SUPREME COURT

Manila
SECOND DIVISION
G.R. No. 159373 November 16, 2006
JOSE R. MORENO, JR., Petitioner,
vs.
Private Management Office (formerly, ASSET PRIVATIZATION TRUST), Respondent.
D E C I S I O N
PUNO, J .:
At bar is a Petition for Review on Certiorari of the Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 49227 dated January 30, 2003 and July 31, 2003, respectively, reversing the
decision of the Regional Trial Court of Makati, Branch 62, in Civil Case No. 93-2756 dated August
10, 1994.
The bare facts are stated in the Joint Motion and Stipulation
1
dated March 11, 1994, viz.:
COME NOW the parties, through the undersigned counsel, to this Honorable Court respectfully
make the following agreed statement of facts and issues:
1. The parties hereto hereby confirm the allegations contained in paragraphs 1, 2, 3 and 4 of
the Complaint, to wit:
1. Plaintiff is of legal age, with residence at No. 700 Gen. Malvar St., Malate, Manila;
while defendant is a juridical entity with powers to sue and be sued under
Proclamation No. 50 with offices at the 10th floor, BA Lepanto Building, 8747 Paseo
de Roxas, Makati, Metro Manila, where it may be served with summons, thru its
Trustees.
2. The subject-matter (sic) of this complaint is the J. Moreno Building (formerly
known as the North Davao Mining Building) or more specifically, the 2nd, 3rd, 4th,
5th and 6th floors of the building.
3. Plaintiff is the owner of the Ground Floor, the 7th Floor and the Penthouse of the J.
Moreno Building and the lot on which it stands.
4. Defendant is the owner of the 2nd, 3rd, 4th, 5th and 6th floors of the building, the
subject-matter (sic) of this suit.
which were admitted in the Answer dated October 29, 1993;
2. On February 13, 1993, the defendant called for a conference for the purpose of discussing
plaintiffs right of first refusal over the floors of the building owned by defendant. At said
meeting, defendant informed plaintiff that the proposed purchase price for said floors was
TWENTY[-]ONE MILLION PESOS (P21,000,000.00);
3. On February 22, 1993, defendant, in a letter signed by its Trustee, Juan W. Moran,
informed plaintiff thru Atty. Jose Feria, Jr., that the Board of Trustees (BOT) of APT "is in
agreement that Mr. Jose Moreno, Jr. has the right of first refusal" and requested plaintiff to
deposit 10% of the "suggested indicative price" of P21.0 million on or before February 26,
1993 which letter is attached hereto as Annex "A" and made an integral part of this
pleading;
4. Plaintiff paid the P2.1 million on February 26, 1993. A copy of the Official Receipt issued
by defendant to plaintiff is attached hereto as Annex "B" and made an integral part of this
pleading;
5. Then on March 12, 1993, defendant wrote plaintiff that its Legal Department has
questioned the basis for the computation of the indicative price for the said floors. A copy of
the letter is attached hereto as Annex "C" and made an integral part of this pleading;
6. On April 2, 1993, defendant wrote plaintiff that the APT BOT has "tentatively agreed on a
settlement price of P42,274,702.17" for the said floors. A copy of this communication is
attached hereto as Annex "D" and made an integral part hereof;
7. The questions to be resolved by this Honorable Court are:
7.01. Whether or not there was a perfected contract of sale over the said floors for
the amount of P21.0 million, which will give rise to a right on the part of the plaintiff to
demand that the said floors be sold to him for said amount;
7.02. Assuming that there was a perfected contract, whether or not defendant can be
bound by the price of P21.0 million;
8. Both parties hereto hereby waive their respective claims for damages, attorneys fees and
costs;
9. Rule 30 of the Revised Rules of Court provides that:
"SEC. 2. Agreed statement of facts. The parties to any action may agree, in writing, upon the facts
involved in the litigation, and require the judgment of the court upon the facts agreed upon, without
the introduction of evidence."
10. Both parties have agreed to submit this stipulation and to request that a decision of this
Honorable Court be rendered on the basis of the foregoing stipulation of facts and issues, and after
both parties have submitted their respective memoranda.
P R A Y E R
WHEREFORE, it is respectfully prayed that judgment be rendered on the basis of the agreed
stipulation of facts and issues, without the introduction of evidence in accordance with Section 2,
Rule 30 of the Revised Rules of Court, and after the submission of the parties of their respective
Memoranda.
x x x
On August 10, 1994, the trial court ruled in favor of petitioner Moreno, viz.:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, ordering
defendant to sell the 2nd, 3rd, 4th, 5th and 6th floors of the J. Moreno Building to plaintiff at the price
of TWENTY[-]ONE MILLION (P21,000,000.00) PESOS; and ordering defendant to endorse the
transaction to the Committee on Privatization, without costs.
2

Respondent filed a Motion for Reconsideration.
3
On November 16, 1994, the trial court denied the
motion for lack of merit.
4

Respondent appealed with the Court of Appeals. From the time respondent filed its Notice of Appeal
with the trial court, the parties submitted numerous motions, including petitioners Motion to
Dismiss
5
dated July 8, 1996. Petitioner moved that the case be dismissed due to the failure of
respondent to file its brief within the reglementary period.
On December 18, 1997, the Eighth Division of the appellate court granted
6
the motion to dismiss and
denied
7
respondents motion for reconsideration. Respondent then filed a Petition for Review on
Certiorari
8
with this Court to reverse the dismissal of the appeal. On July 5, 1999, this Court, through
a Resolution
9
of the Third Division, reversed the resolution dismissing the appeal on the ground that
the appeal raises substantial issues justifying a review of the case on the merits.
On January 30, 2003, the appellate court found that there was no perfected contract of sale over the
subject floors and reversed the ruling of the trial court, viz.:
WHEREFORE, the appeal is hereby GRANTED. The assailed decision of the Regional Trial Court of
Makati, Metro Manila, Branch 62, rendered in Civil Case No. 93-2756 is hereby REVERSED and
SET ASIDE and a new one is entered DISMISSING the instant complaint.
10

Petitioner moved for reconsideration but the motion was denied by the appellate court in its
questioned Resolution
11
dated July 31, 2003. Hence, this Petition contending that:
IN REVERSING THE TRIAL COURTS DECISION DATED 10 AUGUST 1994, THE COURT OF
APPEALS DECIDED ISSUES NOT IN ACCORDANCE WITH LAW AND THE APPLICABLE
DECISIONS OF THE HONORABLE COURT CONSIDERING THAT:
I
GIVEN THE UNDISPUTED FACTS OF THE INSTANT CASE, IT IS CLEAR THAT THERE WAS A
PERFECTED, VALID AND BINDING CONTRACT OF SALE BETWEEN PETITIONER MORENO
AND RESPONDENT APT (NOW PMO) WITH RESPECT TO THE SUBJECT PROPERTY.
II
THE PRINCIPLE OF ESTOPPEL SHOULD HAVE BEEN APPLIED BY THE COURT OF APPEALS
TO HOLD RESPONDENT APT (NOW PMO) TO ITS CONTRACT OF SALE WITH PETITIONER
MORENO CONSIDERING THAT:
A. THERE IS NOTHING IRREGULAR OR UNCONSCIONABLE IN THE ACTS OF THE
AGENTS OF RESPONDENT APT (NOW PMO) IN CONNECTION WITH THE PERFECTED
AND PARTIALLY EXECUTED CONTRACT OF SALE.
B. RESPONDENT APT (NOW PMO) HAS DESCENDED TO THE LEVEL OF A PRIVATE
INDIVIDUAL OR ENTITY BOUND BY VALID CONTRACTUAL OBLIGATIONS WHEN IT
ENGAGED IN PROPRIETARY AND/OR COMMERCIAL FUNCTIONS.
III
THE COURT OF APPEALS ERRED WHEN IT RULED THAT RESPONDENT APT (NOW PMO)
TIMELY RAISED THE ISSUES ON THE ALLEGED REQUIREMENT OF APPROVAL FOR THE
"INDICATED PRICE" AND THE ALLEGED UNCONSCIONABLY LOW PRICE FOR THE SALE OF
THE SUBJECT PROPERTY, CONSIDERING THAT SAID ISSUES WERE NEVER RAISED IN THE
PROCEEDINGS BEFORE THE TRIAL COURT AND DO NOT BEAR RELEVANCE OR CLOSE
RELATION TO THE ISSUES RAISED IN THE PROCEEDINGS BEFORE THE COURT OF
APPEALS.
IV
THE COURT OF APPEALS ERRED IN RULING THAT THE BRIEF FILED BY RESPONDENT APT
(NOW PMO) DID NOT VIOLATE SECTION 1(F) OF THE RULES OF COURT WHICH SHOULD
HAVE WARRANTED A DISMISSAL OF RESPONDENT APTS (NOW PMO) APPEAL.
12

The hinge issue is whether there was a perfected contract of sale over the subject floors at the price
ofP21,000,000.00.
A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
13
Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute.
14

To reach that moment of perfection, the parties must agree on the same thing in the same
sense,
15
so that their minds meet as to all the terms.
16
They must have a distinct intention common to
both and without doubt or difference; until all understand alike, there can be no assent, and therefore
no contract.
17
The minds of parties must meet at every point; nothing can be left open for further
arrangement.
18
So long as there is any uncertainty or indefiniteness, or future negotiations or
considerations to be had between the parties, there is not a completed contract, and in fact, there is
no contract at all.
19

Contract formation undergoes three distinct stages preparation or negotiation, perfection or birth,
and consummation. Negotiation begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement of the parties. The perfection or
birth of the contract takes place when the parties agree upon all the essential elements thereof. The
last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed
upon, culminating in its extinguishment.
20
Once there is concurrence of the offer and acceptance of
the object and cause, the stage of negotiation is finished. This situation does not obtain in the case
at bar. The letter of February 22, 1993 and the surrounding circumstances clearly show that the
parties are not past the stage of negotiation, hence there could not have been a perfected contract
of sale.
The letter
21
is clear evidence that respondent did not intend to sell the subject floors at the price
certain ofP21,000,000.00, viz.:
22 February 1993
ATTY. JOSE FERIA, JR.
FERIA, FERIA, LUGTU & LAO
Ferlaw Building, 336 Cabildo Street
Intramuros, Manila
Dear Atty. Feria:
During its meeting on February 19, 1993, our Board reviewed your letter of February 18, 1993.
We are pleased to inform you that the Board is in agreement that Mr. Jose Moreno, Jr. has the right
of first refusal. This will be confirmed by our Board during the next board meeting on February 26,
1993. In the meantime, please advise Mr. Moreno that the suggested indicative price for APTs five
(5) floors of the building in question is P21 Million.
If Mr. Moreno is in agreement, he should deposit with APT the amount of P2.1 Million equivalent to
10% of the price on or before February 26, 1993. The balance will be due within fifteen (15) days
after Mr. Moreno receives the formal notice of approval of the indicative price.
If you or Mr. Moreno have (sic) any question, please let me know.
Very truly yours,
(Signed)
JUAN W. MORAN
Associate Executive Trustee
The letter clearly states that P21,000,000.00 is merely a "suggested indicative price" of the subject
floors as it was yet to be approved by the Board of Trustees. Before the Board could confirm the
suggested indicative price, the Committee on Privatization must first approve the terms of the sale or
disposition. The imposition of this suspensive condition finds basis under Proclamation No.
50
22
which vests in the Committee the power to approve the sale of government assets, including the
price of the asset to be sold, viz.:
ARTICLE II. COMMITTEE ON PRIVATIZATION
x x x
SECTION 5. POWERS AND FUNCTIONS. The Committee shall have the following powers and
functions:
(1) x x x x Provided, further, that any such independent disposition shall be undertaken with the prior
approval of the Committee and in accordance with the general disposition guidelines as the
Committee may provide; Provided, finally, that in every case the sale or disposition shall be
approved by the Committee with respect to the buyer and price only;
x x x
(4) To approve or disapprove, on behalf of the National Government and without need of any further
approval or other action from any other government institution or agency, the sale or disposition of
such assets, in each case on terms and to purchasers recommended by the Trust or the government
institution, as the case may be, to whom the disposition of such assets may have been delegated;
Provided that, the Committee shall not itself undertake the marketing of any such assets, or
participate in the negotiation of their sale;
x x x
ARTICLE III. ASSET PRIVATIZATION TRUST
x x x
SECTION 12. POWERS. The Trust shall, in the discharge of its responsibilities, have the following
powers:
x x x
(2) Subject to its having received the prior written approval of the Committee to sell such asset at a
price and on terms of payment and to a party disclosed to the Committee, to sell each asset referred
to it by the Committee to such party and on such terms as in its discretion are in the best interest of
the National Government, and for such purpose to execute and deliver, on behalf and in the name of
the National Government. Such deeds of sale, contracts and other instruments as may be necessary
or appropriate to convey title to such assets;
Petitioner construes Section 12, Article III of the Proclamation differently. He argues that what the
law says is that even before respondent sells or offers for sale a government asset, the terms
thereof have already been previously approved by the Committee,
23
i.e., "[s]ubject to its having
received the prior written approval of the Committee to sell such an asset at a price and on terms of
payment and to a party disclosed to the Committee, to sell each asset referred to it by the
Committee to such party and on such terms as in its discretion are in the best interest of the National
Government."
24
Thus, the Committees approval of the suggested indicative price of P21,000,000.00
is not necessary.
We are not persuaded.
If we adopt the argument of petitioner, Section 12, Article III would nullify the power granted to the
Committee under Section 5 (4), Article II of the same Proclamation. Under Section 5 (4), the
Committee has the power "to approve or disapprove, on behalf of the National Government and
without need of any further approval or other action from any other government institution or
agency, the sale or disposition of such assets, in each case on terms and to purchasers
recommended by the Trust or the government institution, as the case may be, to whom the
disposition of such assets may have been delegated; Provided that, the Committee shall not itself
undertake the marketing of any such assets, or participate in the negotiation of their sale."
25
The law
is clear that the Trust shall recommend the terms for the Committees approval or disapproval, and
not the other way around.
It is a basic canon of statutory construction that in interpreting a statute, care should be taken that
every part thereof be given effect, on the theory that it was enacted as an integrated measure and
not as a hodge-podge of conflicting provisions. The rule is that a construction that would render a
provision inoperative should be avoided; instead, apparently inconsistent provisions should be
reconciled whenever possible as parts of a coordinated and harmonious whole.
26

To bolster the argument that the Committees approval may be dispensed with, petitioner also cites
Opinion No. 27, Series of 1989, of the Secretary of Justice which recognizes a case where the
Committee may delegate to respondent the power to approve the sale or disposition of assets with a
transfer price not exceedingP60,000,000.00.
27

The argument fails to impress. The Opinion involves a case where "no material discretion is involved
in the disposition of assets pursuant to the subject proposal" and the act which could be delegated,
as opined, is ministerial. The Opinion further notes that "the criteria and guidelines stated therein are
concrete and definite enough that once these criteria and guidelines are present in a particular case,
the APT is practically left with no choice in the disposition of the assets involved and that all that the
APT shall do in disposing off an asset thereunder is ascertain whether a prospective buyer and the
price he offers satisfy such conditions." Petitioner failed to show that the case at bar is of the same
nature that is, that the disposition of the subject floors "partakes of the nature of a ministerial act
which has been defined as one performed under a given state of facts, in a prescribed manner, in
obedience to the mandate of legal authority, without regard to the exercise of judgment upon the
propriety or impropriety of the act done."
Petitioner further argues that the "suggested indicative price" of P21,000,000.00 is not a proposed
price, but the selling price indicative of the value at which respondent was willing to sell.
28
Petitioner
posits that under Section 14, Rule 130 of the Revised Rules of Court, the term should be taken in its
ordinary and usual acceptation and should be taken to mean as a price which is "indicated" or
"specified" which, if accepted, gives rise to a meeting of minds.
29
This was the same construction
adopted by the trial court, viz.:
Going to defendants main defense that P21 Million was a "suggested indicative price" we have to
find out exactly what "indicative" means. Webster Comprehensive Dictionary, International Edition,
gives us a graphic meaning that everybody can understand, when it says that "to indicate" is [t]o
point out; direct attention[;] to indicate the correct page[.] "Indicative" is merely the adjective of the
verb to indicate. x x x when the price of P21 [M]illion was indicated then it becomes the "indicative"
price the correct price, no ifs[,] no buts.
30
(emphases in the original)
We do not agree.
Under the same section and rule invoked by petitioner, the terms of a writing are presumed to have
been used in their primary and general acceptation, but evidence is admissible to show that they
have a local, technical, or otherwise peculiar signification, and were so used and understood in
the particular instance, in which case the agreement must be construed accordingly.
31

The reliance of the trial court in the Webster definition of the term "indicative," as also adopted by
petitioner, is misplaced. The transaction at bar involves the sale of an asset under a privatization
scheme which attaches a peculiar meaning or signification to the term "indicative price." Under No.
6.1 of the General Bidding Procedures and Rules
32
of respondent, "an indicative price is a ball-park
figure and [respondent] supplies such a figure purely to define the ball-park."
33
The plain contention
of petitioner that the transaction involves an "ordinary armslength sale of property" is
unsubstantiated and leaves much to be desired. This case sprung from a case of specific
performance initiated by petitioner who has the burden to prove that the case should be spared from
the application of the technical terms in the sale and disposition of assets under privatization.
Petitioner failed to discharge the burden.1wphi1
It appears in the case at bar that petitioners construction of the letter of February 22, 1993 that his
assent to the "suggested indicative price" of P21,000,000.00 converted it as the price certain, thus
giving rise to a perfected contract of sale
34
is petitioners own subjective understanding. As such, it
is not shared by respondent. Under American jurisprudence, mutual assent is judged by
an objective standard, looking to the express words the parties used in the contract.
35
Under the
objective theory of contract, understandings and beliefs are effective only ifshared.
36
Based on the
objective manifestations of the parties in the case at bar, there was no meeting of the minds. That
the letter constituted a definite, complete and certain offer is the subjective belief of petitioner alone.
The letter in question is a mere evidence of a memorialization of inconclusive negotiations, or a
mere agreement to agree, in which material term is left for future negotiations.
37
It is a mere evidence
of the parties preliminary transactions which did not crystallize into a perfected contract. Preliminary
negotiations or an agreement still involving future negotiations is not the functional equivalent of a
valid, subsisting agreement.
38
For a valid contract to have been created, the parties must have
progressed beyond this stage of imperfect negotiation. But as the records would show, the parties
are yet undergoing the preliminary steps towards the formation of a valid contract. Having thus
established that there is no perfected contract of sale in the case at bar, the issue on estoppel is now
moot and academic.
Finally, petitioner contends that the appellate court should have dismissed the appeal of respondent
on the procedural technicality that the Appellants Brief does not have page references to the record
in its Statement of Facts, Statement of the Case and Arguments in the Appellants Brief.
39

We find no reason to reverse the ruling of the appellate court which has judiciously explained why
the appeal should not be dismissed on this ground, viz.:
x x x x Procedural rules are required to be followed as a general rule, but they may be relaxed to
relieve a litigant of an injustice not commensurate with the degree of his noncompliance with the
procedure required. In this case, [respondents] brief does not substantially violate our procedural
rules. Besides, the merits of its arguments will show that the trial court seriously erred in issuing its
assailed decision.
40

IN VIEW WHEREOF, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV
No. 49227 dated January 30, 2003 and July 31, 2003, respectively, are AFFIRMED.
SO ORDERED.
REYNATO S. PUNO
Associate Justice

THIRD DIVISION
[G.R. No. 137378. October 12, 2000]

PHILIPPINE ALUMINUM WHEELS, INC., petitioner, vs. FASGI ENTERPRISES, INC., respondent.
D E C I S I O N
VITUG, J.:
On 01 June 1978, FASGI Enterprises Incorporated ("FASGI"), a corporation organized and existing under
and by virtue of the laws of the State of California, United States of America, entered into a
distributorship arrangement with Philippine Aluminum Wheels, Incorporated ("PAWI"), a Philippine
corporation, and Fratelli Pedrini Sarezzo S.P.A. ("FPS"), an Italian corporation. The agreement provided
for the purchase, importation and distributorship in the United States of aluminum wheels
manufactured by PAWI. Pursuant to the contract, PAWI shipped to FASGI a total of eight thousand five
hundred ninety four (8,594) wheels, with an FOB value of US$216,444.30 at the time of shipment, the
first batch arriving in two containers and the second in three containers. Thereabouts, FASGI paid PAWI
the FOB value of the wheels. Unfortunately, FASGI later found the shipment to be defective and in non-
compliance with stated requirements, viz;
"A. contrary to the terms of the Distributorship Agreement and in violation of U.S. law, the country of
origin (the Philippines) was not stamped on the wheels;
"B. the wheels did not have weight load limits stamped on them as required to avoid mounting on
excessively heavy vehicles, resulting in risk of damage or bodily injury to consumers arising from
possible shattering of the wheels;
"C. many of the wheels did not have an indication as to which models of automobile they would fit;
"D. many of the wheels did not fit the model automobiles for which they were purportedly designed;
"E. some of the wheels did not fit any model automobile in use in the United States;
"F. most of the boxes in which the wheels were packed indicated that the wheels were approved by the
Specialty Equipment Manufacturer's Association (hereafter, `SEMA'); in fact no SEMA approval has been
obtained and this indication was therefore false and could result in fraud upon retail customers
purchasing the wheels."
On 21 September 1979, FASGI instituted an action against PAWI and FPS for breach of contract and
recovery of damages in the amount of US$2,316,591.00 before the United States District Court for the
Central District of California. In January 1980, during the pendency of the case, the parties entered into a
settlement, entitled "Transaction" with the corresponding Italian translation "Convenzione Transsativa,"
where it was stipulated that FPS and PAWI would accept the return of not less than 8,100 wheels after
restoring to FASGI the purchase price of US$268,750.00 via four (4) irrevocable letters of credit ("LC").
The rescission of the contract of distributorship was to be effected within the period starting January up
until April 1980.
In a telex message, dated 02 March 1980, PAWI president Romeo Rojas expressed the company's
inability to comply with the foregoing agreement and proposed a revised schedule of payment. The
message, in part, read:
"We are most anxious in fulfilling all our obligations under compromise agreement executed by our Mr.
Giancarlo Dallera and your Van Curen. We have tried our best to comply with our commitments,
however, because of the situation as mentioned in the foregoing and currency regulations and
restrictions imposed by our government on the outflow, of foreign currency from our country, we are
constrained to request for a revised schedule of shipment and opening of L/Cs.
"After consulting with our bank and government monetary agencies and on the assumption that we
submit the required pro-forma invoices we can open the letters of credit in your favor under the
following schedule:
"A) First L/C - it will be issued in April 1980 payable 90 days thereafter
"B) Second L/C - it will be issued in June 1980 payable 90 days thereafter
"C) Third L/C - it will be issued in August 1980 payable 90 days thereafter
"D) Fourth L/C - it will be issued in November 1980 payable 90 days thereafter
"We understand your situation regarding the lease of your warehouse. For this reason, we are willing to
defray the extra storage charges resulting from this new schedule. If you cannot renew the lease [of]
your present warehouse, perhaps you can arrange to transfer to another warehouse and storage
charges transfer thereon will be for our account. We hope you understand our position. The delay and
the revised schedules were caused by circumstances totally beyond our control."
On 21 April 1980, again through a telex message, PAWI informed FASGI that it was impossible to open a
letter of credit on or before April 1980 but assured that it would do its best to comply with the
suggested schedule of payments. In its telex reply of 29 April 1980, FASGI insisted that PAWI should
meet the terms of the proposed schedule of payments, specifically its undertaking to open the first LC
within April of 1980, and that "If the letter of credit is not opened by April 30, 1980, then x x x [it would]
immediately take all necessary legal action to protect [its] position."
Despite its assurances, and FASGI's insistence, PAWI failed to open the first LC in April 1980 allegedly
due to Central Bank "inquiries and restrictions," prompting FASGI to pursue its complaint for damages
against PAWI before the California district court. Pre-trial conference was held on 24 November 1980. In
the interim, the parties, realizing the protracted process of litigation, resolved to enter into another
arrangement, this time entitled "Supplemental Settlement Agreement," on 26 November 1980. In
substance, the covenant provided that FASGI would deliver to PAWI a container of wheels for every LC
opened and paid by PAWI:
"3. Agreement
"3.1 Sellers agree to pay FASGI Two Hundred Sixty-Eight Thousand, Seven Hundred Fifty and 00/100
Dollars ($268,750.00), plus interest and storage costs as described below. Sellers shall pay such amount
by delivering to FASGI the following four (4) irrevocable letters of credit, confirmed by Crocker Bank,
Main Branch, Fresno, California, as set forth below:
"(i) on or before June 30, 1980, a documentary letter of credit in the amount of (a) Sixty-Five Thousand,
Three Hundred Sixty-nine and 00/100 Dollars ($65,369.00), (b) plus interest on that amount at the
annual rate of 16.25% from January 1, 1980 until July 31, 1980, (c) plus Two Thousand Nine Hundred
Forty Dollars and 00/100 ($2,940.00) and (d) with interest on that sum at the annual rate of 16.25%
from May 1, 1980 to July 31, 1980, payable on or after August 31, 1980;
"(ii) on or before September 1, 1980, a documentary letter of credit in the amount of (a) Sixty-Seven
Thousand, Seven Hundred Ninety-Three Dollars and Sixty-Seven Cents ($67,793.67) plus (b) Two
Thousand, Nine Hundred Forty and 00/100 Dollars ($2,940.00), plus (c) interest at an annual rate equal
to the prime rate of Crocker Bank, San Francisco, in effect from time to time, plus two percent on the
amount in (a) from January 1, 1980 until December 21, 1980, and on the amount set forth in (b) from
May 1, 1980 until December 21, 1980, payable ninety days after the date of the bill of lading under the
letter of credit;
"(iii) on or before November 1, 1980, a documentary letter of credit in the amount of (a) Sixty-Seven
Thousand, Seven Hundred Ninety-Three Dollars and Sixty-Seven Cents ($67,793.67) plus (b) Two
Thousand, Nine Hundred Forty and 00/100 Dollars ($2,490.00), plus (c) interest at an annual rate equal
to the prime rate of Crocker Bank, San Francisco, in effect from time to time, plus two percent on the
amount in (a) from January 1, 1980 until February 21, 1981, and on the amount set forth in (b) from May
1, 1980 until February 21, 1981, payable ninety days after the date of the bill of lading under the latter
of credit;
"(iv) on or before January 1, 1981, a documentary letter of credit in the amount of (a) Sixty-Seven
Thousand, Seven Hundred Ninety-Three Dollars and Sixty-Seven Cents ($67,793.67) plus (b) Five
Thousand, Eight Hundred Eighty and 00/100 Dollars ($5,880.00), plus (c) interest at an annual rate equal
to the prime rate of Crocker Bank, San Francisco, in effect from time to time, plus two percent on the
amount in (a) from January 1, 1980 until April 21, 1981, and on the amount set forth in (b) from May 1,
1980 until April 21, 1981, payable ninety days after the date of the bill of lading under the latter of
credit."
Anent the wheels still in the custody of FASGI, the supplemental settlement agreement provided that -
"3.4 (a) Upon execution of this Supplemental Settlement Agreement, the obligations of FASGI to store or
maintain the Containers and Wheels shall be limited to (i) storing the Wheels and Containers in their
present warehouse location and (ii) maintaining in effect FASGI's current insurance in favor of FASGI,
insuring against usual commercial risks for such storage in the principal amount of the Letters of Credit
described in Paragraph 3.1. FASGI shall bear no liability, responsibility or risk for uninsurable risks or
casualties to the Containers or Wheels.
"x x x x x x x x x
"(e) From and after February 28, 1981, unless delivery of the Letters of Credit are delayed past such date
pursuant to the penultimate Paragraph 3.1, in which case from and after such later date, FASGI shall
have no obligation to maintain, store or deliver any of the Containers or Wheels."
The deal allowed FASGI to enter before the California court the foregoing stipulations in the event of the
failure of PAWI to make good the scheduled payments; thus -
"3.5 Concurrently with execution and delivery hereof, the parties have executed and delivered a Mutual
Release (the `Mutual Release'), and a Stipulation for Judgment (the `Stipulation for Judgment') with
respect to the Action. In the event of breach of this Supplemental Settlement Agreement by Sellers,
FASGI shall have the right to apply immediately to the Court for entry of Judgment pursuant to the
Stipulation for Judgment in the full amount thereof, less credit for any payments made by Sellers
pursuant to this Supplemental Settlement Agreement. FASGI shall have the right thereafter to enforce
the Judgment against PAWI and FPS in the United States and in any other country where assets of FPS or
PAWI may be located, and FPS and PAWI hereby waive all defenses in any such country to execution or
enforcement of the Judgment by FASGI. Specifically, FPS and PAWI each consent to the jurisdiction of
the Italian and Philippine courts in any action brought by FASGI to seek a judgment in those countries
based upon a judgment against FPS or PAWI in the Action."
In accordance with the aforementioned paragraph 3.5 of the agreement, the parties made the following
stipulation before the California court:
"The undersigned parties hereto, having entered into a Supplemental Settlement Agreement in this
action,
"IT IS HEREBY STIPULATED by and between plaintiff FASGI Enterprises, Inc. (`FASGI') and defendants
Philippine Aluminum Wheels, Inc., (`PAWI'), and each of them, that judgment may be entered in favor of
plaintiff FASGI and against PAWI, in the amount of Two Hundred Eighty Three Thousand Four Hundred
Eighty And 01/100ths Dollars ($283,480.01).
"Plaintiff FASGI shall also be entitled to its costs of suit, and to reasonable attorneys' fees as determined
by the Court added to the above judgment amount."
The foregoing supplemental settlement agreement, as well as the motion for the entry of judgment, was
executed by FASGI president Elena Buholzer and PAWI counsel Mr. Thomas Ready.
PAWI, again, proved to be remiss in its obligation under the supplemental settlement agreement. While it
opened the first LC on 19 June 1980, it, however, only paid on it nine (9) months after, or on 20 March
1981, when the letters of credit by then were supposed to have all been already posted. This lapse,
notwithstanding, FASGI promptly shipped to PAWI the first container of wheels. Again, despite the delay
incurred by PAWI on the second LC, FASGI readily delivered the second container. Later, PAWI totally
defaulted in opening and paying the third and the fourth LCs, scheduled to be opened on or before,
respectively, 01 September 1980 and 01 November 1980, and each to be paid ninety (90) days after the
date of the bill of lading under the LC. As so expressed in their affidavits, FASGI counsel Frank Ker and
FASGI president Elena Buholzer were more inclined to believe that PAWI's failure to pay was due not to
any restriction by the Central Bank or any other cause than its inability to pay. These doubts were based
on the telex message of PAWI president Romeo Rojas who attached a copy of a communication from the
Central Bank notifying PAWI of the bank's approval of PAWI's request to open LCs to cover payment for
the re-importation of the wheels. The communication having been sent to FASGI before the supplemental
settlement agreement was executed, FASGI speculated that at the time PAWI subsequently entered into
the supplemental settlement agreement, its request to open LCs had already been approved by the
Central Bank. Irked by PAWI's persistent default, FASGI filed with the US District Court of the Central
District of California the following stipulation for judgment against PAWI.
"PLEASE TAKE NOTICE that on May 17, 1982 at 10:00 A.M. in the Courtroom of the Honorable Laughlin
E. Waters of the above Court, plaintiff FASGI ENTERPRISES, INC. (hereinafter `FASGI') will move the Court
for entry of Judgment against defendant PHILIPPINE ALUMINUM WHEELS, INC. (hereinafter `PAWI'),
pursuant to the Stipulation for Judgment filed concurrently herewith, executed on behalf of FASGI and
PAWI by their respective attorneys, acting as their authorized agents.
"Judgment will be sought in the total amount of P252,850.60, including principal and interest accrued
through May 17, 1982, plus the sum of $17,500.00 as reasonable attorneys' fees for plaintiff in
prosecuting this action.
"The Motion will be made under Rule 54 of the Federal Rules of Civil Procedure, pursuant to and based
upon the Stipulation for Judgment, the Supplemental Settlement Agreement filed herein on or about
November 21, 1980, the Memorandum of Points and Authorities and Affidavits of Elena Buholzer,
Franck G. Ker and Stan Cornwell all filed herewith, and upon all the records, files and pleadings in this
action.
"The Motion is made on the grounds that defendant PAWI has breached its obligations as set forth in
the Supplemental Settlement Agreement, and that the Supplemental Settlement Agreement expressly
permits FASGI to enter the Stipulation for Judgment in the event that PAWI has not performed under
the Supplemental Settlement Agreement."
On 24 August 1982, FASGI filed a notice of entry of judgment. A certificate of finality of judgment was
issued, on 07 September 1982, by the US District Judge of the District Court for the Central District of
California. PAWI, by this time, was approximately twenty (20) months in arrears in its obligation under
the supplemental settlement agreement.
Unable to obtain satisfaction of the final judgment within the United States, FASGI filed a complaint for
"enforcement of foreign judgment" in February 1983, before the Regional Trial Court, Branch 61, of
Makati, Philippines. The Makati court, however, in an order of 11 September 1990, dismissed the case,
thereby denying the enforcement of the foreign judgment within Philippine jurisdiction, on the ground
that the decree was tainted with collusion, fraud, and clear mistake of law and fact. The lower court
ruled that the foreign judgment ignored the reciprocal obligations of the parties. While the assailed
foreign judgment ordered the return by PAWI of the purchase amount, no similar order was made
requiring FASGI to return to PAWI the third and fourth containers of wheels. This situation, the trial
court maintained, amounted to an unjust enrichment on the part of FASGI. Furthermore, the trial court
said, the supplemental settlement agreement and the subsequent motion for entry of judgment upon
which the California court had based its judgment were a nullity for having been entered into by Mr.
Thomas Ready, counsel for PAWI, without the latter's authorization.
FASGI appealed the decision of the trial court to the Court of Appeals. In a decision, dated 30 July 1997,
the appellate court reversed the decision of the trial court and ordered the full enforcement of the
California judgment.
Hence this appeal.
Generally, in the absence of a special compact, no sovereign is bound to give effect within its dominion
to a judgment rendered by a tribunal of another country; however, the rules of comity, utility and
convenience of nations have established a usage among civilized states by which final judgments of
foreign courts of competent jurisdiction are reciprocally respected and rendered efficacious under
certain conditions that may vary in different countries.
In this jurisdiction, a valid judgment rendered by a foreign tribunal may be recognized insofar as the
immediate parties and the underlying cause of action are concerned so long as it is convincingly shown
that there has been an opportunity for a full and fair hearing before a court of competent jurisdiction;
that trial upon regular proceedings has been conducted, following due citation or voluntary appearance
of the defendant and under a system of jurisprudence likely to secure an impartial administration of
justice; and that there is nothing to indicate either a prejudice in court and in the system of laws under
which it is sitting or fraud in procuring the judgment. A foreign judgment is presumed to be valid and
binding in the country from which it comes, until a contrary showing, on the basis of a presumption of
regularity of proceedings and the giving of due notice in the foreign forum. Rule 39, section 48 of the
Rules of Court of the Philippines provides:
Sec. 48. Effect of foreign judgments or final orders - The effect of a judgment or final order of a tribunal
of a foreign country, having jurisdiction to render the judgment or final order is as follows:
x x x x
(b) In case of a judgment or final order against a person, the judgment or final order is presumptive
evidence of a right as between the parties and their successors-in-interest by a subsequent title.
In either case, the judgment or final order may be repelled by evidence a want of jurisdiction, want of
notice to the party, collusion, fraud, or clear mistake of law or fact.
In Soorajmull Nagarmull vs. Binalbagan-Isabela Sugar Co. Inc., one of the early Philippine cases on the
enforcement of foreign judgments, this Court has ruled that a judgment for a sum of money rendered in
a foreign court is presumptive evidence of a right between the parties and their successors-in-interest
by subsequent title, but when suit for its enforcement is brought in a Philippine court, such judgment
may be repelled by evidence of want of jurisdiction, want of notice to the party, collusion, fraud or clear
mistake of law or fact. In Northwest Orient Airlines, Inc., vs. Court of Appeals, the Court has said that a
party attacking a foreign judgment is tasked with the burden of overcoming its presumptive validity.
PAWI claims that its counsel, Mr. Ready, has acted without its authority. Verily, in this jurisdiction, it is
clear that an attorney cannot, without a client's authorization, settle the action or subject matter of the
litigation even when he honestly believes that such a settlement will best serve his client's interest.
In the instant case, the supplemental settlement agreement was signed by the parties, including Mr.
Thomas Ready, on 06 October 1980. The agreement was lodged in the California case on 26 November
1980 or two (2) days after the pre-trial conference held on 24 November 1980. If Mr. Ready was indeed
not authorized by PAWI to enter into the supplemental settlement agreement, PAWI could have
forthwith signified to FASGI a disclaimer of the settlement. Instead, more than a year after the execution
of the supplemental settlement agreement, particularly on 09 October 1981, PAWI President Romeo S.
Rojas sent a communication to Elena Buholzer of FASGI that failed to mention Mr. Ready's supposed
lack of authority. On the contrary, the letter confirmed the terms of the agreement when Mr. Rojas
sought forbearance for the impending delay in the opening of the first letter of credit under the
schedule stipulated in the agreement.
It is an accepted rule that when a client, upon becoming aware of the compromise and the judgment
thereon, fails to promptly repudiate the action of his attorney, he will not afterwards be heard to
complain about it.
Nor could PAWI claim any prejudice by the settlement. PAWI was spared from possibly paying FASGI
substantial amounts of damages and incurring heavy litigation expenses normally generated in a full-
blown trial. PAWI, under the agreement was afforded time to reimburse FASGI the price it had paid for
the defective wheels. PAWI, should not, after its opportunity to enjoy the benefits of the agreement, be
allowed to later disown the arrangement when the terms thereof ultimately would prove to operate
against its hopeful expectations.
PAWI assailed not only Mr. Ready's authority to sign on its behalf the Supplemental Settlement
Agreement but denounced likewise his authority to enter into a stipulation for judgment before the
California court on 06 August 1982 on the ground that it had by then already terminated the former's
services. For his part, Mr. Ready admitted that while he did receive a request from Manuel Singson of
PAWI to withdraw from the motion of judgment, the request unfortunately came too late. In an
explanatory telex, Mr. Ready told Mr. Singson that under American Judicial Procedures when a motion
for judgment had already been filed a counsel would not be permitted to withdraw unilaterally without
a court order. From the time the stipulation for judgment was entered into on 26 April 1982 until the
certificate of finality of judgment was issued by the California court on 07 September 1982, no
notification was issued by PAWI to FASGI regarding its termination of Mr. Ready's services. If PAWI were
indeed hoodwinked by Mr. Ready who purportedly acted in collusion with FASGI, it should have aptly
raised the issue before the forum which issued the judgment in line with the principle of international
comity that a court of another jurisdiction should refrain, as a matter of propriety and fairness, from so
assuming the power of passing judgment on the correctness of the application of law and the evaluation
of the facts of the judgment issued by another tribunal.
Fraud, to hinder the enforcement within this jurisdiction of a foreign judgment, must be extrinsic, i.e.,
fraud based on facts not controverted or resolved in the case where judgment is rendered, or that which
would go to the jurisdiction of the court or would deprive the party against whom judgment is rendered
a chance to defend the action to which he has a meritorious case or defense. In fine, intrinsic fraud, that
is, fraud which goes to the very existence of the cause of action - such as fraud in obtaining the consent
to a contract - is deemed already adjudged, and it, therefore, cannot militate against the recognition or
enforcement of the foreign judgment.
Even while the US judgment was against both FPS and PAWI, FASGI had every right to seek enforcement
of the judgment solely against PAWI or, for that matter, only against FPS. FASGI, in its complaint,
explained:
"17. There exists, and at all times relevant herein there existed, a unity of interest and ownership
between defendant PAWI and defendant FPS, in that they are owned and controlled by the same
shareholders and managers, such that any individuality and separateness between these defendants has
ceased, if it ever existed, and defendant FPS is the alter ego of defendant PAWI. The two entities are
used interchangeably by their shareholders and managers, and plaintiff has found it impossible to
ascertain with which entity it is dealing at any one time. Adherence to the fiction of separate existence
of these defendant corporations would permit an abuse of the corporate privilege and would promote
injustice against this plaintiff because assets can easily be shifted between the two companies thereby
frustrating plaintiff's attempts to collect on any judgment rendered by this Court."
Paragraph 14 of the Supplemental Settlement Agreement fixed the liability of PAWI and FPS to be "joint
and several" or solidary. The enforcement of the judgment against PAWI alone would not, of course,
preclude it from pursuing and recovering whatever contributory liability FPS might have pursuant to
their own agreement.
PAWI would argue that it was incumbent upon FASGI to first return the second and the third containers
of defective wheels before it could be required to return to FASGI the purchase price therefor, relying on
their original agreement (the "Transaction"). Unfortunately, PAWI defaulted on its covenants
thereunder that thereby occasioned the subsequent execution of the supplemental settlement
agreement. This time the parties agreed, under paragraph 3.4(e) thereof, that any further default by
PAWI would release FASGI from any obligation to maintain, store or deliver the rejected wheels. The
supplemental settlement agreement evidently superseded, at the very least on this point, the previous
arrangements made by the parties.
PAWI cannot, by this petition for review, seek refuge over a business dealing and decision gone awry.
Neither do the courts function to relieve a party from the effects of an unwise or unfavorable contract
freely entered into. As has so aptly been explained by the appellate court, the over-all picture might,
indeed, appear to be onerous to PAWI but it should bear emphasis that the settlement which has
become the basis for the foreign judgment has not been the start of a business venture but the end of a
failed one, and each party, naturally, has had to negotiate from either position of strength or weakness
depending on its own perception of who might have to bear the blame for the failure and the
consequence of loss.
Altogether, the Court finds no reversible error on the part of the appellate court in its appealed
judgment.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED. No costs.
SO ORDERED.

THIRD DIVISION
VICENTE ONG LIM SING, JR.,Petitioner,
- versus -
FEB LEASING & FINANCE CORPORATION, Respondent.
G.R. No. 168115 June 8, 2007
This is a petition for review on certiorari assailing the Decision[1] dated March 15, 2005 and the
Resolution[2] dated May 23, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 77498.
The facts are as follows:
On March 9, 1995, FEB Leasing and Finance Corporation (FEB) entered into a lease[3] of
equipment and motor vehicles with JVL Food Products (JVL). On the same date, Vicente Ong Lim Sing, Jr.
(Lim) executed an Individual Guaranty Agreement[4] with FEB to guarantee the prompt and faithful
performance of the terms and conditions of the aforesaid lease agreement. Corresponding Lease
Schedules with Delivery and Acceptance Certificates[5] over the equipment and motor vehicles formed
part of the agreement. Under the contract, JVL was obliged to pay FEB an aggregate gross monthly
rental of One Hundred Seventy Thousand Four Hundred Ninety-Four Pesos (P170,494.00).
JVL defaulted in the payment of the monthly rentals. As of July 31, 2000, the amount in arrears,
including penalty charges and insurance premiums, amounted to Three Million Four Hundred Fourteen
Thousand Four Hundred Sixty-Eight and 75/100 Pesos (P3,414,468.75). On August 23, 2000, FEB sent a
letter to JVL demanding payment of the said amount. However, JVL failed to pay.
On December 6, 2000, FEB filed a Complaint[7] with the Regional Trial Court of Manila, docketed as Civil
Case No. 00-99451, for sum of money, damages, and replevin against JVL, Lim, and John Doe.
In the Amended Answer,[8] JVL and Lim admitted the existence of the lease agreement but asserted
that it is in reality a sale of equipment on installment basis, with FEB acting as the financier. JVL and Lim
claimed that this intention was apparent from the fact that they were made to believe that when full
payment was effected, a Deed of Sale will be executed by FEB as vendor in favor of JVL and Lim as
vendees.[9] FEB purportedly assured them that documenting the transaction as a lease agreement is
just an industry practice and that the proper documentation would be effected as soon as full payment
for every item was made. They also contended that the lease agreement is a contract of adhesion and
should, therefore, be construed against the party who prepared it, i.e., FEB.
In upholding JVL and Lims stance, the trial court stressed the contradictory terms it found in the lease
agreement. The pertinent portions of the Decision dated November 22, 2002 read:
A profound scrutiny of the provisions of the contract which is a contract of adhesion at once
exposed the use of several contradictory terms. To name a few, in Section 9 of the said contract
disclaiming warranty, it is stated that the lessor is not the manufacturer nor the latters agent and
therefore does not guarantee any feature or aspect of the object of the contract as to its
merchantability. Merchantability is a term applied in a contract of sale of goods where conditions and
warranties are made to apply. Article 1547 of the Civil Code provides that unless a contrary intention
appears an implied warranty on the part of the seller that he has the right to sell and to pass ownership
of the object is furnished by law together with an implied warranty that the thing shall be free from
hidden faults or defects or any charge or encumbrance not known to the buyer.
In an adhesion contract which is drafted and printed in advance and parties are not given a real
arms length opportunity to transact, the Courts treat this kind of contract strictly against their
architects for the reason that the party entering into this kind of contract has no choice but to accept
the terms and conditions found therein even if he is not in accord therewith and for that matter may not
have understood all the terms and stipulations prescribed thereat. Contracts of this character are
prepared unilaterally by the stronger party with the best legal talents at its disposal. It is upon that
thought that the Courts are called upon to analyze closely said contracts so that the weaker party could
be fully protected.
Another instance is when the alleged lessee was required to insure the thing against loss,
damage or destruction.
In property insurance against loss or other accidental causes, the assured must have an insurable
interest, 32 Corpus Juris 1059.
x x x x
It has also been held that the test of insurable interest in property is whether the assured has a
right, title or interest therein that he will be benefited by its preservation and continued existence or
suffer a direct pecuniary loss from its destruction or injury by the peril insured against. If the defendants
were to be regarded as only a lessee, logically the lessor who asserts ownership will be the one directly
benefited or injured and therefore the lessee is not supposed to be the assured as he has no insurable
interest
There is also an observation from the records that the actual value of each object of the contract
would be the result after computing the monthly rentals by multiplying the said rentals by the number
of months specified when the rentals ought to be paid.
Still another observation is the existence in the records of a Deed of Absolute Sale by and
between the same parties, plaintiff and defendants which was an exhibit of the defendant where the
plaintiff sold to the same defendants one unit 1995 Mitsubishi L-200 STRADA DC PICK UP and in said
Deed, The Court noticed that the same terms as in the alleged lease were used in respect to warranty, as
well as liability in case of loss and other conditions. This action of the plaintiff unequivocally exhibited
their real intention to execute the corresponding Deed after the defendants have paid in full and as
heretofore discussed and for the sake of emphasis the obscurity in the written contract cannot favor the
party who caused the obscurity.
Based on substantive Rules on Interpretation, if the terms are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control. If the words
appear to be contrary to the evident intention of the parties, their contemporaneous and subsequent
acts shall be principally considered. If the doubts are cast upon the principal object of the contract in
such a way that it cannot be known what may have been the intention or will of the parties, the contract
shall be null and void.
Thus, the court concluded with the following disposition:
In this case, which is held by this Court as a sale on installment there is no chattel mortgage on
the thing sold, but it appears amongst the Complaints prayer, that the plaintiff elected to exact
fulfillment of the obligation.
For the vehicles returned, the plaintiff can only recover the unpaid balance of the price because
of the previous payments made by the defendants for the reasonable use of the units, specially so, as it
appears, these returned vehicles were sold at auction and that the plaintiff can apply the proceeds to
the balance. However, with respect to the unreturned units and machineries still in the possession of
the defendants, it is this Courts view and so hold that the defendants are liable therefore and
accordingly are ordered jointly and severally to pay the price thereof to the plaintiff together with
attorneys fee and the costs of suit in the sum of Php25,000.00.
SO ORDERED.[11]
On December 27, 2002, FEB filed its Notice of Appeal.[12] Accordingly, on January 17, 2003, the court
issued an Order[13] elevating the entire records of the case to the CA. FEB averred that the trial court
erred:
A. When it ruled that the agreement between the Parties-Litigants is one of sale of personal
properties on installment and not of lease;
B. When it ruled that the applicable law on the case is Article 1484 (of the Civil Code) and not R.A.
No. 8556;
C. When it ruled that the Plaintiff-Appellant can no longer recover the unpaid balance of the price
because of the previous payments made by the defendants for the reasonable use of the units;
D. When it failed to make a ruling or judgment on the Joint and Solidary Liability of Vicente
Ong Lim, Jr. to the Plaintiff-Appellant.[14]
On March 15, 2005, the CA issued its Decision[15] declaring the transaction between the parties as a
financial lease agreement under Republic Act (R.A.) No. 8556.[16] The fallo of the assailed Decision
reads:
WHEREFORE, the instant appeal is GRANTED and the assailed Decision dated 22 November 2002
rendered by the Regional Trial Court of Manila, Branch 49 in Civil Case No. 00-99451 is REVERSED and
SET ASIDE, and a new judgment is hereby ENTERED ordering appellees JVL Food Products and Vicente
Ong Lim, Jr. to solidarily pay appellant FEB Leasing and Finance Corporation the amount of Three Million
Four Hundred Fourteen Thousand Four Hundred Sixty Eight Pesos and 75/100 (Php3,414,468.75), with
interest at the rate of twelve percent (12%) per annum starting from the date of judicial demand on 06
December 2000, until full payment thereof. Costs against appellees.
SO ORDERED.[17]
Lim filed the instant Petition for Review on Certiorari under Rule 45 contending that:
I
THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO CONSIDER THAT THE
UNDATED COMPLAINT WAS FILED BY SATURNINO J. GALANG, JR., WITHOUT ANY AUTHORITY FROM
RESPONDENTS BOARD OF DIRECTORS AND/OR SECRETARYS CERTIFICATE.
II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAILED TO STRICTLY APPLY SECTION 7,
RULE 18 OF THE 1997 RULES OF CIVIL PROCEDURE AND NOW ITEM 1, A(8) OF A.M. NO. 03-1-09 SC
(JUNE 8, 2004).
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING THE APPEAL FOR FAILURE OF
THE RESPONDENT TO FILE ON TIME ITS APPELLANTS BRIEF AND TO SEPARATELY RULE ON THE
PETITIONERS MOTION TO DISMISS.
IV
THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT THE CONTRACT BETWEEN THE
PARTIES IS ONE OF A FINANCIAL LEASE AND NOT OF A CONTRACT OF SALE.
V
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PAYMENTS PAID BY THE
PETITIONER TO THE RESPONDENT ARE RENTALS AND NOT INSTALLMENTS PAID FOR THE PURCHASE
PRICE OF THE SUBJECT MOTOR VEHICLES, HEAVY MACHINES AND EQUIPMENT.
VI
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PREVIOUS CONTRACT OF SALE
INVOLVING THE PICK-UP VEHICLE IS OF NO CONSEQUENCE.
VII
THE HONORABLE COURT OF APPEALS FAILED TO TAKE INTO CONSIDERATION THAT THE
CONTRACT OF LEASE, A CONTRACT OF ADHESION, CONCEALED THE TRUE INTENTION OF THE PARTIES,
WHICH IS A CONTRACT OF SALE.
VIII
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PETITIONER IS A LESSEE WITH
INSURABLE INTEREST OVER THE SUBJECT PERSONAL PROPERTIES.
IX
THE HONORABLE COURT OF APPEALS ERRED IN CONSTRUING THE INTENTIONS OF THE COURT A
QUO IN ITS USAGE OF THE TERM MERCHANTABILITY.[18]
We affirm the ruling of the appellate court.
First, Lim can no longer question Galangs authority as FEBs authorized representative in filing the suit
against Lim. Galang was the representative of FEB in the proceedings before the trial court up to the
appellate court. Petitioner never placed in issue the validity of Galangs representation before the trial
and appellate courts. Issues raised for the first time on appeal are barred by estoppel. Arguments not
raised in the original proceedings cannot be considered on review; otherwise, it would violate basic
principles of fair play.[19]
Second, there is no legal basis for Lim to question the authority of the CA to go beyond the matters
agreed upon during the pre-trial conference, or in not dismissing the appeal for failure of FEB to file its
brief on time, or in not ruling separately on the petitioners motion to dismiss.
Courts have the prerogative to relax procedural rules of even the most mandatory character, mindful of
the duty to reconcile both the need to speedily put an end to litigation and the parties right to due
process. In numerous cases, this Court has allowed liberal construction of the rules when to do so
would serve the demands of substantial justice and equity.[20] In Aguam v. Court of Appeals, the Court
explained:
The court has the discretion to dismiss or not to dismiss an appellant's appeal. It is a power conferred
on the court, not a duty. The "discretion must be a sound one, to be exercised in accordance with the
tenets of justice and fair play, having in mind the circumstances obtaining in each case." Technicalities,
however, must be avoided. The law abhors technicalities that impede the cause of justice. The court's
primary duty is to render or dispense justice. "A litigation is not a game of technicalities." "Lawsuits
unlike duels are not to be won by a rapier's thrust. Technicality, when it deserts its proper office as an
aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from
courts." Litigations must be decided on their merits and not on technicality. Every party litigant must be
afforded the amplest opportunity for the proper and just determination of his cause, free from the
unacceptable plea of technicalities. Thus, dismissal of appeals purely on technical grounds is frowned
upon where the policy of the court is to encourage hearings of appeals on their merits and the rules of
procedure ought not to be applied in a very rigid, technical sense; rules of procedure are used only to
help secure, not override substantial justice. It is a far better and more prudent course of action for the
court to excuse a technical lapse and afford the parties a review of the case on appeal to attain the ends
of justice rather than dispose of the case on technicality and cause a grave injustice to the parties, giving
a false impression of speedy disposal of cases while actually resulting in more delay, if not a miscarriage
of justice.
Third, while we affirm that the subject lease agreement is a contract of adhesion, such a contract is
not void per se. It is as binding as any ordinary contract. A party who enters into an adhesion contract
is free to reject the stipulations entirely.[22] If the terms thereof are accepted without objection, then
the contract serves as the law between the parties.
In Section 23 of the lease contract, it was expressly stated that:
SECTION 23. ENTIRE AGREEMENT; SEVERABILITY CLAUSE. 23.1. The LESSOR and the LESSEE agree this
instrument constitute the entire agreement between them, and that no representations have been
made other than as set forth herein. This Agreement shall not be amended or altered in any manner,
unless such amendment be made in writing and signed by the parties hereto.
Petitioners claim that the real intention of the parties was a contract of sale of personal property on
installment basis is more likely a mere afterthought in order to defeat the rights of the respondent.
The Lease Contract with corresponding Lease Schedules with Delivery and Acceptance Certificates
is, in point of fact, a financial lease within the purview of R.A. No. 8556. Section 3(d) thereof defines
financial leasing as:
[A] mode of extending credit through a non-cancelable lease contract under which the lessor purchases
or acquires, at the instance of the lessee, machinery, equipment, motor vehicles, appliances, business
and office machines, and other movable or immovable property in consideration of the periodic
payment by the lessee of a fixed amount of money sufficient to amortize at least seventy (70%) of the
purchase price or acquisition cost, including any incidental expenses and a margin of profit over an
obligatory period of not less than two (2) years during which the lessee has the right to hold and use
the leased property with the right to expense the lease rentals paid to the lessor and bears the cost of
repairs, maintenance, insurance and preservation thereof, but with no obligation or option on his part
to purchase the leased property from the owner-lessor at the end of the lease contract.
FEB leased the subject equipment and motor vehicles to JVL in consideration of a monthly periodic
payment of P170,494.00. The periodic payment by petitioner is sufficient to amortize at least 70% of
the purchase price or acquisition cost of the said movables in accordance with the Lease Schedules with
Delivery and Acceptance Certificates. The basic purpose of a financial leasing transaction is to
enable the prospective buyer of equipment, who is unable to pay for such equipment in cash in one
lump sum, to lease such equipment in the meantime for his use, at a fixed rental sufficient to amortize
at least 70% of the acquisition cost (including the expenses and a margin of profit for the financial
lessor) with the expectation that at the end of the lease period the buyer/financial lessee will be able to
pay any remaining balance of the purchase price.*23+
The allegation of petitioner that the rent for the use of each movable constitutes the value of the
vehicle or equipment leased is of no moment. The law on financial lease does not prohibit such a
circumstance and this alone does not make the transaction between the parties a sale of personal
property on installment. In fact, the value of the lease, usually constituting the value or amount of the
property involved, is a benefit allowed by law to the lessor for the use of the property by the lessee for
the duration of the lease. It is recognized that the value of these movables depreciates through wear
and tear upon use by the lessee. In Beltran v. PAIC Finance Corporation,[24] we stated that:
Generally speaking, a financing company is not a buyer or seller of goods; it is not a trading company.
Neither is it an ordinary leasing company; it does not make its profit by buying equipment and
repeatedly leasing out such equipment to different users thereof. But a financial lease must be
preceded by a purchase and sale contract covering the equipment which becomes the subject matter of
the financial lease. The financial lessor takes the role of the buyer of the equipment leased. And so the
formal or documentary tie between the seller and the real buyer of the equipment, i.e., the financial
lessee, is apparently severed. In economic reality, however, that relationship remains. The sale of the
equipment by the supplier thereof to the financial lessor and the latter's legal ownership thereof are
intended to secure the repayment over time of the purchase price of the equipment, plus financing
charges, through the payment of lease rentals; that legal title is the upfront security held by the financial
lessor, a security probably superior in some instances to a chattel mortgagee's lien.[25]
Fourth, the validity of Lease No. 27:95:20 between FEB and JVL should be upheld. JVL entered into the
lease contract with full knowledge of its terms and conditions. The contract was in force for more than
four years. Since its inception on March 9, 1995, JVL and Lim never questioned its provisions. They only
attacked the validity of the contract after they were judicially made to answer for their default in the
payment of the agreed rentals.
It is settled that the parties are free to agree to such stipulations, clauses, terms, and conditions as they
may want to include in a contract. As long as such agreements are not contrary to law, morals, good
customs, public policy, or public order, they shall have the force of law between the parties.[26]
Contracting parties may stipulate on terms and conditions as they may see fit and these have the force
of law between them.[27]
The stipulation in Section 14[28] of the lease contract, that the equipment shall be insured at the cost
and expense of the lessee against loss, damage, or destruction from fire, theft, accident, or other
insurable risk for the full term of the lease, is a binding and valid stipulation. Petitioner, as a lessee, has
an insurable interest in the equipment and motor vehicles leased. Section 17 of the Insurance Code
provides that the measure of an insurable interest in property is the extent to which the insured might
be damnified by loss or injury thereof. It cannot be denied that JVL will be directly damnified in case of
loss, damage, or destruction of any of the properties leased.
Likewise, the stipulation in Section 9.1 of the lease contract that the lessor does not warrant the
merchantability of the equipment is a valid stipulation. Section 9.1 of the lease contract is stated as:

9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT THE LESSOR IS NOT THE MANUFACTURER OR
SUPPLIER OF THE EQUIPMENT NOR THE AGENT OF THE MANUFACTURER OR SUPPLIER THEREOF. THE
LESSEE HEREBY ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT AND THE SUPPLIER THEREOF
AND THAT THERE ARE NO WARRANTIES, CONDITIONS, TERMS, REPRESENTATION OR
INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, MADE BY OR ON BEHALF OF THE
LESSOR AS TO ANY FEATURE OR ASPECT OF THE EQUIPMENT OR ANY PART THEREOF, OR AS TO ITS
FITNESS, SUITABILITY, CAPACITY, CONDITION OR MERCHANTABILITY, NOR AS TO WHETHER THE
EQUIPMENT WILL MEET THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATIONS OR
CONTRACT WHICH PROVIDE FOR SPECIFIC MACHINERY OR APPARATUS OR SPECIAL METHODS.[29]
In the financial lease agreement, FEB did not assume responsibility as to the quality, merchantability, or
capacity of the equipment. This stipulation provides that, in case of defect of any kind that will be found
by the lessee in any of the equipment, recourse should be made to the manufacturer. The financial
lessor, being a financing company, i.e., an extender of credit rather than an ordinary equipment rental
company, does not extend a warranty of the fitness of the equipment for any particular use. Thus, the
financial lessee was precisely in a position to enforce such warranty directly against the supplier of the
equipment and not against the financial lessor. We find nothing contra legem or contrary to public
policy in such a contractual arrangement.*30+
Fifth, petitioner further proffers the view that the real intention of the parties was to enter into a
contract of sale on installment in the same manner that a previous transaction between the parties over
a 1995 Mitsubishi L-200 Strada DC-Pick-Up was initially covered by an agreement denominated as a
lease and eventually became the subject of a Deed of Absolute Sale.
We join the CA in rejecting this view because to allow the transaction involving the pick-up to be read
into the terms of the lease agreement would expand the coverage of the agreement, in violation of
Article 1372 of the New Civil Code. [31] The lease contract subject of the complaint speaks only of a
lease. Any agreement between the parties after the lease contract has ended is a different transaction
altogether and should not be included as part of the lease. Furthermore, it is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of its stipulations shall control. No amount of
extrinsic aid is necessary in order to determine the parties' intent.[32]
WHEREFORE, in the light of all the foregoing, the petition is DENIED. The Decision of the CA in CA-G.R.
CV No. 77498 dated March 15, 2005 and Resolution dated May 23, 2005 are AFFIRMED. Costs against
petitioner.

SO ORDERED.

[G.R. No. 152411. September 29, 2004]

UNIVERSITY OF THE PHILIPPINES, petitioner, vs. PHILAB INDUSTRIES, INC., respondent.
D E C I S I O N
CALLEJO, SR., J.:

Before the Court is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-
G.R. CV No. 44209, as well as its Resolution*2+ denying the petitioners motion for the reconsideration
thereof. The Court of Appeals set aside the Decision[3] of Branch 150 of the Regional Trial Court (RTC)
of Makati City, which dismissed the complaint of the respondent against the petitioner for sum of
money and damages.

The Facts of the Case

Sometime in 1979, the University of the Philippines (UP) decided to construct an integrated system of
research organization known as the Research Complex. As part of the project, laboratory equipment
and furniture were purchased for the National Institute of Biotechnology and Applied Microbiology
(BIOTECH) at the UP Los Baos. Providentially, the Ferdinand E. Marcos Foundation (FEMF) came
forward and agreed to fund the acquisition of the laboratory furniture, including the fabrication thereof.

Renato E. Lirio, the Executive Assistant of the FEMF, gave the go-signal to BIOTECH to contact a
corporation to accomplish the project. On July 23, 1982, Dr. William Padolina, the Executive Deputy
Director of BIOTECH, arranged for Philippine Laboratory Industries, Inc. (PHILAB), to fabricate the
laboratory furniture and deliver the same to BIOTECH for the BIOTECH Building Project, for the account
of the FEMF. Lirio directed Padolina to give the go-signal to PHILAB to proceed with the fabrication of
the laboratory furniture, and requested Padolina to forward the contract of the project to FEMF for its
approval.

On July 13, 1982, Padolina wrote Lirio and requested for the issuance of the purchase order and
downpayment for the office and laboratory furniture for the project, thus:

1. Supply and Installation of Laboratory furniture for the BIOTECH Building Project

Amount : P2,934,068.90

Supplier : Philippine Laboratory Furniture Co.,
College, Laguna
Attention: Mr. Hector C. Navasero
President
Downpayment : 40% or P1,173,627.56

2. Fabrication and Supply of office furniture for the BIOTECH Building Project

Amount : P573,375.00
Supplier : Trans-Oriental Woodworks, Inc.
1st Avenue, Bagumbayan
Tanyag, Taguig, Metro Manila
Downpayment : 50% or P286,687.50[4]

Padolina assured Lirio that the contract would be prepared as soon as possible before the issuance of
the purchase orders and the downpayment for the goods, and would be transmitted to the FEMF as
soon as possible.

In a Letter dated July 23, 1982, Padolina informed Hector Navasero, the President of PHILAB, to proceed
with the fabrication of the laboratory furniture, per the directive of FEMF Executive Assistant Lirio.
Padolina also requested for copies of the shop drawings and a sample contract[5] for the project, and
that such contract and drawings had to be finalized before the down payment could be remitted to the
PHILAB the following week. However, PHILAB failed to forward any sample contract.

Subsequently, PHILAB made partial deliveries of office and laboratory furniture to BIOTECH after having
been duly inspected by their representatives and FEMF Executive Assistant Lirio.

On August 24, 1982, FEMF remitted P600,000 to PHILAB as downpayment for the laboratory furniture
for the BIOTECH project, for which PHILAB issued Official Receipt No. 253 to FEMF. On October 22,
1982, FEMF made another partial payment of P800,000 to PHILAB, for which the latter issued Official
Receipt No. 256 to FEMF. The remittances were in the form of checks drawn by FEMF and delivered to
PHILAB, through Padolina.

On October 16, 1982, UP, through Emil Q. Javier, the Chancellor of UP Los Baos and FEMF, represented
by its Executive Officer, Rolando Gapud, executed a Memorandum of Agreement (MOA) in which FEMF
agreed to grant financial support and donate sums of money to UP for the construction of buildings,
installation of laboratory and other capitalization for the project, not to exceed P29,000,000.00. The
obligations of FEMF under the MOA are the following:

ARTICLE II

OBLIGATIONS OF THE FOUNDATION

2.1. The FOUNDATION, in carrying out its principal objectives of promoting philantrophic and scientific
projects through financial support to such projects that will contribute to the countrys economic
development, shall grant such financial support and donate such sums of money to the RESEARCH
COMPLEX as may be necessary for the construction of buildings, installation of laboratories, setting up
of offices and physical plants and facilities and other capital investment of the RESEARCH COMPLEX
and/or any of its component Research Institutes not to exceed P29 Million. For this purpose, the
FOUNDATION shall:

(a) Acquire and donate to the UNIVERSITY the site for the RESEARCH COMPLEX; and

(b) Donate or cause to be donated to the UNIVERSITY the sum of TWENTY-NINE MILLION PESOS
(P29,000,000.00) for the construction of the buildings of the National Institutes of Biotechnology and
Applied Microbiology (BIOTECH) and the installation of their laboratories and their physical plants and
other facilities to enable them to commence operations.

2.2. In addition, the FOUNDATION shall, subject to the approval of the Board of Trustees of the
FOUNDATION, continue to support the activities of the RESEARCH COMPLEX by way of recurrent
additional grants and donations for specific research and development projects which may be mutually
agreed upon and, from time to time, additional grants and donations of such amounts as may be
necessary to provide the RESEARCH COMPLEX and/or any of its Research Institutes with operational
flexibility especially with regard to incentives to staff purchase of equipment/facilities, travel abroad,
recruitment of local and expatriate staff and such other activities and inputs which are difficult to
obtain under usual government rules and regulations.[6]

The Board of Regents of the UP approved the MOA on November 25, 1982.[7]

In the meantime, Navasero promised to submit the contract for the installation of laboratory furniture
to BIOTECH, by January 12, 1983. However, Navasero failed to do so. In a Letter dated February 1,
1983, BIOTECH reminded Navasero of the need to submit the contract so that it could be submitted to
FEMF for its evaluation and approval.[8] Instead of submitting the said contract, PHILAB submitted to
BIOTECH an accomplishment report on the project as of February 28, 1983, and requested payment
thereon.[9] By May 1983, PHILAB had completed 78% of the project, amounting to P2,288,573.74 out of
the total cost of P2,934,068.90. The FEMF had already paid forty percent (40%) of the total cost of the
project. On May 12, 1983, Padolina wrote Lirio and furnished him the progress billing from PHILAB.[10]
On August 11, 1983, the FEMF made another partial payment of P836,119.52 representing the already
delivered laboratory and office furniture after the requisite inspection and verification thereof by
representatives from the BIOTECH, FEMF, and PHILAB. The payment was made in the form of a check,
for which PHILAB issued Official Receipt No. 202 to FEMF through Padolina.[11]

On July 1, 1984, PHILAB submitted to BIOTECH Invoice No. 01643 in the amount of P702,939.40 for the
final payment of laboratory furniture. Representatives from BIOTECH, PHILAB, and Lirio for the FEMF,
conducted a verification of the accomplishment of the work and confirmed the same. BIOTECH
forwarded the invoice to Lirio on December 18, 1984 for its payment.[12] Lirio, in turn, forwarded the
invoice to Gapud, presumably sometime in the early part of 1985. However, the FEMF failed to pay the
bill. PHILAB reiterated its request for payment through a letter on May 9, 1985.[13] BIOTECH again
wrote Lirio on March 21, 1985, requesting the payment of PHILABs bill.*14+ It sent another letter to
Gapud, on November 22, 1985, again appealing for the payment of PHILABs bill.*15+ In a Letter to
BIOTECH dated December 5, 1985, PHILAB requested payment of P702,939.40 plus interest thereon of
P224,940.61.[16] There was, however, no response from the FEMF. On February 24, 1986, PHILAB
wrote BIOTECH, appealing for the payment of its bill even on installment basis.[17]

President Marcos was ousted from office during the February 1986 EDSA Revolution. On March 26,
1986, Navasero wrote BIOTECH requesting for its much-needed assistance for the payment of the
balance already due plus interest of P295,234.55 for its fabrication and supply of laboratory
furniture.[18]

On April 22, 1986, PHILAB wrote President Corazon C. Aquino asking her help to secure the payment of
the amount due from the FEMF.[19] The letter was referred to then Budget Minister Alberto Romulo,
who referred the letter to then UP President Edgardo Angara on June 9, 1986. On September 30, 1986,
Raul P. de Guzman, the Chancellor of UP Los Baos, wrote then Chairman of the Presidential
Commission on Good Government (PCGG) Jovito Salonga, submitting PHILABs claim to be officially
entered as accounts payable as soon as the assets of FEMF were liquidated by the PCGG.*20+

In the meantime, the PCGG wrote UP requesting for a copy of the relevant contract and the MOA for its
perusal.[21]

Chancellor De Guzman wrote Navasero requesting for a copy of the contract executed between PHILAB
and FEMF. In a Letter dated October 20, 1987, Navasero informed De Guzman that PHILAB and FEMF
did not execute any contract regarding the fabrication and delivery of laboratory furniture to BIOTECH.

Exasperated, PHILAB filed a complaint for sum of money and damages against UP. In the complaint,
PHILAB prayed that it be paid the following:

(1) PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY NINE & 40/100 (P702,939.40)
plus an additional amount (as shall be determined during the hearing) to cover the actual cost of money
which at the time of transaction the value of the peso was eleven to a dollar (P11.00:$1) and twenty
seven (27%) percent interest on the total amount from August 1982 until fully paid;

(2) PESOS: ONE HUNDRED THOUSAND (P100,000.00) exemplary damages;

(3) FIFTY THOUSAND *PESOS+ (P50,000.00) as and for attorneys fees; and

(4) Cost of suit.[22]

PHILAB alleged, inter alia, that:

3. Sometime in August 1982, defendant, through its officials, particularly MR. WILLIAM PADOLINA,
Director, asked plaintiff to supply and install several laboratory furnitures and equipment at BIOTECH, a
research laboratory of herein defendant located at its campus in College, Laguna, for a total contract
price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-EIGHT & 90/100
(P2,939,058.90);

4. After the completion of the delivery and installation of said laboratory furnitures and equipment at
defendants BIOTECH Laboratory, defendant paid three (3) times on installment basis:

a) P600,000.00 as per Official Receipt No. 253 dated August 24, 1982;
b) P800,000.00 as per Official Receipt No. 256 dated October 22, 1982;
c) P836,119.52 as per Official Receipt No. 202 dated August 11, 1983;

thus leaving a balance of PESOS: SEVEN HUNDRED TWO THOUSAND NINE HUNDRED THIRTY-NINE &
40/100 (P702,939.40).

5. That notwithstanding repeated demands for the past eight years, defendant arrogantly and
maliciously made plaintiff believe that it was going to pay the balance aforestated, that was why
plaintiffs President and General Manager himself, HECTOR C. NAVASERO, personally went to and from
UP Los Baos to talk with defendants responsible officers in the hope of expecting payment, when, in
truth and in fact, defendant had no intention to pay whatsoever right from the start on a misplaced
ground of technicalities. Some of plaintiffs demand letters since year 1983 up to the present are hereto
attached as Annexes A, B, C, D, E, F, G, and H hereof;

6. That by reason of defendants malicious, evil and unnecessary misrepresentations that it was going to
pay its obligation and asking plaintiff so many red tapes and requirements to submit, compliance of all
of which took plaintiff almost eight (8) years to finish, when, in truth and in fact, defendant had no
intention to pay, defendant should be ordered to pay plaintiff no less than PESOS: ONE HUNDRED
THOUSAND (P100,000.00) exemplary damages, so that other government institutions may be warned
that they must not unjustly enrich themselves at the expense of the people they serve.[23]

In its answer, UP denied liability and alleged that PHILAB had no cause of action against it because it was
merely the donee/beneficiary of the laboratory furniture in the BIOTECH; and that the FEMF, which
funded the project, was liable to the PHILAB for the purchase price of the laboratory furniture. UP
specifically denied obliging itself to pay for the laboratory furniture supplied by PHILAB.

After due proceedings, the trial court rendered judgment dismissing the complaint without prejudice to
PHILABs recourse against the FEMF. The fallo of the decision reads:

WHEREFORE, this case is hereby DISMISSED for lack of merit without prejudice to plaintiff's recourse to
the assets of the Marcos Foundation for the unpaid balance of P792,939.49.

SO ORDERED.[24]

Undaunted, PHILAB appealed to the Court of Appeals (CA) alleging that the trial court erred in finding
that:

1. the contract for the supply and installation of subject laboratory furniture and equipment was
between PHILAB and the Marcos Foundation; and,

2. the Marcos Foundation, not the University of the Philippines, is liable to pay the respondent the
balance of the purchase price.[25]

The CA reversed and set aside the decision of the RTC and held that there was never a contract between
FEMF and PHILAB. Consequently, PHILAB could not be bound by the MOA between the FEMF and UP
since it was never a party thereto. The appellate court ruled that, although UP did not bind itself to pay
for the laboratory furniture; nevertheless, it is liable to PHILAB under the maxim: No one should
unjustly enrich himself at the expense of another.

The Present Petition

Upon the denial of its motion for reconsideration of the appellate courts decision, UP, now the
petitioner, filed its petition for review contending that:

I. THE COURT OF APPEALS ERRED WHEN IT FAILED TO APPLY THE LAW ON CONTRACTS BETWEEN
PHILAB AND THE MARCOS FOUNDATION.

II. THE COURT OF APPEALS ERRED IN APPLYING THE LEGAL PRINCIPLE OF UNJUST ENRICHMENT WHEN
IT HELD THAT THE UNIVERSITY, AND NOT THE MARCOS FOUNDATION, IS LIABLE TO PHILAB.[26]

Prefatorily, the doctrinal rule is that pure questions of facts may not be the subject of appeal by
certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as this mode of appeal is generally
restricted to questions of law.[27] However, this rule is not absolute. The Court may review the factual
findings of the CA should they be contrary to those of the trial court.[28] Correspondingly, this Court
may review findings of facts when the judgment of the CA is premised on a misapprehension of
facts.[29]

On the first assigned error, the petitioner argues that the CA overlooked the evidentiary effect and
substance of the corresponding letters and communications which support the statements of the
witnesses showing affirmatively that an implied contract of sale existed between PHILAB and the FEMF.
The petitioner furthermore asserts that no contract existed between it and the respondent as it could
not have entered into any agreement without the requisite public bidding and a formal written contract.

The respondent, on the other hand, submits that the CA did not err in not applying the law on contracts
between the respondent and the FEMF. It, likewise, attests that it was never privy to the MOA entered
into between the petitioner and the FEMF. The respondent adds that what the FEMF donated was a
sum of money equivalent to P29,000,000, and not the laboratory equipment supplied by it to the
petitioner. The respondent submits that the petitioner, being the recipient of the laboratory furniture,
should not enrich itself at the expense of the respondent.

The petition is meritorious.

It bears stressing that the respondents cause of action is one for sum of money predicated on the
alleged promise of the petitioner to pay for the purchase price of the furniture, which, despite demands,
the petitioner failed to do. However, the respondent failed to prove that the petitioner ever obliged
itself to pay for the laboratory furniture supplied by it. Hence, the respondent is not entitled to its claim
against the petitioner.

There is no dispute that the respondent is not privy to the MOA executed by the petitioner and FEMF;
hence, it is not bound by the said agreement. Contracts take effect only between the parties and their
assigns.[30] A contract cannot be binding upon and cannot be enforced against one who is not a party to
it, even if he is aware of such contract and has acted with knowledge thereof.[31] Likewise admitted by
the parties, is the fact that there was no written contract executed by the petitioner, the respondent
and FEMF relating to the fabrication and delivery of office and laboratory furniture to the BIOTECH.
Even the CA failed to specifically declare that the petitioner and the respondent entered into a contract
of sale over the said laboratory furniture. The parties are in accord that the FEMF had remitted to the
respondent partial payments via checks drawn and issued by the FEMF to the respondent, through
Padolina, in the total amount of P2,288,573.74 out of the total cost of the project of P2,934,068.90 and
that the respondent received the said checks and issued receipts therefor to the FEMF. There is also no
controversy that the petitioner did not pay a single centavo for the said furniture delivered by the
respondent that the petitioner had been using ever since.

We agree with the petitioner that, based on the records, an implied-in-fact contract of sale was entered
into between the respondent and FEMF. A contract implied in fact is one implied from facts and
circumstances showing a mutual intention to contract. It arises where the intention of the parties is not
expressed, but an agreement in fact creating an obligation. It is a contract, the existence and terms of
which are manifested by conduct and not by direct or explicit words between parties but is to be
deduced from conduct of the parties, language used, or things done by them, or other pertinent
circumstances attending the transaction. To create contracts implied in fact, circumstances must
warrant inference that one expected compensation and the other to pay.[32] An implied-in-fact contract
requires the parties intent to enter into a contract; it is a true contract.*33+ The conduct of the parties is
to be viewed as a reasonable man would view it, to determine the existence or not of an implied-in-fact
contract.[34] The totality of the acts/conducts of the parties must be considered to determine their
intention. An implied-in-fact contract will not arise unless the meeting of minds is indicated by some
intelligent conduct, act or sign.[35]

In this case, the respondent was aware, from the time Padolina contacted it for the fabrication and
supply of the laboratory furniture until the go-signal was given to it to fabricate and deliver the furniture
to BIOTECH as beneficiary, that the FEMF was to pay for the same. Indeed, Padolina asked the
respondent to prepare the draft of the contract to be received by the FEMF prior to the execution of the
parties (the respondent and FEMF), but somehow, the respondent failed to prepare one. The
respondent knew that the petitioner was merely the donee-beneficiary of the laboratory furniture and
not the buyer; nor was it liable for the payment of the purchase price thereof. From the inception, the
FEMF paid for the bills and statement of accounts of the respondent, for which the latter
unconditionally issued receipts to and under the name of the FEMF. Indeed, witness Lirio testified:

Q: Now, did you know, Mr. Witness, if PHILAB Industries was aware that it was the Marcos Foundation
who would be paying for this particular transaction for the completion of this particular transaction?

A: I think they are fully aware.

Q: What is your basis for saying so?

A: First, I think they were appraised by Dr. Padolina. Secondly, there were occasions during our
inspection in Los Baos, at the installation site, there were occasions, two or three occasions, when we
met with Mr. Navasero who is the President, I think, or manager of PHILAB, and we appraised him that it
was really between the foundation and him to which includes (sic) the construction company
constructing the building. He is fully aware that it is the foundation who (sic) engaged them and issued
the payments.[36]

The respondent, in its Letter dated March 26, 1986, informed the petitioner and sought its assistance for
the collection of the amount due from the FEMF:

Dear Dr. Padolina:

May we request for your much-needed assistance in the payment of the balance still due us on the
laboratory furniture we supplied and installed two years ago?

Business is still slow and we will appreciate having these funds as soon as possible to keep up our
operations.

We look forward to hearing from you regarding this matter.

Very truly yours,

PHILAB INDUSTRIES, INC.[37]

The respondent even wrote former President Aquino seeking her assistance for the payment of the
amount due, in which the respondent admitted it tried to collect from her predecessor, namely, the
former President Ferdinand E. Marcos:

YOUR EXCELLENCY:

At the instance of the national government, subject laboratory furnitures were supplied by our company
to the National Institute of Biotechnology & Applied Microbiology (BIOTECH), University of the
Philippines, Los Baos, Laguna, in 1984.

Out of the total contract price of PESOS: TWO MILLION NINE HUNDRED THIRTY-NINE THOUSAND FIFTY-
EIGHT & 90/100 (P2,939,058.90), the previous administration had so far paid us the sum of
P2,236,119.52 thus leaving a balance of PESOS: ONE MILLION FOUR HUNDRED TWELVE THOUSAND
SEVEN HUNDRED FORTY-EIGHT & 61/100 (P1,412.748.61) inclusive of interest of 24% per annum and
30% exchange rate adjustment.

On several occasions, we have tried to collect this amount from your predecessor, the latest of which
was subject invoice (01643) we submitted to DR. W. PADOLINA, deputy director of BIOTECH. But this,
notwithstanding, our claim has remained unacted upon up to now. Copy of said invoice is hereto
attached for easy reference.

Now that your excellency is the head of our government, we sincerely hope that payment of this
obligation will soon be made as this is one project the Republic of the Philippines has use of and derives
benefit from.[38]

Admittedly, the respondent sent to the petitioner its bills and statements of accounts for the payments
of the laboratory furniture it delivered to the petitioner which the petitioner, through Padolina,
transmitted to the FEMF for its payment. However, the FEMF failed to pay the last statement of account
of the respondent because of the onset of the EDSA upheaval. It was only when the respondent lost all
hope of collecting its claim from the government and/or the PCGG did it file the complaint against the
petitioner for the collection of the payment of its last delivery of laboratory furniture.

We reject the ruling of the CA holding the petitioner liable for the claim of the respondent based on the
maxim that no one should enrich itself at the expense of another.

Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations of
others, but instead it must be shown that a party was unjustly enriched in the sense that the term
unjustly could mean illegally or unlawfully.[39]

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove that
another party knowingly received something of value to which he was not entitled and that the state of
affairs are such that it would be unjust for the person to keep the benefit.[40] 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.[41] Unjust
enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the enforcement of the
doctrine of restitution.[42]

Article 22 of the New Civil Code reads:

Every person who, through an act of performance by another, or any other means, acquires or comes
into possession of something at the expense of the latter without just or legal ground, shall return the
same to him. (Boldface supplied)

In order that accion in rem verso may prosper, the essential elements must be present: (1) that the
defendant has been enriched, (2) that the plaintiff has suffered a loss, (3) that the enrichment of the
defendant is without just or legal ground, and (4) that the plaintiff has no other action based on
contract, quasi-contract, crime or quasi-delict.[43]

An accion in rem verso is considered merely an auxiliary action, available only when there is no other
remedy on contract, quasi-contract, crime, and quasi-delict. If there is an obtainable action under any
other institution of positive law, that action must be resorted to, and the principle of accion in rem verso
will not lie.[44]

The essential requisites for the application of Article 22 of the New Civil Code do not obtain in this case.
The respondent had a remedy against the FEMF via an action based on an implied-in-fact contract with
the FEMF for the payment of its claim. The petitioner legally acquired the laboratory furniture under
the MOA with FEMF; hence, it is entitled to keep the laboratory furniture.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the Court of
Appeals is REVERSED AND SET ASIDE. The Decision of the Regional Trial Court, Makati City, Branch 150,
is REINSTATED. No costs.

SO ORDERED.

FIRST DIVISION
[G.R. No. 123892. May 21, 2001]
JASMIN SOLER, petitioner, vs. COURT OF APPEALS, COMMERCIAL BANK OF MANILA, and NIDA LOPEZ,
respondents.
D E C I S I O N
PARDO, J.:
Appeal via certiorari from a decision of the Court of Appeals,[1] declaring that there was no perfected
contract between petitioner Jazmin Soler and The Commercial Bank of Manila (COMBANK FOR BREVITY,
formerly Boston Bank of the Philippines) for the renovation of its Ermita Branch, thereby denying her
claim for payment of professional fees for services rendered.
The antecedent facts are as follows:
Petitioner Jazmin Soler is a Fine Arts graduate of the University of Sto. Tomas, Manila. She is a well
known licensed professional interior designer. In November 1986, her friend Rosario Pardo asked her to
talk to Nida Lopez, who was manager of the COMBANK Ermita Branch for they were planning to
renovate the branch offices.[2]
Even prior to November 1986, petitioner and Nida Lopez knew each other because of Rosario Pardo, the
latters sister. During their meeting, petitioner was hesitant to accept the job because of her many out
of town commitments, and also considering that Ms. Lopez was asking that the designs be submitted by
December 1986, which was such a short notice. Ms. Lopez insisted, however, because she really wanted
petitioner to do the design for renovation. Petitioner acceded to the request. Ms. Lopez assured her
that she would be compensated for her services. Petitioner even told Ms. Lopez that her professional
fee was ten thousand pesos (P10,000.00), to which Ms. Lopez acceded.[3]
During the November 1986 meeting between petitioner and Ms. Lopez, there were discussions as to
what was to be renovated, which included a provision for a conference room, a change in the carpeting
and wall paper, provisions for bookshelves, a clerical area in the second floor, dressing up the kitchen,
change of the ceiling and renovation of the tellers booth. Ms. Lopez again assured petitioner that the
bank would pay her fees.[4]
After a few days, petitioner requested for the blueprint of the building so that the proper design, plans
and specifications could be given to Ms. Lopez in time for the board meeting in December 1986.
Petitioner then asked her draftsman Jackie Barcelon to go to the jobsite to make the proper
measurements using the blue print. Petitioner also did her research on the designs and individual
drawings of what the bank wanted. Petitioner hired Engineer Ortanez to make the electrical layout,
architects Frison Cruz and De Mesa to do the drafting. For the services rendered by these individuals,
petitioner paid the engineer P4,000.00, architects Cruz and de Mesa P5,000.00 and architect Barcelon
P6,000.00. Petitioner also contacted the suppliers of the wallpaper and the sash makers for their
quotation. So come December 1986, the lay out and the design were submitted to Ms. Lopez. She even
told petitioner that she liked the designs.[5]
Subsequently, petitioner repeatedly demanded payment for her services but Ms. Lopez just ignored the
demands. In February 1987, by chance petitioner and Ms. Lopez saw each other in a concert at the
Cultural Center of the Philippines. Petitioner inquired about the payment for her services, Ms. Lopez
curtly replied that she was not entitled to it because her designs did not conform to the banks policy of
having a standard design, and that there was no agreement between her and the bank.[6]
To settle the controversy, petitioner referred the matter to her lawyers, who wrote Ms. Lopez on May
20, 1987, demanding payment for her professional fees in the amount of P10,000.00 which Ms. Lopez
ignored. Hence, on June 18, 1987, the lawyers wrote Ms. Lopez once again demanding the return of the
blueprint copies petitioner submitted which Ms. Lopez refused to return.[7]
On October 13, 1987, petitioner filed at the Regional Trial Court of Pasig, Branch 153 a complaint against
COMBANK and Ms. Lopez for collection of professional fees and damages.[8]
In its answer, COMBANK stated that there was no contract between COMBANK and petitioner;[9] that
Ms. Lopez merely invited petitioner to participate in a bid for the renovation of the COMBANK Ermita
Branch; that any proposal was still subject to the approval of the COMBANKs head office.*10+
After due trial, on November 19, 1990, the trial court rendered a decision, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against
defendants, ordering defendants jointly and severally, to pay plaintiff the following, to wit:
1. P15,000.00 representing the actual and compensatory damages or at least a reasonable
compensation for the services rendered based on a quantum meruit;
2. P5,000.00 as attorneys fees, and P2,000.00 as litigation expenses;
3. P5,000.00 as exemplary damages; and
4. The cost of suit.
SO ORDERED.*11+

On November 29, 1990, COMBANK, and Ms. Nida Lopez, filed their notice of appeal.[12] On December
5, 1990, the trial court ordered[13] the records of the case elevated to the Court of Appeals.[14]
In the appeal, COMBANK reiterated that there was no contract between petitioner, Nida Lopez and the
bank.[15] Whereas, petitioner maintained that there was a perfected contract between her and the
bank which was facilitated through Nida Lopez. According to petitioner there was an offer and an
acceptance of the service she rendered to the bank.[16]
On October 26, 1995, the Court of Appeals rendered its decision the relevant portions of which state:
After going over the record of this case, including the transcribed notes taken during the course of the
trial, We are convinced that the question here is not really whether the alleged contract purportedly
entered into between the plaintiff and defendant Lopez is enforceable, but whether a contract even
exists between the parties.
Article 1318 of the Civil Code provides that there is no contract unless the following requisites concur:
(1) consent of the contracting parties;
(2) object certain which is the subject matter of the contract;
(3) cause of the obligation which is established.
xxx
The defendant bank never gave its imprimatur or consent to the contract considering that the bidding
or the question of renovating the ceiling of the branch office of defendant bank was deferred because
the commercial bank is for sale. It is under privatization. xxx
At any rate, we find that the appellee failed to prove the allegations in her complaint. xxx
WHEREFORE, premises considered, the appealed decision (dated November 19, 1990) of the Regional
Trial Court (Branch 153) in Pasig (now 55238, is hereby REVERSED. No pronouncement as to costs.
SO ORDERED.*17+
Hence, this petition.[18]
Petitioner forwards the argument that:
1. The Court of Appeals erred in ruling that there was no contract between petitioner and respondents,
in the absence of the element of consent;
2. The Court of Appeals erred in ruling that respondents merely invited petitioner to present her
proposal;
3. The Court of Appeals erred in ruling that petitioner knew that her proposal was still subject to bidding
and approval of the board of directors of the bank;
4. The Court of Appeals erred in reversing the decision of the trial court.
We find the petition meritorious.
We see that the issues raised boil down to whether or not there was a perfected contract between
petitioner Jazmin Soler and respondents COMBANK and Nida Lopez, and whether or not Nida Lopez, the
manager of the bank branch, had authority to bind the bank in the transaction.
The discussions between petitioner and Ms. Lopez was to the effect that she had authority to engage
the services of petitioner. During their meeting, she even gave petitioner specifications as to what was
to be renovated in the branch premises and when petitioners requested for the blueprints of the
building, Ms. Lopez supplied the same.
Ms. Lopez was aware that petitioner hired the services of people to help her come up with the designs
for the December, 1986 board meeting of the bank. Ms. Lopez even insisted that the designs be rushed
in time for presentation to the bank. With all these discussion and transactions, it was apparent to
petitioner that Ms. Lopez indeed had authority to engage the services of petitioner.
The next issue is whether there was a perfected contract between petitioner and the Bank.
A contract is a meeting of the minds between two persons whereby one binds himself to give
something or to render some service to bind himself to give something to render some service to
another for consideration. There is no contract unless the following requisites concur: 1. Consent of the
contracting parties; 2. Object certain which is the subject matter of the contract; and 3. Cause of the
obligation which is established.[19]
A contract undergoes three stages:
(a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at
the moment of agreement of the parties;
(b) perfection or birth of the contract, which is the moment when the parties come to agree on the
terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the
contract.*20+
In the case at bar, there was a perfected oral contract. When Ms. Lopez and petitioner met in November
1986, and discussed the details of the work, the first stage of the contract commenced. When they
agreed to the payment of the ten thousand pesos (P10,000.00) as professional fees of petitioner and
that she should give the designs before the December 1986 board meeting of the bank, the second
stage of the contract proceeded, and when finally petitioner gave the designs to Ms. Lopez, the contract
was consummated.
Petitioner believed that once she submitted the designs she would be paid her professional fees. Ms.
Lopez assured petitioner that she would be paid.
It is familiar doctrine that if a corporation knowingly permits one of its officers, or any other agent, to
act within the scope of an apparent authority, it holds him out to the public as possessing the power to
do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with it
through such agent, be estopped from denying the agents authority.*21+

Also, petitioner may be paid on the basis of quantum meruit. It is essential for the proper operation of
the principle that there is an acceptance of the benefits by one sought to be charged for the services
rendered under circumstances as reasonably to notify him that the lawyer performing the task was
expecting to be paid compensation therefor. The doctrine of quantum meruit is a device to prevent
undue enrichment based on the equitable postulate that it is unjust for a person to retain benefit
without paying for it.*22+
We note that the designs petitioner submitted to Ms. Lopez were not returned. Ms. Lopez, an officer of
the bank as branch manager used such designs for presentation to the board of the bank. Thus, the
designs were in fact useful to Ms. Lopez for she did not appear to the board without any designs at the
time of the deadline set by the board.
IN VIEW WHEREOF, the decision appealed from is REVERSED and SET ASIDE.
The decision of the trial court[23] is REVIVED, REINSTATED and AFFIRMED.

No costs.

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 153674 December 20, 2006

AVON COSMETICS, INCORPORATED and JOSE MARIE FRANCO, petitioners,
vs.
LETICIA H. LUNA, respondent.

The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to reverse
and set aside the Decision1 dated 20 May 2002 of the Court of Appeals in CA-G.R. CV No. 52550, which
affirmed in toto the Decision2 dated 26 January 1996 of the Regional Trial Court (RTC) of Makati City,
Branch 138, in Civil Case No. 88-2595, in favor of herein respondent Leticia H. Luna (Luna), rendered by
the Honorable Ed Vicente S. Albano, designated as the "assisting judge" pursuant to Supreme Court
Administrative Order No. 70-94, dated 16 June 1994.
The Facts
The facts of the case are not in dispute. As culled from the records, they are as follows:
The present petition stemmed from a complaint3 dated 1 December 1988, filed by herein respondent
Luna alleging, inter alia that she began working for Beautifont, Inc. in 1972, first as a franchise dealer
and then a year later, as a Supervisor.
Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the
management and operations of Beautifont, Inc. Nonetheless, respondent Luna continued working for
said successor company.
Aside from her work as a supervisor, respondent Luna also acted as a make-up artist of petitioner Avons
Theatrical Promotions Group, for which she received a per diem for each theatrical performance.
On 5 November 1985, petitioner Avon and respondent Luna entered into an agreement, entitled
Supervisors Agreement, whereby said parties contracted in the manner quoted below:
The Company agrees:
x x x x
1) To allow the Supervisor to purchase at wholesale the products of the Company.
x x x x
The Supervisor agrees:
1) To purchase products from the Company exclusively for resale and to be responsible for obtaining all
permits and licenses required to sell the products on retail.
x x x x
The Company and the Supervisor mutually agree:
x x x x
2) That this agreement in no way makes the Supervisor an employee or agent of the Company,
therefore, the Supervisor has no authority to bind the Company in any contracts with other parties.
3) That the Supervisor is an independent retailer/dealer insofar as the Company is concerned, and shall
have the sole discretion to determine where and how products purchased from the Company will be
sold. However, the Supervisor shall not sell such products to stores, supermarkets or to any entity or
person who sells things at a fixed place of business.
4) That this agreement supersedes any agreement/s between the Company and the Supervisor.
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by
the Company.
6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to
the other.
x x x x.4
By virtue of the execution of the aforequoted Supervisors Agreement, respondent Luna became part of
the independent sales force of petitioner Avon.
Sometime in the latter part of 1988, respondent Luna was invited by a former Avon employee who was
then currently a Sales Manager of Sandr Philippines, Inc., a domestic corporation engaged in direct
selling of vitamins and other food supplements, to sell said products. Respondent Luna apparently
accepted the invitation as she then became a Group Franchise Director of Sandr Philippines, Inc.
concurrently with being a Group Supervisor of petitioner Avon. As Group Franchise Director, respondent
Luna began selling and/or promoting Sandr products to other Avon employees and friends. On 23
September 1988, she requested a law firm to render a legal opinion as to the legal consequence of the
Supervisors Agreement she executed with petitioner Avon. In response to her query, a lawyer of the
firm opined that the Supervisors Agreement was "contrary to law and public policy."
Wanting to share the legal opinion she obtained from her legal counsel, respondent Luna wrote a letter
to her colleagues and attached mimeographed copies of the opinion and then circulated them. The full
text of her letter reads:
We all love our work as independent dealers and we all love to continue in this livelihood. Because my
livelihood is important to me, I have asked the legal opinion of a leading Makati law office regarding my
status as an independent dealer, I am sharing this opinion with you.
I have asked their advice on three specific things:
1) May the company legally change the conditions of the existing "Supervisors Agreement" without the
Supervisors consent? If I should refuse to sign the new Agreement, may the company terminate my
dealership?
On the first issue, my lawyers said that the company cannot change the existing "Agreement" without
my consent, and that it would be illegal if the company will compel me to sign the new agreement.
2) Is Section 5 of the "Supervisors Agreement" which says that a dealer may only sell products sold by
the company, legal?
My lawyers said that Section 5 of the Supervisors Agreement is NOT valid because it is contrary to public
policy, being an unreasonable restraint of trade.
3) Is Section 6 of the "Supervisors Agreement" which authorizes the company to terminate the contract
at any time, with or without cause, legal?
My lawyer said Section 6 is NOT valid because it is contrary to law and public policy. The company
cannot terminate the "Supervisors Agreement" without a valid cause.
Therefore, I can conclude that I dont violate Section 5 if I sell any product which is not in direct
competition with the companys products, and there is no valid reason for the company to terminate my
dealership contract if I sell a non-competitive product.
Dear co-supervisor[s], let us all support the reasonable and legal policies of the company. However, we
must all be conscious of our legal rights and be ready to protect ourselves if they are trampled upon.
I hope we will all stay together selling Avon products for a long time and at the same time increase our
earning opportunity by engaging in other businesses without being afraid to do so.
In a letter5 dated 11 October 1988, petitioner Avon, through its President and General Manager, Jose
Mari Franco, notified respondent Luna of the termination or cancellation of her Supervisors Agreement
with petitioner Avon. Said letter reads in part:
In September, (sic) 1988, you brought to our attention that you signed up as Group Franchise Director of
another company, Sandr Philippines, Inc. (SPI).
Not only that. You have also sold and promoted products of SPI (please refer for example to SPI Invoice
No. 1695 dated Sept. 30, 1988). Worse, you promoted/sold SPI products even to several employees of
our company including Mary Arlene Nolasco, Regina Porter, Emelisa Aguilar, Hermie Esteller and Emma
Ticsay.
To compound your violation of the above-quoted provision, you have written letters to other members
of the Avon salesforce inducing them to violate their own contracts with our company. x x x.
For violating paragraph 5 x x x, the Company, pursuant to paragraph 6 of the same Agreement, is
terminating and canceling its Supervisors Agreement with you effective upon your receipt of this notice.
We regret having to do this, but your repeated disregard of the Agreement, despite warnings, leaves
(sic) the Company no other choice.
x x x x
Aggrieved, respondent Luna filed a complaint for damages before the RTC of Makati City, Branch 138.
The complaint was docketed as Civil Case No. 88-2595.
On 26 January 1996, after trial on the merits, the RTC rendered judgment in favor of respondent Luna
stating that:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered in favor of the plaintiff,
and against defendant, Avon, ordering the latter:
1) to pay moral damages to the plaintiff in the amount of P100,000.00 with interest from the date of this
judgment up to the time of complete payment;
2) to pay attorneys fees in the amount of P20,000.00;
3) to pay the costs.6
On 8 February 1996, petitioner Avon filed a Notice of Appeal dated the same day. In an Order7 dated 15
February 1996, the RTC gave due course to the appeal and directed its Branch Clerk of Court to transmit
the entire records of the case to the Court of Appeals, which docketed the appeal as CA G.R. CV No.
52550.
On 20 May 2002, the Court of Appeals promulgated the assailed Decision, the dispositive part of which
states thus:

WHEREFORE, the foregoing premises considered, the decision appealed from is hereby AFFIRMED in
toto.8
The Issues
In predictable displeasure with the conclusions reached by the appellate court, petitioner Avon now
implores this Court to review, via a petition for review on certiorari under Rule 45 of the Revised Rules
of Court, the formers decision and to resolve the following assigned errors:9
I.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DECLARING THAT THE SUPERVISORS
AGREEMENT EXECUTED BETWEEN AVON AND RESPONDENT LUNA AS NULL AND VOID FOR BEING
AGAINST PUBLIC POLICY;
II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT AVON HAD NO RIGHT TO
TERMINATE OR CANCEL THE SUPERVIOSRS AGREEMENT;
III.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN UPHOLDING THE AWARD OF MORAL
DAMAGES AND ATTORNEYS FEES IN FAVOR OF RESPONDENT LUNA; and
IV.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT AWARDING ATTORNEYS FEES AND
LITIGATION EXPENSES IN FAVOR OF PETITIONER.
The Courts Ruling
A priori, respondent Luna objects to the presentation, and eventual resolution, of the issues raised
herein as they allegedly involve questions of facts.
To be sure, questions of law are those that involve doubts or controversies on what the law is on certain
state of facts; and questions of fact, on the other hand, are those in which there is doubt or difference
as to the truth or falsehood of the alleged facts. One test, it has been held, is whether the appellate
court can determine the issue raised without reviewing or evaluating the evidence, in which case it is a
question of law, otherwise it will be a question of fact.10
In the present case, the threshold issues are a) whether or not paragraph 5 of the Supervisors
Agreement is void for being violative of law and public policy; and b) whether or not paragraph 6 of the
Supervisors Agreement which authorizes petitioner Avon to terminate or cancel the agreement at will is
void for being contrary to law and public policy. Certainly, it is quite obvious that the foregoing issues
are questions of law.
In affirming the decision of the RTC declaring the subject contract null and void for being against public
policy, the Court of Appeals ruled that the exclusivity clause, which states that:
The Company and the Supervisor mutually agree:
x x x x
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by
the Company. [Emphasis supplied.]
should be interpreted to apply solely to those products directly in competition with those of petitioner
Avons, i.e., cosmetics and/or beauty supplies and lingerie products. Its declaration is anchored on the
fact that Avon products, at that time, were not in any way similar to the products sold by Sandr
Philippines, Inc. At that time, the latter was merely selling vitamin products. Put simply, the products of
the two companies do not compete with each other. The appellate court ratiocinated that:
x x x If the agreement were interpreted otherwise, so as to include products that do not directly
compete with the products of defendant-appellant Avon, such would result in absurdity. x x x
[A]greements which prohibit a person from engaging in any enterprise whether similar or not to the
enterprise of the employer constitute an unreasonable restraint of trade, thus, it is void as against public
policy.11
Petitioner Avon disputes the abovestated conclusion reached by the Court of Appeals. It argues that the
latter went beyond the literal and obvious intent of the parties to the subject contract when it
interpreted the abovequoted clause to apply only to those products that do not compete with that of
petitioner Avons; and that the words "only and exclusively" need no other interpretation other than the
literal meaning that "THE SUPERVISORS CANNOT SELL THE PRODUCTS OF OTHER COMPANIES
WHETHER OR NOT THEY ARE COMPETING PRODUCTS."12
Moreover, petitioner Avon reasons that:
The exclusivity clause was directed against the supervisors selling other products utilizing their training
and experience, and capitalizing on Avons existing network for the promotion and sale of the said
products. The exclusivity clause was meant to protect Avon from other companies, whether competitors
or not, who would exploit the sales and promotions network already established by Avon at great
expense and effort.
x x x x
Obviously, Sandre Phils., Inc. did not have the (sic) its own trained personnel and network to sell and
promote its products. It was precisely why Sandre simply invited, and then and there hired Luna and
other Avon supervisors and dealers to sell and promote its products. They had the training and
experience, they also had a ready market for the other products the customers to whom they had
been selling the Avon products. It was easy to entice the supervisors to sign up. The supervisors could
continue to sell Avon products, and at the same time earn additional income by selling other products.
This is most unfair to Avon. The other companies cannot ride on and exploit the training and experience
of the Avon sales force to sell and promote their own products. [Emphasis supplied.]
On the other hand, in her Memorandum, respondent Luna counters that "there is no allegation nor any
finding by the trial court or the Court of Appeals of an existing nationwide sales and promotions
network established by Avon or Avons existing sales promotions network or Avons tried and tested
sales and promotions network nor the alleged damage caused to such system caused by other
companies." Further, well worth noting is the opinion of respondent Lunas counsel which started the
set off the series of events which culminated to the termination or cancellation of the Supervisors
Agreement. In response to the query-letter13 of respondent Luna, the latters legal counsel opined that,
as allegedly held in the case of Ferrazzini v. Gsell,14 paragraph 5 of the subject Supervisors Agreement
"not only prohibits the supervisor from selling products which compete with the companys product but
restricts likewise the supervisor from engaging in any industry which involves sales in general."15 Said
counsel thereafter concluded that the subject provision in the Supervisors Agreement constitutes an
unreasonable restraint of trade and, therefore, void for being contrary to public policy.
At the crux of the first issue is the validity of paragraph 5 of the Supervisors Agreement, viz:
The Company and the Supervisor mutually agree:
x x x x
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by
the Company. [Emphasis supplied.]
In business parlance, this is commonly termed as the "exclusivity clause." This is defined as agreements
which prohibit the obligor from engaging in "business" in competition with the obligee.
This exclusivity clause is more often the subject of critical scrutiny when it is perceived to collide with
the Constitutional proscription against "reasonable restraint of trade or occupation." The pertinent
provision of the Constitution is quoted hereunder. Section 19 of Article XII of the 1987 Constitution on
the National Economy and Patrimony states that:
SEC. 19. The State shall regulate or prohibit monopolies when the public interest so requires. No
combinations in restraint of trade or unfair competition shall be allowed.
First off, restraint of trade or occupation embraces acts, contracts, agreements or combinations which
restrict competition or obstruct due course of trade.16
Now to the basics. From the wordings of the Constitution, truly then, what is brought about to lay the
test on whether a given agreement constitutes an unlawful machination or combination in restraint of
trade is whether under the particular circumstances of the case and the nature of the particular contract
involved, such contract is, or is not, against public interest.17
Thus, restrictions upon trade may be upheld when not contrary to public welfare and not greater than is
necessary to afford a fair and reasonable protection to the party in whose favor it is imposed.18 Even
contracts which prohibit an employee from engaging in business in competition with the employer are
not necessarily void for being in restraint of trade.
In sum, contracts requiring exclusivity are not per se void. Each contract must be viewed vis--vis all the
circumstances surrounding such agreement in deciding whether a restrictive practice should be
prohibited as imposing an unreasonable restraint on competition.
The question that now crops up is this, when is a restraint in trade unreasonable? Authorities are one in
declaring that a restraint in trade is unreasonable when it is contrary to public policy or public welfare.
As far back as 1916, in the case of Ferrazzini v. Gsell,19 this Court has had the occasion to declare that:
There is no difference in principle between the public policy (orden pblico) in the in the two
jurisdictions (United States and the Philippine Islands) as determined by the Constitution, laws, and
judicial decisions.
In the United States it is well settled that contracts in undue or unreasonable restraint of trade are
unenforcible because they are repugnant to the established public policy in that country. Such contracts
are illegal in the sense that the law will not enforce them. The Supreme Court in the United States, in
Oregon Steam Navigation Co. vs. Winsor )20 Will., 64), quoted with approval in Gibbs v. Consolidated
gas Co. of Baltimore (130 U.S., 396), said:
Cases must be judged according to their circumstances, and can only be rightly judged when reason and
grounds of the rule are carefully considered. There are two principle grounds on which the doctrine is
founded that a contract in restraint of trade is void as against public policy. One is, the injury to the
public by being deprived of the restricted partys industry; and the other is, the injury to the party
himself by being precluded from pursuing his occupation, and thus being prevented from supporting
himself and his family.
And what is public policy? In the words of the eminent Spanish jurist, Don Jose Maria Manresa, in his
commentaries of the Codigo Civil, public policy (orden pblico):
Represents in the law of persons the public, social and legal interest, that which is permanent and
essential of the institutions, that which, even if favoring an individual in whom the right lies, cannot be
left to his own will. It is an idea which, in cases of the waiver of any right, is manifested with clearness
and force. 20
As applied to agreements, Quintus Mucius Scaevola, another distinguished civilist gives the term "public
policy" a more defined meaning:
Agreements in violation of orden pblico must be considered as those which conflict with law, whether
properly, strictly and wholly a public law (derecho) or whether a law of the person, but law which in
certain respects affects the interest of society. 21
Plainly put, public policy is that principle of the law which holds that no subject or citizen can lawfully do
that which has a tendency to be injurious to the public or against the public good.22 As applied to
contracts, in the absence of express legislation or constitutional prohibition, a court, in order to declare
a contract void as against public policy, must find that the contract as to the consideration or thing to be
done, has a tendency to injure the public, is against the public good, or contravenes some established
interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine
the security of individual rights, whether of personal liability or of private property.23
From another perspective, the main objection to exclusive dealing is its tendency to foreclose existing
competitors or new entrants from competition in the covered portion of the relevant market during the
term of the agreement.24 Only those arrangements whose probable effect is to foreclose competition in
a substantial share of the line of commerce affected can be considered as void for being against public
policy. The foreclosure effect, if any, depends on the market share involved. The relevant market for this
purpose includes the full range of selling opportunities reasonably open to rivals, namely, all the product
and geographic sales they may readily compete for, using easily convertible plants and marketing
organizations.25
Applying the preceding principles to the case at bar, there is nothing invalid or contrary to public policy
either in the objectives sought to be attained by paragraph 5, i.e., the exclusivity clause, in prohibiting
respondent Luna, and all other Avon supervisors, from selling products other than those manufactured
by petitioner Avon. We quote with approval the determination of the U.S. Supreme Court in the case of
Board of Trade of Chicago v. U.S.26 that "the question to be determined is whether the restraint
imposed is such as merely regulates and perhaps thereby promotes competition, or whether it is such as
may suppress or even destroy competition."
Such prohibition is neither directed to eliminate the competition like Sandr Phils., Inc. nor foreclose
new entrants to the market. In its Memorandum, it admits that the reason for such exclusion is to
safeguard the network that it has cultivated through the years. Admittedly, both companies employ the
direct selling method in order to peddle their products. By direct selling, petitioner Avon and Sandre, the
manufacturer, forego the use of a middleman in selling their products, thus, controlling the price by
which they are to be sold. The limitation does not affect the public at all. It is only a means by which
petitioner Avon is able to protect its investment.
It was not by chance that Sandr Philippines, Inc. made respondent Luna one of its Group Franchise
Directors. It doesnt take a genius to realize that by making her an important part of its distribution arm,
Sandr Philippines, Inc., a newly formed direct-selling business, would be saving time, effort and money
as it will no longer have to recruit, train and motivate supervisors and dealers. Respondent Luna, who
learned the tricks of the trade from petitioner Avon, will do it for them. This is tantamount to unjust
enrichment. Worse, the goodwill established by petitioner Avon among its loyal customers will be taken
advantaged of by Sandre Philippines, Inc. It is not so hard to imagine the scenario wherein the sale of
Sandr products by Avon dealers will engender a belief in the minds of loyal Avon customers that the
product that they are buying had been manufactured by Avon. In other words, they will be misled into
thinking that the Sandr products are in fact Avon products. From the foregoing, it cannot be said that
the purpose of the subject exclusivity clause is to foreclose the competition, that is, the entrance of
Sandr products in to the market. Therefore, it cannot be considered void for being against public policy.
How can the protection of ones property be violative of public policy? Sandr Philippines, Inc. is still
very much free to distribute its products in the market but it must do so at its own expense. The
exclusivity clause does not in any way limit its selling opportunities, just the undue use of the resources
of petitioner Avon.
It has been argued that the Supervisors Agreement is in the nature of a contract of adhesion; but just
because it is does not necessarily mean that it is void. A contract of adhesion is so-called because its
terms are prepared by only one party while the other party merely affixes his signature signifying his
adhesion thereto.27 Such contract is just as binding as ordinary contracts. "It is true that we have, on
occasion, struck down such contracts as void when the weaker party is imposed upon in dealing with the
dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not
invalid per se and they are not entirely prohibited. The one who adheres to the contract is in reality free
to reject it entirely, if he adheres, he gives his consent."28 In the case at bar, there was no indication
that respondent Luna was forced to sign the subject agreement. Being of age, financially stable and with
vast business experience, she is presumed to have acted with due care and to have signed the assailed
contract with full knowledge of its import. Under the premises, it would be difficult to assume that she
was morally abused. She was free to reject the agreement if she wanted to.
Accordingly, a contract duly executed is the law between the parties, and they are obliged to comply
fully and not selectively with its terms. A contract of adhesion is no exception.29
The foregoing premises noted, the Court of Appeals, therefore, committed reversible error in
interpreting the subject exclusivity clause to apply merely to those products in direct competition to
those manufactured and sold by petitioner Avon. When the terms of the agreement are clear and
explicit, that they do not justify an attempt to read into any alleged intention of the parties, the terms
are to be understood literally just as they appear on the face of the contract.30 Thus, in order to judge
the intention of the contracting parties, "the circumstances under which it was made, including the
situation of the subject thereof and of the parties to it, may be shown, so that the judge may be placed
in the position of those whose language he is to interpret."31 It has been held that once this intention of
the parties has been ascertained, it becomes an integral part of the contract as though it has been
originally expressed therein in unequivocal terms.32
Having held that the "exclusivity clause" as embodied in paragraph 5 of the Supervisors Agreement is
valid and not against public policy, we now pass to a consideration of respondent Lunas objections to
the validity of her termination as provided for under paragraph 6 of the Supervisors Agreement giving
petitioner Avon the right to terminate or cancel such contract. The paragraph 6 or the "termination
clause" therein expressly provides that:
The Company and the Supervisor mutually agree:
x x x x
6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to
the other. [Emphasis supplied.]
In the case of Petrophil Corporation v. Court of Appeals,33 this Court already had the opportunity to
opine that termination or cancellation clauses such as that subject of the case at bar are legitimate if
exercised in good faith. The facts of said case likewise involved a termination or cancellation clause that
clearly provided for two ways of terminating the contract, i.e., with or without cause. The utilization of
one mode will not preclude the use of the other. Therein, we stated that the finding that the
termination of the contract was "for cause," is immaterial. When petitioner terminated the contract
"without cause," it was required only to give x x x a 30-day prior written notice, which it did.
In the case at bar, the termination clause of the Supervisors Agreement clearly provides for two ways of
terminating and/or canceling the contract. One mode does not exclude the other. The contract provided
that it can be terminated or cancelled for cause, it also stated that it can be terminated without cause,
both at any time and after written notice. Thus, whether or not the termination or cancellation of the
Supervisors Agreement was "for cause," is immaterial. The only requirement is that of notice to the
other party. When petitioner Avon chose to terminate the contract, for cause, respondent Luna was
duly notified thereof.
Worth stressing is that the right to unilaterally terminate or cancel the Supervisors Agreement with or
without cause is equally available to respondent Luna, subject to the same notice requirement.
Obviously, no advantage is taken against each other by the contracting parties.
WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The Decision dated 20 May 2002
rendered by the Court of Appeals in CA-G.R. CV No. 52550, affirming the judgment of the RTC of Makati
City, Branch 138, in Civil Case No. 88-2595, are hereby REVERSED and SET ASIDE. Accordingly, let a new
one be entered dismissing the complaint for damages. Costs against respondent Leticia Luna.
SO ORDERED.

SECOND DIVISION

[G.R. No. 115117. June 8, 2000]

INTEGRATED PACKAGING CORP., petitioner, vs. COURT OF APPEALS and FIL-ANCHOR PAPER CO., INC.
respondents.

D E C I S I O N

QUISUMBING, J.:

This is a petition to review the decision of the Court of Appeals rendered on April 20, 1994 reversing the
judgment of the Regional Trial Court of Caloocan City in an action for recovery of sum of money filed by
private respondent against petitioner. In said decision, the appellate court decreed:

"WHEREFORE, in view of all the foregoing, the appealed judgment is hereby REVERSED and SET ASIDE.
Appellee [petitioner herein] is hereby ordered to pay appellant [private respondent herein] the sum of
P763,101.70, with legal interest thereon, from the date of the filing of the Complaint, until fully paid.

SO ORDERED."[1]

The RTC judgment reversed by the Court of Appeals had disposed of the complaint as follows:

"WHEREFORE, judgment is hereby rendered:

Ordering plaintiff [herein private respondent] to pay defendant [herein petitioner] the sum of
P27,222.60 as compensatory and actual damages after deducting P763,101.70 (value of materials
received by defendant) from P790,324.30 representing compensatory damages as defendants
unrealized profits;

Ordering plaintiff to pay defendant the sum of P100,000.00 as moral damages;

Ordering plaintiff to pay the sum of P30,000.00 for attorneys fees; and to pay the costs of suit.

SO ORDERED."[2]

The facts, as culled from the records, are as follows:

Petitioner and private respondent executed on May 5, 1978, an order agreement whereby private
respondent bound itself to deliver to petitioner 3,450 reams of printing paper, coated, 2 sides basis, 80
lbs., 38" x 23", short grain, worth P1,040,060.00 under the following schedule: May and June 1978450
reams at P290.00/ream; August and September 1978700 reams at P290/ream; January 1979575
reams at P307.20/ream; March 1979575 reams at P307.20/ream; July 1979575 reams at
P307.20/ream; and October 1979575 reams at P307.20/ream. In accordance with the standard
operating practice of the parties, the materials were to be paid within a minimum of thirty days and
maximum of ninety days from delivery.

Later, on June 7, 1978, petitioner entered into a contract with Philippine Appliance Corporation
(Philacor) to print three volumes of "Philacor Cultural Books" for delivery on the following dates: Book
VI, on or before November 1978; Book VII, on or before November 1979 and; Book VIII, on or before
November 1980, with a minimum of 300,000 copies at a price of P10.00 per copy or a total cost of
P3,000,000.00.

As of July 30, 1979, private respondent had delivered to petitioner 1,097 reams of printing paper out of
the total 3,450 reams stated in the agreement. Petitioner alleged it wrote private respondent to
immediately deliver the balance because further delay would greatly prejudice petitioner. From June 5,
1980 and until July 23, 1981, private respondent delivered again to petitioner various quantities of
printing paper amounting to P766,101.70. However, petitioner encountered difficulties paying private
respondent said amount. Accordingly, private respondent made a formal demand upon petitioner to
settle the outstanding account. On July 23 and 31, 1981 and August 27, 1981, petitioner made partial
payments totalling P97,200.00 which was applied to its back accounts covered by delivery invoices
dated September 29-30, 1980 and October 1-2, 1980.[3]

Meanwhile, petitioner entered into an additional printing contract with Philacor. Unfortunately,
petitioner failed to fully comply with its contract with Philacor for the printing of books VIII, IX, X and XI.
Thus, Philacor demanded compensation from petitioner for the delay and damage it suffered on
account of petitioners failure.

On August 14, 1981, private respondent filed with the Regional Trial Court of Caloocan City a collection
suit against petitioner for the sum of P766,101.70, representing the unpaid purchase price of printing
paper bought by petitioner on credit.

In its answer, petitioner denied the material allegations of the complaint. By way of counterclaim,
petitioner alleged that private respondent was able to deliver only 1,097 reams of printing paper which
was short of 2,875 reams, in total disregard of their agreement; that private respondent failed to deliver
the balance of the printing paper despite demand therefor, hence, petitioner suffered actual damages
and failed to realize expected profits; and that petitioners complaint was prematurely filed.

After filing its reply and answer to the counterclaim, private respondent moved for admission of its
supplemental complaint, which was granted. In said supplemental complaint, private respondent
alleged that subsequent to the enumerated purchase invoices in the original complaint, petitioner made
additional purchases of printing paper on credit amounting to P94,200.00. Private respondent also
averred that petitioner failed and refused to pay its outstanding obligation although it made partial
payments in the amount of P97,200.00 which was applied to back accounts, thus, reducing petitioners
indebtedness to P763,101.70.

On July 5, 1990, the trial court rendered judgment declaring that petitioner should pay private
respondent the sum of P763,101.70 representing the value of printing paper delivered by private
respondent from June 5, 1980 to July 23, 1981. However, the lower court also found petitioners
counterclaim meritorious. It ruled that were it not for the failure or delay of private respondent to
deliver printing paper, petitioner could have sold books to Philacor and realized profit of P790,324.30
from the sale. It further ruled that petitioner suffered a dislocation of business on account of loss of
contracts and goodwill as a result of private respondents violation of its obligation, for which the award
of moral damages was justified.

On appeal, the respondent Court of Appeals reversed and set aside the judgment of the trial court. The
appellate court ordered petitioner to pay private respondent the sum of P763,101.70 representing the
amount of unpaid printing paper delivered by private respondent to petitioner, with legal interest
thereon from the date of the filing of the complaint until fully paid.[4] However, the appellate court
deleted the award of P790,324.30 as compensatory damages as well as the award of moral damages
and attorneys fees, for lack of factual and legal basis.
Expectedly, petitioner filed this instant petition contending that the appellate courts judgment is based
on erroneous conclusions of facts and law. In this recourse, petitioner assigns the following errors:
[I]
"THE COURT OF APPEALS ERRED IN CONCLUDING THAT PRIVATE RESPONDENT DID NOT VIOLATE THE
ORDER AGREEMENT.
[II]
THE COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENT IS NOT LIABLE FOR PETITIONERS
BREACH OF CONTRACT WITH PHILACOR.
[III]
THE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER IS NOT ENTITLED TO DAMAGES
AGAINST PRIVATE RESPONDENT."[5]
In our view, the crucial issues for resolution in this case are as follows:
(1)....Whether or not private respondent violated the order agreement, and;
(2)....Whether or not private respondent is liable for petitioners breach of contract with Philacor.
Petitioners contention lacks factual and legal basis, hence, bereft of merit.
Petitioner contends, firstly, that private respondent violated the order agreement when the latter failed
to deliver the balance of the printing paper on the dates agreed upon.
The transaction between the parties is a contract of sale whereby private respondent (seller) obligates
itself to deliver printing paper to petitioner (buyer) which, in turn, binds itself to pay therefor a sum of
money or its equivalent (price).[6] Both parties concede that the order agreement gives rise to a
reciprocal obligations[7] such that the obligation of one is dependent upon the obligation of the other.
Reciprocal obligations are to be performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other.[8] Thus, private respondent undertakes to
deliver printing paper of various quantities subject to petitioners corresponding obligation to pay, on a
maximum 90-day credit, for these materials. Note that in the contract, petitioner is not even required to
make any deposit, down payment or advance payment, hence, the undertaking of private respondent to
deliver the materials is conditional upon payment by petitioner within the prescribed period. Clearly,
petitioner did not fulfill its side of the contract as its last payment in August 1981 could cover only
materials covered by delivery invoices dated September and October 1980.
There is no dispute that the agreement provides for the delivery of printing paper on different dates and
a separate price has been agreed upon for each delivery. It is also admitted that it is the standard
practice of the parties that the materials be paid within a minimum period of thirty (30) days and a
maximum of ninety (90) days from each delivery.*9+ Accordingly, the private respondents suspension of
its deliveries to petitioner whenever the latter failed to pay on time, as in this case, is legally justified
under the second paragraph of Article 1583 of the Civil Code which provides that:
"When there is a contract of sale of goods to be delivered by stated installments, which are to be
separately paid for, and the seller makes defective deliveries in respect of one or more installments, or
the buyer neglects or refuses without just cause to take delivery of or pay for one or more installments,
it depends in each case on the terms of the contract and the circumstances of the case, whether the
breach of contract is so material as to justify the injured party in refusing to proceed further and suing
for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim
for compensation but not to a right to treat the whole contract as broken." (Emphasis supplied)
In this case, as found a quo petitioners evidence failed to establish that it had paid for the printing
paper covered by the delivery invoices on time. Consequently, private respondent has the right to cease
making further delivery, hence the private respondent did not violate the order agreement. On the
contrary, it was petitioner which breached the agreement as it failed to pay on time the materials
delivered by private respondent. Respondent appellate court correctly ruled that private respondent did
not violate the order agreement.

On the second assigned error, petitioner contends that private respondent should be held liable for
petitioners breach of contract with Philacor. This claim is manifestly devoid of merit.

As correctly held by the appellate court, private respondent cannot be held liable under the contracts
entered into by petitioner with Philacor. Private respondent is not a party to said agreements. It is also
not a contract pour autrui. Aforesaid contracts could not affect third persons like private respondent
because of the basic civil law principle of relativity of contracts which provides that contracts can only
bind the parties who entered into it, and it cannot favor or prejudice a third person,[10] even if he is
aware of such contract and has acted with knowledge thereof.[11]

Indeed, the order agreement entered into by petitioner and private respondent has not been shown as
having a direct bearing on the contracts of petitioner with Philacor. As pointed out by private
respondent and not refuted by petitioner, the paper specified in the order agreement between
petitioner and private respondent are markedly different from the paper involved in the contracts of
petitioner with Philacor.[12] Furthermore, the demand made by Philacor upon petitioner for the latter
to comply with its printing contract is dated February 15, 1984, which is clearly made long after private
respondent had filed its complaint on August 14, 1981. This demand relates to contracts with Philacor
dated April 12, 1983 and May 13, 1983, which were entered into by petitioner after private respondent
filed the instant case.

To recapitulate, private respondent did not violate the order agreement it had with petitioner. Likewise,
private respondent could not be held liable for petitioners breach of contract with Philacor. It follows
that there is no basis to hold private respondent liable for damages. Accordingly, the appellate court did
not err in deleting the damages awarded by the trial court to petitioner.

The rule on compensatory damages is well established. True, indemnification for damages comprehends
not only the loss suffered, that is to say actual damages (damnum emergens), but also profits which the
obligee failed to obtain, referred to as compensatory damages (lucrum cessans). However, to justify a
grant of actual or compensatory damages, it is necessary to prove with a reasonable degree of certainty,
premised upon competent proof and on the best evidence obtainable by the injured party, the actual
amount of loss.[13] In the case at bar, the trial court erroneously concluded that petitioner could have
sold books to Philacor at the quoted selling price of P1,850,750.55 and by deducting the production cost
of P1,060,426.20, petitioner could have earned profit of P790,324.30. Admittedly, the evidence relied
upon by the trial court in arriving at the amount are mere estimates prepared by petitioner.[14] Said
evidence is highly speculative and manifestly hypothetical. It could not provide sufficient legal and
factual basis for the award of P790,324.30 as compensatory damages representing petitioners self-
serving claim of unrealized profit.
Further, the deletion of the award of moral damages is proper, since private respondent could not be
held liable for breach of contract. Moral damages may be awarded when in a breach of contract the
defendant acted in bad faith, or was guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligation.[15] Finally, since the award of moral damages is eliminated, so
must the award for attorneys fees be also deleted.*16+
WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is AFFIRMED. Costs
against petitioner.
SO ORDERED.

SECOND DIVISION
[G.R. No. 133895. October 2, 2001]

ZENAIDA M. SANTOS, petitioner, vs. CALIXTO SANTOS, ALBERTO SANTOS, ROSA SANTOS-CARREON and
ANTONIO SANTOS, respondents.
D E C I S I O N
QUISUMBING, J.:
This petition for review[1] seeks to annul and set aside the decision dated March 10, 1998 of the Court
of Appeals that affirmed the decision of the Regional Trial Court of Manila, Branch 48, dated March 17,
1993. Petitioner also seeks to annul the resolution that denied her motion for reconsideration.
Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of private respondents Calixto,
Alberto, Antonio, all surnamed Santos and Rosa Santos-Carreon.
The spouses Jesus and Rosalia Santos owned a parcel of land registered under TCT No. 27571 with an
area of 154 square meters, located at Sta. Cruz Manila. On it was a four-door apartment administered
by Rosalia who rented them out. The spouses had five children, Salvador, Calixto, Alberto, Antonio and
Rosa.
On January 19, 1959, Jesus and Rosalia executed a deed of sale of the properties in favor of their
children Salvador and Rosa. TCT No. 27571 became TCT No. 60819. Rosa in turn sold her share to
Salvador on November 20, 1973 which resulted in the issuance of a new TCT No. 113221. Despite the
transfer of the property to Salvador, Rosalia continued to lease and receive rentals from the apartment
units.
On November 1, 1979, Jesus died. Six years after or on January 9, 1985, Salvador died, followed by
Rosalia who died the following month. Shortly after, petitioner Zenaida, claiming to be Salvadors heir,
demanded the rent from Antonio Hombrebueno,[2] a tenant of Rosalia. When the latter refused to pay,
Zenaida filed an ejectment suit against him with the Metropolitan Trial Court of Manila, Branch 24,
which eventually decided in Zenaidas favor.
On January 5, 1989, private respondents instituted an action for reconveyance of property with
preliminary injunction against petitioner in the Regional Trial Court of Manila, where they alleged that
the two deeds of sale executed on January 19, 1959 and November 20, 1973 were simulated for lack of
consideration. They were executed to accommodate Salvador in generating funds for his business
ventures and providing him with greater business flexibility.
In her Answer, Zenaida denied the material allegations in the complaint and as special and affirmative
defenses, argued that Salvador was the registered owner of the property, which could only be subjected
to encumbrances or liens annotated on the title; that the respondents right to reconveyance was
already barred by prescription and laches; and that the complaint stated no cause of action.
On March 17, 1993, the trial court decided in private respondents favor, thus:
WHEREFORE, viewed from all the foregoing considerations, judgment is hereby made in favor of the
plaintiffs and against the defendants:
a) Declaring Exh. B, the deed of sale executed by Rosalia Santos and Jesus Santos on January 19, 1959,
as entirely null and void for being fictitious or simulated and inexistent and without any legal force and
effect;
b) Declaring Exh. D, the deed of sale executed by Rosa Santos in favor of Salvador Santos on
November 20, 1973, also as entirely null and void for being likewise fictitious or simulated and inexistent
and without any legal force and effect;
c) Directing the Register of Deeds of Manila to cancel Transfer Certificate of Title No. T-113221
registered in the name of Salvador Santos, as well as, Transfer Certificate of Title No. 60819 in the
names of Salvador Santos, Rosa Santos, and consequently thereafter, reinstating with the same legal
force and effect as if the same was not cancelled, and which shall in all respects be entitled to like faith
and credit; Transfer Certificate of Title No. T-27571 registered in the name of Rosalia A. Santos, married
to Jesus Santos, the same to be partitioned by the heirs of the said registered owners in accordance with
law; and
d) Making the injunction issued in this case permanent.
Without pronouncement as to costs.
SO ORDERED.[3]
The trial court reasoned that notwithstanding the deeds of sale transferring the property to Salvador,
the spouses Rosalia and Jesus continued to possess the property and to exercise rights of ownership not
only by receiving the monthly rentals, but also by paying the realty taxes. Also, Rosalia kept the owners
duplicate copy of the title even after it was already in the name of Salvador. Further, the spouses had
no compelling reason in 1959 to sell the property and Salvador was not financially capable to purchase
it. The deeds of sale were therefore fictitious. Hence, the action to assail the same does not
prescribe.[4]

Upon appeal, the Court of Appeals affirmed the trial courts decision dated March 10, 1998. It held that
in order for the execution of a public instrument to effect tradition, as provided in Article 1498 of the
Civil Code,[5] the vendor shall have had control over the thing sold, at the moment of sale. It was not
enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be
placed in his control. The subject deeds of sale did not confer upon Salvador the ownership over the
subject property, because even after the sale, the original vendors remained in dominion, control, and
possession thereof. The appellate court further said that if the reason for Salvadors failure to control
and possess the property was due to his acquiescence to his mother, in deference to Filipino custom,
petitioner, at least, should have shown evidence to prove that her husband declared the property for
tax purposes in his name or paid the land taxes, acts which strongly indicate control and possession.
The appellate court disposed:
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.[6]
Hence, this petition where petitioner avers that the Court of Appeals erred in:
I.
...HOLDING THAT THE OWNERSHIP OVER THE LITIGATED PROPERTY BY THE LATE HUSBAND OF
DEFENDANT-APPELLANT WAS AFFECTED BY HIS FAILURE TO EXERCISE CERTAIN ATTRIBUTES OF
OWNERSHIP.
II
...HOLDING THAT DUE EXECUTION OF A PUBLIC INSTRUMENT IS NOT EQUIVALENT TO DELIVERY OF THE
LAND IN DISPUTE.
III
...NOT FINDING THAT THE CAUSE OF ACTION OF ROSALIA SANTOS HAD PRESCRIBED AND/OR BARRED BY
LACHES.
IV
...IGNORING PETITIONERS ALLEGATION TO THE EFFECT THAT PLAINTIFF DR. ROSA *S.+ CARREON IS NOT
DISQUALIFIED TO TESTIFY AS TO THE QUESTIONED DEEDS OF SALE CONSIDERING THAT SALVADOR
SANTOS HAS LONG BEEN DEAD.[7]

In this petition, we are asked to resolve the following:
1. Are payments of realty taxes and retention of possession indications of continued ownership by the
original owners?
2. Is a sale through a public instrument tantamount to delivery of the thing sold?
3. Did the cause of action of Rosalia Santos and her heirs prescribe?
4. Can petitioner invoke the Dead Mans Statute?*8+
On the first issue, petitioner contends that the Court of Appeals erred in holding that despite the deeds
of sale in Salvadors favor, Jesus and Rosalia still owned the property because the spouses continued to
pay the realty taxes and possess the property. She argues that tax declarations are not conclusive
evidence of ownership when not supported by evidence. She avers that Salvador allowed his mother to
possess the property out of respect to her in accordance with Filipino values.

It is true that neither tax receipts nor declarations of ownership for taxation purposes constitute
sufficient proof of ownership. They must be supported by other effective proofs.[9] These requisite
proofs we find present in this case. As admitted by petitioner, despite the sale, Jesus and Rosalia
continued to possess and administer the property and enjoy its fruits by leasing it to third persons.[10]
Both Rosa and Salvador did not exercise any right of ownership over it.[11] Before the second deed of
sale to transfer her 1/2 share over the property was executed by Rosa, Salvador still sought the
permission of his mother.[12] Further, after Salvador registered the property in his name, he
surrendered the title to his mother.[13] These are clear indications that ownership still remained with
the original owners. In Serrano vs. CA, 139 SCRA 179, 189 (1985), we held that the continued collection
of rentals from the tenants by the seller of realty after execution of alleged deed of sale is contrary to
the notion of ownership.

Petitioner argues that Salvador, in allowing her mother to use the property even after the sale, did so
out of respect for her and out of generosity, a factual matter beyond the province of this Court.[14]
Significantly, in Alcos vs. IAC, 162 SCRA 823, 837 (1988), we noted that the buyers immediate
possession and occupation of the property corroborated the truthfulness and authenticity of the deed
of sale. Conversely, the vendors continued possession of the property makes dubious the contract of
sale between the parties.

On the second issue, is a sale through a public instrument tantamount to delivery of the thing sold?
Petitioner in her memorandum invokes Article 1477[15] of the Civil Code which provides that ownership
of the thing sold is transferred to the vendee upon its actual or constructive delivery. Article 1498, in
turn, provides that when the sale is made through a public instrument, its execution is equivalent to the
delivery of the thing subject of the contract. Petitioner avers that applying said provisions to the case,
Salvador became the owner of the subject property by virtue of the two deeds of sale executed in his
favor.

Nowhere in the Civil Code, however, does it provide that execution of a deed of sale is a conclusive
presumption of delivery of possession. The Code merely said that the execution shall be equivalent to
delivery. The presumption can be rebutted by clear and convincing evidence.[16] Presumptive delivery
can be negated by the failure of the vendee to take actual possession of the land sold.[17]

In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that for the execution of a public instrument to
effect tradition, the purchaser must be placed in control of the thing sold. When there is no impediment
to prevent the thing sold from converting to tenancy of the purchaser by the sole will of the vendor,
symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the
execution of the instrument, the purchaser cannot have the enjoyment and material tenancy nor make
use of it himself or through another in his name, then delivery has not been effected.

As found by both the trial and appellate courts and amply supported by the evidence on record,
Salvador was never placed in control of the property. The original sellers retained their control and
possession. Therefore, there was no real transfer of ownership.

Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694, 698-699 (1991), citing the land case of
Abuan vs. Garcia, 14 SCRA 759 (1965), we held that the critical factor in the different modes of effecting
delivery, which gives legal effect to the act is the actual intention of the vendor to deliver, and its
acceptance by the vendee. Without that intention, there is no tradition. In the instant case, although
the spouses Jesus and Rosalia executed a deed of sale, they did not deliver the possession and
ownership of the property to Salvador and Rosa. They agreed to execute a deed of sale merely to
accommodate Salvador to enable him to generate funds for his business venture.

On the third issue, petitioner argues that from the date of the sale from Rosa to Salvador on November
20, 1973, up to his death on January 9, 1985, more or less twelve years had lapsed, and from his death
up to the filing of the case for reconveyance in the court a quo on January 5, 1989, four years had
lapsed. In other words, it took respondents about sixteen years to file the case below. Petitioner argues
that an action to annul a contract for lack of consideration prescribes in ten years and even assuming
that the cause of action has not prescribed, respondents are guilty of laches for their inaction for a long
period of time.

Has respondents cause of action prescribed? In Lacsamana vs. CA, 288 SCRA 287, 292 (1998), we held
that the right to file an action for reconveyance on the ground that the certificate of title was obtained
by means of a fictitious deed of sale is virtually an action for the declaration of its nullity, which does not
prescribe. This applies squarely to the present case. The complaint filed by respondents in the court a
quo was for the reconveyance of the subject property to the estate of Rosalia since the deeds of sale
were simulated and fictitious. The complaint amounts to a declaration of nullity of a void contract,
which is imprescriptible. Hence, respondents cause of action has not prescribed.
Neither is their action barred by laches. The elements of laches are: 1) conduct on the part of the
defendant, or of one under whom he claims, giving rise to the situation of which the complaint seeks a
remedy; 2) delay in asserting the complainants rights, the complainant having had knowledge or notice
of the defendants conduct as having been afforded an opportunity to institute a suit; 3) lack of
knowledge or notice on the part of the defendant that the complainant would assert the right in which
he bases his suit; and 4) injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held barred.[18] These elements must all be proved positively. The
conduct which caused the complaint in the court a quo was petitioners assertion of right of ownership
as heir of Salvador. This started in December 1985 when petitioner demanded payment of the lease
rentals from Antonio Hombrebueno, the tenant of the apartment units. From December 1985 up to the
filing of the complaint for reconveyance on January 5, 1989, only less than four years had lapsed which
we do not think is unreasonable delay sufficient to bar respondents cause of action. We likewise find
the fourth element lacking. Neither petitioner nor her husband made considerable investments on the
property from the time it was allegedly transferred to the latter. They also did not enter into
transactions involving the property since they did not claim ownership of it until December 1985.
Petitioner stood to lose nothing. As we held in the same case of Lacsamana vs. CA, cited above, the
concept of laches is not concerned with the lapse of time but only with the effect of unreasonable lapse.
In this case, the alleged 16 years of respondents inaction has no adverse effect on the petitioner to
make respondents guilty of laches.
Lastly, petitioner in her memorandum seeks to expunge the testimony of Rosa Santos-Carreon before
the trial court in view of Sec. 23, Rule 130 of the Revised Rules of Court, otherwise known as the Dead
Mans Statute.*19+ It is too late for petitioner, however, to invoke said rule. The trial court in its order
dated February 5, 1990, denied petitioners motion to disqualify respondent Rosa as a witness.
Petitioner did not appeal therefrom. Trial ensued and Rosa testified as a witness for respondents and
was cross-examined by petitioners counsel. By her failure to appeal from the order allowing Rosa to
testify, she waived her right to invoke the dead mans statute. Further, her counsel cross-examined
Rosa on matters that occurred during Salvadors lifetime. In Goi vs. CA, 144 SCRA 222, 231 (1986), we
held that protection under the dead mans statute is effectively waived when a counsel for a petitioner
cross-examines a private respondent on matters occurring during the deceaseds lifetime. The Court of
Appeals cannot be faulted in ignoring petitioner on Rosas disqualification.
WHEREFORE, the instant petition is DENIED. The assailed decision dated March 10, 1998 of the Court of
Appeals, which sustained the judgment of the Regional Trial Court dated March 17, 1993, in favor of
herein private respondents, is AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. 119107 March 18, 2005
JOSE V. LAGON, Petitioner,
vs.
HONORABLE COURT OF APPEALS and MENANDRO V. LAPUZ, respondents.
D E C I S I O N
CORONA, J.:
On June 23, 1982, petitioner Jose Lagon purchased from the estate of Bai Tonina Sepi, through an
intestate court,1 two parcels of land located at Tacurong, Sultan Kudarat. A few months after the sale,
private respondent Menandro Lapuz filed a complaint for torts and damages against petitioner before
the Regional Trial Court (RTC) of Sultan Kudarat.
In the complaint, private respondent, as then plaintiff, claimed that he entered into a contract of lease
with the late Bai Tonina Sepi Mengelen Guiabar over three parcels of land (the "property") in Sultan
Kudarat, Maguindanao beginning 1964. One of the provisions agreed upon was for private respondent
to put up commercial buildings which would, in turn, be leased to new tenants. The rentals to be paid by
those tenants would answer for the rent private respondent was obligated to pay Bai Tonina Sepi for the
lease of the land. In 1974, the lease contract ended but since the construction of the commercial
buildings had yet to be completed, the lease contract was allegedly renewed.
When Bai Tonina Sepi died, private respondent started remitting his rent to the court-appointed
administrator of her estate. But when the administrator advised him to stop collecting rentals from the
tenants of the buildings he constructed, he discovered that petitioner, representing himself as the new
owner of the property, had been collecting rentals from the tenants. He thus filed a complaint against
the latter, accusing petitioner of inducing the heirs of Bai Tonina Sepi to sell the property to him,
thereby violating his leasehold rights over it.
In his answer to the complaint, petitioner denied that he induced the heirs of Bai Tonina to sell the
property to him, contending that the heirs were in dire need of money to pay off the obligations of the
deceased. He also denied interfering with private respondent's leasehold rights as there was no lease
contract covering the property when he purchased it; that his personal investigation and inquiry
revealed no claims or encumbrances on the subject lots.
Petitioner claimed that before he bought the property, he went to Atty. Benjamin Fajardo, the lawyer
who allegedly notarized the lease contract between private respondent and Bai Tonina Sepi, to verify if
the parties indeed renewed the lease contract after it expired in 1974. Petitioner averred that Atty.
Fajardo showed him four copies of the lease renewal but these were all unsigned. To refute the
existence of a lease contract, petitioner presented in court a certification from the Office of the Clerk of
Court confirming that no record of any lease contract notarized by Atty. Fajardo had been entered into
their files. Petitioner added that he only learned of the alleged lease contract when he was informed
that private respondent was collecting rent from the tenants of the building.
Finding the complaint for tortuous interference to be unwarranted, petitioner filed his counterclaim and
prayed for the payment of actual and moral damages.
On July 29, 1986, the court a quo found for private respondent (plaintiff below):
ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff:
1. Declaring the "Contract of Lease" executed by Bai Tonina Sepi Mangelen Guiabar in favor of the
plaintiff on November 6, 1974 (Exh. "A" and "A-1") over Lot No. 6395, Pls-73. Lot No 6396. Pls.-73. Lot
No. 6399. 3ls-73, and Lot no.9777-A. CSD-11-000076-D (Lot No. 3-A. 40124), all situated along Ledesma
St., Tacurong, Sultan Kudarat, which document was notarized by Atty. Benjamin S. Fajardo, Sr. and
entered into his notarial register as Doc. No. 619. Page No. 24. Book No. II. Series of 1974, to be
authentic and genuine and as such valid and binding for a period of ten (10) years specified thereon
from November 1, 1974 up to October 31, 1984;
2. Declaring the plaintiff as the lawful owner of the commercial buildings found on the aforesaid lots and
he is entitled to their possession and the collection (of rentals) of the said commercial buildings within
the period covered by this "Contract of Lease" in his favor;
3. Ordering the defendant to pay to the plaintiff the following:
a) Rentals of the commercial buildings on the lots covered by the "Contract of Lease" in favor of the
plaintiff for the period from October 1, 1978 up to October 31, 1984, including accrued interests in the
total amount of Five Hundred Six Thousand Eight Hundred Five Pesos and Fifty Six Centavos (P506,
850.56), the same to continue to bear interest at the legal rate of 12% per annum until the whole
amount is fully paid by the defendant to the plaintiff;
b) Moral damages in the amount of One Million Sixty Two Thousand Five Hundred Pesos
(P1,062,500.00);
c) Actual or compensatory damages in the amount of Three Hundred Twelve Thousand Five Hundred
Pesos (P312, 500.00);
d) Exemplary or corrective damages in the amount of One Hundred Eighty Thousand Five Hundred Pesos
(P187,500.00)
e) Temperate or moderate damages in the amount of Sixty Two Thousand Five Hundred Pesos
(P62,500.00);
f) Nominal damages in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);
g) Attorney's fees in the amount of One Hundred Twenty Five Thousand Pesos (P125,000.00);
h) Expenses of litigation in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);
i) Interest on the moral damages, actual or compensatory damages temperate or moderate damages,
nominal damages, attorney's fees and expenses of litigation in the amounts as specified hereinabove
from May 24, 1982 up to June 27, 1986, in the total amount of Nine Hundred Thousand Pesos
(P900,000.00); all of which will continue to bear interests at a legal rate of 12% per annum until the
whole amounts are fully paid by the defendants to the plaintiffs;
4. For failure of the defendant to deposit with this Court all the rentals he had collected from the
thirteen (13) tenants or occupants of the commercial buildings in question, the plaintiff is hereby
restored to the possession of his commercial buildings for a period of seventy-three (73) months which
is the equivalent of the total period for which he was prevented from collecting the rentals from the
tenants or occupants of his commercial buildings from October 1, 1978 up to October 31, 1984, and for
this purpose a Writ of Preliminary Injunction is hereby issued, but the plaintiff is likewise ordered to pay
to the defendant the monthly rental of Seven Hundred Pesos (P700.00) every end of the month for the
entire period of seventy three (73) months. This portion of the judgment should be considered as a
mere alternative should the defendant fail to pay the amount of Five Hundred Five Pesos and Fifty Six
Centavos (P506,805.56) hereinabove specified;
5. Dismissing the counterclaim interposed by the defendant for lack of merit;
6. With costs against the defendant.2
Petitioner appealed the judgment to the Court of Appeals.3 In a decision dated January 31, 1995,4 the
appellate court modified the assailed judgment of the trial court as follows:
a) The award for moral damages, compensatory damages, exemplary damages, temperate or moderate
damages, and nominal damages as well as expenses of litigation in the amount of P62,500.00 and
interests under paragraph 3-a(a), (b), (c), (d), (e), (f), (g), (h), and (i) are deleted;
b) The award for attorney's fees is reduced to P30,000.00;
c) Paragraphs 1,2,5 and 6 are AFFIRMED;
d) Additionally, the defendant is hereby ordered to pay to the plaintiff by way of actual damages the
sum of P178,425.00 representing the amount of rentals he collected from the period of October 1978 to
August 1983, and minus the amount of P42,700.00 representing rentals due the defendant computed at
P700.00 per month for the period from August 1978 to August 1983, with interest thereon at the rate
until the same is fully paid;
e) Paragraph 4 is deleted.5
Before the appellate court, petitioner disclaimed knowledge of any lease contract between the late Bai
Tonina Sepi and private respondent. On the other hand, private respondent insisted that it was
impossible for petitioner not to know about the contract since the latter was aware that he was
collecting rentals from the tenants of the building. While the appellate court disbelieved the contentions
of both parties, it nevertheless held that, for petitioner to become liable for damages, he must have
known of the lease contract and must have also acted with malice or bad faith when he bought the
subject parcels of land.
Via this petition for review, petitioner cites the following reasons why the Court should rule in his favor:
1. The Honorable Court of Appeals seriously erred in holding that petitioner is liable for interference of
contractual relation under Article 1314 of the New Civil Code;
2. The Honorable Court of Appeals erred in not holding that private respondent is precluded from
recovering, if at all, because of laches;
3. The Honorable Court of Appeals erred in holding petitioner liable for actual damages and attorney's
fees, and;
4. The Honorable Court of Appeals erred in dismissing petitioner's counterclaims.6
Article 1314 of the Civil Code provides that any third person who induces another to violate his contract
shall be liable for damages to the other contracting party. The tort recognized in that provision is known
as interference with contractual relations.7 The interference is penalized because it violates the
property rights of a party in a contract to reap the benefits that should result therefrom.8
The core issue here is whether the purchase by petitioner of the subject property, during the supposed
existence of private respondent's lease contract with the late Bai Tonina Sepi, constituted tortuous
interference for which petitioner should be held liable for damages.
The Court, in the case of So Ping Bun v. Court of Appeals,9 laid down the elements of tortuous
interference with contractual relations: (a) existence of a valid contract; (b) knowledge on the part of
the third person of the existence of the contract and (c) interference of the third person without legal
justification or excuse. In that case, petitioner So Ping Bun occupied the premises which the corporation
of his grandfather was leasing from private respondent, without the knowledge and permission of the
corporation. The corporation, prevented from using the premises for its business, sued So Ping Bun for
tortuous interference.
As regards the first element, the existence of a valid contract must be duly established. To prove this,
private respondent presented in court a notarized copy of the purported lease renewal.10 While the
contract appeared as duly notarized, the notarization thereof, however, only proved its due execution
and delivery but not the veracity of its contents. Nonetheless, after undergoing the rigid scrutiny of
petitioner's counsel and after the trial court declared it to be valid and subsisting, the notarized copy of
the lease contract presented in court appeared to be incontestable proof that private respondent and
the late Bai Tonina Sepi actually renewed their lease contract. Settled is the rule that until overcome by
clear, strong and convincing evidence, a notarized document continues to be prima facie evidence of the
facts that gave rise to its execution and delivery.11
The second element, on the other hand, requires that there be knowledge on the part of the interferer
that the contract exists. Knowledge of the subsistence of the contract is an essential element to state a
cause of action for tortuous interference.12 A defendant in such a case cannot be made liable for
interfering with a contract he is unaware of.13 While it is not necessary to prove actual knowledge, he
must nonetheless be aware of the facts which, if followed by a reasonable inquiry, will lead to a
complete disclosure of the contractual relations and rights of the parties in the contract.14
In this case, petitioner claims that he had no knowledge of the lease contract. His sellers (the heirs of Bai
Tonina Sepi) likewise allegedly did not inform him of any existing lease contract.
After a careful perusal of the records, we find the contention of petitioner meritorious. He conducted his
own personal investigation and inquiry, and unearthed no suspicious circumstance that would have
made a cautious man probe deeper and watch out for any conflicting claim over the property. An
examination of the entire property's title bore no indication of the leasehold interest of private
respondent. Even the registry of property had no record of the same.15
Assuming ex gratia argumenti that petitioner knew of the contract, such knowledge alone was not
sufficient to make him liable for tortuous interference. Which brings us to the third element. According
to our ruling in So Ping Bun, petitioner may be held liable only when there was no legal justification or
excuse for his action16 or when his conduct was stirred by a wrongful motive. To sustain a case for
tortuous interference, the defendant must have acted with malice17 or must have been driven by
purely impious reasons to injure the plaintiff. In other words, his act of interference cannot be
justified.18
Furthermore, the records do not support the allegation of private respondent that petitioner induced
the heirs of Bai Tonina Sepi to sell the property to him. The word "induce" refers to situations where a
person causes another to choose one course of conduct by persuasion or intimidation.19 The records
show that the decision of the heirs of the late Bai Tonina Sepi to sell the property was completely of
their own volition and that petitioner did absolutely nothing to influence their judgment. Private
respondent himself did not proffer any evidence to support his claim. In short, even assuming that
private respondent was able to prove the renewal of his lease contract with Bai Tonina Sepi, the fact
was that he was unable to prove malice or bad faith on the part of petitioner in purchasing the property.
Therefore, the claim of tortuous interference was never established.
In So Ping Bun, the Court discussed whether interference can be justified at all if the interferer acts for
the sole purpose of furthering a personal financial interest, but without malice or bad faith. As the Court
explained it:
x x x, as a general rule, justification for interfering with the business relations of another exists where
the actor's motive is to benefit himself. Such justification does not exist where the actor's motive is to
cause harm to the other. Added to this, some authorities believe that it is not necessary that the
interferer's interest outweigh that of the party whose rights are invaded, and that an individual acts
under an economic interest that is substantial, not merely de minimis, such that wrongful and malicious
motives are negatived, for he acts in self-protection. Moreover, justification for protecting one's
financial position should not be made to depend on a comparison of his economic interest in the subject
matter with that of the others. It is sufficient if the impetus of his conduct lies in a proper business
interest rather than in wrongful motives.20
The foregoing disquisition applies squarely to the case at bar. In our view, petitioner's purchase of the
subject property was merely an advancement of his financial or economic interests, absent any proof
that he was enthused by improper motives. In the very early case of Gilchrist v. Cuddy,21 the Court
declared that a person is not a malicious interferer if his conduct is impelled by a proper business
interest. In other words, a financial or profit motivation will not necessarily make a person an officious
interferer liable for damages as long as there is no malice or bad faith involved.
In sum, we rule that, inasmuch as not all three elements to hold petitioner liable for tortuous
interference are present, petitioner cannot be made to answer for private respondent's losses.
This case is one of damnun absque injuria or damage without injury. "Injury" is the legal invasion of a
legal right while "damage" is the hurt, loss or harm which results from the injury.22 In BPI Express Card
Corporation v. Court of Appeals,,23 the Court turned down the claim for damages of a cardholder whose
credit card had been cancelled by petitioner corporation after several defaults in payment. We held
there that there can be damage without injury where the loss or harm is not the result of a violation of a
legal duty. In that instance, the consequences must be borne by the injured person alone since the law
affords no remedy for damages resulting from an act which does not amount to legal injury or wrong.24
Indeed, lack of malice in the conduct complained of precludes recovery of damages.25
With respect to the attorney's fees awarded by the appellate court to private respondent, we rule that it
cannot be recovered under the circumstances. According to Article 2208 of the Civil Code, attorney's
fees may be awarded only when it has been stipulated upon or under the instances provided therein.26
Likewise, being in the concept of actual damages, the award for attorney's fees must have clear, factual
and legal bases27 which, in this case, do not exist.
Regarding the dismissal of petitioner's counterclaim for actual and moral damages, the appellate court
affirmed the assailed order of the trial court because it found no basis to grant the amount of damages
prayed for by petitioner. We find no reason to reverse the trial court and the Court of Appeals. Actual
damages are those awarded in satisfaction of, or in recompense for, loss or injury sustained. To be
recoverable, they must not only be capable of proof but must actually be proved with a reasonable
degree of certainty.28 Petitioner was unable to prove that he suffered loss or injury, hence, his claim for
actual damages must fail. Moreover, petitioner's prayer for moral damages was not warranted as moral
damages should result from the wrongful act of a person. The worries and anxieties suffered by a party
hailed to court litigation are not compensable.29
With the foregoing discussion, we no longer deem it necessary to delve into the issue of laches.
WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed decision of the Court
of Appeals is hereby REVERSED and SET ASIDE.
No costs. SO ORDERED.