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HEIRS OF RAMON C. GAITE V. THE PLAZA, GR NO.

177685
DECISION

4) The Secretary and Construction Foreman refused to [receive] the Letter of Stoppage
dated September 10, 1980.
5)

Mr. Ramon Gaite [is] questioning the authority of the Building Officials Inspector.

6)

Construction plans use[d] on the job site is not in accordance to the approved plan.[7]

VILLARAMA, JR., J.:


This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
which seeks to reverse and set aside the Decision[1] dated June 27, 2006 and
Resolution[2] dated April 20, 2007 of the Court of Appeals (CA) in CA-G.R. CV No.
58790. The CA affirmed with modification the Decision[3] dated July 3, 1997 of the Regional
Trial Court (RTC) of Makati City, Branch 63, in Civil Case Nos. 1328 (43083) and 40755.
The facts are as follows:
On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business,
through its President, Jose C. Reyes, entered into a contract[4] with Rhogen Builders (Rhogen),
represented by Ramon C. Gaite, for the construction of a restaurant building
in Greenbelt, Makati, Metro Manila for the price of P7,600,000.00. On July 18, 1980, to secure
Rhogens compliance with its obligation under the contract, Gaite and FGU Insurance
Corporation (FGU) executed a surety bond in the amount of P1,155,000.00 in favor of The
Plaza. On July 28, 1980, The Plaza paid P1,155,000.00 less withholding taxes as down
payment to Gaite. Thereafter, Rhogen commenced construction of the restaurant building.
In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting Building
Official of the Municipality of Makati, ordered Gaite to cease and desist from continuing with
the construction of the building for violation of Sections 301 and 302 of the National
Building Code (P.D. 1096) and its implementing rules and regulations.[5] The letter was
referred to The Plazas Project Manager, Architect Roberto L. Tayzon.
On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for the
construction of the restaurant was revoked for non-compliance with the provisions of
the National Building Code and for the additional temporary construction without
permit.[6] The Memorandum Report of Building Inspector Victor Gregory enumerated the
following violations of Rhogen in the construction of the building:
1)

No permit for Temporary Structure.

2)

No notice of concrete pouring.

3)

Some workers have no safety devices.

On September 19, 1980, the Project Manager (Tayzon) in his Construction Memo #23
reported on his evaluation of Progress Billing #1 submitted by Rhogen. Tayzon stated that
actual jobsite assessment showed that the finished works fall short of Rhogens claimed
percentage of accomplishment and Rhogen was entitled to only P32,684.16 and
not P260,649.91 being demanded by Rhogen. Further, he recommended that said amount
payable to Rhogen be withheld pending compliance with Construction Memo #18, resolution
of cases regarding unauthorized withdrawal of materials from jobsite and stoppage of work
by the Municipal Engineers Office of Makati.[8]
On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza regarding his
actions/observations on the stoppage order issued. On the permit for temporary structure,
Gaite said the plans were being readied for submission to the Engineering Department of
the Municipality of Makati and the application was being resent to Reyes for his appropriate
action. As to the notice for concrete pouring, Gaite said that their construction set-up
provides for a Project Manager to whom the Pouring Request is first submitted and whose job
is to clear to whoever parties are involved (this could still be worked out with the Building
Inspector). Regarding the safety devices for workers, Gaite averred that he had given strict
rules on this but in the course of construction some workers have personal preferences. On
the refusal of the secretary and construction foreman to receive the stoppage order
dated September 10, 1980, Gaite took responsibility but insisted it was not a violation of
the National Building Code. Likewise, questioning the authority of the Building Inspector is
not a violation of the Code although Gaite denied he ever did so. Lastly, on the construction
plans used in the jobsite not being in accordance with the approved plan, Gaite said he had
sent Engr. Cristino V. Laurel on October 3, 1980 to Reyes office and make a copy of the
only approved plan which was in the care of Reyes, but the latter did not give it to Engr.
Laurel. Gaite thus thought that Reyes would handle the matter by himself.[9]
On the same day, Gaite notified Reyes that he is suspending all construction works until
Reyes and the Project Manager cooperate to resolve the issue he had raised to address the
problem.[10] This was followed by another letter dated November 18, 1980 in which Gaite
expressed his sentiments on their aborted project and reiterated that they can still resolve the
matter with cooperation from the side of The Plaza.[11] In his reply-letter dated November 24,
1980, Reyes asserted that The Plaza is not the one to initiate a solution to the situation,
especially after The Plaza already paid the agreed down payment of P1,155,000.00, which
compensation so far exceeds the work completed by Rhogen before the municipal authorities

stopped the construction for several violations. Reyes made it clear they have no obligation
to help Rhogen get out of the situation arising from non-performance of its own contractual
undertakings, and that The Plaza has its rights and remedies to protect its interest.[12]
Subsequently, the correspondence between Gaite and Reyes involved the custody of
remaining bags of cement in the jobsite, in the course of which Gaite was charged with estafa
for ordering the removal of said items. Gaite complained that Reyes continued to be
uncooperative in refusing to meet with him to resolve the delay. Gaite further answered the
estafa charge by saying that he only acted to protect the interest of the owner (prevent
spoilage/hardening of cement) and that Reyes did not reply to his request for exchange.[13]
On January 9, 1981, Gaite informed The Plaza that he is terminating their contract based on
the Contractors Right to Stop Work or Terminate Contracts as provided for in the General
Conditions of the Contract. In his letter, Gaite accused Reyes of not cooperating with
Rhogen in solving the problem concerning the revocation of the building permits, which he
described as a minor problem. Additionally, Gaite demanded the payment of P63,058.50
from The Plaza representing the work that has already been completed by Rhogen.[14]
On January 13, 1981, The Plaza, through Reyes, countered that it will hold Gaite and Rhogen
fully responsible for failure to comply with the terms of the contract and to deliver the
finished structure on the stipulated date. Reyes argued that the down payment made by The
Plaza was more than enough to cover Rhogens expenses.[15]
In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogens undertaking to
complete the construction within 180 calendar days from July 16, 1980 or up toJanuary 12,
1981, and to pay the agreed payment of liquidated damages for every month of delay,
chargeable against the performance bond posted by FGU. Reyes invoked Section 121 of the
Articles of General Conditions granting the owner the right to terminate the contract if the
contractor fails to execute the work properly and to make good such deficiencies and
deducting the cost from the payment due to the contractor. Reyes also informed Gaite that
The Plaza will continue the completion of the structure utilizing the services of a competent
contractor but will charge Rhogen for liquidated damages as stipulated in Article VIII of the
Contract. After proper evaluation of the works completed by Rhogen, The Plaza shall then
resume the construction and charge Rhogen for all the costs and expenses incurred in excess
of the contract price. In the meantime that The Plaza is still evaluating the extent and
condition of the works performed by Rhogen to determine whether these are done in
accordance with the approved plans, Reyes demanded from Gaite the reimbursement of the
balance of their initial payment of P1,155,000.00 from the value of the works correctly
completed by Rhogen, or if none, to reimburse the entire down payment plus expenses of
removal and replacement. Rhogen was also asked to turn over the jobsite premises as soon as
possible.[16] The Plaza sent copy of said letter to FGU but the latter replied that it has no

liability under the circumstances and hence it could not act favorably on its claim against the
bond.[17]
On March 3, 1981, The Plaza notified Gaite that it could no longer credit any payment to
Rhogen for the work it had completed because the evaluation of the extent, condition, and
cost of work done revealed that in addition to the violations committed during the
construction of the building, the structure was not in accordance with plans approved by the
government and accepted by Ayala. Hence, The Plaza demanded the reimbursement of the
down payment, the cost of uprooting or removal of the defective structures, the value of
owner-furnished materials, and payment of liquidated damages.[18]
On March 26, 1981, The Plaza filed Civil Case No. 40755 for breach of contract, sum of
money and damages against Gaite and FGU in the Court of First Instance (CFI) of
Rizal.[19] The Plaza later amended its complaint to include Cynthia G. Gaite and
Rhogen.[20] The Plaza likewise filed Civil Case No. 1328 (43083) against Ramon C. Gaite,
Cynthia G. Gaite and/or Rhogen Builders also in the CFI of Rizal for nullification of the
project development contract executed prior to the General Construction Contract subject of
Civil Case No. 40755, which was allegedly in violation of the provisions of R.A. No. 545
(Architectural Law of the Philippines).[21] After the reorganization of the Judiciary in 1983,
the cases were transferred to the RTC of Makati and eventually consolidated.
On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the claims of
The Plaza against Rhogen, the Gaites and FGU, and the cross-claim of FGU against Rhogen
and the Gaites. The trial court ruled that the Project Manager was justified in recommending
that The Plaza withhold payment on the progress billings submitted by Rhogen based on his
evaluation that The Plaza is liable to pay only P32,684.16 and not P260,649.91. The other
valid grounds for the withholding of payment were the pending estafa case against Gaite,
non-compliance by Rhogen with Construction Memorandum No. 18 and the non-lifting of the
stoppage order.[22]
Regarding the non-lifting of the stoppage order, which the trial court said was based on
simple infractions, the same was held to be solely attributable to Rhogens willful
inaction. Instead of readily rectifying the violations, Rhogen continued with the construction
works thereby causing more damage. The trial court pointed out that Rhogen is not only
expected to be aware of standard requirements and pertinent regulations on construction
work, but also expressly bound itself under the General Construction Contract to comply with
all the laws, city and municipal ordinances and all government regulations. Having failed to
complete the project within the stipulated period and comply with its obligations, Rhogen
was thus declared guilty of breaching the Construction Contract and is liable for damages
under Articles 1170 and 1167 of the Civil Code.[23]
The dispositive portion of the trial courts decision reads:

WHEREFORE, in Civil Case No. 40755, defendants Ramon Gaite, Cynthia Gaite and
Rhogen Builders are jointly and severally ordered to pay plaintiff:
1.
the amount of P525,422.73 as actual damages representing owner-furnished materials
with legal interest from the time of filing of the complaint until full payment;
2.
the amount of P14,504.66 as actual damages representing expenses for uprooting with
interest from the time of filing the complaint until full payment;
3.
the amount of P1,155,000.00 as actual damages representing the downpayment with
legal interest from the time of filing the complaint until full payment;
4.

the amount of P150,000.00 for moral damages;

5.

the amount of P100,000.00 for exemplary damages;

6.

the amount of P500,000.00 as liquidated damages;

7.

the amount of P100,000.00 as reasonable attorneys fees; and,

8.

the cost of suit.

Under the surety bond, defendants Rhogen and FGU are jointly and severally ordered
to pay plaintiff the amount of P1,155,000.00 with legal interest from the time of filing the
complaint until full payment. In the event [that] FGU pays the said amount, third-party
defendants are jointly and severally ordered to pay the same amount to FGU plus P50,000.00
as reasonable attorneys fees, the latter having been forced to litigate, and the cost of suit.
Civil Case No. 1328 is hereby ordered dismissed with no pronouncement as to cost.
SO ORDERED.[24]
Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed to the CA.[25] In view of
the death of Ramon C. Gaite on April 21, 1999, the CA issued a Resolution dated July 12,
2000 granting the substitution of the former by his heirs Cynthia G. Gaite, Rhoel Santiago G.
Gaite, Genevieve G. Gaite and Roman Juan G. Gaite.[26]
In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and Rhogen assigned the
following errors, to wit:

I.
THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS
RELIED UPON BY DEFENDANT-APPELLANT RHOGEN BUILDERS IN
TERMINATING THE CONTRACT ARE UNTENABLE;
II.
THE TRIAL COURT ERRED IN DECLARING THAT THE NON-LIFTING OF
THE STOPPAGE ORDER OF THE THEN MUNICIPAL GOVERNMENT
OF MAKATI WAS SOLELY ATTRIBUTABLE TO DEFENDANT-APPELLANT
RHOGENS WILLFUL INACTION;
III.
THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE
WILLFUL INACTION OF PLAINTIFF-APPELLEE WHICH MADE IT IMPOSSIBLE
FOR DEFENDANTAPPELLANT RHOGEN TO PERFORM ITS OBLIGATIONS
UNDER THE CONTRACT;
IV.
THE TRIAL COURT ERRED IN AWARDING ACTUAL DAMAGES AS WELL
AS MORAL, EXEMPLARY, AND LIQUIDATED DAMAGES AND ATTORNEYS FEES
SINCE THERE WERE NO FACTUAL AND LEGAL BASES THEREFOR; AND
V.
THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL
AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF
DEFENDANTS-APPELLANTS.[27]
For its part, FGU interposed the following assignment of errors:
I.
THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT
DEFENDANT-APPELLANT RAMON GAITE VALIDLY TERMINATED THE
CONTRACT BETWEEN HIM AND PLAINTIFF-APPELLEE.
II.
THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANTAPPELLANT RAMON GAITE RESPONSIBLE FOR THE STOPPAGE OF THE
CONSTRUCTION.
III.
THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANTAPPELLANT RAMON GAITE TO PAY THE AMOUNT OF P525,422.73 FOR THE
OWNER FURNISHED MATERIALS.
IV.
THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANTAPPELLANT RAMON GAITE TO PAY PLAINTIFF-APPELLEE THE AMOUNT OF
P14,504.66 AS ALLEGED EXPENSES FOR UPROOTING THE WORK HE
PERFORMED.

V.
THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANTAPPELLANT RAMON GAITE TO REFUND THE DOWN PAYMENT OF P1,155,000.00
PLAINTIFF-APPELLEE PAID HIM.
VI.
THE REGIONAL TRIAL COURT ERRED IN AWARDING MORAL DAMAGES
TO PLAINTIFF-APPELLEE.

engaged thereon.[30] As such, it was responsible for the lifting of the stoppage and
revocation orders. As to Rhogens act of challenging the validity of the stoppage and
revocation orders, the CA held that it cannot be done in the present case because under
Section 307 of the National Building Code, appeal to the Secretary of the Department of
Public Works and Highways (DPWH) whose decision is subject to review by the Office of
the President -- is available as remedy for Rhogen.[31]

VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY


DAMAGES TO PLAINTIFF-APPELLEE.
VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED
DAMAGES TO PLAINTIFF-APPELLEE.
IX.
THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEYS FEES
TO PLAINTIFF-APPELLEE.
X.
THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANTAPPELLANT FGU INSURANCE CORPORATION LIABLE TO PLAINTIFFAPPELLEE.[28]
On June 27, 2006, the CA affirmed the Decision of the trial court but modified the award of
damages as follows:

However, the CA modified the award of damages holding that the claim for actual damages
of P525,422.73 representing the damaged owner-furnished materials was not supported by
any evidence. Instead, the CA granted temperate damages in the amount of P300,000.00. As
to moral damages, no specific finding for the factual basis of said award was made by the
trial court, and hence it should be deleted. Likewise, liquidated damages is not proper
considering that this is not a case of delay but non-completion of the project. The Plaza
similarly failed to establish that Rhogen and Gaite acted with malice or bad faith;
consequently, the award of exemplary damages must be deleted. Finally, there being no bad
faith on the part of the defendants, the award of attorneys fees cannot be sustained.[32]
The motion for reconsideration of the aforesaid Decision was denied in the Resolution
dated April 20, 2007 for lack of merit. Hence, this appeal.
Before us, petitioners submit the following issues:

WHEREFORE, the Decision dated July 3, 1997 rendered by the Regional Trial Court of
Makati City, Branch 63 in Civil Case Nos. 40755 and 1328 is AFFIRMED with
themodification that: (a) the award for actual damages representing the owner-furnished
materials and the expenses for uprooting are deleted, and in lieu thereof, the amount of
P300,000.00 as temperate damages is awarded; and (b) the awards for moral, exemplary,
liquidated and attorneys fees are likewise deleted.

I.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack of or excess of jurisdiction, when it found that
Petitioner Rhogen had no factual or legal basis to terminate the General Construction
Contract.

SO ORDERED.[29]
II.
According to the CA, The Plaza cannot now be demanded to comply with its obligation under
the contract since Rhogen has already failed to comply with its own contractual obligation.
Thus, The Plaza had every reason not to pay the progress billing as a result of Rhogens
inability to perform its obligations under the contract. Further, the stoppage and revocation
orders were issued on account of Rhogens own violations involving the construction as
found by the local building official. Clearly, Rhogen cannot blame The Plaza for its own
failure to comply with its contractual obligations. The CA stressed that Rhogen obliged itself
to comply with all the laws, city and municipal ordinances and all government regulations
insofar as they are binding upon or affect the parties [to the contract] , the work or those

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack of or excess of jurisdiction, when, as a consequence of
its finding that Petitioners did not have valid grounds to terminate the Construction Contract,
it directed Petitioners to return the downpayment paid by The Plaza, with legal interest.
III.

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack of or excess of jurisdiction, when, in addition thereto, it
awarded temperate damages to The Plaza.
IV.
Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave
abuse of discretion amounting to lack of or excess of jurisdiction, when it failed to award
damages in favor of Petitioners.[33]
Petitioners contend that the CA gravely erred in not holding that there were valid and
legal grounds for Rhogen to terminate the contract pursuant to Article 1191 of theCivil
Code and Article 123 of the General Conditions of the Construction Contract. Petitioners
claim that Rhogen sent Progress Billing No. 1 dated September 10, 1980 and demanded
payment from The Plaza in the net amount of P473,554.06 for the work it had accomplished
from July 28, 1980 until September 7, 1980. The Plaza, however, failed to pay the said
amount. According to petitioners, Article 123 of the General Conditions of the Construction
Contract gives The Plaza seven days from notice within which to pay the Progress Billing;
otherwise, Rhogen may terminate the contract. Petitioners also invoke Article 1191 of
the Civil Code, which states that the power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is incumbent upon him.
We deny the petition.
Reciprocal obligations are those which arise from the same cause, and in which each
party is a debtor and a creditor of the other, such that the obligation of one is dependent upon
the obligation of the other. They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous fulfillment of the
other. Respondent The Plaza predicated its action on Article 1191[34] of the Civil Code,
which provides for the remedy of rescission or more properly resolution, a principal action
based on breach of faith by the other party who violates the reciprocity between them. The
breach contemplated in the provision is the obligors failure to comply with an existing
obligation. Thus, the power to rescind is given only to the injured party. The injured party is
the party who has faithfully fulfilled his obligation or is ready and willing to perform his
obligation.[35]
The construction contract between Rhogen and The Plaza provides for reciprocal
obligations whereby the latters obligation to pay the contract price or progress billing is
conditioned on the formers performance of its undertaking to complete the works within the
stipulated period and in accordance with approved plans and other specifications by the
owner. Pursuant to its contractual obligation, The Plaza furnished materials and paid the
agreed down payment. It also exercised the option of furnishing and delivering construction

materials at the jobsite pursuant to Article III of the Construction Contract. However, just
two months after commencement of the project, construction works were ordered stopped by
the local building official and the building permit subsequently revoked on account of
several violations of the National Building Code and other regulations of the municipal
authorities.
Petitioners reiterate their position that the stoppage order was unlawful, citing the fact that
when the new contractor (ACK Construction, Inc.) took over the project, the local
government of Makati allowed the construction of the building using the old building permit;
moreover, the basement depth of only two meters was retained, with no further excavation
made. They cite the testimony of the late Ramon Gaite before the trial court that at the time,
he had incurred the ire of then Mayor of Makati because his (Gaite) brother was the Mayors
political opponent; hence, they sought to file whatever charge they could against him in order
to call the attention of his brother. This political harassment defense was raised by
petitioners in their Amended Answer. Gaites testimony was intended to explain the
circumstances leading to his decision to terminate the construction contract and not to
question the revocation of the building permit. As the available remedy was already
foreclosed, it was thus error for the CA to suggest that Rhogen should have appealed the
stoppage and revocations orders issued by the municipal authorities to the DPWH and then to
the OP.[36]
Article 123 of the Articles of General Conditions states the grounds for the termination
of the work or contract by the Contractor:
123. CONTRACTORS RIGHT TO STOP WORK OR TERMINATE
CONTRACT

If work should be stopped under order of any court, or other public authority, for period
of three (3) months through no act or fault of Contractor or of anyone employed by him, or if
Owners Representative should fail to issue any certificate of payment within seven (7) days
after its maturity and presentation of any sum certified by Owners Representative or awarded
arbitrator, then contractor, may, stop work or terminate Contract, recover from Owner
payment for work executed, loss sustained upon any plant or materials, reasonable profit,
damages.[37] (Emphasis supplied.)
Petitioners may not justify Rhogens termination of the contract upon grounds of nonpayment of progress billing and uncooperative attitude of respondent The Plaza and its
employees in rectifying the violations which were the basis for issuance of the stoppage

order. Having breached the contractual obligation it had expressly assumed, i.e., to comply
with all laws, rules and regulations of the local authorities, Rhogen was already at
fault. Respondent The Plaza, on the other hand, was justified in withholding payment on
Rhogens first progress billing, on account of the stoppage order and additionally due to
disappearance of owner-furnished materials at the jobsite. In failing to have the stoppage and
revocation orders lifted or recalled, Rhogen should take full responsibility in accordance with
its contractual undertaking, thus:
In the performance of the works, services, and obligations subject of this Contract, the
CONTRACTOR binds itself to observe all pertinent and applicable laws, rules and
regulations promulgated by duly constituted authorities and to be personally, fully and solely
liable for any and all violations of the same.[38] (Emphasis supplied.)
Significantly, Rhogen did not mention in its communications to Reyes that Gaite was merely
a victim of abuse by a local official and this was the primary reason for the problems
besetting the project. On the contrary, the site appraisal inspection conducted on February 12
and 13, 1981 in the presence of representatives from The Plaza, Rhogen, FGU and Municipal
Engineer Victor Gregory, disclosed that in addition to the violations committed by Rhogen
which resulted in the issuance of the stoppage order, Rhogen built the structure not in
accordance with government approved plans and/or without securing the approval of the
Municipal Engineer before making the changes thereon.[39]
Such non-observance of laws and regulations of the local authorities affecting the
construction project constitutes a substantial violation of the Construction Contract which
entitles The Plaza to terminate the same, without obligation to make further payment to
Rhogen until the work is finished or subject to refund of payment exceeding the expenses of
completing the works. This is evident from a reading of Article 122 which states:
122. OWNERS RIGHT TO TERMINATE CONTRACT

A. If Contractor should be adjudged bankrupt, or if he should make general assignment for


benefit of his creditors, or if receiver should be appointed on account of his insolvency, or if
he should persistently or repeatedly refuse or should fail, except in cases for which extension
of time is provided, to supply enough properly skilled workmen or proper materials, or if he
should fail to make prompt payment to Sub-Contractors or for materials of labor,
or persistently disregard laws, ordinances, or instructions of Owners Representative or
otherwise be guilty of substantial violation of any provision of [the]
Contract, then Owner, upon certification by Owners Representative that sufficient cause
exists to justify such action, may, without prejudice to any right or remedy, after giving
Contractor seven days written notice, terminate contract with Contractor, take possession of

premises, materials, tools, appliances, thereon, finish work by whatever method he may deem
expedient. In such cases, Contractor shall not be entitled to receive any further payment until
work is finished.

B. If unpaid balance of Contract sum shall exceed expense of finishing work including
compensation for additional managerial and administrative services, such excess, paid to
Contractor. Refund the difference to Owner if such expense shall exceed unpaid
balance.[40] (Emphasis supplied.)
Upon the facts duly established, the CA therefore did not err in holding that Rhogen committed
a serious breach of its contract with The Plaza, which justified the latter in terminating the
contract. Petitioners are thus liable for damages for having breached their contract with
respondent The Plaza. Article 1170 of the Civil Code provides that those who in the
performance of their obligations are guilty of fraud, negligence or delay and those who in any
manner contravene the tenor thereof are liable for damages.
Petitioners assail the order for the return of down payment, asserting that the principle
of quantum meruit demands that Rhogen as contractor be paid for the work already
accomplished.
We disagree.
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable
value of the thing or services rendered despite the lack of a written contract, in order to avoid
unjust enrichment. Quantum meruit means that in an action for work and labor, payment shall
be made in such amount as the plaintiff reasonably deserves. To deny payment for a building
almost completed and already occupied would be to permit unjust enrichment at the expense
of the contractor.[41]
Rhogen failed to finish even a substantial portion of the works due to the stoppage order
issued just two months from the start of construction. Despite the down payment received
from The Plaza, Rhogen, upon evaluation of the Project Manager, was able to complete a
meager percentage much lower than that claimed by it under the first progress billing
between July and September 1980. Moreover, after it relinquished the project in January
1981, the site inspection appraisal jointly conducted by the Project Manager, Building
Inspector Engr. Gregory and representatives from FGU and Rhogen, Rhogen was found to
have executed the works not in accordance with the approved plans or failed to seek prior
approval of the Municipal Engineer. Article 1167 of the Civil Code is explicit on this point
that if a person obliged to do something fails to do it, the same shall be executed at his cost.

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his
cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone.
In addition, Article 122 of the Articles of General Conditions provides that the
contractor shall not be entitled to receive further payment until the work is finished. As the
works completed by Rhogen were not in accordance with approved plans, it should have been
executed at its cost had it not relinquished the project in January 1981. The CA thus did not
err in sustaining the trial courts order for the return of the down payment given by The Plaza
to Rhogen.
As to temperate damages, Article 2224 of the Civil Code provides that temperate or moderate
damages, which are more than nominal but less than compensatory damages, may be
recovered when the court finds that some pecuniary loss has been suffered but its amount
cannot, from the nature of the case, be proved with certainty. The rationale behind temperate
damages is precisely that from the nature of the case, definite proof of pecuniary loss cannot
be offered. When the court is convinced that there has been such loss, the judge is
empowered to calculate moderate damages, rather than let the complainant suffer without
redress from the defendants wrongful act.[42] Petitioners contention that such award is
improper because The Plaza could have presented receipts to support the claim for actual
damages, must fail considering that Rhogen never denied the delivery of the owner-furnished
materials which were under its custody at the jobsite during the work stoppage and before it
terminated the contract. Since Rhogen failed to account either for those items which it had
caused to be withdrawn from the premises, or those considered damaged or lost due spoilage,
or disappeared for whatever reason there was no way of determining the exact quantity and
cost of those materials. Hence, The Plaza was correctly allowed to recover temperate
damages.
Upon the foregoing, we find petitioners claim for actual, moral and exemplary
damages and attorneys fees lacking in legal basis and undeserving of further discussion.
WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the
Resolution dated April 20, 2007 of the Court of Appeals in CA-G.R. CV No. 58790
are AFFIRMED.
With costs against petitioners.
SO ORDERED.

HEIRS OF PANGAN V. PERRERAS GR NO. 157374


The heirs[1] of spouses Cayetano and Consuelo Pangan (petitioners-heirs) seek the
reversal of the Court of Appeals (CA) decision[2] of June 26, 2002, as well its resolution of
February 20, 2003, in CA-G.R. CV Case No. 56590 through the present petition for review
on certiorari.[3] The CA decision affirmed the Regional Trial Courts (RTC) ruling[4] which
granted the complaint for specific performance filed by spouses Rogelio and Priscilla
Perreras (respondents) against the petitioners-heirs, and dismissed the complaint for
consignation instituted by Consuelo Pangan (Consuelo) against the respondents.
THE FACTUAL ANTECEDENTS
The spouses Pangan were the owners of the lot and two-door apartment (subject properties)
located at 1142 Casaas St., Sampaloc, Manila.[5] On June 2, 1989, Consuelo agreed to sell
to the respondents the subject properties for the price of P540,000.00. On the same day,
Consuelo received P20,000.00 from the respondents as earnest money, evidenced by a receipt
(June 2, 1989 receipt)[6] that also included the terms of the parties agreement.
Three days later, or on June 5, 1989, the parties agreed to increase the purchase price
from P540,000.00 to P580,000.00.
In compliance with the agreement, the respondents issued two Far East Bank and Trust
Company checks payable to Consuelo in the amounts of P200,000.00
andP250,000.00 on June 15, 1989. Consuelo, however, refused to accept the checks. She
justified her refusal by saying that her children (the petitioners-heirs) co-owners of the
subject properties did not want to sell the subject properties. For the same reason, Consuelo
offered to return the P20,000.00 earnest money she received from the respondents, but the
latter rejected it. Thus, Consuelo filed a complaint for consignation against the respondents
on September 5, 1989, docketed as Civil Case No. 89-50258, before the RTC of Manila,
Branch 28.
The respondents, who insisted on enforcing the agreement, in turn instituted an action
for specific performance against Consuelo before the same court on September 26,
1989. This case was docketed as Civil Case No. 89-50259. They sought to compel Consuelo
and the petitioners-heirs (who were subsequently impleaded as co-defendants) to execute a
Deed of Absolute Sale over the subject properties.
In her Answer, Consuelo claimed that she was justified in backing out from the agreement on
the ground that the sale was subject to the consent of the petitioners-heirs who became coowners of the property upon the death of her husband, Cayetano. Since the petitioners-heirs
disapproved of the sale, Consuelo claimed that the contract became ineffective for lack of the

requisite consent. She nevertheless expressed her willingness to return the P20,000.00
earnest money she received from the respondents.
The RTC ruled in the respondents favor; it upheld the existence of a perfected contract
of sale, at least insofar as the sale involved Consuelos conjugal and hereditary shares in the
subject properties. The trial court found that Consuelos receipt of the P20,000.00 earnest
money was an eloquent manifestation of the perfection of the contract. Moreover, nothing
in the June 2, 1989 receipt showed that the agreement was conditioned on the consent of the
petitioners-heirs. Even so, the RTC declared that the sale is valid and can be enforced against
Consuelo; as a co-owner, she had full-ownership of the part pertaining to her share which she
can alienate, assign, or mortgage. The petitioners-heirs, however, could not be compelled to
transfer and deliver their shares in the subject properties, as they were not parties to the
agreement between Consuelo and the respondents. Thus, the trial court ordered Consuelo to
convey one-half (representing Consuelos conjugal share) plus one-sixth (representing
Consuelos hereditary share) of the subject properties, and to pay P10,000.00 as attorneys
fees to the respondents. Corollarily, it dismissed Consuelos consignation complaint.
Consuelo and the petitioners-heirs appealed the RTC decision to the CA claiming that
the trial court erred in not finding that the agreement was subject to a suspensive condition
the consent of the petitioners-heirs to the agreement. The CA, however, resolved to dismiss
the appeal and, therefore, affirmed the RTC decision. As the RTC did, the CA found that the
payment and receipt of earnest money was the operative act that gave rise to a perfected
contract, and that there was nothing in the parties agreement that would indicate that it was
subject to a suspensive condition. It declared:
Nowhere in the agreement of the parties, as contained in the June 2, 1989 receipt issued by
[Consuelo] xxx, indicates that [Consuelo] reserved titled on [sic] the property, nor does it
contain any provision subjecting the sale to a positive suspensive condition.
Unconvinced by the correctness of both the RTC and the CA rulings, the petitioners-heirs
filed the present appeal by certiorari alleging reversible errors committed by the appellate
court.
THE PETITION
The petitioners-heirs primarily contest the finding that there was a perfected contract
executed by the parties. They allege that other than the finding that Consuelo
receivedP20,000.00 from the respondents as earnest money, no other evidence supported the
conclusion that there was a perfected contract between the parties; they insist that Consuelo
specifically informed the respondents that the sale still required the petitioners-heirs consent
as co-owners. The refusal of the petitioners-heirs to sell the subject properties purportedly
amounted to the absence of the requisite element of consent.

Even assuming that the agreement amounted to a perfected contract, the petitioners-heirs
posed the question of the agreements proper characterization whether it is acontract of
sale or a contract to sell. The petitioners-heirs posit that the agreement involves a contract to
sell, and the respondents belated payment of part of the purchase price,i.e., one day after the
June 14, 1989 due date, amounted to the non-fulfillment of a positive suspensive condition
that prevented the contract from acquiring obligatory force. In support of this contention, the
petitioners-heirs cite the Courts ruling in the case of Adelfa Rivera, et al. v. Fidela del
Rosario, et al.: [7]
In a contract of sale, the title to the property passes to the vendee upon the delivery of the
thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and
is not to pass to the vendee until full payment of the purchase price. In a contract to sell, the
payment of the purchase price is a positive suspensive condition, the failure of which is not a
breach, casual or serious, but a situation that prevents the obligation of the vendor to convey
title from acquiring an obligatory force.
[Rivera], however, failed to complete payment of the second installment. The non-fulfillment
of the condition rendered the contract to sell ineffective and without force and
effect. [Emphasis in the original.]
From these contentions, we simplify the basic issues for resolution to three questions:
1.

Was there a perfected contract between the parties?

2.

What is the nature of the contract between them? and

3.

What is the effect of the respondents belated payment on their contract?

THE COURTS RULING


There was a perfected contract between the parties since all the essential requisites of a
contract were present
Article 1318 of the Civil Code declares that no contract exists unless the following
requisites concur: (1) consent of the contracting parties;
(2) object certain which is the
subject matter of the contract; and (3) cause of the obligation established. Since the object of
the parties agreement involves properties co-owned by Consuelo and her children, the
petitioners-heirs insist that their approval of the sale initiated by their mother, Consuelo, was
essential to its perfection. Accordingly, their refusal amounted to the absence of the required
element of consent.

That a thing is sold without the consent of all the co-owners does not invalidate the
sale or render it void. Article 493 of the Civil Code[8] recognizes the absolute right of a coowner to freely dispose of his pro indiviso share as well as the fruits and other benefits arising
from that share, independently of the other co-owners. Thus, when Consuelo agreed to sell to
the respondents the subject properties, what she in fact sold was her undivided interest that, as
quantified by the RTC, consisted of one-half interest, representing her conjugal share, and
one-sixth interest, representing her hereditary share.
The petitioners-heirs nevertheless argue that Consuelos consent was predicated on
their consent to the sale, and that their disapproval resulted in the withdrawal of Consuelos
consent. Yet, we find nothing in the parties agreement or even conduct save Consuelos
self-serving testimony that would indicate or from which we can infer that Consuelos
consent depended on her childrens approval of the sale. The explicit terms of the June 8,
1989 receipt[9] provide no occasion for any reading that the agreement is subject to the
petitioners-heirs favorable consent to the sale.
The presence of Consuelos consent and, corollarily, the existence of a perfected contract
between the parties are further evidenced by the payment and receipt ofP20,000.00, an
earnest money by the contracting parties common usage. The law on sales, specifically
Article 1482 of the Civil Code, provides that whenever earnest money is given in a contract
of sale, it shall be considered as part of the price and proof of the perfection of the
contract. Although the presumption is not conclusive, as the parties may treat the earnest
money differently, there is nothing alleged in the present case that would give rise to a
contrary presumption. In cases where the Court reached a conclusion contrary to the
presumption declared in Article 1482, we found that the money initially paid was given to
guarantee that the buyer would not back out from the sale, considering that the parties to the
sale have yet to arrive at a definite agreement as to its terms that is, a situation where the
contract has not yet been perfected.[10] These situations do not obtain in the present case, as
neither of the parties claimed that the P20,000.00 was given merely as guarantee by the
respondents, as vendees, that they would not back out from the sale. As we have pointed out,
the terms of the parties agreement are clear and explicit; indeed, all the essential elements of
a perfected contract are present in this case. While the respondents required that the
occupants vacate the subject properties prior to the payment of the second installment, the
stipulation does not affect the perfection of the contract, but only its execution.
In sum, the case contains no element, factual or legal, that negates the existence of a perfected
contract between the parties.
The characterization of the contract can be considered irrelevant in this case in light of
Article 1592 and the Maceda Law, and the petitioners-heirs payment

The petitioners-heirs posit that the proper characterization of the contract entered into by the
parties is significant in order to determine the effect of the respondents breach of the contract
(which purportedly consisted of a one-day delay in the payment of part of the purchase price)
and the remedies to which they, as the non-defaulting party, are entitled.
The question of characterization of the contract involved here would necessarily call
for a thorough analysis of the parties agreement as embodied in the June 2, 1989receipt, their
contemporaneous acts, and the circumstances surrounding the contracts perfection and
execution. Unfortunately, the lower courts factual findings provide insufficient detail for the
purpose. A stipulation reserving ownership in the vendor until full payment of the price is,
under case law, typical in a contract to sell.[11] In this case, the vendor made no reservation
on the ownership of the subject properties. From this perspective, the parties agreement may
be considered a contract of sale. On the other hand, jurisprudence has similarly established
that the need to execute a deed of absolute sale upon completion of payment of the price
generally indicates that it is a contract to sell, as it implies the reservation of title in the
vendor until the vendee has completed the payment of the price. When the respondents
instituted the action for specific performance before the RTC, they prayed that Consuelo be
ordered to execute a Deed of Absolute Sale; this act may be taken to conclude that the parties
only entered into acontract to sell.
Admittedly, the given facts, as found by the lower courts, and in the absence of additional
details, can be interpreted to support two conflicting conclusions. The failure of the lower
courts to pry into these matters may understandably be explained by the issues raised before
them, which did not require the additional details. Thus, they found the question of the
contracts characterization immaterial in their discussion of the facts and the law of the
case. Besides, the petitioners-heirs raised the question of the contracts characterization and
the effect of the breach for the first time through the present Rule 45 petition.
Points of law, theories, issues and arguments not brought to the attention of the lower court
need not be, and ordinarily will not be, considered by the reviewing court, as they cannot be
raised for the first time at the appellate review stage. Basic considerations of fairness and due
process require this rule.[12]
At any rate, we do not find the question of characterization significant to fully pass upon the
question of default due to the respondents breach; ultimately, the breach was cured and the
contract revived by the respondents payment a day after the due date.
In cases of breach due to nonpayment, the vendor may avail of the remedy of rescission in a
contract of sale. Nevertheless, the defaulting vendee may defeat the vendors right to rescind
the contract of sale if he pays the amount due before he receives a demand for rescission,
either judicially or by a notarial act, from the vendor. This right is provided under Article
1592 of the Civil Code:

Article 1592. In the sale of immovable property, even though it may have been stipulated
that upon failure to pay the price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant him a new term. [Emphasis supplied.]

Section 4. In case where less than two years of installments were paid, the seller shall give
the buyer a grace period of not less than 60 days from the date the installment became due. If
the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from the receipt by the buyer of the notice of cancellation
or the demand for rescission of the contract by notarial act. [Emphasis supplied.]

Nonpayment of the purchase price in contracts to sell, however, does not constitute a breach;
rather, nonpayment is a condition that prevents the obligation from acquiring obligatory force
and results in its cancellation. We stated in Ong v. CA[13] that:

Significantly, the Court has consistently held that the Maceda Law covers not only
sales on installments of real estate, but also financing of such acquisition; its Section 3 is
comprehensive enough to include both contracts of sale and contracts to sell, provided that
the terms on payment of the price require at least two installments. The contract entered into
by the parties herein can very well fall under the Maceda Law.

In a contract to sell, the payment of the purchase price is a positive suspensive condition, the
failure of which is not a breach, casual or serious, but a situation that prevents the obligation
of the vendor to convey title from acquiring obligatory force. The non-fulfillment of the
condition of full payment rendered the contract to sell ineffective and without force and
effect. [Emphasis supplied.]
As in the rescission of a contract of sale for nonpayment of the price, the defaulting vendee in
a contract to sell may defeat the vendors right to cancel by invoking the rights granted to him
under Republic Act No. 6552 or the Realty Installment Buyer Protection Act (also known as
the Maceda Law); this law provides for a 60-day grace period within which the defaulting
vendee (who has paid less than two years of installments) may still pay the installments
due. Only after the lapse of the grace period with continued nonpayment of the amounts due
can the actual cancellation of the contract take place. The pertinent provisions of the Maceda
Law provide:

Based on the above discussion, we conclude that the respondents payment on June 15,
1989 of the installment due on June 14, 1989 effectively defeated the petitioners-heirs right
to have the contract rescinded or cancelled. Whether the parties agreement is characterized
as one of sale or to sell is not relevant in light of the respondents payment within the grace
period provided under Article 1592 of the Civil Code and Section 4 of the Maceda Law. The
petitioners-heirs obligation to accept the payment of the price and to convey Consuelos
conjugal and hereditary shares in the subject properties subsists.
WHEREFORE, we DENY the petitioners-heirs petition for review on certiorari,
and AFFIRM the decision of the Court of Appeals dated June 24, 2002 and its resolution
dated February 20, 2003 in CA-G.R. CV Case No. 56590. Costs against the petitioners-heirs.
SO ORDERED.

xxxx
FIRST
Section 2. It is hereby declared a public policy to protect buyers of real estate on installment
payments against onerous and oppressive conditions.
Sec. 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight
hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine,
where the buyer has paid at least two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of succeeding installments:

[G.R.

DIVISION
No.

146839,

March

23

2011]

ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL


AND ERLINDA CATUNGAL-WESSEL, PETITIONERS, VS. ANGEL S.
RODRIGUEZ,
RESPONDENT.
DECISION

xxxx
LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari, assailing the


following issuances of the Court of Appeals in CA-G.R. CV No. 40627
consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000
Decision,[1] which affirmed the Decision[2] dated May 30, 1992 of the
Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil
Case No. 2365-L, and (b) the January 30, 2001 Resolution,[3] denying
herein petitioners' motion for reconsideration of the August 8, 2000
Decision.
The relevant factual and procedural antecedents of this case are as
follows:
This controversy arose from a Complaint for Damages and Injunction with
Preliminary Injunction/Restraining Order[4] filed on December 10, 1990 by
herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch
27, Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L against the
spouses Agapita and Jose Catungal (the spouses Catungal), the parents of
petitioners.
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita)
owned a parcel of land (Lot 10963) with an area of 65,246 square meters,
covered by Original Certificate of Title (OCT) No. 105[5] in her name
situated in the Barrio of Talamban, Cebu City. The said property was
allegedly
the
exclusive
paraphernal
property
of
Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose, entered
into a Contract to Sell[6]with respondent Rodriguez. Subsequently, the
Contract to Sell was purportedly "upgraded" into a Conditional Deed of
Sale dated July 26, 1990 between the same parties. Both the Contract to
Sell and the Conditional Deed of Sale were annotated on the title.

b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND


PESO'S (P24,500,000.00) shall be payable in five separate checks, made
to the order of JOSE Ch. CATUNGAL, the first check shall be for FOUR
MILLION FIVE HUNDRED THOUSAND PESOS (P4,500,000.00) and the
remaining balance to be paid in four checks in the amounts of FIVE
MILLION PESOS (P5,000,000.00) each after the VENDEE have (sic)'
successfully negotiated, secured and provided a Road Right of Way
consisting of 12 meters in width cutting across Lot 10884 up to the
national road, either by widening the existing Road Right of Way or by
securing a new Road Right of Way of 12 meters in width. If however said
Road Right of Way could not be negotiated, the VENDEE shall give notice
to the VENDOR for them to reassess and solve the problem by taking
other options and should the situation ultimately prove futile, he shall
take steps to rescind or cancel the herein Conditional Deed of Sale.
c. That the access road or Road Right of Way leading to Lot 10963 shall
be the responsibility of the VENDEE to secure and any or all cost relative
to the acquisition thereof shall be borne solely by the VENDEE. He shall,
however, be accorded with enough time necessary for the success of his
endeavor, granting him a free hand in negotiating for the passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of
herein CONDITIONAL DEED OF SALE to VENDEE, his heirs, successors and
assigns, the real property described in the Original Certificate of Title No.
105
x
x
x.
x

1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE


MILLION
PESOS
(25,000,000.00)
payable
as
follows:

5. That the VENDEE has the option to rescind the sale. In the event the
VENDEE exercises his option to rescind the herein Conditional Deed of
Sale, the VENDEE shall notify the VENDOR by way of a written notice
relinquishing his rights over the property. The VENDEE shall then be
reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND
PESOS (P500,000.00) representing the downpayment, interest free,
payable but contingent upon the event that the VENDOR shall have been
able to sell the property to another party.[8]

a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon


the signing of this agreement, receipt of which sum is hereby
acknowledged
in
full
from
the
VENDEE.

In accordance with the Conditional Deed of Sale, Rodriguez purportedly


secured the necessary surveys and plans and through his efforts, the

The provisions of the Conditional Deed of Sale pertinent to the present


dispute are quoted below:

properly was reclassified from agricultural land into residential land which
he claimed substantially increased the property's value. He likewise
alleged that he actively negotiated for the road right of way as stipulated
in
the
contract.[9]

offers or proposals by third persons to purchase the said property; and, in


general, from performing acts in furtherance or implementation of
defendants' rescission of their Conditional Deed of Sale with plaintiff
[Rodriguez].

Rodriguez further claimed that on August 31, 1990 the spouses Catungal
requested an advance of P5,000,000.00 on the purchase price for
personal reasons. Rodriquez allegedly refused on the ground that the
amount was substantial and was not due under the terms of their
agreement. Shortly after his refusal to pay the advance, he purportedly
learned that the Catungals were offering the property for sale to third
parties.[10]

2. After hearing, a writ


reasonable bond as may
other persons acting in
mentioned
in

[11]

Thereafter, Rodriguez received letters dated October 22, 1990,


October
24, 1990[12] and October 29, 1990,[13] all signed by Jose Catungal who
was a lawyer, essentially demanding that the former make up his mind
about buying the land or exercising his "option" to buy because the
spouses Catungal allegedly received other offers and they needed money
to pay for personal obligations and for investing in other
properties/business ventures. Should Rodriguez fail to exercise his option
to buy the land, the Catungals warned that they would consider the
contract cancelled and that they were free to look for other buyers.
In a letter dated November 4, 1990,[14] Rodriguez registered his
objections to what he termed the Catungals' unwarranted demands in
view of the terms of the Conditional Deed of Sale which allowed him
sufficient time to negotiate a road right of way and granted him, the
vendee, the exclusive right to rescind the contract. Still, on November 15,
1990, Rodriguez purportedly received a letter dated November 9,
1990[15] from Atty. Catungal, stating that the contract had been cancelled
and
terminated.
Contending that the Catungals' unilateral rescission of the Conditional
Deed of Sale was unjustified, arbitrary and unwarranted, Rodriquez
prayed in his Complaint, that:
1. Upon the filing of this complaint, a restraining order be issued enjoining
defendants [the spouses Catungal], their employees, agents,
representatives or other persons acting in their behalf from offering the
property subject of this case for sale to third persons; from entertaining

3.
a)

After

of preliminary injunction be issued upon such


be fixed by the court enjoining defendants and
their behalf from performing any of the acts
the
next
preceding
paragraph.

trial,

Making

a
the

Decision

be

injunction

rendered:
permanent;

b) Condemning defendants to pay to plaintiff, jointly and solidarily:


Actual damages in the amount of P400,000.00 for their unlawful
rescission of the Agreement and their performance of acts in violation or
disregard
of
the
said
Agreement;
Moral

damages

in

the

amount

of

P200,000.00;

Exemplary damages in the amount of P200,000.00; Expenses of litigation


and attorney's fees in the amount of P100,000.00; and Costs of suit.[16]
On December 12, 1990, the trial court issued a temporary restraining
order and set the application for a writ of preliminary injunction for
hearing on December 21, 1990 with a directive to the spouses Catungal
to show cause within five days from notice why preliminary injunction
should not be granted. The trial court likewise ordered that summons be
served
on
them.[17]
Thereafter, the spouses Catungal filed their opposition[18] to the issuance
of a writ of preliminary injunction and later filed a motion to dismiss[19] on
the ground of improper venue. According to the Catungals, the subject
property was located in Cebu City and thus, the complaint should have
been filed in Cebu City, not Lapu-lapu City. Rodriguez opposed the motion
to dismiss on the ground that his action was a personal action as its
subject was breach of a contract, the Conditional Deed of Sale, and not

title

to,

or

possession

of

real

property.[20]

In an Order dated January 17, 1991,[21] the trial court denied the motion
to dismiss and ruled that the complaint involved a personal action, being
merely
for
damages
with
a
prayer
for
injunction.
Subsequently, on January 30, 1991, the trial court ordered the issuance
of a writ of preliminary injunction upon posting by Rodriguez of a bond in
the amount of P100,000.00 to answer for damages that the defendants
may
sustain
by
reason
of
the
injunction.
On February 1, 1991, the spouses Catungal filed their Answer with
Counterclaim[22] alleging that they had the right to rescind the contract in
view of (1) Rodriguez's failure to negotiate the road right of way despite
the lapse of several months since the signing of the contract, and (2) his
refusal to pay the additional amount of P5,000,000.00 asked by the
Catungals, which to them indicated his lack of funds to purchase the
property. The Catungals likewise contended that Rodriguez did not have
an exclusive right to rescind the contract and that the contract, being
reciprocal, meant both parties had the right to rescind.[23] The spouses
Catungal further claimed that it was Rodriguez who was in breach of their
agreement and guilty of bad faith which justified their rescission of the
contract.[24]By way of counterclaim, the spouses Catungal prayed for
actual and consequential damages in the form of unearned interests from
the balance (of the purchase price in the amount) of P24,500,000.00,
moral and exemplary damages in the amount of P2,000,000.00,
attorney's fees in the amount of P200,000.00 and costs of suits and
litigation expenses in the amount of P10,000.00.[25]The spouses Catungal
prayed for the dismissal of the complaint and the grant of their
counterclaim.
The Catungals amended their Answer twice,[26] retaining their basic
allegations but amplifying their charges of contractual breach and bad
faith on the part of Rodriguez and adding the argument that in view of
Article 1191 of the Civil Code, the power to rescind reciprocal obligations
is granted by the law itself to both parties and does not need an express
stipulation to grant the same to the injured party. In the Second
Amended Answer with Counterclaim, the spouses Catungal added a
prayer for the trial court to order the Register of Deeds to cancel the
annotations of the two contracts at the back of their OCT.

On October 24, 1991, Rodriguez filed an Amended Complaint,[28] adding


allegations to the effect that the Catungals were guilty of several
misrepresentations which purportedly induced Rodriguez to buy the
property at the price of P25,000,000.00. Among others, it was alleged
that the spouses Catungal misrepresented that their Lot 10963 includes a
flat portion of land which later turned out to be a separate lot (Lot 10986)
owned by Teodora Tudtud who sold the same to one Antonio Pablo. The
Catungals also allegedly misrepresented that the road right of way will
only traverse two lots owned by Anatolia Tudtud and her daughter Sally
who were their relatives and who had already agreed to sell a portion of
the said lots for the road right of way at a price of P550.00 per square
meter. However, because of the Catungals' acts of offering the property
to other buyers who offered to buy the road lots for P2,500.00 per square
meter, the adjacent lot owners were no longer willing to sell the road lots
to Rodriguez at P550.00 per square meter but were asking for a price of
P3,500.00 per square meter. In other words, instead of assisting
Rodriguez in his efforts to negotiate the road right of way, the spouses
Catungal allegedly intentionally and maliciously defeated Rodriguez's
negotiations for a road right of way in order to justify rescission of the
said contract and enable them to offer the property to other buyers.
Despite requesting the trial court for an extension of time to file an
amended Answer,[29] the Catungals did not file an amended Answer and
instead filed an Urgent Motion to Dismiss[30] again invoking the ground of
improper venue. In the meantime, for failure to file an amended Answer
within the period allowed, the trial court set the case for pre-trial on
December
20,
1991.
During the pre-trial held on December 20, 1991, the trial court denied in
open court the Catungals' Urgent Motion to Dismiss for violation of the
rules and for being repetitious and having been previously denied.
However, Atty. Catungal refused to enter into pre-trial which prompted
the trial court to declare the defendants in default and to set the
presentation of the plaintiffs evidence on February 14, 1992;[32]
On December 23, 1991, the Catungals filed a motion for
reconsideration[33] of the December 20, 1991 Order denying their Urgent
Motion to Dismiss but the trial court denied reconsideration in an Order
dated February 3, 1992.[34] Undeterred, the Catungals subsequently filed

a Motion to Lift and to Set Aside Order of Default[35] but it was likewise
denied for being in violation of the rules and for being not
meritorious.[36] On February 28, 1992, the Catungals filed a Petition
for Certiorari and Prohibition[37] with the Court of Appeals, questioning the
denial of their motion to dismiss and the order of default. This was
docketed
as CA-G.R.
SP
No.
27565.
Meanwhile, Rodriguez proceeded to present his evidence before the trial
court.
In a Decision dated May 30, 1992, the trial court ruled in favor of
Rodriguez, finding that: (a) under the contract it was complainant
(Rodriguez) that had the option to rescind the sale; (b) Rodriguez's
obligation to pay the balance of the purchase price arises only upon
successful negotiation of the road right of way; (c) he proved his diligent
efforts to negotiate the road right of way; (d) the spouses Catungal were
guilty of misrepresentation which defeated Rodriguez's efforts to acquire
the road right of way; and (e) the Catungals' rescission of the contract
had no basis and was in bad faith. Thus, the trial court made the
injunction permanent, ordered the Catungals to reduce the purchase price
by the amount of acquisition of Lot 10963 which they misrepresented was
part of the property sold but was in fact owned by a third party and
ordered them to pay P100,000.00 as damages, P30,000.00 as attorney's
fees
and
costs.
The Catungals appealed the decision to the Court of Appeals, asserting
the commission of the following errors by the trial court in their
appellants' brief8 dated February 9, 1994:
I.
II.
III.

THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE


CASE ON THE GROUNDS OF IMPROPER VENUE AND LACK OF
JURISDICTION.
THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A
PERSONAL AND NOT A REAL ACTION.
GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY
LAID AND THE CASE IS A PERSONAL ACTION, THE COURT A
QUO ERRED IN DECLARING THE DEFENDANTS IN DEFAULT
DURING THE PRE-TRIAL WHEN AT THAT TIME THE
DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE
COMPLAINT.

IV. THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS


HAVING LOST THEIR LEGAL STANDING IN COURT WHEN AT MOST THEY
COULD ONLY BE CONSIDERED AS IN DEFAULT AND STILL ENTITLED TO
NOTICES OF ALL FURTHER PROCEEDINGS ESPECIALLY AFTER THEY HAD
FILED THE MOTION TO LIFT THE ORDER OF DEFAULT.
V. THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY
INJUNCTION RESTRAINING THE EXERCISE OF ACTS OF OWNERSHIP AND
OTHER RIGHTS OVER REAL PROPERTY OUTSIDE OF THE COURT'S
TERRITORIAL JURISDICTION AND INCLUDING PERSONS WHO WERE NOT
BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF THE WRIT.
VI. THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU
PROP[R]IO FROM CONTINUING WITH THE PROCEEDINGS IN THE CASE
AND IN RENDERING DECISION THEREIN IF ONLY FOR REASON OF
COURTESY AND FAIRNESS BEING MANDATED AS DISPENSER OF FAIR
AND EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR FAVOR IT
HAVING BEEN SERVED EARLIER WITH A COPY OF THE PETITION FOR
CERTIORARI QUESTIONING ITS VENUE AND JURISDICTION IN CA-G.R.
NO. SP 27565 IN FACT NOTICES FOR THE FILING OF COMMENT THERETO
HAD ALREADY BEEN SENT OUT BY THE HONORABLE COURT OF APPEALS,
SECOND DIVISION, AND THE COURT A QUO WAS FURNISHED WITH
COPY OF SAID NOTICE.
VII. THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE
PLAINTIFF AND AGAINST THE DEFENDANTS ON THE BASIS OF EVIDENCE
WHICH ARE IMAGINARY, FABRICATED, AND DEVOID OF TRUTH, TO BE
STATED IN DETAIL IN THE DISCUSSION OF THIS PARTICULAR ERROR,
AND, THEREFORE, THE DECISION IS REVERSIBLE.[39]
On August 31, 1995, after being granted several extensions, Rodriguez
filed his appellee's brief,[40]essentially arguing the correctness of the trial
court's Decision regarding the foregoing issues raised by the Catungals.
Subsequently, the Catungals filed a Reply Brief[41] dated October 16,
1995.
From the filing of the appellants' brief in 1994 up to the filing of the Reply
Brief, the spouses Catungal were represented by appellant Jose Catungal
himself. However, a new counsel for the Catungals, Atty. Jesus N.
Borromeo (Atty. Borromeo), entered his appearance before the Court of

Appeals on September 2, 1997.[42] On the same date, Atty. Borromeo filed


a Motion for Leave of Court to File Citation of Authorities[43] and a Citation
of Authorities.[44] This would be followed by Atty. Borromeo's filing of an
Additional Citation of Authority and Second Additional Citation of Authority
both
on
November
17,
1997.[45]
During the pendency of the case with the Court of Appeals, Agapita
Catungal passed away and thus, her husband, Jose, filed on February 17,
1999 a motion for Agapita's substitution by her surviving children[46]
On August 8, 2000, the Court of Appeals rendered a Decision in the
consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP No.
27565,[47] affirming
the
trial
court's
Decision.
In a Motion for Reconsideration dated August 21, 2000,[48] counsel for the
Catungals, Atty. Borromeo, argued for the first time that paragraphs 1(b)
and 5[49] of the Conditional Deed of Sale, whether taken separately or
jointly, violated the principle of mutuality of contracts under Article 1308
of the Civil Code and thus, said contract was void ab initio. He adverted to
the cases mentioned in his various citations of authorities to support his
argument of nullity of the contract and his position that this issue may be
raised
for
the
first
time
on
appeal.
Meanwhile, a Second Motion for Substitution[50] was filed by Atty.
Borromeo
in
view
of
the
death
of
Jose
Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the
substitution of the deceased Agapita and Jose Catungal by their surviving
heirs and denied the motion for reconsideration for lack of merit
Hence, the heirs of Agapita and Jose Catungal filed on March 2001 the
present petition for review,[51]which essentially argued that the Court of
Appeals erred in not finding that paragraphs 1(b) and/or 5 of the
Conditional Deed of Sale, violated the principle of mutuality of contracts
under Article 1308 of the Civil Code. Thus, said contract was supposedly
void ab initio and the Catungals' rescission thereof was superfluous.
In his Comment,[52] Rodriguez highlighted that (a) petitioners were raising
new matters that cannot be passed upon on appeal; (b) the validity of the
Conditional Deed of Sale was already admitted and petitioners cannot be

allowed to change theories on appeal; (c) the questioned paragraphs of


the Conditional Deed of Sale were valid; and (d) petitioners were the ones
who committed fraud and breach of contract and were not entitled to
relief
for
not
having
come
to
court
with
clean
hands.
The Court gave due course to the Petition[53] and the parties filed their
respective
Memoranda.
The issues to be resolved in, the case at bar can be summed into two
questions:
Are petitioners allowed to raise their theory of nullity of the Conditional
Deed of Sale for the first time on appeal?
Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the
principle of mutuality of contracts under Article 1308 of the Civil Code?
On

petitioners'

change

of

theory

Petitioners claimed that the Court of Appeals should have reversed the
trial courts' Decision on the ground of the alleged nullity of paragraphs
1(b) and 5 of the Conditional Deed of Sale notwithstanding that the same
was not raised as an error in their appellants' brief. Citing Catholic Bishop
of Balanga v. Court of Appeals,[54] petitioners argued in the Petition that
this case falls under the following exceptions:
(3) Matters not assigned as errors on appeal but consideration of which is
necessary in arriving at a just decision and complete resolution of the
case or to serve the interest of justice or to avoid dispensing piecemeal
justice;
(4) Matters not specifically assigned as errors on appeal but raised in the
trial court and are matters of record having some bearing on the issue
submitted which the parties failed to raise or which the lower court
ignored;
(5) Matters not assigned as errors on appeal but closely related to an
error
assigned;
and

(6) Matters not assigned as errors but upon which the determination of a
question properly assigned is dependent.
We

are

not

persuaded.

This is not an instance where a party merely failed to assign an issue as


an error in the brief nor failed to argue a material point on appeal that
was raised in the trial court and supported by the record. Neither is this a
case where a party raised an error closely related to, nor dependent on
the resolution of, an error properly assigned in his brief. This is a situation
where a party completely changes his theory of the case on appeal and
abandons his previous assignment of errors in his brief, which plainly
should
not
be
allowed
as
anathema
to
due
process.
Petitioners should be reminded that the object of pleadings is to draw the
lines of battle between the litigants and to indicate fairly the nature of the
claims or defenses of both parties.[56] In Philippine National Construction
Corporation v. Court of Appeals,[57] we held that "[w]hen a party adopts a
certain theory in the trial court, he will not be permitted to change his
theory on appeal, for to permit him to do so would not only be unfair to
the other party but it would also be offensive' to the basic rules of fair
play,
justice
and
due
process."
We have also previously ruled that "courts of justice have no jurisdiction
or power to decide a question not in issue. Thus, a judgment that goes
beyond the issues and purports to adjudicate something on which the
court did not hear the parties, is not only irregular but also extrajudicial
and invalid. The rule rests on the fundamental tenets of fair play."[59]
During the proceedings before the trial court, the spouses Catungal never
claimed that the provisions in the Conditional Deed of Sale, stipulating
that the payment of the balance of the purchase price was contingent
upon the successful negotiation of a road right of way (paragraph 1[b])
and granting Rodriguez the option to rescind (paragraph 5), were void for
allegedly making the fulfillment of the contract dependent solely on the
will
of
Rodriguez.
On the contrary, with respect to paragraph 1(b), the Catungals did not
aver in the Answer (and its amended versions) that the payment of the

purchase price was subject to the will of Rodriguez but rather they
claimed that paragraph 1(b) in relation to 1(c) only presupposed a
reasonable time be given to Rodriguez to negotiate the road right of way.
However, it was petitioners' theory that more than sufficient time had
already been given Rodriguez to negotiate the road right of way.
Consequently, Rodriguez's refusal/failure to pay the balance of the
purchase price, upon demand, was allegedly indicative of lack of funds
and a breach of the contract on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguez's
option to rescind, it was petitioners' theory in the court a quo that
notwithstanding such provision, they retained the right to rescind the
contract for Rodriguez's breach of the same under Article 1191 of the Civil
Code.
Verily, the first time petitioners raised their theory of the nullity of the
Conditional Deed of Sale in view of the questioned provisions was only in
their Motion for Reconsideration of the Court of Appeals' Decision,
affirming the trial court's judgment. The previous filing of various citations
of authorities by Atty. Borromeo and the Court of Appeals' resolutions
noting such citations were of no moment. The citations of authorities
merely listed cases and their main rulings without even any mention of
their relevance to the present case or any prayer for the Court of Appeals
to consider them. In sum, the Court of Appeals did not err in disregarding
the citations of authorities or in denying petitioners' motion for
reconsideration of the assailed August 8, 2000 Decision in view of the
proscription
against
changing
legal
theories
on
appeal.
Ruling
on
Conditional

the

questioned
Deed

provisions
of

of

the
Sale

Even assuming for the sake of argument that this Court may overlook the
procedural misstep of petitioners, we still cannot uphold their belatedly
proffered
arguments.
At the outset, it should be noted that what the parties entered into is a
Conditional Deed of Sale, whereby the spouses Catungal agreed to sell
and Rodriguez agreed to buy Lot 10963 conditioned on the payment of a
certain price but the payment of the purchase price was additionally made
contingent on the successful negotiation of a road right of way. It is

elementary that "[i]n conditional obligations, the acquisition of rights, as


well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition."[60]
Petitioners rely on Article 1308 of the Civil Code to support their
conclusion regarding the claimed nullity of the aforementioned provisions.
Article 1308 states that "[t]he contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of
them."
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon the sole will
of the debtor, the conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obligation shall take effect in
conformity with the provisions of this Code.
In the past, this Court has distinguished between a condition imposed on
the perfection of a contract and a condition imposed merely on the
performance of an obligation. While failure to comply with the first
condition results in the failure of a contract, failure to comply with the
second merely gives the other party the option to either refuse to proceed
with the sale or to waive the condition.[61] This principle is evident in
Article 1545 of the Civil Code on sales, which provides in part:
Art. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may refuse to
proceed with the contract or he may waive performance of the condition x
x x.
Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent
shall pay the balance of the purchase price when he has successfully
negotiated and secured a road right of way, is not a condition on the
perfection of the contract nor on the validity of the entire contract or its
compliance as contemplated in Article 1308. It is a condition imposed only
on respondent's obligation to pay the remainder of the purchase price. In
our view and applying Article 1182, such a condition is not purely
potestative as petitioners contend. It is not dependent on the sole will of

the debtor but also on the will of third persons who own the adjacent land
and from whom the road right of way shall be negotiated. In a manner of
speaking, such a condition is likewise dependent on chance as there is no
guarantee that respondent and the third party-landowners would come to
an agreement regarding the road right of way. This type of mixed
condition is expressly allowed under Article 1182 of the Civil Code.
Analogous to the present case is Romero v. Court of Appeals,[62] wherein
the Court interpreted the legal effect of a condition in a deed of sale that
the balance of the purchase price would be paid by the vendee when the
vendor has successfully ejected the informal settlers occupying the
property. InRomero, we found that such a condition did not affect the
perfection of the contract but only imposed a condition on the fulfillment
of the obligation to pay the balance of the purchase price, to wit:
From the moment the contract is perfected, the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in keeping
with good faith, usage and law. Under the agreement, private respondent
is obligated to evict the squatters on the property. The ejectment of the
squatters is a condition the operative act of which sets into motion the
period of compliance by petitioner of his own obligation, i.e., to pay the
balance of the purchase price. Private respondent's failure "to remove the
squatters from the property" within the stipulated period gives petitioner
the right to either refuse to proceed! with the agreement or waive that
condition in consonance with Article 1545 of the Civil Code. This option
clearly belongs to petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking required
of private respondent does not constitute a "potestative condition
dependent solely on his will" that might, otherwise, be void in accordance
with Article 1182 of the Civil Code but a "mixed" condition "dependent not
on the will of the vendor alone but also of third persons like the squatters
and government agencies and personnel concerned." We must hasten to
add, however, that where the so-called "potestative condition" is imposed
not on the birth of the obligation but on its fulfillment, only the condition
is avoided, leaving unaffected the obligation itself.[63](Emphases
supplied.)

From the provisions of the Conditional Deed of Sale subject matter of this
case, it was the vendee (Rodriguez) that had the obligation to successfully
negotiate and secure the road right of way. However, in the decision of
the trial court, which was affirmed by the Court of Appeals, it was found
that respondent Rodriguez diligently exerted efforts to secure the road
right of way but the spouses Catungal, in bad faith, contributed to the
collapse of the negotiations for said road right of way. To quote from the
trial court's decision:
It is therefore apparent that the vendee's obligations (sic) to pay the
balance of the purchase price arises only when the road-right-of-way to
the property shall have been successfully negotiated, secured and
provided. In other words, the obligation to pay the balance is conditioned
upon the acquisition of the road-right-of-way, in accordance with
paragraph 2 of Article 1181 of the New Civil Code. Accordingly, "an
obligation dependent upon a suspensive condition cannot be demanded
until after the condition takes place because it is only after the fulfillment
of the condition that the obligation arises." (Javier v[s] CA 183 SCRA)
Exhibits H, D, P, R, T, FF and JJ show that plaintiff [Rodriguez] indeed was
diligent in his efforts to negotiate for a road-right-of-way to the property.
The written offers, proposals and follow-up of his proposals show that
plaintiff [Rodriguez] went all out in his efforts to immediately acquire an
access road to the property, even going to the extent of offering
P3,000.00 per square meter for the road lots (Exh. Q) from the original
P550.00 per sq. meter. This Court also notes that defendant (sic) [the
Catungals] made misrepresentation in the negotiation they have entered
into with plaintiff [Rodriguez]. (Exhs. F and G) The misrepresentation of
defendant (sic) [the Catungals] as to the third lot (Lot 10986) to be part
and parcel of the subject property [(]Lot 10963) contributed in defeating
the plaintiffs [Rodriguez's] effort in acquiring the road-right-of-way to the
property. Defendants [the Catungals] cannot now invoke the nonfulfillment of the condition in the contract as a ground for rescission when
defendants [the Catungals] themselves are guilty of preventing the
fulfillment
of
such
condition.
From the foregoing, this Court is of the considered view that rescission of
the conditional deed of sale by the defendants is without any legal or
factual basis.[64] x x x. (Emphases supplied.)

In all, we see no cogent reason to disturb the foregoing factual findings of


the
trial
court.
Furthermore, it is evident from the language of paragraph 1(b) that the
condition precedent (for respondent's obligation to pay the balance of the
purchase price to arise) in itself partly involves an obligation to do, i.e.,
the undertaking of respondent to negotiate and secure a road right of way
at his own expense.[65] It does not escape our notice as well, that far from
disclaiming paragraph 1(b) as void, it was the Catungals' contention
before the trial court that said provision should be read in relation to
paragraph
1(c)
which
stated:
c. That the access road or Road Right of Way leading to Lot 10963 shall
be the responsibility of the VENDEE to secure and any or all cost relative
to the acquisition thereof shall be borne solely by the VENDEE. He shall,
however, be accorded with enough time necessary for the success of his
endeavor; granting him a free hand in negotiating for the
passage.[66] (Emphasis
supplied.)
The Catungals' interpretation of the foregoing stipulation was that
Rodriguez's obligation to negotiate and secure a road right of way was
one with a period and that period, i.e., "enough time" to negotiate, had
already lapsed by the time they demanded the payment of P5,000,000.00
from respondent. Even assuming arguendo that the Catungals were
correct that the respondent's obligation to negotiate a road right of way
was one with an uncertain period, their rescission of the Conditional Deed
of Sale would still be unwarranted. Based on their own theory, the
Catungals had a remedy under Article 1197 of the Civil Code, which
mandates:
Art. 1197. If the obligation does not fix a period, but from its nature and
the circumstances it can be inferred that a period was intended, the
courts
may
fix
the
duration
thereof.
The courts shall also fix the duration of the period when it depends upon
the
will
of
the
debtor.
In every case, the courts shall determine such period as may under the

circumstances have been probably contemplated by the parties. Once


fixed by the courts, the period cannot be changed by them.
What the Catungals should have done was to first file an action in court to
fix the period within which Rodriguez should accomplish the successful
negotiation of the road fight of way pursuant to the above quoted
provision. Thus, the Catungals' demand for Rodriguez to make an
additional payment of P5,000,000.00 was premature and Rodriguez's
failure to accede to such demand did not justify the rescission of the
contract.
With respect to petitioners' argument that paragraph 5 of the Conditional
Deed of Sale likewise rendered the said contract void, we find no merit to
this theory. Paragraph 5 provides:
5. That the VENDEE has the option to rescind the sale. In the event the
VENDEE exercises his option to rescind the herein Conditional Deed of
Sale, the VENDEE shall notify the VENDOR by way of a written notice
relinquishing his rights over the property. The VENDEE shall then be
reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND
PESOS (500,000,00) representing the downpayment, interest free,
payable but contingent upon the event that the VENDOR shall have been
able to sell the property to another party.[67]
Petitioners posited that the above stipulation was the "deadliest" provision
in the Conditional Deed of Sale for violating the principle of mutuality of
contracts since it purportedly rendered the contract subject to the will of
respondent.
We

do

not

agree.

It is petitioners' strategy to insist that the Court examine the first


sentence of paragraph 5 alone and, resist a correlation of such sentence
with other provisions of the contract. Petitioners' view, however, ignores a
basic rule in the interpretation of contracts - that the contract should be
taken
as
a
whole.
Article 1374 of the Civil Code provides that "[t]he various stipulations of a

contract shall be interpreted together, attributing to the doubtful ones


that sense which may result from all of them taken jointly." The same
Code further sets down the rule that "[i]f some stipulation of any contract
should admit of several meanings, it shall be understood as bearing that
import which
is most adequate to render it effectual."[68]
Similarly, under the Rules of Court it is prescribed that "[i]n the
construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give
effect to all"[69] and "for the proper construction of an instrument, the
circumstances under which it was made, including the situation of the
subject thereof and of the parties to it, may be shown, so that the judge
may be placed in the position of those whose language he is to
interpret."[70]
Bearing in mind the aforementioned interpretative rules, we find that the
first sentence of paragraph 5 must be taken in relation with the rest of
paragraph 5 and with the other provisions of the Conditional Deed of Sale.
Reading paragraph 5 in its entirety will show that Rodriguez's option to
rescind the contract is not absolute as it is subject to the requirement that
there should be written notice to the vendor and the vendor shall only
return Rodriguez's downpayment of P500,000.00, without interest, when
the vendor shall have been able to sell the property to another party.
That what is stipulated to be returned is oniy the downpayment of
P500,000.00 in the event that Rodriguez exercises his option to rescind is
significant. To recall, paragraph 1(b) of the contract clearly states that the
installments on the balance of the purchase price shall only be paid upon
successful negotiation and procurement of a road right of way. It is clear
from such provision that the existence of a road right of way is a material
consideration for Rodriguez to purchase the property. Thus, prior to him
being able to procure the road right of way, by express stipulation in the
contract, he is not bound to make additional payments to the Catungals.
It was further stipulated in paragraph 1(b) that: "[i]f however said road
right of way cannot be negotiated, the VENDEE shall give notice to the
VENDOR for them to reassess and solve the problem by taking other
options and should the situation ultimately prove futile, he [Rodriguez]
shall take steps to rescind or [cancel] the herein Conditional Deed of
Sale." The intention of the parties for providing subsequently in paragraph
5 that Rodriguez has the option to rescind the sale is undeniably only

limited to the contingency that Rodriguez shall not be able to secure the
road right of way. Indeed, if the parties intended to give Rodriguez the
absolute option to rescind the sale at any time, the contract would have
provided for the return of all payments made by Rodriguez and not only
the downpayment. To our mind, the reason only the downpayment was
stipulated to be returned is that the vendee's option to rescind can only
be exercised in the event that no road right of way is secured and, thus,
the vendee has not made any additional payments, other than his
downpayment.

note that although the contract was between Agapita Catungal and
Rodriguez, Jose Catungal nonetheless signed thereon to signify his marital
consent to the same. We concur with the trial court's finding that the
spouses Catungals' claim of being misled into signing the contract was
contrary to human experience and conventional wisdom since it was Jose
Catungal who was a practicing lawyer while Rodriquez was a nonlawyer.[74] It can be reasonably presumed that Atty. Catungal and his wife
reviewed the provisions of the contract, understood and accepted its
provisions
before
they
affixed
their
signatures
thereon.

In sum, Rodriguez's option to rescind the contract is not purely


potestative but rather also subject to the same mixed condition as his
obligation to pay the balance of the purchase price - i.e., the negotiation
of a road right of way. In the event the condition is fulfilled (or the
negotiation is successful), Rodriguez must pay the balance of the
purchase price. In the event the condition is not fulfilled (or the
negotiation fails), Rodriguez has the choice either (a) to not proceed with
the sale and demand return of his downpayment or (b) considering that
the condition was imposed for his benefit, to waive the condition and still
pay the purchase price despite the lack of road access. This is the most
just interpretation of the parties' contract that gives effect to all its
provisions.

After thorough review of the records of this case, we have come to the
conclusion that petitioners failed to demonstrate that the Court of Appeals
committed any reversible error in deciding the present controversy.
However, having made the observation that it was desirable for the
Catungals to file a separate action to fix the period for respondent
Rodriguez's obligation to negotiate a road right of way, the Court finds it
necessary to fix said period in these proceedings. It is but equitable for us
to make a determination of the issue here to obviate further delay and in
line with the judicial policy of avoiding multiplicity of suits.

In any event, even if we assume for the sake of argument that the grant
to Rodriguez of an option to rescind, in the manner provided for in the
contract, is tantamount to a potestative condition, not being a condition
affecting the perfection of the contract, only the said condition would be
considered void and the rest of the contract will remain valid. In Romero,
the Court observed that "where the so-called 'potestative condition' is
imposed not on the birth of the obligation but on its fulfillment, only the
condition is avoided, leaving unaffected the obligation itself."[71]
It cannot be gainsaid that "contracts have the force of law between the
contracting parties and should be complied with in good faith.'" We have
also previously ruled that "[b]eing the primary law between the parties,
the contract governs the adjudication of their rights and obligations. A
court has no alternative but to enforce the contractual stipulations in the
manner they have been agreed upon and written.'" We find no merit in
petitioners' contention that their parents were merely "duped" into
accepting the questioned provisions in the Conditional Deed of Sale. We

If still warranted, Rodriguez is given a period of thirty (30) days from the
finality of this decision to negotiate a road right of way. In the event no
road right of way is secured by Rodriquez at the end of said period, the
parties shall reassess and discuss other options as stipulated in paragraph
1(b) of the Conditional Deed of Sale and, for this purpose, they are given
a period of thirty (30) days to agree on a course of action. Should the
discussions of the parties prove futile after the said thirty (30)-day period,
immediately upon the expiration of said period for discussion, Rodriguez
may (a) exercise his option to rescind the contract, subject to the return
of his downpayment, in accordance with the provisions of paragraphs 1(b)
and 5 of the Conditional Deed of Sale or (b) waive the road right of way
and pay the balance of the deducted purchase price as determined in the
RTC
Decision
dated
May
30,
1992.
WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated
January 30, 2001 of the Court of Appeals in CA-G.R. CV No. 40627
consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the
following MODIFICATION:
If still warranted, respondent Angel S. Rodriguez is given a period of

thirty (30) days from the finality of this Decision to negotiate a road right
of way. In the event no road right of way is secured by respondent at the
end of said period, the parties shall reassess and discuss other options as
stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this
purpose, they are given a period of thirty (30) days to agree on a course
of action. Should the discussions of the parties prove futile after the said
thirty (30)-day period, immediately upon the expiration of said period for
discussion, Rodriguez may (a) exercise his option to rescind the contract,
subject to the return of his downpayment, in accordance with the
provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b)
waive the road right of way and pay the balance of the deducted purchase
price as determined in the RTC Decision dated May 30, 1992.
No

pronouncement

as

to

costs.

SO ORDERED.

METROPOLITAN BANK AND TRUST CO. V. INTL EXCHANGE BANK


Before the Court are two consolidated petitions for review on certiorari under Rule 45 of the
Rules of Court, both of which are seeking the reversal and setting aside of the Decision 1and
Resolution2 of the Court of Appeals (CA) dated May 5, 2006 and December 22, 2006,
respectively, in CA-G.R. SP No. 00549-MIN which annulled and set aside the Orders dated
September 6, 2004 and February 14, 2005, the Resolution dated March 15, 2005 and the Joint
Resolution dated June 8, 2005 of the Regional Trial Court (RTC) of Misamis Oriental,
Branch 17 in Civil Case Nos. 2004-197 and 2004-200.

As security for its loan obligations, SSC executed five separate deeds of chattel mortgage
constituted over various equipment found in its steel manufacturing plant. The deeds of
mortgage were dated September 17, 2001, February 26, 2003, April 16, 2003, May 25, 2004
and June 7, 2004.
Subsequently, SSC defaulted in the payment of its obligations. IEB's demand for payment
went unheeded. On July 7, 2004, the IEB filed with the RTC of Misamis Oriental an action
for injunction for the purpose of enjoining SSC from taking out the mortgaged equipment
from its premises. The case was docketed as Civil Case No. 2004-197. Thereafter, IEB filed a
Supplemental Complaint praying for the issuance of a writ of replevin or, in the alternative,
for the payment of SSC's outstanding obligations and attorney's fees.3
On the other hand, on July 18, 2004, SSC filed with the same RTC of Misamis Oriental a
Complaint for annulment of mortgage and specific performance for the purpose of
compelling the IEB to restructure SSC's outstanding obligations. SSC also prayed for the
issuance of a Temporary Restraining Order (TRO) and writ of preliminary injunction to
prevent IEB from taking any steps to dispossess SSC of any equipment in its steel
manufacturing plant as well as to restrain it from foreclosing the mortgage on the said
equipment.4 The RTC issued a TRO. The case was docketed as Civil Case No. 2004-200 and
was subsequently consolidated with Civil Case No. 2004-197.
On July 23, 2004, the RTC issued an Order5 granting IEB's application for the issuance of a
writ of replevin. However, upon agreement of the parties, the implementation of the said writ
was held in abeyance pending the trial court's resolution of the other incidents in the said
case.6 The RTC also directed that there shall be no commercial operation without court
approval.7
On August 26, 2004, the IEB filed a petition for extrajudicial foreclosure of chattel mortgage.
SSC opposed IEB's petition and prayed for the issuance of a writ of preliminary injunction.

The pertinent factual and procedural antecedents of the case are as follows:
On September 6, 2004, the RTC issued an Order disposing as follows:
Sacramento Steel Corporation (SSC) is a business entity engaged in manufacturing and
producing steel and steel products, such as cold rolled coils and galvanized sheets, in its own
steel manufacturing plant located at Tagoloan, Misamis Oriental.
For the purpose of increasing its capital, SSC entered into a Credit Agreement with herein
respondent International Exchange Bank (IEB) on September 10, 2001 wherein the latter
granted the former an omnibus credit line in the amount of P60,000,000.00, a loan
of P20,000,000.00 and a subsequent credit line with a limit of P100,000,000.00.

WHEREFORE, let a Writ of preliminary injunction be issued restraining


defendant iBank [IEB], the Sheriff, his agents and other person/s acting in their behalf as
agents privies or representative[s] in whatever capacity, from conducting foreclosure,
whether judicial or extrajudicial, of any properties subject of the controversy and are further
directed not to take any steps that will, in effect, dispossess plaintiff [SSC] of any of its
machineries and equipment in its steel manufacturing plant pending determination of the
case. Let a bond (cash or surety) of Five Hundred Thousand (P500,000.00) Pesos be posted
by the plaintiff Sacramento Steel Corporation as required by law.

SO ORDERED.8
Meanwhile, on August 30, 2004, SSC entered into a Capacity Lease Agreement with herein
petitioner Chuayuco Steel Manufacturing Corporation (CSMC) which allowed the latter to
lease and operate the former's cold rolling mill and galvanizing plant for a period of five
years.

On August 25, 2005, IEB filed a petition for certiorari, prohibition and mandamus with the
CA assailing the RTC Orders dated September 6, 2004 and February 14, 2005, Resolution
dated March 15, 2005 and Joint Resolution dated June 8, 2005.15
On May 5, 2006, the CA rendered its presently assailed Decision which disposed of the case
as follows:

On October 21, 2004, herein petitioner Metropolitan Bank and Trust Company (Metrobank)
filed a motion for intervention contending that it has legal interest in the properties subject of
the litigation between IEB and SSC because it is a creditor of SSC and that the mortgage
contracts between IEB and SSC were entered into to defraud the latter's
creditors.9Metrobank prayed for the rescission of the chattel mortgages executed by SSC in
favor of IEB.

WHEREFORE, the petition is hereby GRANTED. The questioned Orders dated September
6, 2004, February 14, 2005, March 15, 2005 and June 8, 2005 issued by public respondent
RTC, Branch 17, Misamis Oriental, presided by Hon. Florencia D. Sealana-Abbu in Civil
Case Nos. 2004-197 and 2004-200 are hereby ANNULLED and SET ASIDE. Public
respondent is hereby DIRECTED to turn-over the mortgaged properties covered by the writ
of replevin to petitioner I-Bank for the eventual foreclosure thereof.

On January 21, 2005, CSMC filed an Omnibus Motion for intervention and for allowance to
immediately operate the cold rolling mill and galvanizing plant of SSC contending that its
purpose in intervening is to seek the approval of the court to operate the said plant pursuant to
the Capacity Lease Agreement it entered into with SSC.10 IEB filed its Opposition to the said
Motion.11

SO ORDERED.16

On February 14, 2005, the RTC issued an Order12 admitting the motions for intervention filed
by CSMC and Metrobank.
On March 15, 2005, the RTC issued a Resolution, the dispositive portion of which reads,
thus:
WHEREFORE, premises considered, the motion to operate the machineries pendente lite is
hereby GRANTED based on law and equity as soon as practicable. This is without prejudice
on the part of the I-bank [IEB] to assert the enforcement of the proposed schedule of payment
submitted by SSC to the Court (Exh. A Motion for Early Resolution, 2/16/2005 hearing)
and to continually post their security guards unless withdrawn.

Metrobank, CSMC and SSC filed their respective motions for reconsideration, but these
were all denied by the CA in its Resolution dated December 22, 2006.
Hence, the instant petitions for review on certiorari.
In G.R. No. 176008, petitioner Metrobank submits the following issues:
(A) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT
RULED THAT PETITIONER'S COMPLAINT-IN-INTERVENTION IS AN ACCION
PAULIANA, A SUBSIDIARY ACTION, WHICH PRESUPPOSES AN UNSATISFIED
JUDGMENT, WHICH UNSATISFIED JUDGMENT IS ABSENT IN THE CASE AT BAR.
(B) WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED WHEN IT
RULED THAT THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION
IN ALLOWING PETITIONER'S COMPLAINT-IN-INTERVENTION.17

SO ORDERED.13

In G.R. No. 176131, petitioner CSMC raises the following grounds:

On June 8, 2005, the RTC issued a Joint Resolution14 reiterating its admission of CSMC's
motion for intervention and directing the latter to file its complaint-in-intervention.

I. THE HONORABLE COURT ERRED IN NOT PASSING UPON THE ISSUE THAT
HEREIN RESPONDENT IBANK IS GUILTY OF FORUM-SHOPPING.

II. THE HONORABLE COURT ERRED IN NOT RULING THAT HEREIN


RESPONDENT IBANK'S FAILURE TO FILE A MOTION FOR RECONSIDERATION
TO THE ORDER DATED 08 JUNE 2005 IS FATAL TO ITS PETITION.

(A) P500,000.00, as and by way of exemplary damages;

III. THE HONORABLE COURT ERRED IN RULING THAT THE ORDER OF JUDGE
SEALANA-ABBU ADMITTING THE INTERVENTION OF HEREIN PETITIONER
CSMC IS WITHOUT LEGAL BASIS.18

(B) P500,000.00, as and by way of attorney's fees; and

In a Manifestation and Motion dated September 26, 2007, petitioner Metrobank manifested
that it no longer has any interest in pursuing the instant case as the loan obligation owed by
SSC to it has been sold by the latter to a corporation known as Meridian (SPV-AMC)
Corporation (Meridian). Accordingly, Metrobank prayed that it be substituted by Meridian as
petitioner in the instant case.19

Other reliefs as may be just and equitable under the premises are likewise prayed for.

In a Resolution20 dated November 12, 2007, this Court granted Metrobank's Motion.
At the outset, the Court takes note that no arguments or questions were raised by petitioners
with respect to the September 6, 2004 Order and March 15, 2005 Resolution of the RTC
which were annulled by the CA. Hence, the only issues left for resolution in the instant
petition are whether or not petitioners Metrobank and CSMC may be allowed to intervene in
Civil Case Nos. 2004-197 and 2004-200.
The Court will dwell first on the issues raised by Metrobank in G.R. No. 176008.
In its first assigned error, Metrobank contends that the CA erred in ruling that its Complaintin-Intervention is in the nature of an accion pauliana.
The Court does not agree.
A perusal of Metrobank's Complaint-in-Intervention would show that its main objective is to
have the chattel mortgages executed by SSC in favor of IEB rescinded. This is clearly evident
in its prayer, which reads as follows:
WHEREFORE, premises considered, it is respectfully prayed unto the Honorable Court that
judgment be rendered:
(1) RESCINDING the chattel mortgages executed by Defendants Sacramento and Delmo in
favor of Defendant Ibank dated May 25, 2004 and June 7, 2004, respectively;
(2) Ordering defendants Sacramento, Delmo and Ibank to pay, jointly and severally,
Plaintiff-Intervenor the amounts of:

(C) Costs of suit.

x x x x21
Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in
fraud of creditors.22
However, jurisprudence is clear that the following successive measures must be taken by a
creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1)
exhaust the properties of the debtor through levying by attachment and execution upon all the
property of the debtor, except such as are exempt by law from execution; (2) exercise all the
rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3)
seek rescission of the contracts executed by the debtor in fraud of their rights
(accionpauliana).23 It is thus apparent that an action to rescind, or an accion pauliana, must
be of last resort, availed of only after the creditor has exhausted all the properties of the
debtor not exempt from execution or after all other legal remedies have been exhausted and
have been proven futile.24
It does not appear that Metrobank sought other properties of SSC other than the subject lots
alleged to have been transferred in fraud of creditors. Neither is there any showing
thatMetrobank subrogated itself in SSC's transmissible rights and actions. Without availing of
the first and second remedies, Metrobank simply undertook the third measure and filed an
action for annulment of the chattel mortgages. This cannot be done. Article 1383 of the New
Civil Code is very explicit that the right or remedy of the creditor to impugn the acts which
the debtor may have done to defraud them is subsidiary in nature.25 It can only be availed of
in the absence of any other legal remedy to obtain reparation for the injury. 26 This fact is not
present in this case. No evidence was presented nor even an allegation was offered to show
that Metrobank had availed of the abovementioned remedies before it tried to question the
validity of the contracts of chattel mortgage between IEB and SSC.
Metrobank also contends that in order to apply the concept of, and the rules pertaining
to, accion pauliana, the subject matter must be a conveyance, otherwise valid, which is
undertaken in fraud of creditors. Metrobank claims that since there is no conveyance involved

in the contract of chattel mortgage between SSC and IEB, which Metrobank seeks to rescind,
the CA erred in ruling that the latter's Complaint-in-Intervention is an accion pauliana.
The Court is not persuaded.
In the instant case, the contract of chattel mortgage entered into by and between SSC and
IEB involves a conveyance of patrimonial benefit in favor of the latter as the properties
subject of the chattel mortgage stand as security for the credit it extended to SSC. In a very
recent case involving an action for the rescission of a real estate mortgage,27 while this Court
found that some of the elements of accion pauliana were not present, it found that a mortgage
contract involves the conveyance of a patrimonial benefit.
In sum, Metrobank may not be allowed to intervene and pray for the rescission of the chattel
mortgages executed by SSC in favor of IEB. The remedy being sought by Metrobank is in the
nature of an accion pauliana which, under the factual circumstances obtaining in the present
case, may not be allowed. Based on the foregoing, the Court finds no error in the ruling of the
CA that the RTC committed grave abuse of discretion in allowing Metrobank's intervention.
The Court will now proceed to resolve the issues raised by petitioner CSMC in G.R. No.
176131.
Firstly, CSMC contends that IEB was forum shopping when it filed a petition
for certiorari with the CA seeking, among others, the enjoinment of the commercial
operation of the subject machineries and equipment when its Opposition28 to the
implementation of the Capacity Lease Agreement between SSC and CSMC is still pending
determination by the RTC.

In the instant case on the one hand, IEB's Opposition questions the legality and seeks to
prevent the implementation of the Capacity Lease Agreement between CSMC and SSC
which, in essence, authorizes CSMC to operate the subject machineries pendente lite. On the
other hand, the petition for certiorari filed by IEB assails and seeks to nullify, among others,
the March 15, 2005 and June 8, 2005 Orders of the RTC allowing SSC to operate the subject
machineries pendente lite. It is, thus, clear that there is no identity of subject matter, cause of
action and reliefs sought in IEB's Opposition filed with the RTC and in its petition
for certiorari filed with the CA. Hence, IEB is not guilty of forum shopping.
Secondly, CSMC argues that IEB's failure to file a motion for reconsideration of the RTC
Order dated June 8, 2005 is fatal to its petition for certiorari filed with the CA.
The Court is not persuaded.
While the general rule is that before certiorari may be availed of, petitioner must have filed a
motion for reconsideration of the act or order complained of, the Court has dispensed with
this requirement in several instances.32 Thus, a previous motion for reconsideration before the
filing of a petition for certiorari is necessary unless: (i) the issue raised is one purely of law;
(ii) public interest is involved; (iii) there is urgency; (iv) a question of jurisdiction is squarely
raised before and decided by the lower court; and (v) the order is a patent nullity. 33 In the
instant case, the Court agrees with the CA that there is no need for such motion because the
issue regarding the applicability of the rule on intervention raised by IEB in its petition
for certiorari filed with the CA, insofar as the June 8, 2005 Order of the RTC is concerned, is
one purely of law.
The foregoing notwithstanding, the Court finds that the CA erred in ruling that the allowance
of CSMC's motion for intervention is improper. CSMC's intervention should be allowed.

The Court does not agree.


Forum shopping has been defined as an act of a party, against whom an adverse judgment
has been rendered in one forum, of seeking and possibly getting a favorable opinion in
another forum, other than by appeal or a special civil action for certiorari, or the institution of
two or more actions or proceedings grounded on the same cause on the supposition that one
or the other court would make a favorable disposition.29
Forum shopping exists when two or more actions involve the same transactions, essential
facts and circumstances, and raise identical causes of action, subject matter, and issues. 30Still
another test of forum shopping is when the elements of litis pendencia are present or where a
final judgment in one case will amount to res judicata in another whether in the two or
more pending cases, there is an identity of (a) parties (or at least such parties as represent the
same interests in both actions); (b) rights or causes of action, and (c) reliefs sought.31

The purpose of intervention is to enable a stranger to an action to become a party in order for
him to protect his interest and for the court to settle all conflicting claims. 34 Intervention is
allowed to avoid multiplicity of suits more than on due process considerations. 35 To warrant
intervention under Rule 19 of the Rules of Court, two requisites must concur: (1)
the movanthas a legal interest on the matter in litigation; and (2) intervention must not unduly
delay or prejudice the adjudication of the rights of the parties, nor should the claim of
the intervenorbe capable of being properly decided in a separate proceeding.36
In the present case, CSMC, being a lessee of the subject properties, has a legal interest
therein. The RTC correctly held, thus:
Under the Rules of Court, intervention is permissive and maybe permitted by the Court when
the applicant shows facts which satisfy the requirements of the law authorizing intervention.

(Firestone Ceramics Inc. vs. CA 313 SCRA 522) Records of the case showed that on August
30, 2004, an agreement was finalized and entered into by applicant Chuayuco and
defendant/plaintiff Sacramento Steel Corporation whereby the former shall lease and make
use of the machineries of Sacramento Steel under the Capacity Lease Agreement (CLA). One
of the terms and condition[s] under [the] CLA was for the monthly lease payments to take
effect upon signing of the contract. A person seeking to intervene in a suit must show that he
has legal interest which must be actual and material, direct and immediate. He must show that
he will either gain or lose by direct legal operation and effect of a judgment. (Hrs. of
Nicolas Orosa vs.Migrino 218 SCRA 311) The Court finds that Chuayuco had a constituted
and sufficient legal interest in the machineries subject of the litigation which is actual and
material. Any disposition of the case will adversely affect the standing of the intervenor.37
Moreover, considering that CSMC's interest is limited only to the operation of the subject
machineries pursuant to its lease contract with SSC, its intervention would not unduly delay
or prejudice the adjudication of the rights of SSC and IEB. CSMC's intervention should be
treated as one pro interesse suo which is a mode of intervention in equity wherein a stranger
desires to intervene for the purpose of asserting a property right in the res, or thing, which is
the subject matter of the litigation, without becoming a formal plaintiff or defendant, and
without acquiring control over the course of a litigation, which is conceded to the main actors
therein.38
Lastly, the Court does not agree with the CA when it ruled that the applicable provision is
Rule 3, Section 19 (erroneously cited as Section 20) of the Rules of Court on transfer of
interest and substitution of parties. Being a mere lessee of the subject properties, CSMC is a
stranger insofar as the dispute between SSC and IEB is concerned. The action filed by IEB
against SSC is an action for the payment or satisfaction of the loans incurred by the latter,
which includes a possible foreclosure of the subject properties given as security for the said
loans. CSMC may not be considered a successor, and may not be substituted in place of SSC,
insofar as these loans are concerned. If any, what has been transferred to CSMC is only the
right of SSC to operate the subject equipment and machineries which it owns. As such, SSC
may not be removed as defendant because its interest in the subject properties remains, being
the owner thereof.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals in CA-G.R. SP
No. 00549-MIN are AFFIRMED with MODIFICATION. The February 14, 2005 Order of
the Regional Trial Court of Misamis Oriental, Branch 17, is MODIFIED by
denying Metrobank's Motion for Intervention, while the Joint Resolution of the same trial
court, dated June 8, 2005, reiterating its admission of CSMC's Motion for Intervention and
directing the latter to file its complaint-in-intervention, is REINSTATED.
SO ORDERED.

CONTINENTAL CEMENT CORP. V. ASEA BROWN BOVERI


DECISION
DEL CASTILLO, J.:
Except as provided by law or by stipulation, one is entitled to an adequate compensation only for
such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual
or compensatory damages.[1]
This Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court assails the
Decision[3] dated August 25, 2005 and the Resolution[4] dated February 16, 2006 of the Court of
Appeals (CA) in CA-G.R. CV No. 58551.
Factual Antecedents
Sometime in July 1990, petitioner Continental Cement Corporation (CCC), a corporation
engaged in the business of producing cement,[5] obtained the services of respondents[6] Asea Brown
Boveri, Inc. (ABB) and BBC Brown Boveri, Corp. to repair its 160 KW Kiln DC Drive Motor (Kiln
Drive Motor).[7]
On October 23, 1991, due to the repeated failure of respondents to repair the Kiln Drive Motor,
petitioner filed with Branch 101 of the Regional Trial Court (RTC) of Quezon City a Complaint[8] for
sum of money and damages, docketed as Civil Case No. Q-91-10419, against respondent corporations
and respondent Tord B. Eriksson (Eriksson), Vice-President of the Service Division of the respondent
ABB.[9] Petitioner alleged that:
4.
On July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive Motor to the defendants
to be repaired under PO No. 17136-17137, x x x
The defendant, Tord B. Eriksson, was personally directing the repair of the said Kiln Drive Motor. He
has direction and control of the business of the defendant corporations. Apparently, the defendant
Asea Brown Boveri, Inc. has no separate personality because of the 4,000 shares of stock, 3996 shares
were subscribed by Honorio Poblador, Jr. The four other stockholders subscribed for one share of
stock each only.
5.
After the first repair by the defendants, the 160 KW Kiln Drive Motor was installed for
testing on October 3, 1990. On October 4, 1990 the test failed. The plaintiff removed the DC Drive
Motor and replaced it with its old motor. It was only on October 9, 1990 that the plaintiff resumed
operation. The plaintiff lost 1,040 MTD per day from October 5 to October 9, 1990.

9.
The plaintiff has made several demands on the defendants for the payment of the aboveenumerated damages, but the latter refused to do so without valid justification.
6.
On November 14, 1990, after the defendants had undertaken the second repair of the motor
in question, it was installed in the kiln. The test failed again. The plaintiff resumed operation with its
old motor on November 19, 1990. The plaintiff suffered production losses for five days at the rate of
1,040 MTD daily.
7.
The defendants were given a third chance to repair the 160 KW Kiln DC Drive Motor. On
March 13, 1991, the motor was installed and tested. Again, the test failed. The plaintiff resumed
operation on March 15, 1991. The plaintiff sustained production losses at the rate of 1,040 MTD for
two days.
8.
As a consequence of the failure of the defendants to comply with their contractual obligation
to repair the 160 KW Kiln DC Drive Motor, the plaintiff sustained the following losses:
(a)

Production and opportunity losses

P10,600,000.00

This amount represents only about 25% of the production losses at the rate of P72.00 per bag of
cement.
(b) Labor Cost and Rental of Crane

26,965.78

10. The plaintiff was constrained to file this action and has undertaken to pay its counsel Twenty
Percentum (20%) of the amount sought to be recovered as attorneys fees.[10]
Respondents, however, claimed that under Clause 7 of the General Conditions,[11] attached to the letter
of offer[12] dated July 4, 1990 issued by respondent ABB to petitioner, the liability of respondent ABB
does not extend to consequential damages either direct or indirect.[13] Moreover, as to respondent
Eriksson, there is no lawful and tenable reason for petitioner to sue him in his personal capacity
because he did not personally direct the repair of the Kiln Drive Motor.[14]
Ruling of the Regional Trial Court
On August 30, 1995, the RTC rendered a Decision[15] in favor of petitioner. The RTC rejected
the defense of limited liability interposed by respondents since they failed to prove that petitioner
received a copy of the General Conditions.[16] Consequently, the RTC granted petitioners claims for
production loss, labor cost and rental of crane, and attorneys fees.[17] Thus:
WHEREFORE, premises above considered, finding the complaint substantiated by plaintiff,
judgment is hereby rendered in favor of plaintiff and against defendants, hereby ordering the latter to
pay jointly and severally the former, the following sums:

(c) Penalties (at P987.25 a day) for


P10,600,00.00 for loss of production;
failure to deliver the motor from
P
Aug. 29, 1990 to July 31, 1991.

331,716.00

(d) Cost of money interest of the

26,965.78 labor cost and rental of crane;

P 100,000.00 attorneys fees and cost.


SO ORDERED.[18]

P987.25 a day from July 18, 1990


Ruling of the Court of Appeals
to April 5, 1991 at 34% for 261 days

Total Damages

10,983,017.42

24,335.59
On appeal, the CA reversed the ruling of the RTC. The CA applied the exculpatory clause in the
General Conditions and ruled that there is no implied warranty on repair work; thus, the repairman
cannot be made to pay for loss of production as a result of the unsuccessful repair.[19] The fallo of the
CA Decision[20] reads:
WHEREFORE, premises considered, the assailed August 30, 1995 Decision of the Regional Trial
Court of Quezon City, Branch 101 is hereby REVERSED and SET ASIDE. The October 23, 1991
Complaint is hereby DISMISSED.

Petitioner and respondent ABB entered into a contract for the repair of petitioners Kiln Drive Motor,
evidenced by Purchase Order Nos. 17136-37,[33] with the following terms and conditions:
SO ORDERED.[21]
a)
Petitioner moved for reconsideration[22] but the CA denied the same in its Resolution[23] dated
February 16, 2006.

Total Price:

b)
Delivery Date:
[34]
payment

P197,450.00
August 29, 1990 or six (6) weeks from receipt of order and down

Issues
Hence, the present recourse where petitioner interposes the following issues:

c)
Penalty:
One half of one percent of the total cost or Nine Hundred Eighty
Seven Pesos and Twenty five centavos (P987.25) per day of delay.

1. Whether x x x the [CA] gravely erred in applying the terms of the General Conditions of
Purchase Orders Nos. 17136 and 17137 to exculpate the respondents x x x from liability in this case.

Respondent ABB, however, not only incurred delay in performing its obligation but likewise failed to
repair the Kiln Drive Motor; thus, prompting petitioner to sue for damages.

2. Whether x x x the [CA] seriously erred in applying the concepts of implied warranty and
warranty against hidden defects of the New Civil Code in order to exculpate the respondents x x x
from its contractual obligation.[24]

Clause 7 of the General Conditions is not binding on petitioner

Petitioners Arguments
Petitioner reiterates that the General Conditions cannot exculpate respondents because petitioner never
agreed to be bound by it nor did petitioner receive a copy of it.[25] Petitioner also imputes error on the
part of the CA in applying the concepts of warranty against hidden defects and implied
warranty.[26] Petitioner contends that these concepts are not applicable because the instant case does
not involve a contract of sale.[27] What applies are Articles 1170 and 2201 of the Civil Code.[28]
Respondents Arguments
Conversely, respondents insist that petitioner is bound by the General Conditions.[29] By issuing
Purchase Order Nos. 17136-37, petitioner in effect accepted the General Conditions appended to
respondent ABBs letter of offer.[30] Respondents likewise defend the ruling of the CA that there could
be no implied warranty on the repair made by respondent ABB as the warranty of the fitness of the
equipment should be enforced directly against the manufacturer of the Kiln Drive
Motor.[31] Respondents also deny liability for damages claiming that they performed their obligation in
good faith.[32]

Respondents contend that under Clause 7 of the General Conditions their liability does not extend to
consequential damages either direct or indirect.[35] This contention, however, is unavailing because
respondents failed to show that petitioner was duly furnished with a copy of said General
Conditions. Hence, it is not binding on petitioner.
Having breached the contract it entered with petitioner, respondent ABB is liable for damages
pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which state:
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone.
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.
Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith
is liable shall be those that are the natural and probable consequences of the breach of the obligation,
and which the parties have foreseen or could have reasonably foreseen at the time the obligation was
constituted.

Our Ruling
The petition has merit.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages
which may be reasonably attributed to the non-performance of the obligation.

Based on the foregoing, a repairman who fails to perform his obligation is liable to pay for the cost of
the execution of the obligation plus damages. Though entitled, petitioner in this case is not claiming
reimbursement for the repair allegedly done by Newton Contractor,[36] but is instead asking for
damages for the delay caused by respondent ABB.
Petitioner is entitled to penalties under Purchase Order Nos. 17136-37

April to June 1990 showing that on the average it was able to produce 1040 MT of cement per
day. However, the production reports for the months of August 1990 to March 1991 were not
presented. Without these production reports, it cannot be determined with reasonable certainty whether
petitioner indeed incurred production losses during the said period. It may not be amiss to say that
competent proof and a reasonable degree of certainty are needed to justify a grant of actual or
compensatory damages; speculations, conjectures, assertions or guesswork are not sufficient.[47]

As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the amount of P987.25 per
day from the time of delay, August 30, 1990, up to the time the Kiln Drive Motor was finally returned
to petitioner. Records show that although the testing of Kiln Drive Motor was done on March 13,
1991, the said motor was actually delivered to petitioner as early as January 7, 1991.[37] The
installation and testing was done only on March 13, 1991 upon the request of petitioner because the
Kiln was under repair at the time the motor was delivered; hence, the load testing had to be
postponed.[38]

Besides, consequential damages, such as loss of profits on account of delay or failure of delivery, may
be recovered only if such damages were reasonably foreseen or have been brought within the
contemplation of the parties as the probable result of a breach at the time of or prior to
contracting.[48] Considering the nature of the obligation in the instant case, respondent ABB, at the time
it agreed to repair petitioners Kiln Drive Motor, could not have reasonably foreseen that it would be
made liable for production loss, labor cost and rental of the crane in case it fails to repair the motor or
incurs delay in delivering the same, especially since the motor under repair was a spare motor.[49]

Under Article 1226[39] of the Civil Code, the penalty clause takes the place of indemnity for damages
and the payment of interests in case of non-compliance with the obligation, unless there is a stipulation
to the contrary. In this case, since there is no stipulation to the contrary, the penalty in the amount
of P987.25 per day of delay covers all other damages (i.e. production loss, labor cost, and rental of the
crane) claimed by petitioner.

For the foregoing reasons, petitioner is not entitled to recover production loss, labor cost and the rental
of the crane.

Petitioner is not entitled to recover production loss, labor cost and the rental of crane
Article 1226 of the Civil Code further provides that if the obligor refuses to pay the penalty, such as in
the instant case, [40] damages and interests may still be recovered on top of the penalty. Damages
claimed must be the natural and probable consequences of the breach, which the parties have foreseen
or could have reasonably foreseen at the time the obligation was constituted.[41]
Thus, in addition to the penalties, petitioner seeks to recover as damages production loss, labor cost
and the rental of the crane.
Petitioner avers that every time the Kiln Drive Motor is tested, petitioner had to rent a crane and pay
for labor to install the motor.[42] But except for the Summary of Claims for Damages,[43] no other
evidence was presented by petitioner to show that it had indeed rented a crane or that it incurred labor
cost to install the motor.
Petitioner likewise claims that as a result of the delay in the repair of the Kiln Drive Motor, its
production from August 29, 1990 to March 15, 1991 decreased since it had to use its old motor which
was not able to produce cement as much as the one under repair;[44] and that every time the said motor
was installed and tested, petitioner had to stop its operations; thereby, incurring more production
losses.[45] To support its claim, petitioner presented its monthly production reports[46] for the months of

Petitioner is not entitled to attorneys fees


Neither is petitioner entitled to the award of attorneys fees. Jurisprudence requires that the factual
basis for the award of attorneys fees must be set forth in the body of the decision and not in the
dispositive portion only.[50] In this case, no explanation was given by the RTC in awarding attorneys
fees in favor of petitioner. In fact, the award of attorneys fees was mentioned only in the dispositive
portion of the decision.
Respondent Eriksson cannot be made jointly and severally liable for the penalties
Respondent Eriksson, however, cannot be made jointly and severally liable for the penalties. There is
no showing that respondent Eriksson directed or participated in the repair of the Kiln Drive Motor or
that he is guilty of bad faith or gross negligence in directing the affairs of respondent ABB. It is a basic
principle that a corporation has a personality separate and distinct from the persons composing or
representing it; hence, personal liability attaches only in exceptional cases, such as when the director,
trustee, or officer is guilty of bad faith or gross negligence in directing the affairs of the corporation.[51]
In sum, we find petitioner entitled to penalties in the amount of P987.25 per day from August 30,
1990 up to January 7, 1991 (131 days) or a total amount of P129,329.75 for the delay caused by
respondent ABB. Finally, we impose interest at the rate of six percent (6%) on the total amount due
from the date of filing of the complaint until finality of this Decision. However, from the finality of
judgment until full payment of the total award, the interest rate of twelve percent (12%) shall apply.[52]

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated August 25, 2005 and
the Resolution dated February 16, 2006 of the Court of Appeals in CA-G.R. CV No. 58551 are
hereby REVERSED and SET ASIDE. Respondent ABB is ORDERED to pay petitioner the amount
of P129,329.75, with interest at 6% per annum to be computed from the date of the filing of the
complaint until finality of this Decision and 12% per annum thereafter until full payment.

On August 9, 1982, during the effectivity of Policy No. TAR 1056, a fire of
undetermined origin razed and gutted Traverses building. The following day, Traverse
informed Central of the mishap and requested it to immediately conduct the necessary
inspection, evaluation, and investigation.[11]

SO ORDERED.
DBP V. TRAVERSE DEVELOPMENT CORPORATION AND CENTRAL SURETY
AND INSURANCE COMPANY
DECISION
LEONARDO-DE CASTRO, J.:
This is a petition for review on certiorari[1] of the September 30, 2004 Decision[2] and
August 11, 2005 Resolution[3] of the Court of Appeals in CA-G.R. CV No. 65311, which
affirmed the November 24, 1998 Decision[4] of the Regional Trial Court (RTC) of Quezon
City, Branch 87, in Civil Case No. Q-37497, as modified by its February 1, 1999 Order.[5]
The facts are simple and straightforward.
The Development of the Philippines (DBP)-Tarlac Branch granted a Real Estate
Loan of 910,000.00 to Traverse Development Corporation (Traverse) for the construction
of its three-storey commercial building at Taedo St., Tarlac City. To secure the payment of
this loan, Traverse constituted a mortgage on the land on which the building was to be built
on July 21, 1980.[6] Among the conditions imposed by DBP in the mortgage contract was
Traverses acquisition of an insurance coverage for an amount not less than the loan, to be
endorsed in DBPs favor.[7]
From 1980 to 1981, Traverse submitted to DBP three policies in accordance with the
insurance condition in the mortgage contract. The last of these three was FGU Policy No.
6246, in the amount of 1 Million, for the period of one year, from May 7, 1981 to May 7,
1982.[8]
On May 6, 1982, FGU Insurance Corporation (FGU) renewed Traverses Fire
Insurance Policy for another year, from May 7, 1982 to May 7, 1983, for the same amount
of1 Million, under Policy No. 61146.[9] However, as DBP had already transferred the
buildings insurance to Central Surety & Insurance Company (Central), for the same terms,
under Fire Insurance Policy No. TAR 1056 (Policy No. TAR 1056), issued on May 7, 1982, it
returned the FGU Policy to Traverse.[10]

On September 7, 1982, Traverse submitted to Central written proof of the loss


sustained by its building, together with its claim in the amount of 1 Million. On November
6, 1982, Central proposed to settle Traverses claim on the basis of cost of repairs of the
affected parts of the building for 230,748.00.[12] Believing that this was highly inequitable
and unreasonable, Traverse denied such proposal.
Having failed to arrive at a settlement, Traverse, on February 28, 1983, filed a
Complaint[13] before the RTC, against Central and DBP for payment of its claim and
damages.
Traverse averred that it was obvious from the beginning that Central was unable or
unwilling to fulfill its liability under Policy No. TAR 1056. Traverse alleged that due to the
unjustifiable delay of Central to settle its claims, it was prevented from receiving rentals for
its building, its loan with DBP had increased due to interest and penalties, and it had suffered
actual damages. Traverse impleaded DBP as a co-defendant because of its alleged failure or
refusal to convince Central to pay Traverses claims, considering that it transferred Traverses
insurance to Central without Traverses knowledge.[14]
In its Answer, DBP denied that Traverse had no knowledge of the transfer of its
insurance to Central as evidenced by its payment of the premium, documentary stamp tax,
and other charges for the new insurance policy. DBP also claimed that it was Traverse that
transferred its insurance to Central to avoid delays in renewing its insurance, since FGU had
no branch office in Tarlac.[15]
Central argued in its Answer that Traverse had no valid and sufficient cause of action because
aside from violating material conditions in its policy, DBP, as the endorsee of the policy, was
the real party-in-interest. Central also averred that Traverse had no one else to blame but
itself for the ballooning interest of its loan and lack of rentals since it insisted on an
exaggerated, unjustified, and unreasonable claim, considering that the building was not a total
loss, as the building was only partially damaged.[16]
On November 24, 1998, the RTC rendered a Decision, the dispositive portion of which
reads:

WHEREFORE, in the light of all the foregoing, judgment is hereby rendered as follows:
(a) ordering defendant CENTRAL SURETY to pay the DBP one million pesos
(1,000,000.00) representing the amount for which Fire Insurance Policy No. TAR-1056 was
issued, plus interest thereon at 24% which is double the legal interest ceiling computed from
thirty (30) days after defendant received proof of loss on September 29, 1982 (Exh. D-3,
pp. 183-184 Rec.);
(b) ordering defendant DBP to extinguish plaintiffs loan totally, including interest, penalties
and charges;
(c) ordering defendant CENTRAL SURETY to pay plaintiff nominal damages in the
amount of 50,000,00;
(d) ordering both defendants to pay jointly and severally the plaintiff, attorneys fees in the
amount of 50,000.00, plus cost of litigation.[17]
The RTC held that total loss did not require that the building be annihilated and turned into
rubble, as long as the property was destroyed to such an extent as to deprive it of the
character in which it was insured. In holding Central liable for damages, interests, penalties,
attorneys fees, and costs of suit, the RTC noted how Central had tried to evade Traverses
claims. It said that Traverse made no declarations as to the use of its building as it had been
established that not only was its insurance policy transferred to Central without its
knowledge, but that Policy No. TAR 1056 was copied verbatim from its FGU policy.[18]

2.
THE HONORABLE COURT ALSO ERRED IN ORDERING DEFENDANT
DBP TO PAY [TRAVERSE] JOINTLY AND SEVERALLY THE ATTORNEYS FEE
AND COST OF LITIGATION.[21]
On February 1, 1999, the RTC partially granted DBPs motion by completely deleting
paragraph (b) and modifying paragraph (c) of the disposition of its November 24, 1998
Decision. The dispositive portion of the RTCs decision in Civil Case No. Q-37497, as
revised, reads:
(a) ordering defendant CENTRAL SURETY to pay the DBP one million pesos
(1,000,000.00) representing the amount for which Fire Insurance Policy No. TAR-1056 was
issued, plus interest thereon at 24% which is double the legal interest ceiling computed from
thirty (30) days after defendant received proof of loss on September 29, 1982 (Exh. D-3,
pp. 183-184 Rec.);
(b) ordering defendant CENTRAL SURETY to pay plaintiff nominal damages in the
amount of 50,000,00;
(c) ordering both defendants to pay plaintiff jointly and severally attorneys fees in the
amount of 50,000.00, plus cost of litigation.[22]
Both Central and DBP appealed the decision of the RTC to the Court of Appeals, which
appeal was docketed as CA-G.R. CV No. 65311.
On September 30, 2004, the Court of Appeals dismissed the appeal and affirmed the RTC.

The RTC adjudged DBP to be solidarily liable with Central for damages, attorneys fees, and
costs of suit in view of its refusal or failure to pursue the claim against Central. The RTC
said that as beneficiary-assignee of Policy No. TAR 1056, DBP should not have stopped at
following-up its claim through letters and telegrams but should have either filed its own case
against Central or joined Traverse as a co-plaintiff. The RTC took DBPs inaction as
suggestive of its deliberate participation in the transfer of Traverses existing insurance
coverage from FGU to Central.[19]
On January 13, 1999, DBP filed a Motion for Reconsideration[20] based on the following
grounds:
1.
THE HONORABLE COURT ERRED IN ORDERING DEFENDANT DBP TO
EXTINGUISH [TRAVERSES] LOAN TOTALLY INCLUDING INTEREST, PENALTIES
AND CHARGES.

On October 18, 2004, Central moved for the reconsideration of the Court of Appeals
Decision, alleging that it dealt in good faith with Traverse.[23]
On October 20, 2004, DBP filed its own Motion for Partial Reconsideration, seeking the
rectification of the misquoted dispositive portion, which was from the November 24, 1998
Decision of the RTC, and the setting aside of the order making DBP solidarily liable with
Central for the payment of attorneys fees and costs of suit.[24]
On August 11, 2005, the Court of Appeals resolved both motions for reconsideration,
denying Centrals as its arguments were but a rehash of its petition, and partially granting
DBPs, in view of the RTCs February 1, 1999 Order.[25]
Undaunted, DBP, on September 27, 2005, filed a petition for review of its case before this
Court. Pending the resolution of its petition, DBP then moved for this Court to Direct the
Lower Court to Issue Writ of Partial Execution.

In seeking our review of its case, DBP assigns only one error, to wit:

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

THE COURT OF APPEALS ERRED IN HOLDING PETITIONER DBP SOLIDARILY


LIABLE WITH RESPONDENT CENTRAL FOR ATTORNEYS FEES IN THE AMOUNT
OF P50,000.00 PLUS COST OF LITIGATION. [26]

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

DBP claims that it cannot be held solidarily liable with Central for the payment of attorneys
fees without contravening Article 2208 of the Civil Code, which sanctions an award only
when the defendants act or omission has compelled the plaintiff to litigate with third persons
or to incur expenses to protect his interest. DBP argues that there is no legal justification to
hold it liable for attorneys fees and cost of litigation as nowhere in the decision was it stated
that Traverse was compelled to litigate because of DBPs act or omission. DBP alleges that
Centrals refusal to pay Traverses claim could not be attributed to it especially since it
exerted all efforts to collect from Central. It avers that filing a cross-claim would have been a
mere surplusage and failure to file such cannot be considered as a basis for its liability. DBP
further asseverates that the speculation that Traverse would have been able to easily collect
from FGU had its insurance not been transferred to Central is not a basis for awarding
attorneys fees since it was Traverse itself that chose to transfer its insurance to Central.[27]
This Courts Ruling
The resolution of this case hinges upon the lone issue of whether or not DBP can be held
solidarily liable with Central for the payment of attorneys fees and cost of litigation, in light
of the fact that it was the one that facilitated the transfer of Traverses insurance coverage
from FGU to Central.
Both the RTC and the Court of Appeals held DBP liable for attorneys fees and costs of suit
because said courts believed that DBP should have been more aggressive in pursuing its
claim against Central.
In the absence of stipulation, attorneys fees may be recovered as actual or compensatory
damages under any of the circumstances provided for in Article 2208 of the Civil Code,[28] to
wit:
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and
expenses of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
Even if it were true that DBP had a hand in the transfer of Traverses insurance
coverage to Central, such act is not sufficient to hold it solidarily liable with Central for the
payment of attorneys fees and cost of litigation under the above provision of the Civil Code.
Records show that during the testimony of the former insurance examiner of DBPTarlac, Victoria Punzalan (Punzalan), she claimed that she had repeatedly reminded Mrs.
Lourdes Roxas, Traverses President, of the impending expiration of Traverses insurance
coverage with FGU.[29] Mrs. Roxas, however replied that her son would not be able to attend
to it as he was out of the country at that time. Subsequently, Atty. Ruperto Zamora of Central
called up Punzalan, upon the supposed instruction of Mrs. Roxas, to draw up Traverses
insurance coverage.[30] DBP only came to know that Traverse had already renewed its
insurance policy with FGU on May 6, 1981, after Central had already drawn up Policy No.
TAR 1056.[31]
We thus find that DBP could not be blamed for facilitating such transfer in light of the
previous delays in Traverses submission of its insurance policy. It is worthy to note that
Policy No. TAR 1056 was drawn on May 7, 1986, the date that Traverses previous FGU
policy was set to expire. Moreover, Central was not only one of DBPs accredited insurance

companies, but it also had a local branch office, which made transactions with it faster and
easier.
SO ORDERED.
This Court also cannot sustain the insinuation that DBPs lax attitude in pursuing its claim
against Central was tantamount to bad faith as to make it liable for attorneys fees and costs
of suit. Even a resort to the principle of equity will not justify making DBP liable.
The award of attorneys fees is the exception rather than the rule and the court must state
explicitly the legal reason for such award.[32] As we held in ABS-CBN Broadcasting
Corporation v. Court of Appeals[33]:
The general rule is that attorneys fees cannot be recovered as part of damages
because of the policy that no premium should be placed on the right to litigate. They are not
to be awarded every time a party wins a suit. The power of the court to award attorneys fees
under Article 2208 demands factual, legal, and equitable justification. Even when a claimant
is compelled to litigate with third persons or to incur expenses to protect his rights, still
attorneys fees may not be awarded where no sufficient showing of bad faith could be
reflected in a partys persistence in a case other than an erroneous conviction of the
righteousness of his cause.[34] (Emphasis supplied.)
It should be remembered that Traverses insurance policy was assigned to DBP. While
it is true that DBP still had the real estate mortgage to ensure the payment of Traverses loan,
it would be in its favor to facilitate Centrals payment on Policy No. TAR 1056 rather than go
through the process of foreclosing Traverses lot or having to demand payment again, albeit
from Traverse this time. Moreover, Traverses own evidence shows that DBP had tried its
best to facilitate and coordinate meetings between Traverse and Central. DBP Tarlac even
suggested to its main office to have Central blacklisted from its roster of accredited insurance
companies as an effect of its handling of the Traverse fire insurance claim.[35]
It was not DBPs act of facilitating the transfer of Traverses insurance policy from
FGU to Central that compelled Traverse to litigate its claims, but rather Centrals persistent
refusal to pay such claims. Thus, only Central should be held liable for the payment of
attorneys fees and costs of suit.
In view of the foregoing, the Motion filed by DBP to direct the lower court to issue a
writ of partial execution has become moot.
WHEREFORE, this Court GRANTS the petition and MODIFIES the September 30,
2004 Decision as well as the August 11, 2005 Resolution of the Court of Appeals inCA-G.R.
CV No. 65311 by holding that petitioner Development Bank of the Philippines is not
liable for the payment of attorneys fees and costs of suit in said case.

JAPRL DEVT CORP. V. SECURITY BANK CORP.


DECISION
CARPIO MORALES, J.,
JAPRL Development Corporation (JAPRL), a domestic corporation engaged in
fabrication, manufacture and distribution of steel products, applied for a credit facility (Letter
of Credit/Trust Receipt) in the amount of Fifty Million (P50,000,000) Pesos with Security
Bank Corporation (SBC). The application was approved and the Credit Agreement took
effect on July 15, 1996.[1]
On November 5, 2001, petitioners Peter Rafael C. Limson (Limson) and Jose Uy
Arollado (Arollado), JAPRL Chairman and President, respectively, executed a Continuing
Suretyship Agreement (CSA)[2] in favor of SBC wherein they guaranteed the due and full
payment and performance of JAPRLs guaranteed obligations under the credit facility.[3]
In 2002, on JAPRLs proposal, SBC extended the period of settlement of his
obligations.
In 2003, JAPRLs financial adviser, MRM Management Incorporated (MRM),
convened JAPRLs creditors, SBC included, for the purpose of restructuring JAPRLs
existing loan obligations. Copies of JAPRLs financial statements from 1998 to 2001 were
given for the creditors to study.
SBC soon discovered material inconsistencies in the financial statements given by
MRM vis--vis those submitted by JAPRL when it applied for a credit facility, drawing SBC
to conclude that JAPRL committed misrepresentation.
As paragraph 10 (c) of the Credit Agreement[4] provided, if any representation or
warranty, covenant or undertaking embodied [therein] and [in] the Credit Instrument or in
any certificate, statement or document submitted to SBC turns out to be untrue or ceases to be
true in any material respect, or is violated or not complied with, such will constitute an event
of default committed by JAPRL and its sureties.
On the basis of Item 2 of the CSA,[5] SBC sent a formal letter of demand[6] dated August 20,
2003 to petitioners JAPRL, Limson and Arollado for the immediate payment of Forty Three

Million Nine Hundred Twenty Six Thousand and Twenty One Pesos and 41/100
(P43,926,021.41) representing JAPRLs outstanding obligations.

jurisdiction over their person. At any rate, they raised defenses against SBCs claim that they
acted as sureties of JAPRL.

Petitioners failed to comply with SBCs demand, hence, SBC filed on September 1,
2003 a complaint for sum of money with application for issuance of writ of preliminary
attachment[7] before the Regional Trial Court (RTC) of Makati City against JAPRL, Limson
and Arollado.

Meanwhile, the proposed rehabilitation plan before the Quezon City RTC was
disapproved by Order of May 9, 2005.[14] On SBCs motion, the Makati RTC thus reinstated
SBCs complaint to its docket, by Order of February 27, 2006.[15]

During the hearing on the prayer for the issuance of writ of preliminary attachment on
September 16, 2003, SBCs counsel manifested that it received a copy of a Stay Order dated
September 8, 2003 issued by the RTC of Quezon City, Branch 90 wherein JAPRLs petition
for rehabilitation was lodged. The Makati RTC at once ordered in open court the archiving of
SBCs complaint for sum of money until disposition by the Quezon City RTC of JAPRLs
petition for rehabilitation.[8]
When the Makati RTC reduced to writing its open court Order of September 16, 2003,
however, it instead declared the dismissal of SBCs complaint without prejudice:
When this case was called for hearing, plaintiffs counsel manifested that they received a Stay
Order from Regional Trial Court, Br. 190, Quezon City, relative to the approval of the
Rehabilitation Plan filed by defendant JAPRL Dev. Corp. and in view thereof he prayed that
the present case be archived instead. However, the Court is of the view to have the case
dismissed without prejudice so that a disposition be made on the case.
WHEREFORE, let the present case be ordered DISMISSED without prejudice to a refiling or
having a claim filed with the appropriate forum.
SO ORDERED.[9] (underscoring supplied)
On SBCs motion for reconsideration, however, the Makati RTC, by Order of January
9, 2004,[10] reverted to its oral order of archiving SBCs complaint.
SBC moved to clarify the Makati RTC January 9, 2004 Order, positing that the
suspension of the proceedings should only be with respect to JAPRL but not with respect to
Limson and Arollado.[11] The Makati RTC, by Order of February 25, 2004, mantained its
order archiving the complaint against all petitioners herein, however.
SBC filed a motion for reconsideration[12] of the February 25, 2004 Order, to which
Limson and Arollado separately filed an Opposition (Ad Cautelam)[13] wherein they
claimed that summons were not served on them, hence, the Makati RTC failed to acquire

Petitioners later filed before the Makati RTC a Manifestation (Ad Cautelam)[16] informing
that a Stay Order dated March 13, 2006[17] was issued, this time by the Calamba RTC, Branch
34, in a new petition for rehabilitation filed by JAPRL and its subsidiary, RAPID Forming
Corporation, and praying for the archiving of SBCs complaint.
By Order of June 30, 2006,[18] the Makati RTC again archived SBCs complaint against
petitioners. SBC, by Consolidated Motion, moved for the reconsideration of the June 30,
2006 Order, averring that its complaint should not have been archived with respect to sureties
Limson and Arollado; and that since the two failed to file their respective Answers within the
reglementary period, they should be declared in default.
The Makati RTC denied, by Order of October 2, 2006,[19] the Consolidated Motion of
SBC, prompting SBC to file a petition for certiorari before the Court of Appeals.
By Decision of September 25, 2008,[20] the appellate court held that Limson and
Arollado voluntarily submitted themselves to the jurisdiction of the Makati RTC, despite the
qualification that the filing of their respective Opposition[s] Ad Cautelam and
Manifestation[s] Ad Cautelam, was by way of special appearance they having sought
affirmative relief by praying for the archiving of SBCs complaint.
The Manifestations and Oppositions filed by the individual private respondents to the court a
quo have the purpose of asking the court to archive the case until the final resolution of either
the Petition for Rehabilitation filed by private respondent corporation JAPRL in Quezon
City or the subsisting Petition for Rehabilitation filed in Calamba City, Laguna. Clearly, the
purpose of those pleadings is to seek for affirmative relief, (i.e. Suspending the proceedings
in Civil Case No. 03-1036) from the said court. By those pleadings asking for affirmative
relief, the individual private respondents had voluntarily appeared in court. As expressly
stated in Rule 14, Section 20, of the Rules of Court, the defendants voluntary appearance in
the action shall be equivalent to service of summons. It is well settled that any form of
appearance in court, by the defendant, by his agent authorized to do so, or by attorney, is
equivalent to service except where such appearance is precisely to object to the jurisdiction of
the court over the person of the defendant. x x x [21] (italics in the original; underscoring
supplied)

To the appellate court, SBCs claim against Limson and Arollado in their capacity as
sureties could proceed independently of JAPRLs petition for rehabilitation:
x x x [T]he property of the surety cannot be taken into custody by the rehabilitation
receiver (SEC) and said surety can be sued separately to enforce his liability as surety for the
debts or obligations of the debtor. The debts or obligations for which a surety may be liable
include future debts, an amount which may not be known at the time the surety is given.
Aside from that, it is specifically stated under Rule 4, Section 6 (b) of the Interim Rules of
Procedure on Corporate Rehabilitation, that the issuance of a Stay order will have an effect
of:
(b) staying enforcement of all claims whether for money or otherwise and whether such
enforcement is by court action otherwise, against the debtor, its guarantors and sureties not
solidarily liable with the debtor.[22] (emphasis and italics in the original; underscoring
supplied)
The appellate court denied petitioners motion for reconsideration by Resolution of
October 29, 2009,[23] hence, the present petition for review on certiorari.[24]
The petition fails.
A reading of the separate Oppositions Ad Cautelam by Limson and Arollado to SBCs
Motion for Reconsideration[25] shows that they did not challenge the trial courts
jurisdiction. Albeit both pleadings contained prefatory statements that the two did not receive
summons, they pleaded defenses in their favor, viz:
Limsons Opposition Ad Cautelam
6. First of all, there is no gainsaying that herein defendant LIMSON as well as defendant
AROLLADO are being sued in their alleged capacities as SURETIES, with defendant JAPRL
being the DEBTOR. As SURETIES, they are covered by the Stay Order issued by the court
hearing the petition for corporate rehabilitation filed by Rapid Forming Corp. and defendant
JAPRL. The Stay Order directed, among others, the stay of enforcement of ALL CLAIMS,
WHETHER FOR MONEY OR OTHERWISE, AND WHETHER SUCH ENFORCEMENT
IS BY COURT ACTION OR OTHERWISE, against the petitioner/s, and its/their guarantors
and SURETIES not solidarily liable with petitioner/s,[26] x x x (all caps in the original)
Arollados Opposition (Ad Cautelam)

11. Certainly, the plaintiff cannot unjustly enrich itself and be allowed to recover from both
the DEBTOR JAPRL in accordance with the rehabilitation plan, and at the same time from
the alleged SURETIES LIMSON and AROLLADO through the present complaint.
12. Moreover, defendant AROLLADO, as surety, can set up against the plaintiff all the
defenses which pertain to the principal DEBTOR JAPRL and even those defenses that are
inherent in the debt. Likewise, defendant AROLLADO would, in any case, have a right of
action for reimbursement against JAPRL, the principal DEBTOR. Additionally, defendant
AROLLADO is given the right, under Article 1222 of the New Civil Code, to avail himself
of all the defenses which are derived from the nature of the obligation. Since the plaintiff, and
even defendants LIMSON and AROLLADO, are temporarily barred from enforcing a claim
against JAPRL, there is, therefore, every reason to suspend the proceedings against
defendants LIMSON and AROLLADO while the complaint is archived and cannot be
prosecuted against the DEBTOR JAPRL.[27] (capitalization and emphasis in the original;
underscoring supplied)
When a defendants appearance is made precisely to object to the jurisdiction of the
court over his person, it cannot be considered as appearance in court.[28] Limson and
Arollado glossed over the alleged lack of service of summons, however, and proceeded to
exhaustively discuss why SBCs complaint could not prosper against them as sureties. They
thereby voluntarily submitted themselves to the jurisdiction of the Makati RTC .
On a trial courts suspension of proceedings against a surety of a corporation in the
process of rehabilitation, Banco de Oro-EPCI, Inc. v. JAPRL Development
Corporation[29] holds that a creditor can demand payment from the surety solidarily
liable with the corporation seeking rehabilitation, it being not included in the list of stayed
claims:
Indeed, Section 6(b) of the Interim Rules of Procedure of Corporate Rehabilitation which the
appellate court cited in the earlier-quoted portion of its decision, provides that a stay order
does not apply to sureties who are solidarily liable with the debtor. In Limson and
Arollados case, their solidary liability with JAPRL is documented.
3. Liability of the Surety The liability of the Surety is solidary and not contingent upon the
pursuit by the Bank of whatever remedies it may have against the Debtor or the
collaterals/liens it may possess. If any of the Guaranteed Obligation is not paid or performed
on due date (at stated maturity or by acceleration), the Surety shall, without need for any
notice, demand or any other act or deed, immediately become liable therefor and the Surety
shall pay and perform the same. [30] (emphasis and underscoring supplied)
Limson and Arollado, as sureties, whose liability is solidary cannot, therefore, claim
protection from the rehabilitation court, they not being the financially-distressed corporation

that may be restored, not to mention that the rehabilitation court has no jurisdiction over
them. Article 1216 of the Civil Code clearly is not on their side:

among others, that the Alfaros could sell the land within five years from the date of its release
from mortgage without NHAs prior written consent. Thus:

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

x x x. 5. Except by hereditary succession, the lot herein sold and conveyed, or any
part thereof, cannot be alienated, transferred or encumbered within five (5) years from the
date of release of herein mortgage without the prior written consent and authority from the
VENDOR-MORTGAGEE (NHA). x x x.[2] (Emphasis supplied)

IN FINE, SBC can pursue its claim against Limson and Arollado despite the pendency
of JAPRLs petition for rehabilitation. For, by the CSA in favor of SBC, it is the obligation
of the sureties, who are therein stated to be solidary with JAPRL, to see to it that JAPRLs
debt is fully paid.[31]

The mortgage and the restriction on sale were annotated on the Alfaros title on April 14,
1981.

Finally, contrary to petitioners position, the appellate courts decision only nullified
the suspension of proceedings against Limson and Arollado.[32] The suspension with respect
to JAPRL remains, in line with Philippine Blooming Mills v. Court of Appeals.[33]
WHEREFORE, the petition is DENIED.

SO ORDERED.
LALICON V. NHA
DECISION
ABAD, J.:
This case is about (a) the right of the National Housing Authority to seek annulment of
sales made by housing beneficiaries of lands they bought from it within the prohibited period
and (b) the distinction between actions for rescission instituted under Article 1191 of the
Civil Code and those instituted under Article 1381 of the same code.
The Facts and the Case
On November 25, 1980 the National Housing Authority (NHA) executed a Deed of
Sale with Mortgage over a Quezon City lot[1] in favor of the spouses Isidro and Flaviana
Alfaro (the Alfaros). In due time, the Quezon City Registry of Deeds issued Transfer
Certificate of Title (TCT) 277321 in the name of the Alfaros. The deed of sale provided,

About nine years later or on November 30, 1990, while the mortgage on the land
subsisted, the Alfaros sold the same to their son, Victor Alfaro, who had taken in a commonlaw wife, Cecilia, with whom he had two daughters, petitioners Vicelet and Vicelen Lalicon
(the Lalicons). Cecilia, who had the means, had a house built on the property and paid for the
amortizations. After full payment of the loan or on March 21, 1991 the NHA released the
mortgage. Six days later or on March 27 Victor transferred ownership of the land to his
illegitimate daughters.
About four and a half years after the release of the mortgage or on October 4, 1995, Victor
registered the November 30, 1990 sale of the land in his favor, resulting in the cancellation of
his parents title. The register of deeds issued TCT 140646 in Victors name. On December
14, 1995 Victor mortgaged the land to Marcela Lao Chua, Rosa Sy, Amparo Ong, and Ida
See. Subsequently, on February 14, 1997 Victor sold the property to Chua, one of the
mortgagees, resulting in the cancellation of his TCT 140646 and the issuance of TCT N172342 in Chuas name.
A year later or on April 10, 1998 the NHA instituted a case before the Quezon City Regional
Trial Court (RTC) for the annulment of the NHAs 1980 sale of the land to the Alfaros, the
latters 1990 sale of the land to their son Victor, and the subsequent sale of the same to Chua,
made in violation of NHA rules and regulations.
On February 12, 2004 the RTC rendered a decision in the case. It ruled that, although
the Alfaros clearly violated the five-year prohibition, the NHA could no longer rescind its
sale to them since its right to do so had already prescribed, applying Article 1389 of the New
Civil Code. The NHA and the Lalicons, who intervened, filed their respective appeals to the
Court of Appeals (CA).
On August 1, 2008 the CA reversed the RTC decision and found the NHA entitled to
rescission. The CA declared TCT 277321 in the name of the Alfaros and all subsequent titles
and deeds of sale null and void. It ordered Chua to reconvey the subject land to the NHA but

the latter must pay the Lalicons the full amount of their amortization, plus interest, and the
value of the improvements they constructed on the property.
The Issues Presented
The issues in this case are:
1.
Whether or not the CA erred in holding that the Alfaros violated their contract with the
NHA;
2.

Whether or not the NHAs right to rescind has prescribed; and

3.
Whether or not the subsequent buyers of the land acted in good faith and their rights,
therefore, cannot be affected by the rescission.
The Rulings of the Court
First. The contract between the NHA and the Alfaros forbade the latter from selling the
land within five years from the date of the release of the mortgage in their favor. [3] But the
Alfaros sold the property to Victor on November 30, 1990 even before the NHA could
release the mortgage in their favor on March 21, 1991. Clearly, the Alfaros violated the fiveyear restriction, thus entitling the NHA to rescind the contract.
The Lalicons contend, however, that the Alfaros did not violate the five-year restriction
against resale since what the contract between the parties barred was a transfer of the property
within five years from the release of the mortgage, not a transfer of the same prior to such
release.
But the Lalicons are trying to be clever. The restriction clause is more of a condition on the
sale of the property to the Alfaros rather than a condition on the mortgage constituted on
it. Indeed, the prohibition against resale remained even after the land had been released from
the mortgage. The five-year restriction against resale, counted from the release of the
property from the NHA mortgage, measures out the desired hold that the government felt it
needed to ensure that its objective of providing cheap housing for the homeless is not
defeated by wily entrepreneurs.
The Lalicons claim that the NHA unreasonably ignored their letters that asked for
consent to the resale of the subject property. They also claim that their failure to get NHAs
prior written consent was not such a substantial breach that warranted rescission. But the
NHA had no obligation to grant the Lalicons request for exemption from the five-year
restriction as to warrant their proceeding with the sale when such consent was not

immediately forthcoming. And the resale without the NHAs consent is a substantial
breach. The essence of the governments socialized housing program is to preserve the
beneficiarys ownerships for a reasonable length of time, here at least within five years from
the time he acquired it free from any encumbrance.
Second. Invoking the RTC ruling, the Lalicons claim that under Article 1389 of the Civil
Code the action to claim rescission must be commenced within four years from the time of
the commission of the cause for it.
But an action for rescission can proceed from either Article 1191 or Article 1381. It has
been held that Article 1191 speaks of rescission in reciprocal obligations within the context of
Article 1124 of the Old Civil Code which uses the term resolution. Resolution applies only
to reciprocal obligations such that a breach on the part of one party constitutes an implied
resolutory condition which entitles the other party to rescission. Resolution grants the injured
party the option to pursue, as principal actions, either a rescission or specific performance of
the obligation, with payment of damages in either case.
Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old
Civil Code, which is a subsidiary action, not based on a partys breach of obligation. [4] The
four-year prescriptive period provided in Article 1389 applies to rescissions under Article
1381.
. Here, the NHA sought annulment of the Alfaros sale to Victor because they violated the
five-year restriction against such sale provided in their contract. Thus, the CA correctly ruled
that such violation comes under Article 1191 where the applicable prescriptive period is that
provided in Article 1144 which is 10 years from the time the right of action accrues. The
NHAs right of action accrued on February 18, 1992 when it learned of the Alfaros
forbidden sale of the property to Victor. Since the NHA filed its action for annulment of sale
on April 10, 1998, it did so well within the 10-year prescriptive period.
Third. The Court also agrees with the CA that the Lalicons and Chua were not buyers
in good faith. Since the five-year prohibition against alienation without the NHAs written
consent was annotated on the propertys title, the Lalicons very well knew that the Alfaros
sale of the property to their father, Victor, even before the release of the mortgage violated
that prohibition.
As regards Chua, she and a few others with her took the property by way of mortgage from
Victor in 1995, well within the prohibited period. Chua knew, therefore, based on the
annotated restriction on the property, that Victor had no right to mortgage the property to her
group considering that the Alfaros could not yet sell the same to him without the NHAs
consent. Consequently, although Victor later sold the property to Chua after the five-year

restriction had lapsed, Chua cannot claim lack of awareness of the illegality of Victors
acquisition of the property from the Alfaros.
Lastly, since mutual restitution is required in cases involving rescission under Article
1191,[5] the NHA must return the full amount of the amortizations it received for the property,
plus the value of the improvements introduced on the same, with 6% interest per annum from
the time of the finality of this judgment. The Court will no longer dwell on the matter as to
who has a better right to receive the amount from the NHA: the Lalicons, who paid the
amortizations and occupied the property, or Chua, who bought the subject lot from Victor and
obtained for herself a title to the same, as this matter was not raised as one of the issues in this
case. Chuas appeal to the Court in a separate case[6]having been denied due course and NHA
failing to file its own petition for review, the CA decision ordering the restitution in favor of
the Lalicons has now become final and binding against them.
WHEREFORE, the Court AFFIRMS the Decision of the Court of Appeals in CA-G.R.
CV 82298 dated August 1, 2008.
SO ORDERED.

INA CALILAP-ASMERON V. DBP.


DECISION

(DBP).[3] With the principal obligation being ultimately unpaid, DBP foreclosed the
mortgage. The mortgaged parcels of land were then sold to DBP as the highest bidder. The
one-year redemption period expired on September 1, 1981.[4]
As to what thereafter transpired, the petitioner and DBP tendered conflicting versions.
I.

Version of Petitioner

The thrust of the petitioners suit is that DBP accorded to her a preferential right to
repurchase the property covered by TCT No. 164117.[5] Her version follows.
In August 1982, the petitioner negotiated with DBP to buy back the property covered by
TCT No. 164117 by offering P15,000.00 as downpayment. Her offer was rejected by an
executive officer of DBPs Acquired Assets Department, who required her to pay the full
purchase price of P55,500.00 for the property within ten days.[6] She returned to DBP with the
amount, only to be told that DBP would not sell back only one lot. Being made to believe that
the lot covered by TCT No. 164117 would be released after paying two amortizations for the
other lot (TCT No. 160929), however, she signed the deed of conditional sale covering both
lots for the total consideration of P157,000.00.[7] When she later on requested the release of
the property under TCT No. 164117 after paying two quarterly amortizations, DBP did not
approve the release. She continued paying the amortizations until she had paid P40,000.00 in
all, at which point she sought again the release of the lot under TCT No. 164117. DBP still
denied her request, warning that it would rescind the contract should her remaining
amortizations be still not paid. On August 7, 1985, DBP rescinded the deed of conditional
sale over her objections.[8]

BERSAMIN, J.:
[1]

The petitioner challenges the decision promulgated on June 21, 2002, whereby the
Court of Appeals (CA) affirmed the adverse decision rendered by the Regional Trial Court,
Branch 11, in Malolos, Bulacan (RTC) in Civil Case No. 50-M-87 entitled Lina CalilapAsmeron v. Development Bank of the Philippines, Pablo Cruz, Trinidad Cabantog, Eni S.P.
Atienza, and Emerenciana Cabantog,[2] an action initiated to set aside the defendant banks
rescission of a deed of conditional sale involving foreclosed property, and to annul the
subsequent sales of the property to other persons.
Antecedents
On March 17, 1975, the petitioner and her brother Celedonio Calilap constituted a real
estate mortgage over two parcels of land covered by Transfer Certificate of Title (TCT) No.
T-164117 and TCT No.T-160929, both of the Registry of Deeds of Bulacan, to secure the
performance of their loan obligation with respondent Development Bank of the Philippines

On November 25, 1987, DBP sold the lot covered by TCT No. 164117 to respondent Pablo
Cruz via a deed of absolute sale.[9] The petitioner consequently filed a complaint for the
rescission of the sale to Cruz on January 30, 1987.[10] Notwithstanding their knowledge of her
pending suit against Cruz, respondents Emerenciana Cabantog and Eni S.P. Atienza still
bought the property from Cruz.[11] Hence, Cabantog and Atienza were impleaded as
additional defendants by amendment.
II.

Version of Respondents

DBP insisted that the petitioners real intention had been to repurchase the two lots on
installment basis. She manifested her real intention to that effect in writing through her letter
dated September 14, 1981, thus:
September 14, 1981

August 31, 1982


DEVELOPMENT BANK OF THE PHIL.
Acquired Assests [sic] Department

The Manager

Makati, Metro Manila

Acquired Assets Management Department

ATTENTION:

MR. J.A. SANCHEZ, JR.

Development Bank of the Philippines

Assistant Manager

Makati, Metro Manila

------------------------------------------------------------

Dear Sir:

Dear Sir:

This has reference to our former properties consisting of two parcels of land with an
aggregate area of 2,082.5 sq.m. covered by TCT Nos. T-160929 and T-164117 together with
all the improvements erected thereon located at Bo. Sumpang Matanda, Malolos, Bulacan.

I wish to inform your good office that I am interested to reacquire the mortgage properties
consisting of two (2) parcels of land under TCT Nos. T-160929 and T-164117 located at
Sumapa, Malolos, Bulacan.
I would like to reacquire the above stated properties under installment basis but I am
requesting your goodselves [sic] to extend an extension of time up to the first week of
November, 1981 for my money is coming by that time.
Your kind consideration on the above request is most highly appreciated, I remain.

I wish to inform you that in view of my intense desire to preserve said properties for our
familys use, I am offering to buy back these properties for P157,000.00, payable on terms,
balance to be paid in five (5) years on the quarterly amortization plan.
This is my last appeal for your assistance in my wish to preserve these properties and
should I fail to consummate the sale, I bind myself to whatever rules and regulations the Bank
may impose with regards to my deposit.
If this offer is acceptable to you, I am willing to deposit the amount of P55,500.00 on or
before September 10, 1982.

Very truly yours,


(sgd.)

May I be advised accordingly?


LINA CALILAP-ASMERON
Co-maker[12]
Thank you.
[13]

The petitioner also sent a telegram on September 15, 1981, whereby she similarly
expressed to DBP her interest in reacquiring the properties. On November 16, 1981, DBP
received another telegram from her,[14] requesting DBP to put the bidding of the properties on
hold. A year later, she sent a letter dated August 31, 1982 to reiterate her intention to
repurchase the two properties and to offer to deposit P55,500.00 as initial payment, to wit:

Very truly yours,


(Sgd.)
LINA CALILAP-ASMERON[15]

The petitioner subsequently made the downpayment on September 10, 1992,[16] and DBP
formally accepted the offer through its letter dated September 14, 1982, stating therein the
terms and conditions.[17] Said terms and conditions, which were later embodied in the deed of
conditional sale executed on January 21, 1983, included one that bound her to pay the first
amortization of P7,304.15 three months from the execution of the deed, and the remaining
amortizations to be due and payable every three months thereafter.[18]

May I request again to please hold any sale of the said property for Im doing my best to
settle my obligation at the soonest possible time, for sure after a week or two after the snap
election.

DBP presented the duplicate copies of the receipts indicating her timely payment for the first
quarterly amortization; however, she incurred delays in her subsequent installments. [19] She
made her last payment amounting to P4,500.00 on March 12, 1985,[20] leaving five quarterly
amortizations unpaid.[21]

Respectfully yours,

Thank you very much for your kind consideration and hoping for your help regarding
my request.

(sgd.)
LINA CALILAP-ASMERON[22]

On January 20, 1986, the petitioner sent a handwritten letter requesting DBP to put on
hold any plans of selling the subject property, viz:
January 20, 1986
Mr. V.M. Macapagal
Executive Officer
Acquired Assets Mgmt. Division
Development Bank of the Philippines
Makati, Metro Manila

DBP replied by its letter dated February 5, 1986,[23] demanding payment of the petitioners
remaining obligation of P121,013.75 in cash, otherwise, it would be constrained to sell the
property. She responded via telegram,[24] informing DBP that she would be arriving on March
4, 1986. The telegram was followed by a handwritten letter dated March 5, 1986[25] stating
her willingness to pay 10% of her outstanding obligations.
On March 12, 1986, DBP demanded the immediate remittance of the promised
amount via telegram.[26] When she did not pay the six quarterly amortizations, DBP rescinded
the deed of conditional sale and applied for a writ of possession on November 17, 1986 in the
RTC (Branch 17) in Malolos, Bulacan. Its application for the writ of possession was granted
on November 18, 1986.[27]
Ruling of the RTC

Dear Sir:
This is with reference regarding my Sale Acct. No. 617 under the name of my late
brother Celedonio R. Calilap which are located in Sumapa, Malolos, Bulacan.
In connection with these properties, I have already made an arrangement that Im going
to pay my whole obligations through a private financier under your Incentive Plan, which
according to my last communication with them it was extended so I have to make an advance
notice of four (4) days before paying so I may know the exact amount.
I wanted it to be formal, so I send [sic] a letter to your good office for the reason that last
January 17, 1986, your appraiser went to our place and made an assessment of my properties.

Finding the petitioners complaint lacking in merit, the RTC (Branch 11) rendered its
decision on December 28, 1994 dismissing the case.[28] It observed that the stipulations in the
deed of conditional sale and the tenor of the petitioners communications to DBP clearly
indicated that she had intended to repurchase both foreclosed properties, not just the property
covered by TCT No. T-164117, thusly:
Lettered as she is, the plaintiff cannot now seek refuge on the excuse that what she intends to
buy was only the property covered by TCT No. T-164117. The contents of her letter to the
Manager of the Acquired Assets Division of DBP dated August 31, 1982 (Exh. 1 and its
submarkings) and to Asst. Manager J.A. Sanchez of the DBP dated September 14, 1981 (Exh.
2) clearly demonstrate in unequivocal terms that she intended to reacquire both of her

foreclosed properties. Moreso, the telegrams sent by her (Exhs. 3 & 4) to defendant bank
clearly indicates the same intention.
The aforequoted terms and conditions in the conditional sale which defendant failed to
comply are clear and not susceptible whatsoever to any other interpretation as to the intention
of the contracting parties. It is settled and fundamental that if the terms of the contract are
clear and leave no doubt upon the intention of the contracting parties, the literal meaning of
the stipulations shall control (Art. 1370, Civil Code; Filoil Marketing Corp. vs. IAC GR
67115; Mercantile Ins. Corp. vs.Ysmael GR 43862; Baliuag Transit Corp. vs. CA GR 80447).
In addition, her subsequent acts of writing DBP and complying with the terms of the
conditional sale bolster the fact of her acquiescence in the said contract which she voluntarily
entered into and she cannot now take a contrary position.[29]
Ruling of the CA
The petitioner appealed, contending that:
I.

THE LOWER COURT GROSSLY ERRED IN NOT ANNULLING THE


RESCISSION MADE BY THE DEVELOPMENT BANK OF THE PHILIPPINES
(DBP) OF THE CONDITIONAL SALE OF JANUARY 4, 1983, APPELLANT
HAVING ALREADY PAID A SUBSTANTIAL AMOUNT OF P100,000.00 OR
ABOUT TWO-THIRDS OF THE PRICE OR CONSIDERATION.
THE LOWER COURT ERRED IN NOT ANNULLING THE SALE MADE BY
DBP TO PABLO CRUZ AS WELL AS THE SALE MADE BY THE LATTER TO
THE OTHER DEFENDANTS.

II.

Yet, on June 21, 2002, the CA affirmed the RTC,[30] pointing out that the petitioner had not
presented testimonial or documentary evidence to support or corroborate her claim that she
had been misled into signing the deed of conditional sale. It ruled that DBP could rescind the
contract pursuant to the terms of the deed of conditional sale itself, and that DBP exercised its
right to rescind only after she had failed to pay her quarterly amortizations.[31]

II.

DETAILED THE TRUTH SURROUNDING THE EXECUTION OF THE


DEED OF CONDITIONAL SALE OF THE SUBJECT LOT TO
RESPONDENT CRUZ, AND THE LATTER TO CO-RESPONDENTS
CABANTOG AND ATIENZA NULL AND VOID
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE LOWER COURT UPHOLDING THE
RESPONDENT BANKS RESCISSION OF THE DEED OF CONDITIONAL
SALE CONSIDERING THAT THE PETITIONER HAD ALREADY PAID A
SUBSTANTIAL AMOUNT OF PHP100,000.00 OR ABOUT TWO-THIRD OF
THE FULL CONSIDERATION OF PHP157,000.00.

The petitioner avers that her testimonial evidence sufficiently established the facts
behind the execution of the deed of conditional sale; that she thereby proved that she had not
fully understood the terms contained in the deed; that DBP could not resort to rescission
because her nonpayment of the amortizations was only a slight or casual breach; and that the
sale made by DBP to Cruz was tainted with bad faith, which was also true with the sale from
Cruz to Cabantog and Atienza.
DBP counters that the petitioner is raising questions of fact in her present appeal, which
is not allowed under Rule 45 of the Rules of Court; and that it had the right to rescind the
deed of conditional sale under Article 1191 of the Civil Code.
On her part, Remedios Lim-Cruz, who had substituted her deceased husband, argues
that the petitioner did not prove bad faith on the part of her husband in purchasing the
property from DBP; and that her husband had relied in good faith on the title of DBP as the
registered owner of the property at the time of the sale.
Ruling
The appeal lacks merit.

Issues
I.

Appeal under Rule 45 is limited to questions of law only

In her present appeal, the petitioner submits:

I.

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND


REVERSIBLE ERROR WHEN IT DISREGARDED THE TESTIMONIAL
EVIDENCE ADDUCED BY THE PETITIONER, WHICH CLEARLY

The petitioners submissions, that her testimonial evidence sufficiently established the facts
behind the execution of the deed of conditional sale, and that she had not fully understood the
terms contained in the deed of conditional sale, involved questions of fact, for the
consideration and resolution of them would definitely require the appreciation of
evidence. As such, her petition for review is dismissible for raising factual issues. Under
Rule 45 of the Rules of Court, only questions of law may be the proper subject of an appeal in

this Court. The version of Section 1 of Rule 45 in force at the time the petitioner commenced
her present recourse on April 28, 2003 expressly so stated, to wit:
Section 1. Filing of petition with Supreme Court. A party desiring to appeal
by certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may
file with the Supreme Court a verified petition for review on certiorari. The petition shall
raise only questions of law which must be distinctly set forth. (1a, 2a) (emphasis supplied)[32]
To be sure, we have not lacked in reminding that in exercising its power of review the Court
is not a trier of facts and does not normally undertake the re-examination of the evidence
presented by the contending parties during the trial of the case. For that reason, the findings
of facts of the CA are conclusive and binding on the Court.
It is true that the Court has recognized several exceptions, in which it has undertaken the
review and re-appreciation of the evidence. Among the exceptions have been: (a) when the
findings of the CA are grounded entirely on speculation, surmises or conjectures; (b) when
the inference made by the CA is manifestly mistaken, absurd or impossible; (c) when there is
grave abuse of discretion on the part of the CA; (d) when the judgment of the CA is based on
a misapprehension of facts; (e) when the findings of facts of the CA are conflicting; (f) when
the CA, in making its findings, went beyond the issues of the case, or its findings are contrary
to the admissions of both the appellant and the appellee; (g) when the findings of the CA are
contrary to those of the trial court; (h) when the findings of the CA are conclusions without
citation of specific evidence on which they are based; (i) when the facts set forth in the
petition as well as in the petitioners main and reply briefs are not disputed by the respondent;
(j) when the findings of fact of the CA are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (k) when the CA manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.[33]
Although the petitioner submits that the CA made findings of fact not supported by the
evidence on record, this case does not fall under any of the recognized exceptions. Her claim
that she had established the circumstances to prove her having been misled into signing the
deed of conditional sale was unfounded, for the findings of fact of the CA rested on the
records, as the following excerpt from the assailed decision of the CA indicates:
Appellant would like this Court to believe that she was misled by appellee DBPs
representatives into signing the Deed of Conditional Sale even if her original intention was to
buy back only one of the properties, i.e., that which was covered by TCT No. T-164117.
However, a closer scrutiny of the evidence on record reveals that aside from her bare
allegations as to the circumstances leading to the signing of said Deed of Conditional Sale,
the appellant has not presented other evidence, testimonial or documentary, to support or

corroborate her claims. On the other hand, appellee DBP has presented the letter dated
August 31, 1982 signed by appellant herself and addressed to the Manager of the Acquired
Assets Management Department of the appellee DBP, expressing her intentions to buy back
her foreclosed properties. In fact, she offered therein to pay a total of P157,000.00 for the two
properties withP55,500.00 to be advanced by her as deposit and the balance to be paid in five
(5) years under a quarterly amortization plan. Said letter has not been categorically denied by
the appellant as during her testimony she merely feigned any recollections of its content.
Moreover, it is well-settled that bad faith cannot be presumed and must be established by
clear and convincing evidence.[34] (emphasis supplied)
The petitioner apparently relied solely on her bare testimony to establish her allegation
of having been misled, and did not present other evidence for the purpose. She seemingly
forgot that, firstly, her bare allegation of having been misled was not tantamount to proof, and
that, secondly, she, as the party alleging a disputed fact, carried the burden of proving her
allegation.[35] In other words, her main duty was to establish her allegation by preponderance
of evidence, because her failure to do so would result in her defeat.[36] Alas, she did not
discharge her burden.
On the other hand, the records contained clear indicia of her real intention vis--vis her
reacquisition of the two foreclosed properties. The letters and telegrams she had dispatched to
DBP expressed the singular intention to repurchase both lots, not just the one covered by
TCT No. 164711. That intention even became more evident and more definite when she set
down the payment terms for the repurchase of both lots in her letter of August 31, 1982.
Given all these, the CA rightly concluded that her written communications to DBP had
revealed her earnest desire to re-acquire both foreclosed properties.
II.

Article 1332 of the Civil Code did not apply to the petitioner

The petitioner would have us consider that she had not given her full consent to the
deed of conditional sale on account of her lack of legal and technical knowledge. In effect,
she pleads for the application of Article 1332 of the Civil Code, which provides:
Article 1332. When one of the parties is unable to read, or if the contract is in a language
not understood by him, and mistake or fraud is alleged, the person enforcing the contract
must show that the terms thereof have been fully explained to the former.
We cannot accede to the petitioners plea.
The pertinent terms of the deed of conditional sale read:

NOW THEREFORE for and in consideration of the foregoing premises and for the total sum
of ONE HUNDRED FIFTY SEVEN THOUSAND PESOS (P157,000.00), Philippine
Currency, to be fully paid as hereinafter set forth, the VENDOR agrees to convey by way of
sale and the VENDEE agrees to buy the above stated properties covered by TCT Nos. T160929 and T-164117, more particularly described at the back hereof under the following
terms and conditions:
That the downpayment shall be P55,500 and the balance of P101,500 to be paid in five (5)
years on the quarterly amortization plan at 15% interest per annum the first amortization
of P7,304.15 shall be due and payable 3 mos. from the date of execution of the Deed of
Conditional Sale and all subsequent amortizations shall be due and payable every three (3)
months thereafter;
That if the vendee fails to sign the sale document within 15 days from date of receipt of our
notice of approval of the offer, the approval hereof shall be deemed automatically revoked
and the deposit forfeited in accordance with the rules and regulations of the Bank.
The Vendee/s may pay the whole or part of the account under this contract at anytime during
the term hereof; provided, however, that if the vendee/s is in default in the payment of at least
six monthly amortizations, if payable monthly; two quarterly amortizations, if payable
quarterly; one semi-annual and annual amortization if payable semi-annually and annually,
the Vendor may, in its option, declare the whole account due and payable.

It is hereby agreed, covenanted and stipulated by and between the parties hereto that should
the Vendor decide to rescind this contract in view of the failure of the Vendee/s to pay the
amortization/installments, when due, or otherwise fail/s to comply with any of the terms and
conditions herein stipulated, and the Vendee/s refuse/s to peacefully deliver the possession of
the property hereinbove mentioned to the Vendor, thereby obliging the Vendor to file suit in
court with the view to taking possession thereof, the Vendee/s hereby agree/s to pay all the
expenses of the suit incident thereto, all the damages that may be incurred thereby, as well as
attorneys fees which it is hereby agreed, shall be 10% of the total amount due and
outstanding, but in no case shall it be less than P100.00.[37]
It is quite notable that the petitioner did not specify which of the stipulations of the
deed of conditional sale she had difficulty or deficiency in understanding. Her generalized
averment of having been misled should, therefore, be brushed aside as nothing but a last
attempt to salvage a hopeless position. Our impression is that the stipulations of the deed of
conditional sale were simply worded and plain enough for even one with a slight knowledge
of English to easily understand.
The petitioner was not illiterate. She had appeared to the trial court to be educated, its cogent
observation of her as lettered (supra, at p. 7 hereof) being based on how she had composed
her correspondences to DBP. Her testimony also revealed that she had no difficulty
understanding English, as the following excerpt shows:
ATTY. CUISON

xxx
The title to the real estate property and all improvements thereon shall remain in the name of
the vendor until after the purchase price, advances and interest shall have been fully paid. The
Vendee/s agrees that in the event of his failure to pay the amortizations or installments as
herein provided for, the contract shall, at the option of the Vendor, be deemed and considered
annulled, and he shall forfeit, and by these presents, hereby waives whatever right he might
have acquired to the said property. The Vendor shall then be at liberty to dispose of same as if
this contract has never been made; and in the event of such annulment, all sums of money
paid under the contract shall be considered and treated as rentals for the use of the property,
and the Vendee/s waives all rights to ask or demand the return thereof and he further agrees
to vacate peacefully and quietly said property, hereby waiving in favor of the Vendor
whatever expenses he may have incurred in the property in the form of improvement or under
any concept, without any right to reimbursement whatsoever.
xxx

Q : Mrs. Witness, last time you identified the document, captioned as Deed of Conditional
Sale which was executed last January 21, 1983, it was read in English language, correct?
A :

Yes, sir.

Q :

And, could you testify in this Court without in need of interpreter?

A :

Yes, sir.

Q :

So, you are aware or comfortable with the English language?

A :

Yes, sir.[38]

Nor was the petitioners ignorance of the true nature of the deed of conditional sale
probably true. By her own admission, she had asked the bank officer why she had been made
to sign a deed of conditional sale instead of an absolute sale, which in itself reflected her full
discernment of the matters subject of her dealings with DBP, to wit:

COURT:
Q : Now, before you signed this Deed of Conditional Sale sometime on January 21,
1983, did you read this document?
A : Yes, your Honor, and I even told the officer of the Bank, that why it should be a
Deed of Probitional Sale when in fact it should be a Deed of Absolute Sale because I paid
already the full amount of P55,500.00 for the property covered by TCT No. 164117 and they
told me that after a few amortizations on the other property, they are going to release the
property which was paid in full but did not push through, Your Honor.[39]
Thereby revealed was her distinctive ability to understand written and spoken English, the
language in which the terms of the contract she signed had been written.
Clearly, Article 1332 of the Civil Code does not apply to the petitioner. According to Lim v.
Court of Appeals,[40] the provision came into being because a sizeable percentage of the
countrys populace had comprised of illiterates, and the documents at the time had been
written either in English or Spanish, viz:
In calibrating the credibility of the witnesses on this issue, we take our mandate from Article
1332 of the Civil Code which provides: When one of the parties is unable to read, or if the
contract is in a language not understood by him, and mistake or fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the
former.This substantive law came into being due to the finding of the Code Commission that
there is still a fairly large number of illiterates in this country, and documents are usually
drawn up in English or Spanish. It is also in accord with our state policy of promoting
social justice. It also supplements Article 24 of the Civil Code which calls on court to be
vigilant in the protection of the rights of those who are disadvantaged in life.[41] (Emphasis
supplied)
III.

DBP validly exercised its right to rescind the deed of conditional sale upon the
petitioners default

The petitioner argues that despite the right to rescind due to nonpayment being
stipulated in the deed of conditional sale, DBP could not exercise its right because her
nonpayment of an obligation constituted only a slight or casual breach that did not warrant
rescission. Moreover, she posits that Article 1191[42] of the Civil Code empowers the court to
fix the period within which the obligor may comply with the obligation.
The petitioners argument lacks persuasion.

Firstly, a contract is the law between the parties. Absent any allegation and proof that the
contract is contrary to law, morals, good customs, public order or public policy, it should be
complied with in good faith.[43] As such, the petitioner, being one of the parties in the deed of
conditional sale, could not be allowed to conveniently renounce the stipulations that she had
knowingly and freely agreed to.
Secondly, the issue of whether or not DBP validly exercised the right to rescind is a factual
one that the RTC and the CA already passed upon and determined. The Court, which is not a
trier of facts, adopts their findings, and sustains the exercise by DBP of its right to rescind
following the petitioners failure to pay her six monthly amortizations, and after her being
given due notice of the notarial rescission.[44] As a consequence of the valid rescission, DBP
had the legal right to thereafter sell the property to a person other than the petitioner, like
Cruz. In turn, Cruz could validly sell the property to Cabantog and Trinidad, which he did.
And, thirdly, Article 1191 of the Civil Code did not prohibit the parties from entering
into an agreement whereby a violation of the terms of the contract would result to its
cancellation. In Pangilinan v. Court of Appeals,[45] the Court upheld the vendors right in a
contract to sell to extrajudicially cancel the contract upon failure of the vendee to pay the
installments and even to retain the sums already paid, holding:
[Article 1191 of the Civil Code] makes it available to the injured party alternative
remedies such as the power to rescind or enforce fulfillment of the contract, with damages in
either case if the obligor does not comply with what is incumbent upon him. There is nothing
in this law which prohibits the parties from entering into an agreement that a violation of the
terms of the contract would cause its cancellation even without court intervention. The
rationale for the foregoing is that in contracts providing for automatic revocation, judicial
intervention is necessary not for purposes of obtaining a judicial declaration rescinding a
contract already deemed rescinded by virtue of an agreement providing for rescission even
without judicial intervention, but in order to determine whether or not the rescission was
proper. Where such propriety is sustained, the decision of the court will be merely declaratory
of the revocation, but it is not itself the revocatory act. Moreover, the vendors right in
contracts to sell with reserved title to extrajudicially cancel the sale upon failure of the vendee
to pay the stipulated installments and retain the sums and installments already received has
long been recognized by the well-established doctrine of 39 years standing. The validity of
the stipulation in the contract providing for automatic rescission upon non-payment cannot be
doubted. It is in the nature of an agreement granting a party the right to rescind a contract
unilaterally in case of breach without need of going to court. Thus, rescission under Article
1191 was inevitable due to petitioners failure to pay the stipulated price within the original
period fixed in the agreement.

ACCORDINGLY, the petition for review is DENIED for lack of merit, and the
decision of the Court of Appeals promulgated on June 21, 2002 is AFFIRMED.

charge for the extension of the reception beyond 12:00 midnight, they were billed and
paid P8,000 per hour for the three-hour extension of the event up to 4:00 A.M. the next day.

Costs of suit shall be paid by the petitioner.

Petitioners further claim that they brought wine and liquor in accordance with their
open bar arrangement, but these were not served to the guests who were forced to pay for
their drinks.

SO ORDERED.

GUANIO V. MAKATI SHANGRIA-LA HOTEL AND RESORT, INC.

Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc.
(respondent) and received an apologetic reply from Krister Svensson, the hotels Executive
Assistant Manager in charge of Food and Beverage. They nevertheless filed a complaint for
breach of contract and damages before the Regional Trial Court (RTC) ofMakati City.

DECISION
CARPIO MORALES, J.
For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna
Hernandez-Guanio (petitioners) booked at the Shangri-la Hotel Makati (the hotel).
Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an
initial food tasting. Petitioners claim that they requested the hotel to prepare for seven
persons the two of them, their respective parents, and the wedding coordinator. At the
scheduled food tasting, however, respondent prepared for only six.
Petitioners initially chose a set menu which included black cod, king prawns and angel
hair pasta with wild mushroom sauce for the main course which cost P1,000.00 per person.
They were, however, given an option in which salmon, instead of king prawns, would be in
the menu at P950.00 per person. They in fact partook of the salmon.
Three days before the event, a final food tasting took place. Petitioners aver that the
salmon served was half the size of what they were served during the initial food tasting; and
when queried about it, the hotel quoted a much higher price (P1,200.00) for the size that was
initially served to them. The parties eventually agreed on a final price P1,150 per person.
A day before the event or on July 27, 2001, the parties finalized and forged their
contract.[1]
Petitioners claim that during the reception, respondents representatives, Catering Director
Bea Marquez and Sales Manager Tessa Alvarez, did not show up despite their assurance that
they would; their guests complained of the delay in the service of the dinner; certain items
listed in the published menu were unavailable; the hotels waiters were rude and unapologetic
when confronted about the delay; and despite Alvarezs promise that there would be no

In its Answer, respondent claimed that petitioners requested a combination of king prawns
and salmon, hence, the price was increased to P1,200.00 per person, but discounted
at P1,150.00; that contrary to petitioners claim, Marquez and Alvarez were present during
the event, albeit they were not permanently stationed thereat as there were three other hotel
functions; that while there was a delay in the service of the meals, the same was occasioned
by the sudden increase of guests to 470 from the guaranteed expected minimum number of
guests of 350 to a maximum of 380, as stated in the Banquet Event Order (BEO);[2] and that
Isaac Albacea, Banquet Service Director, in fact relayed the delay in the service of the meals
to petitioner Luigis father, Gil Guanio.
Respecting the belated service of meals to some guests, respondent attributed it to the
insistence of petitioners wedding coordinator that certain guests be served first.
On Svenssons letter, respondent, denying it as an admission of liability, claimed that it
was meant to maintain goodwill to its customers.
By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered judgment in
favor of petitioners, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiffs and against the defendant ordering the defendants to pay the plaintiff the following:
1)

The amount of P350,000.00 by way of actual damages;

2)

The amount of P250,000.00 for and as moral damages;

3)

The amount of P100,000.00 as exemplary damages;

4)

The amount of P100,000.00 for and as attorneys fees.

With costs against the defendant.


SO ORDERED.[3]
In finding for petitioners, the trial court relied heavily on the letter of Svensson which
is partly quoted below:

The doctrine of proximate cause is applicable only in actions for quasi-delicts, not in actions
involving breach of contract. x x x The doctrine is a device for imputing liability to a person
where there is no relation between him and another party. In such a case, the obligation is
created by law itself. But, where there is a pre-existing contractual relation between the
parties, it is the parties themselves who create the obligation, and the function of the law is
merely to regulate the relation thus created.[8] (emphasis and underscoring supplied)

Upon receiving your comments on our service rendered during your reception here with us,
we are in fact, very distressed. Right from minor issues pappadums served in the soup instead
of the creutons, lack of valet parkers, hard rolls being too hard till a major one slow service,
rude and arrogant waiters, we have disappointed you in all means.

What applies in the present case is Article 1170 of the Civil Code which reads:

Indeed, we feel as strongly as you do that the services you received were unacceptable and
definitely not up to our standards. We understand that it is our job to provide excellent service
and in this instance, we have fallen short of your expectations. We ask you please to accept
our profound apologies for causing such discomfort and annoyance. [4] (underscoring
supplied)

RCPI v. Verchez, et al. [9] enlightens:

The trial court observed that from the tenor of the letter . . . the defendant[-herein
respondent] admits that the services the plaintiff[-herein petitioners] received were
unacceptable and definitely not up to their standards.[5]
On appeal, the Court of Appeals, by Decision of July 27, 2009,[6] reversed the trial
courts decision, it holding that the proximate cause of petitioners injury was an unexpected
increase in their guests:
x x x Hence, the alleged damage or injury brought about by the confusion, inconvenience and
disarray during the wedding reception may not be attributed to defendant-appellant Shangrila.
We find that the said proximate cause, which is entirely attributable to plaintiffsappellants, set the chain of events which resulted in the alleged inconveniences, to the
plaintiffs-appellants. Given the circumstances that obtained, only the Sps. Guanio may bear
whatever consequential damages that they may have allegedly suffered.[7] (underscoring
supplied)
Petitioners motion for reconsideration having been denied by Resolution of November
18, 2009, the present petition for review was filed.
The Court finds that since petitioners complaint arose from a contract, the doctrine
of proximate cause finds no application to it:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law, recognizing the
obligatory force of contracts, will not permit a party to be set free from liability for any kind
of misperformance of the contractual undertaking or a contravention of the tenor
thereof. A 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 promissee 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 hisreliance 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, which is his
interest in having restored to him any benefit that he has conferred on the other party. Indeed,
agreements 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 observe his
contractual obligation unless he can show extenuating circumstances, like proof of his
exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from
his ensuing liability. (emphasis and underscoring in the original; capitalization supplied)
The pertinent provisions of the Banquet and Meeting Services Contract between the parties
read:
4.3 The ENGAGER shall be billed in accordance with the prescribed rate for the minimum
guaranteed number of persons contracted for, regardless of under attendance or nonappearance of the expected number of guests, except where the ENGAGER cancels the
Function in accordance with its Letter of Confirmation with the HOTEL. Should the
attendance exceed the minimum guaranteed attendance, the ENGAGER shall also be billed at
the actual rate per cover in excess of the minimum guaranteed attendance.

Respondents Catering Director, Bea Marquez, explained the hotels procedure on receiving
and processing complaints, viz:
xxxx
ATTY. CALMA:
4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours before the
scheduled date and time of the Function of any change in the minimum guaranteed covers. In
the absence of such notice, paragraph 4.3 shall apply in the event of under attendance. In case
the actual number of attendees exceed the minimum guaranteed number by ten percent
(10%), the HOTEL shall not in any way be held liable for any damage or
inconvenience which may be caused thereby. The ENGAGER shall also undertake to advise
the guests of the situation and take positive steps to remedy the same. [10] (emphasis, italics
and underscoring supplied)

Q
You mentioned that the letter indicates an acknowledgement of the concern and that
there was-the first letter there was an acknowledgment of the concern and an apology, not
necessarily indicating that such or admitting fault?
A

Yes.

Is this the letter that you are referring to?

Breach of contract is defined as the failure without legal reason to comply with the terms of a
contract. It is also defined as the [f]ailure, without legal excuse, to perform any promise
which forms the whole or part of the contract.[11]

If I may, Your Honor, that was the letter dated August 4, 2001, previously marked as
plaintiffs exhibits, Your Honor. What is the procedure of the hotel with respect to customer
concern?

The appellate court, and even the trial court, observed that petitioners were remiss in their
obligation to inform respondent of the change in the expected number of guests. The
observation is reflected in the records of the case. Petitioners failure to discharge such
obligation thus excused, as the above-quoted paragraph 4.5 of the parties contract provide,
respondent from liability for any damage or inconvenience occasioned thereby.

A
Upon receipt of the concern from the guest or client, we acknowledge receipt of such
concern, and as part of procedure in service industry particularly Makati Shangri-la we
apologize for whatever inconvenience but at the same time saying, that of course, we would
go through certain investigation and get back to them for the feedback with whatever concern
they may have.

As for petitioners claim that respondent departed from its verbal agreement with petitioners,
the same fails, given that the written contract which the parties entered into the day before the
event, being the law between them.

Q
Your Honor, I just like at this point mark the exhibits, Your Honor, the letter dated
August 4, 2001 identified by the witness, Your Honor, to be marked as Exhibit 14 and the
signature of Mr. Krister Svensson be marked as Exhibit 14-A.[13]

Respecting the letter of Svensson on which the trial court heavily relied as admission of
respondents liability but which the appellate court brushed aside, the Court finds the
appellate courts stance in order. It is not uncommon in the hotel industry to receive
comments, criticisms or feedback on the service it delivers. It is also customary for hotel
management to try to smooth ruffled feathers to preserve goodwill among its clientele.

xxxx

Kalalo v. Luz holds:[12]


Statements which are not estoppels nor judicial admissions have no quality of
conclusiveness, and an opponent whose admissions have been offered against him may offer
any evidence which serves as an explanation for his former assertion of what he now denies
as a fact.

Q
In your opinion, you just mentioned that there is a procedure that the hotel follows
with respect to the complaint, in your opinion was this procedure followed in this particular
concern?
A

Yes, maam.

What makes you say that this procedure was followed?

A
As I mentioned earlier, we proved that we did acknowledge the concern of the client
in this case and we did emphatize from the client and apologized, and at the same time got
back to them in whatever investigation we have.

You said that you apologized, what did you apologize for?

A
Well, first of all it is a standard that we apologize, right? Being in the service
industry, it is a practice that we apologize if there is any inconvenience, so the purpose for
apologizing is mainly to show empathy and to ensure the client that we are hearing them out
and that we will do a better investigation and it is not in any way that we are admitting any
fault.[14] (underscoring supplied)
To the Court, the foregoing explanation of the hotels Banquet Director overcomes any
presumption of admission of breach which Svenssons letter might have conveyed.
The exculpatory clause notwithstanding, the Court notes that respondent could have managed
the situation better, it being held in high esteem in the hotel and service industry. Given
respondents vast experience, it is safe to presume that this is not its first encounter with
booked events exceeding the guaranteed cover. It is not audacious to expect that certain
measures have been placed in case this predicament crops up. That regardless of these
measures, respondent still received complaints as in the present case, does not amuse.
Respondent admitted that three hotel functions coincided with petitioners reception. To the
Court, the delay in service might have been avoided or minimized if respondent exercised
prescience in scheduling events. No less than quality service should be delivered especially in
events which possibility of repetition is close to nil. Petitioners are not expected to get
married twice in their lifetimes.

RADIO
COMMUNICATIONS
OF
THE
PHILIPPINES,
INC.
(RCPI), Petitioner, v.ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE,
MARDONIO INFANTE, ZENAIDA VERCHEZ-CATIBOG, AND FORTUNATO
CATIBOG, Respondents.
DECISION
CARPIO MORALES, J.:
On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the
Sorsogon Provincial Hospital due to an ailment. On even date, her
daughter Grace Verchez-Infante (Grace) immediately hied to the
Sorsogon Branch of the Radio Communications of the Philippines, Inc.
(RCPI) whose services she engaged to send a telegram to her sister
Zenaida Verchez-Catibog (Zenaida) who was residing at 18 Legal St.,
GSIS Village, Quezon City1 reading: "Send check money Mommy
hospital." For RCPI's services, Grace paid P10.502 for which she was
issued a receipt.3
As three days after RCPI was engaged to send the telegram to Zenaida no
response was received from her, Grace sent a letter to Zenaida, this time
thru JRS Delivery Service, reprimanding her for not sending any financial
aid.

In the present petition, under considerations of equity, the Court deems it just to award the
amount of P50,000.00 by way of nominal damages to petitioners, for the discomfiture that
they were subjected to during to the event.[15] The Court recognizes that every person is
entitled to respect of his dignity, personality, privacy and peace of mind. [16] Respondents
lack of prudence is an affront to this right.

Immediately after she received Grace's letter, Zenaida, along with her
husband Fortunato Catibog, left on January 26, 1991 for Sorsogon. On
her arrival at Sorsogon, she disclaimed having received any telegram.

WHEREFORE, the Court of Appeals Decision dated July 27, 2009


is PARTIALLY REVERSED. Respondent is, in light of the foregoing discussion,
ORDERED to pay the amount of P50,000.00 to petitioners by way of nominal damages.

In the meantime, Zenaida and her husband, together with her mother
Editha left for Quezon City on January 28, 1991 and brought Editha to the
Veterans Memorial Hospital in Quezon City where she was confined from
January 30, 1991 to March 21, 1991.

SO ORDERED.
THIRD DIVISION
[G.R. NO. 164349 - January 31, 2006]

The telegram was finally delivered to Zenaida 25 days later or on


February 15, 1991.4 On inquiry from RCPI why it took that long to deliver
it, a messenger of RCPI replied that he had nothing to do with the
delivery thereof as it was another messenger who previously was
assigned to deliver the same but the address could not be located, hence,
the telegram was resent on February 2, 1991, and the second messenger
finally found the address on February 15, 1991.

Editha's husband Alfonso Verchez (Verchez), by letter of March 5,


1991,5 demanded an explanation from the manager of the Service Quality
Control Department of the RCPI, Mrs. Lorna D. Fabian, who replied, by
letter of March 13, 1991,6 as follows:
Our investigation on this matter disclosed that subject telegram was duly
processed in accordance with our standard operating procedure. However,
delivery was not immediately effected due to the occurrence of
circumstances which were beyond the control and foresight of RCPI.
Among others, during the transmission process, the radio link connecting
the points of communication involved encountered radio noise and
interferences such that subject telegram did not initially registered (sic) in
the receiving teleprinter machine.
Our internal message monitoring led to the discovery of the above. Thus,
a repeat transmission was made and subsequent delivery was effected.
(Underscoring supplied)cralawlibrary
Verchez's lawyer thereupon wrote RCPI's manager Fabian, by letter of
July 23, 1991,7requesting for a conference on a specified date and time,
but no representative of RCPI showed up at said date and time.
On April 17, 1992, Editha died.
On September 8, 1993, Verchez, along with his daughters Grace and
Zenaida and their respective spouses, filed a complaint against RCPI
before the Regional Trial Court (RTC) of Sorsogon for damages. In their
complaint, the plaintiffs alleged that, inter alia, the delay in delivering the
telegram contributed to the early demise of the late Editha to their
damage and prejudice,8 for which they prayed for the award of moral and
exemplary damages9and attorney's fees.10
After its motion to dismiss the complaint for improper venue11 was
denied12 by Branch 5 of the RTC of Sorsogon, RCPI filed its answer,
alleging that except with respect to Grace,13the other plaintiffs had no
privity of contract with it; any delay in the sending of the telegram was
due to force majeure, "specifically, but not limited to, radio noise and
interferences which adversely affected the transmission and/or reception
of the telegraphic message";14 the clause in the Telegram Transmission
Form signed by Grace absolved it from liability for any damage arising

from the transmission other than the refund of telegram tolls;15 it


observed due diligence in the selection and supervision of its employees;
and at all events, any cause of action had been barred by laches.16
The trial court, observing that "although the delayed delivery of the
questioned telegram was not apparently the proximate cause of the death
of Editha," ruled out the presence offorce majeure. Respecting the clause
in the telegram relied upon by RCPI, the trial court held that it partakes of
the nature of a contract of adhesion.
Finding that the nature of RCPI's business obligated it to dispatch the
telegram to the addressee at the earliest possible time but that it did not
in view of the negligence of its employees to repair its radio transmitter
and the concomitant delay in delivering the telegram on time, the trial
court, upon the following provisions of the Civil Code, to wit:
Article 2176 - Whoever by act or omission causes damage to another,
there being at fault or negligence, is obliged to pay for the damage done.
Such fault or negligence if there is no pre-existing contractual relation
between the parties, is called quasi-delict and is governed by the
provisions of this Chapter.
Article 1173 defines the fault of (sic) negligence of the obligor as the
"omission of the diligence which is required by the nature of the obligation
and corresponds with the circumstances of the person, of the time, or the
place."
In the instant case, the obligation of the defendant to deliver the telegram
to the addressee is of an urgent nature. Its essence is the early delivery
of the telegram to the concerned person. Yet, due to the negligence of its
employees, the defendant failed to discharge of its obligation on time
making it liable for damages under Article 2176.
The negligence on the part of
the presumption
of
negligence
employer.17 (Underscoring supplied),

the employees gives rise to


on
the
part
of
the

rendered judgment against RCPI. Accordingly, it disposed:

WHEREFORE, in the light of the foregoing premises, judgment is hereby


rendered in favor of the plaintiffs and against the defendant, to wit:
Ordering the defendant to pay the plaintiffs the following amount:
1. The amount of One Hundred Thousand (P100,000.00) Pesos as moral
damages;
2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney's
fees; andcralawlibrary
3. To pay the costs.
SO ORDERED.18
On appeal, the Court of Appeals, by
2004,19 affirmed the trial court's decision.

Decision

of

February

27,

Hence, RCPI's present Petition for Review on Certiorari, it raising the


following questions: (1) "Is the award of moral damages proper even if
the trial court found that there was no direct connection between the
injury and the alleged negligent acts?"20 and (2) "Are the stipulations in
the 'Telegram Transmission Form,' in the nature "contracts of adhesion"
(sic)?21
RCPI insists that respondents failed to prove any causal connection
between its delay in transmitting the telegram and Editha's death.22
RCPI's stand fails. It bears noting that its liability is anchored on culpa
contractual or breach of contract with regard to Grace, and on tort with
regard to her co-plaintiffs-herein-co-respondents.
Article 1170 of the Civil Code provides:
Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor
thereof, are liable for damages. (Underscoring supplied)cralawlibrary
Passing on this codal provision, this Court explained:

In culpa contractual x x x the mere proof of the existence of the contract


and the failure of its compliance justify, prima facie, a corresponding right
of relief. The law, recognizing the obligatory force of contracts, will not
permit a party to be set free from liability for any kind of misperformance
of the contractual undertaking or a contravention of the tenor thereof. A
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 promissee 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," which is his interest in having
restored to him any benefit that he has conferred on the other party.
Indeed, agreements 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 observe his contractual
obligation unless he can show extenuating circumstances, like proof of his
exercise of due diligence x x x or of theattendance of fortuitous event, to
excuse him from his ensuing liability.23 (Emphasis and underscoring
supplied)cralawlibrary
In the case at bar, RCPI bound itself to deliver the telegram within the
shortest possible time. It took 25 days, however, for RCPI to deliver it.
RCPI invokes force majeure, specifically, the alleged radio noise and
interferences which adversely affected the transmission and/or reception
of the telegraphic message. Additionally, its messenger claimed he could
not locate the address of Zenaida and it was only on the third attempt
that he was able to deliver the telegram.
For the defense of force majeure to prosper,
x x x it is necessary that one has committed no negligence or misconduct
that may have occasioned the loss. An act of God cannot be invoked to
protect a person who has failed to take steps to forestall the possible
adverse consequences of such a loss. One's negligence may have
concurred with an act of God in producing damage and injury to another;

nonetheless, showing that the immediate or proximate cause of the


damage or injury was a fortuitous event would not exempt one from
liability. When the effect is found to be partly the result of a person's
participation - whether by active intervention, neglect or failure to act the whole occurrence is humanized and removed from the rules applicable
to acts of God.
xxxx
Article 1174 of the Civil Code states that no person shall be responsible
for a fortuitous event that could not be foreseen or, though foreseen, was
inevitable. In other words, there must be an exclusion of human
intervention from the cause of injury or loss.24 (Emphasis and
underscoring supplied)cralawlibrary
Assuming arguendo that fortuitous circumstances prevented RCPI from
delivering the telegram at the soonest possible time, it should have at
least informed Grace of the non-transmission and the non-delivery so that
she could have taken steps to remedy the situation. But it did not. There
lies the fault or negligence.
In an earlier case also involving RCPI, this Court held:
Considering the public utility of RCPI's business and its contractual
obligation to transmit messages, it should exercise due diligence to
ascertain that messages are delivered to the persons at the given address
and should provide a system whereby in cases of undelivered messages
the sender is given notice of non-delivery. Messages sent
by cable or wireless means are usually more important and urgent than
those which can wait for the mail.25
xxxx
People depend on telecommunications companies in times of deep
emotional stress or pressing financial needs. Knowing that messages
about the illnesses or deaths of loved ones, births or marriages in a
family, important business transactions, and notices of conferences or
meetings as in this case, are coursed through the petitioner and similar
corporations, it is incumbent upon them to exercise a greater amount of

care and concern than that shown in this case. Every reasonable effort to
inform senders of the non-delivery of messages should be undertaken.26
(Emphasis and underscoring supplied)cralawlibrary
RCPI argues, however, against the presence of urgency in the delivery of
the telegram, as well as the basis for the award of moral damages,
thus:27
The request to send check as written in the telegraphic text negates the
existence of urgency that private respondents' allegations that 'time was
of the essence' imports. A check drawn against a Manila Bank and
transmitted to Sorsogon, Sorsogon will have to be deposited in a bank in
Sorsogon and pass thru a minimum clearing period of 5 days before it
may be encashed or withdrawn. If the transmittal of the requested check
to Sorsogon took 1 day - private respondents could therefore still wait for
6 days before the same may be withdrawn. Requesting a check that
would take 6 days before it could be withdrawn therefore contradicts
plaintiff's claim of urgency or need.28
At any rate, any sense of urgency of the situation was met when Grace
Verchez was able to communicate to Manila via a letter that she sent to
the same addressee in Manila thru JRS.29
xxxx
As far as the respondent court's award for moral damages is concerned,
the same has no basis whatsoever since private respondent Alfonso
Verchez did not accompany his late wife when the latter went to Manila by
bus. He stayed behind in Sorsogon for almost 1 week before he
proceeded to Manila.30
When pressed on cross-examination, private respondent Alfonso Verchez
could not give any plausible reason as to the reason why he did not
accompany his ailing wife to Manila.31
xxxx

It is also important to consider in resolving private respondents' claim for


moral damages that private respondent Grace Verchez did not accompany
her ailing mother to Manila.32
xxxx
It is the common reaction of a husband to be at his ailing wife's side as
much as possible.The fact that private respondent Alfonso Verchez stayed
behind in Sorsogon for almost 1 week convincingly demonstrates that he
himself knew that his wife was not in critical condition.33
(Emphasis and underscoring supplied)cralawlibrary
RCPI's arguments fail. For it is its breach of contract upon which its
liability is, it bears repeating, anchored. Since RCPI breached its contract,
the presumption is that it was at fault or negligent. It, however, failed to
rebut this presumption.
For breach of contract then, RCPI is liable to Grace for damages.
And for quasi-delict, RCPI is liable to Grace's co-respondents following
Article 2176 of the Civil Code which provides:
Whoever by act or omission causes damage to another, there being fault
or negligence, is obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter. (Underscoring supplied)cralawlibrary
RCPI's liability as an employer could of course be avoided if it could prove
that it observed the diligence of a good father of a family to prevent
damage. Article 2180 of the Civil Code so provides:
The obligation imposed by Article 2176 is demandable not only for one's
own acts or omissions, but also for those of persons for whom one is
responsible.
xxxx

The owners and managers of an establishment or enterprise are likewise


responsible for damages caused by their employees in the service of the
branches in which the latter are employed or on the occasion of their
functions.
Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons
herein mentioned prove that they observed all the diligence of a good
father
of
a
family
to
prevent
damage.
(Underscoring
supplied)cralawlibrary
RCPI failed, however, to prove that it observed all the diligence of a good
father of a family to prevent damage.
Respecting the assailed award of moral damages, a determination of the
presence of the following requisites to justify the award is in order:
x x x firstly, evidence of besmirched reputation or physical, mental or
psychological suffering sustained by the claimant; secondly, a culpable act
or omission factually established; thirdly, proof that the wrongful act or
omission of the defendant is the proximate cause of damages sustained
by the claimant; and fourthly, that the case is predicated on any of the
instances expressed or envisioned by Article 2219 and Article 2220 of the
Civil Code.34
Respecting the first requisite, evidence of suffering by the plaintiffs-herein
respondents was correctly appreciated by the CA in this wise:
The failure of RCPI to deliver the telegram containing the message of
appellees on time, disturbed their filial tranquillity. Family members
blamed each other for failing to respond swiftly to an emergency that
involved the life of the late Mrs. Verchez, who suffered from diabetes.35

As reflected in the foregoing discussions, the second and third requisites


are present.

though they may not constitute a criminal offense, shall produce a cause
of action for damages, prevention, and other relief:

On the fourth requisite, Article 2220 of the Civil Code provides:

xxxx

Willful injury to property may be a legal ground for awarding moral


damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of
contract where
the
defendant
acted
fraudulently
or in
bad
faith. (Emphasis and underscoring supplied)cralawlibrary

(2) Meddling with or disturbing the private life or family relations of


another. (Emphasis supplied)cralawlibrary

After RCPI's first attempt to deliver the telegram failed, it did not inform
Grace of the non-delivery thereof and waited for 12 days before trying to
deliver it again, knowing - as it should know - that time is of the essence
in the delivery of telegrams. When its second long-delayed attempt to
deliver the telegram again failed, it, again, waited for another 12 days
before making a third attempt. Such nonchalance in performing its urgent
obligation indicates gross negligence amounting to bad faith. The fourth
requisite is thus also present.
In applying the above-quoted Article 2220, this Court has awarded moral
damages in cases of breach of contract where the defendant was guilty of
gross negligence amounting to bad faith, or in wanton disregard of his
contractual obligation.36
As for RCPI's tort-based liability, Article 2219 of the Civil Code provides:
Moral damages may be recovered in the following and analogous cases:
xxxx
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32,
34, and 35. (Emphasis supplied)cralawlibrary
Article 26 of the Civil Code, in turn, provides:
Every person shall respect the dignity, personality, privacy and peace of
mind of his neighbors and other persons. The following and similar acts,

RCPI's negligence in not promptly performing its obligation undoubtedly


disturbed the peace of mind not only of Grace but also her corespondents. As observed by the appellate court, it disrupted the "filial
tranquillity" among them as they blamed each other "for failing to
respond swiftly to an emergency." The tortious acts and/or omissions
complained of in this case are, therefore, analogous to acts mentioned
under Article 26 of the Civil Code, which are among the instances of
quasi-delict when courts may award moral damages under Article 2219 of
the Civil Code.
In fine, the award to the plaintiffs-herein respondents of moral damages
is in order, as is the award of attorney's fees, respondents having been
compelled to litigate to protect their rights.
Clutching at straws, RCPI insists that the limited liability clause in the
"Telegram Transmission Form" is not a contract of adhesion. Thus it
argues:
Neither can the Telegram Transmission Form be considered a contract of
adhesion as held by the respondent court. The said stipulations were
all written in bold letters right in front of the Telegram Transmission
Form. As a matter of fact they were beside the space where the telegram
senders write their telegraphic messages. It would have been different if
the stipulations were written at the back for surely there is no way the
sender will easily notice them. The fact that the stipulations were located
in a particular space where they can easily be seen, is sufficient notice to
any sender (like Grace Verchez-Infante) where she could manifest her
disapproval, leave the RCPI station and avail of the services of the other
telegram operators.37 (Underscoring supplied)cralawlibrary

RCPI misunderstands the nature of a contract of adhesion. Neither the


readability of the stipulations nor their physical location in the contract
determines whether it is one of adhesion.
A contract of adhesion is defined as one in which one of the parties
imposes a ready-made form of contract, which the other party may
accept or reject, but which the latter cannot modify. One party prepares
the stipulation in the contract, while the other party merely affixes his
signature or his "adhesion" thereto, giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal
footing.38 (Emphasis and underscoring supplied)cralawlibrary
While a contract of adhesion is not necessarily void and unenforceable,
since it is construed strictly against the party who drafted it or gave rise
to any ambiguity therein, it is stricken down as void and unenforceable or
subversive of public policy when the weaker party is imposed upon in
dealing with the dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely deprived of the
opportunity to bargain on equal footing.39
This Court holds that the Court of Appeals' finding that the parties'
contract is one of adhesion which is void is, given the facts and
circumstances of the case, thus well-taken.
WHEREFORE, the petition is DENIED, and the challenged decision of the
Court of Appeals is AFFIRMED.

SO ORDERED.

DECISION

Respondent spouses Alejandro and Adelaida Licuanan were granted a piggery loan
in the amount of P4,700 by petitioner, evidenced by a promissory note dated
September 20, 1974 and secured by a real estate mortgage4over a 980-square
meter parcel of land with a two-storey building. The loans maturity date was
September 23, 1979.5
Petitioner granted respondents an additional loan of P12,000 evidenced by a
promissory note dated May 29, 1975 payable on or before the year 1980. This was
secured by a real estate mortgage over four parcels of land situated in Pangasinan
covered by TCT Nos. 109825, 109762, 109763 and 109764.6
On October 2, 1975, petitioner granted respondent spouses another loan of P22,000
evidenced by a promissory note maturing on October 3, 1985. This was secured by a
real estate mortgage executed in favor of petitioner over three parcels of land
covered by TCT Nos. 112608, 112607 and 112609, all of the Registry of Deeds of
Pangasinan.7
On August 6, 1979, petitioner and respondents restructured the P12,000 loan,
extending the maturity date from June 22, 1979 to June 22, 1982. On the same date,
respondents executed a promissory note for P12,320.73 and another for P6,519.90.8

On July 20, 1981, petitioner filed an application for extrajudicial foreclosure. 10 The
mortgaged properties were sold in a public auction on December 16, 1981.
Petitioner, as the highest bidder, acquired them for a total ofP16,340. The certificate
of sale was registered on January 25, 1982.11

FIRST DIVISION
February 26, 2007

DEVELOPMENT
BANK
OF
THE
vs.
ALEJANDRO and ADELAIDA LICUANAN, Respondents.

In this petition for review on certiorari,1 petitioner Development Bank of the


Philippines assails the February 9, 2001 decision2 and September 17, 2001
resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 37784.

On July 6, 1981, petitioner sent a letter by registered mail to respondents informing


them that, since the conditions of the mortgage had been breached, petitioner would
have the mortgaged properties sold by the sheriff under Act 3135. The total amount
due from the three loans had by then ballooned to P75,298.32.9

Costs against petitioner.

G.R. No. 150097

CORONA, J.:

PHILIPPINES, Petitioner

On February 4, 1983, petitioner consolidated its ownership over the properties. After
more than a year or on October 16, 1984, petitioner wrote respondents by registered
mail, informing them that the properties (now acquired assets of the bank) would be
disposed of by public auction. On November 11, 1984, petitioner published an

advertisement stating that on November 14, 1984, the properties would be sold by
oral bidding. On this date, however, there were no bidders.12
On November 16, 1984, petitioner sent respondents a letter informing them that the
properties could be reacquired by negotiated sale for cash or installment.13 Three
days later, however, on November 19, 1984, the properties were sold through
negotiated sale to one Emelita A. Peralta. Respondents were informed of the sale by
petitioner through a letter dated December 6, 1984.
On the same day, petitioner executed a deed of conditional sale in favor of
Peralta.14 On December 11, 1984, respondents offered to repurchase the properties
from petitioner but they had already been sold to Peralta.15
Respondents then filed a complaint for recovery of real properties and damages on
July 18, 1985 in the Regional Trial Court (RTC) of Lingayen, Pangasinan, Branch 39
against petitioner and Peralta. 16 The RTC rendered judgment dated September 17,
1991 in favor of respondents.

The issue of whether demand was made before the foreclosure was effected is
essential. If demand was made and duly received by the respondents and the latter
still did not pay, then they were already in default and foreclosure was proper.
However, if demand was not made, then the loans had not yet become due and
demandable. This meant that respondents had not defaulted in their payments and
the foreclosure by petitioner was premature. Foreclosure is valid only when the
debtor is in default in the payment of his obligation.19
Whether or not demand was made is a question of fact. In petitions for review on
certiorari under Rule 45, only questions of law may be raised by the parties and
passed upon by this Court.20 Factual findings of the trial court, when adopted and
confirmed by the CA, are binding and conclusive on this Court and will generally not
be reviewed on appeal.21 Inquiry into the veracity of the CAs factual findings and
conclusions is not the function of the Supreme Court for the Court is not a trier of
facts.22 Neither is it our function to re-examine and weigh anew the respective
evidence of the parties.23 While this Court has recognized several exceptions to this
rule,24 none of these exceptions finds application here.

The trial court found that there was no demand for payment prior to the extrajudicial
foreclosure. Thus, the foreclosure proceedings were null and void. It ordered Peralta
to reconvey the properties to respondents subject to Peraltas right to be paid by
respondents the amount of P104,000 in consideration of such reconveyance. It also
held that petitioner did not deal fairly with respondents making it liable for nominal
and moral damages to the latter. The RTC further ordered petitioner to pay
respondents attorneys fees and litigation expenses.

Both the CA and RTC found that demand was never made. No compelling reason
whatsoever has been shown by petitioner for this Court to review and reverse the
trial courts findings and conclusions, as affirmed by the CA.

On appeal, the CA affirmed the RTC but decreased the amount of nominal damages
from P75,000 to P50,000.17

We disagree.

Hence this petition.18


The main issues to be resolved are the following:
1) whether a demand for payment of the loans was made before the mortgage was
foreclosed;
2) whether demand is necessary to make respondents guilty of default;
3) whether or not respondents are liable for the deficiency claim of petitioner and
4) whether or not petitioner is liable for damages.

Petitioner asserts that demand was unnecessary because the maturity dates of all
loans were specified, i.e., the notes expressly stated the specific dates when the
amortizations were to fall due.25

Unless demand is proven, one cannot be held in default.26 Petitioners cause of


action did not accrue on the maturity dates stated in the promissory notes. It is only
when demand to pay is made and subsequently refused that respondents can be
considered in default and petitioner obtains the right to file an action to collect the
debt or foreclose the mortgage.27 As we held in China Banking Corporation v. Court
of Appeals:28
Well-settled is the rule that since a cause of action requires, as essential elements,
not only a legal right of the plaintiff and a correlative duty of the defendant but also
"an act or omission of the defendant in violation of said legal right," the cause of
action does not accrue until the party obligated refuses, expressly or impliedly, to
comply with its duty.

Otherwise stated, a cause of action has three elements, to wit, (1) a right in favor of
the plaintiff by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to violate such right;
and (3) an act or omission on the part of such defendant violative of the right of the
plaintiff or constituting a breach of the obligation of the defendant to the plaintiff.
It bears stressing that it is only when the last element occurs that a cause of action
arises. Accordingly, a cause of action on a written contract accrues only when an
actual breach or violation thereof occurs.
Applying the foregoing principle to the instant case, we rule that private respondents
cause of action accrued only on July 20, 1995, when its demand for payment of the
Home Notes was refused by petitioner. It was only at that time, and not before that,
when the written contract was breached and private respondent could properly file an
action in court.
The cause of action cannot be said to accrue on the uniform maturity date of the
Home Notes as petitioner posits because at that point, the third essential element of
a cause of action, namely, an act or omission on the part of petitioner violative of the
right of private respondent or constituting a breach of the obligation of petitioner to
private respondent, had not yet occurred.29 (emphasis supplied)
The acceleration clause of the promissory notes stated that "[i]n case of nonpayment of this note or any portion of it on demand, when due, on account of this
note, the entire obligation shall become due and demandable ."30 Hence, the
maturity dates only indicate when payment can be demanded. It is the refusal to pay
after demand that gives the creditor a cause of action against the debtor.
Since demand, which is necessary to make respondents guilty of default, was never
made on respondents, the CA and RTC correctly ruled that the foreclosure was
premature and therefore null and void.
In arguing that the foreclosure was valid, petitioner also avers that respondents are
estopped from questioning the validity of the foreclosure sale since they offered to
repurchase the foreclosed properties.31 We are not persuaded. The reason why
respondents offered to repurchase the properties was clearly stated in their letter to
petitioner:
I am very much interested in repurchasing back these properties because they are
the only properties which my family have and because our house is located inside

this property and for this matter I am willing to pay [for] these properties in cash
which I already told the bank when I went there.32
Besides, we have already ruled that an offer to repurchase should not be construed
as a waiver of the right to question the sale.33 Instead, it must be taken as an
intention to avoid further litigation and thus is in the nature of an offer to
compromise.34 By offering to redeem the properties, respondents can attain their
ultimate objective: to pay off their debt and regain ownership of their lands.35
Moreover, it was petitioner, in its November 16, 1984 letter, which informed
respondents that the properties were available for sale. Respondents merely took up
petitioners offer for them to reacquire their properties.
Petitioner assigns as error the failure of the CA to rule on its deficiency claim. It
alleged that the price the mortgaged property was sold for (P104,000) was less than
the amount of respondents indebtedness (P131,642.33), thus it is entitled to claim
the difference (P27,642.33) with interest. Respondents cannot be held liable for the
deficiency claim. While it is true that in extrajudicial foreclosure of mortgage, the
mortgagee has the right to recover the deficiency from the debtor,36 this presupposes
that the foreclosure must first be valid.37
The last issue is whether the award of moral and nominal damages, expenses of
litigation and attorneys fees is proper. Crucial to the determination of the propriety of
the award of damages are the findings of the RTC, which were affirmed by the CA,
on the matter of bad faith:
Apart from the precipitate foreclosure proceedings, the Court observes that certain
acts of [petitioner] were most certainly less than fair and less than honest, which
negates the rehabilitation (prior name of the bank) or development aspect or purpose
of [petitioner]. These certainly caused serious anxiety and wounded feelings to
[respondents]. They are: FIRST. [Petitioner] granted a loan of P4,700.00; then a second loan of P12,000.00
re-structured toP18,840.61; and a third loan of P22,200.00, or a total of P45,740.61
during the period from September 1974 to October 2, 1975. Obviously, these loans
were granted because the market value of the collaterals exceeds P100,000.00 and
[petitioners] appraisal value is more or less P80,000.00. However, six (6) years later,
when the value must have appreciated in terms of pesos, the [petitioner] bidded for a
[measly]P16,000.00 and [claimed] a deficiency. That it was [measly] and shocking to
the conscience was conclusively proven by the fact that [Peralta] offered and did in
fact buy the properties for P104,000.00 barely three (3) years later. To the mind of
the Court, the actuations of the bank must have been revolting to [respondents] and

to honest men, especially considering that [petitioner] is a government financial


institution, capitalized with the money of the people, and created principally "to assist
agricultural producers xxx in developing their farms xxx to accelerate national
progress", more than to realize profit.

Both the RTC and CA found that there was factual basis for the moral damages
adjudged against petitioner. They found that petitioner was guilty of bad faith in its
actuations against respondents. Again, this is a factual matter binding and conclusive
on this Court:

SECOND. [Respondents] are simple-minded persons in the country side. It strikes


the court as odd and certainly less than candid WHY on AUGUST 6, 1979,
[petitioner] restructured the second loan which will mature on May 1980, but did not
restructure the first loan which was due to mature on September 23, 1979or barely
one month hence. It appears that the result lulled [respondents] into a false sense of
security and a feeling of relief that the entire loan accommodation will mature in
1985. And then like a bolt of lightning from a clear sky, [respondents] were hit with
[foreclosure] proceedings, causing them to suffer sleepless nights.

It is settled that bad faith must be duly proved and not merely presumed. The
existence of bad faith, being a factual question, and the Supreme Court not being a
trier of facts, the findings thereon of the trial court as well as of the Court of Appeals
shall not be disturbed on appeal and are entitled to great weight and respect. Said
findings are final and conclusive upon the Supreme Court except, inter alia, where
the findings of the Court of Appeals and the trial court are contrary to each other.39

THIRD. A letter dated November 16, 1984 was addressed to [respondents]


informing them practically that they are given the priority to recover their properties
by negotiated sale. And yet before the letter was sent, or on November 14, 1984 the
[petitioner] had already negotiated with [Peralta] for the latter to buy the assets
for P104,000.00 in installment and as a matter of fact the Contract for Conditional
Sale was executed on November 19, 1984 even before the letter was received by
[respondents]. [Heart-rending] was the plea of [respondents] which we quote: "I am very much interested in repurchasing back these properties because they are
the only properties which my family have and because our house is located inside
this property and for this matter I am willing to pay [for] these properties in
cash which I already told the bank when I went there." (underscoring supplied)
Nevertheless, such supplications fell on deaf ears and did not even merit sympathy
from a heartless [petitioner]. At the very least, the letter of 16 November 1984 was a
very bad joke gleefully made in bad taste and foisted on the hapless [respondents]. It
added insult to injury.
And to top it all, [petitioner] even has the temerity to allege in paragraph 2 of its
compulsory counterclaim "that as of November 7, 1984 the total obligations of
[respondents] on account of their loans with [petitioner] amounted toP131,642.33"
and making a deficiency claim of P27,642.33 plus daily interest of P9.61 beginning
November 8, 1984 "which [respondents] are allegedly still liable to pay the
[petitioner]".1avvphi1.net This is unconscionable.1awphi1.net
Certainly, there is abundant evidence that the rights of [respondents] have been
violated or invaded with unconcerned ruthlessness by the [petitioner].38

The lower court also found that respondents property rights were invaded or
violated,40 hence the grant of nominal damages was also proper.
Respondents are likewise entitled to the award of attorneys fees and expenses of
litigation since the premature foreclosure by petitioner compelled them to incur
expenses to protect their interest.41
WHEREFORE, we hereby AFFIRM the decision of the Court of Appeals in CA-G.R.
CV No. 37784.
Costs against petitioner.
SO ORDERED.
GENERAL MILLING CORP. V. RAMOS
DECISION
VELASCO, JR., J.:
The Case
This is a petition for review of the April 15, 2010 Decision of the Court of Appeals
(CA) in CA-G.R. CR-H.C. No. 85400 entitled Spouses Librado Ramos & Remedios Ramos v.
General Milling Corporation, et al., which affirmed the May 31, 2005 Decision of the
Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for
Annulment and/or Declaration of Nullity of Extrajudicial Foreclosure Sale with Damages.

The Facts
On August 24, 1989, General Milling Corporation (GMC) entered into a Growers
Contract with spouses Librado and Remedios Ramos (Spouses Ramos). Under the contract,
GMC was to supply broiler chickens for the spouses to raise on their land
in Barangay Banaybanay, Lipa City, Batangas.[1] To guarantee full compliance, the Growers
Contract was accompanied by a Deed of Real Estate Mortgage over a piece of real property
upon which their conjugal home was built. The spouses further agreed to put up a surety bond
at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The Deed of Real Estate
Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within
an indefinite period with an interest of twelve percent (12%) per annum.[2]
The Deed of Real Estate Mortgage contained the following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full
and faithful compliance of [MORTGAGORS] obligation/s with the MORTGAGEE by a
First Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of land and the
improvements existing thereon, situated in the Barrio/s of Banaybanay, Municipality of Lipa
City, Province of Batangas, Philippines, his/her/their title/s thereto being evidenced by
Transfer Certificate/s No./s T-9214 of the Registry of Deeds for the Province of Batangas in
the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00), Philippine
Currency, which the maximum credit line payable within a x x x day term and to secure the
payment of the same plus interest of twelve percent (12%) per annum.
Spouses Ramos eventually were unable to settle their account with GMC. They alleged that
they suffered business losses because of the negligence of GMC and its violation of the
Growers Contract.[3]
On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would
institute foreclosure proceedings on their mortgaged property.[4]
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On
June 10, 1997, the property subject of the foreclosure was subsequently sold by public
auction to GMC after the required posting and publication.[5] It was foreclosed for PhP
935,882,075, an amount representing the losses on chicks and feeds exclusive of interest at
12% per annum and attorneys fees.[6] To complicate matters, on October 27, 1997, GMC
informed the spouses that its Agribusiness Division had closed its business and poultry
operations.[7]
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or
Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. They contended

that the extrajudicial foreclosure sale on June 10, 1997 was null and void, since there was no
compliance with the requirements of posting and publication of notices under Act No. 3135,
as amended, or An Act to Regulate the Sale of Property under Special Powers Inserted in or
Annexed to Real Estate Mortgages. They likewise claimed that there was no sheriffs
affidavit to prove compliance with the requirements on posting and publication of notices. It
was further alleged that the Deed of Real Estate Mortgage had no fixed term. A prayer for
moral and exemplary damages and attorneys fees was also included in the
complaint.[8] Librado Ramos alleged that, when the property was foreclosed, GMC did not
notify him at all of the foreclosure.[9]
During the trial, the parties agreed to limit the issues to the following: (1) the validity
of the Deed of Real Estate Mortgage; (2) the validity of the extrajudicial foreclosure; and (3)
the party liable for damages.[10]
In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their
liabilities under the Growers Contract. It argued that it was compelled to foreclose the
mortgage because of Spouses Ramos failure to pay their obligation. GMC insisted that it had
observed all the requirements of posting and publication of notices under Act No. 3135.[11]

The Ruling of the Trial Court


Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate
Mortgage was valid even if its term was not fixed. Since the duration of the term was made to
depend exclusively upon the will of the debtors-spouses, the trial court cited jurisprudence
and said that the obligation is not due and payable until an action is commenced by the
mortgagee against the mortgagor for the purpose of having the court fix the date on and after
which the instrument is payable and the date of maturity is fixed in pursuance thereto.[12]
The trial court held that the action of GMC in moving for the foreclosure of the
spouses properties was premature, because the latters obligation under their contract was
not yet due.
The trial court awarded attorneys fees because of the premature action taken by GMC
in filing extrajudicial foreclosure proceedings before the obligation of the spouses became
due.
The RTC ruled, thus:
WHEREFORE, premises considered, judgment is rendered as follows:

1.
The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby
declared null and void;
2.
The Deed of Real Estate Mortgage is hereby declared valid and legal for all
intents and puposes;
3.
Defendant-corporation General Milling Corporation is ordered to pay Spouses
Librado and Remedios Ramos attorneys fees in the total amount of P 57,000.00 representing
acceptance fee of P30,000.00 and P3,000.00 appearance fee for nine (9) trial dates or a total
appearance fee of P 27,000.00;

According to the CA, however, the RTC erroneously awarded attorneys fees to
Spouses Ramos, since the presumption of good faith on the part of GMC was not overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing considerations, the Decision of
the Regional Trial Court of Lipa City, Branch 12, dated May 21, 2005 is hereby AFFIRMED
with MODIFICATION by deleting the award of attorneys fees to plaintiffs-appellees
spouses Librado Ramos and Remedios Ramos.[16]
Hence, We have this appeal.

4.

The claims for moral and exemplary damages are denied for lack of merit.
The Issues

IT IS SO ORDERED.[13]
The Ruling of the Appellate Court
On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial
foreclosure proceedings null and void; (2) ordering GMC to pay Spouses Ramos attorneys
fees; and (3) not awarding damages in favor of GMC.
The CA sustained the decision of the trial court but anchored its ruling on a different
ground. Contrary to the findings of the trial court, the CA ruled that the requirements of
posting and publication of notices under Act No. 3135 were complied with. The CA,
however, still found that GMCs action against Spouses Ramos was premature, as they were
not in default when the action was filed on May 7, 1997.[14]

A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND


DISCUSSED IN THE LOWER COURT AND LIKEWISE NOT RAISED BY THE
PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN ACCORD
WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO
DEMAND TO RESPONDENT SPOUSES FOR THE FULL PAYMENT OF THEIR
OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH 31, 1997 OF
PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL
DEMAND TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL PROCEEDINGS.[17]
The Ruling of this Court

The CA ruled:
Can the CA consider matters not alleged?
In this case, a careful scrutiny of the evidence on record shows that defendantappellant GMC made no demand to spouses Ramos for the full payment of their obligation.
While it was alleged in the Answer as well as in the Affidavit constituting the direct
testimony of Joseph Dominise, the principal witness of defendant-appellant GMC, that
demands were sent to spouses Ramos, the documentary evidence proves otherwise. A perusal
of the letters presented and offered as evidence by defendant-appellant GMC did not
demand but only request spouses Ramos to go to the office of GMC to discuss the
settlement of their account.[15]

GMC asserts that since the issue on the existence of the demand letter was not raised in
the trial court, the CA, by considering such issue, violated the basic requirements of fair play,
justice, and due process.[18]

In their Comment,[19] respondents-spouses aver that the CA has ample authority to rule
on matters not assigned as errors on appeal if these are indispensable or necessary to the just
resolution of the pleaded issues.

In Diamonon v. Department of Labor and Employment,[20] We explained that an


appellate court has a broad discretionary power in waiving the lack of assignment of errors in
the following instances:
(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject
matter;

According to the CA, GMC did not make a demand on Spouses Ramos but merely
requested them to go to GMCs office to discuss the settlement of their account. In spite of
the lack of demand made on the spouses, however, GMC proceeded with the foreclosure
proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing
GMC to extrajudicially foreclose the mortgage without need of demand.
Indeed, Article 1169 of the Civil Code on delay requires the following:

(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within
contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of which is necessary in
arriving at a just decision and complete resolution of the case or to serve the interests of a
justice or to avoid dispensing piecemeal justice;
(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are
matters of record having some bearing on the issue submitted which the parties failed to raise
or which the lower court ignored;

Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfilment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declares; x x x

(e) Matters not assigned as errors on appeal but closely related to an error assigned;

As the contract in the instant case carries no such provision on demand not being
necessary for delay to exist, We agree with the appellate court that GMC should have first
made a demand on the spouses before proceeding to foreclose the real estate mortgage.

(f) Matters not assigned as errors on appeal but upon which the determination of a question
properly assigned, is dependent.

case:

Paragraph (c) above applies to the instant case, for there would be a just and complete
resolution of the appeal if there is a ruling on whether the Spouses Ramos were actually in
default of their obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts error on the part of the
CA in finding that no demand was made on Spouses Ramos to pay their obligation. On the
contrary, it claims that its March 31, 1997 letter is akin to a demand.
We disagree.
There are three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; and third, the creditor
judicially or extrajudicially requires the debtors performance.[21]

Development Bank of the Philippines v. Licuanan finds application to the instant

The issue of whether demand was made before the foreclosure was effected is essential. If
demand was made and duly received by the respondents and the latter still did not pay, then
they were already in default and foreclosure was proper. However, if demand was not made,
then the loans had not yet become due and demandable. This meant that respondents had not
defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is
valid only when the debtor is in default in the payment of his obligation.[22]
In turn, whether or not demand was made is a question of fact. [23] This petition filed under Rule 45 of the Rules
of Court shall raise only questions of law. For a question to be one of law, it must not involve an examination of
the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest
solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a review of
the evidence presented, the question posed is one of fact.[24] It need not be reiterated that this Court is not a trier of
facts.[25] We will defer to the factual findings of the trial court, because petitioner GMC has not shown any
circumstances making this case an exception to the rule.
WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400 is AFFIRMED.
SO ORDERED.