. Equivalent to at least Twenty Percent (20%) of the total amount claimed in addition to all expenses of litigation and costs of the suit. As long as a stipulation does not contravene the law, morals, and public order, it is binding upon the obligor. 81Thus, LCDC is entitled to recover attorneys fees. Nevertheless, this Court deems it proper to equitably reduce the stipulated amount. Courts have the power to reduce the amount of attorneys fees when found to be excessive, 82viz: We affirm the equitable reduction in attorneys fees. These are not an integral part of the cost of borrowing, but arise only when collecting upon the Notes becomes necessary. The purpose of these fees is not to give respondent a larger compensation for the loan than the law already allows, but to protect it against any future loss or damage by being compelled to retain counsel in-house or not to institute judicial proceedings for the collection of its credit. Courts have has the power to determine their reasonableness based on quantum meruit and to reduce the amount thereof if excessive. 83 We reverse the appellate courts Decision and reinstate the lower courts award of attorneys fees, but reduce the amount from P750,000 to P200,000. WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RULE as follows: I. We find Philippine Realty and Holdings Corporation (PRHC) LIABLE to Ley Construction Development Corporation (LCDC) in the amount of P 64,029,710.22, detailed as follows: 1. P 13,251,152.61 as balance yet unpaid by PRHC for Project 2; 2. P 1,703,955.07 as balance yet unpaid by PRHC for Project 1; 3. P 5,529,495.76 as balance yet unpaid by PRHC for Project 3; 4. P 232,367.96 as balance yet unpaid by PRHC for the drivers quarters for Project 3; 5. P 36,000,000.00 as agreed upon in the escalation agreement entered into by PRHCs representatives and LCDC for the Tektite Building; 6. P 7,112,738.82 as balance yet unpaid by PRHC for the concreting works from the ground floor to the fifth floor of the Tektite Building; 7. P 200,000.00 as LCDCs reduced attorneys fees. II. Further, we find LCDC LIABLE to PRHC in the amount of P 6,652,947.75 detailed as follows: 1. P 4,646,947.75 for the overpayment made by PRHC for the Tektite Building; 2. P 2,006,000.00 for the expenses incurred by PRHC for corrective works to redo/repair the allegedly defective waterproofing construction work done by LCDC in Project 2. The respective liabilities of the parties as enumerated above are hereby SET OFF against each other, and PRHC is hereby DIRECTED to pay LCDC the net amount due, which is P 57,376,762.47, with legal interest from the date of the filing of Complaint. SO ORDERED.

G.R. No. 116100

February 9, 1996

SPOUSES CRISTINO and BRIGIDA CUSTODIO and SPOUSES LITO and MARIA CRISTINA SANTOS,petitioners, vs. COURT OF APPEALS, HEIRS OF PACIFICO C. MABASA and REGIONAL TRIAL COURT OF PASIG, METRO MANILA, BRANCH 181, respondents. DECISION REGALADO, J.: This petition for review on certiorari assails the decision of respondent Court of Appeals in CA-G.R. CV No. 29115, promulgated on November 10, 1993, which affirmed with modification the decision of the trial court, as well as its resolution dated July 8, 1994 denying petitioner's motion for reconsideration.1 On August 26, 1982, Civil Case No. 47466 for the grant of an easement of right of way was filed by Pacifico Mabasa against Cristino Custodio, Brigida R. Custodio, Rosalina R. Morato, Lito Santos and Maria Cristina C. Santos before the Regional Trial Court of Pasig and assigned to Branch 22 thereof.2 The generative facts of the case, as synthesized by the trial court and adopted by the Court of Appeals, are as follows: Perusing the record, this Court finds that the original plaintiff Pacifico Mabasa died during the pendency of this case and was substituted by Ofelia Mabasa, his surviving spouse [and children]. The plaintiff owns a parcel of land with a two-door apartment erected thereon situated at Interior P. Burgos St., Palingon, Tipas, Tagig, Metro Manila. The plaintiff was able to acquire said property through a contract of sale with spouses Mamerto Rayos and Teodora Quintero as vendors last September 1981. Said property may be described to be surrounded by other immovables pertaining to defendants herein. Taking P. Burgos Street as the point of reference, on the left side, going to plaintiff's property, the row of houses will be as follows: That of defendants Cristino and Brigido Custodio, then that of Lito and Maria Cristina Santos and then that of Ofelia Mabasa. On the right side (is) that of defendant Rosalina Morato and then a Septic Tank (Exhibit "D"). As an access to P. Burgos Street from plaintiff's property, there are two possible passageways. The first passageway is approximately one meter wide and is about 20 meters distan(t) from Mabasa's residence to P. Burgos Street. Such path is passing in between the previously mentioned row of houses. The second passageway is about 3 meters in width and length from plaintiff Mabasa's residence to P. Burgos Street; it is about 26 meters. In passing thru said passageway, a less than a meter wide path through the septic tank and with 5-6 meters in length, has to be traversed. When said property was purchased by Mabasa, there were tenants occupying the remises and who were acknowledged by plaintiff Mabasa as tenants. However, sometime in February, 1982, one of said tenants vacated the apartment and when plaintiff Mabasa went to see the premises, he saw that there had been built an adobe fence in the first passageway making it narrower in width. Said adobe fence was first constructed by defendants Santoses along their property which is also along the first passageway. Defendant Morato constructed her adobe fence and even extended said fence in such a way that the entire passageway was enclosed. (Exhibit "1-Santoses and Custodios, Exh. "D" for plaintiff, Exhs. "1-C", "1-D" and "1-E") And it was then that the remaining tenants of said apartment vacated the area. Defendant Ma. Cristina Santos testified that she constructed said fence because there was an incident when her daughter was dragged by a bicycle pedalled by a son of one of the tenants in said apartment along the first passageway. She also mentioned some other inconveniences of having (at) the front of her house a pathway such as when some of the tenants were drunk and would bang their doors and windows. Some of their footwear were even lost. . . .3 (Emphasis in original text; corrections in parentheses supplied) On February 27, 1990, a decision was rendered by the trial court, with this dispositive part: Accordingly, judgment is hereby rendered as follows: 1) Ordering defendants Custodios and Santoses to give plaintiff permanent access ingress and egress, to the public street; 2) Ordering the plaintiff to pay defendants Custodios and Santoses the sum of Eight Thousand Pesos (P8,000) as indemnity for the permanent use of the passageway. The parties to shoulder their respective litigation expenses. 4 Not satisfied therewith, therein plaintiff represented by his heirs, herein private respondents, went to the Court of Appeals raising the sole issue of whether or not the lower court erred in not awarding damages in their favor. On November 10, 1993, as earlier s tated, the Court of Appeals rendered its decision affirming the judgment of the trial court with modification, the decretal portion of which disposes as follows: WHEREFORE, the appealed decision of the lower court is hereby AFFIRMED WITH MODIFICATION only insofar as the herein grant of damages to plaintiffs-appellants. The Court hereby orders defendants-appellees to pay plaintiffs-appellants the sum of Sixty Five Thousand (P65,000) Pesos as Actual Damages, Thirty Thousand (P30,000) Pesos as Moral Damages, and Ten Thousand (P10,000) Pesos as Exemplary Damages. The rest of the appealed decision is affirmed to all respects. 5 On July 8, 1994, the Court of Appeals denied petitioner's motion for reconsideration.6 Petitioners then took the present recourse to us, raising two issues, namely, whether or not the grant of right of way to herein private respondents is proper, and whether or not the award of damages is in order.

With respect to the first issue, herein petitioners are already barred from raising the same. Petitioners did not appeal from the decision of the court a quo granting private respondents the right of way, hence they are presumed to be satisfied with the adjudication therein. With the finality of the judgment of the trial court as to petitioners, the issue of propriety of the grant of right of way has already been laid to rest. For failure to appeal the decision of the trial court to the Court of Appeals, petitioners cannot obtain any affirmative relief other than those granted in the decision of the trial court. That decision of the court below has become final as against them and can n o longer be reviewed, much less reversed, by this Court. The rule in this jurisdiction is that whenever an appeal is taken in a civil case, an appellee who has not himself appealed may not obtain from the appellate court any affirmative relief other than what was granted in the decision of the lower court. The appellee can only advance any argument that he may deem necessary to defeat the appellant's claim or to uphold the decision that is being disputed, and he can assign errors in his brief if such is required to strengthen the views expressed by the court a quo. These assigned errors, in turn, may be considered by the appellate court solely to maintain the appealed decision on other grounds, but not for the purpose of reversing or modifying the judgment in the appellee's favor and giving him other affirmative reliefs.7 However, with respect to the second issue, we agree with petitioners that the Court of Appeals erred in awarding damages in favor of private respondents. The award of damages has no substantial legal basis. A reading of the decision of the Court of Appeals will show that the award of damages was based solely on the fact that the original plaintiff, Pacifico Mabasa, incurred losses in the form of unrealized rentals when the tenants vacated the leased premises by reason of the closure of the passageway. However, the mere fact that the plaintiff suffered losses does not give rise to a right to recover damages. To warrant the recovery of damages, there must be both a right of action for a legal wrong inflicted by the defendant, and damage resulting to the plaintiff therefrom. Wrong without damage, or damage without wrong, does not constitute a cause of action, since damages are merely part of the remedy allowed for the injury caused by a breach or wrong. 8 There is a material distinction between damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm which results from the injury; and damages are the recompense or compensation awarded for the damage suffered. Thus, there can be damage without injury in those instances in which the loss or harm was not the result of a violation of a legal duty. These situations are often called damnum absque injuria.9 In order that a plaintiff may maintain an action for the injuries of which he complains, he must establish that such injuries resulted from a breach of duty which the defendant owed to the plaintiff a concurrence of injury to the plaintiff and legal responsibility by the person causing it.10 The underlying basis for the award of tort damages is the premise that an individual was injured in contemplation of law. Thus, there must first be the breach of some duty and the imposition of liability for that breach before damages may be awarded; it is not sufficient to state that there should be tort liability merely because the plaintiff suffered some pain and suffering. 11 Many accidents occur and many injuries are inflicted by acts or omissions which cause damage or loss to another but which violate no legal duty to such other person, and consequently create no cause of action in his favor. In such cases, the consequences must be borne by the injured person alone. The law affords no remedy for damages resulting from an act which does not amount to a legal injury or wrong.12 In other words, in order that the law will give redress for an act causing damage, that act must be not only hurtful, but wrongful. There must be damnum et injuria.13 If, as may happen in many cases, a person sustains actual damage, that is, harm or loss to his person or property, without sustaining any legal injury, that is, an act or omission which the law does not deem an injury, the damage is regarded as damnum absque injuria.14 In the case at bar, although there was damage, there was no legal injury. Contrary to the claim of private respondents, petitioners could not be said to have violated the principle of abuse of right. In order that the principle of abuse of right provided in Article 21 of the Civil Code can be applied, it is essential that the following requisites concur: (1) The defendant should have acted in a manner that is contrary to morals, good customs or public policy; (2) The acts should be willful; and (3) There was damage or injury to the plaintiff.15 The act of petitioners in constructing a fence within their lot is a valid exercise of their right as owners, hence not contrary to morals, good customs or public policy. The law recognizes in the owner the right to enjoy and dispose of a thing, without other limitations than those established by law.16 It is within the right of petitioners, as owners, to enclose and fence their property. Article 430 of the Civil Code provides that "(e)very owner may enclose or fence his land or tenements by means of walls, ditches, live or dead hedges, or by any other means without detriment to servitudes constituted thereon." At the time of the construction of the fence, the lot was not subject to any servitudes. There was no easement of way existing in favor of private respondents, either by law or by contract. The fact that private respondents had no existing right over the said passageway is confirmed by the very decision of the trial court granting a compulsory right of way in their favor after payment of just compensation. It was only that decision which gave private respondents the right to use the said passageway after payment of the compensation and imposed a corresponding duty on petitioners not to interfere in the exercise of said right. Hence, prior to said decision, petitioners had an absolute right over their property and their act of fencing and enclosing the same was an act which they may lawfully perform in the employment and exercise of said right. To repeat, whatever injury or damage may have been sustained by private respondents by reason of the rightful use of the said land by petitioners is damnum absque injuria.17 A person has a right to the natural use and enjoyment of his own property, according to his pleasure, for all the purposes to which such property is usually applied. As a general rule, therefore, there is no cause of action for acts done by one person upon his own property in a lawful and proper manner, although such acts incidentally cause damage or an unavoidable loss to another, as such damage or loss is damnum absque injuria. 18 When the owner of property makes use thereof in the general and ordinary manner in which the property is used, such as fencing or enclosing the same as in this case, nobody can complain of having been injured, because the incovenience arising from said use can be considered as a mere consequence of community life. 19 The proper exercise of a lawful right cannot constitute a legal wrong for which an action will lie, 20 although the act may result in damage to another, for no legal right has been invaded. 21 One may use any lawful means to accomplish a lawful purpose and though the means adopted may cause damage to another, no cause of action arises in the latter's favor. An injury or damage occasioned thereby

is damnum absque injuria. The courts can give no redress for hardship to an individual resulting from action reasonably calculated to achieve a lawful means. 22 WHEREFORE, under the compulsion of the foregoing premises, the appealed decision of respondent Court of Appeals is hereby REVERSED and SET ASIDE and the judgment of the trial court is correspondingly REINSTATED. SECOND DIVISION [G.R. No. 133576. July 13, 2000] VIEWMASTER CONSTRUCTION CORPORATION, petitioner, vs. ALLEN C. ROXAS, STATE INVESTMENT TRUST, INC., NORTHEAST LAND DEVELOPMENT, INC., and STATE PROPERTIES CORPORATION, respondents. DECISION BUENA, J.: This is a petition for review of the decision of the Court of Appeals in CA-GR SP No. 44000 entitled "Allen C. Roxas, State Investment Trust, Inc., Northeast Land Development, Inc., and State Properties Corporation, petitioners, versus Hon. Jesus Bersamira and Viewmaster Construction Corporation, respondents." The facts of the case are as follows: On September 8, 1995 Viewmaster Construction Corporation (Viewmaster, for brevity) filed with the Regional Trial Court at Pasig City, Branch 166, Civil Case No. 65277, a complaint for specific performance, enforcement of implied trust and damages against State Investment Trust, Inc., Northeast Land Development, Inc., State Properties Corporation and Allen C. Roxas. It was alleged that Allen Roxas, one of the stockholders of State Investment Trust, Inc. applied for a loan with First Metro Investments, Inc. (FMIC, in short) in order to obtain funds to be used by him or his agents/privies to bid for the control and ownership of State Investment Trust, Inc. (State Investment, for brevity) which will be held among the members of the Chiong/Roxas family, as he had no funds of his own at the time to satisfy the required bid deposit and/or down payment. FMIC agreed to grant Allen Roxas the loan he requested without any collateral, i.e., a clean loan, provided that he procures a guarantor/surety/solidary co-debtor to secure the payment for the said loan. Viewmaster agreed to act as guarantor for the loan conditioned upon the following: a) Allen Roxas shall sell and Viewmaster shall purchase fifty percent (50%) of the total eventual acquisitions of Roxas of the shares of stock in State Investment and that the purchase price to be paid by Viewmaster for the said shares shall be equivalent to the successful bid price per share plus an additional ten percent (10%) per share. b) Viewmaster shall undertake to develop the parcels of land in Balintawak, Quezon City and Las Pias consisting of twenty thousand (20,000) square meters and seven hundred eighty-six thousand one hundred sixty-seven (786,167) square meters, respectively, for the property owners. In consideration of the guaranty of Viewmaster, FMIC delivered to Allen Roxas the aggregate principal amount of thirty-six million five hundred thousand pesos (P36,500,000.00). On July 2, 1992, Viewmaster executed a Continuing Guaranty with FMIC to secure the payment of the said loans. As a result of the loans granted by FMIC in consideration of, and upon the guaranty of Viewmaster, Allen Roxas eventually gained control and ownership of State Investment. Despite demand, Allen Roxas failed and refused to sell 50% of his shareholdings in State Investment and to enter into a joint venture project with Viewmaster for the purpose of developing the two aforementioned real properties, resulting in the [1] institution by Viewmaster of Civil Case No. 65277 with the RTC at Pasig City. On October 25, 1995, the defendants namely, State Investment Trust, Inc., Northeast Land Development, Inc., State [2] Properties Corporation and Allen C. Roxas filed a motion to dismiss the complaint on the following grounds: a) the claim on which the action is founded is unenforceable under the provisions of the Statute of Frauds; and b) the complaint states no cause of action. Thereafter, or on November 24, 1995, an Opposition by Viewmaster.
[3]

(to Defendants "Motion to Dismiss" dated 25 October 1995) was filed

The trial court conducted a hearing of Viewmasters application for the issuance of a temporary restraining order/writ of preliminary injunction. On May 15, 1996, an order was issued dismissing the complaint and denying Viewmasters application for a temporary restraining order/writ of preliminary injunction. A motion for reconsideration dated May 29, 1996
[5] [4]

was filed by Viewmaster to which an opposition was filed.

In its order dated July 10, 1996, the trial court reconsidered and set aside the order of May 15, 1996 and accordingly, reinstated the complaint and granted Viewmasters application for a writ of preliminary injunction on a One Million (P1,000,000.00) Pesos injunction bond. Respondents herein filed a motion for reconsideration to which Viewmaster filed its opposition. However, the motion was [7] denied for lack of sufficient merit in the order dated January 30, 1997. On March 5, 1997, the respondents filed a motion for inhibition [9] sufficient merit in the order of April 11, 1997.
[10] [8]

[6]

of the presiding judge but the same was denied for lack of

Thereafter, CA-GR SP No. 44000, a petition for certiorari and prohibition with application for a temporary restraining order and/or writ of preliminary injunction was filed with the Court of Appeals. On November 28, 1997, a decision was rendered by the Court of Appeals, the dispositive portion of which reads as follows: "WHEREFORE, the petition is hereby GIVEN DUE COURSE and is GRANTED. The challenged orders dated July 10, 1996 and January 30, 1997 denying petitioners motion to dismiss the complaint in Civil Case No. 65277; and order dated April 11, 1997 denying their motion for inhibition are all SET ASIDE. The complaint is ordered dismissed. Costs against private respondent Viewmaster. "SO ORDERED."
[11]

A motion for reconsideration was filed by Viewmaster but it was denied in the resolution dated April 21, 1998. Hence, this petition. The grounds adduced for the allowance of the petition are: A

[12]

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPLAINT IN CIVIL CASE NO. 65277 DOES NOT STATE A CAUSE OF ACTION. B THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE AGREEMENT SOUGHT TO BE ENFORCED BY PETITIONER IS SUPPOSEDLY UNENFORCEABLE. C THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRESIDING JUDGE OF THE COURT A QUO SHOULD HAVE INHIBITED HIMSELF FROM HEARING CIVIL CASE NO. 65277. The petition is without merit. The test of determining the sufficiency of the statements in a complaint as setting forth a cause of action is enunciated in the [13] case of Fil-Estate Golf and Development, Inc. vs. Court of Appeals, to wit: "In determining whether or not a complaint states a cause of action, only the allegations in the complaint must be considered. Thus, in the recent case of Navoa v. Court of Appeals (251 SCRA 545), we held as follows: `A cause of action is the fact or combination of facts which affords a party a right to judicial interference in his behalf. The requisites for a cause of action are: (a) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created, (b) an obligation on the part of the defendant to respect and not to violate such right; and (c) an act or omission on the part of the defendant constituting a violation of the plaintiffs right or breach of the obligation of the defendant to the plaintiff. Briefly stated, it is the reason why the litigation has come about; it is the act or omission of the defendant resulting in the violation of someones right. `In determining the existence of a cause of action, only the statements in the complaint may properly be considered. Lack of cause of action must appear on the face of the complaint and its existence may be determined only by the allegations of the complaint, consideration of other facts being proscribed and any attempt to prove extraneous circumstances not being allowed. `If a defendant moves to dismiss the complaint on the ground of lack of cause of action, such as what petitioners did in the case at bar, he is regarded as having hypothetically admitted all the averments thereof. The test of sufficiency of the facts found in a complaint as constituting a cause of action is whether or not admitting the facts alleged the court can render a valid judgment upon the same in accordance with the prayer thereof. The hypothetical admission extends to the relevant and material facts well pleaded in the complaint and inferences fairly deducible therefrom. Hence, if the allegations in the complaint furnish sufficient basis by which the complaint can be maintained, the same should not be dismissed regardless of the defense that may be assessed by the defendants." (Emphasis Ours) Based on the above, one question need be answered: Was there a cause of action?

We reply in the negative. Let us consider the following facts: Petitioner Viewmaster agreed to act as the guarantor of Allen Roxas for the loan that the latter needs from FMIC if herein respondent Allen Roxas shall sell fifty percent (50%) of his shareholdings in State Investment and shall undertake a joint venture project with Plaintiff Viewmaster to co-develop the two real estate properties in Quezon City and Las Pias, and if Roxas shall sell and petitioner Viewmaster shall purchase fifty percent (50%) of the latters total eventual acquisitions of shares of stock in State Investment. These were not put into writing. The court a quo did not err in finding that the Statute of Frauds covers the foregoing agreements. Article 1403 of the New Civil Code provides: "Art. 1403. The following contracts are unenforceable, unless they are ratified: xxx "(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: "(a) An agreement that by its terms is not to be performed within a year from the making thereof; xxx "(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;" The verbal agreement entered into between petitioner Viewmaster and respondent Allen Roxas was an agreement that by its terms is not to be performed within a year from the making thereof. To be taken out of the operation of the Statute of Frauds, the agreement must be fully performed on one side within one year from the making thereof. "Contracts which by their terms are not to be performed within one year may be taken out of the Statute of Frauds through performance by one party thereto. In order, however, that a partial performance of the contract may take the case out of the operation of the statute, it must appear clear that the full performance has been made by one party [14] within one year, as otherwise the statute would apply." In the case at bar, since neither of the parties has fully performed their obligations within the one-year period, i.e., Allen Roxas has not sold fifty percent (50%) of his shareholdings in State Investment to Viewmaster and Viewmaster has not paid the purchase price for the aforesaid shares of stock, nor began the co-development of the two subject real properties, then it behooves this Court to declare that the case falls within the coverage of the Statute of Frauds. It will not take a mathematical genius to figure out that the sale of fifty percent (50%) of Allen Roxass shareholdings in State Investment would amount to more than five hundred pesos (P500.00). Thus, to be enforceable, the contract must be in writing. It is contended that an implied trust exists between petitioner and Allen Roxas. The implied trust was allegedly created by operation of law in accordance with Article 1448 of the New Civil Code. Quoted below is the provision referred to: "Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child." (Emphasis Ours) From the above, it is quite clear that in order for the provisions of Article 1448 to apply in the case at bar "the price is paid by another for the purpose of having the beneficial interest of the property." It bears stressing that respondent Allen Roxas obtained a loan from First Metro Investments, Inc. not from petitioner Viewmaster. It was FMIC that provided the funds with which Allen Roxas acquired the controlling interest in State Investment Trust, Inc. FMIC lent the money to Roxas because the latter needed the money and not to obtain any beneficial interest in the shares of stock in State Investment. Viewmaster merely facilitated the loan by acting as guarantor of the loan and nothing more. We quote with approval the finding of the court a quo: "In the case at bench, the money which Allen Roxas used to bid for the purchase of the shares of stock in State Investment does not belong to Viewmaster. In fact, the complaint clearly states that the funds were borrowed by Allen Roxas from FMIC (which were already fully paid). Thus, we cannot conclude that Allen Roxas holds in trust for

Viewmaster 50% of his controlling interest in State Investment and the two parcels of land owned by State Investments subsidiaries. "As correctly pointed out by petitioners, an implied trust cannot arise if the funds used by the alleged trustee in acquiring the alleged trust property originated from a loan. The following citations contained in the petition are welltaken: `Another exception is that in which an actual contrary intention is proved. Thus, where a transfer of property is made to one person and the purchase price is advanced by another as a loan to the transferee, a resulting trust does not arise. xxx (IV Tolentino, Civil Code of the Philippines [1991], p. 679) `The general rule is that the use of borrowed money in making a purchase does not raise a resulting trust in favor of the lender, even where the money is loaned to enable the borrower to purchase the property in question and the borrower promises, but fails, to execute a mortgage on the property after it is purchased, to secure the loan. Nor does the use of money given to one for the purchase of the property raises a resulting trust in the property in favor of the donor (76 AmJur 2d. pp. 440-441). "If an implied trust cannot exist in favor of a lender, We cannot see our way clear how a mere guarantor, like Viewmaster, can claim a resulting implied trust when it issued to Allen Roxas a Continuing Guaranty. "But Viewmaster insists that its having acted as guarantor of Allen Roxas is the equitable consideration of the transaction which is the foundation of the resulting trust, citing American Jurisprudence. For had Viewmaster not issued the Continuing Guaranty, FMIC would not have extended any loan to Allen Roxas. In fact, Viewmaster placed itself at risk in securing the loan and in `inducing FMIC to grant the said loan to Allen Roxas. "We cannot go along with Viewmasters theory. The `consideration referred to in its citation of American Jurisprudence, as well as the `price specified in Article 1448 of the Civil Code, pertain to the funds, goods or services, in consideration of which the trust property is conveyed to the trustee. In the present case, the `consideration or `price refers to the money which came from a loan granted to Allen Roxas by FMIC, not to the Continuing Guaranty executed by Viewmaster. The Continuing Guaranty, therefore, is not the consideration which Allen Roxas used in acquiring said shares of stock. Consequently, no implied trust could have arisen in favor of Viewmaster over the shares of stock in State Investment or over the two subject lots. "In the light of Our finding that the allegations in the complaint fail to show the existence of an implied trust, a `valid judgment cannot be rendered thereon in accordance with the prayer in the complaint. Obviously, Viewmasters demand for specific performance on the part of Allen Roxas or his compliance with his obligation as a supposed [15] trustee has no legal basis." We have carefully scrutinized the allegations in the complaint and we arrived at one conclusion: the complaint does not state a cause of action. The facts as given are not sufficient enough for the court to arrive at an equitable judgment. Anent the third issue, we hold that it is no longer necessary to discuss the same for being moot and academic. However, we deem it best to allude to the case of Aleria, Jr. vs. Velez cited in the case of Seveses vs. Court of [17] Appeals, as these cases have discussed the issue when a judge must inhibit himself from a case. "As to the prayer for inhibition, petitioner claims that the issuance of the questioned Orders shows that respondent Judge has already lost his impartiality or cold neutrality to administer justice, and that petitioner does not stand a chinamans chance of ever getting justice before respondent Judge. Such sweeping conclusions here do not merit consideration. The questioned Orders, by themselves, do not sufficiently prove bias and prejudice to disqualify respondent Judge under Section 1, second paragraph of Rule 137 of the Rules of Court. For such bias and prejudice, to be a ground for disqualification, must be shown to have stemmed from an extrajudicial source, and result in an opinion on the merits on some basis other than what the judge learned from his participation in the case. Opinions formed in the course of judicial proceedings, as long as they are based on the evidence presented and conduct observed by the judge, even if found later on as erroneous, do not prove personal bias or prejudice on the part of the judge. Extrinsic evidence is required to establish bias, bad faith, malice or corrupt purpose, in addition to palpable error which may be inferred from the decision or order itself. This, the petitioner herein did not sufficiently adduce to warrant respondent Judges inhibition or disqualification." WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED and the decision of the Court of Appeals in CA GR SP No. 44000 is AFFIRMED. Costs against the petitioner. SO ORDERED.
[16]

G.R. No. 143855

September 21, 2010

REPRESENTATIVES GERARDO S. ESPINA, ORLANDO FUA, JR., PROSPERO AMATONG, ROBERT ACE S. BARBERS, RAUL M. GONZALES, PROSPERO PICHAY, JUAN MIGUEL ZUBIRI and FRANKLIN BAUTISTA,Petitioners, vs. HON. RONALDO ZAMORA, JR. (Executive Secretary), HON. MAR ROXAS (Secretary of Trade and Industry), HON. FELIPE MEDALLA (Secretary of National Economic and Development Authority), GOV. RAFAEL BUENAVENTURA (Bangko Sentral ng Pilipinas) and HON. LILIA BAUTISTA (Chairman, Securities and Exchange Commission), Respondents. DECISION ABAD, J.: This case calls upon the Court to exercise its power of judicial review and determine the constitutionality of the Retail Trade Liberalization Act of 2000, which has been assailed as in breach of the constitutional mandate for the development of a self-reliant and independent national economy effectively controlled by Filipinos. The Facts and the Case On March 7, 2000 President Joseph E. Estrada signed into law Republic Act (R.A.) 8762, also known as the Retail Trade Liberalization Act of 2000. It expressly repealed R.A. 1180, which absolutely prohibited foreign nationals from engaging in the retail trade business. R.A. 8762 now allows them to do so under four categories: Category A Category B Less US$2,500,000.00 than Exclusively for Filipino citizens and corporations wholly owned by Filipino citizens.

US$2,500,000.00 up but less than For the first two years of R.A. 8762s effectivity, foreign US$7,500,000.00 ownership is allowed up to 60%. After the two-year period, 100% foreign equity shall be allowed. US$7,500,000.00 or more May be wholly owned by foreigners. Foreign investments for establishing a store in Categories B and C shall not be less than the equivalent in Philippine Pesos of US$830,000.00.

Category C

Category D

US$250,000.00 per store of foreign May be wholly owned by foreigners. enterprises specializing in high-end or luxury products

R.A. 8762 also allows natural-born Filipino citizens, who had lost their citizenship and now reside in the Philippines, to engage in the retail trade business with the same rights as Filipino citizens. On October 11, 2000 petitioners ***Magtanggol T. Gunigundo I, Michael T. Defensor, Gerardo S. Espina, Benjamin S. Lim, Orlando Fua, Jr., Prospero Amatong, Sergio Apostol, Robert Ace S. Barbers, Enrique Garcia, Jr., Raul M. Gonzales, Jaime Jacob, Apolinario Lozada, Jr., Leonardo Montemayor, Ma. Elena Palma-Gil, Prospero Pichay, Juan Miguel Zubiri and Franklin Bautista, all members of the House of Representatives, filed the present petition, assailing the constitutionality of R.A. 8762 on the following grounds: First, the law runs afoul of Sections 9, 19, and 20 of Article II of the Constitution which enjoins the State to place the national economy under the control of Filipinos to achieve equal distribution of opportunities, promote industrialization and full employment, and protect Filipino enterprise against unfair competition and trade policies. Second, the implementation of R.A. 8762 would lead to alien control of the retail trade, which taken together with alien dominance of other areas of business, would result in the loss of effective Filipino control of the economy. Third, foreign retailers like Walmart and K-Mart would crush Filipino retailers and sari-sari store vendors, destroy self-employment, and bring about more unemployment. Fourth, the World Bank-International Monetary Fund had improperly imposed the passage of R.A. 8762 on the government as a condition for the release of certain loans. Fifth, there is a clear and present danger that the law would promote monopolies or combinations in restraint of trade. Respondents Executive Secretary Ronaldo Zamora, Jr., Trade and Industry Secretary Mar Roxas, National Economic and Development Authority (NEDA) Secretary Felipe Medalla, Bangko Sentral ng Pilipinas Gov. Rafael Buenaventura, and Securities and Exchange Commission Chairman Lilia Bautista countered that: First, petitioners have no legal standing to file the petition. They cannot invoke the fact that they are taxpayers since R.A. 8762 does not involve the disbursement of public funds. Nor can they invoke the fact that they are members of Congress since they made no claim that the law infringes on their right as legislators. Second, the petition does not involve any justiciable controversy. Petitioners of course claim that, as members of Congress, they represent the small retail vendors in their respective districts but the petition does not allege that the subject law violates the rights of those vendors. Third, petitioners have failed to overcome the presumption of constitutionality of R.A. 8762. Indeed, they could not specify how the new law violates the constitutional provisions they cite. Sections 9, 19, and 20 of Article II of the Constitution are not self-executing provisions that are judicially demandable. Fourth, the Constitution mandates the regulation but not the prohibition of foreign investments. It directs Congress to reserve to Filipino citizens certain areas of investments upon the recommendation of the NEDA and when the national interest so dictates. But the Constitution leaves to the discretion of the Congress whether or not to make such reservation. It does not prohibit Congress from enacting laws allowing the entry of foreigners into certain industries not reserved by the Constitution to Filipino citizens. The Issues Presented

Simplified, the case presents two issues: 1. Whether or not petitioner lawmakers have the legal standing to challenge the constitutionality of R.A. 8762; and 2. Whether or not R.A. 8762 is unconstitutional. The Courts Ruling One. The long settled rule is that he who challenges the validity of a law must have a standing to do so. 1 Legal standing or locus standi refers to the right of a party to come to a court of justice and make such a challenge. More particularly, standing refers to his personal and substantial interest in that he has suffered or will suffer direct injury as a result of the passage of that law.2 To put it another way, he must show that he has been or is about to be denied some right or privilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties by reason of the law he complains of.3 Here, there is no clear showing that the implementation of the Retail Trade Liberalization Act prejudices petitioners or inflicts damages on them, either as taxpayers4 or as legislators.5 Still the Court will resolve the question they raise since the rule on standing can be relaxed for nontraditional plaintiffs like ordinary citizens, taxpayers, and legislators when as in this case the public interest so requires or the matter is of transcendental importance, of overarching significance to society, or of paramount public interest. 6 Two. Petitioners mainly argue that R.A. 8762 violates the mandate of the 1987 Constitution for the State to develop a self-reliant and independent national economy effectively controlled by Filipinos. They invoke the provisions of the Declaration of Principles and State Policies under Article II of the 1987 Constitution, which read as follows: Section 9. The State shall promote a just and dynamic social order that will ensure the prosperity and independence of the nation and free the people from poverty through policies that provide adequate social services, promote full employment, a rising standard of living, and an improved quality of life for all. xxxx Section 19. The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos. Section 20. The State recognizes the indispensable role of the private sector, encourages private enterprise, and provides incentives to needed investments. Petitioners also invoke the provisions of the National Economy and Patrimony under Article XII of the 1987 Constitution, which reads: Section 10. The Congress shall, upon recommendation of the economic and planning agency, when the national interest dictates, reserve to citizens of the Philippines or to corporations or associations at least sixty per centum of whose capital is owned by such citizens, or such higher percentage as Congress may prescribe, certain areas of investments. The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos. In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos. The State shall regulate and exercise authority over foreign investments within its national jurisdiction and in accordance with its national goals and priorities. xxxx Section 12. The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive. Section 13. The State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity. But, as the Court explained in Taada v. Angara,7 the provisions of Article II of the 1987 Constitution, the declarations of principles and state policies, are not self-executing. Legislative failure to pursue such policies cannot give rise to a cause of action in the courts. The Court further explained in Taada that Article XII of the 1987 Constitution lays down the ideals of economic nationalism: (1) by expressing preference in favor of qualified Filipinos in the grant of rights, privileges and concessions covering the national economy and patrimony and in the use of Filipino labor, domestic materials and locally-produced goods; (2) by mandating the State to adopt measures that help make them competitive; and (3) by requiring the State to develop a self-reliant and independent national economy effectively controlled by Filipinos. 8
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In other words, while Section 19, Article II of the 1987 Constitution requires the development of a self-reliant and independent national economy effectively controlled by Filipino entrepreneurs, it does not impose a policy of Filipino monopoly of the economic environment. The objective is simply to prohibit foreign powers or interests from maneuvering our economic policies and ensure that Filipinos are given preference in all areas of development. Indeed, the 1987 Constitution takes into account the realities of the outside world as it requires the pursuit of a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity; and speaks of industries which are competitive in both domestic and foreign markets as well as of the protection of Filipino enterprises against unfair foreign competition and trade practices. Thus, while the Constitution mandates a bias in favor of Filipino goods, services, labor and enterprises, it also recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair.9 In other words, the 1987 Constitution does not rule out the entry of foreign investments, goods, and services. While it does not encourage their unlimited entry into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair.10 The key, as in all economies in the world, is to strike a balance between protecting local businesses and allowing the entry of foreign investments and services.
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More importantly, Section 10, Article XII of the 1987 Constitution gives Congress the discretion to reserve to Filipinos certain areas of investments upon the recommendation of the NEDA and when the national interest requires. Thus, Congress can determine what policy to pass and when to pass it depending on the economic exigencies. It can enact laws allowing the entry of foreigners into certain industries not reserved by the Constitution to

Filipino citizens. In this case, Congress has decided to open certain areas of the retail trade business to foreign investments instead of reserving them exclusively to Filipino citizens. The NEDA has not opposed such policy. The control and regulation of trade in the interest of the public welfare is of course an exercise of the police power of the State. A persons right to property, whether he is a Filipino citizen or foreign national, cannot be taken from him without due process of law. In 1954, Congress enacted the Retail Trade Nationalization Act or R.A. 1180 that restricts the retail business to Filipino citizens. In denying the petition assailing the validity of such Act for violation of the foreigners right to substantive due process of law, the Supreme Court held that the law constituted a valid exercise of police power.11 The State had an interest in preventing alien control of the retail trade and R.A. 1180 was reasonably related to that purpose. That law is not arbitrary. Here, to the extent that R.A. 8762, the Retail Trade Liberalization Act, lessens the restraint on the foreigners right to property or to engage in an ordinarily lawful business, it cannot be said that the law amounts to a denial of the Filipinos right to property and to due process of law. Filipinos continue to have the right to engage in the kinds of retail business to which the law in question has permitted the entry of foreign investors. Certainly, it is not within the province of the Court to inquire into the wisdom of R.A. 8762 save when it blatantly violates the Constitution. But as the Court has said, there is no showing that the law has contravened any constitutional mandate. The Court is not convinced that the implementation of R.A. 8762 would eventually lead to alien control of the retail trade business. Petitioners have not mustered any concrete and strong argument to support its thesis. The law itself has provided strict safeguards on foreign participation in that business. Thus First, aliens can only engage in retail trade business subject to the categories above-enumerated; Second, only nationals from, or juridical entities formed or incorporated in countries which allow the entry of Filipino retailers shall be allowed to engage in retail trade business; and Third, qualified foreign retailers shall not be allowed to engage in certain retailing activities outside their accredited stores through the use of mobile or rolling stores or carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari stores and such other similar retailing activities. In sum, petitioners have not shown how the retail trade liberalization has prejudiced and can prejudice the local small and medium enterprises since its implementation about a decade ago. WHEREFORE, the Court DISMISSES the petition for lack of merit. No costs. SO ORDERED.