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Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 156841

June 30, 2005

GF EQUITY, INC., petitioner,


vs.
ARTURO VALENZONA, respondent.
DECISION
CARPIO-MORALES, J.:
On challenge via Petition for Review on Certiorari is the Court of Appeals October 14, 2002
Decision1 reversing that of the Regional Trial Court (RTC) of Manila dated June 28, 1997 2 which
dismissed the complaint of herein respondent Arturo Valenzona (Valenzona) for breach of contract with
damages against herein petitioner GF Equity, Inc. (GF Equity).
The factual antecedents of the case are as follows:
GF Equity, represented by its Chief Financial Officer W. Steven Uytengsu (Uytengsu), hired Valenzona as
Head Coach of the Alaska basketball team in the Philippine Basketball Association (PBA) under a
Contract of Employment.3
As head coach, the duties of Valenzona were described in the contract to include the following:
xxx
1. . . . coaching at all practices and games scheduled for the CORPORATIONs TEAM during the
scheduled season of the ASSOCIATION . . ., coaching all exhibition games scheduled by the
corporation as approved by the PBA during and prior to the scheduled season, coaching (if
invited to participate) in the ASSOCIATIONs All Star Game and attending every event conducted
in association with the All Star Game,and coaching the play-off games subsequent to the
scheduled season based on the athletic program of the PBA.
xxx
3. The COACH agrees to observe and comply with all requirements of the CORPORATION
respecting conduct of its TEAM and its players, at all times whether on or off the playing floor.
The CORPORATION may, from time to time during the continuance of this contract, establish
reasonable rules for the government of its players "at home" and "on the road"; and such rules
shall be part of this contract as fully is ( sic) if herein written and shall be the responsibility of the
COACH to implement; x x x
4. The COACH agrees (a) to report at the time and place fixed by the CORPORATION in good
physical condition; (b) to keep himself throughout the entire season in good physical condition; (c)
to give his best services, as well as his loyalty to the CORPORATION, and to serve as basketball
coach for the CORPORATION and its assignees; (d) to be neatly and fully attired in public and

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always to conduct himself on and off the court according to the highest standards of honesty,
morality, fair play and sportsmanship; (e) not to do anything which is detrimental to the best
interests of the CORPORATION.
xxx
7. The COACH agrees that if so requested by the CORPORATION, he will endorse the
CORPORATIONs products in commercial advertising, promotions and the like. The COACH
further agrees to allow the CORPORATION or the ASSOCIATION to take pictures of the
COACH alone or together with others, for still photographs, motion pictures or television, at such
times as the CORPORATION or the ASSOCIATION may designate, and no matter by whom
taken may be used in any manner desired by either of them for publicity or promotional purposes.
(Underscoring supplied).
xxx
Even before the conclusion of the contract, Valenzona had already served GF Equity under a verbal
contract by coaching its team, Hills Brothers, in the 3rd PBA Conference of 1987 where the team was
runner-up.
Under the contract, GF Equity would pay Valenzona the sum of Thirty Five Thousand Pesos (P35,000.00)
monthly, net of taxes, and provide him with a service vehicle and gasoline allowance.
While the employment period agreed upon was for two years commencing on January 1, 1988 and
ending on December 31, 1989, the last sentence of paragraph 3 of the contract carried the following
condition:
3. x x x If at any time during the contract, the COACH, in the sole opinion of the CORPORATION, fails to
exhibit sufficient skill or competitive ability to coach the team, the CORPORATION may terminate this
contract. (Emphasis supplied)
Before affixing his signature on the contract, Valenzona consulted his lawyer who pointed out the onesidedness of the above-quoted last sentence of paragraph 3 thereof. The caveat notwithstanding,
Valenzona still acceded to the terms of the contract because he had trust and confidence in Uytengsu
who had recommended him to the management of GF Equity.
During his stint as Alaskas head coach, the team placed third both in the Open and All-Filipino PBA
Conferences in 1988.
Valenzona was later advised by the management of GF Equity by letter of September 26, 1988 of the
termination of his services in this wise:
We regret to inform you that under the contract of employment dated January 1, 1988 we are
invoking our rights specified in paragraph 3.
You will continue to be paid until your outstanding balance which, as of September 25, 1988,
is P75,868.38 has been fully paid.
Please return the service vehicle to my office no later than September 30, 1988. 4 (Emphasis supplied)

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Close to six years after the termination of his services, Valenzonas counsel, by letter of July 30,
1994,5 demanded from GF Equity payment of compensation arising from the arbitrary and unilateral
termination of his employment. GF Equity, however, refused the claim.
Valenzona thus filed on September 26, 1994 before the Regional Trial Court of Manila a
complaint6 against GF Equity for breach of contract with damages, ascribing bad faith, malice and
"disregard to fairness and to the rights of the plaintiff" by unilaterally and arbitrarily pre-terminating the
contract without just cause and legal and factual basis. He prayed for the award of actual damages in the
amount of P560,000.00 representing his unpaid compensation from September 26, 1988 up to December
31, 1989, at the rate of P35,000.00 a month; moral damages in the amount of P100,000.00; exemplary
damages in the amount of P50,000.00; attorneys fees in the amount of P100,000.00; and costs of suit.
Before the trial court, Valenzona challenged the condition in paragraph 3 of the contract as lacking the
element of mutuality of contract, a clear transgression of Article 1308 of the New Civil Code, and reliance
thereon, he contended, did not warrant his unjustified and arbitrary dismissal.
GF Equity maintained, on the other hand, that it merely exercised its right under the contract to preterminate Valenzonas employment due to incompetence. And it posited that he was guilty of laches and,
in any event, his complaint should have been instituted before a labor arbiter.
The trial court, upholding the validity of the assailed provision of the contract, dismissed, by decision of
June 28, 1997,7 the complaint of Valenzona who, it held, was fully aware of entering into a bad bargain.
The Court of Appeals, before which Valenzona appealed, reversed the trial courts decision, by decision of
October 14, 2002,8 and accordingly ordered GF Equity to pay him damages.
In its decision, the appellate court held that the questioned provision in the contract "merely confers upon
GF Equity the right to fire its coach upon a finding of inefficiency, a valid reason within the ambit of its
management prerogatives, subject to limitations imposed by law, although not expressly stated in the
clause";
and
"the rightgranted in the contract can neither be said to be immoral, unlawful, or contrary to public policy."
It concluded, however, that while "the mutuality of the clause" is evident, GF Equity "abused its right by
arbitrarily terminating . . . Valenzonas employment and opened itself to a charge of bad faith." Hence,
finding that Valenzonas claim for damages is "obviously . . . based on Art. 19 of the Civil Code" which
provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.,
the appellate court awarded Valenzona the following damages, furnishing the justification therefor:
. . . a) Compensatory damages representing his unearned income for 15 months. Actual and
compensatory damages are those recoverable because of a pecuniary loss in business, trade, property,
profession, job or occupation. As testified, his employment contract provided a monthly income of
PhP35,000, which he lost from September 26, 1988 up to December 31, 1989 as a consequence of his
arbitrary dismissal; b) Moral damages of PhP20,000. The act caused wounded feelings on the part of the
plaintiff. Moral damages is recoverable under Article 2220 and the chapter on Human Relations of the
Civil Code (Articles 1936) when a contract is breached in bad faith; c) Exemplary damages of PhP20,000,
by way of example or correction for the public good; and d) When exemplary damages are awarded,
attorneys fees can also be given. We deem it just to grant 10% of the actual damages as attorneys fees.
(Underscoring supplied)
Hence, this petition at bar, GF Equity faulting the appellate court in

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. . . CONCLUD[ING] WRONGLY FROM ESTABLISHED FACTS IN A MANNER VIOLATIVE OF


APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE.9
GF Equity argues that the appellate court committed a non-sequitur when it agreed with the findings of
fact of the lower court but reached an opposite conclusion. It avers that the appellate court made itself a
guardian of an otherwise intelligent individual well-versed in tactical maneuvers; that the freedom to enter
into contracts is protected by law, and the courts will not interfere therewith unless the contract is contrary
to law, morals, good customs, public policy or public order; that there was absolutely no reason for the
appellate court to have found bad faith on its part; and that, at all events, Valenzona is guilty of laches for
his unexplained inaction for six years.
Central to the resolution of the instant controversy is the determination of whether the questioned last
sentence of paragraph 3 is violative of the principle of mutuality of contracts.
Mutuality is one of the characteristics of a contract, its validity or performance or compliance of which
cannot be left to the will of only one of the parties. 10 This is enshrined in Article 1308 of the New Civil
Code, whose underlying principle is explained in Garcia v. Rita Legarda, Inc.,11 viz:
Article 1308 of the New Civil Code reads as follows:
"The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one
of them."
The above legal provision is a virtual reproduction of Article 1256 of the old Civil Code but it was so
phrased as to emphasize the principle that the contract must bind both parties. This, of course is based
firstly, on the principle that obligations arising from contracts have the force of law between the
contracting parties and secondly, that there must be mutuality between the parties based on
their essential equality to which is repugnant to have one party bound by the contract leaving the
other free therefrom (8 Manresa 556). Its ultimate purpose is to render void a contract containing a
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of
the contracting parties.
x x x (Emphasis, italics and underscoring supplied)
The ultimate purpose of the mutuality principle is thus to nullify a contract containing a condition which
makes its fulfillment or pre-termination dependent exclusively upon the uncontrolled will of one of the
contracting parties.
Not all contracts though which vest to one party their determination of validity or compliance or the right to
terminate the same are void for being violative of the mutuality principle. Jurisprudence is replete with
instances of cases12 where this Court upheld the legality of contracts which left their fulfillment or
implementation to the will of either of the parties. In these cases, however, there was a finding of the
presence of essential equality of the parties to the contracts, thus preventing the perpetration of injustice
on the weaker party.
In the case at bar, the contract incorporates in paragraph 3 the right of GF Equity to pre-terminate the
contract that "if the coach, in the sole opinion of the corporation, fails to exhibit sufficient skill or
competitive ability to coach the team, the corporation may terminate the contract." The assailed condition
clearly transgresses the principle of mutuality of contracts. It leaves the determination of whether
Valenzona failed to exhibit sufficient skill or competitive ability to coach Alaska team solely to the
opinion of GF Equity. Whether Valenzona indeed failed to exhibit the required skill or competitive ability
depended exclusively on the judgment of GF Equity. In other words, GF Equity was given an unbridled

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prerogative to pre-terminate the contract irrespective of the soundness, fairness or reasonableness, or


even lack of basis of its opinion.
To sustain the validity of the assailed paragraph would open the gate for arbitrary and illegal dismissals,
for void contractual stipulations would be used as justification therefor.
The assailed stipulation being violative of the mutuality principle underlying Article 1308 of the Civil Code,
it is null and void.
The nullity of the stipulation notwithstanding, GF Equity was not precluded from the right to pre-terminate
the contract. The pre-termination must have legal basis, however, if it is to be declared justified.
GF Equity failed, however, to advance any ground to justify the pre-termination. It simply invoked the
assailed provision which is null and void.
While GF Equitys act of pre-terminating Valenzonas services cannot be considered willful as it was
based on a stipulation, albeit declared void, it, in doing so, failed to consider the abuse of rights
principle enshrined in Art. 19 of the Civil Code which provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
This provision of law sets standards which must be observed in the exercise of ones rights as well as
in the performance of its duties, to wit: to act with justice; give every one his due; and observe honesty
and good faith.
Since the pre-termination of the contract was anchored on an illegal ground, hence, contrary to law, and
GF Equity negligently failed to provide legal basis for such pre-termination, e.g. that Valenzona breached
the contract by failing to discharge his duties thereunder, GF Equity failed to exercise in a legitimate
manner its right to pre-terminate the contract, thereby abusing the right of Valenzona to thus entitle him to
damages under Art. 19 in relation to Article 20 of the Civil Code the latter of which provides:
Art. 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.
In De Guzman v. NLRC,13 this Court quoted the following explanation of Tolentino why it is impermissible
to abuse our rights to prejudice others.
The exercise of a right ends when the right disappears, and it disappears when it is abused, especially to
the prejudice of others. The mask of a right without the spirit of justice which gives it life is repugnant to
the modern concept of social law. It cannot be said that a person exercises a right when he unnecessarily
prejudices another or offends morals or good customs. Over and above the specific precepts of positive
law are the supreme norms of justice which the law develops and which are expressed in three
principles: honeste vivere,14 alterum non laedere15 and jus suum quique tribuere;16 and he who violates
them violates the law. For this reason, it is not permissible to abuse our rights to prejudice others.
The disquisition in Globe Mackay Cable and Radio Corporation v. Court of Appeals 17 is just as relevant as
it is illuminating on the present case. In that case, this Court declared that even granting that the therein
petitioners might have had the right to dismiss the therein respondent from work, the abusive manner in
which that right was exercised amounted to a legal wrong for which the petitioners must be held liable.
One of the more notable innovations of the New Civil Code is the codification of "some basic principles
that are to be observed for the rightful relationship between human beings and for the stability of the

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social order." [REPORT ON THE CODE COMMISSION ON THE PROPOSED CIVIL CODE OF THE
PHILIPPINES, p. 39]. The framers of the Code, seeking to remedy the defect of the old Code which
merely stated the effects of the law, but failed to draw out its spirit, incorporated certain fundamental
precepts which were "designed to indicate certain norms that spring from the fountain of good
conscience" and which were also meant to serve as "guides for human conduct [that] should run as
golden threads through society, to the end that law may approach its supreme ideal, which is the sway
and dominance of justice" (Id.) Foremost among these principles is that pronounced in Article 19 which
provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
This article, known to contain what is commonly referred to as the principle of abuse of rights, sets certain
standards which must be observed not only in the exercise of one's rights but also in the performance of
one's duties. These standards are the following: to act with justice; to give everyone his due; and to
observe honesty and good faith. The law, therefore, recognizes a primordial limitation on all rights; that in
their exercise, the norms of human conduct set forth in Article 19 must be observed. A right, though by
itself legal because recognized or granted by law as such, may nevertheless become the source
of some illegality. When a right is exercised in a manner which does not conform with the norms
enshrined in Article 19 and results in damage to another, a legal wrong is thereby committed for
which the wrongdoer must be held responsible. But while Article 19 lays down a rule of conduct for
the government of human relations and for the maintenance of social order, it does not provide a remedy
for its violation. Generally, an action for damages under either Article 20 or Article 21 would be
proper.18 Emphasis and underscoring supplied).
As for GF Equitys defense of laches on account of Valenzonas invocation of his right under the contract
only after the lapse of six years, the same fails.
Laches has been defined as the failure or neglect for an unreasonable and unexplained length of time to
do that which by exercising due diligence, could or should have been done earlier, thus giving rise to a
presumption that the party entitled to assert it either has abandoned or declined to assert it. It is not
concerned with mere lapse of time; the fact of delay, standing alone, is insufficient to constitute laches. 19
Laches applies in equity, whereas prescription applies at law. Our courts are basically courts of law, not
courts of equity. Laches cannot thus be invoked to evade the enforcement of an existing legal right.
Equity, which has been aptly described as a "justice outside legality," is applied only in the absence of,
and never against, statutory law.Aequetas nunquam contravenit legis. Thus, where the claim was filed
within the statutory period of prescription, recovery therefor cannot be barred by laches. The doctrine of
laches should never be applied earlier than the expiration of time limited for the commencement of
actions at law,20 unless, as a general rule, inexcusable delay in asserting a right and acquiescense in
existing conditions are proven.21 GF Equity has not proven, nay alleged, these.
Under Article 114422 of the New Civil Code, an action upon a written contract must be brought within 10
years from the time the right of action accrues. Since the action filed by Valenzona is an action for breach
upon a written contract, his filing of the case 6 years from the date his cause of action arose was well
within the prescriptive period, hence, the defense of laches would not, under the circumstances, lie.
Consequently, Valenzona is entitled to recover actual damages his salary which he should have
received from the time his services were terminated up to the time the employment contract expired. 23
As for moral damages which the appellate court awarded, Article 2220 of the New Civil Code allows such
award to breaches of contract where the defendant acted fraudulently or in bad faith. Malice or bad faith
implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
It contemplates a state of mind affirmatively operating with furtive design or ill-will. 24 Bad faith means a

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breach of a known duty through some motive of interest or ill will. It must, however, be substantiated by
evidence. Bad faith under the law cannot be presumed, it must be established by clear and convincing
evidence.
As earlier stated, however, the pre-termination of the contract was not willful as GF Equity based it on a
provision therein which is void. Malice or bad faith cannot thus be ascribed to GF Equity.
The unbroken jurisprudence is that in breach of contract cases where a party is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the
breach of the obligation which the parties had foreseen or could reasonably have foreseen. The
damages, however, do not include moral damages.25
The award by the appellate court of moral damages must thus be set aside. And so must the award of
exemplary damages, absent a showing that GF Equity acted in a wanton, fraudulent, reckless, oppressive
or malevolent manner.26
The award to Valenzona of attorneys fees must remain, however, GF Equity having refused to pay the
balance of Valenzonas salaries to which he was, under the facts and circumstances of the case, entitled
under the contract, thus compelling him to litigate to protect his interest. 27
WHEREFORE, the decision of the Court of Appeals dated October 14, 2002 is hereby SET ASIDE and
another rendered declaring the assailed provision of the contract NULL AND VOID and ORDERING
petitioner, GF Equity, to pay private respondent, Arturo Valenzona, actual damages in the amount
of P525,000.00 and attorneys fees in the amount of P60,000.00.
Costs against petitioner.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

Footnotes
1

CA Rollo 84-92.
Records at 211-213.
3
Id. at 7-10.
4
Id. at 86.
5
Id. at 11-12.
6
Id. at 1-6.
7
Vide note 2.
8
Vide note 1.
9
Rollo at 6.
10
Tolentino, Civil Code Of The Philippines, Vol. IV, 1990 ed., p. 410.
11
21 SCRA 555, 558-560 (1967).
12
E.g., Jespajo Realty v. Court of Appeals 390 SCRA 27, 39 (2002). This Court in this case enunciated the
rule that the express provision in the lease agreement of the parties that violation of any of the terms and
conditions of the contract shall be sufficient ground for termination thereof by the lessor, removes the
contract from the application of Article 1308.
In Taylor v. Uy Tieng Piao, 43 Phil. 873 (1922), this Court ruled that Article 1256 (now Art. 1308)
creates no impediment to the insertion in a contract for personal service of a resolutory condition
permitting the cancellation of the contract by one of the parties. Such a stipulation, as can be
readily seen, does not make either the validity of the fulfillment of the contract dependent upon the
will of the party to whom is conceded the privilege of cancellation; for where the contracting parties
have agreed that such option shall exist, the exercise of the option is as much in the fulfillment of
the contract as any other act which may have been the subject of agreement. x x x.
2

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In Allied Banking Corporation v. Court of Appeals, 284 SCRA 357, 363-365 (1998), this Court held:
"The fact that such option is binding only on the lessor and can be exercised only by the
lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not to give
the option to the lessee. And while the lessee has a right to elect whether to continue with the lease
or not, once he exercises his option to continue and the lessor accepts, both parties are thereafter
bound by the new lease agreement. Their rights and obligations become mutually fixed, and the
lessee is entitled to retain possession of the property for the duration of the new lease, and the
lessor may hold him liable for the rent therefore. The lessee cannot thereafter escape liability even
if he should subsequently decide to abandon the premises. Mutuality obtains in such a contract and
equality exists between the lessor and the lessee since they remain with the same faculties in
respect to fulfillment." (Underscoring supplied)
13
211 SCRA 723, 730 (1992).
14
To live honorably, creditably, or virtuously.
15
Not to injure another.
16
To render to everyone his own.
17
176 SCRA 778, 790-791 (1989).
18
Id. at 783-784.
19
Chavez v. Bonto-Perez, 242 SCRA 73, 80 (1995).
20
Imperial Victory Shipping Agency v. NLRC 200 SCRA 178, 184 (1991).
21
Z. E. Lotho, Inc. v. Ice & Cold Storage Industries of the Phils., Inc. 3 SCRA 744, 750 (1961);Buenaventura
v. David, 37 Phil. 435 (1918).
22
Art. 1144. The following actions must be brought within 10 years from the time the right of action accrues.
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
23
In Teknika Skills and Trade Services, Inc. v. NLRC, 212 SCRA 132, 139-140 (1992), this Court held:
"The principal cause of action in private respondents complaint is breach of contract of
employment for a definite period. Having established her case, which public respondents correctly
sustained, she is entitled to the salary corresponding to the unexpired portion of her contract. This
is not a simple case of illegal dismissal of an employee whose employment is without a definite
period."
24
Far East Bank and Trust Company v. Court of Appeals, 241 SCRA 671, 675 (1995).
25
Philippine Air Lines v. Miano, 242 SCRA 235, 240 (1995) and Lufthansa German Airlines v. Court of
Appeals, 243 SCRA 600, 614-615 (1995). See also China Airlines, Ltd. v. Court of Appeals, 211 SCRA 897,
905-906 (1992); Saludo, Jr. v. Court of Appeals 207 SCRA 498, 535-536 (1992); China Airlines, Ltd. v.
Intermediate Appellate Court, G.R. No. 73835, January 17, 1989; and Philippine Airlines v. Court of Appeals,
G.R. No. L-46558, July 31, 1981.
26
Article 2232 of the New Civil Code; Salvador v. Court of Appeals, G.R. No. 124899, March 30, 2004.
27
Article 2208 of the New Civil Code provides:
Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded:
(2) When the defendants act or omission has compelled the plaintiff to litigate with
third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmens compensation and employers liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered.
In all cases, the attorneys fees and expenses of litigation must be reasonable. (Emphasis supplied)

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SECOND DIVISION
[G.R. No. 128066. June 19, 2000]
JARDINE DAVIES INC., petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY
CORPORATION,respondents.
[G.R. No. 128069 June 19, 2000]
PURE FOODS CORPORATION, petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY
CORPORATION, respondents.
DECISION
BELLOSILLO, J.:
This is rather a simple case for specific performance with damages which could have been resolved
through mediation and conciliation during its infancy stage had the parties been earnest in expediting the
disposal of this case. They opted however to resort to full court proceedings and denied themselves the
benefits of alternative dispute resolution, thus making the process more arduous and long-drawn.
The controversy started in 1992 at the height of the power crisis which the country was then experiencing.
To remedy and curtail further losses due to the series of power failures, petitioner PURE FOODS
CORPORATION (hereafter PUREFOODS) decided to install two (2) 1500 KW generators in its food
processing plant in San Roque, Marikina City.
Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several
suppliers and dealers were invited to attend a pre-bidding conference to discuss the conditions, propose
scheme and specifications that would best suit the needs of PUREFOODS. Out of the eight (8)
prospective bidders who attended the pre-bidding conference, only three (3) bidders, namely, respondent
FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER
submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as required.
Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po,
PUREFOODS confirmed the award of the contract to FEMSCO Gentlemen:
This will confirm that Pure Foods Corporation has awarded to your firm the project:
Supply and Installation of two (2) units of 1500 KW/unit Generator Sets at the Processed
Meats Plant, Bo. San Roque, Marikina, based on your proposal number PC 28-92 dated
November 20, 1992, subject to the following basic terms and conditions:
1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and
labor for the local portion and the labor for the imported materials, payable by progress
billing twice a month, with ten percent (10%) retention. The retained amount shall be

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released thirty (30) days after acceptance of the completed project and upon posting of
Guarantee Bond in an amount equivalent to twenty percent (20%) of the contract price.
The Guarantee Bond shall be valid for one (1) year from completion and acceptance of
project. The contract price includes future increase/s in costs of materials and labor;
2. The project shall be undertaken pursuant to the attached specifications. It is
understood that any item required to complete the project, and those not included in the
list of items shall be deemed included and covered and shall be performed;
3. All materials shall be brand new;
4. The project shall commence immediately and must be completed within twenty (20)
working days after the delivery of Generator Set to Marikina Plant, penalty equivalent to
1/10 of 1% of the purchase price for every day of delay;
5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the
contract price, and shall procure All Risk Insurance equivalent to the contract price upon
commencement of the project. The All Risk Insurance Policy shall be endorsed in favor of
and shall be delivered to Pure Foods Corporation;
6. Warranty of one (1) year against defective material and/or workmanship.
Once finalized, we shall ask you to sign the formal contract embodying the foregoing
terms and conditions.
Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and
contractors all-risk insurance policy in the amount of P6,137,293.00 which PUREFOODS through its Vice
President Benedicto G. Tope acknowledged in a letter dated 18 December 1992. FEMSCO also made
arrangements with its principal and started the PUREFOODS project by purchasing the necessary
materials. PUREFOODS on the other hand returned FEMSCOs Bidders Bond in the amount
of P1,000,000.00, as requested.
Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President
Teodoro L. Dimayuga unilaterally canceled the award as "significant factors were uncovered and brought
to (their) attention which dictate (the) cancellation and warrant a total review and re-bid of (the) project."
Consequently, FEMSCO protested the cancellation of the award and sought a meeting with
PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already
awarded the project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc.
(hereafter JARDINE), which incidentally was not one of the bidders.
FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and
desist from delivering and installing the two (2) generators at PUREFOODS. Its demand letters
unheeded, FEMSCO sued both PUREFOODS and JARDINE: PUREFOODS for reneging on its contract,
and JARDINE for its unwarranted interference and inducement. Trial ensued. After FEMSCO presented
its evidence, JARDINE filed a Demurrer to Evidence.
On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, [1] granted JARDINEs Demurrer to Evidence.
The trial court concluded that "[w]hile it may seem to the plaintiff that by the actions of the two defendants
there is something underhanded going on, this is all a matter of perception, and unsupported by hard
evidence, mere suspicions and suppositions would not stand up very well in a court of law." [2] Meanwhile
trial proceeded as regards the case against PUREFOODS.

10 | P a g e

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the
sum of P2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the
sum of US$14,000.00 or its peso equivalent, andP900,000.00 representing contractor's mark-up on
installation work, considering that it would be impossible to compel PUREFOODS to honor, perform and
fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting that
construction had already started thereon; (c) to pay attorneys fees in an amount equivalent to 20% of the
total amount due; and, (d) to pay the costs. The trial court dismissed the counterclaim filed by
PUREFOODS for lack of factual and legal basis.
Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June
1994 Resolution of the trial court which granted the Demurrer to Evidence filed by JARDINE resulting in
the dismissal of the complaint against it, while PUREFOODS appealed the 28 July 1994 Decision of the
same court which ordered it to pay FEMSCO.
On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. [3] It
also reversed the 27 June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO
damages for inducing PUREFOODS to violate the latters contract with FEMSCO. As such, JARDINE was
ordered to pay FEMSCO P2,000,000.00 for moral damages. In addition, PUREFOODS was also directed
to pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well as
20% of the total amount due as attorney's fees.
On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for
reconsideration filed by PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by
PUREFOODS and JARDINE which were subsequently consolidated.
PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised
on a misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was not an
acceptance of the latter's bid proposal and award of the project but more of a qualified acceptance
constituting a counter-offer which required FEMSCO's express conforme. Since PUREFOODS never
received FEMSCOs conforme, PUREFOODS was very well within reason to revoke its qualified
acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO.
PUREFOODS also contends that it was never in bad faith when it dealt with FEMSCO. Hence moral and
exemplary damages should not have been awarded.
Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the
supposed contract between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the
latters alleged contract with FEMSCO. Moreover, JARDINE reasons that FEMSCO, an artificial person, is
not entitled to moral damages. But granting arguendo that the award of moral damages is
proper, P2,000,000.00 is extremely excessive.
In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected
contract between PUREFOODS and FEMSCO; and second, granting there existed a perfected contract,
whether there is any showing that JARDINE induced or connived with PUREFOODS to violate the latter's
contract with FEMSCO.
A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more
persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to
give, to do, or not to do." [4] There can be no contract unless the following requisites concur: (a) consent of
the contracting parties; (b) object certain which is the subject matter of the contract; and, (c) cause of the
obligation which is established.[5] A contract binds both contracting parties and has the force of law
between them.
Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the
offeror. From that moment, the parties are bound not only to the fulfillment of what has been expressly

11 | P a g e

stipulated but also to all the consequences which, according to their nature, may be in keeping with good
faith, usage and law.[6] To produce a contract, the acceptance must not qualify the terms of the offer.
However, the acceptance may be express or implied. [7] For a contract to arise, the acceptance must be
made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made
known to the offeror.
In the instant case, there is no issue as regards the subject matter of the contract and the cause of the
obligation. The controversy lies in the consent - whether there was an acceptance of the offer, and if so, if
it was communicated, thereby perfecting the contract.
To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since
petitioner PUREFOODS started the process of entering into the contract by conducting a bidding, Art.
1326 of the Civil Code, which provides that "[a]dvertisements for bidders are simply invitations to make
proposals," applies. Accordingly, the Terms and Conditions of the Biddingdisseminated by petitioner
PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or quotations
submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the reply of
petitioner PUREFOODS, the acceptance or rejection of the respective offers.
Quite obviously, the 12 December 1992 letter of petitioner PUREFOODS to FEMSCO constituted
acceptance of respondent FEMSCOs offer as contemplated by law. The tenor of the letter, i.e., "This will
confirm that Pure Foods has awarded to your firm (FEMSCO) the project," could not be more categorical.
While the same letter enumerated certain "basic terms and conditions," these conditions were imposed on
the performance of the obligation rather than on the perfection of the contract. Thus, the first "condition"
was merely a reiteration of the contract price and billing scheme based on the Terms and Conditions of
Bidding and the bid or previous offer of respondent FEMSCO. The second and third "conditions" were
nothing more than general statements that all items and materials including those excluded in the list but
necessary to complete the project shall be deemed included and should be brand new. The fourth
"condition" concerned the completion of the work to be done, i.e., within twenty (20) days from the
delivery of the generator set, the purchase of which was part of the contract. The fifth "condition" had to
do with the putting up of a performance bond and an all-risk insurance, both of which should be given
upon commencement of the project. The sixth "condition" related to the standard warranty of one (1) year.
In fine, the enumerated "basic terms and conditions" were prescriptions on how the obligation was to be
performed and implemented. They were far from being conditions imposed on the perfection of the
contract.
In Babasa v. Court of Appeals [8] we distinguished between a condition imposed on the perfection of a
contract and a condition imposed merely on the performance of an obligation. While failure to comply with
the first condition results in the failure of a contract, failure to comply with the second merely gives the
other party options and/or remedies to protect his interests.
We thus agree with the conclusion of respondent appellate court which affirmed the trial court As can be inferred from the actual phrase used in the first portion of the letter, the
decision to award the contract has already been made. The letter only serves as a
confirmation of such decision. Hence, to the Courts mind, there is already an acceptance
made of the offer received by Purefoods. Notwithstanding the terms and conditions
enumerated therein, the offer has been accepted and/or amplified the details of the terms
and conditions contained in the Terms and Conditions of Bidding given out by Purefoods
to prospective bidders.[9]
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a
"conditional counter-offer," respondent FEMCO's submission of the performance bond and contractor's
all-risk insurance was an implied acceptance, if not a clear indication of its acquiescence to, the
"conditional counter-offer," which expressly stated that the performance bond and the contractor's all-risk

12 | P a g e

insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment
thereof by petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete
manifestation of its knowledge that respondent FEMSCO indeed consented to the "conditional counteroffer." After all, as earlier adverted to, an acceptance may either be express or implied, [10] and this can be
inferred from the contemporaneous and subsequent acts of the contracting parties.
Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent
FEMSCO's conforme would only be a mere surplusage. The discussion of the price of the project two (2)
months after the 12 December 1992 letter can be deemed as nothing more than a pressure being exerted
by petitioner PUREFOODS on respondent FEMSCO to lower the price even after the contract had been
perfected. Indeed from the facts, it can easily be surmised that petitioner PUREFOODS was haggling for
a lower price even after agreeing to the earlier quotation, and was threatening to unilaterally cancel the
contract, which it eventually did. Petitioner PUREFOODS also makes an issue out of the absence of a
purchase order (PO). Suffice it to say that purchase orders or POs do not make or break a contract. Thus,
even the tenor of the subsequent letter of petitioner PUREFOODS, i.e., "Pure Foods Corporation is
hereby canceling the award to your company of the project," presupposes that the contract has been
perfected. For, there can be no cancellation if the contract was not perfected in the first place.
Petitioner PUREFOODS also argues that it was never in bad faith. On the contrary, it believed in good
faith that no such contract was perfected. We are not convinced. We subscribe to the factual findings and
conclusions of the trial court which were affirmed by the appellate court Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE
FOODS) has acted with bad faith and this was further aggravated by the subsequent
inking of a contract between defendant Purefoods and erstwhile co-defendant Jardine. It
is very evident that Purefoods thought that by the expedient means of merely writing a
letter would automatically cancel or nullify the existing contract entered into by both
parties after a process of bidding. This, to the Courts mind, is a flagrant violation of the
express provisions of the law and is contrary to fair and just dealings to which every man
is due.[11]
This Court has awarded in the past moral damages to a corporation whose reputation has been
besmirched.[12] In the instant case, respondent FEMSCO has sufficiently shown that its reputation was
tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the
project, only to be canceled later. We thus sustain respondent appellate court's award of moral damages.
We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never
intended to enrich the recipient. Likewise, the award of exemplary damages by way of example for the
public good is excessive and should be reduced toP100,000.00.
Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to
pay moral damages to respondent FEMSCO as it supposedly induced PUREFOODS to violate the
contract with FEMSCO. We agree. While it may seem that petitioners PUREFOODS and JARDINE
connived to deceive respondent FEMSCO, we find no specific evidence on record to support such
perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner
PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both petitioner
JARDINE and respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE are
insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract
with respondent FEMSCO.
WHEREFORE, judgment is hereby rendered as follows:
(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals
reversing the 27 June 1994 resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to

13 | P a g e

pay private respondent FAR EAST MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is
REVERSED and SET ASIDE for insufficiency of evidence; and
(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering
petitioner PURE FOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY
CORPORATION the sum of P2,300,000.00 representing the value of engineering services it rendered,
US$14,000.00 or its peso equivalent, and P900,000.00 representing the contractor's mark-up on
installation work, as well as attorney's fees equivalent to twenty percent (20%) of the total amount due, is
AFFIRMED. In addtion, petitioner PURE FOODS CORPORATION is ordered to pay private respondent
FAR EAST MILLS SUPPLY CORPORATION moral damages in the amount of P1,000,000.00 and
exemplary damages in the amount of P1,000,000.00. Costs against petitioner.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

[1]

Judge Santiago G. Estrella, presiding.


Resolution of the trial court dated 27 June 1994; Rollo of G.R. No. 128066, p. 66.
[3]
Special Fifteenth Division; Decision penned by Associate Justice Maximiano C. Asuncion, concurred in by
Associate Justices Godardo A. Jacinto, Chairman, and Celia Lipana-Reyes.
[4]
Sanchez Roman 148-149.
[5]
Art. 1318, Civil Code.
[6]
See Art. 1315, id.
[7]
Art. 1320, id.
[8]
G.R. No. 124045, 21 May 1998, 290 SCRA 532, citing Romero v. Court of Appeals, G.R. No. 107207, 23
November 1995, 250 SCRA 223, and Lim v. Court of Appeals, G.R. No. 118347, 24 October 1996, 263 SCRA 569.
[9]
Decision of the appellate court, pp. 7-8; Decision of the trial court, p. 5.
[10]
Art. 1320, Civil Code.
[11]
Decision of the appellate court, pp. 9-10; Decision of the trial court, pp. 5-6.
[12]
Asset Privatization Trust v. Court of Appeals, G.R. No. 121171, 29 December 1998, 300 SCRA 579; See also
Mambulao Lumber Co. v. Philippine National Bank, No. L-22973, 30 January 1968, 22 SCRA 359.
[2]

THIRD DIVISION
[G.R. No. 116896. May 5, 1997]
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION petitioner, vs. COURT OF APPEALS, MA.
TERESA S. RAYMUNDO-ABARRA, JOSE S. RAYMUNDO, ANTONIO S. RAYMUNDO, RENE
S. RAYMUNDO, and AMADOR S. RAYMUNDO, respondents.
DECISION
DAVIDE, JR., J.:
This petition for review on certiorari has its roots in Civil Case No. 53444, which was sparked by the
petitioner's refusal to pay the rentals as stipulated in the contract of lease [1] on an undivided portion of
30,000 square meters of a parcel of land owned by the private respondents.
The lease contract, executed on 18 November 1985, reads in part as follows:

14 | P a g e

1. TERM OF LEASE - This lease shall be for a period of five (5) years, commencing on the date of issuance of
the industrial clearance by the Ministry of Human Settlements, renewable for a like or other period at the
option of the LESSEE under the same terms and conditions.
2. RATE OF RENT - LESSEE shall pay to the LESSOR rent at the monthly rate of TWENTY THOUSAND
PESOS (P20,000.00), Philippine Currency, in the manner set forth in Paragraph 3 below. This rate shall
be increased yearly by Five Percent (5%) based on the agreed monthly rate of P20,000.00 as follows:
Monthly Rate

Period Applicable

P21,000.00

Starting on the 2nd year

P22,000.00

Starting on the 3rd year

P23,000.00

Starting on the 4th year

P24,000.00

Starting on the 5th year

3. TERMS OF PAYMENT - The rent stipulated in Paragraph 2 above shall be paid yearly in advance by the
LESSEE. The first annual rent in the amount of TWO HUNDRED FORTY THOUSAND PESOS
(P240,000.00), Philippine currency, shall be due and payable upon the execution of this Agreement and the
succeeding annual rents shall be payable every twelve (12) months thereafter during the effectivity of this
Agreement.
4. USE OF LEASED PROPERTY - It is understood that the Property shall be used by the LESSEE as the site,
grounds and premises of a rock crushing plant and field office, sleeping quarters and canteen/mess
hall. The LESSORS hereby grant to the LESSEE the right to erect on the Leased Property such structure(s)
and/or improvement(s) necessary for or incidental to the LESSEE's purposes.
...
11. TERMINATION OF LEASE - This Agreement may be terminated by mutual agreement of the
parties. Upon the termination or expiration of the period of lease without the same being renewed, the
LESSEE shall vacate the Leased Property at its expense.
On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a Temporary Use
Permit[2] for the proposed rock crushing project. The permit was to be valid for two years unless sooner
revoked by the Ministry.
On 16 January 1986, private respondents wrote petitioner requesting payment of the first annual
rental in the amount of P240,000 which was due and payable upon the execution of the contract. They
also assured the latter that they had already stopped considering the proposals of other aggregates
plants to lease the property because of the existing contract with petitioner.[3]
In its reply-letter, petitioner argued that under paragraph 1 of the lease contract, payment of rental
would commence on the date of the issuance of an industrial clearance by the Ministry of Human
Settlements, and not from the date of signing of the contract. It then expressed its intention to terminate
the contract, as it had decided to cancel or discontinue with the rock crushing project "due to financial, as
well as technical, difficulties."[4]
The private respondents refused to accede to petitioner's request for the pretermination of the lease
contract. They insisted on the performance of petitioner's obligation and reiterated their demand for the
payment of the first annual rental.[5]

15 | P a g e

Petitioner objected to the claim of the private respondents and argued that it was "only obligated to
pay ... the amount ofP20,000.00 as rental payments for the one-month period of lease, counted from 07
January 1986 when the Industrial Permit was issued by the Ministry of Human Settlements up to 07
February 1986 when the Notice of Termination was served" [6] on private respondents.
On 19 May 1986, the private respondents instituted with the Regional Trial Court of Pasig an action
against petitioner for Specific Performance with Damages. [7] The case was docketed as Civil Case No.
53444 at Branch 160 of the said court. After the filing by petitioner of its Answer with Counterclaim, the
case was set for trial on the merits.
What transpired next was summarized by the trial court in this wise:
Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). Defendant asked for postponement of the reception of
its evidence scheduled on August 10, 1988 and as prayed for, was reset to August 25, 1988 (p. 91 rec.) Counsel for
defendant again asked for postponement, through representative, as he was presently indisposed. The case was
reset, intransferable to September 15 and 26, 1988 (p. 94 rec.) On September 2, 1988, the office of the Government
Corporate Counsel entered its appearance for defendant (p. 95, rec.) and the original counsel later withdrew his
appearance. On September 15, 1988 the Government Corporate Counsel asked for postponement, represented by
Atty. Elpidio de Vega, and with his conformity in open court, the hearing was reset, intransferable to September 26
and October 17, 1988. (p. 98, rec.) On September 26, 1988 during the hearing, defendant's counsel filed a motion
for postponement (urgent) as he had "sore eyes", a medical certificate attached.
Counsel for plaintiffs objected to the postponement and the court considered the evidence of the government
terminated or waived. The case was deemed submitted for decision upon the filing of the memorandum. Plaintiffs
filed their memorandum on October 26, 1988. (p. 111, rec.).
On October 18, 1988 in the meantime, the defendant filed a motion for reconsideration of the order of the court on
September 26, 1988 (p. 107, rec.) The motion was not asked to be set for hearing (p. 110 rec.) There was also no
proof of notice and service to counsel for plaintiff. The court in the interest of justice set the hearing on the motion
on November 29, 1988. (p. 120, rec.) but despite notice, again defendant's counsel was absent (p. 120-A, dorsal
side, rec.) without reason. The court reset the motion to December 16, 1988, in the interest of justice. The motion
for reconsideration was denied by the court. A second motion for reconsideration was filed and counsel set for
hearing the motion on January 19, 1989. During the hearing, counsel for the government was absent. The motion
was deemed abandoned but the court at any rate, after a review of the incidents and the grounds relied upon in the
earlier motion of defendant, found no reason to disturb its previous order.[8]
On 12 April 1989, the trial court rendered a decision ordering petitioner to pay the private
respondents the amount of P492,000 which represented the rentals for two years, with legal interest from
7 January 1986 until the amount was fully paid, plus attorney's fees in the amount of P20,000 and costs.[9]
Petitioner then appealed to the Court of Appeals alleging that the trial court erred in ordering it to pay
the private respondent the amount of P492,000 and in denying it the right to be heard.
Upon the affirmance of the trial court's decision[10] and the denial of its motion for reconsideration,
petitioner came to this Court ascribing to the respondent Court of Appeals the same alleged errors and
reiterating their arguments.
First. Petitioner invites the attention of this Court to paragraph 1 of the lease contract, which reads:
"This lease shall be for a period of five (5) years, commencing on the date of issuance of the industrial
clearance by the Ministry of Human Settlements...." It then submits that the issuance of an industrial
clearance is a suspensive condition without which the rights under the contract would not be
acquired. The Temporary Use Permit is not the industrial clearance referred to in the contract; for the said
permit requires that a clearance from the National Production Control Commission be first secured, and
besides, there is a finding in the permit that the proposed project does not conform to the Zoning
Ordinance of Rodriguez, (formerly Montalban), Rizal, where the leased property is located. Without the
industrial clearance the lease contract could not become effective and petitioner could not be compelled
to perform its obligation under the contract.

16 | P a g e

Petitioner is now estopped from claiming that the Temporary Use Permit was not the industrial
clearance contemplated in the contract. In its letter dated 24 April 1986, petitioner states:
We wish to reiterate PNCC Management's previous stand that it is only obligated to pay your clients the
amount of P20,000.00 as rental payments for the one-month period of the lease, counted from 07 January 1986
when the Industrial Permit was issued by the Ministry of Human Settlements up to 07 February 1986 when the
Notice of Termination was served on your clients.[11] (Underscoring Supplied).
The "Industrial Permit" mentioned in the said letter could only refer to the Temporary Use Permit issued
by the Ministry of Human Settlements on 7 January 1986. And it can be gleaned from this letter that
petitioner has considered the permit as industrial clearance; otherwise, petitioner could have simply told
the private respondents that its obligation to pay rentals has not yet arisen because the Temporary Use
Permit is not the industrial clearance contemplated by them. Instead, petitioner recognized its obligation
to pay rental counted from the date the permit was issued.
Also worth noting is the earlier letter of petitioner; thus:
[P]lease be advised of PNCC Management's decision to cancel or discontinue with the rock crushing
project due to financial as well as technical difficulties. In view thereof, we would like to terminate our
Lease Contract dated 18 November, 1985. Should you agree to the mutual termination of our Lease
Contract, kindly indicate your conformity hereto by affixing your signature on the space provided
below. May we likewise request Messrs. Rene, Jose and Antonio, all surnamed Raymundo and Mrs.
Socorro A. Raymundo as Attorney-in-Fact of Amador S. Raymundo to sign on the spaces indicated below.
[12]

It can be deduced from this letter that the suspensive condition - issuance of industrial clearance has already been fulfilled and that the lease contract has become operative. Otherwise, petitioner did not
have to solicit the conformity of the private respondents to the termination of the contract for the simple
reason that no juridical relation was created because of the non-fulfillment of the condition.
Moreover, the reason of petitioner in discontinuing with its project and in consequently cancelling the
lease contract was financial as well as technical difficulties, not the alleged insufficiency of the
Temporary Use Permit.
Second. Invoking Article 1266 and the principle of rebus sic stantibus, petitioner asserts that it
should be released from the obligatory force of the contract of lease because the purpose of the contract
did not materialize due to unforeseen events and causes beyond its control, i.e., due to abrupt change in
political climate after the EDSA Revolution and financial difficulties.
It is a fundamental rule that contracts, once perfected, bind both contracting parties, and obligations
arising therefrom have the force of law between the parties and should be complied with in good faith.
[13]
But the law recognizes exceptions to the principle of the obligatory force of contracts. One exception is
laid down in Article 1266 of the Civil Code, which reads: "The debtor in obligations to do shall also be
released when the prestation becomes legally or physically impossible without the fault of the obligor."
Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only to
obligations "to do", and not to obligations "to give". [14] An obligation "to do" includes all kinds of work or
service; while an obligation "to give" is a prestation which consists in the delivery of a movable or an
immovable thing in order to create a real right, or for the use of the recipient, or for its simple possession,
or in order to return it to its owner.[15]
The obligation to pay rentals[16] or deliver the thing in a contract of lease [17] falls within the prestation
to give; hence, it is not covered within the scope of Article 1266. At any rate, the unforeseen event and
causes mentioned by petitioner are not the legal or physical impossibilities contemplated in said
article. Besides, petitioner failed to state specifically the circumstances brought about by the abrupt
change in the political climate in the country except the alleged prevailing uncertainties in government
policies on infrastructure projects.

17 | P a g e

The principle of rebus sic stantibus[18] neither fits in with the facts of the case. Under this theory, the
parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the
contract also ceases to exist.[19] This theory is said to be the basis of Article 1267 of the Civil Code, which
provides:
ART. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom, in whole or in part.
This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus, which would endanger the security of contractual
relations. The parties to the contract must be presumed to have assumed the risks of unfavorable
developments. It is therefore only in absolutely exceptional changes of circumstances that equity
demands assistance for the debtor.[20]
In this case, petitioner wants this Court to believe that the abrupt change in the political climate of
the country after the EDSA Revolution and its poor financial condition rendered the performance of the
lease contract impractical and inimical to the corporate survival of the petitioner.
This Court cannot subscribe to this argument. As pointed out by private respondents:[21]
It is a matter of record that petitioner PNCC entered into a contract with private respondents on November
18, 1985. Prior thereto, it is of judicial notice that after the assassination of Senator Aquino on August 21,
1983, the country has experienced political upheavals, turmoils, almost daily mass demonstrations,
unprecedented, inflation, peace and order deterioration, the Aquino trial and many other things that brought
about the hatred of people even against crony corporations. On November 3, 1985, Pres. Marcos, being
interviewed live on U.S. television announced that there would be a snap election scheduled for February 7,
1986.
On November 18, 1985, notwithstanding the above, petitioner PNCC entered into the contract of lease with
private respondents with open eyes of the deteriorating conditions of the country.
Anent petitioners alleged poor financial condition, the same will neither release petitioner from the
binding effect of the contract of lease. As held in Central Bank v. Court of Appeals, [22] cited by the private
respondents, mere pecuniary inability to fulfill an engagement does not discharge a contractual obligation,
nor does it constitute a defense to an action for specific performance.
With regard to the non-materialization of petitioners particular purpose in entering into the contract
of lease, i.e., to use the leased premises as a site of a rock crushing plant, the same will not invalidate the
contract. The cause or essential purpose in a contract of lease is the use or enjoyment of a thing. [23] As a
general principle, the motive or particular purpose of a party in entering into a contract does not affect the
validity or existence of the contract; an exception is when the realization of such motive or particular
purpose has been made a condition upon which the contract is made to depend. [24] The exception is not
apply here.
Third. According to petitioner, the award of P492,000 representing the rent for two years is
excessive, considering that it did not benefit from the property. Besides, the temporary permit,
conformably with the express provision therein, was deemed automatically revoked for failure of petitioner
to use the same within one year from the issuance thereof. Hence, the rent payable should only be for
one year.
Petitioner cannot be heard to complain that the award is excessive. The temporary permit was valid
for two years but was automatically revoked because of its non-use within one year from its
issuance. The non-use of the permit and the non-entry into the property subject of the lease contract
were both imputable to petitioner and cannot, therefore, be taken advantage of in order to evade or
lessen petitioners monetary obligation. The damage or prejudice to private respondents is beyond
dispute. They unquestionably suffered pecuniary losses because of their inability to use the leased
premises. Thus, in accordance with Article 1659 of the Civil Code, [25] they are entitled to indemnification
for damages; and the award of P492,000 is fair and just under the circumstances of the case.

18 | P a g e

Finally, petitioner submits that the trial court gravely abused its discretion in denying petitioner the
right to be heard.
We disagree. The trial court was in fact liberal in granting several postponements [26] to petitioner
before it deemed terminated and waived the presentation of evidence in petitioners behalf.
It must be recalled that private respondents rested their case on 7 September 1987 yet. [27] Almost a
year after, or on 10 August 1988 when it was petitioners turn to present evidence, petitioners counsel
asked for postponement of the hearing to 25 August 1988 due to conflict of schedules, [28] and this was
granted.[29] At the rescheduled hearing, petitioners counsel, through a representative, moved anew for
postponement, as he was allegedly indisposed. [30] The case was then reset intransferable to September
15 and 26, 1988.[31] On 2 September 1988, the Office of the Government Corporate Counsel, through Atty.
Elpidio J. Vega, entered its appearance for the petitioner, [32] and later the original counsel withdrew his
appearance.[33] On 15 September 1988, Atty. Vega requested for postponement to enable him to go over
the records of the case.[34] With his conformity, the hearing was reset intransferable to September 26 and
October 17, 1988.[35] In the morning of 26 September 1988, the court received Atty. Vegas Urgent Motion
for Postponement on the ground that he was afflicted with conjunctivitis or sore eyes. [36] This time, private
respondents objected; and upon their motion, the court deemed terminated and waived the presentation
of evidence for the petitioner.[37]Nevertheless, before the court considered the case submitted for decision,
it required the parties to submit their respective memoranda within thirty days. [38] But petitioner failed to
file one.
Likewise, the court was liberal in respect to petitioners motion for reconsideration. Notwithstanding
the lack of request for hearing and proof of notice and service to private respondents, the court set the
hearing of the said motion on 29 November 1988. [39] Upon the denial of the said motion for lack of merit,
[40]
petitioner filed a second motion for reconsideration. But during the hearing of the motion on a date
selected by him, Atty. Vega was absent for no reason at all, despite due notice. [41]
From the foregoing narration of procedural antecedents, it cannot be said that the petitioner was
deprived of its day in court. The essence of due process is simply an opportunity to be heard. [42] To be
heard does not only mean oral arguments in court; one may be heard also through pleadings. Where
opportunity to be heard, either through oral arguments or pleadings, is accorded, there is no denial of
procedural due process.[43]
WHEREFORE, the instant petition is DENIED and the challenged decision of the Court of Appeals is
AFFIRMED in toto.
No pronouncements as to costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Melo, Francisco, and Panganiban, JJ., concur.

[1]

Exhibit "A," Original Record (OR), 68.


Exhibit "C," OR, 77; Rollo, 57.
[3]
Exhibit "B," OR, 76.
[4]
Exhibit "D," OR, 78.
[5]
Exhibit "E," Id., 80.
[6]
Exhibit "F," Id., 81-82.
[7]
Id., 1-7.
[8]
Order of 19 January 1989, OR, 129-130; Decision, 2-3.
[9]
OR 134-137; Rollo, 53-56. Per Judge Mariano M. Umali.
[10]
Rollo, 24-31. Per then Associate Justice Justo P. Torres, Jr. (now Associate Justice of the Supreme Court), with
the concurrence of then Associate Justice Bernardo P. Pardo and Associate Justice Corona Ibay-Somera.
[11]
Exhibit "F-1," OR, 82.
[12]
Exhibit "D," Id., 78-79.
[13]
Articles 1159, 1308, 1315, and 1356 of the Civil Code.
[2]

19 | P a g e

[14]

DESIDERIO P. JURADO, Comments and Jurisprudence on Obligations and Contracts 292 (10th revised ed.
1993) (hereafter JURADO).
[15]
IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of the Philippines 57 (1991)
(hereafter IV TOLENTINO).
[16]
JURADO, 283.
[17]
IV TOLENTINO 57.
[18]
At this point of affairs; in these circumstances. A name given to a tacit condition, said to attach to all treaties, that
they shall cease to be obligatory so soon as the state of facts and conditions upon which they were founded
has substantially changed. (Blacks Law Dictionary, 1139 [5th ed., 1979]).
[19]
Naga Telephone Co. v. Court of Appeals, 230 SCRA 351, 365 [1994] citing IV TOLENTINO 347.
[20]
IV TOLENTINO 347.
[21]
Memorandum for the Private Respondents, 17; Rollo, 160.
[22]
139 SCRA 46 [1985], citing Repide v. Afzelius, 39 Phil. 190 [1918].
[23]
V TOLENTINO 206 [1992]; V EDGARDO E. PARAS, Civil Code of the Philippines, 307 [1995].
[24]
V TOLENTINO 535
[25]
It provides:
Art. 1659. If the lessor or the lessee should not comply with the obligations set forth in Articles 1654 and 1657, the
aggrieved party may ask for rescission of the contract and indemnification for damages, or only the latter,
allowing the contract to remain in force.
[26]
Ocampo v. Arboleda, 153 SCRA 374, 381 [1987].
[27]
OR, 87.
[28]
OR, 89.
[29]
Id., 91.
[30]
Id., 94.
[31]
Id.
[32]
Id., 95.
[33]
Id., 99.
[34]
Id., 98.
[35]
Id.
[36]
Id., 101.
[37]
Id., 106.
[38]
Id.
[39]
Id., 120.
[40]
Id., 128.
[41]
Id., 127.
[42]
Roces v. Aportadera, 243 SCRA 108, 114 [1995]; Vallende v. NLRC, 245 SCRA 662, 666-667 [1995]; Navarro III v.
Damasco, 246 SCRA 260, 265 [1995].
[43]
Mutuc v. Court of Appeals, 190 SCRA 43, 49 [1990].

Republic of the Philippines


SUPREME COURT
Manila
EN BANC

G.R. No. 109125 December 2, 1994


ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.
Antonio M. Albano for petitioners.

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Umali, Soriano & Associates for private respondent.

VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in
CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the
trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by
Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and
Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058,
alleging, among others, that plaintiffs are tenants or lessees of residential and
commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street,
Binondo, Manila; that they have occupied said spaces since 1935 and have been
religiously paying the rental and complying with all the conditions of the lease contract;
that on several occasions before October 9, 1986, defendants informed plaintiffs that they
are offering to sell the premises and are giving them priority to acquire the same; that
during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs
made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put
their offer in writing to which request defendants acceded; that in reply to defendant's
letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and
conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent
another letter dated January 28, 1987 with the same request; that since defendants failed
to specify the terms and conditions of the offer to sell and because of information
received that defendants were about to sell the property, plaintiffs were compelled to file
the complaint to compel defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the complaint and
interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment which was
granted by the lower court. The trial court found that defendants' offer to sell was never
accepted by the plaintiffs for the reason that the parties did not agree upon the terms and
conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless,
the lower court ruled that should the defendants subsequently offer their property for sale
at a price of P11-million or below, plaintiffs will have the right of first refusal. Thus the
dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the defendants
and against the plaintiffs summarily dismissing the complaint subject to
the aforementioned condition that if the defendants subsequently decide
to offer their property for sale for a purchase price of Eleven Million
Pesos or lower, then the plaintiffs has the option to purchase the property

21 | P a g e

or of first refusal, otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved
by
the
decision,
plaintiffs
appealed
to
this
Court
in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by
Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and
Fernando A. Santiago), this Court affirmed with modification the lower court's judgment,
holding:
In resume, there was no meeting of the minds between the parties
concerning the sale of the property. Absent such requirement, the claim
for specific performance will not lie. Appellants' demand for actual, moral
and exemplary damages will likewise fail as there exists no justifiable
ground for its award. Summary judgment for defendants was properly
granted. Courts may render summary judgment when there is no
genuine issue as to any material fact and the moving party is entitled to a
judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA
815). All requisites obtaining, the decision of the court a quo is legally
justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed
from is hereby AFFIRMED, but subject to the following modification: The
court a quo in the aforestated decision gave the plaintiffs-appellants the
right of first refusal only if the property is sold for a purchase price of
Eleven Million pesos or lower; however, considering the mercurial and
uncertain forces in our market economy today. We find no reason not to
grant the same right of first refusal to herein appellants in the event that
the subject property is sold for a price in excess of Eleven Million pesos.
No pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for review
on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in
form and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this
Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring
the property in question to herein petitioner Buen Realty and Development Corporation,
subject to the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS
(P15,000,000.00), receipt of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for and in favor of the
VENDEE, his heirs, executors, administrators or assigns, the abovedescribed property with all the improvements found therein including all

22 | P a g e

the rights and interest in the said property free from all liens and
encumbrances of whatever nature, except the pending ejectment
proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration
fees for the transfer of title in his favor and other expenses incidental to
the sale of above-described property including capital gains tax and
accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng
spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of
petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the
lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the
property subject to the notice of lis pendens regarding Civil Case No. 87-41058
annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil
Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as
follows:
Presented before the Court is a Motion for Execution filed by plaintiff
represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng
and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty.
Anacleto Magno respectively were duly notified in today's consideration
of the motion as evidenced by the rubber stamp and signatures upon the
copy of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated September
21, 1990 as modified by the Court of Appeals in its decision in CA G.R.
CV-21123, and elevated to the Supreme Court upon the petition for
review and that the same was denied by the highest tribunal in its
resolution
dated
May
6,
1991
in
G.R.
No.
L-97276, had now become final and executory. As a consequence, there
was an Entry of Judgment by the Supreme Court as of June 6, 1991,
stating that the aforesaid modified decision had already become final and
executory.
It is the observation of the Court that this property in dispute was the
subject of theNotice of Lis Pendens and that the modified decision of this
Court promulgated by the Court of Appeals which had become final to
the effect that should the defendants decide to offer the property for sale
for a price of P11 Million or lower, and considering the mercurial and

23 | P a g e

uncertain forces in our market economy today, the same right of first
refusal to herein plaintiffs/appellants in the event that the subject property
is sold for a price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the necessary
Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million
pesos in recognition of plaintiffs' right of first refusal and that a new
Transfer Certificate of Title be issued in favor of the buyer.
All previous transactions involving the same property notwithstanding the
issuance of another title to Buen Realty Corporation, is hereby set aside
as having been executed in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive portion
of which reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled
case directing the Deputy Sheriff Ramon Enriquez of this Court to
implement said Writ of Execution ordering the defendants among others
to comply with the aforesaid Order of this Court within a period of one (1)
week from receipt of this Order and for defendants to execute the
necessary Deed of Sale of the property in litigation in favor of the
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration
of P15,000,000.00 and ordering the Register of Deeds of the City of
Manila, to cancel and set aside the title already issued in favor of Buen
Realty Corporation which was previously executed between the latter
and defendants and to register the new title in favor of the aforesaid
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C,
Petition) was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared
without force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ
of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of
Buen Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu
Unjiengs.
We affirm the decision of the appellate court.

24 | P a g e

A not too recent development in real estate transactions is the adoption of such arrangements as the right
of first refusal, a purchase option and a contract to sell. For ready reference, we might point out some
fundamental precepts that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do ( Art. 1156, Civil Code). The obligation is
constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical
tie which is the efficient cause established by the various sources of obligations (law, contracts, quasicontracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be
observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of
the obligation, are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds
between two persons whereby one binds himself, with respect to the other, to give something or to render
some service (Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or
preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the
prospective contracting parties indicate interest in the contract to the time the contract is concluded
(perfected). The perfection of the contract takes place upon the concurrence of the essential elements
thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds,
i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which
requires, in addition to the above, the delivery of the object of the agreement, as in a pledge
or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain
formalities prescribed by law, such as in a donation of real property, is essential in order to make the act
valid, the prescribed form being thereby an essential element thereof. The stage of consummationbegins
when the parties perform their respective undertakings under the contract culminating in the
extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs,
the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the
ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the
full payment of the purchase price), the breach of the condition will prevent the obligation to convey title
from acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that,
although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of
any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the
price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by
the execution of a public document) of the property sold. Where the condition is imposed upon the
perfection of the contract itself, the failure of the condition would prevent such perfection. 3 If the condition

25 | P a g e

is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition
or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price
is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and separate from the price, is what may properly be
termed a perfected contract ofoption. This contract is legally binding, and in sales, it conforms with the
second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from
the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the
obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the
option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to
comply with their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is
merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere
invitations to make offers or only as proposals. These relations, until a contract is perfected, are not
considered binding commitments. Thus, at any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is
effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree
learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within
which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has
the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the
offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324,
Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs.
Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado,
135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code
which ordains that "every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be
a breach of that contract to withdraw the offer during the agreed period. The option, however, is an
independent contract by itself, and it is to be distinguished from the projected main agreement (subject
matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the
offer before its acceptance(exercise of the option) by the optionee-offeree, the latter may not sue
for specific performance on the proposed contract ("object" of the option) since it has failed to reach its

26 | P a g e

own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of
the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact,
it has been intended to be part of the consideration for the main contract with a right of withdrawal on the
part of the optionee, the main contract could be deemed perfected; a similar instance would be an
"earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point
out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the
right of first refusal, understood in its normal concept, per se be brought within the purview of an option
under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the
same Code. An option or an offer would require, among other things, 10 a clear certainty on both the object
and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might
be made determinate, the exercise of the right, however, would be dependent not only on the grantor's
eventual intention to enter into a binding juridical relation with another but also on terms, including the
price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations governed not by contracts (since the essential
elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other
laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its
breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely
recognizes its existence, nor would it sanction an action for specific performance without thereby negating
the indispensable element of consensuality in the perfection of contracts. 11 It is not to say, however, that
the right of first refusal would be inconsequential for, such as already intimated above, an unjustified
disregard thereof, given, for instance, the circumstances expressed in Article 19 12 of the Civil Code, can
warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first
refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has
heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of
private respondents to honor the right of first refusal, the remedy is not a writ of execution on the
judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser
of the property, has acted in good faith or bad faith and whether or not it should, in any case, be
considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters
that must be independently addressed in appropriate proceedings. Buen Realty, not having been
impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by
respondent Judge, let alone ousted from the ownership and possession of the property, without first being
duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of
execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV21123. The Court of Appeals, in this regard, has observed:
Finally, the questioned writ of execution is in variance with the decision of the trial court
as modified by this Court. As already stated, there was nothing in said decision 13 that
decreed the execution of a deed of sale between the Cu Unjiengs and respondent

27 | P a g e

lessees, or the fixing of the price of the sale, or the cancellation of title in the name of
petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC,
143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at
the time the execution of any deed of sale between the Cu Unjiengs and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated
30 August 1991 and 27 September 1991, of the court a quo. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and
Mendoza, JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.

#Footnotes
1 Rollo, pp. 32-38.
2 Roque vs. Lapuz, 96 SCRA 741; Agustin vs. CA, 186 SCRA 375.
3 See People's Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777.
4 Delta Motor Corporation vs. Genuino, 170 SCRA 29.
5 See Art. 1459; Atkins, Kroll and Co., Inc. vs. Cua Hian Tek, 102 Phil. 948.
6 It is well to note that when the consideration given, for what otherwise would have been an
option, partakes the nature in reality of a part payment of the purchase price (termed as "earnest
money" and considered as an initial payment thereof), an actual contract of sale is deemed entered
into and enforceable as such.
7 Enriquez de la Cavada vs. Diaz, 37 Phil. 982.
8 Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil. 948.
9 Article 1319, Civil Code, provides:
Art. 1319. 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. A qualified acceptance constitutes a counter-offer. (Emphasis supplied.)

28 | P a g e

10 It is also essential for an option to be binding that valuable consideration distinct from the price
should be given (see Montilla vs. Court of Appeals, 161 SCRA 167; Sps. Natino vs. IAC, 197 SCRA
323; Cronico vs. J.M. Tuason & Co., Inc., 78 SCRA 331).
11 See Article 1315 and 1318, Civil Code; Madrigal & Co. vs. Stevenson & Co., 15 Phil. 38;
Salonga vs. Ferrales, 105 SCRA 359).
12 Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.
13 The decision referred to reads:
In resume, there was no meeting of the minds between the parties concerning the sale of the
property. Absent such requirement, the claim for specific performance will not lie. Appellants'
demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable
ground for its award. Summary judgment for defendants was properly granted. Courts may render
summary judgment when there is no genuine issue as to any material fact and the moving party is
entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All
requisites obtaining, the decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby
AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision,
gave the plaintiffs considering the mercurial and uncertain forces in our market economy today.
We find no reason not to grant the same right of first refusal to herein appellants in the event that
the subject property is sold for a price in excess of Eleven Million pesos. No pronouncement as to
costs.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-25777 November 26, 1976
ASUNCION MENESES VDA. DE CATINDIG, petitioner-appellant,
vs.
The Heirs of CATALINA ROQUE, namely, ESCOLASTICO CERVANTES, LEONCIA CERVANTES and
EMERENCIANA CERVANTES, represented by her guardian ad litem, DAMASO SANTOS; CARLOS
KATIPUNAN; Heirs of JORGE KATIPUNAN; Heirs of ROBERTO ROQUE, namely, MAGDALENA,
GORGONIA and ELISA, all surnamed ROQUE; INES ROQUE; Heirs of BARBARA ROQUE
VILLANUEVA, namely, MERCEDES VILLANUEVA FAJARDO, VENANCIA VILLANUEVA, LIGAYA
VILLANUEVA, PEDRO VILLANUEVA, PABLO VILLANUEVA, LEONILA VILLANUEVA, MARCIAL
VILLANUEVA; Heirs of APOLONIO ROQUE, namely, DOLORES, AURELIA, CONSTANCIO,
GUILLERMO, JOSEFINA, all surnamed ROQUE, DEMETRIA RAMIREZ; ENCARNACION
CAMINGAL, as guardian ad litem of RENATO and ERNESTO, both surnamed ROQUE; Heirs of
IRENE BOLORAN, namely, HERMOGENA, CIRIACO, VICENTE and DOMINADOR, all surnamed
TOLENTINO; Heirs of LEONILA DE GUZMAN, namely, PETRONILA, MARCELINA and
PEAFRANCIA, (all surnamed SANTIAGO, CIPRIANA) and PASTORA, both surnamed SANTIAGO,

29 | P a g e

both minors, represented by PETRONILA SANTIAGO, as guardian ad litem; GERMAN RAMIREZ;


Heirs of CONCORDIA ROQUE, namely, BELEN and GUILLERMO, both surnamed
PAGSANJAN, respondents-appellees.
Tansinsin & Tansinsin for petitioner-appellant.
Pablo, Diaz, Agosto & Palacio for respondent-appellees.

AQUINO, J.:
Asuncion Meneses Vda. de Catindig seeks the review of the decision of the Court of Appeals dated
December 31, 1965 which affirmed the judgment of the Court of First Instance Bulacan. The lower court
declared void certain documents of sale regarding portions of the fishpond in litigation, ordered Mrs.
Catindig to deliver to the respondents (except German Ramirez) the possession of the said fishpond, to
pay to them, as the reasonable compensation for the use and enjoyment of the fishpond, the sum of
P6,000 per annum from October 1, 1951 until the possession of the fishpond is restored to the
respondents, plus P1,000 as attorney's fees, and allowed the respondents to redeem from Mrs. Catindig
the 2/16 portion of the fishpond which German Ramirez had sold to her.
The facts are as follows:
The said fishpond, known as Lot No. 4626 of the Malolos Cadastre, has an area of more than thirteen
hectares. As shown in Original Certificate of Title No. 7937, it is registered in the names of the following
persons:
1. Catalina Roque, married to Anastacio Katipunan 6/16
2. Roberto Roque, married to Gregoria Borlongan 2/16
3. Ines Roque, married to Lucio Adriano 1/16
4. Barbara Roque, married to Eusebio Villanueva 1/16
5. Apolonio Roque, married to Isabel Borlongan 1/16
6. Concordia Roque, single 2/16
7. German Ramirez 1/16
8. Irene Boloran, married to Faustino Panganiban 1/16
9. Leonila de Guzman, 12 years old, single 1/16

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The co-owners of the fishpond leased it to Mrs. Catindig for a term of ten years counted from October 1,
1941 for a total rental of six thousand pesos (Exh. C-1; Amendment to Decision, per Resolution of
February 22, 1966).
After the termination of the lease on September 30, 1951, Mrs. Catindig remained in possession of the
fishpond because she was negotiating with the co-owners for the purchase thereof. She wanted to buy it
for P52,000.
On October 18, 1960 German Ramirez, one of the co-owners, executed a deed wherein he sold his 2/16
share to Mrs. Catindig for P6,500 (Exh. E). The sale was annotated on the title on October 19, 1960. Two
weeks later, Pedro Villanueva, one of the co-owners, learned of the sale executed by German Ramirez.
That sale retroacted to April 13, 1950.
On November 18, 1960 the respondents filed this action against Mrs. Catindig to compel her to allow
them to redeem the portion sold by German Ramirez. In April, 1962 the respondents amended their
complaint by including,inter alia, a prayer for the recovery of the possession of the fishpond.
The Court of Appeals found that:
1. The consideration of P52,000 was not paid by Mrs. Catindig to the co-owners because she was not
able to obtain a loan, the proceeds of which would have been used to pay the co-owners who had
executed simulated sales of their shares, as shown in the private documents, Exhibits 6 to 26. (The
originals of those documents were allegedly lost. Only photostatic copies thereof were presented in
evidence).
2. Because Mrs. Catindig did not pay the price of P52,000, the projected sale, "which was in truth a
simulated one so as to enable her just to mortgage the property in order to secure the necessary amount
with which to pay the consideration" was void ab initio. There was no notarized deed of sale because Mrs.
Catindig did not pay the price to the co-owners except German Ramirez.
3. Ines Roque and the heirs of Roberto Roque did not barter their shares for the two parcels of land
owned by Mrs. Catindig. What the said co-owners did was to possess the lands of Mrs. Catindig in
exchange for the latter's possession of their shares in the fishpond.
4. Considering the area of the fishpond and the upward trend in values, the amount of P6,000 a year is
the reasonable compensation for its use and enjoyment (Resolution amending the decision).
The fourteen assignments of error of Mrs. Catindig in this appeal are overlapping and repetitious She
argues that the Court of Appeals erred in holding (1) that the sale of the fishpond to her is void for
nonpayment of the price; (2) that the price was not paid because she did not obtain any loan; (3) that the
annual rental value is P6,000; (4) that the transaction between Mrs. Catindig, on one hand, and Ines
Roque and the heirs of Roberto Roque, on the other, was an exchange of possession and not "land for
land", and (5) that German Ramirez sold his share on October 18, 1960 and not on April 13, 1950
Those assignments of error involve factual issues which cannot be ventilated in a review of the decision
of the Court of Appeals. Only legal questions may be raised (Sec. 29, Judiciary Law; Sec. 2, Rule 45,
Rules of Court). As a rule, the factual findings of the Court of Appeals are conclusive on this Court.

31 | P a g e

The conclusive factual finding of the Appellate Court that the alleged sales on April 13 or 14, 1950 of
respondents' shares are simulated and void ab initio (See Onglengco vs. Ozaeta, 70 Phil. 43) renders
untenable appellant Catindig's contentions that the remedies available to the respondents, such as an
action for annulment, rescission or reformation, are barred by prescription or laches.
The alleged sales were absolutely simulated, fictitious or inexistent contracts (Arts. 1346 and 1409[2],
Civil Code). "The action or defense for the declaration of the inexistence of a contract does not prescribe"
(Art. 1410, Ibid; Eugenio vs. Perdido, 97 Phil. 41). Mere lapse of time cannot give efficacy to a void
contract (Tipton vs. Velasco, 6 Phil. 67).
The Appellate Court's finding that the price was not paid or that the statement in the supposed contracts
of sale (Exh. 6 to 26) as to the payment of the price was simulated fortifies the view that the alleged sales
were void. "If the price is simulated, the sale is void ..." (Art. 1471, Civil Code).
A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as
paid, has in fact never been paid by the purchaser to the vendor (Ocejo, Perez & Co. vs. Flores and Bas,
40 Phil. 921; Mapalo vs. Mapalo, L-21489, May 19, 1966, 64 O. G. 331, 17 SCRA 114, 122). Such a sale
is non-existent (Borromeo vs. Borromeo, 98 Phil. 432) or cannot be considered consummated (Cruzado
vs. Bustos and Escaler, 34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28 SCRA 229).
The foregoing discussion disposes of whatever legal issues were raised by appellant Catindig which are
interwoven with her factual contentions, including the issue as to whether she is entitled to demand the
execution of a notarized deed of sale for the 14/16 pro indiviso portion of the fishpond. She is not entitled
because, as already held, the alleged sales in her favor are void.
And in view of the result arrived at in this case, the trial court and the Court of Appeals did not err in
awarding to the respondents the sum of one thousand pesos as attorney's fees (See art. 2208, Civil
Code).
Mrs. Catindig, in her thirteenth assignment of error, which is partly a reproduction of her ninth assignment
of error in the Appellate Court, injected new matters not raised in that Court.
She contends that inasmuch as the fishpond was placed under receivership by virtue of the trial court's
order of January 15, 1964 (Annex D of her brief not included in the Record on Appeal), she should not
answer for the reasonable value of the use and compensation of the fishpond from the time it was placed
in the receiver's possession.
She also contends that she is entitled to the rental value of the 2/16 portion sold to her by German
Ramirez and the 3/16 share of Ines Roque and the heirs of Roberto Roque and that the latter should
restore to her the possession of the two parcels of riceland located at Barrio Pitpitan, Bulacan, Bulacan,
the possession of which was provisionally exchanged for Mrs. Catindig's possession of their 3/16 share.
She further contends that the land taxes paid by her should be deducted from the annual rental of P6,000
(not P600 as erroneously stated on page 88 of her brief).
The respondents, in their reply brief and rejoinder, did not answer those contentions. That silence or
omission may be construed as an admission of their merit.

32 | P a g e

To do justice in this case, we have to resolve those alternative points raised by the appellant. "It is a
cherished rule of procedure that a court should always strive to settle the entire controversy in a single
proceeding leaving no root or branch to bear the seeds of future litigation" ( Marquez vs. Marquez, 73 Phil.
74, 78).
We hold that, as a matter of fairness and equity or to avoid unjust enrichment, the liability of Mrs. Catindig
for the reasonable value of the use and occupation of the fishpond should be limited to the period from
October 1, 1951 up to the time in January, 1964 when she turned over the fishpond to the receiver,
namely, the deputy clerk of court of the Court of First Instance of Bulacan, Malolos Branch I.
It is the receiver who should deliver to the respondents the possession of the fishpond which apparently
has been in custodia legis.
From the compensation of P6,000 per annum which Mrs. Catindig is obligated to pay to the respondents,
should be deducted the 2/16 portion of said compensation, corresponding to the share of German
Ramirez, from October 1, 1951 to January, 1964. Thereafter, Mrs. Catindig is entitled to demand the 2/16
share in the net fruits or earnings of the fishpond from the receiver until the said share is redeemed by the
respondents.
Ines Roque and the heirs of Roberto Roque should deliver to Mrs. Catindig the possession of the two
parcels of riceland already mentioned and account for the fruits thereof beginning January, 1964 when
Mrs. Catindig ceased to have possession of their 3/16 share. The trial court should hold a hearing to
determine the amount of the net fruits which Mrs. Catindig is entitled to receive from the said co-owners.
She has the right to retain the 3/16 portion of the annual rental of P6,000 corresponding to the shares of
Ines Roque and the heirs of Roberto Roque.
Moreover, the respondents (except German Ramirez), as owners of the fishpond, should reimburse Mrs.
Catindig for the amount of the land taxes advanced by her (See Exh. 27; Par. II [iii], Lease Contract, Exh.
C-1). "Any person who is constrained to pay the taxes of another shall be entitled to reimbursement from
the latter" (Art. 2175, Civil Code; See art. 597). One situation envisaged in that provision is when the
possessor of land under lease or otherwise has to pay the taxes to prevent a seizure of the property by
the government, the owner having become delinquent in the payment of the land tax (p. 72, Report of the
Code Commission).
One last point should be resolved. The Court of Appeals and the trial court, in sanctioning the
respondents' right to redeem from Mrs. Catindig the 2/16 share sold to her by German Ramirez, relied on
article 1088 of the Civil Code which refers to the sale by any of the heirs of his hereditary rights to a
stranger. That article has no relevant application to this case.
Inasmuch as the fishpond is under co-ownership, not co-heirship, and what are involved herein are the
shares of co-owners, not the hereditary rights of co-heirs, it is article 1620 of the Civil Code that is
applicable. Article 1620 provides that "a co-owner of a thing may exercise the right of redemption in case
the shares of all the other co-owners or of any of them, are sold to a third person." The period for
exercising the right of legal redemption is that fixed in article 1623 of the Civil Code, not the period fixed in
article 1524 of the Spanish Civil Code.
WHEREFORE, the judgment of the trial court and the Court of Appeals is affirmed with the following
modifications:

33 | P a g e

1. The receiver (not Asuncion Meneses Vda. de Catindig) should deliver the possession of the fishpond to
the respondents or their duly authorized representative, together with 14/16 of the net earnings of the
fishpond from January 15, 1964 up to the time the possession is delivered to the respondents.
2. The receiver should deliver to Mrs. Catindig a 2/16 share of the net earnings of the fishpond,
corresponding to the share of German Ramirez, from January 15, 1964 up to the time the said share is
redeemed from her.
3. From the annual compensation of P6,000 a year due from Mrs. Catindig for the use and enjoyment of
the fishpond from October 1, 1951 up to January 15, 1964 (when the fishpond was placed under
receivership) should be deducted (a) 2/16 which correspond to the share of German Ramirez, (b) 3/16
which correspond to the shares of Ines Roque and the heirs of Roberto Roque, and (c) 14/16 of the realty
taxes on the fishpond paid by Mrs. Catindig (See Exh. 27).
4. Ines Roque and the heirs of Roberto Roque should deliver to Mrs. Catindig the possession of her two
parcels of riceland located at Barrio Pitpitan, Bulacan, Bulacan, render an accounting of the fruits thereof
from January 15, 1964 up to the time the possession is delivered and pay to her the value of the net fruits
thereof. For that purpose, the trial court should hold the appropriate hearing. No costs.
SO ORDERED.
Fernando (Chairman), Barredo, Antonio and Martin, JJ., concur.
Concepcion, J., took no part

==================================================
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==================================================
==============
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-32364 April 30, 1979
RAMIE TEXTILES, INC., petitioner,
vs.
HON. ISMAEL MATHAY, SR., in his capacity as Auditor General respondent.
Lichauco Picazo & Agcaoili for petitioner.
Office of the Solicitor General for respondent.

34 | P a g e

DE CASTRO, J:
This is an appeal by way of certiorari from the decision of the Auditor General contained in his 9th
indorsement dated January 14, 1970 and his resolution dated July 28, 1970 reiterating the aforesaid
decision, disallowing the chum of petitioner for refund of real estate taxes.
The undisputed facts of the case are as follows:
Petitioner Ramie Textiles, Inc., a domestic corporation, commenced its operation in 1959. During the first
five (5) years of operation, it voluntarily paid the amount of P78,041.17 as real estate taxes on its plant
machinery and equipment used by its general mill at Bagbagin, Valenzula Bulacan. later, or on May 19,
1967 said petitioner , that under Article 1, Section 3(f) of Commonwealth Act No. 470, otherwise known as
the Assessment Law, 1 said machineries are exempt from realty tax, submitted to the Provincial Treasurer,
through the Provincial Assesor of Bulacan a claim for refund of P78,041.17 which it paid as real estate
taxes for the said five (5) years on its plant machinery and equipment. On July 11, 1967 the Provincial
Treasurer, however, denied the chum for refund on the ground that under Section 359 of the Revised
Manual of Instructions to Treasurers, a claim for refund of taxes erroneously paid or illegally collected or
assessed should be presented within two (2) years from date of payment. Petitioner submitted a reply on
August 1, 1967 to the said opinion of the Provincial Treasurer alleging that Section 359 is inapplicable
because said provision refers specifically to municipal ordinances which were subsequently declared
illegal and taxes illegally assessed and collected under such ordinances. It is neither a tax collected
through the municipal ordinance nor a tax y assessed and collected but real estate taxes voluntarily paid
by petitioner.
On November 10, 1967, the Office of the Auditor General of B indorsed petitioner's claim to the Auditor
General at Quezon City with the information that the former concurs with the opinion of the Provincial
Treasurer and the Provincial Assessor of Bulacan that the claim for refund may not be in order
considering that the payment of real estate taxes was made voluntarily by petitioner without protest. But
since the amount involved is very significant, the matter was submitted to the Central Office for decision
and/or instruction.
The matter also appeared to have been referred to the Secretary of Finance for comment, and in his
indorsement dated July 22, 1969 to the Auditor General the Secretary stated he had no objection to the
grant of the claim for refund of petitioner whether or not such payments have been made under protest,
subject to the application of the statutory prescriptive period of six (6) years under Article 1145 of the New
Civil Code of the Philippines.
The Auditor General in his 9th indorsement dated January 14, 1970, ruled that the claim for refund of real
estate taxes paid by petitioner having been voluntarily made without pro. test may not be allowed
pursuant to Section 54 of Commonwealth Act No. 470 which provides:
Section 54. Restriction upon power of court to impeach tax - No court shall entertain
any suit assailing the validity of a tax assessed under this Act until the taxpayer shall
have paid, under pro. test, the taxes assessed against him ....
The question at issue, therefore, is whether or not protest is a condition precedent or a sine qua
non requirement for the recover of real estate taxes paid under the erroneous belief that the, claimant was
liable therefor, and if so, what is the prescriptive period.
Petitioner claims that protest is not a sine qua non requirement in order that taxes mistakenly paid may be
refunded it alleges that Section 54 is not applicable since it contemplates a situation where the taxpayer
disagrees with an assessment because it is illegal or erroneous.

35 | P a g e

We agree with petitioner. Protest is not a requirement in order that a taxpayer who paid under a mistaken
belief that it is required by law, may claim for a refund. Section 54 of Commonwealth Act No. 470 does not
apply to petitioner which could conceivably not have been expected to protest a payment it honestly
believed to be due. The same refers only to the case where the taxpayer, despite his knowledge of the
erroneous or illegal assessment, still pays and fails to make the proper protest, for in such case, he
should manifest an unwillingness to pay, and failing so, the taxpayer is deemed to have waived his right to
claim a refund.
In the case at bar, petitioner, therefore, cannot be said to have waived his right. He had no knowledge of
the fact that it was exempted from payment of the realty tax under Commonwealth Act No. 470. Payment
was made through error or mistake, in the honest belief that petitioner was liable, and therefore could not
have been made under protest, but with complete voluntariness. In any case, a taxpayer should not be
held to suffer loss by his good intention to comply with what he believes is his legal obligation, where such
obligation does not really exist.
The case of National Waterworks and Sewerage Authority vs. Quezon City, et al., G.R. No. L-25310, April
26, 1968, 23 SCRA 286-291, to the effect that prior protest of realty tax payments is necessary for
recovery, cited by respondent, is not in point. The facts of said case are different because there was
already prior knowledge on the part of NWSA of its exemption from payment of its taxes which dated back
to 1957 when it paid under protest, and then again in 1961. But despite the fact that it knew already that it
was exempt, it still paid without protest the taxes for 1958, 1959, 1960 and 1962. Hence, this Court ruled:
Stated otherwise, this appeal concerns only the taxes paid for 1958 to 1962 (total
amount; P449,088.46). Starting from 1957 up to 1962, NWSA already knew it was
exempt, as shown by its payment in 1957 under protest, reiterated in 1961. NWSA
therefore, should have paid the rest of the taxes from 1957 to 1962 under protest ...
It is not disputed that petitioner is exempt from the payment of realty taxes during the first five (5) years of
its operation The fact that petitioner paid thru error or Mistake, and the government accepted the
payment, save rise to the application of the principle of solutio indebiti under Article 2154 of the New Civil
Code, which provides that "if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises." There is, therefore, created a tie or juridical
relation in the nature of solutio indebitiexpressly classified as quasi- contract under Section 2, Chapter I of
Title XVII of the New Civil Code.
The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle that no
one shall enrich himself unjustly at the expense of another.' Hence, it would seem unedifying for the
government, that knowing it has no right at all to collect or to receive money for alleged taxes paid by
mistake, it would be reluctant to return the same. 3
Solutio indebiti is a quasi-contract, and the instant case being in the nature of solutio indebiti the claim for
refund must be commenced within six (6) years from date of payment pursuant to Article 1145(2) of the
New Civil Code. 4
Respondent's contention that petitioner's right to recover real estate taxes has prescribed in accordance
with Section 359 of the Revised Manual of Instructions to Treasurers which reads:
Section 359. Refund of taxes paid under ordinance subsequently declared illegal and
taxes illegally assessed and collected. To encourage prompt and voluntary payment of
taxes and to maintain the principle that the government should not, at the expense of the
taxpayer, retain what is not legally due it, for refund of taxes erroneously paid or illegally
collected or assessed may be presented within two (2) years from date of payment.
Claim for refund presented thereafter will no longer be entertained. All claims for recovery
of taxes illegally and erroneously as shall be filed with the treasurer who collected the tax.

36 | P a g e

The treasurer may... decide the protest or he may forward the same to the corresponding
authority for decision. His comment and recommendation shall be stated by him together
with the protest. This procedure shall be strictly followed in order to determine as to
whether or not a formal or written claim was filed within the two (2) years from date of
payment.
is without merit. The said provision applies to taxes paid under ordinance subsequently declared illegal or
taxes illegally assessed and collected under such ordinance, but not to payments of real estate taxes
mistakenly made, as in the present case. Furthermore, the Revised Manual of Instructions to Treasurers
is a mere compilation of existing accounting instructions affecting the finance and administration of local
government. Section 359, particularly, has no force and effect of a law, and the same can not prevail over
the provisions of the New Civil Code.
Equally not applicable is Section 17 of Commonwealth Act No. 470 cited by respondent in relation to the
right of a property owner to contest the validity of assessment. Said provision provides:
Section 17. Appeal by owner to the Board of Tax Appeals (Now Board of Assessment
Appeals, R. A. No. 1125). Any owner who is not satisfied with the action of a provincial
assessor in the assessment of his property may, within sixty (60) days from the date of
receipt by him of the written notice of assessment as provided in Section 16 hereof,
appeal to the Board of Tax Appeals, which is created in each province, by filing with it or
with the municipal Treasurer of the municipality where the property assessed is situated
who is duty bound to transmit it to the Board of Tax Appeals, a petitioner to that effect
stating the grounds of his appeal
Petitioner is not unsatisfied in the assessment of its property. Assessment having been made, it paid the
real estate taxes without knowing that it is exempt.
It appears from the records that petitioner has paid the following real estate taxes from 1959 to 1963.
Date Paid

Official

Amount

For

Receipt No.

Paid

the Year

July 24,1959

1636654

P2,620.59

1959

Feb. 29,1060

3746474

6,551.48

1960

Mar. 27,1961

5095410

7,861.77

1961

Oct. 31, 1961

7689684

5,241.18

1961

May 8, 1963

9707021

26,415.55

1962

June 11, 1965

9054471

17,610.36

1963

September 9, 1965

9055551

11,740.24

1963

Total

P78041.17

As already stated the claim for refund must be made within six (6) years from date of payment. Since
petitioner demanded the refund of real estate taxes mistakenly paid only on May 23, 1967, it can recover
only those paid during the period from October 31, 1961 to September 9, 1965 or a total amount of

37 | P a g e

P61,007.33. Petitioner has, by reason of the six (6) years prescriptive period, lost its right to recover the
amount of P17,033.84 paid during the period from July 24, 1959 to March 27,1961.
IN VIEW OF THE FOREGOING, the appealed judgment is hereby set aside, and petitioner Ramie
Textiles, Inc. is allowed to recover the real estate taxes paid during the period from October 31, 1961 to
September 9, 1965, in the total amount of P61,00733. No costs.
SO ORDERED.
Teehankee (Chairman), Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.
#Footnotes
1 Article 1, Section 3(f) of Commonwealth Act No. 470 provides: Section 3. Property
exempt from tax.
The exemptions shall be as follows:
xxx xxx xxx
(f) Machinery, which term shall embrace machines, mechanical contrivances instruments,
appliances, and apparatus attached to the real estate, used for industry agricultural or
manufacturing purposes, during the first five (5) years of operation of the machinery.
2 Velez vs. B , et al 73 Phil 630.
3 Gonzalo Payat & Sons, Inc. vs- City of Manila 7 SCRA 970.
4 Article 1145. The following actions must be commenced within 6 yearn
1. x x x
2. Upon a quasi-contract.
5 Rollo, pp. 12, 40.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 98695 January 27, 1993


JUAN J. SYQUIA, CORAZON C. SYQUIA, CARLOTA C. SYQUIA, CARLOS C. SYQUIA and
ANTHONY C. SYQUIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, and THE MANILA MEMORIAL PARK CEMETERY,
INC., respondents.
Pacis & Reyes Law Offices for petitioners.
Augusto S. San Pedro & Ari-Ben C. Sebastian for private respondents.

CAMPOS, JR., J.:

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Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota C. Syquia, Carlos C. Syquia, and
Anthony Syquia, were the parents and siblings, respectively, of the deceased Vicente Juan Syquia. On
March 5, 1979, they filed a complaint 1 in the then Court of First Instance against herein private
respondent, Manila Memorial Park Cemetery, Inc. for recovery of damages arising from breach of contract
and/or quasi-delict. The trial court dismissed the complaint.
The antecedent facts, as gathered by the respondent Court, are as follows:
On March 5, 1979, Juan, Corazon, Carlota and Anthony all surnamed Syquia, plaintiffappellants herein, filed a complaint for damages against defendant-appellee, Manila
Memorial Park Cemetery, Inc.
The complaint alleged among others, that pursuant to a Deed of Sale (Contract No.
6885) dated August 27, 1969 and Interment Order No. 7106 dated July 21, 1978
executed between plaintiff-appellant Juan J. Syquia and defendant-appellee, the former,
father of deceased Vicente Juan J. Syquia authorized and instructed defendant-appellee
to inter the remains of deceased in the Manila Memorial Park Cemetery in the morning of
July 25, 1978 conformably and in accordance with defendant-appellant's (sic) interment
procedures; that on September 4, 1978, preparatory to transferring the said remains to a
newly purchased family plot also at the Manila Memorial Park Cemetery, the concrete
vault encasing the coffin of the deceased was removed from its niche underground with
the assistance of certain employees of defendant-appellant (sic); that as the concrete
vault was being raised to the surface, plaintiffs-appellants discovered that the concrete
vault had a hole approximately three (3) inches in diameter near the bottom of one of the
walls closing out the width of the vault on one end and that for a certain length of time
(one hour, more or less), water drained out of the hole; that because of the aforesaid
discovery, plaintiffs-appellants became agitated and upset with concern that the water
which had collected inside the vault might have risen as it in fact did rise, to the level of
the coffin and flooded the same as well as the remains of the deceased with ill effects
thereto; that pursuant to an authority granted by the Municipal Court of Paraaque, Metro
Manila on September 14, 1978, plaintiffs-appellants with the assistance of licensed
morticians and certain personnel of defendant-appellant (sic) caused the opening of the
concrete vault on September 15, 1978; that upon opening the vault, the following became
apparent to the plaintiffs-appellants: (a) the interior walls of the concrete vault showed
evidence of total flooding; (b) the coffin was entirely damaged by water, filth and silt
causing the wooden parts to warp and separate and to crack the viewing glass panel
located directly above the head and torso of the deceased; (c) the entire lining of the
coffin, the clothing of the deceased, and the exposed parts of the deceased's remains
were damaged and soiled by the action of the water and silt and were also coated with
filth.
Due to the alleged unlawful and malicious breach by the defendant-appellee of its
obligation to deliver a defect-free concrete vault designed to protect the remains of the
deceased and the coffin against the elements which resulted in the desecration of
deceased's grave and in the alternative, because of defendant-appellee's gross
negligence conformably to Article 2176 of the New Civil Code in failing to seal the
concrete vault, the complaint prayed that judgment be rendered ordering defendantappellee to pay plaintiffs-appellants P30,000.00 for actual damages, P500,000.00 for

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moral damages, exemplary damages in the amount determined by the court, 20% of
defendant-appellee's total liability as attorney's fees, and expenses of litigation and costs
of suit. 2
In dismissing the complaint, the trial court held that the contract between the parties did not guarantee
that the cement vault would be waterproof; that there could be no quasi-delict because the defendant was
not guilty of any fault or negligence, and because there was a pre-existing contractual relation between
the Syquias and defendant Manila Memorial Park Cemetery, Inc.. The trial court also noted that the father
himself, Juan Syquia, chose the gravesite despite knowing that said area had to be constantly sprinkled
with water to keep the grass green and that water would eventually seep through the vault. The trial court
also accepted the explanation given by defendant for boring a hole at the bottom side of the vault: "The
hole had to be bored through the concrete vault because if it has no hole the vault will (sic) float and the
grave would be filled with water and the digging would caved (sic) in the earth, the earth would caved (sic)
in the (sic) fill up the grave." 3
From this judgment, the Syquias appealed. They alleged that the trial court erred in holding that the
contract allowed the flooding of the vault; that there was no desecration; that the boring of the hole was
justifiable; and in not awarding damages.
The Court of Appeals in the Decision 4 dated December 7, 1990 however, affirmed the judgment of
dismissal. Petitioner's motion for reconsideration was denied in a Resolution dated April 25, 1991. 5
Unsatisfied with the respondent Court's decision, the Syquias filed the instant petition. They allege herein
that the Court of Appeals committed the following errors when it:
1. held that the contract and the Rules and Resolutions of private respondent allowed the
flooding of the vault and the entrance thereto of filth and silt;
2. held that the act of boring a hole was justifiable and corollarily, when it held that no act
of desecration was committed;
3. overlooked and refused to consider relevant, undisputed facts, such as those which
have been stipulated upon by the parties, testified to by private respondent's witnesses,
and admitted in the answer, which could have justified a different conclusion;
4. held that there was no tort because of a pre-existing contract and the absence of
fault/negligence; and
5. did not award the P25,000.00 actual damages which was agreed upon by the parties,
moral and exemplary damages, and attorney's fees.
At the bottom of the entire proceedings is the act of boring a hole by private respondent on the vault of the
deceased kin of the bereaved petitioners. The latter allege that such act was either a breach of private
respondent's contractual obligation to provide a sealed vault, or, in the alternative, a negligent act which
constituted a quasi-delict. Nonetheless, petitioners claim that whatever kind of negligence private
respondent has committed, the latter is liable for desecrating the grave of petitioners' dead.

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In the instant case, We are called upon to determine whether the Manila Memorial Park Cemetery, Inc.,
breached its contract with petitioners; or, alternatively, whether private respondent was guilty of a tort.
We understand the feelings of petitioners and empathize with them. Unfortunately, however, We are more
inclined to answer the foregoing questions in the negative. There is not enough ground, both in fact and in
law, to justify a reversal of the decision of the respondent Court and to uphold the pleas of the petitioners.
With respect to herein petitioners' averment that private respondent has committed culpa aquiliana, the
Court of Appeals found no negligent act on the part of private respondent to justify an award of damages
against it. Although a pre-existing contractual relation between the parties does not preclude the
existence of a culpa aquiliana, We find no reason to disregard the respondent's Court finding that there
was no negligence.
Art. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no
pre-existing contractual relation between the parties, is called a quasi-delict . . . .
(Emphasis supplied).
In this case, it has been established that the Syquias and the Manila Memorial Park Cemetery,
Inc., entered into a contract entitled "Deed of Sale and Certificate of Perpetual Care" 6 on August
27, 1969. That agreement governed the relations of the parties and defined their respective rights
and obligations. Hence, had there been actual negligence on the part of the Manila Memorial
Park Cemetery, Inc., it would be held liable not for a quasi-delict orculpa aquiliana, but
for culpa contractual as provided by Article 1170 of the Civil Code, to wit:
Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.
The Manila Memorial Park Cemetery, Inc. bound itself to provide the concrete box to be send in the
interment. Rule 17 of the Rules and Regulations of private respondent provides that:
Rule 17. Every earth interment shall be made enclosed in a concrete box, or in an outer
wall of stone, brick or concrete, the actual installment of which shall be made by the
employees of the Association. 7
Pursuant to this above-mentioned Rule, a concrete vault was provided on July 27, 1978, the day before
the interment, and was, on the same day, installed by private respondent's employees in the grave which
was dug earlier. After the burial, the vault was covered by a cement lid.
Petitioners however claim that private respondent breached its contract with them as the latter held out in
the brochure it distributed that the . . . lot may hold single or double internment (sic) underground
in sealed concrete vault." 8 Petitioners claim that the vault provided by private respondent was not sealed,
that is, not waterproof. Consequently, water seeped through the cement enclosure and damaged
everything inside it.
We do not agree. There was no stipulation in the Deed of Sale and Certificate of Perpetual Care and in
the Rules and Regulations of the Manila Memorial Park Cemetery, Inc. that the vault would be waterproof.
Private respondent's witness, Mr. Dexter Heuschkel, explained that the term "sealed" meant "closed." 9 On

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the other hand, the word "seal" is defined as . . . any of various closures or fastenings . . . that cannot be
opened without rupture and that serve as a check against tampering or unauthorized opening." 10 The
meaning that has been given by private respondent to the word conforms with the cited dictionary
definition. Moreover, it is also quite clear that "sealed" cannot be equated with "waterproof". Well settled is
the rule that when the terms of the contract are clear and leave no doubt as to the intention of the
contracting parties, then the literal meaning of the stipulation shall control. 11 Contracts should be
interpreted according to their literal meaning and should not be interpreted beyond their obvious
intendment. 12 As ruled by the respondent Court:
When plaintiff-appellant Juan J. Syquia affixed his signature to the Deed of Sale (Exhibit
"A") and the attached Rules and Regulations (Exhibit "1"), it can be assumed that he has
accepted defendant-appellee's undertaking to merely provide a concrete vault. He can
not now claim that said concrete vault must in addition, also be waterproofed (sic). It is
basic that the parties are bound by the terms of their contract, which is the law between
them (Rizal Commercial Banking Corporation vs. Court of Appeals, et al. 178 SCRA 739).
Where there is nothing in the contract which is contrary to law, morals, good customs,
public order, or public policy, the validity of the contract must be sustained (Phil. American
Insurance Co. vs. Judge Pineda, 175 SCRA 416). Consonant with this ruling, a
contracting party cannot incur a liability more than what is expressly specified in his
undertaking. It cannot be extended by implication, beyond the terms of the contract (Rizal
Commercial Banking Corporation vs. Court of Appeals, supra). And as a rule of evidence,
where the terms of an agreement are reduced to writing, the document itself, being
constituted by the parties as the expositor of their intentions, is the only instrument of
evidence in respect of that agreement which the law will recognize, so long as its (sic)
exists for the purpose of evidence (Starkie, Ev., pp. 648, 655, Kasheenath vs. Chundy, 5
W.R. 68 cited in Francisco, Revised Rules of Court in the Phil. p. 153, 1973 Ed.). And if
the terms of the contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control (Santos vs. CA, et
al., G. R. No. 83664, Nov. 13, 1989; Prudential Bank & Trust Co. vs. Community Builders
Co., Inc., 165 SCRA 285; Balatero vs. IAC, 154 SCRA 530). 13
We hold, therefore, that private respondent did not breach the tenor of its obligation to the Syquias. While
this may be so, can private respondent be liable for culpa aquiliana for boring the hole on the vault? It
cannot be denied that the hole made possible the entry of more water and soil than was natural had there
been no hole.
The law defines negligence as the "omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the place." 14 In the
absence of stipulation or legal provision providing the contrary, the diligence to be observed in the
performance of the obligation is that which is expected of a good father of a family.
The circumstances surrounding the commission of the assailed act boring of the hole negate the
allegation of negligence. The reason for the act was explained by Henry Flores, Interment Foreman, who
said that:
Q It has been established in this particular case that a certain Vicente
Juan Syquia was interred on July 25, 1978 at the Paraaque Cemetery
of the Manila Memorial Park Cemetery, Inc., will you please tell the Hon.

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Court what or whether you have participation in connection with said


internment (sic)?
A A day before Juan (sic) Syquia was buried our personnel dug a grave.
After digging the next morning a vault was taken and placed in the grave
and when the vault was placed on the grave a hole was placed on the
vault so that water could come into the vault because it was raining
heavily then because the vault has no hole the vault will float and the
grave would be filled with water and the digging would caved (sic) in and
the earth, the earth would (sic) caved in and fill up the
grave. 15 (Emphasis ours)
Except for the foreman's opinion that the concrete vault may float should there be a heavy rainfall, from
the above-mentioned explanation, private respondent has exercised the diligence of a good father of a
family in preventing the accumulation of water inside the vault which would have resulted in the caving in
of earth around the grave filling the same with earth.
Thus, finding no evidence of negligence on the part of private respondent, We find no reason to award
damages in favor of petitioners.
In the light of the foregoing facts, and construed in the language of the applicable laws and jurisprudence,
We are constrained to AFFIRM in toto the decision of the respondent Court of Appeals dated December
7, 1990. No costs.
SO ORDERED.
Narvasa, C.J., Feliciano, Regalado and Nocon, JJ., concur.

# Footnotes
1 Civil Case No. Q-27112, "Juan J. Syquia, et al. vs. Manila Memorial Park Cemetery,
Inc.".
2 Rollo, pp. 59-60.
3 Ibid., p. 65.
4 Penned by Associate Justice Arturo B. Buena, concurred in by Associate Justices
Minerva P. Gonzaga-Reyes and Jainal D. Rasul.
5 Rollo, p. 87-A.
6 Exhibit "D"; Records, p. 10.
7 Annex A of Answer; Records, p. 31.

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8 Petition, p. 5; Rollo, p. 13.


9 TSN, November 4, 1981, p. 7.
10 Webster's Third International Dictionary 2046 (1970).
11 Mercantile Insurance Co., Inc. vs. Felipe Ysmael, Jr. and Co., Inc., 169 SCRA 66
(1989); Papa vs. Alonzo, 198 SCRA 564 (1991); Alim vs. CA, 200 SCRA 450 (1991);
Republic vs. Sandiganbayan, 203 SCRA 310 (1991).
12 Mercantile Insurance Co., Inc., vs. Felipe Ysmael, Jr. and Co., Inc., 169 SCRA 66
(1989).
13 Rollo, pp. 64-65.
14 CIVIL CODE, Article 1173.
15 TSN, June 28, 1982, p. 2.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 126780

February 17, 2005

YHT REALTY CORPORATION, ERLINDA LAINEZ and ANICIA PAYAM, petitioners,


vs.
THE COURT OF APPEALS and MAURICE McLOUGHLIN, respondents.
DECISION
TINGA, J.:
The primary question of interest before this Court is the only legal issue in the case: It is whether a hotel
may evade liability for the loss of items left with it for safekeeping by its guests, by having these guests
execute written waivers holding the establishment or its employees free from blame for such loss in light
of Article 2003 of the Civil Code which voids such waivers.
Before this Court is a Rule 45 petition for review of the Decision1 dated 19 October 1995 of the Court of
Appeals which affirmed the Decision2 dated 16 December 1991 of the Regional Trial Court (RTC), Branch
13, of Manila, finding YHT Realty Corporation, Brunhilda Mata-Tan (Tan), Erlinda Lainez (Lainez) and
Anicia Payam (Payam) jointly and solidarily liable for damages in an action filed by Maurice McLoughlin
(McLoughlin) for the loss of his American and Australian dollars deposited in the safety deposit box of
Tropicana Copacabana Apartment Hotel, owned and operated by YHT Realty Corporation.

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The factual backdrop of the case follow.


Private respondent McLoughlin, an Australian businessman-philanthropist, used to stay at Sheraton Hotel
during his trips to the Philippines prior to 1984 when he met Tan. Tan befriended McLoughlin by showing
him around, introducing him to important people, accompanying him in visiting impoverished street
children and assisting him in buying gifts for the children and in distributing the same to charitable
institutions for poor children. Tan convinced McLoughlin to transfer from Sheraton Hotel to Tropicana
where Lainez, Payam and Danilo Lopez were employed. Lopez served as manager of the hotel while
Lainez and Payam had custody of the keys for the safety deposit boxes of Tropicana. Tan took care of
McLoughlin's booking at the Tropicana where he started staying during his trips to the Philippines from
December 1984 to September 1987.3
On 30 October 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a safety
deposit box as it was his practice to rent a safety deposit box every time he registered at Tropicana in
previous trips. As a tourist, McLoughlin was aware of the procedure observed by Tropicana relative to its
safety deposit boxes. The safety deposit box could only be opened through the use of two keys, one of
which is given to the registered guest, and the other remaining in the possession of the management of
the hotel. When a registered guest wished to open his safety deposit box, he alone could personally
request the management who then would assign one of its employees to accompany the guest and assist
him in opening the safety deposit box with the two keys. 4
McLoughlin allegedly placed the following in his safety deposit box: Fifteen Thousand US Dollars
(US$15,000.00) which he placed in two envelopes, one envelope containing Ten Thousand US Dollars
(US$10,000.00) and the other envelope Five Thousand US Dollars (US$5,000.00); Ten Thousand
Australian Dollars (AUS$10,000.00) which he also placed in another envelope; two (2) other envelopes
containing letters and credit cards; two (2) bankbooks; and a checkbook, arranged side by side inside the
safety deposit box.5
On 12 December 1987, before leaving for a brief trip to Hongkong, McLoughlin opened his safety deposit
box with his key and with the key of the management and took therefrom the envelope containing Five
Thousand US Dollars (US$5,000.00), the envelope containing Ten Thousand Australian Dollars
(AUS$10,000.00), his passports and his credit cards. 6 McLoughlin left the other items in the box as he did
not check out of his room at the Tropicana during his short visit to Hongkong. When he arrived in
Hongkong, he opened the envelope which contained Five Thousand US Dollars (US$5,000.00) and
discovered upon counting that only Three Thousand US Dollars (US$3,000.00) were enclosed
therein.7 Since he had no idea whether somebody else had tampered with his safety deposit box, he
thought that it was just a result of bad accounting since he did not spend anything from that envelope. 8
After returning to Manila, he checked out of Tropicana on 18 December 1987 and left for Australia. When
he arrived in Australia, he discovered that the envelope with Ten Thousand US Dollars (US$10,000.00)
was short of Five Thousand US Dollars (US$5,000). He also noticed that the jewelry which he bought in
Hongkong and stored in the safety deposit box upon his return to Tropicana was likewise missing, except
for a diamond bracelet.9
When McLoughlin came back to the Philippines on 4 April 1988, he asked Lainez if some money and/or
jewelry which he had lost were found and returned to her or to the management. However, Lainez told
him that no one in the hotel found such things and none were turned over to the management. He again
registered at Tropicana and rented a safety deposit box. He placed therein one (1) envelope containing
Fifteen Thousand US Dollars (US$15,000.00), another envelope containing Ten Thousand Australian
Dollars (AUS$10,000.00) and other envelopes containing his traveling papers/documents. On 16 April
1988, McLoughlin requested Lainez and Payam to open his safety deposit box. He noticed that in the
envelope containing Fifteen Thousand US Dollars (US$15,000.00), Two Thousand US Dollars
(US$2,000.00) were missing and in the envelope previously containing Ten Thousand Australian Dollars
(AUS$10,000.00), Four Thousand Five Hundred Australian Dollars (AUS$4,500.00) were missing. 10

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When McLoughlin discovered the loss, he immediately confronted Lainez and Payam who admitted that
Tan opened the safety deposit box with the key assigned to him. 11 McLoughlin went up to his room where
Tan was staying and confronted her. Tan admitted that she had stolen McLoughlin's key and was able to
open the safety deposit box with the assistance of Lopez, Payam and Lainez. 12 Lopez also told
McLoughlin that Tan stole the key assigned to McLoughlin while the latter was asleep. 13
McLoughlin requested the management for an investigation of the incident. Lopez got in touch with Tan
and arranged for a meeting with the police and McLoughlin. When the police did not arrive, Lopez and
Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a piece of paper a
promissory note dated 21 April 1988. The promissory note reads as follows:
I promise to pay Mr. Maurice McLoughlin the amount of AUS$4,000.00 and US$2,000.00 or its equivalent
in Philippine currency on or before May 5, 1988.14
Lopez requested Tan to sign the promissory note which the latter did and Lopez also signed as a witness.
Despite the execution of promissory note by Tan, McLoughlin insisted that it must be the hotel who must
assume responsibility for the loss he suffered. However, Lopez refused to accept the responsibility relying
on the conditions for renting the safety deposit box entitled "Undertaking For the Use Of Safety Deposit
Box,"15specifically paragraphs (2) and (4) thereof, to wit:
2. To release and hold free and blameless TROPICANA APARTMENT HOTEL from any liability arising
from any loss in the contents and/or use of the said deposit box for any cause whatsoever, including but
not limited to the presentation or use thereof by any other person should the key be lost;
...
4. To return the key and execute the RELEASE in favor of TROPICANA APARTMENT HOTEL upon giving
up the use of the box.16
On 17 May 1988, McLoughlin went back to Australia and he consulted his lawyers as to the validity of the
abovementioned stipulations. They opined that the stipulations are void for being violative of universal
hotel practices and customs. His lawyers prepared a letter dated 30 May 1988 which was signed by
McLoughlin and sent to President Corazon Aquino. 17 The Office of the President referred the letter to the
Department of Justice (DOJ) which forwarded the same to the Western Police District (WPD). 18
After receiving a copy of the indorsement in Australia, McLoughlin came to the Philippines and registered
again as a hotel guest of Tropicana. McLoughlin went to Malacaang to follow up on his letter but he was
instructed to go to the DOJ. The DOJ directed him to proceed to the WPD for documentation. But
McLoughlin went back to Australia as he had an urgent business matter to attend to.
For several times, McLoughlin left for Australia to attend to his business and came back to the Philippines
to follow up on his letter to the President but he failed to obtain any concrete assistance. 19
McLoughlin left again for Australia and upon his return to the Philippines on 25 August 1989 to pursue his
claims against petitioners, the WPD conducted an investigation which resulted in the preparation of an
affidavit which was forwarded to the Manila City Fiscal's Office. Said affidavit became the basis of
preliminary investigation. However, McLoughlin left again for Australia without receiving the notice of the
hearing on 24 November 1989. Thus, the case at the Fiscal's Office was dismissed for failure to
prosecute. Mcloughlin requested the reinstatement of the criminal charge for theft. In the meantime,
McLoughlin and his lawyers wrote letters of demand to those having responsibility to pay the damage.
Then he left again for Australia.

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Upon his return on 22 October 1990, he registered at the Echelon Towers at Malate, Manila. Meetings
were held between McLoughlin and his lawyer which resulted to the filing of a complaint for damages on 3
December 1990 against YHT Realty Corporation, Lopez, Lainez, Payam and Tan (defendants) for the loss
of McLoughlin's money which was discovered on 16 April 1988. After filing the complaint, McLoughlin left
again for Australia to attend to an urgent business matter. Tan and Lopez, however, were not served with
summons, and trial proceeded with only Lainez, Payam and YHT Realty Corporation as defendants.
After defendants had filed their Pre-Trial Brief admitting that they had previously allowed and assisted Tan
to open the safety deposit box, McLoughlin filed an Amended/Supplemental Complaint20 dated 10 June
1991 which included another incident of loss of money and jewelry in the safety deposit box rented by
McLoughlin in the same hotel which took place prior to 16 April 1988. 21 The trial court admitted
the Amended/Supplemental Complaint.
During the trial of the case, McLoughlin had been in and out of the country to attend to urgent business in
Australia, and while staying in the Philippines to attend the hearing, he incurred expenses for hotel bills,
airfare and other transportation expenses, long distance calls to Australia, Meralco power expenses, and
expenses for food and maintenance, among others.22
After trial, the RTC of Manila rendered judgment in favor of McLoughlin, the dispositive portion of which
reads:
WHEREFORE, above premises considered, judgment is hereby rendered by this Court in favor of plaintiff
and against the defendants, to wit:
1. Ordering defendants, jointly and severally, to pay plaintiff the sum of US$11,400.00 or its
equivalent in Philippine Currency of P342,000.00, more or less, and the sum of AUS$4,500.00 or
its equivalent in Philippine Currency of P99,000.00, or a total of P441,000.00, more or less, with
12% interest from April 16 1988 until said amount has been paid to plaintiff (Item 1, Exhibit CC);
2. Ordering defendants, jointly and severally to pay plaintiff the sum of P3,674,238.00 as actual
and consequential damages arising from the loss of his Australian and American dollars and
jewelries complained against and in prosecuting his claim and rights administratively and
judicially (Items II, III, IV, V, VI, VII, VIII, and IX, Exh. "CC");
3. Ordering defendants, jointly and severally, to pay plaintiff the sum of P500,000.00 as moral
damages (Item X, Exh. "CC");
4. Ordering defendants, jointly and severally, to pay plaintiff the sum of P350,000.00 as
exemplary damages (Item XI, Exh. "CC");
5. And ordering defendants, jointly and severally, to pay litigation expenses in the sum
of P200,000.00 (Item XII, Exh. "CC");
6. Ordering defendants, jointly and severally, to pay plaintiff the sum of P200,000.00 as attorney's
fees, and a fee of P3,000.00 for every appearance; and
7. Plus costs of suit.
SO ORDERED.23
The trial court found that McLoughlin's allegations as to the fact of loss and as to the amount of money he
lost were sufficiently shown by his direct and straightforward manner of testifying in court and found him
to be credible and worthy of belief as it was established that McLoughlin's money, kept in Tropicana's
safety deposit box, was taken by Tan without McLoughlin's consent. The taking was effected through the
use of the master key which was in the possession of the management. Payam and Lainez allowed Tan
to use the master key without authority from McLoughlin. The trial court added that if McLoughlin had not
lost his dollars, he would not have gone through the trouble and personal inconvenience of seeking aid
and assistance from the Office of the President, DOJ, police authorities and the City Fiscal's Office in his
desire to recover his losses from the hotel management and Tan. 24

47 | P a g e

As regards the loss of Seven Thousand US Dollars (US$7,000.00) and jewelry worth approximately One
Thousand Two Hundred US Dollars (US$1,200.00) which allegedly occurred during his stay at Tropicana
previous to 4 April 1988, no claim was made by McLoughlin for such losses in his complaint dated 21
November 1990 because he was not sure how they were lost and who the responsible persons were. But
considering the admission of the defendants in their pre-trial brief that on three previous occasions they
allowed Tan to open the box, the trial court opined that it was logical and reasonable to presume that his
personal assets consisting of Seven Thousand US Dollars (US$7,000.00) and jewelry were taken by Tan
from the safety deposit box without McLoughlin's consent through the cooperation of Payam and Lainez. 25
The trial court also found that defendants acted with gross negligence in the performance and exercise of
their duties and obligations as innkeepers and were therefore liable to answer for the losses incurred by
McLoughlin.26
Moreover, the trial court ruled that paragraphs (2) and (4) of the "Undertaking For The Use Of Safety
Deposit Box" are not valid for being contrary to the express mandate of Article 2003 of the New Civil Code
and against public policy.27 Thus, there being fraud or wanton conduct on the part of defendants, they
should be responsible for all damages which may be attributed to the non-performance of their
contractual obligations.28
The Court of Appeals affirmed the disquisitions made by the lower court except as to the amount of
damages awarded. The decretal text of the appellate court's decision reads:
THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED but modified as follows:
The appellants are directed jointly and severally to pay the plaintiff/appellee the following amounts:
1) P153,200.00 representing the peso equivalent of US$2,000.00 and AUS$4,500.00;
2) P308,880.80, representing the peso value for the air fares from Sidney [sic] to Manila and back
for a total of eleven (11) trips;
3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Apartment Hotel;
4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;
5) One-half of P179,863.20 or P89,931.60 for the taxi xxx transportation from the residence to
Sidney [sic] Airport and from MIA to the hotel here in Manila, for the eleven (11) trips;
6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
7) One-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance;
8) P50,000.00 for moral damages;
9) P10,000.00 as exemplary damages; and
10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.29
Unperturbed, YHT Realty Corporation, Lainez and Payam went to this Court in this appeal by certiorari.
Petitioners submit for resolution by this Court the following issues: (a) whether the appellate court's
conclusion on the alleged prior existence and subsequent loss of the subject money and jewelry is
supported by the evidence on record; (b) whether the finding of gross negligence on the part of petitioners
in the performance of their duties as innkeepers is supported by the evidence on record; (c) whether the
"Undertaking For The Use of Safety Deposit Box" admittedly executed by private respondent is null and
void; and (d) whether the damages awarded to private respondent, as well as the amounts thereof, are
proper under the circumstances.30

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The petition is devoid of merit.


It is worthy of note that the thrust of Rule 45 is the resolution only of questions of law and any peripheral
factual question addressed to this Court is beyond the bounds of this mode of review.
Petitioners point out that the evidence on record is insufficient to prove the fact of prior existence of the
dollars and the jewelry which had been lost while deposited in the safety deposit boxes of Tropicana, the
basis of the trial court and the appellate court being the sole testimony of McLoughlin as to the contents
thereof. Likewise, petitioners dispute the finding of gross negligence on their part as not supported by the
evidence on record.
We are not persuaded.l^vvphi1.net We adhere to the findings of the trial court as affirmed by the appellate
court that the fact of loss was established by the credible testimony in open court by McLoughlin. Such
findings are factual and therefore beyond the ambit of the present petition.1awphi1.nt
The trial court had the occasion to observe the demeanor of McLoughlin while testifying which reflected
the veracity of the facts testified to by him. On this score, we give full credence to the appreciation of
testimonial evidence by the trial court especially if what is at issue is the credibility of the witness. The oftrepeated principle is that where the credibility of a witness is an issue, the established rule is that great
respect is accorded to the evaluation of the credibility of witnesses by the trial court. 31 The trial court is in
the best position to assess the credibility of witnesses and their testimonies because of its unique
opportunity to observe the witnesses firsthand and note their demeanor, conduct and attitude under
grilling examination.32
We are also not impressed by petitioners' argument that the finding of gross negligence by the lower court
as affirmed by the appellate court is not supported by evidence. The evidence reveals that two keys are
required to open the safety deposit boxes of Tropicana. One key is assigned to the guest while the other
remains in the possession of the management. If the guest desires to open his safety deposit box, he
must request the management for the other key to open the same. In other words, the guest alone cannot
open the safety deposit box without the assistance of the management or its employees. With more
reason that access to the safety deposit box should be denied if the one requesting for the opening of the
safety deposit box is a stranger. Thus, in case of loss of any item deposited in the safety deposit box, it is
inevitable to conclude that the management had at least a hand in the consummation of the taking, unless
the reason for the loss is force majeure.
Noteworthy is the fact that Payam and Lainez, who were employees of Tropicana, had custody of the
master key of the management when the loss took place. In fact, they even admitted that they assisted
Tan on three separate occasions in opening McLoughlin's safety deposit box. 33 This only proves that
Tropicana had prior knowledge that a person aside from the registered guest had access to the safety
deposit box. Yet the management failed to notify McLoughlin of the incident and waited for him to discover
the taking before it disclosed the matter to him. Therefore, Tropicana should be held responsible for the
damage suffered by McLoughlin by reason of the negligence of its employees.
The management should have guarded against the occurrence of this incident considering that Payam
admitted in open court that she assisted Tan three times in opening the safety deposit box of McLoughlin
at around 6:30 A.M. to 7:30 A.M. while the latter was still asleep. 34 In light of the circumstances
surrounding this case, it is undeniable that without the acquiescence of the employees of Tropicana to the
opening of the safety deposit box, the loss of McLoughlin's money could and should have been avoided.
The management contends, however, that McLoughlin, by his act, made its employees believe that Tan
was his spouse for she was always with him most of the time. The evidence on record, however, is bereft
of any showing that McLoughlin introduced Tan to the management as his wife. Such an inference from
the act of McLoughlin will not exculpate the petitioners from liability in the absence of any showing that he
made the management believe that Tan was his wife or was duly authorized to have access to the safety

49 | P a g e

deposit box. Mere close companionship and intimacy are not enough to warrant such conclusion
considering that what is involved in the instant case is the very safety of McLoughlin's deposit. If only
petitioners exercised due diligence in taking care of McLoughlin's safety deposit box, they should have
confronted him as to his relationship with Tan considering that the latter had been observed opening
McLoughlin's safety deposit box a number of times at the early hours of the morning. Tan's acts should
have prompted the management to investigate her relationship with McLoughlin. Then, petitioners would
have exercised due diligence required of them. Failure to do so warrants the conclusion that the
management had been remiss in complying with the obligations imposed upon hotel-keepers under the
law.
Under Article 1170 of the New Civil Code, those who, in the performance of their obligations, are guilty of
negligence, are liable for damages. As to who shall bear the burden of paying damages, Article 2180,
paragraph (4) of the same Code provides that the owners and managers of an establishment or
enterprise are likewise responsible for damages caused by their employees in the service of the branches
in which the latter are employed or on the occasion of their functions. Also, this Court has ruled that if an
employee is found negligent, it is presumed that the employer was negligent in selecting and/or
supervising him for it is hard for the victim to prove the negligence of such employer. 35 Thus, given the
fact that the loss of McLoughlin's money was consummated through the negligence of Tropicana's
employees in allowing Tan to open the safety deposit box without the guest's consent, both the assisting
employees and YHT Realty Corporation itself, as owner and operator of Tropicana, should be held
solidarily liable pursuant to Article 2193.36
The issue of whether the "Undertaking For The Use of Safety Deposit Box" executed by McLoughlin is
tainted with nullity presents a legal question appropriate for resolution in this petition. Notably, both the
trial court and the appellate court found the same to be null and void. We find no reason to reverse their
common conclusion. Article 2003 is controlling, thus:
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he
is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest
whereby the responsibility of the former as set forth in Articles 1998 to 2001 37 is suppressed or diminished
shall be void.
Article 2003 was incorporated in the New Civil Code as an expression of public policy precisely to apply to
situations such as that presented in this case. The hotel business like the common carrier's business is
imbued with public interest. Catering to the public, hotelkeepers are bound to provide not only lodging for
hotel guests and security to their persons and belongings. The twin duty constitutes the essence of the
business. The law in turn does not allow such duty to the public to be negated or diluted by any contrary
stipulation in so-called "undertakings" that ordinarily appear in prepared forms imposed by hotel keepers
on guests for their signature.
In an early case,38 the Court of Appeals through its then Presiding Justice (later Associate Justice of the
Court) Jose P. Bengzon, ruled that to hold hotelkeepers or innkeeper liable for the effects of their guests,
it is not necessary that they be actually delivered to the innkeepers or their employees. It is enough that
such effects are within the hotel or inn. 39 With greater reason should the liability of the hotelkeeper be
enforced when the missing items are taken without the guest's knowledge and consent from a safety
deposit box provided by the hotel itself, as in this case.
Paragraphs (2) and (4) of the "undertaking" manifestly contravene Article 2003 of the New Civil Code for
they allow Tropicana to be released from liability arising from any loss in the contents and/or use of the
safety deposit box for any cause whatsoever.40 Evidently, the undertaking was intended to bar any claim
against Tropicana for any loss of the contents of the safety deposit box whether or not negligence was
incurred by Tropicana or its employees. The New Civil Code is explicit that the responsibility of the hotelkeeper shall extend to loss of, or injury to, the personal property of the guests even if caused by servants
or employees of the keepers of hotels or inns as well as by strangers, except as it may proceed from

50 | P a g e

any force majeure.41 It is the loss through force majeurethat may spare the hotel-keeper from liability. In
the case at bar, there is no showing that the act of the thief or robber was done with the use of arms or
through an irresistible force to qualify the same as force majeure.42
Petitioners likewise anchor their defense on Article 2002 43 which exempts the hotel-keeper from liability if
the loss is due to the acts of his guest, his family, or visitors. Even a cursory reading of the provision
would lead us to reject petitioners' contention. The justification they raise would render nugatory the public
interest sought to be protected by the provision. What if the negligence of the employer or its employees
facilitated the consummation of a crime committed by the registered guest's relatives or visitor? Should
the law exculpate the hotel from liability since the loss was due to the act of the visitor of the registered
guest of the hotel? Hence, this provision presupposes that the hotel-keeper is not guilty of concurrent
negligence or has not contributed in any degree to the occurrence of the loss. A depositary is not
responsible for the loss of goods by theft, unless his actionable negligence contributes to the loss. 44
In the case at bar, the responsibility of securing the safety deposit box was shared not only by the guest
himself but also by the management since two keys are necessary to open the safety deposit box.
Without the assistance of hotel employees, the loss would not have occurred. Thus, Tropicana was guilty
of concurrent negligence in allowing Tan, who was not the registered guest, to open the safety deposit
box of McLoughlin, even assuming that the latter was also guilty of negligence in allowing another person
to use his key. To rule otherwise would result in undermining the safety of the safety deposit boxes in
hotels for the management will be given imprimatur to allow any person, under the pretense of being a
family member or a visitor of the guest, to have access to the safety deposit box without fear of any
liability that will attach thereafter in case such person turns out to be a complete stranger. This will allow
the hotel to evade responsibility for any liability incurred by its employees in conspiracy with the guest's
relatives and visitors.
Petitioners contend that McLoughlin's case was mounted on the theory of contract, but the trial court and
the appellate court upheld the grant of the claims of the latter on the basis of tort. 45 There is nothing
anomalous in how the lower courts decided the controversy for this Court has pronounced a
jurisprudential rule that tort liability can exist even if there are already contractual relations. The act that
breaks the contract may also be tort.46
As to damages awarded to McLoughlin, we see no reason to modify the amounts awarded by the
appellate court for the same were based on facts and law. It is within the province of lower courts to settle
factual issues such as the proper amount of damages awarded and such finding is binding upon this
Court especially if sufficiently proven by evidence and not unconscionable or excessive. Thus, the
appellate court correctly awarded McLoughlin Two Thousand US Dollars (US$2,000.00) and Four
Thousand Five Hundred Australian dollars (AUS$4,500.00) or their peso equivalent at the time of
payment,47 being the amounts duly proven by evidence. 48 The alleged loss that took place prior to 16 April
1988 was not considered since the amounts alleged to have been taken were not sufficiently established
by evidence. The appellate court also correctly awarded the sum of P308,880.80, representing the peso
value for the air fares from Sydney to Manila and back for a total of eleven (11) trips; 49one-half
of P336,207.05 or P168,103.52 representing payment to Tropicana;50 one-half of P152,683.57
orP76,341.785 representing payment to Echelon Tower; 51 one-half of P179,863.20 or P89,931.60 for the
taxi or transportation expenses from McLoughlin's residence to Sydney Airport and from MIA to the hotel
here in Manila, for the eleven (11) trips; 52 one-half of P7,801.94 or P3,900.97 representing Meralco power
expenses;53 one-half of P356,400.00 or P178,000.00 representing expenses for food and maintenance. 54
The amount of P50,000.00 for moral damages is reasonable. Although trial courts are given discretion to
determine the amount of moral damages, the appellate court may modify or change the amount awarded
when it is palpably and scandalously excessive.l^vvphi1.net Moral damages are not intended to enrich a
complainant at the expense of a defendant.l^vvphi1.net They are awarded only to enable the injured party
to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has
undergone, by reason of defendants' culpable action. 55

51 | P a g e

The awards of P10,000.00 as exemplary damages and P200,000.00 representing attorney's fees are
likewise sustained.
WHEREFORE, foregoing premises considered, the Decision of the Court of Appeals dated 19 October
1995 is hereby AFFIRMED. Petitioners are directed, jointly and severally, to pay private respondent the
following amounts:
(1) US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment;
(2) P308,880.80, representing the peso value for the air fares from Sydney to Manila and back for
a total of eleven (11) trips;
(3) One-half of P336,207.05 or P168,103.52 representing payment to Tropicana Copacabana
Apartment Hotel;
(4) One-half of P152,683.57 or P76,341.785 representing payment to Echelon Tower;
(5) One-half of P179,863.20 or P89,931.60 for the taxi or transportation expense from
McLoughlin's residence to Sydney Airport and from MIA to the hotel here in Manila, for the eleven
(11) trips;
(6) One-half of P7,801.94 or P3,900.97 representing Meralco power expenses;
(7) One-half of P356,400.00 or P178,200.00 representing expenses for food and maintenance;
(8) P50,000.00 for moral damages;
(9) P10,000.00 as exemplary damages; and
(10) P200,000 representing attorney's fees.
With costs.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., and Chico-Nazario, JJ., concur.
Austria-Martinez, J., no part.

Footnotes
1
Rollo, p. 38. Decision penned by Justice Bernardo LL. Salas and concurred in by Justices Pedro A.
Ramirez and Ma. Alicia Austria-Martinez.
2
Id. at 118. Decision penned by Judge Gerardo M.S. Pepito.
3
Id. at 119.
4
Id. at 120.
5
Ibid.
6
Ibid.
7
Ibid.
8
Ibid.
9
Ibid.
10
Id. at 121 and 41. TSN, 9 September 1991, p. 10.
11
Id. at 42.
12
Ibid.
13
Id. at 121.
14
Exhibit V.
15
Exh. W.
16
Rollo, p. 122.
17
Ibid.
18
Ibid.
19
Id. at 123.
20
Records, p. 52.
21
Rollo, p. 125.
22
Exh. CC. Records (Exhibit Folder), pp. 146-147. The Itemized Claims for Damages allegedly incurred by
McLoughlin:
I.
CLAIMS FOR STOLEN MONIES AND PERSONAL PROPERTY:

52 | P a g e

II.
III.
IV.
V.

VI.
VII.

VIII.
IX.
X.
XI.
XII.

A. US$2,000.00
P153,200.00
US$4,500.00
B. US$8,000.00 cash and US$1,200.00 with jewelry
257,600.00
AIR FARES from Sydney to Manila and
308,880.00
back (11trips up to date of testimony)
PAYMENTS TO TROPICANA APARTMENT HOTEL
336,207.05
PAYMENTS TO ECHELON TOWER
152,683.57
Taxes, fees, transportation from residence to
179,863.20
Sydney airport and from MIA to hotel in Manila
and vice versa
MERALCO POWER EXPENSES
7,811.94
PLDT EXPENSES(overseas telephone calls)
Paid in the Philippines
5,597.68
Paid in Australia
166,795.20
EXPENSES FOR FOOD AND MAINTENANCE
356,400.00
BUSINESS/OPPORTUNITY LOSS IN SYDNEY
2,160,000.00
WHILE IN THE PHILIPPINES BECAUSE OF CASE
MORAL DAMAGES
500,000.00
EXEMPLARY DAMAGES
350,000.00
LITIGATION EXPENSES
200,000.00
TOTAL
P5,135,038.64
ATTORNEY'S FEES
200,000.00
Plus, appearance fee of P3,000.00 for every court appearance.
23
Rollo, pp. 141-142.
24
Id. at 127.
25
Ibid.
26
Id. at 134.
27
Id. at 135.
28
Id. at 138.
29
Id. at 63-64.
30
Id. at 19-20.
31
People v. Andales, G.R. Nos. 152624-25, February 5, 2004; People v. Fucio, G.R. No. 151186-95,
February 13, 2004; People v. Preciados, G.R. No. 122934, January 5, 2001, 349 SCRA 1; People v. Toyco,
Sr., G.R. No. 138609, January 17, 2001, 349 SCRA 385; People v. Cabareo, G.R. No. 138645, January 16,
2001, 349 SCRA 297; People v. Valdez, G.R. No. 128105, January 24, 2001, 350 SCRA 189.
32
People v. Dimacuha, G.R. Nos. 152592-93, February 13, 2004; People v. Yang, G.R. No. 148077,
February 16, 2004; People v. Betonio, G.R. No. 119165, September 26, 1997, 279 SCRA 532; People v.
Cabel, G.R. No. 121508, 282 SCRA 410.
33
Id. at 125.
34
Id. at 128.
35
Campo, et al. v. Camarote and Gemilga, 100 Phil. 459 (1956).
36
Art. 2194. The responsibility of two or more persons who are liable for a quasi-delict is solidary.
37
Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary.
The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given
to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they
take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance
of their effects.
Art. 1999. The hotel-keeper is liable for the vehicles, animals and articles which have been
introduced or placed in the annexes of the hotel.
Art. 2000. The responsibility referred to in the two preceding articles shall include the loss of, or
injury to the personal property of the guests caused by the servants or employees of the keepers of
hotels or inns as well as by strangers; but not that which may proceed from any force majeure. The
fact that travellers are constrained to rely on the vigilance of the keeper of the hotel or inn shall be
considered in determining the degree of care required of him.
Art. 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure,
unless it is done with the use of arms or through an irresistible force.
38
De Los Santos v. Tan Khey, 58 O.G. No. 45-53, p. 7693.
39
Ibid at 7694-7695.
40
Exh. W.
41
Art. 2000, New Civil Code.

53 | P a g e

42

Art. 2001, supra at note 39.


Art. 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his
family, servants or visitors, or if the loss arises from the character of the things brought into the hotel.
44
26 C.J.S. 731 citing Griffith v. Zipperwick, 28 Ohio St. 388.
45
Rollo, pp. 31-32.
46
Air France v. Carrascoso, et al., 124 Phil. 722 (1966).
47
Zagala v. Jimenez, G.R. No. 33050, July 23, 1987, 152 SCRA 147. "According to the case of Phoenix
Assurance Company v. Macondray & Co., Inc., (64 SCRA 15) a judgment awarding an amount in U.S.
dollars may be paid with its equivalent amount in local currency based on the conversion rate prevailing at
the time of payment. If the parties cannot agree on the same, the trial court should determine such
conversion rate. Needless to say, the judgment debtor may simply satisfy said award by paying in full the
amount in U.S. dollars."
48
Exh. V.
49
Exh. CC, p. 146.
50
Id. The Court of Appeals noted that during his stay in the Philippines, McLoughlin's time was not totally
devoted to following up his claim as he had business arrangements to look into.
51
Ibid.
52
Ibid.
53
Ibid. Expenses for power and air-conditioning were separate from room payment.
54
Ibid. Business losses were rejected because of lack of proof.
55
Prudenciado v. Alliance Transport System, Inc., G.R. No. 33836, March 16, 1987.
43

SECOND DIVISION
[G.R. No. 119602. October 6, 2000]
WILDVALLEY SHIPPING CO., LTD. petitioner, vs. COURT OF APPEALS and PHILIPPINE
PRESIDENT LINES INC., respondents.
DECISION
BUENA, J.:
This is a petition for review on certiorari seeking to set aside the decision of the Court of Appeals
which reversed the decision of the lower court in CA-G.R. CV No. 36821, entitled "Wildvalley Shipping
Co., Ltd., plaintiff-appellant, versus Philippine President Lines, Inc., defendant-appellant."
The antecedent facts of the case are as follows:
Sometime in February 1988, the Philippine Roxas, a vessel owned by Philippine President Lines,
Inc., private respondent herein, arrived in Puerto Ordaz, Venezuela, to load iron ore. Upon the completion
of the loading and when the vessel was ready to leave port, Mr. Ezzar del Valle Solarzano Vasquez, an
official pilot of Venezuela, was designated by the harbour authorities in Puerto Ordaz to navigate the
Philippine Roxas through the Orinoco River.[1] He was asked to pilot the said vessel on February 11,
1988[2] boarding it that night at 11:00 p.m.[3]
The master (captain) of the Philippine Roxas, Captain Nicandro Colon, was at the bridge together
with the pilot (Vasquez), the vessel's third mate (then the officer on watch), and a helmsman when the
vessel left the port[4] at 1:40 a.m. on February 12, 1988.[5]Captain Colon left the bridge when the vessel
was under way.[6]

54 | P a g e

The Philippine Roxas experienced some vibrations when it entered the San Roque Channel at mile
172.[7] The vessel proceeded on its way, with the pilot assuring the watch officer that the vibration was a
result of the shallowness of the channel.[8]
Between mile 158 and 157, the vessel again experienced some vibrations. [9] These occurred at 4:12
a.m. It was then that the watch officer called the master to the bridge. [11]
[10]

The master (captain) checked the position of the vessel [12] and verified that it was in the centre of the
channel.[13] He then went to confirm, or set down, the position of the vessel on the chart. [14] He ordered
Simplicio A. Monis, Chief Officer of the President Roxas, to check all the double bottom tanks. [15]
At around 4:35 a.m., the Philippine Roxas ran aground in the Orinoco River, [16] thus obstructing the
ingress and egress of vessels.
As a result of the blockage, the Malandrinon, a vessel owned by herein petitioner Wildvalley
Shipping Company, Ltd., was unable to sail out of Puerto Ordaz on that day.
Subsequently, Wildvalley Shipping Company, Ltd. filed a suit with the Regional Trial Court of Manila,
Branch III against Philippine President Lines, Inc. and Pioneer Insurance Company (the
underwriter/insurer of Philippine Roxas) for damages in the form of unearned profits, and interest thereon
amounting to US $400,000.00 plus attorney's fees, costs, and expenses of litigation. The complaint
against Pioneer Insurance Company was dismissed in an Order dated November 7, 1988. [17]
At the pre-trial conference, the parties agreed on the following facts:
"1. The jurisdictional facts, as specified in their respective pleadings;
"2. That defendant PPL was the owner of the vessel Philippine Roxas at the time of the incident;
"3. That defendant Pioneer Insurance was the insurance underwriter for defendant PPL;
"4. That plaintiff Wildvalley Shipping Co., Inc. is the owner of the vessel Malandrinon, whose passage was
obstructed by the vessel Philippine Roxas at Puerto Ordaz, Venezuela, as specified in par. 4, page 2 of the complaint;
"5. That on February 12, 1988, while the Philippine Roxas was navigating the channel at Puerto Ordaz, the said
vessel grounded and as a result, obstructed navigation at the channel;
"6. That the Orinoco River in Puerto Ordaz is a compulsory pilotage channel;
"7. That at the time of the incident, the vessel, Philippine Roxas, was under the command of the pilot Ezzar
Solarzano, assigned by the government thereat, but plaintiff claims that it is under the command of the master;
"8. The plaintiff filed a case in Middleburg, Holland which is related to the present case;
"9. The plaintiff caused the arrest of the Philippine Collier, a vessel owned by the defendant PPL;
"10. The Orinoco River is 150 miles long and it takes approximately 12 hours to navigate out of the said river;
"11. That no security for the plaintiff's claim was given until after the Philippine Collier was arrested; and
"12. That a letter of guarantee, dated 12-May-88 was issued by the Steamship Mutual Underwriters Ltd." [18]
The trial court rendered its decision on October 16, 1991 in favor of the petitioner, Wildvalley
Shipping Co., Ltd. The dispositive portion thereof reads as follows:

55 | P a g e

"WHEREFORE, judgment is rendered for the plaintiff, ordering defendant Philippine President Lines, Inc. to pay to
the plaintiff the sum of U.S. $259,243.43, as actual and compensatory damages, and U.S. $162,031.53, as expenses
incurred abroad for its foreign lawyers, plus additional sum of U.S. $22,000.00, as and for attorney's fees of
plaintiff's local lawyer, and to pay the cost of this suit.
"Defendant's counterclaim is dismissed for lack of merit.
"SO ORDERED."[19]
Both parties appealed: the petitioner appealing the non-award of interest with the private respondent
questioning the decision on the merits of the case.
After the requisite pleadings had been filed, the Court of Appeals came out with its questioned
decision dated June 14, 1994,[20]the dispositive portion of which reads as follows:
"WHEREFORE, finding defendant-appellant's appeal to be meritorious, judgment is hereby rendered reversing the
Decision of the lower court. Plaintiff-appellant's Complaint is dismissed and it is ordered to pay defendant-appellant
the amount of Three Hundred Twenty-three Thousand, Forty-two Pesos and Fifty-three Centavos (P323,042.53) as
and for attorney's fees plus cost of suit. Plaintiff-appellant's appeal is DISMISSED.
"SO ORDERED."[21]
Petitioner filed a motion for reconsideration [22] but the same was denied for lack of merit in the
resolution dated March 29, 1995.[23]
Hence, this petition.
The petitioner assigns the following errors to the court a quo:
1. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT UNDER
PHILIPPINE LAW NO FAULT OR NEGLIGENCE CAN BE ATTRIBUTED TO THE MASTER
NOR THE OWNER OF THE "PHILIPPINE ROXAS" FOR THE GROUNDING OF SAID
VESSEL RESULTING IN THE BLOCKAGE OF THE RIO ORINOCO;
2. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE
FINDINGS OF FACTS OF THE TRIAL COURT CONTRARY TO EVIDENCE;
3. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT THE
"PHILIPPINE ROXAS" IS SEAWORTHY;
4. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING
VENEZUELAN LAW DESPITE THE FACT THAT THE SAME HAS BEEN SUBSTANTIALLY
PROVED IN THE TRIAL COURT WITHOUT ANY OBJECTION FROM PRIVATE
RESPONDENT, AND WHOSE OBJECTION WAS INTERPOSED BELATEDLY ON APPEAL;
5. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN AWARDING ATTORNEY'S
FEES AND COSTS TO PRIVATE RESPONDENT WITHOUT ANY FAIR OR REASONABLE
BASIS WHATSOEVER;
6. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING THAT
PETITIONER'S CAUSE IS MERITORIOUS HENCE, PETITIONER SHOULD BE ENTITLED
TO ATTORNEY'S FEES, COSTS AND INTEREST.
The petition is without merit.
The primary issue to be determined is whether or not Venezuelan law is applicable to the case at
bar.
It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them. Like any other fact, they must be alleged and proved. [24]

56 | P a g e

A distinction is to be made as to the manner of proving a written and an unwritten law. The former
falls under Section 24, Rule 132 of the Rules of Court, as amended, the entire provision of which is
quoted hereunder. Where the foreign law sought to be proved is "unwritten," the oral testimony of expert
witnesses is admissible, as are printed and published books of reports of decisions of the courts of the
country concerned if proved to be commonly admitted in such courts. [25]
Section 24 of Rule 132 of the Rules of Court, as amended, provides:
"Sec. 24. Proof of official record. -- The record of public documents referred to in paragraph (a) of Section 19, when
admissible for any purpose, may be evidenced by an official publication thereof or by a copy attested by the officer
having the legal custody of the record, or by his deputy, and accompanied, if the record is not kept in the
Philippines, with a certificate that such officer has the custody. If the office in which the record is kept is in a
foreign country, the certificate may be made by a secretary of the embassy or legation, consul general, consul, vice
consul, or consular agent or by any officer in the foreign service of the Philippines stationed in the foreign country in
which the record is kept, and authenticated by the seal of his office." (Underscoring supplied)
The court has interpreted Section 25 (now Section 24) to include competent evidence like the
testimony of a witness to prove the existence of a written foreign law.[26]
In the noted case of Willamette Iron & Steel Works vs. Muzzal,[27] it was held that:
" Mr. Arthur W. Bolton, an attorney-at-law of San Francisco, California, since the year 1918 under oath, quoted
verbatim section 322 of the California Civil Code and stated that said section was in force at the time the obligations
of defendant to the plaintiff were incurred, i.e. on November 5, 1928 and December 22, 1928. This evidence
sufficiently established the fact that the section in question was the law of the State of California on the above
dates. A reading of sections 300 and 301 of our Code of Civil Procedure will convince one that these sections do not
exclude the presentation of other competent evidence to prove the existence of a foreign law.
"`The foreign law is a matter of fact You ask the witness what the law is; he may, from his recollection, or on
producing and referring to books, say what it is.' (Lord Campbell concurring in an opinion of Lord Chief Justice
Denman in a well-known English case where a witness was called upon to prove the Roman laws of marriage and
was permitted to testify, though he referred to a book containing the decrees of the Council of Trent as controlling,
Jones on Evidence, Second Edition, Volume 4, pages 3148-3152.) x x x.
We do not dispute the competency of Capt. Oscar Leon Monzon, the Assistant Harbor Master and
Chief of Pilots at Puerto Ordaz, Venezuela,[28] to testify on the existence of the Reglamento General de la
Ley de Pilotaje (pilotage law of Venezuela)[29] and theReglamento Para la Zona de Pilotaje N o 1 del
Orinoco (rules governing the navigation of the Orinoco River). Captain Monzon has held the
aforementioned posts for eight years. [30] As such he is in charge of designating the pilots for maneuvering
and navigating the Orinoco River. He is also in charge of the documents that come into the office of the
harbour masters.[31]
Nevertheless, we take note that these written laws were not proven in the manner provided by
Section 24 of Rule 132 of the Rules of Court.
The Reglamento General de la Ley de Pilotaje was published in the Gaceta Oficial[32]of the Republic
of Venezuela. A photocopy of the Gaceta Oficial was presented in evidence as an official publication of
the Republic of Venezuela.
The Reglamento Para la Zona de Pilotaje N o 1 del Orinoco is published in a book issued by
the Ministerio de Comunicacionesof Venezuela.[33] Only a photocopy of the said rules was likewise
presented as evidence.
Both of these documents are considered in Philippine jurisprudence to be public documents for they
are the written official acts, or records of the official acts of the sovereign authority, official bodies and
tribunals, and public officers of Venezuela.[34]

57 | P a g e

For a copy of a foreign public document to be admissible, the following requisites are mandatory: (1)
It must be attested by the officer having legal custody of the records or by his deputy; and (2) It must be
accompanied by a certificate by a secretary of the embassy or legation, consul general, consul, vice
consular or consular agent or foreign service officer, and with the seal of his office. [35]The latter
requirement is not a mere technicality but is intended to justify the giving of full faith and credit to the
genuineness of a document in a foreign country.[36]
It is not enough that the Gaceta Oficial, or a book published by the Ministerio de Comunicaciones of
Venezuela, was presented as evidence with Captain Monzon attesting it. It is also required by Section 24
of Rule 132 of the Rules of Court that a certificate that Captain Monzon, who attested the documents, is
the officer who had legal custody of those records made by a secretary of the embassy or legation, consul
general, consul, vice consul or consular agent or by any officer in the foreign service of the Philippines
stationed in Venezuela, and authenticated by the seal of his office accompanying the copy of the public
document. No such certificate could be found in the records of the case.
With respect to proof of written laws, parol proof is objectionable, for the written law itself is the best
evidence. According to the weight of authority, when a foreign statute is involved, the best evidence rule
requires that it be proved by a duly authenticated copy of the statute. [37]
At this juncture, we have to point out that the Venezuelan law was not pleaded before the lower
court.
A foreign law is considered to be pleaded if there is an allegation in the pleading about the existence
of the foreign law, its import and legal consequence on the event or transaction in issue. [38]
A review of the Complaint[39] revealed that it was never alleged or invoked despite the fact that the
grounding of the M/V Philippine Roxas occurred within the territorial jurisdiction of Venezuela.
We reiterate that under the rules of private international law, a foreign law must be properly pleaded
and proved as a fact. In the absence of pleading and proof, the laws of a foreign country, or state, will be
presumed to be the same as our own local or domestic law and this is known as processual presumption.
[40]

Having cleared this point, we now proceed to a thorough study of the errors assigned by the
petitioner.
Petitioner alleges that there was negligence on the part of the private respondent that would warrant
the award of damages.
There being no contractual obligation, the private respondent is obliged to give only the diligence
required of a good father of a family in accordance with the provisions of Article 1173 of the New Civil
Code, thus:
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place. When
negligence shows bad faith, the provisions of articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that which is
expected of a good father of a family shall be required.
The diligence of a good father of a family requires only that diligence which an ordinary prudent man
would exercise with regard to his own property. This we have found private respondent to have exercised
when the vessel sailed only after the "main engine, machineries, and other auxiliaries" were checked and
found to be in good running condition;[41] when the master left a competent officer, the officer on watch on
the bridge with a pilot who is experienced in navigating the Orinoco River; when the master ordered the
inspection of the vessel's double bottom tanks when the vibrations occurred anew.[42]
The Philippine rules on pilotage, embodied in Philippine Ports Authority Administrative Order No. 0385, otherwise known as the Rules and Regulations Governing Pilotage Services, the Conduct of Pilots

58 | P a g e

and Pilotage Fees in Philippine Ports enunciate the duties and responsibilities of a master of a vessel and
its pilot, among other things.
The pertinent provisions of the said administrative order governing these persons are quoted
hereunder:
Sec. 11. Control of Vessels and Liability for Damage. -- On compulsory pilotage grounds, the Harbor Pilot
providing the service to a vessel shall be responsible for the damage caused to a vessel or to life and property at
ports due to his negligence or fault. He can be absolved from liability if the accident is caused by force majeure or
natural calamities provided he has exercised prudence and extra diligence to prevent or minimize the damage.
The Master shall retain overall command of the vessel even on pilotage grounds whereby he can countermand or
overrule the order or command of the Harbor Pilot on board. In such event, any damage caused to a vessel or to life
and property at ports by reason of the fault or negligence of the Master shall be the responsibility and liability of the
registered owner of the vessel concerned without prejudice to recourse against said Master.
Such liability of the owner or Master of the vessel or its pilots shall be determined by competent authority in
appropriate proceedings in the light of the facts and circumstances of each particular case.
x x x
Sec. 32. Duties and Responsibilities of the Pilots or Pilots Association. -- The duties and responsibilities of the
Harbor Pilot shall be as follows:
x x x
f) A pilot shall be held responsible for the direction of a vessel from the time he assumes his work as a pilot thereof
until he leaves it anchored or berthed safely; Provided, however, that his responsibility shall cease at the moment the
Master neglects or refuses to carry out his order."
The Code of Commerce likewise provides for the obligations expected of a captain of a vessel, to
wit:
Art. 612. The following obligations shall be inherent in the office of captain:
x x x
"7. To be on deck on reaching land and to take command on entering and leaving ports, canals, roadsteads, and
rivers, unless there is a pilot on board discharging his duties. x x x.
The law is very explicit. The master remains the overall commander of the vessel even when there is
a pilot on board. He remains in control of the ship as he can still perform the duties conferred upon him by
law[43] despite the presence of a pilot who is temporarily in charge of the vessel. It is not required of him to
be on the bridge while the vessel is being navigated by a pilot.
However, Section 8 of PPA Administrative Order No. 03-85, provides:
Sec. 8. Compulsory Pilotage Service - For entering a harbor and anchoring thereat, or passing through rivers or
straits within a pilotage district, as well as docking and undocking at any pier/wharf, or shifting from one berth or
another, every vessel engaged in coastwise and foreign trade shall be under compulsory pilotage.
xxx.
The Orinoco River being a compulsory pilotage channel necessitated the engaging of a pilot who
was presumed to be knowledgeable of every shoal, bank, deep and shallow ends of the river. In his
deposition, pilot Ezzar Solarzano Vasquez testified that he is an official pilot in the Harbour at Port Ordaz,

59 | P a g e

Venezuela,[44] and that he had been a pilot for twelve (12) years. [45] He also had experience in navigating
the waters of the Orinoco River.[46]
The law does provide that the master can countermand or overrule the order or command of the
harbor pilot on board. The master of the Philippine Roxas deemed it best not to order him (the pilot) to
stop the vessel,[47] mayhap, because the latter had assured him that they were navigating normally before
the grounding of the vessel.[48] Moreover, the pilot had admitted that on account of his experience he was
very familiar with the configuration of the river as well as the course headings, and that he does not even
refer to river charts when navigating the Orinoco River.[49]
Based on these declarations, it comes as no surprise to us that the master chose not to regain
control of the ship. Admitting his limited knowledge of the Orinoco River, Captain Colon relied on the
knowledge and experience of pilot Vasquez to guide the vessel safely.
Licensed pilots, enjoying the emoluments of compulsory pilotage, are in a different class from ordinary employees,
for they assume to have a skill and a knowledge of navigation in the particular waters over which their licenses
extend superior to that of the master; pilots are bound to use due diligence and reasonable care and skill. A pilot's
ordinary skill is in proportion to the pilot's responsibilities, and implies a knowledge and observance of the usual
rules of navigation, acquaintance with the waters piloted in their ordinary condition, and nautical skill in avoiding all
known obstructions. The character of the skill and knowledge required of a pilot in charge of a vessel on the rivers
of a country is very different from that which enables a navigator to carry a vessel safely in the ocean. On the ocean,
a knowledge of the rules of navigation, with charts that disclose the places of hidden rocks, dangerous shores, or
other dangers of the way, are the main elements of a pilot's knowledge and skill. But the pilot of a river vessel, like
the harbor pilot, is selected for the individual's personal knowledge of the topography through which the vessel is
steered."[50]
We find that the grounding of the vessel is attributable to the pilot. When the vibrations were first felt
the watch officer asked him what was going on, and pilot Vasquez replied that "(they) were in the middle
of the channel and that the vibration was as (sic) a result of the shallowness of the channel." [51]
Pilot Ezzar Solarzano Vasquez was assigned to pilot the vessel Philippine Roxas as well as other
vessels on the Orinoco River due to his knowledge of the same. In his experience as a pilot, he should
have been aware of the portions which are shallow and which are not. His failure to determine the depth
of the said river and his decision to plod on his set course, in all probability, caused damage to the
vessel. Thus, we hold him as negligent and liable for its grounding.
In the case of Homer Ramsdell Transportation Company vs. La Compagnie Generale
Transatlantique, 182 U.S. 406, it was held that:
x x x The master of a ship, and the owner also, is liable for any injury done by the negligence of the crew employed
in the ship. The same doctrine will apply to the case of a pilot employed by the master or owner, by whose
negligence any injury happens to a third person or his property: as, for example, by a collision with another ship,
occasioned by his negligence. And it will make no difference in the case that the pilot, if any is employed, is
required to be a licensed pilot; provided the master is at liberty to take a pilot, or not, at his pleasure, for in such a
case the master acts voluntarily, although he is necessarily required to select from a particular class. On the other
hand, if it is compulsive upon the master to take a pilot, and, a fortiori, if he is bound to do so under penalty,
then, and in such case, neither he nor the owner will be liable for injuries occasioned by the negligence of the
pilot; for in such a case the pilot cannot be deemed properly the servant of the master or the owner, but is forced
upon them, and the maxim Qui facit per alium facit per se does not apply." (Underscoring supplied)
Anent the river passage plan, we find that, while there was none, [52] the voyage has been sufficiently
planned and monitored as shown by the following actions undertaken by the pilot, Ezzar Solarzano
Vasquez, to wit: contacting the radio marina via VHF for information regarding the channel, river traffic,
[53]
soundings of the river, depth of the river, bulletin on the buoys. [54] The officer on watch also monitored
the voyage.[55]
We, therefore, do not find the absence of a river passage plan to be the cause for the grounding of
the vessel.

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The doctrine of res ipsa loquitur does not apply to the case at bar because the circumstances
surrounding the injury do not clearly indicate negligence on the part of the private respondent. For the
said doctrine to apply, the following conditions must be met: (1) the accident was of such character as to
warrant an inference that it would not have happened except for defendant's negligence; (2) the accident
must have been caused by an agency or instrumentality within the exclusive management or control of
the person charged with the negligence complained of; and (3) the accident must not have been due to
any voluntary action or contribution on the part of the person injured. [56]
As has already been held above, there was a temporary shift of control over the ship from the master
of the vessel to the pilot on a compulsory pilotage channel. Thus, two of the requisites necessary for the
doctrine to apply, i.e., negligence and control, to render the respondent liable, are absent.
As to the claim that the ship was unseaworthy, we hold that it is not.
The Lloyds Register of Shipping confirmed the vessels seaworthiness in a Confirmation of Class
issued on February 16, 1988 by finding that "the above named ship (Philippine Roxas) maintained the
class "+100A1 Strengthened for Ore Cargoes, Nos. 2 and 8 Holds may be empty (CC) and +LMC" from
31/12/87 up until the time of casualty on or about 12/2/88." [57] The same would not have been issued had
not the vessel been built according to the standards set by Lloyd's.
Samuel Lim, a marine surveyor, at Lloyd's Register of Shipping testified thus:
"Q Now, in your opinion, as a surveyor, did top side tank have any bearing at all to the seaworthiness
of the vessel?
"A Well, judging on this particular vessel, and also basing on the class record of the vessel, wherein
recommendations were made on the top side tank, and it was given sufficient time to be repaired,
it means that the vessel is fit to travel even with those defects on the ship.
"COURT
What do you mean by that? You explain. The vessel is fit to travel even with defects? Is that what you
mean? Explain.
"WITNESS
"A Yes, your Honor. Because the class society which register (sic) is the third party looking into the
condition of the vessel and as far as their record states, the vessel was class or maintained, and
she is fit to travel during that voyage."
x x x
"ATTY. MISA
Before we proceed to other matter, will you kindly tell us what is (sic) the 'class +100A1 Strengthened
for Ore Cargoes', mean?
"WITNESS
"A Plus 100A1 means that the vessel was built according to Lloyd's rules and she is capable of
carrying ore bulk cargoes, but she is particularly capable of carrying Ore Cargoes with No. 2 and
No. 8 holds empty.
x x x
"COURT
The vessel is classed, meaning?
"A Meaning she is fit to travel, your Honor, or seaworthy." [58]

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It is not required that the vessel must be perfect. To be seaworthy, a ship must be reasonably fit to
perform the services, and to encounter the ordinary perils of the voyage, contemplated by the parties to
the policy.[59]
As further evidence that the vessel was seaworthy, we quote the deposition of pilot Vasquez:
"Q Was there any instance when your orders or directions were not complied with because of the
inability of the vessel to do so?
"A No.
"Q. Was the vessel able to respond to all your commands and orders?
"A. The vessel was navigating normally.[60]
Eduardo P. Mata, Second Engineer of the Philippine Roxas submitted an accident report wherein he
stated that on February 11, 1988, he checked and prepared the main engine, machineries and all other
auxiliaries and found them all to be in good running condition and ready for maneuvering. That same day
the main engine, bridge and engine telegraph and steering gear motor were also tested. [61] Engineer Mata
also prepared the fuel for consumption for maneuvering and checked the engine generators. [62]
Finally, we find the award of attorneys fee justified.
Article 2208 of the New Civil Code provides that:
"Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot
be recovered, except:
x x x
"(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation
should be recovered.
x x x
Due to the unfounded filing of this case, the private respondent was unjustifiably forced to litigate,
thus the award of attorneys fees was proper.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is DENIED and the decision of the
Court of Appeals in CA G.R. CV No. 36821 is AFFIRMED.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and De leon, Jr., JJ., concur.

[1]

vide Exhibit FF (Deposition upon Oral Examination of Oscar Leon Monzon, June 14, 1990), p. 9; Exhibit EE
(Deposition upon Oral Examination of Ezzar del Valle Solarzano Vasquez, June 13, 1990), p. 47.
[2]
Exhibit EE, p. 9.
[3]
Ibid., p. 9.
[4]
Ibid., p. 13.
[5]
Ibid., p. 9.
[6]
Ibid., p. 13.
[7]
Ibid., p. 13.
[8]
Ibid., p. 14.
[9]
Ibid., p. 18; Exhibit E-1.
[10]
Ibid., p. 21.
[11]
Ibid., p. 22.
[12]
Ibid., p. 22; Exhibit "E-2."
[13]
Ibid., p. 22.
[14]
Ibid., p. 26.

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[15]

Exhibit "E-2."
Exhibit "EE", p. 29; Exhibit "E-1."
[17]
Original Records, p. 209.
[18]
Ibid., pp. 639-640.
[19]
Ibid., p. 1029.
[20]
Annex "A"; Rollo, p 75.
[21]
Ibid., p. 85.
[22]
Annex "C"; Ibid., p. 89.
[23]
Annex "B"; Ibid., p. 86.
[24]
Zalamea vs. Court of Appeals, 228 SCRA 23 [1993] citing The Collector of Internal Revenue vs. Fisher and
Fisher vs. The Collector of Internal Revenue, 110 Phil. 686 [1961]; Yao Kee vs. Sy- Gonzales, 167 SCRA 736
[1988]; vide Sy Joc Lieng vs. Sy Quia, 16 Phil. 137, Yam Ka Lim vs. Collector of Customs, 30 Phil. 46, In re Estate
of Johnson, 39 Phil. 156, Fluemer vs. Hix, 54 Phil. 610.
[25]
Vicente J. Francisco, The Revised Rules of Court in the Philippines, Volume VII, Part I, 1997 ed., p. 626 citing
Secs. 36 and 49, Rule 130, Rules of Court, as amended.
[26]
Yao Kee vs. Sy-Gonzales, supra, pp. 744-745.
[27]
61 Phil. 471, 475.
[28]
Exhibit "FF", p. 9.
[29]
Ibid., p. 39.
[30]
Exhibit "FF", p. 9.
[31]
Ibid., p. 9.
[32]
Exhibit "V."
[33]
Exhibit "W."
[34]
Section 19, Rule 132 of the Rules of court, as amended.
[35]
Section 24, Rule 132 of the Rules of Court, as amended.
[36]
Valencia vs. Lopez, (CA), 65 OG 9959.
[37]
Vicente J. Francisco, The Revised Rules of Court in the Philippines, Volume VII, Part II, 1997 ed., p. 365, citing 20
Am. Jur. 371-372.
[38]
Jovito R. Salonga, Private International Law, p. 82.
[39]
Original Records, p. 1.
[40]
Yao Kee vs. Sy-Gonzales, supra; In re: Testate Estate of Suntay, 95 Phil. 500, 510-511; Miciano vs. Brimo, 50 Phil.
867; Lim and Lim vs. Collector of Customs, 36 Phil. 472.
[41]
Exhibit "E-4."
[42]
Exhibit "E-2."
[43]
Article 612 of the Code of Commerce.
[44]
Exhibit "EE", p. 8.
[45]
Ibid., p. 8.
[46]
Ibid., p. 8.
[47]
Ibid., p. 26.
[48]
Ibid., pp. 52 and 58.
[49]
Ibid., p. 33.
[50]
70 Am Jur 2d, Shipping Sec. 290.
[51]
Exhibit "EE", p. 14.
[52]
Comment to Petition for Review on Certiorari, p. 21; Rollo, p. 283.
[53]
Exhibit "EE", pp. 10-11.
[54]
Ibid., p. 12.
[55]
vide Exhibit "E-2."
[56]
57B Am Jur 2d, Negligence, Sec. 1848.
[57]
Exhibit "3."
[58]
T.S.N. dated March 14, 1991, pp. 26-27, 36, and 75.
[59]
Section 107, Act 2427 (The Insurance Act).
[60]
Exhibit "EE", p. 48.
[61]
Exhibit "E-4."
[62]
T.S.N. dated December 7, 1990, p. 8.
[16]

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION

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G.R. No. L-31189 March 31, 1987


MUNICIPALITY OF VICTORIAS, petitioner,
vs.
THE COURT OF APPEALS, NORMA LEUENBERGER and FRANCISCO SOLIVA, respondents.
Enrique I. Soriano, Jr. for private respondents.
PARAS, J.:
This is a Petition for Review on certiorari of the decision * of respondent Court of Appeals promulgated on
September 29, 1969 in CA-G.R. No. 35036-R (Rollo, p. 11) setting aside the decision ** of the Court of
First Intance of Negros Occidental, Branch I, dated September 24, 1964 which dismissed the complaint
for recovery of possession in Civil Case No. 181-S and declared the cemetery site on Lot No. 76 in
Victorias as property of the municipality of Victorias (Record on Appeal, p. 9).
The dispositive portion of the questioned decision reads as follows:
IN VIEW OF THE FOREGOING, the judgment of the lower court is hereby set aside and
another is hereby rendered:
(1) Ordering the defendant municipality and/or thru its appropriate officials to return and
deliver the possession of the portion of Lot 76 used as cemetery or burial site of the
plaintiff-appellant.
(2) Ordering defendant municipality to pay the plaintiff-appellant the sum of P400.00 a
year from 1963 until the possession of said land is actually delivered.
Lot No. 76 containing an area of 208,157 sq. meters forms a part of Cadastral Lot No. 140 (Rollo, p. 11),
a 27.2460 ha. sugar land located in Bo. Madaniog, Victorias, Negros Occidental, in the name of the
deceased Gonzalo Ditching under Tax Declaration No. 3429 of Negros Occidental for the year 1941 (Exh.
"3," Folder of Exhibits, p. 22). He was survived by his widow Simeona Jingeo Vda. de Ditching and a
daughter, Isabel, who died in 1928 (TSN, July 1, 1964, p. 7) leaving one off-spring, respondent Norma
Leuenberger, who was then only six months old (TSN, July 1, 1964, p. 34).
Respondent Norma Leuenberger, married to Francisco Soliva, inherited the whole of Lot No. 140 from her
grandmother, Simeona J. Vda. de Ditching (not from her predeceased mother Isabel Ditching). In 1952,
she donated a portion of Lot No. 140, about 3 ha., to the municipality for the ground of a certain high
school and had 4 ha. converted into a subdivision. (TSN, July 1, 1964, p. 24).
In 1963, she had the remaining 21 ha. or 208.157 sq. m. relocated by a surveyor upon request of lessee
Ramon Jover who complained of being prohibited by municipal officials from cultivating the land. It was
then that she discovered that the parcel of land, more or less 4 ha. or 33,747 sq.m. used by Petitioner
Municipality of Victorias, as a cemetery from 1934, is within her property which is now Identified as Lot 76
and covered by TCT No. 34546 (TSN, July 1, 1964, pp. 7-9; Exh. "4," Folder of Exhibits, p. 23 and Exh.
"A," Folder of Exhibits, p. 1).

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On May 20, 1963, Respondent wrote the Mayor of Victorias regarding her discovery, demanding payment
of past rentals and requesting delivery of the area allegedly illegally occupied by Petitioner (Exh. "G,
Folder of Exhibits, p. 15). When the Mayor replied that Petitioner bought the land she asked to be shown
the papers concerning the sale but was referred by the Mayor to the municipal treasurer who refused to
show the same (TSN, July 1, 1964, pp. 32-33).
On January 11, 1964, Respondents filed a complaint in the Court of First Instance of Negros Occidental,
Branch 1, for recovery of possession of the parcel of land occupied by the municipal cemetery (Record on
Appeal, p. 1). In its answer, petitioner Municipality, by way of special defense, alleged ownership of the
lot, subject of the complaint, having bought it from Simeona Jingco Vda. de Ditching sometime in 1934
(Record on Appeal, p. 7). The lower court decided in favor of the Municipality. On appeal Respondent
appellate Court set aside the decision of the lower court (Record on AppeaL p. 9); hence, this petition for
review on certiorari.
This petition was filed with the Court on November 6, 1969 (Rollo, p. 2), the Record on Appeal on
December 19, 1969 (Rollo, p. 80). On January 5, 1970, the Court gave due course to the petition (Rollo,
p. 84).
The Brief for the Petitioner was filed on April 1, 1970 (Rollo, p. 88), the Brief for Respondents was filed on
May 18, 1970 (Rollo, p. 92).
On July 8, 1970, the Court resolved to consider the case submitted for decision without Petitioner's Reply
Brief, Petitioner having failed to file the brief within the period which expired on June 10, 1970 (Rollo. p.
99).
On motion of counsel for the Respondents (Rollo, p. 104), the Court resolved on June 30, 1972 to allow
respondent Francisco Soliva to continue the appeal in behalf of the estate of respondent Norma
Leuenberger who died on January 25, 1972, Respondent Francisco Soliva having been appointed special
administrator in Special Proceedings No. 84-V of the Court of First Instance of Negros Occidental (Rollo,
p. 110).
In their brief, petitioner raised the following errors of respondent Court of Appeals: (Brief for the Petitioner,
p. 1-3);
I.
The Honorable Court of Appeals erred in holding that respondents Norma Leuenberger
and Francisco Soliva are the lawful owners of the land in litigation as they are estopped
from questioning the possession and ownership of herein petitioner which dates back to
more than 30 years.
II.
The Honorable Court of Appeals also erred in ordering the petition petitioner to deliver the
possession of the land in question to the respondents Nomia Leuenberger and Francisco
Soliva, by holding that non-annotation on the Torrens Certificate of Title could not affect
the said land when the possession by the petitioner of the said land for over 30 years and
using it as a public cemetery for that length of time are sufficient proof of purchase and

65 | P a g e

transfer of title and non-annotation of the Certificate of Title did not render the sale
ineffectual
III.
The Honorable Court of Appeals further erred in ordering the petitioner Municipality of
Victories to pay the respondents the sum of P400.00 a year from 1963 until possession is
actually delivered because under the law, an owner of a piece of land has no obligation to
pay rentals as it owns and possesses the same.
There is merit in the petition.
It is undisputed that petitioner failed to present before the Court a Deed of Sale to prove its purchase of
the land in question which is included in the Transfer Certificate of Title No. T-34546 in the name of
private respondent Norma Leuenberger.
The pivotal issue in this case is whether or not the secondary evidence presented by the petitioner
municipality is sufficient to substantiate its claim that it acquired the disputed land by means of a Deed of
Sale.
Under the Best Evidence Rule when the original writing is lost or otherwise unavailable, the law in point
provides:
Sec. 4. Secondary evidence when original is lost or destroyed. When the original
writing has been lost or destroyed, or cannot be produced in court, upon proof of its
execution and loss or destruction or unavailability, its contents may be proved by a copy,
or by a recital of its contents in some authentic document, or by the recollection of
witnesses. (Rule 130, Rules of Court).
In lieu of a Deed of Sale, petitioner presented a certificate issued by the Archives Division of the Bureau
of Records Management in Manila, of a page of the 1934 Notarial Register of Vicente D. Aragon with the
following entries:
Nature of Instrument Compra venta 2 porciones Terrenos: Lotes Nos. 140-A y 140-B,
Victorias, Neg. Occidental pago por esso despues aprobacion Jusgado la Instance, Neg.
Occidental causa civil 5116 Vendedora: Simeona Jingco Vda. de Ditching . . .
administradora Abint. G. Ditching
Comprador: Municipio Victorias, Neg. Occidental . . . . por su Pres.Mpal Vicente B.
Arnaes
Valor: P750.00 ...
Vease copia correspondiente.
Names of-persons Executing/ Acknowledging:
Simeona Vda. de Ditching

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Adm. Abint actuacion especial No. 5116


Jusgado la Instance Neg. Occidental
Vendedora
Vicente B. Arnaes
Pres. Municipal. Victorias
Comprador
Witnesses to the Signatures:
Esteban Jalandoni
Gregorio Elizalde
Date: Month
9 Julio 1934
Fees: P2.00
Cedulas:
Exenta por susexo
F1027880 Enero 26/34 Victories, Neg. Occidental
Remarks.
En Victorias, Neg. Occidental
Los annexes A. y B. estan unidos
solamente en el original de la
escritura.
Respondent Court of Appeals was of the view (Rollo, p. 16) that a mere entry in the notarial register of a
notary public of an alleged sale cannot prove that a particular piece of land was sold by one person to
another, one of the important requirements being the indication of the area and the technical description
of the land being sold. In the present case, since no deed of sale could be produced, there is no way of
telling what particular portion of the property was sold to defendant municipality and how big was the sale
of the land conveyed to the defendant municipality.

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It will be observed that the entries in the notarial register clearly show: (a) the nature of the instrument.
a deed of sale; (b) the subject of the sale two parcels of land, Lot Nos. 140-A and 140-B; (c) the parties
of the contract the vendor Simeona J. Vda. de Ditching in her capacity as Administrator in Civil Case
No. 5116 of the Court of First Instance of Negros Occidental and the vendee, Vicente B. Ananosa,
Municipal Mayor of Victorias; (d) the consideration P750.00; (e) the names of the witnesses Esteban
Jalandoni and Gregoria Elizado; and the date of the sale on July 9, 1934.
It is beyond question that the foregoing certificate is an authentic document clearly corroborated and
supported by: (a) the testimony of the municipal councilor of Victorias, Ricardo Suarez, (Original TSN
Hearing of September 14, 1964, pp. 1222) who negotiated the sale; (b) the testimony of Emilio Cuesta,
(Original TSN Hearing of September 14, 1964, pp. 2238) the municipal treasurer of said municipality,
since 1932 up to the date of trial on September 14, 1964, who personally paid the amount of P750.00 to
Felipe Leuenberger as consideration of the Contract of Sale; (c) Certificate of Settlement (Original
Exhibits, p. 20) "as evidence of said payment;" (d) Tax Declaration No. 429 (Ibid., p. 22) which was
cancelled and was substituted by Tax Declaration No. 3600 covering the portion of the property unsold
(Decision, CFI, Neg. Occidental Orig. Record on Appeal, p. 6) and (e) Tax Declaration No. 3601 (Ibid, p.
23) in the name of the Municipal Government of Victorias covering the portion occupied as cemetery.
Tax Declaration No. 3601 shows on its face the boundaries as follows:
North NE Lot No. 140-C of the Subdivision
South SW Lot No. 140-C of the Subdivision
West NW Lots Nos. 140-C & 140-B of the Subdivision.
The area is 33,747 sq.m.
At the back Exh. 4-A, the sale of a portion of the lot to the Municipality of Victorias was clearly explained
as follows:
Note: The whole Lot No. 140, belongs to Norma Leuenberger as evidenced by a Transfer
of Cert. of Title No. 18672. Portion of this Lot, (30,000 sq.m. was sold to Municipality of
Victories for Cemetery Site as evidenced by a Deed of Sale executed by Simeona Jingco
Vda. de Ditching in favor of the aforesaid Municipality and ratified by Notary Public Mr.
Vicente Aragon under Doc. No. 132; Page No. 2; Book No. 10, Series of 1934.
At the lowest portion under Memoranda it was explained that
The area under this declaration includes 3,746 sq. meters donated by Mrs. Simeona
Jingco Vda. de Ditching and used as road leading to the cemetery. " (EXIL 4; Original
Exhibits, p. 23).
The above-mentioned testimonies and documentary evidence sufficiently Identify the land sold by the
predecessors-in-interest of private respondent. To insist on the technical description of the land in dispute
would be to sacrifice substance to form which would undoubtedly result in manifest injustice to the
petitioner.

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Moreover, it is expressly provided by law that the thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee. (Civil Code Art. 1497). Where there is no express
provision that title shall not pass until payment of the price, and the thing gold has been delivered, title
passes from the moment the thing sold is placed in the possession and control of the buyer. (Kuenzle &
Streiff vs. Watson & Co., 13 PhiL 26 [1909]). Delivery produces its natural effects in law, the principal and
most important of which being the conveyance of ownership, without prejudice to the right of the vendor to
payment of the price. (Ocejo, Perez & Co. vs. International Banking Corp., 37 PhiL 631 [1918]).
Similarly, when the sale is made through a public instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the contract, if from the deed, the contrary does not appear
or cannot be clearly inferred. (Civil Code Art. 1498). The execution of the public instrument operates as a
formal or symbolic delivery of the property sold and authorizes the buyer to use the document as proof of
ownership. (Florendo v. Foz, 20 PhiL 388 [1911]).
In the case at bar it is undisputed that petitioner had been in open, public, adverse and continuous
possession of the land for a period of more than thirty years. In fact, according to the municipal treasurer
there are over 1000 graves in the cemetery. (Decision, Court of Appeals, Rollo, pp. 11-22).
As correctly observed by Justice Magno S. Gatmaitan in his dissenting opinion (Rollo, pp. 23-28) in the
decision of this case by the Court of Appeals, the evidence establishes without debate that the property
was originally registered in 1916. Plaintiff was born only in 1928 and cannot possibly be the registered
owner of the original lot 140 at the time. Indeed, according to her own evidence, (Exhibit A; Original
Record pp. 13) she became the registered owner only in 1963. Likewise, it is undisputed that in the
intestate estate of Gonzalo Ditching, the grandfather of private respondent Norma Leunberger, it was her
grandmother, Simeona, the surviving spouse of Gonzalo who was named judicial administratrix.
According to Norma's own testimony, Isabel her mother, died in 1928 (TSN Aug. 12, 1964, p. 34) while
Simeona the grandmother died in 1942. (Ibid.) Therefore, as of 1934 when a document of sale was
executed by Simeona in favor of the municipality of Victories as indubitably shown in the notarial register
(Exhibit 5.A) in question, Simeona was still the administratrix of the properties left by her husband,
Gonzalo and of their conjugal partnership. Consequently, she is the only person who could legally dispose
of by sale this particular four- hectare portion of Lot 140. And so it is, that in 1934, Simeona Ditching in
her capacity as judicial administratrix made and executed the document described in the Report as Lots
140-A and 140-B, showing clearly that they are portions of the original big Lot 140. As this conveyance
was executed by the judicial administratrix, unquestionably the party authorized to dispose of the same,
the presumption must be that she did so upon proper authority of the Court of First Instance.
As to the description of the property sold, the fact that a notarial report shows that they are portions of Lot
140 and the property in question occupied by the public cemetery is admittedly a portion of said lot in the
absence of evidence that there were other portions of Lot 140 ceded unto the petitioner municipality, the
inevitable conclusion is that the sale executed in the Notarial Register refers to the disputed lot.
Unfortunately, the purchaser Municipality of Victorias failed to register said Deed of Sale; hence, when
Simeona Jingco Vda. de Ditching died, her grand-daughter, respondent Norma Leuenberger claimed to
have inherited the land in dispute and succeeded in registering said land under the Torrens system. Said
land is now covered by Transfer Certificate of Title No. T-34036 (Exhibit A, supra) issued by the Register
of Deeds of -Negros Occidental on March 11, 1963 in the name of Norma Leuenberger, married to
Francisco Soliva, containing an area of 208,157 square meters. As registered owner, she is
unquestionably entitled to the protection afforded to a holder of a Torrens Title.

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Admittedly, it is well-settled that under the Torrens System "Every person receiving a certificate of title in
pursuance of a decree of registration, . . . shall hold the same free of all encumbrance except those noted
on said certificate ... " (Sec. 39, Act 496; now Sec. 43, PD 1529).
In the instant case, however, respondent Norma Leuenberger admitted that she inherited the land
covered by Transfer Certificate of Title No. T-34036 from her grandmother, who had already sold the land
to the petitioner in 1934; hence, she merely stepped into the shoes of her grandmother and she cannot
claim a better right than her predecessor-in-interest. When she applied for registration of the disputed
land, she had no legal right to do so as she had no ownership of the land since land registration is not a
mode of acquiring ownership but only of confirming ownership of the land. (Grande, et al. vs. Court of
Appeals, et al., 115 Phil. 521.)"The Torrens System was not established as a means for the acquisition of
title to private land, ..." It is intended merely to confirm and register the title which one may already have
on the land. Where the applicant possesses no title or ownership over the parcel of land, he cannot
acquire one under the Torrens system of Registration. (Torela, et al., vs. Torela, et al., L-27843, October
11, 1979).
While an inherently defective Torrens title may not ordinarily be cancelled even after proof of its defect,
the lawnevertheless safeguards the rightful party's interest in the titled land from fraud and improper use
of technicalities by snowing such party, in appropriate cases, to judicially seek reconveyance to him of
whatever he has been deprived of as long as the land has not been transferred or conveyed to a
purchaser in good faith. (Pedro Pascua, et al., vs. Mariano Gopuyoc et al., L-23197, May 31, 1977.)
The Civil Code provides:
Art. 1456. If the property is acquired through mistake or fraud, the person obtaining it is,
by force of law, considered a trustee of an implied trust for the benefit of the person from
whom the property comes.
Thus, it has been held that where the land is decreed in the name of a person through fraud or mistake,
such person is by operation of law considered a trustee of an implied trust for the benefit of the persons
from whom the property comes. The beneficiary shag have the right t  enforce the trust, notwithstanding
the irrevocability of the Torrens title and the trustee and his successors-in-interest are bound to execute
the deed of reconveyance. (Pacheco vs. Arro, 85 Phil. 505; Escobar vs. Locsin, 74 Phil. 86).
As the land in dispute is held by private respondents in trust for the Municipality of Victorias, it is logical to
conclude that the latter can neither be deprived of its possession nor be made to pay rentals thereof.
Private respondent is in equity bound to reconvey the subject land to the cestui que trust the Municipality
of Victorias. The Torrens system was never calculated to foment betrayal in the performance of a trust.
(Escobar vs. Locsin, 74 Phil. 86).
For a more expeditious disposition of the case at bar, Rule 39 of the Rules of Court provides:
SEC. 10. Judgment for Specific acts; vesting title. ... If real or personal property is
within the Philippines, the court in lieu of directing a conveyance thereof may enter
judgment divesting the title of any party and vesting it in others and such judgment shall
have the force and effect of a conveyance executed in due form of law.

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Finally, the conclusions and findings of fact by the trial court are entitled to great weight on appeal and
should not be disturbed unless for strong and cogent reasons because the trial court is in a better position
to examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the
case. (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]).
PREMISES CONSIDERED, the judgment of the respondent appellate court is hereby SET ASIDE and the
decision of the Court of First Instance of Negros Occidental, Branch I-Silay City in Civil Case No. 181-S
declaring the cemetery site (Exh. E-2) on Lot No. 76 in Victories as the property of the municipality of
Victorias, is hereby REINSTATED. Additionally, We hereby order (a) the petitioner to have the disputed
land segregated by a licensed surveyor from the rest of Lot No. 76 described in Transfer Certificate of
Title No. T-34036 and to have the corresponding subdivision plan, duly approved by the Land Registration
Commission, submitted to the court of origin for approval; (b) the private respondents Norma Leuenberger
and Francisco Soliva to be divested of their title to the disputed land under Rule 39, Sec. 10, Rules of
Court; and (c) the Register of Deeds of Negros Occidental to cancel Transfer Certificate of Title No. 34036
and issue, in lieu thereof, one title in the name of the Municipality of Victories for the disputed land and
another title in the names of the private respondents Norma Leuenberger and Francisco Soliva for the
rest of Lot No. 76. Without costs.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin, and Cortes, JJ., concur.

Footnotes
* Penned by Justice Ruperto G. Martin and concurred in by Justices Julio Villamor and
Andres Reyes, with Justices Magno S. Gatmaitan and Edilberto Soriano, dissenting.
** Written by Judge Rafael C. Climaco.

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