JUAN F. VILLARROEL, vs.

BERNARDINO ESTRADA
G.R. No. L-47362 December 19, 1940
FACTS: On May 9 1912, Alejandra F. Callao mother of herein petitioner obtained from the Sps
Mariano Estrada and Severina a loan of 1000 pesos payable in 6 years. Alejandra died leaving
petitioner as the sole heir. The Sps Mariano Estrada and Severina died as well leaving the
respondent as the sole heir. On Aug 9 1930, petitioner signed a document assuming the obligation
to pay the respondent 1000 plus 12% per annum interest. Hence the action filed to recover said
amount.
The CFI ruled in favor of the respondent ordering the petitioner to pay 1000 plus interest of 12% per
annum to be counted from Aug 9 1930.

ISSUE: Whether or not the present action may prosper notwithstanding the prescription of the action
to recover the original debt?
HELD: Yes. The present action is not based on the original debt contracted by petitioner’s mother –
which has already prescribed – but on petitioner’s undertaking on Aug 9 1930 to assume the original
obligation. For the petitioner who is the sole heir of the original debtor with rights to the latter’s
inheritance, the debt legally contracted by his mother even if it has already lost enforceability due to
prescription, has become a moral obligation which is a sufficient consideration to make the obligation
he voluntarily assumedon Aug 9 1930 enforceable and legally demandable.

G.R. No. L-13667 April 29, 1960

PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,
vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY, ET
AL., defendants-appellees.

On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a
complaint praying for a 20% Christmas bonus for the years 1954 and 1955. The court a quo on
appellees' motion to dismiss.

(a) A bonus is an act of liberality and the court takes it that it is not within its judicial powers
to command respondents to be liberal;

(b) Petitioners admit that respondents are not under legal duty to give such bonus but that
they had only ask that such bonus be given to them because it is a moral obligation of
respondents to give that but as this Court understands, it has no power to compel a party to
comply with a moral obligation (Art. 142, New Civil Code.).

Appellants contend that there exists a cause of action in their complaint because their claim rests on
moral grounds or what in brief is defined by law as a natural obligation.

Since appellants admit that appellees are not under legal obligation to give such claimed bonus; that
the grant arises only from a moral obligation or the natural obligation that they discussed in their brief,
this Court feels it urgent to reproduce at this point, the definition and meaning of natural obligation.

Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil obligations are a
right of action to compel their performance. Natural obligations, not being based on positive law but
on equity and natural law, do not grant a right of action to enforce their performance, but after
voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or
rendered by reason thereof".

GR: It is thus readily seen that an element of natural obligation before it can be cognizable by the
court is voluntary fulfillment by the obligor. Certainly retention can be ordered but only after there has
been voluntary performance. But here there has been no voluntary performance. In fact, the court
cannot order the performance.

From the legal point of view a bonus is not a demandable and enforceable obligation. It is so when it
is made a part of the wage or salary compensation. Philippine Education Co. vs. CIR and the Union
of Philippine Education Co., Employees

H. E. Heacock vs. National Labor Union, et al.

XPN: Even if a bonus is not demandable for not forming part of the wage, salary or
compensation of an employee, the same may nevertheless, be granted on equitable
consideration as when it was given in the past, though withheld in succeeding two years from
low salaried employees due to salary increases.

G.R. No. L-48889 May 11, 1989

DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,
vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of First
Instance of Iloilo and SPOUSES PATRICIO CONFESOR and JOVITA
VILLAFUERTE, respondents.

the validity of a promissory note which was executed in consideration of a previous promissory note
the enforcement of which had been barred by prescription.

On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan
from the Agricultural and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the
sum of P2,000.00, Philippine Currency, as evidenced by a promissory note of said date whereby
they bound themselves jointly and severally to pay the account in ten (10) equal yearly amortizations.
As the obligation remained outstanding and unpaid even after the lapse of the aforesaid ten-year
period, Confesor, who was by then a member of the Congress of the Philippines, executed a second
promissory note on April 11, 1961 expressly acknowledging said loan and promising to pay the
same on or before June 15, 1961

Said spouses not having paid the obligation on the specified date, the DBP filed a complaint FOR
PAYMENT.

There is no doubt that prescription has set in as to the first promissory note of February 10, 1940.
However, when respondent Confesor executed the second promissory note on April 11, 1961
whereby he promised to pay the amount covered by the previous promissory note on or before June
15, 1961, and upon failure to do so, agreed to the foreclosure of the mortgage, said respondent
thereby effectively and expressly renounced and waived his right to the prescription of the action
covering the first promissory note.

This Court had ruled in a similar case that –

... when a debt is already barred by prescription, it cannot be enforced by the creditor.
But a new contract recognizing and assuming the prescribed debt would be valid and
enforceable ... . 1

Thus, it has been held —

Where, therefore, a party acknowledges the correctness of a debt and promises to
pay it after the same has prescribed and with full knowledge of the prescription he
thereby waives the benefit of prescription. 2

This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay
the debt. The consideration of the new promissory note is the pre-existing obligation under the first
promissory note. The statutory limitation bars the remedy but does not discharge the debt.

A new express promise to pay a debt barred ... will take the case from the operation
of the statute of limitations as this proceeds upon the ground that as a statutory
limitation merely bars the remedy and does not discharge the debt, there is
something more than a mere moral obligation to support a promise, to wit a – pre-
existing debt which is a sufficient consideration for the new the new promise; upon
this sufficient consideration constitutes, in fact, a new cause of action. 3

... It is this new promise, either made in express terms or deduced from an
acknowledgement as a legal implication, which is to be regarded as reanimating the
old promise, or as imparting vitality to the remedy (which by lapse of time had
become extinct) and thus enabling the creditor to recover upon his original contract. 4

However, the court a quo held that in signing the promissory note alone, respondent Confesor ALSO
BIND HER WIFE.

Under Article 165 of the Civil Code, the husband is the administrator of the conjugal partnership. As
such administrator, all debts and obligations contracted by the husband for the benefit of the
conjugal partnership, are chargeable to the conjugal partnership. 5 No doubt, in this case, respondent
Confesor signed the second promissory note for the benefit of the conjugal partnership. Hence the
conjugal partnership is liable for this obligation.

G.R. No. L-3756 June 30, 1952

SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS, plaintiff-
appellee,
vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.

This is an action to recover the possession of a piece of real property (land and warehouses)
situated in Pandacan Manila, and the rentals for its occupation and use. The land belongs to the
SAGRADA ORDEN, in whose name the title was registered before the war. On January 4, 1943,
during the Japanese military occupation, the land was acquired by a Japanese corporation. After
liberation, on April 4, 1946, the Alien Property Custodian of the United States of America took
possession, control, and custody thereof under section 12 of the Trading with the Enemy Act, 40
Stat., 411, for the reason that it belonged to an enemy national. During the year 1946 the property
was occupied by the Copra Export Management Company under a custodianship agreement with
United States Alien Property Custodian (Exhibit G), and when it vacated the property it was occupied
by the NATIONAL COCONUT CORP. The Philippine Government made representations with the
Office Alien Property Custodian for the use of property by the Government. On March 31, 1947, the
defendant was authorized to repair the warehouse on the land, and actually spent thereon the
repairs the sum of P26,898.27. In 1948, defendant leased one-third of the warehouse to one
Dioscoro Sarile at a monthly rental of P500, which was later raised to P1,000 a month. Sarile did not
pay the rents, so action was brought against him. It is not shown, however, if the judgment was ever
executed.

Plaintiff made claim to the property before the Alien Property Custodian of the United States, but as
this was denied, it brought an action in court to annul the sale of property of Taiwan Tekkosho, and
recover its possession. The Republic of the Philippines was allowed to intervene in the action. The
case did not come for trial because the parties presented a joint petition in which it is claimed by
plaintiff that the sale in favor of the Taiwan Tekkosho was null and void because it was executed
under threats, duress, and intimidation, and it was agreed that the title issued in the name of the
Taiwan Tekkosho be cancelled and the original title of plaintiff re-issued;

Defendant-appellant is not guilty of any offense at all, because it entered the premises and occupied
it with the permission of the entity which had the legal control and administration thereof, the
Allien Property Administration. Neither was there any negligence on its part. There was also no
privity (of contract or obligation) between the Alien Property Custodian and the Taiwan Tekkosho,
which had secured the possession of the property from the plaintiff-appellee by the use of duress,
such that the Alien Property Custodian or its permittee (defendant-appellant) may be held
responsible for the supposed illegality of the occupation of the property by the said Taiwan Tekkosho.
The Allien Property Administration had the control and administration of the property not as
successor to the interests of the enemy holder of the title, the Taiwan Tekkosho, but by express
provision of law (Trading with the Enemy Act of the United States, 40 Stat., 411; 50 U.S.C.A., 189).
Neither is it a trustee of the former owner, the plaintiff-appellee herein, but a trustee of then
Government of the United States (32 Op. Atty. Gen. 249; 50 U.S.C.A. 283), in its own right, to the
exclusion of, and against the claim or title of, the enemy owner. (Youghioheny & Ohio Coal Co. vs.
Lasevich [1920], 179 N.W., 355; 171 Wis., 347; U.S.C.A., 282-283.) From August, 1946, when
defendant-appellant took possession, to the late of judgment on February 28, 1948, Allien Property
Administration had the absolute control of the property as trustee of the Government of the United
States, with power to dispose of it by sale or otherwise, as though it were the absolute owner. (U.S
vs. Chemical Foundation [C.C.A. Del. 1925], 5 F. [2d], 191; 50 U.S.C.A., 283.) Therefore, even if
defendant-appellant were liable to the Allien Property Administration for rentals, these would not
accrue to the benefit of the plaintiff-appellee, the owner, but to the United States Government.

But there is another ground why the claim or rentals can not be made against defendant-appellant.
There was no agreement between the Alien Property Custodian and the defendant-appellant for the
latter to pay rentals on the property. The existence of an implied agreement to that effect is contrary
to the circumstances. The copra Export Management Company, which preceded the defendant-
appellant, in the possession and use of the property, does not appear to have paid rentals therefor,
as it occupied it by what the parties denominated a "custodianship agreement," and there is no
provision therein for the payment of rentals or of any compensation for its custody and or occupation

and the use. The Trading with the Enemy Act, as originally enacted, was purely a measure of
conversation, hence, it is very unlikely that rentals were demanded for the use of the property. When
the National coconut Corporation succeeded the Copra Export Management Company in the
possession and use of the property, it must have been also free from payment of rentals, especially
as it was Government corporation, and steps where then being taken by the Philippine Government
to secure the property for the National Coconut Corporation. So that the circumstances do not justify
the finding that there was an implied agreement that the defendant-appellant was to pay for the use
and occupation of the premises at all.

The above considerations show that plaintiff-appellee's claim for rentals before it obtained the
judgment annulling the sale of the Taiwan Tekkosho may not be predicated on any negligence or
offense of the defendant-appellant, or any contract, express or implied, because the Allien Property
Administration was neither a trustee of plaintiff-appellee, nor a privy to the obligations of the Taiwan
Tekkosho, its title being based by legal provision of the seizure of enemy property. We have also
tried in vain to find a law or provision thereof, or any principle in quasi contracts or equity, upon
which the claim can be supported. On the contrary, as defendant-appellant entered into possession
without any expectation of liability for such use and occupation, it is only fair and just that it may not
be held liable therefor. And as to the rents it collected from its lessee, the same should accrue to it
as a possessor in good faith, as this Court has already expressly held. (Resolution, National
Coconut Corporation vs. Geronimo, 83 Phil. 467.)

Lastly, the reservation of this action may not be considered as vesting a new right; if no right to claim
for rentals existed at the time of the reservation, no rights can arise or accrue from such reservation
alone.

Wherefore, the part of the judgment appealed from, which sentences defendant-appellant to pay
rentals from August, 1946, to February 28, 1949, is hereby reversed. In all other respects the
judgment is affirmed. Costs of this appeal shall be against the plaintiff-appellee.

G.R. No. 183204 January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.

Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid upon demand by
the depositor.2

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized
and existing under the laws of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the
owner of China Golden Bridge Travel Services,7 a travel agency.8 Respondent Yo Yuk To is the
mother of respondent Rosales.9

In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.11

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National
applying for a retiree’s visa from the Philippine Leisure and Retirement Authority (PLRA), to
petitioner’s branch in Escolta to open a savings account, as required by the PLRA.13 Since Liu Chiu
Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her.14

respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar Account15 with an initial
deposit of US$14,000.00.16

petitioner issued a "Hold Out" order against respondents’ accounts.17

METROBANK filed before the Office of the Prosecutor of Manila a criminal case for Estafa through
False Pretences, Misrepresentation, Deceit, and Use of Falsified Documents against respondent
Rosales.19

Petitioner accused respondent Rosales and an unidentified woman as the ones responsible for the
unauthorized and fraudulent withdrawal of US$75,000.00 from Liu Chiu Fang’s dollar account with
petitioner’s Escolta Branch.20Petitioner alleged that on February 5, 2003, its branch in Escolta
received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu Fang;21

that in the afternoon of the same day, respondent Rosales went to petitioner’s Escolta Branch to
inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her
dollar deposits in cash;

that the impostor was able to withdraw Liu Chiu Fang’s dollar deposit in the amount of
US$75,000.00;25 that on March 3, 2003, respondents opened a dollar account with petitioner; and
that the bank later discovered that the serial numbers of the dollar notes deposited by respondents
in the amount of US$11,800.00 were the same as those withdrawn by the impostor.26

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal
from the dollar account of Liu Chiu Fang.27

On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing
the criminal case for lack of probable cause.43 Unfazed, petitioner moved for reconsideration.

The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with
respondents, and (2) if so, whether it is liable for damages.

The "Hold Out" clause does not apply to the instant case.

Petitioner claims that it did not breach its contract with respondents because it has a valid reason for
issuing the "Hold Out" order. Petitioner anchors its right to withhold respondents’ deposits on the
Application and Agreement for Deposit Account, which reads:

Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for Deposit Account
is misplaced.

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the
sources of obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasi-
contracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an
obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal
case was filed by petitioner against respondent Rosales, this is not enough reason for petitioner to
issue a "Hold Out" order as the case is still pending and no final judgment of conviction has been
rendered against respondent Rosales.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably
refused to release respondents’ deposit despite demand. Having breached its contract with
respondents, petitioner is liable for damages.

Respondents are entitled to moral and
exemplary damages and attorney’s fees. 1âwphi1

In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith,80 or is "guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligations."81

In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals
that petitioner issued the "Hold Out" order in bad faith. First of all, the order was issued without any
legal basis. Second, petitioner did not inform respondents of the reason for the "Hold Out."82 Third,
the order was issued prior to the filing of the criminal complaint. Records show that the "Hold Out"
order was issued on July 31, 2003,83 while the criminal complaint was filed only on September 3,
2003.84 All these taken together lead us to conclude that petitioner acted in bad faith when it
breached its contract with respondents. As we see it then, respondents are entitled to moral
damages.

As to the award of exemplary damages, Article 222985 of the Civil Code provides that exemplary
damages may be imposed "by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages." They are awarded only if the guilty party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any legal basis.
We need not belabor the fact that the banking industry is impressed with public interest.87 As
such, "the highest degree of diligence is expected, and high standards of integrity and performance
are even required of it."88 It must therefore "treat the accounts of its depositors with meticulous care
and always to have in mind the fiduciary nature of its relationship with them."89 For failing to do this,
an award of exemplary damages is justified to set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 220890 of the Civil
Code.

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

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

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

179337 April 30. attorney's fees of P100.25 for actual damages with 12% interest per annum from the filing of the complaint until fully paid. Rosete was brought to the police station where he explained that the shooting was accidental. (8) In actions for indemnity under workmen's compensation and employer's liability laws. filed a Third-Party Complaint7 against Galaxy Development and Management Corporation (Galaxy). In all cases.000.00 and cost of the suit. and its president. one of the security guards on duty at the school premises on August 18.298. He was eventually released considering that no formal complaint was filed against him. Mariano Imperial to indemnify jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity as President of FEU) for the above-mentioned amounts. respondents.8 trial court rendered a decision in favor of petitioner. in turn.SALUDAGA WAS RUSH TO THE HOSPITAL. DE JESUS in his capacity as President of FEU. if any. The antecedent facts are as follows: Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot by Alejandro Rosete (Rosete). petitioner. Respondents. Col. 2008 JOSEPH SALUDAGA. (11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered. exemplary damages of P500. Galaxy Management and Development Corp. 1996.000. the attorney's fees and expenses of litigation must be reasonable. Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance. moral damages of P300. the dispositive portion of which reads: FEU and Edilberto de Jesus. (9) In a separate civil action to recover civil liability arising from a crime. in his capacity as president of FEU to pay jointly and severally Joseph Saludaga the amount of P35. Petitioner thereafter filed a complaint for damages against FEU AND ITS PRESIDENT on the ground that they breached their obligation to provide students with a safe and secure environment and an atmosphere conducive to learning. . On the other hand. . and to pay attorney's fees and cost of the suit.000. FAR EASTERN UNIVERSITY and EDILBERTO C. Imperial (Imperial). vs. (10) When at least double judicial costs are awarded.R. the agency contracted by respondent FEU to provide security services within its premises and Mariano D. G.00. No. to indemnify them for whatever would be adjudged in favor of petitioner.00.

Court of Appeals.0. Defendants are responsible for ensuring the safety of its students while the latter are within the University premises. . respondents aver that the shooting incident was a fortuitous event because they could not have reasonably foreseen nor avoided the accident caused by Rosete as he was not their employee. a contract was entered into between them. When plaintiff enrolled with defendant FEU. prima facie. there is a prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment to its students. The pertinent portions of petitioner's Complaint read: 6. the student covenants to abide by the school's academic requirements and observe its rules and regulations. no evidence as to the qualifications of Rosete as a security guard for the university was offered.14 It is settled that in culpa contractual.Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe learning environment.0. the mere proof of the existence of the contract and the failure of its compliance justify. After a thorough review of the records. At the time of plaintiff's confinement. On the other hand. we find that respondents failed to discharge the burden of proving that they exercised due diligence in providing a safe learning environment for their students. resulting in bilateral obligations which both parties are bound to comply with. Under this contract.15 In the instant case. Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. we find that. defendants are supposed to ensure that adequate steps are taken to provide an atmosphere conducive to study and ensure the safety of the plaintiff while inside defendant FEU's premises In Philippine School of Business Administration v.13 we held that: When an academic institution accepts students for enrollment. certain documents about Galaxy were presented during trial. the school undertakes to provide the student with an education that would presumably suffice to equip him with the necessary tools and skills to pursue higher education or a profession. the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof. however. 11. there is established a contract between them. 12. when petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and secure the premises.0. the defendants or any of their representative did not bother to visit and inquire about his condition. They failed to prove that they ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement. Certainly. Necessarily. a corresponding right of relief. For its part.16and that they complied with their obligation to ensure a safe learning environment for their students by having exercised due diligence in selecting the security services of Galaxy. no student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around the school premises a constant threat to life and limb. Indeed. however. In order to avoid liability.

mental anguish.22 The testimony of petitioner about his physical suffering. neglect or failure to act . v.the whole occurrence is humanized and removed from the rules applicable to acts of God. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. nonetheless. Hence.Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards assigned to them actually possess the qualifications required in the Security Service Agreement.18 In the instant case. respondents must show that no negligence or misconduct was committed that may have occasioned the loss. psychiatric test results. and other vital documents enumerated in its contract with Galaxy. reckless. such as transportation expenses and those incurred in hiring a personal assistant while recuperating were however not duly supported by receipts. In order for force majeure to be considered.00.000.19 While the trial court correctly imposed interest on said amount. the amount of P20. for breach of contract due to negligence in providing a safe learning environment. Accordingly.26 we held that: . showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. temperate damages under Art.00 as part of damages is reasonable in view of Article 2208 of the Civil Code. 2224 of the Civil Code may be recovered where it has been shown that the claimant suffered some pecuniary loss but the amount thereof cannot be proved with certainty. fright. it was established that petitioner spent P35. It is essential in the award of damages that the claimant must have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts. The other expenses being claimed by petitioner. respondents' defense of force majeure must fail. It was not proven that they examined the clearances.21 In the absence thereof. respondent FEU is liable to petitioner for damages. Likewise. the proper rate of legal interest is six percent (6%) per annum of the amount demanded. Nonetheless. 201 files. Consequently. When the effect is found to be partly the result of a person's participation .25 for his hospitalization and other medical expenses. Inc. serious anxiety. oppressive.298. fraudulent.whether by active intervention. there is no hard and fast rule in the determination of what would be a fair amount of moral damages since each case must be governed by its own peculiar circumstances. However. or malevolent manner. moral damages are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. We deem it just and reasonable under the circumstances to award petitioner moral damages in the amount of P100.20 After this Decision becomes final and executory. In Powton Conglomerate. One's negligence may have concurred with an act of God in producing damage and injury to another. the case at bar involves an obligation arising from a contract and not a loan or forbearance of money. attorney's fees and litigation expenses in the amount of P50.000.17 Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages.25 However. however. As regards the award of moral damages.000. We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. As such. the award of exemplary damages is deleted considering the absence of proof that respondents acted in a wanton. the applicable rate shall be twelve percent (12%) per annum until its satisfaction. no actual damages may be awarded.00 as temperate damages is awarded to petitioner. Agcolicol. and moral shock resulting from the shooting incident23 justify the award of moral damages. Such interest shall continue to run from the filing of the complaint until the finality of this Decision.

which provides: Art. the duty to observe the diligence of a good father of a family cannot be demanded from the said client: … [I]t is settled in our jurisdiction that where the security agency. having knowledge thereof. The instructions issued by respondents' Security Consultant to Galaxy and its security guards are ordinarily no more than requests commonly envisaged in the contract for services entered into by a principal and a security agency. its stockholders or other persons. the agency is the . Tuazon. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions. even though the former are not engaged in any business or industry. although the main cause of action in the instant case is the breach of the school-student contract. as a rule. (3) he agrees to hold himself personally and solidarily liable with the corporation. xxxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. trustee or officer along (although not necessarily) with the corporation may so validly attach. We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under Art. respondent De Jesus should not be held solidarily liable with respondent FEU. hires and assigns the works of its watchmen or security guards to a client. corporate officers who entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter. recruits. (2) he consents to the issuance of watered down stocks or who.28 As held in Mercury Drug Corporation v. save for certain exceptions. hence. also holds respondents vicariously liable under Article 2180 of the Civil Code. Thus. since the latter has no hand in selecting the security guards.(1) he assents to a patently unlawful act of the corporation. Incidentally. as here. only when . Libunao:29 In Soliman. xxxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks. They cannot be construed as the element of control as to treat respondents as the employers of Rosete. The latter was employed by Galaxy. v. does not forthwith file with the corporate secretary his written objection thereto. the employer of such guards or watchmen is such agency. or when there is a conflict of interest resulting in damages to the corporation. such that.30 we held that where the security agency recruits. 2180. 2180 of the Civil Code because respondents are not the employers of Rosete. but also for those of persons for whom one is responsible.27 None of the foregoing exceptions was established in the instant case. or (4) he is made by a specific provision of law personally answerable for his corporate action. [A] corporation is invested by law with a personality separate and distinct from those of the persons composing it. Jr. hires and assigns the work of its watchmen or security guards. Personal liability of a corporate director. and not the client. or when he is guilty of bad faith or gross negligence in directing its affairs. in the alternative. petitioner.

On April 5.P. a client or customer of a security agency has no hand in selecting who among the pool of security guards or watchmen employed by the agency shall be assigned to it..M. knowledge or orders of the plaintiff and/or defendant brought out of the compound of the plaintiff a car belonging to its customer. render the client responsible as an employer of the security guards concerned and liable for their wrongful acts or omissions. the duty to observe the diligence of a good father of a family in the selection of the guards cannot. by itself. Davao City by reason of which the plaintiff's complaint for qualified theft against said driver. It was Imperial who assured petitioner that his medical expenses will be shouldered by Galaxy but said representations were not fulfilled because they presumed that petitioner and his family were no longer interested in filing a formal complaint against them. does not. xxxx The fact that a client company may give instructions or directions to the security guards assigned to it. COMMANDO SECURITY SERVICE AGENCY. Laurel St. "without any authority. 1973 PEOPLE'S CAR INC. approval."5 the car of plaintiff's customer. As a general rule.00) pesos per guard post" under paragraph 4 of their contract. employer of such guards or watchmen.31 For these acts of negligence and for having supplied respondent FEU with an unqualified security guard. which resulted to the latter's breach of obligation to petitioner. be demanded from the client whose premises or property are protected by the security guards. causing the same to fall into a ditch along J.. 1970 at around 1:00 A. consent. Joseph Luy. however. Plaintiff claimed that defendant was liable for the entire amount under paragraph 5 of their contract whereunder defendant assumed "sole responsibility for the acts done during their watch hours" by its guards. and while so driving said car in one of the City streets lost control of said car. whereas defendant contended. L-36840 May 22. Liability for illegal or harmful acts committed by the security guards attaches to the employer agency. which had been left with plaintiff for servicing and maintenance. abandoning his post as such security guard on duty inside the plaintiff's compound. defendant's security guard on duty at plaintiff's premises. and drove said car for a place or places unknown. and not to the clients or customers of such agency. without questioning the amount of the actual damages incurred by plaintiff. . vs. No.000. plaintiff-appellant.R. we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in directing the affairs of the security agency. it is proper to hold Galaxy liable to respondent FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner. Unlike respondent De Jesus. meritorious and must be granted.. was blottered in the office of the Davao City Police Department. in the ordinary course of events. that its liability "shall not exceed one thousand (P1. defendant-appellee.35 G.

through its assigned security guards." is by its own terms applicable only for loss or damage 'through the negligenceof its guards . which had been entrusted into its custody. robbery. since under paragraph 5 of their contract it "assumed the responsibility for the proper performance by the guards employed of their duties and (contracted to) be solely responsible for the acts done during their watch hours" and "specifically released (plaintiff) from any and all liabilities ." defendant's own guard on duty unlawfully and wrongfully drove out of plaintiffs premises a customer's car. "obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. As ordained in Article 1159. notwithstanding his plainly valid claim. instead of defendant." Plaintiff in law could not tell its customer.489." Plaintiff was in law liable to its customer for the damages caused the customer's car. aside from its ethical deficiency among others. the judgment appealed from is hereby reversed and judgment is hereby rendered sentencing defendant-appellee to pay plaintiff-appellant the sum of P8. It is so ordered. during the watch hours" provided that the same is duly reported by plaintiff within 24 hours of the occurrence and the guard's negligence is verified after proper investigation with the attendance of both contracting parties.. vandalism and all other unlawful acts of any person or persons. ACCORDINGLY. .. the administration of justice is prejudiced. in the same way that defendant's baseless attempt to evade fully discharging its contractual liability to plaintiff cannot be expected to have brought it more business. could hardly create any goodwill for plaintiff's business. Civil Code. Plaintiff therefore was in law justified in making good such damages and relying in turn on defendant to honor its contract and indemnify it for such undisputed damages.Paragraph 4 of the contract. Worse. as per the trial court's view.10. Here.10 as and by way of reimbursement of the stipulated actual damages and expenses. which involve neither property of plaintiff that has been lost or damaged at its premises nor mere negligence of defendant's security guard on duty. which had been caused directly by the unlawful and wrongful acts of defendant's security guard in breach of their contract. to the third parties arising from the acts or omissions done by the guards during their tour of duty.00 per guard post. Defendant is therefore undoubtedly liable to indemnify plaintiff for the entire damages thus incurred.000. which limits defendant's liability for the amount of loss or damage to any property of plaintiff to "P1. Said paragraph is manifestly inapplicable to the stipulated facts of record. since the court dockets are unduly burdened with unnecessary litigation. lost control of it on the highway causing it to fall into a ditch.489. complying with its contractual undertaking 'to safeguard and protect the business premises of (plaintiff) from theft.. that "under the Guard Service Contract it was not liable for the damage but the defendant" — since the customer could not hold defendant to account for the damages as he had no privity of contract with defendant. Such an approach of telling the adverse party to go to court. as well as the costs of suit in both instances. thereby directly causing plaintiff to incur actual damages in the total amount of P8..

plaintiff-appellant. L-23749 April 29. J. the same should have been made in good faith and under the mistake as to title.00 on said land having an area of more or less since defendants-appellees are being benefited by said improvements. and that his action has not prescribed for the reason that defendants had ten years to comply and only after the said ten years did his cause of action accrue. Tuason & Co.G. Under the provisions of See. hence the agreement has already been partly executed and not merely executory within the contemplation of the Statute. it is clear that the alleged agreement involves an interest in real property.000 square meters of land in consideration of certain services to be rendered then.781. he is entitled to reimbursement from them of said amounts Plaintiff opposed the motion.400. that upon request of the Deudors (the family of Telesforo Deudor who laid claim on the land in question on the strength of an "informacion posesoria" ) plaintiff made permanent improvements valued at P30. the defendants are unjustly enriching and benefiting at the expense of the plaintiff. On the issue of statute of limitations. M. the plaintiff has already performed his part of the agreement. The Court can take judicial notice of the fact that the tract of land supposedly improved by the plaintiff had been registered way back in 1914 in the name of the predecessors-in-interest of defendant J. Tuason & Co. the plaintiff countered that. that is. not only because Article 1403 of the Civil Code refers only to "sale of real property or of an interest therein" and not to promises to convey real property like the one supposedly promised by defendants to him. in order that the alleged improvement may he considered a lien or charge on the property. Inc. by holding and utilizing the improvements introduced by him. the plaintiff cannot claim good faith and mistake as to the title of the land. M. 2(e) of Article 1403 of the Civil Code.. 2. such agreement is not enforceable as it is not in writing and subscribed by the party charged. it is not a privy to the plaintiff's agreement to assist the Deudors n improving the 50 quinones. 12 of the complaint states that the defendants promised and agreed to cede. 1964. the Court holds that the plaintiff's action has prescribed. but also because. Said this Honorable Court (at p. on the theory of unjust enrichment under Article 2142 of the civil Code: . the date of the approval of the compromise agreement. The allegation in par.. INC. M. that the Statute of Frauds cannot be invoked by defendants. insisting that Article 2142 of the applicable to his case. and GREGORIO ARANETA.. and his complaint was filed on January 24.00 and P7.. transfer and convey unto the plaintiff the 3. claimed that. Furthermore. On the other hand.400. No. Such being the case. and that said improvements constitute a lien or charge of the property itself On the issue of statute of fraud. Order): It is found that the defendants are not parties to the supposed express contract entered into by and between the plaintiff and the Deudors for the clearing and improvement of the 50 quinones. defendants-appellees. INC. the Court believes that same is applicable to the instant case. Inc.74 is concerned. vs. he. 1963. TUASON & COMPANY. insofar as the plaintiffs claim for the reimbursement of the amounts of P38.\ Defendant J.R. 1977 FAUSTINO CRUZ. Plaintiff's cause of action is premised inter alia. ten years after March 16.

Article 19 of the same Code enjoins that: ART. in the exercise of his rights and in the performance of his duties. It is clear that the alleged agreement involves an interest in real property. 2142. the complaint states a cause of action against the defendants. transfer and convey unto the plaintiff.' In this posture. — The statute of frauds has been uniformly interpreted to be applicable to executory and not to . namely by the plaintiff. In like vein. act with justice. such agreement is not enforceable as it is not in writing and subscribed by the party charged. 3. While it is true that there was no agreement between plaintiff and defendants herein for the improvement of the 50 quinones since the latter are presently enjoying and utilizing the benefits brought about through plaintiff's labor and expenses. Further.000 SQ. 1403. MS. the Court believes that same is applicable to the instant Case. To bring this issue in sharper focus. The allegation in par. it has been uniformly held that the statute of frauds IS APPLICABLE ONLY TO EXECUTORY CONTRACTS BUT NOT WHERE THE CONTRACT HAS BEEN PARTLY EXECUTED: SAME ACTION TO ENFORCE. II. The Statute of Frauds is CLEARLY inapplicable to this case: At page 2 of this Honorable Court's order dated 13 August 1964. Civil Code). Every person must. Under the provisions of Sec. Paragraph 12 states thus: From the foregoing. the Court ruled as follows: On the issue of statute of fraud. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3. shall reproduce not only paragraph 12 of the complaint but also the other pertinent paragraphs therein contained. We respectfully draw the attention of this Honorable Court to the fact that ARTICLE 2142 (SUPRA) DEALS WITH QUASI-CONTRACTS or situations WHERE THERE IS NO CONTRACT BETWEEN THE PARTIES TO THE ACTION. Certain lawful voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one shill be unjustly enriched or benefited at the expense of another. defendants should pay and reimburse him therefor under the principle that 'no one may enrich himself at the expense of another. that the Same bears the designation 'EXTRA CONTRACTUAL OBLIGATIONS' or obligations which do not arise from contracts. 12 of the complaint states that the defendants promised and agree to cede. THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO. Regarding the applicability of the statute of frauds (Art. it is clear then the agreement between the parties mentioned in paragraph 12 (supra) of the complaint has already been fully EXECUTED ON ONE PART. 2(e) of Article 1403 of the Civil Code. give every-one his due and observe honesty and good faith. 19. ART.000 square meters of land in consideration of certain services to be rendered then. as we can readily see from the title thereof (Title XVII).

. plaintiff demanded of said defendants that they execute the Deed of Conveyance in his favor and deliver the title certificate in his name. in mots cases. on the theory that there is a wide field for the commission of frauds in executory contracts which can only be prevented by requiring them to be in writing. Performance of the contracts takes it out of the operation of the statute.000 sq.000 sq. a facts which is reduced to a minimum in executed contracts because the intention of the parties becomes apparent buy their execution and execution. (At pp. (par. It is neither applicable to executed contracts nor to contracts partially performed. In view of the foregoing. 15). over which the latter had agreed to execute the proper documents of transfer. ms. In executory contracts there is a wide field for fraud because unless they be in writing there is no palpable evidence of the intention of the contracting parties. but defendants failed and refused and continue to fail and refuse to heed his demands. (Emphasis supplied) Under paragraphs 13 and 14 of the complaint (supra) one can readily see that the plaintiff has fulfilled ALL his obligation under the agreement between him defendants concerning the 3.000 sq. completed or contracts.. after all the conditions stated in paragraph 12 hereof had been fulfilled and fully complied with.. On the other hand the commission of fraud in executed contracts is reduced to minimum in executed contracts because (1) the intention of the parties is made apparent by the execution and (2) execution concludes. over the 3. Emphasis supplied). complaint. 167. concluded the right the parties. ms. at p. The statute of the frauds is not applicable to contracts which are either totally or partially performed. Thus Mr. 1974 Ed. the rights of the parties. Authorities in support of the foregoing rule are legion. Justice Moran in his 'Comments on the Rules of Court'. in most cases. 1962 Ed. Vol.. IV.. Tolentino's Civil Code of the Philippines. states: 2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY CONTRACTS: CONTRACTS WHICH ARE EITHER TOTALLY OR PARTIALLY PERFORMED ARE WITHOUT THE STATUE. 15. The statute has been enacted to prevent fraud. 564-565. III. Emphasis supplied). Plaintiff's Cause of Action had NOT Prescribed: . Vol. This fact is further projected in paragraph 15 of the complaint where plaintiff states.. we respectfully submit that this Honorable court erred in holding that the statute of frauds is applicable to plaintiff's claim over the 3. . There having been full performance of the contract on plaintiff's part. ms. The partial performance may be proved by either documentary or oral evidence. The reason is simple. the same takes this case out of the context of said statute. The statute of frauds is applicable only to executory contracts. . That in or about the middle of 1963.

default. evidence. between the defendants and the Deudors. price. In no sense may such alleged contract be considered as being a "sale of real property or of any interest therein. terms of sale. (d) An agreement for the sale of goods. (c) An agreement made in consideration of marriage. or some note or memorandum thereof. And the only agreements or contracts covered thereby are the following: (1) Those entered into in the name of another person by one who has been given no authority or legal representation. . (3) Those where both parties are incapable of giving consent to a contract. chattels or things in action. at the time of the sale. (b) A special promise to answer for the debt. In the following cases an agreement hereafter made shall be unenforceable by action. It is elementary that the Statute refers to specific kinds of transactions and that it cannot apply to any that is not enumerated therein. be in writing. other than a mutual promise to marry. but when a sale is made by auction and entry is made by the auctioneer in his sales book. or for the sale of real property or of an interest therein: (f) a representation as to the credit of a third person." Indeed.We agree with appellant that the Statute of Frauds was erroneously applied by the trial court. or the evidences.000 square meters of land which he claims defendants promised to do in consideration of his services as mediator or intermediary in effecting a compromise of the civil action. 1403. or miscarriage of another. unless the same. of the agreement cannot be received without the writing. not all dealings involving interest in real property come under the Statute. (Art. or by his agent. it is a sufficient memorandum: (e) An agreement for the leasing for a longer period than one year. at a price not less than five hundred pesos. unless the buyer accept and receive part of such goods and chattels. names of the purchasers and person on whose account the sale is made. Civil Case No.) In the instant case. 135. or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof. of the amount and kind of property sold. and subscribed by the party charged. therefore. or some of them of such things in action. or pay at the time some part of the purchase money. or who has acted beyond his powers. what appellant is trying to enforce is the delivery to him of 3. civil Code. (2) Those do not comply with the Statute of Frauds as set forth in this number.

however. seek relief against the party benefited. if there is any ground therefor. ENGRACIO ORENSE. on Article 2142 of Civil Code is misplaced. in relation to the compromise agreement relied upon by appellant. upon which Sanvictores predicates his right to buy the lot he occupies. voluntary and unilateral acts give rise to the juridical relation of quasi- contract to the end that no one shall be unjustly enriched or benefited at the expense of another. L-9188 December 4. as recognized by this Court in its decision in G. executed before a notary a public instrument whereby he sold and conveyed to the plaintiff company. p. Deudor vs. Tuason. VI. if the one who claims having enriched somebody has done so pursuant to a contract with a third party.R. 4 SCRA 123. 1961. Civil Law. voluntary and unilateral acts at the expense of said actor." (Ambrosio Padilla. promulgated on May 30.R. who in turn may. As one distinguished civilian puts it. Jose Duran. As regards appellant's third assignment of error. a nephew of the defendant. L- 13768. M. that in several cases We have decided. escape taking judicial notice. Corollarily. counsel for Gutierrez Hermanos filed a complaint. defendant-appellant.. We hold that the allegations in his complaint do not sufficiently Appellants' reliance. vs. 748. In J. Article 2124 creates the legal fiction of a quasi-contract precisely because of the absence of any actual agreement between the parties concerned. Duran reserving to himself the right to repurchase it for the same price within a period of four years from the date of the said instrument. because it arises from the sole will of the actor who is not previously bound by any reciprocal or bilateral agreement. because the actor in quasi-contracts is not bound by any pre-existing obligation to act. Predicated on the principle that no one should be allowed to unjustly enrich himself at the expense of another. No. . Vol. 2142 is not applicable. We have declared the same rescinded and of no effect. Inc. It is unilateral. plaintiff-appellee.We cannot. Bienvenido Sanvictores. No. the Court held: It is also worthy of note that the compromise between Deudors and Tuason. his cause of action should be against the latter. It is essential that the act by which the defendant is benefited must have been voluntary and unilateral on the part of the plaintiff. Said article provides: Certain lawful. "The act is voluntary. vs. 1969 ed.) appellant entered into an agreement. G. it is obvious that a presumed qauasi-contract cannot emerge as against one party when the subject mater thereof is already covered by an existing contract with another party. with the latter's knowledge and consent. defendant Orense had been the owner of a parcel of land property has up to date been recorded in the new property registry in the name of the said Orense. The reason why the law creates a juridical relations and imposes certain obligation is to prevent a situation where a person is able to benefit or take advantage of such lawful. 1914 GUTIERREZ HERMANOS. has been validly rescinded and set aside. Tuason & Co.

) . and that he did thereafter confirm and ratify the sale by means of a public instrument executed before a notary. who accepted it in the same way by selling the said property. Jose Duran. for having represented himself in the said deed of sale to be the absolute owner of the aforesaid land and improvements. whereas in reality they did not belong to him. approved the action of his nephew. 1709. 1710 and 1727. for the sum of P1. The principal must therefore fulfill all the obligations contracted by the agent. 1911. a nephew of the owner of the property. might sell the property in question to Gutierrez Hermanos. (Civil Code. 1911.) Even should it be held that the said consent was granted subsequently to the sale. and to pay to the same the rental of the property due from February 14.500 by means of a notarial instrument executed and ratified on February 14. This suit involves the validity and efficacy of the sale under right of redemption of a parcel of land and a masonry house with the nipa roof erected thereon. Engracio Orense. which was registered in his name in the property registry.itc-alf Notwithstanding the allegations of the defendant. the record in this case shows that he did give his consent in order that his nephew. who acted within the scope of his authority. by virtue of a contract of lease executed by the plaintiff to Duran. it follows that the defendant conferred verbal. when the period for its repurchase terminated. 1911. that he had not executed any written power of attorney to Jose Duran. who in this case acted as the manager of his uncle's business. 1907. arts. acquitted As a result of the acquittal of Jose Duran. the owner of the property. the owner of the property.that the plaintiff company had not entered into possession of the purchased property. Jose Duran. It having been proven at the trial that he gave his consent to the said sale. among other remedies. His refusal was based on the allegations that he had been and was then the owner of the said property. owing to its continued occupancy by the defendant and his nephew. but to the defendant Orense. After the lapse of the four years stipulated for the redemption. aside from the fact that the plaintiff had suffered damage by losing the present value of the property. which contract was in force up to February 14. power of agency upon his nephew Duran. to the effect that he had consented to his nephew Duran's selling the property under right of repurchase to Gutierrez Hermanos. that the defendant Orense be compelled to execute a deed for the transfer and conveyance to the plaintiff company of all the right. the defendant refused to deliver the property to the purchaser. (Civil Code. effected by Jose Duran. Engacio Orense. and to pay the rental thereof at the rate of P30 per month for its use and occupation since February 14. counsel for this firm filed a complainant praying. nor pay any sum whatever for the losses and damages occasioned by the said sale. t Jose Duran is notoriously insolvent and cannot reimburse the plaintiff company for the price of the sale which he received. nor had he given the latter any verbal authorization to sell the said property to the plaintiff firm in his name. it is unquestionable that the defendant.000. based on the explicit testimony of his uncle. and Orense'r ratification produced the effect of an express authorization to make the said sale. the firm of Gutierrez Hermanos. arts. 1888 and 1892. or at least implied. The plaintiff firm charged Jose Duran with estafa. which was worth P3. title and interest with Orense had in the property sold.

remedies all defects which the contract may have contained from the moment of its execution. and it would not be just that the said testimony. 1907. . A contract executed in the name of another by one who has neither his authorization nor legal representation shall be void. virtually confirms and ratifies the sale of his property effected by his nephew. Rep. Jiongco. Araneta and Guanko.. is alleged to be invalid. Moreover.500 for the said property. to the prejudice of the purchaser. 110. Tabiliran. If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling the property in litigation to Gutierrez Hermanos. which determined the acquittal of his nephew. the latter was acquitted. and. should not now serve in passing upon the conduct of Engracio Orense in relation to the firm of Gutierrez Hermanos in order to prove his consent to the sale of his property. had it not been for the consent admitted by the defendant Orense..) The repeated and successive statements made by the defendant Orense in two actions. On the testimony given by Engacio Orense at the trial of Duran for estafa. The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the beginning.Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being authorized by him or without his legal representation according to law. unless it should be ratified by the person in whose name it was executed before being revoked by the other contracting party. as they are a full ratification of the acts executed by his nephew Jose Duran. for. pursuant to article 1309 of the Code. 15 Phil. null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure. wherein he affirmed that he had given his consent to the sale of his property. it is not just nor is it permissible for him afterward to deny that admission. pursuant to article 1313 of the Civil Code. meet the requirements of the law and legally excuse the lack of written authority. they produce the effects of an express power of agency. the plaintiff would have been the victim of estafa. it is unquestionable that the defendant did confirm the said contract of sale and consent to its execution. 22 Phil. 20 Phil. Duran. Gallemit vs. because the authority which Orense may have given to Duran to make the said contract of sale is not shown to have been in writing and signed by Orense. Rep. Therefore the principal is bound to abide by the consequences of his agency as though it had actually been given in writing (Conlu vs. Kuenzle & Streiff vs. The contract of sale of the said property contained in the notarial instrument of February 14. who gave P1. and which testimony wiped out the deception that in the beginning appeared to have been practiced by the said Duran. while testifying as a witness at the trial of Duran for estafa. but afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by the confirmation solemnly made by the said owner upon his stating under oath to the judge that he himself consented to his nephew Jose Duran's making the said sale. in the present case. and. Such consent was proven in a criminal action by the sworn testimony of the principal and presented in this civil suit by other sworn testimony of the same principal and by other evidence to which the defendant made no objection. Orense. The sworn statement made by the defendant. Jose Duran. the right of action for nullification that could have been brought became legally extinguished from the moment the contract was validly confirmed and ratified. 241. who then acted as his business manager. and. 387.. but the record discloses satisfactory and conclusive proof that the defendant Orense gave his consent to the contract of sale executed in a public instrument by his nephew Jose Duran. expressive of his consent to the sale of his property. Rep.

G. Necessary expenses may be incurred by one co-owner. vs. 21137 in the name of his mother was transferred to his name. in her second marriage with one Procopio Asejo. but she died in 1942 without being able to redeem and after her death. THE HONORABLE COURT OF APPEALS. No. . period of repurchase being 3 years. the first. sometime in 1939. Emeteria Asejo was occupying a portion. it did not put to end the existing state of co-ownership. 1988 RUSTICO ADILLE. he executed a deed of extra-judicial partition representing himself to be the only heir and child of his mother Felisa with the consequence that he was able to secure title in his name alone also. In other words. and the errors assigned thereto have been duly refuted by the foregoing considerations. that did not make him the owner of all of it. she married twice in her lifetime. The right of repurchase may be exercised by a co-owner with aspect to his share alone. defendant counterclaimed for her to vacate that. with whom she had as an only child. DOMINGO ASEJO. so it should be affirmed. TEODORICA ASEJO.. with the costs against the appellant. her children were herein plaintiffs. and after that. The judgment appealed from is hereby affirmed. He relies on the provisions of Article 1515 of the old Civil Article 1613 of the present Code. No. petitioner. subject to his right to collect reimbursement from the remaining co-owners. that was why after some efforts of compromise had failed. giving the vendee a retro the right to demand redemption of the entire property. with one Bernabe Adille. EMETERIA ASEJO. said Felisa sold the property in pacto de retro to certain 3rd persons. herein plaintiffs. 488. it is the petitioner's contention that the property subject of dispute devolved upon him upon the failure of his co-heirs to join him in its redemption within the period required by law. 5 While the records show that the petitioner redeemed the property in its entirety.The judgment appealed from in harmony with the law and the merits of the case. — The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over the property held in common? Essentially. Under the Civil Code: ART. shouldering the expenses therefor. his half-brothers and sisters. 6 There is no doubt that redemption of property entails a necessary expense. herein defendant repurchased. JOSEFA ASEJO and SANTIAGO ASEJO. Each co-owner shall have a right to compel the other co-owners to contribute to the expenses of preservation of the thing or right owned in common and to the taxes. L-44546 January 29. respondents. that was in 1955. by himself alone. herein defendant Rustico Adille.. There is no merit in this petition. filed present case for partition with accounting on the position that he was only a trustee on an implied trust when he redeemed. — now. so that OCT. but as it also turned out that one of plaintiffs.-and this is the evidence. Any one of the latter may exempt himself from this obligation by renouncing so much of his undivided interest as may be equivalent to his share of . [T]he land in question originally belonged to one Felisa Alzul as her own private property. but during the period of redemption.R.

he had constituted himself a negotiorum gestor under Article 2144 of the Civil Code. while the claim of the private respondents was presented in 1974. of course. The petitioner would remain liable to the Private respondents. he cannot claim exclusive right to the property owned in common. the result would be the same whether it is one or the other. solely in his name. The petitioner must then be said to be a trustee of the property on behalf of the private respondents. he is guilty of fraud. While a vendee a retro. did so either on behalf of his co-heirs. under Article 1613 of the Code. considered a trustee of an implied trust for the benefit of the person from whom the property comes. While his half-brothers and sisters are. that is. under the Article 1456. It operates as a mere notice of existing title. the private respondents being the beneficiaries. in which case. In any case. as the respondent Court itself affirms. set in? We hold in the negative. The petitioner's pretension that he was the sole heir to the land in the affidavit of extrajudicial settlement he executed preliminary to the registration thereof betrays a clear effort on his part to defraud his brothers and sisters and to exercise sole dominion over the property. It is the view of the respondent Court that the petitioner. his co-heirs. We agree with the respondent Court of Appeals that fraud attended the registration of the property. and must act as trustee. (3) the evidence thereon is clear and conclusive. in turn is subject to certain conditions: (1) a co-owner repudiates the co-ownership. in which event. the party in possession acquires title to the property and the state of co-ownership is ended . the property was registered in 1955 by the petitioner. The evidence. The act of repudiation. He cannot therefore be said to have assume the mere management of the property abandoned by his co-heirs. Failure on the part of all the co-owners to redeem it entitles the vendee a retro to retain the property and consolidate title thereto in his name. Registration of property is not a means of acquiring ownership. 7 But the provision does not give to the redeeming co-owner the right to the entire property. The Civil Code states: ART. the situation Article 2144 of the Code contemplates. the person obtaining it is. No such waiver shall be made if it is prejudicial to the co- ownership. must have been preceded by repudiation (of the co-ownership). Has prescription then. (2) such an act of repudiation is clearly made known to the other co-owners. points to the second alternative the petitioner having asserted claims of exclusive ownership over the property and having acted in fraud of his co-heirs. Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name terminate the existing co-ownership. If property is acquired through mistake or fraud. as a mode of terminating a relation of co-ownership. In that event. The aforequoted provision therefore applies. This Court is not unaware of the well-established principle that prescription bars any demand on property (owned in common) held by another (co-owner) following the required number of years. and (4) . the expenses and taxes. or for his exclusive benefit. liable to him for reimbursement as and for their shares in redemption expenses. by force of law. 1456. "may not be compelled to consent to a partial redemption. as we said." the redemption by one co-heir or co-owner of the property in its totality does not vest in him ownership over it. It does not provide for a mode of terminating a co- ownership. if there is one. Prescription. in taking over the property. The result is that the property remains to be in a condition of co-ownership. 8 In the case at bar.

private respondent sent PNB another telex dated August 27.000. G. respondents. 1980. MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS.00 through Demand Draft No. 1989 DOMETILA M. doing business under the name and style "IRENE'S WEARING APPAREL. He cannot therefore be said to have "made known" his efforts to deny the co-ownership. men's apparel and linens for local and foreign buyers. 1980 stating that the payment was to be made to "Irene's Wearing Apparel. on September 11. on August 25. using the business name "Irene's Wearing Apparel. he sought to recover possession of that portion Emeteria is occupying only as a counterclaim.00 through the Pilipinas Bank. he had deliberately kept the private respondents in the dark by feigning sole heirship over the estate under dispute.he has been in possession through open. FNSB instructed private respondent Manufacturers Hanover and Trust Corporation to effect the above. FACETS informed private respondent about the delay and at the same time amended its instruction by asking it to effect the payment through the Philippine Commercial and Industrial Bank (hereinafter referred to as PCIB) instead of PNB. yet." petitioner. No. which was also unaware that petitioner had already received the remittance of $10. On September 8. Hence. on the contrary. assuming there was one. It is true that registration under the Torrens system is constructive notice of title. vs. 10 but it has likewise been our holding that the Torrens title does not furnish a shield for fraud. where petitioner had an account. Emeteria Asejo.000. the payment was not effected immediately because the payee designated in the telex was only "Wearing Apparel.000. and only after the private respondents had first sought judicial relief.R." was engaged in the manufacture of ladies garments. We are not convinced that he had repudiated the co-ownership. after learning about the delay in the remittance of the money to petitioner." On August 28.00 to petitioner. Accordingly. In the course of the business transaction between the two. FACETS informed FNSB about the situation." Upon query by PNB. 1980. the petitioner has not taken pains to eject her therefrom. FACETS from time to time remitted certain amounts of money to petitioner in payment for the items it had purchased. As a matter of fact. continuous.mentioned transfer through its facilities and to charge the amount to the account of FNSB with private respondent. exclusive. private respondent. is occupying a portion of the land up to the present. . ANDRES. Moreover. unaware that petitioner had already received the remittance. 9 The instant case shows that the petitioner had not complied with these requisites. and notorious possession of the property for the period required by law. 225654 of the PNB. 1980. 82670 September 15. 1980. Acting on said instruction. Although private respondent was able to send a telex to PNB to pay petitioner $10. petitioner received the remittance of $10. Among its foreign buyers was Facets Funwear.000. notwithstanding the long-standing rule that registration operates as a universal notice of title. Inc.00 remittance. petitioner received a second $10. Meanwhile. children's wear. one of the private respondents. 11 It is therefore no argument to say that the act of registration is equivalent to notice of repudiation. Petitioner.000.00 from PNB instructed the PCIB to pay $10.

Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the wrongful act of a third person. This legal provision.) This time-honored aphorism has also been adopted by jurists in their study of the conflict of rights. the contract for the transmittal of dollars from the United States to petitioner was entered into by private respondent with FNSB.00 remittance delivered by mistake by private respondent to the outstanding account of FACETS. The resolution of this issue would hinge on the applicability of Art. the Court. petitioner has no right to apply the second $10. 2154." Such axiom has grown through the centuries in legislation. which have not hesitated to apply it when the exigencies of right and equity demanded its assertion. It was the latter and not private respondent which was indebted to petitioner. Justice Bocobo explained the nature of this article thus: Article 1895 [now Article 2154] of the Civil Code abovequoted.000. 1158. Balzarza. [at p. 1163. the obligation to return it arises. Piccio. as regards the sale of garments and other textile products. The contract of petitioner. which determines the quasi-contract of solution indebiti. 632. the loss must be borne by the one whose negligence was the proximate cause of the loss. In Velez v. 464. There being no contractual relation between them. If something received when there is no right to demand it. 797. 647. 1893 and 1895. Petitioner. 630 (1942). The sole issue in this case is whether or not the private respondent has the right to recover the second $10.000. petition was filed. was with FACETS. (See for example. although named as the payee was not privy to the contract of remittance of dollars. it is unfolded in many articles scattered in the Spanish Civil Code. and it was unduly delivered through mistake.000.000. 558. 1303.00. 360. 2154 of the New Civil Code which provides that: Art. In the Roman Law Digest the maxim was formulated thus: "Jure naturae acquum est.000. it asked for a recredit of its account in the amount of $10.00 remittance was not made by mistake but was the result of negligence of its employees. neminem cum alterius detrimento et injuria fieri locupletiorem. in the science of law and in court decisions. 648.00 remittance it had delivered to petitioner. 73 Phil. Neither was private respondent a party to the contract of sale between petitioner and FACETS. is therefore applicable. articles. is one of the concrete manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of another. It has been accepted by the courts.] For this article to apply the following requisites must concur: "(1) that he who paid was not under obligation to do so. and. On the other hand. . when FNSB discovered that private respondent had made a duplication of the remittance. 1304.Private respondent debited the account of FNSB for the second $10. Petitioner next contends that the payment by respondent bank of the second $10. Private respondent complied with the request. However. 1295." And the Partidas declared: "Ninguno non deue enriquecerse tortizeramente con dano de otro. Thus. (2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. Civil Code.00 remittance effected through PCIB. It is a part of that affluent reservoir of justice upon which judicial discretion draws whenever the statutory laws are inadequate because they do not speak or do so with a confused voice. 110 Phil. 361. The lawmaker has found it one of the helpful guides in framing statutes and codes. speaking through Mr. 563 (1960)].

he may recover if he proves that it was not due" (Art.. the amount paid. 3364of the City of Manila. of Ordinance No.but on the erronoues belief. and it was unduly delivered through mistake. filed an action for refund of Retail DealerlsTaxes paid by it. .. No. against the City of Manila and its City Treasurer. There is. CITY OF MANILA AND MARCELO SARMIENTO. is exempt from the payment of taxes imposed under the provisions of Sec.785. bowling balls and other accessories at its displayroom. Under this circumstance. "Payment by reason of a mistake in the contruction or application of a doubtful or difficult question of law may come within the scope of the preceding article" (Art.00. Denied refund (1) Whether or not the amounts paid by plaintiff-appelle. apply to the admitted facts of the case. no doubt that the provisions of solutio indebtiti. There is no gainsaying the fact that the payments made by appellee was due to a mistake in the construction of a doubtful question of law. are refundable. as amended by Ordinance No. Appelle categorically stated that the payment was not voluntarily made. plaintiff. however. of Ordinance No. NCC). amounting to P33. (2) Assuming arguendo. vs.R. is liable for the payment of taxes on the sales of imported billiard balls. corresponding to the first Quarter of 1950 up to the third Quarter of 1956. 1. as retail dealer's taxes under Ordinance 1925. Group II. 2156. to wit-- plaintiff is engaged in the business of manufacturing and selling all kinds of furniture acting pursuant to the provisions of Sec. Inc. Appellee had duly proved that taxes were not lawfully due. being a manufacturer of various kinds of furniture. 1. as City Treasurer of Manila. that they were due.. therefore. plaintiff-appelle.. 1963 GONZALO PUYAT & SONS. plaintiff filed with defendant City Treasurer of Manila. as applied to . "If the payer was in doubt whether the debt was due. 1.. the new Civil Code.The case was submitted on the following stipulation of facts. (a fact found also by the lower court). even without protest is recoverable. 2154. defendant City Treasurer of Manilaassessed from plaintiff retail dealer's tax corresponding to the quarters hereunder stated on the sales of furniture manufactured and sold by it at its factory site. The reason underlying similar provisions. INC. 3364. 3364. NCC). a formal request for refund of the retail dealer's taxes unduly paid. defendants- appellants plaintiff Gonzalo Puyat & Sons. the obligationto retun it arises" (Art. L-17447 April 30. in so far as said claim refers to taxes paid from 1950 to 1952 has already prescribed. without protest. all of which assessments plaintiff paid without protest in the erroneous belief that it was liable plaintiff. 21555). "If something is received when there is no right to demand it. group II.G. whether or not the claim for refund filed in October 1956. that plaintiff-appellee is entitled to the refund of the retail taxes in question.

because "prescription already runnig before the effectivity of this Code shall be governed by laws previously in force x x x" (art. 1950. it may be recovered.providing for a period of six (6) years (upon quasi-contracts like solutio indebiti). Osorio v. which provides for a period of four (4) years (upon injury to the rights of the plaintiff). 1950 should be refunded. 190. for payments made after said effectivity. for payments made after said effectivity. (Sec. Tan Jongko. Procedure) should apply. 37 Ky. 198729-30 January 15.G.Act No. Even if the provisionsof Act No. providing for a period of six (6) years (upon quasi-contracts like solutio indebiti).T. The next issue in discussion is that of prescription. NCC). NCC).A. 2014 CBK POWER COMPANY LIMITED.W. and the written demand in the case at bar was made on October 30. 10 S. 2. the period of which is ten (10) years. and should not be retained by the party receiving it. Civil Code). 190should apply to those payments made before the effectivity of the new Civil Code. is expressed in the case of Newport v. and which in law or conscience was not payable. 1116. 1155. Respondent. "It is too well settled in this state to need the citation of authority that if money be paid through a clear mistake of law or fact. 636. 190 should apply to those payments made before the effectivity of the new Civil Code. 1950 are no longer recoverable in view of the second paragraph of said article (1116). shall return the same to him"(Art. apply to the case. in all other respects. 1950 only. 7621. essentially affecting the rights of the parties. The Petition assails the Decision2 dated 27 June 2011 and Resolution3 dated 16 September 2011 of the Court of Tax Appeals En Banc (CTA En Banc in C. which partly granted the claim of petitioner for the . No one should enrich itself unjustly at the expense of another (Art. Petitioner. 40. acquires or comes into possession of something at the expense of the latter without just or legal grounds. or any other means. in the following manner:. because "prescription already running before the effectivity of of this Code shall be govern by laws previously in force xxx " (Art. G. 6211) and article 1145 (NCC). 635. which provides:"but if since the time this Code took effect the entire period herein required for prescription should elapse the present Code shall be applicable even though by the former laws a longer period might be required". considering the fact that the prescription of action is interrupted xxx when is a writteen extra-judicial demand x x x" (Art.illegal taxation. insofar as payments made before the effectivity of the New Civil Code on August 30. It would seems unedifying for the government. 51 O. it is abvious that the action has prescribed with respect to those made before October 30. On the other hand. Nos. 2125. Still payments made before August 30. This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by CBK Power Company Limited (petitioner). (here the City of Manila). . EB Nos. Ringo. 1956 (Stipulation of Facts).R. COMMISSIONER OF INTERNAL REVENUE. No costs. in the United States. NCC). Even if the provisions of Act No. The assailed Decision and Resolution reversed and set aside the Decision4 dated 3 March 2010 and Resolution5 dated 6 July 2010 rendered by the CTA Special Second Division in C. Civil Code). 22. 658 and 659. that knowing it has no right at all to collect or to receive money for alleged taxes paid by mistake. vs. the decision appealed from is affirmed. appellee contends that provisions of Act 190 (Code of Civ. 1116. Case No.A.T.. "Every person who through an act or performance by another. 1950. it would be reluctant to return the same.MODIFIED in the sense that only payments made on or after October 30. Appellants maintain that article 1146 (NCC). Anent the payments made after August 30.

Mirant Pagbilao Corporation (Mirant). among others. The Facts Petitioner is engaged. 55 of Laguna. Applying Commissioner of Internal Revenue v.6 On 29 December 2004. the new Caliraya Spillway. petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal Revenue (BIR) in accordance with Section 108(B)(3) of the National Internal Revenue Code (NIRC) of 1997. as amended. Thus.7 Petitioner filed its administrative claims for the issuance of tax credit certificates for its alleged unutilized input taxes on its purchase of capital goods and alleged unutilized input taxes on its local purchases and/or importation of goods and services. in the operation. the CTA Special Second Division rendered a Decision on 3 March 2010. maintenance. and the Kalayaan I hydroelectric power plants and their related facilities located in the Province of Laguna.issuance of a tax credit certificate representing the latter's alleged unutilized input taxes on local purchases of goods and services attributable to effectively zero-rated sales to National Power Corporation (NPC) for the second and third quarters of 2005. petitioner filed a Petition for Review with the CTA on 18 April 2007. THE CTA SPECIAL SECOND DIVISION RULING After trial on the merits. with BIR Revenue District Office (RDO) No. pursuant to Sections 112(A) and (B) of the NIRC of 1997. petitioner ’s sale of electr icity to the NPC from 1 January 2005 to 31 October 2005 was declared to be entitled to the benefit of effectively zero-rated value added tax (VAT). and management of the Kalayaan II pumped-storage hydroelectric power plant. Caliraya.9 the court a quo ruled that petitioner had until the following dates within which to file both administrative and judicial claims: Taxable Quarter Last Day to File Claim for 2005 Close of the quarter Refund 1st quarter 31-Mar-05 31-Mar-07 2nd quarter 30-Jun-05 30-Jun-07 3rd quarter 30-Sep-05 30-Sep-07 . as amended. The application was duly approved by the BIR. other than capital goods. Botocan. as follows:8 Period Covered Date Of Filing 1st quarter of 2005 30-Jun-05 2nd quarter of 2005 15-Sep-05 3rd quarter of 2005 28-Oct-05 Alleging inaction of the Commissioner of Internal Revenue (CIR).

(2) and (B) and Section 108 (B)(1) and (2). this Petition. and third quarters of 2005 were belatedly filed.Accordingly. apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.123. . (Aichi). The CTA Special Second Division Decision and Resolution were reversed and set aside.ISSUE Petitioner’s assigned errors boil down to the principal issue of the applicable prescriptive period on its claim for refund of unutilized input VAT for the first to third quarters of 2005. Aichi Forging Company of Asia. – (A) Zero-rated or Effectively Zero-rated Sales. Petitioner’s Motion for Reconsideration was likewise denied for lack of merit. petitioner timely filed its administrative claims for the three quarters of 2005. relying on Commissioner of Internal Revenue v. Refunds or Tax Credits of Input Tax. After an evaluation of petitioner’s claim for the second and third quarters of 2005. 112.10 the CTA En Banc ruled that petitioner’s judicial claim for the first. The parties filed their respective Motions for Partial Reconsideration. further. it shall be allocated proportionately on the basis of the volume of sales. Hence. considering that the judicial claim was filed on 18 April 2007. the CTA Division denied the claim for the first quarter of 2005 for having been filed out of time.170. That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services. except transitional input tax. That in the case of zero-rated sales under Section 106(A)(2)(a)(1). which were both denied by the CTA Division. Inc. . second. THE CTA EN BANC RULING On appeal.36.In proper cases. the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete . the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided. xxxx (D) Period within which Refund or Tax Credit of Input Taxes shall be Made. 7621 was dismissed. and the Petition for Review filed in CTA Case No. within two (2) years after the close of the taxable quarter when the sales were made. to the extent that such input tax has not been applied against output tax: Provided. however. whose sales are zero-rated or effectively zero-rated may.11 THE COURT’S RULING The pertinent provision of the NIRC at the time when petitioner filed its claim for refund provides: SEC. However.Any VAT-registered person. the court a quo partly granted the claim and ordered the issuance of a tax credit certificate in favor of petitioner in the reduced amount of ₱27. and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions.

documents in support of the application filed in accordance with Subsections (A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit. Commissioner of Internal Revenue. with the finality of the Court’s pronouncement on the consolidated tax cases Commissioner of Internal Revenue v. Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods. Commissioner of Internal Revenue. we are constrained to apply the dispositions therein to the facts herein which are similar. the BIR itself approved the application for zero-rating on 29 December 2004. appeal the decision or the unacted claim with the Court of Tax Appeals. For the refund or credit of excess or unutilized input tax. . which categorically exempts it from the payment of any tax. Section 112 is the governing law. however.12 As a consequence. In Panasonic Communications Imaging Corporation of the Philippines v. the excess payment shall be carried over to the succeeding quarter or quarters. The crux of the controversy arose from the proper application of the prescriptive periods set forth in Section 112 of the NIRC of 1997. San Roque Power Corporation. the law under Section 112 (A) provides for a different reckoning point for the two-year prescriptive period. services rendered to NPC by a VAT-registered entity are effectively zero-rated. Commissioner of Internal Revenue14 (hereby collectively referred as San Roque). petitioner claims for the refund of the alleged excess input tax attributable to its effectively zero-rated sales to NPC. the taxpayer affected may. including VAT. If the input taxes exceed the output taxes.13 this Court ruled: Under the 1997 NIRC. no payment is required of him. or the failure on the part of the Commissioner to act on the application within the period prescribed above. specifically for the refund or credit of that tax only. Our VAT Law provides for a mechanism that would allow VAT-registered persons to recover the excess input taxes over the output taxes they had paid in relation to their sales. within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period. Taganito Mining Corporation v. whether direct or indirect. Administrative Claim Section 112(A) provides that after the close of the taxable quarter when the sales were made. as amended. Although the ponente in this case expressed a different view on the mandatory application of the 120+30 day period as prescribed in Section 112. filed by petitioner for its sales to NPC covering January to October 2005. In fact. and the interpretation of the applicable jurisprudence. Petitioner’s sales to NPC are effectively zero-rated As aptly ruled by the CTA Special Second Division. if at the end of a taxable quarter the seller charges output taxes equal to the input taxes that his suppliers passed on to him. and Philex Mining Corporation v. Given the distinctive nature of creditable input tax. It is when his output taxes exceed his input taxes that he has to pay the excess to the BIR. The NPC is an entity with a special charter. Thus. any excess over the output taxes shall instead be refunded to the taxpayer. petitioner’s sales to NPC are effectively subject to zero percent (0%) VAT. there is a two-year prescriptive period within which a VAT-registered person whose sales are zero-rated or effectively zero-rated may apply for the issuance of a tax credit certificate or refund of creditable input tax.

petitioner had attached complete supporting documents necessary to prove its entitlement to a refund in its application. and that is attributable to zero-rated or effectively zero-rated sales. compliance with both periods is jurisdictional. absent any evidence to the contrary. it should not retroactively be applied to the instant case. were not applicable.We agree with petitioner that Mirant was not yet in existence when their administrative claim was filed in 2005. to wit: Period Covered Close of the Last day to File Administrative Date of Filing Taxable Claim Quarter 1st quarter 2005 31-Mar-05 31-Mar-07 30-Jun-05 2nd quarter 2005 30-Jun-05 30-Jun-07 15-Sep-05 3rd quarter 2005 30-Sep-05 30-Sep-07 28-Oct-05 Judicial Claim Section 112(D) further provides that the CIR has to decide on an administrative claim within one hundred twenty (120) days from the date of submission of complete documents in support thereof. which prescribed a different starting point for the two-year prescriptive limit for filing a claim for a refund or credit of excess input tax. Input tax is neither an erroneously paid nor an illegally collected internal revenue tax. regardless of when the input VAT was paid. Bearing in mind that the burden to prove entitlement to a tax refund is on the taxpayer. thus. However. petitioner’s administrative claims were filed well within the two-year period from the close of the taxable quarter when the effectively zero-rated sales were made. Thereafter.16 Pursuant to Section 112(A). Commissioner of Internal Revenue. Prescinding from San Roque in the consolidated case Mindanao II Geothermal Partnership v. it is presumed that in order to discharge its burden. The period of 120 days is a prerequisite for the commencement of the 30-day period to appeal to the CTA. Commissioner of Internal Revenue and Mindanao I Geothermal Partnership v.15 Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively zero-rated. a claim for the refund or credit of creditable input tax that is due or paid. Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period. the taxpayer affected by the CIR’s decision or inaction may appeal to the CTA within 30 days from the receipt of the decision or from the expiration of the 120-day period within which the claim has not been acted upon. must be filed within two years after the close of the taxable quarter when such sales were made. the fact remains that Section 112 is the controlling provision for the refund or credit of input tax during the time that petitioner filed its claim with which they ought to comply. It must be emphasized that the Court merely clarified in Mirant that Sections 204 and 229. The reckoning frame would always be the end of the quarter when the pertinent sale or transactions were made.17 this Court has ruled thus: .

DA-489-03 is a general interpretative rule. the reversal by this Court of a general interpretative rule issued by the Commissioner. thus: Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner. Thus. should also apply prospectively. the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development.18 in which this Court ruled: . particularly on a difficult question of law.Notwithstanding a strict construction of any claim for tax exemption or refund. Inc. San Roque. we consider the following pertinent dates: 1âw phi1 Period Covered Administrative Expiration of Last day to file Judicial Claim Claim Filed 120-days Judicial Claim Filed 1st quarter 2005 30-Jun-05 28-Oct-05 27-Nov-05 18-Apr-07 2nd quarter 2005 15-Sep-05 13-Jan-06 13-Feb-06 3rd quarter 2005 28-Oct-05 26-Feb-06 28-Mar-06 It must be emphasized that this is not a case of premature filing of a judicial claim. This government agency is also the addressee. but by a government agency asked with processing tax refunds and credits. the only issue is whether BIR Ruling No. The abandonment of the Atlas doctrine did not result in Atlas.. BIR Ruling No. the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. (Emphasis supplied) In applying the foregoing to the instant case. Although petitioner did not file its judicial claim with the CTA prior to the expiration of the 120-day waiting period. in BIR Ruling No. while this government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development. or other taxpayers similarly situated. xxxx Thus. all taxpayers can rely on 1âwphi1 BIR Ruling No. where the taxpayer did not wait for the lapse of the 120-day period. DA-489-03. bad faith or misrepresentation. being made to return the tax refund or credit they received or could have received under Atlas prior to its abandonment. BIR Ruling No. or the entity responded to. DA-489-03 and its effect on taxpayers. DA-489- 03 is a general interpretative rule because it was a response to a query made. This Court is applying Mirant and Aichi prospectively. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010.." This Court discussed BIR Ruling No. it failed to observe the 30-day prescriptive period to appeal to the CTA counted from the lapse of the 120-day period. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer. the Court in San Roque recognized that BIR Ruling No. x x x. like the reversal of a specific BIR ruling under Section 246. Absent fraud. DA-489-03 constitutes equitable estoppel in favor of taxpayers. not by a particular taxpayer. where this Court held that the 120+30 day periods are mandatory and jurisdictional. Inc. Thus. that is. DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review. BIR Ruling No. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. Petitioner is similarly situated as Philex in the same case. Clearly.

"deemed a denial" of Philex’s claim. In any event. but did so long after the lapse of the 30-day period following the expiration of the 120-day period. whether governed by jurisprudence before. BIR Ruling No. who has no duty to pay. Philex did not also file any petition with the CTA within 30 days after the expiration of the 120-day period. and the person who received the payment. petitioner lost its right to claim a refund or credit of its alleged excess input VAT. Philex’s judicial claim was indisputably filed late. and .19 but not its late filing. in fact 426 days after the lapse of the 120-day period. by express provision of law. The inaction of the Commissioner on Philex’s claim during the 120-day period is.22 There is solutio indebiti when: (1) Payment is made when there exists no binding relation between the payor. the obligation to return it arises. Philex filed its judicial claim long after the expiration of the 120-day period. and it was unduly delivered through mistake. Philex’s case is not one of premature filing but of late filing. The right to appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege. (Emphases in the original) Likewise. during. Again. the law is explicit on the mandatory and jurisdictional nature of the 120+30 day period. a creditor-debtor relationship is created under a quasi-contract. petitioner cannot rely on Atlas either. not a constitutional right. does not interpret − expressly or impliedly − the 120+30 day periods. it cannot claim the benefit of the exception period as it did not file its judicial claim prematurely.Unlike San Roque and Taganito. For failure of petitioner to comply with the 120+30 day mandatory and jurisdictional period. since the latter case was promulgated only on 8 June 2007. or after the Atlas case. In that situation. With regard to petitioner’s argument that Aichi should not be applied retroactively. while petitioner filed its administrative and judicial claims during the period of applicability of BIR Ruling No.21 The quasi-contract of solutio indebiti is based on the ancient principle that no one shall enrich oneself unjustly at the expense of another. if something is received when there is no right to demand it.20 Simply stated. Philex’s judicial claim will have to be rejected because of late filing. Philex did not file any petition with the CTA within the 120-day period. Atlas referred only to the reckoning of the prescriptive period for filing an administrative claim. the doctrine in Atlas which reckons the two-year period from the date of filing of the return and payment of the tax. According to this principle. Also devoid of merit is the applicability of the principle of solutio indebiti to the present case. The Atlas doctrine cannot save Philex from the late filing of its judicial claim. or from the close of the taxable quarter when the sales attributable to the input VAT were made following the Mirant and Aichi doctrines. DA-489-03. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. we reiterate that even without that ruling. whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake. which means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim. and the person who has no right to receive the payment becomes obligated to return it. DA-489-03 allowed premature filing of a judicial claim. Philex’s failure to do so rendered the "deemed a denial" decision of the Commissioner final and inappealable. The exercise of such statutory privilege requires strict compliance with the conditions attached by the statute for its exercise. Moreover. Philex failed to comply with the statutory conditions and must thus bear the consequences. As this Court enunciated in San Roque . Whether the two-year prescriptive period is counted from the date of payment of the output VAT following the Atlas doctrine.

supplied by the company. (2) Payment is made through mistake. which is located upon the line of the defendant railroad company. He lived in the pueblo of San Mateo. the plaintiff arose from his seat in the second class-car where he was riding and. G. he used a pass. seizing the upright guardrail with his right hand for support. statutory law or judicial rules of procedure.27 WHEREFORE. premises considered. Well-settled is the rule that tax refunds or credits." is applied only in the absence of. defendant-appellee. the instant Petition is DENIED. At the time of payment of the input VAT. and in coming daily by train to the company's office in the city of Manila where he worked.. there exists a binding relation between petitioner and the CIR. Kincaid & Hartigan for appellee.24 Finally. . and never against.23 Though the principle of solutio indebiti may be applicable to some instances of claims for a refund. 1915. 1918 JOSE CANGCO. MANILA RAILROAD CO. The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the VAT system. L-12191 October 14. FISHER. his exit through the door. Second. with a monthly wage of P25. was in the employment of Manila Railroad Company in the capacity of clerk. in the province of Rizal. vs. Ramon Sotelo for appellant. the elements thereof are wanting in this case. SO ORDERED. the amount paid was correct and proper. J.25 Section 112 is a positive rule that should preempt and prevail over all abstract arguments based only on equity. No. plaintiff-appellant. just like tax exemptions. First.: At the time of the occurrence which gave rise to this litigation the plaintiff. took his position upon the steps of the coach. equity. On the side of the train where passengers alight at the San Mateo station there is a cement platform which begins to rise with a moderate gradient some distance away from the company's office and extends along in front of said office for a distance sufficient to cover the length of several coaches.R. January 20. and not through liberality or some other cause. the payment of input tax was not made through mistake. are strictly construed against the taxpayer. Upon the occasion in question.26 The burden is on the taxpayer to show strict compliance with the conditions for the grant of the tax refund or credit. which has been aptly described as "a justice outside legality. since petitioner was legally obligated to pay for that liability. the former being a taxpayer obligated to pay VAT. Jose Cangco. which entitled him to ride upon the company's trains free of charge. making.

alighting safely at the point where the platform begins to rise from the level of the ground. They were contained in numerous sacks which has been piled on the platform in a row one upon another. that their presence caused the plaintiff to fall as he alighted from the train. although negligence was attributable to the defendant by reason of the fact that the sacks of melons were so placed as to obstruct passengers passing to and from the cars.As the train slowed down another passenger. but one or both of his feet came in contact with a sack of watermelons with the result that his feet slipped from under him and he fell violently on the platform. His body at once rolled from the platform and was drawn under the moving car. and that they therefore constituted an effective legal cause of the injuries sustained by the plaintiff. It necessarily follows that the defendant company is liable for the damage thereby occasioned unless recovery is barred by the plaintiff's own contributory negligence. nevertheless. Upon August 31. The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is found in the fact that it was the customary season for harvesting these melons and a large lot had been brought to the station for the shipment to the market. found the facts substantially as above stated. The accident occurred between 7 and 8 o'clock on a dark night. his Honor. and it is clear that the fall of the plaintiff was due to the fact that his foot alighted upon one of these melons at the moment he stepped upon the platform. to-wit. where his right arm was badly crushed and lacerated. It appears that after the plaintiff alighted from the train the car moved forward possibly six meters before it came to a full stop. The result of this operation was unsatisfactory.25 in the form of medical and surgical fees and for other expenses in connection with the process of his curation. also an employee of the railroad company. the trial judge. At the hearing in the Court of First Instance. It can not be doubted that the employees of the railroad company were guilty of negligence in piling these sacks on the platform in the manner above stated. and it appeared that the injuries which he had received were very serious. 1915. founding his action upon the negligence of the servants and employees of the defendant in placing the sacks of melons upon the platform and leaving them so placed as to be a menace to the security of passenger alighting from the company's trains. When the train had proceeded a little farther the plaintiff Jose Cangco stepped off also. In resolving this problem it is necessary that each of these conceptions of liability. he instituted this proceeding in the Court of First Instance of the city of Manila to recover damages of the defendant company. objects on the platform where the accident occurred were difficult to discern especially to a person emerging from a lighted car. the plaintiff himself had failed to use due caution in alighting from the coach and was therefore precluded form recovering. named Emilio Zuñiga. and the plaintiff appealed. The testimony shows that this row of sacks was so placed of melons and the edge of platform. . got off the same car. and drew therefrom his conclusion to the effect that. His statement that he failed to see these objects in the darkness is readily to be credited. It appears in evidence that the plaintiff expended the sum of P790. Judgment was accordingly entered in favor of the defendant company. The plaintiff was drawn from under the car in an unconscious condition. and as the railroad station was lighted dimly by a single light located some distance away. He was therefore brought at once to a certain hospital in the city of Manila where an examination was made and his arm was amputated. and the plaintiff was then carried to another hospital where a second operation was performed and the member was again amputated higher up near the shoulder. the primary responsibility of the defendant company and the contributory negligence of the plaintiff should be separately examined.

which was also recognized by this Court in its decision in the case of Rakes vs. p. rep. is. . A master who exercises all possible care in the selection of his servant. taking into consideration the qualifications they should possess for the discharge of the duties which it is his purpose to confide to them. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu. . and 1104 of the same code. Rep. which imposes upon all persons who by their fault or negligence. 359). 8. is not based. under the Spanish law. But where relations already formed give rise to duties. if at all. Atlantic. which can be rebutted by proof of the exercise of due care in their selection and supervision. in certain cases imposed upon employers with respect to damages occasioned by the negligence of their employees to persons to whom they are not bound by contract. The obligation to make good the damage arises at the very instant that the unskillful servant. which. 7 Phil. But. It is not accurate to say that proof of diligence and care in the selection and control of the servant relieves the master from liability for the latter's acts — on the contrary. p. One who places a powerful automobile in the hands of a servant whom he knows to be ignorant of the method of managing such a vehicle. Upon this point the Court said: The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are understood to be those not growing out of pre-existing duties of the parties to one another. . that proof shows that the responsibility has never existed. but by mere negligence or inattention. substantive and independent." In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition that article 1903 of the Civil Code is not applicable to acts of negligence which constitute the breach of a contract. (Rakes vs. whatever done within the scope of his employment or not. The liability. if the master has not been guilty of any negligence whatever in the selection and direction of the servant. if the damage done by the servant does not amount to a breach of the contract between the master and the person injured. that article relates only to culpa aquiliana and not to culpa contractual. Gulf and Pacific Co. and that the obligation to respond for the damage which plaintiff has suffered arises. upon the principle of respondeat superior — if it were. 68) the liability arising from extra- contractual culpa is always based upon a voluntary act or omission which. in legal viewpoint from that presumptive responsibility for the negligence of its servants. imposed by article 1903 of the Civil Code. as in the English Common Law. has caused damage to another. without willful intent.. while acting within the scope of his employment causes the injury.. which of itself constitutes the source of an obligation between persons not formerly connected by any legal tie" and culpa considered as an accident in the performance of an obligation already existing . from the breach of that contract by reason of the failure of defendant to exercise due care in its performance. Atlantic. In commenting upon article 1093 Manresa clearly points out the difference between "culpa. (7 Phil.) This distinction is of the utmost importance. As Manresa says (vol. Gulf and Pacific Co. That is to say. he is not liable for the acts of the latter. 1103. whether springing from contract or quasi-contract. is himself guilty of an act of negligence which makes him liable for all the consequences of his imprudence. The liability of the master is personal and direct. and directs them . then breaches of those duties are subject to article 1101. differing essentially. Manresa (vol. but only to extra-contractual obligations — or to use the technical form of expression.It is important to note that the foundation of the legal liability of the defendant is the contract of carriage. clearly points out this distinction. the obligation of making good the damage caused. 8. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code. the master would be liable in every case and unconditionally — but upon the principle announced in article 1902 of the Civil Code. 359 at 365.. its liability is direct and immediate. do injury to another.

which the existence of those rights imposes upon all other members of society. 215. Cuesta. the negligence of the servant in conclusively the negligence of the master. such third person suffer damage. rep. This is the notable peculiarity of the Spanish law of negligence. by reason of the negligence of his servants. generally embraced in the concept of status. thereby performs his duty to third persons to whom he is bound by no contractual ties. (30 Phil. after citing the last paragraph of article 1903 of the Civil Code. Extra-contractual obligation has its source in the breach or omission of those mutual duties which civilized society imposes upon it members. The opinion there expressed by this Court. the presumption is overcome and he is relieved from liability. or which arise from these relations. and that the last paragraph of article 1903 merely establishes a rebuttable presumption. in relations with strangers. The supreme court of Porto Rico. has held that these articles are applicable to cases of extra-contractual culpa exclusively.. said: From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or employee there instantly arises a presumption of law that there was negligence on the part of the master or employer either in selection of the servant or employee. It is. in striking contrast to the American doctrine that. and proof of exercise of the utmost diligence and care in this regard does not relieve the master of his liability for the breach of his contract. or in supervision over him after the selection. The breach of these general duties whether due to willful intent or to mere inattention. or both. This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant. 12. it is necessary that there shall have been some fault attributable to the defendant personally. other than contractual. Litonjua and Leynes. The Court. True it is that under article 1903 of the Civil Code the law creates a presumption that he has been negligent in the selection or direction of his servant. and (2) that that presumption is juris tantum and not juris et de jure. 20 Porto Rico Reports.with equal diligence. p. 624). when such acts or omissions cause damages which amount to the breach of a contact. is not based upon a mere presumption of the master's negligence in their selection or control. may be rebutted. (Carmona vs. but the presumption is rebuttable and yield to proof of due care and diligence in this respect. even within the scope of their employment. to the effect that in case of extra-contractual culpa based upon negligence. as found in the Porto Rico Code. On the other hand. who says (vol. It follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he has exercised the care and diligence of a good father of a family. which was an action brought upon the theory of the extra- contractual liability of the defendant to respond for the damage caused by the carelessness of his employee while acting within the scope of his employment. and he incurs no liability whatever if. is in complete accord with the authoritative opinion of Manresa. 611) that the liability created by article 1903 is imposed by reason of the breach of the duties inherent in the special relations of authority or superiority existing between the person called upon to repair the damage and the one who. if productive of . mainly negative in character. of course. was the cause of it. by his act or omission. in interpreting identical provisions. The legal rights of each member of society constitute the measure of the corresponding legal duties.) This distinction was again made patent by this Court in its decision in the case of Bahia vs. of certain members of society to others. Every legal obligation must of necessity be extra-contractual or contractual. the liability of masters and employers for the negligent acts or omissions of their servants or agents. and consequently.

by a legal fiction. Would it be logical to free him from his liability for the breach of his contract. for reasons of public policy. whereas in contractual relations the vinculum exists independently of the breach of the voluntary duty assumed by the parties when entering into the contractual relation. The fundamental distinction between obligations of this character and those which arise from contract. which involves the duty to exercise due care in the preservation of the watch. As a general rule .injury. vol. on the contrary. When the sources of the obligation upon which plaintiff's cause of action depends is a negligent act or omission. by a personal negligent act causes its destruction.. and it would no doubt be true in most instances that reasonable care had been taken in selection and direction of such servants. But when the facts averred show a contractual undertaking by defendant for the benefit of plaintiff. without regard to the lack of moral culpability. If one delivers securities to a banking corporation as collateral. if he shows that it was his servant whose negligence caused the injury? If such a theory could be accepted. If one delivers a valuable watch to watchmaker who contract to repair it. in a case of negligence which presupposes the existence of a contractual obligation. p. the burden of proof rests upon plaintiff to prove the negligence — if he does not his action fails. would be in a better position than those acting in person. and they are lost by reason of the negligence of some clerk employed by the bank. the anomalous result would be that person acting through the medium of agents or servants in the performance of their contracts. it is obvious that proof on the part of defendant that the negligence or omission of his servants or agents caused the breach of the contract would not constitute a defense to the action. by reason of their status. (Manresa. to extend that liability. give rise to an obligation to indemnify the injured party. so as to include responsibility for the negligence of those person who acts or mission are imputable. . as the only fact upon which his action is based. even though such be in fact the actual cause of the breach. it is not necessary for him to prove negligence. is wholly different from that to which article 1903 relates. . The legislature which adopted our Civil Code has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral culpability can be directly imputed to the persons to be charged. it is competent for the legislature to elect — and our Legislature has so elected — whom such an obligation is imposed is morally culpable. or in the control of persons who. occupy a position of dependency with respect to the person made liable for their conduct. a suing creditor should assume the burden of proof of its existence. juridical persons would enjoy practically complete immunity from damages arising from the breach of their contracts if caused by negligent acts as such juridical persons can of necessity only act through agents or servants. would it be just and reasonable to permit the bank to relieve itself of liability for the breach of its contract to return the collateral upon . whether of act or omission. and it is alleged that plaintiff has failed or refused to perform the contract. or of his servants or agents. The position of a natural or juridical person who has undertaken by contract to render service to another. 71 [1907 ed. 8. p. it is logical that in case of extra-contractual culpa. rests upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act or omission itself which creates the vinculum juris. With respect to extra-contractual obligation arising from negligence. if the creditor shows that it exists and that it has been broken. he is unquestionably liable. to others who are in a position to exercise an absolute or limited control over them. If the negligence of servants or agents could be invoked as a means of discharging the liability arising from contract. or. As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach was due to the negligent conduct of defendant or of his servants. and the bailee. it is not necessary for plaintiff to specify in his pleadings whether the breach of the contract is due to willful fault or to negligence on the part of the defendant. Proof of the contract and of its nonperformance is sufficient prima facie to warrant a recovery. This moral responsibility may consist in having failed to exercise due care in the selection and control of one's agents or servants. while on the contrary. 76]).

but that defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a defense. 69) that if the "obligation of the defendant grew out of a contract made between it and the plaintiff . Rep.the payment of the debt by proving that due care had been exercised in the selection and direction of the clerk? This distinction between culpa aquiliana. . . 1896. it appeared that plaintiff's action arose ex contractu. . 1894. or that he had any knowledge of his lack of skill or carefulness. 1896. in dealing with the liability of a master for the negligent acts of his servants "makes the distinction between private individuals and public enterprise. Compania Maritima (6 Phil. citing Manresa (vol. saying: . as the source of an obligation." In the case of Chapman vs.. saying: These are not cases of injury caused. but of damages caused by the defendant's failure to carry out the undertakings imposed by the contracts . In the case of Baer Senior & Co's Successors vs. unless the negligent acts of the driver are continued for a length of time as to give the owner a reasonable opportunity to observe them and to direct the driver to desist therefrom. plaintiff sued the defendant to recover damages for the personal injuries caused by the negligence of defendant's chauffeur while driving defendant's automobile in which defendant was riding at the time. The Spanish Supreme Court rejected defendant's contention. makes the driver's acts his own. 8). David (5 Phil. . Rep. . In the case of Johnson vs. (33 Phil. although the facts disclosed that the injury complaint of by plaintiff constituted a breach of the duty to him arising out of the contract of transportation. The act complained of must be continued in the presence of the owner for such length of time that the owner by his acquiescence. In that case the court commented on the fact that no evidence had been adduced in the trial court that the defendant had been negligent in the employment of the driver. 1896. pp.) In the decisions of November 20. 29. (Sentencias of June 27. by fault or negligence. such as those to which article 1902 of the Civil Code relates. November 20. although he was present at the time. . Underwood (27 Phil.. . The court found that the damages were caused by the negligence of the driver of the automobile. the court held that the owner of a carriage was not liable for the damages caused by the negligence of his driver. Manila Railroad Co. The court held. the plaintiff sued the defendant for damages caused by the loss of a barge belonging to plaintiff which was allowed to get adrift by the negligence of defendant's servants in the course of the performance of a contract of towage.. The express ground of the decision in this case was that article 1903. we do not think that the provisions of articles 1902 and 1903 are applicable to the case. .. Rep. 663). and December 13. but held that the master was not liable. . . Rep. 374). 8. and culpa contractual as a mere incident to the performance of a contract has frequently been recognized by the supreme court of Spain. 215). it is true that the court rested its conclusion as to the liability of the defendant upon article 1903. without any pre-existing obligation. . and that in the particular case the presumption of negligence had not been overcome." that as to the latter the law creates a rebuttable presumption of negligence in the selection or direction of servants. and Bachrach Garage & Taxicab Co. A brief review of the earlier decision of this court involving the liability of employers for damage done by the negligent acts of their servants will show that in no case has the court ever decided that the negligence of the defendant's servants has been held to constitute a defense to an action for damages for breach of contract. In the case of Yamada vs.

if the accident was caused by plaintiff's own negligence. Viewed from the standpoint of the defendant the practical result must have been the same in any event.It is evident. for defendant to have proved that it did in fact exercise care in the selection and control of the servant. therefore. the direct and proximate cause of the injury suffered by plaintiff was his own contributory negligence in failing to wait until the train had come to a complete stop before alighting. The railroad company's defense involves the assumption that even granting that the negligent conduct of its servants in placing an obstruction upon the platform was a breach of its contractual obligation to maintain safe means of approaching and leaving its trains. or in failing to exercise proper care in the selection and direction of his servants. Defendant contends. by implication. its essential characteristics are identical. and its non-performance could not be excused by proof that the fault was morally imputable to defendant's servants. We are of the opinion that this proposition is too badly stated and is at variance with the experience of every-day life. and made reference to the fact that the defendant was negligent in the selection and control of its servants. These two fields. It is. figuratively speaking. it follows that it is not to be inferred. There is always an act or omission productive of damage due to carelessness or inattention on the part of the defendant. that is to say. When such a contractual relation exists the obligor may break the contract under such conditions that the same act which constitutes the source of an extra-contractual obligation had no contract existed between the parties. the mere fact that a person is bound to another by contract does not relieve him from extra-contractual liability to such person. the duty to carry him in safety and to provide safe means of entering and leaving its trains (civil code. was direct and immediate. that it is negligence per se for a passenger to alight from a moving train. It may be admitted that had plaintiff waited until the train had come to a full stop before alighting. and an examination of the pleadings and of the briefs shows that the questions of law were in fact discussed upon this theory. the damages should be apportioned. In this particular instance. It also affirmatively appeared that defendant had been guilty of negligence in its failure to exercise proper discretion in the direction of the servant. being contractual. The contract of defendant to transport plaintiff carried with it. The proof disclosed beyond doubt that the defendant's servant was grossly negligent and that his negligence was the proximate cause of plaintiff's injury. and cites many authorities in support of the contention. pp. Under the doctrine of comparative negligence announced in the Rakes case (supra). either directly. 8. The true explanation of such cases is to be found by directing the attention to the relative spheres of contractual and extra-contractual obligations. article 1258). Consequently. therefore that in its decision Yamada case. the practical result is identical in either case. whether the breach of the duty were to be regarded as constituting culpa aquiliana or culpa contractual. that in such a case the court would have held that it would have been a good defense to the action. 29 and 69) whether negligence occurs an incident in the course of the performance of a contractual undertaking or its itself the source of an extra-contractual undertaking obligation. no liability is imposed upon defendant's negligence and plaintiff's negligence merely contributed to his injury.contractual obligation is much more broader than that of contractual obligations. the particular injury suffered by him could not have occurred. The field of non. We are not disposed to subscribe to this doctrine in its absolute form. because the court held in the Yamada case that defendant was liable for the damages negligently caused by its servants to a person to whom it was bound by contract. as it does. comprising. when the court holds that a defendant is liable in damages for having failed to exercise due care. That duty. if presented squarely upon the theory of the breach of the contract. Therefore. the whole extent of juridical human relations. liable for the injury suffered by plaintiff. concentric. important to ascertain if defendant was in fact guilty of negligence. that the train was barely moving when plaintiff alighted is shown . As Manresa points out (vol. Defendant was. the court treated plaintiff's action as though founded in tort rather than as based upon the breach of the contract of carriage. therefore.

Women. it we prefer to adopt the mode of exposition used by this court in Picart vs. sex. Again. or dimly lighted. but the care which a man of ordinary prudence would use under similar circumstances. of the age. We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's work on Negligence (vol. the plaintiff had a right to assume. 3010. There is no reason to believe that plaintiff would have suffered any injury whatever in alighting as he did had it not been for defendant's negligent failure to perform its duty to provide a safe alighting place. we may say that the test is this. Furthermore. constructed as it was of cement material.. It is to be considered whether an ordinarily prudent person. the plaintiff was possessed of the vigor and agility of young manhood. sec. The place. and should be considered. In determining the question of contributory negligence in performing such act — that is to say. and this also is proof of a failure upon the part of the defendant in the performance of a duty owing by it to the plaintiff. As pertinent to the question of contributory negligence on the part of the plaintiff in this case the following circumstances are to be noted: The company's platform was constructed upon a level higher than that of the roadbed and the surrounding ground. is that of ordinary or reasonable care. would have acted as the passenger acted under the circumstances disclosed by the evidence. thereby decreasing the risk incident to stepping off. whether the passenger acted prudently or recklessly — the age. as we find. that the platform was clear. the plaintiff should have desisted from alighting. also assured to the passenger a stable and even surface on which to alight." (Thompson. and as the defendant was bound by reason of its duty as a public carrier to afford to its passengers facilities for safe egress from its trains. as the nature of their wearing apparel obstructs the free movement of the limbs. rep. ignorant of the fact that the obstruction which was caused by the sacks of melons piled on the platform existed. 809). the placing of them adequately so that their presence would be revealed. and his failure so to desist was contributory negligence. was dark. and sustain no injury where the company has kept its platform free from dangerous obstructions. Commentaries on Negligence.conclusively by the fact that it came to stop within six meters from the place where he stepped from it. The distance from the steps of the car to the spot where the alighting passenger would place his feet on the platform was thus reduced.net As the case now before us presents itself. in the absence of some circumstance to warn him to the contrary. This care has been defined to be. In considering the situation thus presented.) Or. Smith (37 Phil. the only fact from which a conclusion can be drawn to the effect that plaintiff was guilty of contributory negligence is that he stepped off the car without being able to discern clearly the condition of the platform and while the train was yet slowly moving. sex and condition of the passenger. 3010) as follows: The test by which to determine whether the passenger has been guilty of negligence in attempting to alight from a moving railway train. . it may be noted that the place was perfectly familiar to the plaintiff as it was his daily custom to get on and of the train at this station. 1aw ph!l. for if it were by any possibility concede that it had right to pile these sacks in the path of alighting passengers. sec. and physical condition of the passenger are circumstances necessarily affecting the safety of the passenger. to avoid injury. it should not be overlooked that the plaintiff was. Was there anything in the circumstances surrounding the plaintiff at the time he alighted from the train which would have admonished a person of average prudence that to get off the train under the conditions then existing was dangerous? If so. it has been observed. 3. as a general rule are less capable than men of alighting with safety under such conditions. as we have already stated. Thousands of person alight from trains under these conditions every day of the year. 3. vol. The nature of the platform. and it was by no means so risky for him to get off while the train was yet moving as the same act would have been in an aged or feeble person. not the care which may or should be used by the prudent man generally.

The automobile was being operated by Bonifacio Gutierrez. together will several other members of the Gutierrez family. ABELARDO VELASCO. No.. Mr. On February 2. The evidence shows that the plaintiff. At the time of the collision. Province of Rizal. 34840 September 23. concur. G. JJ. The decision of lower court is reversed.. plaintiff-appellee. MARIA V. and was owned by Saturnino Cortez. a passenger truck and an automobile of private ownership collided while attempting to pass each other on the Talon bridge on the Manila South Road in the municipality of Las Piñas. The collision between the bus and the automobile resulted in Narciso Gutierrez suffering a fracture right leg which required medical attendance for a considerable period of time. the father was not in the car. C. Defendant has not shown that any other gainful occupation is open to plaintiff. On judgment being rendered as prayed for by the plaintiff. L.000. hospital services. Manuel Gutierrez.D. and other incidental expenditures connected with the treatment of his injuries. and judgment is hereby rendered plaintiff for the sum of P3. therefore.25 for medical attention. MANUEL GUTIERREZ. and Mrs.290. the owner of the passenger . was earning P25 a month as a copyist clerk. It is conceded that the collision was caused by negligence pure and simple. and for the costs of both instances. Arellano. and that the injuries he has suffered have permanently disabled him from continuing that employment. at the time of the accident. J. vs. Torres. San Agustin and Roxas for other appellants. by the name of Narciso Gutierrez. both sets of defendants appealed. MALCOLM.: This is an action brought by the plaintiff in the Court of First Instance of Manila against the five defendants.There could. Lockwood for appellants Velasco and Cortez. and that he is also entitled to recover of defendant the additional sum of P790. A passenger in the autobus. seven in all. 1931 NARCISO GUTIERREZ.25. and was owned by Bonifacio's father and mother. were accommodated therein. BONIFACIO GUTIERREZ. DE GUTIERREZ. defendants-appellants. 1930. for physical injuries suffered as a result of an automobile accident. Laguna. was en route from San Pablo. We are of the opinion that a fair compensation for the damage suffered by him for his permanent disability is the sum of P2. according to the standard mortality tables. The truck was driven by the chauffeur Abelardo Velasco. So ordered. Our conclusion is that the conduct of the plaintiff in undertaking to alight while the train was yet slightly under way was not characterized by imprudence and that therefore he was not guilty of contributory negligence. a lad 18 years of age. His expectancy of life. to recover damages in the amount of P10.R. Ramon Diokno for appellee.J. The difference between the parties is that.500. Street and Avanceña. be no uncertainty in his mind with regard either to the length of the step which he was required to take or the character of the platform where he was alighting. but the mother. while the plaintiff blames both sets of defendants. to Manila. is approximately thirty-three years. and SATURNINO CORTEZ. and which even at the date of the trial appears not to have healed properly.

The guaranty given by the father at the time the son was granted a license to operate motor vehicles made the father responsible for the acts of his son. and of his chauffeur Abelardo Velasco rests on a different basis. who maintains it for the general use of his family is liable for its negligent operation by one of his children. lead us to conclude that a total sum for the plaintiff of P5. At the same time. consisting principally of his keeping his foot outside the truck. the owner of an automobile. The reason for this conclusion reaches to the findings of the trial court concerning the position of the truck on the bridge. In its broader aspects. and the lack of care employed by the chauffeur. With this general statement set down. we nevertheless hesitate to disregard the points emphasized by the trial judge.. has been sufficiently demonstrated by the allegations of the complaint. whom he designates or permits to run it. the case is one of two drivers approaching a narrow bridge from opposite directions.truck blames the automobile. we think. with the inevitable result of a collision and an accident. on approaching the bridge and the truck. since no appeal was taken by him from the judgment. The other parties unite in challenging the award of P10.500 would be none too much. not controverted. We have given close attention to these highly debatable points. aside from the fact that the defense of contributory negligence was not pleaded. he lost his head and so contributed by his negligence to the accident. In this connection. which occasioned his injury.000 would be fair and reasonable. the evidence bearing out this theory of the case is contradictory in the extreme and leads us far afield into speculative matters. and having done so. the speed in operating the machine.517. Missell vs. we believe that. that he was driving at an excessive rate of speed. and the evidence. Hayes [1914]. it is sufficient to state that. and so should be maintained. In the United States. All facts considered. while a fourth member has argued that P7.. The appellee suggests that the amount could justly be raised to P16. namely. so that he is liable for the negligence of the child because of the relationship of master and servant. which may cause him permanent lameness. The difficulty in approximating the damages by monetary compensation is well elucidated by the divergence of opinion among the members of the court. In amplification of so much of the above pronouncement as concerns the Gutierrez family. a majority of the court are of the opinion that the findings of the trial judge on all controversial questions of fact find sufficient support in the record. (Huddy On Automobiles. in connection with other adjudications of this court.000. While these facts are not as clearly evidenced as are those which convict the other defendant. it is uniformly held that the head of a house. The last subject for consideration relates to the amount of the award. three of whom have inclined to the view that P3. We are dealing with the civil law liability of parties for obligations which arise from fault or negligence. it may be explained that the youth Bonifacio was in incompetent chauffeur. that of contract which. the father alone and not the minor or the mother. the owner of the truck. The theory of the law is that the running of the machine by a child to carry other members of the family is within the scope of the owner's business. The defendants Velasco and Cortez further contend that there existed contributory negligence on the part of the plaintiff. 91 Atl. as has been done in other cases. in turn. including actual expenditures and damages for the injury to the leg of the plaintiff. sec. as excessive. . we turn to consider the respective legal obligations of the defendants. we can take cognizance of the common law rule on the same subject. and the owner of the automobile. 322. with neither being willing to slow up and give the right of way to the other. and that. would be liable for the damages caused by the minor. where the car is occupied and being used at the time of the injury for the pleasure of other members of the owner's family than the child driving it. blames the truck.000 would be amply sufficient. 6th ed. but naturally is not serious in asking for this sum. 660.) The liability of Saturnino Cortez. Based on these facts. pursuant to the provisions of article 1903 of the Civil Code.

Respondents. C. No.J. . jointly and severally. The RTCs decision affirmed the Decision[5] dated 28 December 1999 of Branch 61 of the Metropolitan Trial . SP No. concur. PERALTA. November 17. STAFF RETIREMENT PLAN. Inc. LTD. Abelardo Velasco. and Imperial. Street. 178610 BANKING CORP. 00-787 dated 11 December 2000. and the costs of both instances. the judgment appealed from will be modified.Staff Retirement Plan (HSBCL-SRP) for recovery of sum of money. and MENDOZA. Johnson. No. 2010 x--------------------------------------------------x DECISION CARPIO. JJ.R. Romualdez... SPOUSES BIENVENIDO AND EDITHA Promulgated: BROQUEZA. Ostrand. NACHURA. (now HSBC Present: Retirement Trust Fund. ABAD. J. Villamor. The appellate court granted the petition filed by Fe Gerong (Gerong) and Spouses Bienvenido and Editha Broqueza (spouses Broqueza) and dismissed the consolidated complaints filed by Hongkong and Shanghai Banking Corporation. CARPIO. for the sum of P5. J. and Saturnino Cortez. and the plaintiff will have judgment in his favor against the defendants Manuel Gutierrez. .000.R.In consonance with the foregoing rulings. 178610 is a petition for review[1] assailing the Decision[2] promulgated on 30 March 2006 by the Court of Appeals (CA) in CA-G. Avanceña..versus .) Petitioner.R.. 62685.: G. HONGKONG AND SHANGHAI G. Chairperson. JJ. as well as its Order[4] dated 5 September 2000. The appellate court reversed and set aside the Decision[3] of Branch 139 of the Regional Trial Court of Makati City (RTC) in Civil Case No. Ltd.

entitled Hongkong Shanghai Banking Corp. Majority of HSBCs employees were terminated. plaintiff below).00.780. The HSBCL-SRP is a retirement plan established by HSBC through its Board of Trustees for the benefit of the employees. On October 1. filed Civil Case No. but they failed to pay.[6] HSBCL-SRP. Ltd. Meanwhile [in 1993]. et al. The legality or illegality of such termination is now pending before this appellate Court in CA G. 52400 for Recovery of a Sum of Money. vs.00 on June 2. On the other hand. respondent HSBCL-SRP considered the accounts of petitioners delinquent.000.000. Employees Union. acting through its Board of Trustees and represented by Alejandro L. Staff Retirement Plan (HSBCL-SRP. et al. Custodio. These loans are paid through automatic salary deduction.R. Demands to pay the respective obligations were made upon petitioners. a labor dispute arose between HSBC and its employees. Because of their dismissal. petitioner [Editha] Broqueza obtained a car loan in the amount of Php175.00. 1993. Thus. 52400 against the spouses Broqueza on 31 July . On December 12. CV No. petitioner Gerong applied and was granted an emergency loan in the amount of Php35. The Facts The appellate court narrated the facts as follows: Petitioners Gerong and [Editha] Broqueza (defendants below) are employees of Hongkong and Shanghai Banking Corporation (HSBC). among whom are petitioners Editha Broqueza and Fe Gerong. National Labor Relations Commission. 1991. 1990. petitioners were not able to pay the monthly amortizations of their respective loans. The employees then filed an illegal dismissal case before the National Labor Relations Commission (NLRC) against HSBC.Court (MeTC) of Makati City in Civil Case No. They are also members of respondent Hongkong Shanghai Banking Corporation. she again applied and was granted an appliance loan in the amount of Php24. 56797.

On 19 September 1996. 00-786. premises considered and in view of the foregoing. until the amount is fully paid.Gerongs case was docketed Civil Case No.344.740. SO ORDERED. the loans are immediately demandable. The Metropolitan Trial Courts Ruling On 28 December 1999. Thus. HSBCL-SRP filed Civil Case No. In Civil Case No. Gerong and Editha Broquezas termination from employment resulted in the loss of continued benefits under their retirement plans. 52400.00 at six percent interest per annum from the time of demand and in Civil Case No. the Court finds that the plaintiff was able to prove by a preponderance of evidence the existence and immediate demandability of the defendants loan obligations as judgment is hereby rendered in favor of the plaintiff and against the defendants in both cases. As unsecured and pure obligations. To pay the amount of Php20.[8] Gerong and the spouses Broqueza filed a joint appeal of the MeTCs decision before the RTC.00 each as reasonable attorneys fees. to pay the amount of Php116. 00-787.12 at six percent per annum from the time of the filing of these cases. 3. 2.1996. Both suits were civil actions for recovery and collection of sums of money. The MeTC ruled that the nature of HSBCL-SRPs demands for payment is civil and has no connection to the ongoing labor dispute. the loans secured by their future retirement benefits to which they are no longer entitled are reduced to unsecured and pure civil obligations. to pay the amount of Php25. ordering the latter: 1.000. 52911 against Gerong. . Cost of suit. while the spouses Broquezas case was docketed as Civil Case No. 52911. the MeTC promulgated its Decision[7] in favor of HSBCL- SRP. The dispositive portion of the MeTCs decision reads: WHEREFORE.

no cause of action accrued in favor of HSBCL-SRP. Gerong and the spouses Broqueza then filed a Petition for Review under Rule 42 before the CA.[11] HSBCL-SRP filed a motion for reconsideration which the CA denied for lack of merit in its Resolution[12] promulgated on 19 June 2007. The RTC later reconsidered the order of denial and resolved the issues in the interest of justice. the fulfillment of which are demandable at once. Moreover. The Ruling of the Court of Appeals On 30 March 2006. The CA ruled that the HSBCL-SRPs complaints for recovery of sum of money against Gerong and the spouses Broqueza are premature as the loan obligations have not yet matured. As a consequence. Thus. The loan obligations are considered pure obligations. The dispositive portion of the appellate courts Decision reads as follows: WHEREFORE. HSBCL-SRP has a legal right to demand immediate settlement of the unpaid balance because of Gerong and Editha Broquezas continued default in payment and their failure to provide new security for their loans.[9] The RTC ruled that Gerong and Editha Broquezas termination from employment disqualified them from availing of benefits under their retirement plans. A new one is hereby rendered DISMISSING the consolidated complaints for recovery of sum of money. The Regional Trial Courts Ruling The RTC initially denied the joint appeal because of the belated filing of Gerong and the spouses Broquezas memorandum. the absence of a period within which to pay the loan allows HSBCL-SRP to demand immediate payment. On 11 December 2000. the assailed Decision of the RTC is REVERSED and SET ASIDE. the RTC affirmed the MeTCs decision in toto. SO ORDERED. the CA rendered its Decision[10] which reversed the 11 December 2000 Decision of the RTC. . there is no longer any security for the loans.

The Court of Appeals has departed from the accepted and usual course of judicial proceedings in reversing the decision of the Regional Trial Court and the Metropolitan Trial Court.[14] The Courts Ruling The petition is meritorious. payable monthly. I/WE agree that the PLAN may. upon written notice. granted the motion.M. . The Promissory Notes uniformly provide: PROMISSORY NOTE P_____ Makati. M. HSBCL-SRP filed a manifestation withdrawing the petition against Gerong because she already settled her obligations. I/WE _____ jointly and severally promise to pay to THE HSBC RETIREMENT PLAN (hereinafter called the PLAN) at its office in the Municipality of Makati. Metro Manila. with interest from date hereof at the rate of Six per cent (6%) per annum. Issues HSBCL-SRP enumerated the following grounds to support its Petition: I. The Court of Appeals has decided a question of substance in a way not in accord with law and applicable decisions of this Honorable Court. this Court treated the manifestation as a motion to withdraw the petition against Gerong. ____ 19__ FOR VALUE RECEIVED. and II. In a Resolution[13] of this Court dated 10 September 2007. increase the interest rate stipulated in this note at any time depending on prevailing conditions. on or before until fully paid the sum of PESOS ___ (P___) Philippine Currency without discount. and considered the case against Gerong closed and terminated. We agree with the rulings of the MeTC and the RTC. On 6 August 2007.

I/WE hereby expressly consent to any extensions or renewals hereof for a portion or whole of the principal without notice to the other(s). or upon a past event unknown to the parties. The fact that HSBCL-SRP was content with the prior monthly check-off from Editha Broquezas salary is of no moment. Editha Broqueza authorized HSBCL-SRP to make deductions from her payroll until her loans are fully paid. Article 1179 of the Civil Code applies. In case of judicial execution. Section 12 of the Rules of Court. we apply the first paragraph of Article 1179 of the Civil Code: Art. HSBCL-SRP made a demand to enforce a pure obligation. In their Answer.) We affirm the findings of the MeTC and the RTC that there is no date of payment indicated in the Promissory Notes. Every obligation whose performance does not depend upon a future or uncertain event. and in such a case our liability shall remain joint and several. the payroll deduction is . however. is demandable at once. HSBCL-SRP has the right to demand immediate payment. The spouses Broquezas obligation to pay HSBCL-SRP is a pure obligation. she religiously paid the loan amortizations. 1179.[16] A definite amount is paid to HSBCL-SRP on a specific date. (Emphasis supplied. defaulted in her monthly loan payment due to her dismissal. I/WE jointly and severally agree to pay ten percent (10%) of the amount due on this note (but in no case less than P200. The RTC is correct in ruling that since the Promissory Notes do not contain a period.00) as and for attorneys fees in addition to expenses and costs of suit. Despite the spouses Broquezas protestations. which HSBC collected through payroll check-off. the spouses Broqueza admitted that prior to Editha Broquezas dismissal from HSBC in December 1993. Once Editha Broqueza defaulted in her monthly payment. I/WE hereby jointly and severally waive our rights under the provisions of Rule 39.[15] In ruling for HSBCL-SRP. In case collection is made by or through an attorney. x x x. Editha Broqueza.

00-787. Deceased. While several points were raised. Costs against respondents. oppositor-appellee. Neither did HSBCL-SRP agree that if Editha Broqueza ceases to be an employee of HSBC. G. Finally. As such it should be enforcedthrough a separate civil action in the regular courts and not before the Labor Arbiter. HSBCL-SRP never agreed that the loans will be paid only through salary deductions. The Decision of the Court of Appeals in CA-G. HSBCL- SRP can immediately demand payment of the loans at anytime because the obligation to pay has no period. the enforcement of a loan agreement involves debtor-creditor relations founded on contract and does not in any way concern employee relations.merely a convenient mode of payment and not the sole source of payment for the loans. 62685 promulgated on 30 March 2006 is REVERSED and SET ASIDE.:p There is no difficulty attending the disposition of this appeal by petitioner on questions of law. the basis for the action being the latter alternative. 1974 IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA. SO ORDERED. San Jose for oppositor-appellee. the decisive issue is whether a creditor is barred by prescription in his attempt to collect on a promissory note executed more than fifteen years earlier with the debtor sued promising to pay either upon receipt by him of his share from a certain estate or upon demand. GEORGE PAY. we GRANT the petition. SP No. The lower court held that the ten-year period of limitation of actions did apply. the spouses Broqueza have already incurred in default in paying the monthly installments. her obligation to pay the loans will be suspended. as well as the decision of Branch 61 of the Metropolitan Trial Court of Makati City in Civil Case No. 52400 against the spouses Bienvenido and Editha Broqueza.R. L-29900 June 28. petitioner-appellant. Moreover. FERNANDO. are AFFIRMED.R. SEGUNDINA CHUA VDA. No. J. Florentino B.[17] WHEREFORE. the note being immediately due and . del Rosario for petitioner-appellant. Manuel V. DE PALANCA. vs. The decision of Branch 139 of the Regional Trial Court of Makati City in Civil Case No.

00)."3 After which. surviving spouse of the late Justo Palanca. 1963. Petitioner informed that he does not insist on this provision but that petitioner is only claiming on his right under the promissory note . 1952. that the property sought to be administered no longer belonged to the debtor.900. the late Justo Palanca. The promissory note. What is undeniable is that on August 26. 3114 in the name of Justo Palanca."4 The result. came the ruling that the wording of the promissory note being "upon demand. this petition was filed. del Rosario. As noted at the outset. From the manner in which the promissory note was executed. As stated. The idea is that once said property is brought under administration. . only the question of prescription need detain us in the disposition of this appeal. can file his claim against the administratrix. and that the rights of petitioner-creditor had already prescribed. 1952. the late Justo Palanca. this promissory note is signed by Rosa Gonzales Vda. Article 1179 of the Civil Code provides: "Every obligation whose performance does not depend upon a future or uncertain event. The action. "upon demand. Manresa." This used to be Article 1113 of the Spanish Civil Code of 1889. of the creditor has definitely prescribed. [George Pay] at his office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26. the following appears: "The parties in this case agreed to submit the matter for resolution on the basis of their pleadings and annexes and their respective memoranda submitted. as intimated. it would appear that petitioner was hopeful that the satisfaction of his credit could he realized either through the debtor sued receiving cash payment from the estate of the late Carlos Palanca presumptively as one of the heirs. as creditor. considering the clear tenor of the promissory note. George Pay is now before this Court. Manila. Its merit is rather obvious. 1952. The claim of the petitioner is based on a promissory note dated January 30. therefore. is worded thus: " `For value received from time to time since 1947. he appointed as administratrix of a certain piece of property which is a residential dwelling located at 2656 Taft Avenue. whereby the late Justo Palanca and Rosa Gonzales Vda. on this point. as to the property sought to be administered no longer belonging to the debtor." the obligation was immediately due. o sea la perfeccion de . de Carlos Palanca promised to pay George Pay the amount of P26. de Carlos Palanca and Justo Palanca. dated January 30.00. and with the law being as it is." There is nothing in the record that would indicate whether or not the first alternative was fulfilled. covered by Tax Declaration No. it cannot be said that its decision is infected with error. The well-known Spanish commentator. with interest thereon at the rate of 12% per annum. assessed at P41. it was clear that more "than ten (10) years has already transpired from that time until to date.900. From the appealed decision. el caracter mas teorico y grafico del acto. we [jointly and severally promise to] pay to Mr. or upon a past event unknown to the parties." On the above facts as found. states: "Dejando con acierto. and as to the rights of petitioner-creditor having already prescribed. it has been applied according to its express language. as above noted. more than fifteen years after the execution of the promissory note on January 30. or. with interest thereon at the rate of 12% per annum upon receipt by either of the undersigned of cash payment from the Estate of the late Don Carlos Palanca or upon demand'. as expressed therein. . George Pay. 1967. We affirm."2 Then came this paragraph: "The Court has inquired whether any cash payment has been received by either of the signers of this promissory note from the Estate of the late Carlos Palanca. de Palanca to be appointed as administratrix. is demandable at once. As far back as Floriano v.demandable. the decision must be affirmed. petitioner did assail the correctness of the rulings of the lower court as to the effect of the refusal of the surviving spouse of the late Justo Palanca to be appointed as administratrix. asking that Segundina Chua vda. Since it was dated January 30. de Palanca. In an exhaustive brief prepared by Attorney Florentino B. .00. Likewise. was the dismissal of the petition. The defense interposed was prescription. the creditor admitting expressly that he was relying on the wording "upon demand. Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3."1 It then stated that the petition could not prosper as there was a refusal on the part of Segundina Chua Vda.5 a 1908 decision. Delgado. 1962.800.

based on four separate causes of action.000) each. The plaintiff brought suit against the defendant. en el distinctive de esta. 1968 is affirmed.. Vicente Sotelo. WHEREFORE. and the motors on the 27th of February. according to the Civil Code. but Mr. it would appear that the filing of the suit after fifteen years was much too late."6 The obligation being due and demandable.8 There is no necessity therefore of passing upon the other legal questions as to whether or not it did suffice for the petition to fail just because the surviving spouse refuses to be made administratrix. the notification to the defendant. Mr. couched in these words: "Approximate delivery within ninety days. or just because the estate was left with no other property. pages 16-30. Mr. two steel tanks. the lower court decision of July 24. 1919: the expellers on the 26th of October. 1918.. and the latter to purchase from it. Selph for plaintiff-appellant. Mr. that it immediately notified the defendant of the arrival of the goods. Barredo. Sotelo refused to receive them and to pay the prices stipulated. for the total price of twenty-one thousand pesos (P21. which were to be shipped from San Francisco in the month of September. Fernandez and Aquino. 1918. 1919." two expellers at the price of twenty five thousand pesos (P25. the Manila Oil Refining and By- Products Co." The tanks arrived at Manila on the 27th of April. No. and the intervenor. Mr.000). For again. and two electric motors at the price of two thousand pesos (P2. Costs against George Pay. VICENTE SOTELO MATTI. the same to be shipped from New York and delivered at Manila "within three or four months. Ramon Sotelo for defendant-appellant. the plaintiff corporation and the defendant. or as soon as possible.: In August. of the arrival of these goods. The plaintiff corporation notified the defendant.este. Sotelo. entered into contracts whereby the former obligated itself to sell. J. para determinar el concepto de la obligacion pura.. the prescriptive period for a written contract is that of ten years. which is based on Section 43 of Act No. concur. The plaintiff.. BELL & CO. the defendant.7 This is another instance where this Court has consistently adhered to the express language of the applicable norm. Inc. se fija. Sotelo.. — This is not guaranteed. the latter's refusal to receive them and . (Amended complaint. ROMUALDEZ. JJ. 190. G. LTD. The decision of the lower court cannot be overturned. plaintiff-appellant. Antonio. further. Sotelo. L-16570 March 9. 1922 SMITH. Ross and Lawrence and Ewald E. Zaldivar (Chairman). 1918. alleged that the expellers and the motors were in good condition. denied the plaintiff's allegations as to the shipment of these goods and their arrival at Manila.R. and asked instructions from him as to the delivery thereof.) In their answer. as to the delivery of which stipulation was made. y que es consecuencia de aquel: la exigibilidad immediata. alleging. vs.000) each. among other facts. Bill of Exceptions. defendant-appellant. and that the defendant refused to receive any of them and to pay their price.

or a number of causes may act to entirely vitiate the indication of shipment as stated.250) on account of the expellers and the motors not having arrived in due time. and twenty-one thousand two hundred and fifty pesos (P21. . If it has. the order is accepted on the basis of shipment at Mill's convenience. and in both of them we find this clause: To be delivered within 3 or 4 months — The promise or indication of shipment carries with it absolutely no obligation on our part — Government regulations. To solve this question. and the good condition of the expellers and the motors. ordering them to "receive the aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos (P50. Sotelo had made the contracts in question as manager of the intervenor.. with legal interest thereon from July 26.pay their price. and costs.) the following appears: Approximate delivery within ninety days. each assigning several errors in the findings of the lower court. its obligation to bring the goods in question to Manila. In other words. the Manila Oil Refining and By-Products Co. subject to the United States Government requirements and also subject to confirmation of manufactures. lack of vessel space." Both parties appeal from this judgment. but rendered judgment against them. the plaintiff has fulfilled. page 64. railroad embargoes. The principal point at issue in this case is whether or not. Inc which fact was known to the plaintiff. 1919.91) for the nondelivery of the tanks. hereinbelow more particularly described. under the contracts entered into and the circumstances established in the record. In the contract Exhibit C (page 63 of the record). otherwise. the following stipulation appears: The following articles. it must be held guilty of delay and liable for the consequences thereof. or as soon as possible. they also allege that." As a counterclaim or set-off. In all these contracts. time of shipment being merely an indication of what we hope to accomplish. with reference to the expellers. . to be shipped at San Francisco within the month of September /18. As regards the tanks. rec. which the intervenor intended to use in the manufacture of cocoanut oil. — Two Anderson oil expellers . in due time. The case having been tried.00). as a consequence of the plaintiff's delay in making delivery of the goods. it is necessary to determine what period was fixed for the delivery of the goods. then it is entitled to the relief prayed for. that it notified the intervenor that said tanks had arrived. the price of the said goods. the motors and the expellers having arrived incomplete and long after the date stipulated. And in the contract relative to the motors (Exhibit D. there is a final clause as follows: . 1919. . and that "it was only in May.783. the exigencies of the requirement of the United States Government. the court below absolved the defendants from the complaint insofar as the tanks and the electric motors were concerned. — This sale is subject to our being able to obtain Priority Certificate. — This is not guaranteed. alleging as special defense that Mr. the contracts A and B (pages 61 and 62 of the record) are similar. the intervenor suffered damages in the sums of one hundred sixteen thousand seven hundred eighty-three pesos and ninety-one centavos (P116.

those articles could be brought to Manila or not. the parties were not unmindful of the contingency of the United States Government not allowing the export of the goods. the obligation is conditional and shall be governed by the rules of the next preceding section. A day certain is understood to be one which must necessarily arrive. railroad embargoes. Considering these contracts in the light of the civil law. Code." in connection with the tanks and "Priority Certificate. the exigencies of the requirements of the United States Government. we cannot but conclude that the term which the parties attempted to fix is so uncertain that one cannot tell just whether. as we think it is. the obligor will be deemed to have sufficiently performed his part of the obligation. but upon the will of third persons who could in no way be compelled to fulfill the condition. Civ. it cannot be said that any definite date was fixed for the delivery of the goods. If the uncertainty should consist in the arrival or non-arrival of the day. which are not expressly provided for. as well as railroad." with respect to the motors. subject to the United State Government requirements. then the delivery was subject to a condition the fulfillment of which depended not only upon the effort of the herein plaintiff. but it is . 1918. it is noted that "this is not guaranteed." but that period was subject to the contingencies referred to in a subsequent clause." but right after this. Obligations for the performance of which a day certain has been fixed shall be demandable only when the day arrives. by the Civil Code." but to this is added "or as soon as possible. as a matter of fact. 1125. In such cases. Under these stipulations. the contract contains this expression. nor of the fact that the other foreseen circumstances therein stated might prevent it. In cases like this. riots on land or on the sea. transportation was difficult. even if the condition has not been fulfilled in reality. if he has done all that was in his power. and maritime. With regard to the expellers. contingent upon the sellers obtaining certificate of priority and permission of the United States Government." The oral evidence falls short of fixing such period. but impliedly covered. which limits itself only to declare valid those conditions and the obligation thereby affected. the agreement was that the delivery was to be made "within 3 or 4 months. lack of vessel space. as well as to railroad embargoes. At the time of the execution of the contracts. This performance. The sellers are not responsible for delays caused by fires. strikes or other causes known as "Force Majeure" entirely beyond the control of the sellers or their representatives. subject to the rules and regulations. (referring to pure and conditional obligations). "Approximate delivery within ninety days. (Art. the decisions prior to the Civil Code have held that the obligee having done all that was in his power. was entitled to enforce performance of the obligation. even though its date be unknown. If that is the case. From the record it appears that these contracts were executed at the time of the world war when there existed rigid restrictions on the export from the United States of articles like the machinery in question. hence clauses were inserted in the contracts. regarding "Government regulations.) And as the export of the machinery in question was. As to the tanks. which is fictitious — not real — is not expressly authorized by the Code. the contract says "within the month of September." And with reference to the motors. the obligations must be regarded as conditional. which fact was known to the parties. as stated in the contract.

8. for such time as may be reasonable. as follows: 1. In the former it is held: First. 435. ordering the other party to comply with his part of the contract. and Aureno Belisario as his only heirs. 11. is not contrary to the law of contracts. Section 454 of the Code of civil Procedure reads in part as follows: SEC. 454. McClure appears as the judgment creditor. 1791. Book 10. vol. he was represented by the opponent Peter W. Manresa are those rendered by the supreme court of Spain on November 19. who can in no way be compelled to carry it out. 450. Addison. (Manresa's commentaries on the Civil Code [1907]. (33) That in the execution and sales thereunder. of Partida 5. the obligor's part of the contract is complied withalf Belisario not having exercised his right of repurchase reserved in the sale of Basilio Borja mentioned in paragraph (13) hereof. notice thereof must be given. the following doctrine is laid down: Second. by posing written notice of the time and place of the sale in three public places of the municipality or city where the sale is to take place. Eugenio. That when the fulfillment of the conditions does not depend on the will of the obligor. the old view can be maintained as a doctrine. 454. but on that of a third person. As will be seen from the foregoing statement of facts. no law or precedent is alleged to have been violated. 1896. when in the said finding of the lower court. . In case of perishable property. and the Code being thus silent. considering the character and condition of the property. (32) The Maximo Belisario left a widow. 14. 1871. or to Law 1. he rest his title (1) on the sales under the executions issued in cases Nos. but on that of a third person who can in no way be compelled to carry it out. neither disallowed. and (2) on a purchase from the Director of Lands after the land in question had been forfeited to the Government for non-payment of taxes under Act No. and it is found by the lower court that the obligor has done all in his power to comply with the obligation. the judgment of the said court. we think. be disposed of in comparatively few words. page 656. The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may. Tit. The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the notice of sale. I. Before the sale of property on execution. (Jurisprudencia Civil published by the directors of the Revista General de Legislacion y Jurisprudencia [1866]. in which C. H. page 132. the opponent Adelina Ferrer and three minor children. and February 23. vol. and 499 of the court of the justice of the peace of Dagupan with the priority of inscription of the last two sales in the registry of deeds." or Law 12.) The decisions referred to by Mr. who prepared and had charge of publication of the notices of the various sales and that in none of the sales was the notice published more than twice in a newspaper. That when the fulfillment of the condition does not depend on the will of the obligor. the affidavit of Basilio Borja for the consolidacion de dominio was presented for record in the registry of deeds and recorded in the registry on the same date.) In the second decision. of the "Novísima Recopilación. Tit. Vitaliana.

In the case of Campomanes vs. In the last case the sale was advertised for the hours of from 8:30 in the morning until 4:30 in the afternoon. 808). That such publication in a newspaper will not be required when the assessed valuation of the property does not exceed four hundred pesos. This must now be regarded as the settled doctrine in this jurisdiction whatever the rule may be elsewhere. for the same period. there were also only two publications. indefeasible title to said real property. we find that in cases Nos. it is self-evident that notices of the sales mentioned were not given as prescribed by the statute and taking into consideration that in connection with these sales the appellant Addison was either the judgment creditor or else occupied a position analogous to that of a judgment creditor. . the first publication was made on October 7th and the second and last on October 14th. with what was actually done. In cases of real property. the notice first published gave the date of the sale as October 15th. by posting a similar notice particularly describing the property. Upon the expiration of the said ninety days. however. In case No.. 2. if there be one. * * * * * * * Examining the record. and publishing a copy thereof once a week. and also where the property is to be sold. 4. then a like publication for a like period shall be made in one newspaper published in the Spanish language. and in one published in the English language: Provided. for twenty days in three public places of the municipality or city where the property is situated. The conveyance or reconveyance of the land from the Director of Lands is equally invalid. In all of the cases the notices of the sale were prepared by the judgment creditor or his agent. 454 there were only two publications of the notice in a newspaper. . the first of which was made thirteen days before the sale. In case No. the provincial treasurer shall immediately notify the Director of Lands of the forfeiture and furnish him with a description of the property.30 in the afternoon. if redemption be not made. the date of the sale itself. In cases Nos. who also took charged of the publication of such notices. The correct notice was published twice in a local newspaper. the sale is absolutely void and not title passes. 1916. Comparing the requirements of section 454. and said Director of Lands shall have full control and custody thereof to lease . the date was changed to October 14th. It appears affirmatively from the evidence in the present case that there is a newspaper published in the province where the sale in question took place and that the assessed valuation of the property disposed of at each sale exceeded P400. the first publication being made only fourteen days before the date of the sale. supra. The provisions of Act No. If there are newspaper published in the province in both the Spanish and English languages. 499. the sales must be held invalid. 1791 pertinent to the purchase or repurchase of land confiscated for non- payment of taxes are found in section 19 of the Act and read: . 435 and 450 the hours advertised were from 9:00 in the morning until 4. in violation of section 457 of the Code of Civil Procedure. The newspaper is a weekly periodical published every Saturday afternoon. 435 and 450 the sales took place on October 14. In case such redemption be not made within the time above specified the Government of the Philippine Islands shall have an absolute. * * * * * * * 3. but upon discovering that October 15th was a Sunday. Bartolome and Germann & Co. this court held that if a sheriff sells without the notice prescribe by the Code of Civil Procedure induced thereto by the judgment creditor and the purchaser at the sale is the judgment creditor. in some newspaper published or having general circulation in the province. (38 Phil.

the expellers and the motors in question. void sheriff's or execution sales cannot be validated through inscription in the Mortgage Law registry. but from our point of view is of no importance. and the costs of both instances. So ordered. but has acquired no title through the redemption. with legal interest thereon from July 17. shall have the right to repurchase the entire amount of his said real property.000). That the original owner. As we have seen. . he acquired no rights under these sales. sentenced to accept and receive from the plaintiff the tanks. or sell the same or any portion thereof in the same manner as other public lands are leased or sold: Provided. . 1919. She maintained that the land in question was community property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of Paula Ira inealed from is modified. and the defendant Mr. and to pay the plaintiff the sum of ninety-six thousand pesos (P96. until fully paid. The opposition of Adelina Ferrer must also be overruled. Vicente Sotelo Matti. with interest. . the date of the filing of the complaint. he is entitled to reimbursement for the money paid for the redemption of the land. N BANC . The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to Borja is extensively argued in the briefs. at any time before a sale or contract of sale has been made by the director of Lands to a third party. by paying therefore the whole sum due thereon at the time of ejectment together with a penalty of ten per centum . was therefore not the successor of the original owner and could only have obtained a valid conveyance of such titles as the Government might have by following the procedure prescribed by the Public Land Act for the sale of public lands. or his legal representative. The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do so as the successor in interest of the original owner under the execution sale above discussed.

REYES. . in his capacity as the VELASCO.versus . CORONA. TELECOMMUNICATIONS COMMISSION (NTC). Secretary of the NACHURA. .J. QUISUMBING. C. TINGA. Promulgated: Respondents. SANDOVAL-GUTIERREZ. JJ. RAUL M. G. 168338 Petitioner. Department of Justice.. GONZALES. AZCUNA. and and NATIONAL LEONARDO-DE CASTRO. AUSTRIA-MARTINEZ.. CARPIO. Present: PUNO. JR. No.FRANCISCO CHAVEZ.R. CARPIO MORALES. YNARES-SANTIAGO. CHICO-NAZARIO.

2008 x-------------------------------------------------------------------------------------x DECISION PUNO.C. February 15.J.: .

in a Malacaang press briefing. it must be nullified. and the other.[2] Social Weather Stations v. that any attempt to restrict it must be met with an examination so critical that only a danger that is clear and present would be allowed to curtail it. The case originates from events that occurred a year after the 2004 national and local elections. we have not wavered in the duty to uphold this cherished freedom. doctored or altered version. Indeed. [6] It seems that Secretary Bunye admitted that the voice was that of President Arroyo. On June 5.[5]Later. [7] . COMELEC. COMELEC. but subsequently made a retraction. 2005. Chief of Staff.[3] and Bayan v. Secretary Bunye produced two versions of the tape. one supposedly the complete version.[1]Burgos v.[4] When on its face. We have struck down laws and issuances meant to curtail this right. The conversation was audiotaped allegedly through wire- tapping. as in Adiong v. Executive Secretary Ermita. Precis In this jurisdiction. Gloria Macapagal Arroyo. it is clear that a governmental act is nothing more than a naked means to prevent the free exercise of speech. it is established that freedom of the press is crucial and so inextricably woven into the right to free speech and free expression. which would suggest that the President had instructed the COMELEC official to manipulate the election results in the Presidents favor. and a high-ranking official of the Commission on Elections (COMELEC). Press Secretary Ignacio Bunye told reporters that the opposition was planning to destabilize the administration by releasing an audiotape of a mobile phone conversation allegedly between the President of the Philippines. A. a spliced. The Facts 1. B.

former counsel of deposed President Joseph Estrada. These persons included Secretary Bunye and Atty.[8] 3.net and GMA7 to a probe. 2005. the NTC issued this press release: [11] NTC GIVES FAIR WARNING TO RADIO AND TELEVISION OWNERS/OPERATORS TO OBSERVE ANTI-WIRETAPPING LAW AND PERTINENT CIRCULARS ON PROGRAM STANDARDS . On June 7. subject to arrest by anybody who had personal knowledge if the crime was committed or was being committed in their presence. 2005. COMELEC Commissioner Garcillano. On June 9.Gonzales said that he was going to start with Inq7. I [have] asked the NBI to conduct a tactical interrogation of all concerned. a joint venture between the Philippine Daily Inquirer and GMA7 television network. Alan Paguia. and the late Senator Barbers. the First Gentleman Jose Miguel Arroyo. Secretary Gonzales ordered the National Bureau of Investigation (NBI) to go after media organizations found to have caused the spread. 2005. Atty. the playing and the printing of the contents of a tape of an alleged wiretapped conversation involving the President about fixing votes in the 2004 national elections. On June 11. [10] 5. in another press briefing. On June 8. He also stated that persons possessing or airing said tapes were committing a continuing offense.Included in the tapes were purported conversations of the President.net. and supposedly declared. subsequently released an alleged authentic tape recording of the wiretap. because by the very nature of the Internet medium.2. respondent Department of Justice (DOJ) Secretary Raul Gonzales warned reporters that those who had copies of the compact disc (CD) and those broadcasting or publishing its contents could be held liable under the Anti-Wiretapping Act.He then expressed his intention of inviting the editors and managers of Inq7.[9] 4. it was able to disseminate the contents of the tape more widely. Paguia. 2005.

These personalities have admitted that the taped conversations are products of illegal wiretapping operations. the NTC warns all radio stations and television network owners/operators that the conditions of the authorization and permits issued to them by Government like the Provisional Authority and/or Certificate of Authority explicitly provides that said companies shall not use [their] stations for the broadcasting or telecasting of false information or willful misrepresentation. it has come to the attention of the [NTC] that certain personalities are in possession of alleged taped conversations which they claim involve the President of the Philippines and a Commissioner of the COMELEC regarding supposed violation of election laws. the concerned radio and television companies are hereby warned that their broadcast/airing of such false information and/or willful misrepresentation shall be just cause for the suspension. and in order not to unnecessarily aggravate the same. Considering that these taped conversations have not been duly authenticated nor could it be said at this time that the tapes contain an accurate or truthful representation of what was recorded therein. revocation and/or cancellation of the licenses or authorizations issued to the said companies. . It has been subsequently established that the said tapes are false and/or fraudulent after a prosecution or appropriate investigation. it is the position of the [NTC] that the continuous airing or broadcast of the said taped conversations by radio and television stations is a continuing violation of the Anti-Wiretapping Law and the conditions of the Provisional Authority and/or Certificate of Authority issued to these radio and television stations.Relative thereto. xxx xxx xxx Taking into consideration the countrys unusual situation.

after observing the requirements of due process. KBP & its . among others. among others. NTC Memorandum Circular 111-12-85 explicitly states. The [NTC] will not hesitate. 6. the [NTC] reiterates the pertinent NTC circulars on program standards to be observed by radio and television stations. NTC held a dialogue with the Board of Directors of the Kapisanan ng mga Brodkaster sa Pilipinas (KBP). that: [12] NTC respects and will not hinder freedom of the press and the right to information on matters of public concern. or inciting. In addition to the above. On June 14. play. cut off from the air the speech. language or scene disseminating false information or willful misrepresentation. broadcasting and television stations from using their stations to broadcast or telecast any speech. in addition thereto. act or scene or other matters being broadcast or telecast the tendency thereof is to disseminate false information or such other willful misrepresentation. to apply with full force the provisions of said Circulars and their accompanying sanctions on erring radio and television stations and their owners/operators. and the right to information. NTC allegedly assured the KBP that the press release did not violate the constitutional freedom of speech. The foregoing directive had been reiterated by NTC Memorandum Circular No. during any broadcast or telecast. Accordingly. NTC and KBP issued a Joint Press Statement which states. of expression. encouraging or assisting in subversive or treasonable acts. which. or to propose and/or incite treason. that all radio broadcasting and television stations shall. 22-89. 2005. rebellion or sedition. prohibited radio. and of the press.

The KBP Codes also require that no false statement or willful misrepresentation is made in the treatment of news or commentaries. The NTC further denies and does not intend to limit or restrict the interview of members of the opposition or free expression of views. NTC did not issue any MC [Memorandum Circular] or Order constituting a restraint of press freedom or censorship. members have always been committed to the exercise of press freedom with high sense of responsibility and discerning judgment of fairness and honesty. non-airing of materials that would constitute inciting to sedition and/or rebellion. . The supposed wiretapped tapes should be treated with sensitivity and handled responsibly giving due consideration to the process being undertaken to verify and validate the authenticity and actual content of the same. These include verification of sources. KBP has program standards that KBP members will observe in the treatment of news and public affairs programs. What is being asked by NTC is that the exercise of press freedom [be] done responsibly.

but of late within the parameters agreed upon between the NTC and KBP. [17] It was also stressed that most of the [television] and radio stations continue.[14]petitioner specifically asked this Court: [F]or [the] nullification of acts. and making of such issuances. and orders of respondents committed or made since June 6. and to prevent the unlawful. praying for the issuance of the writs of certiorari and prohibition. 2005 until the present that curtail the publics rights to freedom of expression and of the press. and orders by respondents. and questioned petitioners legal standing to file the petition. and the right of the people to information on matters of public concern. C. [15] Respondents[16] denied that the acts transgress the Constitution. issuances. The Petition Petitioner Chavez filed a petition under Rule 65 of the Rules of Court against respondents Secretary Gonzales and the NTC. unconstitutional and oppressive exercise of authority by the respondents. to air the tapes. as extraordinary legal remedies.[13] Alleging that the acts of respondents are violations of the freedom on expression and of the press. [18] . and the warning was issued pursuant to the NTCs mandate to regulate the telecommunications industry. to annul void proceedings. Among the arguments they raised as to the validity of the fair warning issued by respondent NTC. is that broadcast media enjoy lesser constitutional guarantees compared to print media. and to information on matters of public concern specifically in relation to information regarding the controversial taped conversion of President Arroyo and for prohibition of the further commission of such acts. even to this date.

in line with the liberal policy of this Court on locus standi when a case involves an issue of overarching significance to our society. that petitioner has not met the requisite legal standing. THE PROCEDURAL THRESHOLD: LEGAL STANDING To be sure.[22] we therefore brush . D. having failed to allege such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the Court so largely depends for illumination of difficult constitutional questions. free expression and a free press.[21] in keeping with the Court's duty under the 1987 Constitution to determine whether or not other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them. we have already held that where serious constitutional questions are involved. It would seem. Indeed. this Court has repeatedly and consistently refused to wield procedural barriers as impediments to its addressing and resolving serious legal questions that greatly impact on public interest. the transcendental importance to the public of these cases demands that they be settled promptly and definitely. then. who is not a member of the broadcast media. they issued a joint statement with respondent NTC that does not complain about restraints on freedom of the press. [20] Subsequently. the recipients of the press statements have not come forwardneither intervening nor joining petitioner in this action. Thus. [19] But as early as half a century ago. For another. technicalities of procedure. as a group. Petitioner. prays that we strike down the acts and statements made by respondents as violations of the right to free speech. brushing aside if we must. the circumstances of this case make the constitutional challenge peculiar.

OF EXPRESSION AND OF THE PRESS No law shall be passed abridging the freedom of speech. that we need not address all issues but only the most decisive one which in the case at bar is whether the acts of the respondents abridge freedom of speech and of the press.[24] Freedom of expression has gained recognition as a fundamental principle of every democratic government. however.S. RE-EXAMINING THE LAW ON FREEDOM OF SPEECH. copied almost verbatim from the First Amendment of the U. The petition raises other issues like the extent of the right to information of the public. and (5) to call attention to the ongoing blurring of the lines of distinction between print and broadcast media. or the right of the people peaceably to assemble and petition the government for redress of grievances.[23] seeing as it involves a challenge to the most exalted of all the civil rights.aside technicalities of procedure and take cognizance of this petition. the case at bar also gives this Court the opportunity: (1) to distill the essence of freedom of speech and of the press now beclouded by the vagaries of motherhood statements. content-neutral and content-based regulations and their constitutional standard of review. Bill of Rights. But aside from the primordial issue of determining whether free speech and freedom of the press have been infringed. (2) to clarify the types of speeches and their differing restraints allowed by law. E. or of the press. and given a preferred right that stands on a higher level than substantive economic freedom or other liberties. The cognate rights codified by Article III. of expression.[25] were considered the necessary . Section 4 of the Constitution. (3) to discuss the core concepts of prior restraint. the freedom of expression. (4) to examine the historical difference in the treatment of restraints between print and broadcast media and stress the standard of review governing both. It is fundamental.

[31] What is embraced under this provision was discussed exhaustively by the Court in Gonzales v. the primacy and high esteem accorded freedom of expression is a fundamental postulate of our constitutional system.[30] For it is only when the people have unbridled access to information and the press that they will be capable of rendering enlightened judgments. [28] This right was elevated to constitutional status in the 1935.consequence of republican institutions and the complement of free speech. its recognition now enshrined in international law as a customary norm that binds all nations. or contempt proceedings unless there be a clear and . In the oft-quoted words of Thomas Jefferson.[26] This preferred status of free speech has also been codified at the international level. our history shows that the struggle to protect the freedom of speech.[27] In the Philippines. ABSTRACTION OF FREE SPEECH Surrounding the freedom of speech clause are various concepts that we have adopted as part and parcel of our own Bill of Rights provision on this basic freedom. both political and legal. prosecution for sedition. the struggle for the indispensable preconditions for the exercise of other freedoms. at bottom.[29] Moreover. There is to be no previous restraint on the communication of views or subsequent liability whether in libel suits. that freedom of speech is an indispensable condition for nearly every other form of freedom. we cannot both be free and ignorant. E. Commission on Elections. or action for damages.1. free speech and free press may be identified with the liberty to discuss publicly and truthfully any matter of public interest without censorship and punishment. the 1973 and the 1987 Constitutions. expression and the press was. reflecting our own lesson of history. [32] in which it was held: At the very least.

and to take refuge in the existing climate of opinion on any matter of public consequence. of assuring participation by the people in social. the right becomes meaningless. to lend support to official measures. no less than for the thought that agrees with us. of attaining the truth. freedom of speech and of the press should allow and even encourage the articulation of the unorthodox view. and is not confined to any particular field of human interest. who do not conform. about which information is needed or appropriate. decision-making.[37] The right belongs as well -. print and assembly regarding secular as well as political causes. [33] Gonzales further explained that the vital need of a constitutional democracy for freedom of expression is undeniable.if not more to those who question. it is freedom for the thought that we hate. [40] The scope of freedom of expression is so broad that it extends protection to nearly all forms of communication. To be truly meaningful. [35] Freedom of speech and of the press means something more than the right to approve existing political beliefs or economic arrangements. or even stirs people to anger. or though such view induces a condition of unrest. present danger of substantive evil that Congress has a right to prevent. The protection covers myriad matters of public interest or concern embracing all issues. whether as a means of assuring individual self-fulfillment. who differ. . and wide-open. and of maintaining the balance between stability and change.[39] To paraphrase Justice Holmes.[38] The ideas that may be expressed under this freedom are confined not only to those that are conventional or acceptable to the majority. The trend represents a profound commitment to the principle that debate on public issue should be uninhibited. the trend as reflected in Philippine and American decisions was to recognize the broadest scope and assure the widest latitude for this constitutional guarantee. It protects speech. robust.[34] As early as the 1920s. creates dissatisfaction with conditions as they are. though it be hostile to or derided by others.[36] When atrophied. including political.

economic. The protection afforded free speech extends to speech or publications that are entertaining as well as instructive or informative. as will be subsequently discussed. in Eastern Broadcasting Corporation (DYRE) v. television and radio broadcasting is somewhat lesser in scope than the freedom accorded to newspapers and other print media. Thus. or informational ends. Dans. The constitutional protection assures the broadest possible exercise of free speech and free press for religious. news. it would appear that the right to free speech and a free press is not susceptible of any limitation. all speech are not treated the same. scientific. E. Specifically. [42] nor is it an unbridled license that gives immunity for every possible use of language and prevents the punishment of those who abuse this freedom. The constitutional protection is not limited to the exposition of ideas. whether print or broadcast. are entitled to the broad protection of the clause on freedom of speech and of expression. While all forms of communication are entitled to the broad protection of freedom of expression clause. Some types of speech may be subjected to some regulation by the State under its pervasive police power. For freedom of expression is not an absolute.2. the freedom of film. DIFFERENTIATION: THE LIMITS & RESTRAINTS OF FREE SPEECH From the language of the specific constitutional provision. inasmuch as the Constitution's basic guarantee of freedom to advocate ideas is not confined to the expression of ideas that are conventional or shared by a majority. in order that it may not be injurious to the equal right of others or those of the .so as to enable members of society to cope with the exigencies of their period. But the realities of life in a complex society preclude a literal interpretation of the provision prohibiting the passage of a law that would abridge such freedom. political.[41] this Court stated that all forms of media.

[46] A study of free speech jurisprudencewhether here or abroadwill reveal that courts have developed different tests as to specific types or categories of speech in concretesituations. [49] and (c) the clear and present danger rule which rests on the premise that speech may be restrained because there is substantial danger that the speech will likely lead to an evil the government has a right to prevent. symbolic speech. used as a standard when courts need to balance conflicting social values and individual interests. that in our jurisdiction slander or libel. [44] We have ruled. as well as fighting words are not entitled to constitutional protection and may be penalized. speech before hostile audiences.g. the speech of the broadcast media and of the traditional print media. [48] (b) the balancing of interests tests. and evaluation of the permissible scope of restrictions on various categories of speech. e. may vary from those of another.[43] The difference in treatment is expected because the relevant interests of one type of speech. either consciously or unconsciously. i.community or society. and so on) have been applied differently to each category. vagueness. we have applied either the dangerous tendency doctrine or clear and present danger test to resolve free speech . [47] Generally. libelous speech. (a) the dangerous tendency doctrine which permits limitations on speech once a rational connection has been established between the speech restrained and the danger contemplated. subversive speech. e. obscene speech. restraints on freedom of speech and expression are evaluated by either or a combination of three tests. speech affecting associational rights. lewd and obscene speech. extremely serious and the degree of imminence extremely high..e. [50] As articulated in our jurisprudence.. i. analysis. the techniques of reviewing alleged restrictions on speech (overbreadth. speech that affects the right to a fair trial. and speech associated with rights of assembly and petition.[45] Moreover. Distinctions have therefore been made in the treatment. and requires a conscious and detailed consideration of the interplay of interests observable in a given situation of type of situation. This rule requires that the evil consequences sought to be prevented must be substantive. obscene speech.e. for example.g.. political speech..

the wound can be assuaged with the balm of clear conscience. is more easily grasped. . Its contribution to the public weal makes freedom of the press deserving of extra protection. Persons who interfere or defeat the freedom to write for the press or to maintain a periodical publication are liable for damages.challenges. It is the instrument by which citizens keep their government informed of their needs. we have concluded that we have generally adhered to the clear and present danger test. Men in public life may suffer under a hostile and unjust accusation. More recently. As Justice Malcolm wrote in United States v. the mistakes of every administration would go uncorrected and its abuses unexposed. the press benefits from certain ancillary rights. Indeed. Without a vigilant press. It is the chief source of information on current affairs. their aspirations and their grievances. IN FOCUS: FREEDOM OF THE PRESS Much has been written on the philosophical basis of press freedom as part of the larger right of free discussion and expression. The sharp incision of its probe relieves the abscesses of officialdom. Its practical importance. [51] E. It is the sharpest weapon in the fight to keep government responsible and efficient. It is the most pervasive and perhaps most powerful vehicle of opinion on public questions. though. Complete liberty to comment on the conduct of public men is a scalpel in the case of free speech. The productions of writers are classified as intellectual and proprietary. be they private individuals or public officials.3. Bustos:[52] The interest of society and the maintenance of good government demand a full discussion of public affairs.

considering that the cases in our jurisdiction involving prior restrictions on speech never had any issue of whether the governmental act or issuance actually constituted prior restraint. E. This presents a unique tinge to the present challenge. ANATOMY OF RESTRICTIONS: PRIOR RESTRAINT.4. [53] (3) freedom of access to information. Rather. Be that as it may. Prior restraint refers to official governmental restrictions on the press or other forms of expression in advance of actual publication or dissemination. always tested by scrutinizing the governmental issuance or act against the circumstances in which they operate. it should be noted that respondents in this case deny that their acts constitute prior restraints. as well as its sub-specie of content-based (as distinguished from content-neutral) regulations. (2) freedom from punishment subsequent to publication. even as early as the period under the 1935 Constitution. CONTENT-NEUTRAL AND CONTENT-BASED REGULATIONS Philippine jurisprudence. the determinations were always about whether the restraint was justified by the Constitution. [54] and (4) freedom of circulation. At this point. a closer scrutiny of this principle is in order.[55] Considering that petitioner has argued that respondents press statement constitutes a form of impermissible prior restraint. and then determining the appropriate test with which to evaluate. including the nature of the restraint. These are (1) freedom from prior restraint. the determination in every case of whether there is an impermissible restraint on the freedom of speech has always been based on the circumstances of each case.[56] Freedom from prior restraint is largely freedom from government censorship of . the parameters of this principle have been etched on a case-to-case basis. has recognized four aspects of freedom of the press. And in its application in our jurisdiction.

and under well defined standards. and even injunctions against publication. i. commits an infringement of the constitutional right.[60] or (2) a content-based restraint or censorship. Hence.e. Given that deeply ensconced in our fundamental law is the hostility against all prior restraints on speech. legislative or judicial branch of the government. A distinction has to be made whether the restraint is (1) a content-neutral regulation. Certain previous restraints may be permitted by the Constitution. the restriction is based on the subject matter of the utterance or speech. [59] it is important to stress not all prior restraints on speech are invalid. and any act that restrains speech is presumed invalid. licensing or permits as prerequisites to publication including the payment of license taxes for the privilege to publish. are deemed as previous restraint or censorship. or one that merely controls the time. resulting in the discontinuation of their printing and publication. i. Even the closure of the business and printing offices of certain newspapers. but determined only upon a careful evaluation of the challenged act as against the appropriate test by which it should be measured against. place or manner..[58] and any act that restrains speech is hobbled by the presumption of invalidity and should be greeted with furrowed brows. whatever the form of censorship.. it is not enough to determine whether the challenged act constitutes some form of restraint on freedom of speech. [61] The cast of the restriction determines the test by which the challenged act is assayed with. [57] Any law or official that requires some form of permission to be had before publication can be made. and regardless of whether it is wielded by the executive.publications. Thus.e. When the speech restraints take the form of a content-neutral regulation. merely concerned with the incidents of the speech. it precludes governmental acts that required approval of a proposal to publish. only a substantial governmental interest is required for its validity.[62] Because regulations of this type are not designed to suppress any particular message. they . and remedy can be had at the courts.

a governmental action that restricts freedom of speech or of the press based on content is given the strictest scrutiny in light of its inherent and invasive impact.[63] The test is called intermediate because the Court will not merely rubberstamp the validity of a law but also require that the restrictions be narrowly-tailored to promote an important or significant governmental interest that is unrelated to the suppression of expression. the question in every case is whether the words used are used in such circumstances and are of . the government must also show the type of harm the speech sought to be restrained would bring about especially the gravity and the imminence of the threatened harm otherwise the prior restraint will be invalid. Unless the government can overthrow this presumption. but only by showing a substantive and imminent evil that has taken the life of a reality already on ground. and if the incident restriction on alleged [freedom of speech & expression] is no greater than is essential to the furtherance of that interest.[65] with the government having the burden of overcoming the presumed unconstitutionality. The intermediate approach has been formulated in this manner: A governmental regulation is sufficiently justified if it is within the constitutional power of the Government. [64] On the other hand. Prior restraint on speech based on its content cannot be justified by hypothetical fears. the content- based restraint will be struck down. Only when the challenged act has overcome the clear and present danger rule will it pass constitutional muster.are not subject to the strictest form of judicial scrutiny but an intermediate approachsomewhere between the mere rationality that is required of any other law and the compelling interest standard applied to content-based restrictions. if the governmental interest is unrelated to the suppression of free expression.[66] With respect to content-based restrictions. if it furthers an important or substantial governmental interest.[67] As formulated.

The latter will pass constitutional muster only if justified by a compelling reason. E. [70] A restriction that is so broad that it encompasses more than what is required to satisfy the governmental interest will be invalidated. it is clear that the challenged acts in the case at bar need to be subjected to the clear and present danger rule. it is subjected to an intermediate review. however. the incidental restriction on speech must be no greater than what is essential to the furtherance of that interest. when the prior restraint partakes of a content-neutral regulation.such a nature as to create a clear and present danger that they willbring about the substantive evils that Congress has a right to prevent. and the restrictions imposed are neither overbroad nor vague. Dichotomy of Free Press: Print v. place or manner of the dissemination of speech or expression. The acts of respondents focused solely on but one objecta specific content fixed as these were on the alleged taped conversations between the President and a COMELEC official. bears a heavy presumption of invalidity and is measured against the clear and present danger rule. A content-based [73] regulation. It is a question of proximity and degree. Undoubtedly these did not merely provide regulations as to the time. [69] Also. Broadcast Media . [72] Thus. [74] Applying the foregoing. which is unrelated to the suppression of free expression. with the least restrictive means undertaken. must be reasonable and narrowly drawn to fit the regulatory purpose.5. [71] The regulation. therefore. as they are content- based restrictions.[68] The regulation which restricts the speech content must also serve an important or substantial government interest.

and (c) its unique accessibility to children.S.[79] they are decided on whether the governmental restriction is narrowly tailored to further a substantial governmental interest. comes respondents argument that the challenged act is valid on the ground that broadcast media enjoys free speech rights that are lesser in scope to that of print media. the three major reasons why broadcast media stands apart from print media are: (a) the scarcity of the frequencies by which the medium operates [i.. film and video have been subjected to regulatory schemes. newspapers. broadcast radio and television have been held to have limited First Amendment protection. nor go so far as to demand that such regulations serve compelling government interests.S. Philippine jurisprudence has also echoed a differentiation in treatment between broadcast and print media. a review of Philippine case law on broadcast media will show thatas we have deviated with the American conception of the Bill of Rights[81] we likewise did . Courts. Contrasted with the regime in respect of books. As pointed out by respondents. broadcasting. According to U. Finally.S. There. insofar as it has been invoked to validate a content-based restriction on broadcast media. airwaves are physically limited while print medium may be limitless]. [77] (b) its pervasiveness as a medium. The regimes presently in place for each type of media differ from one other. Courts have excluded broadcast media from the application of the strict scrutiny standard that they would otherwise apply to content-based [76] restrictions. We next explore and test the validity of this argument. magazines and traditional printed matter.[75] and U. courts] have applied to other media.e. The dichotomy between print and broadcast media traces its origins in the United States.[78] Because cases involving broadcast media need not follow precisely the same approach that [U. Nevertheless.[80] or the intermediate test.

or is based on a compelling government interest that also has constitutional protection.g. The test for limitations on freedom of expression continues to be the clear and present danger rule[83] Dans was a case filed to compel the reopening of a radio station which had been summarily closed on grounds of national security. Thus:[84] . are entitled to the broad protection of the freedom of speech and expression clause. the Court made a detailed exposition as to what needs be considered in cases involving broadcast media.. Our cases show two distinct features of this dichotomy. and narrowly confined to unprotected speech (e.[82] wherein it was held that [a]ll forms of media.not adopt en masse the U. pornography. The distinction between broadcast and traditional print media was first enunciated in Eastern Broadcasting Corporation (DYRE) v. the difference in treatment. without making a distinction as to traditional print or broadcast media. in the main. Particularly. the Court still proceeded to do an analysis of the case and made formulations to serve as guidelines for all inferior courts and bodies exercising quasi-judicial functions. seditious and inciting speech). First. is in the regulatory scheme applied to broadcast media that is not imposed on traditional print media. obscenity. such as national security or the electoral process. Second. particularly as to which test would govern content-based prior restraints.S. conception of free speech as it relates to broadcast media. the Court has consistently held that the clear and present danger test applies to content-based restrictions on media. Although the issue had become moot and academic because the owners were no longer interested to reopen. whether print or broadcast. Dans. regardless of the regulatory schemes that broadcast media is subjected to.

explained why radio broadcasting. 726). more than other forms of communications. Airwave frequencies have to be allocated among qualified users. Reyes in behalf of the Anti-Bases Coalition v. however. Pacifica Foundation (438 U. are entitled to the broad protection of the freedom of speech and expression clause. All forms of communication are entitled to the broad protection of the freedom of expression clause. (4) The clear and present danger test. the freedom of television and radio broadcasting is somewhat lesser in scope than the freedom accorded to newspaper and print media. . A broadcast corporation cannot simply appropriate a certain frequency without regard for government regulation or for the rights of others. does not lend itself to a simplistic and all embracing interpretation applicable to all utterances in all forums.S. receives the most limited protection from the free expression clause. The test for limitations on freedom of expression continues to be the clear and present danger rule. In his Constitution of the Philippines (2nd Edition. however. Broadcasting has to be licensed.xxx xxx xxx (3) All forms of media. pp. not only in public. Second.L. that words are used in such circumstances and are of such a nature as to create a clear and present danger that they will bring about the substantive evils that the lawmaker has a right to prevent. 569-570) Chief Justice Enrique M. Material presented over the airwaves confronts the citizen. Necessarily.B. whether print or broadcast. but in the privacy of his home. the clear and present danger test was applied in J. confronted with a patently offensive and indecent regular radio program. Fernando cites at least nine of our decisions which apply the test. broadcast media have established a uniquely pervasive presence in the lives of all citizens. broadcasting is uniquely accessible to children. First. Bagatsing. More recently. The American Court in Federal Communications Commission v.

The impact of the vibrant speech is forceful and immediate. Basic needs like food and shelter perforce enjoy high priorities. but the same selectivity cannot be done in radio or television. the radio audience has lesser opportunity to cogitate analyze. must take the particular circumstances of broadcast media into account. The government has a right to be protected against broadcasts which incite the listeners to violently overthrow it. The materials broadcast over the airwaves reach every person of every age. The supervision of radio stations-whether by government or through self-regulation by the industry itself calls for thoughtful. (5) The clear and present danger test. At the same time. persons of varying susceptibilities to persuasion. Their message may be simultaneously received by a national or regional audience of listeners including the indifferent or unwilling who happen to be within reach of a blaring radio or television set. the transistor radio is found everywhere. persons of different I.s and mental capabilities. Newspapers and current books are found only in metropolitan areas and in the poblaciones of municipalities accessible to fast and regular transportation. therefore. there are low income masses who find the cost of books. and magazines beyond their humble means. Even here. and reject the utterance. Radio and television may not be used to organize a rebellion or to signal the start of widespread uprising. The television set is also becoming universal. the people have a . intelligent and sophisticated handling. newspapers.Q. where the listener or viewer is constantly tuning in and out. The broadcast media have also established a uniquely pervasive presence in the lives of all Filipinos. Unlike readers of the printed work. persons whose reactions to inflammatory or offensive speech would be difficult to monitor or predict. On the other hand. Bookstores and motion picture theaters may be prohibited from making certain material available to children. Similar considerations apply in the area of national security.

Thus. Men in public life may suffer under a hostile and an unjust accusation. but only after categorically declaring that the test for limitations on freedom of expression continues to be the clear and present danger rule. or to validate a licensing or regulatory scheme necessary to allocate the limited broadcast frequencies. the scarcity. a close reading of the above-quoted provisions would show that the differentiation that the Court in Dans referred to was narrowly restricted to what is otherwise deemed as unprotected speech (e. The interest of society and the maintenance of good government demand a full discussion of public affairs. pervasiveness and accessibility to children). right to be informed. Indeed. Since they are the most convenient and popular means of disseminating varying views on public issues. or pleasantly entertaining utterances. jurisprudence to justify differentiation of treatment (i. Bustos (37 Phil. obscenity. seditious and inciting speech). obsequious. (7) Broadcast stations deserve the special protection given to all forms of media by the due process and freedom of expression clauses of the Constitution. whether print or broadcast. The sharp incision of its probe relieves the abscesses of officialdom. Radio and television would have little reason for existence if broadcasts are limited to bland. In the 1918 case of United States v. national security. the wound can be assuaged with the balm of a clear conscience.g. Only thus can the intelligence and dignity of the individual be exalted. they also deserve special protection. when this Court declared in Dans that the freedom given to broadcast media was somewhat lesser in scope than the freedom accorded to .e.. (6) The freedom to comment on public affairs is essential to the vitality of a representative democracy. A public officer must not be too thin-skinned with reference to comment upon his official acts. for all forms of media. Complete liberty to comment on the conduct of public men is a scalpel in the case of free speech.. which is absent in print media.S. [Citations omitted] It is interesting to note that the Court in Dans adopted the arguments found in U. 731) this Court was already stressing that.

that the clear and present danger rule has been applied to all cases that involve the broadcast media. strictly speaking. More recently. Indeed. This is so because unlike motion pictures where the patrons have to pay their way.[89] This is not to suggest. television reaches every home where there is a set. The rule applies to all media. it was not as to what test should be applied. but only when the challenged act is a content-based regulation that infringes on free speech. in resolving a case involving the conduct of exit polls and dissemination of the results by a broadcast company. but the context by which requirements of licensing. in Osmena v. including broadcast. it was reiterated in Gonzales v. again without distinguishing the media. Although the issue involved obscenity standards as applied to movies. and application of norms to unprotected speech. Children then will likely be among the avid viewers of the programs therein shown. the Court refused to apply the clear and present danger rule to a COMELEC regulation of .newspaper and print media. Katigbak. It is the consensus of this Court that where television is concerned. does not treat of broadcast media but motion pictures. expression and the press. however.. allocation of airwaves. we reiterated that the clear and present danger rule is the test we unquestionably adhere to issues that involve freedoms of speech and of the press.[86]that the test to determine free expression challenges was the clear and present danger.[90] which also involved broadcast media. a less liberal approach calls for observance.It cannot be denied though that the State as parens patriae is called upon to manifest an attitude of caring for the welfare of the young. COMELEC.[87] Katigbak.[88] the Court concluded its decision with the following obiter dictum that a less liberal approach would be used to resolve obscenity issues in television as opposed to motion pictures: All that remains to be said is that the ruling is to be limited to the concept of obscenity applicable to motion pictures. [85] In the same year that the Dans case was decided.

Since it has a unique impact on people and affects children in a way that the print media normally does not. these justifications are now the subject of debate.[91] And in a case involving due process and equal protection issues. cable and satellite television have enormously increased the number of actual and potential channels.[93] Parenthetically. the scarcity of frequencies was thought to provide a rationale. That broadcast media is subject to a regulatory regime absent in print media is observed also in other jurisdictions. but have a common historical basis.time and manner of advertising of political advertisements because the challenged restriction was content-neutral. regulation by administrative bodies. whereas it is now accepted that books and other printed media do not. the argument persists that broadcasting is the most influential means of communication. but are also seen as possible sources of harm. However. without going into which test would apply. Historically. These media are viewed as beneficial to the public in a number of respects. Digital technology will further increase the number of channels available. films. As explained by a British author: The reasons behind treating broadcast and films differently from the print media differ in a number of respects. and so much time is spent watching television. But still. the Court in Telecommunications and Broadcast Attorneys of the Philippines v. The stricter system of controls seems to have been adopted in answer to the view that owing to their particular impact on audiences. and censorship. COMELEC[92] treated a restriction imposed on a broadcast media as a reasonable condition for the grant of the medias franchise. videos and broadcasting require a system of prior restraints. since it comes into the home. where the statutory regimes in place over broadcast media include elements of licensing. that regulation is .

yet the Internet and the broadcast media share similarities. [96] and the rationales used to support broadcast regulation apply equally to the Internet. but from private corporate bodies. [98] F. The Case At Bar Having settled the applicable standard to content-based restrictions on broadcast media.[97] Thus. a governmental action that restricts freedom of speech or of the press based on content is given the strictest scrutiny.said to be necessary in order to preserve pluralism. This outlines the procedural map to follow in cases like the one at bar as it spells out the following: (a) the test. legislative bodies and the government agencies regulating media must agree to regulate both. [94] The emergence of digital technology -. On the basis of the records of the case at bar. It has been argued further that a significant main threat to free expressionin terms of diversitycomes not from government. and (e) the quantum of evidence necessary. respondents who have the burden to . (b) the presumption. (d) the party to discharge the burden. (c) the burden of proof. it has been argued that courts. with the government having the burden of overcoming the presumed unconstitutionality by the clear and present danger rule. To recapitulate. This rule applies equally to all kinds of media. remains largely unregulated. regulate neither or develop a new regulatory framework and rationale to justify the differential treatment. let us go to its application to the case at bar. for example. telecommunications and the computer industry -.[95] Internet.which has led to the convergence of broadcasting. These developments show a need for a reexamination of the traditional notions of the scope and extent of broadcast media regulation.has likewise led to the question of whether the regulatory model for broadcasting will continue to be appropriate in the converged environment. including broadcast media.

The identity of the wire-tappers. Our laws are of different kinds and doubtless. by itself and without more. In fine. and respondents evidence falls short of satisfying the clear and present danger test. cannot support suppression of free speech and free press. By all means. especially considering the tapes different versions. the Court should not be misinterpreted as devaluing violations of law. violation of law is just a factor. one supposed to be a complete version and the other. We rule that not every violation of a law will justify straitjacketing the exercise of freedom of speech and of the press.show that these acts do not abridge freedom of speech and of the press failed to hurdle the clear and present danger test. the manner of its commission and other related and relevant proofs are some of the invisibles of this case. The records of the case at bar. It appears that the great evil which government wants to prevent is the airing of a tape recording in alleged violation of the anti-wiretapping law. which should be weighed in adjudging whether to restrain freedom of speech and of the press. There are laws of great significance but their violation. the evidence of the respondents on the whos and the hows of the wiretapping act is ambivalent. the need to prevent their violation cannot per se trump the exercise of free speech and free press.Firstly. a vital one to be sure. given all these unsettled facets of the tape. however. the integrity of the taped conversation is also suspect. The totality of the injurious effects of the violation to private and public interest must be calibrated in light of the preferred status accorded by the Constitution and by related international covenants protecting freedom of speech and of the press. But to repeat. The Press Secretary showed to the public two versions. some of them provide norms of conduct which even if violated have only an adverse effect on a persons private comfort but does not endanger national security. violations of law should be vigorously prosecuted by the State for they breed their own evil consequence. Fourthly. In calling for a careful and calibrated measurement of the circumference of all these factors to determine compliance with the clear and present danger test. it is even arguable whether its airing would violate the anti-wiretapping law. Thirdly. a preferred right whose breach can lead to greater . the various statements of the Press Secretary obfuscate the identity of the voices in the tape recording. Secondly. are confused and confusing. an altered version.

petitioner Chavez was left alone to fight this battle for freedom of speech and of the press. such as a speech uttered. who wields the awesome power to prosecute those perceived to be violating the laws of the land. the alter ego of the Executive. For this failure of the respondents alone to offer proof to satisfy the clear and present danger test. There is no showing that the feared violation of the anti-wiretapping law clearly endangers the national security of the State. This is not all the faultline in the stance of the respondents. This silence on the sidelines on the part of some media practitioners is too deafening to be the subject of misinterpretation. It is sufficient that the press statements were made by respondents while in the exercise of their official functions. There is enough evidence of chilling effect of the complained acts on record. The concept of an act does not limit itself to acts already converted to a formal order or official circular. the Court has no option but to uphold the exercise of free speech and free press. the KBP inexplicably joined the NTC in issuing an ambivalent Joint Press Statement. Undoubtedly. respondent Gonzales made his statements as Secretary of Justice. The warnings given to media came from no less the NTC. we hold that it is not decisive that the press statements made by respondents were not reduced in or followed up with formal orders or circulars. . After the warnings. We slide to the issue of whether the mere press statements of the Secretary of Justice and of the NTC in question constitute a form of content-based prior restraint that has transgressed the Constitution. while the NTC issued its statement as the regulatory body of media. The press statements at bar are acts that should be struck down as they constitute impermissible forms of prior restraints on the right to free speech and press. In resolving this issue. After the warnings. Any act done. the non formalization of an act into an official order or circular will result in the easy circumvention of the prohibition on prior restraint. a regulatory agency that can cancel the Certificate of Authority of the radio and broadcast media. for and on behalf of the government in an official capacity is covered by the rule on prior restraint.evils. Otherwise. They also came from the Secretary of Justice.

R.The constitutional imperative for us to strike down unconstitutional acts should always be exercised with care and in light of the distinct facts of each case. because plaintiff needed it for his offices as a result of the destruction of the building where said plaintiff had said offices before. When . always based on the peculiar shapes and shadows of each case. Lefrado Fernando. Despite this demand. A blow too soon struck for freedom is preferred than a blow too late. ET AL. L-264 October 4. we should be swift in striking them down as nullities per se. for constituting unconstitutional prior restraint on the exercise of freedom of speech and of the press SO ORDERED. JACINTA BALDOMAR. specifically on March 16. and 11.: Vicente Singson Encarnacion. Manila. 1945. Issues revolving on their construct must be decided on a case to case basis. plaintiff Singson Encarnacion notified defendants. plaintiff-appellee. and on April 7. 2005 warning the media on airing the alleged wiretapped conversation between the President and other personalities. to vacate the house above-mentioned on or before April 15. nullifying the official statements made by respondents on June 8. After Manila was liberated in the last war. the said mother and son. the petition is GRANTED. Bausa and Ampil for appellants. HILADO. J. defendants-appellants. G. Tolentino and Aguas for appellee. In VIEW WHEREOF. some six years ago leased said house to Jacinto Baldomar and her son. defendants insisted on continuing their occupancy. 1946 VICENTE SINGSON ENCARNACION. upon a month-to- month basis for the monthly rental of P35.. and the limits and construct of relative freedoms are never set in stone. vs. of the same year. owner of the house numbered 589 Legarda Street. The writs of certiorari and prohibition are hereby issued. For there are no hard and fast rules when it comes to slippery constitutional questions. 1945. But in cases where the challenged acts are patent invasions of a constitutionally protected right. No.

and that this agreement had been ratified when another ejectment case between the parties filed during the Japanese regime concerning the same house was allegedly compounded in the municipal court. 1945. We think that the Court of First Instance was right in so declaring. on the ground that in the municipal court plaintiff had waived said claim for damages and that. therefore. by order dated July 21. to the date of said judgment at the rate of P35 a month. 1945. was that the contract which they had celebrated with plaintiff since the beginning authorized them to continue occupying the house indefinetly and while they should faithfully fulfill their obligations as respects the payment of the rentals. That rental was paid prior to the hearing of the case in the municipal court. defendants were in arrears in the payment of the rental corresponding to said month. for which reason the Court considered it as indicative of an eleventh-hour theory. on account of which nothing was said regarding said damages in the municipal court's decision. completely depriving the owner of all say in the matter. within the meaning of article 1256 of the Civil Code. of course. the rentals in areas were those pertaining to the month of August. 626. So ordered. The Court of First Instance gave more credit to plaintiff's witness. with the costs of the three instances to appellants. Upon the whole.. The court added in its decision that this defense which was put up by defendant's answer.. the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. lawphil. Judge Mamerto Roxas. carried to its logical conclusion. 100. 627. (8 Manresa. jr. so long as defendants elected to continue the lease by continuing the payment of the rentals. 3d ed. Cuyugan vs. Santos. 34 Phil. the Court of First Instance had no appellate jurisdiction over the subject matter of the action. pp.net In the Court of First Instance the graveman of the defense interposed by defendants. although the owner should desire the lease to continue. is prohibited by the aforesaid article of the Civil Code. as it was expressed defendant Lefrado Fernando during the trial. certain deposits were made by defendants on account of rentals with the clerk of said court. Furthermore. 1945. that claim was waived by him before the hearing in the municipal court. as a consequence of which said court entered judgment for restitution and payment of rentals at the rate of P35 a month from May 1. we are clearly of opinion that the judgment appealed from should be. the same waiver was understood also to have been made in the Court of First Instance. conversely. therefore. who testified that the lease had always and since the beginning been upon a month-to-month basis. since the continuance and fulfillment of the contract would then depend solely and exclusively upon their free and uncontrolled choice between continuing paying the rentals or not. the agrees rental being payable within the first five days of each month. 1945. Vicente Singson Encarnacion. and in said judgment it is disposed that the amounts thus deposited should be delivered to plaintiff. Although plaintiff included in said original complaint a claim for P500 damages per month. That motion to dismiss was denied by His Honor. If this defense were to be allowed. defendants filed therein a motion to dismiss (which was similar to a motion to dismiss filed by them in the municipal court) based upon the ground that the municipal court had no jurisdiction over the subject matter due to the aforesaid claim for damages and that. until defendants completely vacate the premises. . the owner would never be able to discontinue it. as it is hereby. 1945. During the pendency of the appeal in that court. the defense thus set up by defendant Lefrado Fernando would leave to the sole and exclusive will of one of the contracting parties (defendants in this case) the validity and fulfillment of the contract of lease.. When the case reached the Court of First Instance of Manila upon appeal.the original action was lodged with the Municipal Court of Manila on April 20.) During the pendency of the appeal in the Court of First Instance and before the judgment appealed from was rendered on October 31. affirmed. This.

It is of the . . an English association (represented by Mr. it is understood to be for years when an annual rental has been fixed.Eleizegui v." The second clause of the contract provides as follows: "The rent of the said land is fixed at 25 pesos per month. . The Manila Lawn Tennis Club G. as what they believe has been stipulated. . for months when the rent is monthly. The defendant is in the belief that there can be no other mode of terminating the lease than by its own will. fixed for leases by articles 1577 and 1581. It appeared that the plaintiffs terminated the lease right on the first month. the conventional term — that is. 967 May 19.R. the lessee can make improvements deemed desirable for the comfort and amusement of its members.R. the law which was in force at the time the contract was entered into. No. 1980 over a piece of land owned by the plaintiffs Eleizegui (Lessor) to the Manila Lawn Tennis Club. in defect of the conventional. 1581 which provides that. The Plaintiffs argued that the duration of the lease depends upon the will of the lessor on the basis of Art. Williamson) for a fixed consideration of P25 per month and accordingly. 1903 Facts: A contract of lease was executed on January 25. to last at the will of the lessee. 967 Eleizegui v. the one agreed upon by the parties. As a result the plaintiff filed a case for unlawful detainer for the restitution of the land claiming that article 1569 of the Civil Code provided that a lessor may judicially dispossess the lessee upon the expiration of the conventional term or of the legal term. the legal term." The lower court ruled in favor of the Plaintiffs on the basis of Article 1581 of the Civil Code. No. "When the term has not been fixed for the lease. The Manila Lawn Tennis Club Digest G. Under the contract.

) The lease in question does not fall within any of the cases in which the rights and obligations arising from a contract can not be transmitted to heirs. ISSUE: a) Whether or not the parties have agreed upon the duration of the lease b) Whether or not the lease depends upon the will of the lessee RULING: a) YES. The judgment was entered upon the theory of the expiration of a legal term which does not exist. If the lease could last during such time as the lessee might see fit. The legal term cannot be applied under Art 1581 as it appears that there was actually an agreement between the parties as to the duration of the lease. either by its nature. Moreover. during all the time that he may have succession. first. 1543. as the case requires that a term be fixed by the courts under the provisions of article 1128 with respect to obligations which. 1257 of the Civil Code. or by provision of law. 1608. albeit implied that the lease is to be dependent upon the will of the lessee.) . it would last. as long as the will of the lessee — that is. (Art. because it has been so stipulated by the lessor. (Art. second. inasmuch as he who contracts does so for himself and his heirs. as is the present. given this implication. or for an unlimited period. by agreement. even if they implied this idea. It would be absurd to accept the argument of the plaintiff that the contract was terminated at its notice. (Art. all his life. then it must be for a determinate period. the contract should not be understood as one stipulated as a life tenancy. and still less as a perpetual lease since the terms of the contract express nothing to this effect. just as by reason of its nature. 1581 is inapplicable. an emphyteusis must be perpetual.opinion that the contract of lease was terminated by the notice given by the plaintiff. Interestingly. the parties have agreed upon a term hence Art. being a lease. are terminable at the will of the obligee.) By its very nature it must be temporary.

The only action which can be maintained under the terms of the contract is that by which it is sought to obtain from the judge the determination of this period. To maintain the latter action it is sufficient to show the expiration of the term of the contract. 1128. and not the unlawful detainer action which has been brought — an action which presupposes the expiration of the term and makes it the duty of the judge to simply decree an eviction.B) The duration of the lease does not depend solely upon the will of the Lessee (defendant). there is always a creditor who is entitled to demand the performance. This term it is which must be fixed by the courts." and provides that in this case the term shall be fixed by the courts. and is the debtor with respect to the obligations imposed by articles 1555 and 1561. The term within which performance of the latter obligation is due is what has been left to the will of the debtor. in this contract of lease.) In every contract. It cannot be concluded that the termination of the contract is to be left completely at the will of the lessee simply because it has been stipulated that its duration is to be left to his will. in order to decree the relief to be granted in the former action it is necessary for the judge to look into the character and conditions of the mutual undertakings with a view to supplying the lacking element of a time at which the lease is to expire. The Civil Code has made provision for such a case in all kinds of obligations. 2. . as laid down by the authorities. In speaking in general of obligations with a term it has supplied the deficiency of the former law with respect to the "duration of the term when it has been left to the will of the debtor. Thus. sec. the lessee is the creditor with respect to the rights enumerated in article 1554. and a debtor upon whom rests the obligation to perform the undertaking. In bilateral contracts the contracting parties are mutually creditors and debtors. whether conventional or legal. (Art.

1957 Justina Santos became the owner of the entire property as her sister died with no other heir. with an area of 2. LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng.620. G. she was left with no other relative to live with. out of the rental due from him.120. representing the estate of JUSTINA SANTOS Y CANON FAUSTINO. the Manila Lawn Tennis Club. plaintiff-appellant. while Wong Heng. 1967 PHILIPPINE BANKING CORPORATION. an amount not exceeding P1. Then already well advanced in years. Nicanor S. The sisters lived in one of the houses.30 square meters. Gibbs & Ozaeta for defendant-appellant. 4) so as to make it cover the entire property. including rentals from her property at the corner of Ongpin and Salazar streets and the rentals which Wong himself paid as lessee of a part of the Rizal Avenue property. the contract was amended (Plff Exh. crippled and an invalid. at an additional monthly rental of P360. L-17587 September 12. Sison for plaintiff-appellant. deceased. In it are two residential houses with entrance on Florentino Torres street and the Hen Wah Restaurant with entrance on Rizal Avenue. Ten days later (November 25). Wong himself was the trusted man to whom she delivered various amounts for safekeeping. the monthly rental was P3.124 square meters. Her otherwise dreary existence was brightened now and then by the visits of Wong's four children who had become the joy of her life. defendant-appellant. is located on Rizal Avenue and opens into Florentino Torres street at the back and Katubusan street on one side. and her household expenses. masses. The contract covered an area of 1. paying a monthly rental of P2. of taxes. vs.: Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of land in Manila. lived with his family in the restaurant. including the portion on which the house of Justina Santos stood. 1957 a contract of lease (Plff Exh.582. funeral expenses. being at the time 90 years old. CASTRO.The lower court’s judgement is erroneous and therefore reversed and the case was remanded with directions to enter a judgment of dismissal of the action in favor of the defendant. . No. "In grateful acknowledgment of the personal services of the lessee to her. Ozaeta. lawyers' fees.000 a month for the food of her dogs and the salaries of her maids. a Chinese. blind. deceased. although the lessee was given the right to withdraw at any time from the agreement. On September 22." Justina Santos executed on November 15.R. in her behalf. This parcel. 3) in favor of Wong. Wong also took care of the payment. Her only companions in the house were her 17 dogs and 8 maids. salaries of maids and security guard. covering the portion then already leased to him and another portion fronting Florentino Torres street. J. Wong had been a long-time lessee of a portion of the property. The lease was for 50 years. For his part Wong undertook to pay.

aside from the nullity of the contracts. misrepresentation. The complaint alleged that the contracts were obtained by Wong "through fraud. Thus on June 9. admitted receipt of P7. . In his answer. the Security Bank & Trust Co. 17) of a later date (November 4. It appears. imposed on him the obligation to pay for the food of the dogs and the salaries of the maids in her household.42 (Dec. P10.120 a month from November 15. Wong's admission of the receipt of P22.000 (Dec.27. he expressed readiness to comply with any order that the court might make with respect to the sums of P22. The error was discovered and the proceedings were abandoned. An accounting of the rentals from the Ongpin and Rizal Avenue properties was also demanded. P7. As counterclaim he sought the recovery of P9. These amounts and the dates of their delivery are P33. was appointed guardian of the properties of Justina Santos. 7) giving Wong the option to buy the leased premises for P120. the charge not to exceed P1.42 and P10. Both contracts are written in Tagalog. 1958 she filed a petition to adopt him and his children on the erroneous belief that adoption would confer on them Philippine citizenship. Wong admitted that he enjoyed her trust and confidence as proof of which he volunteered the information that." The court was asked to direct the Register of Deeds of Manila to cancel the registration of the contracts and to order Wong to pay Justina Santos the additional rent of P3. she bade her legatees to respect the contracts she had entered into with Wong. On November 18 the present action was filed in the Court of First Instance of Manila. written in Tagalog. On October 28. inequitable conduct.000 in his possession.724.000 (as admitted in his answer).000. one (Plff Exh. Claiming that the various contracts were made by her because of machinations and inducements practiced by him.000 which he said she had delivered to him for safekeeping. 1.800 a month.344. another sum of P22. Wong insisted that the various contracts were freely and voluntarily entered into by the parties. payable within ten years at a monthly installment of P1.000. however. but contended that these amounts had been spent in accordance with the instructions of Justina Santos. the collection of various amounts allegedly delivered on different occasions was sought. 1960.210.On December 21 she executed another contract (Plff Exh.000 was the cue for the filing of an amended complaint. 6. P22. 4.724.000 and P3.344. 1958 she executed two other contracts. In the meantime as a result of a petition for guardianship filed in the Juvenile and Domestic Relations Court. 6) fixing the term of the option of 50 years.240 a month. But he denied having taken advantage of her trust in order to secure the execution of the contracts in question. The option was conditioned on his obtaining Philippine citizenship. in addition to the sum of P3. In his answer.27 (Nov. 1957). 1957). 1957 on the allegation that the reasonable rental of the leased premises was P6. 1959) she appears to have a change of heart. but in a codicil (Plff Exh. Gochangco was appointed guardian of her person.000 had been deposited in a joint account which he had with one of her maids. 5) extending the term of the lease to 99 years. He likewise disclaimed knowledge of the sum of P33. 1959 (Def Exhs. while Ephraim G.49 which he said she owed him for advances. 1957).000. a petition for which was then pending in the Court of First Instance of Rizal. On November 18. and another (Plff Exh. she now directed her executor to secure the annulment of the contracts. The option.000 and P3. that this application for naturalization was withdrawn when it was discovered that he was not a resident of Rizal. 285 & 279).000 in the bank and P3. In two wills executed on August 24 and 29. undue influence and abuse of confidence and trust of and (by) taking advantage of the helplessness of the plaintiff and were made to circumvent the constitutional provision prohibiting aliens from acquiring lands in the Philippines and also of the Philippine Naturalization Laws.

120. 1308] of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties. at any time before he erected any building on the land. is absolutely simulated. and because the lease contract. 3) should have been annulled along with the four other contracts (Plff Exhs. This is of course untenable. at the time. costs against Wong Heng. Such a stipulation. "If this defense were to be allowed. after which the lower court rendered judgment as follows: [A]ll the documents mentioned in the first cause of action. Indeed. while Justina Santos was substituted by the Philippine Banking Corporation. he is also ordered to pay the sum of P3.25 with legal interest from the date of the filing of the amended complaint. 1962 and Justina Santos on December 28. as can be readily seen. the right of the lessee to continue the lease or to terminate it is so . In that case. in contrast. the owner would never be able to discontinue it. like the rest of the contracts." We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor v. from 15 November 1959. because her consent was obtained through undue influence. for where the contracting parties have agreed that such option shall exist.554. 4-7) because it lacks mutuality. for as this Court said. Dy Tiao Lay 3 that a "provision in a lease contract that the lessee. Baldomar 4 cannot be cited in support of the claim of want of mutuality. the lessees argued that they could occupy the premises as long as they paid the rent. its validity or compliance cannot be left to the will of one of them." It is claimed that this stipulation offends article 1308 of the Civil Code which provides that "the contract must bind both contracting parties. Wong Heng is condemned to pay unto plaintiff thru guardian of her property the sum of P55.The case was heard. although the owner should desire the lease to continue the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. the cancellation of a contract in accordance with conditions agreed upon beforehand is fulfillment. conversely. After the case was submitted for decision. Wong was substituted by his wife. Justina Santos maintained — now reiterated by the Philippine Banking Corporation — that the lease contract (Plff Exh. so long as defendants elected to continue the lease by continuing the payment of the rentals.1 We said in that case: Article 1256 [now art. because of a difference in factual setting. with the exception of the first which is the lease contract of 15 November 1957. the other defendant in this case. the exercise of the option is as much in the fulfillment of the contract as any other act which may have been the subject of agreement.2 And so it was held in Melencio v. because it included a portion which. are declared null and void. because the contract was obtained in violation of the fiduciary relations of the parties.00 for every month of his occupation as lessee under the document of lease herein sustained. fraud and misrepresentation. Lui She. was in custodia legis. does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation. both parties died. 1308] of the Civil Code. 1964. Wong Heng on October 21. can hardly be regarded as a violation of article 1256 [now art." The case of Singson Encarnacion v." Here. and the moneys he has consigned since then shall be imputed to that. might rescind the lease. From this judgment both parties appealed directly to this Court. Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this agreement. Uy Tieng Piao.

the contents of this document before she signed it? A I explained to her each and every one of these conditions and I also told her these conditions were quite onerous for her. .6 It is next contended that the lease contract was obtained by Wong in violation of his fiduciary relationship with Justina Santos. I don't really know if I have expressed my opinion. in no wise stands in the way of such administration. The ordinary execution of property in custodia legis is prohibited in order to avoid interference with the possession by the court. 1957 by force of article 777 of the Civil Code. Yumol who said that he prepared the lease contract on the basis of data given to him by Wong and that she told him that "whatever Mr. xxx xxx xxx . Q But. I was called again by her and she told me to follow the wishes of Mr. Q Agreed what? A Agreed with my objectives that it is really onerous and that I was really right. Wong wants must be followed. and she went with the contract just the same? A She agreed first . when she leased the property on November 15. she did so already as owner thereof. Wong Heng. the lease is invalid as to such portion. At any rate. Justina Santos became the owner of the entire property upon the death of her sister Lorenzo on September 22. Hence. Doña Justina. but after that. subject to the result of the pending administration. Yumol cannot be read out of context in order to warrant a finding that Wong practically dictated the terms of the contract. Counsel for Justina Santos cites the testimony of Atty. although admittedly close and confidential. which disqualifies "agents (from leasing) the property whose administration or sale may have been entrusted to them. Tomas S. What this witness said was: Q Did you explain carefully to your client. in relation to article 1941 of the Civil Code. even if no term had been fixed in the agreement."7 The testimony of Atty. . it is argued that Wong so completely dominated her life and affairs that the contracts express not her will but only his.circumscribed by the term of the contract that it cannot be said that the continuance of the lease depends upon his will. did not amount to an agency so as to bring the case within the prohibition of the law. But the sale made by an heir of his share in an inheritance. but I told her that we would rather not execute any contract anymore." But Wong was never an agent of Justina Santos. but to hold it as it was before. interest or participation which he has or might have in the lands under administration. contrary to article 1646. The relationship of the parties. she did not follow your advice. Nor is there merit in the claim that as the portion of the property formerly owned by the sister of Justina Santos was still in the process of settlement in the probate court at the time it was leased. As this Court explained in upholding the sale made by an heir of a property under judicial administration: That the land could not ordinarily be levied upon while in custodia legis does not mean that one of the heirs may not sell the right. on a verbal month to month contract of lease. this case would at most justify the fixing of a period5 but not the annulment of the contract. Just the same.

She was. I am the only one that can question the illegality. Indeed.14 Hence the recital in the deed of conditional option (Plff Exh. she is a wealthy woman. Q So. he tried to persuade her to enter instead into a lease on a month-to-month basis. Ana)13 it was Justina Santos herself who. Benjamin C. related by the same witness. Wong Heng. you prepare that. 4-7) — the consent of Justina Santos was given freely and voluntarily. however."8 Wong might indeed have supplied the data which Atty. The truth is that even after giving his client time to think the matter over. This persuaded the lower court to uphold the validity of the lease contract against the claim that it was procured through undue influence. said "very emphatically" that she and her sister would have perished in the fire had it not been for Wong. according to her own witness. it was either Mr. when I said "This is not proper. but neither of them was presented as a witness. . But. it is just natural when she said "This is what I want and this will be done. This witness said that the original term fixed for the lease was 99 years but that as he doubted the validity of a lease to an alien for that length of time. but to say this is not to detract from the binding force of the contract. Instead of heeding the advice of the lawyer. When we had conferences. Wong wants must be followed." she said — "You just go ahead. For while a witness claimed that the sisters were saved by other persons (the brothers Edilberto and Mariano Sta. Natividad Luna. if I have to express my personal opinion. Wong Heng or Judge Torres and/or both. Yumol embodied in the lease contract. "Just follow Mr. Hermenegilda Lao. For the contract was fully explained to Justina Santos by her own lawyer. she told me — "Whatever Mr. and her maid. and the equally emphatic avowal of gratitude in the lease contract (Plff Exh. Yumol declared on cross examination: Considering her age. 7) that "[I]tong si Wong Heng ang siyang nagligtas sa aming dalawang magkapatid sa halos ay tiyak na kamatayan". the charge of undue influence in this case rests on a mere inference12 drawn from the fact that Justina Santos could not read (as she was blind) and did not understand the English language in which the contract is written. the lawyer could not make her change her mind. because. firm and unyielding. so it was with the rest of the contracts (Plff Exhs. had saved her and her sister from a fire that destroyed their house during the liberation of Manila. Yumol further testified that she signed the lease contract in the presence of her close friend. as well as to the rest of the contracts in question. she was made to believe."9 Recounting the incident. as I said. makes clear that she voluntarily consented to the lease contract. Alonzo. said: [I]n nearly all documents. 3). and if there is any illegality. was given out of a mistaken sense of gratitude to Wong who.11 Any of them could have testified on the undue influence that Wong supposedly wielded over Justina Santos. As Atty. Atty. Nor is there merit in the claim that her consent to the lease contract. who was constantly by her side. As it was with the lease contract (Plff Exh. but that inference has been overcome by her own evidence. testifying for her. she ordered him. ninety (90) years old at the time and her condition. as far as consent is concerned. 3). I am the owner."10 Atty. you were satisfied that this document was perfectly proper? xxx xxx xxx A Your Honor. as I said before. I would say she is not." In particular reference to this contract of lease. Alonzo. One incident. they used to tell me what the documents should contain.

17 She was very emphatic in the care of the seventeen (17) dogs and of the maids who helped her much. Taken singly. because she did not want him to. especially her consolation in life was when she would hear the children reciting prayers in Tagalog. was to see to it that these properties be enjoyed. Atty. What is more. Atty. and she told me to see to it that no one could disturb Wong Heng from those properties.18 This is not to say. but the trial court did not believe him. suffice it to quote the testimony of her own witness and lawyer who prepared the contracts (Plff Exhs. on the ground that they are contrary to the expressed wish of Justina Santos and that their considerations are fictitious."15 But the lower court set aside all the contracts. near or far. . Filipino citizenship is not impossible to acquire. Should they desire to remain here forever and share our fortunes and misfortunes. As this Court said in Krivenko v. but that the amount was returned to him by her for safekeeping. and she considered Wong Heng as a son and his children her grandchildren. being the adopted child of a Filipino citizen. before her death. "The illicit purpose then becomes the illegal causa"19 rendering the contracts void. but his negative testimony does not rule out the possibility that the considerations were paid at some other time as the contracts in fact recite. Register of Deeds:20 [A]liens are not completely excluded by the Constitution from the use of lands for residential purposes. Wong stated in his deposition that he did not pay P360 a month for the additional premises leased to him. however. 4-7) in question. Neither did it believe his statement that he paid P1. and the fixing of the term of the option at 50 years). they reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits. Alonzo in reaching the conclusion that the contracts are void for want of consideration. the option to buy the leased premises. according to her revelation to me. the contracts show nothing that is necessarily illegal. Instead. the court relied on the testimony of Atty. Alonzo declared that he saw no money paid at the time of the execution of the documents. but considered collectively.000 as consideration for each of the contracts (namely. I would always ask the old woman about them and invariably the old woman used to tell me: "That's okay. 1957. Since their residence in the Philippines is temporary. a lease to an alien for a reasonable period is valid. Alonzo: The ambition of the old woman. while dispelling doubt as to the intention of Justina Santos. at the same time gives the clue to what we view as a scheme to circumvent the Constitutional prohibition against the transfer of lands to aliens. 3-7) are valid. even to own them. we thought of adoption. the extension of the lease to 99 years. by Wong Heng because Doña Justina told me that she did not have any relatives. To be sure. with the exception of the lease contract of November 15. That is why we thought of the ninety-nine (99) years lease.16 With respect to the lower court's finding that in all probability Justina Santos could not have intended to part with her property while she was alive nor even to lease it in its entirety as her house was built on it. So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship. they may be granted temporary rights such as a lease contract which is not forbidden by the Constitution. believing that thru adoption Wong Heng might acquire Filipino citizenship. For the testimony just quoted. It's all right. the consideration need not pass from one party to the other at the time a contract is executed because the promise of one is the consideration for the other. that the contracts (Plff Exhs.

Register of Deeds. And what of the various amounts which Wong received in trust from her? It appears that he kept two classes of accounts. he may. .23 For another thing.25 That policy would be defeated and its continued violation sanctioned if. Exh. 1957 (Plff Exh.21 this to last for 50 years. and P18. then it becomes clear that the arrangement is a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land ( jus possidendi. With respect to the first account. including residential lands. Perhaps the effect of our construction is to preclude aliens admitted freely into the Philippines from owning sites where they may build their homes.42 on December 1. For one thing. the disposition." The Constitutional provision that "Save in cases of hereditary succession. The claim for increased rentals and attorney's fees. must be denied for lack of merit. P10. made in behalf of Justina Santos. without costs.19. and so on. if public policy is thereby enhanced.724. 16). a piece of land. . with the result that Justina Santos' ownership of her property was reduced to a hollow concept. accordingly. . For all the foregoing. and. 1957 (Plff Exh. no private agricultural land shall be transferred or assigned except to individuals. the latter must be considered as pro tanto qualified.50 on August 26. then the Constitutional ban against alien landholding in the Philippines. P7. that "When the agreement is not illegal per se but is merely prohibited.000 on December 6. 14) . Gaw Chee Hun 26 and subsequent similar cases. or associations qualified to acquire or hold lands of the public domain in the Philippines"24 is an expression of public policy to conserve lands for the Filipinos. It is just as if today the possession is transferred. And yet this is just exactly what the parties in this case did within the space of one year. We are construing the Constitution as it is and not as we may desire it to be. by virtue of which the Filipino owner cannot sell or otherwise dispose of his property. that because the parties are in pari delicto they will be left where they are. 246). tomorrow. To the extent that our ruling in this case conflicts with that laid down in Rellosa v. and another pertaining to rentals from the Ongpin property and from the Rizal Avenue property. the next day. 13). however. until ultimately all the rights of which ownership is made up are consolidated in an alien.But if an alien is given not only a lease of.22 is indeed in grave peril. the original parties who were guilty of a violation of the fundamental charter have died and have since been substituted by their administrators to whom it would be unjust to impute their guilt. judgment is affirmed. we will not attempt to compromise it even in the name of amity or equity . jus fruendi and jus abutendi) but also of the right to dispose of it ( jus disponendi) — rights the sum total of which make up ownership. the evidence shows that he received P33. He . recover what he has paid or delivered. corporations. 1957 (Plff Exh. the use. If this can be done. as an exception to the rule on pari delicto. As this Court said in Krivenko: It is well to note at this juncture that in the present case we have no choice.27 on November 8. and this is not only cogent but also important. as announced in Krivenko v. instead of setting the contracts aside and ordering the restoration of the land to the estate of the deceased Justina Santos. without relief.354. but also an option to buy. we hold that under the Constitution aliens may not acquire private or public agricultural lands. It does not follow from what has been said. 1959 (Def. But if this is the solemn mandate of the Constitution.007. article 1416 of the Civil Code provides. which he himself was leasing. and the prohibition by law is designed for the protection of the plaintiff.928. one pertaining to amount which she entrusted to him from time to time. this Court should apply the general rule of pari delicto. jus utendi. or a total of P70.

as rentals due to her after deducting various expenses. .49 must likewise be rejected as his averment of liquidation is belied by his own admission that even as late as 1960 he still had P22.000 in his possession. the land subject-matter of the contracts is ordered returned to the estate of Justina Santos as represented by the Philippine Banking Corporation. 1959 was P1. the contracts in question (Plff Exhs.000.235.210. 6) which shows a balance of P9. Rule 123 for in the ordinary course of things.007. . As to the second account. this Court must concede that daily expenses are not easy to compute. the trouble is that they were made only by Francisco Wong and Antonia Matias. added to the amount of P25.442. — which was the way she signed the loose sheets. this being the case.50 was in fact payment to him of what in the liquidation was found to be due to him. Against this account the household expenses and disbursements for the care of the 17 dogs and the salaries of the 8 maids of Justina Santos were charged.210. . ACCORDINGLY. of P9. that he settled his accounts and that the last amount of P18.000 in the bank and P3.000 in his possession. funeral services and security guard services.564 which.27 Besides.000. the reason why she preferred to stay in her home was because there she did not incur in any debts . He made disbursements from this account to discharge Justina Santos' obligations for taxes. and there is no clear proof that Doña Justina had authorized these two to act for her in such liquidation.000 in the bank and P3. nick-named Toning.19 (receipts). of which Wong was the lessee. while it is claimed that the expenses were much less than the rentals and there in fact should be a superavit. however. the Court will not adjudicate in favor of Wong Heng on his counterclaim. . was P3.564. . .3528 in favor of Justina Santos. 3-7) are annulled and set aside. his claim of liquidation and settlement of accounts must be rejected. for this reason. the evidence shows that the monthly income from the Ongpin property until its sale in Rizal Avenue July. Sec. that was not what Doña Justina apparently understood for as the Court understands her statement to the Honorable Judge of the Juvenile Court . should be rejected as the evidence is none too clear about the amounts spent by Wong for food29 masses30 and salaries of her maids. there is a difference of P31. 247-278) drawn by him for this purpose amount to only P38. 69.31 His claim for P9. In his answer. or a total of P25. On these two grounds. The lower court did not allow either party to recover against the other. Exh. we cannot understand why he still had P22.442.928. there should be a balance in her favor.210.49 in favor of Wong. This account is contained in a notebook (Def. if he had really settled his accounts with her on August 26. .claims. but the checks (Def Exhs. Both parties on appeal reiterate their respective claims but we agree with the lower court that both claims should be denied. . . as a matter of fact.000. he offered to pay this amount if the court so directed him. Said the court: [T]he documents bear the earmarks of genuineness. we think that the claim of Justina Santos totalling P37. 1959. After subtracting P38. on the other hand. therefore.84 (expenditures) from P70. on the contrary if the result of that was a deficit as alleged and sought to be there shown. attorneys' fees. But it is claimed that the rental from both the Ongpin and Rizal Avenue properties was more than enough to pay for her monthly expenses and that. .49. Aside from the reasons given by the court. a person will live within his income so that the conclusion of the Court will be that there is neither deficit nor superavit and will let the matter rest here. Wong Heng (as substituted by the defendant-appellant Lui She) .120.84. and that from the Rizal Avenue property. the Court faced with the choice of the two alternatives will choose the middle course which after all is permitted by the rules of proof. leaves a balance of P56.

to indemnify the complainant in the amount of P550. J. Salud G. Concepcion. The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799. de Ayroso. 24. J.. 1984 LOURDES VALERIO LIM. Salvador Bantug drew the document. is a contract of agency to sell or a contract of sale of the subject tobacco between petitioner and the complainant. 1959 until the premises shall have been vacated by his heirs. and the amounts consigned in court by Wong Heng shall be applied to the payment of rental from November 15. Maria de Guzman Vda. A. Bengzon.30 a kilo. and the tobacco was loaded in the jeep and brought by the appellant. dated January 10. Maria de Guzman Vda. Zaldivar. This agreement was made in the presence of plaintiff's sister. 14. J. The appellant at that time was bringing a jeep. Nueva Ecija. of Gapan. Makalintal. which reads: To Whom It May Concern: This is to certify that I have received from Mrs. Exh. with legal interest from the date of the filing of the amended complaint.50 without subsidiary imprisonment. PEOPLE OF THE PHILIPPINES. Sanchez and Angeles. G. 1966. Dizon.J. C. to indemnify the offended party in the amount of P559.B.. appeal was taken to the then Court of Appeals which affirmed the decision of the lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1) day of prision correccional as maximum.P.. vs. respondent. RELOVA.. petitioner.. Exhibit "A". and the latter's maid.50) will be given to her as soon as it was sold. The appellant was to receive the overprice for which she could sell the tobacco.: Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months as maximum. Salud Bantug. L-34338 November 21.50. Reyes. Rollo) The question involved in this case is whether the receipt. Rollo) From this judgment.564. No.R.. JJ. 1966.is ordered to pay the Philippine Banking Corporation the sum of P56.L.30 per kilo. Bantug. de Ayroso. and to pay the costs. The appellant is a businesswoman. The findings of facts of the appellate court are as follows: .35. . Genoveva Ruiz." (p. the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. thereby precluding criminal liability of petitioner for the crime charged. concur. with subsidize imprisonment in case of insolvency. On January 10. This was signed by the appellant and witnessed by the complainant's sister. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1. six hundred fifteen kilos of leaf tobacco to be sold at Pl. and to pay the costs of suit." (p. Costs against the defendant-appellant.

14. Patnubayan tayo ng mahal na panginoon Dios. 4. 2. going receipt (Exhibit "A") gives rise to an obligation wherein the duration of the period depends upon the will of the debtor in which case . As no further amount was paid. dahil kokonte pa ang nasisingil kong pera.00 on April 18. Pursuant to this letter. magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. 1967. to wit: 1. (pp. Lourdes Valerio Lim poses the following questions of law. and particularly by her sister. the appellant sent a money order for P100. it is a fact that on October 19. and that the "camarin" the appellant was empty. but the appellant often eluded her. 1967. 1967. or a total of P240. 1967 as evidenced by the receipt Exh. Exh.00. dated April 18. the appellant had paid to Ayroso only P240. 1966. 15. the complainant filed a complaint against the appellant for estafa. p. 1197 of the New Civil Code does not apply" as against the alternative theory of the petitioner that the fore. (Exh. 16.50. Pupunta lang kami ni Mina sa Maynila ngayon. Huwag kang mabahala at tiyak na babayaran kita. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore.00. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera. she wrote a letter to Salud Bantug which reads as follows: Dear Salud. 6) as against the theory of the petitioner that the obligation does not fix a period. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Salud Bantug further testified that she had gone to the house of the appellant several times. and this was paid on three different times. Hindi ako nakapunta dian noon a 17 nitong nakaraan. but from its nature and the circumstances it can be inferred that a period was intended in which case the only action that can be maintained is a petition to ask the court to fix the duration thereof. Gosto ko Salud ay makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo.00 on October 24. immediately demandable as soon as the tobacco was sold" (Decision. B). 2. Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto. Salud Bantug. Of the total value of P799. Although the appellant denied that demands for payment were made upon her.00 on March 8. and another for P50. Rollo) In this petition for review by certiorari. and she paid P90.

. Araneta and Araneta for petitioner.. Rollo) It is clear in the agreement. vs. that the obligation was immediately demandable as soon as the tobacco was disposed of. which provides that the courts may fix the duration of the obligation if it does not fix a period. J.. THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO. ACCORDINGLY. 19. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt is a contract of agency to sell as against the theory of the petitioner that it is a contract of sale. The appellant is a businesswoman. J. Rollo) The fact that appellant received the tobacco to be sold at P1.B.: Petition for certiorari to review a judgment of the Court of Appeals. the only action that can be maintained is a petition to ask the court to fix the duration of the period. 28249-R. (p. respondent. Article 1197 of the New Civil Code.. it would not have been the appellant who would have gone to the house of Ayroso. With costs. (pp.. or.. 3-4. that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold. if she was doing a favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco. affirming with modification. INC. Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling Ayroso's tobacco. Exhibit "A". No. Hence.L. in its . 1967 GREGORIO ARANETA. and it is unbelievable that she would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had brought if she did not intend to make a profit out of the transaction. Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be paid the commission if the goods were sold. does not apply. the petition for review on certiorari is dismissed for lack of merit.R. Certainly. but it would have been Ayroso who would have gone to the house of the appellant and deliver the tobacco to the appellant. petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the same was not sold. and 3.30 per kilo and the proceeds to be given to complainant as soon as it was sold. strongly negates transfer of ownership of the goods to the petitioner. SO ORDERED. G. in its CA-G.R. No. L-22558 May 31. the Court of Appeals correctly resolved the matter as follows: . LTD. the appellant herself admitted that there was an agreement that upon the sale of the tobacco she would be given something. REYES. Rosauro Alvarez and Ernani Cruz Paño for respondent. an amendatory decision of the Court of First Instance of Manila.

1960.514. Inc. M. and covered by a Torrens title in its name. The parties stipulated. but the seller. is the owner of a big tract land situated in Quezon City.. defendants.034. entitled "Philippine Sugar Estates Development Co. as stipulated in the above- mentioned deed of sale. and the street on the NE side shall be named "Sto. among in the contract of purchase and sale with mortgage. finished the construction of Sto. filed its complaint against J. seeking to compel the latter to comply with their obligation. otherwise known as the Sta. to read as follows: . Ltd. M. and Gregorio Araneta. Domingo Church and Convent while the seller for its part will — Construct streets on the NE and NW and SW sides of the land herein sold so that the latter will be a block surrounded by streets on all four sides. 1950. by the name of Manuel Abundo. for the sum of P430. more or less. the latter particularly setting up the principal defense that the action was premature since its obligation to construct the streets in question was without a definite period which needs to he fixed first by the court in a proper suit for that purpose before a complaint for specific performance will prosper. who has been physically occupying a middle part thereof. and/or to pay damages in the event they failed or refused to perform said obligation. hence. praying that the court fix a period within which defendants will comply with their obligation to construct the streets in question. Tuason and Co.. refused to vacate the same. Inc. 1960)." issued an order granting plaintiff's motion for reconsideration and amending the dispositive portion of the decision of May 31. opposed said motion. it dismissed plaintiff's complaint (in a decision dated May 31. The issues having been joined.00. the facts of this case are: J.." The buyer. Defendant Gregorio Araneta. On July 16. the lower court.. the lower court proceeded with the trial. Inc.. after finding that "the proven facts precisely warrants the fixing of such a period. which began constructing the streets. 36303. Inc. Lt..ñët Plaintiff moved to reconsider and modify the above decision... Inc. 1960. Philippine Sugar Estates Development Co. plaintiff. versus J. Ltd.) sold a portion thereof with an area of 43. 1958. answered the complaint." As found by the Court of Appeals. On July 28. Tuason & Co. through Gregorio Araneta. 1äw phï1. Tuason & Co. Inc. Gregorio Araneta. Inc. Domingo Avenue) because a certain third-party. to Philippine Sugar Estates Development Co. and instance. Ltd. that the buyer will — Build on the said parcel land the Sto.. Domingo Avenue. upholding the defenses interposed by defendant Gregorio Araneta. it (Tuason & Co. maintaining that plaintiff's complaint did not expressly or impliedly allege and pray for the fixing of a period to comply with its obligation and that the evidence presented at the trial was insufficient to warrant the fixing of such a period. Domingo Church and Convent. M. M.. Inc. Tuason & Co. Mesa Heights Subdivision. and Gregorio Araneta. Philippine Sugar Estates Development Co.... and upon its termination.4 square meters. is unable to finish the construction of the street in the Northeast side named (Sto. on May 7. Inc.Civil Case No. Both defendants J.

affirming that of the Court of First Instance is legally untenable. If the contract so provided. Unsuccessful in having the above decision reconsidered. plaintiff opposed. 1960. "reasonable time within which to comply with its obligation to construct and complete the streets. In said appellate court. We gave it due course. Inc. Inc. Defendant Gregorio Araneta. which motion. On August 16. and fix the resulting damages. then there was a period fixed. WHEREFORE. Inc's. defendant is given two (2) years from the date of finality of this decision to comply with the obligation to construct streets on the NE. NW and SW sides of the lot in question. the appellate court declared that the fixing of a period was within the pleadings and that there was no true change of theory after the submission of the case for decision since defendant-appellant Gregorio Araneta. and the latter perfected its appeal Court of Appeals. Inc. Annex "A". gave petitioner Gregorio Araneta. the lower court denied defendant Gregorio Araneta. On the other hand. that under the circumstances. NW and SW sides of the land sold to plaintiff so that the same would be a block surrounded by streets on all four sides. was not justified by the pleadings and not supported by the facts submitted at the trial of the case in the court below and that the relief granted in effect allowed a change of theory after the submission of the case for decision." and all that the court should have done was to determine if that reasonable time had already elapsed when suit was filed if it had passed. Inc. a "reasonable time. The fixing of a period by the courts under Article 1197 of the Civil Code of the Philippines is sought to be justified on the basis that petitioner (defendant below) placed the absence of a period in issue by pleading in its answer that the contract with respondent Philippine Sugar Estates Development Co. on the hypothesis stated. judgment is hereby rendered giving defendant Gregorio Araneta. But in no case can it be logically . Disposing of the other issues raised by appellant which were ruled as not meritorious and which are not decisive in the resolution of the legal issues posed in the instant appeal before us.e. itself squarely placed said issue by alleging in paragraph 7 of the affirmative defenses contained in its answer which reads — 7. resorted to a petition for review by certiorari to this Court. i. as averred in the complaint. said reasonable time has not elapsed. a period of two (2) years from notice hereof. Ruling on the above contention. if the reasonable time had not yet elapsed. as a consequence. fixing of a period. within which to comply with its obligation under the contract. presented a motion to reconsider the above quoted order. the dispositive part of which reads — IN VIEW WHEREOF. 1950.. the court perforce was bound to dismiss the action for being premature. Inc. contended mainly that the relief granted. defendant-appellant Gregorio Araneta. then the court should declare that petitioner had breached the contract. under the amendatory decision of July 16. 1960. motion. but whether or not the parties agreed that the petitioner should have reasonable time to perform its part of the bargain. 1963. said appellate court rendered its decision dated December 27. defendant-appellant Gregorio Araneta. Inc. judgment affirmed and modified. Under the Deed of Sale with Mortgage of July 28. Ltd. what the answer put in issue was not whether the court should fix the time of performance. herein defendant has a reasonable time within which to comply with its obligations to construct and complete the streets on the NE... We agree with the petitioner that the decision of the Court of Appeals." Neither of the courts below seems to have noticed that.

3). because the fact is expressly mentioned therein (Rec. 124) says in this respect is that "the proven facts precisely warrant the fixing of such a period. however. and this very indefiniteness is what explains why the agreement did not specify any exact periods or dates of performance. was still pending in the Court of Appeals when its decision in this case was rendered. for the original decision is clear that the complaint proceeded on the theory that the period for performance had already elapsed. . both the trial Court and the Court of Appeals committed reversible error. The law expressly prescribes that — the Court shall determine such period as may under the circumstances been probably contemplated by the parties. It follows that there is no justification in law for the setting the date of performance at any other time than that of the eviction of the squatters occupying the land in question. par. pars. 1197. It is not denied that the case against one of the squatters. as contended by the petitioner Gregorio Araneta. the Court can not fix a period merely because in its opinion it is or should be reasonable. p. the complaint not having sought that the Court should set a period. but must set the time that the parties are shown to have intended. on Appeal. The conclusion is thus forced that the parties must have intended to defer the performance of the obligations under the contract until the squatters were duly evicted. the intervention of the court to fix the period for performance was warranted." a statement manifestly insufficient to explain how the two period given to petitioner herein was arrived at. This preliminary point settled. Yet. and in not so holding.held that under the plea above quoted. As the record stands. In this connection. the circumstances admit no other reasonable view. still the amended decision is defective in that no basis is stated to support the conclusion that the period should be set at two years after finality of the judgment. for Article 1197 is precisely predicated on the absence of any period fixed by the parties. It must be recalled that Article 1197 of the Civil Code involves a two-step process. the court could not proceed to do so unless the complaint in as first amended. and decide what period was "probably contemplated by the parties" (Do. The list paragraph of Article 1197 is clear that the period can not be set arbitrarily. they must have realized that the duration of the suits to be brought would not be under their control nor could the same be determined in advance. 12-13). All that the trial court's amended decision (Rec. pp. this is not warranted by the Civil Code. since no circumstances are mentioned to support it. Granting. but must resort to legal processes in evicting the squatters. that it lay within the Court's power to fix the period of performance.. Even on the assumption that the court should have found that no reasonable time or no period at all had been fixed (and the trial court's amended decision nowhere declared any such fact) still." but from the nature and the circumstances it can be inferred that a period was intended" (Art. Inc. As the parties must have known that they could not take the law into their own hands. it is to be borne in mind that the contract shows that the parties were fully aware that the land described therein was occupied by squatters. 1 and 2). Petitioner's Appendix B. the trial Court appears to have pulled the two-year period set in its decision out of thin air. So that. that the contract had been breached and defendant was already answerable in damages. Abundo. Plainly. The Court of Appeals objected to this conclusion that it would render the date of performance indefinite. The Court must first determine that "the obligation does not fix a period" (or that the period is made to depend upon the will of the debtor). ultimately. the Court must then proceed to the second step. on Appeal.

200. in view of Mrs. Second Judicial District. At this point. In response. Under the written agreement. which alleged remark was supposedly taken by the spouses Co to mean that the Contract of Lease had been renewed. (b) ordering the defendant to collect the sum of P1. ANTONIO CO and ELSA CO. Millare which they considered "highly excessive. HERNANDO. and the time for the performance of the obligations of petitioner Gregorio Araneta. a five-year Contract of Lease 1 was executed between petitioner Pacifica Millare as lessor and private respondent Elsa Co. the record shows that on 22 July 1980. Abra. According to the Co spouses. The variance in versions notwithstanding.00 deposited by plaintiffs with the court. as it were. HON. Branch I.4 Another letter of demand from Mrs. prompting them to continue occupying the subject premises and to forego their search for a substitute place to rent. In his capacity as Presiding Judge.: On 17 June 1975. already expirecl. is hereby fixed at the date that all the squatters on affected areas are finally evicted therefrom. Costs against respondent Philippine Sugar Estates Development. the lessor informed them that they could continue leasing the People's Restaurant so long as they were amenable to paying creased rentals of P1. petitioner. Inc.00 a month) in court. On 30 August 1980.00 a nionth and for a period of ten years. the Co spouses reiterated their unwillingness to pay the Pl. the lessor allegedly stated that the amount of monthly rentals could be resolved at a later time since "the matter is simple among us". as lessee.R. the decision appealed from is reversed. 3 In reply.400. on 1 September 1980. and filed a Complaint 5 (docketed as Civil Case No. FELICIANO. Millare and seeking judgment (a) ordering the renewal of the Contract of Lease at a rental rate of P700. 2 In contrast.00. Ltd.In view of the foregoing. and (c) ordering the defendant to pay damages in the amount of P50. No. G.00 the "People's Restaurant". So ordered. J. the lessor flatly denied ever having considered.000. a counteroffer of P700. docketed as Civil . oppressive and contrary to existing laws". a Saturday. Co. The present dispute arose from events which transpired during the months of May and July in 1980. which was scheduled to expire on 31 May 1980. Mrs. the lessor-petitioner agreed to rent out to thelessee at a monthly rate of P350.. Millare wrote the Co spouses requesting them to vacate the leased premises as she had no intention of renewing the Contract of Lease which had. the Co spouses jumped the gun.200. Millare filed an ejectment case against the Co spouses in the Municipal Court of Bangued. much less offered. in the meantime.00 monthly rentals supposedly sought bv Mrs. respondents. vs. HAROLD M. L-55480 PACIFICA MILLARE.00 a month. The following Monday. married to Antonio Co. a renewal of the Contract of Lease. sometime during the last week of May 1980.00 a month was made by the Co spouses. 1434) with the then Court of First Instance of Abra against Mrs. Abra. Millare's refusal to accept their counter-offer. They also signified their intention to deposit the amount of rentals in court. Millare was received on 28 July 1980 by the Co spouses. a commercial establishment located at the corner of McKinley and Pratt Streets in Bangued. Court of Instance of Abra. Mrs. who responded by depositing the rentals for June and July (at 700.

sut)sequently set up lis pendens as a Civil Case No.00 a month. was likewise denied. in fact. After attempts at conciliation had proven fruitless. this Court gave due course to the Petition for Certiorari. heard by the Lupong Tagapayapa in the afternoon of 30 August 1980. i. on 13 November 1980. respondent judge denied the motion to dismiss and ordered the renewal of the Contract of Lease. and fixing monthly rentals thereunder at P700. seeking injunctive relief from the abovementioned orders. 11 Apparently. 13 We would note firstly that the conciliation procedure required under P. though for reasons different from those cited by the respondent judge. 10 Hence. or one hour and twenty minutes before the issuance of the requisite certification by the Lupng Tagapayapa.m. before the temporary restraining order could be served on the respondent judge. Turning to the first issue. Prohibition and Mandamus. private respondents allegedly filed their complaint at 4:00 p.D. as attested to by the Barangay Captain in a Certification presented in evidence by petitioner herself. and (b) lack of jurisdiction by the trial court over the complaint for failure of plaintiffs to secure a certification from the Lupong Tagapayapa of the barangay wherein both disputants reside attesting that no amicable settlement between them had been reached despite efforts to arrive at one.m. assail the proceedings in the trial court on a technicaety. 1434.D. petitioner's attack on the jurisdiction of the trial court must fail. Prohibition and Mandamus. he rendered a "Judgment by Default" dated 26 November 1980 ordering the renewal of the lease contract for a term of 5 years counted from the expiration date of the original lease contract. The spouses Co. The Co spouses opposed the motion to dismiss. of that same aftemoon. was cured by the subsequent issuance of the Certifications to File Action by the barangay Lupong Tagapayapa Such certifications in any event constituted substantial comphance with the requirement of P. nonetheless. 661. while defendant Millare was directed to submit her answer to the complaint. Mrs. It appears further that both complaints were. Certifications to File Action authorizing the parties to pursue their respective claims in court were then issued at 5:20 p. countered with an Omnibus Motion to Dismiss6 rounded on (a) lack of cause of action due to plaintiffs' failure to establish a valid renewal of the Contract of Lease. of 30 August 1980. payable in arrears.e. 12 Two issues are presented for resolution: (1) whether or not the trial court acquired jurisdiction over Civil Case No. Millare. 8 A motion for reconsideration 9 was subsequently filed which.. 1508 is not a jurisdictional requirement in the sense that failure to have prior recourse to such procedure would not deprive a court of its jurisdiction either over the subject matter or over the person of the defendant. as required by Section 6 of Presidential Decree No. Furthermore plaintiffs were allowed to deposit all accruing monthly rentals in court. the acord shows that two complaints were submitted to the barangay authorities for conciliation — one by petitioner for ejectment and the other by private respondents for renewal of the Contract of Lease.Case No. The defect in procedure admittedly initially present at that particular moment when private respondents first filed the complaint in the trial court. 1434. . 15 Petitioner would. defendants therein.14 Secondly. however. Millare filed the instant Petition for Certiorari. and (2) whether or not private respondents have a valid cause of action against petitioner. 661. defendants therein. The spouses Co. judge from conducting further proceedings in Civil Case No. defendant in Civil Case No. 1508. 1508. This Court issued a temporary restraining order on 21 November 1980 enjoining respondent. 1434. 7 In an Order dated 15 October 1980. On18 March 1981. Mrs. subsequently set up lis pendens as a defense against the complaint for ejectment.

urges that under paragraph 13 quoted above. to the mind of this Court. the action therefore to renew the lease contract! is "tenable" because it falls squarely within the coverage and command of Articles 1197 and 1670 of the New Civil Code. reason for which. its equivalent to a promise made by the lessor to the lessee. the respondent Judge elaborated his views — obviously highly emotional in character — in the following extraordinary tatements: However.) The respondent judge. Paragraph 13 of the Contract of Lease reads as follows: 13. This negative position of the defendantlessor. . under these facts and circumstances surrounding this case. no Man should unjustly enrich himself at the expense of another. In short. while the lessee is begging P700 a month which doubled the P350 monthly rental under the original contract .. Nonetheless.. This contract of lease is subject to the laws and regulations ofthe goverrunent.. whether or not the complaint in Civil Case No. (Emphasis supplied. this Court cannot sanction lot owner's business and commercial speculations by allowing them with "unbridled discretion" to raise rentals even to the extent of "extraordinary gargantuan proportions. except to surrender and vacate the premises mediately. in his Answer and Comment to the Petition. that is.200 a month. this is not the correct concept or perspective the law of lease.200. obliges the lessor to fulfill her promise. to wit: xxx xxx xxx The term "to be renewed" as expressly stipulated by the herein parties in the original contract of lease means that the lease may be renewed for another term of five (5) years... just throw-out the plaintiffs-lessees from the leased premises and any time after the original term of the lease contract had already expired. there was already a consummated and finished mutual agreement of the parties to renew the contract of lease after five years. the lessor insists Pl. reject and refuse to renew said lease contract. that is. of course the lessor is free to comply and honor her commitment or back-out from her promise to renew the lease contract. the defendant-lessor's hostile attitude by imposing upon the lessee herein an "unreasonable and extraordinary gargantuan monthly rental of P1. . and that this contract of lease may be renewed after a period of five (5) years under the terms and conditions as will be mutually agreed upon by the parties at the time of renewal. social justice and equity. to place the lessee always at the mercy of the lessor's "Merchant of Venice" and to agit the latter's personal whims and caprices.We turn to the second issue. and calculated to unreasonably and unjustly eject the helpless lessee because he cannot afford said inflated monthly rental and thereby said lessee is placed without any alternative. for indeed.. but. is "fly-by night unjust enrichment" at the expense of said lessees. but.16 In the "Judgment by Default" he rendered. 1434 filed by the respondent Co spouses claiming renewal of the contract of lease stated a valid cause of action. once expressly . the law of lease is impressed with public interest. the lease contract has never expired because paragraph 13 thereof had expressly mandated that it is renewable. to the mind of this Court does not conform to the principles and correct application of the philosophy underlying the law of lease.-" Many business establishments would be closed and the public would directly suffer the direct consequences. and as a unilateral stipulation.. It is the defendant-lessor's assertion and position that she can at the mere click of her fingers. it is now the negative posture of the defendant-lessor to block. what is only left unsettled between the parties to the contract of lease is the amount of the monthly rental.00".

the lessor and the lessee conspicuously failed to reach agreement both on the amount of the rental to be payable during the renewal term. The courts shall also fix the duration of the period when it depends upon the will of the debtor. the courts shall determine such period as may. the respondent judge's grasp of both the law and the Enghsh language is tenuous at best. We are otherwise unable to comprehend how he arrived at the reading set forth above. have been probably contemplated by the parties. the bare refusal of the lessor to renew the lease contract unless the monthly rental is P1. Article 1197 of the Civil Code provides as follows: If the obligation does not fix a period. Article 1197 applies only where a contract of lease clearly exists. the courts may fix the duration thereof.00 a month. The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the "Judgment by Default" by which he ordered the renewal of the lease for another term of five years and fixed monthly rentals thereunder at P700. stipulated. Wherefore. that the lease contract is renewable for another five (5) years and the lessee is not required before hand to give express notice of this fact to the lessor because it was expressly stipulated in the original lease contract to be renewed. it follows. (Emphasis suplied. (Emphasis supplied. Paragraph 13 of the Contract of Lease can only mean that the lessor and lessee may agree to renew the contract upon their reaching agreement on the terms and conditions to be embodied in such renewal contract. the period cannot be changed by them. not for the period of the original contract but for the time established in Articles 1682 and 1687. public policy. good customs. justice and equity because no one should unjustly enrich herself at the expense of another. In every case.) The first paragraph of Article 1197 is clearly inapplicable. Article 1197 and 1670 of the New Civil Code must therefore govern the case at bar and whereby this Court is authorized to fix the period thereof by ordering the renewal of the lease contract to another fixed term of five (5) years. It is understood that there is an implied new lease. the lessor shall not be allowed to evade or violate the obligation to renew the lease because. Here. since the Contract of Lease did in fact fix an original period of five years. Article 1670 of the Civil Code reads thus: If at the end of the contract the lessee should continue enjoying the thing left for 15 days with the acquiescence of the lessor and unless a notice to the contrary by either party has previously been given.00 is contrary to law.) . the lessor is guilty of breach of contract: Since the original lease was fixed for five (5) years. certainly. there was in fact no contract at all the period of which could have been fixed. Most importantly. but rather to the will of both the lessor and the lessee. In the instant case. Failure to reach agreement on the terms and conditions of the renewal contract will of course prevent the contract from being renewed at all. but from its nature and the circumstances it can be inferred that a period was intended. the contract was not renewed at all. the lessor may be held hable for damages caused to the lessee as a consequence of the unjustifiable termination of the lease or renewal of the same. therefore. and on the term of the renewed contract. morals. In other words. which had expired. The second paragraph of Article 1197 is equally clearly inapplicable since the duration of the renewal period was not left to the wiu of the lessee alone. Once fixed by the courts. The ther terms of the original contract shall be revived. It is also clear from paragraph 13 of the Contract of Lease that the parties reserved to themselves the faculty of agreeing upon the period of the renewal contract.200.17 Clearly. under the circumstances.

The facts are as follows: . SANTOS. intimidation or undue influence (Article 1306.[[18 [P]arties cannot be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions of the contract. the Petition for Certiorari. Even if it be assumed that tacite reconduccion had occurred. Contracts spring from the volition of the parties. Petitioners. Save in the limited and exceptional situations envisaged inArticles ll97 and 1670 of the Civil Code. June 25. equity and public policy" demand. LIM. Civil Code of the Philippines). Respondent. The Orders of the respondent judge in Civil Case No. Reyes in Republic vs.The respondents themselves. G. DAN T. 1337. and by express provision of the statute. the implied new lease could not possibly have a period of five years. Prohibition and mandamus is granted. 1336. J.R. DOING BUSINESS UNDER THE NAME AND STYLE OF QUALITY PAPERS & PLASTIC PRODUCTS ENTERPRISES. INC. 19 WHEREFORE. good customs. That volition cannot be supplied by a judge and a judge who pretends to do so. by definition. for collection of sum of money. public and private. the resulting "agreement" cannot. Branch 171. but rather would have been a month-to- month lease since the rentals (under the original contract) were payable on a monthly basis. If they are imposed by a judge who draws upon his own private notions of what morals.B. It cannot be presumed and may be implied only if the old and new contracts are incompatible on every point. Before us is a petition for review on certiorari1 assailing the Court of Appeals’ decision2 in CA-G. Justice J. be consensual or contractual in nature.. is hereby made permanent. an implied new lease (had one arisen) would have expired as of the end of July 1980 in view of the written demands served by the petitioner upon the private respondents to vacate the previously leased premises.. CV No. v. which stemmed from a complaint3 filed in the Regional Trial Court of Valenzuela City. No. acts tyrannically. do not pretend that the continued occupancy of the leased premises after 31 May 1980. The temporary restraining order dated 21 November 1980 issued by this ourt. At the latest. As pointed out by Mr. are hereby annulled and set aside and Civil Case No. which do not obtain here.Co. AND CANDIDA A. 1434 dated 26 September 1980 (denying petitioner's motion to dismiss) and 4 November 1980 (denying petitioner's motion for reconsideration). Philippine Long Distance Telephone.: Novation must be stated in clear and unequivocal terms to extinguish an obligation. the date of expiration of the contract.R. and the "Judgment by Default" rendered by the respondent judge dated 26 November 1980. DECISION LEONEN.L. 1434 is hereby dismissed. It follows that the respondent judge's decision requiring renewal of the lease has no basis in law or in fact. arbitrarily and in excess of his jurisdiction. It would also follow that such coerced terms and conditions cannot be the law as between the parties themselves. Freedom to stipulate such terms and conditions is of the essence of our contractual system. Contractual terms and conditions created by a court for two parties are a contradiction in terms. a contract may be annulled if tainted by violence. 95709. 2014 ARCO PULP AND PAPER CO. was with the acquiescence of the lessor. justice. 206806. No pronouncement as to costs. courts have no authority to prescribe the terms and conditions of a contract for the parties.

where his conformity through a separate contract was indispensable.766. 2007. owned by Eric Sy. the raw materials would be supplied by Dan T.5 The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T. The memorandum of agreement reads as follows: chanRoble svirtual Lawli bra ry Per meeting held at ARCO. total of 600 Metric Tons at P6. on May 28.487. According to him.220. with the assurance that the check would not bounce. which extinguished Arco Pulp and Paper’s obligation to Dan T. he delivered scrap papers worth P7. it was only for supplying the parties their required scrap papers. Branch 171. Lim to present his evidence ex parte.23 It also ruled that Dan T. Lim. (Arco Pulp and Paper) through its Chief Executive Officer and President. Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement10where Arco Pulp and Paper bound themselves to deliver their finished products to Megapack Container Corporation.19 cralaw red On January 11.31 with interest at 12% per annum from the time of demand.. Lim sent a letter12 to Arco Pulp and Paper demanding payment of the amount of ?7.000. Hence. They also argue that there is . it has been mutually agreed between Mrs. Lim the value of the raw materials or deliver to him their finished products of equivalent value. under the name Quality Paper and Plastic Products. Enterprises.17 cralawred Dan T.00 moral damages.. but no payment was made to him. Lim the amount of P7. cartons.68 as partial payment. Schedule of deliveries are as follows: .8 When he deposited the check on April 18. petitioners argue that the execution of the memorandum of agreement constituted a novation of the original obligation since Eric Sy became the new debtor of respondent. Candida A.000..000. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM.50 per kg.968. and other raw materials. Quantity of Local OCC delivery will be based on the quantity of Test Liner delivered to Megapack Container Corp. bring this petition for review on certiorari. Lim appealed18 the judgment with the Court of Appeals. Lim.31. 2008. P50. to factories engaged in the paper mill business.11 On May 5.26 Arco Pulp and Paper and its President and Chief Executive Officer.220.968. 2013. Arco Pulp and Paper issued a post-dated check dated April 18. Dan T. through his company. the trial court allowed Dan T. April 18..50 per kg.00 exemplary damages.31 to Arco Pulp and Paper Company. Lim was entitled to damages and attorney’s fees due to the bad faith exhibited by Arco Pulp and Paper in not honoring its undertaking. Candida A. 2007. full width 76 inches at the price of P18. the Court of Appeals20 rendered a decision21 reversing and setting aside the judgment dated September 19. On one hand. (price subject to change per advance notice).16 c ralawre d On September 19. P50.6 cralaw red Dan T. Inc. the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint. novation took place. holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement. Candida A. Lim alleged that when he delivered the raw materials. to Megapack Container for Mr. and P50. Eric Sy’s account.24 cralaw red Its motion for reconsideration25 having been denied. for his account. It has been agreed further that the Local OCC materials to be used for the production of the above Test Liners will be supplied by Quality Paper & Plastic Products Ent.968. According to the memorandum. novation did not take place since the memorandum of agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private agreement between them. Santos. 2007.4From February 2007 to March 2007.9 cralawred On the same day. Lim filed a complaint14 for collection of sum of money with prayer for attachment with the Regional Trial Court. 2007. Lim works in the business of supplying scrap papers. Valenzuela City. Quality Paper and Plastic Products. it was dishonored for being drawn against a closed account.13 cralawred Dan T. Santos.00 attorney’s fees. He argued that if his name was mentioned in the contract. based on the above production schedule.220. Santos and Mr.Dan T. 2008 and ordering Arco Pulp and Paper to jointly and severally pay Dan T.22 cralawred The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an alternative obligation. 20077 in the amount of P1. Arco Pulp and Paper filed its answer15 but failed to have its representatives attend the pre-trial hearing.

petitioners reiterate that novation took place since there was nothing in the memorandum of agreement showing that the obligation was alternative. as the debtor. 27 cralawred Respondent. the original contract between the parties was for respondent to deliver scrap papers worth P7. petitioner Arco Pulp and Paper. “In an alternative obligation. Whether moral damages. A person alternatively bound by different prestations shall completely perform one of them. Respondent’s receipt of the check and his subsequent act of depositing it constituted his notice of petitioner Arco Pulp and Paper’s option to pay.31 with damages since the debt of petitioners remains unpaid. 2000. and the fulfillment of one is sufficient. correctly identified the obligation between the parties as an alternative obligation.968.M. would either pay him the price of the raw materials or.35 cralaw red The appellate court. argues that the Court of Appeals was correct in ruling that there was no proper novation in this case. He argues that the Court of Appeals was correct in ordering the payment of ?7. on the other hand.34 According to the factual findings of the trial court and the appellate court. No. the original obligation was novated.220. they allege.33 The choice of the debtor must also be communicated to the creditor who must receive notice of it since: cha nRoblesvi rt ualLaw lib rary The object of this notice is to give the creditor . had the option to either (1) pay the price or (2) deliver the finished products of equivalent value to respondent. 99-2-04-SC dated November 21. or if impugned by the latter.”32 The right of election is extinguished when the party who may exercise that option categorically and unequivocally makes his or her choice known. opportunity to express his consent. when declared proper by a competent court. and attorney’s fees can be awarded The petition is denied. By agreement. therefore.968. 3. They also argue that when respondent allowed them to deliver the finished products to Eric Sy. . also erred in awarding moral and exemplary damages and attorney’s fees to respondent who did not show proof that he was entitled to damages.220. The creditor cannot be compelled to receive part of one and part of the other undertaking. exemplary damages. they exercised their option to pay the price. whereby petitioner Arco Pulp and Paper. . The Court of Appeals.. . there is more than one object. Santos was “the prime mover for such outstanding corporate liability. Whether the obligation between the parties was extinguished by novation 2.31 cralaw red The issues to be resolved by this court are as follows: chanRoblesvi rt ual Lawlib rary 1. The obligation between the parties was an alternative obligation The rule on alternative obligations is governed by Article 1199 of the Civil Code. but it was noted without action in view of A. Santos personally liable for the transaction that petitioner corporation entered into with respondent. and only after said notice shall the election take legal effect when consented by the creditor. determined by the choice of the debtor who generally has the right of election.28 He also argues that the Court of Appeals was correct in holding petitioners solidarily liable since petitioner Candida A. which states: chanRoblesvi rtual Lawli bra ry Article 1199. after receiving the raw materials from respondent.”29 c ralawred In their reply. Inc.31 to petitioner Arco Pulp and Paper. or to impugn the election made by the debtor.no legal basis to hold petitioner Candida A. Santos was solidarily liable with Arco Pulp and Paper Co. in the alternative. When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap papers.30 cralawred A rejoinder was submitted by respondent. The payment for this delivery became petitioner Arco Pulp and Paper’s obligation. Whether Candida A. deliver to him the finished products of equivalent value.

In delegacion. thus:chanRoble svirtual Lawlib ra ry Article 1291. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement. (1205a) Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or when there is subrogation of the creditor. a third person who consents to the substitution and assumes the obligation. Whether extinctive or modificatory. or by substituting the person of the debtor or subrogating a third person to the rights of the creditor. there are two modes of substituting the person of the debtor: (1) expromisionand (2) delegacion. In order that an obligation may be extinguished by another which substitute the same. or by subrogating a third person to the rights of the creditor.”36 cralawred Novation was extensively discussed by this court in Garcia v. since it consists of a third person’s assumption of the obligation. thereby extinguishing the option to deliver the finished products of equivalent value to respondent. referred to as objective or real novation. an act known as subjective or personal novation. or that the old and the new obligations be on every point incompatible with each other. Obligations may be modified by: (1) Changing their object or principal conditions. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. As such. The rules on novation are outlined in the Civil Code. may be made even without the knowledge or against the will of the latter. Both modes of substitution by the debtor require the consent of the creditor. (1204) Article 1293. Llamas:37 cralawred Novation is a mode of extinguishing an obligation by changing its objects or principal obligations. but not without the consent of the creditor. Novation may also be extinctive or modificatory. it did not novate the original obligation between the parties. novation is made either by changing the object or the principal conditions. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237. and the creditor accepts. may be made even without the knowledge or against the will of the latter. Article 1293 of the Civil Code defines novation as follows: “Art. it is imperative that it be so declared in unequivocal terms. 1293. (3) Subrogating a third person in the rights of the creditor. the following requisites must concur: . which was executed on the same day.” In general. but not without the consent of the creditor. For novation to take place. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237. (1203) Article 1292. The memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished products would be to a third person. The memorandum of agreement did not constitute a novation of the original contract The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation of the contract between the parties. the consent of these three persons are necessary. When petitioner Arco Pulp and Paper opted instead to deliver the finished products to a third person. it logically requires the consent of the third person and the creditor. (2) Substituting the person of the debtor. by substituting a new debtor in place of the old one. the debtor offers.This choice was also shown by the terms of the memorandum of agreement. thus. the initiative for the change does not come from — and may even be made without the knowledge of — the debtor. Novation which consists in substituting a new debtor in the place of the original one. Novation which consists in substituting a new debtor in the place of the original one. It occurs only when the new contract declares so “in unequivocal terms” or that “the old and the new obligations be on every point incompatible with each other. In expromision.

39 (Emphasis supplied) There is nothing in the memorandum of agreement that states that with its execution. each one with its own independent existence. Petitioners are liable for damages Under Article 2220 of the Civil Code.968. It merely shows that petitioner Arco Pulp and Paper opted to deliver the finished products to a third person instead. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. It also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as respondent’s debtor. and not to Eric Sy. Santos and Mr. The consent of the creditor must also be secured for the novation to be valid: chanRoble svirtual Lawlib rary Novation must be expressly consented to. novatio is literally construed as to make new. The memorandum of agreement must also state in clear and unequivocal terms that it has replaced the original obligation of petitioner Arco Pulp and Paper to respondent. it is never presumed.41 If the memorandum of agreement was intended to novate the original agreement between the parties.1) There must be a previous valid obligation. 2220. April 18. respondent must have first agreed to the substitution of Eric Sy as his new debtor. the principle — novatio non praesumitur — that novation is never presumed. It is implied when the new obligation is incompatible with the old one on every point. moral damages may be awarded in case of breach of contract where the breach is due to fraud or bad faith: chanRoblesvi rtua lLawl ibra ry Art. therefore. . thus: chanRoblesv irt ual Lawlib rary In the civil law setting.38 (Emphasis supplied) Because novation requires that it be clear and unequivocal. 3) The old contract must be extinguished.40 (Emphasis supplied) In this case.31. his conformity to the contract need not be secured. Candida A. Moreover. the obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. its animus must be ever present. for novation to be a jural reality. . Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their alleged intent to pass on their obligation to Eric Sy. debitum pro debito — basically extinguishing the old obligation for the new one. When respondent sent his letter of demand to petitioner Arco Pulp and Paper. Eric Sy. (Emphasis supplied) Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach was due to fraud or bad faith. it showed that the former neither acknowledged nor consented to the latter as his new debtor. thus. Novation may also be express or implied. So it is deeply rooted in the Roman Law jurisprudence. Neither of these circumstances is present in this case. The test of incompatibility is whether the two obligations can stand together. when taken together. This is clear from the first line of the memorandum. Willfull injury to property may be a legal ground for awarding moral damages if the court should find that. petitioner Arco Pulp and Paper’s obligation to respondent remains valid and existing.220. such damages are justly due. respondent was not privy to the memorandum of agreement. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. the conflicting intention and acts of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the parties to novate the old agreement. it has been mutually agreed between Mrs. must still pay respondent the full amount of P7. under the circumstances. These acts. 2007. . Petitioner Arco Pulp and Paper. 2) The parties concerned must agree to a new contract. As this court stated: chanRob lesvi rtual Lawl ibra ry . Since there was no novation. 4) There must be a valid new contract. which states: chanRoblesvi rtua lLawl ibra ry Per meeting held at ARCO. clearly show that novation did not take place. At bottom.

(2) second. shall indemnify the latter for the same. When the obligation became due and demandable. They are recoverable only if the party from whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual obligations. To be actionable.31 from his business. This has remained unpaid since 2007. are not specified within this enumeration. Breaches of contract done in bad faith. contrary to law. 26. (9) Acts mentioned in Article 309. in the exercise of his rights and in the performance of his duties. malicious or in bad faith. When a party breaches a contract. and public policy: chanRoble svirtual Lawli bra ry . By itself. Persons who have the right to enter into contractual relations must exercise that right with honesty and good faith. (2) Quasi-delicts causing physical injuries. Article 21. (3)third. rape. clearly sustained by the claimant. (7) Libel. and (4) fourth. Every person must. good customs. 29. Failure to do so results in an abuse of that right.220. (10) Acts and actions referred to in Articles 21. 28. he or she goes against Article 19 of the Civil Code. As to the fourth requisite. whether physical.42 Further. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals. which may become the basis of an action for damages. (6) Illegal search. Every person who. (8) Malicious prosecution. there must be an injury. the wrongful act or omission of the defendant is the proximate cause of the injury sustained by the claimant. to wit: (1) first. 32. or other lascivious acts. (4) Adultery or concubinage. (5) Illegal or arbitrary detention or arrest.968. give everyone his due. the following requisites must be proven for the recovery of moral damages: chanRoblesvi rtua lLawl ibra ry An award of moral damages would require certain conditions to be met. petitioner Arco Pulp and Paper not only issued an unfunded check but also entered into a contract with a third person in an effort to evade its liability. and observe honesty and good faith. mental or psychological.Moral damages are not recoverable simply because a contract has been breached. Article 2219 of the Civil Code provides that moral damages may be awarded in the following instances:chanRob lesvi rtua lLawl ibra ry Article 2219. however.43 Here. The breach must be wanton.44 Article 20 and 21 of the Civil Code are as follows: chanRoblesvi rt ualLaw lib rary Article 20. 34. 30. good customs or public policy shall compensate the latter for the damage. Article 19. which states: chanRoble svirtual Lawli bra ry Article 19. wilfully or negligently causes damage to another. Article 19 describes the degree of care required so that an actionable tort may arise when it is alleged together with Article 20 or Article 21. the award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code. This proves the third requirement. it is not the basis of an actionable tort. and oppressive or abusive. act with justice. (3) Seduction. reckless. cannot be its sole basis: chanRob lesvirtual Lawlib ra ry Article 19 is the general rule which governs the conduct of human relations. and 35. 27. however. slander or any other form of defamation. Article 20 requires a violation of law. while Article 21 only concerns with lawful acts that are contrary to morals. This injury undoubtedly was caused by petitioner Arco Pulp and Paper’s act of refusing to pay its obligations. abduction. there must be culpable act or omission factually established. Moral damages may be recovered in the following and analogous cases: ChanRobles Vi rtua lawlib rary (1) A criminal offense resulting in physical injuries. the injury suffered by respondent is the loss of P7.

Exemplary damages cannot be recovered as a matter of right. Petitioner Arco Pulp and Paper’s actions clearly show “a dishonest purpose or some moral obliquity and conscious doing of a wrong. good customs.Article 20 concerns violations of existing law as basis for an injury. that is. they run the risk of violating Article 1159 of the Civil Code: chanRoble svirtual Lawli bra ry Article 1159. or malevolent manner. Negligence may refer to a situation where the act was consciously done but without intending the result which the plaintiff considers as injurious. Article 21. Article 2234. are not recoverable on the mere breach of the contract. however. It imports a dishonest purpose or some moral obliquity and conscious doing of a wrong.49 we stated that: chanRoblesvirt ual Lawlib rary . it requires an examination of the circumstances in each case. therefore. Under the Civil Code. or abusive. When a party reneges on his or her obligations arising from contracts in bad faith. Lasala:46 cralawred To recover moral damages in an action for breach of contract. Breaches of contract become the basis of moral damages. and public policy.45 When parties act in bad faith and do not faithfully comply with their obligations under contract. it attempted to shift their obligations to a third person without the consent of respondent. the person claiming bad faith must prove its existence by clear and convincing evidence for the law always presumes good faith. the court will decide whether or not they should be adjudicated. reckless and malicious. oppressive.”48 Moral damages may. temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. Moral damages. is not an exhaustive list of the instances where moral damages may be recovered since it only specifies. Article 2219. It allows recovery should the act have been willful or negligent. the court may award exemplary damages if the defendant acted in a wanton. therefore. not only under Article 2220. but also under Articles 19 and 20 in relation to Article 1159. the breach must be palpably wanton. Worse. be awarded. Bad faith does not simply connote bad judgment or negligence. Exemplary damages may also be awarded. a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud. concerns injuries that may be caused by acts which are not necessarily proscribed by law. This article requires that the act be willful. In Adriano v. In contracts and quasi-contracts. a question of intention. fraudulent. which can be inferred from one’s conduct and/or contemporaneous statements. In Tankeh v. it was presumably with the knowledge that it was being drawn against a closed account.47 (Emphasis supplied) Since a finding of bad faith is generally premised on the intent of the doer. the plaintiff must show that he is entitled to moral. Development Bank of the Philippines. exemplary damages are due in the following circumstances: chanRoblesvi rt ualLaw lib rary Article 2232. that there was an intention to do the act and a desire to achieve the outcome. Article 2220 requires that the breach be done fraudulently or in bad faith. It is. among others. it is also a violation of Article 1159. a breach of known duty through some motive or interest or ill will that partakes of the nature of fraud. reckless. Article 2233. in bad faith. When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to respondent. Hence. on the other hand. Willful may refer to the intention to do the act and the desire to achieve the outcome which is considered by the plaintiff in tort action as injurious. Article 21. While the amount of the exemplary damages need not be proven. oppressive. the legal issues revolve around whether such outcome should be considered a legal injury on the part of the plaintiff or whether the commission of the act was done in violation of the standards of care required in Article 19. therefore. the act is not only contrary to morals. In cases under Article 21. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

insult or fraud or gross fraud—that intensifies the injury. oppression. and (3) the act must be accompanied by bad faith or done in a wanton. cannot be recovered. The case of People v. Exemplary damages may also be awarded in this case to serve as a deterrent to those who use fraudulent means to evade their liabilities. attorney's fees and expenses of litigation. The terms punitive or vindictive damages are often used to refer to those species of damages that may be awarded against a person to punish him for his outrageous conduct.50 (Emphasis supplied. wantonness.51 Business owners must always be forthright in their dealings. In the absence of stipulation. or to confuse legitimate issues. They cannot be allowed to renege on their obligations. attorney’s fees and cost of the suit may also be recovered. this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act. exemplary or corrective damages are intended to serve as a deterrent to serious wrong doings. Following this principle. malice. Dalisay held that:ChanRoblesVi rtua lawlib rary Also known as ‘punitive’ or ‘vindictive’ damages.. Article 2208 of the Civil Code states: chanRoblesvi rt ualLaw lib rary Article 2208. other than judicial costs. their determination depending upon the amount of compensatory damages that may be awarded to the claimant. We disagree. In Heirs of Fe Tan Uy v. and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a punishment for those guilty of outrageous conduct.52 we stated that: chanRoblesvirtual Lawlib rary Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality separate and distinct from those acting for and in its behalf and. In common law. A director. officers and employees. International Exchange Bank. or as a vehicle for the evasion of an existing obligation. but not always. oppressive or malevolent manner. fraudulent. and only after the claimant's right to them has been established. Since the award of exemplary damages is proper. except: (1) When exemplary damages are awarded[. Rante citing People v.. are its sole liabilities. . . citations omitted) The requisites for the award of exemplary damages are as follows: ChanRobles Vi rtua lawlib rary (1) they may be imposed by way of example in addition to compensatory damages. these damages are intended in good measure to deter the wrongdoer and others like him from similar conduct in the future. officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation. there is preference in the use of exemplary damages when the award is to account for injury to feelings and for the sense of indignity and humiliation suffered by a person as a result of an injury that has been maliciously and wantonly inflicted. (2) that they cannot be recovered as a matter of right.] Petitioner Candida A. These terms are generally. from the people comprising it. the theory being that there should be compensation for the hurt caused by the highly reprehensible conduct of the defendant—associated with such circumstances as willfulness. used interchangeably. in general. acting through its directors.. In either case. Nevertheless.The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a similar offense. gross negligence or recklessness. Santos is solidarily liable with petitioner corporation Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced to prove that the transaction was also a personal undertaking of petitioner Santos. considering that these obligations were freely entered into by them. obligations incurred by the corporation. the circumvention of statutes.

Inc. ordinarily. this veil of corporate fiction may be pierced if complainant is able to prove. other unjustifiable aims or intentions. However. and (2) such negligence or bad faith was clearly and convincingly proven. that (1) the officer is guilty of negligence or bad faith. Gallery Frames58 c ralawre d In view. This is clear on the face of the check bearing the account name.”54 Any obligation arising from these acts would not. Co. to shield or perpetrate fraud or to carry out similar or inequitable considerations. petitioner Santos entered into a contract with respondent in her capacity as the President and Chief Executive Officer of Arco Pulp and Paper.60 and we have laid down the following guidelines with regard to the rate of legal interest:c hanRoble svirtual Lawlib ra ry . Under the doctrine. and (2) the complainant must clearly and convincingly prove such unlawful acts. The rate of interest due on the obligation must be reduced in view of Nacar v. negligence or bad faith. While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari under Rule 45. She also issued the check in partial payment of petitioner corporation’s obligations to respondent on behalf of petitioner Arco Pulp and Paper. she not only issued an unfunded check but also contracted with a third party in an effort to shift petitioner Arco Pulp and Paper’s liability. stating that: chanRoblesvirtual Lawlib rary In the present case.56 (Emphasis supplied) According to the Court of Appeals. the corporate veil may be pierced.68 issued by [petitioner] Santos was dishonored for being drawn against a closed account. In this instance. These acts prompted the [respondent] to avail of the remedies provided by law in order to protect his rights. however. When petitioner Arco Pulp and Paper’s obligation to respondent became due and demandable. We find. Court of Appeals. After the check in the amount of P1. the corporate existence may be disregarded where the entity is formed or used for non- legitimate purposes. the following requisites must concur: (1) the complainant must allege in the complaint that the director or officer assented to patently unlawful acts of the corporation. or to justify a wrong. directors. Petitioner Santos cannot be allowed to hide behind the corporate veil. These acts clearly amount to bad faith. or employees of a corporation cannot be held personally liable for obligations incurred by the corporation. such as to evade a just and due obligation. [petitioner] corporation denied any privity with [respondent]. however. Here.57 We agree with the Court of Appeals. the fiction will be disregarded and the individuals composing it and the two corporations will be treated as identical. as in this case. in which case. Gallery Frames. and petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper.487.766. 2013 in Nacar v.53 (Emphasis supplied) As a general rule. In Livesey v.Before a director or officer of a corporation can be held personally liable for corporate obligations. of the promulgation by this court of the decision dated August 13. petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper. or that the officer was guilty of gross negligence or bad faith. She unjustifiably refused to honor petitioner corporation’s obligations to respondent. officers. We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor their undertaking in favor of the [respondent]. “Arco Pulp & Paper. this Court can take cognizance of factual issues if the findings of the lower court are not supported by the evidence on record or are based on a misapprehension of facts. be petitioner Santos’ personal undertaking for which she would be solidarily liable with petitioner Arco Pulp and Paper. Nacar effectively amended the guidelines stated in Eastern Shipping v. however.. Binswanger Philippines:55 c ralaw red Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. that the corporate veil must be pierced.59 the rate of interest due on the obligation must be modified from 12% per annum to 6% per annum from the time of demand.

. petitioner.To recapitulate and for future guidance. i.220. II. No.e. Petitioners Arco Pulp & Paper Co.220. the rate of legal interest. the petition is DENIED in part.. but when such certainty cannot be so reasonably established at the time the demand is made.968. In the absence of stipulation. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages. 2013. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. .. SO. citations omitted. 2007. Gloria A.000. 1169. The decision in CA-G. in addition to the above. be on the amount finally adjudged. and it consists in the payment of a sum of money. 2. Lim the amount of P7. WHEREFORE. computed from May 5.e. With regard particularly to an award of interest in the concept of actual and compensatory damages. When an obligation. 1984 ERNESTO V. Civil Code).e. above. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.00. SO ORDERED. quasi-contracts. delicts or quasi-delicts is breached.) According to these guidelines. Roselino Reyes Isler for respondents.31 should now be at 6% per annum. When an obligation. shall be 6% per annum from such finality until its satisfaction.00. G. L-55138 September 28. i. the rate of interest shall be 6% per annum to be computed from default. contracts. an interest on the amount of damages awarded may be imposed at the discretion of the courtat the rate of 6% per annum. a loan or forbearance of money. 799. the guidelines laid down in the case of Eastern Shipping Lines are accordingly modified to embody BSP-MB Circular No. is breached. where the demand is established with reasonable certainty.968. 95709 is AFFIRMED.61 (Emphasis supplied. shall be adjudged on unliquidated claims or damages. Furthermore. the rate of interest. When the obligation is breached. the interest due shall itself earn legal interest from the time it is judicially demanded. and attorney’s fees in the amount of P50. law. exemplary damages in the amount of P50. RONQUILLO. judgments that have become final and executory prior to July 1. this interim period being deemed to be by then an equivalent to a forbearance of credit. This interest shall continue to be due from the finality of this decision until its full satisfaction. the contravenor can be held liable for damages. Fortun for petitioner.R. When the judgment of the court awarding a sum of money becomes final and executory. vs.. as follows: I. Accordingly. except when or until the demand can be established with reasonable certainty.000. HONORABLE COURT OF APPEALS AND ANTONIO P.00. 3. regardless of its source. not constituting a loan or forbearance of money. with moral damages in the amount of P50. 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). whether the case falls under paragraph 1 or paragraph 2. as well as the accrual thereof. The actual base for the computation of legal interest shall. when respondent sent his letter of demand to petitioners. And. the interest due on the obligation of P7. and Candida A. however. Inc.000.R. shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. Santos are hereby ordered solidarily to pay respondent Dan T.31 with interest of 6% per annum at the time of demand until finality of judgment and its full satisfaction. No interest. in any case. the interest due should be that which may have been stipulated in writing. i. CV No. is imposed. as follows: 1. respondents.

So.CUEVAS. Because private respondent refused to accept their payments. That both parties agree that failure on the part of either party to comply with the foregoing terms and conditions. as one of the four defendants. 1980.00 the amount of P55. or before June 30. 1979. 1979. xxx xxx xxx On December 26.: This is a petition to review the Resolution dated June 30. defendants individually and jointly agree to pay within a period of six months from January 1980. Plaintiff agrees to reduce its total claim of P117. The other defendants were Offshore Catertrade Inc. Johnny Tan and Pilar Tan. tendered the amount of P13.00 on or before December 24. Ronquillo versus the Hon. herein private respondent (then plaintiff filed a Motion for Execution on the ground that defendants failed to make the initial payment of P55.750. entitled "Ernesto V. the pertinent portion of which reads as follows: 1.R.98 sought to be collected represents the value of the checks issued by said defendants in payment for foodstuffs delivered to and received by them. Another defendant. denying petitioner's motion for reconsideration of the above resolution. 3 . No. 1979. 1979 as provided in the Decision. execution fees and other fees related with the execution.98 plus attorney's fees and costs.750.000 . etc. Petitioner Ernesto V. for the collection of the sum of P17.00 initial payment. 1979. petitioner.000. Said motion for execution was opposed by herein petitioner (as one of the defendants) contending that his inability to make the payment was due to private respondent's own act of making himself scarce and inaccessible on December 24. The amount of P117. the lower court rendered its Decision 1 based on the compromise agreement submitted by the parties. the innocent party will be entitled to an execution of the decision based on this compromise agreement and the defaulting party agrees and hold themselves to reimburse the innocent party for attorney's fees. 1980. Branch XV filed by private respondent Antonio P. the balance of P55.000. Ronquillo was one of four (4) defendants in Civil Case No. Tan.00.000. SP-10573. petitioner and Pilar Tan instead deposited the said amount with the Clerk of Court.00. demanding from them the full initial installment of P 55.000. 33958 of the then Court of First Instance of Rizal (now the Regional Trial Court). (Emphasis supplied) xxx xxx xxx 4. on July 23." and the Order of said court dated August 20. offered to pay the same amount.498. The amount deposited was subsequently withdrawn by private respondent.000. 1980. The said checks were dishonored by the drawee bank.00. 1979. J.00. Florellana Castro-Bartolome.000. as his prorata share in the P55. Pilar P. 1980 of the then Court of Appeals (now the Intermediate Appellate Court) in CA-G.00 and defendants agree to acknowledge the validity of such claim and further bind themselves to initially pay out of the total indebtedness of P10. 2 During the hearing of the Motion for Execution and the Opposition thereto on January 16.498.498-95 to only P11. On December 13. Petitioner then prayed that private respondent be ordered to accept his payment in the amount of P13..00 on or before December 24.

petitioner filed on March 26. issued a notice of sheriff's sale.500. "singly or jointly hable. 1980. 1980 at 8:30 a. was upon motion of private respondent reset to April 2. . January 16. petitioner moved for the reconsideration of the above order. Juanson of Rizal. There appears to be a non-payment in accordance with the compromise agreement of the amount of P27. On March 17.500.00 has been paid. 1980. On January 22. 1980. 1980. No. the lower court issued an Order reading as follows: ORDER Regardless of whatever the compromise agreement has intended the payment whether jointly or individually. Special Sheriff Eulogio C.00 as against the properties of the defendants (including petitioner). Offshore Catertrade Inc. Meanwhile. jointly and severally. and Johnny Tan 4 who did not pay their shares. 7 Petitioner's motion for reconsideration of the Order of Execution dated March 17. Realizing the actual threat to property rights poised by the re-setting of the hearing of s motion for reconsideration for April 2. the writ of execution and the notice of public sale of his properties to satisfy fully the entire unpaid obligation payable by all of the four (4) defendants. the lower court denied petitioner's motion for reconsideration but the scheduled public sale in that same day did not proceed in view of the pendency of a certiorari proceeding before the then Court of Appeals.m. for the sale of certain furnitures and appliances found in petitioner's residence to satisfy the sum of P82. 1980 which was set for hearing on March 25. a writ of execution was issued for the satisfaction of the sum of P82. 1980.00 on or before December 24.R. 1980. the fact is that only P27. On April 2.1980. 1980.On the same day. SP-10573). the liability of the four (4) defendants was not expressly declared to be solidary.m. 1980 a petition for certiorari and prohibition with the then Court of Appeals (CA-G. 1979.m. 1980 at 8:30 a. against the other two defendants.500.500. of the same day. WHEREFORE. praying at the same time for the issuance of a restraining order to stop the public sale. April 2." 6 On March 20. consequently each defendant is obliged to pay only his own pro-rata or 1/4 of the amount due and payable. when the lower court's decision based on the compromise agreement did not specifically state the liability of the four (4) defendants to be solidary. let writ of execution issue as prayed for On March 17. and the same was set for hearing on March 25. the lower court ordered the issuance of a writ of execution for the balance of the initial amount payable. 1980 at 10:00 a. private respondent moved for the reconsideration and/or modification of the aforesaid Order of execution and prayed instead for the "execution of the decision in its entirety against all defendants. or jointly and severally. 1980." 5 Petitioner opposed the said motion arguing that under the decision of the lower court being executed which has already become final. The parties are reminded that the payment is condition sine qua non to the lifting of the preliminary attachment and the execution of an affidavit of desistance.00. He raised the question of the validity of the order of execution.m. or more specifically on March 19. such that if his motion for reconsideration would be denied he would have no more time to obtain a writ from the appellate court to stop the scheduled public sale of his personal properties at 10:00 a. 1980. The public sale was scheduled for April 2.

(c) failing to resolve the legal issues raised in the petition and in not declaring the liabilities of the defendants. the motion referred to was already denied by the lower court and there was no more motion pending therein. to be at variance with the lower court's final decision which did not provide for solidary obligation. the said court issued a Resolution. 1980. Petitioner moved to reconsider the aforesaid Resolution alleging that on April 2. (d) not holding the lower court's order of execution dated March 17. The rule is that before a petition for certiorari can be brought against an order of a lower court. however. and in denying due course to the petition to restrain implementation of a writ of execution issued at variance with the final decision of the lower court filed barely four (4) days before the scheduled public sale of the attached movable properties. finds the present petition to have been filed prematurely. 1980 having been seasonably filed. The restraining order issued in our resolution dated April 9. 1980. Moreover. to be only joint. the legal issues being raised in the petition were already "ripe" for determination. (b) denying reconsideration of the Resolution of June 30. 1980 is hereby lifted without pronouncement as to costs. the writ of execution and the notice of sheriff's sale. the pertinent portion of which reads as follows: This Court.On June 30. this petition for review. which declared as premature the filing of the petition. herein petitioner filed a petition without waiting for a resolution of the Court on the motion for reconsideration. The fact that the hearing of the motion for reconsideration had been reset on the same day the public sale was to take place is of no moment since the motion for reconsideration of the Order of March 17. all remedies available in that court must first be exhausted. the lower court had already denied the motion referred to and consequently. and (e) not declaring as invalid and unlawful the threatened execution. 1980. which could have been favorable to the petitioner. the scheduled public sale should be suspended. when the defendants. including herein petitioner. singly and jointly". WHEREFORE. private respondent had become entitled to move for an execution of the decision based on the said agreement. 1980. executing the lower court's decision against "all defendants. petitioner contending that the Court of Appeals erred in (a) declaring as premature. Hence. of the total unpaid amount payable by his joint co-defendants. the instant petition for certiorari and prohibition with preliminary injunction is hereby denied due course. although there is proof on record that as of April 2. SO ORDERED. as against the properties of petitioner who had paid his pro-rata share of the adjudged obligation. 1980. under the final decision of the lower court. In the case at bar. The foregoing assigned errors maybe synthesized into the more important issues of — . 1980. 8 The said motion was however denied by the Court of Appeals in its Resolution dated August 20. defaulted in their obligation based on the compromise agreement.

Art. Was the filing of a petition for certiorari before the then Court of Appeals against the Order of Execution issued by the lower court.. the credits or debts being considered distinct from one another. the public sale scheduled that very same morning could have proceeded.1. urgency prompted recourse to the Court of Appeals and the adequate and speedy remedy for petitioner under the situation was to file a petition for certiorari with prayer for restraining order to stop the sale. the credit or debt shall be presumed to be divided into as many equal shares as there are creditors and debtors. 33958. as in cases where execution had already been ordered 12 where the issue raised is one purely of law. the records show that not only was a writ of execution issued but petitioner's properties were already scheduled to be sold at public auction on April 2. 1980 and was set for hearing on March 25. the hearing was reset to April 2. despite the pendency of a motion for reconsideration of the same questioned Order? 2. the said motion was already denied by the lower court in its order dated April 2. subject to the Rules of Court governing the multiplicity of quits. or was it several or solidary? Anent the first issue raised. 1980 at 8:30 a.m. the very same clay when petitioner's properties were to be sold at public auction. dated March 17. In fact.or the nature or the wording of the obligation to which the preceding article refers the contrary does not appear. Plainly. a motion for reconsideration should precede recourse to certiorari in order to give the trial court an opportunity to correct the error that it may have committed. petitioner was faced with imminent danger of his properties being immediately sold the moment his motion for reconsideration is denied. the public sale can proceed at 10:00 that morning.m. If from the law.. but upon motion of private respondent. Then is a solidary liability only when the obligation expressly so states. or that each one of the latter is bound to render. 1207. The records likewise show that petitioner's motion for reconsideration of the questioned Order of Execution was filed on March 17. 1980. The concurrence of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand. entire compliance with the prestation. the said rule is not absolutes 9 and may be dispensed with in instances where the filing of a motion for reconsideration would serve no useful purpose. 1980 before taking recourse to the appellate court may already be too late since without a restraining order.m. What is the nature of the liability of the defendants (including petitioner). such as when the motion for reconsideration would raise the same point stated in the motion 10 or where the error is patent for the order is void 11 or where the relief is extremely urgent. For him to wait until after the hearing of the motion for reconsideration on April 2. In this regard. 1980 at 10:00 a. Article 1207 and 1208 of the Civil Code provides — Art. provides: . or when the law or the nature of the obligation requires solidarity. that is whether or not he is liable jointly or solidarily. suffice it to state that while as a general rule. as one of the defendants in Civil Case No. The other issue raised refers to the nature of the liability of petitioner. proper. 1980 and were it not for the pendency of the petition with the Court of Appeals and the restraining order issued thereafter. 1208. 1980 at 8:30 a. was it merely joint. Needless to state that under the circumstances. 13 In the case at bar. The decision of the lower court based on the parties' compromise agreement.

43023 which affirmed. Plaintiff agrees to reduce its total claim of P117.189. "separately". the balance of P55.: Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G.00 on or before December 24. respondents. to the port of Manila.498. the instant petition is hereby DISMISSED.R.000. the same is therefore enforceable against one of the numerous obligors. [G. with slight modification. by the express term of the compromise agreement and the decision based upon it.00. J. 119599. the defendants obligated themselves to pay their obligation "individually and jointly". (Emphasis supply) Clearly then.00. the amount of P5. IN VIEW OF THE FOREGOING CONSIDERATIONS.00 and defendants agree to acknowledge the validity of such claim and further bind themselves to initially pay out of the total indebtedness of P110. the [1] decision of the Regional Trial Court of Cebu. 14 and a "several obligation is one by which one individual binds himself to perform the whole obligation. respectively or "severally". The term "individually" has the same meaning as "collectively". No. was the owner/consignee of some 3.000." Likewise in Un Pak Leung vs. 1. SO ORDERED. 1979. defendants individually and jointly agree to pay within a period of six months from January 1980 or before June 30.000. THE HON. Brazil. COURT OF APPEALS and TKC MARKETING CORPORATION. No. An agreement to be "individually liable" undoubtedly creates a several obligation. "distinctively". vs. DECISION ROMERO. 1997] MALAYAN INSURANCE CORPORATION. Cost against petitioner. Said cargo was insured against the risk of loss by petitioner Malayan Insurance Corporation for which . March 20. Negorra 17 We held that "in the absence of a finding of facts that the defendants made themselves individually hable for the debt incurred they are each liable only for one-half of said amount The obligation in the case at bar being described as "individually and jointly". 1989 for carriage from the port of Rio del Grande.171 metric tons of soya bean meal which was loaded on board the ship MV Al Kaziemah on or about September 8.000.R.95 to only P110. petitioner. 15 In the case of Parot vs. Gemora 16 We therein ruled that "the phrase juntos or separadamente or in the promissory note is an express statement making each of the persons who signed it individually liable for the payment of the fun amount of the obligation contained therein. Branch 15. 1980. Private respondent TKC Marketing Corp.

09 (or its peso equivalent of P9.00) representing private respondent's loss after the proceeds of the sale were deducted from the original claim of $916.00.195.40 per metric ton or a total of P10. As a result.000.879. private respondent notified petitioner on October 4. 1989. 1989. aside from the insurance claim. Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies. In addition.88 as legal expenses and the interest it paid for the loan it obtained to finance the shipment totalling P942.886. it be reimbursed the amount of P128. private respondent forthwith reduced its claim to US$448.45 and M/LP 97800306 amounting to P1. This prompted private respondent to file a complaint for damages praying that aside from its claim. Private respondent likewise sought the assistance of petitioner on what to do with the cargo. private respondent asked for moral damages amounting to P200.55.45. advised petitioner that it might tranship the cargo and requested an extension of the insurance coverage until actual transhipment.66. which extension was approved upon payment of additional premium. M/LP 97800305 amounting to P18. on December 11. 1989 enroute to Manila. both dated September 1989.233.66 or P20.89 at the exchange rate of P22.024. Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of ownership was an excepted risk under the marine insurance policies.770. for US$154.0138 per $1.902.928. exemplary damages amounting to P200.304.886. Private respondent.184.159.000.231. While the vessel was docked in Durban. the civil authorities arrested and detained it because of a lawsuit on a question of ownership and possession.75 due to its perishable nature which could no longer stand a voyage of twenty days to Manila and another twenty days for the discharge thereof. South Africa. exemplary damages amounting . for non-delivery of the cargo.986. covering the period October 4-December 19. representing the dollar equivalent on the policies.it issued two (2) Marine Cargo Policy Nos.005. The insurance coverage was extended under the same terms and conditions embodied in the original policies while in the process of making arrangements for the transhipment of the cargo from Durban to Manila. the cargo was sold in Durban. consequential and liquidated damages amounting to P1. accordingly. 1989 of the arrest of the vessel and made a formal claim for the amount of US$916. However.00 and attorney's fees equivalent to 30% of what will be awarded by the court. The lower court decided in favor of private respondent and required petitioner to pay. South Africa on September 11.30. 1990. On January 5.806.269.88.

and Non-delivery Clause (TNPD) of the insurance policies. it should not operate to discharge petitioner from its contractual liability. On private respondent's motion for reconsideration. In ruling that petitioner was in bad faith in declining private respondent's claim. But due to the perishable nature of the goods. Cole. the same became automatically covered under subsection 1. is an excepted risk under Clause 12 of the Institute Cargo Clause or the F. Clause) rules out detention by ordinary legal processes. petitioner was also required to further pay interest at the rate of 12% per annum on all amounts due and owing to the private respondent by virtue of the lower court decision counted from the inception of this case until the same is paid. the sale of the goods being reasonable and justified. with the deletion of Clause 12 of the Institute Cargo Clause and the consequent adoption or institution of the Institute War Clauses (Cargo). In other words. The appellate court added that the failure to deliver the consigned goods in the port of destination is a loss compensable.1 of Section 1 of the Institute War Clauses. Accordingly. Pilferage. the appellate court contended that since the vessel was prevented at an intermediate port from completing the voyage due to its seizure by civil authorities. Clause. the Court of Appeals affirmed the decision of the lower court stating that with the deletion of Clause 12 of the policies issued to private respondent. not only under the Institute War Clause but also under the Theft. reimbursement in the amount equivalent to 10% of whatever is recovered as attorney's fees as well as the costs of the suit. restraints or detainments contemplated in the former clause were those effected by political or executive acts.000. Hence. arrests by civil authorities. arrest. the arrest and seizure by judicial processes which were excluded under the former policy became one of the covered risks. a peril insured against.to P100. Losses occasioned by riot or ordinary judicial processes were not covered therein. [2] Furthermore. claiming that the Court of Appeals erred: 1. 3. In ruling that the arrest of the vessel was a risk covered under the subject insurance policies. . the liability of petitioner continued until the goods could have been transhipped.00.C. it had to be promptly sold to minimize loss. In ruling that there was constructive total loss over the cargo. & S. such as what happened in the instant case. On appeal.C. 2. restraint or detainment within the meaning of Clause 12 (or F. as read in relation to Section 130 of the Insurance Code and as held in Williams v. & S. Hence this petition. However. The arrests.

notwithstanding that it was then under no legal obligation to do so. petitioner cannot submit for the first time on appeal its argument that it was wrong for the Court of Appeals to have ruled the way it did based on facts that would need inquiry into the evidence. petitioner alleges that its act of rejecting the claim was a result of its honest belief that the arrest of the vessel was not a compensable risk under the policies issued. Risk policies should be construed reasonably and in a manner as to make effective the intentions and expectations of the parties. being the sole author of the policies. . such was not necessary because the coverage as ruled upon by the Court of Appeals is evident from the very terms of the policies.4. on the other hand. petitioner submits that any loss which private respondent may have incurred was in the nature and form of unrecovered acquisition value brought about by a voluntary sacrifice sale and not by arrest. (b) the deletion of the Free from Capture or Seizure Clause would leave the assured covered solely for the perils specified by the wording of the policy itself. petitioner supported private respondent by accommodating the latter's request for an extension of the insurance coverage. Likewise. detention or seizure of the ship. As to the second assigned error. In giving undue reliance to the doctrine that insurance policies are strictly construed against the insurer. for the first time. petitioner submits the following: (a) an arrest by civil authority is not compensable since the term "arrest" refers to "political or executive acts" and does not include a loss caused by riot or by ordinary judicial process as in this case. petitioner did not raise as an issue the award of exemplary damages. It cannot now. It also argued that petitioner. argued that when it appealed its case to the Court of Appeals. In assigning the first error. Private respondent. It added that the policies clearly stipulate that they cover the risks of non-delivery of an entire package and that it was petitioner itself that invited and granted the extensions and collected premiums thereon. raise the same before this Court. In fact. (c) the rationale for the exclusion of an arrest pursuant to judicial authorities is to eliminate collusion between unscrupulous assured and civil authorities. Even if inquiry into the facts were possible. "arrests" should be strictly interpreted against it because the rule is that any ambiguity is to be taken contra proferentum. As to the third issue.

using the phrase "perils of the sea" to encompass the wide and varied range of risks that were covered. their Heirs. Said clause reads: "Touching the adventures which the said MALAYAN INSURANCE CO. in and about the defence. Fire. AND it is expressly declared and agreed that no acts of the Insurer or Insured in recovering. of what Nation. they are of the Seas. Executors. The subject policies contain the [3] "Perils" clause which is a standard form in any marine insurance policy. By way of a historical background. detriment. thus: "Warranted free of capture. his or their Executors. Rovers. arrest. And so the said MALAYAN INSURANCE COMPANY. seizure. & S. without prejudice to this INSURANCE. their factors. Takings of the Sea. AND in case of any loss or misfortune it shall be lawful to the ASSURED. Suprisals. The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies in relation to the excluded risks or warranty specifically stated therein. to the charges whereof the said COMPANY. for the true Performance of the Premises. whether there be a declaration of war or not. Restraints and Detainments of all Kings. to the ASSURED. that this writing or Policy of INSURANCE shall be of as much Force and Effect as the surest Writing or Policy of INSURANCE made in LONDON. condition. labour. but this warranty shall not exclude collision.. Clause which reads." (Underscoring supplied) The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is specifically referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F. Jettisons. Letters of Mart and Counter Mart. Enemies.C. will contribute according to the rate and quantity of the sum herein INSURED. to sue. and recovery of the said goods and merchandises. or damage of the said goods and merchandise or any part thereof .. saving. that have come to hurt. and to take upon them in this voyage. are content to bear. and of all other Perils.. servants and assigns. safeguards. or Assigns. are contented. And it is agreed by the said COMPANY. Losses. and Misfortunes. INC. Barratry of the Master and Mariners. confessing themselves paid the Consideration due unto them for this INSURANCE at and after the rate arranged. Princess and Peoples. Administrators. and ship. or Acceptance of Abandonment. or preserving the Property insured shall be considered as a Waiver. and the consequences thereof or of any attempt thereat. or any part thereof. restraint or detainment. contact with any fixed or floating object . Thieves. Goods and Chattel. Men-of-War. Pirates. marine insurance developed as an all- risk coverage. also from the consequences of hostilities and warlike operations. and travel for. or quality soever. and do hereby promise and bind themselves. Arrests. & c.

even if it were not the result of hostilities or warlike operations. the relevant current institute war clauses shall be deemed to form part of this insurance. but this warranty shall not exclude collision. etc. or civil strike arising therefrom. military or air forces in association with a power.1 of Section 1 of the Institute . However. C. military or air forces in association with power. the Institute War Clauses (Cargo) was deemed incorporated which. among others. Consequently. heavy weather or fire unless caused directly (and independently of the nature on voyage or service which the vessel concerned or. or piracy. insurrection. the automatic incorporation of subsection 1. stranding.(other than a mine or torpedo). the term "arrests" would only cover those arising from political or executive acts. whether there be a declaration of war or not. & S. in the case of a collision." According to petitioner. restraint or detainment. contact with any fixed or floating object (other than a mine or torpedo). concluding that whether private respondent's claim is anchored on subsection 1. Further warranted free from the consequences of civil war. stranding. heavy weather or fire unless caused directly (and independently of the nature of the voyage or service which the vessel concerned or. arrest. in subsection 1.1 The risks excluded from the standard form of English Marine Policy by the clause warranted free of capture.1 of section 1 of the Institute War Clauses (Cargo). detention. rebellion. and the consequences thereof of hostilities or warlike operations. Should Clause 12 be deleted. provides: "1. revolution. It further claims that on the strength of jurisprudence on the matter. insurrection. This insurance covers: 1. the F. seizure. arrest.1 of Section 1. etc. Clause was deleted from the policies. any other vessel involved therein is performing) by a hostile act by or against a belligerent power and for the purpose of this warranty 'power' includes any authorities maintaining naval." (Underscoring supplied) However. in the case of a collision any other vessel involved therein is performing) by a hostile act by or against a belligerent power. revolution. Further warranted free from the consequences of civil war. it also claims that the parties intended to include arrests. or civil strike arising therefrom or piracy. and for the purpose of this warranty 'power' includes any authority maintaining naval." pertained exclusively to warlike operations if this Court strictly construes the heading of the said Clauses. means that any "capture.

Gilmore & C. & [6] S. such "arrest" would now become a covered risk under subsection 1. Clause was "arrest" occasioned by ordinary judicial process. (see generally G.War Clauses (Cargo) or the F.C. & S.1 of Section 1 of the Institute War Clauses provided that "this insurance covers the risks excluded from the Standard Form of English Marine Policy by the clause 'Warranted free of capture. its interpretation in recent years to include seizure or detention by civil authorities seems consistent with the general purposes of the clause.1 of Section 1 of the Institute War Clauses (Cargo). however. particularly when it alleges that in the "Perils" Clause. Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included in the covered risk simply because the F. logically. such as in the instant case.C.C. . Clause may have originally been inserted in marine policies to protect against risks of war. . & S. Clause was "originally incorporated in insurance policies to eliminate the risks of warlike operations"." This Court agrees with the Court of Appeals when it held that ". & S.1 of Section 1 of the Institute War Clauses included "arrest" even if it were not a result of hostilities or warlike operations. Jurisprudentially.C. Clause under the Institute War Clauses can only be operative in case of hostilities or warlike operations on account of its heading "Institute War Clauses. petitioner [5] itself averred that subsection 1. Clause. & S. arrest. Although the F. x x x'" or the F. Petitioner itself seems to be confused about the application of the F.C. regardless of whether or not said "arrest" by civil authorities occurred in a state of war. In this regard. & S. x x x" In fact. it assumed the risk of arrest caused solely by executive or political acts of the government of the seizing state and thereby excludes "arrests" caused by ordinary legal processes. the arrest of the vessel by judicial authorities is an excluded risk.C. Clause. The Law of Admiralty Section 2-9. [4] This Court cannot agree with petitioner's assertions. This interpretation becomes inevitable when subsection 1. this Court agrees with the Court of Appeals and the private respondent that "arrest" caused by ordinary judicial process is deemed included among the covered risks. It also averred that the F. seizure. "arrests" caused by ordinary judicial process is also a risk excluded from the Standard Form of English Marine Policy by the F. Clause.1 of Section 1 of the Institute War Clauses. at 71-73 [2d Ed.C. & S. & S.C. Black. With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses. 1975]). Clause applies even if there be no war or . etc.C. & S. since what was also excluded in the deleted F. It stated that "the F. Clause as well as that of subsection 1.

[12] If a marine insurance company desires to limit or restrict the operation of the general provisions of its contract by special proviso.1 of [7] Section 1 of the Institute War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the deletion of the F. . deletes the F.C. This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest" occasioned by executive or political acts of government which is interpreted as not referring to those caused by ordinary legal processes as contained in the "Perils" Clause. it must be borne in mind that [9] such contracts are invariably prepared by the companies and must be accepted by the insured in the form in which they are written. there would have been no controversy with respect to the interpretation of the subject clauses. Clause and the [13] consequent incorporation of subsection 1. Clause. Any [10] construction of a marine policy rendering it void should be avoided. etc. should.1 of Section 1 of the Institute War Clauses which now includes in the coverage risks of arrest due to executive or political acts of a government but then still excludes "arrests" occasioned by ordinary legal processes when subsection 1. therefore. and.1 of Section 1 of the Institute War Clauses (Cargo) gave rise to ambiguity. be construed strictly against the company in order to avoid a forfeiture. & S. even if it were not a result of hostilities or warlike operations. exception.C. & S. also those caused by ordinary legal processes. & S. Clause which excludes risks of arrest occasioned by executive or political acts of the government and naturally. by all means. the deletion of the F.1 of Section 1 of said Clauses should also have included "arrests" previously excluded from the coverage of the F. it should express such limitation in clear and unmistakable language.C.C. Obviously. Clause and the consequent incorporation of subsection 1. or exemption. Such [11] policies will. it contended that subsection 1. It has been held that a strained interpretation which is unnatural and forced. Likewise. unless no other result is possible from the language used. as to lead to an absurd conclusion or to render the policy nonsensical. thereafter incorporates subsection 1. & S."[8] This Court cannot help the impression that petitioner is overly straining its interpretation of the provisions of the policy in order to avoid being liable for private respondent's claim.warlike operations x x x" In the same vein. If the risk of arrest occasioned by ordinary judicial process was expressly indicated as an exception in the subject policies. be avoided.1 of Section 1 of the Institute War Clauses (Cargo) was to include "arrest.

. G. to insure against risks of loss or damage to the goods. AURELIO VALENCIA. No. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations. LOPE GEVANA and BONIFACIO LAUREANA. Such interpretation should result from the natural and reasonable meaning of language in the policy. and for whose benefit the exception is introduced. Laurel Law Office for Dimayuga. MOISES CARANDANG. LAURO LEVISTE. SO ORDERED. this Court sees no need to discuss the other issues presented. [15] An insurance contract should be so interpreted as to carry out the purpose for which the parties entered into the contract which is. [19] In view of the foregoing. ANTONIO DIMAYUGA. Basa. del Rosario Diaz for plaintiff-appellant. being a contract of adhesion. GAVINO GONZALES. par excellence. [17] Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured. Where restrictive [16] provisions are open to two interpretations. defendant-appellee. L-28046 May 16. DELFIN FAJARDO. CEFERINO VALENCIA. INC. Be that as it may.R. it should be construed liberally in favor of the insured and strictly against the insurer. where the contract or policy is prepared by the insurer. the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED. exceptions to the general coverage are construed most strongly against the company. A contract of[18] insurance. any ambiguity therein should be resolved against the insurer. WHEREFORE.. that which is most favorable to the insured is adopted. vs. Tomas Yumol for Fajardo. Ilao. defendants-appellees. 1983 PHILIPPINE NATIONAL BANK. Even an express exception in a policy is to be [14] construed against the underwriters by whom the policy is framed. plaintiff-appellant. LUCIANO CASTILLO. in other words. INDEPENDENT PLANTERS ASSOCIATION.

should be prosecuted in the testate or intestate proceeding for the settlement of the estate of the deceased defendant pursuant to Section 6 of Rule 86 of the Rules of Court which reads: SEC. after instituting a collection suit based on contract against some or all of them and. could be entertained to the extent that failure to observe the same would deprive the court jurisdiction to take cognizance of the action against the surviving debtors. and if. Rule 86) was taken. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. instead of instituting a proceeding . the claim shall be confined to the portion belonging to him. 891 at 897. The sole issue thus raised is whether in an action for collection of a sum of money based on contract against all the solidary debtors. after the plaintiff had presented its evidence) and therefore the complaint. nothing improper in the creditor's filing of an action against the surviving solidary debtors alone. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others. The appellant assails the order of dismissal.— the obligation of the decedent is solidary with another debtor. some or all of his solidary debtors. Inc. 6. It is evident from the foregoing that Section 6 of Rule 87 (now Rule 86) provides the procedure should the creditor desire to go against the deceased debtor. Villarama et al. should the creditor choose to demand payment from the latter. the Civil Code expressly allows the creditor to proceed against any one of the solidary debtors or some or all of them simultaneously.. therefore. There is. some or all of its solidary debtors under Article 1216 of the Civil Code — ART.PLANA. this Court ruled: Construing Section 698 of the Code of Civil Procedure from whence the aforequoted provision (Sec. invoking its right of recourse against one. the whole indebtedness can be proved against the estate of the latter. one of the defendants dies. 46741 dismissing PNB's complaint against several solidary debtors for the collection of a sum of money on the ground that one of the defendants (Ceferino Valencia) died during the pendency of the case (i. as he deems fit or convenient for the protection of his interests. the court retains jurisdiction to continue the proceedings and decide the case in respect of the surviving defendants. but there is certainly nothing in the said provision making compliance with such procedure a condition precedent before an ordinary action against the surviving solidary debtors. vs. J. and if the claim is not presented within the time provided by the rules. being a money claim based on contract. this Court held that where two persons are bound in solidum for the same debt and one of them dies. the claim shall be filed against the decedent as if he were the only debtor. Solidary obligation of decedent. Thus in Manila Surety & Fidelity Co. 6. It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek satisfaction of his credit from one. 107 Phil. during its pendency..e. so long as the debt has not been fully collected.: Appeal by the Philippine National Bank (PNB) from the Order of the defunct Court of First Instance of Manila (Branch XX) in its Civil Case No.. 1216. the death of one defendant deprives the court of jurisdiction to proceed with the case against the surviving defendants. without prejudice to the right of the estate to recover contribution from the other debtor. the same will be barred as against the estate. Upon the other hand. In a joint obligation of the decedent. the decedent's liability being absolute and primary.

be repealed since under the Rules of Court. THIRD DIVISION . 80 SCRA 321 at 323-324. that a substantive law cannot be amended by a procedural rule. some or all of the solidary debtors. he (the creditor) may. A cursory perusal of Section 6. this provision diminishes the Bank's right under the New Civil. in PNB vs. proceedings. while the latter. SO ORDERED. 46741 is hereby set aside in respect of the surviving defendants. the former being merely procedural. proceed against the surviving solidary debtors without necessity of filing a claim in the estate of the deceased debtors. Said provision gives the creditor the right to 'proceed against anyone of the solidary debtors or some or all of them simultaneously. Rule 86 of the Revised Rules of Court were applied literally. in effect. if Section 6. and the case is remanded to the corresponding Regional Trial Court for proceedings. substantive. this Court. petitioner has no choice but to proceed against the estate of Manuel Barredo only. Otherwise stared. In case of the death of one of the solidary debtors. Rule 86 of the Revised Rules of Court cannot be made to prevail over Article 1216 of the New Civil Code. Article 1216 of the New Civil Code would. It is crystal clear that Article 1216 of the New Civil Code is the applicable provision in this matter. . Such a construction is not sanctioned by the principle. speaking thru Mr. Justice Makasiar. As correctly argued by petitioner. for the settlement of the estate of the deceased debtor wherein his claim could be filed. Asuncion.' The choice is undoubtedly left to the solidary. Code to proceed against any one. No costs. creditor to determine against whom he will enforce collection. Obviously. It is not mandatory for him to have the case dismissed against the surviving debtors and file its claim in the estate of the deceased solidary debtor . if he so chooses. which is too well settled to require citation. Rule 86 of the Revised Rules of Court reveals that nothing therein prevents a creditor from proceeding against the surviving solidary debtors. Section 6. reiterated the doctrine. debtor. Said provision merely sets up the procedure in enforcing collection in case a creditor chooses to pursue his claim against the estate of the deceased solidary. Similarly. . WHEREFORE the appealed order of dismissal of the court a quo in its Civil Case No.

Inc. No.. ROLITO CALANG and G. Philtranco Service Enterprises. PEOPLE OF THE PHILIPPINES. BRION. to challenge our Resolution of February 17. J. Present: Petitioners. versus - BERSAMIN. . JR.  ABAD.: We resolve the motion for reconsideration filed by the petitioners. CARPIO MORALES. . (Philtranco) and Rolito Calang. Respondent. -. 2010. Our assailed Resolution denied the petition for review on certiorari for failure to show any reversible error sufficient to warrant the exercise of this Courts discretionary appellate jurisdiction. 190696 PHILTRANCO SERVICE ENTERPRISES.. 2010 x----------------------------------------------------------------------------------------- x RESOLUTION BRION.. and VILLARAMA. INC.R. Chairperson. J. JJ.- Promulgated: August 3.

2009.000. Branch 31. to pay P50. According to the CA. multiple serious physical injuries and damage to property thru reckless imprudence before the Regional Trial Court (RTC). CR No.Antecedent Facts At around 2:00 p. the jeeps driver.93 as actual damages to the private complainants. As a result of the collision. Two of the jeeps passengers. were instantly killed.000. In addition. as maximum. in its decision dated May 21. 7001. in its decision dated November 20. as minimum. and bumped and killed Jose Mabansag. found Calang guilty beyond reasonable doubt of reckless imprudence resulting to multiple homicide.00 as death indemnity to the heirs of Mabansag. owned by Philtranco along Daang Maharlika Highway in Barangay Lambao. affirmed the RTC decision in toto. The prosecution charged Calang with multiple homicide. Cresencio Pinohermoso.083. Samar when its rear left side hit the front left portion of a Sarao jeep coming from the opposite direction. a bystander who was standing along the highways shoulder. jointly and severally. Sta. various eyewitnesses testified that the bus was traveling fast and encroached into the opposite lane when it evaded a pushcart that was on the side of the road. The CA ruled that petitioner Calang failed to exercise due care and precaution in driving the Philtranco bus. The petitioners appealed the RTC decision to the Court of Appeals (CA). multiple physical injuries and damage to property. The CA. The CA further ruled that Calang demonstrated a reckless . docketed as CA-G.R. while the other passengers sustained serious physical injuries. despite admitting that he had already seen the jeep coming from the opposite direction when it was still half a kilometer away. The RTC ordered Calang and Philtranco. Calbayog City. and sentenced him to suffer an indeterminate penalty of thirty days of arresto menor. P50. Armando Nablo and an unidentified woman. 1989. lost control of the vehicle.m. The RTC. Margarita. of April 22. to four years and two months of prision correccional. 2001. and P90. he failed to slacken his speed. 25522. Rolito Calang was driving Philtranco Bus No.00 as death indemnity to the heirs of Armando. The jeep turned turtle three (3) times before finally stopping at about 25 meters from the point of impact.

. In our Resolution dated February 17. The petitioners also insist that the jeeps driver had the last clear chance to avoid the collision. The Motion for Reconsideration In the present motion for reconsideration. which. The petitioners filed with this Court a petition for review on certiorari. 2010. if considered. would have shown that Calang was not negligent. not roadworthy. the testimony of witness Rodrigo Bocaycay. we denied the petition for failure to sufficiently show any reversible error in the assailed decision to warrant the exercise of this Courts discretionary appellate jurisdiction.attitude when he drove the bus. supported by documentary exhibits. despite knowing that it was suffering from loose compression. for failing to prove that it had exercised the diligence of a good father of the family to prevent the accident. the petitioners claim that there was no basis to hold Philtranco jointly and severally liable with Calang because the former was not a party in the criminal case (for multiple homicide with multiple serious physical injuries and damage to property thru reckless imprudence) before the RTC. such as the affidavit and testimony of witness Celestina Cabriga. The CA added that the RTC correctly held Philtranco jointly and severally liable with petitioner Calang. We partly grant the motion. hence. the traffic accident sketch and report. and the jeepneys registration receipt. The petitioners likewise maintain that the courts below overlooked several relevant facts.

In petitions for review on certiorari under Rule 45 of the Revised Rules of Court. . however. Undisputedly. or the assailed judgment is based on a misapprehension of facts.Liability of Calang We see no reason to overturn the lower courts finding on Calangs culpability. We emphasize that Calang was charged criminally before the RTC. this Court is limited to reviewing only errors of law. Liability of Philtranco We. affirmed by the CA. Since the cause of action against Calang was based on delict. unless the factual findings complained of are devoid of support by the evidence on record. both the RTC and the CA erred in holding Philtranco jointly and severally liable with Calang. based on quasi-delict under Articles 2176[1] and 2180[2] of the Civil Code. is a question of fact that we cannot pass upon without going into factual matters touching on the finding of negligence. The finding of negligence on his part by the trial court. Such provision of law does not apply to civil liability arising from delict. Articles 2176 and 2180 of the Civil Code pertain to the vicarious liability of an employer for quasi-delicts that an employee has committed. hold that the RTC and the CA both erred in holding Philtranco jointly and severally liable with Calang. not of fact. Philtranco was not a direct party in this case.

has been pronounced. pupils. innkeepers. provided that such guests shall have notified in advance the innkeeper himself. in the dispositive portion of its decision. Innkeepers are also subsidiary liable for the restitution of goods taken by robbery or theft within their houses from guests lodging therein. as follows: In default of the persons criminally liable. according to Article 103 of the Revised Penal Code. or for the payment of the value thereof. tavernkeepers. or the person representing him.[3] Nonetheless. the trial court need not expressly pronounce the subsidiary liability of the employer. If at all. before the employers subsidiary liability is enforced. Philtrancos liability may only be subsidiary. in all cases where a violation of municipal ordinances or some general or special police regulations shall have been committed by them or their employees. No liability shall attach in case of robbery with violence against or intimidation of persons unless committed by the innkeepers employees. tavernkeepers and proprietors of establishments. in a . The provisions of the Revised Penal Code on subsidiary liability Articles 102 and 103are deemed written into the judgments in cases to which they are applicable. or employees in the discharge of their duties. persons. apprentices. (2) they are engaged in some kind of industry. and (4) the execution against the latter has not been satisfied due to insolvency. and shall furthermore have followed the directions which such innkeeper or his representative may have given them with respect to the care of and vigilance over such goods. of the deposit of such goods within the inn. (3) the crime was committed by the employees in the discharge of their duties. Article 102 of the Revised Penal Code states the subsidiary civil liabilities of innkeepers. Thus. which reads: The subsidiary liability established in the next preceding article shall also apply to employers. teachers. adequate evidence must exist establishing that (1) they are indeed the employers of the convicted employees. and any other persons or corporations shall be civilly liable for crimes committed in their establishments. workmen. and corporations engaged in any kind of industry for felonies committed by their servants. The determination of these conditions may be done in the same criminal action in which the employees liability. criminal and civil. The foregoing subsidiary liability applies to employers.

204. Branch 142 (RTC) in Civil Case No. multiple serious physical injuries and damage to property. admitting the damage caused by its billboard structure on Adworld’s billboard. is AFFIRMED. On August 29. The Court of Appeals decision that affirmed in toto the RTC decision. praying for damages in the aggregate amount of ₱474. No. but nevertheless. x 60 ft.5 In the complaint. petitioner Ruks Konsult and Construction (Ruks) and respondent Transworld Media Ads. comprised of ₱281. 2012 of the Court of Appeals (CA) in CA-G. (Transworld) jointly and severally liable to respondent Adworld Sign and Advertising Corporation (Adworld) for damages. the adjacent billboard structure owned by Transworld and used by Comark collapsed and crashed against it.hearing set for that precise purpose. 94693 which affirmed the Decision4dated August 25. as part of the proceedings for the execution of the judgment. 03-1452 holding.6 . with due notice to the employer. it was constrained to file the instant complaint. with the MODIFICATION that Philtrancos liability should only be subsidiary.: Assailed in this petition for review on certiorari1 are the Decision2 dated November 16. and ₱121. 2003.204..00. Guadalupe. 2003. The Facts The instant case arose from a complaint for damages filed by Adworld against Transworld and Comark International Corporation (Comark) before the RTC. Inc. CV No. As Adworld’s final demand letter also went unheeded. Adworld alleged that it is the owner of a 75 ft. J. No costs. 2015 RUKS KONSULT AND CONSTRUCTION. on August 19. vs. on August 11. ₱72. 2011 and the Resolution3dated December 10.[4] WHEREFORE. inter alia. Respondents. which was misaligned and its foundation impaired when.000. Transworld sent its reply.000.00 for materials. we PARTLY GRANT the present motion.00 for labor. INC. Barangka Mandaluyong. 204866 January 21.R. refused and failed to pay the amounts demanded by Adworld.R. Resultantly. SO ORDERED. ADWORLD SIGN AND ADVERTISING CORPORATION* and TRANSWORLD MEDIA ADS. 2003. 2009 of the Regional Trial Court of Makati City. finding Rolito Calang guilty beyond reasonable doubt of reckless imprudence resulting in multiple homicide. G. billboard structure located at EDSA Tulay. DECISION PERLAS-BERNABE. Adworld sent Transworld and Comark a letter demanding payment for the repairs of its billboard as well asloss of rental income.00 for indemnity for loss of income. Petitioner.

Transworld averred that the collapse of its billboard structure was due to extraordinarily strong winds that occurred instantly and unexpectedly. 2011 Resolution final and executory. In a Resolution dated February 3. No. Ruks proceeded with the construction of the billboard’s upper structure and merely assumed that Transworld would reinforce its lower structure.00 as actual damages. there was already an existing foundation for the billboard and that it merely finished the structure according to the terms and conditions of its contract with the latter. both Transworld and Ruks appealed to the CA. 197601. the CA dismissed Transworld’s appeal for its failure to file an appellant’s brief on time. the company which built the collapsed billboard structure in the former’s favor. in a Resolution17 dated November 23. 197601 declaring the Court’s November 23.000.12 In particular. thus.204. Subsequently. such as Adworld’s billboard. they did not do anything to remedy the situation. with legal interest from the date of the filing of the complaint until full payment thereof. Transworld likewise filed a Third-Party Complaint against Ruks. Comark prayed for exemplary damages from Transworld for unreasonably includingit as a party-defendant in the complaint. Ruks should ultimately be held liable for the damages caused to Adworld’s billboard structure. however. the RTC explained that Transworld was made aware by Ruks that the initial construction of the lower structure of its billboard did not have the proper foundation and would require additional columns and pedestals to support the structure.9 The RTC Ruling In a Decision10 dated August 25. 2009. 2012 in G.13 The RTC then concluded that these negligent acts were the direct and proximate cause of the damages suffered by Adworld’s billboard. the RTC ultimately ruled in Adworld’s favor. plus attorney’s fees in the amount of ₱50.20 .7 For its part.15 Transworld elevated its case before the Court. It contended that when Transworld hired its services. and that Ruks continued to install and finish the billboard structure despite the knowledge that there were no adequate columns to support the same. inter alia. Notwithstanding. declared. Ruks admitted that it entered into a contract with Transworld for the construction of the latter’s billboard structure. 2011. but denied liability for the damages caused by its collapse.16 However. the CA denied Ruks’s appeal and affirmed the ruling of the RTC. and as such.In its Answer with Counterclaim. and accordingly. 2011.R. and yet.R.8 Lastly. maintaining that it does not have any interest on Transworld’s collapsed billboard structure as it only contracted the use of the same.00.11 The RTC found both Transworld and Ruks negligent in the construction of the collapsed billboard as they knew that the foundation supporting the same was weak and would pose danger to the safety of the motorists and the other adjacent properties. The CA Ruling In a Decision19 dated November 16. the Court declared the case closed and terminated for failure of Transworld to file the intended petition for review on certiorariwithin the extended reglementary period. In this relation. No. prone to collapse. the Court issued an Entry of Judgment18 dated February 22. Comark denied liability for the damages caused to Adworld’s billboard structure. Transworld and Ruks jointly and severally liable to Adworld in the amount of ₱474.14 Aggrieved. 2011. It was alleged therein that the structure constructed by Ruks had a weak and poor 1âw phi1 foundation not suited for billboards. It found that Transworld failed to ensure that Ruks will comply with the approved plans and specifications of the structure. and maintained that the damage caused to Adworld’s billboard structure was hardly noticeable. docketed as G. It adhered to the RTC’s finding of negligence on the part of Transworld and Ruks which brought about the damage to Adworld’s billboard.

28 In this case. guided by those considerations which ordinarily regulate the conduct of human affairs. Verily.R. "[j]oint tortfeasors are those who command. but none was done at all. cooperate in. Transworld filed another appeal before the Court. The Court’s Ruling The petition is without merit. Ruks moved for reconsideration. No. advise. aid or abet the commission of a tort. or misinterpreted cogent facts and circumstances that. They merely relied on each other’s word that repairs would be done to such foundation. to the same extent and in the same manner as if they . encourage. if done for their benefit. 2013. however. whereby such other person suffers injury. docketed as G. the foregoing circumstances show that both Transworld and Ruks are guilty of negligence in the construction of the former’s billboard. are entitled to great weight by the Court and are deemed final and conclusive when supported by the evidence on record. On the other hand. if considered. countenance.25 Absent any exceptions to this rule – such as when it is established that the trial court ignored. They are also referred to as those who act together in committing wrong or whose acts. and perforce. Clearly. the Court denied outright Transworld’s petition in a Resolution24 dated April 15. therefore. misconstrued. and vigilance which the circumstances justly demand. they are solidarily liable to Adworld.R. if independent of each other. Under Article 219429 of the Civil Code. yet. instigate. Worse. both Transworld and Ruks were fully aware that the foundation for the former’s billboard was weak. Jurisprudence defines negligence as the omission to do something which a reasonable man. holding that the same was already bound by the dismissal of its petition filed in G.21 which was. the CA correctly affirmed the RTC’s finding that Transworld’s initial construction of its billboard’s lower structure without the proper foundation. when affirmed by the CA.hence. The Issue Before the Court The primordial issue for the Court’s resolution is whether or not the CA correctly affirmed the ruling of the RTC declaring Ruks jointly and severally liable with Transworld for damages sustained by Adworld. this petition. precaution. and that of Ruks’s finishing its upper structure and just merely assuming that Transworld would reinforce the weak foundation are the two (2) successive acts which were the direct and proximate cause of the damages sustained by Adworld. 197601. promote. would do. or approve of it after it is done. 2012. unite in causing a single injury.27 It is the failure to observe for the protection of the interest of another person that degree of care. denied in a Resolution22 dated December 10.Dissatisfied. caused damage to the adjacent billboard of Adworld. or the doing of something which a prudent and reasonable man would not do. In other words. No. the Court sees no cogent reason to deviate from the findings of the RTC and the CA and their uniform conclusion that both Transworld and Ruks committed acts resulting in the collapse of the former’s billboard. After a judicious perusal of the records. joint tortfeasors are each liable as principals. which in turn. it must be stressed that factual findings of the RTC. should be held liable for its collapse and the resulting damage to Adworld’s billboard structure. joint tortfeasors are solidarily liable for the resulting damage. As joint tortfeasors.23 However. neither of them took any positive step to reinforce the same. At the outset. 205120. would change the outcome of the case26 – such findings must stand. overlooked.

INC. and that the duty owed by them to the injured person was not same. L-28497 November 6. (Emphases and underscoring supplied) In conclusion. G. No actor's negligence ceases to be a proximate cause merely because it does not exceed the negligence of other actors. L-28498 November 6.: These two cases. AVANCEÑA. defendant-appellant. C. . the CA correctly affirmed the ruling of the RTC declaring Ruks jointly and severally liable with Transworld for damages sustained by Adworld. plaintiff-appellee. Benito Soliven and Jose Varela Calderon for intervenor-appellant. Ernesto Zaragoza and Simeon Ramos for defendant-appellant. vs. INC. CV No. defendant-appellant. it is impossible to determine in what proportion each contributed to the injury and either of them is responsible for the whole injury. 1928 THE BACHRACH MOTOR CO. 1928 THE BACHRACH MOTOR CO. No... The Decision dated November 16."30 The Court’s pronouncement in People v. it may appear that one of them was more culpable. 94693 are hereby AFFIRMED. J. 28497 and 28948. x x x. ------------------------------ G. FAUSTINO ESPIRITU.had performed the wrongful act themselves. were tried together. Francisco for appellee. and ROSARIO ESPIRITU. to wit:32 Where several causes producing an injury are concurrent and each is an efficient cause without which the injury would not have happened. are in combination the direct and proximate cause of a single injury to a third person. the injury may be attributed to all or any of the causes and recovery may be had against any or all of the responsible persons although under the circumstances of the case. 2011 and the Resolution dated December 10. the petition is DENIED. WHEREFORE. 2012 of the Court of Appeals in CA-G.R. SO ORDERED. plaintiff-appellee. B. intervenor-appellant. Velasco31 is instructive on this matter..R. vs. There is no contribution between joint [tortfeasors] whose liability is solidary since both of them are liable for the total damage. although acting independently.. Where the concurrent or successive negligent acts or omissions of two 1âwphi1 or more persons. FAUSTINO ESPIRITU. No. Nos. Each wrongdoer is responsible for the entire result and is liable as though his acts were the sole cause of the injury.R.

These two trucks had been purchased from the same plaintiff and were fully paid for by the defendant and his brother Rosario Espiritu. the trial court ordered the defendant and the intervenor to pay plaintiff the sum of P4.732.50. In both sales it was agreed that 12 per cent interest would be paid upon the unpaid portion of the price at the executon of the contracts. and 25 per cent thereof in addition as penalty. yet.58. and when the trucks . To secure this payment the defendant mortgaged to the plaintiff corporation the said truck purchased and two others. he signed the two promissory notes (Exhibits B and D) secured by these two mortgages.28 with interest at 12 per cent per annum from December 1. 1925 until fully paid. and that as the latter did not sign the mortgage deeds. acquiescing in the inclusion of all his White trucks already paid for. In addition to the mortagage deeds referred to. The defendant failed to pay P4.136. 77197 and 92744. an employee of the plaintiff's written a few days before the transaction. as penalty. such trucks cannot be considered as mortgaged. In case 28498.269. But the evidence shows that while the intervenor Rosario Espiritu did not sign the two mortgage deeds (Exhibits A and C). in the mortgage (Exhibit H-I). obligated himself to make payment of this sum within the periods agreed upon. after deducting the sheriff's fees and transportation charges to Manila. together with the defendants Faustino Espiritu. when the defendant signed the mortgage deeds these trucks were not included in those documents. in connection with case 28497. the defendant sold his rights in said trucks Nos. and after having deducted the P500 cash payment and the 12 per cent annual interest on the unpaid principal.208. In connection with case 28498. 1926 until fully paid.It appears. numbered 77197 and 92744. Appellants also alleged that on February 4. and were only put in later. and in case of non-payment of the total debt upon its maturity.50 within the periods agreed upon. the defendants mortgaged the said truck purchased and. respectively. two of which are numbered 77197 and 92744 respectively. All these instruments were executed at the same time. 1925 the defendant Faustino Espiritu purchased of the plaintiff corporation a two-ton White truck for P11. alleging to be the exclusive owner of the two White trucks Nos. lawphi1. Rosario Espiritu appeared in these two cases as intervenor. the defendant at the same time also signed a promissory note solidarily with his brother Rosario Espiritu for the several sums secured by the two mortgages (Exhibits B and D). 1925 the defendant bought a one- ton White truck of the plaintiff corporation for the sum of P7. Besides. which appear to have been mortgaged by the defendants to the plaintiff.983.50. the same that were mortgaged in the purchase of the other truck referred to in the other case. and 25 per cent thereon as penalty. which the defendant executed in favor of the plaintiff.000 down to apply on account of this price. three others. there were presented two of defendant's letters to Hidalgo. all of them together bringing in. because. The defendant failed to pay P10. 1925.983. and obligating himself to pay the remaining P10. To secure the payment of this sum. The appellants contend that trucks 77197 and 92744 were not mortgaged.82 of the price secured by this mortgage.28 of this sum. that on July 28. without defendant's knowledge. and all of the White make (Exhibit A). besides.net While these two cases were pending in the lower court the mortgaged trucks were sold by virtue of the mortgage. 25 per cent thereon.09 with interest at the rate of 12 per cent per annum from May 1. the net sum of P3. paying P1. it appears that on February 18.477.208. But there is positive proof that they were included at the time the defendant signed these documents. 77197 and 92744 to the intervenor. The judgment appealed from ordered the defendants and the intervenor to pay plaintiff in case 28497 the sum of P7.

and of Angel Hidalgo. the intervenor Rosario Espiritu was aware of it and consented to such inclusion. does not include the interest. the judgment appealed from is affired in all other respects without special pronouncement as to costs. petitioner. J. the defendants need pay only 10 per cent thereon as penalty. It is finally contended that the 25 per cent penalty upon the debt. But considering that the obligation was partly performed. the dispositive portion of which reads: WHEREFORE. Should there be such an agreemnet. and which may be demamded separetely. the intervenor was in Batac. Hernaez (32 Phil. the penalty. Ilocos Norte. who witnessed the execution of all these documents. as was held in the case of Lopez vs. in addition to the interest of 12 per cent per annum. Article 1152 of the Civil Code permits the agreement upon a penalty apart from the interest. According to this. respondents. We do not find the statement of the intervenor Rosario Espiritu that he did not sign promissory notes Exhibits B and C to be sufficient to overthrow this evidence. 1978 ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION. Salvador N. Pardo. the penalty is not to be added to the interest for the determination of whether the interest exceeds the rate fixed by the law. presided by the Honorable Bernardo P. No. A comparison of his genuine signature on Exhibit AA with those appearing on promissory notes B and C. And such is our conclusion.: This is a direct appeal on questions of law from a decision of the Court of First Instance of Rizal. many miles away from Manila. and making use of the power given to the court by article 1154 of the Civil Code. the plaintiff sent some truck accessory parts by rail to Ilocos for the intervenor does not necessarily prove that the latter could not have been in Manila on the 25th of that month. 1925. Beltran for respondent. Purugganan & Bersamin for petitioner. So ordered. G.77197 and 92744 were included in the mortgages. L-41093 October 30.. Branch XXXIV. notwithstanding the evidence presented to establish that on the date when Exhibits B appears to have been signed. vs. of Agustin Ramirez. judgment is hereby rendered commanding the defendant to register the deed of absolute sale it had executed in favor of plaintiff with the Register of . since said rate was fixed only for the interest. and LOLITA MILLAN. who witnessed the execution of Exhibits B and D.R. These facts are supported by the testimony of Bachrach. manager of the plaintiff corporation. With the sole modification that instead of 25 per cent upon the sum owed. 631). this penalty is reduced to 10 per cent of the unpaid debt. it is immaterial whether he was or was not the exclusive owner thereof. COURT OF FIRST INSTANCE OF RIZAL (BRANCH XXXIV). In view of his conclusion that the intervenor signed the promissory notes secured by trucks 77197 and 92744 and consented to the mortgage of the same. MUÑOZ PALMA. makes the contract usurious. And the fact that on the 24th of said month of July. that is July 25. convinces us that the latter are his signatures. Such a contention is not well founded.

1974 a complaint for specific performance and damages against Robes-Francisco Realty & Development Corporation in the Court of First Instance of Rizal. In either case. a parcel of land containing an area of approximately 276 square meters. this particular provision: That the VENDOR further warrants that the transfer certificate of title of the above- described parcel of land shall be transferred in the name of the VENDEE within the period of six (6) months from the date of full payment and in case the VENDOR fails to issue said transfer certificate of title. Block No. plus an interest at the rate of 4% per annum.000.3 Thereafter. February 11. now petitioner. On March 2. Branch XXXIV.00. payable in installments. it shall bear the obligation to refund to the VENDEE the total amount already paid for. among others. for any reason. agreed to sell to private respondent Lolita Millan for and in consideration of the sum of P3. C-3268. The vendee made a total payment of P5. (rollo. (record on appeal. hence.864. p. situated in Barrio Camarin. 20. p. Caloocan City.000. 1971.00 which are allegedly excessive and unjustified. 21) Petitioner corporation questions the award for nominal damages of P20. 1972 until fully paid. Deeds of Caloocan City and secure the corresponding title in the name of plaintiff within ten (10) days after finality of this decision. known as Lot No.63 including interests and expenses for registration of title. defendant is sentenced to pay plaintiff nominal damages in the amount of P20. We gave due course to the Petition only as regards the portion of the decision awarding nominal damages. In the Court's resolution of October 20. the latter filed on August 14.000.00 and costs. should this be not possible. defendant is hereby sentenced to pay plaintiff the sum of P5. the parties executed a deed of absolute sale of the aforementioned parcel of land. if. docketed therein as Civil Case No.000. Lolita Millan made repeated demands upon the corporation for the execution of the final deed of sale and the issuance to her of the transfer certificate of title over the lot. Caloocan City. Caloocan City. The deed of absolute sale contained. 1 The following incidents are not in dispute: In May 1962 Robes-Francisco Realty & Development Corporation.00 plus attorney's fee in the amount of P5. 1973. 4 The complaint prayed for judgment (1) ordering the reformation of the deed of absolute sale.63 with interest at 4% per annum from June 22. the corporation failed to cause the issuance of the corresponding transfer certificate of title over the lot sold to Millan. (2) ordering the defendant to deliver to plaintiff the certificate of title over the lot free from any lien or encumbrance.193. 2 Millan complied with her obligation under the contract and paid the installments stipulated therein. the final payment having been made on December 22. 1975. 1975. to pay plaintiff the value of the lot which should not be .193. SO ORDERED. or.00 and attorney's fee of P5. 9) Notwithstanding the lapse of the above-mentioned stipulated period of six (6) months. 11 of its Franville Subdivision. this not possible.

Unfortunately. now private respondent. if there is no stipulation to the contrary. the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance.less than P27. the vendee would be entitled to recover the amount paid by her with legal rate of interest which is even more than the 4% provided for in the clause. 7 Finding that the realty corporation failed to cause the issuance of the corresponding transfer certificate of title because the parcel of land conveyed to Millan was included among other properties of the corporation mortgaged to the GSIS to secure an obligation of P10 million and that the owner's duplicate certificate of title of the subdivision was in the possession of the Government Service Insurance System (GSIS).600.000. are liable for damages.00 granted to private respondent Millan. 7-A It is therefore inconceivable that the aforecited provision in the deed of sale is a penal clause which will preclude an award of damages to the vendee Millan. for the delay in the issuance of the title. 1975. said clause does not convey any penalty. There can be no dispute in this case under the pleadings and the admitted facts that petitioner corporation was guilty of delay. Presumably.00. . the trial court. negligence. submitted her case below without presenting evidence on the actual damages suffered by her as a result of the nonperformance of petitioner's obligation under the deed of sale. The foregoing argument of petitioner is totally devoid of merit. Petitioner contends that the deed of absolute sale executed between the parties stipulates that should the vendor fail to issue the transfer certificate of title within six months from the date of full payment.00 (allegedly the present estimated value of the lot). 6 At the pretrial conference the parties agreed to submit the case for decision on the pleadings after defendant further made certain admissions of facts not contained in its answer. however. Nevertheless. We would agree with petitioner if the clause in question were to be considered as a penal clause. rendered judgment the dispositive portion of which is quoted in pages 1 and 2 of this Decision. petitioner in invoking Article 1226 of the Civil Code which provides that in obligations with a penal clause. the facts show that the right of the vendee to acquire title to the lot bought by her was violated by petitioner and this entitles her at the very least to nominal damages. amounting to nonperformance of its obligation. corrective and actual in the sum of P15 000. or delay. In fact the clause is so worded as to work to the advantage of petitioner corporation. pursuant to Article 2209 of the Civil Code. for very obvious reasons. the circumstances of the case warrant a reduction of the amount of P20. hence. it shall refund to the vendee the total amount paid for with interest at the rate of 4% per annum. on February 11. and (3) ordering the defendant to pay plaintiff damages. the vendee is bound by the terms of the provision and cannot recover more than what is agreed upon. Nonetheless. in issuing the transfer certificate of title to vendee Millan who had fully paid up her installments on the lot bought by her. for even without it. 5 The corporation in its answer prayed that the complaint be dismissed alleging that the deed of absolute sale was voluntarily executed between the parties and the interest of the plaintiff was amply protected by the provision in said contract for payment of interest at 4% per annum of the total amount paid. the vendee. Article 170 of the Civil Code expressly provides that those who in the performance of their obligations are guilty of fraud. We hold that the trial court did not err in awarding nominal damages. and those who in any manner contravene the tenor thereof.

in common sense.000. not as an equivalent of a wrong inflicted. The Court there found special reasons for considering P20. They are recoverable where some injury has been done the amount of which the evidence fails to show. the circumstances of a particular case will determine whether or not the amount assessed as nominal damages is within the scope or intent of the law. P30. et al. for in the latter. more particularly. there is no conflict between that case and Medina. Art.00 as moral damages and P10. citing 17 C. Cresencia. which was an action for damages arising out of a vehicular accident. 65 S.10 In a subsequent case.The pertinent provisions of our Civil Code follow: Art. the assessment of damages being left to the discretion of the court according to the circumstances of the case. 12 At any rate. which has been violated or invaded by the defendant." while in the case of Commissioner Cuenca. however.00 award for nominal damages was eliminated principally because the aggrieved party had already been awarded P6. de Medina. be demeed "nominal". viz: Northwest Airlines. the Court stating inter alia that the amount cannot. et al. Nominal damages are adjudicated in order that a right of the plaintiff. 1956.00 as nominal damages in favor of respnodent Cuenca. (Fouraker v. as explained in the Court's decision in Northwest Airlines. this Court. no such compensatory. the P10. Inc. this Court had occasion to eliminate an award of P10. . 1965. moral. sustained an award of P20. v. the law presumes a damage. 2d 796-797. Kidd Springs Boating and Fishing Club. 2221.000.9 In this jurisdiction. if based upon the violation of a legal right. in such case. and "nominal damages cannot coexist with compensatory damages. but simply in recogniton of the existence of a technical injury.J.000. The court may award nominal damages in every obligation arising from any source enumerated in article 1157. or in every case where any property right has been invaded.000. and not for the purpose of indemnifying the plaintiff for any loss suffered by him. Cuenca who was the holder of a first class ticket from Manila to Tokyo was rudely compelled by an agent of petitioner Airlines to move to the tourist class notwithstanding its knowledge that Cuenca as Commissioner of Public Highways of the Republic of the Philippines was travelling in his official capacity as a delegate of the country to a conference in Tokyo.00 as exemplary damages. and a number of authorities).000.00 as "nominal". in Vda. 2222.00 as compensatory damages. Article 2221 of the Civil Code. 8 It is true as petitioner claims that under American jurisprudence nominal damages by their very nature are small sums fixed by the court without regard to the extent of the harm done to the injured party. It is generally held that a nominal damage is a substantial claim.00 imposed by way of nominal damages. or exemplary damages were granted to the latter. W. although actual or compensatory damages are not proven. 720.000. may be vindicated or recognized. and are allowed. Nicolas L." 11 Actually. in truth nominal damages are damages in name only and not in fact. through then Justice Roberto Concepcion who later became Chief Justice of this Court. Cuenca.000. v. Under the foregoing provisions nominal damages are not intended for indemnification of loss suffered but for the vindication or recognition of a right violated or invaded.

V. Bad faith is not to be presumed. The admitted fact that petitioner corporation failed to convey a transfer certificate of title to respondent Millan because the subdivision property was mortgaged to the GSIS does not in itself show that there was bad faith or fraud. INC.: This case is about the recovery compensatory. G.000. exemplary or corrective damages are to be imposed by way of example or correction for the public good. PREMISES CONSIDERED.000. We modify the decision of the trial court and reduce the nominal damages to Ten Thousand Pesos (P10. We are of the view that the amount of P20. 1962.000.00) by way of nominal damages is fair and just under the following circumstances." Here. fraudulent..In the situation now before Us. there was the expectation of the vendor that arrangements were possible for the GSIS to make partial releases of the subdivision lots from the overall real estate mortgage. L-26339 December 14.R.00 is excessive. 1973. del Rosario & Associates for appellant. but it was only on March 2. vs. Without pronouncement as to costs. temperate or compensatory damages. For that reason We cannot agree with respondent Millan Chat the P20. respondent Millan did not submit below any evidence to prove that she suffered actual or compensatory damages. COURT OF APPEALS and YU PING KUN CO. In case of breach of contract. viz: respondent Millan bought the lot from petitioner in May. damages for breach of a contract of sale in addition to liquidated damages. exemplary damages may be awarded if the guilty party acted in wanton. E. 13 Furthermore. AQUINO. In all other respects the aforesaid decision stands.00 award may be considered in the nature of exemplary damages. only if the injured party has shown that he is entitled to recover moral. 14 To conclude. and notwithstanding the lapse of almost three years since she made her last payment. .00). respondent-appellees. reckless. It was simply unfortunate that petitioner did not succeed in that regard. Sangco & Sangalang for private respondent. that a deed of absolute sale was executed in her favor. J.000. oppressive or malevolent manner. We hold that the sum of Ten Thousand Pesos (P10. No. and paid in full her installments on December 22. 1979 MARIANO C. petitioner-appellant. Moreover. 1971. PAMINTUAN.. petitioner still failed to convey the corresponding transfer certificate of title to Millan who accordingly was compelled to file the instant complaint in August of 1974.

A). the company lost no time in securing in favor of Pamintuan an irrevocable letter of credit for two hundred sixty-five thousand five hundred fifty pesos. The facts and the findings of the Court of Appeals are as follows: In 1960.97.. on or before October 31.236.050.440 yards valued at $22. He contracted to sell the plastic sheetings to Yu Ping Kun Co. Record on Appeal). . to pay the latter P100. of Osaka.200. Pamintuan appealed from the judgment of the Court of Appeals wherein he was ordered to deliver to Yu Ping Kun Co. 1960 — 11 cases out of 352 cases. (3) 60 cases containing 30. The plastic sheetings arrived in Manila and were received by Pamintuan.000 yards valued at $5. 1960 — 258 cases out of 352 cases. Inc. 4-5 and 239-40. Inc. if he could not do so.000 yards valued at $8. Inc.305.000 yards valued at $9. or a total of 339. (2) 37 cases containing 18. through Toyo Menka Kaisha..200. 1960 — 140 cases. Japan in exchange for plastic sheetings. (2) Firm Offer No. Record on Appeal).000 (pp. Pamintuan delivered to the company's warehouse only the following quantities of plastic sheetings: November 11. 1960 of that letter of credit which made reference to the delivery to Yu Ping Kun Co.. November 15.. 329 and 343 for 175. 360 yards of plastic sheetings (p. November 15. Inasmuch as the computation of the prices of each delivery would allegedly be a long process. he entered into an agreement to ship his corn to Tokyo Menka Kaisha. the plastic sheetings in four shipments to wit: (1) Firm Offer No.559. Ltd..850 yards valued at $5. Pamintuan withheld delivery of (1) 50 cases of plastic sheetings containing 26. 1960 — 10 cases out of 100 cases. 1960.000 yards valued at $5. Ltd.28 as damages with six percent interest from the date of the filing of the complaint. On July 28. for two hundred sixty-five thousand five hundred fifty pesos. November 14. November 15.440 yards valued at $2. the company received a copy of the letter from the Manila branch of Toyo Menka Kaisha. Pamintuan informed the president of Yu Ping Kun Co. Pamintuan was the holder of a barter license wherein he was authorized to export to Japan one thousand metric tons of white flint corn valued at forty-seven thousand United States dollars in exchange for a collateral importation of plastic sheetings of an equivalent value.000 yards valued at $5.305. Inc. 1960 of 336. that he was in dire need of cash with which to pay his obligations to the Philippine National Bank. 327 for 50. By virtue of that license. respectively. (3) Firm Offers Nos. Pamintuan requested that he be paid immediately. Pamintuan was apprised by the bank on August 1. It was further agreed that Pamintuan would deliver the plastic sheetings to the company at its bodegas in Manila or suburbs directly from the piers "within one month upon arrival of" the carrying vessels.440 yards with an aggregate value of $47. confirming the acceptance by Japanese suppliers of firm offers for the consignment to Pamintuan of plastic sheetings valued at forty-seven thousand dollars. the Japanese suppliers shipped to Pamintuan. 21. Acting on that information. Ltd. Any violation of the contract of sale would entitle the aggreived party to collect from the offending party liquidated damages in the sum of ten thousand pesos (Exh.445 and $2.000 and 18. and (4) Firm Offer No. size 48 inches by 50 yards. 328 for 70.400 and (4) 83 cases containing 40. 1960 — 30 cases out of 100 cases. 330 for 26. Out of the shipments. On September 27 and 30 and October 4. 1960. While the plastic sheetings were arriving in Manila. certain plastic sheetings and. The company undertook to open an irrevocable domestic letter of credit for that amount in favor of Pamintuan.000.Mariano C.

........850 yards valued at P29..105.. containing 30.26 as overpayment)......... The parties arrived at that figure by dividing the total price of P265.... 329 containing 40............120............174...490....510 and (4) Firm Offer No.000 as stipulated liquidated damages.... Pamintuan and the president of the company.174....... or total damages of P110.....26 made to Pamintuan by Yu Ping Kun Co. Espiritu........13 for the issuance of the writ of preliminary attachment and (d) P10...... the lower court rendered the judgment mentioned above but including moral damages... the company filed its amended complaint for damages against Pamintuan.....588.150 yards.. P175.. 20.......163...458....... containing 18... he refused to deliver the remainder of the shipments with a total value of P102.. 217..150 yards as per firm offers or as per contract......87 Overpayment...00 (2) 18.7062 per yard and selling price of Pl..... Benito Y....... 71. the trial court added (a) P10.......150 yards of sheetings of interior quality valued at P163.... Record on Appeal): (1) 26......000 yards valued at P29.67 (3) 30.17 as unrealized profits and P12...... P16......017 per yard and a selling price of Pl..... After trial..000 as attorney's fees..........000 as moral damages.150 yards at P0..023.........850 yards with a contract price of P0...559.. (b) P10.25 a yard at the time of delivery........ which the trial court regarded as an item of damages suffered by the company. The unrealized profits awarded as damages in the trial court's decision were computed as follows (pp... As justification for his refusal..502.. agreed to fix the price of the plastic sheetings at P0..25........440 yards........ P 12.........000 yards with a contract price of P0.75 a yard.00 (4) 40....... (c) Pl.87...Consequently... On December 2.... quality or actual invoice value thereof... regardless of the kind..13 which were covered by (i) Firm Offer No...102..50 Total unrealized profits. 1960.....C.....047...782 a yard. 330........ 9... (2) Firm Offer No.20 per yard at the time of delivery......502......... P67.88 (See pp...440 yards valued at P13..282..13 Actual peso value of 224..28) ......7822 a yard . 21....... containing 26....... Inc..... 243-2. 343.. Pamintuan said that the company failed to comply with the conditions of the contract and that it was novated with respect to the price.........380...282....... for the 224..550 by 339. Record on Appeal)..13 per yard and a selling price at the time of delivery of Pl. (3) Firm Offer No......282.... the aggregate quantity of the shipments... was computed as follows (p......000 yards valued at P30. 248-9...7247 per yard and a selling price of P1.17 The overpayment of P12..70 per yard............. Record on Appeal): Liquidation value of 224...........047..26 To these two items of damages (P67......85 as premium paid by the company on the bond of P102.000 yards with a contract price of Pl...330..000 yards with a contract price of Pl.... After Pamintuan had delivered 224...

2226. as attorney-in-fact of the warehouseman.p. 1171. 1966 found that the contract of sale between Pamintuan and the company was partly consummated. 1966). if there is no stipulation to the contrary " (1st sentence of Art. he would unjustly enrich himself at the expense of the company. irrespective of invoice value. it is argued. Civil Code) and. "Responsibility arising from fraud is demandable in all obligations" (Art. The Court of Appeals affirmed that judgment with the modification that the moral damages were disallowed (Resolution of June 29. That factual finding is conclusive upon this Court. and in the process delivered only the poorer or cheaper kind or those which he had predetermined to deliver and did not conceal in his brother's name and thus deceived the unwary party into overpaying him the sum of P 1 2. after having succeeded in getting another to accommodate him by agreeing to liquidate his deliveries on the basis of P0. Pamintuan reaped certain benefits from the contract. Hence. The Court of Appeals found that the writ of attachment was properly issued. the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance. he is estopped to repudiate it. when he knew all the while that he had no such intention. 1226.. his attorney-in-fact so that he could control the disposal of the goods. endorsed to the customs broker the warehouse receipts covering the plastic sheetings withheld by him and (4) he overpriced the plastic sheetings which he delivered to the company. the obligor shall be responsible for an damages which may be reasonably attributed to the non-performance of the obligation" (Ibid. Inc. The Court of Appeals described Pamintuan as a man "who. Civil Code). art.000 ". The company fulfilled its obligation to obtain the Japanese suppliers' confirmation of their acceptance of firm offers totalling $47. Pamintuan relies on the rule that a penalty and liquidated damages are the same (Lambert vs. there is no such stipulation to the contrary in this case and that "liquidated damages are those agreed upon by the parties to a contract. Civil Code). 2201). It also found that Pamintuan was guilty of fraud because (1) he was able to make the company agree to change the manner of paying the price by falsely alleging that there was a delay in obtaining confirmation of the suppliers' acceptance of the offer to buy. 61-62. and would thereafter refuse to make any further delivery in flagrant violation of his plighted word. otherwise. Fox 26 Phil.282. on the pretense that he would deliver what in the first place he ought to deliver anyway.. . The Court of Appeals in its decision of March 18. would now ask us to sanction his actuation" (pp. (2) he caused the plastic sheetings to be deposited in the bonded warehouse of his brother and then required his brother to make him Pamintuan). The main contention of appellant Pamintuan is that the buyer.. "In case of fraud. is guilty of fraud in the fulfillment of the obligation". that "in obligations with a penal clause. to be paid in case of breach thereof" (Art. 588). bad faith.. Yu Ping Kun Co. Record on Appeal). That contention is based on the stipulation "that any violation of the provisions of this contract (of sale) shall entitle the aggrieved party to collect from the offending party liquidated damages in the sum of P10. Rollo). We hold that appellant's contention cannot be sustained because the second sentence of article 1226 itself provides that I nevertheless.26 for the said deliveries.000. (3) Pamintuan. malice or wanton attitude. damages shall be paid if the obligor . Pamintuan appealed. is entitled to recover only liquidated damages.7822 per yard. The trial court and the Court of Appeals found that Pamintuan was guilty of fraud because he did not make a complete delivery of the plastic sheetings and he overpriced the same. 250.

559. o sea la de evaluar por anticipado los perjuicios que habria de ocasionar al acreedor el incumplimiento o cumplimiento inadecuado de la obligacion. los danos y perjuicios. HONRADO. This view finds support in the opinion of Manresa (whose comments were the bases of the new matter found in article 1226. to recover only the actual damages proven and not to award to it the stipulated liquidated damages of ten thousand pesos for any breach of the contract. consistente en sancionar o castigar dicho incumplimiento o cumplimiento inadecuado. with six percent interest a year from the filing of the complaint. G. SO ORDERED. Inc. 2216 and 2227. 128). 204702 January 14.. GMA NETWORK FILMS. Una funcion coercitiva o de garantia. 1950.28). 8.L. Codigo Civil. The proven damages supersede the stipulated liquidated damages. 1. p. cited in 4 Tolentino's Civil Code. p. 251). Castan Tobeñas notes that the penal clause in an obligation has three functions: "1. as found by Court of Appeals and the trial court. the damages recoverable by the firm would amount to ninety thousand five hundred fifty-nine pesos and twenty-eight centavos (P90. With that modification the judgment of the Court of Appeals is affirmed in all respects. we further hold that justice would be adequately done in this case by allowing Yu Ping Kun Co. Una funcion liquidadora del daño. en el supuesto incumplimiento o mero retardo de la obligacion principal. INC.. en que la pena es sustitutiva de la reparacion ordinaria. No costs in this instance. p. and after reflecting on the/tenor of the stipulation for liquidated damages herein. Civil Code. part. After a conscientious consideration of the facts of the case. p. 5th Ed. Petitioner. ante la amenaza de tener que pagar la pena.. not found in article 1152 of the old Civil Code) that in case of fraud the difference between the proven damages and the stipulated penalty may be recovered (Vol." (Ibid. Una funcion estrictamente penal. Hence. DECISION . 3. 9th Ed. a differencia de aquellos otros ordinarios. atribuyendole consecuencias mas onerosas para el deudor que las que normalmente lleva aparejadas la infraccion contractual. ademas de la pena. 2. 130). Reyes. 1229.There is no justification for the Civil Code to make an apparent distinction between penalty and liquidated damages because the settled rule is that there is no difference between penalty and liquidated damages insofar as legal results are concerned and that either may be recovered without the necessity of proving actual damages and both may be reduced when proper (Arts.. No. See observations of Justice J. 483). 2015 RICARDO C. vs. Castan Tobenas. the true nature of which is not easy to categorize. Respondent. The penalty clause is strictly penal or cumulative in character and does not partake of the nature of liquidated damages (pena sustitutiva) when the parties agree "que el acreedor podra pedir. " (3 Derecho Civil Espanol. consistente en estimular al deudor al complimiento de la obligacion principal.R.B. Se habla en este caso de pena cumulativa.

as licensor of 36 films. failure to do such. LICENSOR [Petitioner] will either replace the censored PROGRAMME TITLES with another title which is mutually acceptable to both parties or. petitioner alleged that he had settled his obligation to Alano. Inc. Regarding the fee GMA Films paid for Bubot.: The Case We review1 the Decision2 of the Court of Appeals (CA) ordering petitioner Ricardo C. Petitioner counterclaimed for attorney’s fees. In 2003. ordered GMA Films to pay attorney’s fees (₱100. counter-alleging that after GMA Films rejected Evangeline Katorse.6 million representing the fee it paid for Evangeline Katorse (₱1. he replaced it with another film. granted to GMA Films. petitioner alleged that GMA Films. the exclusive right to telecast the 36 films for a period of three years." the TV station operated by GMA Network. Inc.3 (Emphasis supplied) Two of the films covered by the Agreement were Evangeline Katorse and Bubot for which GMA Films paid ₱1. being a stranger to the contracts he entered into with the owners of the films in question. (GMA Films) entered into a "TV Rights Agreement" (Agreement) with petitioner under which petitioner. has no personality to question his compliance with the terms of such contracts. The parties also agreed to submit the films for review by the Movie and Television Review and Classification Board (MTRCB) and stipulated on the remedies in the event that MTRCB bans the telecasting ofany of the films (Paragraph 4): The PROGRAMME TITLES listed above shall be subject to approval by the Movie and Television Review and Classification Board (MTRCB) and.0004). GMA Films alleged that it rejected Evangeline Katorse because "its running time was too short for telecast"5 and petitioner only remitted ₱900. keeping for himself the balance of ₱350. in the event of disapproval. GMA Films sued petitioner in the Regional Trial Court of Quezon City (trial court) to collect ₱1.75 million.6 Petitioner denied liability. Alternatively.000.000 to the owner of Bubot (Juanita Alano [Alano]). Winasak na Pangarap. an affiliate of GMA Films. GMA Films prayed for the return of such amount on the theory that an implied trust arose between the parties as petitioner fraudulently kept it for himself. Inc. The Ruling of the Trial Court The trial court dismissed GMA Films’ complaint and. The Facts On 11December 1998. finding merit in petitioner’s counterclaim. for breach of contract and breach of trust. respondent GMA Network Films. The trial court gave credence to petitioner’s defense that he replaced Evangeline Katorse with Winasak na Pangarap. Honrado (petitioner) to pay a sum of money to respondent GMA Network Films. a proportionate reduction from the total price shall either be deducted or refunded whichever is the case by the LICENSOR OR LICENSEE [GMA Films].5 million each. J.CARPIO. As proof of such acceptance. petitioner invoked a certification of GMA Network. attesting that such film "is of good broadcast quality"7 (Film Certification).000). Under Paragraph 3 of the Agreement. the parties agreed that "all betacam copies of the [films] should pass through broadcast quality test conducted by GMA-7. which GMA Films accepted. On the disposal of the fee .5 million) and a portion of the fee it paid for Bubot (₱350. for a fee of ₱60. (GMA Network). dated 30 March 1999.

the amount claimed by the latter. the CA found that (1) GMA Films was authorized under Paragraph 4 of the Agreement to reject Evangeline Katorse. and (2) GMA Films never accepted Winasak na Pangarap as replacement because it was a "bold" film. what triggersthe rejection and replacement of any film listed in the Agreement is the "disapproval" of its telecasting by MTRCB.000). in the event of disapproval. the trial court rejected GMA Films’ theory of implied trust. obligating petitioner. The Issue The question is whether the CA erred in finding petitioner liable for breach of the Agreement and breach of trust. the CA sustained GMA Films’ contention that petitioner was under obligation to turn over to the film owners the fullamount GMA Films paid for the films as "nowhere in the TV Rights Agreement does it provide that the licensor is entitled to any commission x x x [hence] x x x [petitioner] Honrado cannot claim any portion of the purchase price paid for by x x x GMA Films. failure to do such. as beneficiary.11(Emphasis supplied) Under this stipulation. GMA Films appealed to the CA. Petitioner Committed No Breach of Contract or Trust MTRCB Disapproval the Stipulated Basis for Film Replacement The parties do not quarrel on the meaning of Paragraph 4 of the Agreement which states: The PROGRAMME TITLES listed [in the Agreement] x x x shall be subject to approval by the Movie and Television Review and Classification Board (MTRCB) and. set aside the trial court’s ruling. to return to GMA Films. We find GMA Films’ complaint without merit and accordingly reinstate the trial court’s ruling dismissing it with the modification that the award of attorney’s fees is deleted.000). a proportionate reduction from the total price shall either be deducted or refunded whichever is the case by the LICENSOR OR LICENSEE [GMA Films].GMA Films paid for Bubot. Hence. Brushing aside the trial court’s appreciation of the evidence. The Ruling of the Court We grant the petition. this petition. finding insufficient GMA Films’ proof that petitioner pocketed any portion of the fee in question. The Ruling of the Court of Appeals The CA granted GMA Films’ appeal. LICENSOR [Petitioner] will either replace the censored PROGRAMME TITLES with another title which is mutually acceptable to both parties or.9 On petitioner’s liability for the fee GMA Films paid for Bubot. exemplary damages (₱100. attorney’s fees (₱200.000) and the costs. as trustee."10 The CA concluded that petitioner’s retention of a portion of the fee for Bubot gave rise to an implied trust between him and GMA Films. litigation expenses (₱100. and ordered respondent to pay GMA Films ₱2 million8 as principal obligation with 12% annual interest. . Petitioner prays for the reinstatement of the trial court’s ruling while GMA Films attacks the petition for lack of merit.

Nor is there any dispute that GMA Films rejected Evangeline Katorse not because it was disapproved by MTRCB but because the film’s total running time was too short for telecast (undertime). before GMA Films can reject a film and require its replacement. We hold that regardless of the import of the Film Certification. did the parties stipulate that petitioner signed the contract in such capacity. Jose Marie Abacan (Abacan)."13 In doing so. petitioner voluntarily acceded to it and replaced such film with Winasak na Pangarap. obliging petitioner to hold whatever amount he kept in trust for GMA Films. is a licensing contract. noting that the Agreement "does not provide that the licensor is entitled to any commission. as its full title denotes ("TV Rights Agreement").12 The CA. the Agreement merely provided that the total fees will be paid in three installments (Paragraph 3). working under the assumption that the ground GMA Films invoked to reject Winasak na Pangarap was sanctioned under the Agreement. On the contrary."15 This is error. Paragraph 4 requires that MTRCB. testified during trial that it was GMA Network which rejected Winasak na Pangarap because the latter considered the film "bomba. that MTRCB reviewed Winasak na Pangarap and X-rated it.14 Implicit in GMA Films’ claim is the theory that the Agreement obliges petitioner to give to the film owners the entire amount he received from GMA Films and that his failure to do so gave rise to an implied trust. then Vice-President for Program Management of GMA Network. GMA Films’ own witness. after reviewing a film listed in the Agreement. The CA sustained GMA Films’ interpretation. for a fee. found merit in the latter’s claim. Disposal of the Fees Paid to Petitioner Outside of the Terms of the Agreement GMA Films also seeks refund for the balance of the fees it paid to petitioner for Bubot which petitioner allegedly failed to turn-over to the film’s owner. Stipulations for payment of "commission" to the licensor is incongruous to the nature of such contracts unless the licensor merely acted as agent of the film owners. the essence of which is the transfer by the licensor (petitioner) to the licensee (GMA Films). Paragraph 4 of the Agreement requires the intervention of MTRCB. The Agreement. What is disputed is whether GMA Films accepted the replacement film offered by petitioner. and we find no proof on record indicating. disapprove or X- rate it for telecasting. the Agreement repeatedly refers to petitioner as "licensor" and GMA Films as "licensee." Nor did the parties stipulate that the fees paid by GMA Films for the films listed in the Agreement will be turned over by petitioner to the film owners.16 . On the other hand. Indeed. of the exclusive right to telecast the films listed in the Agreement. GMA Films’ rejection of Winasak na Pangarap finds no basis in the Agreement. however. Nowhere in the Agreement. This runs counter to the clear terms of Paragraphs 3 and 4 of the Agreement. GMA Films insists that such clearance pertained only to the technical quality of the film but not to its content which it rejected because it found the film as "bomba" (bold). Petitioner maintains that the Film Certification issued by GMA Network attesting to the "good broadcast quality" of Winasak na Pangarap amounted to GMA Films’ acceptance of such film. GMA Network went beyond its assigned role under the Agreement of screening films to test their broadcast quality and assumed the function of MTRCB to evaluate the films for the propriety of their content. the state censor. GMA Films does not allege. In terms devoid of any ambiguity. Instead. Specifically. Instead of rejecting GMA Films’ demand for falling outside of the terms of Paragraph 4. Alano.

at 685 Wanda. et al. must be fully elaborated in the body of the ruling. IGNACIO CASTRO JR. U."18 Such ground. SOFIA C. FLORO.. spelling out the terms of payment to the latter.. The telegram was accepted by the defendant in its Dagupan office. versus Telefast Communication/Philippine Wireless. SR. SO ORDERED. after payment of the required fees or charges. without more. ESMERALDA C... PADILLA. Sr. SALVADOR CASTRO. her daughter Sofia C. J. CV-70245.A. MARIO CASTRO. 47170 announcing Consolacion's death. G.19Its mere invocation. The Decision. Sr. No. of the Court of Appeals are SET ASIDE. we GRANT the petition.We entertain no doubt that petitioner forged separate contractual arrangements with the owners of the films listed in the Agreement. INC. respondents. WHEREFORE." The facts of the case are as follows: On 2 November 1956. dated 30 April 2012 and Resolution. negates the nature of attorney's fees as a form of actual damages. Plaintiffs-Appellees. Indiana. CROUCH. is a matter to which GMA Films holds absolutely no interest. GMA Films is no more entitled to complain of any breach by petitioner of his contracts with the film owners than the film owners are for any breach by GMA Films of its Agreement with petitioner.S. Such conclusion was grounded on the erroneous assumption that GMA Films 1âwphi1 holds an interest in the disposition of the licensing fees it paid to petitioner. 1988 TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS. Consolacion Bravo-Castro wife of plaintiff Ignacio Castro..R. VIRGILIO CASTRO AND GLORIA CASTRO. in AC-G. using the amount provided by petitioner on the witness stand (₱100. Crouch. AURORA CASTRO. On the same day. Whether or not petitioner complied with these terms. petitioner. Undoubtedly... as held by the CA. Sr. The Decision. who was then vacationing in the Philippines. No. of the Regional Trial Court of Quezon City (Branch 223) is REINSTATED with the MODIFICATION that the award of attorney's fees is DELETED. AGERICO CASTRO. Defendant-Appellant. and HONORABLE INTERMEDIATE APPELLATE COURT. for transmission. . vs. Pangasinan. Being a stranger to such arrangements. IGNACIO CASTRO.: Petition for review on certiorari of the decision * of the Intermediate Appellate Court. 73867 February 29.000). Scottsburg. ROLANDO CASTRO. Award of Attorney's Fees to Petitioner Improper The trial court awarded attorney's fees to petitioner as it "deemed it just and reasonable"17 to do so. Inc. however. dated 11 February 1986. however. We find it unnecessary to pass upon the question whether an implied trust arose between the parties.R. attorney's fees may be awarded if the trial court "deems it just and equitable. entitled "Ignacio Castro. CONRADO CASTRO. addressed a telegram to plaintiff Ignacio Castro. and mother of the other plaintiffs. dated 19 November 2012. dated 5 December 2008. passed away in Lingayen.

Gloria Castro. Crouch and the award of P1.00 as moral damages.000. as follows.00 attorney's fees. returned for the burial.00 to each of the private respondents as exemplary damages. P10. Rolando Castro.000.000.000. Ignacio Castro Jr. 2 On appeal by petitioner. P31.000. Jr. P10. 4.000. Aurora Castro. P10. ordered the defendant (now petitioner) to pay the plaintiffs (now private respondents) damages..000.000. 6.000. Neither the husband nor any of the other children of the deceased. P10.00 as moral damages. 8. Sofia C.000. 10. 12. P10. 3 .00 moral damages.. Ignacio Castro.000. Floro was also reduced to P120.000 moral damages. she discovered that the wire she had caused the defendant to send.00 as compensatory damages and P20. P10. 2. The Court of First Instance of Pangasinan. 9. P20. 11. P20.000. with interest at 6% per annum: 1. the Intermediate Appellate Court affirmed the trial court's decision but eliminated the award of P16.000. P10.000. after trial. The case was filed in the Court of First Instance of Pangasinan and docketed therein as Civil Case No. Conrado Castro.000. Agerico Castro.000. The award of P20. had not been received.00 moral damages. Ignacio Castro Sr. 7. 5. P20.000. The only defense of the defendant was that it was unable to transmit the telegram because of "technical and atmospheric factors beyond its control. Virgilio Castro. P10.00 moral damages.00 as moral damages.00 as moral damages to each of Sofia C.00 moral damages.The telegram never reached its addressee. Crouch as to why it could not transmit the telegram. Crouch. Crouch. then all residing in the United States. Floro. Consolacion was interred with only her daughter Sofia in attendance.00 moral damages.00 to each of the plaintiffs and costs.000." 1 No evidence appears on record that defendant ever made any attempt to advise the plaintiff Sofia C. Esmeralda C.92 and P16. exemplary damages in the amount of P1. Salvador Castro.00 as compensatory damages to Sofia C. and Esmeralda C. When Sofia returned to the United States. 15356. Defendant is also ordered to pay P5. She and the other plaintiffs thereupon brought action for damages arising from defendant's breach of contract. 3.00 moral damages.00 moral damages.00 moral damages. 00 for each. Mario Castro.

Petitioner appeals from the judgment of the appellate court.00 as compensatory damages to Sofia C. moral damages may be recovered if they are the proximate results of the defendant's wrongful act or omission. 2217 of the Civil Code applicable to the case at bar. Though incapable of pecuniary computation. Petitioner was therefore guilty of contravening its obligation to said private respondent and is thus liable for damages. contending that the award of moral damages should be eliminated as defendant's negligent act was not motivated by "fraud." In the case at bar. wounded feelings. Crouch's testimony. under petitioner's theory. was precisely the cause of the suffering private respondents had to undergo. Crouch representing the expenses she incurred when she came to the Philippines from the United States to testify before the trial court. the mental anguish and the sorrow that the overseas children must have suffered upon learning of the death of their mother after she had already been interred. To sustain petitioner's contrary position in this regard would result in an inequitous situation where petitioner will only be held liable for the actual cost of a telegram fixed thirty (30) years ago. As the appellate court properly observed: [Who] can seriously dispute the shock. Petitioner's contention is without merit. petitioner undertook to send said private respondent's message overseas by telegram.000. which amounted to gross negligence. there would have been no need for this suit or for Mrs. This. the fee or charges paid by Sofia C. sustained in the amount of P1. Crouch for the telegram that was never sent to the addressee thereof. and those who in any manner contravene the tenor thereof." Art. 2176 also provides that "whoever by act or omission causes damage to another. mental anguish. it can only be held liable for P 31.000. petitioner's act or omission. Had petitioner not been remiss in performing its obligation. It states: "Moral damages include physical suffering. despite performance by said private respondent of her obligation by paying the required charges. are liable for damages. and similar injury. therefore." In other words. fright. petitioner did not do.92. Here.00 for each of the private respondents. for a fee. without being given the opportunity to even make a choice on whether they wanted to pay her their last respects? There is no doubt that these emotional sufferings were proximately caused by appellant's omission and substantive law provides for the justification for the award of moral damages. malice or recklessness. petitioner and private respondent Sofia C. This liability is not limited to actual or quantified damages. is obliged to pay for the damage done. 4 We also sustain the trial court's award of P16. social humiliation. We find Art. . Art. negligence or delay. moral shock. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud. serious anxiety. there being fault or negligence. The award of exemplary damages by the trial court is likewise justified and. as a warning to all telegram companies to observe due diligence in transmitting the messages of their customers. besmirched reputation. Crouch entered into a contract whereby." (Emphasis supplied).

000. July 2. On June 20. Attached to the letter was a list of establishments affected which included plaintiffs Leoncio and Matilde Ramoy (Exh. 1993. Record).000. 1990 NPC wrote Meralco requesting for the "immediate disconnection of electric power supply to all residential and commercial establishments beneath the NPC transmission lines along Baesa.00 as compensatory damages. On April 28.000.WHEREFORE. (4) P5. (2) P1. 7.00 as moral damages. to each of private respondents. 2-C. ROSEMARIE RAMOY. 2003. TSN.00 as exemplary damages. 2-B. BIENVENIDO RAMOY.00 as attorney's fees.000. 5). J. the Court found that he was occupying a portion of Lot No. 128-131. one of the plaintiffs in the case at bar. DECISION AUSTRIA-MARTINEZ. OFELIA DURIAN and CYRENE PANADO. be reversed and set aside. Among the defendants in the ejectment case was Leoncio Ramoy. accurately summarized the facts as culled from the records. 9). and (5) Costs of suit. Branch 81. 1989 after the defendants failed to file an answer in spite of summons duly served. ordering petitioner Manila Electric Company (MERALCO) to pay Leoncio Ramoy2 moral and exemplary damages and attorney's fees. The Regional Trial Court (RTC) of Quezon City. p. p. (3) P16. Petitioner. 2002. 2008 MANILA ELECTRIC COMPANY. the petition is DENIED. 158911 March 4. vs. Respondents. to private respondent Sofia C. Crouch. Quezon City. Quezon City rendered judgment for the plaintiff [MERALCO] and "ordering the defendants to demolish or remove the building and structures they built on the land of the plaintiff and to vacate the premises." In the case of Leoncio Ramoy.R. thus: The evidence on record has established that in the year 1987 the National Power Corporation (NPC) filed with the MTC Quezon City a case for ejectment against several persons allegedly illegally occupying its properties in Baesa. 143.: This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court. 72-B-2-B with the exact location of his apartments indicated and encircled in the location map as No. G. 7. denying petitioner's motion for reconsideration. The decision appealed from is modified so that petitioner is held liable to private respondents in the following amounts: (1) P10. A copy of the decision was furnished Leoncio Ramoy (Exhibits 2. No. praying that the Decision1 of the Court of Appeals (CA) dated December 16. ROMANA RAMOY-RAMOS. the MTC Branch 36. 2-A. Record. pp. and the CA Resolution3 dated July 1. to each of private respondents. MATILDE MACABAGDAL RAMOY. Quezon City (Exh. as well as a copy of the court . SO ORDERED.

a portion of which was occupied by plaintiffs Rosemarie Ramoy. Thus. When the Meralco employees were disconnecting plaintiffs' power connection. the CA held MERALCO liable for moral and exemplary damages and attorney's fees. July 1994. Meralco decided to comply with NPC's request (Exhibits 6. 6-B) and thereupon issued notices of disconnection to all establishments affected including plaintiffs Leoncio Ramoy (Exhs. 2002. Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E). MERALCO's motion for reconsideration of the Decision was denied per Resolution dated July 1. with submarkings. Hence. Shortly thereafter. However. Panado as lessees. 326346. TSN. Record). Panado (Exh. pp. exemplary damages and attorney's fees. In due time. 12). Monsale III on cross-examination (TSN.. During the ocular inspection ordered by the Court and attended by the parties. 14). Jose Valiza (Exh.4 The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral damages. 3-A to 3-C). p. 3-H) and Cyrene S. Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a parcel of land covered by TCT No. 6-A-1. . The record also shows that at the request of NPC. This was confirmed by defendant's witness R. herein petition for review on certiorari on the following grounds: I THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO NEGLIGENT WHEN IT DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF RESPONDENTS. Jose Valiza and Cyrene S. Ofelia Durian. 2). After deliberating on NPC's letter. After the electric power in Ramoy's apartment was cut off. it was found out that the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside the NPC property. a joint survey was conducted and the NPC personnel pointed out the electric meters to be disconnected (Exh. 3-G). 1993. 6-A. the electric service connection of the plaintiffs [herein respondents] was disconnected (Exhibits D to G. 10 and 11). TSN. plaintiff Leoncio Ramoy objected by informing the Meralco foreman that his property was outside the NPC property and pointing out the monuments showing the boundaries of his property. 7. Rosemarie Ramoy (Exh. he was threatened and told not to interfere by the armed men who accompanied the Meralco employees. 14). In its Decision dated December 16. 8).P. However. 2003. 13. the CA faulted MERALCO for not requiring from National Power Corporation (NPC) a writ of execution or demolition and in not coordinating with the court sheriff or other proper officer before complying with the NPC's request. the plaintiffs-lessees left the premises. 1993. 3-I). 86-87. 1990 Meralco requested NPC for a joint survey to determine all the establishments which are considered under NPC property in view of the fact that "the houses in the area are very close to each other" (Exh. pp. In a letter dated August 17. p. 3-F). Ofelia Durian (Exh. Monsale also admitted that he did not inform his supervisor about this fact nor did he recommend re-connection of plaintiffs' power supply (Ibid. p. October 13. October 8. 3. defendant Meralco re-connected the electric service of four customers previously disconnected none of whom was any of the plaintiffs (Exh. the RTC ordered MERALCO to restore the electric power supply of respondents. Respondents then appealed to the CA.decision (Exh.

" which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made. to excuse him from his ensuing liability.8 the Court expounded on the nature of culpa contractual. will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof." which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed. or delay."7 MERALCO argues that since there is a Decision of the Metropolitan Trial Court (MTC) of Quezon City ruling that herein respondents were among the illegal occupants of the NPC's right of way. MERALCO was justified in cutting off service to respondents." which is his interest in having restored to him any benefit that he has conferred on the other party. The Court emphasized in Ridjo Tape & Chemical Corporation v. are liable for damages. v. prima facie. to make recompense to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances. Nevertheless. that is. MERALCO disconnected its power supply to respondents on the ground that they were illegally occupying the NPC's right of way. negligence. or his "reliance interest. and those who in any manner contravene the tenor thereof. recognizing the obligatory force of contracts. either for their makers or for society. respondents' cause of action against MERALCO is anchored on culpa contractual or breach of contract for the latter's discontinuance of its service to respondents under Article 1170 of the Civil Code which provides: Article 1170. Under the Service Contract. The remedy serves to preserve the interests of the promissee that may include his "expectation interest. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. II THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES AGAINST MERALCO UNDER THE CIRCUMSTANCES THAT THE LATTER ACTED IN GOOD FAITH IN THE DISCONNECTION OF THE ELECTRIC SERVICES OF THE RESPONDENTS. unless they are made the basis for action. agreements can accomplish little.9 (Emphasis supplied) Article 1173 also provides that the fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons. MERALCO admits6 that respondents are its customers under a Service Contract whereby it is obliged to supply respondents with electricity. In Radio Communications of the Philippines. MERALCO has the obligation to discharge its functions with utmost care and diligence. Indeed. of the time and of the place. "[a] customer of electric service must show his right or proper interest over the property in order that he will be provided with and assured a continuous electric service. The law. Inc. like proof of his exercise of due diligence x x x or of the attendance of fortuitous event. Verchez. Those who in the performance of their obligations are guilty of fraud. thus: "In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify. upon request of the NPC. Clearly. or his "restitution interest. 5 The petition is partly meritorious. a corresponding right of relief. Court of Appeals10 that "as a public utility."11 . The effect of every infraction is to create a new duty.

Moreover. MERALCO wilfully caused injury to Leoncio Ramoy by withholding from him and his tenants the supply of electricity to which they were entitled under the Service Contract. due to the lack of power supply. This is contrary to public policy because. MERALCO is impressed with certain obligations towards its customers and any omission on its part to perform such duties would be prejudicial to its interest. the bottom line is that those who do not exercise such prudence in the discharge of their duties shall be made to bear the consequences of such oversight. and its provider is a public utility subject to strict regulation by the State in the exercise of police power. there is no evidence on record to show that this was done by MERALCO.12 the Court explained: [B]eing a public utility vested with vital public interest. Although MERALCO insists that the MTC Decision is final and executory. The next question is: Are respondents entitled to moral and exemplary damages and attorney's fees? Article 2220 of the Civil Code provides: Article 2220. Quijano14 that: Electricity is a basic necessity the generation and distribution of which is imbued with public interest. such damages are justly due.17 Clearly. as discussed above. Verily. MERALCO is liable for damages under Article 1170 of the Civil Code. under the circumstances. the lessees of his four apartments on subject lot left the premises. Willful injury to property may be a legal ground for awarding moral damages if the court should find that. only upon finality of said Decision can it be said with conclusiveness that respondents have no right or proper interest over the subject property. its customer. MERALCO's failure to exercise utmost care and diligence in the performance of its obligation to Leoncio Ramoy. it was not enough for MERALCO to merely rely on the Decision of the MTC without ascertaining whether it had become final and executory. and failure to exercise the diligence required means that MERALCO was at fault and negligent in the performance of its obligation.15 (Emphasis supplied) Thus. being a vital public utility.13 This being so. it never showed any documentary evidence to support this allegation. is expected to exercise utmost care and diligence in the performance of its obligation. Leoncio Ramoy is entitled to moral damages in the amount awarded by the CA. thus. Failure to comply with these regulations will give rise to the presumption of bad faith or abuse of right. In Ridjo Tape.The Court agrees with the CA that under the factual milieu of the present case. Likewise. The utmost care and diligence required of MERALCO necessitates such great degree of prudence on its part. The Court emphasized in Samar II Electric Cooperative. the most prudent thing for MERALCO to have done was to coordinate with the proper court officials in determining which structures are covered by said court order. It was incumbent upon MERALCO to do everything within its power to ensure that the improvements built by respondents are within the NPC’s right of way before disconnecting their power supply. are not entitled to the services of MERALCO. . therefore. Inc. For in the final analysis. MERALCO failed to exercise the utmost degree of care and diligence required of it. MERALCO. In the present case. is tantamount to bad faith. if it were true that the decision was final and executory. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. v. To repeat. Leoncio Ramoy testified that he suffered wounded feelings because of MERALCO's actions.16 Furthermore. by analogy.

Leoncio Ramoy, the lone witness for respondents, was the only one who testified regarding the
effects on him of MERALCO's electric service disconnection. His co-respondents Matilde Ramoy,
Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did not present any evidence of damages
they suffered.

It is a hornbook principle that damages may be awarded only if proven. In Mahinay v. Velasquez,
Jr.,18 the Court held thus:

In order that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like. While respondent alleged in his complaint that he
suffered mental anguish, serious anxiety, wounded feelings and moral shock, he failed to prove
them during the trial. Indeed, respondent should have taken the witness stand and should have
testified on the mental anguish, serious anxiety, wounded feelings and other emotional and mental
suffering he purportedly suffered to sustain his claim for moral damages. Mere allegations do not
suffice; they must be substantiated by clear and convincing proof. No other person could have
proven such damages except the respondent himself as they were extremely personal to him.

In Keirulf vs. Court of Appeals, we held:

"While no proof of pecuniary loss is necessary in order that moral damages may be awarded, the
amount of indemnity being left to the discretion of the court, it is nevertheless essential that the
claimant should satisfactorily show the existence of the factual basis of damages and its causal
connection to defendant’s acts. This is so because moral damages, though incapable of pecuniary
estimation, are in the category of an award designed to compensate the claimant for actual injury
suffered and not to impose a penalty on the wrongdoer. In Francisco vs. GSIS, the Court held
that there must be clear testimony on the anguish and other forms of mental suffering. Thus, if
the plaintiff fails to take the witness stand and testify as to his/her social humiliation, wounded
feelings and anxiety, moral damages cannot be awarded. In Cocoland Development Corporation vs.
National Labor Relations Commission, the Court held that "additional facts must be pleaded and
proven to warrant the grant of moral damages under the Civil Code, these being, x x x social
humiliation, wounded feelings, grave anxiety, etc. that resulted therefrom."

x x x The award of moral damages must be anchored to a clear showing that respondent actually
experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings or similar
injury. There was no better witness to this experience than respondent himself. Since respondent
failed to testify on the witness stand, the trial court did not have any factual basis to award
moral damages to him.19 (Emphasis supplied)

Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings, may be awarded
moral damages.20

With regard to exemplary damages, Article 2232 of the Civil Code provides that in contracts and
quasi-contracts, the court may award exemplary damages if the defendant, in this case MERALCO,
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, while Article 2233 of the
same Code provides that such damages cannot be recovered as a matter of right and the
adjudication of the same is within the discretion of the court.
1avv phi 1

The Court finds that MERALCO fell short of exercising the due diligence required, but its actions
cannot be considered wanton, fraudulent, reckless, oppressive or malevolent. Records show that
MERALCO did take some measures, i.e., coordinating with NPC officials and conducting a joint
survey of the subject area, to verify which electric meters should be disconnected although these

measures are not sufficient, considering the degree of diligence required of it. Thus, in this case,
exemplary damages should not be awarded.

Since the Court does not deem it proper to award exemplary damages in this case, then the CA's
award for attorney's fees should likewise be deleted, as Article 2208 of the Civil Code states that in
the absence of stipulation, attorney's fees cannot be recovered except in cases provided for in
said Article, to wit:

Article 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

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

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney’s fees and
expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

None of the grounds for recovery of attorney's fees are present.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals
is AFFIRMED with MODIFICATION. The award for exemplary damages and attorney's fees
is DELETED.

SECOND DIVISION

MINDANAO TERMINAL AND G.R. No. 162467
BROKERAGE SERVICE, INC.

Petitioner, Present:

- versus - CARPIO MORALES ,* JJ.,
Acting Chairperson,
TINGA,
PHOENIX ASSURANCE VELASCO, JR.,
COMPANY OF NEW YORK/ LEONARDO DE CASTRO,** and
MCGEE & CO., INC., BRION, JJ.
Respondent.
Promulgated:
May 8, 2009
x------------------------------------------------------------------------------------x

DECISION
TINGA, J.:
Before us is a petition for review on certiorari[1] under Rule 45 of the 1997 Rules of
Civil Procedure of the 29 October 2003[2] Decision of the Court of Appeals and
the 26 February 2004 Resolution[3] of the same court denying petitioners motion
for reconsideration.

The facts of the case are not disputed.

Del Monte Philippines, Inc. (Del Monte) contracted petitioner Mindanao
Terminal and Brokerage Service, Inc. (Mindanao Terminal), a stevedoring
company, to load and stow a shipment of 146,288 cartons of fresh green Philippine
bananas and 15,202 cartons of fresh pineapples belonging to Del Monte Fresh
Produce International, Inc. (Del Monte Produce) into the cargo hold of the
vessel M/V Mistrau. The vessel was docked at the port of Davao City and the
goods were to be transported by it to the port of Inchon, Korea in favor of
consignee Taegu Industries, Inc. Del Monte Produce insured the shipment under an
open cargo policy with private respondent Phoenix Assurance Company of New
York (Phoenix), a non-life insurance company, and private respondent McGee &
Co. Inc. (McGee), the underwriting manager/agent of Phoenix.[4]

Mindanao Terminal loaded and stowed the cargoes aboard the M/V Mistrau. The
vessel set sail from the port of Davao City and arrived at the port of Inchon, Korea.

It was then discovered upon discharge that some of the cargo was in bad condition.
The Marine Cargo Damage Surveyor of Incok Loss and Average Adjuster of
Korea, through its representative Byeong Yong Ahn (Byeong), surveyed the extent
of the damage of the shipment. In a survey report, it was stated that 16,069 cartons
of the banana shipment and 2,185 cartons of the pineapple shipment were so
damaged that they no longer had commercial value.[5]

Del Monte Produce filed a claim under the open cargo policy for the damages to its
shipment. McGees Marine Claims Insurance Adjuster evaluated the claim and
recommended that payment in the amount of $210,266.43 be made. A check for
the recommended amount was sent to Del Monte Produce; the latter then issued a
subrogation receipt[6] to Phoenix and McGee.

Phoenix and McGee instituted an action for damages[7] against Mindanao Terminal
in the Regional Trial Court (RTC) of Davao City, Branch 12. After trial, the
RTC,[8] in a decision dated 20 October 1999, held that the only participation of
Mindanao Terminal was to load the cargoes on board the M/V Mistrau under the
direction and supervision of the ships officers, who would not have accepted the
cargoes on board the vessel and signed the foremans report unless they were
properly arranged and tightly secured to withstand voyage across the open seas.
Accordingly, Mindanao Terminal cannot be held liable for whatever happened to
the cargoes after it had loaded and stowed them. Moreover, citing the survey report,
it was found by the RTC that the cargoes were damaged on account of a typhoon
which M/V Mistrau had encountered during the voyage. It was further held
that Phoenix and McGee had no cause of action against Mindanao Terminal
because the latter, whose services were contracted by Del Monte, a distinct
corporation from Del Monte Produce, had no contract with the assured Del Monte
Produce. The RTC dismissed the complaint and awarded the counterclaim of
Mindanao Terminal in the amount of P83,945.80 as actual damages
and P100,000.00 as attorneys fees.[9]The actual damages were awarded as
reimbursement for the expenses incurred by Mindanao Terminals lawyer in
attending the hearings in the case wherein he had to travel all the way from Metro
Manila to Davao City.

Phoenix and McGee appealed to the Court of Appeals. The appellate court
reversed and set aside[10] the decision of the RTC in its 29 October 2003 decision.

The same court ordered Mindanao Terminal to pay Phoenix and McGee the total
amount of $210,265.45 plus legal interest from the filing of the complaint until
fully paid and attorneys fees of 20% of the claim.[11] It sustained Phoenixs and
McGees argument that the damage in the cargoes was the result of improper
stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as the
stevedore of the cargo, the duty to exercise extraordinary diligence in loading and
stowing the cargoes. It further held that even with the absence of a contractual
relationship between Mindanao Terminal and Del Monte Produce, the cause of
action of Phoenix and McGee could be based on quasi-delict under Article 2176 of
the Civil Code.[12]

Mindanao Terminal filed a motion for reconsideration,[13] which the Court of
Appeals denied in its 26 February 2004[14] resolution. Hence, the present petition
for review.

Mindanao Terminal raises two issues in the case at bar, namely: whether it
was careless and negligent in the loading and stowage of the cargoes onboard M/V
Mistrau making it liable for damages; and, whether Phoenix and McGee has a
cause of action against Mindanao Terminal under Article 2176 of the Civil Code
on quasi-delict. To resolve the petition, three questions have to be answered: first,
whether Phoenix and McGee have a cause of action against Mindanao Terminal;
second, whether Mindanao Terminal, as a stevedoring company, is under
obligation to observe the same extraordinary degree of diligence in the conduct of
its business as required by law for common carriers[15] and warehousemen;[16] and
third, whether Mindanao Terminal observed the degree of diligence required by
law of a stevedoring company.

We agree with the Court of Appeals that the complaint filed by Phoenix and
McGee against Mindanao Terminal, from which the present case has arisen, states
a cause of action. The present action is based on quasi-delict, arising from the
negligent and careless loading and stowing of the cargoes belonging to Del Monte
Produce. Even assuming that both Phoenix and McGee have only been subrogated
in the rights of Del Monte Produce, who is not a party to the contract of service
between Mindanao Terminal and Del Monte, still the insurance carriers may have a
cause of action in light of the Courts consistent ruling that the act that breaks the
contract may be also a tort.[17] In fine, a liability for tort may arise even under a

contract, where tort is that which breaches the contract[18]. In the present
case, Phoenix and McGee are not suing for damages for injuries arising from the
breach of the contract of service but from the alleged negligent manner by which
Mindanao Terminal handled the cargoes belonging to Del Monte Produce. Despite
the absence of contractual relationship between Del Monte Produce and Mindanao
Terminal, the allegation of negligence on the part of the defendant should be
sufficient to establish a cause of action arising from quasi-delict.[19]

The resolution of the two remaining issues is determinative of the ultimate
result of this case.

Article 1173 of the Civil Code is very clear that if the law or contract does
not state the degree of diligence which is to be observed in the performance of an
obligation then that which is expected of a good father of a family or ordinary
diligence shall be required. Mindanao Terminal, a stevedoring company which was
charged with the loading and stowing the cargoes of Del Monte Produce
aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There
is no specific provision of law that imposes a higher degree of diligence than
ordinary diligence for a stevedoring company or one who is charged only with the
loading and stowing of cargoes. It was neither alleged nor proven by Phoenix and
McGee that Mindanao Terminal was bound by contractual stipulation to observe a
higher degree of diligence than that required of a good father of a family. We
therefore conclude that following Article 1173, Mindanao Terminal was required
to observe ordinary diligence only in loading and stowing the cargoes of Del
Monte Produce aboard M/V Mistrau.

The Court of Appeals erred when it cited the case of Summa Insurance
Corporation v. CA and Port Service Inc.[20] in imposing a higher degree of
diligence,[21] on Mindanao Terminal in loading and stowing the cargoes. The case
of Summa Insurance Corporation v. CA, which involved the issue of whether an
arrastre operator is legally liable for the loss of a shipment in its custody and the
extent of its liability, is inapplicable to the factual circumstances of the case at bar.
Therein, a vessel owned by the National Galleon Shipping Corporation (NGSC)
arrived at Pier 3, South Harbor, Manila, carrying a shipment consigned to the order
of Caterpillar Far East Ltd. with Semirara Coal Corporation (Semirara) as "notify
party." The shipment, including a bundle of PC 8 U blades, was discharged from

the vessel to the custody of the private respondent, the exclusive arrastre operator
at the South Harbor.Accordingly, three good-order cargo receipts were issued by
NGSC, duly signed by the ship's checker and a representative of private respondent.
When Semirara inspected the shipment at house, it discovered that the bundle of
PC8U blades was missing. From those facts, the Court observed:

x x x The relationship therefore between the consignee and the
arrastre operator must be examined. This relationship is much akin
to that existing between the consignee or owner of shipped goods and
the common carrier, or that between a depositor and a
warehouseman[[22]]. In the performance of its obligations, an arrastre
operator should observe the same degree of diligence as that
required of a common carrier and a warehouseman as enunciated
under Article 1733 of the Civil Code and Section 3(b) of the
Warehouse Receipts Law, respectively. Being the custodian of the
goods discharged from a vessel, an arrastre operator's duty is to
take good care of the goods and to turn them over to the party
entitled to their possession. (Emphasis supplied)[23]

There is a distinction between an arrastre and a stevedore.[24] Arrastre, a Spanish
word which refers to hauling of cargo, comprehends the handling of cargo on the
wharf or between the establishment of the consignee or shipper and the ship's
tackle. The responsibility of the arrastre operator lasts until the delivery of the
cargo to the consignee. The service is usually performed by longshoremen. On the
other hand, stevedoring refers to the handling of the cargo in the holds of the vessel
or between the ship's tackle and the holds of the vessel. The responsibility of the
stevedore ends upon the loading and stowing of the cargo in the vessel.

It is not disputed that Mindanao Terminal was performing purely
stevedoring function while the private respondent in the Summa case was
performing arrastre function. In the present case, Mindanao Terminal, as a
stevedore, was only charged with the loading and stowing of the cargoes from the
pier to the ships cargo hold; it was never the custodian of the shipment of Del
Monte Produce. A stevedore is not a common carrier for it does not transport
goods or passengers; it is not akin to a warehouseman for it does not store goods
for profit. The loading and stowing of cargoes would not have a far reaching public

The Court of Appeals did not make any new findings of fact when it reversed the decision of the trial court.[33] Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn[34] and on the survey report[35] of the damage to the cargoes.[32] The said ship officers would not have accepted the cargoes on board the vessel if they were not properly arranged and tightly secured to withstand the voyage in open seas. was prepared by the checkers of Mindanao Terminal and concurred in by the Chief Officer of M/V Mistrau after they were satisfied that the cargoes were properly loaded. the public is adequately protected by our laws on contract and on quasi-delict. Where the evidence on an issue of fact is in equipoise or there is any doubt on which side the evidence preponderates the party having the burden of proof fails upon that issue.[30] It was further established that Mindanao Terminal loaded and stowed the cargoes of Del Monte Produce aboard the M/V Mistrau in accordance with the stowage plan.ramification as that of a common carrier and a warehouseman.[28] which are not disputed by Phoenix and McGee. [26] We adopt the findings[27] of the RTC. the party holding the affirmative as to such fact must fail. In the third issue. A foremans report. whose testimony . a guide for the area assignments of the goods in the vessels hold. They would order the stevedore to rectify any error in its loading and stowing. Phoenix and McGee failed to prove by preponderance of evidence[25] that Mindanao Terminal had acted negligently. or if it leaves the mind in a state of perplexity.[31] The loading and stowing was done under the direction and supervision of the ship officers. used in lashing and rigging the cargoes were all provided by M/V Mistrau and these materials meets industry standard. as proof of work done on board the vessel. prepared by Del Monte Produce and the officers of M/V Mistrau. That is to say. The vessels officer would order the closing of the hatches only if the loading was done correctly after a final inspection. pallets. rational belief of its existence. if the evidence touching a disputed fact is equally balanced. Byeong.[29] It was not disputed by Phoenix and McGee that the materials. or if it does not produce a just. and cardboards. The only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau. The public policy considerations in legally imposing upon a common carrier or a warehouseman a higher degree of diligence is not present in a stevedoring outfit which mainly provides labor in loading and stowing of cargoes for its clients. such as ropes.

However. In other words. as encountered by M/V Mistrau during its voyage. The present case is clearly not an unfounded civil action against the plaintiff . are provided for by the vessel. we are of the opinion that damage occurred aboard the carrying vessel during sea transit. shift and bruise in extensive extent. How and where it should load and stow a shipment in a vessel is wholly dependent on the shipper and the officers of the vessel. 1994 as described in the sea protest. the grant of the petition is in order. the Court finds no basis for the award of attorneys fees in favor of petitioner. and the use of small rope to tie the cartons together but not by the negligent conduct of Mindanao Terminal in loading and stowing the cargoes. pallets. which caused the shipments in the cargo hold to collapse. the work of the stevedore was under the supervision of the shipper and officers of the vessel. Even the survey report found that it was because of the boisterous stormy weather due to the typhoon Seth.was refreshed by the survey report.[36] found that the cause of the damage was improper stowage[37] due to the manner the cargoes were arranged such that there were no spaces between cartons. Even the materials used for stowage. which is the ordinary diligence of a good father of a family. As admitted by Phoenix and McGee in their Comment[38] before us. such as ropes. and cardboards. the use of cardboards as support system. being caused by ships heavy rolling and pitching under boisterous weather while proceeding from 1600 hrs on 7th October to 0700 hrs on 12th October. None of the circumstances enumerated in Article 2208 of the Civil Code exists.[39] Even the deposition of Byeong was not supported by the conclusion in the survey report that: CAUSE OF DAMAGE xxx From the above facts and our survey results. the latter is merely a stevedoring company which was tasked by Del Monte to load and stow the shipments of fresh banana and pineapple of Del Monte Produce aboard the M/V Mistrau.[40] As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading and stowing the cargoes.

The dispositive portion of the Intermediate Appellate Court's decision is as follows: WHEREFORE.80 actual damages to Mindanao Terminal. CITY OF MANILA and INTERMEDIATE APPELLATE COURT.[42] WHEREFORE.311. 2). even if erroneously. Rollo) The findings of respondent Appellate Court are as follows: .00 as attorney's fees.[41] Likewise.90 actual medical expenses.R.000. 25. the RTC erred in awarding P83. as well as other miscellaneous expenses. respondents.00 as attorneys fees and P83.00 for the amount paid for the operation and management of a school bus. Branch XXII in Civil Case No.00 as moral damages due to pains.R. G.80 as actual damages. P900. 66121 is SET ASIDE and the decision of the Regional Trial Court of DavaoCity. Asiatic Integrated Corporation and City of Manila. But there is no showing that Phoenix and McGee made a false claim against Mindanao Terminal resulting in the protracted trial of the case necessitating the incurrence of expenditures. A new one is hereby entered ordering the defendant Asiatic Integrated Corporation to pay the plaintiff P221. but only insofar as holding Asiatic Integrated Corporation solely liable for damages and attorney's fees instead of making the City of Manila jointly and solidarily liable with it as prayed for by the petitioner and (2) the resolution of the same Appellate Court denying his Partial Motion for Reconsideration (Rollo.97 is hereby REINSTATED MINUS the awards of P100. Branch 12 in Civil Case No. the decision appealed from is hereby REVERSED.000. hotel accommodations and food. (p. PARAS. J. No.945. P20. The decision of the Court of Appeals in CA-G. vs.as there is no showing that it was instituted for the mere purpose of vexation or injury. 71049 May 29. No. the petition is GRANTED. Although actual expenses were incurred by Mindanao Terminal in relation to the trial of this case in Davao City. p.945. petitioner.R. as he attended the trials coming all the way from Manila. reversing the decision ** of the Court of First Instance of Manila. SO ORDERED. 013887-CV Bernardino Jimenez v. 20. 96390 between the same parties. CV No.: This is a petition for review on certiorari of: (1) the decision * of the Intermediate Appellate Court in AC-G. the lawyer of Mindanao Terminal incurred expenses for plane fare. sufferings and sleepless nights and P l0. It is not sound public policy to set a premium to the right to litigate where such right is exercised in good faith. 1987 BERNARDINO JIMENEZ.000.

p. 51). the same having been assigned to a member of said Division (Rollo. causing a dirty and rusty four. He felt ill and developed fever and he had to be carried to Dr. this case was transferred to the Second Division of this Court. The lone assignment of error raised in this petition is on whether or not the Intermediate Appellate Court erred in not ruling that respondent City of Manila should be jointly and severally liable with Asiatic Integrated Corporation for the injuries petitioner suffered. 13- 20). In the resolution of October 13. Despite the medicine administered to him by the latter. Rollo. 34) while petitioner filed its reply on August 21. 1985 (Rollo. 92). p. Upon his discharge from the hospital. 1985 (Rollo. 1985 of the First Division of this Court (Rollo. Juanita Mascardo. Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation under whose administration the Sta. the dispositive portion of the decision reading: WHEREFORE. CV No. 47). He was then rushed to the Veterans Memorial Hospital where he had to be confined for twenty (20) days due to high fever and severe pain. Hence this petition. to pierce the left leg of plaintiff-petitioner penetrating to a depth of about one and a half inches.inch nail. 96390. As above stated. For lack of sufficient evidence. his companions helped him hobble home.R. Thereafter. together with his neighbors. p. 82). 29) respondent City of Manila filed its comment on August 13. stuck inside the uncovered opening. 1974 he. he had to walk around with crutches for fifteen (15) days. Rollo. . p. 65) while respondent filed its memorandum on October 24. 62) gave due course to the petition and required both parties to submit simultaneous memoranda Petitioner filed his memorandum on October 1. p. pp. went to Sta. The lower court decided in favor of respondents. 1986. judgment is hereby rendered in favor of the defendants and against the plaintiff dismissing the complaint with costs against the plaintiff. Ana Public Market had been placed by virtue of a Management and Operating Contract (Rollo. the counterclaims of the defendants are likewise dismissed. 1985 (Rollo. Civil Case No. p. p.00). Ana public market to buy "bagoong" at the time when the public market was flooded with ankle deep rainwater. 1985 (Reno. p. His injury prevented him from attending to the school buses he is operating.The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15. on appeal. 1985 (Rollo. In compliance with the resolution of July 1. 01387. After administering first aid treatment at a nearby drugstore. (Decision. 42). p. the Court in the resolution of September 11. he had to engage the services of one Bienvenido Valdez to supervise his business for an aggregate compensation of nine hundred pesos (P900. After purchasing the "bagoong" he turned around to return home but he stepped on an uncovered opening which could not be seen because of the dirty rainwater. his left leg swelled with great pain. As a result. AC-G. the Intermediate Appellate Court held the Asiatic Integrated Corporation liable for damages but absolved respondent City of Manila. (Decision.

city or municipality from which responsibility is exacted. Municipal Board. This issue has been laid to rest in the case of City of Manila v. or from negligence of said Mayor. or other officers while enforcing or attempting to enforce said provisions. public buildings. bridges. It has also been argued that the City of Manila cannot be held liable under Article 1. liable for damages for the death of. 409 establishes a general rule regulating the liability of the City of Manila for "damages or injury to persons or property arising from the failure of city officers" to enforce the provisions of said Act. No. thereof. streets. while Article 2189 of the Civil Code governs liability due to "defective streets. regardless of the object. or any other City Officer. R. the Supreme Court clarified further that under Article 2189 of the Civil Code. to enforce the provisions of this chapter. or any other law or ordinance. As correctly found by the Intermediate Appellate Court. (Decision. cities and municipalities . and other public works under their control or supervision. Section 4 of Republic Act No. Municipal Board. the Municipal Board. or any other officers while enforcing or attempting to enforce said provisions. CV No. 409 refers to liability arising from negligence. 409 as amended (Revised Charter of Manila) which provides: The City shall not be liable or held for damages or injuries to persons or property arising from the failure of the Mayor. that the defective public works belong to the province. p.A. Defendants do not deny that plaintiff was in fact injured although the Asiatic Integrated Corporation tries to minimize the extent of the injuries. AC-G. bridges. Respondent City of Manila maintains that it cannot be held liable for the injuries sustained by the petitioner because under the Management and Operating Contract. 01387. it is not necessary for the liability therein established to attach. cities and municipalities shall be liable for damages for the death of. 4. public buildings and other public works under their control or supervision. Asiatic Integrated Corporation assumed all responsibility for damages which may be suffered by third persons for any cause attributable to it. or injuries suffered by any person by reason of defective conditions of roads. sec. 1.. public buildings and other public works" in particular and is therefore decisive on this specific case. streets. 6). or injury suffered by any person by reason" — specifically — "of the defective condition of roads. Art. constitutes a particular prescription making "provinces. "or any other law or ordinance or from negligence" of the City "Mayor.. . Teotico (22 SCRA 269-272 [1968]) where the Supreme Court squarely ruled that Republic Act No." In other words. Ana Public Market. What said article requires is that the province." Upon the other hand. claiming that it was only a small puncture and that as a war veteran. in general. plaintiff's hospitalization at the War Veteran's Hospital was free. there is no doubt that the plaintiff suffered injuries when he fell into a drainage opening without any cover in the Sta. In the same suit.The petition is impressed with merit.R. Rollo. city or municipality has either "control or supervision" over the public building in question. Article 2189 of the Civil Code of the Philippines which provides that: Provinces.

operation and maintenance in connection with the stipulations contained in this Contract. the City hired the services of the said corporation to undertake the physical management. (lbid) The fact of supervision and control of the City over subject public market was admitted by Mayor Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata which reads: These cases arose from the controversy over the Management and Operating Contract entered into on December 28.) (Rollo. on the activities and operation of the City public markets and talipapas and the facilities and conveniences installed therein. development. rehabilitation and development of the City's public markets and' Talipapas' subject to the control and supervision of the City. VII That the SECOND PARTY may from time to time be required by the FIRST PARTY. . rehabilitation and reconstruction of the city public markets and talipapas subject to prior approval of the FIRST PARTY. subject to prior approval of the FIRST PARTY to discharge any of the present employees for cause. particularly as to their cost of construction. maintenance. xxx xxx xxx It is believed that there is nothing incongruous in the exercise of these powers vis-a- vis the existence of the contract. (Rollo. 75). there is no question that the Sta. or his duly authorized representative or representatives. inasmuch as the City retains the power of supervision and control over its public markets and talipapas under the terms of the contract. p. said contract is explicit in this regard. to report. 45). however. whereby in consideration of a fixed service fee. 44) xxx xxx xxx VI That all present personnel of the City public markets and talipapas shall be retained by the SECOND PARTY as long as their services remain satisfactory and they shall be extended the same rights and privileges as heretofore enjoyed by them. p. the SECOND PARTY shall start the painting. For one thing. Ana Public Market. p. (Rollo. that the SECOND PARTY shall have the right.In the case at bar. the SECOND PARTY shall submit a program of improvement. Provided. sanitizing and repair of the public markets and talipapas and within ninety (90) days thereof. (Exhibit "7-A") (Emphasis supplied. cleaning. despite the Management and Operating Contract between respondent City and Asiatic Integrated Corporation remained under the control of the former. when it provides: II That immediately after the execution of this contract. 1972 by and between the City of Manila and the Asiatic Integrated Corporation.

Chief of the Market Division and Deputy Market Administrator of the City of Manila testified as follows: Court This market master is an employee of the City of Manila? Mr. Q What are his functions? A Direct supervision and control over the market area assigned to him. If he ventures to the store on the basis of such assumption and is injured because the owner did not comply with his duty. Rollo. 1977. it is an error for the trial court to attribute the negligence to herein petitioner.s. p. 76) The contention of respondent City of Manila that petitioner should not have ventured to go to Sta.In fact. p. to check the safety of the place for the public.) xxx xxx xxx Court As far as you know there is or is there any specific employee assigned with the task of seeing to it that the Sta. Your Honor. Thus the Asst.) (Rollo. including those whose duties concern the maintenance and upkeep of the market and ordinances and other pertinent rules and regulations. Ana Market is safe for the public? Mr. 19). Ymson Yes. As a defense against liability on the basis of a quasi-delict. Hearing of May 20. Finally. .. the City of Manila employed a market master for the Sta. (Art. (Emphasis supplied. as I stated. Ana Public Market during a stormy weather is indeed untenable. 2425. Ana Public Market whose primary duty is to take direct supervision and control of that particular market. Hearing of July 27.) (Rollo. Ymson Actually. Ana has its own market master. no negligence can be imputed to the customer."(T. The trial court even chastised the plaintiff for going to market on a rainy day just to buy bagoong. the check or verifying whether the place is safe for public safety is vested in the market master. one must have exercised the diligence of a good father of a family. 76). 1173 of the Civil Code). As observed by respondent Court of Appeals. CV No.. 1977. More specifically stated.n. the findings of appellate court are as follows: .. AC- G. Your Honor. 01387. provides: The treasurer shall exercise direct and immediate supervision administration and control over public markets and the personnel thereof. p. (T.s.n. pp.. (Decision. A customer in a store has the right to assume that the owner will comply with his duty to keep the premises safe for customers. that the Sta. R. Section 30 (g) of the Local Tax Code as amended. 41-42.pp. more specifically. The primary duty of that market master is to make the direct supervision and control of that particular market.) (Emphasis supplied.

petitioner. Even more important is the fact. G. p. and five (5) months after the incident happened.. COURT OF APPEALS.00 for the amount paid for the operation and management of the school bus. Had the opening been covered.R. it appears evident that the City of Manila is likewise liable for damages under Article 2189 of the Civil Code. 1986 THE UNITED CONSTRUCTION CO. much less penalized by the City of Manila. Neither was it shown that any sign had been placed thereabouts to warn passersby of the impending danger. P900. petitioner could not have fallen into it.. and JUAN F. SO ORDERED. vs.00 as moral damages due to pain. INC.000. While it may be conceded that the fulfillment of such duties is extremely difficult during storms and floods. it was already uncovered. L-47863 October 3. For instance.4 petitioner. and the PHILIPPINE BAR ASSOCIATION. NAKPIL & SONS. No. petitioners.R. respondents. the drainage hole could have been placed under the stalls instead of on the passage ways. 17).R. (Rollo. UNITED CONSTRUCTION COMPANY.000. G. 1986 . respondent City having retained control and supervision over the Sta. Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily liable under Article 2194 of the Civil Code. the opening was still uncovered. that they were adequately covered.90 actual medical expenses. Moreover. No. 0 1387. To recapitulate. AC-G. Sadly. P20. while there are findings that during floods the vendors remove the iron grills to hasten the flow of water (Decision. Rollo. 1986 JUAN F. INC.. 59). the decision of the Court of Appeals is hereby MODIFIED. L-47851 October 3. CARLOS. sufferings and sleepless nights and P10. it must however. respondents.R. the City is therefore liable for the injury suffered by the peti. 57. ET AL. vs. THE COURT OF APPEALS.. Ana Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-delicts Petitioner had the right to assume that there were no openings in the middle of the passageways and if any. L-47896 October 3. the evidence indicates that long before petitioner fell into the opening. there is no showing that such practice has ever been prohibited. making the City of Manila and the Asiatic Integrated Corporation solidarily liable to pay the plaintiff P221. CV No.There is no argument that it is the duty of the City of Manila to exercise reasonable care to keep the public market reasonably safe for people frequenting the place for their marketing needs. G.00 as attorney's fees. JUAN J. NAKPIL. No. PREMISES CONSIDERED. be admitted that ordinary precautions could have been taken during good weather to minimize the dangers to life and limb under those difficult circumstances. pp. Thus the negligence of the City of Manila is the proximate cause of the injury suffered. that the City should have seen to it that the openings were covered.

judgment is hereby rendered: (a) Ordering defendant United Construction Co. Inc. 1971 Order of the lower court is hereby affirmed with COSTS to be paid by the defendant and third party defendant (except Roman Ozaeta) in equal shares. Nakpil. and third-party defendants (except Roman Ozaeta) to pay the plaintiff.335.000. 169). L. (c) Dismissing the third-party complaint. 1977 decision of the Court of Appeals in CA-G. 1968 until full payment to be paid jointly and severally by defendant United Construction Co. 74958 dated September 21. 521. The Court of Appeals in modifying the decision of the lower court included an award of an additional amount of P200. SO ORDERED.68 with interest at the legal rate from November 29. In all other respects. with interest at the legal rate from November 29. The dispositive portion of the modified decision of the lower court reads: WHEREFORE.PHILIPPINE BAR ASSOCIATION. (Record on Appeal p..R. the date of the filing of the complaint until full payment. in Civil Case No. the judgment dated September 21. COURT OF APPEALS.. petitioners. ET AL. Carlos. Inc.. . No. Rollo.47851. PARAS. (e) Ordering defendant United Construction Co. (d) Dismissing the defendant's and third-party defendants' counterclaims for lack of merit. and third party defendants (except Roman Ozaeta). the judgment appealed from is modified to include an award of P200.. Branch V.: These are petitions for review on certiorari of the November 28. 1968. 51771-R modifying the decision of the Court of First Instance of Manila. respondents. 1971. the sum of P989. and by the third-party defendants Juan F. Inc. p. 1971 as modified by the Order of the lower court dated December 8. jointly and severally. Nakpil and Sons and Juan F.00 to the Philippine Bar Association to be paid jointly and severally by the defendant United Construction Co. and third-party defendants (except Roman Ozaeta) to pay the costs in equal shares. The dispositive portion of the decision of the Court of Appeals reads: WHEREFORE. J.000. vs. ET AL. 1971 as modified in the December 8. (b) Dismissing the complaint with respect to defendant Juan J. SO ORDERED..00 in favor of plaintiff-appellant Philippine Bar Association.

830. 169) and affirmed by the Court of Appeals are as follows: The plaintiff. 74958. Nakpil & Sons in L-47851 and United Construction Co. a civic-non-profit association. Nakpil & Sons and Juan F. The proposal was approved by plaintiff's board of directors and signed by its president Roman Ozaeta. The plans and specifications for the building were prepared by the other third-party defendants Juan F. and Juan J. among other things.Petitioners Juan F.00 as attorney's fees. Nakpil & Sons. Plaintiff alleges that the collapse of the building was accused by defects in the construction. 1978 requiring the respective respondents to comment. The building was completed in June. 1969. 269- 348. Inc. the then president of the plaintiff Bar Association was included as a third-party defendant for damages for having included Juan J. at the cost of P13. the failure of the contractors to follow plans and specifications and violations by the defendants of the terms of the contract.C. The facts as found by the lower court (Decision. Philippine Bar Association. Record on Appeal. Inc. alleging in essence that the collapse of the building was due to the defects in the said plans and specifications. These petitions arising from the same case filed in the Court of First Instance of Manila were consolidated by this Court in the resolution of May 10.00 for the loss of the PBA building plus four (4) times such amount as damages resulting in increased cost of the building. The front columns of the building buckled. As a temporary remedial measure. the plaintiff and third-party defendants Juan F. the president and general manager of said corporation. pp. on the suggestion of Juan J. 520-521. 1968 an unusually strong earthquake hit Manila and its environs and the building in question sustained major damage. (Rollo. Nakpil personally as parties defendant. 1968. and its President and General Manager Juan J. Rollo. 172). In the early morning of August 2. No. Manila. On November 29. Roman Ozaeta. as party defendant. Carlos in L-47863 seek the reversal of the decision of the Court of Appeals. That in relation to defendants' answer with counterclaims and third. President of the United Construction Co. Inc. On March 3. incorporated under the Corporation Law. Carlos.00 as exemplary damages. Nakpil presented a written stipulation which reads: 1. p.party complaints and the third-party defendants Nakpil & Sons' answer thereto.28.. for exoneration from liability while petitioner Philippine Bar Association in L-47896 seeks the modification of aforesaid decision to obtain an award of P1. Carlos as defendants. Defendants in turn filed a third-party complaint against the architects who prepared the plans and specifications. on an "administration" basis. p. Carlos.661. causing the building to tilt forward dangerously. decided to construct an office building on its 840 square meters lot located at the comer of Aduana and Arzobispo Streets. Inc. The construction was undertaken by the United Construction. the plaintiff need not amend its complaint by including the said Juan F. a third-party defendant in this case. 1966. and P100. Nakpil & Sons and Juan F.000. . L-47851. C. P100. the plaintiff commenced this action for the recovery of damages arising from the partial collapse of the building against United Construction.000.000. Intramuros. L-47851. the building was shored up by United Construction. Inc. The tenants vacated the building in view of its precarious condition.. pp.

made by the defendants from said plans and specifications and how said deviations contributed to the damage sustained. assumed his office as Commissioner. L-47851. judgment may be rendered in whole or in part. Both parties hereby jointly petition this Honorable Court to approve this stipulation. Hizon. Rollo. the degree or proportion in which each individual factor contributed to the damage sustained. who was ultimately appointed by the trial court. In the latter case. That in the event (unexpected by the undersigned) that the Court should find after the trial that the above-named defendants Juan J. charged with the duty to try the following issues: 1. Carlos and United Construction Co. Whether the building is now a total loss and should be completely demolished or whether it may still be repaired and restored to a tenantable condition. or in the event that the Court may find Juan F. Nakpil contributorily negligent or in any way jointly and solidarily liable with the defendants.169). as the case may be. and (f) Any other cause not herein above specified. 3. 3. directly or indirectly. by: (a) The inadequacies or defects in the plans and specifications prepared by third-party defendants. such as the foundation. (e) An act of God or a fortuitous event. (d) The alleged failure to exercise the requisite degree of supervision expected of the architect. 2. (b) The deviations. Upon the issues being joined. Mr. Nakpil and Sons and/or Juan F. . the contractor and/or the owner of the building. and specifications p by the third-party defendants. the parties agreed to refer the technical issues involved in the case to a Commissioner. among others. Nakpil & Sons and Juan F. Nakpil & Sons and/or Juan F. are free from any blame and liability for the collapse of the PBA Building. 1968 earthquake had been caused. Nakpil in favor of the plaintiff to all intents and purposes as if plaintiff's complaint has been duly amended by including the said Juan F. 2. and should further find that the collapse of said building was due to defects and/or inadequacy of the plans. pp. against Juan F. and specifications prepared by them and/or failure in the performance of their contract with plaintiff. designs. Nakpil as parties defendant and by alleging causes of action against them including. If the cause of the damage suffered by the building arose from a combination of the above-enumerated factors. the determination of the cost of such restoration or repair. 274-275. during which among others..p. designs. Inc. a pre-trial was conducted on March 7. 1969. the defects or inadequacy of the plans. and the value of any remaining construction. Andres O. (Record on Appeal. if any. (c) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building. Whether the damage sustained by the PBA building during the August 2.

The motions were opposed by the defendants and the matter was referred to the Commissioner. L-47851. the Commissioner eventually submitted his report on September 25. p. Finally. (Record on Appeal. The actual demolition was undertaken by the buyer of the damaged building. The Court sees no legal or contractual basis for such conclusion. pp. After the parties had all filed their comments. The trial court agreed with the findings of the Commissioner except as to the holding that the owner is charged with full nine supervision of the construction. Thus. Thus. Rollo. As aforestated the technical issues were referred to the Commissioner. caused further damage to the property. plaintiff moved twice for the demolition of the building on the ground that it may topple down in case of a strong earthquake. but not another earthquake of high intensity on April 7. the amicus curiae were granted a period of 60 days within which to submit their position. Hence. on September 21. architects and even the owners to exercise the requisite degree of supervision in the construction of subject building. Ibid. We gave due course to the petitions in Our Resolution of July 21. 1979 the building was authorized to be demolished at the expense of the plaintiff. All the parties herein appealed from the decision of the Intermediate Appellate Court. which may still be utilized or availed of (Record on Appeal. and 12. They proposed to present a position paper on the liability of architects when a building collapses and to submit likewise a critical analysis with computations on the divergent views on the design and plans as submitted by the experts procured by the parties. .) After the protracted hearings. The position papers of the amicus curiae (submitted on November 24. the Association of Civil Engineers. Meanwhile. pp. 1970 followed by other strong earthquakes on April 9. 278-280. The motion having been granted. and the Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae. All the parties registered their objections to aforesaid findings which in turn were answered by the Commissioner. 1978. 1978) were duly noted. 1978. the United Architects of the Philippines. The non-technical issues were tried by the Court. 1971.3 they were also caused by the defects in the plans and specifications prepared by the third- party defendants' architects. 1970 with the findings that while the damage sustained by the PBA building was caused directly by the August 2. deviations from said plans and specifications by the defendant contractors and failure of the latter to observe the requisite workmanship in the construction of the building and of the contractors. these petitions. 1970. 309-328. 169). On May 11. on April 30. (Record on Appeal. 1977. 1968 earthquake whose magnitude was estimated at 7. Ibid). the issues of this case were divided into technical issues and non-technical issues. 275-276. the lower court rendered the assailed decision which was modified by the Intermediate Appellate Court on November 28. pp.

and the Nakpils claimed that it was an act of God that caused the failure of the building which should exempt them from responsibility and not the defective construction.00 as estimated cost of repairs or to the period of six (6) months for loss of rentals while United Construction Co.000. plans and specifications prepared by petitioners in the case of the Nakpils. p. If the engineer or architect supervises the construction. the general rule is that no person shall be responsible for events which could not be foreseen or which though foreseen. were inevitable (Article 1174. 4131) and the 1966 Asep Code.. . Acceptance of the building. deviations from plans and specifications and other imperfections in the case of United Construction Co. UCCI also claimed that it should be reimbursed the expenses of shoring the building in the amount of P13. which provides: Art. (Ibid. The contractor is likewise responsible for the damage if the edifice fags within the same period on account of defects in the construction or the use of materials of inferior quality furnished by him. Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord.000.. Both UCCI and the Nakpils object to the payment of the additional amount of P200. 1723. poor workmanship. Inc. The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which caused the failure of the building.28 while the Nakpils opposed the payment of damages jointly and solidarity with UCCI. The action must be brought within ten years following the collapse of the building.00 imposed by the Court of Appeals. among others. he shall be solidarily liable with the contractor. or due to any violation of the terms of the contract. In their respective briefs petitioners. The engineer or architect who drew up the plans and specifications for a building is liable for damages if within fifteen years from the completion of the structure the same should collapse by reason of a defect in those plans and specifications.100. Inc. 174). reiterated his conclusion that the defects in the plans and specifications indeed existed. or the deficiencies in the design. The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New Civil Code. or due to the defects in the ground. does not imply waiver of any of the causes of action by reason of any defect mentioned in the preceding paragraph.661. New Civil Code). But the Commissioner.The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not defective. the Commissioner added that even if it can be proved that the defects in the constructionalone (and not in the plans and design) caused the damage to the building. No. still the deficiency in the original design and jack of specific provisions against torsion in the original plans and the overload on the ground floor columns (found by an the experts including the original designer) certainly contributed to the damage which occurred. exempts from liability. On the other hand. when asked by Us to comment. after completion. parties who are otherwise liable because of their negligence. raised the following assignments of errors: Philippine Bar Association claimed that the measure of damages should not be limited to P1.

(1 Corpus Juris 1174). the obligor cannot escape liability. 657). Tucker v. (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner. (Vasquez v. (b) the event must be either unforseeable or unavoidable. pp. he must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. 129. 21 SCRA 279. and (d) the debtor must be free from any participation in. while the third-party defendants were found to have inadequacies or defects in the plans and specifications prepared by them. 45 Phil. and to have failed to observe the requisite workmanship in the construction as well as to exercise the requisite degree of supervision. (Decision. 45 Phil. or aggravation of the injury to the creditor. (1 Corpus Juris. whether it be from active intervention or neglect. Motors. Sandiganbayan. Yangco Steamship Co. reasonably to have been expected. 1968. To be exempt from liability for loss because of an act of God. 55 Phil. Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss. The negligence of the defendant and the third-party defendants petitioners was established beyond dispute both in the lower court and in the Intermediate Appellate Court. the whole occurrence is thereby humanized.. Court of Appeals. Smith. 657). 138 SCRA 553. there concurs a corresponding fraud. Lasam v." the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor. 604. Republic of the Phil. pp. the defects in the construction and in the plans and specifications were the proximate causes that rendered the PBA building unable to withstand the earthquake of August 2.G. 1985. Thus. Estrada v. Smith. 30-31). To exempt the obligor from liability under Article 1174 of the Civil Code. de Jesus. Cesar vs. Court of Appeals.An act of God has been defined as an accident. Limpangco & Sons v. As correctly assessed by both courts. due directly and exclusively to natural causes without human intervention. 134 SCRA 105. Defendant United Construction Co. for a breach of an obligation due to an "act of God. 1174-1175). 39 SCRA 527. v. 49 O. The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the violence of nature and all human agencies are to be excluded from creating or entering into the cause of the mischief. Inc. negligence. Court of Appeals. or failure to act. Luzon Stevedoring Corp. such person is not exempt from liability by showing that the immediate cause of the damage was the act of God. as it were. There is no dispute that the earthquake of August 2. When the effect. is found to be in part the result of the participation of man. if upon the happening of a fortuitous event or an act of God. unless (1) the conclusion is a finding . and removed from the rules applicable to the acts of God. delay or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code. January 17. 4379. It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties and on this court (cases cited in Tolentino vs. which by no amount of foresight. which results in loss or damage. Milan. 121). Consolacion. (Fish & Elective Co. was found to have made substantial deviations from the plans and specifications. Austria v. For this reason the defendant and third-party defendants cannot claim exemption from liability. pains or care. 56 SCRA 67.. the cause of which is to be considered. 1968 is a fortuitous event or an act of God. Lasam v.. 34 Phil. v. 594. could have been prevented. 71 SCRA 423. Phil.

651). 291-292. 66497-98. p. (5) the findings of fact are conflicting .000." cannot be ignored. PBA's No. in view of its lack of needed funding.76 a year until the judgment for the principal amount shall have been satisfied L. (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondents (Garcia vs. CA . p. In any event. June 30. the relevant and logical observations of the trial court as affirmed by the Court of Appeals that "while it is not possible to state with certainty that the building would not have collapsed were those defects not present. 92 SCRA 322. 25). 1979. 11 Assignment of Errors. the fact remains that several buildings in the same area withstood the earthquake to which the building of the plaintiff was similarly subjected. (10) the finding of fact of the Court of Appeals is premised on the supposed absence of evidence and is contradicted by evidence on record (Salazar vs. UNITED. 1986). Court of Appeals.000. 1 Assignment of Error. July 30. UNITED's Brief as Petitioner. Sandiganbayan.R.. I. Roque vs.28 to shore up the building after the August 2. (3) there is grave abuse of discretion. thru no fault of its own. (6) the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions of both appellant and appellees (Ramos vs. February 8.830. On the contrary. while both the NAKPILS and UNITED question the additional award of P200. Sacay v. Oct. 1967. 6.47896. (7) the findings of facts of the Court of Appeals are contrary to those of the trial court. 1970 (L-47896. spent P13. 1970. (8) said findings of facts are conclusions without citation of specific evidence on which they are based.671. on the other hand. was unable. 33 SCRA 243. p.661. 366).000. May 29. 31. The Court of Appeals affirmed the finding of the trial court based on the report of the Commissioner that the total amount required to repair the PBA building and to restore it to tenantable condition was P900. The PBA. 92). CA. The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial collapse (and eventual complete collapse) of its building. 1968 earthquake (L-47896. The PBA in its brief insists that the proper award should be P1. Pepsi-Cola Bottling Co. 1967. PBA's No.000. July 10. Buan.00 inasmuch as it was not initially a total loss. the records show that the lower court spared no effort in arriving at the correct appreciation of facts by the referral of technical issues to a Commissioner chosen by the parties whose findings and conclusions remained convincingly unrebutted by the intervenors/amicus curiae who were allowed to intervene in the Supreme Court. The PBA further urges that the unrealized rental income awarded to it should not be limited to a period of one- half year but should be computed on a continuing basis at the rate of P178. Alsua-Bett vs. p. however. It is evident that the case at bar does not fall under any of the exceptions above-mentioned. (4) the judgment is based on misapprehension of facts. NAKPIL's Brief as Petitioner. surmise and conjectures. Vol. No. 1970.00 in favor of the PBA (L- 47851.grounded entirely on speculation. plus unrealized rental income for one-half year. 19 SCRA 289. 1968 earthquake was only partial and it is undisputed that the building could then still be repaired and restored to its tenantable condition. Cited in G. the Court of Appeals modified the amount by awarding in favor of PBA an additional sum of P200. to have the building repaired. 21 SCRA 648. Gutierrez.00 representing the damage suffered by the PBA building as a result of another earthquake that occurred on April 7. 19). (2) the inference made is manifestly mistaken. 247. while the trial court awarded the PBA said amount as damages. p.00 representing the total value of the building (L-47896. However. 19). 33 SCRA 622. The collapse of the PBA building as a result of the August 2.

Fortunately. 1970. the injury would have been produced. and perils of the sea are acts of God. The theological allusion of appellant United that God acts in mysterious ways His wonders to perform impresses us to be inappropriate. The failure of the PBA building. There should be no question that the NAKPILS and UNITED are liable for the damage resulting from the partial and eventual collapse of the PBA building as a result of the earthquakes. God singled out the blameless PBA building in Intramuros and around six or seven other buildings in various parts of the city for collapse or severe damage and that God alone was responsible for the damages and losses thus suffered. 53-54). It does not necessarily follow. lightning. There is no mystery about . that specific losses and suffering resulting from the occurrence of these natural force are also acts of God. Gutierrez (now an Associate Justice of the Supreme Court) while still an Associate Justice of the Court of Appeals: There is no question that an earthquake and other forces of nature such as cyclones. factors which are neither mysterious nor esoteric. authorized the total demolition of the building (L-47896. We quote with approval the following from the erudite decision penned by Justice Hugo E. The lengthy discussion of United on ordinary earthquakes and unusually strong earthquakes and on ordinary fortuitous events and extraordinary fortuitous events leads to its argument that the August 2. These deficiencies are attributable to negligent men and not to a perfect God. drought. We are not convinced on the basis of the evidence on record that from the thousands of structures in Manila. poor workmanship. p. hundreds of ancient buildings which survived the earthquake better than the two-year old PBA building must have been designed and constructed by architects and contractors whose knowledge and foresight were unexplainably auspicious and prophetic. as a unique and distinct construction with no reference or comparison to other buildings.Decision. defective construction. If we follow this line of speculative reasoning. deviation from plans and specifications and other imperfections. floods. If this were so. we will be forced to conclude that under such a situation scores of buildings in the vicinity and in other parts of Manila would have toppled down. 1968 knowledge and appear inadequate only in the light of engineering information acquired after the earthquake. The evidence reveals defects and deficiencies in design and construction. The act-of-God arguments of the defendants.appellants and third party defendants-appellants presented in their briefs are premised on legal generalizations or speculations and on theological fatalism both of which ignore the plain facts. the trial court after the needed consultations. Following the same line of reasoning. 1968 earthquake was of such an overwhelming and destructive character that by its own force and independent of the particular negligence alleged. 1. Nakpil and Sons alleges that the designs were adequate in accordance with pre-August 2. to weather the severe earthquake forces was traced to design deficiencies and defective construction. pp. Vol. the facts on record allow a more down to earth explanation of the collapse. 46). Because of the earthquake on April 7. The record is replete with evidence of defects and deficiencies in the designs and plans. however.

" The requirement that a building should withstand rains. . and beat upon that house. and the rain descended and the floods came and the winds blew and beat upon that house. The collapse of the PBA building was no wonder performed by God. Defendants' Objections to the Report. and natural forces is precisely the reason why we have professional experts like architects.these acts of negligence. A reiteration of these same arguments on appeal fails to convince us that we should reverse or disturb the lower Court's factual findings and its conclusions drawn from the facts. among them: The Commissioner also found merit in the allegations of the defendants as to the physical evidence before and after the earthquake showing the inadequacy of design. Commissioner's Answer to the various Objections. Plaintiff's Objections to the Report. It was a result of the imperfections in the work of the architects and the people in the construction company. Instead of laying the blame solely on the motions and forces generated by the earthquake. Designs and constructions vary under varying circumstances and conditions but the requirement to design and build well does not change. b. to wit: Physical evidence before the earthquake providing (sic) inadequacy of design. and Third-Party Defendants' Reply to the Commissioner's Report not to mention the exhibits and the testimonies show that the main arguments raised on appeal were already raised during the trial and fully considered by the lower Court. a. Create another stiffness imbalance. The Report of the Commissioner. winds. More relevant to our mind is the lesson from the parable of the wise man in the Sermon on the Mount "which built his house upon a rock. Third Party Defendants' Objections to the Report. Plaintiffs' Reply to the Commissioner's Answer. it also examined the ability of the PBA building. were responsible for the damages. 1. 2. Increase the inertia forces that move the building laterally toward the Manila Fire Department. Counter-Reply to Defendants' Reply. Matthew 7: 24-27). earthquakes. The evidence sufficiently supports a conclusion that the negligence and fault of both United and Nakpil and Sons. and engineers. for it was founded upon a rock" and of the "foolish upon the sand. The findings of the lower Court on the cause of the collapse are more rational and accurate. Defendants' Reply to the Commissioner's Answer. (St. to withstand and successfully weather those forces. and it fen not. Sun-baffles on the two sides and in front of the building. as designed and constructed. and it fell and great was the fall of it. not a mysterious act of an inscrutable God. And the rain descended and man which built his house the floods came. inadequate design was the cause of the failure of the building. floods. and the winds blew.

than the highest slab level. The embedded 4" diameter cast iron down spout on all exterior columns reduces the cross-sectional area of each of the columns and the strength thereof. 3. Building leaned and sagged more on the front part of the building. but in the light of recent and current standards. who are the most concerned with this portion of the Commissioner's report. complex and highly specialized computations and analyzes which he himself emphasizes are necessary in the determination of such a highly technical question. to wit. The Commissioner concluded that there were deficiencies or defects in the design. Proving Inadequacy of design.3. 2. (c) the Commissioner has failed to back up or support his finding with extensive. 1. 4. 4. Also D7. not only in columns but also in slabs. that the fact that those deficiencies or defects may have arisen from an obsolete or not too conservative code or even a code that does not require a design for earthquake forces mitigates in a large measure the responsibility or liability of the architect and engineer designer. voiced opposition to the same on the grounds that (a) the finding is based on a basic erroneous conception as to the design concept of the building. (b) the finding that there were defects and a deficiency in the design of the building would at best be based on an approximation and. A7 and D7 columns were very much less reinforced. Floors showed maximum sagging on the sides and toward the front corner parts of the building. and (d) the Commissioner has analyzed the design of the PBA building not in the light of existing and available earthquake engineering knowledge at the time of the preparation of the design. Maximum sagging occurs at the column A7 where the floor is lower by 80 cm. rightly belonged to the realm of speculation. therefore. There are more damages in the front part of the building than towards the rear. 5. rather than of certainty and could very possibly be outright error. however. The Commissioner answered the said objections alleging that third-party defendants' objections were based on estimates or exhibits not presented . plans and specifications of the PBA building which involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. There was a lateral displacement of the building of about 8". that the design is essentially that of a heavy rectangular box on stilts with shear wan at one end. He conceded. Slab at the corner column D7 sagged by 38 cm. Column A7 suffered the severest fracture and maximum sagging. Two front corners. 6. The Third-party defendants. Physical Evidence After the Earthquake.

(1) Wrongful and defective placing of reinforcing bars. made by the defendants from the plans and specifications. so much so "that the experts of the different parties. cannot agree on what equation to use. the Court sees no compelling reasons to disturb the findings of the Commissioner that there were defects and deficiencies in the design. (2) (a) The deviations. . 29. coupled with the intrinsic nature of the questions involved therein. and that said defects and deficiencies involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. who are all engineers. as to what earthquake co- efficients are. Memo. The difficulty expected by the Court if tills technical matter were to be tried and inquired into by the Court itself. will be discussed together. constituted the reason for the reference of the said issues to a Commissioner whose qualifications and experience have eminently qualified him for the task. (2) Absence of effective and desirable integration of the 3 bars in the cluster. although dealing in mathematics.during the hearing that the resort to engineering references posterior to the date of the preparation of the plans was induced by the third-party defendants themselves who submitted computations of the third-party defendants are erroneous. plans and specifications prepared by third-party defendants. and how said deviations contributed to the damage sustained by the building. It involves questions not within the ordinary competence of the bench and the bar to resolve by themselves. All these may be summarized as follows: a. Bundalian.party defendants before the Commissioner). Summary of alleged defects as reported by Engineer Mario M. (b) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the construction of the building. on the codes to be used and even as to the type of structure that the PBA building (is) was (p. of third. and whose competence had not been questioned by the parties until he submitted his report. The findings of the Commissioner on these issues were as follows: We now turn to the construction of the PBA Building and the alleged deficiencies or defects in the construction and violations or deviations from the plans and specifications. The issue presently considered is admittedly a technical one of the highest degree. and the objections voiced to the same. Within the pardonable limit of the Court's ability to comprehend the meaning of the Commissioner's report on this issue. if any. These two issues. Counsel for the third-party defendants has aptly remarked that "engineering. being interrelated with each other. is not an exact science and that the present knowledge as to the nature of earthquakes and the behaviour of forces generated by them still leaves much to be desired.

(8) Column B7 — Spirals not tied to vertical reinforcing bars. b. (4) Reinforcement assembly is not concentric with the column. (9) Defective construction joints in Columns A-3. Summary of alleged defects as reported by Engr. (10) Undergraduate concrete is evident. (4) Column D7 — Lack of lateral ties. Columns are first (or ground) floor. Antonio Avecilla. (7) Column B5 — Lack of spirals at a distance of 26' below the beam. (12) Columns buckled at different planes. Columns suffered worst displacement where the eccentricity of the columnar reinforcement assembly is more acute. A-5. unless otherwise stated. second floor. or over spacing of spiral hoops. Spirals are uneven 2" to 4". C-7. or omission. (8) Deliberate severance of spirals into semi-circles in noted on Col. ground floor. (6) Column B6 — Lack of spiral on 2 feet below the floor beams. D-7 and D-4. (1) Column D4 — Spacing of spiral is changed from 2" to 5" on centers. (7) Absence. (6) Contraband construction joints. . Spirals are at 2" from the exterior column face and 6" from the inner column face. Specification requires no larger than 1 inch. (5) Prevalence of honeycombs. (3) Column D6 — Spacing of spiral over 4 l/2. ground floor.(3) Oversize coarse aggregates: 1-1/4 to 2" were used. (9) Column A3 — Lack of lateral ties. eccentricity being 3" off when on one face the main bars are only 1 1/2' from the surface. (2) Column D5 — No spiral up to a height of 22" from the ground floor. (5) Column C7 — Absence of spiral to a height of 20" from the ground level. (11) Big cavity in core of Column 2A-4. Columns buckled worst where there are no spirals or where spirals are cut.

(8) Column C7— Spirals are absent at lowest 18" (9) Column D5 — At lowest 2 feet spirals are absent. (6) Column B6 — At upper 2 feet spirals are absent. We shall first classify and consider defects which may have appreciable bearing or relation to' the earthquake-resistant property of the building. (1) Column A4 — Spirals are cut. (13) Column A6 — No spirals up to a height of 30' above the ground floor level. (2) Column A5 — Spirals are cut. (3) Column A6 — At lower 18" spirals are absent.(10) Column A4 — Spirals cut off and welded to two separate clustered vertical bars. (14) Column A7— Lack of lateralties or spirals. . (11) Column A4 — (second floor Column is completely hollow to a height of 30" (12) Column A5 — Spirals were cut from the floor level to the bottom of the spandrel beam to a height of 6 feet. (7) Column B7 — At upper fourth of column spirals missing or improperly spliced. (5) Column B5 — At upper fourth of column spirals are either absent or improperly spliced. c. (4) Column A7 — Ties are too far apart. Ground floor columns. The explanations given by the engineering experts for the defendants are either contrary to general principles of engineering design for reinforced concrete or not applicable to the requirements for ductility and strength of reinforced concrete in earthquake- resistant design and construction. (10) Column D6 — Spirals are too far apart and apparently improperly spliced. (11) Column D7 — Lateral ties are too far apart. There is merit in many of these allegations. Summary of alleged defects as reported by the experts of the Third-Party defendants. spaced 16" on centers.

1. Other than a strong allegation and assertion that it is the plumber or his men who may have done the cutting (and this was flatly denied by the plumber) no conclusive proof was presented. Reference 11). details which insure ductility at or near the connections between columns and girders are desirable in earthquake resistant design and construction. The omission of spirals and ties or hoops at the bottom and/or tops of columns contributed greatly to the loss of earthquake-resistant strength. And even granting that there be no loss in strength at the yield point (an assumption which is very doubtful) the cutting or improper spacings of spirals will certainly result in the loss of the plastic range or ductility in the column and it is precisely this plastic range or ductility which is desirable and needed for earthquake- resistant strength. that this cutting was done by others is upon the defendants. is to increase or diminish the column load by a maximum of about 1% and to increase or diminish the column or beam movements by about a maximum of 2%. The main effect of eccentricity is to change the beam or girder span. There is evidence to show that the pouring of concrete for columns was sometimes done through the beam and girder reinforcements which were already in place as in the case of column A4 second floor. While these can certainly be absorbed within the factor of safety. ground floor is the subject of great contention between the parties and deserves special consideration. There is no excuse for the cavity or hollow portion in the column A4. There were several clear evidences where this was not done especially in some of the ground floor columns which failed. is the responsibility of the general contractor which is the UCCI. The assertion of the engineering experts for the defendants that the improper spacings and the cutting of the spirals did not result in loss of strength in the column cannot be maintained and is certainly contrary to the general principles of column design and construction. and although this column did not fail. The effect of eccentricities in the columns which were measured at about 2 1/2 inches maximum may be approximated in relation to column loads and column and beam moments. The engineering experts for the defendants asserted that they could have no motivation for cutting the bar because they can simply replace the spirals by wrapping around a new set of spirals. this would not do for the elasticity of steel would .As heretofore mentioned. 970. Specifications. p. second floor. ground floor. The proper placing of the main reinforcements and spirals in column A5. This is not quite correct. they nevertheless diminish said factor of safety. If the reinforcement for the girder and column is to subsequently wrap around the spirals. There were also unmistakable evidences that the spacings of the spirals and ties in the columns were in many cases greater than those called for in the plans and specifications resulting again in loss of earthquake-resistant strength. this is certainly an evidence on the part of the contractor of poor construction. The cutting of the spirals in column A5. The burden of proof. The effect on the measured eccentricity of 2 inches. therefore. The plans and specifications required that these spirals and ties be carried from the floor level to the bottom reinforcement of the deeper beam (p. therefore.

therefore. therefore. It is reasonable to conclude. prevent the making of tight column spirals and loose or improper spirals would result. that the defects and deficiencies in the construction contributed greatly to the damage which occurred. therefore. ground floor. The lack of proper length of splicing of spirals was also proven in the visible spirals of the columns where spalling of the concrete cover had taken place. 1968 and the vice of these defects and deficiencies is that they not only increase but also aggravate the weakness mentioned in the design of the structure. (pp. including the effect of eccentricity in the column the loss in strength due to these minor defects may run to as much as ten percent. If accumulated. that the Commissioner failed to . the presence of existence of all the major defects and deficiencies noted and proven manifests an element of negligence which may amount to imprudence in the construction work. The effects of all the other proven and visible defects although nor can certainly be accumulated so that they can contribute to an appreciable loss in earthquake-resistant strength. The engineering experts for the defendants submitted an estimate on some of these defects in the amount of a few percent. We may say. deficiencies and violations of the plans and specifications of the PBA building contributed to the damages which resulted during the earthquake of August 2. The liability for the cutting of the spirals in column A5. The defendants. This belief together with the difficulty of slipping the spirals on the top of the column once the beam reinforcement is in place may be a sufficient motivation for the cutting of the spirals themselves. The proper way is to produce correct spirals down from the top of the main column bars. in the considered opinion of the Commissioner rests on the shoulders of the defendants and the loss of strength in this column contributed to the damage which occurred. these defects and deficiencies not only tend to add but also to multiply the effects of the shortcomings in the design of the building. To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the top of some of the ground floor columns contributed greatly to the collapse of the PBA building since it is at these points where the greater part of the failure occurred. that the proven defects. should be held responsible for the consequences arising from the loss of strength or ductility in column A5 which may have contributed to the damages sustained by the building. As the parties most directly concerned with this portion of the Commissioner's report. In other words. 42-49. Since the execution and supervision of the construction work in the hands of the contractor is direct and positive. therefore. the defendants voiced their objections to the same on the grounds that the Commissioner should have specified the defects found by him to be "meritorious". The engineering experts for the defendants strongly assert and apparently believe that the cutting of the spirals did not materially diminish the strength of the column. This lack of proper splicing contributed in a small measure to the loss of strength. a procedure which can not be done if either the beam or girder reinforcement is already in place. Commissioners Report).

The Commissioner further stated that the loss of strength of the cut spirals and inelastic deflections of the supposed lattice work defeated the purpose of the spiral containment in the column and resulted in the loss of strength. and that the cutting of the spirals in column A5." On the claim that the eccentricity could be absorbed within the factor of safety. B-6. D-5 and B-7. the Commissioner answered that. He answered the supposition of the defendants that the spirals and the ties must have been looted. since many of the defects were minor only the totality of the defects was considered. the Commissioner specified groundfloor columns B-6 and C-5 the first one without spirals for 03 inches at the top. that the defects in the construction were within the tolerable margin of safety. the Commissioner mentioned groundfloor columns B-6 and B-5 where all the splices were less than 1-1/2 turns and were not welded. the defendants should be held liable for the same as the general contractor of the building. was done by the plumber or his men. did not aggravate or contribute to the damage suffered by the building. Answering the said objections. second floor. The Commissioner likewise specified the first storey columns where the spacings were greater than that called for in the specifications to be columns B-5. . The objection regarding the cutting of the spirals in Column A-5. and construction of the PBA building and We hold such negligence as equivalent to bad faith in the performance of their respective tasks. C-5. that the hollow in column A4. the eccentricities in the columns. by calling attention to the fact that the missing spirals and ties were only in two out of the 25 columns. it also contributed to or aggravated the damage suffered by the building. there were no spirals for 10 inches at the bottom. groundfloor. and not by the defendants. which rendered said supposition to be improbable. C- 7. ground floor. The Commissioner conceded that the hollow in column A-4. and the cut in the spirals in column A5. I. pp. ground floor. As regards the objection as to failure to state the number of cases where the spirals and ties were not carried from the floor level to the bottom reinforcement. or where the spacing of the spirals and ties in the columns were greater than that called for in the specifications. was answered by the Commissioner by reiterating the observation in his report that irrespective of who did the cutting of the spirals. Again.indicate the number of cases where the spirals and ties were not carried from the floor level to the bottom reinforcement of the deeper beam. (Rollo. did not aggravate or contribute to the damage. the Commissioner stated that. As found by the Commissioner. while the same may be true. as evidenced by the actual failure of this column. C-6. the lack of proper length of splicing of spirals. and in the latter. resulting in some loss of strength which could be critical near the ends of the columns. specifications. designs. 128-142) The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the third-party defendants in effecting the plans. Vol. second floor. but averred that it is "evidence of poor construction. the Court concurs in the findings of the Commissioner on these issues and fails to find any sufficient cause to disregard or modify the same. the "deviations made by the defendants from the plans and specifications caused indirectly the damage sustained and that those deviations not only added but also aggravated the damage caused by the defects in the plans and specifications prepared by third-party defendants. The objection to the failure of the Commissioner to specify the number of columns where there was lack of proper length of splicing of spirals.

without which the damage would not have occurred. Supra.R.00) Pesos to cover all damages (with the exception of attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100. One Virtual promised to pay a portion thereof totalling US$1. 89263. 4379.R. the ruling of the Supreme Court in Tucker v. 2014 GILAT SATELLITE NETWORKS. ordering respondent to pay petitioner a sum of money. 1723. Branch 141. although the act of a third person.000. services and software. Milan (49 O. it obtained defendant UCPB General Insurance Co. at a total purchase price of Two Million One Hundred Twenty Eight Thousand Two Hundred Fifty Dollars (US$2. WHEREFORE. the total sum being payable upon the finality of this decision.. 1999. Makati City in Civil Case No. Respondent. as We do hereby impose. 189563 April 7. in favor of GILAT. Petitioner.000. No.00). twelve (12%) per cent interest per annum shall be imposed upon afore-mentioned amounts from finality until paid. CJ: This is an appeal via a Petition for Review on Certiorari1 filed 6 November 2009 assailing the Decision2 and Resolution3 of the Court of Appeals (CA) in CA-G.. CV No. One Virtual placed with GILAT a purchase order for various telecommunications equipment (sic). Of the said purchase price for the goods delivered. To ensure the prompt payment of this amount. spares. DECISION SERENO.’s surety bond dated 3 December 1999. 02-461. Civil Code. Only one thing spells out the fatal difference. Truth to tell hundreds of ancient buildings in the vicinity were hardly affected by the earthquake. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5. or an act of God for which he is not responsible. Inc. gross negligence and evident bad faith. p. Solidary costs against the defendant and third-party defendants (except Roman Ozaeta).00) Pesos as and for attorney's fees. SO ORDERED.128. G. are as follows: On September 15.. .000.2 Million in accordance with the payment schedule dated 22 November 1999.250. upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art.Relative thereto. The antecedent facts. Upon failure to pay on such finality. intervenes to precipitate the loss. as culled from the CA..G. accessories. INC. As already discussed. UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO. We deem it reasonable to render a decision imposing. vs. LTD. 4380) which may be in point in this case reads: One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences thereof. which reversed the Decision4 of the Regional Trial Court (RTC). the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case. the destruction was not purely an act of God.

The defendant surety to pay the plaintiff the amount of Forty Four Thousand Four Dollars and Four Cents (US$44. ordering."5(Emphases in the original) On 24 April 2002.004. All of the equipment (including the software components for which payment was secured by the surety bond. UCPB as Surety and GILAT as Creditor/Bond Obligee. Accordingly.. hence.000."8 Considering that its liability was indeed that of a surety.00) on the due date of May 30. and 2. the surety issued.7 the dispositive portion of which is herein quoted: WHEREFORE. the Court hereby renders judgment for the plaintiff. plus interests and expenses (Exhibits "H") and which letter was received by the defendant surety on January 25. and against the defendant. was shipped by GILAT and duly received by One Virtual. The defendant surety to pay the plaintiff the amount of One Million Two Hundred Thousand Dollars (US$1. 2001 to July 30.000. However.200. One Virtual failed to pay any of the payments agreed upon.200.000.000.00 or a part thereof.10 . One Virtual likewise failed to pay on the succeeding payment instalment date of 30 November 2000 as set out in Annex "A" of the surety bond. 2000. to recover the amounts supposedly covered by the surety bond. GILAT shipped and delivered to One Virtual the purchased products and equipment. prompting GILAT to send a second demand letter dated January 24. as "spelled out in the Surety Bond executed by and between One Virtual as Principal. 2001. Under an endorsement dated December 23. SO ORDERED.During the period between [sic] September 1999 and June 2000. (Emphasis in the original) In so ruling. premises considered. 2001. petitioner Gilat Satellite Networks. the instant complaint."9 respondent agreed and bound itself to pay in accordance with the Payment Milestones. with One Virtual’s conformity. an amendment to the surety bond. plus interests and expenses. for the payment of the full amount of US$1. filed a Complaint6 against respondent UCPB General Insurance Co.00) representing the principal debt under the Surety Bond. Annex "A" thereof. the RTC rendered its Decision. Ltd.04) representing attorney’s fees and litigation expenses. Inc. "F-1" to "F-8").. 2001. Demand notwithstanding. the RTC reasoned that there is "no dispute that plaintiff [petitioner] delivered all the subject equipments [sic] and the same was installed. prompting GILAT to write the surety defendant UCPB on June 5. as evidenced by airway bills/Bill of Lading (Exhibits "F".00. 1999 (Exhibit "E").. a demand letter (Exhibit "G") for payment of the said amount of US$400.00 guaranteed under the surety bond. 2000 in accordance with the payment schedule attached as Annex "A" to the surety bond. This obligation was not made dependent on any condition outside the terms and conditions of the Surety Bond and Payment Milestones. defendant’s counterclaim is hereby dismissed for want of merit.200. After due hearing. One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400. with legal interest thereon at the rate of 12% per annum computed from the time the judgment becomes final and executory until the obligation is fully settled. No part of the amount set forth in this demand has been paid to date by either One Virtual or defendant UCPB. correcting its expiry date from May 30.000. defendant UCPB failed to settle the amount of US$1. Even with the delivery and installation made. to wit: 1. defendant failed and refused and continued to fail and refused to settle the obligation.

On 18 October 2007.200. petitioner and One Virtual were ordered to proceed to arbitration. respondent appealed to the CA. and 2.16 whose stipulations are also binding on the parties to the suretyship.000.17 Bearing in mind the arbitration clause contained in the Purchase Agreement18 and pursuant to the policy of the courts to encourage alternative dispute resolution methods. On 31 August 2010. The trial court’s Decision dated December 28. the instant Petition.. Inc. (Emphasis in the original) The CA ruled that in "enforcing a surety contract. defendant-appellant United Coconut Planters Bank General Insurance Co.22 ISSUES From the foregoing.00 representing the principal debt under the Surety Bond. 2006 is VACATED.19 the trial court’s Decision was vacated. Whether or not the CA erred in dismissing the case and ordering petitioner and One Virtual to arbitrate.11 Here.15 In this case. this appealed case is DISMISSED for lack of jurisdiction.004. the RTC denied petitioner’s claim on the premise that while a surety can be held liable for interest even if it becomes more onerous than the principal obligation. and One Virtual are ordered to proceed to arbitration. the ‘complementary-contracts-construed-together’ doctrine finds application.. we reduce the issues to the following: 1.Insofar as the interests were concerned. THE COURT’S RULING The existence of a suretyship agreement does not give the surety the right to intervene in the principal contract. On 9 September 2008. On 24 November 2010. the surety shall only accrue when the delay or refusal to pay the principal obligation is without any justifiable cause. petitioner filed a Reply. and USD44. Plaintiff-appellant Gilat Satellite Networks Ltd. Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by respondent of its obligation under the Suretyship Agreement. . Hence. nor can an arbitration clause between the buyer and the seller be invoked by a non-party such as the surety. the outcome of which shall necessary bind the parties. petitioner filed a Motion for Reconsideration with Motion for Oral Argument. respondent filed a Comment21 on the Petition for Review. respondent failed to pay its surety obligation because of the advice of its principal (One Virtual) not to pay. SO ORDERED. including the surety." According to this doctrine.04 representing attorney’s fees and litigation expenses. the appellate court considered the Purchase Agreement entered into between petitioner and One Virtual as the principal contract. The motion was denied for lack of merit in a Resolution20 issued by the CA on 16 September 2009. the accessory contract must be construed with the principal agreement.12 The RTC then obligated respondent to pay petitioner the amount of USD1.13 The appellate court rendered a Decision14 in the following manner: WHEREFORE. with legal interest at the rate of 12% per annum computed from the time the judgment becomes final and executory.

First. a surety is directly and equally bound with the principal. the right to invoke the arbitration clause in the Purchase Agreement. Moreover. Consequently. In suretyship. We agree with petitioner that respondent cannot invoke in its favor the arbitration clause in the Purchase Agreement. respondent maintains that a surety contract is merely an accessory contract.31 Nevertheless. In other words. The surety’s role arises only upon the debtor’s default. as well as their assigns and heirs. Despite these compliances.32 He becomes liable for the debt and duty of the principal obligor.24 Considering that neither petitioner nor One Virtual has asked for a referral. however. Tokyu Construction Co. must take precedence over arbitration as the preferred mode of settling disputes. Section 24 of Republic Act No.36 the RTC found that petitioner had delivered all the goods to One Virtual and installed them.29 Thus. the surety remains a stranger to the Purchase Agreement. This undertaking makes a surety agreement an ancillary contract. to fulfill its 1âw phi 1 monetary obligation to petitioner gave the latter an immediate right to pursue respondent as the surety.38 that "[the] acceptance [of a surety agreement]. at which time.39 An arbitration agreement being contractual in nature. does not change in any material way the creditor’s relationship with the principal debtor nor does it make the surety an active party to the principal creditor-debtor relationship. however. we have held in Stronghold Insurance Co.35 After a thorough examination of the pieces of evidence presented by both parties.. petitioner should not be ordered to make a separate claim against One Virtual (via arbitration) before proceeding against respondent. although the contract of a surety is in essence secondary only to a valid principal obligation. a surety is not entitled to a separate notice of default or to the benefit of excussion. Articles 1216 and 2047 of the Civil Code25 clearly provide that the creditor may proceed against the surety without having first sued the principal debtor.26 Even the Surety Agreement itself states that respondent becomes liable upon "mere failure of the Principal to make such prompt payment."27 Thus.40 it is binding only on the parties thereto.Petitioner alleges that arbitration laws mandate that no court can compel arbitration. the surety may avail itself of all the defenses available to the principal debtor and inherent in the debt30 – that is. In other words. being the principal contract to which the Suretyship Agreement is accessory. we cannot sustain respondent’s claim that the Purchase Agreement. primary and absolute. One Virtual still failed to pay its obligation.37 triggering respondent’s liability to petitioner as the former’s surety.41 Second.23 This referral. We agree with petitioner. its liability to the creditor or "promise" of the principal is said to be direct. as the principal debtor. as it presupposes the existence of a principal contract. can only be demanded by one who is a party to the arbitration agreement. because it is not a party to that contract. which cannot exist without a valid obligation. the oft-repeated rule is that a surety’s liability is joint and solidary with that of the principal debtor." Hence. or upon the . the acceptance does not give the surety the right to intervene in the principal contract. unless a party entitled to it applies for this relief. there is no basis for the CA’s order to arbitrate.33Thus. it can be directly held liable by the creditor for payment as a solidary obligor. Inc. v. even without possessing a direct or personal interest in the obligations constituted by the latter. the failure of One Virtual. in other words. 928542 is clear in stating that a referral to arbitration may only take place "if at least one party so requests not later than the pre-trial conference. Ltd.28 On the other hand.34 It may in fact be sued separately or together with the principal debtor.

provided that the delay is inexcusable. but instead argues that it is only liable for legal interest of 6% per annum from the date of petitioner’s last demand on 24 January 2001. it must be inexcusable in nature. is synonymous with default or mora. petitioner insists that the delay started to run from the time it demanded the fulfilment of respondent’s obligation under the suretyship contract. This is the reason why excussion cannot be invoked. In rejecting petitioner’s position. and the latter fails to comply. as we have held in Palmares v. This responsibility necessarily places a surety on the same level as that of the principal debtor.request of both parties thereafter.48 In this case." Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. sureties do not insure the solvency of the debtor.53 Having held that a surety upon demand fails to pay. Third. and the debtor incurs a delay. but rather the debt itself. from the second demand on 24 January 2001 because of the latter’s delay in discharging its monetary obligation.54 The increased liability is not because of the contract. Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of money. petitioner alleges that it deserves to be paid legal interest of 12% per annum from the time of its first demand on respondent on 5 June 2000 or at most.43 They are contracted precisely to mitigate risks of non-performance on the part of the obligor. At any rate.57 we held thus: . Anent the issue of interests.56 citing RCPI v. for delay to merit interest. and in the absence of stipulation. may be awarded to a creditor for the delay incurred by a debtor in the payment of the latter’s obligation." Respondent has not presented even an iota of evidence to show that either petitioner or One Virtual submitted its contesting claim for arbitration. as used in Article 1169. (2) that the debtor delays performance. respondent’s failure to heed the demand was due to the advice of One Virtual that petitioner allegedly breached its undertakings as stated in the Purchase Agreement. the surety) to be in default.51 It is the nonfulfillment of an obligation with respect to time. its liability becomes more than the principal obligation." Interest. it can be held liable for interest.50 Delay. We sustain petitioner. there being no stipulation to the contrary.47 Citing Article 1169 of the Civil Code. however. the indemnity for damages.52 In order for the debtor (in this case. as a form of indemnity. it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated.44 The effect is that the creditor is given the right to directly proceed against either principal debtor or surety.55 However. Significantly. made no pronouncement on this matter. Court of Appeals.45 To require the creditor to proceed to arbitration would render the very essence of suretyship nugatory and diminish its value in commerce. In Guanio v. Makati-Shangri-la Hotel. Verchez. but because of the default and the necessity of judicial collection. which means delay in the fulfilment of obligations. shall be the payment of the interest agreed upon.46 "if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal. respondent does not contest this point. the legal interest. the RTC stated that interests may only accrue when the delay or the refusal of a party to pay is without any justifiable cause. and (3) that the creditor requires the performance judicially or extrajudicially. even if in thus paying. he may pay the debt himself and become subrogated to all the rights and remedies of the creditor.49 The CA.

i. When the obligation is breached. including the licensed software. the deposition of Mr. recognizing the obligatory force of contracts. The law. One Virtual. Erez Antebi.61 we agree with the latter that interest must start to run from the time petitioner sent its first demand letter (5 June 2000). and that the extrajudicial demand of petitioner was sent on 5 June 2000. The remedy serves to preserve the interests of the promissee that may include his "expectation interest. xxxx . One Virtual’s advice regarding petitioner’s alleged breach of obligations. like proof of his exercise of due diligence x x x or of the attendance of fortuitous event. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.. the rate of interest shall be 6% per annum to be computed from default. Gallery Frames. and it consists in the payment of a sum of money. the interest due shall itself earn legal interest from the time it is judicially demanded. With regard to the interest rate to be imposed." which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made." which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed. to wit: 1.62 which modified the guidelines established in Eastern Shipping Lines v. Indeed. In 1âwphi 1 the absence of stipulation. that is.e. petitioner would not have been forced to stop operations. will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. a loan or forbearance of money. unless they are made the basis for action.59 Notwithstanding these compliances. vice president of Gilat. gone into operation. and that the equipment had been installed and in fact. interest on the amount due begins to run. we take cue from Nacar v. because the obligation was already due and demandable at that time. a corresponding right of relief. to make RECOMPENSE to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances." which is his interest in having restored to him any benefit that he has conferred on the other party. not from the date of the filing of the complaint. This ruling is in accordance with the provisions of Article 1169 of the Civil Code and of the settled rule that where there has been an extra-judicial demand before an action for performance was filed. agreements can accomplish little. prima facie. or his "restitution interest. but from the date of that extra-judicial demand. either for their makers or for society. 799 (Series of 2013). respondent has no one to blame but its principal. the interest due should be that which may have been stipulated in writing. The effect of every infraction is to create a new duty.60 Considering that respondent failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement. respondent still failed to pay. to excuse him from his ensuing liability.In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify.e. Furthermore. or his "reliance interest.. repeatedly stated that petitioner had delivered all equipment. Moreover. i. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. (Emphasis ours) We agree with petitioner that records are bereft of proof to show that respondent’s delay was indeed justified by the circumstances – that is. CA63 in relation to Bangko Sentral- Monetary Board Circular No. As to the issue of when interest must accrue. our Civil Code is explicit in stating that it accrues from the time judicial or extrajudicial demand is made on the surety."58Assuming arguendo that the commissioning work was not completed. if only it had paid its obligation on time. The lower court’s Decision itself belied this contention when it said that "plaintiff is not disputing that it did not complete commissioning work on one of the two systems because One Virtual at that time is already in default and has not paid GILAT.

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.

Applying the above-discussed concepts and in the absence of an agreement as to interests, we are
hereby compelled to award petitioner legal interest at the rate of 6% per annum from 5 June 2000,
its first date of extra judicial demand, until the satisfaction of the debt in accordance with the revised
guidelines enunciated in Nacar.

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision of
the Regional Trial Court, Branch 141, Makati City is REINSTATED, with MODIFICATION insofar as
the award of legal interest is concerned. Respondent is hereby ordered to pay legal interest at the
rate of 6% per annum from 5 June 2000 until the satisfaction of its obligation under the Suretyship
Contract and Purchase Agreement.

SO ORDERED.

G.R. No. 184458, January 14, 2015

RODRIGO RIVERA, Petitioner, v. SPOUSES SALVADOR CHUA AND S. VIOLETA CHUA, Respondents.

[G.R. NO. 184472]

SPS. SALVADOR CHUA AND VIOLETA S. CHUA, Petitioners, v. RODRIGO RIVERA, Respondent.

DECISION

PEREZ, J.:

Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing
the Decision1 of the Court of Appeals in CA-G.R. SP No. 90609 which affirmed with modification the separate
rulings of the Manila City trial courts, the Regional Trial Court, Branch 17 in Civil Case No. 02-1052562 and
the Metropolitan Trial Court (MeTC), Branch 30, in Civil Case No. 163661,3 a case for collection of a sum of
money due a promissory note. While all three (3) lower courts upheld the validity and authenticity of the
promissory note as duly signed by the obligor, Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the
appellate court modified the trial courts’ consistent awards: (1) the stipulated interest rate of sixty percent
(60%) reduced to twelve percent (12%) per annum computed from the date of judicial or extrajudicial
demand, and (2) reinstatement of the award of attorney’s fees also in a reduced amount of P50,000.00.

In G.R. No. 184458, Rivera persists in his contention that there was no valid promissory note and questions
the entire ruling of the lower courts. On the other hand, petitioners in G.R. No. 184472, Spouses Salvador
and Violeta Chua (Spouses Chua), take exception to the appellate court’s reduction of the stipulated interest
rate of sixty percent (60%) to twelve percent (12%) per annum.

We proceed to the facts.

The parties were friends of long standing having known each other since 1973: Rivera and Salvador
are kumpadres, the former is the godfather of the Spouses Chua’s son.

On 24 February 1995, Rivera obtained a loan from the Spouses Chua: chanroblesvi rtua llawli bra ry

PROMISSORY NOTE

120,000.00

FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and VIOLETA SY
CHUA, the sum of One Hundred Twenty Thousand Philippine Currency (P120,000.00) on December 31, 1995.

It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One Hundred
Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT
(5%) interest monthly from the date of default until the entire obligation is fully paid for.

Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent to twenty
percent (20%) of the total amount due and payable as and for attorney’s fees which in no case shall be less
than P5,000.00 and to pay in addition the cost of suit and other incidental litigation expense.

Any action which may arise in connection with this note shall be brought in the proper Court of the City of
Manila.

Manila, February 24, 1995[.]

(SGD.) RODRIGO RIVERA4

In October 1998, almost three years from the date of payment stipulated in the promissory note, Rivera, as
partial payment for the loan, issued and delivered to the Spouses Chua, as payee, a check numbered
012467, dated 30 December 1998, drawn against Rivera’s current account with the Philippine Commercial
International Bank (PCIB) in the amount of P25,000.00.

On 21 December 1998, the Spouses Chua received another check presumably issued by Rivera, likewise
drawn against Rivera’s PCIB current account, numbered 013224, duly signed and dated, but blank as to
payee and amount. Ostensibly, as per understanding by the parties, PCIB Check No. 013224 was issued in
the amount of P133,454.00 with “cash” as payee. Purportedly, both checks were simply partial payment for
Rivera’s loan in the principal amount of P120,000.00.

Upon presentment for payment, the two checks were dishonored for the reason “account closed.”

As of 31 May 1999, the amount due the Spouses Chua was pegged at P366,000.00 covering the principal of
P120,000.00 plus five percent (5%) interest per month from 1 January 1996 to 31 May 1999.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail. Because
of Rivera’s unjustified refusal to pay, the Spouses Chua were constrained to file a suit on 11 June 1999. The
case was raffled before the MeTC, Branch 30, Manila and docketed as Civil Case No. 163661.

In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never executed the subject
Promissory Note; (2) in all instances when he obtained a loan from the Spouses Chua, the loans were
always covered by a security; (3) at the time of the filing of the complaint, he still had an existing
indebtedness to the Spouses Chua, secured by a real estate mortgage, but not yet in default; (4) PCIB
Check No. 132224 signed by him which he delivered to the Spouses Chua on 21 December 1998, should
have been issued in the amount of only P1,300.00, representing the amount he received from the Spouses
Chua’s saleslady; (5) contrary to the supposed agreement, the Spouses Chua presented the check for
payment in the amount of P133,454.00; and (6) there was no demand for payment of the amount of
P120,000.00 prior to the encashment of PCIB Check No. 0132224. 5 chanRoblesv irtual Lawlib rary

In the main, Rivera claimed forgery of the subject Promissory Note and denied his indebtedness thereunder.

The MeTC summarized the testimonies of both parties’ respective witnesses: chan roblesv irtuallawl ib rary

[The spouses Chua’s] evidence include[s] documentary evidence and oral evidence (consisting of the
testimonies of [the spouses] Chua and NBI Senior Documents Examiner Antonio Magbojos). x x x

xxxx

Witness Magbojos enumerated his credentials as follows: joined the NBI (1987); NBI document examiner
(1989); NBI Senior Document Examiner (1994 to the date he testified); registered criminologist; graduate

of 18th Basic Training Course [i]n Questioned Document Examination conducted by the NBI; twice attended
a seminar on US Dollar Counterfeit Detection conducted by the US Embassy in Manila; attended a seminar
on Effective Methodology in Teaching and Instructional design conducted by the NBI Academy; seminar
lecturer on Questioned Documents, Signature Verification and/or Detection; had examined more than a
hundred thousand questioned documents at the time he testified.

Upon [order of the MeTC], Mr. Magbojos examined the purported signature of [Rivera] appearing in the
Promissory Note and compared the signature thereon with the specimen signatures of [Rivera] appearing on
several documents. After a thorough study, examination, and comparison of the signature on the questioned
document (Promissory Note) and the specimen signatures on the documents submitted to him, he concluded
that the questioned signature appearing in the Promissory Note and the specimen signatures of [Rivera]
appearing on the other documents submitted were written by one and the same person. In connection with
his findings, Magbojos prepared Questioned Documents Report No. 712-1000 dated 8 January 2001, with
the following conclusion: “The questioned and the standard specimen signatures RODGRIGO RIVERA were
written by one and the same person.”

[Rivera] testified as follows: he and [respondent] Salvador are “kumpadres;” in May 1998, he obtained a
loan from [respondent] Salvador and executed a real estate mortgage over a parcel of land in favor of
[respondent Salvador] as collateral; aside from this loan, in October, 1998 he borrowed P25,000.00 from
Salvador and issued PCIB Check No. 126407 dated 30 December 1998; he expressly denied execution of the
Promissory Note dated 24 February 1995 and alleged that the signature appearing thereon was not his
signature; [respondent Salvador’s] claim that PCIB Check No. 0132224 was partial payment for the
Promissory Note was not true, the truth being that he delivered the check to [respondent Salvador] with the
space for amount left blank as he and [respondent] Salvador had agreed that the latter was to fill it in with
the amount of ?1,300.00 which amount he owed [the spouses Chua]; however, on 29 December 1998
[respondent] Salvador called him and told him that he had written P133,454.00 instead of P1,300.00; x x x.
To rebut the testimony of NBI Senior Document Examiner Magbojos, [Rivera] reiterated his averment that
the signature appearing on the Promissory Note was not his signature and that he did not execute the
Promissory Note.6

After trial, the MeTC ruled in favor of the Spouses Chua: chanroblesv irt uallawl ibra ry

WHEREFORE, [Rivera] is required to pay [the spouses Chua]: P120,000.00 plus stipulated interest at the
rate of 5% per month from 1 January 1996, and legal interest at the rate of 12% percent per annum from
11 June 1999, as actual and compensatory damages; 20% of the whole amount due as attorney’s fees.7

On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the MeTC, but deleted the
award of attorney’s fees to the Spouses Chua: chanroblesv irt uallawl ibra ry

WHEREFORE, except as to the amount of attorney’s fees which is hereby deleted, the rest of the Decision
dated October 21, 2002 is hereby AFFIRMED.8

Both trial courts found the Promissory Note as authentic and validly bore the signature of Rivera.

Undaunted, Rivera appealed to the Court of Appeals which affirmed Rivera’s liability under the Promissory
Note, reduced the imposition of interest on the loan from 60% to 12% per annum, and reinstated the award
of attorney’s fees in favor of the Spouses Chua: chanroblesvi rt uallawli bra ry

WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that the
interest rate of 60% per annum is hereby reduced to 12% per annum and the award of attorney’s fees is
reinstated at the reduced amount of P50,000.00 Costs against [Rivera].9

Hence, these consolidated petitions for review on certiorari of Rivera in G.R. No. 184458 and the Spouses
Chua in G.R. No. 184472, respectively raising the following issues: chan roble svirtuallaw lib rary

A. In G.R. No. 184458

1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE RULING OF THE RTC
AND M[e]TC THAT THERE WAS A VALID PROMISSORY NOTE EXECUTED BY [RIVERA].

2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT DEMAND IS NO
LONGER NECESSARY AND IN APPLYING THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS LAW.

3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AWARDING ATTORNEY’S FEES
DESPITE THE FACT THAT THE SAME HAS NO BASIS IN FACT AND IN LAW AND DESPITE THE FACT THAT
[THE SPOUSES CHUA] DID NOT APPEAL FROM THE DECISION OF THE RTC DELETING THE AWARD OF
ATTORNEY’S FEES.10 chanRoblesvi rtual Lawli bra ry

B. In G.R. No. 184472

[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED GROSS LEGAL ERROR WHEN IT
MODIFIED THE APPEALED JUDGMENT BY REDUCING THE INTEREST RATE FROM 60% PER ANNUM TO 12%
PER ANNUM IN SPITE OF THE FACT THAT RIVERA NEVER RAISED IN HIS ANSWER THE DEFENSE THAT THE
SAID STIPULATED RATE OF INTEREST IS EXORBITANT, UNCONSCIONABLE, UNREASONABLE, INEQUITABLE,
ILLEGAL, IMMORAL OR VOID.11

As early as 15 December 2008, we already disposed of G.R. No. 184472 and denied the petition, via a
Minute Resolution, for failure to sufficiently show any reversible error in the ruling of the appellate court
specifically concerning the correct rate of interest on Rivera’s indebtedness under the Promissory Note.12 chanRob lesvi rtua lLawl ibra ry

On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.

Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera questioning the entire ruling
of the Court of Appeals in CA-G.R. SP No. 90609.

Rivera continues to deny that he executed the Promissory Note; he claims that given his friendship with the
Spouses Chua who were money lenders, he has been able to maintain a loan account with them. However,
each of these loan transactions was respectively “secured by checks or sufficient collateral.”

Rivera points out that the Spouses Chua “never demanded payment for the loan nor interest thereof (sic)
from [Rivera] for almost four (4) years from the time of the alleged default in payment [i.e., after December
31, 1995].”13chanRoblesvi rtua lLaw lib rary

On the issue of the supposed forgery of the promissory note, we are not inclined to depart from the lower
courts’ uniform rulings that Rivera indeed signed it.

Rivera offers no evidence for his asseveration that his signature on the promissory note was forged, only
that the signature is not his and varies from his usual signature. He likewise makes a confusing defense of
having previously obtained loans from the Spouses Chua who were money lenders and who had allowed him
a period of “almost four (4) years” before demanding payment of the loan under the Promissory Note.

First, we cannot give credence to such a naked claim of forgery over the testimony of the National Bureau of
Investigation (NBI) handwriting expert on the integrity of the promissory note.

On that score, the appellate court aptly disabled Rivera’s contention: chanro blesvi rt uallawl ibra ry

[Rivera] failed to adduce clear and convincing evidence that the signature on the promissory note is a
forgery. The fact of forgery cannot be presumed but must be proved by clear, positive and convincing
evidence. Mere variance of signatures cannot be considered as conclusive proof that the same was forged.
Save for the denial of Rivera that the signature on the note was not his, there is nothing in the records to
support his claim of forgery. And while it is true that resort to experts is not mandatory or indispensable to
the examination of alleged forged documents, the opinions of handwriting experts are nevertheless helpful
in the court’s determination of a document’s authenticity.

To be sure, a bare denial will not suffice to overcome the positive value of the promissory note and the
testimony of the NBI witness. In fact, even a perfunctory comparison of the signatures offered in evidence
would lead to the conclusion that the signatures were made by one and the same person.

It is a basic rule in civil cases that the party having the burden of proof must establish his case by
preponderance of evidence, which simply means “evidence which is of greater weight, or more convincing
than that which is offered in opposition to it.”

Evaluating the evidence on record, we are convinced that [the Spouses Chua] have established a prima

facie case in their favor, hence, the burden of evidence has shifted to [Rivera] to prove his allegation of
forgery. Unfortunately for [Rivera], he failed to substantiate his defense.14

Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed
by the appellate court, are accorded the highest degree of respect and are considered conclusive between
the parties.15 A review of such findings by this Court is not warranted except upon a showing of highly
meritorious circumstances, such as: (1) when the findings of a trial court are grounded entirely on
speculation, surmises or conjectures; (2) when a lower court's inference from its factual findings is
manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of
facts; (4) when the findings of the appellate court go beyond the issues of the case, or fail to notice certain
relevant facts which, if properly considered, will justify a different conclusion; (5) when there is a
misappreciation of facts; (6) when the findings of fact are conclusions without mention of the specific
evidence on which they are based, are premised on the absence of evidence, or are contradicted by
evidence on record.16 None of these exceptions obtains in this instance. There is no reason to depart from
the separate factual findings of the three (3) lower courts on the validity of Rivera’s signature reflected in
the Promissory Note.

Indeed, Rivera had the burden of proving the material allegations which he sets up in his Answer to the
plaintiff’s claim or cause of action, upon which issue is joined, whether they relate to the whole case or only
to certain issues in the case.17 chanRob lesvi rtual Lawli bra ry

In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the testimony of a
handwriting expert from the NBI. While it is true that resort to experts is not mandatory or indispensable to
the examination or the comparison of handwriting, the trial courts in this case, on its own, using the
handwriting expert testimony only as an aid, found the disputed document valid.18 cha nRoblesvi rt ualLawl ibra ry

Hence, the MeTC ruled that: chanroble svirtual lawlib rary

[Rivera] executed the Promissory Note after consideration of the following: categorical statement of
[respondent] Salvador that [Rivera] signed the Promissory Note before him, in his ([Rivera’s]) house; the
conclusion of NBI Senior Documents Examiner that the questioned signature (appearing on the Promissory
Note) and standard specimen signatures “Rodrigo Rivera” “were written by one and the same person”;
actual view at the hearing of the enlarged photographs of the questioned signature and the standard
specimen signatures.19

Specifically, Rivera insists that: “[i]f that promissory note indeed exists, it is beyond logic for a money
lender to extend another loan on May 4, 1998 secured by a real estate mortgage, when he was already in
default and has not been paying any interest for a loan incurred in February 1995.”20 chanRoble svirtual Lawli bra ry

We disagree.

It is likewise likely that precisely because of the long standing friendship of the parties as “kumpadres,”
Rivera was allowed another loan, albeit this time secured by a real estate mortgage, which will cover
Rivera’s loan should Rivera fail to pay. There is nothing inconsistent with the Spouses Chua’s two (2) and
successive loan accommodations to Rivera: one, secured by a real estate mortgage and the other, secured
by only a Promissory Note.

Also completely plausible is that given the relationship between the parties, Rivera was allowed a substantial
amount of time before the Spouses Chua demanded payment of the obligation due under the Promissory
Note.

In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery and a discordant
defense to assail the authenticity and validity of the Promissory Note. Although the burden of proof rested
on the Spouses Chua having instituted the civil case and after they established a prima facie case against
Rivera, the burden of evidence shifted to the latter to establish his defense.21 Consequently, Rivera failed to
discharge the burden of evidence, refute the existence of the Promissory Note duly signed by him and
subsequently, that he did not fail to pay his obligation thereunder. On the whole, there was no question left
on where the respective evidence of the parties preponderated—in favor of plaintiffs, the Spouses Chua.

Rivera next argues that even assuming the validity of the Promissory Note, demand was still necessary in
order to charge him liable thereunder. Rivera argues that it was grave error on the part of the appellate
court to apply Section 70 of the Negotiable Instruments Law (NIL).22 chanRoblesvi rtua lLawl ibra ry

We agree that the subject promissory note is not a negotiable instrument and the provisions of the NIL do
not apply to this case. Section 1 of the NIL requires the concurrence of the following elements to be a
negotiable instrument: c hanro blesvi rt uallawli bra ry

(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with
reasonable certainty.

On the other hand, Section 184 of the NIL defines what negotiable promissory note is: chan roblesv irt uallawl ibra ry

SECTION 184. Promissory Note, Defined. – A negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on
demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a
note is drawn to the maker’s own order, it is not complete until indorsed by him.

The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses Chua,
and not to order or to bearer, or to the order of the Spouses Chua as payees.

However, even if Rivera’s Promissory Note is not a negotiable instrument and therefore outside the coverage
of Section 70 of the NIL which provides that presentment for payment is not necessary to charge the person
liable on the instrument, Rivera is still liable under the terms of the Promissory Note that he issued.

The Promissory Note is unequivocal about the date when the obligation falls due and becomes demandable—
31 December 1995. As of 1 January 1996, Rivera had already incurred in delay when he failed to pay the
amount of P120,000.00 due to the Spouses Chua on 31 December 1995 under the Promissory Note.

Article 1169 of the Civil Code explicitly provides: c hanro blesvi rt uallawl ibra ry

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.

However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
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 fulfills his
obligation, delay by the other begins. (Emphasis supplied)

There are four instances when demand is not necessary to constitute the debtor in default: (1) when there is
an express stipulation to that effect; (2) where the law so provides; (3) when the period is the controlling
motive or the principal inducement for the creation of the obligation; and (4) where demand would be
useless. In the first two paragraphs, it is not sufficient that the law or obligation fixes a date for performance;
it must further state expressly that after the period lapses, default will commence.

We refer to the clause in the Promissory Note containing the stipulation of interest: cha nrob lesvi rtu allawlib rary

It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One Hundred
Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE PERCENT
(5%) interest monthly from the date of default until the entire obligation is fully paid for.23

which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the “date of default” until
the entire obligation is fully paid for. The parties evidently agreed that the maturity of the obligation at a
date certain, 31 December 1995, will give rise to the obligation to pay interest. The Promissory Note
expressly provided that after 31 December 1995, default commences and the stipulation on payment of
interest starts.

The date of default under the Promissory Note is 1 January 1996, the day following 31 December 1995, the
due date of the obligation. On that date, Rivera became liable for the stipulated interest which the
Promissory Note says is equivalent to 5% a month. In sum, until 31 December 1995, demand was not
necessary before Rivera could be held liable for the principal amount of P120,000.00. Thereafter, on 1
January 1996, upon default, Rivera became liable to pay the Spouses Chua damages, in the form of
stipulated interest.

The liability for damages of those who default, including those who are guilty of delay, in the performance of
their obligations is laid down on Article 117024 of the Civil Code.

Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity for
damages when the obligor incurs in delay: chan roblesv irtuallaw lib rary

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum.
(Emphasis supplied)

Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of money; (2) the
debtor, Rivera, incurred in delay when he failed to pay on or before 31 December 1995; and (3) the
Promissory Note provides for an indemnity for damages upon default of Rivera which is the payment of a 5%
monthly interest from the date of default.

We do not consider the stipulation on payment of interest in this case as a penal clause although Rivera, as
obligor, assumed to pay additional 5% monthly interest on the principal amount of P120,000.00 upon
default.

Article 1226 of the Civil Code provides: chan roble svirtuallaw lib rary

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud
in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.

The penal clause is generally undertaken to insure performance and works as either, or both, punishment
and reparation. It is an exception to the general rules on recovery of losses and damages. As an exception
to the general rule, a penal clause must be specifically set forth in the obligation.25 cha nRoblesvi rt u alLawli bra ry

In high relief, the stipulation in the Promissory Note is designated as payment of interest, not as a penal
clause, and is simply an indemnity for damages incurred by the Spouses Chua because Rivera defaulted in
the payment of the amount of P120,000.00. The measure of damages for the Rivera’s delay is limited to the
interest stipulated in the Promissory Note. In apt instances, in default of stipulation, the interest is that
provided by law.26 c hanRoble svirtual Lawlib ra ry

In this instance, the parties stipulated that in case of default, Rivera will pay interest at the rate of 5% a
month or 60% per annum. On this score, the appellate court ruled: cha nrob lesvi rtua llawli bra ry

It bears emphasizing that the undertaking based on the note clearly states the date of payment to be 31
December 1995. Given this circumstance, demand by the creditor is no longer necessary in order that delay
may exist since the contract itself already expressly so declares. The mere failure of [Spouses Chua] to
immediately demand or collect payment of the value of the note does not exonerate [Rivera] from his
liability therefrom. Verily, the trial court committed no reversible error when it imposed interest from 1
January 1996 on the ratiocination that [Spouses Chua] were relieved from making demand under Article
1169 of the Civil Code.

xxxx

As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in addition to legal
interests and attorney’s fees is, indeed, highly iniquitous and unreasonable. Stipulated interest rates are

thus. law.[27 chanRoblesvi rtua lLaw lib rary The appellate court found the 5% a month or 60% per annum interest rate. quasi-contracts. the rate of interest shall . However. 184458 and 184472 involve an identity of parties and subject matter raising specifically errors in the Decision of the Court of Appeals. and it consists in the payment of a sum of money. the petitions in G. on top of the legal interest and attorney’s fees. Ultimately. Since the interest rate agreed upon is void. iniquitous and unconscionable. In short. the parties are considered to have no stipulation regarding the interest rate.R. the rate of interest. 799. the 12% per annum rate of legal interest is only applicable until 30 June 2013. When the obligation is breached. As for the legal interest accruing from 11 June 1999. Gallery Frames:33 chanRoble svirtua lLawli bra ry I. 11 June 1999. 184472 denying the petition of the Spouses Chua for failure to sufficiently show any reversible error in the ruling of the appellate court.e. such is likewise divided into two periods: (1) 12% per annumfrom 11 June 1999. to date when this Decision becomes final and executor is divided into two periods reflecting two rates of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013.” From the time of judicial demand. as well as the accrual thereof.e.R. the interest due shall itself earn legal interest from the time it is judicially demanded. and (2) 6% per annum from 1 July 2013 to date when this Decision becomes final and executor. tantamount to it being illegal. specifically the reduction of the interest rate imposed on Rivera’s indebtedness under the Promissory Note. Where the Court of Appeals’ disposition on the propriety of the reduction of the interest rate was raised by the Spouses Chua in G. (3) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties. 184472. the contravenor can be held liable for damages. No. Furthermore.illegal if they are unconscionable and the Court is allowed to temper interest rates when necessary. With regard particularly to an award of interest in the concept of actual and compensatory damages..28 chanRoblesvi rtua lLawl ibra ry In this case. before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. i. identity of parties. the legal interest accruing from the Promissory Note is 12% per annum from the date of default on 1 January 1996. the applicable rate of legal interest from 1 January 1996. and (4) there must be. the issue on payment of interest has been squarely disposed of in G. our ruling thereon affirming the Court of Appeals is a “bar by prior judgment. Res judicata applies in the concept of “bar by prior judgment” if the following requisites concur: (1) the former judgment or order must be final.R. although the obligation may be silent on this point. Pursuant to our ruling in Nacar v. the interest due should be that which may have been stipulated in writing.” At the time interest accrued from 1 January 1996. (2) the judgment or order must be on the merits. the date of judicial demand to 30 June 2013. as follows: ChanRobles Vi rtua lawlib rary 1.32 chanRob lesvi rtua lLawl ibra ry We cite our recent ruling in Nacar v. II. the then prevailing rate of legal interest was 12% per annum under Central Bank (CB) Circular No. the date of default under the Promissory Note. between the first and the second action. a loan or forbearance of money.29 Thus. Significantly..31 We base this imposition of interest on interest due earning legal interest on Article 2212 of the Civil Code which provides that “interest due shall earn legal interest from the time it is judicially demanded. to the date when this Decision becomes final and executory. the date when Rivera defaulted. the actual amount owed by Rivera to the Spouses Chua could already be determined with reasonable certainty given the wording of the Promissory Note. of subject matter and of causes of action. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages. Series of 2013 reducing the rate of legal interest to 6% per annum. 416 in cases involving the loan or forbearance of money.30 BSP Circular No. steep. is imposed. Nos. No. In the absence of stipulation. regardless of its source. the denial of the petition in G. delicts or quasi-delicts is breached. i. and (2) 6% per annum FROM 1 July 2013 to date when this Decision becomes final and executory. When an obligation. 184472 is res judicata in its concept of “bar by prior judgment” on whether the Court of Appeals correctly reduced the interest rate stipulated in the Promissory Note. the rate of interest should be 12% per annum computed from the date of judicial or extrajudicial demand.R. Gallery Frames. No. 799 is prospectively applied from 1 July 2013. contracts. when judicial demand was made.

00 A. 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). whether the case falls under paragraph 1 or paragraph 2. 1995 B. 6% per B. 12 % per A. Accordingly. 1169. we agree with the reduction thereof but not the ratiocination of the appellate court that the attorney’s fees are in the nature of liquidated damages or penalty. above. be on the amount finally adjudged. in addition to the above. 1999 Wholesale 24.000. June 11. this interim period being deemed to be by then an equivalent to a forbearance of credit. When an obligation. albeit in a reduced amount. We award attorney’s fees. 12% per P50. 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. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. The interest imposed in the Promissory Note already answers as liquidated damages for Rivera’s default in paying his obligation. When the judgment of the court awarding a sum of money becomes final and executory. however.000. i. 1996 A.34 Thus.00 Total annum on the annum on the total amount principal amount of amount of column of P120. judgments that have become final and executory prior to July 1. 1995 to to June 30. Civil Code). the rate of legal interest. January 1. the award of P50. 2. except when or until the demand can be established with reasonable certainty. in any case.e. July 1. shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. 6% per 1-4 annum on the annum on the total . July 1 2013 to 30. 2013. 2013 to Decision becomes date when this final and executory Decision becomes final and executory P120. where the demand is established with reasonable certainty. The actual base for the computation of legal interest shall. 2013 (date of judicial amount December demand) to June 31.00 as attorney’s fees is proper. but when such certainty cannot be so reasonably established at the time the demand is made.. No interest. 3. in recognition that the Spouses Chua were compelled to litigate and incurred expenses to protect their interests.00 2 Columns B. we chart the breakdown of the total amount owed by Rivera to the Spouses Chua: chanroblesv irt uallawl ibra ry Face value Stipulated Interest Interest due Attorney’s Total of the A&B earning legal fees Amount Promissory interest A & B Note February A. shall be 6% per annum from such finality until its satisfaction.000. And. 2013 date when this B. shall be adjudged on unliquidated claims or damages. (Emphasis supplied) On the reinstatement of the award of attorney’s fees based on the stipulation in the Promissory Note.000. be 6% per annum to be computed from default. For clarity and to obviate confusion. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. not constituting a loan or forbearance of money.

as interest due earning legal interest. INC. The Decision of the Court of Appeals in CA-G.00. and .. (3) legal interest of 6% per annum of the principal amount of P120.00.000. 184458 is DENIED. NACHURA. 176868 Petitioner.000. J.000. .R.00 reckoned from 1 January 1996 until 30 June 2013. No. and (7) 6% per annum interest on the total of the monetary awards from the finality of this Decision until full payment thereof.R. (5) 6% per annum applied to the total amount of paragraphs 2 and 3 from 1 July 2013 to date when this Decision becomes final and executor.. to 30 June 2013. Costs against petitioner Rodrigo Rivera. Present: CARPIO.00 form 1 July 2013 to date when this Decision becomes final and executory.000. SP No. (4) 12% per annum applied to the total of paragraphs 2 and 3 from 11 June 1999.000. the interim period being deemed to be a forbearance of credit.R. Petitioner Rodrigo Rivera is ordered to pay respondents Spouse Salvador and Violeta Chua the following:chan rob lesvi rt uallawlib ra ry (1) the principal amount of P120. No. G.00 235 The total amount owing to the Spouses Chua set forth in this Decision shall further earn legal interest at the rate of 6% per annum computed from its finality until full payment thereof. SOLAR HARVEST. (2) legal interest of 12% per annum of the principal amount of P120. chanrob leslaw WHEREFORE. 90609 is MODIFIED. (6) Attorney’s fees in the amount of P50. date of judicial demand.versus - PERALTA. the petition in G. ABAD. as interest due earning legal interest. Chairperson. principal amount of amount of column P120.

2006 and Resolution[2] dated February 23. on . The agreement was not reduced into writing. To get the production underway. petitioner. The assailed Decision denied petitioners claim for reimbursement for the amount it paid to respondent for the manufacture of corrugated carton boxes.10 each. entered into an agreement with respondent.: Petitioner seeks a review of the Court of Appeals (CA) Decision[1] dated September 21. Davao Corrugated Carton Corporation. petitioner deposited. Respondent. The case arose from the following antecedents: In the first quarter of 1998. MENDOZA. July 26. Inc.. which denied petitioners motion for reconsideration. 2010 x------------------------------------------------------------------------------------x DECISION NACHURA. J. at US$1. Solar Harvest. JJ. DAVAO CORRUGATED CARTON Promulgated: CORPORATION. specifically designed for petitioners business of exporting fresh bananas. 2007. for the purchase of corrugated carton boxes.

According to respondent. petitioner filed a Complaint for sum of money and damages against respondent.[4] In its Answer with Counterclaim. That because of the failure of the defendant to deliver the ordered boxes.00 payment made by the former for the ordered boxes. as full payment for the ordered boxes. On August 17. petitioner.00 as storage fee. Respondent then demanded petitioner to remove the boxes from the factory and to pay the balance of US$15. as agreed upon. 2001. On January 3. 14. 2001. it had already completed production of the 36. Despite such payment. plaintiff ha[d] to cancel the same and demand payment and/or refund from the defendant but the latter refused to pay and/or refund the US$40. The Complaint averred that the parties agreed that the boxes will be delivered within 30 days from payment but respondent failed to manufacture and deliver the boxes within such time. out of which.150. 14. as early as April 3.000. 2001. defendant [would] only show samples of boxes and ma[k]e repeated promises to deliver the said ordered boxes.000 had been manufactured without any advanced payment from petitioner.[5] respondent insisted that. Respondent stated that petitioner was .000 boxes. 1998 and that petitioner failed to pick them up from the formers warehouse 30 days from completion.00 in respondents US Dollar Savings Account with Westmont Bank.[3] On February 19. in fact.150. petitioner did not receive any boxes from respondent. 7. US$40.000 boxes. made an additional order of 24.500 boxes.000 had been completed without waiting for petitioners payment. 1998. It further alleged 6. contrary to petitioners allegation. petitioner wrote a demand letter for reimbursement of the amount paid. 1998.00 for the additional boxes and P132.400. but every time. Respondent mentioned that petitioner even placed an additional order of 24. respondent replied that the boxes had been completed as early as April 3. out of which.March 31. That repeated follow-up was made by the plaintiff for the immediate production of the ordered boxes.

he asked his partner. As counterclaim. bananas from Tagum Agricultural Development Corporation (TADECO) were already there. but petitioner failed to do so. he followed-up the order and was told that the company had full production. at that time.[7] He specifically stated that. He said that. he saw that the boxes had no print of petitioners logo. Respondent claimed that the boxes were occupying warehouse space and that petitioner should be made to pay storage fee at P60. but since there were no cartons. On February 20. He denied that . Que testified that he ordered the boxes from respondent and deposited the money in respondents account. was promised that production of the order would be rushed. respondent prayed that judgment be rendered ordering petitioner to pay $15. It maintained that respondent only manufactured a sample of the ordered boxes and that respondent could not have produced 14. Que further testified that China Zero Food. petitioner presented Que as its sole witness. Respondent averred that. petitioner denied that it made a second order of 24. He told respondent that it should indeed rush production because the need for the boxes was urgent.[8] A few months later. Alfred Ong. to cancel the order because it was already late for them to meet their commitment to ship the bananas to China. 1998. went to the factory and saw that the boxes were ready for pick up. was sending a ship to Davao to get the bananas.500 boxes and 14.00 per square meter for every month from April 1998.000 boxes without the required pre- payments. plus interest. the ship could not proceed. and costs of the suit. Bobby Que (Que). the Chinese company that ordered the bananas. attorneys fees. moral and exemplary damages.to pick up the boxes at the factory as agreed upon. petitioners representative.[9] On cross-examination. Thereafter. on October 8.000 boxes and that respondent already completed the initial order of 36.000 boxes.00. In reply.000 boxes out of the secondorder.[6] During trial. 1999. Que visited the factory again and supposedly advised respondent to sell the boxes as rejects to recoup the cost of the unpaid 14. when he visited respondents factory.400. and thus. because petitioners transaction to ship bananas to China did not materialize.

Defendants counterclaims are similarly dismissed for lack of merit.000 boxes. accordingly. SO ORDERED. but they.[13] According to him.00 each for a total of P100.petitioner made an additional order of 24. during the last visit of Que and Estanislao.000 boxes. he asked them to withdraw the boxes immediately because they were occupying a big space in his plant.[11] Jaime Tan (Tan). They then told him to apply the said amount to the unpaid balance. told him to sell the cartons as rejects. the Regional Trial Court (RTC) ruled that respondent did not commit any breach of faith that would justify rescission of the contract and the consequent reimbursement of the amount paid by petitioner. The RTC said that respondent was able to produce the ordered boxes but petitioner failed to obtain possession thereof because its ship did not arrive.[10] For respondent.000. 2004 Decision. plaintiffs complaint is hereby ordered DISMISSED without pronouncement as to cost. premises considered.[14] . He was able to sell 5. In its March 2. Estanislao said that petitioner did not pick up the boxes because the ship did not arrive.500 boxes on April 3. also testified that his company finished production of the 36.00.000 boxes at P20. president of respondent.[12] He also said that the reason why petitioner did not pick up the boxes was that the ship that was to carry the bananas did not arrive. He said that the agreement was for respondent to produce the boxes and for petitioner to pick them up from the warehouse. 1998 and that petitioner made a second order of 24. disposing as follows: WHEREFORE. It thus dismissed the complaint and respondents counterclaims. He explained that it took three years to refer the matter to counsel because respondent promised to pay. they inspected the boxes again and Que got more samples. instead. Bienvenido Estanislao (Estanislao) testified that he met Que in Davao in October 1998 to inspect the boxes and that the latter got samples of them. judgment is hereby rendered in favor of defendant and against the plaintiff and. In February 2000.

According to the CA.[15] The appellate court held that petitioner failed to discharge its burden of proving what it claimed to be the parties agreement with respect to the delivery of the boxes.[17] but the motion was denied by the CA in its Resolution of February 23. . 1191. The court shall decree the rescission claimed. Petitioners claim for reimbursement is actually one for rescission (or resolution) of contract under Article 1191 of the Civil Code. over a period of more than two years. petitioner insists that respondent did not completely manufacture the boxes and that it was respondent which was obliged to deliver the boxes to TADECO. if the latter should become impossible. He may also seek rescission. with the payment of damages in either case. 2006.[16] Petitioner moved for reconsideration. The CA added that even assuming that the agreement was for respondent to deliver the boxes. the CA denied the appeal for lack of merit. in case one of the obligors should not comply with what is incumbent upon him. unless there be just cause authorizing the fixing of a period. On September 21.[18] In this petition. We find no reversible error in the assailed Decision that would justify the grant of this petition. even after he has chosen fulfillment. it was unthinkable that. which reads: Art. The power to rescind obligations is implied in reciprocal ones. The injured party may choose between the fulfillment and the rescission of the obligation. petitioner did not even demand for the delivery of the boxes. respondent would not be liable for breach of contract as petitioner had not yet demanded from it the delivery of the boxes. 2007.Petitioner filed a notice of appeal with the CA.

in accordance with Articles 1385 and 1388 and the Mortgage Law. or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract. which provides: Art. In determining when default occurs. This is understood to be without prejudice to the rights of third persons who have acquired the thing. 1169 of the same law. or (3) When demand would be useless. Art. the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares. 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. The right to rescind a contract arises once the other party defaults in the performance of his obligation. as when the obligor has rendered it beyond his power to perform. neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is . In reciprocal obligations. 1191 should be taken in conjunction with Art. However.

delay by the other begins. After all. even in reciprocal obligations. Thus. Hence. as the circumstances would show that respondent was not guilty of breach of contract. which. limits its inquiry only to questions of law. as in a contract of sale. it is not a trier of facts. we will not . Petitioners witness also testified that they made a follow-up of the boxes. the default for each obligation must be determined by the rules given in the first paragraph of the present article. In reciprocal obligations. Without a previous demand for the fulfillment of the obligation. petitioner would not have a cause of action for rescission against respondent as the latter would not yet be considered in breach of its contractual obligation. Note is taken of the fact that. incumbent upon him. if the period for the fulfillment of the obligation is fixed. especially when reiterated by the CA. must be given great respect if not considered as final.[19] that is. But when different dates for performance of the obligations are fixed. however. petitioners claim for reimbursement would still fail. no demand is generally necessary because. the latter automatically incurs in delay. with respect to their claim for reimbursement. Evident from the records and even from the allegations in the complaint was the lack of demand by petitioner upon respondent to fulfill its obligation to manufacture and deliver the boxes. Even assuming that a demand had been previously made before filing the present case. would not qualify as a demand for the fulfillment of the obligation. the general rule is that the fulfillment of the parties respective obligations should be simultaneous. in petitions for review. and findings of fact made by the trial court. the other party would incur in delay only from the moment the other party demands fulfillment of the formers obligation. once a party fulfills his obligation and the other party does not fulfill his. demand upon the obligee is still necessary before the obligor can be considered in default and before a cause of action for rescission will accrue. From the moment one of the parties fulfills his obligation.[21] In dealing with this petition. but not a demand. the Complaint alleged and the witness testified that a demand letter was sent to respondent. The existence of a breach of contract is a factual matter not usually reviewed in a petition for review under Rule 45. The Complaint only alleged that petitioner made a follow-up upon respondent.[20] The Court.

as alleged in the Complaint. was not even competent to testify on the terms of the agreement and. attesting that. up to the present. which we find to be adequately supported by the evidence on record. during their first visit to the company. Que.veer away from this doctrine and will thus sustain the factual findings of the CA. As correctly observed by the CA. There is the testimony of Estanislao who accompanied Que to the factory. there is ample showing that the boxes had already been manufactured by respondent. Even in its Comment to this petition. Thus.[23] which could only mean that the boxes are. Ques absolute assertion that the boxes were not manufactured is. we note that respondents counsel manifested in court. during trial. it was due to petitioners fault that the boxes were not delivered to TADECO. petitioners witness. respondent prays that petitioner be ordered to remove the boxes from its factory site. therefore. aside from the pictures of the finished boxes and the production report thereof. in fact. still in respondents premises. contrary to petitioners allegation.[22] Had it been true that the boxes were not yet completed. himself confirmed this incident. We also believe that the agreement between the parties was for petitioner to pick up the boxes from respondents warehouse. that his client was willing to shoulder expenses for a representative of the court to visit the plant and see the boxes. for respondent to deliver the boxes within 30 days from payment. implausible and suspicious. respondent would not have been so bold as to challenge the court to conduct an ocular inspection of their warehouse. In fact. Que. they saw the pile of petitioners boxes and Que took samples thereof. Petitioner had the burden to prove that the agreement was. He testified that Tan pointed the boxes to him and that he got a sample and saw that it was blank. therefore. Its sole witness. we cannot give much credence to his .

Is it not a fact that the cartons were ordered through Mr. your first statement that you were the one who placed the order is not true? A. the first call to Mr. Ong who placed the order[.500 boxes. No.] not you? A. my question is. It was Mr. sir.testimony. Tan? A. You said a while ago [t]hat you were the one who called Mr. Alf[re]d Ong. The first time. It appeared from the testimony of Que that he did not personally place the order with Tan. I made a phone call. Alfred Ong has a contact with Mr. Thats true. The Solar Harvest made a contact with Mr. So. Alfred Ong. You made a phone call to Mr. Q. Tan and I deposited the money in the bank. isnt it? A. Yes. Tan and placed the order for 36. Q. Q. you went to Davao City and placed your order there? A. thus: Q.[24] Q. First time it was Mr. Tan. Q. Bienvenido Estanislao? .

As I have said. Did you give any authority for Mr. sir. Tan? A. will you give authority to Mr. because when I checked the plant. Sir. before the delivery. You dont have any authority yet given to Mr. Tan to deliver the boxes to TADECO[?] A. Tan to deliver these boxes to TADECO? A. sir. Tan to rush the carton but not[26] Q. assuming that respondent was obliged to deliver the boxes. Did you give authority to Mr. we must have to check the carton. your Honor. Q. the quantity and quality. admitted that he did not give respondent the authority to deliver the boxes to TADECO: Q. insisting that the boxes had not been manufactured.[27] . Are you trying to impress upon the [c]ourt that it is only after the boxes are completed. I asked Mr.[25] Moreover. it could not have complied with such obligation. No. Que. Yes. Tan to deliver these boxes to TADECO? A. But I have not seen a single carton. I have not seen any carton. Q. A. None. Because I have not seen any of my carton.

: The appellant Government Service Insurance System. plaintiff-appellee vs. No. having thereafter refused to make further payment of other stipulated installments until GSIS had made the house habitable. the subject boxes are still within respondents premises. respondent shall have the right to dispose of the boxes in any manner it may deem fit. defendant-appellant. GOVERNMENT SERVICE INSURANCE SYSTEM. the evidence having shown that respondent did not commit any breach of its contractual obligation. opting instead to cancel the award and demand the vacation by . After the lapse of said period and petitioner fails to effect such removal. the petition is DENIED. 2007 are AFFIRMED.Surely. Rizal.R. premises considered. without such authority. petitioner is given a period of 30 days from notice within which to cause the removal of the 36. In sum. 2006 and Resolution dated February 23. J. WHEREFORE. As previously stated. after petitioner is given a period of time within which to remove them from the premises. NARVASA. for short) having approved the application of the appellee Agcaoili for the purchase of a house and lot in the GSIS Housing Project at Nangka Marikina. we therefore relieve respondent from the burden of having to keep the boxes within its premises and. Agcaoili for plaintiff-appellee. TADECO would not have allowed respondent to deposit the boxes within its premises. and appellant having refused to do so. To put a rest to this dispute. give it the right to dispose of them. Agcaoili. (GSIS. L-30056 August 30. In addition.500 boxes from respondents warehouse. subject to the condition that the latter should forthwith occupy the house. after paying the first installment and other fees. the Court finds that petitioner failed to establish a cause of action for rescission. a condition that Agacoili tried to fulfill but could not for the reason that the house was absolutely uninhabitable. 1988 MARCELO AGCAOILI. G. Artemio L. The Court of Appeals Decision dated September 21. consequently. Office of the Government Corporate Counsel for defendant-appellant.

What the GSIS did was to cancel the award and require Agcaoili to vacate the premises. together with the housing unit constructed thereon.00 as damages and P300. toilet kitchen. Agcaoili paid the first monthly installment and the incidental fees. the GSIS having opted to dispense with presentation of its own proofs. The essential facts are not in dispute. drainage. bathroom. 5 Pending the action. Marikina. Agcaoili lost no time in occupying the house. 26.00 as and for attorney's fees. 6 Judgment was in due course rendered . lighting facilities. advised to occupy the said house immediately. because the house was nothing more than a shell. 8 to wit: 1) Declaring the cancellation of the award (of a house and lot) in favor of plaintiff (Mariano Agcaoili) illegal and void. The judgment was in Agcaoili's favor and contained the following dispositions. If you fail to occupy the same within three (3) days from receipt of this notice. to no avail.and 4) Ordering the defendant to pay P100. has been allocated to you. a certain Villanueva. were inexistent. and Agcaoili having sued the GSIS in the Court of First Instance of Manila for specific performance with damages and having obtained a favorable judgment. stairs. 26. double walling.7 on the basis of the evidence adduced by Agcaoili only. a written protest was lodged by other awardees of housing units in the same subdivision. He could not stay in it. and had to leave the very next day. to stay in the premises as some sort of watchman. The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Appellant GSIS would have this Court reverse this judgment on the argument that— . Rizal. water connection. 3) Ordering the defendant to complete the house in question so as to make the same habitable and authorizing it (defendant) to collect the monthly amortization thereon only after said house shall have been completed under the terms and conditions mentioned in Exhibit A .Agcaoili of the premises. the case was appealled to this Court by the GSIS. Its appeal must fail. Lot No. regarding the failure of the System to complete construction of their own houses. therefore. your application shall be considered automatically disapproved and the said house and lot will be awarded to another applicant. Block No. 2) Ordering the defendant (GSIS) to respect and enforce the aforesaid award to the plaintiff relative to Lot No. Block No. pending completion of the construction of the house. 3 but refused to make further payments until and unless the GSIS completed the housing unit. Agcaoili did however ask a homeless friend. and costs. has been approved by this Office. reading as follows: Please be informed that your application to purchase a house and lot in our GSIS Housing Project at Nangka. in such a state of incompleteness that civilized occupation was not possible: ceiling. (48) 2 of the Government Service Insurance System (GSIS) low cost housing project at Nangka Marikina. however. Rizal. (48) 2. Agcaoili thereafter complained to the GSIS. 4 Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specific performance and damages. Approval of Agcaoili's aforementioned application for purchase 1 was contained in a letter 2 addressed to Agcaoili and signed by GSIS Manager Archimedes Villanueva in behalf of the Chairman-General Manager. You are.

there had been a meeting of the minds upon the purchase by Agcaoili of a determinate house and lot in the GSIS Housing Project at Nangka Marikina. and was being sold "as is. making do with whatever he found available in the envirornment. the creation of an unfair situation. entitled "Application to Purchase a House and/or Lot." Neither the application form nor the acceptance or approval form of the GSIS — nor the notice to commence payment of a monthly amortizations. such circumstance precludes a judgment for specific performance. 26. has been allocated to you. On the other hand. Since GSIS did not fulfill that obligation." or in any case within three (3) days from notice. as seller. the duty of the GSIS. the contract can only be understood as imposing on the GSIS an obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated price. It sold a house to Agcaoili. together with the housing unit constructed thereon. "without the prior or subsequent knowledge or consent of the defendant (GSIS)" operated as a repudiation by Agcaoili of the award and a deprivation of the GSIS at the same time of the reasonable rental value of the property. By any objective interpretation of its terms. habitable." and assuming indefiniteness of the contract in this regard. and that indeed. and it was by reasonable standards. it could not be interpreted as meaning that the awardee would occupy it in the sense of a pioneer or settler in a rude wilderness. is to advocate an absurdity. This it failed to do. and a roof. signed it. it cannot invoke Agcaoili's suspension of payment of amortizations as .14 in other words. and required him to immediately occupy it under pain of cancellation of the sale. to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purpose contemplated ." Agcaoili filled up the form.e. and the latter having failed to comply with the condition. 9 2) Perfection of the contract of sale between it and Agcaoili being conditioned upon the latter's immediate occupancy of the house subject thereof. Rizal at a definite price payable in amortizations at P31. this form sent to Agcaoili. Villanueva. the condition explicitly imposed on Agcaoili — "to occupy the said house immediately. (and) he is deemed to have accepted the same in the condition he found it when he accepted the award. to be sure." i." and that "Lot No. in possession. as the GSIS does. no contract ever came into existence between them . since said unit had been sold "in the condition and state of completion then existing .. There was then a perfected contract of sale between the parties. duly filled up. and was not willing to put the house in habitable state. 13 It was. Block No.56 per month.10 3) Agcaoili's act of placing his homeless friend.1) Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of his housing unit. that this was what was intended by the parties. and from that moment the parties acquired the right to reciprocally demand performance. since the contract did not clearly impose upon it the obligation to deliver a habitable house.. 11 Agcaoili's offer to buy from GSIS was contained in a printed form drawn up by the latter.12 The acceptance of the application was also set out in a form (mimeographed) also prepared by the GSIS. and submitted it. MARIKINA. a structure consisting only of four walls with openings. to deliver the house subject of the contract in a reasonably livable state. in whatever state of completion it might be at the time. There would be no sense to require the awardee to immediately occupy and live in a shell of a house.. As already mentioned. the awardee should stay and live in it. RIZAL. and to theorize. Under the circumstances there can hardly be any doubt that the house contemplated was one that could be occupied for purposes of residence in reasonable comfort and convenience. (48) 2. otherwise his "application shall be considered automatically disapproved and the said house and lot will be awarded to another applicant" — would imply that construction of the house was more or less complete. advised him of the approval of his "application to purchase a house and lot in our GSIS Housing Project at NANGKA. which again refers to "the house and lot awarded" — contained any hint that the house was incomplete.

are incompetent so to do. to compel the GSIS to do so so that Agcaoili's prestation to pay the price might in turn be demanded. Equity regards the spirit of and not the letter. inequitable. or result in an unconscionable advantage to the plaintiff . This would leave the contract hanging or in suspended animation. 589 [1978]). that offer being contained in a printed form supplied by the GSIS. who being homeless and hence willing to accept shelter even of the most rudimentary sort. As we . as it were. through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases.. the substance rather than the circumstance. must be rejected as devoid of merit. assuming it to be feasible to still finish the construction of the house at this time. but that the consequences of specific performance likewise be equitable and just. Agcaoili unwilling to pay unless the house were first completed. it was after all the GSIS which caused the contract to come into being by its written acceptance of Agcaoili's offer to purchase. would not be quite fair. however. It will not do. " 16 In this case. the intent and not the form. Finally. the result of the specific enforcement of the contract would be harsh. The record shows that Agcaoili did try to fulfill the condition. agreed to stay therein and look after it. and that Agcaoili could not be compelled by the GSIS to pay the stipulated price of the house and lot subject of the contract until and unless it had first completed construction of the house. to the end that it may render complete justice to both parties. "(E)quity as the complement of legal jurisdiction seeks to reach and do complete justice where courts of law. The situation calls for the exercise by this Court of its equity jurisdiction. vs. The prevailing rule is that in decreeing specific performance equity requires 17 — . the question of interpretation arising therefrom. and by allowing another person to stay in it without the consent of the GSIS. Thus the argument that Agcaoili breached the agreement by failing to occupy the house. The cost to the GSIS of completion of construction at present prices would make the stipulated price disproportionate. Court of Industrial Relations (83 SCRA 579. Inc. under the circumstances of the case. or imprecise as to its exact prestation Blame for the imprecision cannot be imputed to Agcaoili.. the Court can not require specific performance of the contract in question according to its literal terms. which is precisely what has been the state of affairs between the parties for more than twenty (20) years now. reaffirmed in Air Manila. as it is variously expressed by different courts.. unrealistic. . 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. Said appellant having caused the ambiguity of which it would now make capital. oppressive.cause to cancel the contract between them. . not only that the contract be just and equitable in its provisions. He did however leave a friend in the structure. should be resolved against it. he did try to occupy the house but found it to be so uninhabitable that he had to leave it the following day. . the GSIS should not be heard to say that the agreement between it and Agcaoili is silent. The general rule is that this equitable relief will not be granted if.. to dispose of the controversy by simply declaring that the contract between the parties had not been validly cancelled and was therefore still in force."15 Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the latter had not complied with the condition of occupying the house within three (3) days. without modifying the price therefor. and the GSIS averse to completing construction. On the other hand. as this would result in inequity. It is axiomatic that "(i)n reciprocal obligations.

and not by the circumstances attending the inception of the litigation. Doughdrill v. the cost of the house in its unfinished state also as of the time of perfection of the contract. in its unfinished state.e.S. give everyone his due. In fact. rights. facts and exigencies of the case demand at the close of the trial or at the time of the making of the decree. the relief would be denied unless the complaint would undertake to pay the equitable value of the land. is AFFIRMED as being in accord with the facts and the law. and correspondingly adjusting the amortizations to be paid by petitioner Agcaoili. the Court may adjust the rights of parties in accordance with the circumstances obtaining at the time of rendition of judgment. Block No. as one form of relief to the plaintiff Agcaoili. Edwards. 59 Ala 424) 21 In determining the precise relief to give. (48) 2 of the GSIS low cost housing project at Nangka. to simply require payment for the land on which the house stands. Thus.22 The completion of the unfinished house so that it may be put into habitable condition. That would require an adjustment of the price of the subject of the sale to conform to present prices of construction materials and labor. "that judgment issue . (Willard & Tayloe [U. and observe honesty and good faith. and with equitable norms. Ed 501. Rizal. but will give relief appropriate to events occuring ending the suit. equity will administer such relief as the nature.In the exercise of its equity jurisdiction. In making up the final decree in an equity suit the judge may rightly consider matters arising after suit was brought.19 L. the relief to be accorded by the decree is governed by the conditions which are shown to exist at the time of making thereof. 19 That adjustment is entirely consistent with the Civil Law principle that in the exercise of rights a person must act with justice. 20 Adjustment of rights has been held to be particularly applicable when there has been a depreciation of currency. and orders the former to respect the aforesaid award and to pay damages in the amounts specified. as a general rule. no longer appears to be a feasible option in view of the not inconsiderable time that has already elapsed. Therefore. the Court will "balance the equities" or the respective interests of the parties. and take account of the relative hardship that one relief or another may occasion to them . as of the time of the contract. (o)rdering the defendant (GSIS) to execute a deed of sale that would embody and provide for a reasonable amortization of payment on the basis of the present actual unfinished and uncompleted condition. The Court is not restricted to an adjustment of the rights of the parties as they existed when suit was brought. the judgment of the Court a quo insofar as it invalidates and sets aside the cancellation by respondent GSIS of the award in favor of petitioner Agcaoili of Lot No. when these are significantly different from those existing at the time of generation of those rights. it has been held that where the currency in which the plaintiff had contracted to pay had greatly depreciated before enforcement was sought.] 8 Wall 557. as of the time of perfection of the contract.. this is an alternative relief proposed by Agcaoili himself. i. and for the house itself. in an action for the specific performance of a real estate contract." and instead it is hereby ORDERED that the contract between the parties relative to the property above described be modified by adding to the cost of the land. 23 WHEREFORE. 26. Said judgments is however modified by deleting the requirement for respondent GSIS "to complete the house in question so as to make the same habitable. Marikina. 18 While equitable jurisdiction is generally to be determined with reference to the situation existing at the time the suit is filed. the modification to be effected after determination by the Court a quo of the value of said house on the basis of the . It is more in keeping with the realities of the situation. worth and value of the said house. . Depreciation of the currency or other medium of payment contracted for has frequently been held to justify the court in withholding specific performance or at least conditioning it upon payment of the actual value of the property contracted for.

The application was accompanied by a transmittal letter.000 metric tons of Burmese rice. defendant-appellant. the relevant paragraphs of which read: In view of the fact that we do not have sufficient deposit with your institution with which to cover the amount required to be deposited as a condition for the opening of letters of credit. or if this is not possible by such commissioner or commissioners as the Court may appoint.000 metric tons of Burmess Rice at $203. No. As her bid of $203. under the terms of which the former obligated herself to deliver to the latter 20.: This is an appeal of the defendant-appellant NARIC from the decision of the trial court dated February 20. SO ORDERED. currency in favor of the plaintiff-appellee and/or supplier in Burma. INC. plaintiffs-appellees. Vera for defendant-appellee. MANILA UNDERWRITERS INSURANCE CO. L-15645 January 31. she was awarded the contract for the same. we will appreciate it if this application could be considered special case. plaintiff-appellee Paz P. plaintiff-appellee participated in the public bidding called by the NARIC for the supply of 20.00 as damages for breach of contract and dismissing the counterclaim and third party complaint of the defendant- appellant NARIC. In turn. G. the defendant corporation committed itself to pay for the imported rice "by means of an irrevocable. or a full month from the execution of the contract. confirmed and assignable Letter of Credit. The Government Corporate Counsel for defendant-appellant. No pronouncement as to costs.. to the NARIC in this decision must accordingly be adjusted and read as RCA pursuant to the aforementioned law. "the National Rice and Corn Administration (NARIC) is hereby abolished and all its assets. therefore. Teehankee and Carreon for plaintiffs-appellees. Accordingly. it was only on July 30." Despite the commitment to pay immediately "by means of an irrevocable.00 per metric ton. Isidro A. 1952. ARRIETA and VITALIADO ARRIETA. REGALA.000. confirmed and assignable letter of credit in U. liabilities. All references. CIF Manila. NATIONAL RICE AND CORN CORPORATION. and all personnel are transferred "to the Rice and Corn Administration (RCA). 3452. 1958. on July 1. thru its general manager. 1952. Arrieta and the appellant corporation entered into a Contract of Sale of Rice.R.. 1952.S. functions. ." however. 1964 PAZ P.agreement of the parties. vs. defendant-appellee.00 per metric ton was the lowest. powers which are not inconsistent with the provisions of this Act. In accordance with Section 13 of Republic Act No. that the defendant corporation. On May 19. J. immediately. took the first to open a letter of credit by forwarding to the Philippine National Bank its Application for Commercial Letter Credit. awarding to the plaintiffs-appellees the amount of $286.

And yet. it is imperative that the L/C be opened prior to that date. "equivalent to 5% of the F.614. amounting to 524. p.000..000. July 30. 19. price of 20." On August 4. p. 1-Pe.. On the foregoing. Exh.00 was forfeited. "for a letter of credit for $3. U.. please be advised that our application for opening of the letter of credit has been presented to the bank since July 30th but the latter requires that we first deposit 50% of the value of the letter amounting to aproximately $3. This offer for substitution.000. a full half month after the expiration of the deadline. Arrieta. 1952 "in favor of Thiri Setkya. and/or assignee for $3.000 kyats or approximately P200. When the futility of reinstating the same became apparent. Arrieta thru counsel. p.00 which we are not in a position to meet. in a letter dated August 2. currency. communicating at the same time that the offer was "a solution which should be beneficial to the NARIC and to us at the same time.00. advised the appellant corporation of the extreme necessity for the immediate opening of the letter credit since she had by then made a tender to her supplier in Rangoon. appellant corporation was unable to make good its commitment to open the disputed letter of credit. Furthermore. but failed. 1952. and in order to comply therewith.. a counterclaim was filed and the Manila Underwriters Insurance Company was brought to the suit as a third party defendant to hold it liable on the performance bond it executed in favor of the plaintiff-appellee.70 and in compliance with the regulations in Rangoon this 5% will be confiscated if the required letter of credit is not received by them before August 4." As it turned out." (Exh. Mrs. 1952. the appellant corporation not in any financial position to meet the condition. 18.B. The appellee endeavored. Burma. has a deadline to meet which is August 4.00 in favor of Thiri Setkya has been approved by the Board of Directors with the condition that marginal cash deposit be paid and that drafts are to be paid upon presentment. 10-def.000. 1952. 1äwphï1.. 1952. At the instance of the NARIC. . the credit instrument applied for was opened only on September 8. 1952.614. Exh.O. Folder of Exhibits). 1952. In this connection. 1952. Exh. or. We understand that our supplier. as the deadline for the remittance of the required letter of credit. Mrs. 1952. the Philippine National Bank informed the appellant corporation that its application. 38." (Emphasis supplied. demanding compensation for the damages caused her in the sum of $286. 9-Def. Paz P.00. J-pl.614. We would therefore request your full cooperation on this matter. the NARIC bluntly confessed to the appellee its dilemma: "In this connection. even with the 15-day grace. she offered to substitute Thailand rice instead to the defendant NARIC. The demand having been rejected she instituted this case now on appeal. Folder of Exhibits)." (which is more than two months from the execution of the contract) the party named by the appellee as beneficiary of the letter of credit.000. however. was rejected by the appellant in a resolution dated November 15. however." (Exh. On the same day. to restore the cancelled Burmese rice allocation. Paz P. Exh. it must be made of record that although the Burmese authorities had set August 4. X-Pe.ñët As a result of the delay. Burma.000 tons at $180. the Bank represented that it "will hold your application in abeyance pending compliance with the above stated requirement. Folder of Exhibits) Consequently. the appellee sent a letter to the appellant. Rangoon.. the cancellation of the allocation and the confiscation of the 5% deposit were not effected until August 20.S. As matter of fact. the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit. representing unrealized profit. 25—Def.

In the first place. General Manager of the NARIC." (Emphasis supplied) The liability of the appellant. therefore. Appellant contends that the disputed negotiable instrument was not promptly secured because the appellee . from the correspondence and communications which form part of the record of this case. namely. company or corporation in whose favor it is to be opened. the issue is whether appellant's failure to open immediately the letter of credit in dispute amounted to a breach of the contract of July 1.. has been approved by the Board of Directors with the condition that 50% marginal cash deposit be paid and that drafts are to be paid upon presentment. notwithstanding its previous intention to do so. opened and released as early as August 4. Nothing in the record suggests any arbitrary or abusive conduct on the part of the trial judge in the formulation of the ruling. . These statements have not been controverted and defendant NARIC. therefore.. The explanation refers to a question of fact. then the letter of credit would have been approved. 1952) to Mr. This failure must. Plaintiff stated in Court that these facts were known to defendant even before the contract was executed because these facts were necessarily revealed to the defendant before she could qualify as a bidder. On the contrary. Secondly. stems not alone from this failure or inability to satisfy the requirements of the bank.We find for the appellee. For the record. the disposition of this case depends on a determination of who was responsible for such failure. appellant's "application for a letter of credit . Appellant corporation disclaims responsibility for the delay in the opening of the letter of credit. Appellant's explanation has neither force nor merit. GABRIEL BELMONTE. "(1) the amount of the letter of credit. We do not think the appellant corporation can refute the fact that had it been able to put up the 50% marginal cash deposit demanded by the bank. His conclusion on the matter is sufficiently borne out by the evidence presented. both orally and in writing and that she also pressed for the opening of the letter of credit on these occasions. however. 1952 for which it may be held liable in damages. The letter of the Philippine National Bank to the NARIC was plain and explicit that as of the said date. there would have been no delay in securing the instrument. "A" (the contract of July 1. be taken as the immediate cause for the consequent damage which resulted. Stated differently. it is clear that what singularly delayed the opening of the stipulated letter of credit and which. It is clear upon the records that the sole and principal reason for the cancellation of the allocation contracted by the appellee herein in Rangoon. was the failure of the letter of credit to be opened with the contemplated period. the explanation reaches into an area of the proceedings into which We are not at liberty to encroach. failed to seasonably furnish data necessary and required for opening the same. caused the cancellation of the allocation in Burma. the prerogative to disturb that finding. 1952. it insists that the fault lies with the appellee. therefore. and (3) the place and bank where it may be negotiated. the amount and the bank is not tenable.. was the inability of the appellant corporation to meet the condition importation by the Bank for granting the same. (2) the person. She stated too that she had given the necessary data immediately after the execution of Exh. Belmonte to testify or refute this. that had these informations been forthwith furnished it. We base this judgment upon the letter which accompanied the application filed by the . if any in opening the letter of credit was due to the failure of plaintiff to name the supplier. Its culpability arises from its willful and deliberate assumption of contractual obligations even as it was well aware of its financial incapacity to undertake the prestation. in turn. consonant to the time-honored tradition of this Tribunal to hold trial judges better situated to make conclusions on questions of fact. We are denied.. As it is then. Burma. failed to present Mr." Appellant would have this Court believe. We quote hereunder the lower court's ruling on the point: The defense that the delay.

F. currency. Manila . Having entered in the contract... 657). that appellant also knew it could not meet those requirement. Court of Appeals. documentary and other evidence establish with equal certainty that the plaintiff-appellee was able to secure the contracted commodity at the cost price of $180. it should have taken steps immediately to arrange for the letter of credit for the large amount involved and inquired into the possibility of its issuance. First. 459. Civil Code of the Philippines. negligence or default in the performance of obligations a decreed liable. We have carefully examined and studied the oral and documentary evidence presented in this case and upon which the lower court based its award.) The NARIC would also have this Court hold that the subsequent offer to substitute Thailand rice for the originally contracted Burmese rice amounted to a waiver by the appellee of whatever rights she might have derived from the breach of the contract. negligence.I. all net shipped weight. 54 Phil. 916.000 metric tons of Burmese rice at "$203. 46 Phil. 49 Phil. Having called for bids for the importation of rice involving millions. in general.) In the case at bar. it should have a certained its ability and capacity to comply with the inevitably requirements in cash to pay for such importation. (IV Tolentino. and those who in any manner contravene the tenor thereof. appellant admitted and owned that it did "not have sufficient deposit with your institution (the PNB) with which to cover the amount required to be deposited as a condition for the opening of letters of credit. 52 O. Dollars per metric ton. Chong.S. In relation to the aforequoted observation of the trial court. Diaz. ." On the other hand. Pando v.00 to be exact. Enriquez. 103. De la Cavada v. Pasumil v.. We disagree. Considering freights. and all in U. Maluenda & Co. 18 Phil. 982. therefore. Cajuigan. Acme Films v.. are liable in damages. every debtor who fails in performance of his obligations is bound to indemnify for the losses and damages caused thereby (De la Cruz Seminary of Manila. v. 330. citing authorities. no such intent to waive has been established.000. $4. or delay. 184. that the appellant knew the bank requirements for opening letters of credit. especially since it had imposed the supplier the 90- day period within which the shipment of the rice must be brought into the Philippines. 63 Phil. C. not only debtors guilty of fraud. either by express stipulation or acts admitting no other reasonable explanation.00 U. appellant agreed in paragraph 8 of the contract to pay immediately "by means of an irrevocable. a part of which letter was quoted earlier in this decision. A number of logical inferences may be drawn from the aforementioned admission. Municipality of Moncada v. confirm and assignable letter of credit. but must be clearly and convincingly shown. p.appellant with the bank. it must be deemed to have impliedly assured suppliers of its capacity and facility to finance the importation within the required period.S. despite this awareness that was financially incompetent to open a letter of credit immediately. 21 Phil. We would like to make reference also to Article 11 of the Civil Code which provides: Those who in the performance of their obligation are guilty of fraud. second. Waivers are not presumed. The phrase "any manner contravene the tenor" of the obligation includes any illicit act which impairs the strict and faithful fulfillment of the obligation or every kind or defective performance. aptly observed by the trial court: . Gimenez.G. (Ramirez v. In the said accompanying correspondence. 1003.. 37 Phil.260. the award . Theaters Supply. When. . the NARIC bound itself to buy 20.." it must be similarly held to have bound itself to answer for all and every consequences that would result from the representation.70 per metric ton from her supplier in Burma. insurance and charges incident to its shipment here and the forfeiture of the 5% deposit. Under the contract. Under this provision. Having announced the bid. 779.

This ruling. Currency. Currency. And yet.25 for shipping and about $164 for insurance. Should it be at the time of the breach. Lastly. Republic Act 529 specifically requires the discharge of obligations only "in any coin or currency which at the time of payment is legal tender for public and private debts.granted by the lower court is fair and equitable. A precise and more exact demonstration of the equity of the award herein is provided by Exhibit HH of the plaintiff and Exhibit 34 of the defendant.00 from the disputed transaction inspite of the extra expenditures from which the herein appellee was exempt. Mrs. Arrieta was supposed to pay her supplier in Burma at the rate of One Hundred Eighty Dollars and Seventy Cents ($180. U. . per ton or a total of Two Hundred and Eighty Six Thousand Dollars ($286. We reproduce below the testimony of the appellee.000.00 We had to pay also $6. This counterclaim was supported by a cost study made and submitted by the appellant itself and wherein it was illustrated how indeed had the importation pushed thru. likewise by way of unrealized profit damages in the total sum of $406. Velasco & Co. 115.. under the cost study submitted by the appellant. 47 Phil. We ruled that in an action for recovery of damages for breach of contract.00 from the failure of the projected contract to materialize. even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency. adequately supported by the evidence and record: Q. and other communications subsequent thereto for the opening by your corporation of the required letter of credit.25 per metric ton.200.000 equals $300. Currency. 1959. however. This brings us to a consideration of what rate of exchange should apply in the conversion here decreed." In view of that law. banking and unloading charges were to be shouldered by it. however. Will you please tell the court. including an Import License Fee of 2% and superintendence fee of $0. hereunder quoted so far as germane.. per ton plus Eight Dollars ($8.S. The above testimony of the plaintiff was a general approximation of the actual figures involved in the transaction.00).000. can neither . therefore. currency and not in Philippine Peso. did not have to incur. In the case of Engel v. the award should be converted into and expressed in Philippine Peso.S.00 was realizable by appellant despite a number of expenses which the appellee under the contract.99 that would be $15. a minor modification must be effected in the dispositive portion of the decision appeal from insofar as it expresses the amount of damages in U.30).S. the said amount of P406.01 gross profit per metric ton.00) in the same currency per ton for shipping and other handling expenses. the freight. multiply by 20. If the NARIC stood to profit over P400 000.00 per metric ton.. how much is the damage you suffered? A.70) in U. NARIC would have realized in profit the amount asserted in the counterclaim. the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of the judgment rather than at the rate of exchange prevailing on the date of defendant's breach. Thus. Because the selling price of my rice is $203. In the premises. so that she is already assured of a net profit of Fourteen Dollars and Thirty Cents ($14.. For a clearer view of the equity of the damages awarded.000.S. the total would be about $187. U. in the aforesaid transaction. So adding the cost of the rice. that is my supposed profit if I went through the contract. It is equally of record now that as shown in her request dated July 29. we are convicted of the fairness of the judgment presently under appeal. the insurance. and the cost price of my rice is $180. at the time the obligation was incurred or at the rate of exchange prevailing on the promulgation of this decision. herein appellant filed a counterclaim asserting that it has suffered.

Juan Ysmael & Co. The incident was entered in the police blotter of the Southern Police District. 17 Aguirre Ave. J.00. Jr. LULU V. No. On November 2. 1987. G. petitioners. Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the floor.. respondents. BF Homes Parañaque.R. L-9090. But now we have Republic Act No. 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. in the light of this judgment. the decision appealed from is hereby affirmed. two (2) male unidentified persons entered into the said office with guns drawn. in CA G. SICAM and AGENCIA de R. SICAM. with the sole modification that the award should be converted into the Philippine peso at the rate of exchange prevailing at the time the obligation was incurred or on July 1.: Before us is a Petition for Review on Certiorari filed by Roberto C. And. Parañaque Police Station as follows: Investigation shows that at above TDPO. Sicam. as We already pronounced in the case of Eastboard Navigation. 1. C. It appears that on different dates from September to October 1987. No pronouncement as to costs. if there is any agreement to pay an obligation in a currency other than Philippine legal tender. No. . 529 which expressly declares such stipulations as contrary to public policy. Metro Manila. 2007 ROBERTO C. On October 19." UPON ALL THE FOREGOING. two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault... 56633. Suspects asked forcibly the case and assorted pawned jewelries items mentioned above. void and of no effect. Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R.500. and the most that could be demanded is to pay said obligation in Philippine currency "to be measured in the prevailing rate of exchange at the time the obligation was incurred (Sec. (petitioner corporation) seeking to annul the Decision1 of the Court of Appeals dated March 31. INC. Inc. vs. 1987. 2003.C. Sicam.C. is relieved of any liability under this suit.. while victims were inside the office. 2003. 159617 August 8. JORGE and CESAR JORGE. respondent Lulu then wrote a letter4 to petitioner Sicam expressing disbelief stating that when the robbery happened.R. the same is null and void as contrary to public policy (Republic Act 529). and its Resolution2 dated August 8. September 10. CV No. Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number. The appellee insurance company. to secure a loan in the total amount of P59. Inc.be applied nor extended to the case at bar for the same was laid down when there was no law against stipulating foreign currencies in Philippine contracts. 1957. DECISION AUSTRIA-MARTINEZ. G.3 Petitioner Sicam sent respondent Lulu a letter dated October 19. v. Lulu V. Sicam located at No.R. idem). 1952 when the contract was executed. Ltd. (petitioner Sicam) and Agencia de R.

premises considered. that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous. The case was docketed as Civil Case No.of the Regional Trial Court of Makati. . 1987 but petitioner Sicam failed to return the jewelry. Branch 62. 88-2035.C. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6. 1989. respondent Lulu joined by her husband.00. that in the Amended Complaint of respondents. Respondents opposed the same. and that as a consequence of the separate juridical personality of a corporation. Respondents subsequently filed an Amended Complaint to include petitioner corporation. On September 28. In a Decision dated March 31. filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual. they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop". the instant Appeal is GRANTED. Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April 20. and the Decision dated January 12.5 After trial on the merits. Inc. petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest. 1993. the RTC rendered its Decision6 dated January 12. that robbery is a fortuitous event which exempts the victim from liability for the loss. 1987 and known as Agencia de R. 1174 of the Civil Code. the CA applied the doctrine of piercing the veil of corporate entity reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them bear the words "Agencia de R. moral and exemplary damages as well as attorney's fees. The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery. is hereby REVERSED and SET ASIDE. the dispositive portion of which reads as follows: WHEREFORE. ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272.C. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction. citing the case of Austria v.8 In finding petitioner Sicam liable together with petitioner corporation. Sicam". 1988.7 and that the parties’ transaction was that of a pledgor and pledgee and under Art. and attorney' fees of P27.200. advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Cesar Jorge. Thereafter.all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw. Respondents appealed the RTC Decision to the CA. The RTC denied the motion in an Order dated November 8. and that there was no indication on the pawnshop tickets that it was the petitioner corporation that owned the pawnshop which explained why respondents had to amend their complaint impleading petitioner corporation.00. the CA reversed the RTC. 1993. Court of Appeals.000. the pawnshop as a pledgee is not responsible for those events which could not be foreseen. 2003. dismissing respondents’ complaint as well as petitioners’ counterclaim. the corporate debt or credit is not the debt or credit of a stockholder. Sicam.

5-6 of the Appellants’ brief."10 Petitioners argue that the reproduced arguments of respondents in their Appellants’ Brief suffer from infirmities. THE COURT OF APPEALS ERRED. Sicam Pawnshop. as follows: (1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R. Petitioners’ motion for reconsideration was denied in a Resolution dated August 8. Hence. 2003. i. and therefore. Inc. The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned jewelry. petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of respondents’ brief which had the following defects: (1) There were unrebutted evidence on record that petitioners had observed the diligence required of them. AND WHEN IT DID. (2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court. it was error for the CA to have pierced the corporate veil since a corporation has a personality distinct and separate from its individual stockholders or members. IT OPENED ITSELF TO REVERSAL. Anent the second error. Sicam. and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee. and (3) By reason of the above infirmities.C. that Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day. WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD. they wanted to open a vault with a nearby bank for purposes of . WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF.9 Anent the first assigned error.C. petitioners point out that the CA’s finding that petitioner Sicam is personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction of the arguments set out on pp. the instant petition for review with the following assignment of errors: THE COURT OF APPEALS ERRED AND WHEN IT DID. IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT. WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE. is the present owner of Agencia de R. that they are at least guilty of contributory negligence and should be held liable for the loss of jewelries.The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do.e. the CA cannot rule against said conclusive assertion of respondents.

11 Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate court. The receipts issued after such alleged incorporation were still in the name of "Agencia de R. in his letter16 dated October 15.12 This rule." notwithstanding that the pawnshop was allegedly incorporated in April 1987. C. safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB rules provide that they can only store the pawned articles in a vault inside the pawnshop premises and no other place. Respondents filed their Comment and petitioners filed their Reply thereto. Even petitioners’ counsel. Balgos. all bear the words "Agencia de R. however. Chairman. as long as these are legally tenable and supported by law and the facts on records. (2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries.15 Notably. C. Sicam. the findings of fact of the appellate court are deemed conclusive and we are not duty-bound to analyze and calibrate all over again the evidence adduced by the parties in the court a quo. the pawnshop was owned by petitioner Sicam himself. or at the very least. 1987 addressed to the Central Bank. The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues. is not without exceptions. 14 The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them. However. Article VIII of the Constitution. the evidence on record shows that at the time respondent Lulu pawned her jewelry. insurance companies refused to cover pawnshops and banks because of high probability of losses due to robberies. To begin with. The parties subsequently submitted their respective Memoranda. Generally. expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987. but it is judicial notice that due to high incidence of crimes. The discretion to decide a case one way or another is broad enough to justify the adoption of the arguments put forth by one of the parties. creating the wrong impression to respondents and the public as well. the victim of robbery was exonerated from liability for the sum of money belonging to others and lost by him to robbers. Upon examination of the Decision. Marcial T. (3) In Hernandez v. As correctly observed by the CA." thus inevitably misleading. . Commission on Audit (179 SCRA 39. after a careful examination of the records. although it is true that indeed the CA findings were exact reproductions of the arguments raised in respondents’ (appellants’) brief filed with the CA. we find no justification to absolve petitioner Sicam from liability. such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory13 as is obtaining in the instant case. We find no merit in the petition. Sicam. 45-46). in all the pawnshop receipts issued to respondent Lulu in September 1987. that the pawnshop was owned solely by petitioner Sicam and not by a corporation. we find the same to be not fatally infirmed. The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. we find that it expressed clearly and distinctly the facts and the law on which it is based as required by Section 8. Atty.

19 . but cites the admission "out of context. i. made by a party in the course of the proceedings in the same case. not in the sense in which the admission is made to appear." the rule would not really be providing for a contradiction of the admission but just a denial. x x x that the party can also show that he made no "such admission". in their Opposition to petitioners’ Motion to Dismiss Amended Complaint. the general rule that a judicial admission is conclusive upon the party making it and does not require proof. respondents. the CA is bound to decide the case on that basis. to wit: (1) when it is shown that such admission was made through palpable mistake.e. Moreover.17 The Committee on the Revision of the Rules of Court explained the second exception in this wise: x x x if a party invokes an "admission" by an adverse party. verbal or written." then the one making the "admission" may show that he made no "such" admission. Markedly. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in this case did not show that the R. In paragraph 1 of his Answer. insofar as petitioner Sicam is concerned. That is the reason for the modifier "such" because if the rule simply states that the admission may be contradicted by showing that "no admission was made. a reading of the Amended Complaint in its entirety shows that respondents referred to both petitioner Sicam and petitioner corporation where they (respondents) pawned their assorted pieces of jewelry and ascribed to both the failure to observe due diligence commensurate with the business which resulted in the loss of their pawned jewelry. Thus.18 (Emphasis supplied). The latter exception allows one to contradict an admission by denying that he made such an admission. the merit of which can only be reached after consideration of the evidence to be presented in due course. admits of two exceptions." It was defendant Sicam's omission to correct the pawnshop tickets used in the subject transactions in this case which was the cause of the instant action. He merely added "that defendant is not now the real party in interest in this case. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. It is a matter of defense. he admitted the allegations in paragraph 1 and 2 of the Complaint. they did so only because petitioner Sicam alleged in his Answer to the original complaint filed against him that he was not the real party-in-interest as the pawnshop was incorporated in April 1987.We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop. or that his admission was taken out of context. Sicam Pawnshop was a corporation. does not require proof. He cannot now ask for the dismissal of the complaint against him simply on the mere allegation that his pawnshop business is now incorporated.. While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop. Section 4 Rule 129 of the Rules of Court provides that an admission. and (2) when it is shown that no such admission was in fact made.C. averred as follows: Roberto C.

The amended complaint itself asserts that "plaintiff pawned assorted jewelries in defendant's pawnshop. 1174. Except in cases expressly specified by the law. the corporate debt or credit is not the debt or credit of the stockholder. though foreseen. Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all. Sicam. Jr likewise denies liability as far as he is concerned for the reason that he cannot be made personally liable for a claim arising from a corporate transaction. In the pre-trial brief filed by petitioner Sicam. as is commonly believed but it must be one impossible to foresee or to avoid. Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in- interest because since April 20. Ineluctably.C. It is therefore. the fact that petitioner Sicam continued to issue pawnshop receipts under his name and not under the corporation's name militates for the piercing of the corporate veil. as it was not an issue raised and litigated before the RTC. This Court sustains the contention of the defendant Roberto C. not enough that the event should not have been foreseen or anticipated.20 In fact. no person shall be responsible for those events which could not be foreseen or which. nor is the stockholder's debt or credit that of a corporation. or when it is otherwise declared by stipulation. the basic issue was whether he is the real party in interest against whom the complaint should be directed. the pawnshop business initiated by him was incorporated and known as Agencia de R. Jr. The next question is whether petitioners are liable for the loss of the pawned articles in their possession. he subsequently moved for the dismissal of the complaint as to him but was not favorably acted upon by the trial court." It has been held that " as a consequence of the separate juridical personality of a corporation. We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate fiction of petitioner corporation. or when the nature of the obligation requires the assumption of risk. Article 1174 of the Civil Code provides: Art. the alleged admission made in respondents' Amended Complaint was taken "out of context" by petitioner Sicam to suit his own purpose. by the trial court in its Decision in this manner: x x x The defendant Roberto Sicam.21 Clearly. Moreover. We are not persuaded. 22 . the issue was squarely passed upon. Sicam. he submitted that as far as he was concerned. were inevitable. the issue of whether petitioner Sicam is personally liable is inextricably connected with the determination of the question whether the doctrine of piercing the corporate veil should or should not apply to the case. The mere difficulty to foresee the happening is not impossibility to foresee the same. 1987.Unmistakably. although erroneously. in view of the alleged incorporation of the pawnshop. Fortuitous events by definition are extraordinary events not foreseeable or avoidable.

One's negligence may have concurred with an act of God in producing damage and injury to another.To constitute a fortuitous event. A police report of an alleged crime. 25 It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss.the whole occurrence is humanized and removed from the rules applicable to acts of God. other than the police report of the alleged carnapping incident. 23 The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. in order for a fortuitous event to exempt one from liability. if it can be foreseen. nonetheless. To be considered as such. as in cases of carnapping. but actually foreseen and anticipated. (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner. 26 Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability.24 And. it must be impossible to avoid. Moreover. It does not foreclose the possibility of negligence on the part of herein petitioners. However. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable. (b) it must be impossible to foresee the event that constitutes the caso fortuito or. the burden of proving that the loss was due to a fortuitous event rests on him who invokes it — which in this case is the private respondent. When the effect is found to be partly the result of a person's participation -- whether by active intervention. In accordance with the Rules of Evidence. he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. no other evidence was presented by private respondent to the effect that the incident was not due to its fault.27 the Court held: It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. contradicts petitioners’ defense of fortuitous event. does not automatically give rise to a fortuitous event. it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned. He likewise testified that when he started the pawnshop business in 1983. to which only private respondent is privy. Court of Appeals. neglect or failure to act -. in effect. does not suffice to establish the carnapping. Carnapping per se cannot be considered as a fortuitous event. Robbery per se. is not a fortuitous event. Petitioner Sicam’s testimony.28 . just like carnapping. carnapping entails more than the mere forceful taking of another's property. In Co v. (d) the obligor must be free from any participation in the aggravation of the injury or loss. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. The fact that a thing was unlawfully and forcefully taken from another's rightful possession. the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent. and.

petitioners merely presented the police report of the Parañaque Police Station on the robbery committed based on the report of petitioners' employees which is not sufficient to establish robbery. Q. 1173. Article 1173 of the Civil Code further provides: Art. The provision on pledge. negligence. Do you have security guards in your pawnshop? A. If the law or contract does not state the diligence which is to be observed in the performance. and those who in any manner contravene the tenor thereof. 1170. mortgage and antichresis. When negligence shows bad faith. Such report also does not prove that petitioners were not at fault. I am asking you how were the robbers able to enter despite the fact that there was a security guard? . On the contrary. the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code. by the very evidence of petitioners. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons. how much more a pawnshop. Petitioners were guilty of negligence in the operation of their pawnshop business. Q. of time and of the place. or delay. the provisions on pledge. A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. We expounded in Cruz v. particularly Article 2099 of the Civil Code.Just like in Co. to wit: Art. paragraph 2 shall apply. Gangan30 that negligence is the omission to do something which a reasonable man. This means that petitioners must take care of the pawns the way a prudent person would as to his own property. Sir. guided by those considerations which ordinarily regulate the conduct of human affairs. Those who in the performance of their obligations are guilty of fraud. that which is expected of a good father of a family shall be required. Yes. your honor.31 It is want of care required by the circumstances. the special laws and regulations concerning them shall be observed. provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family.29 Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges. Petitioner Sicam testified. thus: Court: Q. and subsidiarily. are liable for damages. would do. In this connection. the provisions of Articles 1171 and 2201. Then how come that the robbers were able to enter the premises when according to you there was a security guard? A. if these robbers can rob a bank. or the doing of something which a prudent and reasonable man would not do.

We. Q. however. 1973. and which was issued pursuant to Presidential Decree No. there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. There was no clear showing that there was any security guard at all. A. Did you come to know how the vault was opened? A. . it is provided that pawns pledged must be insured. there was more reason for petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries. petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to observe the care. do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned jewelries. The combination is off. which took effect on July 13. Yes sir. by an insurance company accredited by the Insurance Commissioner. 17. Further.45 pistols each. Rules and Regulations for Pawnshops. the combination was already off. that he had sufficient training in securing a pawnshop. Pawnshop Regulation Act. Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the area in BF Homes Parañaque at that time was quiet. they let open the vault. Instead of taking the precaution to protect them. Under Section 17 of Central Bank Circular No. In fact. No one open (sic) the vault for the robbers? A. it is even doubtful that there was a security guard. Furthermore. since it is quite impossible that he would not have noticed that the robbers were armed with caliber . to wit: Sec. 114. 374. Q.33 Significantly. When the pawnshop is official (sic) open your honor the pawnshop is partly open. Q. No one your honor it was open at the time of the robbery.32 revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently. providing no difficulty for the robbers to cart away the pawned articles. no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. A. Petitioner Sicam testified that once the pawnshop was open. Or if there was one.The place of business of a pawnshop and the pawns pledged to it must be insured against fire and against burglary as well as for the latter(sic). Insurance of Office Building and Pawns. which were allegedly poked at the employees. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon and it happened on a Saturday and everything was quiet in the area BF Homes Parañaque they pretended to pawn an article in the pawnshop. so one of my employees allowed him to come in and it was only when it was announced that it was a hold up. It is clear now that at the time of the robbery the vault was open the reason why the robbers were able to get all the items pawned to you inside the vault. the alleged security guard was not presented at all to corroborate petitioner Sicam's claim. not one of petitioners' employees who were present during the robbery incident testified in court. precaution and vigilance that the circumstances justly demanded.

there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that petitioners were negligent. it would only be sufficient that the unforeseen event. as the Abads failed to prove robbery. a Friday. however. that Maria Abad was guilty of negligence. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its value.However.34 Thus. The CA. In Austria. Moreover. 17 Insurance of Office Building and Pawns – The office building/premises and pawns of a pawnshop must be insured against fire. We held that for the Abads to be relieved from the civil liability of returning the pendant under Art. unlike in Austria. Chairman. the robbery. Gangan37 cited by petitioners in their pleadings. the cases of Austria v. and this can be done by preponderance of evidence. the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. where no negligence was committed. 1980. the City of Manila and its suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a matter to be sedulously avoided without suitable precaution and protection. i. (emphasis supplied). The robbery in the pawnshop happened in 1987. 1961. that to be free from liability for reason of fortuitous event. the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code. the Central Bank considered it not feasible to require insurance of pawned articles against burglary. The incident became the subject of a criminal case filed against several persons. In Hernandez. The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in which he is placed and the importance of the act which he is to perform. he went to . reversed the RTC decision holding that the fact of robbery was duly established and declared the Abads not responsible for the loss of the jewelry on account of a fortuitous event. or.38 We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971. 1983. if committed. took place without any concurrent fault on the debtor’s part. Court of Appeals. In the morning of July 1. this Section was subsequently amended by CB Circular No.. we found petitioners negligent in securing their pawnshop as earlier discussed. Commission on Audit36 and Cruz v. be free of any concurrent or contributory fault or negligence. the debtor must. but the Abads set up the defense that the robbery extinguished their obligation. In contrast. the robbery happened ten years previously. to wit: Sec. Obviously. where the requirement that insurance against burglary was deleted. Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis.e. in addition to the casus itself. but which Abad failed to subsequently return because of a robbery committed upon her in 1961. when criminality had not reached the level of incidence obtaining in 1971. 1174 of the Civil Code. The RTC ruled in favor of Austria. 764 which took effect on October 1. Nevertheless. find no application to the present case. Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine Tourism in Cavite.35 Hernandez v. However we did not hold Abad liable for negligence since. where the victims of robbery were exonerated from liability. that the conduct of Maria Abad in returning alone to her house in the evening carrying jewelry of considerable value would have been negligence per se and would not exempt her from responsibility in the case of robbery. and considering the above-quoted amendment.

he had two choices: (1) return to Ternate. that any prudent and rational person under similar circumstance can reasonably be expected to do the same. a little past 3 p. She then reported the incident to the police authorities. He chose the second option. and (2) that choosing Marilao as a safer destination. that because of her relatively low position and pay. the workers would have to wait until July 5. the risk of theft would have also been present. and the robbers jumped out of the jeep and ran.00. because to encash the check on July 5. Thus. a non-working. the next working day after July 1. that possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus. boarded the Light Rail Transit (LRT) from Sen. We reversed the ruling and found that riding the LRT cannot per se be denounced as a negligent act more so because Cruz’s mode of transit was influenced by time and money considerations. thinking it was the safer one. and leave for Ternate the following day. At that time. Nevertheless.Manila to encash two checks covering the wages of the employees and the operating expenses of the project. Camanava District Director of Technological Education and Skills Development Authority (TESDA). being nearer. and she requested that she be freed from accountability for the cellphone. Petitioners had the means to screen the persons who were allowed entrance to the premises and to protect itself from unlawful intrusion. Among those stolen were her wallet and the government-issued cellular phone. the robbery in this case took place in the pawnshop which is under the control of petitioners. In Cruz. The Commission on Audit found Hernandez negligent because he had not brought the cash proceeds of the checks to his office in Ternate. Hernandez chased the robbers and caught up with one robber who was subsequently charged with robbery and pleaded guilty. the earliest time. Filonila O. However for some reason. and the cellphone was not recovered. Cruz. however. Unlike in Hernandez where the robbery happened in a public utility. and in view of the comparative hazards in the trips to the two places. Cavite for safekeeping. The other robber who held the stolen money escaped. Petitioners had failed to exercise precautionary measures in ensuring that the robbers were prevented from entering the pawnshop and for keeping the vault open for the day.238. Bulacan. Dr. which is the normal procedure in the handling of funds. he took a passenger jeep bound for Bulacan. the processing of the check was delayed and was completed at about 3 p..m. or (2) take the money with him to his house in Marilao. Bulacan instead of Ternate. The COA found no sufficient justification to grant the request for relief from accountability. he decided to encash the check because the project employees would be waiting for their pay the following day. While the jeep was on Epifanio de los Santos Avenue. a Saturday. she was not expected to have her own vehicle or to ride a taxicab. Puyat Avenue to Monumento when her handbag was slashed and the contents were stolen by an unidentified person. We further held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a busy highway and in the presence of other passengers could not be said to be a result of his imprudence and negligence. said decision seemed logical at that time. which paved the way for the robbers to easily cart away the pawned articles. when the main office would open. The Resident Auditor denied her request on the ground that she lacked the diligence required in the custody of government property and was ordered to pay the purchase value in the total amount of P4. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao. otherwise. that the records did not show any specific act of negligence on her part and negligence can never be presumed. Cavite due to the lateness of the hour for the following reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and salaries the following day.m. she did not have a government assigned vehicle. the jeep was held up and the money kept by Hernandez was taken. would have caused discomfort to laborers who were dependent on their wages for sustenance. She also reported the loss to the Regional Director of TESDA. Cavite that same afternoon and arrive early evening. the thief was not located. spend the night there. . that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting. that placing the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board the LRT.

L-47379 (May 16. passing through corporations’ Angat Hydro-electric Project and Dam. (petitioner. .Unlike in the Cruz case. 4. to furnish all tools. To prevent an overflow of water from the dam. the Decision of the Court of Appeals dated March 31. Whether or not the destruction and loss of ECI’s equipment and facilities were due to force majeure. On November 4. all the equipment no longer needed there were transferred to another site where some projects were yet to be completed. Intake and Outlet Structures. and hit the installations and construction works of ECI at Ipo site with terrific impact. Some portion of the Bicti site were still under construction (2nd phase). are AFFIRMED. The project involves two (2) major phases: (1) tunnel work covering a distance of 7 kilometres and (2) the outworks at both ends of the tunnel. 5. the National Power Corporation(NPC) caused the opening of the spillway gates. as a result of which the latter’s stockpile of materials supplies. The ECI already had completed the first major phase of the work (Tunnel Excavation Work). 2003. Costs against petitioners. Court of Appeals 161 SCRA 334. 1998) Facts: 1. Inc. No. Extraordinary large volume of water rushed out of the gates. and Appurtenant Features at Norzagaray. except for the insurance aspect. camp facilities and permanent structures and accessories whether washed away. 6. 1967. ECI for brevity). Issue/s: 1. which will exempt NPC from liability. whereby the former undertook: 1. Bulacan and to complete said works within 800 calendar days. 3. executed a contract in Manila with the National Waterworks and Sewerage Authority (NAWASA). Typhoon “Welming” hit Central Luzon. equipment and materials. Due to the heavy downpour. National Power Corporation v. and 2. Engineering Construction. G. and Appurtenant Structures. lost or destroyed. WHEREFORE. labor. the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the precautions justly demanded of a pawnshop. 2003 and its Resolution dated August 8. being a successful bidder. the water in the reservoir of the Angat Dam was rising perilously at the rate of 60 cm per hour. to construct the proposed 2nd Ipo-Bicti Tunnel. (Angat Hydro-electric Project and Dam) 2.R.

Ruling:

1. No, NPC will not be exempted from liability. NPC was undoubtedly negligent
because it opened the spillway gates of the Angat Dam only at the height of
typhoon “Welming” when it knew very well that it was safer to have opened the
same gradually and earlier, as it was also undeniable that NPC know of the
coming typhoon at least four days before it actually struck.

The typhoon was an act of God or what we may call force majeure, NPC cannot escape
liability because its negligence was the proximate cause of the loss and damage.

As we have ruled in Juan F. Nakpil & Sons v. Court of Appeals:

“If upon the happening of a fortuitous event or an act of God, there concurs a
corresponding fraud, negligence, delay or violation or contravention in any manner of
the tenor of the obligation, which results in loss or damage, the obligor cannot escape
liability.

The principle embodied in the act of God doctrine strictly requires that the act must be
one occasioned exclusively by the violence of nature and human agencies are to be
excluded from creating or entering into the cause of the mischief. When the effect, the
cause of which is to be considered, is found to be in part the result of the participation
of man, whether it be from active intervention or neglect, or failure to act, the whole
occurrence is thereby HUMANIZED, as it were, and removed from the rules applicable
to the acts of God.

G.R. No. 185798 January 13, 2014

FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,
vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.

DECISION

PEREZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil
Procedure assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 100450 which affirmed
the Decision of the Office of the President in O.P. Case No. 06-F-216.

As culled from the records, the facts are as follow:

Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower
while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent Spouses
Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-square meter condominium
unit at Central Park Place Tower in Mandaluyong City for a pre-selling contract price of FIVE

MILLION ONE HUNDRED SEVENTY-FOUR THOUSAND ONLY (₱5,174,000.00). On 29 August
1997, respondents executed and signed a Reservation Application Agreement wherein they
deposited ₱200,000.00 as reservation fee. As agreed upon, respondents paid the full downpayment
of ₱1,552,200.00 and had been paying the ₱63,363.33 monthly amortizations until September 1998.

Upon learning that construction works had stopped, respondents likewise stopped paying their
monthly amortization. Claiming to have paid a total of ₱2,198,949.96 to petitioners, respondents
through two (2) successive letters, demanded a full refund of their payment with interest. When their
demands went unheeded, respondents were constrained to file a Complaint for Refund and
Damages before the Housing and Land Use Regulatory Board (HLURB). Respondents prayed for
reimbursement/refund of ₱2,198,949.96 representing the total amortization payments, ₱200,000.00
as and by way of moral damages, attorney’s fees and other litigation expenses.

On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to file their
Answer within the reglementary period despite service of summons.2

Petitioners filed a motion to lift order of default and attached their position paper attributing the delay
in construction to the 1997 Asian financial crisis. Petitioners denied committing fraud or
misrepresentation which could entitle respondents to an award of moral damages.

On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment ordering
petitioners to jointly and severally pay respondents the following amount:

a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE
HUNDRED FORTY NINE PESOS & 96/100 (₱2,198,949.96) with interest thereon at twelve
percent (12%) per annum to be computed from the time of the complainants’ demand for
refund on October 08, 1998 until fully paid,

b) ONE HUNDRED THOUSAND PESOS (₱100,000.00) as moral damages,

c) FIFTY THOUSAND PESOS (₱50,000.00) as attorney’s fees,

d) The costs of suit, and

e) An administrative fine of TEN THOUSAND PESOS (₱10,000.00) payable to this Office
fifteen (15) days upon receipt of this decision, for violation of Section 20 in relation to Section
38 of PD 957.3

The Arbiter considered petitioners’ failure to develop the condominium project as a substantial
breach of their obligation which entitles respondents to seek for rescission with payment of damages.
The Arbiter also stated that mere economic hardship is not an excuse for contractual and legal delay.

Petitioners appealed the Arbiter’s Decision through a petition for review pursuant to Rule XII of the
1996 Rules of Procedure of HLURB. On 17 February 2005, the Board of Commissioners of the
HLURB denied4 the petition and affirmed the Arbiter’s Decision. The HLURB reiterated that the
depreciation of the peso as a result of the Asian financial crisis is not a fortuitous event which will
exempt petitioners from the performance of their contractual obligation.

Petitioners filed a motion for reconsideration but it was denied5 on 8 May 2006. Thereafter,
petitioners filed a Notice of Appeal with the Office of the President. On 18 April 2007, petitioners’

appeal was dismissed6 by the Office of the President for lack of merit. Petitioners moved for a
reconsideration but their motion was denied7 on 26 July 2007.

Petitioners sought relief from the Court of Appeals through a petition for review under Rule 43
containing the same arguments they raised before the HLURB and the Office of the President:

I.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF
THE HONORABLE HOUSING AND LAND USE REGULATORY BOARD AND ORDERING
PETITIONERS-APPELLANTS TO REFUND RESPONDENTS-APPELLEES THE SUM OF
₱2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER 1998 UNTIL FULLY PAID,
CONSIDERING THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST
PETITIONERS-APPELLANTS.

II.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF
THE OFFICE BELOW ORDERING PETITIONERS-APPELLANTS TO PAY RESPONDENTS-
APPELLEES THE SUM OF ₱100,000.00 AS MORAL DAMAGES AND ₱50,000.00 AS
ATTORNEY’S FEES CONSIDERING THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS
THEREFOR.

III.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF
THE HOUSING AND LAND USE REGULATORY BOARD ORDERING PETITIONERS-
APPELLANTS TO PAY ₱10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY
FACTUAL OR LEGAL BASIS TO SUPPORT SUCH FINDING.8

On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The appellate
court echoed the HLURB Arbiter’s ruling that "a buyer for a condominium/subdivision unit/lot unit
which has not been developed in accordance with the approved condominium/subdivision plan
within the time limit for complying with said developmental requirement may opt for reimbursement
under Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 x x x."9 The appellate
court supported the HLURB Arbiter’s conclusion, which was affirmed by the HLURB Board of
Commission and the Office of the President, that petitioners’ failure to develop the condominium
project is tantamount to a substantial breach which warrants a refund of the total amount paid,
including interest. The appellate court pointed out that petitioners failed to prove that the Asian
financial crisis constitutes a fortuitous event which could excuse them from the performance of their
contractual and statutory obligations. The appellate court also affirmed the award of moral damages
in light of petitioners’ unjustified refusal to satisfy respondents’ claim and the legality of the
administrative fine, as provided in Section 20 of Presidential Decree No. 957.

Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December 2008 by
the Court of Appeals.

Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for review:

A.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE DECISION
OF THE OFFICE OF THE PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN
FAVOR OF THE RESPONDENTS DESPITE LACK OF CAUSE OF ACTION.

B.

GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER
THE PREMISES, THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE
HUGE AMOUNT OF INTEREST OF TWELVE PERCENT (12%).

C.

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO THE
DECISION OF THE OFFICE OF THE PRESIDENT INCLUDING THE PAYMENT OF ₱100,000.00
AS MORAL DAMAGES, ₱50,000.00 AS ATTORNEY’S FEES AND ₱10,000.00 AS
ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT
SUCH CONCLUSIONS.11

Petitioners insist that the complaint states no cause of action because they allegedly have not
committed any act of misrepresentation amounting to bad faith which could entitle respondents to a
refund. Petitioners claim that there was a mere delay in the completion of the project and that they
only resorted to "suspension and reformatting as a testament to their commitment to their buyers."
Petitioners attribute the delay to the 1997 Asian financial crisis that befell the real estate industry.
Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot be held liable for a
fortuitous event.

Petitioners contest the payment of a huge amount of interest on account of suspension of
development on a project. They liken their situation to a bank which this Court, in Overseas Bank v.
Court of Appeals,12 adjudged as not liable to pay interest on deposits during the period that its
operations are ordered suspended by the Monetary Board of the Central Bank.

Lastly, petitioners aver that they should not be ordered to pay moral damages because they never
intended to cause delay, and again blamed the Asian economic crisis as the direct, proximate and
only cause of their failure to complete the project. Petitioners submit that moral damages should not
be awarded unless so stipulated except under the instances enumerated in Article 2208 of the New
Civil Code. Lastly, petitioners refuse to pay the administrative fine because the delay in the project
was caused not by their own deceptive intent to defraud their buyers, but due to unforeseen
circumstances beyond their control.

Three issues are presented for our resolution: 1) whether or not the Asian financial crisis constitute a
fortuitous event which would justify delay by petitioners in the performance of their contractual
obligation; 2) assuming that petitioners are liable, whether or not 12% interest was correctly imposed
on the judgment award, and 3) whether the award of moral damages, attorney’s fees and
administrative fine was proper.

It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The rulings
were consistent that first, the Asian financial crisis is not a fortuitous event that would excuse
petitioners from performing their contractual obligation; second, as a result of the breach committed
by petitioners, respondents are entitled to rescind the contract and to be refunded the amount of
amortizations paid including interest and damages; and third, petitioners are likewise obligated to
pay attorney’s fees and the administrative fine.

This petition did not present any justification for us to deviate from the rulings of the HLURB, the
Office of the President and the Court of Appeals.

Indeed, the non-performance of petitioners’ obligation entitles respondents to rescission under
Article 1191 of the New Civil Code which states:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of
condominiums, which provides:

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision
1âw phi 1

or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner
or developer when the buyer, after due notice to the owner or developer, desists from further
payment due to the failure of the owner or developer to develop the subdivision or condominium
project according to the approved plans and within the time limit for complying with the same. Such
buyer may, at his option, be reimbursed the total amount paid including amortization interests but
excluding delinquency interests, with interest thereon at the legal rate. (Emphasis supplied).

Conformably with these provisions of law, respondents are entitled to rescind the contract and
demand reimbursement for the payments they had made to petitioners.

Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v.
Spouses Go13promulgated on 17 August 2007, where the Court stated that the Asian financial crisis
is not an instance of caso fortuito. Bearing the same factual milieu as the instant case, G.R. No.
165164 involves the same company, Fil-Estate, albeit about a different condominium property. The
company likewise reneged on its obligation to respondents therein by failing to develop the
condominium project despite substantial payment of the contract price. Fil-Estate advanced the
same argument that the 1997 Asian financial crisis is a fortuitous event which justifies the delay of
the construction project. First off, the Court classified the issue as a question of fact which may not
be raised in a petition for review considering that there was no variance in the factual findings of the
HLURB, the Office of the President and the Court of Appeals. Second, the Court cited the previous
rulings of Asian Construction and Development Corporation v. Philippine Commercial International
Bank14 and Mondragon Leisure and Resorts Corporation v. Court of Appeals15 holding that the 1997
Asian financial crisis did not constitute a valid justification to renege on obligations. The Court
expounded:

Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the
control of a business corporation. It is unfortunate that petitioner apparently met with considerable
difficulty e.g. increase cost of materials and labor, even before the scheduled commencement of its
real estate project as early as 1995. However, a real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections on commodities and currency movements
and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market
is an everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not
an instance of caso fortuito.16

The aforementioned decision becomes a precedent to future cases in which the facts are
substantially the same, as in this case. The principle of stare decisis, which means adherence to
judicial precedents, applies.

In said case, the Court ordered the refund of the total amortizations paid by respondents plus 6%
legal interest computed from the date of demand. The Court also awarded attorney’s fees. We follow
that ruling in the case before us.

The resulting modification of the award of legal interest is, also, in line with our recent ruling in Nacar
v. Gallery Frames,17 embodying the amendment introduced by the Bangko Sentral ng Pilipinas
Monetary Board in BSP-MB Circular No. 799 which pegged the interest rate at 6% regardless of the
source of obligation.

We likewise affirm the award of attorney’s fees because respondents were forced to litigate for 14
years and incur expenses to protect their rights and interest by reason of the unjustified act on the
part of petitioners.18 The imposition of ₱10,000.00 administrative fine is correct pursuant to Section
38 of Presidential Decree No. 957 which reads:

Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding ten
thousand pesos for violations of the provisions of this Decree or of any rule or regulation thereunder.
Fines shall be payable to the Authority and enforceable through writs of execution in accordance
with the provisions of the Rules of Court.

Finally, we sustain the award of moral damages. In order that moral damages may be awarded in
breach of contract cases, the defendant must have acted in bad faith, must be found guilty of gross
negligence amounting to bad faith, or must have acted in wanton disregard of contractual
obligations.19 The Arbiter found petitioners to have acted in bad faith when they breached their
contract, when they failed to address respondents’ grievances and when they adamantly refused to
refund respondents' payment.

In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision and
Resolution.

WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with the
MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due
computed from the time of respondents' demand for refund on 8 October 1998.

SO ORDERED.

G.R. No. L-29155 May 13, 1970

UNIVERSAL FOOD CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO N.
FRANCISCO, respondents.

Wigberto E. Tañada for petitioner.

Teofilo Mendoza for respondents.

CASTRO, J.:

Petition for certiorari by the Universal Food Corporation against the decision of the Court of Appeals
of February 13, 1968 in CA-G.R. 31430-R (Magdalo V. Francisco, Sr. and Victoriano V. Francisco,
plaintiffs-appellants vs. Universal Food Corporation, defendant-appellee), the dispositive portion of
which reads as follows: "WHEREFORE the appealed decision is hereby reversed; the BILL OF
ASSIGNMENT marked Exhibit A is hereby rescinded, and defendant is hereby ordered to return to
plaintiff Magdalo V. Francisco, Sr., his Mafran sauce trademark and formula subject-matter of Exhibit
A, and to pay him his monthly salary of P300.00 from December 1, 1960, until the return to him of
said trademark and formula, plus attorney's fees in the amount of P500.00, with costs against
defendant."1

On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with the Court of
First Instance of Manila, against, the Universal Food Corporation, an action for rescission of a
contract entitled "Bill of Assignment." The plaintiffs prayed the court to adjudge the defendant as
without any right to the use of the Mafran trademark and formula, and order the latter to restore to
them the said right of user; to order the defendant to pay Magdalo V. Francisco, Sr. his unpaid salary
from December 1, 1960, as well as damages in the sum of P40,000, and to pay the costs of suit.1

On February 28, the defendant filed its answer containing admissions and denials. Paragraph 3
thereof "admits the allegations contained in paragraph 3 of plaintiffs' complaint." The answer further
alleged that the defendant had complied with all the terms and conditions of the Bill of Assignment
and, consequently, the plaintiffs are not entitled to rescission thereof; that the plaintiff Magdalo V.
Francisco, Sr. was not dismissed from the service as permanent chief chemist of the corporation as
he is still its chief chemist; and, by way of special defenses, that the aforesaid plaintiff is estopped
from questioning 1) the contents and due execution of the Bill of Assignment, 2) the corporate acts
of the petitioner, particularly the resolution adopted by its board of directors at the special meeting
held on October 14, 1960, to suspend operations to avoid further losses due to increase in the prices
of raw materials, since the same plaintiff was present when that resolution was adopted and even
took part in the consideration thereof, 3) the actuations of its president and general manager in
enforcing and implementing the said resolution, 4) the fact that the same plaintiff was negligent in
the performance of his duties as chief chemist of the corporation, and 5) the further fact that the said
plaintiff was delinquent in the payment of his subscribed shares of stock with the corporation. The
defendant corporation prayed for the dismissal of the complaint, and asked for P750 as attorney's
fees and P5,000 in exemplary or corrective damages.

On June 25, 1962 the lower court dismissed the plaintiffs' complaint as well as the defendant's claim
for damages and attorney's fees, with costs against the former, who promptly appealed to the Court
of Appeals. On February 13, 1969 the appellate court rendered the judgment now the subject of the
present recourse.

The Court of Appeals arrived at the following "uncontroverted" findings of fact:

That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a
formula for the manufacture of a food seasoning (sauce) derived from banana fruits
popularly known as MAFRAN sauce; that the manufacture of this product was used
in commercial scale in 1942, and in the same year plaintiff registered his trademark
in his name as owner and inventor with the Bureau of Patents; that due to lack of
sufficient capital to finance the expansion of the business, in 1960, said plaintiff
secured the financial assistance of Tirso T. Reyes who, after a series of negotiations,
formed with others defendant Universal Food Corporation eventually leading to the
execution on May 11, 1960 of the aforequoted "Bill of Assignment" (Exhibit A or 1).

Conformably with the terms and conditions of Exh. A, plaintiff Magdalo V. Francisco,
Sr. was appointed Chief Chemist with a salary of P300.00 a month, and plaintiff
Victoriano V. Francisco was appointed auditor and superintendent with a salary of
P250.00 a month. Since the start of the operation of defendant corporation, plaintiff
Magdalo V. Francisco, Sr., when preparing the secret materials inside the laboratory,
never allowed anyone, not even his own son, or the President and General Manager
Tirso T. Reyes, of defendant, to enter the laboratory in order to keep the formula
secret to himself. However, said plaintiff expressed a willingness to give the formula
to defendant provided that the same should be placed or kept inside a safe to be
opened only when he is already incapacitated to perform his duties as Chief Chemist,
but defendant never acquired a safe for that purpose. On July 26, 1960, President
and General Manager Tirso T. Reyes wrote plaintiff requesting him to permit one or
two members of his family to observe the preparation of the 'Mafran Sauce' (Exhibit
C), but said request was denied by plaintiff. In spite of such denial, Tirso T. Reyes
did not compel or force plaintiff to accede to said request. Thereafter, however, due
to the alleged scarcity and high prices of raw materials, on November 28, 1960,
Secretary-Treasurer Ciriaco L. de Guzman of defendant issued a Memorandum
(Exhibit B), duly approved by the President and General Manager Tirso T. Reyes that
only Supervisor Ricardo Francisco should be retained in the factory and that the
salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the time being
until the corporation should resume its operation. Some five (5) days later, that is, on
December 3, 1960, President and General Manager Tirso T. Reyes, issued a
memorandom to Victoriano Francisco ordering him to report to the factory and
produce "Mafran Sauce" at the rate of not less than 100 cases a day so as to cope
with the orders of the corporation's various distributors and dealers, and with
instructions to take only the necessary daily employees without employing
permanent employees (Exhibit B). Again, on December 6, 1961, another
memorandum was issued by the same President and General Manager instructing
the Assistant Chief Chemist Ricardo Francisco, to recall all daily employees who are
connected in the production of Mafran Sauce and also some additional daily
employees for the production of Porky Pops (Exhibit B-1). On December 29, 1960,
another memorandum was issued by the President and General Manager instructing
Ricardo Francisco, as Chief Chemist, and Porfirio Zarraga, as Acting Superintendent,
to produce Mafran Sauce and Porky Pops in full swing starting January 2, 1961 with
further instructions to hire daily laborers in order to cope with the full blast protection
(Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr. received his salary as Chief Chemist
in the amount of P300.00 a month only until his services were terminated on
November 30, 1960. On January 9 and 16, 1961, defendant, acting thru its President
and General Manager, authorized Porfirio Zarraga and Paula de Bacula to look for a
buyer of the corporation including its trademarks, formula and assets at a price of not
less than P300,000.00 (Exhibits D and D-1). Due to these successive memoranda,
without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, the latter filed
the present action on February 14, 1961. About a month afterwards, in a letter dated
March 20, 1961, defendant, thru its President and General Manager, requested said
plaintiff to report for duty (Exhibit 3), but the latter declined the request because the
present action was already filed in court (Exhibit J).

1. The petitioner's first contention is that the respondents are not entitled to rescission. It is argued
that under article 1191 of the new Civil Code, the right to rescind a reciprocal obligation is not
absolute and can be demanded only if one is ready, willing and able to comply with his own
obligation and the other is not; that under article 1169 of the same Code, 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; that in this case the trial court found that the respondents

not only have failed to show that the petitioner has been guilty of default in performing its contractual
obligations, "but the record sufficiently reveals the fact that it was the plaintiff Magdalo V. Francisco
who had been remiss in the compliance of his contractual obligation to cede and transfer to the
defendant the formula for Mafran sauce;" that even the respondent Court of Appeals found that as
"observed by the lower court, 'the record is replete with the various attempt made by the defendant
(herein petitioner) to secure the said formula from Magdalo V. Francisco to no avail; and that upon
the foregoing findings, the respondent Court of Appeals unjustly concluded that the private
respondents are entitled to rescind the Bill of Assignment.

The threshold question is whether by virtue of the terms of the Bill of Assignment the respondent
Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran
sauce.2

The Bill of Assignment sets forth the following terms and conditions:

THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole and exclusive
owner of the MAFRAN trade-mark and the formula for MAFRAN SAUCE;

THAT for and in consideration of the royalty of TWO (2%) PER CENTUM of the net
annual profit which the PARTY OF THE Second Part [Universal Food Corporation]
may realize by and/or out of its production of MAFRAN SAUCE and other food
products and from other business which the Party of the Second Part may engage in
as defined in its Articles of Incorporation, and which its Board of Directors shall
determine and declare, said Party of the First Part hereby assign, transfer, and
convey all its property rights and interest over said Mafran trademark and formula for
MAFRAN SAUCE unto the Party of the Second Part;

THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual net
profit which the Party of the Second Part obligates itself to pay unto the Party of the
First Part as founder and as owner of the MAFRAN trademark and formula for
MAFRAN SAUCE, shall be paid at every end of the Fiscal Year after the proper
accounting and inventories has been undertaken by the Party of the Second Part and
after a competent auditor designated by the Board of Directors shall have duly
examined and audited its books of accounts and shall have certified as to the
correctness of its Financial Statement;

THAT it is hereby understood that the Party of the First Part, to improve the quality of
the products of the Party of the First Part and to increase its production, shall
endeavor or undertake such research, study, experiments and testing, to invent or
cause to invent additional formula or formulas, the property rights and interest
thereon shall likewise be assigned, transferred, and conveyed unto the Party of the
Second Part in consideration of the foregoing premises, covenants and stipulations:

THAT in the operation and management of the Party of the First Part, the Party of the
First Part shall be entitled to the following Participation:

(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President
and Chief Chemist of the Party of the Second Part, which appointments are
permanent in character and Mr. VICTORIANO V. FRANCISCO shall be appointed
Auditor thereof and in the event that the Treasurer or any officer who may have the
custody of the funds, assets and other properties of the Party of the Second Part
comes from the Party of the First Part, then the Auditor shall not be appointed from

the latter; furthermore should the Auditor be appointed from the Party representing
the majority shares of the Party of the Second Part, then the Treasurer shall be
appointed from the Party of the First Part;

(b) THAT in case of death or other disabilities they should become incapacitated to
discharge the duties of their respective position, then, their shares or assigns and
who may have necessary qualifications shall be preferred to succeed them;

(c) That the Party of the First Part shall always be entitled to at least two (2)
membership in the Board of Directors of the Party of the Second Part;

(d) THAT in the manufacture of MAFRAN SAUCE and other food products by the
Party of the Second Part, the Chief Chemist shall have and shall exercise absolute
control and supervision over the laboratory assistants and personnel and in the
purchase and safekeeping of the Chemicals and other mixtures used in the
preparation of said products;

THAT this assignment, transfer and conveyance is absolute and irrevocable in no
case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its
rights and interest over said MAFRAN trademark and mafran formula, except when a
dissolution of the Party of the Second Part, voluntary or otherwise, eventually arises,
in which case then the property rights and interests over said trademark and formula
shall automatically revert the Party of the First Part.

Certain provisions of the Bill of Assignment would seem to support the petitioner's position that the
respondent patentee, Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation
the formula for Mafran sauce. Thus, the last part of the second paragraph recites that the
respondent patentee "assign, transfer and convey all its property rights and interest over said Mafran
trademark and formula for MAFRAN SAUCE unto the Party of the Second Part," and the last
paragraph states that such "assignment, transfer and conveyance is absolute and irrevocable (and)
in no case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and
interest over said MAFRAN trademark and mafran formula."

However, a perceptive analysis of the entire instrument and the language employed therein3 would
lead one to the conclusion that what was actually ceded and transferred was only the use of the
Mafran sauce formula. This was the precise intention of the parties,4 as we shall presently show.

Firstly, one of the principal considerations of the Bill of Assignment is the payment of "royalty of
TWO (2%) PER CENTUM of the net annual profit" which the petitioner corporation may realize by
and/or out of its production of Mafran sauce and other food products, etc. The word "royalty," when
employed in connection with a license under a patent, means the compensation paid for the use of a
patented invention.

'Royalty,' when used in connection with a license under a patent, means the
compensation paid by the licensee to the licensor for the use of the licensor's
patented invention." (Hazeltine Corporation vs. Zenith Radio Corporation, 100 F. 2d
10, 16.)5

Secondly, in order to preserve the secrecy of the Mafran formula and to prevent its unauthorized
proliferation, it is provided in paragraph 5-(a) of the Bill that the respondent patentee was to be
appointed "chief chemist ... permanent in character," and that in case of his "death or other
disabilities," then his "heirs or assigns who may have necessary qualifications shall be preferred to

succeed" him as such chief chemist. It is further provided in paragraph 5-(d) that the same
respondent shall have and shall exercise absolute control and supervision over the laboratory
assistants and personnel and over the purchase and safekeeping of the chemicals and other
mixtures used in the preparation of the said product. All these provisions of the Bill of Assignment
clearly show that the intention of the respondent patentee at the time of its execution was to part, not
with the formula for Mafran sauce, but only its use, to preserve the monopoly and to effectively
prohibit anyone from availing of the invention.6

Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the Petitioner corporation
eventually take place, "the property rights and interests over said trademark and formula shall
automatically revert to the respondent patentee. This must be so, because there could be no
reversion of the trademark and formula in this case, if, as contended by the petitioner, the
respondent patentee assigned, ceded and transferred the trademark and formula — and not merely
the right to use it — for then such assignment passes the property in such patent right to the
petitioner corporation to which it is ceded, which, on the corporation becoming insolvent, will become
part of the property in the hands of the receiver thereof.7

Fourthly, it is alleged in paragraph 3 of the respondents' complaint that what was ceded and
transferred by virtue of the Bill of Assignment is the "use of the formula" (and not the formula itself).
This incontrovertible fact is admitted without equivocation in paragraph 3 of the petitioner's answer.
Hence, it does "not require proof and cannot be contradicted."8 The last part of paragraph 3 of the
complaint and paragraph 3 of the answer are reproduced below for ready reference:

3. — ... and due to these privileges, the plaintiff in return assigned to said corporation
his interest and rights over the said trademark and formula so that the defendant
corporation could use the formula in the preparation and manufacture of the mafran
sauce, and the trade name for the marketing of said project, as appearing in said
contract ....

3. — Defendant admits the allegations contained in paragraph 3 of plaintiff's
complaint.

Fifthly, the facts of the case compellingly demonstrate continued possession of the Mafran sauce
formula by the respondent patentee.

Finally, our conclusion is fortified by the admonition of the Civil Code that a conveyance should be
interpreted to effect "the least transmission of right,"9 and is there a better example of least
transmission of rights than allowing or permitting only the use, without transfer of ownership, of the
formula for Mafran sauce.

The foregoing reasons support the conclusion of the Court of Appeals 10 that what was actually
ceded and transferred by the respondent patentee Magdalo V. Francisco, Sr. in favor of the
petitioner corporation was only the use of the formula. Properly speaking, the Bill of Assignment
vested in the petitioner corporation no title to the formula. Without basis, therefore, is the observation
of the lower court that the respondent patentee "had been remiss in the compliance of his
contractual obligation to cede and transfer to the defendant the formula for Mafran sauce."

2. The next fundamental question for resolution is whether the respondent Magdalo V. Francisco, Sr.
was dismissed from his position as chief chemist of the corporation without justifiable cause, and in
violation of paragraph 5-(a) of the Bill of Assignment which in part provides that his appointment is
"permanent in character."

The petitioner submits that there is nothing in the successive memoranda issued by the corporate
officers of the petitioner, marked exhibits B, B-1 and B-2, from which can be implied that the
respondent patentee was being dismissed from his position as chief chemist of the corporation. The
fact, continues the petitioner, is that at a special meeting of the board of directors of the corporation
held on October 14, 1960, when the board decided to suspend operations of the factory for two to
four months and to retain only a skeletal force to avoid further losses, the two private respondents
were present, and the respondent patentee was even designated as the acting superintendent, and
assigned the mission of explaining to the personnel of the factory why the corporation was stopping
operations temporarily and laying off personnel. The petitioner further submits that exhibit B
indicates that the salary of the respondent patentee would not be paid only during the time that the
petitioner corporation was idle, and that he could draw his salary as soon as the corporation
resumed operations. The clear import of this exhibit was allegedly entirely disregarded by the
respondent Court of Appeals, which concluded that since the petitioner resumed partial production of
Mafran sauce without notifying the said respondent formally, the latter had been dismissed as chief
chemist, without considering that the petitioner had to resume partial operations only to fill its
pending orders, and that the respondents were duly notified of that decision, that is, that exhibit B-1
was addressed to Ricardo Francisco, and this was made known to the respondent Victoriano V.
Francisco. Besides, the records will show that the respondent patentee had knowledge of the
resumption of production by the corporation, but in spite of such knowledge he did not report for
work.

The petitioner further submits that if the respondent patentee really had unqualified interest in
propagating the product he claimed he so dearly loved, certainly he would not have waited for a
formal notification but would have immediately reported for work, considering that he was then and
still is a member of the corporation's board of directors, and insofar as the petitioner is concerned, he
is still its chief chemist; and because Ricardo Francisco is a son of the respondent patentee to whom
had been entrusted the performance of the duties of chief chemist, while the respondent Victoriano
V. Francisco is his brother, the respondent patentee could not feign ignorance of the resumption of
operations.

The petitioner finally submits that although exhibit B-2 is addressed to Ricardo Francisco, and is
dated December 29, 1960, the records will show that the petitioner was set to resume full capacity
production only sometime in March or April, 1961, and the respondent patentee cannot deny that in
the very same month when the petitioner was set to resume full production, he received a copy of
the resolution of its board of directors, directing him to report immediately for duty; that exhibit H, of a
later vintage as it is dated February 1, 1961, clearly shows that Ricardo Francisco was merely the
acting chemist, and this was the situation on February 1, 1961, thirteen days before the filing of the
present action for rescission. The designation of Ricardo Francisco as the chief chemist carried no
weight because the president and general manager of the corporation had no power to make the
designation without the consent of the corporation's board of directors. The fact of the matter is that
although the respondent Magdalo V. Francisco, Sr. was not mentioned in exhibit H as chief chemist,
this same exhibit clearly indicates that Ricardo Francisco was merely the acting chemist as he was
the one assisting his father.

In our view, the foregoing submissions cannot outweigh the uncontroverted facts. On November 28,
1960 the secretary-treasurer of the corporation issued a memorandum (exh. B), duly approved by its
president and general manager, directing that only Ricardo Francisco be retained in the factory and
that the salary of respondent patentee, as chief chemist, be stopped for the time being until the
corporation resumed operations. This measure was taken allegedly because of the scarcity and high
prices of raw materials. Five days later, however, or on December 3, the president and general
manager issued a memorandum (exh. B-1) ordering the respondent Victoria V. Francisco to report to
the factory and to produce Mafran sauce at the rate of no less than 100 cases a day to cope with the
orders of the various distributors and dealers of the corporation, and instructing him to take only the

with the payment of damages in either case. the same president and general manager admitted that "I consider that the two months we paid him (referring to respondent Magdalo V. thru its president and general manager. S-2). 1961. 11 schemed and maneuvered to ease out. 1383. The court shall decree the rescission claimed. The petitioner corporation violated the Bill of Assignment. in case one of the obligors should not comply with what is incumbent upon him. or on December 29. requested the respondent patentee to report for duty (exh. B-2). In this connection. The injured party may choose between fulfillment and rescission of the obligation. The injured party may choose between the fulfillment and the rescission of the obligation. to recall all daily employees connected with the production of Mafran sauce and to hire additional daily employees for the production of Porky Pops. ART. acting through its corporate officers. in flagrant violation of paragraph 5-(a) and (b) of the Bill of Assignment. to produce Mafran sauce and. it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. as Chief Chemist" and Porfirio Zarraga. in accordance with articles 1385 and 1388 of the Mortgage Law. in case one of the obligors should not comply with what is incumbent upon him. At the moment. unless there be just cause authorizing the fixing of a period. 1384. Sr. He may also seek rescission even after he has chosen fulfillment. we shall concern ourselves with the first two paragraphs of article 1191. as assistant chief chemist. The power to rescind obligations is implied in reciprocal ones. the same president and general manager issued yet another memorandum (exh. instructing Ricardo Francisco. at the hearing held on October 24.necessary daily employees without employing permanent ones. such request was a "recall to placate said plaintiff. In this case before us. we quote for ready reference the following articles of the new Civil Code governing rescission of contracts: ART." 3. as acting superintendent. separate and dismiss the said respondent from the service as permanent chief chemist. the same president and general manager issued still another memorandum (exh. there is no controversy that the provisions of the Bill of Assignment are reciprocal in nature. 3). As the Court of Appeals correctly observed. specifically paragraph . Porky Pops in full swing. 1961 when the complaint for rescission of the Bill of Assignment was filed. This is understood to be without prejudice to the rights of third persons who have acquired the thing. starting January 2. The action for rescission is subsidiary. Rescission shall be only to the extent necessary to cover the damages caused. with the further instruction to hire daily laborers in order to cope with the full blast production. with payment of damages in either case. The power to rescind obligations is implied in reciprocal ones. ART. They clearly prove that the petitioner. We now come to the question of rescission of the Bill of Assignment. directing "Ricardo Francisco. Then on December 6. 1961. The fact that a month after the institution of the action for rescission.) is the separation pay. Twenty-three days afterwards. Francisco." The facts narrated in the preceding paragraph were the prevailing milieu on February 14. is of no consequence. 1191. the petitioner corporation. if the latter should become impossible. And finally.

in the process afford and secure for himself a lifetime job and steady income. notwithstanding the call for him to return — which negates his right to be paid his back salaries for services which he had not rendered. Upon the factual milieu. the right to specific performance is not conjunctive with the right to rescind a reciprocal contract. Francisco. that this is a gross error of law." and that only by all these measures could the respondent patentee preserve effectively the secrecy of the formula. until the return to him of the Mafran trademark and formula. as the permanent chief chemist of the corporation is a fundamental and substantial breach of the Bill of Assignment. for on March 20. The above contention is without merit. The petitioner further contends that it was error for the Court of Appeals to hold that the respondent patentee is entitled to payment of his monthly salary of P300 from December 1. apart from the legal principle that the option — to demand performance or ask for rescission of a contract — belongs to the injured party. 1961. the transfer to the corporation of only the use of the formula. moreover. that. and that if the said respondent is entitled to be paid any back salary. 4. 1961 the petitioner had already formally called him back to work. Francisco. without lawful and justifiable cause. the fact is that the said respondent patentee refused to go back to work. the need of absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the chemicals and other mixtures used in the preparation of said product — all these provisions of the Bill of Assignment are so interdependent that violation of one would result in virtual nullification of the rest. prevent its proliferation. but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. arguing that under articles 1191. Reading once more the Bill of Assignment in its entirety and the particular provisions in their proper setting. He was dismissed without any fault or negligence on his part. 14 the fact remains that the respondents-appellees had no alternative but to file the present action for rescission and damages. 13 The petitioner contends that rescission of the Bill of Assignment should be denied. subject to defined limitations. the same should be computed only from December 1. 12 The question of whether a breach of a contract is substantial depends upon the attendant circumstances. Thus. enjoy its monopoly. we hold that the contract placed the use of the formula for Mafran sauce with the petitioner. by terminating the services of the respondent patentee Magdalo V. when it is considered that such holding would make the petitioner liable to pay respondent patentee's salary from December 1. that in the manufacture of Mafran sauce and other food products he would have "absolute control and supervision over the laboratory assistants and personnel and in the purchase and safeguarding of said products. and. because under article 1383. 1960 to "kingdom come. the appointment of the respondent patentee as Second Vice-President and chief chemist on a permanent status. the corporation never had. Sr. namely. However. 1960. the appellate court itself found." as the said holding requires the petitioner to make payment until it returns the formula which. is rescission of the Bill of Assignment proper? The general rule is that rescission of a contract will not be permitted for a slight or casual breach. that the appellate court awarded the respondents both remedies as it held that the respondents are entitled to rescind the Bill of Assignment and also that the respondent patentee is entitled to his salary aforesaid. One of the considerations for the transfer of the use thereof was the undertaking on the part of the petitioner corporation to . in this case the dismissal of the respondent patentee Magdalo V. that a plaintiff cannot ask for both remedies. the obligation of the said respondent patentee to continue research on the patent to improve the quality of the products of the corporation.. Sr. 1960 to March 31. rescission is a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. The salient provisions of the Bill of Assignment. It is to be emphasized that the respondent patentee would not have agreed to the other terms of the Bill of Assignment were it not for the basic commitment of the petitioner corporation to appoint him as its Second Vice-President and Chief Chemist on a permanent basis.5-(a) and (b).

employ the respondent patentee as the Second Vice-President and Chief Chemist on a permanent status. Makalintal. the judgment of the Court of Appeals is modified to read as follows: "Wherefore the appealed decision is reversed. Article 1385 of the new Civil Code provides that rescission creates the obligation to return the things which were the object of the contract. as long as the use. Fernando. the petitioner corporation could not escape liability to pay the private respondent patentee his agreed monthly salary. took no part. The petitioner finally contends that the Court of Appeals erred in ordering the corporation to return to the respondents the trademark and formula for Mafran sauce. The defendant corporation shall also pay to Magdalo V. conformably with the observations we have above made. plus attorney's fees in the amount of P500." As thus modified. 1960. and the respondent patentee admittedly never gave the same to the corporation. but I would like to add that the argument of petitioner. Teehankee J. Under these circumstances. effective immediately. Thus. it is a logical inference from the appellate court's decision that what was meant to be returned to the respondent patentee is not the formula itself. The Bill of Assignment (Exhibit A) is hereby rescinded.. as well as the right to use. the formula for Mafran sauce remained with the corporation.J. Zaldivar. Concepcion. unless "death or other disabilities supervened. with costs against the petitioner corporation.. Sr. and the defendant corporation is ordered to return and restore to the plaintiff Magdalo V. Separate Opinions REYES. and to this end the defendant corporation and all its assigns and successors are hereby permanently enjoined. Justice Fred Ruiz Castro. should be denied because under Article 1383 of the Civil Code of the Philippines . J. Dizon. among others. C. But that as it may. Francisco. from using in any manner the said Mafran sauce trademark and formula. but only its use and the right to such use. concurring: I concur with the opinion penned by Mr. his monthly salary of P300 from December 1. the respondents in their complaint for rescission specifically and particularly pray.L. the said judgment is affirmed. Magdalo Francisco. until the date of finality of this judgment... with costs against the defendant corporation." ACCORDINGLY. The petitioner's predicament is understandable.B. inclusive. the total amount due to him to earn legal interest from the date of the finality of this judgment until it shall have been fully paid.. JJ. According to the petitioner these findings would render it impossible to carry out the order to return the formula to the respondent patentee. at a monthly salary of P300. when both the decision of the appellate court and that of the lower court state that the corporation is not aware nor is in possession of the formula for Mafran sauce. concur. that the rescission demanded by the respondent-appellee. J. Francisco. Barredo and Villamor. Sr. the right to the use of his Mafran sauce trademark and formula. 5. subject-matter of the Bill of Assignment. that the petitioner corporation be adjudged as "without any right to use said trademark and formula.

wherein it was stipulated that "si cualquier pago o pagos de este pagare quedasen en mora por mas de dos meses. MYRICK.1 But the terminological vagueness does not justify confusing one case with the other. Felipe Ysmael and Eusebio C. the reparation of damages for the breach is purely secondary. Inc. LAUREL. entonces todos el saldo no pagado del mismo con cualesquiera intereses que hubiese devengado. SJ-639 (Exhibits B and 1) providing that the price of P7. Encarnacion for petitioner. the Magdalena Estate. where the defendant makes good the damages caused. it being unjust that a party be held bound to fulfill his promises when the other violates his. the action cannot be maintained or continued. and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. y en tal caso me comprometo. It is probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances as rescission without distinctions between them. that differentiated "resolution" for breach of stipulations from "rescission" by reason of lesion or damage. 1941 MAGDALENA ESTATE.: On January 2. G. as expressly provided in Articles 1383 and 1384." In pursuance of said agreement. Myrick lots Nos. Aguilar for respondent. No. Hence. 28 and 29 of Block 1. On the contrary..08. unlike the previous Spanish Civil Code of 1889. LOUIS J. It is not a subsidiary action.rescission can not be demanded except when the party suffering damage has no other legal means to obtain reparation. sold to Louis J.39 each on the second day of every month beginning the date of execution of the agreement. respondent-appellee. J. But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the Philippines. ademas. petitioner-appellant. San Juan Rizal. the vendee made several monthly payments amounting to P2. Parcel 9 of the San Juan Subdivision. 1928.953 shall be payable in 120 equal monthly installments of P96. The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant. apply to cases under Article 1191. As expressed in the old Latin aphorism: "Non servanti fidem. although the first installment due and unpaid was that . the last being on October 4. Andres C. the vendee executed and delivered to the vendor a promissory note (Exhibits C and 2) for the whole purchase price. L-47774 March 14. the cause of action is subordinated to the existence of that prejudice. a pagar al tenedor de este pagare el 10 por ciento de la cantidad en concepto de honorarios de abogado.596. vs." Hence. and does not.R. is predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the Civil Code and a rescission by reason of lesion or economic prejudice. et seq. non est fides servanda. in the rescission by reason of lesion or economic prejudice. because it is the raison d'etre as well as the measure of the right to rescind. under Article 1381. This rescission is in principal action retaliatory in character. considering the patent difference in causes and results of either action. INC. their contract of sale No.. 1930. that violates the reciprocity between the parties. Simultaneously. vercera y sera exigible inmediatamente y devengara intereses al mismo tipo de 9 por ciento al año hasta su completo pago.

Hemady regarding the account of Mr. where defendant's president makes the following statements: "Confirming the verbal arrangement had between you and our Mr. appealed to the Court of Appeals. By reason of this default. and submits the following propositions: (1) That the intention of the author of a written instrument shall always prevail over the literal sense of its wording. SJ-639. with the only modification that the payment of interest was to be computed from the date of the filing of the complaint instead of from the date of the cancellation of the contract. praying for an entry of judgment against the Magdalena Estate. the vendor. Petitioner-appellant assigns several errors which we proceed to discuss in the course of this opinion. Petitioner contends that the letter in dispute is a mere notification and. His testimony is an afterthought. Myrick under contract No. 6-7. on September 7. deposition Exhibit 1-a). to this end. already cancelled. 1936. On July 22. 328.08 with legal interest thereon from the filing of the complaint until its payment.596. Myrick. "es un error de mi interpretacion sin ninguna intencion de cancelar.596. wherein he stated that the word "cancelled" in the letter of December 14. and (3) that the letter of December 14. and therefore. 1940. K. cannot be deemed to have produced a cancellation. even if it ever was intended. alleging that contract SJ-639 was still in full force and effect and that. introduced in evidence the disposition of Mr. 1932 was not assented to by the respondent. 1932. on January 31. Hemady. president of the defendant corporation. already referred to (Exhibit 6 and D). 1035 (Exhibit G). the intention of the parties should be gleaned . to the effect that the contract was not cancelled nor was his intention to do so when he wrote the letter of December 14.R. 1936. where the cause was docketed as CA-G. K. No. Petitioner holds that contract SJ-639 has not been rendered inefficacious by its letter to the respondent. 1940. but is reiterated in the letters which the president of the defendant corporation states that plaintiff lost his rights for the land for being behind more than two years..) Where the terms of a writing are clear. Hemady. notified the vendee that. and it appears likewise that the vendor thereafter did not require him to make any further disbursements on account of the purchase price. on December 14." and the testimony of Sebastian San Andres. Mayuga and Heirs of Mayuga. and which. Upon the other hand. therefore. and of April 10. From this judgment. To this communication. Hence. 1940. the vendee did not reply. Mamuyac vs. The intent to resolve the contract is expressed unmistakably not only in the letter of December 14. in view of his inability to comply with the terms of their contract. the present petition for a writ of certiorari. 1932.H.H. filed his answer consisting in a general denial and a cross-complaint and counterclaim. Louis J. (2) that a bilateral contract may be resolved or cancelled only by the prior mutual agreement of the parties. and for costs of the suit. (Guico vs. president of the Magdalena Estate. which is approved by the judgment of the proper court. rendered its decision ordering the defendant to pay the plaintiff the sum of P2. Hemady. XXXVIII Off. Abena. said agreement had been cancelled as of that date. on August 23. and dismissing defendant's counterclaim. Inc. which was denied on September 6. Said defendant. 1930. K. and that all amounts paid by him had been forfeited in favor of the vendor. that the lots were never offered for sale after the mailing of the letter aforementioned. confirmed the decision of the lower court. marked Exhibit 6 and D (pp. respondent herein. commenced the present action in the Court of First Instance of Albay.of May 2. the Court of First Instance of Albay. 1939. After due trial. 5037. through its president. for the sum of P2. 63 Phil. who assumes the absolute right over the lots in question. 1932 until paid and costs.H. 1932. the Court of Appeals.08 with legal interest from December 14. 1932. 84. Inc. positive and unambiguous. Gaz. in its decision of August 23. Louis J. the herein petitioner. dated December 14. makes the finding that "notwithstanding the deposition of K. faith and credit cannot be given to such testimony in view of the clear terms of the letter which evince his unequivocal intent to resolve the contract. A motion for reconsideration was presented." This conclusion of fact of the Court of Appeals is final and should not be disturbed. 1932. one of its employees. thereby relieving him of any further obligation thereunder. Inc. the Magdalena Estate. the plaintiff should be condemned to pay the balance plus interest and attorneys' fees.H.

supra) which can be approximated only by ordering. with their fruits and of the price. 41 Phil. and (3) the letters of January 10. as far as practicable. They are: (1) the act of the petitioner in immediately taking possession of the lots in question and offering to resell them to Judge M. These remedies are alternative and not cumulative. del Rosario. 602. Rizal Park Co. be permitted to repudiate his representations. Cleveland. as we do now.. having to cancel the contract... computed from the date of the institution of the action. 1933 (Exhibit F-2) and April 10. in his capacity as JUDGE of the COURT OF FIRST INSTANCE IN QUEZON CITY. Lopez. when the text of the instrument is explicit and leaves no doubt as to its intention. Toppan v. respondents. 801. Siguenza. 1935 (Exhibit G) reiterate. City of Manila vs. 1970 UNIVERSITY OF THE PHILIPPINES. The fact that the contracting parties herein did not provide for resolution is now of no moment.. Po Pauco vs. Sun Chan. or. may not be resolved by the mere act of the petitioner. 41 Phil. to "approbate and reprobate. Chua Jamco. Cas. Yap Unki vs. the petitioner may not be allowed. the return of the things which were the object of the contract. Co. The proposition that the intention of the writer. 1932. Bibaño & Beramo.J.. once ascertained. with its interest (article 1295. Co. (2) his failure to demand from the respondent the balance of the account after the mailing of the disputed letter. contains no provision authorizing the vendor. 46 Phil. contract SJ-639. 14. in the language of section 333 of the Code of Civil Procedure (now section 68 (a) of Rule 123 of the New Rules of Court). (Mateos vs. 1932. such obligations are governed by article 1124 of the Civil Code which declares that the power to resolve. (Osorio & Tirona vs. Civil Code). et al.. 14 Phil.from the language therein employed. in the event of failure of the vendee to continue in the payment of the stipulated monthly installments. for the reason that the obligations arising from the contract of sale being reciprocal. 41 Phil. or occupy inconsistent positions. the intention to cancel first announced by petitioner since December 14. in any litigation the course of litigation or in dealings in nais.R. No. The claim. is implied. 52 Phil. the petitioner cancelled the contract. 524. in clear terms..) Upon the other hand. in the event that one of the obligors should not perform his part.. WALFRIDO DE LOS ANGELES. of the petitioner that it has the right to forfeit said sums in its favor is untenable. page 673. cannot avail himself of the other remedy of exacting performance. to retain the amounts paid to him on account of the purchase price. shortly after December 14. Bennet & Provincial Board of Cavite. we have met with some circumstances of record which demonstrate the unequivocal determination of the petitioner to cancel their contract. vs. Edaño.) As a consequence of the resolution.V. Fed. . Under article 1124 of the Civil Code. in the absence of a stipulation permitting its cancellation. in the letter of the Scotch law. and the petitioner in this case. shall prevail over the literal sense of the words employed is not absolute and should be deemed secondary to and limited by the primary rule that." (Bigelow on Estoppel. Besides. petitioner.099. being a bilateral agreement. (Verceluz vs. advised the respondent that he has been relieved of his obligations thereunder. 49 Phil. which is conclusive in the absence of mistake (13 C. vs. with costs against the petitioner. & C.) The writ prayed for is hereby denied. therefore. as in this case.) The contract of sale. 404. G. the parties should be restored. where. as demonstrated by his letter marked Exhibit G. 206.R. 523. 298. however. the court may not read into it any other which would contradict its plain import. and led said respondent to believe it so and act upon such belief. to their original situation (Po Pauco vs. Siguenza. L-28602 September 29. So ordered. 6 Phil. 301. 515). Cortez vs. he may choose between demanding the fulfillment of the contract or its resolution. It is next argued that contract SJ-639. Cui.

Inc. forest fees. The first order. REYES. a writ of preliminary injunction against the enforcement or implementation of the three (3) questioned orders was issued by this Court. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document. and the third order. issued in its Civil Case No. ALUMCO executed an instrument. for a period starting from the date of the agreement to 31 December 1965. Quisumbing for private respondents. extendible for a further period of five (5) years by mutual agreement. to be operated and developed for the purpose of raising additional income for its support. UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority..362.. enjoined UP from awarding logging rights over its timber concession (or Land Grant). per its resolution on 9 February 1968. are sought to be annulled in this petition for certiorari and prohibition. etc. in consideration of payment to UP of royalties. 1960 as rescinded without the necessity of any judicial suit. J. despite repeated demands. the second order. 9435. Solicitor Augusto M. dated 14 January 1967. entitled "Acknowledgment of Debt and Proposed Manner of Payments. Clara Lumber Company. 1 and 2 of this paragraph are not sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the CREDITOR. dated 25 February 1966. Inc. xxx xxx xxx 5.Office of the Solicitor General Antonio P. and which stipulated the following: 3. that after it had received notice that UP would rescind or terminate the logging agreement. The petition alleged the following: That the above-mentioned Land Grant was segregated from the public domain and given as an endowment to UP. denied reconsideration of the order of contempt. As prayed for in the petition. 1965. an institution of higher learning. and directed Sta. Amores and Special Counsel Perfecto V. Barredo. it had failed to pay. the balance outstanding after the said payments have been applied shall be paid by the DEBTOR in full no later than June 30. Fernandez for petitioner. as of 8 December 1964. which.B. filed by herein petitioner University of the Philippines (or UP) against the above-named respondent judge and the Associated Lumber Manufacturing Company. In the event that the payments called for in Nos. That on or about 2 November 1960. pursuant to Act 3608. dated 12 December 1967. to refrain from exercising logging rights or conducting logging operations on the concession. and . collect and remove timber from the Land Grant.: Three (3) orders of the Court of First Instance of Rizal (Quezon City). (or ALUMCO)." dated 9 December 1964. which was approved by the president of UP. J.94. Norberto J. adjudged UP in contempt of court. to cut. it had incurred an unpaid account of P219. that ALUMCO cut and removed timber therefrom but. the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement dated December 2.L. situated at the Lubayat areas in the provinces of Laguna and Quezon.

9435. the logging contract was signed on 16 February 1966. Clara Lumber Company. That on 12 November 1965.000.not seven (7) years. Inc.. That UP received the order of 25 February 1966 after it had concluded its contract with Sta. it filed a second petition for preliminary injunction. Inc. and the concession was awarded to Sta. that bidding was conducted. conclusively known. That. on motion dated 12 April 1966 by ALUMCO and one Jose Rico. considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960. without a court order. that UP's unilateral rescission of the logging contract. by advertising an invitation to bid. for preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant. is embodied in Act 3608 and. meantime. on 27 November 1965. as it had alleged in its second amended answer to the complaint in Civil Case No. thereby rendering it unable to pay the sum of P219. Clara Lumber Company. anyway. that it failed to pursue the manner of payments.. That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the logging operation. and said company had started logging operations. The UP moved for reconsideration of the aforesaid order. in not turning over management of ALUMCO. petitioner UP informed respondent ALUMCO that it had. Clara Lumber Company. In its answer.382. dated 30 September 1965. which maybe boiled down to: blaming its former general manager. That. but again incurred an unpaid account. as of that date. Inc. Cesar Guy. and. . It reiterated. however. in addition to the indebtedness that it had previously acknowledged. and which contract was referred and annexed to the "Acknowledgment of Debt and Proposed Manner of Payments". declared petitioner UP in contempt of court and. ALUMCO had filed several motions to discharge the writs of attachment and preliminary injunction but were denied by the court. UP filed a complaint against ALUMCO. Clara Lumber Company.. its defenses in the court below. in an order dated 14 January 1967. That on 19 July 1965.00) by way of and for liquidated damages. together with other allegations. it prayed for and obtained an order. ALUMCO filed a petition to enjoin petitioner University from conducting the bidding.. and on 7 September 1965. respondent judge issued the first of the questioned orders. 9435 of the Court of First Instance of Rizal (Quezon City). respondent corrected itself by stating that the period of the logging agreement is five (5) years .74. but the motion was denied on 12 December 1967. as stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" because the logs that it had cut turned out to be rotten and could not be sold to Sta. under its contract "to buy and sell" with said firm. respondent ALUMCO did not deny the foregoing allegations in the petition. enjoining UP from awarding logging rights over the concession to any other party. the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50. ALUMCO continued its logging operations.133. to refrain from exercising logging rights or conducting logging operations in the concession. on 25 February 1966. for the collection or payment of the herein before stated sums of money and alleging the facts hereinbefore specified. therefore. Except that it denied knowledge of the purpose of the Land Grant. Inc. which purpose.94. in the same order. directed Sta. which was docketed as Civil Case No. for the period from 9 December 1964 to 15 July 1965. in the amount of P61. the court.

UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.was invalid. it is free to resort to judicial action in its own behalf. but it proceeds at its own risk.P. apparently sustained it (although the order expresses no specific findings in this regard).1 since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. In the first place. can treat its contract with ALUMCO rescinded. the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit. that it is only after a final court decree declaring the contract rescinded for violation of its terms that U. Respondent ALUMCO contended. L- 11897. 12 SCRA 276: there is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect." As to such special stipulation. We find that position untenable. that it had made several offers to petitioner for respondent to resume logging operations but respondent received no reply. being ever subject to scrutiny and review by the proper court. after due hearing. It is in this sense that judicial action will be necessary. and the lower court. and the consequent indemnity awarded to the party prejudiced.. Pan Oriental Shipping Co. et al. the party who deems the contract violated may consider it resolved or rescinded. the extrajudicial resolution will remain contestable and subject to judicial invalidation. it is not always necessary for the injured party to resort to court for rescission of the contract. it must be understood that the act of party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional. The basic issue in this case is whether petitioner U.P. that petitioner's supervisor refused to allow respondent to cut new logs unless the logs previously cut during the management of Cesar Guy be first sold. that respondent was permitted to cut logs in the middle of June 1965 but petitioner's supervisor stopped all logging operations on 15 July 1965. In other words. this Court stated in Froilan vs. the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code. the responsible party will be sentenced to damages. and bring the matter to court. the creditor (UP) has "the right and the power to consider.. Then. In other words. We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation. in the contrary case. the resolution will be affirmed. decide that the resolution of the contract was not warranted. Otherwise. and may disregard the same before any judicial pronouncement to that effect. Of course. . upon default by the debtor ALUMCO. in issuing the injunction order of 25 February 1966. as without it. and act accordingly. unless attack thereon should become barred by acquiescence. estoppel or prescription. Article 2203). If the other party denies that rescission is justified. should the court. even without court intervention. 31 October 1964. and in connection with Article 1191 of the Civil Code. without previous court action. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.

queda aquella sometida el examen y sancion de los Tribunale. Segun reiterada doctrina de esta Sala. Civil Code Anno. por el cual fragenti fidem. In the light of the foregoing principles. en definitiva. no ajustada a Derecho.. Civil Law. si no es impugnada en juicio luego con exito. instead of the rescinder. in case of abuse or error by the rescinder the other party is not barred from questioning in court such abuse or error. that the excuses offered in the second amended answer. por declaracion del acreedor. 1. the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit. segun jurisprudencia de este Tribunal. el Art. Jurisp. a resolution of reciprocal or synallagmatic contracts may be made extrajudicially unless successfully impugned in court. and repeatedly denied its motions to lift the injunction. it becomes plain that the acts of the court a quo in enjoining petitioner's measures to protect its interest without first receiving evidence on the issues tendered by the parties. fundada en el incumplimiento por una de las partes de su respectiva prestacion. de 4 Nov. Sup. recogido del Canonico. contenida en las Ss. la cual tiene derecho do opcion entre exigir el cumplimientoo la resolucion de lo convenido. cuando no opta por el cumplimientocon la indemnizacion de danos y perjuicios realmente causados. of 10 April 1929. de 12 mayo 1955 y 16 Nov. as already observed. and the rotten condition of the logs in private respondent's pond.) (Emphasis supplied). que si la declaracion de resolucion hecha por una de las partes se impugna por la otra. interpretado por la jurisprudencia de esta Sala. Footnote. o Por la declaracion de voluntad de la otra hecha extraprocesalmente. 1956. of the Tr. definitivo o irreformable lo impida. TS of Spain. (Sent. 3. a un hecho obstativo que de un modoabsoluto. 106 Jur. page 140) but. entre otras. facultad que. do not constitute on their face sufficient excuse for non-payment. Code is practically a reproduction). ya fuera de ella. (Sent. Civ. La resolucion de los contratos sinalagmaticos. that it is not denied that the respondent company had profited from its operations previous to the agreement of 5 December 1964 ("Acknowledgment of Debt and Proposed Manner of Payment"). inspiradas por el principio del Derecho intermedio. 447). has repeatedly held that. sin necesidad de una declaracion previa de los Tribunales. claro es. y 2. a reserva. surge immediatamente despuesque la otra parte incumplio su deber. and considering that whatever prejudice may be suffered by respondent ALUMCO is susceptibility of compensation in damages. even without express provision conferring the power of cancellation upon one contracting party. 1124 regula la resolucioncomo una "facultad" atribuida a la parte perjudicada por el incumplimiento del contrato. Vol. In fact. fides non est servanda. and in subsequently refusing to dissolve the . ya en la via judicial. segun el art. que habran de declarar. IV. (Ss. to the extent that the court below issued a writ of preliminary injunction stopping ALUMCO's logging operations. Aranzadi. 1958 y 22 Jun.124. una actitud o conducta persistente y rebelde de laadversa o la satisfaccion de lo pactado. bien hecha la resolucion o por el contrario. Padilla. of Spain. the Supreme Court of Spain. ademas. 1967 ed. que puede ejercitarse. 16 November 1956. which said respondent was in a better position to know when it executed the acknowledgment of indebtedness. siempre quese acredite. and considering that the complaint of petitioner University made out a prima facie case of breach of contract and defaults in payment by respondent ALUMCO. puedetener lugar con eficacia" 1. El articulo 1124 del Codigo Civil establece la facultad de resolver las obligaciones reciprocas para el caso de que uno de los obligados no cumpliese lo que le incumbe. such as the misconduct of its former manager Cesar Guy. 897). 0 Por la demanda de la perjudicada.Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of contract may render nugatory the general rule requiring judicial action (v. 1959. in construing the effect of Article 1124 of the Spanish Civil Code (of which Article 1191 of our own Civil.

1982 JOSE C. and the order of the respondent court of 25 February 1966.00 payable in twenty years with respondent buyer assuming to pay a down payment of P5. and this contract shall be considered as without force and effect also from said date. HON. respondents. granting the Associated Lumber Company's petition for injunction. 1964. correctible by certiorari.000. petitioner seeks to compel respondent Judge to assume appellate. Zulueta is the registered owner of a residential house and lot situated within the Antonio Subdivision. the writ of certiorari applied for is granted. The antecedental facts follow: Petitioner Jose C.R. vs. On November 6. It was further stipulated: 12) That upon failure of the BUYER to fulfill any of the conditions herein stipulated. building and other improvements which are the subject of this contract. J. BUYER automatically and irrevocably authorizes OWNER to recover extra-judicially. and the case is pending therein. Zulueta vs. therefore. Lamberto Avellana). is hereby set aside.injunction. and LAMBERTO AVELLANA. 1190 entitled Jose C. not original jurisdiction over an Ejectment case appealed from the Municipal Court of Pasig (CC No. must be set aside. and to issue a Writ of Execution in said case. Let the records be remanded for further proceedings conformably to this opinion. For the reason that the order finding the petitioner UP in contempt of court has open appealed to the Court of Appeals.000. G. physical possession of the land. L-29360 January 30. WHEREFORE. Such injunction. petitioner. this Court abstains from making any pronouncement thereon. and to take possession also extra-judicially whatever personal properties may be found within the aforesaid premises from the date of said failure to answer for whatever unfulfilled monetary obligations BUYER may have with OWNER. a movie director. starting with December. HERMINIO MARIANO. all payments made by the BUYER to OWNER shall be deemed as rental payments without prejudice to OWNER's right to collect from BUYER whatever other monthly installments and other money obligations which may have been paid until BUYER vacates the aforesaid premises. in his capacity as Presiding Judge of Branch X of the Court of First Instance of Rizal. since appeal was not available or adequate. upon his failure to comply with any of the . Pasig. entered into a "Contract to Sell" the aforementioned property for P75. No.00 and a monthly installment of P630. Rizal. MELENCIO-HERRERA. petitioner Zulueta and private respondent Lamberto Avellana. ZULUETA.00 payable in advance before the 5th day of the corresponding month. were in grave abuse of discretion.: In this action for mandamus and Prohibition. 1964.

as a special defense. The issue in this case being that of possession. on June 22. has no place as a defense here. 1190). to pay petitioner the sum of P21. 1966. Respondent's total counterclaim against petitioner was in the amount of P42. and P630. petitioner.00 representing the cost of two movies respondent made for petitioner and used by the latter in his political campaign in 1964 when petitioner ran for Congressman.00 against his obligations to petitioner. plaintiff Jose C. and that thereby the contract was converted into one of lease.269. Respondent Avellana occupied the property from December. 1966. said indebtedness is only a claim still debatable and controversial and not a final judgment.00 as monthly rental from and after May. commenced an Ejectment suit against respondent before the Municipal Court of Pasig (CC No. which amounts. Zulueta. as well as the cost of one 16 millimeter projector petitioner borrowed from respondent and which had never been returned. and costs. That conclusion was premised on title finding that breach of any of the conditions by private respondent converted the agreement into a lease contractual and upon the following considerations: The question involved herein is that of possession. The latter strongly denied such an understanding. shall return the same to BUYER only after the latter shall have fulfilled all money claims against him by OWNER.093.269. praying that judgment be rendered ordering respondent 1) to vacate the premises. private respondent sought to offset the sum of P31.88 representing arrearages as of April. claim for moral damages. It should be the subject. should he take possession of such properties following the aforesaid failure of BUYER.00 indebtedness. that prior to the execution of the contract to sell. As it is.matter of a separate action against. Upon the allegation that respondent Avellana had failed to comply with the monthly amortizations stipulated in the contract. according to their understanding. demand is waived. and attorney's fees. petitioner was already indebted to him in the sum of P31. 2) to pay petitioner the sum of P11. The counterclaim was dismissed by the Municipal Court for being in an amount beyond its jurisdiction. in all cases herein.269.30 representing respondent's balance owing as of May. However. 'It is our considered opinion that to admit and to allow such a defense would be tantamount to prejuding . but title remained with petitioner Zulueta.629. that who of the contending parties has the better right to possession of the properly in question. 1967. BUYER shall not remove his personal properties without the previous written consent of OWNER.99 representing petitioner's pleaded indebtedness to private respondent. 1967 until delivery of possession of that premises to petitioner. the claim of defendant against plaintiff or P 31. herein conditions BUYER forfeits all money claims against OWNER and shall pay a monthly rental equivalent to his monthly installment under Condition 1 of this Contract from the date of the said failure to the date of recovery of physical possession by OWNER of the land. Deciding the case on May 10. Respondent controverted by contending that the Municipal Court had no jurisdiction over the nature of the action as it involved the interpretation and/or rescission of the contract.00 every month after May. 1964. despite demands to pay and to vacate the premises. 3) to pay petitioner the sum of P 630. 1966. who. building and other improvements which are the subject of this Contract. would be applied as down payment for the property and to whatever obligations respondent had with petitioner.751. the Municipal Court found that respondent Avellana had failed to comply with his financial obligations under the contract and ordered him to vacate the premises and deliver possession thereof to petitioner. 1967.

therefore. petitioner had alleged violation by respondent Avellana of the stipulations of their agreement to sell and thus unilaterally considered the contract rescinded. Petitioner opposed claiming that the Complaint had set out a clear case of unlawful detainer considering that judicial action for the rescission of the contract was unnecessary due to the automatic rescission clause therein and the fact that petitioner had cancelled said contract so that respondent's right to remain in the premises had ceased. explaining: The decision of the lower court declared said Contract to Sell to have been converted into a contract of lease. which the latter denied.m. On February 19. proof of violation is a . respondent Avellana filed a Motion to Dismiss Appeal alleging that. within its exclusive original jurisdiction. Respondent Avellana denied any breach on his part and argued that the principal issue was one of interpretation and/or rescission of the contract as well as of set-off. let this case be set for pre-trial on July 12. On March 21. the case necessarily involved the interpretation and/or rescission of the contract and. This is not the proper court and this is not the proper case in which to ventilate the claim. or one for rescission or annulment of a contract. Respondent Judge held resolution thereof in abeyance. It is the contention of the defendant that the lower court had no jurisdiction to entertain the case as the same involves the interpretation of contract as to whether or not the same has been converted to lease contract. WHEREFORE. therefore. there is no showing that before filing this case in the lower court. inasmuch as the defense set up in his Answer was that he had not breached his contract with petitioner. Thereat. Petitioner then availed of the instant recourse. 1968. Although the contract to sell object of this case states that the same may be converted into a lease contract upon the failure of the defendant to pay the amortization of the property in question. respondent Judge dismissed the case on the ground of lack of jurisdiction of the Municipal Court. which should be litigated before a Court of First Instance? Upon a review of the attendant circumstances. In his Complaint. This court can not do without violating some rules of law. the claim on its merits prematurely in favor of defendant. with notice to an parties. 1968. Was the action before the Municipal Court of Pasig essentially for detainer and. the Court. the plaintiff has exercised or has pursued his right pursuant to the contract which should be the basis of the action in the lower court. petitioner summoned for execution alleging private respondent's failure to deposit in accordance the monthly rentals. Petitioner's Motion for Reconsideration was denied by respondent Judge as follows: The plaintiff having filed a motion for reconsideration of this Court's Order dismissing the appeal. 1968 at 8:30 a. Under those circumstances. beyond the jurisdiction of the Municipal Court. hereby takes cognizance of the case and will try the case as if it has been filed originally in this Court. Respondent Avellana appealed to the Court of First Instance of Rizal presided by respondent Judge. while standing pat on its Order dismissing this case for lack of jurisdiction of the lower court over the subject matter. we uphold the ruling of respondent Judge that the Municipal Court of Pasig was bereft of jurisdiction to take cognizance of the case filed before it.

in the face of the objection interposed by petitioner. 2 Where it is objected to. unless the parties agree to the exercise by the CFI of its original jurisdiction to try the case on the merits.condition precedent to resolution or rescission. if the parties therein file their pleadings and go to trial without any objection to such jurisdiction. petitioner's prayer for a Writ of Execution of the judgment of the Municipal Court of Pasig must perforce be denied. It is only when the violation has been established that the contract can be declared resolved or rescinded. Rule 40. An allegation of such violation in a detainer suit may be proved by competent evidence. but the Writ of Prohibition is granted and respondent Court hereby permanently enjoined from taking cognizance of Civil Case No. the Writ of mandamus is denied. hinges a pronouncement that possession of the realty has become unlawful. where the other party does not oppose it. the basic issue is not possession but one of rescission or annulment of a contract. But instead of dismissing the case. WHEREFORE. A violation by a party of any of the stipulations of a contract on agreement to sell real property would entitle the other party to resolved or rescind it. 1 True. Upon such rescission. however. cannot be taken cognizance of by a justice of the peace court. SO ORDERED. And if proved a justice of the peace court might make a finding to that effect. the contract between the parties provided for extrajudicial rescission. 10595 in the exercise of its original jurisdiction. leaves no room for doubt on this point: Section 11. No costs. except to dismiss the appeal. There was no other recourse left for respondent Judge. This has legal effect. he erred in assuming original jurisdiction. Section 11. . And as the illegality of the possession of realty by a party to a contract to sell is premised upon the resolution of the contract. If an inferior court tries a case without jurisdiction over the subject-matter on appeal. Thus. it follows that an allegation and proof of such violation. 4 The foregoing premises considered.. It is beyond its power so to do. a judicial determination of the issue is still necessary. but it certainly cannot declare and hold that the contract is resolved or rescinded. a condition precedent to such resolution or rescission. A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex proprio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and' determination. which is beyond the jurisdiction of the Municipal Court to hear and determine. .. in turn. to render unlawful the possession of the land or building erected thereon by the party who has violated the contract. the only authority of the CFI is to declare the inferior court to have acted without jurisdiction and dismiss the case. Lack of jurisdiction —A case tried by an inferior court without jurisdiction over the subject matter shall be dismiss on appeal by the Court of First Instance. the Court of First Instance may try the case on the merits. therefore. 3 But while respondent Judge correctly ruled that the Municipal Court had no jurisdiction over the case and correctly dismissed the appeal.

upon the allegation that the NHA Resolution was contrary to law (O.00 with 9% interest per annum. INC.722. and owned by said corporation. On March 28. Nazario Dumpit. Presidential Executive Assistant NATIONAL HOUSING AUTHORITY and NAZARIO DUMPIT respondents. Inc. In a Resolution. 1980 denying petitioners' Motion for Reconsideration of said Resolution of May 2.: The Resolution. finding the rescission void in the absence of either judicial or notarial demand. and that the lot had already been resold. Case No. dated May 2.722. Inc. 1980. jointly and severally. respondent Presidential Executive Assistant. 1973. Paragraph 6 of the contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month. private respondent wrote petitioner offering to update all his overdue accounts with interest.722. 1967 for installments up to September 1967. Inc.00 and monthly installments of P246. petitioner. JACOBO C. J. 1459).300.165 square meters. are being assailed in this petition. CLAVE. 90454. Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract. He followed this up with another letter dated June 20. Albert Onstott executed in favor of private respondent. as resolved by the National Housing Authority in its Resolution of July 10. directing petitioners Palay. to refund to private respondent.covered by TCT No. with an area of 1. vs. 1979. Wilfredo E. ordered Palay. a Contract to Sell a parcel of Land (Lot No. as well as the Resolution of October 28. 1 On appeal to the Office of the President. Questioning the validity of the rescission of the contract. 1965. and ALBERT ONSTOTT. and Alberto Onstott jointly and severally. petitioner Palay.P. Dizon for private respondent. 8.42 until fully paid.R. and Alberto Onstott in his capacity as President of the corporation. without need of notice and with forfeiture of all installments paid. Respondent Dumpit paid the downpayment and several installments amounting to P13. the NHA. 1979 in Case No. 1983 PALAY.50 with 12% interest per annum. Santos. . 1973 reiterating the same request. respondent filed a letter complaint with the National Housing Authority (NHA) for reconveyance with an altenative prayer for refund (Case No. the amount of P13. payable with a downpayment of P4.660. 1974. The sale price was P23. Case No. Nazario Dumpit. No. through its President. 2167.50. Petitioners' Motion for Reconsideration of said Resolution was denied by the NHA in its Order dated October 23. to refund immediately to Nazario Dumpit the amount of P13.P.G. 1980. Block IV) of the Crestview Heights Subdivision in Antipolo. 2167). Rizal. or almost six (6) years later. and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon. 1459. MELENCIO-HERRERA. 1979. dated July 10. issued by Presidential Executive Assistant Jacobo Clave in O. affirmed . Calcetas-Santos & Geronimo Law Office for petitioner. 1980.. On May 10. L-56076 September 21.50 with 12% interest from the filing of the complaint on November 8. on May 2. The last payment was made on December 5.

Thus. together with all the improvements made on the premises. On the first issue. IV Whether respondent Presidential Executive Assistant committed grave abuse of discretion in upholding the decision of respondent NHA holding petitioners solidarily liable for the refund of the installment payments made by respondent Nazario M. however. we dismissed the petition but upon petitioners' motion. and as a consequence thereof. the SELLER may dispose of the lot/lots covered by this Contract in favor of other persons. reconsidered the dismissal and gave due course to the petition on March 15. that should a period of NINETY (90) DAYS elapse to begin from the expiration of the month of grace hereinbefore mentioned. that should the month of grace herein granted to the BUYER expire. as if this contract had never been entered into. On October 28. shall be considered as rents paid for the use and occupation of the above mentioned . particularly petitioner Onstott We issued a Temporary Restraining Order on Feb 11. the SELLER shall have the right to declare this contract cancelled and of no effect without notice. petitioners maintain that it was justified in cancelling the contract to sell without prior notice or demand upon respondent in view of paragraph 6 thereof which provides- 6. In case of such cancellation of this Contract. therefore. 1982. the BUYER shall be granted a month of grace within which to make the payment of the t in arrears together with the one corresponding to the said month of grace. 1981. and the BUYER shall not have paid all the amounts that the BUYER should have paid with the corresponding interest up to the date. all the amounts which may have been paid by the BUYER in accordance with the agreement. an interest of ten (10%) per cent per annum shall be charged on the amounts the BUYER should have paid. without the payment & corresponding to both months having been satisfied. -It shall be understood. 1980. the present petition wherein the following issues are raised: I Whether notice or demand is not mandatory under the circumstances and. may be dispensed with by stipulation in a contract to sell. it is understood further. Dumpit thereby denying substantial justice to the petitioners. II Whether petitioners may be held liable for the refund of the installment payments made by respondent Nazario M. III Whether the doctrine of piercing the veil of corporate fiction has application to the case at bar. Dumpit. That in case the BUYER falls to satisfy any monthly installment or any other payments herein agreed upon.the Resolution of the NHA. Reconsideration sought by petitioners was denied for lack of merit. 1981 enjoining the enforcement of the questioned Resolutions and of the Writ of Execution that had been issued on December 2.

37 Phil. 1967 ed. page 140) but. If the other party denies that rescission is justified it is free to resort to judicial action in its own behalf. IV. and bring the matter to court. Well settled is the rule. after due hearing. there was at least a written notice sent to the defaulter informing him of the rescission.Then. should the court. Footnote. the party who deems the contract violated may consider it resolved or rescinded.. in the contrary case. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. in case of abuse or error by the rescinder the other party is not barred from questioning in court such abuse or error. 631. Article 2203). vs. Hospital de San Juan De Dios. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. without previous court action.. as already observed. Republic vs. Walfrido de los Angeles 3 the act of a party in treating a contract as cancelled should be made known to the other. it must be understood that the act of a party in treating a contract as cancelled or resolved in account of infractions by the other contracting party must be made known to the other and is always provisional being ever subject to scrutiny and review by the proper court. the responsible party will be sentenced to damages. as held in previous jurisprudence. Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of contract may render nugatory the general rule requiring judicial action (v.. As stressed in University of the Philippines vs. It is in this sense that judicial action win be necessary. and the consequent indemnity awarded to the party prejudiced. Vol. 2 that judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions. premises and for liquidated damages suffered by virtue of the failure of the BUYER to fulfill his part of this agreement : and the BUYER hereby renounces his right to demand or reclaim the return of the same and further obligates peacefully to vacate the premises and deliver the same to the SELLER. 84 Phil 820) since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. Padilla Civil Law. We quote the pertinent excerpt: Of course. even in the cited cases. instead of the rescinder (Emphasis supplied). decide that the resolution of the contract was not warranted. et al.. the extrajudicial resolution will remain contestable and subject to judicial invalidation unless attack thereon should become barred by acquiescense. However. International Banking Corp. the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit. but it proceeds at its own risk. In other words. as without it. estoppel or prescription. the resolution will be affirmed. Otherwise. Civil Code Anno. the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code. We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation (Ocejo Perez & Co. . and act accordingly.

It is now for the Court to determine whether resolution of the contract by petitioners was warranted. together with their fruits. Regarding the second issue on refund of the installment payments made by private respondent. when it specifically provided: Sec. Rescission creates the obligation to return the things which were the object of the contract. This was reiterated in Zulueta vs. a judicial determination of the issue is still necessary. 7 In this case. Article 1385 of the Civil Code provides: ART. In other words. A waiver must be certain and unequivocal. 9 Moreover. it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. reading: A stipulation entitling one party to take possession of the land and building if the other party violates the contract does not ex propio vigore confer upon the former the right to take possession thereof if objected to without judicial intervention and determination.. We hold that resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution. (Emphasis supplied). and private respondent had no freedom to stipulate. 6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments. De los Angeles 8 where it was held that "there was no contract to rescind in court because from the moment the petitioner defaulted in the timely payment of the installments.6 Where it is objected to. If the debtor impugns the declaration. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments. and the price with its interest." However. private respondent has denied that rescission is justified and has resorted to judicial action. the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.P. resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in Court." which took effect on September 14. the contract between the parties was deemed ipso facto rescinded. it shall be subject to judicial determination.. a standard form of petitioner corporation.Of similar import is the ruling in Nera vs. Vacante 4 . Mariano 5 where we held that extrajudicial rescission has legal effect where the other party does not oppose it. it should be noted that even in that case notice in writing was made to the vendee of the cancellation and annulment of the contract although the contract entitled the seller to immediate repossessing of the land upon default by the buyer. such waiver follows only where liberty of choice has been fully accorded. The contention that private respondent had waived his right to be notified under paragraph 6 of the contract is neither meritorious because it was a contract of adhesion. Angeles case. as held in the U. . vs. The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No. supra Petitioner relies on Torralba vs. 3(b) . 1972. and intelligently made. 1385.

considering that the property had already been sold to a third person and there is no evidence on record that other lots are still available. As a consequence of the resolution by petitioners. private respondent is entitled to the refund of installments paid plus interest at the legal rate of 12% computed from the date of the institution of the action.50. protect fraud. rights to the lot should be restored to private respondent or the same should be replaced by another acceptable lot. Neither sham rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. No costs. the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice 12 . The temporary Restraining Order heretofore issued is hereby lifted.R. L-42283 March 18. Inc. It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as wen as from that of any other legal entity to which it may be related. 11 As a general rule. adjunct or business conduit for the sole benefit of the stockholders. However. is hereby modified. We come now to the third and fourth issues regarding the personal liability of petitioner Onstott who was made jointly and severally liable with petitioner corporation for refund to private respondent of the total amount the latter had paid to petitioner company. SO ORDERED. 18 In this respect then. a modification of the Resolution under review is called for. with interest at twelve (12%) percent per annum from November 8. consequently. indemnity for damages may be demanded from the person causing the loss. or to defeat public convenience. WHEREFORE. However. In this case. 17 We find no badges of fraud on petitioners' part. the date of the filing of the Complaint. or for purposes that could not have been intended by the law that created it 13 . therefore. 14 . on paragraph 6 (supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and had sold it to a third person. dated May 2. or defend crime. the questioned Resolution of respondent public official. justify wrong. G. No sufficient proof exists on record that said petitioner used the corporation to defraud private respondent. Dumpit the amount of P13. Petitioner Palay. No. 1974. petitioner Onstott was made liable because he was then the President of the corporation and he a to be the controlling stockholder. or to perpetuate fraud or confuse legitimate issues 15 . or to circumvent the law or perpetuate deception 16. In this case. 1985 . be made personally liable just because he "appears to be the controlling stockholder". They had literally relied. albeit mistakenly. Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality. a corporation may not be made to answer for acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice versa. He cannot. 10 It would be most inequitable if petitioners were to be allowed to retain private respondent's payments and at the same time appropriate the proceeds of the second sale to another. 1980. or as an alter ego. it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.722. is directed to refund to respondent Nazario M.

the Court hereby renders judgment in favor of the plaintiffs and against the defendants declaring that the . The dispositive portion of the decision reads: WHEREFORE.20 until fully paid..38 including interests.00 plus 7% interest per annum. Branch X. URSULA TORRES CALASANZ. the Court of Appeals certified the case to us since only pure questions of law have been raised for appellate review. when their aggregate payment already amounted to P4. Branch X to compel the defendants-appellants to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question. defendants-appellants. ET AL. The lower court rendered judgment in favor of the plaintiffs-appellees. 1966. Seventh Judicial District. The defendants-appellants alleged in their answer that the complaint states no cause of action and that the plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and refused to pay and/or offer to pay the monthly installments corresponding to the month of August. ET AL. GUTIERREZ. 8943 with the Court of First Instance of Rizal. the defendants-appellants cancelled the said contract because the plaintiffs- appellees failed to meet subsequent payments. They promised to pay the balance in monthly installments of P 41. the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of past due accounts. J.533.BUENAVENTURA ANGELES. 1967. declaring the contract to sell as not having been validly cancelled and ordering the defendants-appellants to execute a final deed of sale in favor of the plaintiffs-appellees.00 upon the execution of the contract. The plaintiffs-appellees filed Civil Case No. to pay P500. On numerous occasions.38. On January 28.. they found out that they have already paid the total amount of P4. thereby constraining the defendants-appellants to cancel the said contract. JR. The facts being undisputed. based on the foregoing considerations. the defendants-appellants accepted and received delayed installment payments from the plaintiffs-appellees.00 attorney's fees and costs. 1957. The plaintiffs-appellees paid the monthly installments until July 1966. defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta. On December 7. realty taxes and incidental expenses for the registration and transfer of the land.: This is an appeal from the decision of the Court of First Instance of Rizal. Seventh Judicial District.920. vs. The plaintiffs-appellees made a downpayment of P392.533. On December 19. plaintiffs-appellees. Rizal for the amount of P3. The plaintiffs' letter with their plea for reconsideration of the said cancellation was denied by the defendants-appellants. 1966 for more than five (5) months. the installments being due and payable on the 19th day of each month..

it is understood further. and as consequence thereof. and the party of SECOND PART has not paid all the amounts he should have paid with the corresponding interest up to that date.00 by way of attorney's fees. Costs against the defendants. or any other payments herein agreed upon. Consequently. Third Assignment of Error THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS THE SUM OF P500. that should a period of 90 days elapse. to begin from the expiration of the month of grace herein mentioned. without the payments corresponding to both months having been satisfied. contract subject matter of the instant case was NOT VALIDLY cancelled by the defendants. it is understood. the defendants are ordered to execute a final Deed of Sale in favor of the plaintiffs and to pay the sum of P500. Second Assignment of Error EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT BEEN LEGALLY AND VALIDLY CANCELLED. The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six of the contract which provides: xxx xxx xxx SIXTH. an interest of 10% per annum will be charged on the amounts he should have paid. that should the month of grace herein granted to the party of the SECOND PART expired. the party of the FIRST PART may dispose of the parcel of land covered by this contract in favor of other persons. A motion for reconsideration filed by the defendants-appellants was denied. The main issue to be resolved is whether or not the contract to sell has been automatically and validly cancelled by the defendants-appellants. THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF. together with the one corresponding to the said month of grace. The defendants-appellants assigned the following alleged errors of the lower court: First Assignment of Error THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL (ANNEX "A" OF COMPLIANCE) AS HAVING BEEN LEGALLY AND VALIDLY CANCELLED.00 AS ATTORNEY'S FEES. he is granted a month of grace within which to make the retarded payment. the party of the FIRST PART has the right to declare this contract cancelled and of no effect. however.—In case the party of the SECOND PART fails to satisfy any monthly installments. as if this contract . the then Court of Appeals certified the case to us considering that the appeal involves pure questions of law. As earlier stated.

The validity of the stipulation can not be seriously disputed. and as payment for the damages suffered by failure of the party of the SECOND PART to fulfill his part of the agreement. with the payment of damages in either case. because it granted the sellers an absolute and automatic right of rescission.. Moreover. He may also seek rescission. all the amounts paid in accordance with this agreement together with all the improvements made on the premises. (Ponce Enrile v. shall be considered as rents paid for the use and occupation of the above mentioned premises. Co. had never been entered into. In case of such cancellation of the contract. xxx xxx xxx Article 1191 is explicit. 12 SCRA 276)— Well settled is. The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. in case one of the obligors should not comply with what is incumbent upon him. In reciprocal obligations.R. . Commissioner of Customs. Article 1191 of the Civil Code on the rescission of reciprocal obligations provides: The power to rescind obligations is implied in reciprocal ones. the sellers have the right to declare the contract cancelled and of no effect. . No. February 28. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this Court. 1955) where this Court upheld the right of the subdivision owner to automatically cancel a contract to sell on the strength of a provision or stipulation similar to paragraph 6 of the contract in this case. the rule that a judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions' (Lopez v. They state that paragraph 6 of the contract to sell is contrary to law insofar as it provides that in case of specified breaches of its terms. The defendants-appellants point to Jocson v. L-6573. they had the right to cancel the contract to sell under Article 1191 of the Civil Code of the Philippines. if the latter should become impossible. 37 SCRA 327. Pan Oriental Shipping. and cases cited therein) Resort to judicial action for rescission is obviously not contemplated . The injured party may choose between the fulfillment and the rescission of the obligation. et al. and the party of the SECOND PART hereby renounces all his right to demand or reclaim the return of the same and obliges himself to peacefully vacate the premises and deliver the same to the party of the FIRST PART. either party the right to rescind the contract upon the failure of the other to perform the obligation assumed thereunder. The defendants-appellants also argue that even in the absence of the aforequoted provision. . even after he has chosen fulfillment. 29 SCRA 504). however. 1966 installment despite demands for more than four (4) months.. Capitol Subdivision (G. Court of Appeals. there is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even without court intervention (Froilan v. (Emphasis supplied by appellant) xxx xxx xxx The defendants-appellants argue that the plaintiffs-appellees failed to pay the August.

the party who deems the contract violated many consider it resolved or rescinded. the party of the SECOND PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P3. 821. is not absolute. 1968). plus interest at the rate of 7% per annum.. 820) since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. 17. Court of Appeals (33 SCRA 1) the Court stated that— The general rule is that rescission of a contract will not be permitted for a slight or casual breach. L-23707 & L-23720. International Banking Corp. v. and the consequent indemnity awarded to the party prejudiced. In Universal Food Corp. v. (35 SCRA 102) where we explained that: Of course. Perez & Co. as follows: . In other words. et al. The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell which provides: SECOND.. it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional. without previous court action. Hawaiian- Philippine Co.—That in consideration of the agreement of sale of the above described property. v.00). We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation. If the other party denies that rescission is justified. Jan.. 37 Phil. it is free to resort to judicial action in its own behalf. the extrajudicial resolution will remain contestable and subject to judicial invalidation. therefore. the resolution will be affirmed. (Ocejo. Hon. being ever subject to scrutiny and review by the proper court. should the court. Then.. but it proceeds at its own risk. 84 Phil. . . . . Alikpala.. unless attack thereon should become barred by acquiescence.The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself provides that it may be rescinded for violation of its terms and conditions. the responsible party will be sentenced to damages. estoppel or prescription. but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement.. Philippine Currency. It is in this sense that judicial action will be necessary. 631.. (Corpus v. was qualified by this Court in University of the Philippines v. and act accordingly. 47 Phil. decide that the resolution of the contract was not warranted. Republic v.. 827) The question of whether a breach of a contract is substantial depends upon the attendant circumstances.920. The right to rescind the contract for non-performance of one of its stipulations. Hospital de San Juan de Dios. and bring the matter to court. et al. De los Angeles. in the contrary case. (Song Fo & Co. after due hearing. as without it. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.

from this date until the total payment of the price above stipulated.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. instead of availing of their alleged right to rescind.533.appellees. 31 SCRA 829) It would unjustly enrich the defendants-appellants. The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that when the defendants-appellants. including interest. despite demand. also militates against the unilateral act of the defendants-appellants in cancelling the contract.00) when this contract is signed. (See J.38. (a) The amount of THREE HUNDRED NINETY TWO only (P392.00 excluding the 7 percent interests. We agree with the observation of the lower court to the effect that: Although the primary object of selling subdivided lots is business. the defendants-appellants have . though the plaintiffs-appellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract. although the principal obligation was only P 3. low income group people of realizing their dream of a little parcel of land which they can really call their own.appellees had already paid an aggregate amount of P 4. Furthermore.M. the entire obligation would have been paid. for more than four (4) months. in only a short time.-That whatever consideration of the party of the FIRST PART may concede to the party of the SECOND PART. and (b) The sum of FORTY ONE AND 20/100 ONLY (P4l.. the plaintiffs. less damages suffered by the obligee. have accepted and received delayed payments of installments.920.20) on or before the 19th day of each month. as not exacting a strict compliance with the conditions of paragraph 6 of this contract. it cannot be denied that this subdivision is likewise purposely done to afford those landless. To sanction the rescission made by the defendants-appellants will work injustice to the plaintiffs. v. In other words. The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial downpayment of P392. but for as many times as he wishes. should not be interpreted as a renunciation on the part of the party of the FIRST PART of any right granted it by this contract. The defendants-appellants cannot rely on paragraph 9 of the contract which provides: NINTH. yet. Article 1234 of the Civil Code which provides that: If the obligation has been substantially performed in good faith. in case of default or non-compliance by the party of the SECOND PART. Javier. Inc. because they failed to pay the August installment. Tuazon and Co. as well as any other condonation that the party of the FIRST PART may give to the party of the SECOND PART with regards to the obligations of the latter. The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph 6 not merely once. the obligor may recover as though there had been a strict and complete fulfillment.

—That once the payment of the sum of P3.00. even took steps to cancel the option or to eject the appellees from the home-lot in question. v.67 due from the plaintiffs-appellees.533.920. the necessary deed or deeds to transfer to the latter the title of the parcel of land sold. The defendants-appellants rely on paragraph 2 of the contract which provides: SECOND. the party to the FIRST PART will execute in favor of the party of the SECOND PART.00).. Inc.00.. (Emphasis supplied) The plaintiffs-appellees on the other hand are firm in their submission that since they have already paid the defendants-appellants a total sum of P4. the defendants-appellants must now be compelled to execute the final deed of sale pursuant to paragraph 12 of the contract which provides: TWELFTH. . neither they nor their predecessor.920. as above stated. we held that: xxx xxx xxx . In Sweet Lines. The contract to sell entered into by the parties has some characteristics of a contract of adhesion. We agree with the plaintiffs-appellees. The defendants-appellants drafted and prepared the contract. that au the expenses which may be incurred in the said transfer of title shall be paid by the party of the SECOND PART.. the total price of the sale is completed. In De Guzman v. The defendants-appellants contend in the second assignment of error that the ledger of payments show a balance of P671. We cannot but agree with the lower court that at the time appellees exercised their option. however.—That in consideration of the agreement of sale of the above described property. Teves (83 SCRA 36 1). affixed their signatures and assented to the terms and conditions of the contract. The plaintiffs-appellees. free from all hens and encumbrances other than those expressly provided in this contract. Teodoro de Guzman. the party of the SECOND PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P 3. They submit that while it is true that the total monthly installments paid by the plaintiffs-appellees may have exceeded P3. Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contract herein is a contract of adhesion. Under these circumstances. it is understood. On the contrary. .38. appellants had already forfeited their right to invoke the above-quoted provision regarding the nullifying effect of the non-payment of six months rentals by appellees by their having accepted without qualification on July 21. eager to acquire a lot upon which they could build a home. a substantial portion of the said payments were applied to the interests since the contract specifically provides for a 7% interest per annum on the remaining balance.waived and are now estopped from exercising their alleged right of rescission. we held that: xxx xxx xxx But defendants do not deny that in spite of the long arrearages.920.. Guieb (48 SCRA 68). plus interest at the rate of 7% per annum . 1964 the full payment by appellees of all their arrearages. It was offered to them on a "take it or leave it" basis. They had no opportunity to question nor change any of the terms of the agreement. it is admitted that the delayed payments were received without protest or qualification. Philippine Currency.

plaintiffs-appellants. JR. it is likewise true that under paragraph 12 the seller is obligated to transfer the title to the buyer upon payment of the P3. Vol. p.00 plus 7% interest per annum. The decision appealed from is AFFIRMED with the modification that the plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.R. G. L-22590 March 20..) (Emphasis supplied) While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellants the sum of P3. The attorney's fees are justified. Felipe Torres and Associates for plaintiffs-appellants. since the principal obligation under the contract is only P3. Inc. No.. YULO.533. because the only participation of the party is the signing of his signature or his "adhesion" thereto. ..R.67 without any interest thereon.67) without any interests. and MANUEL NIETO. . SR. stipulations in a contract come about after deliberate drafting by the parties thereto..00 and the plaintiffs-appellees have already paid an aggregate amount of P4. INC. Civil Code of the Philippines. INTERPHIL PROMOTIONS. A. Costs against the defendants-appellants. Del Rosario & Associates for defendant-appellee M.. (W)hile generally. Jr. The contract to sell. and in its entirety is most unfair to the buyers." Thus. defendants- appellees. JR. 1987 SOLOMON BOYSAW and ALFREDO M. must be construed against the party causing it. are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology. WHEREFORE.38. after having invested a big amount of money. RESOLUTION . contracts of sale of lots on the installment plan fall into this category. . We agree with the observation of the plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against the party who drafted the same. Upon payment of the balance of P671.00 price sale. 1. . the instant petition is DENIED for lack of merit. Jr. in essence. condemnable in its lopsidedness and injurious in its effect which. Naravasa & Pol Tiglao. (Paras. for defendant-appellee Interphil Promotions.E... the defendants-appellants must immediately execute the final deed of sale in favor of the plaintiffs-appellees and execute the necessary transfer documents as provided in paragraph 12 of the contract. V. 80.920.920. vs. Insurance contracts. the courts should only order the payment of the few remaining installments but not uphold the cancellation of the contract. usually a corporation. bills of lading. especially where such interpretation will help effect justice to buyers who. there are certain contracts almost all the provisions of which have been drafted only by one party. LOPE SARREAL. SO ORDERED.920. Nieto. Seventh ed. Such contracts are called contracts of adhesion. being a contract of adhesion.

Thereafter. from the decision dated July 25. wrote to Sarreal informing him of his acquisition of the managerial rights over Boysaw and indicating his and Boysaw's readiness to comply with the boxing contract of May 1. Lope Sarreal. 1961. Amado Araneta assigned to Alfredo J. Plaintiffs versus Interphil Promotions. [pp. Willie Ketchum. Inc.A. Q-5063.FERNAN. September 2.369.s. Presumably in preparation for his engagement with Interphil.00 as moral damages aside from costs. Inc. On September 1. Inc. Jr. broken down into P20..000. Sr. Sr. 1961.00 as attorney's fees. 1961. On July 2. and Lope Sarreal.00 as attorney's fees. ordered them to jointly and severally pay defendant-appellee Manuel Nieto. among others. Defendants. of which he had not been formally notified. the defendants-appellees Interphil Promotions. . 26-27. that is." which. engage in any other such contest without the written consent of Interphil Promotions. On May 3. 1961. Boysaw fought and defeated Louis Avila in a ten-round non-title bout held in Las Vegas. and Manuel Nieto.. Amado Araneta the managerial rights over Solomon Boysaw. represented by Lope Sarreal. Jr. to engage Boysaw in a title fight at the Rizal Memorial Stadium on September 30.. Nevada.. informing him of his arrival and presence in the Philippines.. Boysaw wrote Lope Sarreal. assigned to J. 1961..S. signed with Interphil Promotions. a supplemental agreement on certain details not covered by the principal contract was entered into by Ketchum and Interphil. Alfredo Yulo. and that Boysaw would not. t. 1961.00 as moral damages and P5.00. 1961. Branch V in Civil Case No.000. Yulo. On the same date.. Quezon City. Jr. and requesting that Boysaw be called to an inquiry to clarify the situation. J. Sr. entitled "Solomon Boysaw and Alfredo M. prior to the date of the boxing contest. Yulo.. Inc. Sr. Sr.00 as unrealized profits. the managerial rights over Boysaw that he earlier acquired from Ketchum and Ruskay.000.000. 1961 or not later than thirty [30] days thereafter should a postponement be mutually agreed upon. a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight championship of the world. session of March 14.: This is an appeal interposed by Solomon Boysaw and Alfredo Yulo. Solomon Boysaw and his then Manager. Jr. Interphil signed Gabriel "Flash" Elorde to a similar agreement. P250. 1963 and other rulings and orders of the then Court of First Instance [CFI] of Rizal. The next day. Ketchum on his own behalf and on behalf of his associate Frank Ruskay. and defendant-appellee Lope Sarreal. J. It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30. U. Jr.72 as actual damages and P5. 1963].. On September 5. 1961. on behalf of Interphil Sarreal wrote a letter to the Games and Amusement Board [GAB] expressing concern over reports that there had been a switch of managers in the case of Boysaw.n. P33. The antecedent facts of the case are as follows: On May 1.000. the additional amount of P20.000. the total sum of P25. On June 19. 1961. Solomon Boysaw arrived in the Philippines on July 31. 1961. Jr.

1963. the plaintiffs moved for a new trial. then GAB Chairman. Jr. As a result of the foregoing occurrences. Thus. a local boxing promoter. 1963 upon assurance of Boysaw's counsel that should Boysaw fail to appear on said date. On or about July 16. he was scheduled to take the witness stand. Since Boysaw was still abroad on the later date. another postponement was granted by the lower court for July 23. Edu. the following principal issues can be deduced: . The motion was denied. 1961. plaintiff moved to disqualify Solicitor Jorge Coquia of the Solicitor General's Office and Atty. in the CFI of Rizal [Quezon City Branch] for damages allegedly occasioned by the refusal of Interphil and Sarreal. Early in October 1961. From the errors assigned by the plaintiffs. sued Interphil. The USA National Boxing Association which has supervisory control of all world title fights approved the date set by the GAB Yulo. and Manuel Nieto. hence. 1961. this appeal taken directly to this Court by reason of the amount involved.The GAB called a series of conferences of the parties concerned culminating in the issuance of its decision to schedule the Elorde-Boysaw fight for November 4. refused to accept the change in the fight date. for a possible promotion of the projected Elorde-Boysaw title bout. plaintiff's case would be deemed submitted on the evidence thus far presented. as having been committed by the lower court. 1961. aided and abetted by Nieto. offered to advance the fight date to October 28. While an Elorde-Boysaw fight was eventually staged. so was the motion for reconsideration filed by plaintiffs on July 22. 1961 which was within the 30- day period of allowable postponements provided in the principal boxing contract of May 1.1961. plaintiff Boysaw left the country without informing the court and. on the ground that the latter had been sued in his personal capacity and. the fight contemplated in the May 1. He was still abroad when.1961 provided the same was promoted by Besa. on October 12. on May 13. Jr. the lower court reset the trial for June 20. Jr. When defendant's counsel was about to present their case. Sr. Jr. Yulo informed Besa that he was willing to approve the fight date of November 4. therefore. The motion was denied. 1963 with plaintiff's case being deemed submitted after the plaintiffs declined to submit documentary evidence when they had no other witnesses to present. The motion was denied insofar as Solicitor General Coquia was concerned. After the lower court rendered its judgment dismissing the plaintiffs' complaint. took no further part in the proceedings. Sarreal. Yulo. The case dragged into 1963 when sometime in the early part of said year. 1961 boxing contract never materialized. Romeo Edu of the GAB Legal Department from appearing for defendant Nieto. pleading anew Boysaw's inability to return to the country on time. was not entitled to be represented by government counsel. maintaining his refusal even after Sarreal on September 26. The trial proceeded as scheduled on July 23. 1961. to honor their commitments under the boxing contract of May 1. Jr. 1963. In one of such communications dated October 6. filed an urgent motion for postponement of the July 23. his counsel. as alleged. 1963. plaintiff's counsel after asking the court's permission. On the first scheduled date of trial. but was granted as regards the disqualification of Atty. Jr. exchanged communications with one Mamerto Besa. 1961.. 1963 trial. 1963. Boysaw and Yulo. plaintiffs represented by a new counsel.

are liable for damages. to appellant Yulo. of the managerial rights over Boysaw without the knowledge or consent of Interphil. [pp. Whether or not the lower court erred in the refusing a postponement of the July 23.1961. 1963 trial. negligence or delay. 1961 in Las Vegas Nevada. 5. 4. and if there was. [Art.s. Emphasis supplied]. 1170. 1961. first to J. "Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to perform 4 he is not entitled to insist upon the performance of the contract by the defendant. on the basis of the evidence adduced. in reciprocal ones. in case one of the obligors should not comply with what is incumbent upon him. or recover damages by reason of his own breach " [Seva vs. Whether or not the lower court erred in denying the appellant's motion for a new trial. There is no doubt that the contract in question gave rise to reciprocal obligations. Civil Code]. as stipulated in the May 1. March 14. Alfredo Berwin 48 Phil. IV. 2. Civil Code of the Philippines. who was guilty of such violation. "Reciprocal obligations are those which arise from the same cause. 1961.1 The power to rescind is given to the injured party. Amado Araneta. 1191. t. Whether or not there was legal ground for the postponement of the fight date from September 1.. While the contract imposed no penalty for such violation. Jr. without the approval or consent of Interphil. and subsequently. 581. and in which each party is a debtor and a creditor of the other. 175. 26-27. 1963]. 1961 fight contract. Whether or not the lower court. the evidence established that the contract was violated by appellant Boysaw himself when. They are to be performed simultaneously. Art. this does not grant any of the parties the unbridled liberty to breach it with impunity.n. such that the obligation of one is dependent upon the obligation of the other. 3. Appellant Yulo admitted this fact during the trial. he fought Louis Avila on June 19. Also: The power to rescind obligations is implied. . 1961 boxing contract. Civil Code]. p. Thus: Those who in the performance of their obligations are guilty of fraud. erred in awarding the appellees damages of the character and amount stated in the decision. [Part 1. Whether or not there was a violation of the fight contract of May 1. Vol. On the issue pertaining to the violation of the May 1. 1. Another violation of the contract in question was the assignment and transfer. Our law on contracts recognizes the principle that actionable injury inheres in every contractual breach.. and those who in any manner contravene the terms thereof. to November 4. so that the performance of one is conditioned upon the simultaneous fulfillment of the other" [Tolentino.

the GAB did not act arbitrarily in acceding to the appellee's request to reset the fight date to November 4. Civil Code of the Philippines. X can still bring his action against y for performance of their contract or damages in case of breach. but not without the consent of the creditor. In a show of accommodation. there is no novation. . together with the obligations thereunder. whether in expromision or delegacion is an. the appellees offered to advance the November 4. Substitution of one debtor for another may delay or prevent the fulfillment of the obligation by reason of the inability or insolvency of the new debtor. Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by another. from Ketchum to Araneta. 1961 fight to October 28. may be made even without the knowledge or against the will of the latter. particularly the fight date is undeniable from the facts aforestated. with Interphil's letter to the GAB expressing concern over reported managerial changes and requesting for clarification on the matter. p. That appellant Yulo. 1961. it is clear that the appellees. Civil Code. [Tolentino. the aggrieved creditor is not bound to deal with the substitute. were in fact novations of the original contract which. should have been consented to by Interphil. . under which he transfers to z all his rights under the first contract. Novation which consists in substituting a new debtor in the place of the original one.day limit of allowable postponements stipulated in the original boxing contract. 1293. From the evidence. and from Araneta to Yulo. 1961 of his acquisition of the managerial rights over Boysaw cannot change the fact that such acquisition. the appellees were not reliably informed of the changes of managers. and the prior acquisition of such rights by Araneta were done without the consent of Interphil. if any. That the appellees had the justification to renegotiate the original contract. really wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. appellees cannot be deemed to have consented to such changes. in a contract where x is the creditor and y is the debtor. The consent of the creditor to the change of debtors. to be valid. It must be noted that appellant Yulo had earlier agreed to abide by the GAB ruling. acceded to the "substitution" by Yulo of the original principal obligor. hence.The assignments. Not being reliably informed. 1961 just to place it within the 30. Jr. the appellees' desire to postpone the fight date could neither be unlawful nor unreasonable. Under the circumstances. . IV. upon receipt of Yulo's letter. There is no showing that Interphil. The refusal of appellants to accept a postponement without any other reason but the implementation of the terms of the original boxing contract entirely overlooks the fact that by virtue of the violations they have committed of the terms thereof. advised Interphil on September 5.. they have forfeited any right to its enforcement. the creditor should agree to accept the substitution in order that it may be binding on him. and appellants' claims. who is Ketchum.[Art. indispensable requirement . to the enforcement of the contract hung entirely upon the former's pleasure and sufferance. We uphold the appellees' contention that since all the rights on the matter rested with the appellees. instead of availing themselves of the options given to them by law of rescission or refusal to recognize the substitute obligor Yulo. emphasis supplied]. through a letter. 3611. The logical presumption can only be that. but such transfer is not consented to or approved by x. Vol. if y enters into a contract with z. Thus.

s. The denial of the petition for certiorari and prohibition filed by them.. the absence of evidence to the contrary. t. the lower court would have allowed the postponement of the trial. made the decision for postponement. it being convinced that Boysaw did not leave without notice to the court or to his counsel.On the validity of the fight postponement. it must be stated that one of the strongest presumptions of law is that official duty has been regularly performed. within the appellee's rights. Such evidence cannot alter the result of the case even if admitted for they can only prove that Boysaw did not leave the country without notice to the court or his counsel. It is the opinion of the Court that the 'newly discovered evidence' contemplated in Rule 37 of the Rules of Court. Jan. . Jr. [pp. the clearances are not even material to the issues raised. is such kind of evidence which has reference to the merits of the case. . In fact. it would alter the result of the judgment. suffice it to say that the same issue had been raised before Us by appellants in a petition for certiorari and prohibition docketed as G. including the setting of dates thereof. We uphold the lower court's ruling that: The said documents [clearances] are not evidence to offset the evidence adduced during the hearing of the defendants. alone. and appellants cannot now hope to resurrect the said issue in this appeal. had he effect of sustaining such ruling of the court . . warrants the full application of said presumption that the decision to set the Elorde-Boysaw fight on November 4. L-21506. Also. we find that the lower court did not commit any reversible error. it is their contention that only Manuel Nieto. thereby arrogating to himself the prerogatives of the whole GAB Board. [pp. The alleged newly discovered evidence. 32-42.s. Boysaw's testimony upon his return would. 1963]. t. That they sought to seek an adjustment of one particular covenant of the contract. such clearances might have impelled the Court to grant the postponement prayed for by them had they been presented on time. that if it were presented. the violations of the terms of the original contract by appellants vested the appellees with the right to rescind and repudiate such contract altogether. The argument of appellants is that if the clearances were admitted to support the motion for a new trial. Record on Appeal]. have altered the results of the case. Anent the lower court's refusal to postpone the July 23. 17. upon which the motion for new trial was made to rest. . is under the circumstances. of such a nature and kind.n. 296-297. In this case. Jan. The testimony of Boysaw cannot be considered newly discovered evidence for as appellees rightly contend. 1963 trial. We find the argument without merit because it confuses the evidence of the clearances and the testimony of Boysaw. such evidence has been in existence waiting only to be elicited from him by questioning.. consists merely of clearances which Boysaw secured from the clerk of court prior to his departure for abroad. The records do not support appellants' contention. 44-49.n. The dismissal by the Court of said petition had laid this issue to rest. 1963]. . On the denial of appellant's motion for a new trial.R. The question of the denial of the postponement sought for by counsel for plaintiffs is a moot issue . Jr. No. 1961 was a GAB Board decision and not of Manuel Nieto. As admitted by the counsel in their pleadings. 17. then. While the appellants concede to the GAB's authority to regulate boxing contests. [pp. Appellant Yulo himself admitted that it was the GAB Board that set the questioned fight date.

jointly. 6) Illegal search. slander or any other form of defamation. 2) Quasi-delict causing physical injuries.settled authorities. they. it must be noted that because the appellants wilfully refused to participate in the final hearing and refused to present documentary evidence after they no longer had witnesses to present. we are inclined to uphold the appellant's contention that the award is not sanctioned by law and well. 34 and 35. 30. 8) Malicious prosecution. cannot also be regarded as excessive considering the extent and nature of defensecounsels' services which involved legal work for sixteen [16] months.000. The award of attorney's fees in the amount of P5. 28. rape or other lascivious acts. and another P5. in the matter of moral damages. 7) Libel.00 as and for unrealized profits to the appellees.00 in favor of defendant-appellee Manuel Nieto. 5) Illegal or arbitrary detention or arrest. there is no rule requiring more than one witness or declaring that the testimony of a single witness will not suffice to establish facts. On the award of actual damages to Interphil and Sarreal. the appellants contend that a conclusion or finding based upon the uncorroborated testimony of a lone witness cannot be sufficient.We cite with approval appellee's contention that "the two qualities that ought to concur or dwell on each and every of evidence that is invoked as a ground for new trial in order to warrant the reopening . inhered separately on two unrelated species of proof" which "creates a legal monstrosity that deserves no recognition. abduction. 2219. by their own acts prevented themselves from objecting to or presenting proof contrary to those adduced for the appellees. Moral damages may be recovered in the following analogous cases: 1) A criminal offense resulting in physical injuries. On the actual damages awarded to appellees. the records bear sufficient evidence presented by appellees of actual damages which were neither objected to nor rebutted by appellants. 10) Acts and actions referred to in Arts. again because they adamantly refused to participate in the court proceedings. 26. However. 21. . especially where such testimony has not been contradicted or rebutted. . Inc. Art. 309. Sr." On the issue pertaining to the award of excessive damages. 9) Acts mentioned in Art..000. 27. Jr.00 in favor of defendants-appellees Interphil Promotions. we find no reason to disturb the award of P250. 2219 of the Civil Code provides: Art. 32.. 3) Seduction. . 4) Adultery or concubinage.000. Thus. 29. and Lope Sarreal. We hold that in civil cases.

For these the law taxes costs. The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. Diokno and Carmen I. In order that a person may be made liable to the payment of moral damages. and cannot. the decision of the lower court is hereby affirmed. as such.] WHEREFORE.. 1984 in CA- G. such right is so precious that moral damages may not be charged on those who may exercise it erroneously. the law requires that his act be wrongful. CV No. the unpaid installments from December. VV-18-(a) in the total area of 5. No. [Barreto vs.R. The action herein brought by plaintiffs-appellants is based on a perceived breach committed by the defendants-appellees of the contract of May 1.: This is an appeal by certiorari from the Decision 1 of the respondent court dated May 31. SO ORDERED. 2219 of the Civil Code.00 less the amount due on the contract (i. 27. To deliver to the plaintiffs the parcel of land described in Contract to Sell No. 13.160. p. DIOKNO and CARMEN I. vs. No. J. respondents-appellees. To pay the sum of P556. Aug. 1956. 67205 entitled "Jose W.e.936 square meters and to execute in their favor the necessary deed of absolute sale therefor. The Manufacturers Bank and Trust Company.R. petitioner-appellant vs. 52 O. be arbitrarily considered as a case of malicious prosecution. et. The law could not have meant to impose a penalty on the right to litigate. Moral damages cannot be imposed on a party litigant although such litigant exercises it erroneously because if the action has been erroneously filed. 19660. the dispositive portion of which reads: WHEREFORE. INTERMEDIATE APPELLATE COURT (Fourth Civil Cases Division). 1966 until the contract would have been fully paid together with . No. PARAS. al. Arevalo. 1961. G. DIOKNO. except for the award of moral damages which is herein deleted. judgment is rendered in favor of the plaintiffs and against the defendant. ordering the defendant Manufacturers Bank & Trust Company: 1. such litigant may be penalized for costs. L-7748. Diokno. L-67881 PILIPINAS BANK as Successor-In-Interest Of And/Or In substitution to.. defendant-appellant" which affirmed the decision 2 of the Court of First Instance of Rizal (Pasig Branch XXI) in Civil Case No.The award of moral damages in the instant case is not based on any of the cases enumerated in Art. plaintiffs-appellees. The court's discretion in granting or refusing it is governed by reason and justice. 2. The grant of moral damages is not subject to the whims and caprices of judges or courts. The MANUFACTURERS BANK AND TRUST COMPANY. and JOSE W.G. 5818.

was to be paid over a period of 8-1/2 years starting on May 1.182. July and August. (d) Upon complete payment by the vendee of the total price of the lot the vendor shall execute a deed of sale in favor of the vendee. 1965.000. together with the stipulated interest of 6% per annum. among others. interest thereon up to March 25. In partial compliance with the aforesaid Statements of Account. 3. Inc. as vendees executed Contract to Sell No. 1965.00 which answers for the installments for the months of June 1965 to August 1965. 1961. forfeiting payments made by the vendee as liquidated damages. Costs of suit. P50. Hacienda Benito. On July 27. (e) The contract shall be considered automatically rescinded and cancelled and of no further force and effect upon failure of the vendee to pay when due.00. 4. three or more consecutive installments as stipulated therein or to comply with any of the terms and conditions thereof. relevant to this petition: (a) The total contract price for the entire 5.10 until fully paid-although this monthly installment was later adjusted to the higher amount of P797. in which case the vendor shall have right to resell the said parcel of land to any person interested. 1974 until the same is fully paid. 1965 the sum of Pl. 1965. Ten per cent (10%) of the judgment by way of attorney's fees. private respondents paid on September 3. SO ORDERED.00 by way of exemplary damages. pp.936 square-meter-lot was P47. 1974) with legal interest on said balance from April 22. (c) The aforesaid balance.936 square meters of the Victoria Valley Subdivision in Antipolo. F-1) requesting remittance of installment arrears showing partial payments for the month of April 1965 and May 1965 and complete default for June. 3. VV-18 (a) (Exh.00. on August 31. and private respondents.00 by way of moral damages. .397. 1961 at a monthly installment of P446. petitioner sent to private respondents another Statement of Account with the additional entries of interests and the incoming installment for September.488. 2. P50. petitioner sent to private respondents a Statement of Account (Exh. A) over a parcel of land with an area of 5.306. (b) Of the total sum. Likewise. On April 18. 5. 1965. 4.000.00 was applied thereto so as to reduce the balance on the principal to P35. (petitioner's predecessor-in-interest) as vendor. an amount of Pl2. starting on April 1. 1965. 14-15) The following are the undisputed facts of the case: 1. and 6. (Rollo.86. subject to the following terms and conditions. Rizal.

12).000. 1967 within which to up-date their account (Exh. On July 17. 14. 8. petitioner wrote a letter to private respondents. however. In view of the foregoing. 11. notarized on March 25. and to deliver to them the title of the lot in question. 1967. 1967. 10-d). claiming that Contract to Sell No. 10-a). petitioner shall be constrained to avail of the automatic rescission clause (Exh. 1970 (Exh. 1974 (Exh. petitioner wrote a letter to private respondents. 13. More than two (2) years from May 19. 17. private respondents failed to update their arrearages and did not request for any further extension of time within which to update their account. 1970. 10). On March 27. 16. . 18. to which petitioner made a reply on July 22. reminding them of their balance which will be due on the 31st instant (Exh. 1967. private respondent Carmen I. After almost three (3) years. 10-c). private respondents wrote a letter reiterating their request in their letter dated July 5. private respondents wrote a letter to petitioner expressing their desire to fully settle their obligation. petitioner again sent private respondents a demand letter showing total arrearages of 20 months as of April 1965. On March 17.5. 11). 9. private respondents made a partial payment of P2. 10. J). or on July 16. 6. 1967. 1974. On May 19. private respondents paid P5. Diokno went to see the Chairman of petitioner's Board of Directors on the matter informing him that she had a buyer who was ready to purchase the property. On March 25. 7. VV-18 (a). On April 17. private respondents wrote a letter to petitioner asking another extension of sixty (60) days to pay all their arrearages and update their payments under Contract No. Petitioner filed an Answer with counterclaim for damages in the form of attorney's fees. 1971 or on July 5. 1974. VV-18(a) has been automatically rescinded or cancelled by virtue of private respondents' failure to pay the installments due in the contract under the automatic rescission clause. 1971. On October 19. private respondents wrote a letter to petitioner requesting for a Statement of Account as of date in arrears and interests(Exh. private respondents filed Complaint for Specific Performance with Damages to compel petitioner to execute a deed of sale in their favor. informing them that the contract to sell had been rescinded/cancelled by a notarial act. 9). On September 18. 1973. but this time advising that unless they up-date their installment payments.000. On March 14. petitioner sent private respondents a simple demand letter showing a delinquency in their monthly amortizations for 19 months (Exh. to which letter was annexed a "Demand for Rescission of Contract". requesting for a complete statement of all the balance due including interests. 1967. 1974. 15. On May 17.00 as partial payment and requested an extension of another 30 days from September 18. 1973. O). 1967 within which to update their account (Exh. which has not been complied with despite several follow-ups (Exh. 1967. 12.00 with the request for an extension of 60 days from May 17.

resolution or cancellation) is VALID. SO ORDERED.R. located at P. the remedy of one who feels aggrieved being to go to Court for the cancellation of the rescission itself. 121175. Respondent. neither could private respondents be liable in default.19. While it is true that in the leading case of Luzon Brokerage Co.: This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks to reverse and set aside the Decision 1 dated January 24.00 (the profit private respondents could have earned had the land been delivered to them at the time they were ready to pay all their arrearages) minus whatever private respondents still owe the petitioner (with the stipulated 6% annual interest up to March 25. VV-18(a) was rescinded or cancelled. this Petition For Review on Certiorari. Maritime Building Co. 1997. (Decision. 207133. Inc. until May 18. Inc. still in the instant case there is a clear WAIVER of the stipulated right of "automatic rescission. Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a Contract to Sell on July 25.80 for the unit while making . 141- 148. citing Art. 1997. On September 24.R. Said decision was affirmed on appeal. JAYNE YU. 1974) as a result of the contract. because: (a) petitioner waived the automatic rescission clause by accepting payment on September 1967.. 1995 covering one residential condominium unit. Petitioner. In all these extensions.. We find the petition meritless. 2013 of the Court of Appeals (CA) in CA-G. in case the rescission is found unjustified under the circumstances. (b) in any event. vs.. payable in equal monthly installments until September 24.371. After trial. G. with an area of 137. 2015 SWIRE REALTY DEVELOPMENT CORPORATION.000. v.371. No. pp. looking forward to receiving payments thereon. Burgos corner Caceres Sts. thus. and by sending letters advising private respondents of the balances due. holding that petitioner could not rescind the contract to sell. 1977 (when petitioner made arrangements for the acquisition of additional 870 square meters) petitioner could not have delivered the entire area contracted for. raising the main issue of whether or not the Contract to Sell No. specifically Unit 3007 of the Palace of Makati.519. March 09. The facts follow. Hence. under the automatic rescission clause contained therein. respondent paid the full purchase price of P7. 43 SCRA 93 the Supreme Court reiterated among other things that a contractual provision allowing "automatic rescission" (without prior need of judicial rescission. the petitioner never called attention to the proviso on "automatic rescission. J. so. and Myers Building Co.80. the lower court rendered a decision in private respondents' favor.000.00.519. Respondent likewise purchased a parking slot in the same condominium building for P600." WHEREFORE the assailed decision is hereby AFFIRMED but the actual damages are hereby reduced to P250.30 square meters for the total contract price of P7. 1 189 of the New Civil Code. Makati City.. DECISION PERALTA. Amended Record on Appeal). SP No. 2013 and Resolution 2 dated April 30." as evidenced by the many extensions granted private respondents by the petitioner.

The delay in the completion of the project as well as of the delay in the delivery of the unit are breaches of statutory and contractual obligations which entitles [respondent] to rescind the contract. However. 2002. In a Decision 5 dated March 30. petitioner failed to complete and deliver the subject unit on time. PREMISES CONSIDERED. and that the subject unit has not been delivered to [respondent] as of August 28. All other claims and counterclaims are hereby dismissed for lack of merit. To finish the subject unit as pointed out in the inspection Report 2. cralawlawl ibra ry 6 cralawred Petitioner moved for reconsideration.80 at 6% per annum from the time of extrajudicial demand on January 05.00.000. Attorney’s fees of P20. the decision of the Office below is set aside and a new decision is rendered as follows: 1. or. ChanRobles Vi rtua lawlib rary 3.a down payment of P20. It ruled that rescission is not permitted for slight or casual breach of the contract but only for such breaches as are substantial and fundamental as to defeat the object of the parties in making the agreement. 2001: subject to computation and payment of the correct filing fee. Declaring the contract to sell as rescinded and directing [petitioner] to refund to [respondent] the amount of P7. On October 19. notwithstanding full payment of the contract price. surcharges or penalties charged therein. The delay in the completion of the project in accordance with the license to sell also renders [petitioner] liable for the payment of administrative fine. in relation to Section 38 of P.519.000. but the same was denied by the HLURB Board of Commissioners in a . the HLURB ENCRFO rendered a Decision 3 dismissing respondent’s complaint. IT IS SO ORDERED. ratiocinating: chanRob lesvi rtual Lawl ibra ry We find merit in the appeal. [respondent] is hereby directed to immediately update her account insofar as the parking slot is concerned. 4 cralawlawlib rary Respondent then elevated the matter to the HLURB Board of Commissioners.371. Wherefore. Directing [petitioner] to pay an administrative fine of P10. To pay [respondent] the following: a.00 On the other hand.000 as compensatory damages for the minor irreversible defects in her unit [respondent]. conduct the necessary repairs on the subject unit to conform to the intended specifications. the amount of P100. b. The report on the ocular inspection conducted on the subject condominium project and subject unit shows that the amenities under the approved plan have not yet been provided as of May 3. Cha nRobles Vi rtua lawlib rary 2. without interest. demand a refund and payment of damages. the HLURB Board of Commissioners reversed and set aside the ruling of the HLURB ENCRFO and ordered the rescission of the Contract to Sell. 2004.000.00 c. in the alternative. moral damages of P20. 2002.00 for violation of Section 20.00 for the parking lot. judgment is hereby rendered ordering [petitioner] the following: 1. Directing [petitioner] to pay respondent attorney’s fees in the amount of P20.D. which is beyond the period of development of December 1999 under the license to sell.000. It disposed of the case as follows: chanRoblesvi rtua lLawl ibra ry WHEREFORE. 2006. 957: SO ORDERED. This prompted respondent to file a Complaint for Rescission of Contract with Damages before the Housing and Land Use Regulatory Board (HLURB) Expanded National Capital Region Field Office (ENCRFO).000.

and the HLURB ENCRFO Decision dated October 19. Ching (486 SCRA 655). 957 and Section 2 of P. 2007. In a Resolution 10 dated February 17. law and jurisprudence relevant to the case. v. Series of 1987 provides that: The time during which a motion for reconsideration has been pending with the Ministry/Agency concerned shall be deducted from the period of appeal. WHEREFORE. No. Consequently.D. par. 18. The Decision and Resolution of the HLURB Third Division Board of Commissioners. the [petitioner] had only four (4) days from receipt on 23 July 2007 of HLURB Resolution dated 14 June 2007. the period to appeal decisions of the HLURB Board of Commissioners to the Office of the President is 15 days from receipt thereof pursuant to Section 15 of P. Thus. premises considered. On 23 July 2007. are hereby SET ASIDE.Resolution 7 dated June 14.D. [petitioner] filed its appeal only on 7 August 2007 or eleven (11) days late. dismissed petitioner’s appeal on the ground that it failed to promptly file its appeal before the OP. granted petitioner’s motion and set aside Deputy Executive Secretary Gaite’s decision. 1344 which are special laws that provide an exception to Section 1 of Administrative Order No. SO ORDERED. the OP was more inclined to agree with the earlier decision of the HLURB ENCRFO as it was more in accord with facts. through then Executive Secretary Eduardo Ermita. this Office need not delve on the merits of the appeal filed as the records clearly show that the said appeal was filed out of time. the OP. petitioner filed a motion for reconsideration against said decision. 2006 and June 14. The said motion interrupted the 15-day period to appeal. Corollary thereto. SO ORDERED. cralawlawl ibra ry 11 cralawred Respondent sought reconsideration of said resolution. the OP. In a Decision 8 dated November 21. 2. and the HLURB Decision dated 30 March 2006 and HLURB Resolution dated 14 June 2007 are hereby AFFIRMED. No. however. [petitioner] received the HLURB Resolution dated 14 June 2007 denying the Motion for Reconsideration. It held that after a careful and thorough evaluation and study of the records of the case. 2007. 2007. Thus: chanRoblesvi rtualLaw lib rary WHEREFORE. petitioner appealed to the Office of the President (OP) on August 7. the CA granted respondent’s appeal and reversed and set aside the Order of the OP. In a Decision dated January 24. it opted first to file a Motion for Reconsideration on 28 April 2006 or eleven (11) days thereafter. respectively. But where such a motion for reconsideration has been filed during office hours of the last day of the period herein provided. (Underscoring supplied) xxxx Accordingly. the appeal must be made within the day following receipt of the denial of said motion by the appealing party. It held: cha nRoblesv irt ual Lawlib rary Records show that [petitioner] received its copy of the 30 March 2006 HLURB Decision on 17 April 2006 and instead of filing an appeal. 2009. Based on the ruling in United Overseas Bank Philippines. Section 1 of Administrative Order No. Unfazed. dated March 30. 2013. the instant Motion for Reconsideration is hereby GRANTED. Inc. 9 cralawlawlibra ry Immediately thereafter. or until 27 July 2007 to file the Notice of Appeal before this Office. However. 2011. 18. respondent filed an appeal to the CA. [petitioner]’s appeal is hereby DISMISSED. the same was denied by the OP in a Resolution 12 dated August 18. 2004 is hereby REINSTATED. through then Deputy Executive Secretary Manuel Gaite. The fallo of its decision reads: c hanRoble svirtual Lawlib ra ry . premises considered. 2007.

First. Nonetheless. 2006. 17 cralawred In the aforementioned cases. We shall resolve the issues in seriatim. the aforecited administrative order allows aggrieved party to file its appeal with the Office of the President within thirty (30) days from receipt of the decision complained of. Second. the CA denied the same in a Resolution dated April 30.P. Office of the President case. Case No. instead of an appeal. Ching. RESCISSION WILL BE ORDERED ONLY WHERE THE BREACH COMPLAINED OF IS SUBSTANTIAL AS TO DEFEAT THE OBJECT OF THE PARTIES IN ENTERING INTO THE AGREEMENT. Parkway Real Estate Development Corporation 16 and United Overseas Bank Philippines. Thus. and (2) whether rescission of the contract is proper in the instant case. If there are special laws governing particular cases which provide for a shorter or longer reglementary period. in O. must not contradict but conform to the provisions of the enabling law. 2006 within which to file its appeal or until May 2. the Petition is hereby GRANTED. The latter decree provides that the decisions of the NHA is appealable only to the Office of the President. 957 provides that the decisions of the National Housing Authority (NHA) shall become final and executory after the lapse of fifteen (15) days from the date of receipt of the decision. 2013. Accordingly. TECHNICAL RULES ARE NOT BINDING UPON ADMINISTRATIVE AGENCIES. we ruled that the period to appeal decisions of the HLURB Board of Commissioners is fifteen (15) days from receipt thereof pursuant to Section 15 18 of PD No. it had fifteen days from April 17. 18 23 provides that the time during which a motion for reconsideration has been pending with the ministry or agency concerned shall be deducted from the period . on April 28. We note that indeed there are special laws that mandate a shorter period of fifteen (15) days within which to appeal a case to public respondent. 14 cralawlawl ibra ry In essence. the Court explained: c hanRoble svirtual Lawlib ra ry As pointed out by public respondent. Concomitantly. x x x 22 cralawlawli bra ry Records show that petitioner received a copy of the HLURB Board of Commissioners’ decision on April 17. 18. 15 as reiterated in the cases of Maxima Realty Management and Development Corporation v. This is in line with the rule in statutory construction that an administrative rule or regulation. such thirty-day period is subject to the qualification that there are no other statutory periods of appeal applicable. however. REM-A-050127-0014. the present petition wherein petitioner raises the following grounds to support its petition: c hanRoble svirtual Lawlib ra ry THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE LEGAL PRECEPTS THAT: 1. v.WHEREFORE. and 2. First. we note that the regulatory functions of NHA relating to housing and land development has been transferred to Human Settlements Regulatory Commission. cralawlawl ibra ry cralawlawlibra ry 13 c ralawre d Petitioner moved for reconsideration. 957 19 and Section 2 20 of PD No. the period to appeal the decision of the HLURB Board of Commissioners to the Office of the President has long been settled in the case of SGMC Realty Corporation v. in order to be valid. The assailed Resolution dated 17 February 2009 and Order dated 18 August 2011 of the Office of the President. Office of the President. the Decision dated 30 March 2006 and Resolution dated 14 June 2007 of the HLURB Board of Commissioners in HLURB Case No. 2006. in the SGMC Realty Corporation v. the issues are: (1) whether petitioner’s appeal was timely filed before the OP. 1344 states that decisions of the National Housing Authority shall become final and executory after the lapse of fifteen (15) days from the date of its receipt. 2006. Correspondingly. Section 2 of Presidential Decree No. Section 15 of Presidential Decree No. SO ORDERED. or eleven days after receipt of the HLURB Board of Commissioner’s decision. it filed a Motion for Reconsideration. 1344 21 which are special laws that provide an exception to Section 1 of Administrative Order No. are hereby REVERSED and SET ASIDE. Section 1 of Administrative Order No. Inc. are REINSTATED. now known as HLURB. Hence. However. 07-H-283. the same shall prevail over the thirty-day period provided for in the administrative order. Further.

the rule is settled that the right to appeal is merely a statutory privilege which may be exercised only in the manner and in accordance with the provisions of the law. Consequently therefore. 97-12-3202 dated November 2. Said inspection report states: chanRoblesvi rtua lLawl ibrary 1. we have held that while the dismissal of an appeal on purely technical grounds is concededly frowned upon. records reveal that petitioner only appealed to the OP on August 7. would be to defeat such purpose. . if the latter should become impossible. 2. in accordance with Articles 1385 and 1388 and the Mortgage Law. the court shall decree the rescission. the unit was not yet completely finished as the kitchen cabinets and fixtures were not yet installed and the agreed amenities were not yet available. This is understood to be without prejudice to the rights of third persons who have acquired the thing. Procedural rules are not to be disdained as mere technicalities. or eleven days late. located at the corner of P. 25 The reason for the liberal application of the rules before quasi-judicial agencies cannot be used to perpetuate injustice and hamper the just resolution of the case. and to disregard such rules. Neither being a natural right nor a part of due process. the obligee may seek rescission and. They may not be ignored to suit the convenience of a party. However. we have held that rules of procedure exist for a noble purpose. petitioner had only four days from July 23. the said unit is at the 26thFloor. The breach contemplated in the said provision is the obligor’s failure to comply with an existing obligation. 2007. When the obligor cannot comply with what is incumbent upon it. Petitioner received the HLURB Board Resolution denying its Motion for Reconsideration on July 23. the HLURB Board of Commissioners’ decision had become final and executory on account of the fact that petitioner did not promptly appeal with the OP. or until July 27. Neither is the rule on liberal construction a license to disregard the rules of procedure.for appeal. Ergo. cralawlawlibra ry Basic is the rule that the right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party who violates the reciprocity between them. In like manner. we find no cogent reason to exempt petitioner from the effects of its failure to comply with the rules. in the guise of liberal construction. while there may be exceptions for the relaxation of technical rules principally geared to attain the ends of justice. the said unit appears to be completed except for the installation of kitchen cabinets and fixtures. the CA aptly found that the completion date of the condominium unit was November 1998 pursuant to License No. at the time of the ocular inspection conducted by the HLURB ENCRFO. 26 c ralaw red Thus. The unit of the [respondent] is Unit 3007. unless there be just cause authorizing the fixing of a period. Poblacion. 27 c ralawred In the instant case. 2007. at the Palace of Makati. petitioner’s fatuous belief that it had a fresh 15-day period to elevate an appeal with the OP is not the kind of exceptional circumstance that merits relaxation. Article 1191 of the Civil Code sanctions the right to rescind the obligation in the event that specific performance becomes impossible. However. to wit: c hanRoble svirtual Lawlib ra ry Article 1191. even after he has chosen fulfillment. 99-05-3401 dated May 8. Second. During the time of inspection. in case one of the obligors should not comply with what is incumbent upon him. He may also seek rescission. The injured party may choose between the fulfillment and the rescission of the obligation. within which to file its appeal to the OP as the filing of the motion for reconsideration merely suspended the running of the 15-day period. 24 cralawre d Time and again. it bears emphasizing that the procedural requirements of the rules on appeal are not harmless and trivial technicalities that litigants can just discard and disregard at will. which was labeled as P2-07. Burgos Street and Caceres Street. 2007. The power to rescind obligations is implied in reciprocal ones. with the payment of damages in either case. 1997 but was extended to December 1999 as per License to Sell No. Based on the approved plans. in the absence of any just cause for the court to determine the period of compliance. 2007. Makati City. 1999. In an avuncular case. 2007 and filed its appeal only on August 7. The court shall decree the rescission claimed.

The Decision dated January 24. with MODIFICATION that moral damages be awarded in the amount of P20. THE HONORABLE COURT OF APPEALS and SULPICIO M. 2002. Bathrooms and powder room have been installed in such manner acceptable to the undersigned. The stairs have been installed in such manner acceptable to the undersigned. As a result it leaves a 3 inches (sic) gap between the glass window and partitioning of the master’s bedroom. f. demand a refund and payment of damages. vs.R. Health spa for men and women. Complainant pinpointed to the undersigned the deficiencies as follows: a. No. replete with billiard tables. The delay in the completion of the project as well as of the delay in the delivery of the unit are breaches of statutory and contractual obligations which entitle respondent to rescind the contract. respondents. Walls are newly painted by the respondent and the alleged obvious signs of cladding could not be determined. . it is evident that the report on the ocular inspection conducted on the subject condominium project and subject unit shows that the amenities under the approved plan have not yet been provided as of May 3. a bar. WHEREFORE. At the time of inspection. the instant petition is DENIED. L-45710 October 3. Incontrovertibly. These amenities are reflected on the 27th floor plan of the approved condominium plans. e. and that the subject unit has not been delivered to respondent as of August 28. 1985 CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T.00 SO ORDERED. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK. 3. 2013 and Resolution dated April 30. Two-Level Sky Palace Restaurant and Hall for games and entertainments.R. i. amenities such as swimming pool and change room are seen at the 31st floor only. in his capacity as statutory receiver of Island Savings Bank. g. The [master’s] bedroom door bore sign of poor quality of workmanship as seen below. JR. petitioner had incurred delay in the performance of its obligation amounting to breach of contract as it failed to finish and deliver the unit to respondent within the stipulated period. indoor golf with spectacular deck and karaoke rooms were not yet provided by the [petitioner]. 28 cralawlawl ibra ry From the foregoing. c. h. It was verified and confirmed that a square column replaced the round column. 2002. which is beyond the period of development of December 1999 under the license to sell. 2013 of the Court of Appeals in CA-G. based on the approved plans. The delivered unit has high density fiber (HDF) floorings instead of narra wood parquet. petitioners. d. premises considered. SP No.000. Shiatsu Massage Room. b. Window opening at the master bedroom conforms to the approved plans. TOLENTINO. The [petitioners] have also installed baseboards as borders instead of pink porrino granite boarders. CASTRO. cralawlawlibra ry G. 121175 are hereby AFFIRMED.

00 of Sulpicio M. Tupaz for private respondent.800.000. thru its vice-president and treasurer.00. after finding thatIsland Savings Bank failed to put up the required capital to restore its solvency. 46. 1965.). CJ.00 loan was made by the Bank.00 was deducted from the partial release of P17. MAKASIAR. issued Resolution No. with 12% annual interest.A.000. Lombos and Marino E. provided that such extensions or renewals shall be subject to review by the Superintendent of Banks. Tolentino on July 23.).-G. approved the loan application for P80. The approved loan application called for a lump sum P80. payable within 3 years from the date of execution of the contract at semi-annual installments of P3. 113. 64. 1965.000. On May 22. 1049.B. Island Savings Bank. by unanimous vote.00 balance (p.00 loan.00 balance (p.00 at 12% annual interest. Jr. which dismissed the petition of respondent Sulpicio M. as a security for the loan. Antonio R.). which provides: In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities. Tolentino. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. An advance interest for the P80.459. Agusan.000.000. who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible. in C. 47.. 1977.000. repayable in semi-annual installments for a period of 3 years. 52253-R dated February 11. 1965. the Monetary Board of the Central Bank. On April 28. . The Bank. On June 14. On August 13.00 loan covering a 6- month period amounting to P4. xxx xxx xxx (p.: This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals. Tolentino for injunction.R. Regalado. Tolentino and his wife Edita Tolentino signed a promissory note for P17.00 partial release of the P80. a mere P17.). 48-49. who. and Sulpicio M.000. rec. issued Resolution No. rec. executed on the same day a real estate mortgage over his 100-hectare land located in Cubo.00 (p. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a subdivision. But this pre-deducted interest was refunded to Sulpicio M. 1972 of the Court of First Instance of Agusan. upon favorable recommendation of its legal department. promised repeatedly the release of the P63.000. rec.000. decided as follows: 1) To prohibit the bank from making new loans and investments [except investments in government securities] excluding extensions or renewals of already approved loans. 1965. and which mortgage was annotated on the said title the next day. 1968. after being informed by the Bank that there was no fund yet available for the release of the P63. T-305. the Board. and damages with preliminary injunction. specific performance or rescission.I. No. Eslao for petitioners. Las Nieves. rec). after finding Island Savings Bank was suffering liquidity problems. the Monetary Board. rec. modifying the decision dated February 15. It was required that Sulpicio M. and covered by TCT No. Fabian S.

86-87. If Sulpicio M. Sulpicio M.00 loan pp. 1969.00 loan agreement on April 28.00 loan. Is Sulpicio M. 1969.00 loan.). on appeal by Sulpicio M. Vda. issued a temporary restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp.00 with interest of 12% per annum from April 28. Can the action of Sulpicio M.000. modified the Court of First Instance decision by affirming the dismissal of Sulpicio M.000. can his real estate mortgage be foreclosed to satisfy said amount? When Island Savings Bank and Sulpicio M. he signified his willingness to pay the P80. Tolentino entered into an P80.000.00 plus legal interest and legal charges due thereon.000. specific performance or rescission and damages with preliminary injunction. and when one party has performed or is ready and willing to perform his part of the contract. Pelarca 29 SCRA 1 [1969]).000. Tolentino. and the sheriff scheduled the auction for January 22. The issues are: 1.00 loan. and if said balance cannot be delivered. From such date. rec. 1965. the trial court admitted the answer in intervention praying for the dismissal of the petition of Sulpicio M. this instant petition by the central Bank. 1965. On January 20.00 surety bond. 1965. 65-76. 1169 of the Civil Code). to rescind the real estate mortgage (pp. 1977. 32-43.On August 1. The promise of Sulpicio M. after trial on the merits rendered its decision. Hence. rec. Island Savings Bank.000. Tolentino's liability to pay the P17. 1969. rec. Tolentino's petition for specific performance. Tolentino liable to pay the P17. upon the filing of a P5.00 covered by the promissory note. alleging that since Island Savings Bank failed to deliver the P63. Tolentino. 30-:31. finding unmeritorious the petition of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80. In reciprocal obligations. the other party who has not performed or is not ready and willing to perform incurs in delay (Art. Ruaya. they undertook reciprocal obligations. 1968. Tolentino executed a real estate mortgage on April 28. 1972. Tolentino. Tolentino for specific performance prosper? 2. When Sulpicio M. filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. ordering him to pay Island Savings Bank the amount of PI 7 000.).000. the obligation of Island Savings . Tolentino filed a petition with the Court of First Instance of Agusan for injunction. 1969.000. rec.00 balance of the P80. in view of non-payment of the P17. de Quirino vs.000. On February 15.00 debt covered by the promissory note? 3. but it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17. the obligation or promise of each party is the consideration for that of the other (Penaco vs.). the Court of Appeals. rec. Tolentino and the setting aside of the restraining order. filed by the Central Bank and by the Acting Superintendent of Banks (pp. the trial court.). he is entitled to specific performance by ordering Island Savings Bank to deliver the P63. the trial court. On February 11. On January 21.000. 135-136.000. 110 SCRA 46 [1981]. On January 29. and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp.00 subsists.

Sept. Inc. And. the validity of which is not in question. 265.00 loan. The exercise of one right does not affect.A.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63. nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs. Tolentino. A person cannot be legally charged interest for a non-existing debt. Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement.00 loan accrued. The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. It is the obligation of the bank's officials and employees that before they approve the loan application of their customers..000. the lower court.800.00 balance. under Article 1191 of the Civil Code. 967. the bank shall bear the risk in case the collateral turn out to be over-valued. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to P4. the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same in their pleadings (pp.00 loan. The act of Island Savings Bank. they must investigate the existence and evaluation of the properties being offered as a loan security. If ever bank officials and employees totally reIy on the representation of their customers as to the valuation of the loan collateral. was improper considering that only P17. C.000. which prohibited Island Savings Bank from doing further business. 15. 1948. Rule 9. vs. much less neutralize.1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63.00 balance because said resolution merely prohibited the Bank from making new loans and investments..000. The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its reciprocal obligation to furnish the entire P80. 1049 issued on August 13. Tolentino. 'Tolentino of the pre- deducted interest was an exercise of his right to it. . No. 1974 ed. The representation made by the customer is immaterial to the bank's responsibility to conduct its own investigation.Bank to furnish the P80.00 loan. Afzelius and Afzelius.000. 1971). on objections of' Sulpicio M. Besides. 198-199. 967 on June 14. Thus.000. the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract.000.00 out of the P80.000. The lower court's action is sanctioned by the Rules of Court.000.000. 1968. in asking the advance interest for 6 months on the supposed P80. Tolentino. t.000. 1965. 'This Court previously ruled that bank officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan. the Bank's delay in furnishing the entire loan started on April 28. which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. Furthermore. The mere reliance by bank officials and employees on their customer's representation regarding the loan collateral being offered as loan security is a patent non-performance of this responsibility. the receipt by Sulpicio M. Thus.00 balance of the P80. and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted. and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No.000. 104 SCRA 151 [1981]).n. CJS p. 190 [1918]). may choose between specific performance or rescission with damages in either case. The recent rush of events where collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this responsibility. which took effect on June 15. the exercise of the other. The Board Resolution No.00 for the supposed P80. WE cannot grant specific performance in favor of Sulpicio M. which right exist independently of his right to demand the completion of the P80. 39 Phil.00 loan.00 loan was released. Section 2. 650) The fact that Sulpicio M. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63. 17A.s. Sulpicio M. thus." Petitioners. cannot raise the same issue before the Supreme Court. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No.

p. in the accessory contract of real estate mortgage.00 debt within 3 years as stipulated.000. The liability of Sulpicio M.00 debt. 138).000.00 within 3 years. in the form of penalties and surcharges. p.000. Vol. For the debtor. 2086. 5-6). because the bank is in default only insofar as such amount is concerned. The fact that when Sulpicio M. or unenforceable debt (Art. when there is partial failure of consideration. cited in 5th ed.000.00 loan. If there is a right to rescind the promissory note.00 balance of the P80. cited in Vol. 180). as there was no debt yet because Island Savings Bank had not made any release on the loan.E.000. . But when the consideration is subsequent to the mortgage. WE hold. in relation to Art. WE rule. the liability of the first infractor shall be equitably tempered by the courts.000. however. the mortgage can take effect only when the debt secured by it is created as a binding contract to pay (Parks vs. lt may either be a prior or subsequent matter. Poore. p.000. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. Island Savings Bank. which Sulpicio M. of the Civil Code). the consideration of his obligation to pay is the existence of a debt. Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations. His failure to pay the overdue amortizations under the promissory note made him a party in default.00 loan when it falls due. 1974 ed. Thus..000. he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay. Bayuga. hence not entitled to rescission (Article 1191 of the Civil Code). 1. As far as the partial release of P17. as there is no doubt that the bank failed to give the P63. 125 SCRA 122 [1983]). that is. 93 SCRA 443 [1979]). that is. the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins.000. they are both liable for damages. C. pp. cited in the 8th ed.00 loan. Since Sulpicio M.00 debt. Peterson. The promissory note gave rise to Sulpicio M. however. Vol. Tolentino accepted and executed a promissory note to cover it. Tolentino for interest on his PI 7. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Since both parties were in default in the performance of their respective reciprocal obligations.Rescission is the only alternative remedy left. P. the bank was deemed to have complied with its reciprocal obligation to furnish a P17. the mortgage becomes unenforceable to the extent of such failure (Dow. F(2d) p. that the real estate mortgage of Sulpicio M.00.. it shall belong to the aggrieved party.000.00. 88. 82.000. 19. Co. Vol.00. et al. 2.. 'Tolentino executed his real estate mortgage. Jones on Mortgage. voidable. that rescission is only for the P63. it is just that he should account for the interest thereon.000. vs. Vol. 176 N. 59. Tolentino cannot be entirely foreclosed to satisfy his P 17. Sherman. 583.A.00 debt shall not be included in offsetting the liabilities of both parties. The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de Oro vs.W. Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage. 2052. vs. the consideration of the debtor in furnishing the mortgage is the existence of a valid. Vol. no consideration was then in existence. 172 N. Wiltsie on Mortgage. for not paying his overdue P17. Tolentino derived some benefit for his use of the P17. does not make the real estate mortgage void for lack of consideration. CJS. Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. And. Tolentino's reciprocal obligation to pay the P17. If Tolentino had not signed a promissory note setting the date for payment of P17. Tolentino for damages. Tolentino failed to comply with his obligation to pay his P17.

UNLAD RESOURCES DEVELOPMENT G.00 balance of the P8O.00. BENITEZ. IN CASE SULPICIO M..Since Island Savings Bank failed to furnish the P63.00 loan.00 debt.00 is 78.75% of P80. P63. Therefore. . HIS REAL ESTATE MORTGAGE COVERING 21. and CONRADO L.000.00 debt. THE REAL ESTATE MORTGAGE COVERING 78. INC. Article 2089 provides: A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the debtor or creditor.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. 1977 IS HEREBY MODIFIED. NO COSTS. 21. 2.000. SO ORDERED. SULPICIO M. Hence. HELENA Z. TOLENTINO FAILS TO PAY.000. 1985 UNTIL PAID. TOLENTINO. hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78. INC. PLUS P41.25 hectares is more than sufficient to secure a P17.210. the rule of indivisibility of a mortgage cannot apply WHEREFORE. the real estate mortgage of Sulpicio M. 149338 CORPORATION. Tolentino became unenforceable to such extent.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS. The mortgage covering the remainder of 21.000.00.. AND 1.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22.75 hectares. UNLAD RURAL BANK OF NOVELETA. Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage. The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case. THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11. AND 3. The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor which does not obtain in this case. 1985.25 hectares subsists as a security for the P17. AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22.000.000. to the prejudice of other heirs who have not been paid.000.R. UNLAD COMMODITIES. the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied. No. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17. 1965 TO AUGUST 22.

J. ROMULO AUSTRIA-MARTINEZ. CASAS.. Chairperson.: . NACHURA. VICENTE D. 2008 x------------------------------------------------------------------------------------x DECISION NACHURA. TARCISIUS R. VIRATA. and ROLANDO CHICO-NAZARIO. and Respondents. ELENA BENITEZ.versus - YNARES-SANTIAGO. Promulgated: July 28. J. FLAVIANO PERDITO. Present: . RODRIGUEZ. REYES. JJ. RENATO P. Petitioners. SUAREZ. TEOTIMO BENITEZ. DRAGON.BENITEZ II. M.

000.00) and pay up immediately one million two hundred thousand pesos (P1. immediately after the signing of the agreement. upon signing.00) for said subscription.8 million pesos in the Rural Bank. the Plaintiffs (herein respondents) and defendant (herein petitioner) Unlad Resources. The facts. Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure seeking the reversal of the November 29. likewise.800.000.000. through its Chairman[. 54226.00) in the Rural Bank in the form of additional equity.00) (sic) common or preferred non-voting shares of stock with a total par value of four million eight hundred thousand pesos (P4. According to the [respondents].200. they complied with their obligation and transferred control . CV No.000.] Helena Z.R. that the [respondents].] entered into a Memorandum of Agreement wherein it is provided that [respondents]. [petitioner] Unlad Resources bound itself to invest the said amount of 4. 1981. On the other hand. as controlling stockholders of the Rural Bank [of Noveleta] shall allow Unlad Resources to invest four million eight hundred thousand pesos (P4. 2000 Decision[1] and August 2. as found by the CA. it was. 2001 Resolution[2] of the Court of Appeals (CA) in CA-G. are as follows: On December 29. upon the signing of the said agreement shall transfer control and management over the Rural Bank to Unlad Resources. Benitez[.800. agreed that [petitioner] Unlad Resources shall subscribe to a minimum of four hundred eighty thousand pesos (P480.

Inc.800.000.of the Rural Bank to Unlad Resources and its nominees and the Bank was renamed the Unlad Rural Bank of Noveleta. However. 1987. Inc. The [respondents] objected on the grounds that there is already . xxxx On May 20.000. Unlad Resources has failed and refused to comply with their obligation under the said Memorandum of Agreement when it did not invest four million eight hundred thousand pesos (P4. the Board of Directors of [petitioner] Unlad Resources passed Resolution No. Inc. Benitez as [lessor].00) in the Rural Bank in the form of additional equity and. The Management Contract provides that Unlad Commodities. The management of the mango plantation was undertaken by Unlad Commodities. [respondents] claim that despite repeated demands.200. it failed to immediately infuse one million two hundred thousand pesos (P1.00) as paid in capital upon signing of the Memorandum of Agreement. Pursuant to this Resolution. 1984. [petitioner] Unlad Rural Bank wrote [respondents] regarding [the] Central Banks approval to retire its [Development Bank of the Philippines] preferred shares in the amount of P219.00 and giving notice for subscription to proportionate shares. the Bank as [lessee] entered into a Contract of Lease with the [petitioner] Helena Z.. On August 10. would receive eighty percent (80%) of the net profits generated by the operation of the mango plantation while the Banks share is twenty percent (20%).] under a Management Contract Agreement.000. likewise. 84-041 authorizing the President and the General Manager to lease a mango plantation situated in Naic. It was further agreed that at the end of the lease period. the Rural Bank shall turn over to the lessor all permanent improvements introduced by it on the plantation. Cavite. a subsidiary of Unlad Resources[.

000. (sic) [Respondents] alleged compliance with all of their obligations under the Memorandum of Agreement in that they have transferred control and management over the Rural bank to the [petitioners] and are ready. [petitioners] have failed and refused to subscribe to the said shares of stock and to pay the initial amount of one million two hundred thousand pesos (P1.00) in the Rural Bank. as follows: 1.200.000.800.00) for said subscription. However. Premises Considered.00) (sic) common or preferred non-voting shares of stocks with a total par value of four million eight hundred thousand pesos (P4. After trial. willing and able to allow [petitioners] to subscribe to a minimum of four hundred eighty thousand (P480. the RTC rendered a Decision. The Memorandum of Agreement dated 29 December 1991 (sic) is hereby declared rescinded and: . a sinking fund for the retirement of the said DBP-held preferred shares provided for annually and that it could deprive the Rural Bank of a cheap source of fund. Branch 61 a Complaint[4] for rescission of the agreement and the return of control and management of the Rural Bank from petitioners to respondents. 1987.000.[5] the dispositive portion of which provides: WHEREFORE. herein respondents filed before the Regional Trial Court (RTC) of MakatiCity. plus damages. judgment is hereby rendered.[3] On July 3.

. is hereby enjoined from placing the retired DBP-held preferred shares available for subscription and the same is hereby ordered to be placed under a sinking fund. is hereby ordered to return to Defendants the sum of One Million Three Thousand Seventy Pesos (P1. 3. Inc. to Plaintiffs. (b) moral damages in the amount of Five Hundred Thousand Pesos (P500. Defendant Unlad Resources Development Corporation is hereby ordered to pay plaintiffs the following: (a) actual compensatory damages amounting to Four Million Six Hundred One Thousand Seven Hundred Sixty- Five and 38/100 Pesos (P4. Inc.00). 4.070. The Director for Rural Banks of the Bangko Sentral ng Pilipinas is hereby appointed as Receiver of the Rural Bank. Unlad Rural Bank of Noveleta.000. Inc. (a) Defendant Unlad Resources Development Corporation is hereby ordered to immediately return control and management over the Rural Bank of Noveleta.765.601.38). and (b) Unlad Rural Bank of Noveleta.003.00) 2.

however. Respondents filed a Motion to Dismiss and. 2001. . 2000. subsequently. Petitioners are now before this Court alleging that the CA committed a grave and serious reversible error in issuing the assailed Decision. contending that the issues that respondents raised before the trial court are intra-corporate in nature and are. and (d) attorneys fees in the sum of (P100. They point out that respondents complaint charged them with mismanagement and alleged dissipation of the assets of the Rural Bank. in a Decision dated November 29. therefore. something they have done from the beginning of the controversy. they posit that the judgment of the trial court. which were both denied. Since the complaint challenges corporate actions and decisions of the Board of Directors and prays for the recovery of the control and management of the Rural Bank.[6] Herein petitioners appealed the ruling to the CA.000. beyond the jurisdiction of the trial court. Thus. these matters fall outside the jurisdiction of the trial court. the CA.000. Petitioners question the jurisdiction of the trial court. is null and void and may be impugned at any time. as affirmed by the CA. plus cost of suit. Petitioners motion for reconsideration was denied in CA Resolution dated August 2. SO ORDERED. (c) exemplary and corrective damages in the amount of One Hundred Thousand Pesos (P100. dismissed the appeal for lack of merit and affirmed the RTC Decision in all respects.00). a Supplemental Motion to Dismiss.00). Later.

the matter of attorneys fees was not at all discussed in the body of the Decision. as well as the award for attorneys fees. Finally. which deals specifically with actions for rescission. Moreover. but that the undertaking has become a legal and factual impossibility because the authorized capital stock of the Rural Bank was increased from P1. nor any justification for such award. because Article 1389 of the Civil Code provides that an action for rescission must be commenced within four years. also argue that the subject Memorandum of Agreement could not just be ordered rescinded without the corresponding order for the restitution of the parties total contributions and/or investments in the Rural Bank. is with the knowledge and approval of respondent Renato P.8 million worth of shares. petitioners contend. they assail the award for moral and exemplary damages. is the applicable law. respondents declare that immediately after the signing of the Memorandum of Agreement. They claim that the trial court and the CA mistakenly applied Article 1144 of the Civil Code which treats of prescription of actions in general. it was merely stated that respondents suffered moral damages without any discussion or explanation of. Likewise. without conceding the propriety of the judgment of rescission. they complied with their obligation and transferred control of the Rural Bank to petitioner Unlad Resources and its . petitioners assert that they have fully complied with their undertaking under the subject Memorandum of Agreement. They submit that Article 1389. Petitioners.7 million to only P5 million. Such deficiency. Dragon and his nominees to the Board of Directors. in the body of the Decision. as bereft of factual and legal bases given that. On the other hand. attorneys fees cannot be recovered in the absence of stipulation. and could not accommodate the subscription by petitioners of P4. Petitioners further argue that the action instituted by respondents had already prescribed. Petitioners claim that pursuant to the prevailing rule.

Thus.76% of its capital and surplus. and/or wasting the banks assets for petitioners own gain. petitioners have failed and refused to comply with their concomitant obligations under the Agreement. 741 and Section 3379 of the Manual of Regulations of the Central Bank. damages. entered into a Contract of Lease over the Naic. giving notices for subscription to proportionate shares. dissipating. Cerbo. respectively. is adequate proof that the Rural Banks management had every intention of diverting. with the exception of Tarcisius Rodriguez. and that the retirement would deprive the petitioner Rural Bank of a . but the SEC dismissed the complaint for lack of jurisdiction. as a consequence of this venture. respondents. petitioners Conrado L. equivalent to 25. lodged a complaint with the Securities and Exchange Commission (SEC). when the Rural Bank informed respondents of the Central Banks approval of its plan to retire its DBP-held preferred shares. respondents objected on the ground that there was already a sinking fund for the retirement of said shares provided for annually. Benitez II and Jorge C. and Unlad Commodities at that time. The respondents further assert that the Central Bank found this undertaking not inherently connected with bona fide rural banking operations. coupled with the fact that petitioners Helena Z. Furthermore. and that.57. as President and General Manager. Benitez II were also stockholders and members of the Board of Directors of Unlad Resources. They likewise allege that because of the failure of petitioners to comply with their obligations under the Memorandum of Agreement. respondents contend that this circumstance. and the appointment of a management committee. the bank incurred expenses amounting to P475. Benitez and Conrado L. Unlad Rural Bank.371. seeking rescission of the Agreement. Cavite mango plantation. but that. despite repeated demands. Respondents narrate that shortly after taking over the Rural Bank.nominees. nor does it fall within the allied undertakings permitted under Section 26 of Central Bank Circular No.

Benitez and Conrado L. respondents claim. as uniformly found by the trial court and the CA. the rescission of the Memorandum of Agreement is a cause of . and lack of proper sworn certification of non-forum shopping. as they pertain to different acts of the parties involved. Sibonghanoy[7] applies.. and Unlad Commodities. albeit related. respondents allege that the failure of petitioner Unlad Resources to comply with its undertaking under the Agreement. The issue of receivership does not arise from the parties obligations under the Memorandum of Agreement. the subject of jurisdiction. We uphold the Decision of the CA affirming that of the RTC. Benitez II. lack of proper verification as to petitioners Unlad Resources Development Corporation. that they instituted the aforementioned Complaint against petitioners before the RTC of Makati. This is to be distinguished from respondents allegation of the alleged mismanagement and dissipation of corporate assets by the petitioners which is based on the prayer for receivership over the bank. It was at that point. are obviously separate. First. may no longer be assailed in the instant Petition. Clearly.. lack of proper verified statement of material dates. but rather from specific acts attributed to petitioners as members of the Board of Directors of the Bank. The main issue in this case is the rescission of the Memorandum of Agreement. The Petition is bereft of merit. and not Article 1389. Finally. Unlad Rural Bank of Noveleta. that is applicable to this case. They also share the lower courts view that it is Article 1144 of the Civil Code. Inc. They support the proposition that Tijam v. The two issues. The respondents also seek the outright dismissal of this Petition for lack of verification as to petitioners Helena Z.cheap source of fund. and that petitioners are indeed estopped from questioning the jurisdiction of the trial court. and that the award of moral and exemplary damages and attorneys fees is justified. Inc.

Still.action within the jurisdiction of the trial courts. This cannot be done. The courts would then be divested of jurisdiction not by reason of the nature of the dispute submitted to them for adjudication. this Court had occasion to state: Nowhere in said decree do we find even so much as an [intimation] that absolute jurisdiction and control is vested in the Securities and Exchange Commission in all matters affecting corporations.[10] The SECs Order dismissing the respondents complaint is instructive: . regardless of the nature of the transactions which give rise to such disputes. but solely for the reason that the dispute involves a corporation. however. the petitioners insist that the trial court had no jurisdiction over the complaint because the issues involved are intra-corporate in nature. The law in force at the time of the filing of the case was Presidential Decree (P. To uphold the respondents arguments would remove without legal imprimatur from the regular courts all conflicts over matters involving or affecting corporations.[8] Interpreting this statutorily conferred jurisdiction on the SEC. notwithstanding the fact that the parties involved are all directors of the same corporation.D.) 902-A.[9] It is well to remember that the respondents had actually filed with the SEC a case against the petitioners which. This argument miserably fails to persuade. Section 5(b) of which vested the Securities and Exchange Commission with original and exclusive jurisdiction to hear and decide cases involving controversies arising out of intra- corporate relations. was dismissed for lack of jurisdiction due to the pendency of the case before the RTC.

R. Specifically. 8799. it is apparent that the present action involves two separate causes of action which are interrelated. and the resolution of which hinges on the very document sought to be rescinded. The assertion that the defendants failed to comply with their contractual undertaking and the claim for rescission of the contract by the plaintiffs has. that determination of the contractual undertaking of the parties under a contract lies with the Regional Trial Courts and not with this Commission. in effect.A. 8799 provides: Sec. This law.A.) No. has transferred jurisdiction over such disputes to the RTC. put in issue the very status of the herein defendants as stockholders of the Rural Bank. also known as the Securities Regulation Code. 5. however. The issue as to whether or not the defendants are stockholders of the Rural Bank is a pivotal issue to be determined on the basis of the Memorandum of Agreement. which took effect in 2000. Powers and Functions of the Commission xxxx . It is to be noted. It is a prejudicial question and a logical antecedent to confer jurisdiction to this Commission. From the foregoing allegations. x x x[11] Be that as it may. this point has been rendered moot by Republic Act (R.

5. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholder. partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No.D. thus: Sec. members of associations or organizations registered with the Commission.5. Section 5 of P. its officers or partnership. 902-A reads. That the Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided. . In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations. it shall have original and exclusive jurisdiction to hear and decide cases involving: a) Devices and schemes employed by or any acts of the board of directors.2. partners. No. business associates.

the question of whether the doctrine of estoppel by laches applies. Sibonghanoy. the RTC already has jurisdiction over this case. between any or all of them and the corporation. as enunciated by this Court in Tijam v. partnerships or associations. which provides: Article 1389. or associates. Second. between and among stockholders. the issue of prescription. partnership or association and the state insofar as it concerns their individual franchise or right to exist as such entity. officers or managers of such corporations. trustees. The action to claim rescission must be commenced within four years x x x. members or associates. b) Controversies arising out of intra-corporate or partnership relations. Consequently. c) Controversies in the election or appointment of directors. partnership or association of which they are stockholders. whether the cause of action stems from a contractual dispute or one that involves intra-corporate matters. . no longer finds relevance. Petitioners further contend that the action for rescission has prescribed under Article 1398 of the Civil Code. respectively. and between such corporation. members. In this light.

In a previous case. The prescriptive period applicable to rescission under Articles 1191 and 1592. to wit: Article 1381. This is an erroneous proposition. the rescission is a principal action which seeks the resolution or cancellation of the contract while in Article 1381. clearly. the action is a subsidiary one limited to cases of rescission for lesion as enumerated in said article. that the rescission in Article 1381 is not akin to the term rescission in Article 1191 and Article 1592. We must stress however. In Articles 1191 and 1592. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof. this provision is under the chapter entitled Rescissible Contracts.[12] this Court has held that Article 1389: applies to rescissible contracts. . as enumerated and defined in Articles 1380 and 1381. which provides that the action upon a written contract should be brought within ten years from the time the right of action accrues. Article 1389 specifically refers to rescissible contracts as. Article 1381 sets out what are rescissible contracts. is found in Article 1144.

Accordingly.[13] Thus. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract. 1987. (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority. Article 1144 specifically provides that the 10-year period is counted from the time the right of action accrues. (2) Those agreed upon in representation of absentees. while the Memorandum of Agreement was entered into on December 29. . to wit: Article 1144. if the latter suffer the lesion stated in the preceding number. The right of action accrues from the moment the breach of right or duty occurs. the action was commenced on July 3. xxxx Based on the records of this case. (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them. (5) All other contracts specially declared by law to be subject to rescission. 1981. the original Complaint was filed well within the prescriptive period. The Memorandum of Agreement subject of this controversy does not fall under the above enumeration. the prescriptive period that should apply to this case is that provided for in Article 1144.

Even they admit the same. It is true that respondents increased the Rural Banks authorized capital stock to only P5 million. We now proceed to determine if the trial court. Petitioners contend that they have fully complied with their obligation under the Memorandum of Agreement. if the latter should become impossible. with the payment of damages in either case. The injured party may choose between the fulfillment and the rescission of the obligation. as affirmed by the CA. However. There is no question that petitioners herein failed to fulfill their obligation under the Memorandum of Agreement. They allege that due to respondents failure to increase the capital stock of the corporation to an amount that will accommodate their undertaking. The power to rescind reciprocal obligations is implied in reciprocal ones. it had become impossible for them to perform their end of the Agreement.8 million worth of stocks that petitioners were to subscribe to and pay for. Again. correctly ruled for the rescission of the subject Agreement. He may also seek rescission. albeit laying the blame on respondents. even after he has chosen fulfillment. . which reads: Article 1191. in case one of the obligors should not comply with what is incumbent upon him. respondents failure to fulfill their undertaking in the agreement would have given rise to the scenario contemplated by Article 1191 of the Civil Code. petitioners contention is untenable. which was not enough to accommodate the P4.

Rescission creates the obligation to return the things which were the object of the contract. Thus. the trial court ordered petitioner Unlad Resources to return to respondents the management and control of the Rural Bank and for the latter to return the sum of P1. Having determined that the rescission of the subject Memorandum of Agreement was in order. unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing. in accordance with Articles 1385 and 1388 and the Mortgage Law. it was the respondents who availed of the remedy under Article 1191. together with their fruits. opting for the rescission of the Agreement in order to regain control of the Rural Bank. it can be carried out only when he who demands rescission can return whatever he may be obligated to restore. consequently. thus: ART. The court shall decree the rescission claimed.070.[14] Article 1385 of the Civil Code provides. and the price with its interest. Mutual restitution is required in cases involving rescission under Article 1191. This means bringing the parties back to their original status prior to the inception of the contract. . petitioners should have exacted fulfillment from the respondents or asked for the rescission of the contract instead of simply not performing their part of the Agreement. But in the course of things. 1385.00 to petitioners.003.

and the price with its interest. and not merely its termination.[16] Hence. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. or its undoing from the beginning. This Court has consistently ruled that this provision applies to rescission under Article 1191: [S]ince Article 1385 of the Civil Code expressly and clearly states that rescission creates the obligation to return the things which were the object of the contract. the Court finds no justification to sustain petitioners position that said Article 1385 does not apply to rescission under Article 1191. indemnity for damages may be demanded from the person causing the loss. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made.[17] . together with their fruits.[15] Rescission has the effect of unmaking a contract. In this case. It is not merely to terminate it and release the parties from further obligations to each other. rescission creates the obligation to return the object of the contract. To rescind is to declare a contract void at its inception and to put an end to it as though it never was.

601. it is the duty of the court to require both parties to surrender that which they have respectively received and to place each other as far as practicable in his original situation. Finally. The trial courts Decision mentioned that the evidence is clear and convincing that Plaintiffs (herein respondents) suffered actual compensatory damages amounting to Four Million Six Hundred One Thousand Seven Hundred Sixty-Five and 38/100 Pesos (P4. there was just cause for rescission.38 pertains to actual losses incurred by respondents as a result of petitioners non-compliance with their undertaking under the Memorandum of Agreement. respondent Dragon presented testimonial and documentary evidence to prove the actual amount of damages. Cruz . the parties must be restored to the status quo ante.765. when a decree for rescission is handed down. that is.601. before they entered into the Memorandum of Agreement. the records show that the amount of P4. With the contract thus rescinded. The rescission has the effect of abrogating the contract in all parts. Accordingly. thus: Atty. the petitioners failed to fulfill their end of the agreement. On this point.765.[18] Clearly.38) moral damages and attorneys fees. Though not discussed in the body of the Decision. and thus. we must resolve the question of the propriety of the award for damages and attorneys fees.

They have only put in the whole amount that we have agreed upon (sic). xxxx Q: Will you please kindly go through this computation and explain the same to the Honorable Court? A: Number 1 is an Organ (sic) income from the sale of 60% (sic) at only Three Hundred Ninety Nine Thousand Two hundred for Nineteen Thousand Nine Hundred Sixty shares which should have been sold if it were sold to others for P50. Dragon due to any breach of the agreement marked as Exhibit A? A: Yes sir I could have earned thru the shares of stock that I have. Therefore. Q: In this connection did you cause computation of these losses that you incured (sic)? A: Yes sir. there was a difference of Six Hundred Seven Three (sic) Thousand Four Hundred (P673.400.00). or we have or we had by this time amounting to several millions pesos (sic).Q: Was there any consequence to you Mr. On the .00 each for a total of Nine Hundred Ninety Eight Thousand but sold to them for Three Hundred Ninety nine (sic) Thousand two (sic) Hundred only and of which only Three Hundred Twenty Four Thousand Six Hundred was paid to me.

40% of that will go to us because 40% of the bank would be ours and 60% would be there (sic). But because they did put in the 4.093. without interest being collected and none a project (sic) among a plantation project (sic).04).952. You will note again that the average return of investment of any Cavite based (sic) Rural Bank has been no less than 20% or about 30% per annum. which was . basis of the commulative (sic) lost income every year from March 1982 from the amount of Seven Six Hundred (sic) Seventy Three Thousand four (sic) Hundred (P673.) (sic) there would be a discommulative (sic) lost (sic) of One Million Ninety Three Thousand Nine Hundred Fifty Two Pesos and forty two (sic) centavos (P1.8 million Pesos and it would be earning money.352.8 million our 40% did not earn up to that extent and computed again on the basis of 12% the amount (sic) on the commulative (sic) basis up to September 1990 is 2 million three hundred fifty two thousand sixty five pesos and four centavos (sic). You will note that if they put in 4.42). And we computed only the earnings at 12%. (P2.400.065. In 1984 to 1986 (sic) alone rates went as higher (sic) as 40% per annum from the so called (sic) Jobo Bills and yet we only computed the imputed income or lost income at 12% per annum and then there is a 40% participation on the unrealized earnings due to their failure to put in an stabilized (sic) earnings. Please note that the interest imputed is only at 12% per annum but it should had (sic) been much higher. xxxx There were loans granted fraudulently to members of the board and some borrowers which were not all charged interest for several years and on this basis we computed a 40% shares (sic) on the foregone income interest income (sic) on all these fraudulently granted loans.

what petitioners raised was the propriety of the award of moral and exemplary damages and attorneys fees. petitioners never raised in issue before the CA this award of actual compensatory damages. the award of moral damages . we have examined the records of the case and found that the award must be sustained. they questioned only the award of moral and exemplary damages. All in all our estimate of the damages we have suffered is Four Million Six Hundred one (sic) Thousand Seven Hundred Sixty Five Pesos and thirty eight (sic) centavos (P4. while in their Motion for Reconsideration.765.38). No mention of these damages awarded or their factual basis is made in the body of the Decision. Even in the present Petition for Review. They did not raise the matter of damages in their Appellants Brief. It should be remembered that there are two separate causes of action in this case: one for rescission of the Memorandum of Agreement and the other for receivership based on alleged mismanagement of the company by the plaintiffs.[19] More importantly. funded by the bank but nothing was given back to the bank for several hundred thousand of pesos (sic). not the award of actual damages. we note that the trial courts Decision did not discuss the basis for the award. While the award of actual compensatory damages was based on the breach of duty under the Memorandum of Agreement. Be that as it may.601. only in the dispositive portion. And we arrived an (sic) estimate of the foregone interest income a total of One Million Two Hundred Five Thousand Eight Hundred Sixty None Pesos and eighty one (sic) centavos and 40 percent share of this (sic) would be Four Hundred Eighty Two Thousand Three Hundred Forty Seven Pesos and Ninety Two Centavos. On the grant of moral and exemplary damages and attorneys fees.

under the lease contract. respectively. the bulk of the profits of the mango plantation was also sought to be diverted to an entity wherein Helena Z. at the end of the lease period. Benitez and Conrado L. Moreover.00) or ten percent (10%) of gross profits. Thus.appears to be based on petitioners mismanagement of the company when they became members of the Board of Directors of the Rural Bank. Benitez would be entitled to receive. the Rural Banks share therein. Benitez) all permanent improvements introduced by it on the plantation at no cost to Ms. Benitez. Benitez II are not only principal stockholders but also the Chairman of the Board of Directors and President. Further. the Rural Bank was obliged to turn over to the lessor (Helena Z. although it shoulders all of the financial risks. without investing a single centavo. would earn eighty percent (80%) of the said profits. rentals in the total amount of Three Hundred Thousand Pesos (P300. Defendant Helena Z. in its report dated March 13. (c) Finally.000. would be a measly twenty percent (20%) thereof while UCI. 1985. Thus. whichever is higher. the trial court said: Under the Rural Banks management. the [Central Bank] after conducting its general examination upon the Rural Bank ordered the latter to explain satisfactorily why the bank engage (sic) in an . a systematic diversion of the banks assets was conceived whereby: (a) The Rural Banks funds would be funneled in the development and improvements of the Benitez Mango Plantation in the guise of an investment in said plantation. (b) Of the net profits earned from the plantations operations.

adequately establishes not only a violation of CB Rules (specifically Section 26.undertaking not inherently connected with [bona fide] rural banking operations nor within the allowed allied undertakings. They. or a breach of a known duty through some motive or ill-will. which resulted in the .76% of its capital and surplus[.371. The initial CB report should have sufficiently apprised Defendants of the illegality of the undertaking. apparently to further their [own] interest in the scheme for their own personal benefit and gain. otherwise known as the Circular on Rural Banks[. Defendants. therefore have the duty to terminate the Mango Plantation Project.] Notwithstanding a finding by the CB of the undertakings illegality. the defendants nevertheless persisted in pursuing the Mango Plantation Project and never acceded to the call of [the] CB for it to desist from further implementing the said project. 741. as well as the actuations of the Defendants in not yielding to the order of the CB. an act which is clearly contrary to the fiduciary nature of their relationship with the corporation in which they are officers. that it has caused undue damage both to the Rural bank as well as its stockholders. but also. The result of the aforestated report.] The aforestated CB report states that total exposure to this project now amounts to P475. [chose] to continue it. Such persistence proves evident bad faith. Circular 741 and Section 3379 of the CB Manual of Regulations. however.57 or 25. contrary to the provisions of Section 3379 of the CB Manual of Regulations and Section 26 of CB Circular No. It was only after another letter from the CB was received when defendant finally shelved the mango plantation project.

[22] To award moral damages. (2) a culpable act or omission factually established.[21] Article 2220 of the Civil Code further provides that moral damages may be recovered in case of a breach of contract where the defendant acted in bad faith.[23] Accordingly. (3) a wrongful act or omission of the defendant as the proximate cause of the injury sustained by the claimant. serious anxiety. further dissipation and wastage of the Rural Banks assets. mental anguish. it is clear that respondents are entitled to moral damages. . besmirched reputation. unjustly depriving Plaintiffs of their fair share in the assets of the bank. Though incapable of precise pecuniary computation. moral shock. fright. moral damages may be recovered if they are the proximate result of the defendants wrongful act or omission. a court must be satisfied with proof of the following requisites: (1) an injury whether physical. and similar injury. social humiliation. and (4) the award of damages predicated on any of the cases stated in Article 2219. All the foregoing satisfactorily affirms the allegations of Plaintiffs to the effect that these contracts were but part of a device employed by Defendants to siphon [off] the Rural bank for their personal gain.[20] Moral damages include physical suffering. The acts attributed to the petitioners as directors of the Rural Bank manifestly prejudiced the respondents causing detriment to their standing as directors and stockholders of the Rural Bank. wounded feelings. mental. or psychological clearly sustained by the claimant. based upon the findings of the trial court.

the award for exemplary damages is in order.[26] WHEREFORE. the foregoing premises considered. 196251 July 9. G. attorneys fees and expenses of litigation. No. respondents must show that they are entitl