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THIRD DIVISION

G.R. No. 164349 January 31, 2006


RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),Petitioner,
vs.
ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, MARDONIO INFANTE,
ZENAIDA VERCHEZ-CATIBOG, AND FORTUNATO CATIBOG, Respondents.
DECISION
CARPIO MORALES, J.:
On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon
Provincial Hospital due to an ailment. On even date, her daughter Grace Verchez-Infante
(Grace) immediately hied to the Sorsogon Branch of the Radio Communications of the
Philippines, Inc. (RCPI) whose services she engaged to send a telegram to her sister Zenaida
Verchez-Catibog (Zenaida) who was residing at 18 Legal St., GSIS Village, Quezon
City1 reading: "Send check money Mommy hospital." For RCPI’s services, Grace
paid P10.502 for which she was issued a receipt.3
As three days after RCPI was engaged to send the telegram to Zenaida no response was
received from her, Grace sent a letter to Zenaida, this time thru JRS Delivery Service,
reprimanding her for not sending any financial aid.
Immediately after she received Grace’s letter, Zenaida, along with her husband Fortunato
Catibog, left on January 26, 1991 for Sorsogon. On her arrival at Sorsogon, she disclaimed
having received any telegram.
In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon
City on January 28, 1991 and brought Editha to the Veterans Memorial Hospital in Quezon
City where she was confined from January 30, 1991 to March 21, 1991.
The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991. 4 On
inquiry from RCPI why it took that long to deliver it, a messenger of RCPI replied that he
had nothing to do with the delivery thereof as it was another messenger who previously was
assigned to deliver the same but the address could not be located, hence, the telegram was
resent on February 2, 1991, and the second messenger finally found the address on February
15, 1991.
Editha’s husband Alfonso Verchez (Verchez), by letter of March 5, 1991, 5 demanded an
explanation from the manager of the Service Quality Control Department of the RCPI, Mrs.
Lorna D. Fabian, who replied, by letter of March 13, 1991,6 as follows:
Our investigation on this matter disclosed that subject telegram was duly processed in
accordance with our standard operating procedure. However, delivery was not immediately
effected due to the occurrence of circumstances which were beyond the control and foresight
of RCPI. Among others, during the transmission process, the radio link connecting the
points of communication involved encountered radio noise and interferences such that
subject telegram did not initially registered (sic) in the receiving teleprinter machine.
Our internal message monitoring led to the discovery of the above. Thus, a repeat
transmission was made and subsequent delivery was effected. (Underscoring supplied)
Verchez’s lawyer thereupon wrote RCPI’s manager Fabian, by letter of July 23,
1991,7 requesting for a conference on a specified date and time, but no representative of
RCPI showed up at said date and time.
On April 17, 1992, Editha died.
On September 8, 1993, Verchez, along with his daughters Grace and Zenaida and their
respective spouses, filed a complaint against RCPI before the Regional Trial Court (RTC) of
Sorsogon for damages. In their complaint, the plaintiffs alleged that, inter alia, the delay in
delivering the telegram contributed to the early demise of the late Editha to their damage
and prejudice,8 for which they prayed for the award of moral and exemplary damages9 and
attorney’s fees.10
After its motion to dismiss the complaint for improper venue11 was denied12 by Branch 5 of
the RTC of Sorsogon, RCPI filed its answer, alleging that except with respect to Grace,13 the
other plaintiffs had no privity of contract with it; any delay in the sending of the telegram
was due to force majeure, "specifically, but not limited to, radio noise and interferences
which adversely affected the transmission and/or reception of the telegraphic
message";14 the clause in the Telegram Transmission Form signed by Grace absolved it from
liability for any damage arising from the transmission other than the refund of telegram
tolls;15 it observed due diligence in the selection and supervision of its employees; and at all
events, any cause of action had been barred by laches.16
The trial court, observing that "although the delayed delivery of the questioned telegram
was not apparently the proximate cause of the death of Editha," ruled out the presence
of force majeure. Respecting the clause in the telegram relied upon by RCPI, the trial court
held that it partakes of the nature of a contract of adhesion.
Finding that the nature of RCPI’s business obligated it to dispatch the telegram to the
addressee at the earliest possible time but that it did not in view of the negligence of its
employees to repair its radio transmitter and the concomitant delay in delivering the
telegram on time, the trial court, upon the following provisions of the Civil Code, to wit:
Article 2176 – Whoever by act or omission causes damage to another, there being at 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 quasi-delict and is governed by
the provisions of this Chapter.
Article 1173 defines the fault of (sic) negligence of the obligor as the "omission of the
diligence which is required by the nature of the obligation and corresponds with the
circumstances of the person, of the time, or the place."
In the instant case, the obligation of the defendant to deliver the telegram to the addressee
is of an urgent nature. Its essence is the early delivery of the telegram to the concerned
person. Yet, due to the negligence of its employees, the defendant failed to discharge of its
obligation on time making it liable for damages under Article 2176.
The negligence on the part of the employees gives rise to the presumption of negligence on
the part of the employer.17 (Underscoring supplied),
rendered judgment against RCPI. Accordingly, it disposed:
WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in favor
of the plaintiffs and against the defendant, to wit:
Ordering the defendant to pay the plaintiffs the following amount:
1. The amount of One Hundred Thousand (P100,000.00) Pesos as moral damages;
2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney’s fees; and
3. To pay the costs.
SO ORDERED.18
On appeal, the Court of Appeals, by Decision of February 27, 2004, 19 affirmed the trial
court’s decision.
Hence, RCPI’s present petition for review on certiorari, it raising the following questions:
(1) "Is the award of moral damages proper even if the trial court found that there was no
direct connection between the injury and the alleged negligent acts?" 20 and (2) "Are the
stipulations in the ‘Telegram Transmission Form,’ in the nature "contracts of adhesion"
(sic)?21
RCPI insists that respondents failed to prove any causal connection between its delay in
transmitting the telegram and Editha’s death.22
RCPI’s stand fails. It bears noting that its liability is anchored on culpa contractual or
breach of contract with regard to Grace, and on tort with regard to her co-plaintiffs-herein-
co-respondents.
Article 1170 of the Civil Code provides:
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.
(Underscoring supplied)
Passing on this codal provision, this Court explained:
In culpa contractual x x x the mere proof of the existence of the contract and the failure of
its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the
obligatory force of contracts, will not permit a party to be set free from liability for any kind
of misperformance of the contractual undertaking or a contravention of the tenor thereof. A
breach upon the contract confers upon the injured party a valid cause for recovering that
which may have been lost or suffered. The remedy serves to preserve the interests of the
promissee that may include his "expectation interest," which is his interest in having the
benefit of his bargain by being put in as good a position as he would have been in had the
contract been performed, or his "reliance interest," which is his interest in being reimbursed
for loss caused by reliance on the contract by being put in as good a position as he would
have been in had the contract not been made; or his "restitution interest," which is his
interest in having restored to him any benefit that he has conferred on the other party.
Indeed, agreements can accomplish little, either for their makers or for society, unless they
are made the basis for action. The effect of every infraction is to create a new duty, that is,
to make recompense to the one who has been injured by the failure of another to observe his
contractual obligation unless he can show extenuating circumstances, like proof of his
exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from
his ensuing liability.23 (Emphasis and underscoring supplied)
In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible
time. It took 25 days, however, for RCPI to deliver it.
RCPI invokes force majeure, specifically, the alleged radio noise and interferences which
adversely affected the transmission and/or reception of the telegraphic message.
Additionally, its messenger claimed he could not locate the address of Zenaida and it was
only on the third attempt that he was able to deliver the telegram.
For the defense of force majeure to prosper,
x x x it is necessary that one has committed no negligence or misconduct that may have
occasioned the loss. An act of God cannot be invoked to protect a person who has failed to
take steps to forestall the possible adverse consequences of such a loss. One’s negligence
may have concurred with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the effect is found to be partly
the result of a person’s participation – whether by active intervention, neglect or failure to
act – the whole occurrence is humanized and removed from the rules applicable to acts of
God.
xxxx
Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous
event that could not be foreseen or, though foreseen, was inevitable. In other words, there
must be an exclusion of human intervention from the cause of injury or loss.24 (Emphasis
and underscoring supplied)
Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the
telegram at the soonest possible time, it should have at least informed Grace of the non-
transmission and the non-delivery so that she could have taken steps to remedy the
situation. But it did not. There lies the fault or negligence.
In an earlier case also involving RCPI, this Court held:
Considering the public utility of RCPI’s business and its contractual obligation to transmit
messages, it should exercise due diligence to ascertain that messages are delivered to the
persons at the given address and should provide a system whereby in cases of undelivered
messages the sender is given notice of non-delivery. Messages sent by cable or wireless
means are usually more important and urgent than those which can wait for the mail.25
xxxx
People depend on telecommunications companies in times of deep emotional stress or
pressing financial needs. Knowing that messages about the illnesses or deaths of loved ones,
births or marriages in a family, important business transactions, and notices of conferences
or meetings as in this case, are coursed through the petitioner and similar corporations, it
is incumbent upon them to exercise a greater amount of care and concern than that shown
in this case. Every reasonable effort to inform senders of the non-delivery of messages
should be undertaken.26
(Emphasis and underscoring supplied)
RCPI argues, however, against the presence of urgency in the delivery of the telegram, as
well as the basis for the award of moral damages, thus:27
The request to send check as written in the telegraphic text negates the existence of
urgency that private respondents’ allegations that ‘time was of the essence’ imports. A check
drawn against a Manila Bank and transmitted to Sorsogon, Sorsogon will have to be
deposited in a bank in Sorsogon and pass thru a minimum clearing period of 5 days before
it may be encashed or withdrawn. If the transmittal of the requested check to Sorsogon took
1 day – private respondents could therefore still wait for 6 days before the same may be
withdrawn. Requesting a check that would take 6 days before it could be withdrawn
therefore contradicts plaintiff’s claim of urgency or need.28
At any rate, any sense of urgency of the situation was met when Grace Verchez was able to
communicate to Manila via a letter that she sent to the same addressee in Manila thru
JRS.29
xxxx
As far as the respondent court’s award for moral damages is concerned, the same has no
basis whatsoever since private respondent Alfonso Verchez did not accompany his late wife
when the latter went to Manila by bus. He stayed behind in Sorsogon for almost 1 week
before he proceeded to Manila. 30
When pressed on cross-examination, private respondent Alfonso Verchez could not give any
plausible reason as to the reason why he did not accompany his ailing wife to Manila.31
xxxx
It is also important to consider in resolving private respondents’ claim for moral damages
that private respondent Grace Verchez did not accompany her ailing mother to Manila.32
xxxx
It is the common reaction of a husband to be at his ailing wife’s side as much as possible. The
fact that private respondent Alfonso Verchez stayed behind in Sorsogon for almost 1 week
convincingly demonstrates that he himself knew that his wife was not in critical condition.33
(Emphasis and underscoring supplied)
RCPI’s arguments fail. For it is its breach of contract upon which its liability is, it bears
repeating, anchored. Since RCPI breached its contract, the presumption is that it was at
fault or negligent. It, however, failed to rebut this presumption.
For breach of contract then, RCPI is liable to Grace for damages.
And for quasi-delict, RCPI is liable to Grace’s co-respondents following Article 2176 of the
Civil Code which provides:
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 and is governed by the
provisions of this Chapter. (Underscoring supplied)
RCPI’s liability as an employer could of course be avoided if it could prove that it observed
the diligence of a good father of a family to prevent damage. Article 2180 of the Civil Code
so provides:
The obligation imposed by Article 2176 is demandable not only for one’s own acts or
omissions, but also for those of persons for whom one is responsible.
xxxx
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.
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
(Underscoring supplied)
RCPI failed, however, to prove that it observed all the diligence of a good father of a family
to prevent damage.
Respecting the assailed award of moral damages, a determination of the presence of the
following requisites to justify the award is in order:
x x x firstly, evidence of besmirched reputation or physical, mental or psychological suffering
sustained by the claimant; secondly, a culpable act or omission factually
established; thirdly, proof that the wrongful act or omission of the defendant is the
proximate cause of damages sustained by the claimant; and fourthly, that the case is
predicated on any of the instances expressed or envisioned by Article 2219 and Article 2220
of the Civil Code.34
Respecting the first requisite, evidence of suffering by the plaintiffs-herein respondents was
correctly appreciated by the CA in this wise:
The failure of RCPI to deliver the telegram containing the message of appellees on time,
disturbed their filial tranquillity. Family members blamed each other for failing to respond
swiftly to an emergency that involved the life of the late Mrs. Verchez, who suffered from
diabetes.35
As reflected in the foregoing discussions, the second and third requisites are present.
On the fourth requisite, Article 2220 of the Civil Code provides:
Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad
faith. (Emphasis and underscoring supplied)
After RCPI’s first attempt to deliver the telegram failed, it did not inform Grace of the non-
delivery thereof and waited for 12 days before trying to deliver it again, knowing – as it
should know – that time is of the essence in the delivery of telegrams. When its second long-
delayed attempt to deliver the telegram again failed, it, again, waited for another 12 days
before making a third attempt. Such nonchalance in performing its urgent obligation
indicates gross negligence amounting to bad faith. The fourth requisite is thus also present.
In applying the above-quoted Article 2220, this Court has awarded moral damages in cases
of breach of contract where the defendant was guilty of gross negligence amounting to bad
faith, or in wanton disregard of his contractual obligation.36
As for RCPI’s tort-based liability, Article 2219 of the Civil Code provides:
Moral damages may be recovered in the following and analogous cases:
xxxx
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. (Emphasis
supplied)
Article 26 of the Civil Code, in turn, provides:
Every person shall respect the dignity, personality, privacy and peace of mind of his
neighbors and other persons. The following and similar acts, though they may not constitute
a criminal offense, shall produce a cause of action for damages, prevention, and other relief:
xxxx
(2) Meddling with or disturbing the private life or family relations of another. (Emphasis
supplied)
RCPI’s negligence in not promptly performing its obligation undoubtedly disturbed the
peace of mind not only of Grace but also her co-respondents. As observed by the appellate
court, it disrupted the "filial tranquillity" among them as they blamed each other "for failing
to respond swiftly to an emergency." The tortious acts and/or omissions complained of in
this case are, therefore, analogous to acts mentioned under Article 26 of the Civil Code,
which are among the instances of quasi-delict when courts may award moral damages under
Article 2219 of the Civil Code.
In fine, the award to the plaintiffs-herein respondents of moral damages is in order, as is
the award of attorney’s fees, respondents having been compelled to litigate to protect their
rights.
Clutching at straws, RCPI insists that the limited liability clause in the "Telegram
Transmission Form" is not a contract of adhesion. Thus it argues:
Neither can the Telegram Transmission Form be considered a contract of adhesion as held
by the respondent court. The said stipulations were all written in bold letters right in front
of the Telegram Transmission Form. As a matter of fact they were beside the space where
the telegram senders write their telegraphic messages. It would have been different if the
stipulations were written at the back for surely there is no way the sender will easily notice
them. The fact that the stipulations were located in a particular space where they can easily
be seen, is sufficient notice to any sender (like Grace Verchez-Infante) where she could
manifest her disapproval, leave the RCPI station and avail of the services of the other
telegram operators.37 (Underscoring supplied)
RCPI misunderstands the nature of a contract of adhesion. Neither the readability of the
stipulations nor their physical location in the contract determines whether it is one of
adhesion.
A contract of adhesion is defined as one in which one of the parties imposes a ready-made
form of contract, which the other party may accept or reject, but which the latter cannot
modify. One party prepares the stipulation in the contract, while the other party merely
affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving
the latter of the opportunity to bargain on equal footing.38 (Emphasis and underscoring
supplied)
While a contract of adhesion is not necessarily void and unenforceable, since it is construed
strictly against the party who drafted it or gave rise to any ambiguity therein, it is stricken
down as void and unenforceable or subversive of public policy when the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely deprived of the opportunity to bargain on
equal footing.39
This Court holds that the Court of Appeals’ finding that the parties’ contract is one of
adhesion which is void is, given the facts and circumstances of the case, thus well-taken.
WHEREFORE, the petition is DENIED, and the challenged decision of the Court of Appeals
is AFFIRMED.
Costs against petitioner.
SO ORDERED.
FIRST DIVISION

G.R. No. 115129 February 12, 1997


IGNACIO BARZAGA, petitioner,
vs.
COURT OF APPEALS and ANGELITO ALVIAR, respondents.

BELLOSILLO, J.:
The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On
the nineteenth of December Ignacio's wife succumbed to a debilitating ailment after
prolonged pain and suffering. Forewarned by her attending physicians of her impending
death, she expressed her wish to be laid to rest before Christmas day to spare her family
from keeping lonely vigil over her remains while the whole of Christendom celebrate the
Nativity of their Redeemer.
Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing
the wake for his departed wife, Ignacio Barzaga set out to arrange for her interment on the
twenty-fourth of December in obedience semper fidelis to her dying wish. But her final
entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans
that forthwith gave him and his family their gloomiest Christmas ever.
This is Barzaga's story. On 21 December 1990, at about three o'clock in the afternoon, he
went to the hardware store of respondent Angelito Alviar to inquire about the availability
of certain materials to be used in the construction of a niche for his wife. He also asked if
the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that
she had yet to verify if the store had pending deliveries that afternoon because if there were
then all subsequent purchases would have to be delivered the following day. With that reply
petitioner left.
At seven o'clock the following morning, 22 December, Barzaga returned to Alviar's hardware
store to follow up his purchase of construction materials. He told the store employees that
the materials he was buying would have to be delivered at the Memorial Cemetery in
Dasmarinas, Cavite, by eight o'clock that morning since his hired workers were already at
the burial site and time was of the essence. Marina Boncales agreed to deliver the items at
the designated time, date and place. With this assurance, Barzaga purchased the materials
and paid in full the amount of P2,110.00. Thereafter he joined his workers at the cemetery,
which was only a kilometer away, to await the delivery.
The construction materials did not arrive at eight o'clock as promised. At nine o'clock, the
delivery was still nowhere in sight. Barzaga returned to the hardware store to inquire about
the delay. Boncales assured him that although the delivery truck was not yet around it had
already left the garage and that as soon as it arrived the materials would be brought over
to the cemetery in no time at all. That left petitioner no choice but to rejoin his workers at
the memorial park and wait for the materials.
By ten o'clock, there was still no delivery. This prompted petitioner to return to the store to
inquire about the materials. But he received the same answer from respondent's employees
who even cajoled him to go back to the burial place as they would just follow with his
construction materials.
After hours of waiting — which seemed interminable to him — Barzaga became extremely
upset. He decided to dismiss his laborers for the day. He proceeded to the police station,
which was just nearby, and lodged a complaint against Alviar. He had his complaint entered
in the police blotter. When he returned again to the store he saw the delivery truck already
there but the materials he purchased were not yet ready for loading. Distressed that Alviar's
employees were not the least concerned, despite his impassioned pleas, Barzaga decided to
cancel his transaction with the store and look for construction materials elsewhere.
In the afternoon of that day, petitioner was able to buy from another store. But since
darkness was already setting in and his workers had left, he made up his mind to start his
project the following morning, 23 December. But he knew that the niche would not be finish
in time for the scheduled burial the following day. His laborers had to take a break on
Christmas Day and they could only resume in the morning of the twenty-sixth. The niche
was completed in the afternoon and Barzaga's wife was finally laid to rest. However, it was
two-and-a-half (2-1/2) days behind schedule.
On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish,
Barzaga wrote private respondent Alviar demanding recompense for the damage he
suffered. Alviar did not respond. Consequently, petitioner sued him before the Regional
Trial Court.1
Resisting petitioner's claim, private respondent contended that legal delay could not be
validly ascribed to him because no specific time of delivery was agreed upon between them.
He pointed out that the invoices evidencing the sale did not contain any stipulation as to
the exact time of delivery and that assuming that the materials were not delivered within
the period desired by petitioner, the delivery truck suffered a flat tire on the way to the store
to pick up the materials. Besides, his men were ready to make the delivery by ten-thirty in
the morning of 22 December but petitioner refused to accept them. According to Alviar, it
was this obstinate refusal of petitioner to accept delivery that caused the delay in the
construction of the niche and the consequent failure of the family to inter their loved one on
the twenty-fourth of December, and that, if at all, it was petitioner and no other who brought
about all his personal woes.
Upholding the proposition that respondent incurred in delay in the delivery of the
construction materials resulting in undue prejudice to petitioner, the trial court ordered
respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase price of the
materials with interest per annum computed at the legal rate from the date of the filing of
the complaint, (b) P5,000.00 as temperate damages, (c) P20,000.00 as moral damages, (d)
P5,000.00 as litigation expenses, and (e) P5,000.00 as attorney's fees.
On appeal, respondent Court of Appeals reversed the lower court and ruled that there was
no contractual commitment as to the exact time of delivery since this was not indicated in
the invoice receipts covering the sale.2
The arrangement to deliver the materials merely implied that delivery should be made
within a reasonable time but that the conclusion that since petitioner's workers were
already at the graveyard the delivery had to be made at that precise moment, is non-
sequitur. The Court of Appeals also held that assuming that there was delay, petitioner still
had sufficient time to construct the tomb and hold his wife's burial as she wished.
We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent
Angelito Alviar was negligent and incurred in delay in the performance of his contractual
obligation. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the
damage he suffered as a consequence of delay or a contractual breach. The law expressly
provides that those who in the performance of their obligation are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor thereof, are liable
for damages.3
Contrary to the appellate court's factual determination, there was a specific time agreed
upon for the delivery of the materials to the cemetery. Petitioner went to private
respondent's store on 21 December precisely to inquire if the materials he intended to
purchase could be delivered immediately. But he was told by the storekeeper that if there
were still deliveries to be made that afternoon his order would be delivered the following
day. With this in mind Barzaga decided to buy the construction materials the following
morning after he was assured of immediate delivery according to his time frame. The
argument that the invoices never indicated a specific delivery time must fall in the face of
the positive verbal commitment of respondent's storekeeper. Consequently it was no longer
necessary to indicate in the invoices the exact time the purchased items were to be brought
to the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to
indicate the time of delivery whenever she prepared invoices.4
Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in
the delivery of petitioner's purchases. He maintains that Barzaga should have allowed his
delivery men a little more time to bring the construction materials over to the cemetery
since a few hours more would not really matter and considering that his truck had a flat
tire. Besides, according to him, Barzaga still had sufficient time to build the tomb for his
wife.
This is a gratuitous assertion that borders on callousness. Private respondent had no right
to manipulate petitioner's timetable and substitute it with his own. Petitioner had a
deadline to meet. A few hours of delay was no piddling matter to him who in his bereavement
had yet to attend to other pressing family concerns. Despite this, respondent's employees
still made light of his earnest importunings for an immediate delivery. As petitioner bitterly
declared in court " . . . they (respondent's employees) were making a fool out of me."5
We also find unacceptable respondent's justification that his truck had a flat tire, for this
event, if indeed it happened, was forseeable according to the trial court, and as such should
have been reasonably guarded against. The nature of private respondent's business requires
that he should be ready at all times to meet contingencies of this kind. One piece of
testimony by respondent's witness Marina Boncales has caught our attention - that the
delivery truck arrived a little late than usual because it came from a delivery of materials
in Langcaan, Dasmarinas, Cavite.6Significantly, this information was withheld by Boncales
from petitioner when the latter was negotiating with her for the purchase of construction
materials. Consequently, it is not unreasonable to suppose that had she told petitioner of
this fact and that the delivery of the materials would consequently be delayed, petitioner
would not have bought the materials from respondent's hardware store but elsewhere which
could meet his time requirement. The deliberate suppression of this information by itself
manifests a certain degree of bad faith on the part of respondent's storekeeper.
The appellate court appears to have belittled petitioner's submission that under the
prevailing circumstances time was of the essence in the delivery of the materials to the
grave site. However, we find petitioner's assertion to be anchored on solid ground. The niche
had to be constructed at the very least on the twenty-second of December considering that
it would take about two (2) days to finish the job if the interment was to take place on the
twenty-fourth of the month. Respondent's delay in the delivery of the construction materials
wasted so much time that construction of the tomb could start only on the twenty-third. It
could not be ready for the scheduled burial of petitioner's wife. This undoubtedly prolonged
the wake, in addition to the fact that work at the cemetery had to be put off on Christmas
day.
This case is clearly one of non-performance of a reciprocal obligation.7 In their contract of
purchase and sale, petitioner had already complied fully with what was required of him as
purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon
respondent to immediately fulfill his obligation to deliver the goods otherwise delay would
attach.
We therefore sustain the award of moral damages. It cannot be denied that petitioner and
his family suffered wounded feelings, mental anguish and serious anxiety while keeping
watch on Christmas day over the remains of their loved one who could not be laid to rest on
the date she herself had chosen. There is no gainsaying the inexpressible pain and sorrow
Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude,
cavalier behavior and bad faith of respondent and his employees in the performance of an
obligation voluntarily entered into.
We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of
the employees of respondent over which he exercised supervisory authority indicates gross
negligence in the fulfillment of his business obligations. Respondent Alviar and his
employees should have exercised fairness and good judgment in dealing with petitioner who
was then grieving over the loss of his wife. Instead of commiserating with him, respondent
and his employees contributed to petitioner's anguish by causing him to bear the agony
resulting from his inability to fulfill his wife's dying wish.
We delete however the award of temperate damages. Under Art. 2224 of the Civil Code,
temperate damages are more than nominal but less than compensatory, and may be
recovered when the court finds that some pecuniary loss has been suffered but the amount
cannot, from the nature of the case, be proved with certainty. In this case, the trial court
found that plaintiff suffered damages in the form of wages for the hired workers for 22
December 1990 and expenses incurred during the extra two (2) days of the wake. The record
however does not show that petitioner presented proof of the actual amount of expenses he
incurred which seems to be the reason the trial court awarded to him temperate damages
instead. This is an erroneous application of the concept of temperate damages. While
petitioner may have indeed suffered pecuniary losses, these by their very nature could be
established with certainty by means of payment receipts. As such, the claim falls
unequivocally within the realm of actual or compensatory damages. Petitioner's failure to
prove actual expenditure consequently conduces to a failure of his claim. For in determining
actual damages, the court cannot rely on mere assertions, speculations, conjectures or
guesswork but must depend on competent proof and on the best evidence obtainable
regarding the actual amount of loss.8
We affirm the award of attorney's fees and litigation expenses. Award of damages, attorney's
fees and litigation costs is left to the sound discretion of the court, and if such discretion be
well exercised, as in this case, it will not be disturbed on appeal.9
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except
insofar as it GRANTED on a motion for reconsideration the refund by private respondent of
the amount of P2,110.00 paid by petitioner for the construction materials. Consequently,
except for the award of P5,000.00 as temperate damages which we delete, the decision of
the Regional Trial Court granting petitioner (a) P2,110.00 as refund for the value of
materials with interest computed at the legal rate per annum from the date of the filing of
the case; (b) P20,000.00 as moral damages; (c) P10,000.00 as exemplary damages; (d)
P5,000.00 as litigation expenses; and (4) P5,000.00 as attorney's fees, is AFFIRMED. No
costs.
SO ORDERED.
FIRST DIVISION
G.R. No. 165662 May 3, 2006
SELEGNA MANAGEMENT AND DEVELOPMENT CORPORATION; and Spouses
EDGARDO and ZENAIDA ANGELES, Petitioners,
vs.
UNITED COCONUT PLANTERS BANK,* Respondent.
DECISION
PANGANIBAN, CJ:
A writ of preliminary injunction is issued to prevent an extrajudicial foreclosure, only upon
a clear showing of a violation of the mortgagor’s unmistakable right. Unsubstantiated
allegations of denial of due process and prematurity of a loan are not sufficient to defeat the
mortgagee’s unmistakable right to an extrajudicial foreclosure.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the May 4,
2004 Amended Decision2 and the October 12, 2004 Resolution3 of the Court of Appeals (CA)
in CA-GR SP No. 70966. The challenged Amended Decision disposed thus:
"WHEREFORE, the Motion for Reconsideration is GRANTED. The July 18, 2003 Decision
is hereby REVERSED and SET ASIDE and another one entered GRANTING the petition
and REVERSING and SETTING ASIDE the March 15, 2002 Order of the Regional Trial
Court, Branch 58, Makati City in Civil Case No. 99-1061."4
The assailed Resolution denied reconsideration.
The Facts
On September 19, 1995, Petitioners Selegna Management and Development Corporation
and Spouses Edgardo and Zenaida Angeles were granted a credit facility in the amount of
P70 million by Respondent United Coconut Planters Bank (UCPB). As security for this
credit facility, petitioners executed real estate mortgages over several parcels of land located
in the cities of Muntinlupa, Las Piñas, Antipolo and Quezon; and over several condominium
units in Makati. Petitioners were likewise required to execute a promissory note in favor of
respondent every time they availed of the credit facility. As required in these notes, they
paid the interest in monthly amortizations.
The parties stipulated in their Credit Agreement dated September 19, 1995,5 that failure to
pay "any availment of the accommodation or interest, or any sum due" shall constitute an
event of default,6 which shall consequently allow respondent bank to "declare [as
immediately due and payable] all outstanding availments
of the accommodation together with accrued interest and any other sum payable." 7
In need of further business capital, petitioners obtained from UCPB an increase in their
credit facility.8 For this purpose, they executed a Promissory Note for P103,909,710.82,
which was to mature on March 26, 1999.9 In the same note, they agreed to an interest rate
of 21.75 percent per annum, payable by monthly amortizations.
On December 21, 1998, respondent sent petitioners a demand letter, worded as follows:
"Gentlemen:
"With reference to your loan with principal outstanding balance of [P103,909,710.82], it
appears from the records of United Coconut Planters Bank that you failed to pay interest
amortizations amounting to [P14,959,525.10] on the Promissory Note on its due date, 30
May 1998.
"x x x xxx xxx
"Accordingly, formal demand is hereby made upon you to pay your outstanding obligations
in the total amount of P14,959,525.10, which includes unpaid interest and penalties as of
21 December 1998 due on the promissory note, eight (8) days from date hereof."10
Respondent decided to invoke the acceleration provision in their Credit Agreement.
Accordingly, through counsel, it relayed its move to petitioners on January 25, 1999 in a
letter, which we quote:
"Gentlemen:
"x x x xxx xxx
"It appears from the record of [UCPB] that you failed to pay the monthly interest due on
said obligation since May 30, 1998 as well as the penalty charges due thereon. Despite
repeated demands, you refused and continue to refuse to pay the same. Under the Credit
Agreements/Letter Agreements you executed, failure to pay when due any installments of
the loan or interest or any sum due thereunder, is an event of default.
"Consequently, we hereby inform you that our client has declared your principal obligation
in the amount of [P103,909,710.82], interest and sums payable under the Credit
Agreement/Letter Agreement/Promissory Note to be immediately due and payable.
"Accordingly, formal demand is hereby made upon you to please pay within five (5) days
from date hereof or up to January 29, 1999 the principal amount of [P103,909,710.82], with
the interest, penalty and other charges due thereon, which as of January 25, 1999 amounts
to [P17,351,478.55]."11
Respondent sent another letter of demand on March 4, 1999. It contained a final demand
on petitioners "to settle in full [petitioners’] said past due obligation to [UCPB] within five
(5) days from [petitioners’] receipt of [the] letter."12
In response, petitioners paid respondent the amount of P10,199,473.96 as partial payment
of the accrued interests.13 Apparently unsatisfied, UCPB applied for extrajudicial
foreclosure of petitioners’ mortgaged properties.
When petitioners received the Notice of Extra Judicial Foreclosure Sale on May 18, 1999,
they requested UCPB to give them a period of sixty (60) days to update their accrued interest
charges; and to restructure or, in the alternative, to negotiate for a takeout of their
account.14
On May 25, 1999, the Bank denied petitioners’ request in these words:
"This is to reply to your letter dated May 20, 1999, which confirms the request you made
the previous day when you paid us a visit.
"As earlier advised, your account has been referred to external counsel for appropriate legal
action. Demand has also been made for the full settlement of your account.
"We regret that the Bank is unable to grant your request unless a definite offer is made for
settlement."15
In order to forestall the extrajudicial foreclosure scheduled for May 31, 1999, petitioners
filed a Complaint16(docketed as Civil Case No. 99-1061) for "Damages, Annulment of
Interest, Penalty Increase and Accounting with Prayer for Temporary Restraining
Order/Preliminary Injunction." All subsequent proceedings in the trial court and in the CA
involved only the propriety of issuing a TRO and a writ of preliminary injunction.
Judge Josefina G. Salonga,17 then executive judge of the Regional Trial Court (RTC) of
Makati City, denied the Urgent Ex-parte Motion for Immediate Issuance of a Temporary
Restraining Order (TRO), filed by petitioners. Judge Salonga denied their motion on the
ground that no great or irreparable injury would be inflicted on them if the parties would
first be heard.18 Unsatisfied, petitioners filed an Ex-Parte Motion for Reconsideration, by
reason of which the case was eventually raffled to Branch 148, presided by Judge Oscar B.
Pimentel.19
After due hearing, Judge Pimentel issued an Order dated May 31, 1999, granting a 20-day
TRO on the scheduled foreclosure of the Antipolo properties, on the ground that the Notice
of Foreclosure had indicated an inexistent auction venue.20 To resolve that issue, respondent
filed a Manifestation21 that it would withdraw all its notices relative to the foreclosure of
the mortgaged properties, and that it would re-post or re-publish a new set of notices.
Accordingly, in an Order dated September 6, 1999,22 Judge Pimentel denied petitioners’
application for a TRO for having been rendered moot by respondent’s Manifestation.23
Subsequently, respondent filed new applications for foreclosure in the cities where the
mortgaged properties were located. Undaunted, petitioners filed another Motion for the
Issuance of a TRO/Injunction and a Supplementary Motion for the Issuance of
TRO/Injunction with Motion to Clarify Order of September 6, 1999.24
On October 27, 1999, Judge Pimentel issued an Order25 granting a 20-day TRO in favor of
petitioners. After several hearings, he issued his November 26, 1999 Order,26 granting their
prayer for a writ of preliminary injunction on the foreclosures, but only for a period of twenty
(20) days. The Order states:
"Admitted by defendant witness is the fact that in all the notices of foreclosure sale of the
properties of the plaintiffs x x x it is stated in each notice that the property will be sold at
public auction to satisfy the mortgage indebtedness of plaintiffs which as of August 31, 1999
amounts to P131,854,773.98.
"x x x xxx xxx
"As the court sees it, this is the problem that should be addressed by the defendant in this
case and in the meantime, the notice of foreclosure sale should be held in abeyance until
such time as these matters are clarified and cleared by the defendants x x x Should the
defendant be able to remedy the situation this court will have no more alternative but to
allow the defendant to proceed to its intended action.
"x x x xxx xxx
"WHEREFORE, premises considered, and finding compelling reason at this point in time to
grant the application for preliminary injunction, the same is hereby granted upon posting
of a preliminary injunction bond in the amount of P3,500,000.00 duly approved by the court,
let a writ of preliminary injunction be issued."27
The corresponding Writ of Preliminary Injunction28 was issued on November 29, 1999.
Respondent moved for reconsideration. On the other hand, petitioners filed a Motion to
Clarify Order of November 26, 1999. Conceding that the November 26 Order had granted
an injunction during the pendency of the case, respondent contended that the injunctive
writ merely restrained it for a period of 20 (twenty) days.
On December 29, 2000, Judge Pimentel issued an Order29 granting respondent’s Motion for
Reconsideration and clarifying his November 26, 1999 Order in this manner:
"There may have been an error in the Writ of Preliminary Injunction issued dated November
29, 1999 as the same [appeared to be actually] an extension of the TRO issued by this Court
dated 27 October 1999 for another 20 days period. Plaintiff’s seeks to enjoin defendants for
an indefinite period pending trial of the case.
"Be that as it may, the Court actually did not have any intention of restraining the
defendants from foreclosing plaintiff[s’] property for an indefinite period and during the
entire proceeding of the case x x x.
"x x x xxx xxx
"What the [c]ourt wanted the defendants to do was to merely modify the notice of [the]
auction sale in order that the amount of P131,854,773.98 x x x would not appear to be the
value of each property being sold on auction. x x x.30
"WHEREFORE, premises considered and after finding merit on the arguments raised by
herein defendants to be impressed with merit, and having stated in the Order dated 26
November 1999 that no other alternative recourse is available than to allow the defendants
to proceed with their intended action, the Court hereby rules:
"1.] To give due course to defendant[‘]s motion for reconsideration, as the same is hereby
GRANTED, however, with reservation that this Order shall take effect upon after its[]
finality[.]"31
Consequently, respondent proceeded with the foreclosure sale of some of the mortgaged
properties. On the other hand, petitioners filed an "[O]mnibus [M]otion [for
Reconsideration] and to [S]pecify the [A]pplication of the P92 [M]illion [R]ealized from the
[F]oreclosure [S]ale x x x."32 Before this Omnibus Motion could be resolved, Judge Pimentel
inhibited himself from hearing the case.33
The case was then re-raffled to Branch 58 of the RTC of Makati City, presided by Judge
Escolastico U. Cruz.34 The proceedings before him were, however, all nullified by the
Supreme Court in its En Banc Resolution dated September 18, 2001.35 He was eventually
dismissed from service.36
The case was re-raffled to the pairing judge of Branch 58, Winlove M. Dumayas. On March
15, 2002, Judge Dumayas granted petitioners’ Omnibus Motion for Reconsideration and
Specification of the Foreclosure Proceeds, as follows:
"WHEREFORE, premises considered, the Motion to Reconsider the Order dated December
29, 2000 is hereby granted and the Order of November 26, 1999 granting the preliminary
injunction is reinstated subject however to the condition that all properties of plaintiffs
which were extrajudicially foreclosed though public bidding are subject to an accounting.
[A]nd for this purpose defendant bank is hereby given fifteen (15) days from notice hereof
to render an accounting on the proceeds realized from the foreclosure of plaintiffs’
mortgaged properties located in Antipolo, Makati, Muntinlupa and Las Piñas."37
The aggrieved respondent filed before the Court of Appeals a Petition for Certiorari, seeking
the nullification of the RTC Order dated March 15, 2002, on the ground that it was issued
with grave abuse of discretion.38
The Special Fifteenth Division, speaking through Justice Rebecca de Guia-Salvador,
affirmed the ruling of Judge Dumayas. It held that petitioners had a clear right to an
injunction, based on the fact that respondent had kept them in the dark as to how and why
their principal obligation had ballooned to almost P132 million. The CA held that
respondent’s refusal to give them a detailed accounting had prevented the determination of
the maturity of the obligation and precluded the possibility of a foreclosure of the mortgaged
properties. Moreover, their payment of P10 million had the effect of updating, and thereby
averting the maturity of, the outstanding obligation.39
Respondent filed a Motion for Reconsideration, which was granted by a Special Division of
Five of the Former Special Fifteenth Division.
Ruling of the Court of Appeals
Citing China Banking Corporation v. Court of Appeals,40 the appellate court held in its
Amended Decision41 that the foreclosure proceedings should not be enjoined in the light of
the clear failure of petitioners to meet their obligations upon maturity.42
Also citing Zulueta v. Reyes,43 the CA, through Justice Jose Catral Mendoza, went on to say
that a pending question on accounting did not warrant an injunction on the foreclosure.
Parenthetically, the CA added that petitioners were not without recourse or protection.
Further, it noted their pending action for annulment of interest, damages and accounting.
It likewise said that they could protect themselves by causing the annotation of lis pendens
on the titles of the mortgaged or foreclosed properties.
In his Separate Concurring Opinion,44 Justice Magdangal M. de Leon added that a prior
accounting was not essential to extrajudicial foreclosure. He cited Abaca Corporation v.
Garcia,45 which had ruled that Act No. 3135 did not require mortgaged properties to be sold
by lot or by only as much as would cover just the obligation. Thus, he concluded that a
request for accounting -- for the purpose of determining whether the proceeds of the auction
would suffice to cover the indebtedness -- would not justify an injunction on the foreclosure.
Petitioners filed a Motion for Reconsideration dated May 31, 2004, which the appellate court
denied.46
Hence, this Petition.47
Issues
Petitioners raise the following issues for our consideration:
p align="center">"I
"Whether or not the Honorable Court of Appeals denied the petitioners of due process.
"II
"Whether or not the Honorable Court of Appeals supported its Amended Decision by
invoking jurisprudence not applicable and completely identical with the instant case.
"III
"Whether or not the Honorable Court of Appeals failed to establish its finding that RTC
Judge Winlove Dumayas has acted with grave abuse of discretion."48
The resolution of this case hinges on two issues: 1) whether petitioners are in default; and
2) whether there is basis for preliminarily enjoining the extrajudicial foreclosure. The other
issues raised will be dealt with in the resolution of these two main questions.
The Court’s Ruling
The Petition has no merit.
First Issue:
Default
The resolution of the present controversy necessarily begins with a determination of
respondent’s right to foreclose the mortgaged properties extrajudicially.
It is a settled rule of law that foreclosure is proper when the debtors are in default of the
payment of their obligation. In fact, the parties stipulated in their credit agreements,
mortgage contracts and promissory notes that respondent was authorized to foreclose on
the mortgages, in case of a default by petitioners. That this authority was granted is not
disputed.
Mora solvendi, or debtor’s default, is defined as a delay49 in the fulfillment of an obligation,
by reason of a cause imputable to the debtor.50 There are three requisites necessary for a
finding of default. First, the obligation is demandable and liquidated; second, the debtor
delays performance; third, the creditor judicially or extrajudicially requires the debtor’s
performance.51
Mortgagors’ Default of Monthly Interest Amortizations
In the present case, the Promissory Note executed on March 29, 1998, expressly states that
petitioners had an obligation to pay monthly interest on the principal obligation. From
respondent’s demand letter,52 it is clear and undisputed by petitioners that they failed to
meet those monthly payments since May 30, 1998. Their nonpayment is defined as an "event
of default" in the parties’ Credit Agreement, which we quote:
"Section 8.01. Events of Default. Each of the following events and occurrences shall
constitute an Event of Default of this AGREEMENT:
"1. The CLIENT shall fail to pay, when due, any availment of the Accommodation or
interest, or any other sum due thereunder in accordance with the terms thereof;1avvphil.net
"x x x xxx x x x"
"Section 8.02. Consequences of Default. (a) If an Event of Default shall occur and be
continuing, the Bank may:
"1. By written notice to the CLIENT, declare all outstanding availments of the
Accommodation together with accrued interest and any other sum payable hereunder to be
immediately due and payable without presentment, demand or notice of any kind, other
than the notice specifically required by this Section, all of which are expressly waived by
the CLIENT[.]"53
Considering that the contract is the law between the parties,54 respondent is justified in
invoking the acceleration clause declaring the entire obligation immediately due and
payable.55 That clause obliged petitioners to pay the entire loan on January 29, 1999, the
date fixed by respondent.56
Petitioners’ failure to pay on that date set into effect Article IX of the Real Estate
Mortgage,57 worded thus:
"If, at any time, an event of default as defined in the credit agreements, promissory notes
and other related loan documents referred to in paragraph 5 of ARTICLE I hereof (sic), or
the MORTGAGOR and/or DEBTOR shall fail or refuse to pay the SECURED
OBLIGATIONS, or any of the amortization of such indebtedness when due, or to comply
any (sic) of the conditions and stipulations herein agreed, x x x then all the obligations of
the MORTGAGOR secured by this MORTGAGE and all the amortizations thereof shall
immediately become due, payable and defaulted and the MORTGAGEE may immediately
foreclose this MORTGAGE judicially in accordance with the Rules of Court, or
extrajudicially in accordance with Act No. 3135, as amended, and Presidential Decree No.
385. For the purpose of extrajudicial foreclosure, the MORTGAGOR hereby appoints the
MORTGAGEE his/her/its attorney-in-fact to sell the property mortgaged under Act No.
3135, as amended, to sign all documents and perform any act requisite and necessary to
accomplish said purpose and to appoint its substitutes as such attorney-in-fact with the
same powers as above specified. x x x[.]"58
The foregoing discussion satisfactorily shows that UCPB had every right to apply for
extrajudicial foreclosure on the basis of petitioners’ undisputed and continuing default.
Petitioners’ Debt Considered Liquidated Despite the Alleged
Lack of Accounting
Petitioners do not even attempt to deny the aforementioned matters. They assert, though,
that they have a right to a detailed accounting before they can be declared in default. As
regards the three requisites of default, they say that the first requisite -- liquidated debt --
is absent. Continuing with foreclosure on the basis of an unliquidated obligation allegedly
violates their right to due process. They also maintain that their partial payment of P10
million averted the maturity of their obligation.59
On the other hand, respondent asserts that questions regarding the running balance of the
obligation of petitioners are not valid reasons for restraining the foreclosure. Nevertheless,
it maintains that it has furnished them a detailed monthly statement of account.
A debt is liquidated when the amount is known or is determinable by inspection of the terms
and conditions of the relevant promissory notes and related documentation.60 Failure to
furnish a debtor a detailed statement of account does not ipso facto result in an unliquidated
obligation.
Petitioners executed a Promissory Note, in which they stated that their principal obligation
was in the amount of P103,909,710.82, subject to an interest rate of 21.75 percent per
annum.61 Pursuant to the parties’ Credit Agreement, petitioners likewise know that any
delay in the payment of the principal obligation will subject them to a penalty charge of one
percent per month, computed from the due date until the obligation is paid in full.62
It is in fact clear from the agreement of the parties that when the payment is accelerated
due to an event of default, the penalty charge shall be based on the total principal amount
outstanding, to be computed from the date of acceleration until the obligation is paid in
full.63 Their Credit Agreement even provides for the application of payments.64 It appears
from the agreements that the amount of total obligation is known or, at the very least,
determinable.
Moreover, when they made their partial payment, petitioners did not question the principal,
interest or penalties demanded from them. They only sought additional time to update their
interest payments or to negotiate a possible restructuring of their account.65 Hence, there is
no basis for their allegation that a statement of account was necessary for them to know
their obligation. We cannot impair respondent’s right to foreclose the properties on the basis
of their unsubstantiated allegation of a violation of due process.
In Spouses Estares v. CA,66 we did not find any justification to grant a preliminary
injunction, even when the mortgagors were disputing the amount being sought from them.
We held in that case that "[u]pon the nonpayment of the loan, which was secured by the
mortgage, the mortgaged property is properly subject to a foreclosure sale."67
Compared with Estares, the denial of injunctive relief in this case is even more imperative,
because the present petitioners do not even assail the amounts due from them. Neither do
they contend that a detailed accounting would show that they are not in default. A pending
question regarding the due amount was not a sufficient reason to enjoin the foreclosure in
Estares. Hence, with more reason should injunction be denied in the instant case, in which
there is no dispute as to the outstanding obligation of petitioners.
At any rate, whether respondent furnished them a detailed statement of account is a
question of fact that this Court need not and will not resolve in this instance. As held in
Zulueta v. Reyes,68 in which there was no genuine controversy as to the amounts due and
demandable, the foreclosure should not be restrained by the unnecessary question of
accounting.
Maturity of the Loan Not Averted by Partial Compliance with Respondent’s Demand
Petitioners allege that their partial payment of P10 million on March 25, 1999, had the
effect of forestalling the maturity of the loan;69 hence the foreclosure proceedings are
premature. 70 We disagree.
To be sure, their partial payment did not extinguish the obligation. The Civil Code states
that a debt is not paid "unless the thing x x x in which the obligation consists has been
completely delivered x x x."71 Besides, a late partial payment could not have possibly
forestalled a long-expired maturity date.
The only possible legal relevance of the partial payment was to evidence the mortgagee’s
amenability to granting the mortgagor a grace period. Because the partial payment would
constitute a waiver of the mortgagee’s vested right to foreclose, the grant of a grace period
cannot be casually assumed;72 the bank’s agreement must be clearly shown. Without a
doubt, no express agreement was entered into by the parties. Petitioners only assumed that
their partial payment had satisfied respondent’s demand and obtained for them more time
to update their account.73
Petitioners are mistaken. When creditors receive partial payment, they are not ipso facto
deemed to have abandoned their prior demand for full payment. Article 1235 of the Civil
Code provides:
"When the obligee accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with."
Thus, to imply that creditors accept partial payment as complete performance of their
obligation, their acceptance must be made under circumstances that indicate their intention
to consider the performance complete and to renounce their claim arising from the defect.74
There are no circumstances that would indicate a renunciation of the right of respondent to
foreclose the mortgaged properties extrajudicially, on the basis of petitioners’ continuing
default. On the contrary, it asserted its right by filing an application for extrajudicial
foreclosure after receiving the partial payment. Clearly, it did not intend to give petitioners
more time to meet their obligation.
Parenthetically, respondent cannot be reproved for accepting their partial payment. While
Article 1248 of the Civil Code states that creditors cannot be compelled to accept partial
payments, it does not prohibit them from accepting such payments.
Second Issue:
Enjoining the Extrajudicial Foreclosure
A writ of preliminary injunction is a provisional remedy that may be resorted to by litigants,
only to protect or preserve their rights or interests during the pendency of the principal
action. To authorize a temporary injunction, the plaintiff must show, at least prima facie, a
right to the final relief.75 Moreover, it must show that the invasion of the right sought to be
protected is material and substantial, and that there is an urgent and paramount necessity
for the writ to prevent serious damage.76
In the absence of a clear legal right, the issuance of the injunctive writ constitutes grave
abuse of discretion. Injunction is not designed to protect contingent or future rights. It is
not proper when the complainant’s right is doubtful or disputed.77
As a general rule, courts should avoid issuing this writ, which in effect disposes of the main
case without trial.78 In Manila International Airport Authority v. CA,79 we urged courts to
exercise caution in issuing the writ, as follows:
"x x x. We remind trial courts that while generally the grant of a writ of preliminary
injunction rests on the sound discretion of the court taking cognizance of the case, extreme
caution must be observed in the exercise of such discretion. The discretion of the court a quo
to grant an injunctive writ must be exercised based on the grounds and in the manner
provided by law. Thus, the Court declared in Garcia v. Burgos:
‘It has been consistently held that there is no power the exercise of which is more delicate,
which requires greater caution, deliberation and sound discretion, or more dangerous in a
doubtful case, than the issuance of an injunction. It is the strong arm of equity that should
never be extended unless to cases of great injury, where courts of law cannot afford an
adequate or commensurate remedy in damages.
‘Every court should remember that an injunction is a limitation upon the freedom of action
of the defendant and should not be granted lightly or precipitately. It should be granted only
when the court is fully satisfied that the law permits it and the emergency demands
it.’"80 (Citations omitted)
Petitioners do not have any clear right to be protected. As shown in our earlier findings,
they failed to substantiate their allegations that their right to due process had been violated
and the maturity of their obligation forestalled. Since they indisputably failed to meet their
obligations in spite of repeated demands, we hold that there is no legal justification to enjoin
respondent from enforcing its undeniable right to foreclose the mortgaged properties.
In any case, petitioners will not be deprived outrightly of their property. Pursuant to Section
47 of the General Banking Law of 2000,81 mortgagors who have judicially or extrajudicially
sold their real property for the full or partial payment of their obligation have the right to
redeem the property within one year after the sale. They can redeem their real estate by
paying the amount due, with interest rate specified, under the mortgage deed; as well as all
the costs and expenses incurred by the bank.82
Moreover, in extrajudicial foreclosures, petitioners have the right to receive any surplus in
the selling price. This right was recognized in Sulit v. CA,83 in which the Court held that "if
the mortgagee is retaining more of the proceeds of the sale than he is entitled to, this fact
alone will not affect the validity of the sale but simply gives the mortgagor a cause of action
to recover such surplus."84
Petitioners failed to demonstrate the prejudice they would probably suffer by reason of the
foreclosure. Also, it is clear that they would be adequately protected by law. Hence, we find
no legal basis to reverse the assailed Amended Decision of the CA dated May 4, 2004.
WHEREFORE, the Petition is DENIED and the assailed Amended Decision and Resolution
AFFIRMED. Costs against petitioners.
SO ORDERED.
THIRD DIVISION
G.R. No. 193723 July 20, 2011
GENERAL MILLING CORPORATION, Petitioner,
vs.
SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in
CA-G.R. CR-H.C. No. 85400 entitled Spouses Librado Ramos & Remedios Ramos v. General
Milling Corporation, et al., which affirmed the May 31, 2005 Decision of the Regional Trial
Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for Annulment and/or
Declaration of Nullity of Extrajudicial Foreclosure Sale with Damages.
The Facts
On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract
with spouses Librado and Remedios Ramos (Spouses Ramos). Under the contract, GMC was
to supply broiler chickens for the spouses to raise on their land in Barangay Banaybanay,
Lipa City, Batangas.1 To guarantee full compliance, the Growers Contract was accompanied
by a Deed of Real Estate Mortgage over a piece of real property upon which their conjugal
home was built. The spouses further agreed to put up a surety bond at the rate of PhP 20,000
per 1,000 chicks delivered by GMC. The Deed of Real Estate Mortgage extended to Spouses
Ramos a maximum credit line of PhP 215,000 payable within an indefinite period with an
interest of twelve percent (12%) per annum.2
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and
faithful compliance of [MORTGAGORS’] obligation/s with the MORTGAGEE by a First Real
Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of land and the
improvements existing thereon, situated in the Barrio/s of Banaybanay, Municipality
of Lipa City, Province of Batangas, Philippines, his/her/their title/s thereto being evidenced
by Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the Province of Batangas
in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00), Philippine
Currency, which the maximum credit line payable within a x x x day term and to secure the
payment of the same plus interest of twelve percent (12%) per annum.
Spouses Ramos eventually were unable to settle their account with GMC. They alleged that
they suffered business losses because of the negligence of GMC and its violation of the
Growers Contract.3
On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute
foreclosure proceedings on their mortgaged property.4
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June
10, 1997, the property subject of the foreclosure was subsequently sold by public auction to
GMC after the required posting and publication.5 It was foreclosed for PhP 935,882,075, an
amount representing the losses on chicks and feeds exclusive of interest at 12% per annum
and attorney’s fees.6 To complicate matters, on October 27, 1997, GMC informed the spouses
that its Agribusiness Division had closed its business and poultry operations.7
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of
Nullity of the Extrajudicial Foreclosure Sale with Damages. They contended that the
extrajudicial foreclosure sale on June 10, 1997 was null and void, since there was no
compliance with the requirements of posting and publication of notices under Act No. 3135,
as amended, or An Act to Regulate the Sale of Property under Special Powers Inserted in or
Annexed to Real Estate Mortgages. They likewise claimed that there was no sheriff’s
affidavit to prove compliance with the requirements on posting and publication of notices.
It was further alleged that the Deed of Real Estate Mortgage had no fixed term. A prayer
for moral and exemplary damages and attorney’s fees was also included in the
complaint.8Librado Ramos alleged that, when the property was foreclosed, GMC did not
notify him at all of the foreclosure.9
During the trial, the parties agreed to limit the issues to the following: (1) the validity of the
Deed of Real Estate Mortgage; (2) the validity of the extrajudicial foreclosure; and (3) the
party liable for damages.10
In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities
under the Growers Contract. It argued that it was compelled to foreclose the mortgage
because of Spouses Ramos’ failure to pay their obligation. GMC insisted that it had observed
all the requirements of posting and publication of notices under Act No. 3135.11
The Ruling of the Trial Court
Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate
Mortgage was valid even if its term was not fixed. Since the duration of the term was made
to depend exclusively upon the will of the debtors-spouses, the trial court cited jurisprudence
and said that "the obligation is not due and payable until an action is commenced by the
mortgagee against the mortgagor for the purpose of having the court fix the date on and
after which the instrument is payable and the date of maturity is fixed in pursuance
thereto."12
The trial court held that the action of GMC in moving for the foreclosure of the spouses’
properties was premature, because the latter’s obligation under their contract was not yet
due.
The trial court awarded attorney’s fees because of the premature action taken by GMC in
filing extrajudicial foreclosure proceedings before the obligation of the spouses became due.
The RTC ruled, thus:
WHEREFORE, premises considered, judgment is rendered as follows:
1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby declared
null and void;
2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and
puposes;
3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado
and Remedios Ramos attorney’s fees in the total amount of P 57,000.00 representing
acceptance fee of P30,000.00 and P3,000.00 appearance fee for nine (9) trial dates or a total
appearance fee of P 27,000.00;
4. The claims for moral and exemplary damages are denied for lack of merit.
IT IS SO ORDERED.13
The Ruling of the Appellate Court
On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial
foreclosure proceedings null and void; (2) ordering GMC to pay Spouses Ramos attorney’s
fees; and (3) not awarding damages in favor of GMC.
The CA sustained the decision of the trial court but anchored its ruling on a different
ground. Contrary to the findings of the trial court, the CA ruled that the requirements of
posting and publication of notices under Act No. 3135 were complied with. The CA, however,
still found that GMC’s action against Spouses Ramos was premature, as they were not in
default when the action was filed on May 7, 1997.14
The CA ruled:
In this case, a careful scrutiny of the evidence on record shows that defendant-appellant
GMC made no demand to spouses Ramos for the full payment of their obligation. While it
was alleged in the Answer as well as in the Affidavit constituting the direct testimony of
Joseph Dominise, the principal witness of defendant-appellant GMC, that demands were
sent to spouses Ramos, the documentary evidence proves otherwise. A perusal of the letters
presented and offered as evidence by defendant-appellant GMC did not "demand" but only
request spouses Ramos to go to the office of GMC to "discuss" the settlement of their
account.15
According to the CA, however, the RTC erroneously awarded attorney’s fees to Spouses
Ramos, since the presumption of good faith on the part of GMC was not overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional
Trial Court of Lipa City, Branch 12, dated May 21, 2005 is hereby AFFIRMED with
MODIFICATION by deleting the award of attorney’s fees to plaintiffs-appellees spouses
Librado Ramos and Remedios Ramos.16
Hence, We have this appeal.
The Issues
A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED
IN THE LOWER COURT AND LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL,
THEREFORE HAD DECIDED THE CASE NOT IN ACCORD WITH LAW AND
APPLICABLE DECISIONS OF THE SUPREME COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO
DEMAND TO RESPONDENT SPOUSES FOR THE FULL PAYMENT OF THEIR
OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF
PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL
DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS.17
The Ruling of this Court
Can the CA consider matters not alleged?
GMC asserts that since the issue on the existence of the demand letter was not raised in the
trial court, the CA, by considering such issue, violated the basic requirements of fair play,
justice, and due process.18
In their Comment,19 respondents-spouses aver that the CA has ample authority to rule on
matters not assigned as errors on appeal if these are indispensable or necessary to the just
resolution of the pleaded issues.
In Diamonon v. Department of Labor and Employment,20 We explained that an appellate
court has a broad discretionary power in waiving the lack of assignment of errors in the
following instances:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject
matter;
(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within
contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of which is necessary in
arriving at a just decision and complete resolution of the case or to serve the interests of a
justice or to avoid dispensing piecemeal justice;
(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are
matters of record having some bearing on the issue submitted which the parties failed to
raise or which the lower court ignored;
(e) Matters not assigned as errors on appeal but closely related to an error assigned;
(f) Matters not assigned as errors on appeal but upon which the determination of a question
properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there would be a just and complete
resolution of the appeal if there is a ruling on whether the Spouses Ramos were actually in
default of their obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in
finding that no demand was made on Spouses Ramos to pay their obligation. On the
contrary, it claims that its March 31, 1997 letter is akin to a demand.
We disagree.
There are three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; and third, the creditor
judicially or extrajudicially requires the debtor’s performance.21
According to the CA, GMC did not make a demand on Spouses Ramos but merely requested
them to go to GMC’s office to discuss the settlement of their account. In spite of the lack of
demand made on the spouses, however, GMC proceeded with the foreclosure proceedings.
Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to
extrajudicially foreclose the mortgage without need of demand.
Indeed, Article 1169 of the Civil Code on delay requires the following:
Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfilment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on demand not being necessary
for delay to exist, We agree with the appellate court that GMC should have first made a
demand on the spouses before proceeding to foreclose the real estate mortgage.
Development Bank of the Philippines v. Licuanan finds application to the instant case:
The issue of whether demand was made before the foreclosure was effected is
essential.1avvphi1 If demand was made and duly received by the respondents and the latter
still did not pay, then they were already in default and foreclosure was proper. However, if
demand was not made, then the loans had not yet become due and demandable. This meant
that respondents had not defaulted in their payments and the foreclosure by petitioner was
premature. Foreclosure is valid only when the debtor is in default in the payment of his
obligation.22
In turn, whether or not demand was made is a question of fact.23 This petition filed under
Rule 45 of the Rules of Court shall raise only questions of law. For a question to be one of
law, it must not involve an examination of the probative value of the evidence presented by
the litigants or any of them. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a review of
the evidence presented, the question posed is one of fact.24 It need not be reiterated that this
Court is not a trier of facts.25 We will defer to the factual findings of the trial court, because
petitioner GMC has not shown any circumstances making this case an exception to the rule.
WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400 is
AFFIRMED.
SO ORDERED.
FIRST DIVISION
G.R. No. 167346 April 2, 2007
SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST
COMPANY,* Petitioner,
vs.
SPOUSES PETER and SUSAN TAN, Respondents.
DECISION
CORONA, J.:
Assailed in this petition for review by certiorari under Rule 45 of the Rules of Court are the
decision1 and resolution2of the Court of Appeals (CA) dated November 26, 2004 and March
1, 2005, respectively, in CA-G.R. CV No. 58618,3 affirming the decision of the Regional Trial
Court (RTC) of Manila, Branch 31.4
On December 2, 1991, respondents’ representative, Remigia Frias, deposited with petitioner
ten checks worth ₱455,962. Grace Neri, petitioner’s teller no. 8 in its Juan Luna, Manila
Branch, received two deposit slips for the checks, an original and a duplicate. Neri verified
the checks and their amounts in the deposit slips then returned the duplicate copy to Frias
and kept the original copy for petitioner.
In accordance with the usual practice between petitioner and respondents, the latter’s
passbook was left with petitioner for the recording of the deposits on the bank’s ledger.
Later, respondents retrieved the passbook and discovered that one of the checks,
Metropolitan Bank and Trust Company (Metrobank) check no. 403954, payable to cash in
the sum of ₱250,000 was not posted therein.
Immediately, respondents notified petitioner of the problem. Petitioner showed respondent
Peter Tan a duplicate
copy of a deposit slip indicating the list of checks deposited by Frias. But it did not include
the missing check. The deposit slip bore the stamp mark "teller no. 7" instead of "teller no.
8" who previously received the checks.
Still later, respondent Peter Tan learned from Metrobank (where he maintained an account)
that Metrobank check no. 403954 had cleared after it was inexplicably deposited by a certain
Dolores Lagsac in Premier Bank in San Pedro, Laguna. Respondents demanded that
petitioner pay the amount of the check but it refused, hence, they filed a case for collection
of a sum of money in the RTC of Manila, Branch 31.
In its answer, petitioner averred that the deposit slips Frias used when she deposited the
checks were spurious. Petitioner accused respondents of engaging in a scheme to illegally
exact money from it. It added that, contrary to the claim of respondents, it was "teller no. 7"
who received the deposit slips and, although respondents insisted that Frias deposited ten
checks, only nine checks were actually received by said teller. By way of counterclaim, it
sought payment of ₱1,000,000 as actual and moral damages and ₱500,000 as exemplary
damages.
After trial, the RTC found petitioner liable to respondents:
Upon examination of the oral, as well as of the documentary evidence which the parties
presented at the trial in support of their respective contentions, and after taking into
consideration all the circumstances of the case, this Court believes that the loss of
Metrobank Check No. 403954 in the sum of ₱250,000.00 was due to the fault of
[petitioner]…[It] retained the original copy of the [deposit slip marked by "Teller No. 7"].
There is a presumption in law that evidence willfully suppressed would be adverse if
produced.
Art. 1173 of the Civil Code states that "the fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation and corresponds
with the circumstances of the person of the time and of the place"; and that "if the law or
contract does not state the diligence which is to be observed in the performance, the same
as expected of a good father of a family shall be required."
…For failure to comply with its obligation, [petitioner] is presumed to have been at fault or
to have acted negligently unless they prove that they observe extraordinary diligence as
prescribed in Arts. 1733 and 1735 of the Civil Code (Art. 1756)…
xxx xxx xxx
WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents],
ordering [petitioner] to pay the sum of ₱250,000, with legal interest from the time the
complaint [for collection of a sum of money] was filed until satisfied; ₱25,000.00 moral
damages; ₱25,000.00 exemplary damages plus 20% of the amount due [respondents] as and
for attorney’s fees. With costs.
SO ORDERED.5
Petitioner appealed to the CA which affirmed in toto the RTC’s assailed decision:
Serious doubt [was] engendered by the fact that [petitioner] did not present the original of
the deposit slip marked with "Teller No. 7" and on which the entry as to Metrobank Check
No. 403954 did not appear. Even the most cursory look at the handwriting thereon
reveal[ed] a very marked difference with that in the other deposit slips filled up [by Frias]
on December 2, 1991. Said circumstances spawn[ed] the belief thus, the said deposit slip
was prepared by [petitioner] itself to cover up for the lost check.6
Petitioner filed a motion for reconsideration but the CA dismissed it. Hence, this
appeal.1a\^/phi1.net
Before us, petitioner faults the CA for upholding the RTC decision. Petitioner argues that:
(1) the findings of the RTC and the CA were not supported by the evidence and records of
the case; (2) the award of damages in favor of respondents was unwarranted and (3) the
application by the RTC, as affirmed by the CA, of the provisions of the Civil Code on common
carriers to the instant case was erroneous.7
The petition must fail.
On the first issue, petitioner contends that the lower courts erred in finding it negligent for
the loss of the subject check. According to petitioner, the fact that the check was deposited
in Premier Bank affirmed its claim that it did not receive the check.
At the outset, the Court stresses that it accords respect to the factual findings of the trial
court and, unless it overlooked substantial matters that would alter the outcome of the case,
this Court will not disturb such findings.8We meticulously reviewed the records of the case
and found no reason to deviate from the rule. Moreover, since the CA affirmed these findings
on appeal, they are final and conclusive on us.9 We therefore sustain the RTC’s and CA’s
findings that petitioner was indeed negligent and responsible for respondents’ lost check.
On the issue of damages, petitioner argues that the moral and exemplary damages awarded
by the lower courts had no legal basis. For the award of moral damages to stand, petitioner
avers that respondents should have proven the existence of bad faith by clear and convincing
evidence. According to petitioner, simple negligence cannot be a basis for its award. It insists
that the award of exemplary damages is justified only when the act complained of was done
in a wanton, fraudulent and oppressive manner.10
We disagree.
While petitioner may argue that simple negligence does not warrant the award of moral
damages, it nonetheless cannot insist that that was all it was guilty of. It refused to produce
the original copy of the deposit slip which could have proven its claim that it did not receive
respondents’ missing check. Thus, in suppressing the best evidence that could have
bolstered its claim and confirmed its innocence, the presumption now arises that it withheld
the same for fraudulent purposes.11
Moreover, in presenting a false deposit slip in its attempt to feign innocence, petitioner’s
bad faith was apparent and unmistakable. Bad faith imports a dishonest purpose or some
moral obliquity or conscious doing of a wrong that partakes of the nature of fraud.12
As to the award of exemplary damages, the law allows it by way of example for the public
good. The business of banking is impressed with public interest and great reliance is made
on the bank’s sworn profession of diligence and meticulousness in giving irreproachable
service.13 For petitioner’s failure to carry out its responsibility and to account for
respondents’ lost check, we hold that the lower courts did not err in awarding exemplary
damages to the latter.
On the last issue, we hold that the trial court did not commit any error. 1awphi1.nét A
cursory reading of its decision reveals that it anchored its conclusion that petitioner was
negligent on Article 1173 of the Civil Code.14
In citing the different provisions of the Civil Code on common carriers,15 the trial court
merely made reference to the kind of diligence that petitioner should have performed under
the circumstances. In other words, like a common carrier whose business is also imbued
with public interest, petitioner should have exercised extraordinary diligence to negate its
liability to respondents.
Assuming arguendo that the trial court indeed used the provisions on common carriers to
pin down liability on petitioner, still we see no reason to strike down the RTC and CA rulings
on this ground alone.
In one case,16 the Court did not hesitate to apply the doctrine of last clear chance (commonly
used in transportation laws involving common carriers) to a banking transaction where it
adjudged the bank responsible for the encashment of a forged check. There, we enunciated
that the degree of diligence required of banks is more than that of a good father of a family
in keeping with their responsibility to exercise the necessary care and prudence in handling
their clients’ money.
We find no compelling reason to disallow the application of the provisions on common
carriers to this case if only to emphasize the fact that banking institutions (like petitioner)
have the duty to exercise the highest degree of diligence when transacting with the public.
By the nature of their business, they are required to observe the highest standards of
integrity and performance, and utmost assiduousness as well.17
WHEREFORE, the assailed decision and resolution of the Court of Appeals dated November
26, 2004 and March 1, 2005, respectively, in CA-G.R. CV No. 58618 are hereby AFFIRMED.
Accordingly, the petition is DENIED.
Costs against petitioner.
SO ORDERED.
SECOND DIVISION
G.R. No. 147324 May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio
Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals,
dated 27 February 2001, in CA-G.R. CV No. 63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe
Telecom, Inc. (Globe), had been engaged in the coordination of the provision of various
communication facilities for the military bases of the United States of America (US) in Clark
Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The said
communication facilities were installed and configured for the exclusive use of the US
Defense Communications Agency (USDCA), and for security reasons, were operated only by
its personnel or those of American companies contracted by it to operate said facilities. The
USDCA contracted with said American companies, and the latter, in turn, contracted with
Globe for the use of the communication facilities. Globe, on the other hand, contracted with
local service providers such as the Philippine Communications Satellite Corporation
(Philcomsat) for the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat
obligated itself to establish, operate and provide an IBS Standard B earth station (earth
station) within Cubi Point for the exclusive use of the USDCA.2 The term of the contract
was for 60 months, or five (5) years.3 In turn, Globe promised to pay Philcomsat monthly
rentals for each leased circuit involved.4
At the time of the execution of the Agreement, both parties knew that the Military Bases
Agreement between the Republic of the Philippines and the US (RP-US Military Bases
Agreement), which was the basis for the occupancy of the Clark Air Base and Subic Naval
Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987
Constitution, foreign military bases, troops or facilities, which include those located at the
US Naval Facility in Cubi Point, shall not be allowed in the Philippines unless a new treaty
is duly concurred in by the Senate and ratified by a majority of the votes cast by the people
in a national referendum when the Congress so requires, and such new treaty is recognized
as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at Cubi Point and the
USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141,
expressing its decision not to concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements that was supposed to extend
the term of the use by the US of Subic Naval Base, among others.5 The last two paragraphs
of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the continuing relationship
between the two countries in the spirit of friendship, cooperation and sovereign equality:
Now, therefore, be it Resolved by the Senate, as it is hereby resolved, To express its decision
not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and
its Supplementary Agreements, at the same time reaffirming its desire to continue friendly
relations with the government and people of the United States of America.6
On 31 December 1991, the Philippine Government sent a Note Verbale to the US
Government through the US Embassy, notifying it of the Philippines’ termination of the
RP-US Military Bases Agreement. The Note Verbalestated that since the RP-US Military
Bases Agreement, as amended, shall terminate on 31 December 1992, the withdrawal of all
US military forces from Subic Naval Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue
the use of the earth station effective 08 November 1992 in view of the withdrawal of US
military personnel from Subic Naval Base after the termination of the RP-US Military Bases
Agreement. Globe invoked as basis for the letter of termination Section 8 (Default) of the
Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any failure to perform its
obligation under this Agreement if such failure results directly or indirectly from force
majeure or fortuitous event. Either party is thus precluded from performing its obligation
until such force majeure or fortuitous event shall terminate. For the purpose of this
paragraph, force majeure shall mean circumstances beyond the control of the party involved
including, but not limited to, any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods, typhoons or other catastrophies or acts
of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect [Globe]
to know its commitment to pay the stipulated rentals for the remaining terms of the
Agreement even after [Globe] shall have discontinue[d] the use of the earth station after
November 08, 1992."7 Philcomsat referred to Section 7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth station after it has been put
into operation, a written notice shall be served to PHILCOMSAT at least sixty (60) days
prior to the expected date of termination. Notwithstanding the non-use of the earth station,
[Globe] shall continue to pay PHILCOMSAT for the rental of the actual number of T1
circuits in use, but in no case shall be less than the first two (2) T1 circuits, for the remaining
life of the agreement. However, should PHILCOMSAT make use or sell the earth station
subject to this agreement, the obligation of [Globe] to pay the rental for the remaining life
of the agreement shall be at such monthly rate as may be agreed upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24
November 1993 demanding payment of its outstanding obligations under the Agreement
amounting to US$4,910,136.00 plus interest and attorney’s fees. However, Globe refused to
heed Philcomsat’s demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati
a Complaint against Globe, praying that the latter be ordered to pay liquidated damages
under the Agreement, with legal interest, exemplary damages, attorney’s fees and costs of
suit. The case was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end the
Agreement due to the termination of the RP-US Military Bases Agreement and the non-
ratification by the Senate of the Treaty of Friendship and Cooperation, which events
constituted force majeure under the Agreement. Globe explained that the occurrence of said
events exempted it from paying rentals for the remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which
reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two
Hundred Thirty Eight US Dollars (US$92,238.00) or its equivalent in Philippine Currency
(computed at the exchange rate prevailing at the time of compliance or payment)
representing rentals for the month of December 1992 with interest thereon at the legal rate
of twelve percent (12%) per annum starting December 1992 until the amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand
(P300,000.00) Pesos as and for attorney’s fees;
3. Ordering the DISMISSAL of defendant’s counterclaim for lack of merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial court’s Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the
Senate of the Treaty of Friendship, Cooperation and Security and its Supplementary
Agreements constitutes force majeure which exempts Globe from complying with its
obligations under the Agreement; (2) Globe is not liable to pay the rentals for the remainder
of the term of the Agreement; and (3) Globe is not liable to Philcomsat for exemplary
damages.
Globe, on the other hand, contended that the RTC erred in holding it liable for payment of
rent of the earth station for December 1992 and of attorney’s fees. It explained that it
terminated Philcomsat’s services on 08 November 1992; hence, it had no reason to pay for
rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing
Philcomsat’s appeal for lack of merit and affirming the trial court’s finding that certain
events constituting force majeure under Section 8 the Agreement occurred and justified the
non-payment by Globe of rentals for the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security, and its Supplementary Agreements, and the termination by the
Philippine Government of the RP-US Military Bases Agreement effective 31 December 1991
as stated in the Philippine Government’s Note Verbale to the US Government, are acts,
directions, or requests of the Government of the Philippines which constitute force majeure.
In addition, there were circumstances beyond the control of the parties, such as the issuance
of a formal order by Cdr. Walter Corliss of the US Navy, the issuance of the letter
notification from ATT and the complete withdrawal of all US military forces and personnel
from Cubi Point, which prevented further use of the earth station under the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate Philcomsat’s
services by 08 November 1992, it is still liable to pay rentals for the December 1992,
amounting to US$92,238.00 plus interest, considering that the US military forces and
personnel completely withdrew from Cubi Point only on 31 December 1992.10
Both parties filed their respective Petitions for Review assailing the Decision of the Court
of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION
OF FORCE MAJEUREDIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN
ARTICLE 1174 OF THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE
TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE
TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR THE REMAINING
TERM OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF SECTION 7 OF THE
AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL
COURT’S AWARD OF ATTORNEY’S FEES IN FAVOR OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE
TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be
considered a fortuitous event because the happening thereof was foreseeable. Although the
Agreement was freely entered into by both parties, Section 8 should be deemed ineffective
because it is contrary to Article 1174 of the Civil Code. Philcomsat posits the view that the
validity of the parties’ definition of force majeure in Section 8 of the Agreement as
"circumstances beyond the control of the party involved including, but not limited to, any
law, order, regulation, direction or request of the Government of the Philippines, strikes or
other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies,
fire, floods, typhoons or other catastrophies or acts of God," should be deemed subject to
Article 1174 which defines fortuitous events as events which could not be foreseen, or which,
though foreseen, were inevitable.13
Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable
to pay for the rental of the earth station for the entire term of the Agreement because it
runs counter to what was plainly stipulated by the parties in Section 7 thereof. Moreover,
said ruling is inconsistent with the appellate court’s pronouncement that Globe is liable to
pay rentals for December 1992 even though it terminated Philcomsat’s services effective 08
November 1992, because the US military and personnel completely withdrew from Cubi
Point only in December 1992. Philcomsat points out that it was Globe which proposed the
five-year term of the Agreement, and that the other provisions of the Agreement, such as
Section 4.114 thereof, evince the intent of Globe to be bound to pay rentals for the entire five-
year term.15
Philcomsat also maintains that contrary to the appellate court’s findings, it is entitled to
attorney’s fees and exemplary damages.16
In its Comment to Philcomsat’s Petition, Globe asserts that Section 8 of the Agreement is
not contrary to Article 1174 of the Civil Code because said provision does not prohibit parties
to a contract from providing for other instances when they would be exempt from fulfilling
their contractual obligations. Globe also claims that the termination of the RP-US Military
Bases Agreement constitutes force majeure and exempts it from complying with its
obligations under the Agreement.17 On the issue of the propriety of awarding attorney’s fees
and exemplary damages to Philcomsat, Globe maintains that Philcomsat is not entitled
thereto because in refusing to pay rentals for the remainder of the term of the Agreement,
Globe only acted in accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred
in finding it liable for the amount of US$92,238.00, representing rentals for December 1992,
since Philcomsat’s services were actually terminated on 08 November 1992.20
In its Comment, Philcomsat claims that Globe’s petition should be dismissed as it raises a
factual issue which is not cognizable by the Court in a petition for review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course to
Philcomsat’s Petition in G.R. No.
147324 and required the parties to submit their respective memoranda.22
Similarly, on 20 August 2001, the Court issued a Resolution giving due course to
the Petition filed by Globe in G.R. No. 147334 and required both parties to submit their
memoranda.23
Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective petitions.
The Court is tasked to resolve the following issues: (1) whether the termination of the RP-
US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation
and Security, and the consequent withdrawal of US military forces and personnel from Cubi
Point constitute force majeure which would exempt Globe from complying with its
obligation to pay rentals under its Agreement with Philcomsat; (2) whether Globe is liable
to pay rentals under the Agreement for the month of December 1992; and (3) whether
Philcomsat is entitled to attorney’s fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing the
assailed Decision; hence the petitions are denied.
There is no merit is Philcomsat’s argument that Section 8 of the Agreement cannot be given
effect because the enumeration of events constituting force majeure therein unduly expands
the concept of a fortuitous event under Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an
event must be unforeseen in order to exempt a party to a contract from complying with its
obligations therein. It insists that since the expiration of the RP-US Military Bases
Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security and
the withdrawal of US military forces and personnel from Cubi Point were not unforeseeable,
but were possibilities known to it and Globe at the time they entered into the Agreement,
such events cannot exempt Globe from performing its obligation of paying rentals for the
entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on account of fortuitous
events or force majeure, refers not only to events that are unforeseeable, but also to those
which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person
shall be responsible for those events which, could not be foreseen, or which, though foreseen
were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences
such as floods or typhoons,24 or an "act of man," such as riots, strikes or wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall
be deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the Philippine Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the
parties. There is nothing in the enumeration that runs contrary to, or expands, the concept
of a fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish
such stipulations, clauses, terms and conditions as they may deem fit, as long as the same
do not run counter to the law, morals, good customs, public order or public policy.27
Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have
the force of law between the contracting parties and should be complied with in good
faith."28 Courts cannot stipulate for the parties nor amend their agreement where the same
does not contravene law, morals, good customs, public order or public policy, for to do so
would be to alter the real intent of the parties, and would run contrary to the function of the
courts to give force and effect thereto.29
Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of
the Agreement which Philcomsat and Globe freely agreed upon has the force of law between
them.30
In order that Globe may be exempt from non-compliance with its obligation to pay rentals
under Section 8, the concurrence of the following elements must be established: (1) the event
must be independent of the human will; (2) the occurrence must render it impossible for the
debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of
participation in, or aggravation of, the injury to the creditor.31
The Court agrees with the Court of Appeals and the trial court that the abovementioned
requisites are present in the instant case. Philcomsat and Globe had no control over the
non-renewal of the term of the RP-US Military Bases Agreement when the same expired in
1991, because the prerogative to ratify the treaty extending the life thereof belonged to the
Senate. Neither did the parties have control over the subsequent withdrawal of the US
military forces and personnel from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and
its Supplemental Agreements) under its Resolution No. 141. (Exhibit "2") on September 16,
1991 is beyond the control of the parties. This resolution was followed by the sending on
December 31, 1991 o[f] a "Note Verbale" (Exhibit "3") by the Philippine Government to the
US Government notifying the latter of the former’s termination of the RP-US Military Bases
Agreement (as amended) on 31 December 1992 and that accordingly, the withdrawal of all
U.S. military forces from Subic Naval Base should be completed by said date. Subsequently,
defendant [Globe] received a formal order from Cdr. Walter F. Corliss II Commander USN
dated July 31, 1992 and a notification from ATT dated July 29, 1992 to terminate the
provision of T1s services (via an IBS Standard B Earth Station) effective November 08,
1992. Plaintiff [Philcomsat] was furnished with copies of the said order and letter by the
defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine
Government to the US Government are acts, direction or request of the Government of the
Philippines and circumstances beyond the control of the defendant. The formal order from
Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete
withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992
are also acts and circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the afore-narrated
circumstances constitute "force majeure or fortuitous event(s) as defined under paragraph
8 of the Agreement.

From the foregoing, the Court finds that the defendant is exempted from paying the rentals
for the facility for the remaining term of the contract.
As a consequence of the termination of the RP-US Military Bases Agreement (as amended)
the continued stay of all US Military forces and personnel from Subic Naval Base would no
longer be allowed, hence, plaintiff would no longer be in any position to render the service
it was obligated under the Agreement. To put it blantly (sic), since the US military forces
and personnel left or withdrew from Cubi Point in the year end December 1992, there was
no longer any necessity for the plaintiff to continue maintaining the IBS
facility…. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the Agreement until the
end of its five-year term without fault on the part of either party. The Court of Appeals was
thus correct in ruling that the happening of such fortuitous events rendered Globe exempt
from payment of rentals for the remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals even though
Philcomsat cannot be compelled to perform its corresponding obligation under the
Agreement. As noted by the appellate court:
We also point out the sheer inequity of PHILCOMSAT’s position. PHILCOMSAT would like
to charge GLOBE rentals for the balance of the lease term without there being any
corresponding telecommunications service subject of the lease. It will be grossly unfair and
iniquitous to hold GLOBE liable for lease charges for a service that was not and could not
have been rendered due to an act of the government which was clearly beyond GLOBE’s
control. The binding effect of a contract on both parties is based on the principle that the
obligations arising from contracts have the force of law between the contracting parties, and
there must be mutuality between them based essentially on their equality under which it is
repugnant to have one party bound by the contract while leaving the other party free
therefrom (Allied Banking Corporation v. Court of Appeals, 284 SCRA 357 )….33
With respect to the issue of whether Globe is liable for payment of rentals for the month of
December 1992, the Court likewise affirms the appellate court’s ruling that Globe should
pay the same.
Although Globe alleged that it terminated the Agreement with Philcomsat effective 08
November 1992 pursuant to the formal order issued by Cdr. Corliss of the US Navy, the
date when they actually ceased using the earth station subject of the Agreement was not
established during the trial.34 However, the trial court found that the US military forces
and personnel completely withdrew from Cubi Point only on 31 December 1992.35 Thus,
until that date, the USDCA had control over the earth station and had the option of using
the same. Furthermore, Philcomsat could not have removed or rendered ineffective said
communication facility until after 31 December 1992 because Cubi Point was accessible only
to US naval personnel up to that time. Hence, the Court of Appeals did not err when it
affirmed the trial court’s ruling that Globe is liable for payment of rentals until December
1992.
Neither did the appellate court commit any error in holding that Philcomsat is not entitled
to attorney’s fees and exemplary damages.
The award of attorney’s fees is the exception rather than the rule, and must be supported
by factual, legal and equitable justifications.36 In previously decided cases, the Court
awarded attorney’s fees where a party acted in gross and evident bad faith in refusing to
satisfy the other party’s claims and compelled the former to litigate to protect his
rights;37 when the action filed is clearly unfounded,38 or where moral or exemplary damages
are awarded.39 However, in cases where both parties have legitimate claims against each
other and no party actually prevailed, such as in the present case where the claims of both
parties were sustained in part, an award of attorney’s fees would not be warranted.40
Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the
erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.41 In
the present case, it was not shown that Globe acted wantonly or oppressively in not heeding
Philcomsat’s demands for payment of rentals. It was established during the trial of the case
before the trial court that Globe had valid grounds for refusing to comply with its contractual
obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the
Court of Appeals in CA-G.R. CV No. 63619 is AFFIRMED.
SO ORDERED.
SECOND DIVISION
G.R. No. 185798 January 13, 2014
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,
vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.
DECISION
PEREZ, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of
Civil Procedure assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 100450
which affirmed the Decision of the Office of the President in O.P. Case No. 06-F-216.
As culled from the records, the facts are as follow:
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place
Tower while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent.
Respondent Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an
82-square meter condominium unit at Central Park Place Tower in Mandaluyong City for a
pre-selling contract price of FIVE MILLION ONE HUNDRED SEVENTY-FOUR
THOUSAND ONLY (₱5,174,000.00). On 29 August 1997, respondents executed and signed
a Reservation Application Agreement wherein they deposited ₱200,000.00 as reservation
fee. As agreed upon, respondents paid the full downpayment of ₱1,552,200.00 and had been
paying the ₱63,363.33 monthly amortizations until September 1998.
Upon learning that construction works had stopped, respondents likewise stopped paying
their monthly amortization. Claiming to have paid a total of ₱2,198,949.96 to petitioners,
respondents through two (2) successive letters, demanded a full refund of their payment
with interest. When their demands went unheeded, respondents were constrained to file a
Complaint for Refund and Damages before the Housing and Land Use Regulatory Board
(HLURB). Respondents prayed for reimbursement/refund of ₱2,198,949.96 representing the
total amortization payments, ₱200,000.00 as and by way of moral damages, attorney’s fees
and other litigation expenses.
On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing
to file their Answer within the reglementary period despite service of summons.2
Petitioners filed a motion to lift order of default and attached their position paper
attributing the delay in construction to the 1997 Asian financial crisis. Petitioners denied
committing fraud or misrepresentation which could entitle respondents to an award of
moral damages.
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment
ordering petitioners to jointly and severally pay respondents the following amount:
a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE
HUNDRED FORTY NINE PESOS & 96/100 (₱2,198,949.96) with interest thereon at twelve
percent (12%) per annum to be computed from the time of the complainants’ demand for
refund on October 08, 1998 until fully paid,
b) ONE HUNDRED THOUSAND PESOS (₱100,000.00) as moral damages,
c) FIFTY THOUSAND PESOS (₱50,000.00) as attorney’s fees,
d) The costs of suit, and
e) An administrative fine of TEN THOUSAND PESOS (₱10,000.00) payable to this Office
fifteen (15) days upon receipt of this decision, for violation of Section 20 in relation to Section
38 of PD 957.3
The Arbiter considered petitioners’ failure to develop the condominium project as a
substantial breach of their obligation which entitles respondents to seek for rescission with
payment of damages. The Arbiter also stated that mere economic hardship is not an excuse
for contractual and legal delay.
Petitioners appealed the Arbiter’s Decision through a petition for review pursuant to Rule
XII of the 1996 Rules of Procedure of HLURB. On 17 February 2005, the Board of
Commissioners of the HLURB denied4 the petition and affirmed the Arbiter’s Decision. The
HLURB reiterated that the depreciation of the peso as a result of the Asian financial crisis
is not a fortuitous event which will exempt petitioners from the performance of their
contractual obligation.
Petitioners filed a motion for reconsideration but it was denied5 on 8 May 2006. Thereafter,
petitioners filed a Notice of Appeal with the Office of the President. On 18 April 2007,
petitioners’ appeal was dismissed6 by the Office of the President for lack of merit.
Petitioners moved for a reconsideration but their motion was denied7 on 26 July 2007.
Petitioners sought relief from the Court of Appeals through a petition for review under Rule
43 containing the same arguments they raised before the HLURB and the Office of the
President:
I.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE HONORABLE HOUSING AND LAND USE REGULATORY BOARD
AND ORDERING PETITIONERS-APPELLANTS TO REFUND RESPONDENTS-
APPELLEES THE SUM OF ₱2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER
1998 UNTIL FULLY PAID, CONSIDERING THAT THE COMPLAINT STATES NO
CAUSE OF ACTION AGAINST PETITIONERS-APPELLANTS.
II.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE OFFICE BELOW ORDERING PETITIONERS-APPELLANTS TO
PAY RESPONDENTS-APPELLEES THE SUM OF ₱100,000.00 AS MORAL DAMAGES
AND ₱50,000.00 AS ATTORNEY’S FEES CONSIDERING THE ABSENCE OF ANY
FACTUAL OR LEGAL BASIS THEREFOR.
III.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE HOUSING AND LAND USE REGULATORY BOARD ORDERING
PETITIONERS-APPELLANTS TO PAY ₱10,000.00 AS ADMINISTRATIVE FINE IN THE
ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH FINDING.8
On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The
appellate court echoed the HLURB Arbiter’s ruling that "a buyer for a
condominium/subdivision unit/lot unit which has not been developed in accordance with the
approved condominium/subdivision plan within the time limit for complying with said
developmental requirement may opt for reimbursement under Section 20 in relation to
Section 23 of Presidential Decree (P.D.) 957 x x x."9 The appellate court supported the
HLURB Arbiter’s conclusion, which was affirmed by the HLURB Board of Commission and
the Office of the President, that petitioners’ failure to develop the condominium project is
tantamount to a substantial breach which warrants a refund of the total amount paid,
including interest. The appellate court pointed out that petitioners failed to prove that the
Asian financial crisis constitutes a fortuitous event which could excuse them from the
performance of their contractual and statutory obligations. The appellate court also
affirmed the award of moral damages in light of petitioners’ unjustified refusal to satisfy
respondents’ claim and the legality of the administrative fine, as provided in Section 20 of
Presidential Decree No. 957.
Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December
2008 by the Court of Appeals.
Aggrieved, petitioners filed the instant petition advancing substantially the same grounds
for review:
A.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE
DECISION OF THE OFFICE OF THE PRESIDENT WHICH SUSTAINED RESCISSION
AND REFUND IN FAVOR OF THE RESPONDENTS DESPITE LACK OF CAUSE OF
ACTION.
B.
GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE
UNDER THE PREMISES, THE HONORABLE COURT OF APPEALS ERRED WHEN IT
AFFIRMED THE HUGE AMOUNT OF INTEREST OF TWELVE PERCENT (12%).
C.
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN
TOTO THE DECISION OF THE OFFICE OF THE PRESIDENT INCLUDING THE
PAYMENT OF ₱100,000.00 AS MORAL DAMAGES, ₱50,000.00 AS ATTORNEY’S FEES
AND ₱10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR
LEGAL BASIS TO SUPPORT SUCH CONCLUSIONS.11
Petitioners insist that the complaint states no cause of action because they allegedly have
not committed any act of misrepresentation amounting to bad faith which could entitle
respondents to a refund. Petitioners claim that there was a mere delay in the completion of
the project and that they only resorted to "suspension and reformatting as a testament to
their commitment to their buyers." Petitioners attribute the delay to the 1997 Asian
financial crisis that befell the real estate industry. Invoking Article 1174 of the New Civil
Code, petitioners maintain that they cannot be held liable for a fortuitous event.
Petitioners contest the payment of a huge amount of interest on account of suspension of
development on a project. They liken their situation to a bank which this Court, in Overseas
Bank v. Court of Appeals,12 adjudged as not liable to pay interest on deposits during the
period that its operations are ordered suspended by the Monetary Board of the Central
Bank.
Lastly, petitioners aver that they should not be ordered to pay moral damages because they
never intended to cause delay, and again blamed the Asian economic crisis as the direct,
proximate and only cause of their failure to complete the project. Petitioners submit that
moral damages should not be awarded unless so stipulated except under the instances
enumerated in Article 2208 of the New Civil Code. Lastly, petitioners refuse to pay the
administrative fine because the delay in the project was caused not by their own deceptive
intent to defraud their buyers, but due to unforeseen circumstances beyond their control.
Three issues are presented for our resolution: 1) whether or not the Asian financial crisis
constitute a fortuitous event which would justify delay by petitioners in the performance of
their contractual obligation; 2) assuming that petitioners are liable, whether or not 12%
interest was correctly imposed on the judgment award, and 3) whether the award of moral
damages, attorney’s fees and administrative fine was proper.
It is apparent that these issues were repeatedly raised by petitioners in all the legal fora.
The rulings were consistent that first, the Asian financial crisis is not a fortuitous event
that would excuse petitioners from performing their contractual obligation; second, as a
result of the breach committed by petitioners, respondents are entitled to rescind the
contract and to be refunded the amount of amortizations paid including interest and
damages; and third, petitioners are likewise obligated to pay attorney’s fees and the
administrative fine.
This petition did not present any justification for us to deviate from the rulings of the
HLURB, the Office of the President and the Court of Appeals.
Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission
under Article 1191 of the New Civil Code which states:
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of
condominiums, which provides:
Section 23. Non-Forfeiture of Payments.1âwphi1 No installment payment made by a buyer
in a subdivision or condominium project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plans and within
the time limit for complying with the same. Such buyer may, at his option, be reimbursed
the total amount paid including amortization interests but excluding delinquency interests,
with interest thereon at the legal rate. (Emphasis supplied).
Conformably with these provisions of law, respondents are entitled to rescind the contract
and demand reimbursement for the payments they had made to petitioners.
Notably, the issues had already been settled by the Court in the case of Fil-Estate
Properties, Inc. v. Spouses Go13promulgated on 17 August 2007, where the Court stated that
the Asian financial crisis is not an instance of caso fortuito. Bearing the same factual milieu
as the instant case, G.R. No. 165164 involves the same company, Fil-Estate, albeit about a
different condominium property. The company likewise reneged on its obligation to
respondents therein by failing to develop the condominium project despite substantial
payment of the contract price. Fil-Estate advanced the same argument that the 1997 Asian
financial crisis is a fortuitous event which justifies the delay of the construction project.
First off, the Court classified the issue as a question of fact which may not be raised in a
petition for review considering that there was no variance in the factual findings of the
HLURB, the Office of the President and the Court of Appeals. Second, the Court cited the
previous rulings of Asian Construction and Development Corporation v. Philippine
Commercial International Bank14 and Mondragon Leisure and Resorts Corporation v. Court
of Appeals15 holding that the 1997 Asian financial crisis did not constitute a valid
justification to renege on obligations. The Court expounded:
Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and
beyond the control of a business corporation. It is unfortunate that petitioner apparently
met with considerable difficulty e.g. increase cost of materials and labor, even before the
scheduled commencement of its real estate project as early as 1995. However, a real estate
enterprise engaged in the pre-selling of condominium units is concededly a master in
projections on commodities and currency movements and business risks. The fluctuating
movement of the Philippine peso in the foreign exchange market is an everyday occurrence,
and fluctuations in currency exchange rates happen everyday, thus, not an instance of caso
fortuito.16
The aforementioned decision becomes a precedent to future cases in which the facts are
substantially the same, as in this case. The principle of stare decisis, which means
adherence to judicial precedents, applies.
In said case, the Court ordered the refund of the total amortizations paid by respondents
plus 6% legal interest computed from the date of demand. The Court also awarded attorney’s
fees. We follow that ruling in the case before us.
The resulting modification of the award of legal interest is, also, in line with our recent
ruling in Nacar v. Gallery Frames,17 embodying the amendment introduced by the Bangko
Sentral ng Pilipinas Monetary Board in BSP-MB Circular No. 799 which pegged the interest
rate at 6% regardless of the source of obligation.
We likewise affirm the award of attorney’s fees because respondents were forced to litigate
for 14 years and incur expenses to protect their rights and interest by reason of the
unjustified act on the part of petitioners.18 The imposition of ₱10,000.00 administrative fine
is correct pursuant to Section 38 of Presidential Decree No. 957 which reads:
Section 38. Administrative Fines. The Authority may prescribe and impose fines not
exceeding ten thousand pesos for violations of the provisions of this Decree or of any rule or
regulation thereunder. Fines shall be payable to the Authority and enforceable through
writs of execution in accordance with the provisions of the Rules of Court.
Finally, we sustain the award of moral damages. In order that moral damages may be
awarded in breach of contract cases, the defendant must have acted in bad faith, must be
found guilty of gross negligence amounting to bad faith, or must have acted in wanton
disregard of contractual obligations.19 The Arbiter found petitioners to have acted in bad
faith when they breached their contract, when they failed to address respondents’
grievances and when they adamantly refused to refund respondents' payment.
In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision
and Resolution.
WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED
with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the
amount due computed from the time of respondents' demand for refund on 8 October 1998.
SO ORDERED.
SECOND DIVISION
G.R. No. 191189 January 29, 2014
MANLAR RICE MILL, INC., Petitioner,
vs.
LOURDES L. DEYTO, doing business under the trade name "J.D. Grains Center" and
JENNELITA DEYTO ANG, a.k.a. "JANET ANG," Respondents.
DECISION
DEL CASTILLO, J.:
As a general rule, a contract affects only the parties to it, and cannot be enforced by or
against a person who is not a party thereto.
This Petition for Review on Certiorari1 seeks to set aside the October 30, 2009 Decision2 of
the Court of Appeals (CA) in CA-G.R. CV No. 91239, entitled "Maniar Rice Mill, Inc.,
Plaintiff-Appellee, versus Lourdes L. Deyto, doing business under the trade name JD Grains
Center, Defendant-Appellant," as well as its February 9, 2010 Resolution 3denying
reconsideration of the assailed judgment.
Factual Antecedents
Petitioner Maniar Rice Mill, Inc. (Maniar), organized and existing under Philippine laws, is
engaged in the business of rice milling and selling of grains. Respondent Lourdes L. Deyto
(Deyto) does business under the trade name "JD Grains Center" and is likewise engaged in
the business of milling and selling of grains. Respondent Jennelita Deyto Ang or Janet Ang
(Ang) is Deyto’s daughter and, prior to her alleged absconding, operated her own rice trading
business through her own store, "Janet Commercial Store".4
It appears that in October 2000, Ang entered into a rice supply contract with Manlar, with
the former purchasing rice from the latter amounting to ₱3,843,220.00. The transaction was
covered by nine postdated checks issued by Ang from her personal bank/checking account
with Chinabank,5 to wit:

Check Number Date Amount (PhP)

146514 October 19, 2000 P 204,660.00

146552 October 20, 2000 472,200.00

146739 October 27, 2000 327,600.00

146626 October 26, 2000 212,460.00


1466276 October 27, 2000 565,600.00

146740 October 30, 2000 515,000.00

146628 October 31, 2000 358,500.00

146630 November 4, 2000 593,600.00

146555 November 6, 2000 593,600.00

TOTAL P 3,843,220.00

Upon presentment, the first two checks were dishonored for having been drawn against
insufficient funds; the remaining seven checks were dishonored for being drawn against a
closed account. Manlar made oral and written demands upon both Deyto and Ang, which
went unheeded.7 It appears that during the time demand was being made upon Deyto, she
informed Manlar, through its Sales Manager Pablo Pua (Pua), that Ang could not be
located.8
On November 24, 2000,9 Manlar filed a Complaint10 for sum of money against Deyto and
Ang before the Regional Trial Court (RTC) of Quezon City. The case was docketed as Civil
Case No. Q-00-42527 and assigned to Branch 215. The Complaint essentially sought to hold
Deyto and Ang solidarily liable on the rice supply contract. Manlar prayed for actual
damages in the total amount of ₱3,843,220.00, with interest; ₱300,000.00 attorney’s fees,
with charges for appearance fees; and attachment bond and attachment expenses.
Deyto filed her Answer with Compulsory Counterclaim,11 claiming that she did not contract
with Manlar or any of its representatives regarding the purchase and delivery of rice; that
JD Grains Center was solely owned by her, and Ang had no participation therein, whether
as employee, consultant, agent or other capacity; that JD Grains Center was engaged in rice
milling and not in the buying and selling of rice; and that one of her customers was her
daughter Ang, who was engaged in the buying and selling of rice under the trade name
"Janet Commercial Store." Deyto prayed among others that the Complaint be dismissed.
For her part, Ang failed to file an Answer despite summons by publication; for this reason,
she was declared in default.
On June 7, 2001, Manlar submitted to the trial court a notarized minutes of a special
meeting of its board of directors12 dated November 8, 2000, indicating that Pua was
authorized to file and prosecute the Complaint in Civil Case No. Q-00-42527.
In a July 31, 2001 Resolution,13 the trial court resolved to deny Deyto’s special/affirmative
defenses contained in her Answer. Regarding her objection to Pua’s authority to prosecute
the case for lack of the proper board resolution to such effect, the trial court held that the
issue had been rendered moot by Manlar’s submission on June 7, 2001 of the notarized board
resolution.
During trial, Manlar presented its lone witness, Pua, who testified that he knew Deyto and
Ang since 1995; that Ang was the Operations Manager of JD Grains Center; that they
(Deyto and Ang) bought rice from Manlar on "cash on delivery" basis from 1995 up to 2000;
that since 2000, they increased the volume of their purchases and requested that they pay
Manlar by postdated checks on a weekly basis, to which Manlar acceded; that Manlar agreed
to this arrangement because Deyto induced Pua to deliver rice on the assurance that Deyto
had extensive assets, financial capacity and a thriving business, and Deyto provided Pua
with copies of JD Grains Center’s certificate of registration, business permit, business card,
and certificates of title covering property belonging to Deyto; that when rice deliveries were
made by Manlar, Deyto was not around; that it was solely Ang who issued the subject checks
and delivered them to Pua or Manlar; that initially, they (Deyto and Ang) faithfully
complied with the arrangement; that later on, they defaulted in their payments thus
resulting in the dishonor of the subject nine checks previously issued to Manlar; that by
then, Manlar had delivered rice to them totaling ₱3,843,220.00; that he went to the
residence of Deyto at No. 93 Bulusan Street, La Loma, Quezon City on five occasions to
demand payment from Deyto; and that he likewise went to Ang’s residence at No. 4
Sabucoy14 Street, San Francisco del Monte, Quezon City to demand payment.15
On cross-examination, Pua testified that no rice deliveries were in fact made by Manlar at
Deyto’s Bulusan Street residence; that Deyto guaranteed Ang’s checks, although the
guarantee was made verbally; that although he ordered Manlar’s drivers to deliver rice at
Deyto’s residence at Bulusan Street, the deliveries would actually end up at Ang’s Sabucoy
residence.16
On the other hand, the defense presented three witnesses: Deyto, her son Jose D. Ang, and
Homer Petallano (Petallano), Chinabank del Monte branch Operations Head. Deyto
testified that she did not know Pua; that Pua was a liar and that she did not enter into a
contract with him for the purchase and delivery of rice; that she did not receive at any time
any rice delivery from Manlar; that while she had a house at No. 93 Bulusan Street, La
Loma, Quezon City, she actually resided in Santiago City, Isabela; that she met Pua for the
first time when the latter went to her La Loma residence sometime in November or
December 2000 looking for Ang, and claiming that Ang was indebted to Manlar; that she
had nothing to do with the obligations of Ang incurred for rice deliveries made to her or JD
Grains Center, as Ang was not connected with JD Grains Center, and it was her son, Jose
D. Ang, who managed and ran the business; that all the checks issued to Manlar were drawn
by Ang from her own bank account, as a businessperson in her own right and with her own
business and receipts; that as of 2000, Ang was the proprietress of Jane Commercial with
address at No. 49 Corumi Street, Masambong, San Francisco del Monte, Quezon City, and
not at No. 93 Bulusan Street, La Loma, Quezon City; that the last time she saw Ang was in
June 2000, during the blessing of Ang’s Sabucoy residence; that she was not on talking
terms with her daughter as early as June 2000 on account of Ang’s activities and
involvements; that one of Ang’s children was living with her after the child was recovered
from a kidnapping perpetrated by Ang’s best friend; that Ang’s other child lived with the
child’s father; and that Ang’s whereabouts could not be ascertained.17
Jose D. Ang, on the other hand, testified that he is Deyto’s son; that from the start, JD
Grains Center has been under his supervision and control as Manager and Deyto had no
participation in the actual operation thereof; that JD Grains Center was registered in the
name of Deyto for convenience, to avoid jealousy or intrigue among his siblings, and because
they used Deyto’s properties as collateral to borrow money for the business; that Ang was
originally an agent of JD Grains Center, but was removed in 1997 for failure to remit her
collections.18
Finally, Petallano testified that he was the Operations Head of Chinabank del Monte branch
and that Ang is the sole owner and depositor of the account from which the subject checks
were drawn.19
Ruling of the Trial Court
On November 22, 2007, a Decision20 was rendered by the trial court in Civil Case No. Q-00-
42527, the dispositive portion of which reads, as follows:
WHEREFORE, premises considered, judgment is hereby rendered finding the defendants
liable to the plaintiff jointly and severally and ordering them as follows:
1. To pay plaintiff actual damages in the sum of ₱3,843,200.0021 plus interest [thereon] at
6% per annum reckoned from the time of demand up to the time of payment thereof;
2. To pay plaintiff attorney’s fees in the sum of ₱200,000.00 plus ₱2,500.00 as per appearance
fee; and
3. To pay the costs of this suit.
SO ORDERED.22
Essentially, the trial court believed Pua’s declarations that both Deyto and Ang personally
transacted with him in purchasing rice from Manlar for JD Grains Center – with Ang paying
for the deliveries with her personal checks and his testimony that both Deyto and Ang
received Manlar’s rice deliveries. For these reasons, the trial court ruled that both
defendants should be held solidarily liable for the unpaid and outstanding Manlar account.
Ruling of the Court of Appeals
Deyto went up to the CA on appeal, assailing the Decision of the trial court and claiming
that there was no evidence to show her participation in the transactions between Manlar
and Ang, or that rice deliveries were even made to her; that she had no legal obligation to
pay Manlar what Ang owed the latter in her personal capacity; that the evidence proved
that Ang had overpaid Manlar; that the Complaint in Civil Case No. Q-00-42527 was
defective for lack of the required board resolution authorizing Pua to sign the Complaint,
verification, and certification against forum shopping on behalf of Manlar; and that the trial
court erred in not awarding damages in her favor.
On October 30, 2009, the CA issued the assailed Decision, which held thus:
WHEREFORE, premises considered, the assailed Decision dated November 22, 2007 in
Civil Case No. Q-00-42527 of the Regional Trial Court, Branch 215, Quezon City is
REVERSED and SET ASIDE, and a new one entered, DISMISSING the complaint for lack
of merit.
SO ORDERED.23
The CA held that in the absence of a board resolution from Manlar authorizing Pua to sign
the verification and certification against forum shopping, the Complaint in Civil Case No.
Q-00-42527 should have been dismissed; the subsequent submission on June 7, 2001 – or
six months after the filing of the case – of the notarized minutes of a special meeting of
Manlar’s board of directors cannot have the effect of curing or amending the defective
Complaint, as Revised Supreme Court Circular No. 28-9124 enjoins strict compliance.
Substantial compliance does not suffice.
The CA added that the trial court’s Decision overlooked, misapprehended, and failed to
appreciate important facts and circumstances of the case. Specifically, it held that Manlar
failed to present documentary evidence to prove deliveries of rice to Deyto, yet the trial court
sweepingly concluded that she took actual delivery of Manlar’s rice. Likewise, Pua’s
declaration that Manlar delivered rice to Deyto at her La Loma residence was not based on
personal knowledge or experience, but on Manlar’s drivers’ supposed accounts of events.
Because these drivers were not called to testify on such fact or claim, the CA held that Pua’s
testimony regarding Deyto’s alleged acceptance of rice deliveries from Manlar was hearsay.
The appellate court conceded that if Ang indeed contracted with Manlar, she did so on her
own; the evidence failed to indicate that Deyto had any participation in the supposed
transactions between her daughter and Manlar. The record reveals that Deyto and Ang
owned separate milling and grains businesses: JD Grains Center and Janet Commercial
Store. If Ang did business with Manlar, it is likely that she did so on her own or in her
personal capacity, and not for and in behalf of Deyto’s JD Grains Center. Besides, the subject
checks were drawn against Ang’s personal bank account, therefore Ang, not Deyto is bound
to make good on the dishonored checks.
Thus, the CA concluded that there is no legal basis to hold Deyto solidarily liable with Ang
for what the latter may owe Manlar.
Manlar moved for reconsideration, but in its February 9, 2010 Resolution, the CA stood its
ground. Hence, Manlar took the present recourse.
Issues
Manlar raises the following issues in its Petition:
1. THE COURT OF APPEALS COMMITTED CLEAR REVERSIBLE ERROR WHEN IT
SET ASIDE THE JUDGMENT OF THE TRIAL COURT BY SWEEPINGLY AND
BASELESSLY CONCLUDING THAT THE VERIFICATION AND CERTIFICATE
AGAINST FORUM SHOPPING IN THE COMPLAINT WERE ALLEGEDLY
"DEFECTIVE" IN THAT PABLO PUA, THE SALES MANAGER, WAS SUPPOSEDLY
"NOT AUTHORIZED" TO SIGN THE VERIFICATION AND CERTIFICATE OF NON-
FORUM SHOPPING FOR MANLAR RICE MILL, INC.
2. THE CONCLUSION OF THE COURT OF APPEALS THAT THE ALL-
ENCOMPASSING PHRASE IN THE BOARD RESOLUTION THAT "MR. PABLO PUA IS
AUTHORIZED TO SIGN ANY DOCUMENT, PAPERS, FOR AND IN BEHALF OF THE
COMPANY, AND TO REPRESENT THE COMPANY IN ANY SUCH CASE OR CASES" IS
ALLEGEDLY "NOT SUFFICIENT" AUTHORITY FOR PABLO PUA TO SIGN THE
VERIFICATION AND CERTIFICATE AGAINST FORUM SHOPPING IS GROSSLY
ERRONEOUS AND MANIFESTLY MISTAKEN BECAUSE IT IS DIRECTLY NEGATED
AND DISPROVED BY THE EXPRESS TERMS OF HIS AUTHORITY.
3. FURTHER, THE SERIOUS AND GLARING ERROR OF THE COURT OF APPEALS IN
CONCLUDING THAT PABLO PUA WAS ALLEGEDLY NOT AUTHORIZED TO SIGN
THE VERIFICATION AND CERTIFICATE OF NON-FORUM SHOPPING HAD BEEN
PREVIOUSLY RAISED AND SQUARELY RESOLVED BY THE TRIAL COURT AND ITS
RESOLUTION ON THIS ISSUE HAD LONG BECOME FINAL AND EXECUTORY
WITHOUT LOURDES L. DEYTO TAKING ANY APPELLATE REMEDY.
4. THE COURT OF APPEALS ALSO COMMITTED REVERSIBLE ERROR IN SAYING
THAT "THERE WAS NO DOCUMENTARY EVIDENCE TO PROVE ACTUAL
DELIVERIES OF RICE" AS BASIS FOR THE DISMISSAL OF THE CASE BECAUSE
THIS IS MANIFESTLY MISTAKEN AND NEGATED BY THE RECORDS SINCE
RESPONDENTS (MOTHER AND DAUGHTER) ISSUED NINE (9) POSTDATED
CHECKS TO PETITIONER THRU PABLO PUA IN THE TOTAL AMOUNT OF
₱3,843,2[2]0.00 IN PAYMENT OF THE RICE DELIVERED TO THEM.
5. THE CONTRACTS OF SALE OF RICE WERE PERFECTED BY THE DELIVERY OF
RICE TO RESPONDENTS MOTHER AND DAUGHTER AND THEIR ISSUANCE OF
NINE (9) POSTDATED CHECKS (₱3,843,220.00) AS PAYMENT THEREOF BY
RESPONDENTS, BUT THAT THE NINE (9) POSTDATED CHECKS OF RESPONDENTS
WERE LATER DISHONORED.
6. THE SWEEPING STATEMENT OF THE COURT OF APPEALS THAT ALLEGEDLY
"THE PARTICIPATION OF APPELLANT (LOURDES L. DEYTO) TO WHATEVER
BUSINESS TRANSACTIONS HER DAUGHTER (CO-RESPONDENT JENNELITA
DEYTO ANG) HAD WITH MANLAR RICE MILL INC. WAS NOT DULY PROVEN" IS NOT
ONLY A PURE SPECULATION BUT IS SQUARELY NEGATED AND DISPROVED BY
THE OVERWHELMING EVIDENCE OF THE CONSPIRACY AND COLLABORATIVE
EFFORTS OF BOTH MOTHER AND DAUGHTER IN KNOWINGLY DEFRAUDING
PETITIONER.25
Petitioner’s Arguments
In its Petition and Reply,26 Manlar insists that the CA’s findings and conclusions are not
supported by the evidence on record. On the procedural issue, it reiterates the trial court’s
pronouncement that its subsequent submission – on June 7, 2001, or six months after the
filing of Civil Case No. Q-00-42527 – of the notarized minutes of a special meeting of its
board of directors authorizing Pua to file and prosecute Civil Case No. Q-00-42527,
effectively cured the defective Complaint, or rendered the issue of lack of proper authority
moot and academic, and should not result in the dismissal of the case. Because Deyto did
not question this ruling through the proper petition or appeal, it should stand; besides, the
trial court’s disposition on the matter is sound and just.
Next, Manlar disputes the CA ruling that Manlar failed to present documentary evidence
to prove deliveries of rice to Deyto, apart from that delivered to Ang in her personal capacity.
It points to "compelling and convincing evidence" that both Deyto and Ang induced it to
deliver rice to them, and that both of them issued the subject postdated checks. It claims
that it was Deyto who delivered the checks to Pua at his office in Manila; that Deyto induced
Pua to deliver rice to respondents on the assurance that Deyto had extensive assets,
financial capacity and a thriving business; and that Deyto provided Pua with copies of JD
Grains Center’s certificate of registration, business permit, business card, and certificates
of title covering property belonging to Deyto.
Manlar adds that Deyto disposed of some of her personal properties – specifically
delivery/cargo trucks – in fraud of her creditors, including Manlar. It is also argued that the
fact that Deyto was in possession of Ang’s negotiated checks proved that both of them
connived to defraud Manlar by using the said checks to convince and induce Pua to contract
with them.
Manlar goes on to argue that Ang and another of Deyto’s children, Judith Ang Yu (Judith),
were charged and the latter convicted of estafa for defrauding another rice trader, a certain
Sergio Casaclang, of ₱3,800,000.00 – attaching a certified true copy of the Decision of Branch
215 of the RTC of Quezon City in Criminal Case No. Q-01-105698, indicating that Judith
was sentenced to three months of arresto mayor and to pay a fine and indemnity.
Next, Manlar argues that it is not necessary to further show proof of deliveries of rice to
Deyto and Ang in order to prove the existence of their obligation; the issuance of the subject
postdated checks as payment established the obligation.
Manlar thus prays that the Court annul and set aside the assailed CA dispositions and thus
reinstate the trial court’s November 22, 2007 Decision finding Deyto liable under the rice
supply contract.
Respondent’s Arguments
Praying that the Petition be denied, respondent Deyto in her Comment27 essentially argues
that petitioner Manlar’s claims are "products of pure imagination", having no factual and
legal basis, and that Manlar’s impleading her is simply a desperate strategy or attempt to
recover its losses from her, considering that Ang can no longer be located. Furthermore,
Deyto claims that Manlar’s alleged rice deliveries are not covered by sufficient documentary
evidence, and while it may appear that Ang had transacted with Manlar, she did so in her
sole capacity; thus, Deyto may not be held liable under a transaction in which she took no
part.
Deyto adds that Pua’s basis for claiming that deliveries were made at her Bulusan Street
residence is unfounded, considering that it springs from hearsay, or on the mere affirmation
of Manlar’s drivers – who were not presented in court to testify on such fact. Pua himself
had no personal knowledge of such fact, and thus could not be believed in testifying that
rice was indeed delivered to Deyto at her Bulusan Street residence. She argues further that
overall, Pua – Manlar’s lone witness – proved to be an unreliable witness, constantly
changing his testimony when the inconsistencies of his previous declarations were called
out.
Finally, Deyto reiterates the CA ruling that Manlar’s Complaint in Civil Case No. Q-00-
42527 was defective for lack of the required board resolution authorizing Pua to sign the
verification and certification against forum shopping, characterizing the belated submission
of the required resolution six months later as a mere afterthought.
Our Ruling
The Court denies the Petition.
It is a basic rule in evidence that he who alleges must prove his case or claim by the degree
of evidence required.
x x x Ei incumbit probatio qui dicit, non qui negat. This Court has consistently applied the
ancient rule that "if the plaintiff, upon whom rests the burden of proving his cause of action,
fails to show in a satisfactory manner the facts upon which he bases his claim, the defendant
is under no obligation to prove his exception or defense."28
In civil cases, the quantum of proof required is preponderance of evidence, which connotes
"that evidence that is of greater weight or is more convincing than that which is in opposition
to it. It does not mean absolute truth; rather, it means that the testimony of one side is more
believable than that of the other side, and that the probability of truth is on one side than
on the other."29
The CA is correct in concluding that there is no legal basis to hold Deyto solidarily liable
with Ang for what the latter may owe Manlar. The evidence does not support Manlar’s view
that both Deyto and Ang contracted with Manlar for the delivery of rice on credit; quite the
contrary, the preponderance of evidence indicates that it was Ang alone who entered into
the rice supply agreement with Manlar. Pua’s own direct testimony indicated that whenever
rice deliveries were made by Manlar, Deyto was not around; that it was solely Ang who
issued the subject checks and delivered them to Pua or Manlar. On cross-examination, he
testified that no rice deliveries were in fact made by Manlar at Deyto’s Bulusan Street
residence; that although Deyto guaranteed Ang’s checks, this guarantee was made verbally;
and that while he ordered Manlar’s drivers to deliver rice at Deyto’s residence at Bulusan
Street, the deliveries would actually end up at Ang’s Sabucoy residence.
The documentary evidence, on the other hand, shows that the subject checks were issued
from a bank account in Chinabank del Monte branch belonging to Ang alone. They did not
emanate from an account that belonged to both Ang and Deyto. This is supported by no less
than the testimony of Chinabank del Monte branch Operations Head Petallano.1âwphi1
The evidence on record further indicates that Deyto was an old lady who owned vast tracts
of land in Isabela province, and other properties in Metro Manila; that she is a reputable
businessperson in Isabela; that Ang originally worked for JD Grains Center, but was
removed in 1997 for failure to remit collections; that as early as June 2000, or prior to the
alleged transaction with Manlar, Ang and Deyto were no longer on good terms as a result
of Ang’s activities; that Deyto took custody of one of Ang’s children, who was previously
recovered from a kidnapping perpetrated by no less than Ang’s best friend; and that Ang
appears to have abandoned her own family and could no longer be located. This shows not
only what kind of person Ang is; it likewise indicates the improbability of Deyto’s
involvement in Ang’s activities, noting her age, condition, reputation, and the extent of her
business activities and holdings.
This Court cannot believe Manlar’s claims that Deyto induced Pua to transact with her and
Ang by providing him with copies of JD Grains Center’s certificate of registration, business
permit, business card, and certificates of title covering property belonging to Deyto to show
her creditworthiness, extensive assets, financial capacity and a thriving business. The
documents presented by Manlar during trial – copies of JD Grains Center’s certificate of
registration, business permit, and certificates of title covering Deyto’s landholdings – are
public documents which Manlar could readily obtain from appropriate government agencies;
it is improbable that Deyto provided Manlar with copies of these documents in order to
induce the latter to contract with her. Considering that both Manlar and Deyto were in the
same line of business in the same province, it may be said that Manlar knew Deyto all along
without the latter having to supply it with actual proof of her creditworthiness.
The allegations that Deyto guaranteed Ang’s checks and that she consented to be held
solidarily liable with Ang under the latter’s rice supply contract with Manlar are hardly
credible. Pua in fact admitted that this was not in writing, just a verbal assurance. But this
will not suffice. "Well-entrenched is the rule that solidary obligation cannot lightly be
inferred. There is a solidary liability only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so requires."30
What this Court sees is an attempt to implicate Deyto in a transaction between Manlar and
Ang so that the former may recover its losses, since it could no longer recover them from
Ang as a result of her absconding; this conclusion is indeed consistent with what the totality
of the evidence on record appears to show. This, however, may not be allowed. As a general
rule, a contract affects only the parties to it, and cannot be enforced by or against a person
who is not a party thereto. "It is a basic principle in law that contracts can bind only the
parties who had entered into it; it cannot favor or prejudice a third person."31 Under Article
1311 of the Civil Code, contracts take effect only between the parties, their assigns and
heirs. Thus, Manlar may sue Ang, but not Deyto, who the Court finds to be not a party to
the rice supply contract.
Having decided the case in the foregoing manner, the Court finds no need to resolve the
other issues raised by the parties.
WHEREFORE, the Petition is DENIED. The assailed dispositions of the Court of Appeals
are AFFIRMED.
SO ORDERED.
G.R. No. 82036 May 22, 1997
TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.

HERMOSISIMA, JR., J.:


The petition herein seeks the review and reversal of the decision 1 of respondent Court of
Appeals 2 affirming in totothe judgment 3 of the Regional Trial Court 4 in an action for
damages 5 filed by private respondent Vicente Mendoza, Jr. as heir of his mother who was
killed in a vehicular accident.
Before the trial court, the complainant lumped the erring taxicab driver, the owner of the
taxicab, and the alleged insurer of the vehicle which featured in the vehicular accident into
one complaint. The erring taxicab was allegedly covered by a third-party liability insurance
policy issued by petitioner Travellers Insurance & Surety Corporation.
The evidence presented before the trial court established the following facts:
At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the name of
Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral. While
walking along Tayuman corner Gregorio Perfecto Streets, she was bumped by a taxi that
was running fast. Several persons witnessed the accident, among whom were Rolando
Marvilla, Ernesto Lopez and Eulogio Tabalno. After the bumping, the old woman was seen
sprawled on the pavement. Right away, the good Samaritan that he was, Mavilla ran
towards the old woman and held her on his lap to inquire from her what had happened, but
obviously she was already in shock and could not talk. At this moment, a private jeep
stopped. With the driver of that vehicle, the two helped board the old woman on the jeep
and brought her to the Mary Johnston Hospital in Tondo.
. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil,
Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It was on his return trip
from Rizal Avenue when Lopez saw the plaintiff and his brother who were crying near the
scene of the accident. Upon learning that the two were the sons of the old woman, Lopez
told them what had happened. The Mendoza brothers were then able to trace their mother
at the Mary Johnston Hospital where they were advised by the attending physician that
they should bring the patient to the National Orthopedic Hospital because of her fractured
bones. Instead, the victim was brought to the U.S.T. Hospital where she expired at 9:00
o'clock that same morning. Death was caused by "traumatic shock" as a result of the severe
injuries she sustained . . .
. . . The evidence shows that at the moment the victim was bumped by the vehicle, the latter
was running fast, so much so that because of the strong impact the old woman was thrown
away and she fell on the pavement. . . . In truth, in that related criminal case against
defendant Dumlao . . . the trial court found as a fact that therein accused "was driving the
subject taxicab in a careless, reckless and imprudent manner and at a speed greater than
what was reasonable and proper without taking the necessary precaution to avoid accident
to persons . . . considering the condition of the traffic at the place at the time
aforementioned" . . . Moreover, the driver fled from the scene of the accident and without
rendering assistance to the victim. . . .
. . . Three (3) witnesses who were at the scene at the time identified the taxi involved, though
not necessarily the driver thereof. Marvilla saw a lone taxi speeding away just after the
bumping which, when it passed by him, said witness noticed to be a Lady Love Taxi with
Plate No. 438, painted maroon, with baggage bar attached on the baggage compartment and
with an antenae [sic] attached at the right rear side. The same descriptions were revealed
by Ernesto Lopez, who further described the taxi to have . . . reflectorized decorations on
the edges of the glass at the back . . . A third witness in the person of Eulogio Tabalno . . .
made similar descriptions although, because of the fast speed of the taxi, he was only able
to detect the last digit of the plate number which is "8". . . . [T]he police proceeded to the
garage of Lady Love Taxi and then and there they took possession of such a taxi and later
impounded it in the impounding area of the agency concerned. . . . [T]he eyewitnesses . . .
were unanimous in pointing to that Lady Love Taxi with Plate No. 438, obviously the vehicle
involved herein.
. . . During the investigation, defendant Armando Abellon, the registered owner of Lady
Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact "that the vehicle was
driven last July 20, 1980 by one Rodrigo Dumlao. . ." . . . It was on the basis of this affidavit
of the registered owner that caused the police to apprehend Rodrigo Dumlao, and
consequently to have him prosecuted and eventually convicted of the offense . . . . . . . [S]aid
Dumlao absconded in that criminal case, specially at the time of the promulgation of the
judgment therein so much so that he is now a fugitive from justice.6
Private respondent filed a complaint for damages against Armando Abellon as the owner of
the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped
private respondent's mother. Subsequently, private respondent amended his complaint to
include petitioner as the compulsory insurer of the said taxicab under Certificate of Cover
No. 1447785-3.
After trial, the trial court rendered judgment in favor of private respondent, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly
the "Heirs of the late Feliza Vineza de Mendoza," and against defendants Rodrigo Dumlao,
Armando Abellon and Travellers Insurance and Surety Corporation, by ordering the latter
to pay, jointly and severally, the former the following amounts:
(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the
rate of 12% per annum from October 17, 1980, when the complaint was filed, until the said
amount is fully paid;
(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages; and
(e) Another P10,000.00 by way of attorney's fees and other litigation expenses.
Defendants are further ordered to pay, jointly and severally, the costs of this suit.
SO ORDERED. 7
Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The
decision of the trial court was affirmed by respondent appellate court. Petitioner's Motion
for Reconsideration 8 of September 22, 1987 was denied in a Resolution 9 dated February 9,
1988.
Hence this petition.
Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer
of the Lady Love Taxi and that, assuming arguendo that it had indeed covered said taxicab
for third-party liability insurance, private respondent failed to file a written notice of claim
with petitioner as required by Section 384 of P.D. No. 612, otherwise known as the Insurance
Code.
We find the petition to be meritorious.
I
When private respondent filed his amended complaint to implead petitioner as party
defendant and therein alleged that petitioner was the third-party liability insurer of the
Lady Love taxicab that fatally hit private respondent's mother, private respondent did not
attach a copy of the insurance contract to the amended complaint. Private respondent does
not deny this omission.
It is significant to point out at this juncture that the right of a third person to sue the insurer
depends on whether the contract of insurance is intended to benefit third persons also or
only the insured.
[A] policy . . . whereby the insurer agreed to indemnify the insured "against all sums . . .
which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury
to any person . . . is one for indemnity against liability; from the fact then that the insured
is liable to the third person, such third person is entitled to sue the insurer.
The right of the person injured to sue the insurer of the party at fault (insured), depends on
whether the contract of insurance is intended to benefit third persons also or on the insured
And the test applied has been this: Where the contract provides for indemnity against
liability to third persons, then third persons to whom the insured is liable can sue the
insurer. Where the contract is for indemnity against actual loss or payment, then third
persons cannot proceed against the insurer, the contract being solely to reimburse the
insured for liability actually discharged by him thru payment to third persons, said third
persons' recourse being thus limited to the insured alone. 10
Since private respondent failed to attach a copy of the insurance contract to his complaint,
the trial court could not have been able to apprise itself of the real nature and pecuniary
limits of petitioner's liability. More importantly, the trial court could not have possibly
ascertained the right of private respondent as third person to sue petitioner as insurer of
the Lady Love taxicab because the trial court never saw nor read the insurance contract and
learned of its terms and conditions.
Petitioner, understandably, did not volunteer to present any insurance contract covering
the Lady Love taxicab that fatally hit private respondent's mother, considering that
petitioner precisely presented the defense of lack of insurance coverage before the trial
court. Neither did the trial court issue a subpoena duces tecum to have the insurance
contract produced before it under pain of contempt.
We thus find hardly a basis in the records for the trial court to have validly found petitioner
liable jointly and severally with the owner and the driver of the Lady Love taxicab, for
damages accruing to private respondent.
Apparently, the trial court did not distinguish between the private respondent's cause of
action against the owner and the driver of the Lady Love taxicab and his cause of action
against petitioner. The former is based on torts and quasi-delicts while the latter is based
on contract. Confusing these two sources of obligations as they arise from the same act of
the taxicab fatally hitting private respondent's mother, and in the face of overwhelming
evidence of the reckless imprudence of the driver of the Lady Love taxicab, the trial court
brushed aside its ignorance of the terms and conditions of the insurance contract and
forthwith found all three — the driver of the taxicab, the owner of the taxicab, and the
alleged insurer of the taxicab — jointly and severally liable for actual, moral and exemplary
damages as well as attorney's fees and litigation expenses. This is clearly a misapplication
of the law by the trial court, and respondent appellate court grievously erred in not having
reversed the trial court on this ground.
While it is true that where the insurance contract provides for indemnity against liability
to third persons, such third persons can directly sue the insurer, however, the direct liability
of the insurer under indemnity contracts against third-party liability does not mean that
the insurer can be held solidarily liable with the insured and/or the other parties found at
fault. The liability of the insurer is based on contract; that of the insured is based on tort. 11

Applying this principle underlying solidary obligation and insurance contracts, we ruled in
one case that:
In solidary obligation, the creditor may enforce the entire obligation against one of the
solidary debtors. On the other hand, insurance is defined as "a contract whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event."
In the case at bar, the trial court held petitioner together with respondents Sio Choy and
San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of
P29,103.00, with the qualification that petitioner's liability is only up to P20,000.00. In the
context of a solidary obligation, petitioner may be compelled by respondent Vallejos to pay
the entire obligation of P29,103.00, notwithstanding the qualification made by the trial
court. But, how can petitioner be obliged to pay the entire obligation when the amount
stated in its insurance policy with respondent Sio Choy for indemnity against third-party
liability is only P20,000.00? Moreover, the qualification made in the decision of the trial
court to the effect that petitioner is sentenced to pay up to P20,000.00 only when the
obligation to pay P29,103.00 is made solidary is an evident breach of the concept of a solidary
obligation. 12
The above principles take on more significance in the light of the counter-allegation of
petitioner that, assuming arguendo that it is the insurer of the Lady Love taxicab in
question, its liability is limited to only P50,000.00, this being its standard amount of
coverage in vehicle insurance policies. It bears repeating that no copy of the insurance
contract was ever proffered before the trial court by the private respondent, notwithstanding
knowledge of the fact that the latter's complaint against petitioner is one under a written
contract. Thus, the trial court proceeded to hold petitioner liable for an award of damages
exceeding its limited liability of P50,000.00. This only shows beyond doubt that the trial
court was under the erroneous presumption that petitioner could be found liable absent
proof of the contract and based merely on the proof of reckless imprudence on the part of
the driver of the Lady Love taxicab that fatally hit private respondent's mother.
II
Petitioner did not tire in arguing before the trial court and the respondent appellate court
that, assuming arguendo that it had issued the insurance contract over the Lady Love
taxicab, private respondent's cause of action against petitioner did not successfully accrue
because he failed to file with petitioner a written notice of claim within six (6) months from
the date of the accident as required by Section 384 of the Insurance Code.
At the time of the vehicular incident which resulted in the death of private respondent's
mother, during which time the Insurance Code had not yet been amended by Batas
Pambansa (B.P.) Blg. 874, Section 384 provided as follows:
Any person having any claim upon the policy issued pursuant to this chapter shall, without
any unnecessary delay, present to the insurance company concerned a written notice of
claim setting forth the amount of his loss, and/or the nature, extent and duration of the
injuries sustained as certified by a duly licensed physician. Notice of claim must be filed
within six months from date of the accident, otherwise, the claim shall be deemed waived.
Action or suit for recovery of damage due to loss or injury must be brought in proper cases,
with the Commission or the Courts within one year from date of accident, otherwise the
claimant's right of action shall prescribe [emphasis supplied].
In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, 13 we
ruled that the one year prescription period to bring suit in court against the insurer should
be counted from the time that the insurer rejects the written claim filed therewith by the
insured, the beneficiary or the third person interested under the insurance policy. We
explained:
It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code
as a cloak to hide itself from its liabilities. The facts of these cases evidently reflect the
deliberate efforts of petitioner company to prevent the filing of a formal action against it.
Bearing in mind that if it succeeds in doing so until one year lapses from the date of the
accident it could set up the defense of prescription, petitioner company made private
respondents believe that their claims would be settled in order that the latter will not find
it necessary to immediately bring suit. In violation of its duties to adopt and implement
reasonable standards for the prompt investigation of claims and to effectuate prompt, fair
and equitable settlement of claims, and with manifest bad faith, petitioner company devised
means and ways of stalling the settlement proceeding . . . [N]o steps were taken to process
the claim and no rejection of said claim was ever made even if private respondent had
already complied with all the requirements. . . .
This Court has made the observation that some insurance companies have been inventing
excuses to avoid their just obligations and it is only the State that can give the protection
which the insuring public needs from possible abuses of the insurers. 14
It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to
categorically provide that "action or suit for recovery of damage due to loss or injury must
be brought in proper cases, with the Commissioner or the Courts within one year from
denial of the claim, otherwise the claimant's right of action shall prescribe" [emphasis
ours]. 15
We have certainly ruled with consistency that the prescriptive period to bring suit in court
under an insurance policy, begins to run from the date of the insurer's rejection of the claim
filed by the insured, the beneficiary or any person claiming under an insurance contract.
This ruling is premised upon the compliance by the persons suing under an insurance
contract, with the indispensable requirement of having filed the written claim mandated by
Section 384 of the insurance Code before and after its amendment. Absent such written
claim filed by the person suing under an insurance contract, no cause of action accrues under
such insurance contract, considering that it is the rejection of that claim that triggers the
running of the one-year prescriptive period to bring suit in court, and there can be no
opportunity for the insurer to even reject a claim if none has been filed in the first place, as
in the instant case.
The one-year period should instead be counted from the date of rejection by the insurer as
this is the time when the cause of action accrues. . . .
In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:
The plaintiff's cause of action did not accrue until his claim was finally rejected by the
insurance company. This is because, before such final rejection, there was no real necessity
for bringing suit.
The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. Alpha
Insurance and Surety Co., viz:
Since a cause of action requires, as essential elements, not only a legal right of the plaintiff
and a correlative obligation of the defendant but also an act or omission of the defendant in
violation of said legal right, the cause of action does not accrue until the party obligated
refuses, expressly or impliedly, to comply with its duty. 16
When petitioner asseverates, thus, that no written claim was filed by private respondent
and rejected by petitioner, and private respondent does not dispute such asseveration
through a denial in his pleadings, we are constrained to rule that respondent appellate court
committed reversible error in finding petitioner liable under an insurance contract the
existence of which had not at all been proven in court. Even if there were such a contract,
private respondent's cause of action can not prevail because he failed to file the written
claim mandated by Section 384 of the Insurance Code. He is deemed, under this legal
provision, to have waived his rights as against petitioner-insurer.
WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 09416 and the decision of the Regional Trial Court in Civil Case
No. 135486 are REVERSED and SET ASIDE insofar as Travelers Insurance & Surety
Corporation was found jointly and severally liable to pay actual, moral and exemplary
damages, death indemnity, attorney's fees and litigation expenses in Civil Case No. 135486.
The complaint against Travellers Insurance & Surety Corporation in said case is hereby
ordered dismissed.
No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
G.R. No. 193426 September 29, 2014
SUBIC BAY LEGEND RESORTS AND CASINOS, INC., Petitioner,
vs.
BERNARD C. FERNANDEZ, Respondent.
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari1 assails the April 27, 2010 Decision2 and August 24,
2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 91758, entitled "Bernard
C. Fernandez, Plaintiff-Appellee, versus Subic Bay Legend Resorts and Casinos, Inc.,
Defendant-Appellant," which affirmed in toto the May 17, 2006 Decision 4 of the Regional
Trial Court (RTC) of Olongapo City, Branch 74, in Civil Case No. 237-0-97.
Factual Antecedents
Petitioner Subic Bay Legend Resorts ¥d Casinos, Inc., a duly organized and e)(isting
corporation operating under Philippine laws, operates the Legenda Hotel and Casino
(Legenda) located in the Subic Bay Freeport Zone in Zambales. On the other hand,
respondent Bernard C. Fernandez is the plaintiff in Civil Case No. 237-0-97 prosecuted
against petitioner in Olongapo RTC.
As determined by the CA, the facts of the case are as follows:
At around eleven o'clock in the evening of 6 June 1997, the appellee's 5 brother[,] Ludwin
Fernandez[,] visited the Legenda Hotel and Casino x x x owned and operated by the
appellant6 and located along the Waterfront Road, Subic Bay Freep011 Zone. Legenda had
strategically installed several closedcircuit television (CCTV) cameras as part of security
measures required by its business. The monitors revealed that Ludwin changed x x x
$5,000.00 w011h of chips into smaller denominations. Legenda admitted in its brief that its
surveillance staff paid close attention to Ludwin simply because it was "wmsual" for a
Filipino to play using dollar-denominated chips. After Ludwin won $200.00 in a game of
baccarat, he redeemed the value of chips worth $7,200.00. A review of the CCTV recordings
showed that the incident was not the first time Ludwin visited the Casino, as he had also
been there on 5 June 1997.
An operation was launched by Legenda to zero-in on Ludwin whose picture was furnished
its security section. Thus, unbeknownst to him, he was already closely watched on 13 June
1997 when he went with another brother, Deoven[,] to the casino at around the same time
or at 11: 17 p.m. After playing (and losing $100.00) only one round of baccarat, the siblings
had their chips encashed at two separate windows. Since the cashiers were apprised of a
supposed irregularity, they "froze" the transaction.
Shortly thereafter, Legenda's internal security officers accosted Ludwin and Deoven and
ordered them to return the cash and they complied without ado because they were being
pulled away. The two were eventually escorted to private rooms where they were separately
interrogated about the source of the chips they brought. They were held for about seven
hours w1til the wee hours of the morning, without food or sleep. The ultimaturn was simple:
they confess that the chips were given by a certain employee, Michael Cabrera, or they
would not be released from questioning. The same line of questioning confronted them when
they were later twned-over for blotter preparation to the Intelligence and Investigation
Office of the Subic Bay Metropolitan Authority (IIO SBMA). Finally, the brothers succwnbed
to Legenda's instruction to execute a joint statement implicating Cabrera as the illegal
source of the chips. Due to hunger pangs and fatigue, they did not disown the statement
even when they subscribed the same before the prosecutor in whose office they were [later]
brought. On the other hand, they signed for basically the san1e reason a document
purporting to show that they were "released to [their] brother's custody in good condition."
At the time, Deoven was about 21 years old, in his second year of engineering studies and
was not familiar with the so-called "estafa" with which the security personnel threatened to
sue him for; although he was quite aware of the consequences of a crime such as direct
assault because he had previously been convicted thereof. About two weeks later, Deoven
exec ted a retraction in Baguio City where he took up his engineering course.7
On July 1, 1997, respondent filed Civil Case No. 237-0-97 for recovery of sum of money with
damages against petitioner, on the premise that on June 13, 1997, he went to Legenda with
his brothers Ludwin and Deoven; that he handed over Legenda casino chips worth
US$6,000.00, which belonged to him, to his brothers for the latter to use at the casino; that
petitioner accosted his brothers and unduly and illegally confiscated his casino chips
equivalent to US$5,900.00; and that petitioner refused and continues to refuse to return the
same to him despite demand. His Complaint8 prayed for the return of the casino chips and
an award of ₱50,000.00 moral damages, ₱50,000.00 exemplary damages, ₱30,000.00
attorney's fees, ₱20,000.00 litigation expenses, and costs.
Petitioner's Answer with Compulsory Counterclaim9 essentially alleged that right after
Ludwin and Deoven's transactions with the Legenda cashier were frozen on June 13, 1997,
they voluntarily agreed to proceed to the Legenda security office upon invitation, where
Ludwin voluntarily informed security officers that it was a certain Michael Cabrera
(Cabrera) - a Legenda table inspector at the time - who gave him the casino chips for
encashment, taught him how to play baccarat and thereafter encash the chips, and
rewarded him with Pl,000.00 for every $1,000.00 he encashed; that Ludwin pointed to a
picture of Cabrera in a photo album of casino employees shown to him; that Ludwin and
Deoven were then brought to the IIO SBMA, where they reiterated their statements made
at the Legenda security office; that they volunteered to testify against Cabrera; that
respondent himself admitted that it was Cabrera who gave him the casino chips; that
Ludwin and Deoven voluntarily executed a joint affidavit before the Olongapo City
Prosecutor's Office, which they subsequently recanted; that respondent had no cause of
action since the confiscated casino chips worth US$5,900.00 were stolen from it, and thus it
has the right to retain them. By way of counterclaim, petitioner sought an award of P 1
million moral damages, ₱1 million exemplary damages, and P.5 million attorney's fees and
litigation expenses.
Respondent filed his Answer10 to petitioner's counterclaim.
Ruling of the Regional Trial Court
After pre-trial and trial, the trial court rendered its May 17, 2006 Decision, which decreed
as follows:
WHEREFORE, finding that the evidence preponderates in favor of the plaintiff, judgment
is rendered against the defendant ordering it to:
1) Return to plaintiff casino chips worth USD $5,900.00 or its equivalent in Philippine Peso
at the rate of ₱38.00 to USD $1 in 1997.
2) Pay plaintiff attorney's fees in the amount of ₱30,000.00 3) [Pay] [c]ost of this suit.
SO DECIDED.11
In arriving at the above conclusion, the trial court held:
The primordial issue is whether or not plaintiff can be considered the lawful owner of the
USD $5,900 worth of casino chips that were confiscated.
There is no dispute that the subject chips were in the possession of the plaintiff. He claims
he got hold of them as payment for car services he rendered to a Chinese individual.
Defendant however, contends that said chips were stolen from the casino and it is the lawful
owner of the same.
The onus fell on defendant to prove that the casino chips were stolen. The proof adduced
however, is wanting. The statements of Deoven and Ludwin C. Fernandez, confessing to the
source of the chips were recanted hence, have little probative value. The testimony of
defendant's witnesses narrated defendant's action responding to the suspicious movements
of the Fernandez brothers based on surveillance tapes. The tapes, however, do not show how
these persons got hold of the chips. The alleged source in the person of Mike Cabrera, a table
inspector of the casino[,] was based on the recanted declarations of the brothers. No criminal
charge was shown to have been filed against him nor the plaintiff and his brothers. Neither
was there an explanation given as to how those chips came into the possession of Mike
Cabrera much less that he passed them on to the brothers for the purpose of encashing and
dividing the proceeds amongst themselves. All told therefore, there is no direct evidence to
prove the theory of the defendant and the circumstantial evidence present is, to the mind of
the court, not sufficient to rebut the legal presw11ption that a person in possession of
personal property is the lawful owner of the same (Art. 559, Civil Code of the Philippines).12
Ruling of the Court of Appeals
Petitioner appealed the May 1 7, 2006 Decision of the trial court, arguing that Ludwin and
Deoven's admission in their joint affidavit before the Olongapo City Prosecutor's Office that
it was Cabrera who gave them the casino chips strongly indicates that the chips were stolen
from Legenda; that the subsequent recantation by Ludwin and Deoven of their joint
affidavit should be looked upon with disfavor, given that recanted testimony is unreliable
and recantations can be easily secured from poor and ignorant witnesses and for monetary
consideration or through intimidation; that respondent's explanation that he gave the chips
to his brothers Ludwin and Deoven for them to play in the casino is highly doubtful; that
the true purpose of Ludwin and Deoven was to encash the stolen chips; that no force or
intimidation attended the treatment accorded Ludwin and Deoven when they were accosted
and asked to explain their possession of the chips; and that the trial court erred in awarding
attorney's fees and costs for the filing of a baseless suit solely aimed at unjustly enriching
respondent at petitioner's expense.
On April 27, 2010, the CA issued the assailed Decision which affirmed the trial court's May
17, 2006 Decision. Petitioner's Motion for Reconsideration was rebuffed as well.
In deciding against petitioner, the CA held that, applying Article 559 of the Civil
Code,13 respondent had the legal presumption of title to or ownership of the casino chips.
This conclusion springs from respondent's admission during trial that the chips represented
payment by a Chinese customer for services he rendered to the latter in his car shop. The
CA added that since respondent became the owner of the chips, he could very well have
given them to Ludwin and Deoven, who likewise held them as "possessors in good faith and
for value" and with "presumptive title" derived from the respondent. On the other hand,
petitioner failed to convincingly show that the chips were stolen; for one, it did not even file
a criminal case against the supposed mastermind, Cabrera - nor did it charge Ludwin or
Deoven - for the alleged theft or taking of its chips.
The CA likewise held that Ludwin' s and Deoven' s statements and admissions at the
Legenda security office are inadmissible because they were obtained in violation of their
constitutional rights: they were held in duress, denied the right to counsel and the
opportunity to contact respondent, and deprived of sleep, which is one of the "more subtler
[sic] techniques of physical and psychological torture to coerce a confession."14 It found that
the actions and methods of the Legenda security personnel in detaining and extracting
confessions from Ludwin and Deoven were illegal and in gross violation of Ludwin's and
Deoven's constitutional rights.15
Finally, the CA held that petitioner was guilty of bad faith in advancing its theory and claim
against respondent by unduly accusing him of dealing in stolen casino chips, which thus
entitles respondent to the reduced award of attorney's fees in the amount of ₱30,000.00
Issues
Petitioner raises the following issues:
a) The Honorable Court seriously erred in ruling that the recanted statements of Deoven
Fernandez and Ludwin C. Fernandez have [no] probative value;
b) The Honorable Court seriously erred in ruling that the circumstantial evidence present
is not sufficient to rebut the legal presumption that a person in possession of personal
property is the lawful owner of the same;
c) The Honorable Court seriously erred in finding that the evidence preponderates in favor
of the herein respondent; [and]
d) The Honorable Court seriously erred in awarding attorney's fees and costs of suit I favor
of the respondent.16
Petitioner's Arguments
In its Petition and Reply,17 petitioner mainly argues that the assailed dispositions are
grounded entirely on speculation, and the inferences made are manifestly mistaken and
based on a misappreciation of the facts and law; that the CA failed to consider the
testimonial and documentary evidence it presented to prove the fact that the casino chips
were missing and were stolen by Cabrera, who thereafter gave them to respondent's
brothers, Ludwin and Deoven. Petitioner maintains that the presumption of title under
Article 559 cannot extend to respondent's brothers, who admitted during the investigation
at the Legenda security office and in their Joint Affidavit18 that the chips came from
Cabrera, and not responcient; that the subsequent Sworn Statement19 recanting the Joint
Affidavit should not be given credence, as affidavits of recantation can easily be secured -
which thus makes them unreliable; and that no duress attended the taking of the brothers'
Joint Affidavit, which was prepared by Henry Marzo of the Intelligence and Investigation
Office (IIO) of the Subic Bay Metropolitan Authority (SBMA).
Petitioner asserts that it is unbelievable that respondent would give US$6,000.00 worth of
casino chips to his brothers with which to play at the casino; that with the attending
circumstances, the true intention of respondent's brothers was to encash the stolen chips
which Cabrera handed to them, and not to play at the casino. Petitioner thus concludes that
no coercion could have attended the investigation of Ludwin and Deoven; that their
subsequent recantation should not be given weight; and that for suing on a baseless claim,
respondent is not entitled to attorney's fees and costs of litigation.
Petitioner thus prays for the reversal of the assailed dispositions and the corresponding
dismissal of Civil Case No. 237-0-97.
Respondent's Arguments
In his Comment,20 respondent generally echoes the pronouncement of the CA. He likewise
notes that petitioner has raised only questions of fact; that the Petition is being prosecuted
to delay the proceedings; that the trial and appellate courts are correct in finding that
petitioner failed to prove its case and show that the casino chips were stolen; that petitioner
failed to rebut the presumption that a person in possession of personal property is the lawful
owner of the same, pursuant to Article 559 of the Civil Code; and that the ₱30,000.00 award
of attorney's fees should be increased to ₱100,000.00.
Our Ruling
The Petition is denied.
Petitioner's underlying theory is that the subject casino chips were in fact stolen by its
employee Cabrera, then handed over to respondent's brothers, Ludwin and Deoven, for
encashment at the casino; that Ludwin and Deoven played at the casino only for show and
to conceal their true intention, which is to encash the chips; that respondent's claim that he
owned the chips, as they were given to him in payment of services he rendered to a Chinese
client, is false. These arguments require the Court to examine in greater detail the facts
involved. However, this may not be done because the Court is not a trier of facts and does
not normally undertake the re-examination of the evidence presented during trial; the
resolution of factual issues is the function of lower courts, whose findings thereon are
received with respect and are binding on the Court subject only to specific exceptions.21 In
tum, the factual findings of the Court of Appeals carry even more weight when they are
identical to those of the trial court's.22
Besides, a question of fact cannot properly be raised in a petition for review on
certiorari.23 Moreover, if petitioner should stick to its theory that Cabrera stole the subject
casino chips, then its failure to file a criminal case against the latter -including Ludwin and
Deoven for that matter - up to this point certainly does not help to convince the Court of its
position, especially considering that the supposed stolen chips represent a fairly large
amount of money. Indeed, for purposes of this proceeding, there appears to be no evidence
on record - other than mere allegations and suppositions - that Cabrera stole the casino
chips in question; such conclusion came unilaterally from petitioner, and for it to use the
same as foundation to the claim that Ludwin, Deoven and respondent are dealing in stolen
chips is clearly irregular and unfair.
Thus, there should be no basis to suppose that the casino chips found in Ludwin's and
Deoven's possession were stolen; petitioner acted arbitrarily in confiscating the same
without basis. Their Joint Affidavit - which was later recanted - does not even bear such
fact; it merely states that the chips came from Cabrera. If it cannot be proved, in the first
place, that Cabrera stole these chips, then there is no more reason to suppose that Ludwin
and Deoven were dealing in or possessed stolen goods; unless the independent fact that
Cabrera stole the chips can be proved, it cannot be said that they must be confiscated when
found to be in Ludwin's and Deoven's possession.
It is not even necessary to resolve whether Ludwin's and Deoven's Joint Affidavit was
obtained by duress or otherwise; the document is irrelevant to petitioner's cause, as it does
not suggest at all that Cabrera stole the subject casino chips. At most, it only shows that
Cabrera gave Ludwin and Deoven casino chips, if this fact is true at all - since such
statement has since been recanted.
The fact that Ludwin and Deoven appear to be indecisive as to who gave them the casino
chips does not help petitioner at all.1âwphi1 It cannot lead to the conclusion that Cabrera
stole the chips and then gave them to the two; as earlier stated, petitioner had to prove this
fact apart from Ludwin's and Deoven's claims, no matter how incredible they may seem.
Though casino chips do not constitute legal tender,24 there is no law which prohibits their
use or trade outside of the casino which issues them. In any case, it is not unusual – nor is
it unlikely – that respondent could be paid by his Chinese client at the former' s car shop
with the casino chips in question; said transaction, if not common, is nonetheless not
unlawful. These chips are paid for anyway; petitioner would not have parted with the same
if their corresponding representative equivalent - in legal tender, goodwill, or otherwise –
was not received by it in return or exchange. Given this premise - that casino chips are
considered to have been exchanged with their corresponding representative value - it is with
more reason that this Court should require petitioner to prove convincingly and
persuasively that the chips it confiscated from Ludwin and Deoven were indeed stolen from
it; if so, any Tom, Dick or Harry in possession of genuine casino chips is presumed to have
paid for their representative value in exchange therefor. If petitioner cannot prove its loss,
then Article 559 cannot apply; the presumption that the chips were exchanged for value
remains.
Finally, the Court sustains the award of attorney's fees. Under Article 2208 of the Civil
Code,25 attorney's fees may be recovered when the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim, or in any
other case where the court deems it just and equitable that attorney's fees and expenses of
litigation should be recovered. Petitioner's act of arbitrarily confiscating the casino chips
and treating Ludwin and Deoven the way it did, and in refusing to satisfy respondent's claim
despite the fact that it had no basis to withhold the chips, confirm its bad faith, and should
entitle respondent to an award.
With the foregoing view of the case, a discussion of the other issues raised is deemed
irrelevant and unnecessary.
WHEREFORE, the Petition is DENIED. The assailed April 27, 2010 Decision and August
24, 2010 Resolution of the Court of Appeals in CA-G.R. CV No. 91758 are AFFIRMED.
SO ORDERED.
G.R. No. 180069 March 5, 2014
PHILIPPINE COMMERCIAL INTERNATIONAL BANK (now BDO UNIBANK,
INC.), Petitioner,
vs.
ARTURO P. FRANCO, substituted by his heirs, namely: MAURICIA P. FRANCO,
FLORIBEL P. FRANCO, AND ALEXANDER P. FRANC0,1 Respondents.
DECISION
PERALTA, J.:
Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court are the
July 31, 2007 Decision2and October 4, 2007 Resolution3 of the Court of Appeals (CA) in CA-
G.R. CV No. 82340, which affirmed the October 21, 2003 Decision 4 of the Makati City
Regional Trial Court (RTC), Branch 61.
The pertinent facts, as narrated by the trial court and as adopted both by the CA, as well as
petitioner Philippine Commercial International Bank (Bank),5 are as follows:
This is an action for damages filed [on September 5, 2000] by plaintiff Arturo P. Franco
against Philippine Commercial International Bank (PCIB), now known as Equitable-
PCIBank, and Equitable Banking Corp.
The complaint essentially alleges, among others, that plaintiff secured from defendant PCIB
the following Trust Indenture Certificates:

Number Issued Maturity Amount Interest

094846 (Exh. "B") Dec. 8, 1986 Jan. 7, 1987 ₱100,000.00 8.75% p.a.

135928 (Exh. "C") Jan. 19, 1987 Feb. 18, 1987 ₱850,594.54 7.75% p.a.

205007 (Exh. "D") May 13, 1987 June 15, 1987 ₱500,000.00 8.50% p.a.

205146 (Exh. "E") July 15, 1987 Aug 14, 1987 ₱502,958.90 9.25% p.a.

that despite demands, defendants refused and still refuses to return to plaintiff the trust
amounts, plus the stipulated interest[;] that in all of the trust transactions that defendant
PCIB had entered into with the plaintiff, defendant PCIB represented to plaintiff that[,] in
making the trust investment, plaintiff was actually providing for his future since the money
invested was going to be managed and administered by their PCIB-Trust Services Group
and will be commingled, pooled and automatically rolled- over for better investment return;
that believing the representation of the bank, the plaintiff invested his lifetime savings in
the hope that the defendant bank will actually provide for their future by reinvesting and
rolling-over their investment automatically, without any need for the plaintiff to take any
further action; that on the few occasions that plaintiff had visited the defendant bank to
request for a status on his investments, bank officers would normally pull out his (sic) ledger
card and show plaintiff the updated amount due him; that sometime in 1995, plaintiff
discovered that one of his children had leukemia and[,] in the ensuing hospitalization and
treatment, plaintiff spent a lot of money; that because his funds were already exhausted,
plaintiff then turned to his Trust Indenture Certificates and started inquiring as to how he
could liquidate the trust; that in the beginning, defendant bank constantly asked for time
to look for his records, at one time [on June 18, 1998], promising to have an answer before
July 15, 1998, then writing plaintiff on May 18, 2000 saying that the bank [had] coordinated
with their Branch and Trust Department but that it might take [some time] to retrieve their
records; [and] that to plaintiff’s surprise, on June 22, 2000, he received a letter signed by
defendant’s counsel, Curato Divina & Partners, in effect denying plaintiff’s request for
payment by stating that due to the conversion of all outstanding PCIBank trust indenture
accounts into common trust certificates, all such PCIBank trust indenture certificates have
been rendered "null and void." Plaintiff prays for the payment of the amounts under the
Trust Indenture Certificates, plus interest, moral and exemplary damages and attorney’s
fees.
In their Answer, defendants admit the issuance by defendant PCIB of the Trust Indenture
Certificates subject matter of the complaint, but deny the allegation that the investments
subject of the Trust Indenture Certificates are automatically rolled-over as such certificates
have their own fixed term and maturity date, and that the present action had already
prescribed.
As stated in the Pre-Trial Order issued by this court on 15 February 2002, the following
issues were defined and agreed upon by the parties, to wit:
1. Whether or not the plaintiff is entitled to the relief he seeks; and
2. Whether or not the cause of action as exerted (sic) by the defendant has already
prescribed.
Plaintiff presented as its witness plaintiff Arturo P. Franco himself [who] testified, among
others[:] that he is the proprietor of Fair Marketing Freight Services[,] which is the investor
named in Trust Indenture Certificate 094846; that[,] in 1986, he decided to save up for his
retirement and to invest his hard earned money; that he was then 51 years old and his
choice was to deposit his funds with defendant PCIB which later on merged with defendant
Equitable Banking Corp. and is now known as Equitable PCIBank; that he chose defendant
PCIB for the latter’s representation that by making such investment, he was actually
providing for his future since his investment would be commingled, pooled and
automatically rolled-over for better investment return and which will provide for his needs
upon retirement, without need for him to take any further action; that he was a loyal client
of the defendants from 1986 up to 1997; that he entered into a trust agreement with
defendant PCIB for which the latter issued subject Trust Indenture Certificates ([TICs], for
brevity); that sometime in 1997, when he was then 62 years old, he [tried] to encash the
trust indenture certificates only to be given a run-around by the defendants; that sometime
in 1995, his son, Arthur, was diagnosed to be afflicted with leukemia and eventually died
on October 24, 1997; that because of his son’s illness, he was forced to go to defendants and
try to encash his trust indenture certificates but was denied by defendant bank; that in a
letter dated June 22, 2000, defendants, through their counsel, informed plaintiff that the
subject [TICs] are "null and void"; that when he received the letter of June 22, 2000, he was
at first speechless and totally defeated and at a loss; that he and his wife begun to experience
sleepless nights, became anxious because their hope to secure their life in their old age had
fallen apart[;] that instead of just enjoying a secured life with his wife and enjoying his
grandchildren and spending more time with the Lord, he was now in debt and burdened
with the fact that his lifetime savings just disappeared before his very eyes without a trace;
[and] that plaintiff was constrained to file this case and [spend] ₱22,117.80 in filing fees, to
engage the services of counsel for the amount of ₱50,000.00 with appearance fee of ₱3,000.00
per hearing, and that he suffered moral damages in the amount of ₱200,000.00.
The foregoing facts were not rebutted by defendants. The court finds the witness and his
testimony credible as the witness testified in a simple and straightforward manner. Upon
admission of plaintiff’s exhibits, plaintiff rested his case.
The defendants presented Cecilia P. Soriano and Antonio M. Fortuno as their witnesses.
Cecilia P. Soriano, Operations Officer of defendant Equitable-PCIBank, testified that she
came to know plaintiff in 1987 when she was assigned at PCIB Gil Puyat Branch; that
plaintiff was one of the bank’s valued clients[;] and that plaintiff secured the [TICs] subject
matter of the complaint. On cross-examination, the witness admitted that she has seen only
the photocopies of plaintiff’s [TICs]; that she had no direct dealing with plaintiff regarding
the [TICs] and she had no idea what happened to plaintiff’s [TICs] after their respective
maturity dates; [and] that valued clients of the bank were given special privileges, such as
allowing these clients to withdraw or encash [TICs] or investments over the phone[,] but
she did not receive any call from plaintiff withdrawing or encashing the plaintiff’s [TICs].
The testimony of their next witness, Antonio Martin S. Fortuno, was offered to prove, among
others, that [TICs] expired upon maturity and after which, they were automatically rolled-
over.
Antonio Martin S. Fortuno, Operations Officer of defendant Equitable-PCIBank, testified
that he is familiar with the Trust Indenture Certificates issued by defendant bank; that
when a client would like to secure a Trust Indenture Certificate from the bank, they would
ask the client, among others, to sign [roll-over] agreement/rules and regulations; that when
a client would like to withdraw his proceeds from the certificate upon maturity, they follow
the following steps: (1) they retrieve the old certificates from client, (2) they have [the] client
sign on the back portion of the certificate, (3) they prepare mode of payment – MC or credit
to other accounts, and (4) they file the paid certificate to paid/roll-over file; that if the holder
of a certificate does not withdraw the placement upon maturity, they replace the old
certificate with a new one; that if the client is at the branch, the old certificate is replaced
with a new certificate, have the client sign at the register copy, then stamp the old certificate
as Old Certificate-Stamp rolled-over/replaced; that if the client is not at the branch, they
replace the old certificate with a new certificate and stamped with rolled-over; that
certificates have fixed maturity dates; that interest rates stated in the certificates vary as
they go either up or down depending on the prevailing bank rates as provided by the Trust
Department; that[,] in 1992[,] all existing Trust Indenture Certificates were converted into
Common Trust Funds; [and] that he is not aware of any Trust Indenture Certificate
belonging to plaintiff which were converted into Common Trust Funds in 1992.
On cross-examination, the witness admitted that he is familiar with Trust Indenture
Certificates; that Trust Indenture Certificates have been converted into Common Trust
Funds; that the change is only in name because they have the same features and that the
only difference is that Common Trust Funds are classified into several product types
depending on the limit of the amount of investment; that there is nothing in the certificate
that says it has a roll-over feature; that, however, if the certificate expires and the client
does not claim or withdraw his funds or surrender the certificate, they roll-over the funds of
the client; that if a guest comes with the original Trust Indenture Certificate without any
stamp as being taken or cancelled, the bank should verify with the outstanding copy because
the bank should have an outstanding copy of
that Trust Indenture Certificate; that he is not aware that the Trust Indenture Certificates
of the plaintiff were verified with their records; and that he does not know whether plaintiff’s
Trust Indenture Certificates were actually paid out by the bank to plaintiff.
Defendants did not conduct any re-direct.6
On October 21, 2003, the RTC rendered a Decision, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor
of plaintiff and ordering defendant Philippine Commercial International Bank, now known
as Equitable-PCIBank, to pay plaintiff the following:
1. On the First Cause of Action, the sum of ₱100,000.00, plus the stipulated interest of 8.75%
per annum for the period December 8, 1986 to January 7, 1987, plus interest of 6% per
annum from January 8, 1987 until fully paid;
2. On the Second Cause of Action, the sum of ₱840,594.54, plus the stipulated interest of
7.75% per annum for the period January 19, 1987 to February 18, 1987, plus interest of 6%
per annum from February 19, 1987 until fully paid;
3. On the Third Cause of Action, the sum of ₱500,000.00, plus the stipulated interest of
8.50% per annum for the period May 13, 1987 to June 15, 1987, plus interest of 6% per
annum from June 16, 1987 until fully paid;
4. On the Fourth Cause of Action, the sum of ₱502,958.90, plus the stipulated interest of
9.25% per annum for the period July 15, 1987 to August 14, 1987, plus interest of 6% per
annum from August 15, 1987 until fully paid;
5. ₱50,000.00 as moral damages;
6. ₱200,000.00 as exemplary damages;
7. Attorney’s fees in the amount of ₱50,000.00, plus ₱3,000.00 for every hearing attended;
and
8. ₱22,117.80 as reimbursement for filing fees.
The case against Equitable Banking Corporation is dismissed for insufficiency of evidence.
SO ORDERED.7
Considering that the four TICs have not been replaced or cancelled, the RTC held that the
relationship of express trust between petitioner Bank and respondent still subsists at the
time the latter demanded the withdrawal of his funds under them. While the TICs contain
a maturity date, the court opined that the same refers only to the gross income expectation
or the applicable interest rate because the funds are automatically rolled-over with varying
interest rates depending on the prevailing interest rates as determined by petitioner’s Trust
Department. With respect, however, to the interest rate applicable after the stipulated
maturity dates, the court deemed it fair and reasonable to impose the legal rate of interest
for want of evidence on the prevailing rate at the time of roll-over. Finally, the court found
that petitioner Bank is in bad faith in its dealings with respondent when it unilaterally
declared – despite claiming that respondent was one of its valued clients – the TICs as null
and void by reason of their conversion to Common Trust Funds in 1991. The absence of good
faith was made more manifest when Fortuno testified that the trust indenture certificate
and common trust fund have the same features and the only difference is in the name and
classification of the amount of investment.
On appeal, the CA affirmed the RTC ruling. According to the appellate court, Soriano could
not have possibly known if respondent indeed withdrew any or all of his participation in the
subject TICS, because by her very own admission during the cross-examination, she did not
have any direct dealing with him with respect to the TICs at the time they matured or even
thereafter. Likewise, petitioner Bank failed to adduce any documentary evidence to
establish the alleged fact that the four TICs were already paid or cancelled, or that
respondent’s participation therein was already withdrawn. Further, respondent’s testimony
that he gave verbal instructions to petitioner Bank to roll-over his investment upon their
maturity was bolstered by Fortuno’s admission in open court that it has been petitioner
Bank’s practice to roll-over investments which remain unclaimed after their maturity even
without instruction from their owners. With all these findings, the CA concluded that the
claim of respondent is not yet barred by prescription, since the maturity dates of the four
TICs did not terminate the express trust created between the parties.
A motion for reconsideration was filed by petitioner, but the CA acted unfavorably; hence,
this petition.
We deny.
Upon perusal of the entire case records, the Court finds no reversible error committed by
the CA in sustaining the RTC Decision. Considering the evidence at hand, both courts have
applied the law in accordance with the facts of the case.
A quick point, however, on the issue of alleged payment by petitioner Bank on the subject
trust certificate indentures.
Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of
proving it.8 Even where the plaintiff must allege non-payment, the general rule is that the
burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-
payment.9 When the creditor is in possession of the document of credit, he need not prove
non-payment for it is presumed.10 The creditor's possession of the evidence of debt is proof
that the debt has not been discharged by payment.11
In this case, respondent's possession of the original copies of the subject TICs strongly
supports his claim that petitioner Bank's obligation to return the principal plus interest of
the money placement has not been extinguished. The TICs in the hands of respondent is a
proof of indebtedness and a prima facie evidence that they have not been paid. Petitioner
Bank could have easily presented documentary evidence to dispute the claim, but it did not.
In its omission, it may be reasonably deduced that no evidence to that effect really exist.
Worse, the testimonies of petitioner Bank's own witnesses, reinforce, rather than belie,
respondent's allegations of non-payment.
WHEREFORE, premises considered, the instant Petition is DENIED. The July 31, 2007
Decision and October 4, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 82340,
which affirmed the October 21, 2003 Decision of the Makati City Regional Trial Court,
Branch 61, are AFFIRMED.
SO ORDERED.
SECOND DIVISION
G.R. No. 171298 April 15, 2013
SPOUSES OSCAR and THELMA CACAYORIN, Petitioners,
vs.
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, INC., Respondent.
DECISION
DEL CASTILLO, J.:
Consignation is necessarily judicial. Article 1258 of the Civil Code specifically provides that
consignation shall be made by depositing the thing or things due at the disposal of judicial
authority. The said provision clearly precludes consignation in venues other than the courts.
Assailed in this Petition for Review on Certiorari1 are the September 29, 2005 Decision2 of
the Court of Appeals (CA) which granted the Petition for Certiorari in CA-G.R. SP No. 84446
and its January 12, 2006 Resolution3denying petitioners' Motion for Reconsideration.4
Factual Antecedents
Petitioner Oscar Cacayorin (Oscar) is a member of respondent Armed Forces and Police
Mutual Benefit Association, Inc. (AFPMBAI), a mutual benefit association duly organized
and existing under Philippine laws and engaged in the business of developing low-cost
housing projects for personnel of the Armed Forces of the Philippines, Philippine National
Police, Bureau of Fire Protection, Bureau of Jail Management and Penology, and Philippine
Coast Guard. He filed an application with AFPMBAI to purchase a piece of property which
the latter owned, specifically Lot 5, Block 8, Phase I, Kalikasan Mutual Homes, San Pedro,
Puerto Princesa City (the property), through a loan facility.
On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one hand, and the
Rural Bank of San Teodoro (the Rural Bank) on the other, executed a Loan and Mortgage
Agreement5 with the former as borrowers and the Rural Bank as lender, under the auspices
of Pag-IBIG or Home Development Mutual Fund’s Home Financing Program.
The Rural Bank issued an August 22, 1994 letter of guaranty 6 informing AFPMBAI that
the proceeds of petitioners’ approved loan in the amount of ₱77,418.00 shall be released to
AFPMBAI after title to the property is transferred in petitioners’ name and after the
registration and annotation of the parties’ mortgage agreement.
On the basis of the Rural Bank’s letter of guaranty, AFPMBAI executed in petitioners’ favor
a Deed of Absolute Sale,7 and a new title – Transfer Certificate of Title No. 370178 (TCT No.
37017) – was issued in their name, with the corresponding annotation of their mortgage
agreement with the Rural Bank, under Entry No. 3364.9
Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed
and was placed under receivership by the Philippine Deposit Insurance Corporation (PDIC).
Meanwhile, AFPMBAI somehow was able to take possession of petitioners’ loan documents
and TCT No. 37017, while petitioners were unable to pay the loan/consideration for the
property.
AFPMBAI made oral and written demands for petitioners to pay the loan/ consideration for
the property.10
In July 2003, petitioners filed a Complaint11 for consignation of loan payment, recovery of
title and cancellation of mortgage annotation against AFPMBAI, PDIC and the Register of
Deeds of Puerto Princesa City. The case was docketed as Civil Case No. 3812 and raffled to
Branch 47 of the Regional Trial Court (RTC) of Puerto Princesa City (Puerto Princesa RTC).
Petitioners alleged in their Complaint that as a result of the Rural Bank’s closure and
PDIC’s claim that their loan papers could not be located, they were left in a quandary as to
where they should tender full payment of the loan and how to secure cancellation of the
mortgage annotation on TCT No. 37017. Petitioners prayed, thus:
a. That after the filing of this complaint an order be made allowing the consignation x x x of
Php77,418.00.
b. For the court to compute and declare the amount of interest to be paid by the plaintiffs
and thereafter to allow the consignation of the interest payments in order to give way for
the full discharge of the loan.
c. To order the AFPMBAI to turn over to the custody of the court the loan records and title
(T.C.T. No. 37017) of the plaintiffs if the same are in their possession.
d. To declare the full payment of the principal loan and interest and ordering the full
discharge from mortgage of the property covered by T.C.T. No. 37017.
e. To order the Register of Deeds of Puerto Princesa City to cancel the annotation of real
estate mortgage under Entry No. 3364 at the back of T.C.T. No. 37017.
f. Thereafter, to turn over to the plaintiffs their title free from the aforesaid mortgage loan.12
AFPMBAI filed a Motion to Dismiss13 claiming that petitioners’ Complaint falls within the
jurisdiction of the Housing and Land Use Regulatory Board (HLURB) and not the Puerto
Princesa RTC, as it was filed by petitioners in their capacity as buyers of a subdivision lot
and it prays for specific performance of contractual and legal obligations decreed under
Presidential Decree No. 95714 (PD 957). It added that since no prior valid tender of payment
was made by petitioners, the consignation case was fatally defective and susceptible to
dismissal.
Ruling of the Regional Trial Court
In an October 16, 2003 Order,15 the trial court denied AFPMBAI’s Motion to Dismiss,
declaring that since title has been transferred in the name of petitioners and the action
involves consignation of loan payments, it possessed jurisdiction to continue with the case.
It further held that the only remaining unsettled transaction is between petitioners and
PDIC as the appointed receiver of the Rural Bank.
AFPMBAI filed a Motion for Reconsideration,16 which the trial court denied in its March 19,
2004 Order.17
Ruling of the Court of Appeals
AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a Petition for Certiorari18 raising
the issue of jurisdiction. On September 29, 2005, the CA rendered the assailed Decision
decreeing as follows:
WHEREFORE, premises considered, this Petition is GRANTED. The Assailed 16 October
2003 and 19 March 2004 Orders of the public respondent judge are hereby ordered
VACATED and SET ASIDE.
SO ORDERED.19
The CA held that Civil Case No. 3812 is a case for specific performance of AFPMBAI’s
contractual and statutory obligations as owner/developer of Kalikasan Mutual Homes,
which makes PD 957 applicable and thus places the case within the jurisdiction of the
HLURB. It said that since one of the remedies prayed for is the delivery to petitioners of
TCT No. 37017, the case is cognizable exclusively by the HLURB.
Petitioners moved for reconsideration which was denied by the CA in its January 12, 2006
Resolution.
Hence, the instant Petition.
Issue
The sole issue that must be resolved in this Petition is: Does the Complaint in Civil Case
No. 3812 fall within the exclusive jurisdiction of the HLURB?
Petitioners’ Arguments
Petitioners assert that the elements which make up a valid case for consignation are present
in their Complaint. They add that since a deed of absolute sale has been issued in their
favor, and possession of the property has been surrendered to them, not to mention that
title has been placed in their name, the HLURB lost jurisdiction over their case. And for
this same reason, petitioners argue that their case may not be said to be one for specific
performance of contractual and legal obligations under PD 957 as nothing more was left to
be done in order to perfect or consolidate their title.
Petitioners thus pray that the herein assailed Decision and Resolution of the CA be set
aside, and that the trial court be ordered to continue with the proceedings in Civil Case No.
3812.
Respondent's Arguments
Respondent, on the other hand, insists in its Comment20 that jurisdiction over petitioners’
case lies with the HLURB, as it springs from their contractual relation as seller and buyer,
respectively, of a subdivision lot. The prayer in petitioners’ Complaint involves the
surrender or delivery of the title after full payment of the purchase price, which respondent
claims are reciprocal obligations in a sale transaction covered by PD 957. Respondent adds
that in effect, petitioners are exacting specific performance from it, which places their case
within the jurisdiction of the HLURB.
Our Ruling
The Court grants the Petition.
The Complaint makes out a case for consignation.
The settled principle is that "the allegations of the Complaint determine the nature of the
action and consequently the jurisdiction of the courts. This rule applies whether or not the
plaintiff is entitled to recover upon all or some of the claims asserted therein as this is a
matter that can be resolved only after and as a result of the trial."21
Does the Complaint in Civil Case No. 3812 make out a case for consignation? It alleges that:
6.0 – Not long after however, RBST22 closed shop and defendant Philippine Deposit
Insurance Corporation (PDIC) was appointed as its receiver. The plaintiffs, through a
representative, made a verbal inquiry to the PDIC regarding the payment of their loan but
were told that it has no information or record of the said loan. This made [sic] the plaintiffs
in quandary as to where or whom they will pay their loan, which they intend to pay in full,
so as to cancel the annotation of mortgage in their title.
7.0 – It was discovered that the loan papers of the plaintiffs, including the duplicate original
of their title, were in the possession of defendant AFPMBAI. It was unclear though why the
said documents including the title were in the possession of AFPMBAI. These papers should
have been in RBST’s possession and given to PDIC after its closure in the latter’s capacity
as receiver.
8.0 – Plaintiffs are now intending to pay in full their real estate loan but could not decide
where to pay the same because of RBST [sic] closure and PDIC’s failure to locate the loan
records and title. This court’s intervention is now needed in order to determine to [sic] where
or whom the loan should be paid.
9.0 – Plaintiffs hereby respectfully prays [sic] for this court to allow the deposit of the
amount of Php77,418.00 as full payment of their principal loan, excluding interest, pursuant
to the Loan and Mortgage Agreement on 4 July 1994.23
From the above allegations, it appears that the petitioners’ debt is outstanding; that the
Rural Bank’s receiver, PDIC, informed petitioners that it has no record of their loan even
as it took over the affairs of the Rural Bank, which on record is the petitioners’ creditor as
per the July 4, 1994 Loan and Mortgage Agreement; that one way or another, AFPMBAI
came into possession of the loan documents as well as TCT No. 37017; that petitioners are
ready to pay the loan in full; however, under the circumstances, they do not know which of
the two – the Rural Bank or AFPMBAI – should receive full payment of the purchase price,
or to whom tender of payment must validly be made.
Under Article 1256 of the Civil Code,24 the debtor shall be released from responsibility by
the consignation of the thing or sum due, without need of prior tender of payment, when the
creditor is absent or unknown, or when he is incapacitated to receive the payment at the
time it is due, or when two or more persons claim the same right to collect, or when the title
to the obligation has been lost. Applying Article 1256 to the petitioners’ case as shaped by
the allegations in their Complaint, the Court finds that a case for consignation has been
made out, as it now appears that there are two entities which petitioners must deal with in
order to fully secure their title to the property: 1) the Rural Bank (through PDIC), which is
the apparent creditor under the July 4, 1994 Loan and Mortgage Agreement; and 2)
AFPMBAI, which is currently in possession of the loan documents and the certificate of title,
and the one making demands upon petitioners to pay. Clearly, the allegations in the
Complaint present a situation where the creditor is unknown, or that two or more entities
appear to possess the same right to collect from petitioners. Whatever transpired between
the Rural Bank or PDIC and AFPMBAI in respect of petitioners’ loan account, if any, such
that AFPMBAI came into possession of the loan documents and TCT No. 37017, it appears
that petitioners were not informed thereof, nor made privy thereto.
Indeed, the instant case presents a unique situation where the buyer, through no fault of
his own, was able to obtain title to real property in his name even before he could pay the
purchase price in full. There appears to be no vitiated consent, nor is there any other
impediment to the consummation of their agreement, just as it appears that it would be to
the best interests of all parties to the sale that it be once and for all completed and
terminated. For this reason, Civil Case No. 3812 should at this juncture be allowed to
proceed.
Moreover, petitioners’ position is buttressed by AFPMBAI’s own admission in its
Comment25 that it made oral and written demands upon the former, which naturally
aggravated their confusion as to who was their rightful creditor to whom payment should
be made – the Rural Bank or AFPMBAI. Its subsequent filing of the Motion to Dismiss runs
counter to its demands to pay. If it wanted to be paid with alacrity, then it should not have
moved to dismiss Civil Case No. 3812, which was brought precisely by the petitioners in
order to be able to finally settle their obligation in full.
Finally, the lack of prior tender of payment by the petitioners is not fatal to their
consignation case. They filed the case for the exact reason that they were at a loss as to
which between the two – the Rural Bank or AFPMBAI – was entitled to such a tender of
payment. Besides, as earlier stated, Article 1256 authorizes consignation alone, without
need of prior tender of payment, where the ground for consignation is that the creditor is
unknown, or does not appear at the place of payment; or is incapacitated to receive the
payment at the time it is due; or when, without just cause, he refuses to give a receipt; or
when two or more persons claim the same right to collect; or when the title of the obligation
has been lost.
Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the
HLURB.
On the question of jurisdiction, petitioners’ case should be tried in the Puerto Princesa RTC,
and not the HLURB. Consignation is necessarily judicial,26 as the Civil Code itself provides
that consignation shall be made by depositing the thing or things due at the disposal of
judicial authority, thus:
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof.
(Emphasis and underscoring supplied)
The above provision clearly precludes consignation in venues other than the
courts.1âwphi1 Elsewhere, what may be made is a valid tender of payment, but not
consignation. The two, however, are to be distinguished.
Tender of payment must be distinguished from consignation. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the principal, and
from which are derived the immediate consequences which the debtor desires or seeks to
obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial,
and the priority of the first is the attempt to make a private settlement before proceeding
to the solemnities of consignation. (8 Manresa 325).27
While it may be true that petitioners’ claim relates to the terms and conditions of the sale
of AFPMBAI’s subdivision lot, this is overshadowed by the fact that since the Complaint in
Civil Case No. 3812 pleads a case for consignation, the HLURB is without jurisdiction to try
it, as such case may only be tried by the regular courts.
WHEREFORE, premises considered, the Petition is GRANTED. The September 29, 2005
Decision and January 12, 2006 Resolution of the Court of Appeals in CA-G.R. SP No. 84446
are ANNULLED and SET ASIDE. The October 16, 2003 and March 19, 2004 Orders of the
Regional Trial Court of Puerto Princesa City, Branch 47, are REINSTATED, and the case
is REMANDED to the said court for continuation of the proceedings.
SO ORDERED.
SECOND DIVISION
G.R. No. 156627 June 4, 2004
SPOUSES MANUEL and JOCELYN BARREDO, petitioners,
vs.
SPOUSES EUSTAQUIO and EMILDA LEAÑO, respondents.
DECISION
PUNO, J.:
In resolving the case at bar, we hearken back to the time-honored principle in obligations
and contracts enunciated by this Court some 80 years ago in Song Fo & Co. v. Hawaiian
Philippine Co.1 that the rescission of contracts will not be permitted for a slight or casual
breach thereof.
The factual antecedents are undisputed. Sometime in 1979, petitioners spouses Manuel and
Jocelyn Barredo (Barredo Spouses) bought a house and lot located along Lilac Road, Pilar
Village, Las Piñas, Metro Manila, with the proceeds of a ₱50,000.00 loan from the Social
Security System (SSS) which was payable in 25 years and an ₱88,400.00 loan from the Apex
Mortgage and Loans Corporation (Apex) which was payable in 20 years. To secure the twin
loans, they executed a first mortgage over the house and lot in favor of SSS and a second
one in favor of Apex.
On July 10, 1987, the Barredo Spouses sold their house and lot to respondents Eustaquio
and Emilda Leaño (Leaño Spouses) by way of a Conditional Deed of Sale with Assumption
of Mortgage. The Leaño Spouses would pay the Barredo Spouses ₱200,000.00, ₱100,000.00
of which would be payable on July 15, 1987, while the balance of ₱100,000.00 would be paid
in ten (10) equal monthly installments after the signing of the contract. The Leaño Spouses
would also assume the first and second mortgages and pay the monthly amortizations to
SSS and Apex beginning July 1987 until both obligations are fully paid.
In accordance with the agreement, the purchase price of ₱200,000.00 was paid to the
Barredo Spouses who turned over the possession of the house and lot in favor of the Leaño
Spouses. Two (2) years later, on September 4, 1989, the Barredo Spouses initiated a
complaint before the Regional Trial Court of Las Piñas seeking the rescission of the contract
on the ground that the Leaño Spouses despite repeated demands failed to pay the mortgage
amortizations to the SSS and Apex causing the Barredo Spouses great and irreparable
damage. The Leaño Spouses, however, answered that they were up-to-date with their
amortization payments to Apex but were not able to pay the SSS amortizations because
their payments were refused upon the instructions of the Barredo Spouses.
Meanwhile, allegedly in order to save their good name, credit standing and reputation, the
Barredo Spouses took it upon themselves to settle the mortgage loans and paid the SSS the
sum of ₱27,494.00 on September 11, 1989, and ₱41,401.91 on January 9, 1990. The SSS
issued a Release of Real Estate Mortgage Loan on January 9, 1990. They also settled the
mortgage loan with Apex and paid the sum of ₱5,379.23 on October 3, 1989, and ₱64,000.00
on January 9, 1990. Likewise, Apex issued a Certification of Full Payment of Loan on
January 12, 1990. They also paid the real estate property taxes for the years 1987 up to
1990.
On October 5, 1993, the Regional Trial Court of Las Piñas, Br. 275,2 ruled that the
assumption of mortgage debts of the Barredo Spouses by the Leaño Spouses "is a very
substantial condition x x x x The credit standing of the (Barredo Spouses) will be greatly
prejudiced should they appear delinquent or not paying at all. This is what the (Barredo
Spouses) feared so much, if foreclosure proceedings are resorted to because of their failure
to pay their obligations."3 The trial court thus rendered judgment in favor of the plaintiff,
the Barredo Spouses –
WHEREFORE, and in consideration of the foregoing, by preponderance of evidence,
judgment is hereby rendered in favor of the plaintiffs and against the defendants by: (1)
declaring the Conditional Deed of Sale with Assumption of Mortgage entered into by the
plaintiffs and the defendants on July 10, 1987, as rescinded and therefore null and void as
of this date; (2) ordering the defendants jointly and severally to pay the sum of ₱15,000.00
as actual and litigation expenses, and the sum of ₱25,000.00 as and by way of attorney’s
fees; and (3) to pay the costs.
SO ORDERED.4
Aggrieved, the Leaño Spouses who have turned over the possession of the subject house and
lot to the Barredo Spouses appealed to the Court of Appeals. On May 21, 2002, the appellate
court reversed and set aside the decision of the trial court on the ground that the payments
of amortization to Apex and SSS were mere collateral matters which do not detract from the
condition of paying the principal consideration.5 The dispositive portion of the decision reads

WHEREFORE, the questioned decision of the Regional Trial Court of Las Piñas, Branch
275, is hereby REVERSED and SET ASIDE, and another one is entered DISMISSING the
complaint for lack of cause of action, and ordering plaintiff-appellees to:
a) execute the Deed of Absolute Sale and to deliver TCT No. S-104634 in favor of defendants-
appellants upon full payment of the amounts of ₱68,895.91, ₱69,379.23 and ₱2,217.60, or a
total of ₱140,492.74, subject to the legal rate of interest per annum from the time said
payments were made by plaintiffs-appellees until the same are fully paid;
b) to vacate and/or turn over the said property to defendants-appellants;
c) to pay attorney’s fees in the sum of ₱20,000.00 and
d) to pay the costs of litigation.
SO ORDERED.6
On December 10, 2002, the appellate court denied the motion for reconsideration for lack of
merit. Hence, this petition for review on certiorari on a sole assignment of error –
CONTRARY TO THE EXPRESS FINDINGS OF THE TRIAL COURT THAT THERE WAS
SUBSTANTIAL AND FUNDAMENTAL BREACH BY THE RESPONDENTS OF THEIR
RECIPROCAL OBLIGATIONS TO ASSUME AND PAY THE MORTGAGE OBLIGATION
OF PETITIONERS WITH THE SSS AND APEX, THE COURT OF APPEALS ERRED IN
HOLDING THAT THE PAYMENTS OF AMORTIZATION TO APEX AND SSS ARE MERE
COLLATERAL MATTERS AND DISMISSING PETITIONERS’ COMPLAINT FOR LACK
OF CAUSE OF ACTION.7
Petitioners argue that the terms of the agreement called for the strict compliance of two (2)
equally essential and material obligations on the part of the Leaño Spouses, namely, the
payment of the ₱200,000.00 to them and the payment of the mortgage amortizations to the
SSS and Apex. And, the Barredo Spouses undertook to execute the corresponding Deed of
Absolute Sale only upon the faithful compliance by the Leaño Spouses of the conditions set
forth in their agreement. Thus, the failure of the Leaño Spouses to pay the mortgage
amortizations to the SSS and Apex gave rise to the right of the Barredo Spouses to refrain
from executing the deed of sale and in fact ask for rescission, a right accorded to an injured
party.
Respondents Leaño Spouses, however, contend that they were only obliged to assume the
amortization payments of the Barredo Spouses with the SSS and Apex, which they did upon
signing the agreement. The contract does not stipulate as a condition the full payment of
the SSS and Apex mortgages. Granting for argument’s sake that their failure to pay in full
the mortgage was not a full compliance of their obligation, they could not be faulted because
their payments were not accepted by the SSS since the Barredo Spouses failed to notify the
SSS of the assignment of their debt. In fine, the alleged breach, if any, was only casual or
slight and does not defeat the very object of the parties in entering into the agreement.
Moreover, the Barredo Spouses were not and will never be injured parties since if the
amortizations were not paid, it would be the Leaño Spouses who would eventually lose the
house and lot. As such, rescission does not obtain.
We quote the pertinent provisions of the Conditional Deed of Sale with Assumption of
Mortgage –
1. ONE HUNDRED THOUSAND PESOS (₱100,000.00) Philippine Currency, shall be paid
by the VENDEES to the VENDORS on July 15, 1987.
2. The balance of ONE HUNDRED THOUSAND PESOS (₱100,000.00) Philippine Currency,
shall be paid by the VENDEES to the VENDORS in ten (10) equal monthly installments at
the VENDORS’ residence, after the signing of this Contract, consisting of ten (10) post-dated
checks drawn against the checking account of the VENDEES beginning August 1, 1987, and
the succeeding months x x x x until the amount is fully paid and the checks properly
encashed x x x x
3. The VENDEES do hereby accept this Sale and bind themselves to assume as they hereby
assume beginning on July 1, 1987, the payment of the unpaid balance of the First Mortgage
indebtedness of the VENDORS with the Social Security System as of June 1, 1987 x x x x
and another indebtedness of the VENDORS in a 2nd Mortgage with the Apex Mortgage and
Loans Corporation, as of June 1, 1987, x x x x and that the herein VENDEES do hereby
further agree to be bound by the precise terms and conditions therein contained.
4. That should the VENDEES well and faithfully comply with the conditions set forth in
this Contract, then the VENDORS shall execute the corresponding Absolute Deed of Sale
over the property herein conveyed with assumption of the mortgages aforecited, in favor of
the VENDEES herein.
A careful reading of the pertinent provisions of the agreement readily shows that the
principal object of the contract was the sale of the Barredo house and lot, for which the
Leaño Spouses gave a down payment of ₱100,000.00 as provided for in par. 1 of the contract,
and thereafter ten (10) equal monthly installments amounting to another ₱100,000.00, as
stipulated in par. 2 of the same agreement. The assumption of the mortgages by the Leaño
Spouses over the mortgaged property and their payment of amortizations are just collateral
matters which are natural consequences of the sale of the said mortgaged property.
Thus, par. 3 of the agreement provides that the Leaño Spouses "bind themselves to assume
as they hereby assume beginning on July 1, 1987, the payment of the unpaid balance x x x
x" Hence, the Leaño Spouses merely bound themselves to assume, which they actually did
upon the signing of the agreement, the obligations of the Barredo Spouses with the SSS and
Apex. Nowhere in the agreement was it stipulated that the sale was conditioned upon their
full payment of the loans with SSS and Apex. When the language of the contract is clear, it
requires no interpretation,8 and its terms should not be disturbed.9 The primary and
elementary rule of construction of documents is that when the words or language thereof is
clear and plain or readily understandable by any ordinary reader thereof, there is absolutely
no room for interpretation or construction anymore10 and the literal meaning of its
stipulations shall control.11
To include the full payment of the obligations with the SSS and Apex as a condition would
be to unnecessarily stretch and put a new meaning to the provisions of the agreement. For,
as a general rule, when the terms of an agreement have been reduced to writing, such
written agreement is deemed to contain all the terms agreed upon and there can be, between
the parties and their successors-in-interest, no evidence of such terms other than the
contents of the written agreement.12 And, it is a familiar doctrine in obligations and
contracts that the parties are bound by the stipulations, clauses, terms and conditions they
have agreed to, which is the law between them, the only limitation being that these
stipulations, clauses, terms and conditions are not contrary to law, morals, public order or
public policy.13 Not being repugnant to any legal proscription, the agreement entered into
by the parties must be respected and each is bound to fulfill what has been expressly
stipulated therein.14
But even if we consider the payment of the mortgage amortizations to the SSS and Apex as
a condition on which the sale is based on, still rescission would not be available since non-
compliance with such condition would just be a minor or casual breach thereof as it does not
defeat the very object of the parties in entering into the contract. A cursory reading of the
agreement easily reveals that the main consideration of the sale is the payment of
₱200,000.00 to the vendors within the period agreed upon. The assumption of mortgage by
the Leaño Spouses is a natural consequence of their buying a mortgaged property. In fact,
the Barredo Spouses do not stand to benefit from the payment of the amortizations by the
Leaño Spouses directly to the SSS and Apex simply because the Barredo Spouses have
already parted with their property, for which they were already fully compensated in the
amount of ₱200,000.00.
Thus, as adverted to in Song Fo & Co. v. Hawaiian Philippine Co.,15 we ruled that a delay
in the payment for a small quantity of molasses for some twenty (20) days is not such a
violation of an essential condition of the contract that warrants rescission due to non-
performance. In Philippine Amusement Enterprise, Inc. v. Natividad, 16 we declined
rescission for "the occasional failure of the phonograph to operate, not frequent enough to
render it unsuitable and unserviceable." In Laforteza v. Machuca,17 we said that the delay
of one month in payment was a mere casual breach that would not entitle the respondents
to rescind the contract. In Ang v. Court of Appeals,18we held that the failure to remove and
clear the subject property of all occupants and obstructions and deliver all the pertinent
papers to the vendees for the registration and issuance of a certificate of title in their name
were not essential conditions but merely incidental undertakings which will not permit
rescission. In Power Commercial and Industrial Corp. v. Court of Appeals,19 we went a step
further and considered the failure of the vendor to eject the occupants of a lot sold as a
"usual warranty against eviction," and not a condition that was not met, and thus, rescission
was not allowed. And, in Del Castillo v. Nanguiat,20 we ruled that the failure to pay in full
the purchase price stipulated in a deed of sale does not ipso facto grant the seller the right
to rescind the agreement. In all these cases, we were consistent in holding that rescission of
a contract will not be permitted for a slight or casual breach, but only such substantial and
fundamental breach as would defeat the very object of the parties in making the agreement.
If the Barredo Spouses were really protective of their reputation and credit standing, they
should have sought the consent, or at least notified the SSS and Apex of the assumption by
the Leaño Spouses of their indebtedness. Besides, in ordering rescission, the trial court
should have likewise ordered the Barredo Spouses to return the ₱200,000.00 they received
as purchase price plus interests. Art. 1385 of the Civil Code provides that "[r]escission
creates the obligation to return the things which were the object of the contract, together
with their fruits, and the price with its interest."21 The vendor is therefore obliged to return
the purchase price paid to him by the buyer if the latter rescinds the sale. 22 Thus, where a
contract is rescinded, it is the duty of the court to require both parties to surrender that
which they have respectively received and place each other as far as practicable in his
original situation.23
IN VIEW WHEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 44009 promulgated May 21, 2002, and its Resolution therein dated December
10, 2002, are hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. 116792 March 29, 1996
BANK OF THE PHILIPPINES ISLAND and GRACE ROMERO, petitioners,
vs.
COURT OF APPEALS and EDVIN F. REYES, respondents.

PUNO, J.:p
Petitioners seek a review of the Decision1 of respondent Court of Appeals in CA-G.R. CV No.
41543 reversing the Decision2 of the Regional Trial Court of Quezon City, Branch 79, and
ordering petitioners to credit private respondent's Savings Account No. 3185-0172-56 with
P10,556,00 plus interest.
The facts reveal that on September 25, 1985, private respondent Edvin F. Reyes opened
Savings Account No. 3185-0172-56 at petitioner Bank of the Philippine Islands (BPI) Cubao,
Shopping Center Branch. It is a joint "AND/OR" account with his wife, Sonia S. Reyes.
Private respondent also held a joint "AND/OR" Savings Account No. 3185-0128-82 with his
grandmother, Emeteria M. Fernandez, opened on February 11, 1986 at the same BPI
branch. He regularly deposited in this account the U.S. Treasury Warrants payable to the
order of Emeteria M. Fernandez as her monthly pension.
Emeteria M. Fernandez died on December 28, 1989 without the knowledge of the U.S.
Treasury Department. She was still sent U.S. Treasury Warrant No. 21667302
dated January 1, 1990 in the amount of U.S. $377.003 or P10,556.00. On January 4, 1990,
private respondent deposited the said U.S. treasury check of Fernandez in Savings Account
No. 3185-0128-82. The U.S. Veterans Administration Office in Manila conditionally cleared
the check.4 The check was then sent to the United States for further clearing.5
Two months after or on March 8, 1990, private respondent closed Savings Account No. 3185-
0128-82 and transferred its funds amounting to P13,112.91 to Savings Account No. 3185-
0172-56, the joint account with his wife.
On January 16, 1991, U.S. Treasury Warrant No. 21667302 was dishonored as it was
discovered that Fernandez died three (3) days prior to its issuance. The U.S. Department of
Treasury requested petitioner bank for a refund.6For the first time petitioner bank came to
know of the death of Fernandez.
On February 19, 1991, private-respondent received a PT&T urgent telegram from petitioner
bank requesting him to contact Manager Grace S. Romero or Assistant Manager Carmen
Bernardo. When he called up the bank, he was informed that the treasury check was the
subject of a claim by Citibank NA, correspondent of petitioner bank. He assured petitioners
that he would drop by the bank to look into the matter. He also verbally authorized them to
debit from his other joint account the amount stated in the dishonored U.S. Treasury
Warrant.7 On the same day, petitioner bank debited the amount of P10,556.00 from private
respondent's Savings Account No. 3185-0172-56.
On February 21, 1991, private respondent with his lawyer Humphrey Tumaneng visited the
petitioner bank and the refund documents were shown to them. Surprisingly, private
respondent demanded from petitioner bank restitution of the debited amount. He claimed
that because of the debit, he failed to withdraw his money when he needed them. He then
filed a suit for Damages8 against petitioners before the Regional Trial Court of Quezon City,
Branch 79.
Petitioners contested the complaint and counter claimed, for moral and exemplary damages.
By way of Special and Affirmative Defense, they averred that private respondent gave them
his express verbal authorization to debit the questioned amount. They claimed that private
respondent later refused to execute a written authority.9
In a Decision dated January 20, 1993, the trial court dismissed the complaint of private
respondent for lack of cause of action.10
Private respondent appealed to the respondent Court of Appeals. On August 16, 1994, the
Sixteenth Division of respondent court in AC-G.R. CV No. 41543 reversed the impugned
decision, viz:
WHEREFORE, the judgement appealed from is set aside, and another one entered ordering
defendant (petitioner) to credit plaintiff's (private respondent's) S.A. No. 3185-0172-56 with
P10,556.00 plus interest at the applicable rates for express teller savings accounts from
February 19, 1991, until compliance herewith. The claim and counterclaim for damages are
dismissed for lack of merit.
SO ORDERED.11
Petitioners now contend that respondent Court of Appeals erred:
I
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
RESPONDENT REYES GAVE EXPRESS AUTHORITY TO PETITIONER BANK TO
DEBIT HIS JOINT ACCOUNT WITH HIS WIFE FOR THE VALUE OF THE RETURNED
U.S. TREASURY WARRANT.
II
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
PETITIONER BANK HAS LEGAL RIGHT TO APPLY THE DEPOSIT OF RESPONDENT
REYES TO HIS OUTSTANDING OBLIGATION TO PETITIONER BANK BROUGHT
ABOUT BY THE RETURN OF THE U.S. TREASURY WARRANT HE EARLIER
DEPOSITED UNDER THE PRINCIPLE OF "LEGAL COMPENSATION."
III
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING
CORRECTLY THE PRINCIPLES ENUNCIATED BY THE SUPREME COURT IN THE
CASE OF GULLAS V. PNB, 62 PHIL. 519.
IV.
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT APPRECIATING THE
FACT THAT THE MONEY DEBITED BY PETITIONER BANK WAS THE SAME MONEY
TRANSFERRED BY RESPONDENT REYES FROM HIS JOINT "AND/OR" ACCOUNT
WITH HIS GRANDMOTHER TO HIS JOINT "AND/OR" ACCOUNT WITH HIS WIFE.12
We find merit in the petition.
The first issue for resolution is whether private respondent verbally authorized petitioner
bank to debit his joint account with his wife for the amount of the returned U.S. Treasury
Warrant. We find that petitioners were able to prove this verbal authority by preponderance
of evidence. The testimonies of Bernardo and Romero deserve credence. Bernardo testified:
xxx xxx xxx
Q After that, what happened?
A . . . Dr. Reyes Called me up and I informed him about the return of the U.S. Treasury
Warrant and we are requested to reimburse for the amount.
Q What was his response if any?
A Don't you worry about it, there is no personal problem.
xxx xxx xxx
Q And so what was his response?
A He said that don' t you worry about.
xxx xxx xxx
Q You said that you asked him the advice and he did not answer, what advice are you
referring to?
A In our conversation, he promised me that he will give me written confirmation or
authorization.13
The conversation was promptly relayed to Romero who testified:
xxx xxx xxx
Q . . . Was there any opportunity where in said Mrs. Bernardo was able to convey to you the
contents of their conversation?
A This was immediately relayed to me as manager of the Bank of the Philippine Islands,
sir.
Q What, any was the content of her conversation, if you know?
A Mr. Reyes instructed Mrs. Bernardo to debit his account with the bank. His account was
maintained jointly with his wife then he promised to drop by to give us a written
confirmation, sir.
xxx xxx xxx
Q You said that you authorized the debiting of the account on February 19, 1991, is that
correct?
A I did not authorize, we merely followed the instruction of Mr. Reyes, sir.14
We are not disposed to believe private respondent's allegation that he did not give any verbal
authorization. His testimony is uncorroborated. Nor does he inspire credence. His past and
fraudulent conduct is an evidence against him.15 He concealed from petitioner bank the
death of Fernandez on December 28, 1989. 16As of that date, he knew that Fernandez was
no longer entitled to receive any pension. Nonetheless, he-still received the U.S. Treasury
Warrant of Fernandez, and on January 4, 1990 deposited the same in Savings Account No.
3185-0128-82. To pre-empt a refund, private respondent closed his joint account with
Fernandez (Savings Account No. 31-85-0128-82) on March 8, 1990 and transferred its
balance to his joint account with his wife (Savings Account No. 3185-0172-56). Worse,
private respondent declared under the penalties of perjury in the withdrawal slip 17 dated
March 8, 1990 that his co-depositor, Fernandez, is still living. By his acts, private
respondent has stripped himself of credibility.
More importantly, the respondent court erred when it failed to rule that legal compensation
is proper. Compensation shall take place when two persons, in their own right, are creditors
and debtors of each other.18 Article 1290 of the Civil Code provides that "when all the
requisites mentioned in Article 1279 are present, compensation takes effect by operation of
law, and extinguishes both debts to the concurrent amount, even though the creditors and
debtors are not aware of the compensation." Legal compensation operates even against the
will of the interested parties and even without the consent of them. 19 Since this
compensation takes place ipso jure, its effects arise on the very day on which all its
requisites concur. 20 When used as a defense, it retroacts to the date when its requisites are
fulfilled.21
Article 1279 states that in order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be
of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
The elements of legal compensation are all present in the case at bar. The obligors bound
principally are at the same time creditors of each other. Petitioner bank stands as a debtor
of the private respondent, a depositor. At the same time, said bank is the creditor of the
private respondent with respect to the dishonored U.S. Treasury Warrant which the latter
illegally transferred to his joint account. The debts involved consist of a sum of money. They
are due, liquidated, and demandable. They are not claimed by a third person.
It is true that the joint account of private respondent and his wife was debited in the case
at bar. We hold that the presence of private respondent's wife does not negate the element
of mutuality of parties, i.e., that they must be creditors and debtors of each other in their
own right. The wife of private respondent is not a party in the case at bar. She never asserted
any right to the debited U.S. Treasury Warrant. Indeed, the right of the petitioner bank to
make the debit is clear and cannot be doubted. To frustrate the application of legal
compensation on the ground that the parties are not all mutually obligated would result in
unjust enrichment on the part of the private respondent and his wife who herself out of
honesty has not objected to the debit. The rule as to mutuality is strictly applied at law. But
not in equity, where to allow the same would defeat a clear right or permit irremediable
injustice.22
In VIEW HEREOF, the Decision of respondent Court of Appeals in CA-G.R. CV No. 41543
dated August 16, 1994 is ANNULLED and SET ASIDE and the Decision of the trial court
in Civil Case No. Q-91-8451 dated January 20, 1993 is REINSTATED. Costs against private
respondent.
SECOND DIVISION
G.R. No. 151903 October 9, 2009
MANUEL GO CINCO and ARACELI S. GO CINCO, Petitioners,
vs.
COURT OF APPEALS, ESTER SERVACIO and MAASIN TRADERS LENDING
CORPORATION Respondents.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari1 filed by petitioners, spouses Manuel
and Araceli Go Cinco (collectively, the spouses Go Cinco), assailing the decision2 dated June
22, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 47578, as well as the
resolution3 dated January 25, 2002 denying the spouses Go Cinco’s motion for
reconsideration.
THE FACTUAL ANTECEDENTS
In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the
amount of ₱700,000.00 from respondent Maasin Traders Lending Corporation (MTLC). The
loan was evidenced by a promissory note dated December 11, 1987,4 and secured by a real
estate mortgage executed on December 15, 1987 over the spouses Go Cinco’s land and 4-
storey building located in Maasin, Southern Leyte.
Under the terms of the promissory note, the ₱700,000.00 loan was subject to a monthly
interest rate of 3% or 36% per annum and was payable within a term of 180 days or 6
months, renewable for another 180 days. As of July 16, 1989, Manuel’s outstanding
obligation with MTLC amounted to ₱1,071,256.66, which amount included the principal,
interest, and penalties.5
To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with
the Philippine National Bank, Maasin Branch (PNB or the bank) and offered as collateral
the same properties they previously mortgaged to MTLC. The PNB approved the loan
application for ₱1.3 Million6 through a letter dated July 8, 1989; the release of the amount,
however, was conditioned on the cancellation of the mortgage in favor of MTLC.
On July 16, 1989, Manuel went to the house of respondent Ester Servacio (Ester), MTLC’s
President, to inform her that there was money with the PNB for the payment of his loan
with MTLC. Ester then proceeded to the PNB to verify the information, but she claimed
that the bank’s officers informed her that Manuel had no pending loan application with
them. When she told Manuel of the bank’s response, Manuel assured her there was money
with the PNB and promised to execute a document that would allow her to collect the
proceeds of the PNB loan.
On July 20, 1989, Manuel executed a Special Power of Attorney7 (SPA) authorizing Ester to
collect the proceeds of his PNB loan. Ester again went to the bank to inquire about the
proceeds of the loan. This time, the bank’s officers confirmed the existence of the ₱1.3 Million
loan, but they required Ester to first sign a deed of release/cancellation of mortgage before
they could release the proceeds of the loan to her. Outraged that the spouses Go Cinco used
the same properties mortgaged to MTLC as collateral for the PNB loan, Ester refused to
sign the deed and did not collect the ₱1.3 Million loan proceeds.
As the MTLC loan was already due, Ester instituted foreclosure proceedings against the
spouses Go Cinco on July 24, 1989.
To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for
specific performance, damages, and preliminary injunction8 before the Regional Trial Court
(RTC), Branch 25, Maasin, Southern Leyte. The spouses Go Cinco alleged that foreclosure
of the mortgage was no longer proper as there had already been settlement of Manuel’s
obligation in favor of MTLC. They claimed that the assignment of the proceeds of the PNB
loan amounted to the payment of the MTLC loan. Ester’s refusal to sign the deed of
release/cancellation of mortgage and to collect the proceeds of the PNB loan were, to the
spouses Go Cinco, completely unjustified and entitled them to the payment of damages.
Ester countered these allegations by claiming that she had not been previously informed of
the spouses Go Cinco’s plan to obtain a loan from the PNB and to use the loan proceeds to
settle Manuel’s loan with MTLC. She claimed that she had no explicit agreement with
Manuel authorizing her to apply the proceeds of the PNB loan to Manuel’s loan with MTLC;
the SPA merely authorized her to collect the proceeds of the loan. She thus averred that it
was unfair for the spouses Go Cinco to require the release of the mortgage to MTLC when
no actual payment of the loan had been made.
In a decision dated August 16, 1994,9 the RTC ruled in favor of the spouses Go Cinco. The
trial court found that the evidence sufficiently established the existence of the PNB loan
whose proceeds were available to satisfy Manuel’s obligation with MTLC, and that Ester
unjustifiably refused to collect the amount. Creditors, it ruled, cannot unreasonably prevent
payment or performance of obligation to the damage and prejudice of debtors who may stand
liable for payment of higher interest rates.10 After finding MTLC and Ester liable for abuse
of rights, the RTC ordered the award of the following amounts to the spouses Go Cinco:
(a) P1,044,475.15 plus 535.63 per day hereafter, representing loss of savings on interest, by
way of actual or compensatory damages, if defendant corporation insists on the original 3%
monthly interest rate;
(b) P100,000.00 as unrealized profit;
(c) P1,000,000.00 as moral damages;
(d) P20,000.00 as exemplary damages;
(e) P22,000.00 as litigation expenses; and
(f) 10% of the total amount as attorney’s fees plus costs.11
Through an appeal with the CA, MTLC and Ester successfully secured a reversal of the
RTC’s decision. Unlike the trial court, the appellate court found it significant that there was
no explicit agreement between Ester and the spouses Go Cinco for the cancellation of the
MTLC mortgage in favor of PNB to facilitate the release and collection by Ester of the
proceeds of the PNB loan. The CA read the SPA as merely authorizing Ester to withdraw
the proceeds of the loan. As Manuel’s loan obligation with MTLC remained unpaid, the CA
ruled that no valid objection could be made to the institution of the foreclosure proceedings.
Accordingly, it dismissed the spouses Go Cinco’ complaint. From this dismissal, the spouses
Go Cinco filed the present appeal by certiorari.
THE PETITION
The spouses Go Cinco impute error on the part of the CA for its failure to consider their acts
as equivalent to payment that extinguished the MTLC loan; their act of applying for a loan
with the PNB was indicative of their good faith and honest intention to settle the loan with
MTLC. They contend that the creditors have the correlative duty to accept the payment.
The spouses Go Cinco charge MTLC and Ester with bad faith and ill-motive for unjustly
refusing to collect the proceeds of the loan and to execute the deed of release of mortgage.
They assert that Ester’s justifications for refusing the payment were flimsy excuses so she
could proceed with the foreclosure of the mortgaged properties that were worth more than
the amount due to MTLC. Thus, they conclude that the acts of MTLC and of Ester amount
to abuse of rights that warrants the award of damages in their (spouses Go Cinco’s) favor.
In refuting the claims of the spouses Go Cinco, MTLC and Ester raise the same arguments
they raised before the RTC and the CA. They claim that they were not aware of the loan
and the mortgage to PNB, and that there was no agreement that the proceeds of the PNB
loan were to be used to settle Manuel’s obligation with MTLC. Since the MTLC loan
remained unpaid, they insist that the institution of the foreclosure proceedings was proper.
Additionally, MTLC and Ester contend that the present petition raised questions of fact
that cannot be addressed in a Rule 45 petition.
THE COURT’S RULING
The Court finds the petition meritorious.
Preliminary Considerations
Our review of the records shows that there are no factual questions involved in this case;
the ultimate facts necessary for the resolution of the case already appear in the records. The
RTC and the CA decisions differed not so much on the findings of fact, but on the conclusions
derived from these factual findings. The correctness of the conclusions derived from factual
findings raises legal questions when the conclusions are so linked to, or are inextricably
intertwined with, the appreciation of the applicable law that the case requires, as in the
present case.12The petition raises the issue of whether the loan due the MTLC had been
extinguished; this is a question of law that this Court can fully address and settle in an
appeal by certiorari.
Payment as Mode of Extinguishing Obligations
Obligations are extinguished, among others, by payment or performance, 13 the mode most
relevant to the factual situation in the present case. Under Article 1232 of the Civil Code,
payment means not only the delivery of money but also the performance, in any other
manner, of an obligation. Article 1233 of the Civil Code states that "a debt shall not be
understood to have been paid unless the thing or service in which the obligation consists
has been completely delivered or rendered, as the case may be." In contracts of loan, the
debtor is expected to deliver the sum of money due the creditor. These provisions must be
read in relation with the other rules on payment under the Civil Code, 14 which rules
impliedly require acceptance by the creditor of the payment in order to extinguish an
obligation.
In the present case, Manuel sought to pay Ester by authorizing her, through an SPA, to
collect the proceeds of the PNB loan – an act that would have led to payment if Ester had
collected the loan proceeds as authorized. Admittedly, the delivery of the SPA was not,
strictly speaking, a delivery of the sum of money due to MTLC, and Ester could not be
compelled to accept it as payment based on Article 1233. Nonetheless, the SPA stood as an
authority to collect the proceeds of the already-approved PNB loan that, upon receipt by
Ester, would have constituted as payment of the MTLC loan.15 Had Ester presented the
SPA to the bank and signed the deed of release/cancellation of mortgage, the delivery of the
sum of money would have been effected and the obligation extinguished. 16 As the records
show, Ester refused to collect and allow the cancellation of the mortgage.
Under these facts, Manuel posits two things: first, that Ester’s refusal was based on
completely unjustifiable grounds; and second, that the refusal was equivalent to payment
that led to the extinguishment of the obligation.
a. Unjust Refusal to Accept Payment
After considering Ester’s arguments, we agree with Manuel that Ester’s refusal of the
payment was without basis.
Ester refused to accept the payment because the bank required her to first sign a deed of
release/cancellation of the mortgage before the proceeds of the PNB loan could be released.
As a prior mortgagee, she claimed that the spouses Go Cinco should have obtained her
consent before offering the properties already mortgaged to her as security for the PNB loan.
Moreover, Ester alleged that the SPA merely authorized her to collect the proceeds of the
loan; there was no explicit agreement that the MTLC loan would be paid out of the proceeds
of the PNB loan.
There is nothing legally objectionable in a mortgagor’s act of taking a second or subsequent
mortgage on a property already mortgaged; a subsequent mortgage is recognized as valid
by law and by commercial practice, subject to the prior rights of previous mortgages. Section
4, Rule 68 of the 1997 Rules of Civil Procedure on the disposition of the proceeds of sale after
foreclosure actually requires the payment of the proceeds to, among others, the junior
encumbrancers in the order of their priority.17 Under Article 2130 of the Civil Code, a
stipulation forbidding the owner from alienating the immovable mortgaged is considered
void. If the mortgagor-owner is allowed to convey the entirety of his interests in the
mortgaged property, reason dictates that the lesser right to encumber his property with
other liens must also be recognized. Ester, therefore, could not validly require the spouses
Go Cinco to first obtain her consent to the PNB loan and mortgage. Besides, with the
payment of the MTLC loan using the proceeds of the PNB loan, the mortgage in favor of the
MTLC would have naturally been cancelled.
We find it improbable for Ester to claim that there was no agreement to apply the proceeds
of the PNB loan to the MTLC loan. Beginning July 16, 1989, Manuel had already expressed
intent to pay his loan with MTLC and thus requested for an updated statement of account.
Given Manuel’s express intent of fully settling the MTLC loan and of paying through the
PNB loan he would secure (and in fact secured), we also cannot give credit to the claim that
the SPA only allowed Ester to collect the proceeds of the PNB loan, without giving her the
accompanying authority, although verbal, to apply these proceeds to the MTLC loan. Even
Ester’s actions belie her claim as she in fact even went to the PNB to collect the proceeds.
In sum, the surrounding circumstances of the case simply do not support Ester’s position.
b. Unjust Refusal Cannot be Equated to Payment
While Ester’s refusal was unjustified and unreasonable, we cannot agree with Manuel’s
position that this refusal had the effect of payment that extinguished his obligation to
MTLC. Article 1256 is clear and unequivocal on this point when it provides that –
ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without
just cause to accept it, the debtor shall be released from responsibility by the consignation
of the thing or sum due. [Emphasis supplied.]
In short, a refusal without just cause is not equivalent to payment; to have the effect of
payment and the consequent extinguishment of the obligation to pay, the law requires the
companion acts of tender of payment and consignation.
Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc.,18 is
the definitive act of offering the creditor what is due him or her, together with the demand
that the creditor accept the same. When a creditor refuses the debtor’s tender of payment,
the law allows the consignation of the thing or the sum due. Tender and consignation have
the effect of payment, as by consignation, the thing due is deposited and placed at the
disposal of the judicial authorities for the creditor to collect.19
A sad twist in this case for Manuel was that he could not avail of consignation to extinguish
his obligation to MTLC, as PNB would not release the proceeds of the loan unless and until
Ester had signed the deed of release/cancellation of mortgage, which she unjustly refused to
do. Hence, to compel Ester to accept the loan proceeds and to prevent their mortgaged
properties from being foreclosed, the spouses Go Cinco found it necessary to institute the
present case for specific performance and damages.
c. Effects of Unjust Refusal
Under these circumstances, we hold that while no completed tender of payment and
consignation took place sufficient to constitute payment, the spouses Go Cinco duly
established that they have legitimately secured a means of paying off their loan with MTLC;
they were only prevented from doing so by the unjust refusal of Ester to accept the proceeds
of the PNB loan through her refusal to execute the release of the mortgage on the properties
mortgaged to MTLC. In other words, MTLC and Ester in fact prevented the spouses Go
Cinco from the exercise of their right to secure payment of their loan. No reason exists under
this legal situation why we cannot compel MTLC and Ester: (1) to release the mortgage to
MTLC as a condition to the release of the proceeds of the PNB loan, upon PNB’s
acknowledgment that the proceeds of the loan are ready and shall forthwith be released;
and (2) to accept the proceeds, sufficient to cover the total amount of the loan to MTLC, as
payment for Manuel’s loan with MTLC.
We also find that under the circumstances, the spouses Go Cinco have undertaken, at the
very least, the equivalent of a tender of payment that cannot but have legal effect. Since
payment was available and was unjustifiably refused, justice and equity demand that the
spouses Go Cinco be freed from the obligation to pay interest on the outstanding amount
from the time the unjust refusal took place;20 they would not have been liable for any
interest from the time tender of payment was made if the payment had only been accepted.
Under Article 19 of the Civil Code, they should likewise be entitled to damages, as the unjust
refusal was effectively an abusive act contrary to the duty to act with honesty and good faith
in the exercise of rights and the fulfillment of duty.
For these reasons, we delete the amounts awarded by the RTC to the spouses Go Cinco
(₱1,044,475.15, plus ₱563.63 per month) representing loss of savings on interests for lack of
legal basis. These amounts were computed based on the difference in the interest rates
charged by the MTLC (36% per annum) and the PNB (17% to 18% per annum), from the
date of tender of payment up to the time of the promulgation of the RTC decision. The trial
court failed to consider the effects of a tender of payment and erroneously declared that
MTLC can charge interest at the rate of only 18% per annum – the same rate that PNB
charged, not the 36% interest rate that MTLC charged; the RTC awarded the difference in
the interest rates as actual damages.
As part of the actual and compensatory damages, the RTC also awarded ₱100,000.00 to the
spouses Go Cinco representing unrealized profits. Apparently, if the proceeds of the PNB
loan (₱1,203,685.17) had been applied to the MTLC loan (₱1,071,256.55), there would have
been a balance of ₱132,428.62 left, which amount the spouses Go Cinco could have invested
in their businesses that would have earned them a profit of at least ₱100,000.00.1avvphi1
We find no factual basis for this award. The spouses Go Cinco were unable to substantiate
the amount they claimed as unrealized profits; there was only their bare claim that the
excess could have been invested in their other businesses. Without more, this claim of
expected profits is at best speculative and cannot be the basis for a claim for damages. In
Lucas v. Spouses Royo,21 we declared that:
In determining actual damages, the Court cannot rely on speculation, conjecture or
guesswork as to the amount. Actual and compensatory damages are those recoverable
because of pecuniary loss in business, trade, property, profession, job or occupation and the
same must be sufficiently proved, otherwise, if the proof is flimsy and unsubstantiated, no
damages will be given. [Emphasis supplied.]
We agree, however, that there was basis for the award of moral and exemplary damages
and attorney’s fees.
Ester’s act of refusing payment was motivated by bad faith as evidenced by the utter lack
of substantial reasons to support it. Her unjust refusal, in her behalf and for the MTLC
which she represents, amounted to an abuse of rights; they acted in an oppressive manner
and, thus, are liable for moral and exemplary damages.22 We nevertheless reduce the
₱1,000,000.00 to ₱100,000.00 as the originally awarded amount for moral damages is plainly
excessive.
We affirm the grant of exemplary damages by way of example or correction for the public
good in light of the same reasons that justified the grant of moral damages.
As the spouses Go Cinco were compelled to litigate to protect their interests, they are
entitled to payment of 10% of the total amount of awarded damages as attorney’s fees and
expenses of litigation.
WHEREFORE, we GRANT the petitioners’ petition for review on certiorari, and REVERSE
the decision of June 22, 2001 of the Court of Appeals in CA-G.R. CV No. 47578, as well as
the resolution of January 25, 2002 that followed. We REINSTATE the decision dated August
16, 1994 of the Regional Trial Court, Branch 25, Maasin, Southern Leyte, with the following
MODIFICATIONS:
(1) The respondents are hereby directed to accept the proceeds of the spouses Go Cinco’s
PNB loan, if still available, and to consent to the release of the mortgage on the property
given as security for the loan upon PNB’s acknowledgment that the proceeds of the loan,
sufficient to cover the total indebtedness to respondent Maasin Traders Lending
Corporation computed as of June 20, 1989, shall forthwith be released;
(2) The award for loss of savings and unrealized profit is deleted;
(3) The award for moral damages is reduced to ₱100,000.00; and
(4) The awards for exemplary damages, attorney’s fees, and expenses of litigation are
retained.
The awards under (3) and (4) above shall be deducted from the amount of the outstanding
loan due the respondents as of June 20, 1989. Costs against the respondents.
SO ORDERED.
SECOND DIVISION
G.R. No. 172577 January 19, 2011
SOLEDAD DALTON,
vs.
Petitioner, FGR REALTY AND DEVELOPMENT CORPORATION, FELIX NG, NENITA
NG, and FLORA R. DAYRIT or FLORA REGNER, Respondents.
RESOLUTION
CARPIO, J.:
The Case
This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition
challenges the 9 November 2005 Decision2 and 10 April 2006 Resolution3 of the Court of
Appeals in CA-G.R. CV No. 76536. The Court of Appeals affirmed the 26 February 2002
Decision4 of the Regional Trial Court (RTC), Judicial Region 7, Branch 13, Cebu City, in
Civil Case No. CEB 4218.
The Facts
Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of
Rama Avenue and Velez Street in Cebu City. Petitioner Soledad Dalton (Dalton), Clemente
Sasam, Romulo Villalonga, Miguela Villarente, Aniceta Fuentes, Perla Pormento, Bonifacio
Cabajar, Carmencita Yuson, Angel Ponce, Pedro Regudo, Pedro Quebedo, Mary Cabanlit,
Marciana Encabo and Dolores Lim (Sasam, et al.) leased portions of the property.
In June 1985, Dayrit sold the property to respondent FGR Realty and Development
Corporation (FGR). In August 1985, Dayrit and FGR stopped accepting rental payments
because they wanted to terminate the lease agreements with Dalton and Sasam, et al.
In a complaint5 dated 11 September 1985, Dalton and Sasam, et al. consigned the rental
payments with the RTC. They failed to notify Dayrit and FGR about the consignation. In
motions dated 27 March 1987,6 10 November 1987,78 July 1988,8 and 28 November
1994,9 Dayrit and FGR withdrew the rental payments. In their motions, Dayrit and FGR
reserved the right to question the validity of the consignation.
Dayrit, FGR and Sasam, et al. entered into compromise agreements dated 25 March
199710 and 20 June 1997.11 In the compromise agreements, they agreed to abandon all
claims against each other. Dalton did not enter into a compromise agreement with Dayrit
and FGR.
The RTC’s Ruling
In its 26 February 2002 Decision, the RTC dismissed the 11 September 1985 complaint and
ordered Dalton to vacate the property. The RTC held that:
Soledad Dalton built a house which she initially used as a dwelling and store space. She
vacated the premises when her children got married. She transferred her residence near F.
Ramos Public Market, Cebu City.
She constructed the 20 feet by 20 feet floor area house sometime in 1973. The last monthly
rental was ₱69.00. When defendants refused to accept rental and demanded vacation of the
premises, she consignated [sic] her monthly rentals in court.
xxxx
It is very clear from the facts that there was no valid consignation made.
The requisites of consignation are as follows:
1. The existence of a valid debt.
2. Valid prior tender, unless tender is excuse [sic];
3. Prior notice of consignation (before deposit)
4. Actual consignation (deposit);
5. Subsequent notice of consignation;
Requisite Nos. 3 and 5 are absent or were not complied with. It is very clear that there were
no prior notices of consignation (before deposit) and subsequent notices of consignation
(after deposit)
Besides, the last deposit was made on December 21, 1988. At the time Dalton testified on
December 22, 1999, she did not present evidence of payment in 1999. She had not, therefore,
religiously paid her monthly obligation.
By clear preponderance of evidence, defendants have established that plaintiff was no
longer residing at Eskina Banawa at the time she testified in court. She vacated her house
and converted it into a store or business establishment. This is buttressed by the testimony
of Rogelio Capacio, the court’s appointed commissioner, who submitted a report, the full text
of which reads as follows:
REPORT AND/OR OBSERVATION
"The store and/or dwelling subject to ocular inspection is stuated [sic] on the left portion of
the road which is about fifty-five (55) meters from the corner of Banawa-Guadalupe Streets,
when turning right heading towards the direction of Guadalupe Church, if travelling from
the Capitol Building.
I observed that when we arrived at the ocular inspection site, Mrs. Soledad Dalton with the
use of a key opened the lock of a closed door. She claimed that it was a part of the dwelling
which she occupies and was utilized as a store. There were few saleable items inside said
space."
Soledad Dalton did not take exception to the said report.
Two witnesses who were former sub-lessees testified and clearly established that Mrs.
Dalton use the house for business purposes and not for dwelling.12
Dalton appealed to the Court of Appeals.
The Court of Appeals’ Ruling
In its 9 November 2005 Decision, the Court of Appeals affirmed the RTC’s 26 February 2002
Decision. The Court of Appeals held that:
After a careful review of the facts and evidence in this case, we find no basis for overturning
the decision of the lower court dismissing plaintiffs-appellants’ complaint, as we find that
no valid consignation was made by the plaintiff-appellant.
Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and generally requires a
prior tender of payment. In order that consignation may be effective, the debtor must show
that: (1) there was a debt due; (2) the consignation of the obligation had been made because
the creditor to whom tender of payment was made refused to accept it, or because he was
absent or incapacitated, or because several persons claimed to be entitled to receive the
amount due or because the title to the obligation has been lost; (3) previous notice of the
consignation had been given to the person interested in the performance of the obligation;
(4) the amount due was placed at the disposal of the court; and (5) after the consignation
had been made the person interested was notified thereof. Failure in any of these
requirements is enough ground to render a consignation ineffective.
Consignation is made by depositing the proper amount to the judicial authority, before
whom the tender of payment and the announcement of the consignation shall be proved. All
interested parties are to be notified of the consignation. It had been consistently held that
compliance with these requisites is mandatory.
No error, therefore, can be attributed to the lower court when it held that the consignation
made by the plaintiff-appellant was invalid for failure to meet requisites 3 and 5 of a valid
consignation (i.e., previous notice of the consignation given to the person interested in the
performance of the obligation and, after the consignation had been made, the person
interested was notified thereof).
Plaintiff-appellant failed to notify defendants-appellees of her intention to consign the
amount due to them as rentals. She, however, justifies such failure by claiming that there
had been substantial compliance with the said requirement of notice upon the service of the
complaint on the defendants-appellees together with the summons.
We do not agree with such contention.
The prevailing rule is that substantial compliance with the requisites of a valid consignation
is not enough. In Licuanan vs. Diaz, reiterating the ruling in Soco vs. Militante, the Supreme
Court had the occasion to rule thus:
"In addition, it must be stated that in the case of Soco v. Militante (123 SCRA 160, 166-167
[1983]), this Court ruled that the codal provisions of the Civil Code dealing with
consignation (Articles 1252-1261) should be accorded mandatory construction —
We do not agree with the questioned decision. We hold that the essential requisites of a
valid consignation must be complied with fully and strictly in accordance with the law.
Articles 1256-1261, New Civil Code. That these Articles must be accorded a mandatory
construction is clearly evident and plain from the very language of the codal provisions
themselves which require absolute compliance with the essential requisites therein
provided. Substantial compliance is not enough for that would render only directory
construction of the law. The use of the words "shall" and "must [sic] which are imperative,
operating to impose a duty which may be enforced, positively indicated that all the essential
requisites of a valid consignation must be complied with. The Civil Code Articles expressly
and explicitly direct what must be essentially done in order that consignation shall be valid
and effectual..."
Clearly then, no valid consignation was made by the plaintiff-appellant for she did not give
notice to the defendants-appellees of her intention to so consign her rental payments.
Without any announcement of the intention to resort to consignation first having been made
to persons interested in the fulfillment of the obligation, the consignation as a means of
payment is void.
As to the other issues raised by the plaintiff-appellant in her second and third assigned
errors, we hold that the ruling of the lower court on such issues is supported by the evidence
adduced in this case.
That plaintiff-appellant is not residing at the leased premises in Eskina Banawa and that
she is using the same for business purposes, not as dwelling place, is amply supported by
the testimony of two of plaintiff-appellant’s sub-lessees. The Commissioner’s Report
submitted by Rogelio Capacio, who was commissioned by the lower court to conduct an
ocular inspection of the leased premises, further lends support to the lower court’s findings.
On the other hand, plaintiff-appellant only has her self-serving claims that she is residing
at the leased premises in Eskina Banawa to prove her continued use of the leased premises
as dwelling place.
There is thus no merit to plaintiff-appellant’s fourth assigned error. The lower court acted
within its authority in ordering the plaintiff-appellant to vacate the leased premises. The
evidence shows that plaintiff-appellant had failed to continuously pay the rentals due to the
defendants-appellees. It was therefore within the powers of the lower court to grant such
other relief and remedies equitable under the circumstances.
In sum, there having been no valid consignation and with the plaintiff-appellant having
failed to pay the rentals due to the defendants-appellees, no error can be attributed to the
lower court in rendering its assailed decision.13
Hence, the present petition. Dalton raises as issues that the Court of Appeals erred in ruling
that (1) the consignation was void, and (2) Dalton failed to pay rent.
The Court’s Ruling
The petition is unmeritorious.
Dalton claims that, "the issue as to whether the consignation made by the petitioner is valid
or not for lack of notice has already been rendered moot and academic with the withdrawal
by the private respondents of the amounts consigned and deposited by the petitioner as
rental of the subject premises."14
The Court is not impressed. First, in withdrawing the amounts consigned, Dayrit and FGR
expressly reserved the right to question the validity of the consignation. In Riesenbeck v.
Court of Appeals,15 the Court held that:
A sensu contrario, when the creditor’s acceptance of the money consigned is conditional and
with reservations, he is not deemed to have waived the claims he reserved against his
debtor. Thus, when the amount consigned does not cover the entire obligation, the creditor
may accept it, reserving his right to the balance (Tolentino, Civil Code of the Phil., Vol. IV,
1973 Ed., p. 317, citing 3 Llerena 263). The same factual milieu obtains here because
the respondent creditor accepted with reservation the amount consigned in court by the
petitioner-debtor. Therefore, the creditor is not barred from raising his other claims, as he
did in his answer with special defenses and counterclaim against petitioner-debtor.
As respondent-creditor’s acceptance of the amount consigned was with reservations, it did
not completely extinguish the entire indebtedness of the petitioner-debtor. It is apposite to
note here that consignation is completed at the time the creditor accepts the same without
objections, or, if he objects, at the time the court declares that it has been validly made in
accordance with law.16 (Emphasis supplied)
Second, compliance with the requisites of a valid consignation is mandatory. Failure to
comply strictly with any of the requisites will render the consignation void. Substantial
compliance is not enough.
In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc.,17 the Court enumerated
the requisites of a valid consignation: (1) a debt due; (2) the creditor to whom tender of
payment was made refused without just cause to accept the payment, or the creditor was
absent, unknown or incapacitated, or several persons claimed the same right to collect, or
the title of the obligation was lost; (3) the person interested in the performance of the
obligation was given notice before consignation was made; (4) the amount was placed at the
disposal of the court; and (5) the person interested in the performance of the obligation was
given notice after the consignation was made.
Articles 1257 and 1258 of the Civil Code state, respectively:
Art. 1257. In order that the consignation of the thing due may release the obligor, it must
first be announced to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the
provisions which regulate payment.
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof.
(Emphasis supplied)
The giving of notice to the persons interested in the performance of the obligation is
mandatory. Failure to notify the persons interested in the performance of the obligation will
render the consignation void. In Ramos v. Sarao,18 the Court held that, "All interested
parties are to be notified of the consignation. Compliance with [this requisite] is
mandatory."19 In Valdellon v. Tengco,20 the Court held that:
Under Art. 1257 of our Civil Code, in order that consignation of the thing due may release
the obligor, it must first be announced to the persons interested in the fulfillment of the
obligation. The consignation shall be ineffectual if it is not made strictly in consonance with
the provisions which regulate payment. In said Article 1258, it is further stated that the
consignation having been made, the interested party shall also be notified
thereof.21 (Emphasis supplied)
In Soco v. Militante, et al.,22 the Court held that:
We hold that the essential requisites of a valid consignation must be complied with fully
and strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That these
Articles must be accorded a mandatory construction is clearly evident and plain from the
very language of the codal provisions themselves which require absolute compliance with
the essential requisites therein provided. Substantial compliance is not enough for that
would render only a directory construction to the law. The use of the words "shall" and
"must" which are imperative, operating to impose a duty which may be enforced, positively
indicate that all the essential requisites of a valid consignation must be complied with. The
Civil Code Articles expressly and explicitly direct what must be essentially done in order
that consignation shall be valid and effectual.23 (Emphasis supplied)
Dalton claims that the Court of Appeals erred in ruling that she failed to pay rent. The
Court is not impressed. Section 1, Rule 45 of the Rules of Court states that petitions for
review on certiorari "shall raise only questions of law which must be distinctly set forth."
In Pagsibigan v. People,24 the Court held that:
A petition for review under Rule 45 of the Rules of Court should cover only questions of law.
Questions of fact are not reviewable. A question of law exists when the doubt centers on
what the law is on a certain set of facts. A question of fact exists when the doubt centers on
the truth or falsity of the alleged facts.1avvphi1
There is a question of law if the issue raised is capable of being resolved without need of
reviewing the probative value of the evidence. The issue to be resolved must be limited to
determining what the law is on a certain set of facts. Once the issue invites a review of the
evidence, the question posed is one of fact.25
Whether Dalton failed to pay rent is a question of fact. It is not reviewable.
The factual findings of the lower courts are binding on the Court. The exceptions to this rule
are (1) when there is grave abuse of discretion; (2) when the findings are grounded on
speculation; (3) when the inference made is manifestly mistaken; (4) when the judgment of
the Court of Appeals is based on a misapprehension of facts; (5) when the factual findings
are conflicting; (6) when the Court of Appeals went beyond the issues of the case and its
findings are contrary to the admissions of the parties; (7) when the Court of Appeals
overlooked undisputed facts which, if properly considered, would justify a different
conclusion; (8) when the facts set forth by the petitioner are not disputed by the respondent;
and (9) when the findings of the Court of Appeals are premised on the absence of evidence
and are contradicted by the evidence on record.26 Dalton did not show that any of these
circumstances is present.
WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 9 November 2005
Decision and 10 April 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 76536.
SO ORDERED.
FIRST DIVISION
G.R. No. 190755 November 24, 2010
LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
ALFREDO ONG, Respondent.
DECISION
VELASCO, JR., J.:
This is an appeal from the October 20, 2009 Decision of the Court of Appeals (CA) in CA-
G.R. CR-CV No. 84445 entitled Alfredo Ong v. Land Bank of the Philippines, which affirmed
the Decision of the Regional Trial Court (RTC), Branch 17 in Tabaco City.
The Facts
On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank
Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential
lots, five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the
loan would be short-term and would mature on February 28, 1997, while the balance of PhP
10 million would be payable in seven (7) years. The Notice of Loan Approval dated February
22, 1996 contained an acceleration clause wherein any default in payment of amortizations
or other charges would accelerate the maturity of the loan.1
Subsequently, however, the Spouses Sy found they could no longer pay their loan. On
December 9, 1996, they sold three (3) of their mortgaged parcels of land for PhP 150,000 to
Angelina Gloria Ong, Evangeline’s mother, under a Deed of Sale with Assumption of
Mortgage. The relevant portion of the document2 is quoted as follows:
WHEREAS, we are no longer in a position to settle our obligation with the bank;
NOW THEREFORE, for and in consideration of the sum of ONE HUNDRED FIFTY
THOUSAND PESOS (P150,000.00) Philippine Currency, we hereby these presents SELL,
CEDE, TRANSFER and CONVEY, by way of sale unto ANGELINA GLORIA ONG, also of
legal age, Filipino citizen, married to Alfredo Ong, and also a resident of Tabaco, Albay,
Philippines, their heirs and assigns, the above-mentioned debt with the said LAND BANK
OF THE PHILIPPINES, and by reason hereof they can make the necessary representation
with the bank for the proper restructuring of the loan with the said bank in their favor;
That as soon as our obligation has been duly settled, the bank is authorized to release the
mortgage in favor of the vendees and for this purpose VENDEES can register this
instrument with the Register of Deeds for the issuance of the titles already in their names.
IN WITNESS WHEREOF, we have hereunto affixed our signatures this 9th day of
December 1996 at Tabaco, Albay, Philippines.

(signed) (signed)
EVANGELINE O. SY JOHNSON B. SY
Vendor Vendor

Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform it about the
sale and assumption of mortgage.3 Atty. Edna Hingco, the Legazpi City Land Bank Branch
Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there was nothing wrong
with the agreement with the Spouses Sy but provided them with requirements for the
assumption of mortgage. They were also told that Alfredo should pay part of the principal
which was computed at PhP 750,000 and to update due or accrued interests on the
promissory notes so that Atty. Hingco could easily approve the assumption of mortgage. Two
weeks later, Alfredo issued a check for PhP 750,000 and personally gave it to Atty. Hingco.
A receipt was issued for his payment. He also submitted the other documents required by
Land Bank, such as financial statements for 1994 and 1995. Atty. Hingco then informed
Alfredo that the certificate of title of the Spouses Sy would be transferred in his name but
this never materialized. No notice of transfer was sent to him.4
Alfredo later found out that his application for assumption of mortgage was not approved
by Land Bank. The bank learned from its credit investigation report that the Ongs had a
real estate mortgage in the amount of PhP 18,300,000 with another bank that was past due.
Alfredo claimed that this was fully paid later on. Nonetheless, Land Bank foreclosed the
mortgage of the Spouses Sy after several months. Alfredo only learned of the foreclosure
when he saw the subject mortgage properties included in a Notice of Foreclosure of Mortgage
and Auction Sale at the RTC in Tabaco, Albay. Alfredo’s other counsel, Atty. Madrilejos,
subsequently talked to Land Bank’s lawyer and was told that the PhP 750,000 he paid would
be returned to him.5
On December 12, 1997, Alfredo initiated an action for recovery of sum of money with
damages against Land Bank in Civil Case No. T-1941, as Alfredo’s payment was not
returned by Land Bank. Alfredo maintained that Land Bank’s foreclosure without
informing him of the denial of his assumption of the mortgage was done in bad faith. He
argued that he was lured into believing that his payment of PhP 750,000 would cause Land
Bank to approve his assumption of the loan of the Spouses Sy and the transfer of the
mortgaged properties in his and his wife’s name.6 He also claimed incurring expenses for
attorney’s fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in moral damages.7
Testifying for Land Bank, Atty. Hingco claimed during trial that as branch manager she
had no authority to approve loans and could not assure anybody that their assumption of
mortgage would be approved. She testified that the breakdown of Alfredo’s payment was as
follows:

PhP 101,409.59 applied to principal

216,246.56 accrued interests receivable

396,571.77 interests

18,766.10 penalties

16,805.98 accounts receivable

----------------
Total: 750,000.00

According to Atty. Hingco, the bank processes an assumption of mortgage as a new loan,
since the new borrower is considered a new client. They used character, capacity, capital,
collateral, and conditions in determining who can qualify to assume a loan. Alfredo’s
proposal to assume the loan, she explained, was referred to a separate office, the Lending
Center. 8
During cross-examination, Atty. Hingco testified that several months after Alfredo made
the tender of payment, she received word that the Lending Center rejected Alfredo’s loan
application. She stated that it was the Lending Center and not her that should have
informed Alfredo about the denial of his and his wife’s assumption of mortgage. She added
that although she told Alfredo that the agreement between the spouses Sy and Alfredo was
valid between them and that the bank would accept payments from him, Alfredo did not pay
any further amount so the foreclosure of the loan collaterals ensued. She admitted that
Alfredo demanded the return of the PhP 750,000 but said that there was no written demand
before the case against the bank was filed in court. She said that Alfredo had made the
payment of PhP 750,000 even before he applied for the assumption of mortgage and that
the bank received the said amount because the subject account was past due and
demandable; and the Deed of Assumption of Mortgage was not used as the basis for the
payment. 9
The Ruling of the Trial Court
The RTC held that the contract approving the assumption of mortgage was not perfected as
a result of the credit investigation conducted on Alfredo. It noted that Alfredo was not even
informed of the disapproval of the assumption of mortgage but was just told that the
accounts of the spouses Sy had matured and gone unpaid. It ruled that under the principle
of equity and justice, the bank should return the amount Alfredo had paid with interest at
12% per annum computed from the filing of the complaint. The RTC further held that
Alfredo was entitled to attorney’s fees and litigation expenses for being compelled to
litigate.10
The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered, a decision is rendered, ordering defendant bank to pay
plaintiff, Alfredo Ong the amount of P750,000.00 with interest at 12% per annum computed
from Dec. 12, 1997 and attorney’s fees and litigation expenses of P50,000.00.
Costs against defendant bank.
SO ORDERED.11
The Ruling of the Appellate Court
On appeal, Land Bank faulted the trial court for (1) holding that the payment of PhP
750,000 made by Ong was one of the requirements for the approval of his proposal to assume
the mortgage of the Sy spouses; (2) erroneously ordering Land Bank to return the amount
of PhP 750,000 to Ong on the ground of its failure to effect novation; and (3) erroneously
affirming the award of PhP 50,000 to Ong as attorney’s fees and litigation expenses.
The CA affirmed the RTC Decision.12 It held that Alfredo’s recourse is not against the Sy
spouses. According to the appellate court, the payment of PhP 750,000 was for the approval
of his assumption of mortgage and not for payment of arrears incurred by the Sy spouses.
As such, it ruled that it would be incorrect to consider Alfredo a third person with no interest
in the fulfillment of the obligation under Article 1236 of the Civil Code. Although Land Bank
was not bound by the Deed between Alfredo and the Spouses Sy, the appellate court found
that Alfredo and Land Bank’s active preparations for Alfredo’s assumption of mortgage
essentially novated the agreement.
On January 5, 2010, the CA denied Land Bank’s motion for reconsideration for lack of merit.
Hence, Land Bank appealed to us.
The Issues
I
Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not
apply and in finding that there is no novation.
II
Whether the Court of Appeals misconstrued the evidence and the law when it affirmed the
trial court decision’s ordering Land Bank to pay Ong the amount of Php750,000.00 with
interest at 12% annum.
III
Whether the Court of Appeals committed reversible error when it affirmed the award of
Php50,000.00 to Ong as attorney’s fees and expenses of litigation.
The Ruling of this Court
We affirm with modification the appealed decision.
Recourse is against Land Bank
Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should
have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236 provides:
The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.1avvphi1
We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236. Land
Bank was not bound to accept Alfredo’s payment, since as far as the former was concerned,
he did not have an interest in the payment of the loan of the Spouses Sy. However, in the
context of the second part of said paragraph, Alfredo was not making payment to fulfill the
obligation of the Spouses Sy. Alfredo made a conditional payment so that the properties
subject of the Deed of Sale with Assumption of Mortgage would be titled in his name. It is
clear from the records that Land Bank required Alfredo to make payment before his
assumption of mortgage would be approved. He was informed that the certificate of title
would be transferred accordingly. He, thus, made payment not as a debtor but as a
prospective mortgagor. But the trial court stated:
[T]he contract was not perfected or consummated because of the adverse finding in the credit
investigation which led to the disapproval of the proposed assumption. There was no
evidence presented that plaintiff was informed of the disapproval. What he received was a
letter dated May 22, 1997 informing him that the account of spouses Sy had matured but
there [were] no payments. This was sent even before the conduct of the credit investigation
on June 20, 1997 which led to the disapproval of the proposed assumption of the loans of
spouses Sy.13
Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the
obligation of the Spouses Sy, since his interest hinged on Land Bank’s approval of his
application, which was denied. The circumstances of the instant case show that the second
paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own interest
and not on behalf of the Spouses Sy, recourse is not against the latter. And as Alfredo was
not paying for another, he cannot demand from the debtors, the Spouses Sy, what he has
paid.
Novation of the loan agreement
Land Bank also faults the CA for finding that novation applies to the instant case. It reasons
that a substitution of debtors was made without its consent; thus, it was not bound to
recognize the substitution under the rules on novation.
On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance
Corporation14 provides the following discussion:
Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when
an old obligation is terminated by the creation of a new obligation that takes the place of
the former; it is merely modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement. An extinctive novation results either by
changing the object or principal conditions (objective or real), or by substituting the person
of the debtor or subrogating a third person in the rights of the creditor (subjective or
personal). Under this mode, novation would have dual functions ─ one to extinguish an
existing obligation, the other to substitute a new one in its place ─ requiring a conflux of
four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth
of a valid new obligation. x x x
In order that an obligation may be extinguished by another which substitutes the same, it
is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. The test of incompatibility is
whether or not the two obligations can stand together, each one having its independent
existence. x x x (Emphasis supplied.)
Furthermore, Art. 1293 of the Civil Code states:
Novation which consists in substituting a new debtor in the place of the original one, may
be made even without the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him rights mentioned in articles
1236 and 1237.
We do not agree, then, with the CA in holding that there was a novation in the contract
between the parties. Not all the elements of novation were present. Novation must be
expressly consented to. Moreover, the conflicting intention and acts of the parties
underscore the absence of any express disclosure or circumstances with which to deduce a
clear and unequivocal intent by the parties to novate the old agreement. 15 Land Bank is
thus correct when it argues that there was no novation in the following:
[W]hether or not Alfredo Ong has an interest in the obligation and payment was made with
the knowledge or consent of Spouses Sy, he may still pay the obligation for the reason that
even before he paid the amount of P750,000.00 on January 31, 1997, the substitution of
debtors was already perfected by and between Spouses Sy and Spouses Ong as evidenced
by a Deed of Sale with Assumption of Mortgage executed by them on December 9, 1996. And
since the substitution of debtors was made without the consent of Land Bank – a
requirement which is indispensable in order to effect a novation of the obligation, it is
therefore not bound to recognize the substitution of debtors. Land Bank did not intervene
in the contract between Spouses Sy and Spouses Ong and did not expressly give its consent
to this substitution.16
Unjust enrichment
Land Bank maintains that the trial court erroneously applied the principle of equity and
justice in ordering it to return the PhP 750,000 paid by Alfredo. Alfredo was allegedly in
bad faith and in estoppel. Land Bank contends that it enjoyed the presumption of regularity
and was in good faith when it accepted Alfredo’s tender of PhP 750,000. It reasons that it
did not unduly enrich itself at Alfredo’s expense during the foreclosure of the mortgaged
properties, since it tendered its bid by subtracting PhP 750,000 from the Spouses Sy’s
outstanding loan obligation. Alfredo’s recourse then, according to Land Bank, is to have his
payment reimbursed by the Spouses Sy.
We rule that Land Bank is still liable for the return of the PhP 750,000 based on the
principle of unjust enrichment. Land Bank is correct in arguing that it has no obligation as
creditor to recognize Alfredo as a person with interest in the fulfillment of the obligation.
But while Land Bank is not bound to accept the substitution of debtors in the subject real
estate mortgage, it is estopped by its action of accepting Alfredo’s payment from arguing
that it does not have to recognize Alfredo as the new debtor. The elements of estoppel are:
First, the actor who usually must have knowledge, notice or suspicion of the true facts,
communicates something to another in a misleading way, either by words, conduct or
silence; second, the other in fact relies, and relies reasonably or justifiably, upon that
communication; third, the other would be harmed materially if the actor is later permitted
to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows,
expects or foresees that the other would act upon the information given or that a reasonable
person in the actor’s position would expect or foresee such action.17
By accepting Alfredo’s payment and keeping silent on the status of Alfredo’s application,
Land Bank misled Alfredo to believe that he had for all intents and purposes stepped into
the shoes of the Spouses Sy.
The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it was the bank’s
Lending Center that should have notified Alfredo of his assumption of mortgage disapproval
is unavailing. The Lending Center’s lack of notice of disapproval, the Tabaco Branch’s
silence on the disapproval, and the bank’s subsequent actions show a failure of the bank as
a whole, first, to notify Alfredo that he is not a recognized debtor in the eyes of the bank;
and second, to apprise him of how and when he could collect on the payment that the bank
no longer had a right to keep.
We turn then on the principle upon which Land Bank must return Alfredo’s payment.
Unjust enrichment exists "when a person unjustly retains a benefit to the loss of another,
or when a person retains money or property of another against the fundamental principles
of justice, equity and good conscience."18 There is unjust enrichment under Art. 22 of the
Civil Code when (1) a person is unjustly benefited, and (2) such benefit is derived at the
expense of or with damages to another.19
Additionally, unjust enrichment has been applied to actions called accion in rem verso. In
order that the accion in rem verso may prosper, the following conditions must concur: (1)
that the defendant has been enriched; (2) that the plaintiff has suffered a loss; (3) that the
enrichment of the defendant is without just or legal ground; and (4) that the plaintiff has no
other action based on contract, quasi-contract, crime, or quasi-delict.20 The principle of
unjust enrichment essentially contemplates payment when there is no duty to pay, and the
person who receives the payment has no right to receive it.21
The principle applies to the parties in the instant case, as, Alfredo, having been deemed
disqualified from assuming the loan, had no duty to pay petitioner bank and the latter had
no right to receive it.
Moreover, the Civil Code likewise requires under Art. 19 that "[e]very person must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone
his due, and observe honesty and good faith." Land Bank, however, did not even bother to
inform Alfredo that it was no longer approving his assumption of the Spouses Sy’s mortgage.
Yet it acknowledged his interest in the loan when the branch head of the bank wrote to tell
him that his daughter’s loan had not been paid.22 Land Bank made Alfredo believe that with
the payment of PhP 750,000, he would be able to assume the mortgage of the Spouses Sy.
The act of receiving payment without returning it when demanded is contrary to the adage
of giving someone what is due to him. The outcome of the application would have been
different had Land Bank first conducted the credit investigation before accepting Alfredo’s
payment. He would have been notified that his assumption of mortgage had been
disapproved; and he would not have taken the futile action of paying PhP 750,000. The
procedure Land Bank took in acting on Alfredo’s application cannot be said to have been
fair and proper.
As to the claim that the trial court erred in applying equity to Alfredo’s case, we hold that
Alfredo had no other remedy to recover from Land Bank and the lower court properly
exercised its equity jurisdiction in resolving the collection suit. As we have held in one case:
Equity, as the complement of legal jurisdiction, seeks to reach and complete justice where
courts of law, through the inflexibility of their rules and want of power to adapt their
judgments to the special circumstances of cases, are incompetent to do so. Equity regards
the spirit and not the letter, the intent and not the form, the substance rather than the
circumstance, as it is variously expressed by different courts.23
Another claim made by Land Bank is the presumption of regularity it enjoys and that it was
in good faith when it accepted Alfredo’s tender of PhP 750,000.
The defense of good faith fails to convince given Land Bank’s actions. Alfredo was not
treated as a mere prospective borrower. After he had paid PhP 750,000, he was made to sign
bank documents including a promissory note and real estate mortgage. He was assured by
Atty. Hingco that the titles to the properties covered by the Spouses Sy’s real estate
mortgage would be transferred in his name, and upon payment of the PhP 750,000, the
account would be considered current and renewed in his name.24
Land Bank posits as a defense that it did not unduly enrich itself at Alfredo’s expense during
the foreclosure of the mortgaged properties, since it tendered its bid by subtracting PhP
750,000 from the Spouses Sy’s outstanding loan obligation. It is observed that this is the
first time Land Bank is revealing this defense. However, issues, arguments, theories, and
causes not raised below may no longer be posed on appeal.25 Land Bank’s contention, thus,
cannot be entertained at this point.1avvphi1
Land Bank further questions the lower court’s decision on the basis of the inconsistencies
made by Alfredo on the witness stand. It argues that Alfredo was not a credible witness and
his testimony failed to overcome the presumption of regularity in the performance of regular
duties on the part of Land Bank.
This claim, however, touches on factual findings by the trial court, and we defer to these
findings of the trial court as sustained by the appellate court. These are generally binding
on us. While there are exceptions to this rule, Land Bank has not satisfactorily shown that
any of them is applicable to this issue.26 Hence, the rule that the trial court is in a unique
position to observe the demeanor of witnesses should be applied and respected27 in the
instant case.
In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo as it had
already foreclosed on the mortgaged lands.
Interest and attorney’s fees
As to the applicable interest rate, we reiterate the guidelines found in Eastern Shipping
Lines, Inc. v. Court of Appeals:28
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims
or damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so reasonably established at the time the demand
is made, the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
No evidence was presented by Alfredo that he had sent a written demand to Land Bank
before he filed the collection suit. Only the verbal agreement between the lawyers of the
parties on the return of the payment was mentioned.29Consequently, the obligation of Land
Bank to return the payment made by Alfredo upon the former’s denial of the latter’s
application for assumption of mortgage must be reckoned from the date of judicial demand
on December 12, 1997, as correctly determined by the trial court and affirmed by the
appellate court.
The next question is the propriety of the imposition of interest and the proper imposable
rate of applicable interest. The RTC granted the rate of 12% per annum which was affirmed
by the CA. From the above-quoted guidelines, however, the proper imposable interest rate
is 6% per annum pursuant to Art. 2209 of the Civil Code. Sunga-Chan v. Court of Appeals is
illuminating in this regard:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under
Central Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or
forbearance of money. And for transactions involving payment of indemnities in the concept
of damages arising from default in the performance of obligations in general and/or for
money judgment not involving a loan or forbearance of money, goods, or credit, the
governing provision is Art. 2209 of the Civil Code prescribing a yearly 6% interest. Art. 2209
pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest,
which is six per cent per annum.
The term "forbearance," within the context of usury law, has been described as a contractual
obligation of a lender or creditor to refrain, during a given period of time, from requiring the
borrower or debtor to repay the loan or debt then due and payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper,
and the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416
shall apply only to loans or forbearance of money, goods, or credits, as well as to judgments
involving such loan or forbearance of money, goods, or credit, while the 6% per annum under
Art. 2209 of the Civil Code applies "when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the performance
of obligations in general," with the application of both rates reckoned "from the time the
complaint was filed until the [adjudged] amount is fully paid." In either instance, the
reckoning period for the commencement of the running of the legal interest shall be subject
to the condition "that the courts are vested with discretion, depending on the equities of
each case, on the award of interest."30 (Emphasis supplied.)
Based on our ruling above, forbearance of money refers to the contractual obligation of the
lender or creditor to desist for a fixed period from requiring the borrower or debtor to repay
the loan or debt then due and for which 12% per annum is imposed as interest in the absence
of a stipulated rate. In the instant case, Alfredo’s conditional payment to Land Bank does
not constitute forbearance of money, since there was no agreement or obligation for Alfredo
to pay Land Bank the amount of PhP 750,000, and the obligation of Land Bank to return
what Alfredo has conditionally paid is still in dispute and has not yet been determined.
Thus, it cannot be said that Land Bank’s alleged obligation has become a forbearance of
money.
On the award of attorney’s fees, attorney’s fees and expenses of litigation were awarded
because Alfredo was compelled to litigate due to the unjust refusal of Land Bank to refund
the amount he paid. There are instances when it is just and equitable to award attorney’s
fees and expenses of litigation.31 Art. 2208 of the Civil Code pertinently states:
In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
xxxx
(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest.
Given that Alfredo was indeed compelled to litigate against Land Bank and incur expenses
to protect his interest, we find that the award falls under the exception above and is, thus,
proper given the circumstances.
On a final note. The instant case would not have been litigated had Land Bank been more
circumspect in dealing with Alfredo. The bank chose to accept payment from Alfredo even
before a credit investigation was underway, a procedure worsened by the failure to even
inform him of his credit standing’s impact on his assumption of mortgage. It was, therefore,
negligent to a certain degree in handling the transaction with Alfredo. It should be
remembered that the business of a bank is affected with public interest and it should observe
a higher standard of diligence when dealing with the public.32
WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No. 84445 is
AFFIRMED with MODIFICATION in that the amount of PhP 750,000 will earn interest at
6% per annum reckoned from December 12, 1997, and the total aggregate monetary awards
will in turn earn 12% per annum from the finality of this Decision until fully paid.
SO ORDERED.
SECOND DIVISION
G.R. Nos. 149840-41 March 31, 2006
SPS. FRANCISCO AND RUBY REYES, Petitioners,
vs.
BPI FAMILY SAVINGS BANK, INC., and MAGDALENA L. LOMETILLO, in her capacity
as ex-officio Provincial Sheriff for Iloilo, Respondents.
DECISION
CORONA,J.:
Via this petition for review under Rule 45 of the Rules of Court, petitioners assail the
decision 1 of the Court of Appeals (CA) in CA-G.R. SP Nos. 45629 and 45877 and its
resolution denying their motion for reconsideration.
The facts are simple.
On March 24, 1995, the Reyes spouses executed a real estate mortgage on their property in
Iloilo City in favor of respondent BPI Family Savings Bank, Inc. (BPI-FSB) to secure
a P15,000,000 loan of Transbuilders Resources and Development Corporation
(Transbuilders). The mortgage contract between petitioners and BPI-FSB provided, among
others:
That for and in consideration of the above-mentioned sum received by way of a loan, and
other credit accommodations of whatever nature obtained by the Borrower/Mortgagor, the
Borrower/Mortgagor by this Agreement, hereby constitutes a first mortgage, special and
voluntary over the property/ies specifically described in Annex "A", together with all existing
improvements as well as those that may hereafter be made to exist or constructed thereon,
inclusive of all fruits and rents, in favor of the Bank, its successors and assigns. 2

When Transbuilders failed to pay its P15M loan within the stipulated period of one year,
the bank restructured the loan through a promissory note executed by Transbuilders in its
favor. The pertinent provisions of the promissory note3 stated that:
1. The proceeds of the Note shall be applied to loan account no. 21108336 4; and
2. The new obligation of Transbuilders to respondent Bank for fifteen million
(P15,000,000.00) shall be paid in twenty (20) quarterly installments commencing on
September 28, 1996 and at an interest rate of eighteen (18%) per annum.
Petitioners aver that they were not informed about the restructuring of Transbuilders’ loan.
In fact, when they learned of the new loan agreement sometime in December 1996, they
wrote BPI-FSB requesting the cancellation of their mortgage and the return of their
certificate of title to the mortgaged property. They claimed that the new loan novated the
loan agreement of March 24, 1995. Because the novation was without their knowledge and
consent, they were allegedly released from their obligation under the mortgage.
When BPI-FSB refused to cancel the mortgage, petitioners filed separate petitions for
mandamus and prohibition with the Regional Trial Court (RTC) of Manila to compel the
bank to return their certificate of title and cancel the mortgage. BPI-FSB, on the other hand,
instituted extrajudicial foreclosure proceedings against petitioners in Iloilo City after
Transbuilders defaulted in its payments. Consequently, a sheriff’s notice of sale of
petitioners’ property at public auction was issued.
The Manila RTC dismissed petitioners’ actions for mandamus and prohibition. Their appeal
to the Court of Appeals was likewise dismissed:
The mortgage contract between the petitioners and the respondent BPI does not limit the
obligation or loan for which it may stand to the loan agreement between Transbuilders and
BPI, dated March 24, 1995, considering that under the terms of that contract, the intent of
all the parties, including the petitioners, to secure future indebtedness is apparent…. On
the whole, the contract of loan/mortgage dated March 24, 1995, appears to include even the
new loan agreement between Transbuilders and BPI, entered into on June 28, 1996.
xxx xxx xxx
There is likewise no merit to the petitioners’ submission that there was a novation of the
March 24, 1995 contract. There is no clear intent of the parties to make the new contract
completely supersede and abolish the old loan/mortgage contract. The established rule is
that novation is never presumed. Novation will not be allowed unless it is clearly shown by
express agreement, or by acts of equal import. Thus, to effect an objective novation it is
imperative that the new obligation expressly declares that the old obligation is thereby
extinguished or that the new obligation be on every point incompatible with the new one.
(Ajax Marketing & Development Corporation v. Court of Appeals, 248 SCRA 222 [1995])
Without such clear intent to abolish the old contract, there is no merit to affirm the existence
of a novation.
There is no basis therefore, to the charge that respondent BPI had gravely erred in not
surrendering the petitioners’ certificate of title, as the mortgage undertaking of the
petitioners has not been cancelled. For the same reason, the respondent BPI acted within
its prerogative when it initiated extra-judicial foreclosure proceedings over the petitioners’
property.
WHEREFORE, premises considered, the instant appeals from the Decision of the Regional
Trial Court of Iloilo City in CA-G.R. SP No. 45887 and the Order of dismissal of the Regional
Trial Court of Manila in CA-G.R. SP No. 45629 are hereby DISMISSED.
SO ORDERED.5 (emphasis ours)
Petitioners moved for a reconsideration of the decision but were unsuccessful. Hence, this
appeal.
The only issue for our consideration is whether there was a novation of the mortgage loan
contract between petitioners and BPI-FSB that would result in the extinguishment of
petitioners’ liability to the bank.
We agree with the CA that there was none.
Novation is defined as the extinguishment of an obligation by the substitution or change of
the obligation by a subsequent one which terminates the first, either by changing the object
or principal conditions, or by substituting the person of the debtor, or subrogating a third
person in the rights of the creditor.6
Article 1292 of the Civil Code on novation further provides:
Article 1292. In order that an obligation may be extinguished by another which substitute
the same, it is imperative that it be so declared in unequivocal terms, or that the old and
the new obligations be on every point incompatible with each other.
The cancellation of the old obligation by the new one is a necessary element of novation
which may be effected either expressly or impliedly. While there is really no hard and fast
rule to determine what might constitute sufficient change resulting in novation, the
touchstone, however, is irreconcilable incompatibility between the old and the new
obligations.7
In Garcia, Jr. v. Court of Appeals,8 we held that:
In every novation there are four essential requisites:(1) a previous valid obligation; (2) the
agreement of all the parties to the new contract; (3) the extinguishment of the old contract;
and (4) validity of the new one. There must be consent of all the parties to the substitution,
resulting in the extinction of the old obligation and the creation of a valid new one. The
acceptance of the promissory note by the plaintiff is not novation of the contract. The legal
doctrine is that an obligation to pay a sum of money is not novated in a new instrument by
changing the term of payment and adding other obligations not incompatible with the old
one. It is not proper to consider an obligation novated as in the case at bar by the mere
granting of extension of payment which did not even alter its essence. To sustain novation
necessitates that the same be declared in unequivocal terms or that there is complete and
substantial incompatibility between the two obligations. An obligation to pay a sum of
money is not novated in a new instrument wherein the old is ratified by changing only the
terms of payment and adding other obligations not incompatible with the old one or wherein
the old contract is merely supplementing the old one.
Thus, the well-settled rule is that, with respect to obligations to pay a sum of money, the
obligation is not novated by an instrument that expressly recognizes the old, changes only
the terms of payment, adds other obligations not incompatible with the old ones, or the new
contract merely supplements the old one.9
BPI-FSB and Transbuilders only extended the repayment term of the loan from one year to
twenty quarterly installments at 18% interest per annum. There was absolutely no
intention by the parties to supersede or abrogate the old loan contract secured by the real
estate mortgage executed by petitioners in favor of BPI-FSB. In fact, the intention of the
new agreement was precisely to revive the old obligation after the original period expired
and the loan remained unpaid. The novation of a contract cannot be presumed. In the
absence of an express agreement, novation takes place only when the old and the new
obligations are incompatible on every point. 10
Moreover, under the real estate mortgage executed by them in favor of BPI-FSB, petitioners
undertook to secure the P15M loan of Transbuilders to BPI-FSB "and other credit
accommodations of whatever nature obtained by the Borrower/Mortgagor." While this
stipulation proved to be onerous to petitioners, neither the law nor the courts will extricate
a party from an unwise or undesirable contract entered into with all the required formalities
and with full awareness of its consequences. 11 Petitioners voluntarily executed the real
estate mortgage on their property in favor of BPI-FSB to secure the P15M loan of
Transbuilders. They cannot now be allowed to repudiate their obligation to the bank after
Transbuilders’ default. While petitioners’ liability was written in fine print and in a contract
prepared by BPI-FSB, it has been the consistent holding of this Court that contracts of
adhesion are not invalid per se. On numerous occasions, we have upheld the binding effects
of such contracts. 12
WHEREFORE, the petition is hereby DENIED for lack of merit.
SO ORDERED.
G.R. No. 107992 October 8, 1997
ODYSSEY PARK, INC., petitioner,
vs.
HONORABLE COURT OF APPEALS and UNION BANK OF THE
PHILIPPINES, respondents.

VITUG, J.:
Assailed in the instant petition for review on certiorari is the decision, dated 07 September
1992, of the Court of Appeals affirming that of the Regional Trial Court, Branch 152, of
Pasig, Metro Manila, which has adjudged the contract to sell entered into between petitioner
and private respondent as having been validly rescinded.
The Court adopts the factual findings, hereunder narrated, of the appellate court:
1. On November 4, 1981, Bancom Development Corporation and plaintiff-appellant Odyssey
Park, Inc., entered into a Contract to Sell (Exhibit B-1), whereby the former agreed to sell
to the latter the parcel of land with an area of 8,499 square meters situated in Baguio City
and the structure constructed thereon identified as the Europa Clubhouse.
2. Subsequently on February 11, 1982, in a document entitled "Separate Deed of
Conveyance" (Annex F of the Affidavit of Carmelito A. Montano, pages 152-154 of the
Record), Bancom confirmed and acknowledged that it has ceded, transferred and conveyed
in favor of defendant-appellee Union Bank all the rights, title and interest it has over the
property.
3. The purchase price of P3,500,000.00 was, per Section 2 of the Contract to Sell, agreed to
be paid as follows:
a) SEVEN HUNDRED THOUSAND PESOS (P700,000.00) as down payment, to be paid by
Odyssey as follows:
(i) ONE HUNDRED THOUSAND (P100,000.00) PESOS upon signing of this Contract;
(ii) TWO HUNDRED THOUSAND PESOS (P200,000.00), sixty (60) days from and after the
date of this Contract. The said amount shall be covered by a check postdated sixty (60) days
after the date of this Contract issued and delivered by Odyssey to Bancom upon the signing
of this Contract; and
(iii) FOUR HUNDRED THOUSAND PESOS (P400,000.00), ninety (90) days from and after
the date of this Contract. The said amount shall be covered by a check postdated ninety (90)
days after the date of this Contract issued and delivered by Odyssey to Bancom upon signing
of this Contract.
b) The balance of TWO MILLION EIGHT HUNDRED THOUSAND PESOS (P2,800,000.00)
shall be paid by Odyssey to Bancom within a period of three (3) years by twelve (12) equal
quarterly amortizations of P298,346.08 each, inclusive of the interest and service charge set
forth in Section 3 hereof, the first amortization to become due and payable four (4) months
and fifteen (15) days after the date of this Contract, and the succeeding amortizations at the
end of each quarter thereafter until the balance of the purchase price of the Property is paid
in full.
4. It was also agreed in Section 5 of the Contract to Sell that:
Sec. 5: In the event Odyssey fails to pay any portion of the purchase price of the Property or
the interest and service charge thereon as and when it falls due, or otherwise fails to comply
with or violate any of the provisions of this Contract, Bancom may at its absolute discretion
cancel and rescind this Contract and declare the same as null, void and no further force and
effect by serving on Odyssey a written notice of cancellation and rescission thirty (30) days
in advance.
In the event this Contract is cancelled and rescinded as provided in this Section, all the
amounts which the Odyssey may have paid to Bancom pursuant to and in accordance with
this Contract shall be forfeited in favor of Bancom as rentals for the use and occupancy of
the Property and as penalty for the breach and violation of this Contract. Furthermore, all
the improvements which Odyssey may have introduced on the Property shall form part
thereof and belong to Bancom without right of reimbursements to Odyssey; Provided, that
Bancom may at its absolute discretion instead require Odyssey to remove such
improvements from the Property at expense of Odyssey.
5. On November 26, 1981, twenty-two (22) days after the execution of the contract plaintiff-
appellant paid the amount of P100,000.00. Other payments, also beyond the stipulated
period, (see Odyssey Park, Inc., Statement of Application of Payment, Annex A of the
Supportive Affidavit of Nicefero S. Agaton, p. 309 of the record) in the total sum of
P110,000.00 were made as follows:
September 22, 1982 P20,000.00
April 13, 1983 10,000.00
April 30, 1983 10,000.00
July 20, 1983 50,000.00
September 19, 1983 20,000.00.
6. On December 23, 1981, Mr. Vicente A. Araneta, President of Europa Condominium Villas,
Inc., wrotes defendant-appellee Union Bank, a letter, Exhibit E, stating that the Europa
Center was reported to prospective buyers as well as government authorities as part of
common areas and amenities under the condominium concept of selling to the public and
for that reason wants to make it of record that Europa Condominium Villas, Inc., questions
the propriety of the contract to sell.
7. On January 4, 1982, plaintiff-appellant Odyssey Park, Inc., through its Chairman of the
Board, Mr. Carmelito A. Montano, wrote Bancom Development Corp. a letter, Exhibit F,
stating that it acknowledges receipt of a copy of the letter-protest from the Europa
Condominium Villas, Inc., and that in the meantime that there is a question on the propriety
of the sale, it is stopping/withholding payments of the amortization.
8. On the same date, January 4, 1982, Bancom, through its Senior Vice-President, wrote
Europa Condominium Villas, Inc. a letter, Exhibit H, explaining that the Europa Center
and the parcel of land on which it is built are not part of the Europa Condominium Villas,
Inc.
9. On March 29, 1983, defendant-appellee Union Bank wrote plaintiff-appellant Odyssey
Park, Inc., a letter (Annexes F, F-1 of the Supportive Affidavit of Nicefero S. Agaton, pp.
317-318 of the record) demanding payment of the overdue account of P2,193,720.91,
inclusive of interest and service charges, otherwise the contract to sell would be cancelled
and rescinded;
10. On April 12, 1983, plaintiff-appellant Odyssey wrote defendant-appellee Union Bank a
letter (Annex F-2 of the Supportive Affidavit of Nicefero S. Agaton, pp. 319-320 of the record)
proposing a manner of settlement which defendant-appellee Union Bank answered (Annex
F-3, p. 321 of the record) asking for more details of the proposal. The series of
communications led to the drafting of a Memorandum of Agreement (Exhibit N) which was
not, however, signed by the parties.
11. On January 6, 1984, defendant-appellee Union Bank, through counsel, wrote plaintiff-
appellant Odyssey Park, Inc., a letter (Exhibit O) formally rescinding and/or cancelling the
contract to sell and demanding that plaintiff-appellant vacate and peaceably surrender
possession of the premises.
12. On or about August 20, 1984, for failure of plaintiff-appellant to vacate, defendant-
appellee filed a case for illegal detainer and damages (Exhibit P).
13. On July 5, 1988, plaintiff-appellant filed this case for "Declaration of the Nullity of the
Rescission of the Contract to Sell With Damages".1 (Emphasis ours.)
After the trial, the lower court rendered judgment in favor of private respondent, declaring
the Contract to Sell of 04 November 1981 to have been properly rescinded; dismissing the
complaint for being frivolous and unfounded; and ordering the plaintiff to pay the defendant
P300,000.00 by way of attorney's fees and litigation expenses. The judgment, as so
heretofore stated, was affirmed by respondent appellate court.
Its motion for reconsideration having been denied on 22 November 1992, petitioner
corporation seasonably filed the present petition questioning the decision of the appellate
court.
The Court rules for affirmance of the appealed decision.
The issues raised by petitioner which generally are factual in nature and previously taken
up by the appellate court cannot in this instance be freely examined all over again. It is not
the function of the Supreme Court to analyze and to weigh anew the evidence already passed
upon by the Court of Appeals. The authority of this Court is confined to correcting errors of
law, if any, that might have been committed below.2 Absent the recognized exceptions,
which are not here extant, factual findings of the Court of Appeals are conclusive.
Hardly, in this case, can it be said that there was no basis at all for debunking the contention
of petitioner to the effect that because Europa Condominium Villas, Inc., had questioned
the right of Bancom to sell the property, petitioner thereby was enfranchised to suspend or
withhold payment to Bancom. Respondent appellate court, seconding the findings of the
trial court, quoted the latter; thus:
First, the title of Union Bank over the property (TCT No. T-33725) is clear without any
encumbrance or adverse claim. Second, Europa condominium Villas, Inc. has not earnestly
questioned Bancom's right to sell. If Europa is in earnest, it should have filed the necessary
action in Court to protect its right to a valuable property. Third, Europa would not have
offered to buy the property from Bancom for P6 Million if it was claiming ownership over it.
Fourth, the letters which plaintiff claim to be proof of Europa's persistence in questioning
Bancom's right to sell the property do not really question Bancom's right to do so but are
actually money claims of Europa Condominium Villas, Inc. against Odyssey for unpaid
water bills and other services rendered by Europa.3
The only real legal issue, it appears to the Court, is whether or not the rescission of the
contract to sell by private respondent accords with the requirements of Republic Act ("R.A.")
No. 6552, also known as "An Act to Protect Buyers of Real Estate on Installment Payments"
which, petitioner insists, requires a cancellation or rescission of the contract by means of a
notarial act. A mere letter (dated 06 January 1984), or short of such a notarial act, according
to petitioner, would be utterly deficient.
Unfortunately for petitioner, the invocation of Republic Act No. 6552 is misplaced. This law,
which normally applies to the sale or financing of real estate on installment payments,
excludes "industrial lots, commercial buildings, and sales to tenants under R.A. No. 3844."
The appellate court has thus aptly said:
While the law applies to all transactions or contracts involving the sale or financing of real
estate on installment payments, including residential condominium apartments, excluded
are industrial lots, commercial buildings and sales to tenants under R.A. 3844 as amended.
The property subject of the contract to sell is not a residential condominium apartment.
Even on the basis of the letter of Mr. Vicente A. Araneta, Exhibit E, the building is merely
"part of common areas and amenities under the Condominium concept of selling to the
public". The property subject of the contract to sell is more of a commercial building. 4
Neither would Article 1191 of the Civil Code govern. Article 1191, in full, provides:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The Court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
In a contract to sell, the payment of the purchase price is a positive suspensive condition,
the failure of which is not a breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an obligatory force. 5 The breach
contemplated in Article 1191 of the Code is the obligor's failure to comply with an obligation
already extant, not a failure of a condition to render binding that obligation. In any event,
the failure of petitioner to even complete the downpayment stipulated in the contract to sell
puts petitioner corporation far from good stead in urging that there has been substantial
compliance with the contract to sell within the meaning of Article 1191 of the Code.
So, too, must Article 1592 of the Civil Code be held inapplicable. This law states:
Art. 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant him a new term.
It is clear that the above provisions contemplate neither a conditional sale nor a contract to
sell but an absolute sale.6
What must instead be held to rule in the case at bar is the agreement of the parties
themselves. Section 5 of their contract to sell reads:
Sec. 5: In the event Odyssey fails to pay any portion of the purchase price of the Property or
the interest and service charge thereon as and when it falls due, or otherwise fails to comply
with or violate any of the provisions of this Contract, Bancom may at its absolute discretion
cancel and rescind this Contract and declare the same as null, void and no further force and
effect by serving on Odyssey a written notice of cancellation and rescission thirty (30) days
in advance.
In the event this Contract is cancelled and rescinded as provided in this Section, all the
amounts which the Odyssey may have paid to Bancom pursuant to and in accordance with
this Contract shall be forfeited in favor of Bancom as rentals for the use and occupancy of
the Property and as penalty for the breach and violation of this Contract. Furthermore, all
the improvements which Odyssey may have introduced on the Property shall form part
thereof and belong to Bancom without right of reimbursements to Odyssey; Provided, that
Bancom may at its absolute discretion instead require Odyssey to remove such
improvements from the Property at expense of Odyssey.7
It is a familiar doctrine in the law on contracts that the parties are bound by the
stipulations, clauses, terms and conditions they have agreed to,8 the only limitation being
that these stipulations, clauses, terms and conditions are not contrary to law, morals, public
order or public policy.9 Not being repugnant to any legal proscription, the agreement
entered into by the parties herein involved must be respected and held to be the law between
them.
WHEREFORE, the decision appealed from is AFFIRMED in toto. Costs against petitioner.
FIRST DIVISION
G.R. No. 200901, December 07, 2015
SM INVESTMENTS CORPORATION, Petitioner, v. ESTELA MARFORI POSADAS,
MARIA ELENA POSADAS AND AIDA MACARAIG POSADAS. Respondents.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review1 filed by petitioner SM Investments Corporation
(SMIC) assailing the Decision2 dated 13 September 2011 of the Court of Appeals in CA-G.R.
CV No. 91788, which decision, in turn, reversed and set aside the Decision 3 dated 18
December 2007 of the Regional Trial Court of Makati City (Trial Court) in Civil Case No.
97-832.

The material facts of this case, as borne by the records, are as


follows:chanRoblesvirtualLawlibrary

Respondents Estela Marfori Posadas, Maria Elena Posadas and Aida Macaraig Posadas are
the owners of several parcels of land with a total area of 27.6 hectares, more or less, and
covered by Transfer Certificates of Title Nos. S-37656, 158291 and 158292 of the Register
of Deeds of Makati City (Subject Property).

On 08 August 1995, SMIC, through its President, Henry Sy, Jr. (Mr. Sy), sent respondents
a written offer for a joint venture for the development of the Subject Property, which in part
reads:
Madames:

The undersigned offers a JOINT VENTyRE with your realty of more or less 27.6 hectares
at the Posadas Subdivision, Sucat, Muntinlupa City, under the following terms:
1. Development of the entire area into a first class commercial/residential subdivision.
Development of area presently leased to Worldwide with an area of 2.6 hectares will be after
expiration of lease on year 2002.

2. To set values for the property, the set price of P4,000.00 per square meter of areas fronting
South Super Highway and P1,500.00 per square meter for the rest of the area. After full
development, the set price is P20,000.00 per square meter of said front areas and P10,000.00
for the rest of the areas; with no sale of lots after development for less than the set values
herein stated above, except sale to our affiliate company.

3. The sharing of the Joint Venture Partners shall be 60/40 on your favour. The undersigned
reserves his right of first choice for a contiguous consolidated area indicated in plan attached
herewith, for commercial/residential development. You are granted a choice of your 60%
share of developed areas thereafter. Areas used for open spaces and streets required by law
shall have no set values.

4. Upon execution of Joint Venture Agreement, the undersigned will pay you the amount
of SEVENTY MILLION PESOS (P70,000,000.00), Philippine currency, as goodwill money
over and above your 60% share in the Joint Venture and the agents for this joint venture
shall be given five percent (5%) of the goodwill payment as their full commission.

5. In case you decide to avail of a third party to sell your lots from your 60% share, I will be
given the priority to exclusively sell the same, subject to terms and conditions that may be
agreed upon.
The foregoing offer supersedes and revokes my previous offers and/or proposals. I hope you
will favourably consider the foregoing offer.4ChanRoblesVirtualawlibrary
On 18 August 1995, respondents sent SMIC a written counterproposal, which, in part, reads
as follows:
Dear Mr. Sy Jr.:chanRoblesvirtualLawlibrary

Thank you for your interest in our property subject of your Joint Venture proposal dated
August 8, 1995.

The terms mentioned in your proposal, except the goodwill money which we submit should
be not less than EIGHTY MILLION (P80,000,000.00) PESOS, are acceptable in principle,
subject however to our agreement on the specified terms and conditions such as details of
development, your plans and specifications therein, period of completion, use of the area
allocated to you in the Joint Venture and other details.
If our counter-proposal of goodwill money of EIGHTY MILLION (P80,000,000.00) PESOS
is acceptable to you, upon your presentation of the details as stated above, upon our
agreement on the same, we will be ready to sign a Joint Venture Agreement with your
goodself.5ChanRoblesVirtualawlibrary
On 24 August 1995, SMIC, through Mr. Sy, Jr., sent respondents another letter containing
its acceptance of the counter-offer of respondents, which reads as follows:
Dear Mesdames:chanRoblesvirtualLawlibrary

This is to signify acceptance of your counter proposal of goodwill money in the amount of
EIGHTY MILLION PESOS (P80,000,000.00), Philippine currency, as contained in your
letter of August 18, 1995, for the development of your property in Sucat, Paranaque, subject
to the condition that the said amount of goodwill money will be paid and tendered to you
upon your signing of the Joint Venture Agreement.6ChanRoblesVirtualawlibrary
On 02 December 1995, SMIC, in compliance with what it considered as a perfected contract
for the joint venture, sent respondents four (4) drawings of the proposed mall and its location
within the Subject Property.

However, on 06 December 1995, after receiving the aforementioned drawings, respondents


sent SMIC a letter informing it that they had received several other offers for the Subject
Property, and demanding that SMIC better the said offers, before they submit their
comments on the drawings. The said letter reads:
Dear Mr. Sy Jr.:chanRoblesvirtualLawlibrary

By reason of your failure since August 24, 1995 to present to us the "specified terms and
conditions on the details of development" of the 27.6 hectares subject of your offer, up to the
present, specifically "its plans and specifications, period of completion, use of allocated area
and other details" we have not been able to finalize or even negotiate in the proposed Joint
Venture Agreement.

In the interim period of your silence (from August 24, 1995 to December 1, 1995) which
indicated lack interest on your part to pursue your offer, various parties submitted offers on
the 27.6 hectares, amongst which are:
a.) Offer of P120 Million goodwill on the 27.5 hectares plus 60% of the proceeds from [the]
sale of the developed lots of the 27.5 hectares, with the option to submit offers on the vertical
development of the entire 27.6 hectares;

b.) Offer to purchase 7.2 hectares of the 27.6 hectares at the price of P10,000.00 per square
meter on CASH BASIS, with the undertaking to construct a giant commercial complex on
the same; and

c.) Offer to purchase 5.48 hectares of the 27.6 hectares at the price of P5,000.00 per square
meter with P10 Million downpayment with undertaking to construct a giant structure to
cater on the "warehouse concept of marketing";
all of which are now under negotiation.

Last Saturday, December 2, 1995, your representative delivered four (4) drawings of your
proposed Mall (on the 2.3 hectares with the balance devoted to parking) on your choice area
(more or less 8 to 9 hectares) which did not include any plans and specifications of
development of the 27.6 hectares.

Considering the various offers presented to us while waiting for your 'plans and
specifications of development of the 27.6 hectares' which you have not presented up to
now, unless you submit a better offer, there is no need to comment on your
drawings.7(Underlining supplied)
On 27 February 1996, SMIC sent respondents a letter, which reads as follows:
Madames (sic):chanRoblesvirtualLawlibrary

The undersigned reiterates our previous offer for a Joint Venture with you on your 27.6
hectares property at Posadas Subdivision, Sucat, Muntinlupa City, under the following
revised terms:chanRoblesvirtualLawlibrary

As earlier conveyed to you, we will develop the subject property into a first class mixed
commercial/residential subdivision and we propose a 60/40 sharing in your favor. The
undersigned reserves his right of first choice for a contiguous consolidated area which we
will developed (sic) into mixed use development.
Upon execution of the Joint Venture agreement, the undersigned will pay you One Hundred
Forty Million Pesos (P140,000.00) as goodwill money over and above your sixty (60%)
percent share in the Joint Venture.

In case you decide to avail of a third party to sell your lots from your sixty (60%) percent
share, I will be given the priority to exclusively sell same subject to the terms and condition
that may be agreed upon.

If the foregoing terms and conditions is (sic) acceptable to you please signify your conformity
on the space provided herein below.8ChanRoblesVirtualawlibrary
Thereafter, on 21 August 1996, SMIC, through counsel, sent respondents a letter reminding
them to respect the joint venture agreement for the development of the Subject Property.

It appearing that respondents were not willing to honor the joint venture agreement, SMIC,
on 21 April 1997, filed Civil Case No. 97-832, a case for Specific Performance and Damages
with Prayer for Temporary Restraining Order and Writ of Preliminary Injunction against
respondents.

After conducting a full-blown hearing on the merits, the Trial Court, on 18 December 2007,
promulgated its Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered: (a) declaring the
existence, validity and enforceability of the contract between [SMIC and respondents] under
the terms and conditions embodied in the letters dated 08, 18 & 24 August 1995 for the
development of the subject property and ordering the said [respondents] to faithfully comply
with the terms and conditions thereof, particularly to work out with [SMIC], in good faith,
the details, plans and specifications of developments of the subject property, and upon
agreement thereon, to execute the formal Joint Venture Agreement; (b) ordering said
[respondents] to pay [SMIC] the sum of P500,000.00 for attorney's fees and litigation
expenses.9ChanRoblesVirtualawlibrary
Aggrieved by the above-mentioned decision, respondents appealed the same to the Court of
Appeals.10
On 13 September 2011, the Court of Appeals promulgated its Decision reversing and setting
aside the Decision of the Trial Court, the dispositive portion of which reads:
WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The assailed
Decision dated December 18, 2007 is hereby REVERSED and SET ASIDE. The complaint
in Civil Case No. 97-382 for Specific Performance and Damages with Prayer for Temporary
Restraining Order and Writ of Preliminary Injunction is DISMISSED for lack of
merit.11ChanRoblesVirtualawlibrary
Thus, SMIC filed this Petition where it attributed grave and serious errors in judgment on
the part of the Court of Appeals when it made the following findings:
a. There was no perfected contract between SMIC and respondents;
b. The lack of agreement on details and plans of development prevented the perfection
of the contract;
c. The parties are still in the negotiation stage;
d. The Letter of 24 August 1995 embodied only a qualified acceptance on the part of
SMIC; and
e. The Letter of 27 February 1996 constituted a new offer on the part of SMIC.12
In separate Comments,13 respondents refuted the aforestated assignment of errors, and
contended that the exchange of correspondences between SMIC and respondents, in fact,
shows that no joint venture agreement for the development of the Subject Property was
perfected.

The records will show that, indeed, several correspondences were had between the parties
and these constitute the crux of the controversy in this case. It is, thus, incumbent upon Us
to determine whether a contract for a joint venture between the parties has, in fact, been
perfected.

Inasmuch as the principal issues of this case, raised in the foregoing assignment of errors,
are interrelated, we shall proceed to jointly resolve the same.

We find the Petition to be impressed with merit.

It is basic in this jurisdiction that a contract is perfected by mere consent of the parties.
Thus, Article 1315 of the Civil Code provides:
Art. 1315. Contracts are perfected by mere consent and from that moment the parties are
bound not only to the fulfilment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage
and law.
In relation to the foregoing, Articles 1318 to 1320 of the Civil Code states the necessary
requisites of a contract, to wit:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.


SECTION 1. CONSENT

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,

Acceptance made by letter or telegram does not bind the offerer except from the time it came
to his knowledge. The contract, in such a case, is presumed to have been entered in the place
where the offer was made.

Art. 1320. An acceptance may be express or implied.


Based on the above-mentioned provisions of law, we concur with the findings of the Trial
Court that the facts in this particular case show that a contract for a joint venture between
the parties has, in fact, been perfected.

First, the Letter of 08 August 1995 embodies a complete offer on the part of SMIC in that it
contained an object certain, which is the joint venture for the development of the Subject
Property, and a specific cause and/or consideration therefor, which are the goodwill money
in the amount of P70 Million, plus a 60/40 sharing, in favor of respondents of the said
development.
Second, the Letter dated 18 August 1995 in return embodies a complete counter-offer on the
part of respondents in that they conveyed their acceptance of the joint venture subject only
to the counter-proposal to increase the goodwill money from P70 Million to P80 Million.

Third, the Letter dated 24 August 1995 contains an unqualified, acceptance on the part of
SMIC of the above-mentioned counter-proposal of respondents, again on the aspect of the
goodwill money alone.

At this point, following the above-quoted provisions of the Civil Code, particularly Articles
1318 and 1319 thereof, we agree with the finding of the Trial Court that a joint venture
agreement between the parties has been perfected, in that (i) there is consent, or a meeting
of the minds, (ii) there is an object certain, which is the joint venture, and (iii) there is a
cause and/or consideration, which are the goodwill money and specific sharing scheme.

The controversy arose when respondents sent SMIC the Letter of 6 December 1995, wherein
the former stated that they had received more lucrative offers for the Subject Property,
noted a three (3)-month period of silence, on the part of SMIC and concluded that the said
silence was tantamount to a lack of interest on the part of SMIC. Significantly, this
particular letter of respondents immediately followed the submission by SMIC of certain
drawings related to the development. Lastly, and more importantly, respondents stated
therein that unless SMIC submits a better offer, there would simply be no need for
respondents to comment on the said drawings SMIC sent.

The 6 December 1995 Letter of respondents did not have any effect on the perfected joint
venture between the parties. At best, the same letter may be considered as a mere proposal,
on the part of respondents, to amend the consideration of the joint venture. This is confirmed
by the premise laid by respondents therein, particularly that they received better offers from
third parties for the purchase and/or development of the Subject Property, or portions
thereof. We are all but convinced that respondents were well aware and were acting with
the knowledge that the joint venture agreement had indeed been perfected. This is precisely
the reason respondents were very careful with their language when they insisted that
unless SMIC would propose amending the Joint Venture to include better terms,
respondents would withhold their comments on the drawings. It would be important to note
that respondents, in the said letter, did not, in any way or manner, disavow the existence of
the Joint Venture.

Further, respondents, in arguing that a perfected joint venture agreement does not exist,
rely on the statement they made in the letter of 18 August 1995, which states " subject
however to our agreement on the specified terms and conditions such as details of
development, your plans and specifications therein, period of completion, use of the area
allocated to you in the Joint Venture and other details" However, the same, as correctly
pointed out by the Trial Court, is not a condition precedent for the perfection of the joint
venture agreement.

In Swedish Match, AB v. Court of Appeals,14 we explained the stages of a contract, thus:


In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth;
and consummation. Negotiation begins from the time the prospective contracting parties
manifest their interest in the contract and ends at the moment of agreement of the parties.
Perfection or birth of the contract takes place when the parties agree upon the essential
elements of the contract. Consummation occurs when the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment
thereof.15ChanRoblesVirtualawlibrary
In this case, the first and second stage of the contract had been fulfilled. Negotiations took
place when the parties made their exchange of correspondences until the letter of 24 August
1995. The perfection of the contract came thereafter, when SMIC, through the letter of 24
August 1995, accepted the counter-offer of respondents in their letter of 18 August 1995.

The same statement of respondents in said letter of 18 August 1995 already deals with the
consummation stage of the contract, wherein the parties fulfill or perform the terms agreed
upon in the contract. Verily, the details of the development of the Subject Property,
particularly the plans and specifications of the same shall come only after the parties have
already agreed to enter into a joint venture agreement to develop the same. In other words,
the said plans and specifications are but the result of the perfected contract; these were done
in execution of the perfected contract.

We agree with the Trial Court that the development of a first class commercial/residential
subdivision in a 27.6 hectare property is a complex project, which involves a careful and
meticulous preparation of the plans and specifications thereof. And, SMIC for its part have
already exerted efforts and incurred cost for the preparation of the above-mentioned
drawings, in the implementation of the joint venture agreement.

The fact that the above-mentioned drawings came three and a half (3 1/2) months after the
joint venture agreement was perfected is not a valid cause for respondents to unilaterally
back out from the same. We note that nowhere in the records does it appear that SMIC was
given a specific period within which to submit drawings and/or plans. Neither do the records
show that respondents corresponded with SMIC to follow up on the same. On the contrary,
the records will show that respondents tried to solicit more favourable terms from SMIC,
after they received the drawings.

Anent the increase in the goodwill money to the amount of P140 million, subject of the 27
February 1996 letter of SMIC, suffice it to say that We concur with the finding of the Trial
Court that the same was merely to appease respondents, who were lured by subsequent
offers from other parties, and to dissuade respondents from violating or unjustifiably
withdrawing from their subsisting contract with SMIC. This finding was supported by the
testimony of respondent Ma. Elena Posadas, who admitted that the "better offer" they were
asking SMIC to submit referred only to the goodwill money.16 It is a hornbook doctrine that
findings of fact of trial courts are entitled to great weight on appeal and should not be
disturbed except for strong and valid reasons because the trial court is in a better position
to examine the demeanor of the witnesses while testifying. It is not a function of this Court
to analyze and weigh evidence by the parties all over again.17

Indeed, the letter of SMIC of 27 February 1996 on the increased goodwill money was a post
perfection matter, and clearly, was for the purpose of having the issue of breach of the
perfected contract settled without further ado.

In view of the foregoing, we affirm the finding of the Trial Court that there is a perfected
joint venture agreement between the parties for the development of the Subject Property.
Therefore, the said perfected joint venture agreement still stands. In this jurisdiction,
obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.18

WHEREFORE, premises considered, the instant petition is hereby GRANTED. The


assailed Decision dated 13 September 2011 is hereby REVERSED and SET ASIDE. The
Decision dated 18 December 2007 of the Regional Trial Court of Makati City in Civil Case
No. 97-832 is hereby REINSTATED.

SO ORDERED.
FIRST DIVISION
G. R. No. 158149 February 9, 2006
BOSTON BANK OF THE PHILIPPINES, (formerly BANK OF COMMERCE), Petitioner,
vs.
PERLA P. MANALO and CARLOS MANALO, JR., Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA)
in CA-G.R. CV No. 47458 affirming, on appeal, the Decision2 of the Regional Trial Court
(RTC) of Quezon City, Branch 98, in Civil Case No. Q-89-3905.
The Antecedents
The Xavierville Estate, Inc. (XEI) was the owner of parcels of land in Quezon City, known
as the Xavierville Estate Subdivision, with an area of 42 hectares. XEI caused the
subdivision of the property into residential lots, which was then offered for sale to individual
lot buyers.3
On September 8, 1967, XEI, through its General Manager, Antonio Ramos, as vendor, and
The Overseas Bank of Manila (OBM), as vendee, executed a "Deed of Sale of Real Estate"
over some residential lots in the subdivision, including Lot 1, Block 2, with an area of 907.5
square meters, and Lot 2, Block 2, with an area of 832.80 square meters. The transaction
was subject to the approval of the Board of Directors of OBM, and was covered by real estate
mortgages in favor of the Philippine National Bank as security for its account amounting to
₱5,187,000.00, and the Central Bank of the Philippines as security for advances amounting
to ₱22,185,193.74.4 Nevertheless, XEI continued selling the residential lots in the
subdivision as agent of OBM.5
Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr.
Carlos Manalo, Jr. who was in business of drilling deep water wells and installing pumps
under the business name Hurricane Commercial, Inc. For ₱34,887.66, Manalo, Jr. installed
a water pump at Ramos’ residence at the corner of Aurora Boulevard and Katipunan
Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot
in the Xavierville subdivision, and offered as part of the downpayment the ₱34,887.66
Ramos owed him. XEI, through Ramos, agreed. In a letter dated February 8, 1972, Ramos
requested Manalo, Jr. to choose which lots he wanted to buy so that the price of the lots and
the terms of payment could be fixed and incorporated in the conditional sale. 6Manalo, Jr.
met with Ramos and informed him that he and his wife Perla had chosen Lots 1 and 2 of
Block 2 with a total area of 1,740.3 square meters.
In a letter dated August 22, 1972 to Perla Manalo, Ramos confirmed the reservation of the
lots. He also pegged the price of the lots at ₱200.00 per square meter, or a total of
₱348,060.00, with a 20% down payment of the purchase price amounting to ₱69,612.00 less
the ₱34,887.66 owing from Ramos, payable on or before December 31, 1972; the
corresponding Contract of Conditional Sale would then be signed on or before the same date,
but if the selling operations of XEI resumed after December 31, 1972, the balance of the
downpayment would fall due then, and the spouses would sign the aforesaid contract within
five (5) days from receipt of the notice of resumption of such selling operations. It was also
stated in the letter that, in the meantime, the spouses may introduce improvements thereon
subject to the rules and regulations imposed by XEI in the subdivision. Perla Manalo
conformed to the letter agreement.7
The spouses Manalo took possession of the property on September 2, 1972, constructed a
house thereon, and installed a fence around the perimeter of the lots.
In the meantime, many of the lot buyers refused to pay their monthly installments until
they were assured that they would be issued Torrens titles over the lots they had
purchased.8 The spouses Manalo were notified of the resumption of the selling operations of
XEI.9 However, they did not pay the balance of the downpayment on the lots because Ramos
failed to prepare a contract of conditional sale and transmit the same to Manalo for their
signature. On August 14, 1973, Perla Manalo went to the XEI office and requested that the
payment of the amount representing the balance of the downpayment be deferred, which,
however, XEI rejected. On August 10, 1973, XEI furnished her with a statement of their
account as of July 31, 1973, showing that they had a balance of ₱34,724.34 on the
downpayment of the two lots after deducting the account of Ramos, plus ₱3,819.6810 interest
thereon from September 1, 1972 to July 31, 1973, and that the interests on the unpaid
balance of the purchase price of ₱278,448.00 from September 1, 1972 to July 31, 1973
amounted to ₱30,629.28.11 The spouses were informed that they were being billed for said
unpaid interests.12
On January 25, 1974, the spouses Manalo received another statement of account from XEI,
inclusive of interests on the purchase price of the lots.13 In a letter dated April 6, 1974 to
XEI, Manalo, Jr. stated they had not yet received the notice of resumption of Lei’s selling
operations, and that there had been no arrangement on the payment of interests; hence,
they should not be charged with interest on the balance of the downpayment on the
property.14Further, they demanded that a deed of conditional sale over the two lots be
transmitted to them for their signatures. However, XEI ignored the demands.
Consequently, the spouses refused to pay the balance of the downpayment of the purchase
price.15
Sometime in June 1976, Manalo, Jr. constructed a business sign in the sidewalk near his
house. In a letter dated June 17, 1976, XEI informed Manalo, Jr. that business signs were
not allowed along the sidewalk. It demanded that he remove the same, on the ground,
among others, that the sidewalk was not part of the land which he had purchased on
installment basis from XEI.16 Manalo, Jr. did not respond. XEI reiterated its demand on
September 15, 1977.17
Subsequently, XEI turned over its selling operations to OBM, including the receivables for
lots already contracted and those yet to be sold.18 On December 8, 1977, OBM warned
Manalo, Jr., that "putting up of a business sign is specifically prohibited by their contract of
conditional sale" and that his failure to comply with its demand would impel it to avail of
the remedies as provided in their contract of conditional sale.19
Meanwhile, on December 5, 1979, the Register of Deeds issued Transfer Certificate of Title
(TCT) No. T-265822 over Lot 1, Block 2, and TCT No. T-265823 over Lot 2, Block 2, in favor
of the OBM.20 The lien in favor of the Central Bank of the Philippines was annotated at the
dorsal portion of said title, which was later cancelled on August 4, 1980.21
Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from
OBM. CBM wrote Edilberto Ng, the president of Xavierville Homeowners Association that,
as of January 31, 1983, Manalo, Jr. was one of the lot buyers in the subdivision. 22 CBM
reiterated in its letter to Ng that, as of January 24, 1984, Manalo was a homeowner in the
subdivision.23
In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going
construction on the property since it (CBM) was the owner of the lot and she had no
permission for such construction.24 She agreed to have a conference meeting with CBM
officers where she informed them that her husband had a contract with OBM, through XEI,
to purchase the property. When asked to prove her claim, she promised to send the
documents to CBM. However, she failed to do so.25 On September 5, 1986, CBM reiterated
its demand that it be furnished with the documents promised,26 but Perla Manalo did not
respond.
On July 27, 1987, CBM filed a complaint27 for unlawful detainer against the spouses with
the Metropolitan Trial Court of Quezon City. The case was docketed as Civil Case No. 51618.
CBM claimed that the spouses had been unlawfully occupying the property without its
consent and that despite its demands, they refused to vacate the property. The latter alleged
that they, as vendors, and XEI, as vendee, had a contract of sale over the lots which had not
yet been rescinded.28
While the case was pending, the spouses Manalo wrote CBM to offer an amicable settlement,
promising to abide by the purchase price of the property (₱313,172.34), per agreement with
XEI, through Ramos. However, on July 28, 1988, CBM wrote the spouses, through counsel,
proposing that the price of ₱1,500.00 per square meter of the property was a reasonable
starting point for negotiation of the settlement.29 The spouses rejected the counter
proposal,30 emphasizing that they would abide by their original agreement with XEI. CBM
moved to withdraw its complaint31 because of the issues raised.32
In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM
filed its complaint against the spouses Manalo, the latter filed a complaint for specific
performance and damages against the bank before the Regional Trial Court (RTC) of
Quezon City on October 31, 1989.
The plaintiffs alleged therein that they had always been ready, able and willing to pay the
installments on the lots sold to them by the defendant’s remote predecessor-in-interest, as
might be or stipulated in the contract of sale, but no contract was forthcoming; they
constructed their house worth ₱2,000,000.00 on the property in good faith; Manalo, Jr.,
informed the defendant, through its counsel, on October 15, 1988 that he would abide by the
terms and conditions of his original agreement with the defendant’s predecessor-in-interest;
during the hearing of the ejectment case on October 16, 1988, they offered to pay
₱313,172.34 representing the balance on the purchase price of said lots; such tender of
payment was rejected, so that the subject lots could be sold at considerably higher prices to
third parties.
Plaintiffs further alleged that upon payment of the ₱313,172.34, they were entitled to the
execution and delivery of a Deed of Absolute Sale covering the subject lots, sufficient in form
and substance to transfer title thereto free and clear of any and all liens and encumbrances
of whatever kind and nature.33 The plaintiffs prayed that, after due hearing, judgment be
rendered in their favor, to wit:
WHEREFORE, it is respectfully prayed that after due hearing:
(a) The defendant should be ordered to execute and deliver a Deed of Absolute Sale over
subject lots in favor of the plaintiffs after payment of the sum of ₱313,172.34, sufficient in
form and substance to transfer to them titles thereto free and clear of any and all liens and
encumbrances of whatever kind or nature;
(b) The defendant should be held liable for moral and exemplary damages in the amounts
of ₱300,000.00 and ₱30,000.00, respectively, for not promptly executing and delivering to
plaintiff the necessary Contract of Sale, notwithstanding repeated demands therefor and
for having been constrained to engage the services of undersigned counsel for which they
agreed to pay attorney’s fees in the sum of ₱50,000.00 to enforce their rights in the premises
and appearance fee of ₱500.00;
(c) And for such other and further relief as may be just and equitable in the premises.34
In its Answer to the complaint, the defendant interposed the following affirmative defenses:
(a) plaintiffs had no cause of action against it because the August 22, 1972 letter agreement
between XEI and the plaintiffs was not binding on it; and (b) "it had no record of any contract
to sell executed by it or its predecessor, or of any statement of accounts from its predecessors,
or records of payments of the plaintiffs or of any documents which entitled them to the
possession of the lots."35 The defendant, likewise, interposed counterclaims for damages and
attorney’s fees and prayed for the eviction of the plaintiffs from the property.36
Meanwhile, in a letter dated January 25, 1993, plaintiffs, through counsel, proposed an
amicable settlement of the case by paying ₱942,648.70, representing the balance of the
purchase price of the two lots based on the current market value.37 However, the defendant
rejected the same and insisted that for the smaller lot, they pay ₱4,500,000.00, the current
market value of the property.38 The defendant insisted that it owned the property since
there was no contract or agreement between it and the plaintiffs’ relative thereto.
During the trial, the plaintiffs adduced in evidence the separate Contracts of Conditional
Sale executed between XEI and Alberto Soller;39 Alfredo Aguila,40 and Dra. Elena Santos-
Roque41 to prove that XEI continued selling residential lots in the subdivision as agent of
OBM after the latter had acquired the said lots.
For its part, defendant presented in evidence the letter dated August 22, 1972, where XEI
proposed to sell the two lots subject to two suspensive conditions: the payment of the balance
of the downpayment of the property, and the execution of the corresponding contract of
conditional sale. Since plaintiffs failed to pay, OBM consequently refused to execute the
corresponding contract of conditional sale and forfeited the ₱34,877.66 downpayment for the
two lots, but did not notify them of said forfeiture.42 It alleged that OBM considered the lots
unsold because the titles thereto bore no annotation that they had been sold under a contract
of conditional sale, and the plaintiffs were not notified of XEI’s resumption of its selling
operations.
On May 2, 1994, the RTC rendered judgment in favor of the plaintiffs and against the
defendant. The fallo of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant –
(a) Ordering the latter to execute and deliver a Deed of Absolute Sale over Lot 1 and 2, Block
2 of the Xavierville Estate Subdivision after payment of the sum of ₱942,978.70 sufficient
in form and substance to transfer to them titles thereto free from any and all liens and
encumbrances of whatever kind and nature.
(b) Ordering the defendant to pay moral and exemplary damages in the amount of
₱150,000.00; and
(c) To pay attorney’s fees in the sum of ₱50,000.00 and to pay the costs.
SO ORDERED.43
The trial court ruled that under the August 22, 1972 letter agreement of XEI and the
plaintiffs, the parties had a "complete contract to sell" over the lots, and that they had
already partially consummated the same. It declared that the failure of the defendant to
notify the plaintiffs of the resumption of its selling operations and to execute a deed of
conditional sale did not prevent the defendant’s obligation to convey titles to the lots from
acquiring binding effect. Consequently, the plaintiffs had a cause of action to compel the
defendant to execute a deed of sale over the lots in their favor.
Boston Bank appealed the decision to the CA, alleging that the lower court erred in (a) not
concluding that the letter of XEI to the spouses Manalo, was at most a mere contract to sell
subject to suspensive conditions, i.e., the payment of the balance of the downpayment on the
property and the execution of a deed of conditional sale (which were not complied with); and
(b) in awarding moral and exemplary damages to the spouses Manalo despite the absence
of testimony providing facts to justify such awards.44
On September 30, 2002, the CA rendered a decision affirming that of the RTC with
modification. The fallo reads:
WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS that (a) the
figure "₱942,978.70" appearing [in] par. (a) of the dispositive portion thereof is changed to
"₱313,172.34 plus interest thereon at the rate of 12% per annum from September 1, 1972
until fully paid" and (b) the award of moral and exemplary damages and attorney’s fees in
favor of plaintiffs-appellees is DELETED.
SO ORDERED.45
The appellate court sustained the ruling of the RTC that the appellant and the appellees
had executed a Contract to Sell over the two lots but declared that the balance of the
purchase price of the property amounting to ₱278,448.00 was payable in fixed amounts,
inclusive of pre-computed interests, from delivery of the possession of the property to the
appellees on a monthly basis for 120 months, based on the deeds of conditional sale executed
by XEI in favor of other lot buyers.46 The CA also declared that, while XEI must have
resumed its selling operations before the end of 1972 and the downpayment on the property
remained unpaid as of December 31, 1972, absent a written notice of cancellation of the
contract to sell from the bank or notarial demand therefor as required by Republic Act No.
6552, the spouses had, at the very least, a 60-day grace period from January 1, 1973 within
which to pay the same.
Boston Bank filed a motion for the reconsideration of the decision alleging that there was
no perfected contract to sell the two lots, as there was no agreement between XEI and the
respondents on the manner of payment as well as the other terms and conditions of the sale.
It further averred that its claim for recovery of possession of the aforesaid lots in its
Memorandum dated February 28, 1994 filed before the trial court constituted a judicial
demand for rescission that satisfied the requirements of the New Civil Code. However, the
appellate court denied the motion.
Boston Bank, now petitioner, filed the instant petition for review on certiorari assailing the
CA rulings. It maintains that, as held by the CA, the records do not reflect any schedule of
payment of the 80% balance of the purchase price, or ₱278,448.00. Petitioner insists that
unless the parties had agreed on the manner of payment of the principal amount, including
the other terms and conditions of the contract, there would be no existing contract of sale or
contract to sell.47 Petitioner avers that the letter agreement to respondent spouses dated
August 22, 1972 merely confirmed their reservation for the purchase of Lot Nos. 1 and 2,
consisting of 1,740.3 square meters, more or less, at the price of ₱200.00 per square meter
(or ₱348,060.00), the amount of the downpayment thereon and the application of the
₱34,887.00 due from Ramos as part of such downpayment.
Petitioner asserts that there is no factual basis for the CA ruling that the terms and
conditions relating to the payment of the balance of the purchase price of the property (as
agreed upon by XEI and other lot buyers in the same subdivision) were also applicable to
the contract entered into between the petitioner and the Respondents. It insists that such a
ruling is contrary to law, as it is tantamount to compelling the parties to agree to something
that was not even discussed, thus, violating their freedom to contract. Besides, the situation
of the respondents cannot be equated with those of the other lot buyers, as, for one thing,
the respondents made a partial payment on the downpayment for the two lots even before
the execution of any contract of conditional sale.
Petitioner posits that, even on the assumption that there was a perfected contract to sell
between the parties, nevertheless, it cannot be compelled to convey the property to the
respondents because the latter failed to pay the balance of the downpayment of the property,
as well as the balance of 80% of the purchase price, thus resulting in the extinction of its
obligation to convey title to the lots to the Respondents.
Another egregious error of the CA, petitioner avers, is the application of Republic Act No.
6552. It insists that such law applies only to a perfected agreement or perfected contract to
sell, not in this case where the downpayment on the purchase price of the property was not
completely paid, and no installment payments were made by the buyers.
Petitioner also faults the CA for declaring that petitioner failed to serve a notice on the
respondents of cancellation or rescission of the contract to sell, or notarial demand therefor.
Petitioner insists that its August 5, 1986 letter requiring respondents to vacate the property
and its complaint for ejectment in Civil Case No. 51618 filed in the Metropolitan Trial Court
amounted to the requisite demand for a rescission of the contract to sell. Moreover, the
action of the respondents below was barred by laches because despite demands, they failed
to pay the balance of the purchase price of the lots (let alone the downpayment) for a
considerable number of years.
For their part, respondents assert that as long as there is a meeting of the minds of the
parties to a contract of sale as to the price, the contract is valid despite the parties’ failure
to agree on the manner of payment. In such a situation, the balance of the purchase price
would be payable on demand, conformably to Article 1169 of the New Civil Code. They insist
that the law does not require a party to agree on the manner of payment of the purchase
price as a prerequisite to a valid contract to sell. The respondents cite the ruling of this
Court in Buenaventura v. Court of Appeals48 to support their submission.
They argue that even if the manner and timeline for the payment of the balance of the
purchase price of the property is an essential requisite of a contract to sell, nevertheless, as
shown by their letter agreement of August 22, 1972 with the OBM, through XEI and the
other letters to them, an agreement was reached as to the manner of payment of the balance
of the purchase price. They point out that such letters referred to the terms of the terms of
the deeds of conditional sale executed by XEI in favor of the other lot buyers in the
subdivision, which contained uniform terms of 120 equal monthly installments (excluding
the downpayment, but inclusive of pre-computed interests). The respondents assert that
XEI was a real estate broker and knew that the contracts involving residential lots in the
subdivision contained uniform terms as to the manner and timeline of the payment of the
purchase price of said lots.
Respondents further posit that the terms and conditions to be incorporated in the
"corresponding contract of conditional sale" to be executed by the parties would be the same
as those contained in the contracts of conditional sale executed by lot buyers in the
subdivision. After all, they maintain, the contents of the corresponding contract of
conditional sale referred to in the August 22, 1972 letter agreement envisaged those
contained in the contracts of conditional sale that XEI and other lot buyers executed.
Respondents cite the ruling of this Court in Mitsui Bussan Kaisha v. Manila E.R.R. & L.
Co.49
The respondents aver that the issues raised by the petitioner are factual, inappropriate in
a petition for review on certiorari under Rule 45 of the Rules of Court. They assert that
petitioner adopted a theory in litigating the case in the trial court, but changed the same on
appeal before the CA, and again in this Court. They argue that the petitioner is estopped
from adopting a new theory contrary to those it had adopted in the trial and appellate courts.
Moreover, the existence of a contract of conditional sale was admitted in the letters of XEI
and OBM. They aver that they became owners of the lots upon delivery to them by XEI.
The issues for resolution are the following: (1) whether the factual issues raised by the
petitioner are proper; (2) whether petitioner or its predecessors-in-interest, the XEI or the
OBM, as seller, and the respondents, as buyers, forged a perfect contract to sell over the
property; (3) whether petitioner is estopped from contending that no such contract was
forged by the parties; and (4) whether respondents has a cause of action against the
petitioner for specific performance.
The rule is that before this Court, only legal issues may be raised in a petition for review on
certiorari. The reason is that this Court is not a trier of facts, and is not to review and
calibrate the evidence on record. Moreover, the findings of facts of the trial court, as affirmed
on appeal by the Court of Appeals, are conclusive on this Court unless the case falls under
any of the following exceptions:
(1) when the conclusion is a finding grounded entirely on speculations, surmises and
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3)
where there is a grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings went beyond the issues of the case and the same is contrary
to the admissions of both appellant and appellee; (7) when the findings are contrary to those
of the trial court; (8) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as well as in
the petitioners’ main and reply briefs are not disputed by the respondents; and (10) when
the findings of fact of the Court of Appeals are premised on the supposed absence of evidence
and contradicted by the evidence on record.50
We have reviewed the records and we find that, indeed, the ruling of the appellate court
dismissing petitioner’s appeal is contrary to law and is not supported by evidence. A careful
examination of the factual backdrop of the case, as well as the antecedental proceedings
constrains us to hold that petitioner is not barred from asserting that XEI or OBM, on one
hand, and the respondents, on the other, failed to forge a perfected contract to sell the
subject lots.
It must be stressed that the Court may consider an issue not raised during the trial when
there is plain error.51Although a factual issue was not raised in the trial court, such issue
may still be considered and resolved by the Court in the interest of substantial justice, if it
finds that to do so is necessary to arrive at a just decision,52 or when an issue is closely
related to an issue raised in the trial court and the Court of Appeals and is necessary for a
just and complete resolution of the case.53 When the trial court decides a case in favor of a
party on certain grounds, the Court may base its decision upon some other points, which
the trial court or appellate court ignored or erroneously decided in favor of a party.54
In this case, the issue of whether XEI had agreed to allow the respondents to pay the
purchase price of the property was raised by the parties. The trial court ruled that the
parties had perfected a contract to sell, as against petitioner’s claim that no such contract
existed. However, in resolving the issue of whether the petitioner was obliged to sell the
property to the respondents, while the CA declared that XEI or OBM and the respondents
failed to agree on the schedule of payment of the balance of the purchase price of the
property, it ruled that XEI and the respondents had forged a contract to sell; hence,
petitioner is entitled to ventilate the issue before this Court.
We agree with petitioner’s contention that, for a perfected contract of sale or contract to sell
to exist in law, there must be an agreement of the parties, not only on the price of the
property sold, but also on the manner the price is to be paid by the vendee.
Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or
conditional, one of the contracting parties obliges himself to transfer the ownership of and
deliver a determinate thing, and the other to pay therefor a price certain in money or its
equivalent. A contract of sale is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and the price. From the averment of
perfection, the parties are bound, not only to the fulfillment of what has been expressly
stipulated, but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.55 On the other hand, when the contract of sale or to
sell is not perfected, it cannot, as an independent source of obligation, serve as a binding
juridical relation between the parties.56
A definite agreement as to the price is an essential element of a binding agreement to sell
personal or real property because it seriously affects the rights and obligations of the
parties. Price is an essential element in the formation of a binding and enforceable contract
of sale. The fixing of the price can never be left to the decision of one of the contracting
parties. But a price fixed by one of the contracting parties, if accepted by the other, gives
rise to a perfected sale.57
It is not enough for the parties to agree on the price of the property. The parties must also
agree on the manner of payment of the price of the property to give rise to a binding and
enforceable contract of sale or contract to sell. This is so because the agreement as to the
manner of payment goes into the price, such that a disagreement on the manner of payment
is tantamount to a failure to agree on the price.58
In a contract to sell property by installments, it is not enough that the parties agree on the
price as well as the amount of downpayment. The parties must, likewise, agree on the
manner of payment of the balance of the purchase price and on the other terms and
conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof,
such payment cannot be considered as sufficient proof of the perfection of any purchase and
sale between the parties. Indeed, this Court ruled in Velasco v. Court of Appeals59 that:
It is not difficult to glean from the aforequoted averments that the petitioners themselves
admit that they and the respondent still had to meet and agree on how and when the down-
payment and the installment payments were to be paid. Such being the situation, it cannot,
therefore, be said that a definite and firm sales agreement between the parties had been
perfected over the lot in question. Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an essential element in the
formation of a binding and enforceable contract of sale. The fact, therefore, that the
petitioners delivered to the respondent the sum of ₱10,000.00 as part of the downpayment
that they had to pay cannot be considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties herein under article 1482 of the New Civil
Code, as the petitioners themselves admit that some essential matter – the terms of
payment – still had to be mutually covenanted.60
We agree with the contention of the petitioner that, as held by the CA, there is no showing,
in the records, of the schedule of payment of the balance of the purchase price on the
property amounting to ₱278,448.00. We have meticulously reviewed the records, including
Ramos’ February 8, 1972 and August 22, 1972 letters to respondents, 61 and find that said
parties confined themselves to agreeing on the price of the property (₱348,060.00), the 20%
downpayment of the purchase price (₱69,612.00), and credited respondents for the
₱34,887.00 owing from Ramos as part of the 20% downpayment. The timeline for the
payment of the balance of the downpayment (₱34,724.34) was also agreed upon, that is, on
or before XEI resumed its selling operations, on or before December 31, 1972, or within five
(5) days from written notice of such resumption of selling operations. The parties had also
agreed to incorporate all the terms and conditions relating to the sale, inclusive of the terms
of payment of the balance of the purchase price and the other substantial terms and
conditions in the "corresponding contract of conditional sale," to be later signed by the
parties, simultaneously with respondents’ settlement of the balance of the downpayment.
The February 8, 1972 letter of XEI reads:
Mr. Carlos T. Manalo, Jr.
Hurricane Rotary Well Drilling
Rizal Avenue Ext.,Caloocan City
Dear Mr. Manalo:
We agree with your verbal offer to exchange the proceeds of your contract with us to form
as a down payment for a lot in our Xavierville Estate Subdivision.
Please let us know your choice lot so that we can fix the price and terms of payment in
our conditional sale.
Sincerely yours,
XAVIERVILLE ESTATE, INC.
(Signed)
EMERITO B. RAMOS, JR.
President
CONFORME:
(Signed)
CARLOS T. MANALO, JR.
Hurricane Rotary Well Drilling62
The August 22, 1972 letter agreement of XEI and the respondents reads:
Mrs. Perla P. Manalo
1548 Rizal Avenue Extensionbr>Caloocan City
Dear Mrs. Manalo:
This is to confirm your reservation of Lot Nos. 1 and 2; Block 2 of our consolidation-
subdivision plan as amended, consisting of 1,740.3 square meters more or less, at the price
of ₱200.00 per square meter or a total price of ₱348,060.00.
It is agreed that as soon as we resume selling operations, you must pay a down payment of
20% of the purchase price of the said lots and sign the corresponding Contract of Conditional
Sale, on or before December 31, 1972, provided, however, that if we resume selling after
December 31, 1972, then you must pay the aforementioned down payment and sign the
aforesaid contract within five (5) days from your receipt of our notice of resumption of selling
operations.
In the meanwhile, you may introduce such improvements on the said lots as you may desire,
subject to the rules and regulations of the subdivision.
If the above terms and conditions are acceptable to you, please signify your conformity by
signing on the space herein below provided.
Thank you.
Very truly yours,
XAVIERVILLE ESTATE, INC. CONFORME:
By:
(Signed) (Signed)
EMERITO B. RAMOS, JR. PERLA P. MANALO
President Buyer63
Based on these two letters, the determination of the terms of payment of the ₱278,448.00
had yet to be agreed upon on or before December 31, 1972, or even afterwards, when the
parties sign the corresponding contract of conditional sale.
Jurisprudence is that if a material element of a contemplated contract is left for future
negotiations, the same is too indefinite to be enforceable.64 And when an essential element
of a contract is reserved for future agreement of the parties, no legal obligation arises until
such future agreement is concluded.65
So long as an essential element entering into the proposed obligation of either of the parties
remains to be determined by an agreement which they are to make, the contract is
incomplete and unenforceable.66 The reason is that such a contract is lacking in the
necessary qualities of definiteness, certainty and mutuality.67
There is no evidence on record to prove that XEI or OBM and the respondents had agreed,
after December 31, 1972, on the terms of payment of the balance of the purchase price of
the property and the other substantial terms and conditions relative to the sale. Indeed, the
parties are in agreement that there had been no contract of conditional sale ever executed
by XEI, OBM or petitioner, as vendor, and the respondents, as vendees.68
The ruling of this Court in Buenaventura v. Court of Appeals has no bearing in this case
because the issue of the manner of payment of the purchase price of the property was not
raised therein.
We reject the submission of respondents that they and Ramos had intended to incorporate
the terms of payment contained in the three contracts of conditional sale executed by XEI
and other lot buyers in the "corresponding contract of conditional sale," which would later
be signed by them.69 We have meticulously reviewed the respondents’ complaint and find
no such allegation therein.70 Indeed, respondents merely alleged in their complaint that
they were bound to pay the balance of the purchase price of the property "in installments."
When respondent Manalo, Jr. testified, he was never asked, on direct examination or even
on cross-examination, whether the terms of payment of the balance of the purchase price of
the lots under the contracts of conditional sale executed by XEI and other lot buyers would
form part of the "corresponding contract of conditional sale" to be signed by them
simultaneously with the payment of the balance of the downpayment on the purchase price.
We note that, in its letter to the respondents dated June 17, 1976, or almost three years
from the execution by the parties of their August 22, 1972 letter agreement, XEI stated, in
part, that respondents had purchased the property "on installment basis."71 However, in the
said letter, XEI failed to state a specific amount for each installment, and whether such
payments were to be made monthly, semi-annually, or annually. Also, respondents, as
plaintiffs below, failed to adduce a shred of evidence to prove that they were obliged to pay
the ₱278,448.00 monthly, semi-annually or annually. The allegation that the payment of
the ₱278,448.00 was to be paid in installments is, thus, vague and indefinite. Case law is
that, for a contract to be enforceable, its terms must be certain and explicit, not vague or
indefinite.72
There is no factual and legal basis for the CA ruling that, based on the terms of payment of
the balance of the purchase price of the lots under the contracts of conditional sale executed
by XEI and the other lot buyers, respondents were obliged to pay the ₱278,448.00 with pre-
computed interest of 12% per annum in 120-month installments. As gleaned from the ruling
of the appellate court, it failed to justify its use of the terms of payment under the three
"contracts of conditional sale" as basis for such ruling, to wit:
On the other hand, the records do not disclose the schedule of payment of the purchase price,
net of the downpayment. Considering, however, the Contracts of Conditional Sale (Exhs.
"N," "O" and "P") entered into by XEI with other lot buyers, it would appear that the
subdivision lots sold by XEI, under contracts to sell, were payable in 120 equal monthly
installments (exclusive of the downpayment but including pre-computed interests)
commencing on delivery of the lot to the buyer.73
By its ruling, the CA unilaterally supplied an essential element to the letter agreement of
XEI and the Respondents. Courts should not undertake to make a contract for the parties,
nor can it enforce one, the terms of which are in doubt.74 Indeed, the Court emphasized in
Chua v. Court of Appeals75 that it is not the province of a court to alter a contract by
construction or to make a new contract for the parties; its duty is confined to the
interpretation of the one which they have made for themselves, without regard to its wisdom
or folly, as the court cannot supply material stipulations or read into contract words which
it does not contain.
Respondents, as plaintiffs below, failed to allege in their complaint that the terms of
payment of the ₱278,448.00 to be incorporated in the "corresponding contract of conditional
sale" were those contained in the contracts of conditional sale executed by XEI and Soller,
Aguila and Roque.76 They likewise failed to prove such allegation in this Court.
The bare fact that other lot buyers were allowed to pay the balance of the purchase price of
lots purchased by them in 120 or 180 monthly installments does not constitute evidence that
XEI also agreed to give the respondents the same mode and timeline of payment of the
₱278,448.00.
Under Section 34, Rule 130 of the Revised Rules of Court, evidence that one did a certain
thing at one time is not admissible to prove that he did the same or similar thing at another
time, although such evidence may be received to prove habit, usage, pattern of conduct or
the intent of the parties.
Similar acts as evidence. – Evidence that one did or did not do a certain thing at one time is
not admissible to prove that he did or did not do the same or a similar thing at another time;
but it may be received to prove a specific intent or knowledge, identity, plan, system,
scheme, habit, custom or usage, and the like.
However, respondents failed to allege and prove, in the trial court, that, as a matter of
business usage, habit or pattern of conduct, XEI granted all lot buyers the right to pay the
balance of the purchase price in installments of 120 months of fixed amounts with pre-
computed interests, and that XEI and the respondents had intended to adopt such terms of
payment relative to the sale of the two lots in question. Indeed, respondents adduced in
evidence the three contracts of conditional sale executed by XEI and other lot buyers merely
to prove that XEI continued to sell lots in the subdivision as sales agent of OBM after it
acquired said lots, not to prove usage, habit or pattern of conduct on the part of XEI to
require all lot buyers in the subdivision to pay the balance of the purchase price of said lots
in 120 months. It further failed to prive that the trial court admitted the said deeds 77 as
part of the testimony of respondent Manalo, Jr.78
Habit, custom, usage or pattern of conduct must be proved like any other facts. Courts must
contend with the caveat that, before they admit evidence of usage, of habit or pattern of
conduct, the offering party must establish the degree of specificity and frequency of uniform
response that ensures more than a mere tendency to act in a given manner but rather,
conduct that is semi-automatic in nature. The offering party must allege and prove specific,
repetitive conduct that might constitute evidence of habit. The examples offered in evidence
to prove habit, or pattern of evidence must be numerous enough to base on inference of
systematic conduct. Mere similarity of contracts does not present the kind of sufficiently
similar circumstances to outweigh the danger of prejudice and confusion.
In determining whether the examples are numerous enough, and sufficiently regular, the
key criteria are adequacy of sampling and uniformity of response. After all, habit means a
course of behavior of a person regularly represented in like circumstances.79 It is only when
examples offered to establish pattern of conduct or habit are numerous enough to lose an
inference of systematic conduct that examples are admissible. The key criteria are adequacy
of sampling and uniformity of response or ratio of reaction to situations.80
There are cases where the course of dealings to be followed is defined by the usage of a
particular trade or market or profession. As expostulated by Justice Benjamin Cardozo of
the United States Supreme Court: "Life casts the moulds of conduct, which will someday
become fixed as law. Law preserves the moulds which have taken form and shape from
life."81 Usage furnishes a standard for the measurement of many of the rights and acts of
men.82 It is also well-settled that parties who contract on a subject matter concerning which
known usage prevail, incorporate such usage by implication into their agreement, if nothing
is said to be contrary.83
However, the respondents inexplicably failed to adduce sufficient competent evidence to
prove usage, habit or pattern of conduct of XEI to justify the use of the terms of payment in
the contracts of the other lot buyers, and thus grant respondents the right to pay the
₱278,448.00 in 120 months, presumably because of respondents’ belief that the manner of
payment of the said amount is not an essential element of a contract to sell. There is no
evidence that XEI or OBM and all the lot buyers in the subdivision, including lot buyers
who pay part of the downpayment of the property purchased by them in the form of service,
had executed contracts of conditional sale containing uniform terms and conditions.
Moreover, under the terms of the contracts of conditional sale executed by XEI and three lot
buyers in the subdivision, XEI agreed to grant 120 months within which to pay the balance
of the purchase price to two of them, but granted one 180 months to do so.84 There is no
evidence on record that XEI granted the same right to buyers of two or more lots.
Irrefragably, under Article 1469 of the New Civil Code, the price of the property sold may
be considered certain if it be so with reference to another thing certain. It is sufficient if it
can be determined by the stipulations of the contract made by the parties thereto 85 or by
reference to an agreement incorporated in the contract of sale or contract to sell or if it is
capable of being ascertained with certainty in said contract; 86 or if the contract contains
express or implied provisions by which it may be rendered certain;87 or if it provides some
method or criterion by which it can be definitely ascertained.88 As this Court held in
Villaraza v. Court of Appeals,89 the price is considered certain if, by its terms, the contract
furnishes a basis or measure for ascertaining the amount agreed upon.
We have carefully reviewed the August 22, 1972 letter agreement of the parties and find no
direct or implied reference to the manner and schedule of payment of the balance of the
purchase price of the lots covered by the deeds of conditional sale executed by XEI and that
of the other lot buyers90 as basis for or mode of determination of the schedule of the payment
by the respondents of the ₱278,448.00.
The ruling of this Court in Mitsui Bussan Kaisha v. Manila Electric Railroad and Light
Company91 is not applicable in this case because the basic price fixed in the contract was
₱9.45 per long ton, but it was stipulated that the price was subject to modification "in
proportion to variations in calories and ash content, and not otherwise." In this case, the
parties did not fix in their letters-agreement, any method or mode of determining the terms
of payment of the balance of the purchase price of the property amounting to ₱278,448.00.
It bears stressing that the respondents failed and refused to pay the balance of the
downpayment and of the purchase price of the property amounting to ₱278,448.00 despite
notice to them of the resumption by XEI of its selling operations. The respondents enjoyed
possession of the property without paying a centavo. On the other hand, XEI and OBM failed
and refused to transmit a contract of conditional sale to the Respondents. The respondents
could have at least consigned the balance of the downpayment after notice of the resumption
of the selling operations of XEI and filed an action to compel XEI or OBM to transmit to
them the said contract; however, they failed to do so.
As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected
contract to sell the two lots; hence, respondents have no cause of action for specific
performance against petitioner. Republic Act No. 6552 applies only to a perfected contract
to sell and not to a contract with no binding and enforceable effect.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court
of Appeals in CA-G.R. CV No. 47458 is REVERSED and SET ASIDE. The Regional Trial
Court of Quezon City, Branch 98 is ordered to dismiss the complaint. Costs against the
Respondents.
SO ORDERED.
THIRD DIVISION
G.R. No. 145017 January 28, 2005
DR. JOSE and AIDA YASON, petitioners,
vs.
FAUSTINO ARCIAGA, FELIPE NERI ARCIAGA, DOMINGO ARCIAGA, and ROGELIO
ARCIAGA, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Amended Decision1 of the Court of Appeals dated
September 13, 2000 in CA G.R. CV No. 55668, entitled "Faustino Arciaga, et. al. vs. Dr. Jose
Yason and Aida Yason."
The factual antecedents as borne by the records are:
Spouses Emilio and Claudia Arciaga were owners of Lot No. 303-B situated in Barangay
Putatan, Muntinlupa City, with an area of 5,274 square meters covered by TCT No. 40913
of the Registry of Deeds of Makati City. On March 28, 1983, they executed a Deed of
Conditional Sale whereby they sold Lot No. 303-B for ₱265,000.00 to spouses Dr. Jose and
Aida Yason, petitioners. They tendered an initial payment of ₱150,000.00. On April 19,
1983, upon payment of the balance of ₱115,000.00, spouses Emilio and Claudia Arciaga
executed a Deed of Absolute Sale. That day, Claudia died. She was survived by her spouse
and their six (6) children, namely: Faustino, Felipe Neri, Domingo, Rogelio, Virginia, and
Juanita.
Petitioners had the Deed of Absolute Sale registered in the Registry of Deeds of Makati City.
They entrusted its registration to one Jesus Medina to whom they delivered the document
of sale and the amount of ₱15,000.00 as payment for the capital gains tax. Without their
knowledge, Medina falsified the Deed of Absolute Sale and had the document registered in
the Registry of Deeds of Makati City. He made it appear that the sale took place on July 2,
1979, instead of April 19, 1983, and that the price of the lot was only ₱25,000.00, instead of
₱265,000.00. On the basis of the fabricated deed, TCT No. 40913 in the names of spouses
Arciaga was cancelled and in lieu thereof, TCT No. 120869 was issued in the names of
petitioners.
Subsequently, petitioners had Lot No. 303-B subdivided into 23 smaller lots. Thus, TCT No.
120869 was cancelled and in lieu thereof, TCT Nos. 132942 to 132964 were issued.
Petitioners then sold several lots to third persons, except the 13 lots covered by TCT Nos.
132942, 132943, 132945, 132946, 132948, 132950, 132951, 132953, 132954, 132955, 132958,
132962 and 132963, which they retained.
Sometime in April 1989, spouses Arciaga’s children learned of the falsified document of sale.
Four of them, namely: Faustino, Felipe Neri, Domingo and Rogelio, herein respondents,
caused the filing with the Office of the Provincial Prosecutor of Makati City a complaint for
falsification of documents against petitioners, docketed as I.S No. 89-1966. It was only after
receiving the subpoena in April 1989 when they learned that the Deed of Absolute Sale was
falsified. However, after the preliminary investigation, the Provincial Prosecutor dismissed
the complaint for falsification for lack of probable cause.
Undaunted, respondents, on October 12, 1989, filed with the Regional Trial Court (RTC),
Branch 62, Makati City, a complaint for annulment of the 13 land titles, mentioned earlier,
against petitioners. Respondents alleged inter aliathat the Deed of Absolute Sale is void ab
initio considering that (1) Claudia Arciaga did not give her consent to the sale as she was
then seriously ill, weak, and unable to talk and (2) Jesus Medina falsified the Deed of
Absolute Sale; that without Claudia’s consent, the contract is void; and that the 13 land
titles are also void because a forged deed conveys no title.
In their answer, petitioners specifically denied the allegations in the complaint and averred
that they validly acquired the property by virtue of the notarized Deed of Conditional Sale
and the Deed of Absolute Sale executed by spouses Emilio and Claudia Arciaga,
respondents’ parents. The Deed of Absolute Sale was duly signed by the parties in the
morning of April 19, 1983 when Claudia was still alive. It was in the evening of the same
day when she died. Hence, the contract of sale is valid. Furthermore, they have no
participation in the falsification of the Deed of Absolute Sale by Medina. In fact, they exerted
efforts to locate him but to no avail.
On August 29, 1995, the trial court rendered a Decision dismissing respondents’ complaint
and sustaining the validity of the Deed of Conditional Sale and the Deed of Absolute Sale.
The dispositive portion reads:
"WHEREFORE, Premises Considered, the COMPLAINT is hereby ordered DISMISSED,
without pronouncement as to costs.
SO ORDERED."
In their appeal to the Court of Appeals, respondents alleged that the trial court clearly
overlooked vital and significant facts which, if considered, would alter the result. Likewise,
the trial court erred in concluding that the Deed of Absolute Sale forged by Medina
transferred ownership to the vendees, being buyers in good faith; and in finding that
Claudia Arciaga consented to the sale of the lots to petitioner spouses.2
Initially, the Court of Appeals in its Decision dated February 21, 2000 affirmed the trial
court’s ruling. But upon respondents’ motion for reconsideration, the Appellate Court
reconsidered its Decision. In its Amended Decision, it declared the Deed of Absolute Sale
void, thus:
"WHEREFORE, Our decision dated February 21, 2000 is hereby SET ASIDE. The Deed of
Absolute Sale dated April 19, 1983 is hereby declared null and void. The Registry of Deeds
for Makati City is hereby ordered to cancel TCT Nos. 132942, 132943, 132945, 132946,
132948, 132950, 132951, 132953, 132954, 132955, 132958, 132962 and 132963 issued in the
name of Jose Yason and to reinstate TCT No. 40913 in the name of Emilio Arciaga.
SO ORDERED."
In reversing its own Decision, the Appellate Court held:
"There is no evidence showing that said July 2, 1979 Deed of Absolute Sale covering the
subject property was ever executed by the parties. The appellees themselves who were
supposedly the vendees did not even know of the existence of such sale. What the appellees
were claiming was that they entrusted to one Jesus Medina the original copies of the
purported Deed of Absolute Sale dated April 19, 1983 and the owner’s copy of TCT No. 40913
together with the amount of ₱15,000.00 for capital gains tax and expenses for registration.
xxx
It turned out that Medina did not use the Deed of Sale dated April 19, 1983 but fabricated
a Deed of Absolute Sale dated July 2, 1979 with a reduced consideration of ₱25,000.00.
xxx
Being a forged document, the July 2, 1979 Deed of Absolute Sale is indeed null and void.
It appears, however, that a Deed of Conditional Sale dated March 28, 1983 (Exh. 1, Record,
p. 289) and a Deed of Absolute Sale dated April 19, 1983 (Exh. 2, Record, p. 290) were
purportedly executed by Emilio Arciaga and the appellees and that the said property was
allegedly sold for ₱265,000.00.
xxx
The curious part about the controversial deeds is the date of their supposed execution,
especially the date of the Absolute Deed of Sale which coincides with the date of the death
of Claudia Arciaga. Also intriguing is the fact that only a thumbmark and not a signature
of Claudia Arciaga was affixed on the supposed deeds, when in fact she could definitely read
and write.
Appellants claimed that their mother Claudia Rivera never gave her consent to the sale.
They said that the thumbmark of their mother Claudia Arciaga was allegedly fixed on the
Deed of Conditional Sale, if indeed it was prepared before the death of their mother on April
19, 1983, when she was already very ill and bedridden and could not anymore give her
consent thereto, and the Deed of Absolute Sale was thumbmarked when she was already
dead.
xxx
As between the testimony of the appellants and their sister Virginia Arciaga-Reyes, We are
inclined to believe the claim of the former that their mother Claudia Rivera Arciaga died at
around 10:00 in the morning.
xxx
The time when Claudia Rivera Arciaga actually died, to Us, is crucial if only to determine
the credibility of witnesses.
As between Virginia Arciaga Reyes and Jacklyn de Mesa, the latter is more
credible.l^vvphi1.net She did not have any interest in the controverted property, unlike the
appellants and Virginia Reyes, who are the children of Claudia Rivera Arciaga. The cardinal
rule in the law of evidence is that the testimony must not only proceed from the mouth of a
credible witness but must also be credible in itself (People vs. Serdan, G.R. 87318,
September 2, 1992).
xxx
We certainly cannot believe the testimony of Virginia Arciaga Reyes that her mother
Claudia went to the house of Atty. Fresnedi for the execution of the Deed of Conditional
Sale. A person who is physically fit to travel can definitely write his signature, as only
minimal effort is needed to perform this simple mechanical act. But what appeared in the
deed was only a purported thumb mark of Claudia. Even Virginia Reyes said that her
mother could write. Her testimony only supports the claim of the appellants that Claudia
Rivera Arciaga was already very ill and weak when the Deed of Conditional Sale was
purportedly executed, and was already dead when she was made to affix her thumb mark
on the Deed of Absolute Sale.
xxx
In sum, the inconsistent testimonies of the appellee and his witnesses, particularly that of
Virginia Arciaga Reyes, clearly show that Claudia Rivera Arciaga did not voluntarily affix
her thumb mark on the Deed of Conditional Sale and Deed of Absolute Sale."
Hence, this petition for review on certiorari alleging that the Court of Appeals erred in
declaring the Deed of Absolute Sale void for lack of consent on the part of Claudia Arciaga
and because the same document was forged by Medina.
The petition is impressed with merit.
The rule is that only questions of law may be raised in a petition for review on certiorari;
and that the factual findings of the trial court, when adopted and confirmed by the Court of
Appeals, are final and conclusive on this Court.3However, there are exceptions, such as
when the findings of the Court of Appeals are contrary to those of the trial court,4 as in this
case.
In determining whether the Deed of Absolute Sale dated April 19, 1983 is valid, it must
contain the essential requisites of contracts, viz: (1) consent of the contracting parties; (2)
object certain which is the subject matter of the contract; and (3) cause of the obligation
which is established.5 A contract of sale is perfected at the moment there is a meeting of the
minds upon the thing which is the object of the contract and upon the price. 6 Consent is
manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract.7 To enter into a valid legal agreement, the parties must
have the capacity to do so.
The law presumes that every person is fully competent to enter into a contract until
satisfactory proof to the contrary is presented. The burden of proof is on the individual
asserting a lack of capacity to contract, and this burden has been characterized as requiring
for its satisfaction clear and convincing evidence.
The Appellate Court, in its Amended Decision, held that the Deed of Absolute Sale is void
for lack of consent on the part of Claudia Arciaga who could not have affixed her thumbmark
thereon since she was very ill then. In fact, she died a few hours thereafter.
Thus, the basic issue for our resolution is whether Claudia Arciaga voluntarily affixed her
thumbmark on the documents of sale.
Respondents contend that Claudia did not give her consent to the contracts of sale. Since
she knew how to read and write, she should have signed each document instead of merely
affixing her thumbmark thereon.
Domingo Arciaga, one of the respondents, testified that her mother Claudia was 82 years
old when she died on April 19, 1983 due to "old age" and illness for four (4) months. On
March 28, 1983, when the Conditional Deed of Sale was allegedly executed, she was already
very weak and thin and could no longer speak. Considering her physical condition, she could
not have affixed her thumbmark on the Conditional Deed of Sale that day.8
Domingo further testified that their mother Claudia, at the time of her death, was being
attended to by his sisters Juanita and Virginia Arciaga; that he saw Virginia holding the
thumb of their mother to enable her to affix her thumbmark on the Deed of Absolute Sale,
then being held by Juanita, thus:
"Q: Now, you have examined the document entitled Deed of Sale dated April 19, 1983, when
for the first time did you see this document?
A: When my mother died.
Q: When?
A: April 19, 1983.
Q: At what particular occasion or will you please tell the Honorable Court the circumstances
how you were able to see this document on April 19, 1983?
A: This is like this. While my mother was being attended, I went over to the porch and I saw
Mr. Rogelio Arciaga. We talked with each other. After that I went inside the house wherein
I saw Juliana Arciaga holding that document, the Deed of Sale, and Virginia Arciaga was
holding the thumb of mother affixing said thumb to the document.
Q: Who is Virginia Arciaga?
A: My sister.
Q: How about Juanita Arciaga?
A: My sister also.
Q: How about Rogelio Arciaga?
A: I have also a brother named Rogelio Arciaga but the one I mentioned has the same name
as my brother.
Q: After that what happened?
A: I asked, what is that? And they told me that one parcel of land was sold already by us
and they said that this is the Deed of Absolute Sale as proof that we have sold that parcel
of land. I asked them: Why did you do that? It cannot be! Our mother is a good mother, why
still permit her to commit a sin.
Q: After that what happened next?
A: They told me that they are not going to pursue with it and I told them it cannot be really
done."9
Domingo’s testimony was corroborated by his brother Felipe Arciaga who testified that their
mother was already dead when her thumbmark was affixed on the document of sale, thus:
"Q: Did you hear any conversation between Domingo and your sisters holding the document?
A: Yes, sir.
Q: What was the conversation that you heard?
A: My brother said that it should not be thumbmarked since my mother is already dead. My
sisters Virginia and Juanita replied that the thumb marking will no longer proceed."10
Upon the other hand, petitioners maintain that Claudia voluntarily affixed her thumbmark
on the Deeds of Conditional and Absolute Sale which were notarized by Atty. Jaime
Fresnedi. and Absolute Sale which were notarized by Atty. Jaime Fresnedi. Virginia Arciaga
Andres, daughter of Claudia, testified that she took care of her mother. Five (5) months
prior to the execution of the Conditional Deed of Sale on March 28, 1983, her parents
informed her and her siblings that they would sell their land. After the sale, her brother
Felipe Neri borrowed ₱50,000.00 from their father. Her father signed the two documents of
sale, while her mother affixed her thumbmark thereon. Then Atty. Jaime Fresnedi
notarized the Conditional Deed of Sale in his office, while the Deed of Absolute Sale was
notarized in her house. Her brothers (respondents herein) were all notified of the
sale.111awphi1.nét
Atty. Jaime Fresnedi testified that he notarized the subject documents and knew that
Claudia affixed her thumbmark thereon, thus:
"Q: What is the importance of the signatures in these two (2) documents?
A: That the parties who executed these documents appeared before me, your Honor.
xxx
Q: And when did you notarize the said document, this Deed of Absolute Sale dated April 19,
1983?
A: It was notarized in the same date.
Q: Where was it notarized?
A: It was also notarized in my office.
A: Yes, sir.12
xxx
Q: Do you know personally Claudia Arciaga, the wife of Emilio Arciaga?
A: No, I do not know her personally.
xxx
Q: Prior to the execution of this document, Absolute Deed of Sale dated April 19, 1983, have
you not met Claudia Rivera?
A: I cannot remember.
xxx
Q: When you notarized this document on April 19, 1983, did you talk to Claudia Rivera?
A: I cannot remember.13
xxx
COURT:
Q: Did you ascertain whether the person who affixed that thumbmark was really CLAUDIA
ARCIAGA?
A: Yes, your Honor.
Q: What means did you take to ascertain that the one who affixed that thumbmark was
CLAUDIA ARCIAGA?
A: Because, your Honor, when there is a party, not necessarily your Honor in this case,
whenever a party would request me to prepare a document and notarize such document, I
asked his name and he answered. Let us say for example, this Mr. dela Cruz, he says he is
Mr. dela Cruz or Mrs. Arciaga. That thru that introduction I knew that they were the ones
who affixed their signatures or affix their thumbmarks.
Q: In this particular case, did you do that?
A: Yes, your Honor."14
The Court of Appeals, reversing the trial court, held that respondents were able to prove
that Claudia Arciaga could not have affixed her thumbmark voluntarily on the Conditional
Deed of Sale as "she was already very ill and bedridden and could not anymore give her
consent thereto;" and that "the Absolute Deed of Sale was thumbmarked when she was
already dead."
While it is true that Claudia was sick and bedridden, respondents failed to prove that she
could no longer understand the terms of the contract and that she did not affix her
thumbmark thereon. Unfortunately, they did not present the doctor or the nurse who
attended to her to confirm that indeed she was mentally and physically incapable of entering
into a contract. Mere weakness of mind alone, without imposition of fraud, is not a ground
for vacating a contract.15 Only if there is unfairness in the transaction, such as gross
inadequacy of consideration, the low degree of intellectual capacity of the party, may be
taken into consideration for the purpose of showing such fraud as will afford a ground for
annulling a contract.16 Hence, a person is not incapacitated to enter into a contract merely
because of advanced years or by reason of physical infirmities, unless such age and
infirmities impair his mental faculties to the extent that he is unable to properly,
intelligently and fairly understand the provisions of said contract. Respondents failed to
show that Claudia was deprived of reason or that her condition hindered her from freely
exercising her own will at the time of the execution of the Deed of Conditional Sale.
Also, it is of no moment that Claudia merely affixed her thumbmark on the document. The
signature may be made by a person’s cross or mark even though he is able to read and write
and is valid if the deed is in all other respects a valid one.17
Significantly, there is no evidence showing that Claudia was forced or coerced in affixing
her thumbmark on the Deed of Conditional Sale.
Respondents insist that their mother died in the morning of April 19, 1983, hence, she could
no longer affix her thumbmark on the Deed of Absolute Sale. Petitioners, however, maintain
that she died in the evening of that day and that she affixed her thumbmark on the deed in
the morning of that same day.
Respondents should have offered in evidence the Certificate of Death of Claudia to show the
exact date and time of her death. Again, they should have presented the attending physician
to testify whether or not Claudia could still affix her thumbmark then.
As earlier mentioned, the burden is on the respondents to prove the lack of capacity on the
part of Claudia to enter into a contract. And in proving this, they must offer clear and
convincing evidence. This they failed to do.
The Court of Appeals also held that there is inconsistency in the testimonies of Virginia
Arciaga and Atty. Jaime Fresnedi. While Virginia testified that the Deed of Absolute Sale
was notarized in her house where Claudia lived, Atty. Fresnedi declared on the witness
stand that he notarized the document in his office. The Appellate Court concluded that such
inconsistency clearly shows that Claudia did not voluntarily affix her thumbmark on the
document of absolute sale.
Records disclose, however, that when Atty. Fresnedi testified in court, nine (9) years had
passed from the time he notarized the Deed of Absolute Sale. Considering the length of time
that passed and the numerous documents he must have notarized, his failure to remember
exactly where he notarized the contract of sale is understandable. Thus, we cannot sustain
the finding and conclusion of the Court of Appeals on this point.l^vvphi1.net
In Chilianchin vs. Coquinco,18 this Court held that a notarial document must be sustained
in full force and effect so long as he who impugns it does not present strong, complete, and
conclusive proof of its falsity or nullity on account of some flaws or defects provided by law.
Here, respondents failed to present such proof.
It bears emphasis that a notarized Deed of Absolute Sale has in its favor the presumption
of regularity, and it carries the evidentiary weight conferred upon it with respect to its
execution.19
All told, we are convinced and so hold that there was consent on the part of Claudia Arciaga
when she executed the Conditional Deed of Sale and the Deed of Absolute Sale being
assailed by respondents. These documents, therefore, are valid.
WHEREFORE, the challenged Decision of the Court of Appeals in CA-G.R. CV No. 55668 is
REVERSED. The Decision of the RTC, Branch 62, Makati City dismissing respondents’
complaint is AFFIRMED.
SO ORDERED.
G.R. No. 119850 June 20, 1996
MANDARIN VILLA, INC., petitioner,
vs.
COURT OF APPEALS, and CLODUALDO DE JESUS, respondents.
RESOLUTION

FRANCISCO, J.:p
With ample evidentiary support are the following antecedent facts:
In the evening of October 19, 1989, private respondent, Clodualdo de Jesus, a practicing
lawyer and businessman, hosted a dinner for his friends at the petitioner's restaurant, the
Mandarin Villa Seafoods Village Greenhills, Mandaluyong City. After dinner the waiter
handed to him the bill in the amount of P2,658.50. Private respondent offered to pay the bill
through his credit card issued by Philippine Commercial Credit Card Inc. (BANKARD). This
card was accepted by the waiter who immediately proceeded to the restaurant's cashier for
card verification. Ten minutes later, however, the waiter returned and audibly informed
private respondent that his credit card had expired.1 Private respondent remonstrated that
said credit card had yet to expire on September 1990, as embossed on its face. 2 The waiter
was unmoved, thus, private respondent and two of his guests approached the restaurant's
cashier who again passed the credit card over the verification computer. The same
information was produced, i.e., CARD EXPIRED. Private respondent and his guests
returned to their table and at this juncture, Professor Lirag, another guest, uttered the
following remarks: "Clody [referring to Clodualdo de Jesus], may problema ba? Baka
kailangang maghugas na kami ng pinggan?"3 Thereupon, private respondent left the
restaurant and got his BPI Express Credit Card from his car and offered it to pay their bill.
This was accepted and honored by the cashier after verification. 4 Petitioner and his
companions left afterwards.
The incident triggered the filing of a suit for damages by private respondent. Following a
full-dress trial, judgment was rendered directing the petitioner and BANKARD to pay
jointly and severally the private respondent: (a) moral damages in the amount of
P250,000.00; (b) exemplary damages in the amount of P100,000.00, and (c) attorney's fees
and litigation expenses in the amount of P50,000.00.
Both the petitioner and BANKARD appealed to the respondent Court of Appeals which
rendered a decision, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED by:
1. Finding appellant MANDARIN solely responsible for damages in favor of appellee;
2. Absolving appellant BANKARD of any responsibility for damages;
3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND and 00/100
(P25,000.00) PESOS;
4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and 00/100
(P10,000.00) PESOS;
5. Reversing and setting aside the award of P250,000.00 for attorney's fees as well as
interest awarded, and
6. AFFIRMING the dismissal of all counterclaims and cross-claims.
Costs against appellant Mandarin.
SO ORDERED.5
Mandarin Villa, thus, interposed this present petition, faulting the respondent court with
six (6) assigned errors which may be reduced to the following issues, to wit: (1) whether or
not petitioner is bound to accept payment by means of credit card; (2) whether or not
petitioner is negligent under the circumstances obtaining in this case; and (3) if negligent,
whether or not such negligence is the proximate cause of the private respondent's damage.
Petitioner contends that it cannot be faulted for its cashier's refusal to accept private
respondent's BANKARD credit card, the same not being a legal tender. It argues that
private respondent's offer to pay by means of credit card partook of the nature of a proposal
to novate an existing obligation for which petitioner, as creditor, must first give its consent
otherwise there will be no binding contract between them. Petitioner cannot seek refuge
behind this averment.
We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an
"Agreement"6 entered into by petitioner and BANKARD dated June 23, 1989, provides inter
alia:
The MERCHANT shall honor validly issued PCCCI credit cards presented by their
corresponding holders in the purchase of goods and/or services supplied by it provided that
the card expiration date has not elapsed and the card number does not appear on the latest
cancellation bulletin of lost, suspended and canceled PCCCI credit cards and, no signs of
tampering, alterations or irregularities appear on the face of the credit card.7
While private respondent, may not be a party to the said agreement, the above-quoted
stipulation conferred a favor upon the private respondent, a holder of credit card validly
issued by BANKARD. This stipulation is a stipulation pour autri and under Article 1311 of
the Civil Code private respondent may demand its fulfillment provided he communicated
his acceptance to the petitioner before its revocation.8 In this case, private respondent's offer
to pay by means of his BANKARD credit card constitutes not only an acceptance of the said
stipulation but also an explicit communication of his acceptance to the obligor.
In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood
Village stating that "Bankard is accepted here.9 This representation is conclusive upon the
petitioner which it cannot deny or disprove as against the private respondent, the party
relying thereon. Petitioner, therefore, cannot disclaim its obligation to accept private
respondent's BANKARD credit card without violating the equitable principle of estoppel. 10

Anent the second issue, petitioner insists that it is not negligent. In support thereof,
petitioner cites its good faith in checking, not just once but twice, the validity of the
aforementioned credit card prior to its dishonor. It argues that since the verification
machine flashed an information that the credit card has expired, petitioner could not be
expected to honor the same much less be adjudged negligent for dishonoring it. Further,
petitioner asseverates that it only followed the guidelines and instructions issued by
BANKARD in dishonoring the aforementioned credit card. The argument is untenable.
The test for determining the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use the reasonable care and
caution which an ordinary prudent person would have used in the same situation? If not,
then he is guilty of negligence. 11 The Point of Sale (POS) Guidelines which outlined the
steps that petitioner must follow under the circumstances provides.
xxx xxx xxx
CARD EXPIRED
a. Check expiry date on card.
b. If unexpired, refer to CB.
b.1. If valid, honor up to maximum of SPL only.
b.2. If in CB as Lost, do procedures 2a to 2e.,
b.3. If in CB as Suspended/Cancelled, do not honor card.
c. If expired, do not honor card. 12
A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on
the screen of the verification machine, petitioner should check the credit card's expiry date
embossed on the card itself. If unexpired, petitioner should honor the card provided it is not
invalid, cancelled or otherwise suspended. But if expired, petitioner should not honor the
card. In this case, private respondent's BANKARD credit card has an embossed expiry date
of September 1990. 13 Clearly, it has not yet expired on October 19, 1989, when the same
was wrongfully dishonored by the petitioner. Hence, petitioner did not use the reasonable
care and caution which an ordinary prudent person would have used in the same situation
and as such petitioner is guilty of negligence. In this connection, we quote with approval the
following observations of the respondent Court.
Mandarin argues that based on the POS Guidelines (supra), it has three options in case the
verification machine flashes "CARD EXPIRED". It chose to exercise option (c) by not
honoring appellee's credit card. However, appellant apparently intentionally glossed over
option "(a) Check expiry date on card" (id.) which would have shown without any shadow of
doubt that the expiry date embossed on the BANKARD was "SEP 90". (Exhibit "D".) A
cursory look at the appellee's BANKARD would also reveal that appellee had been as of that
date a cardholder since 1982, a fact which would have entitled the customer the courtesy of
better treatment. 14
Petitioner, however, argues that private respondent's own negligence in not bringing with
him sufficient cash was the proximate cause of his damage. It likewise sought exculpation
by contending that the remark of Professor Lirag 15 is a supervening event and at the same
time the proximate cause of private respondent's injury.
We find this contention also devoid of merit. While it is true that private respondent did not
have sufficient cash on hand when he hosted a dinner at petitioner's restaurant, this fact
alone does not constitute negligence on his part. Neither can it be claimed that the same
was the proximate cause of private respondent's damage. We take judicial notice 16 of the
current practice among major establishments, petitioner included, to accept payment by
means of credit cards in lieu of cash. Thus, petitioner accepted private respondent's BPI
Express Credit Card after verifying its validity, 17 a fact which all the more refutes
petitioner's imputation of negligence on the private respondent.
Neither can we conclude that the remark of Professor Lirag was a supervening event and
the proximate cause of private respondent's injury. The humiliation and embarrassment of
the private respondent was brought about not by such a remark of Professor Lirag but by
the fact of dishonor by the petitioner of private respondent's valid BANKARD credit card. If
at all, the remark of Professor Lirag served only to aggravate the embarrassment then felt
by private respondent, albeit silently within himself.
WHEREFORE, the instant petition is hereby DISMISSED.
SO ORDERED.
FIRST DIVISION
G.R. No. 163654 October 8, 2014
BPI EXPRESS CARD CORPORATION,* Petitioner,
vs.
MA. ANTONIA R. ARMOVIT, Respondent.
DECISION
BERSAMIN, J.:
This case involves a credit card holder's claim for damages arising from the suspension of
her credit privileges due to her supposed failure to reapply for their reactivation. She has
insisted that she was not informed of the condition for reactivation.
The Case
Petitioner BPI Express Credit Card Corporation (BPI Express Credit) seeks the reversal of
and assails the adverse decision promulgated on February 26, 2004, 1 whereby the Court of
Appeals (CA) affirmed the judgment rendered on April 22, 1996 by the Regional Trial Court,
Branch 216, in Quezon City, (RTC) adjudging it liable to pay moral and exemplary damages,
attorney’s fees and costs of suit to its credit card holder Ma. Antonia R. Armovit, the
respondent herein.2
Antecedents
Armovit, then a depositor of the Bank of the Philippine Islands at its Cubao Branch, was
issued by BPI Express Credit a pre-approved BPI Express Credit Card (credit card) in
1989with a credit limit of ₱20,000.00 that was to expire atthe end of March 1993.3 On
November 21, 1992, she treated her British friends from Hong Kongto lunch at Mario’s
Restaurant in the Ortigas Center in Pasig. As the host, she handed to the waiter her credit
card to settle the bill, but the waiter soon returned to inform her that her credit card had
been cancelled upon verification with BPI Express Credit and would not be honored.
Inasmuch asshe was relying on her credit card because she did not then carry enough cash
that day, her guests were made to share the bill to her extreme embarrassment.
Outraged, Armovit called BPI Express Credit to verify the status of her credit card. She
learned that her credit card had been summarily cancelled for failure to pay her outstanding
obligations. She vehemently denied having defaulted onher payments. Thus, by letter dated
February 3, 1993,4 she demanded compensation for the shame, embarrassment and
humiliation she had suffered in the amount of ₱2,000,000.00.
In its reply letter dated February 5, 1993,5 BPI Express Credit claimed that it had sent
Armovit a telegraphic message on March 19, 1992 requesting her to pay her arrears for
three consecutive months, and that she did not comply with the request, causing it
totemporarily suspend her credit card effective March 31, 1992.6 It further claimed that she
had been notified of the suspension and cautioned to refrain from using the credit card to
avoid inconvenience or embarrassment;7 and that while the obligation was settled by April,
1992, she failed to submit the required application form in order to reactivate her credit
card privileges. Thus, BPI Express Credit countered that her demand for monetary
compensation had no basis in fact and in law.
On March 12, 1993, Armovit received a telegraphic message from BPI Express Credit
apologizing for its error of inadvertently including her credit card in Caution List No. 225
dated March 11, 1993 sent to its affiliated merchants.8
As a result, Armovit sued BPI Express Credit for damages in the RTC, insisting that she
had been a credit card holder in good standing, and that she did not have any unpaid bills
at the time of the incident.
In its answer with counterclaim,9 BPI Express Credit raised the defense of lack of cause of
action,and maintained that Armovit had defaulted in her obligations for three consecutive
months, thereby causing the temporary suspension of her credit card in accordance with the
terms and conditions of the credit card.10 It pointed out that Armovit had been duly notified
of the suspension; that for her failure to comply with the requirement for the submission of
the application form and other documents as directed in its letter dated April 8, 1992,11 her
credit card had not been reactivated and had remained in the list of suspended cards at the
time she used it on November 21, 1992; and thatthe telegraphic message of March 11, 1993,
which was intended for another client whose credit card had been erroneously included in
the caution list, was mistakenly sent to her.12
Judgment of the RTC
In the judgment rendered April 22, 1996,13 the RTC, ruling in favor of Armovit, observed
that the terms and conditions governing the issuance and use of the credit card embodied
in the application formhad been furnished to her for the first time only on April 8, 1992, or
after her credit card privileges had already been suspended; that, accordingly, she could not
be blamed for not complying with the same; that even if she had been notified of the
temporary suspension of her credit card, her payment on April 1, 1992 had rendered the
continued suspension of her credit card unjustified; and that there was no clear showing
that the submission of the application form had been a condition precedent to the lifting of
its suspension.
Finding BPI Express Credit guilty ofnegligence and bad faith, the RTC ordered it to pay
Armovit moral damages of ₱100,000.00; exemplary damages and attorney’s fees each in the
amount of ₱10,000.00; and the costs of suit.
Decision of the CA
Both parties appealed to the CA.
On February 26, 2004, the CA promulgated its assailed decision,14 concurring with the RTC,
and declaredthat because Armovit had not signed any application form in the issuance and
renewals of her credit card from 1989 up to 1992, she could not have known the terms and
conditions embodied in the application form even ifthe credit card had specified that its use
bound the holder to its terms and conditions. It did not see merit in BPI Express Credit’s
contention that the submission of a new application form was a pre-requisite for the lifting
ofthe suspension of her credit card, inasmuch as such condition was not stated in a clear
and unequivocal manner in its letter dated April 8, 1992. It noted that the letter of apology
mentioning another inadvertence committed, even if it claimed the letter of apology as
intended for another card holder, still highlighted BPI Express Credit’s negligence in its
dealings with her account. Anent Armovit’s appeal, the CA did not increase the amounts of
damages for lack of basis, observing that moral and exemplary damages were awarded not
to enrich her at the expense of BPI Express Credit but to alleviate the anxiety and
embarrassment suffered.
BPI Express Credit’s motion for reconsideration was denied through the resolution
promulgated on May 14, 2004.15
Hence, this appeal by petition for review on certiorari.
Issue
The sole issue is whether or not the CA erred in sustaining the award of moral and
exemplary damages in favor of Armovit.
Ruling of the Court
The petition for review lacks merit.
The relationship between the credit card issuer and the credit card holder is a contractual
one that is governed by the terms and conditions found in the card membership
agreement.16 Such terms and conditions constitute the law between the parties. In case of
their breach, moral damages may be recovered where the defendant is shown to have acted
fraudulently or in bad faith.17 Malice or bad faith implies a conscious and intentional design
to do a wrongful actfor a dishonest purpose or moral obliquity.18 However, a conscious or
intentional design need not always be present because negligence may occasionally be so
gross as to amount to malice or bad faith.19 Hence, bad faith in the context of Article 2220
of the Civil Code includes gross negligence.20
BPI Express Credit contends thatit was not grossly negligent in refusing to lift the
suspension of Armovit’s credit card privileges inasmuch as she had not complied with the
requisite submission of a new application form; and that under the circumstances its
negligence, if any, was not so gross as to amount to malice or bad faith following the ruling
in Far East Bank and Trust Company v. Court of Appeals.21
The Court disagrees with the contentions of BPI Express Credit.1âwphi1 The Terms and
Conditions Governing the Issuance and Use of the BPI Express Credit Card22 printed on
the credit card application form spelled out the terms and conditions of the contract between
BPI Express Credit and its card holders, including Armovit. Such terms and conditions
determined the rights and obligations of the parties.23 Yet, a review of such terms and
conditions did not reveal that Armovit needed to submit her new application as the
antecedent condition for her credit card to be taken out of the list of suspended cards.
Considering that the terms and conditions nowhere stated that the card holder must submit
the new application form in order to reactivate her credit card, to allow BPI Express Credit
toimpose the duty to submit the new application form in order to enableArmovit to
reactivate the credit card would contravene the Parol Evidence Rule.24 Indeed, there was no
agreement between the parties to add the submission of the new application form as the
means to reactivate the credit card. When she did not promptly settle her outstanding
balance, BPI Express Credit sent a message on March 19, 1992 demanding payment with
the warning that her failure to pay would force it to temporarily suspend her credit card
effective March 31, 1992. It then sent another demand letter dated March 31, 1992
requesting her to settle her obligation in order to lift the suspension of her credit card and
prevent its cancellation. In April 1992, she paid her obligation. In the context of the
contemporaneous and subsequent acts of the parties, the only condition for the
reinstatement of her credit card was the payment of her outstanding obligation.25 Had it
intended otherwise, BPI Express Credit would have surelyu informed her of the additional
requirement in its letters of March 19, 1992 and March 31, 1992. That it did not do so
confirmed that they did not agree on having her submit the new application form as the
condition to reactivate her credit card.
The letter of BPI Express Credit dated April 8, 1992 did not clearly and categorically inform
Armovit that the submission of the new application form was the pre-condition for the
reactivation of her credit card. The statement in the letter (i.e., "… accomplish the enclosed
application form and provide us with informations/documents that can help our Credit
Committee in reevaluating your existingfacility with us.") merely raised doubt as to whether
the requirement had really been a pre-condition or not. With BPI Express Credit being the
party causing the confusion, the interpretation of the contract could not be donein its
favor.26 Moreover, it cannot be denied that a credit card contract is considered as a contract
of adhesion because its terms and conditions are solely prepared by the credit card issuer.
Consequently, the terms and conditions have to be construed against BPI Express Credit as
the party who drafted the contract.27
Bereft of the clear basis to continuewith the suspension of the credit card privileges of
Armovit, BPI Express Credit acted in wanton disregard of its contractual obligations with
her. We concur with the apt observation by the CA that BPI Express Credit’s negligence
was even confirmed by the telegraphic message it had addressed and sent to Armovit
apologizing for the inconvenience caused in inadvertently including her credit card in the
caution list. It was of no consequence that the telegraphic message could have been intended
for another client, as BPI Express Credit apparently sought to convey subsequently, because
the tenor ofthe apology included its admission of negligence in dealing with its clients,
Armovit included. Indeed, BPI Express Credit did not observe the prudence expected of
banks whose business was imbued with public interest.
We hold that the CA rightly sustained the award of ₱100,000.00 as moral damages. To us,
too, that amount was fair and reasonable under the circumstances. Similarly, the grant of
exemplary damages was warranted under Article 2232 of the New Civil Code because BPI
Express Credit acted in a reckless and oppressive manner. Finally, with Armovit having
been forced to litigate in order to protect her rights and interests, she was entitled to recover
attorney's fees and expenses oflitigation.28
WHEREFORE, the Court AFFIRMS the decision promulgated on February 26, 2004; and
ORDERS the petitioner to pay the costs of suit.
SO ORDERED.
THIRD DIVISION
G.R. No. 196182 September 1, 2014
ECE REALTY AND DEVELOPMENT INC., Petitioner,
vs.
RACHEL G. MANDAP, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari assailing the Decision1 and
Resolution2 of the Court of Appeals (CA), dated July 21, 2010 and March 15, 2011,
respectively, in CA-G.R. SP No. 100741.
The factual and procedural antecedents of the case are as follows:
Herein petitioner is a corporation engaged in the building and development of condominium
units. Sometime in 1995, it started the construction of a condominium project called Central
Park Condominium Building located along Jorge St., Pasay City. However, printed
advertisements were made indicating therein that the said project was to be built in Makati
City.3 In December 1995, respondent, agreed to buy a unit from the above project by paying
a reservation fee and, thereafter, downpayment and monthly installments. On June 18,
1996, respondent and the representatives of petitioner executed a Contract to Sell. 4 In the
said Contract, it was indicated that the condominium project is located in Pasay City.
More than two years after the execution of the Contract to Sell, respondent, through her
counsel, wrote petitioner a letter dated October 30, 1998 demanding the return of
₱422,500.00, representing the payments she made, on the ground that she subsequently
discovered that the condominium project was being built in Pasay City and not in Makati
City as indicated in its printed advertisements.5
However, instead of answering respondent's letter, petitioner sent her a written
communication dated November 30, 1998 informing her that her unit is ready for inspection
and occupancy should she decide to move in.6
Treating the letter as a form of denial of her demand for the return of the sum she had paid
to petitioner, respondent filed a complaint with the Expanded National Capital Region Field
Office (ENCRFO) of the Housing and Land Use Regulatory Board (HLURB) seeking the
annulment of her contract with petitioner, the return of her payments, and damages.7
On September 30, 2005, the ENCRFO dismissed respondent's complaint for lack of merit
and directedthe parties to resume the fulfillment of the terms and conditions of their sales
contract. The ENCRFO held that respondent "failed to show or substantiate the legal
grounds that consist of a fraudulent or malicious dealing with her by the [petitioner], such
as, the latter's employment of insidious words or machinations which induced or entrapped
her into the contract and which, without them, would not have encouraged her to buy the
unit."8
Respondent filed a petition for review with the HLURB Board of Commissioners questioning
the decision of the ENCRFO. On April 25, 2006, the HLURB Board of Commissioners
rendered judgment dismissing respondent's complaint and affirming the decision of the
ENCRFO.9 Giving credence to the Contract to Sell executed by petitioner and respondent,
the Board of Commissioners held that when the parties reduced their contract in writing,
their rights and duties must befound in their contract and neither party can place a greater
obligation than what the contract provides.
Aggrieved, respondent filed an appeal with the Office of the President. On June 21, 2007,
the Office of the President dismissed respondent's appeal and affirmed in totothe decision
of the HLURB Board of Commissioners.10Respondent filed a Motion for
Reconsideration,11 but the Office of the President denied it in a Resolution12 dated August
29, 2007.
Respondent then filed a petition for review with the CA.13
On July 21, 2010, the CA promulgated its assailed Decision, the dispositive portion of which
reads, thus:
WHEREFORE, premises considered, We hereby REVERSEand SET ASIDEthe Decision
and the Resolution dated June 21, 2007 and August 29, 2007, respectively, issued by the
Office of the President in OP Case No. 06-F-224. Accordingly, the contract between Rachel
G. Mandap and ECE Realty is hereby ANNULLED. Consequently, ECE Realty is ordered
to return the total amountof ₱422,500.00 representing payments made by Rachel G.
Mandap on reservation fee, [downpayment] and monthly installments on the condominium
unit, with legal interest thereon at twelve percent (12%) per annumfrom the date of filing
of action until fully paid.
No costs.
SO ORDERED.14
The CA held that petitioner employed fraud and machinations to induce respondent to enter
into a contract with it. The CA also expressed doubt on the due execution of the Contract to
Sell between the parties.
Petitioner filed a Motion for Reconsideration, but the CA denied it in its March 15, 2011
Resolution.
Hence, the present petition for review on certiorariwith the following Assignment of Errors:
I
The Court of Appeals gravely erred in ruling that there was fraud in the execution of the
subject contract to sell and declaring the same as annulled and ordering petitioner ECE to
refund all payments made by respondent.
II
The Court of Appeals erred in ordering the award of legal interest at the rate of 12% per
annum starting from the filing of the complaint until fully paid when legal interest should
have been pegged at 6%.15
The Court finds the petition meritorious.
The basic issue in the present caseis whether petitioner was guilty of fraud and if so,
whether such fraud is sufficient ground to nullify its contract with respondent.
Article 1338 of the Civil Code provides that "[t]here is fraud when through insidious words
or machinationsof one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to."
In addition, under Article 1390 of the same Code, a contract is voidable or annullable "where
the consent is vitiated by mistake, violence, intimidation, undue influence or fraud."
Also, Article 1344 of the same Codeprovides that "[i]n order that fraud may make a contract
voidable, it should be serious and should not have been employed by both contracting
parties." Jurisprudence has shown that in order to constitute fraud that provides basis to
annul contracts, it must fulfill two conditions.
First, the fraud must be dolo causanteor it must be fraud in obtaining the consent of the
party.16 This is referred to as causal fraud. The deceit must be serious. The fraud is serious
when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which
cannot deceive a prudent person cannot be a ground for nullity.17 The circumstances of each
case should be considered, taking into account the personal conditions of the victim.18
Second, the fraud must be proven by clear and convincing evidence and not merely by a
preponderance thereof.19
In the present case, this Court finds that petitioner is guilty of false representation of a fact.
This is evidenced by its printed advertisements indicating that its subject condominium
project is located in Makati City when, in fact, it is in Pasay City. The Court agrees with the
Housing and Land Use Arbiter, the HLURB Board ofCommissioners, and the Office of the
President, in condemning petitioner's deplorable act of making misrepresentations in its
advertisementsand in issuing a stern warning that a repetition of this act shall bedealt with
more severely.
However, insofar as the present case is concerned, the Court agrees with the Housing and
Land Use Arbiter, the HLURB Board of Commissioners, and the Office of the President,
that the misrepresentation made by petitioner in its advertisements does not constitute
causal fraud which would have been a valid basis in annulling the Contract to Sell between
petitioner and respondent.
In his decision, the Housing and Land Use Arbiter found that respondent failed to show that
"the essential and/or moving factor that led the [respondent] to give her consent and agree
to buy the unit was precisely the project's advantageous or uniquelocation in Makati [City]
– to the exclusion of other places or cityx x x." Both the HLURB Board of Commissioners
and the Office of the President affirmed the finding of the Arbiter and unanimously held
that respondent failed to prove that the location of the said project was the causal
consideration or the principal inducement which led her into buyingher unit in the said
condominium project. The Court finds no cogent reason to depart from the foregoing findings
and conclusion of the above agencies. Indeed, evidence shows that respondent proceeded to
sign the Contract to Sell despite information contained therein that the condominium is
located in Pasay City. This only means that she still agreed to buy the subject property
regardless of the fact that it is located in a place different from what she was originally
informed. If she had a problem with the property's location, she should not havesigned the
Contract to Sell and, instead, immediately raised this issue with petitioner. But she did not.
As correctly observed by the Office of the President, it took respondent more than two years
from the execution of the Contract to Sell to demand the return of the amount she paid on
the ground that she was misled into believing that the subject property islocated in Makati
City. In the meantime, she continued to make payments.
The Court is not persuaded by the ruling of the CA which expresses doubt on the due
execution of the Contractto Sell. The fact remains that the said Contract to Sell was
notarized. Itis settled that absent any clear and convincing proof to the contrary, a notarized
document enjoys the presumption of regularity and is conclusive as to the truthfulness of
its contents.20 Neither does the Court agree thatthe presumption of regularity accorded to
the notarized Contract to Sell was overcome by evidence to the contrary. Respondent's
allegation that she signed the said Contract to Sell with several blank spaces, and which
allegedly did not indicate the location of the condominium, was not supported by proof. The
basic rule is that mere allegation is not evidence and is not equivalent to proof.21 In addition,
the fact that respondent made several payments prior to the execution of the subject
Contract to Sell is not the kind of evidence needed to overcome such presumption of
regularity.
With respect to the foregoing discussions, the Court quotes with approval the disquisition
of the Office of the President on the credibility of the claims of petitioner and respondent, to
wit:
xxxx
We give credence to the version of [petitioner] ECE Realty considering that there is no
cogent reason why this Office could not rely on the truth and veracity of the notarized
Contract to Sell. "Being a notarized document, it had in its favorthe presumption of
regularity, and to overcome the same, there must be evidence that is clear, convincing and
more than merely preponderant; otherwise, the document should be upheld. [Respondent]
Mandap failed to overcome this presumption.
The contention that Mandap signed the Contract to Sell in-blank, and [that] it was ECE
Realty that supplied the details on it is remarkably threadbare for no evidence was
submitted to support such claim in all the proceedings before the ENCRFO and the Board
of Commissioners. It is only now that Mandap has belatedly submitted the Affidavit of
Lorenzo G. Tipon. This cannot be done without running afoul with the well-settled principle
barring a party from introducing fresh defenses and facts at the appellate stage. Moreover,
the infirmity of affidavits as evidence is a matter of judicial experience. It issettled that no
undue importance shall be given to a sworn statement or affidavit as a piece of evidence
because being taken ex parte, an affidavit is almost always incomplete and inaccurate.
Thus, absent, as here, of (sic) any controverting evidence, it is reasonable to presume that
Mandap knew the contents of the Contract to Sell which was executed with legal formalities.
The ruling in Bernardo vs. Court of Appeals is enlightening in this wise:
x x x. The rule that one who signs a contract is presumed to know its contentshas been
applied even to contract of illiterate persons on the ground that if such persons are unable
to read, they are negligent if they fail to have the contract read to them. If a person cannot
read the instrument, it is as much his duty to procure some reliable persons to read and
explain it tohim, before he signs it, as it would be to read it before he signed it if he were
able to do so and his failure to obtain a reading and explanation of it is such gross negligence
as will estop him from avoiding it on the ground that he was ignorant of its contents.22
In any case, even assuming that petitioner’s misrepresentation consists of fraud which could
bea ground for annulling their Contract to Sell, respondent's act of affixing her signatureto
the said Contract, after having acquired knowledge of the property's actual location, can be
construed as an implied ratification thereof.
Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:
Art. 1393. Ratification may be effected expressly or tacitly.1âwphi1 It is understood that
there is a tacit ratification if, with knowledge of the reason which renders the contract
voidable and such reason having ceased, the person who has a right to invoke it should
execute an act which necessarily implies an intention to waive his right.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts
showing approval or adoption of the contract; or by acceptance and retention of benefits
flowing therefrom.23
Under Article 1392 of the Civil Code, "ratification extinguishes the action to annul a
voidable contract." In addition, Article 1396 of the same Code provides that "[r]atification
cleanses the contract from all its defects from the moment it was constituted."
Hence, based on the foregoing, the findings and conclusions of the Housing and Land Use
Arbiter, the HLURB Board of Commissioners and the Office of the President, should be
sustained.
WHEREFORE, the instant petition is GRANTED. The Decision and Resolution of the Court
of Appeals, dated July 21, 2010 and March 15, 2011, respectively, are REVERSEDand SET
ASIDE. The September 30, 2005 Decision of the Expanded National Capital Region Field
Office of the Housing and Land Use Regulatory Board, which dismisses respondent's
complaint and directs petitioner and respondent to resume the fulfillment of their sales
contract, is REINSTATED.
SO ORDERED.
FIRST DIVISION
G.R. No. 147410 February 5, 2004
THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner
vs.
ASSET BUILDERS CORPORATION, respondent.
DECISION
PANGANIBAN, J.:
Where the parties merely exchange offers and counteroffers, no agreement or contract is
perfected. A party may withdraw its offer or counteroffer prior to its receipt of the other
party's acceptance thereof. To produce an agreement, the offer must be certain and the
acceptance timely and absolute.
The Case
Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court,
assailing the September 20, 2000 Decision2 and the March 7, 2001 Resolution3 of the Court
of Appeals (CA) in CA-GR CV No. 61607. The dispositive part of the Decision reads as
follows:
"IN THE LIGHT OF ALL THE FOREGOING, the appeal of the [petitioner] is DISMISSED.
The Decision of the Court a quo is AFFIRMED."4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The appellate court summarized the facts of the case as follows:
"Sometime in November, 1992, the Insular Life Assurance Company, Limited, [petitioner],
invited companies/corporations engaged in the building construction business to participate
in the bidding of [petitioner's] proposed Insular Life building in Lucena City. [Petitioner]
distributed copies of 'Bid Document[s]', including the general construction x x x contract,
with the winning bidder and 'Bid Proposal Forms'[,] and furnished copies of the 'Instruction
to Bidders' to participating bidders, containing the rules to be followed in the bidding,
including the following rules: (a) all bond proposals shall be accompanied with a bid bond
from the Insular General Insurance Company, Inc., in an amount equivalent to ten (10)
percent of the bid or five (5) percent of the bid in Manager's or Cashier's check payable to
Insular Life, which bid bonds will be returned to the bidder after sixty (60) days from
opening of bids or after award of the project, whichever date comes first; 5 (b) the bid shall
be valid for sixty (60) days [after] opening of bids[,] but the owner of the project (the
[petitioner]) had the option to request the bidder to extend the bid validity period after
expiration of the original validity period;6 [and] (c) the bidder, whose proposal had been
deemed acceptable and complying with the requirements of the owner ([petitioner]) and the
project, shall be notified in writing to personally appear to execute the 'Contract
Agreements' within five (5) days after the receipt of the 'Notice of Award'[,] and that failure
on the part of the winning bidder to execute the contract shall constitute a breach of the
agreement, as effected by acceptance of the proposal, resulting in the nullification of the
award; and that the bond heretofore, offered by the winning bidder shall be retained by the
owner ([petitioner]) as payment due for liquidated damages.7
"Asset Builders Corporation, [respondent], with four (4) other bidders, namely, Q.K.
Calderon Construction [Co., Inc.], Specified Contractors, A.[A.] Alarilla Construction[,]
and Serg Construction, submitted their respective bid proposals secured by bid bonds, valid
for sixty (60) days.8 Under its 'Proposal Form' which the [respondent] submitted to the
[petitioner], [respondent] bound and obliged itself to enter into a 'Contract' with the
petitioner within ten (10) days from notice of the award, with good and sufficient securities
for the faithful compliance thereof.9
"On November 9, 1993, the respective proposals of the bidders were opened. The [petitioner]
forwarded a 'Summary of Bids and Tender Documents' to Adrian Wilson International
Associate[s], Inc.10 (AWIA for brevity), [petitioner's] designated 'Project Manager[,]' for the
proposed Insular Life Building in Lucena City for its evaluation and analysis. AWIA, in due
time, submitted a report of its evaluation to the 'Real Property Division' of the [petitioner].
As [could] be gleaned from the Report of AWIA, [respondent's] ₱12,962,845.5411 bid was the
lowest among the bidders.
"On January 21, 1994, Engineer Pete S. Espiritu (Espiritu for brevity) of the 'Real Property
Department', who was designated as 'Project Coordinator' of the petitioner[,] recommended
that [respondent] and the other bidders, 'Q.K. CALDERON [CONSTRUCTION] CO., INC.'
AND 'SPECIFIED CONTRACTORS', be subjected to post-qualification proceedings,
including the inspection of their respective offices, equipment, as well as past and present
projects, and that said bidders be subjected to credit and financial investigations.12
"[Petitioner] concurred with the recommendation of Espiritu and, indeed, post-qualification,
inspection[,] and evaluations of [respondent] and Q.K. Calderon Construction Co., Inc. were
effected. On January 25, 1994, [petitioner], with concurrence of [respondent], visited
[respondent's] main office at the Tektite Tower and its past and present projects, i.e., the
four (4) and two (2) storey Air Transportation buildings in its compound; the Government
Service Insurance System (GSIS) Headquarters Complex; and the National Historical
Institute Building, and [respondent's] equipment. On February 14, 1994, Espiritu suggested
that a bid clarification and negotiation be undertaken with prospective contractors.
"On February 23, 1994, Abraham Torrijos of [petitioner's] 'Real Property Department'
(hereinafter referred to as Torrijos) recommended the approval by the Board of Directors of
[petitioner] of the award of the general construction of the Proposed Lucena Building, in
favor of [respondent], emphasizing that:
'2. Asset Builders Corporation is a (sic) 'AAA' category Contractor. It has extensive
experience in vertical and horizontal projects. The company [has been] subjected to a post
qualification and credit investigation, the results of which are satisfactory and acceptable,
thus making it technically competent and financially capable of contracting the work.'13
"On February 24, 1994, a conference was held by and among the representatives of the
[petitioner] and of the [respondent], including [respondent's] Operations Manager, Engineer
Ramon Abu, for some clarifications. [Petitioner] proposed that [respondent] adjust its bid
from ₱12,961,845.54 to ₱13,000,000.00 to accommodate the wage increase brought about by
Wage Order No. 03, series of 1993, effective December 3, 1993. However, [respondent's]
representatives were noncommittal, declaring that they had [to] report to the management
of the [respondent] the proposal of [petitioner's] representatives, for its consideration and
approval. Subsequently, the [respondent] agreed to the readjustment of the amount of its
bid as proposed by the [petitioner].
"On March 9, 1994, Januario L. Flores (Flores for brevity), head of the 'Real Property
Department' and Assistant Vice-President of the [petitioner], submitted to Mabini L. Juan,
the Chief Operating Officer and Senior Executive Vice-President of the [petitioner], his
findings on the post-qualification, evaluation and credit investigation of [respondent], with
the recommendation that the award be given to the [respondent]:
'2. On the basis of the above very positive indicators, RPD[,] E.L. Mariano, [F. B.] Mariano
Associates and Co.[,] and Adrian Wilson Int'l Associates, [Inc.] recommen[d] to award the
Lucena [p]roject to Asset Builders Corporation. We honestly believe that they will do a good
job.
'3. For your consideratio[n/a]pproval.'14
"On March 14, 1994, [Flores] signed a 'Notice to Proceed', addressed to the [respondent], for
the conformity of the latter's President, Rogelio P. Centeno. Under the [ultimate] paragraph
of the 'Notice to Proceed', the [respondent] may start its mobilization and proceed with the
construction immediately[,] pending execution of the 'Construction Agreement'.15 The
[petitioner prepared] a draft of the contract to be executed by the [petitioner] and the
[respondent].
"On the same day, [Torrijos] informed, by letter, Engineer Bernardo A. Sajorda (Sajorda for
brevity's sake), 'Project Manager' of AWIA, that [petitioner] had awarded the general
construction contract of the proposed Lucena Building to the [respondent] and advised
AWIA to coordinate with [respondent] and inform the latter that a pre-construction meeting
[would] be held on March 22, 1994 at the job site.16 A copy of the 'Notice of Award' was
appended to said letter.17 Sajorda forthwith informed Rogelio P. Centeno, the President of
[respondent], by 'Memorandum' that, pursuant to the AWARD to [respondent], of the
general construction of the Proposed Lucena Building, a pre-construction conference [would]
be held on March 22, 1994 at the job site, during which the following will be discussed:
'1. Contract Amount and completion time
2. Role of AWIA
3. Project Contractors Key [p]ersonnel [l]ist with [s]ignatures and [p]ositions
4. Channel of [c]ommunications among Architect, Insular Life, ASSET and AWIA
5. [Contractor submittals i.e. - Work Schedule, Schedule of] Prices, etc.
6. As-built[s] drawings
7. Submitt[al] of shop drawings prior to use of materials
8. Sanitation
9. Safety programs (first aid kit and hard hats)
10. Night work
11. CAR (Contractor's All Ris[k I]nsurance)
12. Owners review of payrolls, vouchers, etc. (sic) payments etc.
13. Sub-contracting [for] approval of subs.
14. Photographs every month
15. Billings based on actual work accomplishments. Undistributed materials not billable
16. Security measures
17. Tests as required by spec[']s
18. Take note of specific requirements before final payment is made'18
"The [respondent] received a copy of the 'Memorandum' of Sajorda, on March 17, 1994. On
March 18, 1994, the [petitioner] transmitted to the [respondent] the following documents,
evidenced by a 'Transmittal Sheet', received by Roy Roxas, for the [respondent], to enable
the latter to secure a 'Building Permit' for the project:
'ONE (1) LOT DOCUMENTS/PLANS FOR BUILDING PERMIT
4 SETS OF STRUCTURAL COMPUTATION
5 SETS OF SPECS FOR GENERAL CONSTRUCTION
3 SETS OF ELECTRICAL LOAD COMPUTATION
5 COPIES OF PRC ID [&] PTR OF DESIGN ENGRS.
6 SETS OF ELMA PLANS
5 SETS OF [R]MDA PLANS/SPECS'19
"On March 22, 1994, the 'Pre-Construction Conference' ensued with the representatives of
the [petitioner] and its Project Manager and of the [respondent], in the person of its Project
Engineer, J.G. Quizon, in attendance:
'Attendees: CARLOS M. ESPIRITU -- AWIA Asst. Project Manager
BERNARDO [A]. SAJORDA -- AWIA Project Manager
EDMUNDO C. SABATER -- AWIA Resident Engineer
JANUARIO L. FLORES -- IL/RPD Manager
J.G. QUIZON -- ASSET Project Manager
PETE S. ESPIRITU -- IL/RPD Project Coordinator
ABRAHAM P. TORRIJOS -- IL/RPD Asst. Manager'20
"During the conference, the following were discussed and clarified:
'1. Contract Amount and Completion Time: Contract is for ₱13,000,000.00, to be completed
within 210 calendar days; day one to be 5 days after receipt of NTP by the Contractor. Actual
site mobilization to be first week of April 1994, per Mr. J.G. Quizon. Issuance of building
and other permits being worked out by the Contractor.'21
"On March 26, 1994, Jacobo G. Quizon, the Project Manager of [respondent], sent to AWIA
a letter requesting for the TCT lot description for the purpose of relocation of the monuments
and the staking out of the building:
'We have the honor to request your good office, in relocating the monuments[,] as per TCT
lot description[s,] prior to staking out the building[;] likewise, we can do the relocation[,]
provided the cost will be reimbursed to the Owner[,] with an approximate fee of ₱5,000.00
lump sum.
'Further, problems may occur regarding structur[al] excavation for footing [and footing] tie
beams at Grid Line A & 4. As per plan, the proposed depth [of] excavation of about 2.5[0M]
along the existing adjacent building walls will expose the CHB footing.'22
"Thereafter, a Ground Breaking ceremony was held at the project site, with Rogelio B.
Centeno, the President of [respondent], [and] Pete S. Espiritu and Januario L. Flores of the
[petitioner] in attendance. A billboard announcing the construction of [the] Insular Life
Building in Lucena City, with the [respondent] as the General Contractor, was also erected
in the project site.
"However, the [respondent] did not affix its conformity to any 'Notice of Award', much less
commence its construction of the project. Neither did it execute any 'Construction
Agreement'. Subsequently, the [respondent] wrote the [petitioner] a letter dated April 5,
1994, informing the [petitioner] that the [respondent would] not be able to undertake the
project anymore[,] because the prerequisite paper work and attendant processing could not
be fast-trac[k]ed and that, since the previous two (2) weeks, prices had escalated, which
rendered its bid unattractive.23 On April 25, 1994, the [petitioner] wrote a letter to the
[respondent], in response to its April 5, 1994 [letter], informing the [respondent] that, in
view of the unjust withdrawal of the [respondent] from the project, despite the award of the
project to the [respondent], the [petitioner] was impelled to engage the services of another
contractor to complete the project[,] without prejudice to further action of the [petitioner]
against the [respondent] for its withdrawal, pursuant to Section 10 of the 'Instruction to
Bidders', quoted, infra:
'The exact amount of damages to the Owner due to the failure to execute the Contract may
be deemed difficult to determine. Failure, thereof, to execute the Contract within five (5)
days after the receipt of the Notice of Award shall cause [the] annulment of the award. The
amount of bid bond deposited with the proposal shall be retained by the Owner as payment
due for liquidated damages incurred.
"By way of riposte, the [respondent] sent a letter to the [petitioner] averring that: (a) it never
received any written 'Notice of Award' from the [petitioner]; [and] (b) since its bid offer had
a lifetime of sixty (60) days from November 9, 1993 or until January 8, 1993 (sic)[,] its offer
was automatically withdrawn after said date, since the [petitioner] had not requested the
[respondent] for the extension of the lifetime thereof.
"On December 23, 1994, the [petitioner] filed a complaint24 against the [respondent], with
the Regional Trial Court25of Makati City, for 'Damages', x x x:
xxx xxx xxx
"The [petitioner] alleged, inter alia, in its complain[t t]hat the [respondent] was duly
notified by AWIA of the award, in its favor, by the [petitioner], of the project[,] but the
[respondent] unjustly and arbitrarily withdrew from the project and refused to execute
the 'Construction Contract' with the [petitioner,] which impelled the latter to engage the
services of another contractor for the project at the price of ₱14,500,000.00 and that,
consequently, the [petitioner] was obliged to pay the amount of ₱1,500,000.00 which was
[the] difference between the contract price of the project with the [respondent] in the amount
of ₱13,000,000.00 and ₱14,500,000.00, by way of actual damages or, alternatively, by way of
liquidated damages. In its Answer26 to the complaint, the [respondent] alleged, inter alia,
that it never received any 'Notice of Award' or 'Notice to Proceed'; its bid had expired by
January 8, 1994, without the [petitioner] asking the [respondent] for the extension thereof[,]
and interposed counterclaims for damages against the [petitioner], praying that, after due
proceedings, judgment be rendered in its favor, x x x:
xxx xxx xxx
"After due proceedings, the Court a quo rendered a Decision,27 dated December [5], 1997, in
favor of the [respondent] and against the [petitioner], ordering the dismissal of the
complaint of the [petitioner] and ordering the latter to pay damages to the [respondent], the
dispositive portion of which is quoted, infra:
'WHEREFORE, judgment is rendered DISMISSING the Complaint with costs against
[petitioner].'
'On the counter-claim, Insular Life Assurance Co., Ltd., is hereby ordered to pay Asset
Builders Corporation the sums of Pesos: Five Hundred Thousand (₱500,000.00) as
compensation for the injury to the latter's business standing, and Pesos: Seventy Five
Thousand (₱75,000.00) by way of attorney's fees and expenses of litigation.
'Filing fees on the amount of ₱2,135,000.00 [respondent] sought in the counter-claim shall
constitute a first lien on the recovery from [petitioner].'
xxx xxx xxx
"The [petitioner] interposed its appeal from the Decision of the Court a quo and posed, for
[the CA's] resolution, the threshold issues of whether or not: (a) a construction contract was
perfected by and between the [petitioner] and the [respondent] for the construction of
petitioner's building project in Lucena City; (b) the [respondent] waived Section 9 of the
Instruction to Bidders and was estopped from claiming that no construction contract was
perfected between it and the [petitioner]; [and] (c) the [respondent] was liable for damages
to the [petitioner]."28
Ruling of the Court of Appeals
The CA affirmed the lower court's Decision. According to the appellate court's ruling, the
failure of petitioner to prove that it gave respondent a written notice of the former's
unqualified acceptance of the latter's bid, as required in the Instruction to Bidders, did not
give birth to consent. The appellate court explained that when the exact terms desired were
not in the offer, any modification or variation therefrom would annul that offer.
Furthermore, estoppel did not apply because of petitioner's own carelessness or want of
diligence.
Hence this Petition.29
The Issues
"I. The Court of Appeals gravely erred in not holding that there exists a valid contract for
the construction of the building project between IL30 and ABC.31
"II. The Court of Appeals gravely erred in not holding that IL has notified ABC of the award
of the construction of the building project to it before it withdrew its bid proposal.
"III. The Court of Appeals gravely erred in not holding that ABC's withdrawal from the
contract constituted a breach of that contract.
"IV. The Court of Appeals gravely erred in not holding that the contract had been perfected
and that its consummation stage [had] in fact been commenced.
"V. The Court of Appeals gravely erred in not holding that ABC is estopped from claiming
the contract was not perfected.
"VI. The Court of Appeals gravely erred in not holding that ABC, instead of IL, is liable for
damages[,] and that, at worst, there is no evidence that supported the award in favor of
ABC.
"VII. In any event, there is no basis to penalize IL for going to court."32
There is really only one major issue: Was there a valid contract between petitioner and
respondent?
The Court's Ruling
The Petition is unmeritorious.
Sole Issue:
Existence of a Contract
No Notice of Award,
No Contract
It is elementary that, being consensual,33 a contract34 is perfected35 by mere consent.36 From
the moment of a meeting37 of the offer and the acceptance38 upon the object and the cause
that would constitute the contract,39consent arises.40 However, "the offer must be
certain"41 and "the acceptance seasonable and absolute;42 if qualified,43 the
acceptance44 would merely constitute a counter-offer."45
Equally important are the three distinct stages of a contract -- its "preparation or
negotiation, its perfection, and finally, its consummation."46 Negotiation begins when the
prospective contracting parties manifest their interest in the contract and ends at the
moment of their agreement. The perfection or birth of the contract47 occurs when they agree
upon the essential elements thereof.48 The last stage is its consummation, wherein they
"fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment
thereof."49
In the case at bar, the parties did not get past the negotiation stage. The events that
transpired between them were indeed initiated by a formal offer, but this policitación was
merely an imperfect promise that could not be considered a binding commitment. 50 At any
time, either of the prospective contracting parties may stop the negotiation and withdraw
the offer.
In the present case, in fact, there was only an offer and a counteroffer51 that did not sum up
to any final arrangement containing the elements of a contract.52 Clearly, no meeting of
minds was established.53 First, only after the bid bond had lapsed were post-qualification
proceedings, inspections, and credit investigations conducted. Second, the inter-office
memoranda issued by petitioner, as well as other memoranda between it and its own project
manager, were simply documents to which respondent was not privy. Third, petitioner
proposed a counteroffer to adjust respondent's bid to accommodate the wage increase of
December 3, 1993.
In effect, the rule on the concurrence of the offer and its acceptance54 did not apply, because
other matters or details -- in addition to the subject matter and the consideration -- would
still be stipulated and agreed upon by the parties.55 While there was an initial offer made,
there was no acceptance; but when there allegedly came an acceptance that could have had
a binding effect, the offer was already lacking. The offer and its acceptance "did not meet to
give birth to a contract."56
Moreover, the Civil Code provides that no contract shall arise unless its acceptance is
communicated to the offeror.57 That is, the mere determination to accept the proposal of a
bidder does not constitute a contract; that decision must be communicated to the
bidder.58 Although consent may be either express or implied,59 the Instruction to Bidders
prepared by petitioner itself expressly required (1) a formal acceptance and (2) a period
within which such acceptance was to be made known to respondent. The effect of giving the
Notice of Award to the latter would have been the perfection of the contract. 60 No such
acceptance was communicated to respondent; therefore, no consent was given. Without that
express manifestation, as required by the terms of its proposal, there was no contract. The
due execution of documents representing a contract is one thing, but its perfection is
another.61
There is no issue as regards the subject of the contract or the cause of the obligation. The
controversy lies in the consent -- whether there was an acceptance by petitioner of the offer
made by respondent; and, if so, whether that acceptance was communicated to the latter,
thereby perfecting the contract. The period given to the former within which to accept the
offer was not itself founded upon or supported by any consideration. Therefore, under the
law, respondent still had the freedom and the right to withdraw the offer by communicating
such withdrawal to petitioner62 before the latter's acceptance of the offer;63 or, if the offer
has been accepted,64 before the acceptance came to be known by respondent.65
Petitioner avers that an acceptance was made, but this allegation has not been proven.
Respondent had no knowledge of such acceptance when it communicated its withdrawal to
the former. Notably, this right to withdraw was not exercised whimsically or arbitrarily by
respondent. It did send a formal letter on April 5, 1994, expressing and explaining its
withdrawal. As of that date, the decision to award the contract had not been made according
to the terms of the Instruction to Bidders.
Besides, the subsequent acts between the parties did not even serve as a confirmation of
that decision. The existence of a second proposal -- petitioner's request for an adjustment of
the bid to accommodate the wage increase -- in fact belies the perfection of any contract
arising from the first.66 To the Court's mind, there was indeed no acceptance of the offer
made by respondent. Such failure to comply with a condition imposed for the perfection of a
contract resulted in failure of the contract.67
Subsistence of an Offer
Even Without a Bid Bond
Certainly, the "bid bond is an indispensable requirement for the validation of a bid
proposal."68 This requisite ensures the good faith of bidders and binds them to enter into a
contract with the owner, should their proposal be accepted.69 One who submits a bid not
only signifies assent to the terms and conditions of a proposal, but impliedly binds oneself
to them, if and when the bid is considered. The Invitation to Bidders even provided that
incomplete proposals might be sufficient cause for their rejection.70 If mere insufficiency of
a bond required of a bidder is a ground for rejection, a fortiori, all the more so is the total
want thereof.
The proposal of respondent was merely validated by its bid bond, which was considered by
petitioner. The expiration of the bond on January 8, 1994,71 did not mean that the bid also
lapsed on the same date. The bond, which was an accessory, merely guaranteed the
performance of the principal obligation and could not exist without the latter.72 The former
was given for the benefit of petitioner, which could legally waive it. The bid continued
without a bond, but still no formal acceptance was made. Again, on that basis, no contract
was perfected.
In the interpretation of a contract, the literal meaning of its stipulations controls, if their
terms are clear and leave no doubt as to the intention of the contracting parties. 73 When
"there is no ambiguity in the language of a contract, there is no room for construction,74 only
compliance."75 This rule applies to the Instruction to Bidders, which provides that "failure
to execute the Contract shall constitute a breach of agreement as effected by acceptance of
the proposal."76 The language is clear and, like contracts in general, is the law between the
parties.77 The contract must be fulfilled according to its literal sense.78
No Estoppel
As aptly held by the appellate court, respondent's acts subsequent to the expiration of the
bid bond did not constitute a waiver of Section 9 of the Instruction to Bidders. To be valid
and effective, waivers must be couched in clear and unequivocal terms, leaving no doubt as
to the intention of those giving up a right or a benefit that legally pertains to
them.79 Respondent, contrary to the claim of petitioner, despite its repeated requests, never
received a copy of the Notice of Award. Indeed, the former never adopted an inconsistent
position, attitude or course of conduct that caused loss or injury to the latter.80 The
attendance of respondent in the pre-construction conference and the ground-breaking
ceremony was part of the negotiation process. Thus, petitioner's claim of estoppel against it
could not be applied.
"Estoppel cannot be sustained by mere argument or doubtful inference; it must be clearly
proved in all its essential elements by clear, convincing and satisfactory evidence." 81 It is
hardly separable from the waiver of a right.82 The party claiming estoppel must show the
following elements: "(1) lack of knowledge and of the means of knowledge of the truth as to
the facts in question; (2) reliance, in good faith, upon the conduct or statements of the party
to be estopped; and (3) action or inaction based thereon of such character as to change the
position or status of the party claiming the estoppel, to his injury, detriment or prejudice."83
None of these elements was proven.
First, petitioner had the knowledge and the means of knowledge of the truth as to the facts
in question. It had the means of knowing if respondent had been served a copy of the Notice
of Award, yet the former did not preserve a copy of such Notice, which supposedly bore the
signature of the latter's employee who had received it. Petitioner did not even enter in its
corporate logbooks the release to and receipt by respondent of that copy. The latter had
every reason to withdraw its bid, given that the "prerequisite paper work and attendant
processing could not be fast-tracked."84
Second, respondent's conduct and statements were always consistent and reliable. The
manner of acceptance of all bids was prescribed by petitioner itself. Applying Article 1321
of the Civil Code, such prescription must be complied with,85 yet it did not follow its own
rules. Of no moment was its reliance in good faith upon respondent. Good faith is always
presumed, unless contrary evidence is adduced.86
Third, the action or inaction of petitioner that caused its own injury was its own fault. The
written Notice of Award, which constituted the acceptance of the proposal, was a sine qua
non to the perfection of the contract.87 The misplacement of such vital document was
inexcusable. Without it, there was no contract. Moreover, the March 14, 1994 Notice to
Proceed clearly stated that its issuance would depend upon the execution of the construction
agreement.
Estoppel is a shield against injustice; the party invoking its protection should not be allowed
to use it to conceal its own lack of diligence88 or want of reasonable care and
circumspection.89
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution
AFFIRMED. Costs against petitioner.
SO ORDERED.
SECOND DIVISION
G.R. No. 103338 January 4, 1994
FEDERICO SERRA, petitioner,
vs.
THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING
CORPORATION, respondents.
Andres R. Amante, Jr. for petitioner.
R.C. Domingo, Jr. & Associates for private respondent.

NOCON, J.:
A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy and sell a determinate thing for a price certain is
binding upon the promisor if the promise is supported by a consideration distinct from the
price. (Article 1479, New Civil Code) The first is the mutual promise and each has the right
to demand from the other the fulfillment of the obligation. While the second is merely an
offer of one to another, which if accepted, would create an obligation to the offeror to make
good his promise, provided the acceptance is supported by a consideration distinct from the
price.
Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy",
entered into between petitioner Federico Serra and private respondent Rizal Commercial
Banking Corporation. (RCBC).
Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate,
Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate,
Masbate, negotiated with petitioner for the purchase of the then unregistered property. On
May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the
parties, the pertinent portion of which reads:
1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease, the parcel
of land described in the first WHEREAS clause, to have and to hold the same for a period of
twenty-five (25) years commencing from June 1, 1975 to June 1, 2000. The LESSEE,
however, shall have the option to purchase said parcel of land within a period of ten (10)
years from the date of the signing of this Contract at a price not greater than TWO
HUNDRED TEN PESOS (P210.00) per square meter. For this purpose, the LESSOR
undertakes, within such ten-year period, to register said parcel of land under the TORRENS
SYSTEM and all expenses appurtenant thereto shall be for his sole account.
If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM within
the aforementioned ten-year period, the LESSEE shall have the right, upon termination of
the lease to be paid by the LESSOR the market value of the building and improvements
constructed on said parcel of land.
The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said parcel of
land under the TORRENS SYSTEM in case the LESSOR, for any reason, fails to comply
with his obligation to effect said registration within reasonable time after the signing of this
Agreement, and all expenses appurtenant to such registration shall be charged by the
LESSEE against the rentals due to the LESSOR.
2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at the latter's
residence, a monthly rental of SEVEN HUNDRED PESOS (P700.00), Philippine Currency,
payable in advance on or before the fifth (5th) day of every calendar month, provided that
the rentals for the first four (4) months shall be paid by the LESSEE in advance upon the
signing of this Contract.
3. The LESSEE is hereby authorized to construct as its sole expense a building and such
other improvements on said parcel of land, which it may need in pursuance of its business
and/or operations; provided, that if for any reason the LESSEE shall fail to exercise its
option mentioned in paragraph (1) above in case the parcel of land is registered under the
TORRENS SYSTEM within the ten-year period mentioned therein, said building and/or
improvements, shall become the property of the LESSOR after the expiration of the 25-year
lease period without the right of reimbursement on the part of the LESSEE. The authority
herein granted does not, however, extend to the making or allowing any unlawful, improper
or offensive used of the leased premises, or any use thereof, other than banking and office
purposes. The maintenance and upkeep of such building, structure and improvements shall
likewise be for the sole account of the LESSEE. 1
The foregoing agreement was subscribed before Notary Public Romeo F. Natividad.
Pursuant to said contract, a building and other improvements were constructed on the land
which housed the branch office of RCBC in Masbate, Masbate. Within three years from the
signing of the contract, petitioner complied with his part of the agreement by having the
property registered and
placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was
issued by the Register of Deeds of the Province of Masbate.
Petitioner alleges that as soon as he had the property registered, he kept on pursuing the
manager of the branch to effect the sale of the lot as per their agreement. It was not until
September 4, 1984, however, when the respondent bank decided to exercise its option and
informed petitioner, through a letter, 2 of its intention to buy the property at the agreed
price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the
surprise of the respondent, petitioner replied that he is no longer selling the property.3
Hence, on March 14, 1985, a complaint for specific performance and damages were filed by
respondent against petitioner. In the complaint, respondent alleged that during the
negotiations it made clear to petitioner that it intends to stay permanently on property once
its branch office is opened unless the exigencies of the business requires otherwise. Aside
from its prayer for specific performance, it likewise asked for an award of P50,000.00 for
attorney's fees P100,000.00 as exemplary damages and the cost of the suit.4
A special and affirmative defenses, petitioner contended:
1. That the contract having been prepared and drawn by RCBC, it took undue advantage
on him when it set in lopsided terms.
2. That the option was not supported by any consideration distinct from the price and hence
not binding upon him.
3. That as a condition for the validity and/or efficacy of the option, it should have been
exercised within the reasonable time after the registration of the land under the Torrens
System; that its delayed action on the option have forfeited whatever its claim to the same.
4. That extraordinary inflation supervened resulting in the unusual decrease in the
purchasing power of the currency that could not reasonably be forseen or was manifestly
beyond the contemplation of the parties at the time of the establishment of the obligation,
thus, rendering the terms of the contract unenforceable, inequitable and to the undue
enrichment of RCBC. 5
and as counterclaim petitioner alleged that:
1. The rental of P700.00 has become unrealistic and unreasonable, that justice and equity
will require its adjustment.
2. By the institution of the complaint he suffered moral damages which may be assessed at
P100,000.00 and award of attorney's fee of P25,000.00 and exemplary damages at
P100,000.00.6
Initially, after trial on the merits, the court dismissed the complaint. Although it found the
contract to be valid, the court nonetheless ruled that the option to buy in unenforceable
because it lacked a consideration distinct from the price and RCBC did not exercise its
option within reasonable time. The prayer for readjustment of rental was denied, as well as
that for moral and exemplary damages.7
Nevertheless, upon motion for reconsideration of respondent, the court in the order of
January 9, 1989, reversed itself, the dispositive portion reads:
WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby renders
judgment as follows:
1. The defendant is hereby ordered to execute and deliver the proper deed of sale in favor of
plaintiff selling, transferring and
conveying the property covered by and described in the Original Certificate of Title 0-232 of
the Registry of Deeds of Masbate for the sum of Seventy Eight Thousand Five Hundred
Forty Pesos (P78,540,00), Philippine Currency;
2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos as
attorney's fees;
3. The counter claim of defendant is hereby dismissed; and
4. Defendants shall pay the costs of suit.8
In a decision promulgated on September 19, 1991,9 the Court of Appeals affirmed the
findings of the trial court that:
1. The contract is valid and that the parties perfectly understood the contents thereof;
2. The option is supported by a distinct and separate consideration as embodied in the
agreement;
3. There is no basis in granting an adjustment in rental.
Assailing the judgment of the appellate court, petitioner would like us to consider mainly
the following:
1. The disputed contract is a contract of adhesion.
2. There was no consideration to support the option, distinct from the price, hence the option
cannot be exercised.
3. Respondent court gravely abused its discretion in not granting currency adjustment on
the already eroded value of the stipulated rentals for twenty-five years.
The petition is devoid of merit.
There is no dispute that the contract is valid and existing between the parties, as found by
both the trial court and the appellate court. Neither do we find the terms of the contract
unfairly lopsided to have it ignored.
A contract of adhesion is one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely affixes his signature or his
"adhesion" thereto. These types of contracts are as binding as ordinary contracts. Because
in reality, the party who adheres to the contract is free to reject it entirely. Although, this
Court will not hesitate to rule out blind adherence to terms where facts and circumstances
will show that it is basically one-sided. 10
We do not find the situation in the present case to be inequitable. Petitioner is a highly
educated man, who, at the time of the trial was already a CPA-Lawyer, and when he entered
into the contract, was already a CPA, holding a respectable position with the Metropolitan
Manila Commission. It is evident that a man of his stature should have been more cautious
in transactions he enters into, particularly where it concerns valuable properties. He is
amply equipped to drive a hard bargain if he would be so minded to.
Petitioner contends that the doctrines laid down in the cases of
Atkins Kroll v. Cua Hian Tek, 11 Sanchez v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were
misapplied in the present case, because 1) the option given to the respondent bank was not
supported by a consideration distinct from the price; and 2) that the stipulated price of "not
greater than P210.00 per square meter" is not certain or definite.
Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain
period to accept, the offer maybe withdrawn at anytime before acceptance by communicating
such withdrawal, except when the option is founded upon consideration, as something paid
or promised. On the other hand, Article 1479 of the Code provides that an accepted
unilateral promise to buy and sell a determinate thing for a price certain is binding upon
the promisor if the promise is supported by a consideration distinct from the price.
In a unilateral promise to sell, where the debtor fails to withdraw the promise before the
acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy,
because upon acceptance by the creditor of the offer to sell by the debtor, there is already a
meeting of the minds of the parties as to the thing which is determinate and the price which
is certain. 14 In which case, the parties may then reciprocally demand performance.
Jurisprudence has taught us that an optional contract is a privilege existing only in one
party — the buyer. For a separate consideration paid, he is given the right to decide to
purchase or not, a certain merchandise or property, at any time within the agreed period,
at a fixed price. This being his prerogative, he may not be compelled to exercise the option
to buy before the time
expires. 15
On the other hand, what may be regarded as a consideration separate from the price is
discussed in the case of Vda. de Quirino v. Palarca 16 wherein the facts are almost on all
fours with the case at bar. The said case also involved a lease contract with option to buy
where we had occasion to say that "the consideration for the lessor's obligation to sell the
leased premises to the lessee, should he choose to exercise his option to purchase the same,
is the obligation of the lessee to sell to the lessor the building and/or improvements
constructed and/or made by the former, if he fails to exercise his option to buy leased
premises." 17
In the present case, the consideration is even more onerous on the part of the lessee since it
entails transferring of the building and/or improvements on the property to petitioner,
should respondent bank fail to exercise its option within the period stipulated. 18

The bugging question then is whether the price "not greater than TWO HUNDRED PESOS"
is certain or definite. A price is considered certain if it is so with reference to another thing
certain or when the determination thereof is left to the judgment of a specified person or
persons. 19 And generally, gross inadequacy of price does not affect a contract of sale. 20

Contracts are to be construed according to the sense and meaning of the terms which the
parties themselves have used. In the present dispute, there is evidence to show that the
intention of the parties is to peg the price at P210 per square meter. This was confirmed by
petitioner himself in his testimony, as follows:
Q. Will you please tell this Court what was the offer?
A. It was an offer to buy the property that I have in Quezon City (sic).
Q. And did they give you a specific amount?
xxx xxx xxx
A. Well, there was an offer to buy the property at P210 per square meters (sic).
Q. And that was in what year?
A . 1975, sir.
Q. And did you accept the offer?
A. Yes, sir. 21
Moreover, by his subsequent acts of having the land titled under the Torrens System, and
in pursuing the bank manager to effect the sale immediately, means that he understood
perfectly the terms of the contract. He even had the same property mortgaged to the
respondent bank sometime in 1979, without the slightest hint of wanting to abandon his
offer to sell the property at the agreed price of P210 per square meter. 22
Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting
the amount of the rent. The contract is the law between the parties and if there is indeed
reason to adjust the rent, the parties could by themselves negotiate for the amendment of
the contract. Neither could we consider the decline of the purchasing power of the Philippine
peso from 1983 to the time of the commencement of the present case in 1985, to be so great
as to result in an extraordinary inflation. Extraordinary inflation exists when there in an
unimaginable increase or decrease of the purchasing power of the Philippine currency, or
fluctuation in the value of pesos manifestly beyond the contemplation of the parties at the
time of the establishment of the obligation. 23
Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY"
between petitioner and respondent bank is valid, effective and enforceable, the price being
certain and that there was consideration distinct from the price to support the option given
to the lessee.
WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court
is hereby AFFIRMED.
SO ORDERED.
FIRST DIVISION

G.R. No. 103959 August 21, 1997


SPOUSES REGALADO SANTIAGO and ROSITA PALABYAB, JOSEFINA
ARCEGA, petitioners,
vs.
THE HON. COURT OF APPEALS; THE HON. CAMILO C. MONTESA, JR., Presiding
Judge of the RTC of Malolos, Bulacan, Branch 19, and QUIRICO ARCEGA, respondents.

HERMOSISIMA, JR., J.:


Assailed in this petition for review under Rule 45 is the November 8, 1991 Decision of
respondent Court of Appeals in CA-G.R. CV No. 25069. It affirmed in toto the judgment of
Branch 19, Regional Trial Court of Malolos, Bulacan, in Civil Case No. 8470-M. The action
therein sought to declare null and void the "Kasulatan Ng Bilihang Tuluyan Ng Lupa"
executed on July 18, 1971 by the late Paula Arcega, sister of private respondent, in favor of
herein petitioners over a parcel of land consisting of 927 square meters, situated in
Barangay Tabing Ilog, Marilao, Bulacan.
Paula Arcega was the registered owner of that certain parcel of land covered by Transfer
Certificate of Title No. T-115510. Her residential house stood there until 1970 when it was
destroyed by a strong typhoon.
On December 9, 1970, Paula Arcega executed what purported to be a deed of conditional
sale over the land in favor of Josefina Arcega and the spouses Regalado Santiago and Rosita
Palabyab, the petitioners herein, for and in consideration of P20,000.00. The vendees were
supposed to pay P7,000.00 as downpayment. It was expressly provided that the vendor
would execute and deliver to the vendees an absolute deed of sale upon full payment by the
vendees of the unpaid balance of the purchase price of P13,000.00.
Subsequently, on July 18, 1971, supposedly upon payment of the remaining balance, Paula
Arcega executed a deed of absolute sale of the same parcel of land in favor of petitioners.
Thereupon, on July 20, 1971, TCT No. T-115510, in the name of Paula Arcega, was cancelled
and a new title, TCT No. T-148989 was issued in the name of petitioners.
On April 10, 1985, Paula Arcega died single and without issue, leaving as heirs his two
brothers, Narciso Arcega1and private respondent Quirico Arcega.
Incidentally, before Paula Arcega died, a house of four bedrooms with a total floor area of
225 square meters was built over the parcel of land in question. Significantly, the master's
bedroom, with toilet and bath, was occupied by Paula Arcega until her death despite the
execution of the alleged deed of absolute sale. The three other bedrooms, smaller than the
master's bedroom, were occupied by the petitioners who were the supposed vendees in the
sale.
Private respondent Quirico Arcega, as heir of his deceased sister, filed on October 24, 1985
Civil Case No. 8470-M before the RTC of Malolos, Bulacan, seeing to declare null ad void
the deed of sale executed by his sister during her lifetime in favor of the petitioners on the
ground that said deed was fictitious since the purported consideration therefor of P20,000.00
was not actually paid by the vendees to his sister.
Answering the complaint before the RTC, petitioner spouses averred that private
respondent's cause of action was already barred by the statute of limitations considering
that the disputed deed of absolute sale was executed in their favor on July 18, 1971, by
which TCT No. 148989 was issued on July 20, 1971, while private respondent's complaint
was filed in court only on October 24, 1985 or more than fourteen (14) years from the time
the cause of action accrued. Petitioners also deny that the sale was fictitious. They maintain
that the purchase price was actually paid to Paula Arcega and that said amount was spent
by the deceased in the construction of her three-door apartment on the parcel of land in
question.
Josefina Arcega, the other petitioner, was declared in default for failure to file her answer
within the reglementary period.
After trial, the RTC rendered judgment in favor of private respondent Quirico Arcega, viz.:
(a) Declaring as null and void and without legal force and effect the "Kasulatan Ng Bilihang
Tuluyan Ng Lupa" dated July 18, 1971 executed by the deceased Paula Arcega covering a
parcel of land embraced under TCT No. T-115510 in favor of the defendants;
(b) Declaring TCT No. T-148989 issued and registered in the names of defendants Josefina
Arcega and spouses Regalado Santiago and Rosita Palabyab as null and void;
(c) Ordering the reconveyance of the property including all improvements thereon covered
by TCT No. T-115510 now TCT No. T-148989, to the plaintiff, subject to real estate mortgage
with the Social Security System; and
(d) To pay jointly and severally the amount of P10,000.00 as attorney's fees.
On the counterclaim, the same is hereby dismissed for lack of legal and/or factual basis (p.
6, decision, pp. 295-300, rec.).2
In ruling for private respondent, the trial court, as affirmed in toto by the public respondent
Court of Appeals, found that:
On the basis of the evidence adduced, it appears that plaintiff Quirico Arcega and his
brother Narciso Arcega are the only surviving heirs of the deceased Paula Arcega who on
April 10, 1985 died single and without issue. Sometime in 1970, a strong typhoon destroyed
the house of Paula Arcega and the latter together with the defendants decided to construct
a new house. All the defendants 3 being members of the SSS, Paula Arcega deemed it wise
to lend her title to them for purposes of loan with the SSS. She executed a deed of sale to
effect the transfer of the property in the name of defendants and thereafter the later
mortgaged the same for P30,000.00 but the amount actually released was only P25,000.00.
Paula Arcega spent the initial amount of P30,000.000 out of her savings for the construction
of the house sometime in 1971 and after the same and the proceeds of the loan were
exhausted, the same was not as yet completed. Paula Arcega and her brothers sold the
property which they inherited for P45,000.00 and the same all went to the additional
construction of the house, however, the said amount is not sufficient. Thereafter, Paula
Arcega and her brothers sold another property which they inherited for P805,950.00 and
one third (1/3) thereof went to Paula Arcega which she spent a portion of which for the
finishing touches of the house. The house as finally finished in 1983 is worth more than
P100,000.00 with a floor area of 225 square meters consisting of four bedrooms. A big
master's bedroom complete with a bath and toilet was occupied by Paula Arcega up to the
time of her death on April 10, 1985 and the other three smaller bedrooms are occupied by
spouses, defendants Regalado Santiago and Rosita Palabyab, and Josefina Arcega. After the
death of Paula Arcega defendant Josefina Arcega and Narciso Arcega constructed their own
house at back portion of the lot in question.
There is a clear indication that the deed of sale which is unconscionably low for 937 square
meters in favor of the defendants sometime on July 18, 1971 who are all members of the
SSS, is merely designed as an accommodation for purposes of loan with the SSS . Paula
Arcega cognizant of the shortage of funds in her possession in the amount of P30,000.00,
deemed it wise to augment her funds for construction purposes by way of a mortgage with
the SSS which only defendants could possibly effect they being members of the SSS. Since
the SSS requires the collateral to be in the name of the mortgagors, Paula Arcega executed
a simulated deed of sale (Kasulatan ng Bilihang Tuluyan ng Lupa) for P20,000 .00 dated
July 18, 1971 in favor of the defendants and the same was notarized by Atty . Luis Cuvin
who emphatically claimed that no money was involved in the transaction as the parties have
other agreement. The allegations of the defendants that the property was given to them
(Kaloob) by the deceased has no evidentiary value. While it is true that Rosita Palabyab
stayed with the deceased since childhood, the same cannot be said with respect to defendant
Josefina Arcega, distant relative and a niece of the wife of Narciso Arcega, who stayed with
the deceased sometime in 1966 at the age of 19 years and already working as a saleslady in
Manila. Did the deceased indeed give defendant Josefina Arcega half of her property out of
love and gratitude? Such circumstance appears illogical if not highly improbable. As a
matter of fact defendant Josefna Arcega in her unguarded moment unwittingly told the
truth that the couple (Regalado Santiago and Rosita Palabyab) had indeed borrowed the
title and then mortgaged the same with the SSS as shown in her direct testimony which
reads:
Atty. Villanueva:
Q Why did you say that the house is owned by the spouses Santiago but the lot is bought by
you and Rosita?
A Because at that time, the couple4 borrowed the title and then mortgaged the property with
the SSS. There is only one title but both of us owned it. (TSN dtd. 19 Oct '88, p. 5)5
On appeal, the public respondent Court of Appeals dismissed the same, affirming in all
respects the RTC judgment.
Hence, this petition.
The petition is unmeritorious.
Verily, this case is on all fours with Suntay v. Court of Appeals. 6 There, a certain Federico
Suntay was the registered owner of a parcel of land in Sto. Niño, Hagonoy, Bulacan. A rice
miller, Federico applied on September 30, 1960 as a miller-contractor of the then National
Rice and Corn Corporation (NARIC), but his application was disapproved because he was
tied up with several unpaid loans. For purposes of circumvention, he thought of allowing
his nephew-lawyer, Rafael Suntay, to make the application for him. To achieve this, Rafael
prepared a notarized Absolute Deed of Sale whereby Federico, for and in consideration of
P20,000.00, conveyed to Rafael said parcel of land with all its existing structures. Upon the
execution and registration of said deed, Certificate of Title No. 0-2015 in the name of
Federico was cancelled and, in lieu thereof, TCT No. T-36714 was issued in the name of
Rafael. Sometime in the months of June to August, 1969,7 Federico requested Rafael to
deliver back to him the owner's duplicate of the transfer certificate of title over the
properties in question for he intended to use the property as collateral in securing a bank
loan to finance the expansion of his rice mill. Rafael, however, without just cause, refused
to deliver the title insisting that said property was "absolutely sold and conveyed [to him] .
. . for a consideration of P20,000.00, Philippine currency, and for other valuable
consideration." We therein ruled in favor of Federico Suntay and found that the deed of sale
in question was merely an absolutely simulated contract for the purpose of accommodation
and therefore void. In retrospect, we observed in that case:
Indeed the most protuberant index of simulation is the complete absence of an attempt in
any manner on the part of the late Rafael to assert his rights of ownership over the land
and rice mill in question. After the sale, he should have entered the land and occupied the
premises thereof. He did not even attempt to. If he stood as owner, he would have collected
rentals from Federico for the use and occupation of the land and its improvements. All that
the late Rafael had was a title in his name.
xxx xxx xxx
. . . The fact that, notwithstanding the title transfer, Federico remained in actual possession,
cultivation and occupation of the disputed lot from the time the deed of sale was executed
until the present, is a circumstance which is unmistakably added proof of the fictitiousness
of the said transfer, the same being contrary to the principle of ownership.8
In the case before us, while petitioners were able to occupy the property in question, they
were relegated to a small bedroom without bath and toilet, 9 while Paula Arcega remained
virtually in full possession of the completed house and lot using the big master's bedroom
with bath and toilet up to the time of her death on April 10, 1985. 10 If, indeed, the
transaction entered into by the petitioners and the late Paula Arcega on July 18, 1971 was
a veritable deed of absolute sale, as it was purported to be, then Ms. Arcega had no business
whatsoever remaining in the property and, worse, to still occupy the big master's bedroom
with all its amenities until her death on April 10, 1985. Definitely, and legitimate vendee of
real property who paid for the property with good money will not accede to an arrangement
whereby the vendor continues occupying the most favored room in the house while he or
she, as new owner, endures the disgrace and absurdity of having to sleep in a small bedroom
without bath and toilet as if he or she is a guest or a tenant in the house. In any case, if
petitioners really stood as legitimate owners of the property, they would have collected
rentals from Paula Arcega for the use and occupation of the master's bedroom as she would
then be a mere lessee of the property in question. However, not a single piece of evidence
was presented to show that this was the case. All told, the failure of petitioners to take
exclusive possession of the property allegedly sold to them, or in the alternative, to collect
rentals from the alleged vendee Paula Arcega, is contrary to the principle of ownership and
a clear badge of simulation that renders the whole transaction void and without force and
effect, pursuant to Article 1409 of the New Civil Code:
The following contracts are inexistent and void from the beginning:
xxx xxx xxx
(2) Those which are absolutely simulated or fictitious;
xxx xxx xxx
The conceded fact that subject deed of absolute sale executed by Paula Arcega in favor of
petitioners is a notarized document does not justify the petitioners' desired conclusion that
said sale is undoubtedly a true conveyance to which the parties thereto are irrevocably and
undeniably bound. To be considered with great significance is the fact that Atty. Luis Cuvin
who notarized the deed disclaimed the truthfulness of the document when he testified that
"NO MONEY WAS INVOLVED IN THE TRANSACTION." 11 Furthermore, though the
notarization of the deed of sale in question vests in its favor the presumption of regularity,
it is not the intention nor the function of the notary public to validate and make binding an
instrument never, in the first place, intended to have any binding legal effect upon the
parties thereto. The intention of the parties still is and always will be the primary
consideration in determining the true nature of a contract. Here, the parties to the
"Kasulatan ng Bilihang Tuluyan ng Lupa," as shown by the evidence and accompanying
circumstances, never intended to convey the property thereto from one party to the other
for valuable consideration. Rather, the transaction was merely used to facilitate a loan with
the SSS with petitioners-mortgagors using the property in question, the title to which they
were able to register in their names through the simulated sale, as collateral.
The fact that petitioners were able to secure a title in their names, TCT No. 148989, did not
operate to vest upon petitioners ownership over Paula Arcega's property. That act has never
been recognized as a mode of acquiring ownership. As a matter of fact, even the original
registration of immovable property does not vest title thereto. 12 The Torrens system does
not create or vest title. It only confirms and records title already existing and vested. It does
not protect a usurper from the true owner. It cannot be a shield for the commission of fraud.
It does not permit one to enrich himself at the expense of another. 13 Where one does not
have any rightful claim over a real property, the Torrens system of registration can confirm
or record nothing.
Petitioners, nevertheless, insist that both the trial court and the respondent court should
have followed the Parole Evidence Rule and prevented evidence, like the testimony of
Notary Public, Atty. Luis Cuvin, private respondent Quirico Arcega, among others, which
impugned the two notarized deeds of sale.
The rule on parole evidence under Section 9, Rule 130 is qualified by the following
exceptions:
However, a party may present evidence to modify, explain or add to the terms of the written
agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the
parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after
the execution of the written agreement.
The term "agreement" includes wills."
In this case, private respondent Quirico Arcega was able to put in issue in his complaint
before the Regional Trial Court the validity of the subject deeds of sale for being a simulated
transaction:
6. That in 1971, the defendants, who by then were already employed in private firms and
had become members of the Social Security System by virtue of their respective
employments, decided among themselves to build a new house on the property of PAULA
ARCEGA above described and to borrow money from the Social Security System to finance
the proposed construction.
7. That in order to secure the loan from the Social Security System it was necessary that
the lot on which the proposed house would be erected should be registered and titled in the
names of the defendants.
xxx xxx xxx
9. That in conformity with the above plans and schemes of the defendants, they made
PAULA ARCEGA execute and sign a fictitious, hence null and void "KASULATAN NG
BILIHANG TULUYAN NG LUPA" on July 18, 1971, before Notary Public LUIS CUVIN, of
Bulacan and entered in his register as Doc. No. 253, Page No. 52, Book No. XIX, Series of
1971, by which PAULA ARCEGA purportedly conveyed(sic) in favor of the defendants
JOSEFINA ARCEGA and the spouse REGALADO SANTIAGO and ROSITA PALABYAB,
the whole parcel of land above described for the sum of TWENTY THOUSAND (P20,000.00),
as consideration which was not actually, then or thereafter paid either wholly or partially.
A copy of said document is hereto attached as Annex "B" and made integral part hereof.
10. That defendants pursuing their unlawful scheme registered the said void and inexistent
"KASULATAN NG BILIHANG TULUYAN NG LUPA" with the office of the Register of
Deeds of Bulacan, procured the cancellation of Transfer Certificate of Title No. 115510, in
the name of PAULA ARCEGA and the issuance of Transfer Certificate of Title No. 148989,
in their names, a xeroxed copy of which is hereto attached as Annex "C" and made integral
part hereof.
11. That still in furtherance of their unjust and unlawful schemes, defendants secured a
loan from the Social Security System in the amount of P30,000.00, securing the payment
thereof with a Real Estate Mortgage on the above-described property then already titled in
their names as aforestated (pp. 2-3, complaint, pp. 1-5, rec.). 14
Moreover, the parol evidence rule may be waived by failure to invoke it, as by failure to
object to the introduction of parol evidence. And, where a party who is entitled to the benefit
of the rule waives the benefit thereof by allowing such evidence to be received without
objection and without any effort to have it stricken from the minutes or disregarded by the
trial court, he cannot, after the trial has closed and the case has been decided against him,
invoke the rule in order to secure a reversal of the judgment by an appellate court. 15 Here,
the records are devoid of any indication that petitioners ever objected to the admissibility of
parole evidence introduced by the private respondent in open court. The court cannot
disregard evidence which would ordinarily be incompetent under the rules but has been
rendered admissible by the failure of a party to object thereto. 16 Petitioners have no one to
blame but themselves in this regard.
Finally, petitioners argue that private respondent's complaint filed before the trial court on
October 24, 1985 is already barred by the statute of limitations and laches considering that
the deed of absolute sale was executed in their favor by the deceased Paula Arcega on July
20, 1971. Indeed, more than fourteen (14) years had elapsed from the time his cause of action
accrued to the time that the complaint was filed. Articles 1144 and 1391 of the New Civil
Code provide:
Art. 1141. The following actions must be brought within ten 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.
Art. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the consent
ceases.
In cases of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other incapacitated
persons, from the time the guardianship ceases.
This submission is utterly without merit, the pertinent provision being Article 1410 of the
New Civil Code which provides unequivocably that "[T]he action or defense for the
declaration of the inexistence of a contract does not prescribe." 17
As for laches, its essence is 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; it is the negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it either has abandoned it or
declined to assert it. 18 But there is, to be sure, no absolute rule as to what constitutes laches
or staleness of demand; each case is to be determined according to its particular
circumstances. The question of laches is addressed to the sound discretion of the court, and
since laches is an equitable doctrine, its application is controlled by equitable
considerations. It cannot be worked to defeat justice or to perpetrate fraud and
injustice. 19 In the case under consideration, it would not only be impractical but well-nigh
unjust and patently inequitous to apply laches against private respondent and vest
ownership over a valuable piece of real property in favor of petitioners by virtue of an
absolutely simulated deed of sale never, in the first place, meant to convey any right over
the subject property. It is the better rule that courts, under the principle of equity, will not
be guided or bound strictly by the statute of limitations or the doctrine of laches when to do
so, manifest wrong or injustice would result. 20
WHEREFORE, premises considered, the petition is hereby DENIED with costs against
petitioners.
THIRD DIVISION
G.R. No. 196083, November 11, 2015
MILAGROS C. REYES, Petitioner, v. FELIX P. ASUNCION, Respondent.
DECISION
PERALTA, J.:
For this Court's consideration is the Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court, dated April 25, 2011 of petitioner Milagros C. Reyes seeking the reversal of
the Decision2 of the Court of Appeals (CA) dated July 9, 2010 which affirmed the Decision3 of
the Regional Trial Court (RTC), Branch 66, Capas, Tarlac, dated January 17, 2007
dismissing the Complaint4 of petitioner against respondent Felix P. Asuncion for the
declaration of nullity of a contract or deed.

The facts follow.

Petitioner claimed that since the early 80s, she and her late husband were the owners, with
the right to occupy and possess a parcel of land (subject land), which is also a sugarcane
plantation, with an area of more or less 3.5 hectares located at Patling, Capas, Tarlac and
forms part of a U.S. Military Reservation. Sometime in 1986, petitioner hired respondent as
a caretaker of the subject land. In 1997, the Bases Conversion and Development Authority
(BCDA) launched a resettlement program for the victims of the Mt. Pinatubo eruption and
began to look for possible resettlement sites in Tarlac and the subject lot was among those
considered.

Thereafter, according to petitioner, in order to prevent the BCDA from converting her
property into a resettlement site, she and respondent executed a contract, antedated on
June 15, 1993, transferring her rights over the subject land to the respondent. The contract
reads as follows:chanRoblesvirtualLawlibrary
PAGLILIPAT [NG] KARAPATAN SA LUPA

Para sa Kinauukulan[:]

Ako po [ay] si [G]inang Milagros C. Reyes, widow[,] [F]ilipino, a sugar [p]lanter of Central
Azucarera de Tarlac, San Miguel [,] Tarlac [and] residing at San Rafael[,] Tarlac.
Akin[g] pinatutunayan sa kasulatan[g] ito na nabili ko ang karapatan o [r]ights ni
[GJinoong Reymundo Dailig, nakatira sa Patling[,] Capas[,] Tarlac. Ang loti ay may sukat
na tatlong ektarya at kalahati [sic] (3 1/2 hec). [A]t itoy [sic] ay kusang loob naming mag-
asawa, si Jesus C. Reyes[,] na ipagkaloob ang nasabing lupa kay [G]inoong Felix Asuncion
[unreadable portion]. Sa loob ng sampung taon naminfg] pagsasama[,] nakita namin na
naging matapat siya sa kanyang obligations bilang taga pamahala [sic] ng aming tubuhan
at sa mga [k]ontratista at higit sa lahat ay marunong siya makisama sa aming kasama siya
[ay] mapagkakatiwalaan lalo na sa pera. Dahil sa [sic] naging matapat siya sa amin bilang
Palsunero, napagkasunduan namin na kami ang bahala sa finances, sa kasunduan na kami
ang magpapakabyaw ng tubo sa pangalan ko, hanggang gusto ko. Sa ilalim nito ay
nakapinna ang aking pangalan.

Sgd. Sgd.
Felix P. Asuncion Milagros C. Reyes
Tenant Planter
Sgd.
Witness
Barangay [C]aptain
Bon Vistair5
cralawlawlibrary

Petitioner claimed to have remained the absolute owner and possessor of the subject land
and presently occupies the same as a sugarcane plantation and even mills the sugarcane
harvested at the Central Azucarera de Tarlac for her own benefit. She also stated that the
respondent continued working for her but the latter's employment was severed when
petitioner discovered that respondent sold the former's pigs and cows.

On January 6, 2000, respondent filed a Complaint for Estafa against petitioner before the
Office of the Prosecutor in Tarlac City, Tarlac alleging that petitioner failed and/or refused
to give respondent his share of the total harvests on the subject land for the years 1993-
1999, using their contract as basis. However, the said complaint was dismissed for lack of
probable cause.
Thereafter, petitioner filed a Complaint dated October 21, 2001 against respondent before
the RTC of Capas, Tarlac for the declaration of nullity of the subject contract.

The RTC, on January 17, 2007, rendered a Decision in favor of the respondent. It ruled that
there is no legal basis to nullify the contract. The dispositive portion of the decision
states:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, finding no legal basis to nullify the contract
denominated as Paglilipat [nang] Karapatan set Lipa, the complaint is dismissed and
the Paglilipat [nang] Karapatan set Lupa is declared legal and binding.

No pronouncement as to cost. SO ORDERED.6cralawlawlibrary

Undeterred, petitioner appealed the case to the CA, and on July 9, 2010, the latter dismissed
the appeal, thus:chanRoblesvirtualLawlibrary

FOR THESE REASONS, We DISMISS the appeal for lack of merit, the assailed Decision
dated January 17, 2007 of the Regional Trial Court is AFFIRMED.

SO ORDERED.7

After the CA denied8 petitioner's motion for reconsideration, the latter filed the present
petition.

Petitioner assigned the following errors:chanRoblesvirtualLawlibrary


I

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE


SUBJECT CONTRACT IS VALID EVEN IF IT DOES NOT REFLECT THE TRUE INTENT
OF THE PARTIES.
II.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE


DONATION OF THE SUBJECT LAND IS VALID EVEN IF NOT MADE AND ACCEPTED
IN A PUBLIC DOCUMENT.
III.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT THE


PETITIONER MAY TRANSFER THE SUBJECT LAND TO THE RESPONDENT EVEN
WITHOUT THE CONSENT OF THE HEIRS OF HER LATE
HUSBAND.9ChanRoblesVirtualawlibrary
cralawlawlibrary

Thereafter, respondent filed his Comment10 dated March 31, 2014 and petitioner filed her
Reply11 dated June 7, 2014.

This Court finds no merit in the petition.

It is petitioner's contention that the subject contract is purely simulated, since it purports a
transfer of rights over the subject land in favor of the respondent. However, when petitioner
executed the contract, it was never her intention to transfer her rights over the subject land
as the primordial consideration was to prevent the BCDA from taking over the property.
She also asserts that she and the respondent agreed to make the said false appearance in
the contract. However, the RTC and the CA found no other evidence to support the said
allegations and the self-serving averments of the petitioner. This Court is in agreement with
the RTC and the CA as to the insufficiency of evidence to prove that there was indeed a
simulation of contract.

The Civil Code provides:chanRoblesvirtualLawlibrary


Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when
the parties do not intend to be bound at all; the latter, when the parties conceal their true
agreement.

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when
it does not prejudice a third person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the parties to their real
agreement.cralawlawlibrary

Valerio v. Refresca12 is instructive on the matter of simulation of


contracts:chanRoblesvirtualLawlibrary
x x x In absolute simulation, there is a colorable contract but it has no substance as the
parties have no intention to be bound by it. The main characteristic of an absolute
simulation is that the apparent contract is not really desired or intended to produce legal
effect or in any way alter the juridical situation of the parties. As a result, an absolutely
simulated or fictitious contract is void, and the parties may recover from each other what
they may have given under the contract. However, if the parties state a false cause in the
contract to conceal their real agreement, the contract is relatively simulated and the parties
are still bound by their real agreement. Hence, where the essential requisites of a contract
are present and the simulation refers only to the content or terms of the contract, the
agreement is absolutely binding and enforceable between the parties and their successors-
in-interest.cralawlawlibrary

Lacking, therefore, in an absolutely simulated contract is consent which is essential to a


valid and enforceable contract.13 Thus, where a person, in order to place his property beyond
the reach of his creditors, simulates a transfer of it to another, he does not really intend to
divest himself of his title and control of the property; hence, the deed of transfer is but a
sham.14

The primary consideration in determining the true nature of a contract is the intention of
the parties. If the words of a contract appear to contravene the evident intention of the
parties, the latter shall prevail. Such intention is determined not only from the express
terms of their agreement, but also from the contemporaneous and subsequent acts of the
parties.15

The burden of proving the alleged simulation of a contract falls on those who impugn its
regularity and validity. A failure to discharge this duty will result in the upholding of the
contract. The primary consideration in determining whether a contract is simulated is the
intention of the parties as manifested by the express terms of the agreement itself, as well
as the contemporaneous and subsequent actions of the parties. The most striking index of
simulation is not the filial relationship between the purported seller and buyer, but the
complete absence of any attempt in any manner on the part of the latter to assert rights of
dominion over the disputed property.16

The finding of the CA is correct when it ruled that petitioner failed to present evidence to
prove that respondent acted in bad faith or fraud in procuring her signature or that he
violated their real intention, if any, in executing it, thus:chanRoblesvirtualLawlibrary
So far, appellant's averments evince an obvious knowledge and voluntariness on her part to
enter into the alleged simulated contract. Without the slightest doubt, appellant, as plaintiff
in the court below, utterly foiled to adduce any evidence of appellee's bad faith or fraud in
procuring her signature to the contract or that he violated their real intention, if any, in
executing it. It must be stressed that the determination of whether one acted in bad faith is
evidentiary in nature. Indeed, the unbroken jurisprudence is that "[b]ad faith [or fraud]
under the law cannot be presumed; it must be established by clear and convincing evidence.
The allegation of simulation of contract as well as lack of consent and/or vitiated consent
remains to be proven. As it stands, We perceive that the contract by its very terms and
conditions, on June 15, 1993, appellant simply intended to transfer the subject land to
appellee. It is a cardinal rule that if the terms of a contract are clear and leave no doubt as
to the intention of the contracting parties, the literal meaning of its stipulation shall
control.17cralawlawlibrary

Petitioner insists that the subject contract is in the nature of a simple donation, and even
assuming arguendo that the same was meant to be a remuneratory donation, it is still
invalid because the donation was not notarized.

Donation is an act of liberality whereby a person gratuitously disposes of a thing or a right


in favor of another who accepts it.18 Once perfected, a donation is final; its revocation or
rescission cannot be effected, absent any legal ground therefor.19 A donation may, in fact,
comprehend the entire property of the donor.20 At any rate, the law provides that donors
should reserve, in full ownership or in usufruct, sufficient means for their own support and
that of all their relatives who, at the time of the acceptance of the donation, are by law
entitled to be supported by them.21
The subject contract in this case is seemingly a remuneratory donation as all the elements
for such are present. The CA explained:chanRoblesvirtualLawlibrary
A painstaking review of the contract reveals that it is a remuneratory donation. First,
appellant expressed in the contract that "sa loob ng sampling taon namin[g] pagsasama[,]
nakita namin na naging matapat siya sa kanyang obligations bilang taga pamahala [sic] ng
aming tubuhan at sa mga [k]ontratista at higit sa lahat ay marunong siya makisama sa
aming mga kasama at siya [ay] mapagkakatiwalaan lalo na sa pera. Clearly, she gave the
subject land to appellee to remunerate his ten (10) years of faithful service to her. More
importantly, appellant stated that "napagkasunduan namin na kami ang bahala sa
finances, sa kasunduan na kami ang magpapakabyaw ng tubo sa pangalan ko, hanggang
gusto ko. This is a profit sharing agreement where appellant finances the planting,
harvesting and milling of sugarcane on the subject land donated to appellee under
appellant's name. Unmistakably, it is a charge or burden on the
donation.22cralawlawlibrary

However, as pointed out by the CA, the contract, as well as the evidence presented during
the trial, are silent as to the value of the burden, hence, instead of the law on donations, the
rules on contract should govern the subject contract because the donation is onerous as the
burden is imposed upon the donee of a thing with an undetermined value. Furthermore, the
CA is also right in ruling that it is not necessary that the contract be in a public instrument
if it involves immovable property, properly citing Pada-Kilario v. Court of Appeals23 which
states that the requirement of Article 1358 of the Civil Code that acts which have for their
object the creation, transmission, modification or extinguishment of real rights over
immovable property, must appear in a public document, is only for convenience, non-
compliance with which does not affect the validity or enforceability of the acts of the parties
as among themselves.

Finally, petitioner argues that she has raised the issue of her co-ownership of the subject
land with her late husband at the very outset of the case, thus, in view of that co-ownership,
petitioner cannot alienate the subject land without the consent of the heirs of her late
husband. However, as aptly observed by the CA, the petitioner did not raise the issue of co-
ownership during the trial, thus, she cannot now assail the validity of the contract using
such ground for the first time on appeal. It is also worth noting that petitioner has not, in
her appeal to the CA, as well as in her petition with this Court, mentioned the specific heirs
affected or prejudiced by the subject contract.

WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court,
dated April 25, 2011 of petitioner Milagros C. Reyes is DENIED for lack merit, and the
Decision of the Court of Appeals, dated July 9, 2010, is AFFIRMED in toto.

SO ORDERED.chanro
FIRST DIVISION
G.R. No. 102784 February 28, 1996
ROSA LIM, petitioner,
vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No. 10290,
entitled "People v. Rosa Lim," promulgated on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against petitioner Rosa Lim before
Branch 92 of the Regional Trial Court of Quezon City.1 The Information reads:
That on or about the 8th day of October 1987, in Quezon City, Philippines and within the
jurisdiction of this Honorable Court, the said accused with intent to gain, with
unfaithfulness and/or abuse of confidence, did, then and there, wilfully, unlawfully and
feloniously defraud one VICTORIA SUAREZ, in the following manner, to wit: on the date
and place aforementioned said accused got and received in trust from said complainant one
(1) ring 3.35 solo worth P169,000.00, Philippine Currency, with the obligation to sell the
same on commission basis and to turn over the proceeds of the sale to said complainant or
to return said jewelry if unsold, but the said accused once in possession thereof and far from
complying with her obligation despite repeated demands therefor, misapplied,
misappropriated and converted the same to her own personal use and benefit, to the damage
and prejudice of the said offended party in the amount aforementioned and in such other
amount as may be awarded under the provisions of the Civil Code.
CONTRARY TO LAW.2
After arraignment and trial on the merits, the trial court rendered judgment, the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as
defined and penalized under Article 315, paragraph 1(b) of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS and TWO (2)
MONTHS of prision correccional as minimum, to TEN (10) YEARS of prision mayor as
maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring or its value in
the amount of P169,000 without subsidiary imprisonment in case insolvency; and
4. To pay costs.3
On appeal, the Court of Appeals affirmed the judgment of conviction with the modification
that the penalty imposed shall be six (6) years, eight (8) months and twenty-one (21) days
to twenty (20) years in accordance with Article 315, paragraph 1 of the Revised Penal Code.4
Petitioner filed a motion for reconsideration before the appellate court on September 20,
1991, but the motion was denied in a Resolution dated November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition for review alleging
the following grounds:
I
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES OF
COURT AND THE DECISION OF THIS HONORABLE COURT IN NOT PASSING UPON
THE FIRST AND THIRD ASSIGNED ERRORS IN PETITIONER'S BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL
EVIDENCE RULE WAS WAIVED WHEN THE PRIVATE PROSECUTOR CROSS-
EXAMINED THE PETITIONER AND AURELIA NADERA AND WHEN COMPLAINANT
WAS CROSS-EXAMINED BY THE COUNSEL FOR THE PETITIONER AS TO THE TRUE
NATURE OF THE AGREEMENT BETWEEN THE PARTIES WHEREIN IT WAS
DISCLOSED THAT THE TRUE AGREEMENT OF THE PARTIES WAS A SALE OF
JEWELRIES AND NOT WHAT WAS EMBODIED IN THE RECEIPT MARKED AS
EXHIBIT "A" WHICH WAS RELIED UPON BY THE RESPONDENT COURT IN
AFFIRMING THE JUDGMENT OF CONVICTION AGAINST HEREIN PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE PRINCIPLE
ENUNCIATED BY THIS HONORABLE COURT TO THE EFFECT THAT "ACCUSATION"
IS NOT, ACCORDING TO THE FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT:
THE PROSECUTION MUST OVERTHROW THE PRESUMPTION OF INNOCENCE
WITH PROOF OF GUILT BEYOND REASONABLE DOUBT. TO MEET THIS
STANDARD, THERE IS NEED FOR THE MOST CAREFUL SCRUTINY OF THE
TESTIMONY OF THE STATE, BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY
OF WHATEVER DEFENSE IS OFFERED BY THE ACCUSED. ONLY IF THE JUDGE
BELOW AND THE APPELLATE TRIBUNAL COULD ARRIVE AT A CONCLUSION
THAT THE CRIME HAD BEEN COMMITTED PRECISELY BY THE PERSON ON TRIAL
UNDER SUCH AN EXACTING TEST SHOULD SENTENCE THUS REQUIRED THAT
EVERY INNOCENCE BE DULY TAKEN INTO ACCOUNT. THE PROOF AGAINST HIM
MUST SURVIVE THE TEST OF REASON; THE STRONGEST SUSPICION MUST NOT
BE PERMITTED TO SWAY JUDGMENT. (People v. Austria, 195 SCRA 700)5
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu received from
private respondent Victoria Suarez the following two pieces of jewelry; one (1) 3.35 carat
diamond ring worth P169,000.00 and one (1) bracelet worth P170,000.00, to be sold on
commission basis. The agreement was reflected in a receipt marked as Exhibit "A" 6 for the
prosecution. The transaction took place at the Sir Williams Apartelle in Timog Avenue,
Quezon City, where Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but failed to return
the diamond ring or to turn over the proceeds thereof if sold. As a result, private
complainant, aside from making verbal demands, wrote a demand letter7 to petitioner
asking for the return of said ring or the proceeds of the sale thereof. In response, petitioner,
thru counsel, wrote a letter8 to private respondent's counsel alleging that Rosa Lim had
returned both ring and bracelet to Vicky Suarez sometime in September, 1987, for which
reason, petitioner had no longer any liability to Mrs. Suarez insofar as the pieces of jewelry
were concerned. Irked, Vicky Suarez filed a complaint for estafa under Article 315, par l(b)
of the Revised Penal Code for which the petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in October 1987,
together with one Aurelia Nadera, who introduced petitioner to private respondent, and
that they were lodged at the Williams Apartelle in Timog, Quezon City. Petitioner denied
that the transaction was for her to sell the two pieces of jewelry on commission basis. She
told Mrs. Suarez that she would consider buying the pieces of jewelry far her own use and
that she would inform the private complainant of such decision before she goes back to Cebu.
Thereafter, the petitioner took the pieces of jewelry and told Mrs. Suarez to prepare the
"necessary paper for me to sign because I was not yet prepare (d) to buy it." 9 After the
document was prepared, petitioner signed it. To prove that she did not agree to the terms of
the receipt regarding the sale on commission basis, petitioner insists that she signed the
aforesaid document on the upper portion thereof and not at the bottom where a space is
provided for the signature of the person(s) receiving the jewelry. 10
On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by
telephone in order to inform her that she was no longer interested in the ring and bracelet.
Mrs. Suarez replied that she was busy at the time and so, she instructed the petitioner to
give the pieces of jewelry to Aurelia Nadera who would in turn give them back to the private
complainant. The petitioner did as she was told and gave the two pieces of jewelry to Nadera
as evidenced by a handwritten receipt, dated October 12, 1987. 11

Two issues need to be resolved: First, what was the real transaction between Rosa Lim and
Vicky Suarez a contract of agency to sell on commission basis as set out in the receipt or a
sale on credit; and, second, was the subject diamond ring returned to Mrs. Suarez through
Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she never received the
jewelries in trust or on commission basis from Vicky Suarez. The real agreement between
her and the private respondent was a sale on credit with Mrs. Suarez as the owner-seller
and petitioner as the buyer, as indicated by the bet that petitioner did not sign on the blank
space provided for the signature of the person receiving the jewelry but at the upper portion
thereof immediately below the description of the items taken. 12
The contention is far from meritorious.
The receipt marked as Exhibit "A" which establishes a contract of agency to sell on
commission basis between Vicky Suarez and Rosa Lim is herein reproduced in order to come
to a proper perspective:
THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking
tinanggap kay ___________ the following jewelries:
ang mga alahas na sumusunod:

Description Price
Mga Uri Halaga

l ring 3.35 dolo P 169,000.00

1 bracelet 9;170,000.00

total P 339,000.00
Kabuuan
in good condition, to be sold in CASH ONLY within . . . days from date of signing this receipt
na nasa mabuting kalagayan upang ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob
ng . . . araw mula ng ating pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period mentioned above; if I would
be able to sell, I shall immediately deliver and account the whole proceeds of sale thereof to
the owner of the jewelries at his/her residence; my compensation or commission shall be the
over-price on the value of each jewelry quoted above. I am prohibited to sell any jewelry on
credit or by installment; deposit, give for safekeeping: lend, pledge or give as security or
guaranty under any circumstance or manner, any jewelry to other person or persons.
kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning na panahong
nakatala sa itaas; kung maipagbili ko naman ay dagli kong isusulit at ibibigay ang buong
pinagbilhan sa may-ari ng mga alahas sa kanyang bahay tahanan; ang aking gantimpala
ay ang mapapahigit na halaga sa nakatakdang halaga sa itaas ng bawat alahas HINDI ko
ipinahihintulutang ipa-u-u-tang o ibibigay na hulugan ang alin mang alahas, ilalagak,
ipagkakatiwala; ipahihiram; isasangla o ipananagot kahit sa anong paraan ang alin mang
alahas sa ibang mga tao o tao.
I sign my name this . . . day of . . . 19 . . . at Manila, NILALAGDAAN ko ang kasunduang
ito ngayong ika _____ ng dito sa Maynila.

___________________
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)

Address: . . . . . . . . . . . .

Rosa Lim's signature indeed appears on the upper portion of the receipt immediately below
the description of the items taken: We find that this fact does not have the effect of altering
the terms of the transaction from a contract of agency to sell on commission basis to a
contract of sale. Neither does it indicate absence or vitiation of consent thereto on the part
of Rosa Lim which would make the contract void or voidable. The moment she affixed her
signature thereon, petitioner became bound by all the terms stipulated in the receipt. She,
thus, opened herself to all the legal obligations that may arise from their breach. This is
clear from Article 1356 of the New Civil Code which provides:
Contracts shall be obligatory in whatever form they may have been entered into, provided
all the essential requisites for their validity are present. . . .
However, there are some provisions of the law which require certain formalities for
particular contracts. The first is when the form is required for the validity of the contract;
the second is when it is required to make the contract effective as against third parties such
as those mentioned in Articles 1357 and 1358; and the third is when the form is required
for the purpose of proving the existence of the contract, such as those provided in the Statute
of Frauds in article 1403. 13 A contract of agency to sell on commission basis does not belong
to any of these three categories, hence it is valid and enforceable in whatever form it may
be entered into.
Furthermore, there is only one type of legal instrument where the law strictly prescribes
the location of the signature of the parties thereto. This is in the case of notarial wills found
in Article 805 of the Civil Code, to wit:
Every will, other than a holographic will, must be subscribed at the end thereof by the
testator himself . . . .
The testator or the person requested by him to write his name and the instrumental
witnesses of the will, shall also sign, as aforesaid, each and every page thereof, except the
last, on the left margin. . . .
In the case before us, the parties did not execute a notarial will but a simple contract of
agency to sell on commission basis, thus making the position of petitioner's signature
thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez
through Aurelia Nadera, thus relieving her of any liability. Rosa Lim testified to this effect
on direct examination by her counsel:
Q: And when she left the jewelries with you, what did you do thereafter?
A: On October 12, I was bound for Cebu. So I called up Vicky through telephone and
informed her that I am no longer interested in the bracelet and ring and that I will just
return it.
Q: And what was the reply of Vicky Suarez?
A: She told me that she could not come to the apartelle since she was very busy. So, she
asked me if Aurelia was there and when I informed her that Aurelia was there, she
instructed me to give the pieces of jewelry to Aurelia who in turn will give it back to Vicky.
Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?
A: Yes, Your Honor. 14
This was supported by Aurelia Nadera in her direct examination by petitioner's counsel:
Q: Do you know if Rosa Lim in fact returned the jewelries?
A: She gave the jewelries to me.
Q: Why did Rosa Lim give the jewelries to you?
A: Rosa Lim called up Vicky Suarez the following morning and told Vicky Suarez that
she was going home to Cebu and asked if she could give the jewelries to me.
Q: And when did Rosa Lim give to you the jewelries?
A: Before she left for Cebu. 15
On rebuttal, these testimonies were belied by Vicky Suarez herself:
Q: It has been testified to here also by both Aurelia Nadera and Rosa Lim that you gave
authorization to Rosa Lim to turn over the two (2) pieces of jewelries mentioned in Exhibit
"A" to Aurelia Nadera, what can you say about that?
A: That is not true sir, because at that time Aurelia Nadera is highly indebted to me in
the amount of P140,000.00, so if I gave it to Nadera, I will be exposing myself to a high
risk. 16<
The issue as to the return of the ring boils down to one of credibility. Weight of evidence is
not determined mathematically by the numerical superiority of the witnesses testifying to
a given fact. It depends upon its practical effect in inducing belief on the part of the judge
trying the case.17 In the case at bench, both the trial court and the Court of Appeals gave
weight to the testimony of Vicky Suarez that she did not authorize Rosa Lim to return the
pieces of jewelry to Nadera. The respondent court, in affirming the trial court, said:
. . . This claim (that the ring had been returned to Suarez thru Nadera) is disconcerting. It
contravenes the very terms of Exhibit A. The instruction by the complaining witness to
appellant to deliver the ring to Aurelia Nadera is vehemently denied by the complaining
witness, who declared that she did not authorize and/or instruct appellant to do so. And
thus, by delivering the ring to Aurelia without the express authority and consent of the
complaining witness, appellant assumed the right to dispose of the jewelry as if it were hers,
thereby committing conversion, a clear breach of trust, punishable under Article 315, par.
1(b), Revised Penal Code.
We shall not disturb this finding of the respondent court. It is well settled that we should
not interfere with the judgment of the trial court in determining the credibility of witnesses,
unless there appears in the record some fact or circumstance of weight and influence which
has been overlooked or the significance of which has been misinterpreted. The reason is that
the trial court is in a better position to determine questions involving credibility having
heard the witnesses and having observed their deportment and manner of testifying during
the trial. 18
Article 315, par. 1(b) of the Revised Penal Code provides:
Art. 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
xxx xxx xxx
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any
other personal property received by the offender in trust or on commission, or for
administration, or under any other obligation involving the duty to make delivery of or to
return the same, even though such obligation be totally or partially guaranteed by a bond;
or by denying having received such money, goods, or other property.
xxx xxx xxx
The elements of estafa with abuse of confidence under this subdivision are as follows. (1)
That money, goods, or other personal property be received by the offender in trust, or on
commission, or for administration, or under any other obligation involving the duty to make
delivery of, or to return, the same; (2) That there be misappropriation or conversion of such
money or property by the offender or denial on his part of such receipt; (3) That such
misappropriation or conversion or denial is to the prejudice of another; and (4) That there
is a demand made by the offended party to the offender (Note: The 4th element is not
necessary when there is evidence of misappropriation of the goods by the defendant) 19
All the elements of estafa under Article 315, Paragraph 1(b) of the Revised Penal Code, are
present in the case at bench. First, the receipt marked as Exhibit "A" proves that petitioner
Rosa Lim received the pieces of jewelry in trust from Vicky Suarez to be sold on commission
basis. Second, petitioner misappropriated or converted the jewelry to her own use; and,
third, such misappropriation obviously caused damage and prejudice to the private
respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is hereby
AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 90667 November 5, 1991
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
SANDIGANBAYAN, PALM AVENUE REALTY DEVELOPMENT CORPORATION and
PALM AVENUE HOLDING COMPANY, respondents.
G.R. No. 91655 November 5, 1991
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
SANDIGANBAYAN and ROSARIO M.B. OLIVARES, respondents.
The Solicitor General for petitioner.
Cleofe B. Villar-Verzola for private respondents in G.R. No. 90667.
Lina M. Labaguis for private respondent in G.R. No. 91655.

PARAS, J.:
G.R. No. 90667 is a petition for certiorari filed by the Republic of the Philippines, which
seeks to partially nullify 1) the resolution** dated June 16, 1989 of the Sandiganbayan
which: (a) ordered all the 16,237,339 Benguet Consolidated shares, and not merely
6,737,339 thereof, as still under sequestration and in dispute, and (b) directed the
impleading of Palm Avenue Realty Development Corporation and Palm Avenue Holding
Company as defendants in Civil Case No. 0035 entitled "Republic of the Philippines,
plaintiff, vs. Benjamin (Kokoy) Romualdez, et al., defendants" and 2) the resolution dated
September 18, 1989 of the said court denying petitioner's motion for reconsideration.
G.R. No. 91655 is a petition for certiorari with prayer for a temporary restraining order and
preliminary injunction which seeks to annul and set aside 1) the resolution*** dated
October 13, 1989 of the Sandiganbayan granting Rosario M.B. Olivares' motion for an
accounting of the sequestered Philippine Journalists, Inc.'s assets and liabilities through an
auditing firm of her choice, and 2) the resolution dated December 22, 1989 of the said court
denying petitioner's motion for reconsideration.
In the resolution of February 20, 1990, the Court En Banc resolved to consolidate these
cases.
In G.R. No. 90667 —
The antecedent facts of this case originated from the case of Palm Avenue Realty
Development Corporation vs. Presidential Commission on Good Government (Palm Avenue
case, for brevity) [153 SCRA 579 (1987)]. Said facts, as set forth by this Court in the
aforementioned case, appear to be undisputed. They are quoted as follows:
The res involved consists of 16,237,339 shares of stock of Benguet Corporation (Common
Class A), of which the registered owners are the petitioners, Palm Avenue Realty
Development Corporation and Palm Avenue Holding Co., Inc. The shares had been pledged
by the petitioners with three (3) institutions as security for loans obtained from the latter,
namely: Philippine Commercial and International Bank (PCIB), Philippine Commercial
Capital (PCC), and Equitable Bank.
The PCGG sequestered these shares on or about April 5, 1986. It did so, apparently on the
strength of evidence that the ostensible owners, herein petitioner corporations, were owned
and controlled by a known "crony" of former President Marcos, Benjamin Kokoy Romualdez.
At that time, the loans were all past due and auction sale of the pledged stock was imminent.
Now, Benguet Management Corporation (hereafter, simply BENGUET) wished to acquire
these shares of stock from the petitioners, intending to distribute them chiefly to the
employees of Benguet Corporation and its subsidiaries pursuant to a plan named
Employees' Stock Ownership and Incentive Plan, or ESOIP. BENGUET opened
negotiations with the petitioners for the purchase of the stock. It found the petitioners to be
willing sellers, but only of so much of the stock as was needed to be sold to pay the past due
loans secured, as aforesaid, by the pledge of all said stock.
The negotiation, culminated in the execution by the parties of a Contract to Purchase and
Sell dated September 1, 1986, its principal stipulations were the following:
1 BENGUET would buy as much of the petitioners' stock as needed to pay the latter's loans,
estimated to be 9.5 million shares.
2. The price was fixed at P29.00 per share, expected to be realized at a "cross sale" thru
Papa Securities at the Manila or Makati Stock Exchange.
3. Additionally, (a) the written approval of the PCGG had to be obtained; (2) the purchasers
were to procure the release of all stock from the pledgee banks; and (3) if this was not done
within 60 days BENGUET had the option either to withdraw from the contract, by notice in
writing, or pay interest as provided in the agreement.
Approval by the PCGG was not immediately given. In a communication dated September
23, 1986 it opined that the price was too low, P43.00 per share being in its view the more
adequate, and set down other conditions at variance with the stipulations in the contract of
purchase and sale. Both parties found the PCGG's terms quite unacceptable.
Eventually, however, due mainly to the efforts and representations of BENGUET, PCGG
gave its approval. By letter dated October 14, 1986, signed by Commissioner Ramon Diaz,
PCGG advised BENGUET that at its meeting on that same day it had approved the
Contract of Purchase and Sell dated September 1, 1986.
xxx xxx xxx
On October 24, 1986, the PCGG and BENGUET drew up and signed a Memorandum of
Agreement specifying the terms and conditions under which the Contract to Purchase and
Sell of September 1, 1986 would be implemented. Briefly, those terms and conditions are as
follows:
1. BENGUET would fund the acquisition cost of 9.5 million of the 16,237,339 sequestered
shares at P29.00 per share (the bulk of which would be paid to PCIB, PCC and Equitable
Bank to extinguish their credits and bring about the release of all said 16,237,339 pledged
shares).
2. 3 million out of the 9.5 million shares would be sold to the employees of BENGUET and
its subsidiaries in accordance with the Employees' Ownership & Incentive Plan already
referred to, supra, P29.00 per share plus transaction costs. The rest of the purchased stock,
numbering 6.5 million shares, would be warehoused, or held in trust for PCGG by
BENGUET, to be sold when and as directed by the former. When sold, the proceeds of the
"sale of these 6.5 million shares would be delivered to the PCGG minus their acquisition
cost (to BENGUET) of P29.00 per share (or P188,500,000). The rest of the 16,237,339 shares
released from the pledges thereon, numbering 6,737,339 would be held in custodia legis by
the PCGG free from liens and encumbrances.
3. The sequestration would be lifted as to the 9.5 million shares subject of the sale, upon
their release and transfer to BENGUET by the pledgee banks.
4. Restoration of the status quo ante would take place in the event of a final judgment by a
competent court invalidating the sale.
Carrying out this agreement, the PCGG —
1) directed the pledgees (PCIB, PCC and Equitable Bank), to deliver to Benguet
Management Corporation the certificates of stock covering the said shares respectively held
by . . . (them) upon . . . receipt from Benguet Management Corporation of the payment of . .
. (their) respective loans.
2) sequestered "all assets, properties, records and documents" of both petitioner
corporations, and commanded them to "desist from doing any act, directly or indirectly,
which may lead to dissipation, concealment and transfer of the sequestered assets,
properties, records and documents, and to disburse funds only to support the routine or day-
to-day operations . . . and make available all records documents . . . which may be required
to achieve the purpose" of the sequestration writ; and
3) supervised, through Commissioner Diaz, the payment by BENGUET to the pledgees of
the amounts of their credits and the release and surrender by the latter of all the pledged
stock, and received the amount of P11,781,124.84.
Alleging that the PCGG had acted without or in excess of its authority or jurisdiction, or
with grave abuse of discretion, when it approved and directed the carrying out of the
Contract to Purchase and Sell of September 1, 1986, despite their objection thereto, and
despite the fact that the stock could have been sold for a much higher price, Palm Avenue
Realty Development Corporation and Palm Avenue Holding Company (PALM AVENUE
COMPANIES, for brevity) filed with this Court on November 3, 1986 the Palm Avenue
case, praying that the implementation of the Contract to Purchase and Sell of September 1,
1986 approved by the PCGG on October 14, 1986 be adjudged void ab initio.
Pending the resolution of the Palm Avenue case, or on July 31, 1987, the Solicitor General
on behalf of the PCGG representing petitioner Republic of the Philippines (PCGG, for
brevity) brought an action with the Sandiganbayan against Benjamin Romualdez, among
others, for forfeiture of alleged ill-gotten wealth, including the Benguet Corporation
(Common Class A) shares (Rollo, p. 112). Said case was docketed as Civil Case No. 0035.
PALM AVENUE COMPANIES, however, were not made party defendants in said case.
This Court, in a decision dated August 31, 1987, dismissed the Palm Avenue case, and
upheld the validity of the Contract to Purchase and Sell, along with its implementing
Memorandum of Agreement.
On February 8, 1989, PALM AVENUE COMPANIES filed with the respondent court a
"Motion to Require PCGG to Account for Cash Assets and to Enjoin Unnecessary Sale of
Benguet Shares of Stock" (Rollo, G.R. No. 90667, p. 36).
On June 20, 1989, respondent court promulgated its resolution date June 16, 1989, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, the "Motion to Require PCGG to Account for Cash
Assets and to Enjoin Unnecessary Sale of Benguet Shares of Stocks" dated February 7, 1989,
and filed by Palm Avenue Realty Development Corporation and Palm Avenue Holding
Company, Inc., is hereby DENIED for lack of merit.
The plaintiff is hereby ordered to implead the said movants as defendants in the present
case within 15 days from receipt hereof. (Ibid., pp. 127-128).
In the same resolution, respondent court declared that all the 16,237,339 shares of stock of
Benguet Corporation are still under sequestration (Ibid., p. 118 and 121).
On July 10, 1989, the PCGG moved for the reconsideration of the aforesaid resolution. It
argued that the ownership of 9.5 million shares is no longer in dispute. Hence, only
6,737,339 shares of stock remain under sequestration (Ibid., pp. 129 and 136). PALM
AVENUE COMPANIES likewise moved for its partial reconsideration (Ibid., p. 139).
On September 21, 1989, respondent court promulgated its resolution dated September 18,
1989, the dispositive portion of which reads as follows:
WHEREFORE, the plaintiff's Motion for Reconsideration dated July 6, 1989, and the Palm
Avenue Companies' Motion for Partial Reconsideration dated July 7, 1989, are hereby
DENIED for lack of merit.
The order in the Resolution of June 16, 1989, is reiterated that the plaintiff implead the
Palm Avenue Realty Development Corporation and Palm Avenue Holding Company, Inc. as
defendants in this case within fifteen (15) days from receipt hereof. (Ibid., p. 175).
Hence, the instant petition for certiorari.
In G.R. No. 91655 —
The facts, as gathered from the records, are as follows:
On July 8,1988, Rosario M.B. Olivares (Olivares, for brevity), one of the defendants in Civil
Case No. 0035 pending before the respondent court, filed with the latter an "Urgent Motion
to Require PCGG to Render Report and Accounting of Management of Philippine
Journalists, Inc." (Rollo, G.R. No. 91655, p. 28), to which the Solicitor General on behalf of
the PCGG representing the Republic of the Philippines filed a verified opposition (Ibid., p.
66).
On October 24, 1988, respondent court promulgated its resolution dated October 21, 1988,
the dispositive portion of which reads as follows:
WHEREFORE, the motion is hereby granted in so far as its prayer for an accounting and/or
financial report on the fiscal management of the PJI to be made by the PCGG is concerned.
The PCGG is hereby ordered to submit an accounting and/or financial report on the Phil.
Journalists Inc. to this Court, furnishing a copy thereof to defendant movant and to all the
stockholders of the same within thirty (30) days from receipt hereof. (G.R. No. 91655, pp.
87-88).
On December 1, 1988, in compliance with the foregoing resolution, the PCGG submitted to
the respondent court copies of the audited financial statements of Philippine Journalists,
Inc. (PJI), for brevity) as of September 30 and December 31, 1986 as well as the audited
financial statements of PJI as of December 31, 1987, both of which were prepared by
Guzman, Bocaling & Co. (Ibid., pp. 89-90).
On December 6, 1988, Olivares filed a manifestation and motion with the respondent court
where she alleged that the submission of the said financial statements does not constitute
substantial compliance with the resolution dated October 21, 1988, which granted her
motion for an accounting and/or financial report on the fiscal management of PJI ( Ibid., p.
118). Accordingly, she prayed, among others, that PCGG be ordered to make a more detailed
accounting and/or financial report on the inventory of the physical assets of the corporation,
the increase in the administrative expenses of the corporation, detailing the expenses
incurred, and emoluments given, the PCGG "fiscal agents" (Ibid., p. 126).
On December 14, 1988, the PCGG filed its opposition to the said manifestation and motion.
It argued that the granting of Olivares' prayers would be tantamount to reconsideration,
setting aside and modification of the final and executory resolution dated October 21, 1988
of the respondent court, which had already been complied with by the PCGG (Ibid., p. 129).
On February 7, 1989, respondent court promulgated its resolution, the dispositive portion
of which reads:
Considering the foregoing premises, taken in the light of defendant-movant's admission that
she is not moving for a reconsideration of the Resolution of October 21, 1988 but is only
interested in plaintiff's full compliance with the spirit and intent of the dispositive portion
of said Resolution, and inasmuch as the allegations in the instant "Manifestation and
Motion" are couched in general terms and specific details are missing on the bases of which
the Court may take appropriate action on clear-cut and unequivocal issues, consequently,
defendant-movant is hereby given thirty (30) days from receipt hereof within which to file
the proper pleading specifying the nature of her objections and setting such incident for
hearing and consideration to enable the parties concerned to present their refutation.
(Ibid., p. 139).
On March 30, 1989, Olivares filed her compliance and motion (Ibid., p. 160), to which the
PCGG filed its opposition on April 14, 1989 (Ibid., p. 192).
On October 16, 1989, respondent court promulgated its resolution dated October 13, 1989,
the dispositive portion of which reads:
WHEREFORE, premises considered, and finding merit in defendant Olivares' instant
motion, accordingly, this Court grants the prayer for an accounting of PJI's assets and
liabilities. Within ten (10) days from receipt hereof, the respondent PCGG, its officers,
representatives and agents in PJI are hereby ordered to allow defendant Olivares, through
a reputable auditing firm of her choice, to inspect, examine and audit PJI's records and the
report thereon, duly certified by such firm, to be submitted to this Court within sixty (60)
days from date hereof. (Ibid., p. 208).
On November 3, 1989, the PCGG filed its motion for reconsideration of the foregoing
resolution (Ibid., p. 209), to which Olivares filed her opposition on November 28, 1989
(Ibid., p.218).
On November 6, 1989, Olivares filed a manifestation to the effect that she had already
designated Carlos J. Valdez and Company, an auditing firm, to inspect, examine and audit
PJI records (Ibid., p. 216).
On December 26, 1989, respondent court promulgated its resolution dated December 11,
1989, denying PCGG's motion for reconsideration (Ibid., p. 231).
Hence, this petition for certiorari and prohibition with prayer for temporary restraining
order and preliminary injunction.
In G.R. No. 90667 —
PALM AVENUE COMPANIES filed their comment on December 26, 1989 (Rollo, G.R. No.
90667, p. 179), which was considered by this Court En Banc, in a resolution dated March
15, 1990, as answer to the petition (Rollo, G.R. No. 90667, p. 198). In the same resolution,
this Court En Banc gave due course to the petition. On March 8, 1990, the PCGG filed its
reply. On March 22,1990, PALM AVENUE COMPANIES filed their memorandum (Ibid., p.
212). The PCGG, on the other hand, adopted its petition dated October 16, 1989 and the
reply to comment dated February 26, 1990 as its memorandum (Ibid., p. 199).
In G.R. No. 91655 —
Olivares filed her comment to the petition on March 7, 1990 (Rollo, G.R. No. 91655, p. 242),
to which the PCGG filed its reply on May 18, 1990 (Ibid., p. 296). In a resolution dated June
28, 1990, this Court En Banc gave due course to the petition, and calendared this case for
deliberation (Ibid., p. 307). Both parties did not file their respective memoranda. Olivares
manifested that the filing of the same is unnecessary under the circumstances (Ibid., p. 304).
The PCGG, on the other hand, adopted its petition dated January 12, 1990 as its
memorandum.
Parenthetically, in a resolution dated January 17, 1991, this Court En Banc allowed the
withdrawal of appearance of the Solicitor General as counsel for the PCGG in G.R. No.
90667 and G.R. No. 91665, among others (Rollo, G.R. No. 91655, p. 311). The PCGG
manifested that it will handle said cases under the charge of Commissioner Maximo A.
Maceren and/or any of the following attorneys: Eliseo B. Alampay, Jr., Mario E. Ongkiko,
Mario Jalandoni and such other attorneys as it may later authorize (Rollo, G.R. No. 91655,
p. 317).
In G.R. No. 90667 —
The main issues in this case are:
1. Whether or not respondent court committed grave abuse of discretion in declaring all the
16,237,339 and not merely 6,737,339, Benguet Corporation shares of stock as still under
sequestration and in dispute; and
2. Whether or not respondent court committed grave abuse of discretion in ordering the
PCGG to implead PALM AVENUE COMPANIES as defendants in Civil Case No. 0035.
In G.R. No. 91655 —
The main issue to be resolved in this case is whether or no respondent court has jurisdiction
over Olivares' motion for an accounting of the sequestered PJI's assets and liabilities
through an auditing firm of her notice.
In G.R. No. 90667 —
The main thrust of the PCGG's petition is that when it approved the contract to purchase
and sell, executed the implementing memorandum of agreement, and acted pursuant
thereto, the PCGG acted both as agent to buy the shares for the petitioner Republic of the
Philippines and as sequestrator to preserve the sequestered 16,237,339 Benguet
Corporation shares of stock by forestalling the imminent auction sale thereof in satisfaction
of the past due obligations secured by their pledge. It acted as sequestrator by maintaining
the sequestration of the remaining 6,737,339 Benguet Corporation shares released from the
pledge and on the balance of the consideration received by PALM AVENUE COMPANIES
for the sale in the amount of P11,781,124.84. It acted as agent to buy the shares for the
Republic by borrowing from Benguet Management Corporation (BMC, for brevity) the sum
of P275,500,000.00 and purchasing the 9.5 million Benguet Corporation shares at P29.00 a
share from PALM AVENUE COMPANIES. Hence, it argued that with the sale, PALM
AVENUE COMPANIES voluntarily divested themselves of ownership over the 9.5 million
Benguet Corporation shares of stock sold (Rollo, G.R. No. 90667, pp. 23-25).
On the other hand, PALM AVENUE COMPANIES insist that the Supreme Court in Palm
Avenue case allowed the disposition of the 9.5 million Benguet shares under the
Memorandum of Agreement executed between PCGG and BMC within the context of the
power of PCGG as "conservator" but never decreed that the ownership of the remaining 6.5
million shares after deducting the 3 million shares, was transferred to the government, as
now government property (Ibid., p. 228).
As earlier stated, the Contract to Purchase and Sell dated September 1, 1986 between
PALM AVENUE COMPANIES and BMC and the Memorandum of Agreement dated
October 24, 1986 between the Republic of the Philippines, acting through the PCGG, and
BMC were upheld by this Court in the Palm Avenue case as valid and binding. This Court
held in said case that: "The Memorandum of Agreement of October 23 (sic), 1986 did nothing
more than to recognize and provide for the carrying out of the Contract to Purchase and Sell
of September 1, 1986 which the petitioners had voluntarily entered into. Implementation of
the Memorandum was in truth substantial implementation of the contract." With this
pronouncement, the Contract to Purchase and Sell, together with its implementing
Memorandum of Agreement, becomes the law between the parties, and it is well-settled that
when the words of a contract are plain and readily understandable, there is no room for
construction. As the parties' agreement has been reduced to writing, the rule applies that
their agreement is to be considered as containing all such terms and there can be between
the parties and their successors-in-interest no evidence of the terms of the agreement other
than the contents of the writing (Bagadiong v. Vda. de Abundo, 165 SCRA 459 [1988];
Dihiansan v. Court of Appeals, 153 SCRA 712 [1987]).
The Contract to Purchase and Sell paved the way for BMC to purchase the 9.5 million shares
in question from PALM AVENUE COMPANIES, subject to the terms and conditions of the
said implementing Memorandum of Agreement. The PCGG, in turn, in order to insure the
effectivity of the sale to BMC, lifted in the Memorandum of Agreement the sequestration
order over the shares in question (Rollo, G.R. No. 90667, p. 63). The legal effect of the lifting
was to allow the disposition of the shares by PALM AVENUE COMPANIES in accordance
with the Memorandum of Agreement and thereby removed any legal impediment to the sale
or transfer of title thereto which would have otherwise resulted from the sequestration.
Thus, the plain fact is that PALM AVENUE COMPANIES, having sold the shares in
question and received valuable consideration therefor consisting of the fun payment of their
indebtedness to the creditor banks and the P11,781,124.84 turned over to the PCGG,
voluntarily divested themselves of ownership over the 9.5 million shares sold.
Moreover, paragraph 3 of the Memorandum of Agreement commands BMC to hold 6.5
million of the shares in question in trust for the benefit of the Republic and shall dispose of
the same only in the manner and at such price as PCGG may direct from time to time
(Ibid., p. 62). If indeed the shares were considered sequestered, there would be a doubt as
to whether the PCGG could, upon its own determination, order the sale of the shares. As
stressed by this Court in the case of Bataan Shipyard & Engineering Co., Inc. v. Presidential
Commission on Good Government(150 SCRA 181 [1987]), "the PCGG cannot exercise acts
of dominion over property sequestered, frozen or provisionally taken over, . . . the act of
sequestration, freezing or provisional takeover of property does not import or bring about a
divestment of title over said property, does not make the PCGG the owner thereof. In
relation to the property sequestered, frozen or provisionally taken over, the PCGG is a
conservator, not an owner. Therefore, it cannot perform acts of strict ownership, and this is
specially true in the situations contemplated by the sequestration rules where, unlike cases
of receivership, for example, no court exercises effective supervision or can, upon due
application and hearing, grant authority for the performance of acts of dominion." In
the Palm Avenue case,however, this Court upheld the authority of the PCGG to order the
sale of the 6.5 million Benguet shares of stock in accordance with the provisions of the
Memorandum of Agreement. Undoubtedly, this can only be done if the shares are not
sequestered assets.
In the same paragraph, the Republic is made answerable to BMC for losses or claims which
may arise from BMC's sale of the shares upon instruction of the PCGG. That the risk of loss
with respect to the shares is to be borne by the PCGG is again inconsistent with the
proposition that the shares are still under sequestration.
Under the foregoing circumstances, there is no question that, in declaring all the 16,237,339
Benguet shares of stock as still under sequestration and in dispute, respondent court
committed grave abuse of discretion.
Anent the second issue, it is the contention of the PCGG that while PALM AVENUE
COMPANIES are still parties-in-interest insofar as the ownership over the remaining
6,737,339 Benguet shares is concerned, PCGG's complaint in Civil Case No. 0035 has
pierced their corporate veil and has considered Benjamin (Kokoy) Romualdez and his co-
defendants as their true or real owners (Rollo, G.R. No. 90667, pp. 28-29).
PALM AVENUE COMPANIES' thesis, however, is that they cannot be deprived of their
legal personality in the aforementioned case inasmuch as they appear on record as the
registered owners of the shares of stock involved in the case at bar. (Ibid., pp. 238-239).
Section 2, Rule 3 of the Revised Rules of Court mandates that "every action must be
prosecuted and defended in the name of the real party in interest."
In the case of Samahan ng mga Mangungupahan sa Azcarraga Textile Market, Inc., et al.
vs. Court of Appeals (165 SCRA 598 [1988]), this Court defined the real party-in-interest as
"the party who stands to be benefited or injured by the judgment or the party entitled to the
avails of the suit. "Interest" within the meaning of the rule means material interest, an
interest in issue and to be affected by the decree, as distinguished from mere interest in the
question involved, or a mere incidental interest."
In the case at bar, while it is true that PALM AVENUE COMPANIES have already
voluntarily divested themselves of the ownership over the 9.5 million shares, the fact
remains, as admitted by the PCGG itself, that dispute still subsists on the P11,781,124.84
balance of the consideration for the sale of the 9.5 million shares and on the remaining
6,737,339 Benguet shares redeemed from the pledge, both of which are in custodia legis by
the PCGG. Thus, PALM AVENUE COMPANIES are real parties-in-interest in Civil Case
No. 0035 pending before the respondent court because they still appear to be the registered
owners of the said remaining shares. That Benjamin (Kokoy) Romualdez is considered as
their true or real owner is just a claim that still has to be proved in court. Accordingly,
respondent court did not commit grave abuse of discretion in ordering PCGG to implead
PALM AVENUE COMPANIES as defendants in Civil Case No. 0035.
In G.R. No. 91655 —
It is the contention of the PCGG that the accounting of the sequestered PJI's assets and
liabilities through an auditing firm of Olivares' choice is not an incident of Civil Case No.
0035 pending before the respondent court. Since the purpose of the accounting and/or
auditing is to verify whether "there had been mismanagement and wanton dissipation of
assets of PJI" by the PCGG Fiscal Agents assigned to it, this matter is obviously incidental
to the administrative power of supervision and control of the PCGG over its fiscal agents
and nominees in the PJI (Rollo, G.R. No. 91655, p. 160). Hence, PCGG argues that
respondent court is bereft of jurisdiction over Olivares' motion for an accounting of the
sequestered PJI's assets and liabilities through an auditing firm of her choice.
On the other hand, Olivares argued that as respondent court is the agency tasked with the
determination of who the actual owner of sequestered assets is, it has the obligation and
responsibility to see to it that such sequestered assets are conserved and not dissipated
(Ibid., p. 267), and the accounting and auditing prayed for by Olivares and granted by
respondent court are aimed at preserving assets thus sequestered and at seeing to it that
they are in their original condition when respondent court eventually determine the
ownership over these assets (Ibid., p. 268). Olivares, therefore, insisted that the questioned
motion lies within the exclusive jurisdiction of the respondent court as an incident to the
principal action, i.e., Civil Case No. 0035.
The rule laid down in PCGG v. Peña (159 SCRA 556 [1988] and reiterated in the very recent
case of Republic v. Sandiganbayan, G.R. No. 88809, July 10, 1991, and its accompanying
case, cannot be any clearer, thus:
Under Section 2 of the President's Executive Order No. 14 issued on May 7, 1987, all cases
of the Commission regarding "the Funds, Moneys, Assets, and Properties Illegally Acquired
or Misappropriated by Former President Ferdinand Marcos, Mrs. Imelda Romualdez
Marcos, their close Relatives, Subordinates, Business Associates, Dummies, Agents, or
Nominees," whether civil or criminal, are lodged within the exclusive and original
jurisdiction of the Sandiganbayan and all incidents arising from, incidental to, or related to,
such cases necessarily fall likewise under the Sandiganbayan's exclusive and original
jurisdiction subject to review on certiorari exclusively by the Supreme Court. (Emphasis
supplied)
Evidently, the exclusive jurisdiction conferred on the Sandiganbayan extends not only to
the principal causes of action but also to all incidents arising from, incidental to, or related
to, such cases, which may not be made the subject of separate action or proceeding in
another forum (Soriano III v. Yuzon, 164 SCRA 226 [1988]).
In the case at bar, respondent court ordered the accounting and auditing of the sequestered
assets of PJI "to insure that no hanky-panky or dubious financial deals have been entered
into which might have resulted in dissipation of corporate assets" (Rollo, G.R. No. 91655, p.
208). This is borne by the fact that Olivares' allegations with respect to mismanagement of
PJI and wanton dissipation of its assets have not been frontally met, much less denied, by
the PCGG (Ibid., p. 206). As the assets of PJI are merely under sequestration and have not
as yet been judicially declared as "ill-gotten wealth", sufficient safeguards should be adopted
to prevent them from being unduly dissipated, especially when facts and circumstances are
brought out, as in the case at bar, which reflect a prima facie showing of wanton or reckless
dissipation thereof (Ibid., p. 207). Inasmuch as these assets are now the object of an action
before the Sandiganbayan, hence in custodia legis, it logically follows that the matter of
preserving them for the benefit of the party that may finally be adjudged to be the owner
thereof is the prerogative of the said court as an incident to its primary responsibility of
determining whether or not these assets fall under the category of "ill-gotten wealth."
Accordingly, when it ordered that an accounting and audit be conducted on the assets and
liabilities of PJI as prayed for by Olivares, respondent court was merely exercising said
prerogative, which in no way can be considered as tantamount to grave abuse of discretion.
Anent the allegation of the PCGG that Olivares' failure to submit her motion first to the
PCGG and then to the President of the Philippines, if still not satisfied, signifies her lack of
cause of action (Ibid., p. 22), respondent court correctly observed:
Finally, plaintiff appears to have failed to comprehend the true nature of the doctrines of
the primary administrative jurisdiction and exhaustion of administrative remedies as
explained in PCGG vs. Peña, supra.Therefrom, it can quite readily be seen that said
doctrines refer to that particular stage of sequestration proceedings where a writ of
sequestration has been issued against a particular individual or firm but before the proper
judicial action have (sic) been filed in Court, in accordance with Section 26 of the Transitory
Provisions of the 1987 Constitution. In the instant case, it cannot be denied that the issues
raised in the basic motion of defendant Olivares are not addressed to the lifting of the writ
of sequestration nor does it question the nature or existence of prima facie evidence to
justify the issuance of such writ but are based on the admitted fact that since the proper
judicial action has already been filed and pending before this Court, any and all incidents
relating thereto and over which this Court has, admittedly, jurisdiction to inquire into,
should be threshed out before it and not thru any administrative proceeding. Otherwise,
after the proper judicial action had been filed, this Court would find itself to have abdicated
its prerogatives and jurisdiction in favor of the respondent Commission. (Ibid., pp. 233-234).
PREMISES CONSIDERED, (1) In G.R. No. 90667: (a) the resolutions of June 16, 1989 and
of September 18, 1989 of respondent court, declaring all the 16,237,339 and not merely
6,737,339 Benguet Corporation shares of stock as still under sequestration are partially
NULLIFIED and (b) the order of respondent court directing the impleading of PALM
AVENUE COMPANIES as defendants in Civil Case No. 0035 is AFFIRMED; and (2) in G.R.
No. 91655, the petition is DISMISSED and the resolutions of respondent court dated
October 13, 1989 and December 22, 1989 are AFFIRMED.
SO ORDERED.
FIRST DIVISION

G.R. No. 86150 March 2, 1992


GUZMAN, BOCALING & CO., petitioner,
vs.
RAOUL S. V. BONNEVIE, respondent.
E. Voltaire Garcia for petitioner.
Guinto Law Office for private respondent.

CRUZ, J.:
The subject of the controversy is a parcel of land measuring six hundred (600) square
meters, more or less, with two buildings constructed thereon, belonging to the Intestate
Estate of Jose L. Reynoso.
This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by the
administratrix, Africa Valdez de Reynoso, for a period of one year beginning August 8, 1976,
at a monthly rental of P4,000.00.
The Contract of lease contained the following stipulation:
20. — In case the LESSOR desire or decides to sell the lease property, the LESSEES shall
be given a first priority to purchase the same, all things and considerations being equal.
On November 3, 1976 according to Reynoso, she notified the private respondents by
registered mail that she was selling the leased premises for P600.000.00 less a mortgage
loan of P100,000.00, and was giving them 30 days from receipt of the letter within which to
exercise their right of first priority to purchase the subject property. She said that in the
event that they did not exercise the said right, she would expect them to vacate the property
not later then March, 1977.
On January 20, 1977, Reynoso sent another letter to private respondents advising them
that in view of their failure to exercise their right of first priority, she had already sold the
property.
Upon receipt of this letter, the private respondents wrote Reynoso informing her that
neither of them had received her letter dated November 3, 1976; that they had advised her
agent to inform them officially should she decide to sell the property so negotiations could
be initiated; and that they were "constrained to refuse (her) request for the termination of
the lease.
On March 7, 1977, the leased premises were formally sold to petitioner Guzman, Bocaling
& Co. The Contract of Sale provided for immediate payment of P137,500.00 on the purchase
price, the balance of P262,500.00 to be paid only when the premises were vacated.
On April 12, 1977, Reynoso wrote a letter to the private respondents demanding that they
vacate the premises within 15 days for their failure to pay the rentals for four months. When
they refuse, Reynoso filed a complaint for ejectment against them which was docketed as
Civil Case No. 043851-CV in the then City Court of Manila.
On September 25, 1979, the parties submitted a Compromise Agreement, which
provided inter alia that "the defendant Raoul S.V. Bonnevie shall vacate the premises
subject of the Lease Contract, Voluntarily and Peacefully not later than October 31, 1979."
This agreement was approved by the City Court and became the basis of its decision.
However, as the private respondents failed to comply with the above-qouted stipulation,
Reynoso filed a motion for execution of the judgment by compromise, which was granted on
November 8, 1979.
On November 12, 1979, private respondent Raoul S. Bonnevie filed a motion to set aside the
decision of the City Court as well as the Compromise Agreement on the sole ground that
Reynoso had not delivered to him the "records of payments and receipts of all rentals by or
for the account of defendant ..." The motion was denied and the case was elevated to the
then Court of First Instance. That Court remanded the case to the City Court of Manila for
trial on the merits after both parties had agreed to set aside the Compromise Agreement.
On April 29, 1980, while the ejectment case was pending in the City Court, the private
respondents filed an action for annulment of the sale between Reynoso and herein petitioner
Guzman, Bocaling & Co. and cancellation of the transfer certificate of title in the name of
the latter. They also asked that Reynoso be required to sell the property to them under the
same terms ands conditions agreed upon in the Contract of Sale in favor of the petitioner
This complaint was docketed as Civil Case No. 131461 in the then Court of First Instance
of Manila.
On May 5, 1980, the City Court decided the ejectment case, disposing as follows:
WHEREFORE, judgment is hereby rendered ordering defendants and all persons holding
under them to vacate the premises at No. 658 Gen. Malvar Street, Malate, Manila, subject
of this action, and deliver possession thereof to the plaintiff, and to pay to the latter; (1) The
sum of P4,000.00 a month from April 1, 1977 to August 8, 1977; (2) The sum of P7,000.00 a
month, as reasonable compensation for the continued unlawful use and occupation of said
premises, from August 9, 1977 and every month thereafter until defendants actually vacate
and deliver possession thereof to the plaintiff; (3) The sum of P1,000.00 as and for attorney's
fees; and (4) The costs of suit.
The decision was appealed to the then Court of First Instance of Manila, docketed as Civil
Case No. 132634 and consolidated with Civil Case No. 131461. In due time, Judge Tomas
P. Maddela, Jr., decided the two cases as follows:
WHEREFORE, premises considered, this Court in Civil Case No. 132634 hereby modifies
the decision of the lower court as follows:
1 Ordering defendants Raoul S.V. Bonnevie and Christopher Bonnevie and all persons
holding under them to vacate the premises at No. 658 Gen. Malvar St., Malate, Manila
subject of this action and deliver possessions thereof to the plaintiff; and
2 To pay the latter the sum of P4,000.00 a month from April 1, 1977 up to September 21,
1980 (when possession of the premises was turned over to the Sheriff) after deducting
whatever payments were made and accepted by Mrs. Africa Valdez Vda. de Reynoso during
said period, without pronouncement as to costs.
As to Civil Case No. 131461, the Court hereby renders judgment in favor of the plaintiff
Raoul Bonnevie as against the defendants Africa Valdez Vda. de Reynoso and Guzman and
Bocaling & Co. declaring the deed of sale with mortgage executed by defendant Africa
Valdez Vda. de Reynoso in favor of defendant Guzman and Bocaling null and void; cancelling
the Certificate of Title No. 125914 issued by the Register of Deeds of Manila in the name of
Guzman and Bocaling & Co.,; the name of Guzman and Bocaling & Co.,; ordering the
defendant Africa Valdez Vda. de Reynoso to execute favor of the plaintiff Raoul Bonnevie a
deed of sale with mortgage over the property leased by him in the amount of P400,000.00
under the same terms and conditions should there be any other occupants or tenants in the
premises; ordering the defendants jointly and severally to pay the plaintiff Raoul Bonnevie
the amount of P50,000.00 as temperate damages; to pay the plaintiff jointly and severally
the of P2,000.00 per month from the time the property was sold to defendant Guzman and
Bocaling by defendant Africa Valdez Vda de Reynoso on March 7, 1977, up to the execution
of a deed of sale of the property by defendant Africa Valdez Vda. de Reynoso in favor of
plaintiff Bonnevie; to pay jointly and severally the plaintiff Bonnevie the amount of
P20,000.00 as exemplary damages, for attorney's fees in the amount of P10,000.00, and to
pay the cost of suit.
Both Reynoso and the petitioner company filed with the Court of Appeals a petition for
review of this decision. The appeal was eventually resolved against them in a decision
promulgated on March 16, 1988, where the respondent court substantially affirmed the
conclusions of the lower court but reduced the award of damages. 1
Its motion for reconsideration having been denied on December 14, 1986, the petitioner has
come to this Court asserting inter alia that the respondent court erred in ruling that the
grant of first priority to purchase the subject properties by the judicial administratrix
needed no authority from the probate court; holding that the Contract of Sale was not
voidable but rescissible; considering the petitioner as a buyer in bad faith ordering Reynoso
to execute the deed of sale in favor of the Bonnevie; and not passing upon the counterclaim.
Reynoso has not appealed.
The Court has examined the petitioner's contentions and finds them to be untenable.
Reynoso claimed to have sent the November 3, 1976 letter by registered mail, but the
registry return card was not offered in evidence. What she presented instead was a copy of
the said letter with a photocopy of only the face of a registry return card claimed to refer to
the said letter. A copy of the other side of the card showing the signature of the person who
received the letter and the data of the receipt was not submitted. There is thus no
satisfactory proof that the letter was received by the Bonnevies.
Even if the letter had indeed been sent to and received by the private respondent and they
did not exercise their right of first priority, Reynoso would still be guilty of violating
Paragraph 20 of the Contract of Lease which specifically stated that the private respondents
could exercise the right of first priority, "all things and conditions being equal." The Court
reads this mean that there should be identity of the terms and conditions to be offered to
the Bonnevies and all other prospective buyers, with the Bonnevies to enjoy the right of first
priority.
The selling price qouted to the Bonnevies was P600,000.00, to be fully paid in cash less only
the mortgage lien of P100,000.00. 2 On the other hand, the selling price offered to and
accepted by the petitioner was only P400,000.00 and only P137,500.00 was paid in cash
while the balance of P272,500.00 was to be paid "when the property (was) cleared of tenants
or occupants. 3
The fact that the Bonnevies had financial problems at that time was no justification for
denying them the first option to buy the subject property. Even if the Bonnevies could not
buy it at the price qouted, Reynoso could not sell it to another for a lower price and under
more favorable terms and conditions. Only if the Bonnevies failed to exercise their right of
first priority could Reynoso lawfully sell the subject property to others, and at that
only under the same terms and conditions offered to the Bonnevies.
The Court agrees with the respondent court that it was not necessary to secure the approval
by the probate court of the Contract of Lease because it did not involve an alienation of real
property of the estate nor did the term of the lease exceed one year so as top make it fall
under Article 1878(8) of the Civil Code. Only if Paragraph 20 of the Contract of Lease was
activated and the said property was intended to be sold would it be required of the
administratrix to secure the approval of the probate court pursuant to Rule 89 of the Rules
of Court.
As a strict legal proposition, no judgment of the probate court was reviewed and eventually
annuled collaterally by the respondent court as contended by the petitioner. The order
authorizing the sale in its favor was duly issued by the probate court, which thereafter
approved the Contract of Sale resulting in the eventual issuance if title in favor of the
petitioner. That order was valid insofar as it recognized the existence of all the essential
elements of a valid contract of sale, but without regard to the special provision in the
Contract of Lease giving another party the right of first priority.
Even if the order of the probate court was valid, the private respondents still had a right to
rescind the Contract of Sale because of the failure of Reynoso to comply with her duty to
give them the first opportunity to purchase the subject property.
The petitioner argues that assuming the Contract of Sale to be voidable, only the parties
thereto could bring an action to annul it pursuant to Article 1397 of the Civil Code. It is
stressed that private respondents are strangers to the agreement and therefore have no
personality to seek its annulment.
The respondent court correctly held that the Contract of Sale was not voidable rescissible.
Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless
be subsequently rescinded by reason of injury to third persons, like creditors. The status of
creditors could be validly accorded the Bonnevies for they had substantial interests that
were prejudiced by the sale of the subject property to the petitioner without recognizing
their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and
even to third persons, to secure reparation for damages caused to them by a contract, even
if this should be valid, by means of the restoration of things to their condition at the moment
prior to the celebration of said contract. 4 It is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the contract may
cause, or to protect some incompatible and preferent right created by the
contract. 5 Recission implies a contract which, even if initially valid, produces a lesion or
pecuniary damage to someone that justifies its invalidation for reasons of equity. 6
It is true that the acquisition by a third person of the property subject of the contract is an
obstacle to the action for its rescission where it is shown that such third person is in lawful
possession of the subject of the contract and that he did not act in bad faith. 7 However, this
rule is not applicable in the case before us because the petitioner is not considered a third
party in relation to the Contract of Sale nor may its possession of the subject property be
regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the
petitioner cannot be deemed a purchaser in good faith for the record shows that its
categorically admitted it was aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it. Although the Contract of Lease
was not annotated on the transfer certificate of title in the name of the late Jose Reynoso
and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was
equivalent to and indeed more binding than presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without
notice that some other person has a right to or interest in such property and pays a full and
fair price for the same at the time of such purchase or before he has notice of the claim or
interest of some other person in the property.8 Good faith connotes an honest intention to
abstain from taking unconscientious advantage of another. 9 Tested by these principles, the
petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the
property by the Bonnevies and such knowledge should have cautioned it to look deeper into
the agreement to determine if it involved stipulations that would prejudice its own interests.
The petitioner insists that it was not aware of the right of first priority granted by the
Contract of Lease, Assuming this to be true, we nevertherless agree with the observation of
the respondent court that:
If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which includes
Par. 20 on priority right given to the Bonnevies, it had only itself to blame. Having known
that the property it was buying was under lease, it behooved it as a prudent person to have
required Reynoso or the broker to show to it the Contract of Lease in which Par. 20 is
contained.
Finally, the petitioner also cannot invoke the Compromise Agreement which it says canceled
the right of first priority granted to the Bonnevies by the Contract of Lease. This agreement
was set side by the parties thereto, resulting in the restoration of the original rights of the
private respondents under the Contract of Lease. The Joint Motion to Remand filed by
Reynoso and the private respondents clearly declared inter alia:
That without going into the merits of instant petition, the parties have agreed to SET
ASIDE the compromise agreement, dated September 24, 1979 and remand Civil Case No.
043851 of the City Court of Manila to Branch IX thereof for trial on the merits. 10

We find, in sum, that the respondent court did not commit the errors imputed to it by the
petitioner. On the contrary, its decision is conformable to the established facts and the
applicable law and jurisprudence and so must be sustained.
WHEREFORE, the petition in DENIED, with costs against the petitioner. The challeged
decision is AFFIRMED in toto. It is so ordered.
FIRST DIVISION

G.R. No. 125531 February 12, 1997


JOVAN LAND, petitioner,
vs.
COURT OF APPEALS and EUGENIO QUESADA INC., respondents.

HERMOSISIMA, JR., J.:


This is a petition for review on certiorari to reverse and set aside the decision of the Court
of Appeals in C.A.-G.R. CV No. 47515.
Petitioner Jovan Land, Inc. is a corporation engaged in the real estate business. Its
President and Chairman of the Board of Directors is one Joseph Sy.
Private respondent Eugenio Quesada is the owner of the Q Building located on an 801 sq.
m. lot at the corner of Mayhaligue Street and Rizal Avenue, Sta. Cruz, Manila. The property
is covered by TCT No. 77796 of the Registry of Deeds of Manila.
Petitioner learned from co-petitioner Consolacion P. Mendoza that private respondent was
selling the aforesaid Mayhaligue property. Thus, petitioner through Joseph Sy made a
written offer, dated July 27, 1987 for P10.25 million. This first offer was not accepted by
Conrado Quesada, the General Manager of private respondent. Joseph Sy sent a second
written offer dated July 31, 1989 for the same price but inclusive of an undertaking to pay
the documentary stamp tax, transfer tax, registration fees and notarial charges. Check No.
247048, dated July 31, 1989, for one million pesos drawn against the Philippine Commercial
and Industrial Bank (PCIB) was enclosed therewith as earnest money. This second offer,
with earnest money, was again rejected by Conrado Quesada. Undaunted, Joseph Sy, on
August 10, 1989, sent a third written offer for twelve million pesos with a similar check for
one million pesos as earnest money. Annotated on this third letter-offer was the phrase
"Received original, 9-4-89" beside which appears the signature of Conrado Quesada.
On the basis of this annotation which petitioner insists is the proof that there already exists
a valid, perfected agreement to sell the Mayhaligue property, petitioner filed with the trial
court, a complaint for specific performance and collection of sum of money with damages.
However, the trial court held that:
. . . the business encounters between Joseph Sy and Conrado Quesada had not passed the
negotiation stage relating to the intended sale by the defendant corporation of the property
in question. . . . As the court finds, there is nothing in the record to point that a contract was
ever perfected. In fact, there is nothing in writing which is indispensably necessary in order
that the perfected contract could be enforced under the Statute of Frauds.1
Since the trial court dismissed petitioner's complaint for lack of cause of action, petitioner
appealed 2 to respondent Court of Appeals before which it assigned the following errors:
1. The Court a quo failed to appreciate that there was already a perfected contract of sale
between Jovan Land, Inc. and the private respondent];
2. The Court a quo erred in its conclusion that there was no implied acceptance of the offer
by appellants to appellee [private respondent];
3. The Court a quo was in error where it concluded that the contract of sale was
unenforceable;
4. The Court a quo failed to rule that appellant [petitioner] Mendoza is entitled to her
broker's commission.3
Respondent court placed petitioner to task on their assignment of errors and concluded that
not any of them justifies a reversal of the trial court decision.
We agree.
In the case of Ang Yu Asuncion v. Court of Appeals,4 we held that:
. . . [A] contract (Art. 1157, Civil Code), . . . 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. . . . 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 . . . . The perfection of the contract takes place upon the concurrence of the
essential elements thereof.
Moreover, it is a fundamental principle that before contract of sale can be valid, the
following elements must be present, viz: (a) consent or meeting of the minds; (b) determinate
subject matter; (3) price certain in money or its equivalent. Until the contract of sale is
perfected, it cannot, as an independent source of obligation, serve as a binding juridical
relation between the parties.
In the case at bench, petitioner, anchors its main argument on the annotation on its third
letter-offer of the phrase "Received original, 9-4-89," beside which appears the signature of
Conrado Quesada. It also contends that the said annotation is evidence to show that there
was already a perfected agreement to sell as respondent can be said to have accepted
petitioner's payment in the form of a check which was enclosed in the third letter.
However, as correctly elucidated by the Court of Appeals:
Sy insisted in his testimony that this offer of P12M was accepted by Conrado Quesada but
there is nothing written or documentary to show that such offer was accepted by Conrado
Quesada. While Sy claimed that the acceptance could be gleaned from the notation in the
third written offer, the court is not impressed thereon however because the notation merely
states as follows: "Received Original, (S) — Conrado Quesada" and below this signature is
"9-4-89". As explained by Conrado Quesada in his testimony what was received by him was
the original of the written offer.
The court cannot believe that this notation marked as Exhibit D-2 would signify the
acceptance of the offer. Neither does it signify, as Sy had testified that the check was duly
received on said date. If this were true Sy, who appears to be an intelligent businessman
could have easily asked Conrado Quesada to indicate on Exhibit D the alleged fact of
acceptance of said check. And better still, Sy could have asked Quesada the acceptance in
writing separate of the written offer if indeed there was an agreement as to the price of the
proposed sale of the property in question. 5
Clearly then, a punctilious examination of the receipt reveals that the same can neither be
regarded as a contract of sale nor a promise to sell. Such an annotation by Conrado Quesada
amounts to neither a written nor an implied acceptance of the offer of Joseph Sy. It is merely
a memorandum of the receipt by the former of the latter's offer. The requisites of a valid
contract of sale are lacking in said receipt and therefore the "sale" is neither valid nor
enforceable.
Although there was a series of communications through letter-offers and rejections as
evident from the facts of this case, still it is undeniable that no written agreement was
reached between petitioner and private respondent with regard to the sale of the realty.
Hence, the alleged transaction is unenforceable as the requirements under the Statute of
Frauds have not been complied with. Under the said provision, an agreement for the sale of
real property or of an interest therein, to be enforceable, must be in writing and subscribed
by the party charged or by an agent thereof.
Petitioner also asseverates that the failure of Conrado Quesada to return the check for one
million pesos, translates to implied acceptance of its third letter-offer. It, however, does not
rebut the finding of the trial court that private respondent was returning the check but
petitioner refused to accept the same and that when Conrado Quesada subsequently sent it
back to petitioner through registered mail, the latter failed to claim its mail from the post
office.
Finally, we fittingly apply here the oft-repeated doctrine that the factual findings of the trial
court, especially as regards the credibility of witnesses, are conclusive upon this court,
unless the case falls under the jurisprudentially established exceptions. But this is a case
that tenders no exceptional circumstance; rather, we find the observations of the trial court
to be legally sound and valid:
. . . Joseph Sy's testimony is not impressive because of several inconsistencies herein pointed
out. On the matter of earnest money, the same appears to be the idea solely of the
[petitioner], assuming that he had intended to bind the [petitioner] corporation. In the
written second offer . . . he had stated that the check of P1M had been enclosed (attached)
therewith. The same check . . . was again mentioned to be enclosed (attached) in the third
written offer under date August 10, 1989 . . . . Sy testified in his direct examination that he
had personally given this check to Conrado Quesada. But on cross examination, he reversed
himself by saying that the check was given thru his [co-petitioner] Mendoza. Examining the
third written offer, it appears that when it was first typewritten, this P11M was noted to
have been corrected, and that as per his testimony, Sy had increased it to P12M. This is the
reason according to Sy why there was a superimposition of the number "12" over the number
"11" to mean P12M as the revised consideration for the sale of the property in question.6
Respondent court thus concluded that:
. . . [since] the matter of evaluation of the credibility of witness[es] is addressed to the trial
court and unless clearly contrary to the records before Us, the findings of the said court are
entitled to great respondent on appeal, . . . it was Joseph Sy's idea to offer the earnest money,
and the evidence to show that Joseph Sy accepted the same, is wanting. . . .7
and accordingly affirmed the trial court judgment appealed from.
As shown elucidated above, we agree with the findings and conclusions of the trial court and
the respondent court. Neither has petitioner posited any new issues in the instant petition
that warrant the further exercise by this court of its review powers.
WHEREFORE, premises considered, this petition is DENIED.
Costs against petitioner.
THIRD DIVISION
G.R. No. 165879 November 10, 2006
MARIA B. CHING, Petitioner,
vs.
JOSEPH C. GOYANKO, JR., EVELYN GOYANKO, JERRY GOYANKO, IMELDA
GOYANKO, JULIUS GOYANKO, MARY ELLEN GOYANKO AND JESS
GOYANKO, Respondents.
DECISION
CARPIO MORALES, J.:
On December 30, 1947, Joseph Goyanko (Goyanko) and Epifania dela Cruz (Epifania) were
married.1 Out of the union were born respondents Joseph, Jr., Evelyn, Jerry, Imelda, Julius,
Mary Ellen and Jess, all surnamed Goyanko.
Respondents claim that in 1961, their parents acquired a 661 square meter property located
at 29 F. Cabahug St., Cebu City but that as they (the parents) were Chinese citizens at the
time, the property was registered in the name of their aunt, Sulpicia Ventura (Sulpicia).
On May 1, 1993, Sulpicia executed a deed of sale2 over the property in favor of respondents’
father Goyanko. In turn, Goyanko executed on October 12, 1993 a deed of sale3 over the
property in favor of his common-law-wife-herein petitioner Maria B. Ching. Transfer
Certificate of Title (TCT) No. 138405 was thus issued in petitioner’s name.
After Goyanko’s death on March 11, 1996, respondents discovered that ownership of the
property had already been transferred in the name of petitioner. Respondents thereupon
had the purported signature of their father in the deed of sale verified by the Philippine
National Police Crime Laboratory which found the same to be a forgery.4
Respondents thus filed with the Regional Trial Court of Cebu City a complaint for recovery
of property and damages against petitioner, praying for the nullification of the deed of sale
and of TCT No. 138405 and the issuance of a new one in favor of their father Goyanko.
In defense, petitioner claimed that she is the actual owner of the property as it was she who
provided its purchase price. To disprove that Goyanko’s signature in the questioned deed of
sale is a forgery, she presented as witness the notary public who testified that Goyanko
appeared and signed the document in his presence.
By Decision of October 16, 1998,5 the trial court dismissed the complaint against petitioner,
the pertinent portions of which decision read:
There is no valid and sufficient ground to declare the sale as null and void, fictitious and
simulated. The signature on the questioned Deed of Sale is genuine. The testimony of Atty.
Salvador Barrameda who declared in court that Joseph Goyanko, Sr. and Maria Ching
together with their witnesses appeared before him for notarization of Deed of Sale in
question is more reliable than the conflicting testimonies of the two document examiners.
Defendant Maria Ching asserted that the Deed of Sale executed by Joseph Goyanko, Sr. in
her favor is valid and genuine. The signature of Joseph Goyanko, Sr. in the questioned Deed
of Absolute Sale is genuine as it was duly executed and signed by Joseph Goyanko, Sr.
himself.
The parcel of lands known as Lot No. 6 which is sought to be recovered in this case could
never be considered as the conjugal property of the original Spouses Joseph C. Goyanko and
Epifania dela Cruz or the exclusive capital property of the husband. The acquisition of the
said property by defendant Maria Ching is well-elicited from the aforementioned
testimonial and documentary evidence presented by the defendant. Although for a time
being the property passed through Joseph Goyanko, Sr. as a buyer yet his ownership was
only temporary and transitory for the reason that it was subsequently sold to herein
defendant Maria Ching. Maria Ching claimed that it was even her money which was used
by Joseph Goyanko, Sr. in the purchase of the land and so it was eventually sold to her. In
her testimony, defendant Ching justified her financial capability to buy the land for herself.
The transaction undertaken was from the original owner Sulpicia Ventura to Joseph
Goyanko, Sr. and then from Joesph Goyanko, Sr. to herein defendant Maria Ching.
The land subject of the litigation is already registered in the name of defendant Maria Ching
under TCT No. 138405. By virtue of the Deed of Sale executed in favor of Maria Ching,
Transfer Certificate of Title No. 138405 was issued in her favor. In recognition of the
proverbial virtuality of a Torrens title, it has been repeatedly held that, unless bad faith can
be established on the part of the person appearing as owner on the certificate of title, there
is no other owner than that in whose favor it has been issued. A Torrens title is not subject
to collateral attack. It is a well-known doctrine that a Torrens title, as a rule, is irrevocable
and indefeasible, and the duty of the court is to see to it that this title is maintained and
respected unless challenged in a direct proceedings [sic].6 (Citations omitted; underscoring
supplied)
Before the Court of Appeals where respondents appealed, they argued that the trial court
erred:
1. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject
property between Joseph, Sr. and the defendant-appellee, despite the proliferation in the
records and admissions by both parties that defendant-appellee was the "mistress" or
"common-law wife" of Joseph, Sr..
2. . . . when it dismissed the complaint a quo . . . , in effect, sustaining the sale of the subject
property between Joseph, Sr. and the defendant-appellee, despite the fact that the marriage
of Joseph, Sr. and Epifania was then still subsisting thereby rendering the subject property
as conjugal property of Joseph, Sr. and Epifania.
3. . . . in dismissing the complaint a quo . . . , in effect, sustaining the validity of the sale of
the subject property between Joseph, Sr. and the defendant-appellee, despite the clear
findings of forgery and the non-credible testimony of notary public.7
By Decision dated October 21, 2003,8 the appellate court reversed that of the trial court and
declared null and void the questioned deed of sale and TCT No. 138405. Held the appellate
court:
. . . The subject property having been acquired during the existence of a valid marriage
between Joseph Sr. and Epifania dela Cruz-Goyanko, is presumed to belong to the conjugal
partnership. Moreover, while this presumption in favor of conjugality is rebuttable with
clear and convincing proof to the contrary, we find no evidence on record to conclude
otherwise. The record shows that while Joseph Sr. and his wife Epifania have been
estranged for years and that he and defendant-appellant Maria Ching, have in fact been
living together as common-law husband and wife, there has never been a judicial decree
declaring the dissolution of his marriage to Epifania nor their conjugal partnership. It is
therefore undeniable that the 661-square meter property located at No. 29 F. Cabahug
Street, Cebu City belongs to the conjugal partnership.
Even if we were to assume that the subject property was not conjugal, still we cannot sustain
the validity of the sale of the property by Joseph, Sr. to defendant-appellant Maria Ching,
there being overwhelming evidence on records that they have been living together as
common-law husband and wife. On this score, Art. 1352 of the Civil Code provides:
"Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatsoever.
The cause is unlawful if it is contrary to law, morals, good customs, public order or public
policy."
We therefore find that the contract of sale in favor of the defendant-appellant Maria Ching
was null and void for being contrary to morals and public policy. The purported sale, having
been made by Joseph Sr. in favor of his concubine, undermines the stability of the family, a
basic social institution which public policy vigilantly protects. Furthermore, the law
emphatically prohibits spouses from selling property to each other, subject to certain
exceptions. And this is so because transfers or conveyances between spouses, if allowed
during the marriage would destroy the system of conjugal partnership, a basic policy in civil
law. The prohibition was designed to prevent the exercise of undue influence by one spouse
over the other and is likewise applicable even to common-law relationships otherwise, "the
condition of those who incurred guilt would turn out to be better than those in legal
union.9 (Underscoring supplied)
Hence, the present petition, petitioners arguing that the appellate court gravely erred in:
I.
. . . APPLYING THE STATE POLICY ON PROHIBITION AGAINST CONVEYANCES
AND TRANSFERS OF PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW
SPOUSES ON THE SUBJECT PROPERTY, THE SAME BEING FOUND BY THE COURT
A QUO, AS THE EXCLUSIVE PROPERTY OF PETITIONER, AND THAT THE SAME
WAS NEVER PART OF THE CONJUGAL PROPERTY OF THE MARRIAGE BETWEEN
RESPONDENTS’ MOTHER EPIFANIA GOYANKO AND PETITIONER’S COMMON LAW
HUSBAND, JOSEPH GOYANKO, SR., NOR THE EXCLUSIVE OR CAPITAL PROPERTY
OF THE LATTER AT ANYTIME BEFORE THE SAME WAS VALIDLY ACQUIRED BY
PETITIONER.
II.
. . . NOT FINDING THAT A JURIDICAL RELATION OF TRUST AS PROVIDED FOR
UNDER ARTICLES 1448 AND 1450 OF THE NEW CIVIL CODE CAN VALIDLY EXIST
BETWEEN COMMON LAW SPOUSES.
III.
. . . NOT FINDING THAT A CONVEYANCE OVER A PROPERTY MADE BY A TRUSTEE,
WHO BECAME AS SUCH IN CONTEMPLATION OF LAW, AND WHO HAPPENS TO BE
A COMMON LAW HUSBAND OF THE BENEFICIARY, IS NOT A VIOLATION OF A
STATE POLICY ON PROHIBITION AGAINST CONVEYANCES AND TRANSFERS OF
PROPERTIES BETWEEN LEGITIMATE AND COMMON LAW SPOUSES.
IV.
. . . ALLOWING RESPONDENTS TO ABANDON THEIR ORIGINAL THEORY OF THEIR
CASE DURING APPEAL.10
The pertinent provisions of the Civil Code which apply to the present case read:
ART. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever.
The cause is unlawful if it is contrary to law, morals, good customs, public order or public
policy.
ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public
order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract
cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality
be waived.
ARTICLE 1490. The husband and wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation of property under Article 191. (Underscoring
supplied)
The proscription against sale of property between spouses applies even to common law
relationships. So this Court ruled in Calimlim-Canullas v. Hon. Fortun, etc., et al.:11
Anent the second issue, we find that the contract of sale was null and void for being contrary
to morals and public policy. The sale was made by a husband in favor of a concubine after
he had abandoned his family and left the conjugal home where his wife and children lived
and from whence they derived their support. The sale was subversive of the stability of the
family, a basic social institution which public policy cherishes and protects.
Article 1409 of the Civil Code states inter alia that: contracts whose cause, object, or
purposes is contrary to law, morals, good customs, public order, or public policy
are void and inexistent from the very beginning.
Article 1352 also provides that: "Contracts without cause, or with unlawful cause, produce
no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs,
public order, or public policy."
Additionally, the law emphatically prohibits the spouses from selling property to each other
subject to certain exceptions.1âwphi1 Similarly, donations between spouses during
marriage are prohibited. And this is so because if transfers or conveyances between spouses
were allowed during marriage, that would destroy the system of conjugal partnership, a
basic policy in civil law. It was also designed to prevent the exercise of undue influence by
one spouse over the other, as well as to protect the institution of marriage, which is the
cornerstone of family law. The prohibitions apply to a couple living as husband and wife
without benefit of marriage, otherwise, "the condition of those who incurred guilt would
turn out to be better than those in legal union." Those provisions are dictated by public
interest and their criterion must be imposed upon the will of the parties. . . .12 (Italics in the
original; emphasis and underscoring supplied)
As the conveyance in question was made by Goyangko in favor of his common- law-wife-
herein petitioner, it was null and void.
Petitioner’s argument that a trust relationship was created between Goyanko as trustee
and her as beneficiary as provided in Articles 1448 and 1450 of the Civil Code which read:
ARTICLE 1448. There is an implied trust when property is sold, and the legal estate is
granted to one party but the price is paid by another for the purpose of having the beneficial
interest of the property. The former is the trustee, while the latter is the beneficiary.
However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of
the one paying the price of the sale, no trust is implied by law, it being disputably presumed
that there is a gift in favor of the child.
ARTICLE 1450. If the price of a sale of property is loaned or paid by one person for the
benefit of another and the conveyance is made to the lender or payor to secure the payment
of the debt, a trust arises by operation of law in favor of the person to whom the money is
loaned or for whom it is paid. The latter may redeem the property and compel a conveyance
thereof to him.
does not persuade.
For petitioner’s testimony that it was she who provided the purchase price is
uncorroborated. That she may have been considered the breadwinner of the family and that
there was proof that she earned a living do not conclusively clinch her claim.
As to the change of theory by respondents from forgery of their father’s signature in the
deed of sale to sale contrary to public policy, it too does not persuade. Generally, a party in
a litigation is not permitted to freely and substantially change the theory of his case so as
not to put the other party to undue disadvantage by not accurately and timely apprising
him of what he is up against,13 and to ensure that the latter is given the opportunity during
trial to refute all allegations against him by presenting evidence to the contrary. In the
present case, petitioner cannot be said to have been put to undue disadvantage and to have
been denied the chance to refute all the allegations against her. For the nullification of the
sale is anchored on its illegality per se, it being violative of the above-cited Articles 1352,
1409 and 1490 of the Civil Code.
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioner.
SO ORDERED

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