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NPC vs. AIM; Nov. 14, 1986 Lao vs. COA; Aug. 9, 1985 (Lao Sok vs. Sabaysabay?

) Arquero vs. RCPI; Dec. 20, 1988 BPI vs. Olalia; Dec. 14, 2001 Naviera vs. CA; Dec. 14, 1987 Baliwag Transit vs. CA; Jan. 31, 1989 Adoracion Cruz vs. CA; July 27, 1998 People vs. Lacap; Oct. 23, 2001 Bataan Seedling vs. RP; July 2 2002 RCPI vs. CA; Aug 29, 1986 LL and Company Dev. vs. Huang; March 7, 2002 FGU vs. GP Sarmiento; Aug 6, 2002 Villanueva vs. Castaeda; Sept. 21, 1987 Leal vs. IAC; Nov. 5, 1987 Topwell Manufacturing vs. ECED et al Sept. 9, 1985

UCPB vs. Masagana; April 4, 2002 San Miguel vs. NLRC; May 31, 1988 Ouano vs. CA; July 23, 1992 Siredy Ent. vs. CA; Sept. 17, 2002 House Intl. vs. IAC; June 30, 1987 Liang vs. CA; Jan. 13, 1989 Associated Bank vs. Sarmiento; June 29, 1998 Yu vs. CA; Jan. 21, 1993 Malborasa vs. CA; April 30 2003 Pachelder case (circulars are not contracts) Cui vs. Arellano Univ.; May 30, 1961 Saura vs. Sindico (political rights are outside the commerce of men) digest only Velasco vs. CA; June 29, 1973 (Art 1729, Accion Directa) Kaufman vs. PNP (Art 1311(2) Stipulation por Atrui)

FIRST DIVISION G.R. No. L-61898 August 9, 1985 LAO SOK, petitioner vs. LYDIA SABAYSABAY, AMPARO MANGULAT, ROSITA SALVIEJO, NENITA RUINATA, VILMA CAPILLO, VIRGINIA SANORJO and THE NATIONAL LABOR RELATIONS COMMISSION, respondents.

GUTIERREZ, JR., J.: This is a petition for review which seeks to set aside for grave abuse of discretion the decision of the National Labor Relations Commission dated June 21, 1982 affirming the decision of Labor Arbiter Apolonio L. Reyes ordering the petitioner to pay the private respondents their separation pay. The undisputed facts are: Petitioner Lao Sok owned and operated the Shelton Department Store located at Carriedo Street, Quiapo, Manila. Private respondents, Lydia Sabaysabay, Amparo Mangulat, Rosita Salviejo, Nenita Ruinata, Vilma Capillo and Virginia Sanorjo were all salesladies of the department store with a daily wage of P14.00 each. On October 12, 1980, petitioner's store was razed by fire. He did not report the loss of jobs of the salesladies which resulted from the burning of his department store to the Regional Office of the Ministry of Labor. Petitioner promised the private respondents that he would transfer them to his other department stores. Several weeks passed but petitioner still did not fulfill his promise. The petitioner, however, told the respondents that he would give them their separation pay and other benefits due them as soon as he collected the insurance proceeds arising from his burned store. The private respondents accepted this offer of the petitioner. Petitioner later collected the proceeds of his insurance but he did not give the private respondents their separation pay and other benefits. Neither did he employ them in his other stores as earlier promised. On May 14, 1981, the private respondents filed a complaint with the Ministry of Labor and Employment charging the petitioner with illegal dismissal and non-payment of their separation pay, allowance and incentive leave pay. Labor Arbiter Apolonio L. Reyes required the parties to submit their position papers and on the basis of these position papers, he rendered a decision on July 23, 1981, the dispositive portion of which reads: WHEREFORE, judgment is rendered in favor of the complainants and against the respondent, ordering the latter to pay the former their separation pay equivalent to one month salary for every year of service proportionate to their individual length of service with the respondents at legal rate of interest in the event that respondent failed or refused to pay the same within ten days from receipt thereof. Other issues are dismissed for being judicata. On October 2, 1981, the petitioner appealed said decision to the National Labor Relations Commission (NLRC). The NLRC affirmed the decision of the Labor Arbiter and dismissed the appeal. Petitioner moved for a reconsideration of the decision but the motion was likewise denied. Hence, this petition for review. The issue in this case is whether or not petitioner Lao Sok is obligated to pay the private respondents' separation pay.

The petitioner contends that he may not be compelled to pay separation pay on the basis of his mere failure to make a report about the fire and the consequent dismissal of his employees which may be effected without prior clearance. Sections 10 and 11 (c), Rule XIV, Book V of the Labor Code provide: Sec. 10. Exception. No clearance is required if the shutdown of establishment is due to serious accidents, fire, flood, typhoon, earthquakes, or other disaster, calamity or public emergencies, provided that the employer makes a report thereon to the Regional Office in accordance with the form prescribed by the Department. Sec. 11. When reports required. -Every employer shall submit a report to the Regional Office in accordance with the form prescribed by the Department on the following instances of termination of employment, suspension, layoff or shutdown which may be effected by the employer without prior clearance, within five (5) days thereafter: (a) ... (b) ... (c) All shutdowns or cessations of work or operations falling under the exceptional circumstances specified in Section 10 hereof; xxx xxx xxx Compliance with the above rules is only an administrative matter and the failure to make a report does not make the dismissal illegal per se. But the employer who fails to file such report may be subjected to such administrative penalties or sanctions as may be duly provided. (Oceanic Bic Division (FFW) vs. Romero, 130 SCRA 392,405). However, the petitioner's obligation to pay severance compensation is not based on his failure to make a report or to ask for a prior clearance. Article 284 of the Labor Code provides for separation pay whenever there is a reduction of personnel caused by the closure of an establishment which is not intended to circumvent the provisions of the law. We also note that Book VI, Rule 1, Section 4 (b) of the Rules and Regulations Implementing the Labor Code provides: xxx xxx xxx (b) In case the establishment where the employee is to be reinstated has closed or ceased operations or where his former position no longer exists at the time of reinstatement for reasons not attributable to the fault of the employer, the employee shall be entitled to separation pay equivalent at least to one month salary or to one month salary for every year of service, whichever is higher, a fraction of at least six months being considered as one whole year. (emphasis supplied). The department store or the establishment where the six salesladies are employed has ceased operations and admittedly, it was due to reasons not attributable to the fault of the employer. But while we can not fault petitioner Lao Sok for the loss of his store due to a fortuitous event, his acts subsequent to the fire are equally deplorable as a termination without just cause. There is certainly a need to alleviate the plight of the employees who have lost their jobs or sources of livelihood as a result of the closure or cessation of operations of the establishment. Their being given the run around after the loss of their jobs and their being given promises which could be fulfilled but which were not fulfilled aggravated the situation. That petitioner Lao Sok promised to give his employees their separation pay, as soon as he receives the insurance proceeds for his burned building was not rebutted. ln fact, it appears to have been undisputed until the petitioner filed his memorandum on December 6,1984. We quote with favor the Solicitor General's explanation: xxx xxx xxx ... It was in reality not a mere 'promise' as petitioner terms it but a contract, because all the essential requisites of a valid contract are present, to wit: (1) consent was freely given by the parties, (2) there was a subject matter, which is the payment of the separation pay of private respondents, and (3) a cause, which is the loss of job of private respondents who had been petitioner's salesladies for several years. ... .

xxx xxx xxx Respondent NLRC, therefore, acted properly in ordering petitioner to give private respondents their separation pay as he was bound to comply with his contractual obligation which is the law between the parties (Phoenix Assurance Co. LTD. v. United States Lines, 22 SCRA 674). ... . Lao Sok made an offer which was duly accepted by the private respondents. There was, therefore, a meeting of the minds between two parties whereby one bound himself with respect to the other, to give something or to render some service (Article 1305, Civil Code). By the unconditional acceptance of the offer that they would be paid separation pay, a contract was therefore perfected. As held in the case of Herrera v. Auditor General, (102 Phil. 875): xxx xxx xxx ... the Government, through the Quezon City Engineer had as late as 1955 acknowledged the financial obligation of the Government, and even offered to pay it, and what is more, the offer was duly accepted by Herrera, thereby constituting a contract, and a renewal of the obligation. (emphasis supplied). Petitioner contends that the contract though orally made is unenforceable since it does not comply with the Statute of Frauds. This contention has no merit. Contracts in whatever form they may have been entered into are binding on the parties unless form is essential for the validity and enforceability of that particular contract. (See Lopez v. Auditor General, 20 SCRA 655). We held in Shaffer v. Palma (22 SCRA 934): xxx xxx xxx ... Whether the agreement is in writing or not is a question of evidence. Nevertheless, even granting that the agreement is not in writing, this circumstance does not militate against the validity or enforceability of said agreement, because contracts are binding upon the parties in whatever form they may have been entered into unless the law requires otherwise. (Article 1356, Civil Code; Lopez v. The Auditor General, et al., L-25859, July 13, 1967; Pilar Gil Vdan de Murciano v. The Auditor General, et al., 103 Phil. 907). It is true that Article 1358 of the Civil Code provides that contracts involving more than P500.00 must appear in writing, but nothing is said therein that such requirement is necessary for their validity or enforceability. It has been held that the writing required under Article 1358 is merely for convenience, (Thunga Chui v. Que Bentac, 2 Phil. 561; Ng Hoc v. Tong Ho, 52 0,G., 4396) and so the agreement alleged in the amended complaint in the present case can be enforced even if it may not be in writing. The requirement of writing for the offer made by Lao Sok is only for convenience and not enforceability. In fact, the petitioner could be compelled to put the offer in writing, a step no longer necessary now because of this petition. Furthermore, it was also established that petitioner Lao Sok has other department stores where he promised to absorb the salesladies. He was likewise remiss in this obligation. There is Merit in the Solicitor General's submission that, in effect, the fire closed only a division or unit of Lao Sok's business. His entire enterprise consisting of the operation of various department stores did not really close down or cease. We agree with the respondents that: xxx xxx xxx ... the record shows that petitioner voluntarily agreed to compensate private respondents for the loss of their jobs because they have been his salesladies for a long time; that he did this freely and spontaneously (Motion for Reconsideration, p. 88, record). He should not now, therefore, be allowed to renege on an obligation of his own making. To do so, would be unjust and unfair to the private respondents who took his word for it in good faith. The validity of that agreement must, consequently, be sustained (Jimeno v. Gacilago, 14 Phil. 16; Legarda v. Ongsiaco, 36 Phil. 185).

Both the law and equity dictate that private respondents must be compensated for the loss of their jobs considering that they were kept waiting and hoping that they would be re-employed by the petitioner, if not paid their severance pay. WHEREFORE, the decision is hereby AFFIRMED and judgment is rendered in favor of private respondents, ordering the petitioner to pay the former their separation pay equivalent to one month salary for every year of service proportionate to their individual lengths of service with the petitioner. SO ORDERED. Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ., concur. Teehankee (Chairman), J., concurs in the result.

SECOND DIVISION G.R. No. L-68111 December 20, 1988 BERNOLI P. ARQUERO, petitioner, vs. HONORABLE NAPOLEON J. FLOJO, Presiding Judge, Branch VI, Regional Trial Court, Second Judicial Region, Aparri, Cagayan and RADIO COMMUNICATION OF THE PHILIPPINES (RCPI), respondents. Hermenegildo G. Rapanan for petitioner. Treas, Pagada & Associates for respondents.

PARAS, J.: On November 27, 1983, the petitioner and private respondent Radio Communications of the Philippines, Inc. (RCPI), entered into a contract for services for the transmission of a telegraphic message thru RCPI's branch office in Aparri, Cagayan to Atty. Eleazar S. Calasan at his office address in Quiapo, Manila. The text of the telegram contract form for transmission (as well as the telegram itself) reads: Send the following message subject to the condition that the RCPI shall not be liable for any damage howsoever same may arise except for the refund of telegraphic tolls. The sender agrees that as a condition precedent for a cause of action against the RCPI any complaint relative to the transmittal of this telegram must be brought to the attention of the company within three months from date, and that venue thereof shall be in the courts of Quezon City alone and in no other courts. ATTY. CALASAN ROOM 401 PAYAWAL BLDG. 709 PATERNO, QUIAPO, MANILA CONGRATULATIONS PREPARE ONE XEROX COPY DECISION SEE YOU BONI'S BIRTHDAY. BERNOLI (Annex "D", P. 16, Rollo) Atty. Eleazar S. Calasan received a copy of the telegram the next day but he was made to pay the sum of P 7.30 for delivery charges. Thereafter, on November 30, 1983, at the birthday party of Asst. Fiscal Bonifacio Sison in Quezon City, Atty. Calasan confronted and censured the petitioner anent the said telegram. Despite the petitioner's explanation that the telegram had been duly paid for he was branded as a "stingy mayor who cannot even afford to pay the measely sum of P 7.30 for the telegram," (p. 2 Memorandum; p. 55, Rollo) in the presence of many persons.

Thus, the petitioner filed an action for damages against RCPI before the Regional Trial Court of Aparri, Cagayan. RCPI filed a motion to dismiss on the ground of improper venue, contending that pursuant to the service contract, the parties had agreed that the venue of any action which may arise out of the transmittal of the telegram shall be in the courts of Quezon City alone. On February 13, 1984, the trial court dismissed the case and denied the motion for reconsideration re said dismissal. Hence, the instant petition. Citing the case of Sweet Lines, Inc. v. Bernardo Teves, et al., 83 SCRA 361, the petitioner claims that the condition with respect to venue appearing on the ready printed form of RCPI's telegram for transmission is void and unenforceable because the petitioner had no hand in its preparation. The Court there held that contracts of adhesion, where the provisions have been drafted only by one party and the only participation of the other party is the signing of his signature or his adhesion thereto, are contrary to public policy as they are injurious to the public or public good. WE DISAGREE. The agreement of the parties in the case at bar as to venue is not contrary to law, public order, public policy, morals or good customs. The parties do not dispute that in the written contract sued upon, it was expressly stipulated that any action relative to the transmittal of the telegram against the RCPI must be brought in the Courts of Quezon City alone. We note that neither party to the contract reserved the right to choose the venue of action as fixed by law (i.e., where the plaintiff or defendant resides, at the election of the plaintiff [par. 'b'], Section 2, Rule 4, Revised Rules of Court), as is usually done if the parties purported to retain that right of election granted by the Rules. Such being the case, it can reasonably be inferred that the parties intended to definitely fix the venue of action, in connection with the written contract sued upon, in the courts of Quezon City only. Section 3, Rule 4, Revised Rules of Court sanctions such stipulation by providing that "by written agreement of the parties the venue of action may be changed or transferred from one province to another." (Bautista vs. de Borja, 18 SCRA 474). As aptly held in the case of Central Azucarera de Tarlac vs. De Leon, 56 Phil. 169, By said agreement the parties waived the legal venue, and such waiver is valid and legally effective, because it was merely a personal privilege they waived, which is not contrary to public policy or to the prejudice of third persons. It is a general principle that a person may renounce any right which the law give unless such renunciation is expressly prohibited or the right conferred is of such nature that its renunciation would be against public policy. In Sweet Lines, Inc. vs. Teves, et al. supra, the Supreme Court, in declaring the stipulation which limited the venue of actions as void and unenforceable held: By the peculiar circumstances under which contracts of adhesion are entered into namely, that it is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the other party, in this instance the passengers, private respondents, who cannot change the same and who are thus made to adhere hereto on the 'take it or leave it' basiscertain guidelines in the determination of their validity and/or enforceability have been formulated in order to insure that justice and fair play characterize the relationship of the contracting parties. It is a matter of public knowledge, of which we can take judicial notice, that there is a dearth of and acute shortage in inter-island vessels plying between the country's several islands, and the facilities they offer leave much to be desired. Thus, even under ordinary circumstances, the piers are congested with passengers and their cargo waiting to be transported. The conditions are even worse at peak and/or the rainy seasons, when passengers literally scramble to secure whatever accommodations may be availed of, even through circuitous routes, and/or at the risk of their safety. ... Under these circumstances, it is hardly just and proper to expect the passengers to examine their tickets received from crowded/congested counters, more often than not during rush hours, for conditions that may be printed thereon, much less charge them with having consented to the conditions, so printed, especially if there are a number. of such conditions in fine print, as in this case. It should also be stressed that shipping companies are franchise holders of certificates of public convenience and, therefore, possess a virtual monopoly over the business of transporting passengers between the ports covered by their franchise. This being so, shipping companies, like petitioner, engaged in inter-island shipping, have a virtual monopoly of the business of transporting passengers and may thus

dictate their terms of passage, leaving passengers with no choice but to buy their tickets and avail of their vessels and facilities. Finally, judicial notice may be taken of the fact that the bulk of those who board these inter-island vessels come from the low-income groups and are less literate, and who have little or no choice but to avail of petitioner's vessels. In the instant case, the condition with respect to venue in the telegram form for transmission was printed clearly in the upper front portion of the form. Considering the petitioner's educational attainment (being a lawyer by profession and the Municipal Mayor of Sta. Teresita, Cagayan), he must be charged with notice of the condition limiting the venue to Quezon City, and by affixing his signature thereon, he signified his assent thereto. Thus, the ruling in Sweet Lines, Inc. vs. Teves, et al., is not applicable in this case. WHEREFORE, the petition is hereby DISMISSED for lack of merit. SO ORDERED. Melencio-Herrrera (Chairperson), Padilla and Regalado, JJ., concur. Sarmiento J., is on leave. SECOND DIVISION

[G.R. No. 131086. December 14, 2001]

BPI EXPRESS CARD CORPORATION, petitioner, vs. EDDIE C. OLALIA, respondent. DECISION QUISUMBING, J.: This petition for review seeks to annul the decision of the Court of Appeals in CAG.R. CV No. 49618, reversing the [2] order of the Regional Trial Court, Branch 145, of Makati City which held Eddie C. Olalia liable to BPI Express Card Corporation (BECC) in the amount of P136, 290.97. The CA found only the amount of P13,883.27 to be due and owing to [3] BECC. Petitioners motion for reconsideration was denied through a resolution, also before us on review. The factual antecedents of this case are as follows: Petitioner operates a credit card system under the name of BPI Express Card Corporation (BECC) through which it extends credit accommodations to its cardholders for the purchase of goods and other services from member establishments of petitioner to be reimbursed later on by the cardholder upon proper billing. Respondent Eddie C. Olalia applied for and was granted membership and credit accommodation with BECC. BECC Card No. 020100-3-00-0281667 was issued in his name with a credit limit of P5,000. In January 1991, Olalias card expired and a renewal card was issued. BECC also issued Card No. 020100 -2-010281667 in the name of Cristina G. Olalia, respondents ex -wife. This second card was an extension of Olalias credit card. BECC alleges that the extension card was delivered and received by Olalia at the same time as the renewal card. However, Olalia denies ever having applied for, much less receiving, the extension card. As evidenced by charge slips presented and identified in court, it was found that the extension card in the name of Cristina G. Olalia was used for purchases made from March to April 1991, particularly in the province of Iloilo and the City of Bacolod. Total unpaid charges from the use of this card amounted to P101,844.54. BECC sent a demand letter to Olalia, to which the latter denied liability saying that said purchases were not made under his own credit card and that he did not apply for nor receive the extension card in the name of his wife. He has likewise not used or allowed anybody in his family to receive or use the extension card. Moreover, his wife, from whom he was already divorced, left for the States in 1986 and has since resided there. In addition, neither he nor Cristina was in Bacolod or Iloilo at the time the questioned purchases were made. She was dropped as defendant by the trial court, in an [5] Order dated September 29, 1995.
[4] [1]

A case for collection was filed by BECC before the RTC but Olalia only admits responsibility for the amount of P13,883.27, representing purchases made under his own credit card. After trial on the merits, a decision was rendered as follows: WHEREFORE, judgment is rendered ordering defendant Eddie C. Olalia to pay plaintiff the sum of Thirteen Thousand Eight Hundred Eighty-Three Pesos and Twenty-seven Centavos (P13, 883.27), Philippine Currency with interest thereon at the legal rate from June 18, 1991, until fully paid; and to pay the costs. SO ORDERED.
[6]

From the aforesaid decision, a Motion for Reconsideration was filed, alleging that Olalia should also be held liable for the purchases arising from the use of the extension card since he allegedly received the same, as evidenced by his [7] signature appearing in the Renewal Card Acknowledgement Receipt and by the express provision of paragraph 2 of the terms and conditions governing the use and issuance of a BPI Express Card, making the cardholder and his extension jointly and severally liable for all purchases and availments made through the use of the card. On April 28, 1995, the Motion for Reconsideration was granted and an Order was issued, stating: Defendant Eddie C. Olalia has not filed any reaction paper up to the present relative to plaintiffs MOTION FOR RECONSIDERATION dated December 20, 1994. Finding the allegations in said motion to be meritorious, the same is hereby granted. WHEREFORE, the dispositive portion of the decision dated November 25, 1994, is reconsidered and accordingly amended/corrected to read as follows: WHEREFORE, judgment is rendered ordering defendant Eddie C. Olalia to pay plaintiff the sum of One Hundred Thirty Six Thousand Two Hundred Ninety Pesos and Ninety-seven Centavos (P136,290.97) Philippine Currency, as of October 27, 1991. SO ORDERED.
[8]

Olalia appealed to the Court of Appeals and was there sustained in a decision dated November 28, 1996. The CA ruled as follows: THE FOREGOING CONSIDERED, the contested Decision, while affirmed, is hereby modified by limiting appellants liability only to P13,883.27, but with interest at 3% per month in addition to penalty fee of 3% of the amount due every [9] month, until full payment. BECC filed a Motion for Reconsideration but the CA denied the same through a Resolution dated October 17, 1997. Hence, this petition wherein BECC contends, as its lone assignment of error, that the Court of Appeals erred in limiting the liability of respondent to only P13,883.27 exclusive of interest and penalty fee notwithstanding receipt and availment of the extension card. More precisely, the issues are: 1) Whether or not an extension card in the name of Cristina G. Olalia was validly issued and in fact received by respondent Eddie C. Olalia; and 2) Whether or not Eddie C. Olalia can be held liable for the purchases made using the extension card. We discuss the issues jointly. Under stipulation No. 10 of the terms and conditions governing the issuance and use of the BPI Express Credit Card, the following is stated: 10. EXTENSIONS/SUPPLEMENTARY CARDS Extension of the CARD issued to the Cardholder may be given to the latters spouse or children upon payment of the necessary fee thereof, and the submission of an application for the purpose; and the use of such CARD, as well as the extensions, thereof, shall be governed by this Agreement, and secured by the Surety Undertaking hereto. Any reference to the CARD issued to the Cardholder hereafter shall also apply to extensions and/or renewals. Should a CARD be issued to the spouse/children of a Cardholder upon the Cardholders request, the Cardholder shall be responsible for all charges including all fees, interest and other charges made through the CARD. In the event of separation, legal or otherwise, the Cardholder shall continue to be responsible
[10]

for all such charges to be made through the extension CARD unless Cardholder request in writing that the privileges of such extension Cardholder under this Agreement be terminated, provided all charges incurred shall have been fully paid [11] and satisfied. (Emphasis ours) From the foregoing stipulation, it is clear that there are two requirements before an extension/supplementary card is issued. They are: 1) payment of the necessary fee, and 2) submission of an application for the purpose. None of these requirements were shown to have been complied with by Olalia. Both the trial and appellate courts have found that in Olalias applications for the original as well as the renewal card, he never applied for an extension card in the name of his wife. BECC also failed to show any receipt for any fee given in payment for the purpose of securing an extension card. BECC supports its allegation that Eddie C. Olalia received the extension card in the name of his wife, by presenting the Renewal Card Acknowledgement Receipt wherein Olalia affixed his signature. Such will not suffice to prove to this Court that the requirements for the issuance of the extension card have been complied with, especially in the face of respondents firm denial. We have previously held that contracts of this nature are contracts of adhesion, so-called because their terms are [12] prepared by only one party while the other merely affixes his signature signifying his adhesion thereto. As such, their [13] terms are construed strictly against the party who drafted it. In this case, it was BECC who made the foregoing stipulation, thus, they are now tasked to show vigilance for its compliance. BECC failed to explain why a card was issued without accomplishment of the requirements. Moreover, BECC did not even secure the specimen signature of the purported extension cardholder, such that it cannot now counter Eddie C. Olalias contention that the signatures appearing on the charge slips of the questioned transactions were not that of his former wife, Cristina G. Olalia. We note too that respondent Eddie C. Olalia did not indicate nor declare that he had a spouse when he applied for a credit card with BECC. In fact, at the time the extension card was issued and allegedly received by respondent, Cristina had long left the Philippines. BECCs negligence absolves respondent Olalia from liability. In sum, we agree with the Court of Appeals that respondent Olalia should not be held liable for the purchases made under the so-called extension card irregularly issued by petitioner and used for purchases made by an unauthorized party for whose actions the respondent could not be legally made answerable. This being the case, respondent Olalia could only be held liable for P13,883.27 representing purchases made under his own credit card, exclusive of interest and penalty thereon, if any. WHEREFORE, the instant petition is DENIED, and the decision of the Court of Appeals is hereby AFFIRMED. SO ORDERED. Bellosillo, (Chairman), Mendoza, and De Leon, Jr., JJ., concur. Buena, J., on official leave. FIRST DIVISION G.R. No. L-40234 December 14, 1987 MARIMPERIO COMPAIA NAVIERA, S.A., petitioner, vs. COURT OF APPEALS and UNION IMPORT & EXPORT CORPORATION and PHILIPPINES TRADERS CORPORATION, respondents.

PARAS, J.: This is a petition for certiorari under Section 1, Rule 65 of the Rules of Court seeking the annulment and setting aside of the decision of the Court of Appeals * and promulgated on September 2, 1974 in CA-G.R. No. 48521-R entitled "Union Import and Export Corporation, et al., Plaintiffs-Appellees v. Marimperio Compaia Naviera, S.A., Defendant-Appellant", ordering petitioner to pay respondent the total sum of US $265,482.72 plus attorney's fees of US$100,000.00 and (b) the resolution of the said Court of Appeals in the same case, dated February 17, 1975 fixing the amount of attorney, s fees to Pl00,000.00 instead of $100,000.00 as erroneously stated in the decision but denying petitioner's motion for reconsideration and/or new trial.

The dispositive portion of the decision sought to be annulled (Rollo, p. 215) reads as follows: For all the foregoing, and in accordance therewith, let judgment be entered (a) affirming the decision appealed from insofar as it directs the defendant-appellant: (1) to pay plaintiffs the sum of US $22,500.00 representing the remittance of plaintiffs to said defendant for the first 15-day hire of the vessel "SS PAXOI" including overtime and an overpayment of US $254.00; (2) to pay plaintiffs the sum of US $16,000.00, corresponding to the remittance of plaintiffs to defendant for the second 15-day hire of the aforesaid vessel; (3) to pay plaintiffs the sum of US $6,982.72, representing the cost of bunker oil, survey and watering of the said vessel; (4) to pay plaintiffs the sum of US $100,000.00 as and for attorney's fees; and, (b) reversing the portion granting commission to the intervenor-appellee and hereby dismissing the complaint-in-intervention. The order of the court a quo denying the plaintiffs' Motion for Partial Reconsideration, is likewise, affirmed, without any special pronouncement as to costs. The facts of the case as gathered from the amended decision of the lower court (Amended Record on Appeal, p. 352), are as follows: In 1964 Philippine Traders Corporation and Union Import and Export Corporation entered into a joint business venture for the purchase of copra from Indonesia for sale in Europe. James Liu President and General Manager of the Union took charge of the European market and the chartering of a vessel to take the copra to Europe. Peter Yap of Philippine on the other hand, found one P.T. Karkam in Dumai Sumatra who had around 4,000 tons of copra for sale. Exequiel Toeg of Interocean was commissioned to look for a vessel and he found the vessel "SS Paxoi" of Marimperio available. Philippine and Union authorized Toeg to negotiate for its charter but with instructions to keep confidential the fact that they are the real charterers. Consequently on March 21, 1965, in London England, a "Uniform Time Charter" for the hire of vessel "Paxoi" was entered into by the owner, Marimperio Compania Naviera, S.A. through its agents N. & J. Vlassopulos Ltd. and Matthews Wrightson, Burbridge, Ltd. to be referred to simply as Matthews, representing Interocean Shipping Corporation, which was made to appear as charterer, although it merely acted in behalf of the real charterers, private respondents herein. The pertinent provisions or clauses of the Charter Party read: 1. The owners let, and the Charterers hire the Vessel for a period of 1 (one) trip via safe port or ports Hong Kong, Philippine Islands and/or INDONESIA from the time the Vessel is delivered and placed at the disposal of the Charterers on sailing HSINKANG ... . 4. The Charterers are to provide and pay for oil-fuel, water for boilers, port charges, pilotages ... . 6. The Charterers to pay as hire s.21 (Twenty-one Shillings per deadweights ton per 30 days or pro rata commencing in accordance with Clause 1 until her redelivery to the owners. Payment of hire to be made in cash as per Clause 40 without discount, every 15 days in advance. In default of payment of the Owners to have the right of withdrawing the vessel from the services of the Charterers, without noting any protest and without interference by any court or any formality whatsoever and without prejudice the Owners may otherwise have on the Charterers under the Charter. 7. The Vessel to be redelivered on the expiration of the Charter in the same good order as when delivered to the Charterers (fair wear and tear expected) in the Charterer's option in ANTWERP HAMBURG RANGE. 20. The Charterers to have the option of subletting the Vessel, giving due notice to the Owners, but the original Charterers always to remain responsible to the Owners for due performance of the Charter. 29. Export and/or import permits for Charterers'cargo to the Charterers'risk and expense. Charterers to obtain and be responsible for all the necessary permits to enter and/or trade in and out of all ports during the currency of the Charter at their risk and expense. ... 33. Charterers to pay as overtime, bonus and premiums to Master, Officers and crew, the sum of 200 (Two Hundred Pounds) per month to be paid together with hire.

37. Bunkers on delivery as on board. Bunkers on redelivery maximum 110 tons. Prices of bunkers at 107' per long ton at both ends. 38. Upon sailing from each loading port, Master to cable SEASHIPS MANILA advising the quantity loaded and the time of completion. 40. The hire shall be payable in external sterling or at Charterers' option in U.S. dollars in London; Williams Deacon's Vlassopulos Ltd., Account No. 861769. In view of the aforesaid Charter, on March 30, 1965 plaintiff Charterer cabled a firm offer to P.T. Karkam to buy the 4,000 tons of copra for U.S.$180.00 per ton, the same to be loaded either in April or May, 1965. The offer was accepted and plaintiffs opened two irrevocable letters of Credit in favor of P.T. Karkam On March 29, 1965, the Charterer was notified by letter by Vlassopulos through Matthews that the vessel "PAXOI" had sailed from Hsinkang at noontime on March 27, 196-5 and that it had left on hire at that time and date under the Uniform Time-Charter. The Charterer was however twice in default in its payments which were supposed to have been done in advance. The first 15-day hire comprising the period from March 27 to April 1-1, 1965 was paid despite follow-ups only on April 6, 1965 and the second 15-day hire for the period from April 12 to April 27, 1965 was paid also despite follow-ups only on April 26, 1965. On April 14, 1965 upon representation of Toeg, the Esso Standard Oil (Hongkong) Company supplied the vessel with 400 tons of bunker oil at a cost of US $6,982.73. Although the late payments for the charter of the vessel were received and acknowledged by Vlassopulos without comment or protest, said agent notified Matthews, by telex on April 23, 1965 that the shipowners in accordance with Clause 6 of the Charter Party were withdrawing the vessel from Charterer's service and holding said Charterer responsible for unpaid hirings and all legal claims. On April 29, 1965, the shipowners entered into another charter agreement with another Charterer, the Nederlansche Stoomvart of Amsterdam, the delivery date of which was around May 3, 1965 for a trip via Indonesia to Antwep/Hamburg at an increase charter cost. Meanwhile, the original Charterer again remitted on April 30, 1965, the amount corresponding to the 3rd 15-day hire of the vessel "PAXOI" but this time the remittance was refused. On May 3,1965, respondents Union Import and Export Corporation and Philippine Traders Corporation filed a complaint with the Court of First Instance of Manila, Branch VIII, against the Unknown Owners of the Vessel "SS Paxoi" for specific performance with prayer for preliminary attachment, alleging, among other things, that the defendants (unknown owners) through their duly authorized agent in London, the N & J Vlassopulos Ltd., ship brokers, entered into a contract of Uniform Time-Charter with the Interocean Shipping Company of Manila through the latter's duly authorized broker, the Overseas Steamship Co., Inc., for the Charter of the vessel SS PAXOI' under the terms and conditions appearing therein ...; that, immediately thereafter, the Interocean Shipping Company sublet,the said vessel to the plaintiff Union Import & Export, Corporation which in turn sublet the same to the other plaintiff, the Philippine Traders Corporation (Amended Record on Appeal, p. 17). Respondents as plaintiffs in the complaint obtained a writ of preliminary attachment of vessel PAXOI' " which was anchored at Davao on May 5, 1969, upon the filing of the corresponding bond of P1,663,030.00 (Amended Record on Appeal, p. 27). However, the attachment was lifted on May 15, 1969 upon defendant's motion and filing of a counterbond for P1,663,030 (Amended Record on Appeal, p. 62). On May 11, 1965, the complaint was amended to Identify the defendant as Marimperio Compania Naviera S.A., petitioner herein (Amended Record on Appeal, p. 38). In answer to the amended complaint, by way of special defenses defendant (petitioner herein) alleged among others that the Charter Party covering its vessel "SS PAXOI" was entered into by defendant with Interocean Shipping Co. which is not a party in the complaint; that defendant has no agreement or relationship whatsoever with the plaintiffs; that plaintiffs are unknown to defendant; that the charter party entered into by defendant with the Interocean Shipping Co. over the vessel "SS PAXOI" does not authorize a sub-charter of said vessel to other parties; and that at any rate, any such sub-charter was without the knowledge or consent of defendant or defendant's agent, and therefore, has no effect and/or is not binding upon defendant. By way of counterclaim, defendant prayed that plaintiffs be ordered to pay defendant (1) the sum of 5,085.133d or its equivalent, in Philippine currency of P54,929.60, which the defendant failed to realize under the substitute charter, from May 3, 1965 to May 16, 1965, while the vessel was under attachment; (2) the sum of E68.7.10 or its equivalent of P7,132.83, Philippine currency, as premium for defendant's counterbond for the first year, and such other additional premiums that will have to be paid by defendant

for additional premiums while the case is pending; and (3) a sum of not less than P200,000.00 for and as attomey's fees and expenses of litigations (Amended Record on Appeal, p. 64). On March 16, 1966, respondent Interocean Shipping Corporation filed a complaint-in-intervention to collect what it claims to be its loss of income by way of commission and expenses in the amount of P15,000.00 and the sum of P2,000.00 for attorney's fees (Amended Record on Appeal, p. 87). In its amended answer to the complaint-in-intervention petitioner, by way of special defenses alleged that (1) the plaintiff-in-intervention, being the charterer, did not notify the defendant shipowner, petitioner, herein, about any alleged sub-charter of the vessel "SS PAXOI" to the plaintiffs; consequently, there is no privity of contract between defendant and plaintiffs and it follows that plaintiff-in-intervention, as charterer, is responsible for defendant shipowner for the proper performance of the charter party; (2) that the charter party provides that any dispute arising from the charter party should be referred to arbitration in London; that Charterer plaintiff-inintervention has not complied with this provision of the charter party; consequently its complaint-in intervention is premature; and (3) that the alleged commission of 2 1/2 and not become due for the reason, among others, that the charterer violated the contract, and the full hiring fee due the shipowner was not paid in accordance with the terms and conditions of the charter party. By way of counterclaim defendant shipowner charged the plaintiff-in-intervention attorney's fees and expenses of litigation in the sum of P10,000.00 (Amended Record on Appeal, p. 123). On November 22, 1969 the Court of First Instance of Manila, Branch VIII rendered its decision ** in favor of defendant Marimperio Compania Naviera, S.A., petitioner herein, and against plaintiffs Union Import and Export Corporation and Philippine Traders Corporation, respondents herein, dismissing the amended complaint, and ordering said plaintiff on the counterclaim to pay defendant, jointly and severally, the amount of f 8,011.38 or its equivalent in Philippine currency of P75,303.40, at the exchange rate of P9.40 to 1 for the unearned charter hire due to the attachment of the vessel "PAXOI" in Davao, plus premiums paid on the counterbond as of April 22, 1968 plus the telex and cable charges and the sum of P10,000.00 as attorney's fees and costs. The trial court dismissed the complaint-in-intervention, ordering the intervenor, on the counterclaim, to pay defendant the sum of P10,000.00 as attorney's fees, and the costs (Amended Record on Appeal, p. 315). Plaintiffs filed a Motion for Reconsideration and/or new trial of the decision of the trial court on December 23, 1969 (Amended Record on Appeal, p. 286); the intervenor filed its motion for reconsideration and/or new trial on January 7, 1970 (Amended Record on Appeal, p. 315). Acting on the two motions for reconsideration, the trial court reversed its stand in its amended decision dated January 24, 1978. The dispositive portion of the amended decision states: FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment for the plaintiffs Union Import & Export Corporation and Philin Traders Corporation, and plaintiff-in-intervention, Interocean Shipping Corporation, and consequently orders the defendant, Marimperio Compania Naveria S.A.: (1) To pay plaintiffs the sum of US$22,500.00 representing the remittance of plaintiffs to said defendant for the first 15-day hire of the vessel "SS PAXOI" including overtime and an overpayment of US$254.00; (2) To pay plaintiffs the sum of US$16,000.00 corresponding to the remittance of plaintiffs to defendant for the second 15-day hire of the aforesaid vessel; (3) To pay plaintiffs the sum of US$6,982.72 representing the cost of bunker oil, survey and watering of the said vessel; (4) To pay plaintiffs the sum of US$220,0,00.00 representing the unrealized profits; and (5) To pay plaintiffs the sum of P100,000.00, as and for attorney's fees (Moran, Comments on the Rules of Court, Vol. III, 1957 5d 644, citing Haussermann vs. Rahmayer, 12 Phil. 350; and others)" (Francisco vs. Matias, G.R. No. L-16349, January 31, 1964; Sison vs. Suntay, G.R. No. L-1000 . December 28, 1957). The Court further orders defendant to pay plaintiff-in-intervention the amount of P15,450.44, representing the latter's commission as broker, with interest thereon at 6% per annum from the date of the filing of the complaint-in-intervention, until fully paid, plus the sum of P2,000.00 as attorney's fees.

The Court finally orders the defendant to pay the costs. In view of the above conclusion, the Court orders the dismissal of the counterclaims filed by defendant against the plaintiffs and plaintiff-in- intervention, as wen as its motion for the award of damages in connection with the issuance of the writ of preliminary attachment. Defendant (petitioner herein), filed a motion for reconsideration and/or new trial of the amended decision on February 19, 1970 (Amended Record on Appeal, p. 382). Meanwhile a new Judge was assigned to the Trial Court (Amended Record on Appeal, p. 541). On September 10, 1970 the trial court issued its order of September 10, 1970 *** denying defendant's motion for reconsideration (Amended Record on Appeal, p. 583). On Appeal, the Court of Appeals affirmed the amended decision of the lower court except the portion granting commission to the intervenor- appellee, which it reversed thereby dismissing the complaint-in- intervention. Its two motions (1) for reconsideration and/or new trial and (2) for new trial having been denied by the Court of Appeals in its Resolution of February 17, 1975 which, however, fixed the amount of attorney's fees at P100,000.00 instead of $100,000.00 (Rollo, p. 81), petitioner filed with this Court its petition for review on certiorari on March 19, 197 5 (Rollo, p. 86). After deliberating on the petition, the Court resolved to require the respondents to comment thereon, in its resolution dated April 2, 1975 (rollo, p. 225). The comment on petition for review by certiorari was filed by respondents on April 21, 1975, praying that the petition for review by certiorari dated March 18, 1975 be dismissed for lack of merit Rollo p. 226). The reply to comment was filed on May 8, 1975 (Rollo, p. 259). The rejoinder to reply to comment was filed on May 13, 197 5 (Rollo, p. 264). On October 20, 1975, the Court resolved (a) to give due course to the petition; (b) to treat the petition for review as a special civil action; and (c) to require both parties to submit their respective memoranda within thirty (30) days from notice hereof (Rollo, p. 27). Respondents filed their memoranda on January 27, 1976 (Rollo, p. 290); petitioner, on February 26, 1976 (Rollo, p. 338). Respondents' reply memorandum was filed on April 14, 1976 (Rollo, p. 413) and Rejoinder to respondents' reply memorandum was filed on May 28, 1976 (Rollo, p. 460). On June 11, 1976, the Court resolved to admit petitioner's rejoinder to respondents' reply memorandum and to declare this case submitted for decision (Rollo, p. 489). The main issues raised by petitioner are: 1. Whether or not respondents have the legal capacity to bring the suit for specific performance against petitioner based on the charter party, and 2. Whether or not the default of Charterer in the payment of the charter hire within the time agreed upon gives petitioner a right to rescind the charter party extra judicially. I. According to Article 1311 of the Civil Code, a contract takes effect between the parties who made it, and also their assigns and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law. Since a contract may be violated only by the parties, thereto as against each other, in an action upon that contract, the real parties in interest, either as plaintiff or as defendant, must be parties to said contract. Therefore, a party who has not taken part in it cannot sue or be sued for performance or for cancellation thereof, unless he shows that he has a real interest affected thereby (Macias & Co. v. Warner Barners & Co., 43 Phil. 155 [1922] and Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125 [1951]; Coquia v. Fieldmen's Insurance Co., Inc., 26 SCRA 178 [1968]). It is undisputed that the charter party, basis of the complaint, was entered into between petitioner Marimperio Compaia Naviera, S.A., through its duly authorized agent in London, the N & J Vlassopulos Ltd., and the Interocean Shipping Company of Manila through the latter's duly authorized broker, the Overseas Steamship Co., Inc., represented by Matthews, Wrightson Burbridge Ltd., for the Charter of the 'SS PAXOI' (Amended Complaint, Amended Record on Appeal, p. 33; Complaint-in-Intervention, Amended Record on Appeal, p. 87). It is also alleged in both the Complaint

(Amended Record on Appeal 18) and the Amended Complaint (Amended Record on Appeal, p. 39) that the Interocean Shipping Company sublet the said vessel to respondent Union Import and Export Corporation which in turn sublet the same to respondent Philippine Traders Corporation. It is admitted by respondents that the charterer is the Interocean Shipping Company. Even paragraph 3 of the complaint-in-intervention alleges that respondents were given the use of the vessel "pursuant to paragraph 20 of the Uniform Time Charter ..." which precisely provides for the subletting of the vessel by the charterer (Rollo, p. 24). Furthermore, Article 652 of the Code of Commerce provides that the charter party shall contain, among others, the name, surname, and domicile of the charterer, and if he states that he is acting by commission, that of the person for whose account he makes the contract. It is obvious from the disclosure made in the charter party by the authorized broker, the Overseas Steamship Co., Inc., that the real charterer is the Interocean Shipping Company (which sublet the vessel to Union Import and Export Corporation which in turn sublet it to Philippine Traders Corporation). In a sub-lease, there are two leases and two distinct judicial relations although intimately connected and related to each other, unlike in a case of assignment of lease, where the lessee transmits absolutely his right, and his personality disappears; there only remains in the juridical relation two persons, the lessor and the assignee who is converted into a lessee (Moreno, Philippine Law Dictionary, 2nd ed., p. 594). In other words, in a contract of sub-lease, the personality of the lessee does not disappear; he does not transmit absolutely his rights and obligations to the sub-lessee; and the sublessee generally does not have any direct action against the owner of the premises as lessor, to require the compliance of the obligations contracted with the plaintiff as lessee, or vice versa (10 Manresa, Spanish Civil Code, 438). However, there are at least two instances in the Civil Code which allow the lessor to bring an action directly (accion directa) against the sub-lessee (use and preservation of the premises under Art. 1651, and rentals under Article 1652). Art. 1651 reads: Without prejudice to his obligation toward the sub-lessor, the sub-lessee is bound to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee. Article 1652 reads: The sub-lessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sub-lease, at the time of the extra-judicial demand by the lessor. Payments of rent in advance by the sub-lessee shall be deemed not to have been made, so far as the lessor's claim is concerned, unless said payments were effected in virtue of the custom of the place. It will be noted however that in said two Articles it is not the sub-lessee, but the lessor, who can bring the action. In the instant case, it is clear that the sub-lessee as such cannot maintain the suit they filed with the trial court (See A. Maluenda and Co. v. Enriquez, 46 Phil. 916). In the law of agency "with an undisclosed principal, the Civil Code in Article 1883 reads: If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provisions of this article shag be understood to be without prejudice to the actions between the principal and agent. While in the instant case, the true charterers of the vessel were the private respondents herein and they chartered the vessel through an intermediary which upon instructions from them did not disclose their names. Article 1883 cannot help the private respondents, because although they were the actual principals in the charter of the vessel, the law does not allow them to bring any action against the adverse party and vice, versa. II.

The answer to the question of whether or not the default of charterer in the payment of the charter hire within the time agreed upon gives petitioner a right to rescind the charter party extrajudicially, is undoubtedly in the affirmative. Clause 6 of the Charter party specifically provides that the petitioner has the right to withdraw the vessel fromthe service of the charterers, without noting any protest and without interference of any court or any formality in the event that the charterer defaults in the payment of hire. The payment of hire was to be made every fifteen (1 5) days in advance. It is undisputed that the vessel "SS PAXOI" came on hire on March 27, 1965. On March 29, Vlassopulos notified by letter the charterer through Matthews of that fact, enclosing therein owner's debit note for a 15-day hire payable in advance. On March 30, 1965 the shipowner again notified Matthews that the payment for the first 15-day hire was overdue. Again on April 2 the shipowner telexed Matthews insisting on the payment, but it was only on April 7 that the amount of US $22,500.00 was remitted to Williams Deacons Bank, Ltd. through the Rizal Commercial Banking Corporation for the account of Vlassopulos, agent of petitioner, corresponding to the first 15-day hire from March 27 to April 11, 1965. On April 8, 1965, Vlassopulos acknowledged receipt of the payment, again with a debit note for the second 15-day hire and overtime which was due on April 11, 1965. On April 23, 1965, Vlassopulos notified Matthews by telex that charterers were in default and in accordance with Clause 6 of the charter party, the vessel was being withdrawn from charterer's service, holding them responsible for unpaid hire and all other legal claims of the owner. Respondents remitted the sum of US$6,000.00 and US$10,000.00 to the bank only on April 26, 1965 representing payment for the second 15-day hire from April 12 to April 27, 1965, received and accepted by the payee, Vlassopulos without any comment or protest. Unquestionably, as of April 23, 1965, when Vlassopulos notified Matthews of the withdrawal of the vessel from the Charterers' service, the latter was already in default. Accordingly, under Clause 6 of the charter party the owners had the right to withdraw " SS PAXO I " from the service of charterers, which withdrawal they did. The question that now arises is whether or not petitioner can rescind the charter party extra-judicially. The answer is also in the affirmative. A contract is the law between the contracting parties, and when there is nothing in it which is contrary to law, morals, good customs, public policy or public order, the validity of the contract must be sustained (Consolidated Textile Mills, Inc. v. Reparations Commission, 22 SCRA 674 [19681; Lazo v. Republic Surety & Insurance Co., Inc., 31 SCRA 329 [1970]; Castro v. Court of Appeals, 99 SCRA 722 [1980]; Escano v. Court of Appeals, 100 SCRA 197 [1980]). A judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions (Enrile v. Court of Appeals, 29 SCRA 504 [1969]; University of the Philippines v. De los Angeles, 35 SCRA 102 [1970]; Palay, Inc. v. Clave, 124 SCRA 638 [1983]). PREMISES CONSIDERED, (1) the decision of the Court of Appeals affirming the amended decision of the Court of First Instance of Manila, Branch VIII, is hereby REVERSED and SET ASIDE except for that portion of the decision dismissing the complaint-in-intervention; and (2) the original decision of the trial court is hereby REINSTATED. SO ORDERED. Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur. SECOND DIVISION G.R. No. 80447 January 31, 1989 BALIWAG TRANSIT, INC., petitioner, vs. HON. COURT OF APPEALS and SPS. SOTERO CAILIPAN, JR. and ZENAIDA LOPEZ and GEORGE L. CAILIPAN, respondents. Sta. Maria & Associates for petitioner. Punzalan and Associates Law Office for respondents.

MELENCIO-HERRERA, J.:

On 10 April 1985 a Complaint for damages arising from breach of contract of carriage was filed by private respondents, the Spouses Sotero Cailipan, Jr. and Zenaida Lopez, and their son George, of legal age, against petitioner Baliwag Transit (Baliwag, for brevity). The Complaint alleged that George, who was a paying passenger on a Baliwag bus on 17 December 1984, suffered multiple serious physical injuries when he was thrown off said bus driven in a careless and negligent manner by Leonardo Cruz, the authorized bus driver, along Barangay Patubig, Marilao, Bulacan. As a result, he was confined in the hospital for treatment, incurring medical expenses, which were borne by his parents, the respondent Spouses, in the sum of about P200,000.00 plus other incidental expenses of about P10,000.00. On 26 April 1985 an Answer was filed by petitioner alleging that the cause of the injuries sustained by George was solely attributable to his own voluntary act in that, without warning and provocation, he suddenly stood up from his seat and headed for the door of the bus as if in a daze, opened it and jumped off while said bus was in motion, in spite of the protestations by the driver and without the knowledge of the conductor. Baliwag then filed a Third-Party Complaint against Fortune Insurance & Surety Company, Inc., on its third-party liability insurance in the amount of P50,000.00. In its Answer, Fortune Insurance claimed limited liability, the coverage being subject to a Schedule of Indemnities forming part of the insurance policy. On 14 November 1985 and 18 November 1985, respectively, Fortune Insurance and Baliwag each filed Motions to Dismiss on the ground that George, in consideration of the sum of P8,020.50 had executed a "Release of Claims" dated 16 May 1985. These Motions were denied by the Trial Court in an Order dated 13 January 1986 as they were filed beyond the time for pleading and after the Answer were already filed. On 5 February 1986 Baliwag filed a Motion to Admit Amended Answer, which was granted by the Trial Court. The Amended Answer incorporated the affirmative defense in the Motion to Dismiss to the effect that on 16 May 1985, George bad been paid all his claims for damages arising from the incident subject matter of the complaint when he executed the following "Release of Claims": For and in consideration of the payment to me/us of the sum of EIGHT THOUSAND TWENTY and 50/100 PESOS ONLY (P8,020.50), the receipt of which is hereby acknowledged, I/we, being of lawful age, do hereby release, acquit and forever discharge Fortune Insurance and/or Baliwag transit, Inc. his/her heirs, executors and assigns, from any and all liability now accrued or hereafter to accrue on account of any and all claims or causes of action which I/we now or may here after have for personal injuries, damage to property, loss of services, medical expenses, losses or damages of any and every kind or nature whatsoever, now known or what may hereafter develop by me/us sustained or received on or about 17th day of December, 1984 through Reckless Imprudence Resulting to Physical Injuries, and I/we hereby declare that I/we fully understand the terms of this settlement and voluntarily accept said sum for the purpose of making a full and final compromise adjustment and settlement of the injuries and damages, expenses and inconvenience above mentioned. (Rollo, p. 11) During the preliminary hearing on the aforementioned affirmative defense, Baliwag waived the presentation of testimonial evidence and instead offered as its Exhibit "1" the "Release of Claims" signed by George and witnessed by his brother Benjamin L. Cailipan, a licensed engineer. By way of opposition to petitioner's affirmative defense, respondent Sotero Cailipan, Jr. testified that be is the father of George, who at the time of the incident was a student, living with his parents and totally dependent on them for their support; that the expenses for his hospitalization were shouldered by his parents; and that they had not signed the "Release of Claims." In an Order dated 29 August 1986, the Regional Trial Court of Bulacan, Branch 20, dismissed the Complaint and Thirdparty Complaint, ruling that since the contract of carriage is between Baliwag and George L. Cailipan, the latter, who is of legal age, had the exclusive right to execute the Release of Claims despite the fact that he is still a student and dependent on his parents for support. Consequently, the execution by George of the Release of Claims discharges Baliwag and Fortune Insurance. Aggrieved, the Spouses appealed to respondent Court of Appeals. On 22 October 1987, the Appellate Court rendered a Decision setting aside the appealed Order and holding that the "Release of Claims" cannot operate as a valid ground for the dismissal of the case because it does not have the conformity of all the parties, particularly George's parents, who have a substantial interest in the case as they stand to be prejudiced by the judgment because they spent a sizeable amount for the medical bills of their son; that the Release of
2 1

Claims was secured by Fortune Insurance for the consideration of P8,020.50 as the full and final settlement of its liability under the insurance policy and not for the purpose of releasing Baliwag from its liability as a carrier in this suit for breach of contract. The Appellate Court also ordered the remand of the case to the lower Court for trial on the merits and for George to return the amount of P8,020.50 to Fortune Insurance. Hence, this Petition for Review on certiorari by Baliwag assailing the Appellate Court judgment. The issue brought to the fore is the legal effect of the Release of Claims executed by George during the pendency of this case. We hold that since the suit is one for breach of contract of carriage, the Release of Claims executed by him, as the injured party, discharging Fortune Insurance and Baliwag from any and all liability is valid. He was then of legal age, a graduating student of Agricultural Engineering, and had the capacity to do acts with legal effect (Article 37 in relation to Article 402, Civil Code). Thus, he could sue and be sued even without the assistance of his parents. Significantly, the contract of carriage was actually between George, as the paying passenger, and Baliwag, as the common carrier. As such carrier, Baliwag was bound to carry its passengers safely as far as human care and foresight could provide, and is liable for injuries to them through the negligence or wilful acts of its employees (Articles 1755 and 1759, Civil Code). Thus, George had the right to be safely brought to his destination and Baliwag had the correlative obligation to do so. Since a contract may be violated only by the parties thereto, as against each other, in an action upon that contract, the real parties in interest, either as plaintiff or as defendant, must be parties to said contract (Marimperio Compania Naviera, S.A. vs. Court of Appeals, No. L-40234, December 14, 1987, 156 SCRA 368). A real party-in-interest plaintiff is one who has a legal right while a real party-in-interest-defendant is one who has a correlative legal obligation whose act or omission violates the legal right of the former (Lee vs. Romillo, Jr., G.R. No. 60973, May 28, 1988). In the absence of any contract of carriage between Baliwag and George's parents, the latter are not real parties-in-interest in an action for breach of that contract. The general rule of the common law is that every action must be brought in the name of the party whose legal right has been invaded or infringed. 15 Enc. P1. & Pr. p. 484. "For the immediate wrong and damage the person injured is the only one who can maintain the action." Id. p. 578. The person who sustains an injury is the person to bring an action for the injury against the wrongdoer." Dicey parties to Actions, 347. (Cited in Green v. Shoemaker, 73 A 688, 23 L.R.A., N.S. 667). There is no question regarding the genuineness and due execution of the Release of Claims. It is a duly notarized public document. It clearly stipulates that the consideration of P8,020.50 received by George was "to release and forever discharge Fortune Insurance and/or Baliwag from any and all liabilities now accrued or to accrue on account of any and all claims or causes of action ... for personal injuries, damage to property, loss of services, medical expenses, losses or damages of any and every kind or nature whatsoever, sustained by him on 17 December 1984 thru Reckless Imprudence Resulting to Physical Injuries." Consequently, the ruling of respondent Appellate Court that the "Release of Claims" was intended only as the full and final settlement of a third-party liability for bodily injury claim and not for the purpose of releasing Baliwag from its liability, if any, in a breach of a contract of carriage, has to be rejected for being contrary to the very terms thereof. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control (Article 1370, Civil Code). The phraseology "any and all claims or causes of action" is broad enough to include all damages that may accrue to the injured party arising from the unfortunate accident. The Release of Claims had the effect of a compromise agreement since it was entered into for the purpose of making a full and final compromise adjustment and settlement of the cause of action involved. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced (Article 2028, Civil Code). The Release of Claims executed by the injured party himself wrote finish to this litigation. WHEREFORE, the Decision dated 22 October 1987 of respondent Court of Appeals is SET ASIDE, the Decision of the Regional Trial Court of Bulacan, Branch 20, is REINSTATED, and the Complaint and Third-Party Complaint are hereby ordered DISMISSED. No costs. SO ORDERED. Paras, Padilla, Sarmiento and Regalado, JJ., concur .

FIRST DIVISION

[G.R. No. 126713. July 27, 1998]

ADORACION E. CRUZ, THELMA DEBBIE E. CRUZ and GERRY E. CRUZ, petitioners, vs. COURT OF APPEALS and SPOUSES ELISEO and VIRGINIA MALOLOS, respondents. DECISION PANGANIBAN, J.: Contracts constitute the law between the parties. They must be read together and interpreted in an manner that reconciles and gives life to all of them. The intent of the parties, as shown by the clear language used, prevails over post facto explanations that find no support from the words employed by the parties of from their contemporary and subsequent acts showing their understanding of such contracts, Furthermore, a subsequent agreement cannot novate or change by implication a previous one, unless old and new contracts are, on every point, incompatible with each other. Finally, collateral facts may be admitted in evidence when a rational similarity exists between the conditions giving rise to the fact offered and the circumstances surrounding the issue or fact to be proved.

The Case Before us is a petition for review on certiorari seeking to nullify the Court of Appeals (CA) Decision in CA- GR CV 33566, promulgated July 15, 1996, which reversed the Regional Trial Court (RTC) of Antipolo, Rizal; and CA [2] Resolution of October 1, 1996, which denied petitioners Motion for Reconsideration. Petitioners Adoracion, Thelma Debbie, Gerry and Arnel (all surnamed Cruz) filed an action for partition against the private respondents, Spouses Eliseo and Virginia Malolos. On January 28, 1991, the trial court rendered a Decision [3] which disposed as follows: WHEREFORE, judgment is hereby rendered for the plaintiffs and against the defendants -spouses 1. Ordering the partition of the seven parcels of land totalling 1,912 sq. m. among the four (4) plaintiffs and the defendants-spouses as follows: a. b. c. d. e. Adoracion E. Cruz (1/5) Thelma Debbie Cruz (1/5) Gerry E. Cruz (1/5) Arnel E. Cruz (1/5) Spouses Eliseo and Virginia Malolos (1/5) ----------382 sq. m. 382 sq. m. 382 sq. m. 382 sq. m. 382 sq. m.
[1]

to whom Lot No. 1-C-2-B-2-B-4-L-1-A with an area of 276 sq. m. covered by TCT No. 502603 and a portion of Lot No. 1-C-2-B-2-B-4-L-1-B covered by TCT No. 502604 to the extent of 106 sq. m. adjoining TCT No. 502603. 2. Ordering the parties herein to execute a project of partition in accordance [with] this decision indicating the partition of the seven (7) parcels of land within fifteen (15) days upon receipt of this judgment. 3. 4. Ordering defendants-spouses to pay plaintiffs herein P5,000.00 as and for attorneys fees; Cost of suit. On appeal, Respondent Court reversed the trial court thus:
[4]

WHEREFORE, finding the appeal to be meritorious, we REVERSE the appealed decision and render judgment DISMISSING the complaint without prejudice however to the claim of plaintiff-appellees for their shares in the proceeds of the auction sale of the seven (7) parcels of land in question against Nerissa Cruz Tamayo pursuant to the Memorandum Agreement. Cost against the plaintiff-appellees. As earlier stated, reconsideration was denied through the appellate courts challenged Resolution: WHEREFORE, for lack of merit, the Motion for Reconsideration in DENIED..
[5]

The Antecedent Facts The facts of this case are undisputed. The assailed Decision relates them as follows:
[6]

Delfin I. Cruz and Adoracion Cruz were spouses and their children were Thelma, Nerissa, Arnel and Gerry Cruz. Upon the death of Delfin I. Cruz, [his] surviving spouse and children executed on August 22, 1977 a notarized Deed of Partial Partition (Exhibit 2) by virtue of which each one of them was given a share of several parcels of registered lands all situated in Taytay, Rizal. The following day, August 23, 1977, the same mother and children executed a Memorandum Agreement (Exhibit H) which provided: That the parties hereto are common co-owners pro-indiviso in equal shares of the following registered real properties, all situated at Taytay, Rizal, Philippines, x x x. xxx That sometime on August 22, 1977, a Deed of Partial Partition was executed among us before Atty. Virgilio J. Tamayo, Notary Public on and for the Province of Rizal, per Doc. No. 1776; Page No. 14; of his Notarial Register No. XLIX, Series of 1977; xxx That as a result of said partial partition, the properties affected were actually partitioned and the respective shares of each party, adjudicated to him/her; That despite the execution of this Deed of Partial Partition and the eventual disposal or sale of their respective shares, the contracting parties herein covenanted and agreed among themselves and by these presents do hereby bind themselves to one another that they shall share alike and received equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition. That this Agreement shall continue to be valid and enforceable among the contracting parties herein up to and until the last lot covered by the Deed of [P]artial [P]artition above adverted to shall have been disposed of or sold and the proceeds thereof equally divided and their respective shares received by each of them. This Memorandum Agreement was registered and annotated in the titles of the lands covered by the Deed of Partial Partition. Subsequently, the same parties caused the consolidation and subdivisions of the lands they respectively inherited from the late Delfin I. Cruz per Deed of Partial Partition. After that, they registered the Deed of Partial Partition and subdivision plans and titles were issued in their names. In the case of Nerissa Cruz Tamayo, the following titles were issued to her in her name: TCT No. 502603 (Exhibit A), TCT No. 502604, (Exhibit B), TCT No. 502605 (Exhibit C), TCT No. 502606 (Exhibit D), TCT No. 502608 (Exhibit E), TCT No. 502609 (Exhibit F), TCT No. 502610 (Exhibit G), hereinafter called the lands in question. Naturally, the annotation pertaining to the Memorandum Agreement was carried in each of said seven (7) titles and annotated in each of them.

Meanwhile, the spouses Eliseo and Virginia Malolos filed Civil Case No. 31231 against the spouses Nerissa Cruz-Tamayo and Nelson Tamayo for a sum of money. The Court of First Instance of Rizal, Branch XVI (Quezon City) rendered a decision of June 1, 1981 in favor of Eliseo and Virginia condemning the spouses Nerissa and Nelson Tamayo to pay them P126,529.00 with 12% interest per annum from the filing of the complaint plus P5,000.00 attorneys fee. After the finality of that decision, a writ of execution (Exhibit J) was issued on November 20, 1981. Enforcing said writ, the sheriff of the court levied upon the lands in question. On June 29, 1983, these properties were sold in an execution sale to the highest bidders, the spouses Eliseo and Virginia Malolos. Accordingly, the sheriff executed a Certificate of Sale (Exhibit K) over all the rights, claims, interests, titles, shares, and participations of defendant spouses Nerissa Tamayo and Ne lson Tamayo.. Nerissa Cruz Tamayo failed to exercise her right of redemption within the statutory period and so the final deed of sale was executed by the sheriff conveying the lands in question to spouses Eliseo and Virginia Malolos. The Malolos couple asked Nerissa Cruz Tamayo to give them the owners duplicate copy of the seven (7) titles of the lands in question but she refused. The couple moved the court to compel her to surrender said titles to the Register of Deeds of Rizal for cancellation. This was granted on September 7, 1984. But Nerissa was adamant. She did not comply with the Order of the court and so the Malolos couple asked the court to declare said titles as null and void. At this point, Adoracion Cruz, Thelma Cruz, Gerry Cruz and Arnel Cruz entered the picture by filing is said lower court a motion for leave to intervene and oppose [the] Maloloses motion. The Cruzes alleged that they were co-owners of Nerissa Cruz Tamayo over the lands in question. On January 18, 1985, said court issued an Order modifying the Order of September 7, 1984 by directing the surrender of the owners duplicate copies of the titles of the lands in question to the Register of Deeds not for cancellation but for the annotation of the rights, interest acquired by the Maloloses over said lands. On February 17, 1987, Adoracion, Thelma, Gerry and Arnel Cruz filed Civil Case No. 961-A for Partition of Real Estate against spouses Eliseo and Virginia Malolos over the lands in question. As already stated in the first paragraph of this Decision, the court a quo rendered a decision in favor of the plaintiffs from which the defendants appealed to this court, x x x x .

Ruling of the Court of Appeals For Respondent Court, the central issue was: Did the Memorandum of Agreement [MOA] (Exhibit H) revoke, [8] cancel or supersede the Deed of Partial Partition [DPP] (Exhibit 2)? If so, then petitioners and Spouses Tamayo were co-owners of the land in issue, and partition should ensue upon motion of the former; if not, then the latter are its absolute owners and to partition should be made. Respondent Court resolved the above question in the negative for the following reasons: First, the DPP was not materially and substantially incompatible with the MOA. The DPP conferred absolute ownership of the parcels of land in issue on Nerissa Cruz Tamayo, while the MOA merely created an obligation on her part to share with the petitioners the proceeds of the sale of said properties. Second, the fact that private respondent registered the DPP was inconsistent with the allegation that they intended to abandon it. Indeed, had they meant to abandon it, they would have simply gathered the copies of said document and then torn of burned them. Third, petitioners were estopped from claiming co-ownership over the disputed properties because, as absolute owners, they either mortgaged or sold the other properties adjudicated to them by virtue of the DPP. Hence, this petition.
[9] [7]

Assignment of Errors

In their Memorandum, A.

[10]

petitioners submit the following assignment of errors:

Respondent Court erred in ruling that the Memorandum of Agreement (Exhibit H) does n ot prevail over the Deed of Partial Partition (Exhibit 2). Respondent Court erred in ruling that petitioners can only claim their right to the proceeds of [the] auction sale. Respondent Court erred in ruling that petitioners are in estoppel by deed.

B.

C. D.

Respondent Court erred in ruling that the registration of the deed of partial partition precluded the petitioners from abrogating it. Respondent Court erred when it completely ignored the finality of the order of the Regional Trial Court of Quezon City, Branch LXXXVI as embodied in the decision of the Regional Trial Court of Antipolo, Rizal, Branch 71.

E.

In fine, the resolution of this petition hinges of the following issues: (1) whether DPP was cancelled or novated by the MOA; (2) whether the MOA established, between petitioners and the judgment debtor, a co-ownership of the lots in question; (3) whether petitioners are barred by estoppel from claiming co-ownership of the seven parcels of land; and (4) whether res judicata has set in.

The Courts Ruling The petition is bereft of merit. It fails to demonstrate any reversible error on the part of the Court of Appeals.

First Issue: No Novation or Cancellation In their Memorandum, petitioners insist that the MOA categorically and unmistakably named and covenanted them as co-owners of the parcels in issue and novated their earlier agreement, the Deed of Partial Partition. Petitioners claim that the MOA clearly manifested their intention to create a co-ownership. This is particularly evident in Exhibit 1-B, which provides: That despite the execution of this Deed of Partial Partition and eventual disposal or sale of their respective shares, the contracting parties herein covenanted and agreed among themselves and by these presents do hereby bind themselves to one another that they shall share and receive equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition. The Court disagrees. The foregoing provision in the MOA does not novate, much less cancel, the earlier DPP. Novation, one of the modes of extinguishing an obligation, requires the concurrence of the following: (1) there is a previous valid obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4) [11] there is a valid new contract. Novation may be express or implied. Article 1292 of the Code provides: In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in [12] unequivocal terms [express novation], or that the old and new obligations be on every point incompatible with each other [implied novation]. Tested against the foregoing standards, petitioners stance is shattered to pieces. The stipulation that the petitioners [13] and Spouses Tamayo were co-owners was merely the introductory part of the MOA, and it reads: That the parties are common co-owners pro-indiviso in equal shares of the following registered real properties, all situated at Taytay, Rizal, Philippines. xxx xxx xxx xxx

That sometime in August 22, 1977, a Deed of Partial Partition was executed among us before Atty. Virgilio J. Tamayo, Notary Public in and for the Province of Rizal, per Doc. No. 1796; Page No. 14; of his Notarial Register No. XLIX, Series of 1977; Following the above-quoted stipulation is a statement that the subject parcels of land had in fact been partitioned, but that [14] the former co-owner intended to share with petitioners the proceeds of any sale of said land, viz: That [as] a result of said partial partition, the properties affected were actually partitioned and the respective shares of each party, adjudicated to him/her; That despite the execution of this Deed of Partial Partition and the eventual disposal or sale of their respective shares, the contracting parties herein covenanted and agreed among themselves [and] to one another that they shall do [sic] hereby bind themselves to one another that they shall share alike and receive equal shares from the proceeds of the sale of any lot or lots allotted to and adjudicated in their individual names by virtue of this deed of partial partition; That this Agreement shall continue to be valid and enforceable among the contracting parties herein up to and until the last lot covered by the deed or partial partition above adverted to shall have been disposed of or sold and the proceeds thereof equally divided and their respective shares received by each of them. xxx xxx xxx

The MOA falls short of producing a novation, because it does not express a clear intent to dissolve the old obligation [15] as a consideration for the emergence of the new one. Likewise, petitioners fail to show that the DPP and the MOA are materially and substantially incompatible with each other. Petitioners admit that, under the MOA, they and the Tamayo [16] spouses agreed to equally share in the proceeds of the sale of the lots. Indeed, the DPP granted title to the lots in question to the co-owner to whom they were assigned, and the MOA created an obligation on the part of such co-owner to share with the others the proceeds of the sale of such parcels. There is no incompatibility between these two contracts. Verily, the MOA cannot be construed as a repudiation of the earlier DPP. Both documents can exist together and [17] must be so interpreted as to give life to both. Respondent Court aptly explained: The Deed of Partition conferred upon Nerissa Cruz Tamayo absolute ownership over the lands in question. The Memorandum of Agreement merely created an obligation on the part of absolute owner Nerissa Cruz Tamayo to share [with] the appellees with [sic] the proceeds of the sale of said properties. The obligation of the owner of a piece of land to share [with] somebody with [sic] its fruits or the proceeds of its sale does not necessarily impair his dominion over the property much less make the beneficiary his co-owner thereof. All in all, the basic principle underlying this ruling is simple: when the text of a contract is explicit and leaves no doubt [18] as to its intention, the court may not read into it any intention that would contradict its plain import. The hornbook rule on interpretation of contracts gives primacy to the intention of the parties, which is the law among them. Ultimately, their intention is to be deciphered not from the unilateral post facto assertions of one of the parties, but from the language used in the contract. And when the terms of the agreement, as expressed in such language, are clear, they are to be understood literally, just as they appear on the face of the contract. Indeed, the legal effects of a contract are determined by extracting the intention of the parties from the language they [19] used and from their contemporaneous and subsequent acts. This principle gains more force when third parties are concerned. To require such persons to go beyond what is clearly written in the document is unfair and unjust. They cannot possibly delve into the contracting parties minds and suspect that something is amiss, when the language of the instrument appears clear and unequivocal.

Second Issue: No Co-ownership in the MOA Petitioners contend that they converted their separate and individual ownership over the lands in dispute into a coownership by their execution of the MOA and the annotation thereof on the separate titles. The Court is not convinced. The very provisions of the MOA belie the existence of a co-ownership. First, it retains the partition of the properties, which petitioners supposedly placed in co-ownership; and, second, it vests in the registered owner the power to dispose of the land adjudicated to him or her under the DPP. These are antithetical to the petitioners

contention. In a co-ownership, an undivided thing or right belongs to two or more persons. Put differently, several [21] persons hold common dominion over a spiritual (or ideal) part of a thing, which is not physically divided. In the present case, however, the parcels of land in the MOA have all been partitioned and titled under separate and individual names. More important, the MOA stipulated that the registered owner could sell the land without the consent of the other [22] parties to the MOA. Jus disponendi is an attribute of ownership, and only the owner can dispose of a property. Contrary to petitioners claim, the annotation of the MOA in the certificate of title did not engender any co[23] ownership. Well settled is the doctrine that registration merely confirms, but does not confer, title. It does not give the holder any better title than what he actually has. As earlier observed, the MOA did not make petitioners co-owners of the disputed parcels of land. Hence, the annotation of this document in the separate certificates of title did not grant them a greater right over the same property.

[20]

Third Issue: Estoppel by Deed Respondent Court found that several deeds of sale and real estate mortgage, which petitioners executed when they sold or mortgaged some parcels adjudicated to them under the DPP, contained the statement that the vendor/mortgagor was the absolute owner of the parcel of residential land and that he or she represented it as free from liens and encumbrances. On the basis of these pieces of evidence, respondent Court held that petitioners were estopped from claiming that there was a co-ownership over the disputed parcels of land which were also covered by the DPP. Petitioners contend that Respondent Court , in so ruling violated the res inter alios acta rule. Petitioners contentions is untenable. Res inter alios acta, as a general rule, prohibits the admission of evidence that tends to show that what a person has done at one time is probative of the contention that he has done a similar as act at [24] another time. Evidence of similar acts or occurrences compels the dependant to meet allegations that are not mentioned in the complaint, confuses him in his defense, raises a variety of irrelevant issues, and diverts the attention of the court from the issues immediately before it. Hence, this evidentiary rule guards against the practical inconvenience of [25] trying collateral issues and protracting the trial and prevents surprise or other mischief prejudicial to litigants. The rule, however, is not without exception. While inadmissible in general, collateral facts may be received as evidence under exceptional circumstances, as when there is a rational similarity or resemblance between the conditions [26] giving rise to the fact offered and the circumstances surrounding the issue or fact to be proved. Evidence of similar acts may frequently become relevant, especially in actions based on fraud and deceit, because it sheds light on the state of mind or knowledge of a persons; it provides insight into such persons motive or intent; it uncovers a scheme, design or [27] plan; or it reveals a mistake. In this case, petitioners argue that transactions relating to the other parcels of land they entered into, in the concept of absolute owners, are inadmissible as evidence to show that the parcels in issue are not co-owned. The court is not persuaded. Evidence of such transactions falls under the exception to the rule on the res inter alios acta. Such evidence [28] is admissible because it is relevant to an issue in the case and corroborative of evidence already received. The relevancy of such transactions is readily apparent. The nature of ownership of said property should be the same as that of the lots on question since they are all subject to the MOA. If the parcels of land were held and disposed by petitioners in fee simple, in the concept of absolute owners, then the lots in question should similarly be treated as absolutely owned in fee simple by the Tamayo spouses. Unmistakably, the evidence in dispute manifests petitioners common purpose and [29] design to treat all the parcels of land covered by the DPP as absolutely owned and not subject to co-ownership. Under the principle of estoppel, petitioners are barred from claiming co-ownership of the lands in issue. In estoppel, a person, who by his deed or conduct has introduced another to act in a particular manner, is barred from adopting an [30] inconsistent position, attitude or course of conduct that thereby causes loss or injury to another. It further bars him from denying the truth of a fact which has, in the contemplation of law, become settled by the acts and proceedings of judicial or legislative officers or by the act of the party himself, either by conventional writing or by representations, express or [31] implied or in pairs. In their transaction with others, petitioners have declared that the other lands covered by the same MOA are absolutely owned, without indicating the existence of a co-ownership over such properties. Thus, they are estoppedfrom claiming otherwise because, by their very own acts and representations as evidenced by the deeds of mortgage and of [32] sale, they have denied such co-ownership.

FOURTH ISSUES: No Res Judicata On Co-ownership

Petitioners argue that the Order (Exhibit J) dated January 18, 1985, issued by the RTC of Quezon City, Branch 86, which had long become final and executory, confirmed their co-ownership. Thus, they claim that Respondent Courts reversal of the ruling of the RTC of Antipolo, Rizal, is a violation of the rule on res judicata. This contention is equally untenable. The elements of res judicata are: (1) the former judgment was final; (2) the court which rendered it had jurisdiction over the subject matter and the parties;(3) the judgment was on the merits; and (4) [34] the parties, subject matters and causes of action in the first and second actions are identical. The RTC of Quezon City had no jurisdiction to decide on the merits of the present case or to entertain questions regarding the existence of co-ownership over the parcels in dispute, because the suit pending before it was only for the collection of a sum of money. Its disquisition on co-ownership was merely for the levy and the execution of the properties of the Tamayo spouses, in satisfaction of their judgment debt to the private respondents. Perhaps more glaring is the lack of identity between the two actions. The first action before the RTC of Quezon City was for the collection of money, while the second before the RTC of Antipolo, Rizal, was for partition. There being no concurrence of the elements of res judicata in this case, the Court finds no error in Respondent Courts ruling. No further discussion is needed to show the glaring difference between the two controversies. WHEREFORE, the petition is hereby DENIED and the assailed Decision is Affirmed. Cost against petitioners. SO ORDERED. Davide, Jr., (Chairman), Bellosillo, Vitug, and Quisumbing, JJ., concur.

[33]

SECOND DIVISION

[G.R. No. 139114. October 23, 2001]

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. ROMAN LACAP Y CAILLES, accused-appellant. DECISION MENDOZA, J.: This is an appeal from the decision of the Regional Trial Court, Branch 86, Quezon City, finding accused-appellant Roman Lacap y Cailles guilty of violation of Art. III, 15 of Republic Act No. 6425, otherwise known as the Dangerous Drugs Act, and sentencing him to suffer the penalty of reclusion perpetua and to pay a fine of P500,000.00. The information against accused-appellant reads as follows: That on or about the 7th day of April 1997 in Quezon City, Philippines, the said accused, not having been authorized by law to sell, dispense, deliver, transport or distribute any regulated drug, did then and there willfully and unlawfully sell or offer for sale 1,798.90 grams of white crystalline substance known as SHABU containing methamphetamine hydrochloride, which is a regulated drug. CONTRARY TO LAW.
[2] [1]

Upon arraignment, accused-appellant pleaded not guilty, whereupon trial ensued. Thereafter, the prosecution presented evidence as follows: Sometime during the first week of March 1997, the National Bureau of Investigation received a tip from an informant that a certain Eduardo Ed Contreras and his common-law wife Alice Esmenia were engaged in shabu trafficking at their [3] residence in No. 21 Legal St., SSS Village, North Fairview, Quezon City. After verifying the information, the NBI planned a buy-bust operation. The informant introduced to Contreras NBI Supervising Agent Jose Doloiras, whose assumed name was Ricky Baconawa, as a person who wanted to buy shabu in large quantity. Doloiras said he was a mere drug broker. Later, Doloiras and NBI Special Agent Carlos Borromeo III went back to the said address pretending to buy from Contreras and Esmenia one kilo of shabu. However, the purchase of shabu was not consummated despite several [4] attempts because either the couple could not produce the agreed quantity of the drug or their supplier did not arrive.

On April 4, 1997, Contreras introduced Doloiras to his half-sister, Mia Saludo, at the family residence of the latter at No. 14-KEW Garden St., St. Ignatius Village, Libis, Quezon City and there they negotiated for the sale of two kilos of [5] shabu. The deal likewise did not fall through because Saludos supplier failed to arrive. On April 7, 1997, Doloiras contacted Contreras to find out if the two kilos of shabu were already available. Contreras answered in the affirmative and told Doloiras to proceed to No. 14-KEW Garden St., St. Ignatius Village, Libis, Quezon [6] City. Accordingly, Doloiras and the NBI Dangerous Drugs Division organized a buy-bust team which proceeded to the said place. Doloiras would act as the poseur-buyer, while Borromeo III would act as his driver. He would give the prearranged signal to the other members of the team as soon as the shabu was shown to him. They would use boodle money consisting of cut newspapers placed in between fake P500.00 bills in several bundles of P50,000.00 each, [7] arranged in a portfolio so as to make it appear that the money amounted to P1,600,000.00. The buy-bust team arrived at the target area at around 4:00 p.m. Doloiras met Contreras, Esmenia, and Saludo, while the members of the team positioned themselves strategically. After a while, Contreras instructed Doloiras to proceed to No. 111 Scout Rallos St., Quezon City as the seller of shabu, a certain Rene, would be waiting for them there. Doloiras informed the other operatives of the transfer of venue and the latter in turn went ahead to the appointed place. Doloiras and Borromeo III boarded their car, while Contreras, Esmenia, and Saludo took a taxi to the said address. They all arrived at the said place at around 5:00 p.m. The house was a big old bungalow with a steel gate and a high wall. Doloiras entered the premises with Contreras, Saludo, and Esmenia. Borromeo III, with the bogus money in his possession, waited in the car parked outside the gate. The other members of the buy-bust team, on the other hand, inconspicuously positioned themselves nearby. After several hours of waiting, Contreras told Doloiras and Borromeo III that the seller of the shabu was not coming for another hour. Doloiras and Borromeo III told Contreras that they would leave for a while and return later. When they left, Borromeo III radioed the members of the team. They met at the Goodah Restaurant on West Avenue, Quezon City, [8] where they again had a briefing on how the buy-bust operation would be conducted. After an hour or so, Doloiras returned to the house while the others went back to their respective positions. Contreras told Doloiras that the shabu supplier had finally arrived. Doloiras, Contreras, and Esmenia went inside the house. Doloiras and Contreras went inside a room, while Esmenia stayed behind. There Doloiras for the first time met accused-appellant. The two talked about the purchase of two kilos of shabu for P1,600,000.00. Doloiras told accused-appellant that the money was ready and it was in the possession of his driver. Accused-appellant wanted to see the money before giving the shabu, but Doloiras asked to be shown the drug first. They haggled about this matter for an hour and, as they could not agree, Doloiras came out of the room looking tense and annoyed. Contreras followed him and tried to calm him down. He told Doloiras that he would convince accused-appellant to show him the shabu. Contreras assured accused-appellant that he had seen the money. Accused-appellant therefore showed the white crystalline substance contained in two plastic bags inside a brown carton box placed on top of a safety vault. Recognizing that it was indeed shabu, Doloiras told accused-appellant and Contreras that he would get his [9] money. Doloiras went out to Borromeo III and took the boodle money contained in a black attach case from the latter. Doloiras told Borromeo III, Okay na, i.e., he had already seen the shabu so that the buy-bust team should get ready to make the arrest. The signal was then given to the rest of the operatives. Borromeo III drove the car towards the gate and asked the security guard to open it so that he could park it inside. The guard obliged. Then, taking advantage of the open gate, the NBI operatives, led by the back-up team of NBI Dangerous Drugs Division Chief Abdulgani Benito, Agents Migdonio Congzon, Jr., and Jose Justo Yap, and Special [10] Investigators Carlos Borromeo III and Romeo Aradanas, Jr., entered the premises. Meanwhile, Doloiras handed the attach case to accused-appellant. As accused-appellant was opening it, Doloiras [11] announced the arrest. Accused-appellant tried to lock the white crystalline substance inside the vault, but Doloiras [12] prevented him from closing it. Shortly afterwards, Aradanas, Jr., Yap, Congzon, Jr., and Borromeo III entered the room. After a while, Benito also entered. They found accused-appellant seated beside the vault with the attach case. The vault was opened and Doloiras took out the box and handed it to Benito, who asked accused-appellant who his source of the drug was. Accused-appellant told him that the NBI could find the supplier in Pampanga. The NBI operatives also placed Contreras, Esmenia, and Saludo under arrest. Together with accused-appellant, they were taken to the NBI headquarters on Taft Avenue, Manila, where they were detained. Shortly after, a Nissan Sentra, driven by accused-appellants daughter, arrived at the house. The NBI agents inquired about the ownership of the car. Accused-appellants daughter claimed that the car was hers. However, she failed to show documents of ownership, for which reason the NBI operatives took custody of the car until its rightful owner [13] showed up. Doloiras took the two plastic bags containing the white crystalline substance, marked the same for identification, and affixed his signature thereon in the presence of Benito and Aradanas, Jr. Doloiras then turned the confiscated items over

to Benito for safekeeping. Thereafter, the team proceeded to Pampanga, following accused-appellants information, but [14] they failed to find the supplier. On April 9, 1997, at around 9:30 a.m., Doloiras submitted the confiscated items to the NBI Forensic Chemistry [15] Division for examination. Forensic Chemist Aida Abear-Pascual took small samples from the specimen. The samples, weighing a total of about one gram, were subjected to chemical and chromatographic tests and were found to be positive [16] for methamphetamine hydrochloride or shabu. The defense then presented its evidence. Accused-appellant, a former police officer with the rank of major, denied that there was any buy-bust operation conducted against him on April 7, 1997. He claimed that the NBI operatives raided the house at No. 111 Scout Rallos St., Quezon City without a search warrant. He denied having been involved in any illegal transaction, especially drug-pushing, and claimed that he was merely framed up by the operatives. Accused-appellant claimed that on April 7, 1997, at around 8:00 p.m., he was in his house at No. 46 12th Avenue, Cubao, Quezon City. He left the house at about 8:30 p.m. and went to the Goldilocks Restaurant in Cubao to buy food for his 15-year old son, Roman Lacap III, who was then at the Kauffman residence at No. 111 Scout Rallos St., Quezon City. The Kauffmans were family friends. He first went to Project 6, Quezon City to have the signal lights of his car fixed and then proceeded to meet his son. Upon arriving at the Kauffmans house, accused-appellant said he noticed five persons, four females and one male, on the front porch. He recognized two of the women to be Rose Lou Kauffman and Mia Saludo. Accused-appellant went to look for his son to let him know that he had arrived, and then returned to the group on the porch. Rose Lou Kauffman introduced him to Ed Contreras, Alice Esmenia, and Ivonne, Mias sister. After exchanging pleasantries, accusedappellant said he requested Rose Lou to follow him inside. Accused-appellant gave his son the food he bought for him and read the newspaper. Accused-appellant said he then heard the doorbell ring and a commotion outside. He asked Rose Lou what was going on, but before she could get out of the room, armed men kicked the door open, followed by accused-appellants daughter Ma. Chrysantine Tin-Tin Lacap and a male companion. The men ordered them, Dapa, dapa, pulis ito! (On the floor, this is the police!) even as they identified themselves as NBI agents. Accused-appellant, his son, Rose Lou, Tin-Tin, and her companion all sat on the floor with their hands on the bed. Later on, accused-appellants son was allowed to leave the room. The NBI agents informed them that there were drugs inside the house so they had to make a search. However, according to accused-appellant, Rose Lou objected to the search as the agents did not have a search warrant. But one of the men pointed a gun at her and said, This is our search warrant to which, according to accused appellant, he said to the men, Walang ganyanan, (You should not do that) and then told his daughter, What is this, martial law? The men searched the house over the objections of the occupants. When they saw the vault, they asked accusedappellant and Rose Lou to open it. But accused-appellant said he did not know how to open the vault because Roger, a household help of the Kauffmans, was the one using it. When asked where Roger was, accused-appellant said he did not know. Some of the agents went out of the room and returned with a man. They asked accused-appellant if the man was Roger. Accused-appellant said that it was Ricky Kauffman, a son of the owner of the house. He told them to go easy on Ricky because he was sickly. The men then pushed Ricky aside and made him sit on a chair near the foot of the bed. One of the men told him,Buksan mo na, parang bale wala, aalis na kami. (Just open the vault and well leave as if nothing happened.) Accused-appellant said he shook the vault and surprisingly it opened. He was then pushed aside and one of the men took out something wrapped with a brown masking tape. Accused-appellant claimed he did not know what the contents of the package were as the same was not opened in his presence. Accused-appellant was then placed under arrest, handcuffed, and taken out of the room. Also arrested were the four people on the porch. An agent even wanted to bring along Tin-Tin and Rose Lou, but accused-appellant begged him not to since they had nothing to do with the shabu. According to accused-appellant, as the NBI men did not have any vehicle, they asked for the keys of his daughters car. His daughter Tin-Tin protested, but accused-appellant assured her that it would be all right so she gave him the car keys. Thereafter, accused-appellant and the other people arrested were taken [17] to the NBI headquarters. Accused-appellants daughter, Ma. Chrysantine Lacap, testified that on April 7, 1997, at around 8:00 p.m., she was also at their house in Cubao, Quezon City. Accused-appellant told her that he was going to check on her brother, Roman Lacap III, who was then staying at the residence of the Kauffmans. She told her father that she would follow him as she promised to bring her brother some clothes. Tin-Tin left their house at about 10:40 p.m., accompanied by her boyfriend, Salvador dela Pea, who drove her Nissan Sentra. When they reached the place, she rang the doorbell and asked the maid to let them in. However, as they were entering the compound, armed men barged inside the premises. The men, who turned out to be NBI agents, ordered them, "Taas ang kamay! Dapa! Dapa! (Raise your hands! To the floor!) Those on the porch did so. Some of the men went to the side of the car while the others proceeded to the front door. As the door was locked, one of the NBI agents kicked it but it did not open. The man broke the window pane with his gun and reached for the knob. The men then entered the house. Tin-Tin and her companion followed them.

The men went all over the house, kicking doors open and shooting up the place. The agents entered the room where her father, her brother, and Rose Lou Kauffman were. The men also ordered them to lie on the floor face down. They identified themselves as NBI agents and told them that they were looking for drugs. Accused-appellant and Rose Lou objected when they learned that the agents did not have a search warrant, but one of the men pointed a gun at her and told her that the gun was his search warrant. Tin-Tin shouted, Ano ba ito, martial law? (What is this, martial law?) The NBI agents ignored her protests and searched the house. When they saw the vault, they ordered accused-appellant and Rose Lou to open it. Accused-appellant told them that he could not do so because it was Roger who knew the vaults combination. The agents, therefore, went out of the room to look for Roger. They returned with a man, who turned out to be Ricky Kauffman, Rose Lous brother. Accusedappellant asked the agents not to be harsh on Ricky because he was sick. One agent then pointed a gun at accusedappellants forehead and said, Bubuksan mo ba ito o dadalhin namin kayo lahat? (Are you going to open the vault or will we just arrest all of you?) The man added, Sige na, buksan mo na ito at aalis na kami. (Go on, open it now and well leave.) According to Tin-Tin, at the sight of her father at gunpoint, she cried, embraced him, and said, Sige, patayin na ninyo kami! (Just kill us all!) Accused-appellant approached the vault and turned its knob counter-clockwise then clockwise. The vault opened and Tin-Tin saw a box wrapped in a brown envelope. An agent asked accused-appellant what was in the box. When accused-appellant replied he did not know, the NBI agents handcuffed him and dragged him out of the room. Tin-Tin tried to stop them, but to no avail. Outside the house, Tin-Tin saw four persons prostrate on the ground with an armalite pointed at them. The NBI agents were going to take Tin-Tin with them, but accused-appellant begged them not to. They asked her for the keys to her car and, when she refused, one of the agents grabbed the keys from her hand. The agents warned her not to tell anybody about the incident, otherwise they would kill her father. Accused-appellant and the other four persons at the porch were loaded into her car and taken to the NBI headquarters. According to Tin-Tin, the NBI never returned her car [18] and one of the agents was even seen using it. Mia Saludo also testified for the defense. According to her, on April 7, 1997, at around 8:00 p.m., she was at her mothers house at 4 St. Ignatius Village, Libis, Quezon City for a visit. With her were Ed Contreras and Alice Esmenia and her sisters, Ivonne, Sandra, Annette, and Sonia. At that time, Mia was trying to get in touch with Rose Lou Kauffman in order to get authority to sell the Kauffmans residential house and lot at No. 111 Scout Rallos St., Quezon City. Rose Lou told Mia to come over at about 9:30 that night to get said authority from accused-appellant, Rose Lous attorney-infact. Contreras then asked Mia to introduce him to Rose Lou and accused-appellant as he wanted to sell them some jewelry. Mia agreed so she and her sister, Ivonne, Contreras, and Esmenia left the house at 8:30 p.m. and took a taxi to Scout Rallos St., Quezon City. Rose Lou met them and talked to them on the porch. At around 10:30 p.m., accused-appellant arrived and, after greeting them, asked Rose Lou to follow him inside the house. While they were outside waiting, accused-appellants daughter Tin-Tin arrived in a car. Suddenly, several men who identified themselves as NBI agents barged into the house, shouting, Dapa, dapa kayo! (On the floor!) Mia and her companions did as ordered. Thereafter, she heard glass shattering. After about 15 minutes, Mia said she saw the agents bringing accused-appellant, who was handcuffed, out of the house. The agents put accused-appellant in Tin-Tins car, even as they ordered Mia, Ivonne, Contreras, and Esmenia to get inside a van. Mia and her companions were taken to the NBI headquarters where they were made to sign some papers. They were detained and later taken to the Quezon City Hall, where they were investigated, until they were released. Mia testified that accused-appellant and Contreras met [19] only that night. The defense presented as its last witness Rolly Delgado, a worker at the Orient Sun owned by Rose Lou Kauffman and accused-appellant. Delgado testified that on April 7, 1997, at around 10:00 p.m., he was sleeping inside a warehouse at No. 111 Scout Rallos St., Quezon City when he was awakened by two armed men who asked him if he was Roger. Delgado told them that his name was Rolly. The men searched his person and asked him where Roger was. Delgado replied that Roger was around, but he did not know exactly where he was. The men then went inside the house through the back door. Another man came out of the room and asked the two men if they had seen Roger. Then someone asked, Binubuksan na ba? (Is it being opened?). Delgado, who said he did not know what was going on, heard someone answer in the affirmative. Then Delgado was told to leave, but Delgado said he hid nearby and tried to see what was going on. He saw accused-appellant in handcuffs being led out of the room by armed men, followed by Rose Lou, Ricky Kauffman, and a small girl, whom he recognized to be accused-appellants daughter. Delgado did not know where they [20] went.

On June 7, 1999, the trial court rendered its decision. It found accused-appellant Roman Lacap guilty of violation of 15 of Republic Act No. 6425, as amended by Republic Act No. 7659, and sentenced him to suffer the penalty of reclusion perpetuaand to pay a fine of P500,000.00. Hence this appeal. Accused-appellant makes the following assignment of errors: I. THE HONORABLE COURT COMMITTED A GRAVE ERROR IN CONSIDERING AND ADMITTING THE TESTIMONIES OF PROSECUTION WITNESSES ON THE GROUND THAT THEY WERE NOT FORMALLY OFFERED. II. THE COURT A QUO SERIOUSLY ERRED IN FINDING THAT THERE WAS A DRUG DEAL BETWEEN DOLOIRAS AND LACAP. SUCH CONCLUSION IS NOT SUPPORTED [BY] CREDIBLE EVIDENCE ON RECORD. THE ALLEGED SHABU THAT WAS CONFISCATED BEING FRUIT OF A POISONOUS TREE IS INADMISSIBLE IN EVIDENCE. III. THE TRIAL COURT GRIEVOUSLY ERRED WITH GROSS MISAPPREHENSION OF FACTS IN ITS RECONSTRUCTED FINDINGS THAT: A. THE MERE EXISTENCE OF SHABU INSIDE 111 SCOUT RALLOS, QUEZON CITY IMPLIED THAT SOMEONE INSIDE THE RESIDENCE MUST HAVE INFORMED THE NBI ABOUT THE EXISTENCE OF DRUGS IN THAT PLACE; B. THERE WAS ADMISSION BY ONE OF THE DEFENSE WITNESSES THAT CONTRERAS, ESMENIA AND SALUDO, AND ADMITTED BY ONE OF THE DEFENSE WITNESSES THAT THEY BOARDED A TAXI, IMPLIED THAT CONTRERAS ALLOWED THE AGENT TO ENTER THE KAUFFMAN RESIDENCE (sic); C. THE SHABU WAS FIRST SHOWN BY THE ACCUSED-APPELLANT AND WAS RETURNED TO THE SAFETY VAULT AND CLOSED BY THE APPELLANT BEFORE THE COMMANDO ATTACK WAS EMPLOYED BY THE NBI AGENTS TO PREVENT THE ACCUSED FROM ESCAPING; THESE FINDINGS WERE BASED MERELY ON PURE CONJECTURES AND SURMISES CONTRARY TO WHAT IS CONTAINED IN THE RECORDS. IV. THE COURT A QUO SERIOUSLY ERRED IN CONVICTING THE ACCUSED-APPELLANT DESPITE MATERIAL INCONSISTENCIES AND LIES IN [THE PROSECUTION WITNESSES] TESTIMONY, LACKING REQUISITE CREDULITY, SUFFICIENT TO CONVICT THE ACCUSED[21] APPELLANT.

First. Accused-appellant contends that the trial court erred in admitting the testimonies of the prosecution witnesses despite the fact that they were not formally offered in accordance with Rule 132, 34 of the Rules of Court, which provides that: The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified. He further claims that the purpose for which the said testimonies were offered was not specified. The contention has no merit. The records show that the prosecution presented five witnesses, namely, NBI Forensic Chemist Aida Abear-Pascual, NBI Special Investigator Carlos Borromeo III, NBI Special Investigator Romeo Aradanas, Jr., NBI Supervising Agent Jose Doloiras, and NBI Dangerous Drugs Division Chief Abdulgani Benito. Except for AbearPascual, whose testimony was offered with respect to the results of the examination of the white crystalline substance [22] confiscated from accused-appellant, the testimonies of the other prosecution witnesses were offered to show the circumstances surrounding the buy-bust operation conducted on April 7, 1997 against accused-appellant and how he was [23] arrested as a result thereof for selling shabu. The offer of testimonial evidence was properly made when the said witnesses were called to testify in accordance with Rule 132, 35 of the Rules of Court. Moreover, even assuming that the offer of evidence was defective, as accused-appellant did not object to the testimonies of the witnesses but, on the [24] contrary, even cross-examined them, he cannot now object to their admissibility for the first time on appeal. Second. Accused-appellant asserts that the trial court erred in finding that there was a buy-bust operation conducted against him. Accused-appellant contends that the testimonies of the prosecution witnesses should not have been given credence by the trial court. This contention is likewise without merit. Time and again, this Court has ruled that the evaluation of the credibility of witnesses is within the province of the trial court which had the opportunity to observe the witnesses and their demeanor on the stand. Unless the trial court overlooked facts of substance affecting the outcome of the case, utmost respect [25] should be accorded to its findings.

In this case, we find no cogent reason to overturn the findings of the trial court. NBI Agent Jose Doloiras positively identified accused-appellant as the seller of approximately two kilos of shabu for the amount of P1,600,000.00. The fact that a buy-bust operation was conducted against accused-appellant was corroborated by the other members of the buybust team. Their testimonies are positive, credible, and entirely in accord with human experience. It is difficult for a rational mind not to give credence to them. The seeming inconsistency pointed out by accused-appellant as to where the members of the buy-bust team had seen the shabu, i.e., whether on top of or inside the vault, is explained by the fact that Doloiras first saw it on top of the vault but accused-appellant tried to put it back in the vault when the other operatives entered the room. Even assuming this to be an inconsistency, it is only a minor one which does not touch upon the [26] central fact of the crime and, therefore, does not impair the witnesses credibility. Moreover, the prosecution witnesses, all of whom are public officers, are presumed to have acted regularly and in the performance of official functions in the [27] absence of proof that they were motivated by ill will. We have recognized a buy-bust operation as a legitimate mode of apprehending drug pushers. There is no particular method of conducting such operation. The selection of appropriate and effective means of entrapping drug [28] traffickers is left to the discretion of the police authorities in each case, the only limitation being that the constitutional [29] rights of suspects be respected. It is absurd for accused-appellant to complain that there was no prior surveillance conducted on him and that it was only on the night of April 7, 1997 that the NBI agents first met him considering that his broker, Contreras, was the one who actually led the NBI operatives to him. Accused-appellant also complains that the NBI agents did not have any search warrant with them at the time they arrested him. This is one of the exceptions to the rule that a search may be conducted only by virtue of a warrant. A buybust operation involves an apprehension in flagrante delicto and, therefore, no warrant is needed to arrest the [30] suspect. It would be ridiculous for the buy-bust team to first obtain a search warrant when the crime is committed right before their eyes. Indeed, there is not even a search to speak of in this case. For the fact is that it was accused-appellant himself who showed to NBI Agent Doloiras the two plastic bags containing shabu and then placed them on top of the vault. Contrary to the claim of the defense that the NBI agents searched the entire house and only found the prohibited drug after [31] ransacking the place, they went directly to the room where accused-appellant was. Accused-appellant cites NBI Agent Abdulgani Benitos account that the room was in a topsy -turvy condition to show that the NBI agents ransacked the place. This is not accurate. What Benito said was that he could not say where in the room the transaction between accused-appellant and Doloiras took place because the room was unkempt and his [32] attention was focused on the vault and the shabu. Moreover, even if the room was in disarray, this fact does not necessarily mean it was made so as a result of the search made by the NBI agents. Indeed, Benito could not have meant to say this as he was part of the NBI team. Neither does the fact that the NBI agents made several trips and came back empty-handed show that their mission was a hit-and-miss operation. They tried to follow the information given to them as to the source of the shabu, but they were misled. On the other hand, accused-appellants denial that he had sold shabu to Doloiras cannot stand. Between the positive identification of accused-appellant by Doloiras who acted as a poseur-buyer and accused-appellants denial, [33] there is no question that greater weight must be given to the positive testimony of Doloiras. Accused-appellant claims he was merely framed up. This claim is nothing new. It is a common and standard line of [34] defense in most prosecutions for violations of the Dangerous Drugs Act. It is generally rejected for it can easily be concocted but is difficult to prove. Indeed, the testimonies of the defense witnesses have many loose ends and are not as plausible as accusedappellant would want to make them appear. For instance, it is hard to believe that accused-appellant, a former military [35] [36] officer, trained in narcotics operations, anti-terrorism, and military tactics, could so easily be intimidated by NBI agents into opening the safety vault which he claims did not belong to him. Even more incredible is his claim that by merely shaking the vault it opened. How he could have shaken a heavy steel vault is itself incredible. Accused-appellants testimony that the vault was being used by Roger is likewise incredible. Roger was a mere househelper. It is improbable that he would be entrusted with the use of the safety vault and that only he would know its combination. The safety vault was inside the room of the owner and master of the house. Is it probable that Roger was allowed access to that room? Accused-appellant claims that it would be improbable for him, considering his military background and training, to transact with a stranger for the sale of shabu. This claim is non sequitur. On the contrary, he could have used his training and exposure in narcotics operation for his personal benefit. Indeed, for some, the lure of easy profits can easily outweigh [37] the risk of arrest and prosecution. Furthermore, as the trial court correctly pointed out, the fact that accused-appellant went on absence without leave (AWOL) on account of his alleged dissatisfaction with the promotion system in the

Philippine National Police, instead of resigning or retiring from military service with an honorable dismissal, casts doubt on [38] his character as a police officer. Why should accused-appellant be arrested when he was merely visiting the owner, Rose Lou Kauffman, who, assuming she really existed, remained at large considering that the shabu was found inside her room? It is hard to believe that the NBI agents would readily let her go just because accused-appellant begged them to release her. In addition, there are discrepancies and inconsistencies between accused-appellants testimony and that of his daughters, a major corroborative witness, to wit: (1) accused-appellant testified that the vault opened after he had shaken it, while Tin-Tin Lacap testified that her father turned the vaults knob to open it; (2) accused-appellant testified that it was he who commented to his daughter, What is this, martial law?, when a gun was pointed at Rose Lou Kauffman, while Tin-Tin testified that it was she who made such remark; and (3) accused-appellant testified that after convincing his daughter that it was all right to let the agents lend them her car, she gave them her car keys, while Tin-Tin testified that she did not give the keys but that they were grabbed from her because she was protesting the seizure of her car. We have held that patent inconsistencies in the testimonies of accused-appellant and that of his supposed corroborative [39] witness undermine accused-appellants defense. For the foregoing reasons, we cannot give credence to the testimonies of the defense witnesses. For testimonial evidence to be believed, it must not only proceed from the mouth of a credible witness but must also be credible in itself [40] such as the common experience and observation of mankind can approve of as probable under the circumstances. Third. The elements necessary for the prosecution for illegal sale of shabu, with which accused-appellant was charged, are: (1) the identity of the buyer and the seller, the object, and the consideration; and (2) the delivery of the thing [41] sold and the payment therefor. Accused-appellant argues that the elements of the crime had not been established. He contends that there was no delivery of the drug to Doloiras, and, therefore, he should be acquitted of the charge. The records, however, belie his claim. Although accused-appellant did not actually hand the contraband to Doloiras, he placed it on top of the vault where Doloiras could easily have gotten it after paying accused-appellant. There was thus a constructive delivery of the drug. The fact that accused-appellant tried to put the shabu back inside the vault is of no moment as the crime had by then been already consummated. There is no rule which requires that in buy-bust operations there must be a [42] simultaneous exchange of the money and the drug between the poseur-buyer and the pusher. Nor was it important that the boodle money was not presented in court. What is material to the prosecution of the illegal sale of dangerous drugs is proof that the transaction actually took place, coupled with the presentation in court of [43] the corpus delicti. This was sufficiently proven by the prosecution in this case. Hence, accused-appellants conviction should be upheld. As amended by R.A. No. 7659, Art. IV, 20 of the Dangerous Drugs Act provides in part that the penalty in Art. III, 15 of the same Act shall be applied if the dangerous drugs involved are 200 grams or more of shabu. The penalty for delivery or distribution of shabu without proper authority is reclusion perpetua to death and a fine ranging from P500,000.00 to P10,000,000.00. Since there were neither mitigating nor aggravating circumstances attending accused-appellants sale of 1,798.90 grams of shabu, the trial court properly imposed on him the penalty of reclusion perpetua and ordered him to pay a fine of P500,000.00. WHEREFORE, the decision of the Regional Trial Court, Branch 86, Quezon City is AFFIRMED. SO ORDERED. Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur. FIRST DIVISION

[G.R. No. 141009. July 2, 2002]

BATAAN SEEDLING ASSOCIATION, INC. and CARLOS VALENCIA, petitioners, vs. REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF ENVIRONMENT and NATURAL RESOURCES, respondent. RESOLUTION AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court which seeks to set aside the [1] Decision promulgated on October 14, 1998 by the Court of Appeals in CA-G.R. CV No. 52545, affirming with modification the decision of the Regional Trial Court of Quezon City. The dispositive portion of the assailed Decision reads: IN THE LIGHT OF ALL THE FOREGOING, the Decision a ppealed from is AFFIRMED with the following modifications: 1. The Appellants are hereby ordered to pay, jointly and severally, to the Republic of the Philippines, the principal amount of P56,290.69, with interest thereon at the rate of 12% per annum, from January 27, 1994 until the said amount is paid in full; 2. The Appellant BSAI is hereby ordered to pay to the appellant Republic of the Philippines the amount of P50,000.00 as and by way of exemplary damages. No pronouncement as to cost. SO ORDERED.
[2]

Petitioner Bataan Seedling Association, Inc. (BSAI for brevity) entered into a Community Based Reforestation Contract on October 26, 1990 with the Republic of the Philippines, represented by the Department of Environment and Natural Resources (DENR). Under said contract, BSAI, in consideration of the amount of Nine Hundred Seventy Five Thousand One Hundred Twenty Six Pesos and Sixty One Centavos (P975,126.61), bound itself to undertake the reforestation of a fifty-hectare open/denuded forest land in Barangay Liyang, Pilar, Bataan within a period of three (3) [3] years. BSAI likewise undertook to report to the DENR any event or condition which delays or may delay or prevent [4] [5] completion of the work, and submit progress billings and accomplishment reports. Concomitant with the contract is the Project Development Plan and the Approved Schedule of Progress Payments detailing the annual cash flow and schedule [6] of activities within the three-year period, and the Contract of Undertaking providing for the mobilization fund in the [7] amount of Seventy Five Thousand Fifty Four Pesos and Sixty Six Centavos (P75,054.66). Said fund was allotted and released by respondent to enable BSAI to start with the project, but the fund was to be returned to respondent upon [8] completion of the project or deducted from the periodic release of moneys to petitioners. Believing that petitioners failed to comply with their obligations under the contract, respondent sent a notice of cancellation dated July 31, 1992 to petitioner Carlos Valencia, President of BSAI, asking the latter to show cause why the contract should not be terminated on the following grounds: 1. Willful violation of the material terms and conditions, stipulations and covenants of the Contract, to wit: a) The association failed to fully plant/establish the whole 50-hectare contracted area during the first year of operations as provided for in the Contract; b) The seedlings raised in the nursery were disposed of to other contractors and the seedlings left were practically overgrown indicating lack of proper care and maintenance; c) Inspite of the fact that a forest fire occurred sometime in December, 1991, no report was ever made to the DENR in violation of Article 1.1.5 of the Contract; d) The Association even failed to submit to the DENR accomplishment reports and other relevant information required and expected from it. 2. Abandonment of the project area. The PENRO/CENRO monitoring and Evaluation Team which inspected the project area on March 18, 25 and 31, 1992 reported that except for the family that actually resides in the bunkhouse, no laborers were observed at the project area during the time of the field inspections. Even you failed to show up despite written and verbal notices served to you. Finally, the photodocuments taken on the plantation illustrates clearly the abandoned project [9] area. Due to their failure to respond to the notice of cancellation, as well as return the mobilization fund, respondent filed a [10] Complaint for Damages against petitioners, praying that the latter jointly and solidarily pay actual damages in the amount of Seventy Five Thousand Fifty Four Pesos and Twenty Five Centavos (P75,054.25) representing the portion of the mobilization fund released to them, and Sixty Two Thousand Pesos Four Hundred Fifty Pesos and Twenty Two Centavos (P62,450.22) as the amount paid under the accomplishment bills, totaling One Hundred Thirty Seven Thousand Five Hundred Four Pesos and Forty Seven Centavos (P137,504.47). Respondent also sought liquidated damages equivalent to 0.1% of the total contract cost due to BSAIs delay in the performance of its obligations, and exemplary [11] damages in the amount of Fifty Thousand Pesos (P50,000.00). In their Amended Answer, petitioners deny the allegations, arguing that: (1) the whole area was totally destroyed by a forest fire in December 1991 without their fault and negligence, which incident was duly reported to respondent, and (2) [12] the cancellation was arbitrary.

The Regional Trial Court of Quezon City, Branch 217, rendered its decision ordering petitioners to pay the amount of [13] Fifty Thousand Pesos (P50,000.00) as exemplary damages. The trial court held that respondent had sufficient grounds to cancel the contract but saw no reason why the mobilization fund and the advance payments should be refunded, or that petitioners should be liable for liquidated damages. Not satisfied, both respondent and petitioners appealed the decision to the Court of Appeals. The appellate court affirmed with modification the decision of the trial court, adjudicating the balance of the mobilization fund refunded by petitioners in the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) with [14] 12% interest. Hence, the petition for review on certiorari. Petitioners submit that the issues to be resolved are as follows: 1. Whether the unilateral cancellation by the respondent of the Community-Based Reforestation Contract is invalid, being without factual and legal basis. 2. Whether the order to refund the amount of P56,290.69 with interest at the rate of 12% per annum, [15] representing the balance of the mobilization fund, is palpably erroneous as being contrary to the facts. At the outset, it must be stated that the foregoing issues and the respective arguments in support thereof have been raised by the parties and passed upon by both the trial court and the appellate court. Petitioners deny that they were bound to fully plant the fifty (50) hectares during the first (1st) year of the program as their commitment under clause 1.1.9 of the Reforestation Contract was to turn -over to the DENR at the end of the third (3rd) year the contracted area of fifty hectares, fully planted and prop erly maintained. Petitioners also refute the finding that they abandoned the project area, arguing that the investigation conducted by the PENCO/CENRO Monitoring and Evaluation Team is suspect; and that its report ignored the fact that a forest fire occurred sometime in December 1991 destroying the plants and seedlings already introduced in the area. Petitioners further claim that their failure to immediately report the fire and submit progress reports is not a substantial breach of their undertaking to warrant the cancellation of the contract; and that they cannot be made to refund the balance of the mobilization fund because these correspond to the work already done in the area. Finally, petitioners object to the award of exemplary damages for being [16] without legal and factual basis. On the issue of whether or not respondent had sufficient basis to cancel the contract, both the trial and appellate courts found that there was basis for the cancellation. A perusal of the records of this case confirms such finding. True, under the reforestation contract, petitioners were to turn over at the end of the third year the project area fully [17] planted and properly maintained. However, the Project Development Plan, appended and made integral part of the [18] contract, specifically defines and details petitioners undertaking. Under the Plan, the following tasks were to be completed during the first year of the project: (1) survey and mapping of the whole fifty (50) hectares; (2) nursery operations for fast-growth, medium-growing, and slow-growth species; (3) plantation establishment, including site preparation, spot hoeing, staking, holing, and planting and seed transporting of 83,333 pieces, medium-sized seedlings and sucklers in planting holes; and (4) infrastructure work, including the development of footpath, graded trail, plantation [19] road, bunkhouse and look-out tower. Spread out during the three-year period is the annual maintenance, protection, [20] administration and supervision, and, monitoring and evaluation of the project area. Clearly, based on said schedule, petitioners were to undertake the principal task of planting the fifty (50) hectare-project area during the 1st year of the project. What is to be carried out during the entire 3-year period is the maintenance and aftercare of the project site, and petitioners were to turn over the project at the end of the third year fully planted and established. Therefore, petitioners argument that they are not bound to fully plant/establish the whole fifty (50) hectares during the 1st year of operations is without merit. Moreover, contrary to petitioners posture, there was a material breach of the contract warranting its cancellation. One (1) year after the commencement of the project or sometime in December, 1991, a fire razed the reforestation area. As admitted by petitioners, they failed to inform respondent of said incident. Neither did they attempt to submit progress reports on the project, which duties were expressly required of them under the contract. Thus, the appellate court correctly observed, viz.: x x x The Appellant BSAI unabashedly admitted failing to establish/plant the project area. Under Section 1.1.5 of the Contract, the Appellant BSAI was obliged to report to the DENR any event or condition which delayed or may delay the progress or prevent the completion, of the work under the time-table set forth under the contract or any relevant facts known to the Appellant BSAI. A fire in the area which gutted the improvements in contract area occurred in December, 1991. However, the Appellant BSAI never informed the DENR of said fire. Worse, the Appellant BSAI did not anymore conduct any replanting activities on the area, thus accounting, in part, for the failure of the said Appellant to submit periodic progress reports on its activities in said area. Even before the fire occurred, in December 1991, the Appellant BSAI already failed to submit any periodic reports of progress of its activities in the area. This prompted the DENR to

conduct an on the site inspection of the subject project area. Indeed, Carlos Valencia and Hernani Salaya Jr., even ignored the requests of DENR for them to be present during the said inspections. The DENR inspection team found and discovered that the Appellant BSAI failed to fully establish planting on the subject project area. Instead of planting the seedlings on the project area, the Appellant BSAI sold some of the seedlings because of its failure to pay the nursery [21] owner, Anilao Satellite Nursery, located in Pilar, Bataan for said seedlings. x x x Petitioners attempt to trivialize their lapse, but the Court believes that this is not merely a slight or casual breach, but a substantial one giving sanction to the cancellation. Under Clause 4.1 of the contract, respondents shall have the right to suspend, terminate or cancel the contract upon petitioners substantial failure to fulfill their obligations, or a willful v iolation of the material conditions, stipulations and covenants thereof. It can be concluded from the tenor of said clause that the parties intended mandatory compliance with all the provisions of the contract. As stated previously, among such provisions requiring strict adherence are the submission of progress reports and the reporting of such event which may delay or prevent the project. Hence, upon petitioners failure to comply with said obligations, respondent was well within it s right to cancel the contract by express grant of Clause 4.1. Anent the refund of the mobilization fund, the Contract of Undertaking signed by petitioners is explicit in this regard, to wit: THAT BATAAN SEEDLING ASSOCIATION, INCORPORATED x x x, for and in consideration of the sum of Seventy Five Thousand Fifty four pesos and sixty six centavos (P75,054.66) representing advance payment under said contract receipt of which is hereby acknowledge in full, as hereby bind ourselves; xxx 3. To repay the amount advanced in accordance with the Contract of Reforestation and DENR Administration [22] order No. 14 Series of 1989 as amended; (Emphasis Ours) The amount of Seventy Five Thousand Fifty Four Pesos and Sixty Six Centavos (P75,054.66) advanced to BSAI, represents 15% of Five Hundred Thousand Three Hundred Sixty One Pesos and Seventy Two Centavos (P500,361.72), [23] the contract cost for the 1st year. When initial payment was made by respondent to petitioners on February 25, 1991, the amount of Eighteen Thousand Seven Hundred Sixty Three Pesos and Fifty Six Centavos (P18,763.56), or 1/4 of the [24] mobilization fund, was deducted, leaving a balance of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69). Respondent thereafter made no deductions on the subsequent payments of the contract price remitted to petitioners. Hence, they remain liable on the balance of said fund in the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69). We find no error committed by the Appellate Court on this matter. Nevertheless, the appellate court erred in imposing a 12% interest on the amount due. In Eastern Shipping Lines, Inc. vs. Court of Appeals, we enunciated the following rules: I. When an obligation, regardless of its source, i.e., law, contracts, quasi -contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 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 [25] satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Interest at the rate of 12% per annum is imposable if there is no stipulation in the contract. Herein subject contract does not contain any stipulation as to interest. However, the amount that is due the respondent does not represent a loan or forbearance of money. The word forbearance is defined, within the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due [26] and payable. The contract between petitioner and respondent is a Community Based Reforestation Contract by virtue of which petitioner undertook the reforestation of a fifty-hectare open/denuded forest land. The amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) due to respondent, represents the balance of the mobilization fund which petitioner is obliged to return because of its failure to fully comply with its undertaking to plant the entire area with seedlings within the period contracted for reforestation. Under the reforestation contract, the fund released to petitioner was supposed to be returned to respondent upon completion of the project or deducted from the periodic releases of money. Clearly therefrom, the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) was neither a loan nor forbearance of money. Thus, the above-quoted paragraph II, sub-paragraph 1, applies to the present case. In the absence of stipulation, the [27] [28] legal interest is six percent (6%) per annum on the amount finally adjudged by the Court. In addition, under the above-quoted paragraph II, sub-paragraph 3, the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) shall earn 12% interest per annum from date of finality of herein judgment. Finally, the Court finds the award of Fifty Thousand Pesos (P50,000.00) as exemplary damages to be excessive and should therefore be reduced to Twenty Thousand Pesos (P20,000.00). Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious [29] actions. WHEREFORE, the petition is partly GRANTED and the assailed Decision is AFFIRMED with the following MODIFICATIONS: 1) The interest to be paid on the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) shall be at the rate of 6% per annum from the Court of Appeals Decision dated October 14, 1998. A twelve percent (12% ) interest, in lieu of six percent (6%) shall be imposed upon finality of this decision, until full payment thereof. 2) The award of exemplary damages is reduced from Fifty Thousand Pesos (P50,000.00) to Twenty Thousand Pesos (P20,000.00). SO ORDERED. Davide, Jr., C.J., (Chairman), Vitug, Kapunan, and Ynares-Santiago, JJ., concur.

SECOND DIVISION G.R. No. L-44748 August 29, 1986 RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI). petitioner, vs. COURT OF APPEALS and LORETO DIONELA, respondents. O. Pythogoras Oliver for respondents.

PARAS, J.: Before Us, is a Petition for Review by certiorari of the decision of the Court of Appeals, modifying the decision of the trial court in a civil case for recovery of damages against petitioner corporation by reducing the award to private respondent Loreto Dionela of moral damages from P40,000 to Pl5,000, and attorney's fees from P3,000 to P2,000.

The basis of the complaint against the defendant corporation is a telegram sent through its Manila Office to the offended party, Loreto Dionela, reading as follows: 176 AS JR 1215PM 9 PAID MANDALUYONG JUL 22-66 LORETO DIONELA CABANGAN LEGASPI CITY WIRE ARRIVAL OF CHECK FER LORETO DIONELA-CABANGAN-WIRE ARRIVAL OF CHECK-PER 115 PM SA IYO WALANG PAKINABANG DUMATING KA DIYAN-WALA-KANG PADALA DITO KAHIT BULBUL MO (p. 19, Annex "A") Plaintiff-respondent Loreto Dionela alleges that the defamatory words on the telegram sent to him not only wounded his feelings but also caused him undue embarrassment and affected adversely his business as well because other people have come to know of said defamatory words. Defendant corporation as a defense, alleges that the additional words in Tagalog was a private joke between the sending and receiving operators and that they were not addressed to or intended for plaintiff and therefore did not form part of the telegram and that the Tagalog words are not defamatory. The telegram sent through its facilities was received in its station at Legaspi City. Nobody other than the operator manned the teletype machine which automatically receives telegrams being transmitted. The said telegram was detached from the machine and placed inside a sealed envelope and delivered to plaintiff, obviously as is. The additional words in Tagalog were never noticed and were included in the telegram when delivered. The trial court in finding for the plaintiff ruled as follows: There is no question that the additional words in Tagalog are libelous. They clearly impute a vice or defect of the plaintiff. Whether or not they were intended for the plaintiff, the effect on the plaintiff is the same. Any person reading the additional words in Tagalog will naturally think that they refer to the addressee, the plaintiff. There is no indication from the face of the telegram that the additional words in Tagalog were sent as a private joke between the operators of the defendant. The defendant is sued directly not as an employer. The business of the defendant is to transmit telegrams. It will open the door to frauds and allow the defendant to act with impunity if it can escape liability by the simple expedient of showing that its employees acted beyond the scope of their assigned tasks. The liability of the defendant is predicated not only on Article 33 of the Civil Code of the Philippines but on the following articles of said Code: ART. 19.- Every 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. ART. 20.-Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same. There is sufficient publication of the libelous Tagalog words. The office file of the defendant containing copies of telegrams received are open and held together only by a metal fastener. Moreover, they are open to view and inspection by third parties. It follows that the plaintiff is entitled to damages and attorney's fees. The plaintiff is a businessman. The libelous Tagalog words must have affected his business and social standing in the community. The Court fixes the amount of P40,000.00 as the reasonable amount of moral damages and the amount of P3,000.00 as attorney's fee which the defendant should pay the plaintiff. (pp. 15-16, Record on Appeal) The respondent appellate court in its assailed decision confirming the aforegoing findings of the lower court stated:

The proximate cause, therefore, resulting in injury to appellee, was the failure of the appellant to take the necessary or precautionary steps to avoid the occurrence of the humiliating incident now complained of. The company had not imposed any safeguard against such eventualities and this void in its operating procedure does not speak well of its concern for their clientele's interests. Negligence here is very patent. This negligence is imputable to appellant and not to its employees. The claim that there was no publication of the libelous words in Tagalog is also without merit. The fact that a carbon copy of the telegram was filed among other telegrams and left to hang for the public to see, open for inspection by a third party is sufficient publication. It would have been otherwise perhaps had the telegram been placed and kept in a secured place where no one may have had a chance to read it without appellee's permission. The additional Tagalog words at the bottom of the telegram are, as correctly found by the lower court, libelous per se, and from which malice may be presumed in the absence of any showing of good intention and justifiable motive on the part of the appellant. The law implies damages in this instance (Quemel vs. Court of Appeals, L-22794, January 16, 1968; 22 SCRA 44). The award of P40,000.00 as moral damages is hereby reduced to P15,000.00 and for attorney's fees the amount of P2,000.00 is awarded. (pp. 22-23, record) After a motion for reconsideration was denied by the appellate court, petitioner came to Us with the following: ASSIGNMENT OF ERRORS I The Honorable Court of Appeals erred in holding that Petitioner-employer should answer directly and primarily for the civil liability arising from the criminal act of its employee. II The Honorable Court of Appeals erred in holding that there was sufficient publication of the alleged libelous telegram in question, as contemplated by law on libel. III The Honorable Court of Appeals erred in holding that the liability of petitioner-company-employer is predicated on Articles 19 and 20 of the Civil Code, Articles on Human Relations. IV The Honorable Court of Appeals erred in awarding Atty's. fees. (p. 4, Record) Petitioner's contentions do not merit our consideration. The action for damages was filed in the lower court directly against respondent corporation not as an employer subsidiarily liable under the provisions of Article 1161 of the New Civil Code in relation to Art. 103 of the Revised Penal Code. The cause of action of the private respondent is based on Arts. 19 and 20 1 of the New Civil Code (supra). As well as on respondent's breach of contract thru the negligence of its own employees. Petitioner is a domestic corporation engaged in the business of receiving and transmitting messages. Everytime a person transmits a message through the facilities of the petitioner, a contract is entered into. Upon receipt of the rate or fee fixed, the petitioner undertakes to transmit the message accurately. There is no question that in the case at bar, libelous matters were included in the message transmitted, without the consent or knowledge of the sender. There is a clear case of breach of contract by the petitioner in adding extraneous and libelous matters in the message sent to the private respondent. As a corporation, the petitioner can act only through its employees. Hence the acts of its employees in receiving and transmitting messages are the acts of the petitioner. To hold that the petitioner is not liable directly for the acts of its employees in the pursuit of petitioner's business is to deprive the general public availing of the services of the petitioner of an effective and adequate remedy. In most cases, negligence must be proved in order that plaintiff may recover. However, since negligence may be hard to substantiate in some cases, we may apply the doctrine of RES IPSA LOQUITUR (the thing speaks for itself), by considering the presence of facts or circumstances surrounding the injury.

WHEREFORE, premises considered, the judgment of the appellate court is hereby AFFIRMED. SO ORDERED. Feria (Chairman), Fernan, Alampay, and Gutierrez, Jr., JJ., concur. THIRD DIVISION

[G.R. No. 142378. March 7, 2002]

LL AND COMPANY DEVELOPMENT AND AGRO-INDUSTRIAL CORPORATION, petitioner, vs. HUANG CHAO CHUN AND YANG TUNG FA, respondents. DECISION PANGANIBAN, J.: A stipulation in a lease contract stating that its five-year term is subject to an option to renew shall be interpreted to be reciprocal in character. Unless the language shows an intent to allow the lessee to exercise it unilaterally, such option shall be deemed to benefit both the lessor and the lessee who must both consent to the extension or renewal, as well as to its specific terms and conditions.

Statement of the Case Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the October 29, 1999 Decision and [2] [3] the March 9, 2000 Resolution of the Court of Appeals (CA) in CA-GR SP No. 50618. The decretal portion of the Decision reads as follows: WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The assailed Resolution denied petitioners Motion for Reconsideration. The CA sustained the Decision of the Regional Trial Court (RTC) of Quezon City (Branch 217), which had disposed as follows: WHEREFORE, premises considered, the Decision appealed from is AFFIRMED insofar as it dismissed the complaint and it extended the lease contract up to September 16, 2001; and is MODIFIED such that, defendants-appellees are ordered to pay plaintiff-appellant the amount of P444,800.00 less 5% as withholding tax, as their rentals on subject premises from July 16, 1994 to November 13, 1994. Costs against the plaintiff-appellant.
[5] [4] [1]

The Facts The factual antecedents of the case are summarized by the Court of Appeals as follows: [The present case] originated from an unlawful detainer case filed by petitioner before the Metropolitan Trial Court of Quezon City on October 9, 1996 which was docketed as Civil Case No. 16349. In its Complaint, petitioner alleged that respondents Huang Chao Chun and Yang Tung Fa violated t heir amended lease contract over a 1,112 square meter lot it owns, designated as Lot No. 1-A-1, when they did not pay the monthly rentals

thereon in the total amount of P4,322,900.00. It also alleged that the amended lease contract already expired on September 16, 1996 but respondents refused to surrender possession thereof plus the improvements made thereon, and pay the rental arrearages despite repeated demands. The amended lease contract was entered into by the parties sometime in August, 1991. [Exact d ay is not mentioned in amended contract]. The same amended the lease contract previously entered into by the parties on August 8, 1991. The amended contract contains the following provisions: 1. That the LESSOR agrees as by the[se] presents hereby agreed to change the lot from LOT 1-A-2 with an area of 1,091 sq. meters, to LOT 1-A-1 with an area of 1,112 sq. meters, covered by the same TCT No. 219417 and located at the same address at No. 2 Scout Chuatuco Street, Quezon City, Metro Manila. 2. The monthly rental shall be the same at P100.00 per square meters and/or P111,200.00 per month, Philippine Currency. All other terms and conditions are the same for strict compliance thereof. The terms and conditions referred to in paragraph 2 above are the following: 1. x x x It is expressly agreed and understood that the payment of the rental herein stipulated shall be made without the necessity of express demand and without delay on any ground whatsoever. 2. The term of this lease is FIVE (5) YEARS from the effectivity of said lease, and with the option to renew, specifically shall commence from September 15, 1991 and shall expire on September 16, 1996, and maybe adjusted depending upon the ejectment of tenants. 3. The LESSEES shall have the option to reconstruct and/or renovate the improvement found thereon at the expense of the LESSEES, and whatever improvement introduced therein by the LESSEES in the premises the ownership of it shall become the property of the LESSOR without extra compensation of the same. 4. Upon signing of this Contract of Lease, the LESSEES shall make a one (1) year deposit to be paid unto the LESSOR as follows: 50% percent upon signing of this Contract of Lease; 50% percent as payment in full of the one (1) year deposit. Payment of which shall be made unto the LESSOR on the day of the effectivity date of the Contract of Lease, said deposit shall be refundable 30 days prior to the termination of the same. 5. The monthly rental is subject to increase, said increase shall be based upon the imposition of Real Estate Tax for every two (2) years upon presentation of the increased real estate tax to the Le[ssees], but said increase shall not be less than 25% percent. x x x xxx xxx

9. The parties agree as by these presents have agreed to strictly observe the terms and conditions of the Contract of Lease. Violation by the Lessees of any of the terms and condition of said contract is equivalent to forfeitures of the deposit in favor of the Lessor, furthermore the Lessees agreed to vacate the lease[d] premises for any violation of the terms and condition of said contract, without going to court. Respondent were joined by the Tsai Chun International R esources Inc. in their answer to the Complaint, wherein they alleged that the actual lessee over Lot No. 1-A-1 is the corporation. Respondents and the corporation denied petitioners allegations, claiming instead that: 1. The amended lease contract did not reflect the true intention of the parties because it did not contemplate an obsolete building that can no longer be renovated, such that petitioner did not become the owner of the new P24,000,000.00 two-storey building they introduced on Lot No. 1-A-1 when their contract expired.

2. Their failure to pay the monthly rentals on the property was due to petitioners fault when it attempted to increase the amount of rent in violation of their contract; and 3. They are entitled to a renewal of their contract in view of the provision therein providing for automatic renewal, and also in view of the P24,000,000.00 worth of improvements they introduced on the leased premises. After the parties were accorded their respective rights to due process of l aw, Branch 32 of the MTC rendered decision on June 23, 1998, the decretal portion of which reads: WHEREFORE, premises considered, the Court hereby orders the dismissal of this case, without pronouncement as to costs. SO ORDERED. The aforequoted decision was premised on the resolution of two issues: (a) (b) Whether or not the Contract of Lease dated August 8, 1991 had expired; and Did defendants and/or the corporation incur rental arrearages.

The MTC ruled that the contract entered into by the parties may be extended by the lessees for reasons of justice and equity, citing as its legal bases the case of Legarda Koh v. Ongsi[a]co (36 Phil. [185]) and Cruz v. Alberto (39 Phil. 99 1). It also ruled that the corporations failure to pay the monthly rentals as they fell due was justified by the fact that petitioner [6] refused to honor the basis of the rental increase as stated in their Lease Agreement. (Citations omitted)

Ruling of the Trial Court The RTC affirmed the Decision of the Metropolitan Trial Court (MeTC) dismissing the unlawful detainer case. The RTC likewise agreed that the Contract of Lease entered into by the parties could be extended unilaterally by the lessees for another five years or until September 16, 2001, on the basis of justice and equity. It also held that the parties had a reciprocal obligation: unless and until petitioner presented the increased realty [7] tax, private respondents were not under any obligation to pay the increased monthly rental. In addition, the RTC ruled that petitioner was not entitled to legal interest, and that the 25 percent increase provided in the Contract of Lease should be based on the imposed real estate tax, not on the monthly rental.

Ruling of the Court of Appeals The Court of Appeals affirmed in toto the RTCs dismissal of the unlawful detainer c ase and extension of the lease period for another five years, holding that the errors raised had already been fully taken into account by the two courts below. It also reasoned that [t]he elliptical construction of paragraph 5 of the Lease Contract made it awkward to the point of being ambiguous. There being no agreement on the proven rent, an ejectment suit based on the non -payment of rents that were not agreed upon x x x will not lie. Hence, this Petition.
[8]

Issues In its Memorandum, petitioner raises the following issues for the Courts consideration: I

Whether the court could still extend the term of the lease, after its expiration. Is expiration of the lease a proper ground in [a] case of unlawful detainer[?] II Whether non-payment of rentals is a ground to eject, in an unlawful detainer. Is refusal of the lessor to accept or collect rentals a valid reason for non-payment of rentals[?] III May the court allow the introduction of issues other than the elements of a case for ejectment[?]
[9]

This Courts Ruling The Petition is meritorious.

First Issue: Extension of Lease Period Petitioner contends that because the Contract, as amended, had already expired, the MTC had no power to extend the lease period. We are convinced. In general, the power of the courts to fix a longer term for a lease is discretionary. Such power is to be exercised only in accordance with the particular circumstances of a case: a longer term to be granted where equities demanding extension come into play; to be denied where none appear -- always with due deference to the parties freedom to [10] [11] contract. Thus, courts are not bound to extend the lease. Article 1675 of the Civil Code excludes cases falling under Article 1673 from those under Article 1687. Article 1673 provides among others, that the lessor may judicially eject the lessee upon the expiration of the period agreed upon or [12] that which is fixed for the duration of the leases. Where no period has been fixed by the parties, the courts, pursuant [13] to Article 1687, have the potestative authority to set a longer period of lease. In the case before us, the Contract of Lease provided for a fixed period of five (5) years -- specifically from September 16, 1991 to September 15, 1996. Because the lease period was for a determinate time, it ceased, by express [14] provision of Article 1669 of the Civil Code, on the day fixed, without need of a demand. Here, the five-year period expired on September 15, 1996, whereas the Complaint for ejectment was filed on October 6, 1996. Because there was no longer any lease that could be extended, the MeTC, in effect, made a new contract for the parties, a power it did not [15] [16] have. Early on, in Bacolod-Murcia Milling v. Banco Nacional Filipino, we said that a court could not supply material stipulations to a contract, as follows: It is not the province of the court to alter a contract by constructio n or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves, without regard to its wisdom or folly, as the court cannot supply material stipulations or read into contract words whic h it does not contain. Furthermore, the extension of a lease contract must be made before the term of the agreement expires, not [17] after. Upon the lapse of the stipulated period, courts cannot belatedly extend or make a new lease for the [18] [19] parties, even on the basis of equity. Because the Lease Contract ended on September 15, 1996, without the parties [20] reaching any agreement for renewal, respondents can be ejected from the premises. On the other hand, respondents and the lower courts argue that the Contract of Lease provided for an automatic renewal of the lease period. We are not persuaded. Citing Koh v. Ongsiaco and Cruz v. Alberto, the MeTC -- upheld by the RTC and the CA -- ruled that the stipulation in the Contract of Lease providing an option to renew should be construed in favor of and for the benefit of the [23] [24] lessee. This ruling has however, been expressly reversed in Fernandez v. CA, from which we quote: It is also important to bear in mind that in a reciprocal contract like a lea se, the period of the lease must be deemed to have been agreed upon for the benefit of both parties, absent language showing that the term was deliberately set for the
[21] [22]

benefit of the lessee or lessor alone. We are not aware of any presumption in law that the term of a lease is designed for the benefit of the lessee alone. Koh and Cruz in effect rested upon such a presumption. But that presumption cannot reasonably be indulged in casually in an era of rapid economic change, marked by, among other things, volatile costs of living and fluctuations in the value of the domestic currency. The longer the period the more clearly unreasonable such a presumption would be. In an age like that we live in, very specific language is necessary to show an intent to grant a unilateral faculty to extend or renew a contract of lease to the lessee alone, or to the lessor alone for that matter. We hold [25] that the above-quoted rulings in Koh v. Ongsiacoand Cruz v. Alberto should be and are overruled. The foregoing doctrine was recently reiterated in Heirs of Amando Dalisay v. Court of Appeals. Thus, pursuant [27] to Fernandez, Dalisay and Article 1196 of the Civil Code, the period of the lease contract is deemed to have been set [28] for the benefit of both parties. Its renewal may be authorized only upon their mutual agreement or at their joint will. Its continuance, effectivity or fulfillment cannot be made to depend exclusively upon the free and uncontrolled choice of just one party. While the lessee has the option to continue or to stop paying the rentals, the lessor cannot be completely [29] deprived of any say on the matter. Absent any contrary stipulation in a reciprocal contract, the period of lease is [30] deemed to be for the benefit of both parties. In the instant case, there was nothing in the aforesaid stipulation or in the actuation of the parties that showed that [31] they intended an automatic renewal or extension of the term of the contract. First, demonstrating petitioners disinterest [32] in renewing the contract was its letter dated August 23, 1996, demanding that respondents vacate the premises for failure to pay rentals since 1993. As a rule, the owner-lessor has the prerogative to terminate the lease upon its [33] expiration. Second, in the present case, the disagreement of the parties over the increased rental rate and private respondents failure to pay it precluded the possibility of a mutual renewal. Third, the fact that the lessor allowed the lessee to introduce improvements on the property was indicative, not of the formers intention to extend the contract [34] automatically, but merely of its obedience to its express terms allowing the improvements. After all, at the expiration of the lease, those improvements were to become its property. As to the contention that it is not fair to eject respondents from the premises after only five years, considering the value of the improvements they introduced therein, suffice it to say that they did so with the knowledge of the risk -- the contract had plainly provided for a five-year lease period. Parties are free to enter into any contractual stipulation, provided it is not illegal or contrary to public morals. When such agreement, freely and voluntarily entered into, turns out to be disadvantageous to a party, the courts cannot rescue it without crossing the constitutional right to contract. They are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially disadvantageous [35] will not relieve the latter of their obligations.
[26]

Second Issue: Non-Payment of Rentals Petitioner further argues that respondents should be ejected for nonpayment of the new rental rates. On the other hand, the latter counter that they did not agree to these new rates. True, mere failure to pay rentals does not make possession unlawful, but when a valid demand to vacate the premise s is made by the lessor, the lessees continued [36] withholding of possession becomes unlawful. Well-settled is the rule that the failure of the owners/lessors to collect or [37] their refusal to accept the rentals is not a valid defense. Respondents justify their nonpayment of rentals on the ground that petitioners refused to accept their payments. Article 1256 of the Civil Code, however, provides that if the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or [38] sum. This provision is more explicit under the Rent Control Law, the pertinent portions of which are similar to the [39] prevailing law -- the Rental Reform Act of 2002 -- which we reproduce hereunder: Section 7. Grounds for Judicial Ejectment.-Ejectment shall be allowed on the following grounds: (a) Assignment of lease or subleasing of residential units in whole or in part, including the acceptance of boarders or bedspacers, without the written consent of the owner/lessor. (b) Arrears in payment of rent for a total of three (3) months: Provided, That in the case of refusal by the lessor to accept payment of the rental agreed upon, the lessee may either deposit, by way of consignation, the amount in court, or with the city or municipal treasurer, as the case may be, or in a bank in the name of and with notice to the lessor, within one month after the refusal of the lessor to accept payment.

The lessee shall thereafter deposit the rental within ten days of every current month. Failure to deposit the rentals for three (3) months shall constitute a ground for ejectment. If an ejectment case is already pending, the court upon proper motion may order the lessee or any person or persons claiming under him to immediately vacate the leased premises without prejudice to the continuation of the ejectment proceedings. At any time, the lessor may, upon authority of the court, withdraw the rentals deposited. The lessor, upon authority of the court in case of consignation or upon joint affidavit by him and the lessee to be submitted to the city or municipal treasurer and to the bank where deposit was made, shall be allowed to withdraw the deposits. xxx xxx (e) Expiration of the period of the lease contract.
[40]

xxx

On the other hand, the Civil Code provides as follows: Art. 1673. The lessor may judicially eject the lessee for any of the following causes: (1) When the period agreed upon, or that which is fixed for the duration of lease under Articles 1682 and 1687, has expired; (2) (3) Lack of payment of the price stipulated; Violation of any of the conditions agreed upon in the contract;

(4) When the lessee devotes the thing leased to any use or service not stipulated which causes the deterioration thereof; or if he does not observe the requirement in No. 2 of Article 1657, as regards the use thereof. The ejectment of tenants of agricultural lands is governed by special laws. Based on the foregoing, respondents should have deposited in a bank or with judicial authorities the rent based on [41] the previous rate. In the instant case, respondents failed to pay the rent from October 1993 to March 1998 or for four (4) years and three (3) months. They should remember that Article 1658 of the Civil Code provides only two instances in which the lessee may suspend payment of rent; namely, in case the lessor fails to make the necessary repairs or to [42] maintain the lessee in peaceful and adequate enjoyment of the property leased. None of these is present in the case at bar. Moreover, the mere subsequent payment of rentals by the lessee and the receipt thereof by the lessor does not, absent any other circumstance that may dictate a contrary conclusion, legitimize the unlawful character of the [43] possession. The lessor may still pursue the demand for ejectment. Having said that, we cannot, on the other hand, authorize a unilateral increase in the rental rate, considering that (1) the option to renew is reciprocal and, thus, the terms and conditions thereof -- including the rental rate -- must likewise be reciprocal; and (2) the contracted clause authorizing an increase -- upon presentation of the increased real estate tax to lessees -- has not been complied with by petitioner.

Third Issue: Issues on Ejectment Petitioner proceeds to argue that the MeTC should not have allowed the intervention of the Tsai Chun International Resources, Inc., allegedly the real lessor of the leased premises. In view of our foregoing discussion, there is no more need to rule on this issue. WHEREFORE, the Petition is GRANTED and the assailed Decision SET ASIDE. Respondents and all persons claiming rights under them are hereby ORDERED TO VACATE the subject premises and to restore peaceful possession thereof to petitioner. They are also DIRECTED TO PAY the accrued rentals (based on the stipulated rent) from October 1993 until such time that they vacate the subject property, with interest thereon at the legal rate. No pronouncement as to costs.

SO ORDERED. Melo, (Chairman), Vitug, Sandoval-Gutierrez, and Carpio, JJ., concur.

FIRST DIVISION

[G.R. No. 141910. August 6, 2002]

FGU INSURANCE CORPORATION, petitioner, vs. G.P. SARMIENTO TRUCKING CORPORATION and LAMBERT M. EROLES, respondents. DECISION VITUG, J.: G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30) units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc., along South Superhighway in Alabang, Metro Manila, to the Central Luzon Appliances in Dagupan City. While the truck was traversing the north diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn, being the subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of the amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim, FGU filed a complaint for damages and breach of contract of carriage against GPS and its driver Lambert Eroles with the Regional Trial Court, Branch 66, of Makati City. In its answer, respondents asserted that GPS was the exclusive hauler only of Concepcion Industries, Inc., since 1988, and it was not so engaged in business as a common carrier. Respondents further claimed that the cause of damage was purely accidental. The issues having thus been joined, FGU presented its evidence, establishing the extent of damage to the cargoes and the amount it had paid to the assured. GPS, instead of submitting its evidence, filed with leave of court a motion to dismiss the complaint by way of demurrer to evidence on the ground that petitioner had failed to prove that it was a common carrier. The trial court, in its order of 30 April 1996,
[1]

granted the motion to dismiss, explaining thusly:

Under Section 1 of Rule 131 of the Rules of Court, it is provided that Each party must prove his own affirmative allegation, xxx. In the instant case, plaintiff did not present any single evidence that would prove that defendant is a common carrier. x x x x x x xxx

Accordingly, the application of the law on common carriers is not warranted and the presumption of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of goods during transport under 1735 of the Civil Code is not availing. Thus, the laws governing the contract between the owner of the cargo to whom the plaintiff was subrogated and the owner of the vehicle which transports the cargo are the laws on obligation and contract of the Civil Code as well as the law on quasi delicts. Under the law on obligation and contract, negligence or fault is not presumed. The law on quasi delict provides for some presumption of negligence but only upon the attendance of some circumstances. Thus, Article 2185 provides: Art. 2185. Unless there is proof to the contrary, it is presumed that a person driving a motor vehicle has been negligent if at the time of the mishap, he was violating any traffic regulation.

Evidence for the plaintiff shows no proof that defendant was violating any traffic regulation. Hence, the presumption of negligence is not obtaining. Considering that plaintiff failed to adduce evidence that defendant is a common carrier and defendants driver was the [2] one negligent, defendant cannot be made liable for the damages of the subject cargoes. The subsequent motion for reconsideration having been denied, plaintiff interposed an appeal to the Court of Appeals, contending that the trial court had erred (a) in holding that the appellee corporation was not a common carrier defined under the law and existing jurisprudence; and (b) in dismissing the complaint on a demurrer to evidence. The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The appellate court, in its decision [4] of 10 June 1999, discoursed, among other things, that "x x x in order for the presumption of negligence provided for under the law governing common carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the appellee is a common carrier. Should the appellant fail to prove that the appellee is a common carrier, the presumption would not arise; consequently, the appellant would have to prove that the carrier was negligent. "x x x x x x xxx
[3]

"Because it is the appellant who insists that the appellees can still be considered as a common carrier, despite its `limited clientele, (assuming it was really a common carrier), it follows that it (appellant) has the burden of proving the same. It (plaintiff-appellant) `must establish his case by a preponderance of evidence, which means that the evidence as a whole adduced by one side is superior to that of the other. (Summa Insurance Corporation vs. Court of Appeals, 243 SCRA 175). This, unfortunately, the appellant failed to do -- hence, the dismissal of the plaintiffs complaint by the trial court is justified. "x x x x x x xxx

"Based on the foregoing disquisitions and considering the circumstances that the appellee trucking corporation has been `its exclusive contractor, hauler since 1970, defendant has no cho ice but to comply with the directive of its principal, the inevitable conclusion is that the appellee is a private carrier. "x x x x x x xxx

"x x x the lower court correctly ruled that 'the application of the law on common carriers is not warranted and the presumption of fault or negligence on the part of a common carrier in case of loss, damage or deterioration of good[s] during transport under [article] 1735 of the Civil Code is not availing.' x x x. "Finally, We advert to the long established rule that conclusions and findings of fact of a trial court are entitled to great [5] weight on appeal and should not be disturbed unless for strong and valid reasons." Petitioner's motion for reconsideration was likewise denied; issues: I WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON CARRIER AS DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE. II WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A PRIVATE CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT UNDERTOOK TO TRANSPORT SAFELY WERE SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND POSSESSION. III WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE INSTANT CASE.
[6]

hence, the instant petition,

[7]

raising the following

On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals to be amply justified. GPS, being an exclusive contractor and hauler of Concepcion Industries, Inc., rendering or offering its services to no other individual or entity, cannot be considered a common carrier. Common carriers are persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or [8] air, for hire or compensation, offering their services to the public, whether to the public in general or to a limited clientele [9] in particular, but never on an exclusive basis. The true test of a common carrier is the carriage of passengers or goods, [10] providing space for those who opt to avail themselves of its transportation service for a fee. Given accepted standards, GPS scarcely falls within the term common carrier. The above conclusion nothwithstanding, GPS cannot escape from liability. In culpa contractual, upon which the action of petitioner rests as being the subrogee of Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right [11] [12] of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for [13] any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promisee that may include his expectation interest, which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his reliance interest, which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his restitution interest, [14] which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements [15] can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of another to [16] observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence (normally that of the diligence of a good father of a family or, exceptionally by stipulation or by law such as in the case of common carriers, that of extraordinary diligence) or of the attendance of fortuitous event, to excuse him from his ensuing liability. Respondent trucking corporation recognizes the existence of a contract of carriage between it and petitioners assured, and admits that the cargoes it has assumed to deliver have been lost or damaged while in its custody. In such a situation, a default on, or failure of compliance with, the obligation in this case, the delivery of the goods in its custody to the place of destination - gives rise to a presumption of lack of care and corresponding liability on the part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so. Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage between petitioners principal and defendant, may not be held liable under the agreement. A contract can only bind the parties who have entered into it or their [17] successors who have assumed their personality or their juridical position. Consonantly with the axiom res inter alios acta aliis neque nocet prodest, such contract can neither favor nor prejudice a third person. Petitioners civil action against the driver can only be based on culpa aquiliana, which, unlike culpa contractual, would require the claimant for [18] damages to prove negligence or fault on the part of the defendant. A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant liable where the thing which caused the injury complained of is shown to be under the latters management and the accident is such that, in the ordinary course of things, cannot be expected to happen if those who have its management or control use proper care. It affords reasonable evidence, in the absence of explanation by the defendant, that the accident arose from want of [19] care. It is not a rule of substantive law and, as such, it does not create an independent ground of liability. Instead, it is regarded as a mode of proof, or a mere procedural convenience since it furnishes a substitute for, and relieves the plaintiff of, the burden of producing specific proof of negligence. The maxim simply places on the defendant the burden of going [20] forward with the proof. Resort to the doctrine, however, may be allowed only when (a) the event is of a kind which does not ordinarily occur in the absence of negligence; (b) other responsible causes, including the conduct of the plaintiff and third persons, are sufficiently eliminated by the evidence; and (c) the indicated negligence is within the scope of the [21] defendant's duty to the plaintiff. Thus, it is not applicable when an unexplained accident may be attributable to one of [22] several causes, for some of which the defendant could not be responsible. Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists between the plaintiff and the defendant, for the inference of negligence arises from the circumstances and nature of the occurrence and not from [23] the nature of the relation of the parties. Nevertheless, the requirement that responsible causes other than those due to defendants conduct must first be eliminated, for the doctrine to apply, should be understood as being confined only to cases of pure (non-contractual) tort since obviously the presumption of negligence in culpa contractual, as previously so pointed out, immediately attaches by a failure of the covenant or its tenor. In the case of the truck driver, whose liability in a civil action is predicated on culpa acquiliana, while he admittedly can be said to have been in control and management of the vehicle which figured in the accident, it is not equally shown, however, that the accident could have been exclusively due to his negligence, a matter that can allow, forthwith, res ipsa loquitur to work against him.

If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the movant shall be deemed to [24] have waived the right to present evidence. Thus, respondent corporation may no longer offer proof to establish that it has exercised due care in transporting the cargoes of the assured so as to still warrant a remand of the case to the trial court. WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of Makati City, and the decision, dated 10 June 1999, of the Court of Appeals, are AFFIRMED only insofar as respondent Lambert M. Eroles is concerned, but said assailed order of the trial court and decision of the appellate court are REVERSED as regards G.P. Sarmiento Trucking Corporation which, instead, is hereby ordered to pay FGU Insurance Corporation the value of the damaged and lost cargoes in the amount of P204,450.00. No costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.

FIRST DIVISION G.R. No. L-61311 September 2l, 1987 FELICIDAD VILLANUEVA, FERNANDO CAISIP, ANTONIO LIANG, FELINA MIRANDA, RICARDO PUNO, FLORENCIO LAXA, and RENE OCAMPO, petitioners, vs. HON. MARIANO CASTAEDA, JR., Presiding Judge of the Court of First Instance of Pampanga, Branch III, VICENTE A. MACALINO, Officer-in-Charge, Office of the Mayor, San Fernando, Pampanga,respondents.

CRUZ, J.: There is in the vicinity of the public market of San Fernando, Pampanga, along Mercado Street, a strip of land measuring 12 by 77 meters on which stands a conglomeration of vendors stalls together forming what is commonly known as a talipapa. This is the subject of the herein petition. The petitioners claim they have a right to remain in and conduct business in this area by virtue of a previous authorization granted to them by the municipal government. The respondents deny this and justify the demolition of their stalls as illegal constructions on public property. At the petitioners' behest, we have issued a temporary restraining order to preserve the status quobetween the parties pending our decision. 1 Now we shall rule on the merits. This dispute goes back to November 7, 1961, when the municipal council of San Fernando adopted Resolution No. 218 authorizing some 24 members of the Fernandino United Merchants and Traders Association to construct permanent stags 2 and sell in the above-mentioned place. The action was protested on November 10, 1961, in Civil Case No. 2040, where the Court of First Instance of Pampanga, Branch 2, issued a writ of preliminary injunction that prevented the defendants 3 from constructing the said stalls until final resolution of the controversy. On January 18, 1964, while this case was pending, the municipal council of San Fernando adopted Resolution G.R. No. 29, which declared the subject area as "the 4 parking place and as the public plaza of the municipality, thereby impliedly revoking Resolution No. 218, series of 1961. Four years later, on November 2, 1968, Judge Andres C. Aguilar decided the aforesaid case and held that the land occupied by the petitioners, being public in nature, was beyond the commerce of man and therefore could not be the 5 6 subject of private occupancy. The writ of preliminary injunction was made permanent. The decision was apparently not enforced, for the petitioners were not evicted from the place; in fact, according to then they and the 128 other persons were in 1971 assigned specific areas or space allotments therein for which they paid daily 7 fees to the municipal government. The problem appears to have festered for some more years under a presumably uneasy truce among the protagonists, none of whom made any move, for some reason that does not appear in the record. Then, on January 12, 1982, the Association of Concerned Citizens and Consumers of San Fernando filed a petition for the immediate implementation of Resolution No. 29, to restore the subject property "to its original and 8 customary use as a public plaza. Acting thereon after an investigation conducted by the municipal attorney, respondent Vicente A. Macalino, as officer-incharge of the office of the mayor of San Fernando, issued on June 14, 1982, a resolution requiring the municipal treasurer and the municipal engineer to demolish the stalls in the subject place beginning July 1, 1982. 10 The reaction of the petitioners was to file a petition for prohibition with the Court of First Instance of Pampanga, docketed as Civil Case No.
9

6470, on June 26, 1982. The respondent judge denied the petition on July 19, 1982, 11and the motion for reconsideration on August 5, 1982, 12 prompting the petitioners to come to this Court oncertiorari to challenge his decision. 13 As required, respondent Macalino filed his comment 14 on the petition, and the petitioners countered with their reply. 15 In compliance with our resolution of February 2, 1983, the petitioners submitted their memorandum 16 and respondent Macalino, for his part, asked that his comment be considered his memorandum. 17 On July 28, 1986, the new officer-incharge of the office of the mayor of San Fernando, Paterno S. Guevarra, was impleaded in lieu of Virgilio Sanchez, who had himself earlier replaced the original respondent Macalino. 18 After considering the issues and the arguments raised by the parties in their respective pleadings, we rule for the respondents. The petition must be dismissed. There is no question that the place occupied by the petitioners and from which they are sought to be evicted is a public plaza, as found by the trial court in Civil Case No. 2040. This finding was made after consideration of the antecedent facts as especially established by the testimony of former San Fernando Mayor Rodolfo Hizon, who later became governor of Pampanga, that the National Planning Commission had reserved the area for a public plaza as early as 1951. This intention was reiterated in 1964 through the adoption of Resolution No. 29. 19 It does not appear that the decision in this case was appealed or has been reversed. In Civil Case G.R. No. 6740, which is the subject of this petition, the respondent judge saw no reason to disturb the finding in Civil Case No. 2040 and indeed 20 used it as a basis for his own decision sustaining the questioned order. The basic contention of the petitioners is that the disputed area is under lease to them by virtue of contracts they had entered into with the municipal government, first in 1961 insofar as the original occupants were concerned, and later with them and the other petitioners by virtue of the space allocations made in their favor in 1971 for which they saw they are 21 paying daily fees. The municipal government has denied making such agreements. In any case, they argue, since the fees were collected daily, the leases, assuming their validity, could be terminated at will, or any day, as the claimed 22 rentals indicated that the period of the leases was from day to day. The parties belabor this argument needlessly. A public plaza is beyond the commerce of man and so cannot be the subject of lease or any other contractual 23 undertaking. This is elementary. Indeed, this point was settled as early as in Municipality of Cavite vs. Rojas, decided in 1915, where the Court declared as null and void the lease of a public plaza of the said municipality in favor of a private person. Justice Torres said in that case: According to article 344 of the Civil Code: "Property for public use in provinces and in towns comprises the provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and public works of general service supported by said towns or provinces. The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in 1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over a thing of which it could not dispose, nor is it empowered so to do. The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man may be the object of a contract, and plazas and streets are outside of this commerce, as was decided by the supreme court of Spain in its decision of February 12, 1895, which says: "communal things that cannot be sold because they are by their very nature outside of commerce are those for public use, such as the plazas, streets, common lands, rivers, fountains, etc." Therefore, it must be concluded that the contract, Exhibit C, whereby the municipality of Cavite leased to Hilaria Rojas a portion of the Plaza Soledad is null and void and of no force or effect, because it is contrary to the law and the thing leased cannot be the object of a was held that the City of contract.

In Muyot vs. de la Fuente, it was held that the City of Manila could not lease a portion of a public sidewalk on Plaza Sta. Cruz, being likewise beyond the commerce of man. Echoing Rojas, the decision said: Appellants claim that they had obtained permit from the present of the City of Manila, to connect booths Nos. 1 and 2, along the premises in question, and for the use of spaces where the booths were constructed, they had paid and continued paying the corresponding rentals. Granting this claim to be true, one should not entertain any doubt that such permit was not legal, because the City of Manila does not have any power or authority at all to lease a portion of a public sidewalk. The sidewalk in question, forming part of the public plaza of Sta. Cruz, could not be a proper subject matter of the contract, as it was not within the commerce of man (Article 1347, new Civil Code, and article 1271, old Civil Code). Any contract entered into by the City of Manila in connection with the sidewalk, is ipso facto null and ultra vires. (Municipality of Cavite vs. Roxas, et a1, 30 Phil. 603.) The sidewalk in question was intended for and was used by the public, in going from one place to another. "The streets and public places of the city shall be kept free and clear for the use of the public, and the sidewalks and crossings for the pedestrians, and the same shall only be used or occupied for other purpose as provided by ordinance or regulation; ..." (Sec. 1119, Revised Ordinances of the City of Manila.) The booths in question served as fruit stands for their owners and often, if not always, blocked the fire passage of pedestrians who had to take the plaza itself which used to be clogged with vehicular traffic. Exactly in point is Espiritu vs. Municipal Council of Pozorrubio ,
25

24

where the Supreme Court declared:

There is absolutely no question that the town plaza cannot be used for the construction of market stalls, specially of residences, and that such structures constitute a nuisance subject to abatement according to law. Town plazas are properties of public dominion, to be devoted to public use and to be made available to the public in general They are outside the common of man and cannot be disposed of or even leased by the municipality to private parties. Applying this well-settled doctrine, we rule that the petitioners had no right in the first place to occupy the disputed premises and cannot insist in remaining there now on the strength of their alleged lease contracts. They should have realized and accepted this earlier, considering that even before Civil Case No. 2040 was decided, the municipalcouncil of San Fernando had already adopted Resolution No. 29, series of 1964, declaring the area as the parking place and public plaza of the municipality. It is the decision in Civil Case No. 2040 and the said resolution of the municipal council of San Fernando that respondent Macalino was seeking to enforce when he ordered the demolition of the stags constructed in the disputed area. As officerin-charge of the office of the mayor, he had the duty to clear the area and restore it to its intended use as a parking place and public plaza of the municipality of San Fernando, conformably to the aforementioned orders from the court and the council. It is, therefore, not correct to say that he had acted without authority or taken the law into his hands in issuing his order. Neither can it be said that he acted whimsically in exercising his authority for it has been established that he directed the demolition of the stalls only after, upon his instructions, the municipal attorney had conducted an investigation, to look into 26 the complaint filed by the Association of Concerned Citizens and Consumers of San Fernando. There is evidence that 27 28 the petitioners were notified of this hearing, which they chose to disregard. Photographs of the disputed area, which does look congested and ugly, show that the complaint was valid and that the area really needed to be cleared, as recommended by the municipal attorney. The Court observes that even without such investigation and recommendation, the respondent mayor was justified in ordering the area cleared on the strength alone of its status as a public plaza as declared by the judicial and legislative authorities. In calling first for the investigation (which the petitioner saw fit to boycott), he was just scrupulously paying deference to the requirements of due process, to remove an taint of arbitrariness in the action he was caged upon to take. Since the occupation of the place in question in 1961 by the original 24 stallholders (whose number later ballooned to almost 200), it has deteriorated increasingly to the great prejudice of the community in general. The proliferation of stags therein, most of them makeshift and of flammable materials, has converted it into a veritable fire trap, which, added to the fact that it obstructs access to and from the public market itself, has seriously endangered public safety. The filthy condition of the talipapa, where fish and other wet items are sold, has aggravated health and sanitation problems, besides pervading the place with a foul odor that has spread into the surrounding areas. The entire place is unsightly, to the

dismay and embarrassment of the inhabitants, who want it converted into a showcase of the town of which they can all be proud. The vendors in the talipapa have also spilled into the street and obstruct the flow of traffic, thereby impairing the convenience of motorists and pedestrians alike. The regular stallholders in the public market, who pay substantial rentals to the municipality, are deprived of a sizable volume of business from prospective customers who are intercepted by the talipapa vendors before they can reach the market proper. On top of all these, the people are denied the proper use of the place as a public plaza, where they may spend their leisure in a relaxed and even beautiful environment and civic and other communal activities of the town can be held. The problems caused by the usurpation of the place by the petitioners are covered by the police power as delegated to 29 the municipality under the general welfare clause. This authorizes the municipal council "to enact such ordinances and make such regulations, not repugnant to law, as may be necessary to carry into effect and discharge the powers and duties conferred upon it by law and such as shall seem necessary and proper to provide for the health and safety, promote the prosperity, improve the morals, peace, good order, comfort, and convenience of the municipality and the inhabitants thereof, and for the protection of property therein." This authority was validly exercised in this casethrough the adoption of Resolution No. 29, series of 1964, by the municipal council of San Fernando. Even assuming a valid lease of the property in dispute, the resolution could have effectively terminated the agreement for 30 it is settled that the police power cannot be surrendered or bargained away through the medium of a contract. In fact, every contract affecting the public interest suffers a congenital infirmity in that it contains an implied reservation of the 31 police power as a postulate of the existing legal order. This power can be activated at any time to change the provisions of the contract, or even abrogate it entirely, for the promotion or protection of the general welfare. Such an act will not 32 militate against the impairment clause, which is subject to and limited by the paramount police power. We hold that the respondent judge did not commit grave abuse of discretion in denying the petition for prohibition. On the contrary, he acted correctly in sustaining the right and responsibility of the mayor to evict the petitioners from the disputed area and clear it of an the structures illegally constructed therein. The Court feels that it would have been far more amiable if the petitioners themselves, recognizing their own civic duty, had at the outset desisted from their original stance and withdrawn in good grace from the disputed area to permit its peaceful restoration as a public plaza and parking place for the benefit of the whole municipality. They owned this little sacrifice to the community in general which has suffered all these many years because of their intransigence. Regrettably, they have refused to recognize that in the truly democratic society, the interests of the few should yield to those of the greater number in deference to the principles that the welfare of the people is the supreme law and overriding purpose. We do not see any altruism here. The traditional ties of sharing are absent here. What we find, sad to say, is a cynical disdaining of the spirit of "bayanihan," a selfish rejection of the cordial virtues of "pakikisama " and "pagbibigayan" which are the hallmarks of our people. WHEREFORE, the petition is DISMISSED. The decision dated July 19, 1982, and the order-dated August 5, 1982, are AFFIRMED. The temporary restraining order dated August 9, 1982, is LIFTED. This decision is immediately executory. Costs against the petitioners. SO ORDERED. Teehankee, C.J., Narvasa and Paras, JJ., concur. SECOND DIVISION G.R. No. L-65425 November 5, 1987 IRENEO LEAL, JOSE LEAL, CATALINA LEAL, BERNABELA LEAL, VICENTE LEAL EUIOGIA LEAL PATERNO RAMOS, MACARIO DEL ROSARIO, MARGARITA ALBERTO, VICTORIA TORRES, JUSTINA MANUEL, JULIAN MANUEL, MELANIA SANTOS, CLEMENTE SAMARIO, MARIKINA VALLEY, INC., MIGUELA MENDOZA, and REGISTER OF DEEDS OF RIZAL, petitioners, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT (4th Civil Cases Division), and VICENTE SANTIAGO (Substituted by SALUD M. SANTIAGO), respondents.

SARMIENTO, J.:

In its resolution dated September 27, 1983, the respondent Intermediate Appellate Court, 1 speaking through Justice Porfirio V, Sison, ordered, in part, the petitioners to accept the sum of P5,600.00 from the private respondent as repurchase price of the lots described in the "Compraventa" and, thereafter, to execute a Deed of Repurchase to effect transfer over ownership over the same properties to the private respondent. This ruling was a complete reversal of the earlier decision, dated June 28, 1.978, penned by Justice Paras, of the Court of Appeals, in the same case, affirming the trial court's dismissal of the private respondent's complaint. The petitioners, feeling aggrieved and astonished by the complete turnaround of the respondent court, come to Us with this petition for review by certiorari. The antecedent facts are undisputed. This case brings us back almost half a century ago, on March 21, 1941, when a document entitled "Compraventa," written entirely in the Spanish language, involving three parcels of land, was executed by the private respondent's predecessorsin-interest, Vicente Santiago and his brother, Luis Santiago, in favor of Cirilio Leal the deceased father of some of the petitioners, Pursuant to this "Compraventa," the title over the three parcels of land in the name of the vendors was cancelled and a new one was issued in the name of Cirilo Leal who immediately took possession and exercised ownership over the said lands. When Cirilo died on December 10, 1959, the subject lands were inherited by his six children, who are among the petitioners, and who caused the consolidation and subdivision of the properties among themselves. Between the years 1960 and 1965, the properties were either mortgaged or leased by the petitioners-children of Cirilo Leal to their co-petitioners. Sometime before the agricultural year 1966-1967, Vicente Santiago approached the petitioners and offered rerepurchase the subject properties. Petitioners, however, refused the offer. Consequently, Vicente Santiago instituted a complaint for specific performance before the then Court of First Instance of Quezon City on August 2, 1967. All the trial, the court a quo rendered its decision,-dismissing the complaint on the ground that the same was still premature considering that there was, as yet, no sale nor any alienation equivalent to a sale. Not satisfied with this decision, the private respondent appealed to the Court of Appeals and the latter, acting through the Fourth Division and with Justice Edgardo Paras as ponente affirmed the decision of the court a quo. The petitioners seasonably filed a motion to amend the dispositive portion of the decision so as to include an order for the cancellation of the annotations at the back of the Transfer certificates of Title issued in their favor. The private respondent,-on the other hand, filed a-timely motion for reconsideration of the above decision and an opposition to petitioners' motion to amend. These incidents were not resolved until then Court of Appeals was abolished and in lieu of which the Intermideate Appellate Court was established In view of the said reorganization, case was reassigned to the Fourth Civil in this cases Division. Resolving the abovestated motion for reconsideration, the respondent court, in a resolution penned by Justice Sison and promulgated on September 27, 1983, ruled, as follows: WHEREFORE, Our decision of June 28, 1978 is hereby reversed and set aside and another one is rendered ordering: (1) defendants-appellees surnamed Leal to accept the sum of P5,600.00 from plaintiffappellant (substituted by Salud M. Santiago) as repurchase price of the lots described in the "Compraventa" of March 21, 1941, and thereafter to execute a deed of repurchase sufficient in law to transfer ownership of the properties to appellant Salud M. Santiago, the same to be done within five (5) days from payment; (2) ordering the same defendants Leals and defendant Clemente Samario to indemnify appellant in the sum of P3,087.50 as rental for the year 1967-1968 and the same amount every year thereafter; (3) ordering an the defendants jointly and severally to pay the sum of Pl,500.00 as attorney's fees and other expenses of litigation; and (4) ordering defendant Register of Deeds of Rizal to cancel Transfer Certificate of Title No. 42535 in the names of Vicente Santiago and Luis Santiago upon presentation of the deed of sale herein ordered to be executed by the appellees in favor of Salud M. Santiago and to issue thereof another Transfer Certificate of Title in the name alone of Salud M. Santiago. No costs here and in the courts (sic) below. SO ORDERED.
2

Verily, the well-spring whence the present controversy arose is the abovementioned "Compraventa," more particularly paragraph (b) thereof, to wit: xxx xxx xxx (b) En caso de venta, no podran vender a otros dichos tres lotes de terreno sino al aqui vendedor Vicente Santiago, o los herederos o sucesores de este por el niismo precio de CINCO MIL SEISCIENTOS 3 PESOS (P5,600.00) siempre y cuando estos ultimos pueden hacer la compra. xxx xxx xxx which is now the subject of varying and conflicting interpretations. xxx xxx xxx It is admitted by both parties that the phrase "they shall not sell to others these three lots but only to the seller Vicente Santiago or to his heirs or successors" is an express prohibition against the sale of the lots described in the "Compraventa" to third persons or strangers to the contract. However, while private respondent naturally lauds the resolution of Justice Sison, which sustains the validity of this prohibition, the petitioners, on the other hand, endorse the decision penned by Justice Paras, which states, in part: xxx xxx xxx Finally, there is grave doubt re the validity of the ostensible resolutory condition here, namely, the prohibition to sell the lots to persons other than the vendor (appellant); uncertainly, a prohibition to alienate should not exceed at most a period of twenty years, otherwise there would be subversion of 4 public policy, which naturally frowns on unwarranted restrictions on the right of ownership. xxx xxx xxx We agree with the Paras ponencia. Contracts are generally binding between the parties, their assigns and heirs; however, under Art. 1255 of the Civil Code of Spain, which is applicable in this instance, pacts, clauses, and conditions which are contrary to public order are null and void, thus, without any binding effect. Parenthetically, the equivalent provision in the Civil Code of the Philippines is that of Art. 1306, which states: "That 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. Public order signifies the public weal 5 public policy. Essentially, therefore, public order and public policy mean one and the same thing. Public policy is simply 6 the English equivalent of "order publico" in Art. 1255 of the Civil Code of Spain. One such condition which is contrary to public policy is the present prohibition to self to third parties, because the same virtually amounts to a perpetual restriction to the right of ownership, specifically the owner's right to freely dispose of his properties. This, we hold that any such prohibition, indefinite and stated as to time, so much so that it shall continue to be applicable even beyond the lifetime of the original parties to the contract, is, without doubt, a nullity. In the light of this pronouncement, we grant the petitioners' prayer for the cancellation of the annotations of this prohibition at the back of their Transfer Certificates 'Title. It will be noted, moreover, that the petitioners have never sold, or even attempted to sell, the properties subject of the "Compraventa. " We now come to what we believe is the very issue in this case which is, whether or not under the aforequoted paragraph (b) of the "Compraventa" a right of repurchase in favor of the private respondent exist. The ruling of the Fourth Division (Justice Paras) is that the said stipulation does not grant a right to repurchase. Contrarily, the resolution of the Fourth Civil Cases Division (Justice P. V. Sison) interpreted the same provision as granting the right to repurchase subject to a condition precedent.

Thus, the assailed Resolution, reversing the earlier decision of the same respondent court, ruled xxx xxx xxx The all-importartant phrase "en caso de venta," must of necessity refer to the sale of the properties either by Cirilo or his heirs to the Santiago brothers themselves or to their heirs, including appellants Vicente Santiago including appellants Vicente Santiago and Salud M Santiago, for the same sum of P5,600.00, "siempre y cuando estos ultimos pueden hacer la compra" (when the latter shall be able to buy it). xxx xxx xxx ... We repeat, The words envision the situation contemplated by the contracting parties themselves, the resale of the lots to their owners, and NOT to a sale of the lots to third parties or strangers to the 7 contracts. ... xxx xxx xxx The law provides that for conventional redemption to take place, the vendor should reserve, in no uncertain terms, the 8 right to repurchase the thing sold. Thus, the right to redeem must be expressly stipulated in the contract of sale in order that it may have legal existence. In the case before us, we cannot and any express or implied grant of a right to repurchase, nor can we infer, from any word or words in the questioned paragraph, the existence of any such right. The interpretation in the resolution (Justice Sison) is rather strained. The phrase "in case case" of should be construed to mean "should the buyers wish to sell which is the plain and simple import of the words, and not "the buyers should sell," which is clearly a contorted construction of the same phrase. The resort to Article 1373 of the Civil Code of the Philippines is erroneous. The subject phrase is patent and unambiguous, hence, it must not be given another interpretation But even assuming that such a right of repurchase is granted under the "Compraventa," the petitioner correctly asserts that the same has already prescribed. Under Art. 1508 of the Civil Code of Spain (Art,. 1606 of the Civil Code of the Philippines), the right to redeem or repurchase, in the absence of an express agreement as to time, shall last four years from the date of the contract. In this case then, the right to repurchase, if it was at four guaranteed under in the "Compraventa," should have been exercise within four years from March 21, 1941 (indubitably the date of execution of the contract), or at the latest in 1945. In the respondent court's resolution, it is further ruled that the right to repurchase was given birth by the condition precedent provided for in the phrase "siempre y cuando estos ultimos pueden hacer la compra" (when the buyer has money to buy). In other words, it is the respondent court's contention that the right may be exercised only when the buyer has money to buy. If this were so, the second paragraph of Article 1508 would apply there is agreement as to the time, although it is indefinite, therefore, the right should be exercised within ten years, because the law does not favor suspended ownership. Since the alleged right to repurchase was attempted to be exercised by Vicente Santiago only in 1966, or 25 years from the date of the contract, the said right has undoubtedly expired. WHEREFORE, in view of the foregoing, the Resolution dated September 27, 1983, of the respondent court is SET ASIDE and the Decision promulgated on June 28, 1978 is hereby REINSTATED. The annotations of the prohibition to sell at the back of TCT Nos. 138837, 138838, 138839, 138840, 138841, and 138842 are hereby ordered CANCELLED. Costs against the private respondent. SO ORDERED. Yap (Chairman), Melencio-Herrera and Padilla, JJ., concur. Paras, J., took no part.

FIRST DIVISION

G.R. No. 137172 June 15, 1999 UCPB GENERAL INSURANCE CO., INC., petitioner, vs. MASAGANA TELAMART, INC., respondent.

PARDO, J.: The case is an appeal via certiorari seeking to set aside the decision of the Court of Appeals, affirming with modification that of the Regional Trial Court, Branch 58, Makati, ordering petitioner to pay respondent the sum of P18,645,000.00, as the proceeds of the insurance coverage of respondent's property razed by fire; 25% of the total amount due as attorney's fees and P25,000.00 as litigation expenses, and costs. The facts are undisputed and may be related as follows: On April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various property described therein against fire, for the period from May 22, 1991 to May 22, 1992. In March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of their terms on May 22, 1992. Petitioner advised respondent's broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the policies. On April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies at the address stated in the policies. On June 13, 1992, fire razed respondent's property covered by three of the insurance policies petitioner issued. On July 13, 1992, respondent presented to petitioner's cashier at its head office five (5) manager's checks in the total amount of P225,753.95, representing premium for the renewal of the policies from May 22, 1992 to May 22, 1993. No notice of loss was filed by respondent under the policies prior to July 14, 1992. On July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the insured property razed by fire. On the same day, July 14, 1992, petitioner returned to respondent the five (5) manager's checks that it tendered, and at the same time rejected respondent's claim for the reasons (a) that the policies had expired and were not renewed, and (b) that the fire occurred on June 13, 1992, before respondent's tender of premium payment. On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58, Makati City, a civil complaint against petitioner for recovery of P18,645,000.00, representing the face value of the policies covering respondent's insured 2 property razed by fire, and for attorney's fees. On October 23, 1992, after its motion to dismiss had been denied, petitioner filed an answer to the complaint. It alleged that the complaint "fails to state a cause of action"; that petitioner was not liable to respondent for insurance proceeds under the policies because at the time of the loss of respondent's property due to fire, the policies had long expired and 3 were not renewed. After due trial, on March 10, 1993, the Regional Trial Court, Branch 58, Makati, rendered decision, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant, as follows:
1

(1) Authorizing and allowing the plaintiff to consign/deposit with this Court the sum of P225,753.95 (refused by the defendant) as full payment of the corresponding premiums for the replacement-renewal policies for Exhibits A, B, C, D and E; (2) Declaring plaintiff to have fully complied with its obligation to pay the premium thereby rendering the replacement-renewal policy of Exhibits A, B, C, D and E effective and binding for the duration May 22, 1992 until May 22, 1993; and, ordering defendant to deliver forthwith to plaintiff the said replacementrenewal policies; (3) Declaring Exhibits A & B, in force from August 22, 1991 up to August 23, 1992 and August 9, 1991 to August 9, 1992, respectively; and (4) Ordering the defendant to pay plaintiff the sums of: (a) P18,645,000.00 representing the latter's claim for indemnity under Exhibits A, B & C and/or its replacement-renewal policies; (b) 25% of the total amount due as and for attorney's fees; (c) P25,000.00 as necessary litigation expenses; and, (d) the costs of suit. All other claims and counterclaims asserted by the parties are denied and/or dismissed, including plaintiff's claim for interests. SO ORDERED. Makati, Metro-Manila, March 10, 1993. ZOSIMO Z. ANGELES. Judge. In due time, petitioner appealed to the Court of Appeals.
4

On September 7, 1998, the Court of Appeals promulgated its decision affirming that of the Regional Trial Court with the modification that item No. 3 of the dispositive portion was deleted, and the award of attorney's fees was reduced to 10% of 7 the total amount due. The Court of Appeals held that following previous practise, respondent was allowed a sixty (60) to ninety (90) day credit term for the renewal of its policies, and that the acceptance of the late premium payment suggested an understanding that payment could be made later. Hence, this appeal. By resolution adopted on March 24, 1999, we required respondent to comment on the petition, not to file a motion to 8 9 dismiss within ten (10) days from notice. On April 22, 1999, respondent filed its comment. Respondent submits that the Court of Appeals correctly ruled that no timely notice of non-renewal was sent. The notice of non-renewal sent to broker Zuellig which claimed that it verbally notified the insurance agency but not respondent itself did not suffice. Respondent submits further that the Court of Appeals did not err in finding that there existed a sixty (60) to ninety (90) days credit agreement between UCPB and Masagana, and that, finally, the Supreme Court could not review 10 factual findings of the lower court affirmed by the Court of Appeals. We give due course to the appeal. The basic issue raised is whether the fire insurance policies issued by petitioner to the respondent covering the period May 22, 1991 to May 22, 1992, had expired on the latter date or had been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a later date after the occurrence of the risk (fire) insured against. The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued originally or on renewal, 11 is not valid and binding until actual payment of the premium. Any agreement to the contrary is void. The parties may not

agree expressly or impliedly on the extension of creditor time to pay the premium and consider the policy binding before actual payment. The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, cited by the Court of Appeals, is not applicable. In that case, payment of the premium was in fact actually made on December 24, 1981, and the fire occurred on January 18, 1982. Here, the payment of the premium for renewal of the policies was tendered on July 13, 1992, a month after the fire occurred on June 13, 1992. The assured did not even give the insurer a notice of loss within a reasonable time after occurrence of the fire. WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals in CA-G.R. CV No. 42321. In lieu thereof the Court renders judgment dismissing respondent's complaint and petitioner's counterclaims thereto filed with the Regional Trial Court, Branch 58, Makati City, in Civil Case No. 92-2023. Without costs.1wphi1.nt SO ORDERED. Davide, Jr., C.J., Melo, Kapunan and Ynares-Santiago, JJ., concur. THIRD DIVISION G.R. No. 80774 May 31, 1988 SAN MIGUEL CORPORATION, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and RUSTICO VEGA, respondents. Siguion Reyna, Montecillo & Ongsiako Law Offices for petitioner. The Solicitor General for public respondent.
12

FELICIANO, J.: In line with an Innovation Program sponsored by petitioner San Miguel Corporation ("Corporation;" "SMC") and under which management undertook to grant cash awards to "all SMC employees ... except [ED-HO staff, Division Managers and higher-ranked personnel" who submit to the Corporation Ideas and suggestions found to be beneficial to the Corporation, private respondent Rustico Vega submitted on 23 September 1980 an innovation proposal. Mr. Vega's proposal was entitled "Modified Grande Pasteurization Process," and was supposed to eliminate certain alleged defects in the quality and taste of the product "San Miguel Beer Grande:" Title of Proposal Modified Grande Pasteurization Process Present Condition or Procedure At the early stage of beer grande production, several cases of beer grande full goods were received by MB as returned beer fulls (RBF). The RBF's were found to have sediments and their contents were hazy. These effects are usually caused by underpasteurization time and the pasteurzation units for beer grande were almost similar to those of the steinie. Proposed lnnovation (Attach necessary information) In order to minimize if not elienate underpasteurization of beer grande, reduce the speed of the beer grande pasteurizer thereby, increasing the pasteurization time and the pasteurization acts for grande 1 beer. In this way, the self-life (sic) of beer grande will also be increased.

Mr. Vega at that time had been in the employ of petitioner Corporation for thirteen (1 3) years and was then holding the position of "mechanic in the Bottling Department of the SMC Plant Brewery situated in Tipolo, Mandaue City. Petitioner Corporation, however, did not find the aforequoted proposal acceptable and consequently refused Mr. Vega's 2 subsequent demands for a cash award under the Innovation Program. On 22 February 1983., a Complaint (docketed as Case No. RAB-VII-0170-83) was filed against petitioner Corporation with Regional Arbitration Branch No. VII (Cebu City) of the then.", Ministry of Labor and Employment. Frivate respondent Vega alleged there that his proposal "[had] been accepted by the methods analyst and implemented by the Corporation [in] October 1980," and that the same "ultimately and finally solved the problem of the Corporation in the production of Beer Grande." Private respondent thus claimed entitlement to a cash prize of P60,000.00 (the maximum award per proposal offered under the Innovation Program) and attorney's fees. In an Answer With Counterclaim and Position Paper, petitioner Corporation alleged that private respondent had no cause of action. It denied ever having approved or adopted Mr. Vega's proposal as part of the Corporation's brewing procedure in the production of San Miguel Beer Grande. Among other things, petitioner stated that Mr. Vega's proposal was tumed down by the company "for lack of originality" and that the same, "even if implemented [could not] achieve the desired result." Petitioner further alleged that the Labor Arbiter had no jurisdiction, Mr. Vega having improperly bypassed the grievance machinery procedure prescribed under a then existing collective bargaining agreement between management and employees, and available administrative remedies provided under the rules of the Innovation Program. A counterclaim for moral and exemplary damages, attorney's fees, and litigation expenses closed out petitioner's pleading. In an Order dated 30 April 1986, the Labor Arbiter, noting that the money claim of complainant Vega in this case is "not a necessary incident of his employment" and that said claim is not among those mentioned in Article 217 of the Labor Code, dismissed the complaint for lack of jurisdiction. However, in a gesture of "compassion and to show the government's concern for the workingman," the Labor Arbiter also directed petitioner to pay Mr. Vega the sum of P2,000.00 as "financial assistance." The Labor Arbiter's order was subsequently appealed by both parties, private respondent Vega assailing the dismissal of his complaint for lack of jurisdiction and petitioner Corporation questioning the propriety of the award of "financial assistance" to Mr. Vega. Acting on the appeals, the public respondent National Labor Relations Commission, on 4 5 September 1987, rendered a Decision, the dispositive portion of which reads: WHEREFORE, the appealed Order is hereby set aside and another udgment entered, order the respondent to pay the complainant the amount of P60,000.00 as explained above. SO ORDERED. In the present Petition for certiorari filed on 4 December 1987, petitioner Corporation, invoking Article 217 of the Labor Code, seeks to annul the Decision of public respondent Commission in Case No. RAB-VII-01 70-83 upon the ground that the Labor Arbiter and the Commission have no jurisdiction over the subject matter of the case. The jurisdiction of Labor Arbiters and the National Labor Relations Commission is outlined in Article 217 of the Labor Code, as last amended by Batas Pambansa Blg. 227 which took effect on 1 June 1982: ART. 217. Jurisdiction of Labor Arbiters and the commission . (a) The Labor Arbiters shall have theoriginal and exclusive jurisdiction to hear and decide within thirty (30) working days after submission of the case by the parties for decision, the following cases involving are workers, whether agricultural or nonagricultural: 1. Unfair labor practice cases; 2. Those that workers may file involving wages, hours of work and other terms and conditions of employment; 3. All money claims of workers, including those based on non-payment or underpayment of wages, overtime compensation, separation pay and other benefits provided by law or appropriate agreement, except claims for employees' compensation, social security, medicare and maternity benefits;
4 3

4. Cases involving household services; and 5. Cases arising from any violation of Article 265 of this; Code, including questions involving the legality of strikes and lockouts. (b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters. (Emphasis supplied) While paragraph 3 above refers to "all money claims of workers," it is not necessary to suppose that the entire universe of money claims that might be asserted by workers against their employers has been absorbed into the original and exclusive jurisdiction of Labor Arbiters. In the first place, paragraph 3 should be read not in isolation from but rather within the context formed by paragraph 1 related to unfair labor practices), paragraph 2 (relating to claims concerning terms and conditions of employment), paragraph 4 (claims relating to household services, a particular species of employer-employee relations), and paragraph 5 (relating to certain activities prohibited to employees or to employers). <re||an1w> It is evident that there is a unifying element which runs through paragraphs 1 to 5 and that is, that they all refer to cases or disputes arising out of or in connection with an employer-employee relationship. This is, in other words, a situation where the rule of noscitur a sociis may be usefully invoked in clarifying the scope of paragraph 3, and any other paragraph of Article 217 of the Labor Code, as amended. We reach the above conclusion from an examination of the terms themselves of Article 217, as last amended by B.P. Blg. 227, and even though earlier versions of Article 217 of the Labor Code expressly brought within the jurisdiction of the Labor Arbiters and the NLRC "cases arising from employer employee 6 relations," which clause was not expressly carried over, in printer's ink, in Article 217 as it exists today. For it cannot be presumed that money claims of workers which do not arise out of or in connection with their employer-employee relationship, and which would therefore fall within the general jurisdiction of the regular courts of justice, were intended by the legislative authority to be taken away from the jurisdiction of the courts and lodged with Labor Arbiters on an exclusive basis. The Court, therefore, believes and so holds that the money claims of workers" referred to in paragraph 3 of Article 217 embraces money claims which arise out of or in connection with the employer-employee relationship, or some aspect or incident of such relationship. Put a little differently, that money claims of workers which now fall within the original and exclusive jurisdiction of Labor Arbiters are those money claims which have some reasonable causal connection with the employer-employee relationship. Applying the foregoing reading to the present case, we note that petitioner's Innovation Program is an employee incentive scheme offered and open only to employees of petitioner Corporation, more specifically to employees below the rank of manager. Without the existing employer-employee relationship between the parties here, there would have been no occasion to consider the petitioner's Innovation Program or the submission by Mr. Vega of his proposal concerning beer grande; without that relationship, private respondent Vega's suit against petitioner Corporation would never have arisen. The money claim of private respondent Vega in this case, therefore, arose out of or in connection with his employment relationship with petitioner. The next issue that must logically be confronted is whether the fact that the money claim of private respondent Vega arose out of or in connection with his employment relation" with petitioner Corporation, is enough to bring such money claim within the original and exclusive jurisdiction of Labor Arbiters. In Molave Motor Sales, Inc. v. Laron, the petitioner was a corporation engaged in the sale and repair of motor vehicles, while private respondent was the sales Manager of petitioner. Petitioner had sued private respondent for non-payment of accounts which had arisen from private respondent's own purchases of vehicles and parts, repair jobs on cars personally owned by him, and cash advances from the corporation. At the pre-trial in the lower court, private respondent raised the question of lack of jurisdiction of the court, stating that because petitioner's complaint arose out of the employer-employee relationship, it fell outside the jurisdiction of the court and consequently should be dismissed. Respondent Judge did dismiss the case, holding that the sum of money and damages sued for by the employer arose from the employeremployee relationship and, hence, fell within the jurisdiction of the Labor Arbiter and the NLRC. In reversing the order of dismissal and requiring respondent Judge to take cognizance of the case below, this Court, speaking through Mme. Justice Melencio-Herrera, said: Before the enactment of BP Blg. 227 on June 1, 1982, Labor Arbiters, under paragraph 5 of Article 217 of the Labor Code had jurisdiction over" all other cases arising from employer-employee relation, unless, expressly excluded by this Code." Even then, the principle followed by this Court was that, although a controversy is between an employer and an employee, the Labor Arbiters have no jurisdiction if the Labor Code is not involved. In Medina vs. Castro-Bartolome, 11 SCRA 597, 604, in negating jurisdiction of the Labor Arbiter, although the parties were an employer and two employees, Mr. Justice Abad Santos stated:
7

The pivotal question to Our mind is whether or not the Labor Code has any relevance to the reliefs sought by the plaintiffs. For if the Labor Code has no relevance, any discussion concerning the statutes amending it and whether or not they have retroactive effect is unnecessary. It is obvious from the complaint that the plaintiffs have not alleged any unfair labor practice. Theirs is a simple action for damages for tortious acts allegedly committed by the defendants. Such being the case, the governing statute is the Civil Code and not the Labor Code. It results that the orders under review are based on a wrong premise. And in Singapore Airlines Limited v. Pao, 122 SCRA 671, 677, the following was said: Stated differently, petitioner seeks protection under the civil laws and claims no benefits under the Labor Code. The primary relief sought is for liquidated damages for breach of a contractual obligation. The other items demanded are not labor benefits demanded by workers generally taken cognizance of in labor disputes, such as payment of wages, overtime compensation or separation pay. The items claimed are the natural consequences flowing from breach of an obligation, intrinsically a civil dispute. In the case below, PLAINTIFF had sued for monies loaned to DEFENDANT, the cost of repair jobs made on his personal cars, and for the purchase price of vehicles and parts sold to him. Those accounts have no relevance to the Labor Code. The cause of action was one under the civil laws, and it does not breach any provision of the Labor Code or the contract of employment of DEFENDANT . Hence the civil courts, 8 not the Labor Arbiters and the NLRC should have jurisdiction. It seems worth noting that Medina v. Castro-Bartolome, referred to in the above excerpt, involved a claim for damages by two (2) employees against the employer company and the General Manager thereof, arising from the use of slanderous language on the occasion when the General Manager fired the two (2) employees (the Plant General Manager and the Plant Comptroller). The Court treated the claim for damages as "a simple action for damages for tortious acts" allegedly committed by private respondents, clearly if impliedly suggesting that the claim for damages did not necessarily arise out of or in connection with the employer-employee relationship.Singapore Airlines Limited v. Pao, also cited in Molave, involved a claim for liquidated damages not by a worker but by the employer company, unlike Medina. The important 9 principle that runs through these three (3) cases is that where the claim to the principal relief sought is to be resolved not by reference to the Labor Code or other labor relations statute or a collective bargaining agreement but by the general civil law, the jurisdiction over the dispute belongs to the regular courts of justice and not to the Labor Arbiter and the NLRC. In such situations, resolution of the dispute requires expertise, not in labor management relations nor in wage structures and other terms and conditions of employment, but rather in the application of the general civil law. Clearly, such claims fall outside the area of competence or expertise ordinarily ascribed to Labor Arbiters and the NLRC and the rationale for granting jurisdiction over such claims to these agencies disappears. Applying the foregoing to the instant case, the Court notes that the SMC Innovation Program was essentially an invitation from petitioner Corporation to its employees to submit innovation proposals, and that petitioner Corporation undertook to grant cash awards to employees who accept such invitation and whose innovation suggestions, in the judgment of the 10 Corporation's officials, satisfied the standards and requirements of the Innovation Program and which, therefore, could be translated into some substantial benefit to the Corporation. Such undertaking, though unilateral in origin, could 11 nonetheless ripen into an enforceable contractual (facio ut des) obligation on the part of petitioner Corporation under certain circumstances. Thus, whether or not an enforceable contract, albeit implied arid innominate, had arisen between petitioner Corporation and private respondent Vega in the circumstances of this case, and if so, whether or not it had been breached, are preeminently legal questions, questions not to be resolved by referring to labor legislation and having nothing to do with wages or other terms and conditions of employment, but rather having recourse to our law on contracts. WEREFORE, the Petition for certiorari is GRANTED. The decision dated 4 September 1987 of public respondent National Labor Relations Commission is SET ASIDE and the complaint in Case No. RAB-VII-0170-83 is hereby DISMISSED, without prejudice to the right of private respondent Vega to file a suit before the proper court, if he so desires. No pronouncement as to costs. SO ORDERED. Fernan, Gutierrez, Jr., Bidin and Cortes, JJ., concur.

SECOND DIVISION G.R. No. 95900 July 23, 1992 JULIUS C. OUANO, petitioner, vs. COURT OF APPEALS, MARKET DEVELOPERS, INC., JULIAN O. CHUA, SUPREME MERCHANT CONSTRUCTION SUPPLY, INC., JOHNNY ANG, alias Chua Pek Giok, and FLORENTINO RAFOLS, JR., respondent.

REGALADO, J.: This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No. 12693, promulgated on August 30, 1990, reversing the decision of the Regional Trial Court of Cebu, Branch XI, in Civil Case No. R-20037 wherein judgment had been rendered for petitioner, as well as the resolution of said respondent court, dated October 15, 1 1990, denying petitioner's motion for reconsideration. As found by respondent court, petitioner is the registered owner and operator of the motor vessel known as M/V Don Julio Ouano. On October 8, 1980, petitioner leased the said vessel to respondent Rafols under a charter party. The consideration for the letting and hiring of said vessel was P60,000.00 a month, with P30,000.00 as down payment and the balance of P30,000.00 to be paid within twenty (20) days after actual departure of the vessel from the port of call. It was also expressly stipulated that the charterer should operate the vessel for his own benefit and should not sublet or subcharter to the same without the knowledge and written consent of the owner. On October 11, 1980, Rafols contracted with respondent Market Developers, Inc. (hereafter, MADE) through its group manager, respondent Julian O. Chua, under an agreement denominated as a "Fixture Note" to transport 13,000 bags of cement from Iligan City to General Santos City, consigned to respondent Supreme Merchant Construction Supply, Inc. (SMCSI, for brevity) for a freightage of P46,150.00. Said amount was agreed to be payable to Rafols by MADE in two installments, that is, P23,075.00 upon loading of the cement at Iligan City and the balance of P23,075.00 upon completion of loading and receipt of the cement cargo by the consignee. The fixture note did not have the written consent of petitioner. Rafols had on board the M/V Don Julio Ouano his sobre cargo (jefe de viaje) when it departed from Iligan City until the cargo of cement was unloaded in General Santos City, the port of destination. On October 13, 1980, petitioner wrote a letter to MADE through its aforesaid manager, Chua, "to strongly request, if not demand to hold momentarily any payment or partial payment whatsoever due M/V Don Julio Ouano until Mr. Florentino Rafols makes goods his commitment" to petitioner. On October 20, 1980, MADE, as shipper, paid Rafols the amount of P23,075.00 corresponding to the last installment of the freightage for the aforestated cargo of cement. The entire cargo was thereafter unloaded at General Santos City Port and delivered to the consignee, herein respondent SMCSI, without any attempt on the part of either the captain of M/V Don Julio Ouano or the said sobre cargo of Rafols, or even of petitioner himself who was then in General Santos City Port, to hold and keep in deposit either the whole or part of the cement cargo to answer for freightage. Neither was there any demand made on any of the respondents for a bond to secure payment of the freightage, nor to assert in any manner the maritime lien for unpaid freight over the cargo by giving notice thereof to the consignee SMCI. The cement was sold in due course of trade by SMCI to its customers in October and November, 1980. On January 6, 1981, petitioner filed a complaint in the Regional Trial Court of Cebu against MADE, as shipper; SMC, as consignee; and Rafols, as charterer, seeking payment of P23,000.00 representing the freight charges for the cement cargo, aside from moral and exemplary damages in the sum of P150,000.00, attorney's fees and expenses of litigation. On March 10, 1981, MADE filed its answer, while Ang and Chua filed theirs on February 10 and May 31, 1982, respectively. Rafols was declared in default for failure to file his answer despite due service of summons.

On account of the subsequent dropping and impleading of parties defendant, the complaint underwent several amendments until the case was eventually tried on the third amended complaint, which alleged three causes of action against the aforenamed respondents as answering defendants therein. On May 25, 1985, the trial court rendered a decision in favor of petitioner, with the following disposition: WHEREFORE, premises considered, this Court render(s) judgment 1) under plaintiff's first cause of action, ordering defendant MADE (Market Developers, Inc.), Julian O. Chua, Supreme Merchant Construction Supply, Inc., Johnny Ang otherwise known as Chua Pek Giok and defaulted defendant Florentino Rafols, Jr., jointly and severally, to pay to plaintiff Julius C. Ouano the sum of P23,075.00 corresponding to the first 50% freight installment on plaintiff's vessel "M/V Don Julio Ouano" included as part of the purchase price paid by defendant SMCSI to defendant MADE, plus legal interest from January 6, 1981 date of filing of the original complaint; 2) under the second cause of action, sentencing MADE (Market Developers), Julian O. Chua and Florentino Rafols, Jr., jointly and solidarily, to pay plaintiff P50,000.00 in concept of moral and exemplary damages, and P5,000.00 attorney's fees; and 3) under the third cause of action, sentencing defendant Supreme Merchant Construction Supply, Inc. and Johnny Ang alias Chua Pek Giok, jointly and severally, to pay plaintiff P200,000.00 attorney's fees and expenses of litigation, P4,000.00, including P1,000.00 incurred by plaintiff for travel to General Santos City to coordinate with the plaintiff (sic) in serving an alias summons per sheriff's return of service (Exhibit 'S'), 2 with costs against all the defendants. On appeal, respondent Court of Appeals reversed the aforesaid decision, holding as follows: In the light of the foregoing, appellee Ouano has no cause of action against appellants MADE and SMCSI, but only against defendant Rafols. Their principals not being liable to appellee for the payment of the freightage in question, the agents, appellants Julian O. Chua and Johnny Ang aliasChua Pek Giok who had acted within the scope of their authority, would accordingly not be liable to appellee. For the same reason that the defendants-appellants are not liable to pay the appellee the freightage in question, the award of moral and exemplary damages, attorney 's fees and expenses of litigation in favor of appellee has no factual and legal basis. WHEREFORE, premises considered, the decision appealed from is reversed and set aside with respect to the defendants-appellants who are hereby absolved from the complaint. The decision is affirmed with 3 respect to defendant Florentino Rafols. Petitioner filed a motion for reconsideration which, as already stated, was denied by the Court of Appeals, hence the present petition with the following assignment of errors: 1. The Honorable Court of Appeals erred in not holding respondents MADE and Chua liable for damages to petitioner for quasi-delict under Art. 2176, New Civil Code, let alone for inducement to violate contract under Art. 1314 thereof. 2. The Court of Appeals erred in not holding respondents MADE and Chua liable for all damages which are the natural and probable consequences of their act or omission, the term "all damages" being broad enough to embrace the P150,000.00 moral and exemplary damages claimed by petitioner, as well as P10,000.00 attorney's fees likewise claimed by him (Art. 2202, N.C.C.). 3. The Court of Appeals erred in not holding respondents MADE and Chua liable jointly and solidarily (Art. 2194, N.C.C.) for the foregoing damages and attorney's fee, as well as actual damages of P23,075.00 representing unpaid freight on petitioner's vessel. 4. The Court of Appeals erred in not holding that in contracts and quasi-delicts the defendants shall be liable for all damages which are the natural and probable consequences of the act or omission complained of, more so if attended with fraud, bad faith, malice or wanton attitude (Arts. 2201 and 2202, N.C.C.). 5. The Court of Appeals erred in not holding, in accord with the settled doctrine in Overseas Factors, Inc. vs.South Sea Shipping, 4 SCRA 401, that where freight is included in the purchase price, the carrier's lien exists if freight was not paid, hence, the continued liability of respondents MADE and Chua and respondents Supreme Merchant Construction Supply, 5 Inc. and Chua Pek Giok.
4

We find no merit in this petition. Preliminarily, the thesis of petitioner that the aforestated fixture note executed by Rafols and MADE was in derogation of the prohibition against the subletting or sub-chartering of the vessel has been duly confuted by respondent court. It pointed out that Rafols did not, by entering into said contract of transportation of the cement cargo, thereby sublease the vessel. The possession, operation, and management of the vessel was not transferred to MADE but remained with Rafols as the lessee or charterer. Rafols, as such lessee, was the one who bound himself to transport, as he did transport, the 6 cargo of cement for a fixed price. On the other hand, even indulging petitioner in his argument that there was a sublease or sub-charter by reason of that one particular cargo of MADE, still no right of recovery exists in his favor against any of the private respondents, except respondent Rafols, as we shall hereunder demonstrate. It is a basic principle in civil law that, with certain exceptions not obtaining in this case, a contract can only bind the parties who had entered into it or their successors who assumed their personalities or their juridical positions, and that, as a 7 consequence, such contract can neither favor nor prejudice a third person. It is undisputed that the charter contract was entered into only by and between petitioner and respondent Rafols, and the other private respondents were neither parties thereto nor were they aware of the provisions thereof. The aforesaid allegations of petitioner that Rafols violated the prohibition in the contract against the sublease or sub-charter of the vessel without his knowledge and written consent, even if true, does not give rise to a cause of action against the supposed sublease or sub-charterer. The act of the charterer in sub-chartering the vessel, in spite of a categorical prohibition may be a violation of the contract, but the owner's right of recourse is against the original charterer, either for rescission or fulfillment, with the payment of damages in either case. 8 The obligation of contracts is limited to the parties making them and, ordinarily, only those who are parties to contracts are liable for their breach. Parties to a contract cannot thereby impose any liability on one who, under its terms, is a stranger to the contract, and, in any event, in order to bind a third person contractually, an expression of assent by such person is 9 necessary. We likewise reject the contention of petitioner that MADE and Chua should be held liable for damages for a quasi-delict under Article 2176 of the Civil Code for having failed to obtain his consent before entering into an agreement with Rafols, and under Article 1314 of the same Code for inducing Rafols to violate the charter party. The obligation to obtain the written consent of petitioner before subleasing or sub-chartering the vessel was on Rafols and not on MADE, hence the latter cannot be held liable for the supposed non-compliance therewith. Moreover, we cannot conceive of how MADE and Chua could be guilty of inducing Rafols to violate the original charter party. Firstly, there is no evidence on record to show that said respondents had knowledge of the prohibition imposed in the original charter party to sublease or sub-charter the vessel. Secondly, at the time the fixture note was entered into between Rafols and MADE, a written authorization signed by the wife of petitioner in his behalf, authorizing Rafols to 10 execute contracts, negotiate for cargoes and receive freight payments, was shown by the former to the latter. Although the said authorization may have been made by the wife, the same, however, can evidently be proof of good faith on the part of MADE and Chua who merely relied thereon. Thirdly, as stated in the fixture note, the agreement between Rafols and MADE was for the former to transport the cement of the latter using either the "M/V Don Julio Ouano or substitute 11 vessel at his discretion." Hence, the decision to use the M/V Don Julio Ouano in transporting the cargo of MADE was solely that of Rafols. Also, herein petitioner is deemed to have ratified the supposed sub-charter contract entered into by MADE and Rafols when he demanded the payment of the second freight installment as provided in the agreement and, later, received the same by virtue of the decision of the Court of First Instance of Cebu in Civil Case No. R-19845, an interpleader case filed 12 by MADE. Contrary to petitioner's contestation, the act of MADE in paying the first freight installment to Rafols is not an indication of bad faith or malice. Article 1240 of the Civil Code provides that "(p)ayment 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." Consequently, MADE, under the fixture note, was under obligation to pay the freight to Rafols. Now, even on petitioner's theory that there was a sublease, it must be stressed that in a sublease arrangement, the basic principles of which are applicable in the present case, there are two distinct leases involved, that is, the principal lease and the sublease. There are two juridical relationships which co-exist and are intimately related to each other, but which are nonetheless distinct one from the other. In such arrangement, the personality of the lessee qua lessee does not disappear; his rights and obligations vis-a-vis the lessor are not passed on to nor acquired by the sublessee. The lessor

is, in the main and except only in the instances specified in the Civil Code, a stranger to the relationship between the lessee-sublessor and the sublessee. The lessee-sublessor is not an agent of the lessor nor is the lessor an agent of the lessee-sublessor. The sublessee has no right or authority to pay the sublease rentals to the lessor, said rentals being due 13 and payable to the lessee-sublessor. MADE was, therefore, under no obligation to pay petitioner since the freightage was payable to Rafols. Although it is provided in Article 1652 of the Civil Code that the sublessee is subsidiarily liable to the lessor for any rent due from the lessee, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. However, in the case at bar, petitioner made no demand for payment from MADE. His letter dated October 13, 1980 was only a request to hold momentarily any payment due for the use of M/V Don Julio Ouano until respondent Rafols had made good his obligations to him. In the absence of any positive action on the part of petitioner, MADE could not withhold the payment of the freight to Rafols. As stated in the fixture note, the first freight installment was due and payable upon arrival of the assigned vessel at 14 the port of loading. The goods were loaded in the vessel on or before October 9, 1980, hence on that date the first freight installment was already due and demandable. To further withhold the payment of said installment would constitute a breach of MADE's obligation under the foregoing contract. In addition, it is also worth noting that, as alleged in paragraph 6 of petitioner's basic complaint filed in the court below, payments were actually made after October 13, 1980 by Rafols to petitioner, to wit: (a) two checks in the total amount of P30,000.00 dated October 13 and 21, 1980, respectively; and (b) a third postdated check for P32,000.00 issued on 15 November 9, 1980. The fact that the said checks bounced for insufficient funds cannot in any way be ascribable to MADE nor can it create or affect any liability which petitioner seeks to impute to respondents MADE, SMCSI and their agents. Anent the issue on maritime lien on the cargo, it is the theory of petitioner that the first freight installment having remained unpaid to him as owner of M/V Don Julio Ouano, the maritime lien on the cargo subsists. The said contention is specious and untenable. Herein petitioner, as owner of the vessel, has no lien on the cargo. A charter party may, among other classifications, be of two kinds: One is where the owner agrees to carry a cargo which the charterer agrees to provide, and the second is where there is an entire surrender by the owner of the vessel to the charterer, who hires the vessel as one hires a house, takes her empty, and provides the officers and provisions, and, in short, the entire outfit. In such a contract, the charterer 16 is substituted in place of the owner and becomes the owner for the voyage. This second type is also known as a 17 bareboat charter or otherwise referred to as a demise of the vessel. In a charter party of the second kind, not only the entire capacity of the ship is let but the ship itself, and the possession is passed to the charterer. The entire control and management of it is given up to him. The general owner loses his lien for freight, but the lien itself is not destroyed; the charterer is substituted in his place, in whose favor the lien continues to exist when goods are taken on freight. The general owner, however, has no remedy for the charter of his vessel but his personal action on the covenants of the charter party. It is a contract in which he trusts in the personal credit of the 18 charterer. Therefore, where the charter constitutes a demise of the ship and the charterer is the owner for the voyage, and that is the kind of charter party involved in the instant case, the general owner has no lien on the cargo for the hire of the vessel, in 19 the absence of an express provision therefor as in the case at bar. Moreover, even on the assumption that petitioner had a lien on the cargo for unpaid freight, the same was deemed waived when the goods were unconditionally released to the consignee at the port of destination. A carrier has such a lien only while it retains possession of the goods, so that delivery of the goods to the consignee or a third person terminates, or 20 constitutes a waiver of, the lien. The lien of a carrier for the payment of freight charges is nothing more than the right to 21 withhold the goods, and is inseparably associated with its possession and dependent upon it. The shipowner's lien for freight is not in the nature of a hypothecation which will remain a charge upon the goods after he has parted with possession, but is simply the right to retain them until the freight is paid, and is therefore lost by an 22 unconditional delivery of the goods to the consignee. Furthermore, under Article 667 of the Code of Commerce, the period during which the lien shall subsist is twenty (20) days. Parenthetically, this has been modified by the Civil Code, Article 2241 whereof provides that credits for transportation of the goods carried, for the price of the contract and incidental expenses shall constitute a preferred claim

or lien on the goods carried until their delivery and for thirty (30) days thereafter. During this period, the sale of the goods may be requested, even though there are other creditors and even if the shipper or consignee is insolvent. But, this right may not be made use of where the goods have been delivered and were turned over to a third person without malice on the part of the third person and for a valuable consideration. In the present case, the cargo of cement was unloaded from the vessel and delivered to the consignee on October 23, 1980, without any oral or written notice or demand having been made on SMCSI for unpaid freight on the cargo. Consequently, after the lapse of thirty (30) days from the date of delivery, the cargo of cement had been released from any maritime lien for unpaid freight. Petitioner's invocation of Overseas Factors, Inc., et al. v. South Sea Shipping Co., et al., therefore, is ineffectual and unavailing. In said case, the cargo was still in the possession of the carrier whose officers and crew refused to unload the same unless the balance of the freight was paid. In this case before us, the cargo had already been unconditionally delivered to the consignee SMCI without protest. WHEREFORE, the petition is DENIED and the assailed judgment of respondent Court of Appeals is hereby AFFIRMED. SO ORDERED. Narvasa, C.J., Padilla and Nocon, JJ., concur. SECOND DIVISION
23

[G.R. No. 129039. September 17, 2002]

SIREDY ENTERPRISES, INC. petitioner, GUZMAN, respondents.

vs.

HON.

COURT

OF

APPEALS

and

CONRADO

DE

DECISION QUISUMBING, J.: Before us is a petition for review seeking to annul the decision dated April 26, 1996 of the Court of Appeals in CA[2] G.R. CV No. 30374, reversing the decision of the Regional Trial Court of Malolos, Bulacan, and the resolution dated April 22, 1997, denying petitioners m otion for reconsideration. The following are the facts as found by the Court of Appeals,
[3] [1]

undisputed by the parties and adopted by petitioner:

[4]

Private respondent Conrado De Guzman is an architect-contractor doing business under the name and style of Jigscon Construction. Herein petitioner Siredy Enterprises, Inc. (hereafter Siredy) is the owner and developer of Ysmael [5] [6] Village, a subdivision in Sta. Cruz, Marilao, Bulacan. The president of Siredy is Ismael E. Yanga. As stated in its Articles of Incorporation, the primary corporate purpose of Siredy is to acquire lands, subdivide and develop them, erect buildings and houses thereon, and sell, lease or otherwise dispose of said properties to interested [8] buyers. Sometime before October 1978, Yanga executed an undated Letter of Authority, KNOW ALL MEN BY THESE PRESENTS: That I, DR. ISMAEL E. YANGA, SR., of legal age, Filipino, married, resident of and with Postal address at Poblacion, Bocaue, Bulacan and duly authorized to execute this LETTER OF AUTHORITY, do hereby authorize MR. HERMOGENES B. SANTOS of legal age, Filipino, married, resident of and with Postal Address at 955 Banawe St., Quezon City to do and execute all or any of the following acts: 1. To negotiate and enter into contract or contracts to build Housing Units on our subdivision lots in Ysmael Village, Sta. Rosa, Marilao, Bulacan. However, all proceeds from said contract or contracts shall be deposited in my name, payments of all obligation in connection with the said contract or contracts should be made and the remainder will be paid to MR. HERMOGENES B. SANTOS.
[9] [7]

hereunder reproduced verbatim:

2. To sell lots on our subdivisions and; 3. To represent us, intercede and agree for or make agreements for all payments in our favor, provided that actual receipts thereof shall be made by the undersigned. (SGD) DR. ISMAEL E. YANGA, SR. For myself and in my capacity as President of SIREDY ENTERPRISE, INCORPORATED PRINCIPAL On October 15, 1978, Santos entered into a Deed of Agreement with De Guzman. The deed expressly stated that Santos was representing Siredy Enterprises, Inc. Private respondent was referred to as contractor while petitioner Siredy was cited as principal. In said Deed of Agreement we find the following stipulations: 1.) That, the PRINCIPAL has contracts with different SSS members employed with different domestic entities to build for them 2-bedroom single housing units and 4-bedroom duplex housing units; 2.) That, the site of the said housing project is at YSMAEL VILLAGE, Bo. Sta. Rosa, Marilao, Bulacan owned and developed by SIREDY ENTERPRISES and Mr. Ismael E. Yanga, Sr.; 3.) That, the PRINCIPAL has contracted to build the said units at the amount of FORTY FIVE THOUSAND (P45,000.00) PESOS for the 2-bedroom single and SIXTY NINE THOUSAND (P69,000.00) PESOS, Philippine Currency for the duplex residences; 4.) That, the CONTRACTOR intends to build for the PRINCIPAL eighty (80) units singles and eighteen (18) units duplex residences at the cost above mentioned or a lump sum total of FOUR MILLION, EIGHT HUNDRED FORTY TWO THOUSAND (P4,842,000.00) PESOS, Philippine Currency; 5.) That, the CONTRACTOR agrees to supply all Construction Materials, labor, tools and equipments necessary for the completion of the said housing units; 6.) That, the PRINCIPAL agrees to pay all necessary permits and papers in accordance with Government rules and regulations; 7.) That, the PRINCIPAL agrees to supply water and electrical facilities needed during the time of construction; 8.) That, the manner of payment shall be in accordance with SSS releases. Should the SSS fail to pay the PRINCIPAL, the PRINCIPAL is still in obligation to pay the CONTRACTOR for whatever accomplishments the CONTRACTOR have finished provided, that the failure of the SSS to pay is not due to defective work of the CONTRACTOR; 9.) That, the CONTRACTOR promises to finish the project at the rate of TEN (10) units in THIRTY (30) days or a total of THREE HUNDRED (300) working days; 10.) That, the integral part of this CONTRACT are: a. Plans and Specifications b. Subdivision Plan indicating the Lot location of each unit c. Authority of the National Housing Authority; 11.) That, the CONTRACTOR agree[s] to start work on the housing units CONTRACT. thirty (30) days after signing of this
[10]

NOW THEREFORE, for and in consideration of the amount of FOUR MILLION, EIGHT HUNDRED FORTY TWO THOUSAND (P4,842,000.00) PESOS, Philippine Currency, the PARTIES agree and herein set their hands on the date and place above-mentioned. xxx From October 1978 to April 1990, De Guzman constructed 26 residential units at Ysmael Village. Thirteen (13) of these were fully paid but the other 13 remained unpaid. The total contractual price of these 13 unpaid houses is [11] P412,154.93 which was verified and confirmed to be correct by Santos, per an Accomplishment Billing that the latter signed.

De Guzman tried but failed to collect the unpaid account from petitioner. Thus, he instituted the action below for specific performance against Siredy, Yanga, and Santos who all denied liability. During the trial, Santos disappeared and his whereabouts remain unknown. In its defense, petitioner presented testimonial evidence to the effect that Siredy had no contract with De Guzman and had not authorized Santos to enter into a contract with anyone for the construction of housing units at Ysmael Village. The trial court agreed with petitioner based on the doctrine of privity of contract and gave the following rationale:
[12]

The Deed of Agreement (Exh. A and A-1) clearly reflects that the said contract was entered into by and between plaintiff De Guzman, on one hand, and defendant Hermogenes B. Santos as purported authorized representative of defendant Siredy Enterprises, on the other. Plainly and clearly enough, defendants Siredy Enterprises and Ismael Yanga, Sr. were neither parties nor signatories to the same. It does not bear any legal significance that Dr. Yanga appears to have signed the Letter of Authority (Exh. B) designating defendant Santos as the authorized representative for myself and as president of the Siredy Enterprises, Inc. For the evide ntiary fact remains that Siredy Enterprises and Dr. Yanga had absolutely had nothing to do with the fulfillment of the terms and conditions stipulated in the Deed of Agreement, much less had they benefited in any perceptible degree therefrom. In the light of the foregoing circumstances, Siredy Enterprises and Dr. Yanga cannot be held liable in favor of the plaintiff in any manner whatsoever respecting the unpaid residential units constructed by the plaintiff. This is as it should be, because contracts take effect only between the parties, their assigns and heirs, except only in the cases provided for by [13] law. (Art. 1311, Civil Code of the Philippines). Not one of the exceptions obtains in this case. Thus, the trial court disposed of the case as follows: WHEREFORE, premises considered, judgment is hereby rendered: a) directing defendant Hermogenes B. Santos to pay unto plaintiff Conrado de Guzman the amount of P412,154.93 as actual damages with legal interest thereon from the filing of the complaint on July 29, 1982 until the same shall have been fully paid, and P25,000.00 as attorneys fees, plus costs; b) dismissing the above-entitled case as against defendants Siredy Enterprises, Inc. and Dr. Ismael Yanga, Sr. SO ORDERED.
[14]

On appeal, De Guzman obtained a favorable judgment from the Court of Appeals. The appellate court held that the [15] Letter of Authority duly signed by Yanga clearly constituted Santos as Siredys agent, whose authority included entering into a contract for the building of housing units at Ysmael Village. Consequently, Siredy cannot deny liability for the Deed of Agreement with private respondent De Guzman, since the same contract was entered into by Siredys duly designated agent, Santos. There was no need for Yanga himself to be a signatory to the contract, for him and Siredy to be bound by the terms thereof. Hence, the Court of Appeals held: WHEREFORE, We find merit in the appeal and We hereby REVERSE the appealed Decision. In its stead, we render the following verdict: Appellee Siredy Enterprises. Inc. is ordered to pay appellant Conrado de Guzman cost (sic) and P412,154.93 as actual damage plus legal interest thereon from the filing of the Complaint on July 29, 1982 until full payment thereof. All other claims and counterclaims are dismissed. SO ORDERED.
[16]

Petitioner Siredy Enterprises, Inc. now comes to us via a petition for review on certiorari Rules of Court, on the following grounds:

[17]

under Rule 45 of the

I. RESPONDENT COURT ERRED IN HOLDING THAT A VALID AGENCY WAS CONSTITUTED DESPITE THE FACT THAT PETITIONER WAS NOT INVOLVED IN THE CONSTRUCTION BUSINESS; II. RESPONDENT COURT ERRED IN FAILING TO CONSIDER A VITAL PROVISION IN THE DEED OF AGREEMENT (PAR. 8), WHEN IT RENDERED ITS DECISION; and III. RESPONDENT COURT ERRED IN FAILING TO CONSIDER THAT PRIVATE RESPONDENT WAS [18] NOT ENTITLED TO HIS CLAIM AS HE WAS THE PARTY WHO VIOLATED THE CONTRACT.

We find two main issues presented for resolution: First, whether or not Hermogenes B. Santos was a duly constituted agent of Siredy, with authority to enter into contracts for the construction of residential units in Ysmael Village and thus the capacity to bind Siredy to the Deed of Agreement; and Second, assuming arguendo that Siredy was bound by the acts of Santos, whether or not under the terms of the Deed of Agreement, Siredy can be held liable for the amount sought to be collected by private respondent De Guzman. By the relationship of agency, one party called the principal authorizes another called the agent to act for and in his behalf in transactions with third persons. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. He who acts through another acts [19] himself. Was Santos then an agent of Siredy? Was he acting within the scope of his authority? Resolution of the first issue necessitates a review of the Letter of Authority executed by Ismael E. Yanga as president of Siredy in favor of Santos. Within its terms can be found the nature and extent of the authority granted to Santos which, in turn, determines the extent of Siredys participation in the Deed of Agreement. On its face, the instrument executed by Yanga clearly and unequivocally constitut ed Santos to do and execute, among other things, the act of negotiating and entering into contract or contracts to build Housing Units on our [20] subdivision lots in Ysmael Village, Sta. Rosa, Marilao, Bulacan. Nothing could be more express than the written stipulations contained therein. It was upon the authority of this document that De Guzman transacted business with Santos that resulted in the construction contract denominated as the Deed of Agreement. However, petitioner denies any liability by stating that: (1) the nature of Siredys business did not involve the construction of housing units since it was merely engaged in the selling of empty lots; (2) the Letter of Authority is defective, and hence needed reformation; (3) Santos entering into the Deed of Agreement was invalid because the same was in excess of his authority; and (4) there is now implied revocation of such Letter of Authority. Testifying on the nature of the business and the business practices of Siredy, its owner Yanga testified that Siredy was interested only in the sale of lots. It was up to the buyers, as owners, to construct their houses in the particular style they prefer. It was allegedly never the practice of the company to sell lots with houses already erected thereon. On the basis of the foregoing testimony, petitioner states that despi te the letter of authority, it is quite certain that such provision would go against the nature of the business of Siredy as the same has absolutely no capability of undertaking such a task as constructing houses. However, the self-serving contention of petitioner cannot stand against the documentary evidence clearly showing [22] the companys liability to De Guzman. As we stated in the case of Cuizon vs. Court of Appeals: As it is, the mere denial of petitioner cannot outweigh the strength of the documentary evidence presented by and the positive testimony of private respondents. As a jurist once said, I would sooner trust the smallest slip of paper for truth [23] than the strongest and most retentive memory ever bestowed on moral man. Aside from the Letter of Authority, Siredys Articles of Incorporation, duly approved by the Securities and Exchange Commission, shows that Siredy may also undertake to erect buildings and houses on the lots and sell, lease, or otherwise [24] dispose of said properties to interested buyers. Such Articles, coupled with the Letter of Authority, is sufficient to have given De Guzman reason to believe that Santos was duly authorized to represent Siredy for the purpose stated in the Deed of Agreement. Petitioners theory that it merely sold lots is effectively debunked. Thus, it was error for the trial court to have ignored the Letter of Authority. As correctly held by the Court of Appeals: There is absolutely no question that the Letter of Authority (Exhibit B) executed by appellee Yanga constituted defendant Santos as his and appellee Siredys agent. As agent, he was empowered inter alia to enter into a contract to build housing units in the Ysmael Village. This was in furtherance of appellees business of de veloping and subdividing lands, erecting houses thereon, and selling them to the public. xxx
[25] [21]

We find that a valid agency was created between Siredy and Santos, and the authority conferred upon the latter includes the power to enter into a construction contract to build houses such as the Deed of Agreement between Santos and De Guzmans Jigscon Construction. Hence, the inescapable conclusion is that Siredy is bound by the contract through the representation of its agent Santos.

The basis of agency is representation, that is, the agent acts for and in behalf of the principal on matters within the scope of his authority (Art, 1881) and said acts have the same legal effect as if they were personally done by the principal. By this legal fiction of representation, the actual or legal absence of the principal is converted into his legal or juridical [26] presence. Moreover, even if arguendo Santos mandate was only to sell subdivision lots as Siredy asserts, the latter is still bound to pay De Guzman. De Guzman is considered a third party to the agency agreement who had no knowledge of the specific instructions or agreements between Siredy and its agent. What De Guzman only saw was the written Letter of Authority where Santos appears to be duly authorized. Article 1900 of the Civil Code provides: Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the agents authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceed ed the limits of his authority according to an understanding between the principal and the agent. The scope of the agents authority is what appears in the written terms of the power of attorney. While third persons are bound to inquire into the extent or scope of the agents authority, they are n ot required to go beyond the terms of the written power of attorney. Third persons cannot be adversely affected by an understanding between the principal and his agent as to the limits of the latters authority. In the same way, third persons need not conc ern themselves with instructions given by the principal to his agent outside of the written power of attorney. The essence of agency being the representation of another, it is evident that the obligations contracted are for and on behalf of the principal. This is what gives rise to the juridical relation. A consequence of this representation is the liability of the principal for the acts of his agent performed within the limits of his authority that is equivalent to the [27] performance by the principal himself who should answer therefor. Petitioner belatedly asserts, however, that the Letter of Authority was defective as it allegedly failed to reduce into writing the real intentions of the parties, and insists on its reformation. Such an argument deserves scant consideration. As found by the Court of Appeals, being a doctor of medicine and a businessman, Yanga knew the meaning and import of this document and had in fact admitted having signed it. As aptly observed by the Court of Appeals, there is no evidence that ante litem, he abrogated the Letter of Authority and withdrew the power conferred on Santos. Siredys contention that the present case is in effect a revoca tion of the Letter of Authority also deserves scant consideration. This is a patently erroneous claim considering that it was, in fact, private respondent De Guzman who instituted the civil case before the RTC. With regard to the second issue put forth by petitioner, this Court notes that this issue is being raised for the first time on appeal. From the trial in the RTC to the appeal before the Court of Appeals, the alleged violation of the Deed of Agreement by Conrado de Guzman was never put in issue. Heretofore, the substance of petitioners defense before the courts a quo consisted of its denial of any liability under the Deed of Agreement. As we held in the case of Safic Alcan & Cie vs. Imperial Vegetable Oil Co., Inc.:
[28]

It must be borne in mind that a question that was never raised in the courts below cannot be allowed to be raised for the first time on appeal without offending basic rules of fair play, justice and due process. Such an issue was not brought to the fore either in the trial court or the appellate court, and would have been disregarded by the latter tribunal for the [29] reasons previously stated. With more reason, the same does not deserve consideration by this Court. WHEREFORE, this petition is DENIED for lack of merit. The Decision of the Court of Appeals dated April 26, 1996, in CA-G.R. CV No. 30374, is hereby AFFIRMED. Petitioner Siredy Enterprises, Inc. is ordered to pay Conrado de Guzman actual damages in the amount of P412,154.93, with legal interest thereon from the time the case was filed until its full payment. Costs against petitioner. SO ORDERED. Bellosillo, (Chairman), Mendoza, Austria-Martinez, and Callejo, Sr., JJ., concur.

SECOND DIVISION G.R. No. 75287 June 30, 1987 HOUSE INTERNATIONAL BUILDING TENANTS ASSOCIATION, INC., petitioner-plaintiff, vs. INTERMEDIATE APPELLATE COURT, CENTERTOWN MARKETING CORP., MANILA TOWERS DEVELOPMENT CORP., AND THE GOVERNMENT SERVICE INSURANCE SYSTEM, respondents-defendants.

CORTES, J.: Petitioner House International Building Tenants Association, Inc. (ASSOCIATION, for short) is a domestic non-stock, nonprofit civic corporation, whose incorporators, directors and members constitute the great majority of more than a hundred heads of families who are tenants of long and good standing of the 14-storey House International Building located at 777 Ongpin Street, Binondo, Manila. The land and the improvements thereon were formerly owned by Atty. Felipe Ang who mortgaged the same to the Government Service Insurance System (hereinafter referred to as GSIS) to secure payment of an obligation. After foreclosure of the mortgage and for failure of Ang to exercise his right of redemption over the foreclosed property, the ownership thereof was consolidated with the GSIS which subsequently sold it to Centertown Marketing Corporation (CENTERTOWN, for short) in a deed of conditional sale, without notice to the tenants of the building and without securing the prior clearance of the then Ministry of Human Settlements. As CENTERTOWN was not authorized by its Articles of Incorporation to engage in the real estate business, it organized a sister corporation, with almost an the same incorporators and stockholders, as CENTERTOWN'S, under the corporate name of Manila Towers Development Corporation (TOWERS, for short) for the primary purpose of engaging in the real estate business. Subsequently, CENTERTOWN assigned to its sister corporation TOWERS all its rights and obligations under the Deed of Conditional Sale, with the consent and approval of the GSIS. Thereafter, herein petitioner filed a complaint with the Regional Trial Court of Manila against CENTERTOWN, TOWERS and GSIS for annulment of the deed of conditional sale and the subsequent assignment thereof by CENTERTOWN to TOWERS. The complaint alleged in part that the Deed of Conditional Sale is null and void ab initio for being ultra vires, since defendant CENTERTOWN is not qualified to acquire real estate property or to engage in real estate transactions. The court a quo * dismissed the complaint. Petitioner appealed to the Court of Appeals after its motion for reconsideration was denied by the trial court. The order of dismissal was affirmed by the appellate court in a decision dated 4 February 1986 in AC-GR CV No. 02691. ** Petitioner filed a motion for reconsideration, which was denied in a resolution dated 26 June 1986. Hence, this petition for review on certiorari. The main issues raised in the petition are: (1) whether petitioner has the personality to sue, on its own, as a corporation representing its members who are tenants of the House International Building, and (2) whether petitioner has a cause of action against respondents GSIS, CENTERTOWN and TOWERS. Section 2, Rule 3 of the Rules of Court provides: Sec. 2. Parties in interest. Every action must be prosecuted and defended in the name of the real party in interest. All persons having an interest in the subject of the action and in obtaining the relief amended shall be joined as plaintiffs. The real party in interest is the party who stands to be benefited or injured by the judgment or the party entitled to the avails of the suit. " Interest" within the meaning of the rule means material interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in the question involved, or a mere incidental interest. Consequently, a person who is not a party to a contract and for whose benefit it was not expressly made cannot maintain an action thereon, notwithstanding that the contract, if performed by the parties to it, would incidentally inure to his benefit. (Francisco, the Revised Rules of Court in the Phil., Vol., 1, p. 126). In the present case, the real parties in interest are the tenants of the House International Building and not the petitioner ASSOCIATION, which has a personality separate and distinct from that of its members and therefore it has the capacity to

sue and be sued although it is composed of the tenants. Petitioner has not shown any real, actual, material, or substantial interest in the subject matter of the action. In this connection, the Court of Appeals properly observed: Appellant has sued in its name, but has not alleged any right belonging to it that was violated or any wrong that was committed. The reason is obvious, the benefits are not really meant for appellant but for the unnamed great majority" of its members who have allegedly been tenants of' long standing of the building in question. (Decision of Court of Appeals, p. 2). And, quoting from the Brief for the respondent-defendant GSIS, the Court of Appeals further said: Assuming arguendo, that the tenants have the alleged right, such rights of the tenants are personal and individual rights which can only be claimed by the tenants who must necessarily be the indispensable and real parties in interest and certainly not the plaintiff-appellant organization. (Ibid, p.2.) With regard to the second main issue, the petitioner asserts that the Court of Appeals erred in ignoring the provisions of Art. 1409 of the Civil Code on void or inexistent contracts, the contract at bar being void, inexistent, and absolutely wanting in civil effects because "its consideration is illicit and/or the object violates some mandatory provisions of the laws." Cited to support this assertion are provisions of the 1973 constitution on eminent domain (Art. IV, sec. 2, also Art. XIV, sec. 3) agrarian reform (Art. XIV, sec. 12) and the Declaration of Principles and State Policies particularly those emphasizing the "stewardship concept, under which property is supposed to be held by the individual only as trustee for the people in general, who are its real owners." (Art. II, secs. 6 and 7). As bases for a declaration that the conditional sale between GSIS and CENTERTOWN is null and void for being contrary to law or public policy, the constitutional provisions are inapposite. Not one of those provisions render unlawful the contract in question. Except for the prohibition against the taking of private property for public use without just compensation, the other provisions require implementing legislation to confer a legal right and impose a legal duty which can be judicially invoked. P.D. No. 1517 which confers a preferential right to tenants of long standing to acquire leased land on which they have constructed their houses. This has no application to the present case where the property involved is land and building belonging to the lessor. The petitioners likewise invoke our ruling in Mataas na Lupa Tenants Association Inc. et al. vs. Dimayuga, et. al.(G.R. L32049, June 25, 1984, 130 SCRA 30) where we upheld the petitioners right of first refusal over land they had leased and occupied for more than ten (10) years and on which they had constructed their houses, a right given them under P.D. No. 1517 (and Proclamation No. 1967 of May 14, 1980). For two reasons this case gives the petitioners' case no support. In Mataas na Lupa the members of the ASSOCIATION were also plaintiffs in their individual capacity. This is not so in the present case. Furthermore, it is not the first time this issue has come before Us. In the case of Santos vs. Court of Appeals, G.R. L-60210, March 27,1984, 128 SCRA 428. We laid down the following doctrine. P.D. 1517 in referring to the pre-emptive or redemptive right of a lessee speaks only of urban land under lease on which a tenant has built a home and on which he has resided for ten years or more. If both the land and the building belong to the lessor, the right referred to hereinabove does not apply. The main thrust of the petitioner's challenge on the validity of the conditional sale is that the contract is ultra viresbecause the respondent CENTERTOWN is not qualified to acquire properties under its Articles of Incorporation. The petitioner has confused a void contract with an ultra vires contract which is merely voidable. We agree with the Court of Appeals that on this issue the provision of Art. 1397 of the Civil Code is in point, thus: Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. Petitioner is neither a party nor a privy to the Deed of Conditional Sale and the assignment thereof: thus, it cannot assail the validity of the said contracts. In Ibaez vs. Hongkong and Shanghai Bank, we said:

From these legal provisions it is deduced that it is the interest had in a given contract, that is the determining reason of the right which lies in favor of the party obligated principally or subsidiarily to enable him to bring an action for the nullity of the contract in which he intervened, and, therefore, he who has no right in a contract is not entitled to prosecute an action for nullity, for, according to the precedents established by the courts, the person who is not a party to a contract, nor has any cause of action or representation from those who intervened therein, is manifestly without right of action and personality such as to enable him to assail the validity of the contract. (Decisions of the supreme court of Spain, of April 18, 1901, and November 23, 1903, pronounced in cases requiring an application of the preinserted article 1302 of the Civil Code.) (22 Phil. 572; 584). In the decision sought to be reviewed We agree with the Court of Appeals that: The corollary issue is whether appellant has the personality to assail the validity of the conditional sale and its assignment. The answer is partly supplied by the above discussion: further arguments against the appellant are the provisions of the Civil Code which say that contracts take effect only between parties (Art. 131 1) hence the action for their annulment may be instituted only by those who are thereby obliged principally or subsidiarily (Art. 1397). Appellant is not privy to either the deed of conditional sale or the assignment. (Decision of Court of Appeals, p. 3). WHEREFORE, the petition is DENIED, with costs against the petitioner. SO ORDERED. Fernan (Chairman), Gutierrez, Jr., Paras and Padilla, JJ., concur. Bidin. J., took no part. FIRST DIVISION

[G.R. No. 123793. June 29, 1998]

ASSOCIATED BANK, petitioner, vs. COURT OF APPEALS and LORENZO SARMIENTO JR., respondents. DECISION PANGANIBAN, J.: In a merger, does the surviving corporation have a right to enforce a contract entered into by the absorbed company subsequent to the date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange Commission?

The Case This is a petition for review under Rule 45 of the Rules of Court seeking to set aside the Decision of the Court of [2] Appeals in CA-GR CV No. 26465 promulgated on January 30, 1996, which answered the above question in the [3] negative. The challenged Decision reversed and set aside the October 17, 1986 Decision in Civil Case No. 85-32243, promulgated by the Regional Trial Court of Manila, Branch 48, which disposed of the controversy in favor of herein [4] petitioner as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiff Associated Bank. The defendant Lorenzo Sarmiento, Jr. is ordered to pay plaintiff: 1. The amount of P4,689,413.63 with interest thereon at 14% per annum until fully paid;
[1]

2. 3.

The amount of P200,000.00 as and for attorneys fees; and The costs of suit. On the other hand, the Court of Appeals resolved the case in this wise:
[5]

WHEREFORE, premises considered, the decision appealed from, dated October 17, 1986 is REVERSED and SET ASIDE and another judgment rendered DISMISSING plaintiff-appellees complaint, docketed as Civil Case No. 85-32243. There is no pronouncement as to costs.

The Facts The undisputed factual antecedents, as narrated by the trial court and adopted by public respondent, are as [6] follows: x x x [O]n or about September 16, 1975 Associated Banking Corporation and Citizens Bank and Trust Company merged to form just one banking corporation known as Associated Citizens Bank, the surviving bank. On or about March 10, 1981, the Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. On September 7, 1977, the defendant executed in favor of Associated Bank a promissory note whereby the former undertook to pay the latter the sum of P2,500,000.00 payable on or before March 6, 1978. As per said promissory note, the defendant agreed to pay interest at 14% per annum, 3% per annum in the form of liquidated damages, compounded interests, and attorneys fees, in case of litigation equivalent to 10% of the amount due. The defendant, to date, still owes plaintiff bank the amount of P2,250,000.00 exclusive of interest and other charges. Despite repeated demands the defendant failed to pay the amount due. xxx xxx xxx

x x x [T]he defendant denied all the pertinent allegations in the complaint and alleged as affirmative and[/]or special defenses that the complaint states no valid cause of action; that the plaintiff is not the proper party in interest because the promissory note was executed in favor of Citizens Bank and Trust Company; that the promissory note does not accurately reflect the true intention and agreement of the parties; that terms and conditions of the promissory note are onerous and must be construed against the creditor-payee bank; that several partial payments made in the promissory note are not properly applied; that the present action is premature; that as compulsory counterclaim the defendant prays for attorneys fees, moral damages and expenses of litigation. On May 22, 1986, the defendant was declared as if in default for failure to appear at the Pre-Trial Conference despite due notice. A Motion to Lift Order of Default and/or Reconsideration of Order dated May 22, 1986 was filed by defendants counsel which was denied by the Court in [an] order dated September 16, 1986 and the plaintiff was allowed to present its evidence before the Court ex-parte on October 16, 1986. At the hearing before the Court ex-parte, Esteban C. Ocampo testified that x x x he is an accountant of the Loans and Discount Department of the plaintiff bank; that as such, he supervises the accounting section of the bank, he counterchecks all the transactions that transpired during the day and is responsible for all the accounts and records and other things that may[ ]be assigned to the Loans and Discount Department; that he knows the [D]efendant Lorenzo Sarmiento, Jr. because he has an outstanding loan with them as per their records; that Lorenzo Sarmiento, Jr. executed a promissory note No. TL-2649-77 dated September 7, 1977 in the amount ofP2,500,000.00 (Exhibit A); that Associated Banking Corporation and the Citizens Bank and Trust Company merged to form one banking corporation known as the Associated Citizens Bank and is now known as Associated Bank by virtue of its Amended Articles of Incorporation; that there were partial payments made but not full; that the defendant has not paid his obligation as evidenced by the latest statement of account (Exh. B); that as per statement of account the outstanding obligation of the defendant is P5,689,413.63 less P1,000,000.00 or P4,689,413.63 (Exh. B, B-1); that a demand letter dated June 6, 1985 was sent by the bank thru its counsel (Exh. C) which was received by the defendant on November 12, 1985 (Exh. C, C-1, C-2, C3); that the defendant paid only P1,000,000.00 which is reflected in the Exhibit C. Based on the evidence presented by petitioner, the trial court ordered Respondent Sarmiento to pay the bank his remaining balance plus interests and attorneys fees. In his appeal, Sarmiento assigned to the trial court several errors, [7] namely:

I The [trial court] erred in denying appellants motion to dismiss appellee banks complaint on the ground of lack of cause of action and for being barred by prescription and laches. II The same lower court erred in admitting plaintiff-appellee banks amended complaint while defendant-appellants motion to dismiss appellee banks original complaint and using/availing [itself of] the new additional allegations as bases in denial of said appellants motion and in the interpretation and application of the agreement of merger and Section 80 of BP Blg. 68, Corporation Code of the Philippines. III The [trial court] erred and gravely abuse[d] its discretion in rendering the two as if in default orders dated May 22, 1986 and September 16, 1986 and in not reconsidering the same upon technical grounds which in effect subvert the best primordial interest of substantial justice and equity. IV The court a quo erred in issuing the orders dated May 22, 1986 and September 16, 1986 declaring appellant as if in default due to non-appearance of appellants attending counsel who had resigned from the law firm and while the parties [were] negotiating for settlement of the case and after a one million peso payment had in fact been paid to appellee bank for appellants account at the start of such negotiation on February 18, 1986 as act of earnest desire to settle the obligation in good faith by the interested parties. V The lower court erred in according credence to appellee banks Exhibit B statement of account which had been merely requested by its counsel during the trial and bearing date of September 30, 1986. VI The lower court erred in accepting and giving credence to appellee banks 27 -year-old witness Esteban C. Ocampo as of the date he testified on October 16, 1986, and therefore, he was merely an eighteen-year-old minor when appellant supposedly incurred the foisted obligation under the subject PN No. TL-2649-77 dated September 7, 1977, Exhibit A of appellee bank. VII The [trial court] erred in adopting appellee banks Exhibit B dated September 30, 1986 in its decision given in open court on October 17, 1986 which exacted eighteen percent (18%) per annum on the foisted principal amount of P2.5 million when the subject PN, Exhibit A, stipulated only fourteen percent (14%) per annum and which was actually prayed for in appellee banks original and amended complaints. VIII The appealed decision of the lower court erred in not considering at all appellants affirmative defenses that (1) the subject PN No. TL-2649-77 for P2.5 million dated September 7, 1977, is merely an accommodationpour autrui bereft of any actual consideration to appellant himself and (2) the subject PN is a contract of adhesion, hence, [it] needs [to] be strictly construed against appellee bank -- assuming for granted that it has the right to enforce and seek collection thereof. IX The lower court should have at least allowed appellant the opportunity to present countervailing evidence considering the huge amounts claimed by appellee bank (principal sum of P2.5 million which including accrued interests, penalties and cost of litigation totaled P4,689,413.63) and appellants affirmative defenses -- pursuant to substantial justice and equity. The appellate court, however, found no need to tackle all the assigned errors and limited itself to the question of whether [herein petitioner had] established or proven a cause of action against [herein private respondent]. Accordingly, Respondent Court held that the Associated Bank had no cause of action against Lorenzo Sarmiento Jr., since said bank was not privy to the promissory note executed by Sarmiento in favor of Citizens Bank and Trust Company (CBTC). The court ruled that the earlier merger between the two banks could not have vested Associated Bank with any interest arising from the promissory note executed in favor of CBTC after such merger. Thus, as earlier stated, Respondent Court set aside the decision of the trial court and dismissed the [8] complaint. Petitioner now comes to us for a reversal of this ruling.

Issues In its petition, petitioner cites the following reasons:


[9]

I The Court of Appeals erred in reversing the decision of the trial court and in declaring that petitioner has no cause of action against respondent over the promissory note. II The Court of Appeals also erred in declaring that, since the promissory note was executed in favor of Citizens Bank and Trust Company two years after the merger between Associated Banking Corporation and Citizens Bank and Trust Company, respondent is not liable to petitioner because there is no privity of contract between respondent and Associated Bank.

III The Court of Appeals erred when it ruled that petitioner, despite the merger between petitioner and Citizens Bank and Trust Company, is not a real party in interest insofar as the promissory note executed in favor of the merger. In a nutshell, the main issue is whether Associated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed.

The Courts Ruling The petition is impressed with merit.

The Main Issue: Associated Bank Assumed All Rights of CBTC Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by [10] the surviving corporation. Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and [11] powers, as well as their liabilities. The merger, however, does not become effective upon the mere agreement of the constituent corporations. The [12] procedure to be followed is prescribed under the Corporation Code. Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving corporation. Consistent with the aforementioned Section 79, the September 16, 1975 Agreement of Merger, which Associated Banking Corporation (ABC) and Citizens Bank and Trust Company (CBTC) entered into, provided that its effectivity shall, for all intents and purposes, be the date when the necessary papers to carry out this [m]erger shall have been approved [14] by the Securities and Exchange Commission. As to the transfer of the properties of CBTC to ABC, the agreement provides: 10. Upon effective date of the Merger, all rights, privileges, powers, immunities, franchises, assets and property of [CBTC], whether real, personal or mixed, and including [CBTCs] goodwill and tradename, and all debts due to [CBTC] on whatever act, and all other things in action belonging to [CBTC] as of the effective date of the [m]erger shall be vested in [ABC], the SURVIVING BANK, without need of further act or deed, unless by express requirements of law or of a government agency, any separate or specific deed of conveyance to legally effect the transfer or assignment of any kind of property [or] asset is required, in which case such document or deed shall be executed accordingly; and all property, rights, privileges, powers, immunities, franchises and all appointments, designations and nominations, and all other rights and interests of [CBTC] as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, trustee of estates of persons mentally ill and in every other fiduciary capacity, and all and every other interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were of [CBTC], and title to any real estate, whether by deed or otherwise, vested in [CBTC] shall not revert or be in any way impaired by reason thereof; provided, however, that all rights of creditors and all liens upon any property of [CBTC] shall be preserved and unimpaired and all debts, liabilities, obligations, duties and undertakings of [CBTC], whether contractual or otherwise, expressed or implied, actual or contingent, shall henceforth attach to [ABC] which shall be responsible therefor and may be enforced against [ABC] to the same extent as if the same debts, liabilities, obligations, duties and undertakings have been originally incurred or contracted by [ABC], subject, however, to all rights, privileges, defenses, set-offs and counterclaims [15] which [CBTC] has or might have and which shall pertain to [ABC]. The records do not show when the SEC approved the merger. Private respondents theory is that it took effect on the date of the execution of the agreement itself, which was September 16, 1975. Private respondent contends that, since he issued the promissory note to CBTC on September 7, 1977 -- two years after the merger agreement had been
[13]

executed -- CBTC could not have conveyed or transferred to petitioner its interest in the said note, which was not yet in existence at the time of the merger. Therefore, petitioner, the surviving bank, has no right to enforce the promissory note on private respondent; such right properly pertains only to CBTC. Assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that petitioner no longer has any interest in the promissory note. A closer perusal of the merger agreement leads to a different conclusion. The provision quoted earlier has this other clause: Upon the effective date of the [m]erger, all references to [CBTC] in any deed, documents, or other papers of whatever kind or nature and wherever found shall be deemed for all intents and purposes, references to [ABC], [16] the SURVIVING BANK, as if such references were direct references to [ABC]. x x x (Underscoring supplied) Thus, the fact that the promissory note was executed after the effectivity date of the merger does not militate against petitioner. The agreement itself clearly provides that all contracts -- irrespective of the date of execution -- entered into in the name of CBTC shall be understood as pertaining to the surviving bank, herein petitioner. Since, in contrast to the earlier aforequoted provision, the latter clause no longer specifically refers only to contracts existing at the time of the merger, no distinction should be made. The clause must have been deliberately included in the agreement in order to protect the interests of the combining banks; specifically, to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation. Thus, although the subject promissory note names CBTC as the payee, the reference to CBTC in the note shall be construed, under the very provisions of the merger agreement, as a reference to petitioner bank, as if such reference [was a] direct reference to the latter for all intents and purposes. No other construction can be given to the unequivocal stipulation. Being clear, plain and free of ambiguity, the [17] provision must be given its literal meaning and applied without a convoluted interpretation. Verba legis non est [18] recedendum. In light of the foregoing, the Court holds that petitioner has a valid cause of action against private respondent. Clearly, the failure of private respondent to honor his obligation under the promissory note constitutes a violation of petitioners right to collect the proceeds of the loan it extended to the former.

Secondary Issues: Prescription, Laches, Contract Pour Autrui, Lack of Consideration

No Prescription or Laches Private respondents claim that the action has prescribed, pursuant to Article 1149 of the Civil Code, is legally untenable. Petitioners suit for collection of a sum of money was based on a written contract and prescribes after ten [19] years from the time its right of action arose. Sarmientos obligation under the promissory note became due and demandable on March 6, 1978. Petitioners complaint was instituted on August 22, 1985, before the lapse of the ten-year prescriptive period. Definitely, petitioner still had every right to commence suit against the payor/obligor, the private respondent herein. Neither is petitioners action barred by laches. The principle of laches is a creation of equity, which is applied not to penalize neglect or failure to assert a right within a reasonable time, but rather to avoid recognizing a right when to do so [20] [21] would result in a clearly inequitable situation or in an injustice. To require private respondent to pay the remaining balance of his loan is certainly not inequitable or unjust. What would be manifestly unjust and inequitable is his contention that CBTC is the proper party to proceed against him despite the fact, which he himself asserts, that CBTCs corporate personality has been dissolved by virtue of its merger with petitioner. To hold that no payee/obligee exists and to let private respondent enjoy the fruits of his loan without liability is surely most unfair and unconscionable, amounting to unjust enrichment at the expense of petitioner. Besides, this Court has held that the doctrine of laches is inapplicable [22] where the claim was filed within the prescriptive period set forth under the law.

No Contract Pour Autrui

Private respondent, while not denying that he executed the promissory note in the amount of P2,500,000 in favor of CBTC, offers the alternative defense that said note was a contract pour autrui. A stipulation pour autrui is one in favor of a third person who may demand its fulfillment, provided he communicated his acceptance to the obligor before its revocation. An incidental benefit or interest, which another person gains, is not [23] sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. Florentino vs. Encarnacion Sr. enumerates the requisites for such contract: (1) the stipulation in favor of a third person must be a part of the contract, and not the contract itself; (2) the favorable stipulation should not be conditioned or compensated by any kind of obligation; and (3) neither of the contracting parties bears the legal representation or authorization of the third party. The fairest test in determining whether the third persons interest in a contract i s a stipulation pour autrui or merely an incidental interest is to examine the intention of the parties as disclosed by their [25] contract. We carefully and thoroughly perused the promissory note, but found no stipulation at all that would even resemble a provision in consideration of a third person. The instrument itself does not disclose the purpose of the loan contract. It merely lays down the terms of payment and the penalties incurred for failure to pay upon maturity. It is patently devoid of any indication that a benefit or interest was thereby created in favor of a person other than the contracting parties. In fact, in no part of the instrument is there any mention of a third party at all. Except for his barefaced statement, no evidence was proffered by private respondent to support his argument. Accordingly, his contention cannot be sustained. At any rate, if indeed the loan actually benefited a third person who undertook to repay the bank, private respondent could have [26] availed himself of the legal remedy of a third-party complaint. That he made no effort to implead such third person proves the hollowness of his arguments.
[24]

Consideration Private respondent also claims that he received no consideration for the promissory note and, in support thereof, cites petitioners failure to submit any proof of his loan a pplication and of his actual receipt of the amount loaned. These arguments deserve no merit. Res ipsa loquitur. The instrument, bearing the signature of private respondent, speaks for itself. Respondent Sarmiento has not questioned the genuineness and due execution thereof. No further proof is necessary to show that he undertook to pay P2,500,000, plus interest, to petitioner bank on or before March 6, 1978. This he failed to do, as testified to by petitioners accountant. The latter presented before the trial court private respondents [27] statement of account as of September 30, 1986, showing an outstanding balance of P4,689,413.63 after deducting P1,000,000.00 paid seven months earlier. Furthermore, such partial payment is equivalent to an express acknowledgment of his obligation. Private respondent can no longer backtrack and deny his liability to petitioner bank. A [28] person cannot accept and reject the same instrument. WHEREFORE, the petition is GRANTED. The assailed Decision is SET ASIDE and the Decision of RTC-Manila, Branch 48, in Civil Case No. 26465 is hereby REINSTATED. SO ORDERED. Davide Jr. (Chairman), Bellosillo, Vitug, and Quisumbing, JJ., concur.

THIRD DIVISION

G.R. No. 86683 January 21, 1993 PHILIP S. YU, petitioner, vs. THE HONORABLE COURT OF APPEALS, THE HONORABLE PRESIDING JUDGE, RTC OF MANILA, BRANCH XXXIV (34) and UNISIA MERCHANDISING CO., INC., respondents. Oscar M. Manahan for petitioner. Ruben L. Pasamonte collaborating counsel for petitioner.

Alfredo G. De Guzman for private respondent.

MELO, J.: Petitioner, the exclusive distributor of the House of Mayfair wallcovering products in the Philippines, cried foul when his former dealer of the same goods, herein private respondent, purchased the merchandise from the House of Mayfair in England through FNF Trading in West Germany and sold said merchandise in the Philippines. Both the court of origin and the appellate court rejected petitioner's thesis that private respondent was engaged in a sinister form of unfair competition within the context of Article 28 of the New Civil Code (pp. 23 and 64, Rollo). Hence, the petition at bar. There is no dispute that petitioner has had an exclusive sales agency agreement with the House of Mayfair since 1987 to promote and procure orders for Mayfair wallcovering products from customers in the Philippines (Annex "B", Petition; p. 30, Rollo). Even as petitioner was such exclusive distributor, private respondent, which was then petitioner's dealer, imported the some goods via the FNF Trading which eventually sold the merchandise in the domestic market (TSN, September 20, 1988, p. 9; p. 117, Rollo). In the suit for injunction which petitioner filed before the Regional Trial Court of the National Capital Judicial Region stationed at Manila, petitioner pressed the idea that he was practically by-passed and that private respondent acted in concert with the FNF Trading in misleading Mayfair into believing that the goods ordered by the trading firm were intended for shipment to Nigeria although they were actually shipped to and sold in the Philippines (Paragraph 5, Complaint: p. 34, Rollo). Private respondent professed ignorance of the exclusive contract in favor of petitioner. Even then, private respondent responded by asserting that petitioner's understanding with Mayfair is binding only between the parties thereto (Paragraph 5, Answer; p. 50, Rollo). In the course of hearing the arguments for and against the issuance of the requested writ of preliminary injunction, petitioner impressed before the lower court that he is seeking to enjoin the sale and distribution by private respondent of the same goods in the market (TSN, September 20, 1988, p. 35; p. 142, Rollo) but the Honorable Cesar V. Alejandria, Presiding Judge of Branch 34 was unperturbed, thusly: Resolving plaintiff's motion embodied in the complaint for the issuance of a writ of preliminary injunction after hearing, but without prejudging the merits of the case, and finding from the evidences adduced by the plaintiff, that the terms and conditions of the agency agreement, Exhibit "A-inj." between the plaintiff and The House of Mayfair of England for the exclusive distributorship by the plaintiff of the latter's goods, apertain to them; that there is no privity of contract between the plaintiff and the defendant; that the controversy in this case arose from a breach of contract by the FNF Trading of Germany, for having shipped goods it had purchased from The House of Mayfair to the Philippines: that as shown in Exh. "Jinj.", the House of Mayfair was demanding payment of 4,500.00 from the FNF Trading for restitution of plaintiff's alleged loss on account of the shipment of the goods in question here in the Philippines and now in the possession of the defendant; it appears to the Court that to restrain the defendant from selling the goods it has ordered from the FNF Trading of Germany, would be without legal justification. WHEREFORE, the motion for the issuance of a writ of preliminary injunction to restrain the defendant from selling the goods it has ordered from the FNF Trading of Germany is hereby DENIED. (p. 64,Rollo.) The indifference of the trial court towards petitioner's supplication occasioned the filing of a petition for review oncertiorari with the Court of Appeals but Justice Ordoez-Benitez, with whom Justices Bellosillo and Kalalo concurred, reacted in the same nonchalant fashion. According to the appellate court, petitioner was not able to demonstrate the unequivocal right which he sought to protect and that private respondent is a complete stranger vis-a-vis the covenant between petitioner and Mayfair. Apart from these considerations, the reviewing authority noted that petitioner could be fully compensated for the prejudice he suffered judging from the tenor of Mayfair's correspondence to FNF Trading wherein Mayfair took the cudgels for petitioner in seeking compensation for the latter's loss as a consequence of private respondent's scheme (p. 79, Rollo; pp. 23-29, Rollo). In the petition at hand, petitioner anchors his plea for redress on his perception that private respondent has distributed and continues to sell Mayfair covering products in contravention of petitioner's exclusive right conferred by the covenant with the House of Mayfair. On March 13, 1989, a temporary restraining order was issued to last until further notice from this Court directed against private respondent (p. 188, Rollo). Notwithstanding such proscription, private respondent persisted in the distribution and sole (p. 208; 228-229, Rollo), triggering petitioner's motion to cite private respondent's manager in contempt of court (p.

223, Rollo). Considering that private respondent's manager, Frank Sia, admitted the acts complained of, a fine of P500.00 was imposed on him but he failed to pay the same within the five-day period provided in Our Resolution of June 21, 1989 (p. 236, Rollo). Did respondent appellate court correctly agree with the lower court in disallowing the writ solicited by herein petitioner? That the exclusive sales contract which links petitioner and the House of Mayfair is solely the concern of the privies thereto and cannot thus extend its chain as to bind private respondent herein is, We believe, beside the point. Verily, injunction is the appropriate remedy to prevent a wrongful interference with contracts by strangers to such contracts where the legal remedy is insufficient and the resulting injury is irreparable (Gilchrist vs. Cuddy, 29 Phil. 542 [1915]; 4A Padilla, Civil Code Annotated, 1988 Ed., p. 90). The liability of private respondent, if any, does not emanate from the four corners of the contract for undoubtedly, Unisia Merchandising Co., Inc. is not a party thereto but its accountability is "an independent act generative of civil liability" (Daywalt vs. Corporacion de PP. Agustinos Recoletos, 39 Phil. 587 [1919]; 4 Paras, Civil Code of the Philippines Annotated, 1981 10th Ed., p. 439; 4 Tolentino, Commentaries and Jurisprudence on the Civil Code, 1986 Ed., p. 439). These observations, however, do not in the least convey the message that We have placed the cart ahead of the horse, so to speak, by pronouncing private respondent's liability at this stage in view of the pendency of the main suit for injunction below. We are simply rectifying certain misperceptions entertained by the appellate court as regards the feasibility of requesting a preliminary injunction to enjoin a stranger to an agreement. To Our mind, the right to perform an exclusive distributorship agreement and to reap the profits resulting from such performance are proprietary rights which a party may protect (30 Am. Jur. Section 19, pp. 71-72: Jurado, Comments and Jurisprudence on Obligations and Contracts, 1983 8th Rev. Ed., p. 336) which may otherwise not be diminished, nay, rendered illusory by the expedient act of utilizing or interposing a person or firm to obtain goods from the supplier to defeat the very purpose for which the exclusive distributorship was conceptualized, at the expense of the sole authorized distributor (43 C.J.S. 597). Another circumstance which respondent court overlooked was petitioner's suggestion, which was not disputed by herein private respondent in its comment, that the House of Mayfair in England was duped into believing that the goods ordered through the FNF Trading were to be shipped to Nigeria only, but the goods were actually sent to and sold in the Philippines. A ploy of this character is akin to the scenario of a third person who induces a party to renege on or violate his undertaking under a contract, thereby entitling the other contracting party to relief therefrom ( Article 1314, New Civil Code). The breach caused by private respondent was even aggravated by the consequent diversion of trade from the business of petitioner to that of private respondent caused by the latter's species of unfair competition as demonstrated no less by the sales effected inspite of this Court's restraining order. This brings Us to the irreparable mischief which respondent court misappreciated when it refused to grant the relief simply because of the observation that petitioner can be fully compensated for the damage. A contrario, the injury is irreparable where it is continuous and repeated since from its constant and frequent recurrence, no fair and reasonable redress can be had therefor by petitioner insofar as his goodwill and business reputation as sole distributor are concerned. Withal, to expect petitioner to file a complaint for every sale effected by private respondent will certainly court multiplicity of suits (3 Francisco, Revised Rules of Court, 1985 Edition, p. 261). WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals dated January 13, 1989 in CAG.R. SP No. 16019 and the Order dated October 16, 1988 issued by the magistrate at the court of origin are hereby REVERSED and SET ASIDE. Let this case be remanded to the court of origin for issuance of a writ of preliminary injunction upon petitioner's posting of a bond in the sum of Fifty Thousand (P50,000.00) Pesos to be approved by said court, to remain effective during the trial on the merits until final determination of the case. The manager of private respondent. Frank Sia, is hereby ordered to pay to the Clerk of Court within five (5) days from notice hereof the fine of P500.00, as previously imposed on him, with a warning that failure to do so will be dealt with more severely. Upon issuance of the writ of preliminary injunction, the restraining order issued on March 13, 1989 by this Court shall be deemed automatically lifted. SO ORDERED. Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur .

SECOND DIVISION

[G.R. No. 125761. April 30, 2003]

SALVADOR P. MALBAROSA, petitioner, vs. CORP. respondents.

HON.

COURT

OF

APPEALS

and

S.E.A.

DEVELOPMENT

DECISION CALLEJO, SR., J.: Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the group of companies whollyowned and controlled by respondent S.E.A. Development Corporation (SEADC). The petitioner Salvador P. Malbarosa was the president and general manager of Philtectic Corporation, and an officer of other corporations belonging to the SEADC group of companies. The respondent assigned to the petitioner one of its vehicles covered by Certificate of [1] Registration No. 04275865 described as a 1982 model Mitsubishi Gallant Super Saloon, with plate number PCA 180 for his use. He was also issued membership certificates in the Architectural Center, Inc. Louis Da Costa was the president of the respondent and Commonwealth Insurance Co., Inc., while Senen Valero was the Vice-Chairman of the Board of Directors of the respondent and Vice-Chairman of the Board of Directors of Philtectic Corporation. Sometime in the first week of January 1990, the petitioner intimated to Senen Valero his desire to retire from the SEADC group of companies and requested that his 1989 incentive compensation as president of Philtectic Corporation be paid to him. On January 8, 1990, the petitioner sent a letter to Senen Valero tendering his resignation, effective February 28, 1990 from all his positions in the SEADC group of companies, and reiterating therein his request for the payment of [2] his incentive compensation for 1989. Louis Da Costa met with the petitioner on two occasions, one of which was on February 5, 1990 to discuss the amount of the 1989 incentive compensation petitioner was entitled to, and the mode of payment thereof. Da Costa ventured that the petitioner would be entitled to an incentive compensation in the amount of around P395,000. On March 14, 1990, the respondent, through Senen Valero, signed a letter-offer addressed to the petitioner stating therein that petitioners resignation from all the positions in the SEADC group of companies had been accepted by the respondent, and that he was entitled to an incentive compensation in the amount of P251,057.67, and proposing that the amount be satisfied, thus: - The 1982 Mitsubishi Super saloon car assigned to you by the company shall be transferred to you at a value of P220,000.00. (Although you have indicated a value of P180,000.00, our survey in the market indicates that P220,000.00 is a reasonable reflection of the value of the car.) - The membership share of our subsidiary, Tradestar International, Inc. in the Architectural Center, Inc. will be transferred to you. (Although we do not as yet have full information as to the value of these shares, we have been informed that the [4] shares have traded recently in the vicinity of P60,000.00.) The respondent required that if the petitioner agreed to the offer, he had to affix his conformity on the space provided therefor and the date thereof on the right bottom portion of the letter, thus: Agreed: SALVADOR P. MALBAROSA Date: _____________________
[5] [3]

On March 16, 1990, Da Costa met with the petitioner and handed to him the original copy of the March 14, 1990 Letter-offer for his consideration and conformity. The petitioner was dismayed when he read the letter and learned that he was being offered an incentive compensation of only P251,057.67. He told Da Costa that he was entitled to no less than P395,000 as incentive compensation. The petitioner refused to sign the letter-offer on the space provided therefor. He received the original of the letter and wrote on the duplicate copy of the letter-offer retained by Da Costa, the [6] words: Recd original for review purposes. Despite the lapse of more than two weeks, the respondent had not received the original of the March 14, 1990 Letter-offer of the respondent with the conformity of the petitioner on the space provided therefor. The respondent decided to withdraw its March 14, 1990 Offer. On April 3, 1996, the Board of Directors

of the respondent approved a resolution authorizing the Philtectic Corporation and/or Senen Valero to demand from the petitioner for the return of the car and to take such action against the petitioner including the institution of an action in [7] court against the petitioner for the recovery of the motor vehicle. On April 4, 1990, Philtectic Corporation, through its counsel, wrote the petitioner withdrawing the March 14, 1990 Letter-offer of the respondent and demanding that the petitioner return the car and his membership certificate in the [8] Architectural Center, Inc. within 24 hours from his receipt thereof. The petitioner received the original copy of the letter on the same day. On April 7, 1990, the petitioner wrote the counsel of Philtectic Corporation informing the latter that he cannot comply with said demand as he already accepted the March 14, 1990 Letter-offer of the respondent when he affixed on March 28, [9] 1990 his signature on the original copy of the letter-offer. The petitioner enclosed a xerox copy of the original copy of the March 14, 1990 Letter-offer of the respondent, bearing his signature on the space provided therefore dated March 28, [10] 1990. With the refusal of the petitioner to return the vehicle, the respondent, as plaintiff, filed a complaint against the petitioner, as defendant, for recovery of personal property with replevin with damages and attorneys fees, thus: WHEREFORE, PREMISES CONSIDERED, it is respectfully prayed before this Honorable Court that: 1. Before hearing and upon approval of plaintiffs bond, a writ be issued immediately for the seizure of the vehicle described in paragraph 3 hereof, wherever it may be found, and for its delivery to plaintiff; 2. After trial of the issues, judgment be rendered adjudging that plaintiff has the right to the possession of the said motor vehicle, and, in the alternative, that defendant must deliver such motor vehicle to plaintiff or pay to plaintiff the value thereof in case delivery cannot be made; 3. After trial, hold the defendant liable to plaintiff for the use of the motor vehicle in the amount of P1,000.00 per day from date of demand until the motor vehicle is returned to plaintiff. 4. After trial, hold the defendant liable to plaintiff for attorneys fees and costs of litigation in the amount of P100,000.00. Plaintiffs likewise prays for such other reliefs as are just and equitable under the circumstances. On April 30, 1990, the trial court issued an order for the issuance of a writ of replevin. [13] replevin was issued on May 8, 1990.
[12] [11]

Correspondingly, the writ of

On May 11, 1990, the Sheriff served the writ on the petitioner and was able to take possession of the vehicle in question. On May 15, 1990, the petitioner was able to recover the possession of the vehicle upon his filing of the counter[14] bond. In his Answer to the complaint, the petitioner, as defendant therein, alleged that he had already agreed on March 28, 1990 to the March 14, 1990 Letter-offer of the respondent, the plaintiff therein, and had notified the said plaintiff of his acceptance; hence, he had the right to the possession of the car. Philtectic Corporation had no right to withdraw the offer of the respondent SEADC. The petitioner testified that after conferring with his counsel, he had decided to accept the offer of the respondent, and had affixed his signature on the space below the word Agree in the March 14, 1990 Letter offer, thus: Agreed: (Sgd.) SALVADOR P. MALBAROSA Date: 3 28 - 90
[15]

The petitioner adduced evidence that on March 9, 1990, he had written Senen Valero that he was agreeable to an incentive compensation of P218,000 to be settled by the respondent by transferring the car to the petitioner valued at P180,000 and P38,000 worth of shares of the Architectural Center, Inc. on the claim of Da Costa that respondent was almost bankrupt. However, the petitioner learned that the respondent was financially sound; hence, he had decided to [16] receive his incentive compensation of P395,000 in cash. On March 29, 1990, the petitioner called up the office of Louis

Da Costa to inform the latter of his acceptance of the letter-offer of the respondent. However, the petitioner was told by Liwayway Dinglasan, the telephone receptionist of Commonwealth Insurance Co, that Da Costa was out of the office. The petitioner asked Liwayway to inform Da Costa that he had called him up and that he had already accepted the letter-offer. Liwayway promised to relay the message to Da Costa. Liwayway testified that she had relayed the petitioners message to Da Costa and that the latter merely nodded his head. After trial, the court a quo rendered its Decision
[17]

on July 28, 1992, the dispositive portion of which reads as follows:

WHEREFORE, in view of all the foregoing, judgment is rendered ordering the defendant: 1. To deliver the motor vehicle prescribed [sic] in the complaint to plaintiff SEADC, or pay its value of P220,000 in case delivery cannot be made;

2. 3.

pay plaintiff SEADC P50,000 as and for attorneys fees; and Cost of litigation.
[18]

SO ORDERED.

The trial court stated that there existed no perfected contract between the petitioner and the respondent on the latters March 14, 1990 Letter-offer for failure of the petitioner to effectively notify the respondent of his acceptance of said letter-offer before the respondent withdrew the same. The respondent filed a motion for the amendment of the decision of the trial court, praying that the petitioner should be ordered to pay to the respondent reasonable rentals for the car. On October 10, 1992, the court a quo issued an order, granting plaintiffs motion and amending the dispositive portion of its July 28, 1992 Decision: 1. Ordering defendant to pay to plaintiff lease rentals for the use of the motor vehicle at the rate of P1,000.00 per Day from May 8, 1990 up to the date of actual delivery to the plaintiff of the motor vehicle; and Ordering First Integrated Bonding & Insurance Co. to make good on its obligations to plaintiff under the Counterbond issued pursuant to this case.
[19]

2.

SO ORDERED.

The petitioner appealed from the decision and the order of the court a quo to the Court of Appeals. On February 8, 1996, the Court of Appeals rendered its Decision, dispositive portion of the decision reads:
[20]

affirming the decision of the trial court. The

WHEREFORE, the Decision dated July 28, 1992 and the Order dated October 10, 1992 of the Regional Trial Court of Pasig (Branch 158) are hereby AFFIRMED with the MODIFICATION that the period of payment of rentals at the rate of P1,000.00 per day shall be from the time this decision becomes final until actual delivery of the motor vehicle to plaintiffappellee is made. Costs against the defendant-appellant. SO ORDERED.
[21]

The Court of Appeals stated that the petitioner had not accepted the respondents March 14, 1990 Letter -offer before the respondent withdrew said offer on April 4, 1990. The petitioner filed a petition for review on certiorari of the decision of the Court of Appeals. The petitioner raises two issues, namely: (a) whether or not there was a valid acceptance on his part of the March [22] 14, 1990 Letter-offer of the respondent; and (b) whether or not there was an effective withdrawal by the respondent of said letter-offer. The petition is dismissed. Anent the first issue, the petitioner posits that the respondent had given him a reasonable time from March 14, 1990 within which to accept or reject its March 14, 1990 Letter-offer. He had already accepted the offer of the respondent

when he affixed his conformity thereto on the space provided therefor on March 28, 1990 and had sent to the respondent corporation on April 7, 1990 a copy of said March 14, 1990 Letter-offer bearing his conformity to the offer of the respondent; hence, the respondent can no longer demand the return of the vehicle in question. He further avers that he had already impliedly accepted the offer when after said respondents offer, he retained possession of the car. For its part, the respondent contends that the issues raised by the petitioner are factual. The jurisdiction of the Court under Rule 45 of the Rules of Court, as amended, is limited to revising and correcting errors of law of the CA. As concluded by the Court of Appeals, there had been no acceptance by the petitioner of its March 14, 1990 Letteroffer. The receipt by the petitioner of the original of the March 14, 1990 Letter-offer for review purposes amounted merely to a counter-offer of the petitioner. The findings of the Court of Appeals are binding on the petitioner. The petitioner adduced no proof that the respondent had granted him a period within which to accept its offer. The latter deemed its offer as not accepted by the petitioner in light of petitioners ambivalence and indecision on March 16, 1990 when he received the letter-offer of respondent. We do not agree with the petitioner. Under Article 1318 of the Civil Code, the essential requisites of a contract are as follows: Art. 1318. There is no contract unless the following requisites concur: (1) (2) (3) Consent of the contracting parties; Object certain which is the subject matter of the contract; Cause of the obligation which is established.

[23]

Under Article 1319 of the New Civil Code, the consent by a party is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. An offer may be reached at any time until it is accepted. An offer that is not accepted does not give rise to a consent. The contract does not come into [24] [25] existence. To produce a contract, there must be acceptance of the offer which may be express or implied but must not qualify the terms of the offer. The acceptance must be absolute, unconditional and without variance of any sort from [26] the offer. The acceptance of an offer must be made known to the offeror. Unless the offeror knows of the acceptance, there [28] is no meeting of the minds of the parties, no real concurrence of offer and acceptance. The offeror may withdraw its offer and revoke the same before acceptance thereof by the offeree. The contract is perfected only from the time an acceptance of an offer is made known to the offeror. If an offeror prescribes the exclusive manner in which acceptance of his offer shall be indicated by the offeree, an acceptance of the offer in the manner prescribed will bind the offeror. On the other hand, an attempt on the part of the offeree to accept the offer in a different manner does not bind the offeror as the [29] absence of the meeting of the minds on the altered type of acceptance. An offer made inter praesentes must be accepted immediately. If the parties intended that there should be an express acceptance, the contract will be perfected only upon knowledge by the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in the manner prescribed by the offeror is not effective but constitutes a counter-offer which the offeror may accept [30] or reject. The contract is not perfected if the offeror revokes or withdraws its offer and the revocation or withdrawal of [31] the offeror is the first to reach the offeree. The acceptance by the offeree of the offer after knowledge of the revocation or withdrawal of the offer is inefficacious. The termination of the contract when the negotiations of the parties terminate [32] and the offer and acceptance concur, is largely a question of fact to be determined by the trial court. In this case, the respondent made its offer through its Vice-Chairman of the Board of Directors, Senen Valero. On March 16, 1990, Da Costa handed over the original of the March 14, 1990 Letter-offer of the respondent to the petitioner. The respondent required the petitioner to accept the offer by affixing his signature on the space provided in said letter-offer and writing the date of said acceptance, thus foreclosing an implied acceptance or any other mode of acceptance by the petitioner. However, when the letter-offer of the respondent was delivered to the petitioner on March 16, 1990, he did not accept or reject the same for the reason that he needed time to decide whether to reject or accept the [33] [34] same. There was no contract perfected between the petitioner and the respondent corporation. Although the petitioner claims that he had affixed his conformity to the letter-offer on March 28, 1990, the petitioner failed to transmit the said copy to the respondent. It was only on April 7, 1990 when the petitioner appended to his letter to the respondent a copy of the said March 14, 1990 Letter-offer bearing his conformity that he notified the respondent of his acceptance to said offer. But then, the respondent, through Philtectic Corporation, had already withdrawn its offer and had already notified the petitioner of said withdrawal via respondents letter dated April 4, 1990 which was delivered to the petitioner on the same day. Indubitably, there was no contract perfected by the parties on the March 14, 1990 Letter-offer of the respondent.
[27]

The petitioners plaint that he was not accorded by the respondent reasonable time to accept or reject its offer does not persuade. It must be underscored that there was no time frame fixed by the respondent for the petitioner to accept or reject its offer. When the offeror has not fixed a period for the offeree to accept the offer, and the offer is made to a [35] person present, the acceptance must be made immediately. In this case, the respondent made its offer to the petitioner when Da Costa handed over on March 16, 1990 to the petitioner its March 14, 1990 Letter-offer but that the petitioner did not accept the offer. The respondent, thus, had the option to withdraw or revoke the offer, which the respondent did on April 4, 1990. Even if it is assumed that the petitioner was given a reasonable period to accept or reject the offer of the respondent, the evidence on record shows that from March 16, 1990 to April 3, 1990, the petitioner had more than two weeks which was more than sufficient for the petitioner to accept the offer of the respondent. Although the petitioner avers that he had accepted the offer of the respondent on March 28, 1990, however, he failed to transmit to the respondent the copy of the March 14, 1990 Letter-offer bearing his conformity thereto. Unless and until the respondent received said copy of the letter-offer, it cannot be argued that a contract had already been perfected between the petitioner and the respondent. On the second issue, the petitioner avers that Philtectic Corporation, although a wholly-owned and controlled subsidiary of the respondent, had no authority to withdraw the offer of the respondent. The resolution of the respondent authorizing Philtectic Corporation to take such action against the petitioner including the institution of an action against him for the recovery of the subject car does not authorize Philtectic Corporation to withdraw the March 14, 1990 Letteroffer of the respondent. The withdrawal by Philtectic Corporation on April 4, 1990 of the offer of the respondent was ineffective insofar as the petitioner was concerned. The respondent, for its part, asserts that the petitioner had failed to put in issue the matter of lack of authority of Philtectic Corporation to withdraw for and in behalf of the respondent its March 14, 1990 Letter-offer. It contends that the authority of Philtectic Corporation to take such action including the institution of an action against the petitioner for the recovery of the car necessarily included the authority to withdraw the respondents offer. Even then, there was no need for the respondent to withdraw its offer because the petitioner had already rejected the respondents offer on March 16, 1990 when the petitioner received the original of the March 14, 1990 Letter-offer of the respondent without the petitioner affixing his signature on the space therefor. We do not agree with the petitioner. Implicit in the authority given to Philtectic Corporation to demand for and recover from the petitioner the subject car and to institute the appropriate action against him to recover possession of the car is the authority to withdraw the respondents March 14, 1990 Le tter-offer. It cannot be argued that respondent authorized Philtectic Corporation to demand and sue for the recovery of the car and yet did not authorize it to withdraw its March 14, 1990 Letter-offer to the petitioner. Besides, when he testified, Senen Valero stated that the April 4, 1990 letter of Philtectic Corporation to the petitioner was upon his instruction and conformably with the aforesaid resolution of the Board of Directors of the respondent: Q A Q A Mr. Valero, after the Board passed this resolution. (sic) What action did you take, if any? After that resolution was passed. (sic) I instructed our lawyers to proceed with the demand letter for the recovery of the vehicle. Do you know if that demand letter was every (sic) made by your lawyer? Yes. I know that because I was the one who gave the instruction and before it was finally served on Malbarosa, I was shown about the demand letter. Your honor, or rather

C/Pltf. -

Mr. Valero, if I show you a copy of that letter, will you be able to identify the same? A Q Yes, sir. I am now showing to you a copy of the letter dated April 4, 1990, addressed to Mr. Salvador P. Malbarosa and signed by Romulo, Mabanta, Buenaventura, Sayoc and Delos Angeles by _____. What relation, if any, does that demand letter have with the demand letter that you are talking about? Its the same one I am referring to.

C/Pltf. Your honor, we manifest that the letter has been previously marked as our exh. D. Q A Q Mr. Valero, on the first paragraph of this demand letter, you stated that the letter is written in behalf of Philtectic Corporation. Do you have any knowledge why it was written this way? Yes. Because Philtectic, being the agent used here by S.E.A. Development Corporation for the one using the car, it was only deemed proper that Philtectic will be the one to send the demand letter. In the second paragraph of that letter, Mr. Valero, you stated that there was an allusion made to the offer made on March 14, 1990. That the 1982 Mitsubishi Galant Super Saloon car with plate# M-PCA-189

assigned to you by the company, and the membership share in the Architectural Center Inc., be transferred to you in settlement. You previously stated about this March 14 letter. What relation, if any, does this second paragraph with the letter-offer that you previously stated. C/Def. - Objection, your honor. This witness is incompetent C/Pltf. - But he was the one who instructed, your honor. Court - LET the witness answer. Witness- (Stenographer reads back the previous question asked by counsel for him to answer, and.) A It is the same.
[36]

IN LIGHT OF ALL THE FOREGOING, the petition is dismissed. The Decision of the Court of Appeals is AFFIRMED. SO ORDERED. Bellosillo, (Chairman), Quisumbing, and Austria-Martinez, JJ., concur. EN BANC G.R. No. L-15127 May 30, 1961

EMETERIO CUI, plaintiff-appellant, vs. ARELLANO UNIVERSITY, defendant-appellee. G.A.S. Sipin, Jr., for plaintiff-appellant. E. Voltaire Garcia for defendant-appellee. CONCEPCION, J.: Appeal by plaintiff Emeterio Cui from a decision of the Court of First Instance of Manila, absolving defendant Arellano University from plaintiff's complaint, with costs against the plaintiff, and dismissing defendant's counter claim, for insufficiency of proof thereon. In the language of the decision appealed from: The essential facts of this case are short and undisputed. As established by the agreement of facts Exhibits X and by the respective oral and documentary evidence introduced by the parties, it appears conclusive that plaintiff, before the school year 1948-1949 took up preparatory law course in the defendant University. After finishing his preparatory law course plaintiff enrolled in the College of Law of the defendant from the school year 1948-1949. Plaintiff finished his law studies in the defendant university up to and including the first semester of the fourth year. During all the school years in which plaintiff was studying law in defendant law college, Francisco R. Capistrano, brother of the mother of plaintiff, was the dean of the College of Law and legal counsel of the defendant university. Plaintiff enrolled for the last semester of his law studies in the defendant university but failed to pay his tuition fees because his uncle Dean Francisco R. Capistrano having severed his connection with defendant and having accepted the deanship and chancellorship of the College of Law of Abad Santos University, plaintiff left the defendant's law college and enrolled for the last semester of his fourth year law in the college of law of the Abad Santos University graduating from the college of law of the latter university. Plaintiff, during all the time he was studying law in defendant university was awarded scholarship grants, for scholastic merit, so that his semestral tuition fees were returned to him after the ends of semester and when his scholarship grants were awarded to him. The whole amount of tuition fees paid by plaintiff to defendant and refunded to him by the latter from the first semester up to and including the first semester of his last year in the college of law or the fourth year, is in total P1,033.87. After graduating in law from Abad Santos University he applied to take the bar examination. To secure permission to take the bar he needed the transcripts of his records in defendant Arellano University. Plaintiff petitioned the latter to issue to him the needed transcripts. The defendant refused until after he had paid back the P1,033 87 which defendant refunded to him as above stated. As he could not take the bar examination without those transcripts, plaintiff paid to defendant the said sum under protest. This is the sum which plaintiff seeks to recover from defendant in this case.

Before defendant awarded to plaintiff the scholarship grants as above stated, he was made to sign the following contract covenant and agreement: "In consideration of the scholarship granted to me by the University, I hereby waive my right to transfer to another school without having refunded to the University (defendant) the equivalent of my scholarship cash. (Sgd.) Emeterio Cui".

It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum No. 38, series of 1949, on the subject of "Scholarship," addressed to "All heads of private schools, colleges and universities," reading: 1. School catalogs and prospectuses submitted to this, Bureau show that some schools offer full or partial scholarships to deserving students for excellence in scholarship or for leadership in extra-curricular activities. Such inducements to poor but gifted students should be encouraged. But to stipulate the condition that such scholarships are good only if the students concerned continue in the same school nullifies the principle of merit in the award of these scholarships. 2. When students are given full or partial scholarships, it is understood that such scholarships are merited and earned. The amount in tuition and other fees corresponding to these scholarships should not be subsequently charged to the recipient students when they decide to quit school or to transfer to another institution. Scholarships should not be offered merely to attract and keep students in a school. 3. Several complaints have actually been received from students who have enjoyed scholarships, full or partial, to the effect that they could not transfer to other schools since their credentials would not be released unless they would pay the fees corresponding to the period of the scholarships. Where the Bureau believes that the right of the student to transfer is being denied on this ground, it reserves the right to authorize such transfer. that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of Private Schools to pass upon the issue on his right to secure the transcript of his record in defendant University, without being required to refund the sum of P1,033.87; that the Bureau of Private Schools upheld the position taken by the plaintiff and so advised the defendant; and that, this notwithstanding, the latter refused to issue said transcript of records, unless said refund were made, and even recommended to said Bureau that it issue a written order directing the defendant to release said transcript of record, "so that the case may be presented to the court for judicial action." As above stated, plaintiff was, accordingly, constrained to pay, and did pay under protest, said sum of P1,033.87, in order that he could take the bar examination in 1953. Subsequently, he brought this action for the recovery of said amount, aside from P2,000 as moral damages, P500 as exemplary damages, P2,000 as attorney's fees, and P500 as expenses of litigation. In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau of Private Schools, namely, that the provisions of its contract with plaintiff are valid and binding and that the memorandum above-referred to is null and void. It, likewise, set up a counterclaim for P10,000.00 as damages, and P3,000 as attorney's fees. The issue in this case is whether the above quoted provision of the contract between plaintiff and the defendant, whereby the former waived his right to transfer to another school without refunding to the latter the equivalent of his scholarships in cash, is valid or not. The lower court resolved this question in the affirmative, upon the ground that the aforementioned memorandum of the Director of Private Schools is not a law; that the provisions thereof are advisory, not mandatory in nature; and that, although the contractual provision "may be unethical, yet it was more unethical for plaintiff to quit studying with the defendant without good reasons and simply because he wanted to follow the example of his uncle." Moreover, defendant maintains in its brief that the aforementioned memorandum of the Director of Private Schools is null and void because said officer had no authority to issue it, and because it had been neither approved by the corresponding department head nor published in the official gazette. We do not deem it necessary or advisable to consider as the lower court did, the question whether plaintiff had sufficient reasons or not to transfer from defendant University to the Abad Santos University. The nature of the issue before us, and its far reaching effects, transcend personal equations and demand a determination of the case from a high impersonal plane. Neither do we deem it essential to pass upon the validity of said Memorandum No. 38, for, regardless of the same, we are of the opinion that the stipulation in question is contrary to public policy and, hence, null and void. The aforesaid memorandum merely incorporates a sound principle of public policy. As the Director of Private Schools correctly pointed, out in his letter, Exhibit B, to the defendant,

There is one more point that merits refutation and that is whether or not the contract entered into between Cui and Arellano University on September 10, 1951 was void as against public policy. In the case of Zeigel vs. Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court said: 'In determining a public policy of the state, courts are limited to a consideration of the Constitution, the judicial decisions, the statutes, and the practice of government officers.' It might take more than a government bureau or office to lay down or establish a public policy, as alleged in your communication, but courts consider the practices of government officials as one of the four factors in determining a public policy of the state. It has been consistently held in America that under the principles relating to the doctrine of public policy, as applied to the law of contracts, courts of justice will not recognize or uphold a transaction which its object, operation, or tendency is calculated to be prejudicial to the public welfare, to sound morality or to civic honesty (Ritter vs. Mutual Life Ins. Co., 169 U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs. Allen, 173 N.Y. 359). If Arellano University understood clearly the real essence of scholarships and the motives which prompted this office to issue Memorandum No. 38, s. 1949, it should have not entered into a contract of waiver with Cui on September 10, 1951, which is a direct violation of our Memorandum and an open challenge to the authority of the Director of Private Schools because the contract was repugnant to sound morality and civic honesty. And finally, in Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to declare a contract void as against public policy, a court must find that the contract as to consideration or the thing to be done, contravenes some established interest of society, or is inconsistent with sound policy and good morals or tends clearly to undermine the security of individual rights. The policy enunciated in Memorandum No. 38, s. 1949 is sound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in school to bolster its prestige. In the understanding of that university scholarships award is a business scheme designed to increase the business potential of an education institution . Thus conceived it is not only inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is good customs; those generally accepted principles of morality which have received some kind of social and practical confirmation. The practice of awarding scholarships to attract students and keep them in school is not good customs nor has it received some kind of social and practical confirmation except in some private institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the leading colleges and universities of the United States after which our educational practices or policies are patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school for their propaganda mine but to reward merit or help gifted students in whom society has an established interest or a first lien. (Emphasis supplied.) WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered sentencing the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from September 1, 1954, date of the institution of this case, as well as the costs, and dismissing defendant's counterclaim. It is so ordered. Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Barrera, Parades, Dizon, De Leon and Natividad, JJ., concur. Bautista Angelo, J., reserves his vote. Saura vs. Sindico (contracts; contrary to public policy) Held: Contract or agreement is a nullity. Among those that may not be the subject matter (object) of contracts are certain rights of individuals, which the law and public policy have deemed wise to exclude from the commerce of man. Among them are the political rights conferred upon citizens, including, but not limited to, once's right to vote, the right to present one's candidacy to the people and to be voted to public office, provided, however, that all the qualifications prescribed by law obtain. Such rights may not, therefore, be bargained away curtailed with impunity, for they are conferred not for individual or private benefit or advantage but for the public good and interest. Facts: Saura and Sindico were contesting for nomination as the official candidate of the Nacionalista. On August 23, 1957, the parties entered into a written agreement bearing the same date, containing among other matters stated therein, a pledge that Each aspirant shall respect the result of the aforesaid convention, i.e., no one of us shall either run as a rebel or independent candidate after losing in said convention. Saura was elected and proclaimed the Party's official congressional candidate for the aforesaid district of Pangasinan. Nonetheless, Sindico filed her certificate of candidacy for election. Saura commenced this suit for the recovery of damages. RTC dismissed the complaint on the basis that the agreement sued upon is null and void, in that (1) the subject matter of the contract, being a public office, is not within the commerce of man; and (2) the "pledge" was in curtailment of the free exercise of elective franchise and therefore against public policy

EN BANC

G.R. No. L-31018 June 29, 1973 LORENZO VELASCO AND SOCORRO J. VELASCO, petitioners, vs. HONORABLE COURT OF APPEALS and MAGDALENA ESTATE, INC., respondents. Napoleon G. Rama for petitioners. Dominador L. Reyes for private respondent.

CASTRO, J.: This is a petition for certiorari and mandamus filed by Lorenzo Velasco and Socorro J. Velasco (hereinafter referred to as the petitioners) against the resolution of the Court of Appeals dated June 28, 1969 in CA-G.R. 42376, which ordered the dismissal of the appeal interposed by the petitioners from a decision of the Court of First Instance of Quezon City on the ground that they had failed seasonably to file their printed record on appeal. Under date of November 3, 1968, the Court of First Instance of Quezon City, after hearing on the merits, rendered a decision in civil case 7761, dismissing the complaint filed by the petitioners against the Magdalena Estate, Inc. (hereinafter referred to as the respondent) for the purpose of compelling specific performance by the respondent of an alleged deed of sale of a parcel of residential land in favor of the petitioners. The basis for the dismissal of the complaint was that the alleged purchase and sale agreement "was not perfected". On November 18, 1968, after the perfection of their appeal to the Court of Appeals, the petitioners received a notice from the said court requiring them to file their printed record on appeal within sixty (60) days from receipt of said notice. This 60-day term was to expire on January 17, 1969. Allegedly under date of January 15, 1969, the petitioners allegedly sent to the Court of Appeals and to counsel for the respondent, by registered mail allegedly deposited personally by its mailing clerk, one Juanito D. Quiachon, at the Makati Post Office, a "Motion For Extension of Time To File Printed Record on Appeal." The extension of time was sought on the ground "of mechanical failures of the printing machines, and the voluminous printing jobs now pending with the Vera Printing Press. ..." On February 10, 1969, the petitioners filed their printed record on appeal in the Court of Appeals. Thereafter, the petitioners received from the respondent a motion filed on February 8, 1969 praying for the dismissal of the appeal on the ground that the petitioners had failed to file their printed record on appeal on time. Acting on the said motion to dismiss the appeal, the Court of Appeals, on February 25, 1969, issued the following resolution: Upon consideration of the motion of counsel for defendant-appellee praying on the grounds therein stated that the appeal be dismissed in accordance with Rules of Court, and of the opposition thereto filed by counsel for plaintiff-appellants, the Court RESOLVED to DENY the said motion to dismiss. Upon consideration of the registry-mailed motion of counsel for plaintiffs appellants praying on the grounds therein stated for an extension of 30 days from January 15, 1969 within which to file the printed record on appeal, the Court RESOLVED to GRANT the said motion and the printed record on appeal which has already been filed is ADMITTED. On March 11, 1969, the respondent prayed for a reconsideration of the above-mentioned resolution, averring that the Court of Appeals had been misled bythe petitioners' "deceitful allegation that they filed the printed record on appeal within the reglementary period," because according to a certification issued by the postmaster of Makati, Rizal, the records of the said post office failed to reveal that on January 15, 1969 the date when their motion for extension of time to file the printed record on appeal was supposedly mailed by the petitioners there was any letter deposited there by the petitioners' counsel. The petitioners opposed the motion for reconsideration. They submitted to the appellate court the

registry receipts (numbered 0215 and 0216), both stampled January 15, 1969, which were issued by the receiving clerk of the registry section of the Makati Post Office covering the mails for the disputed motion for extension of time to file their printed record on appeal and the affidavit of its mailing clerk Juanito D. Quiachon, to prove that their motion for extension was timely filed and served on the Court of Appeals and the respondent, respectively. After several other pleadings and manifestations were filed by the parties relative to the issue raised by the respondent's above-mentioned motion for reconsideration, the Court of Appeals promulgated on June 28, 1969, its questioned resolution, the dispositive portion of which reads as follows: WHEREFORE, the motion for reconsideration filed on March 11, 1969 is granted and appeal interposed by plaintiff-appellants from the judgment of the court below is hereby dismissed for their failure to file their printed Record on Appeal within the period authorized by this Court. Atty. Patrocino R. Corpuz [counsel of the petitioner] is required to show cause within ten (10) days from notice why he should not be suspended from the practice of his necessary investigation against Juanito D. Quiachon of the Salonga, Ordoez, Yap, Sicat & Associates Law Office, Suite 319 337 Rufino Building, Ayala Avenue, Makati Post Office, to file the appropriate criminal action against them as may be warranted in the premises, and to report to this Court within thirty (30) days the action he has taken thereon. The foregoing desposition was based on the following findings of the Court of Appeals: An examination of the Rollo of this case, particularly the letter envelope on page 26 thereof, reveals that on January 15, 1969, plaintiffs supposedly mailed via registered mail from the Post Office of Makati, Rizal their motion for extension of 30 days from that date to file their printed Record on Appeal, under registered letter No. 0216. However, in an official certification, the Postmaster of Makati states that the records of his office disclose: (a) that there were no registered letters Nos. 0215 and 0216 from the Salonga, Ordoez, Yap, Sicat & Associates addressed to Atty. Abraham F. Sarmiento, 202 Magdalena Building, Espaa Ext., Quezon City, and to the Court of Appeals, Manila, respectively, that were posted in the Post Office of Makati, Rizal, on January 15, 1969; (b) that there is a registered letter numbered 215 but that the same was posted on January 3, 1969 by Enriqueta Amada of 7 Angel, Pasillo F-2, Cartimar, Pasay City, as sender, and Giral Amasan of Barrio Cabuniga-an, Sto. Nio, Samar, as addressee; and that there is also a registered letter numbered 216; but that the same was likewise posted on January 3, 1969 with E.B.A. Construction of 1049 Belbar Building, Metropolitan, Pasong Tamo, Makati, as sender, and Pres. R. Nakaya of the United Pacific Trading Co., Ltd., 79, 6 Chamo, Nakatu, Yokohari, Japan, as addressee; (c) that on January 15, 1969, the registered letters posted at the Makati Post Office were numbered consecutively from 1001-2225, inclusive, and none of these letters was addressed to Atty. Abraham F. Sarmiento of to the Court of Appeals; (d) that in Registry Bill Book No. 30 for Quezon City as well as that Manila, corresponding to February 7, 1969, there are entries covering registered letters Nos. 0215 and 0216 for dispatch to Quezon City and Manila, respectively; however, such registry book for February 7, 1969 shows no letters with such numbers posted on the said date. The Acting Postmaster of the Commercial Center Post Office of Makati, Rizal, further certifies that "Registry Receipts Nos. 0215 and 0216 addressed to Atty. Abraham F. Sarmiento of the Magdalena Estate, Quezon City and the Honorable Court of Appeals, respectively, does not appear in our Registry Record Book which was allegedly posted at this office on January 15, 1969." From the foregoing, it is immediately apparent that the motion for extension of time to file their Record on Appeal supposedly mailed by the plaintiffs on January 15, 1969 was not really mailed on that date but evidently on a date much later than January 15, 1969. This is further confirmed by the affidavit of Flaviano Malindog, a letter carrier of the Makati Post Office, which defendant attached as Annex 1 to its supplemental reply to plaintiffs' opposition to the motion for reconsideration. In his said affidavit, Malindog swore among others: 'That on February 7, 1969, between 12:00 o'clock noon and 1:00 o'clock in the afternoon, JUANITO D. QUIACHON approached me at the Makati Post Office and talked to me about certain letters which his employer had asked him to mail and that I should help him do something about the matter; but I asked him what they were all about, and he told me that they were letters for the Court of Appeals and for Atty. Abraham Sarmiento and that his purpose was to show that they were posted on January 15, 1969; that I inquired further, and he said that the letters were not so important and that his only concern was to have them post maker January 15, 1969;

'That believing the word of JUANITO D. QUIACHON that the letters were not really important I agreed to his request; whereupon, I got two (2) registry receipts from an old registry receipt booklet which is no longer being used and I numbered them 0215 for the letter addressed to Atty. Abraham Sarmiento in Quezon City and 0216 for the letter addressed to the Court of Appeals, Manila; that I placed the same numbering on the respective envelopes containing the letters; and that I also post maker them January 15, 1969; 'That to the best of my recollection I wrote the correct date of posting, February 7, 1969, on the back of one or both of the registry receipts above mentioned; 'That the correct date of posting, February 7, 1969 also appears in the Registry Bill Books for Quezon City and Manila where I entered the subject registered letters; Of course, plaintiff's counsel denies the sworn statement of Malindog and even presented the counteraffidavit of one of his clerk by the name of Juanito D. Quiachon. But between Malindog, whose sworn statement is manifestly a declaration against interest since he can be criminally prosecuted for falsification on the basis thereof, and that of Quiachon, whose statement is self-serving, we are very much inclined to give greater weight and credit to the former. Besides, plaintiffs have not refuted the facts disclosed in the two (2) official certifications above mentioned by the Postmakers of Makati, Rizal. These two (2) certifications alone, even without to move this Court to reconsider its resolution of February 25, 1969 and order the dismissal of this appeal. On September 5, 1969, after the rendition of the foregoing resolution, the Court of Appeals promulgated another, denying the motion for reconsideration of the petitioner, but, at the same time, accepting as satisfactory the explanation of Atty. Patrocino R. Corpuz why he should not be suspended from the practice of the legal profession. On September 20, 1969, the First Assistant Fiscal of Rizal notified the Court of Appeals that he had found a prima facie case against Flaviano C. Malindog and would file the corresponding information for falsification of public documents against him. The said fiscal, however, dismissed the complaint against Quiachon for lack of sufficient evidence. The information subsequently filed against Malindog by the first Assistance Fiscal of Rizal reads as follow: That on or about the 7th day of February 1969, in the municipality of Makati, province of Rizal, and a place within the jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating together and mutually helping and aiding with John Doe, whose true identity and present whereabout is still unknown, did then and there willfully, unlawfully and feloniously falsify two registry receipts which are public documents by reason of the fact that said registry receipts are printed in accordance with the standard forms prescribed by the Bureau of Posts, committed as follows: the abovenamed accused John Doe, on the date above-mentioned approached and induced the accused Malindog, a letter-carrier at the Makati Post Office, to postmark on Abraham Sarmiento in Quezon City, and the other to the Court of Appeals, Manila, and the accused Malindog, acceding to the inducement of, and in conspiracy with, his co-accused John Doe, did then and there willfully and feloniously falsify said registry receipts of the Makati Post Office on January 15, 1969, thereby making it appear that the said sealed envelopes addressed to Atty. Sarmiento and the Court of Appeals were actually posted, and causing it to appear that the Postmaster of Makati participated therein by posting said mail matters on January 15, 1969, when in truth and in fact he did not so participate. The petitioner contend that in promulgating its questioned resolution, the Court of Appeals acted without or in excess of jurisdiction, or with such whimsical and grave abuse of discretion as to amount to lack of jurisdiction, because (a) it declared that the motion for extension of time to file the printed record on appeal was not mailed on January 15, 1969, when, in fact, it was mailed on the record on appeal was filed only on February 10, 1969, beyond the time authorized by the appellate court, when the truth is that the said date of filing was within the 30-day extension granted by it; (c) the adverse conclusion of the appellate court are not supported by the records of the case, because the said court ignored the affidavit of the mailing clerk of the petitioners' counsel, the registry receipts and postmarked envelopes (citing Henning v. Western Equipment, 62 Phil. 579, and Caltex Phil., Inc. v. Katipunan Labor Union, 52 O.G. 6209), and, instead, chose to rely upon the affidavit of the mail carrier Malindog, which affidavit was prepared by counsel for the respondent at the affiant himself so declared at the preliminary investigation at the Fiscal's office which absolved the petitioners' counsel mailing clerk Quiachon from any criminal liability; (d) section 1, Rule 50 of the Rules of Court, which enumerates the grounds upon which the Court of Appeals may dismiss an appeal, does not include as a ground the failure to file a printed record on appeal; (e) the said section does not state either that the mismailing of a motion to extend the time to file the printed record on appeal, assuming this to be the case, may be a basis for the dismissal of the appeal; (f) the Court of

Appeals has no jurisdiction to revoke the extention of time to file the printed record on appeal it had granted to the petitioners based on a ground not specified in section 1, Rule 50 of the Rules of Court; and (g) the objection to an appeal may be waived as when the appellee has allowed the record on appeal to be printed and approved (citing Moran, Vol. II, p. 519). Some of the objections raised by the petitioners to the questioned resolution of the Court of Appeals are obviously matters involving the correct construction of our rules of procedure and, consequently, are proper subjects of an appeal by way of certiorari under Rule 45 of the Rules of Court, rather than a special civil action for certiorari under Rule 65. The petitioners, however, have correctly appreciated the nature of its objections and have asked this Court to treat the instant petition as an appeal by way of certiorari under Rule 45 "in the event ... that this Honorable Supreme Court should deem that an appeal is an adequate remedy ..." The nature of the case at bar permits, in our view, a disquisition of both types of assignments. We do not share the view of the petitioners that the Court of Appeals acted without or in excess of jurisdiction or gravely abused its discretion in promulgating the questioned resolution. While it is true that stamped on the registry receipts 0215 and 0215 as well as on the envelopes covering the mails in question is the date "January 15, 1969," this, by itself, does not establish an unrebuttable presumption of the fact of date of mailing. Henning and Caltex, cited by the petitioners, are not in point because the specific adjective issue resolved in those cases was whether or not the date of mailing a pleading is to be considered as the date of its filing. The issue in the case at bar is whether or not the motion of the petitioners for extension of time to file the printed record on appeal was, in point of fact, mailed (and, therefore, filed) on January 15, 1969. In resolving this issue in favor of the respondent, this Court finds, after a careful study and appraisal of the pleadings, admissions and denials respectively adduced and made by the parties, that the Court of Appeals did not gravely abuse its discretion and did not act without or in excess of its jurisdiction. We share the view of the appellate court that the certifications issued by the two postmasters of Makati, Rizal and the sworn declaration of the mail carrier Malindog describing how the said registry receipts came to be issued, are worthy of belief. It will be observed that the said certifications explain clearly and in detail how it was improbable that the petitioners' counsel in the ordinary course of official business, while Malindog's sworn statement, which constitutes a very grave admission against his own interest, provides ample basis for a finding that where official duty was not performed it was at the behest of a person interested in the petitioners' side of the action below. That at the preliminary investigation at the Fiscal's office, Malindog failed to identify Quiachon as the person who induced him to issue falsified receipts, contrary to what he declared in his affidavit, is of no moment since the findings of the inquest fiscal as reflected in the information for falsification filed against Malindog indicate that someone did induce Malindog to make and issue false registry receipts to the counsel for the petitioners. This Court held in Bello vs. Fernando that the right to appeal is nota natural right nor a part of due process; it is merely a statutory privilege, and may be exercised only in the manner provided by law. In this connection, the Rule of Court expressly makes it the duty of an appellant to file a printed record on appeal with the Court of Appeals within sixty (60) record on appeal approved by the trial court has already been received by the said court. Thus, section 5 of Rule 46 states: Sec. 5. Duty of appellant upon receipt of notice. It shall be the duty of the appellant within fifteen (15) days from the date of the notice referred to in the preceding section, to pay the clerk of the Court of Appeals the fee for the docketing of the appeal, and within sixty (60) days from such notice to submit to the court forty (40) printed copies of the record on appeal, together with proof of service of fifteen (15) printed copies thereof upon the appelee. As the petitioners failed to comply with the above-mentioned duty which the Rules of Court enjoins, and considering that, as found by the Court of Appeals, there was a deliberate effort on their part to mislead the said Court in grating them an extension of time within which to file their printed record on appeal, it stands to reason that the appellate court cannot be said to have abused its discretion or to have acted without or in excess of its jurisdiction in ordering the dismissal of their appeal. Our jurisprudence is replete with cases in which this Court dismissed an appeal on grounds not mentioned specifically in Section 1, Rule 50 of the Rules of Court. (See, for example, De la Cruz vs. Blanco, 73 Phil. 596 (1942); Government of the Philippines vs. Court of Appeals, 108 Phil. 86 (1960); Ferinion vs. Sta. Romana, L-25521, February 28, 1966, 16 SCRA 370, 375).
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It will likewise be noted that inasmuch as the petitioners' motion for extension of the period to file the printed record on appeal was belated filed, then, it is as though the same were non-existent, since as this Court has already stated 2 in Baquiran vs. Court of Appeals, "The motion for extension of the period for filing pleadings and papers in court must be made before the expiration of the period to be extended." The soundness of this dictum in matters of procedure is selfevident. For, were the doctrine otherwise, the uncertainties that would follow when litigants are left to determine and redetermine for themselves whether to seek further redress in court forthwith or take their own sweet time will result in litigations becoming more unreable than the very grievances they are intended to redness. The argument raised by the petitioner that the objection to an appeal maybe waived, as when the appellee allows the record on appeal to be printed and approved is likewise not meritorious considering that the respondent did file a motion in the Court of Appeals on February 8, 1969 praying for the dismissal of the below of the petitioners had not yet filed their record on appeal and, therefore, must be considered to have abandoned their appeal. In further assailing the questioned resolution of the Court of Appeals, the petitioners also point out that on the merits the equities of the instant case are in their favor. A reading of the record, however, persuades us that the judgment a quo is substantially correct and morally just. The appealed decision of the court a quo narrates both the alleged and proven facts of the dispute between the petitioners and the respondent, as follows: This is a suit for specific performance filed by Lorenzo Velasco against the Magdalena Estate, Inc. on the allegation that on November 29, 1962 the plaintiff and the defendant had entered into a contract of sale (Annex A of the complaint) by virtue of which the defendant offered to sell the plaintiff and the plaintiff in turn agreed to buy a parcel of land with an area of 2,059 square meters more particularly described as Lot 15, Block 7, Psd-6129, located at No. 39 corner 6th Street and Pacific Avenue, New Manila, this City, for the total purchase price of P100,000.00. It is alleged by the plaintiff that the agreement was that the plaintiff was to give a down payment of P10,000.00 to be followed by P20,000.00 and the balance of P70,000.00 would be paid in installments, the equal monthly amortization of which was to be determined as soon as the P30,000.00 down payment had been completed. It is further alleged that the plaintiff paid down payment of P10,000.00 on November 29, 1962 as per receipt No. 207848 (Exh. "A")and that when on January 8, 1964 he tendered to the defendant the payment of the additional P20,000.00 to complete the P30,000.00 the defendant refused to accept and that eventually it likewise refused to execute a formal deed of sale obviously agreed upon. The plaintiff demands P25,000.00 exemplary damages, P2,000.00 actual damages and P7,000.00 attorney's fees. The defendant, in its Answer, denies that it has had any direct dealings, much less, contractual relations with the plaintiff regarding the property in question, and contends that the alleged contract described in the document attached to the complaint as Annex A is entirely unenforceable under the Statute of Frauds; that the truth of the matter is that a portion of the property in question was being leased by a certain Socorro Velasco who, on November 29, 1962, went to the office of the defendant indicated her desire to purchase the lot; that the defendant indicated its willingness to sell the property to her at the price of P100,000.00 under the condition that a down payment of P30,000.00 be made, P20,000.00 of which was to be paid on November 31, 1962, and that the balance of P70,000.00 including interest a 9% per annum was to be paid on installments for a period of ten years at the rate of P5,381.32 on June 30 and December of every year until the same shall have been fully paid; that on November 29, 1962 Socorro Velasco offered to pay P10,000.00 as initial payment instead of the agreed P20,000.00 but because the amount was short of the alleged P20,000.00 the same was accepted merely as deposited and upon request of Socorro Velasco the receipt was made in the name of her brother-in-law the plaintiff herein; that Socorro Velasco failed to complete the down payment of P30,000.00 and neither has she paid any installments on the balance of P70,000.00 up to the present time; that it was only on January 8, 1964 that Socorro Velasco tendered payment of P20,000.00, which offer the defendant refused to accept because it had considered the offer to sell rescinded on account of her failure to complete the down payment on or before December 31, 1962. The lone witness for the plaintiff is Lorenzo Velasco, who exhibits the receipt, Exhibits A, issued in his favor by the Magdalena Estate, Inc., in the sum of P10,000.00 dated November 29, 1962. He also identifies a letter (Exh. B)of the Magdalena Estate, Inc. addressed to him and his reply thereto. He testifies that Socorro Velasco is his sister-in-law and that he had requested her to make the necessary contacts with defendant referring to the purchase of the property in question. Because he does not

understand English well, he had authorized her to negotiate with the defendant in her whenever she went to the office of the defendant, and as a matter of fact, the receipt for the P10,000.00 down payment was issued in his favor. The plaintiff also depends on Exhibit A to prove that there was a perfected follows: "Earnest money for the purchase of Lot 15, Block 7, Psd-6129, Area 2,059 square meters including improvements thereon P10,000.00." At the bottom of Exhibit A the following appears: "Agreed price: P100,000.00, P30,000.00 down payment, bal. in 10 years." To prove that the Magdalena Estate, Inc. had been dealing all along with him and not with his sister-inlaw and that the Magdalena Estate, Inc. knew very well that he was the person interested in the lot in question and not his sister-in-law, the plaintiff offers in evidence five checks all drawn by him in favor of Magdalena Estate, Inc. for payment of the lease of the property. .... There does not seem to be any dispute regarding the fact that the Velasco family was leasing this property from the Magdalena Estate, Inc. since December 29, 1961; that the Velasco family sometime in 1962 offered to purchase the lot as a result of which Lorenzo Velasco thru Socorro Velasco made the P10,000.00 deposit or, in the language of the defendant 'earnest money or down payment' as evidenced by Exhibit A. The only matter that remains to be decided is whether the talks between the Magdalena Estate, Inc. and Lorenzo Velasco either directly or thru his sister-in-law Socorro Velasco ever ripened into a consummated sale. It is the position of the defendant (1) that the sale was never consummated and (2) that the contract is unenforceable under the Statute of Frauds. The court a quo agreed with the respondent's (defendant therein) contention that no contract of sale was perfected because the minds of the parties did not meet "in regard to the manner of payment." The court a quo appraisal of this aspect of the action below is correct. The material averments contained in the petitioners' complaint themselves disclose a lack of complete "agreement in regard to the manner of payment" of the lot in question. The complaint states pertinently: 4. That plaintiff and defendant further agreed that the total down payment shall by P30,000.00, including the P10,000.00 partial payment mentioned in paragraph 3 hereof, and that upon completion of the said down payment of P30,000.00, the balance of P70,000.00 shall be said by the plaintiff to the defendant in 10 years from November 29, 1962; 5. That the time within the full down payment of the P30,000.00 was to be completed was not specified by the parties but the defendant was duly compensated during the said time prior to completion of the down payment of P30,000.00 by way of lease rentals on the house existing thereon which was earlier leased by defendant to the plaintiff's sister-in-law, Socorro J. Velasco, and which were duly paid to the defendant by checks drawn by plaintiff. It is not difficult to glean from the aforequoted averments that the petitioners themselves admit that they and the respondent still had to meet and agree on how and when the down-payment and the installment payments were to be paid. Such being the situation, it cannot, therefore, be said that a definite and firm sales agreement between the parties had been perfected over the lot in question. Indeed, this Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and unforceable contract of 3 sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000 as part of the downpayment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under article 1482 of the new Civil Code, as the petitioners themselves admit that some essential matter the terms of payment still had to be mutually covenanted. ACCORDINGLY, the instant petitioner is hereby denied. No pronouncement as to costs. Makalintal, Makasiar and Esguerra, JJ., concur. Fernando, J., took no part. Barredo, J.: The petitioners having clearly and without sufficient justification failed to prosecute their appeal within the period allowed by the rules, I vote to deny the petition, and consistently with my view already expressed on previous occasions, any discussion of the merits of the appeal is unwarranted, particularly, in instances like the present, wherein the same does not appear to me, upon cursory examination to be beyond doubt..

Separate Opinions

TEEHANKEE, J., dissenting: I dissent from the main opinion penned by Mr. Justice Castro affirming the appellate court's dismissal of petitioner' pending appeal before it because of late submittal of the printed record on appeal (by 24 days), on appeal when the appeal was indisputably timely perfected does not call for the imposition of the capital penalty of dismissal of the appeal. As in my separate opinion in Sison vs. Gatchalian promulgated just a few weeks earlier, I must note with gratification the special pains taken in the main opinion to discuss nevertheless the substance and merit of the aborted appeal and to record the Court's policy in such cases (of dismissal of appeals timely perfected for failure to comply with certain 2 requirements of the Rules) of invariably satisfying itself that there is "a rational basis for the result by the trial court" in the judgment sought to be reviewed by the appeal. In the case at bar, however, I believe that the merits and equities invoked by petitioners-appellants in support of their action for specific performance of their agreement with respondent for the purchase of the parcel of land described in the complaint for the "agreement price (of): P10,000.00, P30,000.00 down payment, bal. in 10 years" (which is a matter of mathematical computation), with petitioners having admittedly made a down payment of P10,000.00 as "earnest money" which was accepted by respondent and continuing to pay respondent lease rentals for the time taken to complete the full down payment pending formalization of their contract, deserve a full-dress consideration of the appeal and legal principles involved with a decision on the merits of the case itself. Since two other members of the Court, viz, Justices Barredo and Antonio, have reserved their opinions on the merits of the appeals, as stated in their respective concurrences, I further consider this to be a case where the paramount considerations of substantial justice must take precedence over the lateness (by 24 days) in the submittal of the printed record on appeal which in no way can be claimed to have prejudiced the substantial rights of respondent or delayed the cause of the administration of justice and that accordingly, such a technical trangression on counsel's part should not result in the drastic forfeiture of petitioners' right of appeal and of securing a possible of the adverse verdict of the lower court. As stated by Chief Justice Concepcion for the Court in Concepcion vs. Payatas Estate Improvements Co., Inc ., "After all, pleadings, as well as remedial laws, should by construed literally, in order that litigants may have ample opportunity to prove their respective claims, and that a possible denial of substantial justice, due to legal technicalities, may be avoided." This is but the very mandate of the Rules of Court: that they be "liberally construed in order to promote their object and to 4 assist the determination of every action and proceeding" and that "All pleadings shall be liberally construed so as to 5 do substantial justice." Here, the 60-day period for petitioners appellants "to submit .... forty (40) printed copies of the record on appeal" from notice on November 18, 1968 of receipt of the original typewritten record on appeal" from notice on November 18, 1968 of 6 receipt of the original typewritten record on appeal in the appellate court was to expire on January 17, 1969. Petitioners submitted their printed record on appeal on the 24th day after such expiry date, viz, on viz, on February 10, 1969. The appellate court admitted the printed record on appeal as per its original resolution of February 25, 1969 denying respondent's motion to dismiss the appeal, wherein it granted the registry-mailed motion of petitioners' counsel for a 30day extension from January 15, 1969 within which to submit the same. Counsel's ground for such extension was from ground for such extension machines and voluminous printing jobs of the Vera Pinting Press, which they had contracted to do the printing job. Upon complaint of respondent, however, that petitioners' counsel, through its mailing clerk Juanito D. Quiachon, had deceived the appellate court into believing that their motion for extension had been registry mailed January 15, 1969 when actually it was so mailed late only on February 7, 1969, as borne out by the affidavit of Flaviano Malindog, a said post office which the appellate court believed as against Quiachon's counter-affidavit to the contrary the said court as per its resolution of June 28, 1969 granted respondent's motion for reconsideration and ordered the dismissal of petitioners' appeal "for their failure to file their printed record on appeal within the period authorized by this court." In the same resolution, Atty. Patrocino R. Corpus, as petitioners' counsel, was required to show cause "why he should not be suspended from the practice of his profession for deceit, falsehood and violation of his sworn duty to the Court," but
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subsequently, the appellate court as per its resolution of September 5, 1969 accepted as satisfactory said counsel's explanation and disclaimer of any wrongdoing. Acting upon the appellate court's directive to investigate the incident for the filing of appropriate criminal action against Quiachon and Malindog, the Rizal provincial fiscal found a prima facie case against Malindog (the letter-carrier) and charged him in the corresponding information for falsification of public documents but dismissed the complaint against Quiachon (the mailing clerk of petitioners' counsel) for lack of sufficient evidence since Malindog could not identify Quiachon ass the person who induced him to issue falsified registry receipts. I concur with the main opinion in its ruling upholding the appellate court's factual findings, which I don't consider to be reviewable by this Court, grounded as they are on substantial evidence. Hence, for purposes of this review, such factual findings must be postulated, to wit, that the printed record on appeal was submitted 24 days late on February 10, 1969, that there was a deliberate effort on the part of an unknown person (John Doe in the in information) not petitioners nor their counsel nor Quiachon, the mailing clerk to induce Malindog to make and issue false registry receipts that showed that petitioners' counsel's motion for a 30-day extension to submit theprinted record on appeal was filed timely on January 15, 1959 rather late(by 21 days) on February 7, 1969. The general issue of law that confronts us then is this: is the 60-day period for submitting the printed record on appeal mandatory and jurisdictional or is this merely a procedural period on appeal (owing to a valid reason of mechanical failures and pressure of work of the printer) regardless of whether a motion for extension of time to submit the printed record on appeal was in fact filed or filed out of time after expiration of the original 60-day period, may in the appellate court's sound discretion in the interest of justice and equity be nevertheless allowed and appeal heard and decided on its merits? The 60-day period for submitting the printed record on appeal is obviously imposed as a procedural rule, under Rule 46, section 5, like many other time limitations imposed by the Rule of Court as indispensable to the prevention of needless 7 dalays and necessary to the orderly and speedy discharge of judicial business. But this 60-day period for submitting the printed record on appeal is to be distinguished from a court of first instance judgment under Rule 41, section 3, where failure to file the necessary notice, bond and record on appeal within the said 30-day period, if not duly extended, is fatal and calls for dismissal of the unperfected appeal under Rule 41, section 13. Here, the appeal had been long and timely duly perfected by petitioners. What is merely involved here is late filing (by 24 days) of the printed copies of the record on appeal, which this Court has held in Ever Ice Drop Factory vs. Court of 8 Appeals as "not indispensable to the jurisdiction of the appellate courts, the sole purpose of such printing being convenience in the handling, keeping and reading of the record on appeal." In the cited case of Ever, the Court applied the salutary rule of overlooking procedural deficiencies in the interest of substantial justice and set aside the appellate court's dismissal of the appeal (for non-inclusion in the joint record on appeal of the appellants' notice of appeal and date of receipt of the appealed decision on appeal"), ruling that "Inasmuch as Rule 41 is in that portion of the rules pertaining to the stage of the appeal process taking place in the trial court, it is but logical that the frame of reference, when the completeness of a record on appeal, as therein provided, is in question, must be the contents of said record as filed with said court, and not necessarily those of the printed one filed with the appellant court." As applied to the case at bar, therefore, I vote for the granting of the petition and to demand the appeal to the appellate court for disposition and decision of the merits, for the following considerations, in addition to those stated above and in my separate opinion in Sison, supra: Since the use of the false registry receipts appears in no way to be the making of petitioners themselves, who as clients may be presumed to be entirely unaware of the procedural requirements and of their counsel's action or inaction in complying therewith, the imposition of the capital of dismissal of petitioners' appeal is unduly severe; Such a harsh penalty appears to be in derogation of the interest and purpose of the Rules of Court the proper and just determination of a litigation. No substantial right of respondent has been prejudiced by the late submittal of the late submittal of the printed record, whereas petitioners' appeal would be forfeited through no fault or negligence on their part; While clients are generally bound by the actions or mistakes of their counsels, here no fault or wrongdoing has been attributed to either petitioners or their counsel. Their counsel's late submittal of the brief and of the corresponding motions for extension (by less than a month's time) is not rank failure to comply with the rule's requirements;

The specific rule (Rule 46, section 5) does not provided for dismissal of the appeal for failure to submit theprinted record on appeal whereas section 7 of the rule prohibits "alternations, omissions or additions to the printed record" and does provide that "a violation of this prohibition shall be a ground for dismissal of the appeal." Even Rule 50, section 1 which provides that the appellate court may dismissal pending appeal for certain specific infractions of the rules, e.g. failure to pay the docketing fee or to file appellant's brief on time or "unauthorized alterations, omissions or additions in the printed record on appeal" (paragraph(e)) or want of specific assignment of errors or of page references to the record in appellant's brief, merely confers a power, not a duty, upon the mandatory, upon the said court to exercise its power to dismiss an appeal and dismissal has been ordered sparingly and only in extreme cases warranting dismissal; Withal, this Court may dismiss an appeal even on grounds not specifically mentioned in Rule 50, section 1, as where the wanton or inexcusable conduct of appellant in not complying with the rules warrants such dismissal. 9 But the Rules certainly do not authorize dismissal of a duly perfected appeal within the original 60-day period, such failure not being wanton or inexcusable. Yet such failure to file the printed record on appeal within the 60-day period (which was filed late by 24 days and had already been admitted) was the only ground stated by the appellate court for its peremptory dismissal of the appeal; Thus, the appellate court did not sustain respondent's contention that petitioners through counsel had deceived it through knowing use of the false registry receipts, since it exonerated counsel of any complicity. One gets the impression that the unnamed person had perhaps induced Malindog to issue the false receipts to cover up some neglect or fault on Quiachon's part in not having timely mailed counsel's extension motion, but neither the appellate court nor the fiscal made any such Quiachon was responsible for the deception, it does not seem fair to penalize petitioners with dismissal of their appeal; The appellate court thus disregarded the harmless error rule as provided in Rule 51, section 5 that "no error or defect in any ruling or order ... [such as its first order admitting the printed record on appeal in the belief that petitioners' motion for extension had been timely filed] .... is ground.... for setting aside, modifying or otherwise disturbing a judgment or order, unless refusal to take such action appears to the court inconsistent with substantial justice. The court at every stage of the 10 proceeding must disregard any error or defect which does notaffect the substantial rights of the parties;" Since the enactment as of September 9, 1968 of Republic Act 5440 providing that in most cases as specified 11 therein, review by this Court of final judgments and decrees of inferior courts shall be by petition for writ of certiorari and no longer by record on appeal some parties-appellants aggrieved by adverse to submit their appeals to this Court by means of records on appeal as approved by the lower court, contrary to the act's mandate that they should by presented by means of "petition .... filed and served in the form required for petitions for review by certiorari of decisions of the Court of Appeals." 12 Strictly speaking, such an error although abetted by the trial court's act of approving a record on appeal that is not required by the Act, could be considered fatal to the appeal. But following paramount considerations of 13 substantial justice in preference to transgressions of form, as stressed in Sonora vs. Tongoy, "the Court has been liberal in the implementation of Republic Act 5440 and instead of dismissing appeals coming up to Us by record on appeal, We have allowed the appellants to file the corresponding petition(for review by certiorari) provided the appeal by 14 record on appeal had been duly perfected within the reglementary period. This is to stress that even though the provision of Republic Act 5440 that such appeals shall be only on petitions for review by petitions by certiorari and no longer as a matter of right by record on appeal is of a mandatory character, this Court has nevertheless adopted a liberal construction and chosen to apply the principle of substantial justice in favor of one whose appeal was actually perfected on time rather than to sacrifice substance to form. In the language of Sonora, vis a vis the case at bar, "it is less than fair for respondents to attempt to cut off (petitioners') right to appeal by invoking the literal meaning of the language of the rules, disregarding their wise and practical construction already laid down by the 15 Supreme Court." In sensu contrario, applying the same principles of substantial justice the Court has in many cases seeking mandamus or reinstatement of disallowed appeals (although timely made) looked at the "substantive merits" of the proposed appeal and where "there is hardly any prospect of its being ultimately sucessful," denied mandamus, ruling as in Espiritu vs. CFI 16 of Cavite that" this Court has already ruled on several occasions, since as early as De la Cruz vs. Blanco, 73 Phil. 596 that mandamus to compel approval and certification of an appeal, even if otherwise well grounded, procedurally speaking, 17 has to be appeal itself, and 'it would serve no useful purpose to reinstate' the same." Lucas vs. Mariano was to the same effect with the Court sustaining therein petitioner's submittal "that from the point of view of the time of the taking of the appeal, petitioners, We are sufficiently convinced that their claim of title has no chance of being sustained even if other and further proceedings were to be held in the court below;" and

Finally, adherence to a liberal construction of the procedural rules in order to attain their objective of substantial justice and of avoiding possible denials of substantial justice due to procedural technicalities does not mean non-enforcement of the Rules of Court which are universally recognized to be necessary to the orderly and speedy discharge of judicial business with the least delay. Compliance with the rules, which are not of mandatory character (such as the period for perfecting appeals, failure to observe which results in the automatic penalty of loss of the right to appeal) but of directory character to provide time tables and prevent needless delay in readying a duly perfected appeal for consideration and decision (such as the 60-day period for submittal of the printed record on appeal involved here, periods for filling of briefs and transcripts, through the imposition of appropriate disciplinary admonition or offending counsel, ranging from an contempt to even more drastic measures of administrative proceedings for disbarment against him, depending upon the gravity of the offense. Separate Opinions TEEHANKEE, J., dissenting: I dissent from the main opinion penned by Mr. Justice Castro affirming the appellate court's dismissal of petitioner' pending appeal before it because of late submittal of the printed record on appeal (by 24 days), on appeal when the appeal was indisputably timely perfected does not call for the imposition of the capital penalty of dismissal of the appeal. As in my separate opinion in Sison vs. Gatchalian promulgated just a few weeks earlier, I must note with gratification the special pains taken in the main opinion to discuss nevertheless the substance and merit of the aborted appeal and to record the Court's policy in such cases (of dismissal of appeals timely perfected for failure to comply with certain 2 requirements of the Rules) of invariably satisfying itself that there is "a rational basis for the result by the trial court" in the judgment sought to be reviewed by the appeal. In the case at bar, however, I believe that the merits and equities invoked by petitioners-appellants in support of their action for specific performance of their agreement with respondent for the purchase of the parcel of land described in the complaint for the "agreement price (of): P10,000.00, P30,000.00 down payment, bal. in 10 years" (which is a matter of mathematical computation), with petitioners having admittedly made a down payment of P10,000.00 as "earnest money" which was accepted by respondent and continuing to pay respondent lease rentals for the time taken to complete the full down payment pending formalization of their contract, deserve a full-dress consideration of the appeal and legal principles involved with a decision on the merits of the case itself. Since two other members of the Court, viz, Justices Barredo and Antonio, have reserved their opinions on the merits of the appeals, as stated in their respective concurrences, I further consider this to be a case where the paramount considerations of substantial justice must take precedence over the lateness (by 24 days) in the submittal of the printed record on appeal which in no way can be claimed to have prejudiced the substantial rights of respondent or delayed the cause of the administration of justice and that accordingly, such a technical trangression on counsel's part should not result in the drastic forfeiture of petitioners' right of appeal and of securing a possible of the adverse verdict of the lower court. As stated by Chief Justice Concepcion for the Court in Concepcion vs. Payatas Estate Improvements Co., Inc., "After all, pleadings, as well as remedial laws, should by construed literally, in order that litigants may have ample opportunity to prove their respective claims, and that a possible denial of substantial justice, due to legal technicalities, may be avoided." This is but the very mandate of the Rules of Court: that they be "liberally construed in order to promote their object and to 4 assist the determination of every action and proceeding" and that "All pleadings shall be liberally construed so as to 5 do substantial justice." Here, the 60-day period for petitioners appellants "to submit .... forty (40) printed copies of the record on appeal" from notice on November 18, 1968 of receipt of the original typewritten record on appeal" from notice on November 18, 1968 of 6 receipt of the original typewritten record on appeal in the appellate court was to expire on January 17, 1969. Petitioners submitted their printed record on appeal on the 24th day after such expiry date, viz, on viz, on February 10, 1969. The appellate court admitted the printed record on appeal as per its original resolution of February 25, 1969 denying respondent's motion to dismiss the appeal, wherein it granted the registry-mailed motion of petitioners' counsel for a 30day extension from January 15, 1969 within which to submit the same. Counsel's ground for such extension was from ground for such extension machines and voluminous printing jobs of the Vera Pinting Press, which they had contracted to do the printing job.
3 1

Upon complaint of respondent, however, that petitioners' counsel, through its mailing clerk Juanito D. Quiachon, had deceived the appellate court into believing that their motion for extension had been registry mailed January 15, 1969 when actually it was so mailed late only on February 7, 1969, as borne out by the affidavit of Flaviano Malindog, a said post office which the appellate court believed as against Quiachon's counter-affidavit to the contrary the said court as per its resolution of June 28, 1969 granted respondent's motion for reconsideration and ordered the dismissal of petitioners' appeal "for their failure to file their printed record on appeal within the period authorized by this court." In the same resolution, Atty. Patrocino R. Corpus, as petitioners' counsel, was required to show cause "why he should not be suspended from the practice of his profession for deceit, falsehood and violation of his sworn duty to the Court," but subsequently, the appellate court as per its resolution of September 5, 1969 accepted as satisfactory said counsel's explanation and disclaimer of any wrongdoing. Acting upon the appellate court's directive to investigate the incident for the filing of appropriate criminal action against Quiachon and Malindog, the Rizal provincial fiscal found a prima facie case against Malindog (the letter-carrier) and charged him in the corresponding information for falsification of public documents but dismissed the complaint against Quiachon (the mailing clerk of petitioners' counsel) for lack of sufficient evidence since Malindog could not identify Quiachon ass the person who induced him to issue falsified registry receipts. I concur with the main opinion in its ruling upholding the appellate court's factual findings, which I don't consider to be reviewable by this Court, grounded as they are on substantial evidence. Hence, for purposes of this review, such factual findings must be postulated, to wit, that the printed record on appeal was submitted 24 days late on February 10, 1969, that there was a deliberate effort on the part of an unknown person (John Doe in the in information) not petitioners nor their counsel nor Quiachon, the mailing clerk to induce Malindog to make and issue false registry receipts that showed that petitioners' counsel's motion for a 30-day extension to submit theprinted record on appeal was filed timely on January 15, 1959 rather late(by 21 days) on February 7, 1969. The general issue of law that confronts us then is this: is the 60-day period for submitting the printed record on appeal mandatory and jurisdictional or is this merely a procedural period on appeal (owing to a valid reason of mechanical failures and pressure of work of the printer) regardless of whether a motion for extension of time to submit the printed record on appeal was in fact filed or filed out of time after expiration of the original 60-day period, may in the appellate court's sound discretion in the interest of justice and equity be nevertheless allowed and appeal heard and decided on its merits? The 60-day period for submitting the printed record on appeal is obviously imposed as a procedural rule, under Rule 46, section 5, like many other time limitations imposed by the Rule of Court as indispensable to the prevention of needless 7 dalays and necessary to the orderly and speedy discharge of judicial business. But this 60-day period for submitting the printed record on appeal is to be distinguished from a court of first instance judgment under Rule 41, section 3, where failure to file the necessary notice, bond and record on appeal within the said 30-day period, if not duly extended, is fatal and calls for dismissal of the unperfected appeal under Rule 41, section 13. Here, the appeal had been long and timely duly perfected by petitioners. What is merely involved here is late filing (by 24 days) of the printed copies of the record on appeal, which this Court has held in Ever Ice Drop Factory vs. Court of 8 Appeals as "not indispensable to the jurisdiction of the appellate courts, the sole purpose of such printing being convenience in the handling, keeping and reading of the record on appeal." In the cited case of Ever, the Court applied the salutary rule of overlooking procedural deficiencies in the interest of substantial justice and set aside the appellate court's dismissal of the appeal (for non-inclusion in the joint record on appeal of the appellants' notice of appeal and date of receipt of the appealed decision on appeal"), ruling that "Inasmuch as Rule 41 is in that portion of the rules pertaining to the stage of the appeal process taking place in the trial court, it is but logical that the frame of reference, when the completeness of a record on appeal, as therein provided, is in question, must be the contents of said record as filed with said court, and not necessarily those of the printed one filed with the appellant court." As applied to the case at bar, therefore, I vote for the granting of the petition and to demand the appeal to the appellate court for disposition and decision of the merits, for the following considerations, in addition to those stated above and in my separate opinion in Sison, supra:

Since the use of the false registry receipts appears in no way to be the making of petitioners themselves, who as clients may be presumed to be entirely unaware of the procedural requirements and of their counsel's action or inaction in complying therewith, the imposition of the capital of dismissal of petitioners' appeal is unduly severe; Such a harsh penalty appears to be in derogation of the interest and purpose of the Rules of Court the proper and just determination of a litigation. No substantial right of respondent has been prejudiced by the late submittal of the late submittal of the printed record, whereas petitioners' appeal would be forfeited through no fault or negligence on their part; While clients are generally bound by the actions or mistakes of their counsels, here no fault or wrongdoing has been attributed to either petitioners or their counsel. Their counsel's late submittal of the brief and of the corresponding motions for extension (by less than a month's time) is not rank failure to comply with the rule's requirements; The specific rule (Rule 46, section 5) does not provided for dismissal of the appeal for failure to submit theprinted record on appeal whereas section 7 of the rule prohibits "alternations, omissions or additions to the printed record" and does provide that "a violation of this prohibition shall be a ground for dismissal of the appeal." Even Rule 50, section 1 which provides that the appellate court may dismissal pending appeal for certain specific infractions of the rules, e.g. failure to pay the docketing fee or to file appellant's brief on time or "unauthorized alterations, omissions or additions in the printed record on appeal" (paragraph(e)) or want of specific assignment of errors or of page references to the record in appellant's brief, merely confers a power, not a duty, upon the mandatory, upon the said court to exercise its power to dismiss an appeal and dismissal has been ordered sparingly and only in extreme cases warranting dismissal; Withal, this Court may dismiss an appeal even on grounds not specifically mentioned in Rule 50, section 1, as where the wanton or inexcusable conduct of appellant in not complying with the rules warrants such dismissal. 9 But the Rules certainly do not authorize dismissal of a duly perfected appeal within the original 60-day period, such failure not being wanton or inexcusable. Yet such failure to file the printed record on appeal within the 60-day period (which was filed late by 24 days and had already been admitted) was the only ground stated by the appellate court for its peremptory dismissal of the appeal; Thus, the appellate court did not sustain respondent's contention that petitioners through counsel had deceived it through knowing use of the false registry receipts, since it exonerated counsel of any complicity. One gets the impression that the unnamed person had perhaps induced Malindog to issue the false receipts to cover up some neglect or fault on Quiachon's part in not having timely mailed counsel's extension motion, but neither the appellate court nor the fiscal made any such Quiachon was responsible for the deception, it does not seem fair to penalize petitioners with dismissal of their appeal; The appellate court thus disregarded the harmless error rule as provided in Rule 51, section 5 that "no error or defect in any ruling or order ... [such as its first order admitting the printed record on appeal in the belief that petitioners' motion for extension had been timely filed] .... is ground.... for setting aside, modifying or otherwise disturbing a judgment or order, unless refusal to take such action appears to the court inconsistent with substantial justice. The court at every stage of the 10 proceeding must disregard any error or defect which does notaffect the substantial rights of the parties;" Since the enactment as of September 9, 1968 of Republic Act 5440 providing that in most cases as specified 11 therein, review by this Court of final judgments and decrees of inferior courts shall be by petition for writ of certiorari and no longer by record on appeal some parties-appellants aggrieved by adverse to submit their appeals to this Court by means of records on appeal as approved by the lower court, contrary to the act's mandate that they should by presented by means of "petition .... filed and served in the form required for petitions for review by certiorari of decisions of the Court of Appeals." 12 Strictly speaking, such an error although abetted by the trial court's act of approving a record on appeal that is not required by the Act, could be considered fatal to the appeal. But following paramount considerations of 13 substantial justice in preference to transgressions of form, as stressed in Sonora vs. Tongoy, "the Court has been liberal in the implementation of Republic Act 5440 and instead of dismissing appeals coming up to Us by record on appeal, We have allowed the appellants to file the corresponding petition(for review by certiorari) provided the appeal by 14 record on appeal had been duly perfected within the reglementary period. This is to stress that even though the provision of Republic Act 5440 that such appeals shall be only on petitions for review by petitions by certiorari and no longer as a matter of right by record on appeal is of a mandatory character, this Court has nevertheless adopted a liberal construction and chosen to apply the principle of substantial justice in favor of one whose appeal was actually perfected on time rather than to sacrifice substance to form. In the language of Sonora, vis a vis the case at bar, "it is less than fair for respondents to attempt to cut off (petitioners') right to appeal by invoking

the literal meaning of the language of the rules, disregarding their wise and practical construction already laid down by the 15 Supreme Court." In sensu contrario, applying the same principles of substantial justice the Court has in many cases seeking mandamus or reinstatement of disallowed appeals (although timely made) looked at the "substantive merits" of the proposed appeal and where "there is hardly any prospect of its being ultimately sucessful," denied mandamus, ruling as in Espiritu vs. CFI 16 of Cavite that" this Court has already ruled on several occasions, since as early as De la Cruz vs. Blanco, 73 Phil. 596 that mandamus to compel approval and certification of an appeal, even if otherwise well grounded, procedurally speaking, 17 has to be appeal itself, and 'it would serve no useful purpose to reinstate' the same." Lucas vs. Mariano was to the same effect with the Court sustaining therein petitioner's submittal "that from the point of view of the time of the taking of the appeal, petitioners, We are sufficiently convinced that their claim of title has no chance of being sustained even if other and further proceedings were to be held in the court below;" and Finally, adherence to a liberal construction of the procedural rules in order to attain their objective of substantial justice and of avoiding possible denials of substantial justice due to procedural technicalities does not mean non-enforcement of the Rules of Court which are universally recognized to be necessary to the orderly and speedy discharge of judicial business with the least delay. Compliance with the rules, which are not of mandatory character (such as the period for perfecting appeals, failure to observe which results in the automatic penalty of loss of the right to appeal) but of directory character to provide time tables and prevent needless delay in readying a duly perfected appeal for consideration and decision (such as the 60-day period for submittal of the printed record on appeal involved here, periods for filling of briefs and transcripts, through the imposition of appropriate disciplinary admonition or offending counsel, ranging from an contempt to even more drastic measures of administrative proceedings for disbarment against him, depending upon the gravity of the offense. EN BANC G.R. No. 16454 September 29, 1921

GEORGE A. KAUFFMAN, plaintiff-appellee, vs. THE PHILIPPINE NATIONAL BANK, defendant-appellant. Roman J. Lacson for appellant. Ross and Lawrence for appellee. STREET, J.: At the time of the transaction which gave rise to this litigation the plaintiff, George A. Kauffman, was the president of a domestic corporation engaged chiefly in the exportation of hemp from the Philippine Islands and known as the Philippine Fiber and Produce Company, of which company the plaintiff apparently held in his own right nearly the entire issue of capital stock. On February 5, 1918, the board of directors of said company, declared a dividend of P100,000 from its surplus earnings for the year 1917, of which the plaintiff was entitled to the sum of P98,000. This amount was accordingly placed to his credit on the books of the company, and so remained until in October of the same year when an unsuccessful effort was made to transmit the whole, or a greater part thereof, to the plaintiff in New York City. In this connection it appears that on October 9, 1918, George B. Wicks, treasurer of the Philippine Fiber and Produce Company, presented himself in the exchange department of the Philippine National Bank in Manila and requested that a telegraphic transfer of $45,000 should be made to the plaintiff in New York City, upon account of the Philippine Fiber and Produce Company. He was informed that the total cost of said transfer, including exchange and cost of message, would be P90,355.50. Accordingly, Wicks, as treasurer of the Philippine Fiber and Produce Company, thereupon drew and delivered a check for that amount on the Philippine National Bank; and the same was accepted by the officer selling the exchange in payment of the transfer in question. As evidence of this transaction a document was made out and delivered to Wicks, which is referred to by the bank's assistant cashier as its official receipt. This memorandum receipt is in the following language: October 9th, 1918.

CABLE TRANSFER BOUGHT FROM PHILIPPINE NATIONAL BANK, Manila, P.I. Stamp P18 Foreign $45,000. Amount 3/8 % Rate P90,337.50

Payable through Philippine National Bank, New York. To G. A. Kauffman, New York. Total P90,355.50. Account of Philippine Fiber and Produce Company. Sold to Messrs. Philippine Fiber and Produce Company, Manila. (Sgd.) Y LERMA, Manager, Foreign Department. On the same day the Philippine National Bank dispatched to its New York agency a cablegram to the following effect: Pay George A. Kauffman, New York, account Philippine Fiber Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila. Upon receiving this telegraphic message, the bank's representative in New York sent a cable message in reply suggesting the advisability of withholding this money from Kauffman, in view of his reluctance to accept certain bills of the Philippine Fiber and Produce Company. The Philippine National Bank acquiesced in this and on October 11 dispatched to its New York agency another message to withhold the Kauffman payment as suggested. Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce Company, cabled to Kauffman in New York, advising him that $45,000 had been placed to his credit in the New York agency of the Philippine National Bank; and in response to this advice Kauffman presented himself at the office of the Philippine National Bank in New York City on October 15, 1918, and demanded the money. By this time, however, the message from the Philippine National Bank of October 11, directing the withholding of payment had been received in New York, and payment was therefore refused. In view of these facts, the plaintiff Kauffman instituted the present action in the Court of First Instance of the city of Manila to recover said sum, with interest and costs; and judgment having been there entered favorably to the plaintiff, the defendant appealed. Among additional facts pertinent to the case we note the circumstance that at the time of the transaction abovementioned, the Philippines Fiber and Produce Company did not have on deposit in the Philippine National Bank money adequate to pay the check for P90,355.50, which was delivered in payment of the telegraphic order; but the company did have credit to that extent, or more, for overdraft in current account, and the check in question was charged as an overdraft against the Philippine Fiber and Produce Company and has remained on the books of the bank as an interest-bearing item in the account of said company. It is furthermore noteworthy that no evidence has been introduced tending to show failure of consideration with respect to the amount paid for said telegraphic order. It is true that in the defendant's answer it is suggested that the failure of the bank to pay over the amount of this remittance to the plaintiff in New York City, pursuant to its agreement, was due to a desire to protect the bank in its relations with the Philippine Fiber and Produce Company, whose credit was secured at the bank by warehouse receipts on Philippine products; and it is alleged that after the exchange in question was sold the bank found that it did not have sufficient to warrant payment of the remittance. In view, however, of the failure of the bank to substantiate these allegations, or to offer any other proof showing failure of consideration, it must be assumed that the obligation of the bank was supported by adequate consideration. In this court the defense is mainly, if not exclusively, based upon the proposition that, inasmuch as the plaintiff Kauffman was not a party to the contract with the bank for the transmission of this credit, no right of action can be vested in him for the breach thereof. "In this situation," we here quote the words of the appellant's brief, "if there exists a cause of action against the defendant, it would not be in favor of the plaintiff who had taken no part at all in the transaction nor had entered into any contract with the plaintiff, but in favor of the Philippine Fiber and Produce Company, the party which contracted in its own name with the defendant." The question thus placed before us is one purely of law; and at the very threshold of the discussion it can be stated that the provisions of the Negotiable Instruments Law can come into operation there must be a document in existence of the character described in section 1 of the Law; and no rights properly speaking arise in respect to said instrument until it is

delivered. In the case before us there was an order, it is true, transmitted by the defendant bank to its New York branch, for the payment of a specified sum of money to George A. Kauffman. But this order was not made payable "to order or "to bearer," as required in subsection (d) of that Act; and inasmuch as it never left the possession of the bank, or its representative in New York City, there was no delivery in the sense intended in section 16 of the same Law. In this connection it is unnecessary to point out that the official receipt delivered by the bank to the purchaser of the telegraphic order, and already set out above, cannot itself be viewed in the light of a negotiable instrument, although it affords complete proof of the obligation actually assumed by the bank. Stated in bare simplicity the admitted facts show that the defendant bank for a valuable consideration paid by the Philippine Fiber and Produce Company agreed on October 9, 1918, to cause a sum of money to be paid to the plaintiff in New York City; and the question is whether the plaintiff can maintain an action against the bank for the nonperformance of said undertaking. In other words, is the lack of privity with the contract on the part of the plaintiff fatal to the maintenance of an action by him? The only express provision of law that has been cited as bearing directly on this question is the second paragraph of article 1257 of the Civil Code; and unless the present action can be maintained under the provision, the plaintiff admittedly has no case. This provision states an exception to the more general rule expressed in the first paragraph of the same article to the effect that contracts are productive of effects only between the parties who execute them; and in harmony with this general rule are numerous decisions of this court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibaez de Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584; Manila Railroad Co. vs. Compaia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., 873, 894.) The paragraph introducing the exception which we are now to consider is in these words: Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he has given notice of his acceptance to the person bound before the stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.) In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an elaborate dissertation upon the history and interpretation of the paragraph above quoted and so complete is the discussion contained in that opinion that it would be idle for us here to go over the same matter. Suffice it to say that Justice Trent, speaking for the court in that case, sums up its conclusions upon the conditions governing the right of the person for whose benefit a contract is made to maintain an action for the breach thereof in the following words: So, we believe the fairest test, in this jurisdiction at least, whereby to determine whether the interest of a third person in a contract is a stipulation pour autrui, or merely an incidental interest, is to rely upon the intention of the parties as disclosed by their contract. If a third person claims an enforcible interest in the contract, the question must be settled by determining whether the contracting parties desired to tender him such an interest. Did they deliberately insert terms in their agreement with the avowed purpose of conferring a favor upon such third person? In resolving this question, of course, the ordinary rules of construction and interpretation of writings must be observed. (Uy Tam and Uy Yet vs. Leonard, supra.) Further on in the same opinion he adds: "In applying this test to a stipulation pour autrui, it matters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from the promise to the third person. That no such obligation exists may in some degree assist in determining whether the parties intended to benefit a third person, whether they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.) In the light of the conclusion thus stated, the right of the plaintiff to maintain the present action is clear enough; for it is undeniable that the bank's promise to cause a definite sum of money to be paid to the plaintiff in New York City is a stipulation in his favor within the meaning of the paragraph above quoted; and the circumstances under which that promise was given disclose an evident intention on the part of the contracting parties that the plaintiff should have the money upon demand in New York City. The recognition of this unqualified right in the plaintiff to receive the money implies in our opinion the right in him to maintain an action to recover it; and indeed if the provision in question were not applicable to the facts now before us, it would be difficult to conceive of a case arising under it. It will be noted that under the paragraph cited a third person seeking to enforce compliance with a stipulation in his favor must signify his acceptance before it has been revoked. In this case the plaintiff clearly signified his acceptance to the bank by demanding payment; and although the Philippine National Bank had already directed its New York agency to

withhold payment when this demand was made, the rights of the plaintiff cannot be considered to as there used, must be understood to imply revocation by the mutual consent of the contracting parties, or at least by direction of the party purchasing he exchange. In the course of the argument attention was directed to the case of Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by the Court of Appeals of the State of New York on March 1, 1921, wherein it is held that, by selling a cable transfer of funds on a foreign country in ordinary course, a bank incurs a simple contractual obligation, and cannot be considered as holding the money which was paid for the transfer in the character of a specific trust. Thus, it was said, "Cable transfers, therefore, mean a method of transmitting money by cable wherein the seller engages that he has the balance at the point on which the payment is ordered and that on receipt of the cable directing the transfer his correspondent at such point will make payment to the beneficiary described in the cable. All these transaction are matters of purchase and sale create no trust relationship." As we view it there is nothing in the decision referred to decisive of the question now before us, wish is merely that of the right of the beneficiary to maintain an action against the bank selling the transfer. Upon the considerations already stated, we are of the opinion that the right of action exists, and the judgment must be affirmed. It is so ordered, with costs against the appellant. Interest will be computed as prescribed in section 510 of the Code of Civil Procedure. Johnson, Araullo, Avancea and Villamor, JJ., concur.