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;

No. vs.00. attorney's fees of P100. and to pay attorney's fees and cost of the suit. if any. moral damages of P300. in his capacity as president of FEU to pay jointly and severally Joseph Saludaga the amount of P35. petitioner. DE JESUS in his capacity as President of FEU. the dispositive portion of which reads: FEU and Edilberto de Jesus. G. 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.00 and cost of the suit.25 for actual damages with 12% interest per annum from the filing of the complaint until fully paid. to indemnify them for whatever would be adjudged in favor of petitioner.000. and its president.000. In all cases. the agency contracted by respondent FEU to provide security services within its premises and Mariano D. the attorney's fees and expenses of litigation must be reasonable. 179337 April 30. exemplary damages of P500. FAR EASTERN UNIVERSITY and EDILBERTO C.000. Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance. Rosete was brought to the police station where he explained that the shooting was accidental. Galaxy Management and Development Corp. (10) When at least double judicial costs are awarded. 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.R. Imperial (Imperial). .00. filed a Third-Party Complaint7 against Galaxy Development and Management Corporation (Galaxy). He was eventually released considering that no formal complaint was filed against him. one of the security guards on duty at the school premises on August 18. 1996. (8) In actions for indemnity under workmen's compensation and employer's liability laws. in turn. On the other hand.298. . (11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered. Col. 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). Respondents.8 trial court rendered a decision in favor of petitioner. (9) In a separate civil action to recover civil liability arising from a crime.SALUDAGA WAS RUSH TO THE HOSPITAL. 2008 JOSEPH SALUDAGA. respondents.

0. 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. there is established a contract between them. however. 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. 12. resulting in bilateral obligations which both parties are bound to comply with. When plaintiff enrolled with defendant FEU.Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe learning environment.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.14 It is settled that in culpa contractual. 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.0. . 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.0. The pertinent portions of petitioner's Complaint read: 6. certain documents about Galaxy were presented during trial.13 we held that: When an academic institution accepts students for enrollment. a corresponding right of relief. 11. In order to avoid liability.15 In the instant case. the defendants or any of their representative did not bother to visit and inquire about his condition. For its part. however. 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. Court of Appeals. Defendants are responsible for ensuring the safety of its students while the latter are within the University premises. 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. On the other hand. a contract was entered into between them. the school must ensure that adequate steps are taken to maintain peace and order within the campus premises and to prevent the breakdown thereof. They failed to prove that they ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement. At the time of plaintiff's confinement. no evidence as to the qualifications of Rosete as a security guard for the university was offered. Necessarily. After a thorough review of the records. Indeed. Under this contract. we find that. the student covenants to abide by the school's academic requirements and observe its rules and regulations. there is a prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment to its students. prima facie. Certainly. when petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and secure the premises. the mere proof of the existence of the contract and the failure of its compliance justify.

or malevolent manner.20 After this Decision becomes final and executory. 201 files. it was established that petitioner spent P35. Nonetheless. As such.18 In the instant case.22 The testimony of petitioner about his physical suffering.000. 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. We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. One's negligence may have concurred with an act of God in producing damage and injury to another. Hence. When the effect is found to be partly the result of a person's participation . The other expenses being claimed by petitioner.00 as temperate damages is awarded to petitioner. respondent FEU is liable to petitioner for damages. Consequently. 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.the whole occurrence is humanized and removed from the rules applicable to acts of God. the case at bar involves an obligation arising from a contract and not a loan or forbearance of money. mental anguish. We deem it just and reasonable under the circumstances to award petitioner moral damages in the amount of P100. 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.26 we held that: . 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. such as transportation expenses and those incurred in hiring a personal assistant while recuperating were however not duly supported by receipts. Agcolicol. Inc. Likewise. fraudulent.whether by active intervention. Accordingly.00. neglect or failure to act . temperate damages under Art.000.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. oppressive.19 While the trial court correctly imposed interest on said amount. respondents' defense of force majeure must fail. In Powton Conglomerate.000. showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. 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. however. However.25 for his hospitalization and other medical expenses. As regards the award of moral damages. the proper rate of legal interest is six percent (6%) per annum of the amount demanded. and other vital documents enumerated in its contract with Galaxy. It was not proven that they examined the clearances.21 In the absence thereof.00 as part of damages is reasonable in view of Article 2208 of the Civil Code. no actual damages may be awarded. the applicable rate shall be twelve percent (12%) per annum until its satisfaction.298. fright.25 However. reckless. Such interest shall continue to run from the filing of the complaint until the finality of this Decision. the award of exemplary damages is deleted considering the absence of proof that respondents acted in a wanton. respondents must show that no negligence or misconduct was committed that may have occasioned the loss. serious anxiety. nonetheless. and moral shock resulting from the shooting incident23 justify the award of moral damages. psychiatric test results.17 Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for damages. v. for breach of contract due to negligence in providing a safe learning environment. the amount of P20. attorney's fees and litigation expenses in the amount of P50. In order for force majeure to be considered.

but also for those of persons for whom one is responsible.30 we held that where the security agency recruits.(1) he assents to a patently unlawful act of the corporation. Personal liability of a corporate director. 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. v. the agency is the . Incidentally. although the main cause of action in the instant case is the breach of the school-student contract. Libunao:29 In Soliman. 2180 of the Civil Code because respondents are not the employers of Rosete. in the alternative.28 As held in Mercury Drug Corporation v. respondent De Jesus should not be held solidarily liable with respondent FEU. the employer of such guards or watchmen is such agency. and not the client. even though the former are not engaged in any business or industry. as a rule. or when there is a conflict of interest resulting in damages to the corporation. hence. 2180. They cannot be construed as the element of control as to treat respondents as the employers of Rosete. trustee or officer along (although not necessarily) with the corporation may so validly attach. only when . 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. or when he is guilty of bad faith or gross negligence in directing its affairs. since the latter has no hand in selecting the security guards. 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. hires and assigns the work of its watchmen or security guards. does not forthwith file with the corporate secretary his written objection thereto. [A] corporation is invested by law with a personality separate and distinct from those of the persons composing it. having knowledge thereof.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. save for certain exceptions. xxxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks. We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under Art. petitioner. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions. Thus. which provides: Art. The latter was employed by Galaxy. its stockholders or other persons. Tuazon. recruits. also holds respondents vicariously liable under Article 2180 of the Civil Code. such that. Jr. hires and assigns the works of its watchmen or security guards to a client. (3) he agrees to hold himself personally and solidarily liable with the corporation. (2) he consents to the issuance of watered down stocks or who. corporate officers who entered into contracts in behalf of the corporation cannot be held personally liable for the liabilities of the latter. as here.

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

00 per guard post. Defendant is therefore undoubtedly liable to indemnify plaintiff for the entire damages thus incurred. the administration of justice is prejudiced.. Civil Code. 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." is by its own terms applicable only for loss or damage 'through the negligenceof its guards . notwithstanding his plainly valid claim. as per the trial court's view.10. Such an approach of telling the adverse party to go to court.10 as and by way of reimbursement of the stipulated actual damages and expenses. Said paragraph is manifestly inapplicable to the stipulated facts of record. the judgment appealed from is hereby reversed and judgment is hereby rendered sentencing defendant-appellee to pay plaintiff-appellant the sum of P8. aside from its ethical deficiency among others. Here.489. It is so ordered. which had been caused directly by the unlawful and wrongful acts of defendant's security guard in breach of their contract. lost control of it on the highway causing it to fall into a ditch. ..Paragraph 4 of the contract. "obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. as well as the costs of suit in both instances.. which limits defendant's liability for the amount of loss or damage to any property of plaintiff to "P1. could hardly create any goodwill for plaintiff's business. 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. vandalism and all other unlawful acts of any person or persons. 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 . 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." defendant's own guard on duty unlawfully and wrongfully drove out of plaintiffs premises a customer's car. complying with its contractual undertaking 'to safeguard and protect the business premises of (plaintiff) from theft. to the third parties arising from the acts or omissions done by the guards during their tour of duty.000. through its assigned security guards. 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. thereby directly causing plaintiff to incur actual damages in the total amount of P8. ACCORDINGLY. instead of defendant.489." Plaintiff in law could not tell its customer. since the court dockets are unduly burdened with unnecessary litigation.. 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. As ordained in Article 1159. robbery. which had been entrusted into its custody. Worse." Plaintiff was in law liable to its customer for the damages caused the customer's car.

and his complaint was filed on January 24. Under the provisions of See. Inc. the date of the approval of the compromise agreement. in order that the alleged improvement may he considered a lien or charge on the property. claimed that.. M. 12 of the complaint states that the defendants promised and agreed to cede. the Court holds that the plaintiff's action has prescribed. 1963. plaintiff-appellant. Tuason & Co. and GREGORIO ARANETA. 1977 FAUSTINO CRUZ. such agreement is not enforceable as it is not in writing and subscribed by the party charged. M. 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. J. INC.. Furthermore. the same should have been made in good faith and under the mistake as to title. 2(e) of Article 1403 of the Civil Code. that is. but also because. the plaintiff cannot claim good faith and mistake as to the title of the land. 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.400. 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. insofar as the plaintiffs claim for the reimbursement of the amounts of P38.G. On the other hand.R.00 on said land having an area of more or less since defendants-appellees are being benefited by said improvements. defendants-appellees. and that said improvements constitute a lien or charge of the property itself On the issue of statute of fraud. 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 & COMPANY. vs. transfer and convey unto the plaintiff the 3. The allegation in par. On the issue of statute of limitations.000 square meters of land in consideration of certain services to be rendered then.74 is concerned. it is clear that the alleged agreement involves an interest in real property. the Court believes that same is applicable to the instant case. hence the agreement has already been partly executed and not merely executory within the contemplation of the Statute. 2.400.. on the theory of unjust enrichment under Article 2142 of the civil Code: .. L-23749 April 29. Plaintiff's cause of action is premised inter alia. 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. M. No. Such being the case.\ Defendant J. it is not a privy to the plaintiff's agreement to assist the Deudors n improving the 50 quinones. ten years after March 16. the plaintiff countered that. INC.781. he. insisting that Article 2142 of the applicable to his case. 1964. Said this Honorable Court (at p. that the Statute of Frauds cannot be invoked by defendants. by holding and utilizing the improvements introduced by him. Tuason & Co. the defendants are unjustly enriching and benefiting at the expense of the plaintiff. he is entitled to reimbursement from them of said amounts Plaintiff opposed the motion. Inc.00 and P7.

THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO. as we can readily see from the title thereof (Title XVII).' In this posture. Every person must. defendants should pay and reimburse him therefor under the principle that 'no one may enrich himself at the expense of another. — The statute of frauds has been uniformly interpreted to be applicable to executory and not to . 2142. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3. in the exercise of his rights and in the performance of his duties. Regarding the applicability of the statute of frauds (Art. transfer and convey unto the plaintiff. the complaint states a cause of action against the defendants. 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. 3. Article 19 of the same Code enjoins that: ART. ART. the Court ruled as follows: On the issue of statute of fraud. namely by the plaintiff. In like vein. the Court believes that same is applicable to the instant Case. such agreement is not enforceable as it is not in writing and subscribed by the party charged. give every-one his due and observe honesty and good faith. 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. 2(e) of Article 1403 of the Civil Code. Further. II. Paragraph 12 states thus: From the foregoing. Civil Code). The Statute of Frauds is CLEARLY inapplicable to this case: At page 2 of this Honorable Court's order dated 13 August 1964. 1403. 12 of the complaint states that the defendants promised and agree to cede. 19. act with justice. shall reproduce not only paragraph 12 of the complaint but also the other pertinent paragraphs therein contained. 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. It is clear that the alleged agreement involves an interest in real property. Under the provisions of Sec. 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.000 SQ.000 square meters of land in consideration of certain services to be rendered then. The allegation in par. that the Same bears the designation 'EXTRA CONTRACTUAL OBLIGATIONS' or obligations which do not arise from contracts. To bring this issue in sharper focus. 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. MS.

564-565...000 sq. after all the conditions stated in paragraph 12 hereof had been fulfilled and fully complied with. It is neither applicable to executed contracts nor to contracts partially performed. completed or contracts. Emphasis supplied).. a facts which is reduced to a minimum in executed contracts because the intention of the parties becomes apparent buy their execution and execution. The statute has been enacted to prevent fraud. concluded the right the parties. Tolentino's Civil Code of the Philippines. 1962 Ed. over which the latter had agreed to execute the proper documents of transfer. ms.. ms. The reason is simple. 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. complaint. Thus Mr. III. 1974 Ed. This fact is further projected in paragraph 15 of the complaint where plaintiff states. Justice Moran in his 'Comments on the Rules of Court'. (At pp. 15. The partial performance may be proved by either documentary or oral evidence. plaintiff demanded of said defendants that they execute the Deed of Conveyance in his favor and deliver the title certificate in his name. over the 3.000 sq. 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. 15). but defendants failed and refused and continue to fail and refuse to heed his demands. IV. at p. Vol. Emphasis supplied). Plaintiff's Cause of Action had NOT Prescribed: . . states: 2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY CONTRACTS: CONTRACTS WHICH ARE EITHER TOTALLY OR PARTIALLY PERFORMED ARE WITHOUT THE STATUE. The statute of the frauds is not applicable to contracts which are either totally or partially performed. in most cases.000 sq. Vol. ms. the same takes this case out of the context of said statute. Performance of the contracts takes it out of the operation of the statute. in mots cases. (par.. 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. Authorities in support of the foregoing rule are legion.. The statute of frauds is applicable only to executory contracts. 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. . the rights of the parties. 167. In view of the foregoing. (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. That in or about the middle of 1963.

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

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

1709. His refusal was based on the allegations that he had been and was then the owner of the said property. 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. Jose Duran. It having been proven at the trial that he gave his consent to the said sale. the defendant refused to deliver the property to the purchaser.500 by means of a notarial instrument executed and ratified on February 14. the firm of Gutierrez Hermanos.itc-alf Notwithstanding the allegations of the defendant. 1911. who accepted it in the same way by selling the said property. 1710 and 1727. and that he did thereafter confirm and ratify the sale by means of a public instrument executed before a notary. nor had he given the latter any verbal authorization to sell the said property to the plaintiff firm in his name.) Even should it be held that the said consent was granted subsequently to the sale.that the plaintiff company had not entered into possession of the purchased property. After the lapse of the four years stipulated for the redemption. for having represented himself in the said deed of sale to be the absolute owner of the aforesaid land and improvements. arts. 1911. the owner of the property. and Orense'r ratification produced the effect of an express authorization to make the said sale. who in this case acted as the manager of his uncle's business. Jose Duran. which contract was in force up to February 14. (Civil Code. owing to its continued occupancy by the defendant and his nephew. Engacio Orense. it follows that the defendant conferred verbal. a nephew of the owner of the property. based on the explicit testimony of his uncle. counsel for this firm filed a complainant praying.) . 1911. effected by Jose Duran. who acted within the scope of his authority. and to pay to the same the rental of the property due from February 14. The principal must therefore fulfill all the obligations contracted by the agent. which was worth P3. the record in this case shows that he did give his consent in order that his nephew. which was registered in his name in the property registry. for the sum of P1.000. whereas in reality they did not belong to him. to the effect that he had consented to his nephew Duran's selling the property under right of repurchase to Gutierrez Hermanos. when the period for its repurchase terminated. 1888 and 1892. by virtue of a contract of lease executed by the plaintiff to Duran. Engracio Orense. but to the defendant Orense. (Civil Code. the owner of the property. approved the action of his nephew. or at least implied. might sell the property in question to Gutierrez Hermanos. title and interest with Orense had in the property sold. nor pay any sum whatever for the losses and damages occasioned by the said sale. it is unquestionable that the defendant. and to pay the rental thereof at the rate of P30 per month for its use and occupation since February 14. The plaintiff firm charged Jose Duran with estafa. aside from the fact that the plaintiff had suffered damage by losing the present value of the property. power of agency upon his nephew Duran. among other remedies. that he had not executed any written power of attorney to Jose Duran. 1907. acquitted As a result of the acquittal of Jose Duran. that the defendant Orense be compelled to execute a deed for the transfer and conveyance to the plaintiff company of all the right. t Jose Duran is notoriously insolvent and cannot reimburse the plaintiff company for the price of the sale which he received. arts.

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. the plaintiff would have been the victim of estafa. in the present case. Tabiliran. 22 Phil. Therefore the principal is bound to abide by the consequences of his agency as though it had actually been given in writing (Conlu vs. wherein he affirmed that he had given his consent to the sale of his property. 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. 241. 20 Phil. The sworn statement made by the defendant. virtually confirms and ratifies the sale of his property effected by his nephew. who gave P1. Moreover. null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure. and. 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. 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. and it would not be just that the said testimony. On the testimony given by Engacio Orense at the trial of Duran for estafa. who then acted as his business manager. Jiongco. Kuenzle & Streiff vs. 1907.500 for the said property. the latter was acquitted. to the prejudice of the purchaser. is alleged to be invalid. as they are a full ratification of the acts executed by his nephew Jose Duran.) The repeated and successive statements made by the defendant Orense in two actions. Gallemit vs. it is not just nor is it permissible for him afterward to deny that admission. 387. . and.. A contract executed in the name of another by one who has neither his authorization nor legal representation shall be void. and. The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the beginning. meet the requirements of the law and legally excuse the lack of written authority. 15 Phil. Rep. Araneta and Guanko. it is unquestionable that the defendant did confirm the said contract of sale and consent to its execution. 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.. remedies all defects which the contract may have contained from the moment of its execution. Duran. 110. which determined the acquittal of his nephew. 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. pursuant to article 1309 of the Code. for.. The contract of sale of the said property contained in the notarial instrument of February 14. Rep. while testifying as a witness at the trial of Duran for estafa. and which testimony wiped out the deception that in the beginning appeared to have been practiced by the said Duran. Rep. Jose Duran. Orense. pursuant to article 1313 of the Civil Code. the right of action for nullification that could have been brought became legally extinguished from the moment the contract was validly confirmed and ratified. had it not been for the consent admitted by the defendant Orense. expressive of his consent to the sale of his property.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. they produce the effects of an express power of agency.

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

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

ANDRES." was engaged in the manufacture of ladies garments. Emeteria Asejo. 1980. Among its foreign buyers was Facets Funwear. on the contrary. men's apparel and linens for local and foreign buyers. after learning about the delay in the remittance of the money to petitioner. In the course of the business transaction between the two.he has been in possession through open. We are not convinced that he had repudiated the co-ownership.00 to petitioner. Although private respondent was able to send a telex to PNB to pay petitioner $10. notwithstanding the long-standing rule that registration operates as a universal notice of title.000. the petitioner has not taken pains to eject her therefrom. yet. FACETS from time to time remitted certain amounts of money to petitioner in payment for the items it had purchased. He cannot therefore be said to have "made known" his efforts to deny the co-ownership.R. Hence. 9 The instant case shows that the petitioner had not complied with these requisites. 1989 DOMETILA M. and notorious possession of the property for the period required by law. he sought to recover possession of that portion Emeteria is occupying only as a counterclaim.000." Upon query by PNB.000. On September 8. is occupying a portion of the land up to the present. Acting on said instruction.00 through the Pilipinas Bank. FNSB instructed private respondent Manufacturers Hanover and Trust Corporation to effect the above. using the business name "Irene's Wearing Apparel. private respondent. one of the private respondents. 1980. Petitioner. petitioner received a second $10. 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." On August 28. G. Moreover.000. 225654 of the PNB. he had deliberately kept the private respondents in the dark by feigning sole heirship over the estate under dispute. doing business under the name and style "IRENE'S WEARING APPAREL. 1980. No. vs. 1980 stating that the payment was to be made to "Irene's Wearing Apparel. petitioner received the remittance of $10. exclusive. It is true that registration under the Torrens system is constructive notice of title. and only after the private respondents had first sought judicial relief. Meanwhile. children's wear. FACETS informed FNSB about the situation. 10 but it has likewise been our holding that the Torrens title does not furnish a shield for fraud. respondents. 82670 September 15.00 from PNB instructed the PCIB to pay $10. 1980.000.mentioned transfer through its facilities and to charge the amount to the account of FNSB with private respondent. where petitioner had an account. assuming there was one." petitioner. unaware that petitioner had already received the remittance. on September 11. As a matter of fact. continuous.00 through Demand Draft No. Inc. Accordingly. MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS.00 remittance. private respondent sent PNB another telex dated August 27. on August 25. which was also unaware that petitioner had already received the remittance of $10. . the payment was not effected immediately because the payee designated in the telex was only "Wearing Apparel. 11 It is therefore no argument to say that the act of registration is equivalent to notice of repudiation.

Private respondent complied with the request. 1893 and 1895. 632. 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. which have not hesitated to apply it when the exigencies of right and equity demanded its assertion. neminem cum alterius detrimento et injuria fieri locupletiorem. This legal provision. speaking through Mr.00 remittance effected through PCIB. is therefore applicable. in the science of law and in court decisions." And the Partidas declared: "Ninguno non deue enriquecerse tortizeramente con dano de otro. There being no contractual relation between them.000. Neither was private respondent a party to the contract of sale between petitioner and FACETS. 1304. However. In Velez v. 1295. The sole issue in this case is whether or not the private respondent has the right to recover the second $10.00 remittance was not made by mistake but was the result of negligence of its employees.) This time-honored aphorism has also been adopted by jurists in their study of the conflict of rights. Civil Code. when FNSB discovered that private respondent had made a duplication of the remittance. the loss must be borne by the one whose negligence was the proximate cause of the loss. 630 (1942).] For this article to apply the following requisites must concur: "(1) that he who paid was not under obligation to do so. articles. The resolution of this issue would hinge on the applicability of Art. Thus. The contract of petitioner. 1158. In the Roman Law Digest the maxim was formulated thus: "Jure naturae acquum est. it is unfolded in many articles scattered in the Spanish Civil Code.00. petitioner has no right to apply the second $10. and. (2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. 110 Phil. which determines the quasi-contract of solution indebiti. 1303. 361. Petitioner next contends that the payment by respondent bank of the second $10. 563 (1960)]. was with FACETS. the Court." Such axiom has grown through the centuries in legislation. 647. as regards the sale of garments and other textile products. It has been accepted by the courts.00 remittance delivered by mistake by private respondent to the outstanding account of FACETS.00 remittance it had delivered to petitioner. 2154. [at p. . If something received when there is no right to demand it. 73 Phil. the obligation to return it arises. although named as the payee was not privy to the contract of remittance of dollars. (See for example. is one of the concrete manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of another.Private respondent debited the account of FNSB for the second $10. it asked for a recredit of its account in the amount of $10.000. The lawmaker has found it one of the helpful guides in framing statutes and codes. Justice Bocobo explained the nature of this article thus: Article 1895 [now Article 2154] of the Civil Code abovequoted.000. On the other hand.000. 1163. Piccio. 2154 of the New Civil Code which provides that: Art. petition was filed. 648. 464. Balzarza. 558.000. 797. Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the wrongful act of a third person. It was the latter and not private respondent which was indebted to petitioner. and it was unduly delivered through mistake. the contract for the transmittal of dollars from the United States to petitioner was entered into by private respondent with FNSB. Petitioner. 360.

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

and which in law or conscience was not payable. 190. which provides for a period of four (4) years (upon injury to the rights of the plaintiff). Anent the payments made after August 30. 1116. 2. 2014 CBK POWER COMPANY LIMITED. acquires or comes into possession of something at the expense of the latter without just or legal grounds. 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. 1155. shall return the same to him"(Art. Even if the provisionsof Act No. 22. and the written demand in the case at bar was made on October 30. the period of which is ten (10) years. for payments made after said effectivity. No one should enrich itself unjustly at the expense of another (Art. "Every person who through an act or performance by another.A. 51 O. 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).MODIFIED in the sense that only payments made on or after October 30. (here the City of Manila). it may be recovered. "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. On the other hand. 198729-30 January 15. because "prescription already runnig before the effectivity of this Code shall be governed by laws previously in force x x x" (art. COMMISSIONER OF INTERNAL REVENUE. which partly granted the claim of petitioner for the .Act No. (Sec. Even if the provisions of Act No. 7621. Appellants maintain that article 1146 (NCC). in all other respects. 635. Procedure) should apply. 1950. or any other means. . essentially affecting the rights of the parties. Nos. insofar as payments made before the effectivity of the New Civil Code on August 30. 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".T. Tan Jongko. 6211) and article 1145 (NCC). Respondent. 190should apply to those payments made before the effectivity of the new Civil Code. 1950 only. considering the fact that the prescription of action is interrupted xxx when is a writteen extra-judicial demand x x x" (Art. EB Nos. apply to the case. NCC). appellee contends that provisions of Act 190 (Code of Civ. NCC). is expressed in the case of Newport v.T. it is abvious that the action has prescribed with respect to those made before October 30. It would seems unedifying for the government. 40. G. 1950 should be refunded. 636. No costs. 1116. Ringo. the decision appealed from is affirmed. 1950. and should not be retained by the party receiving it. 37 Ky. 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. 10 S. it would be reluctant to return the same.W.. in the United States.G.providing for a period of six (6) years (upon quasi-contracts like solutio indebiti). Petitioner. 658 and 659. 1950 are no longer recoverable in view of the second paragraph of said article (1116). that knowing it has no right at all to collect or to receive money for alleged taxes paid by mistake. Osorio v. vs. Civil Code). Case No. 2125. in the following manner:. providing for a period of six (6) years (upon quasi-contracts like solutio indebiti). 190 should apply to those payments made before the effectivity of the new Civil Code. Civil Code). The next issue in discussion is that of prescription. NCC). for payments made after said effectivity.illegal taxation. 1956 (Stipulation of Facts).R.A. because "prescription already running before the effectivity of of this Code shall be govern by laws previously in force xxx " (Art.

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. petitioner filed a Petition for Review with the CTA on 18 April 2007. with BIR Revenue District Office (RDO) No. The application was duly approved by the BIR. in the operation. 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). pursuant to Sections 112(A) and (B) of the NIRC of 1997.9 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 . 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). THE CTA SPECIAL SECOND DIVISION RULING After trial on the merits. the new Caliraya Spillway. and management of the Kalayaan II pumped-storage hydroelectric power plant.6 On 29 December 2004. Mirant Pagbilao Corporation (Mirant). 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. as amended. Applying Commissioner of Internal Revenue v. the CTA Special Second Division rendered a Decision on 3 March 2010. 55 of Laguna. other than capital goods.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. Botocan. and the Kalayaan I hydroelectric power plants and their related facilities located in the Province of Laguna. among others. maintenance. The Facts Petitioner is engaged. Caliraya. as amended.

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. further.In proper cases.10 the CTA En Banc ruled that petitioner’s judicial claim for the first.123. Hence.11 THE COURT’S RULING The pertinent provision of the NIRC at the time when petitioner filed its claim for refund provides: SEC. .Any VAT-registered person. THE CTA EN BANC RULING On appeal. this Petition. 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. it shall be allocated proportionately on the basis of the volume of sales. That in the case of zero-rated sales under Section 106(A)(2)(a)(1). whose sales are zero-rated or effectively zero-rated may. within two (2) years after the close of the taxable quarter when the sales were made.36. The CTA Special Second Division Decision and Resolution were reversed and set aside. The parties filed their respective Motions for Partial Reconsideration. to the extent that such input tax has not been applied against output tax: Provided. 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. Refunds or Tax Credits of Input Tax. However. apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. the CTA Division denied the claim for the first quarter of 2005 for having been filed out of time. xxxx (D) Period within which Refund or Tax Credit of Input Taxes shall be Made. second. which were both denied by the CTA Division. and third quarters of 2005 were belatedly filed. and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions.Accordingly. (Aichi). Petitioner’s Motion for Reconsideration was likewise denied for lack of merit. however.170. – (A) Zero-rated or Effectively Zero-rated Sales. After an evaluation of petitioner’s claim for the second and third quarters of 2005. . and the Petition for Review filed in CTA Case No. Aichi Forging Company of Asia. except transitional input tax. 7621 was dismissed. 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 .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. Inc. 112. petitioner timely filed its administrative claims for the three quarters of 2005.(2) and (B) and Section 108 (B)(1) and (2). considering that the judicial claim was filed on 18 April 2007. relying on Commissioner of Internal Revenue v.

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

Thereafter. must be filed within two years after the close of the taxable quarter when such sales were made. compliance with both periods is jurisdictional. 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. However. Prescinding from San Roque in the consolidated case Mindanao II Geothermal Partnership v. Bearing in mind that the burden to prove entitlement to a tax refund is on the taxpayer.17 this Court has ruled thus: . Commissioner of Internal Revenue and Mindanao I Geothermal Partnership v. it should not retroactively be applied to the instant case. petitioner had attached complete supporting documents necessary to prove its entitlement to a refund in its application.We agree with petitioner that Mirant was not yet in existence when their administrative claim was filed in 2005. were not applicable. and that is attributable to zero-rated or effectively zero-rated sales.16 Pursuant to Section 112(A). The period of 120 days is a prerequisite for the commencement of the 30-day period to appeal to the CTA. 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. Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period. 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. absent any evidence to the contrary. Input tax is neither an erroneously paid nor an illegally collected internal revenue tax. it is presumed that in order to discharge its burden. regardless of when the input VAT was paid. 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.15 Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively zero-rated. 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. thus. 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. Commissioner of Internal Revenue. a claim for the refund or credit of creditable input tax that is due or paid.

Notwithstanding a strict construction of any claim for tax exemption or refund. like the reversal of a specific BIR ruling under Section 246. Petitioner is similarly situated as Philex in the same case. BIR Ruling No. particularly on a difficult question of law. DA-489-03 constitutes equitable estoppel in favor of taxpayers. Although petitioner did not file its judicial claim with the CTA prior to the expiration of the 120-day waiting period. 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. DA-489- 03 is a general interpretative rule because it was a response to a query made. xxxx Thus. This Court is applying Mirant and Aichi prospectively. the Court in San Roque recognized that BIR Ruling No. Inc. This government agency is also the addressee.. that is. DA-489-03 and its effect on taxpayers. Absent fraud. all taxpayers can rely on 1âwphi1 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. The abandonment of the Atlas doctrine did not result in Atlas. while this government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources Development.. Thus. but by a government agency asked with processing tax refunds and credits. DA-489-03 is a general interpretative rule.18 in which this Court ruled: . the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. where the taxpayer did not wait for the lapse of the 120-day period. or the entity responded to. 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. San Roque. BIR Ruling No. DA-489-03. where this Court held that the 120+30 day periods are mandatory and jurisdictional. Inc. 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. thus: Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner. Thus. Clearly. x x x. (Emphasis supplied) In applying the foregoing to the instant case. not by a particular taxpayer. it failed to observe the 30-day prescriptive period to appeal to the CTA counted from the lapse of the 120-day period. the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay Resources Development. the only issue is whether BIR Ruling No. the reversal by this Court of a general interpretative rule issued by the Commissioner. should also apply prospectively. in BIR Ruling No. or other taxpayers similarly situated. being made to return the tax refund or credit they received or could have received under Atlas prior to its abandonment. bad faith or misrepresentation. BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer.

a creditor-debtor relationship is created under a quasi-contract. the obligation to return it arises. Philex’s failure to do so rendered the "deemed a denial" decision of the Commissioner final and inappealable. Atlas referred only to the reckoning of the prescriptive period for filing an administrative claim. by express provision of law.20 Simply stated.19 but not its late filing. Philex did not also file any petition with the CTA within 30 days after the expiration of the 120-day period. we reiterate that even without that ruling. "deemed a denial" of Philex’s claim. but did so long after the lapse of the 30-day period following the expiration of the 120-day period. and it was unduly delivered through mistake. and the person who has no right to receive the payment becomes obligated to return it. In any event.Unlike San Roque and Taganito. the doctrine in Atlas which reckons the two-year period from the date of filing of the return and payment of the tax. In that situation. who has no duty to pay. Philex failed to comply with the statutory conditions and must thus bear the consequences. (Emphases in the original) Likewise. According to this principle. it cannot claim the benefit of the exception period as it did not file its judicial claim prematurely. BIR Ruling No. Whether the two-year prescriptive period is counted from the date of payment of the output VAT following the Atlas doctrine. in fact 426 days after the lapse of the 120-day period. whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake. Philex’s judicial claim will have to be rejected because of late filing. which means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim. while petitioner filed its administrative and judicial claims during the period of applicability of BIR Ruling No. The right to appeal to the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege. Philex’s case is not one of premature filing but of late filing. DA-489-03 allowed premature filing of a judicial claim. Also devoid of merit is the applicability of the principle of solutio indebiti to the present case. Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Moreover.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. DA-489-03. As this Court enunciated in San Roque . or from the close of the taxable quarter when the sales attributable to the input VAT were made following the Mirant and Aichi doctrines. if something is received when there is no right to demand it. Philex did not file any petition with the CTA within the 120-day period. or after the Atlas case. The exercise of such statutory privilege requires strict compliance with the conditions attached by the statute for its exercise. not a constitutional right. the law is explicit on the mandatory and jurisdictional nature of the 120+30 day period. during. The inaction of the Commissioner on Philex’s claim during the 120-day period is. Again. Philex’s judicial claim was indisputably filed late. Philex filed its judicial claim long after the expiration of the 120-day period. With regard to petitioner’s argument that Aichi should not be applied retroactively. petitioner lost its right to claim a refund or credit of its alleged excess input VAT. The Atlas doctrine cannot save Philex from the late filing of its judicial claim. whether governed by jurisprudence before. petitioner cannot rely on Atlas either. since the latter case was promulgated only on 8 June 2007.22 There is solutio indebiti when: (1) Payment is made when there exists no binding relation between the payor. does not interpret − expressly or impliedly − the 120+30 day periods. and . For failure of petitioner to comply with the 120+30 day mandatory and jurisdictional period. and the person who received the payment.

and never against. FISHER. supplied by the company. J. was in the employment of Manila Railroad Company in the capacity of clerk. the instant Petition is DENIED. which is located upon the line of the defendant railroad company. the payment of input tax was not made through mistake. Upon the occasion in question. vs. Second. SO ORDERED. equity. Well-settled is the rule that tax refunds or credits. his exit through the door.26 The burden is on the taxpayer to show strict compliance with the conditions for the grant of the tax refund or credit. there exists a binding relation between petitioner and the CIR. No.. which has been aptly described as "a justice outside legality. . in the province of Rizal. the plaintiff arose from his seat in the second class-car where he was riding and. He lived in the pueblo of San Mateo. are strictly construed against the taxpayer. G. At the time of payment of the input VAT. just like tax exemptions. Ramon Sotelo for appellant. with a monthly wage of P25. since petitioner was legally obligated to pay for that liability. plaintiff-appellant. L-12191 October 14. Kincaid & Hartigan for appellee. 1918 JOSE CANGCO. 1915.25 Section 112 is a positive rule that should preempt and prevail over all abstract arguments based only on 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.: At the time of the occurrence which gave rise to this litigation the plaintiff. and not through liberality or some other cause. he used a pass.23 Though the principle of solutio indebiti may be applicable to some instances of claims for a refund. January 20. and in coming daily by train to the company's office in the city of Manila where he worked. the elements thereof are wanting in this case. seizing the upright guardrail with his right hand for support.24 Finally. which entitled him to ride upon the company's trains free of charge. making. First. statutory law or judicial rules of procedure. MANILA RAILROAD CO. the former being a taxpayer obligated to pay VAT.27 WHEREFORE." is applied only in the absence of. took his position upon the steps of the coach.R. premises considered. defendant-appellee. The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the VAT system. the amount paid was correct and proper. Jose Cangco. (2) Payment is made through mistake.

he instituted this proceeding in the Court of First Instance of the city of Manila to recover damages of the defendant company. The result of this operation was unsatisfactory. found the facts substantially as above stated. It appears that after the plaintiff alighted from the train the car moved forward possibly six meters before it came to a full stop. 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. the plaintiff himself had failed to use due caution in alighting from the coach and was therefore precluded form recovering. When the train had proceeded a little farther the plaintiff Jose Cangco stepped off also. 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. Judgment was accordingly entered in favor of the defendant company. 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. the trial judge. 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 Honor. . and the plaintiff appealed. 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. to-wit. 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.25 in the form of medical and surgical fees and for other expenses in connection with the process of his curation. It appears in evidence that the plaintiff expended the sum of P790. 1915. named Emilio Zuñiga. alighting safely at the point where the platform begins to rise from the level of the ground. and as the railroad station was lighted dimly by a single light located some distance away.As the train slowed down another passenger. 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. and drew therefrom his conclusion to the effect that. In resolving this problem it is necessary that each of these conceptions of liability. nevertheless. 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. They were contained in numerous sacks which has been piled on the platform in a row one upon another. The testimony shows that this row of sacks was so placed of melons and the edge of platform. The accident occurred between 7 and 8 o'clock on a dark night. also an employee of the railroad company. His statement that he failed to see these objects in the darkness is readily to be credited. 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. Upon August 31. where his right arm was badly crushed and lacerated. and it appeared that the injuries which he had received were very serious. got off the same car. At the hearing in the Court of First Instance. 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. objects on the platform where the accident occurred were difficult to discern especially to a person emerging from a lighted car. The plaintiff was drawn from under the car in an unconscious condition. the primary responsibility of the defendant company and the contributory negligence of the plaintiff should be separately examined. that their presence caused the plaintiff to fall as he alighted from the train.

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

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

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

citing Manresa (vol.) In the decisions of November 20. . The Spanish Supreme Court rejected defendant's contention. . 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. . it appeared that plaintiff's action arose ex contractu. as the source of an obligation.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. but held that the master was not liable. Underwood (27 Phil. in dealing with the liability of a master for the negligent acts of his servants "makes the distinction between private individuals and public enterprise. In the case of Baer Senior & Co's Successors vs. . . but of damages caused by the defendant's failure to carry out the undertakings imposed by the contracts . Rep. 1896. or that he had any knowledge of his lack of skill or carefulness. . Rep. and culpa contractual as a mere incident to the performance of a contract has frequently been recognized by the supreme court of Spain. November 20. In the case of Johnson vs. although he was present at the time. 1894. and that in the particular case the presumption of negligence had not been overcome. (33 Phil. 8). 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. 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. 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. it is true that the court rested its conclusion as to the liability of the defendant upon article 1903. and Bachrach Garage & Taxicab Co. . 215). saying: . but that defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a defense.. The court held. Compania Maritima (6 Phil. saying: These are not cases of injury caused. 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. 1896. . and December 13.. 29. Rep. David (5 Phil. In the case of Yamada vs. Rep. .. we do not think that the provisions of articles 1902 and 1903 are applicable to the case. (Sentencias of June 27. 8. 374)." that as to the latter the law creates a rebuttable presumption of negligence in the selection or direction of servants. .. 663). . the court held that the owner of a carriage was not liable for the damages caused by the negligence of his driver. 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. The court found that the damages were caused by the negligence of the driver of the automobile. The act complained of must be continued in the presence of the owner for such length of time that the owner by his acquiescence. without any pre-existing obligation. such as those to which article 1902 of the Civil Code relates. The express ground of the decision in this case was that article 1903. pp." In the case of Chapman vs. makes the driver's acts his own. by fault or negligence. Manila Railroad Co. 1896. 69) that if the "obligation of the defendant grew out of a contract made between it and the plaintiff .

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

3010. Furthermore. the placing of them adequately so that their presence would be revealed. also assured to the passenger a stable and even surface on which to alight. we may say that the test is this. The nature of the platform. but the care which a man of ordinary prudence would use under similar circumstances." (Thompson. as we find. rep. and his failure so to desist was contributory negligence. and sustain no injury where the company has kept its platform free from dangerous obstructions. it should not be overlooked that the plaintiff was.) Or. 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. It is to be considered whether an ordinarily prudent person. Thousands of person alight from trains under these conditions every day of the year. it has been observed. 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. to avoid injury. 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. 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. 809). as the nature of their wearing apparel obstructs the free movement of the limbs. 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. ignorant of the fact that the obstruction which was caused by the sacks of melons piled on the platform existed. the plaintiff had a right to assume. 1aw ph!l. is that of ordinary or reasonable care. would have acted as the passenger acted under the circumstances disclosed by the evidence. Again. that the platform was clear. and should be considered. 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. of the age. in the absence of some circumstance to warn him to the contrary. and physical condition of the passenger are circumstances necessarily affecting the safety of the passenger.. the plaintiff was possessed of the vigor and agility of young manhood. sex and condition of the passenger. whether the passenger acted prudently or recklessly — the age. 3.conclusively by the fact that it came to stop within six meters from the place where he stepped from it.net As the case now before us presents itself. 3. In determining the question of contributory negligence in performing such act — that is to say. sec. 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. Women. thereby decreasing the risk incident to stepping off. as we have already stated. the plaintiff should have desisted from alighting. We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's work on Negligence (vol. 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. sec. Commentaries on Negligence. . 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 we prefer to adopt the mode of exposition used by this court in Picart vs. In considering the situation thus presented. This care has been defined to be. vol. or dimly lighted. constructed as it was of cement material. Smith (37 Phil. for if it were by any possibility concede that it had right to pile these sacks in the path of alighting passengers. as a general rule are less capable than men of alighting with safety under such conditions. was dark. 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. sex. The place.

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

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

C. No. Avanceña. the judgment appealed from will be modified. and the costs of both instances.. 178610 BANKING CORP. Street. Ostrand. and the plaintiff will have judgment in his favor against the defendants Manuel Gutierrez. as well as its Order[4] dated 5 September 2000.versus . jointly and severally.J. ABAD. SPOUSES BIENVENIDO AND EDITHA Promulgated: BROQUEZA.R. NACHURA. for the sum of P5.. LTD. 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. J.R. Chairperson.. Respondents. J. 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. No. ..In consonance with the foregoing rulings. JJ. Romualdez. (now HSBC Present: Retirement Trust Fund. HONGKONG AND SHANGHAI G. JJ.) Petitioner.000. and Saturnino Cortez. Villamor. Inc. Abelardo Velasco. November 17. . Ltd. 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.Staff Retirement Plan (HSBCL-SRP) for recovery of sum of money. Johnson. and MENDOZA. PERALTA. 62685. 00-787 dated 11 December 2000. STAFF RETIREMENT PLAN.R. SP No. The RTCs decision affirmed the Decision[5] dated 28 December 1999 of Branch 61 of the Metropolitan Trial . concur.: G. and Imperial. 2010 x--------------------------------------------------x DECISION CARPIO. CARPIO.

petitioner [Editha] Broqueza obtained a car loan in the amount of Php175.000. Custodio.00. The employees then filed an illegal dismissal case before the National Labor Relations Commission (NLRC) against HSBC. 52400 against the spouses Broqueza on 31 July . acting through its Board of Trustees and represented by Alejandro L. Staff Retirement Plan (HSBCL-SRP.000. she again applied and was granted an appliance loan in the amount of Php24. 1993. 52400 for Recovery of a Sum of Money. Thus. et al. plaintiff below).[6] HSBCL-SRP. but they failed to pay.00. respondent HSBCL-SRP considered the accounts of petitioners delinquent. 1991. National Labor Relations Commission. On the other hand. petitioner Gerong applied and was granted an emergency loan in the amount of Php35. The HSBCL-SRP is a retirement plan established by HSBC through its Board of Trustees for the benefit of the employees. On October 1. The legality or illegality of such termination is now pending before this appellate Court in CA G. Employees Union. CV No. et al. entitled Hongkong Shanghai Banking Corp. These loans are paid through automatic salary deduction. They are also members of respondent Hongkong Shanghai Banking Corporation. Because of their dismissal. 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). Demands to pay the respective obligations were made upon petitioners. filed Civil Case No. vs.R. a labor dispute arose between HSBC and its employees.780. among whom are petitioners Editha Broqueza and Fe Gerong.00 on June 2. Ltd. 56797. 1990.Court (MeTC) of Makati City in Civil Case No. Meanwhile [in 1993]. Majority of HSBCs employees were terminated. petitioners were not able to pay the monthly amortizations of their respective loans. On December 12.

Both suits were civil actions for recovery and collection of sums of money. to pay the amount of Php116. .740. 00-786. 52400.344. the loans secured by their future retirement benefits to which they are no longer entitled are reduced to unsecured and pure civil obligations. 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.00 each as reasonable attorneys fees. To pay the amount of Php20. ordering the latter: 1. HSBCL-SRP filed Civil Case No. the MeTC promulgated its Decision[7] in favor of HSBCL- SRP.Gerongs case was docketed Civil Case No. the loans are immediately demandable.00 at six percent interest per annum from the time of demand and in Civil Case No. Thus. As unsecured and pure obligations. 2. 52911. 3. The Metropolitan Trial Courts Ruling On 28 December 1999. The MeTC ruled that the nature of HSBCL-SRPs demands for payment is civil and has no connection to the ongoing labor dispute. 00-787. premises considered and in view of the foregoing. to pay the amount of Php25.12 at six percent per annum from the time of the filing of these cases.[8] Gerong and the spouses Broqueza filed a joint appeal of the MeTCs decision before the RTC. while the spouses Broquezas case was docketed as Civil Case No. Cost of suit.000. On 19 September 1996.1996. The dispositive portion of the MeTCs decision reads: WHEREFORE. In Civil Case No. SO ORDERED. until the amount is fully paid. 52911 against Gerong. Gerong and Editha Broquezas termination from employment resulted in the loss of continued benefits under their retirement plans.

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. the assailed Decision of the RTC is REVERSED and SET ASIDE.[9] The RTC ruled that Gerong and Editha Broquezas termination from employment disqualified them from availing of benefits under their retirement plans. Moreover. the CA rendered its Decision[10] which reversed the 11 December 2000 Decision of the RTC. The Ruling of the Court of Appeals On 30 March 2006. the fulfillment of which are demandable at once. The loan obligations are considered pure obligations. As a consequence. Gerong and the spouses Broqueza then filed a Petition for Review under Rule 42 before the CA. . no cause of action accrued in favor of HSBCL-SRP. the absence of a period within which to pay the loan allows HSBCL-SRP to demand immediate payment. The RTC later reconsidered the order of denial and resolved the issues in the interest of justice. A new one is hereby rendered DISMISSING the consolidated complaints for recovery of sum of money. 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. there is no longer any security for the loans. 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 dispositive portion of the appellate courts Decision reads as follows: WHEREFORE. SO ORDERED. Thus.[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 affirmed the MeTCs decision in toto. On 11 December 2000.

and II. On 6 August 2007. M. We agree with the rulings of the MeTC and the RTC.[14] The Courts Ruling The petition is meritorious. 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. HSBCL-SRP filed a manifestation withdrawing the petition against Gerong because she already settled her obligations. 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. on or before until fully paid the sum of PESOS ___ (P___) Philippine Currency without discount. Metro Manila. with interest from date hereof at the rate of Six per cent (6%) per annum. granted the motion. I/WE agree that the PLAN may. The Promissory Notes uniformly provide: PROMISSORY NOTE P_____ Makati. In a Resolution[13] of this Court dated 10 September 2007. and considered the case against Gerong closed and terminated. . ____ 19__ FOR VALUE RECEIVED.M. increase the interest rate stipulated in this note at any time depending on prevailing conditions. 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. payable monthly. this Court treated the manifestation as a motion to withdraw the petition against Gerong. upon written notice.

In case collection is made by or through an attorney. In their Answer. I/WE hereby jointly and severally waive our rights under the provisions of Rule 39. The fact that HSBCL-SRP was content with the prior monthly check-off from Editha Broquezas salary is of no moment. however. is demandable at once.[15] In ruling for HSBCL-SRP. which HSBC collected through payroll check-off. HSBCL-SRP has the right to demand immediate payment.00) as and for attorneys fees in addition to expenses and costs of suit. x x x. Once Editha Broqueza defaulted in her monthly payment. The spouses Broquezas obligation to pay HSBCL-SRP is a pure obligation. the spouses Broqueza admitted that prior to Editha Broquezas dismissal from HSBC in December 1993. In case of judicial execution. Despite the spouses Broquezas protestations. The RTC is correct in ruling that since the Promissory Notes do not contain a period. the payroll deduction is . 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).[16] A definite amount is paid to HSBCL-SRP on a specific date. we apply the first paragraph of Article 1179 of the Civil Code: Art. Every obligation whose performance does not depend upon a future or uncertain event. 1179. HSBCL-SRP made a demand to enforce a pure obligation. Editha Broqueza authorized HSBCL-SRP to make deductions from her payroll until her loans are fully paid. or upon a past event unknown to the parties. and in such a case our liability shall remain joint and several. 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. Section 12 of the Rules of Court. Editha Broqueza. she religiously paid the loan amortizations. (Emphasis supplied.) We affirm the findings of the MeTC and the RTC that there is no date of payment indicated in the Promissory Notes. defaulted in her monthly loan payment due to her dismissal. Article 1179 of the Civil Code applies.

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

Petitioner informed that he does not insist on this provision but that petitioner is only claiming on his right under the promissory note . came the ruling that the wording of the promissory note being "upon demand. 1963.5 a 1908 decision." On the above facts as found. As noted at the outset. as creditor.800. [George Pay] at his office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26."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. that the property sought to be administered no longer belonged to the debtor. is worded thus: " `For value received from time to time since 1947. of the creditor has definitely prescribed. therefore. 1952. 1952. the decision must be affirmed. as intimated. . Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3. surviving spouse of the late Justo Palanca. del Rosario. Since it was dated January 30. George Pay is now before this Court. the creditor admitting expressly that he was relying on the wording "upon demand. de Carlos Palanca promised to pay George Pay the amount of P26. can file his claim against the administratrix. The promissory note. and with the law being as it is. was the dismissal of the petition. From the manner in which the promissory note was executed. covered by Tax Declaration No. 1952." This used to be Article 1113 of the Spanish Civil Code of 1889.00).900. de Palanca. is demandable at once. this promissory note is signed by Rosa Gonzales Vda. or. asking that Segundina Chua vda. or upon a past event unknown to the parties. and that the rights of petitioner-creditor had already prescribed. The idea is that once said property is brought under administration. "upon demand."4 The result. George Pay."3 After which." the obligation was immediately due. From the appealed decision. 1962. this petition was filed. The action.00. it cannot be said that its decision is infected with error. assessed at P41. The well-known Spanish commentator. 3114 in the name of Justo Palanca. As stated.900. In an exhaustive brief prepared by Attorney Florentino B. Article 1179 of the Civil Code provides: "Every obligation whose performance does not depend upon a future or uncertain event. Manila. he appointed as administratrix of a certain piece of property which is a residential dwelling located at 2656 Taft Avenue. . on this point. whereby the late Justo Palanca and Rosa Gonzales Vda. it has been applied according to its express language. 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'. only the question of prescription need detain us in the disposition of this appeal."1 It then stated that the petition could not prosper as there was a refusal on the part of Segundina Chua Vda. dated January 30." There is nothing in the record that would indicate whether or not the first alternative was fulfilled. with interest thereon at the rate of 12% per annum.demandable. Manresa. de Carlos Palanca and Justo Palanca. considering the clear tenor of the promissory note. as to the property sought to be administered no longer belonging to the debtor. Its merit is rather obvious. we [jointly and severally promise to] pay to Mr.00. o sea la perfeccion de . and as to the rights of petitioner-creditor having already prescribed. . 1967. the late Justo Palanca. The claim of the petitioner is based on a promissory note dated January 30. the late Justo Palanca. as expressed therein. The defense interposed was prescription. de Palanca to be appointed as administratrix. 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. el caracter mas teorico y grafico del acto. more than fifteen years after the execution of the promissory note on January 30. 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. states: "Dejando con acierto. 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. Likewise. it was clear that more "than ten (10) years has already transpired from that time until to date. As far back as Floriano v. Delgado. as above noted. What is undeniable is that on August 26. We affirm.

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

. . hereinbelow more particularly described. — This is not guaranteed. 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.. subject to the United States Government requirements and also subject to confirmation of manufactures. the Manila Oil Refining and By-Products Co. 1919. . railroad embargoes.250) on account of the expellers and the motors not having arrived in due time. the price of the said goods. ordering them to "receive the aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos (P50.91) for the nondelivery of the tanks.783. with legal interest thereon from July 26. in due time. then it is entitled to the relief prayed for. lack of vessel space. under the contracts entered into and the circumstances established in the record. or as soon as possible. To solve this question. as a consequence of the plaintiff's delay in making delivery of the goods. each assigning several errors in the findings of the lower court. rec. — Two Anderson oil expellers . and that "it was only in May. the exigencies of the requirement of the United States Government. otherwise. but rendered judgment against them." Both parties appeal from this judgment. and twenty-one thousand two hundred and fifty pesos (P21. it must be held guilty of delay and liable for the consequences thereof. 1919.pay their price.) the following appears: Approximate delivery within ninety days. 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. to be shipped at San Francisco within the month of September /18. In all these contracts. alleging as special defense that Mr. And in the contract relative to the motors (Exhibit D. If it has." As a counterclaim or set-off. it is necessary to determine what period was fixed for the delivery of the goods. page 64. the court below absolved the defendants from the complaint insofar as the tanks and the electric motors were concerned.00). the motors and the expellers having arrived incomplete and long after the date stipulated. with reference to the expellers. Sotelo had made the contracts in question as manager of the intervenor. The principal point at issue in this case is whether or not. that it notified the intervenor that said tanks had arrived. and costs. its obligation to bring the goods in question to Manila. In other words. which the intervenor intended to use in the manufacture of cocoanut oil. or a number of causes may act to entirely vitiate the indication of shipment as stated. As regards the tanks. The case having been tried. the plaintiff has fulfilled. In the contract Exhibit C (page 63 of the record). time of shipment being merely an indication of what we hope to accomplish. the following stipulation appears: The following articles. the order is accepted on the basis of shipment at Mill's convenience. and the good condition of the expellers and the motors. they also allege that. there is a final clause as follows: . Inc which fact was known to the plaintiff. — This sale is subject to our being able to obtain Priority Certificate.

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

Tit. . (33) That in the execution and sales thereunder. as follows: 1. the judgment of the said court.) In the second decision. In the former it is held: First. is not contrary to the law of contracts. 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 decisions referred to by Mr. vol. and the Code being thus silent. vol. but on that of a third person who can in no way be compelled to carry it out. he was represented by the opponent Peter W. Eugenio. (32) The Maximo Belisario left a widow. for such time as may be reasonable. I." or Law 12. Before the sale of property on execution. of Partida 5. 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. be disposed of in comparatively few words. the opponent Adelina Ferrer and three minor children. (Jurisprudencia Civil published by the directors of the Revista General de Legislacion y Jurisprudencia [1866]. the following doctrine is laid down: Second. H. 1871. Section 454 of the Code of civil Procedure reads in part as follows: SEC. 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. but on that of a third person. notice thereof must be given. 450. 435. he rest his title (1) on the sales under the executions issued in cases Nos. page 132. 1791. Addison. 1896. ordering the other party to comply with his part of the contract. no law or precedent is alleged to have been violated. As will be seen from the foregoing statement of facts. and Aureno Belisario as his only heirs. 8. considering the character and condition of the property. we think. Manresa are those rendered by the supreme court of Spain on November 19. The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may. 11. in which C. neither disallowed. or to Law 1. (Manresa's commentaries on the Civil Code [1907]. 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. McClure appears as the judgment creditor. 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. 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. 14. Book 10. when in the said finding of the lower court. Vitaliana. That when the fulfillment of the conditions does not depend on the will of the obligor. In case of perishable property. who can in no way be compelled to carry it out. and February 23. and it is found by the lower court that the obligor has done all in his power to comply with the obligation. 454. The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the notice of sale. the old view can be maintained as a doctrine. 454. Tit. of the "Novísima Recopilación. page 656.

who also took charged of the publication of such notices. . 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: . Bartolome and Germann & Co. then a like publication for a like period shall be made in one newspaper published in the Spanish language. the sales must be held invalid. In case No.30 in the afternoon. the first of which was made thirteen days before the sale. In the last case the sale was advertised for the hours of from 8:30 in the morning until 4:30 in the afternoon. by posting a similar notice particularly describing the property. but upon discovering that October 15th was a Sunday. . In cases Nos. In all of the cases the notices of the sale were prepared by the judgment creditor or his agent. The correct notice was published twice in a local newspaper. 499. 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. for the same period. 435 and 450 the sales took place on October 14. If there are newspaper published in the province in both the Spanish and English languages. (38 Phil. there were also only two publications. the sale is absolutely void and not title passes. 1916. in violation of section 457 of the Code of Civil Procedure. In case such redemption be not made within the time above specified the Government of the Philippine Islands shall have an absolute. The conveyance or reconveyance of the land from the Director of Lands is equally invalid. This must now be regarded as the settled doctrine in this jurisdiction whatever the rule may be elsewhere.. The provisions of Act No. for twenty days in three public places of the municipality or city where the property is situated. * * * * * * * Examining the record. That such publication in a newspaper will not be required when the assessed valuation of the property does not exceed four hundred pesos. 2. the provincial treasurer shall immediately notify the Director of Lands of the forfeiture and furnish him with a description of the property. In cases of real property. with what was actually done. 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. Upon the expiration of the said ninety days. and in one published in the English language: Provided. In case No. however. the date was changed to October 14th. supra. the first publication being made only fourteen days before the date of the sale. Comparing the requirements of section 454. 808). if there be one. the notice first published gave the date of the sale as October 15th. the first publication was made on October 7th and the second and last on October 14th. we find that in cases Nos. * * * * * * * 3. and publishing a copy thereof once a week. and also where the property is to be sold. the date of the sale itself. if redemption be not made. 454 there were only two publications of the notice in a newspaper. in some newspaper published or having general circulation in the province. 435 and 450 the hours advertised were from 9:00 in the morning until 4. The newspaper is a weekly periodical published every Saturday afternoon. indefeasible title to said real property. and said Director of Lands shall have full control and custody thereof to lease . In the case of Campomanes vs. 4. 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.

N BANC . but from our point of view is of no importance. . or his legal representative. 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. shall have the right to repurchase the entire amount of his said real property. the expellers and the motors in question. with interest. void sheriff's or execution sales cannot be validated through inscription in the Mortgage Law registry. but has acquired no title through the redemption. he is entitled to reimbursement for the money paid for the redemption of the land. 1919. 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. Vicente Sotelo Matti. The opposition of Adelina Ferrer must also be overruled. . 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 the costs of both instances. That the original owner. sentenced to accept and receive from the plaintiff the tanks. by paying therefore the whole sum due thereon at the time of ejectment together with a penalty of ten per centum . 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. . the date of the filing of the complaint. until fully paid. at any time before a sale or contract of sale has been made by the director of Lands to a third party. with legal interest thereon from July 17. or sell the same or any portion thereof in the same manner as other public lands are leased or sold: Provided. So ordered. he acquired no rights under these sales. As we have seen. and to pay the plaintiff the sum of ninety-six thousand pesos (P96.000).

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

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

We have struck down laws and issuances meant to curtail this right. but subsequently made a retraction. one supposedly the complete version. and the other.[4] When on its face.[3] and Bayan v. Gloria Macapagal Arroyo. in a Malacaang press briefing. it must be nullified. Executive Secretary Ermita. Chief of Staff. it is clear that a governmental act is nothing more than a naked means to prevent the free exercise of speech. COMELEC. Indeed. B. [6] It seems that Secretary Bunye admitted that the voice was that of President Arroyo. Secretary Bunye produced two versions of the tape. The conversation was audiotaped allegedly through wire- tapping. 2005. Precis In this jurisdiction. On June 5. as in Adiong v.[5]Later. doctored or altered version.[2] Social Weather Stations v. 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. 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. 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). COMELEC. a spliced. 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. [7] .[1]Burgos v. The Facts 1. it is established that freedom of the press is crucial and so inextricably woven into the right to free speech and free expression.

On June 8. it was able to disseminate the contents of the tape more widely. 2005. Atty. subject to arrest by anybody who had personal knowledge if the crime was committed or was being committed in their presence.2. He also stated that persons possessing or airing said tapes were committing a continuing offense.net. subsequently released an alleged authentic tape recording of the wiretap. 2005. former counsel of deposed President Joseph Estrada. 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 . the First Gentleman Jose Miguel Arroyo.Gonzales said that he was going to start with Inq7. Alan Paguia.He then expressed his intention of inviting the editors and managers of Inq7. 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. because by the very nature of the Internet medium. 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.[8] 3. a joint venture between the Philippine Daily Inquirer and GMA7 television network. Paguia. Secretary Gonzales ordered the National Bureau of Investigation (NBI) to go after media organizations found to have caused the spread. On June 11. [10] 5. 2005. These persons included Secretary Bunye and Atty.[9] 4. On June 9. and the late Senator Barbers.net and GMA7 to a probe. I [have] asked the NBI to conduct a tactical interrogation of all concerned. On June 7. and supposedly declared. 2005. COMELEC Commissioner Garcillano.Included in the tapes were purported conversations of the President. in another press briefing.

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 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. 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. These personalities have admitted that the taped conversations are products of illegal wiretapping operations. . xxx xxx xxx Taking into consideration the countrys unusual situation. revocation and/or cancellation of the licenses or authorizations issued to the said companies. 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. and in order not to unnecessarily aggravate the same. 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. It has been subsequently established that the said tapes are false and/or fraudulent after a prosecution or appropriate investigation.

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

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

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

[19] But as early as half a century ago. 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. technicalities of procedure. that petitioner has not met the requisite legal standing. Petitioner. the recipients of the press statements have not come forwardneither intervening nor joining petitioner in this action. 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. [20] Subsequently.[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. the transcendental importance to the public of these cases demands that they be settled promptly and definitely. then. D. prays that we strike down the acts and statements made by respondents as violations of the right to free speech. they issued a joint statement with respondent NTC that does not complain about restraints on freedom of the press. in line with the liberal policy of this Court on locus standi when a case involves an issue of overarching significance to our society. who is not a member of the broadcast media. It would seem. we have already held that where serious constitutional questions are involved. Thus. as a group. For another.[22] we therefore brush . brushing aside if we must. the circumstances of this case make the constitutional challenge peculiar. Indeed. THE PROCEDURAL THRESHOLD: LEGAL STANDING To be sure.

(4) to examine the historical difference in the treatment of restraints between print and broadcast media and stress the standard of review governing both. or of the press.S. 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.[23] seeing as it involves a challenge to the most exalted of all the civil rights. Section 4 of the Constitution.[24] Freedom of expression has gained recognition as a fundamental principle of every democratic government. content-neutral and content-based regulations and their constitutional standard of review. or the right of the people peaceably to assemble and petition the government for redress of grievances. (3) to discuss the core concepts of prior restraint.aside technicalities of procedure and take cognizance of this petition.[25] were considered the necessary . however. (2) to clarify the types of speeches and their differing restraints allowed by law. The cognate rights codified by Article III. copied almost verbatim from the First Amendment of the U. the freedom of expression. It is fundamental. 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. and given a preferred right that stands on a higher level than substantive economic freedom or other liberties. But aside from the primordial issue of determining whether free speech and freedom of the press have been infringed. Bill of Rights. RE-EXAMINING THE LAW ON FREEDOM OF SPEECH. OF EXPRESSION AND OF THE PRESS No law shall be passed abridging the freedom of speech. E. 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. of expression.

reflecting our own lesson of history.[26] This preferred status of free speech has also been codified at the international level. [32] in which it was held: At the very least. at bottom.[27] In the Philippines. we cannot both be free and ignorant. or action for damages. expression and the press was. the 1973 and the 1987 Constitutions. our history shows that the struggle to protect the freedom of speech. In the oft-quoted words of Thomas Jefferson. There is to be no previous restraint on the communication of views or subsequent liability whether in libel suits. 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. the struggle for the indispensable preconditions for the exercise of other freedoms. its recognition now enshrined in international law as a customary norm that binds all nations. E.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. that freedom of speech is an indispensable condition for nearly every other form of freedom. [28] This right was elevated to constitutional status in the 1935.[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.[31] What is embraced under this provision was discussed exhaustively by the Court in Gonzales v. Commission on Elections. the primacy and high esteem accorded freedom of expression is a fundamental postulate of our constitutional system.consequence of republican institutions and the complement of free speech.[29] Moreover. or contempt proceedings unless there be a clear and . both political and legal. prosecution for sedition.

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

2. news.[41] this Court stated that all forms of media. in Eastern Broadcasting Corporation (DYRE) v. While all forms of communication are entitled to the broad protection of freedom of expression clause. The protection afforded free speech extends to speech or publications that are entertaining as well as instructive or informative. political. Dans. as will be subsequently discussed. or informational ends. 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. whether print or broadcast. E. DIFFERENTIATION: THE LIMITS & RESTRAINTS OF FREE SPEECH From the language of the specific constitutional provision. 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. [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. economic.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. The constitutional protection is not limited to the exposition of ideas. the freedom of film. The constitutional protection assures the broadest possible exercise of free speech and free press for religious. Thus. all speech are not treated the same. are entitled to the broad protection of the clause on freedom of speech and of expression. scientific. in order that it may not be injurious to the equal right of others or those of the . television and radio broadcasting is somewhat lesser in scope than the freedom accorded to newspapers and other print media. Specifically. it would appear that the right to free speech and a free press is not susceptible of any limitation.

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

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

Rather. 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 . 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. This presents a unique tinge to the present challenge. the determinations were always about whether the restraint was justified by the Constitution. [53] (3) freedom of access to information. a closer scrutiny of this principle is in order. as well as its sub-specie of content-based (as distinguished from content-neutral) regulations. the parameters of this principle have been etched on a case-to-case basis. 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. [54] and (4) freedom of circulation. E. even as early as the period under the 1935 Constitution. Be that as it may. At this point.[55] Considering that petitioner has argued that respondents press statement constitutes a form of impermissible prior restraint.4. (2) freedom from punishment subsequent to publication. including the nature of the restraint. These are (1) freedom from prior restraint. ANATOMY OF RESTRICTIONS: PRIOR RESTRAINT. CONTENT-NEUTRAL AND CONTENT-BASED REGULATIONS Philippine jurisprudence. and then determining the appropriate test with which to evaluate. And in its application in our jurisdiction. has recognized four aspects of freedom of the press. Prior restraint refers to official governmental restrictions on the press or other forms of expression in advance of actual publication or dissemination.

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

and if the incident restriction on alleged [freedom of speech & expression] is no greater than is essential to the furtherance of that interest. Unless the government can overthrow this presumption.[67] As formulated. 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.[66] With respect to content-based restrictions. Only when the challenged act has overcome the clear and present danger rule will it pass constitutional muster.[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.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.[65] with the government having the burden of overcoming the presumed unconstitutionality. but only by showing a substantive and imminent evil that has taken the life of a reality already on ground. 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. Prior restraint on speech based on its content cannot be justified by hypothetical fears. if it furthers an important or substantial governmental interest. if the governmental interest is unrelated to the suppression of free expression. 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. the content- based restraint will be struck down. the question in every case is whether the words used are used in such circumstances and are of . [64] On the other hand.

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

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

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

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

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

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

again without distinguishing the media. does not treat of broadcast media but motion pictures.[87] Katigbak.newspaper and print media. and application of norms to unprotected speech. It is the consensus of this Court that where television is concerned. it was not as to what test should be applied. however. in Osmena v. that the clear and present danger rule has been applied to all cases that involve the broadcast media. COMELEC. but the context by which requirements of licensing.. 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. the Court refused to apply the clear and present danger rule to a COMELEC regulation of . This is so because unlike motion pictures where the patrons have to pay their way. it was reiterated in Gonzales v.[86]that the test to determine free expression challenges was the clear and present danger. television reaches every home where there is a set. including broadcast. strictly speaking. but only when the challenged act is a content-based regulation that infringes on free speech. Although the issue involved obscenity standards as applied to movies. More recently. in resolving a case involving the conduct of exit polls and dissemination of the results by a broadcast company.[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. Katigbak. expression and the press. Indeed.[90] which also involved broadcast media.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. Children then will likely be among the avid viewers of the programs therein shown.[89] This is not to suggest. [85] In the same year that the Dans case was decided. The rule applies to all media. a less liberal approach calls for observance. allocation of airwaves.

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

for example. This rule applies equally to all kinds of media. [98] F. The Case At Bar Having settled the applicable standard to content-based restrictions on broadcast media. [96] and the rationales used to support broadcast regulation apply equally to the Internet. with the government having the burden of overcoming the presumed unconstitutionality by the clear and present danger rule. 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. remains largely unregulated. To recapitulate.which has led to the convergence of broadcasting. [94] The emergence of digital technology -.[97] Thus.has likewise led to the question of whether the regulatory model for broadcasting will continue to be appropriate in the converged environment. yet the Internet and the broadcast media share similarities. (b) the presumption. This outlines the procedural map to follow in cases like the one at bar as it spells out the following: (a) the test. It has been argued further that a significant main threat to free expressionin terms of diversitycomes not from government. (d) the party to discharge the burden. a governmental action that restricts freedom of speech or of the press based on content is given the strictest scrutiny.[95] Internet. telecommunications and the computer industry -. (c) the burden of proof. it has been argued that courts.said to be necessary in order to preserve pluralism. respondents who have the burden to . legislative bodies and the government agencies regulating media must agree to regulate both. but from private corporate bodies. including broadcast media. These developments show a need for a reexamination of the traditional notions of the scope and extent of broadcast media regulation. and (e) the quantum of evidence necessary. On the basis of the records of the case at bar.

which should be weighed in adjudging whether to restrain freedom of speech and of the press. a vital one to be sure. given all these unsettled facets of the tape. 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. There are laws of great significance but their violation. by itself and without more. the manner of its commission and other related and relevant proofs are some of the invisibles of this case. are confused and confusing. however. 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. Thirdly. the integrity of the taped conversation is also suspect. The identity of the wire-tappers. the Court should not be misinterpreted as devaluing violations of law. the various statements of the Press Secretary obfuscate the identity of the voices in the tape recording. it is even arguable whether its airing would violate the anti-wiretapping law. The Press Secretary showed to the public two versions. the need to prevent their violation cannot per se trump the exercise of free speech and free press.Firstly. violation of law is just a factor.show that these acts do not abridge freedom of speech and of the press failed to hurdle the clear and present danger test. 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. But to repeat. cannot support suppression of free speech and free press. Secondly. violations of law should be vigorously prosecuted by the State for they breed their own evil consequence. In fine. and respondents evidence falls short of satisfying the clear and present danger test. one supposed to be a complete version and the other. the evidence of the respondents on the whos and the hows of the wiretapping act is ambivalent. We rule that not every violation of a law will justify straitjacketing the exercise of freedom of speech and of the press. Fourthly. a preferred right whose breach can lead to greater . especially considering the tapes different versions. an altered version. The records of the case at bar. By all means. 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. Our laws are of different kinds and doubtless.

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

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

jr. That motion to dismiss was denied by His Honor. the rentals in areas were those pertaining to the month of August. as it is hereby. the agrees rental being payable within the first five days of each month. on the ground that in the municipal court plaintiff had waived said claim for damages and that. conversely.) During the pendency of the appeal in the Court of First Instance and before the judgment appealed from was rendered on October 31. until defendants completely vacate the premises. 34 Phil. We think that the Court of First Instance was right in so declaring. affirmed. 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. 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. 1945. 1945. The Court of First Instance gave more credit to plaintiff's witness. within the meaning of article 1256 of the Civil Code. so long as defendants elected to continue the lease by continuing the payment of the rentals. Cuyugan vs. the same waiver was understood also to have been made in the Court of First Instance. by order dated July 21. defendants were in arrears in the payment of the rental corresponding to said month. Vicente Singson Encarnacion. That rental was paid prior to the hearing of the case in the municipal court. that claim was waived by him before the hearing in the municipal court. Judge Mamerto Roxas.. 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. of course. carried to its logical conclusion. So ordered. 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. Furthermore. 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. Upon the whole. Although plaintiff included in said original complaint a claim for P500 damages per month. pp. 100. for which reason the Court considered it as indicative of an eleventh-hour theory.. During the pendency of the appeal in that court. on account of which nothing was said regarding said damages in the municipal court's decision.the original action was lodged with the Municipal Court of Manila on April 20.net In the Court of First Instance the graveman of the defense interposed by defendants. If this defense were to be allowed. 1945. certain deposits were made by defendants on account of rentals with the clerk of said court. The court added in its decision that this defense which was put up by defendant's answer. therefore. is prohibited by the aforesaid article of the Civil Code. with the costs of the three instances to appellants. to the date of said judgment at the rate of P35 a month. lawphil. 627. 626. completely depriving the owner of all say in the matter. 1945. . 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. and in said judgment it is disposed that the amounts thus deposited should be delivered to plaintiff. 1945. 3d ed. This. although the owner should desire the lease to continue. the owner would never be able to discontinue it. as it was expressed defendant Lefrado Fernando during the trial. When the case reached the Court of First Instance of Manila upon appeal. who testified that the lease had always and since the beginning been upon a month-to-month basis. Santos. (8 Manresa.. the Court of First Instance had no appellate jurisdiction over the subject matter of the action. therefore. 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.

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

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

The Civil Code has made provision for such a case in all kinds of obligations. 2. Thus. there is always a creditor who is entitled to demand the performance. To maintain the latter action it is sufficient to show the expiration of the term of the contract. . sec. This term it is which must be fixed by the courts. in this contract of lease. 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.) In every contract. as laid down by the authorities. In bilateral contracts the contracting parties are mutually creditors and debtors. 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. (Art. 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. 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. whether conventional or legal. the lessee is the creditor with respect to the rights enumerated in article 1554." and provides that in this case the term shall be fixed by the courts. 1128. The term within which performance of the latter obligation is due is what has been left to the will of the debtor.B) The duration of the lease does not depend solely upon the will of the Lessee (defendant). and a debtor upon whom rests the obligation to perform the undertaking. 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. and is the debtor with respect to the obligations imposed by articles 1555 and 1561.

an amount not exceeding P1. The contract covered an area of 1. No. the monthly rental was P3. paying a monthly rental of P2. On September 22.R. defendant-appellant. Ten days later (November 25). including the portion on which the house of Justina Santos stood. lived with his family in the restaurant. 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. In it are two residential houses with entrance on Florentino Torres street and the Hen Wah Restaurant with entrance on Rizal Avenue. salaries of maids and security guard. covering the portion then already leased to him and another portion fronting Florentino Torres street.: Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of land in Manila. 3) in favor of Wong. being at the time 90 years old. crippled and an invalid. This parcel. Sison for plaintiff-appellant. funeral expenses.124 square meters. at an additional monthly rental of P360. the contract was amended (Plff Exh. Wong had been a long-time lessee of a portion of the property. J. Wong himself was the trusted man to whom she delivered various amounts for safekeeping. Gibbs & Ozaeta for defendant-appellant. blind. Her only companions in the house were her 17 dogs and 8 maids. lawyers' fees. 1957 a contract of lease (Plff Exh. although the lessee was given the right to withdraw at any time from the agreement. G. 4) so as to make it cover the entire property. she was left with no other relative to live with. representing the estate of JUSTINA SANTOS Y CANON FAUSTINO. Then already well advanced in years. plaintiff-appellant. of taxes. while Wong Heng.582. masses. deceased. 1957 Justina Santos became the owner of the entire property as her sister died with no other heir." Justina Santos executed on November 15. For his part Wong undertook to pay. Nicanor S. L-17587 September 12.000 a month for the food of her dogs and the salaries of her maids.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. deceased. Ozaeta. "In grateful acknowledgment of the personal services of the lessee to her.30 square meters. with an area of 2. a Chinese. vs. The lease was for 50 years.120. CASTRO. The sisters lived in one of the houses.620. and her household expenses. LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng. 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. . in her behalf. out of the rental due from him. is located on Rizal Avenue and opens into Florentino Torres street at the back and Katubusan street on one side. the Manila Lawn Tennis Club. 1967 PHILIPPINE BANKING CORPORATION. Wong also took care of the payment.

6.000 which he said she had delivered to him for safekeeping. But he denied having taken advantage of her trust in order to secure the execution of the contracts in question.000. the charge not to exceed P1. 1958 she executed two other contracts. the collection of various amounts allegedly delivered on different occasions was sought. that this application for naturalization was withdrawn when it was discovered that he was not a resident of Rizal. 1957). Wong's admission of the receipt of P22. in addition to the sum of P3. Gochangco was appointed guardian of her person. 1. 1957). The option was conditioned on his obtaining Philippine citizenship. inequitable conduct. 5) extending the term of the lease to 99 years. Both contracts are written in Tagalog. admitted receipt of P7. while Ephraim G.000 (as admitted in his answer).344. 285 & 279).000 and P3. Wong insisted that the various contracts were freely and voluntarily entered into by the parties. .27.27 (Nov.42 (Dec. On November 18 the present action was filed in the Court of First Instance of Manila.724. P7. On October 28. In two wills executed on August 24 and 29.000 (Dec. 1960. was appointed guardian of the properties of Justina Santos.000 in the bank and P3. but contended that these amounts had been spent in accordance with the instructions of Justina Santos.49 which he said she owed him for advances. Claiming that the various contracts were made by her because of machinations and inducements practiced by him. and another (Plff Exh. 17) of a later date (November 4.120 a month from November 15. the Security Bank & Trust Co. On November 18. one (Plff Exh. 7) giving Wong the option to buy the leased premises for P120. The error was discovered and the proceedings were abandoned.240 a month. 1959) she appears to have a change of heart. she bade her legatees to respect the contracts she had entered into with Wong." 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 P3.42 and P10. The option. she now directed her executor to secure the annulment of the contracts.000 and P3.000 in his possession. As counterclaim he sought the recovery of P9. but in a codicil (Plff Exh. An accounting of the rentals from the Ongpin and Rizal Avenue properties was also demanded.000. It appears. 6) fixing the term of the option of 50 years. 4.800 a month. In his answer. aside from the nullity of the contracts. another sum of P22. These amounts and the dates of their delivery are P33.210.000 had been deposited in a joint account which he had with one of her maids. 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. He likewise disclaimed knowledge of the sum of P33. misrepresentation. P22. Wong admitted that he enjoyed her trust and confidence as proof of which he volunteered the information that.000. he expressed readiness to comply with any order that the court might make with respect to the sums of P22.724. The complaint alleged that the contracts were obtained by Wong "through fraud. a petition for which was then pending in the Court of First Instance of Rizal. imposed on him the obligation to pay for the food of the dogs and the salaries of the maids in her household. written in Tagalog. 1957 on the allegation that the reasonable rental of the leased premises was P6.000 was the cue for the filing of an amended complaint.344.On December 21 she executed another contract (Plff Exh. 1958 she filed a petition to adopt him and his children on the erroneous belief that adoption would confer on them Philippine citizenship. 1957). In the meantime as a result of a petition for guardianship filed in the Juvenile and Domestic Relations Court. In his answer. payable within ten years at a monthly installment of P1. Thus on June 9. P10. however. 1959 (Def Exhs.

Justina Santos maintained — now reiterated by the Philippine Banking Corporation — that the lease contract (Plff Exh. Wong Heng is condemned to pay unto plaintiff thru guardian of her property the sum of P55. because it included a portion which. the other defendant in this case. 1962 and Justina Santos on December 28. with the exception of the first which is the lease contract of 15 November 1957. Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this agreement. the cancellation of a contract in accordance with conditions agreed upon beforehand is fulfillment. can hardly be regarded as a violation of article 1256 [now art. 1308] of the Civil Code. as can be readily seen. Such a stipulation. Uy Tieng Piao. was in custodia legis. after which the lower court rendered judgment as follows: [A]ll the documents mentioned in the first cause of action. Indeed. because of a difference in factual setting." We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor v. are declared null and void. is absolutely simulated. conversely. at any time before he erected any building on the land. Dy Tiao Lay 3 that a "provision in a lease contract that the lessee. In that case. Wong Heng on October 21. from 15 November 1959. while Justina Santos was substituted by the Philippine Banking Corporation. 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. and the moneys he has consigned since then shall be imputed to that. so long as defendants elected to continue the lease by continuing the payment of the rentals. both parties died. 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 right of the lessee to continue the lease or to terminate it is so . in contrast. From this judgment both parties appealed directly to this Court. After the case was submitted for decision. the lessees argued that they could occupy the premises as long as they paid the rent.00 for every month of his occupation as lessee under the document of lease herein sustained. for as this Court said.25 with legal interest from the date of the filing of the amended complaint.The case was heard. for where the contracting parties have agreed that such option shall exist. at the time. 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. Lui She. might rescind the lease. "If this defense were to be allowed. 1964. and because the lease contract." It is claimed that this stipulation offends article 1308 of the Civil Code which provides that "the contract must bind both contracting parties. 4-7) because it lacks mutuality. Wong was substituted by his wife.2 And so it was held in Melencio v. This is of course untenable. 3) should have been annulled along with the four other contracts (Plff Exhs. like the rest of the contracts. the owner would never be able to discontinue it. Baldomar 4 cannot be cited in support of the claim of want of mutuality. because the contract was obtained in violation of the fiduciary relations of the parties. because her consent was obtained through undue influence.554.1 We said in that case: Article 1256 [now art.120." Here. costs against Wong Heng. he is also ordered to pay the sum of P3." The case of Singson Encarnacion v. fraud and misrepresentation. its validity or compliance cannot be left to the will of one of them. 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.

but to hold it as it was before. 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. The ordinary execution of property in custodia legis is prohibited in order to avoid interference with the possession by the court. although admittedly close and confidential."7 The testimony of Atty. in no wise stands in the way of such administration.circumscribed by the term of the contract that it cannot be said that the continuance of the lease depends upon his will. and she went with the contract just the same? A She agreed first . on a verbal month to month contract of lease. Q But. At any rate. in relation to article 1941 of the Civil Code. I don't really know if I have expressed my opinion.6 It is next contended that the lease contract was obtained by Wong in violation of his fiduciary relationship with Justina Santos. . The relationship of the parties. 1957 by force of article 777 of the Civil Code. But the sale made by an heir of his share in an inheritance. Doña Justina. Yumol cannot be read out of context in order to warrant a finding that Wong practically dictated the terms of the contract. Justina Santos became the owner of the entire property upon the death of her sister Lorenzo on September 22. Wong wants must be followed. 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. when she leased the property on November 15. which disqualifies "agents (from leasing) the property whose administration or sale may have been entrusted to them. 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. she did not follow your advice. subject to the result of the pending administration. . interest or participation which he has or might have in the lands under administration. Tomas S. xxx xxx xxx . What this witness said was: Q Did you explain carefully to your client. it is argued that Wong so completely dominated her life and affairs that the contracts express not her will but only his. Just the same. contrary to article 1646. she did so already as owner thereof. Counsel for Justina Santos cites the testimony of Atty." But Wong was never an agent of Justina Santos. 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. the lease is invalid as to such portion. Wong Heng. 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. did not amount to an agency so as to bring the case within the prohibition of the law. but after that. this case would at most justify the fixing of a period5 but not the annulment of the contract. even if no term had been fixed in the agreement. Hence. but I told her that we would rather not execute any contract anymore.

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

Wong stated in his deposition that he did not pay P360 a month for the additional premises leased to him. Neither did it believe his statement that he paid P1. according to her revelation to me. For the testimony just quoted. 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. because she did not want him to. Should they desire to remain here forever and share our fortunes and misfortunes."15 But the lower court set aside all the contracts. but that the amount was returned to him by her for safekeeping. we thought of adoption. What is more. and the fixing of the term of the option at 50 years). Alonzo: The ambition of the old woman. and she considered Wong Heng as a son and his children her grandchildren. the contracts show nothing that is necessarily illegal. while dispelling doubt as to the intention of Justina Santos. before her death. being the adopted child of a Filipino citizen. Filipino citizenship is not impossible to acquire. even to own them. that the contracts (Plff Exhs. 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. the court relied on the testimony of Atty. Since their residence in the Philippines is temporary. Atty. especially her consolation in life was when she would hear the children reciting prayers in Tagalog. but the trial court did not believe him.17 She was very emphatic in the care of the seventeen (17) dogs and of the maids who helped her much. they reveal an insidious pattern to subvert by indirection what the Constitution directly prohibits. Instead. Alonzo declared that he saw no money paid at the time of the execution of the documents. a lease to an alien for a reasonable period is valid. the extension of the lease to 99 years. Register of Deeds:20 [A]liens are not completely excluded by the Constitution from the use of lands for residential purposes. Atty. That is why we thought of the ninety-nine (99) years lease. So is an option giving an alien the right to buy real property on condition that he is granted Philippine citizenship. I would always ask the old woman about them and invariably the old woman used to tell me: "That's okay. by Wong Heng because Doña Justina told me that she did not have any relatives. "The illicit purpose then becomes the illegal causa"19 rendering the contracts void. As this Court said in Krivenko v. they may be granted temporary rights such as a lease contract which is not forbidden by the Constitution. on the ground that they are contrary to the expressed wish of Justina Santos and that their considerations are fictitious. Alonzo in reaching the conclusion that the contracts are void for want of consideration.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. . To be sure. however.000 as consideration for each of the contracts (namely. suffice it to quote the testimony of her own witness and lawyer who prepared the contracts (Plff Exhs. but considered collectively. Taken singly. near or far.18 This is not to say. believing that thru adoption Wong Heng might acquire Filipino citizenship. 3-7) are valid. was to see to it that these properties be enjoyed. with the exception of the lease contract of November 15. 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. and she told me to see to it that no one could disturb Wong Heng from those properties. 1957. the option to buy the leased premises. 4-7) in question. It's all right.

then the Constitutional ban against alien landholding in the Philippines. and the prohibition by law is designed for the protection of the plaintiff.724. he may. Gaw Chee Hun 26 and subsequent similar cases. 13). Exh. 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. a piece of land. 246). without relief. the next day. if public policy is thereby enhanced. 1957 (Plff Exh. And yet this is just exactly what the parties in this case did within the space of one year.23 For another thing. 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.21 this to last for 50 years. which he himself was leasing.25 That policy would be defeated and its continued violation sanctioned if. however. the latter must be considered as pro tanto qualified. Register of Deeds.42 on December 1. It does not follow from what has been said. We are construing the Constitution as it is and not as we may desire it to be. and another pertaining to rentals from the Ongpin property and from the Rizal Avenue property. that because the parties are in pari delicto they will be left where they are. and so on. instead of setting the contracts aside and ordering the restoration of the land to the estate of the deceased Justina Santos. must be denied for lack of merit.928. without costs. The claim for increased rentals and attorney's fees. but also an option to buy. that "When the agreement is not illegal per se but is merely prohibited.007.19. with the result that Justina Santos' ownership of her property was reduced to a hollow concept. jus utendi. recover what he has paid or delivered. as announced in Krivenko v. It is just as if today the possession is transferred. made in behalf of Justina Santos.27 on November 8. we will not attempt to compromise it even in the name of amity or equity . by virtue of which the Filipino owner cannot sell or otherwise dispose of his property. 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. 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. article 1416 of the Civil Code provides. He . 14) . To the extent that our ruling in this case conflicts with that laid down in Rellosa v. 1959 (Def. If this can be done. the disposition. and this is not only cogent but also important. and P18. For one thing. as an exception to the rule on pari delicto. . one pertaining to amount which she entrusted to him from time to time. corporations." The Constitutional provision that "Save in cases of hereditary succession. until ultimately all the rights of which ownership is made up are consolidated in an alien.354. But if this is the solemn mandate of the Constitution. and. 1957 (Plff Exh. And what of the various amounts which Wong received in trust from her? It appears that he kept two classes of accounts. P10. we hold that under the Constitution aliens may not acquire private or public agricultural 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. this Court should apply the general rule of pari delicto. 1957 (Plff Exh. tomorrow. As this Court said in Krivenko: It is well to note at this juncture that in the present case we have no choice. including residential lands. judgment is affirmed. P7. or a total of P70. 16). For all the foregoing. .But if an alien is given not only a lease of. no private agricultural land shall be transferred or assigned except to individuals.22 is indeed in grave peril. accordingly. With respect to the first account.50 on August 26.000 on December 6. the use.

of P9.31 His claim for P9. 6) which shows a balance of P9.000 in his possession.564.000. Sec. and there is no clear proof that Doña Justina had authorized these two to act for her in such liquidation.84 (expenditures) from P70. if he had really settled his accounts with her on August 26. . In his answer.84.442.210.3528 in favor of Justina Santos. that he settled his accounts and that the last amount of P18. as rentals due to her after deducting various expenses. — which was the way she signed the loose sheets.000.564 which. and that from the Rizal Avenue property.235. He made disbursements from this account to discharge Justina Santos' obligations for taxes. . there should be a balance in her favor. 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. nick-named Toning.928.49. . .27 Besides. . his claim of liquidation and settlement of accounts must be rejected. while it is claimed that the expenses were much less than the rentals and there in fact should be a superavit. .000 in the bank and P3.007. but the checks (Def Exhs. This account is contained in a notebook (Def. however. . was P3. .210.442.50 was in fact payment to him of what in the liquidation was found to be due to him. Wong Heng (as substituted by the defendant-appellant Lui She) . 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. for this reason. ACCORDINGLY. he offered to pay this amount if the court so directed him.49 in favor of Wong. . the Court will not adjudicate in favor of Wong Heng on his counterclaim. 69. we think that the claim of Justina Santos totalling P37. of which Wong was the lessee. as a matter of fact. attorneys' fees.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. . there is a difference of P31. the trouble is that they were made only by Francisco Wong and Antonia Matias. 247-278) drawn by him for this purpose amount to only P38. After subtracting P38. 1959 was P1.000 in the bank and P3. added to the amount of P25. The lower court did not allow either party to recover against the other. Exh. Aside from the reasons given by the court. Both parties on appeal reiterate their respective claims but we agree with the lower court that both claims should be denied. leaves a balance of P56. we cannot understand why he still had P22. the reason why she preferred to stay in her home was because there she did not incur in any debts .claims. Said the court: [T]he documents bear the earmarks of genuineness. should be rejected as the evidence is none too clear about the amounts spent by Wong for food29 masses30 and salaries of her maids. 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.19 (receipts). Rule 123 for in the ordinary course of things. that was not what Doña Justina apparently understood for as the Court understands her statement to the Honorable Judge of the Juvenile Court . this being the case. the contracts in question (Plff Exhs. on the contrary if the result of that was a deficit as alleged and sought to be there shown. this Court must concede that daily expenses are not easy to compute. As to the second account.000. On these two grounds. 3-7) are annulled and set aside. on the other hand. therefore. the land subject-matter of the contracts is ordered returned to the estate of Justina Santos as represented by the Philippine Banking Corporation. 1959.210. 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. funeral services and security guard services. the evidence shows that the monthly income from the Ongpin property until its sale in Rizal Avenue July. or a total of P25.120.000 in his possession.

de Ayroso.564. Rollo) From this judgment. 1966. The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.30 per kilo. Salvador Bantug drew the document. 1966. Genoveva Ruiz. to indemnify the offended party in the amount of P559. respondent.: 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..B. Nueva Ecija.. J. and to pay the costs. thereby precluding criminal liability of petitioner for the crime charged. 1984 LOURDES VALERIO LIM. Bengzon. the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco.. six hundred fifteen kilos of leaf tobacco to be sold at Pl. Zaldivar. 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. petitioner. Concepcion. Dizon. Salud Bantug.. C. A. Exhibit "A". Reyes. On January 10.. with subsidize imprisonment in case of insolvency.is ordered to pay the Philippine Banking Corporation the sum of P56. RELOVA. Costs against the defendant-appellant. is a contract of agency to sell or a contract of sale of the subject tobacco between petitioner and the complainant. and the amounts consigned in court by Wong Heng shall be applied to the payment of rental from November 15. Exh. This agreement was made in the presence of plaintiff's sister. with legal interest from the date of the filing of the amended complaint. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1. Salud G.35. Maria de Guzman Vda. dated January 10." (p. 1959 until the premises shall have been vacated by his heirs.50) will be given to her as soon as it was sold.R.50 without subsidiary imprisonment.. . PEOPLE OF THE PHILIPPINES. The findings of facts of the appellate court are as follows: . de Ayroso.30 a kilo. The appellant at that time was bringing a jeep.J. Makalintal. JJ. to indemnify the complainant in the amount of P550." (p. Sanchez and Angeles. which reads: To Whom It May Concern: This is to certify that I have received from Mrs. G. The appellant is a businesswoman. Rollo) The question involved in this case is whether the receipt. L-34338 November 21.P. concur. Maria de Guzman Vda. and the latter's maid.50.L. This was signed by the appellant and witnessed by the complainant's sister. of Gapan. No. The appellant was to receive the overprice for which she could sell the tobacco. 24. Bantug. vs. and the tobacco was loaded in the jeep and brought by the appellant. J. and to pay the costs of suit. 14. J.

Exh. Although the appellant denied that demands for payment were made upon her. Lourdes Valerio Lim poses the following questions of law. 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. and another for P50. Pursuant to this letter. Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto. 1197 of the New Civil Code does not apply" as against the alternative theory of the petitioner that the fore. 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. immediately demandable as soon as the tobacco was sold" (Decision. the appellant had paid to Ayroso only P240. she wrote a letter to Salud Bantug which reads as follows: Dear Salud. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. Salud Bantug.00. and this was paid on three different times. 2. Salud Bantug further testified that she had gone to the house of the appellant several times. the appellant sent a money order for P100. 16.00 on March 8. it is a fact that on October 19. but the appellant often eluded her. the complainant filed a complaint against the appellant for estafa. 1967. and she paid P90.00. Rollo) In this petition for review by certiorari.00 on October 24. Gosto ko Salud ay makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera. 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 . B). 1966.00 on April 18. 2. Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso. 1967. Huwag kang mabahala at tiyak na babayaran kita. (Exh. to wit: 1. Hindi ako nakapunta dian noon a 17 nitong nakaraan. Of the total value of P799. 14. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. dated April 18. As no further amount was paid. Pupunta lang kami ni Mina sa Maynila ngayon. Patnubayan tayo ng mahal na panginoon Dios. p. 6) as against the theory of the petitioner that the obligation does not fix a period. 1967. (pp. or a total of P240. and particularly by her sister. and that the "camarin" the appellant was empty.50. 15. magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. 1967 as evidenced by the receipt Exh. dahil kokonte pa ang nasisingil kong pera. 4.

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. 3-4... that the obligation was immediately demandable as soon as the tobacco was disposed of. (p.L. 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.. Hence. strongly negates transfer of ownership of the goods to the petitioner. in its CA-G. Rollo) It is clear in the agreement. J.30 per kilo and the proceeds to be given to complainant as soon as it was sold. No. L-22558 May 31. Rollo) The fact that appellant received the tobacco to be sold at P1. 28249-R.: Petition for certiorari to review a judgment of the Court of Appeals. LTD. which provides that the courts may fix the duration of the obligation if it does not fix a period. THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO. Certainly. affirming with modification. in its . Article 1197 of the New Civil Code.B. 1967 GREGORIO ARANETA. G. SO ORDERED. the only action that can be maintained is a petition to ask the court to fix the duration of the period. respondent. an amendatory decision of the Court of First Instance of Manila. ACCORDINGLY.. 19.R. 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. and 3. With costs. The appellant is a businesswoman. REYES. the appellant herself admitted that there was an agreement that upon the sale of the tobacco she would be given something. petitioner. 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. or. but it would have been Ayroso who would have gone to the house of the appellant and deliver the tobacco to the appellant. INC. Exhibit "A". J. (pp.. No. the petition for review on certiorari is dismissed for lack of merit. the Court of Appeals correctly resolved the matter as follows: . Araneta and Araneta for petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the same was not sold.R. does not apply. Rosauro Alvarez and Ernani Cruz Paño for respondent. Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling Ayroso's tobacco. it would not have been the appellant who would have gone to the house of Ayroso. vs.

plaintiff. On July 28. Inc. Inc. 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. through 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. M. 1950... 1958. refused to vacate the same. 1äw phï1. on May 7. and upon its termination. Gregorio Araneta. and covered by a Torrens title in its name.. Inc." As found by the Court of Appeals. and the street on the NE side shall be named "Sto. Tuason and Co. finished the construction of Sto. Domingo Church and Convent. by the name of Manuel Abundo. to Philippine Sugar Estates Development Co.4 square meters.. as stipulated in the above- mentioned deed of sale. Defendant Gregorio Araneta. among in the contract of purchase and sale with mortgage. Philippine Sugar Estates Development Co. 36303. 1960). On July 16. praying that the court fix a period within which defendants will comply with their obligation to construct the streets in question." The buyer.) sold a portion thereof with an area of 43. who has been physically occupying a middle part thereof. opposed said motion. but the seller. Tuason & Co. and instance.ñët Plaintiff moved to reconsider and modify the above decision. Ltd. The parties stipulated. Tuason & Co. is the owner of a big tract land situated in Quezon City. Mesa Heights Subdivision.. and/or to pay damages in the event they failed or refused to perform said obligation.034. it dismissed plaintiff's complaint (in a decision dated May 31. entitled "Philippine Sugar Estates Development Co. it (Tuason & Co. Inc.. is unable to finish the construction of the street in the Northeast side named (Sto. and Gregorio Araneta.00. Ltd. more or less.. The issues having been joined. otherwise known as the Sta. which began constructing the streets. for the sum of P430. Inc. Inc. M. 1960. the lower court. 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. seeking to compel the latter to comply with their obligation. M. Both defendants J. the lower court proceeded with the trial. Inc.." issued an order granting plaintiff's motion for reconsideration and amending the dispositive portion of the decision of May 31.514. that the buyer will — Build on the said parcel land the Sto.. Inc. Philippine Sugar Estates Development Co. defendants. the facts of this case are: J. after finding that "the proven facts precisely warrants the fixing of such a period.. Inc.. M.. upholding the defenses interposed by defendant Gregorio Araneta. Domingo Avenue. answered the complaint. and Gregorio Araneta. to read as follows: .. Ltd. hence. filed its complaint against J. Domingo Avenue) because a certain third-party.Civil Case No. versus J. Tuason & Co. Lt. 1960.

. 1960. 1960. Inc. that under the circumstances. a "reasonable time. affirming that of the Court of First Instance is legally untenable. 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. We gave it due course.e. under the amendatory decision of July 16. if the reasonable time had not yet elapsed. Inc. Annex "A". 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. Defendant Gregorio Araneta. 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. In said appellate court. said appellate court rendered its decision dated December 27. as averred in the complaint. On the other hand. 1950. a period of two (2) years from notice hereof. fixing of a period. then the court should declare that petitioner had breached the contract. judgment is hereby rendered giving defendant Gregorio Araneta. Inc. On August 16. If the contract so provided. judgment affirmed and modified. Ltd. presented a motion to reconsider the above quoted order. Under the Deed of Sale with Mortgage of July 28. Inc. on the hypothesis stated. NW and SW sides of the lot in question. which motion. and fix the resulting damages. 1963. We agree with the petitioner that the decision of the Court of Appeals. Inc. resorted to a petition for review by certiorari to this Court. "reasonable time within which to comply with its obligation to construct and complete the streets. 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.. as a consequence. motion. within which to comply with its obligation under the contract. the court perforce was bound to dismiss the action for being premature. herein defendant has a reasonable time within which to comply with its obligations to construct and complete the streets on the NE. Inc's. WHEREFORE. Unsuccessful in having the above decision reconsidered. but whether or not the parties agreed that the petitioner should have reasonable time to perform its part of the bargain. said reasonable time has not elapsed. itself squarely placed said issue by alleging in paragraph 7 of the affirmative defenses contained in its answer which reads — 7. 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. plaintiff opposed. the lower court denied defendant Gregorio Araneta. defendant-appellant Gregorio Araneta. i." 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. 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. Inc. the dispositive part of which reads — IN VIEW WHEREOF. gave petitioner Gregorio Araneta. But in no case can it be logically .. then there was a period fixed. what the answer put in issue was not whether the court should fix the time of performance." Neither of the courts below seems to have noticed that. Ruling on the above contention. contended mainly that the relief granted. and the latter perfected its appeal Court of Appeals. defendant-appellant Gregorio Araneta.

124) says in this respect is that "the proven facts precisely warrant the fixing of such a period. was still pending in the Court of Appeals when its decision in this case was rendered. . the court could not proceed to do so unless the complaint in as first amended. the circumstances admit no other reasonable view. this is not warranted by the Civil Code. As the parties must have known that they could not take the law into their own hands. It is not denied that the case against one of the squatters. on Appeal. 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. for the original decision is clear that the complaint proceeded on the theory that the period for performance had already elapsed. the Court must then proceed to the second step. for Article 1197 is precisely predicated on the absence of any period fixed by the parties. the intervention of the court to fix the period for performance was warranted. The law expressly prescribes that — the Court shall determine such period as may under the circumstances been probably contemplated by the parties. but must resort to legal processes in evicting the squatters. 3). that the contract had been breached and defendant was already answerable in damages. and this very indefiniteness is what explains why the agreement did not specify any exact periods or dates of performance. but must set the time that the parties are shown to have intended. This preliminary point settled. Inc. the complaint not having sought that the Court should set a period. on Appeal. Granting. that it lay within the Court's power to fix the period of performance. the Court can not fix a period merely because in its opinion it is or should be reasonable. 1 and 2). Petitioner's Appendix B. 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. however. since no circumstances are mentioned to support it. 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. So that. pars.held that under the plea above quoted. pp. The list paragraph of Article 1197 is clear that the period can not be set arbitrarily. As the record stands. Plainly. 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). because the fact is expressly mentioned therein (Rec. The Court of Appeals objected to this conclusion that it would render the date of performance indefinite." but from the nature and the circumstances it can be inferred that a period was intended" (Art. par." a statement manifestly insufficient to explain how the two period given to petitioner herein was arrived at. and decide what period was "probably contemplated by the parties" (Do. p. ultimately. the trial Court appears to have pulled the two-year period set in its decision out of thin air. 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. both the trial Court and the Court of Appeals committed reversible error. Abundo. All that the trial court's amended decision (Rec. 1197. Yet. It must be recalled that Article 1197 of the Civil Code involves a two-step process. 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). and in not so holding. 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. In this connection. as contended by the petitioner Gregorio Araneta..

00 a month.4 Another letter of demand from Mrs.. HAROLD M. On 30 August 1980. docketed as Civil . a Saturday. Abra. FELICIANO. J. in the meantime. Mrs. In response. already expirecl.00 deposited by plaintiffs with the court. much less offered.R. No.000. and filed a Complaint 5 (docketed as Civil Case No. prompting them to continue occupying the subject premises and to forego their search for a substitute place to rent. respondents. sometime during the last week of May 1980. Co. 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. Millare filed an ejectment case against the Co spouses in the Municipal Court of Bangued. Costs against respondent Philippine Sugar Estates Development. Under the written agreement. Millare and seeking judgment (a) ordering the renewal of the Contract of Lease at a rental rate of P700. G. In his capacity as Presiding Judge. Mrs. HON.00. So ordered. The variance in versions notwithstanding.00 a month) in court.400.00 a nionth and for a period of ten years.200. as it were. the Co spouses reiterated their unwillingness to pay the Pl. a commercial establishment located at the corner of McKinley and Pratt Streets in Bangued. 2 In contrast. a five-year Contract of Lease 1 was executed between petitioner Pacifica Millare as lessor and private respondent Elsa Co. They also signified their intention to deposit the amount of rentals in court. the lessor allegedly stated that the amount of monthly rentals could be resolved at a later time since "the matter is simple among us". who responded by depositing the rentals for June and July (at 700. the lessor-petitioner agreed to rent out to thelessee at a monthly rate of P350. petitioner. Inc. Second Judicial District. is hereby fixed at the date that all the squatters on affected areas are finally evicted therefrom. the lessor flatly denied ever having considered. Millare's refusal to accept their counter-offer. According to the Co spouses. Abra. and the time for the performance of the obligations of petitioner Gregorio Araneta.00 monthly rentals supposedly sought bv Mrs. Court of Instance of Abra. which alleged remark was supposedly taken by the spouses Co to mean that the Contract of Lease had been renewed.In view of the foregoing. 1434) with the then Court of First Instance of Abra against Mrs. 3 In reply. vs. a renewal of the Contract of Lease. The following Monday. Branch I. L-55480 PACIFICA MILLARE. (b) ordering the defendant to collect the sum of P1. the decision appealed from is reversed. a counteroffer of P700. the Co spouses jumped the gun. HERNANDO. married to Antonio Co. on 1 September 1980. Ltd.200. ANTONIO CO and ELSA CO. the record shows that on 22 July 1980.: On 17 June 1975. in view of Mrs. At this point.00 the "People's Restaurant". which was scheduled to expire on 31 May 1980. Millare was received on 28 July 1980 by the Co spouses. oppressive and contrary to existing laws". The present dispute arose from events which transpired during the months of May and July in 1980. and (c) ordering the defendant to pay damages in the amount of P50.00 a month was made by the Co spouses. 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. as lessee. Millare which they considered "highly excessive.

Prohibition and Mandamus.00 a month. On18 March 1981. 7 In an Order dated 15 October 1980. The spouses Co. Mrs. of that same aftemoon.e. 12 Two issues are presented for resolution: (1) whether or not the trial court acquired jurisdiction over Civil Case No. 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.14 Secondly. respondent judge denied the motion to dismiss and ordered the renewal of the Contract of Lease.m. while defendant Millare was directed to submit her answer to the complaint. Millare filed the instant Petition for Certiorari..m. Millare. of 30 August 1980. 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. 661. private respondents allegedly filed their complaint at 4:00 p. . 13 We would note firstly that the conciliation procedure required under P. 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. subsequently set up lis pendens as a defense against the complaint for ejectment. 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. The Co spouses opposed the motion to dismiss. The defect in procedure admittedly initially present at that particular moment when private respondents first filed the complaint in the trial court. defendants therein. nonetheless.Case No. as required by Section 6 of Presidential Decree No. This Court issued a temporary restraining order on 21 November 1980 enjoining respondent.D. i. and (2) whether or not private respondents have a valid cause of action against petitioner. 8 A motion for reconsideration 9 was subsequently filed which. and fixing monthly rentals thereunder at P700. as attested to by the Barangay Captain in a Certification presented in evidence by petitioner herself. judge from conducting further proceedings in Civil Case No. sut)sequently set up lis pendens as a Civil Case No. petitioner's attack on the jurisdiction of the trial court must fail. 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. though for reasons different from those cited by the respondent judge. was likewise denied. 661. or one hour and twenty minutes before the issuance of the requisite certification by the Lupng Tagapayapa. Mrs. this Court gave due course to the Petition for Certiorari. After attempts at conciliation had proven fruitless. assail the proceedings in the trial court on a technicaety. 1434. before the temporary restraining order could be served on the respondent judge. payable in arrears. 1434. 1508. seeking injunctive relief from the abovementioned orders. Turning to the first issue. on 13 November 1980. Prohibition and Mandamus. in fact. Certifications to File Action authorizing the parties to pursue their respective claims in court were then issued at 5:20 p. defendants therein. however. 11 Apparently. It appears further that both complaints were. 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.D. Furthermore plaintiffs were allowed to deposit all accruing monthly rentals in court. The spouses Co. 10 Hence. 1434. 15 Petitioner would. defendant in Civil Case No. heard by the Lupong Tagapayapa in the afternoon of 30 August 1980. 1508.

just throw-out the plaintiffs-lessees from the leased premises and any time after the original term of the lease contract had already expired. .. It is the defendant-lessor's assertion and position that she can at the mere click of her fingers. reason for which. once expressly . that is. .-" Many business establishments would be closed and the public would directly suffer the direct consequences. no Man should unjustly enrich himself at the expense of another. 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.00".) The respondent judge. there was already a consummated and finished mutual agreement of the parties to renew the contract of lease after five years. this is not the correct concept or perspective the law of lease. In short. except to surrender and vacate the premises mediately. the lessor insists Pl.16 In the "Judgment by Default" he rendered.. Paragraph 13 of the Contract of Lease reads as follows: 13.We turn to the second issue. the defendant-lessor's hostile attitude by imposing upon the lessee herein an "unreasonable and extraordinary gargantuan monthly rental of P1. Nonetheless. is "fly-by night unjust enrichment" at the expense of said lessees. reject and refuse to renew said lease contract. its equivalent to a promise made by the lessor to the lessee. for indeed. urges that under paragraph 13 quoted above. while the lessee is begging P700 a month which doubled the P350 monthly rental under the original contract . This negative position of the defendantlessor. obliges the lessor to fulfill her promise.... 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. the lease contract has never expired because paragraph 13 thereof had expressly mandated that it is renewable. but..200. social justice and equity. and as a unilateral stipulation.200 a month. it is now the negative posture of the defendant-lessor to block.. the respondent Judge elaborated his views — obviously highly emotional in character — in the following extraordinary tatements: However. that is. This contract of lease is subject to the laws and regulations ofthe goverrunent. to the mind of this Court does not conform to the principles and correct application of the philosophy underlying the law of lease. in his Answer and Comment to the Petition. 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. but. 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. the law of lease is impressed with public interest. what is only left unsettled between the parties to the contract of lease is the amount of the monthly rental. (Emphasis supplied. of course the lessor is free to comply and honor her commitment or back-out from her promise to renew the lease contract. 1434 filed by the respondent Co spouses claiming renewal of the contract of lease stated a valid cause of action. 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. under these facts and circumstances surrounding this case. to the mind of this Court. whether or not the complaint in Civil Case No. 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.

00 is contrary to law. The ther terms of the original contract shall be revived. it follows. certainly. Wherefore. 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. the lessor shall not be allowed to evade or violate the obligation to renew the lease because. 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. 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. Failure to reach agreement on the terms and conditions of the renewal contract will of course prevent the contract from being renewed at all. the lessor and the lessee conspicuously failed to reach agreement both on the amount of the rental to be payable during the renewal term. but from its nature and the circumstances it can be inferred that a period was intended. morals. It is understood that there is an implied new lease. 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. We are otherwise unable to comprehend how he arrived at the reading set forth above. the courts shall determine such period as may. In every case. public policy. 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. the contract was not renewed at all. since the Contract of Lease did in fact fix an original period of five years. but rather to the will of both the lessor and the lessee. have been probably contemplated by the parties. 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. Most importantly. (Emphasis suplied. The courts shall also fix the duration of the period when it depends upon the will of the debtor. stipulated.17 Clearly. which had expired. justice and equity because no one should unjustly enrich herself at the expense of another.200. Article 1197 of the Civil Code provides as follows: If the obligation does not fix a period. under the circumstances. (Emphasis supplied. the lessor is guilty of breach of contract: Since the original lease was fixed for five (5) years. 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. there was in fact no contract at all the period of which could have been fixed. Article 1197 applies only where a contract of lease clearly exists. and on the term of the renewed contract.) The first paragraph of Article 1197 is clearly inapplicable. Here. Once fixed by the courts. 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. the bare refusal of the lessor to renew the lease contract unless the monthly rental is P1. In the instant case.00 a month. the respondent judge's grasp of both the law and the Enghsh language is tenuous at best. therefore.) . In other words. not for the period of the original contract but for the time established in Articles 1682 and 1687. good customs. the period cannot be changed by them. the courts may fix the duration thereof.

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

Inc. 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. (price subject to change per advance notice).50 per kg.00 moral damages. holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement. Quantity of Local OCC delivery will be based on the quantity of Test Liner delivered to Megapack Container Corp. Lim sent a letter12 to Arco Pulp and Paper demanding payment of the amount of ?7. Lim filed a complaint14 for collection of sum of money with prayer for attachment with the Regional Trial Court.16 c ralawre d On September 19.13 cralawred Dan T.968. The memorandum of agreement reads as follows: chanRoble svirtual Lawli bra ry Per meeting held at ARCO.000.766. They also argue that there is .9 cralawred On the same day. novation took place.6 cralaw red Dan T. 2007. it was dishonored for being drawn against a closed account. it was only for supplying the parties their required scrap papers. which extinguished Arco Pulp and Paper’s obligation to Dan T. Branch 171. Dan T.. but no payment was made to him. 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.31.. to factories engaged in the paper mill business. based on the above production schedule.00 attorney’s fees.17 cralawred Dan T. Lim. According to him.31 with interest at 12% per annum from the time of demand. Hence. with the assurance that the check would not bounce.11 On May 5.8 When he deposited the check on April 18. on May 28. for his account. Candida A. to Megapack Container for Mr. He argued that if his name was mentioned in the contract. cartons. Arco Pulp and Paper issued a post-dated check dated April 18. On one hand. Santos. the Court of Appeals20 rendered a decision21 reversing and setting aside the judgment dated September 19. full width 76 inches at the price of P18.. Valenzuela City. under the name Quality Paper and Plastic Products.31 to Arco Pulp and Paper Company. Schedule of deliveries are as follows: . Eric Sy’s account.220.968. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM.23 It also ruled that Dan T. 20077 in the amount of P1. Lim. and P50. Lim the amount of P7. it has been mutually agreed between Mrs. total of 600 Metric Tons at P6. Lim appealed18 the judgment with the Court of Appeals.220. P50. Quality Paper and Plastic Products. Lim alleged that when he delivered the raw materials.968. owned by Eric Sy.Dan T. April 18. Arco Pulp and Paper filed its answer15 but failed to have its representatives attend the pre-trial hearing.24 cralaw red Its motion for reconsideration25 having been denied..00 exemplary damages. Candida A. P50. 2013. (Arco Pulp and Paper) through its Chief Executive Officer and President.487. through his company.000. Lim works in the business of supplying scrap papers.26 Arco Pulp and Paper and its President and Chief Executive Officer. 2008.19 cralaw red On January 11. the trial court allowed Dan T. According to the memorandum. Santos and Mr. 2008 and ordering Arco Pulp and Paper to jointly and severally pay Dan T. 2007.000. Lim to present his evidence ex parte.50 per kg. 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. the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint. 2007. 2007. 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. Candida A. the raw materials would be supplied by Dan T. bring this petition for review on certiorari.22 cralawred The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an alternative obligation.68 as partial payment. Lim the value of the raw materials or deliver to him their finished products of equivalent value.4From February 2007 to March 2007. where his conformity through a separate contract was indispensable. Santos. Enterprises.5 The parties allegedly agreed that Arco Pulp and Paper would either pay Dan T.220. 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. he delivered scrap papers worth P7. and other raw materials.

there is more than one object. Santos was solidarily liable with Arco Pulp and Paper Co. as the debtor. would either pay him the price of the raw materials or. which states: chanRoblesvi rtual Lawli bra ry Article 1199.28 He also argues that the Court of Appeals was correct in holding petitioners solidarily liable since petitioner Candida A. and the fulfillment of one is sufficient. Santos personally liable for the transaction that petitioner corporation entered into with respondent. He argues that the Court of Appeals was correct in ordering the payment of ?7. deliver to him the finished products of equivalent value. They also argue that when respondent allowed them to deliver the finished products to Eric Sy.968. the original contract between the parties was for respondent to deliver scrap papers worth P7.31 with damages since the debt of petitioners remains unpaid.”29 c ralawred In their reply. argues that the Court of Appeals was correct in ruling that there was no proper novation in this case.31 cralaw red The issues to be resolved by this court are as follows: chanRoblesvi rt ual Lawlib rary 1. determined by the choice of the debtor who generally has the right of election. 3.”32 The right of election is extinguished when the party who may exercise that option categorically and unequivocally makes his or her choice known. The obligation between the parties was an alternative obligation The rule on alternative obligations is governed by Article 1199 of the Civil Code.35 cralaw red The appellate court. or if impugned by the latter. had the option to either (1) pay the price or (2) deliver the finished products of equivalent value to respondent. whereby petitioner Arco Pulp and Paper. . Santos was “the prime mover for such outstanding corporate liability. after receiving the raw materials from respondent. correctly identified the obligation between the parties as an alternative obligation. therefore. 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. exemplary damages. they exercised their option to pay the price. in the alternative. the original obligation was novated. A person alternatively bound by different prestations shall completely perform one of them. but it was noted without action in view of A. “In an alternative obligation. .31 to petitioner Arco Pulp and Paper. 2000. . The creditor cannot be compelled to receive part of one and part of the other undertaking. on the other hand.M. 27 cralawred Respondent. and attorney’s fees can be awarded The petition is denied. By agreement.. petitioner Arco Pulp and Paper. opportunity to express his consent.220. No.968. Inc. 99-2-04-SC dated November 21. 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. The payment for this delivery became petitioner Arco Pulp and Paper’s obligation. and only after said notice shall the election take legal effect when consented by the creditor. The Court of Appeals.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 . Whether the obligation between the parties was extinguished by novation 2.no legal basis to hold petitioner Candida A. Whether Candida A.34 According to the factual findings of the trial court and the appellate court. petitioners reiterate that novation took place since there was nothing in the memorandum of agreement showing that the obligation was alternative. they allege. 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. Whether moral damages. or to impugn the election made by the debtor. when declared proper by a competent court.220.

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

his conformity to the contract need not be secured. Petitioners are liable for damages Under Article 2220 of the Civil Code. respondent was not privy to the memorandum of agreement. Candida A. must still pay respondent the full amount of P7. 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. thus: chanRoblesv irt ual Lawlib rary In the civil law setting. (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.968.39 (Emphasis supplied) There is nothing in the memorandum of agreement that states that with its execution. It merely shows that petitioner Arco Pulp and Paper opted to deliver the finished products to a third person instead.31.38 (Emphasis supplied) Because novation requires that it be clear and unequivocal. Willfull injury to property may be a legal ground for awarding moral damages if the court should find that. 3) The old contract must be extinguished. These acts. debitum pro debito — basically extinguishing the old obligation for the new one. when taken together. for novation to be a jural reality. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. . which states: chanRoblesvi rtua lLawl ibra ry Per meeting held at ARCO. 2) The parties concerned must agree to a new contract. clearly show that novation did not take place.1) There must be a previous valid obligation. the obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. When respondent sent his letter of demand to petitioner Arco Pulp and Paper. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. Moreover.40 (Emphasis supplied) In this case. Neither of these circumstances is present in this case. thus. At bottom. . it has been mutually agreed between Mrs. It is implied when the new obligation is incompatible with the old one on every point. such damages are justly due. 2007. As this court stated: chanRob lesvi rtual Lawl ibra ry . Petitioner Arco Pulp and Paper. each one with its own independent existence.41 If the memorandum of agreement was intended to novate the original agreement between the parties. its animus must be ever present. therefore. So it is deeply rooted in the Roman Law jurisprudence. it showed that the former neither acknowledged nor consented to the latter as his new debtor. novatio is literally construed as to make new. 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. and not to Eric Sy. 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. Since there was no novation. it is never presumed. Eric Sy. Novation may also be express or implied. It also does not state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as respondent’s debtor. 4) There must be a valid new contract. 2220. respondent must have first agreed to the substitution of Eric Sy as his new debtor.220. petitioner Arco Pulp and Paper’s obligation to respondent remains valid and existing. 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. Santos and Mr. the principle — novatio non praesumitur — that novation is never presumed. The test of incompatibility is whether the two obligations can stand together. . This is clear from the first line of the memorandum. 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. April 18. under the circumstances.

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

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

(2) that they cannot be recovered as a matter of right. acting through its directors. In common law. 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. oppression.51 Business owners must always be forthright in their dealings. obligations incurred by the corporation. In Heirs of Fe Tan Uy v.. oppressive or malevolent manner. wantonness. officer or employee of a corporation is generally not held personally liable for obligations incurred by the corporation. 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. or to confuse legitimate issues. and only after the claimant's right to them has been established. International Exchange Bank. are its sole liabilities. Exemplary damages may also be awarded in this case to serve as a deterrent to those who use fraudulent means to evade their liabilities.. used interchangeably. malice. in general. or as a vehicle for the evasion of an existing obligation. and (3) the act must be accompanied by bad faith or done in a wanton. . . exemplary or corrective damages are intended to serve as a deterrent to serious wrong doings. considering that these obligations were freely entered into by them. 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.] Petitioner Candida A. 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. These terms are generally. The case of People v.50 (Emphasis supplied. attorney's fees and expenses of litigation. Article 2208 of the Civil Code states: chanRoblesvi rt ualLaw lib rary Article 2208. In either case. A director. In the absence of stipulation. gross negligence or recklessness. other than judicial costs. fraudulent. except: (1) When exemplary damages are awarded[. Since the award of exemplary damages is proper. 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.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. the circumvention of statutes. cannot be recovered. Rante citing People v. Dalisay held that:ChanRoblesVi rtua lawlib rary Also known as ‘punitive’ or ‘vindictive’ damages. their determination depending upon the amount of compensatory damages that may be awarded to the claimant. officers and employees.. Following this principle. Nevertheless. these damages are intended in good measure to deter the wrongdoer and others like him from similar conduct in the future. They cannot be allowed to renege on their obligations. attorney’s fees and cost of the suit may also be recovered. insult or fraud or gross fraud—that intensifies the injury. We disagree. 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.The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission of a similar offense. this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an illegal act. from the people comprising it. but not always.

68 issued by [petitioner] Santos was dishonored for being drawn against a closed account. ordinarily. 2013 in Nacar v. that the corporate veil must be pierced. however. Gallery Frames58 c ralawre d In view. or to justify a wrong. Nacar effectively amended the guidelines stated in Eastern Shipping v. however. Gallery Frames. In this instance. Co. the corporate veil may be pierced.53 (Emphasis supplied) As a general rule.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. however. We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor their undertaking in favor of the [respondent]. Here. After the check in the amount of P1. this veil of corporate fiction may be pierced if complainant is able to prove. that (1) the officer is guilty of negligence or bad faith. other unjustifiable aims or intentions. In Livesey v. as in this case. directors. 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. the fiction will be disregarded and the individuals composing it and the two corporations will be treated as identical.Before a director or officer of a corporation can be held personally liable for corporate obligations. and (2) the complainant must clearly and convincingly prove such unlawful acts. Under the doctrine. and (2) such negligence or bad faith was clearly and convincingly proven. petitioner Santos entered into a contract with respondent in her capacity as the President and Chief Executive Officer of Arco Pulp and Paper. or employees of a corporation cannot be held personally liable for obligations incurred by the corporation. 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. [petitioner] corporation denied any privity with [respondent]. to shield or perpetrate fraud or to carry out similar or inequitable considerations. Court of Appeals. However. of the promulgation by this court of the decision dated August 13. This is clear on the face of the check bearing the account name. the corporate existence may be disregarded where the entity is formed or used for non- legitimate purposes. These acts prompted the [respondent] to avail of the remedies provided by law in order to protect his rights.”54 Any obligation arising from these acts would not. We find. stating that: chanRoblesvirtual Lawlib rary In the present case.766. in which case. and petitioner Santos may be held solidarily liable with petitioner Arco Pulp and Paper. When petitioner Arco Pulp and Paper’s obligation to respondent became due and demandable. “Arco Pulp & Paper. The rate of interest due on the obligation must be reduced in view of Nacar v. Inc. She unjustifiably refused to honor petitioner corporation’s obligations to respondent. negligence or bad faith. petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper. such as to evade a just and due obligation. She also issued the check in partial payment of petitioner corporation’s obligations to respondent on behalf of petitioner Arco Pulp and Paper. 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.. 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.56 (Emphasis supplied) According to the Court of Appeals.60 and we have laid down the following guidelines with regard to the rate of legal interest:c hanRoble svirtual Lawlib ra ry . officers. These acts clearly amount to bad faith. Petitioner Santos cannot be allowed to hide behind the corporate veil. 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.57 We agree with the Court of Appeals. or that the officer was guilty of gross negligence or bad faith.487.

in addition to the above. the interest due on the obligation of P7. delicts or quasi-delicts is breached. the rate of legal interest. when respondent sent his letter of demand to petitioners.e.. And.. Roselino Reyes Isler for respondents. . an interest on the amount of damages awarded may be imposed at the discretion of the courtat the rate of 6% per annum. No interest. computed from May 5. L-55138 September 28. the rate of interest.000.220. the petition is DENIED in part.To recapitulate and for future guidance. Petitioners Arco Pulp & Paper Co. and attorney’s fees in the amount of P50. i. where the demand is established with reasonable certainty. citations omitted.000. Civil Code). above. in any case. be on the amount finally adjudged. the contravenor can be held liable for damages. 1984 ERNESTO V. 2007. contracts. 2013. vs. G. petitioner.31 with interest of 6% per annum at the time of demand until finality of judgment and its full satisfaction. When the judgment of the court awarding a sum of money becomes final and executory.000. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages. the interest due shall itself earn legal interest from the time it is judicially demanded.968.00. Inc. however. a loan or forbearance of money. When the obligation is breached. shall be adjudged on unliquidated claims or damages. 95709 is AFFIRMED.00. Santos are hereby ordered solidarily to pay respondent Dan T. judgments that have become final and executory prior to July 1. but when such certainty cannot be so reasonably established at the time the demand is made. Accordingly. is breached.61 (Emphasis supplied. In the absence of stipulation.e. II. Fortun for petitioner. This interest shall continue to be due from the finality of this decision until its full satisfaction.00. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.e. HONORABLE COURT OF APPEALS AND ANTONIO P. 1169. When an obligation.220. SO ORDERED. the rate of interest shall be 6% per annum to be computed from default. Furthermore. regardless of its source. The decision in CA-G. SO. No. shall be 6% per annum from such finality until its satisfaction. as follows: 1. respondents. and it consists in the payment of a sum of money. as follows: I.. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. Gloria A. the interest due should be that which may have been stipulated in writing. quasi-contracts. whether the case falls under paragraph 1 or paragraph 2.. as well as the accrual thereof.) According to these guidelines. 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). i.31 should now be at 6% per annum. shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. i. The actual base for the computation of legal interest shall. WHEREFORE.R. with moral damages in the amount of P50.R. the guidelines laid down in the case of Eastern Shipping Lines are accordingly modified to embody BSP-MB Circular No. With regard particularly to an award of interest in the concept of actual and compensatory damages. and Candida A. law. not constituting a loan or forbearance of money. exemplary damages in the amount of P50. 799. 2. this interim period being deemed to be by then an equivalent to a forbearance of credit. RONQUILLO. except when or until the demand can be established with reasonable certainty. When an obligation. is imposed. 3. Lim the amount of P7. CV No.968.

defendants individually and jointly agree to pay within a period of six months from January 1980.498-95 to only P11. Petitioner then prayed that private respondent be ordered to accept his payment in the amount of P13.498.00. denying petitioner's motion for reconsideration of the above resolution. Because private respondent refused to accept their payments. 33958 of the then Court of First Instance of Rizal (now the Regional Trial Court). Pilar P. herein private respondent (then plaintiff filed a Motion for Execution on the ground that defendants failed to make the initial payment of P55. demanding from them the full initial installment of P 55.000.00 and defendants agree to acknowledge the validity of such claim and further bind themselves to initially pay out of the total indebtedness of P10. 1979. Johnny Tan and Pilar Tan. as his prorata share in the P55.750.000. 1980.000. The amount of P117. the pertinent portion of which reads as follows: 1. SP-10573.000. for the collection of the sum of P17.. Petitioner Ernesto V. execution fees and other fees related with the execution.000. 1979. petitioner and Pilar Tan instead deposited the said amount with the Clerk of Court.00 on or before December 24.00. On December 13.: This is a petition to review the Resolution dated June 30.750. 1979. The said checks were dishonored by the drawee bank. petitioner. 1979.98 plus attorney's fees and costs. (Emphasis supplied) xxx xxx xxx 4. xxx xxx xxx On December 26. Tan.R. 3 . The other defendants were Offshore Catertrade Inc. etc. the lower court rendered its Decision 1 based on the compromise agreement submitted by the parties.00." and the Order of said court dated August 20. So. 1980 of the then Court of Appeals (now the Intermediate Appellate Court) in CA-G. The amount deposited was subsequently withdrawn by private respondent. tendered the amount of P13.00 initial payment. on July 23. J.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. Branch XV filed by private respondent Antonio P. 1979 as provided in the Decision. entitled "Ernesto V.CUEVAS. 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. 1979. as one of the four defendants. Plaintiff agrees to reduce its total claim of P117. 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 24.000. 1980. 2 During the hearing of the Motion for Execution and the Opposition thereto on January 16.00 the amount of P55.00.00 on or before December 24. or before June 30. Ronquillo was one of four (4) defendants in Civil Case No.498. Another defendant. Ronquillo versus the Hon. offered to pay the same amount. Florellana Castro-Bartolome. That both parties agree that failure on the part of either party to comply with the foregoing terms and conditions. the balance of P55.000 . No. 1980.

1980 at 8:30 a. petitioner moved for the reconsideration of the above order. On April 2. a writ of execution was issued for the satisfaction of the sum of P82.00 as against the properties of the defendants (including petitioner)." 6 On March 20. 1980 a petition for certiorari and prohibition with the then Court of Appeals (CA-G. of the same day. 1980. SP-10573).500. let writ of execution issue as prayed for On March 17. . for the sale of certain furnitures and appliances found in petitioner's residence to satisfy the sum of P82. No. 1980 which was set for hearing on March 25. 1980. petitioner filed on March 26.500. April 2. 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. On January 22. Offshore Catertrade Inc. There appears to be a non-payment in accordance with the compromise agreement of the amount of P27. "singly or jointly hable. 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.500. 1980. 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. praying at the same time for the issuance of a restraining order to stop the public sale. the lower court issued an Order reading as follows: ORDER Regardless of whatever the compromise agreement has intended the payment whether jointly or individually. 1980. January 16. On March 17.m.m. 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. Meanwhile.m. 1980. The public sale was scheduled for April 2. and the same was set for hearing on March 25. the fact is that only P27. 1980 at 8:30 a.00. He raised the question of the validity of the order of execution.m. 1979. 1980. and Johnny Tan 4 who did not pay their shares. 7 Petitioner's motion for reconsideration of the Order of Execution dated March 17.00 on or before December 24. 1980. Realizing the actual threat to property rights poised by the re-setting of the hearing of s motion for reconsideration for April 2. 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. issued a notice of sheriff's sale. or more specifically on March 19. Special Sheriff Eulogio C.00 has been paid. 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 ordered the issuance of a writ of execution for the balance of the initial amount payable. Juanson of Rizal.On the same day. jointly and severally. against the other two defendants.500.R. or jointly and severally. WHEREFORE. 1980. consequently each defendant is obliged to pay only his own pro-rata or 1/4 of the amount due and payable. 1980 at 10:00 a." 5 Petitioner opposed the said motion arguing that under the decision of the lower court being executed which has already become final. the liability of the four (4) defendants was not expressly declared to be solidary. 1980. was upon motion of private respondent reset to April 2.1980.

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

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

"separately". 119599. J. by the express term of the compromise agreement and the decision based upon it. [G. 15 In the case of Parot vs.00. the balance of P55.00 and defendants agree to acknowledge the validity of such claim and further bind themselves to initially pay out of the total indebtedness of P110. No. 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".171 metric tons of soya bean meal which was loaded on board the ship MV Al Kaziemah on or about September 8.R. An agreement to be "individually liable" undoubtedly creates a several obligation. The term "individually" has the same meaning as "collectively". 1997] MALAYAN INSURANCE CORPORATION. Brazil. petitioner. to the port of Manila.: Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G. defendants individually and jointly agree to pay within a period of six months from January 1980 or before June 30. March 20. the amount of P5. respondents. Plaintiff agrees to reduce its total claim of P117. Branch 15. the defendants obligated themselves to pay their obligation "individually and jointly". 1980.000. vs. 1989 for carriage from the port of Rio del Grande.95 to only P110. Cost against petitioner. respectively or "severally".000. SO ORDERED.189. with slight modification. "distinctively". the instant petition is hereby DISMISSED. was the owner/consignee of some 3. IN VIEW OF THE FOREGOING CONSIDERATIONS. COURT OF APPEALS and TKC MARKETING CORPORATION. (Emphasis supply) Clearly then.000. 1979.000. THE HON. 43023 which affirmed. 1. the [1] decision of the Regional Trial Court of Cebu.00 on or before December 24. 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. Said cargo was insured against the risk of loss by petitioner Malayan Insurance Corporation for which . DECISION ROMERO.R. 14 and a "several obligation is one by which one individual binds himself to perform the whole obligation." Likewise in Un Pak Leung vs. No. the same is therefore enforceable against one of the numerous obligors. Private respondent TKC Marketing Corp.00.498.

This prompted private respondent to file a complaint for damages praying that aside from its claim. for non-delivery of the cargo. South Africa on September 11. advised petitioner that it might tranship the cargo and requested an extension of the insurance coverage until actual transhipment.195. covering the period October 4-December 19. the cargo was sold in Durban.88.879. aside from the insurance claim. it be reimbursed the amount of P128. 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.000.it issued two (2) Marine Cargo Policy Nos.886.886. exemplary damages amounting to P200. for US$154.928. While the vessel was docked in Durban.00) representing private respondent's loss after the proceeds of the sale were deducted from the original claim of $916.806.304.66 or P20.024. both dated September 1989.159.00 and attorney's fees equivalent to 30% of what will be awarded by the court. On January 5.269. exemplary damages amounting .005. In addition. which extension was approved upon payment of additional premium. Private respondent likewise sought the assistance of petitioner on what to do with the cargo.45 and M/LP 97800306 amounting to P1. accordingly. private respondent asked for moral damages amounting to P200. However. 1990. 1989.66.233.30.770. the civil authorities arrested and detained it because of a lawsuit on a question of ownership and possession. 1989 of the arrest of the vessel and made a formal claim for the amount of US$916.88 as legal expenses and the interest it paid for the loan it obtained to finance the shipment totalling P942. Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies.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.09 (or its peso equivalent of P9.40 per metric ton or a total of P10. 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. consequential and liquidated damages amounting to P1. 1989 enroute to Manila. The lower court decided in favor of private respondent and required petitioner to pay.0138 per $1. M/LP 97800305 amounting to P18. representing the dollar equivalent on the policies. 1989. private respondent forthwith reduced its claim to US$448.000. Private respondent.986.184.45.902.55. private respondent notified petitioner on October 4.89 at the exchange rate of P22.00. As a result. on December 11.231.

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

"arrests" should be strictly interpreted against it because the rule is that any ambiguity is to be taken contra proferentum. It also argued that petitioner. 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. petitioner supported private respondent by accommodating the latter's request for an extension of the insurance coverage. for the first time. Private respondent. Even if inquiry into the facts were possible. petitioner did not raise as an issue the award of exemplary damages. As to the third issue. argued that when it appealed its case to the Court of Appeals. As to the second assigned error. on the other hand. . (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. detention or seizure of the ship. 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 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. 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. raise the same before this Court. Risk policies should be construed reasonably and in a manner as to make effective the intentions and expectations of the parties. In assigning the first error. In giving undue reliance to the doctrine that insurance policies are strictly construed against the insurer.4. It cannot now. In fact. 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. Likewise. 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. (c) the rationale for the exclusion of an arrest pursuant to judicial authorities is to eliminate collusion between unscrupulous assured and civil authorities. notwithstanding that it was then under no legal obligation to do so.

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

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

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

also those caused by ordinary legal processes."[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. Clause which excludes risks of arrest occasioned by executive or political acts of the government and naturally.C. Any [10] construction of a marine policy rendering it void should be avoided. & S. deletes the F. Likewise. If the risk of arrest occasioned by ordinary judicial process was expressly indicated as an exception in the subject policies. or exemption.1 of Section 1 of said Clauses should also have included "arrests" previously excluded from the coverage of the F. Clause.C. should.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. by all means. exception. Clause and the consequent incorporation of subsection 1.1 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. [12] If a marine insurance company desires to limit or restrict the operation of the general provisions of its contract by special proviso. be avoided.1 of Section 1 of the Institute War Clauses (Cargo) was to include "arrest.warlike operations x x x" In the same vein. thereafter incorporates subsection 1. as to lead to an absurd conclusion or to render the policy nonsensical. It has been held that a strained interpretation which is unnatural and forced. & S. Such [11] policies will. be construed strictly against the company in order to avoid a forfeiture. there would have been no controversy with respect to the interpretation of the subject clauses. Clause and the [13] consequent incorporation of subsection 1. even if it were not a result of hostilities or warlike operations.C. unless no other result is possible from the language used. Obviously. it should express such limitation in clear and unmistakable language. it contended that subsection 1. 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. therefore. & S. the deletion of the F.C. and. & S. etc. 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. .1 of Section 1 of the Institute War Clauses (Cargo) gave rise to ambiguity.

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

nothing improper in the creditor's filing of an action against the surviving solidary debtors alone. 107 Phil. 891 at 897. without prejudice to the right of the estate to recover contribution from the other debtor. this Court ruled: Construing Section 698 of the Code of Civil Procedure from whence the aforequoted provision (Sec. Solidary obligation of decedent. Inc. should the creditor choose to demand payment from the latter. the death of one defendant deprives the court of jurisdiction to proceed with the case against the surviving defendants. after the plaintiff had presented its evidence) and therefore the complaint. In a joint obligation of the decedent. 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. some or all of its solidary debtors under Article 1216 of the Civil Code — ART. the whole indebtedness can be proved against the estate of the latter. the same will be barred as against the estate. 6..: 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. one of the defendants dies.— the obligation of the decedent is solidary with another debtor. Thus in Manila Surety & Fidelity Co. being a money claim based on contract. the court retains jurisdiction to continue the proceedings and decide the case in respect of the surviving defendants. as he deems fit or convenient for the protection of his interests.e. the decedent's liability being absolute and primary. during its pendency. invoking its right of recourse against one. 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.. and if the claim is not presented within the time provided by the rules. and if. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others. the claim shall be filed against the decedent as if he were the only debtor. Villarama et al. 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. the Civil Code expressly allows the creditor to proceed against any one of the solidary debtors or some or all of them simultaneously. Upon the other hand. 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. Rule 86) was taken. after instituting a collection suit based on contract against some or all of them and. some or all of his solidary debtors. therefore. 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. vs. the claim shall be confined to the portion belonging to him. The appellant assails the order of dismissal. 1216. so long as the debt has not been fully collected.. It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek satisfaction of his credit from one. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. this Court held that where two persons are bound in solidum for the same debt and one of them dies. J. There is. 6.PLANA. instead of instituting a proceeding . 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.

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

No. 2010.  ABAD. CARPIO MORALES. . .R. ROLITO CALANG and G. J. -. to challenge our Resolution of February 17. Inc. Philtranco Service Enterprises. and VILLARAMA. JJ. Respondent.... INC.: We resolve the motion for reconsideration filed by the petitioners. 2010 x----------------------------------------------------------------------------------------- x RESOLUTION BRION. BRION.- Promulgated: August 3. Present: Petitioners. 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. Chairperson. 190696 PHILTRANCO SERVICE ENTERPRISES. JR. PEOPLE OF THE PHILIPPINES. (Philtranco) and Rolito Calang. versus - BERSAMIN. J.

The prosecution charged Calang with multiple homicide. According to the CA. in its decision dated May 21. Samar when its rear left side hit the front left portion of a Sarao jeep coming from the opposite direction. and sentenced him to suffer an indeterminate penalty of thirty days of arresto menor. 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 RTC. 7001.R. a bystander who was standing along the highways shoulder. to four years and two months of prision correccional. 2001. jointly and severally. found Calang guilty beyond reasonable doubt of reckless imprudence resulting to multiple homicide. As a result of the collision. were instantly killed. Armando Nablo and an unidentified woman.000. The CA further ruled that Calang demonstrated a reckless . Rolito Calang was driving Philtranco Bus No.00 as death indemnity to the heirs of Armando. 2009.m. Branch 31. multiple serious physical injuries and damage to property thru reckless imprudence before the Regional Trial Court (RTC). Cresencio Pinohermoso.93 as actual damages to the private complainants. Sta. and bumped and killed Jose Mabansag. The jeep turned turtle three (3) times before finally stopping at about 25 meters from the point of impact. and P90. to pay P50. as maximum. as minimum.00 as death indemnity to the heirs of Mabansag. the jeeps driver.000. affirmed the RTC decision in toto. despite admitting that he had already seen the jeep coming from the opposite direction when it was still half a kilometer away. 25522.Antecedent Facts At around 2:00 p. Two of the jeeps passengers. The petitioners appealed the RTC decision to the Court of Appeals (CA). owned by Philtranco along Daang Maharlika Highway in Barangay Lambao. multiple physical injuries and damage to property. 1989. lost control of the vehicle. In addition. P50. docketed as CA-G. Margarita. CR No. he failed to slacken his speed. while the other passengers sustained serious physical injuries. The RTC ordered Calang and Philtranco. of April 22. The CA ruled that petitioner Calang failed to exercise due care and precaution in driving the Philtranco bus. Calbayog City. The CA.083. in its decision dated November 20.

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. hence. for failing to prove that it had exercised the diligence of a good father of the family to prevent the accident. despite knowing that it was suffering from loose compression. the traffic accident sketch and report. supported by documentary exhibits. We partly grant the motion. The petitioners filed with this Court a petition for review on certiorari. 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. In our Resolution dated February 17. which. not roadworthy.attitude when he drove the bus. The CA added that the RTC correctly held Philtranco jointly and severally liable with petitioner Calang. 2010. such as the affidavit and testimony of witness Celestina Cabriga. and the jeepneys registration receipt. 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. if considered. would have shown that Calang was not negligent. The petitioners likewise maintain that the courts below overlooked several relevant facts. .

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

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

R.[4] WHEREFORE.00. vs. J. (Transworld) jointly and severally liable to respondent Adworld Sign and Advertising Corporation (Adworld) for damages. ₱72. Respondents. No costs. x 60 ft.00 for indemnity for loss of income. As Adworld’s final demand letter also went unheeded. The Court of Appeals decision that affirmed in toto the RTC decision. 2003. 2009 of the Regional Trial Court of Makati City. is AFFIRMED. No.hearing set for that precise purpose. DECISION PERLAS-BERNABE. comprised of ₱281. billboard structure located at EDSA Tulay. SO ORDERED. finding Rolito Calang guilty beyond reasonable doubt of reckless imprudence resulting in multiple homicide. the adjacent billboard structure owned by Transworld and used by Comark collapsed and crashed against it. Adworld alleged that it is the owner of a 75 ft. multiple serious physical injuries and damage to property. ADWORLD SIGN AND ADVERTISING CORPORATION* and TRANSWORLD MEDIA ADS. and ₱121. G. refused and failed to pay the amounts demanded by Adworld. 03-1452 holding.5 In the complaint. Inc.204. 2003. 94693 which affirmed the Decision4dated August 25.00 for materials. we PARTLY GRANT the present motion. On August 29. praying for damages in the aggregate amount of ₱474.: Assailed in this petition for review on certiorari1 are the Decision2 dated November 16. inter alia. on August 11. 2012 of the Court of Appeals (CA) in CA-G. CV No. Adworld sent Transworld and Comark a letter demanding payment for the repairs of its billboard as well asloss of rental income. Resultantly. which was misaligned and its foundation impaired when. it was constrained to file the instant complaint. Branch 142 (RTC) in Civil Case No. with the MODIFICATION that Philtrancos liability should only be subsidiary.6 . petitioner Ruks Konsult and Construction (Ruks) and respondent Transworld Media Ads.000. Transworld sent its reply.000. Petitioner. Guadalupe. Barangka Mandaluyong. 2011 and the Resolution3dated December 10.R.204. 204866 January 21. but nevertheless.. as part of the proceedings for the execution of the judgment. 2015 RUKS KONSULT AND CONSTRUCTION. with due notice to the employer. INC. 2003. on August 19.00 for labor. The Facts The instant case arose from a complaint for damages filed by Adworld against Transworld and Comark International Corporation (Comark) before the RTC. admitting the damage caused by its billboard structure on Adworld’s billboard.

The CA Ruling In a Decision19 dated November 16. Transworld and Ruks jointly and severally liable to Adworld in the amount of ₱474. and yet. however. such as Adworld’s billboard. the company which built the collapsed billboard structure in the former’s favor.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. prone to collapse. thus. No.00 as actual damages. and accordingly. Comark denied liability for the damages caused to Adworld’s billboard structure. Subsequently. 197601 declaring the Court’s November 23. It contended that when Transworld hired its services.R. In a Resolution dated February 3. maintaining that it does not have any interest on Transworld’s collapsed billboard structure as it only contracted the use of the same. 2009.8 Lastly. the RTC ultimately ruled in Adworld’s favor. No. 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. 2011. docketed as G.16 However. Ruks admitted that it entered into a contract with Transworld for the construction of the latter’s billboard structure. the Court issued an Entry of Judgment18 dated February 22.12 In particular. 197601. Notwithstanding. but denied liability for the damages caused by its collapse. It found that Transworld failed to ensure that Ruks will comply with the approved plans and specifications of the structure. Ruks proceeded with the construction of the billboard’s upper structure and merely assumed that Transworld would reinforce its lower structure. 2012 in G. and as such.13 The RTC then concluded that these negligent acts were the direct and proximate cause of the damages suffered by Adworld’s billboard. plus attorney’s fees in the amount of ₱50.00. both Transworld and Ruks appealed to the CA. Ruks should ultimately be held liable for the damages caused to Adworld’s billboard structure. in a Resolution17 dated November 23. they did not do anything to remedy the situation. the CA dismissed Transworld’s appeal for its failure to file an appellant’s brief on time. 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 its Answer with Counterclaim.000. Transworld averred that the collapse of its billboard structure was due to extraordinarily strong winds that occurred instantly and unexpectedly.20 .204.7 For its part. inter alia. and maintained that the damage caused to Adworld’s billboard structure was hardly noticeable. 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.15 Transworld elevated its case before the Court. It was alleged therein that the structure constructed by Ruks had a weak and poor 1âw phi1 foundation not suited for billboards.14 Aggrieved. the CA denied Ruks’s appeal and affirmed the ruling of the RTC. and that Ruks continued to install and finish the billboard structure despite the knowledge that there were no adequate columns to support the same.R. In this relation. 2011 Resolution final and executory. 2011.9 The RTC Ruling In a Decision10 dated August 25. with legal interest from the date of the filing of the complaint until full payment thereof. Comark prayed for exemplary damages from Transworld for unreasonably includingit as a party-defendant in the complaint. Transworld likewise filed a Third-Party Complaint against Ruks. 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. declared. 2011.

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

: These two cases. and that the duty owed by them to the injured person was not same. intervenor-appellant.had performed the wrongful act themselves. vs.. No. The Decision dated November 16. FAUSTINO ESPIRITU. Velasco31 is instructive on this matter. plaintiff-appellee. Each wrongdoer is responsible for the entire result and is liable as though his acts were the sole cause of the injury. . the CA correctly affirmed the ruling of the RTC declaring Ruks jointly and severally liable with Transworld for damages sustained by Adworld. There is no contribution between joint [tortfeasors] whose liability is solidary since both of them are liable for the total damage. C. 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.R. vs. 28497 and 28948. No. SO ORDERED. WHEREFORE. Where the concurrent or successive negligent acts or omissions of two 1âwphi1 or more persons. were tried together. 2011 and the Resolution dated December 10.. J. 2012 of the Court of Appeals in CA-G. L-28497 November 6. x x x. although acting independently. INC. AVANCEÑA. B. it is impossible to determine in what proportion each contributed to the injury and either of them is responsible for the whole injury. Ernesto Zaragoza and Simeon Ramos for defendant-appellant.R. 1928 THE BACHRACH MOTOR CO. FAUSTINO ESPIRITU. L-28498 November 6. 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. (Emphases and underscoring supplied) In conclusion. defendant-appellant."30 The Court’s pronouncement in People v. INC. Nos. defendant-appellant. plaintiff-appellee. are in combination the direct and proximate cause of a single injury to a third person. the petition is DENIED. Benito Soliven and Jose Varela Calderon for intervenor-appellant.. CV No.R. ------------------------------ G. 1928 THE BACHRACH MOTOR CO. it may appear that one of them was more culpable. and ROSARIO ESPIRITU. 94693 are hereby AFFIRMED.. Francisco for appellee. G. No actor's negligence ceases to be a proximate cause merely because it does not exceed the negligence of other actors.

and were only put in later. 25 per cent thereon. But the evidence shows that while the intervenor Rosario Espiritu did not sign the two mortgage deeds (Exhibits A and C). respectively.269.28 with interest at 12 per cent per annum from December 1. all of them together bringing in. and 25 per cent thereof in addition as penalty. and that as the latter did not sign the mortgage deeds.net While these two cases were pending in the lower court the mortgaged trucks were sold by virtue of the mortgage. Rosario Espiritu appeared in these two cases as intervenor. Besides. an employee of the plaintiff's written a few days before the transaction. which the defendant executed in favor of the plaintiff.732.09 with interest at the rate of 12 per cent per annum from May 1. he signed the two promissory notes (Exhibits B and D) secured by these two mortgages. and when the trucks . because. in connection with case 28497. 1925. and all of the White make (Exhibit A). All these instruments were executed at the same time. as penalty. lawphi1. yet. 1926 until fully paid. and after having deducted the P500 cash payment and the 12 per cent annual interest on the unpaid principal. the defendant sold his rights in said trucks Nos. In addition to the mortagage deeds referred to.28 of this sum. 1925 until fully paid. The appellants contend that trucks 77197 and 92744 were not mortgaged. 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). such trucks cannot be considered as mortgaged. In connection with case 28498. besides. The defendant failed to pay P4. that on July 28. 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. which appear to have been mortgaged by the defendants to the plaintiff. To secure the payment of this sum. the defendants mortgaged the said truck purchased and. These two trucks had been purchased from the same plaintiff and were fully paid for by the defendant and his brother Rosario Espiritu. The defendant failed to pay P10.983. 1925 the defendant bought a one- ton White truck of the plaintiff corporation for the sum of P7.136. in the mortgage (Exhibit H-I). 77197 and 92744 to the intervenor. To secure this payment the defendant mortgaged to the plaintiff corporation the said truck purchased and two others. two of which are numbered 77197 and 92744 respectively. three others.50. the trial court ordered the defendant and the intervenor to pay plaintiff the sum of P4. alleging to be the exclusive owner of the two White trucks Nos.82 of the price secured by this mortgage.208. and obligating himself to pay the remaining P10. In case 28498. it appears that on February 18. without defendant's knowledge. after deducting the sheriff's fees and transportation charges to Manila. Appellants also alleged that on February 4. and 25 per cent thereon as penalty.477.000 down to apply on account of this price.50. there were presented two of defendant's letters to Hidalgo.It appears. and in case of non-payment of the total debt upon its maturity. acquiescing in the inclusion of all his White trucks already paid for. obligated himself to make payment of this sum within the periods agreed upon. But there is positive proof that they were included at the time the defendant signed these documents. The judgment appealed from ordered the defendants and the intervenor to pay plaintiff in case 28497 the sum of P7. paying P1.208.50 within the periods agreed upon. when the defendant signed the mortgage deeds these trucks were not included in those documents. the same that were mortgaged in the purchase of the other truck referred to in the other case.983. the net sum of P3. together with the defendants Faustino Espiritu.58. 1925 the defendant Faustino Espiritu purchased of the plaintiff corporation a two-ton White truck for P11. numbered 77197 and 92744. 77197 and 92744.

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

In the Court's resolution of October 20. We gave due course to the Petition only as regards the portion of the decision awarding nominal damages. Caloocan City. (record on appeal.000. Block No. 1971. 1973.63 with interest at 4% per annum from June 22. p. 11 of its Franville Subdivision. In either case. to pay plaintiff the value of the lot which should not be . defendant is hereby sentenced to pay plaintiff the sum of P5.000. docketed therein as Civil Case No. On March 2. Caloocan City.000. 20. situated in Barrio Camarin. 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.000. (rollo.00. Caloocan City. Branch XXXIV. 9) Notwithstanding the lapse of the above-mentioned stipulated period of six (6) months.193. 21) Petitioner corporation questions the award for nominal damages of P20. The deed of absolute sale contained. if. 1 The following incidents are not in dispute: In May 1962 Robes-Francisco Realty & Development Corporation. 1975. this not possible. a parcel of land containing an area of approximately 276 square meters. plus an interest at the rate of 4% per annum. Deeds of Caloocan City and secure the corresponding title in the name of plaintiff within ten (10) days after finality of this decision. p.00 and costs.00 plus attorney's fee in the amount of P5. SO ORDERED.63 including interests and expenses for registration of title. or. 2 Millan complied with her obligation under the contract and paid the installments stipulated therein. hence. should this be not possible. agreed to sell to private respondent Lolita Millan for and in consideration of the sum of P3. defendant is sentenced to pay plaintiff nominal damages in the amount of P20. the parties executed a deed of absolute sale of the aforementioned parcel of land. 1974 a complaint for specific performance and damages against Robes-Francisco Realty & Development Corporation in the Court of First Instance of Rizal. 1975. known as Lot No. 1972 until fully paid. now petitioner. 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.00 which are allegedly excessive and unjustified. among others.193. 4 The complaint prayed for judgment (1) ordering the reformation of the deed of absolute sale. the final payment having been made on December 22.00 and attorney's fee of P5. payable in installments. the latter filed on August 14. it shall bear the obligation to refund to the VENDEE the total amount already paid for. for any reason. C-3268.864.3 Thereafter. the corporation failed to cause the issuance of the corresponding transfer certificate of title over the lot sold to Millan. February 11. (2) ordering the defendant to deliver to plaintiff the certificate of title over the lot free from any lien or encumbrance. The vendee made a total payment of P5.

the circumstances of the case warrant a reduction of the amount of P20. Article 170 of the Civil Code expressly provides that those who in the performance of their obligations are guilty of fraud. for very obvious reasons. hence. the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance. .00 granted to private respondent Millan. on February 11.00 (allegedly the present estimated value of the lot).600. amounting to nonperformance of its obligation. the vendee is bound by the terms of the provision and cannot recover more than what is agreed upon. 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. 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. 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. for even without it. are liable for damages. the vendee. now private respondent. in issuing the transfer certificate of title to vendee Millan who had fully paid up her installments on the lot bought by her. rendered judgment the dispositive portion of which is quoted in pages 1 and 2 of this Decision. it shall refund to the vendee the total amount paid for with interest at the rate of 4% per annum. Presumably. Unfortunately. 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. There can be no dispute in this case under the pleadings and the admitted facts that petitioner corporation was guilty of delay. Nevertheless.00. and (3) ordering the defendant to pay plaintiff damages. if there is no stipulation to the contrary.less than P27. negligence. The foregoing argument of petitioner is totally devoid of merit. corrective and actual in the sum of P15 000. however. 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. 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). pursuant to Article 2209 of the Civil Code. said clause does not convey any penalty.000. petitioner in invoking Article 1226 of the Civil Code which provides that in obligations with a penal clause. 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. We would agree with petitioner if the clause in question were to be considered as a penal clause. 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. or delay. In fact the clause is so worded as to work to the advantage of petitioner corporation. We hold that the trial court did not err in awarding nominal damages. for the delay in the issuance of the title. Nonetheless. 1975. the trial court. and those who in any manner contravene the tenor thereof.

The pertinent provisions of our Civil Code follow: Art. the Court stating inter alia that the amount cannot. 2d 796-797. this Court." while in the case of Commissioner Cuenca. be demeed "nominal". Nominal damages are adjudicated in order that a right of the plaintiff. the assessment of damages being left to the discretion of the court according to the circumstances of the case. Kidd Springs Boating and Fishing Club. v. 2222.000. 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. viz: Northwest Airlines.000. They are recoverable where some injury has been done the amount of which the evidence fails to show. 1965. The court may award nominal damages in every obligation arising from any source enumerated in article 1157. and are allowed.000. sustained an award of P20. or in every case where any property right has been invaded. in such case. Art. however. the law presumes a damage. 12 At any rate.000. the P10. Nicolas L.00 as "nominal". citing 17 C. which has been violated or invaded by the defendant." 11 Actually. through then Justice Roberto Concepcion who later became Chief Justice of this Court. 720. Inc. but simply in recogniton of the existence of a technical injury. 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. (Fouraker v. this Court had occasion to eliminate an award of P10. 1956. 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. et al. if based upon the violation of a legal right. Article 2221 of the Civil Code. in Vda. as explained in the Court's decision in Northwest Airlines. moral. de Medina. The Court there found special reasons for considering P20. W. . 2221. in common sense. et al. and not for the purpose of indemnifying the plaintiff for any loss suffered by him. 65 S. 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. there is no conflict between that case and Medina. for in the latter.000. not as an equivalent of a wrong inflicted.00 as compensatory damages. v.J.00 imposed by way of nominal damages. which was an action for damages arising out of a vehicular accident. P30.000. Cresencia. and a number of authorities). may be vindicated or recognized. or exemplary damages were granted to the latter.00 as moral damages and P10.00 as nominal damages in favor of respnodent Cuenca. It is generally held that a nominal damage is a substantial claim.00 as exemplary damages.9 In this jurisdiction. no such compensatory. Cuenca. more particularly. in truth nominal damages are damages in name only and not in fact. and "nominal damages cannot coexist with compensatory damages.00 award for nominal damages was eliminated principally because the aggrieved party had already been awarded P6.10 In a subsequent case. although actual or compensatory damages are not proven.000.

We are of the view that the amount of P20. 1962. 1971. del Rosario & Associates for appellant. oppressive or malevolent manner. Sangco & Sangalang for private respondent. exemplary or corrective damages are to be imposed by way of example or correction for the public good. G. only if the injured party has shown that he is entitled to recover moral. 1979 MARIANO C. 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. It was simply unfortunate that petitioner did not succeed in that regard. PAMINTUAN. respondent Millan did not submit below any evidence to prove that she suffered actual or compensatory damages. exemplary damages may be awarded if the guilty party acted in wanton. . In case of breach of contract. respondent-appellees. No. E. 1973.00 award may be considered in the nature of exemplary damages. L-26339 December 14. 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. COURT OF APPEALS and YU PING KUN CO. J. that a deed of absolute sale was executed in her favor. and notwithstanding the lapse of almost three years since she made her last payment.00 is excessive. 14 To conclude. and paid in full her installments on December 22.00)." Here.: This case is about the recovery compensatory.000. Without pronouncement as to costs. We modify the decision of the trial court and reduce the nominal damages to Ten Thousand Pesos (P10.R. For that reason We cannot agree with respondent Millan Chat the P20. 13 Furthermore. AQUINO.. PREMISES CONSIDERED. temperate or compensatory damages.In the situation now before Us. but it was only on March 2. reckless. In all other respects the aforesaid decision stands. We hold that the sum of Ten Thousand Pesos (P10. petitioner-appellant.00) by way of nominal damages is fair and just under the following circumstances. viz: respondent Millan bought the lot from petitioner in May.000. fraudulent.000. damages for breach of a contract of sale in addition to liquidated damages. V.000. 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. vs. Moreover. INC.

the company received a copy of the letter from the Manila branch of Toyo Menka Kaisha.. Japan in exchange for plastic sheetings. Pamintuan delivered to the company's warehouse only the following quantities of plastic sheetings: November 11.050.559.28 as damages with six percent interest from the date of the filing of the complaint. 1960 — 10 cases out of 100 cases. of Osaka. A). Record on Appeal). size 48 inches by 50 yards.000 yards valued at $5.. The facts and the findings of the Court of Appeals are as follows: In 1960.000 (pp. 21. the plastic sheetings in four shipments to wit: (1) Firm Offer No. Pamintuan appealed from the judgment of the Court of Appeals wherein he was ordered to deliver to Yu Ping Kun Co. 4-5 and 239-40. By virtue of that license. 1960. Ltd. Acting on that information.850 yards valued at $5. Pamintuan informed the president of Yu Ping Kun Co. Inc.Mariano C.445 and $2. 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. 1960 — 140 cases.000. 1960 of 336.440 yards with an aggregate value of $47. 360 yards of plastic sheetings (p.. The company undertook to open an irrevocable domestic letter of credit for that amount in favor of Pamintuan. 330 for 26. 1960 — 30 cases out of 100 cases. While the plastic sheetings were arriving in Manila. or a total of 339.. 327 for 50. On July 28. (2) Firm Offer No.000 and 18. Inc. Pamintuan was apprised by the bank on August 1. if he could not do so.000 yards valued at $8. Inasmuch as the computation of the prices of each delivery would allegedly be a long process. Ltd.200. November 15. 1960 of that letter of credit which made reference to the delivery to Yu Ping Kun Co. Inc. the Japanese suppliers shipped to Pamintuan. Record on Appeal).000 yards valued at $5. Pamintuan withheld delivery of (1) 50 cases of plastic sheetings containing 26. Out of the shipments. Pamintuan requested that he be paid immediately. November 14. confirming the acceptance by Japanese suppliers of firm offers for the consignment to Pamintuan of plastic sheetings valued at forty-seven thousand dollars. 329 and 343 for 175. (2) 37 cases containing 18. he entered into an agreement to ship his corn to Tokyo Menka Kaisha.97.440 yards valued at $2.400 and (4) 83 cases containing 40. 1960. The plastic sheetings arrived in Manila and were received by Pamintuan.200. November 15. that he was in dire need of cash with which to pay his obligations to the Philippine National Bank. 1960 — 258 cases out of 352 cases. to pay the latter P100. Inc. 328 for 70. through Toyo Menka Kaisha. 1960 — 11 cases out of 352 cases.236. certain plastic sheetings and. respectively. On September 27 and 30 and October 4.440 yards valued at $22. 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 $9. He contracted to sell the plastic sheetings to Yu Ping Kun Co. and (4) Firm Offer No. on or before October 31. November 15. 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. (3) Firm Offers Nos.000 yards valued at $5. . 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. Ltd.. for two hundred sixty-five thousand five hundred fifty pesos.305.305. (3) 60 cases containing 30.

26 as overpayment)....282..13 for the issuance of the writ of preliminary attachment and (d) P10....502.........17 as unrealized profits and P12.. 21.. or total damages of P110........174..330...000 as stipulated liquidated damages...... After Pamintuan had delivered 224....458........ After trial...........20 per yard at the time of delivery.. 329 containing 40. Record on Appeal): (1) 26.....7247 per yard and a selling price of P1..... the trial court added (a) P10....490..... 243-2...C..150 yards.550 by 339...282.023...102..88 (See pp................... was computed as follows (p..150 yards as per firm offers or as per contract.... P 12....... the company filed its amended complaint for damages against Pamintuan..70 per yard.. he refused to deliver the remainder of the shipments with a total value of P102..... agreed to fix the price of the plastic sheetings at P0.... (3) Firm Offer No.. P67... 330...120.. which the trial court regarded as an item of damages suffered by the company.50 Total unrealized profits...............13 Actual peso value of 224.. (b) P10......000 yards with a contract price of Pl.... the aggregate quantity of the shipments.......... 217.. P175........ Pamintuan said that the company failed to comply with the conditions of the contract and that it was novated with respect to the price..00 (2) 18.440 yards valued at P13......00 (4) 40.559........000 as attorney's fees............... As justification for his refusal..588............ The parties arrived at that figure by dividing the total price of P265..... for the 224.25.000 as moral damages... regardless of the kind...174.....000 yards valued at P30..25 a yard at the time of delivery... 20........ 9.....7822 a yard ...... Record on Appeal)..... (c) Pl..... Espiritu....502.26 made to Pamintuan by Yu Ping Kun Co.....67 (3) 30. 343.Consequently...28) .... 71.. containing 18. P16.. containing 26.105...........163.. Record on Appeal): Liquidation value of 224....7062 per yard and selling price of Pl...282.....380...75 a yard........047... Benito Y.017 per yard and a selling price of Pl.....000 yards valued at P29....... On December 2.850 yards with a contract price of P0.13 per yard and a selling price at the time of delivery of Pl.....87...... Inc.....510 and (4) Firm Offer No.26 To these two items of damages (P67..047.....17 The overpayment of P12. 1960.150 yards of sheetings of interior quality valued at P163...150 yards at P0.. the lower court rendered the judgment mentioned above but including moral damages........000 yards with a contract price of P0. Pamintuan and the president of the company..... 248-9....13 which were covered by (i) Firm Offer No.850 yards valued at P29......... quality or actual invoice value thereof....000 yards with a contract price of Pl...440 yards.85 as premium paid by the company on the bond of P102... The unrealized profits awarded as damages in the trial court's decision were computed as follows (pp.....782 a yard. containing 30. (2) Firm Offer No...87 Overpayment...

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. The company fulfilled its obligation to obtain the Japanese suppliers' confirmation of their acceptance of firm offers totalling $47. on the pretense that he would deliver what in the first place he ought to deliver anyway. irrespective of invoice value. is entitled to recover only liquidated damages. (3) Pamintuan. The Court of Appeals in its decision of March 18. 1171. would now ask us to sanction his actuation" (pp. Record on Appeal). 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. he is estopped to repudiate it. . malice or wanton attitude. to be paid in case of breach thereof" (Art. 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. The Court of Appeals found that the writ of attachment was properly issued. Civil Code). when he knew all the while that he had no such intention. The main contention of appellant Pamintuan is that the buyer. The Court of Appeals affirmed that judgment with the modification that the moral damages were disallowed (Resolution of June 29. 1966). 588). 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. Hence. otherwise. he would unjustly enrich himself at the expense of the company.000. Civil Code).. damages shall be paid if the obligor . bad faith. 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. as attorney-in-fact of the warehouseman. 1226. 61-62. Fox 26 Phil.26 for the said deliveries.. the obligor shall be responsible for an damages which may be reasonably attributed to the non-performance of the obligation" (Ibid. and would thereafter refuse to make any further delivery in flagrant violation of his plighted word.7822 per yard.. after having succeeded in getting another to accommodate him by agreeing to liquidate his deliveries on the basis of P0. 2201). if there is no stipulation to the contrary " (1st sentence of Art. Pamintuan appealed. is guilty of fraud in the fulfillment of the obligation". That factual finding is conclusive upon this Court. Yu Ping Kun Co. (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). Civil Code) and. Pamintuan reaped certain benefits from the contract.. "Responsibility arising from fraud is demandable in all obligations" (Art. 250. "In case of fraud.000 ". the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance. his attorney-in-fact so that he could control the disposal of the goods. The Court of Appeals described Pamintuan as a man "who. Rollo). Inc. Pamintuan relies on the rule that a penalty and liquidated damages are the same (Lambert vs.282.p. 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. 1966 found that the contract of sale between Pamintuan and the company was partly consummated. art. it is argued. We hold that appellant's contention cannot be sustained because the second sentence of article 1226 itself provides that I nevertheless. that "in obligations with a penal clause. 2226.

204702 January 14.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. 1950. consistente en estimular al deudor al complimiento de la obligacion principal. a differencia de aquellos otros ordinarios. en que la pena es sustitutiva de la reparacion ordinaria. The proven damages supersede the stipulated liquidated damages. the damages recoverable by the firm would amount to ninety thousand five hundred fifty-nine pesos and twenty-eight centavos (P90. Civil Code. GMA NETWORK FILMS. 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. p. 1229. 483).. cited in 4 Tolentino's Civil Code. 251). 2015 RICARDO C. p. Respondent. part. 2216 and 2227. 1. p. 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. Una funcion coercitiva o de garantia. G. 5th Ed.. ante la amenaza de tener que pagar la pena. 8. Castan Tobeñas notes that the penal clause in an obligation has three functions: "1. SO ORDERED. Se habla en este caso de pena cumulativa. consistente en sancionar o castigar dicho incumplimiento o cumplimiento inadecuado. Hence. Codigo Civil.559.L. " (3 Derecho Civil Espanol. 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. 9th Ed. See observations of Justice J. Petitioner. p.B. INC. Reyes. No." (Ibid. Una funcion estrictamente penal. With that modification the judgment of the Court of Appeals is affirmed in all respects. with six percent interest a year from the filing of the complaint. and after reflecting on the/tenor of the stipulation for liquidated damages herein. This view finds support in the opinion of Manresa (whose comments were the bases of the new matter found in article 1226. 130). 3. After a conscientious consideration of the facts of the case. 128). ademas de la pena. los danos y perjuicios.R. vs. Inc. o sea la de evaluar por anticipado los perjuicios que habria de ocasionar al acreedor el incumplimiento o cumplimiento inadecuado de la obligacion. we further hold that justice would be adequately done in this case by allowing Yu Ping Kun Co. 2. atribuyendole consecuencias mas onerosas para el deudor que las que normalmente lleva aparejadas la infraccion contractual. HONRADO. Una funcion liquidadora del daño. No costs in this instance. as found by Court of Appeals and the trial court..28). Castan Tobenas. en el supuesto incumplimiento o mero retardo de la obligacion principal. the true nature of which is not easy to categorize. DECISION ..

6 million representing the fee it paid for Evangeline Katorse (₱1. Under Paragraph 3 of the Agreement. The Facts On 11December 1998. (GMA Network). for breach of contract and breach of trust. 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. petitioner invoked a certification of GMA Network. in the event of disapproval. In 2003. ordered GMA Films to pay attorney’s fees (₱100.5 million) and a portion of the fee it paid for Bubot (₱350. On the disposal of the fee .000).3 (Emphasis supplied) Two of the films covered by the Agreement were Evangeline Katorse and Bubot for which GMA Films paid ₱1. The Ruling of the Trial Court The trial court dismissed GMA Films’ complaint and. Alternatively. which GMA Films accepted. the parties agreed that "all betacam copies of the [films] should pass through broadcast quality test conducted by GMA-7.CARPIO. Regarding the fee GMA Films paid for Bubot. petitioner alleged that GMA Films. Inc. 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. Petitioner counterclaimed for attorney’s fees. failure to do such. counter-alleging that after GMA Films rejected Evangeline Katorse. the exclusive right to telecast the 36 films for a period of three years.75 million. granted to GMA Films. GMA Films alleged that it rejected Evangeline Katorse because "its running time was too short for telecast"5 and petitioner only remitted ₱900. As proof of such acceptance. Honrado (petitioner) to pay a sum of money to respondent GMA Network Films. as licensor of 36 films. an affiliate of GMA Films. respondent GMA Network Films. he replaced it with another film. for a fee of ₱60. petitioner alleged that he had settled his obligation to Alano. Winasak na Pangarap.000. The trial court gave credence to petitioner’s defense that he replaced Evangeline Katorse with Winasak na Pangarap. attesting that such film "is of good broadcast quality"7 (Film Certification). keeping for himself the balance of ₱350.: The Case We review1 the Decision2 of the Court of Appeals (CA) ordering petitioner Ricardo C.000 to the owner of Bubot (Juanita Alano [Alano]).5 million each. being a stranger to the contracts he entered into with the owners of the films in question. GMA Films sued petitioner in the Regional Trial Court of Quezon City (trial court) to collect ₱1. J. Inc. has no personality to question his compliance with the terms of such contracts. LICENSOR [Petitioner] will either replace the censored PROGRAMME TITLES with another title which is mutually acceptable to both parties or. dated 30 March 1999.0004). a proportionate reduction from the total price shall either be deducted or refunded whichever is the case by the LICENSOR OR LICENSEE [GMA Films]. finding merit in petitioner’s counterclaim. Inc. (GMA Films) entered into a "TV Rights Agreement" (Agreement) with petitioner under which petitioner." the TV station operated by GMA Network.6 Petitioner denied liability.

9 On petitioner’s liability for the fee GMA Films paid for Bubot. and ordered respondent to pay GMA Films ₱2 million8 as principal obligation with 12% annual interest. 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. litigation expenses (₱100. as beneficiary. finding insufficient GMA Films’ proof that petitioner pocketed any portion of the fee in question. this petition. Petitioner prays for the reinstatement of the trial court’s ruling while GMA Films attacks the petition for lack of merit. LICENSOR [Petitioner] will either replace the censored PROGRAMME TITLES with another title which is mutually acceptable to both parties or. in the event of disapproval.000) and the costs.000). .000). exemplary damages (₱100. The Ruling of the Court We grant the petition. what triggersthe rejection and replacement of any film listed in the Agreement is the "disapproval" of its telecasting by MTRCB. set aside the trial court’s ruling. The Ruling of the Court of Appeals The CA granted GMA Films’ appeal. to return to GMA 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]. GMA Films appealed to the CA. failure to do such. the amount claimed by the latter."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. as trustee. attorney’s fees (₱200.GMA Films paid for Bubot. obligating petitioner. 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. 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. the trial court rejected GMA Films’ theory of implied trust. the CA found that (1) GMA Films was authorized under Paragraph 4 of the Agreement to reject Evangeline Katorse. Hence. Brushing aside the trial court’s appreciation of the evidence.11(Emphasis supplied) Under this stipulation. and (2) GMA Films never accepted Winasak na Pangarap as replacement because it was a "bold" film. The Issue The question is whether the CA erred in finding petitioner liable for breach of the Agreement and breach of trust.

Instead of rejecting GMA Films’ demand for falling outside of the terms of Paragraph 4. then Vice-President for Program Management of GMA Network. noting that the Agreement "does not provide that the licensor is entitled to any commission.16 . We hold that regardless of the import of the Film Certification. Specifically. before GMA Films can reject a film and require its replacement.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. Paragraph 4 of the Agreement requires the intervention of MTRCB."13 In doing so. of the exclusive right to telecast the films listed in the Agreement. petitioner voluntarily acceded to it and replaced such film with Winasak na Pangarap. testified during trial that it was GMA Network which rejected Winasak na Pangarap because the latter considered the film "bomba. Jose Marie Abacan (Abacan). Alano. Indeed. GMA Films does not allege."15 This is error. 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." 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. GMA Films’ rejection of Winasak na Pangarap finds no basis in the Agreement. working under the assumption that the ground GMA Films invoked to reject Winasak na Pangarap was sanctioned under the Agreement. This runs counter to the clear terms of Paragraphs 3 and 4 of the Agreement. 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 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). What is disputed is whether GMA Films accepted the replacement film offered by petitioner. is a licensing contract. The CA sustained GMA Films’ interpretation. Instead. and we find no proof on record indicating.12 The CA. 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. On the other hand. 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. however. the Agreement repeatedly refers to petitioner as "licensor" and GMA Films as "licensee. the essence of which is the transfer by the licensor (petitioner) to the licensee (GMA Films). did the parties stipulate that petitioner signed the contract in such capacity. the state censor. that MTRCB reviewed Winasak na Pangarap and X-rated it.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). found merit in the latter’s claim. Paragraph 4 requires that MTRCB. disapprove or X- rate it for telecasting. Nowhere in the Agreement. In terms devoid of any ambiguity. The Agreement. after reviewing a film listed in the Agreement. for a fee. the Agreement merely provided that the total fees will be paid in three installments (Paragraph 3). On the contrary. obliging petitioner to hold whatever amount he kept in trust for GMA Films. GMA Films’ own witness. as its full title denotes ("TV Rights Agreement").

. CROUCH. 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. and HONORABLE INTERMEDIATE APPELLATE COURT. Plaintiffs-Appellees.. is a matter to which GMA Films holds absolutely no interest. The Decision. Scottsburg. SOFIA C. ESMERALDA C. No. VIRGILIO CASTRO AND GLORIA CASTRO. Sr. INC. in AC-G. Defendant-Appellant. MARIO CASTRO. Whether or not petitioner complied with these terms. however. and mother of the other plaintiffs. attorney's fees may be awarded if the trial court "deems it just and equitable. as held by the CA. negates the nature of attorney's fees as a form of actual damages.000). of the Regional Trial Court of Quezon City (Branch 223) is REINSTATED with the MODIFICATION that the award of attorney's fees is DELETED. FLORO."18 Such ground. U. AURORA CASTRO. after payment of the required fees or charges. at 685 Wanda. J. her daughter Sofia C. addressed a telegram to plaintiff Ignacio Castro. vs. The Decision." The facts of the case are as follows: On 2 November 1956. On the same day. 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. must be fully elaborated in the body of the ruling. CV-70245. IGNACIO CASTRO.We entertain no doubt that petitioner forged separate contractual arrangements with the owners of the films listed in the Agreement. dated 5 December 2008.. Crouch.: Petition for review on certiorari of the decision * of the Intermediate Appellate Court.19Its mere invocation. Undoubtedly. Sr. of the Court of Appeals are SET ASIDE. AGERICO CASTRO. we GRANT the petition. petitioner. No. Sr. CONRADO CASTRO. Inc. who was then vacationing in the Philippines.. We find it unnecessary to pass upon the question whether an implied trust arose between the parties. entitled "Ignacio Castro. PADILLA.S. spelling out the terms of payment to the latter. 1988 TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS. Being a stranger to such arrangements. passed away in Lingayen. Consolacion Bravo-Castro wife of plaintiff Ignacio Castro... without more. dated 11 February 1986.A.R. The telegram was accepted by the defendant in its Dagupan office. SO ORDERED. versus Telefast Communication/Philippine Wireless. dated 30 April 2012 and Resolution. 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. however. WHEREFORE. using the amount provided by petitioner on the witness stand (₱100. G. ROLANDO CASTRO. 73867 February 29. dated 19 November 2012. for transmission. et al.. SR. respondents. Indiana. Pangasinan. . 47170 announcing Consolacion's death. SALVADOR CASTRO.R. IGNACIO CASTRO JR.

then all residing in the United States.000.000. Defendant is also ordered to pay P5. 2 On appeal by petitioner.00 moral damages. P10. 4.00 as compensatory damages and P20. P20.The telegram never reached its addressee.00 as moral damages. P10.00 moral damages. P10. The Court of First Instance of Pangasinan. 15356. Mario Castro.000.000.000.000.00 as moral damages to each of Sofia C. Crouch. 3. Crouch.000. P10. P10. as follows.00 moral damages. When Sofia returned to the United States. with interest at 6% per annum: 1. Agerico Castro. 9. P20. The only defense of the defendant was that it was unable to transmit the telegram because of "technical and atmospheric factors beyond its control.000.000. Gloria Castro.000. Consolacion was interred with only her daughter Sofia in attendance. P10. Floro was also reduced to P120.00 moral damages. 3 .000. Ignacio Castro. 5.000.000. 2.00 to each of the private respondents as exemplary damages. P31. returned for the burial. P10. had not been received. 10. Esmeralda C. Floro.000.00 as moral damages. Neither the husband nor any of the other children of the deceased. and Esmeralda C. the Intermediate Appellate Court affirmed the trial court's decision but eliminated the award of P16." 1 No evidence appears on record that defendant ever made any attempt to advise the plaintiff Sofia C.92 and P16. Rolando Castro. 12.000. 8. Jr.00 moral damages. 00 for each.000. P20.00 as compensatory damages to Sofia C. She and the other plaintiffs thereupon brought action for damages arising from defendant's breach of contract.00 moral damages. 7. Virgilio Castro. The award of P20. ordered the defendant (now petitioner) to pay the plaintiffs (now private respondents) damages.. Crouch and the award of P1. exemplary damages in the amount of P1.000 moral damages. 6. Sofia C. she discovered that the wire she had caused the defendant to send. The case was filed in the Court of First Instance of Pangasinan and docketed therein as Civil Case No. Ignacio Castro Jr..00 to each of the plaintiffs and costs.000. 11. after trial. Aurora Castro.00 moral damages.00 attorney's fees.00 as moral damages.000. P10. Crouch as to why it could not transmit the telegram. Salvador Castro. Conrado Castro. Ignacio Castro Sr.00 moral damages.

petitioner did not do. and those who in any manner contravene the tenor thereof. social humiliation. for a fee. contending that the award of moral damages should be eliminated as defendant's negligent act was not motivated by "fraud. 2217 of the Civil Code applicable to the case at bar. Petitioner's contention is without merit. fright. 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. 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. 4 We also sustain the trial court's award of P16. serious anxiety. Had petitioner not been remiss in performing its obligation." In other words." (Emphasis supplied). Though incapable of pecuniary computation. which amounted to gross negligence. is obliged to pay for the damage done.Petitioner appeals from the judgment of the appellate court." Art. Petitioner was therefore guilty of contravening its obligation to said private respondent and is thus liable for damages. and similar injury. This. there would have been no need for this suit or for Mrs. therefore.000. are liable for damages. was precisely the cause of the suffering private respondents had to undergo. negligence or delay.000. Crouch representing the expenses she incurred when she came to the Philippines from the United States to testify before the trial court. under petitioner's theory. Crouch for the telegram that was never sent to the addressee thereof. besmirched reputation. malice or recklessness. petitioner undertook to send said private respondent's message overseas by telegram.00 for each of the private respondents. As the appellate court properly observed: [Who] can seriously dispute the shock. moral shock.00 as compensatory damages to Sofia C. the fee or charges paid by Sofia C. petitioner and private respondent Sofia C. Here. 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. Crouch entered into a contract whereby. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud. mental anguish. despite performance by said private respondent of her obligation by paying the required charges. . We find Art. Art. It states: "Moral damages include physical suffering. Crouch's testimony. wounded feelings. moral damages may be recovered if they are the proximate results of the defendant's wrongful act or omission. there being fault or negligence. sustained in the amount of P1. as a warning to all telegram companies to observe due diligence in transmitting the messages of their customers. This liability is not limited to actual or quantified damages.92. petitioner's act or omission. The award of exemplary damages by the trial court is likewise justified and." In the case at bar. 2176 also provides that "whoever by act or omission causes damage to another. it can only be held liable for P 31.

and (5) Costs of suit. 2-A. 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. J. MATILDE MACABAGDAL RAMOY. 128-131. 72-B-2-B with the exact location of his apartments indicated and encircled in the location map as No. praying that the Decision1 of the Court of Appeals (CA) dated December 16. accurately summarized the facts as culled from the records. On April 28. to each of private respondents. Quezon City. On June 20.00 as moral damages.000. 143. (2) P1.00 as compensatory damages.: This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of Court. Quezon City (Exh.WHEREFORE. July 2. (4) P5. Respondents. 2008 MANILA ELECTRIC COMPANY. 2002. Branch 81. BIENVENIDO RAMOY. The decision appealed from is modified so that petitioner is held liable to private respondents in the following amounts: (1) P10. ordering petitioner Manila Electric Company (MERALCO) to pay Leoncio Ramoy2 moral and exemplary damages and attorney's fees. SO ORDERED. pp. 2-C.000. ROSEMARIE RAMOY. Record. the petition is DENIED. 2003. and the CA Resolution3 dated July 1. A copy of the decision was furnished Leoncio Ramoy (Exhibits 2. 9). 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. 5). G. to private respondent Sofia C. Crouch. the Court found that he was occupying a portion of Lot No. the MTC Branch 36. 7. 1993. Among the defendants in the ejectment case was Leoncio Ramoy. to each of private respondents. as well as a copy of the court .00 as attorney's fees. be reversed and set aside.R. Petitioner." In the case of Leoncio Ramoy. one of the plaintiffs in the case at bar. No. DECISION AUSTRIA-MARTINEZ. 7. denying petitioner's motion for reconsideration. p. vs. 158911 March 4. Attached to the letter was a list of establishments affected which included plaintiffs Leoncio and Matilde Ramoy (Exh. The Regional Trial Court (RTC) of Quezon City. p. 2-B.00 as exemplary damages. OFELIA DURIAN and CYRENE PANADO. ROMANA RAMOY-RAMOS. TSN. 1989 after the defendants failed to file an answer in spite of summons duly served.000.000. (3) P16. 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. Record).

3-I). it was found out that the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was indeed outside the NPC property. July 1994. 3. Jose Valiza and Cyrene S. TSN. 12). During the ocular inspection ordered by the Court and attended by the parties. defendant Meralco re-connected the electric service of four customers previously disconnected none of whom was any of the plaintiffs (Exh. p. MERALCO's motion for reconsideration of the Decision was denied per Resolution dated July 1. 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. The record also shows that at the request of NPC. . 3-H) and Cyrene S. p. However.decision (Exh. After the electric power in Ramoy's apartment was cut off. After deliberating on NPC's letter. pp. 2002. 14). pp. Panado as lessees. the electric service connection of the plaintiffs [herein respondents] was disconnected (Exhibits D to G. with submarkings. Ofelia Durian (Exh. 8). 6-B) and thereupon issued notices of disconnection to all establishments affected including plaintiffs Leoncio Ramoy (Exhs. a joint survey was conducted and the NPC personnel pointed out the electric meters to be disconnected (Exh. In a letter dated August 17. 10 and 11). 86-87. Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E). 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. 6-A. 3-A to 3-C). 3-F). 14). This was confirmed by defendant's witness R. he was threatened and told not to interfere by the armed men who accompanied the Meralco employees. In its Decision dated December 16. Jose Valiza (Exh. 13. exemplary damages and attorney's fees. 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. When the Meralco employees were disconnecting plaintiffs' power connection.P. 1993. Monsale III on cross-examination (TSN. Thus. Monsale also admitted that he did not inform his supervisor about this fact nor did he recommend re-connection of plaintiffs' power supply (Ibid. Panado (Exh. 1993. a portion of which was occupied by plaintiffs Rosemarie Ramoy. However. Rosemarie Ramoy (Exh. TSN. Hence. Respondents then appealed to the CA. the plaintiffs-lessees left the premises.4 The RTC decided in favor of MERALCO by dismissing herein respondents' claim for moral damages. the CA held MERALCO liable for moral and exemplary damages and attorney's fees. 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.. Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a parcel of land covered by TCT No. 7. p. October 13. Meralco decided to comply with NPC's request (Exhibits 6. 326346. October 8. the RTC ordered MERALCO to restore the electric power supply of respondents. 6-A-1. Ofelia Durian. Shortly thereafter. 2003. 3-G). Record). In due time. 2).

to excuse him from his ensuing liability. Nevertheless. The law. The Court emphasized in Ridjo Tape & Chemical Corporation v. or his "restitution interest. Indeed. Those who in the performance of their obligations are guilty of fraud. Inc. The remedy serves to preserve the interests of the promissee that may include his "expectation interest. 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. Under the Service Contract."11 . MERALCO admits6 that respondents are its customers under a Service Contract whereby it is obliged to supply respondents with electricity." 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. negligence. 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. unless they are made the basis for action. 5 The petition is partly meritorious. are liable for damages. "[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.8 the Court expounded on the nature of culpa contractual. or his "reliance interest. MERALCO has the obligation to discharge its functions with utmost care and diligence. 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. of the time and of the place. MERALCO disconnected its power supply to respondents on the ground that they were illegally occupying the NPC's right of way. Clearly. agreements can accomplish little. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. recognizing the obligatory force of contracts. or delay. a corresponding right of relief. that is. The effect of every infraction is to create a new duty. like proof of his exercise of due diligence x x x or of the attendance of fortuitous event. In Radio Communications of the Philippines.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." which is his interest in having restored to him any benefit that he has conferred on the other party. and those who in any manner contravene the tenor thereof. v." 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. either for their makers or for society. Court of Appeals10 that "as a public utility. upon request of the NPC."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. 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. prima facie. thus: "In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify. Verchez. MERALCO was justified in cutting off service to respondents.

the lessees of his four apartments on subject lot left the premises. if it were true that the decision was final and executory. there is no evidence on record to show that this was done by MERALCO. Likewise. therefore. Although MERALCO insists that the MTC Decision is final and executory. and failure to exercise the diligence required means that MERALCO was at fault and negligent in the performance of its obligation. In Ridjo Tape. Moreover. For in the final analysis. MERALCO is liable for damages under Article 1170 of the Civil Code. MERALCO's failure to exercise utmost care and diligence in the performance of its obligation to Leoncio Ramoy. 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.The Court agrees with the CA that under the factual milieu of the present case. due to the lack of power supply. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. .16 Furthermore. Quijano14 that: Electricity is a basic necessity the generation and distribution of which is imbued with public interest. thus. v. being a vital public utility. Willful injury to property may be a legal ground for awarding moral damages if the court should find that. 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. are not entitled to the services of MERALCO.12 the Court explained: [B]eing a public utility vested with vital public interest. MERALCO failed to exercise the utmost degree of care and diligence required of it. MERALCO. it never showed any documentary evidence to support this allegation. Inc. Verily.17 Clearly. Leoncio Ramoy is entitled to moral damages in the amount awarded by the CA. 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. 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. is tantamount to bad faith. it was not enough for MERALCO to merely rely on the Decision of the MTC without ascertaining whether it had become final and executory. such damages are justly due. To repeat. its customer. In the present case. is expected to exercise utmost care and diligence in the performance of its obligation. The utmost care and diligence required of MERALCO necessitates such great degree of prudence on its part.15 (Emphasis supplied) Thus. only upon finality of said Decision can it be said with conclusiveness that respondents have no right or proper interest over the subject property. and its provider is a public utility subject to strict regulation by the State in the exercise of police power. under the circumstances. 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. This is contrary to public policy because. by analogy. 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. Leoncio Ramoy testified that he suffered wounded feelings because of MERALCO's actions. Failure to comply with these regulations will give rise to the presumption of bad faith or abuse of right. The Court emphasized in Samar II Electric Cooperative.13 This being so. as discussed above.

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

Byeong.[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. used in lashing and rigging the cargoes were all provided by M/V Mistrau and these materials meets industry standard. They would order the stevedore to rectify any error in its loading and stowing. The Court of Appeals did not make any new findings of fact when it reversed the decision of the trial court. whose testimony .[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.[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.[29] It was not disputed by Phoenix and McGee that the materials. if the evidence touching a disputed fact is equally balanced. In the third issue. The only participation of Mindanao Terminal was to load the cargoes on board M/V Mistrau. A foremans report. prepared by Del Monte Produce and the officers of M/V Mistrau. The vessels officer would order the closing of the hatches only if the loading was done correctly after a final inspection. or if it does not produce a just. 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. That is to say. rational belief of its existence. 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.ramification as that of a common carrier and a warehouseman. 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. and cardboards. such as ropes. [26] We adopt the findings[27] of the RTC. or if it leaves the mind in a state of perplexity. as proof of work done on board the vessel. the party holding the affirmative as to such fact must fail.[31] The loading and stowing was done under the direction and supervision of the ship officers. Phoenix and McGee failed to prove by preponderance of evidence[25] that Mindanao Terminal had acted negligently.[28] which are not disputed by Phoenix and McGee. pallets. a guide for the area assignments of the goods in the vessels hold. the public is adequately protected by our laws on contract and on quasi-delict.

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. 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. the use of cardboards as support system. the grant of the petition is in order.[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.[40] As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading and stowing the cargoes. pallets. which is the ordinary diligence of a good father of a family. the Court finds no basis for the award of attorneys fees in favor of petitioner. such as ropes. as encountered by M/V Mistrau during its voyage. Even the materials used for stowage. However.was refreshed by the survey report. None of the circumstances enumerated in Article 2208 of the Civil Code exists. Even the survey report found that it was because of the boisterous stormy weather due to the typhoon Seth. As admitted by Phoenix and McGee in their Comment[38] before us. shift and bruise in extensive extent. 1994 as described in the sea protest. The present case is clearly not an unfounded civil action against the plaintiff . and cardboards. the work of the stevedore was under the supervision of the shipper and officers of the vessel.[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. are provided for by the vessel. we are of the opinion that damage occurred aboard the carrying vessel during sea transit. which caused the shipments in the cargo hold to collapse. In other words. 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. 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.

[42] WHEREFORE. Asiatic Integrated Corporation and City of Manila. P900.000.97 is hereby REINSTATED MINUS the awards of P100.R. sufferings and sleepless nights and P l0.R.311. 20.00 for the amount paid for the operation and management of a school bus. No.945. SO ORDERED. J. Although actual expenses were incurred by Mindanao Terminal in relation to the trial of this case in Davao City.[41] Likewise.as there is no showing that it was instituted for the mere purpose of vexation or injury. A new one is hereby entered ordering the defendant Asiatic Integrated Corporation to pay the plaintiff P221. Branch 12 in Civil Case No. 2). reversing the decision ** of the Court of First Instance of Manila. 71049 May 29.00 as moral damages due to pains. 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. No. It is not sound public policy to set a premium to the right to litigate where such right is exercised in good faith. Branch XXII in Civil Case No. 96390 between the same parties. the RTC erred in awarding P83. p. the decision appealed from is hereby REVERSED. 1987 BERNARDINO JIMENEZ. CITY OF MANILA and INTERMEDIATE APPELLATE COURT. even if erroneously.000. hotel accommodations and food.000.00 as attorney's fees. 25. CV No. G. as well as other miscellaneous expenses.: This is a petition for review on certiorari of: (1) the decision * of the Intermediate Appellate Court in AC-G. 66121 is SET ASIDE and the decision of the Regional Trial Court of DavaoCity. petitioner. vs. The dispositive portion of the Intermediate Appellate Court's decision is as follows: WHEREFORE. Rollo) The findings of respondent Appellate Court are as follows: . The decision of the Court of Appeals in CA-G. the petition is GRANTED. PARAS. (p.945.90 actual medical expenses. 013887-CV Bernardino Jimenez v. respondents.R.80 as actual damages. P20. as he attended the trials coming all the way from Manila.00 as attorneys fees and P83. the lawyer of Mindanao Terminal incurred expenses for plane fare. 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.80 actual damages to Mindanao Terminal.

Civil Case No. p. p. . Upon his discharge from the hospital. he had to walk around with crutches for fifteen (15) days.inch nail. 51). 96390. Hence this petition.R. In compliance with the resolution of July 1. 1985 (Reno. the counterclaims of the defendants are likewise dismissed. p. (Decision. Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation under whose administration the Sta. 34) while petitioner filed its reply on August 21. to pierce the left leg of plaintiff-petitioner penetrating to a depth of about one and a half inches. 1974 he. stuck inside the uncovered opening.The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15. CV No. Rollo. The lower court decided in favor of respondents. p. 13- 20). on appeal. 29) respondent City of Manila filed its comment on August 13. together with his neighbors. he had to engage the services of one Bienvenido Valdez to supervise his business for an aggregate compensation of nine hundred pesos (P900. In the resolution of October 13. Rollo. 1985 (Rollo. his companions helped him hobble home. pp. causing a dirty and rusty four. p. His injury prevented him from attending to the school buses he is operating. 1985 (Rollo. As above stated. 62) gave due course to the petition and required both parties to submit simultaneous memoranda Petitioner filed his memorandum on October 1. 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. his left leg swelled with great pain. After administering first aid treatment at a nearby drugstore. 1985 (Rollo. p. 1985 of the First Division of this Court (Rollo. Ana Public Market had been placed by virtue of a Management and Operating Contract (Rollo. 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. As a result. the same having been assigned to a member of said Division (Rollo. He felt ill and developed fever and he had to be carried to Dr. 47). Despite the medicine administered to him by the latter. For lack of sufficient evidence. (Decision. 82). 92). p. p. p. Thereafter. 01387. 42). went to Sta. 65) while respondent filed its memorandum on October 24. the dispositive portion of the decision reading: WHEREFORE. judgment is hereby rendered in favor of the defendants and against the plaintiff dismissing the complaint with costs against the plaintiff.00). AC-G. 1986. 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. this case was transferred to the Second Division of this Court. 1985 (Rollo. Ana public market to buy "bagoong" at the time when the public market was flooded with ankle deep rainwater. the Court in the resolution of September 11. the Intermediate Appellate Court held the Asiatic Integrated Corporation liable for damages but absolved respondent City of Manila. Juanita Mascardo.

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

to report. development. For one thing. 45). said contract is explicit in this regard. Ana Public Market. when it provides: II That immediately after the execution of this contract. p. VII That the SECOND PARTY may from time to time be required by the FIRST PARTY. on the activities and operation of the City public markets and talipapas and the facilities and conveniences installed therein. the SECOND PARTY shall submit a program of improvement. despite the Management and Operating Contract between respondent City and Asiatic Integrated Corporation remained under the control of the former. operation and maintenance in connection with the stipulations contained in this Contract. subject to prior approval of the FIRST PARTY to discharge any of the present employees for cause. 1972 by and between the City of Manila and the Asiatic Integrated Corporation. inasmuch as the City retains the power of supervision and control over its public markets and talipapas under the terms of the contract. Provided. (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. p. (Rollo. . or his duly authorized representative or representatives. (Exhibit "7-A") (Emphasis supplied. rehabilitation and development of the City's public markets and' Talipapas' subject to the control and supervision of the City. sanitizing and repair of the public markets and talipapas and within ninety (90) days thereof.) (Rollo. maintenance. rehabilitation and reconstruction of the city public markets and talipapas subject to prior approval of the FIRST PARTY. whereby in consideration of a fixed service fee. cleaning. particularly as to their cost of construction. that the SECOND PARTY shall have the right. however. (Rollo. 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. 75). p. the SECOND PARTY shall start the painting. 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.In the case at bar. the City hired the services of the said corporation to undertake the physical management. there is no question that the Sta.

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

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. INC. making the City of Manila and the Asiatic Integrated Corporation solidarily liable to pay the plaintiff P221. L-47896 October 3. respondents. COURT OF APPEALS. 57.000.. JUAN J. No.00 as attorney's fees. sufferings and sleepless nights and P10. vs. PREMISES CONSIDERED. CARLOS. while there are findings that during floods the vendors remove the iron grills to hasten the flow of water (Decision. NAKPIL.. ET AL. and JUAN F. SO ORDERED. petitioner could not have fallen into it. 1986 THE UNITED CONSTRUCTION CO. p. To recapitulate. 17). it appears evident that the City of Manila is likewise liable for damages under Article 2189 of the Civil Code. much less penalized by the City of Manila. INC. the City is therefore liable for the injury suffered by the peti. P900. AC-G. Even more important is the fact. petitioner. that they were adequately covered. it must however. 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. Neither was it shown that any sign had been placed thereabouts to warn passersby of the impending danger. CV No.R. and the PHILIPPINE BAR ASSOCIATION. Moreover. G. the drainage hole could have been placed under the stalls instead of on the passage ways. Thus the negligence of the City of Manila is the proximate cause of the injury suffered..4 petitioner. THE COURT OF APPEALS. the evidence indicates that long before petitioner fell into the opening.. For instance.00 for the amount paid for the operation and management of the school bus. that the City should have seen to it that the openings were covered. and five (5) months after the incident happened. (Rollo. NAKPIL & SONS. vs. the decision of the Court of Appeals is hereby MODIFIED. L-47851 October 3. While it may be conceded that the fulfillment of such duties is extremely difficult during storms and floods. pp.000. 59).90 actual medical expenses. Had the opening been covered. 1986 .R. L-47863 October 3. P20. petitioners.00 as moral damages due to pain. Rollo. No.R. respondents. No. 0 1387. 1986 JUAN F. the opening was still uncovered. be admitted that ordinary precautions could have been taken during good weather to minimize the dangers to life and limb under those difficult circumstances. respondent City having retained control and supervision over the Sta. G. there is no showing that such practice has ever been prohibited. G. Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily liable under Article 2194 of the Civil Code.R. it was already uncovered. Sadly. UNITED CONSTRUCTION COMPANY.

: These are petitions for review on certiorari of the November 28. the judgment appealed from is modified to include an award of P200. and third party defendants (except Roman Ozaeta).335. with interest at the legal rate from November 29. Inc. in Civil Case No. respondents. and by the third-party defendants Juan F. vs.. PARAS. SO ORDERED. 1968 until full payment to be paid jointly and severally by defendant United Construction Co. No. petitioners.. ET AL. Inc.. (d) Dismissing the defendant's and third-party defendants' counterclaims for lack of merit. J. Nakpil and Sons and Juan F. jointly and severally. 51771-R modifying the decision of the Court of First Instance of Manila. Nakpil. 1971 as modified by the Order of the lower court dated December 8.00 to the Philippine Bar Association to be paid jointly and severally by the defendant United Construction Co. SO ORDERED. Inc.. Branch V.PHILIPPINE BAR ASSOCIATION.000. 169). (Record on Appeal p. 1971. the judgment dated September 21. COURT OF APPEALS. judgment is hereby rendered: (a) Ordering defendant United Construction Co.R. 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. 1971 as modified in the December 8. The dispositive portion of the modified decision of the lower court reads: WHEREFORE. (b) Dismissing the complaint with respect to defendant Juan J. 1968. 74958 dated September 21. and third-party defendants (except Roman Ozaeta) to pay the plaintiff.. and third-party defendants (except Roman Ozaeta) to pay the costs in equal shares. 521. the date of the filing of the complaint until full payment. 1977 decision of the Court of Appeals in CA-G. (e) Ordering defendant United Construction Co. the sum of P989.000.47851. Rollo. The dispositive portion of the decision of the Court of Appeals reads: WHEREFORE.00 in favor of plaintiff-appellant Philippine Bar Association. Carlos.68 with interest at the legal rate from November 29. The Court of Appeals in modifying the decision of the lower court included an award of an additional amount of P200. (c) Dismissing the third-party complaint. In all other respects. p. L. . ET AL.

p. alleging in essence that the collapse of the building was due to the defects in the said plans and specifications. the plaintiff and third-party defendants Juan F. C. the then president of the plaintiff Bar Association was included as a third-party defendant for damages for having included Juan J. pp. Nakpil & Sons in L-47851 and United Construction Co.. Intramuros.00 for the loss of the PBA building plus four (4) times such amount as damages resulting in increased cost of the building. a civic-non-profit association. On November 29. Rollo. Record on Appeal. incorporated under the Corporation Law. Inc. and P100.000. Carlos.000. In the early morning of August 2. Defendants in turn filed a third-party complaint against the architects who prepared the plans and specifications. the plaintiff need not amend its complaint by including the said Juan F. on the suggestion of Juan J. The construction was undertaken by the United Construction. That in relation to defendants' answer with counterclaims and third. The plans and specifications for the building were prepared by the other third-party defendants Juan F. 269- 348.party complaints and the third-party defendants Nakpil & Sons' answer thereto. No.Petitioners Juan F. among other things. Inc. Carlos as defendants. L-47851. the plaintiff commenced this action for the recovery of damages arising from the partial collapse of the building against United Construction. The tenants vacated the building in view of its precarious condition. the president and general manager of said corporation. Nakpil & Sons and Juan F. the building was shored up by United Construction. 1966. 520-521. The facts as found by the lower court (Decision. Manila. 1969. decided to construct an office building on its 840 square meters lot located at the comer of Aduana and Arzobispo Streets. and its President and General Manager Juan J. 1978 requiring the respective respondents to comment. P100. 1968. Philippine Bar Association. Inc. As a temporary remedial measure. Carlos. 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. Inc. p. Nakpil & Sons and Juan F. as party defendant.000. Inc. The building was completed in June. Nakpil personally as parties defendant.C. 74958.00 as exemplary damages. The front columns of the building buckled. President of the United Construction Co. Nakpil & Sons. the failure of the contractors to follow plans and specifications and violations by the defendants of the terms of the contract. causing the building to tilt forward dangerously. (Rollo. The proposal was approved by plaintiff's board of directors and signed by its president Roman Ozaeta. Roman Ozaeta. at the cost of P13. Nakpil presented a written stipulation which reads: 1.28. for exoneration from liability while petitioner Philippine Bar Association in L-47896 seeks the modification of aforesaid decision to obtain an award of P1.830. . on an "administration" basis.00 as attorney's fees. a third-party defendant in this case. 1968 an unusually strong earthquake hit Manila and its environs and the building in question sustained major damage. On March 3. pp. 169) and affirmed by the Court of Appeals are as follows: The plaintiff. Carlos in L-47863 seek the reversal of the decision of the Court of Appeals. L-47851. and Juan J. 172). Plaintiff alleges that the collapse of the building was accused by defects in the construction..661.

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

Hence. 1978. on April 30. 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. the amicus curiae were granted a period of 60 days within which to submit their position. Meanwhile. 1970. pp. 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. 1970 with the findings that while the damage sustained by the PBA building was caused directly by the August 2. architects and even the owners to exercise the requisite degree of supervision in the construction of subject building. pp. the Commissioner eventually submitted his report on September 25. After the parties had all filed their comments. the issues of this case were divided into technical issues and non-technical issues. 278-280. The non-technical issues were tried by the Court. The motions were opposed by the defendants and the matter was referred to the Commissioner. 1978) were duly noted. 1977. All the parties registered their objections to aforesaid findings which in turn were answered by the Commissioner. plaintiff moved twice for the demolition of the building on the ground that it may topple down in case of a strong earthquake. The actual demolition was undertaken by the buyer of the damaged building. The position papers of the amicus curiae (submitted on November 24. 1968 earthquake whose magnitude was estimated at 7.3 they were also caused by the defects in the plans and specifications prepared by the third- party defendants' architects. On May 11. All the parties herein appealed from the decision of the Intermediate Appellate Court. 1970 followed by other strong earthquakes on April 9. 1971. Thus. The motion having been granted. 169). . The Court sees no legal or contractual basis for such conclusion. the United Architects of the Philippines. (Record on Appeal. and the Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae. but not another earthquake of high intensity on April 7. 309-328. Finally. 1979 the building was authorized to be demolished at the expense of the plaintiff. the lower court rendered the assailed decision which was modified by the Intermediate Appellate Court on November 28. L-47851. Thus. these petitions. Ibid. pp. on September 21. caused further damage to the property. the Association of Civil Engineers. p. Ibid). We gave due course to the petitions in Our Resolution of July 21. 275-276. which may still be utilized or availed of (Record on Appeal.) After the protracted hearings. (Record on Appeal. Rollo. As aforestated the technical issues were referred to the Commissioner. 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. and 12. 1978.

deviations from plans and specifications and other imperfections in the case of United Construction Co.. No. Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. Inc. On the other hand.The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not defective. does not imply waiver of any of the causes of action by reason of any defect mentioned in the preceding paragraph. or due to the defects in the ground. UCCI also claimed that it should be reimbursed the expenses of shoring the building in the amount of P13. But the Commissioner. 4131) and the 1966 Asep Code. among others. or the deficiencies in the design.000. he shall be solidarily liable with the contractor. were inevitable (Article 1174. when asked by Us to comment.00 imposed by the Court of Appeals. 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. 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. or due to any violation of the terms of the contract. 174). parties who are otherwise liable because of their negligence. Acceptance of the building. Inc. after completion.00 as estimated cost of repairs or to the period of six (6) months for loss of rentals while United Construction Co. 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.100. The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New Civil Code.28 while the Nakpils opposed the payment of damages jointly and solidarity with UCCI.000. Both UCCI and the Nakpils object to the payment of the additional amount of P200. plans and specifications prepared by petitioners in the case of the Nakpils. 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. exempts from liability. In their respective briefs petitioners. poor workmanship. .661. p. New Civil Code).. 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. 1723. reiterated his conclusion that the defects in the plans and specifications indeed existed. which provides: Art. raised the following assignments of errors: Philippine Bar Association claimed that the measure of damages should not be limited to P1. (Ibid. The action must be brought within ten years following the collapse of the building. 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. 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.

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

Cited in G. on the other hand. was unable. In any event. (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. UNITED's Brief as Petitioner. 1968 earthquake (L-47896. p. (7) the findings of facts of the Court of Appeals are contrary to those of the trial court. the Court of Appeals modified the amount by awarding in favor of PBA an additional sum of P200. 1970. May 29. (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. (2) the inference made is manifestly mistaken. June 30. 21 SCRA 648. Sacay v. however. 1 Assignment of Error.671. 19 SCRA 289.830. while the trial court awarded the PBA said amount as damages. July 10. plus unrealized rental income for one-half year. 11 Assignment of Errors. No. Alsua-Bett vs. thru no fault of its own. 1979. 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. surmise and conjectures. CA . On the contrary. 1970. Roque vs. However. 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. PBA's No.76 a year until the judgment for the principal amount shall have been satisfied L. Vol. p. 92 SCRA 322. 66497-98. 651).00 representing the damage suffered by the PBA building as a result of another earthquake that occurred on April 7. 33 SCRA 622. UNITED.28 to shore up the building after the August 2.00 inasmuch as it was not initially a total loss. p. 1968 earthquake was only partial and it is undisputed that the building could then still be repaired and restored to its tenantable condition. July 30. 247. February 8. 1967. Sandiganbayan. 366). p. The PBA.000. It is evident that the case at bar does not fall under any of the exceptions above-mentioned. 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." cannot be ignored. I. 1970 (L-47896. 6. Court of Appeals. 19). 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 P178.000.661. The PBA in its brief insists that the proper award should be P1.. PBA's No. 1967. The collapse of the PBA building as a result of the August 2. while both the NAKPILS and UNITED question the additional award of P200. CA. Buan. 291-292. (3) there is grave abuse of discretion. 92). 19). NAKPIL's Brief as Petitioner.grounded entirely on speculation.47896. Oct. Gutierrez. 1986). in view of its lack of needed funding.000.00 in favor of the PBA (L- 47851.000. (4) the judgment is based on misapprehension of facts. (5) the findings of fact are conflicting . Pepsi-Cola Bottling Co. spent P13. 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. to have the building repaired. 31.00 representing the total value of the building (L-47896. 33 SCRA 243.R. (8) said findings of facts are conclusions without citation of specific evidence on which they are based. 25). p. 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.

factors which are neither mysterious nor esoteric. 1968 earthquake was of such an overwhelming and destructive character that by its own force and independent of the particular negligence alleged. These deficiencies are attributable to negligent men and not to a perfect God. Following the same line of reasoning. authorized the total demolition of the building (L-47896. poor workmanship. If this were so. Because of the earthquake on April 7. 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. Nakpil and Sons alleges that the designs were adequate in accordance with pre-August 2.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. 1. however. 53-54). Fortunately. to weather the severe earthquake forces was traced to design deficiencies and defective construction. Vol. p. The record is replete with evidence of defects and deficiencies in the designs and plans. deviation from plans and specifications and other imperfections. pp. We are not convinced on the basis of the evidence on record that from the thousands of structures in Manila. the facts on record allow a more down to earth explanation of the collapse. as a unique and distinct construction with no reference or comparison to other buildings. If we follow this line of speculative reasoning. The evidence reveals defects and deficiencies in design and construction. It does not necessarily follow. 1970. drought.Decision. the trial court after the needed consultations. The theological allusion of appellant United that God acts in mysterious ways His wonders to perform impresses us to be inappropriate. 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. defective construction. 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. The failure of the PBA building. We quote with approval the following from the erudite decision penned by Justice Hugo E. lightning. 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. 1968 knowledge and appear inadequate only in the light of engineering information acquired after the earthquake. The act-of-God arguments of the defendants. 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. There is no mystery about . that specific losses and suffering resulting from the occurrence of these natural force are also acts of God. 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. floods. 46). and perils of the sea are acts of God. the injury would have been produced.

and natural forces is precisely the reason why we have professional experts like architects. to withstand and successfully weather those forces. were responsible for the damages. Defendants' Objections to the Report. it also examined the ability of the PBA building. Plaintiffs' Reply to the Commissioner's Answer. Instead of laying the blame solely on the motions and forces generated by the earthquake. (St. as designed and constructed. Third Party Defendants' Objections to the Report. to wit: Physical evidence before the earthquake providing (sic) inadequacy of design. . 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. and engineers. The findings of the lower Court on the cause of the collapse are more rational and accurate. Defendants' Reply to the Commissioner's Answer. and the winds blew. 2. It was a result of the imperfections in the work of the architects and the people in the construction company. Sun-baffles on the two sides and in front of the building. The collapse of the PBA building was no wonder performed by God. Matthew 7: 24-27). Commissioner's Answer to the various Objections. Plaintiff's Objections to the Report. The Report of the Commissioner. Increase the inertia forces that move the building laterally toward the Manila Fire Department.these acts of negligence. winds. and the rain descended and the floods came and the winds blew and beat upon that house. 1. The evidence sufficiently supports a conclusion that the negligence and fault of both United and Nakpil and Sons. for it was founded upon a rock" and of the "foolish upon the sand. and it fell and great was the fall of it. not a mysterious act of an inscrutable God." The requirement that a building should withstand rains. Designs and constructions vary under varying circumstances and conditions but the requirement to design and build well does not change. and it fen not. 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. Counter-Reply to Defendants' Reply. earthquakes. 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. 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. b. floods. And the rain descended and man which built his house the floods came. Create another stiffness imbalance. inadequate design was the cause of the failure of the building. a. and beat upon that house.

The Third-party defendants. 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. A7 and D7 columns were very much less reinforced. 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. not only in columns but also in slabs. There was a lateral displacement of the building of about 8". 4. complex and highly specialized computations and analyzes which he himself emphasizes are necessary in the determination of such a highly technical question. however. (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. 1. 4. plans and specifications of the PBA building which involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. 3. Also D7. Maximum sagging occurs at the column A7 where the floor is lower by 80 cm. rightly belonged to the realm of speculation. than the highest slab level. There are more damages in the front part of the building than towards the rear. Slab at the corner column D7 sagged by 38 cm. to wit. 2. Proving Inadequacy of design. rather than of certainty and could very possibly be outright error. Floors showed maximum sagging on the sides and toward the front corner parts of the building. (c) the Commissioner has failed to back up or support his finding with extensive. The Commissioner answered the said objections alleging that third-party defendants' objections were based on estimates or exhibits not presented . who are the most concerned with this portion of the Commissioner's report. 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. He conceded. that the design is essentially that of a heavy rectangular box on stilts with shear wan at one end. The Commissioner concluded that there were deficiencies or defects in the design. therefore. Column A7 suffered the severest fracture and maximum sagging. Building leaned and sagged more on the front part of the building. but in the light of recent and current standards. 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. Two front corners. 6.3. Physical Evidence After the Earthquake. 5.

It involves questions not within the ordinary competence of the bench and the bar to resolve by themselves. cannot agree on what equation to use. The difficulty expected by the Court if tills technical matter were to be tried and inquired into by the Court itself. on the codes to be used and even as to the type of structure that the PBA building (is) was (p. All these may be summarized as follows: a. . 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. being interrelated with each other. and the objections voiced to the same. although dealing in mathematics. if any. 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. constituted the reason for the reference of the said issues to a Commissioner whose qualifications and experience have eminently qualified him for the task. Bundalian. will be discussed together. These two issues. The issue presently considered is admittedly a technical one of the highest degree. Memo. 29. who are all engineers. of third. plans and specifications prepared by third-party defendants. Counsel for the third-party defendants has aptly remarked that "engineering. and how said deviations contributed to the damage sustained by the building. so much so "that the experts of the different parties. 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. and that said defects and deficiencies involved appreciable risks with respect to the accidental forces which may result from earthquake shocks. coupled with the intrinsic nature of the questions involved therein.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. Within the pardonable limit of the Court's ability to comprehend the meaning of the Commissioner's report on this issue. made by the defendants from the plans and specifications.party defendants before the Commissioner). as to what earthquake co- efficients are. (1) Wrongful and defective placing of reinforcing bars. (2) Absence of effective and desirable integration of the 3 bars in the cluster. and whose competence had not been questioned by the parties until he submitted his report. 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.

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

c.(10) Column A4 — Spirals cut off and welded to two separate clustered vertical bars. (8) Column C7— Spirals are absent at lowest 18" (9) Column D5 — At lowest 2 feet spirals are absent. (11) Column D7 — Lateral ties are too far apart. We shall first classify and consider defects which may have appreciable bearing or relation to' the earthquake-resistant property of the building. (2) Column A5 — Spirals are cut. (4) Column A7 — Ties are too far apart. (7) Column B7 — At upper fourth of column spirals missing or improperly spliced. spaced 16" on centers. (13) Column A6 — No spirals up to a height of 30' above the ground floor level. (3) Column A6 — At lower 18" spirals are absent. 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. (6) Column B6 — At upper 2 feet spirals are absent. . (1) Column A4 — Spirals are cut. (14) Column A7— Lack of lateralties or spirals. (10) Column D6 — Spirals are too far apart and apparently improperly spliced. Ground floor columns. (5) Column B5 — At upper fourth of column spirals are either absent or improperly spliced. (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. There is merit in many of these allegations. Summary of alleged defects as reported by the experts of the Third-Party defendants.

p. this would not do for the elasticity of steel would . this is certainly an evidence on the part of the contractor of poor construction. 970. The main effect of eccentricity is to change the beam or girder span. Reference 11). 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. 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. There were several clear evidences where this was not done especially in some of the ground floor columns which failed. The proper placing of the main reinforcements and spirals in column A5. details which insure ductility at or near the connections between columns and girders are desirable in earthquake resistant design and construction. 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. The cutting of the spirals in column A5. therefore. 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. they nevertheless diminish said factor of safety. and although this column did not fail. 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%. 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. There is no excuse for the cavity or hollow portion in the column A4. is the responsibility of the general contractor which is the UCCI. Specifications. therefore. 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. 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 is not quite correct. ground floor. While these can certainly be absorbed within the factor of safety. 1. ground floor is the subject of great contention between the parties and deserves special consideration. 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. second floor. The effect on the measured eccentricity of 2 inches. If the reinforcement for the girder and column is to subsequently wrap around the spirals.As heretofore mentioned. that this cutting was done by others is upon the defendants. The burden of proof.

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 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. (pp. prevent the making of tight column spirals and loose or improper spirals would result. Commissioners Report). The engineering experts for the defendants submitted an estimate on some of these defects in the amount of a few percent. It is reasonable to conclude. a procedure which can not be done if either the beam or girder reinforcement is already in place. therefore. Since the execution and supervision of the construction work in the hands of the contractor is direct and positive. In other words. 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. therefore. therefore. 42-49. that the proven defects. This lack of proper splicing contributed in a small measure to the loss of strength. these defects and deficiencies not only tend to add but also to multiply the effects of the shortcomings in the design of the building. The liability for the cutting of the spirals in column A5. 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. deficiencies and violations of the plans and specifications of the PBA building contributed to the damages which resulted during the earthquake of August 2. 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. As the parties most directly concerned with this portion of the Commissioner's report. 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. ground floor. therefore. We may say. that the defects and deficiencies in the construction contributed greatly to the damage which occurred. 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. 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. The proper way is to produce correct spirals down from the top of the main column bars. 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 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 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 defendants.

As found by the Commissioner. groundfloor. Vol. and in the latter. the Commissioner stated that. by calling attention to the fact that the missing spirals and ties were only in two out of the 25 columns. resulting in some loss of strength which could be critical near the ends of the columns. Answering the said objections. the eccentricities in the columns.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. did not aggravate or contribute to the damage. He answered the supposition of the defendants that the spirals and the ties must have been looted. I. and that the cutting of the spirals in column A5. 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. second floor." On the claim that the eccentricity could be absorbed within the factor of safety. D-5 and B-7. was done by the plumber or his men. since many of the defects were minor only the totality of the defects was considered. ground floor. 128-142) The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the third-party defendants in effecting the plans. but averred that it is "evidence of poor construction. the defendants should be held liable for the same as the general contractor of the building. while the same may be true. it also contributed to or aggravated the damage suffered by the building. and not by the defendants. was answered by the Commissioner by reiterating the observation in his report that irrespective of who did the cutting of the spirals. 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. which rendered said supposition to be improbable. 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. pp. (Rollo. The objection regarding the cutting of the spirals in Column A-5. The Commissioner conceded that the hollow in column A-4. the lack of proper length of splicing of spirals. that the hollow in column A4. 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. B-6. 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. that the defects in the construction were within the tolerable margin of safety. or where the spacing of the spirals and ties in the columns were greater than that called for in the specifications. 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. as evidenced by the actual failure of this column. 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. C-6. the Commissioner specified groundfloor columns B-6 and C-5 the first one without spirals for 03 inches at the top. Again. did not aggravate or contribute to the damage suffered by the building. the Commissioner answered that. second floor. specifications. C- 7. ground floor. and the cut in the spirals in column A5. there were no spirals for 10 inches at the bottom. and construction of the PBA building and We hold such negligence as equivalent to bad faith in the performance of their respective tasks. . designs. C-5.

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. 1723.00).G. in favor of GILAT. without which the damage would not have occurred..250. One Virtual promised to pay a portion thereof totalling US$1.. Petitioner. The antecedent facts.. the ruling of the Supreme Court in Tucker v. as culled from the CA.000. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5.000. UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO. twelve (12%) per cent interest per annum shall be imposed upon afore-mentioned amounts from finality until paid. As already discussed. WHEREFORE. 89263. 02-461. the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case. CV No. Respondent. SO ORDERED. Of the said purchase price for the goods delivered. vs. which reversed the Decision4 of the Regional Trial Court (RTC).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. the total sum being payable upon the finality of this decision. 1999.R. are as follows: On September 15. 4379. To ensure the prompt payment of this amount. One Virtual placed with GILAT a purchase order for various telecommunications equipment (sic). LTD. We deem it reasonable to render a decision imposing. 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. 189563 April 7. Solidary costs against the defendant and third-party defendants (except Roman Ozaeta). gross negligence and evident bad faith.128. accessories. INC. although the act of a third person. Branch 141. Makati City in Civil Case No. 2014 GILAT SATELLITE NETWORKS.00) Pesos as and for attorney's fees. intervenes to precipitate the loss. p. upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. DECISION SERENO. or an act of God for which he is not responsible.. at a total purchase price of Two Million One Hundred Twenty Eight Thousand Two Hundred Fifty Dollars (US$2.’s surety bond dated 3 December 1999. No. ordering respondent to pay petitioner a sum of money. as We do hereby impose. services and software. Civil Code. . Supra.2 Million in accordance with the payment schedule dated 22 November 1999. Truth to tell hundreds of ancient buildings in the vicinity were hardly affected by the earthquake. the destruction was not purely an act of God.R.000. Upon failure to pay on such finality. spares. Only one thing spells out the fatal difference. Milan (49 O. Inc.Relative thereto. it obtained defendant UCPB General Insurance Co. G.

as "spelled out in the Surety Bond executed by and between One Virtual as Principal. Inc. Under an endorsement dated December 23. 2001 to July 30.200.."8 Considering that its liability was indeed that of a surety. However. The defendant surety to pay the plaintiff the amount of Forty Four Thousand Four Dollars and Four Cents (US$44. to recover the amounts supposedly covered by the surety bond. prompting GILAT to send a second demand letter dated January 24. 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. the Court hereby renders judgment for the plaintiff. correcting its expiry date from May 30. One Virtual failed to pay any of the payments agreed upon. defendant UCPB failed to settle the amount of US$1. The defendant surety to pay the plaintiff the amount of One Million Two Hundred Thousand Dollars (US$1.00. defendant’s counterclaim is hereby dismissed for want of merit.10 . plus interests and expenses (Exhibits "H") and which letter was received by the defendant surety on January 25.00) representing the principal debt under the Surety Bond.. an amendment to the surety bond. as evidenced by airway bills/Bill of Lading (Exhibits "F". UCPB as Surety and GILAT as Creditor/Bond Obligee. Even with the delivery and installation made. ordering.04) representing attorney’s fees and litigation expenses. prompting GILAT to write the surety defendant UCPB on June 5. and 2.200. Ltd.000.00 guaranteed under the surety bond. for the payment of the full amount of US$1. 2001. Accordingly. defendant failed and refused and continued to fail and refused to settle the obligation. the RTC reasoned that there is "no dispute that plaintiff [petitioner] delivered all the subject equipments [sic] and the same was installed. the surety issued. the RTC rendered its Decision. Demand notwithstanding. Annex "A" thereof. One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400. "F-1" to "F-8"). 2000. GILAT shipped and delivered to One Virtual the purchased products and equipment. 2001.During the period between [sic] September 1999 and June 2000. hence. premises considered. the instant complaint.000.00 or a part thereof.200. (Emphasis in the original) In so ruling. and against the defendant. This obligation was not made dependent on any condition outside the terms and conditions of the Surety Bond and Payment Milestones. 2000 in accordance with the payment schedule attached as Annex "A" to the surety bond. plus interests and expenses. a demand letter (Exhibit "G") for payment of the said amount of US$400. SO ORDERED. was shipped by GILAT and duly received by One Virtual.004.. After due hearing. with One Virtual’s conformity. No part of the amount set forth in this demand has been paid to date by either One Virtual or defendant UCPB. 2001. 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. filed a Complaint6 against respondent UCPB General Insurance Co.000. petitioner Gilat Satellite Networks.000.7 the dispositive portion of which is herein quoted: WHEREFORE.000. 1999 (Exhibit "E")."9 respondent agreed and bound itself to pay in accordance with the Payment Milestones.00) on the due date of May 30. All of the equipment (including the software components for which payment was secured by the surety bond."5(Emphases in the original) On 24 April 2002. to wit: 1.

this appealed case is DISMISSED for lack of jurisdiction.00 representing the principal debt under the Surety Bond. On 31 August 2010. Inc. petitioner filed a Reply. 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. the surety shall only accrue when the delay or refusal to pay the principal obligation is without any justifiable cause.12 The RTC then obligated respondent to pay petitioner the amount of USD1. (Emphasis in the original) The CA ruled that in "enforcing a surety contract. and 2.15 In this case. On 9 September 2008.Insofar as the interests were concerned. The trial court’s Decision dated December 28.22 ISSUES From the foregoing. Whether or not the CA erred in dismissing the case and ordering petitioner and One Virtual to arbitrate. the accessory contract must be construed with the principal agreement. respondent appealed to the CA.19 the trial court’s Decision was vacated. On 18 October 2007. .04 representing attorney’s fees and litigation expenses.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..200. defendant-appellant United Coconut Planters Bank General Insurance Co. The motion was denied for lack of merit in a Resolution20 issued by the CA on 16 September 2009. nor can an arbitration clause between the buyer and the seller be invoked by a non-party such as the surety. the instant Petition.004.16 whose stipulations are also binding on the parties to the suretyship. THE COURT’S RULING The existence of a suretyship agreement does not give the surety the right to intervene in the principal contract. petitioner filed a Motion for Reconsideration with Motion for Oral Argument.11 Here. respondent filed a Comment21 on the Petition for Review. and USD44.000.. Hence. and One Virtual are ordered to proceed to arbitration. including the surety. petitioner and One Virtual were ordered to proceed to arbitration. On 24 November 2010. 2006 is VACATED. 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. SO ORDERED. respondent failed to pay its surety obligation because of the advice of its principal (One Virtual) not to pay. we reduce the issues to the following: 1. the appellate court considered the Purchase Agreement entered into between petitioner and One Virtual as the principal contract." According to this doctrine.13 The appellate court rendered a Decision14 in the following manner: WHEREFORE. Plaintiff-appellant Gilat Satellite Networks Ltd. the ‘complementary-contracts-construed-together’ doctrine finds application. the outcome of which shall necessary bind the parties. with legal interest at the rate of 12% per annum computed from the time the judgment becomes final and executory.

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

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

i. With regard to the interest rate to be imposed.e. 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."58Assuming arguendo that the commissioning work was not completed. the interest due should be that which may have been stipulated in writing. Erez Antebi. like proof of his exercise of due diligence x x x or of the attendance of fortuitous event.61 we agree with the latter that interest must start to run from the time petitioner sent its first demand letter (5 June 2000). One Virtual’s advice regarding petitioner’s alleged breach of obligations. because the obligation was already due and demandable at that time. a loan or forbearance of money. unless they are made the basis for action. (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. i. or his "reliance interest. and that the equipment had been installed and in fact. we take cue from Nacar v. a corresponding right of relief. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered.e. the deposition of Mr. the interest due shall itself earn legal interest from the time it is judicially demanded. prima facie. When the obligation is breached. xxxx . interest on the amount due begins to run." 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. petitioner would not have been forced to stop operations.. CA63 in relation to Bangko Sentral- Monetary Board Circular No. the rate of interest shall be 6% per annum to be computed from default. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code." 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. 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. if only it had paid its obligation on time. vice president of Gilat. our Civil Code is explicit in stating that it accrues from the time judicial or extrajudicial demand is made on the surety. and it consists in the payment of a sum of money. 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. 799 (Series of 2013). The effect of every infraction is to create a new duty. to wit: 1. As to the issue of when interest must accrue. including the licensed software.62 which modified the guidelines established in Eastern Shipping Lines v. that is. Indeed. respondent still failed to pay.60 Considering that respondent failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement. but from the date of that extra-judicial demand. One Virtual. In 1âwphi 1 the absence of stipulation.In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify. to excuse him from his ensuing liability. The remedy serves to preserve the interests of the promissee that may include his "expectation interest. The law. and that the extrajudicial demand of petitioner was sent on 5 June 2000." which is his interest in having restored to him any benefit that he has conferred on the other party. Furthermore. agreements can accomplish little. Moreover. not from the date of the filing of the complaint. gone into operation. either for their makers or for society..59 Notwithstanding these compliances. recognizing the obligatory force of contracts. respondent has no one to blame but its principal. repeatedly stated that petitioner had delivered all equipment. 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. or his "restitution interest. Gallery Frames.

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

delicts or quasi-delicts is breached. Furthermore. 184472 denying the petition of the Spouses Chua for failure to sufficiently show any reversible error in the ruling of the appellate court. i. When the obligation is breached. (3) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties. the interest due should be that which may have been stipulated in writing.32 chanRob lesvi rtua lLawl ibra ry We cite our recent ruling in Nacar v.R. specifically the reduction of the interest rate imposed on Rivera’s indebtedness under the Promissory Note. the 12% per annum rate of legal interest is only applicable until 30 June 2013. is imposed. However. No. of subject matter and of causes of action. steep.e. contracts.. identity of parties. Ultimately. Significantly. when judicial demand was made. Since the interest rate agreed upon is void. II. the parties are considered to have no stipulation regarding the interest rate. In short.” At the time interest accrued from 1 January 1996. The provisions under Title XVIII on “Damages” of the Civil Code govern in determining the measure of recoverable damages.” From the time of judicial demand. the issue on payment of interest has been squarely disposed of in G. and (2) 6% per annum from 1 July 2013 to date when this Decision becomes final and executor. i.[27 chanRoblesvi rtua lLaw lib rary The appellate court found the 5% a month or 60% per annum interest rate. 184472. as follows: ChanRobles Vi rtua lawlib rary 1. and (2) 6% per annum FROM 1 July 2013 to date when this Decision becomes final and executory. 416 in cases involving the loan or forbearance of money. Gallery Frames:33 chanRoble svirtua lLawli bra ry I. to the date when this Decision becomes final and executory. the contravenor can be held liable for damages.30 BSP Circular No. 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. Pursuant to our ruling in Nacar v. In the absence of stipulation. the date of judicial demand to 30 June 2013. between the first and the second action. tantamount to it being illegal.R. 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. Nos. When an obligation.R. our ruling thereon affirming the Court of Appeals is a “bar by prior judgment. No. Gallery Frames. 799. the actual amount owed by Rivera to the Spouses Chua could already be determined with reasonable certainty given the wording of the Promissory Note.29 Thus. Series of 2013 reducing the rate of legal interest to 6% per annum. 11 June 1999.28 chanRoblesvi rtua lLawl ibra ry In this case. the rate of interest shall . on top of the legal interest and attorney’s fees. the legal interest accruing from the Promissory Note is 12% per annum from the date of default on 1 January 1996. 184458 and 184472 involve an identity of parties and subject matter raising specifically errors in the Decision of the Court of Appeals. the date of default under the Promissory Note. before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No.R..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. and (4) there must be.e. the petitions in G. the rate of interest should be 12% per annum computed from the date of judicial or extrajudicial demand. 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. thus. such is likewise divided into two periods: (1) 12% per annumfrom 11 June 1999. law. the interest due shall itself earn legal interest from the time it is judicially demanded. regardless of its source. No. (2) the judgment or order must be on the merits. iniquitous and unconscionable. and it consists in the payment of a sum of money. With regard particularly to an award of interest in the concept of actual and compensatory damages. As for the legal interest accruing from 11 June 1999.illegal if they are unconscionable and the Court is allowed to temper interest rates when necessary. the denial of the petition in G. quasi-contracts. although the obligation may be silent on this point. 799 is prospectively applied from 1 July 2013. the date when Rivera defaulted. the applicable rate of legal interest from 1 January 1996. Where the Court of Appeals’ disposition on the propriety of the reduction of the interest rate was raised by the Spouses Chua in G. the rate of interest. the then prevailing rate of legal interest was 12% per annum under Central Bank (CB) Circular No. a loan or forbearance of money. as well as the accrual thereof.

2013. be on the amount finally adjudged. The actual base for the computation of legal interest shall. the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. in recognition that the Spouses Chua were compelled to litigate and incurred expenses to protect their interests. judgments that have become final and executory prior to July 1. 3. however. but when such certainty cannot be so reasonably established at the time the demand is made. 12 % per A. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 6% per B. (Emphasis supplied) On the reinstatement of the award of attorney’s fees based on the stipulation in the Promissory Note. January 1. 2013 date when this B. i. And.. No interest. 6% per 1-4 annum on the annum on the total . 1169.000. 12% per P50. For clarity and to obviate confusion. this interim period being deemed to be by then an equivalent to a forbearance of credit. When the judgment of the court awarding a sum of money becomes final and executory. whether the case falls under paragraph 1 or paragraph 2.00 as attorney’s fees is proper. where the demand is established with reasonable certainty.000. albeit in a reduced amount. When an obligation. not constituting a loan or forbearance of money. Accordingly. 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. 1996 A. 2.000.000. July 1. is breached. shall be adjudged on unliquidated claims or damages. 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). July 1 2013 to 30.34 Thus.00 Total annum on the annum on the total amount principal amount of amount of column of P120. in addition to the above. an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. except when or until the demand can be established with reasonable certainty.00 A. 2013 (date of judicial amount December demand) to June 31. in any case. above. The interest imposed in the Promissory Note already answers as liquidated damages for Rivera’s default in paying his obligation. be 6% per annum to be computed from default.e.00 2 Columns B. the award of P50. 1995 to to June 30. 1995 B. We award attorney’s fees. 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. the rate of legal interest. June 11. 1999 Wholesale 24. Civil Code). 2013 to Decision becomes date when this final and executory Decision becomes final and executory P120. shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein. shall be 6% per annum from such finality until its satisfaction.

No.00 form 1 July 2013 to date when this Decision becomes final and executory.R. .000. (2) legal interest of 12% per annum of the principal amount of P120. 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. the petition in G. ABAD.000. J. G.versus - PERALTA. Costs against petitioner Rodrigo Rivera. Present: CARPIO.000. The Decision of the Court of Appeals in CA-G.. as interest due earning legal interest. principal amount of amount of column P120.00.00. No. (4) 12% per annum applied to the total of paragraphs 2 and 3 from 11 June 1999. 184458 is DENIED. (6) Attorney’s fees in the amount of P50. Chairperson.000. NACHURA. as interest due earning legal interest. to 30 June 2013.00 235 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..R. 176868 Petitioner. SOLAR HARVEST. (3) legal interest of 6% per annum of the principal amount of P120. 90609 is MODIFIED. and (7) 6% per annum interest on the total of the monetary awards from the finality of this Decision until full payment thereof. date of judicial demand. (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. and .R. SP No.000.00 reckoned from 1 January 1996 until 30 June 2013. the interim period being deemed to be a forbearance of credit. chanrob leslaw WHEREFORE. INC.

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

[5] respondent insisted that.500 boxes.400.150.00 in respondents US Dollar Savings Account with Westmont Bank. 2001. petitioner. it had already completed production of the 36. 14. Respondent stated that petitioner was . petitioner wrote a demand letter for reimbursement of the amount paid. That repeated follow-up was made by the plaintiff for the immediate production of the ordered boxes. 14. On August 17.000 had been completed without waiting for petitioners payment. petitioner filed a Complaint for sum of money and damages against respondent. 7. but every time. as agreed upon. out of which. 1998 and that petitioner failed to pick them up from the formers warehouse 30 days from completion. in fact. 1998. out of which. contrary to petitioners allegation. 1998. Respondent then demanded petitioner to remove the boxes from the factory and to pay the balance of US$15. On January 3.[3] On February 19. Respondent mentioned that petitioner even placed an additional order of 24. US$40. respondent replied that the boxes had been completed as early as April 3. as full payment for the ordered boxes.00 for the additional boxes and P132.150.000. 2001.00 as storage fee. According to respondent. defendant [would] only show samples of boxes and ma[k]e repeated promises to deliver the said ordered boxes.00 payment made by the former for the ordered boxes. as early as April 3.000 had been manufactured without any advanced payment from petitioner. That because of the failure of the defendant to deliver the ordered boxes. 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. 2001. It further alleged 6.000 boxes.000 boxes.March 31. made an additional order of 24. 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.[4] In its Answer with Counterclaim. petitioner did not receive any boxes from respondent.

Respondent claimed that the boxes were occupying warehouse space and that petitioner should be made to pay storage fee at P60. but petitioner failed to do so. 1999. As counterclaim.[7] He specifically stated that. Que visited the factory again and supposedly advised respondent to sell the boxes as rejects to recoup the cost of the unpaid 14. Bobby Que (Que). went to the factory and saw that the boxes were ready for pick up. was sending a ship to Davao to get the bananas. attorneys fees. the Chinese company that ordered the bananas. the ship could not proceed. was promised that production of the order would be rushed. on October 8. he followed-up the order and was told that the company had full production. petitioner presented Que as its sole witness. to cancel the order because it was already late for them to meet their commitment to ship the bananas to China.[6] During trial.[8] A few months later. respondent prayed that judgment be rendered ordering petitioner to pay $15.000 boxes and that respondent already completed the initial order of 36. because petitioners transaction to ship bananas to China did not materialize. Que testified that he ordered the boxes from respondent and deposited the money in respondents account.500 boxes and 14. but since there were no cartons. Thereafter.00.to pick up the boxes at the factory as agreed upon. petitioners representative. bananas from Tagum Agricultural Development Corporation (TADECO) were already there. Que further testified that China Zero Food. It maintained that respondent only manufactured a sample of the ordered boxes and that respondent could not have produced 14. he asked his partner.000 boxes. Respondent averred that. Alfred Ong.[9] On cross-examination. petitioner denied that it made a second order of 24. and thus. 1998. He said that. He told respondent that it should indeed rush production because the need for the boxes was urgent. at that time.00 per square meter for every month from April 1998. and costs of the suit. He denied that . moral and exemplary damages. plus interest. when he visited respondents factory.000 boxes without the required pre- payments.000 boxes out of the secondorder. On February 20. In reply.400. he saw that the boxes had no print of petitioners logo.

[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. but they. Estanislao said that petitioner did not pick up the boxes because the ship did not arrive. he asked them to withdraw the boxes immediately because they were occupying a big space in his plant. SO ORDERED.000 boxes. premises considered. they inspected the boxes again and Que got more samples. accordingly. 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.[14] .[13] According to him. 2004 Decision. told him to sell the cartons as rejects. Defendants counterclaims are similarly dismissed for lack of merit. 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.000. He said that the agreement was for respondent to produce the boxes and for petitioner to pick them up from the warehouse. also testified that his company finished production of the 36.000 boxes at P20.petitioner made an additional order of 24. He explained that it took three years to refer the matter to counsel because respondent promised to pay.[11] Jaime Tan (Tan). disposing as follows: WHEREFORE. instead. during the last visit of Que and Estanislao. In its March 2.000 boxes.500 boxes on April 3. He was able to sell 5.00 each for a total of P100. judgment is hereby rendered in favor of defendant and against the plaintiff and. It thus dismissed the complaint and respondents counterclaims. 1998 and that petitioner made a second order of 24. In February 2000. They then told him to apply the said amount to the unpaid balance.[10] For respondent. plaintiffs complaint is hereby ordered DISMISSED without pronouncement as to cost.00. president of respondent.

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

neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is . 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. However. or (3) When demand would be useless. Art. In determining when default occurs. This is understood to be without prejudice to the rights of third persons who have acquired the thing. In reciprocal obligations. 1191 should be taken in conjunction with Art. as when the obligor has rendered it beyond his power to perform. 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. which provides: Art. 1169 of the same law. 1169. 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. in accordance with Articles 1385 and 1388 and the Mortgage Law.

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

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

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

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

give it the right to dispose of them. The Court of Appeals Decision dated September 21. GOVERNMENT SERVICE INSURANCE SYSTEM. In addition. consequently. No. premises considered. WHEREFORE. petitioner is given a period of 30 days from notice within which to cause the removal of the 36.500 boxes from respondents warehouse. plaintiff-appellee vs. TADECO would not have allowed respondent to deposit the boxes within its premises. subject to the condition that the latter should forthwith occupy the house. Agcaoili. respondent shall have the right to dispose of the boxes in any manner it may deem fit. after petitioner is given a period of time within which to remove them from the premises. Office of the Government Corporate Counsel for defendant-appellant. a condition that Agacoili tried to fulfill but could not for the reason that the house was absolutely uninhabitable.R. the subject boxes are still within respondents premises. the petition is DENIED. without such authority. L-30056 August 30. Rizal. the Court finds that petitioner failed to establish a cause of action for rescission. In sum. Agcaoili for plaintiff-appellee. 1988 MARCELO AGCAOILI. the evidence having shown that respondent did not commit any breach of its contractual obligation. and appellant having refused to do so. G. J. 2007 are AFFIRMED. (GSIS. NARVASA. opting instead to cancel the award and demand the vacation by . As previously stated. Artemio L. 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. having thereafter refused to make further payment of other stipulated installments until GSIS had made the house habitable. after paying the first installment and other fees. we therefore relieve respondent from the burden of having to keep the boxes within its premises and. To put a rest to this dispute. 2006 and Resolution dated February 23.Surely.: The appellant Government Service Insurance System. defendant-appellant. After the lapse of said period and petitioner fails to effect such removal.

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

signed it. By any objective interpretation of its terms. to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purpose contemplated . There would be no sense to require the awardee to immediately occupy and live in a shell of a house. Rizal at a definite price payable in amortizations at P31. no contract ever came into existence between them . Since GSIS did not fulfill that obligation. 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. and required him to immediately occupy it under pain of cancellation of the sale. such circumstance precludes a judgment for specific performance. the awardee should stay and live in it. and was being sold "as is. duly filled up." and assuming indefiniteness of the contract in this regard. making do with whatever he found available in the envirornment. entitled "Application to Purchase a House and/or Lot. and submitted it. this form sent to Agcaoili. and from that moment the parties acquired the right to reciprocally demand performance. the duty of the GSIS. in whatever state of completion it might be at the time. (48) 2. 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. advised him of the approval of his "application to purchase a house and lot in our GSIS Housing Project at NANGKA..56 per month. is to advocate an absurdity. and a roof. MARIKINA. This it failed to do." or in any case within three (3) days from notice. 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. together with the housing unit constructed thereon." i. and it was by reasonable standards. 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. 13 It was. As already mentioned. "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. (and) he is deemed to have accepted the same in the condition he found it when he accepted the award.e. it cannot invoke Agcaoili's suspension of payment of amortizations as . habitable. On the other hand. and was not willing to put the house in habitable state. 26. since said unit had been sold "in the condition and state of completion then existing . Block No. as seller. 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. since the contract did not clearly impose upon it the obligation to deliver a habitable house. to deliver the house subject of the contract in a reasonably livable state. It sold a house to Agcaoili. the condition explicitly imposed on Agcaoili — "to occupy the said house immediately.12 The acceptance of the application was also set out in a form (mimeographed) also prepared by the GSIS. to be sure.14 in other words. which again refers to "the house and lot awarded" — contained any hint that the house was incomplete..10 3) Agcaoili's act of placing his homeless friend.. has been allocated to you. and that indeed. a structure consisting only of four walls with openings. Villanueva. and the latter having failed to comply with the condition. 11 Agcaoili's offer to buy from GSIS was contained in a printed form drawn up by the latter." and that "Lot No." Agcaoili filled up the form. and to theorize. RIZAL. in possession. the creation of an unfair situation. 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. There was then a perfected contract of sale between the parties.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." Neither the application form nor the acceptance or approval form of the GSIS — nor the notice to commence payment of a monthly amortizations. as the GSIS does.

Agcaoili unwilling to pay unless the house were first completed. oppressive. must be rejected as devoid of merit. which is precisely what has been the state of affairs between the parties for more than twenty (20) years now. 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. As we . through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases. . the question of interpretation arising therefrom. to compel the GSIS to do so so that Agcaoili's prestation to pay the price might in turn be demanded. inequitable. or result in an unconscionable advantage to the plaintiff . as it were. he did try to occupy the house but found it to be so uninhabitable that he had to leave it the following day. agreed to stay therein and look after it. 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. who being homeless and hence willing to accept shelter even of the most rudimentary sort. that offer being contained in a printed form supplied by the GSIS. Thus the argument that Agcaoili breached the agreement by failing to occupy the house. are incompetent so to do. or imprecise as to its exact prestation Blame for the imprecision cannot be imputed to Agcaoili. as it is variously expressed by different courts. the intent and not the form. Court of Industrial Relations (83 SCRA 579.. It is axiomatic that "(i)n reciprocal obligations. the GSIS should not be heard to say that the agreement between it and Agcaoili is silent. reaffirmed in Air Manila. not only that the contract be just and equitable in its provisions. should be resolved against it. under the circumstances of the case. It will not do. to the end that it may render complete justice to both parties. Equity regards the spirit of and not the letter. Finally. vs. and the GSIS averse to completing construction.. the substance rather than the circumstance. 589 [1978]). without modifying the price therefor. The cost to the GSIS of completion of construction at present prices would make the stipulated price disproportionate. but that the consequences of specific performance likewise be equitable and just. unrealistic. the Court can not require specific performance of the contract in question according to its literal terms. it was after all the GSIS which caused the contract to come into being by its written acceptance of Agcaoili's offer to purchase. The general rule is that this equitable relief will not be granted if.. assuming it to be feasible to still finish the construction of the house at this time. On the other hand. The situation calls for the exercise by this Court of its equity jurisdiction. The record shows that Agcaoili did try to fulfill the condition. This would leave the contract hanging or in suspended animation. . He did however leave a friend in the structure. would not be quite fair. Inc. 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. The prevailing rule is that in decreeing specific performance equity requires 17 — ."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. and by allowing another person to stay in it without the consent of the GSIS. Said appellant having caused the ambiguity of which it would now make capital.cause to cancel the contract between them. the result of the specific enforcement of the contract would be harsh. as this would result in inequity. however. "(E)quity as the complement of legal jurisdiction seeks to reach and do complete justice where courts of law.. . " 16 In this case.

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

liabilities. functions. Teehankee and Carreon for plaintiffs-appellees. immediately.00 as damages for breach of contract and dismissing the counterclaim and third party complaint of the defendant- appellant NARIC.000 metric tons of Burmess Rice at $203. Isidro A. In accordance with Section 13 of Republic Act No. REGALA. No pronouncement as to costs. No. under the terms of which the former obligated herself to deliver to the latter 20. plaintiff-appellee Paz P. G. On May 19.000.00 per metric ton. INC. confirmed and assignable Letter of Credit. The application was accompanied by a transmittal letter.. 1952. thru its general manager. 3452. Vera for defendant-appellee. J. 1952. currency in favor of the plaintiff-appellee and/or supplier in Burma. the defendant corporation committed itself to pay for the imported rice "by means of an irrevocable. NATIONAL RICE AND CORN CORPORATION.. "the National Rice and Corn Administration (NARIC) is hereby abolished and all its assets. or a full month from the execution of the contract. 1964 PAZ P." Despite the commitment to pay immediately "by means of an irrevocable. therefore." however. awarding to the plaintiffs-appellees the amount of $286. CIF Manila. As her bid of $203. or if this is not possible by such commissioner or commissioners as the Court may appoint. that the defendant corporation. 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.R. powers which are not inconsistent with the provisions of this Act.: This is an appeal of the defendant-appellant NARIC from the decision of the trial court dated February 20. and all personnel are transferred "to the Rice and Corn Administration (RCA).agreement of the parties. In turn. it was only on July 30.S. SO ORDERED. 1952. The Government Corporate Counsel for defendant-appellant.000 metric tons of Burmese rice. All references. we will appreciate it if this application could be considered special case. to the NARIC in this decision must accordingly be adjusted and read as RCA pursuant to the aforementioned law. confirmed and assignable letter of credit in U. L-15645 January 31. vs. Accordingly.00 per metric ton was the lowest. MANILA UNDERWRITERS INSURANCE CO. . 1958. defendant-appellee. plaintiffs-appellees. plaintiff-appellee participated in the public bidding called by the NARIC for the supply of 20. Arrieta and the appellant corporation entered into a Contract of Sale of Rice. on July 1. she was awarded the contract for the same. took the first to open a letter of credit by forwarding to the Philippine National Bank its Application for Commercial Letter Credit. ARRIETA and VITALIADO ARRIETA. defendant-appellant.

the credit instrument applied for was opened only on September 8. On the foregoing. it must be made of record that although the Burmese authorities had set August 4. in a letter dated August 2.000. price of 20. a full half month after the expiration of the deadline. 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.614. 10-def. 1952. On the same day.O. however.." (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. 9-Def. as the deadline for the remittance of the required letter of credit..B. Paz P. 1952. "for a letter of credit for $3. 25—Def. When the futility of reinstating the same became apparent.. the NARIC bluntly confessed to the appellee its dilemma: "In this connection. We understand that our supplier.000.. and in order to comply therewith.00. representing unrealized profit. We would therefore request your full cooperation on this matter. has a deadline to meet which is August 4. 1952. Exh. the allocation of appellee's supplier in Rangoon was cancelled and the 5% deposit. Burma.000. she offered to substitute Thailand rice instead to the defendant NARIC. X-Pe.00. 1äwphï1. J-pl. p. In this connection.000.000 tons at $180. or. Rangoon. 1952. the Bank represented that it "will hold your application in abeyance pending compliance with the above stated requirement. As matter of fact. U. the appellee sent a letter to the appellant.S.000 kyats or approximately P200. 1952.. but failed." As it turned out.00 was forfeited. Folder of Exhibits). Exh. This offer for substitution.614. . Mrs. At the instance of the NARIC. to restore the cancelled Burmese rice allocation. Exh. And yet. however. was rejected by the appellant in a resolution dated November 15. Mrs. 18. p. demanding compensation for the damages caused her in the sum of $286. 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. 38. 19. Folder of Exhibits) Consequently. 1952. even with the 15-day grace. the cancellation of the allocation and the confiscation of the 5% deposit were not effected until August 20. Arrieta thru counsel. 1952." (Exh." (Exh. Burma.00 which we are not in a position to meet. the appellant corporation not in any financial position to meet the condition. 1-Pe." On August 4. and/or assignee for $3. Furthermore. 1952. Paz P. the Philippine National Bank informed the appellant corporation that its application.ñët As a result of the delay.. amounting to 524. 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. appellant corporation was unable to make good its commitment to open the disputed letter of credit. p.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.000. Exh. 1952 "in favor of Thiri Setkya. it is imperative that the L/C be opened prior to that date.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. 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. July 30. "equivalent to 5% of the F." (Emphasis supplied. Arrieta.614. currency. Folder of Exhibits). The demand having been rejected she instituted this case now on appeal. The appellee endeavored.

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

S. a part of which letter was quoted earlier in this decision. (Ramirez v. Dollars per metric ton. We have carefully examined and studied the oral and documentary evidence presented in this case and upon which the lower court based its award. it should have a certained its ability and capacity to comply with the inevitably requirements in cash to pay for such importation. 46 Phil. Manila .. therefore. or delay. Municipality of Moncada v. v. A number of logical inferences may be drawn from the aforementioned admission.... 54 Phil. appellant agreed in paragraph 8 of the contract to pay immediately "by means of an irrevocable. First. and those who in any manner contravene the tenor thereof. 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. Having entered in the contract. negligence. Maluenda & Co. 52 O.00 U. Chong.70 per metric ton from her supplier in Burma. despite this awareness that was financially incompetent to open a letter of credit immediately. Pando v. Theaters Supply. 184. . Court of Appeals. In the said accompanying correspondence. no such intent to waive has been established. Having called for bids for the importation of rice involving millions. (IV Tolentino. Diaz. Having announced the bid.) In the case at bar. 459. $4. Under this provision. that appellant also knew it could not meet those requirement. confirm and assignable letter of credit. Enriquez. are liable in damages. In relation to the aforequoted observation of the trial court. We disagree.) 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." On the other hand. and all in U.000. 916. p. 21 Phil.G.I. De la Cavada v. . not only debtors guilty of fraud. either by express stipulation or acts admitting no other reasonable explanation.260. 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. Waivers are not presumed. 657).appellant with the bank. 103. 49 Phil. 1003. the NARIC bound itself to buy 20. insurance and charges incident to its shipment here and the forfeiture of the 5% deposit. Considering freights. negligence or default in the performance of obligations a decreed liable. 37 Phil. Gimenez. in general. aptly observed by the trial court: . 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. second.000 metric tons of Burmese rice at "$203. 779.F.. it must be deemed to have impliedly assured suppliers of its capacity and facility to finance the importation within the required period. 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.S. Civil Code of the Philippines. Pasumil v. Cajuigan. When. citing authorities. 982. 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. Under the contract. 18 Phil.00 to be exact.. currency. 330. 63 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. C." it must be similarly held to have bound itself to answer for all and every consequences that would result from the representation. all net shipped weight. that the appellant knew the bank requirements for opening letters of credit. Acme Films v. but must be clearly and convincingly shown. especially since it had imposed the supplier the 90- day period within which the shipment of the rice must be brought into the Philippines. the award .

00 per metric ton. Currency. U. Currency. Currency. and other communications subsequent thereto for the opening by your corporation of the required letter of credit.. 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. Should it be at the time of the breach.200. In the case of Engel v." In view of that law.000. currency and not in Philippine Peso. We reproduce below the testimony of the appellee.S. 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. We ruled that in an action for recovery of damages for breach of contract.00 from the disputed transaction inspite of the extra expenditures from which the herein appellee was exempt. 115.. adequately supported by the evidence and record: Q. And yet. U. 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 was realizable by appellant despite a number of expenses which the appellee under the contract. 47 Phil. This ruling. multiply by 20.00 from the failure of the projected contract to materialize. and the cost price of my rice is $180.000 equals $300. even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency. can neither ..00 We had to pay also $6. If the NARIC stood to profit over P400 000. however. that is my supposed profit if I went through the contract. banking and unloading charges were to be shouldered by it. therefore.01 gross profit per metric ton.25 per metric ton. including an Import License Fee of 2% and superintendence fee of $0.000. in the aforesaid transaction. Thus.99 that would be $15. per ton or a total of Two Hundred and Eighty Six Thousand Dollars ($286. 1959. For a clearer view of the equity of the damages awarded.. however. the said amount of P406. NARIC would have realized in profit the amount asserted in the counterclaim. the award should be converted into and expressed in Philippine Peso. Will you please tell the court. The above testimony of the plaintiff was a general approximation of the actual figures involved in the transaction. Because the selling price of my rice is $203. hereunder quoted so far as germane. so that she is already assured of a net profit of Fourteen Dollars and Thirty Cents ($14. . under the cost study submitted by the appellant. Lastly.25 for shipping and about $164 for insurance. This brings us to a consideration of what rate of exchange should apply in the conversion here decreed.70) in U. likewise by way of unrealized profit damages in the total sum of $406. per ton plus Eight Dollars ($8.00) in the same currency per ton for shipping and other handling expenses. 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.00). Arrieta was supposed to pay her supplier in Burma at the rate of One Hundred Eighty Dollars and Seventy Cents ($180. we are convicted of the fairness of the judgment presently under appeal. herein appellant filed a counterclaim asserting that it has suffered. Velasco & Co.30). So adding the cost of the rice. how much is the damage you suffered? A.S. did not have to incur. It is equally of record now that as shown in her request dated July 29. at the time the obligation was incurred or at the rate of exchange prevailing on the promulgation of this decision. 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. Mrs. the insurance.granted by the lower court is fair and equitable.000. the total would be about $187.S. In the premises. the freight.S.

No. INC. to secure a loan in the total amount of P59. JORGE and CESAR JORGE. The appellee insurance company.: Before us is a Petition for Review on Certiorari filed by Roberto C. SICAM. Suspects asked forcibly the case and assorted pawned jewelries items mentioned above. as We already pronounced in the case of Eastboard Navigation. Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number. vs.00.500. Ltd. two (2) male unidentified persons entered into the said office with guns drawn. 56633.R. void and of no effect. Jr. . CV No. No. is relieved of any liability under this suit. the decision appealed from is hereby affirmed. 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. petitioners. 2003. 2007 ROBERTO C.3 Petitioner Sicam sent respondent Lulu a letter dated October 19. in the light of this judgment. 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. G. G.C. and its Resolution2 dated August 8. Sicam located at No. BF Homes Parañaque. the same is null and void as contrary to public policy (Republic Act 529). No pronouncement as to costs. C. 1957. idem).R. Inc. while victims were inside the office. 1987.C. Lulu V. Sicam. Parañaque Police Station as follows: Investigation shows that at above TDPO. two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault.. Sicam. On November 2. 2003.. (petitioner Sicam) and Agencia de R.. v. But now we have Republic Act No. LULU V. Inc. respondents. J. DECISION AUSTRIA-MARTINEZ. (petitioner corporation) seeking to annul the Decision1 of the Court of Appeals dated March 31.. 17 Aguirre Ave. 1987. Juan Ysmael & Co. The incident was entered in the police blotter of the Southern Police District.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. It appears that on different dates from September to October 1987. 529 which expressly declares such stipulations as contrary to public policy. 159617 August 8. Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R. SICAM and AGENCIA de R. September 10. if there is any agreement to pay an obligation in a currency other than Philippine legal tender. respondent Lulu then wrote a letter4 to petitioner Sicam expressing disbelief stating that when the robbery happened.R. 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. On October 19." UPON ALL THE FOREGOING. 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. Metro Manila. L-9090. in CA G. 1952 when the contract was executed. And. 1.

all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw.00. The case was docketed as Civil Case No. 1987 but petitioner Sicam failed to return the jewelry. The RTC denied the motion in an Order dated November 8. the pawnshop as a pledgee is not responsible for those events which could not be foreseen.000. 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. 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. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction. 1993. Branch 62. 1988.of the Regional Trial Court of Makati. the corporate debt or credit is not the debt or credit of a stockholder. Inc. Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April 20. they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop".200. In a Decision dated March 31. advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. 2003. Sicam". Cesar Jorge.C. 1993. Respondents subsequently filed an Amended Complaint to include petitioner corporation. 1989. Sicam. Respondents appealed the RTC Decision to the CA. 1174 of the Civil Code. that in the Amended Complaint of respondents. petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest.7 and that the parties’ transaction was that of a pledgor and pledgee and under Art. the dispositive portion of which reads as follows: WHEREFORE. 88-2035. the RTC rendered its Decision6 dated January 12. the CA reversed the RTC. 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. .C.5 After trial on the merits. Thereafter. that robbery is a fortuitous event which exempts the victim from liability for the loss. the instant Appeal is GRANTED. and the Decision dated January 12. moral and exemplary damages as well as attorney's fees. and that as a consequence of the separate juridical personality of a corporation. On September 28. dismissing respondents’ complaint as well as petitioners’ counterclaim.8 In finding petitioner Sicam liable together with petitioner corporation. premises considered. citing the case of Austria v. ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272. 1987 and known as Agencia de R. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6. Respondents opposed the same. Court of Appeals. and attorney' fees of P27. is hereby REVERSED and SET ASIDE. 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. respondent Lulu joined by her husband. 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.

they wanted to open a vault with a nearby bank for purposes of . 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. (2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court. Hence. Sicam. and (3) By reason of the above infirmities. the CA cannot rule against said conclusive assertion of respondents. i.C. THE COURT OF APPEALS ERRED.e. the instant petition for review with the following assignment of errors: THE COURT OF APPEALS ERRED AND WHEN IT DID. 2003. AND WHEN IT DID. 5-6 of the Appellants’ brief. and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee. Inc. and therefore. that they are at least guilty of contributory negligence and should be held liable for the loss of jewelries. Anent the second error.9 Anent the first assigned error. WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF. IT OPENED ITSELF TO REVERSAL. 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. Sicam Pawnshop."10 Petitioners argue that the reproduced arguments of respondents in their Appellants’ Brief suffer from infirmities. is the present owner of Agencia de R. IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT.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. 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. 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. 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. WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE. Petitioners’ motion for reconsideration was denied in a Resolution dated August 8. as follows: (1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R. The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned jewelry.C.

We find no merit in the petition. . Balgos. Sicam. 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. insurance companies refused to cover pawnshops and banks because of high probability of losses due to robberies. creating the wrong impression to respondents and the public as well. 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. (2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries. Chairman. Sicam. Marcial T. however. is not without exceptions. the evidence on record shows that at the time respondent Lulu pawned her jewelry. in all the pawnshop receipts issued to respondent Lulu in September 1987." thus inevitably misleading. all bear the words "Agencia de R.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. (3) In Hernandez v. The parties subsequently submitted their respective Memoranda. Commission on Audit (179 SCRA 39.12 This rule. in his letter16 dated October 15. we find the same to be not fatally infirmed. However. C. Generally. 45-46). Article VIII of the Constitution. 1987 addressed to the Central Bank. Respondents filed their Comment and petitioners filed their Reply thereto. Even petitioners’ counsel. 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. or at the very least." notwithstanding that the pawnshop was allegedly incorporated in April 1987. we find that it expressed clearly and distinctly the facts and the law on which it is based as required by Section 8. as long as these are legally tenable and supported by law and the facts on records.15 Notably. 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. The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987. the victim of robbery was exonerated from liability for the sum of money belonging to others and lost by him to robbers. we find no justification to absolve petitioner Sicam from liability. The receipts issued after such alleged incorporation were still in the name of "Agencia de R. 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. C. 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. but it is judicial notice that due to high incidence of crimes. Atty. Upon examination of the Decision. that the pawnshop was owned solely by petitioner Sicam and not by a corporation. 14 The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them. As correctly observed by the CA. To begin with.

respondents. 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. Sicam Pawnshop was a corporation. made by a party in the course of the proceedings in the same case. he admitted the allegations in paragraph 1 and 2 of the Complaint.19 . does not require proof. x x x that the party can also show that he made no "such admission". Moreover. or that his admission was taken out of context. He merely added "that defendant is not now the real party in interest in this case. averred as follows: Roberto C. verbal or written." then the one making the "admission" may show that he made no "such" admission. insofar as petitioner Sicam is concerned. Markedly.. but cites the admission "out of context. not in the sense in which the admission is made to appear. the merit of which can only be reached after consideration of the evidence to be presented in due course." the rule would not really be providing for a contradiction of the admission but just a denial. i. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in this case did not show that the R. the CA is bound to decide the case on that basis. and (2) when it is shown that no such admission was in fact made.18 (Emphasis supplied). the general rule that a judicial admission is conclusive upon the party making it and does not require proof. in their Opposition to petitioners’ Motion to Dismiss Amended Complaint. Section 4 Rule 129 of the Rules of Court provides that an admission. He cannot now ask for the dismissal of the complaint against him simply on the mere allegation that his pawnshop business is now incorporated. to wit: (1) when it is shown that such admission was made through palpable mistake. The latter exception allows one to contradict an admission by denying that he made such an admission. 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. It is a matter of defense.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.e. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. 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. While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop. Thus.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. In paragraph 1 of his Answer.C. 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.

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

does not suffice to establish the carnapping. The fact that a thing was unlawfully and forcefully taken from another's rightful possession. 26 Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. neglect or failure to act -. other than the police report of the alleged carnapping incident. no other evidence was presented by private respondent to the effect that the incident was not due to its fault. it must be impossible to avoid. 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. A police report of an alleged crime. just like carnapping. Carnapping per se cannot be considered as a fortuitous event. petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned.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. 23 The burden of proving that the loss was due to a fortuitous event rests on him who invokes it.28 . 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. and. Moreover. it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. in effect. He likewise testified that when he started the pawnshop business in 1983. (b) it must be impossible to foresee the event that constitutes the caso fortuito or. if it can be foreseen. However. (d) the obligor must be free from any participation in the aggravation of the injury or loss. showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. in order for a fortuitous event to exempt one from liability. as in cases of carnapping. Robbery per se. It does not foreclose the possibility of negligence on the part of herein petitioners. Court of Appeals. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent. 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. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable. One's negligence may have concurred with an act of God in producing damage and injury to another. To be considered as such. contradicts petitioners’ defense of fortuitous event. does not automatically give rise to a fortuitous event. is not a fortuitous event. In Co v. 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. 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. but actually foreseen and anticipated. Petitioner Sicam’s testimony. When the effect is found to be partly the result of a person's participation -- whether by active intervention. carnapping entails more than the mere forceful taking of another's property.24 And. 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.To constitute a fortuitous event. nonetheless.the whole occurrence is humanized and removed from the rules applicable to acts of God. (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner. to which only private respondent is privy. In accordance with the Rules of Evidence.

your honor. 1173. the provisions on pledge. that which is expected of a good father of a family shall be required. are liable for damages. thus: Court: Q. If the law or contract does not state the diligence which is to be observed in the performance. of time and of the place. the special laws and regulations concerning them shall be observed. This means that petitioners must take care of the pawns the way a prudent person would as to his own property. The provision on pledge. We expounded in Cruz v. Petitioner Sicam testified. Such report also does not prove that petitioners were not at fault.31 It is want of care required by the circumstances. 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. negligence. 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. Q. Q. if these robbers can rob a bank. to wit: Art. how much more a pawnshop. mortgage and antichresis. by the very evidence of petitioners. guided by those considerations which ordinarily regulate the conduct of human affairs. and subsidiarily. Then how come that the robbers were able to enter the premises when according to you there was a security guard? A. would do. and those who in any manner contravene the tenor thereof. the provisions of Articles 1171 and 2201. Article 1173 of the Civil Code further provides: Art. provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family. 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. 1170. Petitioners were guilty of negligence in the operation of their pawnshop business. I am asking you how were the robbers able to enter despite the fact that there was a security guard? . 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. When negligence shows bad faith.Just like in Co. particularly Article 2099 of the Civil Code. Gangan30 that negligence is the omission to do something which a reasonable man. In this connection. paragraph 2 shall apply. or delay. Those who in the performance of their obligations are guilty of fraud. Yes. or the doing of something which a prudent and reasonable man would not do. Sir. Do you have security guards in your pawnshop? A.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. On the contrary.

the alleged security guard was not presented at all to corroborate petitioner Sicam's claim. that he had sufficient training in securing a pawnshop. since it is quite impossible that he would not have noticed that the robbers were armed with caliber .45 pistols each. it is even doubtful that there was a security guard. Did you come to know how the vault was opened? A. however. We. Q. Insurance of Office Building and Pawns. 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. The combination is off. 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. Rules and Regulations for Pawnshops.33 Significantly. they let open the vault. 1973. by an insurance company accredited by the Insurance Commissioner. No one open (sic) the vault for the robbers? A. precaution and vigilance that the circumstances justly demanded. 114. 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. Q. Under Section 17 of Central Bank Circular No. no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. and which was issued pursuant to Presidential Decree No. Petitioner Sicam testified that once the pawnshop was open. 374. Yes sir. Q. Further. the combination was already off. 17. Pawnshop Regulation Act. to wit: Sec. so one of my employees allowed him to come in and it was only when it was announced that it was a hold up. There was no clear showing that there was any security guard at all.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). In fact. there was more reason for petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the precaution to protect them. 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. providing no difficulty for the robbers to cart away the pawned articles. which took effect on July 13.32 revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Or if there was one. 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. which were allegedly poked at the employees. Furthermore. do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned jewelries. Evidently. it is provided that pawns pledged must be insured. A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. No one your honor it was open at the time of the robbery. . A. not one of petitioners' employees who were present during the robbery incident testified in court.

In Austria. where no negligence was committed. We held that for the Abads to be relieved from the civil liability of returning the pendant under Art. that to be free from liability for reason of fortuitous event. Moreover. unlike in Austria. it would only be sufficient that the unforeseen event. 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. the debtor must. or. but the Abads set up the defense that the robbery extinguished their obligation. 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. and this can be done by preponderance of evidence. the Central Bank considered it not feasible to require insurance of pawned articles against burglary. that Maria Abad was guilty of negligence. 764 which took effect on October 1. and considering the above-quoted amendment. In the morning of July 1. but which Abad failed to subsequently return because of a robbery committed upon her in 1961. we found petitioners negligent in securing their pawnshop as earlier discussed. where the requirement that insurance against burglary was deleted. i. Nevertheless. However we did not hold Abad liable for negligence since. this Section was subsequently amended by CB Circular No. 1980. The CA. took place without any concurrent fault on the debtor’s part. find no application to the present case. The incident became the subject of a criminal case filed against several persons. in addition to the casus itself. 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.e.However. to wit: Sec. 1961. the cases of Austria v. if committed. In contrast. the robbery. Gangan37 cited by petitioners in their pleadings. the robbery happened ten years previously. The RTC ruled in favor of Austria.38 We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971. the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code. where the victims of robbery were exonerated from liability. he went to . when criminality had not reached the level of incidence obtaining in 1971. Court of Appeals. Obviously. Commission on Audit36 and Cruz v. however.34 Thus. as the Abads failed to prove robbery. 1983. 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. Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine Tourism in Cavite. 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. Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis. be free of any concurrent or contributory fault or negligence. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its value. In Hernandez. a Friday. (emphasis supplied).35 Hernandez v. Chairman.. 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. 17 Insurance of Office Building and Pawns – The office building/premises and pawns of a pawnshop must be insured against fire. 1174 of the Civil Code. The robbery in the pawnshop happened in 1987.

The Commission on Audit found Hernandez negligent because he had not brought the cash proceeds of the checks to his office in Ternate. thinking it was the safer one. the next working day after July 1. and in view of the comparative hazards in the trips to the two places. or (2) take the money with him to his house in Marilao. which is the normal procedure in the handling of funds. a little past 3 p. would have caused discomfort to laborers who were dependent on their wages for sustenance. however. the risk of theft would have also been present. the robbery in this case took place in the pawnshop which is under the control of petitioners. which paved the way for the robbers to easily cart away the pawned articles. Bulacan.Manila to encash two checks covering the wages of the employees and the operating expenses of the project. a Saturday.m. She also reported the loss to the Regional Director of TESDA.m. and leave for Ternate the following day. In Cruz. Petitioners had the means to screen the persons who were allowed entrance to the premises and to protect itself from unlawful intrusion. Thus. and she requested that she be freed from accountability for the cellphone. the processing of the check was delayed and was completed at about 3 p. boarded the Light Rail Transit (LRT) from Sen. The other robber who held the stolen money escaped. 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 P4.00. she did not have a government assigned vehicle. Unlike in Hernandez where the robbery happened in a public utility. spend the night there. being nearer. Dr. and (2) that choosing Marilao as a safer destination. and the cellphone was not recovered. that the records did not show any specific act of negligence on her part and negligence can never be presumed. At that time. when the main office would open. she was not expected to have her own vehicle or to ride a taxicab. Cruz. the thief was not located. Cavite that same afternoon and arrive early evening. otherwise. Hernandez chased the robbers and caught up with one robber who was subsequently charged with robbery and pleaded guilty. Camanava District Director of Technological Education and Skills Development Authority (TESDA). However for some reason. Among those stolen were her wallet and the government-issued cellular phone. he took a passenger jeep bound for Bulacan. The COA found no sufficient justification to grant the request for relief from accountability. that any prudent and rational person under similar circumstance can reasonably be expected to do the same. that because of her relatively low position and pay. 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. He chose the second option. Filonila O. 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. Bulacan instead of Ternate. 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.238. the workers would have to wait until July 5. Nevertheless. because to encash the check on July 5. said decision seemed logical at that time. that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting. a non-working. Puyat Avenue to Monumento when her handbag was slashed and the contents were stolen by an unidentified person. She then reported the incident to the police authorities. 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. he had two choices: (1) return to Ternate. Cavite for safekeeping. the earliest time.. 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. . the jeep was held up and the money kept by Hernandez was taken. 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. 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. and the robbers jumped out of the jeep and ran. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao.

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

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

However. 13 The petitioner contends that rescission of the Bill of Assignment should be denied. that a plaintiff cannot ask for both remedies. that this is a gross error of law. He was dismissed without any fault or negligence on his part. 1960. 1961. Upon the factual milieu. when it is considered that such holding would make the petitioner liable to pay respondent patentee's salary from December 1." and that only by all these measures could the respondent patentee preserve effectively the secrecy of the formula. Sr. the fact is that the said respondent patentee refused to go back to work. we hold that the contract placed the use of the formula for Mafran sauce with the petitioner. the transfer to the corporation of only the use of the formula. the obligation of the said respondent patentee to continue research on the patent to improve the quality of the products of the corporation. in this case the dismissal of the respondent patentee Magdalo V. 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. but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. and. and that if the said respondent is entitled to be paid any back salary. prevent its proliferation. moreover. the corporation never had. 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. as the permanent chief chemist of the corporation is a fundamental and substantial breach of the Bill of Assignment. enjoy its monopoly. 12 The question of whether a breach of a contract is substantial depends upon the attendant circumstances. arguing that under articles 1191. notwithstanding the call for him to return — which negates his right to be paid his back salaries for services which he had not rendered. the same should be computed only from December 1. Sr. in the process afford and secure for himself a lifetime job and steady income. 1961 the petitioner had already formally called him back to work. that. 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. One of the considerations for the transfer of the use thereof was the undertaking on the part of the petitioner corporation to . 14 the fact remains that the respondents-appellees had no alternative but to file the present action for rescission and damages. the appointment of the respondent patentee as Second Vice-President and chief chemist on a permanent status. by terminating the services of the respondent patentee Magdalo V. subject to defined limitations. for on March 20. because under article 1383. 1960 to March 31. The above contention is without merit. Thus. Francisco. until the return to him of the Mafran trademark and formula. the appellate court itself found. The salient provisions of the Bill of Assignment. 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. 1960 to "kingdom come. namely. the right to specific performance is not conjunctive with the right to rescind a reciprocal contract. 4. 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.5-(a) and (b). 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. 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. Francisco. without lawful and justifiable cause. apart from the legal principle that the option — to demand performance or ask for rescission of a contract — belongs to the injured party. Reading once more the Bill of Assignment in its entirety and the particular provisions in their proper setting.." as the said holding requires the petitioner to make payment until it returns the formula which.

Zaldivar.. Sr. Barredo and Villamor. with costs against the petitioner corporation. The Bill of Assignment (Exhibit A) is hereby rescinded. Makalintal. took no part.B. Francisco. Dizon. C. that the rescission demanded by the respondent-appellee.. 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..employ the respondent patentee as the Second Vice-President and Chief Chemist on a permanent status. Fernando.L. plus attorney's fees in the amount of P500. effective immediately. conformably with the observations we have above made. Thus. The defendant corporation shall also pay to Magdalo V. but I would like to add that the argument of petitioner. 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. Under these circumstances. the said judgment is affirmed. but only its use and the right to such use. JJ. Article 1385 of the new Civil Code provides that rescission creates the obligation to return the things which were the object of the contract. Sr. should be denied because under Article 1383 of the Civil Code of the Philippines . the right to the use of his Mafran sauce trademark and formula. Francisco. Separate Opinions REYES. unless "death or other disabilities supervened. that the petitioner corporation be adjudged as "without any right to use said trademark and formula. the formula for Mafran sauce remained with the corporation. from using in any manner the said Mafran sauce trademark and formula. Concepcion. 1960. J. Justice Fred Ruiz Castro. 5.. as well as the right to use. among others. 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. inclusive. But that as it may. Magdalo Francisco. J. Teehankee J.J. until the date of finality of this judgment. 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." As thus modified. According to the petitioner these findings would render it impossible to carry out the order to return the formula to the respondent patentee. and to this end the defendant corporation and all its assigns and successors are hereby permanently enjoined.." ACCORDINGLY. and the respondent patentee admittedly never gave the same to the corporation. as long as the use. concur. his monthly salary of P300 from December 1. the respondents in their complaint for rescission specifically and particularly pray. the petitioner corporation could not escape liability to pay the private respondent patentee his agreed monthly salary. and the defendant corporation is ordered to return and restore to the plaintiff Magdalo V. with costs against the defendant corporation. the judgment of the Court of Appeals is modified to read as follows: "Wherefore the appealed decision is reversed. concurring: I concur with the opinion penned by Mr. The petitioner's predicament is understandable. at a monthly salary of P300. subject-matter of the Bill of Assignment.

under Article 1381. Inc.. unlike the previous Spanish Civil Code of 1889. 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. 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. wherein it was stipulated that "si cualquier pago o pagos de este pagare quedasen en mora por mas de dos meses. This rescission is in principal action retaliatory in character. 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. INC. LOUIS J. San Juan Rizal. vs. 1941 MAGDALENA ESTATE. the last being on October 4. Encarnacion for petitioner. vercera y sera exigible inmediatamente y devengara intereses al mismo tipo de 9 por ciento al año hasta su completo pago. a pagar al tenedor de este pagare el 10 por ciento de la cantidad en concepto de honorarios de abogado.: On January 2. their contract of sale No. Andres C. entonces todos el saldo no pagado del mismo con cualesquiera intereses que hubiese devengado.. ademas. Myrick lots Nos. 1930. where the defendant makes good the damages caused. the Magdalena Estate.08." Hence. because it is the raison d'etre as well as the measure of the right to rescind. J. Simultaneously. that differentiated "resolution" for breach of stipulations from "rescission" by reason of lesion or damage. the vendee executed and delivered to the vendor a promissory note (Exhibits C and 2) for the whole purchase price. petitioner-appellant. No.953 shall be payable in 120 equal monthly installments of P96. Aguilar for respondent. the vendee made several monthly payments amounting to P2. Hence. L-47774 March 14.1 But the terminological vagueness does not justify confusing one case with the other.R. It is not a subsidiary action. SJ-639 (Exhibits B and 1) providing that the price of P7. and does not. in the rescission by reason of lesion or economic prejudice. 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. sold to Louis J. Felipe Ysmael and Eusebio C.596." In pursuance of said agreement. 1928. that violates the reciprocity between the parties. MYRICK. as expressly provided in Articles 1383 and 1384. the action cannot be maintained or continued. the cause of action is subordinated to the existence of that prejudice. G. respondent-appellee. although the first installment due and unpaid was that . non est fides servanda. 28 and 29 of Block 1. y en tal caso me comprometo. Parcel 9 of the San Juan Subdivision. et seq.39 each on the second day of every month beginning the date of execution of the agreement. it being unjust that a party be held bound to fulfill his promises when the other violates his. 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. apply to cases under Article 1191. LAUREL. On the contrary.rescission can not be demanded except when the party suffering damage has no other legal means to obtain reparation. As expressed in the old Latin aphorism: "Non servanti fidem. the reparation of damages for the breach is purely secondary. considering the patent difference in causes and results of either action.

in view of his inability to comply with the terms of their contract. SJ-639. the plaintiff should be condemned to pay the balance plus interest and attorneys' fees.H.H. 328. (2) that a bilateral contract may be resolved or cancelled only by the prior mutual agreement of the parties. 1939. notified the vendee that. who assumes the absolute right over the lots in question. introduced in evidence the disposition of Mr. to this end. To this communication. on September 7. cannot be deemed to have produced a cancellation. Petitioner holds that contract SJ-639 has not been rendered inefficacious by its letter to the respondent. 1936. the present petition for a writ of certiorari. in its decision of August 23. Hemady. 84. Said defendant. marked Exhibit 6 and D (pp. Hemady. on August 23. even if it ever was intended. thereby relieving him of any further obligation thereunder. His testimony is an afterthought. said agreement had been cancelled as of that date. and for costs of the suit. From this judgment. Petitioner contends that the letter in dispute is a mere notification and. K. 1932. president of the Magdalena Estate. No.596. 1940. confirmed the decision of the lower court. K. 1932.08 with legal interest thereon from the filing of the complaint until its payment." and the testimony of Sebastian San Andres. respondent herein. Mamuyac vs. XXXVIII Off. Petitioner-appellant assigns several errors which we proceed to discuss in the course of this opinion. deposition Exhibit 1-a). filed his answer consisting in a general denial and a cross-complaint and counterclaim. 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. rendered its decision ordering the defendant to pay the plaintiff the sum of P2. 1932. the Court of First Instance of Albay. that the lots were never offered for sale after the mailing of the letter aforementioned. 1932 until paid and costs. 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. By reason of this default. the Court of Appeals. After due trial. 1940. therefore. which is approved by the judgment of the proper court. the intention of the parties should be gleaned . 1035 (Exhibit G). (Guico vs. to the effect that the contract was not cancelled nor was his intention to do so when he wrote the letter of December 14. Upon the other hand. 1930. Inc. and (3) that the letter of December 14. through its president. and dismissing defendant's counterclaim." This conclusion of fact of the Court of Appeals is final and should not be disturbed. alleging that contract SJ-639 was still in full force and effect and that. one of its employees. where the cause was docketed as CA-G. on December 14. already referred to (Exhibit 6 and D). 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. Hence. 1932.. which was denied on September 6. wherein he stated that the word "cancelled" in the letter of December 14. commenced the present action in the Court of First Instance of Albay. The intent to resolve the contract is expressed unmistakably not only in the letter of December 14. and it appears likewise that the vendor thereafter did not require him to make any further disbursements on account of the purchase price. and therefore. dated December 14. 6-7. Myrick. president of the defendant corporation. 1932.596. Hemady regarding the account of Mr. 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. for the sum of P2. praying for an entry of judgment against the Magdalena Estate. appealed to the Court of Appeals. 1936. the vendee did not reply. 1932 was not assented to by the respondent. and of April 10. Abena. Myrick under contract No. Inc. A motion for reconsideration was presented. Louis J. on January 31. 5037.) Where the terms of a writing are clear. 1940. "es un error de mi interpretacion sin ninguna intencion de cancelar. Louis J. makes the finding that "notwithstanding the deposition of K. the Magdalena Estate. the vendor. K.H. where defendant's president makes the following statements: "Confirming the verbal arrangement had between you and our Mr. already cancelled.R. and that all amounts paid by him had been forfeited in favor of the vendor. and which.of May 2.08 with legal interest from December 14. the herein petitioner. positive and unambiguous. 63 Phil. Mayuga and Heirs of Mayuga. Hemady. Inc.H. Gaz. On July 22.

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

1965. are sought to be annulled in this petition for certiorari and prohibition. (or ALUMCO). dated 14 January 1967. situated at the Lubayat areas in the provinces of Laguna and Quezon. Quisumbing for private respondents. Norberto J. 9435. dated 25 February 1966. Fernandez for petitioner. etc. dated 12 December 1967. and . denied reconsideration of the order of contempt. adjudged UP in contempt of court. That on or about 2 November 1960. 1960 as rescinded without the necessity of any judicial suit. issued in its Civil Case No. to cut. which.L. Barredo.Office of the Solicitor General Antonio P. J. in consideration of payment to UP of royalties. Inc. that ALUMCO cut and removed timber therefrom but. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document. and directed Sta. to refrain from exercising logging rights or conducting logging operations on the concession. an institution of higher learning. Amores and Special Counsel Perfecto V. Solicitor Augusto M. which was approved by the president of UP. to be operated and developed for the purpose of raising additional income for its support.B. Clara Lumber Company..: Three (3) orders of the Court of First Instance of Rizal (Quezon City). In the event that the payments called for in Nos. despite repeated demands.. filed by herein petitioner University of the Philippines (or UP) against the above-named respondent judge and the Associated Lumber Manufacturing Company. it had failed to pay. a writ of preliminary injunction against the enforcement or implementation of the three (3) questioned orders was issued by this Court. 1 and 2 of this paragraph are not sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the CREDITOR. that after it had received notice that UP would rescind or terminate the logging agreement." dated 9 December 1964.362. and which stipulated the following: 3. entitled "Acknowledgment of Debt and Proposed Manner of Payments. forest fees. it had incurred an unpaid account of P219. As prayed for in the petition. for a period starting from the date of the agreement to 31 December 1965. xxx xxx xxx 5. the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement dated December 2. enjoined UP from awarding logging rights over its timber concession (or Land Grant). The first order. as of 8 December 1964. and the third order. per its resolution on 9 February 1968. Inc. the second order.94. The petition alleged the following: That the above-mentioned Land Grant was segregated from the public domain and given as an endowment to UP. REYES. pursuant to Act 3608. J. UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority. collect and remove timber from the Land Grant. ALUMCO executed an instrument. the balance outstanding after the said payments have been applied shall be paid by the DEBTOR in full no later than June 30. extendible for a further period of five (5) years by mutual agreement.

by advertising an invitation to bid. Clara Lumber Company. for the collection or payment of the herein before stated sums of money and alleging the facts hereinbefore specified. . ALUMCO had filed several motions to discharge the writs of attachment and preliminary injunction but were denied by the court. on 25 February 1966. In its answer. thereby rendering it unable to pay the sum of P219. therefore. and.133. which purpose. in not turning over management of ALUMCO. That. dated 30 September 1965.00) by way of and for liquidated damages. Clara Lumber Company. That. in addition to the indebtedness that it had previously acknowledged. UP filed a complaint against ALUMCO. enjoining UP from awarding logging rights over the concession to any other party. however.94. respondent corrected itself by stating that the period of the logging agreement is five (5) years . That on 12 November 1965. respondent ALUMCO did not deny the foregoing allegations in the petition. declared petitioner UP in contempt of court and. in the amount of P61. without a court order. That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the logging operation.000. and said company had started logging operations. its defenses in the court below. directed Sta. to refrain from exercising logging rights or conducting logging operations in the concession. Except that it denied knowledge of the purpose of the Land Grant. 9435 of the Court of First Instance of Rizal (Quezon City). The UP moved for reconsideration of the aforesaid order. the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos (P50. ALUMCO filed a petition to enjoin petitioner University from conducting the bidding. on motion dated 12 April 1966 by ALUMCO and one Jose Rico. Clara Lumber Company. petitioner UP informed respondent ALUMCO that it had. which was docketed as Civil Case No. under its contract "to buy and sell" with said firm. that bidding was conducted.. for preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant. and which contract was referred and annexed to the "Acknowledgment of Debt and Proposed Manner of Payments". but again incurred an unpaid account. in an order dated 14 January 1967. 9435. It reiterated. meantime. Clara Lumber Company. as of that date. that it failed to pursue the manner of payments. the court. as it had alleged in its second amended answer to the complaint in Civil Case No. Inc.382. it filed a second petition for preliminary injunction. which maybe boiled down to: blaming its former general manager. but the motion was denied on 12 December 1967. conclusively known. is embodied in Act 3608 and. ALUMCO continued its logging operations. That on 19 July 1965. and the concession was awarded to Sta. Inc. 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. the logging contract was signed on 16 February 1966. anyway.74. Inc... respondent judge issued the first of the questioned orders.not seven (7) years. and on 7 September 1965. considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960.. that UP's unilateral rescission of the logging contract. for the period from 9 December 1964 to 15 July 1965. together with other allegations. on 27 November 1965. Inc. it prayed for and obtained an order. Cesar Guy. That UP received the order of 25 February 1966 after it had concluded its contract with Sta. in the same order.

the creditor (UP) has "the right and the power to consider.. upon default by the debtor ALUMCO. in issuing the injunction order of 25 February 1966. as without it. Article 2203). et al. it is free to resort to judicial action in its own behalf. 31 October 1964. the responsible party will be sentenced to damages. 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. Respondent ALUMCO contended.P. The basic issue in this case is whether petitioner U. the extrajudicial resolution will remain contestable and subject to judicial invalidation. that it is only after a final court decree declaring the contract rescinded for violation of its terms that U. in the contrary case. L- 11897. 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. and the consequent indemnity awarded to the party prejudiced. that it had made several offers to petitioner for respondent to resume logging operations but respondent received no reply. without previous court action. even without court intervention. and the lower court. If the other party denies that rescission is justified." As to such special stipulation. UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that. Of course. 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. 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. It is in this sense that judicial action will be necessary. Then. and in connection with Article 1191 of the Civil Code. Otherwise. unless attack thereon should become barred by acquiescence. In other words. this Court stated in Froilan vs. . Pan Oriental Shipping Co. decide that the resolution of the contract was not warranted. and act accordingly. and bring the matter to court.. 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. the party who deems the contract violated may consider it resolved or rescinded. In the first place. can treat its contract with ALUMCO rescinded. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect. after due hearing. the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit.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. being ever subject to scrutiny and review by the proper court. estoppel or prescription. apparently sustained it (although the order expresses no specific findings in this regard).P. but it proceeds at its own risk. 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. and may disregard the same before any judicial pronouncement to that effect. In other words. 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.was invalid. should the court. the resolution will be affirmed. We find that position untenable. 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. it is not always necessary for the injured party to resort to court for rescission of the contract.

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

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

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. to pay petitioner the sum of P21. praying that judgment be rendered ordering respondent 1) to vacate the premises. who. Respondent's total counterclaim against petitioner was in the amount of P42.629. The counterclaim was dismissed by the Municipal Court for being in an amount beyond its jurisdiction.093. building and other improvements which are the subject of this Contract. petitioner was already indebted to him in the sum of P31.269. and that thereby the contract was converted into one of lease.269. 1967.269. in all cases herein. The latter strongly denied such an understanding. 1966. 'It is our considered opinion that to admit and to allow such a defense would be tantamount to prejuding . 1967. BUYER shall not remove his personal properties without the previous written consent of OWNER. despite demands to pay and to vacate the premises.751.30 representing respondent's balance owing as of May. as a special defense.00 every month after May. 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.00 against his obligations to petitioner. 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. It should be the subject. and costs. petitioner.99 representing petitioner's pleaded indebtedness to private respondent. Upon the allegation that respondent Avellana had failed to comply with the monthly amortizations stipulated in the contract. 2) to pay petitioner the sum of P11. 1967 until delivery of possession of that premises to petitioner. shall return the same to BUYER only after the latter shall have fulfilled all money claims against him by OWNER.00 as monthly rental from and after May. 1966. on June 22. plaintiff Jose C. The issue in this case being that of possession. claim for moral damages. private respondent sought to offset the sum of P31. 1190). Respondent Avellana occupied the property from December. the claim of defendant against plaintiff or P 31. which amounts. As it is. said indebtedness is only a claim still debatable and controversial and not a final judgment. would be applied as down payment for the property and to whatever obligations respondent had with petitioner.matter of a separate action against. 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.00 indebtedness. 1966. 1964. However. that who of the contending parties has the better right to possession of the properly in question. Zulueta. and attorney's fees. should he take possession of such properties following the aforesaid failure of BUYER. demand is waived. and P630.88 representing arrearages as of April. as well as the cost of one 16 millimeter projector petitioner borrowed from respondent and which had never been returned. but title remained with petitioner Zulueta. Deciding the case on May 10.00 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. according to their understanding. 3) to pay petitioner the sum of P 630. has no place as a defense here. that prior to the execution of the contract to sell. commenced an Ejectment suit against respondent before the Municipal Court of Pasig (CC No.

which the latter denied. with notice to an parties. 1968 at 8:30 a. beyond the jurisdiction of the Municipal Court. inasmuch as the defense set up in his Answer was that he had not breached his contract with petitioner. On March 21. explaining: The decision of the lower court declared said Contract to Sell to have been converted into a contract of lease. hereby takes cognizance of the case and will try the case as if it has been filed originally in this Court. 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. This court can not do without violating some rules of law. 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. Petitioner then availed of the instant recourse. or one for rescission or annulment of a contract. therefore. the claim on its merits prematurely in favor of defendant. respondent Avellana filed a Motion to Dismiss Appeal alleging that. respondent Judge dismissed the case on the ground of lack of jurisdiction of the Municipal Court. petitioner had alleged violation by respondent Avellana of the stipulations of their agreement to sell and thus unilaterally considered the contract rescinded. while standing pat on its Order dismissing this case for lack of jurisdiction of the lower court over the subject matter. On February 19. the Court. 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. In his Complaint. 1968. Under those circumstances. petitioner summoned for execution alleging private respondent's failure to deposit in accordance the monthly rentals. Respondent Judge held resolution thereof in abeyance. there is no showing that before filing this case in the lower court. 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. 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. WHEREFORE. 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. This is not the proper court and this is not the proper case in which to ventilate the claim. the case necessarily involved the interpretation and/or rescission of the contract and. which should be litigated before a Court of First Instance? Upon a review of the attendant circumstances.m. proof of violation is a . within its exclusive original jurisdiction. let this case be set for pre-trial on July 12. therefore. Was the action before the Municipal Court of Pasig essentially for detainer and. Thereat. Respondent Avellana appealed to the Court of First Instance of Rizal presided by respondent Judge. 1968. 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.

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

1974. to refund immediately to Nazario Dumpit the amount of P13. petitioner. Questioning the validity of the rescission of the contract.165 square meters. as resolved by the National Housing Authority in its Resolution of July 10.300.42 until fully paid. Respondent Dumpit paid the downpayment and several installments amounting to P13. upon the allegation that the NHA Resolution was contrary to law (O. Dizon for private respondent. or almost six (6) years later. Albert Onstott executed in favor of private respondent. 1973 reiterating the same request. 1979 in Case No. 1973. with an area of 1. as well as the Resolution of October 28.: The Resolution. Block IV) of the Crestview Heights Subdivision in Antipolo. . Calcetas-Santos & Geronimo Law Office for petitioner. 1 On appeal to the Office of the President.722. J. through its President. are being assailed in this petition. 8. and that the lot had already been resold. On March 28.50. 1459). Presidential Executive Assistant NATIONAL HOUSING AUTHORITY and NAZARIO DUMPIT respondents. private respondent wrote petitioner offering to update all his overdue accounts with interest.722. vs. petitioner Palay. 1979. Case No. and ALBERT ONSTOTT. On May 10. Inc.P.. 1980. He followed this up with another letter dated June 20. the NHA. affirmed .G. L-56076 September 21. 90454. 2167). 1459. 1980 denying petitioners' Motion for Reconsideration of said Resolution of May 2. 1967 for installments up to September 1967. 2167. CLAVE. dated May 2. directing petitioners Palay. Case No. and Alberto Onstott in his capacity as President of the corporation.660. No. ordered Palay.covered by TCT No. 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. and Alberto Onstott jointly and severally. finding the rescission void in the absence of either judicial or notarial demand. In a Resolution. 1980. dated July 10. and seeking its written consent to the assignment of his rights to a certain Lourdes Dizon.00 and monthly installments of P246. Inc. The sale price was P23.50 with 12% interest per annum. Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to paragraph 6 of the contract. on May 2. jointly and severally. JACOBO C. MELENCIO-HERRERA. Petitioners' Motion for Reconsideration of said Resolution was denied by the NHA in its Order dated October 23.722.R. and owned by said corporation.P. to refund to private respondent. a Contract to Sell a parcel of Land (Lot No. INC. Wilfredo E. without need of notice and with forfeiture of all installments paid.00 with 9% interest per annum. The last payment was made on December 5. Santos. Inc. Nazario Dumpit. Nazario Dumpit.50 with 12% interest from the filing of the complaint on November 8. 1965. respondent Presidential Executive Assistant. Rizal. 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. issued by Presidential Executive Assistant Jacobo Clave in O. payable with a downpayment of P4. 1979. 1983 PALAY. 1980.

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

631. Civil Code Anno. the extrajudicial resolution will remain contestable and subject to judicial invalidation unless attack thereon should become barred by acquiescense. 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. 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. without previous court action. IV. Footnote. Republic vs.. instead of the rescinder (Emphasis supplied). in the contrary case. vs. as held in previous jurisprudence. Well settled is the rule. the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit. 1967 ed. et al. even in the cited cases. . as already observed.Then. Vol. Otherwise. 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. However. there was at least a written notice sent to the defaulter informing him of the rescission. Padilla Civil Law. 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.. 37 Phil. estoppel or prescription. 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. Walfrido de los Angeles 3 the act of a party in treating a contract as cancelled should be made known to the other. page 140) but. and the consequent indemnity awarded to the party prejudiced. If the other party denies that rescission is justified it is free to resort to judicial action in its own behalf. in case of abuse or error by the rescinder the other party is not barred from questioning in court such abuse or error. Hospital de San Juan De Dios. Article 2203). 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. International Banking Corp. 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. 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. and bring the matter to court. the responsible party will be sentenced to damages. and act accordingly. decide that the resolution of the contract was not warranted. but it proceeds at its own risk. We quote the pertinent excerpt: Of course. should the court. as without it.. 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.. after due hearing. In other words. the party who deems the contract violated may consider it resolved or rescinded. the resolution will be affirmed. As stressed in University of the Philippines vs. It is in this sense that judicial action win be necessary.

Rescission creates the obligation to return the things which were the object of the contract. it shall be subject to judicial determination. resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in Court. A waiver must be certain and unequivocal. as held in the U. 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. Article 1385 of the Civil Code provides: ART. a judicial determination of the issue is still necessary. The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No. 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. 6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments. Regarding the second issue on refund of the installment payments made by private respondent. Vacante 4 ..P. It is now for the Court to determine whether resolution of the contract by petitioners was warranted. supra Petitioner relies on Torralba vs.Of similar import is the ruling in Nera vs. and private respondent had no freedom to stipulate. In other words. when it specifically provided: Sec. Angeles case. Mariano 5 where we held that extrajudicial rescission has legal effect where the other party does not oppose it. a standard form of petitioner corporation. This was reiterated in Zulueta vs. 7 In this case. 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. and intelligently made. 1972. together with their fruits.. it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. private respondent has denied that rescission is justified and has resorted to judicial action. ." which took effect on September 14. (Emphasis supplied). the contract between the parties was deemed ipso facto rescinded. 9 Moreover. 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. such waiver follows only where liberty of choice has been fully accorded. 3(b) . If the debtor impugns the declaration. 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." However. vs. and the price with its interest. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments. 1385.6 Where it is objected to. We hold that resolution by petitioners of the contract was ineffective and inoperative against private respondent for lack of notice of resolution.

In this case. or as an alter ego. rights to the lot should be restored to private respondent or the same should be replaced by another acceptable lot. indemnity for damages may be demanded from the person causing the loss. a modification of the Resolution under review is called for. No sufficient proof exists on record that said petitioner used the corporation to defraud private respondent. the questioned Resolution of respondent public official. No costs. 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. Inc. 11 As a general rule. In this case. albeit mistakenly. therefore. SO ORDERED. No. the veil of corporate fiction may be pierced when it is used as a shield to further an end subversive of justice 12 . the date of the filing of the Complaint. or defend crime. or to perpetuate fraud or confuse legitimate issues 15 . dated May 2. 1974. is directed to refund to respondent Nazario M. 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. As a consequence of the resolution by petitioners. 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. 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. 14 . or for purposes that could not have been intended by the law that created it 13 .50. The temporary Restraining Order heretofore issued is hereby lifted. petitioner Onstott was made liable because he was then the President of the corporation and he a to be the controlling stockholder. WHEREFORE. 1980. However. Dumpit the amount of P13. Mere ownership by a single stockholder or by another corporation is not of itself sufficient ground for disregarding the separate corporate personality. They had literally relied. or to defeat public convenience. 18 In this respect then. Petitioner Palay. 17 We find no badges of fraud on petitioners' part. 1985 . 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. it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.722. He cannot. 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. 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. justify wrong. However. 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.R. protect fraud. with interest at twelve (12%) percent per annum from November 8. consequently. L-42283 March 18. G. is hereby modified. adjunct or business conduit for the sole benefit of the stockholders. be made personally liable just because he "appears to be the controlling stockholder". or to circumvent the law or perpetuate deception 16.

the Court hereby renders judgment in favor of the plaintiffs and against the defendants declaring that the . Seventh Judicial District. defendants-appellants. 1957. J. The plaintiffs-appellees filed Civil Case No. the defendants-appellants accepted and received delayed installment payments from the plaintiffs-appellees. thereby constraining the defendants-appellants to cancel the said contract.00 attorney's fees and costs.920. Rizal for the amount of P3.533. ET AL. On December 19.38.00 plus 7% interest per annum. On December 7. ET AL. The dispositive portion of the decision reads: WHEREFORE. the installments being due and payable on the 19th day of each month. URSULA TORRES CALASANZ. JR. when their aggregate payment already amounted to P4. The plaintiffs-appellees paid the monthly installments until July 1966. On numerous occasions. 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. they found out that they have already paid the total amount of P4. 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.. 8943 with the Court of First Instance of Rizal. The lower court rendered judgment in favor of the plaintiffs-appellees. realty taxes and incidental expenses for the registration and transfer of the land. On January 28. to pay P500. The facts being undisputed. They promised to pay the balance in monthly installments of P 41.00 upon the execution of the contract.: This is an appeal from the decision of the Court of First Instance of Rizal. plaintiffs-appellees.38 including interests. Branch X. 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.BUENAVENTURA ANGELES. The plaintiffs' letter with their plea for reconsideration of the said cancellation was denied by the defendants-appellants.533. based on the foregoing considerations. Seventh Judicial District. the Court of Appeals certified the case to us since only pure questions of law have been raised for appellate review. The plaintiffs-appellees made a downpayment of P392.. 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. vs. 1966 for more than five (5) months.. the defendants-appellants cancelled the said contract because the plaintiffs- appellees failed to meet subsequent payments.20 until fully paid. 1967. GUTIERREZ. the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of past due accounts. 1966.

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

. The injured party may choose between the fulfillment and the rescission of the obligation. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this Court. The defendants-appellants point to Jocson v. and cases cited therein) Resort to judicial action for rescission is obviously not contemplated . (Emphasis supplied by appellant) xxx xxx xxx The defendants-appellants argue that the plaintiffs-appellees failed to pay the August. all the amounts paid in accordance with this agreement together with all the improvements made on the premises. Moreover. In reciprocal obligations. February 28. 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 defendants-appellants also argue that even in the absence of the aforequoted provision. because it granted the sellers an absolute and automatic right of rescission. et al. The validity of the stipulation can not be seriously disputed.. Co. (Ponce Enrile v. The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. . 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. in case one of the obligors should not comply with what is incumbent upon him. No. 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. Article 1191 of the Civil Code on the rescission of reciprocal obligations provides: The power to rescind obligations is implied in reciprocal ones. 1966 installment despite demands for more than four (4) months. . however. 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. He may also seek rescission. 37 SCRA 327. and as payment for the damages suffered by failure of the party of the SECOND PART to fulfill his part of the agreement. 12 SCRA 276)— Well settled is. L-6573. 29 SCRA 504). with the payment of damages in either case. even after he has chosen fulfillment.. either party the right to rescind the contract upon the failure of the other to perform the obligation assumed thereunder. they had the right to cancel the contract to sell under Article 1191 of the Civil Code of the Philippines. In case of such cancellation of the contract.R. shall be considered as rents paid for the use and occupation of the above mentioned premises. Commissioner of Customs. if the latter should become impossible. Pan Oriental Shipping. the sellers have the right to declare the contract cancelled and of no effect. had never been entered into. xxx xxx xxx Article 1191 is explicit. Court of Appeals. Capitol Subdivision (G.

International Banking Corp. v. . unless attack thereon should become barred by acquiescence. Hawaiian- Philippine Co. It is in this sense that judicial action will be necessary. 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. being ever subject to scrutiny and review by the proper court. the extrajudicial resolution will remain contestable and subject to judicial invalidation.. 827) The question of whether a breach of a contract is substantial depends upon the attendant circumstances. and act accordingly. et al. 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. the resolution will be affirmed.. (Ocejo. is not absolute. v. In other words. was qualified by this Court in University of the Philippines v.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. but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. Jan. Alikpala. 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. Hon.. Philippine Currency. estoppel or prescription.. 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. 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. Republic v. 17. 47 Phil. therefore. but it proceeds at its own risk. Hospital de San Juan de Dios.—That in consideration of the agreement of sale of the above described property.. . 37 Phil. the party who deems the contract violated many consider it resolved or rescinded. and the consequent indemnity awarded to the party prejudiced.00). plus interest at the rate of 7% per annum. Perez & Co. 821. et al. The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell which provides: SECOND. If the other party denies that rescission is justified. in the contrary case. L-23707 & L-23720. (35 SCRA 102) where we explained that: Of course. De los Angeles. v. (Song Fo & Co. 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. 84 Phil. and bring the matter to court. . Then. it is free to resort to judicial action in its own behalf.920. should the court. the responsible party will be sentenced to damages. In Universal Food Corp. as without it. as follows: . decide that the resolution of the contract was not warranted. 1968).. after due hearing. 631. . without previous court action. (Corpus v.. The right to rescind the contract for non-performance of one of its stipulations..

the defendants-appellants have . Furthermore. despite demand. 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. Inc. 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. the entire obligation would have been paid. 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' contention is without merit. the obligor may recover as though there had been a strict and complete fulfillment.appellees had already paid an aggregate amount of P 4.00) when this contract is signed.38. less damages suffered by the obligee. low income group people of realizing their dream of a little parcel of land which they can really call their own. (a) The amount of THREE HUNDRED NINETY TWO only (P392. v. have accepted and received delayed payments of installments. from this date until the total payment of the price above stipulated.M. To sanction the rescission made by the defendants-appellants will work injustice to the plaintiffs. in only a short time. and (b) The sum of FORTY ONE AND 20/100 ONLY (P4l. but for as many times as he wishes.533.00 excluding the 7 percent interests. The defendants-appellants cannot rely on paragraph 9 of the contract which provides: NINTH.20) on or before the 19th day of each month. though the plaintiffs-appellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract. In other words. The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph 6 not merely once. also militates against the unilateral act of the defendants-appellants in cancelling the contract. We agree with the observation of the lower court to the effect that: Although the primary object of selling subdivided lots is business. including interest. Javier.-That whatever consideration of the party of the FIRST PART may concede to the party of the SECOND PART. because they failed to pay the August installment.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years.920. (See J. instead of availing of their alleged right to rescind. the plaintiffs.appellees. for more than four (4) months. We agree with the plaintiffs-appellees that when the defendants-appellants. in case of default or non-compliance by the party of the SECOND PART. 31 SCRA 829) It would unjustly enrich the defendants-appellants.. yet. Article 1234 of the Civil Code which provides that: If the obligation has been substantially performed in good faith. 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. although the principal obligation was only P 3.

free from all hens and encumbrances other than those expressly provided in this contract. (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. Guieb (48 SCRA 68).waived and are now estopped from exercising their alleged right of rescission. Teodoro de Guzman. The contract to sell entered into by the parties has some characteristics of a contract of adhesion. 1964 the full payment by appellees of all their arrearages. plus interest at the rate of 7% per annum .. We agree with the plaintiffs-appellees. it is admitted that the delayed payments were received without protest or qualification.—That in consideration of the agreement of sale of the above described property. even took steps to cancel the option or to eject the appellees from the home-lot in question. that au the expenses which may be incurred in the said transfer of title shall be paid by the party of the SECOND PART.00. . the necessary deed or deeds to transfer to the latter the title of the parcel of land sold. In Sweet Lines. The defendants-appellants drafted and prepared the contract. the total price of the sale is completed. we held that: xxx xxx xxx But defendants do not deny that in spite of the long arrearages. In De Guzman v. we held that: xxx xxx xxx .. Under these circumstances.920.00). the defendants-appellants must now be compelled to execute the final deed of sale pursuant to paragraph 12 of the contract which provides: TWELFTH. 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. however. It was offered to them on a "take it or leave it" basis. affixed their signatures and assented to the terms and conditions of the contract. They had no opportunity to question nor change any of the terms of the agreement. 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 3.920. v.00.38. The plaintiffs-appellees. neither they nor their predecessor. The defendants-appellants rely on paragraph 2 of the contract which provides: SECOND. it is understood. Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contract herein is a contract of adhesion. On the contrary.533. Inc. 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.—That once the payment of the sum of P3. Philippine Currency. the party to the FIRST PART will execute in favor of the party of the SECOND PART. The defendants-appellants contend in the second assignment of error that the ledger of payments show a balance of P671.. They submit that while it is true that the total monthly installments paid by the plaintiffs-appellees may have exceeded P3. We cannot but agree with the lower court that at the time appellees exercised their option. eager to acquire a lot upon which they could build a home. Teves (83 SCRA 36 1).920..67 due from the plaintiffs-appellees. as above stated. .

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. SR. 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. The contract to sell. and in its entirety is most unfair to the buyers. in essence. 1. .67) without any interests.920. LOPE SARREAL. 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. Civil Code of the Philippines.. .. Naravasa & Pol Tiglao.. Vol. the courts should only order the payment of the few remaining installments but not uphold the cancellation of the contract. there are certain contracts almost all the provisions of which have been drafted only by one party.00 and the plaintiffs-appellees have already paid an aggregate amount of P4. Del Rosario & Associates for defendant-appellee M.00 plus 7% interest per annum. Inc. Jr. stipulations in a contract come about after deliberate drafting by the parties thereto. YULO. bills of lading. Felipe Torres and Associates for plaintiffs-appellants. V. contracts of sale of lots on the installment plan fall into this category. condemnable in its lopsidedness and injurious in its effect which. and MANUEL NIETO. JR. G. . since the principal obligation under the contract is only P3. for defendant-appellee Interphil Promotions. JR. No. the instant petition is DENIED for lack of merit. Insurance contracts. The attorney's fees are justified.533. Such contracts are called contracts of adhesion. especially where such interpretation will help effect justice to buyers who. WHEREFORE.R.) (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. Seventh ed.920. being a contract of adhesion.E." Thus. usually a corporation.. p.920.00 price sale. RESOLUTION . SO ORDERED. it is likewise true that under paragraph 12 the seller is obligated to transfer the title to the buyer upon payment of the P3. plaintiffs-appellants. A. INTERPHIL PROMOTIONS. 1987 SOLOMON BOYSAW and ALFREDO M. vs. after having invested a big amount of money.R. are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology.. Nieto. Upon payment of the balance of P671. defendants- appellees.. Costs against the defendants-appellants. (Paras.. L-22590 March 20. must be construed against the party causing it. .67 without any interest thereon. (W)hile generally. 80.38. INC. because the only participation of the party is the signing of his signature or his "adhesion" thereto. Jr.

1961. Plaintiffs versus Interphil Promotions.00. 1961. The next day. from the decision dated July 25. 1961. On June 19.00 as moral damages and P5. Q-5063. 1961. ordered them to jointly and severally pay defendant-appellee Manuel Nieto. and Manuel Nieto. represented by Lope Sarreal. On September 1. 26-27. 1961. 1961.00 as unrealized profits. Sr. Jr. and defendant-appellee Lope Sarreal. Quezon City.n.. t. Willie Ketchum. prior to the date of the boxing contest. Inc. to engage Boysaw in a title fight at the Rizal Memorial Stadium on September 30.000. 1963 and other rulings and orders of the then Court of First Instance [CFI] of Rizal. Thereafter. the managerial rights over Boysaw that he earlier acquired from Ketchum and Ruskay. signed with Interphil Promotions. Amado Araneta assigned to Alfredo J. 1961. U. Branch V in Civil Case No. J. that is.000. On September 5. [pp. P33. entitled "Solomon Boysaw and Alfredo M. the total sum of P25.A. engage in any other such contest without the written consent of Interphil Promotions. Jr. of which he had not been formally notified. P250.S. The antecedent facts of the case are as follows: On May 1. 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.000.00 as attorney's fees." which. Interphil signed Gabriel "Flash" Elorde to a similar agreement. session of March 14. 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. Jr. broken down into P20. Jr. Nevada..00 as attorney's fees. Alfredo Yulo. It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30. Sr. and Lope Sarreal. assigned to J. Jr. Yulo. Inc.. . Jr. September 2. Boysaw wrote Lope Sarreal. Ketchum on his own behalf and on behalf of his associate Frank Ruskay. 1963]. On July 2.000. Sr. a supplemental agreement on certain details not covered by the principal contract was entered into by Ketchum and Interphil. informing him of his arrival and presence in the Philippines..369. J. a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight championship of the world. Inc. Inc. and requesting that Boysaw be called to an inquiry to clarify the situation. 1961.FERNAN. Amado Araneta the managerial rights over Solomon Boysaw. Yulo. Presumably in preparation for his engagement with Interphil.: This is an appeal interposed by Solomon Boysaw and Alfredo Yulo. On the same date.000. Solomon Boysaw and his then Manager. 1961 or not later than thirty [30] days thereafter should a postponement be mutually agreed upon..s. 1961. the defendants-appellees Interphil Promotions. Defendants. On May 3.00 as moral damages aside from costs. the additional amount of P20.72 as actual damages and P5. Sr. and that Boysaw would not. Solomon Boysaw arrived in the Philippines on July 31.. among others.. Boysaw fought and defeated Louis Avila in a ten-round non-title bout held in Las Vegas.. 1961.000. Lope Sarreal. Sr..

1961. Early in October 1961. As a result of the foregoing occurrences. 1963. Romeo Edu of the GAB Legal Department from appearing for defendant Nieto. 1963 with plaintiff's case being deemed submitted after the plaintiffs declined to submit documentary evidence when they had no other witnesses to present. offered to advance the fight date to October 28. as having been committed by the lower court. Jr. Jr. Yulo informed Besa that he was willing to approve the fight date of November 4. the lower court reset the trial for June 20. On the first scheduled date of trial. the plaintiffs moved for a new trial. 1961.1961 provided the same was promoted by Besa. refused to accept the change in the fight date. was not entitled to be represented by government counsel. The trial proceeded as scheduled on July 23. plaintiff's counsel after asking the court's permission. 1961 which was within the 30- day period of allowable postponements provided in the principal boxing contract of May 1. Edu. filed an urgent motion for postponement of the July 23. Yulo. Sarreal. While an Elorde-Boysaw fight was eventually staged. hence. pleading anew Boysaw's inability to return to the country on time. plaintiffs represented by a new counsel. Sr. a local boxing promoter. on October 12. but was granted as regards the disqualification of Atty. 1963. He was still abroad when. the fight contemplated in the May 1. 1963. in the CFI of Rizal [Quezon City Branch] for damages allegedly occasioned by the refusal of Interphil and Sarreal.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. Boysaw and Yulo. The motion was denied insofar as Solicitor General Coquia was concerned. then GAB Chairman. 1963 trial. The motion was denied. Jr. this appeal taken directly to this Court by reason of the amount involved. From the errors assigned by the plaintiffs. plaintiff moved to disqualify Solicitor Jorge Coquia of the Solicitor General's Office and Atty. Jr.1961. the following principal issues can be deduced: .. After the lower court rendered its judgment dismissing the plaintiffs' complaint. plaintiff's case would be deemed submitted on the evidence thus far presented. exchanged communications with one Mamerto Besa. In one of such communications dated October 6. Jr. 1963. Jr. took no further part in the proceedings. When defendant's counsel was about to present their case. The motion was denied. On or about July 16. for a possible promotion of the projected Elorde-Boysaw title bout. and Manuel Nieto. 1963 upon assurance of Boysaw's counsel that should Boysaw fail to appear on said date. 1961 boxing contract never materialized. so was the motion for reconsideration filed by plaintiffs on July 22. Since Boysaw was still abroad on the later date. maintaining his refusal even after Sarreal on September 26. 1961. as alleged. on May 13. aided and abetted by Nieto. sued Interphil. The case dragged into 1963 when sometime in the early part of said year. Thus. 1961. on the ground that the latter had been sued in his personal capacity and. he was scheduled to take the witness stand. therefore. 1961. The USA National Boxing Association which has supervisory control of all world title fights approved the date set by the GAB Yulo. plaintiff Boysaw left the country without informing the court and. his counsel. another postponement was granted by the lower court for July 23. to honor their commitments under the boxing contract of May 1.

Vol. 1961 in Las Vegas Nevada. and if there was. 1961 boxing contract. in reciprocal ones. Civil Code]. and subsequently. 26-27. Our law on contracts recognizes the principle that actionable injury inheres in every contractual breach. on the basis of the evidence adduced.1961. Another violation of the contract in question was the assignment and transfer. Art. or recover damages by reason of his own breach " [Seva vs. 1963]. 4. Civil Code of the Philippines. 3. to appellant Yulo.s. Amado Araneta. 1963 trial. Whether or not there was legal ground for the postponement of the fight date from September 1. 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. first to J. and those who in any manner contravene the terms thereof. he fought Louis Avila on June 19. 581. They are to be performed simultaneously. March 14. in case one of the obligors should not comply with what is incumbent upon him. While the contract imposed no penalty for such violation. Whether or not there was a violation of the fight contract of May 1.. [Art. 2. and in which each party is a debtor and a creditor of the other. this does not grant any of the parties the unbridled liberty to breach it with impunity. p. 1961. On the issue pertaining to the violation of the May 1. who was guilty of such violation.. Emphasis supplied]. Appellant Yulo admitted this fact during the trial. to November 4. Thus: Those who in the performance of their obligations are guilty of fraud. so that the performance of one is conditioned upon the simultaneous fulfillment of the other" [Tolentino. . negligence or delay. erred in awarding the appellees damages of the character and amount stated in the decision. IV. such that the obligation of one is dependent upon the obligation of the other. t. Civil Code]. "Reciprocal obligations are those which arise from the same cause. Jr. Whether or not the lower court. 1170. are liable for damages. Whether or not the lower court erred in the refusing a postponement of the July 23. Also: The power to rescind obligations is implied. Alfredo Berwin 48 Phil. 1961 fight contract. 5. 1191. [pp. the evidence established that the contract was violated by appellant Boysaw himself when. of the managerial rights over Boysaw without the knowledge or consent of Interphil. without the approval or consent of Interphil. 175. as stipulated in the May 1. 1961. 1. [Part 1.1 The power to rescind is given to the injured party.n. "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.

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

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

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

INTERMEDIATE APPELLATE COURT (Fourth Civil Cases Division). VV-18-(a) in the total area of 5. The court's discretion in granting or refusing it is governed by reason and justice. To pay the sum of P556.R. Aug.: This is an appeal by certiorari from the Decision 1 of the respondent court dated May 31. 2. such litigant may be penalized for costs. 1966 until the contract would have been fully paid together with . The MANUFACTURERS BANK AND TRUST COMPANY. The law could not have meant to impose a penalty on the right to litigate. be arbitrarily considered as a case of malicious prosecution. No. SO ORDERED. Diokno and Carmen I. L-7748. 1961. 13. No. The grant of moral damages is not subject to the whims and caprices of judges or courts. 1984 in CA- G. p.00 less the amount due on the contract (i. 1956. In order that a person may be made liable to the payment of moral damages. No.R. respondents-appellees. 27. The Manufacturers Bank and Trust Company. 52 O. Diokno. the unpaid installments from December. plaintiffs-appellees. as such. The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. et. [Barreto vs. To deliver to the plaintiffs the parcel of land described in Contract to Sell No. and cannot. except for the award of moral damages which is herein deleted.] WHEREFORE.936 square meters and to execute in their favor the necessary deed of absolute sale therefor. vs. L-67881 PILIPINAS BANK as Successor-In-Interest Of And/Or In substitution to. J. 67205 entitled "Jose W.. and JOSE W. CV No. such right is so precious that moral damages may not be charged on those who may exercise it erroneously..The award of moral damages in the instant case is not based on any of the cases enumerated in Art. Arevalo. DIOKNO. the law requires that his act be wrongful. G. petitioner-appellant vs. 19660. the decision of the lower court is hereby affirmed. defendant-appellant" which affirmed the decision 2 of the Court of First Instance of Rizal (Pasig Branch XXI) in Civil Case No. the dispositive portion of which reads: WHEREFORE. al. ordering the defendant Manufacturers Bank & Trust Company: 1. 5818.G.160. 2219 of the Civil Code. judgment is rendered in favor of the plaintiffs and against the defendant. PARAS. DIOKNO and CARMEN I.e. For these the law taxes costs. The action herein brought by plaintiffs-appellants is based on a perceived breach committed by the defendants-appellees of the contract of May 1. Moral damages cannot be imposed on a party litigant although such litigant exercises it erroneously because if the action has been erroneously filed.

5. SO ORDERED. (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. Inc. relevant to this petition: (a) The total contract price for the entire 5. on August 31. 2. 1965. July and August.00. in which case the vendor shall have right to resell the said parcel of land to any person interested. F-1) requesting remittance of installment arrears showing partial payments for the month of April 1965 and May 1965 and complete default for June.00.397.00 by way of exemplary damages.936 square-meter-lot was P47. 4. . Costs of suit.00 which answers for the installments for the months of June 1965 to August 1965. 1965.488. VV-18 (a) (Exh.182. and 6. (petitioner's predecessor-in-interest) as vendor. together with the stipulated interest of 6% per annum. three or more consecutive installments as stipulated therein or to comply with any of the terms and conditions thereof. starting on April 1. 1961 at a monthly installment of P446. Hacienda Benito. (b) Of the total sum.10 until fully paid-although this monthly installment was later adjusted to the higher amount of P797. 1961. 1965. subject to the following terms and conditions. among others. 14-15) The following are the undisputed facts of the case: 1. On July 27. and private respondents.306. In partial compliance with the aforesaid Statements of Account.000. as vendees executed Contract to Sell No. On April 18. interest thereon up to March 25. P50. 1965 the sum of Pl. 1974 until the same is fully paid. forfeiting payments made by the vendee as liquidated damages. A) over a parcel of land with an area of 5.000. Rizal.86. 1974) with legal interest on said balance from April 22. private respondents paid on September 3. pp. 1965. 3. an amount of Pl2. P50. Likewise. (Rollo. (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. was to be paid over a period of 8-1/2 years starting on May 1. Ten per cent (10%) of the judgment by way of attorney's fees.00 was applied thereto so as to reduce the balance on the principal to P35.00 by way of moral damages. 1965.936 square meters of the Victoria Valley Subdivision in Antipolo. 4. 3. (c) The aforesaid balance. petitioner sent to private respondents a Statement of Account (Exh. petitioner sent to private respondents another Statement of Account with the additional entries of interests and the incoming installment for September.

1970 (Exh.5. In view of the foregoing. private respondents made a partial payment of P2. 1967. 1967. 10). O). 1967. On March 14. 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. 1967. After almost three (3) years. 10-d). petitioner again sent private respondents a demand letter showing total arrearages of 20 months as of April 1965. 13. 8. 15. 1973.00 with the request for an extension of 60 days from May 17. 7. 11. to which letter was annexed a "Demand for Rescission of Contract". 1967 within which to up-date their account (Exh. J). 1970. to which petitioner made a reply on July 22. On March 17. 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. and to deliver to them the title of the lot in question. On March 27. On May 19. More than two (2) years from May 19. petitioner wrote a letter to private respondents. On March 25. 1967 within which to update their account (Exh. . however. reminding them of their balance which will be due on the 31st instant (Exh. 1974. private respondent Carmen I. On April 17. 10-c). private respondents wrote a letter to petitioner requesting for a Statement of Account as of date in arrears and interests(Exh. 1971. Petitioner filed an Answer with counterclaim for damages in the form of attorney's fees. claiming that Contract to Sell No. private respondents paid P5. On October 19. 6. 1973. 10-a). VV-18 (a). 1967. 17. On September 18. 12). 1974 (Exh. 16. 1971 or on July 5. petitioner shall be constrained to avail of the automatic rescission clause (Exh. but this time advising that unless they up-date their installment payments. 12. 9. or on July 16.000. 14. 1967. On May 17. petitioner wrote a letter to private respondents. 9). informing them that the contract to sell had been rescinded/cancelled by a notarial act. notarized on March 25. 10.00 as partial payment and requested an extension of another 30 days from September 18. On July 17. private respondents filed Complaint for Specific Performance with Damages to compel petitioner to execute a deed of sale in their favor. 11).000. private respondents wrote a letter reiterating their request in their letter dated July 5. private respondents failed to update their arrearages and did not request for any further extension of time within which to update their account. petitioner sent private respondents a simple demand letter showing a delinquency in their monthly amortizations for 19 months (Exh. 1974. requesting for a complete statement of all the balance due including interests. 18. private respondents wrote a letter to petitioner expressing their desire to fully settle their obligation. 1974. which has not been complied with despite several follow-ups (Exh. 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.

R. located at P. Said decision was affirmed on appeal. 141- 148. Hence. still in the instant case there is a clear WAIVER of the stipulated right of "automatic rescission.371. SP No. Inc. because: (a) petitioner waived the automatic rescission clause by accepting payment on September 1967. Respondent likewise purchased a parking slot in the same condominium building for P600. in case the rescission is found unjustified under the circumstances. citing Art.80 for the unit while making .. thus. neither could private respondents be liable in default. and by sending letters advising private respondents of the balances due. 2013 and Resolution 2 dated April 30. resolution or cancellation) is VALID. J. specifically Unit 3007 of the Palace of Makati. Respondent.. Burgos corner Caceres Sts. (Decision. G.519. Inc. Amended Record on Appeal). 1977 (when petitioner made arrangements for the acquisition of additional 870 square meters) petitioner could not have delivered the entire area contracted for.000. DECISION PERALTA. until May 18. JAYNE YU. March 09. respondent paid the full purchase price of P7. (b) in any event.30 square meters for the total contract price of P7. pp.: 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. We find the petition meritless. 207133. payable in equal monthly installments until September 24. with an area of 137. In all these extensions. After trial. the lower court rendered a decision in private respondents' favor. the remedy of one who feels aggrieved being to go to Court for the cancellation of the rescission itself.R. Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a Contract to Sell on July 25. 1 189 of the New Civil Code. raising the main issue of whether or not the Contract to Sell No. The facts follow.519. and Myers Building Co. under the automatic rescission clause contained therein. Maritime Building Co. 2015 SWIRE REALTY DEVELOPMENT CORPORATION." as evidenced by the many extensions granted private respondents by the petitioner.. Makati City. 1997. so.00.80. While it is true that in the leading case of Luzon Brokerage Co.19. this Petition For Review on Certiorari. Petitioner. v. looking forward to receiving payments thereon. On September 24." WHEREFORE the assailed decision is hereby AFFIRMED but the actual damages are hereby reduced to P250. 1974) as a result of the contract. vs. 1995 covering one residential condominium unit. 121175. 2013 of the Court of Appeals (CA) in CA-G. 43 SCRA 93 the Supreme Court reiterated among other things that a contractual provision allowing "automatic rescission" (without prior need of judicial rescission. No.371. holding that petitioner could not rescind the contract to sell.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..000. SO ORDERED. 1997. the petitioner never called attention to the proviso on "automatic rescission.

00 c. the HLURB Board of Commissioners reversed and set aside the ruling of the HLURB ENCRFO and ordered the rescission of the Contract to Sell.000. It disposed of the case as follows: chanRoblesvi rtua lLawl ibra ry WHEREFORE.000. 2006.000. in the alternative. judgment is hereby rendered ordering [petitioner] the following: 1. 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 3.371. in relation to Section 38 of P.00 On the other hand. ratiocinating: chanRob lesvi rtual Lawl ibra ry We find merit in the appeal. 2002. conduct the necessary repairs on the subject unit to conform to the intended specifications. 957: SO ORDERED. petitioner failed to complete and deliver the subject unit on time. To finish the subject unit as pointed out in the inspection Report 2. 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). notwithstanding full payment of the contract price.00 for violation of Section 20.000. ChanRobles Vi rtua lawlib rary 3.000 as compensatory damages for the minor irreversible defects in her unit [respondent]. or. surcharges or penalties charged therein. 2004. However. PREMISES CONSIDERED. 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. [respondent] is hereby directed to immediately update her account insofar as the parking slot is concerned. moral damages of P20. All other claims and counterclaims are hereby dismissed for lack of merit. Directing [petitioner] to pay an administrative fine of P10. 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.519. demand a refund and payment of damages. 2001: subject to computation and payment of the correct filing fee. To pay [respondent] the following: a. Attorney’s fees of P20. and that the subject unit has not been delivered to [respondent] as of August 28. 4 cralawlawlib rary Respondent then elevated the matter to the HLURB Board of Commissioners. Cha nRobles Vi rtua lawlib rary 2.00 for the parking lot. 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. In a Decision 5 dated March 30. the amount of P100. cralawlawl ibra ry 6 cralawred Petitioner moved for reconsideration. the decision of the Office below is set aside and a new decision is rendered as follows: 1. Wherefore. b.00.a down payment of P20. Declaring the contract to sell as rescinded and directing [petitioner] to refund to [respondent] the amount of P7.80 at 6% per annum from the time of extrajudicial demand on January 05. but the same was denied by the HLURB Board of Commissioners in a . which is beyond the period of development of December 1999 under the license to sell.000. 2002. On October 19. the HLURB ENCRFO rendered a Decision 3 dismissing respondent’s complaint. IT IS SO ORDERED.D. Directing [petitioner] to pay respondent attorney’s fees in the amount of P20. without interest.

957 and Section 2 of P. law and jurisprudence relevant to the case. and the HLURB ENCRFO Decision dated October 19. cralawlawl ibra ry 11 cralawred Respondent sought reconsideration of said resolution. 2007. [petitioner]’s appeal is hereby DISMISSED.D. 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. dated March 30. 2006 and June 14. Based on the ruling in United Overseas Bank Philippines. it opted first to file a Motion for Reconsideration on 28 April 2006 or eleven (11) days thereafter. Section 1 of Administrative Order No. But where such a motion for reconsideration has been filed during office hours of the last day of the period herein provided. 2009. 1344 which are special laws that provide an exception to Section 1 of Administrative Order No. 18. the CA granted respondent’s appeal and reversed and set aside the Order of the OP. 2. or until 27 July 2007 to file the Notice of Appeal before this Office. the OP was more inclined to agree with the earlier decision of the HLURB ENCRFO as it was more in accord with facts. It held that after a careful and thorough evaluation and study of the records of the case. [petitioner] filed its appeal only on 7 August 2007 or eleven (11) days late. 2004 is hereby REINSTATED. petitioner filed a motion for reconsideration against said decision. and the HLURB Decision dated 30 March 2006 and HLURB Resolution dated 14 June 2007 are hereby AFFIRMED. 9 cralawlawlibra ry Immediately thereafter. the [petitioner] had only four (4) days from receipt on 23 July 2007 of HLURB Resolution dated 14 June 2007. Thus: chanRoblesvi rtualLaw lib rary WHEREFORE. SO ORDERED. premises considered. v. However. respondent filed an appeal to the CA. 2011. petitioner appealed to the Office of the President (OP) on August 7. WHEREFORE. the appeal must be made within the day following receipt of the denial of said motion by the appealing party. Unfazed. respectively. [petitioner] received the HLURB Resolution dated 14 June 2007 denying the Motion for Reconsideration. On 23 July 2007. 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. 2007. In a Decision 8 dated November 21. Consequently. SO ORDERED. the OP. Ching (486 SCRA 655). 18.Resolution 7 dated June 14. 2007. The Decision and Resolution of the HLURB Third Division Board of Commissioners. 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. through then Executive Secretary Eduardo Ermita. (Underscoring supplied) xxxx Accordingly. through then Deputy Executive Secretary Manuel Gaite. the OP. granted petitioner’s motion and set aside Deputy Executive Secretary Gaite’s decision. are hereby SET ASIDE. par. dismissed petitioner’s appeal on the ground that it failed to promptly file its appeal before the OP. premises considered. The said motion interrupted the 15-day period to appeal. 2013. In a Decision dated January 24. the instant Motion for Reconsideration is hereby GRANTED. Corollary thereto. In a Resolution 10 dated February 17.D. Inc. the same was denied by the OP in a Resolution 12 dated August 18. No. 2007. The fallo of its decision reads: c hanRoble svirtual Lawlib ra ry . Thus. 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. however. No.

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

in accordance with Articles 1385 and 1388 and the Mortgage Law. 1997 but was extended to December 1999 as per License to Sell No. petitioner had only four days from July 23. records reveal that petitioner only appealed to the OP on August 7. at the time of the ocular inspection conducted by the HLURB ENCRFO. However. 26 c ralaw red Thus. The injured party may choose between the fulfillment and the rescission of the obligation. Said inspection report states: chanRoblesvi rtua lLawl ibrary 1. 27 c ralawred In the instant case. in the absence of any just cause for the court to determine the period of compliance. or until July 27. while there may be exceptions for the relaxation of technical rules principally geared to attain the ends of justice. 24 cralawre d Time and again. In like manner. Consequently therefore. Ergo. 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. . 2007. with the payment of damages in either case. 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. However. to wit: c hanRoble svirtual Lawlib ra ry Article 1191.for appeal. 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 case one of the obligors should not comply with what is incumbent upon him. even after he has chosen fulfillment. In an avuncular case. we have held that while the dismissal of an appeal on purely technical grounds is concededly frowned upon. The breach contemplated in the said provision is the obligor’s failure to comply with an existing obligation. located at the corner of P. 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. The court shall decree the rescission claimed. Article 1191 of the Civil Code sanctions the right to rescind the obligation in the event that specific performance becomes impossible. 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. 2. Based on the approved plans. They may not be ignored to suit the convenience of a party. He may also seek rescission. 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. in the guise of liberal construction. 2007. 2007. 2007 and filed its appeal only on August 7. we have held that rules of procedure exist for a noble purpose. the CA aptly found that the completion date of the condominium unit was November 1998 pursuant to License No. 2007. 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. Neither is the rule on liberal construction a license to disregard the rules of procedure. 97-12-3202 dated November 2. would be to defeat such purpose. or eleven days late. When the obligor cannot comply with what is incumbent upon it. Burgos Street and Caceres Street. the said unit appears to be completed except for the installation of kitchen cabinets and fixtures. 99-05-3401 dated May 8. we find no cogent reason to exempt petitioner from the effects of its failure to comply with the rules. and to disregard such rules. Poblacion. Makati City. 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. Second. the said unit is at the 26thFloor. During the time of inspection. The power to rescind obligations is implied in reciprocal ones. if the latter should become impossible. 1999. at the Palace of Makati. the obligee may seek rescission and. Petitioner received the HLURB Board Resolution denying its Motion for Reconsideration on July 23. Neither being a natural right nor a part of due process. which was labeled as P2-07. Procedural rules are not to be disdained as mere technicalities. The unit of the [respondent] is Unit 3007. 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.

2002.000. c. which is beyond the period of development of December 1999 under the license to sell. d. 3. 1985 CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. JR. Two-Level Sky Palace Restaurant and Hall for games and entertainments. 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. cralawlawlibra ry G. Window opening at the master bedroom conforms to the approved plans. The [petitioners] have also installed baseboards as borders instead of pink porrino granite boarders. respondents. amenities such as swimming pool and change room are seen at the 31st floor only. 2013 of the Court of Appeals in CA-G. replete with billiard tables. L-45710 October 3. These amenities are reflected on the 27th floor plan of the approved condominium plans. 28 cralawlawl ibra ry From the foregoing. a bar. CASTRO. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK. e. petitioners. 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. Walls are newly painted by the respondent and the alleged obvious signs of cladding could not be determined. Health spa for men and women. h. THE HONORABLE COURT OF APPEALS and SULPICIO M. and that the subject unit has not been delivered to respondent as of August 28. No. based on the approved plans. 121175 are hereby AFFIRMED. . i. the instant petition is DENIED. Shiatsu Massage Room. demand a refund and payment of damages.R. The Decision dated January 24. The stairs have been installed in such manner acceptable to the undersigned. in his capacity as statutory receiver of Island Savings Bank. f. At the time of inspection.R. 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. g. Complainant pinpointed to the undersigned the deficiencies as follows: a. Incontrovertibly. with MODIFICATION that moral damages be awarded in the amount of P20. The [master’s] bedroom door bore sign of poor quality of workmanship as seen below. It was verified and confirmed that a square column replaced the round column. Bathrooms and powder room have been installed in such manner acceptable to the undersigned. SP No. premises considered. WHEREFORE. 2002. 2013 and Resolution dated April 30. vs. b. The delivered unit has high density fiber (HDF) floorings instead of narra wood parquet. indoor golf with spectacular deck and karaoke rooms were not yet provided by the [petitioner]. TOLENTINO.00 SO ORDERED. As a result it leaves a 3 inches (sic) gap between the glass window and partitioning of the master’s bedroom.

000. repayable in semi-annual installments for a period of 3 years.00 was deducted from the partial release of P17. 1965. CJ. MAKASIAR. and which mortgage was annotated on the said title the next day. 46. modifying the decision dated February 15. Fabian S. the Monetary Board of the Central Bank. issued Resolution No.I. rec. upon favorable recommendation of its legal department. provided that such extensions or renewals shall be subject to review by the Superintendent of Banks. who. promised repeatedly the release of the P63. after finding thatIsland Savings Bank failed to put up the required capital to restore its solvency. 52253-R dated February 11.00 loan covering a 6- month period amounting to P4.459. On April 28. 1968. the Board.B.000.R.00 at 12% annual interest. Island Savings Bank. approved the loan application for P80.000. who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible. Antonio R. Tolentino.00 loan was made by the Bank.000.000.000. But this pre-deducted interest was refunded to Sulpicio M. Las Nieves. and Sulpicio M. which provides: In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities. 1977. with 12% annual interest. . Tolentino on July 23.). The Bank. 47.).00 loan.00 balance (p.800. after being informed by the Bank that there was no fund yet available for the release of the P63. rec. payable within 3 years from the date of execution of the contract at semi-annual installments of P3. after finding Island Savings Bank was suffering liquidity problems. Lombos and Marino E. Regalado. 113. executed on the same day a real estate mortgage over his 100-hectare land located in Cubo. in C.000. No. issued Resolution No.). On August 13. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a subdivision. and damages with preliminary injunction. 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. 1049.000. thru its vice-president and treasurer.A.00 partial release of the P80. which dismissed the petition of respondent Sulpicio M.. rec. 1965.00 balance (p. An advance interest for the P80. It was required that Sulpicio M. a mere P17. On June 14. by unanimous vote.). Tolentino and his wife Edita Tolentino signed a promissory note for P17.00. 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. 1965.000. the Monetary Board. Tupaz for private respondent. Agusan. as a security for the loan. Eslao for petitioners.: This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals. On May 22. Jr. 64. specific performance or rescission.00 of Sulpicio M. rec. rec).00 (p. Tolentino for injunction. and covered by TCT No.-G. 48-49. The approved loan application called for a lump sum P80. xxx xxx xxx (p. T-305. 1965. 1972 of the Court of First Instance of Agusan.

he is entitled to specific performance by ordering Island Savings Bank to deliver the P63.00 debt covered by the promissory note? 3.000. From such date. On February 15. he signified his willingness to pay the P80. can his real estate mortgage be foreclosed to satisfy said amount? When Island Savings Bank and Sulpicio M. Tolentino executed a real estate mortgage on April 28. On February 11. Hence. the Court of Appeals.000. Sulpicio M. the trial court admitted the answer in intervention praying for the dismissal of the petition of Sulpicio M. 1977. 30-:31. 1965. modified the Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino for specific performance prosper? 2. the trial court. the trial court.On August 1. but it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17. upon the filing of a P5.00 subsists. On January 20. they undertook reciprocal obligations.000. Tolentino. In reciprocal obligations. If Sulpicio M. ordering him to pay Island Savings Bank the amount of PI 7 000.00 loan pp.00 covered by the promissory note. to rescind the real estate mortgage (pp. When Sulpicio M. Tolentino's petition for specific performance. On January 29. alleging that since Island Savings Bank failed to deliver the P63. Tolentino's liability to pay the P17.00 plus legal interest and legal charges due thereon. Island Savings Bank. on appeal by Sulpicio M. 65-76.00 loan. finding unmeritorious the petition of Sulpicio M.000. rec. rec.000.). 1969. 1965. Tolentino and the setting aside of the restraining order. rec. this instant petition by the central Bank.00 loan agreement on April 28. filed by the Central Bank and by the Acting Superintendent of Banks (pp.000. Tolentino entered into an P80. Tolentino liable to pay the P17. after trial on the merits rendered its decision.00 loan. in view of non-payment of the P17. filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M.00 loan. and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. Vda. 86-87.00 with interest of 12% per annum from April 28. 135-136.000. 1969. 1169 of the Civil Code). de Quirino vs. The promise of Sulpicio M. 1968. Tolentino filed a petition with the Court of First Instance of Agusan for injunction. Ruaya. Tolentino. issued a temporary restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp.000.000. 1969. and the sheriff scheduled the auction for January 22. The issues are: 1. Can the action of Sulpicio M. 1969. Pelarca 29 SCRA 1 [1969]). Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80. and when one party has performed or is ready and willing to perform his part of the contract.000.00 surety bond. 110 SCRA 46 [1981]. 1965.). 32-43. Is Sulpicio M. the other party who has not performed or is not ready and willing to perform incurs in delay (Art.). rec. the obligation or promise of each party is the consideration for that of the other (Penaco vs. 1972.00 balance of the P80. specific performance or rescission and damages with preliminary injunction.000. the obligation of Island Savings .). Tolentino. On January 21. rec. and if said balance cannot be delivered.

vs. The act of Island Savings Bank." Petitioners.00 loan accrued. Sept.1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63.. Inc. was improper considering that only P17.. which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. 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. It is the obligation of the bank's officials and employees that before they approve the loan application of their customers. 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. 1965. and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No. Afzelius and Afzelius. 190 [1918]). The lower court's action is sanctioned by the Rules of Court. 1968. the bank shall bear the risk in case the collateral turn out to be over-valued. 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 P80.000.00 loan. under Article 1191 of the Civil Code.000. The representation made by the customer is immaterial to the bank's responsibility to conduct its own investigation.00 out of the P80. 15. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. which took effect on June 15.00 balance of the P80. had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same in their pleadings (pp.00 balance because said resolution merely prohibited the Bank from making new loans and investments.000.00 balance.000. 39 Phil.00 for the supposed P80. and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted. which right exist independently of his right to demand the completion of the P80. The exercise of one right does not affect. Tolentino.n. cannot raise the same issue before the Supreme Court.000. the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract.800. CJS p.000.A.00 loan was released. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to P4. the exercise of the other. Thus. C. Rule 9. the Bank's delay in furnishing the entire loan started on April 28. nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs.00 loan.00 loan. Furthermore. Sulpicio M. If ever bank officials and employees totally reIy on the representation of their customers as to the valuation of the loan collateral. 650) The fact that Sulpicio M. The Board Resolution No. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63.00 loan. .000. the receipt by Sulpicio M. 104 SCRA 151 [1981]). The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R. Section 2. Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement. 17A. 1971).000. '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 lower court. thus. which prohibited Island Savings Bank from doing further business. the validity of which is not in question. Thus.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63.000. 967 on June 14. 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.A. Tolentino. WE cannot grant specific performance in favor of Sulpicio M. Besides. 198-199. they must investigate the existence and evaluation of the properties being offered as a loan security. 1049 issued on August 13.s. And. 1948. on objections of' Sulpicio M.000. A person cannot be legally charged interest for a non-existing debt. 'Tolentino of the pre- deducted interest was an exercise of his right to it. 265. No. much less neutralize.000. in asking the advance interest for 6 months on the supposed P80. Tolentino. t.Bank to furnish the P80. 1974 ed. 967. may choose between specific performance or rescission with damages in either case.

however. Vol. Jones on Mortgage. F(2d) p. when there is partial failure of consideration.W.00. P.00 loan. lt may either be a prior or subsequent matter. The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de Oro vs. Tolentino cannot be entirely foreclosed to satisfy his P 17. C. the bank was deemed to have complied with its reciprocal obligation to furnish a P17. But when the consideration is subsequent to the mortgage. the mortgage can take effect only when the debt secured by it is created as a binding contract to pay (Parks vs.00 loan when it falls due. as there is no doubt that the bank failed to give the P63.000. vs. cited in the 8th ed. Vol.00 debt. cited in 5th ed. . As far as the partial release of P17. in the form of penalties and surcharges. The liability of Sulpicio M. Tolentino's reciprocal obligation to pay the P17. it shall belong to the aggrieved party. that rescission is only for the P63. as there was no debt yet because Island Savings Bank had not made any release on the loan. in relation to Art. Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.000. The promissory note gave rise to Sulpicio M. And. Sherman. WE hold. 180). the consideration of the debtor in furnishing the mortgage is the existence of a valid.E.000. Since Sulpicio M. 1974 ed. 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.. voidable. 1. CJS.000. p. Peterson. If there is a right to rescind the promissory note. cited in Vol. pp. Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage. Thus. Since both parties were in default in the performance of their respective reciprocal obligations.000. for not paying his overdue P17.00 within 3 years. they are both liable for damages. 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. Tolentino failed to comply with his obligation to pay his P17. of the Civil Code).000. 583. Tolentino derived some benefit for his use of the P17. 2086. 172 N. Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations. no consideration was then in existence. Tolentino for interest on his PI 7. For the debtor. Wiltsie on Mortgage. 93 SCRA 443 [1979]).000. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs.00 debt. et al.00. Vol.00 balance of the P80. Vol. 176 N. 138). the mortgage becomes unenforceable to the extent of such failure (Dow. 125 SCRA 122 [1983]).. or unenforceable debt (Art. because the bank is in default only insofar as such amount is concerned. that the real estate mortgage of Sulpicio M. Co. 2052. 82. in the accessory contract of real estate mortgage. 19. the liability of the first infractor shall be equitably tempered by the courts. WE rule. Bayuga.00 debt shall not be included in offsetting the liabilities of both parties. does not make the real estate mortgage void for lack of consideration. If Tolentino had not signed a promissory note setting the date for payment of P17. Vol. His failure to pay the overdue amortizations under the promissory note made him a party in default. it is just that he should account for the interest thereon. vs. Tolentino for damages.00 loan. Poore.A. the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. 'Tolentino executed his real estate mortgage. p.00 debt within 3 years as stipulated.000. however.000. 5-6).000. 2. which Sulpicio M.. the consideration of his obligation to pay is the existence of a debt.Rescission is the only alternative remedy left.000. p. The fact that when Sulpicio M. Tolentino accepted and executed a promissory note to cover it. that is. Island Savings Bank. hence not entitled to rescission (Article 1191 of the Civil Code). that is.000.00. 88. 59.

TOLENTINO FAILS TO PAY.00.00 is 78. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17.00 debt. UNLAD RESOURCES DEVELOPMENT G. Therefore. hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78. . HIS REAL ESTATE MORTGAGE COVERING 21.75 hectares. SO ORDERED. 2.00 loan.000.000.Since Island Savings Bank failed to furnish the P63. 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. 1965 TO AUGUST 22. Hence. BENITEZ. SULPICIO M. AND 1. INC.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS.. HELENA Z. THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11. P63. 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. THE REAL ESTATE MORTGAGE COVERING 78. AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22.000. NO COSTS.25 hectares is more than sufficient to secure a P17.000.000.000.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22. 1985 UNTIL PAID. 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. 21. 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. 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. and CONRADO L. the rule of indivisibility of a mortgage cannot apply WHEREFORE. IN CASE SULPICIO M.25 hectares subsists as a security for the P17. TOLENTINO. the real estate mortgage of Sulpicio M. 149338 CORPORATION. No. UNLAD COMMODITIES. to the prejudice of other heirs who have not been paid. The mortgage covering the remainder of 21. PLUS P41.000. 1977 IS HEREBY MODIFIED. Tolentino became unenforceable to such extent. AND 3.00 debt.210. INC.00.00 balance of the P8O.75% of P80..R.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. 1985.

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

[petitioner] Unlad Resources bound itself to invest the said amount of 4.000.00) and pay up immediately one million two hundred thousand pesos (P1.800. immediately after the signing of the agreement. likewise. that the [respondents]. 2000 Decision[1] and August 2.000. through its Chairman[. as controlling stockholders of the Rural Bank [of Noveleta] shall allow Unlad Resources to invest four million eight hundred thousand pesos (P4. it was. agreed that [petitioner] Unlad Resources shall subscribe to a minimum of four hundred eighty thousand pesos (P480.000.] entered into a Memorandum of Agreement wherein it is provided that [respondents]. On the other hand. 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 29.00) (sic) common or preferred non-voting shares of stock with a total par value of four million eight hundred thousand pesos (P4. upon the signing of the said agreement shall transfer control and management over the Rural Bank to Unlad Resources.00) in the Rural Bank in the form of additional equity. 2001 Resolution[2] of the Court of Appeals (CA) in CA-G.R. upon signing. as found by the CA. they complied with their obligation and transferred control .8 million pesos in the Rural Bank.000.00) for said subscription. The facts. According to the [respondents]. Benitez[.] Helena Z.200. 1981. CV No. 54226. are as follows: On December 29. the Plaintiffs (herein respondents) and defendant (herein petitioner) Unlad Resources.800.

000.] under a Management Contract Agreement. 84-041 authorizing the President and the General Manager to lease a mango plantation situated in Naic.of the Rural Bank to Unlad Resources and its nominees and the Bank was renamed the Unlad Rural Bank of Noveleta. Inc.000. The management of the mango plantation was undertaken by Unlad Commodities. it failed to immediately infuse one million two hundred thousand pesos (P1. Inc. 1984. Cavite. However. On August 10. likewise..00) as paid in capital upon signing of the Memorandum of Agreement. The Management Contract provides that Unlad Commodities.00 and giving notice for subscription to proportionate shares. Inc. The [respondents] objected on the grounds that there is already .000. It was further agreed that at the end of the lease period. 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%). a subsidiary of Unlad Resources[.00) in the Rural Bank in the form of additional equity and. [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. Pursuant to this Resolution. Benitez as [lessor]. [respondents] claim that despite repeated demands. 1987. the Bank as [lessee] entered into a Contract of Lease with the [petitioner] Helena Z. the Rural Bank shall turn over to the lessor all permanent improvements introduced by it on the plantation. xxxx On May 20.200. 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.800.

00) for said subscription.800. After trial. plus damages. herein respondents filed before the Regional Trial Court (RTC) of MakatiCity. the RTC rendered a Decision. 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. judgment is hereby rendered. [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. 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. as follows: 1.[5] the dispositive portion of which provides: WHEREFORE.000.000. willing and able to allow [petitioners] to subscribe to a minimum of four hundred eighty thousand (P480. However. (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.000. 1987. Premises Considered.[3] On July 3. The Memorandum of Agreement dated 29 December 1991 (sic) is hereby declared rescinded and: .200.00) in the Rural Bank.00) (sic) common or preferred non-voting shares of stocks with a total par value of four million eight hundred thousand pesos (P4.

00). Inc. (a) Defendant Unlad Resources Development Corporation is hereby ordered to immediately return control and management over the Rural Bank of Noveleta. The Director for Rural Banks of the Bangko Sentral ng Pilipinas is hereby appointed as Receiver of the Rural Bank. 3.070. Inc. (b) moral damages in the amount of Five Hundred Thousand Pesos (P500. Inc. 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. is hereby ordered to return to Defendants the sum of One Million Three Thousand Seventy Pesos (P1.601. .765. to Plaintiffs. Unlad Rural Bank of Noveleta.00) 2. and (b) Unlad Rural Bank of Noveleta.003.38). 4. 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.000.

in a Decision dated November 29. a Supplemental Motion to Dismiss. subsequently.000.00). they posit that the judgment of the trial court.[6] Herein petitioners appealed the ruling to the CA. Later. Petitioners question the jurisdiction of the trial court. which were both denied. plus cost of suit. 2000. Petitioners are now before this Court alleging that the CA committed a grave and serious reversible error in issuing the assailed Decision. Thus. therefore. is null and void and may be impugned at any time.00). . Respondents filed a Motion to Dismiss and. something they have done from the beginning of the controversy. dismissed the appeal for lack of merit and affirmed the RTC Decision in all respects. 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. beyond the jurisdiction of the trial court.000. the CA. these matters fall outside the jurisdiction of the trial court. 2001. SO ORDERED. however. (c) exemplary and corrective damages in the amount of One Hundred Thousand Pesos (P100. 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. as affirmed by the CA. Petitioners motion for reconsideration was denied in CA Resolution dated August 2. contending that the issues that respondents raised before the trial court are intra-corporate in nature and are.

it was merely stated that respondents suffered moral damages without any discussion or explanation of. without conceding the propriety of the judgment of rescission. Finally. Petitioners further argue that the action instituted by respondents had already prescribed. because Article 1389 of the Civil Code provides that an action for rescission must be commenced within four years. which deals specifically with actions for rescission. is the applicable law. attorneys fees cannot be recovered in the absence of stipulation. Dragon and his nominees to the Board of Directors. they complied with their obligation and transferred control of the Rural Bank to petitioner Unlad Resources and its . in the body of the Decision. respondents declare that immediately after the signing of the Memorandum of Agreement. petitioners contend. the matter of attorneys fees was not at all discussed in the body of the Decision. petitioners assert that they have fully complied with their undertaking under the subject Memorandum of Agreement. They submit that Article 1389.7 million to only P5 million. they assail the award for moral and exemplary damages. nor any justification for such award. but that the undertaking has become a legal and factual impossibility because the authorized capital stock of the Rural Bank was increased from P1. Such deficiency. as well as the award for attorneys fees. and could not accommodate the subscription by petitioners of P4. Moreover. Petitioners. as bereft of factual and legal bases given that. is with the knowledge and approval of respondent Renato P. On the other hand.8 million worth of shares. 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. 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. Likewise. Petitioners claim that pursuant to the prevailing rule.

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

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

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.action within the jurisdiction of the trial courts. regardless of the nature of the transactions which give rise to such disputes. To uphold the respondents arguments would remove without legal imprimatur from the regular courts all conflicts over matters involving or affecting corporations. was dismissed for lack of jurisdiction due to the pendency of the case before the RTC. This cannot be done. 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. but solely for the reason that the dispute involves a corporation. Still. The courts would then be divested of jurisdiction not by reason of the nature of the dispute submitted to them for adjudication. notwithstanding the fact that the parties involved are all directors of the same corporation.[8] Interpreting this statutorily conferred jurisdiction on the SEC.[10] The SECs Order dismissing the respondents complaint is instructive: .D.) 902-A. This argument miserably fails to persuade.[9] It is well to remember that the respondents had actually filed with the SEC a case against the petitioners which. 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. however.

8799 provides: Sec. which took effect in 2000. 8799. This law. however. x x x[11] Be that as it may. it is apparent that the present action involves two separate causes of action which are interrelated. The assertion that the defendants failed to comply with their contractual undertaking and the claim for rescission of the contract by the plaintiffs has.A.A. has transferred jurisdiction over such disputes to the RTC. and the resolution of which hinges on the very document sought to be rescinded. R. 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. put in issue the very status of the herein defendants as stockholders of the Rural Bank. also known as the Securities Regulation Code. It is a prejudicial question and a logical antecedent to confer jurisdiction to this Commission. Powers and Functions of the Commission xxxx . From the foregoing allegations. 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. It is to be noted.) No. 5. Specifically. this point has been rendered moot by Republic Act (R.

902-A reads. The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed. partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees. 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.D. partners. amounting to fraud and misrepresentation which may be detrimental to the interest of the public and/or of the stockholder. No. business associates. 902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided. its officers or partnership. 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. 5. members of associations or organizations registered with the Commission. . The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. thus: Sec.5. Section 5 of P. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations.2.

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

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

Article 1144 specifically provides that the 10-year period is counted from the time the right of action accrues. while the Memorandum of Agreement was entered into on December 29. 1981. (5) All other contracts specially declared by law to be subject to rescission. 1987.[13] Thus. The right of action accrues from the moment the breach of right or duty occurs. the original Complaint was filed well within the prescriptive period. (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract. The Memorandum of Agreement subject of this controversy does not fall under the above enumeration. (2) Those agreed upon in representation of absentees. if the latter suffer the lesion stated in the preceding number. xxxx Based on the records of this case. (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. Accordingly. . to wit: Article 1144. the prescriptive period that should apply to this case is that provided for in Article 1144. the action was commenced on July 3.

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

003. opting for the rescission of the Agreement in order to regain control of the Rural Bank. But in the course of things. . and the price with its interest. This is understood to be without prejudice to the rights of third persons who have acquired the thing. 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.[14] Article 1385 of the Civil Code provides. unless there be just cause authorizing the fixing of a period. Thus. it was the respondents who availed of the remedy under Article 1191.00 to petitioners. together with their fruits.070. consequently. 1385. The court shall decree the rescission claimed. it can be carried out only when he who demands rescission can return whatever he may be obligated to restore. in accordance with Articles 1385 and 1388 and the Mortgage Law. Rescission creates the obligation to return the things which were the object of the contract. Mutual restitution is required in cases involving rescission under Article 1191. 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. thus: ART. This means bringing the parties back to their original status prior to the inception of the contract. Having determined that the rescission of the subject Memorandum of Agreement was in order.

together with their fruits. and the price with its interest. indemnity for damages may be demanded from the person causing the loss. 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. and not merely its termination. or its undoing from the beginning.[15] Rescission has the effect of unmaking a contract. the Court finds no justification to sustain petitioners position that said Article 1385 does not apply to rescission under Article 1191. rescission creates the obligation to return the object of the contract.[17] .[16] Hence. It is not merely to terminate it and release the parties from further obligations to each other. 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. but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made. To rescind is to declare a contract void at its inception and to put an end to it as though it never was. In this case. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore.

there was just cause for rescission.[18] Clearly. thus: Atty.601. the records show that the amount of P4.38 pertains to actual losses incurred by respondents as a result of petitioners non-compliance with their undertaking under the Memorandum of Agreement. we must resolve the question of the propriety of the award for damages and attorneys fees.38) moral damages and attorneys fees.601. Finally. and thus. Cruz . Though not discussed in the body of the Decision. when a decree for rescission is handed down. that is. Accordingly.765. before they entered into the Memorandum of Agreement. With the contract thus rescinded. On this point. the parties must be restored to the status quo ante. the petitioners failed to fulfill their end of the agreement. 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 (P4.765. 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. respondent Dragon presented testimonial and documentary evidence to prove the actual amount of damages. The rescission has the effect of abrogating the contract in all parts.

400. or we have or we had by this time amounting to several millions pesos (sic). 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. On the . Q: In this connection did you cause computation of these losses that you incured (sic)? A: Yes sir.Q: Was there any consequence to you Mr. there was a difference of Six Hundred Seven Three (sic) Thousand Four Hundred (P673. Therefore.00).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. 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.

42).065. 40% of that will go to us because 40% of the bank would be ours and 60% would be there (sic). 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. 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. without interest being collected and none a project (sic) among a plantation project (sic). 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. which was . But because they did put in the 4.952.093. Please note that the interest imputed is only at 12% per annum but it should had (sic) been much higher.) (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. (P2. 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.8 million Pesos and it would be earning money.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 4.400. And we computed only the earnings at 12%.352.04).

Even in the present Petition for Review. While the award of actual compensatory damages was based on the breach of duty under the Memorandum of Agreement. They did not raise the matter of damages in their Appellants Brief. the award of moral damages . 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.38). 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