TAYAG VS CA
00 representing the remaining balance was
MELO, J.:
The deed of conveyance executed on May 28, 1975 by
Juan Galicia, Sr., prior to his demise in 1979, and
Celerina Labuguin, in favor of Albrigido Leyva involving
the undivided one-half portion of a piece of land situated
at Poblacion, Guimba, Nueva Ecija for the sum of
P50,000.00 under the following terms:
1. The sum of PESOS: THREE
THOUSAND (P3,000.00) is HEREBY
acknowledged to have been paid upon
the execution of this agreement;
2. The sum of PESOS: TEN
THOUSAND (P10,000.00) shall be paid
within ten (10) days from and after the
execution of this agreement;
3. The sum of PESOS: TEN
THOUSAND (P10,000.00) represents
the VENDORS' indebtedness with the
Philippine Veterans Bank which is
hereby assumed by the VENDEE; and
4. The balance of PESOS: TWENTY
SEVEN THOUSAND (P27,000.00.) shall
be paid within one (1) year from and
after the execution of this instrument. (p.
53, Rollo)
is the subject matter of the present litigation between the
heirs of Juan Galicia, Sr. who assert breach of the
conditions as against private respondent's claim
anchored on full payment and compliance with the
stipulations thereof.
The court of origin which tried the suit for specific
performance filed by private respondent on account of
the herein petitioners' reluctance to abide by the
covenant, ruled in favor of the vendee (p. 64, Rollo)
while respondent court practically agreed with the trial
court except as to the amount to be paid to petitioners
and the refund to private respondent are concerned (p.
46, Rollo).
There is no dispute that the sum of P3,000.00 listed as
first installment was received by Juan Galicia, Sr.
According to petitioners, of the P10,000.00 to be paid
within ten days from execution of the instrument, only
P9,707.00 was tendered to, and received by, them on
numerous occasions from May 29, 1975, up to
November 3, 1979. Concerning private respondent's
assumption of the vendors' obligation to the Philippine
Veterans Bank, the vendee paid only the sum of
P6,926.41 while the difference the indebtedness came
from Celerina Labuguin (p. 73, Rollo). Moreover,
petitioners asserted that not a single centavo of the
P27,000.
paid to them. Because of the apprehension that the heirs
of Juan Galicia, Sr. are disavowing the contract inked by
their predecessor, private respondent filed the complaint
for specific performance.
In addressing the issue of whether the conditions of the
instrument were performed by herein private respondent
as vendee, the Honorable Godofredo Rilloraza,
Presiding Judge of Branch 31 of the Regional Trial
Court, Third Judicial Region stationed at Guimba, Nueva
Ecija, decided to uphold private respondent's theory on
the basis of constructive fulfillment under Article 1186
and estoppel through acceptance of piecemeal
payments in line with Article 1235 of the Civil Code.
Anent the P10,000.00 specified as second installment,
the lower court counted against the vendors the candid
statement of Josefina Tayag who sat on the witness
stand and made the admission that the check issued as
payment thereof was nonetheless paid on a staggered
basis when the check was dishonored (TSN, September
1, 1983, pp. 3-4; p. 3, Decision; p. 66, Rollo). Regarding
the third condition, the trial court noted that plaintiff
below paid more than P6,000.00 to the Philippine
Veterans Bank but Celerina Labuguin, the sister and co-
vendor of Juan Galicia, Sr. paid P3,778.77 which
circumstance was construed to be a ploy under Article
1186 of the Civil Code that "prematurely prevented
plaintiff from paying the installment fully" and "for the
purpose of withdrawing the title to the lot". The
acceptance by petitioners of the various payments even
beyond the periods agreed upon, was perceived by the
lower court as tantamount to faithful performance of the
obligation pursuant to Article 1235 of the Civil Code.
Furthermore, the trial court noted that private respondent
consigned P18,520.00, an amount sufficient to offset the
remaining balance, leaving the sum of P1,315.00 to be
credited to private respondent.
On September 12, 1984, judgment was rendered:
1. Ordering the defendants — heirs of
Juan Galicia, to execute the Deed of
Sale of their undivided ONE HALF (1/2)
portion of Lot No. 1130, Guimba
Cadastre, covered by TCT No. NT-
120563, in favor of plaintiff Albrigido
Leyva, with an equal frontage facing the
national road upon finality of judgment;
that, in their default, the Clerk of Court
II, is hereby ordered to execute the deed
of conveyance in line with the provisions
of Section 10, Rule 39 of the Rules of
Court;
2. Ordering the defendants, heirs of
Juan Galicia, jointly and severally to pay
attorney's fees of P6,000.00 and the
further sum of P3,000.00 for actual and
compensatory damages;
 3. Ordering Celerina Labuguin and the
other defendants herein to surrender to
the Court the owner's duplicate of TCT
No. NT-120563, province of Nueva
Ecija, for the use of plaintiff in
registering the portion, subject matter of
the instant suit;
4. Ordering the withdrawal of the
amount of P18,520.00 now consigned
with the Court, and the amount of
P17,204.75 be delivered to the heirs of
Juan Galicia as payment of the balance
of the sale of the lot in question, the
defendants herein after deducting the
amount of attorney's fees and damages
awarded to the plaintiff hereof and the
delivery to the plaintiff of the further sum
of P1,315.25 excess or over payment
and, defendants to pay the cost of the
suit. (p. 69, Rollo)
and following the appeal interposed with respondent
court, Justice Dayrit with whom Justices Purisima and
Aldecoa, Jr. concurred, modified the fourth paragraph of
the decretal portion to read:
4. Ordering the withdrawal of the
amount of P18,500.00 now consigned
with the Court, and that the amount of
P16,870.52 be delivered to the heirs of
Juan Galicia, Sr. as payment to the
unpaid balance of the sale, including the
reimbursement of the amount paid to
Philippine Veterans Bank, minus the
amount of attorney's fees and damages
awarded in favor of plaintiff. The excess
of P1,649.48 will be returned to plaintiff.
The costs against defendants. (p.
51, Rollo)
As to how the foregoing directive was arrived at, the
appellate court declared:
With respect to the fourth condition
stipulated in the contract, the period
indicated therein is deemed modified by
the parties when the heirs of Juan
Galicia, Sr. accepted payments without
objection up to November 3, 1979. On
the basis of receipts presented by
appellee commencing from August 8,
1975 up to November 3, 1979, a total
amount of P13,908.25 has been paid,
thereby leaving a balance of
P13,091.75. Said unpaid balance plus
the amount reimbursable to appellant in
the amount of P3,778.77 will leave an
unpaid total of P16,870.52. Since
appellee consigned in court the sum of
P18,500.00, he is entitled to get the
excess of P1,629.48. Thus, when the
heirs of Juan Galicia, Sr. (obligees)
accepted the performance, knowing its
incompleteness or irregularity and
without expressing any protest or
objection, the obligation is deemed fully
complied with (Article 1235, Civil Code).
(p. 50, Rollo)
Petitioners are of the impression that the decision
appealed from, which agreed with the conclusions of the
trial court, is vulnerable to attack via the recourse before
Us on the principal supposition that the full consideration
of the agreement to sell was not paid by private
respondent and, therefore, the contract must be
rescinded.
The suggestion of petitioners that the covenant must be
cancelled in the light of private respondent's so-called
breach seems to overlook petitioners' demeanor who,
instead of immediately filing the case precisely to rescind
the instrument because of non-compliance, allowed
private respondent to effect numerous payments
posterior to the grace periods provided in the contract.
This apathy of petitioners who even permitted private
respondent to take the initiative in filing the suit for
specific performance against them, is akin to waiver or
abandonment of the right to rescind normally conferred
by Article 1191 of the Civil Code. As aptly observed by
Justice Gutierrez, Jr. in Angeles vs. Calasanz (135
SCRA 323 [1985]; 4 Paras, Civil Code of the Philippines
Annotated, Twelfth Ed. [1989], p. 203:
. . . We agree with the plaintiffs-
appellees that when the defendants-
appellants, instead of availing of their
alleged right to rescind, have accepted
and received delayed payments of
installments, though the plaintiffs-
appellees have been in arrears beyond
the grace period mentioned in
paragraph 6 of the contract, the
defendants-appellants have waived, and
are now estopped from exercising their
alleged right of rescission . . .
In Development Bank of the Philippines vs. Sarandi (5
CAR (25) 811; 817-818; cited in 4 Padilla, Civil Code
Annotated, Seventh Ed. [1987], pp. 212-213) a similar
opinion was expressed to the effect that:
In a perfected contract of sale of land
under an agreed schedule of payments,
while the parties may mutually oblige
each other to compel the specific
performance of the monthly amortization
plan, and upon failure of the buyer to
make the payment, the seller has the
right to ask for a rescission of the
contract under Art. 1191 of the Civil
 Code, this shall be deemed waived by
acceptance of posterior payments.
Both the trial and appellate courts were, therefore,
correct in sustaining the claim of private respondent
anchored on estoppel or waiver by acceptance of
delayed payments under Article 1235 of the Civil Code in
that:
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.
considering that the heirs of Juan Galicia, Sr.
accommodated private respondent by accepting the
latter's delayed payments not only beyond the grace
periods but also during the pendency of the case for
specific performance (p. 27, Memorandum for
petitioners; p. 166, Rollo). Indeed, the right to rescind is
not absolute and will not be granted where there has
been substantial compliance by partial payments
(4 Caguioa, Comments and Cases on Civil Law, First
Ed. [1968] p. 132). By and large, petitioners' actuation is
susceptible of but one construction — that they are now
estopped from reneging from their commitment on
account of acceptance of benefits arising from overdue
accounts of private respondent.
Now, as to the issue of whether payments had in fact
been made, there is no doubt that the second installment
was actually paid to the heirs of Juan Galicia, Sr. due to
Josefina Tayag's admission in judicio that the sum of
P10,000.00 was fully liquidated. It is thus erroneous for
petitioners to suppose that "the evidence in the records
do not support this conclusion" (p. 18, Memorandum for
Petitioners; p. 157, Rollo). A contrario, when the court of
origin, as well as the appellate court, emphasized the
frank representation along this line of Josefina Tayag
before the trial court (TSN, September l, 1983, pp. 3-4;
p. 5, Decision in CA-G.R. CV No. 13339, p. 50, Rollo; p.
3, Decision in Civil Case No. 681-G, p. 66, Rollo),
petitioners chose to remain completely mute even at this
stage despite the opportunity accorded to them, for
clarification. Consequently, the prejudicial aftermath of
Josefina Tayag's spontaneous reaction may no longer
be obliterated on the basis of estoppel (Article 1431,
Civil Code; Section 4, Rule 129; Section 2(a), Rule 131,
Revised Rules on Evidence).
Insofar as the third item of the contract is concerned, it
may be recalled that respondent court applied Article
1186 of the Civil Code on constructive fulfillment which
petitioners claim should not have been appreciated
because they are the obligees while the proviso in point
speaks of the obligor. But, petitioners must concede that
in a reciprocal obligation like a contract of purchase,
(Ang vs. Court of Appeals, 170 SCRA 286 [1989];
4 Paras, supra, at p. 201), both parties are mutually
obligors and also obligees (4 Padilla, supra, at p. 197),
and any of the contracting parties may, upon non-
fulfillment by the other privy of his part of the prestation,
rescind the contract or seek fulfillment (Article 1191, Civil
Code). In short, it is puerile for petitioners to say that
they are the only obligees under the contract since they
are also bound as obligors to respect the stipulation in
permitting private respondent to assume the loan with
the Philippine Veterans Bank which petitioners impeded
when they paid the balance of said loan. As vendors,
they are supposed to execute the final deed of sale upon
full payment of the balance as determined hereafter.
Lastly, petitioners argue that there was no valid tender of
payment nor consignation of the sum of P18,520.00
which they acknowledge to have been deposited in court
on January 22, 1981 five years after the amount of
P27,000.00 had to be paid (p. 23, Memorandum for
Petitioners; p. 162, Rollo). Again this suggestion ignores
the fact that consignation alone produced the effect of
payment in the case at bar because it was established
below that two or more heirs of Juan Galicia, Sr. claimed
the same right to collect (Article 1256, (4), Civil Code;
pp. 4-5, Decision in Civil Case No. 681-G; pp. 67-
68, Rollo). Moreover, petitioners did not bother to refute
the evidence on hand that, aside from the P18,520.00
(not P18,500.00 as computed by respondent court)
which was consigned, private respondent also paid the
sum of P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo).
These two figures representing private respondent's
payment of the fourth condition amount to P32,428.25,
less the P3,778.77 paid by petitioners to the bank, will
lead us to the sum of P28,649.48 or a refund of
P1,649.48 to private respondent as overpayment of the
P27,000.00 balance.
WHEREFORE, the petition is hereby DISMISSED and
the decision appealed from is hereby AFFIRMED with
the slight modification of Paragraph 4 of the dispositive
thereof which is thus amended to read:
4. ordering the withdrawal of the sum of
P18,520.00 consigned with the Regional
Trial Court, and that the amount of
P16,870.52 be delivered by private
respondent with legal rate of interest
until fully paid to the heirs of Juan
Galicia, Sr. as balance of the sale
including reimbursement of the sum
paid to the Philippine Veterans Bank,
minus the attorney's fees and damages
awarded in favor of private respondent.
The excess of P1,649.48 shall be
returned to private respondent also with
legal interest until fully paid by
petitioners. With costs against
petitioners.
SO ORDERED.
CORONEL VS CA
MELO, J.:p
The petition before us has its roots in a complaint for
specific performance to compel herein petitioners
(except the last named, Catalina Balais Mabanag) to
consummate the sale of a parcel of land with its
improvements located along Roosevelt Avenue in
Quezon City entered into by the parties sometime in
January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by
respondent court in this wise:
On January 19, 1985, defendants-
appellants Romulo Coronel, et al.
(hereinafter referred to as Coronels)
executed a document entitled "Receipt
of Down Payment" (Exh. "A") in favor of
plaintiff Ramona Patricia Alcaraz
(hereinafter referred to as Ramona)
which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 — Total amount
50,000 — Down payment
———————————
P1,190,000.00 — Balance
Received from Miss Ramona Patricia
Alcaraz of 146 Timog, Quezon City, the
sum of Fifty Thousand Pesos purchase
price of our inherited house and lot,
covered by TCT No. 119627 of the
Registry of Deeds of Quezon City, in the
total amount of P1,240,000.00.
We bind ourselves to effect the transfer
in our names from our deceased father,
Constancio P. Coronel, the transfer
certificate of title immediately upon
receipt of the down payment above-
stated.
On our presentation of the TCT already
in or name, We will immediately execute
the deed of absolute sale of said
property and Miss Ramona Patricia
Alcaraz shall immediately pay the
balance of the P1,190,000.00.
Clearly, the conditions appurtenant to
the sale are the following:
1. Ramona will make a down payment
of Fifty Thousand (P50,000.00) Pesos
upon execution of the document
aforestated;
2. The Coronels will cause the transfer
in their names of the title of the property
registered in the name of their deceased
father upon receipt of the Fifty
Thousand (P50,000.00) Pesos down
payment;
3. Upon the transfer in their names of
the subject property, the Coronels will
execute the deed of absolute sale in
favor of Ramona and the latter will pay
the former the whole balance of One
Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.
On the same date (January 15, 1985),
plaintiff-appellee Concepcion D. Alcaraz
(hereinafter referred to as Concepcion),
mother of Ramona, paid the down
payment of Fifty Thousand (P50,000.00)
Pesos (Exh. "B", Exh. "2").
On February 6, 1985, the property
originally registered in the name of the
Coronels' father was transferred in their
names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels
sold the property covered by TCT No.
327043 to intervenor-appellant Catalina
B. Mabanag (hereinafter referred to as
Catalina) for One Million Five Hundred
Eighty Thousand (P1,580,000.00)
Pesos after the latter has paid Three
Hundred Thousand (P300,000.00)
Pesos (Exhs. "F-3"; Exh. "6-C")
For this reason, Coronels canceled and
rescinded the contract (Exh. "A") with
Ramona by depositing the down
payment paid by Concepcion in the
bank in trust for Ramona Patricia
Alcaraz.
On February 22, 1985, Concepcion, et
al., filed a complaint for specific
performance against the Coronels and
caused the annotation of a notice of lis
pendens at the back of TCT No. 327403
(Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the
annotation of a notice of adverse claim
covering the same property with the
 Registry of Deeds of Quezon City (Exh.
"F"; Exh. "6").
On April 25, 1985, the Coronels
executed a Deed of Absolute Sale over
the subject property in favor of Catalina
(Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the
subject property was issued in the name
of Catalina under TCT No. 351582 (Exh.
"H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court
(Branch 83, RTC, Quezon City) the parties agreed to
submit the case for decision solely on the basis of
documentary exhibits. Thus, plaintiffs therein (now
private respondents) proffered their documentary
evidence accordingly marked as Exhibits "A" through "J",
inclusive of their corresponding submarkings. Adopting
these same exhibits as their own, then defendants (now
petitioners) accordingly offered and marked them as
Exhibits "1" through "10", likewise inclusive of their
corresponding submarkings. Upon motion of the parties,
the trial court gave them thirty (30) days within which to
simultaneously submit their respective memoranda, and
an additional 15 days within which to submit their
corresponding comment or reply thereof, after which, the
case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution
before Judge Reynaldo Roura, who was then
temporarily detailed to preside over Branch 82 of the
RTC of Quezon City. On March 1, 1989, judgment was
handed down by Judge Roura from his regular bench at
Macabebe, Pampanga for the Quezon City branch,
disposing as follows:
WHEREFORE, judgment for specific
performance is hereby rendered
ordering defendant to execute in favor of
plaintiffs a deed of absolute sale
covering that parcel of land embraced in
and covered by Transfer Certificate of
Title No. 327403 (now TCT No. 331582)
of the Registry of Deeds for Quezon
City, together with all the improvements
existing thereon free from all liens and
encumbrances, and once accomplished,
to immediately deliver the said
document of sale to plaintiffs and upon
receipt thereof, the said document of
sale to plaintiffs and upon receipt
thereof, the plaintiffs are ordered to pay
defendants the whole balance of the
purchase price amounting to
P1,190,000.00 in cash. Transfer
Certificate of Title No. 331582 of the
Registry of Deeds for Quezon City in the
name of intervenor is hereby canceled
and declared to be without force and
effect. Defendants and intervenor and
all other persons claiming under them
are hereby ordered to vacate the subject
property and deliver possession thereof
to plaintiffs. Plaintiffs' claim for damages
and attorney's fees, as well as the
counterclaims of defendants and
intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City,
March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner
before the new presiding judge of the Quezon City RTC
but the same was denied by Judge Estrella T. Estrada,
thusly:
The prayer contained in the instant
motion, i.e., to annul the decision and to
render anew decision by the
undersigned Presiding Judge should be
denied for the following reasons: (1) The
instant case became submitted for
decision as of April 14, 1988 when the
parties terminated the presentation of
their respective documentary evidence
and when the Presiding Judge at that
time was Judge Reynaldo Roura. The
fact that they were allowed to file
memoranda at some future date did not
change the fact that the hearing of the
case was terminated before Judge
Roura and therefore the same should be
submitted to him for decision; (2) When
the defendants and intervenor did not
object to the authority of Judge
Reynaldo Roura to decide the case prior
to the rendition of the decision, when
they met for the first time before the
undersigned Presiding Judge at the
hearing of a pending incident in Civil
Case No. Q-46145 on November 11,
1988, they were deemed to have
acquiesced thereto and they are now
estopped from questioning said
authority of Judge Roura after they
received the decision in question which
happens to be adverse to them; (3)
While it is true that Judge Reynaldo
Roura was merely a Judge-on-detail at
this Branch of the Court, he was in all
respects the Presiding Judge with full
authority to act on any pending incident
 submitted before this Court during his
incumbency. When he returned to his
Official Station at Macabebe,
Pampanga, he did not lose his authority
to decide or resolve such cases
submitted to him for decision or
resolution because he continued as
Judge of the Regional Trial Court and is
of co-equal rank with the undersigned
Presiding Judge. The standing rule and
supported by jurisprudence is that a
Judge to whom a case is submitted for
decision has the authority to decide the
case notwithstanding his transfer to
another branch or region of the same
court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for
reconsideration of the Decision dated
March 1, 1989 rendered in the instant
case, resolution of which now pertains
to the undersigned Presiding Judge,
after a meticulous examination of the
documentary evidence presented by the
parties, she is convinced that the
Decision of March 1, 1989 is supported
by evidence and, therefore, should not
be disturbed.
IN VIEW OF THE FOREGOING, the
"Motion for Reconsideration and/or to
Annul Decision and Render Anew
Decision by the Incumbent Presiding
Judge" dated March 20, 1989 is hereby
DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on
December 16, 1991, the Court of Appeals (Buena,
Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its
decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5,
1992. The last pleading, private respondents' Reply
Memorandum, was filed on September 15, 1993. The
case was, however, re-raffled to
undersigned ponente only on August 28, 1996, due to
the voluntary inhibition of the Justice to whom the case
was last assigned.
While we deem it necessary to introduce certain
refinements in the disquisition of respondent court in the
affirmance of the trial court's decision, we definitely find
the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in
the resolution of the other issues in the case at bar is the
precise determination of the legal significance of the
document entitled "Receipt of Down Payment" which
was offered in evidence by both parties. There is no
dispute as to the fact that said document embodied the
binding contract between Ramona Patricia Alcaraz on
the one hand, and the heirs of Constancio P. Coronel on
the other, pertaining to a particular house and lot
covered by TCT No. 119627, as defined in Article 1305
of the Civil Code of the Philippines which reads as
follows:
Art. 1305. A contract 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.
While, it is the position of private respondents that the
"Receipt of Down Payment" embodied a perfected
contract of sale, which perforce, they seek to enforce by
means of an action for specific performance, petitioners
on their part insist that what the document signified was
a mere executory contract to sell, subject to certain
suspensive conditions, and because of the absence of
Ramona P. Alcaraz, who left for the United States of
America, said contract could not possibly ripen into a
contract absolute sale.
Plainly, such variance in the contending parties'
contentions is brought about by the way each interprets
the terms and/or conditions set forth in said private
instrument. Withal, based on whatever relevant and
admissible evidence may be available on record, this,
Court, as were the courts below, is now called upon to
adjudge what the real intent of the parties was at the
time the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of
the contracting parties obligates himself
to transfer the ownership of and to
deliver a determinate thing, and the
other to pay therefor a price certain in
money or its equivalent.
Sale, by its very nature, is a consensual contract
because it is perfected by mere consent. The essential
elements of a contract of sale are the following:
a) Consent or meeting of the minds, that
is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its
equivalent.
Under this definition, a Contract to Sell may not be
considered as a Contract of Sale because the first
essential element is lacking. In a contract to sell, the
prospective seller explicity reserves the transfer of title to
the prospective buyer, meaning, the prospective seller
does not as yet agree or consent to transfer ownership
of the property subject of the contract to sell until the
happening of an event, which for present purposes we
shall take as the full payment of the purchase price.
What the seller agrees or obliges himself to do is to fulfill
is promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In
other words the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment of
which prevents the obligation to sell from arising and
thus, ownership is retained by the prospective seller
without further remedies by the prospective buyer.
In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court
had occasion to rule:
Hence, We hold that the contract
between the petitioner and the
respondent was a contract to sell where
the ownership or title is retained by the
seller and is not to pass until the full
payment of the price, such payment
being a positive suspensive condition
and failure of which is not a breach,
casual or serious, but simply an event
that prevented the obligation of the
vendor to convey title from acquiring
binding force.
Stated positively, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
the prospective seller's obligation to sell the subject
property by entering into a contract of sale with the
prospective buyer becomes demandable as provided in
Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a
determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or
to sell a determinate thing for a price
certain is binding upon the promissor if
the promise is supported by a
consideration distinct from the price.
A contract to sell may thus be defined as a bilateral
contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite
delivery thereof to the prospective buyer, binds himself
to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that
is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even
be considered as a conditional contract of sale where
the seller may likewise reserve title to the property
subject of the sale until the fulfillment of a suspensive
condition, because in a conditional contract of sale, the
first element of consent is present, although it is
conditioned upon the happening of a contingent event
which may or may not occur. If the suspensive condition
is not fulfilled, the perfection of the contract of sale is
completely abated (cf. Homesite and housing Corp. vs.
Court of Appeals, 133 SCRA 777 [1984]). However, if
the suspensive condition is fulfilled, the contract of sale
is thereby perfected, such that if there had already been
previous delivery of the property subject of the sale to
the buyer, ownership thereto automatically transfers to
the buyer by operation of law without any further act
having to be performed by the seller.
In a contract to sell, upon the fulfillment of the
suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer
to the buyer although the property may have been
previously delivered to him. The prospective seller still
has to convey title to the prospective buyer by entering
into a contract of absolute sale.
It is essential to distinguish between a contract to sell
and a conditional contract of sale specially in cases
where the subject property is sold by the owner not to
the party the seller contracted with, but to a third person,
as in the case at bench. In a contract to sell, there being
no previous sale of the property, a third person buying
such property despite the fulfillment of the suspensive
condition such as the full payment of the purchase price,
for instance, cannot be deemed a buyer in bad faith and
the prospective buyer cannot seek the relief of
reconveyance of the property. There is no double sale in
such case. Title to the property will transfer to the buyer
after registration because there is no defect in the
owner-seller's title per se, but the latter, of course, may
be used for damages by the intending buyer.
In a conditional contract of sale, however, upon the
fulfillment of the suspensive condition, the sale becomes
absolute and this will definitely affect the seller's title
thereto. In fact, if there had been previous delivery of the
subject property, the seller's ownership or title to the
property is automatically transferred to the buyer such
that, the seller will no longer have any title to transfer to
any third person. Applying Article 1544 of the Civil Code,
such second buyer of the property who may have had
actual or constructive knowledge of such defect in the
seller's title, or at least was charged with the obligation
to discover such defect, cannot be a registrant in good
faith. Such second buyer cannot defeat the first buyer's
title. In case a title is issued to the second buyer, the first
buyer may seek reconveyance of the property subject of
the sale.
With the above postulates as guidelines, we now
proceed to the task of deciphering the real nature of the
contract entered into by petitioners and private
respondents.
It is a canon in the interpretation of contracts that the
words used therein should be given their natural and
ordinary meaning unless a technical meaning was
intended (Tan vs. Court of Appeals, 212 SCRA 586
[1992]). Thus, when petitioners declared in the said
"Receipt of Down Payment" that they —
Received from Miss Ramona Patricia
Alcaraz of 146 Timog, Quezon City, the
sum of Fifty Thousand Pesos purchase
price of our inherited house and lot,
covered by TCT No. 1199627 of the
Registry of Deeds of Quezon City, in the
total amount of P1,240,000.00.
without any reservation of title until full payment
of the entire purchase price, the natural and
ordinary idea conveyed is that they sold their
property.
When the "Receipt of Down Payment" is considered in
its entirety, it becomes more manifest that there was a
clear intent on the part of petitioners to transfer title to
the buyer, but since the transfer certificate of title was
still in the name of petitioner's father, they could not fully
effect such transfer although the buyer was then willing
and able to immediately pay the purchase price.
Therefore, petitioners-sellers undertook upon receipt of
the down payment from private respondent Ramona P.
Alcaraz, to cause the issuance of a new certificate of title
in their names from that of their father, after which, they
promised to present said title, now in their names, to the
latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire
balance of the purchase price.
The agreement could not have been a contract to sell
because the sellers herein made no express reservation
of ownership or title to the subject parcel of land.
Furthermore, the circumstance which prevented the
parties from entering into an absolute contract of sale
pertained to the sellers themselves (the certificate of title
was not in their names) and not the full payment of the
purchase price. Under the established facts and
circumstances of the case, the Court may safely
presume that, had the certificate of title been in the
names of petitioners-sellers at that time, there would
have been no reason why an absolute contract of sale
could not have been executed and consummated right
there and then.
Moreover, unlike in a contract to sell, petitioners in the
case at bar did not merely promise to sell the properly to
private respondent upon the fulfillment of the suspensive
condition. On the contrary, having already agreed to sell
the subject property, they undertook to have the
certificate of title changed to their names and
immediately thereafter, to execute the written deed of
absolute sale.
Thus, the parties did not merely enter into a contract to
sell where the sellers, after compliance by the buyer with
certain terms and conditions, promised to sell the
property to the latter. What may be perceived from the
respective undertakings of the parties to the contract is
that petitioners had already agreed to sell the house and
lot they inherited from their father, completely willing to
transfer full ownership of the subject house and lot to the
buyer if the documents were then in order. It just
happened, however, that the transfer certificate of title
was then still in the name of their father. It was more
expedient to first effect the change in the certificate of
title so as to bear their names. That is why they
undertook to cause the issuance of a new transfer of the
certificate of title in their names upon receipt of the down
payment in the amount of P50,000.00. As soon as the
new certificate of title is issued in their names,
petitioners were committed to immediately execute the
deed of absolute sale. Only then will the obligation of the
buyer to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is
most commonly entered into so as to protect the seller
against a buyer who intends to buy the property in
installment by withholding ownership over the property
until the buyer effects full payment therefor, in the
contract entered into in the case at bar, the sellers were
the one who were unable to enter into a contract of
absolute sale by reason of the fact that the certificate of
title to the property was still in the name of their father. It
was the sellers in this case who, as it were, had the
impediment which prevented, so to speak, the execution
of an contract of absolute sale.
What is clearly established by the plain language of the
subject document is that when the said "Receipt of
Down Payment" was prepared and signed by petitioners
Romeo A. Coronel, et al., the parties had agreed to a
conditional contract of sale, consummation of which is
subject only to the successful transfer of the certificate of
title from the name of petitioners' father, Constancio P.
Coronel, to their names.
The Court significantly notes this suspensive condition
was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh.
"4"). Thus, on said date, the conditional contract of sale
between petitioners and private respondent Ramona P.
Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property
by means of the execution of the deed of absolute sale
in a public instrument, which petitioners unequivocally
committed themselves to do as evidenced by the
"Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the
Civil Code, plainly applies to the case at bench. Thus,
Art. 1475. The contract of sale is
perfected at the moment there is a
meeting of minds upon the thing which
 is the object of the contract and upon
the price.
From the moment, the parties may
reciprocally demand performance,
subject to the provisions of the law
governing the form of contracts.
Art. 1181. In conditional obligations, the
acquisition of rights, as well as the
extinguishment or loss of those already
acquired, shall depend upon the
happening of the event which
constitutes the condition.
Since the condition contemplated by the parties which is
the issuance of a certificate of title in petitioners' names
was fulfilled on February 6, 1985, the respective
obligations of the parties under the contract of sale
became mutually demandable, that is, petitioners, as
sellers, were obliged to present the transfer certificate of
title already in their names to private respondent
Ramona P. Alcaraz, the buyer, and to immediately
execute the deed of absolute sale, while the buyer on
her part, was obliged to forthwith pay the balance of the
purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in
page 9 of their petition, petitioners conclusively admitted
that:
3. The petitioners-sellers Coronel bound
themselves "to effect the transfer in our
names from our deceased father
Constancio P. Coronel, the transfer
certificate of title immediately upon
receipt of the downpayment above-
stated". The sale was still subject to this
suspensive condition. (Emphasis
supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into
a contract of sale subject to a suspensive condition.
Only, they contend, continuing in the same paragraph,
that:
. . . Had petitioners-sellers not
complied with this condition of first
transferring the title to the property
under their names, there could be no
perfected contract of sale. (Emphasis
supplied.)
(Ibid.)
not aware that they set their own trap for
themselves, for Article 1186 of the Civil Code
expressly provides that:
Art. 1186. The condition shall be
deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that
what is more controlling than these mere hypothetical
arguments is the fact that the condition herein referred to
was actually and indisputably fulfilled on February 6,
1985, when a new title was issued in the names of
petitioners as evidenced by TCT No. 327403 (Exh. "D";
Exh. "4").
The inevitable conclusion is that on January 19, 1985, as
evidenced by the document denominated as "Receipt of
Down Payment" (Exh. "A"; Exh. "1"), the parties entered
into a contract of sale subject only to the suspensive
condition that the sellers shall effect the issuance of new
certificate title from that of their father's name to their
names and that, on February 6, 1985, this condition was
fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187
which pertinently provides —
Art. 1187. The effects of conditional
obligation to give, once the condition
has been fulfilled, shall retroact to the
day of the constitution of the obligation .
..
In obligation to do or not to do, the
courts shall determine, in each case, the
retroactive effect of the condition that
has been complied with.
the rights and obligations of the parties with
respect to the perfected contract of sale became
mutually due and demandable as of the time of
fulfillment or occurrence of the suspensive
condition on February 6, 1985. As of that point in
time, reciprocal obligations of both seller and
buyer arose.
Petitioners also argue there could been no perfected
contract on January 19, 1985 because they were then
not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a
mode of transferring ownership as follows:
Art. 774. Succession is a mode of
acquisition by virtue of which the
property, rights and obligations to be
extent and value of the inheritance of a
person are transmitted through his
death to another or others by his will or
by operation of law.
 Petitioners-sellers in the case at bar being the
sons and daughters of the decedent Constancio
P. Coronel are compulsory heirs who were
called to succession by operation of law. Thus,
at the point their father drew his last breath,
petitioners stepped into his shoes insofar as the
subject property is concerned, such that any
rights or obligations pertaining thereto became
binding and enforceable upon them. It is
expressly provided that rights to the succession
are transmitted from the moment of death of the
decedent (Article 777, Civil Code; Cuison vs.
Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession
may not be declared unless the creditors have been paid
is rendered moot by the fact that they were able to effect
the transfer of the title to the property from the
decedent's name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising
their supposed lack of capacity to enter into an
agreement at that time and they cannot be allowed to
now take a posture contrary to that which they took
when they entered into the agreement with private
respondent Ramona P. Alcaraz. The Civil Code
expressly states that:
Art. 1431. Through estoppel an
admission or representation is rendered
conclusive upon the person making it,
and cannot be denied or disproved as
against the person relying thereon.
Having represented themselves as the true
owners of the subject property at the time of
sale, petitioners cannot claim now that they were
not yet the absolute owners thereof at that time.
Petitioners also contend that although there was in fact a
perfected contract of sale between them and Ramona P.
Alcaraz, the latter breached her reciprocal obligation
when she rendered impossible the consummation
thereof by going to the United States of America, without
leaving her address, telephone number, and Special
Power of Attorney (Paragraphs 14 and 15, Answer with
Compulsory Counterclaim to the Amended Complaint, p.
2; Rollo, p. 43), for which reason, so petitioners
conclude, they were correct in unilaterally rescinding
rescinding the contract of sale.
We do not agree with petitioners that there was a valid
rescission of the contract of sale in the instant case. We
note that these supposed grounds for petitioners'
rescission, are mere allegations found only in their
responsive pleadings, which by express provision of the
rules, are deemed controverted even if no reply is filed
by the plaintiffs (Sec. 11, Rule 6, Revised Rules of
Court). The records are absolutely bereft of any
supporting evidence to substantiate petitioners'
allegations. We have stressed time and again that
allegations must be proven by sufficient evidence (Ng
Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs.
Embisan, 2 SCRA 598 [1961]. Mere allegation is not an
evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was
in the United States of America on February 6, 1985, we
cannot justify petitioner-sellers' act of unilaterally and
extradicially rescinding the contract of sale, there being
no express stipulation authorizing the sellers to
extarjudicially rescind the contract of sale. (cf. Dignos vs.
CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon,
132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the
alleged absence of Ramona P. Alcaraz because
although the evidence on record shows that the sale was
in the name of Ramona P. Alcaraz as the buyer, the
sellers had been dealing with Concepcion D. Alcaraz,
Ramona's mother, who had acted for and in behalf of
her daughter, if not also in her own behalf. Indeed, the
down payment was made by Concepcion D. Alcaraz with
her own personal check (Exh. "B"; Exh. "2") for and in
behalf of Ramona P. Alcaraz. There is no evidence
showing that petitioners ever questioned Concepcion's
authority to represent Ramona P. Alcaraz when they
accepted her personal check. Neither did they raise any
objection as regards payment being effected by a third
person. Accordingly, as far as petitioners are concerned,
the physical absence of Ramona P. Alcaraz is not a
ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed
to be in default, insofar as her obligation to pay the full
purchase price is concerned. Petitioners who are
precluded from setting up the defense of the physical
absence of Ramona P. Alcaraz as above-explained
offered no proof whatsoever to show that they actually
presented the new transfer certificate of title in their
names and signified their willingness and readiness to
execute the deed of absolute sale in accordance with
their agreement. Ramona's corresponding obligation to
pay the balance of the purchase price in the amount of
P1,190,000.00 (as buyer) never became due and
demandable and, therefore, she cannot be deemed to
have been in default.
Article 1169 of the Civil Code defines when a party in a
contract involving reciprocal obligations may be
considered in default, to wit:
Art. 1169. Those obliged to deliver or to
do something, incur in delay from the
time the obligee judicially or
extrajudicially demands from them the
fulfillment of their obligation.
xxx xxx xxx
In reciprocal obligations, neither party
incurs in delay if the other does not
 comply or is not ready to comply in a
proper manner with what is incumbent
upon him. From the moment one of the
parties fulfill his obligation, delay by the
other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind
the contract of sale between petitioners and
respondents.
With the foregoing conclusions, the sale to the other
petitioner, Catalina B. Mabanag, gave rise to a case of
double sale where Article 1544 of the Civil Code will
apply, to wit:
Art. 1544. If the same thing should have
been sold to different vendees, the
ownership shall be transferred to the
person who may have first taken
possession thereof in good faith, if it
should be movable property.
Should if be immovable property, the
ownership shall belong to the person
acquiring it who in good faith first
recorded it in Registry of Property.
Should there be no inscription, the
ownership shall pertain to the person
who in good faith was first in the
possession; and, in the absence thereof
to the person who presents the oldest
title, provided there is good faith.
The record of the case shows that the Deed of Absolute
Sale dated April 25, 1985 as proof of the second
contract of sale was registered with the Registry of
Deeds of Quezon City giving rise to the issuance of a
new certificate of title in the name of Catalina B.
Mabanag on June 5, 1985. Thus, the second paragraph
of Article 1544 shall apply.
The above-cited provision on double sale presumes title
or ownership to pass to the first buyer, the exceptions
being: (a) when the second buyer, in good faith,
registers the sale ahead of the first buyer, and (b) should
there be no inscription by either of the two buyers, when
the second buyer, in good faith, acquires possession of
the property ahead of the first buyer. Unless, the second
buyer satisfies these requirements, title or ownership will
not transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted
authority on the subject, now a distinguished member of
the Court, Justice Jose C. Vitug, explains:
The governing principle is prius
tempore, potior jure (first in time,
stronger in right). Knowledge by the first
buyer of the second sale cannot defeat
the first buyer's rights except when the
second buyer first registers in good faith
the second sale (Olivares vs. Gonzales,
159 SCRA 33). Conversely, knowledge
gained by the second buyer of the first
sale defeats his rights even if he is first
to register, since knowledge taints his
registration with bad faith (see also
Astorga vs. Court of Appeals, G.R. No.
58530, 26 December 1984). In Cruz
vs. Cabana (G.R. No. 56232, 22 June
1984, 129 SCRA 656), it has held that it
is essential, to merit the protection of
Art. 1544, second paragraph, that the
second realty buyer must act in good
faith in registering his deed of sale
(citing Carbonell vs. Court of Appeals,
69 SCRA 99, Crisostomo vs. CA, G.R.
No. 95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and
Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the
case at bar was annoted on the title of the subject
property only on February 22, 1985, whereas, the
second sale between petitioners Coronels and petitioner
Mabanag was supposedly perfected prior thereto or on
February 18, 1985. The idea conveyed is that at the time
petitioner Mabanag, the second buyer, bought the
property under a clean title, she was unaware of any
adverse claim or previous sale, for which reason she is
buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and
materiality is not whether or not the second buyer was a
buyer in good faith but whether or not said second buyer
registers such second sale in good faith, that is, without
knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case,
petitioner Mabanag could not have in good faith,
registered the sale entered into on February 18, 1985
because as early as February 22, 1985, a notice of lis
pendens had been annotated on the transfer certificate
of title in the names of petitioners, whereas petitioner
Mabanag registered the said sale sometime in April,
1985. At the time of registration, therefore, petitioner
Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she
was charged with knowledge that a previous buyer is
claiming title to the same property. Petitioner Mabanag
cannot close her eyes to the defect in petitioners' title to
the property at the time of the registration of the
property.
This Court had occasions to rule that:
If a vendee in a double sale registers
that sale after he has acquired
 knowledge that there was a previous
sale of the same property to a third party
or that another person claims said
property in a pervious sale, the
registration will constitute a registration
in bad faith and will not confer upon him
any right. (Salvoro vs. Tanega, 87
SCRA 349 [1978]; citing Palarca vs.
Director of Land, 43 Phil. 146; Cagaoan
vs. Cagaoan, 43 Phil. 554; Fernandez
vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between
petitioners and Ramona P. Alcaraz, perfected on
February 6, 1985, prior to that between petitioners and
Catalina B. Mabanag on February 18, 1985, was
correctly upheld by both the courts below.
Although there may be ample indications that there was
in fact an agency between Ramona as principal and
Concepcion, her mother, as agent insofar as the subject
contract of sale is concerned, the issue of whether or not
Concepcion was also acting in her own behalf as a co-
buyer is not squarely raised in the instant petition, nor in
such assumption disputed between mother and
daughter. Thus, We will not touch this issue and no
longer disturb the lower courts' ruling on this point.
WHEREFORE, premises considered, the instant petition
is hereby DISMISSED and the appealed judgment
AFFIRMED.
SO ORDERED.
INTERNATIONAL HOTEL VS JOAQUIN
BERSAMIN, J.:
To avoid unjust enrichment to a party from resulting out
of a substantially performed contract, the principle of
quantum meruit may be used to determine his
compensation in the absence of a written agreement for
that purpose. The principle of quantum meruit justifies
the payment of the reasonable value of the services
rendered by him.
The Case
Under review is the decision the Court of Appeals (CA)
promulgated on November 8, 2002,1 disposing:
WHEREFORE, premises considered, the decision dated
August 26, 1993 of the Regional Trial Court, Branch 13,
Manila in Civil Case No. R-82-2434 is AFFIRMED with
Modification as to the amounts awarded as follows:
defendant-appellant IHC is ordered to pay plaintiff-
appellant Joaquin ₱700,000.00 and plaintiff-appellant
Suarez ₱200,000.00, both to be paid in cash.
SO ORDERED.
Antecedents
On February 1, 1969, respondent Francisco B. Joaquin,
Jr. submitted a proposal to the Board of Directors of the
International Hotel Corporation (IHC) for him to render
technical assistance in securing a foreign loan for the
construction of a hotel, to be guaranteed by the
Development Bank of the Philippines (DBP).2 The
proposal encompassed nine phases, namely: (1) the
preparation of a new project study; (2) the settlement of
the unregistered mortgage prior to the submission of the
application for guaranty for processing by DBP; (3) the
preparation of papers necessary to the application for
guaranty; (4) the securing of a foreign financier for the
project; (5) the securing of the approval of the DBP
Board of Governors; (6) the actual follow up of the
application with DBP3; (7) the overall coordination in
implementing the projections of the project study; (8) the
preparation of the staff for actual hotel operations; and
(9) the actual hotel operations.4
The IHC Board of Directors approved phase one to
phase six of the proposal during the special board
meeting on February 11, 1969, and earmarked
₱2,000,000.00 for the project.5 Anent the financing, IHC
applied with DBP for a foreign loan guaranty. DBP
processed the application,6 and approved it on October
24, 1969 subject to several conditions.7
On July 11, 1969, shortly after submitting the application
to DBP, Joaquin wrote to IHC to request the payment of
his fees in the amount of ₱500,000.00 for the services
that he had provided and would be providing to IHC in
relation to the hotel project that were outside the scope
of the technical proposal. Joaquin intimated his
amenability to receive shares of stock instead of cash in
view of IHC’s financial situation.8
On July 11, 1969, the stockholders of IHC met and
granted Joaquin’s request, allowing the payment for both
Joaquin and Rafael Suarez for their services in
implementing the proposal.9
On June 20, 1970, Joaquin presented to the IHC Board
of Directors the results of his negotiations with potential
foreign financiers. He narrowed the financiers to Roger
Dunn & Company and Materials Handling Corporation.
He recommended that the Board of Directors consider
Materials Handling Corporation based on the more
beneficial terms it had offered. His recommendation was
accepted.10
Negotiations with Materials Handling Corporation and,
later on, with its principal, Barnes International (Barnes),
ensued. While the negotiations with Barnes were
ongoing, Joaquin and Jose Valero, the Executive
Director of IHC, met with another financier, the Weston
International Corporation (Weston), to explore possible
financing.11 When Barnes failed to deliver the needed
loan, IHC informed DBP that it would submit Weston for
DBP’s consideration.12As a result, DBP cancelled its
previous guaranty through a letter dated December 6,
1971.13
On December 13, 1971, IHC entered into an agreement
with Weston, and communicated this development to
DBP on June 26, 1972. However, DBP denied the
application for guaranty for failure to comply with the
conditions contained in its November 12, 1971 letter.14
Due to Joaquin’s failure to secure the needed loan, IHC,
through its President Bautista, canceled the 17,000
shares of stock previously issued to Joaquin and Suarez
as payment for their services. The latter requested a
reconsideration of the cancellation, but their request was
rejected.
Consequently, Joaquin and Suarez commenced this
action for specific performance, annulment, damages
and injunction by a complaint dated December 6, 1973
in the Regional Trial Court in Manila (RTC), impleading
IHC and the members of its Board of Directors, namely,
Felix Angelo Bautista, Sergio O. Rustia, Ephraim G.
Gochangco, Mario B. Julian, Benjamin J. Bautista,
Basilio L. Lirag, Danilo R. Lacerna and Hermenegildo R.
Reyes.15 The complaint alleged that the cancellation of
the shares had been illegal, and had deprived them of
their right to participate in the meetings and elections
held by IHC; that Barnes had been recommended by
IHC President Bautista, not by Joaquin; that they had
failed to meet their obligation because President
Bautista and his son had intervened and negotiated with
Barnes instead of Weston; that DBP had canceled the
guaranty because Barnes had failed to release the loan;
and that IHC had agreed to compensate their services
with 17,000 shares of the common stock plus cash of
₱1,000,000.00.16
IHC, together with Felix Angelo Bautista, Sergio O.
Rustia, Mario B. Julian and Benjamin J. Bautista, filed an
answer claiming that the shares issued to Joaquin and
Suarez as compensation for their "past and future
services" had been issued in violation of Section 16 of
the Corporation Code; that Joaquin and Suarez had not
provided a foreign financier acceptable to DBP; and that
they had already received ₱96,350.00 as payment for
their services.17
On their part, Lirag and Lacerna denied any knowledge
of or participation in the cancellation of the shares.18
Similarly, Gochangco and Reyes denied any knowledge
of or participation in the cancellation of the shares, and
clarified that they were not directors of IHC.19 In the
course of the proceedings, Reyes died and was
substituted by Consorcia P. Reyes, the administratrix of
his estate.20
Ruling of the RTC
Under its decision rendered on August 26, 1993, the
RTC held IHC liable pursuant to the second paragraph
of Article 1284 of the Civil Code, disposing thusly:
WHEREFORE, in the light of the above facts, law and
jurisprudence, the Court hereby orders the defendant
International Hotel Corporation to pay plaintiff Francisco
B. Joaquin, the amount of Two Hundred Thousand
Pesos (₱200,000.00) and to pay plaintiff Rafael Suarez
the amount of Fifty Thousand Pesos (₱50,000.00); that
the said defendant IHC likewise pay the co-plaintiffs,
attorney’s fees of ₱20,000.00, and costs of suit.
IT IS SO ORDERED.21
The RTC found that Joaquin and Suarez had failed to
meet their obligations when IHC had chosen to negotiate
with Barnes rather than with Weston, the financier that
Joaquin had recommended; and that the cancellation of
the shares of stock had been proper under Section 68 of
the Corporation Code, which allowed such transfer of
shares to compensate only past services, not future
ones.
Ruling of the CA
Both parties appealed.22
Joaquin and Suarez assigned the following errors, to wit:
DESPITE HAVING CORRECTLY ACKNOWLEDGED
THAT PLAINTIFFS-APPELLANTS FULLY
PERFORMED ALL THAT WAS INCUMBENT UPON
THEM, THE HONORABLE JUDGE ERRED IN NOT
ORDERING THAT:
A. DEFENDANTS WERE UNJUSTIFIED IN
CANCELLING THE SHARES OF STOCK
PREVIOUSLY ISSUED TO PLAINTIFFS-
APPELLANTS; AND
B. DEFENDANTS PAY PLAINTIFFS-
APPELLANTS TWO MILLION SEVEN
HUNDRED PESOS (sic) (₱2,700,000.00),
INCLUDING INTEREST THEREON FROM
1973, REPRESENTING THE TOTAL
OBLIGATION DUE PLAINTIFFS-
APPELLANTS.23
On the other hand, IHC attributed errors to the RTC, as
follows:
I.
THE LOWER COURT ERRED IN HOLDING THAT
PLAINTIFFS-APPELLANTS HAVE NOTBEEN
COMPLETELY PAID FOR THEIR SERVICES, AND IN
ORDERING THE DEFENDANT-APPELLANT TO PAY
TWO HUNDRED THOUSAND PESOS (₱200,000.00)
AND FIFTY THOUSAND PESOS (₱50,000.00) TO
PLAINTIFFS-APPELLANTS FRANCISCO B. JOAQUIN
AND RAFAEL SUAREZ, RESPECTIVELY.
II.
THE LOWER COURT ERRED IN AWARDING
PLAINTIFFS-APPELLANTS ATTORNEY’S FEES AND
COSTS OF SUIT.24
In its questioned decision promulgated on November 8,
2002, the CA concurred with the RTC, upholding IHC’s
liability under Article 1186 of the Civil Code. It ruled that
in the context of Article 1234 of the Civil Code, Joaquin
had substantially performed his obligations and had
become entitled to be paid for his services; and that the
issuance of the shares of stock was ultra vires for having
been issued as consideration for future services.
Anent how much was due to Joaquin and Suarez, the
CA explained thusly:
This Court does not subscribe to plaintiffs-appellants’
view that defendant-appellant IHC agreed to pay them
₱2,000,000.00. Plaintiff-appellant Joaquin’s letter to
defendant-appellee F.A. Bautista, quoting defendant-
appellant IHC’s board resolutions which supposedly
authorized the payment of such amount cannot be
sustained. The resolutions are quite clear and when
taken together show that said amount was only the
"estimated maximum expenses" which defendant-
appellant IHC expected to incur in accomplishing phases
1 to 6, not exclusively to plaintiffs-appellants’
compensation.This conclusion finds support in an
unnumbered board resolution of defendant-appellant
IHC dated July 11, 1969:
"Incidentally, it was also taken up the necessity of giving
the Technical Group a portion of the compensation that
was authorized by this corporation in its Resolution of
February 11, 1969 considering that the assistance so far
given the corporation by said Technical Group in
continuing our project with the DBP and its request for
guaranty for a foreign loan is 70% completed leaving
only some details which are now being processed. It is
estimated that ₱400,000.00 worth of Common Stock
would be reasonable for the present accomplishments
and to this effect, the President is authorized to issue the
same in the name of the Technical Group, as follows:
₱200,000.00 in common stock to Rafael Suarez, as
associate in the Technical Group, and ₱200,000.00 in
common stock to Francisco G. Joaquin, Jr., also a
member of the Technical Group.
It is apparent that not all of the ₱2,000,000.00 was
allocated exclusively to compensate plaintiffs-appellants.
Rather, it was intended to fund the whole undertaking
including their compensation. On the same date,
defendant-appellant IHC also authorized its president to
pay-appellant Joaquin ₱500,000.00 either in cash or in
stock or both.
The amount awarded by the lower court was therefore
less than what defendant-appellant IHC agreed to pay
plaintiffs-appellants. While this Court cannot decree that
the cancelled shares be restored, for they are without a
doubt null and void, still and all, defendant-appellant IHC
cannot now put up its own ultra vires act as an excuse to
escape obligation to plaintiffs-appellants. Instead of
shares of stock, defendant-appellant IHC is ordered to
pay plaintiff-appellant Joaquin a total of ₱700,000.00
and plaintiff-appellant Suarez ₱200,000.00, both to be
paid in cash.
Although the lower court failed to explain why it was
granting the attorney’s fees, this Court nonetheless finds
its award proper given defendant-appellant IHC’s
actions.25
Issues
In this appeal, the IHC raises as issues for our
consideration and resolution the following:
I
WHETHER OR NOT THE COURT OF APPEALS IS
CORRECT IN AWARDING COMPENSATION AND
EVEN MODIFYING THE PAYMENT TO HEREIN
RESPONDENTS DESPITE NON-FULFILLMENT OF
THEIR OBLIGATION TO HEREIN PETITIONER
II
WHETHER OR NOT THE COURT OF APPEALS IS
CORRECT IN AWARDING ATTORNEY’S FEES TO
RESPONDENTS26
IHC maintains that Article 1186 of the Civil Code was
erroneously applied; that it had no intention of preventing
Joaquin from complying with his obligations when it
adopted his recommendation to negotiate with Barnes;
that Article 1234 of the Civil Code applied only if there
was a merely slight deviation from the obligation, and the
omission or defect was technical and unimportant; that
substantial compliance was unacceptable because the
foreign loan was material and was, in fact, the ultimate
goal of its contract with Joaquin and Suarez; that
because the obligation was indivisible and subject to a
suspensive condition, Article 1181 of the Civil
Code27 applied, under which a partial performance was
equivalent to non-performance; and that the award of
attorney’s fees should be deleted for lack of legal and
factual bases.
On the part of respondents, only Joaquin filed a
comment,28 arguing that the petition was fatally defective
for raising questions of fact; that the obligation was
divisible and capable of partial performance; and that the
suspensive condition was deemed fulfilled through IHC’s
own actions.29
Ruling
We deny the petition for review on certiorari subject to
the ensuing disquisitions.
1.
IHC raises questions of law
We first consider and resolve whether IHC’s petition
improperly raised questions of fact.
A question of law exists when there is doubt as to what
the law is on a certain state of facts, but, in contrast, a
question of fact exists when the doubt arises as to the
truth or falsity of the facts alleged. A question of law
does not involve an examination of the probative value
of the evidence presented by the litigants or by any of
them; the resolution of the issue must rest solely on what
the law provides on the given set of
circumstances.30 When there is no dispute as to the
facts, the question of whether or not the conclusion
drawn from the facts is correct is a question of law.31
Considering that what IHC seeks to review is the CA’s
application of the law on the facts presented therein,
there is no doubt that IHC raises questions of law. The
basic issue posed here is whether the conclusions
drawn by the CA were correct under the pertinent laws.
2.
Article 1186 and Article 1234 of the Civil Code cannot be
the source of IHC’s obligation to pay respondents IHC
argues that it should not be held liable because: (a) it
was Joaquin who had recommended Barnes; and (b)
IHC’s negotiation with Barnes had been neither
intentional nor willfully intended to prevent Joaquin from
complying with his obligations.
IHC’s argument is meritorious.
Article 1186 of the Civil Code reads:
Article 1186. The condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment.
This provision refers to the constructive fulfillment of a
suspensive condition,32 whose application calls for two
requisites, namely: (a) the intent of the obligor to prevent
the fulfillment of the condition, and (b) the actual
prevention of the fulfillment. Mere intention of the debtor
to prevent the happening of the condition, or to place
ineffective obstacles to its compliance, without actually
preventing the fulfillment, is insufficient.33
The error lies in the CA’s failure to determine IHC’s
intent to pre-empt Joaquin from meeting his obligations.
The June 20, 1970 minutes of IHC’s special board
meeting discloses that Joaquin impressed upon the
members of the Board that Materials Handling was
offering more favorable terms for IHC, to wit:
xxxx
At the meeting all the members of the Board of Directors
of the International Hotel Corporation were present with
the exception of Directors Benjamin J. Bautista and
Sergio O. Rustia who asked to be excused because of
previous engagements. In that meeting, the President
called on Mr. Francisco G. Joaquin, Jr. to explain the
different negotiations he had conducted relative to
obtaining the needed financing for the hotel project in
keeping with the authority given to him in a resolution
approved by the Board of Directors.
Mr. Joaquin presently explained that he contacted
several local and foreign financiers through different
brokers and after examining the different offers he
narrowed down his choice to two (2), to wit: the foreign
financier recommended by George Wright of the Roger
Dunn & Company and the offer made by the Materials
Handling Corporation.
After explaining the advantages and disadvantages to
our corporation of the two (2) offers specifically with
regard to the terms and repayment of the loan and the
rate of interest requested by them, he concluded that the
offer made by the Materials Handling Corporation is
much more advantageous because the terms and
conditions of payment as well as the rate of interest are
much more reasonable and would be much less onerous
to our corporation. However, he explained that the
corporation accepted, in principle, the offer of Roger
Dunn, per the corporation’s telegrams to Mr. Rudolph
Meir of the Private Bank of Zurich, Switzerland, and until
such time as the corporation’s negotiations with Roger
Dunn is terminated, we are committed, on one way or
the other, to their financing.
It was decided by the Directors that, should the
negotiations with Roger Dunn materialize, at the same
time as the offer of Materials Handling Corporation, that
the funds committed by Roger Dunn may be diverted to
other borrowers of the Development Bank of the
Philippines. With this condition, Director Joaquin showed
the advantages of the offer of Materials Handling
Corporation. Mr. Joaquin also informed the corporation
that, as of this date, the bank confirmation of Roger
Dunn & Company has not been received. In view of the
fact that the corporation is racing against time in
securing its financing, he recommended that the
corporation entertain other offers.
After a brief exchange of views on the part of the
Directors present and after hearing the clarification and
explanation made by Mr. C. M. Javier who was present
and who represented the Materials Handling
Corporation, the Directors present approved
unanimously the recommendation of Mr. Joaquin to
entertain the offer of Materials Handling Corporation. 34
Evidently, IHC only relied on the opinion of its consultant
in deciding to transact with Materials Handling and, later
on, with Barnes. In negotiating with Barnes, IHC had no
intention, willful or otherwise, to prevent Joaquin and
Suarez from meeting their undertaking. Such absence of
any intention negated the basis for the CA’s reliance on
Article 1186 of the Civil Code.
Nor do we agree with the CA’s upholding of IHC’s
liability by virtue of Joaquin and Suarez’s substantial
performance. In so ruling, the CA applied Article 1234 of
the Civil Code, which states:
Article 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment,
less damages suffered by the obligee.
It is well to note that Article 1234 applies only when an
obligor admits breaching the contract35 after honestly
and faithfully performing all the material elements thereof
except for some technical aspects that cause no serious
harm to the obligee.36 IHC correctly submits that the
provision refers to an omission or deviation that is slight,
or technical and unimportant, and does not affect the
real purpose of the contract.
Tolentino explains the character of the obligor’s breach
under Article 1234 in the following manner, to wit:
In order that there may be substantial performance of an
obligation, there must have been an attempt in good
faith to perform, without any willful or intentional
departure therefrom. The deviation from the obligation
must be slight, and the omission or defect must be
technical and unimportant, and must not pervade the
whole or be so material that the object which the parties
intended to accomplish in a particular manner is not
attained. The non-performance of a material part of a
contract will prevent the performance from amounting to
a substantial compliance.
The party claiming substantial performance must show
that he has attempted in good faith to perform his
contract, but has through oversight, misunderstanding or
any excusable neglect failed to completely perform in
certain negligible respects, for which the other party may
be adequately indemnified by an allowance and
deduction from the contract price or by an award of
damages. But a party who knowingly and wilfully fails to
perform his contract in any respect, or omits to perform a
material part of it, cannot be permitted, under the
protection of this rule, to compel the other party, and the
trend of the more recent decisions is to hold that the
percentage of omitted or irregular performance may in
and of itself be sufficient to show that there had not been
a substantial performance.37
By reason of the inconsequential nature of the breach or
omission, the law deems the performance as substantial,
making it the obligee’s duty to pay.38 The compulsion of
payment is predicated on the substantial benefit derived
by the obligee from the partial performance. Although
compelled to pay, the obligee is nonetheless entitled to
an allowance for the sum required to remedy omissions
or defects and to complete the work agreed upon.39
Conversely, the principle of substantial performance is
inappropriate when the incomplete performance
constitutes a material breach of the contract. A
contractual breach is material if it will adversely affect
the nature of the obligation that the obligor promised to
deliver, the benefits that the obligee expects to receive
after full compliance, and the extent that the non-
performance defeated the purposes of the
contract.40 Accordingly, for the principle embodied in
Article 1234 to apply, the failure of Joaquin and Suarez
to comply with their commitment should not defeat the
ultimate purpose of the contract.
The primary objective of the parties in entering into the
services agreement was to obtain a foreign loan to
finance the construction of IHC’s hotel project. This
objective could be inferred from IHC’s approval of phase
1 to phase 6 of the proposal. Phase 1 and phase 2,
respectively the preparation of a new project study and
the settlement of the unregistered mortgage, would pave
the way for Joaquin and Suarez to render assistance to
IHC in applying for the DBP guaranty and thereafter to
look for an able and willing foreign financial institution
acceptable to DBP. All the steps that Joaquin and
Suarez undertook to accomplish had a single objective –
to secure a loan to fund the construction and eventual
operations of the hotel of IHC. In that regard, Joaquin
himself admitted that his assistance was specifically
sought to seek financing for IHC’s hotel project.41
Needless to say, finding the foreign financier that DBP
would guarantee was the essence of the parties’
contract, so that the failure to completely satisfy such
obligation could not be characterized as slight and
unimportant as to have resulted in Joaquin and Suarez’s
substantial performance that consequentially benefitted
IHC. Whatever benefits IHC gained from their services
could only be minimal, and were even probably
outweighed by whatever losses IHC suffered from the
delayed construction of its hotel. Consequently, Article
1234 did not apply.
3.
IHC is nonetheless liable to pay under the rule on
constructive fulfillment of a mixed conditional
obligation
Notwithstanding the inapplicability of Article 1186 and
Article 1234 of the Civil Code, IHC was liable based on
the nature of the obligation.
Considering that the agreement between the parties was
not circumscribed by a definite period, its termination
was subject to a condition – the happening of a future
and uncertain event.42 The prevailing rule in conditional
obligations is that the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall
depend upon the happening of the event that constitutes
the condition.43
To recall, both the RTC and the CA held that Joaquin
and Suarez’s obligation was subject to the suspensive
condition of successfully securing a foreign loan
guaranteed by DBP. IHC agrees with both lower courts,
and even argues that the obligation with a suspensive
condition did not arise when the event or occurrence did
not happen. In that instance, partial performance of the
contract subject to the suspensive condition was
tantamount to no performance at all. As such, the
respondents were not entitled to any compensation.
We have to disagree with IHC’s argument.
To secure a DBP-guaranteed foreign loan did not solely
depend on the diligence or the sole will of the
respondents because it required the action and
discretion of third persons – an able and willing foreign
financial institution to provide the needed funds, and the
DBP Board of Governors to guarantee the loan. Such
third persons could not be legally compelled to act in a
manner favorable to IHC. There is no question that when
the fulfillment of a condition is dependent partly on the
will of one of the contracting parties,44 or of the obligor,
and partly on chance, hazard or the will of a third person,
the obligation is mixed.45 The existing rule in a mixed
conditional obligation is that when the condition was not
fulfilled but the obligor did all in his power to comply with
the obligation, the condition should be deemed
satisfied.46
Considering that the respondents were able to secure an
agreement with Weston, and subsequently tried to
reverse the prior cancellation of the guaranty by DBP,
we rule that they thereby constructively fulfilled their
obligation.
4.
Quantum meruit should apply in the absence of an
express agreement on the fees
The next issue to resolve is the amount of the fees that
IHC should pay to Joaquin and Suarez.
Joaquin claimed that aside from the approved
₱2,000,000.00 fee to implement phase 1 to phase 6, the
IHC Board of Directors had approved an additional
₱500,000.00 as payment for his services. The RTC
declared that he and Suarez were entitled to
₱200,000.00 each, but the CA revised the amounts to
₱700,000.00 for Joaquin and ₱200,000.00 for Suarez.
Anent the ₱2,000,000.00, the CA rightly concluded that
the full amount of ₱2,000,000.00 could not be awarded
to respondents because such amount was not allocated
exclusively to compensate respondents, but was
intended to be the estimated maximum to fund the
expenses in undertaking phase 6 of the scope of
services. Its conclusion was unquestionably borne out by
the minutes of the February 11, 1969 meeting, viz:
xxxx
II
The preparation of the necessary papers for the DBP
including the preparation of the application, the
presentation of the mechanics of financing, the actual
follow up with the different departments of the DBP
which includes the explanation of the feasibility studies
up to the approval of the loan, conditioned on the DBP’s
acceptance of the project as feasible. The estimated
expenses for this particular phase would be contingent,
i.e. upon DBP’s approval of the plan now being studied
and prepared, is somewhere around ₱2,000,000.00.
After a brief discussion on the matter, the Board on
motion duly made and seconded, unanimously adopted
a resolution of the following tenor:
RESOLUTION NO. ______
(Series of 1969)
"RESOLVED, as it is hereby RESOLVED, that if the
Reparations allocation and the plan being negotiated
with the DBP is realized the estimated maximum
expenses of ₱2,000,000.00 for this phase is hereby
authorized subject to the sound discretion of the
committee composed of Justice Felix Angelo Bautista,
Jose N. Valero and Ephraim G.
Gochangco."47 (Emphasis supplied)
Joaquin’s claim for the additional sum of ₱500,000.00
was similarly without factual and legal bases. He had
requested the payment of that amount to cover services
rendered and still to be rendered to IHC separately from
those covered by the first six phases of the scope of
work. However, there is no reason to hold IHC liable for
that amount due to his failure to present sufficient proof
of the services rendered towards that end. Furthermore,
his July 11, 1969 letter revealed that the additional
services that he had supposedly rendered were identical
to those enumerated in the technical proposal, thus:
The Board of Directors
International Hotel Corporation
Thru: Justice Felix Angelo Bautista
President & Chairman of the Board
Gentlemen:
I have the honor to request this Body for its deliberation
and action on the fees for my services rendered and to
be rendered to the hotel project and to the corporation.
These fees are separate from the fees you have
approved in your previous Board Resolution, since my
fees are separate. I realize the position of the
corporation at present, in that it is not in a financial
position to pay my services in cash, therefore, I am
requesting this Body to consider payment of my fees
even in the form of shares of stock, as you have done to
the other technical men and for other services rendered
to the corporation by other people.
Inasmuch as my fees are contingent on the successful
implementation of this project, I request that my fees be
based on a percentage of the total project cost. The fees
which I consider reasonable for the services that I have
rendered to the project up to the completion of its
construction is ₱500,000.00. I believe said amount is
reasonable since this is approximately only ¾ of 1% of
the total project cost.
So far, I have accomplished Phases 1-5 of my report
dated February 1, 1969 and which you authorized us to
do under Board Resolution of February 11, 1969. It is
only Phase 6 which now remains to be implemented. For
my appointment as Consultant dated May 12, 1969 and
the Board Resolution dated June 23, 1969 wherein I was
appointed to the Technical Committee, it now follows
that I have been also authorized to implement part of
Phases 7 & 8.
A brief summary of my accomplished work has been as
follows:
1. I have revised and made the new Project
Study of your hotel project, making it bankable
and feasible.
2. I have reduced the total cost of your project
by approximately ₱24,735,000.00.
3. I have seen to it that a registered mortgage
with the Reparations Commission did not affect
the application with the IBP for approval to
processing.
4. I have prepared the application papers
acceptable to the DBP by means of an advance
analysis and the presentation of the financial
mechanics, which was accepted by the DBP.
5. I have presented the financial mechanics of
the loan wherein the requirement of the DBP for
an additional ₱19,000,000.00 in equity from the
corporation became unnecessary.
6. The explanation of the financial mechanics
and the justification of this project was
instrumental in changing the original
recommendation of the Investment Banking
Department of the DBP, which recommended
disapproval of this application, to the present
recommendation of the Real Estate Department
which is for the approval of this project for
proceeding.
7. I have submitted to you several offers already
of foreign financiers which are in your files. We
are presently arranging the said financiers to
confirm their funds to the DBP for our project,
8. We have secured the approval of the DBP to
process the loan application of this corporation
as per its letter July 2, 1969.
9. We have performed other services for the
corporation which led to the cooperation and
understanding of the different factions of this
corporation.
I have rendered services to your corporation for the past
6 months with no clear understanding as to the
compensation of my services. All I have drawn from the
corporation is the amount of ₱500.00 dated May 12,
1969 and personal payment advanced by Justice Felix
Angelo Bautista in the amount of ₱1,000.00.
I am, therefore, requesting this Body for their approval of
my fees. I have shown my good faith and willingness to
render services to your corporation which is evidenced
by my continued services in the past 6 months as well as
the accomplishments above mentioned. I believe that
the final completion of this hotel, at least for the
processing of the DBP up to the completion of the
construction, will take approximately another 2 ½ years.
In view of the above, I again reiterate my request for
your approval of my fees. When the corporation is in a
better financial position, I will request for a withdrawal of
a monthly allowance, said amount to be determined by
this Body.
Very truly yours,
(Sgd.)
Francisco G., Joaquin, Jr.48
(Emphasis supplied)
Joaquin could not even rest his claim on the approval by
IHC’s Board of Directors. The approval apparently arose
from the confusion between the supposedly separate
services that Joaquin had rendered and those to be
done under the technical proposal. The minutes of the
July 11, 1969 board meeting (when the Board of
Directors allowed the payment for Joaquin’s past
services and for the 70% project completion by the
technical group) showed as follows:
III
The Third order of business is the compensation of Mr.
Francisco G. Joaquin, Jr. for his services in the
corporation.
After a brief discussion that ensued, upon motion duly
made and seconded, the stockholders unanimously
approved a resolution of the following tenor:
RESOLUTION NO. ___
(Series of 1969)
"RESOLVED that Mr. Francisco G. Joaquin, Jr. be
granted a compensation in the amount of Five Hundred
Thousand (₱500,000.00) Pesos for his past services and
services still to be rendered in the future to the
corporation up to the completion of the
Project.1âwphi1 The President is given full discretion to
discuss with Mr. Joaquin the manner of payment of said
compensation, authorizing him to pay part in stock and
part in cash."
Incidentally, it was also taken up the necessity of giving
the Technical Group a portion of the compensation that
was authorized by this corporation in its Resolution of
February 11, 1969 considering that the assistance so far
given the corporation by said Technical Group in
continuing our project with the DBP and its request for
guaranty for a foreign loan is 70% completed leaving
only some details which are now being processed. It is
estimated that ₱400,000.00 worth of Common Stock
would be reasonable for the present accomplishments
and to this effect, the President is authorized to issue the
same in the name of the Technical Group, as follows:
₱200,000.00 in Common Stock to Rafael Suarez, an
associate in the Technical Group, and ₱200,000.00 in
Common stock to Francisco G. Joaquin, Jr., also a
member of the Technical Group.49
Lastly, the amount purportedly included services still to
be rendered that supposedly extended until the
completion of the construction of the hotel. It is basic,
however, that in obligations to do, there can be no
payment unless the obligation has been completely
rendered.50
It is notable that the confusion on the amounts of
compensation arose from the parties’ inability to agree
on the fees that respondents should receive.
Considering the absence of an agreement, and in view
of respondents’ constructive fulfillment of their obligation,
the Court has to apply the principle of quantum meruit in
determining how much was still due and owing to
respondents. Under the principle of quantum meruit, a
contractor is allowed to recover the reasonable value of
the services rendered despite the lack of a written
contract.51 The measure of recovery under the principle
should relate to the reasonable value of the services
performed.52 The principle prevents undue enrichment
based on the equitable postulate that it is unjust for a
person to retain any benefit without paying for it. Being
predicated on equity, the principle should only be applied
if no express contract was entered into, and no specific
statutory provision was applicable.53
Under the established circumstances, we deem the total
amount of ₱200,000.00 to be reasonable compensation
for respondents’ services under the principle of quantum
meruit.
Finally, we sustain IHC’s position that the grant of
attorney’s fees lacked factual or legal basis. Attorney’s
fees are not awarded every time a party prevails in a suit
because of the policy that no premium should be placed
on the right to litigate. There should be factual or legal
support in the records before the award of such fees is
sustained. It is not enough justification for the award
simply because respondents were compelled to protect
their rights.54
ACCORDINGLY, the Court DENIES the petition for
review on certiorari; and AFFIRMS the decision of the
Court of Appeals promulgated on November 8, 2002 in
C.A.-G.R. No. 47094 subject to the MODIFICATIONS
that: (a) International Hotel Corporation is ordered to.
pay Francisco G. Joaquin, Jr. and Rafael Suarez
₱100,000.00 each as compensation for their services,
and (b) the award of ₱20,000.00 as attorney's fees is
deleted.
No costs of suit.
SO ORDERED
NATIONAL DEVELOPMENT CORPORATION VS STA
INES MELAIE FOREST PRODUCTS
LEONEN, J.:
A condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfilment and a debtor loses the
right to make use of the period when a condition is
violated, making the obligation immediately
demandable.1
This resolves the consolidated Petitions for Review filed
by the Development Bank of the Philippines (DBP)2 and
the National Development Corporation (NDC)3 assailing
the Court of Appeals Decision4 dated March 24, 2010
and Court of Appeals Resolution5 dated July 21, 2010,
which affirmed with modifications the Decision6 dated
September 16, 2003 of Branch 137, Regional Trial Court
of Makati City.7
Sometime in 1977, National Galleon Shipping
Corporation (Galleon), "formerly known as Galleon
Shipping Corporation, was organized to operate a liner
service between the Philippines and its ... trading
partners."8 Galleon's major stockholders were
respondents Sta. Ines Melale Forest Products
Corporation (Sta. Ines), Cuenca Investment Corporation
(Cuenca Investment), Universal Holdings Corporation
(Universal Holdings), Galleon's President Rodolfo M.
Cuenca (Cuenca), Manuel I. Tinio (Tinio), and the
Philippine National Construction Corporation (PNCC).9
Galleon experienced financial difficulties and had to take
out several loans from different sources such as foreign
financial institutions, its shareholders (Sta. Ines, Cuenca
Investment, Universal Holdings, Cuenca, and Tinio), and
other entities "with whom it had ongoing commercial
relationships."10
DBP guaranteed Galleon's foreign loans.11 In return,
Galleon and its stockholders Sta. Ines, Cuenca
Investment, Universal Holdings, Cuenca, and Tinio,
executed a Deed of Undertaking12 on October 10, 1979
and obligated themselves to guarantee DBP's potential
liabilities.13
To secure DBP's guarantee, Galleon undertook to
secure a first mortgage on its five new vessels and two
second-hand vessels.14 However, despite the loans
extended to it, "[Galleon's] financial condition did not
improve."15
Cuenca, as Galleon's president, wrote to the members
of the Cabinet Standing Committee "for the
consideration of a policy decision to support a liner
service."16 Cuenca also wrote then President Ferdinand
Marcos and asked for assistance.17
On July 21, 1981, President Marcos issued Letter of
Instructions No. 115518 addressed to the NDC, DBP, and
the Maritime Industry Authority. Letter of Instructions No.
1155 reads:
TO : Development Bank of the Philippines
National Development Company
Maritime Industry Authority
DIRECTING A REHABILITATION PLAN FOR
GALLEON SHIPPING CORPORATION
WHEREAS, Galleon Shipping Corporation is presently in
a distressed state in view of the unfavorable
developments in the liner shipping business;
WHEREAS, the exposure of the Philippine government
financial institutions is substantial;
WHEREAS, it is a policy of government to provide a
reliable liner service between the Philippines and its
major trading partners;
WHEREAS, it is a policy to have a Philippine national
flag liner service to compete with other heavily
subsidized national shipping companies of other
countries;
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, do hereby direct the
following:
1. NDC shall acquire 100% of the shareholdings
of Galleon Shipping Corporation from its present
owners for the amount of P46. 7 million which is
the amount originally contributed by the present
shareholders, payable after five years with no
interest cost.
2. NDC to immediately infuse P30 million into
Galleon Shipping Corporation in lieu of its
previously approved subscription to Philippine
National Lines. In addition, NDC is to provide
additional equity to Galleon as may be required.
3. DBP to advance for a period of three years
from date hereof both the principal and the
interest on Galleon's obligations falling due and
to convert such advances into 12% preferred
shares in Galleon Shipping Corporation.
4. DBP and NDC to negotiate a restructuring of
loans extended by foreign creditors of
Galleon.1avvphi1
5. MARINA to provide assistance to Galleon by
mandating a rational liner shipping schedule
considering existing freight volume and to
immediately negotiate a bilateral agreement with
the United States in accordance with UNCTAD
resolutions.
These instructions are to take effect immediately.19
On August 10, 1981,20 pursuant to Letter of Instructions
No. 1155, Galleon's stockholders, represented by
Cuenca, and NDC, through its then Chairman of the
Board of Directors, Roberto V. Ongpin (Ongpin) entered
into a Memorandum of Agreement,21 where NDC and
Galleon undertook to prepare and sign a share purchase
agreement covering 100% of Galleon's equity for
₱46,740,755.00.22 The purchase price was to be paid
after five years from the execution of the share purchase
agreement.23 The share purchase agreement also
provided for the release of Sta. Ines, Cuenca, Tinio and
Construction Development Corporation of the Philippines
from the personal counter-guarantees they issued in
DBP's favor under the Deed of Undertaking.24
The Memorandum of Agreement reads:
KNOW ALL MEN BY THESE PRESENTS:
This Memorandum of Agreement made and entered into
this __ day of August, 1981, at Makati, Metro Manila,
Philippines, by and between the stockholders of Galleon
Shipping Corporation listed in Annex A hereof,
represented herein by their duly authorized attorney-in-
fact, Mr. Rodolfo M. Cuenca (hereinafter called "Sellers")
and National Development Company, represented
herein by its Chairman of the Board, Hon. Minister
Roberto V. Ongpin (hereinafter called "Buyer").
WITNESSETH: That-
WHEREAS, Sellers and Buyer desire to implement
immediately Letter of Instructions No. 1155, dated July
21, 1981, which directs that Buyer acquire 100% of the
shareholdings of Galleon Shipping Corporation ("GSC")
from Sellers who are the present owners.
WHEREAS, Sellers have consented to allow Buyer to
assume actual control over the management and
operations of GSC prior to the execution of a formal
share purchase agreement and the transfer of all the
shareholdings of Sellers to Buyer.
NOW, THEREFORE, the parties agree as follows:
1. Within seven (7) days after the signing hereof,
Sellers shall take all steps necessary to cause
five (5) persons designated by Buyer to be
elected directors of GSC, it being understood
that Sellers shall retain the remaining two (2)
seats in the GSC board subject to the condition
hereafter stated in clause 7(b ).
2. The new board to be created pursuant to
clause 1 above shall elect Antonio L. Carpio as
Chairman and Chief Executive Officer and
Rodolfo M. Cuenca as President. All other
officers will be nominated and appointed by
Buyer.
3. As soon as possible, but not more than 60
days after the signing hereof, the parties shall
endeavor to prepare and sign a share purchase
agreement covering 100% of the shareholdings
of Sellers in GSC to be transferred to Buyer, i.e.
10,000,000 fully paid common shares of the par
value of ₱l.00 per share and subscription of an
additional 100,000,000 common shares of the
par value of ₱l.00 per share of which
₱36,740,755.00 has been paid, but not yet
issued.
4. Sellers hereby warrant that ₱46,740,755[.00]
had been actually paid to Galleon Shipping
Corporation, which amount represents payment
of Sellers for 46,740,755 common shares of said
Corporation. This warranty shall be verified by
Buyer, the results of which will determine the
final purchase price to be paid to Sellers.
The purchase price directed by LOI 1155 to be
paid to Sellers shall be paid after five (5) years
from date of the share purchase agreement with
no interest cost to buyer.
5. As security for the payment of the
aforementioned purchase price, Buyer shall
issue to each of the GSC stockholders listed in
Annex A a negotiable promissory note in the
amount corresponding to the respective paid-up
capital in GSC of each of such stockholders and
with maturity on the date of the fifth annual
anniversary of the share purchase agreement.
6. Notwithstanding the provisions of clauses 4
and 5 above, upon the signing of the share
purchase agreement, it is understood that
Sellers shall deliver to Buyer all the stock
certificates covering 10,000,000 common shares
of GSC, and duly and validly endorsed for
transfer, free from any and all liens and
encumbrances whatsoever. It is likewise
understood that Buyer shall at that time acquire
all the subscription rights to 100,000,000
common shares of which ₱36,740,755.00 has
been paid by Sellers, and shall assume the
obligation to pay the unpaid portion of such
subscription.
7. The stock purchase agreement to be
prepared and signed by the parties within sixty
(60) days from date hereof shall contain, among
other things:
(a) standard warranties of seller
including, but not limited to, warranties
pertaining to the accuracy of financial
and other statements of GSC;
disclosure of liabilities; payment of all
taxes, duties, licenses and fees; non-
encumbrance of corporate assets; valid
contracts with third parties, etc.
including an indemnity clause covering
any breach thereof.
(b) provisions that Buyer shall retain 2
representatives of Sellers in the board of
GSC only for as long as Sellers have
not been paid, or have not negotiated or
discounted any of the promissory notes
referred to in clause 5 above.
(c) provisions whereby Construction
Development Corporation of the
Philippines, Sta. Ines Melale Forest
Products Corporation, Mr. Rodolfo M.
 Cuenca and Mr. Manuel I. Tinio shall be
released from counter-guarantees they
have issued in favor of DBP and other
financial institutions in connection with
GSC's various credit accommodations.
(d) provisions for arbitration as a means
of settling disputes and differences of
opinion regarding the stock purchase
agreement.
8. Sellers hereby make a special warranty that:
(a) any and all liabilities and obligations
as disclosed in the financial statements
of Galleon Shipping Corporation are
valid, regular, normal and incurred in the
ordinary course of business of Galleon
Shipping Corporation, and Buyer will
verify this warranty and conduct an audit
of Galleon Shipping Corporation as of
March 31 and July 31, 1981; liabilities
that do not fall under the above
definition are to be for the account of the
Seller; and
(b) from July 31, 1981 to the date of the
election of Buyers' representatives to
the Board of GSC, GSC has not and
shall not enter into any contract and has
not and shall not incur any liability
except what is normal and usual in the
ordinary course of shipping business.
9. Valid and duly authorized liabilities of GSC
which are the subject of a meritorious lawsuit, or
which have been arranged and guaranteed by
Mr. Rodolfo M. Cuenca, may be considered by
Buyer for priority in the repayment of accounts,
provided that, upon review, the Buyer shall
determine these to be legitimate and were
validly incurred in the ordinary course of GSC's
principal business.
IN WITNESS HEREOF, the parties have signed this
Memorandum of Agreement this _ day of August 1981,
in Makati, Metro Manila.
STOCKHOLDERS OF
GALLEON SHIPPING CORPORATION
By:
(signed)
RODOLFO M. CUENCA
NATIONAL DEVELOPMENT COMPANY
By:
(signed)
ROBERTO V. ONGPIN25
Acting as Galleon's guarantor, DBP paid off Galleon's
debts to its foreign bank creditor and, on January 25,
1982, pursuant to the Deed of Undertaking, Galleon
executed a mortgage contract26 over seven of its vessels
in favor of DBP.
NDC took over Galleon's operations "even prior to the
signing of a share purchase agreement."27 However,
despite NDC's takeover, the share purchase agreement
was never formally executed.28
On February 10, 1982, or barely seven months from the
issuance of Letter of Instructions No. 1155, President
Marcos issued Letter of Instructions No. 1195,29 which
reads:
TO : Development Bank of the Philippines
National Development Company
RE : Galleon Shipping Corporation
WHEREAS, NDC has assumed management of
Galleon's operations pursuant to LOI No. 1155;
WHEREAS, the original terms under which Galleon
acquired or leased the vessels were such that Galleon
would be unable to pay from its cash flows the resulting
debt service burden;
WHEREAS, in such a situation the financial exposure of
the Government will continue to increase and therefore
the appropriate steps must be taken to limit and protect
the Government's exposure;
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, do hereby direct the
following:
1) The DBP and the NDC shall take immediate
steps, including foreclosure of Galleon vessels
and other assets, as may be deemed necessary
to limit and protect the Government's exposure;
2) NDC shall discharge such maritime liens as it
may deem necessary to allow the foreclosed
vessels to engage in the international shipping
business;
3) Any provision of LOI No. 1155 inconsistent
with this Letter of Instructions is hereby
rescinded.
These instructions are to take effect immediately.30
On April 22, 1985, respondents Sta. Ines, Cuenca, Tinio,
Cuenca Investment and Universal Holdings filed a
Complaint with Application for the Issuance of a
Temporary Restraining Order or Writ of Preliminary
Injunction.31 The Complaint was amended several times
to imp lead new parties and to include new
claims/counterclaims.32
In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings alleged that NDC,
"without paying a single centavo, took over the
complete, total, and absolute ownership, management,
control, and operation of defendant [Galleon] and all its
assets, even prior to the formality of signing a share
purchase agreement, which was held in abeyance
because the defendant NDC was verifying and
confirming the amounts paid by plaintiffs to Galleon, and
certain liabilities of Galleon to plaintiffs[.]"33
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings also alleged that NDC tried to delay
"the formal signing of the share purchase agreement in
order to interrupt the running of the 5-year period to pay
... the purchase of the shares in the amount of
₱46,740,755[.00] and the execution of the negotiable
promissory notes to secure payment[.]"34
As for DBP, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings claimed that "DBP
can no longer go after [them] for any deficiency
judgment [since] NDC had been subrogated [in their
place] as borrower[s], hence the Deed of Undertaking
between [Sta. Ines, Cuenca Investment, Universal
Holdings, Cuenca, and Tinio and DBP] had been
extinguished and novated[.]"35
Meanwhile, on December 8, 1986, Proclamation No. 50
created the Asset Privatization Trust.36 The Asset
Privatization Trust was tasked to "take title to and
possession of, conserve, provisionally manage and
dispose of, assets which have been identified for
privatization or disposition and transferred to the TI-List
for [that] purpose."37
Under Administrative Order No. 14 issued by then
President Corazon C. Aquino, certain assets of DBP,
which included Galleon's loan accounts, "were identified
for transfer to the National Government."38
On February 27, 1987, a Deed of Transfer was executed
providing for the transfer of the Galleon loan account
from DBP to the National Government.39 The Asset
Privatization Trust was "constituted as [the National
Government's] trustee over the transferred accounts and
assets[.]"40
On September 16, 2003, the Regional Trial Court upheld
the validity of Letter of Instructions No. 1155 and the
Memorandum of Agreement executed by NDC and
Galleon's stockholders, pursuant to Letter of Instructions
No. 1155.41
The Regional Trial Court also held that Letter of
Instructions No. 1195 did not supersede or impliedly
repeal Letter of Instructions No. 1155, and assuming that
it did impliedly repeal Letter of Instructions No. 1155, it
would be void and unconstitutional for violating the non-
impairment clause.42
As regards NDC's argument that Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings had
no basis to compel it to pay Galleon's shares of stocks
because no share purchase agreement was executed,
the Regional Trial Court held that the NDC was in
estoppel since it prevented the execution of the share
purchase agreement and had admitted to being
Galleon's owner.43
The Regional Trial Court also ruled that Sta. Ines,
Cuenca, Tinio, Cuenca Investment, and Universal
Holdings' liability to DBPunder the Deed of Undertaking
had been extinguished due to novation, with NDC
replacing them and PNCC as debtors.44 The dispositive
of the Regional Trial Court's Decision reads:
WHEREFORE, judgment is hereby rendered (1)
ordering defendants National Development Corporation
and National Galleon Shipping Corporation, jointly and
severally, to pay plaintiffs Sta. Ines Melale Forest
Products Corporation, Rodolfo M. Cuenca, Manuel I.
Tinio, Cuenca Investment Corporation and Universal
Holdings Corporation, the amounts of ₱15,150,000.00
and US$2.3 million, representing the amount of
advances made by plaintiffs in behalf of defendant
Galleon, plus legal interest at the rate of 6% per
annum from the date of filing of this case on 22 April
1985 up to full payment;
(2) ordering defendants National Development
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay plaintiffs Sta. Ines Melale
Forest Products Corporation, Rodolfo M. Cuenca,
Manuel I. Tinio, Cuenca Investment Corporation and
Universal Holdings Corporation, the amount of
₱46,740,755.00, representing the price of the shares of
stock of plaintiffs and defendant PNCC in defendant
Galleon, plus legal interest at the rate of 6% per
annum from the date of filing of this case on 22 April
1985 up to full payment;
(3) ordering defendants National Development
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay plaintiffs Sta. Ines Melale
Forest Products Corporation, Rodolfo M. Cuenca,
Manuel I. Tinio, Cuenca Investment Corporation and
Universal Holdings Corporation, attorney's fees
equivalent to 10% of the amount due; and costs of suit;
and
(4) ordering defendants National Development
Corporation, Development Bank of the Philippines and
National Galleon Shipping Corporation, jointly and
severally, to pay each plaintiff and defendant Philippine
National Construction Corporation, ₱10,000.00 as moral
damages; and ₱10,000.00 as exemplary damages.
SO ORDERED.45
On February 23, 2003, the Regional Trial Court issued
an Order46 partially reconsidering and modifying the
September 16, 2003 Decision by categorically declaring
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings free from liability under the mortgage
contract with DBP and the deficiency claim of
DBP.47 The Regional Trial Court also deleted the award
of US$2.3 million to Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings since they failed to
include the same in their fourth amended
complaint.48 The dispositive portion of the Regional Trial
Court Order, as amended, reads:
WHEREFORE, judgment is hereby rendered (1)
ordering defendants National Development Corporation
and National Galleon Shipping Corporation, jointly and
severally, to pay plaintiffs Sta. Ines Melale Forest
Products Corporation, Rodolfo M. Cuenca, Manuel I.
Tinio, Cuenca Investment Corporation and Universal
Holdings Corporation, the amount of ₱l5,150,000.00
representing the amount of advances made by plaintiffs
in behalf of defendant NGSC, plus legal interest at the
rate of 6% per annum from the date of filing of this case
on 22 April 1985 up to full payment;
(2) ordering defendants National Development
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay plaintiffs Sta. Ines Melale
Forest Products Corporation, Rodolfo M. Cuenca,
Manuel I. Tinio, Cuenca Investment Corporation and
Universal Holdings Corporation, the amount of
₱46,740,755.00, representing the price of the shares of
stock of plaintiffs and defendant PNCC in defendant
NGSC, plus legal interest at the rate of 6% per
annum from the date of filing of this case on 22 April
1985 up to full payment;
(3) ordering defendants National Development
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay plaintiffs Sta. Ines Melale
Forest Products Corporation, Rodolfo M. Cuenca,
Manuel I. Tinio, Cuenca Investment Corporation and
Universal Holdings Corporation, attorney's fees
equivalent to 10% of the amount due; and costs of suit;
(4) ordering defendants National Development
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay to each plaintiff and
defendant Philippine National Construction Corporation,
₱10,000.00 as moral damages; and ₱10,000.00 as
exemplary damages; and
(5) declaring plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio,
Cuenca Investment Corporation and Universal Holdings
Corporation and defendant Philippine National
Construction Corporation to be no longer liable to
defendants National Development Corporation,
Development Bank of the Philippines and Asset
Privatization Trust under the deed of undertaking,
pledge, mortgages, and other accessory contracts
between the parties; and consequently, permanently
enjoining defendant DBP or APT from filing a deficiency
claim against plaintiffs and defendant PNCC.
SO ORDERED.49
On March 9, 2004 and March 16, 2004, DBP and NDC
filed their respective notices of appeal to the Court of
Appeals.50
In its assailed Decision dated March 24, 2010, the Court
of Appeals upheld the Regional Trial Court's findings
that the Memorandum of Agreement between NDC and
Cuenca (representing Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings) was a perfected
contract, which bound the parties,51 thus:
Although the Supreme Court ruled in the Poliand case
that LOI No. 1155 is a mere administrative issuance and,
as such, cannot be a valid source of obligation, the
defendant-appellant NDC cannot escape its liabilities to
the plaintiffs-appellees considering that the
Memorandum of Agreement that it executed with the
plaintiffs-appellees created certain rights and obligations
between the parties which may be enforced by the
parties against each other. The situation in the Poliand
case is different because Poliand was not a party to the
Memorandum of Agreement.52
The Court of Appeals ruled that NDC is estopped from
claiming that there was no agreement between it and
Cuenca since the agreement had already been partially
executed after NDC took over the control and
management of Galleon.53
The Court of Appeals also rejected NDC's argument that
it should not be held liable for the payment of Galleon's
shares.54 The Court of Appeals held that NDC
"voluntarily prevented the execution of a share purchase
agreement when it reneged on its various obligations
under the Memorandum of Agreement."55
The Court of Appeals likewise affirmed the Regional
Trial Court's ruling that novation took place when NDC
agreed to be substituted in place of Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings in the
counter-guarantees they issued in favor of DBP.56
The Court of Appeals ruled that DBP was privy to the
Memorandum of Agreement between NDC and Sta.
Ines, Cuenca, Tinio, Cuenca Investment, and Universal
Holdings, since Ongpin was concurrently Governor of
DBP and chairman of the NDC Board at the time the
Memorandum of Agreement was signed.57
The Court of Appeals further held that DBPwas no
longer the real party-in-interest as the loan accounts of
Galleon were transferred to the Asset Privatization
Trust.58
The fallo of the Court of Appeals Decision reads:
WHEREFORE, in view of the foregoing premises, the
assailed Decision, as well as, assailed Order, appealed
from is hereby AFFIRMED with MODIFICATIONS such
that, as modified, the dispositive portion thereof shall
now read as follows:
"WHEREFORE, judgment is hereby rendered (1)
ordering defendants National Development Corporation
and National Galleon Shipping Corporation jointly and
severally, to pay plaintiffs Sta. Ines Melale Forest
Products Corporation, Rodolfo M. Cuenca, Manuel I.
Tinio, Cuenca Investment Corporation and Universal
Holdings Corporation, the amount of ₱15,150,000.00
representing the amount of advances made by plaintiffs
in behalf of defendant NGSC, plus interest at the rate of
twelve percent (12%) per annum from the date of filing of
this case on 22 April 1985 until instant Decision
becomes final and executory, thereafter the said amount
shall earn an interest at the rate of twelve (12%)
percent per annum from such finality until its satisfaction;
(2) ordering the defendants National Development
Corporation and National Galleon Shipping
[C]orporation, jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the
amount of ₱46,740,755.00, representing the price of the
shares of stock of plaintiffs and defendant PNCC in
defendant NGSC, plus interest at the rate of twelve
percent (12%) per annum from the date of filing of this
case on 22 April 1985 until instant Decision becomes
final and executory, thereafter the said amount shall
earn an interest at the rate of twelve percent (12%) per
annum from such finality until its satisfaction;
(3) ordering the defendants National Development
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay plaintiffs Sta. Ines Melale
Forest Products Corporation, Rodolfo M. Cuenca,
Manuel I. Tinio, Cuenca Investment Corporation and
Universal Holdings Corporation, attorney's fees
equivalent to 10% of the amount due; and costs of suit;
(4) ordering the defendants National Development
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay to each plaintiffs and
defendant Philippine National Construction Corporation,
₱10,000.00 as moral damages; and ₱10,000.00 as
exemplary damages; and
(5) declaring plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio,
Cuenca Investment Corporation and Universal Holdings
Corporation and defendant Philippine National
Construction Corporation to be no longer liable to
defendants National Development Corporation,
Development Bank of the Philippines and Asset
Privatization Trust under the deed of undertaking,
pledge, mortgages, and other accessory contracts
between the parties; and consequently, permanently
enjoining defendant DBP or APT from filing a deficiency
claim against plaintiffs and defendant PNCC.
SO ORDERED.59 (Emphasis and underscoring in the
original)
On September 16, 2010, NDC appealed the Court of
Appeals Decision to this Court. In its Petition for
Review,60NDC maintains that the Memorandum of
Agreement does not bind it, since Ongpin was not
equipped with authority from the NDC Board to sign the
Memorandum of Agreement on NDC's behalf.61 NDC
also denies that it took over the control and management
of Galleon or that it "prevented the execution of the
[s]hare [p]urchase [a]greement[.]"62
NDC asserts that even assuming that the Memorandum
of Agreement was binding, what was agreed upon was
that the parties shall execute a share purchase
agreement within a certain period of time.63 The
Memorandum of Agreement was only a preliminary
agreement between Cuenca and Ongpin for NDC's
"intended purchase of Galleon's equity[,] pursuant to
[Letter of Instructions No.] 1155."64 The Memorandum of
Agreement cannot "be considered as the executing
agreement or document for the purchase of the
shares."65
On September 13, 2010, DBP filed its Petition for
Review66 before this Court. DBP insisted that novation
did not take place because: (a) there was no second
binding contract designed to replace the Deed of
Undertaking; (b) it did not give its consent to the
substitution of debtors under the Memorandum of
Agreement; and (c) there was no agreement that
unequivocally declared novation by substitution of
debtors.67
The issues raised for the resolution of this Court are as
follows:
a) Whether the Memorandum of Agreement
obligates NDC to purchase Galleon's shares of
stocks and pay the advances made by
respondents in Galleon's favor;68
b) Whether the Memorandum of Agreement
novated the Deed of Undertaking executed
between DBP and respondents;69 and
c) Whether the computation of legal interest
should be at the rate of 6% per annum, instead
 of the 12% per annum pegged by the Court of
Appeals.70
I f) verify Galleon's special warranty on its
When the "terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control."71
Bautista v. Court of Appeals72 instructs that where the
language of a contract is plain and unambiguous, the
contract must be taken at its face value, thus:
The rule is that where the language of a contract is plain
and unambiguous, its meaning should be determined
without reference to extrinsic facts or aids. The intention
of the parties must be gathered from that language, and
from that language alone. Stated differently, where the
language of a written contract is clear and unambiguous,
the contract must be taken to mean that which, on its
face, it purports to mean, unless some good reason can
be assigned to show that the words used should be
understood in a different sense. Courts cannot make for
the parties better or more equitable agreements than
they themselves have been satisfied to make, or rewrite
contracts because they operate harshly or inequitably as
to one of the parties, or alter them for the benefit of one
party and to the detriment of the other, or by
construction, relieve one of the parties from terms which
he voluntarily consented to, or impose on him those
which he did not.73
It is not disputed that NDC and respondents Sta. Ines,
Cuenca, Tinio, Cuenca Investment, and Universal
Holdings executed a Memorandum of Agreement
pursuant to the directives of Letter of Instructions No.
1155.
Under the Memorandum of Agreement, NDC, as the
Buyer, undertook to:
a) implement Letter of Instructions No. 1155 and
acquire 100% of Galleon's shareholdings;
b) assume actual control over Galleon's
management and operations prior to the
execution of a formal share purchase agreement
and prior to the transfer to NDC of Galleon's
shareholdings;
c) designate five persons to sit in Galleon's
Board of Directors;
d) pay Galleon's stockholders the share
purchase price after five years from the date of
the share purchase agreement;
e) issue each Galleon stockholder a negotiable
promissory note with maturity on the date of the
fifth annual anniversary of the share purchase
agreement;
liabilities and obligations by conducting an audit;
and
g) consider for priority in the repayment of
accounts, Galleon's valid and duly authorized
liabilities which are the subject of meritorious
lawsuit or which have been arranged and
guaranteed by Cuenca. While respondents,
Galleon's stockholders, as the Sellers,
undertook to:
a) implement Letter of Instructions No. 1155 by
allowing NDC to purchase 100% of their
shareholdings;
b) consent for NDC to assume actual control
over Galleon's management and operations
prior to the execution of a formal share purchase
agreement and prior to the transfer to NDC of
Galleon's shareholdings;
c) elect NDC's designated five persons to
Galleon's Board of Directors;
d) warrant that ₱46,740,755.00 had been
actually paid to Galleon, representing payment
of 46,740,755 common shares to Galleon;
e) deliver to NDC, upon signing of the share
purchase agreement, 10,000,000 common
shares of Galleon, duly and validly endorsed for
transfer, free from any and all liens and
encumbrances whatsoever; and
f) make special warranties under clause 8.
As parties to the Memorandum of Agreement, NDC and
respondents jointly undertook to:
a) immediately implement Letter of Instructions
No. 1155;
b) endeavor to prepare and sign a share
purchase agreement covering 100% of Galleon's
shareholdings not more than 60 days after the
signing of the Memorandum of Agreement; and
c) incorporate the conditions listed down in
clause 7 in the share purchase agreement.
The law is categorical that "various stipulations of a
contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of
them taken jointly."74 Fernandez v. Court of
Appeals75further emphasizes that " [t]he important task
in contract interpretation is always the ascertainment of
the intention of the contracting parties and that task is of
course to be discharged by looking to the words they
used to project that intention in their contract, all the
words not just a particular word or two, and words in
context not words standing alone."76
The Court of Appeals found that the Memorandum of
Agreement between NDC and Galleon was a perfected
contract for NDC to purchase 100% of Galleon's
shareholdings. However, a careful reading of the
Memorandum of Agreement shows that what the parties
agreed to was the execution of a share purchase
agreement to effect the transfer of 100% of Galleon's
shareholdings to NDC, as seen in clause 3:
3. As soon as possible, but not more than 60 days after
the signing hereof, the parties shall endeavor to prepare
and sign a share purchase agreement covering 100% of
the shareholdings of Sellers in GSC to be transferred to
Buyer, i.e. 10,000,000 fully paid common shares of the
par value of ₱1.00 per share and subscription of an
additional 100,000,000 common shares of the par value
of ₱1.00 per share of which ₱36,740,755.00 has been
paid, but not yet issued.
The second paragraph of clause 4 likewise makes the
execution of a share purchase agreement a condition
before the purchase price can be paid to respondents,
since the payment of the purchase price becomes due
only after five years from the date of execution of the
share purchase agreement:
4. Sellers hereby warrant that ₱46,740,755[.00] had
been actually paid to Galleon Shipping Corporation,
which amount represents payment of Sellers for
46,740,755 common shares of said Corporation. This
warranty shall be verified by Buyer, the results of which
will determine the final purchase price to be paid to
Sellers.
The purchase price directed by LOI 1155 to be paid to
Sellers shall be paid after five (5) years from date of the
share purchase agreement with no interest cost to
buyer. (Emphasis supplied)
NDC asserts that the Memorandum of Agreement was
only a preliminary agreement between Galleon,
represented by Cuenca, and NDC, represented by
Ongpin, for the intended purchase of Galleon's equity
pursuant to Letter of Instructions No. 1155,77 thus:
It merely prescribed the manner, terms and conditions of
said purchase. In fact, the [Memorandum of Agreement]
provided for a time frame for the execution of the share
purchase agreement which is within sixty (60) days from
the signing thereof. By no means can it be considered as
the executing agreement or document for the purchase
of the shares.78
NDC's assertion that the Memorandum of Agreement
was merely a preliminary agreement that was separate
and distinct from the share purchase agreement, finds
support in clause 7 of the Memorandum of Agreement,
which lists down the terms and conditions to be included
in the share purchase agreement as follows:
7. The stock purchase agreement to be prepared and
signed by the parties within sixty (60) days from date
hereof shall contain, among other things:
(a) standard warranties of seller including, but not limited
to, warranties pertaining to the accuracy of financial and
other statements of GSC; disclosure of liabilities;
payment of all taxes, duties, licenses and fees; non-
encumbrance of corporate assets; valid contracts with
third parties, etc. including an indemnity clause covering
any breach thereof.
(b) provisions that Buyer shall retain 2 representatives of
Sellers in the board of GSC only for as long as Sellers
have not been paid, or have not negotiated or
discounted any of the promissory notes referred to in
clause 5 above.
(c) provisions whereby Construction Development
Corporation of the Philippines, Sta. Ines Melale Forest
Products Corporation, Mr. Rodolfo M. Cuenca and Mr.
Manuel I. Tinio shall be released from counter-
guarantees they have issued in favor of DBP and other
financial institutions in connection with GSC's various
credit accommodations.
(d) provisions for arbitration as a means of settling
disputes and differences of opinion regarding the stock
purchase agreement.
Under clause 7 of the Memorandum of Agreement, NDC
and respondents agreed to include in the still-to-be-
executed share purchase agreement, provisions on: (a)
standard warranties, including warranties on the
accuracy of Galleon's financials, disclosure of liabilities,
etc; (b) the retention of Galleon's representatives in
Galleon's board of directors prior to the payment of the
share purchase price; (c) the release of respondents
from the counter-guarantees they made in favor of DBP
and other financial institutions in connection with
Galleon's various credit accommodations; and (d)
arbitration as a means of settling disputes and
differences of opinion regarding the stock purchase
agreement.
Taking the provisions of the Memorandum of Agreement
as a whole, it is clear that while there was an intention to
follow the directives of Letter of Instructions No. 1155,
the transfer of shares from respondents to NDC was to
be effected only with the execution of the share
purchase agreement, the terms and conditions of which
were laid out in the Memorandum of Agreement.
NDC and the respondents undertook to prepare and sign
a share purchase agreement over 100% of respondents'
shares in Galleon not more than sixty days after the
signing of the Memorandum of Agreement:
3. As soon as possible, but not more than 60 days after
the signing hereof, the parties shall endeavor to prepare
and sign a share purchase agreement covering 100% of
the shareholdings of Sellers in GSC to be transferred to
Buyer, i.e. 10,000,000 fully paid common shares of the
par value of ₱1.00 per share and subscription of an
additional 100,000,000 common shares of the par value
of ₱1.00 per share of which ₱36,740,755.00 has been
paid, but not yet issued.
The execution of a share purchase agreement was a
condition precedent to the transfer of Galleon's shares to
NDC. However, the Court of Appeals found that the NDC
prevented its execution by deliberately delaying its
review of Galleon's financial accounts:
From the foregoing, it is evident that the period for the
payment of the purchase price is entirely dependent on
the execution of a share purchase agreement by the
parties. The evidence on record, however, show that
the defendant-appellant NDC itself voluntarily prevented
the execution of a share purchase agreement when it
reneged on its various obligations under the
Memorandum of Agreement. The evidence on record
show that the share purchase agreement was not
formally executed because then Minister Roberto
Ongpin claimed that the accounts of defendant Galleon
had to be reviewed and cleared up before the share
purchase agreement is signed. While defendant Galleon
made its financial records available to defendant-
appellant NDC for their review, the latter never made
any serious effort to review the financial accounts of the
defendant Galleon, hence, effectively preventing the
execution of the share purchase agreement.
Consequently, the condition for the running of the period
for the payment of the purchase price of the shares of
stocks in defendant Galleon by the defendant-appellant
NDC, i.e., the execution of the Share Purchase
Agreement, was deemed fulfilled as it was the
defendant-appellant NDC itself which prevented it from
happening. Under Article 1186 of the Civil Code, a
"condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfilment." This applies in the
instant case.79 (Emphasis supplied)
The Regional Trial Court likewise found that respondent
Cuenca, as Galleon's representative, initiated moves for
the preparation and execution of the share purchase
agreement and NDC's takeover of
Galleon.80 Nonetheless, despite Cuenca's efforts, the
share purchase agreement was never formally executed:
Assuming that the share purchase agreement was a
condition for the effectivity of the Memorandum of
Agreement (dated 10 August 1981 ), said condition is
deemed fulfilled by virtue of Art. 1186 of the Civil Code,
which provides that "the condition shall be deemed
fulfilled when the obligor voluntarily prevents its
fulfillment." Plaintiff Cuenca, as representative of the
former shareholders of defendant Galleon, in order to
clear up the accounts preparatory to the execution of the
share purchase agreement, created a team to prepare a
statement of defendant Galleon's outstanding accounts
which statement of account was intended to be included
as part of the annexes of the said share purchase
agreement. Another team with representatives from both
parties, that is, the former stockholders of defendant
Galleon and defendant NDC, had to be created for a
smoother turnover. However, despite said efforts done
by plaintiff Cuenca the share purchase agreement was
not formally executed.81 (Emphasis in the original)
NDC denies that it caused the delay in the execution of
the share purchase agreement and argues that it was
Cuenca who caused the delay for insisting on the
payment first of the advances made in Galleon's favor
before executing the share purchase agreement and
relinquishing control over Galleon.82
NDC's bare denials cannot succeed in light of the
preponderance of evidence submitted by respondents.
In his Affidavit83 dated June 17, 1999, Cuenca narrated
the preparations the Galleon stockholders undertook for
the execution of the share purchase agreement with
NDC:
168. Q: What happened to the share purchase
agreement referred to in the Memorandum of Agreement
dated August 1981 (Exhibit "J")?
A: The share purchase agreement was never drawn up
despite persistent attempts by myself to see it prepared
and executed. In fact, we continually negotiated with
NDC and DBP throughout 1982 and 1983 on the matter.
169. Q: Why was it never executed?
A: Minister Ongpin kept claiming that the accounts had
to be cleared up before any formal agreement could be
signed.
170. Q: What steps, if any, did the parties take to clear
up the accounts preparatory to the signing of the share
purchase agreement?
A: During the transition period, prior to the signing of the
share purchase agreement, I created a team to prepare
a statement of Galleon's outstanding accounts which we
intended to include as part of the annexes of the share
purchase agreement. Another team with representatives
from both parties, i.e., the former stockholders of
Galleon and NDC, had to be created for a smoother
turn-over. In short, we did all that was possible and
required of us under the Memorandum of
Agreement. We negotiated with NDC in good faith for
years but NDC kept stonewalling the execution of the
share purchase agreement.84 (Emphasis supplied)
On April 26, 1982, Antonio L. Carpio, NDC's General
Manager,85 sent Ongpin a Memorandum,86 where Carpio
acknowledged reviewing Galleon's outstanding accounts
submitted by Cuenca.87 This supports Cuenca's
statement that they submitted a statement of Galleon's
outstanding accounts for NDC's review, as per Ongpin's
request, a fact not denied by NDC.
Upon receiving Galleon's outstanding accounts, NDC
and Sta. Ines, Cuenca, Tinio, Cuenca Investment and
Universal Holdings should have initiated the execution of
the share purchase agreement. However, the share
purchase agreement was never executed, through no
fault of Galleon's stockholders.
In clause 4 of the Memorandum of Agreement, NDC as
the buyer was to verify the warranty of the Galleon
shareholders that ₱46,740,755.00 was paid for
Ga1leon's 46,740,755 common shares with par value of
₱1.00 per share. The results of the verification would
have determined the final purchase price to be paid to
the Galleon shareholders. Nonetheless, despite the
verification still to be done, both parties agreed to
execute the share purchase agreement as soon as
possible but not more than sixty days from the signing of
the Memorandum of Agreement.
We uphold the Court of Appeals' finding that the failure
to execute the share purchase agreement was brought
about by NDC's delay in reviewing the financial accounts
submitted by Galleon's stockholders. The Memorandum
of Agreement was executed on August 10, 1981, giving
the parties no more than sixty days or up to October 9,
1981, to prepare and sign the share purchase
agreement. However, it was only on April 26, 1982, or
more than eight months after the Memorandum of
Agreement was signed, did NDC's General Director
submit his recommendation on Galleon's outstanding
account. Even then, there was no clear intention to
execute a share purchase agreement as compliance
with the Memorandum of Agreement. Article 1186 of the
Civil Code is categorical that a "condition shall be
deemed fulfilled when the obligor voluntarily prevents its
fulfilment." Considering NDC's delay, the execution of
the share purchase agreement should be considered
fulfilled with NDC as the new owner of 100% of
Galleon's shares of stocks.
The due execution of the share purchase agreement is
further bolstered by Article 1198(4) of the Civil Code,
which states that the debtor loses the right to make use
of the period when a condition is violated, making the
obligation immediately demandable:
Article 1198. The debtor shall lose every right to make
use of the period:
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised;
(3) When by his own acts he has impaired said
guaranties or securities after their establishment, and
when through a fortuitous event they disappear, unless
he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond. (Emphasis
supplied)
Well-settled is the rule that findings of fact made by a
trial court and the Court of Appeals are accorded the
highest degree of respect by this Court, and, absent a
clear disregard of the evidence before it that can
otherwise affect the results of the case, those findings
should not be ignored.88
II
The Regional Trial Court found that the advances made
by respondents in Galleon's behalf covered legitimate
expenses in the ordinary course of business,89 making
NDC liable under clause 9 of the Memorandum of
Agreement, which states:
9. Valid and duly authorized liabilities of GSC which are
the subject of a meritorious lawsuit, or which have been
arranged and guaranteed by Mr. Rodolfo M. Cuenca,
may be considered by Buyer for priority in the repayment
of accounts, provided that, upon review, the Buyer shall
determine these to be legitimate and were validly
incurred in the ordinary course of GSC's principal
business.
NDC's liability for the advances made in Galleon's behalf
was upheld by the Court of Appeals, which held that the
advances made were valid and authorized liabilities
incurred by Galleon in the course of its business, thus:
In the instant case, the advances being claimed by
[respondents] are in the nature of guarantee fees in
consideration for the personal undertakings of the
[respondents] to secure the potential liabilities of
defendant-appellant DBP in favor of defendant Galleon's
foreign creditors, advances to cover payments of
interest, security and management fees arising out of a
mortgage contract, charter line payments, bare boat hire
payments, fuel and ship franchise payments, salaries
and wages and advertising expenses[. ]90
Ordinary and necessary business expenses are those
that are "directly attributable to, the development,
management, operation and/or conduct of the trade,
business or exercise of a profession[.]"91
In Carpio's Memorandum to Ongpin dated April 26,
1982, he recommended that the guarantee fees being
claimed by Galleon's stockholders should not be paid.
Carpio also questioned the ₱1,400,000.00 interest being
charged by Sta. Ines from the ₱6,650,000.00 cash
advances it made in Galleon's behalf. Carpio likewise
questioned the charge of ₱600,000.00 being claimed as
Galleon's share for the Construction Development
Corporation of the Philippine's basketball team with the
Philippine Basketball Association.92
We see no reason to disturb the findings of fact made by
the trial court and the Court of Appeals considering that
the same are duly supported by substantial evidence.
III
Novation is a mode of extinguishing an obligation by
"[c]hanging [its] object or principal conditions[,]
[s]ubstituting the person of the debtor [or] [s]ubrogating a
third person in the rights of the creditor."93 While
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, [it must be
with] the consent of the creditor."94
Testate Estate of Mota v. Serra95 instructs that for
novation to have legal effect, the creditor must expressly
consent to the substitution of the new debtor:
It should be noted that in order to give novation its legal
effect, the law requires that the creditor should consent
to the substitution of a new debtor. This consent must be
given expressly for the reason that, since novation
extinguishes the personality of the first debtor who is to
be substituted by new one, it implies on the part of the
creditor a waiver of the right that he had before the
novation, which waiver must be express under the
principle that renuntiatio non prcesumitur, recognized by
the law in declaring that a waiver of right may not be
performed unless the will to waive is indisputably shown
by him who holds the right.96 (Emphasis supplied)
The Court of Appeals erred when it ruled that DBP was
privy to the Memorandum of Agreement since Ongpin
was concurrently Governor of DBP and chairman of
NDC Board of Directors at the time the Memorandum of
Agreement was signed.97
The general rule is that, "[i]n the absence of an authority
from the board of directors, no person, not even the
officers of the corporation, can validly bind the
corporation."98 A corporation is a juridical person,
separate and distinct from its stockholders and
members, having "powers, attributes and properties
expressly authorized by law or incident to its
existence."99
Section 23100 of the Corporation Code provides that "the
corporate powers of all corporations ... shall be
exercised, all business conducted and all property of
such corporations [shall] be controlled and held by the
board of directors[.]"
Peoples Aircargo and Warehousing Co. Inc. v. Court of
Appeals101 explains that under Section 23 of the
Corporation Code, the power and responsibility to bind a
corporation can be delegated to its officers, committees,
or agents. Such delegated authority is derived from law,
corporate bylaws, or authorization from the board:
Under this provision, the power and the responsibility to
decide whether the corporation should enter into a
contract that will bind the corporation is lodged in the
board, subject to the articles of incorporation, bylaws, or
relevant provisions of law. However, just as a natural
person may authorize another to do certain acts for and
on his behalf, the board of directors may validly delegate
some of its functions and powers to officers, committees
or agents. The authority of such individuals to bind the
corporation is generally derived from law, corporate
bylaws or authorization from the board, either expressly
or impliedly by habit, custom or acquiescence in the
general course of business, viz.:
"A corporate officer or agent may represent and bind the
corporation in transactions with third persons to the
extent that [the] authority to do so has been conferred
upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the
usual course of the particular business, are incidental to,
or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and
such apparent powers as the corporation has caused
persons dealing with the officer or agent to believe that it
has conferred."102 (Emphasis supplied)
Aside from Ongpin being the concurrent head of DBP
and NDC at the time the Memorandum of Agreement
was executed, there was no proof presented that Ongpin
was duly authorized by the DBP to give consent to the
substitution by NDC as a co-guarantor of Galleon's
debts. Ongpin is not DBP, therefore, it is wrong to
assume that DBP impliedly gave its consent to the
substitution simply by virtue of the personality of its
Governor.
Novation is never presumed. The animus
novandi, whether partial or total, "must appear by
express agreement of the parties, or by their acts which
are too clear and unequivocal to be mistaken."103
There was no such animus novandi in the case at bar
between DBP and respondents, thus, respondents have
not been discharged as Galleon's co-guarantors under
the Deed of Undertaking and they remain liable to DBP.
IV
On the issue of attorney's fees and moral and exemplary
damages awarded to Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings, the Court of
Appeals upheld the findings of the Regional Trial Court
for being just, reasonable, and supported by the
evidence on record.104
We see no reason to disturb the findings of the lower
courts.
However, on the issue of compensatory interest as
damages, where the Regional Trial Court imposed an
interest rate of six percent (6%) per annum on the
advances made and the payment due for the shares of
stock,105 the Court of Appeals modified the Regional
Trial Court's ruling insofar as the interest rate to be
imposed was concemed.106The Court of Appeals ruled
that the advances made by Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings and the
payment due them for the Galleon shares of stocks were
loans or forbearances of money that should earn interest
of 12% from the date the case was filed.107 Furthermore,
the Court of Appeals held that these amounts should
likewise earn an additional 12% interest per annum from
finality until its satisfaction.108
Estores v. Spouses Supangan109 defined forbearance as
an arrangement other than a loan where a person
agrees to the temporary use of his money, goods, or
credits subject to the fulfilment of certain conditions.110
In this case, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings advanced money in
Galleon's favor and agreed to turn over management
and control of Galleon to NDC even before receiving
payment for their shares of stocks. They were deprived
of the use of their money in both cases for the periods
pending fulfillment of the agreed conditions. When those
conditions were not met, they became entitled not only
to the return of their advances and payment of their
shares of stocks, but also to the compensation for the
use of their money and property. The unwarranted
withholding of the money, which rightfully pertains to Sta.
Ines, Cuenca, Tinio, Cuenca Investment, and Universal
Holdings, amounts to forbearance of money.
Sunga-Chan v. Court of Appeals,111 citing Eastern
Shipping Lines, Inc. v. Court of Appeals,112 reiterated the
rule on application of interest:
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."
Otherwise formulated, the norm to be followed in the
future on the rates and application thereof is:
I. When an obligation, regardless of its source, is
breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.
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 breached 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.
....
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.113 (Emphasis supplied, citations omitted)
On May 16, 2013, the Monetary Board of the Bangko
Sentral ng Pilipinas issued Resolution No. 796, which
revised the interest rate to be imposed for the loan or
forbearance of any money, goods, or credits. This was
implemented by Bangko Sentral ng Pilipinas Circular No.
799,114 Series of 2013, which reads:
The Monetary Board, in its Resolution No. 796 dated 16
May 2013, approved the following revisions governing
the rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No.
905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance
of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to
such rate of interest, shall be six percent (6%) per
annum.
Section 2. In view of the above, Subsection X305.l of the
Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P. l of the Manual of Regulations for
Non-Bank Financial Institutions are hereby amended
accordingly.
This Circular shall take effect on 1 July 2013.
Nacar v. Gallery Frames, et al.115 then modified the
guidelines laid down in Eastern Shipping Lines to
embody Bangko Sentral ng Pilipinas Circular No. 799,
thus:
I. When an obligation, regardless of its source, i.e., law,
contracts, quasicontracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.
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 6% 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 6% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have
become final and executory prior to July 1, 2013, shall
not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.116
Applying these guidelines, the Court of Appeals' ruling
must be modified to reflect the ruling in Nacar. The
award of the advances made by Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings in
Galleon's favor and payment for their shares of stocks in
Galleon shall earn an interest rate of l 2% per
annum from the date of filing of this case on April 22,
1985117 until June 30, 2013. After June 30, 2013, these
amounts shall earn interest at six percent (6%) per
annum until the Decision becomes final and executory.
An interest of six percent (6%) per annumshall be
imposed on such amounts from the finality of the
Decision until its satisfaction.
Finally, DBP's claims for damages are denied since it
failed to support its claims of malicious prosecution and
a deliberate act of Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings to cause loss or
injury to DBP.
WHEREFORE, the March 24, 2010 Decision and July
21, 2010 Resolution of the Court of Appeals in CA-G.R.
CV No. 85385 are AFFIRMED with the
following MODIFICATIONS:
(1) Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I.
Tinio, Cuenca Investment Corporation, Universal
Holdings Corporation, and the Philippine
National Construction Corporation are
declared LIABLE to the National Development
Corporation, the Development Bank of the
Philippines, and the Asset Privatization Trust
under the deed of undertaking, pledge,
mortgages, and other accessory contracts
among the parties; and
(2) The award of the advances made by Sta.
Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel L. Tinio, Cuenca
Investment Corporation, and Universal Holdings
Corporation in Galleon's favour, as well as the
award of the payment for their shares of stocks
in Galleon, shall earn an interest rate of 12% per
annum from the date of the filing of this case on
April 22, 1985 until June 30, 2013, after which,
they shall earn interest at the rate of 6% per
annum until the Decision becomes final and
executory.
These amounts shall earn interest at the rate of 6% per
annum from the finality of this Decision until its
satisfaction.
SO ORDERED. (e) TCT No. T-7014 x x x in the name of
Edmundo Lim;
LIM VS DBP
(f) TCT No. T-7016 x x x in the name of Carlito
Lim;

DEL CASTILLO, J.: (g) TCT No. T-28922 x x x in the name of

Consolacion Lim;
"While the law recognizes the right of a bank to foreclose
a mortgage upon the mortgagor’s failure to pay his (h) TCT No. T-29480 x x x in the name of Shirley
obligation, it is imperative that such right be exercised Leodadia Dizon;
according to its clear mandate. Each and every
requirement of the law must be complied with, lest, the (i) TCT No. T-24654 x x x in the name of
valid exercise of the right would end."1 Trinidad D. Chua; and

This Petition for Review on Certiorari2 under Rule 45 of
the Rules of Court assails the February 22, 2007
Decision3of the Court of Appeals (CA) in CA-G.R. CV
No. 59275.
Factual Antecedents
On November 24, 1969, petitioners Carlos, Consolacion,
and Carlito, all surnamed Lim, obtained a loan of
₱40,000.00 (Lim Account) from respondent
Development Bank of the Philippines (DBP) to finance
their cattle raising business.4 On the same day, they
executed a Promissory Note5 undertaking to pay the
annual amortization with an interest rate of 9% per
annum and penalty charge of 11% per annum.
On December 30, 1970, petitioners Carlos, Consolacion,
Carlito, and Edmundo, all surnamed Lim; Shirley
Leodadia Dizon, Arleen Lim Fernandez, Juan S.
Chua,6 and Trinidad D. Chua7 obtained another loan
from DBP8 in the amount of ₱960,000.00 (Diamond L
Ranch Account).9 They also executed a Promissory
Note,10 promising to pay the loan annually from August
22, 1973 until August 22, 1982 with an interest rate of
12% per annum and a penalty charge of 1/3% per month
on the overdue amortization.
(j) TCT No. T-25018 x x x in the name of
Trinidad D. Chua’s deceased husband Juan
Chua.12
Due to violent confrontations between government
troops and Muslim rebels in Mindanao from 1972 to
1977, petitioners were forced to abandon their cattle
ranch.13 As a result, their business collapsed and they
failed to pay the loan amortizations.14
In 1978, petitioners made a partial payment in the
amount of ₱902,800.00,15 leaving an outstanding loan
balance of ₱610,498.30, inclusive of charges and unpaid
interest, as of September 30, 1978.16
In 1989, petitioners, represented by Edmundo Lim
(Edmundo), requested from DBP Statements of Account
for the "Lim Account" and the "Diamond L Ranch
Account."17 Quoted below are the computations in the
Statements of Account, as of January 31, 1989 which
were stamped with the words "Errors & Omissions
Excepted/Subject to Audit:"
1âwphi1
Diamond L Ranch Account:

To secure the loans, petitioners executed a Matured [Obligation]:

Mortgage11 in favor of DBP over real properties covered Principal P 939,973.33
by the following titles registered in the Registry of Deeds
for the Province of South Cotabato: Regular Interest 561,037.14

(a) TCT No. T-6005 x x x in the name of Advances 34,589.45

Edmundo Lim;
Additional Interest 2,590,786.26
(b) TCT No. T-6182 x x x in the name of Carlos Penalty Charges 1,068,147.19
Lim;
Total claims as of January P 18
(c) TCT No. T-7013 x x x in the name of Carlos 31, 1989 5,194,533.37
Lim; Lim Account:

(d) TCT No. T-7012 x x x in the name of Carlos Matured [Obligation]:

Lim;
Principal P 40,000.00
 Regular Interest 5,046.97
Additional Interest 92,113.56
Penalty Charges 39,915.46
Total claims as of January
P 177,075.99 19
31, 1989
Claiming to have already paid ₱902,800.00, Edmundo
requested for an amended statement of account.20
On May 4, 1990, Edmundo made a follow-up on the
request for recomputation of the two accounts.21 On May
17, 1990, DBP’s General Santos Branch informed
Edmundo that the Diamond L Ranch Account amounted
to ₱2,542,285.60 as of May 31, 199022 and that the
mortgaged properties located at San Isidro, Lagao,
General Santos City, had been subjected to Operation
Land Transfer under the Comprehensive Agrarian
Reform Program (CARP) of the government.23 Edmundo
was also advised to discuss with the Department of
Agrarian Reform (DAR) and the Main Office of DBP24 the
matter of the expropriated properties.
Edmundo asked DBP how the mortgaged properties
were ceded by DAR to other persons without their
knowledge.25 No reply was made.26
On April 30, 1991, Edmundo again signified petitioners’
intention to settle the Diamond L Ranch
Account.27 Again, no reply was made.28
On February 21, 1992, Edmundo received a Notice of
Foreclosure scheduled the following day.29 To stop the
foreclosure, he was advised by the bank’s Chief Legal
Counsel to pay an interest covering a 60-days period or
the amount of ₱60,000.00 to postpone the foreclosure
for 60 days.30 He was also advised to submit a written
proposal for the settlement of the loan accounts.31
In a letter32 dated March 20, 1992, Edmundo proposed
the settlement of the accounts through dacion en pago,
with the balance to be paid in equal quarterly payments
over five years.
In a reply-letter33 dated May 29, 1992, DBP rejected the
proposal and informed Edmundo that unless the
accounts are fully settled as soon as possible, the bank
will pursue foreclosure proceedings.
DBP then sent Edmundo the Statements of Account34 as
of June 15, 1992 which were stamped with the words
"Errors & Omissions Excepted/Subject to Audit"
indicating the following amounts: (1) Diamond L Ranch:
₱7,210,990.27 and (2) Lim Account: ₱187,494.40.
On June 11, 1992, Edmundo proposed to pay the
principal and the regular interest of the loans in 36 equal
monthly installments.35
On July 3, 1992, DBP advised Edmundo to coordinate
with Branch Head Bonifacio Tamayo, Jr.
(Tamayo).36 Tamayo promised to review the accounts. 37
On September 21, 1992, Edmundo received another
Notice from the Sheriff that the mortgaged properties
would be auctioned on November 22, 1992.38 Edmundo
again paid ₱30,000.00 as additional interest to postpone
the auction.39 But despite payment of ₱30,000.00, the
mortgaged properties were still auctioned with DBP
emerging as the highest bidder in the amount of
₱1,086,867.26.40 The auction sale, however, was later
withdrawn by DBP for lack of jurisdiction.41
Thereafter, Tamayo informed Edmundo of the bank’s
new guidelines for the settlement of outstanding loan
accounts under Board Resolution No. 0290-92.42 Based
on these guidelines, petitioners’ outstanding loan
obligation was computed at ₱3,500,000.00
plus.43 Tamayo then proposed that petitioners pay 10%
downpayment and the remaining balance in 36 monthly
installments.44 He also informed Edmundo that the bank
would immediately prepare the Restructuring Agreement
upon receipt of the downpayment and that the conditions
for the settlement have been "pre-cleared" with the
bank’s Regional Credit Committee.45 Thus, Edmundo
wrote a letter46 on October 30, 1992 manifesting
petitioners’ assent to the proposal.
On November 20, 1992, Tamayo informed Edmundo
that the proposal was accepted with some minor
adjustments and that an initial payment should be made
by November 27, 1992.47
On December 15, 1992, Edmundo paid the
downpayment of ₱362,271.7548 and was asked to wait
for the draft Restructuring Agreement.49
However, on March 16, 1993, Edmundo received a
letter50 from Tamayo informing him that the Regional
Credit Committee rejected the proposed Restructuring
Agreement; that it required downpayment of 50% of the
total obligation; that the remaining balance should be
paid within one year; that the interest rate should be non
prime or 18.5%, whichever is higher; and that the
proposal is effective only for 90 days from March 5, 1993
to June 2, 1993.51
Edmundo, in a letter52 dated May 28, 1993, asked for the
restoration of their previous agreement.53 On June 5,
1993, the bank replied,54 viz:
This has reference to your letter dated May 28, 1993,
which has connection to your desire to restructure the
Diamond L Ranch/Carlos Lim Accounts.
We wish to clarify that what have been agreed between
you and the Branch are not final until [the] same has
been approved by higher authorities of the Bank. We did
[tell] you during our discussion that we will be
recommending the restructuring of your accounts with
the terms and conditions as agreed. Unfortunately, our
Regional Credit Committee did not agree to the terms
and conditions as recommended, hence, the subject of
our letter to you on March 15, 1993.
Please be informed further, that the Branch cannot do
otherwise but to comply with the conditions imposed by
the Regional Credit Committee. More so, the time frame
given had already lapsed on June 2, 1993.
Unless we will receive a favorable action on your part
soonest, the Branch will be constrained to do
appropriate action to protect the interest of the Bank."55
On July 28, 1993, Edmundo wrote a letter56 of appeal to
the Regional Credit Committee.
In a letter57 dated August 16, 1993, Tamayo informed
Edmundo that the previous Restructuring Agreement
was reconsidered and approved by the Regional Credit
Committee subject to the following additional conditions,
to wit:
1) Submission of Board Resolution and
Secretary’s Certificate designating you as
authorized representative in behalf of Diamond L
Ranch;
2) Payment of March 15 and June 15, 1993
amortizations within 30 days from date hereof;
and
3) Submission of SEC registration.
In this connection, please call immediately x x x our
Legal Division to guide you for the early documentation
of your approved restructuring.
Likewise, please be reminded that upon failure on your
part to sign and perfect the documents and comply [with]
other conditions within (30) days from date of receipt,
your approved recommendation shall be deemed
CANCELLED and your deposit of ₱362,271.75 shall be
applied to your account.
No compliance was made by Edmundo.58
On September 21, 1993, Edmundo received Notice that
the mortgaged properties were scheduled to be
auctioned on that day.59 To stop the auction sale,
Edmundo asked for an extension until November 15,
199360 which was approved subject to additional
conditions:
Your request for extension is hereby granted with the
conditions that:
1) This will be the last and final extension to be
granted your accounts; and
2) That all amortizations due from March 1993 to
November 1993 shall be paid including the
additional interest computed at straight 18.5%
from date of your receipt of notice of approval,
viz:
xxxx
Failure on your part to comply with these conditions, the
Bank will undertake appropriate legal measures to
protect its interest.
Please give this matter your preferential attention.61
On November 8, 1993, Edmundo sent Tamayo a
telegram, which reads:
Acknowledge receipt of your Sept. 27 letter. I would like
to finalize documentation of restructuring Diamond L
Ranch and Carlos Lim Accounts. However, we would
need clarification on amortizations due on NTFI means
[sic]. I will call x x x your Legal Department at DBP Head
Office by Nov. 11. Pls. advise who[m] I should contact.
Thank you.62
Receiving no response, Edmundo scheduled a meeting
with Tamayo in Manila.63 During their meeting, Tamayo
told Edmundo that he would send the draft of the
Restructuring Agreement by courier on November 15,
1993 to the Main Office of DBP in Makati, and that
Diamond L Ranch need not submit the Board
Resolution, the Secretary’s Certificate, and the SEC
Registration since it is a single proprietorship.64
On November 24, 1993 and December 3, 1993,
Edmundo sent telegrams to Tamayo asking for the draft
of the Restructuring Agreement.65
On November 29, 1993, the documents were forwarded
to the Legal Services Department of DBP in Makati for
the parties’ signatures. At the same time, Edmundo was
required to pay the amount of ₱1,300,672.75, plus a
daily interest of ₱632.15 starting November 16, 1993 up
to the date of actual payment of the said amount.66
On December 19, 1993, Edmundo received the draft of
the Restructuring Agreement.67
In a letter68 dated January 6, 1994, Tamayo informed
Edmundo that the bank cancelled the Restructuring
Agreement due to his failure to comply with the
conditions within a reasonable time.
On January 10, 1994, DBP sent Edmundo a Final
Demand Letter asking that he pay the outstanding
amount of ₱6,404,412.92, as of November 16, 1993,
exclusive of interest and penalty charges.69
Edmundo, in a letter70 dated January 18, 1994,
explained that his lawyer was not able to review the
agreement due to the Christmas holidays. He also said
that his lawyer was requesting clarification on the
following points:
Can the existing obligations of the Mortgagors, if any, be
specified in the Restructuring Agreement already?
Is there a statement showing all the accrued interest and
advances that shall first be paid before the restructuring
shall be implemented?
Should Mr. Jun Sarenas Chua and his wife Mrs. Trinidad
Chua be required to sign as Mortgagors considering that
Mr. Chua is deceased and the pasture lease which he
used to hold has already expired?71
Edmundo also indicated that he was prepared to pay the
first quarterly amortization on March 15, 1994 based on
the total obligations of ₱3,260,445.71, as of December
15, 1992, plus interest.72
On January 28, 1994, Edmundo received from the bank
a telegram73 which reads:
We refer to your cattle ranch loan carried at our DBP
General Santos City Branch.
Please coordinate immediately with our Branch Head not
later than 29 January 1994, to forestall the impending
foreclosure action on your account.
Please give the matter your utmost attention.
The bank also answered Edmundo’s queries, viz:
In view of the extended leave of absence of AVP
Bonifacio A. Tamayo, Jr. due to the untimely demise of
his father, we regret [that] he cannot personally respond
to your letter of January 18, 1994. However, he gave us
the instruction to answer your letter on direct to the point
basis as follows:
- Yes to Items No. 1 and 2,
- No longer needed on Item No. 3
AVP Tamayo would like us also to convey to you to
hurry up with your move to settle the obligation, while the
foreclosure action is still pending with the legal division.
He is afraid you might miss your last chance to settle the
account of your parents.74
Edmundo then asked about the status of the
Restructuring Agreement as well as the computation of
the accrued interest and advances75 but the bank could
not provide any definite answer.76
On June 8, 1994, the Office of the Clerk of Court and Ex-
Officio Provincial Sheriff of the RTC of General Santos
City issued a Notice77 resetting the public auction sale of
the mortgaged properties on July 11, 1994. Said Notice
was published for three consecutive weeks in a
newspaper of general circulation in General Santos
City.78
On July 11, 1994, the Ex-Officio Sheriff conducted a
public auction sale of the mortgaged properties for the
satisfaction of petitioners’ total obligations in the amount
of ₱5,902,476.34. DBP was the highest bidder in the
amount of ₱3,310,176.55.79
On July 13, 1994, the Ex-Officio Sheriff issued the
Sheriff’s Certificate of Extra-Judicial Sale in favor of DBP
covering 11 parcels of land.80
In a letter81 dated September 16, 1994, DBP informed
Edmundo that their right of redemption over the
foreclosed properties would expire on July 28, 1995, to
wit:
This is to inform you that your right of redemption over
your former property/ies acquired by the Bank on July
13, 1994, thru Extra-Judicial Foreclosure under Act 3135
will lapse on July 28, 1995.
In view thereof, to entitle you of the maximum
condonable amount (Penal Clause, AI on Interest,
PC/Default Charges) allowed by the Bank, we are urging
you to exercise your right within six (6) months from the
date of auction sale on or before January 12, 1995.
Further, failure on your part to exercise your redemption
right by July 28, 1995 will constrain us to offer your
former property/ies in a public bidding.
Please give this matter your preferential attention. Thank
you.82
On July 28, 1995, petitioners filed before the RTC of
General Santos City, a Complaint83 against DBP for
Annulment of Foreclosure and Damages with Prayer for
Issuance of a Writ of Preliminary Injunction and/or
Temporary Restraining Order. Petitioners alleged that
DBP’s acts and omissions prevented them from fulfilling
their obligation; thus, they prayed that they be
discharged from their obligation and that the foreclosure
of the mortgaged properties be declared void. They
likewise prayed for actual damages for loss of business
opportunities, moral and exemplary damages, attorney’s
fees, and expenses of litigation.84
On same date, the RTC issued a Temporary Restraining
Order85 directing DBP to cease and desist from
consolidating the titles over petitioners’ foreclosed
properties and from disposing the same.
In an Order86 dated August 18, 1995, the RTC granted
the Writ of Preliminary Injunction and directed petitioners
to post a bond in the amount of ₱3,000,000.00.
DBP filed itsAnswer,87 arguing that petitioners have no
cause of action;88 that petitioners failed to pay their loan
obligation;89 that as mandated by Presidential Decree
No. 385, initial foreclosure proceedings were undertaken
in 1977 but were aborted because petitioners were able
to obtain a restraining order;90 that on December 18,
1990, DBP revived its application for foreclosure but it
was again held in abeyance upon petitioners’
request;91 that DBP gave petitioners written and verbal
demands as well as sufficient time to settle their
obligations;92 and that under Act 3135,93 DBP has the
right to foreclose the properties.94
Ruling of the Regional Trial Court
On December 10, 1996, the RTC rendered a
Decision,95 the dispositive portion of which reads:
WHEREFORE, in light of the foregoing, judgment is
hereby rendered:
(1) Declaring that the [petitioners] have fully
extinguished and discharged their obligation to
the [respondent] Bank;
(2) Declaring the foreclosure of [petitioners’]
mortgaged properties, the sale of the properties
under the foreclosure proceedings and the
resultant certificate of sale issued by the
foreclosing Sheriff by reason of the foreclosure
NULL and VOID;
(3) Ordering the return of the [properties] to
[petitioners] free from mortgage liens;
(4) Ordering [respondent] bank to pay
[petitioners], actual and compensatory damages
of ₱170,325.80;
(5) Temperate damages of ₱50,000.00;
(c) Moral damages of ₱500,000.00;
(d) Exemplary damages of ₱500,000.00;
(e) Attorney’s fees in the amount of
₱100,000.00; and
(f) Expenses of litigation in the amount of
₱20,000.00.
[Respondent] Bank’s counterclaims are hereby
DISMISSED.
[Respondent] Bank is likewise ordered to pay
the costs of suit.
SO ORDERED.96
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside the RTC
Decision. Thus:
WHEREFORE, in view of the foregoing, the instant
appeal is hereby GRANTED. The assailed Decision
dated 10 December 1996 is hereby REVERSED and
SET ASIDE. A new judgment is hereby rendered. It shall
now read as follows:
WHEREFORE, premises considered, judgment is
hereby rendered:
Ordering the dismissal of the Complaint in Civil Case No.
5608;
Declaring the extrajudicial foreclosure of [petitioners’]
mortgaged properties as valid;
Ordering [petitioners] to pay the [respondent] the amount
of Two Million Five Hundred Ninety Two Thousand Two
Hundred Ninety Nine [Pesos] and Seventy-Nine
Centavos (₱2,592,299.79) plus interest and penalties as
stipulated in the Promissory Note computed from 11 July
1994 until full payment; and
Ordering [petitioners] to pay the costs.
SO ORDERED.
SO ORDERED.97
Issues
Hence, the instant recourse by petitioners raising the
following issues:
1. Whether x x x respondent’s own wanton,
reckless and oppressive acts and omissions in
discharging its reciprocal obligations to
petitioners effectively prevented the petitioners
from paying their loan obligations in a proper
and suitable manner;
2. Whether x x x as a result of respondent’s said
acts and omissions, petitioners’ obligations
should be deemed fully complied with and
extinguished in accordance with the principle of
constructive fulfillment;
3. Whether x x x the return by the trial Court of
the mortgaged properties to petitioners free from
mortgage liens constitutes unjust enrichment;
 4. Whether x x x the low bid price made by the
respondent for petitioners’ mortgaged properties
during the foreclosure sale is so gross, shocking
to the conscience and inherently iniquitous as to
constitute sufficient ground for setting aside the
foreclosure sale;
5. Whether x x x the restructuring agreement
reached and perfected between the petitioners
and the respondent novated and extinguished
petitioners’ loan obligations to respondent under
the Promissory Notes sued upon; and
6. Whether x x x the respondent should be held
liable to pay petitioners actual and
compensatory damages, temperate damages,
moral damages, exemplary damages, attorney’s
fees and expenses of litigation.98
Petitioners’ Arguments
Petitioners seek the reinstatement of the RTC Decision
which declared their obligation fully extinguished and the
foreclosure proceedings of their mortgaged properties
void.
Relying on the Principle of Constructive Fulfillment,
petitioners insist that their obligation should be deemed
fulfilled since DBP prevented them from performing their
obligation by charging excessive interest and penalties
not stipulated in the Promissory Notes, by failing to
promptly provide them with the correct Statements of
Account, and by cancelling the Restructuring Agreement
even if they already paid ₱362,271.75 as
downpayment.99 They likewise deny any fault or delay
on their part in finalizing the Restructuring Agreement.100
In addition, petitioners insist that the foreclosure sale is
void for lack of personal notice101 and the inadequacy of
the bid price.102 They contend that at the time of the
foreclosure, petitioners’ obligation was not yet due and
demandable,103 and that the restructuring agreement
novated and extinguished petitioners’ loan obligation.104
Finally, petitioners claim that DBP acted in bad faith or in
a wanton, reckless, or oppressive manner; hence, they
are entitled to actual, temperate, moral and exemplary
damages, attorney’s fees, and expenses of litigation.105
Respondent’s Arguments
DBP, on the other hand, denies acting in bad faith or in a
wanton, reckless, or oppressive manner106 and in
charging excessive interest and penalties.107 According
to it, the amounts in the Statements of Account vary
because the computations were based on different cut-
off dates and different incentive schemes.108
DBP further argues that the foreclosure sale is valid
because gross inadequacy of the bid price as a ground
for the annulment of the sale applies only to judicial
foreclosure.109 It likewise maintains that the Promissory
Notes and the Mortgage were not novated by the
proposed Restructuring Agreement.110
As to petitioners’ claim for damages, DBP contends it is
without basis because it did not act in bad faith or in a
wanton, reckless, or oppressive manner.111
Our Ruling
The Petition is partly meritorious.
The obligation was not extinguished
or discharged.
The Promissory Notes subject of the instant case
became due and demandable as early as 1972 and
1976. The only reason the mortgaged properties were
not foreclosed in 1977 was because of the restraining
order from the court. In 1978, petitioners made a partial
payment of ₱902,800.00. No subsequent payments
were made. It was only in 1989 that petitioners tried to
negotiate the settlement of their loan obligations. And
although DBP could have foreclosed the mortgaged
properties, it instead agreed to restructure the loan. In
fact, from 1989 to 1994, DBP gave several extensions
for petitioners to settle their loans, but they never did,
thus, prompting DBP to cancel the Restructuring
Agreement.
Petitioners, however, insist that DBP’s cancellation of
the Restructuring Agreement justifies the extinguishment
of their loan obligation under the Principle of
Constructive Fulfillment found in Article 1186 of the Civil
Code.
We do not agree.
As aptly pointed out by the CA, Article 1186 of the Civil
Code, which states that "the condition shall be deemed
fulfilled when the obligor voluntarily prevents its
fulfillment," does not apply in this case,112 viz:
Article 1186 enunciates the doctrine of constructive
fulfillment of suspensive conditions, which applies when
the following three (3) requisites concur, viz: (1) The
condition is suspensive; (2) The obligor actually prevents
the fulfillment of the condition; and (3) He acts
voluntarily. Suspensive condition is one the happening of
which gives rise to the obligation. It will be irrational for
any Bank to provide a suspensive condition in the
Promissory Note or the Restructuring Agreement that
will allow the debtor-promissor to be freed from the duty
to pay the loan without paying it.113
Besides, petitioners have no one to blame but
themselves for the cancellation of the Restructuring
Agreement. It is significant to point out that when the
Regional Credit Committee reconsidered petitioners’
proposal to restructure the loan, it imposed additional
conditions. In fact, when DBP’s General Santos Branch
forwarded the Restructuring Agreement to the Legal
Services Department of DBP in Makati, petitioners were
required to pay the amount of ₱1,300,672.75, plus a
daily interest of ₱632.15 starting November 16, 1993 up
to the date of actual payment of the said
amount.114 This, petitioners failed to do. DBP therefore
had reason to cancel the Restructuring Agreement.
Moreover, since the Restructuring Agreement was
cancelled, it could not have novated or extinguished
petitioners’ loan obligation. And in the absence of a
perfected Restructuring Agreement, there was no
impediment for DBP to exercise its right to foreclose the
mortgaged properties.115
The foreclosure sale is not valid.
But while DBP had a right to foreclose the mortgage, we
are constrained to nullify the foreclosure sale due to the
bank’s failure to send a notice of foreclosure to
petitioners.
We have consistently held that unless the parties
stipulate, "personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not
necessary"116 because Section 3117 of Act 3135 only
requires the posting of the notice of sale in three public
places and the publication of that notice in a newspaper
of general circulation.
In this case, the parties stipulated in paragraph 11 of the
Mortgage that:
11. All correspondence relative to this mortgage,
including demand letters, summons, subpoenas, or
notification of any judicial or extra-judicial action shall be
sent to the Mortgagor at xxx or at the address that may
hereafter be given in writing by the Mortgagor or the
Mortgagee;118
However, no notice of the extrajudicial foreclosure was
sent by DBP to petitioners about the foreclosure sale
scheduled on July 11, 1994. The letters dated January
28, 1994 and March 11, 1994 advising petitioners to
immediately pay their obligation to avoid the impending
foreclosure of their mortgaged properties are not the
notices required in paragraph 11 of the Mortgage. The
failure of DBP to comply with their contractual
agreement with petitioners, i.e., to send notice, is a
breach sufficient to invalidate the foreclosure sale.
In Metropolitan Bank and Trust Company v. Wong,119 we
explained that:
x x x a contract is the law between the parties and, that
absent any showing that its provisions are wholly or in
part contrary to law, morals, good customs, public order,
or public policy, it shall be enforced to the letter by the
courts. Section 3, Act No. 3135 reads:
Sec. 3. Notice shall be given by posting notices of the
sale for not less than twenty days in at least three public
places of the municipality or city where the property is
situated, and if such property is worth more than four
hundred pesos, such notice shall also be published once
a week for at least three consecutive weeks in a
newspaper of general circulation in the municipality and
city.
The Act only requires (1) the posting of notices of sale in
three public places, and (2) the publication of the same
in a newspaper of general circulation. Personal notice to
the mortgagor is not necessary. Nevertheless, the
parties to the mortgage contract are not precluded from
exacting additional requirements. In this case, petitioner
and respondent in entering into a contract of real estate
mortgage, agreed inter alia:
all correspondence relative to this mortgage, including
demand letters, summonses, subpoenas, or notifications
of any judicial or extra-judicial action shall be sent to the
MORTGAGOR at 40-42 Aldeguer St. Iloilo City, or at the
address that may hereafter be given in writing by the
MORTGAGOR to the MORTGAGEE.
Precisely, the purpose of the foregoing stipulation is to
apprise respondent of any action which petitioner might
take on the subject property, thus according him the
opportunity to safeguard his rights. When petitioner
failed to send the notice of foreclosure sale to
respondent, he committed a contractual breach sufficient
to render the foreclosure sale on November 23, 1981
null and void.120 (Emphasis supplied)
In view of foregoing, the CA erred in finding the
foreclosure sale valid.
Penalties and interest rates should
be expressly stipulated in writing.
As to the imposition of additional interest and penalties
not stipulated in the Promissory Notes, this should not
be allowed. Article 1956 of the Civil Code specifically
states that "no interest shall be due unless it has been
expressly stipulated in writing." Thus, the payment of
interest and penalties in loans is allowed only if the
parties agreed to it and reduced their agreement in
writing.121
In this case, petitioners never agreed to pay additional
interest and penalties. Hence, we agree with the RTC
that these are illegal, and thus, void. Quoted below are
the findings of the RTC on the matter, to wit:
Moreover, in its various statements of account,
[respondent] Bank charged [petitioners] for additional
interests and penalties which were not stipulated in the
promissory notes.
In the Promissory Note, Exhibit "A," for the principal
amount of ₱960,000.00, only the following interest and
penalty charges were stipulated:
(1) interest at the rate of twelve percent (12%)
per annum;
(2) penalty charge of one-third percent (1/3%)
per month on overdue amortization;
(3) attorney’s fees equivalent to ten percent
(10%) of the total indebtedness then unpaid; and
(4) advances and interest thereon at one
percent (1%) per month.
[Respondent] bank, however, charged [petitioners] the
following items as shown in its Statement of Account for
the period as of 31 January 1989, Exhibit "D:"
(1) regular interest in the amount of
₱561,037.14;
(2) advances in the amount of ₱34,589.45;
(3) additional interest in the amount of
₱2,590,786.26; and
(4) penalty charges in the amount of
₱1,068,147.19.
The Court finds no basis under the Promissory Note,
Exhibit "A," for charging the additional interest in the
amount of ₱2,590,786.26. Moreover, it is
incomprehensible how the penalty charge of 1/3% per
month on the overdue amortization could amount to
₱1,086,147.19 while the regular interest, which was
stipulated at the higher rate of 12% per annum,
amounted to only ₱561,037.14 or about half of the
amount allegedly due as penalties.
In Exhibit "N," which is the statement of account x x x as
of 15 June 1992, [respondent] bank charged plaintiffs
the following items:
(1) regular interest in the amount of ₱561,037.14;
(2) advances in the amount of ₱106,893.93;
(3) additional interest on principal in the amount of
₱1,233,893.79;
(4) additional interest on regular interest in the amount of
₱859,966.83;
(5) additional interest on advances in the amount of
₱27,206.45;
(6) penalty charges on principal in the amount of
₱1,639,331.15;
(7) penalty charges on regular interest in the amount of
₱1,146,622.55;
(8) penalty charges on advances in the amount of
₱40,520.53.
Again, the Court finds no basis in the Promissory Note,
Exhibit "A," for the imposition of additional interest on
principal in the amount of ₱1,233,893.79, additional
interest on regular interest in the amount of
₱859,966.83, penalty charges on regular interest in the
amount of ₱1,146,622.55 and penalty charges on
advances in the amount of ₱40,520.53.
In the Promissory Note, Exhibit "C," for the principal
amount of ₱40,000.00, only the following charges were
stipulated:
(1) interest at the rate of nine percent (9%) per
annum;
(2) all unpaid amortization[s] shall bear interest
at the rate of eleven percent (11%) per annum;
and,
(3) attorney’s fees equivalent to ten percent
(10%) of the total indebtedness then unpaid.
In its statement of account x x x as of 31 January 1989,
Exhibit "E," [respondent] bank charged [petitioners] with
the following items:
(1) regular interest in the amount of ₱5,046.97
(2) additional interest in the amount of
₱92,113.56; and
(3) penalty charges in the amount of
₱39,915.46.
There was nothing in the Promissory Note, Exhibit "C,"
which authorized the imposition of additional interest.
Again, this Court notes that the additional interest in the
amount of ₱92,113.56 is even larger than the regular
interest in the amount of ₱5,046.97. Moreover, based on
the Promissory Note, Exhibit "C," if the 11% interest on
unpaid amortization is considered an "additional
interest," then there is no basis for [respondent] bank to
add penalty charges as there is no other provision
providing for this charge. If, on the other hand, the 11%
interest on unpaid amortization is considered the penalty
charge, then there is no basis to separately charge
plaintiffs additional interest. The same provision cannot
be used to charge plaintiffs both interest and penalties.
In Exhibit "O," which is the statement of account x x x as
of 15 June 1992, [respondent] charged [petitioners] with
the following:
(1) regular interest in the amount of ₱4,621.25;
(2) additional interest on principal in the amount
of ₱65,303.33;
(3) additional interest on regular interest in the
amount of ₱7,544.58;
(4) penalty charges on principal in the amount of
₱47,493.33;
(5) penalty charges on regular interest in the
amount of ₱5,486.97;
(6) penalty charges on advances in the amount
of ₱40,520.53.
[Respondent] bank failed to show the basis for charging
additional interest on principal, additional interest on
regular interest and penalty charges on principal and
penalty charges on regular interest under items (2), (3),
(4) and (5) above.
Moreover, [respondent] bank charged [petitioners] twice
under the same provisions in the promissory notes. It
categorically admitted that the additional interests and
penalty charges separately being charged [petitioners]
referred to the same provision of the Promissory Notes,
Exhibits "A" and "C." Thus, for the Lim Account in the
amount of ₱40,000.00, [respondent’s] Mr. Ancheta
stated:
Q:
In Exhibit 14, it is stated that for a principal amount of
₱40,000.00 you imposed an additional interest in the
amount of ₱65,303.33 in addition to the regular interest
of ₱7,544.58, can you tell us looking [at] the mortgage
contract and promissory note what is your basis for
charging that additional interest?
A:
The same as that when I answered Exhibit No. 3, which
shall cover amortization on the principal and interest at
the above-mentioned rate. All unpaid amortization[s]
shall bear interest at the rate of eleven per centum
(11%) per annum.
Q:
You also imposed penalty which is on the principal in the
amount of ₱40,000.00 in the amount of ₱47,493.33 in
addition to regular interest of ₱5,486.96. Can you point
what portion of Exhibit 3 gives DBP the right to impose
such penalty?
A:
The same paragraph as stated.
Q:
Can you please read the portion referring to penalty?
A:
All unpaid amortization shall bear interest at the rate of
11% per annum.
Q:
The additional interest is based on 11% per annum and
the penalty is likewise based on the same rate?
A:
Yes, it is combined (TSN, 28 May 1996, pp. 39-40.)
With respect to the Diamond L. Ranch account in the
amount of ₱960,000.00, Mr. Ancheta testified as follows:
Q:
Going back to Exhibit 14 Statement of Accounts. Out of
the principal of ₱939,973.33 you imposed an additional
interest of ₱1,233,893.79 plus ₱859,966.83 plus
₱27,206.45. Can you tell us what is the basis of the
imposition?
A:
As earlier stated, it is only the Promissory Note as well
as the Mortgage Contract.
Q:
Please point to us where in the Promissory Note is the
specific portion?
A:
In Exhibit 1: "in case of failure to pay in full any
amortization when due, a penalty charge of 1/3% per
month on the overdue amortization shall be paid."
Q:
What is the rate?
A:
1/3% per month.
Q:
So, the imposition of the additional interest and the
penalty charge is based on the same provision?
A:
Yes (TSN, 28 May 1996, pp. 41-42.)
A perusal of the promissory notes, however, failed to
justify [respondent] bank’s computation of both interest
and penalty under the same provision in each of the
promissory notes.
[Respondent] bank also admitted that the additional
interests and penalties being charged [petitioners] were
not based on the stipulations in the Promissory Notes
but were imposed unilaterally as a matter of its internal
banking policies. (TSN, 19 March 1996, pp. 23-24.) This
banking policy, however, has been declared null and
void in Philippine National Bank vs. CA, 196 SCRA 536
(1991). The act of [respondent] bank in unilaterally
changing the stipulated interest rate is violative of the
principle of mutuality of contracts under 1308 of the Civil
Code and contravenes 1956 of the Civil Code.
[Respondent] bank completely ignored [petitioners’]
"right to assent to an important modification in their
agreement and (negated) the element of mutuality in
contracts." (Philippine National Bank vs. CA, G.R. No.
109563, 9 July 1996; Philippine National Bank vs. CA,
238 SCRA 20 1994). As in the PNB cases, [petitioners]
herein never agreed in writing to pay the additional
interest, or the penalties, as fixed by [respondent] bank;
hence [respondent] bank’s imposition of additional
interest and penalties is null and void.122(Emphasis
supplied)
Consequently, this case should be remanded to the RTC
for the proper determination of petitioners’ total loan
obligation based on the interest and penalties stipulated
in the Promissory Notes.
DBP did not act in bad faith or in a
wanton, reckless, or oppressive manner.
Finally, as to petitioners’ claim for damages, we find the
same devoid of merit.
DBP did not act in bad faith or in a wanton, reckless, or
oppressive manner in cancelling the Restructuring
Agreement. As we have said, DBP had reason to cancel
the Restructuring Agreement because petitioners failed
to pay the amount required by it when it reconsidered
petitioners’ request to restructure the loan.
Likewise, DBP’s failure to send a notice of the
foreclosure sale to petitioners and its imposition of
additional interest and penalties do not constitute bad
faith. There is no showing that these contractual
breaches were done in bad faith or in a wanton,
reckless, or oppressive manner.1âwphi1
In Philippine National Bank v. Spouses Rocamora,123 we
said that:
Moral damages are not recoverable simply because a
contract has been breached. They are recoverable only
if the defendant acted fraudulently or in bad faith or in
wanton disregard of his contractual obligations. The
breach must be wanton, reckless, malicious or in bad
faith, and oppressive or abusive. Likewise, a breach of
contract may give rise to exemplary damages only if the
guilty party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.
We are not sufficiently convinced that PNB acted
fraudulently, in bad faith, or in wanton disregard of its
contractual obligations, simply because it increased the
interest rates and delayed the foreclosure of the
mortgages. Bad faith cannot be imputed simply because
the defendant acted with bad judgment or with attendant
negligence. Bad faith is more than these; it pertains to a
dishonest purpose, to some moral obliquity, or to the
conscious doing of a wrong, a breach of a known duty
attributable to a motive, interest or ill will that partakes of
the nature of fraud. Proof of actions of this character is
undisputably lacking in this case. Consequently, we do
not find the spouses Rocamora entitled to an award of
moral and exemplary damages. Under these
circumstances, neither should they recover attorney’s
fees and litigation expense. These awards are
accordingly deleted.124 (Emphasis supplied)
WHEREFORE, the Petition is PARTLY GRANTED. The
assailed February 22, 2007 Decision of the Court of
Appeals in CA-G.R. CV No. 59275 is hereby MODIFIED
in accordance with this Decision. The case is hereby
REMANDED to the Regional Trial Court of General
Santos City, Branch 22, for the proper determination of
petitioners’ total loan obligations based on the interest
and penalties stipulated in the Promissory Notes dated
November 24, 1969 and December 30, 1970. The
foreclosure sale of the mortgaged properties held on
July 11, 1994 is DECLARED void ab initio for failure to
comply with paragraph 11 of the Mortgage, without
prejudice to the conduct of another foreclosure sale
based on the recomputed amount of the loan
obligations, if necessary.
SO ORDERED.
OBIASCA VS BASALLOTE
CORONA, J.:
When the law is clear, there is no other recourse but to
apply it regardless of its perceived harshness. Dura lex
sed lex. Nonetheless, the law should never be applied or
interpreted to oppress one in order to favor another. As a
court of law and of justice, this Court has the duty to
adjudicate conflicting claims based not only on the cold
provision of the law but also according to the higher
principles of right and justice.
The facts of this case are undisputed.
On May 26, 2003, City Schools Division Superintendent
Nelly B. Beloso appointed respondent Jeane O.
Basallote to the position of Administrative Officer II, Item
No. OSEC-DECSB-ADO2-390030-1998, of the
Department of Education (DepEd), Tabaco National
High School in Albay.2
Subsequently, in a letter dated June 4, 2003,3 the new
City Schools Division Superintendent, Ma. Amy O.
Oyardo, advised School Principal Dr. Leticia B.
Gonzales that the papers of the applicants for the
position of Administrative Officer II of the school,
including those of respondent, were being returned and
that a school ranking should be
accomplished and submitted to her office for review. In
addition, Gonzales was advised that only qualified
applicants should be endorsed.
Respondent assumed the office of Administrative Officer
II on June 19, 2003. Thereafter, however, she received a
letter from Ma. Teresa U. Diaz, Human Resource
Management Officer I of the City Schools Division of
Tabaco City, Albay, informing her that her appointment
could not be forwarded to the Civil Service Commission
(CSC) because of her failure to submit the position
description form (PDF) duly signed by Gonzales.
Respondent tried to obtain Gozales’ signature but the
latter refused despite repeated requests. When
respondent informed Oyardo of the situation, she was
instead advised to return to her former teaching position
of Teacher I. Respondent followed the advice.
Meanwhile, on August 25, 2003, Oyardo appointed
petitioner Arlin B. Obiasca to the same position of
Administrative Officer II. The appointment was sent to
and was properly attested by the CSC.4 Upon learning
this, respondent filed a complaint with the Office of the
Deputy Ombudsman for Luzon against Oyardo,
Gonzales and Diaz.
In its decision, the Ombudsman found Oyardo and
Gonzales administratively liable for withholding
information from respondent on the status of her
appointment, and suspended them from the service for
three months. Diaz was absolved of any wrongdoing.5
Respondent also filed a protest with CSC Regional
Office V. But the protest was dismissed on the ground
that it should first be submitted to the Grievance
Committee of the DepEd for appropriate action.6
On motion for reconsideration, the protest was reinstated
but was eventually dismissed for lack of
merit.7Respondent appealed the dismissal of her protest
to the CSC Regional Office which, however, dismissed
the appeal for failure to show that her appointment had
been received and attested by the CSC.8
Respondent elevated the matter to the CSC. In its
November 29, 2005 resolution, the CSC granted the
appeal, approved respondent’s appointment and
recalled the approval of petitioner’s appointment.9
Aggrieved, petitioner filed a petition for certiorari in the
Court of Appeals (CA) claiming that the CSC acted
without factual and legal bases in recalling his
appointment. He also prayed for the issuance of a
temporary restraining order and a writ of preliminary
injunction.
In its September 26, 2006 decision,10 the CA denied the
petition and upheld respondent’s appointment which was
deemed effective immediately upon its issuance by the
appointing authority on May 26, 2003. This was because
respondent had accepted the appointment upon her
assumption of the duties and responsibilities of the
position.
The CA found that respondent possessed all the
qualifications and none of the disqualifications for the
position of Administrative Officer II; that due to the
respondent’s valid appointment, no other appointment to
the same position could be made without the position
being first vacated; that the petitioner’s appointment to
the position was thus void; and that, contrary to the
argument of petitioner that he had been deprived of his
right to due process when he was not allowed to
participate in the proceedings in the CSC, it was
petitioner who failed to exercise his right by failing to
submit a single pleading despite being furnished with
copies of the pleadings in the proceedings in the CSC.
The CA opined that Diaz unreasonably refused to affix
her signature on respondent’s PDF and to submit
respondent’s appointment to the CSC on the ground of
non-submission of respondent’s PDF. The CA ruled that
the PDF was not even required to be submitted and
forwarded to the CSC.
Petitioner filed a motion for reconsideration but his
motion was denied on February 8, 2007.11
Hence, this petition.12
Petitioner maintains that respondent was not validly
appointed to the position of Administrative Officer II
because her appointment was never attested by the
CSC. According to petitioner, without the CSC
attestation, respondent’s appointment as Administrative
Officer II was never completed and never vested her a
permanent title. As such, respondent’s appointment
could still be recalled or withdrawn by the appointing
authority. Petitioner further argues that, under the
Omnibus Rules Implementing Book V of Executive Order
(EO) No. 292,13 every appointment is required to be
submitted to the CSC within 30 days from the date of
issuance; otherwise, the appointment becomes
ineffective.14 Thus, respondent’s appointment issued on
May 23, 2003 should have been transmitted to the CSC
not later than June 22, 2003 for proper attestation.
However, because respondent’s appointment was not
sent to the CSC within the proper period, her
appointment ceased to be effective and the position of
Administrative Officer II was already vacant when
petitioner was appointed to it.
In her comment,15 respondent points out that her
appointment was wrongfully not submitted by the proper
persons to the CSC for attestation. The reason given by
Oyardo for the non-submission of respondent’s
appointment papers to the CSC — the alleged failure of
respondent to have her PDF duly signed by Gonzales —
was not a valid reason because the PDF was not even
required for the attestation of respondent’s appointment
by the CSC.
After due consideration of the respective arguments of
the parties, we deny the petition.
The law on the matter is clear. The problem is
petitioner’s insistence that the law be applied in a
manner that is unjust and unreasonable.
Petitioner relies on an overly restrictive reading of
Section 9(h) of PD 80716 which states, in part, that an
appointment must be submitted by the appointing
authority to the CSC within 30 days from issuance,
otherwise, the appointment becomes ineffective:
Sec. 9. Powers and Functions of the Commission. —
The [CSC] shall administer the Civil Service and shall
have the following powers and functions:
xxx xxx xxx
(h) Approve all appointments, whether original or
promotional, to positions in the civil service, except those
of presidential appointees, members of the Armed
Forces of the Philippines, police forces, firemen and
jailguards, and disapprove those where the appointees
do not possess the appropriate eligibility or required
qualifications. An appointment shall take effect
immediately upon issue by the appointing authority if the
appointee assumes his duties immediately and shall
remain effective until it is disapproved by the [CSC], if
this should take place, without prejudice to the liability of
the appointing authority for appointments issued in
violation of existing laws or rules: Provided, finally, That
the [CSC] shall keep a record of appointments of all
officers and employees in the civil service. All
appointments requiring the approval of the [CSC] as
herein provided, shall be submitted to it by the
appointing authority within thirty days from
issuance, otherwise the appointment becomes
ineffective thirty days thereafter. (Emphasis supplied)
This provision is implemented in Section 11, Rule V of
the Omnibus Rules Implementing Book V of EO 292
(Omnibus Rules):
Section 11. An appointment not submitted to the [CSC]
within thirty (30) days from the date of issuance which
shall be the date appearing on the fact of the
appointment, shall be ineffective. xxx
Based on the foregoing provisions, petitioner argues that
respondent’s appointment became effective on the day
of her appointment but it subsequently ceased to be so
when the appointing authority did not submit her
appointment to the CSC for attestation within 30 days.
Petitioner is wrong.
The real issue in this case is whether the deliberate
failure of the appointing authority (or other responsible
officials) to submit respondent’s appointment paper to
the CSC within 30 days from its issuance made her
appointment ineffective and incomplete. Substantial
reasons dictate that it did not.
Before discussing this issue, however, it must be
brought to mind that CSC resolution dated November
29, 2005 recalling petitioner’s appointment and
approving that of respondent has long become final and
executory.
Remedy to Assail CSC Decision or Resolution
Sections 16 and 18, Rule VI of the Omnibus Rules
provide the proper remedy to assail a CSC decision or
resolution:
Section 16. An employee who is still not satisfied with
the decision of the [Merit System Protection Board] may
appeal to the [CSC] within fifteen days from receipt of
the decision.
The decision of the [CSC] is final and executory if no
petition for reconsideration is filed within fifteen
days from receipt thereof.
xxx xxx xxx
Section 18. Failure to file a protest, appeal, petition for
reconsideration or petition for review within the
prescribed period shall be deemed a waiver of such
right and shall render the subject action/decision
final and executory. (Emphasis supplied)
In this case, petitioner did not file a petition for
reconsideration of the CSC resolution dated November
29, 2005 before filing a petition for review in the CA.
Such fatal procedural lapse on petitioner’s part allowed
the CSC resolution dated November 29, 2005 to become
final and executory.17 Hence, for all intents and
purposes, the CSC resolution dated November 29, 2005
has become immutable and can no longer be amended
or modified.18 A final and definitive judgment can no
longer be changed, revised, amended or
reversed.19 Thus, in praying for the reversal of the
assailed Court of Appeals decision which affirmed the
final and executory CSC resolution dated November 29,
2005, petitioner would want the Court to reverse a final
and executory judgment and disregard the doctrine of
immutability of final judgments.
True, a dissatisfied employee of the civil service is not
preempted from availing of remedies other than those
provided in Section 18 of the Omnibus Rules. This is
precisely the purpose of Rule 43 of the Rules of Court,
which provides for the filing of a petition for review as a
remedy to challenge the decisions of the CSC.
While Section 18 of the Omnibus Rules does not
supplant the mode of appeal under Rule 43, we cannot
disregard Section 16 of the Omnibus Rules, which
requires that a petition for reconsideration should be
filed, otherwise, the CSC decision will become final and
executory, viz.:
The decision of the [CSC] is final and executory if no
petition for reconsideration is filed within fifteen
days from receipt thereof. 1avvphi1
Note that the foregoing provision is a specific remedy as
against CSC decisions involving
its administrativefunction, that is, on matters involving
"appointments, whether original or promotional, to
positions in the civil service,"20 as opposed to its quasi-
judicial function where it adjudicates the rights of
persons before it, in accordance with the standards laid
down by the law.21
The doctrine of exhaustion of administrative remedies
requires that, for reasons of law, comity and
convenience, where the enabling statute indicates a
procedure for administrative review and provides a
system of administrative appeal or reconsideration, the
courts will not entertain a case unless the available
administrative remedies have been resorted to and the
appropriate authorities have been given an opportunity
to act and correct the errors committed in the
administrative forum.22 In Orosa v. Roa,23 the Court ruled
that if an appeal or remedy obtains or is available within
the administrative machinery, this should be resorted to
before resort can be made to the courts.24While the
doctrine of exhaustion of administrative remedies is
subject to certain exceptions,25 these are not present in
this case.
Thus, absent any definitive ruling that the second
paragraph of Section 16 is not mandatory and the filing
of a petition for reconsideration may be dispensed with,
then the Court must adhere to the dictates of Section 16
of the Omnibus Rules.
Moreover, even in its substantive aspect, the petition is
bereft of merit.
Section 9(h) of PD 807 Already Amended by Section
12 Book V of EO 292
It is incorrect to interpret Section 9(h) of Presidential
Decree (PD) 807 as requiring that an appointment must
be submitted by the appointing authority to the CSC
within 30 days from issuance, otherwise, the
appointment would become ineffective. Such
interpretation fails to appreciate the relevant part of
Section 9(h) which states that "an appointment shall
take effect immediately upon issue by the appointing
authority if the appointee assumes his duties
immediately and shall remain effective until it is
disapproved by the [CSC]." This provision is reinforced
by Section 1, Rule IV of the Revised Omnibus Rules on
Appointments and Other Personnel Actions, which
reads:
Section 1. An appointment issued in accordance with
pertinent laws and rules shall take effect
immediately upon its issuance by the appointing
authority, and if the appointee has assumed the duties
of the position, he shall be entitled to receive his salary
at once without awaiting the approval of his appointment
by the Commission. The appointment shall remain
effective until disapproved by the Commission. x x x
(Emphasis supplied)
More importantly, Section 12, Book V of EO 292
amended Section 9(h) of PD 807 by deleting the
requirement that all appointments subject to CSC
approval be submitted to it within 30 days. Section 12 of
EO 292 provides:
Sec. 12. Powers and Functions. - The Commission shall
have the following powers and functions:
xxx xxx xxx
(14) Take appropriate action on all appointments and
other personnel matters in the Civil Service, including
extension of Service beyond retirement age;
(15) Inspect and audit the personnel actions and
programs of the departments, agencies, bureaus,
offices, local government units and other
instrumentalities of the government including
government -owned or controlled corporations; conduct
periodic review of the decisions and actions of offices or
officials to whom authority has been delegated by the
Commission as well as the conduct of the officials and
the employees in these offices and apply appropriate
sanctions whenever necessary.
As a rule, an amendment by the deletion of certain
words or phrases indicates an intention to change its
meaning.26It is presumed that the deletion would not
have been made had there been no intention to effect a
change in the meaning of the law or rule.27 The word,
phrase or sentence excised should accordingly be
considered inoperative.28
The dissent refuses to recognize the amendment of
Section 9(h) of PD 807 by EO 292 but rather finds the
requirement of submission of appointments within 30
days not inconsistent with the authority of the CSC to
take appropriate action on all appointments and other
personnel matters. However, the intention to amend by
deletion is unmistakable not only in the operational
meaning of EO 292 but in its legislative history as well.
PD 807 and EO 292 are not inconsistent insofar as they
require CSC action on appointments to the civil service.
This is evident from the recognition accorded by EO 292,
specifically under Section 12 (14) and (15) thereof, to the
involvement of the CSC in all personnel actions and
programs of the government. However, while a
restrictive period of 30 days within which appointments
must be submitted to the CSC is imposed under the last
sentence of Section 9(h) of PD 807, none was adopted
by Section 12 (14) and (15) of EO 292. Rather,
provisions subsequent to Section 12 merely state that
the CSC (and its liaison staff in various departments and
agencies) shall periodically monitor, inspect and audit
personnel actions.29 Moreover, under Section 9(h) of PD
807, appointments not submitted within 30 days to the
CSC become ineffective, no such specific adverse effect
is contemplated under Section 12 (14) and (15) of EO
292. Certainly, the two provisions are materially
inconsistent with each other. And to insist on reconciling
them by restoring the restrictive period and punitive
effect of Section 9(h) of PD 807, which EO 292
deliberately discarded, would be to rewrite the law by
mere judicial interpretation.30
Not even the historical development of civil service laws
can justify the retention of such restrictive provisions.
Public Law No. 5,31 the law formally establishing a civil
service system, merely directed that all heads of offices
notify the Philippine Civil Service Board "in writing
without delay of all appointments x x x made in the
classified service."32The Revised Administrative Code of
1917 was even less stringent as approval by the Director
of the Civil Service of appointments of temporary and
emergency employees was required only when
practicable. Finally, Republic Act (RA) 226033 imposed
no period within which appointments were attested to by
local government treasurers to whom the CSC delegated
its authority to act on personnel actions but provided that
if within 180 days after receipt of said appointments, the
CSC shall not have made any correction or revision,
then such appointments shall be deemed to have been
properly made. Consequently, it was only under PD 807
that submission of appointments for approval by the
CSC was subjected to a 30-day period. That, however,
has been lifted and abandoned by EO 292.
There being no requirement in EO 292 that
appointments should be submitted to the CSC for
attestation within 30 days from issuance, it is doubtful by
what authority the CSC imposed such condition under
Section 11, Rule V of the Omnibus Rules. It certainly
cannot restore what EO 292 itself already and
deliberately removed. At the very least, that requirement
cannot be used as basis to unjustly prejudice
respondent.
Under the facts obtaining in this case, respondent
promptly assumed her duties as Administrative Officer II
when her appointment was issued by the appointing
authority. Thus, her appointment took effect immediately
and remained effective until disapproved by the
CSC.34 Respondent’s appointment was never
disapproved by the CSC. In fact, the CSC was deprived
of the opportunity to act promptly as it was wrongly
prevented from doing so. More importantly, the CSC
subsequently approved respondent’s
appointment and recalled that of petitioner, which recall
has already become final and immutable.
Second, it is undisputed that respondent’s appointment
was not submitted to the CSC, not through her own fault
but because of Human Resource Management Officer I
Ma. Teresa U. Diaz’s unjustified refusal to sign it on the
feigned and fallacious ground that respondent’s position
description form had not been duly signed by School
Principal Dr. Leticia B. Gonzales.35 Indeed, the CSC
even sanctioned Diaz for her failure to act in the required
manner.36Similarly, the Ombudsman found both City
Schools Division Superintendent Ma. Amy O. Oyardo
and Gonzales administratively liable and suspended
them for three months for willfully withholding information
from respondent on the status of her appointment.
xxx xxx xxx
All along, [respondent] was made to believe that her
appointment was in order. During the same period,
respondent Gonzales, with respondent Oyardo’s
knowledge, indifferently allowed [respondent] to plea for
the signing of her [position description form], when they
could have easily apprised [respondent] about the
revocation/withdrawal of her appointment. Worse, when
[respondent] informed Oyardo on 25 June 2003 about
her assumption of office as [Administrative Officer II], the
latter directed [respondent] to go back to her post as
Teacher I on the ground that [respondent] had not been
issued an attested appointment as [Administrative
Officer II], even when [Oyardo] knew very well that
[respondent’s] appointment could not be processed with
the CSC because of her order to re-evaluate the
applicants. This act by [Oyardo] is a mockery of the trust
reposed upon her by [respondent], who, then in the state
of quandary, specifically sought [Oyardo’s] advice on
what to do with her appointment, in the belief that her
superior could enlighten her on the matter.
It was only on 02 July 2003 when [Gonzales], in her
letter, first made reference to a re-ranking of the
applicants when [respondent] learned about the recall by
[Oyardo] of her appointment. At that time, the thirty-day
period within which to submit her appointment to the
CSC has lapsed. [Oyardo’s] and Gonzales’ act of
withholding information about the real status of
[respondent’s] appointment unjustly deprived her of
pursuing whatever legal remedies available to her at that
time to protect her interest.37
Considering these willful and deliberate acts of the co-
conspirators Diaz, Oyardo and Gonzales that caused
undue prejudice to respondent, the Court cannot look
the other way and make respondent suffer the malicious
consequences of Gonzales’s and Oyardo’s
malfeasance. Otherwise, the Court would be recognizing
a result that is unconscionable and unjust by effectively
validating the following inequities: respondent, who was
vigilantly following up her appointment paper, was left to
hang and dry; to add insult to injury, not long after
Oyardo advised her to return to her teaching position,
she (Oyardo) appointed petitioner in respondent’s stead.
The obvious misgiving that comes to mind is why
Gonzales and Oyardo were able to promptly process
petitioner’s appointment and transmit the same to the
CSC for attestation when they could not do so for
respondent. There is no doubt that office politics was
moving behind the scenes.
In effect, Gonzales’ and Oyardo’s scheming and plotting
unduly deprived respondent of the professional
advancement she deserved. While public office is not
property to which one may acquire a vested right, it is
nevertheless a protected right.38
It cannot be overemphasized that respondent’s
appointment became effective upon its issuance by the
appointing authority and it remained effective until
disapproved by the CSC (if at all it ever was).
Disregarding this rule and putting undue importance on
the provision requiring the submission of the
appointment to the CSC within 30 days will reward
wrongdoing in the appointment process of public officials
and employees. It will open the door for scheming
officials to block the completion and implementation of
an appointment and render it ineffective by the simple
expedient of not submitting the appointment paper to the
CSC. As indubitably shown in this case, even
respondent’s vigilance could not guard against the
malice and grave abuse of discretion of her superiors.
There is no dispute that the approval of the CSC is a
legal requirement to complete the appointment. Under
settled jurisprudence, the appointee acquires a vested
legal right to the position or office pursuant to this
completed appointment.39 Respondent’s appointment
was in fact already approved by the CSC with finality.
The purpose of the requirement to submit the
appointment to the CSC is for the latter to approve or
disapprove such appointment depending on whether the
appointee possesses the appropriate eligibility or
required qualifications and whether the laws and rules
pertinent to the process of appointment have been
followed.40 With this in mind, respondent’s appointment
should all the more be deemed valid.
Respondent’s papers were in order. What was sought
from her (the position description form duly signed by
Gonzales) was not even a prerequisite before her
appointment papers could be forwarded to the CSC.
More significantly, respondent was qualified for the
position. Thus, as stated by the CA:
The evidence also reveals compliance with the
procedures that should be observed in the selection
process for the vacant position of Administrative Officer
II and the issuance of the appointment to the
respondent: the vacancy for the said position was
published on February 28, 2003; the Personnel
Selection Board of Dep-Ed Division of Tabaco City
conducted a screening of the applicants, which included
the respondent and the petitioner; the respondent’s
qualifications met the minimum qualifications for the
position of Administrative Officer II provided by the CSC.
She therefore qualified for permanent appointment.41
There is no doubt that, had the appointing authority only
submitted respondent’s appointment to the CSC within
the said 30 days from its issuance, the CSC would (and
could ) have approved it. In fact, when the CSC was
later apprised of respondent’s prior appointment when
she protested petitioner’s subsequent appointment, it
was respondent’s appointment which the CSC approved.
Petitioner’s appointment was recalled. These points
were never rebutted as petitioner gave undue emphasis
to the non-attestation by the CSC of respondent’s
appointment, without any regard for the fact that the
CSC actually approved respondent’s appointment.
Third, the Court is urged to overlook the injustice done to
respondent by citing Favis v. Rupisan42 and Tomali v.
Civil Service Commission.43
However, reliance on Favis is misplaced. In Favis, the
issue pertains to the necessity of the CSC approval, not
the submission of the appointment to the CSC within 30
days from issuance. Moreover, unlike Favis where there
was an apparent lack of effort to procure the approval of
the CSC, respondent in this case was resolute in
following up her appointment papers. Thus, despite
Favis’ having assumed the responsibilities of PVTA
Assistant General Manager for almost two years, the
Court affirmed her removal, ruling that:
The tolerance, acquiescence or mistake of the proper
officials, resulting in the non-observance of the pertinent
rules on the matter does not render the legal
requirement, on the necessity of approval by the
Commissioner of Civil Service of appointments,
ineffective and unenforceable.44 (Emphasis supplied)
Taken in its entirety, this case shows that the lack of
CSC approval was not due to any negligence on
respondent’s part. Neither was it due to the
"tolerance, acquiescence or mistake of the proper
officials." Rather, the underhanded machinations of
Gonzales and Oyardo, as well as the gullibility of
Diaz, were the major reasons why respondent’s
appointment was not even forwarded to the CSC.
Tomali, likewise, is not applicable. The facts are
completely different. In Tomali, petitioner Tomali’s
appointment was not approved by the CSC due to the
belated transmittal thereof to the latter. The Court,
citing Favis, ruled that the appointee’s failure to secure
the CSC’s approval within the 30-day period rendered
her appointment ineffective. It quoted the Merit Systems
Protection Board’s finding that "there is no showing that
the non-submission was motivated by bad faith, spite,
malice or at least attributed to the fault of the newly
installed [Office of Muslim Affairs] Executive Director."
The Court observed:
Petitioner herself would not appear to be all that
blameless. She assumed the position four months after
her appointment was issued or months after that
appointment had already lapsed or had become
ineffective by operation of law. Petitioner's appointment
was issued on 01 July 1990, but it was only on 31 May
1991 that it was submitted to the CSC, a fact which she
knew, should have known or should have at least
verified considering the relatively long interval of time
between the date of her appointment and the date of her
assumption to office.45
The Court also found that "[t]here (was) nothing on
record to convince us that the new OMA Director (had)
unjustly favored private respondent nor (had) exercised
his power of appointment in an arbitrary, whimsical or
despotic manner."46
The peculiar circumstances in Tomali are definitely not
present here. As a matter of fact, the situation was
exactly the opposite. As we have repeatedly stressed,
respondent was not remiss in zealously following up the
status of her appointment. It cannot be reasonably
claimed that the failure to submit respondent’s
appointment to the CSC was due to her own fault. The
culpability lay in the manner the appointing officials
exercised their power with arbitrariness, whim and
despotism. The whole scheme was intended to favor
another applicant.
Therefore, the lack of CSC approval
in Favis and Tomali should be taken only in that light and
not overly stretched to cover any and all similar cases
involving the 30-day rule. Certainly, the CSC approval
cannot be done away with. However, an innocent
appointee like the respondent should not be penalized if
her papers (which were in the custody and control of
others who, it turned out, were all scheming against her)
did not reach the CSC on time. After all, her appointment
was subsequently approved by the CSC anyway.
Under Article 1186 of the Civil Code, "[t]he condition
shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment." Applying this to the appointment
process in the civil service, unless the appointee himself
is negligent in following up the submission of his
appointment to the CSC for approval, he should not be
prejudiced by any willful act done in bad faith by the
appointing authority to prevent the timely submission of
his appointment to the CSC. While it may be argued that
the submission of respondent’s appointment to the CSC
within 30 days was one of the conditions for the approval
of respondent’s appointment, however, deliberately and
with bad faith, the officials responsible for the
submission of respondent’s appointment to the CSC
prevented the fulfillment of the said condition. Thus, the
said condition should be deemed fulfilled.
The Court has already had the occasion to rule that an
appointment remains valid in certain instances despite
non-compliance of the proper officials with the pertinent
CSC rules. In Civil Service Commission v. Joson,
Jr.,47 the CSC challenged the validity of the appointment
of Ong on the ground that, among others, it was not
reported in the July 1995 Report of Personnel Action
(ROPA), thus making such appointment ineffective. The
subject rule provided that an "appointment issued within
the month but not listed in the ROPA for the said month
shall become ineffective thirty days from issuance."
Rejecting the CSC’s contention, the Court held that there
was a legitimate justification for such delayed
observance of the rule:
We find the respondent's justification for the failure of the
POEA to include Ong's appointment in its ROPA for July
1995 as required by CSC Memorandum Circular No. 27,
Series of 1994 to be in order. The records show that the
[Philippine Overseas Employment Administration
(POEA)] did not include the contractual appointment of
Ong in its July ROPA because its request for exemption
from the educational requisite for confidential staff
members provided in [Memorandum Circular] No. 38
had yet been resolved by the CSC. The resolution of the
petitioner granting such request was received only in
November, 1995. The POEA, thereafter, reported the
appointment in its November, 1995 ROPA.48
The Court reached the same conclusion in the recent
case of Chavez v. Ronidel49 where there was a similar
inaction from the responsible officials which resulted in
non-compliance with the requirement:
Lastly, we agree with the appellate court that
respondent's appointment could not be invalidated solely
because of [Presidential Commission for the Urban
Poor’s (PCUP’s)] failure to submit two copies of the
ROPA as required by CSC Resolution No. 97368. xxxx
xxx xxx xxx
We quote with approval the appellate court's
ratiocination in this wise:
To our minds, however, the invalidation of the
[respondent's] appointment based on this sole
technical ground is unwarranted, if not harsh and
arbitrary, considering the factual milieu of this case.
For one, it is not the [respondent's] duty to comply
with the requirement of the submission of the ROPA
and the certified true copies of her appointment to [the
Civil Service Commission Field Office or] CSCFO within
the period stated in the aforequoted CSC Resolution.
The said resolution categorically provides that it is the
PCUP, and not the appointee as in the case of the
[respondent] here, which is required to comply with the
said reportorial requirements.
Moreover, it bears pointing out that only a few days after
the [petitioner] assumed his new post as PCUP
Chairman, he directed the PCUP to hold the processing
of [respondent's] appointment papers in abeyance, until
such time that an assessment thereto is officially
released from his office. Unfortunately, up to this very
day, the [respondent] is still defending her right to enjoy
her promotional appointment as DMO V. Naturally, her
appointment failed to comply with the PCUP's
reportorial requirements under CSC Resolution No.
97-3685 precisely because of the [petitioner's]
inaction to the same.
We believe that the factual circumstances of this case
calls for the application of equity. To our minds, the
invalidation of the [respondent's] appointment due
to a procedural lapse which is undoubtedly beyond
her control, and certainly not of her own making but
that of the [petitioner], justifies the relaxation of the
provisions of CSC Board Resolution No. 97-3685, pars.
6,7 and 8. Hence, her appointment must be upheld
based on equitable considerations, and that the non-
submission of the ROPA and the certified true copies of
her appointment to the CSCFO within the period stated
in the aforequoted CSC Resolution should not work to
her damage and prejudice. Besides, the [respondent]
could not at all be faulted for negligence as she
exerted all the necessary vigilance and efforts to reap
the blessings of a work promotion. Thus, We cannot
simply ignore her plight. She has fought hard enough
to claim what is rightfully hers and, as a matter of simple
justice, good conscience, and equity, We should not
allow Ourselves to prolong her agony.
All told, We hold that the [respondent's] appointment is
valid, notwithstanding the aforecited procedural lapse on
the part of PCUP which obviously was the own making
of herein [petitioner]. (Emphasis supplied)
Respondent deserves the same sympathy from the
Court because there was also a telling reason behind
the non-submission of her appointment paper within the
30-day period.
The relevance of Joson and Chavez to this case cannot
be simply glossed over. While the agencies concerned in
those cases were accredited agencies of the CSC which
could take final action on the appointments, that is not
the case here. Thus, any such differentiation is
unnecessary. It did not even factor in the Court’s
disposition of the issue in Joson and Chavez. What is
crucial is that, in those cases, the Court upheld the
appointment despite the non-compliance with a CSC
rule because (1) there were valid justifications for the
lapse; (2) the non-compliance was beyond the control of
the appointee and (3) the appointee was not negligent.
All these reasons are present in this case, thus, there is
no basis in saying that the afore-cited cases are not
applicable here. Similar things merit similar
treatment.1avvphi1
Fourth, in appointing petitioner, the appointing authority
effectively revoked the previous appointment of
respondent and usurped the power of the CSC to
withdraw or revoke an appointment that had already
been accepted by the appointee. It is the CSC, not the
appointing authority, which has this power.50 This is
clearly provided in Section 9, Rule V of the Omnibus
Rules:
Section 9. An appointment accepted by the appointee
cannot be withdrawn or revoked by the appointing
authority and shall remain in force and effect until
disapproved by the [CSC]. xxxx (Emphasis supplied)
Thus, the Court ruled in De Rama v. Court of
Appeals51 that it is the CSC which is authorized to recall
an appointment initially approved when such
appointment and approval are proven to be in disregard
of applicable provisions of the civil service law and
regulations.
Petitioner seeks to inflexibly impose the condition of
submission of the appointment to the CSC by the
appointing authority within 30 days from issuance, that
is, regardless of the negligence/diligence of the
appointee and the bad faith/good faith of the appointing
authority to ensure compliance with the
condition. However, such stance would place the
appointee at the mercy and whim of the appointing
authority even after a valid appointment has been
made. For although the appointing authority may not
recall an appointment accepted by the appointee, he or
she can still achieve the same result through
underhanded machinations that impedes or prevents the
transmittal of the appointment to the CSC. In other
words, the insistence on a strict application of the
condition regarding the submission of the appointment to
the CSC within 30 days, would give the appointing
authority the power to do indirectly what he or she
cannot do directly. An administrative rule that is of
doubtful basis will not only produce unjust consequences
but also corrupt the appointment process. Obviously,
such undesirable end result could not have been the
intention of the law.

The power to revoke an earlier appointment through the

appointment of another may not be conceded to the
appointing authority. Such position is not only contrary to
Section 9, Rule V and Section 1, Rule IV of the Omnibus
Rules. It is also a dangerous reading of the law because
it unduly expands the discretion given to the appointing
authority and removes the checks and balances that will
rein in any abuse that may take place. The Court cannot
countenance such erroneous and perilous interpretation
of the law.

Accordingly, petitioner’s subsequent appointment was

void. There can be no appointment to a non-vacant
position. The incumbent must first be legally removed, or
her appointment validly terminated, before another can
be appointed to succeed her.52

In sum, the appointment of petitioner was inconsistent

with the law and well-established jurisprudence. It not
only disregarded the doctrine of immutability of final
judgments but also unduly concentrated on a narrow
portion of the provision of law, overlooking the greater
part of the provision and other related rules and using a
legal doctrine rigidly and out of context. Its effect was to
perpetuate an injustice.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.