1. G.R. No.

101723 May 11, 2000

INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP.

(INIMACO), petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, (Fourth Division) Cebu City, and
ENRIQUE SULIT, SOCORRO MAHINAY, ESMERALDO PEGARIDO, TITA
BACUSMO, GINO NIERE, VIRGINIA BACUS, ROBERTO NEMENZO, DARIO GO,
and ROBERTO ALEGARBES, respondents.

BUENA, J.:

This is a petition for certiorari assailing the Resolution dated September 4, 1991 issued by the
National Labor Relations Commission in RAB-VII-0711-84 on the alleged ground that it
committed a grave abuse of discretion amounting to lack of jurisdiction in upholding the Alias
Writ of Execution issued by the Labor Arbiter which deviated from the dispositive portion of the
Decision dated March 10, 1987, thereby holding that the liability of the six respondents in the
case below is solidary despite the absence of the word "solidary" in the dispositive portion of the
Decision, when their liability should merely be joint.

The factual antecedents are undisputed:

In September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo Pegarido,
Tita Bacusmo, Gino Niere, Virginia Bacus, Roberto Nemenzo, Dariogo, and Roberto Alegarbes
filed a complaint with the Department of Labor and Employment, Regional Arbitration Branch
No. VII in Cebu City against Filipinas Carbon Mining Corporation, Gerardo Sicat, Antonio
Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner Industrial Management Development
Corporation (INIMACO), for payment of separation pay and unpaid wages.

In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B. Tumamak held that:

RESPONSIVE, to all the foregoing, judgment is hereby entered, ordering

respondents Filipinas Carbon and Mining Corp. Gerardo Sicat, Antonio
Gonzales/Industrial Management Development Corp. (INIMACO), Chiu Chin
Gin and Lo Kuan Chin, to pay complainants Enrique Sulit, the total award of
P82,800.00; ESMERALDO PEGARIDO the full award of P19,565.00; Roberto
Nemenzo the total sum of P29,623.60 and DARIO GO the total award of
P6,599.71, or the total aggregate award of ONE HUNDRED THIRTY-EIGHT
THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND 31/100
(P138,588.31) to be deposited with this Commission within ten (10) days from
receipt of this Decision for appropriate disposition. All other claims are hereby
Dismiss (sic) for lack of merit.

SO ORDERED.

Cebu City, Philippines.

10 March 1987. 1
No appeal was filed within the reglementary period thus, the above Decision became final and
executory. On June 16, 1987, the Labor Arbiter issued a writ of execution but it was returned
unsatisfied. On August 26, 1987, the Labor Arbiter issued an Alias Writ of Execution which
ordered thus:

NOW THEREFORE, by virtue of the powers vested in me by law, you are hereby
commanded to proceed to the premises of respondents Antonio
Gonzales/Industrial Management Development Corporation (INIMACO) situated
at Barangay Lahug, Cebu City, in front of La Curacha Restaurant,and/or to
Filipinas Carbon and Mining corporation and Gerardo Sicat at 4th Floor Universal
RE-Bldg. 106 Paseo de Roxas, Legaspi Village, Makati Metro Manila and at
Philippine National Bank, Escolta, Manila respectively, and collect the aggregate
award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED
EIGHTY-EIGHT PESOS AND THIRTY ONE CENTAVOS (P138,588.31) and
thereafter turn over said amount to complainants ENRIQUE SULIT,
ESMERALDO PEGARIDO, ROBERTO NEMENZO AND DARIO GO or to
this Office for appropriate disposition. Should you fail to collect the said sum in
cash, you are hereby authorized to cause the satisfaction of the same on the
movable or immovable property(s) of respondents not exempt from execution.
You are to return this writ sixty (6) (sic) days from your receipt hereof, together
with your corresponding report.

You may collect your legal expenses from the respondents as provided for by law.

SO ORDERED. 2

On September 3, 1987, petitioner filed a "Motion to Quash Alias Writ of Execution and Set
Aside Decision," 3alleging among others that the alias writ of execution altered and changed the
tenor of the decision by changing the liability of therein respondents from joint to solidary, by
the insertion of the words "AND/OR" between "Antonio Gonzales/Industrial Management
Development Corporation and Filipinas Carbon and Mining Corporation, et al." However, in an
order dated September 14, 1987, the Labor Arbiter denied the motion.

On October 2, 1987, petitioner appealed 4 the Labor Arbiter's Order dated September 14, 1987 to
the respondent NLRC.

The respondent NLRC dismissed the appeal in a Decision 5 dated August 31, 1988, the pertinent
portions of which read:

In matters affecting labor rights and labor justice, we have always adopted the
liberal approach which favors the exercise of labor rights and which is beneficial
to labor as a means to give full meaning and import to the constitutional mandate
to afford protection to labor. Considering the factual circumstances in this case,
there is no doubt in our mind that the respondents herein are called upon to pay,
jointly and severally, the claims of the complainants as was the latters' prayers.
Inasmuch as respondents herein never controverted the claims of the complainants
below, there is no reason why complainants' prayer should not be granted.
Further, in line with the powers granted to the Commission under Article 218 (c)
of the Labor code, "to waive any error, defect or irregularity whether in substance
 or in form" in a proceeding before Us, We hold that the Writ of Execution be
given due course in all respects.

On July 31, 1989, petitioner filed a "Motion To Compel Sheriff To Accept Payment Of
P23,198.05 Representing One Sixth Pro Rata Share of Respondent INIMACO As Full and Final
Satisfaction of Judgment As to Said Respondent." 6 The private respondents opposed the motion.
In an Order 7 dated August 15, 1989, the Labor Arbiter denied the motion ruling thus:

WHEREFORE, responsive to the foregoing respondent INIMACO's Motions are

hereby DENIED. The Sheriff of this Office is order (sic) to accept INIMACO's
tender payment (sic) of the sum of P23,198.05, as partial satisfaction of the
judgment and to proceed with the enforcement of the Alias Writ of Execution of
the levied properties, now issued by this Office, for the full and final satisfaction
of the monetary award granted in the instant case.

SO ORDERED.

Petitioner appealed the above Order of the Labor Arbiter but this was again dismissed by the
respondent NLRC in its Resolution 8 dated September 4, 1991 which held that:

The arguments of respondent on the finality of the dispositive portion of the

decision in this case is beside the point. What is important is that the Commission
has ruled that the Writ of Execution issued by the Labor Arbiter in this case is
proper. It is not really correct to say that said Writ of Execution varied the terms
of the judgment. At most, considering the nature of labor proceedings there was,
an ambiguity in said dispositive portion which was subsequently clarified by the
Labor Arbiter and the Commission in the incidents which were initiated by
INIMACO itself. By sheer technicality and unfounded assertions, INIMACO
would now reopen the issue which was already resolved against it. It is not in
keeping with the established rules of practice and procedure to allow this attempt
of INIMACO to delay the final disposition of this case.

WHEREFORE, in view of all the foregoing, this appeal is DISMISSED and the
Order appealed from is hereby AFFIRMED.

With double costs against appellant.

Dissatisfied with the foregoing, petitioner filed the instant case, alleging that the respondent
NLRC committed grave abuse of discretion in affirming the Order of the Labor Arbiter dated
August 15, 1989, which declared the liability of petitioner to be solidary.

The only issue in this petition is whether petitioner's liability pursuant to the Decision of the
Labor Arbiter dated March 10, 1987, is solidary or not.

Upon careful examination of the pleadings filed by the parties, the Court finds that petitioner
INIMACO's liability is not solidary but merely joint and that the respondent NLRC acted with
grave abuse of discretion in upholding the Labor Arbiter's Alias Writ of Execution and
subsequent Orders to the effect that petitioner's liability is solidary.
A solidary or joint and several obligation is one in which each debtor is liable for the entire
obligation, and each creditor is entitled to demand the whole obligation. 9 In a joint obligation
each obligor answers only for a part of the whole liability and to each obligee belongs only a part
of the correlative
rights. 10

Well-entrenched is the rule that solidary obligation cannot lightly be inferred. 11 There is a
solidary liability only when the obligation expressly so states, when the law so provides or when
the nature of the obligation so requires. 12

In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The
said fallo expressly states the following respondents therein as liable, namely: Filipinas Carbon
and Mining Corporation, Gerardo Sicat, Antonio Gonzales, Industrial Management Development
Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred
therefrom that the liability of the six (6) respondents in the case below is solidary, thus their
liability should merely be joint.

Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a
judgment that the defendants are liable to pay jointly and severally a certain sum of money, none
of them may be compelled to satisfy in full said judgment. In Oriental Commercial Co. vs. Abeto
and Mabanag 1 this Court held:

It is of no consequence that, under the contract of suretyship executed by the

parties, the obligation contracted by the sureties was joint and several in character.
The final judgment, which superseded the action for the enforcement of said
contract, declared the obligation to be merely joint, and the same cannot be
executed otherwise. 14

Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive
portion that the liability of respondents therein is solidary, the correction — which is substantial
— can no longer be allowed in this case because the judgment has already become final and
executory.

It is an elementary principle of procedure that the resolution of the court in a given issue as
embodied in the dispositive part of a decision or order is the controlling factor as to settlement of
rights of the parties. 15 Once a decision or order becomes final and executory, it is removed from
the power or jurisdiction of the court which rendered it to further alter or amend it. 16 It thereby
becomes immutable and unalterable and any amendment or alteration which substantially affects
a final and executory judgment is null and void for lack of jurisdiction, including the entire
proceedings held for that purpose. 17 An order of execution which varies the tenor of the
judgment or exceeds the terms thereof is a
nullity. 18

None of the parties in the case before the Labor Arbiter appealed the Decision dated March 10,
1987, hence the same became final and executory. It was, therefore, removed from the
jurisdiction of the Labor Arbiter or the NLRC to further alter or amend it. Thus, the proceedings
held for the purpose of amending or altering the dispositive portion of the said decision are null
and void for lack of jurisdiction. Also, the Alias Writ of Execution is null and void because it
varied the tenor of the judgment in that it sought to enforce the final judgment against "Antonio
Gonzales/Industrial Management Development Corp. (INIMACO) and/or Filipinas Carbon and
Mining Corp. and Gerardo Sicat," which makes the liability solidary.

WHEREFORE, the petition is hereby GRANTED. The Resolution dated September 4, 1991 of
the respondent National Labor Relations is hereby declared NULL and VOID. The liability of
the respondents in RAB-VII-0711-84 pursuant to the Decision of the Labor Arbiter dated March
10, 1987 should be, as it is hereby, considered joint and petitioner's payment which has been
accepted considered as full satisfaction of its liability, without prejudice to the enforcement of
the award, against the other five (5) respondents in the said case.

SO ORDERED.

2. G.R. No. L-28046 May 16, 1983

PHILIPPINE NATIONAL BANK, plaintiff-appellant,

vs.
INDEPENDENT PLANTERS ASSOCIATION, INC., ANTONIO DIMAYUGA, DELFIN
FAJARDO, CEFERINO VALENCIA, MOISES CARANDANG, LUCIANO CASTILLO,
AURELIO VALENCIA, LAURO LEVISTE, GAVINO GONZALES, LOPE GEVANA
and BONIFACIO LAUREANA, defendants-appellees.

PLANA, J.:

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. 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.e., after the plaintiff had
presented its evidence) and therefore the complaint, being a money claim based on contract,
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. 6. Solidary obligation of decedent.— the obligation of the decedent is

solidary with another debtor, the claim shall be filed against the decedent as if he
were the only debtor, without prejudice to the right of the estate to recover
contribution from the other debtor. In a joint obligation of the decedent, the claim
shall be confined to the portion belonging to him.

The appellant assails the order of dismissal, invoking its right of recourse against one, some or
all of its solidary debtors under Article 1216 of the Civil Code —

ART. 1216. The creditor may proceed against any one of the solidary debtors or
some or all of them simultaneously. The demand made against one of them shall
not be an obstacle to those which may subsequently be directed against the others,
so long as the debt has not been fully collected.

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, the death of one defendant deprives the court of
jurisdiction to proceed with the case against the surviving defendants.
It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek
satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit or
convenient for the protection of his interests; and if, after instituting a collection suit based on
contract against some or all of them and, during its pendency, one of the defendants dies, the
court retains jurisdiction to continue the proceedings and decide the case in respect of the
surviving defendants. Thus in Manila Surety & Fidelity Co., Inc. vs. Villarama et al., 107 Phil.
891 at 897, this Court ruled:

Construing Section 698 of the Code of Civil Procedure from whence the
aforequoted provision (Sec. 6, Rule 86) was taken, this Court held that where two
persons are bound in solidum for the same debt and one of them dies, the whole
indebtedness can be proved against the estate of the latter, the decedent's liability
being absolute and primary; and if the claim is not presented within the time
provided by the rules, the same will be barredas against the estate. 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, 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, should the creditor choose to demand payment from the latter, 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. Upon
the other hand, the Civil Code expressly allows the creditor to proceed against any
one of the solidary debtors or some or all of them simultaneously. There is,
therefore, nothing improper in the creditor's filing of an action against the
surviving solidary debtors alone, instead of instituting a proceeding for the
settlement of the estate of the deceased debtor wherein his claim could be filed.

Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this Court, speaking thru Mr. Justice
Makasiar, reiterated the doctrine.

A cursory perusal of Section 6, Rule 86 of the Revised Rules of

Court reveals that nothing therein prevents a creditor from
proceeding against the surviving solidary debtors. 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, debtor.

It is crystal clear that Article 1216 of the New Civil Code is the
applicable provision in this matter. Said provision gives the
creditor the right to 'proceed against anyone of the solidary debtors
or some or all of them simultaneously.' The choice is undoubtedly
left to the solidary, creditor to determine against whom he will
enforce collection. In case of the death of one of the solidary
debtors, he (the creditor) may, if he so chooses, proceed against the
surviving solidary debtors without necessity of filing a claim in the
estate of the deceased debtors. 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 . . .
 As correctly argued by petitioner, if Section 6, Rule 86 of the
Revised Rules of Court were applied literally, Article 1216 of the
New Civil Code would, in effect, be repealed since under the Rules
of Court, petitioner has no choice but to proceed against the estate
of Manuel Barredo only. Obviously, this provision diminishes the
Bank's right under the New Civil, Code to proceed against any one,
some or all of the solidary debtors. Such a construction is not
sanctioned by the principle, which is too well settled to require
citation, that a substantive law cannot be amended by a procedural
rule. Otherwise stared, Section 6, 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,
substantive.

WHEREFORE the appealed order of dismissal of the court a quo in its Civil Case No. 46741 is
hereby set aside in respect of the surviving defendants; and the case is remanded to the
corresponding Regional Trial Court for proceedings. proceedings. No costs.

SO ORDERED.

3. G.R. No. L-55138 September 28, 1984

ERNESTO V. RONQUILLO, petitioner,

vs.
HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents.

CUEVAS, J.:

This is a petition to review the Resolution dated June 30, 1980 of the then Court of Appeals (now
the Intermediate Appellate Court) in CA-G.R. No. SP-10573, entitled "Ernesto V. Ronquillo
versus the Hon. Florellana Castro-Bartolome, etc." and the Order of said court dated August 20,
1980, denying petitioner's motion for reconsideration of the above resolution.

Petitioner Ernesto V. Ronquillo was one of four (4) defendants in Civil Case No. 33958 of the
then Court of First Instance of Rizal (now the Regional Trial Court), Branch XV filed by private
respondent Antonio P. So, on July 23, 1979, for the collection of the sum of P17,498.98 plus
attorney's fees and costs. The other defendants were Offshore Catertrade Inc., Johnny Tan and
Pilar Tan. The amount of P117,498.98 sought to be collected represents the value of the checks
issued by said defendants in payment for foodstuffs delivered to and received by them. The said
checks were dishonored by the drawee bank.

On December 13, 1979, the lower court rendered its Decision 1 based on the compromise
agreement submitted by the parties, the pertinent portion of which reads as follows:

1. Plaintiff agrees to reduce its total claim of P117,498-95 to only P11,000 .00 and
defendants agree to acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness of P10,000.00 the amount
of P55,000.00 on or before December 24, 1979, the balance of P55,000.00,
 defendants individually and jointly agree to pay within a period of six months
from January 1980, or before June 30, 1980; (Emphasis supplied)

xxx xxx xxx

4. That both parties agree that failure on the part of either party to comply with
the foregoing terms and conditions, 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, execution fees and other fees related with the execution.

xxx xxx xxx

On December 26, 1979, herein private respondent (then plaintiff filed a Motion for Execution on
the ground that defendants failed to make the initial payment of P55,000.00 on or before
December 24, 1979 as provided in the Decision. 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, 1979. Petitioner then prayed that private respondent be ordered to accept his payment in the
amount of P13,750.00. 2

During the hearing of the Motion for Execution and the Opposition thereto on January 16, 1980,
petitioner, as one of the four defendants, tendered the amount of P13,750.00, as his prorata share
in the P55,000.00 initial payment. Another defendant, Pilar P. Tan, offered to pay the same
amount. Because private respondent refused to accept their payments, demanding from them the
full initial installment of P 55,000.00, petitioner and Pilar Tan instead deposited the said amount
with the Clerk of Court. The amount deposited was subsequently withdrawn by private
respondent. 3

On the same day, January 16, 1980, the lower court ordered the issuance of a writ of execution
for the balance of the initial amount payable, against the other two defendants, Offshore
Catertrade Inc. and Johnny Tan 4 who did not pay their shares.

On January 22, 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, jointly and severally." 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,
consequently each defendant is obliged to pay only his own pro-rata or 1/4 of the amount due
and payable.

On March 17, 1980, the lower court issued an Order reading as follows:

ORDER

Regardless of whatever the compromise agreement has intended the payment

whether jointly or individually, or jointly and severally, the fact is that only
P27,500.00 has been paid. There appears to be a non-payment in accordance with
the compromise agreement of the amount of P27,500.00 on or before December
 24, 1979. 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.

WHEREFORE, let writ of execution issue as prayed for

On March 17, 1980, petitioner moved for the reconsideration of the above order, and the same
was set for hearing on March 25,1980.

Meanwhile, or more specifically on March 19, 1980, a writ of execution was issued for the
satisfaction of the sum of P82,500.00 as against the properties of the defendants (including
petitioner), "singly or jointly hable." 6

On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, issued a notice of sheriff's sale,
for the sale of certain furnitures and appliances found in petitioner's residence to satisfy the sum
of P82,500.00. The public sale was scheduled for April 2, 1980 at 10:00 a.m. 7

Petitioner's motion for reconsideration of the Order of Execution dated March 17, 1980 which
was set for hearing on March 25, 1980, was upon motion of private respondent reset to April 2,
1980 at 8:30 a.m. Realizing the actual threat to property rights poised by the re-setting of the
hearing of s motion for reconsideration for April 2, 1980 at 8:30 a.m. 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.m. of the same day,
April 2, 1980, petitioner filed on March 26, 1980 a petition for certiorari and prohibition with the
then Court of Appeals (CA-G.R. No. SP-10573), praying at the same time for the issuance of a
restraining order to stop the public sale. He raised the question of the validity of the order of
execution, 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, 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.

On April 2, 1980, 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.

On June 30, 1980, the said court issued a Resolution, the pertinent portion of which reads as
follows:

This Court, however, finds the present petition to have been filed prematurely.
The rule is that before a petition for certiorari can be brought against an order of a
lower court, all remedies available in that court must first be exhausted. In the
case at bar, herein petitioner filed a petition without waiting for a resolution of the
Court on the motion for reconsideration, which could have been favorable to the
petitioner. 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 having been
seasonably filed, the scheduled public sale should be suspended. Moreover, when
the defendants, including herein petitioner, defaulted in their obligation based on
 the compromise agreement, private respondent had become entitled to move for
an execution of the decision based on the said agreement.

WHEREFORE, the instant petition for certiorari and prohibition with preliminary
injunction is hereby denied due course. The restraining order issued in our
resolution dated April 9, 1980 is hereby lifted without pronouncement as to costs.

SO ORDERED.

Petitioner moved to reconsider the aforesaid Resolution alleging that on April 2, 1980, the lower
court had already denied the motion referred to and consequently, the legal issues being raised in
the petition were already "ripe" for determination. 8 The said motion was however denied by the
Court of Appeals in its Resolution dated August 20, 1980.

Hence, this petition for review, petitioner contending that the Court of Appeals erred in

(a) declaring as premature, 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;

(b) denying reconsideration of the Resolution of June 30, 1980, which declared as premature the
filing of the petition, 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;

(c) failing to resolve the legal issues raised in the petition and in not declaring the liabilities of
the defendants, under the final decision of the lower court, to be only joint;

(d) not holding the lower court's order of execution dated March 17, 1980, the writ of execution
and the notice of sheriff's sale, executing the lower court's decision against "all defendants,
singly and jointly", to be at variance with the lower court's final decision which did not provide
for solidary obligation; and

(e) not declaring as invalid and unlawful the threatened execution, as against the properties of
petitioner who had paid his pro-rata share of the adjudged obligation, of the total unpaid amount
payable by his joint co-defendants.

The foregoing assigned errors maybe synthesized into the more important issues of —

1. Was the filing of a petition for certiorari before the then Court of Appeals against the Order of
Execution issued by the lower court, dated March 17, 1980, proper, despite the pendency of a
motion for reconsideration of the same questioned Order?

2. What is the nature of the liability of the defendants (including petitioner), was it merely joint,
or was it several or solidary?

Anent the first issue raised, suffice it to state that while as a general rule, 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, 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, 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, as in cases where execution had already been ordered 12 where the issue
raised is one purely of law. 13

In the case at bar, the records show that not only was a writ of execution issued but petitioner's
properties were already scheduled to be sold at public auction on April 2, 1980 at 10:00 a.m. The
records likewise show that petitioner's motion for reconsideration of the questioned Order of
Execution was filed on March 17, 1980 and was set for hearing on March 25, 1980 at 8:30 a.m.,
but upon motion of private respondent, the hearing was reset to April 2, 1980 at 8:30 a.m., the
very same clay when petitioner's properties were to be sold at public auction. Needless to state
that under the circumstances, petitioner was faced with imminent danger of his properties being
immediately sold the moment his motion for reconsideration is denied. Plainly, 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. For him to wait until after the hearing of the motion for reconsideration on April 2, 1980
before taking recourse to the appellate court may already be too late since without a restraining
order, the public sale can proceed at 10:00 that morning. In fact, the said motion was already
denied by the lower court in its order dated April 2, 1980 and were it not for the pendency of the
petition with the Court of Appeals and the restraining order issued thereafter, the public sale
scheduled that very same morning could have proceeded.

The other issue raised refers to the nature of the liability of petitioner, as one of the defendants in
Civil Case No. 33958, that is whether or not he is liable jointly or solidarily.

In this regard, Article 1207 and 1208 of the Civil Code provides —

Art. 1207. 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, or that each one
of the latter is bound to render, entire compliance with the prestation. Then is a
solidary liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity.

Art. 1208. If from the law,or the nature or the wording of the obligation to which
the preceding article refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there are creditors and
debtors, the credits or debts being considered distinct from one another, subject to
the Rules of Court governing the multiplicity of quits.

The decision of the lower court based on the parties' compromise agreement, provides:

1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00

and defendants agree to acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness of P110,000.00, the
amount of P5,000.00 on or before December 24, 1979, the balance of P55,000.00,
defendants individually and jointly agree to pay within a period of six months
from January 1980 or before June 30, 1980. (Emphasis supply)
Clearly then, by the express term of the compromise agreement and the decision based upon it,
the defendants obligated themselves to pay their obligation "individually and jointly".

The term "individually" has the same meaning as "collectively", "separately", "distinctively",
respectively or "severally". An agreement to be "individually liable" undoubtedly creates a
several obligation, 14 and a "several obligation is one by which one individual binds himself to
perform the whole obligation. 15

In the case of Parot vs. Gemora 16 We therein ruled that "the phrase juntos or separadamente or
in the promissory note is an express statement making each of the persons who signed
it individually liable for the payment of the fun amount of the obligation contained therein."
Likewise inUn Pak Leung vs. 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", the same is
therefore enforceable against one of the numerous obligors.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant petition is hereby

DISMISSED. Cost against petitioner.

SO ORDERED.

4. ROLITO CALANG and G.R. No. 190696

PHILTRANCO SERVICE
ENTERPRISES, INC., Present:
Petitioners,
CARPIO MORALES, J., Chairperson,
BRION,
- versus - BERSAMIN,
*
ABAD, and
VILLARAMA, JR., JJ.
PEOPLE OF THE PHILIPPINES,
Respondent. -- - Promulgated:

August 3, 2010
x-----------------------------------------------------------------------------------------x

RESOLUTION

BRION, J.:

We resolve the motion for reconsideration filed by the petitioners, Philtranco Service
Enterprises, Inc. (Philtranco) and Rolito Calang, to challenge our Resolution of February 17,
2010. Our assailed Resolution denied the petition for review on certiorari for failure to show any
reversible error sufficient to warrant the exercise of this Court’s discretionary appellate
jurisdiction.

Antecedent Facts
 At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving Philtranco Bus No. 7001,
owned by Philtranco along Daang Maharlika Highway in BarangayLambao, Sta. Margarita,
Samar when its rear left side hit the front left portion of a Sarao jeep coming from the opposite
direction. As a result of the collision, Cresencio Pinohermoso, the jeep’s driver, lost control of the
vehicle, and bumped and killed Jose Mabansag, a bystander who was standing along the highway’s
shoulder. The jeep turned turtle three (3) times before finally stopping at about 25 meters from the
point of impact. Two of the jeep’s passengers, Armando Nablo and an unidentified woman, were
instantly killed, while the other passengers sustained serious physical injuries.

The prosecution charged Calang with multiple homicide, multiple serious physical injuries
and damage to property thru reckless imprudence before the Regional Trial Court (RTC), Branch
31, Calbayog City. The RTC, in its decision dated May 21, 2001, found Calang guilty beyond
reasonable doubt of reckless imprudence resulting to multiple homicide, multiple physical injuries
and damage to property, and sentenced him to suffer an indeterminate penalty of thirty days
ofarresto menor, as minimum, to four years and two months of prision correccional, as maximum.
The RTC ordered Calang and Philtranco, jointly and severally, to pay P50,000.00 as death
indemnity to the heirs of Armando; P50,000.00 as death indemnity to the heirs of Mabansag;
and P90,083.93 as actual damages to the private complainants.

The petitioners appealed the RTC decision to the Court of Appeals (CA), docketed as CA-
G.R. CR No. 25522. The CA, in its decision dated November 20, 2009, affirmed the RTC
decision in toto. The CA ruled that petitioner Calang failed to exercise due care and precaution in
driving the Philtranco bus. According to the CA, 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. In addition, he failed to slacken his speed, despite admitting that he had already seen
the jeep coming from the opposite direction when it was still half a kilometer away. The CA further
ruled that Calang demonstrated a reckless attitude when he drove the bus, despite knowing that it
was suffering from loose compression, hence, not roadworthy.

The CA added that the RTC correctly held Philtranco jointly and severally liable with
petitioner Calang, for failing to prove that it had exercised the diligence of a good father of the
family to prevent the accident.

The petitioners filed with this Court a petition for review on certiorari. In our Resolution
dated February 17, 2010, we denied the petition for failure to sufficiently show any reversible error
in the assailed decision to warrant the exercise of this Court’s discretionary appellate jurisdiction.

The Motion for Reconsideration

In the present motion for reconsideration, 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.

The petitioners likewise maintain that the courts below overlooked several relevant facts,
supported by documentary exhibits, which, if considered, would have shown that Calang was not
negligent, such as the affidavit and testimony of witness Celestina Cabriga; the testimony of
witness Rodrigo Bocaycay; the traffic accident sketch and report; and the jeepney’s registration
receipt. The petitioners also insist that the jeep’s driver had the last clear chance to avoid the
collision.

We partly grant the motion.

Liability of Calang

We see no reason to overturn the lower courts’ finding on Calang’s culpability. The
finding of negligence on his part by the trial court, affirmed by the CA, is a question of fact that
we cannot pass upon without going into factual matters touching on the finding of negligence. In
petitions for review on certiorari under Rule 45 of the Revised Rules of Court, this Court is limited
to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid
of support by the evidence on record, or the assailed judgment is based on a misapprehension of
facts.

Liability of Philtranco

We, however, 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.
Undisputedly, Philtranco was not a direct party in this case. Since the cause of action against
Calang was based on delict, both the RTC and the CA erred in holding Philtranco jointly and
severally liable with Calang, based on quasi-delict under Articles 2176[1] and 2180[2] of the Civil
Code. Articles 2176 and 2180 of the Civil Code pertain to the vicarious liability of an employer
for quasi-delicts that an employee has committed. Such provision of law does not apply to civil
liability arising from delict.

If at all, Philtranco’s liability may only be subsidiary. Article 102 of the Revised Penal Code
states the subsidiary civil liabilities of innkeepers, tavernkeepers and proprietors of establishments,
as follows:

In default of the persons criminally liable, innkeepers, tavernkeepers, and

any other persons or corporations shall be civilly liable for crimes committed in
their establishments, 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.

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, provided that such guests shall have notified in
advance the innkeeper himself, or the person representing him, of the deposit of
such goods within the inn; 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. No liability shall attach in case of
robbery with violence against or intimidation of persons unless committed by the
innkeeper’s employees.
 The foregoing subsidiary liability applies to employers, according to Article 103 of the
Revised Penal Code, which reads:

The subsidiary liability established in the next preceding article shall also
apply to employers, teachers, persons, and corporations engaged in any kind of
industry for felonies committed by their servants, pupils, workmen, apprentices,
or employees in the discharge of their duties.

The provisions of the Revised Penal Code on subsidiary liability – Articles 102 and 103 –
are deemed written into the judgments in cases to which they are applicable. Thus, in the
dispositive portion of its decision, the trial court need not expressly pronounce the subsidiary
liability of the employer.[3] Nonetheless, before the employers’ subsidiary liability is enforced,
adequate evidence must exist establishing that (1) they are indeed the employers of the convicted
employees; (2) they are engaged in some kind of industry; (3) the crime was committed by the
employees in the discharge of their duties; and (4) the execution against the latter has not been
satisfied due to insolvency. The determination of these conditions may be done in the same
criminal action in which the employee’s liability, criminal and civil, has been pronounced, in a
hearing set for that precise purpose, with due notice to the employer, as part of the proceedings for
the execution of the judgment.[4]

WHEREFORE, we PARTLY GRANT the present motion. The Court of Appeals

decision that affirmed in toto the RTC decision, finding Rolito Calang guilty beyond reasonable
doubt of reckless imprudence resulting in multiple homicide, multiple serious physical injuries and
damage to property, is AFFIRMED, with the MODIFICATION that Philtranco’s liability
should only be subsidiary. No costs.

SO ORDERED.

5. G.R. No. L-30597 June 30, 1987

GUILLERMO AZCONA and FE JALANDONI AZCONA, petitioners,

vs.
JOSE JAMANDRE, Administrator of the Intestate Estate of Cirilo Jamandre (Sp. Proc.
6921 of the Court of First Instance of Negros Occidental), and the HONORABLE COURT
OF APPEALS, respondents.

CRUZ, J.:

This involves the interpretation of a contract of lease which was found by the trial court to have
been violated by both the plaintiff and the defendant. On appeal, its decision was modified by the
respondent court in favor of the plaintiff, for which reason the defendant has now come to us in a
petition for certiorari.

By the said contract, 1 Guillermo Azcona (hereinafter called the petitioner) leased 80 hectares of
his 150-hectare pro indiviso share in Hacienda Sta. Fe in Escalante, Negros Occidental, to Cirilo
Jamandre (represented here by the administrator of his intestate estate, and hereinafter called the
private respondent). The agreed yearly rental was P7,200.00. The lease was for three agricultural
years beginning 1960, extendible at the lessee's option to two more agricultural years, up to
1965.

The first annual rental was due on or before March 30, 1960, but because the petitioner did not
deliver possession of the leased property to the respondent, he "waived" payment, as he put it, of
that rental. 2 The respondent actually entered the premises only on October 26, 1960, after
payment by him to the petitioner of the sum of P7,000.00, which was acknowledged in the
receipt later offered as Exhibit "B".

On April 6, 1961, the petitioner, through his lawyer, notified the respondent that the contract of
lease was deemed cancelled, terminated, and of no further effect," pursuant to its paragraph 8, for
violation of the conditions specified in the said agreement. 3 Earlier, in fact, the respondent had
been ousted from the possession of 60 hectares of the leased premises and left with only 20
hectares of the original area. 4

The reaction of the respondent to these developments was to file a complaint for damages against
the petitioner, who retaliated with a counterclaim. As previously stated, both the complaint and
the counterclaim were dismissed by the trial court * on the finding that the parties were in pari
delicto. 5

The specific reasons invoked by the petitioner for canceling the lease contract were the
respondent's failure: 1) to attach thereto the parcelary plan Identifying the exact area subject of
the agreement, as stipulated in the contract; 2; to secure the approval by the Philippine National
Bank of the said contract; and 3) to pay the rentals. 6

The parcelary plan was provided for in the contract as follows:

That the LESSOR by these presents do hereby agree to lease in favor of the
LESSEE a portion of the said lots above-described with an extension of EIGHTY
(80) hectares, more or less, which portion is to be Identified by the parcelary plan
duly marked and to be initialed by both LESSOR and LESSEE, and which
parcelary plan is known as Annex "A" of this contract and considered as an
integral part hereof. 7

According to the petitioners, the parcelary plan was never agreed upon or annexed to the
contract, which thereby became null and void under Article 1318 of the Civil Code for lack of a
subject matter. Moreover, the failure of the parties to approve and annex the said parcelary plan
had the effect of a breach of the contract that justified its cancellation under its paragraph 8. 8

In one breath, the petitioner is arguing that there was no contract because there was no object and
at the same time that there was a contract except that it was violated.

The correct view, as we see it, is that there was an agreed subject-matter, to wit, the 80 hectares
of the petitioner's share in the Sta. Fe hacienda, although it was not expressly defined because the
parcelary plan was not annexed and never approved by the parties. Despite this lack, however,
there was an ascertainable object because the leased premises were sufficiently Identified and
delineated as the petitioner admitted in his amended answer and in his direct testimony. 9
Thus, in his amended answer, he asserted that "the plaintiff . . .must delimit his work to the area
previously designated and delivered." Asked during the trial how many hectares the private
respondent actually occupied, the petitioner declared: "About 80 hectares. The whole 80
hectares." 10 The petitioner cannot now contradict these written and oral admissions." 11

Moreover, it appears that the failure to attach the parcelary plan to the contract is imputable to
the petitioner himself because it was he who was supposed to cause the preparation of the said
plan. As he testified on direct examination, "Our agreement was to sign our agreement, then I
will have the parcelary plan prepared so that it will be a part of our contract." 12 That this was
never done is not the respondent's fault as he had no control of the survey of the petitioner's land.

Apparently, the Court of Appeals ** found, the parties impliedly decided to forego the annexing
of the parcelary plan because they had already agreed on the area and limits of the leased
premises. 13 The Identification of the 80 hectares being leased rendered the parcelary plan
unnecessary, and its absence did not nullify the agreement.

Coming next to the alleged default in the payment of the stipulated rentals, we observe first that
when in Exhibit "B" the petitioner declared that "I hereby waive payment for the rentals
corresponding to the crop year 1960-61 and which was due on March 30, 1960, " there was
really nothing to waive because, as he himself put it in the same document, possession of the
leased property "was not actually delivered" to the respondent. 14

The petitioner claims that such possession was not delivered because the approval by the PNB of
the lease contract had not "materialized" due to the respondent's neglect. Such approval, he
submitted, was to have been obtained by the respondents, which seems logical to us, for it was
the respondent who was negotiating the loan from the PNB. As the respondent court saw it,
however, "paragraph 6 (of the contract) does not state upon whom fell the obligation to secure
the approval" so that it was not clear that "the fault, if any, was due solely to one or the other." 15

At any rate, that issue and the omission of the parcelary plan became immaterial when the parties
agreed on the lease for the succeeding agricultural year 1961-62, the respondent paying and the
petitioner receiving therefrom the sum of P7,000.00, as acknowledged in Exhibit "B," which is
reproduced in full as follows:

RECEIPT

RECEIVED from Mr. Cirilo Jamandre at the City of Bacolod, Philippines, this
26th day of October, 1960, Philippine National Bank Check No. 180646-A
(Manager's Check Binalbagan Branch) for the amount of SEVEN THOUSAND
PESOS (P7,000.00), Philippine Currency as payment for the rental corresponding
to crop year 1961-62, by virtue of the contract of lease I have executed in his
favor dated November 23, 1959, and ratified under Notary Public Mr. Enrique F.
Marino as Doc. No. 119, Page No. 25, Book No. XII, Series of 1959. It is hereby
understood, that this payment corresponds to the rentals due on or before January
30, 1961, as per contract. It is further understood that I hereby waive payment for
the rentals corresponding to crop year 1960-61 and which was due on March 30,
1960, as possession of the property lease in favor of Mr. Cirilo Jamandre was not
actually delivered to him, but the same to be delivered only after receipt of the
amount as stated in this receipt. That Mr. Cirilo Jamandre is hereby authorized to
 take immediate possession of the property under lease effective today, October
26, 1960.

WITNESS my hand at the City of Bacolod, Philippines, this 26th day of October,
1960.

(SGD.)
GUILLERMO
AZCONA

SIGNED IN THE PRESENCE OF:

(SGD.) JOSE T. JAMANDRE

Citing the stipulation in the lease contract for an annual rental of P7,200.00, the petitioner now
submits that there was default in the payment thereof by the respondent because he was P200.00
short of such rental. That deficiency never having been repaired, the petitioner concludes, the
contract should be deemed cancelled in accordance with its paragraph 8. 16

For his part, the respondent argues that the receipt represented an express reduction of the
stipulated rental in consideration of his allowing the use of 16 hectares of the leased area by the
petitioner as grazing land for his cattle. Having unqualifiedly accepted the amount of P7,000.00
as rental for the agricultural year 1961-62, the petitioner should not now be heard to argue that
the payment was incomplete. 17

After a study of the receipt as signed by the petitioner and witnessed for the respondent, this
Court has come to the conclusion, and so holds, that the amount of P7,000.00 paid to by the
respondent and received by the petitioner represented payment in full of the rental for the
agricultural year 1961-62.

The language is clear enough: "The amount of SEVEN THOUSAND PESOS (P7,000.00),
Philippine Currency, as payment for the rental corresponding to crop year 1961-62 ... to the
rental due on or before January 30, 1961, as per contract." The conclusion should be equally
clear.

The words "as per contract" are especially significant as they suggest that the parties were aware
of the provisions of the agreement, which was described in detail elsewhere in the receipt. The
rental stipulated therein was P7,200.00. The payment being acknowledged in the receipt was
P7,000.00 only. Yet no mention was made in the receipt of the discrepancy and, on the contrary,
the payment was acknowledged "as per contract." We read this as meaning that the provisions of
the contract were being maintained and respected except only for the reduction of the agreed
rental.

The respondent court held that the amount of P200.00 had been condoned, but we do not think
so. The petitioner is correct in arguing that the requisites of condonation under Article 1270 of
the Civil Code are not present. What we see here instead is a mere reduction of the stipulated
rental in consideration of the withdrawal from the leased premises of the 16 hectares where the
petitioner intended to graze his cattle. The signing of Exhibit "B " by the petitioner and its
acceptance by the respondent manifested their agreement on the reduction, which modified the
lease contract as to the agreed consideration while leaving the other stipulations intact.

The petitioner says that having admittedly been drafted by lawyer Jose Jamandre, the
respondent's son, the receipt would have described the amount of P7,000.00 as "payment in full"
of the rental if that were really the case.

It seems to us that this meaning was adequately conveyed in the acknowledgment made by the
petitioner that this was "payment for the rental corresponding to crop year 1961-62" and
"corresponds to the rentals due on or before January 30, 1961, as per contract." On the other
hand, if this was not the intention, the petitioner does not explain why he did not specify in the
receipt that there was still a balance of P200.00 and, to be complete, the date when it was to be
paid by the respondent.

It is noted that the receipt was meticulously worded, suggesting that the parties were taking great
pains, indeed, to provide against any possible misunderstanding, as if they were even then
already apprehensive of future litigation. Such a reservation-if there was one-would have been
easily incorporated in the receipt, as befitted the legal document it was intended to be.

In any event, the relative insignificance of the alleged balance seems to us a paltry justification
for annulling the contract for its supposed violation. If the petitioner is fussy enough to invoke it
now, it stands to reason that he would have fussed over it too in the receipt he willingly signed
after accepting, without reservation and apparently without protest, only P7,000.00.

The applicable provision is Article 1235 of the Civil Code, declaring that:

Art. 1235. When the obligee accepts the performance, knowing its incompleteness
or irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with.

The petitioner says that he could not demand payment of the balance of P200.00 on October 26,
1960, date of the receipt because the rental for the crop year 1961-62 was due on or before
January 30, 1961. 18 But this would not have prevented him from reserving in the receipt his
right to collect the balance when it fell due. Moreover, there is no evidence in the record that
when the due date arrived, he made any demand, written or verbal, for the payment of that
amount.

As this Court is not a trier of facts, 19 we defer to the findings of the respondent court regarding
the losses sustained by the respondent on the basis of the estimated yield of the properties in
question in the years he was supposed to possess and exploit them. While the calculations
offered by the petitioner are painstaking and even apparently exhaustive, we do not find any
grave abuse of discretion on the part of the respondent court to warrant its reversal on this matter.
We also sustain the P5,000.00 attorney's fee.

WHEREFORE, the decision of the respondent Court of Appeals is AFFIRMED in full, with
costs against the petitioners.

SO ORDERED.
 6. [G.R. No. L-28569. February 27, 1970.]

J. M. TUASON & Co. INC., Plaintiff-Appellant, v. LIGAYA JAVIER, Defendant-

Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; SALE OF REAL PROPERTY; REMEDY OF RESCISSION

NOT AVAILABLE IN INSTANT CASE FOR FAILURE TO PAY PRICE AT THE TIME
AGREED UPON. — A contract was entered into between the plaintiff and defendant-appellee
the former agreed to sell to the latter a parcel of land for the total sum of P3,691.20, with interest
thereon, payable in ten (10) years. Apart from the initial installment of P396.12, paid upon the
execution of the contract, the defendant religiously satisfied the monthly installments accruing
thereafter, for a period of almost eight (8) years. The total payments made by the defendant up to
January 5, 1962, including stipulated interest, aggregated P4,134.08. When the defendant
defaulted in the payment of monthly installments, plaintiff rescinded the contract pursuant to the
provisions thereof. Defendant offered to pay all the installment payments in arrears, the interest
thereon from the time of default of payment, reasonable attorney’s fees, and the costs of suit. The
lower court, applying Art. 1592 of the Civil Code, declared that the contract to sell had not yet
been rescinded and ordered the defendant to pay all the amounts due the plaintiff and the latter,
upon payment, to execute in favor of the defendant the necessary deed to transfer to the
defendant the title to the said parcel of land. Held : Plaintiff has not been denied substantial
justice, for, according to Art. 1234 of the Civil Code: "If the obligation has been substantially
performed in good faith, the obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee."

DECISION

This appeal, taken by plaintiff J.M. Tuason & Co., Inc., from a decision of the Court of First
Instance of Rizal, has been certified to Us by the Court of Appeals, only questions of law being
raised therein.

The record shows that, on September 7, 1954, a contract was entered into between the plaintiff,
on the one hand, and defendant-appellee, Ligaya Javier, on the other, whereby plaintiff agreed to
sell, transfer and convey to the defendant a parcel of land known as Lot No. 28, Block No. 356,
PSD 30328, of the Sta. Mesa Heights Subdivision, for the total sum of P3,691.20, with interest
thereon at the rate of ten (10) per centum a year, payable as follows: P896.12 upon the execution
of the contract and P43.92 every month thereafter, for a period of ten (10) years. The sixth
paragraph of said contract provided that:jgc:chanrobles.com.ph

". . . In case the party of the SECOND PART fails to satisfy any monthly installments, or any
other payments herein agreed upon, he is granted a month of grace within which to make the
retarded payment, together with the one corresponding to the said month of grace; it is
understood, however, that should the month of grace herein granted to the party of the SECOND
PART expire without the payments corresponding to both months having been satisfied, an
interest of 10% per annum will be charged on the amount he should have paid it is understood
further, that should a period of 90 days elapse, to begin from the expiration of the month of grace
herein mentioned, and the party of the SECOND PART has not paid all the amounts he should
have paid with the corresponding interest up to that date, the party of the FIRST PART has the
right to declare this contract cancelled and of no effect, and as consequence thereof, the party of
the FIRST PART may dispose of the parcel or parcels of land covered by this contract in favor of
other persons, as if this contract had never been entered into. In case of such cancellation of this
contract, all the amounts paid in accordance with this agreement together with all the
improvements made on the premises, shall be considered as rents paid for the use and occupation
of the above mentioned premises, and as payment for the damages suffered by failure of the
party of the SECOND PART to fulfill his part of the agreement; 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."cralaw virtua1aw library

Upon the execution of the contract and the payment of the first installment of P396.12, the
defendant was placed in possession of the land. Thereafter and until January 5, 1962, she paid
the stipulated monthly installments which, including the initial payment of P396.12, aggregated
P1,134.08. Subsequently, however, she defaulted in the payment of said installments, in view of
which, on May 22, 1964, plaintiff informed her by letter that their contract had been rescinded.
Defendant having thereafter failed or refused to vacate said land, on July 9, 1964, plaintiff
commenced the present action against her, in the Court of First Instance of Rizal. After alleging
substantially the foregoing fact, plaintiff prayed in its complaint that the aforementioned contract
be declared validly rescinded and that the defendant and all persons claiming under her be
ordered to deliver to the plaintiff the lot in question, with all the improvements thereon, and to
pay a monthly rental of P40.00, from January 5, 1962, until the property shall have been
surrendered to the plaintiff, as well as all costs. Admitting that she had defaulted in the payment
of the stipulated monthly installments, from January 5, 1962, defendant alleged in her answer
that this fact "was due to unforeseen circumstances" ; that she is "willing to pay all arrears in
installments under the contract" and had "in fact offered the same to the plaintiff" ; and that said
contract "can not be rescinded upon the unilateral act of the plaintiff." At a pre-trial conference
held before said court, the following facts were — in the language of the decision appealed from
— agreed upon between the parties:jgc:chanrobles.com.ph

". . . that since January 5, 1962, up to the present, the defendant has failed to pay the monthly
installments called for in the contract to sell; that in view of the failure of the defendant to pay
her installment payments since January 5, 1962, the plaintiff rescinded the contract pursuant to
the provision thereof; that after the filing of the complaint, defendant in an attempt to arrive at a
compromise agreement with the plaintiff, offered to pay all the installment payments in arrears,
the interest thereon from the time of default of payment, reasonable attorney’s fees, and the costs
of suit; that said offer was repeated by the defendant in writing on December 1, 1964, and also
during the pre-trial conference of this case, but said offer was turned down by the
plaintiff."cralaw virtua1aw library

The case having been submitted for decision upon the foregoing stipulation, said courts, applying
Art. 1592 of our Civil Code, rendered its aforementioned decision, the dispositive part of which
reads:jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered, declaring that the contract to sell has not yet been
rescinded, and ordering the defendant to pay to the plaintiff within sixty (60) days from receipt
hereof all the installment payments in arrears together with interest thereon at 10% per annum
from January 5, 1962, the date of default, attorney’s fees in the sum of P1,000.00, and the costs
of suit. Upon payment of same, the plaintiff in ordered to execute in favor of the defendant the
necessary deed to transfer to the defendant the title to the parcel of land in question, free from all
liens and encumbrances except those provided for in the contract, all expenses which may be
incurred in said transfer of title to be paid by the defendant."cralaw virtua1aw library

Hence, this appeal by plaintiff, based mainly upon the alleged erroneous application to the case
at bar of said Art. 1592, pursuant to which:jgc:chanrobles.com.ph

"In the sale of immovable property, even though it may have been stipulated that upon the failure
to pay the price at the time agreed upon the rescission of the contract shall of right take place, the
vendee may pay, even after the expiration of the period, as long as no demand for rescission of
the contract has been made upon him either judicially or by a notarial act. After the demand, the
court may not grant him a new term."cralaw virtua1aw library

Plaintiff maintains that this provision governs contracts of sale, not contracts to sell, such as the
one entered into by the parties in this case. Regardless, however, of the propriety of applying
said Art. 1592 thereto, We find that plaintiff herein has not been denied substantial justice, for,
according to Art. 1234 of said Code:jgc:chanrobles.com.ph

"If the obligation has been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the
obligee."cralaw virtua1aw library

In this connection, it should be noted that, apart from the initial installment of P396.12, paid
upon the execution of the contract, on September 7, 1954, the defendant religiously satisfied the
monthly installments accruing thereafter, for a period of almost eight (8) years, or up to January
5, 1962; that, although the principal obligation under the contract was P3,691.20, the total
payments made by the defendant up to January 5, 1962, including stipulated interest, aggregated
P4,134.08; that the defendant has offered to pay all of the installments overdue including the
stipulated interest, apart from reasonable attorney’s fees and the costs; and that, accordingly, the
trial court sentenced the defendant to pay all such installments, interest, fees and costs. Thus,
plaintiff will thereby recover everything due thereto, pursuant to its contract with the defendant,
including such damages as the former may have suffered in consequence of the latter’s default.
Under these circumstances, We feel that, in the interest of justice and equity, the decision
appealed from may be upheld upon the authority of Art. 1234 of the Civil Code. 1

WHEREFORE, said decision is hereby affirmed, with out special pronouncement as to costs in
this instance. It is so ordered.
 7. G.R. No. 172825 October 11, 2012

SPOUSES MINIANO B. DELA CRUZ and LETA L. DELA CRUZ, Petitioners,

vs.
ANA MARIE CONCEPCION, Respondent.

DECISION

PERALTA, J.:

Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court filed by
petitioners spouses Miniano B. Dela Cruz and Leta L. Dela Cruz against respondent Ana Marie
Concepcion are the Court of Appeals (CA) Decision1 dated March 31, 2005 and
Resolution2 dated May 24, 2006 in CA-G.R. CV No. 83030.

The facts of the case are as follows:

On March 25, 1996, petitioners (as vendors) entered into a Contract to Sell3 with respondent (as
vendee) involving a house and lot in Cypress St., Phase I, Town and Country Executive Village,
Antipolo City for a consideration of P2,000,000.00 subject to the following terms and conditions:

a) That an earnest money of P100,000.00 shall be paid immediately;

b) That a full down payment of Four Hundred Thousand Pesos (P400,000.00) shall be
paid on February 29, 1996;

c) That Five Hundred Thousand Pesos (P500,000.00) shall be paid on or before May 5,
1996; and

d) That the balance of One Million Pesos (P1,000,000.00) shall be paid on installment
with interest of Eighteen Percent (18%) per annum or One and a half percent (1-1/2 %)
interest per month, based on the diminishing balance, compounded monthly, effective
May 6, 1996. The interest shall continue to run until the whole obligation shall have been
fully paid. The whole One Million Pesos shall be paid within three years from May 6,
1996;

e) That the agreed monthly amortization of Fifty Thousand Pesos (P50,000.00), principal
and interest included, must be paid to the Vendors, without need of prior demand, on or
before May 6, 1996, and every month thereafter. Failure to pay the monthly amortization
on time, a penalty equal to Five Percent (5%) of the amount due shall be imposed, until
the account is updated. In addition, a penalty of One Hundred Pesos per day shall be
imposed until the account is updated;

f) That after receipt of the full payment, the Vendors shall execute the necessary Absolute
Deed of Sale covering the house and lot mentioned above x x x4

Respondent made the following payments, to wit: (1) P500,000.00 by way of downpayment; (2)
P500,000.00 on May 30, 1996; (3) P500,000.00 paid on January 22, 1997; and (4) P500,000.00
bounced check dated June 30, 1997 which was subsequently replaced by another check of the
same amount, dated July 7, 1997. Respondent was, therefore, able to pay a total of
P2,000,000.00.5

Before respondent issued the P500,000.00 replacement check, she told petitioners that based on
the computation of her accountant as of July 6, 1997, her unpaid obligation which includes
interests and penalties was only P200,000.00.6 Petitioners agreed with respondent and said "if
P200,000.00 is the correct balance, it is okay with us."7

Meanwhile, the title to the property was transferred to respondent. Petitioners later reminded
respondent to pay P209,000.00 within three months.8 They claimed that the said amount
remained unpaid, despite the transfer of the title to the property to respondent. Several months
later, petitioners made further demands stating the supposed correct computation of respondent’s
liabilities.9 Despite repeated demands, petitioners failed to collect the amounts they claimed from
respondent. Hence, the Complaint for Sum of Money With Damages10 filed with the Regional
Trial Court (RTC)11 of Antipolo, Rizal. The case was docketed as Civil Case No. 98-4716.

In her Answer with Compulsory Counterclaim,12 respondent claimed that her unpaid obligation
to petitioners is only P200,000.00 as earlier confirmed by petitioners and not P487,384.15 as
later alleged in the complaint. Respondent thus prayed for the dismissal of the complaint. By
way of counterclaim, respondent prayed for the payment of moral damages and attorney’s fees.
During the presentation of the parties’ evidence, in addition to documents showing the statement
of her paid obligations, respondent presented a receipt purportedly indicating payment of the
remaining balance of P200,000.00 to Adoracion Losloso (Losloso) who allegedly received the
same on behalf of petitioners.13

On March 8, 2004, the RTC rendered a Decision14 in favor of respondent, the dispositive portion
of which reads:

WHEREFORE, premises considered, this case is hereby DISMISSED. The plaintiff is hereby
ordered to pay the defendant’s counterclaim, amounting to wit:

a) P300,000 as moral damages; and

b) P100,000 plus P2,000 per court appearance as attorney’s fees.

SO ORDERED.15

The RTC noted that the evidence formally offered by petitioners have not actually been marked
as none of the markings were recorded. Thus, it found no basis to grant their claims, especially
since the amount claimed in the complaint is different from that testified to. The court, on the
other hand, granted respondent’s counterclaim.16

On appeal, the CA affirmed the decision with modification by deleting the award of moral
damages and attorney’s fees in favor of respondent.17 It agreed with the RTC that the evidence
presented by petitioners cannot be given credence in determining the correct liability of
respondent.18 Considering that the purchase price had been fully paid by respondent ahead of the
scheduled date agreed upon by the parties, petitioners were not awarded the excessive penalties
and interests.19 The CA thus maintained that respondent’s liability is limited to P200,000.00 as
claimed by respondent and originally admitted by petitioners.20 This amount, however, had
already been paid by respondent and received by petitioners’ representative.21 Finally, the CA
pointed out that the RTC did not explain in its decision why moral damages and attorney’s fees
were awarded. Considering also that bad faith cannot be attributed to petitioners when they
instituted the collection suit, the CA deleted the grant of their counterclaims.22

Aggrieved, petitioners come before the Court in this petition for review on certiorari under Rule
45 of the Rules of Court raising the following errors:

I.

"THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE

GROUND THAT PLAINTIFF FAILED TO FORMALLY OFFER THEIR EVIDENCE
AS DEFENDANT JUDICIALLY ADMITTED IN HER ANSWER WITH
COMPULS[O]RY COUNTERCLAIM HER OUTSTANDING OBLIGATION STILL
DUE TO PLAINTIFFS AND NEED NO PROOF.

II.

THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT FOR ALLEGED

FAILURE OF PLAINTIFFS TO PRESENT COMPUTATION OF THE AMOUNT
BEING CLAIMED AS DEFENDANT JUDICIALLY ADMITTED HAVING
RECEIVED THE DEMAND LETTER DATED OCTOBER 22, 1997 WITH
COMPUTATION OF THE BALANCE DUE.

III.

THE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE

GROUND THAT THE DEFENDANT FULLY PAID THE CLAIMS OF PLAINTIFFS
BASED ON THE ALLEGED RECEIPT OF PAYMENT BY ADORACION LOSLOSO
FROM ANA MARIE CONCEPCION MAGLASANG WHICH HAS NOTHING TO DO
WITH THE JUDICIALLY ADMITTED OBLIGATION OF APPELLEE."23

Invoking the rule on judicial admission, petitioners insist that respondent admitted in her Answer
with Compulsory Counterclaim that she had paid only a total amount of P2 million and that her
unpaid obligation amounts to P200,000.00.24 They thus maintain that the RTC and the CA erred
in concluding that said amount had already been paid by respondent. Petitioners add that
respondent’s total liability as shown in the latter’s statement of account was erroneously
computed for failure to compound the monthly interest agreed upon.25 Petitioners also claim that
the RTC and the CA erred in giving credence to the receipt presented by respondent to show that
her unpaid obligation had already been paid having been allegedly given to a person who was not
armed with authority to receive payment.26

The petition is without merit.

It is undisputed that the parties entered into a contract to sell a house and lot for a total
consideration of P2 million. Considering that the property was payable in installment, they
likewise agreed on the payment of interest as well as penalty in case of default. It is likewise
settled that respondent was able to pay the total purchase price of P2 million ahead of the agreed
term. Afterwhich, they agreed on the remaining balance by way of interest and penalties which is
P200,000.00. Considering that the term of payment was not strictly followed and the purchase
price had already been fully paid by respondent, the latter presented to petitioners her
computation of her liabilities for interests and penalties which was agreed to by petitioners.
Petitioners also manifested their conformity to the statement of account prepared by respondent.

In paragraph (9) of petitioners’ Complaint, they stated that:

9) That the Plaintiffs answered the Defendant as follows: "if P200,000 is the correct balance, it is
okay with us." x x x.27

But in paragraph (17) thereof, petitioners claimed that defendant’s outstanding liability as of
November 6, 1997 was P487,384.15.28 Different amounts, however, were claimed in their
demand letter and in their testimony in court.

With the foregoing factual antecedents, petitioners cannot be permitted to assert a different
computation of the correct amount of respondent’s liability.

It is noteworthy that in answer to petitioners’ claim of her purported unpaid obligation,

respondent admitted in her Answer with Compulsory Counterclaim that she paid a total amount
of P2 million representing the purchase price of the subject house and lot. She then manifested to
petitioners and conformed to by respondent that her only balance was P200,000.00. Nowhere in
her Answer did she allege the defense of payment. However, during the presentation of her
evidence, respondent submitted a receipt to prove that she had already paid the remaining
balance. Both the RTC and the CA concluded that respondent had already paid the remaining
balance of P200,000.00. Petitioners now assail this, insisting that the court should have
maintained the judicial admissions of respondent in her Answer with Compulsory Counterclaim,
especially as to their agreed stipulations on interests and penalties as well as the existence of
outstanding obligations.

It is, thus, necessary to discuss the effect of failure of respondent to plead payment of its
obligations.

Section 1, Rule 9 of the Rules of Court states that "defenses and objections not pleaded either in
a motion to dismiss or in the answer are deemed waived." Hence, respondent should have been
barred from raising the defense of payment of the unpaid P200,000.00. However, Section 5, Rule
10 of the Rules of Court allows the amendment to conform to or authorize presentation of
evidence, to wit:

Section 5. Amendment to conform to or authorize presentation of evidence. – When issues not

raised by the pleadings are tried with the express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at any time, even after judgment; but failure to amend
does not affect the result of the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the court may allow the pleadings
to be amended and shall do so with liberality if the presentation of the merits of the action and
the ends of substantial justice will be subserved thereby. The court may grant a continuance to
enable the amendment to be made.
The foregoing provision envisions two scenarios, namely, when evidence is introduced in an
issue not alleged in the pleadings and no objection was interjected; and when evidence is offered
on an issue not alleged in the pleadings but this time an objection was raised.29 When the issue is
tried without the objection of the parties, it should be treated in all respects as if it had been
raised in the pleadings.30 On the other hand, when there is an objection, the evidence may be
admitted where its admission will not prejudice him.31

Thus, while respondent judicially admitted in her Answer that she only paid P2 million and that
she still owed petitioners P200,000.00, respondent claimed later and, in fact, submitted an
evidence to show that she already paid the whole amount of her unpaid obligation. It is
noteworthy that when respondent presented the evidence of payment, petitioners did not object
thereto. When the receipt was formally offered as evidence, petitioners did not manifest their
objection to the admissibility of said document on the ground that payment was not an issue.
Apparently, petitioners only denied receipt of said payment and assailed the authority of Losloso
to receive payment. Since there was an implied consent on the part of petitioners to try the issue
of payment, even if no motion was filed and no amendment of the pleading has been
ordered,32 the RTC cannot be faulted for admitting respondent’s testimonial and documentary
evidence to prove payment.33

As stressed by the Court in Royal Cargo Corporation v. DFS Sports Unlimited, Inc.,34

The failure of a party to amend a pleading to conform to the evidence adduced during trial does
not preclude adjudication by the court on the basis of such evidence which may embody new
issues not raised in the pleadings. x x x Although, the pleading may not have been amended to
conform to the evidence submitted during trial, judgment may nonetheless be rendered, not
simply on the basis of the issues alleged but also on the issues discussed and the assertions of
fact proved in the course of the trial. The court may treat the pleading as if it had been amended
to conform to the evidence, although it had not been actually amended. x x x Clearly, a court
may rule and render judgment on the basis of the evidence before it even though the relevant
pleading had not been previously amended, so long as no surprise or prejudice is thereby caused
to the adverse party. Put a little differently, so long as the basic requirements of fair play had
been met, as where the litigants were given full opportunity to support their respective
contentions and to object to or refute each other's evidence, the court may validly treat the
pleadings as if they had been amended to conform to the evidence and proceed to adjudicate on
the basis of all the evidence before it. (Emphasis supplied)35

To be sure, petitioners were given ample opportunity to refute the fact of and present evidence to
prove payment.

With the evidence presented by the contending parties, the more important question to resolve is
whether or not respondent’s obligation had already been extinguished by payment.

We rule in the affirmative as aptly held by the RTC and the CA.

Respondent’s obligation consists of payment of a sum of money. In order to extinguish said

obligation, payment should be made to the proper person as set forth in Article 1240 of the Civil
Code, to wit:
Article 1240. Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it. (Emphasis
supplied)

The Court explained in Cambroon v. City of Butuan,36 cited in Republic v. De Guzman,37 to

whom payment should be made in order to extinguish an obligation:

Payment made by the debtor to the person of the creditor or to one authorized by him or by the
law to receive it extinguishes the obligation. When payment is made to the wrong party,
however, the obligation is not extinguished as to the creditor who is without fault or negligence
even if the debtor acted in utmost good faith and by mistake as to the person of the creditor or
through error induced by fraud of a third person.

In general, a payment in order to be effective to discharge an obligation, must be made to the

proper person. Thus, payment must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment. Payment made to one having
apparent authority to receive the money will, as a rule, be treated as though actual authority had
been given for its receipt. Likewise, if payment is made to one who by law is authorized to act
for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer
authorized by law to accept it will, therefore, satisfy the debt.38

Admittedly, payment of the remaining balance of P200,000.00 was not made to the creditors
themselves. Rather, it was allegedly made to a certain Losloso. Respondent claims that Losloso
was the authorized agent of petitioners, but the latter dispute it.

Losloso’s authority to receive payment was embodied in petitioners’ Letter39 addressed to

respondent, dated August 7, 1997, where they informed respondent of the amounts they
advanced for the payment of the 1997 real estate taxes. In said letter, petitioners reminded
respondent of her remaining balance, together with the amount of taxes paid. Taking into
consideration the busy schedule of respondent, petitioners advised the latter to leave the payment
to a certain "Dori" who admittedly is Losloso, or to her trusted helper. This is an express
authority given to Losloso to receive payment.

Moreover, as correctly held by the CA:

Furthermore, that Adoracion Losloso was indeed an agent of the appellant spouses is borne out
by the following admissions of plaintiff-appellant Atty. Miniano dela Cruz, to wit:

Q: You would agree with me that you have authorized this Doiry Losloso to receive payment of
whatever balance is due you coming from Ana Marie Concepcion, that is correct?

A: In one or two times but not total authority, sir.

Q: Yes, but you have authorized her to receive payment?

A: One or two times, yes x x x. (TSN, June 28, 1999, pp. 16-17)40

Thus, as shown in the receipt signed by petitioners’ agent and pursuant to the authority granted
by petitioners to Losloso, payment made to the latter is deemed payment to petitioners. We find
no reason to depart from the RTC and the CA conclusion that payment had already been made
and that it extinguished respondent's obligations.

WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Court of
Appeals Decision dated March 31, 2005 and Resolution dated May 24, 2006 in CA-G.R. CV No.
83030, are AFFIRMED.

SO ORDERED.

8. G.R. No. 160215 November 10, 2004

HYDRO RESOURCES CONTRACTORS CORPORATION, petitioner,

vs.
NATIONAL IRRIGATION ADMINISTRATION, respondent.

Challenged in this petition for review on certiorari under Rule 45 is the Decision of the Court of
Appeals1 dated October 29, 2002 and its Resolution dated September 24, 20032 in CA-G.R. SP
No. 44527,3 reversing the judgment of the Construction Industry Arbitration Commission
(CIAC) dated June 10, 19974 in CIAC Case No. 14-98 in favor of petitioner Hydro Resources
Contractors Corporation.

The facts are undisputed and are matters of record.

In a competitive bidding conducted by the National Irrigation Administration (NIA) sometime in

August 1978, Hydro Resources Contractors Corporation (Hydro) was awarded Contract MPI-C-
25 involving the main civil work of the Magat River Multi-Purpose Project. The contract price
for the work was pegged at P1,489,146,473.72 with the peso component thereof amounting to
P1,041,884,766.99 and the US$ component valued at $60,657,992.37 at the exchange rate of
P7.3735 to the dollar or P447,361,706.73.

On November 6, 1978, the parties signed Amendment No. 16 of the contract whereby NIA
agreed to increase the foreign currency allocation for equipment financing from
US$28,000,000.00 for the first and second years of the contract to US$38,000,000.00, to be
made available in full during the first year of the contract to enable the contractor to purchase the
needed equipment and spare parts, as approved by NIA, for the construction of the project. On
April 9, 1980, the parties entered into a Memorandum of Agreement7 (MOA) whereby they
agreed that Hydro may directly avail of the foreign currency component of the contract for the
sole purpose of purchasing necessary spare parts and equipment for the project. This was made
in order for the contractor to avoid further delays in the procurement of the said spare parts and
equipment.

A few months after the MOA was signed, NIA and Hydro entered into a Supplemental
Memorandum of Agreement (Supplemental MOA) to include among the items to be financed out
of the foreign currency portion of the Contract "construction materials, supplies and services as
well as equipment and materials for incorporation in the permanent works of the Project."8
Work on the project progressed steadily until Hydro substantially completed the project in 1982
and the final acceptance was made by NIA on February 14, 1984.9

During the period of the execution of the contract, the foreign exchange value of the peso against
the US dollar declined and steadily deteriorated. Whenever Hydro's availment of the foreign
currency component exceeded the amount of the foreign currency payable to Hydro for a
particular period, NIA charged interest in dollars based on the prevailing exchange rate instead
of the fixed exchange rate of P7.3735 to the dollar. Yet when Hydro received payments from
NIA in Philippine Pesos, NIA made deductions from Hydro's foreign currency component at the
fixed exchange rate of P7.3735 to US$1.00 instead of the prevailing exchange rate.

Upon completion of the project, a final reconciliation of the total entitlement of Hydro to the
foreign currency component of the contract was made. The result of this final reconciliation
showed that the total entitlement of Hydro to the foreign currency component of the contract
exceeded the amount of US dollars required by Hydro to repay the advances made by NIA for its
account in the importation of new equipment, spare parts and tools. Hydro then requested a full
and final payment due to the underpayment of the foreign exchange portion caused by price
escalations and extra work orders. In 1983, NIA and Hydro prepared a joint computation
denominated as the "MPI-C-2 Dollar Rate Differential on Foreign Component of
Escalation."10 Based on said joint computation, Hydro was still entitled to a foreign exchange
differential of US$1,353,771.79 equivalent to P10,898,391.17.

Hydro then presented its claim for said foreign exchange differential to NIA on August 12,
198311 but the latter refused to honor the same. Hydro made several12 demands to recover its
claim until the same was turned down with finality by then NIA Administrator Federico N.
Alday, Jr. on January 6, 1987.13

On December 7, 1994, Hydro filed a request for arbitration with the Construction Industry
Arbitration Commission (CIAC).14 In the said request, Hydro nominated six (6) arbitrators. The
case was docketed as CIAC Case No. 18-94.

NIA filed its Answer with Compulsory Counterclaim15 raising laches, estoppel and lack of
jurisdiction by CIAC as its special defenses. NIA also submitted its six (6) nominees to the panel
of arbitrators. After appointment of the arbitrators, both parties agreed on the Terms of
Reference16 as well as the issues submitted for arbitration.

On March 13, 1995, NIA filed a Motion to Dismiss17 questioning CIAC's jurisdiction to take
cognizance of the case. The latter, however, deferred resolution of the motion and set the case for
hearing for the reception of evidence.18 NIA moved19 for reconsideration but the same was
denied by CIAC in an Order dated April 25, 1995.20

Dissatisfied, NIA filed a petition for certiorari and prohibition with the Court of Appeals where
the same was docketed as CA-G.R. SP No. 37180,21 which dismissed the petition in a Resolution
dated June 28, 1996.22

NIA challenged the resolution of the Court of Appeals before this Court in a special civil action
for certiorari, docketed as G.R. No. 129169.23
Meanwhile, on June 10, 1997, the CIAC promulgated a decision in favor of Hydro.24 NIA filed a
Petition for Review on Appeal before the Court of Appeals, which was docketed as CA-G.R. SP
No. 44527.25

During the pendency of CA-G.R. SP No. 44527 before the Court of Appeals, this Court
dismissed special civil action for certiorari docketed as G.R. No. 129169 on the ground that
CIAC had jurisdiction over the dispute and directed the Court of Appeals to proceed with
reasonable dispatch in the disposition of CA-G.R. SP No. 44527. NIA did not move for
reconsideration of the said decision, hence, the same became final and executory on December
15, 1999.26

Thereafter, the Court of Appeals rendered the challenged decision in CA-G.R. SP No. 44527,
reversing the judgment of the CIAC on the grounds that: (1) Hydro's claim has prescribed; (2)
assuming that Hydro was entitled to its claim, the rate of exchange should be based on a fixed
rate; (3) Hydro's claim is contrary to R.A. No. 529;27(4) NIA's Certification of Non-Forum-
Shopping was proper even if the same was signed only by counsel and not by NIA's authorized
representative; and (5) NIA did not engage in forum-shopping.

Hydro's Motion for Reconsideration was denied in Resolution of September 24, 2003.

Hence, this petition.

Addressing first the issue of prescription, the Court of Appeals, in ruling that Hydro's claim had
prescribed, reasoned thus:

Nevertheless, We find good reason to apply the principle of prescription against HRCC.
It is well to note that Section 25 of the General Conditions of the subject contract
provides (CIAC Decision, p. 15, Rollo, p. 57):

Any controversy or dispute arising out of or relating to this Contract which cannot be
resolved by mutual agreement shall be decided by the Administrator within thirty (30)
calendar days from receipt of a written notice from Contractor and who shall furnish
Contractor a written copy of this decision. Such decision shall be final and conclusive
unless within thirty (30) calendar days from the date of receipt thereof, Contractor shall
deliver to NIA a written notice addressed to the Administrator that he desires that the
dispute be submitted to arbitration. Pending decision from arbitration, Contractor shall
proceed diligently with the performance of the Contract and in accordance with the
decision of the Administrator. (Emphasis and Underscoring Ours)

Both parties admit the existence of this provision in the Contract (Petition, p. 4;
Comment, p. 16; Rollo, pp. 12 and 131). Apropos, the following matters are clear: (1)
any controversy or dispute between the parties arising from the subject contract shall be
governed by the provisions of the contract; (2) upon the failure to arrive at a mutual
agreement, the contractor shall submit the dispute to the Administrator of NIA for
determination; and (3) the decision of the Administrator shall become final and
conclusive, unless within thirty (30) calendar days from the date of receipt thereof, the
Contractor shall deliver to NIA a written notice addressed to the Administrator that he
desires that the dispute be submitted for arbitration.
 Prescinding from the foregoing matters, We find that the CIAC erred in granting HRCC's
claim considering that the latter's right to make such demand had clearly prescribed. To
begin with, on January 7, 1986, Cesar L. Tech (NIA's Administrator at the time)
informed HRCC in writing that after a review of the additional points raised by the latter,
NIA confirms its original recommendation not to allow the said claim (Annex "F"; Rollo,
p. 81; CIAC Decision, p. 11; Rollo, p. 53). This should have propelled private respondent
to notify and signify to NIA of intention to submit the dispute to arbitration pursuant to
the provision of the contract. Yet, it did not. Instead it persisted to send several letters to
NIA reiterating the reason for its rejected claim (CIAC Decision, p. 11; Rollo, p. 53).28

We disagree for the following reasons:

First, the appellate court clearly overlooked the fact that NIA, through then Administrator
Fedrico N. Alday, Jr., denied "with finality" Hydro's claim only on January 6, 1987 in a letter
bearing the same date29 which reads:

This refers to your letter dated November 7, 1986 requesting reconsideration on your
claim for payment of the Dollar Rate Differential of Price Escalation in Contract No.
MPI-C-2.

We have reviewed the relevant facts and issues as presented and the additional points
raised in the abovementioned letter in the context of the Contract Documents and we find
no strong and valid reason to reverse the earlier decision of NIA's previous management
denying your claim. Therefore, we regret that we have to reiterate the earlier official
stand of NIA under its letter dated January 7, 1986, that confirms the original
recommendation which had earlier been presented in our 4th Indorsement dated February
5, 1985 to your office.

In view hereof, we regret to say with finality that the claim cannot be given favorable
consideration. (Emphasis and italics supplied)

Hydro received the above-mentioned letter on January 27, 1987.30 Pursuant to Section 25 of the
Contract's General Conditions (GC-25), Hydro had thirty (30) days from receipt of said denial,
or until February 26, 1987, within which to notify NIA of its desire to submit the dispute to
arbitration.

On February 18, 1987, Hydro sent a letter31 to NIA, addressed to then NIA Administrator
Federico N. Alday, Jr., manifesting its desire to submit the dispute to arbitration. The letter was
received by NIA on February 19, 1987, which was within the thirty-day prescriptive period.

Moreover, a circumspect scrutiny of the wording of GC-25 with regard to the thirty-day
prescriptive period shows that said proviso is intended to apply to disputes which arose during
the actual construction of the project and not for controversies which occured after the project is
completed. The rationale for such a stipulation was aptly explained thus by the CIAC in its
Decision in CIAC Case No. 18-94:

In construction contracts, there is invariably a provision for interim settlement of

disputes. The right to settle disputes is given to the owner or his representative, either an
architect or engineer, designated as "owner's representative," only for the purpose of
 avoiding delay in the completion of the project. In this particular contract, that right was
reserved to the NIA Administrator. The types of disputes contemplated were those which
may have otherwise affected the progress of the work. It is very clear that this is the
purpose of the limiting periods in this clause that the dispute shall be resolved by the
Administrator within 30 days from receipt of a written notice from the Contractor and
that the Contractor may submit to arbitration this dispute if it does not agree with the
decision of the Administrator, and "Pending decision from arbitration, Contractor shall
proceed diligently with the performance of the Contract and in accordance with the
decision of the Administrator."

In this case, the dispute had arisen after completion of the Project. The reason for the 30-
day limitation no longer applies, and we find no legal basis for applying it. Moreover, in
Exhibit "B," NIA Administrator Cesar L. Tech had, instead of rendering an adverse
decision, by signing the document with HRCC's Onofre B. Banson, implicitly approved
the payment of the foreign exchange differential, but this payment could not be made
because of the opinion of Auditor Saldua and later of the Commission on Audit.32

Second, as early as April 1983, Hydro and NIA, through its Administrator Cesar L. Tech,
prepared the Joint Computation which shows that Hydro is entitled to the foreign currency
differential.33 As correctly found by the CIAC, this computation constitutes a written
acknowledgment of the debt by the debtor under Article 1155 of the Civil Code, which states:

ART. 1155. The prescription of actions is interrupted when they are filed before the
court, when there is a written extrajudicial demand by the creditors, and when there is
any written acknowledgment of the debt by the debtor. (Emphasis and italics supplied)

Instead of upholding the CIAC's findings on this point, the Court of Appeals ruled that Cesar L.
Tech's act of signing the Joint Computation was an ultra vires act. This again is patent error. It
must be noted that the Administrator is the highest officer of the NIA. Furthermore, Hydro has
been dealing with NIA through its Administrator in all of its transactions with respect to the
contract and subsequently the foreign currency differential claim. The NIA Administrator is
empowered by the Contract to grant or deny foreign currency differential claims. It would be
preposterous for the NIA Administrator to have the power of granting claims without the
authority to verify the computation of such claims. Finally, the records of the case will show that
NIA itself never disputed its Administrator's capacity to sign the Joint Computation because it
knew that the Administrator, in fact, had such capacity.

Even assuming for the sake of argument that the Administrator had no authority to bind NIA, the
latter is already estopped after repeatedly representing to Hydro that the Administrator had such
authority. A corporation may be held in estoppel from denying as against third persons the
authority of its officers or agents who have been clothed by it with ostensible or apparent
authority.34 Indeed –

. . . The rule is of course settled that "[a]lthough an officer or agent acts without, or in
excess of, his actual authority if he acts within the scope of an apparent authority with
which the corporation has clothed him by holding him out or permitting him to appear as
having such authority, the corporation is bound thereby in favor of a person who deals
with him in good faith in reliance on such apparent authority, as where an officer is
 allowed to exercise a particular authority with respect to the business, or a particular
branch of it, continuously and publicly, for a considerable time.". . .35

Third, NIA has clearly waived the prescriptive period when it continued to entertain Hydro's
claim regarding new matters raised by the latter in its letters to NIA and then issuing rulings
thereon. In this regard, Article 1112 of the Civil Code provides that:

ART. 1112. Persons with capacity to alienate property may renounce prescription already
obtained, but not the right to prescribe in the future.

Prescription is deemed to have been tacitly renounced when the renunciation results from
acts which imply the abandonment of the right acquired. (Emphasis and italics supplied)

Certainly, when a party has renounced a right acquired by prescription through its actions, it can
no longer claim prescription as a defense.36

Fourth, even assuming that NIA did not waive the thirty-day prescriptive period, it clearly
waived the effects of such period when it actively participated in arbitration proceedings through
the following acts:

a) On January 6, 1995, NIA voluntarily filed its written appearance, readily submitted its
Answer and asserted its own Counterclaims;

b) In the Compliance which accompanied the Answer, NIA also submitted its six
nominees to the Arbitral Tribunal to be constituted, among of which one was eventually
appointed to the tribunal;

c) NIA also actively participated in the deliberations for and the formulation of the Terms
of Reference during the preliminary conference set by CIAC; and

d) For the purpose of obviating the introduction of testimonial evidence on the

authenticity and due execution of its documentary evidence, NIA even had examined,
upon prior request to Hydro, all of the documents which the latter intended to present as
evidentiary exhibits for the said arbitration case.

We now come to the issue of whether or not the provisions of R.A. No. 529, otherwise known as
an Act To Assure Uniform Value to Philippine Coin And Currency, is applicable to Hydro's
claim.

The Contract between NIA and Hydro is an internationally tendered contract considering that it
was funded by the International Bank for Reconstruction and Development (IBRD). As a
contract funded by an international organization, particularly one recognized by the
Philippines,37 the contract is exempt from the provisions of R.A. No. 529. R.A. No. 4100
amended the provisions of R.A. 529 thus:

SECTION 1. Section one of Republic Act Numbered Five hundred and twenty-nine,
entitled "An Act to Assure Uniform Value of Philippine Coin and Currency," is hereby
amended to read as follows:
 Sec. 1. Every provision contained in, or made with respect to, any domestic
obligation to wit, any obligation contracted in the Philippines which provisions
purports to give the obligee the right to require payment in gold or in a particular
kind of coin or currency other than Philippine currency or in an amount of money
of the Philippines measured thereby, be as it is hereby declared against public
policy, and null, void, and of no effect, and no such provision shall be contained
in, or made with respect to, any obligation hereafter incurred. The above
prohibition shall not apply to (a) transactions where the funds involved are the
proceeds of loans or investments made directly or indirectly, through bona fide
intermediaries or agents, by foreign governments, their agencies and
instrumentalities, and international financial and banking institutions so long as
the funds are identifiable, as having emanated from the sources enumerated
above; (b) transactions affecting high-priority economic projects for agricultural,
industrial and power development as may be determined by the National
Economic Council which are financed by or through foreign funds; (c) forward
exchange transaction entered into between banks or between banks and
individuals or juridical persons; (d) import-export and other international banking,
financial investment and industrial transactions. With the exception of the cases
enumerated in items (a), (b), (c) and (d) in the foregoing provisions, in which
bases the terms of the parties' agreement shall apply, every other domestic
obligation heretofore or hereafter incurred, whether or not any such provision as
to payment is contained therein or made with respect thereto, shall be discharged
upon payment in any coin or currency which at the time of payment is legal
tender for public and private debts: Provided, That if the obligation was incurred
prior to the enactment of this Act and required payment in a particular kind of
coin or currency other than Philippine currency, it shall be discharged in
Philippine currency measured at the prevailing rates of exchange at the time the
obligation was incurred, except in case of a loan made in a foreign currency
stipulated to be payable in the same currency in which case the rate of exchange
prevailing at the time of the stipulated date of payment shall prevail. All coin and
currency, including Central Bank notes, heretofore and hereafter issued and
declared by the Government of the Philippines shall be legal tender for all debts,
public and private.

SECTION 2. This Act shall take effect upon its approval. (Emphasis and italics supplied)

Even assuming ex gratia argumenti that R.A. No. 529 is applicable, it is still erroneous for the
Court of Appeals to deny Hydro's claim because Section 1 of R.A. No. 529 states that only the
stipulation requiring payment in foreign currency is void, but not the obligation to make
payment. This can be gleaned from the provision that "every other domestic obligation
heretofore or hereafter incurred" shall be "discharged upon payment in any coin and currency
which at the time is legal tender for public and private debts." In Republic Resources and
Development Corporation v. Court of Appeals,38 it was held:

. . . it is clear from Section 1 of R.A. No. 529 that what is declared null and void is the
"provision contained in, or made with respect to, any domestic obligation to wit, any
obligation contracted in the Philippines which provision purports to give the obligee the
right to require payment in gold or in a particular kind of coin or currency other than
Philippine currency or in an amount of money of the Philippines measured thereby" and
 not the contract or agreement which contains such proscribed provision. (Emphasis
supplied)

More succinctly, we held in San Buenaventura v. Court of Appeals39 that –

It is to be noted under the foregoing provision that while an agreement to pay an

obligation in a currency other than Philippine currency is null and void as contrary to
public policy, what the law specifically prohibits is payment in currency other than legal
tender but does not defeat a creditor's claim for payment. A contrary rule would allow a
person to profit or enrich himself inequitably at another's expense. (Emphasis supplied)

It is thus erroneous for the Court of Appeals to disallow petitioner's claim for foreign currency
differential because NIA's obligation should be converted to Philippine Pesos which was legal
tender at the time.40

The next issue to be resolved is whether or not Hydro's claim should be computed at the fixed
rate of exchange.

When the MOA41 and the Supplemental MOA42 were in effect, there were instances when the
foreign currency availed of by Hydro exceeded the foreign currency payable to it for that
particular Progress Payment. In instances like these, NIA actually charged Hydro interest in
foreign currency computed at the prevailing exchange rate and not at the fixed rate. NIA now
insists that the exchange rate should be computed according to the fixed rate and not the
escalating rate it actually charged Hydro.

Suffice it to state that this flip-flopping stance of NIA of adopting and discarding positions to suit
its convenience cannot be countenanced. A person who, by his deed or conduct has induced
another to act in a particular manner, is barred from adopting an inconsistent position, attitude or
course of conduct that thereby causes loss or injury to another.43 Indeed, the application of the
principle of estoppel is proper and timely in heading off NIA's efforts at renouncing its previous
acts to the prejudice of Hydro which had dealt with it honestly and in good faith.

. . . A principle of equity and natural justice, this is expressly adopted under Article 1431
of the Civil Code, and pronounced as one of the conclusive presumptions under Rule 131,
Section 3(a) of the Rules of Court, as follows:

Whenever a party has, by his own declaration, act or omission, intentionally and
deliberately led another to believe a particular thing to be true, and to act upon such a
belief he cannot, in any litigation arising out of such declaration, act or omission, be
permitted to falsify it.

Petitioner, having performed affirmative acts upon which the respondents based their
subsequent actions, cannot thereafter refute his acts or renege on the effects of the same,
to the prejudice of the latter. To allow him to do so would be tantamount to conferring
upon him the liberty to limit his liability at his whim and caprice, which is against the
very principles of equity and natural justice…44

NIA is, therefore, estopped from invoking the contractual stipulation providing for the fixed rate
to justify a lower computation than that claimed by Hydro. It cannot be allowed to hide behind
the very provision which it itself continuously violated.45 An admission or representation is
rendered conclusive upon the person making it and cannot be denied or disproved as against the
person relying thereon.46 A party may not go back on his own acts and representations to the
prejudice of the other party who relied upon them.47

NIA was guilty of forum-shopping. Forum-shopping refers to the act of availing oneself of
several judicial remedies in different courts, either simultaneously or successively, substantially
founded on the same transaction and identical material facts and circumstances, raising basically
the like issues either pending in, or already resolved by, some other court.48

It has been characterized as an act of malpractice that is prohibited and condemned as trifling
with the courts and abusing their processes. It constitutes improper conduct which tends to
degrade the administration of justice. It has also been described as deplorable because it adds to
the congestion of the heavily burdened dockets of the courts.49 The test in determining the
presence of this pernicious practice is whether in the two or more cases pending, there is identity
of: (a) parties; (b) rights or causes of action; and (c) reliefs sought.50

Applying the foregoing yardstick to the instant case, it is clear that NIA violated the prohibition
against forum-shopping. Besides filing CA-G.R. SP No. 44527 wherein the Court of Appeals'
decision is the subject of appeal in this proceeding, NIA previously filed CA-G.R. SP No. 37180
and G.R. No. 129169 which is a special civil action for certiorari. In all three cases, the parties
are invariably Hydro and NIA. In all three petitions, NIA raised practically the same issues51 and
in all of them, NIA's prayer was the same: to nullify the proceedings commenced at the CIAC.

It must be pointed out in this regard that the first two petitions namely, CA-G.R. SP No. 37180
and G.R. No. 129169 are both original actions. Since NIA failed to file a petition for review on
certiorari under Rule 45 of the Rules of Court challenging the decision of the appellate court in
CA-G.R. SP No. 37180 dismissing its petition, it opted to file an original action for certiorari
under Rule 65 with this Court where the same was docketed as G.R. No. 129169. For its failure
to appeal the judgments in CA-G.R. SP No. 37180 and G.R. No. 129169, NIA is necessarily
bound by the effects of those decisions. The filing of CA-G.R. SP No. 44527, which raises the
issues already passed upon in both cases is a clear case of forum-shopping which merits outright
dismissal.

The issue of whether or not the Certification of Non-Forum Shopping is valid despite that it was
signed by NIA's counsel must be answered in the negative. Applicable is the ruling in Mariveles
Shipyard Corp. v. Court of Appeals, et al.:52

It is settled that the requirement in the Rules that the certification of non-forum shopping
should be executed and signed by the plaintiff or the principal means that counsel cannot
sign said certification unless clothed with special authority to do so. The reason for this is
that the plaintiff or principal knows better than anyone else whether a petition has
previously been filed involving the same case or substantially the same issues. Hence, a
certification signed by counsel alone is defective and constitutes a valid cause for
dismissal of the petition. In the case of natural persons, the Rule requires the parties
themselves to sign the certificate of non-forum shopping. However, in the case of the
corporations, the physical act of signing may be performed, on behalf of the corporate
entity, only by specifically authorized individuals for the simple reason that corporations,
as artificial persons, cannot personally do the task themselves. . . It cannot be gainsaid
 that obedience to the requirements of procedural rule[s] is needed if we are to expect fair
results therefrom. Utter disregard of the rules cannot justly be rationalized by harking on
the policy of liberal construction. (Emphasis and italics supplied)

In this connection, the lawyer must be "specifically authorized" in order to validly sign the
certification.53

In closing, we restate the rule that the courts will not interfere in matters which are addressed to
the sound discretion of government agencies entrusted with the regulation of activities coming
under the special technical knowledge and training of such agencies.54

An action by an administrative agency may be set aside by the judicial department only if there
is an error of law, abuse of power, lack of jurisdiction or grave abuse of discretion clearly
conflicting with the letter and spirit of the law.55 In the case at bar, there is no cogent reason to
depart from the general rule because the action of the CIAC conforms rather than conflicts with
the governing statutes and controlling case law on the matter.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP
No. 44527 dated October 29, 2002 and the Resolution dated September 24, 2003 are
REVERSED and SET ASIDE. The Decision of the Construction Industry Arbitration
Commission dated June 10, 1997 in CIAC Case No. 18-94 is REINSTATED.

SO ORDERED.

9. G.R. No. 100290 June 4, 1993

NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and EDEN TAN, respondents.

PADILLA, J.:

Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court assailing the
decision * of respondent appellate court dated 24 April 1991 in CA-G.R. SP No. 24164 denying
their petition for certiorari prohibition, and injunction which sought to annul the order of Judge
Eutropio Migriño of the Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil Case
No. 54863 entitled "Eden Tan vs. Sps. Norberto and Carmen Tibajia."

Stated briefly, the relevant facts are as follows:

Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the
Tibajia spouses. A writ of attachment was issued by the trial court on 17 August 1987 and on 17
September 1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia
spouses in the Regional Trial Court of Kalookan City in the amount of Four Hundred Forty Two
Thousand Seven Hundred and Fifty Pesos (P442,750.00) in another case, had been garnished by
him. On 10 March 1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila rendered
its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia
spouses to pay her an amount in excess of Three Hundred Thousand Pesos (P300,000.00). On
appeal, the Court of Appeals modified the decision by reducing the award of moral and
exemplary damages. The decision having become final, Eden Tan filed the corresponding motion
for execution and thereafter, the garnished funds which by then were on deposit with the cashier
of the Regional Trial Court of Pasig, Metro Manila, were levied upon.

On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total
money judgment in the following form:

Cashier's Check P262,750.00

Cash 135,733.70
————
Total P398,483.70

Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and
instead insisted that the garnished funds deposited with the cashier of the Regional Trial Court of
Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991,
defendant spouses (petitioners) filed a motion to lift the writ of execution on the ground that the
judgment debt had already been paid. On 29 January 1991, the motion was denied by the trial
court on the ground that payment in cashier's check is not payment in legal tender and that
payment was made by a third party other than the defendant. A motion for reconsideration was
denied on 8 February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari,
prohibition and injunction in the Court of Appeals. The appellate court dismissed the petition on
24 April 1991 holding that payment by cashier's check is not payment in legal tender as required
by Republic Act No. 529. The motion for reconsideration was denied on 27 May 1991.

In this petition for review, the Tibajia spouses raise the following issues:

I WHETHER OR NOT THE BPI CASHIER'S CHECK NO. 014021 IN THE

AMOUNT OF P262,750.00 TENDERED BY PETITIONERS FOR PAYMENT
OF THE JUDGMENT DEBT, IS "LEGAL TENDER".

II WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY

REFUSE THE TENDER OF PAYMENT PARTLY IN CHECK AND PARTLY
IN CASH MADE BY PETITIONERS, THRU AURORA VITO AND
COUNSEL, FOR THE SATISFACTION OF THE MONETARY OBLIGATION
OF PETITIONERS-SPOUSES. 1

The only issue to be resolved in this case is whether or not payment by means of check (even by
cashier's check) is considered payment in legal tender as required by the Civil Code, Republic
Act No. 529, and the Central Bank Act.

It is contended by the petitioners that the check, which was a cashier's check of the Bank of the
Philippine Islands, undoubtedly a bank of good standing and reputation, and which was a crossed
check marked "For Payee's Account Only" and payable to private respondent Eden Tan, is
considered legal tender, payment with which operates to discharge their monetary
obligation. 2 Petitioners, to support their contention, cite the case of New Pacific Timber and
Supply Co., Inc. v. Señeris 3 where this Court held through Mr. Justice Hermogenes Concepcion,
Jr. that "It is a well-known and accepted practice in the business sector that a cashier's check is
deemed as cash".

The provisions of law applicable to the case at bar are the following:

a. Article 1249 of the Civil Code which provides:

Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other

mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in
abeyance.;

b. Section 1 of Republic Act No. 529, as amended, which provides:

Sec. 1. Every provision contained in, or made with respect to, any obligation
which purports to give the obligee the right to require payment in gold or in any
particular kind of coin or currency other than Philippine currency or in an amount
of money of the Philippines measured thereby, shall be as it is hereby declared
against public policy null and void, and of no effect, and no such provision shall
be contained in, or made with respect to, any obligation thereafter incurred. Every
obligation heretofore and hereafter incurred, whether or not any such provision as
to payment is contained therein or made with respect thereto, shall be discharged
upon payment in any coin or currency which at the time of payment is legal
tender for public and private debts.

c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:

Sec. 63. Legal character — Checks representing deposit money do not have legal
tender power and their acceptance in the payment of debts, both public and
private, is at the option of the creditor: Provided, however, that a check which has
been cleared and credited to the account of the creditor shall be equivalent to a
delivery to the creditor of cash in an amount equal to the amount credited to his
account.

From the aforequoted provisions of law, it is clear that this petition must fail.

In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals 4 and Roman Catholic Bishop
of Malolos, Inc. vs. Intermediate Appellate Court, 5 this Court held that —

A check, whether a manager's check or ordinary check, is not legal tender, and an
offer of a check in payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor.
The ruling in these two (2) cases merely applies the statutory provisions which lay down the rule
that a check is not legal tender and that a creditor may validly refuse payment by check, whether
it be a manager's, cashier's or personal check.

Petitioners erroneously rely on one of the dissenting opinions in the Philippine Airlines case 6 to
support their cause. The dissenting opinion however does not in any way support the contention
that a check is legal tender but, on the contrary, states that "If the PAL checks in question had not
been encashed by Sheriff Reyes, there would be no payment by PAL and, consequently, no
discharge or satisfaction of its judgment obligation." 7 Moreover, the circumstances in
the Philippine Airlines case are quite different from those in the case at bar for in that case the
checks issued by the judgment debtor were made payable to the sheriff, Emilio Z. Reyes, who
encashed the checks but failed to deliver the proceeds of said encashment to the judgment
creditor.

In the more recent case of Fortunado vs. Court of Appeals, 8 this Court stressed that, "We are not,
by this decision, sanctioning the use of a check for the payment of obligations over the objection
of the creditor."

WHEREFORE, the petition is DENIED. The appealed decision is hereby AFFIRMED, with
costs against the petitioners.

SO ORDERED.

10. SOLEDAD DALTON, G.R. No. 172577

Petitioner,

Present:

CARPIO, J., Chairperson,

NACHURA,

- versus - PERALTA,

ABAD, and

MENDOZA, JJ.

FGR REALTY AND DEVELOPMENT

CORPORATION, FELIX NG,

NENITA NG, and FLORA R. DAYRIT Promulgated:

or FLORA REGNER,

Respondents. January 19, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

RESOLUTION

CARPIO, J.:

The Case

This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition
challenges the 9 November 2005 Decision2 and 10 April 2006 Resolution3 of the Court of
Appeals in CA-G.R. CV No. 76536. The Court of Appeals affirmed the 26 February 2002
Decision4 of the Regional Trial Court (RTC), Judicial Region 7, Branch 13, Cebu City, in Civil
Case No. CEB 4218.

The Facts

Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of Rama
Avenue and Velez Street in Cebu City. Petitioner Soledad Dalton (Dalton), Clemente Sasam,
Romulo Villalonga, Miguela Villarente, Aniceta Fuentes, Perla Pormento, Bonifacio Cabajar, Ca
rmencita Yuson, Angel Ponce, Pedro Regudo, PedroQuebedo,
Mary Cabanlit, Marciana Encabo and Dolores Lim (Sasam, et al.) leased portions of the
property.

In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation
(FGR). In August 1985, Dayrit and FGR stopped accepting rental payments because they wanted
to terminate the lease agreements with Dalton and Sasam, et al.
In a complaint5 dated 11 September 1985, Dalton and Sasam, et al. consigned the rental
payments with the RTC. They failed to notify Dayrit and FGR about the consignation. In
motions dated 27 March 1987,6 10 November 1987,7 8 July 1988,8 and 28 November
1994,9 Dayrit and FGR withdrew the rental payments. In their motions, Dayrit and FGR reserved
the right to question the validity of the consignation.

Dayrit, FGR and Sasam, et al. entered into compromise agreements dated 25 March 199710 and
20 June 1997.11 In the compromise agreements, they agreed to abandon all claims against each
other. Dalton did not enter into a compromise agreement with Dayrit and FGR.

The RTC’s Ruling

In its 26 February 2002 Decision, the RTC dismissed the 11 September 1985 complaint and
ordered Dalton to vacate the property. The RTC held that:

Soledad Dalton built a house which she initially used as a dwelling and store space. She
vacated the premises when her children got married. She transferred her residence near F.
Ramos Public Market, Cebu City.

She constructed the 20 feet by 20 feet floor area house sometime in 1973. The last
monthly rental was P69.00. When defendants refused to accept rental and demanded
vacation of the premises, she consignated [sic] her monthly rentals in court.

xxxx

It is very clear from the facts that there was no valid consignation made.

The requisites of consignation are as follows:

1. The existence of a valid debt.

2. Valid prior tender, unless tender is excuse [sic];

3. Prior notice of consignation (before deposit)

4. Actual consignation (deposit);

5. Subsequent notice of consignation;

Requisite Nos. 3 and 5 are absent or were not complied with. It is very clear that there
were no prior notices of consignation (before deposit) and subsequent notices of
consignation (after deposit)

Besides, the last deposit was made on December 21, 1988. At the time Dalton testified on
December 22, 1999, she did not present evidence of payment in 1999. She had not,
therefore, religiously paid her monthly obligation.

By clear preponderance of evidence, defendants have established that plaintiff was no

longer residing at Eskina Banawa at the time she testified in court. She vacated her house
and converted it into a store or business establishment. This is buttressed by the
testimony of Rogelio Capacio, the court’s appointed commissioner, who submitted a
report, the full text of which reads as follows:

REPORT AND/OR OBSERVATION

“The store and/or dwelling subject to ocular inspection is stuated [sic] on the left portion
of the road which is about fifty-five (55) meters from the corner of Banawa-Guadalupe
Streets, when turning right heading towards the direction of Guadalupe Church, if
travelling from the Capitol Building.

I observed that when we arrived at the ocular inspection site, Mrs. Soledad Dalton with
the use of a key opened the lock of a closed door. She claimed that it was a part of the
 dwelling which she occupies and was utilized as a store. There were few saleable items
inside said space.”

Soledad Dalton did not take exception to the said report.

Two witnesses who were former sub-lessees testified and clearly established that Mrs.
Dalton use the house for business purposes and not for dwelling.12

Dalton appealed to the Court of Appeals.

The Court of Appeals’ Ruling

In its 9 November 2005 Decision, the Court of Appeals affirmed the RTC’s 26 February 2002
Decision. The Court of Appeals held that:

After a careful review of the facts and evidence in this case, we find no basis for
overturning the decision of the lower court dismissing plaintiffs-appellants’ complaint, as
we find that no valid consignation was made by the plaintiff-appellant.

Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and generally requires a
prior tender of payment. In order that consignation may be effective, the debtor must
show that: (1) there was a debt due; (2) the consignation of the obligation had been made
because the creditor to whom tender of payment was made refused to accept it, or
because he was absent or incapacitated, or because several persons claimed to be entitled
to receive the amount due or because the title to the obligation has been lost; (3) previous
notice of the consignation had been given to the person interested in the performance of
the obligation; (4) the amount due was placed at the disposal of the court; and (5) after
the consignation had been made the person interested was notified thereof. Failure in any
of these requirements is enough ground to render a consignation ineffective.

Consignation is made by depositing the proper amount to the judicial authority,

before whom the tender of payment and the announcement of the consignation shall be
proved. All interested parties are to be notified of the consignation. It had been
consistently held that compliance with these requisites is mandatory.
No error, therefore, can be attributed to the lower court when it held that the consignation
made by the plaintiff-appellant was invalid for failure to meet requisites 3 and 5 of a valid
consignation (i.e., previous notice of the consignation given to the person interested in the
performance of the obligation and, after the consignation had been made, the person
interested was notified thereof).

Plaintiff-appellant failed to notify defendants-appellees of her intention to consign the

amount due to them as rentals. She, however, justifies such failure by claiming that there
had been substantial compliance with the said requirement of notice upon the service of
the complaint on the defendants-appellees together with the summons.

We do not agree with such contention.

The prevailing rule is that substantial compliance with the requisites of a valid
consignation is not enough. In Licuanan vs. Diaz, reiterating the ruling
in Soco vs. Militante, the Supreme Court had the occasion to rule thus:

“In addition, it must be stated that in the case of Soco v. Militante (123 SCRA 160, 166-
167 [1983]), this Court ruled that the codal provisions of the Civil Code dealing with
consignation (Articles 1252-1261) should be accorded mandatory construction —

We do not agree with the questioned decision. We hold that the essential requisites of a
valid consignation must be complied with fully and strictly in accordance with the
law. Articles 1256-1261, New Civil Code. That these Articles must be accorded a
mandatory construction is clearly evident and plain from the very language of
the codal provisions themselves which require absolute compliance with the essential
requisites therein provided. Substantial compliance is not enough for that would render
only directory construction of the law. The use of the words “shall” and “must [sic]
which are imperative, operating to impose a duty which may be enforced, positively
indicated that all the essential requisites of a valid consignation must be complied with.
The Civil Code Articles expressly and explicitly direct what must be essentially done in
order that consignation shall be valid and effectual...”

Clearly then, no valid consignation was made by the plaintiff-appellant for she did not
give notice to the defendants-appellees of her intention to so consign her rental payments.
 Without any announcement of the intention to resort to consignation first having been
made to persons interested in the fulfillment of the obligation, the consignation as a
means of payment is void.

As to the other issues raised by the plaintiff-appellant in her second and third assigned
errors, we hold that the ruling of the lower court on such issues is supported by the
evidence adduced in this case.

That plaintiff-appellant is not residing at the leased premises in Eskina Banawa and that
she is using the same for business purposes, not as dwelling place, is amply supported by
the testimony of two of plaintiff-appellant’s sub-lessees. The Commissioner’s Report
submitted by Rogelio Capacio, who was commissioned by the lower court to conduct an
ocular inspection of the leased premises, further lends support to the lower court’s
findings. On the other hand, plaintiff-appellant only has her self-serving claims that she is
residing at the leased premises in Eskina Banawa to prove her continued use of the leased
premises as dwelling place.

There is thus no merit to plaintiff-appellant’s fourth assigned error. The lower court acted
within its authority in ordering the plaintiff-appellant to vacate the leased premises. The
evidence shows that plaintiff-appellant had failed to continuously pay the rentals due to
the defendants-appellees. It was therefore within the powers of the lower court to grant
such other relief and remedies equitable under the circumstances.

In sum, there having been no valid consignation and with the plaintiff-appellant having
failed to pay the rentals due to the defendants-appellees, no error can be attributed to the
lower court in rendering its assailed decision.13

Hence, the present petition. Dalton raises as issues that the Court of Appeals erred in ruling that
(1) the consignation was void, and (2) Dalton failed to pay rent.

The Court’s Ruling

The petition is unmeritorious.

Dalton claims that, “the issue as to whether the consignation made by the petitioner is valid or
not for lack of notice has already been rendered moot and academic with the withdrawal by the
private respondents of the amounts consigned and deposited by the petitioner as rental of the
subject premises.”14

The Court is not impressed. First, in withdrawing the amounts consigned, Dayrit and FGR
expressly reserved the right to question the validity of the consignation. InRiesenbeck v. Court of
Appeals,15 the Court held that:

A sensu contrario, when the creditor’s acceptance of the money consigned is

conditional and with reservations, he is not deemed to have waived the claims he
reserved against his debtor. Thus, when the amount consigned does not cover the entire
obligation, the creditor may accept it, reserving his right to the balance (Tolentino, Civil
Code of the Phil., Vol. IV, 1973 Ed., p. 317, citing 3 Llerena 263). The same factual
milieu obtains here because the respondent creditor accepted with reservation the
amount consigned in court by the petitioner-debtor. Therefore, the creditor is not
barred from raising his other claims, as he did in his answer with special defenses and
counterclaim against petitioner-debtor.

As respondent-creditor’s acceptance of the amount consigned was with reservations, it

did not completely extinguish the entire indebtedness of the petitioner-debtor. It is
apposite to note here that consignation is completed at the time the creditor accepts
the same without objections, or, if he objects, at the time the court declares that it
has been validly made in accordance with law.16 (Emphasis supplied)

Second, compliance with the requisites of a valid consignation is mandatory. Failure to comply
strictly with any of the requisites will render the consignation void. Substantial compliance is not
enough.

In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc.,17 the Court enumerated the
requisites of a valid consignation: (1) a debt due; (2) the creditor to whom tender of payment was
made refused without just cause to accept the payment, or the creditor was absent, unknown or
incapacitated, or several persons claimed the same right to collect, or the title of the obligation
was lost; (3) the person interested in the performance of the obligation was given notice
before consignation was made; (4) the amount was placed at the disposal of the court; and
(5) the person interested in the performance of the obligation was given notice after the
consignation was made.

Articles 1257 and 1258 of the Civil Code state, respectively:

 Art. 1257. In order that the consignation of the thing due may release the obligor, it
must first be announced to the persons interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the
provisions which regulate payment.

Art. 1258. Consignation shall be made by depositing the things due at the disposal of
judicial authority, before whom the tender of payment shall be proved, in a proper case,
and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified
thereof. (Emphasis supplied)

The giving of notice to the persons interested in the performance of the obligation is mandatory.
Failure to notify the persons interested in the performance of the obligation will render the
consignation void. In Ramos v. Sarao,18 the Court held that, “All interested parties are to be
notified of the consignation. Compliance with [this requisite] is
mandatory.”19 In Valdellon v. Tengco,20 the Court held that:

Under Art. 1257 of our Civil Code, in order that consignation of the thing due may
release the obligor, it must first be announced to the persons interested in
the fulfillment of the obligation. The consignation shall be ineffectual if it is not
made strictly in consonance with the provisions which regulate payment. In said
Article 1258, it is further stated that the consignation having been made, the
interested party shall also be notified thereof.21 (Emphasis supplied)

In Soco v. Militante, et al.,22 the Court held that:

We hold that the essential requisites of a valid consignation must be complied with
fully and strictly in accordance with the law, Articles 1256 to 1261, New Civil Code.
That these Articles must be accorded a mandatory construction is clearly evident and
plain from the very language of the codal provisions themselves which require absolute
compliance with the essential requisites therein provided. Substantial compliance is not
 enough for that would render only a directory construction to the law. The use of the
words “shall” and “must” which are imperative, operating to impose a duty which may be
enforced, positively indicate that all the essential requisites of a valid consignation must
be complied with. The Civil Code Articles expressly and explicitly direct what must
be essentially done in order that consignation shall be valid and
effectual.23 (Emphasis supplied)

Dalton claims that the Court of Appeals erred in ruling that she failed to pay rent. The Court is
not impressed. Section 1, Rule 45 of the Rules of Court states that petitions for review on
certiorari “shall raise only questions of law which must be distinctly set
forth.” In Pagsibigan v. People,24 the Court held that:

A petition for review under Rule 45 of the Rules of Court should cover only questions of
law. Questions of fact are not reviewable. A question of law exists when the
doubt centers on what the law is on a certain set of facts. A question of fact exists when
the doubt centers on the truth or falsity of the alleged facts.

There is a question of law if the issue raised is capable of being resolved without need of
reviewing the probative value of the evidence. The issue to be resolved must be limited to
determining what the law is on a certain set of facts. Once the issue invites a review of
the evidence, the question posed is one of fact.25

Whether Dalton failed to pay rent is a question of fact. It is not reviewable.

The factual findings of the lower courts are binding on the Court. The exceptions to this rule are
(1) when there is grave abuse of discretion; (2) when the findings are grounded on speculation;
(3) when the inference made is manifestly mistaken; (4) when the judgment of the Court of
Appeals is based on a misapprehension of facts; (5) when the factual findings are conflicting; (6)
when the Court of Appeals went beyond the issues of the case and its findings are contrary to the
admissions of the parties; (7) when the Court of Appeals overlooked undisputed facts which, if
properly considered, would justify a different conclusion; (8) when the facts set forth by the
petitioner are not disputed by the respondent; and (9) when the findings of the Court of Appeals
are premised on the absence of evidence and are contradicted by the evidence on record.26Dalton
did not show that any of these circumstances is present.

WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 9 November 2005
Decision and 10 April 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 76536.
SO ORDERED.

11. G.R. No. 72703 November 13, 1992

CALTEX (PHILIPPINES), INC., petitioner,

vs.
THE INTERMEDIATE APPELLATE COURT and ASIA PACIFIC AIRWAYS,
INC., respondents.

BIDIN, J.:

This is a petition for certiorari seeking the annulment of the decision dated August 27,1985 of
the then Intermediate Appellate Court in CA-G.R. No. 02684, which reversed the judgment of
the trial court and ordered petitioner to return the amount of P510, 550.63 to private respondent
plus interest at the legal rate of 14% per annum.

The facts of the case are as follows:

On January 12, 1978, private respondent Asia Pacific Airways Inc., entered into an agreement
with petitioner Caltex (Philippines) Inc., whereby petitioner agreed to supply private
respondent's aviation fuel requirements for two (2) years, covering the period from January 1,
1978 until December 31, 1979. Pursuant thereto, petitioner supplied private respondent's fuel
supply requirements. As of June 30, 1980, private respondents had an outstanding obligation to
petitioner in the total amount of P4,072,682.13, representing the unpaid price of the fuel
supplied. To settle this outstanding obligation, private respondent executed a Deed of
Assignment dated July 31, 1980, wherein it assigned to petitioner its receivables or refunds of
Special Fund Import Payments from National Treasury of the Philippines to be applied as
payment of the amount of P4,072,682.13 which private respondent owed to petitioner. On
February 12, 1981, pursuant to the Deed of Assignment, Treasury Warrant No. B04708613 in the
amount of P5,475,294.00 representing the refund to respondent of Special Fund Import Payment
on its fuel purchases was issued by the National Treasury in favor of the petitioner. Four days
later, on February 16, 1981, private respondent, having learned that the amount remitted to
petitioner exceeded the amount covered by the Deed of Assignment, wrote a letter to petitioner,
requesting a refund in the amount of P900,000.00 plus in favor of private respondent. The latter,
believing that it was entitled to a larger amount by way of refund, wrote a petitioner anew,
demanding the refund of the remaining amount. In response thereto, petitioner informed private
respondent that the amount not returned (P510,550.63) represented interest and service charges
at the rate of 18% per annum on the unpaid and overdue account of respondent from June 1,
1980 to July 31, 1981.

Thus, on September 13, 1982, private respondent filed a complaint against petitioner in the
Regional Trial Court of Manila, to collect the sum of P510,550.63.00.
Petitioner (defendant in the trial court) filed its answer, reiterating that the amount not returned
represented interest and service charges on the unpaid and overdue account at the rate of
18% per annum. It was further alleged that the collection of said interest and service charges is
sanctioned by law, and is in accordance with the terms and conditions of the sale of petroleum
products to respondent, which was made with the conformity of said private respondent who had
accepted the validity of said interest and service charges.

On November 7, 1983, the trial court rendered its decision dismissing the complaint, as well as
the counterclaim filed by defendant therein.

Private respondent (plaintiff) appealed to the Intermediate Appellate Court (IAC). On August 27,
1985, a decision was rendered by the said appellate court reversing the decision of the trial court,
and ordering petitioner to return the amount of P510,550.63 to private respondent.

Counsel for petitioner received a copy of the appellate court's decision on September 6, 1985. On
September 20, 1985 or 14 days after receipt of the aforesaid decision, an Urgent Motion for
extension of five days within which to file a motion for reconsideration was filed by petitioner.
On September 26, 1985, the Motion for Reconsideration was filed. The following day, petitioner
filed a motion to set the motion for reconsideration for hearing.

In a Resolution dated October 24, 1985, the appellate court denied the aforesaid three motions.
The first motion praying for an extension of five days within which to file a motion for
reconsideration was denied by the appellate court citing the new ruling of the Supreme Court in
Habaluyas Enterprises Inc. vs. Japzon (138 SCRA 46 [1985]) as authority. The appellate court,
following said ruling, held that the 15-day period for filing a motion for reconsideration cannot
be extended. Thus, the motion for reconsideration filed on September 26, 1985 was stricken from
the record, having been filed beyond the non-extensible 15-day reglementary period. The third
motion was likewise denied for being moot and academic.

On November 4, 1985, the prevailing party (respondent herein) filed Urgent Motion for Entry of
Judgment. Two days latter, or on November 6, 1985, the petitioner filed a Motion for
Reconsideration of the Resolution dated October 24, 1985.

The appellate court in a Resolution dated November 12, 1985 granted the motion for entry of
judgment filed by private respondent. It directed the entry of judgment and ordered the remand
of the records of the case to the court of origin for execution.

On November 14, 1985, petitioner, without waiting for the resolution of the appellate court in the
urgent motion for reconsideration it filed on November 6, 1985, filed the instant petition to annul
and set aside the resolution of the appellate court dated October 24, 1985 which denied the
Motion for Reconsideration of its decision dated August 27, 1985.

In a motion dated November 21, 1985, petitioner prayed of the issuance of temporary restraining
order to enjoin the appellate court from remanding the records of the case for execution of the
judgment. The petitioner also filed a Supplement to Petition for Certiorari, dated November 21,
1985.

In a Resolution dated November 27, 1985, this Court, acting on the petition, required private
respondent to file its Comment; granted the prayer of the petitioner in his urgent motion, and a
temporary restraining order was issued enjoining the appellate court from remanding the records
of the case for execution of judgment.

Private respondent filed its COMMENT dated December 14, 1985.

In a Resolution dated January 27, 1986, the Court resolved to give due course to the petition, and
required the parties to submit their memoranda. In compliance with the said Resolution, the
parties filed their respective memoranda.

On August 15, 1986, petitioner filed a Motion to Remand Records to the Court of Appeals in
view of the resolution of this Court dated May 30, 1986 in the Habaluyas case which considered
and set aside its decision dated August 5, 1985 by giving it prospective application beginning
one month after the promulgation of the said resolution. This motion was opposed by private
respondent. On September 22, 1986, petitioner filed its Reply to Opposition to which private
respondent filed its rejoinder. In a Resolution dated December 3, 1986, the motion to remand
records was denied.

Petitioner's Brief raised six (6) assignment of errors, to wit:

I.

THE IAC ERRED IN APPLYING THE NEW POLICY OF NOT GRANTING

ANY EXTENSION OF TIME TO FILE MOTION FOR RECONSIDERATION.

II.

THE IAC ERRED IN RULING THAT THE OBLIGATION OF RESPONDENT

WAS LIMITED TO P4,072,682.13 NOTWITHSTANDING THAT FACT THAT
THE DEED OF ASSIGNMENT (THE CONTRACT SUED UPON) ITSELF
EXPRESSLY AND REPEATEDLY SPEAKS OF RESPONDENT'S
OBLIGATION AS "THE AMOUNT OF P4,072,682.13 AS JUNE 30, 1980
PLUS APPLICABLE INTEREST CHARGES ON OVERDUE ACCOUNT AND
OTHER AVTURBO FUEL LIFTING AND DELIVERIES THAT ASSIGNOR
MAY FROM TIME TO TIME RECEIVE FROM ASSIGNEE."

III.

THE IAC ERRED IN RULING THAT THE DEED OF ASSIGNMENT

SATISFIES THE REQUISITES OF DATION IN PAYMENT (WHICH HAS
THE EFFECT OF IMMEDIATE EXTINGUISHMENT OF THE OBLIGATION)
DESPITE THE FACT THAT SAID DEED OF ASSIGNMENT (1) COVERS
FUTURE OBLIGATION FOR "APPLICABLE INTEREST CHARGES ON
OVER DUE ACCOUNT AND OTHER AVTURBO FUEL LIFTING THE
DELIVERIES THAT ASSIGNOR MAY FROM TIME TO TIME RECEIVE
FROM ASSIGNEES" AND (2) INCLUDES AN EXPRESS RESERVATION BY
ASSIGNEE TO DEMAND FULL PAYMENT OF THE OBLIGATIONS OF
THE ASSIGNOR "IN CASE OF UNREASONABLE DELAY OR NON-
RECEIPT OF ASSIGNEE OF THE AFOREMENTIONED FUNDS AND/OR
 REFUND OF SPECIAL FUND IMPORT PAYMENT FROM THE
GOVERNMENT DUE TO ANY CAUSE OR REASON WHATSOEVER.

IV.

THE IAC ERRED IN FAILING TO TAKE INTO ACCOUNT THE

CONTEMPORANEOUS AND SUBSEQUENT ACTS OF THE PARTIES
WHICH ALSO CLEARLY SHOW THAT THEY DID NOT INTEND THE
DEED OF ASSIGNMENT TO HAVE EFFECT OF DATION IN PAYMENT.

V.

IF THE DEED OF ASSIGNMENT HAD THE EFFECT OF A DATION IN

PAYMENT, THEN THE IAC ERRED IN NOT RULING THAT PETITIONER
HAS A RIGHT TO RETAIN THE ENTIRE CREDIT ASSIGNED TO IT IN
LIEU OF PAYMENT OF RESPONDENT'S OBLIGATION INSTEAD OF
BEING REQUIRED TO RETURN PORTION OF THE CREDIT WHICH IS
CLAIMED TO BE IN EXCESS OF RESPONDENT'S OBLIGATION.

VI.

ASSUMING THAT PETITIONER IS LIABLE TO MAKE A RETURN OF A

PORTION OF THE CREDIT ASSIGNED, THE IAC ERRED IN AWARDING
"INTEREST AT THE LEGAL RATE OF 14% PER ANNUM FROM THE
FILING OF THE LEGAL OF THE COMPLAINT."

We find merit in the instant petition.

The two vital issues presented to the Court for resolution are, as follows:

1. Whether or not the Urgent Motion for Extension of Time to File a Motion for Reconsideration
filed by petitioner on September 20, 1985, as well as the Motion for Reconsideration filed on
September 26, 1985 (within the period of extension prayed for), may be validly granted; and

2. Whether or not the Deed of Assignment entered into by the parties herein on July 31, 1980
constituted dacion en pago, as ruled by the appellate court, such that the obligation is totally
extinguished, hence after said date, no interest and service charges could anymore be imposed on
private respondent, so that petitioner was not legally authorized to deduct the amount of
P510,550.63 as interest and service charges on the unpaid and overdue accounts of private
respondent.

Anent the first issue, we rule in the affirmative.

We held in the case of Habaluyas Enterprises, Inc., et. al. vs. Japson et. al. (138 SCRA 46
[1985], promulgated August 5, 1985), that the "15-day period for appealing or for filing a motion
for reconsideration cannot be extended". Subsequently, the Court, acting on respondent's motion
for reconsideration in the same entitled case (142 SCRA 208 [1986]), restated and clarified the
rule on this point for the guidance of the Bench and Bar by giving the rule prospective
application in its resolution dated May 30, 1986;
 After considering the able arguments of counsels for petitioners and respondents,
the Court resolved that the interest of justice would be better served if the ruling
in the original decision were applied prospectively from the time herein stated.
The reason is that it would be unfair to deprive parties of the right to appeal
simply because they availed themselves of a procedure which was not expressly
prohibited or allowed by the law or the Rules. On the otherhand, a motion for new
trial or reconsideration is not a pre-requisite to an appeal, a petition for review or
a petition for review oncertiorari, and since the purpose of the amendments above
referred to is to expedite the final disposition of cases, a strict but prospective
application of the said ruling is in order. Hence, for the guidance of the Bench and
Bar, the Court restates and clarifies the rules on this point, as follows.

1.) Beginning one month after the promulgation of this Resolution, the rule shall
be strictly enforced that no motion for extension of time to file a motion for new
trial or reconsideration may be filed with the Metropolitan or Municipal Trial
Courts, the Regional Trial Courts, and the Intermediate Appellate Court. Such a
motion may be filed only in cases pending with the Supreme Court as the court of
last resort, which may in its sound discretion either grant or deny the extension
requested.

In Singh vs. IAC, (148 SCRA 277 [1987]), this Court applying the aforesaid ruling in the
Habaluyas case, held.

In other words, there is one month grace period from the promulgation on May
30, 1986, of the Court's Resolution in the clarificatory Habaluyas case, or up to
June 30, 1986, within which the rule barring extensions of time to file motions for
reconsideration is, as yet, not strictly enforceable (Bayaca vs. IAC, G.R. No.
78424, September 15, 1986).

Since petitioners herein filed their Motion for Extension on August 6, 1985, it was
still within the grace period, which expired on June 30, 1986, and may still be
allowed.

Similarly, when petitioner herein filed its Motion for Extension of time to file motion for
reconsideration on September 20, 1985, the said motion was filed within the one-month grace
period, which expired on June 30, 1986, and may still be allowed. Consequently, the Motion for
Reconsideration filed by petitioner on September 26, 1985, was also filed on time.

With respect to the second issue, We rule that the Deed of Assignment executed by the parties on
July 31, 1980 is not a dation in payment and did not totally extinguish respondent's obligation as
stated therein.

The then Intermediate Appellate Court ruled that the three (3) requisites dacion en pago * are all
present in the instant case, and concluded that the Deed of Assignment of July 31, 1980 (Annex
"C" of Partial Stipulation of Facts) constitutes a dacion in payment provided for in Article
1245 ** of the Civil Code which has the effect of extinguishing the obligation, thus supporting
the claim of private respondent for the return of the amount retained by petitioner.
This Court, speaking of the concept of dation in payment, in the case of Lopez vs. Court of
Appeals (114 SCRA 671, 685 [1982]), among others, stated:

The dation in payment extinguishes the obligation to the extent of the value of the
thing delivered, either as agreed upon by the parties or as may be proved, unless
the parties by agreement, express or implied, or by their silence, consider the
thing as equivalent to the obligation, in which case the obligation is totally
extinguished. (8 Manresa 324; 3 Valverde 174 fn.)

From the above, it is clear that a dation in payment does not necessarily mean total
extinguishment of the obligation. The obligation is totally extinguished only when the parties, by
agreement, express or implied, or by their silence, consider the thing as equivalent to the
obligation.

In the instant case, the then Intermediate Appellate Court failed to take into account the
following express recitals of the Deed of Assignment —

That Whereas, ASSIGNOR has an outstanding obligation with ASSIGNEE in the

amount of P4,072,682.13 as of June 30, 1980, plus any applicable interest on
overdue account. (p. 2, Deed of Assignment)

Now therefore in consideration of the foregoing premises, ASSIGNOR by virtue

of these presents, does hereby irrevocably assign and transfer unto ASSIGNEE
any and all funds and/or Refund of Special Fund Payments, including all its rights
and benefits accruing out of the same, that ASSIGNOR might be entitled to, by
virtue of and pursuant to the decision in BOE Case No. 80-123, in payment of
ASSIGNOR's outstanding obligation plus any applicable interest charges on
overdue account and other avturbo fuel lifting and deliveries that ASSIGNOR
may from time to time receive from the ASSIGNEE, and ASSIGNEE does hereby
accepts such assignment in its favor. (p. 2, Deed of Assignment) (Emphasis
supplied)

Hence, it could easily be seen that the Deed of Assignment speaks of three (3) obligations — (1)
the outstanding obligation of P4,072,682.13 as of June 30, 1980; (2) the applicable interest
charges on overdue accounts; and (3) the other avturbo fuel lifting and deliveries that assignor
(private respondent) may from time to time receive from assignee (Petitioner). As aptly argued
by petitioner, if it were the intention of the parties to limit or fix respondent's obligation to
P4,072.682.13; they should have so stated and there would have been no need for them to qualify
the statement of said amount with the clause "as of June 30, 1980 plus any applicable interest
charges on overdue account" and the clause "and other avturbo fuel lifting and deliveries that
ASSIGNOR may from time to time receive from the ASSIGNEE". The terms of the Deed of
Assignment being clear, the literal meaning of its stipulations should control (Art. 1370, Civil
Code). In the construction of an instrument where there are several provisions or particulars,
such a construction is, if possible, to be adopted as will give effect to all (Rule 130, Sec. 9, Rules
of Court).

Likewise, the then Intermediate Appellate Court failed to take into consideration the subsequent
acts of the parties which clearly show that they did not intend the Deed of Assignment to totally
extinguish the obligation — (1) After the execution of the Deed of Assignment on July 31, 1980,
petitioner continued to charge respondent with interest on its overdue account up to January 31,
1981 (Annexes "H", "I", "J" and "K" of the Partial Stipulation of Facts). This was pursuant to the
Deed of Assignment which provides for respondent's obligation for "applicable interest charges
on overdue account." The charges for interest were made every month and not once did
respondent question or take exception to the interest; and (2) In its letter of February 16, 1981
(Annex "J", Partial Stipulation of Facts), respondent addressed the following request to
petitioner;

Moreover, we would also like to request for a consideration in the following

1. Interest charges be limited up to December 31, 1980 only; and

2. Reduction of 2% of 18% interest rate p.a.

We are hoping for your usual kind consideration on this matter.

In order to judge the intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered (Art. 1253, Civil Code). The foregoing subsequent acts of the
parties clearly show that they did not intend the Deed of Assignment to have the effect of totally
extinguishing the obligations of private respondent without payment of the applicable interest
charges on the overdue account.

Finally, the payment of applicable interest charges on overdue account, separate from the
principal obligation of P4,072.682.13 was expressly stipulated in the Deed of Assignment. The
law provides that "if the debt produces interest, payment of the principal shall not be deemed to
have been made until the interests have been covered." (Art. 1253, Civil Code).

WHEREFORE, the decision of the then Intermediate Appellate Court dated August 27, 1985 is
hereby SET ASIDE, and the November 7, 1983 decision of the trial court is REINSTATED.

SO ORDERED.

12. G.R. No. L-46658 May 13, 1991

PHILIPPINE NATIONAL BANK, petitioner,

vs.
HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First
Instance of Rizal, Branch XXI and TAYABAS CEMENT COMPANY, INC., respondents.

The Chief Legal Counsel for petitioner.

Ortille Law Office for private respondent.

FERNAN, C.J.:p

In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks to annul and set
aside the orders dated March 4, 1977 and May 31, 1977 rendered in Civil Case No. 24422 1 of
the Court of First Instance of Rizal, Branch XXI, respectively granting private respondent
Tayabas Cement Company, Inc.'s application for a writ of preliminary injunction to enjoin the
foreclosure sale of certain properties in Quezon City and Negros Occidental and denying
petitioner's motion for reconsideration thereof.

In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained a
loan of P580,000.00 from petitioner bank to purchase 60% of the subscribed capital stock, and
thereby acquire the controlling interest of private respondent Tayabas Cement Company, Inc.
(TCC). 2 As security for said loan, the spouses Arroyo executed a real estate mortgage over a
parcel of land covered by Transfer Certificate of Title No. 55323 of the Register of Deeds of
Quezon City known as the La Vista property.

Thereafter, TCC filed with petitioner bank an application and agreement for the establishment of
an eight (8) year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka
Kaisha, Ltd. of Tokyo, Japan, to cover the importation of a cement plant machinery and
equipment.

Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka
Kaisha, Ltd. for the account of TCC, the Arroyo spouses executed the following documents to
secure this loan accommodation: Surety Agreement dated August 5, 1964 3 and Covenant dated
August 6, 1964. 4

The imported cement plant machinery and equipment arrived from Japan and were released to
TCC under a trust receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the
corresponding drawings against the L/C as scheduled. TCC, however, failed to remit and/or pay
the corresponding amount covered by the drawings. Thus, on May 19, 1968, pursuant to the trust
receipt agreement, PNB notified TCC of its intention to repossess, as it later did, the imported
machinery and equipment for failure of TCC to settle its obligations under the L/C. 5

In the meantime, the personal accounts of the spouses Arroyo, which included another loan of
P160,000.00 secured by a real estate mortgage over parcels of agricultural land known as
Hacienda Bacon located in Isabela, Negros Occidental, had likewise become due. The spouses
Arroyo having failed to satisfy their obligations with PNB, the latter decided to foreclose the real
estate mortgages executed by the spouses Arroyo in its favor.

On July 18, 1975, PNB filed with the City Sheriff of Quezon City a petition for extra-judicial
foreclosure under Act 3138, as amended by Act 4118 and under Presidential Decree No. 385 of
the real estate mortgage over the properties known as the La Vista property covered by TCT No.
55323. 6 PNB likewise filed a similar petition with the City Sheriff of Bacolod, Negros
Occidental with respect to the mortgaged properties located at Isabela, Negros Occidental and
covered by OCT No. RT 1615.

The foreclosure sale of the La Vista property was scheduled on August 11, 1975. At the auction
sale, PNB was the highest bidder with a bid price of P1,000,001.00. However, when said
property was about to be awarded to PNB, the representative of the mortgagor-spouses objected
and demanded from the PNB the difference between the bid price of P1,000,001.00 and the
indebtedness of P499,060.25 of the Arroyo spouses on their personal account. It was the
contention of the spouses Arroyo's representative that the foreclosure proceedings referred only
to the personal account of the mortgagor spouses without reference to the account of TCC.
To remedy the situation, PNB filed a supplemental petition on August 13, 1975 requesting the
Sheriff's Office to proceed with the sale of the subject real properties to satisfy not only the
amount of P499,060.25 owed by the spouses Arroyos on their personal account but also the
amount of P35,019,901.49 exclusive of interest, commission charges and other expenses owed
by said spouses as sureties of TCC. 7 Said petition was opposed by the spouses Arroyo and the
other bidder, Jose L. Araneta.

On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff Diana L. Dungca issued a
resolution finding that the questions raised by the parties required the reception and evaluation of
evidence, hence, proper for adjudication by the courts of law. Since said questions were
prejudicial to the holding of the foreclosure sale, she ruled that her "Office, therefore, cannot
properly proceed with the foreclosure sale unless and until there be a court ruling on the
aforementioned issues." 8

Thus, in May, 1976, PNB filed with the Court of First Instance of Quezon City, Branch V a
petition for mandamus 9against said Diana Dungca in her capacity as City Sheriff of Quezon City
to compel her to proceed with the foreclosure sale of the mortgaged properties covered by TCT
No. 55323 in order to satisfy both the personal obligation of the spouses Arroyo as well as their
liabilities as sureties of TCC. 10

On September 6, 1976, the petition was granted and Dungca was directed to proceed with the
foreclosure sale of the mortgaged properties covered by TCT No. 55323 pursuant to Act No.
3135 and to issue the corresponding Sheriff's Certificate of Sale. 11

Before the decision could attain finality, TCC filed on September 14, 1976 before the Court of
First Instance of Rizal, Pasig, Branch XXI a
complaint 12 against PNB, Dungca, and the Provincial Sheriff of Negros Occidental and Ex-
Officio Sheriff of Bacolod City seeking, inter alia, the issuance of a writ of preliminary
injunction to restrain the foreclosure of the mortgages over the La Vista property and Hacienda
Bacon as well as a declaration that its obligation with PNB had been fully paid by reason of the
latter's repossession of the imported machinery and equipment. 13

On October 5, 1976, the CFI, thru respondent Judge Gregorio Pineda, issued a restraining
order 14 and on March 4, 1977, granted a writ of preliminary injunction. 15 PNB's motion for
reconsideration was denied, hence this petition.

Petitioner PNB advances four grounds for the setting aside of the writ of preliminary injunction,
namely: a) that it contravenes P.D. No. 385 which prohibits the issuance of a restraining order
against a government financial institution in any action taken by such institution in compliance
with the mandatory foreclosure provided in Section 1 thereof; b) that the writ countermands a
final decision of a co-equal and coordinate court; c) that the writ seeks to prohibit the
performance of acts beyond the court's territorial jurisdiction; and, d) private respondent TCC
has not shown any clear legal right or necessity to the relief of preliminary injunction.

Private respondent TCC counters with the argument that P.D. No. 385 does not apply to the case
at bar, firstly because no foreclosure proceedings have been instituted against it by PNB and
secondly, because its account under the L/C has been fully satisfied with the repossession of the
imported machinery and equipment by PNB.
The resolution of the instant controversy lies primarily on the question of whether or not TCC's
liability has been extinguished by the repossession of PNB of the imported cement plant
machinery and equipment.

We rule for the petitioner PNB. It must be remembered that PNB took possession of the
imported cement plant machinery and equipment pursuant to the trust receipt agreement
executed by and between PNB and TCC giving the former the unqualified right to the possession
and disposal of all property shipped under the Letter of Credit until such time as all the liabilities
and obligations under said letter had been discharged. 16 In the case of Vintola vs. Insular Bank
of Asia and America 17 wherein the same argument was advanced by the Vintolas as entrustees of
imported seashells under a trust receipt transaction, we said:

Further, the VINTOLAS take the position that their obligation to IBAA has been
extinguished inasmuch as, through no fault of their own, they were unable to
dispose of the seashells, and that they have relinquished possession thereof to the
IBAA, as owner of the goods, by depositing them with the Court.

The foregoing submission overlooks the nature and mercantile usage of the
transaction involved. A letter of credit-trust receipt arrangement is endowed with
its own distinctive features and characteristics. Under that set-up, a bank extends a
loan covered by the Letter of Credit, with the trust receipt as a security for the
loan. In other words, the transaction involves a loan feature represented by the
letter of credit, and a security feature which is in the covering trust receipt.

xxx xxx xxx

A trust receipt, therefore, is a security agreement, pursuant to which a bank

acquires a "security interest" in the goods. It secures an indebtedness and there
can be no such thing as security interest that secures no obligation. As defined in
our laws:

(h) "Security interest" means a property interest in goods,

documents or instruments to secure performance of some
obligations of the entrustee or of some third persons to the
entruster and includes title, whether or not expressed to be
absolute, whenever such title is in substance taken or retained for
security only.

xxx xxx xxx

Contrary to the allegation of the VINTOLAS, IBAA did not become the real
owner of the goods. It was merely the holder of a security title for the advances it
had made to the VINTOLAS. The goods the VINTOLAS had purchased through
IBAA financing remain their own property and they hold it at their own risk. The
trust receipt arrangement did not convert the IBAA into an investor; the latter
remained a lender and creditor.

xxx xxx xxx

 Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot
justifiably claim that because they have surrendered the goods to IBAA and
subsequently deposited them in the custody of the court, they are absolutely
relieved of their obligation to pay their loan because of their inability to dispose of
the goods. The fact that they were unable to sell the seashells in question does not
affect IBAA's right to recover the advances it had made under the Letter of Credit.

PNB's possession of the subject machinery and equipment being precisely as a form of security
for the advances given to TCC under the Letter of Credit, said possession by itself cannot be
considered payment of the loan secured thereby. Payment would legally result only after PNB
had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan
obligation. Mere possession does not amount to foreclosure for foreclosure denotes the
procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and
includes the sale itself. 18

Neither can said repossession amount to dacion en pago. Dation in payment takes place when
property is alienated to the creditor in satisfaction of a debt in money and the same is governed
by sales. 19 Dation in payment is the delivery and transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of the obligation. 20 As
aforesaid, the repossession of the machinery and equipment in question was merely to secure the
payment of TCC's loan obligation and not for the purpose of transferring ownership thereof to
PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished.

Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the
spouses Arroyo as sureties of TCC. A surety is considered in law as being the same party as the
debtor in relation to whatever is adjudged touching the obligation of the latter, and their
liabilities are interwoven as to be inseparable. 21 As sureties, the Arroyo spouses are primarily
liable as original promissors and are bound immediately to pay the creditor the amount
outstanding. 22

Under Presidential Decree No. 385 which took effect on January 31, 1974, government financial
institutions like herein petitioner PNB are required to foreclose on the collaterals and/or
securities for any loan, credit or accommodation whenever the arrearages on such account
amount to at least twenty percent (20%) of the total outstanding obligations, including interests
and charges, as appearing in the books of account of the financial institution concerned. 23 It is
further provided therein that "no restraining order, temporary or permanent injunction shall be
issued by the court against any government financial institution in any action taken by such
institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether
such restraining order, temporary or permanent injunction is sought by the borrower(s) or any
third party or parties . . ." 24

It is not disputed that the foreclosure proceedings instituted by PNB against the Arroyo spouses
were in compliance with the mandate of P.D. 385. This being the case, the respondent judge
acted in excess of his jurisdiction in issuing the injunction specifically proscribed under said
decree.

Another reason for striking down the writ of preliminary injunction complained of is that it
interfered with the order of a co-equal and coordinate court. Since Branch V of the CFI of Rizal
had already acquired jurisdiction over the question of foreclosure of mortgage over the La Vista
property and rendered judgment in relation thereto, then it retained jurisdiction to the exclusion
of all other coordinate courts over its judgment, including all incidents relative to the control and
conduct of its ministerial officers, namely the sheriff thereof. 25 The foreclosure sale having been
ordered by Branch V of the CFI of Rizal, TCC should not have filed injunction proceedings with
Branch XXI of the same CFI, but instead should have first sought relief by proper motion and
application from the former court which had exclusive jurisdiction over the foreclosure
proceeding. 26

This doctrine of non-interference is premised on the principle that a judgment of a court of

competent jurisdiction may not be opened, modified or vacated by any court of concurrent
jurisdiction. 27

Furthermore, we find the issuance of the preliminary injunction directed against the Provincial
Sheriff of Negros Occidental and ex-officio Sheriff of Bacolod City a jurisdictional faux pas as
the Courts of First Instance, now Regional Trial Courts, can only enforce their writs of injunction
within their respective designated territories. 28

WHEREFORE, the instant petition is hereby granted. The assailed orders are hereby set aside.
Costs against private respondent.

Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur.

13. G.R. No. L-50638 July 25, 1983

LORETO J. SOLINAP, petitioner,

vs.
HON. AMELIA K. DEL ROSARIO, as Presiding Judge of Branch IV, Court of First
Instance of Iloilo, SPOUSES JUANITO and HARDEVI R. LUTERO, and THE
PROVINCIAL SHERIFF OF ILOILO, respondents.

Espeleta & Orleans Law Office for petitioner.

Simplicia Magahum, Offemaria & Sixto Demaisip Law Office for private respondents.

ESCOLIN; J.:

Posed for resolution in this petition is the issue of whether or not the obligation of petitioners to
private respondents may be compensated or set- off against the amount sought to be recovered in
an action for a sum of money filed by the former against the latter.

The facts are not disputed. On June 2, 1970, the spouses Tiburcio Lutero and Asuncion
Magalona, owners of the Hacienda Tambal, leased the said hacienda to petitioner Loreto Solinap
for a period of ten [10] years for the stipulated rental of P50,000.00 a year. It was further agreed
in the lease contract that out of the aforesaid annual rental, the sum of P25,000.00 should be paid
by Solinap to the Philippine National Bank to amortize the indebtedness of the spouses Lutero
with the said bank.
Tiburcio Lutero died on January 21, 1971. Soon after, his heirs instituted the testate estate
proceedings of the deceased, docketed as Sp. Proc. No. 1870 of the Court of First Instance of
Iloilo, presided by respondent Judge Amelia K. del Rosario. In the course of the proceedings, the
respondent judge, upon being apprized of the mounting interest on the unpaid account of the
estate, issued an order, stating, among others, "that in order to protect the estate, the
administrator, Judge Nicolas Lutero, is hereby authorized to scout among the testamentary heirs
who is financially in a position to pay all the unpaid obligations of the estate, including interest,
with the right of subrogation in accordance with existing laws."

On the basis of this order, respondents Juanito Lutero [grandson and heir of the late Tiburcio]
and his wife Hardivi R. Lutero paid the Philippine National Bank the sum of P25,000.00 as
partial settlement of the deceased's obligations. Whereupon the respondents Lutero filed a
motion in the testate court for reimbursement from the petitioner of the amount thus paid. They
argued that the said amount should have been paid by petitioner to the PNB, as stipulated in the
lease contract he had entered into with the deceased Tiburcio Lutero; and that such
reimbursement to them was proper, they being subrogees of the PNB.

Before the motion could be resolved by the court, petitioner on April 28, 1978 filed in the Court
of First Instance of Iloilo a separate action against the spouses Juanito Lutero and Hardivi R.
Lutero for collection of the total amount of P71,000.00, docketed as Civil Case No. 12397.
Petitioner alleged in the complaint that on April 25, 1974 the defendants Lutero borrowed from
him the sum of P45,000.00 for which they executed a deed of real estate mortgage; that on July
2, 1974, defendants obtained an additional loan of P3,000.00, evidenced by a receipt issued by
them; that defendants are further liable to him for the sum of P23,000.00, representing the value
of certain dishonored checks issued by them to the plaintiff; and that defendants refused and
failed to settle said accounts despite demands.

In their answer, the respondents Lutero traversed the material averments of the complaint and set
up legal and factual defenses. They further pleaded a counterclaim against petitioners for the
total sum of P 125,000.00 representing unpaid rentals on Hacienda Tambal. Basis of the
counterclaim is the allegation that they had purchased one-half [1/2] of Hacienda Tambal, which
their predecessors, the spouses Tiburcio Lutero and Asuncion Magalona, leased to the plaintiff
for a rental of P50,000.00 a year; and that plaintiffs had failed to pay said rentals despite
demands.

At the pre-trial, the parties defined the issues in that case as follows:

(1) Whether or not the defendants [Luteros] are indebted to the plaintiff and, if so,
the amount thereof;

(2) Whether or not the defendants are the owners of one-half [1/2] of that parcel
of land known as 'Hacienda Tambal' presently leased to the plaintiff and,
therefore, entitled to collect from the latter one-half [1/2] of its lease rentals; and
in the affirmative, the amount representing the unpaid rental by plaintiff in favor
of the defendant. 1

On June 14, 1978, the respondent judge issued an order in Sp. Proc. No. 1870, granting the
respondent Lutero's motion for reimbursement from petitioner of the sum of P25,000.00 plus
interest, as follows:
 WHEREFORE, Mr. Loreto Solinap is hereby directed to pay spouses Juanito
Lutero and Hardivi R. Lutero the sum of P25,000.00 with interest at 12% per
annum from June 17, 1975 until the same shall have been duly paid.

Petitioner filed a petition for certiorari before this Court, docketed as G.R. No. L-48776,
assailing the above order. This Court, however, in a resolution dated January 4, 1979 dismissed
the petition thus:

L-48776 [Loreto Solinap vs. CFI etc., et al.]- Acting on the petition in this case as
well as the comment thereon of respondents and the reply of petitioner to said
comment, the Court Resolved to DISMISS the petition for lack of merit, anyway,
the P25,000.00 to be paid by the petitioner to the private respondent Luteros may
well be taken up in the final liquidation of the account between petitioner as and
the subject estate as lessor.

Thereafter the respondent Luteros filed with the respondent court a "Motion to Reiterate Motion
for Execution of the Order dated June 14, 1978." Petitioner filed a rejoinder to said motion,
raising for the first time the thesis that the amount payable to private respondents should be
compensated against the latter's indebtedness to him amounting to P71,000.00. Petitioner
attached to his rejoinder copies of the pleadings filed in Civil Case No. 12397, then pending
before Branch V of the Court of First Instance of Iloilo. This motion was denied by respondent
judge on the ground that "the claim of Loreto Solinap against Juanito Lutero in Civil Case No.
12397 is yet to be liquidated and determined in the said case, such that the requirement in Article
1279 of the New Civil Code that both debts are liquidated for compensation to take place has not
been established by the oppositor Loreto Solinap."

Petition filed a motion for reconsideration of this order, but the same was denied.

Hence, this petition.

The petition is devoid of merit. Petitioner contends that respondent judge gravely abused her
discretion in not declaring the mutual obligations of the parties extinguished to the extent of their
respective amounts. He relies on Article 1278 of the Civil Code to the effect that compensation
shall take place when two persons, in their own right, are creditors and debtors of each other. The
argument fails to consider Article 1279 of the Civil Code which provides that compensation can
take place only if both obligations are liquidated. In the case at bar, the petitioner's claim against
the respondent Luteros in Civil Case No. 12379 is still pending determination by the court.
While it is not for Us to pass upon the merits of the plaintiffs' cause of action in that case, it
appears that the claim asserted therein is disputed by the Luteros on both factual and legal
grounds. More, the counterclaim interposed by them, if ultimately found to be meritorious, can
defeat petitioner's demand. Upon this premise, his claim in that case cannot be categorized as
liquidated credit which may properly be set-off against his obligation. As this Court ruled
in Mialhe vs. Halili, 2 " compensation cannot take place where one's claim against the other is
still the subject of court litigation. It is a requirement, for compensation to take place, that the
amount involved be certain and liquidated."

WHEREFORE, the petition is dismissed, with costs against petitioner.

SO ORDERED.
 14. G.R. No. 136202 January 25, 2007

BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R.
TEMPLONUEVO, Respondents

DECISION

AZCUNA, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the
Decision1 dated April 3, 1998, and the Resolution2 dated November 9, 1998, of the Court of
Appeals in CA-G.R. CV No. 42241.

The facts3 are as follows:

A.A. Salazar Construction and Engineering Services filed an action for a sum of money with
damages against herein petitioner Bank of the Philippine Islands (BPI) on December 5, 1991
before Branch 156 of the Regional Trial Court (RTC) of Pasig City. The complaint was later
amended by substituting the name of Annabelle A. Salazar as the real party in interest in place of
A.A. Salazar Construction and Engineering Services. Private respondent Salazar prayed for the
recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos
and Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise
prayed for damages and attorney’s fees.

Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party
defendant and herein also a private respondent, demanded from the former payment of the
amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty
Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were
allegedly payable to him, but which were deposited with the petitioner bank to private
respondent Salazar’s account (Account No. 0203-1187-67) without his knowledge and
corresponding endorsement.

Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze Account No. 0201-
0588-48 of A.A. Salazar and Construction and Engineering Services, instead of Account No.
0203-1187-67 where the checks were deposited, since this account was already closed by private
respondent Salazar or had an insufficient balance.

Private respondent Salazar was advised to settle the matter with Templonuevo but they did not
arrive at any settlement. As it appeared that private respondent Salazar was not entitled to the
funds represented by the checks which were deposited and accepted for deposit, petitioner BPI
decided to debit the amount ofP267,707.70 from her Account No. 0201-0588-48 and the sum
of P267,692.50 was paid to Templonuevo by means of a cashier’s check. The difference between
the value of the checks (P267,692.50) and the amount actually debited from her account
(P267,707.70) represented bank charges in connection with the issuance of a cashier’s check to
Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo admitted the
payment to him ofP267,692.50 and argued that said payment was to correct the malicious deposit
made by private respondent Salazar to her private account, and that petitioner bank’s negligence
and tolerance regarding the matter was violative of the primary and ordinary rules of banking. He
likewise contended that the debiting or taking of the reimbursed amount from the account of
private respondent Salazar by petitioner BPI was a matter exclusively between said parties and
may be pursuant to banking rules and regulations, but did not in any way affect him. The
debiting from another account of private respondent Salazar, considering that her other account
was effectively closed, was not his concern.

After trial, the RTC rendered a decision, the dispositive portion of which reads thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff

[private respondent Salazar] and against the defendant [petitioner BPI] and ordering the latter to
pay as follows:

1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until
the said amount is fully paid;

2. The amount of P30,000.00 as and for actual damages;

3. The amount of P50,000.00 as and for moral damages;

4. The amount of P50,000.00 as and for exemplary damages;

5. The amount of P30,000.00 as and for attorney’s fees; and

6. Costs of suit.

The counterclaim is hereby ordered DISMISSED for lack of factual basis.

The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack
of merit.

Third-party defendant’s [i.e., private respondent Templonuevo’s] counterclaim is hereby

likewise DISMISSED for lack of factual basis.

SO ORDERED.4

On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent
Salazar was entitled to the proceeds of the three (3) checks notwithstanding the lack of
endorsement thereon by the payee. The CA concluded that Salazar and Templonuevo had
previously agreed that the checks payable to JRT Construction and Trading5 actually belonged to
Salazar and would be deposited to her account, with petitioner acquiescing to the arrangement.6

Petitioner therefore filed this petition on these grounds:

I.
The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable
Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on Evidence.

II.

The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22,
1278 and 1290 of the Civil Code in favor of BPI.

III.

The Court of Appeals committed a reversible error in holding, based on a misapprehension of

facts, that the account from which BPI debited the amount of P267,707.70 belonged to a
corporation with a separate and distinct personality.

IV.

The Court of Appeals committed a reversible error in holding, based entirely on speculations,
surmises or conjectures, that there was an agreement between SALAZAR and TEMPLONUEVO
that checks payable to TEMPLONUEVO may be deposited by SALAZAR to her personal
account and that BPI was privy to this agreement.

V.

The Court of Appeals committed reversible error in holding, based entirely on speculation,
surmises or conjectures, that SALAZAR suffered great damage and prejudice and that her
business standing was eroded.

VI.

The Court of Appeals erred in affirming instead of reversing the decision of the lower court
against BPI and dismissing SALAZAR’s complaint.

VII.

The Honorable Court erred in affirming the decision of the lower court dismissing the third-party
complaint of BPI.7

The issues center on the propriety of the deductions made by petitioner from private respondent
Salazar’s account. Stated otherwise, does a collecting bank, over the objections of its depositor,
have the authority to withdraw unilaterally from such depositor’s account the amount it had
previously paid upon certain unendorsed order instruments deposited by the depositor to another
account that she later closed?

Petitioner argues thus:

1. There is no presumption in law that a check payable to order, when found in the
possession of a person who is neither a payee nor the indorsee thereof, has been lawfully
transferred for value. Hence, the CA should not have presumed that Salazar was a
 transferee for value within the contemplation of Section 49 of the Negotiable Instruments
Law,8 as the latter applies only to a holder defined under Section 191of the same.9

2. Salazar failed to adduce sufficient evidence to prove that her possession of the three
checks was lawful despite her allegations that these checks were deposited pursuant to a
prior internal arrangement with Templonuevo and that petitioner was privy to the
arrangement.

3. The CA should have applied the Civil Code provisions on legal compensation because
in deducting the subject amount from Salazar’s account, petitioner was merely rectifying
the undue payment it made upon the checks and exercising its prerogative to alter or
modify an erroneous credit entry in the regular course of its business.

4. The debit of the amount from the account of A.A. Salazar Construction and
Engineering Services was proper even though the value of the checks had been originally
credited to the personal account of Salazar because A.A. Salazar Construction and
Engineering Services, an unincorporated single proprietorship, had no separate and
distinct personality from Salazar.

5. Assuming the deduction from Salazar’s account was improper, the CA should not have
dismissed petitioner’s third-party complaint against Templonuevo because the latter
would have the legal duty to return to petitioner the proceeds of the checks which he
previously received from it.

6. There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA.
The CA’s conclusion that the deductions from the bank account of A.A. Salazar Construction
and Engineering Services were improper stemmed from its finding that there was no ineffective
payment to Salazar which would call for the exercise of petitioner’s right to set off against the
former’s bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the
evidence adduced during trial and upon the admissions and stipulations of fact made during the
pre-trial, most significantly the following:

(a) That Salazar previously had in her possession the following checks:

(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount
of P57,712.50;

(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount
of P55,180.00; and,

(3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990
for the amount ofP154,800.00;
 (b) That these checks which had an aggregate amount of P267,692.50 were payable to the
order of JRT Construction and Trading, the name and style under which Templonuevo
does business;

(c) That despite the lack of endorsement of the designated payee upon such checks,
Salazar was able to deposit the checks in her personal savings account with petitioner and
encash the same;

(d) That petitioner accepted and paid the checks on three (3) separate occasions over a
span of eight months in 1990; and

(e) That Templonuevo only protested the purportedly unauthorized encashment of the
checks after the lapse of one year from the date of the last check.10

Petitioner concedes that when it credited the value of the checks to the account of private
respondent Salazar, it made a mistake because it failed to notice the lack of endorsement thereon
by the designated payee. The CA, however, did not lend credence to this claim and concluded
that petitioner’s actions were deliberate, in view of its admission that the "mistake" was
committed three times on three separate occasions, indicating acquiescence to the internal
arrangement between Salazar and Templonuevo. The CA explained thus:

It was quite apparent that the three checks which appellee Salazar deposited were not indorsed.
Three times she deposited them to her account and three times the amounts borne by these
checks were credited to the same. And in those separate occasions, the bank did not return the
checks to her so that she could have them indorsed. Neither did the bank question her as to why
she was depositing the checks to her account considering that she was not the payee thereof, thus
allowing us to come to the conclusion that defendant-appellant BPI was fully aware that the
proceeds of the three checks belong to appellee.

For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most
unlikely that appellant BPI (or any bank for that matter) would have accepted the checks for
deposit on three separate times nary any question. Banks are most finicky over accepting checks
for deposit without the corresponding indorsement by their payee. In fact, they hesitate to accept
indorsed checks for deposit if the depositor is not one they know very well.11

The CA likewise sustained Salazar’s position that she received the checks from Templonuevo
pursuant to an internal arrangement between them, ratiocinating as follows:

If there was indeed no arrangement between Templonuevo and the plaintiff over the three
questioned checks, it baffles us why it was only on August 31, 1991 or more than a year after the
third and last check was deposited that he demanded for the refund of the total amount of
P267,692.50.

A prudent man knowing that payment is due him would have demanded payment by his debtor
from the moment the same became due and demandable. More so if the sum involved runs in
hundreds of thousand of pesos. By and large, every person, at the very moment he learns that he
was deprived of a thing which rightfully belongs to him, would have created a big fuss. He
would not have waited for a year within which to do so. It is most inconceivable that
Templonuevo did not do this.12
Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the
Rules of Court.13Factual findings of the CA are entitled to great weight and respect, especially
when the CA affirms the factual findings of the trial court.14 Such questions on whether certain
items of evidence should be accorded probative value or weight, or rejected as feeble or
spurious, or whether or not the proofs on one side or the other are clear and convincing and
adequate to establish a proposition in issue, are questions of fact. The same holds true for
questions on whether or not the body of proofs presented by a party, weighed and analyzed in
relation to contrary evidence submitted by the adverse party may be said to be strong, clear and
convincing, or whether or not inconsistencies in the body of proofs of a party are of such gravity
as to justify refusing to give said proofs weight – all these are issues of fact which are not
reviewable by the Court.15

This rule, however, is not absolute and admits of certain exceptions, namely: a) when the
conclusion is a finding grounded entirely on speculations, surmises, or conjectures; b) when the
inference made is manifestly mistaken, absurd, or impossible; c) when there is a grave abuse of
discretion; d) when the judgment is based on a misapprehension of facts; e) when the findings of
fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case
and the same are contrary to the admissions of both appellant and appellee; g) when the findings
of the CA are contrary to those of the trial court; h) when the findings of fact are conclusions
without citation of specific evidence on which they are based; i) when the finding of fact of the
CA is premised on the supposed absence of evidence but is contradicted by the evidence on
record; and j) when the CA manifestly overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would justify a different conclusion.16

In the present case, the records do not support the finding made by the CA and the trial court that
a prior arrangement existed between Salazar and Templonuevo regarding the transfer of
ownership of the checks. This fact is crucial as Salazar’s entitlement to the value of the
instruments is based on the assumption that she is a transferee within the contemplation of
Section 49 of the Negotiable Instruments Law.

Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or
indorsee delivers a negotiable instrument for value without indorsing it, thus:

Transfer without indorsement; effect of- Where the holder of an instrument payable to his order
transfers it for value without indorsing it, the transfer vests in the transferee such title as the
transferor had therein, and the transferee acquires in addition, the right to have the indorsement
of the transferor. But for the purpose of determining whether the transferee is a holder in due
course, the negotiation takes effect as of the time when the indorsement is actually made. 17

It bears stressing that the above transaction is an equitable assignment and the transferee acquires
the instrument subject to defenses and equities available among prior parties. Thus, if the
transferor had legal title, the transferee acquires such title and, in addition, the right to have the
indorsement of the transferor and also the right, as holder of the legal title, to maintain legal
action against the maker or acceptor or other party liable to the transferor. The underlying
premise of this provision, however, is that a valid transfer of ownership of the negotiable
instrument in question has taken place.

Transferees in this situation do not enjoy the presumption of ownership in favor of holders since
they are neither payees nor indorsees of such instruments. The weight of authority is that the
mere possession of a negotiable instrument does not in itself conclusively establish either the
right of the possessor to receive payment, or of the right of one who has made payment to be
discharged from liability. Thus, something more than mere possession by persons who are not
payees or indorsers of the instrument is necessary to authorize payment to them in the absence of
any other facts from which the authority to receive payment may be inferred.18

The CA and the trial court surmised that the subject checks belonged to private respondent
Salazar based on the pre-trial stipulation that Templonuevo incurred a one-year delay in
demanding reimbursement for the proceeds of the same. To the Court’s mind, however, such
period of delay is not of such unreasonable length as to estop Templonuevo from asserting
ownership over the checks especially considering that it was readily apparent on the face of the
instruments19 that these were crossed checks.

In State Investment House v. IAC,20 the Court enumerated the effects of crossing a check, thus:
(1) that the check may not be encashed but only deposited in the bank; (2) that the check may be
negotiated only once - to one who has an account with a bank; and (3) that the act of crossing the
check serves as a warning to the holder that the check has been issued for a definite purpose so
that such holder must inquire if the check has been received pursuant to that purpose.

Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazar’s
possession of the checks, it cannot be said that the presumption of ownership in Templonuevo’s
favor as the designated payee therein was sufficiently overcome. This is consistent with the
principle that if instruments payable to named payees or to their order have not been indorsed in
blank, only such payees or their indorsees can be holders and entitled to receive payment in their
own right.21

The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument
was given for a sufficient consideration will not inure to the benefit of Salazar because the term
"given" does not pertain merely to a transfer of physical possession of the instrument. The phrase
"given or indorsed" in the context of a negotiable instrument refers to the manner in which such
instrument may be negotiated. Negotiable instruments are negotiated by "transfer to one person
or another in such a manner as to constitute the transferee the holderthereof. If payable to bearer
it is negotiated by delivery. If payable to order it is negotiated by the indorsement completed by
delivery."22 The present case involves checks payable to order. Not being a payee or indorsee of
the checks, private respondent Salazar could not be a holder thereof.

It is an exception to the general rule for a payee of an order instrument to transfer the instrument
without indorsement. Precisely because the situation is abnormal, it is but fair to the maker and
to prior holders to require possessors to prove without the aid of an initial presumption in their
favor, that they came into possession by virtue of a legitimate transaction with the last
holder.23 Salazar failed to discharge this burden, and the return of the check proceeds to
Templonuevo was therefore warranted under the circumstances despite the fact that
Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit the
checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of
the checks the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby
making the assurance that it had ascertained the genuineness of all prior endorsements. Having
assumed the liability of a general indorser, petitioner’s liability to the designated payee cannot be
denied.
Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account for the
value of the checks it previously credited in her favor. It is of no moment that the account
debited by petitioner was different from the original account to which the proceeds of the check
were credited because both admittedly belonged to Salazar, the former being the account of the
sole proprietorship which had no separate and distinct personality from her, and the latter being
her personal account.

The right of set-off was explained in Associated Bank v. Tan:24

A bank generally has a right of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting bank to debit a client's account
for the value of a dishonored check that has previously been credited has fairly been established
by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings,
and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan."

Hence, the relationship between banks and depositors has been held to be that of creditor and
debtor. Thus, legal compensation under Article 1278 of the Civil Code may take place "when all
the requisites mentioned in Article 1279 are present," as follows:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.

While, however, it is conceded that petitioner had the right of set-off over the amount it paid to
Templonuevo against the deposit of Salazar, the issue of whether it acted judiciously is an
entirely different matter.25 As businesses affected with public interest, and because of the nature
of their functions, banks are under obligation to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of their relationship.26 In this regard,
petitioner was clearly remiss in its duty to private respondent Salazar as its depositor.

To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious
lack of indorsement thereon, petitioner permitted the encashment of these checks three times on
three separate occasions. This negates petitioner’s claim that it merely made a mistake in
crediting the value of the checks to Salazar’s account and instead bolsters the conclusion of the
CA that petitioner recognized Salazar’s claim of ownership of checks and acted deliberately in
paying the same, contrary to ordinary banking policy and practice. It must be emphasized that
the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it,
for the purpose of determining their genuineness and regularity. The collecting bank, being
primarily engaged in banking, holds itself out to the public as the expert on this field, and the law
thus holds it to a high standard of conduct.27 The taking and collection of a check without the
proper indorsement amount to a conversion of the check by the bank.28

More importantly, however, solely upon the prompting of Templonuevo, and with full
knowledge of the brewing dispute between Salazar and Templonuevo, petitioner debited the
account held in the name of the sole proprietorship of Salazar without even serving due notice
upon her. This ran contrary to petitioner’s assurances to private respondent Salazar that the
account would remain untouched, pending the resolution of the controversy between her and
Templonuevo.29 In this connection, the CA cited the letter dated September 5, 1991 of Mr.
Manuel Ablan, Senior Manager of petitioner bank’s Pasig/Ortigas branch, to private respondent
Salazar informing her that her account had been frozen, thus:

From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-
48 will remain frozen or untouched until herein [Salazar] has settled matters with Templonuevo.
But, in an unexpected move, in less than two weeks (eleven days to be precise) from the time
that letter was written, [petitioner] bank issued a cashier’s check in the name of Julio R.
Templonuevo of the J.R.T. Construction and Trading for the sum ofP267,692.50 (Exhibit "8")
and debited said amount from Ms. Arcilla’s account No. 0201-0588-48 which was supposed to
be frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence, if not a
fraudulent, wanton and reckless disregard of the right of its depositor.

The records further bear out the fact that respondent Salazar had issued several checks drawn
against the account of A.A. Salazar Construction and Engineering Services prior to any notice of
deduction being served. The CA sustained private respondent Salazar’s claim of damages in this
regard:

The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of
A.A. Salazar Construction and Engineering Services caused plaintiff-appellee great damage and
prejudice particularly when she had already issued checks drawn against the said account. As can
be expected, the said checks bounced. To prove this, plaintiff-appellee presented as exhibits
photocopies of checks dated September 8, 1991, October 28, 1991, and November 14, 1991
(Exhibits "D", "E" and "F" respectively)30

These checks, it must be emphasized, were subsequently dishonored, thereby causing private
respondent Salazar undue embarrassment and inflicting damage to her standing in the business
community. Under the circumstances, she was clearly not given the opportunity to protect her
interest when petitioner unilaterally withdrew the above amount from her account without
informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the award of damages granted by the
CA against petitioner. This whole incident would have been avoided had petitioner adhered to
the standard of diligence expected of one engaged in the banking business. A depositor has the
right to recover reasonable moral damages even if the bank’s negligence may not have been
attended with malice and bad faith, if the former suffered mental anguish, serious anxiety,
embarrassment and humiliation.31 Moral damages are not meant to enrich a complainant at the
expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The
award of exemplary damages is justified, on the other hand, when the acts of the bank are
attended by malice, bad faith or gross negligence. The award of reasonable attorney’s fees is
proper where exemplary damages are awarded. It is proper where depositors are compelled to
litigate to protect their interest.32

WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998
and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241
are MODIFIED insofar as it ordered petitioner Bank of the Philippine Islands to return the
amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos
(P267,707.70) to respondent Annabelle A. Salazar, which portion isREVERSED and SET
ASIDE. In all other respects, the same are AFFIRMED.

No costs.

SO ORDERED.

15. G.R. No. 174882 January 21, 2013

MONDRAGON PERSONAL SALES, INC., Petitioner,

vs.
VICTORIANO S. SOLA, JR., Respondent.

DECISION

PERALTA, J.:

Before us is a petition for review on certiorari seeking to set aside the Decision1 dated February
10, 2006 and the Resolution2 dated September 6, 2006 issued by the Court of Appeals (CA) in
CA-G.R. CV No. 71690.

Petitioner Mondragon Personal Sales Inc., a company engaged in the business of selling various
consumer products through a network of sales representatives, entered into a Contract of
Services3 with respondent Victoriano S. Sola, Jr. for a period of three years commencing on
October 2, 1994 up to October 1, 1997. Under the said contract, respondent, as service
contractor, would provide service facilities, i.e., bodega cum office, to petitioner's products, sales
force and customers in General Santos City and as such, he was entitled to commission or
service fee as follows:

MONTHLY SALES SERVICE FEE

(net of vat)
P50,000.00 to 2,500,000.00 Five percent (5%)
P2,500,001.00 to 3,000.000.00 P125,000.00
P3,000,001.00 to 3,500,000.00 150,000.00
P3,500,001.00 – UP 200,000.004

The agreement then came into effect when petitioner's goods were delivered to respondent's
bodega and were sold by petitioner's employees. Prior to the execution of the contract, however,
respondent’s wife, Lina Sola, had an existing obligation with petitioner arising from her
Franchise Distributorship Agreement with the latter. On January 26, 1995, respondent wrote a
letter5 addressed to Renato G. de Leon, petitioner's Vice-President for Finance, wherein he
acknowledged and confirmed his wife’s indebtedness to petitioner in the amount
ofP1,973,154.73 (the other accountability in the sum of P1,490,091.15 was still subject to
reconciliation) and, together with his wife, bound himself to pay on installment basis the said
debt. Consequently, petitioner withheld the payment of respondent's service fees from February
to April 1995 and applied the same as partial payments to the debt which he obligated to pay. On
April 29, 1995, respondent closed and suspended operation of his office cum bodega where
petitioner's products were stored and customers were being dealt with.

On May 24, 1995, respondent filed with the Regional Trial Court (RTC) of Davao, a
Complaint6 for accounting and rescission against petitioner alleging that petitioner withheld
portions of his service fees covering the months from October 1994 to January 1995 and his
whole service fees for the succeeding months of February to April 1995, the total amount of
which was P222,202.84; that petitioner's act grossly hampered, if not paralyzed, his business
operation, thus left with no other recourse, he suspended operations to minimize losses. He
prayed for the rescission of the contract of services and for petitioner to render an accounting of
his service fees.

In its Answer with Counterclaim7 filed on June 14, 1995, petitioner contended that respondent’s
letter dated January 26, 1995 addressed to petitioner's Vice-President for Finance, confirmed and
obligated himself to pay on installment basis the accountability of his wife with petitioner, thus
respondent's service fees/commission earned for the period of February to April 1995 amounting
to P125,040.01 was applied by way of compensation to the amounts owing to it; that all the
service fees earned by respondent prior to February 1995 were fully paid to him. By way of
counterclaim, petitioner asked for the payment of the amount of P1,547,892.55 which respondent
obligated to pay plus interest; the delivery of petitioner's products padlocked in respondent's
office cum bodega, the payment for the loss of income in the amount of P833,600.00 as well as
the remaining balance of P45,728.30 from the P100,000.00 given by petitioner to respondent as
advance money for the purchase of office equipment and the renovation of the bodega cum
office.

In his Reply and Answer8 to petitioner's counterclaim, respondent averred that he was made to
believe that the sales commission contained in petitioner's memorandum dated July 5, 1994
would be applicable to him; that it was improper for petitioner to confuse respondent's
transaction with that of his wife as it was divergent in nature and terms.

Pending trial, petitioner moved for the issuance of a preliminary attachment and replevin which
the RTC granted in its Order dated June 19, 1995 upon the filing of bonds.9 Respondent filed a
Motion to Quash the Writ of Attachment, which the RTC denied in an Order dated July 24,
1995.10 As respondent's motion for reconsideration was also denied, he filed with us a petition
for certiorari, docketed as G.R. No. 126427, assailing the RTC orders which we dismissed in a
Resolution11 dated November 11, 1996 on procedural matters.

Trial thereafter ensued.

On July 6, 2000, the RTC rendered its Decision,12 the dispositive portion of which reads:
FOR THE FOREGOING, judgment is hereby rendered in favor of defendant and against
plaintiff, ordering the latter to pay the former:

1) the sum of P1,543,643.96 representing the principal balance of plaintiff's account with
defendant, plus legal interest from the time of filing of the complaint until fully paid, at
the rate of 6% per annum;

2) attorney's fees in the amount of P25,000.00

3) costs of the suit.13

In so ruling, the RTC found that in computing the service fees/commissions due respondent, the
rate as provided in the contract of service dated January 27, 1995 was controlling, since
respondent was a party thereto duly affixing his signature therein; that petitioner's computation
of respondent's service fees for the months of February to April 1995 in the total amount
of P125,040.01 which was based on the said contract deserved credence. The RTC ruled that
while Article 1381 of the Civil Code provides for the grounds for which a contract may be
rescinded, none of these grounds existed in this case; that there was no showing of fraud which
petitioner employed when it entered into the contract with respondent nor did respondent agree
to such a contract without knowing its content, thus the contract was not rescissible.

As regards to petitioner's counterclaim that respondent confirmed and assumed the payment of
his wife's account with petitioner, the RTC found that respondent obligated himself to pay his
wife's account as evidenced by his letter dated January 26, 1995; that after deducting from the
confirmed amount of P1,668,683.97 the respondent's service commission for the period from
February 1995 to April 1995, which was in the total amount ofP125,040.01, the amount owing to
petitioner would still be P1,543,643.96. The RTC dismissed the other counterclaims, since they
were not substantiated but found petitioner entitled to attorney's fees due to the amount of money
involved and the time spent in pursuing the case.

Respondent filed his appeal to the CA to which petitioner filed its appellee's brief. On February
10, 2006, the CA rendered its assailed decision, the dispositive portion of which reads as follows:

WHEREFORE, in the light of the foregoing premises, herein appeal is GRANTED. Accordingly,
the Contract of Services is hereby RESCINDED. Let the case be REMANDED to the court a
quo for the proper determination of the amount of service fees unlawfully withheld from the
appellant.

Furthermore, Appellee is hereby ordered to pay the Appellant attorney’s fees in the amount of
twenty-five thousand pesos (P25,000.00).14

The CA found that under Article 1191 of the Civil Code, respondent was entitled to rescind the
contract of services as it was petitioner who breached the same by withholding the service fees
lawfully due to the former; that petitioner's act of unlawfully withholding the service fees due
respondent constituted a willful and deliberate infringement on contractual obligations which
would justify rescission under Article 1191. The CA declared that the contract of services
entered into by the parties did not fall under any of the rescissible contracts enumerated under
Article 1381 of the Civil Code but under Article 1191 which pertains to rescission of reciprocal
obligations as in the instant case.
The CA ruled that respondent did not assume his wife's obligation as he did not substitute
himself in the shoes of his wife regarding the payment of the latter's liability; that there can be no
novation as novation was never presumed. Petitioner's act of withholding respondent's service
fee and thereafter applying them to the obligation of his wife was unlawful, considering that
respondent never assumed his wife's obligation with petitioner; that there could be no legal
compensation, since it was respondent's wife who was principally indebted to petitioner owing
from the franchise distributorship agreement she earlier entered into with petitioner; that granting
the debt redounded to the benefit of the family and incurred with the consent of respondent, and
the spouse, as joint administrators of the community property are solidarily liable with their
separate properties for debts incurred, however, such liability is only subsidiary, when the
community property is not sufficient to pay for all liabilities, however, in this case, there was no
showing that the community property of the spouses was insufficient to pay the debt.

The CA ordered the deletion of attorney's fees as it was respondent who was entitled to such
award, since he was compelled to litigate to protect his interest for the unjustified act of
petitioner.

Petitioner's motion for reconsideration was denied in a Resolution dated September 6, 2006.

Hence, this petition where petitioner alleges that the CA erred:

1. In finding that petitioner breached its contract with respondent and that there is no
compensation in accordance to Article 1279 of the Civil Code;

2. In finding that respondent did not assume the obligation of his wife;

3. In remanding the case to the court a quo for proper determination of service fee
withheld when the same has been determined;

4. In obliterating the award of petitioner's counterclaim when respondent admitted his

obligation to petitioner.15

The CA found that petitioner's act of withholding respondent's service fees and thereafter
applying them as partial payment to the obligation of respondent's wife with petitioner was
unlawful, considering that respondent never assumed his wife’s obligation, thus, there can be no
legal compensation under Article 1279 of the Civil Code.

We do not agree.

In his letter dated January 26, 1995 addressed to Mr. Renato G. De Leon, petitioner's Vice-
President for Finance, respondent wrote, and which we quote in full:

Gentlemen:

This refers to the account of my wife, Lina (Beng) Sola, with Mondragon Personal Sales, Inc. in
the amount of P3,463,173.88. Of this total amount, we are initially confirming the total amount
ofP1,973,154.73 as due from Lina (Beng) Sola, while the remaining balance of P1,490,091.15
will be subject to a reconciliation on or before February 5, 1995.
In recognition of Lina (Beng) Sola's account, we undertake to pay P100,000.00 on or before
February 01, 1995 and the balance of P1,873,154.73 plus interest of 18% per annum and 2%
administrative charge per month on the diminishing balance will be covered by postdated checks
of not less than P100,000.00 per month starting February 28, 1995 and every end of the month
thereafter but not to exceed eighteen (18) months or July 31, 1996.

With regards to the remaining balance of P1,490,019.15, we agree that upon final verification of
these accounts, we will issue additional postdated checks subject to the same terms and
conditions as stated above.

We further agree that all subsequent orders that will be released to us will be covered by
postdated checks.

I fully understand and voluntarily agree to the above undertaking with full knowledge of the
consequences which may arise therefrom.

Very truly yours,

(signed)
Victoriano S. Sola16

A reading of the letter shows that respondent becomes a co-debtor of his wife's accountabilities
with petitioner. Notably, the last paragraph of his letter which states "I fully understand and
voluntarily agree to the above undertaking with full knowledge of the consequences which may
arise therefrom" and which was signed by respondent alone, shows that he solidarily bound
himself to pay such debt. Based on the letter, respondent's wife had an account with petitioner in
the amount of P3,463,173.88, out of which only the amount of P1,973,154.73 was confirmed
while the remaining amount of P1,490,019.15 would still be subject to reconciliation. As
respondent bound himself to pay the amount of P1,973,154.73, he becomes petitioner's principal
debtor to such amount.

On the other hand, respondent, as petitioner's service contractor, was entitled to a payment of
service fees as provided in their contract of services dated January 26, 1995. We note that
respondent never refuted the amount of monthly sales recorded but only assailed in the RTC the
rate of the service fees which he was entitled to. However, we find that there could be no other
computation of the rate of the service fees other than what was provided in the contract of
services dated January 26, 1995 signed by respondent and petitioner. Thus, we give credence to
petitioner's computation of respondent's service fees for the months of February to April 1995 in
the total amount of P125,040.01. Since respondent promised petitioner in his letter dated January
26, 1995, to monthly pay a certain amount to cover the indebtedness to petitioner which he failed
to do, the latter withheld the payment of respondent's service fees and applied the same as partial
payments of the debt by way of compensation.

We find that petitioner's act of withholding respondent's service fees/commissions and applying
them to the latter's outstanding obligation with the former is merely an acknowledgment of the
legal compensation that occurred by operation of law between the parties.17 Compensation is a
mode of extinguishing to the concurrent amount the obligations of persons who in their own
right and as principals are reciprocally debtors and creditors of each other. Legal compensation
takes place by operation of law when all the requisites are present, as opposed to conventional
compensation which takes place when the parties agree to compensate their mutual obligations
even in the absence of some requisites.18 Legal compensation requires the concurrence of the
following conditions:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.19

We find the presence of all the requisites for legal compensation. Petitioner and respondent are
both principal obligors and creditors of each other. Their debts to each other consist in a sum of
money. Respondent acknowledged and bound himself to pay petitioner the amount
of P1,973,154.73 which was already due, while the service fees owing to respondent by
petitioner become due every month. Respondent's debt is liquidated and demandable, and
petitioner's payments of service fees are liquidated and demandable every month as they fall due.
Finally, there is no retention or controversy commenced by third persons over either of the debts.
Thus, compensation is proper up to the concurrent amount where petitioner owes
respondent P125,040.01 for service fees, while respondent owes petitioner P1,973,154.73.

As legal compensation took place in this case, there is no basis for respondent to ask for
rescission since he was the first to breach their contract when, on April 29, 1995, he suddenly
closed and padlocked his bodega cum office in General Santos City occupied by
petitioner.1âwphi1

Petitioner claims that the CA erred in obliterating the RTC’s award of its counterclaim which it
had alleged and proved during trial and which respondent even admitted.

We agree.

In his letter dated January 6, 1995, respondent confirmed the amount of P1,973,154.73 owing to
petitioner. On September 29, 1997, petitioner wrote another letter20 to petitioner's Credit and
Collection Manager, Rudy Machanco, wherein he again confirmed the indebtedness in the
amount of P1,973,154.73. In the same letter, he showed the payments he had already made and
after deducting the same from the confirmed indebtedness, the total balance remained to be
at P1,668,683.97. As we have said earlier, respondent's service fees from February to April 1995
which was in the total amount of P125,040.01 was not assailed at all by respondent in his appeal
with the CA, thus he is bound by such computation. Hence, the amount of P125,040.01 which
petitioner owes respondent shall be offset against the P1,973,154.73 which respondent owes
petitioner, and therefore leaving a balance of P1,543,643.96 which respondent must pay.
WHEREFORE, the petition for review is GRANTED. The Decision dated February 10, 2006
and the Resolution dated September 6, 2006 of the Court of Appeals are hereby REVERSED and
SET ASIDE. Respondent is hereby ordered to pay petitioner the amount of P1,543,643.96 with
6% percent per annum from June 14, 1995 until finality of this Decision and 12% percent per
annum thereafter until full payment.

SO ORDERED.

16. LAND BANK OF THE G.R. No. 190755

PHILIPPINES,
Petitioner, Present:

CORONA, C.J., Chairperson,

VELASCO, JR.,
- versus - LEONARDO-DE CASTRO,
PERALTA,* and
PEREZ, JJ.

ALFREDO ONG, Promulgated:

Respondent.
November 24, 2010
x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

This is an appeal from the October 20, 2009 Decision of the Court of Appeals (CA) in CA-
G.R. CR-CV No. 84445 entitled Alfredo Ong v. Land Bank of the Philippines, which affirmed the
Decision of the Regional Trial Court (RTC), Branch 17 in Tabaco City.

The Facts

On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank
Legazpi City in the amount of PhP 16 million. The loan was secured by three (3) residential lots,
five (5) cargo trucks, and a warehouse. Under the loan agreement, PhP 6 million of the loan
would be short-term and would mature on February 28, 1997, while the balance of PhP 10
million would be payable in seven (7) years. The Notice of Loan Approval dated February 22,
1996 contained an acceleration clause wherein any default in payment of amortizations or other
charges would accelerate the maturity of the loan.[1]

Subsequently, however, the Spouses Sy found they could no longer pay their loan. On
December 9, 1996, they sold three (3) of their mortgaged parcels of land for PhP 150,000 to
Angelina Gloria Ong, Evangeline’s mother, under a Deed of Sale with Assumption of Mortgage.
The relevant portion of the document[2] is quoted as follows:
 WHEREAS, we are no longer in a position to settle our obligation with the
bank;
NOW THEREFORE, for and in consideration of the sum of ONE HUNDRED
FIFTY THOUSAND PESOS (P150,000.00) Philippine Currency, we hereby these
presents SELL, CEDE, TRANSFER and CONVEY, by way of sale unto
ANGELINA GLORIA ONG, also of legal age, Filipino citizen, married to Alfredo
Ong, and also a resident of Tabaco, Albay, Philippines, their heirs and assigns, the
above-mentioned debt with the said LAND BANK OF THE PHILIPPINES, and by
reason hereof they can make the necessary representation with the bank for the
proper restructuring of the loan with the said bank in their favor;

That as soon as our obligation has been duly settled, the bank is authorized to
release the mortgage in favor of the vendees and for this purpose VENDEES can
register this instrument with the Register of Deeds for the issuance of the titles
already in their names.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this

th
9 day of December 1996 at Tabaco, Albay, Philippines.

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

Evangeline’s father, petitioner Alfredo Ong, later went to Land Bank to inform it about
the sale and assumption of mortgage.[3] Atty. Edna Hingco, the Legazpi City Land Bank Branch
Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there was nothing wrong with the
agreement with the Spouses Sy but provided them with requirements for the assumption of
mortgage. They were also told that Alfredo should pay part of the principal which was computed
at PhP 750,000 and to update due or accrued interests on the promissory notes so that Atty.
Hingco could easily approve the assumption of mortgage. Two weeks later, Alfredo issued a
check for PhP 750,000 and personally gave it to Atty. Hingco. A receipt was issued for his
payment. He also submitted the other documents required by Land Bank, such as financial
statements for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of
the Spouses Sy would be transferred in his name but this never materialized. No notice of transfer
was sent to him.[4]

Alfredo later found out that his application for assumption of mortgage was not approved
by Land Bank. The bank learned from its credit investigation report that the Ongs had a real
estate mortgage in the amount of PhP 18,300,000 with another bank that was past due. Alfredo
claimed that this was fully paid later on. Nonetheless, Land Bank foreclosed the mortgage of the
Spouses Sy after several months. Alfredo only learned of the foreclosure when he saw the subject
mortgage properties included in a Notice of Foreclosure of Mortgage and Auction Sale at the
RTC in Tabaco, Albay. Alfredo’s other counsel, Atty. Madrilejos, subsequently talked to Land
Bank’s lawyer and was told that the PhP 750,000 he paid would be returned to him.[5]

On December 12, 1997, Alfredo initiated an action for recovery of sum of money with
damages against Land Bank in Civil Case No. T-1941, as Alfredo’s payment was not returned
by Land Bank. Alfredo maintained that Land Bank’s foreclosure without informing him of the
denial of his assumption of the mortgage was done in bad faith. He argued that he was lured into
believing that his payment of PhP 750,000 would cause Land Bank to approve his assumption
of the loan of the Spouses Sy and the transfer of the mortgaged properties in his and his wife’s
name.[6] He also claimed incurring expenses for attorney’s fees of PhP 150,000, filing fee of PhP
15,000, and PhP 250,000 in moral damages.[7]

Testifying for Land Bank, Atty. Hingco claimed during trial that as branch manager she had
no authority to approve loans and could not assure anybody that their assumption of mortgage
would be approved. She testified that the breakdown of Alfredo’s payment was as follows:

PhP 101,409.59 applied to principal

216,246.56 accrued interests receivable
396,571.77 interests
18,766.10 penalties
16,805.98 accounts receivable
----------------
Total: 750,000.00

According to Atty. Hingco, the bank processes an assumption of mortgage as a new loan,
since the new borrower is considered a new client. They used character, capacity, capital,
collateral, and conditions in determining who can qualify to assume a loan. Alfredo’s proposal to
assume the loan, she explained, was referred to a separate office, the Lending Center. [8]

During cross-examination, Atty. Hingco testified that several months after Alfredo made the
tender of payment, she received word that the Lending Center rejected Alfredo’s loan application.
She stated that it was the Lending Center and not her that should have informed Alfredo about the
denial of his and his wife’s assumption of mortgage. She added that although she told Alfredo that
the agreement between the spouses Sy and Alfredo was valid between them and that the bank
would accept payments from him, Alfredo did not pay any further amount so the foreclosure of
the loan collaterals ensued. She admitted that Alfredo demanded the return of the PhP 750,000 but
said that there was no written demand before the case against the bank was filed in court. She said
that Alfredo had made the payment of PhP 750,000 even before he applied for the assumption of
mortgage and that the bank received the said amount because the subject account was past due and
demandable; and the Deed of Assumption of Mortgage was not used as the basis for the
payment. [9]

The Ruling of the Trial Court

The RTC held that the contract approving the assumption of mortgage was not perfected as
a result of the credit investigation conducted on Alfredo. It noted that Alfredo was not even
informed of the disapproval of the assumption of mortgage but was just told that the accounts of
the spouses Sy had matured and gone unpaid. It ruled that under the principle of equity and justice,
the bank should return the amount Alfredo had paid with interest at 12% per annum computed
from the filing of the complaint. The RTC further held that Alfredo was entitled to attorney’s fees
and litigation expenses for being compelled to litigate.[10]

The dispositive portion of the RTC Decision reads:

 WHEREFORE, premises considered, a decision is rendered, ordering
defendant bank to pay plaintiff, Alfredo Ong the amount of P750,000.00 with
interest at 12% per annum computed from Dec. 12, 1997 and attorney’s fees and
litigation expenses of P50,000.00.

Costs against defendant bank.

SO ORDERED.[11]

The Ruling of the Appellate Court

On appeal, Land Bank faulted the trial court for (1) holding that the payment of PhP 750,000
made by Ong was one of the requirements for the approval of his proposal to assume the mortgage
of the Sy spouses; (2) erroneously ordering Land Bank to return the amount of PhP 750,000 to
Ong on the ground of its failure to effect novation; and (3) erroneously affirming the award of
PhP 50,000 to Ong as attorney’s fees and litigation expenses.

The CA affirmed the RTC Decision.[12] It held that Alfredo’s recourse is not against the Sy
spouses. According to the appellate court, the payment of PhP 750,000 was for the approval of
his assumption of mortgage and not for payment of arrears incurred by the Sy spouses. As such, it
ruled that it would be incorrect to consider Alfredo a third person with no interest in the fulfillment
of the obligation under Article 1236 of the Civil Code. Although Land Bank was not bound by the
Deed between Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land Bank’s
active preparations for Alfredo’s assumption of mortgage essentially novated the agreement.

On January 5, 2010, the CA denied Land Bank’s motion for reconsideration for lack of
merit. Hence, Land Bank appealed to us.

The Issues

Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code
does not apply and in finding that there is no novation.

II

Whether the Court of Appeals misconstrued the evidence and the law when it
affirmed the trial court decision’s ordering Land Bank to pay Ong the amount of
Php750,000.00 with interest at 12% annum.

III

Whether the Court of Appeals committed reversible error when it affirmed the
award of Php50,000.00 to Ong as attorney’s fees and expenses of litigation.

The Ruling of this Court

 We affirm with modification the appealed decision.

Recourse is against Land Bank

Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should
have sought recourse against the Spouses Sy instead of Land Bank. Art. 1236 provides:

The creditor is not bound to accept payment or performance by a third

person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been beneficial to the debtor.

We agree with Land Bank on this point as to the first part of paragraph 1 of Art.
1236. Land Bank was not bound to accept Alfredo’s payment, since as far as the former was
concerned, he did not have an interest in the payment of the loan of the Spouses Sy. However, in
the context of the second part of said paragraph, Alfredo was not making payment to fulfill the
obligation of the Spouses Sy. Alfredo made a conditional payment so that the properties subject
of the Deed of Sale with Assumption of Mortgage would be titled in his name. It is clear from
the records that Land Bank required Alfredo to make payment before his assumption of mortgage
would be approved. He was informed that the certificate of title would be transferred
accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor. But the
trial court stated:

[T]he contract was not perfected or consummated because of the adverse

finding in the credit investigation which led to the disapproval of the proposed
assumption. There was no evidence presented that plaintiff was informed of the
disapproval. What he received was a letter dated May 22, 1997 informing him that
the account of spouses Sy had matured but there [were] no payments. This was sent
even before the conduct of the credit investigation on June 20, 1997 which led to
the disapproval of the proposed assumption of the loans of spouses Sy.[13]

Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the
obligation of the Spouses Sy, since his interest hinged on Land Bank’s approval of his application,
which was denied. The circumstances of the instant case show that the second paragraph of Art.
1236 does not apply. As Alfredo made the payment for his own interest and not on behalf of the
Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for another, he
cannot demand from the debtors, the Spouses Sy, what he has paid.

Novation of the loan agreement

Land Bank also faults the CA for finding that novation applies to the instant case. It reasons
that a substitution of debtors was made without its consent; thus, it was not bound to recognize the
substitution under the rules on novation.
 On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance
Corporation[14] provides the following discussion:

Novation, in its broad concept, may either be extinctive or modificatory. It

is extinctive when an old obligation is terminated by the creation of a new
obligation that takes the place of the former; it is merely modificatory when the old
obligation subsists to the extent it remains compatible with the amendatory
agreement. An extinctive novation results either by changing the object or principal
conditions (objective or real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor (subjective or personal).
Under this mode, novation would have dual functions ─ one to extinguish an
existing obligation, the other to substitute a new one in its place ─ requiring a
conflux of four essential requisites: (1) a previous valid obligation; (2) an
agreement of all parties concerned to a new contract; (3) the extinguishment
of the old obligation; and (4) the birth of a valid new obligation. x x x

In order that an obligation may be extinguished by another which substitutes

the same, it is imperative that it be so declared in unequivocal terms, or that the old
and the new obligations be on every point incompatible with each other. The test
of incompatibility is whether or not the two obligations can stand together, each
one having its independent existence. x x x (Emphasis supplied.)

Furthermore, Art. 1293 of the Civil Code states:

Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but
not without the consent of the creditor. Payment by the new debtor gives him rights
mentioned in articles 1236 and 1237.

We do not agree, then, with the CA in holding that there was a novation in the contract
between the parties. Not all the elements of novation were present. Novation must be expressly
consented to. Moreover, the conflicting intention and acts of the parties underscore the absence
of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by
the parties to novate the old agreement.[15] Land Bank is thus correct when it argues that there was
no novation in the following:

[W]hether or not Alfredo Ong has an interest in the obligation and payment
was made with the knowledge or consent of Spouses Sy, he may still pay the
obligation for the reason that even before he paid the amount of P750,000.00 on
January 31, 1997, the substitution of debtors was already perfected by and between
Spouses Sy and Spouses Ong as evidenced by a Deed of Sale with Assumption of
Mortgage executed by them on December 9, 1996. And since the substitution of
debtors was made without the consent of Land Bank – a requirement which is
indispensable in order to effect a novation of the obligation, it is therefore not bound
to recognize the substitution of debtors. Land Bank did not intervene in the contract
 between Spouses Sy and Spouses Ong and did not expressly give its consent to this
substitution.[16]

Unjust enrichment

Land Bank maintains that the trial court erroneously applied the principle of equity and
justice in ordering it to return the PhP 750,000 paid by Alfredo. Alfredo was allegedly in bad faith
and in estoppel. Land Bank contends that it enjoyed the presumption of regularity and was in good
faith when it accepted Alfredo’s tender of PhP 750,000. It reasons that it did not unduly enrich
itself at Alfredo’s expense during the foreclosure of the mortgaged properties, since it tendered its
bid by subtracting PhP 750,000 from the Spouses Sy’s outstanding loan obligation. Alfredo’s
recourse then, according to Land Bank, is to have his payment reimbursed by the Spouses Sy.

We rule that Land Bank is still liable for the return of the PhP 750,000 based on the
principle of unjust enrichment. Land Bank is correct in arguing that it has no obligation as creditor
to recognize Alfredo as a person with interest in the fulfillment of the obligation. But while Land
Bank is not bound to accept the substitution of debtors in the subject real estate mortgage, it is
estopped by its action of accepting Alfredo’s payment from arguing that it does not have to
recognize Alfredo as the new debtor. The elements of estoppel are:

First, the actor who usually must have knowledge, notice or suspicion of the
true facts, communicates something to another in a misleading way, either by
words, conduct or silence; second, the other in fact relies, and relies reasonably or
justifiably, upon that communication; third, the other would be harmed materially
if the actor is later permitted to assert any claim inconsistent with his earlier
conduct; and fourth, the actor knows, expects or foresees that the other would act
upon the information given or that a reasonable person in the actor’s position would
expect or foresee such action.[17]

By accepting Alfredo’s payment and keeping silent on the status of Alfredo’s application,
Land Bank misled Alfredo to believe that he had for all intents and purposes stepped into the shoes
of the Spouses Sy.

The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it was the
bank’s Lending Center that should have notified Alfredo of his assumption of mortgage
disapproval is unavailing. The Lending Center’s lack of notice of disapproval, the Tabaco Branch’s
silence on the disapproval, and the bank’s subsequent actions show a failure of the bank as a
whole, first, to notify Alfredo that he is not a recognized debtor in the eyes of the bank; and second,
to apprise him of how and when he could collect on the payment that the bank no longer had a
right to keep.

We turn then on the principle upon which Land Bank must return Alfredo’s payment.
Unjust enrichment exists “when a person unjustly retains a benefit to the loss of another, or when
a person retains money or property of another against the fundamental principles of justice, equity
and good conscience.”[18] There is unjust enrichment under Art. 22 of the Civil Code when (1) a
person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to
another.[19]
 Additionally, unjust enrichment has been applied to actions called accion in rem verso. In
order that the accion in rem verso may prosper, the following conditions must concur: (1) that the
defendant has been enriched; (2) that the plaintiff has suffered a loss; (3) that the enrichment of
the defendant is without just or legal ground; and (4) that the plaintiff has no other action based on
contract, quasi-contract, crime, or quasi-delict.[20] The principle of unjust enrichment essentially
contemplates payment when there is no duty to pay, and the person who receives the payment has
no right to receive it.[21]

The principle applies to the parties in the instant case, as, Alfredo, having been deemed
disqualified from assuming the loan, had no duty to pay petitioner bank and the latter had no right
to receive it.

Moreover, the Civil Code likewise requires under Art. 19 that “[e]very person must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.” Land Bank, however, did not even bother to inform Alfredo
that it was no longer approving his assumption of the Spouses Sy’s mortgage. Yet it acknowledged
his interest in the loan when the branch head of the bank wrote to tell him that his daughter’s loan
had not been paid.[22] Land Bank made Alfredo believe that with the payment of PhP 750,000, he
would be able to assume the mortgage of the Spouses Sy. The act of receiving payment without
returning it when demanded is contrary to the adage of giving someone what is due to him. The
outcome of the application would have been different had Land Bank first conducted the credit
investigation before accepting Alfredo’s payment. He would have been notified that his
assumption of mortgage had been disapproved; and he would not have taken the futile action of
paying PhP 750,000. The procedure Land Bank took in acting on Alfredo’s application cannot be
said to have been fair and proper.

As to the claim that the trial court erred in applying equity to Alfredo’s case, we hold that
Alfredo had no other remedy to recover from Land Bank and the lower court properly exercised
its equity jurisdiction in resolving the collection suit. As we have held in one case:

Equity, as the complement of legal jurisdiction, seeks to reach and

complete justice where courts of law, through the inflexibility of their rules and
want of power to adapt their judgments to the special circumstances of cases, are
incompetent to do so. Equity regards the spirit and not the letter, the intent and not
the form, the substance rather than the circumstance, as it is variously expressed
by different courts.[23]

Another claim made by Land Bank is the presumption of regularity it enjoys and that it was
in good faith when it accepted Alfredo’s tender of PhP 750,000.

The defense of good faith fails to convince given Land Bank’s actions. Alfredo was not
treated as a mere prospective borrower. After he had paid PhP 750,000, he was made to sign bank
documents including a promissory note and real estate mortgage. He was assured by Atty. Hingco
that the titles to the properties covered by the Spouses Sy’s real estate mortgage would be
transferred in his name, and upon payment of the PhP 750,000, the account would be considered
current and renewed in his name.[24]
 Land Bank posits as a defense that it did not unduly enrich itself at Alfredo’s expense
during the foreclosure of the mortgaged properties, since it tendered its bid by subtracting PhP
750,000 from the Spouses Sy’s outstanding loan obligation. It is observed that this is the first time
Land Bank is revealing this defense. However, issues, arguments, theories, and causes not raised
below may no longer be posed on appeal.[25] Land Bank’s contention, thus, cannot be entertained
at this point.

Land Bank further questions the lower court’s decision on the basis of the inconsistencies
made by Alfredo on the witness stand. It argues that Alfredo was not a credible witness and his
testimony failed to overcome the presumption of regularity in the performance of regular duties
on the part of Land Bank.

This claim, however, touches on factual findings by the trial court, and we defer to these
findings of the trial court as sustained by the appellate court. These are generally binding on
us. While there are exceptions to this rule, Land Bank has not satisfactorily shown that any of
them is applicable to this issue.[26] Hence, the rule that the trial court is in a unique position to
observe the demeanor of witnesses should be applied and respected[27] in the instant case.

In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo as it had
already foreclosed on the mortgaged lands.

Interest and attorney’s fees

As to the applicable interest rate, we reiterate the guidelines found in Eastern Shipping
Lines, Inc. v. Court of Appeals:[28]

II. With regard particularly to an award of interest in the concept of actual

and compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum

of money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can
be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the court is made
(at which time the quantification of damages may be deemed to have been
 reasonably ascertained). The actual base for the computation of legal interest shall,
in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under paragraph 1
or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit.

No evidence was presented by Alfredo that he had sent a written demand to Land Bank before
he filed the collection suit. Only the verbal agreement between the lawyers of the parties on the
return of the payment was mentioned.[29] Consequently, the obligation of Land Bank to return the
payment made by Alfredo upon the former’s denial of the latter’s application for assumption of
mortgage must be reckoned from the date of judicial demand on December 12, 1997, as correctly
determined by the trial court and affirmed by the appellate court.

The next question is the propriety of the imposition of interest and the proper imposable
rate of applicable interest. The RTC granted the rate of 12% per annum which was affirmed by
the CA. From the above-quoted guidelines, however, the proper imposable interest rate is 6% per
annum pursuant to Art. 2209 of the Civil Code. Sunga-Chan v. Court of Appeals is illuminating
in this regard:

In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per
annum under Central Bank (CB) Circular No. 416 shall be adjudged only in cases
involving the loan or forbearance of money. And for transactions involving
payment of indemnities in the concept of damages arising from default in the
performance of obligations in general and/or for money judgment not involving a
loan or forbearance of money, goods, or credit, the governing provision is Art. 2209
of the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:

Art. 2209. If the obligation consists in the payment of a sum of

money, and the debtor incurs in delay, the indemnity for damages, there
being no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest, which
is six per cent per annum.

The term “forbearance,” within the context of usury law, has been described
as a contractual obligation of a lender or creditor to refrain, during a given period of
time, from requiring the borrower or debtor to repay the loan or debt then due and
payable.

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of

interest, if proper, and the applicable rate, as follows: The 12% per annum rate under
CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or forbearance of money, goods,
or credit, while the 6% per annum under Art. 2209 of the Civil Code applies
“when the transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of obligations in
 general,” with the application of both rates reckoned “from the time the complaint
was filed until the [adjudged] amount is fully paid.” In either instance, the reckoning
period for the commencement of the running of the legal interest shall be subject to
the condition “that the courts are vested with discretion, depending on the equities
of each case, on the award of interest.”[30] (Emphasis supplied.)

Based on our ruling above, forbearance of money refers to the contractual obligation of the
lender or creditor to desist for a fixed period from requiring the borrower or debtor to repay the
loan or debt then due and for which 12% per annum is imposed as interest in the absence of a
stipulated rate. In the instant case, Alfredo’s conditional payment to Land Bank does not constitute
forbearance of money, since there was no agreement or obligation for Alfredo to pay Land Bank
the amount of PhP 750,000, and the obligation of Land Bank to return what Alfredo has
conditionally paid is still in dispute and has not yet been determined. Thus, it cannot be said that
Land Bank’s alleged obligation has become a forbearance of money.

On the award of attorney’s fees, attorney’s fees and expenses of litigation were awarded
because Alfredo was compelled to litigate due to the unjust refusal of Land Bank to refund the
amount he paid. There are instances when it is just and equitable to award attorney’s fees and
expenses of litigation.[31] Art. 2208 of the Civil Code pertinently states:

In the absence of stipulation, attorney’s fees and expenses of litigation,

other than judicial costs, cannot be recovered, except:

xxxx

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

Given that Alfredo was indeed compelled to litigate against Land Bank and incur expenses
to protect his interest, we find that the award falls under the exception above and is, thus, proper
given the circumstances.

On a final note. The instant case would not have been litigated had Land Bank been more
circumspect in dealing with Alfredo. The bank chose to accept payment from Alfredo even before
a credit investigation was underway, a procedure worsened by the failure to even inform him of
his credit standing’s impact on his assumption of mortgage. It was, therefore, negligent to a certain
degree in handling the transaction with Alfredo. It should be remembered that the business of a
bank is affected with public interest and it should observe a higher standard of diligence when
dealing with the public.[32]

WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No. 84445
is AFFIRMED with MODIFICATION in that the amount of PhP 750,000 will earn interest at
6% per annum reckoned from December 12, 1997, and the total aggregate monetary awards will
in turn earn 12% per annum from the finality of this Decision until fully paid.

SO ORDERED.
 17. [G.R. No. 147950. December 11, 2003]

CALIFORNIA BUS LINES, INC., petitioner, vs. STATE INVESTMENT HOUSE,

INC., respondent.

DECISION
QUISUMBING, J.:

In this petition for review, California Bus Lines, Inc., assails the decision,[1] dated April 17,
2001, of the Court of Appeals in CA-G.R. CV No. 52667, reversing the judgment[2], dated June 3,
1993, of the Regional Trial Court of Manila, Branch 13, in Civil Case No. 84-28505 entitled State
Investment House, Inc. v. California Bus Lines, Inc., for collection of a sum of money. The Court
of Appeals held petitioner California Bus Lines, Inc., liable for the value of five promissory notes
assigned to respondent State Investment House, Inc.
The facts, as culled from the records, are as follows:
Sometime in 1979, Delta Motors Corporation—M.A.N. Division (Delta) applied for financial
assistance from respondent State Investment House, Inc. (hereafter SIHI), a domestic corporation
engaged in the business of quasi-banking. SIHI agreed to extend a credit line to Delta
for P25,000,000.00 in three separate credit agreements dated May 11, June 19, and August 22,
1979.[3] On several occasions, Delta availed of the credit line by discounting with SIHI some of its
receivables, which evidence actual sales of Delta’s vehicles. Delta eventually became indebted to
SIHI to the tune of P24,010,269.32.[4]
Meanwhile, from April 1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter
CBLI), purchased on installment basis 35 units of M.A.N. Diesel Buses and two (2) units of
M.A.N. Diesel Conversion Engines from Delta. To secure the payment of the purchase price of
the 35 buses, CBLI and its president, Mr. Dionisio O. Llamas, executed sixteen (16) promissory
notes in favor of Delta on January 23 and April 25, 1980.[5] In each promissory note, CBLI
promised to pay Delta or order, P2,314,000 payable in 60 monthly installments starting August
31, 1980, with interest at 14% per annum. CBLI further promised to pay the holder of the said
notes 25% of the amount due on the same as attorney’s fees and expenses of collection, whether
actually incurred or not, in case of judicial proceedings to enforce collection. In addition to the
notes, CBLI executed chattel mortgages over the 35 buses in Delta’s favor.
When CBLI defaulted on all payments due, it entered into a restructuring agreement with
Delta on October 7, 1981, to cover its overdue obligations under the promissory notes.[6] The
restructuring agreement provided for a new schedule of payments of CBLI’s past due installments,
extending the period to pay, and stipulating daily remittance instead of the previously agreed
monthly remittance of payments. In case of default, Delta would have the authority to take over
the management and operations of CBLI until CBLI and/or its president, Mr. Dionisio Llamas,
remitted and/or updated CBLI’s past due account. CBLI and Delta also increased the interest rate
to 16% p.a. and added a documentation fee of 2% p.a. and a 4% p.a. restructuring fee.
On December 23, 1981, Delta executed a Continuing Deed of Assignment of Receivables[7] in
favor of SIHI as security for the payment of its obligations to SIHI per the credit agreements. In
view of Delta’s failure to pay, the loan agreements were restructured under a Memorandum of
Agreement dated March 31, 1982.[8] Delta obligated itself to pay a fixed monthly amortization
of P400,000 to SIHI and to discount with SIHI P8,000,000 worth of receivables with the
understanding that SIHI shall apply the proceeds against Delta’s overdue accounts.
CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to
threaten CBLI with the enforcement of the management takeover clause. To pre-empt the take-
over, CBLI filed on May 3, 1982, a complaint for injunction[9], docketed as Civil Case No. 0023-
P, with the Court of First Instance of Rizal, Pasay City,
(nowRegional Trial Court of Pasay City). In due time, Delta filed its amended answer with
applications for the issuance of a writ of preliminary mandatory injunction to enforce the
management takeover clause and a writ of preliminary attachment over the buses it sold to
CBLI.[10] On December 27, 1982,[11] the trial court granted Delta’s prayer for issuance of a writ
of preliminary mandatory injunction and preliminary attachment on account of the fraudulent
disposition by CBLI of its assets.
On September 15, 1983, pursuant to the Memorandum of Agreement, Delta executed a Deed
of Sale[12] assigning to SIHI five (5) of the sixteen (16) promissory notes[13]from California Bus
Lines, Inc. At the time of assignment, these five promissory notes, identified and numbered as 80-
53, 80-54, 80-55, 80-56, and 80-57, had a total value ofP16,152,819.80 inclusive of interest at 14%
per annum.
SIHI subsequently sent a demand letter dated December 13, 1983,[14] to CBLI requiring CBLI
to remit the payments due on the five promissory notes directly to it. CBLI replied informing SIHI
of Civil Case No. 0023-P and of the fact that Delta had taken over its management and
operations.[15]
As regards Delta’s remaining obligation to SIHI, Delta offered its available bus units, valued
at P27,067,162.22, as payment in kind.[16] On December 29, 1983, SIHI accepted Delta’s offer,
and Delta transferred the ownership of its available buses to SIHI, which in turn acknowledged
full payment of Delta’s remaining obligation.[17] When SIHI was unable to take possession of the
buses, SIHI filed a petition for recovery of possession with prayer for issuance of a writ
of replevin before the RTC of Manila, Branch 6, docketed as Civil Case No. 84-23019. The
Manila RTC issued a writ of replevin and SIHI was able to take possession of 17 bus units
belonging to Delta. SIHI applied the proceeds from the sale of the said 17 buses amounting
to P12,870,526.98 to Delta’s outstanding obligation. Delta’s obligation to SIHI was thus reduced
to P20,061,898.97. OnDecember 5, 1984, Branch 6 of the RTC of Manila rendered judgment in
Civil Case No. 84-23019 ordering Delta to pay SIHI this amount.
Thereafter, Delta and CBLI entered into a compromise agreement on July 24, 1984,[18] in Civil
Case No. 0023-P, the injunction case before the RTC of Pasay. CBLI agreed that Delta would
exercise its right to extrajudicially foreclose on the chattel mortgages over the 35 bus units. The
RTC of Pasay approved this compromise agreement the following day, July 25,
1984.[19] Following this, CBLI vehemently refused to pay SIHI the value of the five promissory
notes, contending that the compromise agreement was in full settlement of all its obligations to
Delta including its obligations under the promissory notes.
On December 26, 1984, SIHI filed a complaint, docketed as Civil Case No. 84-28505, against
CBLI in the Regional Trial Court of Manila, Branch 34, to collect on the five (5) promissory notes
with interest at 14% p.a. SIHI also prayed for the issuance of a writ of preliminary attachment
against the properties of CBLI.[20]
On December 28, 1984, Delta filed a petition for extrajudicial foreclosure of chattel mortgages
pursuant to its compromise agreement with CBLI. On January 2, 1985, Delta filed in the RTC
of Pasay a motion for execution of the judgment based on the compromise agreement.[21] The
RTC of Pasay granted this motion the following day.[22]
In view of Delta’s petition and motion for execution per the judgment of compromise, the
RTC of Manila granted in Civil Case No. 84-28505 SIHI’s application for preliminary attachment
on January 4, 1985.[23] Consequently, SIHI was able to attach and physically take possession of
thirty-two (32) buses belonging to CBLI.[24] However, acting onCBLI’s motion to quash the writ
of preliminary attachment, the same court resolved on January 15, 1986,[25] to discharge the writ
of preliminary attachment. SIHI assailed the discharge of the writ before the Intermediate
Appellate Court (now Court of Appeals) in a petition for certiorari and prohibition, docketed as
CA-G.R. SP No. 08378. On July 31, 1987, the Court of Appeals granted SIHI’s petition in CA-
GR SP No. 08378 and ruled that the writ of preliminary attachment issued by Branch 34 of the
RTC Manila in Civil Case No. 84-28505 should stay.[26] The decision of the Court of Appeals
attained finality on August 22, 1987.[27]
Meanwhile, pursuant to the January 3, 1985 Order of the RTC of Pasay, the sheriff
of Pasay City conducted a public auction and issued a certificate of sheriff’s sale to Delta on April
2, 1987, attesting to the fact that Delta bought 14 of the 35 buses for P3,920,000.[28] On April 7,
1987, the sheriff of Manila, by virtue of the writ of execution dated March 27, 1987, issued by
Branch 6 of the RTC of Manila in Civil Case No. 84-23019, sold the same 14 buses at public
auction in partial satisfaction of the judgment SIHI obtained against Delta in Civil Case No. 84-
23019.
Sometime in May 1987, Civil Case No. 84-28505 was raffled to Branch 13 of the RTC of
Manila in view of the retirement of the presiding judge of Branch 34. Subsequently, SIHI moved
to sell the sixteen (16) buses of CBLI which had previously been attached by the sheriff in Civil
Case No. 84-28505 pursuant to the January 4, 1985, Order of the RTC of Manila.[29] SIHI’s motion
was granted on December 16, 1987.[30] On November 29, 1988, however, SIHI filed an urgent ex-
parte motion to amend this order claiming that through inadvertence and excusable negligence of
its new counsel, it made a mistake in the list of buses in the Motion to Sell Attached Properties it
had earlier filed.[31] SIHI explained that 14 of the buses listed had already been sold to Delta on
April 2, 1987, by virtue of the January 3, 1985 Order of the RTC of Pasay, and that two of the
buses listed had been released to third party, claimant Pilipinas Bank, by Order dated September
16, 1987[32] of Branch 13 of the RTC of Manila.
CBLI opposed SIHI’s motion to allow the sale of the 16 buses. On May 3, 1989,[33] Branch
13 of the RTC of Manila denied SIHI’s urgent motion to allow the sale of the 16 buses listed in its
motion to amend. The trial court ruled that the best interest of the parties might be better served
by denying further sales of the buses and to go direct to the trial of the case on the merits.[34]
After trial, judgment was rendered in Civil Case No. 84-28505 on June 3, 1993, discharging
CBLI from liability on the five promissory notes. The trial court likewise favorably ruled
on CBLI’s compulsory counterclaim. The trial court directed SIHI to return the 16 buses or to pay
CBLI P4,000,000 representing the value of the seized buses, with interest at 12% p.a. to begin
from January 11, 1985, the date SIHI seized the buses, until payment is made. In ruling against
SIHI, the trial court held that the restructuring agreement dated October 7, 1981, between Delta
and CBLI novated the five promissory notes; hence, at the time Delta assigned the five promissory
notes to SIHI, the notes were already merged in the restructuring agreement and cannot be enforced
against CBLI.
 SIHI appealed the decision to the Court of Appeals. The case was docketed as CA-G.R. CV
No. 52667. On April 17, 2001, the Court of Appeals decided CA-G.R. CV No. 52667 in this
manner:

WHEREFORE, based on the foregoing premises and finding the appeal to be meritorious, We
find defendant-appellee CBLI liable for the value of the five (5) promissory notes subject of the
complaint a quo less the proceeds from the attached sixteen (16) buses. The award of attorney’s
fees and costs is eliminated. The appealed decision is hereby REVERSED. No costs.

SO ORDERED.[35]

Hence, this appeal where CBLI contends that

I. THE COURT OF APPEALS ERRED IN DECLARING THAT THE
RESTRUCTURING AGREEMENT BETWEEN DELTA AND THE PETITIONER
DID NOT SUBSTANTIALLY NOVATE THE TERMS OF THE FIVE
PROMISSORY NOTES.
II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPROMISE
AGREEMENT BETWEEN DELTA AND THE PETITIONER IN
THE PASAY CITY CASE DID NOT SUPERSEDE AND DISCHARGE THE
PROMISSORY NOTES.
III. THE COURT OF APPEALS ERRED IN UPHOLDING THE CONTINUING
VALIDITY OF THE PRELIMINARY ATTACHMENT AND EXONERATING
THE RESPONDENT OF MALEFACTIONS IN PRESERVING AND ASSERTING
ITS RIGHTS THEREUNDER.[36]
Essentially, the issues are (1) whether the Restructuring Agreement dated October 7, 1981,
between petitioner CBLI and Delta Motors, Corp. novated the five promissory notes Delta Motors,
Corp. assigned to respondent SIHI, and (2) whether the compromise agreement in Civil Case No.
0023-P superseded and/or discharged the subject five promissory notes. The issues being
interrelated, they shall be jointly discussed.
CBLI first contends that the Restructuring Agreement did not merely change the incidental
elements of the obligation under all sixteen (16) promissory notes, but it also increased the
obligations of CBLI with the addition of new obligations that were incompatible with the old
obligations in the said notes.[37] CBLI adds that even if the restructuring agreement did not totally
extinguish the obligations under the sixteen (16) promissory notes, the July 24, 1984, compromise
agreement executed in Civil Case No. 0023-P did.[38] CBLI cites paragraph 5 of the compromise
agreement which states that the agreement between it and CBLI was in “full and final settlement,
adjudication and termination of all their rights and obligations as of the date of (the) agreement,
and of the issues in (the) case.” According to CBLI, inasmuch as the five promissory notes were
subject matters of the Civil Case No. 0023-P, the decision approving the compromise agreement
operated as res judicata in the present case.[39]
Novation has been defined as the extinguishment of an obligation by the substitution or
change of the obligation by a subsequent one which terminates the first, either by changing the
object or principal conditions, or by substituting the person of the debtor, or subrogating a third
person in the rights of the creditor.[40]
Novation, in its broad concept, may either be extinctive or modificatory.[41] It is extinctive
when an old obligation is terminated by the creation of a new obligation that takes the place of the
former; it is merely modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement.[42] An extinctive novationresults either by changing
the object or principal conditions (objective or real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor (subjective or personal).[43] Novation has
two functions: one to extinguish an existing obligation, the other to substitute a new one in its
place.[44] For novation to take place, four essential requisites have to be met, namely, (1) a
previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid new obligation.[45]
Novation is never presumed,[46] and the animus novandi, whether totally or partially, must
appear by express agreement of the parties, or by their acts that are too clear and unequivocal to
be mistaken.[47]
The extinguishment of the old obligation by the new one is a necessary element
of novation which may be effected either expressly or impliedly.[48] The term "expressly" means
that the contracting parties incontrovertibly disclose that their object in executing the new contract
is to extinguish the old one.[49] Upon the other hand, no specific form is required for an
implied novation, and all that is prescribed by law would be an incompatibility between the two
contracts.[50] While there is really no hard and fast rule to determine what might constitute to be a
sufficient change that can bring about novation, the touchstone for contrariety, however, would be
an irreconcilable incompatibility between the old and the new obligations.
There are two ways which could indicate, in fine, the presence of novation and thereby
produce the effect of extinguishing an obligation by another which substitutes the
same. The first is when novation has been explicitly stated and declared in unequivocal
terms. The second is when the old and the new obligations are incompatible on every point. The
test of incompatibility is whether the two obligations can stand together, each one having its
independent existence.[51] If they cannot, they are incompatible and the latter
obligation novates the first.[52] Corollarily, changes that breed incompatibility must be essential in
nature and not merely accidental. The incompatibility must take place in any of the essential
elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the
change would be merely modificatory in nature and insufficient to extinguish the original
obligation.[53]
The necessity to prove the foregoing by clear and convincing evidence is accentuated where
the obligation of the debtor invoking the defense of novation has already matured.[54]
With respect to obligations to pay a sum of money, this Court has consistently applied the
well-settled rule that the obligation is not novated by an instrument that expressly recognizes the
old, changes only the terms of payment, and adds other obligations not incompatible with the old
ones, or where the new contract merely supplements the old one.[55]
In Inchausti & Co. v. Yulo[56] this Court held that an obligation to pay a sum of money is
not novated in a new instrument wherein the old is ratified, by changing only the term of payment
and adding other obligations not incompatible with the old
one. In Tible v. Aquino[57] and Pascual v. Lacsamana[58] this Court declared that it is well settled
that a mere extension of payment and the addition of another obligation not incompatible with the
old one is not a novation thereof.
In this case, the attendant facts do not make out a case of novation. The restructuring
agreement between Delta and CBLI executed on October 7, 1981, shows that the parties did not
expressly stipulate that the restructuring agreement novated the promissory notes. Absent an
unequivocal declaration of extinguishment of the pre-existing obligation, only a showing of
complete incompatibility between the old and the new obligation would sustain a finding
of novation by implication.[59] However, our review of its terms yields no incompatibility between
the promissory notes and the restructuring agreement.
The five promissory notes, which Delta assigned to SIHI on September 13, 1983, contained
the following common stipulations:

1. They were payable in 60 monthly installments up to July 31, 1985;

2. Interest: 14% per annum;

3. Failure to pay any of the installments would render the entire remaining balance
due and payable at the option of the holder of the notes;

4. In case of judicial collection on the notes, the maker (CBLI) and co-maker (its
president, Mr. Dionisio O. Llamas, Jr) were solidarily liable of attorney’s fees and
expenses of 25% of the amount due in addition to the costs of suit.

The restructuring agreement, for its part, had the following provisions:

WHEREAS, CBL and LLAMAS admit their past due installment on the following promissory
notes:

a. PN Nos. 16 to 26 (11 units)

Past Due as of September 30, 1981 – P1,411,434.00
b. PN Nos. 52 to 57 (24 units)
Past Due as of September 30, 1981 – P1,105,353.00

WHEREAS, the parties agreed to restructure the above-mentioned past due installments under
the following terms and conditions:

a. PN Nos. 16 to 26 (11 units) – 37 months

PN Nos. 52 to 57 (24 units) – 46 months
b. Interest Rate: 16% per annum
c. Documentation Fee: 2% per annum
d. Penalty previously incurred and Restructuring fee: 4% p.a.
e. Mode of Payment: Daily Remittance

NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereby
agree and covenant as follows:

1. That the past due installment referred to above plus the current and/or falling due
amortization as of October 1, 1981 for Promissory Notes Nos. 16 to 26 and 52 to 57 shall be paid
by CBL and/or LLAMAS in accordance with the following schedule of payments:

Daily payments of P11,000.00 from

 October 1 to December 31, 1981

Daily payments of P12,000.00 from

January 1, 1982 to March 31, 1982

Daily payments of P13,000.00 from

April 1, 1982 to June 30, 1982

Daily payments of P14,000.00 from

July 1, 1982 to September 30, 1982

Daily payments of P15,000.00 from

October 1, 1982 to December 31, 1982

Daily payments of P16,000.00 from

January 1, 1983 to June 30, 1983

Daily payments of P17,000.00 from

July 1, 1983

2. CBL or LLAMAS shall remit to DMC on or before 11:00 a.m. everyday the daily cash
payments due to DMC in accordance with the schedule in paragraph 1. DMC may send a
collector to receive the amount due at CBL’s premises. All delayed remittances shall be charged
additional 2% penalty interest per month.

3. All payments shall be applied to amortizations and penalties due in accordance with
paragraph of the restructured past due installments above mentioned and PN Nos. 16 to 26 and
52 to 57.

4. DMC may at anytime assign and/or send its representatives to monitor the operations of CBL
pertaining to the financial and field operations and service and maintenance matters of M.A.N.
units. Records needed by the DMC representatives in monitoring said operations shall be made
available by CBL and LLAMAS.

5. Within thirty (30) days after the end of the terms of the PN Nos. 16 to 26 and 52 to 57, CBL
or LLAMAS shall remit in lump sum whatever balance is left after deducting all payments made
from what is due and payable to DMC in accordance with paragraph 1 of this agreement and PN
Nos. 16 to 26 and 52 to 57.

6. In the event that CBL and LLAMAS fail to remit the daily remittance agreed upon and the
total accumulated unremitted amount has reached and (sic) equivalent of Sixty (60) days, DMC
andSilverio shall exercise any or all of the following options:

(a) The whole sum remaining then unpaid plus 2% penalty per month and 16%
interest per annum on total past due installments will immediately become due
and payable. In the event of judicial proceedings to enforce collection, CBL and
LLAMAS will pay to DMC an additional sum equivalent to 25% of the amount
due for attorney’s fees and expenses of collection, whether actually incurred or
not, in addition to the cost of suit;
 (b) To enforce in accordance with law, their rights under the Chattel Mortgage over
various M.A.N. Diesel bus with Nos. CU 80-39, 80-40, 80-41, 80-42, 80-43, 80-
44 and 80-15, and/or

(c) To take over management and operations of CBL until such time that CBL
and/or LLAMAS have remitted and/or updated their past due account with
DMC.

7. DMC and SILVERIO shall insure to CBL continuous supply of spare parts for the M.A.N.
Diesel Buses and shall make available to CBL at the price prevailing at the time of purchase, an
inventory of spare parts consisting of at least ninety (90%) percent of the needs of CBL based on
a moving 6-month requirement to be prepared and submitted by CBL, and acceptable to DMC,
within the first week of each month.

8. Except as otherwise modified in this Agreement, the terms and conditions stipulated in PN
Nos. 16 to 26 and 52 to 57 shall continue to govern the relationship between the parties and that
the Chattel Mortgage over various M.A.N. Diesel Buses with Nos. CM No. 80-39, 80-40, 80-41,
80-42, 80-43, 80-44 and CM No. 80-15 as well as the Deed of Pledge executed by Mr. Llamas
shall continue to secure the obligation until full payment.

9. DMC and SILVERIO undertake to recall or withdraw its previous request to Notary Public
Alberto G. Doller and to instruct him not to proceed with the public auction sale of the shares of
stock of CBL subject-matter of the Deed of Pledge of Shares. LLAMAS, on the other hand,
undertakes to move for the immediate dismissal of Civil Case No. 9460-P entitled “Dionisio O.
Llamas vs. Alberto G. Doller, et al.”, Court of First Instance of Pasay, Branch XXIX.[60]

It is clear from the foregoing that the restructuring agreement, instead of containing provisions
“absolutely incompatible” with the obligations of the judgment, expressly ratifies such obligations
in paragraph 8 and contains provisions for satisfying them. There was no change in the object of
the prior obligations. The restructuring agreement merely provided for a new schedule of
payments and additional security in paragraph 6 (c) giving Delta authority to take over the
management and operations of CBLI in case CBLI fails to pay installments equivalent to 60
days. Where the parties to the new obligation expressly recognize the continuing existence and
validity of the old one, there can be no novation.[61] Moreover, this Court has ruled that an
agreement subsequently executed between a seller and a buyer that provided for a different
schedule and manner of payment, to restructure the mode of payments by the buyer so that it could
settle its outstanding obligation in spite of its delinquency in payment, is not tantamount
to novation.[62]
The addition of other obligations likewise did not extinguish the promissory notes. In Young
v. CA[63], this Court ruled that a change in the incidental elements of, or an addition of such element
to, an obligation, unless otherwise expressed by the parties will not result in its extinguishment.
In fine, the restructuring agreement can stand together with the promissory notes.
Neither is there merit in CBLI’s argument that the compromise agreement dated July 24,
1984, in Civil Case No. 0023-P superseded and/or discharged the five promissory notes. Both
Delta and CBLI cannot deny that the five promissory notes were no longer subject of Civil Case
No. 0023-P when they entered into the compromise agreement onJuly 24, 1984.
 Having previously assigned the five promissory notes to SIHI, Delta had no more right to
compromise the same. Delta’s limited authority to collect for SIHI stipulated in theSeptember 13,
1985, Deed of Sale cannot be construed to include the power to compromise CBLI’s obligations
in the said promissory notes. An authority to compromise, by express provision of Article
1878[64] of the Civil Code, requires a special power of attorney, which is not present in this
case. Incidentally, Delta’s authority to collect in behalf of SIHI was, by express provision of the
Continuing Deed of Assignment,[65] automatically revoked when SIHI opted to collect directly
from CBLI.
As regards CBLI, SIHI’s demand letter dated December 13, 1983, requiring CBLI to remit
the payments directly to SIHI effectively revoked Delta’s limited right to collect in behalf of
SIHI. This should have dispelled CBLI’s erroneous notion that Delta was acting in behalf of SIHI,
with authority to compromise the five promissory notes.
But more importantly, the compromise agreement itself provided that it covered the rights and
obligations only of Delta and CBLI and that it did not refer to, nor cover the rights of, SIHI as the
new creditor of CBLI in the subject promissory notes. CBLI and Delta stipulated in paragraph 5
of the agreement that:

5. This COMPROMISE AGREEMENT constitutes the entire understanding by and between

the plaintiffs and the defendants as well as their lawyers, and operates as full and final
settlement, adjudication and termination of all their rights and obligations as of the date of this
agreement, and of the issues in this case.[66]

Even in the absence of such a provision, the compromise agreement still cannot bind SIHI
under the settled rule that a compromise agreement determines the rights and obligations of only
the parties to it.[67] Therefore, we hold that the compromise agreement covered the rights and
obligations only of Delta and CBLI and only with respect to the eleven (11) other promissory notes
that remained with Delta.
CBLI next maintains that SIHI is estopped from questioning the compromise agreement
because SIHI failed to intervene in Civil Case No. 0023-P after CBLI informed it of the takeover
by Delta of CBLI’s management and operations and the resultant impossibility for CBLI to
comply with its obligations in the subject promissory notes. CBLI also adds that SIHI’s failure to
intervene in Civil Case No. 0023-P is proof that Delta continued to act in SIHI’s behalf in effecting
collection under the notes.
The contention is untenable. As a result of the assignment, Delta relinquished all its rights to
the subject promissory notes in favor of SIHI. This had the effect of separating the five promissory
notes from the 16 promissory notes subject of Civil Case No. 0023-P. From that
time, CBLI’s obligations to SIHI embodied in the five promissory notes became separate and
distinct from CBLI’s obligations in eleven (11) other promissory notes that remained with
Delta. Thus, any breach of these independent obligations gives rise to a separate cause of action
in favor of SIHI against CBLI. Considering that Delta’s assignment to SIHI of these five
promissory notes had the effect of removing the said notes from Civil Case No. 0023-P, there was
no reason for SIHI to intervene in the said case. SIHI did not have any interest to protect in Civil
Case No. 0023-P.
Moreover, intervention is not mandatory, but only optional and permissive.[68] Notably,
Section 2,[69] Rule 12 of the then 1988 Revised Rules of Procedure uses the word ‘may’ in defining
the right to intervene. The present rules maintain the permissive nature of intervention in Section
1, Rule 19 of the 1997 Rules of Civil Procedure, which provides as follows:
SEC. 1. Who may intervene.—A person who has a legal interest in the matter in litigation, or in
the success of either of the parties, or an interest against both, or is so situated as to be adversely
affected by a distribution or other disposition of property in the custody of the court or of an
officer thereof may, with leave of court, be allowed to intervene in the action. The court shall
consider whether or not the intervention will unduly delay or prejudice the adjudication of the
rights of the original parties, and whether or not the intervenor's rights may be fully protected in
a separate proceeding.[70]

Also, recall that Delta transferred the five promissory notes to SIHI on September 13,
1983 while Civil Case No. 0023-P was pending. Then as now, the rule in case of transfer of
interest pendente lite is that the action may be continued by or against the original party unless the
court, upon motion, directs the person to whom the interest is transferred to be substituted in the
action or joined with the original party.[71] The non-inclusion of a necessary party does not prevent
the court from proceeding in the action, and the judgment rendered therein shall be without
prejudice to the rights of such necessary party.[72]
In light of the foregoing, SIHI’s refusal to intervene in Civil Case No. 0023-P in another court
does not amount to an estoppel that may prevent SIHI from instituting a separate and independent
action of its own.[73] This is especially so since it does not appear that a separate proceeding would
be inadequate to protect fully SIHI’s rights.[74]Indeed, SIHI’s refusal to intervene is precisely
because it considered that its rights would be better protected in a separate and independent suit.
The judgment on compromise in Civil Case No. 0023-P did not operate as res judicata to
prevent SIHI from prosecuting its claims in the present case. As previously discussed, the
compromise agreement and the judgment on compromise in Civil Case No. 0023-P covered only
Delta and CBLI and their respective rights under the 11 promissory notes not assigned to SIHI. In
contrast, the instant case involves SIHI and CBLI and the five promissory notes. There being no
identity of parties and subject matter, there is no res judicata.
CBLI maintains, however, that in any event, recovery under the subject promissory notes is
no longer allowed by Article 1484(3)[75] of the Civil Code, which prohibits a creditor from suing
for the deficiency after it has foreclosed on the chattel mortgages. SIHI, being the successor-in-
interest of Delta, is no longer allowed to recover on the promissory notes given as security for the
purchase price of the 35 buses because Delta had already extrajudicially foreclosed on the chattel
mortgages over the said buses onApril 2, 1987.
This claim is likewise untenable.
Article 1484(3) finds no application in the present case. The extrajudicial foreclosure of the
chattel mortgages Delta effected cannot prejudice SIHI’s rights. As stated earlier, the assignment
of the five notes operated to create a separate and independent obligation on the part of CBLI to
SIHI, distinct and separate from CBLI’s obligations to Delta. And since there was a previous
revocation of Delta’s authority to collect for SIHI, Delta was no longer SIHI’s collecting
agent. CBLI, in turn, knew of the assignment and Delta’s lack of authority to compromise the
subject notes, yet it readily agreed to the foreclosure. To sanction CBLI’s argument and to apply
Article 1484 (3) to this case would work injustice to SIHI by depriving it of its right to collect
against CBLI who has not paid its obligations.
That SIHI later on levied on execution and acquired in the ensuing public sale in Civil Case
No. 84-23019 the buses Delta earlier extrajudicially foreclosed on April 2, 1987, in Civil Case No.
0023-P, did not operate to render the compromise agreement and the foreclosure binding on
SIHI. At the time SIHI effected the levy on execution to satisfy its judgment credit against Delta
in Civil Case No. 84-23019, the said buses already pertained to Delta by virtue of the April 2,
1987 auction sale. CBLI no longer had any interest in the said buses. Under the circumstances,
we cannot see how SIHI’s belated acquisition of the foreclosed buses operates to hold the
compromise agreement—and consequently Article 1484(3)—applicable to SIHI as CBLI
contends. CBLI’s last contention must, therefore, fail. We hold that the writ of execution to
enforce the judgment of compromise in Civil Case No. 0023-P and the foreclosure sale of April 2,
1987, done pursuant to the said writ of execution affected only the eleven (11) other promissory
notes covered by the compromise agreement and the judgment on compromise in Civil Case No.
0023-P.
In support of its third assignment of error, CBLI maintains that there was no basis
for SIHI’s application for a writ of preliminary attachment.[76] According to CBLI, it committed
no fraud in contracting its obligation under the five promissory notes because it was financially
sound when it issued the said notes on April 25, 1980.[77] CBLI also asserts that at no time did it
falsely represent to SIHI that it would be able to pay its obligations under the five promissory
notes.[78] According to CBLI, it was not guilty of fraudulent concealment, removal, or disposal, or
of fraudulent intent to conceal, remove, or dispose of its properties to defraud its creditors;[79] and
that SIHI’s bare allegations on this matter were insufficient for the preliminary attachment
of CBLI’s properties.[80]
The question whether the attachment of the sixteen (16) buses was valid and in accordance
with law, however, has already been resolved with finality by the Court of Appeals in CA-G.R.
SP No. 08376. In its July 31, 1987, decision, the Court of Appeals upheld the legality of the writ
of preliminary attachment SIHI obtained and ruled that the trial court judge acted with grave abuse
of discretion in discharging the writ of attachment despite the clear presence of a determined
scheme on the part of CBLI to dispose of its property. Considering that the said Court of Appeals
decision has already attained finality on August 22, 1987, there exists no reason to resolve this
question anew. Reasons of public policy, judicial orderliness, economy and judicial time and the
interests of litigants as well as the peace and order of society, all require that stability be accorded
the solemn and final judgments of courts or tribunals of competent jurisdiction.[81]
Finally, in the light of the justness of SIHI’s claim against CBLI, we cannot
sustain CBLI’s contention that the Court of Appeals erred in dismissing its counterclaim for lost
income and the value of the 16 buses over which SIHI obtained a writ of preliminary
attachment. Where the party who requested the attachment acted in good faith and without malice,
the claim for damages resulting from the attachment of property cannot be sustained.[82]
WHEREFORE, the decision dated April 17, 2001, of the Court of Appeals in CA-G.R. CV
No. 52667 is AFFIRMED. Petitioner California Bus Lines, Inc., is ORDERED to pay respondent
State Investment House, Inc., the value of the five (5) promissory notes subject of the complaint
in Civil Case No. 84-28505 less the proceeds from the sale of the attached sixteen (16) buses. No
pronouncement as to costs.
SO ORDERED.

18. 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
therein 3 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 necessary daily employees without employing
permanent ones. Then on December 6, the same president and general manager issued yet
another memorandum (exh. B-2), instructing Ricardo Francisco, as assistant chief chemist, to
recall all daily employees connected with the production of Mafran sauce and to hire additional
daily employees for the production of Porky Pops. Twenty-three days afterwards, or on
December 29, the same president and general manager issued still another memorandum (exh. S-
2), directing "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 the further instruction to hire daily laborers in order to cope with the full blast production.
And finally, at the hearing held on October 24, 1961, the same president and general manager
admitted that "I consider that the two months we paid him (referring to respondent Magdalo V.
Francisco, Sr.) is the separation pay."
The facts narrated in the preceding paragraph were the prevailing milieu on February 14, 1961
when the complaint for rescission of the Bill of Assignment was filed. They clearly prove that
the petitioner, acting through its corporate officers, 11 schemed and maneuvered to ease out,
separate and dismiss the said respondent from the service as permanent chief chemist, in flagrant
violation of paragraph 5-(a) and (b) of the Bill of Assignment. The fact that a month after the
institution of the action for rescission, the petitioner corporation, thru its president and general
manager, requested the respondent patentee to report for duty (exh. 3), is of no consequence. As
the Court of Appeals correctly observed, such request was a "recall to placate said plaintiff."

3. We now come to the question of rescission of the Bill of Assignment. In this connection, we
quote for ready reference the following articles of the new Civil Code governing rescission of
contracts:

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

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

The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 of the Mortgage
Law.

ART. 1383. The action for rescission is subsidiary; it cannot be instituted except
when the party suffering damage has no other legal means to obtain reparation for
the same.

ART. 1384. Rescission shall be only to the extent necessary to cover the damages
caused.

At the moment, we shall concern ourselves with the first two paragraphs of 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 fulfillment and
rescission of the obligation, with payment of damages in either case.

In this case before us, there is no controversy that the provisions of the Bill of Assignment are
reciprocal in nature. The petitioner corporation violated the Bill of Assignment, specifically
paragraph 5-(a) and (b), by terminating the services of the respondent patentee Magdalo V.
Francisco, Sr., without lawful and justifiable cause.

Upon the factual milieu, 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.12 The question of whether a breach of a contract is substantial
depends upon the attendant circumstances. 13 The petitioner contends that rescission of the Bill
of Assignment should be denied, because under article 1383, 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. However, in this case the dismissal of the respondent patentee
Magdalo V. Francisco, Sr. as the permanent chief chemist of the corporation is a fundamental
and substantial breach of the Bill of Assignment. He was dismissed without any fault or
negligence on his part. Thus, apart from the legal principle that the option — to demand
performance or ask for rescission of a contract — belongs to the injured party, 14 the fact remains
that the respondents-appellees had no alternative but to file the present action for rescission and
damages. 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; that in the manufacture of Mafran sauce and other food products he would have "absolute
control and supervision over the laboratory assistants and personnel and in the purchase and
safeguarding of said products;" and that only by all these measures could the respondent patentee
preserve effectively the secrecy of the formula, prevent its proliferation, enjoy its monopoly, and,
in the process afford and secure for himself a lifetime job and steady income. The salient
provisions of the Bill of Assignment, namely, the transfer to the corporation of only the use of
the formula; the appointment of the respondent patentee as Second Vice-President and chief
chemist on a permanent status; the obligation of the said respondent patentee to continue
research on the patent to improve the quality of the products of the corporation; 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.

4. 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,
1960, until the return to him of the Mafran trademark and formula, arguing that under articles
1191, the right to specific performance is not conjunctive with the right to rescind a reciprocal
contract; that a plaintiff cannot ask for both remedies; 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; that this is a
gross error of law, when it is considered that such holding would make the petitioner liable to
pay respondent patentee's salary from December 1, 1960 to "kingdom come," as the said holding
requires the petitioner to make payment until it returns the formula which, the appellate court
itself found, the corporation never had; that, moreover, the fact is that the said respondent
patentee refused to go back to work, notwithstanding the call for him to return — which negates
his right to be paid his back salaries for services which he had not rendered; and that if the said
respondent is entitled to be paid any back salary, the same should be computed only from
December 1, 1960 to March 31, 1961, for on March 20, 1961 the petitioner had already formally
called him back to work.

The above contention is without merit. Reading once more the Bill of Assignment in its entirety
and the particular provisions in their proper setting, we hold that the contract placed the use of
the formula for Mafran sauce with the petitioner, subject to defined limitations. One of the
considerations for the transfer of the use thereof was the undertaking on the part of the petitioner
corporation to employ the respondent patentee as the Second Vice-President and Chief Chemist
on a permanent status, at a monthly salary of P300, unless "death or other disabilities
supervened. Under these circumstances, the petitioner corporation could not escape liability to
pay the private respondent patentee his agreed monthly salary, as long as the use, as well as the
right to use, the formula for Mafran sauce remained with the corporation.

5. 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, 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, and the respondent patentee admittedly never gave
the same to the corporation. According to the petitioner these findings would render it impossible
to carry out the order to return the formula to the respondent patentee. The petitioner's
predicament is understandable. Article 1385 of the new Civil Code provides that rescission
creates the obligation to return the things which were the object of the contract. But that as it
may, 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, but only its use and the right to such
use. Thus, the respondents in their complaint for rescission specifically and particularly pray,
among others, that the petitioner corporation be adjudged as "without any right to use said
trademark and formula."

ACCORDINGLY, conformably with the observations we have above made, the judgment of the
Court of Appeals is modified to read as follows: "Wherefore the appealed decision is reversed.
The Bill of Assignment (Exhibit A) is hereby rescinded, and the defendant corporation is ordered
to return and restore to the plaintiff Magdalo V. Francisco, Sr. the right to the use of his Mafran
sauce trademark and formula, subject-matter of the Bill of Assignment, and to this end the
defendant corporation and all its assigns and successors are hereby permanently enjoined,
effective immediately, from using in any manner the said Mafran sauce trademark and formula.
The defendant corporation shall also pay to Magdalo V. Francisco, Sr. his monthly salary of
P300 from December 1, 1960, until the date of finality of this judgment, inclusive, the total
amount due to him to earn legal interest from the date of the finality of this judgment until it
shall have been fully paid, plus attorney's fees in the amount of P500, with costs against the
defendant corporation." As thus modified, the said judgment is affirmed, with costs against the
petitioner corporation.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Barredo and Villamor, JJ., concur.

Teehankee J., took no part.

Separate Opinions

REYES, J.B.L., J., concurring:

I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that
the argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo
Francisco, should be denied because under Article 1383 of the Civil Code of the Philippines
rescission can not be demanded except when the party suffering damage has no other legal
means to obtain reparation, 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, under Article 1381, et seq. 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, that violates the reciprocity between the parties. It is not a
subsidiary action, 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. This rescission is in principal action retaliatory in character, it
being unjust that a party be held bound to fulfill his promises when the other violates his. As
expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the
reparation of damages for the breach is purely secondary.

On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action
is subordinated to the existence of that prejudice, because it is the raison d'etre as well as the
measure of the right to rescind. Hence, where the defendant makes good the damages caused, the
action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. 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, and does not, apply to cases under Article
1191.

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; unlike the previous
Spanish Civil Code of 1889, that differentiated "resolution" for breach of stipulations from
"rescission" by reason of lesion or damage. 1 But the terminological vagueness does not justify
confusing one case with the other, considering the patent difference in causes and results of
either action.

Separate Opinions

REYES, J.B.L., J., concurring:

I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that
the argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo
Francisco, should be denied because under Article 1383 of the Civil Code of the Philippines
rescission can not be demanded except when the party suffering damage has no other legal
means to obtain reparation, 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, under Article 1381, et seq. 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, that violates the reciprocity between the parties. It is not a
subsidiary action, 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. This rescission is in principal action retaliatory in character, it
being unjust that a party be held bound to fulfill his promises when the other violates his. As
expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the
reparation of damages for the breach is purely secondary.

On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action
is subordinated to the existence of that prejudice, because it is the raison d'etre as well as the
measure of the right to rescind. Hence, where the defendant makes good the damages caused, the
action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. 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, and does not, apply to cases under Article
1191.

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; unlike the previous
Spanish Civil Code of 1889, that differentiated "resolution" for breach of stipulations from
"rescission" by reason of lesion or damage. 1 But the terminological vagueness does not justify
confusing one case with the other, considering the patent difference in causes and results of
either action.

19. FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs. Spouses

BERNARDINO NAGUIAT and MARIA PAULINA GERONA-
NAGUIAT,respondents.

DECISION
PANGANIBAN, J.:

The failure to pay in full the purchase price stipulated in a deed of sale does not ipso
facto grant the seller the right to rescind the agreement. Unless otherwise stipulated by the parties,
rescission is allowed only when the breach of the contract is substantial and fundamental to the
fulfillment of the obligation.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify
the October 31, 1997 Decision[2] and the February 23, 1999 Resolution[3] of the Court of Appeals
(CA) in CA-GR CV No. 51067. The assailed Decision disposed as follows:

“WHEREFORE, modified as indicated above, the decision of the Regional Trial Court is hereby
AFFIRMED.”[4]

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The Facts
 The facts of the case are summarized by the CA as follows:

“Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land

located at Malhacan, Meycauayan, Bulacan. A portion thereof was leased to [Respondent
Bernardino Naguiat] sometime in 1970.

“On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino
Naguiat] over a portion of the aforementioned lot containing an area of 200 square meters. This
agreement was reduced to writing in a document entitled ‘Kasulatan sa Pagbibilihan’ which
reads as follows:

‘NAGSASALAYSAY:

‘Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa na nasa
Nayon ng Malhacan, Bayan ng Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at
mga kahangga nito gaya ng sumusunod:

xxx xxx xxx

‘Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00) Kualtang

Pilipino, ang NAGBIBILI ay nakipagkasundo ng kanyang ipagbibili ang isang bahagi o sukat na
DALAWANG DAAN (200) METROS PARISUKAT, sa lupang nabanggit sa itaas, na ang mga
kahangga nito ay gaya ng sumusunod:

xxx xxx xxx

‘Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang DALAWANG

LIBONG PISO (P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang kasulatang ito.

‘Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang
Pilipino, ay babayaran ng BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa araw
din ng lagdaan ang kasulatang ito.

‘Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g]

BUMIBILI ay magbabayad ng pakinabang o interes ng 12% isang taon, sa taon nilakaran
hanggang sa ito’y mabayaran tuluyan ng Bumibili:

‘Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang ito, ngayon ika 5 ng
Abril, 1979, sa Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas.

(signed) (signed)
BERNARDINO NAGUIAT EULALIO MISTICA
Bumibili Nagbibili’

“Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment

of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He failed to
make any payments thereafter. Eulalio Mistica died sometime in October 1986.
“On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the
failure and refusal of [respondents] to pay the balance of the purchase price constitutes a
violation of the contract which entitles her to rescind the same; that [respondents] have been in
possession of the subject portion and they should be ordered to vacate and surrender possession
of the same to [petitioner] ; that the reasonable amount of rental for the subject land is P200.00 a
month; that on account of the unjustified actuations of [respondents], [petitioner] has been
constrained to litigate where she incurred expenses for attorney’s fees and litigation expenses in
the sum of P20,000.00.

“In their answer and amended answer, [respondents] contended that the contract cannot be
rescinded on the ground that it clearly stipulates that in case of failure to pay the balance as
stipulated, a yearly interest of 12% is to be paid. [Respondent Bernardino Naguiat] likewise
alleged that sometime in October 1986, during the wake of the late Eulalio Mistica, he offered to
pay the remaining balance to [petitioner] but the latter refused and hence, there is no breach or
violation committed by them and no damages could yet be incurred by the late Eulalio Mistica,
his heirs or assigns pursuant to the said document; that he is presently the owner in fee simple of
the subject lot having acquired the same by virtue of a Free Patent Title duly awarded to him by
the Bureau of Lands; and that his title and ownership had already become indefeasible and
incontrovertible. As counterclaim, [respondents] pray for moral damages in the amount
of P50,000.00; exemplary damages in the amount of P30,000.00; attorney’s fees in the amount
of P10,000.00 and other litigation expenses.

“On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the court
on 29 July 1992. The motion for reconsideration was likewise denied per its Order of 17 March
1993.

“After the presentation of evidence, the court on 27 January 1995 rendered the now assailed
judgment, the dispositive portion of which reads:

‘WHEREFORE, premises considered, judgment is hereby rendered:

‘1. Dismissing the complaint and ordering the [petitioner] to pay the [respondents]
attorney’s fee in the amount of P10,000.00 and costs of the suit;

‘2. Ordering the [respondents]:

‘a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of the
purchase price in the amount of P17,000.00, with interest thereon at the
rate of 12% per annum computed from April 5, 1989 until full payment is
made, subject to the application of the consigned amount to such payment;

‘b. To return to [petitioner] and the heirs of Eulalio Mistica the extra area of
58 square meters from the land covered by OCT No. 4917 (M), the
corresponding price therefor based on the prevailing market price
thereof.’”[5] (Citations omitted)

CA’s Decision
 Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It
explained that the conclusion of the ten-year period was not a resolutory term, because the Contract
had stipulated that payment -- with interest of 12 percent -- could still be made if respondents failed
to pay within the period. According to the appellate court, petitioner did not disprove the
allegation of respondents that they had tendered payment of the balance of the purchase price
during her husband’s funeral, which was well within the ten-year period.
Moreover, rescission would be unjust to respondents, because they had already transferred the
land title to their names. The proper recourse, the CA held, was to order them to pay the balance
of the purchase price, with 12 percent interest.
As to the matter of the extra 58 square meters, the CA held that its reconveyance was no longer
feasible, because it had been included in the title issued to them. The appellate court ruled that the
only remedy available was to order them to pay petitioner the fair market value of the usurped
portion.
Hence, this Petition.[6]

Issues

In her Memorandum,[7] petitioner raises the following issues:

“1. Whether or not the Honorable Court of Appeals erred in the application of Art.
1191 of the New Civil Code, as it ruled that there is no breach of obligation
inspite of the lapse of the stipulated period and the failure of the private
respondents to pay.

“2. Whether or not the Honorable Court of Appeals [e]rred in ruling that rescission
of the contract is no longer feasible considering that a certificate of title had been
issued in favor of the private respondents.

“3. Whether or not the Honorable Court of Appeals erred in ruling that since the 58
sq. m. portion in question is covered by a certificate of title in the names of
private respondents reconveyance is no longer feasible and proper.”[8]

The Court’s Ruling

The Petition is without merit.

First Issue:
Rescission in Article 1191

Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil
Code, because respondents committed a substantial breach when they did not pay the balance of
the purchase price within the ten-year period. She further avers that the proviso on the payment
of interest did not extend the period to pay. To interpret it in that way would make the obligation
purely potestative and, thus, void under Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by
the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when
there is neither a stipulation in the deed that title to the property sold is reserved to the seller until
the full payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve
the contract the moment the buyer fails to pay within a fixed period.[9]
In a contract of sale, the remedy of an unpaid seller is either specific performance or
rescission.[10] Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated
on the violation of the reciprocity between parties, brought about by a breach of faith by one of
them.[11] Rescission, however, is allowed only where the breach is substantial and fundamental to
the fulfillment of the obligation.[12]
In the present case, the failure of respondents to pay the balance of the purchase price within
ten years from the execution of the Deed did not amount to a substantial breach. In
the Kasulatan, it was stipulated that payment could be made even after ten years from the
execution of the Contract, provided the vendee paid 12 percent interest. The stipulations of the
contract constitute the law between the parties; thus, courts have no alternative but to enforce them
as agreed upon and written.[13]
Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband
never made any demand for the balance of the purchase price. Petitioner even refused the payment
tendered by respondents during her husband’s funeral, thus showing that she was not exactly
blameless for the lapse of the ten-year period. Had she accepted the tender, payment would have
been made well within the agreed period.
If petitioner would like to impress upon this Court that the parties intended otherwise, she has
to show competent proof to support her contention. Instead, she argues that the period cannot be
extended beyond ten years, because to do so would convert the buyer’s obligation to a purely
potestative obligation that would annul the contract under Article 1182 of the Civil Code.
This contention is likewise untenable. The Code prohibits purely potestative, suspensive,
conditional obligations that depend on the whims of the debtor, because such obligations are
usually not meant to be fulfilled.[14] Indeed, to allow the fulfillment of conditions to depend
exclusively on the debtor’s will would be to sanction illusory
[15]
obligations. The Kasulatan does not allow such thing. First, nowhere is it stated in the
Deed that payment of the purchase price is dependent upon whether respondents want to pay it or
not. Second, the fact that they already made partial payment thereof only shows that the parties
intended to be bound by the Kasulatan.
Both the trial and the appellate courts arrived at this finding. Well-settled is the rule that
findings of fact by the CA are generally binding upon this Court and will not be disturbed on
appeal, especially when they are the same as those of the trial court.[16] Petitioner has not given us
sufficient reasons to depart from this rule.

Second Issue:
Rescission Unrelated to Registration
 The CA further ruled that rescission in this case would be unjust to respondents, because a
certificate of title had already been issued in their names. Petitioner nonetheless argues that the
Court is still empowered to order rescission.
We clarify. The issuance of a certificate of title in favor of respondents does not determine
whether petitioner is entitled to rescission. It is a fundamental principle in land registration that
such title serves merely as an evidence of an indefeasible and incontrovertible title to the property
in favor of the person whose name appears therein.[17]
While a review of the decree of registration is no longer possible after the expiration of the
one-year period from entry, an equitable remedy is still available to those wrongfully deprived of
their property.[18] A certificate of title cannot be subject to collateral attack and can only be altered,
modified or canceled in direct proceedings in accordance with law.[19] Hence, the CA correctly
held that the propriety of the issuance of title in the name of respondents was an issue that was not
determinable in these proceedings.

Third Issue:
Reconveyance of the Portion Importunately Included

Petitioner argues that it would be reasonable for respondents to pay her the value of the lot,
because the CA erred in ruling that the reconveyance of the extra 58-square meter lot, which had
been included in the certificate of title issued to them, was no longer feasible.
In principle, we agree with petitioner. Registration has never been a mode of acquiring
ownership over immovable property, because it does not create or vest title, but merely confirms
one already created or vested.[20] Registration does not give holders any better title than what they
actually have.[21] Land erroneously included in the certificate of title of another must be
reconveyed in favor of its true and actual owner.[22]
Section 48 of Presidential Decree 1529, however, provides that the certificate of title shall not
be subject to collateral attack, alteration, modification, or cancellation except in a direct
proceeding.[23] The cancellation or removal of the extra portion from the title of respondents is not
permissible in an action for rescission of the contract of sale between them and petitioner’s late
husband, because such action is tantamount to allowing a collateral attack on the title.
It appears that an action for cancellation/annulment of patent and title and for reversion was
already filed by the State in favor of petitioner and the heirs of her husband.[24]Hence, there is no
need in this case to pass upon the right of respondents to the registration of the subject land under
their names. For the same reason, there is no necessity to order them to pay petitioner the fair
market value of the extra 58-square meter lot importunately included in the title.
WHEREFORE, the assailed Decision and Resolution are AFFIRMED with
the MODIFICATION that the payment for the extra 58-square meter lot included in respondents’
title is DELETED.
SO ORDERED.
20. ESTELITA VILLAMAR, G.R. No. 188661
Petitioner,
Present:

CARPIO, J.,
 Chairperson,
- versus - BRION,
PEREZ,
SERENO, and
REYES, JJ.

BALBINO MANGAOIL, Promulgated:

Respondent. April 11, 2012

x--------------------------------------------------------------------------------------------x

DECISION

REYES, J.:

The Case

Before us is a petition for review on certiorari[1] under Rule 45 of the Rules of Court filed
by Estelita Villamar (Villamar) to assail the Decision[2] rendered by the Court of Appeals (CA)
on February 20, 2009 in CA-G.R. CV No. 86286, the dispositive portion of which reads:

WHEREFORE, the instant appeal is DISMISSED. The assailed decision

is AFFIRMED in toto.
SO ORDERED.[3]

The resolution[4] issued by the CA on July 8, 2009 denied the petitioner's motion for
reconsideration to the foregoing.

The ruling[5] of Branch 23, Regional Trial Court (RTC) of Roxas, Isabela, which was
affirmed by the CA in the herein assailed decision and resolution, ordered the (1) rescission of the
contract of sale of real property entered into by Villamar and Balbino Mangaoil (Mangaoil); and
(2) return of the down payment made relative to the said contract.

Antecedents Facts

The CA aptly summarized as follows the facts of the case prior to the filing by Mangaoil of
the complaint[6] for rescission of contract before the RTC:

Villamar is the registered owner of a 3.6080 hectares parcel of land

[hereinafter referred as the subject property] in San Francisco, Manuel, Isabela
covered by Transfer Certificate of Title (TCT) No. T-92958-A. On March 30,
1998, she entered into an Agreement with Mangaoil for the purchase and sale of
said parcel of land, under the following terms and conditions:

“1. The price of the land is ONE HUNDRED AND

EIGHTY THOUSAND (180,000.00) PESOS per hectare but only
the 3.5000 hec. shall be paid and the rest shall be given free, so that
the total purchase or selling price shall be [P]630,000.00 only;
 2. ONE HUNDRED EIGHTY FIVE THOUSAND
(185,000.00) PESOS of the total price was already received on
March 27, 1998 for payment of the loan secured by the certificate
of title covering the land in favor of the Rural Bank of Cauayan,
San Manuel Branch, San Manuel, Isabela [Rural Bank of Cauayan],
in order that the certificate of title thereof be withdrawn and released
from the said bank, and the rest shall be for the payment of the
mortgag[e]s in favor of Romeo Lacaden and Florante Parangan;
3. After the release of the certificate of title covering the land
subject-matter of this agreement, the necessary deed of absolute
sale in favor of the PARTY OF THE SECOND PART shall be
executed and the transfer be immediately effected so that the latter
can apply for a loan from any lending institution using the
corresponding certificate of title as collateral therefor, and the
proceeds of the loan, whatever be the amount, be given to the
PARTY OF THE FIRST PART;

4. Whatever balance left from the agreed purchase price of

the land subject matter hereof after deducting the proceed of the loan
and the [P]185,000.00 already received as above-mentioned, the
PARTY OF THE SECOND PART shall pay unto the PARTY OF
THE FIRST PART not later than June 30, 1998 and thereafter the
parties shall be released of any obligations for and against each
other; xxx”

On April 1, 1998, the parties executed a Deed of Absolute Sale whereby

Villamar (then Estelita Bernabe) transferred the subject parcel of land to Mangaoil
for and in consideration of [P]150,000.00.

In a letter dated September 18, 1998, Mangaoil informed Villamar that he

was backing out from the sale agreed upon giving as one of the reasons therefor:

“3. That the area is not yet fully cleared by incumbrances as

there are tenants who are not willing to vacate the land without
giving them back the amount that they mortgaged the land.”

Mangaoil demanded refund of his [P]185,000.00 down payment. Reiterating said

demand in another letter dated April 29, 1999, the same, however, was
unheeded.[7] x x x (Citations omitted)

On January 28, 2002, the respondent filed before the RTC a complaint[8] for rescission of
contract against the petitioner. In the said complaint, the respondent sought the return
of P185,000.00 which he paid to the petitioner, payment of interests thereon to be computed from
March 27, 1998 until the suit's termination, and the award of damages, costs and P20,000.00
attorney's fees. The respondent's factual allegations were as follows:

5. That as could be gleaned the “Agreement” (Annex “A”), the plaintiff

[Mangaoil] handed to the defendant [Villamar] the sum of [P]185,000.00 to be
applied as follows;[P]80,000 was for the redemption of the land which was
 mortgaged to the Rural Bank of Cauayan, San Manuel Branch, San Manuel,
Isabela, to enable the plaintiff to get hold of the title and register the sale x x
x and [P]105,000.00 was for the redemption of the said land from private mortgages
to enable plaintiff to posses[s] and cultivate the same;

6. That although the defendant had already long redeemed the said land
from the said bank and withdrawn TCT No. T-92958-A, she has failed and refused,
despite repeated demands, to hand over the said title to the plaintiff and still refuses
and fails to do so;

7. That, also, the plaintiff could not physically, actually and materially
posses[s] and cultivate the said land because the private mortgage[e]s and/or
present possessors refuse to vacate the same;

xxxx

11. That on September 18, 1998, the plaintiff sent a letter to the defendant
demanding a return of the amount so advanced by him, but the latter ignored the
same, x x x;

12. That, again, on April 29, 1999, the plaintiff sent to the defendant another
demand letter but the latter likewise ignored the same, x x x;

13. That, finally, the plaintiff notified the defendant by a notarial act of his
desire and intention to rescind the said contract of sale, xxx;

x x x x.[9] (Citations omitted)

In the respondent’s answer to the complaint, she averred that she had complied with her
obligations to the respondent. Specifically, she claimed having caused the release of TCT No. T-
92958-A by the Rural Bank of Cauayan and its delivery to a certain “Atty. Pedro C. Antonio”
(Atty. Antonio). The petitioner alleged that Atty. Antonio was commissioned to facilitate the
transfer of the said title in the respondent's name. The petitioner likewise insisted that it was the
respondent who unceremoniously withdrew from their agreement for reasons only the latter knew.

The Ruling of the RTC

On September 9, 2005, the RTC ordered the rescission of the agreement and the deed of
absolute sale executed between the respondent and the petitioner. The petitioner was, thus directed
to return to the respondent the sum of P185,000.00 which the latter tendered as initial payment for
the purchase of the subject property. The RTC ratiocinated that:

There is no dispute that the defendant sold the LAND to the plaintiff
for [P]630,000.00 with down payment of [P]185,000.00. There is no evidence
presented if there were any other partial payments made after the perfection of the
contract of sale.

Article 1458 of the Civil Code provides:

 “Art. 1458. By the contract of sale[,] one of the
contracting parties obligates himself to transfer the ownership
of and to deliver a determinate thing, and the other to pay
therefore a price certain in money or its equivalent.”

As such, in a contract of sale, the obligation of the vendee to pay the price
is correlative of the obligation of the vendor to deliver the thing sold. It created or
established at the same time, out of the same course, and which result in mutual
relations of creditor and debtor between the parties.

The claim of the plaintiff that the LAND has not been delivered to him was
not refuted by the defendant. Considering that defendant failed to deliver to him the
certificate of title and of the possession over the LAND to the plaintiff, the contract
must be rescinded pursuant to Article 1191 of the Civil Code which, in part,
provides:

“Art. 1191. The power of rescind obligations is implied in

reciprocal ones in case one of the obligors should not comply
with what is incumbent upon him.”[10]

The petitioner filed before the CA an appeal to challenge the foregoing. She ascribed error
on the part of the RTC when the latter ruled that the agreement and deed of sale executed by and
between the parties can be rescinded as she failed to deliver to the respondent both the subject
property and the certificate of title covering the same.

The Ruling of the CA

On February 20, 2009, the CA rendered the now assailed decision dismissing the petitioner’s
appeal based on the following grounds:

Burden of proof is the duty of a party to prove the truth of his claim or
defense, or any fact in issue necessary to establish his claim or defense by the
amount of evidence required by law. In civil cases, the burden of proof is on the
defendant if he alleges, in his answer, an affirmative defense, which is not a
denial of an essential ingredient in the plaintiff's cause of action, but is one which,
if established, will be a good defense – i.e., an “avoidance” of the claim,
which prima facie, the plaintiff already has because of the defendant's own
admissions in the pleadings.

Defendant-appellant Villamar's defense in this case was an affirmative

defense. She did not deny plaintiff-appellee’s allegation that she had an agreement
with plaintiff-appellee for the sale of the subject parcel of land. Neither did she
deny that she was obliged under the contract to deliver the certificate of title to
plaintiff-appellee immediately after said title/property was redeemed from the
bank. What she rather claims is that she already complied with her obligation
to deliver the title to plaintiff-appellee when she delivered the same to Atty.
Antonio as it was plaintiff-appellee himself who engaged the services of said
lawyer to precisely work for the immediate transfer of said title in his name. Since,
however, this affirmative defense as alleged in defendant-appellant's answer was
not admitted by plaintiff-appellee, it then follows that it behooved thedefendant-
appellant to prove her averments by preponderance of evidence.

Yet, a careful perusal of the record shows that the defendant-appellant failed
to sufficiently prove said affirmative defense. She failed to prove that in the first
place,“Atty. Antonio” existed to receive the title for and in behalf of plaintiff-
appellee. Worse, the defendant-appellant failed to prove that Atty. Antonio
received said title “asallegedly agreed upon.”

We likewise sustain the RTC's finding that defendant-appellant

V[i]llamar failed to deliver possession of the subject property to plaintiff-appellee
Mangaoil. As correctly observed by the RTC - “[t]he claim of the plaintiff that the
land has not been delivered to him was not refuted by the defendant.” Not only that.
On cross-examination, the defendant-appellant gave Us insight on why no such
delivery could be made, viz.:

“x x x x

Q: So, you were not able to deliver this property to

Mr. Mangaoil just after you redeem the property because of the
presence of these two (2) persons, is it not?

xxx

A: Yes, sir.

Q: Forcing you to file the case against them and which

according to you, you have won, is it not?

A: Yes, sir.

Q: And now at present[,] you are in actual possession

of the land?

A: Yes, sir. x x x”

With the foregoing judicial admission, the RTC could not have erred in
finding that defendant-[appellant] failed to deliver the possession of the property
sold, to plaintiff-appellee.

Neither can We agree with defendant-appellant in her argument that the

execution of the Deed of Absolute Sale by the parties is already equivalent to a valid
and constructive delivery of the property to plaintiff-appellee. Not only is it
doctrinally settled that in a contract of sale, the vendor is bound to transfer the
ownership of, and to deliver the thing that is the object of the sale, the way
Article 1547 of the Civil Code is worded, viz.:

“Art. 1547. In a contract of sale, unless a contrary intention

appears, there is:
 (1) An implied warranty on the part of the seller that he
has a right to sell the thing at the time when the ownership is to pass,
and that the buyer shall from that time have and enjoy the legal
and peaceful possession of the thing;

(2) An implied warranty that the thing shall be free from any
hidden defaults or defects, or any change or encumbrance not
declared or known to the buyer.

x x x.”

shows that actual, and not mere constructive delivery is warrantied by the seller to
the buyer. “(P)eaceful possession of the thing” sold can hardly be enjoyed in a
mere constructive delivery.

The obligation of defendant-appellant Villamar to transfer ownership and deliver

possession of the subject parcel of land was her correlative obligation to plaintiff-
appellee in exchange for the latter's purchase price thereof. Thus, if she fails to
comply with what is incumbent upon her, a correlative right to rescind such contract
from plaintiff-appellee arises, pursuant to Article 1191 of the Civil Code. [11] x x
x (Citations omitted)

The Issues

Aggrieved, the petitioner filed before us the instant petition and submits the following issues
for resolution:

WHETHER THE FAILURE
CERTIFICATE OF TITLE
BUYER IS A BREACH OF
REAL PROPERTY THAT
CONTRACT;
I.
OF PETITIONER-SELLER TO DELIVER THE
OVER THE PROPERTY TO RESPONDENT-
OBLIGATION IN A CONTRACT OF SALE OF
WOULD WARRANT RESCISSION OF THE

II.

WHETHER PETITIONER IS LIABLE FOR BREACH OF OBLIGATION IN A

CONTRACT OF SALE FOR FAILURE OF RESPONDENT[-]BUYER TO
IMMEDIATELY TAKE ACTUAL POSSESSION OF THE PROPERTY
NOTWITHSTANDING THE ABSENCE OF ANY STIPULATION IN THE
CONTRACT PROVIDING FOR THE SAME;

III.

WHETHER THE EXECUTION OF A DEED OF SALE OF REAL PROPERTY

IN THE PRESENT CASE IS ALREADY EQUIVALENT TO A VALID AND
CONSTRUCTIVE DELIVERY OF THE PROPERTY TO THE BUYER;
 IV.

WHETHER OR NOT THE CONTRACT OF SALE SUBJECT MATTER OF

THIS CASE SHOULD BE RESCINDED ON SLIGHT OR CASUAL BREACH;

V.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE

DECISION OF THE RTC ORDERING THE RESCISSION OF THE CONTRACT
OFSALE[.][12]

The Petitioner's Arguments

The petitioner avers that the CA, in ordering the rescission of the agreement and deed of sale,
which she entered into with the respondent, on the basis of her alleged failure to deliver the
certificate of title, effectively imposed upon her an extra duty which was neither stipulated in the
contract nor required by law. She argues that under Articles 1495[13] and 1496[14] of the New Civil
Code (NCC), the obligation to deliver the thing sold is complied with by a seller who executes in
favor of a buyer an instrument of sale in a public document. Citing Chua v. Court of
Appeals,[15] she claims that there is a distinction between transferring a certificate of title in the
buyer's name, on one hand, and transferring ownership over the property sold, on the other. The
latter can be accomplished by the seller's execution of an instrument of sale in a public document.
The recording of the sale with the Registry of Deeds and the transfer of the certificate of title in
the buyer's name are necessary only to bind third parties to the transfer of ownership.[16]

The petitioner contends that in her case, she had already complied with her obligations under
the agreement and the law when she had caused the release of TCT No. T-92958-A from the Rural
Bank of Cauayan, paid individual mortgagees Romeo Lacaden (Lacaden) and Florante Parangan
(Paranga), and executed an absolute deed of sale in the respondent's favor. She adds that before T-
92958-A can be cancelled and a new one be issued in the respondent's favor, the latter decided to
withdraw from their agreement. She also points out that in the letters seeking for an outright
rescission of their agreement sent to her by the respondent, not once did he demand for the delivery
of TCT.

The petitioner insists that the respondent's change of heart was due to (1) the latter's
realization of the difficulty in determining the subject property's perimeter boundary; (2) his doubt
that the property he purchased would yield harvests in the amount he expected; and (3) the presence
of mortgagees who were not willing to give up possession without first being paid the amounts
due to them. The petitioner contends that the actual reasons for the respondent's intent to rescind
their agreement did not at all constitute a substantial breach of her obligations.

The petitioner stresses that under Article 1498 of the NCC, when a sale is made through a
public instrument, its execution is equivalent to the delivery of the thing which is the contract's
object, unless in the deed, the contrary appears or can be inferred. Further, in Power Commercial
and Industrial Corporation v. CA,[17] it was ruled that the failure of a seller to eject lessees from
the property he sold and to deliver actual and physical possession, cannot be considered a
substantial breach, when such failure was not stipulated as a resolutory or suspensive condition in
the contract and when the effects and consequences of the said failure were not specified as well.
The execution of a deed of sale operates as a formal or symbolic delivery of the property sold and
it already authorizes the buyer to use the instrument as proof of ownership.[18]

The petitioner argues that in the case at bar, the agreement and the absolute deed of sale
contains no stipulation that she was obliged to actually and physically deliver the subject property
to the respondent. The respondent fully knew Lacaden's and Parangan's possession of the subject
property. When they agreed on the sale of the property, the respondent consciously assumed the
risk of not being able to take immediate physical possession on account of Lacaden's and
Parangan's presence therein.

The petitioner likewise laments that the CA allegedly misappreciated the evidence offered
before it when it declared that she failed to prove the existence of Atty. Antonio. For the record,
she emphasizes that the said lawyer prepared and notarized the agreement and deed of absolute
sale which were executed between the parties. He was also the petitioner’s counsel in the
proceedings before the RTC. Atty. Antonio was also the one asked by the respondent to cease the
transfer of the title over the subject property in the latter's name and to return the money he paid
in advance.

The Respondent's Contentions

In the respondent's comment,[19] he seeks the dismissal of the instant petition. He

invokes Articles 1191 and 1458 to argue that when a seller fails to transfer the ownership and
possession of a property sold, the buyer is entitled to rescind the contract of sale. Further, he
contends that the execution of a deed of absolute sale does not necessarily amount to a valid and
constructive delivery. In Masallo v. Cesar,[20] it was ruled that a person who does not have actual
possession of real property cannot transfer constructive possession by the execution and delivery
of a public document by which the title to the land is transferred. In Addison v. Felix and
Tioco,[21] the Court was emphatic that symbolic delivery by the execution of a public instrument
is equivalent to actual delivery only when the thing sold is subject to the control of the vendor.

Our Ruling

The instant petition is bereft of merit.

There is only a single issue for resolution in the instant petition, to wit, whether or not the
failure of the petitioner to deliver to the respondent both the physical possession of the subject
property and the certificate of title covering the same amount to a substantial breach of the former's
obligations to the latter constituting a valid cause to rescind the agreement and deed of sale entered
into by the parties.

We rule in the affirmative.

The RTC and the CA both found that the petitioner failed to comply with her obligations to
deliver to the respondent both the possession of the subject property and the certificate of title
covering the same.

Although Articles 1458, 1495 and 1498 of the

NCC and case law do not generally require the
seller to deliver to the buyer the physical
possession of the property subject of a contract of
sale and the certificate of title covering the same,
the agreement entered into by the petitioner and
the respondent provides otherwise. However, the
terms of the agreement cannot be considered as
violative of law, morals, good customs, public
order, or public policy, hence, valid.

Article 1458 of the NCC obliges the seller to transfer the ownership of and to deliver a
determinate thing to the buyer, who shall in turn pay therefor a price certain in money or its
equivalent. In addition thereto, Article 1495 of the NCC binds the seller to warrant the thing which
is the object of the sale. On the other hand, Article 1498 of the same code provides that when the
sale is made through a public instrument, the execution thereof shall be equivalent to the delivery
of the thing which is the object of the contract, if from the deed, the contrary does not appear or
cannot clearly be inferred.

In the case of Chua v. Court of Appeals,[22] which was cited by the petitioner, it was ruled
that “when the deed of absolute sale is signed by the parties and notarized, then delivery of the real
property is deemed made by the seller to the buyer.”[23] The transfer of the certificate of title in the
name of the buyer is not necessary to confer ownership upon him.

In the case now under our consideration, item nos. 2 and 3 of the agreement entered into by
the petitioner and the respondent explicitly provide:

2. ONE HUNDRED EIGHTY FIVE THOUSAND (P185,000.00) PESOS

of the total price was already received on March 27, 1998 for payment of the loan
secured by the certificate of title covering the land in favor of the Rural Bank of
Cauayan, San Manuel Branch, San Manuel, Isabela, in order that the certificate of
title thereof be withdrawn and released from the said bank, and the rest shall be for
the payment of the mortgages in favor of Romeo Lacaden and Florante Parangan;

3. After the release of the certificate of title covering the land subject-matter of
this agreement, the necessary deed of absolute sale in favor of the PARTY OF THE
SECOND PART shall be executed and the transfer be immediately effected so that
the latter can apply for a loan from any lending institution using the corresponding
certificate of title as collateral therefor, and the proceeds of the loan, whatever be
the amount, be given to the PARTY OF THE FIRST PART;[24] (underlining
supplied)

As can be gleaned from the agreement of the contending parties, the respondent initially paid
the petitioner P185,000.00 for the latter to pay the loan obtained from the Rural Bank of Cauayan
and to cause the release from the said bank of the certificate of title covering the subject property.
The rest of the amount shall be used to pay the mortgages over the subject property which was
executed in favor of Lacaden and Parangan. After the release of the TCT, a deed of sale shall be
executed and transfer shall be immediately effected so that the title covering the subject property
can be used as a collateral for a loan the respondent will apply for, the proceeds of which shall be
given to the petitioner.
 Under Article 1306 of the NCC, the contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy.

While Articles 1458 and 1495 of the NCC and the doctrine enunciated in the case of Chua do
not impose upon the petitioner the obligation to physically deliver to the respondent the certificate
of title covering the subject property or cause the transfer in the latter's name of the said title, a
stipulation requiring otherwise is not prohibited by law and cannot be regarded as violative of
morals, good customs, public order or public policy. Item no. 3 of the agreement executed by the
parties expressly states that “transfer [shall] be immediately effected so that the latter can apply
for a loan from any lending institution using the corresponding certificate of title as collateral
therefore.” Item no. 3 is literal enough to mean that there should be physical delivery of the TCT
for how else can the respondent use it as a collateral to obtain a loan if the title remains in the
petitioner’s possession. We agree with the RTC and the CA that the petitioner failed to prove that
she delivered the TCT covering the subject property to the respondent. What the petitioner
attempted to establish was that she gave the TCT to Atty. Antonio whom she alleged was
commissioned to effect the transfer of the title in the respondent's name. Although Atty. Antonio's
existence is certain as he was the petitioner’s counsel in the proceedings before the RTC, there was
no proof that the former indeed received the TCT or that he was commissioned to process the
transfer of the title in the respondent's name.

It is likewise the petitioner’s contention that pursuant to Article 1498 of the NCC, she had
already complied with her obligation to deliver the subject property upon her execution of an
absolute deed of sale in the respondent’s favor. The petitioner avers that she did not undertake to
eject the mortgagors Parangan and Lacaden, whose presence in the premises of the subject property
was known to the respondent.

We are not persuaded.

In the case of Power Commercial and Industrial Corporation[25] cited by the petitioner, the
Court ruled that the failure of the seller to eject the squatters from the property sold cannot be made
a ground for rescission if the said ejectment was not stipulated as a condition in the contract of
sale, and when in the negotiation stage, the buyer's counsel himself undertook to eject the illegal
settlers.

The circumstances surrounding the case now under our consideration are different. In item
no. 2 of the agreement, it is stated that part of the P185,000.00 initially paid to the petitioner shall
be used to pay the mortgagors, Parangan and Lacaden. While the provision does not expressly
impose upon the petitioner the obligation to eject the said mortgagors, the undertaking is
necessarily implied. Cessation of occupancy of the subject property is logically expected from the
mortgagors upon payment by the petitioner of the amounts due to them.

We note that in the demand letter[26] dated September 18, 1998, which was sent by the
respondent to the petitioner, the former lamented that “the area is not yet fully cleared of
incumbrances as there are tenants who are not willing to vacate the land without giving them back
the amount that they mortgaged the land.” Further, in the proceedings before the RTC conducted
after the complaint for rescission was filed, the petitioner herself testified that she won the
ejectment suit against the mortgagors “only last year”.[27] The complaint was filed on September
8, 2002 or more than four years from the execution of the parties' agreement. This means that after
the lapse of a considerable period of time from the agreement's execution, the mortgagors remained
in possession of the subject property.

Notwithstanding the absence of stipulations in

the agreement and absolute deed of sale entered
into by Villamar and Mangaoil expressly
indicating the consequences of the former's
failure to deliver the physical possession of the
subject property and the certificate of title
covering the same, the latter is entitled to demand
for the rescission of their contract pursuant to
Article 1191 of the NCC.

We note that the agreement entered into by the petitioner and the respondent only contains
three items specifying the parties' undertakings. In item no. 5, the parties consented “to abide with
all the terms and conditions set forth in this agreement and never violate the same.”[28]

Article 1191 of the NCC is clear that “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 respondent cannot be deprived of his right to demand for rescission in view of the petitioner’s
failure to abide with item nos. 2 and 3 of the agreement. This remains true notwithstanding the
absence of express stipulations in the agreement indicating the consequences of breaches which
the parties may commit. To hold otherwise would render Article 1191 of the NCC as useless.

Article 1498 of the NCC generally considers the

execution of a public instrument as constructive
delivery by the seller to the buyer of the property
subject of a contract of sale. The case at bar,
however, falls among the exceptions to the
foregoing rule since a mere presumptive and not
conclusive delivery is created as the respondent
failed to take material possession of the subject
property.

Further, even if we were to assume for argument's sake that the agreement entered into by
the contending parties does not require the delivery of the physical possession of the subject
property from the mortgagors to the respondent, still, the petitioner's claim that her execution of
an absolute deed of sale was already sufficient as it already amounted to a constructive delivery of
the thing sold which Article 1498 of the NCC allows, cannot stand.

In Philippine Suburban Development Corporation v. The Auditor General,[29] we held:

When the sale of real property is made in a public instrument, the execution thereof
is equivalent to the delivery of the thing object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred.

In other words, there is symbolic delivery of the property subject of the sale
by the execution of the public instrument, unless from the express terms of the
 instrument, or by clear inference therefrom, this was not the intention of the parties.
Such would be the case, for instance, x x x where the vendor has no control over
the thing sold at the moment of the sale, and, therefore, its material delivery could
not have been made.[30] (Underlining supplied and citations omitted)

Stated differently, as a general rule, the execution of a public instrument amounts to a

constructive delivery of the thing subject of a contract of sale. However, exceptions exist, among
which is when mere presumptive and not conclusive delivery is created in cases where the buyer
fails to take material possession of the subject of sale. A person who does not have actual
possession of the thing sold cannot transfer constructive possession by the execution and delivery
of a public instrument.

In the case at bar, the RTC and the CA found that the petitioner failed to deliver to the
respondent the possession of the subject property due to the continued presence and occupation of
Parangan and Lacaden. We find no ample reason to reverse the said findings. Considered in the
light of either the agreement entered into by the parties or the pertinent provisions of law, the
petitioner failed in her undertaking to deliver the subject property to the respondent.

IN VIEW OF THE FOREGOING, the instant petition is DENIED. The February 20, 2009
Decision and July 8, 2009 Resolution of the Court of Appeals, directing the rescission of the
agreement and absolute deed of sale entered into by Estelita Villamar and Balbino Mangaoil and
the return of the down payment made for the purchase of the subject property,
are AFFIRMED. However, pursuant to our ruling in Eastern Shipping Lines, Inc. v.
CA,[31] an interest of 12% per annumis imposed on the sum of P185,000.00 to be returned to
Mangaoil to be computed from the date of finality of this Decision until full satisfaction thereof.

SO ORDERED.