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Scra [G.R. No. 105567. November 25, 1993.

completed, and hence, the execution of an absolute deed of sale in their favor was in order. No action on the
matter was taken by petitioner.

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), Petitioner, v. HONORABLE COURT OF


APPEALS and SPOUSES RAUL and ESPERANZA LEUTERIO, Respondents.
The Legal Services Group for Petitioner.
Jaime M. Posadas for Private Respondents.

The instant case was initiated on May 20, 1984 in the RTC of Manila, Br. 11, with the filing of a Complaint for
Specific Performance With Damages to compel petitioner to execute in private respondents favor, the final
Deed of Sale over the subject property. 9 The trial court found for the Leuterios.chanroblesvirtualawlibrary
On January 24, 1992, the Court of Appeals 10 , in its impugned Decision, upheld the trial court solely on the
basis of estoppel. It held that petitioner cannot increase the price of the subject house and lot after it failed,
through the years, to protest against private respondents P200.00-amortization or to require the payment by
them of bigger monthly installments. 11

DECISION

Petitioner now urges the setting aside of the impugned Decision of the Court of Appeals, alleging that it erred
in:jgc:chanrobles.com.ph
PUNO, J.:

This is a petition for review on certiorari to set aside the Decision of the 10th Division of the Court of Appeals
ordering the petitioner GSIS to execute a Final Deed of Sale in favor of the spouses Raul and Esperanza
Leuterio involving a house and lot in the GSIS Village, Project 8-C, Quezon City. 1
The facts show that on December 18, 1963, the petitioner GSIS conducted a lottery draw for the allocation of
lots and housing units in Project 8-C of GSIS Village. Private respondent Esperanza Leuterio won and was
issued a Certificate of Acknowledgment to purchase the subject house and lot 2 on December 27, 1963. In
1965, the parties entered into a Deed of Conditional Sale evidencing the conveyance of the subject property
and all improvements thereon to the Leuterio spouses for the purchase price of P19,740.00, payable over a
fifteen-year period, in 180 equal monthly installments of P168.53 each. Paragraph 11 of the Deed of
Conditional Sale provides:chanrobles law library
"Upon the full payment by the Vendee of the purchase price of the lot and dwelling/improvement above
referred to together with all the interest due thereon, taxes and other charges and upon his faithful compliance
with all the conditions of the Contract, the Vendor agrees to execute in favor of the Vendee, or his/their heirs
and successors-in-interest a final Deed of Sale of the aforementioned land and dwelling/improvements . . ." 3
Three years elapsed before the Deed was notarized, and a copy of the same was given to the private
respondents.
After the land development and housing construction of Project 8-C were completed in 1966, petitioners
Board of Trustees increased the purchase price indicated in the Deeds of Conditional Sale covering houses
and lots therein. The new price was based on the alleged final cost of construction of the GSIS Village. It is
noted that, on the face of the Leuterios Conditional Deed of Sale is the marginal notation "subject to
adjustment pending approval of the Board of Trustees." The Leuterio spouses alleged that this notation was
not in the Deed when they signed the same in 1965. Resolving this factual issue, the trial court found that the
appended words were inserted into the document without the knowledge or consent of the Leuterio spouses.
This finding of fact went undisturbed on appeal to the respondent court. 4cralawnad
Sometime in the early 1970s, a group (not including the Leuterios) of conditional vendees of houses and lots
in Project 8-C of GSIS Village brought suit 5 against herein petitioner, questioning the increase in purchase
price. They likewise wrote a "A Plea For Justice" to then President Ferdinand E. Marcos, requesting for a
directive to petitioners management to "accept payments of amortization installments on the original amounts
stated in the Deed(s) of Conditional Sale."cralaw virtua1aw library
As a result, the Office of the President created a three-man Ad Hoc committee, composed of representatives
of the Office of the President, the petitioner System, and the GSIS Village Association. The committee found
that the final cost of the Village justified a higher price range for the houses and lots in the project.
Based on the ad hoc committees findings, the petitioner System, with the approval of its Board of Trustees,
increased the purchase prices of houses and lots in the GSIS Village.chanroblesvirtualawlibrary
On May 30, 1973, however, then Presidential Executive Assistant Jacobo C. Clave, through a memorandum,
advised petitioner that then President Marcos has approved the "Plea" and wanted its "immediate
implementation." The attempt by petitioner to have the presidential endorsement reconsidered was denied on
December 18, 1980.
Meanwhile, after years of diligently paying the monthly amortizations 6 and real estate taxes on the subject
property, the private respondents spouses informed 7 petitioner that the payments 8 for the property had been

"I. . . . HOLDING THAT THE PETITIONER GSIS IS ESTOPPED FROM ENFORCING THE ADJUSTMENT OF
THE SELLING PRICE
"II. . . . NOT HOLDING THAT THE SPOUSES LEUTERIO MUST BE BOUND BY THE RECOMMENDATION
MADE BY THE AD HOC COMMITTEE
"III. . . . FAILING TO CONSIDER THE JUSTIFICATION FOR THE ADJUSTMENT IN THE SELLING PRICE
OF THE LOTS AND HOUSING UNITS
"IV . . . AFFIRMING THE DECISION OF THE TRIAL COURT WHICH ORDERED THE PETITIONER GSIS TO
EXECUTE THE FINAL DEED OF SALE" 12chanrobles lawlibrary : rednad
Upon the other hand, private respondents, in their Comment, 13 contend that the Petition only raises factual
issues, which cannot be settled by this Court in the instant proceedings. They further contend that no
reversible errors were committed by the Court of Appeals in its impugned Decision.
We find no merit in the petition, but for reasons different from those espoused by the respondent Court of
Appeals.
The decisive issue really involves a question of fact whether or not the spouses Leuterio agreed to the
notation "subject to adjustment pending approval of the Board of Trustees" appearing on the margin of the
parties Conditional Deed of Sale. If there was no agreement, the Leuterio spouses are only obligated to pay
the purchase price of P19,740.00 as stipulated in the main body of the Conditional Deed of Sale.
Trite to state, this Court is not a trier of facts. In a multitude of cases, we have laid down the unbending rule
that findings of fact of lower courts are binding on us unless they are marred by manifest errors. The pleadings
before us do not demonstrate that the trial court grossly erred when it found that the purchase price agreed
upon by the parties was P19,740.00 and this agreement was not made subject to any posterior event or
condition. This finding of fact was based on the explicit testimony of private respondent Raul Leuterio that
when he and his wife signed the Deed of Conditional Sale in 1965, the notation "subject to adjustment pending
approval of the Board of Trustees" was not in the Deed. 14 Likewise, the Answer of petitioner to the Complaint
of the private respondents admitted the non-existence of this notation at the time the Deed of Conditional Sale
was signed, albeit, it called the omission an honest mistake. 15 We quote paragraph 5 of said Answer,
viz:chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
"5. The omission of the marginal notation reading (x) subject to adjustment pending approval of the Board of
Trustees (Annexes B to B-1-b of the Complaint) on the Deed of Conditional Sale signed by the plaintiffs, as
alleged in paragraph VII of the Complaint, must have been an honest mistake on the part of the clerk who
typed the document."cralaw virtua1aw library
This was also confirmed by the petitioner in the instant Petition for Review on Certiorari where it is alleged
that." . . the respondents-spouses Leuterio were not required to sign a new contract as provided in Resolution
No. 996 but instead, the words subject to adjustment pending approval of the Board of Trustees were
inserted in the Deed of Conditional Sale executed in 1965." Petitioner is bound by these judicial admissions.
Quite clearly, therefore, the purchase price mutually agreed upon by the parties was P19,740.00. The spouses
Leuterio did not give their consent for petitioner to make a unilateral upward adjustment of this purchase price
depending on the final cost of construction of the subject house and lot. It is illegal for petitioner to claim this
prerogative, for Article 1473 of the Civil Code provides that "the fixing of the price can never be left to the
discretion of one of the contracting parties . . . ."cralaw virtua1aw library
We also reject petitioners contention that the spouses Leuterio are bound by the recommendation of the ad

hoc committee as this was set aside by then President Ferdinand E. Marcos. 16 The rejection was
communicated by then Presidential Assistant Jacobo Clave to petitioner in a Memorandum dated May 30,
1973. 17 Petitioner moved for its reconsideration but the motion was denied by the former President thru
Presidential Assistant Joaquin Venus, in a letter dated December 18, 1990. 18chanrobles virtual lawlibrary

PAPI. After a few months, the said commission was again reduced to 4%. Two months later, petitioner PAPI
asked for another .25% reduction; hence, respondent Crisostomos franchise commission was further reduced
to 3.75%. Finally, in January 1991, petitioner PAPI again asked for a final reduction of the commission to 2%
to which respondent Crisostomo agreed, on the condition that it be reduced into writing. [5]

Next, petitioner would impress on us the need to adjust the purchase price of the spouses house and lot in
view of the change in the final cost of construction. If petitioner failed to factor this increase in the cost of
construction in the purchase price of the subject house and lot, it has nobody to blame but itself and it alone
should suffer the loss. To be sure, given the expertise of its technical people, it has no reason to be
shortsighted. In any event, our law on contract does not excuse a party from specifically performing his
obligation on the ground that he made a bad business judgment.

Thus, on February 7, 1991, petitioner Dino, and Angelito B. Cruz, Vice-President for Finance and
Administration, signed a Memorandum which reads as follows:
This will confirm your company franchise on all AFPSLAI business with Professional Academic Plans, Inc.
under the following terms and conditions:

IN VIEW WHEREOF, the petition for review on certiorari is DISMISSED. Cost against
petitioner.chanrobles.com : virtual law library

1.

Your franchise commission shall remain at 2% excluding Entrance and Service Fees of the
first year premium for as long as you are connected with the company at whatever
capacity.

2.

This franchise is not transferable.

SO ORDERED.
[G.R. No. 148599. March 14, 2005]
PROFESSIONAL ACADEMIC PLANS, INC., FRANCISCO COLAYCO and BENJAMIN DINO, petitioners,
vs. DINNAH L. CRISOSTOMO, respondent.
DECISION
CALLEJO, SR., J.:

For your guidance.


(Sgd.)
BENJAMIN S. DINO

Before us is a petition for review of the Decision [1] of the Court of Appeals (CA) affirming the decision of
the Regional Trial Court in Civil Case No. 93-197, and its Resolution denying the motion for reconsideration
thereof filed by petitioner Professional Academic Plans, Inc. (PAPI).

(Sgd.)
ANGELITO B. CRUZ[6]

Crisostomo received her 2% commission until October 1991. [7] In the meantime, Col. Victor M.
Punzalan succeeded Col. Noe S. Andaya as President of the AFPSLAI. [8] In a Letter dated December 16,
1991, Col. Punzalan informed PAPI of the AFPSLAIs decision to review the 1988 MOA.
As an aftermath of the negotiation, petitioner PAPI and the AFPSLAI executed a MOA in April 1992,
amending their prior MOA.[9]

The Antecedents

Respondent Dinnah L. Crisostomo was the PAPI District Manager for Metro Manila. As such officer,
she did not receive any salary but was entitled to a franchise commission equivalent to 10% of the payments
on remittances of clients whose contracts or agreements had been negotiated by her, for and in behalf of
PAPI. She was later promoted as Regional Manager.
On May 17, 1988, petitioner PAPI wrote Col. Noe S. Andaya, the President of the Armed Forces of the
Philippines Savings and Loan Association, Inc. (AFPSLAI) offering an Academic Assistance Program for its
members, their children and dependents.
Noel Rueda, a sales consultant of petitioner PAPI, initiated negotiations for the sale of pre-need
educational plans under the said program with the AFPSLAI. However, before an agreement was reached,
Ruedas services were terminated. Respondent Crisostomo, as the district manager and the immediate
supervisor of Rueda, continued the negotiation of the account together with Guillermo R. Macariola, the
Assistant Vice-President for Sales.[2] The AFPSLAI agreed to the proposal.
On November 9, 1988, the AFPSLAI and PAPI executed a Memorandum of Agreement (MOA) [3] in
connection with scholarship funding agreements to be entered into by PAPI and the AFPSLAI members.
These agreements shall then embody the provisions of the Professional Academic Program Agreement. The
parties agreed that all support services would be provided by PAPI and that any amendments and/or
modifications to the MOA would be effective only upon approval of the parties thereto.
By then, Rueda was no longer connected with the petitioner corporation, hence, was disqualified to
receive the franchise commission. Thus, the said commission was offered to Macariola who, however,
declined and waived his right thereto in favor of respondent Crisostomo, Ruedas immediate supervisor. The
Executive Committee of petitioner PAPI agreed to give the franchise commission to respondent Crisostomo. [4]
Initially, respondent Crisostomo received the 10% franchise commission from December 1988 until
April 1989. Later, upon the instance of petitioner Benjamin Dino, then Assistant Vice-President for Marketing,
respondent Crisostomos franchise commission was reduced to 5% to support the operational expenses of

The AFPSLAI resumed its remittances of the installment payments of its members to petitioner PAPI in
June 1992.[10] This time, however, Crisostomo was not paid her commission. In an Inter-Office
Memorandum[11] dated June 1, 1992, respondent Crisostomos franchise commission on sales transacted with
the AFPSLAI was terminated, for the following reasons: (1) the new AFPSLAI management cancelled the old
MOA in October 1991 due to various anomalies and the misrepresentation committed by PAPIs sales force;
(2) the new MOA is largely due to managements effort; hence, no franchise would be granted to any sales
associates; and (3) the franchise guidelines as per the Memorandum dated November 1988 prescribed that in
order to maintain her franchise, 100 new paid plans should be completed on a month to month basis and
respondent Crisostomo was not able to meet these parameters for the period of November 1991 to May 1992.
Nonetheless, respondent Crisostomo insisted on the release of her 2% franchise commission. [12] She
first approached her immediate supervisor, Mrs. Editha Bayoneta, the Senior Assistant Vice-President, but to
no avail. She then went to petitioner Dino, who allegedly threatened her with termination if she persisted with
her demand. Unfazed, she sought a dialogue with the President himself, petitioner Francisco Colayco. They,
however, failed to arrive at a settlement. [13] On July 6, 1992, respondent Crisostomo sent a demand letter to
petitioner PAPI. The latter informed her that it could not accede to her demand for the reasons stated in the
Inter-Office Memorandum dated June 1, 1992.
Thereafter, Crisostomo again approached Colayco who advised her to make a formal proposal. She
complied and submitted a letter [14] on August 13, 1992 where she made the following proposal:
Option 1: That I am willing to settle for a P5 Million amount settlement and an immediate irrevocable
resignation from your good company,
Option 2: That the 2% franchise fee/commission be retained even if and when the undersigned is no longer
connected with Professional Group, Inc. for as long as the AFPSLAI is still doing business with the
Professional Group. This is considered as the royalty fee.[15]
However, in a Letter [16] dated August 17, 1992, petitioner Colayco informed the respondent that her
settlement proposal was totally unacceptable and that she was being placed under preventive suspension in

order to abort any untoward reaction resulting from the denial of her request, which may be detrimental to the
companys interest. Worse, she was advised not to come back after the suspension. Thus, her services in the
company were terminated.

any incompatibility with the first MOA that would amount to an implied extinguishment of the latter; nor did the
new MOA use any word suggesting the cancellation of the first. The CA then ruled that what was executed in
1992 was a mere modification of the first MOA.[21]

On January 21, 1993, respondent Crisostomo filed a complaint for sum of money and damages against
petitioners PAPI, Colayco and Dino. She alleged therein that as of October 2, 1992, petitioner PAPIs sales of
pre-need plans to the AFPSLAI amounted to P9,193,367.20; that she was entitled to 2% of such amount or the
sum of P183,867.34 as franchise commission; and that notwithstanding the said franchise, petitioner PAPI
refused to give her the said commissions. She, likewise, prayed for the grant of moral and exemplary
damages, plus attorneys fees.[17]

The CA further held that the fact that military and political support intervened in facilitating the revival of
the AFPSLAI account did not diminish the respondents right to the franchise commission, considering that it
was awarded to her by the executive committee for successfully initiating the deal with the AFPSLAI in 1988.

The petitioners averred in their answer to the complaint that Crisostomo was not entitled to the
franchise commission because she did not participate in the execution of the 1988 MOA. They pointed out that
under the December 1989 company guidelines, a franchise holder shall be maintained only when 100 new
paid plans are completed on a month-to-month basis. They argued that since respondent Crisostomo was
unable to meet this requirement for the period of November 1991 to May 1992, her franchise was terminated.
The petitioners also claimed that the AFPSLAI did not resume payments in 1992 but entered into a new MOA
after it undertook new negotiations. They maintained that under the new MOA, no one is entitled to a
franchise, much less respondent Crisostomo. [18]
The petitioners adduced testimonial evidence to show that respondent Crisostomo had no participation
whatsoever in the negotiations which culminated in the execution of the two MOAs between petitioner PAPI
and the AFPSLAI. Petitioner Dino testified that before respondent Crisostomo became the regional manager,
she was not an employee of PAPI. According to him, after the termination of Ruedas employment for cause,
the franchise commission should revert back to petitioner PAPI as a rule. While the Executive Committee
agreed to award the commission, it agreed to give respondent Crisostomo only a 5% commission, which was
reduced to 2% until June 1992 under the 1992 MOA. Moreover, Crisostomo had no participation whatsoever in
the negotiations of the two agreements.
After due proceedings, the trial court rendered a Decision on November 20, 1997, the dispositive
portion of which reads:
Premises considered, judgment is hereby rendered in favor of the plaintiff and as against defendants.
Wherefore, defendants are hereby ordered to release to plaintiff:
1.

the sum of one hundred eighty-three thousand eight hundred sixty-seven thousand and
twenty-five centavos (P183,867.25) which constitutes her commission from the AFPSLAI
contract as of October 1992, and the sum equivalent to 2% of all future remittances by
AFPSLAI to defendant PAPI;

2.

moral damages in the amount of P200,000.00;

3.

exemplary [damages] of P50,000.00;

4.

attorneys fees of P50,000.00;

5.

cost of suit.

SO ORDERED.[19]
The petitioners appealed the decision to the CA which rendered judgment [20] on August 31, 2000
affirming in toto the decision of the trial court.

The Ruling of the Court of Appeals

According to the CA, the letter of Col. Punzalan did not indicate any intention to abrogate the first MOA.
At most, it merely suspended the acceptance of the application for pre-need plans while a thorough review of
the terms and conditions of the first MOA was being made. The CA held that the second MOA did not disclose

[22]

The CA ruled that the requirement of completing 100 new plans monthly as a condition for a franchisee
to be entitled to the commission was superseded by the Memorandum dated February 7, 1991, which reduced
the commission to 2% from the earlier 10%. Respondent Crisostomo was entitled to receive such reduced
commission as long as she was connected with the petitioner corporation in whatever capacity. Moreover,
assuming that such condition was still in effect, its non-fulfillment from November 1991 to May 1992 could not
be imputed to the respondent since it was brought about by Col. Punzalans order to suspend the acceptance
of plan applications pending a review of the first MOA.[23]
The CA found that the award of moral and exemplary damages, attorneys fees and the costs of the
suit, in favor of the respondent, was fully supported by the evidence on record and was justified, in light of the
petitioner corporations wanton disregard of respondents claim for her franchise commission. [24]
On June 13, 2001, the CA denied the petitioners motion for reconsideration for lack of merit. Hence,
they filed this petition for review on certiorari.

The Present Petition

The petitioners submit the following issues for our consideration:


A)

WHETHER OR NOT THE OLD MEMORANDUM OF AGREEMENT HAD BEEN


CANCELLED AND RESCINDED BY AFPSLAI;

B)

WHETHER OR NOT RESPONDENT IS ENTITLED TO THE FRANCHISE FEE OR


COMMISSION UNDER THE NEW MEMORANDUM OF AGREEMENT UNDER WHICH
SHE HAD NO PARTICIPATION WHATSOEVER IN THE NEGOTIATION AND
EXECUTION;

C)

WHETHER OR NOT PETITIONERS, IN DENYING RESPONDENT'S CLAIM, HAVE


COMMITTED ACTS THAT RENDER THEM LEGALLY LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES AND COST OF SUIT.[25]

Primarily, the petitioners assert that the respondent is not entitled to a franchise commission. They aver
that the respondent did not participate in initiating, conceptualizing, and negotiating the first MOA with the
AFPSLAI, except that she was present during its signing. The franchise commission for the AFPSLAI account
under the old MOA should have been granted to Noel Rueda, who initiated and conceptualized the
transaction. The petitioners maintain that the franchise commission was only awarded to the respondent
because those who were entitled to it were disqualified to be franchise holders Rueda was disqualified for
being no longer connected with the petitioner company, while Macariola was disqualified for being an
employee.[26]
Assuming that the respondent was entitled to the franchise commission under the old MOA, the
petitioners argue that such privilege was already extinguished, considering that the old MOA was cancelled by
the AFPSLAI thru the Letter dated December 16, 1991. They maintain that in writing the said letter, Col.
Punzalan intended to abrogate the old MOA and not merely suspend the same, otherwise, the intention to
enter into a new agreement mutually beneficial to both parties would not have been mentioned therein.
[27]
They conclude that since there has already been an express cancellation of the old MOA, there is no longer
a need to delve into the issue of whether the new MOA declared in unequivocal terms that the old MOA was
being cancelled, or whether the new MOA is incompatible with the old one. [28]
The petitioners point out that the respondent had no participation whatsoever in the negotiation or
execution of the new MOA. Considering this and the fact that the old MOA had been duly cancelled, the

respondent, therefore, had no right to the franchise commission on the AFPSLAI account under the new MOA.
[29]

The petitioners assert that the award of moral and exemplary damages and attorneys fees has no
basis since they did not act in bad faith in denying the respondents claim. [30]
In her Comment on the petition, the respondent counters that regardless of the execution of the new
MOA and her non-participation in its negotiation and execution, her right to the commissions from all sales
emanating from the AFPSLAI transactions subsists as long as she remained connected with PAPI. She
asserts that the petitioners are now in estoppel to question the grant of her commission since it was granted
through the petitioner corporations authority and it was reduced into writing. [31]

Benefits to accrue directly to the member and


the designated heirs

IMPLEMENTATION

In their Reply, the petitioners stress that the respondents entitlement to the commission was not
absolute. It was subject to certain conditions, i.e., the fact that the respondent must be connected with the
company in order to be entitled to it, and that the old MOA must remain effective, since it was the basis for the
grant of the commission. With its cancellation, the right of respondent to the commission, likewise, ceased to
exist. Without the new MOA, there would no longer be any applications for academic plans from the AFPSLAI
and, consequently, no commission to be earned. [32]

Benefits to accrue directly to the m


designated heirs

IMPLEMENTATION

Assistance by PAPI to AFPSLAI in terms of


support services

Putting up of an extension office n


building at the expense of PAPI

Creation of a Committee to supervise the


initial implementation of the program

Support and services by PAPI in


of the program

The Ruling of the Court

Rule 45 of the Rules of Court provides that only legal issues may be raised. Factual issues are beyond
the province of the Supreme Court in a petition for review, for it is not the Courts function to weigh the
evidence all over again.[33] While the Court may, in exceptional cases, resolve factual issues, the petitioners
herein failed to establish any such exceptional circumstances. Moreover, it is doctrinal that findings of facts of
the CA upholding those of the trial court are binding upon the Supreme Court. [34]

PAYMENT and COLLECTION

Even after a review of the factual issues raised by the petitioners, we find and so rule that the CA was
correct in declaring that the first MOA had not been cancelled, but was merely modified by the second MOA.
A reading of the letter of Col. Punzalan to the petitioner corporation indicates that it merely signified the
suspension of the acceptance of new applications under the first MOA, until such time that a thorough study
was undertaken, and a new agreement mutually beneficial to both parties was entered into. By his letter, Col.
Punzalan did not unilaterally cancel or rescind the first MOA. Indeed, the petitioners failed to adduce a morsel
of evidence to prove that AFPSLAI had agreed to such cancellation or rescission of the first MOA. It bears
stressing that abandonment of contract rights requires proof of actual intent to abandon. [35]
Once a contract is entered into, no party can renounce it unilaterally or without the consent of the other.
This is the essence of the principle of mutuality of contracts entombed in Article 1308 [37] of the Civil Code.
To effectuate abandonment of a contract, mutual assent is always required. [38] The mere fact that one has
made a poor bargain may not be a ground for setting aside the agreement. [39]

PAYMENT and COLLECTION

Financing of the 1st annual payment by


AFPSLAI in the form of educational loan to the
member

Financing in the form of a 5-year


member equivalent to the Gross C
(GCP) of the plan

AFPSLAI as the authorized collecting agent of


monthly installments of the members

Schedule of drawing out the loan


years

Remittance of collections to the PAPI from the


2nd year until the plan is fully paid

Direct payment to PAPI of the 1st year


assistance granted by AFPSLAI to the
member

[36]

- 20% of GCP upon submission


documentation by PAPI an
the loan

- 80% of the GCP to be drawn


monthly installments to sta
AFPSLAI of the 13thmonthl
the member

As can be gleaned from the second MOA, the parties merely made substantial modifications to the first
MOA, and agreed that only those provisions inconsistent with those of the second were considered rescinded,
modified and/or superseded.[40]
As graphically shown below, the parties agreed to continue with the implementation of the Academic
Assistance Program under the acronym LOVES (Loans to Offset Very Expensive Schooling) and to continue
implementing the same. The rights and obligations of the parties under the first MOA were maintained albeit
with modifications, to wit:

1988 MOA

BENEFITS TO AFPSLAI

47.5% of the net Initial Cash Brought-In of all


the 1st year assistance

53.5% out of the 20% of the GCP


and discount

5% of all total collections from the 2nd year up


to the 5th year

5% out of the 80% of the GCP as

1992 MOA

IN GENERAL

BENEFITS TO AFPSLAI

Agreement between PAPI and AFPSLAI to


implement the terms and conditions of the
Academic Assistance Program

IN GENERAL

Agreement between AFPSLAI and the PAPI to


implement the terms and conditions of the Loans to
Offset Very Expensive Schooling (LOVES) Program

IN CASE OF NON-PAYMENT

AFPSLAI to become the receiver of the


contract in case of failure to pay 3 monthly
amortizations

AFPSLAI to acquire all interests from the


contract in case the 1st year assistance is not
fully paid by the member

IN CASE OF NON-PAYMENT

modified, or superseded.

AFPSLAI to automatically become the receiver of


the contract in case of failure to pay the monthly
The fact that the respondent did not participate in the negotiations of the new MOA is of no moment. As
amortization(s), with dispositive right
over
thethe
plan
culled
from
petitioners testimonial evidence, the franchise commission was awarded as an incentive to the
one who initiated and successfully negotiated the AFPSLAI account within a certain period. [41] The franchise
commission was granted subject to two conditions only: (1) that the respondent must remain connected with
the company, and (2) that it is not transferable. At the time the new MOA was executed, the respondent was
still connected with the petitioner corporation; hence, she was still entitled to her commission. Even with the
modification of the first MOA by the second one, the respondent had the right to continue receiving her
franchise commission from the petitioner corporation.
We agree with the respondent that the petitioners are now in estoppel to question her entitlement to the
franchise commission under the old MOA. It must be noted that from December 1988 until October 1991 the
respondent was continuously receiving her franchise commission from the petitioner corporation. It was only
when the remittances for AFPSLAI were suspended that the respondent stopped receiving her commission.
Due to fraud, forgery or misrepresentation of PAPI
On the issue of damages, we rule for the petitioners. Moral damages are recoverable for breach of
personnel
contract where the breach was wanton, reckless, malicious or in bad faith, oppressive or abusive. [42] However,
moral damages are improperly awarded, absent a specific finding and pronouncement from the trial court that
acted in such manner.[43] In the instant case, despite the trial courts award of moral damages, it did
- AFPSLAI to act on it and notifypetitioners
PAPI
not make any pronouncement as to the basis of such award. Therefore, the award of moral damages must be
deleted.
- Members loan to be deducted from the amounts
due to PAPI, or to be billed to PAPI,As
in a
case
consequence, the award for exemplary damages is also vacated. Exemplary damages are not
the former is insufficient
recoverable as a matter of right, and although such damages need not be proved, the plaintiff must first show
that he is entitled to moral, temperate or compensatory damages before a court can favorably consider an
award of exemplary damages.[44] In this case, there was no finding that the respondent is entitled to any such
- no rebate on the service fee and
discounthence, no exemplary damages may be awarded. Finally, we also vacate the award of attorneys
damages;
fees since the trial court did not make any finding that any of the instances enumerated in Art. 2208 of the Civil
Code exists.
Due to death of either the member or beneficiary

IN CASE OF CANCELLATION

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION. The awards
moral
- the plan shall be deemed fullyfor
paid
for and exemplary damages and attorneys fees are DELETED. No pronouncement as to costs.
SO ORDERED.
- to be acted upon by PAPI
- outstanding accounts to be deducted from
AFPSLAIs future releases or to be billed to
PAPI subject to certain conditions.

MISCELLANEOUS

AFPSLAI to be free from any legal implication


that may arise as to the agreement between
the member and PAPI

Effectivity of the MOA immediately upon


signing

Amendments and modifications to become


effective only upon approval of the parties

MISCELLANEOUS

AFPSLAI to be free from any liability arising


between the member and PAPI

Effectivity of the MOA immediately upon signing

Amendments and modifications to become


effective only upon approval of the parties

Prior inconsistent agreements deemed rescinded,

G.R. No. L-11318

October 26, 1918

THE MANILA RAILROAD CO., plaintiff-appellant,


vs.
LA COMPAIA TRANSATLANTICA, defendant-appellee. and
THE ATLANTIC GULF & PACIFIC CO., defendant-appellant.
William A. Kincaid & Thomas L. Hartigan for plaintiff-appellant.
Lawrence, Ross & Block for defendant-appellant Atlantic, Gulf & Pacific Co.
Gilbert, Cohn & Fisher for defendant-appellee Compaia Transatlantica.

STREET, J.:
In March 1914, the steamship Alicante, belonging to the Compaia Transatlantica de Barcelona, arrived at
Manila with two locomotive boilers aboard, the property of The Manila Railroad Company. The equipment of
the ship for discharging heavy cargo was not sufficiently strong to handle these boilers, and it was therefore
necessary for the Steamship Company to procure assistance in the port of Manila.
The Atlantic, Gulf and Pacific Company (hereafter called the Atlantic Company) was accordingly employed by
the Steamship Company, as having probably the best equipment for this purpose of any contracting company
in the city. The service to be performed by the Atlantic Company consisted in bringing it s floating crane
alongside theAlicante, lifting the boilers our of the ship's hold, and transferring them to a barge which would be
placed ready to receive them.
Upon the arrival of the Alicante, the Atlantic company sent out its crane in charge of one Leyden. In preparing
to hoist the first boiler the sling was unfortunately adjusted near the middle of the boiler, and it was thus raised
nearly in an horizontal position. The boiler was too long to clear the hatch in this position, and after one end of
the boiler had emerged on one side of the hatch, the other still remained below on the other side. When the
boiler had been gotten into this position and was being hoisted still further, a river near the head of the boiler
was caught under the edge of the hatch. The weight on the crane was thus increased by a strain estimated at
fifteen tons with the result that the cable of the sling parted and the boiler fell to the bottom of the ship's hold.
The sling was again adjusted to the boiler but instead of being placed near the middle it was now slung nearer
one of the ends, as should have been done at first. The boiler was gain lifted; but as it was being brought up,
the bolt at the end of the derrick book broke, and again the boiler fell.
The crane was repaired and the boiler discharged, but it was found to be so badly damaged that it had to be
reshipped to England where it was rebuilt, and afterwards was returned to Manila. The Railroad Company's
damage by reason of the cost of repairs, expenses and loss of the use of the boiler proved to be P23,343.29;
and as to the amount of the damage so resulting there is practically no dispute. To recover these damages the
present action was instituted by the Railroad Company against the Steamship Company. the latter caused the
Atlantic Company to be brought in as a codefendant, and insisted that whatever liability existed should be
fixed upon the Atlantic Company as an independent contractor who had undertaken to discharge the boilers
and had become responsible for such damage as had been done.
The judge of the Court of First Instance gave judgment in favor of the plaintiff against the Atlantic Company,
but the absolved the Steamship Company from the complaint. The plaintiff has appealed from the action of the
court in failing to give judgment against the Steamship company, while the Atlantic company has appealed
from the judgment against it.
The mishap was undoubtedly due, as the lower court found, to the negligence of one Leyden, the foreman in
charge; and we may add that the evidence tends to show that his negligence was of a type which may without
exaggeration be denominated gross. The sling was in the first place improperly adjusted, and the attention of
Leyden was at once called to this by the man in charge of the stevedores. Nevertheless he proceeded and,
instead of lowering the boiler when it was seen that it could not readily pass through the hatch, he attempted

to force it through; and the ship's tackle was brought into use to assist in this maneuver. The second fall was, it
appears, caused by the weakening of the bolt at the head of the derrick boom, due to the shock incident to the
first accident. This defect was possibly such as not to be patent to external observation but we are of the
opinion that a person of sufficient skill to be trusted with the operation of machinery of this character should be
trusted with the operation of machinery of this character should have known that the crane had possibly been
weakened by the jar received in the first accident. The foreman was therefore guilty of negligence in
attempting to hoist the boiler the second time under the conditions that had thus developed. It should be noted
that the operation was at all its states entirely under Leyden's control; and, although in the first lift he utilized
the ship's tackle to aid in hoisting the boiler, everything was done under his immediate supervision. There is no
evidence tending to show that the first fall of the boiler might have been due to any hidden defect in the lifting
apparatus; and if it had not been for the additional strain caused by one end of the boiler catching under the
hatch, the operation would doubtless have been accomplished without difficulty. The accident is therefore to
be attributed to the failure of Leyden to exercise the degree of care which an ordinarily competent and prudent
person would have exhibited under the circumstances which then confronted him. This conclusion of fact
cannot be refuted; and, indeed, no attempt is here made by the appellant to reverse this finding of the trial
court.
Three questions are involved in the case, namely: (1) Is the steamship company liable to the plaintiff by
reason of having delivered the boiler in question in a damaged condition? (2) Is the atlantic company liable to
be made to respond to the steamship company for the amount the latter may be required to pay to the plaintiff
for the damage done? Is the Atlantic company directly liable to the plaintiff, as the trial court held?
It will be observed that the contractual relation existed between the railroad company and the steamship
company; and the duties of the latter with respect to the carrying and delivery of the boilers are to be
discovered by considering the terms and legal effect of that contract. A contractual relation also existed
between the Steamship company and the atlantic company; and the duties owing by the latter to the former
with respect to the lifting and the transferring of the boiler are likewise to be discovered by considering the
terms and legal effect of the contract between these parties. On the other hand, no contractual relation existed
directly between the Railroad Company and the Atlantic Company.
We are all agreed, that, under the contract for transportation from England to Manila, the Steamship company
is liable to the plaintiff for the injury done to the boiler while it was being discharged from the ship. The
obligation to transport the boiler necessarily involves the duty to convey and deliver it in a proper condition
according to its nature, and conformably with good faith, custom, and the law (art. 1258, Civ. Code). The
contract to convey import the duty to convey and deliver safely and securely with reference to the degree of
care which, under the circumstances, are required by law and custom applicable to the case. The duty to carry
and to carry safely is all one.
Such being the contract of the Steamship Company, said company is necessarily liable, under articles 1103
and 1104 of the Civil Code, for the consequences of the omission of the care necessary to the proper
performance of this obligation. The contact to transport and deliver at the port of Manila a locomotive boiler,
which was received by it in proper condition, is not complied with the delivery at the port of destination of a
mass of iron the utility of which had been destroyed.
Nor does the Steamship Company escape liability by reason of the fact that it employed a competent
independent contractor to discharge the boilers. The law applicable to this feature of the case will be more fully
discussed further on in this opinion. At this point we merely observe that in the performance of this service the
Atlantic company, and it has never yet been held that the failure to comply with a contractual obligation can be
excused by showing that such delinquency was due to the negligence of one to whom the contracting party
had committed the performance of the contract.
Coming to the question of the liability of the Atlantic Company to respond to the Steamship Company for the
damages which the latter will be compelled to pay to the plaintiff, we observe that the defense of the Atlantic
company comprises two contentions, to-wit, first, that by the terms of the engagement in accordance with
which the Atlantic company agreed to render the service, all risk incident to the discharge of the boilers was
assumed by the steamship company, and secondly, that the atlantic company should be absolved under the
last paragraph of article 1903 of the civil code, inasmuch as it had used due care in the selection of the
employee whose negligent act caused the damage in question.

At the hearing in first instance the Atlantic Company introduced four witnesses to prove that at the time said
company agreed to lift the boilers out of the Alicante, as upon other later occasions, the steamship company
not be responsible for damage. The vice-president of the atlantic company testified that hew as present upon
the occasion when the agent of the Steamship company made arrangements for the discharge of the boilers
and he heard the conversation between the president and said agent. According to this witness the substance
of the agreement was that, while the Atlantic Company would use all due care in getting the boilers out, no
responsibility was assumed for damage done either to ship or cargo. The intermediary who acted as agent for
the Steamship Company in arranging for the performance of this service stoutly denied that any such terms
were announced by the officials or anybody else connected with the Atlantic Company at any time while the
arrangements were pending.
In the conflict of the evidence, we recognize that, by a preponderance of the evidence, some reservation or
other was made as to the responsibility of the Atlantic Company; was made to the responsibility of the atlantic
company and though the agent who acted on behalf of the steamship company possibly never communicated
this reservation to his principal, the latter should nevertheless be held bound thereby. It thus becomes
necessary to discover what the exact terms of this supposed reservation were.
We think that we must put aside at once the words of studies precision with which the president of the Atlantic
company could exclude the possibility of any liability attaching to his company, though we may accept his
statement as showing that the excepted risk contemplated breakage of the lifting equipment. There is
undoubtedly a larger element of truth in the more reasonable statement by the vice-president of the company.
According to this witness the contract combined two features, namely, an undertaking on the part of the
Atlantic Company to use all due care, combined with a reservation concerning the company's liability for
damage.
The Atlantic Company offered in evidence, a number of letters which had been written by it at different times,
extending over a period of years, in response to inquiries made by other firms and person in Manila
concerning the terms upon which the Atlantic Company was not accustomed to assume the risk incident to
such work and required the parties for whom the service might be rendered either to carry the risk or insure
against it. One such letter, dated nearly four years prior to the occurrence such letter, dated nearly four years
prior to the occurrences which gave rise to this lawsuit, was addressed to the Compaia Transatlantica de
Barcelona one of the defendants in this case. It was stated in this communication that the company's derrick
would be subject to inspection prior to making the lift but that the Atlantic Company would not assume
responsibility for damage that might occur either to ship or cargo from any whatsoever. The steamship
company rejected the services of the Atlantic company in that instance as being too onerous.
The letters directed to this parties, it may observed, would not, generally speaking, be admissible as against
the plaintiff for the purpose of proving that a similar reservation was inserted in the contract with it on this
occasion; but if knowledge of such custom is brought home to the steamship company, the fact that such
reservation was commonly made is of some probative force. Reference to a number of these letters will show
that no particular formula was used by the Atlantic Company in defining its exemption, and the tenor of these
various communications differs materially. We think, however, that some of the letters are of value as an aid in
interpreting the reservation which the Atlantic Company may have intended to make. We therefore quote from
some of these letters as follows:
We will use our best endeavors to carry out the work successfully and will ask you to inspect our
plant but we wish it distinctly understood that we cannot assume responsibility for damage which
may occur . . . while the lift is being made. (To Rear Admiral, U.S.N., Oct. 4, 1909.)
Our quotation is based on the understanding that we assume no responsibility from any accident
which may happen during our operations. We always insert this clause as precautionary measure,
but we have never had to avail ourselves of it as yet and do not expect to now. (To "El Varadero de
Manila," Nov. 1, 1913.)
As is customary in these cases, we will use all precaution as necessary to handle the gun in a
proper manner. Our equipment has been tested and will be again, before making the lift, but we do
not assume any responsibility for damage to the gun ship, or cargo. (To Warner, Barnes & Co.,
June 7, 1909.)

The idea expressed in these letters is, we think entirely consonant with the interpretation which the vicepresident of the company placed upon the contract which was made with the steamship company upon this
occasion, that is, the company recognized its duty to exercise due supervisory care; and the exemption from
liability, whatever may have been its precise words had reference to disasters which might result from some
inherent hidden defect in the lifting apparatus or other unforeseen occurrence not directly attributable to
negligence of the company in the lifting operations. Neither party could have supposed for a moment that it
was intended to absolve the Atlantic Company from its duty to use due care in the work.
It is not pretended that negligence on the part of the Atlantic Company or its employees was expressly
included in the excepted risk, and we are of the opinion that the contract should not be understood as covering
such an exemption. It is a rudimentary principle that the contractor is responsible for the work executed by
persons whom he employees in its performance, and this expressed in the Civil Code in the form of a positive
rule of law (art. 1596). It is also expressly declared by law that liability arising from negligence is demandable
in the fulfillment of all kinds of obligations (art. 1103, Civil Code). Every contract for the presentation of service
therefore has annexed to it, as an inseparable implicit obligation, the duty to exercise due care in the
accomplishment of the work; and no reservation whereby the person rendering the services seeks to escape
from the consequences of a violation of this obligations can viewed with favor.
Contracts against liability for negligence are not favored by law. In some instances, such as
common carriers, they are prohibited as against public policy. In all cases such contracts should be
construed strictly, with every intendment against the party seeking its protection. (Crew vs.
Bradstreet Company, 134 Pa. St., 161; 7 L. R. A., 661; 19 Am. St. Rep., 681.)
The strictness with which contracts conferring such an unusual exemption are construed is illustrated in Bryan
vs. Eastern & Australian S. S. Co. (28 Phil. Rep., 310). The decision in that case is not precisely applicable to
the case at bar, since the court was there applying the law of a foreign jurisdiction, and the question at issue
involved a doctrine peculiar to contracts of common carriers. Nevertheless the case is instructive as illustrating
the universal attitude of courts upon the right of a contracting party to stipulate against the consequences of
his own negligence. It there appeared that the plaintiff had purchased from the defendant company a ticket for
the transportation of himself and baggage from Hongkong to Manila By the terms of the contract printed in
legible type upon the back of the ticket it was provided that the company could not hold itself responsible for
any loss or damage to luggage, under any circumstances whatsoever, unless it had been paid for as freight. It
was held that this limitation upon the liability of the defendant company did not relieve it from liability of the
defendant company for negligence of its servants by which the baggage of the passenger was lost. Said the
court: Ordinarily this language would seem to be broad enough to cover every possible contingency, including
the negligent act of the defendant's servants. To so hold, however, would run counter to the established law of
England and the United States on that subject. The court then quoted the following proposition from the
decision of the King's Bench Division in Price & Co. vs. Union Lighterage Co. ([1903], 1 K. B. D., 750, 754):
"An exemption in general words not expressly relating to negligence, even though the words are
wide enough to include loss by negligence or default of carriers' servants' must be construed as
limiting the liability of the carrier as assurer, and not as relieving from the duty of the exercising
reasonable skill and care."
Even admitting that, generally speaking, a person may stipulate against liability for the consequences of
negligence, at least in those cases where the negligence is not gross or willful, the contract conferring such
exemption must be so clear as to leave no room for the operation of the ordinary rules of liability consecrated
by experience and sanctioned by the express provisions of law.
If the exemption should be understood in the scene that counsel for the Atlantic Company now insists it should
bear, that is, as an absolute exemption from all responsibility for negligence, it is evident that the agreement
was a most inequitable and unfair one, and hence it is one that the steamship company can not be lightly
assumed to have made. Understood in that sense it is the equivalent of licensing the Atlantic Company to
perform its tasks in any manner and fashion that it might please, and to hold it harmless from the
consequences.
It is true that, in these days insurance can usually be obtained in the principal ports of commerce by parties
circumstanced as was the steamship company in the case now before us. But the best insurance against

disasters of this kind is found in the exercise of due care; and the chief incentive to the exercise of care is a
feeling of responsibility on the part of him who undertakes the work. Naturally the courts are little inclined to
aid tin the efforts of contractors to evade this responsibility.
There may have been in the minds of the officials of the Atlantic Company an idea that the promise to use due
care in the lifting operations was not accompanied by a legal obligation, such promise being intended merely
for its moral effect as an assurance to the steamship company that the latter might rely upon competence and
diligence of the employees of the Atlantic Company to accomplish the work in a proper way. The contract can
not be permitted to operate in this one-sided manner. The two features of the engagement, namely, the
promise to use due care and the exemption from liability for damage should be so construed as to give some
legal effect to both. The result is, as already indicated, that the Atlantic Company was bound by its undertaking
to use due care and that he exemption was intended to cover accidents use to hidden defects in the apparatus
or other unforeseeable occurrences not having their origin in the immediate personal negligence of the party in
charge of the operations.
We now proceed to consider the contention that the Atlantic Company under the last paragraph of article 1903
of the Civil Code, which declares that the liability there referred to shall cease when the persons mentioned
therein prove that they employed all the diligence of a good father of a family to avoid the damage. In this
connection the conclusion of fact must be conceded in favor of the Atlantic Company that it had used proper
care in the selection of Leyden and that , so far as the company was aware, he was a person to whom might
properly be committed the task of discharging the boilers. The answer to the contention, however is the
obligation of the Atlantic Company was created by contract, and article 1903 is not applicable to negligence
arising in the course of the performance of a contractual obligation. Article 1903 is exclusively concerned with
cases where the negligence arises in the absence of agreement.
In discussing the liability of the Steamship Company to the plaintiff Railroad Company we have already shown
that a party is bound to the full performance of his contractual engagements under articles 1101 et seq. of the
Civil Code, and other special provisions of the Code relative to contractual obligations; and if he falls short of
complete performance by reason of his own negligence or that of any person to whom he may commit the
work, he is liable for the damages resulting therefrom. What was there said is also applicable with reference to
the liability of the Atlantic Company upon its contract with the Steamship Company, and the same need not be
here repeated. It is desirable, however, in this connection, to bring out somewhat more fully the distinction
between negligence in the performance of a contractual obligation (culpa contractual) and neligence
considered as an independent source of obligation between parties not previously bound (culpa aquiliana).
This distinction is well established in legal jurisprudence and is fully recognized in the provisions of the Civil
Code. As illustrative of this, we quote the following passage from the opinion of this Court in the well-known
case of Rakes vs. Atlantic, Gulf & Pacific Co. (7 Phil. Rep., 359, 365), and in this quotation we reproduce the
first paragraph of here presenting a more correct English version of said passage.
The acts to which these articles are applicable are understood to be those not growing out of
preexisting duties of the parties to one another. But where relations already formed give arise to
duties, whether springing form contract or quasi-contract, then breaches of those duties are
subject to articles 1101, 1103, and 1104 of the same code. A typical application of this distinction
may be found in the consequences of a railway accident due to defective machinery supplied by
the employer. His liability to his employee would arise out of the contract for passage, while that of
the injured by-stander would originate in the negligent act itself. This distinction is thus clearly set
forth by Manresa in his commentary on article 1093:
"We see with reference to such obligations, that culpa, or negligence, may be
understood in two different senses, either as culpa, substantive and independent,
which of itself constitutes the source of an obligation between two person not formerly
bound by any other obligation; or as an incident in the performance of an obligation
which already existed, and which increases the liability arising from the already existing
obligation."
Justice Tracey, the author of the opinion from which we have quoted, proceeds to observe that Manresa, in
commenting on articles 1101 and 1104, has described these two species of negligence as contractual and

extra-contractual, the latter being the culpa aquiliana of the Roman law. "This terminology is unreservedly
accepted by Sanchez Roman (Derecho Civil, fourth section, chapter XI, article II, No. 12), and the principle
stated is supported by decisions of the supreme court of Spain,. among them those of November 29, 11896
(80 Jurisprudencia Civil, No. 151), and June 27, 1894 (75 Jurisprudencia Civil, No. 182.)"
The principle that negligence in the performance of a contract is not governed by article of the Civil Code but
rather by article 1104 of the same Code was directly applied by this court in the case of Baer Senior & Co.'s
successors vs. Compaa Maritima (6 Phil. Rep., 215); and the same idea has been impliedly if not expressly
recognized in other cases (N. T. Hashim & Co. vs. Rocha & Co., 18 Phil. Rep., 315; Tan Chiong Sian vs.
Inchausti & Co., 22 Phil. Rep., 152).
What has been said suffices in our opinion to demonstrate that the Atlantic Company is liable to the Steamship
Company for the damages brought upon the latter by the failure of the Atlantic company to use due care in
discharging the boiler, regardless of the fact that the damage was caused by the negligence of an employee
who was qualified for the work and who had been chosen by the Atlantic Company with due care.
This brings us to the last question here to be answered, which is, Can the Atlantic Company be held directly
liable to the Railroad Company? In other words, can the judgement entered in the trial court directly in favor of
the plaintiff against the Atlantic Company be sustained? To answer this it is necessary to examine carefully the
legal relations existing between the Atlantic Company and the Railroad Company with reference to this affair;
and we shall for a moment ignore the existence of the contract between the steamship company and the
atlantic company, to which the railroad company was not a party.
Having regard then to the bare fact that the Atlantic Company undertook to remove the boiler from the ship's
hold and for this purpose took the property into its power and control, there arose a duty to the owner to use
due care in the performance of that service and to avoid damaging was obviously in existence before the
negligent act may, if we still ignore the existence of the express contract, be considered as an act done in
violation of this duty.
The duty thus to use due care is an implied obligation, of a quasi contractual nature, since it is created by
implication of liability with which we are here confronted is somewhat similar to that which is revealed in the
case of the depositary, or commodatary, whose legal duty with respect to the property committed to their care
is defined by law even in the absence of express contract; and it can not be doubted that a person who takes
possession of the property of another for the purpose of moving or conveying it from one place to another, or
for the purpose of performing any other service in connection therewith (locatio operis faciendi), owes to the
owner a positive duty to refrain from damaging it, to the same extent as if an agreement for the performance of
such service had been expressly made with the owner. The obligation as if an agreement made with the
owner. The obligation here is really a species of contract re, and it has its source and explanation in vital fact,
that the active party has taken upon himself to do something with or to the property and has taken it into his
power and control for the purpose of performing such service. (Compare art. 1889, Civil Code.)
In the passage which we have already from the decision in the Rakes case this Court recognized the fact that
the violation of a quasi-contractual duty is subject to articles 1101, 1103, 1104 of the Civil Code, and not within
the purview of article 1903. Manresa also, in the paragraph reproduced above is of the opinion that
negligence, considered a substantive and independent source of liability, does not include cases where the
parties are previously bound by any other obligation. Again, it is instructive in this connection to refer to the
contents of article 1103 of the Civil Code, where it is demandable in the fulfillment of all kinds of obligations.
These words evidently comprehend both forms of positive obligations, whether arising from express contract
or from implied contract (quasi contract).
In this connection it is instructive to recall celebrate case of Coggs vs. Bernard (2 Ld. Raym, 909), decided in
the court of the King's Bench of England in the year of 1803. The action was brought by the owner of certain
casks of brandy to recover damages from a person who had undertaken to transport them from one place to
another. It was alleged that in so doing the defendant so negligently and improvidently put then down that one
of the casks was staved and the brandy lost. The complaint did not allege that the defendant was a common
carrier or that he was to be paid for his services. It was therefore considered that the compliant did not state
facts sufficient to support an action for breach of any express contract. This made it necessary for the court to
go back to fundamental principles and to place liability on the ground of a violation of the legal duty incident to

the mere fact of carriage. Said Powell, J.: "An action indeed will not lie for not doing the thing, for want of a
sufficient consideration; but yet if the bailee will take the goods into his custody, he shall be answerable for
them; for the taking of the goods into his custody is his own act." S9 Gould, J.: ". . . any man that undertakes
to carry goods in liable to an action, be he a common carrier or whatever he is, if through his neglect they are
lost or come to any damage: . . . . " Behind these expressions was an unbroken line of ancient English
precedents holding persons liable for damage inflicted by reason of a misfeasance in carrying out an
undertaking. The principle determined by the court in the case cited is expressed in the syllabus in these
words: 'If a man undertakes to carry goods safely and securely, he is responsible for any damage they may
sustain in the carriage through his neglect, though he was not a common carrier and was to have nothing for
the carriage." Though not stated in so many words, this decision recognizes that from the mere fact that a
person takes the property of another into his possession and control there arises an obligation in the nature of
an assumpsit that he will use due care with respect thereto. This must be considered a principle of universal
jurisprudence, for it is consonant with justice and common sense and as we have already seen harmonizes
with the doctrine above deduced from the provisions of the Civil Code.

the Compaia Transatlantica de Barcelona. No express adjudication of costs of either instance will be made.
So ordered.

The conclusion must therefore be that if there had been no contract of any sort between the Atlantic company
and the Steamship Company, an action could have been maintained by the Railroad Company, as owner,
against the Atlantic Company to recover the damages sustained by the former. Such damages would have
been demandable under article 1103 of the Civil Code and the action would not have been subject to the
qualification expressed in the last paragraph of article 1903.
The circumstance that a contract was made between the Atlantic Company and the Steamship company
introduces, however, an important, and in our opinion controlling factor into this branch of the case. It cannot
be denied that the Steamship company has possession of this boiler in the capacity of carrier and that as such
it was authorized to make a contract with Atlantic Company to discharge the same from the ship. Indeed, it
appears in evidence that even before the contract of affreightment was made the Railroad Company was
informed that it would necessary for steamship company to procure the services of some contractor in the port
of Manila to handle the discharge, as the ship's tackle was inadequate to handle heavy cargo. It is therefore to
be assumed that the Railroad Company had in fact assented to the employment of a contractor to perform this
service.
Now, it cannot be admitted that a person who contract to do a service like that rendered by the Atlantic
company in this case incurs a double responsibility upon entering upon performance, namely, a responsibility
to the party with whom he contracted, and another entirely different responsibility to the owner, based on an
implied contract. The two liabilities can not in our opinion coexist. It is a general rule that an implied conract
never arises where an express contract has been made.
If double responsibility existed in such case as this, it would result that a person who had limited his liability by
express stipulation might find himself liable to the owner without regard to the limitation which he had seen fit
to impose by contract. There appears to be no possibility of reconciling the conflict that would be developed in
attempting to give effect to those inconsistent liabilities. The contract which was in fact made, in our opinion,
determine not only the character and extent of the liability of the Atlantic company but also the person or entity
by whom the obligation is eligible. It is of course quite clear that if the Atlantic company had refused to carry
out its agreement to discharge the cargo, the plaintiff could have enforced specific performance and could not
have recovered damages for non-performance. (Art. 1257, Civil Code; Donaldson, Sim & Co. vs. Smith, Bell &
Co., 2 Phil. Rep., 766; Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) In view of the preceding
discussion it is equally obvious that, for lack of privity with the contract, the Railroad Company can have no
right of action to recover damages from the Atlantic Company for the wrongful act which constituted the
violation of said contract. The rights of the plaintiff can only be made effective through the Compaia
Trasatlantica de Barcelona with whom the contract of affreightment was made.
The judgment entered in the Court of First Instance must, therefore be reversed not only with respect to the
judgment entered in favor of the plaintiff directly against the Atlantic company but also with respect to the
absolution of the steamship company and the further failure of the court to enter judgment in favor of the latter
against the Atlantic Company. The Compaa Transatlantic de Barcelona should be and is hereby adjudged to
pay to the Manila Railroad Company the sum of twenty nine thousand three hundred forty three pesos and
twenty nine centavos (P23,343.29) with interest from May 11, 1914, until paid; and when this judgment is
satisfied, theCompaia Transatlantic de Barcelona is declared to be entitled to recover the same amount from
the Atlantic & Pacific Gulf Company, against whom judgment is to this end hereby rendered in favor of

[G.R. No. 118248. April 5, 2000]


DKC HOLDINGS CORPORATION, petitioner, vs. COURT OF APPEALS, VICTOR U. BARTOLOME and
REGISTER OF DEEDS FOR METRO MANILA, DISTRICT III, respondents. francis
DECISION
YNARES_SANTIAGO, J.:
This is a petition for review on certiorari seeking the reversal of the December 5, 1994 Decision of the Court of
Appeals in CA-G.R. CV No. 40849 entitled "DKC Holdings Corporation vs. Victor U. Bartolome, et al.",
[1]
affirming in toto the January 4, 1993 Decision of the Regional Trial Court of Valenzuela, Branch 172, [2] which
dismissed Civil Case No. 3337-V-90 and ordered petitioner to pay P30,000.00 as attorneys fees.
The subject of the controversy is a 14,021 square meter parcel of land located in Malinta, Valenzuela, Metro
Manila which was originally owned by private respondent Victor U. Bartolomes deceased mother,
Encarnacion Bartolome, under Transfer Certificate of Title No. B-37615 of the Register of Deeds of Metro
Manila, District III. This lot was in front of one of the textile plants of petitioner and, as such, was seen by the
latter as a potential warehouse site.
On March 16, 1988, petitioner entered into a Contract of Lease with Option to Buy with Encarnacion
Bartolome, whereby petitioner was given the option to lease or lease with purchase the subject land, which
option must be exercised within a period of two years counted from the signing of the Contract. In turn,
petitioner undertook to pay P3,000.00 a month as consideration for the reservation of its option. Within the
two-year period, petitioner shall serve formal written notice upon the lessor Encarnacion Bartolome of its
desire to exercise its option. The contract also provided that in case petitioner chose to lease the property, it
may take actual possession of the premises. In such an event, the lease shall be for a period of six years,
renewable for another six years, and the monthly rental fee shall be P15,000.00 for the first six years and
P18,000.00 for the next six years, in case of renewal.
Petitioner regularly paid the monthly P3,000.00 provided for by the Contract to Encarnacion until her death in
January 1990. Thereafter, petitioner coursed its payment to private respondent Victor Bartolome, being the
sole heir of Encarnacion. Victor, however, refused to accept these payments. iska

Meanwhile, on January 10, 1990, Victor executed an Affidavit of Self-Adjudication over all the properties of
Encarnacion, including the subject lot. Accordingly, respondent Register of Deeds cancelled Transfer
Certificate of Title No. B-37615 and issued Transfer Certificate of Title No. V-14249 in the name of Victor
Bartolome.
On March 14, 1990, petitioner served upon Victor, via registered mail, notice that it was exercising its option to
lease the property, tendering the amount of P15,000.00 as rent for the month of March. Again, Victor refused
to accept the tendered rental fee and to surrender possession of the property to petitioner.

SECOND ASSIGNMENT OF ERROR


THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE NOTICE OF OPTION MUST BE
SERVED BY DKC UPON ENCARNACION BARTOLOME PERSONALLY.
(C) nigel
THIRD ASSIGNMENT OF ERROR

Petitioner thus opened Savings Account No. 1-04-02558-I-1 with the China Banking Corporation, Cubao
Branch, in the name of Victor Bartolome and deposited therein the P15,000.00 rental fee for March as well as
P6,000.00 reservation fees for the months of February and March.
Petitioner also tried to register and annotate the Contract on the title of Victor to the property. Although
respondent Register of Deeds accepted the required fees, he nevertheless refused to register or annotate the
same or even enter it in the day book or primary register.
Thus, on April 23, 1990, petitioner filed a complaint for specific performance and damages against Victor and
the Register of Deeds,[3] docketed as Civil Case No. 3337-V-90 which was raffled off to Branch 171 of the
Regional Trial Court of Valenzuela. Petitioner prayed for the surrender and delivery of possession of the
subject land in accordance with the Contract terms; the surrender of title for registration and annotation
thereon of the Contract; and the payment of P500,000.00 as actual damages, P500,000.00 as moral
damages, P500,000.00 as exemplary damages and P300,000.00 as attorneys fees.
Meanwhile, on May 8, 1990, a Motion for Intervention with Motion to Dismiss [4] was filed by one Andres
Lanozo, who claimed that he was and has been a tenant-tiller of the subject property, which was agricultural
riceland, for forty-five years. He questioned the jurisdiction of the lower court over the property and invoked the
Comprehensive Agrarian Reform Law to protect his rights that would be affected by the dispute between the
original parties to the case. ella

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE CONTRACT WAS ONE-SIDED
AND ONEROUS IN FAVOR OF DKC.
(D)
FOURTH ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE EXISTENCE OF A REGISTERED
TENANCY WAS FATAL TO THE VALIDITY OF THE CONTRACT.
(E)
FIFTH ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT PLAINTIFF-APPELLANT WAS LIABLE
TO DEFENDANT-APPELLEE FOR ATTORNEYS FEES.[8]

On May 18, 1990, the lower court issued an Order[5] referring the case to the Department of Agrarian Reform
for preliminary determination and certification as to whether it was proper for trial by said court.

The issue to be resolved in this case is whether or not the Contract of Lease with Option to Buy entered into
by the late Encarnacion Bartolome with petitioner was terminated upon her death or whether it binds her sole
heir, Victor, even after her demise.

On July 4, 1990, the lower court issued another Order [6] referring the case to Branch 172 of the RTC of
Valenzuela which was designated to hear cases involving agrarian land, after the Department of Agrarian
Reform issued a letter-certification stating that referral to it for preliminary determination is no longer required.

Both the lower court and the Court of Appeals held that the said contract was terminated upon the death of
Encarnacion Bartolome and did not bind Victor because he was not a party thereto.

On July 16, 1990, the lower court issued an Order denying the Motion to Intervene, [7] holding that Lanozos
rights may well be ventilated in another proceeding in due time.
After trial on the merits, the RTC of Valenzuela, branch 172 rendered its Decision on January 4, 1993,
dismissing the Complaint and ordering petitioner to pay Victor P30,000.00 as attorneys fees. On appeal to the
CA, the Decision was affirmed in toto.
Hence, the instant Petition assigning the following errors:
(A)
FIRST ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE PROVISION ON THE NOTICE TO
EXERCISE OPTION WAS NOT TRANSMISSIBLE.

Article 1311 of the Civil Code provides, as follows"ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he received from the decedent. brnado
xxx

xxx

x x x."

The general rule, therefore, is that heirs are bound by contracts entered into by their predecessors-in-interest
except when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2)
stipulation or (3) provision of law.
In the case at bar, there is neither contractual stipulation nor legal provision making the rights and obligations
under the contract intransmissible. More importantly, the nature of the rights and obligations therein are, by
their nature, transmissible.
The nature of intransmissible rights as explained by Arturo Tolentino, an eminent civilist, is as follows:

(B)

"Among contracts which are intransmissible are those which are purely personal, either by provision of law,
such as in cases of partnerships and agency, or by the very nature of the obligations arising therefrom, such
as those requiring special personal qualifications of the obligor. It may also be stated that contracts for the
payment of money debts are not transmitted to the heirs of a party, but constitute a charge against his estate.
Thus, where the client in a contract for professional services of a lawyer died, leaving minor heirs, and the
lawyer, instead of presenting his claim for professional services under the contract to the probate court,
substituted the minors as parties for his client, it was held that the contract could not be enforced against the
minors; the lawyer was limited to a recovery on the basis of quantum meruit."[9]
In American jurisprudence, "(W)here acts stipulated in a contract require the exercise of special knowledge,
genius, skill, taste, ability, experience, judgment, discretion, integrity, or other personal qualification of one or
both parties, the agreement is of a personal nature, and terminates on the death of the party who is required to
render such service."[10] marinella
It has also been held that a good measure for determining whether a contract terminates upon the death of
one of the parties is whether it is of such a character that it may be performed by the promissors personal
representative. Contracts to perform personal acts which cannot be as well performed by others are
discharged by the death of the promissor. Conversely, where the service or act is of such a character that it
may as well be performed by another, or where the contract, by its terms, shows that performance by others
was contemplated, death does not terminate the contract or excuse nonperformance. [11]
In the case at bar, there is no personal act required from the late Encarnacion Bartolome. Rather, the
obligation of Encarnacion in the contract to deliver possession of the subject property to petitioner upon the
exercise by the latter of its option to lease the same may very well be performed by her heir Victor.
As early as 1903, it was held that "(H)e who contracts does so for himself and his heirs." [12] In 1952, it was
ruled that if the predecessor was duty-bound to reconvey land to another, and at his death the reconveyance
had not been made, the heirs can be compelled to execute the proper deed for reconveyance. This was
grounded upon the principle that heirs cannot escape the legal consequence of a transaction entered into by
their predecessor-in-interest because they have inherited the property subject to the liability affecting their
common ancestor.[13]
It is futile for Victor to insist that he is not a party to the contract because of the clear provision of Article 1311
of the Civil Code. Indeed, being an heir of Encarnacion, there is privity of interest between him and his
deceased mother. He only succeeds to what rights his mother had and what is valid and binding against her is
also valid and binding as against him. [14] This is clear from Paraaque Kings Enterprises vs. Court of Appeals,
[15]
where this Court rejected a similar defense-alonzo
With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the
lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless
a proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase,
he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the
form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the
sale of the properties to him. Both pleadings also alleged collusion between him and respondent Santos which
defeated the exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not
indispensable, party to the case. A favorable judgment for the petitioner will necessarily affect the rights of
respondent Raymundo as the buyer of the property over which petitioner would like to assert its right of first
option to buy.
In the case at bar, the subject matter of the contract is likewise a lease, which is a property right. The death of
a party does not excuse nonperformance of a contract which involves a property right, and the rights and
obligations thereunder pass to the personal representatives of the deceased. Similarly, nonperformance is not
excused by the death of the party when the other party has a property interest in the subject matter of the
contract.[16]

Under both Article 1311 of the Civil Code and jurisprudence, therefore, Victor is bound by the subject Contract
of Lease with Option to Buy.
That being resolved, we now rule on the issue of whether petitioner had complied with its obligations under the
contract and with the requisites to exercise its option. The payment by petitioner of the reservation fees during
the two-year period within which it had the option to lease or purchase the property is not disputed. In fact, the
payment of such reservation fees, except those for February and March, 1990 were admitted by Victor. [17] This
is clear from the transcripts, to wit"ATTY. MOJADO:
One request, Your Honor. The last payment which was allegedly made in January 1990 just indicate in
that stipulation that it was issued November of 1989 and postdated Janaury 1990 and then we will admit
all. rodp;fo
COURT:
All reservation fee?
ATTY. MOJADO:
Yes, Your Honor.
COURT:
All as part of the lease?
ATTY. MOJADO:
Reservation fee, Your Honor. There was no payment with respect to payment of rentals." [18]
Petitioner also paid the P15,000.00 monthly rental fee on the subject property by depositing the same in China
Bank Savings Account No. 1-04-02558-I-1, in the name of Victor as the sole heir of Encarnacion Bartolome,
[19]
for the months of March to July 30, 1990, or a total of five (5) months, despite the refusal of Victor to turn
over the subject property.[20]
Likewise, petitioner complied with its duty to inform the other party of its intention to exercise its option to lease
through its letter dated Match 12, 1990, [21] well within the two-year period for it to exercise its option.
Considering that at that time Encarnacion Bartolome had already passed away, it was legitimate for petitioner
to have addressed its letter to her heir.
It appears, therefore, that the exercise by petitioner of its option to lease the subject property was made in
accordance with the contractual provisions. Concomitantly, private respondent Victor Bartolome has the
obligation to surrender possession of and lease the premises to petitioner for a period of six (6) years,
pursuant to the Contract of Lease with Option to Buy. micks
Coming now to the issue of tenancy, we find that this is not for this Court to pass upon in the present petition.
We note that the Motion to Intervene and to Dismiss of the alleged tenant, Andres Lanozo, was denied by the
lower court and that such denial was never made the subject of an appeal. As the lower court stated in its
Order, the alleged right of the tenant may well be ventilated in another proceeding in due time.

WHEREFORE, in view of the foregoing, the instant Petition for Review is GRANTED. The Decision of the
Court of Appeals in CA-G.R. CV No. 40849 and that of the Regional Trial Court of Valenzuela in Civil Case No.
3337-V-90 are both SET ASIDE and a new one rendered ordering private respondent Victor Bartolome to:
(a) surrender and deliver possession of that parcel of land covered by Transfer Certificate of Title No. V-14249
by way of lease to petitioner and to perform all obligations of his predecessor-in-interest, Encarnacion
Bartolome, under the subject Contract of Lease with Option to Buy;
(b) surrender and deliver his copy of Transfer Certificate of Title No. V-14249 to respondent Register of Deeds
for registration and annotation thereon of the subject Contract of Lease with Option to Buy;
(c) pay costs of suit. Sc
Respondent Register of Deeds is, accordingly, ordered to register and annotate the subject Contract of Lease
with Option to Buy at the back of Transfer Certificate of Title No. V-14249 upon submission by petitioner of a
copy thereof to his office.
SO ORDERED.

the defendant Orense had been the owner of a parcel of land, with the buildings and improvements thereon,
situated in the pueblo of Guinobatan, Albay, the location, area and boundaries of which were specified in the
complaint; that the said property has up to date been recorded in the new property registry in the name of the
said Orense, according to certificate No. 5, with the boundaries therein given; that, on February 14, 1907, Jose
Duran, a nephew of the defendant, with the latter's knowledge and consent, executed before a notary a public
instrument whereby he sold and conveyed to the plaintiff company, for P1,500, the aforementioned property,
the vendor Duran reserving to himself the right to repurchase it for the same price within a period of four years
from the date of the said instrument; that the plaintiff company had not entered into possession of the
purchased property, owing to its continued occupancy by the defendant and his nephew, Jose Duran, by virtue
of a contract of lease executed by the plaintiff to Duran, which contract was in force up to February 14, 1911;
that the said instrument of sale of the property, executed by Jose Duran, was publicly and freely confirmed and
ratified by the defendant Orense; that, in order to perfect the title to the said property, but that the defendant
Orense refused to do so, without any justifiable cause or reason, wherefore he should be compelled to
execute the said deed by an express order of the court, for Jose Duran is notoriously insolvent and cannot
reimburse the plaintiff company for the price of the sale which he received, nor pay any sum whatever for the
losses and damages occasioned by the said sale, aside from the fact that the plaintiff had suffered damage by
losing the present value of the property, which was worth P3,000; that, unless such deed of final conveyance
were executed in behalf of the plaintiff company, it would be injured by the fraud perpetrated by the vendor,
Duran, in connivance with the defendant; that the latter had been occupying the said property since February
14, 1911, and refused to pay the rental thereof, notwithstanding the demand made upon him for its payment at
the rate of P30 per month, the just and reasonable value for the occupancy of the said property, the
possession of which the defendant likewise refused to deliver to the plaintiff company, in spite of the
continuous demands made upon him, the defendant, with bad faith and to the prejudice of the firm of Gutierrez
Hermanos, claiming to have rights of ownership and possession in the said property. Therefore it was prayed
that judgment be rendered by holding that the land and improvements in question belong legitimately and
exclusively to the plaintiff, and ordering the defendant to execute in the plaintiff's behalf the said instrument of
transfer and conveyance of the property and of all the right, interest, title and share which the defendant has
therein; that the defendant be sentenced to pay P30 per month for damages and rental of the property from
February 14, 1911, and that, in case these remedies were not granted to the plaintiff, the defendant be
sentenced to pay to it the sum of P3,000 as damages, together with interest thereon since the date of the
institution of this suit, and to pay the costs and other legal expenses.
The demurrer filed to the amended complaint was overruled, with exception on the part of the defendant,
whose counsel made a general denial of the allegations contained in the complaint, excepting those that were
admitted, and specifically denied paragraph 4 thereof to the effect that on February 14, 1907, Jose Duran
executed the deed of sale of the property in favor of the plaintiff with the defendant's knowledge and
consent.1awphil.net

G.R. No. L-9188 December 4, 1914


GUTIERREZ HERMANOS, plaintiff-appellee,
vs.
ENGRACIO ORENSE, defendant-appellant.
William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal for appellant.
Rafael de la Sierra for appellee.

TORRES, J.:
Appeal through bill of exceptions filed by counsel for the appellant from the judgment on April 14, 1913, by the
Honorable P. M. Moir, judge, wherein he sentenced the defendant to make immediate delivery of the property
in question, through a public instrument, by transferring and conveying to the plaintiff all his rights in the
property described in the complaint and to pay it the sum of P780, as damages, and the costs of the suit.
On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, in the Court of
First Instance of Albay against Engacio Orense, in which he set forth that on and before February 14, 1907,

As the first special defense, counsel for the defendant alleged that the facts set forth in the complaint with
respect to the execution of the deed did not constitute a cause of action, nor did those alleged in the other
form of action for the collection of P3,000, the value of the realty.
As the second special defense, he alleged that the defendant was the lawful owner of the property claimed in
the complaint, as his ownership was recorded in the property registry, and that, since his title had been
registered under the proceedings in rem prescribed by Act No. 496, it was conclusive against the plaintiff and
the pretended rights alleged to have been acquired by Jose Duran prior to such registration could not now
prevail; that the defendant had not executed any written power of attorney nor given any verbal authority to
Jose Duran in order that the latter might, in his name and representation, sell the said property to the plaintiff
company; that the defendant's knowledge of the said sale was acquired long after the execution of the
contract of sale between Duran and Gutierrez Hermanos, and that prior thereto the defendant did not
intentionally and deliberately perform any act such as might have induced the plaintiff to believe that Duran
was empowered and authorized by the defendant and which would warrant him in acting to his own detriment,
under the influence of that belief. Counsel therefore prayed that the defendant be absolved from the complaint
and that the plaintiff be sentenced to pay the costs and to hold his peace forever.
After the hearing of the case and an examination of the evidence introduced by both parties, the court
rendered the judgment aforementioned, to which counsel for the defendant excepted and moved for a new
trial. This motion was denied, an exception was taken by the defendant and, upon presentation of the proper
bill of exceptions, the same was approved, certified and forwarded to the clerk of his court.

This suit involves the validity and efficacy of the sale under right of redemption of a parcel of land and a
masonry house with the nipa roof erected thereon, effected by Jose Duran, a nephew of the owner of the
property, Engracio Orense, for the sum of P1,500 by means of a notarial instrument executed and ratified on
February 14, 1907.
After the lapse of the four years stipulated for the redemption, the defendant refused to deliver the property to
the purchaser, the firm of Gutierrez Hermanos, and to pay the rental thereof at the rate of P30 per month for its
use and occupation since February 14, 1911, when the period for its repurchase terminated. His refusal was
based on the allegations that he had been and was then the owner of the said property, which was registered
in his name in the property registry; that he had not executed any written power of attorney to Jose Duran, nor
had he given the latter any verbal authorization to sell the said property to the plaintiff firm in his name; and
that, prior to the execution of the deed of sale, the defendant performed no act such as might have induced
the plaintiff to believe that Jose Duran was empowered and authorized by the defendant to effect the said
sale.
The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said province, with
estafa, for having represented himself in the said deed of sale to be the absolute owner of the aforesaid land
and improvements, whereas in reality they did not belong to him, but to the defendant Orense. However, at the
trial of the case Engracio Orense, called as a witness, being interrogated by the fiscal as to whether he and
consented to Duran's selling the said property under right of redemption to the firm of Gutierrez Hermanos,
replied that he had. In view of this statement by the defendant, the court acquitted Jose Duran of the charge of
estafa.
As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio Orense, the
owner of the property, to the effect that he had consented to his nephew Duran's selling the property under
right of repurchase to Gutierrez Hermanos, counsel for this firm filed a complainant praying, among other
remedies, that the defendant Orense be compelled to execute a deed for the transfer and conveyance to the
plaintiff company of all the right, title and interest with Orense had in the property sold, and to pay to the same
the rental of the property due from February 14, 1911.itc-alf
Notwithstanding the allegations of the defendant, the record in this case shows that he did give his consent in
order that his nephew, Jose Duran, might sell the property in question to Gutierrez Hermanos, and that he did
thereafter confirm and ratify the sale by means of a public instrument executed before a notary.
It having been proven at the trial that he gave his consent to the said sale, it follows that the defendant
conferred verbal, or at least implied, power of agency upon his nephew Duran, who accepted it in the same
way by selling the said property. The principal must therefore fulfill all the obligations contracted by the agent,
who acted within the scope of his authority. (Civil Code, arts. 1709, 1710 and 1727.)
Even should it be held that the said consent was granted subsequently to the sale, it is unquestionable that the
defendant, the owner of the property, approved the action of his nephew, who in this case acted as the
manager of his uncle's business, and Orense'r ratification produced the effect of an express authorization to
make the said sale. (Civil Code, arts. 1888 and 1892.)

The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the
beginning, but afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by
the confirmation solemnly made by the said owner upon his stating under oath to the judge that he himself
consented to his nephew Jose Duran's making the said sale. Moreover, pursuant to article 1309 of the Code,
the right of action for nullification that could have been brought became legally extinguished from the moment
the contract was validly confirmed and ratified, and, in the present case, it is unquestionable that the
defendant did confirm the said contract of sale and consent to its execution.
On the testimony given by Engacio Orense at the trial of Duran for estafa, the latter was acquitted, and it
would not be just that the said testimony, expressive of his consent to the sale of his property, which
determined the acquittal of his nephew, Jose Duran, who then acted as his business manager, and which
testimony wiped out the deception that in the beginning appeared to have been practiced by the said Duran,
should not now serve in passing upon the conduct of Engracio Orense in relation to the firm of Gutierrez
Hermanos in order to prove his consent to the sale of his property, for, had it not been for the consent admitted
by the defendant Orense, the plaintiff would have been the victim of estafa.
If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling
the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for him afterward to deny that
admission, to the prejudice of the purchaser, who gave P1,500 for the said property.
The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is alleged
to be invalid, null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure,
because the authority which Orense may have given to Duran to make the said contract of sale is not shown
to have been in writing and signed by Orense, but the record discloses satisfactory and conclusive proof that
the defendant Orense gave his consent to the contract of sale executed in a public instrument by his nephew
Jose Duran. Such consent was proven in a criminal action by the sworn testimony of the principal and
presented in this civil suit by other sworn testimony of the same principal and by other evidence to which the
defendant made no objection. Therefore the principal is bound to abide by the consequences of his agency as
though it had actually been given in writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs.
Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.)
The repeated and successive statements made by the defendant Orense in two actions, wherein he affirmed
that he had given his consent to the sale of his property, meet the requirements of the law and legally excuse
the lack of written authority, and, as they are a full ratification of the acts executed by his nephew Jose Duran,
they produce the effects of an express power of agency.
The judgment appealed from in harmony with the law and the merits of the case, and the errors assigned
thereto have been duly refuted by the foregoing considerations, so it should be affirmed.
The judgment appealed from is hereby affirmed, with the costs against the appellant.

Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being
authorized by him or without his legal representation according to law.
A contract executed in the name of another by one who has neither his authorization nor legal representation
shall be void, unless it should be ratified by the person in whose name it was executed before being revoked
by the other contracting party.
The sworn statement made by the defendant, Orense, while testifying as a witness at the trial of Duran for
estafa, virtually confirms and ratifies the sale of his property effected by his nephew, Duran, and, pursuant to
article 1313 of the Civil Code, remedies all defects which the contract may have contained from the moment of
its execution.

G.R. No. L-47806

April 14, 1941

LEONCIO GABRIEL, petitioner,


vs.
MONTE DE PIEDAD Y CAJA DE AHARROS and THE COURT OF APPEALS, respondents.
LAUREL, J.:

The herein petitioner was employed as appraiser of jewels in the pawnshop of the Monte de Piedad from 1913
up to May, 1933. On December 13, 1932, he executed a chattel mortgage to secure the payment of the
deficiencies which resulted from his erroneous appraisal of the jewels pawned to the appellee, amounting to
P14,679.07, with six per cent (6%) interest from said date. In this chattel mortgage, the appellant promised to
pay to the appellee the sum of P300 a month until the sum of P14,679.07, with interest is fully paid. The
document was registered on December 22, 1932 (statement, decision of Court of Appeals). To recover the
aforementioned sum less what had been paid, amounting to P3,333.25 or the balance of P11,345.75, and in
case of default to effectuate the chattel mortgage, an action was instituted against the petitioner by the
respondent Monte de Piedad in the Court of First Instance of Manila (civil case No. 50847). The petitioner
answered, denying generally and specifically all the specifications therein, and also denied under oath the
genuiness of the execution of the alleged chattel mortgage attached thereto. By way of special defense, he
alleged (1) that the chattel mortgage was a part of a scheme on the part of the management of the Monte de
Piedad to cover up supposed losses incurred in its pawnshop department; (2) that a criminal action had been
instituted at the instance of the plaintiff against him wherein said chattel mortgage was presented by the
prosecution with regard his supposed responsibility as expert appraiser of jewels of the plaintiff entity but he
was therein acquitted; and (3) that said acquittal constituted a bar to the civil case. By way of cross-complaint,
the petitioner alleged (1) that the chattel mortgage was entered into by E. Marco for and in behalf of the Monte
de Piedad without being duly authorized to do so by the latter; (2) that the defendant was induced, through
false representation, to sign said chattel mortgage against his will; (3) that the chattel mortgage was based
upon all non-existing subject matter and non-existing consideration; and (4) that the chattel mortgage was null
and void ab initio. By way of counterclaim, the petitioner alleged (1) that the payments made by for him the
account of the chattel mortgage amounting to P3,333.25 were made through deceit and without his consent
and consisted of P300 monthly deductions from his salary, printing job for plaintiff done by him in his printing
press, and reimbursement made from the pocket of E. Marco; (2) that he has received P356.25 a month as
expert appraiser of the plaintiff and that he was separated arbitrarily at the end of the month of May 1933, from
notice and plaintiff failed to pay him his salary for the month of May, 1933 and the month of June, 1933, in
accordance with law; and (3) that due to the malicious and systematic prosecution brought in criminal case
No. 49078 and in the present case, he suffered damages and losses both materially and in his reputation in
the amount of at least P15,000. Wherefore, petitioner, among others, prayed that the Monte de Piedad be
ordered to return the unlawful deductions from his monthly remuneration, to pay his salary for the months of
May and June, 1933, and damages and losses he suffered amounting to P15,000.

from his erroneous appraisals of the jewels." A preexisting admitted liability is a good consideration for a
promise. The fact that the bargain is a hard one will not deprived it of validity. The exception to this rule in
modern legislation is where the inadequacy is so gross as to amount to fraud, oppression or undue influence,
or when statutes require the consideration to be adequate. We are not convinced that the instant case falls
within the exception.

The lower court rendered judgment in favor of the Monte de Piedad against the herein petitioner. Petitioner
brought the case on appeal to the Court of Appeals, which affirmed the judgment of the lower court in a
decision rendered May 29, 1940. Hence, this petition for review by certiorari.

We do not find it necessary to discuss the last assignment of error.

Petitioner contends that the provisions of the chattel mortgage contract by which he guaranteed to pay the
deficiencies amounting of P14,679.07 are contrary to law, morals and public policy, and hence, the chattel
mortgage contract is ineffective and the principal obligation secured by it is void. A contract is to be judge by its
character, and courts will look to the substances and not to the mere form of the transaction. The freedom of
contract is both a constitutional and statutory right and to uphold this right, courts should move with all the
necessary caution and prudence in holding contracts void. (People vs. Pomar, 46 Phil., 440; Ferrazzini vs.
Gsell, 34 Phil., 697.) At any rate, courts should not rashly extend the rule which holds that a contract is void as
against public policy. The term "public policy" is vague and uncertain in meaning, floating and changeable in
connotation. It may be said, however, that, in general, a contract which is neither prohibited by law nor
condemned by judicial decision, nor contrary to public morals, contravenes no public policy. In the absence of
express legislation or constitutional prohibition, a court, in order to declare a contract void as against public
policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the
public, is against the public good, or contravenes some established interests of society, or is inconsistent with
sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of
personal liability or of private property. Examining the contract at bar, we are of the opinion that it does not in
anyway militate against the public good. Neither does it contravene the policy of the law nor the established
interests of society.
Petitioner also contends that the chattel mortgage in question is void because it lacks consideration. A
consideration, in the legal sense of the word, is some right, interest, benefit, or advantage conferred upon the
promisor, to which he is otherwise not lawfully entitled, or any detriment, prejudice, loss, or disadvantage
suffered or undertaken by the promisee other than to such as he is at the time of consent bound to suffer. We
think that there is sufficient consideration in this contract, for accounting to the Court of Appeals, "it has been
satisfactorily established that it was executed voluntarily by the latter to guarantee the deficiencies resulting

Another objection raised is that the requirement of section 5 of Act No. 1508 has not been complied with. We
think that there is substantial compliance with the requirements of the Chattel Mortgage Law on this point. The
wording of the affidavit under discussion, as it appears from the record, is almost in the same language of the
statute. Likewise, it appears that it was signed by E. Marco, who was Director-General of the Monte de Piedad
at the time of the execution of the contract of chattel mortgage. The Court of Appeals found that "the
contention that director Marco had no authority to enter into the agreement is without merit. It appears that
there was confirmation of Exhibit A by the Consejo de Administracion of the Monte de Piedad." Statutory
requirements as to forms or words of the affidavits in chattel mortgage contracts must be substantially, but
need not be literally, complied with.
The second assignment of error made by the petitioner is that the Court of Appeals erred in not holding that
the acquittal of the petitioner in criminal case No. 49078 of the Court of First Instance of Manila bars the action
to enforce any civil liability under said chattel mortgage. We do not need to dwell at length on this assignment
of error, for we find no reason for distributing the conclusion reached by the Court of Appeals on this point:
The appellant claims that his acquittal in criminal case No. 49078 of the Court of First Instance of Manila is a
bar to the institution of the present case. The evidence of record does not bear out this contention. There is no
identity of subject matter between the two cases; nor is the instant case defendant upon the said criminal
action. We agree with the trial court that the transactions involved in this case are different from those involved
in criminal case No. 49078. The court's finding that the transactions involved in the case at the bar
commenced in August, 1932, can not be considered erroneous simply because Exhibit F-32 of the plaintiff is
allegedly dated August 20, 1931. Exhibit F-22 can not be given any probative value, it was undated during the
hearing of the case.

The petition is hereby dismissed and the judgment sought to be reviewed is affirmed, with costs against the
petitioner. So ordered.
G.R. No. 61594 September 28, 1990
PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner,
vs
HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO, JR., in his
capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA MOONYEEN
MAMASIG, respondents.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.
Ledesma, Saludo & Associates for private respondents.

FELICIANO, J.:
On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign corporation
licensed to do business in the Philippines, executed in Manila two (2) separate contracts of employment, one
with private respondent Ethelynne B. Farrales and the other with private respondent Ma. M.C. Mamasig. 1 The
contracts, which became effective on 9 January 1979, provided in pertinent portion as follows:

5. DURATION OF EMPLOYMENT AND PENALTY


This agreement is for a period of three (3) years, but can be extended by the mutual consent of the parties.
xxx xxx xxx
6. TERMINATION
xxx xxx xxx
Notwithstanding anything to contrary as herein provided, PIA reserves the right to terminate this agreement at
any time by giving the EMPLOYEE notice in writing in advance one month before the intended termination or
in lieu thereof, by paying the EMPLOYEE wages equivalent to one month's salary.
xxx xxx xxx

On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Minister, MOLE, adopted
the findings of fact and conclusions of the Regional Director and affirmed the latter's award save for the portion
thereof giving PIA the option, in lieu of reinstatement, "to pay each of the complainants [private respondents]
their salaries corresponding to the unexpired portion of the contract[s] [of employment] . . .". 5
In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional Director and the Order of
the Deputy Minister as having been rendered without jurisdiction; for having been rendered without support in
the evidence of record since, allegedly, no hearing was conducted by the hearing officer, Atty. Jose M.
Pascual; and for having been issued in disregard and in violation of petitioner's rights under the employment
contracts with private respondents.
1. Petitioner's first contention is that the Regional Director, MOLE, had no jurisdiction over the subject matter
of the complaint initiated by private respondents for illegal dismissal, jurisdiction over the same being lodged in
the Arbitration Branch of the National Labor Relations Commission ("NLRC") It appears to us beyond dispute,
however, that both at the time the complaint was initiated in September 1980 and at the time the Orders
assailed were rendered on January 1981 (by Regional Director Francisco L. Estrella) and August 1982 (by
Deputy Minister Vicente Leogardo, Jr.), the Regional Director had jurisdiction over termination cases.

10. APPLICABLE LAW:

Art. 278 of the Labor Code, as it then existed, forbade the termination of the services of employees with at
least one (1) year of service without prior clearance from the Department of Labor and Employment:

This agreement shall be construed and governed under and by the laws of Pakistan, and only the Courts of
Karachi, Pakistan shall have the jurisdiction to consider any matter arising out of or under this agreement.

Art. 278. Miscellaneous Provisions . . .

Respondents then commenced training in Pakistan. After their training period, they began discharging their job
functions as flight attendants, with base station in Manila and flying assignments to different parts of the
Middle East and Europe.

(b) With or without a collective agreement, no employer may shut down his establishment or dismiss or
terminate the employment of employees with at least one year of service during the last two (2) years, whether
such service is continuous or broken, without prior written authority issued in accordance with such rules and
regulations as the Secretary may promulgate . . . (emphasis supplied)

On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of the contracts of
employment, PIA through Mr. Oscar Benares, counsel for and official of the local branch of PIA, sent separate
letters both dated 1 August 1980 to private respondents Farrales and Mamasig advising both that their
services as flight stewardesses would be terminated "effective 1 September 1980, conformably to clause 6 (b)
of the employment agreement [they had) executed with [PIA]." 2

Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made clear that in case of a
termination without the necessary clearance, the Regional Director was authorized to order the reinstatement
of the employee concerned and the payment of backwages; necessarily, therefore, the Regional Director must
have been given jurisdiction over such termination cases:

On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint, docketed as
NCR-STF-95151-80, for illegal dismissal and non-payment of company benefits and bonuses, against PIA with
the then Ministry of Labor and Employment ("MOLE"). After several unfruitful attempts at conciliation, the
MOLE hearing officer Atty. Jose M. Pascual ordered the parties to submit their position papers and evidence
supporting their respective positions. The PIA submitted its position paper, 3 but no evidence, and there
claimed that both private respondents were habitual absentees; that both were in the habit of bringing in from
abroad sizeable quantities of "personal effects"; and that PIA personnel at the Manila International Airport had
been discreetly warned by customs officials to advise private respondents to discontinue that practice. PIA
further claimed that the services of both private respondents were terminated pursuant to the provisions of the
employment contract.
In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the reinstatement of
private respondents with full backwages or, in the alternative, the payment to them of the amounts equivalent
to their salaries for the remainder of the fixed three-year period of their employment contracts; the payment to
private respondent Mamasig of an amount equivalent to the value of a round trip ticket Manila-USA Manila;
and payment of a bonus to each of the private respondents equivalent to their one-month salary. 4 The Order
stated that private respondents had attained the status of regular employees after they had rendered more
than a year of continued service; that the stipulation limiting the period of the employment contract to three (3)
years was null and void as violative of the provisions of the Labor Code and its implementing rules and
regulations on regular and casual employment; and that the dismissal, having been carried out without the
requisite clearance from the MOLE, was illegal and entitled private respondents to reinstatement with full
backwages.

Sec. 2. Shutdown or dismissal without clearance. Any shutdown or dismissal without prior clearance shall
be conclusively presumed to be termination of employment without a just cause. The Regional Director shall,
in such case order the immediate reinstatement of the employee and the payment of his wages from the time
of the shutdown or dismissal until the time of reinstatement. (emphasis supplied)
Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was similarly very explicit
about the jurisdiction of the Regional Director over termination of employment cases:
Under PD 850, termination cases with or without CBA are now placed under the original jurisdiction of
the Regional Director. Preventive suspension cases, now made cognizable for the first time, are also placed
under the Regional Director. Before PD 850, termination cases where there was a CBA were under the
jurisdiction of the grievance machinery and voluntary arbitration, while termination cases where there was no
CBA were under the jurisdiction of the Conciliation Section.
In more details, the major innovations introduced by PD 850 and its implementing rules and regulations with
respect to termination and preventive suspension cases are:
1. The Regional Director is now required to rule on every application for clearance, whether there is opposition
or not, within ten days from receipt thereof.
xxx xxx xxx

(Emphasis supplied)
2. The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction, still his order
was null and void because it had been issued in violation of petitioner's right to procedural due process . 6 This
claim, however, cannot be given serious consideration. Petitioner was ordered by the Regional Director to
submit not only its position paper but also such evidence in its favor as it might have. Petitioner opted to rely
solely upon its position paper; we must assume it had no evidence to sustain its assertions. Thus, even if no
formal or oral hearing was conducted, petitioner had ample opportunity to explain its side. Moreover, petitioner
PIA was able to appeal his case to the Ministry of Labor and Employment. 7
There is another reason why petitioner's claim of denial of due process must be rejected. At the time the
complaint was filed by private respondents on 21 September 1980 and at the time the Regional Director
issued his questioned order on 22 January 1981, applicable regulation, as noted above, specified that a
"dismissal without prior clearance shall be conclusively presumed to be termination of employment without a
cause", and the Regional Director was required in such case to" order the immediate reinstatement of the
employee and the payment of his wages from the time of the shutdown or dismiss until . . . reinstatement." In
other words, under the then applicable rule, the Regional Director did not even have to require submission of
position papers by the parties in view of the conclusive (juris et de jure) character of the presumption created
by such applicable law and regulation. In Cebu Institute of Technology v. Minister of Labor and
Employment, 8 the Court pointed out that "under Rule 14, Section 2, of the Implementing Rules and
Regulations, the termination of [an employee] which was without previous clearance from the Ministry of Labor
is conclusively presumed to be without [just] cause . . . [a presumption which] cannot be overturned by any
contrary proof however strong."
3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of employment with private
respondents Farrales and Mamasig, arguing that its relationship with them was governed by the provisions of
its contract rather than by the general provisions of the Labor Code. 9
Paragraph 5 of that contract set a term of three (3) years for that relationship, extendible by agreement
between the parties; while paragraph 6 provided that, notwithstanding any other provision in the Contract, PIA
had the right to terminate the employment agreement at any time by giving one-month's notice to the
employee or, in lieu of such notice, one-months salary.
A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law
between the parties. 10 The principle of party autonomy in contracts is not, however, an absolute principle. The
rule in Article 1306, of our Civil Code is that the contracting parties may establish such stipulations as they
may deem convenient, "providedthey are not contrary to law, morals, good customs, public order or public
policy." Thus, counter-balancing the principle of autonomy of contracting parties is the equally general rule that
provisions of applicable law, especially provisions relating to matters affected with public policy, are deemed
written into the contract. 11 Put a little differently, the governing principle is that parties may not contract away
applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with
public interest. The law relating to labor and employment is clearly such an area and parties are not at liberty
to insulate themselves and their relationships from the impact of labor laws and regulations by simply
contracting with each other. It is thus necessary to appraise the contractual provisions invoked by petitioner
PIA in terms of their consistency with applicable Philippine law and regulations.
As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect held that paragraph 5 of that
employment contract was inconsistent with Articles 280 and 281 of the Labor Code as they existed at the time
the contract of employment was entered into, and hence refused to give effect to said paragraph 5. These
Articles read as follows:
Art. 280. Security of Tenure. In cases of regular employment, the employer shall not terminate the services
of an employee except for a just cause or when authorized by this Title An employee who is unjustly dismissed
from work shall be entitled to reinstatement without loss of seniority rights and to his backwages computed
from the time his compensation was withheld from him up to the time his reinstatement.

Art. 281. Regular and Casual Employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreements of the parties, an employment shall be deemed to be
regular where the employee has been engaged to perform activities which are usually necessary or desirable
in the usual business or trade of the employer, except where the employment has been fixed for a specific
project or undertaking the completion or termination of which has been determined at the time of the
engagement of the employee or where the work or services to be performed is seasonal in nature and the
employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding paragraph: provided,
that, any employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered as regular employee with respect to the activity in which he is employed and his
employment shall continue while such actually exists. (Emphasis supplied)
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., 12 the Court had occasion to examine in detail the
question of whether employment for a fixed term has been outlawed under the above quoted provisions of the
Labor Code. After an extensive examination of the history and development of Articles 280 and 281, the Court
reached the conclusion that a contract providing for employment with a fixed period was not necessarily
unlawful:
There can of course be no quarrel with the proposition that where from the circumstances it is apparent that
periods have been imposed to preclude acquisition of tenurial security by the employee, they should be struck
down or disregarded as contrary to public policy, morals, etc. But where no such intent to circumvent the law is
shown, or stated otherwise, where the reason for the law does not exist e.g. where it is indeed the employee
himself who insists upon a period or where the nature of the engagement is such that, without being seasonal
or for a specific project, a definite date of termination is a sine qua non would an agreement fixing a period be
essentially evil or illicit, therefore anathema Would such an agreement come within the scope of Article 280
which admittedly was enacted "to prevent the circumvention of the right of the employee to be secured in . . .
(his) employment?"
As it is evident from even only the three examples already given that Article 280 of the Labor Code, under a
narrow and literal interpretation, not only fails to exhaust the gamut of employment contracts to which the lack
of a fixed period would be an anomaly, but would also appear to restrict, without reasonable distinctions, the
right of an employee to freely stipulate with his employer the duration of his engagement, it logically follows
that such a literal interpretation should be eschewed or avoided. The law must be given reasonable
interpretation, to preclude absurdity in its application. Outlawing the whole concept of term employment and
subverting to boot the principle of freedom of contract to remedy the evil of employers" using it as a means to
prevent their employees from obtaining security of tenure is like cutting off the nose to spite the face or, more
relevantly, curing a headache by lopping off the head.
xxx xxx xxx
Accordingly, and since the entire purpose behind the development of legislation culminating in the present
Article 280 of the Labor Code clearly appears to have been, as already observed, to prevent circumvention of
the employee's right to be secure in his tenure, the clause in said article indiscriminately and completely ruling
out all written or oral agreements conflicting with the concept of regular employment as defined therein should
be construed to refer to the substantive evil that the Code itself has singled out: agreements entered into
precisely to circumvent security of tenure. It should have no application to instances where a fixed period of
employment was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper
pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent,
or where it satisfactorily appears that the employer and employee dealt with each other on more or less equal
terms with no moral dominance whatever being exercised by the former over the latter. Unless thus limited in
its purview, the law would be made to apply to purposes other than those explicitly stated by its framers; it
thus becomes pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended
consequences. (emphasis supplied)
It is apparent from Brent School that the critical consideration is the presence or absence of a substantial
indication that the period specified in an employment agreement was designed to circumvent the security of
tenure of regular employees which is provided for in Articles 280 and 281 of the Labor Code. This indication

must ordinarily rest upon some aspect of the agreement other than the mere specification of a fixed term of
the ernployment agreement, or upon evidence aliunde of the intent to evade.
Examining the provisions of paragraphs 5 and 6 of the employment agreement between petitioner PIA and
private respondents, we consider that those provisions must be read together and when so read, the fixed
period of three (3) years specified in paragraph 5 will be seen to have been effectively neutralized by the
provisions of paragraph 6 of that agreement. Paragraph 6 in effect took back from the employee the fixed
three (3)-year period ostensibly granted by paragraph 5 by rendering such period in effect a facultative one at
the option of the employer PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and
for any cause satisfactory to itself, to a one-month period, or even less by simply paying the employee a
month's salary. Because the net effect of paragraphs 5 and 6 of the agreement here involved is to render the
employment of private respondents Farrales and Mamasig basically employment at the pleasure of petitioner
PIA, the Court considers that paragraphs 5 and 6 were intended to prevent any security of tenure from
accruing in favor of private respondents even during the limited period of three (3) years, 13 and thus to escape
completely the thrust of Articles 280 and 281 of the Labor Code.
Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies, firstly, the law
of Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of any dispute
arising out of or in connection with the agreement "only [in] courts of Karachi Pakistan". The first clause of
paragraph 10 cannot be invoked to prevent the application of Philippine labor laws and regulations to the
subject matter of this case, i.e., the employer-employee relationship between petitioner PIA and private
respondents. We have already pointed out that the relationship is much affected with public interest and that
the otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties agreeing
upon some other law to govern their relationship. Neither may petitioner invoke the second clause of
paragraph 10, specifying the Karachi courts as the sole venue for the settlement of dispute; between the
contracting parties. Even a cursory scrutiny of the relevant circumstances of this case will show the multiple
and substantive contacts between Philippine law and Philippine courts, on the one hand, and the relationship
between the parties, upon the other: the contract was not only executed in the Philippines, it was also
performed here, at least partially; private respondents are Philippine citizens and respondents, while petitioner,
although a foreign corporation, is licensed to do business (and actually doing business) and hence resident in
the Philippines; lastly, private respondents were based in the Philippines in between their assigned flights to
the Middle East and Europe. All the above contacts point to the Philippine courts and administrative agencies
as a proper forum for the resolution of contractual disputes between the parties. Under these circumstances,
paragraph 10 of the employment agreement cannot be given effect so as to oust Philippine agencies and
courts of the jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did
not undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be presumed
that the applicable provisions of the law of Pakistan are the same as the applicable provisions of Philippine
law. 14
We conclude that private respondents Farrales and Mamasig were illegally dismissed and that public
respondent Deputy Minister, MOLE, had not committed any grave abuse of discretion nor any act without or in
excess of jurisdiction in ordering their reinstatement with backwages. Private respondents are entitled to three
(3) years backwages without qualification or deduction. Should their reinstatement to their former or other
substantially equivalent positions not be feasible in view of the length of time which has gone by since their
services were unlawfully terminated, petitioner should be required to pay separation pay to private
respondents amounting to one (1) month's salary for every year of service rendered by them, including the
three (3) years service putatively rendered.
ACCORDINGLY, the Petition for certiorari is hereby DISMISSED for lack of merit, and the Order dated 12
August 1982 of public respondent is hereby AFFIRMED, except that (1) private respondents are entitled to
three (3) years backwages, without deduction or qualification; and (2) should reinstatement of private
respondents to their former positions or to substantially equivalent positions not be feasible, then petitioner
shall, in lieu thereof, pay to private respondents separation pay amounting to one (1)-month's salary for every
year of service actually rendered by them and for the three (3) years putative service by private respondents.
The Temporary Restraining Order issued on 13 September 1982 is hereby LIFTED. Costs against petitioner.
SO ORDERED.

G.R. No. L-15127

May 30, 1961

EMETERIO CUI, plaintiff-appellant,


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

(Sgd.) Emeterio Cui".

It is admitted that, on August 16, 1949, the Director of Private Schools issued Memorandum No. 38, series of
1949, on the subject of "Scholarship," addressed to "All heads of private schools, colleges and universities,"
reading:
1. School catalogs and prospectuses submitted to this, Bureau show that some schools offer full or partial
scholarships to deserving students for excellence in scholarship or for leadership in extra-curricular
activities. Such inducements to poor but gifted students should be encouraged. But to stipulate the condition
that such scholarships are good only if the students concerned continue in the same school nullifies the
principle of merit in the award of these scholarships.
2. When students are given full or partial scholarships, it is understood that such scholarships are merited and
earned. The amount in tuition and other fees corresponding to these scholarships should not be subsequently
charged to the recipient students when they decide to quit school or to transfer to another institution.
Scholarships should not be offered merely to attract and keep students in a school.
3. Several complaints have actually been received from students who have enjoyed scholarships, full or
partial, to the effect that they could not transfer to other schools since their credentials would not be released
unless they would pay the fees corresponding to the period of the scholarships. Where the Bureau believes
that the right of the student to transfer is being denied on this ground, it reserves the right to authorize such
transfer.
that defendant herein received a copy of this memorandum; that plaintiff asked the Bureau of Private Schools
to pass upon the issue on his right to secure the transcript of his record in defendant University, without being
required to refund the sum of P1,033.87; that the Bureau of Private Schools upheld the position taken by the
plaintiff and so advised the defendant; and that, this notwithstanding, the latter refused to issue said transcript
of records, unless said refund were made, and even recommended to said Bureau that it issue a written order
directing the defendant to release said transcript of record, "so that the case may be presented to the court for
judicial action." As above stated, plaintiff was, accordingly, constrained to pay, and did pay under protest, said
sum of P1,033.87, in order that he could take the bar examination in 1953. Subsequently, he brought this
action for the recovery of said amount, aside from P2,000 as moral damages, P500 as exemplary damages,
P2,000 as attorney's fees, and P500 as expenses of litigation.
In its answer, defendant reiterated the stand it took, vis-a-vis the Bureau of Private Schools, namely, that the
provisions of its contract with plaintiff are valid and binding and that the memorandum above-referred to is null
and void. It, likewise, set up a counterclaim for P10,000.00 as damages, and P3,000 as attorney's fees.

principle of public policy. As the Director of Private Schools correctly pointed, out in his letter, Exhibit B, to the
defendant,
There is one more point that merits refutation and that is whether or not the contract entered into between Cui
and Arellano University on September 10, 1951 was void as against public policy. In the case of Zeigel vs.
Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court said: 'In determining a public policy
of the state, courts are limited to a consideration of the Constitution, the judicial decisions, the statutes,
and the practice of government officers.' It might take more than a government bureau or office to lay down or
establish a public policy, as alleged in your communication, but courts consider the practices of government
officials as one of the four factors in determining a public policy of the state. It has been consistently held in
America that under the principles relating to the doctrine of public policy, as applied to the law of contracts,
courts of justice will not recognize or uphold a transaction which its object, operation, or tendency is calculated
to be prejudicial to the public welfare, to sound morality or to civic honesty (Ritter vs. Mutual Life Ins. Co., 169
U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs. Allen, 173 N.Y. 359). If Arellano University
understood clearly the real essence of scholarships and the motives which prompted this office to issue
Memorandum No. 38, s. 1949, it should have not entered into a contract of waiver with Cui on September 10,
1951, which is a direct violation of our Memorandum and an open challenge to the authority of the Director of
Private Schools because the contract was repugnant to sound morality and civic honesty. And finally, in
Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to declare a contract
void as against public policy, a court must find that the contract as to consideration or the thing to be done,
contravenes some established interest of society, or is inconsistent with sound policy and good morals or
tends clearly to undermine the security of individual rights. The policy enunciated in Memorandum No. 38, s.
1949 is sound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in
school to bolster its prestige. In the understanding of that university scholarships award is a business
scheme designed to increase the business potential of an education institution. Thus conceived it is not only
inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is good
customs; those generally accepted principles of morality which have received some kind of social and practical
confirmation. The practice of awarding scholarships to attract students and keep them in school is not good
customs nor has it received some kind of social and practical confirmation except in some private institutions
as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the
Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to
reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the
leading colleges and universities of the United States after which our educational practices or policies are
patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school
for their propaganda mine but to reward merit or help gifted students in whom society has an established
interest or a first lien. (Emphasis supplied.)
WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered sentencing
the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from
September 1, 1954, date of the institution of this case, as well as the costs, and dismissing defendant's
counterclaim. It is so ordered.

The issue in this case is whether the above quoted provision of the contract between plaintiff and the
defendant, whereby the former waived his right to transfer to another school without refunding to the latter the
equivalent of his scholarships in cash, is valid or not. The lower court resolved this question in the affirmative,
upon the ground that the aforementioned memorandum of the Director of Private Schools is not a law; that the
provisions thereof are advisory, not mandatory in nature; and that, although the contractual provision "may be
unethical, yet it was more unethical for plaintiff to quit studying with the defendant without good reasons and
simply because he wanted to follow the example of his uncle." Moreover, defendant maintains in its brief that
the aforementioned memorandum of the Director of Private Schools is null and void because said officer had
no authority to issue it, and because it had been neither approved by the corresponding department head nor
published in the official gazette.

G.R. No. L-10551

We do not deem it necessary or advisable to consider as the lower court did, the question whether plaintiff had
sufficient reasons or not to transfer from defendant University to the Abad Santos University. The nature of the
issue before us, and its far reaching effects, transcend personal equations and demand a determination of the
case from a high impersonal plane. Neither do we deem it essential to pass upon the validity of said
Memorandum No. 38, for, regardless of the same, we are of the opinion that the stipulation in question is
contrary to public policy and, hence, null and void. The aforesaid memorandum merely incorporates a sound

CARSON, J.:

March 3, 1917

IGNACIO ARROYO, plaintiff-appellant,


vs.
ALFRED BERWIN, defendant-appellee.
J. M. Arroyo for appellant.
No appearance for appellee.

The complaint filed in this action is as follows:


1. That both the plaintiff and the defendant are residents of the municipality of Iloilo, Province of Iloilo,
Philippine Islands.

2. That the defendant is a procurador judicial in the law office of the Attorney John Bordman, and is duly
authorized by the court to practice in justice of the peaces courts of the Province of Iloilo.

The order entered in the court below should, therefore, be affirmed, with the costs of the instance against the
appellant. So ordered.

3. That the defendant, as such procurador judicial, represented Marcela Juanesa in the justice of the peace
court of Iloilo in proceeding for theft prosecuted by the plaintiff Ignacio Arroyo; that said cause was decided by
the said justice of the peace against the accused, and the latter appealed to the Court of First Instance of
Iloilo.
4. That on August 14, 1914, which was the day set for the hearing of the appeal of the said cause against
Marcela Juaneza for theft, Case No. 3120, the defendant requested the plaintiff to agree to dismiss the said
criminal proceeding, and, on August 14, 1914, stipulated with the plaintiff in the presence of Roque Samson,
among other things, that his client Marcela Juaneza would recognize the plaintiff's ownership in the land
situated on Calle San Juan, suburb of Molo, municipality of Iloilo, Province of Iloilo, where his said client
ordered the cane cut, which land and which cut cane are referred to in the cause for theft above-mentioned;
and the defendant furthermore agreed that the plaintiff should obtain a Torrens title to the said land during the
next term of the court for the trial of cadastral cases, and that the defendant's client, Marcela Juaneza, would
not oppose the application for registration to be filed by the said applicant; provided that the plaintiff would ask
the prosecuting attorney to dismiss the said proceedings filed against Marcela Juaneza and Alejandro Castro
for the crime of theft.
5. That the plaintiff on his part complied with the agreement, and requested the prosecuting attorney to
dismiss the above-mentioned criminal cause; that the latter petitioned the court and the court did dismiss the
said cause; that in exchange the defendant does not wish to comply with the above-mentioned agreement;
that the plaintiff delivered to the defendant for the signature of the said Marcela Juaneza a written agreement
stating that the defendant's said client recognized the plaintiff's ownership in the described land and that she
would not oppose the plaintiff's application for registration; and that up to the present time, the defendant has
not returned to the plaintiff the said written agreement, notwithstanding the plaintiff's many demands.
Therefore, the plaintiff prays the court to render judgment ordering the defendant to comply with the
agreement by causing the latter's said client Marcela Juaneza to sign the document in which she recognizes
the plaintiff's ownership of the land on which she ordered the cane cut and states that she will not oppose the
plaintiff's application for the registration of the said land, and, further, by awarding to the plaintiff the costs of
the present suit, as well as any other relief that justice and equity require.

G.R. No. L-19638

June 20, 1966

FILIPINAS COMPAIA DE SEGUROS, ET AL., petitioners and appellees,


vs.
HON. FRANCISCO Y. MANDANAS, in his capacity as Insurance Commissioner, respondent and
appellant.
AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET AL., intervenors and appellees.
Jalandoni and Jamir for petitioner and appellees.
Office of the Solicitor General Arturo A. Alafriz, 1st Assistant Solicitor General Esmeraldo Umali and Solicitor
Comrade T. Limcaoco for intervenors and appellees.
CONCEPCION, C.J.:

The trial judge dismissed this complaint on the ground of the illegality of the consideration of the alleged
contract, and without stopping to consider any other objection to the complaint than that indicated by the court
below, we are of opinion that the order appealed from must be affirmed.
An agreement by the owner of stolen goods to stifle the prosecution of the person charged with the theft, for a
pecuniary or other valuable consideration, is manifestly contrary to public policy and the due administration of
justice. In the interest of the public it is of the utmost importance that criminals should be prosecuted, and that
all criminal proceedings should be instituted and maintained in the form and manner prescribed by law; and to
permit an offender to escape the penalties prescribed by law by the purchase of immunity from private
individuals would result in a manifest perversion of justice.
Article 1255 of the Civil Code provides that:
The contracting parties may make the agreement and establish the clauses and conditions which they may
dream advisable, provided they are not in contravention of law, morals, or public order.
Article 1275 provides that:
Contracts without consideration or with an illicit one have no effect whatsoever. A consideration is illicit when it
is contrary to law and good morals.

This is a special civil action for a declaratory relief Thirty-nine (39) non-life insurance companies instituted it, in
the Court of First Instance of Manila, to secure a declaration of legality of Article 22 of the Constitution of the
Philippine Rating Bureau, of which they are members, inasmuch as respondent Insurance Commissioner
assails its validity upon the ground that it constitutes an illegal or undue restraint of trade. Subsequently to the
filing of the petition, twenty (20) other non-life insurance companies, likewise, members of said Bureau, were
allowed to intervene in support of the petition. After appropriate proceedings, said court rendered judgment
declaring that the aforementioned Article 22 is neither contrary to law nor against public policy, and that,
accordingly, petitioners herein, as well as the intervenors and other members of the aforementioned Bureau,
may lawfully observe and enforce said Article, and are bound to comply with the provisions thereof, without
special pronouncement as to costs. Hence this appeal by respondent Insurance Commissioner, who insists
that the Article in question constitutes an illegal or undue restraint of trade and, hence, null and void.
The record discloses that on March 11, 1960, respondent wrote to said Bureau, a communication expressing
his doubts of the validity of said Article 22, reading:
xxx

xxx

xxx

In respect to the classes of insurance specified in the Objects of the Bureau 1 and for Philippine business only,
the members of this Bureau agree not to represent nor to effect reinsurance with, nor to accept reinsurance
from, any Company, Body, or Underwriter licensed to do business in the Philippines not a Member in good
standing of this Bureau.

and requesting that said provision, be, accordingly, repealed. On April 11, 1960, respondent wrote another
letter to the Bureau inquiring on the action taken on the subject-matter of his previous communication. In reply
thereto, the Bureau advised respondent that the suggestion to delete said Article 22 was still under
consideration by a committee of said Bureau. Soon thereafter, or on May 9, 1961, the latter was advised by
respondent that, being an illegal agreement or combination in restraint of trade, said Article should not be
given force and effect; that failure to comply with this requirement would compel respondent to suspend the
license issued to the Bureau; and that the latter should circularize all of its members on this matter and advise
them that "violation of this requirement by any member of the Bureau" would also compel respondent "to
suspend the certificate of authority of the company concerned to do business in the Philippines". Thereupon,
or on May 16, 1961, the present action was commenced.
Briefly, appellant maintains that, since, in the aforementioned Article 22, members of the Bureau "agree not to
represent nor to effect reinsurance with, nor to accept reinsurance from any company, body, or underwriter,
licensed to do business in the Philippines not a member in good standing of the Bureau", said provision is
illegal as a combination in restraint of trade. As early as August 10, 1916, this Court had had occasion to
declare that the test on whether a given agreement constitutes an unlawful machination or a combination in
restraint of trade
... is, whether, under the particular circumstances of the case and the nature of the particular contract involved
in it, the contract is, or is not, unreasonable. (Ferrazini vs. Gsell, 34 Phil. 697, 712-13.)
This view was reiterated in Ollendorf vs. Abrahamson (38 Phil. 585) and Red Line Transportation Co. vs.
Bachrach Motor Co. (67 Phil. 77), in the following language:
...The general tendency, we believe, of modern authority, is to make the test whether the restraint is
reasonably necessary for the protection of the contracting parties. If the contract is reasonably necessary to
protect the interest of the parties, it will be upheld.
xxx

xxx

xxx

...we adopt the modern rule that the validity of restraints upon trade or employment is to be determined by
the intrinsic reasonableness of the restriction in each case, rather than by any fixed rule, and that
suchrestrictions may be upheld when not contrary to the public welfare and not greater than is necessary to
afford a fair and reasonable protection to the party in whose favor it is imposed. (Ollendorf vs. Abrahamson, 38
Phil. 585.)
...The test of validity is whether under the particular circumstances of the case and considering the nature of
the particular contract involved, public interest and welfare are not involved and the restraint is not only
reasonably necessary for the protection of the contracting parties but will not affect the public interest or
service. (Red Line Transportation Co. vs. Bachrach Motor Co., 67 Phil. 77.) (See also, Del Castillo vs.
Richmond, 45 Phil. 483.)
The issue in the case at bar hinges, therefore, on the purpose or effect of the disputed provision. The only
evidence on this point is the uncontradicted testimony of Salvador Estrada, Chairman of the Bureau when it
was first organized and when he took the witness stand. Briefly stated, he declared that the purpose of Article
22 is to maintain a high degree or standard of ethical practice, so that insurance companies may earn and
maintain the respect of the public, because the intense competition between the great number of non-life
insurance companies operating in the Philippines is conducive to unethical practices, oftentimes taking the
form of underrating; that to achieve this purpose it is highly desirable to have cooperative action between said
companies in the compilation of their total experience in the business, so that the Bureau could determine
more accurately the proper rate of premium to be charged from the insured; that, several years ago, the very
Insurance Commissioner had indicated to the Bureau the necessity of doing something to combat underrating,
for, otherwise, he would urge the amendment of the law so that appropriate measures could be taken therefor
by his office; that much of the work of the Bureau has to do with rate-making and policy-wording; that ratemaking is actually dependent very much on statistics; that, unlike life insurance companies, which have tables
of mortality to guide them in the fixing of rates, non-life insurance companies have, as yet, no such guides;
that, accordingly, non-life insurance companies need an adequate record of losses and premium collections

that will enable them to determine the amount of risk involved in each type of risk and, hence, to determine the
rates or premiums that should be charged in insuring every type of risk; that this information cannot be
compiled without full cooperation on the part of the companies concerned, which cannot be expected from
non-members of the Bureau, over which the latter has no control; and that, in addition to submitting
information about their respective experience, said Bureau members must, likewise, share in the rather
appreciable expenses entailed in compiling the aforementioned data and in analyzing the same.1wph1.t
We find nothing unlawful, or immoral, or unreasonable, or contrary to public policy either in the objectives thus
sought to be attained by the Bureau, or in the means availed of to achieve said objectives, or in the
consequences of the accomplishment thereof. The purpose of said Article 22 is not to eliminate competition,
but to promote ethical practices among non-life insurance companies, although, incidentally it may discourage,
and hence, eliminate unfair competition, through underrating, which in itself is eventually injurious to the
public. Indeed, in the words of Mr. Justice Brandeis:
... the legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains
competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of
their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and
promotes competition, or whether it is such as may suppress or even destroy competition. Todetermine that
question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied;
its condition before and after the restraint was imposed; the nature of the restraint, and its effect, actual or
probable. (Board of Trade of Chicago vs. U.S., 246 U.S. 231, 62 L. ed. 683 [1918].)
Thus, in Sugar Institute, Inc. vs. U.S. (297 U.S. 553), the Federal Supreme Court added:
The restrictions imposed by the Sherman Act are not mechanical or artificial. We have repeatedly said that
they set up the essential standard of reasonableness. Standard Oil Co. vs. United States, 221 U.S. 1, 55 L.
ed. 619, 31 S. Ct. 502, 34 L.R.A. (N.S.) 834, Ann. Cas. 1912D, 734; United States vs. American Tobacco Co.,
221 U.S. 106, 55 L. ed. 663, 31 S. Ct. 632. They are aimed at contracts and combinations which "by reason of
intent or the inherent nature of the contemplated acts, prejudice the public interests by undulyrestraining
competition or unduly obstructing the course of trade." Nash vs. United States, 229 U.S. 373, 376, 57 L. ed.
1232, 1235, 33 S. Ct. 780; United States vs. American Linseed Oil Co., 262 U.S. 371, 388, 389, 67 L. ed.
1035, 1040, 1041, 43 S. Ct. 607. Designed to frustrate unreasonable restraints, they do not prevent the
adoption of reasonable means to protect interstate commerce from destructive or injurious practices and to
promote competition upon a sound basis. Voluntary action to end abuses and to foster fair competitive
opportunities in the public interest may be more effective than legal processes. And cooperative endeavor may
appropriately have wider objectives than merely the removal of evils which are infractions of positive law.
Hence, the City Fiscal of Manila refused to prosecute criminally in Manila Fire Insurance Association for
following a policy analogous to that incorporated in the provision disputed in this case and the action of said
official was sustained by the Secretary of Justice, upon the ground that:
... combinations among insurance companies or their agents to fix and control rates of insurance do not
constitute indictable conspiracies, provided no unlawful means are used in accomplishing their purpose (41
C.J. 161; Aetna Ins. Co. vs. Commonwealth, 106 Ky. 864, 51 SW 624; Queen Ins. Co. vs. State, 86 Tex. 250,
24 SW 397; I Joyce on Insurance, par. 329-a).
Indeed, Mr. Estrada's testimony shows that the limitation upon reinsurance contained in the aforementioned
Article 22 does not affect the public at all, for, whether there is reinsurance or not, the liability of the insurer in
favor of the insured is the same. Besides, there are sufficient foreign reinsurance companies operating in the
Philippines from which non-members of the Bureau may secure reinsurance. What is more, whatever the
Bureau may do in the matter of rate-fixing is not decisive insofar as the public is concerned, for no insurance
company in the Philippines may charge a rate of premium that has not been approved by the Insurance
Commissioner.
In fact, respondent's Circular No. 54, dated February 261 1954, provides:
II. Non-life Insurance company or Group Association of such companies.

Every non-life insurance company or group or association of such companies doing business in the
Philippines shall file with the Insurance Commissioner for approval general basic schedules showing the
premium rates on all classes of risk except marine, as distinguished from inland marine insurable by such
insurance company or association of insurance companies in this country.
xxx

xxx

xxx

An insurance company or group of such companies may satisfy its obligation to make such filings by
becoming a member of or subscriber to a rating organization which makes such filing and by authorizing the
insurance commissioner to accept such filings of the rating organization on such company's or group's behalf.
III. Requiring Previous Application to and Approval by the Insurance Commissioner before any Change in the
Rates Schedules filed with Him Shall Take Effect.
No change in the schedules filed in compliance with the requirements of the next preceding paragraph shall be
made except upon application duly filed with and approved by the Insurance Commissioner. Said application
shall state the changes proposed and the date of their effectivity; all changes finally approved by the Insurance
Commissioner shall be incorporated in the old schedules or otherwise indicated as new in the new schedules.
IV. Empowering the Insurance Commissioner to Investigate All Non-Life Insurance Rates.
The Insurance Commissioner shall have power to examine any or all rates established by non-life insurance
companies or group or association of such insurance companies in the country. Should any rate appear, in the
opinion of the Insurance Commissioner, unreasonably high or not adequate to the financial safety or
soundness to the company charging the same, or pre-judicial to policy-holders, the Commissioner shall, in
such case, hold a hearing and/or conduct an investigation. Should the result of such hearing and/or
investigation show that the rate is unreasonably high or low that it is not adequate to the financial safety and
soundness of the company charging the same, or is prejudicial to policy-holders, the Insurance Commissioner
shall direct a revision of the said rate in accordance with his findings. Any insurance company or group or
association of insurance companies may be required to publish the schedule of rates which may have been
revised in accordance herewith.
The decision of the Insurance Commissioner shall be appealable within thirty days after it has been rendered
to the Secretary of Finance.
V. Prohibiting Non-life Insurance Companies and their Agents from Insuring Any Property in this Country at a
Rate Different from that in the Schedules; Unethical Practices.
No insurance company shall engage or participate in the insurance of any property located in the
Philippines ... unless the schedule of rates under which such property is insured has been filed and approved
in accordance with the provisions of this Circular. ... . (Emphasis ours.)
On the same date, the Constitution of the Bureau, containing a provision substantially identical to the one now
under consideration, was approved. Article 2 of said Constitution reads:
2. OBJECTS
The objects of the Bureau shall be:
a. To establish rates in respect of Fire, Earthquake, Riot and Civil Commotion, Automobile and Workmen's
Compensation, and whenever applicable, Marine Insurance business.
xxx

xxx

xxx

c. To file the rates referred to above, tariff rules, and all other conditions or data which may in any way affect
premium rates with the Office of the Insurance Commissioner on behalf of members for approval. (Emphasis
ours.)
In compliance with the aforementioned Circular No. 54, in April, 1954, the Bureau applied for the license
required therein, and submitted with its application a copy of said Constitution. On April 28, 1954, respondent's
office issued to the Bureau the license applied for, certifying not only that it had complied with the
requirements of Circular No. 54, but, also, that the license empowered it "to engage in the making of rates or
policy conditions to be used by insurance companies in the Philippines". Subsequently, thereafter, the Bureau
applied for and was granted yearly the requisite license to operate in accordance with the provisions of its
Constitution. During all this time, respondent's office did not question, but impliedly acknowledged, the legality
of Article 22. It was not until March 11, 1960, that it assailed its validity.
Respondent's contention is anchored mainly on Paramount Famous Lasky Corp. vs. U.S., 282 U.S. 30, but
the same is not in point, not only because it refers to the conditions under which movie film producers and
distributors determine the terms under which theaters or exhibitors may be allowed to run movie films
thereby placing the exhibitors under the control of the producers or distributors and giving the exhibitors, in
effect, no choice as to what films and whose films they will show but, also, because there is, in the film
industry, no agency or officer with powers or functions comparable to those in the Insurance Commissioner, as
regards the regulation of the business concerned and of the transactions involved therein.
Wherefore, the decision appealed from should be, as it is hereby affirmed, without costs. It is so ordered.
[G. R. No. 126800. November 29, 1999]
NATALIA

P. BUSTAMANTE, petitioner
ROSEL, respondents.

vs.

SPOUSES

RODITO

F.

ROSEL

and

NORMA

A.

RESOLUTION
PARDO, J. :
The case before the Court is a petition for review on certiorari [1] to annul the decision of the Court of
Appeals,[2] reversing and setting aside the decision of the Regional Trial Court, [3], dated November 10, 1992,
Judge Teodoro P. Regino. 3 Quezon City, Branch 84, in an action for specific performance with consignation.
On March 8, 1987, at Quezon City, Norma Rosel entered into a loan agreement with petitioner Natalia
Bustamante and her late husband Ismael C. Bustamante, under the following terms and conditions:
1. That the borrowers are the registered owners of a parcel of land, evidenced by TRANSFER CERTIFICATE
OF TITLE No. 80667, containing an area of FOUR HUNDRED TWENTY THREE (423) SQUARE Meters,
more or less, situated along Congressional Avenue.
2. That the borrowers were desirous to borrow the sum of ONE HUNDRED THOUSAND (P100,000.00)
PESOS from the LENDER, for a period of two (2) years, counted from March 1, 1987, with an interest of
EIGHTEEN (18%) PERCENT per annum, and to guaranty the payment thereof, they are putting as a collateral
SEVENTY (70) SQUARE METERS portion, inclusive of the apartment therein, of the aforestated parcel of
land, however, in the event the borrowers fail to pay, the lender has the option to buy or purchase the collateral
for a total consideration of TWO HUNDRED THOUSAND (P200,000.00) PESOS, inclusive of the borrowed
amount and interest therein;
3. That the lender do hereby manifest her agreement and conformity to the preceding paragraph, while the
borrowers do hereby confess receipt of the borrowed amount. [4]

When the loan was about to mature on March 1, 1989, respondents proposed to buy at the pre-set
price of P200,000.00, the seventy (70) square meters parcel of land covered by TCT No. 80667, given as
collateral to guarantee payment of the loan. Petitioner, however, refused to sell and requested for extension of
time to pay the loan and offered to sell to respondents another residential lot located at Road 20, Project 8,
Quezon City, with the principal loan plus interest to be used as down payment. Respondents refused to
extend the payment of the loan and to accept the lot in Road 20 as it was occupied by squatters and petitioner
and her husband were not the owners thereof but were mere land developers entitled to subdivision shares or
commission if and when they developed at least one half of the subdivision area. [5]

IN VIEW OF THE FOREGOING, the judgment appeal (sic) from is REVERSED and SET ASIDE and a new
one entered in favor of the plaintiffs ordering the defendants to accept the amount of P47,000.00 deposited
with the Clerk of Court of Regional Trial Court of Quezon City under Official Receipt No. 0719847, and for
defendants to execute the necessary Deed of Sale in favor of the plaintiffs over the 70 SQUARE METER
portion and the apartment standing thereon being occupied by the plaintiffs and covered by TCT No. 80667
within fifteen (15) days from finality hereof. Defendants, in turn, are allowed to withdraw the amount
of P153,000.00 deposited by them under Official Receipt No. 0116548 of the City Treasurers Office of Quezon
City. All other claims and counterclaims areDISMISSED, for lack of sufficient basis. No costs.

Hence, on March 1, 1989, petitioner tendered payment of the loan to respondents which the latter
refused to accept, insisting on petitioners signing a prepared deed of absolute sale of the collateral.

SO ORDERED.[13]
Hence, this petition.[14]

On February 28, 1990, respondents filed with the Regional Trial Court, Quezon City, Branch 84, a
complaint for specific performance with consignation against petitioner and her spouse. [6]
Nevertheless, on March 4, 1990, respondents sent a demand letter asking petitioner to sell the
collateral pursuant to the option to buy embodied in the loan agreement.
On the other hand, on March 5, 1990, petitioner filed in the Regional Trial Court, Quezon City a petition
for consignation, and deposited the amount of P153,000.00 with the City Treasurer of Quezon City on August
10, 1990.[7]
When petitioner refused to sell the collateral and barangay conciliation failed, respondents consigned
the amount of P47,500.00 with the trial court. [8] In arriving at the amount deposited, respondents considered
the principal loan of P100,000.00 and 18% interest per annum thereon, which amounted to P52,500.00.[9] The
principal loan and the interest taken together amounted to P152,500.00, leaving a balance of P 47,500.00. [10]
After due trial, on November 10, 1992, the trial court rendered decision holding:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Denying the plaintiffs prayer for the defendants execution of the Deed of Sale to Convey the collateral in
plaintiffs favor;
2. Ordering the defendants to pay the loan of P100,000.00 with interest thereon at 18% per annum
commencing on March 2, 1989, up to and until August 10, 1990, when defendants deposited the amount with
the Office of the City Treasurer under Official Receipt No. 0116548 (Exhibit 2); and

On January 20, 1997, we required respondents to comment on the petition within ten (10) days from
notice.[15] On February 27, 1997, respondents filed their comment. [16]
On February 9, 1998, we resolved to deny the petition on the ground that there was no reversible error
on the part of respondent court in ordering the execution of the necessary deed of sale in conformity the with
the parties stipulated agreement. The contract is the law between the parties thereof ( Syjuco v. Court of
Appeals, 172 SCRA 111, 118, citing Phil. American General Insurance v. Mutuc, 61 SCRA 22; Herrera v.
Petrophil Corporation, 146 SCRA 360).[17]
On March 17, 1998, petitioner filed with this Court a motion for reconsideration of the denial alleging
that the real intention of the parties to the loan was to put up the collateral as guarantee similar to an equitable
mortgage according to Article 1602 of the Civil Code.[18]
On April 21, 1998, respondents filed an opposition to petitioners motion for reconsideration. They
contend that the agreement between the parties was not a sale with right of re-purchase, but a loan with
interest at 18% per annum for a period of two years and if petitioner fails to pay, the respondent was given the
right to purchase the property or apartment for P200,000.00, which is not contrary to law, morals, good
customs, public order or public policy. [19]
Upon due consideration of petitioners motion, we now resolve to grant the motion for reconsideration.
The questions presented are whether petitioner failed to pay the loan at its maturity date and whether
the stipulation in the loan contract was valid and enforceable.
We rule that petitioner did not fail to pay the loan.

3. To pay Attorneys Fees in the amount of P 5,000.00, plus costs of suit.


The loan was due for payment on March 1, 1989. On said date, petitioner tendered payment to settle
the loan which respondents refused to accept, insisting that petitioner sell to them the collateral of the loan.

SO ORDERED.

When respondents refused to accept payment, petitioner consigned the amount with the trial court.

Quezon City, Philippines, November 10, 1992.


TEODORO P. REGINO
Judge[11]
On November 16, 1992, respondents appealed from the decision to the Court of Appeals. [12] On July 8,
1996, the Court of Appeals rendered decision reversing the ruling of the Regional Trial Court. The dispositive
portion of the Court of Appeals decision reads:

We note the eagerness of respondents to acquire the property given as collateral to guarantee the loan.
The sale of the collateral is an obligation with a suspensive condition. [20] It is dependent upon the happening of
an event, without which the obligation to sell does not arise. Since the event did not occur, respondents do not
have the right to demand fulfillment of petitioners obligation, especially where the same would not only be
disadvantageous to petitioner but would also unjustly enrich respondents considering the inadequate
consideration (P200,000.00) for a 70 square meter property situated at Congressional Avenue, Quezon City.
Respondents argue that contracts have the force of law between the contracting parties and must be
complied with in good faith. [21] There are, however, certain exceptions to the rule, specifically Article 1306 of
the Civil Code, which provides:

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy.
A scrutiny of the stipulation of the parties reveals a subtle intention of the creditor to acquire the
property given as security for the loan. This is embraced in the concept of pactum commissorium, which is
proscribed by law.[22]
The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of
security for the payment of the principal obligation, and (2) there should be a stipulation for automatic
appropriation by the creditor of the thing mortgaged in case of non-payment of the principal obligation within
the stipulated period.[23]
In Nakpil vs. Intermediate Appellate Court,[24] we said:
The arrangement entered into between the parties, whereby Pulong Maulap was to be considered sold to
him (respondent) xxx in case petitioner fails to reimburse Valdes, must then be construed as tantamount
to pactum commissorium which is expressly prohibited by Art. 2088 of the Civil Code. For, there was to be
automatic appropriation of the property by Valdes in the event of failure of petitioner to pay the value of the
advances. Thus, contrary to respondents manifestation, all the elements of a pactum commissorium were
present: there was a creditor-debtor relationship between the parties; the property was used as security for the
loan; and there was automatic appropriation by respondent of Pulong Maulap in case of default of petitioner.
A significant task in contract interpretation is the ascertainment of the intention of the parties and
looking into the words used by the parties to project that intention. In this case, the intent to appropriate the
property given as collateral in favor of the creditor appears to be evident, for the debtor is obliged to dispose of
the collateral at the pre-agreed consideration amounting to practically the same amount as the loan. In effect,
the creditor acquires the collateral in the event of non payment of the loan. This is within the concept
of pactum commissorium. Such stipulation is void.[25]
All persons in need of money are liable to enter into contractual relationships whatever the condition if
only to alleviate their financial burden albeit temporarily. Hence, courts are duty bound to exercise caution in
the interpretation and resolution of contracts lest the lenders devour the borrowers like vultures do with their
prey.
WHEREFORE, we GRANT petitioners motion for reconsideration and SET ASIDE the Courts
resolution of February 9, 1998. We REVERSE the decision of the Court of Appeals in CA-G. R. CV No.
40193. In lieu thereof, we hereby DISMISS the complaint in Civil Case No. Q-90-4813.
No costs.

GUERRERO, J.:
Petition for review on certiorari of the decision of the Court Appeals 1 in CA-G.R. No. 46975-R entitled "Jose P.
Dizon, Plaintiff-Appellant, vs. Alfredo G. Gaborro (substituted by Pacita de Guzman Gaborro as Judicial
Administratrix of the Estate of Alfredo G, Gaborro) trial the Development Bank of the Philippines, DefendantsAppellees," affirming with modification the decision of the Court of First Instance of Pampanga, Branch II in
Civil Case No. 2184.
The dispositive portion of the decision sought to be reviewed reads:
IN VIEW OF THE FOREGOING, the judgment appealed therefrom is hereby affirmed
with modification that the plaintiff-appellant has the right to refund or reimburse the
defendant- appellees he sum of P131,831.91 with interest at 8% per annum from
October 6, 1959 until full payment, said right to be exercised within one year from the
date this judgment becomes final, with the understanding that, if he fails to do so within
the said period, then he is deemed to have lost his right over the lands forever. With
costs against the appellant. 2
MODIFIED.
The basic issue to be resolved in this case is whether the 'Deed of Sale with Assumption of Mortgage', trial
Option to Purchase Real Estate". two instruments executed by trial between Petitioner Jose P. Dizon trial
Alfredo G. Gaborro (defendant below) on the same day, October 6, 1959 constitute in truth trial in fact an
absolute sale of the three parcels of land therein described or merely an equitable mortgage or conveyance
thereof by way of security for reimbursement, refund or repayment by petitioner Jose P. Dizon of any trial all
sums which may have been paid to the Development Bank of the Philippines trial the Philippine National Bank
by Alfredo G. Gaborro (later substituted herein by his wife Pacita de Guzman Gaborro as administratrix of the
estate of Alfredo G. Gaborro) who had died during the pendency of the case.
A supplementary issue raised is whether or not Gaborro or the respondent administratrix of the estate should
account for all the fruits produced trial income received by them from the lands mentioned trial described in the
aforesaid "Deed of Sale with Assumption of Mortgage."
The antecedent facts established in the record are not disputed. Petitioner Jose P. Dizon was the owner of the
three (3) parcels of land, subject matter of this litigation, situated in Mabalacat, Pampanga with an aggregate
area of 130.58 hectares, as evidenced by Transfer Certificate of Title No. 15679. He constituted a first
mortgage lien in favor of the Develop. ment Bank of the Philippines in order to secure a loan in the sum of
P38,000.00 trial a second mortgage lien in favor of the Philippine National Bank to cure his indebtedness to
said bank in the amount of P93,831.91.

SO ORDERED.
G.R. No. L-36821 June 22, 1978
JOSE P. DIZON, petitioner,
vs.
ALFREDO G. GABORRO (Substituted by PACITA DE GUZMAN GABORRO as Judicial Administratrix of
the Estate of Alfredo G. Gaborro) and the DEVELOPMENT BANK OF THE PHILIPPINES, respondents.
Leonardo Abola for petitioner.
Carlos J. Antiporda for respondents.

Petitioner Dizon having defaulted in the payment of his debt, the Development Bank of the Philippines
foreclosed the mortgage extrajudicially pursuant to the provisions of Act No. 3135. On May 26, 1959, the hinds
were sold to the DBP for- P31,459.21, which amount covered the loan, interest trial expenses, trial the
corresponding "Certificate of Sale," (Exhibit A-2, Exhibit 1b was executed in favor of the said On November 12,
1959, Dizon himself executed the deed of sale (Exhibit Al over the properties in favor of the DBP which deed
was recorded in the Office of the Register of Deeds on October 6, 1960.
Sometime prior to October 6, 1959 Alfredo G. Gaborro trial Jose P. Dizon met. Gaborro became interested in
the lands of Dizon. Dizon originally intended to lease to Gaborro the property which had been lying idle for
some time. But as the mortgage was already foreclosed by the DPB trial the bank in fact purchased the lands
at the foreclosure sale on May 26, 1959, they abandoned the projected lease. They then entered into the
following contract on October 6, 1959 captioned trial quoted, to wit:

DEED OF SALE WITH ASSUMPTION


OF MORTGAGE

before Notary Public of Manila, Mr, I . I as Doc. No............ Page No.......... Reg. No.
Series of 196........... ; WHEREAS, the VENDOR, has offered to sell trial the VENDEE
is willing to purchase the above-described properties for ONE HUNDRED THIRTY
ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91 /100 (P131,831.91),
Philippine Currency, under the terms trial conditions herein below set forth;

KNOW ALL MEN BY THESE PRESENTS:


This DEED OF SALE WITH ASSUMPTION OF MORTGAGE, made trial executed at
the City of Manila, Philippines, on this 6th day of October, 1959 by trial between
JOSE P. DIZON, of legal age, Filipino, married to Norberta Torres, with residence trial
postal address at Mabalacat, Pampanga, hereinafter referred to as the VENDOR.
ALFREDO G. GABORRO, likewise of legal age, Filipino, married to Pacita de Guzman,
with residence trial postal address at 46, 7th St., Gilmore Avenue, Quezon City,
hereinafter referred to as the VENDEE,
W I T N E S S E T H: That
WHEREAS, the VENDOR is the registered owner of three (3) parcels of land covered
by Transfer Certificate of Title No. 15679 of the land records of Pampanga. situated in
the Municipality of Mabalacat, Province of Pampanga, trial more particularly described
trial bounded as follows:
1. A parcel of land (Lot No. 188 of the Cadastral Survey of Mabalacat), with the
improvements thereon, situated in the Municipality of Mabalacat, Bounded on the NE
by Lot No 187: on the SE., by Lots Nos. 183, 189, 191 trial 192; on the SW by Lot No.
192 trial on the NW by the unimproved provincial road to Magalang. Containing an
area of TWO HUNDRED AND TWENTY ONE THOUSAND ONE HUNDRED
SEVENTY TWO SQUARE METERS (221,172), more or less.
2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat), with the
improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE.,
by a road trial Lots Nos. 569,570 trial 571; on the SE., by Lot No. 571 trial the
unimproved road to Magalang, on the SW by a road; trial on the NE., by a road trial the
Sapang Pritil Containing an area of NINE HUNDRED SEVENTY EIGHT THOUSAND
SEVEN HUNDRED AND SEVENTEEN SQUARE METERS (978,717), more or less.

NOW, THEREFORE, for- trial in consideration of the above premises trial the amount
of ONE HUNDRED THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE
PESOS & 91/100 (P131,831.91), Philippine Currency, in hand paid in cash by the
VENDEE unto the VENDOR, receipt whereof is hereby acknowledged by the VENDOR
to his entire trial full satisfaction, trial the assumption by the VENDEE of the entire
mortgage indebtedness, both with the Development Bank of the Philippines trial the
Philippine National Bank above mentioned, the VENDOR does by these presents, sell,
transfer trial convey, as he had sold, transferred, trial conveyed, by way of absolute
sale, perpetually trial forever, unto the VENDEE, his heirs, successors trial assigns.
above-described properties, with all the improvements thereon, free from all liens trial
encumbrances of whatever nature. except the pre- existing mortgage obligations with
the Development Bank of the Philippines trial the Philippine National Bank
aforementioned. The VENDOR does hereby warrant title, ownership trial possession
over the properties herein sold trial conveyed, trial binds himself to defend the same
from any trial all claimants.
That the VENDEE, does by these presents, assume as he has assumed, under the
same terms trial conditions of the mortgage contracts dated ... and ... of the mortgage
indebtedness of the VENDOR in favor of the Development Bank of the Philippines trial
the Philippine National Bank, respectively, as if the aforesaid documents were
personally executed by the VENDEE trial states trial reiterates all the terms trial
conditions stipulated in said both documents, making them to all intent trial purposes,
parts hereof by reference.
IN WITNESS WHEREOF, the VENDOR and the VENDEE together with their
instrumental witnesses, have signed this deed of the place, date, month trial year first
above written.
(Sgd.) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO
Vendor Vendee
Signed in the Presence of:

3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat), with the
improvements thereon, situated in the Municipality of Mabalacat. Bounded on the NE.,
by Lot No. 570, on the SE SW trial NW by roads. Containing an area of ONE
HUNDRED FIVE THOUSAND NINE HUNDRED AND TWENTY ONE SQUARE
METERS (105,921), more or less,
WHEREAS, the above-described properties are presently mortgaged (first mortgage)
to the Development Bank of the Philippines (,formerly Rehabilitation Finance
Corporation) to secure the payment of a loan, plus interest, of THIRTY EIGHT
THOUSAND PESOS ONLY (P38,000.00), Philippine currency, as evidenced by a deed
of mortgage for- P... dated ... which deed was ratified trial acknowledged before Notary
Public of Manila, Mr. ... as Doc. No. Page No. Reg. No. Series of 196 ... ;

(Sgd.) (Illegible) (Sgd.) (Illegible)


(Acknowledgment Omitted)
The second contract executed the same day, October 6, 1959 is called Option to Purchase Real Estate, trial is
in the following wise trial manner:
OPTION TO PURCHASE REAL ESTATE
KNOW ALL MEN BY THESE PRESENTS:

WHEREAS, the aforesaid properties are likewise mortgage (second mortgage) to the
Philippine National Bank to secure the payment of a loan of NINETY THREE
THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (P93,831.91),
Philippine Currency, plus interest up to August 13, 1957, as evidenced by deed of
Mortgage for P............. dated................... which deed was ratified trial acknowledged

That 1, ALFREDO G. GABORRO, of legal age, Filipino, married to Pacita de Guzman,


with residence trial postal address at 46, 7th St., Gilmore Ave., Quezon City, forvaluable consideration, do hereby give to JOSE P. DIZON, of legal age, Filipino,

married to Norberta Torres, resident of Mabalacat, Pampanga, his heirs, successors


and assigns, the option of repurchasing the following described properties:

The sum of P131,813.91 which purports to be the consideration of the sale was not actually paid by Alfredo G.
Gaborro to the petitioner. The said amount represents the aggregate debts of the petitioner with the
Development Bank of the Philippines trial the Philippine National Bank.

TRANSFER CERTIFICATE OF TITLE


NO. 15679, PROVINCE OF PAMPANGA
1. A parcel of land (Lot No. 188 of Cadastral Survey of Mabalacat, Pampanga
containing an area of (211,172) more or less.

After the execution of said contracts, Alfredo G. Gaborro took possession of the three parcels of land in
question.
On October 7, 1959, Gaborro wrote the Development Bank of the Philippines a letter (Exh. J), as follows:
Sir:

2. A parcel of land (Lot No. 193 of the Cadastral Survey of Mabalacat, Pampanga),
containing an area of (978,172) more or less.
3. A parcel of land (Lot No. 568 of the Cadastral Survey of Mabalacat, Pampanga
containing an area of (105,921), more or less. which I acquired from the said Jose P.
Dizon by purchase by virtue of that document entitled "Deed of Sale with Assumption
of Mortgage" dated October 6, 1959, acknowledged by both of us before Notary Public
of Manila GREGORIO SUMBILIO as DOC. No. 342, Page No. 70, Reg. No. VII Series
of 1959.

This is with reference to your mortgage lien of P38,000.00 more or less over the
properties more particularly described in TCT No. 15679 of the land records of
Pampanga in the name of Jose P. Dizon. In this connection, we have the honor to
inform you that pursuant to a Deed of Sale with Assumption of Mortgage executed on
October 6, 1959 by Jose P. Dizon in my favor, copy of which is hereto attached, the
ownership of the same has been transferred to me subject of course to your conformity
to the assumption of mortgage. As a consequence of the foregoing document, the
obligation therefore of paying your goodselves the total amount of indebtedness has
shifted to me

Said option shall be valid trial effective within the period comprises from January, 1965
to December 31, 1970, inclusive, upon payment of the amount of ONE HUNDRED
THIRTY ONE THOUSAND EIGHT HUNDRED THIRTY ONE PESOS & 91/100 (?
131,831.91), Philippine Currency, plus an interest of eight per centum (8%) thereof, per
annum. This is without prejudice at any time to the payment by Mr. Dizon of any partial
amount to be applied to the principal obligation, without any way disturbing the
possession and/or ownership of the above properties since only full payment can effect
the necessary change.

Considering that these agricultural properties have not been under cultivation for- quite
a long time, I would therefore request that, on the premise that the assumption of
mortgage would be agreeable to you, that I be allowed to pay the outstanding
obligation, under the same terms trial conditions as embodied in the original contract of
mortgage within ten (10) years to be divided in 10 equal annual amortizations. I am
enclosing herewith a check in the amount of P3,609.95 representing 10% of the
indebtedness of Jose P. Dizon to show my honest intention in assuming the mortgage
obligation to you ...

In the event that Mr. Jose P. Dizon may be able to find a purchaser for- the foregoing
properties on or the fifth year from the date the execution of this document, the
GRANTEE, Mr. JOSE P. DIZON, may do so provided that the aggregate amount which
was Paid to Development Bank of the Philippines trial to the Philippine National Bank
together with the interests thereon at the rate of 8% shall be refunded to the
undersigned.
Furthermore, in case Mr. Jose P. Dizon shall be able to find a purchaser for- the said
properties, it shall be his duty to first notify the undersigned of the contemplated sale,
naming the price trial the purchaser therefor, trial awarding the first preference in the
sale hereof to the undersigned.

The Board of Governors of the DBP, in its Resolution No. 7066 dated October 21, 1959 approved the offer of
Gaborro but said Board required him to pay 20% of the purchase price as initial payment, (Exh. D)
Accordingly, on July 11, 1960, the DBP trial Gaborro executed a conditional sale of the properties in
consideration of the sum of P36,090.95 (Exh. C) payable 20% down trial the balance in 10 years in the yearly
amortization plan at 8% per annum.
On January 7, 1960, Dizon assigned his right of redemption Lo Gaborro in an instrument (Exh. 9) entitled:
ASSIGNMENT OF RIGHT OF REDEMPTION
AND ASSUMPTION OF OBLIGATION

IN WITNESS WHEREOF, I have hereunto signed these presents at the City of Manila,
on this 6th day of October, 1959.
(Sgd.) ALFREDO G. GABORRO

KNOW ALL MEN BY THESE PRESENTS:

(Sgd.) JOSE P. DIZON

This instrument, made trial executed by trial between JOSE P. DIZON, married to
Norberta P. Torres, Filipino, of legal age, with residence trial postal address at
Mabalacat, Pampanga. hereinafter referred to as the ASSIGNOR trial ALFREDO G.
GABORRO, married to Pacita de Guzman, likewise of legal age, Filipino, with
residence trial postal address at 46, 7th Street, Gilmore Ave., Quezon City, hereinafter
referred to as the ASSIGNEE,

SIGNED IN THE PRESENCE OF:

WITNESSETH:

CONFORME:

(Acknowledgment Omit)

WHEREAS, the Assignor is the owner trial mortgagor of three (3) parcels agricultural
land together with all the improvements existing thereon trial more particularly
described trial bounded as follows:

IN WITNESS WHEREOF, the parties have hereunto set their hands in the City of
Manila, Philippines this --------- day of - - - - - -1959.
(Sgd-) JOSE P. DIZON (Sgd.) ALFREDO G. GABORRO

TRANSFER CERTIFICATE OF TITLE NO. 1567


Assignor (Assignee)
PROVINCE OF PAMPANGA
(Acknowledgment Omitted)
1. A parcel of land (Lot No. 188 of the Cadastral Survey of
Mabalacat), with the improvements thereon, situated in the
Municipality of Mabalacat. Bounded on the NE by Lot No. 187:
on the SE. by Lots Nos. 183, 189, 191 trial 192; on the SW. by
Lot No. 192; trial on the NW by the unimproved provincial road
to Magalan. Containing an area of two hundred twenty-one
thousand one hundred trial seventy two square meters
(221,172), more or less.
2. A parcel of land (Lot No. 193 of the Cadastral Survey of
Mabalacat), with the improvements thereon, situated in the
Municipality of Mabalacat. Bounded on the NE. by a road trial
Lots Nos. 569, 570 trial 571; on the SE. by Lot No. 571 trial the
unimproved road to Magalan-, on the SW. by a road; trial on the
NW by a road trial the Sapang Pritil Containing an area of nine
hundred seventy eight thousand seven hundred and seven
hundred square meters (978,717), more or less.
3. A parcel of Land (Lot No. 568 of the Cadastral Survey of
Mabalacat), with the improvements thereon, situated in the
Municipality of Mabalacat, Bounded on the NE. by Lot No. 570;
and on the SE., SW. and NW. by roads. Containing an area of
one hundred five thousand nine hundred and twenty-one
square meters (105,921), more or less.
WHEREAS, the above described properties were mortgaged with the Rehabilitation
Finance Corporation, now Development Bank of the Philippines, which mortgage has
been foreclosed on May 26, 1959;
AND WHEREAS, the herein Assignor has still the right to redeem the said properties
from the said Development Bank of the Philippines within a period of one (1) year
counted from the date of foreclosure of the said mortgage.
NOW, THEREFORE, for ......................................... trial other valuable considerations,
receipt whereof is hereby acknowledged by the Assignor from the Assignee, The herein
Assignor does hereby transfer trial assign to the herein Assignee, his heirs, successors
trial assigns the aforesaid right to redeem the aforementioned properties above
described.
That with this document the herein Assignor relinquishes any and all rights to the said
properties including the improvements existing thereon.
That the Assignee, by these presents, hereby assumes the obligation in favor of the d
Development Bank of the Philippines, as Paying whatever legal indebtedness the
Assignor has with the d B in connection with the transaction regarding the hove
mentioned Properties subject to the file and conditions that the said Bank may require
and further recognizes the second mortgage in favor Of the Philippine National Bank.

After the execution of the conditional e to him Gaborro made several payments to the DBP and PNB. He
introduced improvements, cultivated the kinds raised sugarcane and other crops and appropriated the produce
to himself. He will paid the land taxes thereon.
On July 5, 1961, Jose P. Dizon through his lawyer, Atty. Leonardo Abola, wrote a letter to Gaborro informing
him that he is formally offering reimburse Gaborro Of what he paid to the banks but without, however,
tendering any cash, and demanding an accounting of the income and of the pro contending that the
transaction they entered into was one of antichresis. Gaborro did not accede to the demands of the petitioner,
whereupon, on JULY 30, 1962, Jose P. Dizon instituted a complaint in the Court of First Instance of
Pampanga, Gaborro, alleging that the documents Deed of Sale With Assumption of Mortgage and the Option
to Purchase Real Estate did not express the true intention and agreement bet. between the parties. Petitioner
Dizon, as Plaintiff below, contended that the two deeds constitute in fact a single transaction that their real
agreement was not an absolute e of the d of land but merely an equitable mortgage or conveyance by way of
security for the reimbursement or refund by Dizon to Gaborro of any and all sums which the latter may have
paid on account of the mortgage debts in favor of the DBP and the PNB. Plaintiff prayed that defendant
Gaborro be ordered to accept plaintiff's offer to reimburse him of what he paid to the banks; to surrender the
possession of the lands to plaintiff; to make an accounting of all the fruits, produce, harvest and other income
which he had received from the three (3) parcels of land; and to pay the plaintiff for the loss of two barns and
for damages.
In its answer, the DBP specifically denied the material averments of the complaint and stated that on October
6, 1959, the plaintiff Dizon was no longer the owner of the land in question because the DBP acquired them at
the extrajudicial foreclosure sale held on May 26, 1959, and that the only right which plaintiff possessed was a
mere right to redeem the lands under Act 3135 as amended.
Defendant Alfredo G. Gaborro also answer, denying the material averments of the complaint, stating that the
"Deed of Sale with Assumption of Mortgage" expresses the true agreement of the parties "fully, truthfully and
religiously" but the Option to Purchase Real Estate" does not express the true intention of the parties because
it was made only to protect the reputation of the plaintiff among his townmates, and even in the supposition
that said option is valid, the action is premature. He also filed a counterclaim for damages, which plaintiff
denied.
The issues having been joined, a pre-trial was held and the following stipulation of facts admitted by the
parties was approved by the Court in the following order dated February 22, 1963:
ORDER
At today's initial trial the following were present: Mr. Leonardo Abola, for the plaintiff;
Mr. Carlos Antiporda, for the defendant Alfredo Gaborro; and Mr. Virgillo Fugoso, for
the Development Bank of the Philippines:
The parties brave stipulated on the following facts:
1. That Annex A attached to the complaint is marked Exhibit
A- Stipulation. The parties have admitted the due execution, authenticity and

genuineness of said Exhibit A-Stipulation. This fact has been admitted by all the three
parties.

the plaintiff any share hereof. This fact has been admitted by plaintiff and defendant
Gaborro only.

2. That the defendant Gaborro executed Annex B, which is marked Exhibit BStipulation. This fact has been admitted only between plaintiff and defendant Gaborro.

Let a copy of this order be served upon the plaintiff, defendant Gaborro and the
Development Bank of the Philippines with the understanding that, if, within fifteen (15)
days, none of the parties questions the correctness of The facts set forth above. this
stipulation of facts shall be conclusive upon the parties interested in this case.

3. That the three parcels of land referred to in paragraph 3 of the complaint, on or


before October 6, 1959, were subject to a first mortgage lien in favor of the
Development Bank of the Philippines, formerly Rehabilitation Finance Corporation, to
secure payment of a loan obtained by the plaintiff Jose P. Dizon in the original sum of
P38,000.00 plus interest, which has been assumed by defendant Gaborro by virtue of
a document, Exhibit A-Stipulation, and also subject to a second mortgage lien in favor
of the Philippine National Bank to secure the payment of a loan in the sum of
P93,831.91 plus interest up to August 30, 1951, which mortgage liens were duly
annotated on TCT 15679. This fact has been admitted by the plaintiff and defendant
Gaborro.
4. In respect to the foreclosure of the first mortgage referred to above, it was admit that
the same was foreclosed on May 26, 1959, the second mortgage has not been
admitted nor foreclosed.
5. That the Development Bank of the Philippines admits that the first mortgage referred
to above was foreclosed on May 26, 1959 under the provision,,; of Public Act No- 3135,
as amended.
6. That subsequently the Development Bank and the defendant Gaborro executed a
document entitled Conditional Sale over the same parcels of land referred to in
paragraph 3 of the complaint, and copy thereof will be furnished by the Development
Bank of the Philippines and marked Exhibit C-Stipulation.
7. That on or before October 6, 1960, TCT No. 15679 of the Register of D of
Pampanga in the name of Jose P. Dizon covering the three parcels of land referred to
in the complaint was cancelled and in lieu thereof TCT NO. 24292 of the Register of
Deeds of Pampanga was issued in the name of the Development Bank of the
Philippines. This fact has been admitted by all the parties.
8. That after the execution of the deed of conditional sale, certain payments were made
by the defendant Gaborro to the Development Bank, the exact amount to be
determined later and receipts of payments to be also exhibited later. This fact has been
admitted by all the three parties.
9. That since October 6, 1959, the defendant Gaborro has made several payments to
the PNB in the amounts appearing on the receipts which will be shown later, such
payments being made on account of the sum of P38,831.91. The payment was
assumed by said - defendant Gaborro. This fact has been admitted by plaintiff and
defendant Gaborro only.
10. That since the execution of Exhibits A and B-Stipulation, it,, defendant Gaborro has
been and still is in the actual possession f the three parcels of land in question and he
is actually cultivating the same and that the land taxes thereon have been paid by said
defendant Gaborro, the amounts of said taxes appearing on the official receipts to be
shown later. This fact has been admitted by plaintiff and defendant Gaborro only.
11. That since defendant Gaborro took possession of the lands in question, he has
been appropriating all the fruits produced and income of said lands without giving to

Set the trial on the controversial facts on April 18, 1963 at 13:00 clock in the morning.
Paragraphs 3 and 10 of the above quoted order were deleted in an order dated July 26, 1963.
The records disclose that during the pendency of the case in the trial court, motions were filed by the plaintiff
for the appointment of a receiver of the properties but all were denied. plaintiff also reiterated the same motion
before the appellate court which, however, dismissed the same, reserving to him the right to file in the trial
court. Plaintiff did file but with the same result. certiorari proceedings were resorted to in the Court of Appeals
in CA-G.R. No. SP-01403 entitled "Jose P. Dizon vs. Hon. Felipe Buencamino, et al." which the respondent
court denied.
After trial the court held that the true agreement between Jose P. Dizon, the plaintiff therein, and the defendant
Alfredo G. Gaborro is that the defendant would assume and pay the indebtedness of the plaintiff to the
Development Bank of the Philippines and the Philippine National Bank, and in consideration therefor, the
defendant was given the possession and enjoyment of the properties in question until the plaintiff shall have
reimbursed to defendant fully the amount of P131,831.91 plus 8% interest per annum.
Accordingly, on March 14, 1970, the lower court rendered judgment, the dispositive part of which reads:
IN VIEW OF THE FOREGOING, the documents entitled 'Deed of Sale with Assumption
of Mortgage'(Exhibit A-Stipulation) and 'Option to Purchase Real Estate' (Exhibit BStipulation) are hereby reformed to the extent indicated above. However, since this
action was filed before the period allowed the plaintiff to redeem his property, the
prematurity of this action aside from not being principally alleged in the complaint,
deters this Court from ordering further reliefs and remedies. The counterclaim of the
defendant is dismissed.
The plaintiff's motion for new trial and for reconsideration and motion for admission of supplemental complaint
having been denied for lack of merit, on June 6, 1970, plaintiff appealed to the Court of Appeals, which.
however, affirmed the decision with the modification that the plaintiff-appellant has the right to refund or
reimburse the defendant-appellee the sum of P131,831.91 with interest at 8% per annum from October 6,
1959 until full payment, said right to be exercised within one (1) year from the date the judgment becomes
final, with the understanding that, if he fails to do so within the said period, then he is deemed to have lost his
right over the lands forever.
Petitioner's motion for reconsideration and/or rehearing having been denied by the Court of Appeals, hence
the present petition for review on certiorari. The petitioner assigns the following errors, to wit:
I. The Court of Appeals, like the lower court, erred in not holding that upon established
facts and undisputed documentary evidence, the deed of sale with assumption of
mortgage (Exhibit A-Stipulation) constitutes an equitable mortgage or conveyance to
secure petitioner's obligation to reimburse or refund to defendant Alfredo Gaborro any
and all sums to the extent of P131,831.91, paid by said defendant in total or partial
satisfaction of petitioner's mortgage debts to the DBP and the PNB. In this connection,
the Court of Appeals erred:

(A) In not finding that the petitioner was the lawful owner of the
lands in question:
(B) In not finding that the deed of sale in question is not a real
and unconditional sale; and
(C) In not holding that the option to purchase real estate
(Exhibit B-Stipulation is conclusive evidence that the transaction
in question is in fact an equitable mortgage.
II. The Court of Appeals also erred in finding that the instrument entitled 'Assignment of
Right of Redemption and Assumption of Obligation' is conclusive evidence that the real
transaction Evidenced by the 'Deed of Sale with Assumption of Mortgage' is not an
equitable mortgage. In this connection the said court also erred or at least committed a
grave abuse of discretion:
(A) In not finding that the said deed of assignment is in fact a
mere reiteration of the terms and condition of the deed of sale;
(B) In finding that the price or consideration of The aforesaid
assignment. of right of redemption consisted of 300 cavans of
palay delivered by Mrs. Gaborro to the petitioner; and
(C) In finding that defendant Gaborro purchased the lands in
question by virtue of the aforementioned deed of assignment.
III. The, Court of Appeals, like the trial court, also erred in not finding that the estate of
Alfredo G. Gaborro is under obligation to render an accounting of all the produce, fruits
and other income of the lands in question from October 6, 1959, and to reconvey the
said lands to the herein petitioner. In to connection, the said court also erred:
(A) In not holding that as a mortgagee in possession the
Gaborro estate has the obligation to either render an
accounting of the produce or fruits of the lands, or to pay rentals
for the occupation of said lands;
(B) In not finding that the Gaborro estate has the obligations to
reconvey the lands in controversy to the herein petitioner, upon
payment of the balance due from him after deducting either the
net value of the produce or fruits of the Said lands or the rentals
thereof,
(C) In not finding that further reliefs or remedies may be granted
the herein petitioner; and
(D) In not ordering the admission of herein petitioners
'Supplemental Complaint' dated April 30, 1970.
IV. The Court of Appeals finally erred in not reversing the decision of the trial court, and
in not rendering judgment declaring that the deed of sale with assumption of mortgage
(Exhibit A Stipulation) is in fact an equitable mortgage; and in not ordering the Gaborro
estate either to render an accounting of all the produce or fruits of the lands in question
or to pay rentals for the occupation thereof, from October 6, 1959; and in not ordering
the estate of Alfredo G. Gaborro to reconvey, transfer and assign unto the petitioner the
aforementioned lands.

The two instruments sought to be reformed in this case ap pear to stipulate rights and obligations between the
parties thereto Pertaining to and involving parcels of land that had already beer foreclosed and sold
extrajudicially, and purchased by the mortgage creditor, a degree party. It becomes, therefore, necessary to
determine the legality of said rights and obligation arising from the foreclosure and e pro. proceedings only
between the two contracting parties to the instruments executed between them but also in the so far a
agreement affects the rights of the degree panty, the purchase Bank.
Act 3135, Section 6 as amended by Act 4118, under which the Properties were extrajudicially foreclosed and
sold, provides that:
Sec. 6. In all cases in which an extrajudicial rule is made under the special power
hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or
judgment creditor of e debtor, or any person having a lien on the property subsequent
to the mortgage or deed of trust under which the property is sold, may redeem the
same at any time within the term or one year from and after the date of the sale; and
such redemption shall be governed by the provisions of sections four hundred and
sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so
far as these are not consistent with the provisions of this Act.
Under the Revised Rules of Court, Rule 39, Section 33, the judgment debtor remains in possession of the
property foreclosed and sold, during the period of redemption. If the judgment debtor is in possession of the
property sold, he is entitled to retain it and receive the fruits, the purchaser not being entitled to such
possession. (Riosa v. Verzosa, 26 Phil. 86; Velasco v. Rosenberg's Inc., 32 Phil. 72; Pabico v. Pauco 43 Phil.
572; Power v. PNB, 54 Phil. 54; Gorospe v. Gochangco L-12735, Oct. 30, 1959).
A judgment debtor, whose property is levied on execution, may transfer his right of redemption to any one
whom he may desire. The right to redeem land sold under execution within 12 months is a property right and
may be sold voluntarily by its owner and may also be attached and sold under execution (Magno v. Viola and
Sotto, 61 Phil. 80).
Upon foreclosure and sale, the purchaser is entitled to a certificate of sale executed by the sheriff. (Section 27,
Revised Rules of Court) After the termination of the period of redemption and no redemption having been
made, the purchaser is entitled to a deed of conveyance and to the possession of the properties. (Section 35,
Revised Rules of Court). The weight of authority is to the effect that the purchaser of land sold at public
auction under a writ of execution only has an inchoate right in the property, subject to be defeated and
terminated within the period of 12 months from the date of sale, by a redemption on the part of the owner.
Therefore, the judgment debtor in possession of the property is entitled to remain therein during the period
allowed for redemption. (Riosa v. Verzosa. 26 Phil, 86; 89; Gonzales v. Calimbas, 51 Phil. 355.)
In the case before Us, after the extrajudicial foreclosure and sale of his properties, petitioner Dizon retained
the right to redeem the lands, the possession, use and enjoyment of the same during the period of
redemption. And these are the only rights that Dizon could legally transfer, cede and convey unto respondent
Gaborro under the instrument captioned Deed of Sale with Assumption of Mortgage (Exh. A-Stipulation),
likewise the same rights that said respondent could acquire in consideration of the latter's promise to pay and
assume the loan of petitioner Dizon with DBP and PNB.
Such an instrument cannot be legally considered a real and unconditional sale of the parcels of land, firstly,
because there was absolutely no money consideration therefor, as admittedly stipulated the sum of
P131,831.91 mentioned in the document as the consideration "receipt of which was acknowledged" was not
actually paid; and secondly, because the properties had already been previously sold by the sheriff at the
foreclosure sale, thereby divesting the petitioner of his full right as owner thereof to dispose and sell the lands.
In legal consequence thereby, respondent Gaborro as transferee of these certain limited rights or interests
under Exh. A-Stipulation, cannot grant to petitioner Dizon more that said rights, such ac the option Co
purchase the lands as stipulated in the document called Option to Purchase Real Estate (Exhibit BStipulation), This is necessarily so for the reason that respondent Gaborro did not purchase or acquire the full
title and ownership of the properties by virtue of the Deed of Sale With Assumption of Mortgage (Exh. A

Stipulation), earlier executed between them which We have ruled out as an absolute sale. The only legal effect
of this Option Deed is the grant to petitioner the right to recover the properties upon reimbursing respondent
Gaborro of the total sums of money that the latter may have paid to DBP and PNB on account of the mortgage
debts, the said right to be exercised within the stipulated 5 years period.

(a) Dizon is granted the right to a reconveyance of the properties by reimbursing


Gaborro (or his estate) whatever amounts) the latter has actually paid on account of
the principal only, of Dizon's loans of P38,000.00 and P93,831.91 which the DBP and
PNB, respectively, exclusive of the interests that may have accrued thereon or may
have been paid by Gaborro, on the basis of duly certified statements issued by said
banks;

In the light of the foreclosure proceedings and sale of the properties, a legal point of primary importance here,
as well as other relevant facts and circumstances, We agree with the findings of the trial and appellate courts
that the true intention of the parties is that respondent Gaborro would assume and pay the indebtedness of
petitioner Dizon to DBP and PNB, and in consideration therefor, respondent Gaborro was given the
possession, the enjoyment and use of the lands until petitioner can reimburse fully the respondent the
amounts paid by the latter to DBP and PNB, to accomplish the following ends: (a) payment of the bank
obligations; (b) make the lands productive for the benefit of the possessor, respondent Gaborro, (c) assure the
return of the land to the original owner, petitioner Dizon, thus rendering equity and fairness to all parties
concerned.

(b) Any outstanding balance due on Dizon's original principal loan of P38,000.00 with
the Development Bank of the Philippines assumed by Gaborro and on Dizon's original
principal loan of 93,831.91 with the PNB shag be deducted from the above-fixed
reconveyance price payable to Gaborro, in order to enable Dizon to pay off the said
mortgage loans directly to the said banks, in accordance with file mutually agreed upon
with them by Dizon;
(c) In other words, the maximum reconveyance price that Dizon is obligated to pay is
the total sum of ?131,831.91 (the sum total of the principals of his two original loans
with the DBP and PNB), and should the amounts due to the said banks exceed this
total of P131,831.91 (because of delinquent interests and other charges), nothing shall
be due Gaborro by way of reimbursement and Dizon will thereupon step into the shoes
of Gaborro as owner-mortgagor of the properties and directly arrange with the banks
for the settlement of the amounts still due and payable to them, subject to the right of
Dizon to recover such amounts in excess of P131,831.91 from Gaborro by writ of
execution in this case; and

In view of all these considerations, the law and Jurisprudence, and the facts established. We find that the
agreement between petitioner Dizon and respondent Gaborro is one of those inanimate contracts under Art.
1307 of the New Civil Code whereby petitioner and respondent agreed "to give and to do" certain rights and
obligations respecting the lands and the mortgage debts of petitioner which would be acceptable to the bank.
but partaking of the nature of the antichresis insofar as the principal parties, petitioner Dizon and respondent
Gaborro, are concerned.
Mistake is a ground for the reformation of an instrument which there having been a meeting of the minds of
The parties o a contract, their true intention is not expressed in the instrument purporting to embody the
agreement, and one of the parries may ask for such reformation to the end that such true intention may be
expressed. (Art. 1359, New Civil code). When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may be reformed. (Art. 1361, New Civil Code.) It
was a mistake for the parties to execute the Deed of Sale With Assumption of Mortgage and the Option to
Purchase Real Estate and stand on the literal meaning of the file and stipulations used therein.
The instruments must, therefore, be reformed in accordance with the intention and legal rights and obligations
of the parties the petitioner, the respondent and the Banks. We agree with the reformation decreed by the
trial and appellate courts, but in the sense that petitioner Jose P. Dizon has the right to reacquire the three
parcels of land within the one-year period indicated below by refunding or reimbursing to respondent Alfredo
G. Gaborro or the Judicial Administratrix of his Estate whatever amount the latter has actually paid on account
of the principalonly, of the loans of Dizon with the DBP and PNB, excluding the interests and land taxes that
may have been paid or may have accrued, on duly certified financial statements issued by the said banks.
On the issue of the accounting of the fruits, harvests and other income received from the three parcels of land
from October 6, 1959 up to the present, prayed and demanded by Dizon of Gaborro or the Judicial
Administratrix of the latter's estate, We hold that in fairness and equity and in the interests of justice that since
We have ruled out the obligation of petitioner Dizon to reimburse respondent Gaborro of any interests and
land taxes that have accrued or been paid by the latter on the loans of Dizon with DBP and PNB, petitioner
Dizon in turn is not entitled to an accounting of the fruits, harvests and other income received by respondent
Gaborro from the lands, for certainly, petitioner cannot have both benefits and the two may be said to offset
each other.
By virtue of the Option to Purchase Real Estate (Exh. B Stipulation) which on its face granted Dizon the option
to purchase the properties which must be exercise within the period from January, 1960 to December 31, 1965
but which We held to be simply the grant of the right to petitioner Dizon to recover his properties within the
said period, although already expired by reasons and circumstances beyond his control, petitioner is entitled to
a reconveyance of the properties within a reasonable period The period of one year from the date of the
finality of this judgment as laid down by the Court of Appeals for the exercise of such right by petitioner Dizon
appears fair and reasonable and We approve the same.
Since We are not informed of the status of Dizon's loan of P93,831.91 with the Philippine National Bank which
appears to be on a subsisting basis, it is proper to indicate here how petitioner Dizon may exercise the right to
a reconveyance of the properties as herein affirmed, as follows:

(d) As already stated, Dizon is not entitled to an accounting of the fruits, harvests and
other income received by Gaborro from the land while Gaborro in turn is not entitled to
the payment of any interests on any amounts paid by him on account of the principal
loans to the banks nor reimbursement of any interests paid by him to the banks.
WHEREFORE, the judgment appealed from is hereby affirmed with the modification that petitioner Dizon is
granted the right within one year from finality of this decision to a reconveyance of the properties in litigation
upon payment and reimbursement to respondent estate of o G. Gaborro of the amounts actually paid by
Gaborro or his estate on account of the principal only of Dizon's original loans with the Development Bank of
the Philippines and Philippine National Bank in and up to the total amount of P131,831.91, under the terms
and conditions set forth in the preceding paragraph with subparagraphs (a) to (d), which are hereby
incorporated by reference as an integral part of this judgment, and upon the exercise of such right, respondent
estate shall forthwith execute the corresponding deed of reconveyance in favor of petitioner Dizon and deliver
possession of the properties to him. Without pronouncement as to costs.
G.R. No. L-27696 September 30, 1977
MIGUEL FLORENTINO, ROSARIO ENCARNACION de FLORENTINO, MANUEL ARCE, JOSE
FLORENTINO, VICTORINO FLORENTINO, ANTONIO FLORENTINO, REMEDION ENCARNACION and
SEVERINA ENCARNACION, petitioners-appellants,
vs.
SALVADOR ENCARNACION, SR., SALVADOR ENCARNACION, JR., and ANGEL
ENCARNACION, oppositors to encumbrance-petitioners-appelles.
Jose F. Singson and Miguel Florentino for appellants.
Pedro Singson for appellees.

GUERRERO, J.:

Appeal from the decision of the Court of First Instance of Ilocos Sur, acting as a land registration court, in Land
Registration case No. N-310.

(3) That all the herein applicants know of the existence of his arrangement as specified in the Deed of Extra
judicial Partition of A adjust 24, 1947;

On May 22, 1964, the petitioners-appellants Miguel Florentino, Remedios Encarnacion de Florentino, Manuel
Arce, Jose Florentino, Victorino Florentino, Antonio Florentino, Remedior, Encarnacion and Severina
Encamacion, and the Petitiners-appellees Salvador Encamacion, Sr., Salvador Encamacion, Jr. and Angel
Encarnacion filed with the Court of First Instance of ilocos Sur an application for the registration under Act 496
of a parcel of agricultural land located at Barrio Lubong Dacquel Cabugao Ilocos Sur.

(4) That the Deed of Extrajudicial Partition of August 24, 194-, not signed by Angel Encarnacion or Salvador
Encarnacion, Jr,.

The application alleged among other things that the applicants are the common and pro-indiviso owners in fee
simple of the said land with the improvements existing thereon; that to the best of their knowledge and belief,
there is no mortgage, lien or encumbrance of any kind whatever affecting said land, nor any other person
having any estate or interest thereon, legal or equitable, remainder, reservation or in expectancy; that said
applicants had acquired the aforesaid land thru and by inheritance from their predecessors in interest, lately
from their aunt, Doa Encarnacion Florentino who died in Vigan, Ilocos Sur in 1941, and for which the said
land was adjudicated to them by virtue of the deed of extrajudicial partition dated August 24, 1947; that
applicants Salvador Encarnacion, Jr. and Angel Encarnacion acquired their respective shares of the land thru
purchase from the original heirs, Jesus, Caridad, Lourdes and Dolores surnamed Singson one hand and from
Asuncion Florentino on the other.
After due notice and publication, the Court set the application for hearing. No Opposition whatsoever was filed
except that of the Director of Lands which was later withdrawn, thereby leaving the option unopposed.
Thereupon, an order of general default was withdrawn against the whole world. Upon application of the asets
the Clerk Of court was commission will and to have the evidence of the agents and or to submit the for the
Court's for resolution.
The crucial point in controversy in this registration case is centered in the stipulation marked Exhibit O-1
embodied in the deed of extrajudicial partition (Exhibit O) dated August 24, 1947 which states:
Los productos de esta parcela de terreno situada en el Barrio Lubong Dacquel Cabugao Ilocos Sur, se
destination para costear los tos de procesio de la Tercera Caida celebration y sermon de Siete Palbras Seis
Estaciones de Cuaresma, procesion del Nino Jesus, tilaracion y conservacion de los mismos, construction le
union camarin en conde se depositan los carros mesas y otras cosas que seven para lot leiracion de Siete
Palabras y otras cosas mas Lo que sobra de lihos productos despues de descontados todos los gastos se
repartira nosotros los herederos.
In his testimony during the trial, applicant Miguel Florentino asked the court to include the said stipulation
(Exhibit O-1) as an encumbrance on the land sought to be registered, and cause the entry of the same on the
face of the title that will finally be issued. Opposing its entry on the title as an encumbrance,
petitionersappellee Salvador Encamacion, Sr., Salvador Encarnaciori, Jr. and Angel Encarriacion filed on
October 3, 1966 a manifestation seeking to withdraw their application on their respective shares of the land
sought to be registered. The withdrawal was opposed by the petitioners-appellants.

The court denied the petitioners-appellee motion to withdraw for lack of merit, and rendered a decision under
date of November 29, 1966 confirming the title of the property in favor of the f appoints with their respective
shares as follows:
Spouses Miguel Florentino and Rosario Encarnacion de Florentino, both of legal age, Filipinos, and residents
of Vigan, Ilocos Sur, consisting of an undivided 31/297 and 8.25/297 portions, respectively;
Manuel Arce, of legal age, Filipino, married to Remedios Pichay and resident of Vigan, Ilocos Sur, consisting
of an undivided 66/297 portion;
Salvador Encarnacion, Jr., of legal age, Filipino, married to Angelita Nagar and resident of Vigan, Ilocos Sur,
consisting of an undivided 66/297; Jose Florentino, of legal age, Filipino, married to Salvacion Florendo and
resident of 16 South Ninth Diliman, Quezon City, consisting of an undivided 33/297 portion;
Angel Encarnacion, of legal age, Filipino, single and resident of 1514 Milagros St., Sta. Cruz, Manila,
consisting of an undivided 33/297 portion;
Victorino Florentino, of legal age, Filipino, married to Mercedes L. Encarnacion and resident of Vigan, Ilocos
Sur, consisting of an undivided 17.5/297 portion;
Antonio Florentino, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of an undivided
17.5/297;
Salvador Encarnacion, Sr., of legal age, Filipino, married to Dolores Singson, consisting of an undivided
8.25/297;
Remedios Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of an
undivided 8.25/297 portion; and
Severina Encarnacion, of legal age, Filipino, single and resident of Vigan, Ilocos Sur, consisting of 8.25/297
undivided portion.

The Court after hearing the motion for withdrawal and the opposition thereto issued on November 17, 1966 an
order and for the purpose of ascertaining and implifying the issues therein stated that all the applicants admit
the truth of the following;

The court, after ruling "that the contention of the proponents of encumbrance is without merit bemuse, taking
the self-imposed arrangement in favor of the Church as a pure and simple donation, the same is void for the
that the donee here has riot accepted the donation (Art. 745, Civil Code) and for the further that, in the case of
Salvador Encarnacion, Jr. and Angel Encarnacion, they had made no oral or written grant at all (Art. 748) as in
fact they are even opposed to it," 1 held in the Positive portion, as follows:

(1) That just after the death of Encarnacion FIorentino in 1941 up to last year and as had always been the
case since time immomorial the products of the land made subiect matter of this land has been used in
answering for the payment for the religious functions specified in the Deed Extrajudicial Partition belated
August 24, 1947:

In view of all these, therefore, and insofar as the question of encumbrance is concerned, let the religious
expenses as herein specified be made and entered on the undivided shares, interests and participations of all
the applicants in this case, except that of Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel
Encarnacion.

(2) That this arrangement about the products answering for the comment of experisence for religions functions
as mentioned above was not registered in the office of the Register of Deeds under Act No 3344, Act 496 or
and, other system of registration;

On January 3, 1967, petitioners-appellants filed their Reply to the Opposition reiterating their previous
arguments, and also attacking the junction of the registration court to pass upon the validity or invalidity of the
agreement Exhibit O-1, alleging that such is specified only in an ordinary action and not proper in a land
registration proceeding.

The Motion for Reconsideration and of New Trial was denied on January 14, 1967 for lack of merit, but the
court modified its earlier decision of November 29, 1966, to wit:
This Court believes, and so holds, that the contention of the movants (proponents of the encumbrance) is
without merit because the arrangement, stipulation or grant as embodied in Exhibit O (Escritura de Particion
Extrajudicial), by whatever name it may be (called, whether donation, usufruct or ellemosynary gift, can be
revoked as in fact the oppositors Salvador Encarnacion, Sr., who is the only one of the three oppositors who is
a party to said Exhibit O (the two others, Salvador Encarnacion, Jr. and Angel Encarnacion no parties to it) did
revoke it as shown by acts accompanying his refusal to have the same appear as an encumbrance on the title
to be issued. In fact, legally, the same can also be ignored or discararded by will the three oppositors. The
reasons are: First, if the said stipulation is pour bodies in Exhibit O-1 is to be viewed as a stipulation pour
autrui the same cannot now be enforced because the Church in whose favor it was made has not
communicated its acceptance to the oppositors before the latter revoked it. Says the 2nd par. of Art. 1311 of
the New Civil Code:
"If a contract should contain some stipulation in favor of a third person he may demand its fulfillment provided
he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a
third person." No evide nee has ever been submitted by the Church to show its clear acceptance of the grant
before its revocation by the oppositor Salvador Encarnacion, Sr. (or of the two other oppositors, Salvador
Encarnacion, Jr. and Angel Encarnacion, who didn't even make any giant, in the first place), and so not even
the movants who have officiously taken into themselves the right to enforce the grant cannot now maintain any
action to compel compliance with it. (Bank of the P.I. v. Concepcion y Hijos, Inc., 53 Phil. 806). Second, the
Church in whose favor the stipulation or grant had apparently been made ought to be the proper party to
compel the herein three oppositors to abide with the stipulation. But it has not made any appearance nor
registered its opposition to the application even before Oct. 18, 1965 when an order of general default was
issued. Third, the movants are not, in the contemplation of Section 2, Rule 3 of the Rules of Court, the real
party in interest to raise the present issue; and Fourth, the movants having once alleged in their application for
registration that the land is without encumbrance (par. 3 thereof), cannot now be alloted by the rules of
pleading to contradict said allegation of theirs. (McDaniel v. Apacible, 44 Phil. 248)
SO ORDERED. 2
After Motions for Reconsideration were denied by the court, the petitioners- appellants appealed directly to this
Court pursuant to Rule 4 1, Rules of Court, raising the following assign of error:
I. The lower court erred in concluding that the stipulation embodied in Exhibit O on religious expenses is just
an arrangement stipulation, or grant revocable at the unilateral option of the coowners.
II. The lower court erred in finding and concluding that the encumbrance or religious expenses embodied in
Exhibit O, the extrajudicial partition between the co-heirs, is binding only on the appoints Miguel Florentino,
Rosario Encarnacion de Florentino, Manuel Arce, Jose Florentino, Antonio Florentino, Victorino Florentino,
Remedios Encarnacion and Severina Encarnacion.
III. The lower court as a registration court erred in passing upon the merits of the encumbrance (Exhibit O-1)
as the sanie was never put to issue and as the question involved is an adjudication of rights of the parties.

Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in cases where the
rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he received from the decedent.
If a contract should contain a stipulation in favor of a third person, he may demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a
third person.
The second paragraph of Article 1311 above-quoted states the law on stipulations pour autrui. Consent the
nature and purpose of the motion (Exh. O-1), We hold that said stipulation is a station pour autrui. A stipulation
pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him, and
which stipulation is merely a part of a contract entered into by the parties, neither of whom acted as agent of
the third person, and such third person and demand its fulfillment provoked that he communicates his to the
obligor before it is revoked. 3 The requisites are: (1) that the stipulation in favor of a third person should be a
part, not the whole, of the contract; (2) that the favorable stipulation should not be conditioned or compensated
by any kind of obligation whatever; and (3) neither of the contracting bears the legal represented or
authorization of third person.
To constitute a valid stipulation pour autrui it must be the purpose and intent of the stipulating parties to benefit
the third and it is not sufficient that the third person may be incidentally benefited by the stipulation. The fairest
test to determine whether the interest of third person in a contract is a stipulation pour autrui or merely an
incidental interest, is to rely upon the intention of the parties as disclosed by their contract. In applying this
test, it meters not whether the stipulation is in the nature of a gift or whether there is an obligation owing from
the promisee to the third person. That no such obsorption exists may in some degree assist in determining
whether the parties intended to benefit a third person. 4
In the case at bar, the determining point is whether the co-owners intended to benefit the Church when in their
extrajudicial partition of several parcels of land inherited by them from Doa Encarnacion Florendo they
agreed that with respect to the land situated in Barrio Lubong Dacquel Cabugao Ilocos Sur, the fruits thereof
shall serve to defray the religious expenses specified in Exhibit O-1. The evidence on record shows that the
true intent of the parties is to confer a direct and material benefit upon the Church. The fruits of the aforesaid
land were used thenceforth to defray the expenses of the Church in the preparation and celebration of the
Holy Week, an annual Church function. Suffice it to say that were it not for Exhibit O-1, the Church would have
necessarily expended for this religious occasion, the annual relisgious procession during the Holy Wock and
also for the repair and preservation of all the statutes, for the celebration of the Seven Last Word.
We find that the trial court erred in holding that the stipulation, arrangement or grant (Exhibit O-1) is revocable
at the option of the co-owners. While a stipulation in favor of a third person has no binding effect in itself
before its acceptance by the party favored, the law does not provide when the third person must make his
acceptance. As a rule, there is no time at such third person has after the time until the stipulation is revoked.
Here, We find that the Church accepted the stipulation in its favor before it is sought to be revoked by some of
the co-owners, namely the petitioners-appellants herein. It is not disputed that from the time of the with of
Doa Encarnacion Florentino in 1941, as had always been the case since time immemorial up to a year before
the firing of their application in May 1964, the Church had been enjoying the benefits of the stipulation. The
enjoyment of benefits flowing therefrom for almost seventeen years without question from any quarters can
only be construed as an implied acceptance by the Church of the stipulation pour autrui before its revocation.

We find the first and second assignments of error impressed with merit and, therefore, tenable. The stipulation
embodied in Exhibit O-1 on religious expenses is not revocable at the unilateral option of the co-owners and
neither is it binding only on the petitioners-appellants Miguel Florentino, Rosario Encarnacion de Florentino
Manuel Arce, Jose Florentino, Victorino Florentino Antonio Florentino, Remedios Encarnacion and Severina E
It is also binding on the oppositors-appellees Angel Encarnacion,

The acceptance does not have to be in any particular form, even when the stipulation is for the third person an
act of liberality or generosity on the part of the promisor or promise. 5

The stipulation (Exhibit 411) in pan of an extrajudicial partition (Exh. O) duly agreed and signed by the parties,
hence the sanie must bind the contracting parties thereto and its validity or compliance cannot be left to the
with of one of them (Art. 1308, N.C.C.). Under Art 1311 of the New Civil Code, this stipulation takes effect
between the parties, their assign and heirs. The article provides:

A trust constituted between two contracting parties for the benefit of a third person is not subject to the rules
governing donation of real property. The beneficiary of a trust may demand performance of the obligation

It need not be made expressly and formally. Notification of acceptance, other than such as is involved in the
making of demand, is unnecessary. 6

without having formally accepted the benefit of the this in a public document, upon mere acquiescence in the
formation of the trust and acceptance under the second paragraph of Art. 1257 of the Civil Code. 7
Hence, the stipulation (Exhibit O-1) cannot now be revoked by any of the stipulators at their own option. This
must be so because of Article 1257, Civil Code and the cardinal rule of contracts that it has the force of law
between the parties. 8 Thus, this Court ruled in Garcia v. Rita Legarda, Inc., 9 "Article 1309 is a virtual
reproduction of Article 1256 of the Civil Code, so phrased to emphasize that the contract must bind both
parties, based on the principles (1) that obligation arising from contracts have the force of law between the
contracting parties; and (2) that there must be mutuality between the parties based on their principle equality,
to which is repugnant to have one party bound by the contract leaving the other free therefrom."

IN VIEW OF THE FOREGOING, the decision of the Court of First Instance of Ilocos Sur in Land Registration
Case No. N-310 is affirmed but modified to allow the annotation of Exhibit O-1 as an encumbrance on the face
of the title to be finally issued in favor of all the applications (herein appellants and herein appellees) in the
registration proceedings below.
No pronouncement as to cost.
SO ORDERED.
G.R. No. L-23276

Consequently, Salvador Encarnacion, Sr. must bear with Exhibit O-1, being a signatory to the Deed of
Extrajudicial Partition embodying such beneficial stipualtion. Likewise, with regards to Salvador, Jr. and Angel
Encarnacion, they too are bound to the agreement. Being subsequent purchasers, they are privies or
successors in interest; it is axiomatic that contracts are enforceable against the parties and their
privies. 10 Furthermore, they are shown to have given their conformity to such agreement when they kept their
peace in 1962 and 1963, having already bought their respective shares of the subject land but did not question
the enforcement of the agreement as against them. They are also shown to have knowledge of Exhibit O-1 as
they had admitted in a Deed of Real Mortgage executed by them on March 8, 1962 involving their shares of
the subject land that, "This parcel of land is encumbered as evidenced by the document No. 420, page 94,
Book 1, series 1947, executed by the heirs of the late Encarnacion Florentino, on August 26, 1947, before M.
Francisco Ante, Notwy Public of Vigan, Ilocos Sur, in its page 10 of the said document of partition, and also by
other documents."
The annotation of Exhibit O-1 on the face of the title to be issued in this case is merely a guarantee of the
continued enforcement and fulfillment of the beneficial stipulation. It is error for the lower court to rule that the
petitioners-appellants are not the real parties in interest, but the Church. That one of the parties to a
contract pour autrui is entitled to bring an action for its enforcement or to prevent its breach is too clear to need
any extensive discussion. Upon the other hand, that the contract involved contained a stipulation pour autrui
amplifies this settled rule only in the sense that the third person for whose benefit the contract was entered
into may also demand its fulfillment provoked he had communicated his acceptance thereof to the obligor
before the stipulation in his favor is revoked. 11
Petitioners-appellants' third assignment of error is not well-taken. Firstly, the otherwise rigid rule that the
jurisdiction of the Land Registration Court, being special and limited in character and proceedings thereon
summary in nature, does not extend to cases involving issues properly litigable in other independent suits or
ordinary civil actions, has time and again been relaxed in special and exceptional circumstances. (See
Government of the Phil. Islands v. Serafica, 61 Phil. 93 (1934); Caoibes v. Sison, 102 Phil. 19 (1957); Luna v.
Santos, 102 Phil. 588 (1957); Cruz v. Tan, 93 Phil. 348 (1953); Gurbax Singh Pabla & Co. v. Reyes, 92 Phil.
177 (1952). From these cases, it may be gleaned and gathered that the peculiarity of the exceptions is based
not only on the fact that Land Registration Courts are likewise the same Courts of First Instance, but also the
following premises (1) Mutual consent of the parties or their acquired in submitting the at aforesaid
determination by the court in the registration; (2) Full opportunity given to the parties in the presentation of
their respective skies of the issues and of the evidence in support thereto; (3) Consideration by the court that
the evidence already of record is sufficient and adequate for rendering a decision upon these issues. 12 In the
case at bar, the records clearly show that the second and third premism enumerated abow are fully mt. With
regards to first premise, the petioners-appellants cannot claim that the issues anent Exhibit O-1 were not put
in issue because this is contrary to their stand before the lower court where they took the initial step in praying
for the court's determination of the merits of Exhibit O-1 as an encumbrance to be annotated on the title to be
issued by such court. On the other hand, the petitioners-appellees who had the right to invoke the limited
jurisdiction of the registration court failed to do so but met the issues head-on.
Secondly, for this very special reason, We win uphold the actuation of the lower court in determining the
conflicting interests of the parties in the registration proceedings before it. This case has been languishing in
our courts for thirteen tong years. To require that it be remanded to the lower court for another proceeding
under its general jurisdiction is not in consonance with our avowed policy of speedy justice. It would not be
amiss to note that if this case be remanded to the lower court, and should appeal again be made, the name
issues will once more be raised before us hence, Our decision to resolve at once the issues in the instant
petition.

November 29, 1968

MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., INC., plaintiffs-appellees,
vs.
FIELDMEN'S INSURANCE CO., INC., defendant-appellant.
Antonio de Venecia for plaintiffs-appellees.
Rufino Javier for defendant-appellant.
CONCEPCION, C.J.:
This is an appeal from a decision of the Court of First Instance of Manila, certified to us by the Court of
Appeals, only questions of law being involved therein. Indeed, the pertinent facts have been stipulated and/or,
admitted by the parties at the hearing of the case in the trial court, to dispense with the presentation of
evidence therein.
It appears that on December 1, 1961, appellant Fieldmen's Insurance Company, Inc. hereinafter referred to
as the Company issued, in favor of the Manila Yellow Taxicab Co., Inc. hereinafter referred to as the
Insured a common carrier accident insurance policy, covering the period from December 1, 1961 to
December 1, 1962. It was stipulated in said policy that:
The Company will, subject to the Limits of Liability and under the Terms of this Policy, indemnify the Insured in
the event of accident caused by or arising out of the use of Motor Vehicle against all sums which the Insured
will become legally liable to pay in respect of: Death or bodily injury to any fare-paying passengerincluding the
Driver, Conductor and/or Inspector who is riding in the Motor Vehicle insured at the time of accident or injury. 1
While the policy was in force, or on February 10, 1962, a taxicab of the Insured, driven by Carlito Coquia, met
a vehicular accident at Mangaldan, Pangasinan, in consequence of which Carlito died. The Insured filed
therefor a claim for P5,000.00 to which the Company replied with an offer to pay P2,000.00, by way of
compromise. The Insured rejected the same and made a counter-offer for P4,000.00, but the Company did not
accept it. Hence, on September 18, 1962, the Insured and Carlito's parents, namely, Melecio Coquia and
Maria Espanueva hereinafter referred to as the Coquias filed a complaint against the Company to collect
the proceeds of the aforementioned policy. In its answer, the Company admitted the existence thereof, but
pleaded lack of cause of action on the part of the plaintiffs.
After appropriate proceedings, the trial court rendered a decision sentencing the Company to pay to the
plaintiffs the sum of P4,000.00 and the costs. Hence, this appeal by the Company, which contends that
plaintiffs have no cause of action because: 1) the Coquias have no contractual relation with the Company; and
2) the Insured has not complied with the provisions of the policy concerning arbitration.
As regards the first defense, it should be noted that, although, in general, only parties to a contract may bring
an action based thereon, this rule is subject to exceptions, one of which is found in the second paragraph of
Article 1311 of the Civil Code of the Philippines, reading:

If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment provided
he communicated his acceptance to the obligor before its revocation. A mere incidental benefit or interest of a
person is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a
third person.2
This is but the restatement of a well-known principle concerning contracts pour autrui, the enforcement of
which may be demanded by a third party for whose benefit it was made, although not a party to the contract,
before the stipulation in his favor has been revoked by the contracting parties. Does the policy in question
belong to such class of contracts pour autrui?
In this connection, said policy provides, inter alia:
Section I Liability to Passengers. 1. The Company will, subject to the Limits of Liability and under the Terms
of this Policy, indemnify the Insured in the event of accident caused by or arising out of the use of Motor
Vehicle against all sums which the Insured will become legally liable to pay in respect of: Death or bodily injury
to any fare-paying passenger including the Driver ... who is riding in the Motor Vehicle insured at the time of
accident or injury.
Section II Liability to the Public
xxx

xxx

xxx

3. In terms of and subject to the limitations of and for the purposes of this Section, the Company will indemnify
any authorized Driver who is driving the Motor Vehicle....
Conditions
xxx

xxx

xxx

7. In the event of death of any person entitled to indemnity under this Policy, the Company will, in respect of
the liability incurred by such person, indemnify his personal representatives in terms of and subject to the
limitations of this Policy, provided, that such representatives shall, as though they were the Insured, observe,
fulfill and be subject to the Terms of this Policy insofar as they can apply.

If any difference or dispute shall arise with respect to the amount of the Company's liability under this Policy,
the same shall be referred to the decision of a single arbitrator to be agreed upon by both parties or failing
such agreement of a single arbitrator, to the decision of two arbitrators, one to be appointed in writing by each
of the parties within one calendar month after having been required in writing so to do by either of the parties
and in case of disagreement between the arbitrators, to the decision of an umpire who shall have been
appointed in writing by the arbitrators before entering on the reference and the costs of and incident to the
reference shall be dealt with in the Award. And it is hereby expressly stipulated and declared that it shall be a
condition precedent to any right of action or suit upon this Policy that the award by such arbitrator, arbitrators
or umpire of the amount of the Company's liability hereunder if disputed shall be first obtained.
The record shows, however, that none of the parties to the contract invoked this section, or made any
reference to arbitration, during the negotiations preceding the institution of the present case. In fact, counsel
for both parties stipulated, in the trial court, that none of them had, at any time during said negotiations, even
suggested the settlement of the issue between them by arbitration, as provided in said section. Their
aforementioned acts or omissions had the effect of a waiver of their respective right to demand an arbitration.
Thus, in Kahnweiler vs. Phenix Ins. Co. of Brooklyn, 5 it was held:
Another well-settled rule for interpretation of all contracts is that the court will lean to that interpretation of a
contract which will make it reasonable and just. Bish. Cont. Sec. 400. Applying these rules to the tenth clause
of this policy, its proper interpretation seems quite clear. When there is a difference between the company and
the insured as to the amount of the loss the policy declares: "The same shall then be submitted to competent
and impartial arbitrators, one to be selected by each party ...". It will be observed that the obligation to procure
or demand an arbitration is not, by this clause, in terms imposed on either party. It is not said that either the
company or the insured shall take the initiative in setting the arbitration on foot. The company has no more
right to say the insured must do it than the insured has to say the company must do it. The contract in this
respect is neither unilateral nor self-executing. To procure a reference to arbitrators, the joint and concurrent
action of both parties to the contract is indispensable. The right it gives and the obligation it creates to refer the
differences between the parties to arbitrators are mutual. One party to the contract cannot bring about an
arbitration. Each party is entitled to demand a reference, but neither can compel it, and neither has the right to
insist that the other shall first demand it, and shall forfeit any right by not doing so. If the company demands it,
and the insured refuses to arbitrate, his right of action is suspended until he consents to an arbitration; and if
the insured demands an arbitration, and the company refuses to accede to the demand, the insured may
maintain a suit on the policy, notwithstanding the language of the twelfth section of the policy, and, where
neither party demands an arbitration, both parties thereby waive it.6
To the same effect was the decision of the Supreme Court of Minnesota in Independent School Dist. No. 35,
St. Louis County vs. A. Hedenberg & Co., Inc.7 from which we quote:

8. The Company may, at its option, make indemnity payable directly to the claimants or heirs of claimants, with
or without securing the consent of or prior notification to the Insured, it being the true intention of this Policy to
protect, to the extent herein specified and subject always to the Terms Of this Policy, the liabilities of the
Insured towards the passengers of the Motor Vehicle and the Public.

This rule is not new in our state. In Meyer v. Berlandi, 53 Minn. 59, 54 N.W. 937, decided in 1893, this court
held that the parties to a construction contract, having proceeded throughout the entire course of their dealings
with each other in entire disregard of the provision of the contract regarding the mode of determining by
arbitration the value of the extras, thereby waived such provision.

Pursuant to these stipulations, the Company "will indemnify any authorized Driver who is driving the Motor
Vehicle" of the Insured and, in the event of death of said driver, the Company shall, likewise, "indemnify his
personal representatives." In fact, the Company "may, at its option, make indemnity payable directly to
theclaimants or heirs of claimants ... it being the true intention of this Policy to protect ... the liabilities of the
Insuredtowards the passengers of the Motor Vehicle and the Public" in other words, third parties.

xxx

Thus, the policy under consideration is typical of contracts pour autrui, this character being made more
manifest by the fact that the deceased driver paid fifty percent (50%) of the corresponding premiums, which
were deducted from his weekly commissions. Under these conditions, it is clear that the Coquias who,
admittedly, are the sole heirs of the deceased have a direct cause of action against the Company, 3 and,
since they could have maintained this action by themselves, without the assistance of the Insured, it goes
without saying that they could and did properly join the latter in filing the complaint herein. 4
The second defense set up by the Company is based upon Section 17 of the policy reading:

xxx

xxx

The test for determining whether there has been a waiver in a particular case is stated by the author of an
exhaustive annotation in 117 A.L.R. p. 304, as follows: "Any conduct of the parties inconsistent with the notion
that they treated the arbitration provision as in effect, or any conduct which might be reasonably construed as
showing that they did not intend to avail themselves of such provision, may amount to a waiver thereof and
estop the party charged with such conduct from claiming its benefits".
xxx

xxx

xxx

The decisive facts here are that both parties from the inception of their dispute proceeded in entire disregard
of the provisions of the contract relating to arbitration and that neither at any stage of such dispute, either
before or after commencement of the action, demanded arbitration, either by oral or written demand, pleading,
or otherwise. Their conduct was as effective a rejection of the right to arbitrate as if, in the best Coolidge

tradition, they had said, "We do not choose to arbitrate". As arbitration under the express provisions of article
40 was "at the choice of either party," and was chosen by neither, a waiver by both of the right to arbitration
followed as a matter of law.
WHEREFORE, the decision appealed from should be as it is hereby affirmed in toto, with costs against the
herein defendant-appellant, Fieldmen's Insurance Co., Inc. It is so ordered.
G.R. No. L-22404 May 31, 1971
PASTOR B. CONSTANTINO, plaintiff-appellant,
vs.
HERMINIA ESPIRITU, defendant-appellee.
David Guevara for plaintiff-appellant.

DIZON, J.:
This is a direct appeal on a question of law taken by Pastor B. Constantino from an order of the Court of First
Instance of Rizal denying his motion for the admission of his amended complaint in Civil Case No. 5924,
entitled "Pastor B. Constantine vs. Herminia Espiritu."
Appellant's complaint alleged, inter alia, that he had, by a fictitious deed of absolute sale annexed thereto,
conveyed to appellee on October 30, 1953, for a consideration of P8,000.00, the two-storey house and four (4)
subdivision lots covered by Transfer Certificate of Title No. 20174 issued by the Register of Deeds of Rizal, on
October 25, 1950 in the name of Pastor B. Constantino, married to Honorata Geukeko with the understanding
that appellee would hold the properties in trust for their illegitimate son, Pastor Constantino, Jr., still unborn at
the time of the conveyance; that thereafter appellee mortgaged said properties to the Republic Savings Bank
of Manila twice to secure payment of two loans, one of P3,000.00 and the other of P2,000.00, and that
thereafter she offered them for sale. The complaint then prayed for the issuance of a writ of preliminary
injunction restraining appellee and her agents or representatives from further alienating or disposing of the
properties, and for judgment ordering her to execute a deed of absolute sale of said properties in favor of
Pastor B. Constantino, Jr., the beneficiary (who, at the filing of said complaint, was about five years of age),
and to pay attorney's fees in the sum of P2,000.00.
As a result of the conveyance mentioned heretofore, TCT No. 20714 in the name of plaintiff was partially
cancelled and in lieu thereof, TCT No. 32744 was issued by the Register of Deeds of Rizal in the name of
appellee Herminia Espiritu.
On December 16, 1959, appellee moved to dismiss the complaint on the ground that it stated no cause of
action because Pastor Constantino, Jr., the beneficiary of the alleged trust, was not included as party-plaintiff,
and on the further ground that appellant's cause of action was unenforceable under the Statute of Frauds.
In his opposition to said motion to dismiss, appellant argued that the Statute of Frauds does not apply to
trustee and cestui que trust as in the case of appellee and her illegitimate child, and that for this reason
appellant would not be barred from proving by parol evidence an implied trust existing under Article 1453 of
the Civil Code. On the other hand, in her rejoinder to appellant's opposition, appellee argued that what the
former was invoking in his complaint (Paragraph V, Complaint) was an implied trust under Article 1453 of the
Civil Code and not an express trust under Section 3, Rule 3 of the Revised Rules of Court. Finding the
grounds alleged in the motion to dismiss to be meritorious, the trial court dismissed the complaint, with costs.
Immediately after receiving notice of said order of dismissal, appellant filed a motion for the admission of an
amended complaint, attaching thereto a copy hereof, the amendment consisting mainly of the inclusion of the
minor, Pastor Constantino, Jr. as co-plaintiff. The amended complaint further prayed for the appointment of

appellant as said minor's guardian ad litem. An opposition thereto was filed on the ground that the amendment
aforesaid was not an inclusion but a substitution of the party plaintiff. As the latter had no interest whatsoever
in the subject matter of the case, it was argued that the substitution was not allowed in this jurisdiction.
Appellant's answer to appellee's opposition alleged that, as the ground relied upon in the said opposition was
purely technical, even the substitution of the party plaintiff should be allowed under Section 2, Rule 17 of the
Rules of Court. Thereafter the lower court issued the appealed order denying appellant's motion for the
admission of his amended complaint. Hence, the instant direct appeal.
The original as well as the amended complaint mentioned above allege that the sale made by appellant
Constantino in favor of appellee of the properties described in said pleadings was subject to the agreement
that the vendee would hold them in trust for their at that time already conceived but unborn illegitimate child;
that the vendee violated this agreement, firstly, by subjecting them to two different contracts of mortgage, and
later by trying to sell them, this being not only in violation of the aforesaid agreement but prejudicial to
the cestui que trust; that the action was commenced to compel the vendee to comply with their agreement by
executing the corresponding deed of conveyance in favor of their minor son, and to desist from further doing
any act prejudicial to the interests of the latter.
It appears then that, upon the facts alleged by appellant, the contract between him and appellee was a
contractpour autrui, although couched in the form of a deed of absolute sale, and that appellant's action was,
in effect, one for specific performance. That one of the parties to a contract is entitled to bring an action for its
enforcement or to prevent its breach is too clear to need any extensive discussion. Upon the other hand, that
the contract involved contained a stipulation pour autrui amplifies this settled rule only in the sense that the
third person for whose benefit the contract was entered into may also demand its fulfillment provided he had
communicated his acceptance thereof to the obligor before the stipulation in his favor is revoked.
It appearing that the amended complaint submitted by appellant to the lower court impleaded the beneficiary
under the contract as a party co-plaintiff, it seems clear that the three parties concerned therewith would, as a
result, be before the court and the latter's adjudication would be complete and binding upon them.
The ruling in the case of Echaus vs. Gan, 55 Phil. 527 involving facts similar to the ones before us is of
obvious application to the latter. We quote the following pertinent portions of our decision in said case:
This action was instituted in the Court of First Instance of Occidental Negros by Adoracion Rosales de Echaus,
assisted by her husband Enrique Echaus, for the purpose of obtaining a judicial order requiring the defendant
Maria Gan, as administratrix of the estate of her deceased husband, Manuel Gay Yulingco, as well as the
heirs of said decedent, to execute in due form a contract, with appropriate description of the real property
involved, in conformity with the terms of an agreement dated September 3, 1927, executed by the deceased
Manuel Gay Yulingco, in life, and Enrique Echaus, one of the plaintiffs in the case (Exhibit A). To this action the
defendants interposed a general answer and cross-complaint, in the latter of which they sought a decree
annulling the contract Exhibit A as excessively onerous and illegal. Upon hearing the cause the trial court
absolved the plaintiffs from the cross-complaint and gave judgment in favor of the plaintiffs upon the
complaint, requiring the defendants, within thirty days from the date of the finality of the decision, to execute
before a notary public and deliver to the plaintiffs a contract similar in terms to that indicated in the Exhibit A
but containing, in addition, a description of the real property involved, in such form as would enable the
plaintiffs to procure said contract to be inscribed on the certificate of title corresponding to said property, with
costs against the defendants. From this judgment the defendants appealed.
xxx xxx xxx
The contract in question, Exhibit A, on which this action is based, was executed by Manuel Gay Yulingco and
Enrique Echaus, and although the contract binds Yulingco to pay to Adoracion Rosales de Echaus, the wife of
Enrique Echaus, the sum of fifty centavos for each picul of sugar that may be produced upon the two
haciendas covered by the contract during the fourteen years beginning with the crop for 1927-1928,
nevertheless this action is not instituted by the nominal beneficiary, Adoracion Rosales de Echaus, directly for
the purpose of obtaining the benefit which said contract purports to confer upon her. The purpose of the action
is to compel the defendants to execute a contract pursuant to the tenor of the contract Exhibit A, but containing
an adequate description of the property contained in the two haciendas, for the purpose of enabling Echaus to
procure the annotation of said contract on the Torrens certificates of title. It is therefore evident that, technically

speaking, the proper person to bring this action is Enrique Echaus, the person with whom the contract was
made by Yulingco. It is, nevertheless, equally obvious that the wife of Enrique Echaus is a party in interest,
and she is certainly a proper, if not an entirely necessary party to the action. It results that there is really no
improper joinder of parties plaintiff.
Whether the contract of sale entered into between appellant and appellee was as claimed and the
amended complaint subject to the agreement that appellee would hold the properties in trust for their
unborn child is a question of fact that appellee may raise in her answer for the lower court to determine after
trial. On the other hand, the contention that the contract in question is not enforceable by action by reason of
the provisions of the Statute of Frauds does not appear to be indubitable, it being clear upon the facts alleged
in the amended complaint that the contract between the parties had already been partially performed by the
execution of the deed of sale, the action brought below being only for the enforcement of another phase
thereof, namely, the execution by appellee of a deed of conveyance in favor of beneficiary thereunder.
WHEREFORE, the appealed order is hereby set aside and the case is remanded to the lower court for further
proceedings in accordance with law.
Concepcion, C.J., Reyes, J.B.L., Zaldivar, Castro, Fernando, Teehankee, Villamor and Makasiar, JJ., concur.
Makalintal, J., concurs in the result.
Separate Opinions
BARREDO, J., concurring:
I concur, but it may not be amiss for me to state briefly my humble view as regards appellee's claim that
appellant's action is barred by the Statute of Frauds.
As I understand the nature of appellant's action, it is not to enforce an entirely unwritten contract, which is
what is generally barred by the Statute of Frauds; rather, it is for the enforcement of a condition not appearing
in the written agreement herein involved but which condition according to appellant, was in fact part thereof
but which the parties had agreed not to include in the deed, probably because of doubt that such a stipulation
in favor of an already conceived but still unborn illegitimate child may not be judicially persible on the other
hand, under the theory of appellee, even assuming, alternatively, that there was such an understanding to
benefit their unborn child, the conveyance to her of the land in question is an entirely separate contract from
the obligation assumed by her of turning over the property in question to said child with the appellant, hence
this separate agreement not being in writing is unenforceable by action under the Statute of Frauds. I consider
such posture of appellee untenable.
To my mind, the obligation of the appellee to execute the conveyance in favor of their child was part and parcel
of one single verbal agreement, in partial implementation of which the said property was conveyed to her. In
other words, appellant's action is simply one for the enforcement of an implied trust under Article 1453 of the
Civil Code which provides thus:
ART. 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or
transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is
contemplated.
Accordingly, the only rule, that can possibly have any relevance to appellee's situation, instead of the Statute
of Frauds, would be the parol evidence rule which, in any event, is not one of the grounds for dismissal of a
complaint, since it is a rule exclusively of admissibility of evidence and not of any other branch of procedure.
As a matter of fact, under the known circumstances of this case, I even doubt very much if the appellee will be
able to successfully invoke the parol evidence rule when the trial is eventually held, for the simple reason that
appellant has in effect specifically alleged in his complaint that the deed of sale in favor of appellee was
subject to the condition already mentioned that their illegitimate child would be the real beneficiary thereof.

The general rule of admissibility which excludes evidence aliunde 1 tending to vary the terms of a written
agreement is subject to the exception, among others, that the same does not apply when the party wishing to
prove the real agreement or the additional terms specifically alleges such agreement or terms in his pleading.
Otherwise stated, the matter of whether or not there is really an obligation on the part of the appellee to
convey the land in question to her child with appellee is only the one of proof, there being technical bar to the
evidence, much less to appellant's action. Withal, like the Statute of Frauds, the parol evidence rule may not
be used as a shield to commit fraud with impunity, particularly, when, as in this case, it is alleged that an
implied trust is involved. I would even go further. I venture to add that even if this cage were considered as one
involving an express trust under Article 1443 of the Civil Code which provides that an express trust affecting
realty may not be proved by parol evidence, I would still hold that appellant's case is subject to this exception.
It is a fundamental principle underlying all rules of proof that never may the same be utilized as instruments to
conceal or shield fraud.
The main opinion holds that the execution of the deed of conveyance in favor of the appellant was a partial
execution or consummation of the agreement between appellant and appellee which the enforcement of the
obligation in question beyond the pale of the Statute of Frauds. Evidently, the predicate of said proposition is
that the conveyance of the property in question to appellee and her obligation to hold the same only in trust for
their illegitimate child still unborn at that time constitute one single contract, albeit verbal, as I have already
explained above. Consequently, one part of the contract having been complied with already by appellant by
executing the formal deed in favor of appellee, the latter cannot now excuse herself from complying with her
part of the bargain by invoking the Statute of Frauds.
Indeed, from whatever angle one views this case, most of all from the standpoint of the innocent child
begotten by the parties out of wedlock and whose future seems uncertain, the conclusion is inescapable that
the trial court erred in sustaining appellee's motion to dismiss. With the procedural technicalities now set
aside, whether the property in question was indeed intended by appellant and appellee to remain with
appellee for her own benefit or to be in her name only temporarily for the benefit of their child is the main
question of fact which by this decision the court a quo may now try and decide.
G.R. No. 79518 January 13, 1989
REBECCA C. YOUNG assisted by her husband ANTONIO GO, petitioner,
vs.
COURT OF APPEALS, PH CREDIT CORP., PHIL. HOLDING, INC. FRANCISCO VILLAROMAN, FONG
YOOK LU, ELLEN YEE FONG and THE REGISTER OF DEEDS OF MANILA, respondents.
Diego O. Untalan for petitioner.
Esteban B. Bautista for respondents Fong Yook Lu and Ellen Yee Fong.
Janette Borres for respondents.

PARAS, J.:
This is a petition for review on certiorari seeking to set aside the decision of the Court of Appeals 1 in CA-G.R.
No. 1002, entitled Spouses Chui Wan and Felisa Tan Yu and Rebecca Young vs. PH Credit Corporation et al.,
which affirmed the decision of the Regional Trial Court of Manila, Branch XXXII, earlier dismissing the
complaint of petitioners for Annulment of Sale, Specific Performance and Damages, against respondents.
The facts of the case are as follows:
Defendant Philippine Holding, Inc. is the former owner of a piece of land located at Soler St., Sta. Cruz,
Manila, and a two storey building erected thereon, consisting of six units; Unit 1350 which is vacant, Unit 1352

occupied by Antonio Young, Unit 1354 by Rebecca C. Young, Unit 1356 by Chui Wan and Felisa Tan Yu, Unit
1358 by Fong Yook Lu and Ellen Yee Fong and Unit 1360 by the Guan Heng Hardware (Rollo, pp. 14-15).

Hence this petition, which was brought to this Court only by Rebecca Young, assisted by her husband Antonio
Go.

The owner Philippine Holding, Inc. secured an order from the City Engineer of Manila to demolish the building.
Antonio Young, then a tenant of said Unit 1352, filed an action to annul the City Engineer's demolition Order
(Civil Case No. 123883) entitled Antonio S. Young vs. Philippine Holding, Inc. before the then Court of First
Instance of Manila, Branch XXX. As an incident in said case, the parties submitted a Compromise Agreement
to the Court on September 24, 1981. Paragraph 3 of said agreement provides that plaintiff (Antonio S. Young)
and Rebecca Young and all persons claiming rights under them bind themselves to voluntarily and peacefully
vacate the premises which they were occupying as lessees (Units 1352 and 1354, respectively) which are the
subject of the condemnation and demolition order and to surrender possession thereof to the defendant
Philippine Holding, Inc. within sixty (60) days from written notice, subject to the proviso that should defendant
decided to sell the subject property or portion thereof, "plaintiff and Rebecca C. Young have the right of first
refusal thereof." (Rollo, p. 49).

On October 2, 1987, respondents Fong Yook Lu, moved to strike out or dismiss outright the instant petition
(Rollo, p. 35). In the resolution of November 4, 1987, the Second Division of this Court required the petitioner
to comment on said motion (Rollo, p. 37), which comment was filed on December 17, 1987 (Rollo, p. 38).
Thereafter, in the resolution of January 20, 1988, respondents were required to file a reply thereto (Rollo, p.
42) which was filed on January 11, 1988 (Rollo, p. 43). On March 24, 1988, petitioner filed a rejoinder to reply
(Rollo, p. 46) in compliance with the resolution of February 29, 1988 (Rollo, p.45).

On September 17, 1981, Philippine Holding, Inc. had previously sold the above said property described in the
compromise agreement by way of dacion in payment to PH Credit Corporation (Rollo, p. 49).

Petitioner raised the following assignments of error:

On November 9, 1982, the property was subdivided into two parcels, one 244.09 sq.m. in area covering Units
1350, 1352 and 1354 (TCT No. 152439) and the other 241.71 sq.m. in area covering Units 1356, 1358 and
1360 (TCT No. 152440) and both titles were placed in the name of PH Credit Corporation.
On December 8, 1982, PH Credit Corporation sold the property covered by TCT 152439 to the Blessed Land
Development Corporation represented by its President Antonio T. S. Young; and on September 16, 1983, PH
Credit Corporation sold the property covered by TCT 152440 embracing Units 1356, 1358 and 1360 to
spouses Fong Yook Lu and Ellen Yee Fong (Rollo, p. 15).
Thereafter, petitioner Rebecca C. Young and her co-plaintiffs, the spouses Chui Wan and Felisa Tan Yu filed in
the Regional Trial Court of Manila, Civil Case No. 84-22676 for the annulment of the sale in favor of herein
respondent spouses, Fong Yook Lu and Ellen Yee Fong and for specific performance and damages against
the PH Credit Corporation and Philippine Holding, Incorporated.
Plaintiff spouses Chui Wan and Felisa Tan Yu alleged that defendant corporation and Francisco Villaroman,
sold the property without affording them (the plaintiffs-spouses) the right of first refusal to purchase that portion
of the property which they are renting.
Plaintiff Rebecca C. Young, now petitioner, also claimed the right of first refusal purportedly granted to her
under the aforestated proviso of the abovesaid compromise agreement and prayed that the sale be annulled
and that they be allowed to exercise her right of first refusal to purchase subject property (Rollo, p. 50).
The lower court decided in favor of the defendants and against the plaintiffs, thus dismissing the complaint
together with defendants' counterclaims (Rollo, p. 15)
On the other hand, the claim of Rebecca C. Young was similarly rejected by the trial court on the following
grounds: (1) that she was not a party in the Civil Case No. 123883, wherein subject compromise agreement
was submitted and approved by the trial court apart from the fact that she did not even affix her signature to
the said compromise agreement; (2) that Rebecca Young had failed to present any evidence to show that she
had demanded from the defendants-owners, observance of her right of first refusal before the said owners
sold units 1356, 1358 and 1360; (3) that even assuming that her supposed right of first refusal is a stipulation
for the benefit of a third person, she did not inform the obligor of her acceptance as required by the second
paragraph of Article 1311 of the Civil Code.
Chui Wan and Felisa Tan Yu and Rebecca C. Young, assisted by her husband, appealed to the Court of
Appeals which dismissed the same on August 7, 1987, for lack of merit.

In the resolution of May 11, 1988, the petition was given due course and the parties were required to submit
simultaneously their respective memoranda (Rollo, p. 47). Respondents filed their memorandum on June 29,
1988 (Rollo, p. 48), while petitioner's memorandum was filed on July 14, 1988 (Rollo, p. 64).

1. The lower court erred in holding that Rebecca C. Young cannot enforce the stipulation in her favor in the
compromise agreement as she is not party therein.
2. The lower court erred in holding that even if par. 3 of the compromise agreement is construed as a
stipulation pour autrui Rebecca Young cannot enforce it because she did not communicate her acceptance
thereof to the obligor. (Rollo, p. 7)
The petition is devoid of merit.
The main issue in this case is whether or not petitioner can enforce a compromise agreement to which she
was not a party. This issue has already been squarely settled by this Court in the negative in J.M. Tuason &
Co., Inc. v. Cadampog (7 SCRA 808 [1963])where it was ruled that appellant is not entitled to enforce a
compromise agreement to which he was not a party and that as to its effect and scope, it has been determined
in the sense that its effectivity if at all, is limited to the parties thereto and those mentioned in the exhibits (J.M.
Tuason & Co., Inc. v. Aguirre, 7 SCRA 112 [1963]). It was reiterated later that a compromise agreement cannot
bind persons who are not parties thereto (Guerrero v. C.A., 29 SCRA 791 [1969]).
The pertinent portion of the Compromise Agreement reads:
Plaintiff Antonio T.S. Young and the Defendant HOLDING hereby agree to implead in this action as necessary
party- plaintiff, plaintiff's daughter Rebecca C. Young who is the recognized lawful lessee of the premises
known and identified as 1354 Soller St., Sta. Cruz, Manila and whose written conformity appears hereunder.
(Rollo, p. 18)
From the terms of this agreement, the conditions are very clear, such as: (1) that Rebecca C. Young shall be
impleaded in the action and (2) that she shall signify her written conformity thereto.
For unknown reasons, the above conditions were not complied with. The parties did not make any move to
implead Rebecca as necessary party in the case. Neither did her written conformity appear in said agreement.
While there is the printed name of Rebecca C. Young appearing at the end of the joint motion for approval of
the Compromise Agreement, she did not affix her signature above her printed name, nor on the left margin of
each and every page thereof.
In fact, on cross-examination, she admitted that she was not a party to the case and that she did not sign the
aforesaid joint motion because it was not presented to her (Rollo, p. 18).

More than that, by the aforesaid actuations of the parties and petitioner's apparent lack of interest, the
intention is evident, not to include the latter either in the onerous, or in the beneficient provisions of said
agreement.
Petitioner further argued that the stipulation giving her the right of first refusal is a stipulation pour autrui or a
stipulation in favor of a third person under Article 1311 of the Civil Code.
The requisites of a stipulation pour autrui or a stipulation in favor of a third person are the following:
(1) there must be a stipulation in favor of a third person.
(2) the stipulation must be a part, not the whole of the contract.
(3) the contracting parties must have clearly and deliberately conferred a favor upon a third person, not a mere
incidental benefit or interest.
(4) the third person must have communicated his acceptance to the obligor before its revocation.
(5) neither of the contracting parties bears the legal representation or authorization of the third party.
(Florentino v. Encarnacion, Sr., 79 SCRA 193 [1977]).
Assuming that petitioner is correct in claiming that this is a stipulation pour autrui it is unrebutted that she did
not communicate her acceptance whether expressly or impliedly. She insists however, that the stipulation has
not yet been revoked, so that her present claim or demand is still timely.
As correctly observed by the Court of Appeals, the above argument is pointless, considering that the sale of
subject property to some other person or entity constitutes in effect a revocation of the grant of the right of first
refusal to Rebecca C. Young.
PREMISES CONSIDERED, the petition is DENIED for lack of merit, and the decision of the Court of Appeals
is AFFIRMED.
SO ORDERED.
[G.R. No. 79734. December 8, 1988.]
MARMONT RESORT HOTEL ENTERPRISES, Petitioner, v. FEDERICO GUIANG, AURORA
GUIANG, and COURT OF APPEALS, Respondents.
Isagani M. Jungco for Petitioner.
Regalado C. Salvador for Respondents.

SYLLABUS

1. REMEDIAL LAW; JUDICIAL ADMISSIONS; CANNOT BE CONTRADICTED UNLESS A CLEAR


SHOWING OF PALPABLE MISTAKE HAS BEEN COMMITTED IN MAKING THE SAME. The record
shows, however, as noted earlier, that at the pre-trial conference held on 2 October 1980, both
petitioner Marmont and respondent spouses had agreed upon a stipulation of facts and issues
recognizing the existence of those same two (2) agreements. Such stipulation of facts
constitutes a judicial admission, the veracity of which requires no further proof and which may
be controverted only upon a clear showing that such stipulation had been entered into through

"palpable mistake as provided for under Section 2, Rule 129 of the Revised Rules of Court.
2. ID.; ID.; STIPULATION OF FACT IN CASE AT BAR INCONTROVERTIBLE ABSENT OF PALPABLE
MISTAKE. There has been no showing and respondent spouses do not claim that "palpable
mistake" had intervened here, in respect of the formulation of the facts stipulated by the parties
at the pre-trial conference. Absent any such showing, that stipulation of facts is incontrovertible,
and may be relied upon by the courts. Respondent spouses are estopped from raising as an
issue in this case the existence and admissibility in evidence of both the first and second
Memoranda of Agreement which, having been marked as exhibits during pre-trial, properly form
part of the record of this case, even though not formally offered in evidence after trial.
3. CIVIL LAW; CONJUGAL PARTNERSHIP; WILL NOT BE BOUND WITHOUT THE CONSENT OF THE
HUSBAND AS THE ADMINISTRATOR; CASE AT BAR. Article 165 and 172 state the general
principle under our civil law, that the wife may not validly bind the conjugal partnership without
the consent of the husband, who is legally the administrator of the conjugal partnership. In this
particular case, however, as noted earlier, the second Memorandum of Agreement, although
ostensibly contracted solely by Aurora Guiang with Maris Trading, was also signed by her
husband Federico, as one of the witnesses thereto. This circumstance indicates not only that
Federico was present during the execution of the agreement but also that he had, in fact, given
his consent to the execution thereof by his wife Aurora. Otherwise, he should not have
appended his signature to the document as witness. Respondent spouses cannot now disown
the second Memorandum of Agreement as their effective consent thereto is sufficiently
manifested in the document itself.
4. ID.; CONTRACTS; SECOND MEMORANDUM OF AGREEMENT EXECUTED FOR THE BENEFIT OF
PETITIONER; STIPULATION POUR AUTRUI, DEFINED. A closer scrutiny of the second and third
paragraphs of the second Memorandum of Agreement discloses that the first Memorandum of
Agreement, including the obligations imposed thereunder upon Maris Trading, had been
acknowledged therein: "That the First Party (i.e., Maris Trading) has dug, drilled and tapped
water source for Marmont Resort, located at Bo. Barretto, Olongapo City in accordance with
their agreement executed on May 2, 1975 and notarized before Isagani M. Jungco, Notary Public
and entered as Doc. No. 166; Page No. 135; Book No. XV; Series of 1975. That the First Party
has erected, built and drilled for the water source of Marmont Resort on the land owned by the
Second Party [respondent spouses] at the corner of J. Montelibano Street and Maquinaya Drive
(Provincial Road) with the latters permission; . . ." The above paragraphs establish, among
other things, that construction work had been performed by Maris Trading on the land occupied
by respondent spouses; that such construction work had been performed in accordance with
terms and conditions stipulated in the first Memorandum of Agreement and that the purpose of
the work was to build a water supply facility for petitioner Marmont. It is clear from the
foregoing stipulations that petitioner Marmont was to benefit from the second Memorandum of
Agreement. In fact, said stipulations appear to have been designed precisely to benefit
petitioner and, thus, partake of the nature of stipulations pour autrui, contemplated in Article
1311 of the Civil Code. A stipulation pour autrui is a stipulation in favor of a third person
conferring a clear and deliberate favor upon him, which stipulation is found in a contract entered
into by parties neither of whom acted as agent of the beneficiary. We believe and so hold that
the purpose and intent of the stipulating parties (Maris Trading and respondent spouses) to
benefit the third person (petitioner Marmont) is sufficiently clear in the second Memorandum of
Agreement. Marmont was not of course a party to that second Agreement but, as correctly
pointed out by the trial court and the appellate court, the respondent spouses could not have
prevented Maris Trading from entering the property possessory rights over which had thus been
acquired by Maris Trading. That respondent spouses remained in physical possession of that
particular bit of land, is of no moment; they did so simply upon the sufferance of Maris Trading.
Had Maris Trading, and not the respondent spouses, been in physical possession, we believe
that Marmont would have been similarly entitled to compel Maris Trading to give it (Marmont)
access to the site involved. The two (2) courts below failed to take adequate account of the fact
that the sole purpose of Maris Trading in acquiring possessory rights over that specific portion of
the land where well and pump and piping had been installed, was to supply the water
requirements of petitioners hotel. That said purpose was known by respondent spouses, is
made explicit by the second Memorandum of Agreement. Maris Trading itself had no need for a
water supply facility; neither did the respondent spouses. The water facility was intended solely
for Marmont Resort Hotel. The interest of Marmont cannot therefore be regarded as merely
"incidental."cralaw virtua1aw library

5. ID.; ID.; ID.; RESPONDENT ACTED IN BAD FAITH; MUST BE HELD LIABLE FOR DAMAGES.
Even if it be assumed (for purposes of argument merely) that the second Memorandum of
Agreement did not constitute a stipulation pour autrui, still respondent spouses, in the
circumstances of this case, must be regarded as having acted contrary to the principles of
honesty, good faith and fair dealing embodied in Articles 19 and 21 of the Civil Code when they
refused petitioner Marmont access to the water facility to inspect and repair the same and to
increase its capacity and thereby to benefit from it. In so doing, respondent spouses forced
petitioner Marmont to locate an alternative source of water for its hotel which of course involved
expenditure of money and perhaps loss of hotel revenues. We believe they should respond in
damages.

follows: (a) P10,000.00 representing the amount advanced in payment to the second
contractor; (b) P40,000.00 representing the total project cost of the installation made by Maris
Trading: (c) P50,000.00 representing additional expenses incurred and incidental losses
resulting from failure of the original pump to cope with the water requirements of the Marmont
Resort Hotel; and (d) P10,000.00 for Attorneys fees.chanroblesvirtualawlibrary
In their Answer, 3 the Guiang spouses (defendants below) denied having had any previous
knowledge of the first Memorandum of Agreement and asserted that the second Memorandum
of Agreement was invalid for not having been executed in accordance with law. The spouses
added a counterclaim for damages in the amount of P200,000.00.
On 2 October 1980, at the pre-trial conference, the parties agreed on the following stipulation of
facts and issues embodied in a Pre-Trial Order: 4

DECISION

"III
FELICIANO, J.:
In addition to the admission made elsewhere in their respective pleadings, the parties entered
into the following stipulation of facts:chanrob1es virtual 1aw library
The present Petition for Review seeks to set aside the Decision dated 9 December 1986 of the
Court of Appeals in C.A. - G.R. CV 03299. The appellate court affirmed a Decision dated 31 May
1983 of Branch 83 of the Regional Trial Court of Olongapo City dismissing the complaint in Civil
Case No. 2896-C filed by petitioner company against private respondent
spouses.chanrobles.com:cralaw:red
On 2 May 1975, a Memorandum of Agreement was executed between Maris Trading and
petitioner Marmont Resort Hotel Enterprises, Inc. ("Marmont"), a corporation engaged in the
hotel and resort business with office and establishment at Olongapo City. Under the agreement,
Maris Trading undertook to drill for water and to provide all equipment necessary to install and
complete a water supply facility to service the Marmont Resort Hotel in Olongapo, for a
stipulated fee of P40,000.00. In fulfillment of its contract, Maris Trading drilled a well and
installed a water pump on a portion of a parcel of land situated in Olongapo City, then occupied
by respondent spouses Federico and Aurora Guiang.
Five (5) months later, a second Memorandum of Agreement was executed between Maris
Trading and Aurora Guiang, with Federico Guiang signing as witness. This second agreement in
essential part read: 1
"That the First Party [Maris Trading] has dug, drilled and tapped water source for Marmont
Resort, located at Bo. Barretto, Olongapo City in accordance with their agreement executed on
May 2, 1975 and notarized before Isagani M. Jungco, Notary Public and entered as Doc. No.
166; Page No. 135; Book No. XV; Series of 1975.
That the First Party has erected, built and drilled for the water source of Marmont Resort on the
land owned by the Second Party [Aurora Guiang] at the corner of J. Montelibano Street and
Maquinaya Drive (Provincial Road) with the latters permission.
That for and in consideration of the sum of P1,500.00 the Second Party hereby Sell, Transfer
and Cede all possessory rights, interest and claims over that portion of the lot wherein the water
source of Marmont Resort is located unto and in favor of Maris Trading."cralaw virtua1aw library
After some time, the water supply of the Marmont Resort Hotel became inadequate to meet the
hotels water requirements. Petitioner Marmont secured the services of another contractor (the
name of which was not disclosed), which suggested that in addition to the existing water pump,
a submersible pump be installed to increase the pressure and improve the flow of water to the
hotel. Accordingly, Juan Montelibano, Jr., manager of the Marmont Resort Hotel, sought
permission from the Guiang spouses to inspect the water pump which had been installed on the
portion of the land previously occupied by the spouses and to make the necessary additional
installations thereon. No such permission, however, was granted.
On 13 May 1980, petitioner Marmont filed a Complaint 2 against the Guiang spouses for
damages resulting from their refusal to allow representatives of petitioner and the second
contractor firm entry into the water facility site. The claimed damages were broken down as

1. Plaintiff is a corporation duly organized and existing under the laws of the Philippines with
office at Montelibano Street, Barrio Barretto, Olongapo City;
2. The contract referred to in paragraph 2 of the complaint between the plaintiff and Maris
Trading is contained in a document captioned Memorandum Agreement executed on May 2,
1975, a xerox copy of which is Annex A of plaintiffs complaint;
3. On October 7, 1975, the Maris Trading represented by Ceferino Cabral and defendant Aurora
Guiang entered into a memorandum agreement;
4. The portion sold under Annex A is still a part of the public domain.
IV
The plaintiff marked the following exhibits in evidence:chanrob1es virtual 1aw library
Exhibit A Memorandum Agreement dated May 2, 1975
Exhibit B Memorandum Agreement dated October 7, 1975.
V
The issues left to be ventilated during the trial are the following:chanrob1es virtual 1aw library
1. Whether defendants has actually prohibited the plaintiff [from] making repairs, [on] the
pump constructed by Maris Trading for the plaintiff under the agreement Exhibit A, if so;
2. Whether defendants [have] the right to prohibit the Maris Trading from performing the
repairs; and if not
3. Whether defendants are liable for damages under the human relations provision of the Civil
Code."cralaw virtua1aw library
On 1 January 1980, the Guiang spouses moved to dismiss the Complaint. 5 The spouses there
assailed the validity of the second Memorandum of Agreement, alleging that the subject matter
thereof involved conjugal property alienated by Aurora Guiang without the marital consent of
her husband, Federico Guiang. Further, it was alleged that the land upon which the hotels water
supply facility was installed and which the Guiang spouses occupied formed part of the
public domain and was then still the subject of a Miscellaneous Sales Application submitted by
Federico Guiang. The Motion to Dismiss, however, was denied by the trial court.chanrobles law

library : red
No evidence having been adduced by the Guiang spouses on their behalf, the case was
submitted for decision. On 31 May 1983, the trial court rendered a decision, 6 dismissing the
complaint. The trial court found that Aurora Guiang had validly alienated her rights over the
disputed portion of land to Maris Trading, but held that the evidence failed to show that Maris
Trading, in turn, had transferred such rights to petitioner Marmont.
Petitioner Marmont appealed to the Court of Appeals which affirmed the decision of the trial
court and dismissed the appeal for lack of merit. 7 The appellate court, citing Section 55, Rule
132 of the Revised Rules of Court, held that the first and second Memoranda of Agreement
could not legally be considered by the court as included in the body of evidence of the case, as
neither document had been formally offered in evidence by either party. It also held that, in any
event, neither document showed that Marmont had in fact acquired from Maris Trading whatever
rights the latter had over the land in dispute.
In the instant Petition for Review, petitioner assigns the following errors: 8
"1. The Court of Appeals erred in not considering the Memorandum of Agreement of May 2,
1975 and 7 October 1975 as the same were already admitted in the pre-trial order; and
2. The Court of Appeals erred in deciding that ownership belongs to Maris Trading hence, private
respondent Guiang can prohibit Marmont Resort from entering the land."cralaw virtua1aw library

That the land in dispute was, at the time of execution of the second Memorandum of
Agreement, public land, is of no consequence here. Pending approval of Federicos Miscellaneous
Sales Application over said land, respondent spouses enjoyed possessory and other rights over
the same which could validly be assigned or transferred in favor of third persons. In this case,
respondent spouses chose to transfer such rights (over the portion upon which the water pump
was installed) to Maris Trading, as evidenced by the fourth paragraph of the second
Memorandum of Agreement, quoted earlier. Further more, assuming (though only for the sake
of argument) that the alienation to Maris Trading was legally objectionable, respondent spouses
are not the proper parties to raise the issue of invalidity, they and Maris Trading being in pari
delicto. Only the government may raise that issue.
Finally, respondent spouses allege that dismissal of the complaint by the trial court was not
improper as petitioner Marmont was not privy to the second Memorandum of Agreement, and
that accordingly, petitioner had no valid cause of action against respondents.
A closer scrutiny of the second and third paragraphs of the second Memorandum of Agreement
discloses that the first Memorandum of Agreement, including the obligations imposed
thereunder upon Maris Trading, had been acknowledged therein:jgc:chanrobles.com.ph
"That the First Party (i.e., Maris Trading) has dug, drilled and tapped water source for Marmont
Resort, located at Bo. Barretto, Olongapo City in accordance with their agreement executed on
May 2, 1975 and notarized before Isagani M. Jungco, Notary Public and entered as Doc. No.
166; Page No. 135; Book No. XV; Series of 1975.

We find for the petitioner.


Both the trial and appellate courts held that the first and second Memoranda of Agreement are
not properly considered as forming part of the record of this case, because neither had been
formally presented and offered in evidence at the trial of Civil Case No. 2896-C. The record
shows, however, as noted earlier, that at the pre-trial conference held on 2 October 1980, both
petitioner Marmont and respondent spouses had agreed upon a stipulation of facts and issues
recognizing the existence of those same two (2) agreements. Such stipulation of facts
constitutes a judicial admission, the veracity of which requires no further proof and which may
be controverted only upon a clear showing that such stipulation had been entered into through
"palpable mistake." On this point, Section 2, Rule 129 of the Revised Rules of Court
provides:jgc:chanrobles.com.ph
"Section 2. Judicial Admissions. Admission made by the parties in the pleadings, or in the
course of the trial or other proceedings do not require proof and cannot be contradicted unless
previously shown to have been made through palpable mistake." (Emphasis supplied).
There has been no showing and respondent spouses do not claim that "palpable mistake" had
intervened here, in respect of the formulation of the facts stipulated by the parties at the pretrial conference. Absent any such showing, that stipulation of facts is incontrovertible, 9 and
may be relied upon by the courts. 10 Respondent spouses are estopped from raising as an issue
in this case the existence and admissibility in evidence of both the first and second Memoranda
of Agreement which, having been marked as exhibits during pre-trial, properly form part of the
record of this case, even though not formally offered in evidence after trial. 11
We consider briefly respondent spouses argument that the second Memorandum of Agreement
was invalid for having been executed by Aurora Guiang without the marital consent of Federico,
contrary to Articles 165 and 172 of the Civil Code.chanrobles law library : red
Article 165 and 172 state the general principle under our civil law, that the wife may not validly
bind the conjugal partnership without the consent of the husband, who is legally the
administrator of the conjugal partnership. In this particular case, however, as noted earlier, the
second Memorandum of Agreement, although ostensibly contracted solely by Aurora Guiang
with Maris Trading, was also signed by her husband Federico, as one of the witnesses thereto.
This circumstance indicates not only that Federico was present during the execution of the
agreement but also that he had, in fact, given his consent to the execution thereof by his wife
Aurora. Otherwise, he should not have appended his signature to the document as witness.
Respondent spouses cannot now disown the second Memorandum of Agreement as their
effective consent thereto is sufficiently manifested in the document itself.

That the First Party has erected, built and drilled for the water source of Marmont Resort on the
land owned by the Second Party [respondent spouses] at the corner of J. Montelibano Street
and Maquinaya Drive (Provincial Road) with the latters permission; . . ." (Emphasis supplied).
The above paragraphs establish, among other things, that construction work had been
performed by Maris Trading on the land occupied by respondent spouses; that such construction
work had been performed in accordance with terms and conditions stipulated in the first
Memorandum of Agreement and that the purpose of the work was to build a water supply facility
for petitioner Marmont. The same excerpts also show that the work so performed was with the
knowledge and consent of the Guiang spouses, who were then occupying the
land.chanroblesvirtualawlibrary
It is clear from the foregoing stipulations that petitioner Marmont was to benefit from the
second Memorandum of Agreement. In fact, said stipulations appear to have been designed
precisely to benefit petitioner and, thus, partake of the nature of stipulations pour autrui,
contemplated in Article 1311 of the Civil Code.
A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and
deliberate favor upon him, which stipulation is found in a contract entered into by parties neither
of whom acted as agent of the beneficiary. 12 We believe and so hold that the purpose and
intent of the stipulating parties (Maris Trading and respondent spouses) to benefit the third
person (petitioner Marmont) is sufficiently clear in the second Memorandum of Agreement.
Marmont was not of course a party to that second Agreement but, as correctly pointed out by
the trial court and the appellate court, the respondent spouses could not have prevented Maris
Trading from entering the property possessory rights over which had thus been acquired by
Maris Trading. That respondent spouses remained in physical possession of that particular bit of
land, is of no moment; they did so simply upon the sufferance of Maris Trading. Had Maris
Trading, and not the respondent spouses, been in physical possession, we believe that Marmont
would have been similarly entitled to compel Maris Trading to give it (Marmont) access to the
site involved. The two (2) courts below failed to take adequate account of the fact that the sole
purpose of Maris Trading in acquiring possessory rights over that specific portion of the land
where well and pump and piping had been installed, was to supply the water requirements of
petitioners hotel. That said purpose was known by respondent spouses, is made explicit by the
second Memorandum of Agreement. Maris Trading itself had no need for a water supply facility;
neither did the respondent spouses. The water facility was intended solely for Marmont Resort
Hotel. The interest of Marmont cannot therefore be regarded as merely "incidental." 13 Finally,
even if it be assumed (for purposes of argument merely) that the second Memorandum of
Agreement did not constitute a stipulation pour autrui, still respondent spouses, in the

circumstances of this case, must be regarded as having acted contrary to the principles of
honesty, good faith and fair dealing embodied in Articles 19 and 21 of the Civil Code when they
refused petitioner Marmont access to the water facility to inspect and repair the same and to
increase its capacity and thereby to benefit from it. In so doing, respondent spouses forced
petitioner Marmont to locate an alternative source of water for its hotel which of course involved
expenditure of money and perhaps loss of hotel revenues. We believe they should respond in
damages.
The evidence on record, however, appears insufficient for determination of the amount of
damages for which respondent spouses should be liable. For this reason, the Court is compelled
to remand this case to the trial court for determination of such damages in appropriate further
proceedings.chanrobles law library : red
WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The Decision dated 9
December 1986 of the Court of Appeals in C.A. G.R. CV No. 03299, as well as the Decision
dated 31 May 1983 of the Regional Trial Court of Olongapo City in Civil Case No. 2896-C, are
REVERSED. This case is REMANDED to the trial court for determination, in further proceedings
consistent with this decision, of the amount of damages petitioner is entitled to receive from
respondent spouses.

Both the petitioner and BANKARD appealed to the respondent Court of Appeals which rendered a decision,
thus:
WHEREFORE, the decision appealed from is hereby MODIFIED by:
1. Finding appellant MANDARIN solely responsible for damages in favor of appellee;
2. Absolving appellant BANKARD of any responsibility for damages;
3. Reducing moral damages awarded to appellee to TWENTY FIVE THOUSAND and
00/100 (P25,000.00) PESOS;
4. Reducing exemplary damages awarded to appellee to TEN THOUSAND and 00/100
(P10,000.00) PESOS;

No pronouncement as to costs.

5. Reversing and setting aside the award of P250,000.00 for attorney's fees as well as
interest awarded, and

SO ORDERED.
G.R. No. 119850 June 20, 1996

6. AFFIRMING the dismissal of all counterclaims and cross-claims.

MANDARIN VILLA, INC., petitioner,


vs.
COURT OF APPEALS, and CLODUALDO DE JESUS, respondents.
RESOLUTION

Costs against appellant Mandarin.


SO ORDERED. 5
Mandarin Villa, thus, interposed this present petition, faulting the respondent court with six (6) assigned errors
which may be reduced to the following issues, to wit: (1) whether or not petitioner is bound to accept payment
by means of credit card; (2) whether or not petitioner is negligent under the circumstances obtaining in this
case; and (3) if negligent, whether or not such negligence is the proximate cause of the private respondent's
damage.

FRANCISCO, J.:p
With ample evidentiary support are the following antecedent facts:
In the evening of October 19, 1989, private respondent, Clodualdo de Jesus, a practicing lawyer and
businessman, hosted a dinner for his friends at the petitioner's restaurant, the Mandarin Villa Seafoods Village
Greenhills, Mandaluyong City. After dinner the waiter handed to him the bill in the amount of P2,658.50.
Private respondent offered to pay the bill through his credit card issued by Philippine Commercial Credit Card
Inc. (BANKARD). This card was accepted by the waiter who immediately proceeded to the restaurant's cashier
for card verification. Ten minutes later, however, the waiter returned and audibly informed private respondent
that his credit card had expired. 1 Private respondent remonstrated that said credit card had yet to expire on
September 1990, as embossed on its face. 2 The waiter was unmoved, thus, private respondent and two of his
guests approached the restaurant's cashier who again passed the credit card over the verification computer.
The same information was produced,i.e., CARD EXPIRED. Private respondent and his guests returned to their
table and at this juncture, Professor Lirag, another guest, uttered the following remarks: "Clody [referring to
Clodualdo de Jesus], may problema ba? Baka kailangang maghugas na kami ng pinggan?" 3 Thereupon,
private respondent left the restaurant and got his BPI Express Credit Card from his car and offered it to pay
their bill. This was accepted and honored by the cashier after verification. 4 Petitioner and his companions left
afterwards.
The incident triggered the filing of a suit for damages by private respondent. Following a full-dress trial,
judgment was rendered directing the petitioner and BANKARD to pay jointly and severally the private
respondent: (a) moral damages in the amount of P250,000.00; (b) exemplary damages in the amount of
P100,000.00, and (c) attorney's fees and litigation expenses in the amount of P50,000.00.

Petitioner contends that it cannot be faulted for its cashier's refusal to accept private respondent's BANKARD
credit card, the same not being a legal tender. It argues that private respondent's offer to pay by means of
credit card partook of the nature of a proposal to novate an existing obligation for which petitioner, as creditor,
must first give its consent otherwise there will be no binding contract between them. Petitioner cannot seek
refuge behind this averment.
We note that Mandarin Villa Seafood Village is affiliated with BANKARD. In fact, an "Agreement" 6 entered into
by petitioner and BANKARD dated June 23, 1989, provides inter alia:
The MERCHANT shall honor validly issued PCCCI credit cards presented by their
corresponding holders in the purchase of goods and/or services supplied by it provided
that the card expiration date has not elapsed and the card number does not appear on
the latest cancellation bulletin of lost, suspended and canceled PCCCI credit cards
and, no signs of tampering, alterations or irregularities appear on the face of the credit
card. 7
While private respondent, may not be a party to the said agreement, the above-quoted stipulation conferred a
favor upon the private respondent, a holder of credit card validly issued by BANKARD. This stipulation is a
stipulation pour autri and under Article 1311 of the Civil Code private respondent may demand its fulfillment
provided he communicated his acceptance to the petitioner before its revocation. 8 In this case, private
respondent's offer to pay by means of his BANKARD credit card constitutes not only an acceptance of the said
stipulation but also an explicit communication of his acceptance to the obligor.

In addition, the record shows that petitioner posted a logo inside Mandarin Villa Seafood Village stating that
"Bankard is accepted here. 9 This representation is conclusive upon the petitioner which it cannot deny or
disprove as against the private respondent, the party relying thereon. Petitioner, therefore, cannot disclaim its
obligation to accept private respondent's BANKARD credit card without violating the equitable principle of
estoppel. 10
Anent the second issue, petitioner insists that it is not negligent. In support thereof, petitioner cites its good
faith in checking, not just once but twice, the validity of the aforementioned credit card prior to its dishonor. It
argues that since the verification machine flashed an information that the credit card has expired, petitioner
could not be expected to honor the same much less be adjudged negligent for dishonoring it. Further,
petitioner asseverates that it only followed the guidelines and instructions issued by BANKARD in dishonoring
the aforementioned credit card. The argument is untenable.
The test for determining the existence of negligence in a particular case may be stated as follows: Did the
defendant in doing the alleged negligent act use the reasonable care and caution which an ordinary prudent
person would have used in the same situation? If not, then he is guilty of negligence. 11 The Point of Sale
(POS) Guidelines which outlined the steps that petitioner must follow under the circumstances provides.

Petitioner, however, argues that private respondent's own negligence in not bringing with him sufficient cash
was the proximate cause of his damage. It likewise sought exculpation by contending that the remark of
Professor Lirag 15 is a supervening event and at the same time the proximate cause of private respondent's
injury.
We find this contention also devoid of merit. While it is true that private respondent did not have sufficient cash
on hand when he hosted a dinner at petitioner's restaurant, this fact alone does not constitute negligence on
his part. Neither can it be claimed that the same was the proximate cause of private respondent's damage. We
take judicial notice 16 of the current practice among major establishments, petitioner included, to accept
payment by means of credit cards in lieu of cash. Thus, petitioner accepted private respondent's BPI Express
Credit Card after verifying its validity, 17 a fact which all the more refutes petitioner's imputation of negligence
on the private respondent.
Neither can we conclude that the remark of Professor Lirag was a supervening event and the proximate cause
of private respondent's injury. The humiliation and embarrassment of the private respondent was brought
about not by such a remark of Professor Lirag but by the fact of dishonor by the petitioner of private
respondent's valid BANKARD credit card. If at all, the remark of Professor Lirag served only to aggravate the
embarrassment then felt by private respondent, albeit silently within himself.

xxx xxx xxx


WHEREFORE, the instant petition is hereby DISMISSED.
CARD EXPIRED
SO ORDERED.
a. Check expiry date on card.
G.R. No. L-13505

February 4, 1919

b. If unexpired, refer to CB.


b.1. If valid, honor up to maximum of SPL only.
b.2. If in CB as Lost, do procedures 2a to 2e.,

GEO. W. DAYWALT, plaintiff-appellant,


vs.
LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET AL., defendants-appellees.
C. C. Cohn and Thos. D. Aitken for appellant.
Crossfield & O'Brien for appellee.

b.3. If in CB as Suspended/Cancelled, do not honor card.


STREET, J.:
c. If expired, do not honor card.

12

A cursory reading of said rule reveals that whenever the words CARD EXPIRED flashes on the screen of the
verification machine, petitioner should check the credit card's expiry date embossed on the card itself. If
unexpired, petitioner should honor the card provided it is not invalid, cancelled or otherwise suspended. But if
expired, petitioner should not honor the card. In this case, private respondent's BANKARD credit card has an
embossed expiry date of September 1990. 13 Clearly, it has not yet expired on October 19, 1989, when the
same was wrongfully dishonored by the petitioner. Hence, petitioner did not use the reasonable care and
caution which an ordinary prudent person would have used in the same situation and as such petitioner is
guilty of negligence. In this connection, we quote with approval the following observations of the respondent
Court.
Mandarin argues that based on the POS Guidelines (supra), it has three options in
case the verification machine flashes "CARD EXPIRED". It chose to exercise option (c)
by not honoring appellee's credit card. However, appellant apparently intentionally
glossed over option "(a) Check expiry date on card" (id.) which would have shown
without any shadow of doubt that the expiry date embossed on the BANKARD was
"SEP 90". (Exhibit "D".) A cursory look at the appellee's BANKARD would also reveal
that appellee had been as of that date a cardholder since 1982, a fact which would
have entitled the customer the courtesy of better treatment. 14

In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of Mindoro, executed a
contract whereby she obligated herself to convey to Geo. W. Daywalt, a tract of land situated in the barrio of
Mangarin, municipality of Bulalacao, now San Jose, in said province. It was agreed that a deed should be
executed as soon as the title to the land should be perfected by proceedings in the Court of Land Registration
and a Torrens certificate should be produced therefore in the name of Teodorica Endencia. A decree
recognizing the right of Teodorica as owner was entered in said court in August 1906, but the Torrens
certificate was not issued until later. The parties, however, met immediately upon the entering of this decree
and made a new contract with a view to carrying their original agreement into effect. This new contract was
executed in the form of a deed of conveyance and bears date of August 16, 1906. The stipulated price was
fixed at P4,000, and the area of the land enclosed in the boundaries defined in the contract was stated to be
452 hectares and a fraction.
The second contract was not immediately carried into effect for the reason that the Torrens certificate was not
yet obtainable and in fact said certificate was not issued until the period of performance contemplated in the
contract had expired. Accordingly, upon October 3, 1908, the parties entered into still another agreement,
superseding the old, by which Teodorica Endencia agreed upon receiving the Torrens title to the land in
question, to deliver the same to the Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker
National Bank in San Francisco, where it was to be delivered to the plaintiff upon payment of a balance of
P3,100.

The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the proceedings relative
to the registration of the land, it was found by official survey that the area of the tract inclosed in the
boundaries stated in the contract was about 1.248 hectares of 452 hectares as stated in the contract. In view
of this development Teodorica Endencia became reluctant to transfer the whole tract to the purchaser,
asserting that she never intended to sell so large an amount of land and that she had been misinformed as to
its area.
This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the Supreme Court, in
obtaining a decree for specific performance; and Teodorica Endencia was ordered to convey the entire tract of
land to Daywalt pursuant to the contract of October 3, 1908, which contract was declared to be in full force and
effect. This decree appears to have become finally effective in the early part of the year 1914. 1
The defendant, La Corporacion de los Padres Recoletos, is a religious corporation, with its domicile in the city
of Manila. Said corporation was formerly the owner of a large tract of land, known as the San Jose Estate, on
the island of Mindoro, which was sold to the Government of the Philippine Islands in the year 1909. The same
corporation was at this time also the owner of another estate on the same island immediately adjacent to the
land which Teodorica Endencia had sold to Geo. W. Daywalt; and for many years the Recoletos Fathers had
maintained large herds of cattle on the farms referred to. Their representative, charged with management of
these farms, was father Isidoro Sanz, himself a members of the order. Father Sanz had long been well
acquainted with Teodorica Endencia and exerted over her an influence and ascendency due to his religious
character as well as to the personal friendship which existed between them. Teodorica appears to be a woman
of little personal force, easily subject to influence, and upon all the important matters of business was
accustomed to seek, and was given, the advice of father Sanz and other members of his order with whom she
came in contact.
Father Sanz was fully aware of the existence of the contract of 1902 by which Teodorica Endencia agreed to
sell her land to the plaintiff as well as of the later important developments connected with the history of that
contract and the contract substituted successively for it; and in particular Father Sanz, as well as other
members of the defendant corporation, knew of the existence of the contract of October 3, 1908, which, as we
have already seen finally fixed the rights of the parties to the property in question. When the Torrens certificate
was finally issued in 1909 in favor of Teodorica Endencia, she delivered it for safekeeping to the defendant
corporation, and it was then taken to Manila where it remained in the custody and under the control of P. Juan
Labarga the procurador and chief official of the defendant corporation, until the deliver thereof to the plaintiff
was made compulsory by reason of the decree of the Supreme Court in 1914.
When the defendant corporation sold the San Jose Estate, it was necessary to bring the cattle off of that
property; and, in the first half of 1909, some 2,368 head were removed to the estate of the corporation
immediately adjacent to the property which the plaintiff had purchased from Teodorica Endencia. As Teodorica
still retained possession of said property Father Sanz entered into an arrangement with her whereby large
numbers of cattle belonging to the defendant corporation were pastured upon said land during a period
extending from June 1, 1909, to May 1, 1914.
Under the first cause stated in the complaint in the present action the plaintiff seeks to recover from the
defendant corporation the sum of P24,000, as damages for the use and occupation of the land in question by
reason of the pasturing of cattle thereon during the period stated. The trial court came to the conclusion that
the defendant corporation was liable for damages by reason of the use and occupation of the premises in the
manner stated; and fixed the amount to be recovered at P2,497. The plaintiff appealed and has assigned error
to this part of the judgment of the court below, insisting that damages should have been awarded in a much
larger sum and at least to the full extent of P24,000, the amount claimed in the complaint.
As the defendant did not appeal, the property of allowing damages for the use and occupation of the land to
the extent o P2,497, the amount awarded, is not now in question an the only thing here to be considered, in
connection with this branch of the case, is whether the damages allowed under this head should be increased.
The trial court rightly ignored the fact that the defendant corporation had paid Teodorica Endencia of ruse and
occupation of the same land during the period in question at the rate of P425 per annum, inasmuch as the
final decree of this court in the action for specific performance is conclusive against her right, and as the
defendant corporation had notice of the rights of the plaintiff under this contract of purchase, it can not be
permitted that the corporation should escape liability in this action by proving payment of rent to a person other
than the true owner.

With reference to the rate of which compensation should be estimated the trial court came to the following
conclusion:
As to the rate of the compensation, the plaintiff contends that the defendant corporation maintained at leas
one thousand head of cattle on the land and that the pasturage was of the value of forty centavos per head
monthly, or P4,800 annually, for the whole tract. The court can not accept this view. It is rather improbable that
1,248 hectares of wild Mindoro land would furnish sufficient pasturage for one thousand head of cattle during
the entire year, and, considering the locality, the rate of forty centavos per head monthly seems too high. The
evidence shows that after having recovered possession of the land the plaintiff rented it to the defendant
corporation for fifty centavos per hectares annually, the tenant to pay the taxes on the land, and this appears
to be a reasonable rent. There is no reason to suppose that the land was worth more for grazing purposes
during the period from 1909 to 1913, than it was at the later period. Upon this basis the plaintiff is entitled to
damages in the sum of p2,497, and is under no obligation to reimburse the defendants for the land taxes paid
by either of them during the period the land was occupied by the defendant corporation. It may be mentioned
in this connection that the Lontok tract adjoining the land in question and containing over three thousand
hectares appears to have been leased for only P1,000 a year, plus the taxes.
From this it will be seen that the trial court estimated the rental value of the land for grazing purposes at 50
centavos per hectare per annum, and roughly adopted the period of four years as the time for which
compensation at that rate should be made. As the court had already found that the defendant was liable for
these damages from June, 1, 1909, to May 1, 1914, or a period of four years and eleven months, there seems
some ground for the contention made in the appellant's first assignment of error that the court's computation
was erroneous, even accepting the rule upon which the damages were assessed, as it is manifest that at the
rate of 50 centavos per hectare per annum, the damages for four years and eleven months would be P3,090.
Notwithstanding this circumstance, we are of the opinion that the damages assessed are sufficient to
compensate the plaintiff for the use and occupation of the land during the whole time it was used. There is
evidence in the record strongly tending to show that the wrongful use of the land by the defendant was not
continuous throughout the year but was confined mostly to the reason when the forage obtainable on the land
of the defendant corporation was not sufficient to maintain its cattle, for which reason it became necessary to
allow them to go over to pasture on the land in question; and it is not clear that the whole of the land was used
for pasturage at any time. Considerations of this character probably led the trial court to adopt four years as
roughly being the period during which compensation should be allowed. But whether this was advertently
done or not, we see no sufficient reason, in the uncertainty of the record with reference to the number of the
cattle grazed and the period when the land was used, for substituting our guess for the estimate made by the
trial court.
In the second cause of action stated in the complaint the plaintiff seeks to recover from the defendant
corporation the sum of P500,000, as damages, on the ground that said corporation, for its own selfish
purposes, unlawfully induced Teodorica Endencia to refrain from the performance of her contract for the sale
of the land in question and to withhold delivery to the plaintiff of the Torrens title, and further, maliciously and
without reasonable cause, maintained her in her defense to the action of specific performance which was
finally decided in favor of the plaintiff in this court. The cause of action here stated is based on liability derived
from the wrongful interference of the defendant in the performance of the contract between the plaintiff and
Teodorica Endencia; and the large damages laid in the complaint were, according to the proof submitted by
the plaintiff, incurred as a result of a combination of circumstances of the following nature: In 1911, it appears,
the plaintiff, as the owner of the land which he had bought from Teodorica Endencia entered into a contract
(Exhibit C) with S. B. Wakefield, of San Francisco, for the sale and disposal of said lands to a sugar growing
and milling enterprise, the successful launching of which depended on the ability of Daywalt to get possession
of the land and the Torrens certificate of title. In order to accomplish this end, the plaintiff returned to the
Philippine Islands, communicated his arrangement to the defendant,, and made repeated efforts to secure the
registered title for delivery in compliance with said agreement with Wakefield. Teodorica Endencia seems to
have yielded her consent to the consummation of her contract, but the Torrens title was then in the possession
of Padre Juan Labarga in Manila, who refused to deliver the document. Teodorica also was in the end contract
with the plaintiff, with the result that the plaintiff was kept out of possession until the Wakefield project for the
establishment of a large sugar growing and milling enterprise fell through. In the light of what has happened in
recent years in the sugar industry, we feel justified in saying that the project above referred to, if carried into
effect, must inevitably have proved a great success.

The determination of the issue presented in this second cause of action requires a consideration of two points.
The first is whether a person who is not a party to a contract for the sale of land makes himself liable for
damages to the vendee, beyond the value of the use and occupation, by colluding with the vendor and
maintaining him in the effort to resist an action for specific performance. The second is whether the damages
which the plaintiff seeks to recover under this head are too remote and speculative to be the subject of
recovery.
As preliminary to a consideration of the first of these questions, we deem it well it dispose of the contention
that the members of the defendants corporation, in advising and prompting Teodorica Endencia not to comply
with the contract of sale, were actuated by improper and malicious motives. The trial court found that this
contention was not sustained, observing that while it was true that the circumstances pointed to an entire
sympathy on the part of the defendant corporation with the efforts of Teodorica Endencia to defeat the
plaintiff's claim to the land, the fact that its officials may have advised her not to carry the contract into effect
would not constitute actionable interference with such contract. It may be added that when one considers the
hardship that the ultimate performance of that contract entailed on the vendor, and the doubt in which the
issue was involved to the extent that the decision of the Court of the First Instance was unfavorable to the
plaintiff and the Supreme Court itself was divided the attitude of the defendant corporation, as exhibited in
the conduct of its procurador, Juan Labarga, and other members of the order of the Recollect Fathers, is not
difficult to understand. To our mind a fair conclusion on this feature of the case is that father Juan Labarga and
his associates believed in good faith that the contract cold not be enforced and that Teodorica would be
wronged if it should be carried into effect. Any advice or assistance which they may have given was, therefore,
prompted by no mean or improper motive. It is not, in our opinion, to be denied that Teodorica would have
surrendered the documents of title and given possession of the land but for the influence and promptings of
members of the defendants corporation. But we do not credit the idea that they were in any degree influenced
to the giving of such advice by the desire to secure to themselves the paltry privilege of grazing their cattle
upon the land in question to the prejudice of the just rights of the plaintiff.
The attorney for the plaintiff maintains that, by interfering in the performance of the contract in question and
obstructing the plaintiff in his efforts to secure the certificate of tittle to the land, the defendant corporation
made itself a co-participant with Teodorica Endencia in the breach of said contract; and inasmuch as father
Juan Labarga, at the time of said unlawful intervention between the contracting parties, was fully aware of the
existence of the contract (Exhibit C) which the plaintiff had made with S. B. Wakefield, of San Francisco, it is
insisted that the defendant corporation is liable for the loss consequent upon the failure of the project outlined
in said contract.
In this connection reliance is placed by the plaintiff upon certain American and English decisions in which it is
held that a person who is a stranger to contract may, by an unjustifiable interference in the performance
thereof, render himself liable for the damages consequent upon non-performance. It is said that the doctrine of
these cases was recognized by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542); and we have been
earnestly pressed to extend the rule there enunciated to the situation here presente.
Somewhat more than half a century ago the English Court of the Queen's Bench saw its way clear to permit
an action for damages to be maintained against a stranger to a contract wrongfully interfering in its
performance. The leading case on this subject is Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there appeared
that the plaintiff, as manager of a theatre, had entered into a contract with Miss Johanna Wagner, an opera
singer,, whereby she bound herself for a period to sing in the plaintiff's theatre and nowhere else. The
defendant, knowing of the existence of this contract, and, as the declaration alleged, "maliciously intending to
injure the plaintiff," enticed and produced Miss Wagner to leave the plaintiff's employment. It was held that the
plaintiff was entitled to recover damages. The right which was here recognized had its origin in a rule, long
familiar to the courts of the common law, to the effect that any person who entices a servant from his
employment is liable in damages to the master. The master's interest in the service rendered by his employee
is here considered as a distinct subject of juridical right. It being thus accepted that it is a legal wrong to break
up a relation of personal service, the question now arose whether it is illegal for one person to interfere with
any contract relation subsisting between others. Prior to the decision of Lumley vs. Gye [supra] it had been
supposed that the liability here under consideration was limited to the cases of the enticement of menial
servants, apprentices, and others to whom the English Statutes of Laborers were applicable. But in the case
cited the majority of the judges concurred in the opinion that the principle extended to all cases of hiring. This
doctrine was followed by the Court of Appeal in Bowen vs. Hall ([1881], 6 Q. B., Div., 333); and in
Temperton vs. Russell ([1893], Q. B., 715), it was held that the right of action for maliciously procuring a
breach of contract is not confined to contracts for personal services, but extends to contracts in general. In that

case the contract which the defendant had procured to be breached was a contract for the supply of building
material.
Malice in some form is generally supposed to be an essential ingredient in cases of interference with contract
relations. But upon the authorities it is enough if the wrong-doer, having knowledge of the existence of the
contract relations, in bad faith sets about to break it up. Whether his motive is to benefit himself or gratify his
spite by working mischief to the employer is immaterial. Malice in the sense of ill-will or spite is not essential.
Upon the question as to what constitutes legal justification, a good illustration was put in the leading case. If a
party enters into contract to go for another upon a journey to a remote and unhealthful climate, and a third
person, with a bona fide purpose of benefiting the one who is under contract to go, dissuades him from the
step, no action will lie. But if the advice is not disinterested and the persuasion is used for "the indirect purpose
of benefiting the defendant at the expense of the plaintiff," the intermedler is liable if his advice is taken and
the contract broken.
The doctrine embodied in the cases just cited has sometimes been found useful, in the complicated relations
of modern industry, as a means of restraining the activities of labor unions and industrial societies when
improperly engaged in the promotion of strikes. An illustration of the application of the doctrine in question in a
case of this kind is found in South Wales Miners Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It
there appeared that certain miners employed in the plaintiff's collieries, acting under the order of the executive
council of the defendant federation, violated their contract with the plaintiff by abstaining from work on certain
days. The federation and council acted without any actual malice or ill-will towards the plaintiff, and the only
object of the order in question was that the price of coal might thereby be kept up, a factor which affected the
miner's wage scale. It was held that no sufficient justification was shown and that the federation was liable.
In the United States, the rule established in England by Lumley vs. Gye [supra] and subsequent cases is
commonly accepted, though in a few of the States the broad idea that a stranger to a contract can be held
liable upon its is rejected, and in these jurisdictions the doctrine, if accepted at all, is limited to the situation
where the contract is strictly for personal service. (Boyson vs. Thorn, 98 Cal., 578; Chambers &
Marshall vs. Baldwin 91 Ky., 121; Bourlier vs. Macauley, 91 Ky., 135; Glencoe Land & Gravel Co. vs. Hudson
Bros. Com. Co., 138 Mo., 439.)
It should be observed in this connection that, according to the English and American authorities, no question
can be made as to the liability to one who interferes with a contract existing between others by means which,
under known legal cannons, can be denominated an unlawful means. Thus, if performance is prevented by
force, intimidation, coercion, or threats, or by false or defamatory statements, or by nuisance or riot, the
person using such unlawful means is, under all the authorities, liable for the damage which ensues. And in
jurisdictions where the doctrine of Lumley vs. Gye [supra] is rejected, no liability can arise from a meddlesome
and malicious interference with a contract relation unless some such unlawful means as those just indicated
are used. (See cases last above cited.)
This brings us to the decision made by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542). It there appeared
that one Cuddy, the owner of a cinematographic film, let it under a rental contract to the plaintiff Gilchrist for a
specified period of time. In violation of the terms of this agreement, Cuddy proceeded to turn over the film also
under a rental contract, to the defendants Espejo and Zaldarriaga. Gilchrist thereupon restored to the Court of
First Instance and produced an injunction restraining the defendants from exhibiting the film in question in their
theater during the period specified in the contract of Cuddy with Gilchrist. Upon appeal to this court it was in
effect held that the injunction was not improperly granted, although the defendants did not, at the time their
contract was made, know the identity of the plaintiff as the person holding the prior contract but did know of
the existence of a contract in favor of someone. It was also said arguendo, that the defendants would have
been liable in damages under article 1902 of the Civil Code, if the action had been brought by the plaintiff to
recover damages. The force of the opinion is, we think, somewhat weakened by the criticism contain in the
concurring opinion, where it is said that the question of breach of contract by inducement was not really
involved in the case. Taking the decision upon the point which was rally decided, it is authority for the
proposition that one who buys something which he knows has been sold to some other person can be
restrained from using that thing to the prejudice of the person having the prior and better right.

Translated into terms applicable to the case at bar, the decision in Gilchrist vs. Cuddy (29 Phil. Rep., 542),
indicates that the defendant corporation, having notice of the sale of the land in question to Daywalt, might
have been enjoined by the latter from using the property for grazing its cattle thereon. That the defendant
corporation is also liable in this action for the damage resulting to the plaintiff from the wrongful use and
occupation of the property has also been already determined. But it will be observed that in order to sustain
this liability it is not necessary to resort to any subtle exegesis relative to the liability of a stranger to a contract
for unlawful interference in the performance thereof. It is enough that defendant use the property with notice
that the plaintiff had a prior and better right.
Article 1902 of the Civil Code declares that any person who by an act or omission, characterized by fault or
negligence, causes damage to another shall be liable for the damage so done. Ignoring so much of this article
as relates to liability for negligence, we take the rule to be that a person is liable for damage done to another
by any culpable act; and by "culpable act" we mean any act which is blameworthy when judged by accepted
legal standards. The idea thus expressed is undoubtedly broad enough to include any rational conception of
liability for the tortious acts likely to be developed in any society. Thus considered, it cannot be said that the
doctrine of Lumley vs. Gye [supra] and related cases is repugnant to the principles of the civil law.
Nevertheless, it must be admitted that the codes and jurisprudence of the civil law furnish a somewhat
uncongenial field in which to propagate the idea that a stranger to a contract may sued for the breach thereof.
Article 1257 of the Civil Code declares that contracts are binding only between the parties and their privies. In
conformity with this it has been held that a stranger to a contract has no right of action for the nonfulfillment of
the contract except in the case especially contemplated in the second paragraph of the same article. (Uy Tam
and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) As observed by this court in Manila Railroad Co. vs. Compaia
Transatlantica, R. G. No. 11318 (38 Phil. Rep., 875), a contract, when effectually entered into between certain
parties, determines not only the character and extent of the liability of the contracting parties but also the
person or entity by whom the obligation is exigible. The same idea should apparently be applicable with
respect to the person against whom the obligation of the contract may be enforced; for it is evident that there
must be a certain mutuality in the obligation, and if the stranger to a contract is not permitted to sue to enforce
it, he cannot consistently be held liable upon it.
If the two antagonistic ideas which we have just brought into juxtaposition are capable of reconciliation, the
process must be accomplished by distinguishing clearly between the right of action arising from the improper
interference with the contract by a stranger thereto, considered as an independent act generate of civil liability,
and the right of action ex contractu against a party to the contract resulting from the breach thereof. However,
we do not propose here to pursue the matter further, inasmuch as, for reasons presently to be stated, we are
of the opinion that neither the doctrine of Lumley vs. Gye [supra] nor the application made of it by this court in
Gilchristvs. Cuddy (29 Phil. Rep., 542), affords any basis for the recovery of the damages which the plaintiff is
supposed to have suffered by reason of his inability to comply with the terms of the Wakefield contract.
Whatever may be the character of the liability which a stranger to a contract may incur by advising or assisting
one of the parties to evade performance, there is one proposition upon which all must agree. This is, that the
stranger cannot become more extensively liable in damages for the nonperformance of the contract than the
party in whose behalf he intermeddles. To hold the stranger liable for damages in excess of those that could
be recovered against the immediate party to the contract would lead to results at once grotesque and unjust.
In the case at bar, as Teodorica Endencia was the party directly bound by the contract, it is obvious that the
liability of the defendant corporation, even admitting that it has made itself coparticipant in the breach of the
contract, can in no even exceed hers. This leads us to consider at this point the extent of the liability of
Teodorica Endencia to the plaintiff by reason of her failure to surrender the certificate of title and to place the
plaintiff in possession.
It should in the first place be noted that the liability of Teodorica Endencia for damages resulting from the
breach of her contract with Daywalt was a proper subject for adjudication in the action for specific performance
which Daywalt instituted against her in 1909 and which was litigated by him to a successful conclusion in this
court, but without obtaining any special adjudication with reference to damages. Indemnification for damages
resulting from the breach of a contract is a right inseparably annexed to every action for the fulfillment of the
obligation (art. 1124, Civil Code); and its is clear that if damages are not sought or recovered in the action to
enforce performance they cannot be recovered in an independent action. As to Teodorica Endencia, therefore,
it should be considered that the right of action to recover damages for the breach of the contract in question
was exhausted in the prior suit. However, her attorneys have not seen fit to interpose the defense of res

judicata in her behalf; and as the defendant corporation was not a party to that action, and such defense could
not in any event be of any avail to it, we proceed to consider the question of the liability of Teodorica Endencia
for damages without refernce to this point.
The most that can be said with refernce to the conduct of Teodorica Endencia is that she refused to carry out a
contract for the sale of certain land and resisted to the last an action for specific performance in court. The
result was that the plaintiff was prevented during a period of several years from exerting that control over the
property which he was entitled to exert and was meanwhile unable to dispose of the property advantageously.
Now, what is the measure of damages for the wrongful detention of real property by the vender after the time
has come for him to place the purchaser in possession?
The damages ordinarily and normally recoverable against a vendor for failure to deliver land which he has
contracted to deliver is the value of the use and occupation of the land for the time during which it is wrongfully
withheld. And of course where the purchaser has not paid the purchaser money, a deduction may be made in
respect to the interest on the money which constitutes the purchase price. Substantially the same rule holds
with respect to the liability of a landlord who fails to put his tenant in possession pursuant to contract of lease.
The measure of damages is the value of the leasehold interest, or use and occupation, less the stipulated rent,
where this has not been paid. The rule that the measure of damages for the wrongful detention of land is
normally to be found in the value of use and occupation is, we believe, one of the things that may be
considered certain in the law (39 cyc., 1630; 24 Cyc., 1052 Sedgewick on Damages, Ninth ed., sec. 185.)
almost as wellsettled, indeed, as the rule that the measure of damages for the wrongful detention of money is
to be found in the interest.
We recognize the possibility that more extensive damages may be recovered where, at the time of the
creation of the contractual obligation, the vendor, or lessor, is aware of the use to which the purchaser or
lessee desires to put the property which is the subject of the contract, and the contract is made with the eyes
of the vendor or lessor open to the possibility of the damage which may result to the other party from his own
failure to give possession. The case before us is not this character, inasmuch as at the time when the rights of
the parties under the contract were determined, nothing was known to any to them about the San Francisco
capitalist who would be willing to back the project portrayed in Exhibit C.
The extent of the liability for the breach of a contract must be determined in the light of the situation in
existence at the time the contract is made; and the damages ordinarily recoverable are in all events limited to
such as might be reasonable are in all events limited to such as might be reasonably foreseen in the light of
the facts then known to the contracting parties. Where the purchaser desires to protect himself, in the
contingency of the failure of the vendor promptly to give possession, from the possibility of incurring other
damages than such as the incident to the normal value of the use and occupation, he should cause to be
inserted in the contract a clause providing for stipulated amount to the paid upon failure of the vendor to give
possession; and not case has been called to our attention where, in the absence of such a stipulation,
damages have been held to be recoverable by the purchaser in excess of the normal value of use and
occupation. On the contrary, the most fundamental conceptions of the law relative to the assessment of
damages are inconsistent with such idea.
The principles governing this branch of the law were profoundly considered in the case Hadley vs. Baxendale
(9 Exch., 341), decided in the English Court of Exchequer in 1854; and a few words relative to the principles
governing will here be found instructive. The decision in that case is considered a leading authority in the
jurisprudence of the common law. The plaintiffs in that case were proprietors of a mill in Gloucester, which was
propelled by steam, and which was engaged in grinding and supplying meal and flour to customers. The shaft
of the engine got broken, and it became necessarily that the broken shaft be sent to an engineer or foundry
man at Greenwich, to serve as a model for casting or manufacturing another that would fit into the machinery.
The broken shaft could be delivered at Greenwich on the second day after its receipts by the carrier it. It was
delivered to the defendants, who were common carriers engaged in that business between these points, and
who had told plaintiffs it would be delivered at Greenwich on the second day after its delivery to them, if
delivered at a given hour. The carriers were informed that the mill was stopped, but were not informed of the
special purpose for which the broken shaft was desired to forwarded, They were not told the mill would remain
idle until the new shaft would be returned, or that the new shaft could not be manufactured at Greenwich until
the broken one arrived to serve as a model. There was delay beyond the two days in delivering the broken
shaft at Greenwich, and a corresponding delay in starting the mill. No explanation of the delay was offered by

the carriers. The suit was brought to recover damages for the lost profits of the mill, cause by the delay in
delivering the broken shaft. It was held that the plaintiff could not recover.

SO PING BUN, petitioner,


vs.
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C. TIONG, respondents.

The discussion contained in the opinion of the court in that case leads to the conclusion that the damages
recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary, natural, and in a sense
necessary damage; and (2) special damages.
QUISUMBING, J.:
Ordinary damages is found in all breaches of contract where the are no special circumstances to distinguish
the case specially from other contracts. The consideration paid for an unperformed promise is an instance of
this sort of damage. In all such cases the damages recoverable are such as naturally and generally would
result from such a breach, "according to the usual course of things." In case involving only ordinary damage
no discussion is ever indulged as to whether that damage was contemplated or not. This is conclusively
presumed from the immediateness and inevitableness of the damage, and the recovery of such damage
follows as a necessary legal consequence of the breach. Ordinary damage is assumed as a matter of law to
be within the contemplation of the parties.
Special damage, on the other hand, is such as follows less directly from the breach than ordinary damage. It is
only found in case where some external condition, apart from the actual terms to the contract exists or
intervenes, as it were, to give a turn to affairs and to increase damage in a way that the promisor, without
actual notice of that external condition, could not reasonably be expected to foresee. Concerning this sort of
damage, Hadley vs.Baxendale (1854) [supra] lays down the definite and just rule that before such damage
can be recovered the plaintiff must show that the particular condition which made the damage a possible and
likely consequence of the breach was known to the defendant at the time the contract was made.
The statement that special damages may be recovered where the likelihood of such damages flowing from the
breach of the contract is contemplated and foreseen by the parties needs to be supplemented by a proposition
which, though not enunciated in Hadley vs. Baxendale, is yet clearly to be drawn from subsequent cases. This
is that where the damage which a plaintiff seeks to recover as special damage is so far speculative as to be in
contemplation of law remote, notification of the special conditions which make that damage possible cannot
render the defendant liable therefor. To bring damages which would ordinarily be treated as remote within the
category of recoverable special damages, it is necessary that the condition should be made the subject of
contract in such sense as to become an express or implied term of the engagement. Horne vs. Midland R. Co.
(L. R., 8 C. P., 131) is a case where the damage which was sought to be recovered as special damage was
really remote, and some of the judges rightly places the disallowance of the damage on the ground that to
make such damage recoverable, it must so far have been within the contemplation of the parties as to form at
least an implied term of the contract. But others proceeded on the idea that the notice given to the defendant
was not sufficiently full and definite. The result was the same in either view. The facts in that case were as
follows: The plaintiffs, shoe manufacturers at K, were under contract to supply by a certain day shoes to a firm
in London for the French government. They delivered the shoes to a carrier in sufficient time for the goods to
reach London at the time stipulated in the contract and informed the railroad agent that the shoes would be
thrown back upon their hands if they did not reach the destination in time. The defendants negligently failed to
forward the good in due season. The sale was therefore lost, and the market having fallen, the plaintiffs had to
sell at a loss.
In the preceding discussion we have considered the plaintiff's right chiefly against Teodorica Endencia; and
what has been said suffices in our opinion to demonstrate that the damages laid under the second cause of
action in the complaint could not be recovered from her, first, because the damages laid under the second
cause of action in the complaint could not be recovered from her, first, because the damages in question are
special damages which were not within contemplation of the parties when the contract was made, and
secondly, because said damages are too remote to be the subject of recovery. This conclusion is also
necessarily fatal to the right of the plaintiff to recover such damages from the defendant corporation, for, as
already suggested, by advising Teodorica not to perform the contract, said corporation could in no event
render itself more extensively liable than the principle in the contract.
Our conclusion is that the judgment of the trial court should be affirmed, and it is so ordered, with costs against
the appellant.
G.R. No. 120554 September 21, 1999

This petition for certiorari challenges the Decision 1 of the Court of Appeals dated October 10, 1994, and the
Resolution2 dated June 5, 1995, in CA-G.R. CV No. 38784. The appellate court affirmed the decision of the
Regional Trial Court of Manila, Branch 35, except for the award of attorney's fees, as follows:
WHEREFORE, foregoing considered, the appeal of respondent-appellant So Ping Bun for lack of merit is
DISMISSED. The appealed decision dated April 20, 1992 of the court a quo is modified by reducing the
attorney's fees awarded to plaintiff Tek Hua Enterprising Corporation from P500,000.00 to P200,000.00. 3
The facts are as follows:
In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease agreements with
lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts were premises located at Nos.
930, 930-Int., 924-B and 924-C, Soler Street, Binondo, Manila. Tek Hua used the areas to store its textiles.
The contracts each had a one-year term. They provided that should the lessee continue to occupy the
premises after the term, the lease shall be on a month-to-month basis.
When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the
premises. In 1976, Tek Hua Trading Co. was dissolved. Later, the original members of Tek Hua Trading Co.
including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein respondent corporation.
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok's grandson, petitioner So Ping
Bun, occupied the warehouse for his own textile business, Trendsetter Marketing.
On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the latter of the
25% increase in rent effective September 1, 1989. The rent increase was later on reduced to 20% effective
January 1, 1990, upon other lessees' demand. Again on December 1, 1990, the lessor implemented a 30%
rent increase. Enclosed in these letters were new lease contracts for signing. DCCSI warned that failure of the
lessee to accomplish the contracts shall be deemed as lack of interest on the lessee's part, and agreement to
the termination of the lease. Private respondents did not answer any of these letters. Still, the lease contracts
were not rescinded.
On March 1, 1991, private respondent Tiong sent a letter to petitioner which reads as follows:
March 1, 1991
Mr. So Ping Bun
930 Soler Street
Binondo, Manila
Dear Mr. So,

Due to my closed (sic) business associate (sic) for three decades with your late grandfather Mr. So Pek Giok
and late father, Mr. So Chong Bon, I allowed you temporarily to use the warehouse of Tek Hua Enterprising
Corp. for several years to generate your personal business.
Since I decided to go back into textile business, I need a warehouse immediately for my stocks. Therefore,
please be advised to vacate all your stocks in Tek Hua Enterprising Corp. Warehouse. You are hereby given
14 days to vacate the premises unless you have good reasons that you have the right to stay. Otherwise, I will
be constrained to take measure to protect my interest.
Please give this urgent matter your preferential attention to avoid inconvenience on your part.
Very truly yours,

Petitioner's motion for reconsideration of the above decision was denied.


On appeal by So Ping Bun, the Court of Appeals upheld the trial court. On motion for reconsideration, the
appellate court modified the decision by reducing the award of attorney's fees from five hundred thousand
(P500,000.00) pesos to two hundred thousand (P200,000.00) pesos.
Petitioner is now before the Court raising the following issues:
I. WHETHER THE APPELLATE COURT ERRED IN AFFIRMING THE TRIAL COURT'S DECISION FINDING
SO PING BUN GUILTY OF TORTUOUS INTERFERENCE OF CONTRACT?
II. WHETHER THE APPELLATE COURT ERRED IN AWARDING ATTORNEY'S FEES OF P200,000.00 IN
FAVOR OF PRIVATE RESPONDENTS.

(Sgd) Manuel C. Tiong


MANUEL C. TIONG

The foregoing issues involve, essentially, the correct interpretation of the applicable law on tortuous conduct,
particularly unlawful interference with contract. We have to begin, obviously, with certain fundamental
principles on torts and damages.

President 4
Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease with DCCSI in
favor Trendsetter Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok, he had
been occupying the premises for his textile business and religiously paid rent. DCCSI acceded to petitioner's
request. The lease contracts in favor of Trendsetter were executed.
In the suit for injunction, private respondents pressed for the nullification of the lease contracts between
DCCSI and petitioner. They also claimed damages.

Damage is the loss, hurt, or harm which results from injury, and damages are the recompense or
compensation awarded for the damage suffered. 6 One becomes liable in an action for damages for a
nontrespassory invasion of another's interest in the private use and enjoyment of asset if (a) the other has
property rights and privileges with respect to the use or enjoyment interfered with, (b) the invasion is
substantial, (c) the defendant's conduct is a legal cause of the invasion, and (d) the invasion is either
intentional and unreasonable or unintentional and actionable under general negligence rules. 7
The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part of the third
person of the existence of contract; and (3) interference of the third person is without legal justification or
excuse.8

After trial, the trial court ruled:


WHEREFORE, judgment is rendered:
1. Annulling the four Contracts of Lease (Exhibits A, A-1 to A-3, inclusive) all dated March 11, 1991, between
defendant So Ping Bun, doing business under the name and style of "Trendsetter Marketing", and defendant
Dee C. Chuan & Sons, Inc. over the premises located at Nos. 924-B, 924-C, 930 and 930, Int., respectively,
Soler Street, Binondo Manila;
2. Making permanent the writ of preliminary injunction issued by this Court on June 21, 1991;
3. Ordering defendant So Ping Bun to pay the aggrieved party, plaintiff Tek Hua Enterprising Corporation, the
sum of P500,000.00, for attorney's fees;
4. Dismissing the complaint, insofar as plaintiff Manuel C. Tiong is concerned, and the respective
counterclaims of the defendant;
5. Ordering defendant So Ping Bun to pay the costs of this lawsuit;
This judgment is without prejudice to the rights of plaintiff Tek Hua Enterprising Corporation and defendant
Dee C. Chuan & Sons, Inc. to negotiate for the renewal of their lease contracts over the premises located at
Nos. 930, 930-Int., 924-B and 924-C Soler Street, Binondo, Manila, under such terms and conditions as they
agree upon, provided they are not contrary to law, public policy, public order, and morals.
SO ORDERED. 5

A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex
delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other of his
private
property. 9 This may pertain to a situation where a third person induces a party to renege on or violate his
undertaking under a contract. In the case before us, petitioner's Trendsetter Marketing asked DCCSI to
execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latter's
property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference
above-mentioned are present in the instant case.
Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of
furthering his own financial or economic interest. 10 One view is that, as a general rule, justification for
interfering with the business relations of another exists where the actor's motive is to benefit himself. Such
justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities
believe that it is not necessary that the interferer's interest outweigh that of the party whose rights are invaded,
and that an individual acts under an economic interest that is substantial, not merely de minimis, such that
wrongful and malicious motives are negatived, for he acts in self-protection. 11 Moreover justification for
protecting one's financial position should not be made to depend on a comparison of his economic interest in
the subject matter with that of others. 12 It is sufficient if the impetus of his conduct lies in a proper business
interest rather than in wrongful motives. 13
As early as Gilchrist vs. Cuddy, 14 we held that where there was no malice in the interference of a contract,
and the impulse behind one's conduct lies in a proper business interest rather than in wrongful motives, a
party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest
motivates his conduct, it cannot be said that he is an officious or malicious intermeddler. 15

In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his
enterprise at the expense of respondent corporation. Though petitioner took interest in the property of
respondent corporation and benefited from it, nothing on record imputes deliberate wrongful motives or malice
on him.
Sec. 1314 of the Civil Code categorically provides also that, "Any third person who induces another to violate
his contract shall be liable for damages to the other contracting party." Petitioner argues that damage is an
essential element of tort interference, and since the trial court and the appellate court ruled that private
respondents were not entitled to actual, moral or exemplary damages, it follows that he ought to be absolved
of any liability, including attorney's fees.
It is true that the lower courts did not award damages, but this was only because the extent of damages was
not quantifiable. We had a similar situation in Gilchrist, where it was difficult or impossible to determine the
extent of damage and there was nothing on record to serve as basis thereof. In that case we refrained from
awarding damages. We believe the same conclusion applies in this case.
While we do not encourage tort interferers seeking their economic interest to intrude into existing contracts at
the expense of others, however, we find that the conduct herein complained of did not transcend the limits
forbidding an obligatory award for damages in the absence of any malice. The business desire is there to
make some gain to the detriment of the contracting parties. Lack of malice, however, precludes damages. But
it does not relieve petitioner of the legal liability for entering into contracts and causing breach of existing ones.
The respondent appellate court correctly confirmed the permanent injunction and nullification of the lease
contracts between DCCSI and Trendsetter Marketing, without awarding damages. The injunction saved the
respondents from further damage or injury caused by petitioner's interference.
Lastly, the recovery of attorney's fees in the concept of actual or compensatory damages, is allowed under the
circumstances provided for in Article 2208 of the Civil Code. 16 One such occasion is when the defendant's act
or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his
interest. 17 But we have consistently held that the award of considerable damages should have clear factual
and legal bases. 18 In connection with attorney's fees, the award should be commensurate to the benefits that
would have been derived from a favorable judgment. Settled is the rule that fairness of the award of damages
by the trial court calls for appellate review such that the award if far too excessive can be reduced. 19 This
ruling applies with equal force on the award of attorney's fees. In a long line of cases we said, "It is not sound
policy to place in penalty on the right to litigate. To compel the defeated party to pay the fees of counsel for his
successful opponent would throw wide open the door of temptation to the opposing party and his counsel to
swell the fees to undue proportions." 20
Considering that the respondent corporation's lease contract, at the time when the cause of action accrued,
ran only on a month-to-month basis whence before it was on a yearly basis, we find even the reduced amount
of attorney's fees ordered by the Court of Appeals still exorbitant in the light of prevailing
jurisprudence. 21Consequently, the amount of two hundred thousand (P200,000.00) awarded by respondent
appellate court should be reduced to one hundred thousand (P100,000.00) pesos as the reasonable award or
attorney's fees in favor of private respondent corporation.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the Court of Appeals
in CA-G.R. CV No. 38784 are hereby AFFIRMED, with MODIFICATION that the award of attorney's fees is
reduced from two hundred thousand (P200,000.00) to one hundred thousand (P100,000.00) pesos. No
pronouncement as to costs.1wphi1.nt SO ORDERED.
G.R. No. 119107

March 18, 2005

CORONA, J.:
On June 23, 1982, petitioner Jose Lagon purchased from the estate of Bai Tonina Sepi, through an intestate
court,1 two parcels of land located at Tacurong, Sultan Kudarat. A few months after the sale, private
respondent Menandro Lapuz filed a complaint for torts and damages against petitioner before the Regional
Trial Court (RTC) of Sultan Kudarat.
In the complaint, private respondent, as then plaintiff, claimed that he entered into a contract of lease with the
late Bai Tonina Sepi Mengelen Guiabar over three parcels of land (the "property") in Sultan Kudarat,
Maguindanao beginning 1964. One of the provisions agreed upon was for private respondent to put up
commercial buildings which would, in turn, be leased to new tenants. The rentals to be paid by those tenants
would answer for the rent private respondent was obligated to pay Bai Tonina Sepi for the lease of the land. In
1974, the lease contract ended but since the construction of the commercial buildings had yet to be
completed, the lease contract was allegedly renewed.
When Bai Tonina Sepi died, private respondent started remitting his rent to the court-appointed administrator
of her estate. But when the administrator advised him to stop collecting rentals from the tenants of the
buildings he constructed, he discovered that petitioner, representing himself as the new owner of the property,
had been collecting rentals from the tenants. He thus filed a complaint against the latter, accusing petitioner of
inducing the heirs of Bai Tonina Sepi to sell the property to him, thereby violating his leasehold rights over it.
In his answer to the complaint, petitioner denied that he induced the heirs of Bai Tonina to sell the property to
him, contending that the heirs were in dire need of money to pay off the obligations of the deceased. He also
denied interfering with private respondent's leasehold rights as there was no lease contract covering the
property when he purchased it; that his personal investigation and inquiry revealed no claims or
encumbrances on the subject lots.
Petitioner claimed that before he bought the property, he went to Atty. Benjamin Fajardo, the lawyer who
allegedly notarized the lease contract between private respondent and Bai Tonina Sepi, to verify if the parties
indeed renewed the lease contract after it expired in 1974. Petitioner averred that Atty. Fajardo showed him
four copies of the lease renewal but these were all unsigned. To refute the existence of a lease contract,
petitioner presented in court a certification from the Office of the Clerk of Court confirming that no record of
any lease contract notarized by Atty. Fajardo had been entered into their files. Petitioner added that he only
learned of the alleged lease contract when he was informed that private respondent was collecting rent from
the tenants of the building.
Finding the complaint for tortuous interference to be unwarranted, petitioner filed his counterclaim and prayed
for the payment of actual and moral damages.
On July 29, 1986, the court a quo found for private respondent (plaintiff below):
ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff:
1. Declaring the "Contract of Lease" executed by Bai Tonina Sepi Mangelen Guiabar in favor of the plaintiff on
November 6, 1974 (Exh. "A" and "A-1") over Lot No. 6395, Pls-73. Lot No 6396. Pls.-73. Lot No. 6399. 3ls-73,
and Lot no.9777-A. CSD-11-000076-D (Lot No. 3-A. 40124), all situated along Ledesma St., Tacurong, Sultan
Kudarat, which document was notarized by Atty. Benjamin S. Fajardo, Sr. and entered into his notarial register
as Doc. No. 619. Page No. 24. Book No. II. Series of 1974, to be authentic and genuine and as such valid and
binding for a period of ten (10) years specified thereon from November 1, 1974 up to October 31, 1984;

JOSE V. LAGON, Petitioner,


vs.
HONORABLE COURT OF APPEALS and MENANDRO V. LAPUZ, respondents.

2. Declaring the plaintiff as the lawful owner of the commercial buildings found on the aforesaid lots and he is
entitled to their possession and the collection (of rentals) of the said commercial buildings within the period
covered by this "Contract of Lease" in his favor;

DECISION

3. Ordering the defendant to pay to the plaintiff the following:

a) Rentals of the commercial buildings on the lots covered by the "Contract of Lease" in favor of the plaintiff for
the period from October 1, 1978 up to October 31, 1984, including accrued interests in the total amount of Five
Hundred Six Thousand Eight Hundred Five Pesos and Fifty Six Centavos (P506, 850.56), the same to
continue to bear interest at the legal rate of 12% per annum until the whole amount is fully paid by the
defendant to the plaintiff;

d) Additionally, the defendant is hereby ordered to pay to the plaintiff by way of actual damages the sum
ofP178,425.00 representing the amount of rentals he collected from the period of October 1978 to August
1983, and minus the amount of P42,700.00 representing rentals due the defendant computed at P700.00 per
month for the period from August 1978 to August 1983, with interest thereon at the rate until the same is fully
paid;

b) Moral damages in the amount of One Million Sixty Two Thousand Five Hundred Pesos (P1,062,500.00);

e) Paragraph 4 is deleted.5

c) Actual or compensatory damages in the amount of Three Hundred Twelve Thousand Five Hundred Pesos
(P312, 500.00);
d) Exemplary or corrective damages in the amount of One Hundred Eighty Thousand Five Hundred Pesos
(P187,500.00)

Before the appellate court, petitioner disclaimed knowledge of any lease contract between the late Bai Tonina
Sepi and private respondent. On the other hand, private respondent insisted that it was impossible for
petitioner not to know about the contract since the latter was aware that he was collecting rentals from the
tenants of the building. While the appellate court disbelieved the contentions of both parties, it nevertheless
held that, for petitioner to become liable for damages, he must have known of the lease contract and must
have also acted with malice or bad faith when he bought the subject parcels of land.

e) Temperate or moderate damages in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);

Via this petition for review, petitioner cites the following reasons why the Court should rule in his favor:

f) Nominal damages in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);

1. The Honorable Court of Appeals seriously erred in holding that petitioner is liable for interference of
contractual relation under Article 1314 of the New Civil Code;

g) Attorney's fees in the amount of One Hundred Twenty Five Thousand Pesos (P125,000.00);
h) Expenses of litigation in the amount of Sixty Two Thousand Five Hundred Pesos (P62,500.00);
i) Interest on the moral damages, actual or compensatory damages temperate or moderate damages, nominal
damages, attorney's fees and expenses of litigation in the amounts as specified hereinabove from May 24,
1982 up to June 27, 1986, in the total amount of Nine Hundred Thousand Pesos (P900,000.00); all of which
will continue to bear interests at a legal rate of 12% per annum until the whole amounts are fully paid by the
defendants to the plaintiffs;
4. For failure of the defendant to deposit with this Court all the rentals he had collected from the thirteen (13)
tenants or occupants of the commercial buildings in question, the plaintiff is hereby restored to the possession
of his commercial buildings for a period of seventy-three (73) months which is the equivalent of the total period
for which he was prevented from collecting the rentals from the tenants or occupants of his commercial
buildings from October 1, 1978 up to October 31, 1984, and for this purpose a Writ of Preliminary Injunction is
hereby issued, but the plaintiff is likewise ordered to pay to the defendant the monthly rental of Seven Hundred
Pesos (P700.00) every end of the month for the entire period of seventy three (73) months. This portion of the
judgment should be considered as a mere alternative should the defendant fail to pay the amount of Five
Hundred Five Pesos and Fifty Six Centavos (P506,805.56) hereinabove specified;
5. Dismissing the counterclaim interposed by the defendant for lack of merit;
6. With costs against the defendant. 2
Petitioner appealed the judgment to the Court of Appeals. 3 In a decision dated January 31, 1995,4 the
appellate court modified the assailed judgment of the trial court as follows:
a) The award for moral damages, compensatory damages, exemplary damages, temperate or moderate
damages, and nominal damages as well as expenses of litigation in the amount of P62,500.00 and interests
under paragraph 3-a(a), (b), (c), (d), (e), (f), (g), (h), and (i) are deleted;
b) The award for attorney's fees is reduced to P30,000.00;
c) Paragraphs 1,2,5 and 6 are AFFIRMED;

2. The Honorable Court of Appeals erred in not holding that private respondent is precluded from recovering, if
at all, because of laches;
3. The Honorable Court of Appeals erred in holding petitioner liable for actual damages and attorney's fees,
and;
4. The Honorable Court of Appeals erred in dismissing petitioner's counterclaims. 6
Article 1314 of the Civil Code provides that any third person who induces another to violate his contract shall
be liable for damages to the other contracting party. The tort recognized in that provision is known as
interference with contractual relations.7 The interference is penalized because it violates the property rights of
a party in a contract to reap the benefits that should result therefrom. 8
The core issue here is whether the purchase by petitioner of the subject property, during the supposed
existence of private respondent's lease contract with the late Bai Tonina Sepi, constituted tortuous interference
for which petitioner should be held liable for damages.
The Court, in the case of So Ping Bun v. Court of Appeals,9 laid down the elements of tortuous interference
with contractual relations: (a) existence of a valid contract; (b) knowledge on the part of the third person of the
existence of the contract and (c) interference of the third person without legal justification or excuse. In that
case, petitioner So Ping Bun occupied the premises which the corporation of his grandfather was leasing from
private respondent, without the knowledge and permission of the corporation. The corporation, prevented from
using the premises for its business, sued So Ping Bun for tortuous interference.
As regards the first element, the existence of a valid contract must be duly established. To prove this, private
respondent presented in court a notarized copy of the purported lease renewal. 10 While the contract appeared
as duly notarized, the notarization thereof, however, only proved its due execution and delivery but not the
veracity of its contents. Nonetheless, after undergoing the rigid scrutiny of petitioner's counsel and after the
trial court declared it to be valid and subsisting, the notarized copy of the lease contract presented in court
appeared to be incontestable proof that private respondent and the late Bai Tonina Sepi actually renewed their
lease contract. Settled is the rule that until overcome by clear, strong and convincing evidence, a notarized
document continues to be prima facie evidence of the facts that gave rise to its execution and delivery. 11
The second element, on the other hand, requires that there be knowledge on the part of the interferer that the
contract exists. Knowledge of the subsistence of the contract is an essential element to state a cause of action

for tortuous interference.12 A defendant in such a case cannot be made liable for interfering with a contract he
is unaware of.13 While it is not necessary to prove actual knowledge, he must nonetheless be aware of the
facts which, if followed by a reasonable inquiry, will lead to a complete disclosure of the contractual relations
and rights of the parties in the contract. 14

damage without injury where the loss or harm is not the result of a violation of a legal duty. In that instance, the
consequences must be borne by the injured person alone since the law affords no remedy for damages
resulting from an act which does not amount to legal injury or wrong. 24 Indeed, lack of malice in the conduct
complained of precludes recovery of damages. 25

In this case, petitioner claims that he had no knowledge of the lease contract. His sellers (the heirs of Bai
Tonina Sepi) likewise allegedly did not inform him of any existing lease contract.

With respect to the attorney's fees awarded by the appellate court to private respondent, we rule that it cannot
be recovered under the circumstances. According to Article 2208 of the Civil Code, attorney's fees may be
awarded only when it has been stipulated upon or under the instances provided therein. 26 Likewise, being in
the concept of actual damages, the award for attorney's fees must have clear, factual and legal bases 27 which,
in this case, do not exist.

After a careful perusal of the records, we find the contention of petitioner meritorious. He conducted his own
personal investigation and inquiry, and unearthed no suspicious circumstance that would have made a
cautious man probe deeper and watch out for any conflicting claim over the property. An examination of the
entire property's title bore no indication of the leasehold interest of private respondent. Even the registry of
property had no record of the same. 15
Assuming ex gratia argumenti that petitioner knew of the contract, such knowledge alone was not sufficient to
make him liable for tortuous interference. Which brings us to the third element. According to our ruling in So
Ping Bun, petitioner may be held liable only when there was no legal justification or excuse for his action 16 or
when his conduct was stirred by a wrongful motive. To sustain a case for tortuous interference, the defendant
must have acted with malice17 or must have been driven by purely impious reasons to injure the plaintiff. In
other words, his act of interference cannot be justified. 18

Regarding the dismissal of petitioner's counterclaim for actual and moral damages, the appellate court
affirmed the assailed order of the trial court because it found no basis to grant the amount of damages prayed
for by petitioner. We find no reason to reverse the trial court and the Court of Appeals. Actual damages are
those awarded in satisfaction of, or in recompense for, loss or injury sustained. To be recoverable, they must
not only be capable of proof but must actually be proved with a reasonable degree of certainty. 28 Petitioner
was unable to prove that he suffered loss or injury, hence, his claim for actual damages must fail. Moreover,
petitioner's prayer for moral damages was not warranted as moral damages should result from the wrongful
act of a person. The worries and anxieties suffered by a party hailed to court litigation are not compensable. 29
With the foregoing discussion, we no longer deem it necessary to delve into the issue of laches.

Furthermore, the records do not support the allegation of private respondent that petitioner induced the heirs
of Bai Tonina Sepi to sell the property to him. The word "induce" refers to situations where a person causes
another to choose one course of conduct by persuasion or intimidation. 19 The records show that the decision
of the heirs of the late Bai Tonina Sepi to sell the property was completely of their own volition and that
petitioner did absolutely nothing to influence their judgment. Private respondent himself did not proffer any
evidence to support his claim. In short, even assuming that private respondent was able to prove the renewal
of his lease contract with Bai Tonina Sepi, the fact was that he was unable to prove malice or bad faith on the
part of petitioner in purchasing the property. Therefore, the claim of tortuous interference was never
established.
In So Ping Bun, the Court discussed whether interference can be justified at all if the interferer acts for the sole
purpose of furthering a personal financial interest, but without malice or bad faith. As the Court explained it:
x x x, as a general rule, justification for interfering with the business relations of another exists where the
actor's motive is to benefit himself. Such justification does not exist where the actor's motive is to cause harm
to the other. Added to this, some authorities believe that it is not necessary that the interferer's interest
outweigh that of the party whose rights are invaded, and that an individual acts under an economic interest
that is substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts
in self-protection. Moreover, justification for protecting one's financial position should not be made to depend
on a comparison of his economic interest in the subject matter with that of the others. It is sufficient if the
impetus of his conduct lies in a proper business interest rather than in wrongful motives. 20
The foregoing disquisition applies squarely to the case at bar. In our view, petitioner's purchase of the subject
property was merely an advancement of his financial or economic interests, absent any proof that he was
enthused by improper motives. In the very early case of Gilchrist v. Cuddy,21 the Court declared that a person
is not a malicious interferer if his conduct is impelled by a proper business interest. In other words, a financial
or profit motivation will not necessarily make a person an officious interferer liable for damages as long as
there is no malice or bad faith involved.
In sum, we rule that, inasmuch as not all three elements to hold petitioner liable for tortuous interference are
present, petitioner cannot be made to answer for private respondent's losses.
This case is one of damnun absque injuria or damage without injury. "Injury" is the legal invasion of a legal
right while "damage" is the hurt, loss or harm which results from the injury.22 In BPI Express Card Corporation
v. Court of Appeals,,23 the Court turned down the claim for damages of a cardholder whose credit card had
been cancelled by petitioner corporation after several defaults in payment. We held there that there can be

WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed decision of the Court of
Appeals is hereby REVERSED and SET ASIDE.
No costs.
G.R. No. 20732

September 26, 1924

C. W. ROSENSTOCK, as administrator of the estate of H. W. ELSER, plaintiff-appellant,


vs.
EDWIN BURKE, defendant-appellant.
THE COOPER COMPANY, intervenor-appellee.
Camus and Delgado for plaintiff-appellant.
Crossfield & O'Brien for defendant-appellant.
Hartigan & Welch for intervenor-appellee.
AVANCEA, J.:
The defendant Edwin Burke owned a motor yacht, known as Bronzewing, which he acquired in Australia in the
year 1920 for the purpose of selling it here. This yacht was purely for recreation and as no purchaser
presented himself, it had been moored for several months until the plaintiff H. W. Elser, at the beginning of the
year 1922, began negotiations with the defendant for the purchase thereof. At the time this yacht was
mortgaged to the Asia Banking Corporation to secure the payment of a debt of P100,000 which was due and
unpaid since one year prior thereto, contracted by the defendant in favor of said bank of which Mr. Avery was
then the manager. The plan of the plaintiff was to organize a yacht club and sell it afterwards the yacht for
P120,000, of which P20,000 was to be retained by him as commission and the remaining P100,000 to be paid
to the defendant. To this end, on February 12, 1922, the defendant obtained from the plaintiff an option in
writing in the following terms:
For the purpose expressed by you of organizing a yacht club, I take pleasure in confirming my verbal offer to
you of the motor yacht Bronzewing, at a price of one hundred and twenty thousand pesos (P120,000). This
offer is open for thirty days from date.

To carry out his plan, the plaintiff proposed to the defendant to make a voyage on board the yacht to the south,
with prominent business men for the purpose, undoubtedly, of making an advantageous sale. But as the yacht
needed some repairs to make it seaworthy for this voyage, and as, on the other hand, the defendant said that
he had no funds to make said repairs, the plaintiff paid almost all their amount. It has been stipulated that the
plaintiff was not to pay anything for the use of the yacht. The cost of those repairs was P6,972.21, which was
already paid by the plaintiff, plus P1,730.84 due to the Cooper Company which still remains unpaid, plus
P832.93, due to the plaintiff, which also remains unpaid. Once the yacht was repaired, the plaintiff gave
receptions on board, and on March 6, 1922, made his pleasure voyage to the south, coming back on the 23d
of the same month. The plaintiff never accepted the offer of the defendant for the purchase of the yacht
contained in the letter of option of February 12, 1922. The plaintiff believed, in view of the result of that
voyage, that it was convenient to replace the engine of the yacht with a new one which would cost P20,000. In
this connection the plaintiff had negotiated with Mr. Avery for another loan of P20,000 with which to purchase
this new engine. On the 31st of that month of March the plaintiff wrote the defendant a letter informing him,
among other things, that after he had tried to obtain from Mr. Avery said new loan of P20,000 for the purchase
of the engine, and that he was not disposed to purchase the vessel for more than P70,000, Mr. Avery had told
him that he was not in position to give one cent more. In this letter the plaintiff suggested to the defendant that
he should speak with Mr. Avery about the matter. The defendant, after an interview with Mr. Avery held on the
same day, answered the plaintiff that he had arrived at an agreement with Mr. Avery about the sale of the
yacht to the plaintiff for P80,000 payable as follows: P5,000 each month during the first six months and
P10,000 thereafter until full payment of the price, the yacht to be mortgaged to secure payment thereof. On
the first of April next, the plaintiff informed the defendant that he was not inclined to accept this proposition. On
the morning of the 3d of the same month, the defendant called at the office of the plaintiff to speak with him
about the matter and as a result of the interview held between them, the plaintiff in the presence of the
defendant wrote a letter addressed to the latter which is literally as follows:
MY DEAR MR. BURKE:
In connection with the yacht Bronzewing, I am in position and am willing to entertain the purchase of it under
the following terms:
(a) The purchase price to be P80,000, Philippine currency.
(b) Initial payment of P10,000 to be made within sixty (60) days.
(c) Payment of the balance to be made in installments of P5,000 per month, with interest on deferred
payments at 9 per cent payable semiannually.
(d) As security for the above, I am to deposit with you P80,000, in stock of the J. K. Pickering Co., commercial
value P400,000, book value P600,000. Statement covering this will be furnished you on request.
Yours very truly,

(Sgd.) H. W. ELSER
Proposition Accepted.
(Sgd.) E. BURKE
MANILA, April 3, 1922.

ASIA BKG. CORP.


Agreed to as above.
(Sgd.) W. G. AVERY
Mgr.
Asia Bkg. Corp.
The defendant took this letter and went to the Asia Banking Corporation and after holding an interview with Mr.
Avery, both of them signed at the bottom of the letter of Mr. Elser, as appear there. On the 5th of the same

month of April the plaintiff sent the defendant another letter, telling him that in view of the attitude of Mr. Avery
as to the loan of P20,000 in connection with the installation of a new engine in the yacht, it was impossible for
him to take charge of the boat and he made delivery thereof to the defendant. On the 8th of the same month of
April the defendant answered the plaintiff that as he had accepted, with the consent of the Asia Banking
Corporation, through Mr. Avery, the offer for the purchase of the yacht made by the plaintiff in his letter of the
3d of April (Exhibit 1), he made demand on him for the performance thereof.
The plaintiff brings this action against the defendant to recover the sum of P6,139.28, the value of the repairs
made on the yacht which he had paid for.
The defendant alleges as a defense against this action that the agreement he had with the plaintiff about these
repairs was that the letter was to pay for them for his own account in exchange of the gratuitous use of the
yacht, and prays that he be absolved from the complaint. As a counterclaim he prays that the plaintiff be
compelled to pay him the sum of P832.93, one-half of the price of the canvas used in the repair of the yacht,
which has not as yet been paid by the plaintiff. Furthermore, alleging that the plaintiff purchased the vessel in
accordance with his letter of April 3, 1922, he prays as a cross-complaint that the plaintiff be compelled to
comply with the terms of this contract and to pay damages in the sum of P10,000.
The Cooper Company was admitted to intervene in this action and claims in turn its credit of P1,730.84 for the
repairs made on the yacht, the amount of which has not as yet been paid.
The trial court rendered judgment sentencing the defendant to pay the plaintiff the sum of P6,139.28 with legal
interest thereon at the rate of 6 per cent from April 18, 1922, and to pay the intervenor, the Cooper Company,
the sum of P1,730.84 with legal interest at 6 per cent from May 19, 1922. The plaintiff was sentenced to
comply in all its parts with the contract for the purchase of the yacht, according to the terms of his letter of April
3d (Exhibit 1). Both the plaintiff and the defendant appealed from this judgment.
The plaintiff appeals from the judgment in so far as it compels him to purchase the yacht upon the conditions
stated in the letter of April 3, 1922 (Exhibit 1). This appeal raises the question whether or not this letter was a
definite offer to purchase, and the same having been accepted by the defendant with the consent of Mr. Avery
on behalf of the Asia Banking Corporation, whether or not it is a contract of sale valid and binding against the
plaintiff. The trial court solved this question in the affirmative. We are of the opinion that this is an error.
As was seen, this letter begins as follows: "In connection with the yacht Bronzewing, I am in position and am
willing to entertain the purchase of it under the following terms . . . ." The whole question is reduced to
determining what the intention of the plaintiff was in using that language.
To convey the idea of a resolution to purchase, a man of ordinary intelligence and common culture would use
these clear and simple words, I offer to purchase, I want to purchase, I am in position to purchase. And the
stronger is the reason why the plaintiff should have expressed his intention in the same way, because,
according to the defendant, he was a prosperous and progressive merchant. It must be presumed that a man
in his transactions in good faith uses the best means of expressing his mind that his intelligence and culture
permit so as to convey and exteriorize his will faithfully and unequivocally. But the plaintiff instead of using in
his letter the expression, I want to purchase, I offer to purchase, I am in position to purchase, or other similar
language of easy and unequivocal meaning, used this other, I am in position and am willing to entertain the
purchase of the yacht. The word "entertain" applied to an act does not mean the resolution to perform said act,
but simply a position to deliberate for deciding to perform or not to perform said act. Taking into account only
the literal and technical meaning of the word "entertain," it seems to us clear that the letter of the plaintiff
cannot be interpreted as a definite offer to purchase the yacht, but simply a position to deliberate whether or
not he would purchase the yacht. It was but a mere invitation to a proposal being made to him, which might be
accepted by him or not.
Furthermore there are other circumstances which show that in writing this letter it was really not the intention
of the plaintiff to make a definite offer. The plaintiff never thought of acquiring the yacht for his personal use,
but for the purpose of selling it to another or to acquire it for another, thereby obtaining some gain from the
transaction, and it can be said that the only thing the plaintiff wanted in connection with this yacht was that the
defendant should procure its sale, naturally with some profit for himself. For this reason the original idea of the

plaintiff was to organize a yacht club that would afterwards acquire the yacht through him, realizing some gain
from the sale. This is clearly stated in the letter containing the option that the defendant gave him on February
12, 1922. This accounts for the fact that the plaintiff was not in a position to make a definite offer to purchase,
he being sure to be able to resell the yacht to another, and this explains why he did not say in his letter of the
3d of April that he was in position to purchase the yacht, but only to entertain this purchase.
On the other hand, the plaintiff thought it necessary to replace the engine of the yacht with a new one which
was to cost P20,000 and has been negotiating with Mr. Avery a loan of P20,000 to make the replacing. When
the plaintiff wrote his letter of the 3rd of April, he knew that Mr. Avery was not in position to grant this loan.
According to this, the resolution of the plaintiff to acquire the yacht depended upon him being able to replace
the engine, and this, in turn, depended upon the plaintiff being successful in obtaining the P20,000 that the
new engine was to cost. This accounts also for the fact that the plaintiff was not in position to make a definite
offer.

For all of the foregoing the judgment appealed from is reversed, the defendant is absolved from the complaint,
the plaintiff is sentenced to pay to the Cooper Company the sum of P1,730.84 with interest and to the
defendant the sum of P832.93, and the plaintiff is declared to be under no obligation to purchase the yacht
upon the terms of his letter of April 3, 1922, without special pronouncement as to cost. So ordered.
Malcolm, Villamor and Ostrand, JJ., concur.
Johnson, J. dissents.
Street, J. did not sign.
Separate Opinions
JOHNS, J., concurring and dissenting:

But above all, there is in the record positive proof that in writing this letter of the 3d of April the plaintiff had no
intention to make thereby a definite offer. This letter was written by his stenographer Mr. Parkins in his office
and in the presence of the defendant who has been there precisely for the purpose of speaking about this
purchase. According to the plaintiff when he was dictating that part wherein he said that he was in position to
entertain the purchase of the yacht, the defendant interrupted him and suggested the elimination of the
word entertain and the substitution therefor of a definite offer, but after a discussion between them, during
which the plaintiff clearly said that he was not in position to make a definite offer, the word entertain now
appearing in the letter was preserved. The stenographer Mr. Parkins and another employee of the plaintiff Mr.
Guzman, who were present, corroborate this statement of the plaintiff.

I have read with much interest the opinion of Mr. Justice Avancea, and in so far as the facts are stated they
are correctly stated. In my opinion many important and material facts are not stated.

The lower court seems to have been impressed by the consideration that it was anomalous for the plaintiff to
write that letter if his purpose was only to indicate to the defendant that he wanted the latter to make a
proposal which he (plaintiff) might reject or accept. We see nothing anomalous in this. A proposition may be
acceptable in itself, but its acceptance may depend on other circumstances; thus one may say that a
determinate proposition is acceptable, and yet he may not be in a position to accept the same at the moment.

The testimony is conclusive that at the time the proposition was made, Mr. Burke told Mr. Elser that he had no
faith that such a deal would ever be made, and that later it was abandoned.

The letter of the plaintiff not containing a definite offer but a mere invitation to an offer being made to him, the
acceptance of the defendant placed at the bottom of this letter has not other meaning than that of accepting
the proposition to make this offer, as must have been understood by the plaintiff.
The appeal of the defendant raises the question as to who must pay the repairs made on the yacht. The lower
court decided that it is the defendant. We are of the opinion that this is also an error. The plaintiff was the one
who directly and personally ordered these repairs. It was agreed between the plaintiff and the defendant that
the former was not to pay anything for the use of the yacht. This, at the first glance, would make us believe
that it was the plaintiff who was to pay for the repairs in exchange for the use of the yacht in order that the
profit should be reciprocal. But the plaintiff claims that his agreement was that he had to advance only the
amount of the repairs, and that the defendant was at last the one to pay therefor. The defendant, in turn,
claims that the agreement was that the plaintiff was to pay for these repairs in exchange for the use of the
yacht. Upon this contention there is, on the one hand, but the testimony of the plaintiff and, on the other, the
testimony of the defendant. But it having been the plaintiff who ordered and made these repairs, and in view of
the fact that he was not obliged to pay anything for the use of the yacht, his mere testimony contradicted by
that of the defendant, cannot be considered as a sufficient evidence to establish the latter's obligation.
Furthermore according to the defendant, nothing was agreed upon about the kind of the repairs to be made on
the yacht and there was no limit to said repairs. It seems strange that the defendant should accept liability for
the amount of these repairs, leaving their extent entirely to the discretion of the plaintiff. And this discretion,
according to the contention of the plaintiff, includes even that of determining what repairs must be paid by the
defendant, as evidenced by the fact that the plaintiff has not claimed the amount of any, such as the wireless
telegraph that was installed in the yacht, and yet he claims as a part thereof the salaries of the officers and the
crew which do not represent any improvement on the vessel.
Our conclusion is that the letter of the plaintiff of April 3, 1922, was not a definite offer and that the plaintiff is
bound to pay the amount of the repairs of the yacht in exchange for the use thereof.

The storm center in this case is the legal construction to be place upon Exhibit 1. To arrive at a correct
conclusion, it is necessary and important to analyze the preceding and subsequent letters which passed
between the parties. The first is a letter from Mr. Burke written on February 12, 1922, known as Exhibit D, to
the effect that for the purpose of organizing a yacht club, he placed a price on the yacht of P120,000, which
was open for thirty days, P20,000 of which was to go to Mr. Elser as a commission for making the sale.

On March 31, after his return from the southern islands trip, and after a conference with Avery, Elser wrote
Burke a letter, known as Exhibit B, in which he said:
I explained to him that I would take over the boat with your consent and be responsible to him for the payment
for these engines as well as the other obligations to the bank. However, I told him I wasn't disposed to pay
more than P70,000 for the boat as she now stands.
After my talk with him in regard to the matter, he advised me that he wasn't disposed to advance another cent,
and refused to advise me as what his attitude is towards the P100,000 which you now owe him on the boat,
stating that he would settle the matter with you.
From this is clearly appears that Elser was then willing to pay Burke P70,000 for the yacht, and that the only
thing which prevented the making of the deal at that time was the price, and the further fact that the bank was
not willing to release its mortgage for P100,000, which it held on the yacht.
On receipt of this letter, and upon the same day, Burke had an interview with Avery, and on March 31, 1922,
wrote Mr. Elser the following letter:
I had a long talk this morning with Mr. Avery in regard to the Bronzewing. At first he was not inclined to discuss
the matter but after a while he decided that he would accept the proposition relative to the disposal of the boat
and has agreed on the following terms:
He will turn the boat over to you for P8,000, taking the mortgage on the same and you on part will agree to pay
P5,000 a month for the first six months and P10,000 a month until the balance is paid. This is absolutely the
best he can do. I on my part am agreeable to accept this proposition and if you feel the same please advise
me at once.
In answer to which, and on April 1, Elser wrote a letter to Burke, the material portion of which is as follows:

With reference to your letter of March 31, I do not feel that I am in a position right now to accept the
proposition of Mr. Avery, of paying him five thousand pesos monthly for the first six months and ten thousand a
month until balance is paid.

Elser and Burke were not children. They were both men of affairs and experience in business. They were not
fooling or flirting with one another. Neither were they playing marbles, but as businessmen, they were dealing
with a business proposition which involved P80,000.

April 3, Burke went to Elser's office and obtained from him the letter, known in the record as Exhibit 1, which is
as follows:

In this connection, Burke testified:

In connection with the yacht Bronzewing, I am in position and am willing to entertain the purchase of it under
the following terms:

I called on Mr. Elser personally in his office and asked him to make a proposition in writing that he would be
agreeable to, and that I could take to Mr. Avery, and if he accepted would terminate the whole transaction.
It is very significant that this testimony is not denied, and that it stands as an admitted fact in the record.

(a) The purchase price to be P80,000, Philippine currency.


(b) Initial payment of P10,000 to be made within sixty (60) days.
(c) Payment of the balance to be made in installments of P5,000 per month, with interest on deferred
payments at 9 per cent, payable semi-annually.
(d) As security for the above, I am to deposit with you P80,000, in stock of the J. K. Pickering Co., commercial
value P400,000, book value P600,000. Statement covering this will be furnished you on request.
Upon receipt of this letter, Burke went direct from Elser's office to Avery's office, and obtained from Avery the
written consent of the bank to sell the yacht under the terms and conditions proposed by Elser, and then
unconditionally accepted the offer, and on the same day notified Elser of the consent and acceptance. The
acceptance and agreement was made in writing on the bottom of the same sheet of Elser's letter and are as
follows:

Proposition Accepted.
(Sgd.) E. BURKE
MANILA, April 3, 1922.

ASIA BKG. CORP.


Agreed to as above.
(Sgd.) W. G. AVERY
Mgr.
Asia Bkg. Corp.
With such endorsement and in this form, the letter was returned to Elser's office on the day it was received.
April 5, two days later, Elser wrote Burke a letter, the material provisions of which are as follows:
I have decided, because of the attitude of Mr. Avery regarding the advancement to me of P20,000 to install
new engines and put the boat in first class condition, that it is impossible for me to assume the liability of the
yacht Bronzewing.
But nowhere in this letter does Elser claim or assert that his letter of April 3 above quoted, known in the record
as Exhibit 1, was not an offer to purchase the yacht, or that it was not intended as an offer.
Analyzing the combined letters, we are clearly of the opinion that the letter of April 3 should be construed as
an offer to purchase, and that when it was accepted and agreed to by both Burke and the bank, it then
became and is now a valid and binding contract to purchase.

Analyzing the letters above quoted, on March 31, speaking about a conference with Avery, Elser says to
Burke:
However, I told him I wasn't disposed to pay more than P70,000 for the boat as she now stands.
This can only be construed as an admission by Elser that he was then ready and willing to pay "P70,000 for
the boat as she now stands." In response to that letter and after a conference with Avery, Burke wrote Elser to
the effect that they would sell the boat to him for P80,000, and take a mortgage upon it for the purchase price
to be paid at the rate of P5,000 a month for the six months, and P10,000 a month until the balance is paid.
From this it appears that Burke and the bank were not willing to accept Elser's proposition to sell the boat for
P70,000, but that they were ready and willing to sell it for P80,000 upon the terms and conditions stated. In
answer to that, Elser wrote Burke as follows:
I do not feel that I am in a position right now to accept the proposition of Mr. Avery, of paying him five thousand
pesos monthly for the first six months and ten thousand a month until balance is paid.
From this letter it will be noted that Elser did not object to the price of P80,000, and that his only objection was
to the terms of payment of P5,000 monthly for the first six months, and P10,000 a month until the balance is
paid.
The letters above quoted resulted in the conference between Burke and Elser in Elser's office in which Elser
personally dictated and signed Exhibit 1, in which the price is P80,000, P10,000 of which is to be paid within
sixty days, and the balance in installments of P5,000 per month, with interest, and as security, Elser was to
deposit P80,000 in stock of the J. K. Pickering Company. From which it will be noted that the only real
difference between Burke's proposition to Elser, and Elser's proposition to Burke is in the terms and conditions
of payment, and the fact that, as security, Elser was to pledge stock in the Pickering Company, as collateral, in
lieu of the mortgage on the yacht. Both propositions were specific, definite and certain as to time, terms and
conditions of payment, and the price to be paid.
When you take into consideration the previous negotiations between the parties, and the purpose and intent
with which Exhibit 1 was written, and Elser's letter of April 6. Exhibit 1 must be construed as an offer to
purchase the yacht upon the terms and conditions therein specified.
Suppose the conditions were the reverse, and after the offer had been made and accepted, Elser made a
tender of performance, and that Burke and Avery refused to perform, would any member of this court claim
that both Burke and Avery are not bound by the acceptance, or that either of them could refuse to carry out the
contract? Suppose Elser had offered to perform and complete the purchase, and Burke had refused to
complete the sale, would any member of this court claim that Elser could not enforce the specific performance
of the contract? If it is legally binding upon Avery and Burke, then by the same token and for the same reason,
the contract of purchase is legally binding upon Elser.
The acceptance was written on the offer and delivered to Elser on April 3. All of them were residents of Manila
and had their respective offices in the city, and it is fair to assume that they could communicate with each
other by telephone.

Applying the rule of everyday business dealings between businessmen, what would the ordinary businessman
do under the same conditions? Here, the parties had been negotiating some little time for the purchase and
sale of the yacht. To find out whether they could finally get together, Burke went to Elser's office and asked him
to make him a written proposition "that he would be agreeable to," and that he would then submit it to Avery,
"and if he accepted would terminate the whole transaction." With that end in view, and for that purpose, Elser
wrote the letter in question.
It is very apparent that Burke understood it that way because upon receipt of the letter, he went direct to see
Avery, and after some discussion between them, Avery agreed to the proposition, and Burke accepted it, and
returned the letter to Elser's office the day it was written. Upon seeing the letter, with the acceptance of Mr.
Burke and the conforme of Mr. Avery, what would the ordinary businessman have done, knowing that they
treated is as a valid and binding contract? Would he have remained silent for two whole days? When he
received and read the returned letter, he knew how Burke and Avery construed the transaction, and what they
understood it to be. Yet, having that knowledge, he did not call either of them by phone and say that, I did not
intend to make you a final proposition to purchase, and two days later notified them by letter that he did not
then want to purchase the yacht on account of the attitude of Avery. Business is not done between
businessmen in that way. If, upon the receipt of the returned letter, Elser had called either of them by phone,
and said in effect that he never intended to make a final proposition to purchase, another and a different
question would have been presented, and his position would be tenable, and it would have been far more
forcible, if he had said that in substance in the letter which he wrote two days later.
In the final analysis, Elser said in his letter of March 31 that he was not "disposed to pay more than P70,000
for the boat as she now stands." That was after the conference which he had with Avery. Burke then had a
conference with Avery in which they agreed upon and submitted the following terms to Elser:
He will turn the boat over to you for P80,000, taking the mortgage on the same and you on your part will agree
to pay P5,000 a month for the first six months and P10,000 a month until the balance is paid.
In other words, Burke and Avery made a proposition to Elser that they were ready and willing to sell the yacht
for P80,000 upon those terms and conditions. In answer to that, Elser said:

intend that the letter should be a final proposition? And why did he base his refusal to carry out the contract
upon the sole ground of the attitude of Avery, and not for any other reason?
Under Elser's contention, and as sustained by Mr. Justice Avancea's opinion, all of the previous negotiations
did not mean anything. The letter was a blank piece of paper which Elser gave to Burke to deceive and
mislead him, and yet he knew that Burke took and received it in good faith as a proposition, which Elser was
ready and willing to carry out in the event that it received the conforme of Avery and was approved by Burke.
That is a strained and unnatural construction, and imputes to Elser bad faith and a deceptive motive in the
writing and the giving of the letter to Burke. Avery and Burke had made their proposition to which Elser had
declined to agree. Then, as a result of a personal conference, Elser made his proposition to which Elser had
declined to agree. Then, as a result of a personal conference, Elser made his proposition to Avery and Burke
in which the price, terms of payment and the security to be given for the sale and purchase of the yacht were
all specified, and his proposition was by them accepted and approved and returned to Elser the day it was
received. Everything was in writing and signed by the respective parties in interest. Why is that not a valid and
binding contract? What more is required? When Elser's own proposition was accepted and approved and
delivered to him, the minds of the parties had met, and they had mutually agreed in writing upon the price of
the yacht, terms of payment and the security to be given.
There was a completed contract by which Elser proposed to purchase the yacht and Burke and Avery agreed
to sell upon the terms and conditions specified in Elser's proposition. The yacht was then in Elser's
possession, and nothing remained to be done, except the payment of the purchase price by Elser.
The record is conclusive that Elser remained silent for two whole days when he wrote Burke that because of
the attitude of Mr. Avery regarding the advance to him of P20,000, "that he would not assume liability" or make
the purchase. In other words, after a lapse of two days, and because of the attitude of Avery, and for no other
or different reason, Elser declined to make the purchase. It will be noted that Exhibit 1 is unconditional, and
that the proposition is not made contingent on the attitude of Avery or anything else, and that it expressly says:
I am in position and am willing to entertain the purchase of if (the yacht) under the following terms.
In his letter of April 1, he says:

I do not feel that I am in a position right now to accept the proposition of Mr. Avery, of paying him five thousand
pesos monthly for the first six months and ten thousand a month until balance is paid.
In other words, Elser apparently was satisfied with the price, but objected only to the terms and conditions of
payment. This resulted in the final conference between Elser and Burke in which Elser made a proposition,
specifying the terms and conditions upon which he was "willing to entertain the purchase" of the yacht, and
Burke and Avery accepted his proposition in and by which their proposition was modified only as to the terms
and conditions of payment. No change was made in the price, and the only difference as to the payments was
that in the Burke and Avery proposition, Elser was to pay P5,000 a month for the first six months, and P10,000
a month until the balance is paid, and in Elser's proposition, he was to make an initial payment of P10,000
within six days, and the payment of the balance was to be made in installments of P5,000 per month, with
interest.
When Elser gave the letter to Burke, he knew that Burke would submit it to Avery, and he knew that if Avery
gave his conforme, it would be accepted by Burke. Otherwise, why was the letter given to Burke? Why was it
submitted to Avery?

I do not feel that I am in a position right now to accept the proposition of Mr. Avery.
In his letter of April 3, he says:
I am in position and am willing to entertain the purchase, etc.
In one letter he says in legal effect that "I am not in position to accept the proposition of Mr. Avery," and two
days later, he says: "I am in position." The use of the words "I am not in position" on April 1, and the use of the
words "I am in position, two days later are, indeed; very significant. Yet, in the face of those letters, on April 6,
he declined to make the purchase solely on account of the attitude of Avery, and for no other or different
reason.
The proof brings the case squarely within the provisions of Article 1254 of the Civil Code, which says:

In the light of preceding events, can this court assume that Elser intended to mislead and deceive Burke and
to give him a blank piece of paper which would not have any legal force or effect? As a witness Elser testified:

A contract exists from the moment one or more persons consent to be bound with respect to another or others
to deliver something or to render some service.

Q. And at Mr. Burke's request you wrote this letter Exhibit 1? A. Yes.

Cyc., vol. 9, page 244, says;

Why was it written? Why was it signed by Elser? Why did Avery give his conforme? Why was it approved by
Burke? And why was it returned on the same day to Elser? Why did he remain silent for two days after the
receipt of the returned letter? And why, two to days later when he did answer, he never said that he did not

E. Agreement defined. Agreement is the expression by two or more persons of a common intention to affect
their legal relations; it consists in their being of the same mind and intention concerning the matter agreed
upon.

Page 247
2. Offer (a) Definition. An offer, as the term is used in the law of contracts, is a proposal to enter into a
contract.
Page 252
(d) Terms of offer (I) In general. One who makes an offer to enter into a contract may do so of course
upon any terms he may see fit, so long as they are not illegal, and if the offer is accepted they are binding on
both parties. If the terms are expressed and are legal, the only difficulty is in ascertaining the intention of the
parties.
Page 260
(VI) Acceptance by accepting paper containing terms (A) In general. A contract may be formed by
accepting a paper containing terms. If an offer is made by delivering to another a paper containing the terms of
a proposed contract, and the paper is accepted, the accepter is bound by its terms; and this is true as a rule
whether he reads the paper or not. . . .
Page 282
. . . On the other hand an agreement to make and execute a certain written agreement, the terms of which are
mutually understood and agreed upon, is in all respects as valid and obligatory as the written contract itself
would be if executed. If therefore it appears that the minds of the parties have met, that a proposition for a
contract has been made by one party and accepted by the other, that the terms of this contract are in all
respects definitely understood and agreed upon, and that a part of the mutual understanding is that a written
contract embodying these terms shall be drawn and executed by the respective parties, this is an obligatory
agreement.
Corpus Juris, vol. 13, page 263, says:
(SEC. 38) 2. Common intention (a) In general. In order that there may be an agreement, the parties must
have a distinct intention common to both and without doubt or difference. Until all understand alike, there can
be no assent, and, therefore, no contract. Both parties must assent to the same thing in the same sense, and
their minds must meet as to all the terms. . . .
Page 266
SEC. 53) 2. Offer (a) Definition. An offer, as the terms is used in the law of contracts, is a proposal to
enter into a contract.
Page 271
(SEC. 61) (d) Terms of offer (1) In general. One who makes an offer to enter into a contract may do so
on any terms that he may see fit to make, as long as they are not illegal; and if the offer is accepted, such
terms are binding on both parties. If the terms are expressed and are legal, the only difficulty is in ascertaining
the intention of the parties.
Page 277
(SEC. 76) (6) Acceptance by accepting paper containing terms (a) In general. A contract may be formed
by accepting a paper containing terms. If an offer is made by delivering to another a paper containing the

terms of a proposed contract, and the paper is accepted, the acceptor is bound by its terms; and this is true as
a rule whether he reads the paper or not. ..."
Page 277 (Note )
"A great number of contracts are in the present state of society made by the delivery by one of the contracting
parties to the other of a document in a common form, stating the terms by which the person delivering it will
enter into the proposed contract. Such a form constitutes the offer of the party who tenders it. If the form is
accepted without objection by the person to whom it is tendered this person is as a general rule bound by its
contents, and his act amounts to an acceptance of the offer made to him, whether he reads the document or
otherwise informs himself of its contents or not." (Eng. Watkins vs. Rymill, 10 Q. B. D., 178, 183.)
Ruling Case Law, vol., 6, page 599:
21. Generally. In order that a contract may be formed there must be, as has been seen, a concurrence of
intention between a promisor and a promisee. Frequently this idea is expressed by saying that it is essential to
the formation of a contract that there should be a "meeting of the minds" of the parties. It must appear that
their minds met on the same distinct and definite terms. . . .
Page 600
23. Offer or proposal. A contract is ordinarily formed by an offer and an acceptance. . . .
Page 605
Necessity and effect of acceptance. From the discussion in reference to the right to revoke an offer, it is
apparent that the acceptance of an offer is essential. To constitute a contract there must be an acceptance of
the offer, because until the offer is accepted both parties have not assented to the contract, or, in the figurative
language frequently used by the courts, their minds have not met. The effect of acceptance is to convert the
offer into a binding contract. . . .
Upon the question of contemporaneous writings and agreements, Cyc., vol., 35, page 97, says:
In construing contracts of sale all contemporaneous instruments and agreements in regard to the transaction
should be construed together, and if possible so as to give effect to all of them. . . .
Much has been said in this case about the definition of the word "entertain." It is contended that because the
word "entertain" was used in Elser's letter, it should be construed to read, "I am now in a position to buy your
yacht for P80,000 upon the specified terms and conditions, and if you will make an offer to sell it at that price
and upon those conditions, I will purchase the yacht. But before I will enter into a formal agreement to me that
you are ready and willing to sell on those terms, and until such time as you do submit such a proposition and I
formally accept it, I am not bound to purchase, even though we do agree upon the amount of the purchase
price, the terms and conditions of payment, and the security to be given." That is a strained and unnatural
construction, and nullifies the undisputed testimony of both Burke and Elser, and overlooks and does not take
into consideration the purpose and intent with which the letter was written, and the language used in the
previous letters and the subsequent letter of April 6. When they are considered, the meaning of the word
"entertain" is very apparent. The minds of the parties had met. They had agreed upon the price, the terms and
conditions of the sale, and the security to be given, all of which was reduced to writing, and signed by the
respective parties, and when that is done, under the authorities above cited, it constitutes a valid and binding
contract.
Stress is also laid upon the oral testimony of the employees of Elser, who were in his office at the time the
contract was prepared and signed.

This case forcibly illustrates the reason for the inflexible rule that oral testimony is not admissible to change or
vary the terms of a written contract. Here, the contract was in writing, and Elser admits that he signed it. There
is no dispute about any one or either of the letters quoted in this opinion, and Burke's cause of action is
founded upon that letter.

G.R. No. 125761

April 30, 2003

SALVADOR P. MALBAROSA, petitioner,


vs.
HON. COURT OF APPEALS and S.E.A. DEVELOPMENT CORP., respondents.

The complaint alleges:


CALLEJO, SR., J.:
That on the 3d day of April, 1922, the said plaintiff made an offer in writing to this defendant to purchase from
him the said yacht Bronzewing, in its then condition and including, of course, the repairs placed thereon by
him, for the sum of P80,000, payable P10,000 within sixty days, and the balance in installments of P5,000 per
month, with interest on deferred payments at 9 per cent per annum, payable semi-annually, and that as
security for such purchase price, he would deposit P80,000 in stock of the J. K. Pickering Co., of a commercial
value of P400,00, and a book value of P600,00, which said offer was on the same date and while it was in full
force and effect unconditionally accepted by this defendant, with the written consent of the said Asia Banking
Corporation, and which said offer and acceptance is more fully set out in a certain letter, a true copy of which
is attached hereto, marked Exhibit 1, and made a part hereof, and constitutes a binding contract of purchase
and sale and is obligatory on each of the parties thereto.
Yet, in the face of those allegations and over the vigorous protests and objections of Burke's attorneys, the
oral testimony of Elser's employees was admitted, for the purpose of showing that the written contract does
not mean that it says.
There is no rule of law by which oral testimony is admissible for any such purpose, and least of all should it be
considered by an appellate court.
The stubborn fact remains that Elser wrote and signed the letter, and the specified terms of the purchase were
accepted and approved by both Avery and Burke, and the letter was returned to Elser, and that all of the
previous conversations between Elser and Burke were merged in that letter, and that it is in writing and speaks
for itself. But it is contended that in preparing the letter, Burke wanted Elser to use the words "firm offer," and
that Elser declined to do so. Assuming that to be true, what difference does it make? The fact remains that
Elser did write and sign the letter as it was written, and that it was accepted as written, and that parol
testimony is not admissible to change or alter the words or the meaning of the letter as it was written, and that
plaintiff relies upon the contract as it was written.
It will be noted that all through this case, Burke relies upon evidence in writing, which is signed by the
respective parties, and about which there is not and cannot be any dispute, because the writings speak for
themselves. It will also be noted that Elser's defense is largely founded upon oral testimony. That is specially
true as to the construction which should be placed upon Exhibit 1.
The rule is elementary that the court does not have any right to consider oral testimony for any such purpose.
Again, all of the dealings between Elser and Burke were confined to the sale and purchase of the yacht, and
the repairs which were made upon it. Upon the question of repairs, Justice Avancea finds against Elser and
in favor of Burke. If the parol testimony on behalf of Elser upon the question of repairs is not true, as the court
finds, it should materially weaken his parol evidence as to the sale and purchase of the yacht. But the court
finds that Elser's parol testimony as to the repairs upon the yacht is not true, and finds that his parol testimony
as to the sale and purchase of the yacht is true.
Why should the court find that his testimony is true in one case and false in the other? All of the transactions in
question arose out of, and pertained to, mutual dealings concerning the yacht. If Elser's testimony is not true
as to the repairs, it is not true as to the sale and purchase of the yacht.
Upon all other matters, I agree with the opinion of Justice Avancea. But in the reversal of the judgment in
favor of Burke and against Elser, I vigorously dissent.

Philtectic Corporation and Commonwealth Insurance Co., Inc. were only two of the group of companies
wholly-owned and controlled by respondent S.E.A. Development Corporation (SEADC). The petitioner
Salvador P. Malbarosa was the president and general manager of Philtectic Corporation, and an officer of
other corporations belonging to the SEADC group of companies. The respondent assigned to the petitioner
one of its vehicles covered by Certificate of Registration No. 04275865 1 described as a 1982 model Mitsubishi
Gallant Super Saloon, with plate number PCA 180 for his use. He was also issued membership certificates in
the Architectural Center, Inc. Louis Da Costa was the president of the respondent and Commonwealth
Insurance Co., Inc., while Senen Valero was the Vice-Chairman of the Board of Directors of the respondent
and Vice-Chairman of the Board of Directors of Philtectic Corporation.
Sometime in the first week of January 1990, the petitioner intimated to Senen Valero his desire to retire from
the SEADC group of companies and requested that his 1989 incentive compensation as president of Philtectic
Corporation be paid to him. On January 8, 1990, the petitioner sent a letter to Senen Valero tendering his
resignation, effective February 28, 1990 from all his positions in the SEADC group of companies, and
reiterating therein his request for the payment of his incentive compensation for 1989. 2
Louis Da Costa met with the petitioner on two occasions, one of which was on February 5, 1990 to discuss the
amount of the 1989 incentive compensation petitioner was entitled to, and the mode of payment thereof. Da
Costa ventured that the petitioner would be entitled to an incentive compensation in the amount of P395,000.
On March 14, 1990, the respondent, through Senen Valero, signed a letter-offer addressed to the
petitioner3stating therein that petitioner's resignation from all the positions in the SEADC group of companies
had been accepted by the respondent, and that he was entitled to an incentive compensation in the amount of
P251,057.67, and proposing that the amount be satisfied, thus:
- The 1982 Mitsubishi Super saloon car assigned to you by the company shall be transferred to you at a value
of P220,000.00. (Although you have indicated a value of P180,000.00, our survey in the market indicates that
P220,000.00 is a reasonable reflection of the value of the car.)
- The membership share of our subsidiary, Tradestar International, Inc. in the Architectural Center, Inc. will be
transferred to you. (Although we do not as yet have full information as to the value of these shares, we have
been informed that the shares have traded recently in the vicinity of P60,000.00.) 4
The respondent required that if the petitioner agreed to the offer, he had to affix his conformity on the space
provided therefor and the date thereof on the right bottom portion of the letter, thus:
Agreed:
SALVADOR P. MALBAROSA
Date: _____________________5
On March 16, 1990, Da Costa met with the petitioner and handed to him the original copy of the March 14,
1990 Letter-offer for his consideration and conformity. The petitioner was dismayed when he read the letter
and learned that he was being offered an incentive compensation of only P251,057.67. He told Da Costa that
he was entitled to no less than P395,000 as incentive compensation. The petitioner refused to sign the letter-

offer on the space provided therefor. He received the original of the letter and wrote on the duplicate copy of
the letter-offer retained by Da Costa, the words: "Rec'd original for review purposes." 6 Despite the lapse of
more than two weeks, the respondent had not received the original of the March 14, 1990 Letter-offer of the
respondent with the conformity of the petitioner on the space provided therefor. The respondent decided to
withdraw its March 14, 1990 Offer. On April 3, 1996, the Board of Directors of the respondent approved a
resolution authorizing the Philtectic Corporation and/or Senen Valero to demand from the petitioner for the
return of the car and to take such action against the petitioner, including the institution of an action in court
against the petitioner for the recovery of the motor vehicle. 7
On April 4, 1990, Philtectic Corporation, through its counsel, wrote the petitioner withdrawing the March 14,
1990 Letter-offer of the respondent and demanding that the petitioner return the car and his membership
certificate in the Architectural Center, Inc. within 24 hours from his receipt thereof. 8 The petitioner received the
original copy of the letter on the same day.
On April 7, 1990, the petitioner wrote the counsel of Philtectic Corporation informing the latter that he cannot
comply with said demand as he already accepted the March 14, 1990 Letter-offer of the respondent when he
affixed on March 28, 1990 his signature on the original copy of the letter-offer.9 The petitioner enclosed a xerox
copy of the original copy of the March 14, 1990 Letter-offer of the respondent, bearing his signature on the
space provided therefore dated March 28, 1990.10

Agreed:
(Sgd.)
SALVADOR P. MALBAROSA
Date:

3-28-90

15

The petitioner adduced evidence that on March 9, 1990, he had written Senen Valero that he was agreeable to
an incentive compensation of P218,000 to be settled by the respondent by transferring the car to the petitioner
valued at P180,000 and P38,000 worth of shares of the Architectural Center, Inc. on the claim of Da Costa that
respondent was almost bankrupt. However, the petitioner learned that the respondent was financially sound;
hence, he had decided to receive his incentive compensation of P395,000 in cash. 16 On March 29, 1990, the
petitioner called up the office of Louis Da Costa to inform the latter of his acceptance of the letter-offer of the
respondent. However, the petitioner was told by Liwayway Dinglasan, the telephone receptionist of
Commonwealth Insurance Co., that Da Costa was out of the office. The petitioner asked Liwayway to inform
Da Costa that he had called him up and that he had already accepted the letter-offer. Liwayway promised to
relay the message to Da Costa. Liwayway testified that she had relayed the petitioner's message to Da Costa
and that the latter merely nodded his head.

With the refusal of the petitioner to return the vehicle, the respondent, as plaintiff, filed a complaint against the
petitioner, as defendant, for recovery of personal property with replevin with damages and attorney's fees,
thus:

After trial, the court a quo rendered its Decision17 on July 28, 1992, the dispositive portion of which reads as
follows:

WHEREFORE, PREMISES CONSIDERED, it is respectfully prayed before this Honorable Court that:

WHEREFORE, in view of all the foregoing, judgment is rendered ordering the defendant:

1. Before hearing and upon approval of plaintiff's bond, a writ be issued immediately for the seizure of the
vehicle described in paragraph 3 hereof, wherever it may be found, and for its delivery to plaintiff;

1. To deliver the motor vehicle prescribed [sic] in the complaint to plaintiff SEADC, or pay its value of P220,000
in case delivery cannot be made;

2. After trial of the issues, judgment be rendered adjudging that plaintiff has the right to the possession of the
said motor vehicle, and, in the alternative, that defendant must deliver such motor vehicle to plaintiff or pay to
plaintiff the value thereof in case delivery cannot be made;

2. pay plaintiff SEADC P50,000 as and for attorney's fees; and

3. After trial, hold the defendant liable to plaintiff for the use of the motor vehicle in the amount of P1,000.00
per day from date of demand until the motor vehicle is returned to plaintiff.
4. After trial, hold the defendant liable to plaintiff for attorney's fees and costs of litigation in the amount of
P100,000.00.
Plaintiffs likewise prays for such other reliefs as are just and equitable under the circumstances. 11
On April 30, 1990, the trial court issued an order for the issuance of a writ of replevin. 12 Correspondingly, the
writ of replevin was issued on May 8, 1990. 13
On May 11, 1990, the Sheriff served the writ on the petitioner and was able to take possession of the vehicle
in question. On May 15, 1990, the petitioner was able to recover the possession of the vehicle upon his filing
of the counter-bond.14
In his Answer to the complaint, the petitioner, as defendant therein, alleged that he had already agreed on
March 28, 1990 to the March 14, 1990 Letter-offer of the respondent, the plaintiff therein, and had notified the
said plaintiff of his acceptance; hence, he had the right to the possession of the car. Philtectic Corporation had
no right to withdraw the offer of the respondent SEADC. The petitioner testified that after conferring with his
counsel, he had decided to accept the offer of the respondent, and had affixed his signature on the space
below the word "Agree" in the March 14, 1990 Letter-offer, thus:

3. Cost of litigation.
SO ORDERED.18
The trial court stated that there existed no perfected contract between the petitioner and the respondent on the
latter's March 14, 1990 Letter-offer for failure of the petitioner to effectively notify the respondent of his
acceptance of said letter-offer before the respondent withdrew the same. The respondent filed a motion for the
amendment of the decision of the trial court, praying that the petitioner should be ordered to pay to the
respondent reasonable rentals for the car. On October 10, 1992, the court a quo issued an order, granting
plaintiff's motion and amending the dispositive portion of its July 28, 1992 Decision:
1. Ordering defendant to pay to plaintiff lease rentals for the use of the motor vehicle at the rate of P1,000.00
per Day from May 8, 1990 up to the date of actual delivery to the plaintiff of the motor vehicle; and
2. Ordering First Integrated Bonding & Insurance Co. to make good on its obligations to plaintiff under the
Counterbond issued pursuant to this case.
SO ORDERED.19
The petitioner appealed from the decision and the order of the court a quo to the Court of Appeals.

On February 8, 1996, the Court of Appeals rendered its Decision, 20 affirming the decision of the trial court. The
dispositive portion of the decision reads:
WHEREFORE, the Decision dated July 28, 1992 and the Order dated October 10, 1992 of the Regional Trial
Court of Pasig (Branch 158) are hereby AFFIRMED with the MODIFICATION that the period of payment of
rentals at the rate of P1,000.00 per day shall be from the time this decision becomes final until actual delivery
of the motor vehicle to plaintiff-appellee is made.
Costs against the defendant-appellant.
SO ORDERED.21
The Court of Appeals stated that the petitioner had not accepted the respondent's March 14, 1990 Letter-offer
before the respondent withdrew said offer on April 4, 1990.
The petitioner filed a petition for review on certiorari of the decision of the Court of Appeals.
The petitioner raises two issues, namely: (a) whether or not there was a valid acceptance on his part of the
March 14, 1990 Letter-offer of the respondent;22 and (b) whether or not there was an effective withdrawal by
the respondent of said letter-offer.
The petition is dismissed.
Anent the first issue, the petitioner posits that the respondent had given him a reasonable time from March 14,
1990 within which to accept or reject its March 14, 1990 Letter-offer. He had already accepted the offer of the
respondent when he affixed his conformity thereto on the space provided therefor on March 28, 1990 23 and
had sent to the respondent corporation on April 7, 1990 a copy of said March 14, 1990 Letter-offer bearing his
conformity to the offer of the respondent; hence, the respondent can no longer demand the return of the
vehicle in question. He further avers that he had already impliedly accepted the offer when after said
respondent's offer, he retained possession of the car.
For its part, the respondent contends that the issues raised by the petitioner are factual. The jurisdiction of the
Court under Rule 45 of the Rules of Court, as amended, is limited to revising and correcting errors of law of
the CA. As concluded by the Court of Appeals, there had been no acceptance by the petitioner of its March 14,
1990 Letter-offer. The receipt by the petitioner of the original of the March 14, 1990 Letter-offer for review
purposes amounted merely to a counter-offer of the petitioner. The findings of the Court of Appeals are binding
on the petitioner. The petitioner adduced no proof that the respondent had granted him a period within which
to accept its offer. The latter deemed its offer as not accepted by the petitioner in light of petitioner's
ambivalence and indecision on March 16, 1990 when he received the letter-offer of respondent.
We do not agree with the petitioner.

Under Article 1319 of the New Civil Code, the consent by a party is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract. An offer may be reached at
any time until it is accepted. An offer that is not accepted does not give rise to a consent. The contract does
not come into existence.24 To produce a contract, there must be acceptance of the offer which may be express
or implied25but must not qualify the terms of the offer. The acceptance must be absolute, unconditional and
without variance of any sort from the offer.26
The acceptance of an offer must be made known to the offeror.27 Unless the offeror knows of the acceptance,
there is no meeting of the minds of the parties, no real concurrence of offer and acceptance. 28 The offeror may
withdraw its offer and revoke the same before acceptance thereof by the offeree. The contract is perfected
only from the time an acceptance of an offer is made known to the offeror. If an offeror prescribes the
exclusive manner in which acceptance of his offer shall be indicated by the offeree, an acceptance of the offer
in the manner prescribed will bind the offeror. On the other hand, an attempt on the part of the offeree to
accept the offer in a different manner does not bind the offeror as the absence of the meeting of the minds on
the altered type of acceptance.29 An offer made inter praesentes must be accepted immediately. If the parties
intended that there should be an express acceptance, the contract will be perfected only upon knowledge by
the offeror of the express acceptance by the offeree of the offer. An acceptance which is not made in the
manner prescribed by the offeror is not effective but constitutes a counter-offer which the offeror may accept or
reject.30 The contract is not perfected if the offeror revokes or withdraws its offer and the revocation or
withdrawal of the offeror is the first to reach the offeree. 31 The acceptance by the offeree of the offer after
knowledge of the revocation or withdrawal of the offer is inefficacious. The termination of the contract when the
negotiations of the parties terminate and the offer and acceptance concur, is largely a question of fact to be
determined by the trial court.32
In this case, the respondent made its offer through its Vice-Chairman of the Board of Directors, Senen Valero.
On March 16, 1990, Da Costa handed over the original of the March 14, 1990 Letter-offer of the respondent to
the petitioner. The respondent required the petitioner to accept the offer by affixing his signature on the space
provided in said letter-offer and writing the date of said acceptance, thus foreclosing an implied acceptance or
any other mode of acceptance by the petitioner. However, when the letter-offer of the respondent was
delivered to the petitioner on March 16, 1990, he did not accept or reject the same for the reason that he
needed time to decide whether to reject or accept the same. 33 There was no contract perfected between the
petitioner and the respondent corporation. 34 Although the petitioner claims that he had affixed his conformity to
the letter-offer on March 28, 1990, the petitioner failed to transmit the said copy to the respondent. It was only
on April 7, 1990 when the petitioner appended to his letter to the respondent a copy of the said March 14,
1990 Letter-offer bearing his conformity that he notified the respondent of his acceptance to said offer. But
then, the respondent, through Philtectic Corporation, had already withdrawn its offer and had already notified
the petitioner of said withdrawal via respondent's letter dated April 4, 1990 which was delivered to the
petitioner on the same day. Indubitably, there was no contract perfected by the parties on the March 14, 1990
Letter-offer of the respondent.
The petitioner's plaint that he was not accorded by the respondent reasonable time to accept or reject its offer
does not persuade. It must be underscored that there was no time frame fixed by the respondent for the
petitioner to accept or reject its offer. When the offeror has not fixed a period for the offeree to accept the offer,
and the offer is made to a person present, the acceptance must be made immediately.35 In this case, the
respondent made its offer to the petitioner when Da Costa handed over on March 16, 1990 to the petitioner its
March 14, 1990 Letter-offer but that the petitioner did not accept the offer. The respondent, thus, had the
option to withdraw or revoke the offer, which the respondent did on April 4, 1990.

Under Article 1318 of the Civil Code, the essential requisites of a contract are as follows:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.

Even if it is assumed that the petitioner was given a reasonable period to accept or reject the offer of the
respondent, the evidence on record shows that from March 16, 1990 to April 3, 1990, the petitioner had more
than two weeks which was more than sufficient for the petitioner to accept the offer of the respondent.
Although the petitioner avers that he had accepted the offer of the respondent on March 28, 1990, however,
he failed to transmit to the respondent the copy of the March 14, 1990 Letter-offer bearing his conformity
thereto. Unless and until the respondent received said copy of the letter-offer, it cannot be argued that a
contract had already been perfected between the petitioner and the respondent.
On the second issue, the petitioner avers that Philtectic Corporation, although a wholly-owned and controlled
subsidiary of the respondent, had no authority to withdraw the offer of the respondent. The resolution of the
respondent authorizing Philtectic Corporation to take such action against the petitioner including the institution

of an action against him for the recovery of the subject car does not authorize Philtectic Corporation to
withdraw the March 14, 1990 Letter-offer of the respondent. The withdrawal by Philtectic Corporation on April
4, 1990 of the offer of the respondent was ineffective insofar as the petitioner was concerned. The respondent,
for its part, asserts that the petitioner had failed to put in issue the matter of lack of authority of Philtectic
Corporation to withdraw for and in behalf of the respondent its March 14, 1990 Letter-offer. It contends that the
authority of Philtectic Corporation to take such action including the institution of an action against the petitioner
for the recovery of the car necessarily included the authority to withdraw the respondent's offer. Even then,
there was no need for the respondent to withdraw its offer because the petitioner had already rejected the
respondent's offer on March 16, 1990 when the petitioner received the original of the March 14, 1990 Letteroffer of the respondent without the petitioner affixing his signature on the space therefor.

C/Def. Objection, your honor. This witness is incompetent . . .


C/Pltf. But he was the one who instructed, your honor.
Court LET the witness answer.
Witness (Stenographer reads back the previous question asked by counsel for him to answer, and . . ..)
A

We do not agree with the petitioner. Implicit in the authority given to Philtectic Corporation to demand for and
recover from the petitioner the subject car and to institute the appropriate action against him to recover
possession of the car is the authority to withdraw the respondent's March 14, 1990 Letter-offer. It cannot be
argued that respondent authorized Philtectic Corporation to demand and sue for the recovery of the car and
yet did not authorize it to withdraw its March 14, 1990 Letter-offer to the petitioner. Besides, when he testified,
Senen Valero stated that the April 4, 1990 letter of Philtectic Corporation to the petitioner was upon his
instruction and conformably with the aforesaid resolution of the Board of Directors of the respondent:
Q

Mr. Valero, after the Board passed this resolution. (sic) What action did you take, if any?

A
After that resolution was passed. (sic) I instructed our lawyers to proceed with the demand letter for the
recovery of the vehicle.
Q

It is the same.36

IN LIGHT OF ALL THE FOREGOING, the petition is dismissed. The Decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
G.R. No. 124242

January 21, 2005

SAN LORENZO DEVELOPMENT CORPORATION, petitioner,


vs.
COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA
LU, respondents.

Do you know if that demand letter was every (sic) made by your lawyer?
DECISION

A
Yes. I know that because I was the one who gave the instruction and before it was finally served on
Malbarosa, I was shown about the demand letter.
C/Pltf. Your honor, or rather . . .
Mr. Valero, if I show you a copy of that letter, will you be able to identify the same?
A

Yes, sir.

Q
I am now showing to you a copy of the letter dated April 4, 1990, addressed to Mr. Salvador P.
Malbarosa and signed by Romulo, Mabanta, Buenaventura, Sayoc and Delos Angeles by ________. What
relation, if any, does that demand letter have with the demand letter that you are talking about?
A

It's the same one I am referring to.

C/Pltf. Your honor, we manifest that the letter has been previously marked as our exh. "D".
Q
Mr. Valero, on the first paragraph of this demand letter, you stated that the letter is written in behalf of
Philtectic Corporation. Do you have any knowledge why it was written this way?

TINGA, J.:
From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita Zavalla,
(hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No.
T-39022 and TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta,
(hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter. Babasanta made a
downpayment of fifty thousand pesos (P50,000.00) as evidenced by a memorandum receipt issued by Pacita
Lu of the same date. Several other payments totaling two hundred thousand pesos (P200,000.00) were made
by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale
in his favor so that he could effect full payment of the purchase price. In the same letter, Babasanta notified
the spouses about having received information that the spouses sold the same property to another without his
knowledge and consent. He demanded that the second sale be cancelled and that a final deed of sale be
issued in his favor.

A
Yes. Because Philtectic, being the agent used here by S.E.A. Development Corporation for the one
using the car, it was only deemed proper that Philtectic will be the one to send the demand letter.

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell the
property to him at fifteen pesos (P15.00) per square meter. She, however, reminded Babasanta that when the
balance of the purchase price became due, he requested for a reduction of the price and when she refused,
Babasanta backed out of the sale. Pacita added that she returned the sum of fifty thousand pesos
(P50,000.00) to Babasanta through Eugenio Oya.

Q
In the second paragraph of that letter, Mr. Valero, you stated that there was an allusion made to the
offer made on March 14, 1990. That the 1982 Mitsubishi Galant Super Saloon car with plate# M-PCA-189
assigned to you by the company, and the membership share in the Architectural Center Inc., be transferred to
you in settlement. You previously stated about this March 14 letter. What relation, if any, does this second
paragraph with the letter-offer that you previously stated.

On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), Branch 31, of
San Pedro, Laguna, a Complaint for Specific Performance and Damages 1 against his co-respondents herein,
the Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had been sold
to him by the spouses at fifteen pesos (P15.00) per square meter. Despite his repeated demands for the
execution of a final deed of sale in his favor, respondents allegedly refused.

In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total
advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta, without the
knowledge and consent of Miguel Lu, had verbally agreed to transform the transaction into a contract to sell
the two parcels of land to Babasanta with the fifty thousand pesos (P50,000.00) to be considered as the
downpayment for the property and the balance to be paid on or before 31 December 1987. Respondents Lu
added that as of November 1987, total payments made by Babasanta amounted to only two hundred
thousand pesos (P200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand
pesos (P260,000.00) despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of
the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu
refused to grant Babasantas request, the latter rescinded the contract to sell and declared that the original
loan transaction just be carried out in that the spouses would be indebted to him in the amount of two hundred
thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Managers Check No.
05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of Babasanta to show
that she was able and willing to pay the balance of her loan obligation.

the notice of lis pendens annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T7219).

Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the issuance of a
writ of preliminary injunction with temporary restraining order and the inclusion of the Register of Deeds of
Calamba, Laguna as party defendant. He contended that the issuance of a preliminary injunction was
necessary to restrain the transfer or conveyance by the Spouses Lu of the subject property to other persons.

Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the trial court erred
in failing to consider that the contract to sell between them and Babasanta had been novated when the latter
abandoned the verbal contract of sale and declared that the original loan transaction just be carried out. The
Spouses Lu argued that since the properties involved were conjugal, the trial court should have declared the
verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge
and consent of Miguel Lu. They further averred that the trial court erred in not dismissing the complaint filed by
Babasanta; in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer.

The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new matters which
seriously affect their substantive rights under the original complaint. However, the trial court in its Order dated
17 January 19905 admitted the amended complaint.

Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC did not
register the respective sales in their favor, ownership of the property should pertain to the buyer who first
acquired possession of the property. The trial court equated the execution of a public instrument in favor of
SLDC as sufficient delivery of the property to the latter. It concluded that symbolic possession could be
considered to have been first transferred to SLDC and consequently ownership of the property pertained to
SLDC who purchased the property in good faith.
Respondent Babasanta appealed the trial courts decision to the Court of Appeals alleging in the main that the
trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the validity of the sale
made by the Spouses Lu in favor of SLDC.

On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for
Intervention6 before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation
because on 3 May 1989, the two parcels of land involved, namely Lot 1764-A and 1764-B, had been sold to it
in a Deed of Absolute Sale with Mortgage. 7 It alleged that it was a buyer in good faith and for value and
therefore it had a better right over the property in litigation.

On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the judgment of the trial
court. It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting and ordered
the spouses to execute the necessary deed of conveyance in favor of Babasanta, and the latter to pay the
balance of the purchase price in the amount of two hundred sixty thousand pesos (P260,000.00). The
appellate court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the
ground that SLDC was a purchaser in bad faith. The Spouses Lu were further ordered to return all payments
made by SLDC with legal interest and to pay attorneys fees to Babasanta.

In his Opposition to SLDCs motion for intervention,8 respondent Babasanta demurred and argued that the
latter had no legal interest in the case because the two parcels of land involved herein had already been
conveyed to him by the Spouses Lu and hence, the vendors were without legal capacity to transfer or dispose
of the two parcels of land to the intervenor.

SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court. 12 However, in
aManifestation dated 20 December 1995,13 the Spouses Lu informed the appellate court that they are no
longer contesting the decision dated 4 October 1995.

Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed
its Complaint-in-Intervention on 19 April 1990.9 Respondent Babasantas motion for the issuance of a
preliminary injunction was likewise granted by the trial court in its Order dated 11 January 199110 conditioned
upon his filing of a bond in the amount of fifty thousand pesos (P50,000.00).

In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the motion for
reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. The appellate
court denied SLDCs motion for reconsideration on the ground that no new or substantial arguments were
raised therein which would warrant modification or reversal of the courts decision dated 4 October 1995.

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed in its favor
anOption to Buy the lots subject of the complaint. Accordingly, it paid an option money in the amount of three
hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of the total consideration for the
purchase of the two lots of one million two hundred sixty-four thousand six hundred forty pesos
(P1,264,640.00). After the Spouses Lu received a total amount of six hundred thirty-two thousand three
hundred twenty pesos (P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in
its favor. SLDC added that the certificates of title over the property were delivered to it by the spouses clean
and free from any adverse claims and/or notice of lis pendens. SLDC further alleged that it only learned of the
filing of the complaint sometime in the early part of January 1990 which prompted it to file the motion to
intervene without delay. Claiming that it was a buyer in good faith, SLDC argued that it had no obligation to
look beyond the titles submitted to it by the Spouses Lu particularly because Babasantas claims were not
annotated on the certificates of title at the time the lands were sold to it.

Hence, this petition.

After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the property to
SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand pesos (P200,000.00)
with legal interest plus the further sum of fifty thousand pesos (P50,000.00) as and for attorneys fees. On the
complaint-in-intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel

SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD
FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE
OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE
PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE
ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED
PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO
ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES.

THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT
BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS
RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL CONCURRENCE
ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE DECISION OF
THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN
GOOD FAITH. 15
SLDC contended that the appellate court erred in concluding that it had prior notice of Babasantas claim over
the property merely on the basis of its having advanced the amount of two hundred thousand pesos
(P200,000.00) to Pacita Lu upon the latters representation that she needed the money to pay her obligation to
Babasanta. It argued that it had no reason to suspect that Pacita was not telling the truth that the money would
be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred
thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the
purchase price still due from it and should not be construed as notice of the prior sale of the land to
Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been previously sold to
Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took possession of the
property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of
ownership. Since the titles bore no adverse claim, encumbrance, or lien at the time it was sold to it, SLDC
argued that it had every reason to rely on the correctness of the certificate of title and it was not obliged to go
beyond the certificate to determine the condition of the property. Invoking the presumption of good faith, it
added that the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter
failed to do so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after
the sale of the property to it was consummated on 3 May 1989.1awphi1.nt
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed the Court
that due to financial constraints they have no more interest to pursue their rights in the instant case and submit
themselves to the decision of the Court of Appeals. 16
On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership of the
property because it failed to comply with the requirement of registration of the sale in good faith. He
emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there was already a notice
of lis pendens annotated on the titles of the property made as early as 2 June 1989. Hence, petitioners
registration of the sale did not confer upon it any right. Babasanta further asserted that petitioners bad faith in
the acquisition of the property is evident from the fact that it failed to make necessary inquiry regarding the
purpose of the issuance of the two hundred thousand pesos (P200,000.00) managers check in his favor.
The core issue presented for resolution in the instant petition is who between SLDC and Babasanta has a
better right over the two parcels of land subject of the instant case in view of the successive transactions
executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta presented a document signed by Pacita
Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6 hectares
of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna. 17 While the receipt signed by Pacita did
not mention the price for which the property was being sold, this deficiency was supplied by Pacita Lus letter
dated 29 May 198918 wherein she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for
fifteen pesos (P15.00) per square meter.
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly
leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and
not a contract of sale.
Contracts, in general, are perfected by mere consent,19 which is manifested by the meeting of the offer and the
acceptance upon the thing which are to constitute the contract. The offer must be certain and the acceptance

absolute.20 Moreover, contracts shall be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. 21
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00)
from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no
stipulation that the seller reserves the ownership of the property until full payment of the price which is a
distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu
never intended to transfer ownership to Babasanta except upon full payment of the purchase price.
Babasantas letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests
for the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu
allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would not
be transferred to him until such time as he shall have effected full payment of the price. Moreover, had the
sellers intended to transfer title, they could have easily executed the document of sale in its required form
simultaneously with their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed
by Pacita Lu should legally be considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title
passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the full payment of the price. 22 In a contract of sale,
the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded;
whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment
being a positive suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. 23
The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase
price. There being an obligation to pay the price, Babasanta should have made the proper tender of payment
and consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing
the intention to pay without the accompanying payment is not considered a valid tender of
payment.24 Consignation of the amounts due in court is essential in order to extinguish Babasantas obligation
to pay the balance of the purchase price. Glaringly absent from the records is any indication that Babasanta
even attempted to make the proper consignation of the amounts due, thus, the obligation on the part of the
sellers to convey title never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of sale and not a contract to sell,
Babasantas claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent 25 and from that moment, the parties may
reciprocally demand performance.26 The essential elements of a contract of sale, to wit: (1) consent or meeting
of the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject
matter of the contract; (3) cause of the obligation which is established. 27
The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the
acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is
the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal
basis by which to affect dominion or ownership. 28 Under Article 712 of the Civil Code, "ownership and other
real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession,
and in consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the transfer or
acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. 29 Therefore, sale
by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer
ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Article 1497 to 1501. 30 The word "delivered" should not be
taken restrictively to mean transfer of actual physical possession of the property. The law recognizes two
principal modes of delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery.

Actual delivery consists in placing the thing sold in the control and possession of the vendee. 31 Legal or
constructive delivery, on the other hand, may be had through any of the following ways: the execution of a
public instrument evidencing the sale; 32 symbolical tradition such as the delivery of the keys of the place where
the movable sold is being kept;33 traditio longa manu or by mere consent or agreement if the movable sold
cannot yet be transferred to the possession of the buyer at the time of the sale; 34 traditio brevi manu if the
buyer already had possession of the object even before the sale; 35 and traditio constitutum possessorium,
where the seller remains in possession of the property in a different capacity.36
Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of
the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement
between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no
constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession
of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it
despite his assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to
Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even
on the assumption that the perfected contract between the parties was a sale, ownership could not have
passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the
vendee only upon the delivery of the thing sold.37
However, it must be stressed that the juridical relationship between the parties in a double sale is primarily
governed by Article 1544 which lays down the rules of preference between the two purchasers of the same
property. It provides:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith.
The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of
double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and
first records it in the Registry of Property, both made in good faith, shall be deemed the owner. 38 Verily, the act
of registration must be coupled with good faith that is, the registrant must have no knowledge of the defect
or lack of title of his vendor or must not have been aware of facts which should have put him upon such inquiry
and investigation as might be necessary to acquaint him with the defects in the title of his vendor. 39
Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of
Babasantas claim. Babasanta, however, strongly argues that the registration of the sale by SLDC was not
sufficient to confer upon the latter any title to the property since the registration was attended by bad faith.
Specifically, he points out that at the time SLDC registered the sale on 30 June 1990, there was already a
notice of lis pendens on the file with the Register of Deeds, the same having been filed one year before on 2
June 1989.
Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery
and possession in good faith which admittedly had occurred prior to SLDCs knowledge of the transaction in
favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in favor of
SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had paid more than one half of
the agreed purchase price of P1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed

of Absolute Sale in favor or SLDC. At the time both deeds were executed, SLDC had no knowledge of the
prior transaction of the Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed
up to the moment of transfer and delivery of possession of the lands to SLDC, it had acted in good faith and
the subsequent annotation of lis pendens has no effect at all on the consummated sale between SLDC and
the Spouses Lu.
A purchaser in good faith is one who buys property of another without notice that some other person has a
right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase,
or beforehe has notice of the claim or interest of some other person in the property.40 Following the foregoing
definition, we rule that SLDC qualifies as a buyer in good faith since there is no evidence extant in the records
that it had knowledge of the prior transaction in favor of Babasanta. At the time of the sale of the property to
SLDC, the vendors were still the registered owners of the property and were in fact in possession of the
lands.l^vvphi1.net Time and again, this Court has ruled that a person dealing with the owner of registered land
is not bound to go beyond the certificate of title as he is charged with notice of burdens on the property which
are noted on the face of the register or on the certificate of title. 41 In assailing knowledge of the transaction
between him and the Spouses Lu, Babasanta apparently relies on the principle of constructive notice
incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the office of the
Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all
persons from the time of such registering, filing, or entering.
However, the constructive notice operates as suchby the express wording of Section 52from the time of
the registration of the notice of lis pendens which in this case was effected only on 2 June 1989, at which time
the sale in favor of SLDC had long been consummated insofar as the obligation of the Spouses Lu to transfer
ownership over the property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the annotation of the
notice of lis pendens cannot help Babasantas position a bit and it is irrelevant to the good or bad faith
characterization of SLDC as a purchaser. A notice of lis pendens, as the Court held in Natao v.
Esteban,42serves as a warning to a prospective purchaser or incumbrancer that the particular property is in
litigation; and that he should keep his hands off the same, unless he intends to gamble on the results of the
litigation." Precisely, in this case SLDC has intervened in the pending litigation to protect its rights. Obviously,
SLDCs faith in the merit of its cause has been vindicated with the Courts present decision which is the
ultimate denouement on the controversy.
The Court of Appeals has made capital 43 of SLDCs averment in its Complaint-in-Intervention44 that at the
instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the confirmatory testimony
of Pacita Lu herself on cross-examination.45 However, there is nothing in the said pleading and the testimony
which explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for what they
attest to is that the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any
event, the incident took place after the Spouses Lu had already executed the Deed of Absolute Sale with
Mortgage in favor of SLDC and therefore, as previously explained, it has no effect on the legal position of
SLDC.
Assuming ex gratia argumenti that SLDCs registration of the sale had been tainted by the prior notice of lis
pendens and assuming further for the same nonce that this is a case of double sale, still Babasantas claim
could not prevail over that of SLDCs. In Abarquez v. Court of Appeals,46 this Court had the occasion to rule
that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale, the
registration constitutes a registration in bad faith and does not confer upon him any right. If the registration is
done in bad faith, it is as if there is no registration at all, and the buyer who has taken possession first of the
property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second vendee,
Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were first in possession.
This Court awarded the property to the Israels because registration of the property by Abarquez lacked the
element of good faith. While the facts in the instant case substantially differ from that in Abarquez, we would

not hesitate to rule in favor of SLDC on the basis of its prior possession of the property in good faith. Be it
noted that delivery of the property to SLDC was immediately effected after the execution of the deed in its
favor, at which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of
Babasanta.1a\^/phi1.net
The law speaks not only of one criterion. The first criterion is priority of entry in the registry of property; there
being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities,
the third priority is of the date of title, with good faith as the common critical element. Since SLDC acquired
possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the
property at any time, SLDCs right is definitely superior to that of Babasantas.
At any rate, the above discussion on the rules on double sale would be purely academic for as earlier stated in
this decision, the contract between Babasanta and the Spouses Lu is not a contract of sale but merely a
contract to sell. In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544 does not apply to a case
where there was a sale to one party of the land itself while the other contract was a mere promise to sell the
land or at most an actual assignment of the right to repurchase the same land. Accordingly, there was no
double sale of the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals appealed from
is REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna
is REINSTATED. No costs.

6957, otherwise known as the Build-Operate-Transfer Law. On July 21, 1995, the Pre-qualification, Bids and
Awards Committee (PBAC) recommended the pre-qualification of three proponents, namely: i) JANCOM
International Pty. Ltd.; ii) First Philippine International W-E Managers; and iii) PACTECH Development
Corporation. On July 26, 1995,the EXECOM approved the recommendation of the PBAC. On July 27, 1995,
MMDA forwarded to the Investment Coordinating Committee (ICC) Secretariat the pre-feasibility study on the
privatization of the Carmona and San Mateo landfill sites. The project was later presented to the ICCTechnical Board (ICC-TB) and then endorsed to the ICC-Cabinet Committee (ICC-CC).
On May 2, 1996, the PBAC conducted a pre-bid conference where it required the three pre-qualified
bidders to submit, within ninety (90) days, their bid proposals. On August 2, 1996, JANCOM and First
Philippines requested for an extension of time to submit their bids. PACTECH, on the other hand, withdrew
from the bidding.
Subsequently, JANCOM entered into a partnership with Asea Brown Boveri (ABB) to form JANCOM
Environmental Corporation while First Philippines formed a partnership withOGDEN. Due to the change in the
composition of the proponents, particularly in their technology partners and contractors, the PBAC conducted
a post pre-qualification evaluation.
During the second bid conference, the bid proposals of First Philippines for the Carmona site and
JANCOM for the San Mateo site were found to be complete and responsive. Consequently, on February 12,
1997, JANCOM and First Philippines were declared the winning bidders, respectively, for the San Mateo and
the Carmona projects.

SO ORDERED.
[G.R. No. 147465. January 30, 2002]
METROPOLITAN MANILA DEVELOPMENT AUTHORITY, petitioner, vs. JANCOM ENVIRONMENTAL
CORPORATION and JANCOM INTERNATIONAL DEVELOPMENT PROJECTS PTY. LIMITED
OF AUSTRALIA, respondents.
DECISION

In a letter dated February 27, 1997, then MMDA Chairman Prospero I. Oreta informed JANCOMs Chief
Executive Officer Jay Alparslan that the EXECOM had approved the PBAC recommendation to award to
JANCOM the San Mateo Waste-to-Energy Project on the basis of the final Evaluation Report declaring
JANCOM International Ltd., Pty., together with Asea Brown Boveri (ABB), as the sole complying (winning)
bidder for the San Mateo Waste Disposal site, subject to negotiation and mutual approval of the terms and
conditions of the contract of award. The letter also notified Alparslan that the EXECOM had created a
negotiating team composed of Secretary General Antonio Hidalgo of the Housing and Urban Development
Coordinating Council, Director Ronald G. Fontamillas, General Manager Roberto Nacianceno of MMDA, and
Atty. Eduardo Torres of the host local government unit to work out and finalize the contract
award. Chairman Oreta requested JANCOM to submit to the EXECOM the composition of its own negotiating
team.

MELO, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure filed
by petitioner Metropolitan Manila Development Authority (MMDA), seeking to reverse and set aside the
November 13, 2000 decision of the Court of Appeals declaring valid and perfected the waste management
contract entered into by the Republic of the Philippines, represented by the Secretary of National Resources
and the Executive Committee to oversee the build-operate-transfer implementation of solid waste
management projects, and JANCOM Environmental Corporation.

Thereafter, after a series of meetings and consultations between the negotiating teams of EXECOM
and JANCOM, a draft BOT contract was prepared and presented to the Presidential Task Force on Solid
Waste Management.
On December 19, 1997, the BOT Contract for the waste-to-energy project was signed between
JANCOM and the Philippine Government, represented by the Presidential Task Force on Solid Waste
Management through DENR Secretary Victor Ramos, CORD-NCR Chairman Dionisio dela Serna, and MMDA
Chairman Prospero Oreta.

The pertinent facts are as follows:


In 1994, then President Fidel V. Ramos issued Presidential Memorandum Order No. 202 creating the
Executive Committee (EXECOM) to oversee the BOT implementation of solid waste management projects,
headed by the Chairman of the MMDA and the Cabinet Officer for Regional Development-National Capital
Region (CORD-NCR). The EXECOM was to oversee and develop waste-to-energy projects for the waste
disposal sites in San Mateo, Rizal and Carmona, Cavite under the build-operate-transfer (BOT) scheme. The
terms of reference for the waste-to-energy projects provided that its proponents should have the capability to
establish municipal solid waste thermal plants using incineration technology. This type of technology was
selected because of its alleged advantages of greatly reduced waste volume, prolongation of the service life of
the disposal site, and generation of electricity.
While eleven (11) proponents submitted their pre-qualification documents, most failed to comply with
the requirements under Section 5.4 of the Implementing Rules and Regulations (IRR) of Republic Act No.

On March 5, 1998, the BOT contract was submitted to President Ramos for approval but this was too
close to the end of his term which expired without him signing the contract. President Ramos, however,
endorsed the contract to incoming President Joseph E. Estrada.
With the change of administration, the composition of the EXECOM also changed. Memorandum Order
No. 19 appointed the Chairman of the Presidential Committee on Flagship Programs and Project to be the
EXECOM chairman. Too, Republic Act No. 8749, otherwise known as the Clean Air Act of 1999, was passed
by Congress. And due to the clamor of residents of Rizal province, President Estrada had, in the interim, also
ordered the closure of the San Mateo landfill. Due to these circumstances, the Greater Manila Solid Waste
Management Committee adopted a resolution not to pursue the BOT contract with JANCOM. Subsequently,
in a letter dated November 4, 1999, Roberto Aventajado, Chairman of the Presidential Committee on Flagship
Programs and Project informed Mr. Jay Alparslan, Chairman of JANCOM, that due to changes in policy and
economic environment (Clean Air Act and non-availability of the San Mateo landfill), the implementation of the

BOT contract executed and signed between JANCOM and the Philippine Government would no longer be
pursued. The letter stated that other alternative implementation arrangements for solid waste management for
Metro Manila would be considered instead.
JANCOM appealed to President Joseph Estrada the position taken by the EXECOM not to pursue the
BOT Contract executed and signed between JANCOM and the Philippine Government, refuting the cited
reasons for non-implementation. Despite the pendency of the appeal, MMDA, on February 22, 2000, caused
the publication in a newspaper of an invitation to pre-qualify and to submit proposals for solid waste
management projects for Metro Manila. JANCOM thus filed with the Regional Trial Court of Pasig a petition
for certiorari to declare i) the resolution of the Greater Metropolitan Manila Solid Waste Management
Committee disregarding the BOT Contract and ii) the acts of MMDA calling for bids and authorizing a new
contract for Metro Manila waste management, as illegal, unconstitutional, and void; and for prohibition to
enjoin the Greater Metropolitan Manila Solid Waste Management Committee and MMDA from implementing
the assailed resolution and disregarding the Award to, and the BOT contract with, JANCOM, and from making
another award in its place. On May 29, 2000, the trial court rendered a decision, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of petitioners JANCOM
ENVIRONMENTAL CORPORATION, and JANCOM INTERNATIONAL DEVELOPMENT PROJECTS PTY.,
LIMITED OF AUSTRALIA, and against respondent GREATER METROPOLITAN MANILA SOLID WASTE
MANAGEMENT COMM., and HON. ROBERTO N. AVENTAJADO, in his Capacity as Chairman of the said
Committee, METRO MANILA DEVELOPMENT AUTHORITY and HON. JEJOMAR C. BINAY, in his capacity
as Chairman of said Authority, declaring the Resolution of respondent Greater Metropolitan Manila Solid
Waste Management Committee disregarding petitioners BOT Award Contract and calling for bids for and
authorizing a new contract for the Metro Manila waste management ILLEGAL and VOID.
Moreover, respondents and their agents are hereby PROHIBITED and ENJOINED from implementing the
aforesaid Resolution and disregarding petitioners BOT Award Contract and from making another award in its
place.
Let it be emphasized that this Court is not preventing or stopping the government from implementing
infrastructure projects as it is aware of the proscription under PD 1818. On the contrary, the Court is paving
the way for the necessary and modern solution to the perennial garbage problem that has been the major
headache of the government and in the process would serve to attract more investors in the country.
(Rollo,p. 159.)
Instead of appealing the decision, MMDA filed a special civil action for certiorari with prayer for a
temporary restraining order with the Court of Appeals which was later docketed therein as CA-G.R. SP No.
59021. The appellate court not only required JANCOM to comment on the petition, it also granted MMDAs
prayer for a temporary restraining order. During the pendency of the petition for certiorari, JANCOM moved for
the execution of the RTC decision, which was opposed by MMDA. However, the RTC granted the motion for
execution on the ground that its decision had become final since MMDA had not appealed the same to the
Court of Appeals. MMDA moved to declare respondents and the RTC judge in contempt of court, alleging that
the RTCs grant of execution was abuse of and interference with judicial rules and processes.
On November 13, 2001, the Court of Appeals dismissed the petition in CA-G.R. SP No. 59021 and a
companion case, CA-G.R. SP No. 60303.
MMDAs motion for reconsideration of said decision having been denied, MMDA filed the instant
petition, alleging that the Court of Appeals gravely erred in finding that:
1) There is a valid and binding contract between the Republic of the Philippines and JANCOM
given that: a) the contract does not bear the signature of the President of the Philippines; b)
the conditions precedent specified in the contract were not complied with; and c) there was
no valid notice of award.

2) The MMDA had not seasonably appealed the Decision of the lower court via a petition for
certiorari.
Before taking up the substantive issue in question, we shall first dispose of the question as to whether it
is fatal to petitioners cause, that rather than appealing the trial courts decision to the Court of Appeals, it
instead filed a petition for certiorari. While petitioner claims that the trial courts decision never became final by
virtue of its having appealed by certiorari to the Court of Appeals, the trial court ruled that petitioners failure to
file an appeal has made its decision final and executory. At bottom, the question involves a determination of
the propriety of petitioners choice of the remedy of certiorari in questioning the decision of the trial court.
Section 1, Rule 65 of the 1997 Rules of Civil Procedure provides:
Section 1. Petition for certiorari. When any tribunal, board or officer exercising judicial or quasi-judicial
functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to
lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the
facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such
tribunal, board or officer, and granting such incidental reliefs as law and justice may require.
The petition shall be accompanied by a certified true copy of the judgment, order, or resolution subject thereof,
copies of all pleadings and documents relevant and pertinent thereto, and a sworn certification of non-forum
shopping as provided in the third paragraph of section 3, Rule 46.
Plain it is from a reading of the above provision that certiorari will lie only where a court has acted
without or in excess of jurisdiction or with grave abuse of discretion. If the court has jurisdiction over the
subject matter and of the person, its rulings upon all questions involved are within its jurisdiction, however
irregular or erroneous these may be, they cannot be corrected by certiorari. Correction may be obtained only
by an appeal from the final decision.
Verily, Section 1, Rule 41 of the 1997 Rules of Civil Procedure provides:
SEC. 1. Subject of appeal. An appeal may be taken from a judgment or final order that completely disposes
of the case or of a particular matter therein when declared by these Rules to be appealable.
xxx
xxx

xxx

In all the above instances where the judgment or final order is not appealable, the aggrieved party may file an
appropriate special civil action under Rule 65.
There can be no dispute that the trial courts May 29, 2000 decision was a final order or judgment
which MMDA should have appealed, had it been so minded. In its decision, the trial court disposed of the
main controversy by declaring the Resolution of respondent Greater Metropolitan Manila Solid Waste
Management Committee disregarding petitioners BOT Award Contract and calling for bids for and authorizing
a new contract for the Metro Manila waste management ILLEGAL and VOID. This ruling completely disposed
of the controversy between MMDA and JANCOM. In BA Finance Corporation vs. CA (229 SCRA 5667
[1994]), we held that a final order or judgment is one which disposes of the whole subject matter or
terminates a particular proceeding or action, leaving nothing to be done but to enforce by execution what has
been determined. An order or judgment is deemed final when it finally disposes of the pending action so that
nothing more can be done with it in the trial court. In other words, a final order is that which gives an end to
the litigation. A final order or judgment finally disposes of, adjudicates, or determines the rights, or some right
or rights of the parties, either on the entire controversy or on some definite and separate branch thereof, and
concludes them until it is reversed or set aside. Where no issue is left for future consideration, except the fact
of compliance or non-compliance with the terms of the judgment or doer, such judgment or order is final and
appealable (Investments, Inc. vs. Court of Appeals, 147 SCRA 334 [1987]).

However, instead of appealing the decision, MMDA resorted to the extraordinary remedy
of certiorari, as a mode of obtaining reversal of the judgment. This cannot be done. The judgment was not in
any sense null and void ab initio, incapable of producing any legal effects whatever, which could be resisted at
any time and in any court it was attempted. It was a judgment which could or may have suffered from some
substantial error in procedure or in findings of fact or of law, and on that account, it could have been reversed
or modified on appeal. But since it was not appealed, it became final and has thus gone beyond the reach of
any court to modify in any substantive aspect. The remedy to obtain reversal or modification of the judgment
on the merits is appeal. This is true even if the error, or one of the errors, ascribed to the court rendering the
judgment is its lack of jurisdiction over the subject matter, or the exercise of power in excess thereof, or grave
abuse of discretion in the findings of fact or of law set out in the decision. The existence and availability of the
right of appeal proscribes a resort to certiorari, because one of the requirements for availment of the latter
remedy is precisely that there should be no appeal (Mercado vs. CA, 162 SCRA 75 [1988]). As incisively
observed by the Court of Appeals:
The special civil action for certiorari is available only when there is no appeal nor any plain, speedy and
adequate remedy in the ordinary course of law (Sec. 1, rule 65, id.)
Admittedly, appeal could have been taken from the assailed RTC decision. However, petitioners maintain that
appeal is not a speedy remedy because the RTC decision prohibiting them from conducting a bidding for a
new waste disposal project has adverse and serious effects on the citys garbage situation.
Nevertheless, the RTC decision is not immediately executory. Only judgments in actions for injunction,
receivership, accounting and support and such other judgments as are now or may hereafter be declared to
be immediately executory shall be enforced after their rendition and shall not be stayed by an appeal
therefrom, unless otherwise ordered by the trial court (Sec. 4, rule 39, id.).
Since the RTC decision is not immediately executory, appeal would have stayed its execution. Consequently,
the adverse effects of said decision will not visit upon petitioners during the appeal. In other words, appeal is
a plain, speedy and adequate remedy in the ordinary course of the law.
But as no appeal was taken within the reglementary period, the RTC decision had become final and
executory. Well-settled is the rule that the special civil action for certiorari may not be invoked as a substitute
for the remedy of appeal (BF Corporation vs. Court of Appeals, 288 SCRA 267). Therefore, the extraordinary
remedy of certiorari does not lie.
Moreover, petitioners instituted the instant action without filing a motion for reconsideration of the RTC
decision. Doctrinal is the rule that certiorari will not lie unless a motion for reconsideration is first filed before
the respondent tribunal to allow it an opportunity to correct its errors (Zapanta vs. NLRC, 292 SCRA 580).

The Court thus holds that the Court of Appeals did not err in declaring that the trial courts decision has
become final due to the failure of MMDA to perfect an appeal within the reglementary period.
With the foregoing disquisition, it would appear unnecessarily to discuss and resolve the substantive
issue posed before the Court. However, the procedural flaw notwithstanding, the Court deems it judicious to
take cognizance of the substantive question, if only to put petitioners mind to rest.
In its second assignment of errors, petitioner MMDA contends that there is no valid and binding
contract between the Republic of the Philippines and respondents because: a) the BOT contract does not bear
the signature of the President of the Philippines; b) the conditions precedent specified in the contract were not
complied with; and that c) there was no valid notice of award.
These contentions hold no water.
Under Article 1305 of the Civil Code, [a] contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some service. A contract
undergoes three distinct stages preparation or negotiation, its perfection, and finally, its
consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in
the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes
place when the parties agree upon the essential elements of the contract. The last stage is
the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract,
culminating in the extinguishment thereof (Bugatti vs. CA, 343 SCRA 335 [2000]). Article 1315 of the Civil
Code, provides that a contract is perfected by mere consent. Consent, on the other hand, is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract
(See Article 1319, Civil Code). In the case at bar, the signing and execution of the contract by the parties
clearly show that, as between the parties, there was a concurrence of offer and acceptance with respect to the
material details of the contract, thereby giving rise to the perfection of the contract. The execution and signing
of the contract is not disputed by the parties. As the Court of Appeals aptly held:
[C]ontrary to petitioners insistence that there was no perfected contract, the meeting of the offer and
acceptance upon the thing and the cause, which are to constitute the contract (Arts. 1315 and 1319, New Civil
Code), is borne out by the records.
Admittedly, when petitioners accepted private respondents bid proposal (offer), there was, in effect, a meeting
of the minds upon the object (waste management project) and the cause (BOT scheme). Hence, the
perfection of the contract. In City of Cebu vs. Heirs of Candido Rubi (306 SCRA 108), the Supreme Court held
that the effect of an unqualified acceptance of the offer or proposal of the bidder is to perfect a contract, upon
notice of the award to the bidder.

(Rollo, p. 47-48.)

(Rollo, p. 48-49.)

Admittedly, there are instances where the extraordinary remedy of certiorari may be resorted to despite
the availability of an appeal. In Ruiz, Jr. vs. Court of Appeals (220 SCRA 490 [1993]), we held:

In fact, in asserting that there is no valid and binding contract between the parties, MMDA can only
allege that there was no valid notice of award; that the contract does not bear the signature of the President of
the Philippines; and that the conditions precedent specified in the contract were not complied with.

Considered extraordinary, [certiorari] is made available only when there is no appeal, nor any plain, speedy or
adequate remedy in the ordinary course of the law (Rule 65, Rules of Court, Section 1). The long line of
decisions denying the petition for certiorari, either before appeal was availed or specially in instances where
the appeal period has lapsed, far outnumbers the instances when certiorari was given due course. The few
significant exceptions were: when public welfare and the advancement of public policy dictate; or when the
broader interests of justice so require, or when the writs issued are null . . . or when the questioned order
amounts to an oppressive exercise of judicial authority.

In asserting that the notice of award to JANCOM is not a proper notice of award, MMDA points to the
Implementing Rules and Regulations of Republic Act No. 6957, otherwise known as the BOT Law, which
require that i) prior to the notice of award, an Investment Coordinating Committee clearance must first be
obtained; and ii) the notice of award indicate the time within which the awardee shall submit the prescribed
performance security, proof of commitment of equity contributions and indications of financing resources.

In the instant case, however, MMDA has not sufficiently established the existence of any fact or reason
to justify its resort to the extraordinary remedy of certiorari. Neither does the record show that the instant
case, indeed, falls under any of the exceptions aforementioned.

Admittedly, the notice of award has not complied with these requirements. However, the defect was
cured by the subsequent execution of the contract entered into and signed by authorized representatives of
the parties; hence, it may not be gainsaid that there is a perfected contract existing between the parties giving
to them certain rights and obligations (conditions precedents) in accordance with the terms and conditions
thereof. We borrow the words of the Court of Appeals:

Petitioners belabor the point that there was no valid notice of award as to constitute acceptance of private
respondents offer. They maintain that former MMDA Chairman Oretas letter to JANCOM EC dated February
27, 1997 cannot be considered as a valid notice of award as it does not comply with the rules implementing
Rep. Act No. 6957, as amended. The argument is untenable.
The fact that Chairman Oretas letter informed JANCOM EC that it was the sole complying (winning) bidder
for the San Mateo project leads to no other conclusion than that the project was being awarded to it. But
assuming that said notice of award did not comply with the legal requirements, private respondents cannot
be faulted therefore as it was the government representatives duty to issue the proper notice.
In any event, petitioners, as successors of those who previously acted for the government (Chairman Oreta, et
al), are estopped from assailing the validity of the notice of award issued by the latter. As private respondents
correctly observed, in negotiating on the terms and conditions of the BOT contract and eventually signing said
contract, the government had led private respondents to believe that the notice of award given to them
satisfied all the requirement of the law.
While the government cannot be estopped by the erroneous acts of its agents, nevertheless, petitioners may
not now assail the validity of the subject notice of award to the prejudice of private respondents. Until the
institution of the original action before the RTC, invalidity of the notice of award was never invoked as a
ground for termination of the BOT contract. In fact, the reasons cited for terminating theSan Mateo project,
per Chairman Aventajados letter to JANCOM EC dated November 4, 1999, were its purported nonimplementability and non-viability on account of supervening events, e.g., passage of the Clean Air Act, etc.
(Rollo, p. 49-50.)
MMDA also points to the absence of the Presidents signature as proof that the same has not yet been
perfected. Not only that, the authority of the signatories to bind the Republic has even been put to
question. Firstly, it is pointed out that Memorandum Order No. 202 creating the Executive Committee to
oversee the BOT implementation of solid waste management projects only charged the officials thereof with
the duty of recommending to the President the specific project to be implemented under the BOT scheme for
both San Mateo and Carmona sites. Hence, it is concluded that the signatories, CORD-NCR Chairman
Dionisio dela Serna and MMDA Chairman Prospero Oreta, had no authority to enter into any waste
management project for and in behalf of the Government. Secondly, Section 59 of Executive Order No. 292 is
relied upon as authority for the proposition that presidential approval is necessary for the validity of the
contract.
The first argument conveniently overlooks the fact that then Secretary of Environment and Natural
Resources Victor Ramos was likewise a signatory to the contract. While dela Serna and Oreta may not have
had any authority to sign, the Secretary of Environment and Natural Resources has such an authority. In fact,
the authority of the signatories to the contract was not denied by the Solicitor General. Moreover, as observed
by the Court of Appeals, [i]t was not alleged, much less shown, that those who signed in behalf of the
Republic had acted beyond the scope of their authority.
In truth, the argument raised by MMDA does not focus on the lack of authority of the signatories, but on
the amount involved as placing the contract beyond the authority of the signatories to approve. Section 59 of
Executive Order No. 292 reads:

As regards the Presidents approval of infrastructure projects required under Section 59 of Executive Order
No. 292, said section does not apply to the BOT contract in question. Sec. 59 should be correlated with Sec.
58 of Exec. Order No. 292. Said sections read:
SECTION 58. Ceiling for Infrastructure Contracts. The following shall be the ceilings for all civil works,
construction and other contracts for infrastructure projects, including supply contracts for said projects,
awarded through public bidding or through negotiation, which may be approved by the Secretaries of Public
Works and Highways, Transportation and Communications, Local Government with respect to Rural Road
improvement Project and governing boards of government-owned or controlled corporations:
xxx
xxx

xxx

Save as provided for above, the approval ceilings assigned to the departments/agencies involved in national
infrastructure and construction projects shall remain at the levels provided in existing laws, rules and
regulations.
Contrary to petitioners claim that all infrastructure contracts require the Presidents approval (Petition, p. 16),
Sec. 59 provides that such approval is required only in infrastructure contracts involving amounts exceeding
the ceilings set in Sec. 58. Significantly, the infrastructure contracts treated in Sec. 58 pertain only to those
which may be approved by the Secretaries of Public Works and Highways, Transportation and
Communications, Local Government (with respect to Rural Road Improvement Project) and the governing
boards of certain government-owned or controlled corporations. Consequently, the BOT contract in question,
which was approved by the DENR Secretary and the EXCOM Chairman and Co-Chairman, is not covered by
Exec. Order No. 292.
(Rollo, p. 51-52.)
The provision pertinent to the authority of the Secretary of Environment and Natural Resources would
actually be Section 1 of Executive Order No. 380, Series of 1989 which provides that The Secretaries of all
Departments and Governing Boards of government-owned or controlled corporations [except the Secretaries
of Public Works and Highways, Transportation and Communication, and Local Government with respect to
Rural Road Improvement projects] can enter into publicly bidded contracts regardless of amount (See
also Section 515,Government Accounting and Auditing Manual Volume I). Consequently, MMDA may not
claim that the BOT contract is not valid and binding due to the lack of presidential approval.
Significantly, the contract itself provides that the signature of the President is necessary only for its
effectivity (not perfection), pursuant to Article 19 of the contract, which reads:
This contract shall become effective upon approval by the President of the Republic of
the Philippines pursuant to existing laws subject to the condition, precedent in Article 18. This contract shall
remain in full force and effect for twenty-five (25) years subject to renewal for another twenty-five (25) years
from the date of Effectivity. Such renewal will be subject to mutual agreement of the parties and approval of
the President of the Republic of the Philippines.
(Rollo, p. 94.)

Section 59. Contracts for Approval by the President. Contracts for infrastructure projects, including contracts
for the supply of materials and equipment to be used in said projects, which involve amounts above the
ceilings provided in the preceding section shall be approved by the President: Provided, That the President
may, when conditions so warrant, and upon recommendation of the National Economic and Development
Authority, revise the aforesaid ceilings of approving authority.
However, the Court of Appeals trenchantly observed in this connection:

Stated differently, while the twenty-five year effectivity period of the contract has not yet started to run
because of the absence of the Presidents signature, the contract has, nonetheless, already been perfected.
As to the contention that there is no perfected contract due to JANCOMs failure to comply with several
conditions precedent, the same is, likewise, unmeritorious. Article 18 of the BOT contract reads:
ARTICLE 18

CONDITIONS PRECEDENT

SECTION
20.
Ban on Incineration. Incineration, hereby defined as the burning of municipal, biochemical and hazardous wastes, which process emits poisonous and toxic fumes, is hereby prohibited: x x x.

xxx
18.2.1.
The BOT COMPANY hereby undertakes to provide the following within 2 months from
execution of this Contract as an effective document:
a) sufficient proof of the actual equity contributions from the proposed shareholders of the BOT
COMPANY in a total amount not less than PHP500,000,000 in accordance with the BOT
Law and the implementing rules and regulations;
b) sufficient proof of financial commitment from a lending institution sufficient to cover total
project cost in accordance with the BOT Law and the implementing rules and regulations;
c) to support its obligation under this Contract, the BOT COMPANY shall submit a security bond
to the CLIENT in accordance with the form and amount required under the BOT Law.
xxx
18.2.3

Section 20 does not absolutely prohibit incineration as a mode of waste disposal; rather only those burning
processes which emit poisonous and toxic fumes are banned.
As regards the projected closure of the San Mateo landfill vis--vis the implementability of the contract, Art. 2.3
thereof expressly states that [i]n the event the project Site is not delivered x x x, the Presidential task Force
on Solid Waste Management (PTFSWM) and the Client, shall provide within a reasonable period of time, a
suitable alternative acceptable to the BOT COMPANY.
With respect to the alleged financial non-viability of the project because the MMDA and the local government
units cannot afford the tipping fees under the contract, this circumstance cannot, by itself, abrogate the entire
agreement.
Doctrinal is the rule that neither the law nor the courts will extricate a party from an unwise or undesirable
contract, or stipulation for that matter, he or she entered into with full awareness of its consequences
(Opulencia vs. CA, 293 SCRA 385). Indeed, the terms and conditions of the subject contract were arrived at
after due negotiations between the parties thereto.
(Rollo, p. 54.)

Completion of Documentary Requirements as per Schedule 4 by the BOT Company

As clearly stated in Article 18, JANCOM undertook to comply with the stated conditions within 2 months
from execution of the Contract as an effective document. Since the President of the Philippines has not yet
affixed his signature on the contract, the same has not yet become an effective document. Thus, the twomonth period within which JANCOM should comply with the conditions has not yet started to run. It cannot
thus be said that JANCOM has already failed to comply with the conditions precedent mandated by the
contract. By arguing that failure [of JANCOM] to comply with the conditions results in the failure of a contract
or prevents the judicial relation from coming into existence, MMDA reads into the contract something which is
not contemplated by the parties. If the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall control (Art. 1370, Civil Code).
We, therefore, hold that the Court of Appeals did not err when it declared the existence of a valid and
perfected contract between the Republic of the Philippines and JANCOM. There being a perfected contract,
MMDA cannot revoke or renounce the same without the consent of the other. From the moment of perfection,
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 (Article
1315, Civil Code). The contract has the force of law between the parties and they are expected to abide in
good faith by their respective contractual commitments, not weasel out of them. Just as nobody can be forced
to enter into a contract, in the same manner, once a contract is entered into, no party can renounce it
unilaterally or without the consent of the other. It is a general principle of law that no one may be permitted to
change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of
the other party. Nonetheless, it has to be repeated that although the contract is a perfected one, it is still
ineffective or unimplementable until and unless it is approved by the President.
Moreover, if after a perfected and binding contract has been executed between the parties, it occurs to
one of them to allege some defect therein as reason for annulling it, the alleged defect must be conclusively
proven, since the validity and the fulfillment of contracts cannot be left to the will of one of the contracting
parties. In the case at bar, the reasons cited by MMDA for not pushing through with the subject contract were:
1) the passage of the Clean Air Act, which allegedly bans incineration; 2) the closure of the San Mateo landfill
site; and 3) the costly tipping fee. These reasons are bereft of merit
Once again, we make reference to the insightful declarations of the Court of Appeals:
Sec. 20 of the Clean Air Act pertinently reads:

WHEREFORE, premises considered, the petition is hereby DISMISSED for lack of merit and the
decision of the Court of Appeals in CA-G.R. SP No. 59021 dated November 13, 2001AFFIRMED. No costs.
SO ORDERED.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.

CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the
case to Us, upon the ground that it involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an
instrument entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed ... to sell" to
Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San
Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of
said province, within two (2) years from said date with the understanding that said option shall be deemed
"terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated
period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by Sanchez within said period,
were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First

Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and
damages.
After the filing of defendant's answer admitting some allegations of the complaint, denying other allegations
thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell,
and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and
void" on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment
on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering
Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of
conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's fees, and other costs. Hence,
this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissor if the promise is supported by a consideration distinct
from the price.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and
committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of
which was annexed to said pleading as Annex A thereof and is quoted on the margin. 1 Hence, plaintiff
maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first
paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell
the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself " to buy said
property. Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has
been made "an integral part" of his complaint, the provisions of said instrument form part "and parcel" 2 of said
pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a
"contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as
indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof,
the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for
P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and
undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and
this would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted,
however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales"
in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article
1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price."
Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former
establishes the existence of said distinct consideration. In other words, the promisee has the burden of
proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the
absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the
pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early as
March 14, 1908, it had been held, in Bauermann v. Casas, 3 that:

One who prays for judgment on the pleadings without offering proof as to the truth of
his own allegations, and without giving the opposing party an opportunity to introduce
evidence, must be understood to admit the truth of all the material and relevant
allegations of the opposing party, and to rest his motion for judgment on those
allegations taken together with such of his own as are admitted in the pleadings. (La
Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which We quote:
The main contention of appellant is that the option granted to appellee to sell to it barge
No. 10 for the sum of P30,000 under the terms stated above has no legal effect
because it is not supported by any consideration and in support thereof it invokes
article 1479 of the new Civil Code. The article provides:
"ART. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate
thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the "offer of option" is
not supported by any consideration, that option became binding on appellant when the
appellee gave notice to it of its acceptance, and that having accepted it within the
period of option, the offer can no longer be withdrawn and in any event such
withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the
Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn any time before
acceptance by communicating such withdrawal, except when
the option is founded upon consideration as something paid or
promised."
There is no question that under article 1479 of the new Civil Code "an option to sell," or
"a promise to buy or to sell," as used in said article, to be valid must be "supported by a
consideration distinct from the price." This is clearly inferred from the context of said
article that a unilateral promise to buy or to sell, even if accepted, is only binding if
supported by consideration. In other words, "an accepted unilateral promise can only
have a binding effect if supported by a consideration which means that the option can
still be withdrawn, even if accepted, if the same is not supported by any consideration.
It is not disputed that the option is without consideration. It can therefore be withdrawn
notwithstanding the acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general rule regarding offer
and acceptance is that, when the offerer gives to the offeree a certain period to accept,
"the offer may be withdrawn at any time before acceptance" except when the option is
founded upon consideration, but this general rule must be interpreted as modified by
the provision of article 1479 above referred to, which applies to "a promise to buy and
sell" specifically. As already stated, this rule requires that a promise to sell to be valid
must be supported by a consideration distinct from the price.
We are not oblivious of the existence of American authorities which hold that an offer,
once accepted, cannot be withdrawn, regardless of whether it is supported or not by a

consideration (12 Am. Jur. 528). These authorities, we note, uphold the general
rule applicable to offer and acceptance as contained in our new Civil Code. But we are
prevented from applying them in view of the specific provision embodied in article
1479. While under the "offer of option" in question appellant has assumed a clear
obligation to sell its barge to appellee and the option has been exercised in accordance
with its terms, and there appears to be no valid or justifiable reason for appellant to
withdraw its offer, this Court cannot adopt a different attitude because the law on the
matter is clear. Our imperative duty is to apply it unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later
thatSouthwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles
1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one
sued upon here was involved, treating such promise as an option which, although not binding as a contract in
itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale
upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the
offeree should decide to exercise his option within the specified time. After accepting
the promise and before he exercises his option, the holder of the option is not bound to
buy. He is free either to buy or not to buy later. In this case, however, upon accepting
herein petitioner's offer a bilateral promise to sell and to buy ensued, and the
respondent ipso facto assumed the obligation of a purchaser. He did not just get the
right subsequently to buy or not to buy. It was not a mere option then; it was a bilateral
contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of
consideration, the authorities hold that:
"If the option is given without a consideration, it is a mere offer
of a contract of sale, which is not binding until accepted. If,
however, acceptance is made before a withdrawal, it constitutes
a binding contract of sale, even though the option was not
supported by a sufficient consideration. ... . (77 Corpus Juris
Secundum, p. 652. See also 27 Ruling Case Law 339 and
cases cited.)
"It can be taken for granted, as contended by the defendant,
that the option contract was not valid for lack of consideration.
But it was, at least, an offer to sell, which was accepted by
letter, and of the acceptance the offerer had knowledge before
said offer was withdrawn. The concurrence of both acts the
offer and the acceptance could at all events have generated
a contract, if none there was before (arts. 1254 and 1262 of the
Civil Code)." (Zayco vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a cause or consideration, the promisor is not
bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted
promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of
sale.
This view has the advantage of avoiding a conflict between Articles 1324 on the general principles on
contracts and 1479 on sales of the Civil Code, in line with the cardinal rule of statutory construction
that, in construing different provisions of one and the same law or code, such interpretation should be favored
as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption
is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position.
Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art.
1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former,
and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two

(2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art.
1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the two
(2) provisions intended to enforce or implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the
doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar as inconsistent therewith, the view adhered
to in theSouthwestern Sugar & Molasses Co. case should be deemed abandoned or modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant
Severina Rigos. It is so ordered.

G.R. No. L-20435

October 23, 1923

LUIS ASIAIN, plaintiff-appellant,


vs.
BENJAMIN JALANDONI, defendant-appellee.
Arroyo and Gurrea for appellant.
Francisco Soriano for appellee.

MALCOLM, J.:
Luis Asiain, the plaintiff-appellant in this case, is the owner of the hacienda known as "Maria" situated in the
municipality of La Carlota, Province of Occidental Negros, containing about 106 hectares. Benjamin Jalandoni,
the defendant-appellee, is the owner of another hacienda adjoining of Asiain.
Asiain and Jalandoni happening to meet no one of the days of May, 1920, Asiain said to Jalandoni that he was
willing to sell a portion of his hacienda for the sum of P55,000. With a wave of his hand, Asiain indicated the
tract of land in question, affirming that it contained between 25 and 30 hectares, and that the crop of sugar
cane then planted would produce not less than 2,000 piculs of sugar. But Jalandoni, remaining doubtful as to
the extent of the land and as to the amount of crop on it, Asiain wrote Jalandoni the letter which follows:
HDA. MARIA

May, 26, 1920.

MR. BENJAMIN JALANDONI.


DEAR BENJAMIN: I am in receipt of your letter and with regard to your statement that parcel does not contain
21 hectares I do not believe. I bet anything that part only which is planted with cane contains more than 20
hectares, I bet 2 against 1.
If you agree, I would be that you pay only one-half. I am not a surveyor, but these days I had the pleasure to
survey the land and I know more or less its area. 1awph!l.net
Here we are not to deceive each other. If you like that parcel and if you want to buy it I will give you good
propositions. I don't know where and how they learned that I was selling the hacienda and they made me a

good offer, but as we do not want to part but with that parcel, hence my propositions are the following, in view
of the time that has elapsed and the progress of the cane.
I assure (aseguro) that there are 2,000 piculs and sell on that basis, provided that the cane is milled in due
time. In case the sugar does not amount to 2,000 piculs, I will pay in sugar all such amount as will be
necessary to complete the 2,000, but if after milling the cane, as I say, there is an excess over 2,000 piculs, all
the excess shall be mine. So that if you like, I make the sale for the same price that we talked about and the
same conditions, not a dime more or less.
Since you left it did rain, so the "alociman" (Philippine herb) of Guimib must die on the field, whether of
the hacienda or of the "lagatio." You have a contract for a lump sum. Now they have begun to plow the old
plantations within the boundary some days ago and you may rest and throw one (unintelligible), answer yes or
no, so that I may decide.
Your friend LUIS ASIAIN
Sometime later, in July of the same year, Asiain and Jalandoni having met at Iloilo, they prepared and signed
the memorandum-agreement which follows:
Purchase of land of Mr. Luis Asiain and his wife Maria Cadenas, by B. Jalandoni, containing 25
hectares more or less of land bounded by property of the purchaser, with its corresponding crop,
estimated at 2,000 piculs, the total value of which is 55 thousand. The price is to be paid by paying
30 thousand at the signing of the document, and 25 thousand within one year, with interest at the
rate of 10 per cent.
Mr. Asiain is under obligation to take care of all the plantation until the planting is finished and in
case the crop exceeds 2,000 piculs, all the excess will belong to Mr. Asiain.

(1) That Luis Asiain does hereby promise and bind himself to sell to Benjamin
Jalandoni a parcel of land the hacienda "Maria" of the aforesaid Luis Asiain, situated in
the municipality of La Carlota, Province of Occidental Negros, P.I.
(2) That Benjamin Jalandoni does hereby promise and bind himself to purchase the
aforesaid parcel of land in the sum P55,000 upon certain conditions specified in a
memorandum signed by the parties which is in the hands of Attorneys Padilla &
Treas.
(3) That upon the signing of this agreement, the vendor shall have the right to collect
from the purchaser part of the price giving receipts thereof signed by said vendor.
(4) That in case the vendor should withdraw from the contract and desist from signing
the document of final sale, the purchaser shall have the right to collect from said
vendor all such amount as may have been advanced on account of this sale, with an
indemnity of P15,000 as penalty.
(5) In case it is the purchaser who should withdraw from the contract of sale, then he
will lose all such amount as may have been paid in advance on account of this
transaction.
In witness whereof, we have hereunto affixed our signatures, at Iloilo, Iloilo, this 12th day of July,
1920.
(Sgd) "LUIS ASIAIN
"BENJAMIN JALANDONI
Signed in the presence of:

The adjacent landowner on the north and the west is the vendor himself, on the east, B. Jalandoni,
and on the south, B. Jalandoni and the widow of Abdon Ferrer.
The purchaser is under obligation to answer for all the rights and obligations of the land with the
central of Inchausti.
After the planting of the cane is completely finished, Mr. Asiain shall vacate the parcel sold to the
purchaser.
The expenses for taking care of said plantation until the planting is completely finished will be for
the account of the vendor Mr. Asiain.
(Sgd.) "LUIS ASIAIN
"BENJAMIN JALANDONI"
During all of the period of negotiations, Jalandoni remained a doubting Thomas and was continually
suggesting that, in his opinion, the amount of the land and of the crop was overestimated. Asiain on his part
always gave assurances in conformity with the letter which he had written intended to convince Jalandoni that
the latter was in error in his opinion. As a result, the parties executed the agreement which follows:
This document, executed in the city of Iloilo, Province of Iloilo, Philippine Islands, by and between
Messrs. Luis Asiain and Benjamin Jalandoni, of age and residents of the municipality of La Carlota,
Province of Occidental Negros, Philippine Islands.
Witnesseth:

(Sgd.) "ENGRACIO PADILLA


"P.T. TREAS"
Once in possession of the land, Jalandoni did two things. He had the sugar cane ground in La Carlota Sugar
Central with the result that it gave and output of P800 piculs and 23 cates of centrifugal sugar. When
opportunity offered, he secured the certificate of title of Asiain and produced a surveyor to survey the land.
According to his survey, the parcel in question contained an area of 118 hectares, 54 ares, and 22 centiares.
Of the purchase price of P55,000, Jalandoni had paid P30,000, leaving a balance unpaid of P25,000. To
recover the sum of P25,000 from Jalandoni or to obtain the certificate of title and the rent from him, action was
begun by Asiain in the Court of First Instance of Occidental Negros. To the complaint, an answer and a
counter-complaint were interposed by the defendant, by which it was asked that he be absolved from the
complaint, that the contract be annulled, both parties to return whatever they had received, and that he
recover from the plaintiff the sum of P3,600 annually as damages. In a well-reasoned decision, the Honorable
Eduardo Gutierrez David, Judge of First Instance, declared null the document of purchase and its related
memorandum; absolved the defendant from the payment of P25,000; ordered the plaintiff to return to the
defendant the sum of P30,000 with legal interest from July 12, 1920; ordered the defendant to turn over to the
plaintiff the tract of land and the certificate of title No. 468, and absolved the plaintiff from the countercomplaint, all without special finding as to the costs. It is from said judgment that the plaintiff has appealed.
The true facts need not give us pause. They are as found by the trial judge and as pratically agreed to by the
parties. It is only necessary to keep in mind that apparently there was always a difference of opinion between
Asiain and Jalandoni as to the area of the tract and as to the crop of sugar cane; that the agreement between
them mentions land containing 25 hectares more or less, giving the boundaries, and a crop estimated and in
one sense warranted at 2,000 piculs, and that in reality the land contained only a little more than 18 hectares

and produced a crop of only about 800 piculs. The legal consequences arising from these facts are more
difficult of determination.

reduction of the price on account of shortage of an area, because he does not give less who
delivers all that he bound himself to.

Our Civil Code contains provisions which must be taken into consideration. Codal articles 1265, 1266, and
1269 relate to consent given by reason of error and deceit. They provide the rules which shall avoid contracts
for these and other reasons. But the provisions of the Civil Code most directly pertinent are found in articles
1469, 1470, and 1471.

According to this opinion, which we believe erroneous, if within the boundaries of the property sold,
there is included more than area than that expressed in the title deeds, nothing can be claimed by
the vendor who losses the value of that excess, but if there is less area, then he loses also,
because either the price is reduced or the contract is annulled. This theory would be anomalous in
case of sale of properties in bulk, but, above all, would do gross injustice which the legislator never
intended.

The first two mentioned articles, 1469 and 1470, are not applicable because of the proviso relating to the sale
being made at a certain price for each unit of measure or number which is not our case. The facts seem to
fall within article 1471. It first paragraph provides that in case of the sale of real estate for a lump sum and not
at the rate of specified price of each unit or measure, there shall be no increase or decrease of the price even
if the area be found to be more or less than that stated in the contract. The next paragraph provides that the
same rule is applicable when two or more estates are sold for a single price. Then comes the following: ". . .
but, if in addition to a statement of the boundaries, which is indispensable in every conveyance of real estate,
the area estate should be designated in the contract, the vendor shall be obliged to deliver all that is included
within such boundaries, even should it exceed the area specified in the contract; and, should he not be able to
do so, he shall suffer a reduction of the price in proportion to what is lacking of the area, unless the contract
be annulled by reason of the vendee's refusal to accept anything other than that which was stipulated."
A study of the Spanish commentators discloses that the meaning of article 1471 is not clear as it might be, and
that they are not unanimous in their views. Manresa gives emphasis to the intention of the parties and the
option on the part of the purchaser to rescind the contract. To quote from Manresa:
The rule in the latter case is found in the second paragraph of article 1471, with the exception of
the first clause which refers to the former hypothesis. This rule may be formulated as follows:
Whether the case is one of sale of realty for a lump sum or of two or more for a single price which
is also a lump sum and, consequently, not at the rate of specified price for each unit of measure or
number, the vendor shall be bound to deliver all that is within the boundaries stated although it
may exceed the area or number expressed in the contract; in case he cannot deliver it, the
purchaser shall have the right to reduce the price proportionately to what is lacking of the area or
number, or rescind the contract at his option.
xxx

xxx

xxx

The manner in which the matter covered by this article was distributed in its two paragraphs
contributes to making it difficult to understand. The rule might have been clearly stated had the first
clause of the second paragraph been included in the first paragraph, the latter to end with the
words, "The same rule shall apply when two or more estates are sold for a single price." And if by
constituting an independent paragraph, with the rest of the second paragraph, it were made to
appear more expressly that the rule of the second paragraph thus drawn referred to all the cases
of paragraph one, as we have expounded, namely, to the case of a sale of one single estate and
that of two or more for one single price, the precept would have been clearer.

There is no such thing. So long as the vendor can deliver, and for that reason, delivers all the land
included within the boundaries assigned to the property, there can be no claim whatsoever either
on his part, although the area may be found to be much greater than what was expressed, nor on
the part of the purchaser although what area may be in reality much smaller. But as he sold
everything within the boundaries and this is all the purchaser has paid, or must pay, for whether
much or little, if afterwards, it is found that he cannot deliver all, because, for instance, a part, a
building, a valley, various pieces of land, a glen etc., are not his, there is no sale of a specified
thing, there is longer a sale of the object agreed upon, and the solution given by the article is then
just and logical: Either the contract is annulled or the price is reduced proportionately."
(10 Comentarious al Codigo Civil, p. 157.)
The principle is deduced from the Code, that if land shall be sold within boundaries with an expression of the
area and if the area is grossly deficient, the vendee has an option, either to have the price reduced
proportionately or to ask for the rescission of the contract. The rule of the civil law is more favorable to the
purchaser than is the common law. It gives the excess to the purchaser without compensation to the vendor,
where the property is sold by a specific description followed by the mention of the quantity or measure, but
allows the purchaser either to secure a deduction from the price in case a deficiency or to annul the contract.
The decision of this court which gave most direct consideration to article 1471 of the Civil Code, now chiefly
relied upon by the appellant, is found in Irureta Goyena vs. Tambunting ([1902], 1 Phil., 490). The rule
announced in the syllabus is this: "An agreement to purchase a certain specified lot of land at a certain price is
obligatory and enforceable regardless of the fact that its area is less than that mentioned in the contract."
Taken literally, this rule would lead to the result desired by the appellant. But the syllabus naturally must be
understood in relation what is found in the decision itself; and the fact was that the tract of land was mentioned
as being located at No. 20 Calle San Jose, Ermita, Manila. The private contract expressed a specific thing as
the object of the contract and specified a certain price. There was no statement in the document of the
superficial area and no hint in the record that either or both parties were misled. The facts, therefore, are
different than those before us and the doctrine in the Irureta Goyena vs. Tambunting case, can well be
followed and distinguished.
A comparative study of the American Authorities throws considerable light on the situation. In volume 39 Cyc.,
page 1250, under the subject "Vendor and Purchaser," is found the following:

In our opinion, this would have better answered what we deem to be indubitable intention of the
legislator.

If, in a contract of sale the quantity of the realty to be conveyed is indicated by a unit of area, as by
the acre, a marked excess or deficiency in the quantity stipulated for is a ground for avoiding the
contract. Since it is very difficult, if not impossible, to ascertain the quality of a tract with perfect
accuracy, a slight excess or deficiency does not affect the validity of the contract.

Some eminent commentators construe the last part of article 1471 in a different way. To them the
phrase "and should he not be able to do so" as applied to the vendor, does not mean as
apparently it does "should he not be able to deliver all that is included within the boundaries
stated," but this other thing, namely, that if by reason of the fact that a less area is included within
the boundaries than that expressed in the contract, it is not possible for the vendor to comply
therewith according to its literal sense, he must suffer either the effects of the nullity of the contract
or a reduction of the price proportionately to what may be lacking of the area or number. It is added
as a ground for this solution that if the vendor fulfills the obligation, as stated in the article, by
delivering what is not included within the boundaries, there can never by any case of proportionate

Where, however, the contract is not for the sale of a specific quantity of land, but for the sale of
particular tract, or designated lot or parcel, by name or description, for a sum in gross, and the
transaction is bona fide, a mutual mistake as to quantity, but not as to boundaries, will not
generally entitle the purchaser to compensation, and is not ground for rescission. But it is well
settled that a purchaser of land, when it is sold in gross, or with the description, "more or less" or
"about," does not thereby ipso facto take all risk of quantity in the tract. If the difference between
the real and the represented quantity is very great, both parties act obviously under a mistake
which it is the duty of a court of equity to correct. And relief will be granted when the mistake is so
material if the truth had been known to the parties the sale would not have been made.

Volume 27 of the Ruling Case Law, pages 354, 434, 436, states what follows:
A mutual mistake as to the quantity of the land sold may afford ground for equitable relief. As has
been said, if, through gross and palpable mistake, more or less land should be conveyed than was
in the contemplation of the seller to part with or the purchaser to receive, the injured party would
be entitled to relief in like manner as he would be for an injury produced by a similar cause in a
contract of any other species. And when it is evident that there has been a gross mistake s to
quantity, and the complaining party has not been guilty of any fraud or culpable negligence, nor
has he otherwise impaired the equity resulting from the mistake, he may be entitled to relief from
the technical or legal effect of his contract, whether it be executed or only executory. It has also
been held that where there is a very great diference between the actual and the estimated quantity
of acres of land sold in gross, relief may be granted on the ground of gross mistake. Relief,
however, will not be granted as general rule where it appears that the parties intended a contract
of hazard, as where the sale is a sale in gross and not by acreage or quantity as a basis for the
price; and it has been held that a mistake on the part of the vendor of a town lot sold by description
as to number on the plat, as to its area or dimensions, inducing a sale thereof at smaller price than
he would have asked had he been cognizant of its size, not in any way occasioned or concealed
by conduct of the purchaser, constitutes no ground for the rescission of the contract. The apparent
conflict and discrepancies in the adjudicated cases involving mistakes as to quantity arise not from
a denial of or a failure to recognize the general principle, but from the difficulty of its practical
application in particular cases in determining the questions whether the contract was done of
hazard as to quantity or not and whether the variance is unreasonable. The relative extent of the
surplus or deficit cannot furnish, per se, an infallible criterion in each case for its determination, but
each case must be considered with reference not only to that but its other peculiar circumstances.
The conduct of the parties, the value, extent, and locality of the land, the date of the contract, the
price, and other nameless circumstances, are always important, and generally decisive. In other
words, each case must depend on its own peculiar circumstances and surroundings.
The rule denying relief in case of a deficit or an excess is frequently applied in equity as well as at
law, but a court of equity will not interfere on account of either a surplus or a deficiency where it is
clear that the parties intend a contract of hazard, and it is said that although this general rule may
not carry into effect the real intention of the parties it is calculated to prevent litigation. From an
early date, courts of equity under their general jurisdiction to grant relief on the ground of mistake
have in case of mistake in the estimation of the acreage in tract sold and conveyed interposed
their aid to grant relief to the vendor where there was a large surplus over the estimated acreage,
and to the purchaser where there was large deficit. For the purpose of determining whether relief
shall be granted the courts have divided the cases into two general classes: (1) Where the sale is
of a specific quantity which is usually denominated a sale by the acre; (2) where the sale is usually
called a sale in gross. . . .
Sales in gross for the purpose of equitable relief may be divided into various subordinate
classifications: (1) Sales strictly and essentially by the tract, without reference in the negotiation or
in the consideration to any designated or estimated quantity of acres; (2) sales of the like kind, in
which, though a supposed quantity by estimation is mentioned or referred to in the contract, the
reference was made only for the purpose of description, and under such circumstances or in such
a manner as to show that the parties intended to risk the contingency of quantity, whatever it might
be, or how much so ever it might exceed or fall short of that which was mentioned in the contract;
(3) sales in which it is evident, from extraneous circumstances of locality, value, price, time, and
the conduct and conversations of the parties, that they did not contemplate or intend to risk more
than the usual rates of excess or deficit in similar cases, or than such as might reasonably be
calculated on as within the range of ordinary contingency; (4) sales which, though technically
deemed and denominated sales in gross, are in fact sales by the acre, and so understood by the
parties. Contracts belonging to either of the two first mentioned classes, whether executed or
executory, should not be modified by the chancellor when there has been no fraud. But in sales of
either the third of fourth kind, an unreasonable surplus or deficit may entitle the injured party to
equitable relief, unless he has, by his conduct, waived or forfeited his equity. . . .
The memorandum-agreement between Asiain and Jalandoni contains the phrase or "more or less." It is the
general view that this phrase or others of like import, added to a statement of quantity, can only be considered
as covering inconsiderable or small differences one way or the other, and do not in themselves determine the

character of the sale as one in gross or by the acre. The use of this phrase in designating quantity covers only
a reasonable excess or deficiency. Such words may indeed relieve from exactness but not from gross
deficiency.
The apparent conflict and discrepancies in the adjudicated cases arise not from a denial of or a failure to
recognize the general principles. These principles, as commonly agreed to, may be summarized as follows: A
vendee of land when it is sold in gross or with the description "more or less" does not thereby ipso facto take
all risk of quantity in the land. The use of "more or less" or similar words in designating quantity covers only a
reasonable excess or deficiency. Mutual mistake of the contracting parties to sale in regard to the subjectmatter of the sale which is so material as to go to the essence of the contract, is a ground for relief and
rescission. It has even been held that when the parties saw the premises and knew the boundaries it cannot
prevent relief when there was mutual gross mistake as to quantity. Innocent and mutual mistake alone are
sufficient grounds for rescission. (Bigham vs. Madison [1899], 47 L. R. A., 267) The difficulty comes from the
application of the principles in particular cases.
A practical demonstration of what has just been said is disclosed by the notes in volume 27 of Ruling Case
Law, page 439. In the following cases, relief was denied: Lawson vs. Floyd, 124 U. S., 108; 8 S. Ct., 409; 31
U. S. (L. ed.), 347 (estimated acreage about 1,000 acres; shortage 368 acres); Frederick vs. Youngblood, 19
Ala., 680; 54 Am. Dec., 209 (estimated acreage 500 acres more or less; shortage 39 acres); Jones vs. Plater,
2 Gill (Md.), 125; 41 Am. Dec., 408 (stated acreage 998 acres; shortage 55 acres); Frenche vs. State, 51 N. J.
Eq., 624; 27 Atl., 140; 40 A. S. R., 548 (stated acreage 195-98/100 be the same more or less; shortage 137/100); Faure vs.Martin, 7 N. Y., 210; 57 Am. Dec., 515 (stated acreage 96 acres more or less; deficit 10
acres); Smith vs. Evans, 6 Bin. (Pa.), 102; 6 Am. Dec., 436 (shortage of 88 acres in tract conveyed as
containing 991 1/4 acres more or less); Jollife vs. Hite, 1 Call (Va.), 301; 1 Am. Dec., 519 (stated acreage 578
acres more or less; shortage 66 acres); Pendleton vs. Stewart, 5 Call (Va.), 1;2 Am. Dec., 583 (stated acreage
1,100 acres more or less; shortage 160 acres); Nelson vs. Matthews, 2 Hen. & M. (Va.), 164; 3 Am. Dec., 620
(stated acreage 852 acres more or less; shortage of 8 acres). In the following cases relief was granted:
Harrel vs. Hill, 19 Ark., 102; 68 Am. Dec., 202 (stated acreage 180 acres more or less; deficit 84 acres);
Solinger vs. Jewett, 25 Ind., 479; 87 Am. Dec., 372 (stated acreage 121 acres more or less; deficit 36 acres);
Hays vs. Hays, 126 Ind., 92; 25 N.E., 600; 11 L. R. A., 376 (stated acreage 28.4 acres more or less; deficit 5
acres); Baltimore, etc., Land Soc. vs. Smith, 54 Md., 187; 39 Am. Rep., 374 (stated acreage about 65 acres;
deficit 30 to 35 acres); Newton vs. Tolles, 66 N. H., 136; 19 Atl., 1092; 49 A. S. R., 593; 9 L. R. A., 50 (stated
acreage about 200 acres; deficit 65 acres); Couse vs. Boyles, 4 N. J. Eq., 212; 38 Am. Dec., 212 (stated
acreage 135 acres more or less; deficit 30 acres) Belknap vs. Sealey, 14 N. Y., 143; 67 Am. Dec., 120 (stated
acreage 8 acres more or less; deficit 4 acres); Paine vs. Upton, 87 N.Y., 327; 41 Am. Rep., 371 (stated
acreage "about 222 acres be the same more or less;" shortage 18 acres); Bigham vs.Madison, 103 Tenn.,
358; 52 S. W., 1074; 47 L. R. A., 267 (stated acreage 25 acres more or less; deficit 12 acres); Smith vs. Fly, 24
Tex., 345; 76 Am. Dec., 109 (stated acreage 500 acres more or less; deficit 115 acres); Triplett vs. Allen, 26
Grat. (Va.), 721; 21 Am. Dec., 320 (stated acreage 166 acres more or less; deficit 10 acres);
Epes vs. Saunders, 109 Va., 99; 63 S. E., 428; 132 A. S. R., 904 (stated acreage 75 acres more or less; deficit
22 acres); McComb vs. Gilkeson, 110 Va., 406; 66 S. E., 77; 135 A. S. R., 944 (stated acreage 245 acres
more or less; deficit 10 acres).
A case often cited and which on examination is found to contain a most exhaustive review of the decisions, is
that of Belknap vs. Sealey ([1856], 14 N.Y. 143; 67 Am. Dec.,, 120) The facts were: "Upon the merits of the
controversy the case is quite simple in its facts. The land in question is situated in the city of Brooklyn; and
being valuable only for division and sale as city lots, its valuable only for division and sale as city lots, its value
is precisely in proportion to the quantity. In consideration of the gross sum of fourteen thousand dollars, of
which one thousand dollars was paid down, the defendant agreed to convey the land to the plaintiff, describing
it as "the premises conveyed to him by Samuel T. Roberts," by deed dated about nine months previous. The
deed of Roberts contained a definite description by meters and bounds, and stated the quantity to be "about
nine acres, more or less," excepting a certain parcel of one acre and six perches. The quantity in fact is only
about half as much as the deed asserted. The plaintiff, in agreeing to purchase the tract at the sum named,
acted under a mistake which affected the price nearly one half, and the judge has found that the seller was
mistaken also. . . . The Judge has found that the actual quantity was substantially and essentially less than the
plaintiff supposed he was purchasing; and although the finding does not so state in terms, there can be no
difficulty, I think, in affirming that if the true quantity had been known, the contract would not have been made.
The agreement has never been consummated by a conveyance. These are the only essential facts in the
case." The learned Judge remarked: "The counsel for the defendant is obliged to contend, and he does not
contend, that mere mistake as to the quantity of land affords no ground of relief against a contract in the terms

of the present one, however serious such mistake may be, and although we can readily see the contract would
never have been made if the quantity had been made known. The convenience of such a rule has been
insisted on, and in the denial of justice it certainly has the merit of simplicity. If the doctrine is true as broadly
as stated, then there is one class of contracts to which the settled maxim that equity will relieve against
mistake can have no application. Upon a careful examination of the cases cited, as well as upon principle, my
conclusion is, that agreements of this description are not necessarily proof against the maxims which apply to
all others." Then follows a review of the cases not alone of the state of New York and other states in the
America Union but of England as well. The rule was announced that equity will rescind a contract for the sale
of land for mutual mistake as to the quantity of land which the boundaries given in the contract contained,
where the deficiency is material. "More or less," used in the contract in connection with the statement of the
quantity, will not prevent the granting of such relief.
Coordinating more closely the law and the facts in the instant case, we reach the following conclusions: This
was not a contract of hazard. It was a sale in gross in which there was a mutual mistake as to the quantity of
land sold and as to the amount of the standing crop. The mistake of fact as disclosed not alone by the terms of
the contract but by the attendant circumstances, which it is proper to consider in order to throw light upon the
intention of the parties, is, as it is sometimes expressed, the efficient cause of the concoction. The mistake
with reference to the subject-matter of the contract is such that, at the option of the purchaser, it is rescindable.
Without such mistake the agreement would not have been made and since this is true, the agreement is
inoperative and void. It is not exactly a case of over reaching on the plaintiff's part, or of misrepresentation and
deception, or of fraud, but is more nearly akin to a bilateral mistake for which relief should be granted. Specific
performance of the contract can therefore not be allowed at the instance of the vendor.
The ultimate result is to put the parties back in exactly their respective positions before they became involved
in the negotiations and before accomplishment of the agreement. This was the decision of the trial judge and
we think that decision conforms to the facts, the law, and the principles of equity.
Judgment is affirmed, without prejudice to the right of the plaintiff to establish in this action in the lower court
the amount of the rent of the land pursuant to the terms of the complaint during the time the land was in the
possession of the defendant, and to obtain judgment against the defendant for that amount, with costs against
the appellant. So ordered.

Branch 6, in Civil Case No. 4240 which declared, inter alia, the questioned Deed of Donation Inter Vivos valid
and binding on the parties.
The undisputed facts reveal that on December 10, 1973, Filomena Almirol de Sevilla died intestate
leaving 8 children, namely: William, Peter, Leopoldo, Felipe, Rosa, Maria, Luzvilla, and Jimmy, all surnamed
Sevilla. William, Jimmy and Maria are now deceased and are survived by their respective spouses and
children.[4] Filomena Almirol de Sevilla left the following properties:
PARCEL I:
A parcel of land known as Lot No. 653 situated at General Luna St., Dipolog City, with an area of about 804
square meters, more or less, duly covered by Transfer Certificate of Title No. (T-6671)-1448 [in the name of
Filomena Almirol de Sevilla, Honorata Almirol and Felisa Almirol] and assessed at P31,360.00 according to
Tax Dec. No. 018-947;
PARCEL II:
A parcel of land known as Lot No. 3805-B situated at Olingan, Dipolog City, with an area of about 18,934
square meters, more or less, duly covered by Transfer Certificate of Title No. T-6672 and assessed at P5,890
according to Tax Dec. No. 009-761;
PARCEL III:
A parcel of land known as Lot No. 837-1/4 situated at Magsaysay Street, Dipolog City, with an area of about
880 square meters more or less, duly covered by Original Certificate of Title No. 0-6064 and assessed at
P12,870.00 according to Tax Dec. No. 020-1078;
PARCEL IV:
A parcel of residential land known as Lot No. 1106-B-3 situated at Sta. Filomena, Dipolog City, with an area of
300 square meters, more or less, assessed at P3,150.00 according to Tax Dec. No. 006-317;

[G.R. No. 150179. April 30, 2003]


HEIRS OF WILLIAM SEVILLA, NAMELY: WILFREDO SEVILLA, WILSON SEVILLA, WILMA SEVILLA,
WILLINGTON SEVILLA, AND WILLIAM SEVILLA, JR., HEIRS OF MARIA SEVILLA, NAMELY:
AMADOR SEVILLA, JENO CORTES, VICTOR CORTES, MARICEL CORTES,
ALELEI* CORTES AND ANJEI** CORTES, petitioners, vs. LEOPOLDO SEVILLA, PETER
SEVILLA, AND LUZVILLA SEVILLA, respondents.
DECISION
YNARES-SANTIAGO, J.:
One who alleges defect or lack of valid consent to a contract by reason of fraud or undue influence
must establish by full, clear and convincing evidence such specific acts that vitiated a partys consent,
otherwise, the latters presumed consent to the contract prevails. [1]
The instant petition for review seeks to set aside the September 26, 2000 Decision [2] of the Court of
Appeals in CA-G.R. CV No. 48956, affirming in toto the Decision[3] of the Regional Trial Court of Dipolog City,

Commercial building erected on Parcel I above-described; and residential building erected just at the back of
the commercial building above-described and erected on Parcel I above-described; [5]
Parcel I, Lot No. 653, is the paraphernal property of Filomena Almirol de Sevilla which she co-owned
with her sisters, Honorata Almirol and Felisa Almirol, [6] who were both single and without issue. Parcels II, II
and IV are conjugal properties of Filomena Almirol de Sevilla and her late husband Andres Sevilla. [7] When
Honorata died in 1982, her 1/3 undivided share in Lot No. 653 was transmitted to her heirs, Felisa Almirol and
the heirs of Filomena Almirol de Sevilla, who thereby acquired the property in the proportion of one-half share
each.
During the lifetime of Felisa and Honorata Almirol, they lived in the house of Filomena Almirol de
Sevilla, together with their nephew, respondent Leopoldo Sevilla and his family. Leopoldo attended to the
needs of his mother, Filomena, and his two aunts, Honorata and Felisa. [8]
Felisa died on July 6, 1988. [9] Previous thereto, on November 25, 1985, she executed a last will and
testament devising her 1/2 share in Lot No. 653 to the spouses Leopoldo Sevilla and Belen Leyson. [10] On
August 8, 1986, Felisa executed another document denominated as Donation Inter Vivos ceding to Leopoldo
Sevilla her 1/2 undivided share in Lot No. 653, which was accepted by Leopoldo in the same document. [11]
On September 3, 1986, Felisa Almirol and Peter Sevilla, in his own behalf and in behalf of the heirs of
Filomena Almirol de Sevilla, executed a Deed of Extra-judicial Partition, identifying and adjudicating the 1/3
share of Honorata Almirol to the heirs of Filomena Almirol de Sevilla and to Felisa Almirol. [12]

Thereafter, respondents Leopoldo, Peter and Luzvilla Sevilla obtained the cancellation of Transfer
Certificate of Title No. (T-6671)-1448, over Lot No. 653, and the issuance of the corresponding titles to Felisa
Almirol and the heirs of Filomena Almirol de Sevilla. However, the requested titles for Lot Nos. 653-A and 653B, were left unsigned by the Register of Deeds of Dipolog City, pending submission by Peter Sevilla of a
Special Power of Attorney authorizing him to represent the other heirs of Filomena Almirol de Sevilla. [13]
On June 21, 1990, Felipe Sevilla, Rosa Sevilla, and the heirs of William, Jimmy and Maria, all
surnamed Sevilla, filed the instant case against respondents Leopoldo Sevilla, Peter Sevilla and Luzvilla
Sevilla, for annulment of the Deed of Donation and the Deed of Extrajudicial Partition, Accounting, Damages,
with prayer for Receivership and for Partition of the properties of the late Filomena Almirol de Sevilla. [14] They
alleged that the Deed of Donation is tainted with fraud because Felisa Almirol, who was then 81 years of age,
was seriously ill and of unsound mind at the time of the execution thereof; and that the Deed of Extra-judicial
Partition is void because it was executed without their knowledge and consent. [15]
In their answer,[16] respondents denied that there was fraud or undue pressure in the execution of the
questioned documents. They alleged that Felisa was of sound mind at the time of the execution of the
assailed deeds and that she freely and voluntarily ceded her undivided share in Lot No. 653 in consideration of
Leopoldos and his familys love, affection, and services rendered in the past. Respondents further prayed that
Parcels II, III, and IV be partitioned among the heirs of Filomena Almirol de Sevilla in accordance with the law
on intestate succession.
On December 16, 1994, a decision was rendered by the Regional Trial Court of Dipolog City,
Zamboanga del Norte, Branch 6, upholding the validity of the Deed of Donation and declaring the Deed of
Extra-judicial Partition unenforceable. The dispositive portion thereof, reads:
WHEREFORE, IN VIEW OF THE FOREGOING, summing up the evidence for both the plaintiffs and the
defendants, the Court hereby renders judgment:
1)
Declaring the questioned Deed of Donation Inter Vivos valid and binding, and, therefore, has the full
force and effect of law;
2)
Declaring the questioned Deed of Extra-Judicial Partition as unenforceable as yet as against the other
heirs, as it lacks the legal requisites of Special Power of Attorney or any other appropriate instrument to be
executed by the other heirs who were not made parties thereto;
3)
Finding the parties herein entitled to the partition of Parcel II, III, IV as designated in the Complaint, in
equal shares, and, as to Lot No. 653 designated as Parcel I, it shall be divided equally into two, between
defendant Leopoldo Sevilla on one hand, and, collectively, the Heirs of William Sevilla, Heirs of Jimmy Sevilla,
Heirs of Maria Sevilla, Felipe Sevilla, Leopoldo Sevilla, Peter Sevilla, Luzvilla Sevilla-Tan, on the other hand,
as well as the two buildings thereon in proportionate values;
4)
Directing the parties, if they can agree, to submit herewith a project of partition, which shall designate the
share which pertains to the heirs entitled thereto, that is, the particular and specific portions of the properties
subject of the partition;
5)
Directing defendant Peter Sevilla to pay and/or collect from the parties the amounts corresponding to
each one entitled or liable thereto, as recorded in the Statement of Accounts, except for defendant Leopoldo
Sevilla who is found by the Court to have incurred only an overdraft of P5,742.98 and not P33,204.33 as
earlier computed therein.
6)
Dismissing the plaintiffs claim for damages, which is not proved with sufficient evidence, and
defendants counterclaim, on the same ground.
7)

With costs de oficio.

IT IS SO ORDERED.[17]
Both parties appealed to the Court of Appeals. Petitioners contended that the Deed of Donation should
be declared void and that Lot No. 653 should be divided equally among them. Respondents, on the other
hand, posited that the trial court erred in declaring the Deed of Extra-judicial Partition unenforceable against
the other heirs of Filomena Almirol de Sevilla who were not parties to said Deed.

[18]

On September 26, 2000, the Court of Appeals affirmed in toto the assailed decision of the trial court.
Petitioners filed a motion for reconsideration but the same was denied on August 30, 2001. [19]
Hence, the instant petition based on the following assignment of errors:

THAT THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING AS VOID AB INITIO THE
DEED OF DONATION EXCUTED BY FELISA ALMIROL IN FAVOR OF RESPONDENT LEOPOLDO SEVILLA
CEDING TO HIM ONE HALF PORTION OF LOT 653, DIPOLOG CADASTRE, IT HAVING BEEN EXECUTED
WITH FRAUD, UNDUE PRESSURE AND INFLUENCE;
THAT THE APPELLATE COURT GREATLY ERRED IN NOT ORDERING THE PARTITION OF LOT 653,
DIPOLOG CADASTRE EQUALLY AMONG THE EIGHT (8) HEIRS OF FILOMENA, HONORATA AND
FELISA, ALL SURNAMED ALMIROL.[20]
To resolve the issue raised in the instant petition for review, the validity of the donation inter
vivos executed by Felisa Almirol in favor of Leopoldo Sevilla must first be determined.
Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another who accepts it.[21] Under Article 737 of the Civil Code, the donors capacity shall be determined as of
the time of the making of the donation. Like any other contract, an agreement of the parties is essential,
[22]
and the attendance of a vice of consent renders the donation voidable. [23]
In the case at bar, there is no question that at the time Felisa Almirol executed the deed of donation she
was already the owner of 1/2 undivided portion of Lot No. 653. Her 1/3 undivided share therein was increased
by 1/2 when she and Filomena inherited the 1/3 share of their sister Honorata after the latters death. Hence,
the 1/2 undivided share of Felisa in Lot No. 653 is considered a present property which she can validly
dispose of at the time of the execution of the deed of donation. [24]
Petitioners, however, insist that respondent Leopoldo Sevilla employed fraud and undue influence on
the person of the donor. This argument involves appreciation of the evidence. [25]The settled rule is that factual
findings of the trial court, if affirmed by the Court of Appeals, are entitled to great respect. [26] There are
exceptional circumstances when findings of fact of lower courts may be set aside [27] but none is present in the
case at bar. Indeed, neither fraud nor undue influence can be inferred from the following circumstance alleged
by the petitioners, to wit
A.
That Felisa Almirol lived with respondent Leopoldo Sevilla in the residential house owned by petitioners
and respondents;
B.
That the old woman Felisa Almirol was being supported out of the rentals derived from the building
constructed on the land which was a common fund.
C.
That when Felisa Almirol was already 82 years old, he [Leopoldo Sevilla] accompanied her in the Office
of Atty. Vic T. Lacaya, Sr., for the purpose of executing her last will and testament
D.
That in the last will and testament executed by Felisa Almirol, she had devised in favor of respondent
Leopoldo Sevilla one-half of the land in question;

E.
That respondent Leopoldo Sevilla not contented with the execution by Felisa Almirol of her last will and
testament, had consulted a lawyer as to how he will be able to own the land immediately;
F.
That upon the advice of Atty. Helen Angeles, Clerk of Court of the Regional Trial Court of Zamboanga del
Norte, Dipolog City, Felisa Almirol executed a Deed of Donation, hence, the questioned Deed of Donation
executed in his favor;
G.
That the subject matter of the Deed of Donation was the one-half portion of Lot 653, Dipolog Cadastre,
which was willed by Felisa Almirol, in favor of respondent Leopoldo Sevilla in her last will and testament;
H.
That at the time of the execution of the Deed of Donation, Lot No. 653, Dipolog Cadastre, was not yet
partitioned between petitioners and respondents they being heirs of the late Filomena and Honorata, all
surnamed Almirol;
I.
That after the execution of the Deed of Donation, respondent Peter Sevilla and the late Felisa Almirol
were the only ones who executed the Deed of Extra-judicial Partition over Lot 653, Dipolog Cadastre, the
petitioners were not made parties in the said Deed of Extrajudicial Partition;
J.
That on the basis of the Deed of Extrajudicial Partition and Deed of Donation, respondent Leopoldo
Sevilla caused the subdivision survey of Lot 653, Dipolog Cadastre, dividing the same into two (2) lots,
adjudicating one-half of the lot in his favor and the other half in favor of respondents peter Sevilla and Luzvilla
Sevilla, and to respondent Leopoldo Sevilla himself;
K.
That only two persons knew the actual survey of the land, petitioner Felipe Sevilla and respondent
Leopoldo Sevilla himself, the rest of the co-owners were not even notified;
L.
That on the basis of the Extrajudicial Partition, Deed of Donation, the approved subdivision plan,
respondent Leopoldo Sevilla filed a petition for issuance of the corresponding titles for the two lots, but the
Register of Deeds of Dipolog City refused to issue the corresponding titles for the two lots to respondent
Leopoldo Sevilla so that up to this moment the two tiles were left unsigned by the Register of Deeds. [28]
There is fraud when, through the insidious words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without them, he would not have agreed to. [29] There is undue
influence when a person takes improper advantage of his power over the will of another, depriving the latter of
a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family,
spiritual and other relations between the parties, or the fact that the person alleged to have been unduly
influenced was suffering from mental weakness, or was ignorant or in financial distress. [30]

Clearly, therefore, the courts below did not err in sustaining the validity of the deed of donation.
Anent the Deed of Extra-judicial Partition, we find that the same is void ab initio and not merely
unenforceable. In Delos Reyes v. Court of Appeals,[34] which is a case involving the sale of a lot by a person
who is neither the owner nor the legal representative, we declared the contract void ab initio. It was held that
one of the requisites of a valid contract under Article 1318 of the Civil Code is the consent and the capacity to
give consent of the parties to the contract. The legal capacity of the parties is an essential element for the
existence of the contract because it is an indispensable condition for the existence of consent. There is no
effective consent in law without the capacity to give such consent. In other words, legal consent presupposes
capacity. Thus, there is said to be no consent, and consequently, no contract when the agreement is entered
into by one in behalf of another who has never given him authorization therefor unless he has by law a right to
represent the latter.[35]
In the case at bar, at the time Felisa executed the deed of extra-judicial partition dividing the share of
her deceased sister Honarata between her and the heirs of Filomena Almirol de Sevilla, she was no longer the
owner of the 1/2 undivided portion of Lot No. 653, having previously donated the same to respondent
Leopoldo Sevilla who accepted the donation in the same deed. A donation inter vivos, as in the instant case,
is immediately operative and final. [36] As a mode of acquiring ownership, it results in an effective transfer of
title over the property from the donor to the donee and the donation is perfected from the moment the donor
knows of the acceptance by the donee. And once a donation is accepted, the donee becomes the absolute
owner of the property donated.
Evidently, Felisa did not possess the capacity to give consent to or execute the deed of partition
inasmuch as she was neither the owner nor the authorized representative of respondent Leopoldo to whom
she previously transmitted ownership of her undivided share in Lot No. 653. Considering that she had no
legal capacity to give consent to the deed of partition, it follows that there is no consent given to the execution
of the deed, and therefore, there is no contract to speak of. As such, the deed of partition is void ab
initio, hence, not susceptible of ratification.
Nevertheless, the nullity of the deed of extra-judicial partition will not affect the validity of the
donation inter vivos ceding to respondent Leopoldo Sevilla the 1/2 undivided share of Felisa Almirol in Lot No.
653. Said lot should therefore be divided as follows: 1/2 shall go to respondent Leopoldo Sevilla by virtue of
the deed of donation, while the other half shall be divided equally among the heirs of Filomena Almirol de
Sevilla including Leopoldo Sevilla, following the rules on intestate succession.
Finally, we note that the name of Rosa Sevilla, daughter of Filomena Almirol de Sevilla, and one of the
plaintiffs herein, was omitted in the dispositive portion of the trial courts decision. [37] Her name should therefore
be included in the dispositive portion as one of the heirs entitled to share in the properties of the late Filomena
Almirol de Sevilla.

Ei incumbit probatio qui dicit, non qui negat. He who asserts, not he who denies, must prove. We have
consistently applied the ancient rule that if the plaintiff, upon whom rests the burden of proving his cause of
action, fails to show in a satisfactory manner facts on which he bases his claim, the defendant is under no
obligation to prove his exception or defense.[31] In the instant case, the self-serving testimony of the petitioners
are vague on what acts of Leopoldo Sevilla constituted fraud and undue influence and on how these acts
vitiated the consent of Felisa Almirol. Fraud and undue influence that vitiated a partys consent must be
established by full, clear and convincing evidence, otherwise, the latters presumed consent to the contract
prevails.[32] Neither does the fact that the donation preceded the partition constitute fraud. It is not necessary
that partition should first be had because what was donated to Leopoldo was the 1/2 undivided share of Felisa
in Lot No. 653.

WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals in CA-G.R. CV No.
48956, affirming in toto the Decision of the Regional Trial Court of Dipolog City, Branch 6, in Civil Case No.
4240, is AFFIRMED with MODIFICATION. The Deed of Extra-judicial Partition dated September 3, 1986 is
declared void, and the name of Rosa Sevilla is ordered included in the dispositive portion of the trial courts
judgment.

Moreover, petitioners failed to show proof why Felisa should be held incapable of exercising sufficient
judgment in ceding her share to respondent Leopoldo. [33] As testified by the notary public who notarized the
Deed of Donation, Felisa confirmed to him her intention to donate her share in Lot No. 653 to Leopoldo. He
stressed that though the donor was old, she was of sound mind and could talk sensibly. Significantly, there is
nothing in the record that discloses even an attempt by petitioners to rebut said declaration of the notary
public.

DOMETILA M. ANDRES, doing business under the name and style "IRENE'S WEARING
APPAREL,"petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS, respondents.

SO ORDERED.
G.R. No. 82670 September 15, 1989

Roque A. Tamayo for petitioner.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

equivalent in Philippine currency, with interests at the legal rate from the filing of the
complaint on May 12, 1982 until the whole amount is fully paid, plus twenty percent
(20%) of the amount due as attomey's fees; and to pay the costs.
With costs against defendant-appellee.

CORTES, J.:
Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which, applying the
doctrine of solutio indebiti, reversed the decision of the Regional Trial Court, Branch CV, Quezon City by
deciding in favor of private respondent.
Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of ladies
garments, children's wear, men's apparel and linens for local and foreign buyers. Among its foreign buyers
was Facets Funwear, Inc. (hereinafter referred to as FACETS) of the United States.
In the course of the business transaction between the two, FACETS from time to time remitted certain
amounts of money to petitioner in payment for the items it had purchased. Sometime in August 1980, FACETS
instructed the First National State Bank of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to as
FNSB) to transfer $10,000.00 to petitioner via Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter
referred to as PNB).
Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust Corporation
to effect the above- mentioned transfer through its facilities and to charge the amount to the account of FNSB
with private respondent. Although private respondent was able to send a telex to PNB to pay petitioner
$10,000.00 through the Pilipinas Bank, where petitioner had an account, the payment was not effected
immediately because the payee designated in the telex was only "Wearing Apparel." Upon query by PNB,
private respondent sent PNB another telex dated August 27, 1980 stating that the payment was to be made to
"Irene's Wearing Apparel." On August 28, 1980, petitioner received the remittance of $10,000.00 through
Demand Draft No. 225654 of the PNB.
Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to petitioner,
FACETS informed FNSB about the situation. On September 8, 1980, unaware that petitioner had already
received the remittance, FACETS informed private respondent about the delay and at the same time amended
its instruction by asking it to effect the payment through the Philippine Commercial and Industrial Bank
(hereinafter referred to as PCIB) instead of PNB.
Accordingly, private respondent, which was also unaware that petitioner had already received the remittance
of $10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on September 11, 1980,
petitioner received a second $10,000.00 remittance.
Private respondent debited the account of FNSB for the second $10,000.00 remittance effected through PCIB.
However, when FNSB discovered that private respondent had made a duplication of the remittance, it asked
for a recredit of its account in the amount of $10,000.00. Private respondent complied with the request.
Private respondent asked petitioner for the return of the second remittance of $10,000.00 but the latter refused
to pay. On May 12, 1982 a complaint was filed with the Regional Trial Court, Branch CV, Quezon City which
was decided in favor of petitioner as defendant. The trial court ruled that Art. 2154 of the New Civil Code is not
applicable to the case because the second remittance was made not by mistake but by negligence and
petitioner was not unjustly enriched by virtue thereof [Record, p. 234]. On appeal, the Court of Appeals held
that Art. 2154 is applicable and reversed the RTC decision. The dispositive portion of the Court of Appeals'
decision reads as follows:
WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and
another one entered in favor of plaintiff-appellant and against defendant-appellee
Domelita (sic) M. Andres, doing business under the name and style "Irene's Wearing
Apparel" to reimburse and/or return to plaintiff-appellant the amount of $10,000.00, its

SO ORDERED. [Rollo, pp. 29-30.]


Thereafter, this petition was filed. The sole issue in this case is whether or not the private respondent has the
right to recover the second $10,000.00 remittance it had delivered to petitioner. The resolution of this issue
would hinge on the applicability of Art. 2154 of the New Civil Code which provides that:
Art. 2154. If something received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:
Art. 1895. If a thing is received when there was no right to claim it and which, through
an error, has been unduly delivered, an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo explained the nature
of this article thus:
Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable.
This legal provision, which determines the quasi-contract of solution indebiti, is one of
the concrete manifestations of the ancient principle that no one shall enrich himself
unjustly at the expense of another. In the Roman Law Digest the maxim was
formulated thus: "Jure naturae acquum est, neminem cum alterius detrimento et injuria
fieri locupletiorem." And the Partidas declared: "Ninguno non deue enriquecerse
tortizeramente con dano de otro." Such axiom has grown through the centuries in
legislation, in the science of law and in court decisions. The lawmaker has found it one
of the helpful guides in framing statutes and codes. Thus, it is unfolded in many articles
scattered in the Spanish Civil Code. (See for example, articles, 360, 361, 464, 647,
648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This timehonored aphorism has also been adopted by jurists in their study of the conflict of
rights. It has been accepted by the courts, which have not hesitated to apply it when
the exigencies of right and equity demanded its assertion. It is a part of that affluent
reservoir of justice upon which judicial discretion draws whenever the statutory laws
are inadequate because they do not speak or do so with a confused voice. [at p. 632.]
For this article to apply the following requisites must concur: "(1) that he who paid was not under obligation to
do so; and, (2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. Piccio, 110
Phil. 558, 563 (1960)].
It is undisputed that private respondent delivered the second $10,000.00 remittance. However, petitioner
contends that the doctrine of solutio indebiti, does not apply because its requisites are absent.
First, it is argued that petitioner had the right to demand and therefore to retain the second $10,000.00
remittance. It is alleged that even after the two $10,000.00 remittances are credited to petitioner's receivables
from FACETS, the latter allegedly still had a balance of $49,324.00. Hence, it is argued that the last
$10,000.00 remittance being in payment of a pre-existing debt, petitioner was not thereby unjustly enriched.
The contention is without merit.

The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS. It was
the latter and not private respondent which was indebted to petitioner. On the other hand, the contract for the
transmittal of dollars from the United States to petitioner was entered into by private respondent with FNSB.
Petitioner, although named as the payee was not privy to the contract of remittance of dollars. Neither was
private respondent a party to the contract of sale between petitioner and FACETS. There being no contractual
relation between them, petitioner has no right to apply the second $10,000.00 remittance delivered by mistake
by private respondent to the outstanding account of FACETS.

The rule is that principles of equity cannot be applied if there is a provision of law specifically applicable to a
case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA 433; Zabat, Jr. v.
Court of Appeals, G.R. No. L36958, July 10, 1986, 142 SCRA 587; Rural Bank of Paranaque, Inc. v.
Remolado, G.R. No. 62051, March 18, 1985, 135 SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the
Court in the case of De Garcia v. Court of Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129,
citing Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965, 13 SCRA 486, held:
... The common law principle that where one of two innocent persons must suffer by a
fraud perpetrated by another, the law imposes the loss upon the party who, by his
misplaced confidence, has enabled the fraud to be committed, cannot be applied in a
case which is covered by an express provision of the new Civil Code, specifically
Article 559. Between a common law principle and a statutory provision, the latter must
prevail in this jurisdiction. [at p. 135.]

Petitioner next contends that the payment by respondent bank of the second $10,000.00 remittance was not
made by mistake but was the result of negligence of its employees. In connection with this the Court of
Appeals made the following finding of facts:
The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the
written interrogatories sent to the First National State Bank of New Jersey through the
Consulate General of the Philippines in New York, Adelaide C. Schachel, the
investigation and reconciliation clerk in the said bank testified that a request to remit a
payment for Facet Funwear Inc. was made in August, 1980. The total amount which
the First National State Bank of New Jersey actually requested the plaintiff-appellant
Manufacturers Hanover & Trust Corporation to remit to Irene's Wearing Apparel was
US $10,000.00. Only one remittance was requested by First National State Bank of
New Jersey as per instruction of Facets Funwear (Exhibit "J", pp. 4-5).
That there was a mistake in the second remittance of US $10,000.00 is borne out by
the fact that both remittances have the same reference invoice number which is 263
80. (Exhibits "A-1- Deposition of Mr. Stanley Panasow" and "A-2-Deposition of Mr.
Stanley Panasow").

Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti, applies in the
case at bar, the Court must reject the common law principle invoked by petitioner.
Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact that from the time
the second $10,000.00 remittance was made, five hundred and ten days had elapsed before private
respondent demanded the return thereof. Needless to say, private respondent instituted the complaint for
recovery of the second $10,000.00 remittance well within the six years prescriptive period for actions based
upon a quasi-contract [Art. 1145 of the New Civil Code].
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby AFFIRMED.
SO ORDERED.

Plaintiff-appellant made the second remittance on the wrong assumption that


defendant-appellee did not receive the first remittance of US $10,000.00. [Rollo, pp.
26-27.]
It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts which petitioner
would have this Court review. The Court holds that the finding by the Court of Appeals that the second
$10,000.00 remittance was made by mistake, being based on substantial evidence, is final and conclusive.
The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the
Revised Rules of Court has been stated in Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA
138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for
certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme
Court in cases brought to it from the Court of Appeals is limited to reviewing and
revising the errors of law imputed to it, its findings of fact being conclusive" [Chan v.
Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long
line of decisions]. This Court has emphatically declared that "it is not the function of the
Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being
limited to reviewing errors of law that might have been committed by the lower court"
[Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v.
Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court
of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring, therefore,
a showing that the findings complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute serious abuse of discretion, such
findings must stand, for this Court is not expected or required to examine or contrast
the oral and documentary evidence submitted by the parties" [Santa Ana, Jr. v.
Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 9731. [at pp. 144-145.]
Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the wrongful
act of a third person, the loss must be borne by the one whose negligence was the proximate cause of the
loss.

[G.R. No. 126013. February 12, 1997]


SPOUSES HEINZRICH THEIS AND BETTY THEIS, petitioners, vs.HONORABLE COURT OF APPEALS,
HONORABLE ELEUTERIO GUERRERO, ACTING PRESIDING JUDGE, BRANCH XVIII,
REGIONAL
TRIAL
COURT,
TAGAYTAY
CITY,
CALSONS
DEVELOPMENT
CORPORATION, respondents.
DECISION
HERMOSISIMA, JR., J.:
In the instant petition, we shall have the occasion to apply the concept of mistake in the annulment of
contracts.
Private respondent Calsons Development Corporation is the owner of three (3) adjacent parcels of land
covered by Transfer Certificate of Title (TCT) Nos. 15515 (parcel no. 1 in the location map), 15516 (parcel no.
2) and 15684 (parcel no. 3), with the area of 1,000 square meters, 226 square meters and 1,000 square
meters, respectively. All three parcels of land are situated along Ligaya Drive, Barangay Francisco, Tagaytay
City. Adjacent to parcel no. 3, which is the lot covered by TCT No. 15684, is a vacant lot denominated as
parcel no. 4.
In 1985, private respondent constructed a two-storey house on parcel no. 3. The lots covered by TCT
No. 15515 and TCT No. 15516, which are parcel no. 1 and parcel no. 2, respectively, remained idle.
However, in a survey conducted in 1985, parcel no. 3, where the two-storey house stands, was
erroneously indicated to be covered not by TCT No. 15684 but by TCT No. 15515, while the two idle lands

(parcel nos. 1 and 2) were mistakenly surveyed to be located on parcel no. 4 instead (which was not owned by
private respondent) and covered by TCT Nos. 15516 and 15684.

"Meeting head-on the issue of alleged mistake in the object of the same, defendants in their answer averred
that they relied on the technical descriptions of TCT Nos. 15516 and 15684 appearing in the deed of sale x x x

On October 26, 1987, unaware of the mistake by which private respondent appeared to be the owner of
parcel no. 4 as indicated in the erroneous survey, and based on the erroneous information given by the
surveyor that parcel no. 4 is covered by TCT No. 15516 and 15684, private respondent, through its authorized
representative, one Atty. Tarcisio S. Calilung, sold said parcel no. 4 to petitioners.

A resolution of the conflicting claims of the parties to the instant controversy calls for an inquiry on their real
intent relative to the identity of the parcels which plaintiff intended to sell to defendants and which the latter in
turn, intended to buy from the former. For, the Court cannot ignore the dictates of logic and common sense
which, ordinarily, could not push a person to sell to another, a property which the former does not own in the
first place, for fear of adverse consequences. The vendee, following the same reasoning, would not buy a
thing unless he is totally certain that the seller is the real owner of the thing offered for sale. It is equally true
that when one sells or buys a real property, he either sells or buys the property as he sees it, in its actual
setting and by its physical metes and bounds, and not be the mere lot number assigned to the same property
in the certificate of title or in any document. And, when a buyer of real property decides to purchase from his
seller, he is ordinarily bound by prudence to ascertain the true nature, identity or character of the property that
he intends to buy and ascertain the title of his vendor before he parts with his money. It is quite obvious that
the foregoing precepts and precautions were observed by the parties in the case at bar as there is no question
at all that the sale in question was consummated through the initiative of Mrs. Gloria Contreras and then ViceMayor Benjamin Erni x x x both brokers of the sale who, after a chance meeting with defendants at the Taal
Vista Lodge Hotel prior to the sale of plaintiff's parcels, brought defendants to the vicinity where plaintiff's three
(3) adjacent parcels of land are located and pointed to defendants the two (2) vacant parcels right beside
plaintiff's house. It is also undisputed that when defendants intimated to the brokers their desire to buy the
vacant lots pointed to them when they visited the same place, they were brought to plaintiff's representative,
Tarcisio S. Calilung, at the latter's office in Makati where the parties discussed the terms of the sale.

Upon execution of the Deed of Sale, private respondent delivered TCT Nos. 15516 and 15684 to
petitioners who, on October 28, 1987, immediately registered the same with the Registry of Deeds of Tagaytay
City. Thus, TCT Nos. 17041 and 17042 in the names of the petitioners were issued.
Indicated on the Deed of Sale as purchase price was the amount of P130,000.00. The actual price
agreed upon and paid, however, was P486,000.00. This amount was not immediately paid to private
respondent; rather, it was deposited in escrow in an interest-bearing account in its favor with the United
Coconut Planters Bank in Makati City. TheP486,000.00 in escrow was released to, and received by, private
respondent on December 4, 1987.
Thereafter, petitioners did not immediately occupy and take possession of the two (2) idle parcels of
land purchased from private respondent. Instead, petitioners went to Germany.
In the early part of 1990, petitioners returned to the Philippines. When they went to Tagaytay to look
over the vacant lots and to plan the construction of their house thereon, they discovered that parcel no. 4 was
owned by another person. They also discovered that the lots actually sold to them were parcel nos. 2 and 3
covered by TCT Nos. 15516 and 15684, respectively. Parcel no. 3, however, could not have been sold to the
petitioners by the private respondents as a two-storey house, the construction cost of which far exceeded the
price paid by the petitioners, had already been built thereon even prior to the execution of the contract
between the disputing parties.

The Court notes further from the records that defendants' desire to buy vacant lots from plaintiff is not only
confirmed by the testimony of Gloria Contreras and the ocular inspection conducted by the court but by
defendant Betty Theis herself when the latter testified as follows:
'COURT:
Q. Why, what was the lot that you intended to buy?

Petitioners insisted that they wanted parcel no. 4, which is the idle lot adjacent to parcel no. 3, and
persisted in claiming that it was parcel no. 4 that private respondent sold to them. However, private respondent
could not have possibly sold the same to them for it did not own parcel no. 4 in the first place.
The mistake in the identity of the lots is traceable to the erroneous survey conducted in 1985.
To remedy the mistake, private respondent offered parcel nos. 1 and 2 covered by TCT Nos. 15515 and
15516, respectively, as these two were precisely the two vacant lots which private respondent owned and
intended to sell when it entered into the transaction with petitioners. Petitioners adamantly rejected the good
faith offer. They refused to yield to reason and insisted on taking parcel no. 3, covered by TCT No. 155864 and
upon which a two-storey house stands, in addition to parcel no. 2, covered by TCT No. 15516, on the ground
that these TCTs have already been cancelled and new ones issued in their name.

A. The right side of the house, Your Honor.' (TSN of November 8, 1991, page 19)
Similarly, in answer to a question propounded to the same defendant by their counsel, she
stated that
'ATTY. ROSALES:
Q. In other words, the titles delivered to you were not the titles covering the right side of
the house?
A. No, sir.' (Ibid., page 20)

Such refusal of petitioners prompted private respondent to make another offer, this time, the return of
an amount double the price paid by petitioners. Petitioners still refused and stubbornly insisted in their stand.
Private respondent was then compelled to file an action for annulment of deed of sale and
reconveyance of the properties subject thereof [1] in the Regional Trial Court.[2]
The trial court rendered judgment in favor of private respondent. Identifying the core issue in the instant
controversy to be the voidability of the contract of sale between petitioners and private respondent on the
ground of mistake, the trial court annulled said contract of sale after finding that there was indeed a mistake in
the identification of the parcels of land intended to be the subject matter of said sale. The trial court
ratiocinated:

It is relevant to mention that when the defendants attempted to take possession of the parcels of land they
bought from the plaintiff on which they intended to construct their house after their return from a foreign
sojourn, they admittedly wanted to take that vacant area, which as herein shown, turns out to be a property not
owned by plaintiff. From this act of the defendants, a clear meaning is shown. Defendants themselves, knew
right from the beginning that what they intended to buy was that vacant lot, not the lot where plaintiff's house
stands, covered by TCT No. 15684 which was wrongly mentioned as one of the objects of the sale. x x x
The fact that the Deed of Sale subsequently executed by plaintiff and the defendants on October 27, 1987
covers the parcel of land where plaintiff's two-storey house was constructed will clearly reflect a situation that
is totally different from what defendants had intended to buy from the plaintiff viz-a-viz [sic] the latter's intention
to sell its two (2) vacant lots to defendants. Notwithstanding defendants' claim that it was not possible for
plaintiff's representative not to be familiar with its properties, the acts and circumstances established in this

case would clearly show, and this Court is convinced, that the inclusion of the parcel where plaintiff's house is
constructed is solely attributable to a mistake in the object of the sale between the parties. This mistake,
obviously, was made, on the part of plaintiff's representative when the latter mistook the vacant lot situated on
the right side of plaintiff's house as its vacant parcels of land when its vacant lots are actually situated on the
left side of the same house. Indeed, such mistake on plaintiff's part appears to be tragic as it turned out later
that the vacant lot on the right side of plaintiff's house did not belong to plaintiff. Worse, is the fact that what
was conveyed to defendants under the deed of sale was the parcel where plaintiff's house already stood at the
time of the sale. This, definitely, is not what the parties intended.
x x x Going by the facts established by defendants' evidence, it is clear that defendants did not intend to buy
the parcel of land where plaintiff's house stood as defendant Betty Theis declared in her testimony that they
wanted to buy the parcel at the right side of plaintiff's house where she and her husband would construct their
house (TSN of June 4, 1991, p. 56). Neither can this Court accept the hypothesis that plaintiff intended to sell
that parcel where its house was already constructed for if this was its true intention, it would not sell its two (2)
lots at the price of P486,000.00 which is way below the costs of its construction of P1,500,000.00.

We find that respondent court correctly affirmed the findings and conclusions of the trial court in
annulling the deed of sale as the former are supported by evidence and the latter are in accordance with
existing law and jurisprudence.
Art. 1390 of the New Civil Code provides:
"Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage
to the contracting parties:
(1) x

As earlier stated, the facts obtaining in the case at bar undoubtedly show that when defendants bought the
properties of plaintiff, they intended to buy the vacant lots owned by the latter. As the sale that was finally
consummated by the parties had covered the parcel where plaintiff's house was constructed even before the
sale took place, this Court can safely assume that the deed of sale executed by the parties did not truly
express their true intention. In other words, the mistake or error on the subject of the sale in question appears
to be substantial as the object of the same transaction is different from that intended by the parties.
This fiasco could have been cured and the pain and travails of this litigation avoided, had parties agreed to
reformation of the deed of sale. But, as shown by the sequence of events occurring after the sale was
consummated, and the mistake was discovered, the defendants refused, insisting that they wanted the vacant
lots on the right side of plaintiff's house, which was impossible for plaintiff to do, as said vacant lots were not of
its own dominion."[3] [Emphasis supplied]

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence, or fraud.
x

The law itself explicitly recognizes that consent of the parties is one of the essential elements to the validity of
the contract and where consent is given through mistake, the validity of the contractual relations between the
parties is legally impaired.

x"

In the case at bar, the private respondent obviously committed an honest mistake in selling parcel no.
4. As correctly noted by the Court of Appeals, it is quite impossible for said private respondent to sell the lot in
question as the same is not owned by it. The good faith of the private respondent is evident in the fact that
when the mistake was discovered, it immediately offered two other vacant lots to the petitioners or to
reimburse them with twice the amount paid. That petitioners refused either option left the private respondent
with no other choice but to file an action for the annulment of the deed of sale on the ground of mistake. As
enunciated in the case of Mariano vs. Court of Appeals:[8]
"A contract may be annulled where the consent of one of the contracting parties was procured by mistake,
fraud, intimidation, violence, or undue influence."
Art. 1331 of the New Civil Code provides for the situations whereby mistake may invalidate consent. It
states:

Aggrieved by the decision of the trial court, petitioners sought its reversal [4] from respondent Court of
Appeals.[5] Respondent court, however, did not find the appeal meritorious and accordingly affirmed [6] the trial
court decision. Ruled the respondent appellate court:

"Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing which
is the object of the contract, or to those conditions which have principally moved one or both parties to enter
into the contract."

"There is no doubt that when defendants-appellants attempted to take physical possession of Parcel No. 4 in
May, 1990, they were prevented by the true owner thereof from taking possession of said land. To clear the
matter, plaintiff-appellee hired a new surveyor who revealed in his survey that Parcel No. 4 is not included in
plaintiff-appellee's Transfer Certificates of Title from which said plaintiff-appellee mistakenly offered
defendants-appellants said Parcel No. 4. Realizing its mistake, plaintiff-appellee offered defendants-appellants
Parcels Nos. 1 and 2 under the same Transfer Certificates of Title or the reimbursement of the purchase price
in double amount. But defendants-appellants insisted this time to acquire Parcel No. 3 wherein plaintiffappellee had already a house, and was not the object of the sale.

Tolentino[9] explains that the concept of error in this article must include both ignorance, which is the
absence of knowledge with respect to a thing, and mistake properly speaking, which is a wrong conception
about said thing, or a belief in the existence of some circumstance, fact, or event, which in reality does not
exist. In both cases, there is a lack of full and correct knowledge about the thing. The mistake committed by
the private respondent in selling parcel no. 4 to the petitioners falls within the second type. Verily, such mistake
invalidated its consent and as such, annulment of the deed of sale is proper.

Said Parcel No. 3 cannot be the object of the sale between the parties as plaintiff-appellee's house already
stands in the said area even before defendants-appellants had chosen Parcel No. 4 which was described to
be on the right side of said plaintiff-appellee's house in Parcel No. 3. There is no dispute that defendantsappellants wanted to buy Parcel No. 4 as testified to by defendant-appellant Betty Theis, herself (p. 19, TSN,
Nov. 8, 1991), which lot turned out to be outside of the Transfer Certificates of Title of plaintiff-appellee.
Defendants-appellants cannot now insist on Parcel No. 3 as the same was not the object of the sale between
the parties.
Clearly, therefore, there was honest mistake on the part of plaintiff-appellee in the sale of Parcel No. 4 to
defendants-appellants which plaintiff-appellee tried to remedy by offering defendants-appellants instead his
Parcels Nos. 1 or 2, or reimbursement of the purchase price in double amount." [7] [Emphasis ours]

The petitioners cannot be justified in their insistence that parcel no. 3, upon which private respondent
constructed a two-storey house, be given to them in lieu of parcel no. 4. The cost of construction in 1985 for
the said house (P1,500,000.00) far exceeds the amount paid by the petitioners to the private respondent
(P486,000.00). Moreover, the trial court, in questioning private respondent's witness, Atty. Tarciso Calilung
(who is also its authorized representative) clarified that parcel no. 4, the lot mistakenly sold, was a vacant lot:
[10]

"COURT: What property did you point to them?


A.

I pointed to parcel No. 4, as appearing in the sketch.

COURT: Parcel No. 4 is a vacant lot?

A.

Yes, your Honor.

COURT: So, there was no house on that lot?


A.

There was no house. There were pineapple crops existing on the property.

COURT: So, you are telling the Court that the intended lot is vacant lot or Parcel 4?
A.

Yes, your Honor.

Thus, to allow the petitioners to take parcel no. 3 would be to countenance unjust enrichment.
Considering that petitioners intended at the outset to purchase a vacant lot, their refusal to accept the offer of
the private respondent to give them two (2) other vacant lots in exchange, as well as their insistence on parcel
no. 3, which is a house and lot, is manifestly unreasonable. As held by this Court in the case of Security Bank
and Trust Company v. Court of Appeals[11]:
"Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual construction
cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of the private respondent.
Such unjust enrichment, as previously discussed, is not allowed by law."
WHEREFORE, the petition is hereby DISMISSED and the decision of the Court Appeals in CA-G.R.
47000 dated May 31, 1996 AFFIRMED. Costs against the petitioner.
SO ORDERED
G.R. No. L-10462

March 16, 1916

ANDREA DUMASUG, plaintiff -appellee,


vs.
FELIX MODELO, defendant-appellant.
Fortunato Borromeo Veloso for appellant.
Tomas Alonso for appellee.
TORRES, J.:
An appeal raised, by bill of exceptions, by counsel for defendant from the judgment of September 21, 1914, in
which the Court of First Instance of Cebu held to be null and void the document, marked as Exhibit 1,
executed by the plaintiff Andrea Dumasug, by virtue whereof defendant claims that the lands and carabao, the
subject matter of the complaint, were conveyed to him. The said judgment further declared the plaintiff to be
the exclusive owner of said lands; ordered defendant to deliver and restore the same to the plaintiff and,
moreover, to pay her the sum of P120, the value of her carabao unlawfully sold by him, and likewise P75 as
rent for the use and occupation of the lands in question during the time they were in defendant's possession,
and to pay the costs.
On June 17, 1912, counsel for Andrea Dumasug filed a written complaint in the Court of First Instance of
Cebu, in which he alleged that about the month of November, 1911, defendant persuaded plaintiff to sign a
document by falsely and maliciously making her believe that it contained an engagement on plaintiff's part to
pay defendant a certain sum of money as expresses occasioned the latter by reason of a lawsuit in which
plaintiff Dumasug was one of the parties and was protected and aided by defendant; that this document,
plaintiff, who does not know how to write, signed by affixing her mark thereto, believing in good faith that
defendant had told her the truth and that said document referred to the expenses incurred by defendant; but
that three months after the execution of said document, defendant took possession of a carabao belonging to
plaintiff and also of two parcels of land, likewise belonging to her, situated in the barrio of Katang, pueblo of

Argao, Cebu, the area and boundaries of which are specified in the complaint, and notified plaintiff that she
had conveyed to him by absolute sale said parcels of land and the plow carabao; that in spite of plaintiff's
opposition and protests, defendant took possession of said property and, up to the date of the complaint,
continued to hold possession thereof and to enjoy the products of the lands and of the labor of the carabao;
and that, by reason of such acts, defendant had caused loss and damage to plaintiff in the sum of P1,000.
Said counsel therefore prayed the court to render judgment by declaring null and void and of no value
whatever the alleged contract of purchase and sale of the carabao and the two parcels of land described in the
complaint, to order defendant to restore to plaintiff said work animal and lands, and, besides, to pay her the
sum of P1,000 for the loss and damage caused her, in addition to the costs of the suit.
The demurrer to the aforementioned complaint having been overruled, counsel for defendant in his answer
denied each and all of the facts alleged in the complaint, and in special defense set forth that if defendant had
in his possession the property described in the complaint, it was due to the fact that plaintiff sold it to him,
which sale was recorded in a public instrument duly executed and signed by plaintiff in the presence of
witnesses. Defendant's counsel therefore prayed the court to absolve his client from the complaint and to hold
defendant to be the absolute owner of the disputed property, and to sentence plaintiff to hold her peace for
ever and to pay the costs.
After trial and the hearing of evidence by both parties, the court rendered the aforementioned judgment, to
which defendant excepted and by written motion asked for a reopening of the case and a new trial. This
motion was denied, exception to this ruling was taken by defendant and, upon presentation of the proper bill of
exceptions, the same was approved and transmitted to the clerk of this court.
The sole question to be resolved in this litigation is whether or not the instrument of purchase and sale of two
parcels of land and a plow carabao, Exhibit 1, is null and void. The defendant alleges that by means thereof he
acquired the possession and ownership of the said property, while the plaintiff, in turn, sets forth in her
complaint that the said instrument is of no value whatever, as her consent thereto was obtained by means of
fraud and deceit on the part of defendant.
The instrument, the annulment whereof is requested by the plaintiff, is Exhibit 1 (p. 27 of the record). If sets
forth that on November 3, 1911, plaintiff Andrea Dumasug, in consideration of the sum of P333.49 which she
received from defendant, Felix Modelo, sold and conveyed to the latter outright two parcels of land and the
plow carabao which are the subject matter of the complaint, and furthermore bound herself to warrant and
defend the title thereto. This contract of sale appears to be authorized by the vendor, Andrea Dumasug, by
means of a cross placed between her Christian name and surname in the presence of the witnesses Mariano
Abear and Apolina Minosa, and certified before a notary on the very date of its execution.
In regard to the events leaving up to the said contract, it ought to be stated that on October 12, 1910, Andrea
Dumasug filed suit in the justice of the peace court of Argao against Rosales Albarracin and Gaudencio Saniel,
for the recovery of a parcel of land belonging to plaintiff, measuring two gantas, on which were growing seven
clumps of bamboo. Judgment was rendered for the plaintiff and the usurped land was ordered restored to her.
(See case No. 1211, p. 1, record.) But subsequently, on March 2, 1911, these former defendants, Rosales
Albarracin and Gaudencio Saniel, commenced proceedings in the Court of First Instance of Cebu against the
said Andrea Dumasug in which they prayed for the annulment of the judgment rendered in the court of the
justice of the peace of Argao. In that case Andrea Dumasug, through her attorney, Andres Jayme, appeared in
the said Court of First Instance and demurrer to the complaint.
Before this demurrer had even been ruled on, counsel for plaintiff moved the court to dismiss their complaint,
and this was done by an order of October 2, 1911, in which ruling attorney Jayme acquiesced. (Pages 1 to 13,
record, case No. 1211.) The defendant in the case at bar, Felix Modelo, is neither an attorney nor a procurador
judicial, and the record does not show that he acted as an attorney, procurador judicial, or friend of Andrea
Dumasug in the case brought by the latter in the justice of the peace court of Argao, or in the said case No.
1211, prosecuted in the Court of First Instance of Cebu.
Probably all that Andrea Dumasug did was to ask the advice of Felix Modelo about what she ought to do in
view of the infringement of her rights on the part of Saniel, and defendant probably advised plaintiff to bring the
matter before the authorities; and so far as defendant's direct intervention in those cases was concerned it

was limited to engaging the services of the attorney Andres Jayme to represent plaintiff in the Court of First
Instance.

received an offer of P120 for her carabao, but that she did not wish to sell the animal as she rented if for fifty
centavos per day, her only means of livelihood.

The defendant Felix Modelo stated in his sworn testimony that the sale of the parcels of land and the carabao
was in payment of a debt of P333.49 which the plaintiff was owing him for money he had advanced her to
maintain two actions against Albarracin and Saniel, which sum plaintiff had borrowed of him in small amounts,
first P101.87, afterwards P184.85 and finally P46.77, making a total of P333.49; and that these sums of
money were expended by plaintiff in the payment of attorney's fees, traveling expenses for herself and her
witnesses and for their expenses while in Cebu. The witness Mariano Abear corroborated defendant's
testimony to the effect that the document Exhibit 1 was signed by mark of plaintiff before the notary public
Anselmo S. Legaspi, after the latter had explained to her that it was a conveyance by absolute sale of the
lands and carabao now in question. It would be improper to give credence to the testimony of the justice of the
peace Antonio Minosa, of the pueblo of Argao, with respect to the expenses which plaintiff had to pay on
account of her trips to Cebu, because, as he was a party defendant in case No. 1211, brought to secure the
annulment of the judgment rendered by him, it is incredible that the other defendant, Andrea Dumasug, should
have defrayed Minosa's expenses in Cebu, allowing him to board in restaurants, to amuse himself in the
cinematographs and to remain four days in that city each time that he went there all at the expense of his
codefendant, Andrea Dumasug when the proceedings in the case had not gone beyond the filing of a
demurrer and the principal defendant went to Cebu only twice, staying there one day each time.

It is, then, perfectly evident that the document Exhibit 1, by means of which defendant made himself the owner
of the properties in question is not the instrument of debt which Andrea Dumasug had signed, and if it is the
same one its contents were not duly and faithfully explained to plaintiff in the act of its execution. In either
case, the consent said to have been given by Andrea Dumasug in said document Exhibit 1 is null and void, as
it was given by mistake (arts. 1265 and 1266, Civil Code). This error invalidates the contract, because it goes
to the very substance of the thing which was the subject matter of said contract, for, had the maker thereof
truly understood the contents of said document, she would neither have accepted nor authenticated it by her
mark.

Plaintiff testified that one day in the month of November, 1911, defendant sent for her and after she was inside
defendant's house he told her to sign a document acknowledging that she owed him the sum of P101 for the
work he had performed in her behalf in the two actions she had brought to recover here land; that she did not
object to so doing and signed said document by mark in the presence of the defendant while they were alone
and without any attesting witness and that when she was afterwards taken by defendant to the house of the
notary Anselmo Saniel y Legaspi the latter said nothing to her about the pretended sale of her property. She
added that she had never sold her lands or her carabao to defendant; that she neither offered to sell them to
defendant, nor did the latter offer to buy them for her; that if defendant was now in possession of her two
parcels of land and her carabao, it was due to the fact that three months after she had signed the
acknowledgment of indebtedness defendant took possession of said property by intimidation and force; and
that since then defendant had been harvesting the products of her lands and benefiting himself by the labor of
her plow carabao. She also stated that she signed only one document in favor of the defendant Felix Modelo,
which was that in which she acknowledged she owed him the sum of P101.
It is inconceivable that, in order to recover possession of a parcel of land measuring two gantas, containing
seven clumps of bamboo, by commencing proceedings therefor in the justice of the peace court in Argao
(where Andrea Dumasug lived); and that, in order to defendant herself by filing a demurrer in a suit instituted in
the Court of First Instance of Cebu (which suit was not continued because plaintiffs themselves moved its
dismissal), the defendant in that suit scarcely commenced, now plaintiff in the case at bar, had already
incurred expenses amounting to more than P333. It would have been preferable to have left the small portion
of usurped land in the possession of the deforciant, than to have maintained, in order to defend herself from
such usurper, an unterminated suit which might have resulted in the entire loss of all the aggrieved party's
properties by their being kept, not by the usurper, but by her adviser, a sort of hombre bueno.
The evidence discloses that the only great expense which Andrea Dumasug could have incurred was the sum
that as fees she had to pay the attorney Andres Jayme for filing a demurrer in the Court of First Instance. Said
attorney testified that he received from Andrea Dumasug only P80 or P90, the only large sum which the latter
had to expend. Therefore if plaintiff finally had to admit that she was owing Felix Modelo the sum of P101, and
if for this reason she had to execute the receipt to which she referred in her testimony, it is not unreasonable to
suppose that said sum was the principal expense she incurred, in addition to P20 or P30 for her traveling
expenses from Argao to Cebu, the two times that she made that trip, and for her stay in the latter city.
Defendant's allegation that the traveling expenses of the witnesses taken to Cebu amounted to the large sum
of P333.49 cannot be credited, inasmuch as the proceedings in the Court of First Instance were dismissed
before the complaint was answered and the trial was held, so no witnesses were examined.

If Exhibit 1 is the document signed by her, it is undeniable that she was deceived in order to obtain her
consent thereto, and if the document which she signed is different from the one now presented as Exhibit 1,
then this latter has no value whatever, for the reason that it is not the one which, of her own free will, she
authenticated with her mark.
The consent given by plaintiff being null and void, the document Exhibit 1 is consequently also null, void, and
of no value or effect. Article 1303 of the Civil Code is therefore, applicable, which prescribes that: "When the
nullity of an obligation has been declared, the contracting parties shall restore to each other the things which
have been the object of the contract with their fruits, and the value with its interest." In accordance with this
legal provision defendant must return and deliver to plaintiff the two parcels of land in question with their fruits,
the subject of the complaint, or the value thereof collected by him, which value was justly estimated by the trial
judge at P75.
With respect to the plow carabao that died while in defendant's possession, the value of which is P120,
(record, p. 31) defendant is obliged pursuant to the provision of article 1307 of the same code (to pay and
deliver to plaintiff the value of said animal, with interest as an indemnity for the detriment caused to its owner.)
Defendant has made no claim whatever for reimbursement of the sum of money which he paid to the attorney
Andres Jayme for defending plaintiff in the Court of First Instance of Cebu. It would therefore be improper to
decide in the present case whether he is or is not entitled to such reimbursement. (Secs. 95-97, Code of Civ.
Proc.)
For the foregoing reasons, whereby the errors assigned to the judgment appealed from are deemed to have
been refuted, said judgment should be as it is hereby, affirmed, with the costs of this instance against the
appellant. So ordered
[G.R. No. 107132. October 8, 1999]
MAXIMA HEMEDES, petitioner, vs. THE HONORABLE COURT OF APPEALS, DOMINIUM REALTY AND
CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES, and R & B INSURANCE
CORPORATION,respondents.
[G.R. No. 108472. October 8, 1999]
R & B INSURANCE CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS DOMINIUM
REALTY AND CONSTRUCTION CORPORATION, ENRIQUE D. HEMEDES and MAXIMA
HEMEDES,respondents.
DECISION

The lower court held that the statements of Andrea Dumasug were well worthy of credence, and, taking into
consideration the merits of the case, reached the conclusion that the sole document which plaintiff signed
about the month of November, 1911, related to the sum of P101 which she acknowledged she was owing to
Felix Modelo, and not to the sale of all her properties. The record shows plaintiff to have stated that she

GONZAGA_REYES, J.:

Assailed in these petitions for review on certiorari is the decision[1] of the eleventh division of the Court
of Appeals in CA-G.R. CV No. 22010 promulgated on September 11, 1992 affirming in toto the decision of
Branch 24 of the Regional Trial Court of Laguna in Civil Case No. B-1766 dated February 22, 1989, [2] and the
resolution dated December 29, 1992 denying petitioner R & B Insurance Corporations (R & B Insurance)
motion for reconsideration. As the factual antecedents and issues are the same, we shall decide the petitions
jointly.
The instant controversy involves a question of ownership over an unregistered parcel of land, identified
as Lot No. 6, plan Psu-111331, with an area of 21,773 square meters, situated in Sala, Cabuyao, Laguna. It
was originally owned by the late Jose Hemedes, father of Maxima Hemedes and Enrique D. Hemedes. On
March 22, 1947 Jose Hemedes executed a document entitled Donation Inter Vivos With Resolutory
Conditions[3] whereby he conveyed ownership over the subject land, together with all its improvements, in
favor of his third wife, Justa Kauapin, subject to the following resolutory conditions:
(a) Upon the death or remarriage of the DONEE, the title to the property donated shall revert to any of the
children, or their heirs, of the DONOR expressly designated by the DONEE in a public document conveying
the property to the latter; or
(b) In absence of such an express designation made by the DONEE before her death or remarriage contained
in a public instrument as above provided, the title to the property shall automatically revert to the legal heirs of
the DONOR in common.
Pursuant to the first condition abovementioned, Justa Kausapin executed on September 27, 1960 a
Deed of Conveyance of Unregistered Real Property by Reversion [4] conveying to Maxima Hemedes the
subject property under the following terms That the said parcel of land was donated unto me by the said Jose Hemedes, my deceased husband, in a
deed of DONATION INTER VIVOS WITH RESOLUTORY CONDITIONS executed by the donor in my favor,
and duly accepted by me on March 22, 1947, before Notary Public Luis Bella in Cabuyao, Laguna;
That the donation is subject to the resolutory conditions appearing in the said deed of DONATION INTER
VIVOS WITH RESOLUTORY CONDITIONS, as follows:
(a) Upon the death or remarriage of the DONEE, the title to the property donated shall revert to any of the
children, or their heirs, of the DONOR expressly designated by the DONEE in a public document conveying
the property to the latter; or
(b) In absence of such an express designation made by the DONEE before her death or remarriage contained
in a public instrument as above provided, the title to the property shall automatically revert to the legal heirs of
the DONOR in common.
That, wherefore, in virtue of the deed of donation above mentioned and in the exercise of my right and
privilege under the terms of the first resolutory condition therein contained and hereinabove reproduced, and
for and in consideration of my love and affection, I do hereby by these presents convey, transfer, and deed
unto my designee, MAXIMA HEMEDES, of legal age, married to RAUL RODRIGUEZ, Filipino and resident of
No. 15 Acacia Road, Quezon City, who is one of the children and heirs of my donor, JOSE HEMEDES, the
ownership of, and title to the property hereinabove described, and all rights and interests therein by reversion
under the first resolutory condition in the above deed of donation; Except the possession and enjoyment of the
said property which shall remain vested in me during my lifetime, or widowhood and which upon my death or
remarriage shall also automatically revert to, and be transferred to my designee, Maxima Hemedes.
Maxima Hemedes, through her counsel, filed an application for registration and confirmation of title
over the subject unregistered land. Subsequently, Original Certificate of Title (OCT) No. (0-941) 0-198 [5] was
issued in the name of Maxima Hemedes married to Raul Rodriguez by the Registry of Deeds of Laguna on
June 8, 1962, with the annotation that Justa Kausapin shall have the usufructuary rights over the parcel of
land herein described during her lifetime or widowhood.

It is claimed by R & B Insurance that on June 2, 1964, Maxima Hemedes and her husband Raul
Rodriguez constituted a real estate mortgage over the subject property in its favor to serve as security for a
loan which they obtained in the amount of P6,000.00. On February 22, 1968, R & B Insurance extrajudicially
foreclosed the mortgage since Maxima Hemedes failed to pay the loan even after it became due on August 2,
1964. The land was sold at a public auction on May 3, 1968 with R & B Insurance as the highest bidder and a
certificate of sale was issued by the sheriff in its favor. Since Maxima Hemedes failed to redeem the property
within the redemption period, R & B Insurance executed an Affidavit of Consolidation dated March 29, 1974
and on May 21, 1975 the Register of Deeds of Laguna cancelled OCT No. (0-941) 0-198 and issued Transfer
Certificate of Title (TCT) No. 41985 in the name of R & B Insurance. The annotation of usufruct in favor of
Justa Kausapin was maintained in the new title.[6]
Despite the earlier conveyance of the subject land in favor of Maxima Hemedes, Justa Kausapin
executed a Kasunduan on May 27, 1971 whereby she transferred the same land to her stepson Enrique D.
Hemedes, pursuant to the resolutory condition in the deed of donation executed in her favor by her late
husband Jose Hemedes. Enrique D. Hemedes obtained two declarations of real property - in 1972, and
again, in 1974, when the assessed value of the property was raised. Also, he has been paying the realty
taxes on the property from the time Justa Kausapin conveyed the property to him in 1971 until 1979. In the
cadastral survey of Cabuyao, Laguna conducted from September 8, 1974 to October 10, 1974, the property
was assigned Cadastral No. 2990, Cad. 455-D, Cabuyao Cadastre, in the name of Enrique
Hemedes. Enrique Hemedes is also the named owner of the property in the records of the Ministry of
Agrarian Reform office at Calamba, Laguna.
On February 28, 1979, Enriques D. Hemedes sold the property to Dominium Realty and Construction
Corporation (Dominium). On April 10, 1981, Justa Kausapin executed an affidavit affirming the conveyance of
the subject property in favor of Enrique D. Hemedes as embodied in the Kasunduan dated May 27, 1971,
and at the same time denying the conveyance made to Maxima Hemedes.
On May 14, 1981, Dominium leased the property to its sister corporation Asia Brewery, Inc. (Asia
Brewery) who, even before the signing of the contract of lease, constructed two warehouses made of steel
and asbestos costing about P10,000,000.00 each. Upon learning of Asia Brewerys constructions upon the
subject property, R & B Insurance sent it a letter on March 16, 1981 informing the former of its ownership of
the property as evidenced by TCT No. 41985 issued in its favor and of its right to appropriate the constructions
since Asia Brewery is a builder in bad faith. On March 27, 1981, a conference was held between R & B
Insurance and Asia Brewery but they failed to arrive at an amicable settlement.
On May 8, 1981, Maxima Hemedes also wrote a letter addressed to Asia Brewery wherein she
asserted that she is the rightful owner of the subject property by virtue of OCT No. (0-941) 0-198 and that, as
such, she has the right to appropriate Asia Brewerys constructions, to demand its demolition, or to compel
Asia Brewery to purchase the land. In another letter of the same date addressed to R & B Insurance, Maxima
Hemedes denied the execution of any real estate mortgage in favor of the latter.
On August 27, 1981, Dominium and Enrique D. Hemedes filed a complaint [7] with the Court of First
Instance of Binan, Laguna for the annulment of TCT No. 41985 issued in favor of R & B Insurance and/or the
reconveyance to Dominium of the subject property. Specifically, the complaint alleged that Dominium was the
absolute owner of the subject property by virtue of the February 28, 1979 deed of sale executed by Enrique D.
Hemedes, who in turn obtained ownership of the land from Justa Kausapin, as evidenced by the Kasunduan
dated May 27, 1971. The plaintiffs asserted that Justa Kausapin never transferred the land to Maxima
Hemedes and that Enrique D. Hemedes had no knowledge of the registration proceedings initiated by Maxima
Hemedes.
After considering the merits of the case, the trial court rendered judgment on February 22, 1989 in favor
of plaintiffs Dominium and Enrique D. Hemedes, the dispositive portion of which states
WHEREFORE, judgment is hereby rendered:
(a) Declaring Transfer Certificate of Title No. 41985 of the Register of Deeds of Laguna null and
void and ineffective;

(b) Declaring Dominium Realty and Construction Corporation the absolute owner and possessor
of the parcel of land described in paragraph 3 of the complaint;
(c) Ordering the defendants and all persons acting for and/or under them to respect such
ownership and possession of Dominium Realty and Construction Corporation and to forever
desist from asserting adverse claims thereon nor disturbing such ownership and
possession; and
(d) Directing the Register of Deeds of Laguna to cancel said Transfer Certificate of Title No.
41985 in the name of R & B Insurance Corporation, and in lieu thereof, issue a new transfer
certificate of title in the name of Dominium Realty and Construction Corporation. No
pronouncement as to costs and attorneys fees.[8]
Both R & B Insurance and Maxima Hemedes appealed from the trial courts decision. On September
11, 1992 the Court of Appeals affirmed the assailed decision in toto and on December 29, 1992, it denied R &
B Insurances motion for reconsideration. Thus, Maxima Hemedes and R & B Insurance filed their respective
petitions for review with this Court on November 3, 1992 and February 22, 1993, respectively.
In G.R. No. 107132[9], petitioner Maxima Hemedes makes the following assignment of errors as regards
public respondents ruling

RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT NO REAL ESTATE MORTGAGE
OVER THE SUBJECT PROPERTY WAS EXECUTED BY PETITIONER MAXIMA HEMEDES IN FAVOR OF
RESPONDENT R & B INSURANCE CORPORATION.
VII
RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT THE VALID TITLE COVERING THE
SUBJECT PROPERTY IS THE ORIGINAL CERTIFICATE OF TITLE NO. (0-941) 0-198 IN THE NAME OF
PETITIONER MAXIMA HEMEDES AND NOT THE TRANSFER CERTIFICATE OF TITLE (TCT) NO. 41985 IN
THE NAME OF R & B INSURANCE CORPORATION.[10]
Meanwhile, in G.R. No. 108472 [11], petitioner R & B Insurance assigns almost the same errors, except
with regards to the real estate mortgage allegedly executed by Maxima Hemedes in its favor. Specifically, R &
B Insurance alleges that:
I
RESPONDENT COURT ERRONEOUSLY ERRED IN APPLYING ARTICLE 1332 OF THE CIVIL CODE.
II

I
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN APPLYING ARTICLE 1332 OF THE NEW CIVIL
CODE IN DECLARING AS SPURIOUS THE DEED OF CONVEYANCE OF UNREGISTERED REAL
PROPERTY BY REVERSION EXECUTED BY JUSTA KAUSAPIN IN FAVOR OF PETITIONER MAXIMA
HEMEDES.

RESPONDENT COURT SERIOUSLY ERRED IN GIVING CREDENCE ON (sic) THE KASUNDUAN BY AND
BETWEEN JUSTA KAUSAPIN AND ENRIQUE NOTWITHSTANDING THE FACT THAT JUSTA KAUSAPIN
BY WAY OF A DEED OF CONVEYANCE OF UNREGISTERED REAL PROPERTY BY REVERSION CEDED
THE SUBJECT PROPERTY TO MAXIMA SOME ELEVEN (11) YEARS EARLIER.
III

II
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT FINDING AS VOID AND OF NO LEGAL
EFFECT THE KASUNDUAN DATED 27 MAY 1971 EXECUTED BY JUSTA KAUSAPIN IN FAVOR OF
RESPONDENT ENRIQUE HEMEDES AND THE SALE OF THE SUBJECT PROPERTY BY RESPONDENT
ENRIQUE HEMEDES IN FAVOR OF RESPONDENT DOMINIUM REALTY AND CONSTRUCTION
CORPORATION.
III
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT FINDING RESPONDENTS ENRIQUE
AND DOMINIUM IN BAD FAITH.
IV
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT ORIGINAL CERTIFICATE
OF TITLE NO. (0-941) 0-198 ISSUED IN THE NAME OF PETITIONER MAXIMA HEMEDES NULL AND
VOID.
V
RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING THAT NO LOAN WAS OBTAINED BY
PETITIONER MAXIMA HEMEDES FROM RESPONDENT R & B INSURANCE CORPORATION.
VI

RESPONDENT COURT SERIOUSLY ERRED IN GIVING CREDENCE ON (sic) THE AFFIDAVIT OF


REPUDIATION OF JUSTA KAUSAPIN NOTWITHSTANDING THE FACT THAT SHE IS A BIAS (sic)
WITNESS AND EXECUTED THE SAME SOME TWENTY-ONE (21) YEARS AFTER THE EXECUTION OF
THE DEED OF CONVEYANCE IN FAVOR OF MAXIMA.
IV
RESPONDENT COURT SERIOUSLY ERRED IN NOT FINDING THAT THE COMPLAINT OF ENRIQUE AND
DOMINIUM HAS PRESCRIBED AND/OR THAT ENRIQUE AND DOMINIUM WERE GUILTY OF LACHES.
V
RESPONDENT COURT SERIOUSLY ERRED IN FINDING R & B AS A MORTGAGEE NOT IN GOOD FAITH.
VI
RESPONDENT COURT SERIOUSLY ERRED IN NOT GRANTING THE DAMAGES PRAYED FOR BY R & B
IN ITS COUNTERCLAIM AND CROSSCLAIM.[12]
The primary issue to be resolved in these consolidated petitions is which of the two conveyances by
Justa Kausapin, the first in favor of Maxima Hemedes and the second in favor of Enrique D. Hemedes,
effectively transferred ownership over the subject land.

The Register of Deeds of Laguna issued OCT No. (0-941) 0-198 in favor of Maxima Hemedes on the
strength of the Deed of Conveyance of Unregistered Real Property by Reversion executed by Justa
Kausapin. Public respondent upheld the trial courts finding that such deed is sham and spurious and has no
evidentiary value under the law upon which claimant Maxima Hemedes may anchor a valid claim of ownership
over the property. In ruling thus, it gave credence to the April 10, 1981 affidavit executed by Justa Kausapin
repudiating such deed of conveyance in favor of Maxima Hemedes and affirming the authenticity of the
Kasunduan in favor of Enrique D. Hemedes. Also, it considered as pivotal the fact that the deed of
conveyance in favor of Maxima Hemedes was in English and that it was not explained to Justa Kausapin,
although she could not read nor understand English; thus, Maxima Hemedes failed to discharge her burden,
pursuant to Article 1332 of the Civil Code, to show that the terms thereof were fully explained to Justa
Kausapin. Public respondent concluded by holding that the registration of the property on the strength of the
spurious deed of conveyance is null and void and does not confer any right of ownership upon Maxima
Hemedes. [13]
Maxima Hemedes argues that Justa Kausapins affidavit should not be given any credence since she is
obviously a biased witness as it has been shown that she is dependent upon Enrique D. Hemedes for her
daily subsistence, and she was most probably influenced by Enrique D. Hemedes to execute the Kasunduan
in his favor. She also refutes the applicability of article 1332. It is her contention that for such a provision to
be applicable, there must be a party seeking to enforce a contract; however, she is not enforcing the Deed of
Conveyance of Unregistered Real Property by Reversion as her basis in claiming ownership, but rather her
claim is anchored upon OCT No. (0-941) 0-198 issued in her name, which document can stand independently
from the deed of conveyance. Also, there exist various circumstances which show that Justa Kausapin did in
fact execute and understand the deed of conveyance in favor of Maxima Hemedes. First, the Donation
Intervivos With Resolutory Conditions executed by Jose Hemedes in favor of Justa Kausapin was also in
English, but she never alleged that she did not understand such document. Secondly, Justa Kausapin failed
to prove that it was not her thumbmark on the deed of conveyance in favor of Maxima Hemedes and in fact,
both Enrique D. Hemedes and Dominium objected to the request of Maxima Hemedes counsel to obtain a
specimen thumbmark of Justa Kausapin. [14]
Public respondents finding that the Deed of Conveyance of Unregistered Real Property By Reversion
executed by Justa Kausapin in favor of Maxima Hemedes is spurious is not supported by the factual findings
in this case.. It is grounded upon the mere denial of the same by Justa Kausapin. A party to a contract cannot
just evade compliance with his contractual obligations by the simple expedient of denying the execution of
such contract. If, after a perfect and binding contract has been executed between the parties, it occurs to one
of them to allege some defect therein as a reason for annulling it, the alleged defect must be conclusively
proven, since the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties.

Q: As of today, Aling Justa are you continuing to receive any assistance from Enrique Hemedes?
A: Yes Sir.
(TSN pp. 19 and 23, November 17, 1981)[19]
Even Enrique Hemedes admitted that Justa Kausapin was dependent upon him for financial support. The
transcripts state as follows:
Atty. Mora:
Now you said that Justa Kausapin has been receiving from you advances for food, medicine & other
personal or family needs?
E. Hemedes:
A: Yes.
Q: Was this already the practice at the time this Kasunduan was executed?
A: No that was increased, no, no, after this document.
xxx xx

Q: And because of these accommodations that you have given to Justa Kausapin; Justa Kausapin has in
turn treated you very well because shes very grateful for that, is it not?
A: I think thats human nature.

[15]

Q: Answer me categorically, Mr. Hemedes shes very grateful?

Although a comparison of Justa Kausapins thumbmark with the thumbmark affixed upon the deed of
conveyance would have easily cleared any doubts as to whether or not the deed was forged, the records do
not show that such evidence was introduced by private respondents and the lower court decisions do not
make mention of any comparison having been made. [16] It is a legal presumption that evidence willfully
suppressed would be adverse if produced. [17] The failure of private respondents to refute the due execution of
the deed of conveyance by making a comparison with Justa Kausapins thumbmark necessarily leads one to
conclude that she did in fact affix her thumbmark upon the deed of donation in favor of her stepdaughter.

A: Yes she might be grateful but not very grateful.

Moreover, public respondents reliance upon Justa Kausapins repudiation of the deed of conveyance is
misplaced for there are strong indications that she is a biased witness. The trial court found that Justa
Kausapin was dependent upon Enrique D. Hemedes for financial assistance. [18] Justa Kausapins own
testimony attests to this fact Atty. Conchu:
Q: Aling Justa, can you tell the Honorable Court why you donated this particular property to Enrique
Hemedes?
A: Because I was in serious condition and he was the one supporting me financially.

xxx

(TSN, p. 34, June 15, 1984)[20]


A witness is said to be biased when his relation to the cause or to the parties is such that he has an
incentive to exaggerate or give false color to his statements, or to suppress or to pervert the truth, or to state
what is false.[21] At the time the present case was filed in the trial court in 1981, Justa Kausapin was already 80
years old, suffering from worsening physical infirmities and completely dependent upon her stepson Enrique
D. Hemedes for support. It is apparent that Enrique D. Hemedes could easily have influenced his aging
stepmother to donate the subject property to him. Public respondent should not have given credence to a
witness that was obviously biased and partial to the cause of private respondents. Although it is a wellestablished rule that the matter of credibility lies within the province of the trial court, such rule does not apply
when the witness credibility has been put in serious doubt, such as when there appears on the record some
fact or circumstance of weight and influence, which has been overlooked or the significance of which has been
misinterpreted.[22]
Finally, public respondent was in error when it sustained the trial courts decision to nullify the Deed of
Conveyance of Unregistered Real Property by Reversion for failure of Maxima Hemedes to comply with
article 1332 of the Civil Code, which states:

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.
Article 1332 was intended for the protection of a party to a contract who is at a disadvantage due to his
illiteracy, ignorance, mental weakness or other handicap. [23] This article contemplates a situation wherein a
contract has been entered into, but the consent of one of the parties is vitiated by mistake or fraud committed
by the other contracting party.[24] This is apparent from the ordering of the provisions under Book IV, Title II,
Chapter 2, section 1 of the Civil Code, from which article 1332 is taken. Article 1330 states that A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is
voidable.
This is immediately followed by provisions explaining what constitutes mistake, violence, intimidation, undue
influence, or fraud sufficient to vitiate consent. [25] In order that mistake may invalidate consent, it should refer to
the substance of the thing which is the object of the contract, or to those conditions which have principally
moved one or both parties to enter into the contract. [26] Fraud, on the other hand, is present when, through
insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. [27] Clearly, article 1332 assumes that the consent of the
contracting party imputing the mistake or fraud was given, although vitiated, and does not cover a situation
where there is a complete absence of consent.
In this case, Justa Kausapin disclaims any knowledge of the Deed of Conveyance of Unregistered
Real Property by Reversion in favor of Maxima Hemedes. In fact, she asserts that it was only during the
hearing conducted on December 7, 1981 before the trial court that she first caught a glimpse of the deed of
conveyance and thus, she could not have possibly affixed her thumbmark thereto. [28] It is private respondents
own allegations which render article 1332 inapplicable for it is useless to determine whether or not Justa
Kausapin was induced to execute said deed of conveyance by means of fraud employed by Maxima
Hemedes, who allegedly took advantage of the fact that the former could not understand English, when Justa
Kausapin denies even having seen the document before the present case was initiated in 1981.
It has been held by this Court that mere preponderance of evidence is not sufficient to overthrow a
certificate of a notary public to the effect that the grantor executed a certain document and acknowledged the
fact of its execution before him. To accomplish this result, the evidence must be so clear, strong and
convincing as to exclude all reasonable controversy as to the falsity of the certificate, and when the evidence
is conflicting, the certificate will be upheld. [29] In the present case, we hold that private respondents have failed
to produce clear, strong, and convincing evidence to overcome the positive value of the Deed of Conveyance
of Unregistered Real Property by Reversion a notarized document. The mere denial of its execution by the
donor will not suffice for the purpose.
In upholding the deed of conveyance in favor of Maxima Hemedes, we must concomitantly rule that
Enrique D. Hemedes and his transferee, Dominium, did not acquire any rights over the subject property. Justa
Kausapin sought to transfer to her stepson exactly what she had earlier transferred to Maxima Hemedes the
ownership of the subject property pursuant to the first condition stipulated in the deed of donation executed by
her husband. Thus, the donation in favor of Enrique D. Hemedes is null and void for the purported object
thereof did not exist at the time of the transfer, having already been transferred to his sister. [30] Similarly, the
sale of the subject property by Enrique D. Hemedes to Dominium is also a nullity for the latter cannot acquire
more rights than its predecessor-in-interest and is definitely not an innocent purchaser for value since Enrique
D. Hemedes did not present any certificate of title upon which it relied.
The declarations of real property by Enrique D. Hemedes, his payment of realty taxes, and his being
designated as owner of the subject property in the cadastral survey of Cabuyao, Laguna and in the records of
the Ministry of Agrarian Reform office in Calamba, Laguna cannot defeat a certificate of title, which is an
absolute and indefeasible evidence of ownership of the property in favor of the person whose name appears
therein.[31] Particularly, with regard to tax declarations and tax receipts, this Court has held on several
occasions that the same do not by themselves conclusively prove title to land. [32]

We come now to the question of whether or not R & B Insurance should be considered an innocent
purchaser of the land in question. At the outset, we note that both the trial court and appellate court found that
Maxima Hemedes did in fact execute a mortgage over the subject property in favor of R & B Insurance. This
finding shall not be disturbed because, as we stated earlier, it is a rule that the factual findings of the trial court,
especially when affirmed by the Court of Appeals, are entitled to respect, and should not be disturbed on
appeal.[33]
In holding that R & B Insurance is not a mortgagee in good faith, public respondent stated that the fact
that the certificate of title of the subject property indicates upon its face that the same is subject to an
encumbrance, i.e. usufructuary rights in favor of Justa Kausapin during her lifetime or widowhood, should have
prompted R & B Insurance to ...investigate further the circumstances behind this encumbrance on the land in
dispute, but which it failed to do. Also, public respondent considered against R & B Insurance the fact that it
made it appear in the mortgage contract that the land was free from all liens, charges, taxes and
encumbrances.[34]
R & B Insurance alleges that, contrary to public respondents ruling, the presence of an encumbrance
on the certificate of title is not reason for the purchaser or a prospective mortgagee to look beyond the face of
the certificate of title. The owner of a parcel of land may still sell the same even though such land is subject to
a usufruct; the buyers title over the property will simply be restricted by the rights of the usufructuary. Thus, R
& B Insurance accepted the mortgage subject to the usufructuary rights of Justa Kausapin. Furthermore, even
assuming that R & B Insurance was legally obliged to go beyond the title and search for any hidden defect or
inchoate right which could defeat its right thereto, it would not have discovered anything since the mortgage
was entered into in 1964, while the Kasunduan conveying the land to Enrique D. Hemedes was only entered
into in 1971 and the affidavit repudiating the deed of conveyance in favor of Maxima Hemedes was executed
by Justa Kausapin in 1981.[35]
We sustain petitioner R & B Insurances claim that it is entitled to the protection of a mortgagee in good
faith.
It is a well-established principle that every person dealing with registered land may safely rely on the
correctness of the certificate of title issued and the law will in no way oblige him to go behind the certificate to
determine the condition of the property.[36] An innocent purchaser for value [37] is one who buys the property of
another without notice that some other person has a right to or interest in such property and pays a full and fair
price for the same at the time of such purchase or before he has notice of the claim of another person. [38]
The annotation of usufructuary rights in favor of Justa Kausapin upon Maxima Hemedes OCT dose not
impose upon R & B Insurance the obligation to investigate the validity of its mortgagors title. Usufruct gives a
right to enjoy the property of another with the obligation of preserving its form and substance. [39] The
usufructuary is entitled to all the natural, industrial and civil fruits of the property [40]and may personally enjoy
the thing in usufruct, lease it to another, or alienate his right of usufruct, even by a gratuitous title, but all the
contracts he may enter into as such usufructuary shall terminate upon the expiration of the usufruct. [41]
Clearly, only the jus utendi and jus fruendi over the property is transferred to the usufructuary.[42]The
owner of the property maintains the jus disponendi or the power to alienate, encumber, transform, and even
destroy the same.[43] This right is embodied in the Civil Code, which provides that the owner of property the
usufruct of which is held by another, may alienate it, although he cannot alter the propertys form or substance,
or do anything which may be prejudicial to the usufructuary.[44]
There is no doubt that the owner may validly mortgage the property in favor of a third person and the
law provides that, in such a case, the usufructuary shall not be obliged to pay the debt of the mortgagor, and
should the immovable be attached or sold judicially for the payment of the debt, the owner shall be liable to the
usufructuary for whatever the latter may lose by reason thereof. [45]
Based on the foregoing, the annotation of usufructuary rights in favor of Justa Kausapin is not sufficient
cause to require R & B Insurance to investigate Maxima Hemedes title, contrary to public respondents ruling,
for the reason that Maxima Hemedes ownership over the property remained unimpaired despite such

encumbrance. R & B Insurance had a right to rely on the certificate of title and was not in bad faith in
accepting the property as a security for the loan it extended to Maxima Hemedes.
Even assuming in gratia argumenti that R & B Insurance was obligated to look beyond the certificate of
title and investigate the title of its mortgagor, still, it would not have discovered any better rights in favor of
private respondents. Enrique D. Hemedes and Dominium base their claims to the property upon the
Kasunduan allegedly executed by Justa Kausapin in favor of Enrique Hemedes. As we have already stated
earlier, such contract is a nullity as its subject matter was inexistent. Also, the land was mortgaged to R & B
Insurance as early as 1964, while the Kasunduan was executed only in 1971 and the affidavit of Justa
Kausapin affirming the conveyance in favor of Enrique D. Hemedes was executed in 1981. Thus, even if R &
B Insurance investigated the title of Maxima Hemedes, it would not have discovered any adverse claim to the
land in derogation of its mortgagors title. We reiterate that at no point in time could private respondents
establish any rights or maintain any claim over the land.
It is a well-settled principle that where innocent third persons rely upon the correctness of a certificate
of title and acquire rights over the property, the court cannot just disregard such rights. Otherwise, public
confidence in the certificate of title, and ultimately, the Torrens system, would be impaired for everyone dealing
with registered property would still have to inquire at every instance whether the title has been regularly or
irregularly issued.[46] Being an innocent mortgagee for value, R & B Insurance validly acquired ownership over
the property, subject only to the usufructuary rights of Justa Kausapin thereto, as this encumbrance was
properly annotated upon its certificate of title.
The factual findings of the trial court, particularly when affirmed by the appellate court, carry great
weight and are entitled to respect on appeal, except under certain circumstances. [47] One such circumstance
that would compel the Court to review the factual findings of the lower courts is where the lower courts
manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion. [48] Also, it is axiomatic that the drawing of the proper legal conclusions from
such factual findings are within the peculiar province of this Court. [49]
As regards R & B Insurances prayer that Dominium be ordered to demolish the warehouses or that it
be declared the owner thereof since the same were built in bad faith, we note that such warehouses were
constructed by Asia Brewery, not by Dominium. However, despite its being a necessary party in the present
case, the lower courts never acquired jurisdiction over Asia Brewery, whether as a plaintiff or defendant, and
their respective decisions did not pass upon the constructions made upon the subject property. Courts acquire
jurisdiction over a party plaintiff upon the filing of the complaint, while jurisdiction over the person of a party
defendant is acquired upon the service of summons in the manner required by law or by his voluntary
appearance. As a rule, if a defendant has not been summoned, the court acquires no jurisdiction over his
person, and any personal judgment rendered against such defendant is null and void. [50] In the present case,
since Asia Brewery is a necessary party that was not joined in the action, any judgment rendered in this case
shall be without prejudice to its rights.[51]
As to its claim for moral damages, we hold that R & B Insurance is not entitled to the same for it has not
alleged nor proven the factual basis for the same. Neither is it entitled to exemplary damages, which may only
be awarded if the claimant is entitled to moral, temperate, liquidated or compensatory damages. [52] R & B
Insurances claim for attorneys fees must also fail. The award of attorneys fees is the exception rather than
the rule and counsels fees are not to be awarded every time a party wins a suit. Its award pursuant to article
2208 of the Civil Code demands factual, legal and equitable justification and cannot be left to speculation and
conjecture.[53] Under the circumstances prevailing in the instant case, there is no factual or legal basis for an
award of attorneys fees.
WHEREFORE, the assailed decision of public respondent and its resolution dated February 22, 1989
are REVERSED. We uphold petitioner R & B Insurances assertion of ownership over the property in dispute,
as evidenced by TCT No. 41985, subject to the usufructuary rights of Justa Kausapin, which encumbrance
has been properly annotated upon the said certificate of title. No pronouncement as to costs.
SO ORDERED.

[G.R. No. 111924. January 27, 1997]


ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD
PARANGAN, PHILIPPINE NATIONAL BANK, respondents.
DECISION
FRANCISCO, J.:
Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the
Cadastral Survey of Calinog, lloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On
February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for
a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease,
Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to
finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor
of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the
aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by
petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums
of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2,
1979 and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and
all the proceeds therefrom were used by Parangan for his own benefit. [1] These encumbrances were duly
annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale[2] in
favor of Parangan which was superseded by the Deed of Definite Sale [3] dated May 4, 1979 which petitioner
signed upon Parangan's representation that the same merely evidences the loans extended by him unto the
former.
For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded
the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over
the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under
said document, petitioner conveyed the subject property and all the improvements thereon unto Parangan
absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos.
Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and
damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court
rendered judgment, disposing as follows:
"WHEREFORE and in view of the foregoing, a decision is rendered as follows:
1.
Ordering cancellation by the Register of Deeds of the Province of lloilo, of the unauthorized loans, the
liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos.
286231; 338638; and 352794;
2.
Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May
6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT
No. T-561 of the Register of Deeds of lloilo, as null and void, declaring the same to be Deeds of Equitable
Mortgage;
3.
Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto
as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff;

4.
Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the
Calinog Cadastre described in TCT No. T-561 of the Register of Deeds of lloilo, to plaintiff upon payment of
the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within
ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy
payment of the amount;
5.
Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay
the costs of the suit.
SO ORDERED."[4]
Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this
petition contending that the CA committed the following errors:
"IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE
NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE:
IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE
CONTENTS THEREOF;
IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL DESERVES
FULL FAITH AND CREDIT;
IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED"
LOANS AS RELEVANT."
Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an
equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by
Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual
findings thus necessitating a review of the evidence on record. [5] After a thorough examination, we note some
errors, both in fact and in law, committed by public respondent CA.
The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown
beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. [6] We agree.
A contract is perfected by mere consent. [7] More particularly, a contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object of the contract and upon the price. [8] This
meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject
matter and the consideration thereof. If the words of the contract appear to be contrary to the evident intention
of the parties, the latter shall prevail over the former.[9] In the case at bench, the evidence is sufficient to
warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the
latter in a single instrument and to secure the same with the subject property. Even when a document
appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with
mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In
this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth
and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such
allegations, the court will enforce the agreement or understanding in consonance with the true intent of the
parties at the time of the execution of the contract. [10]
Articles 1602 and 1604 of the Civil Code respectively provide:
"The contract shall be presumed to be an equitable mortgage in any of the following cases:
1)

When the price of a sale with right to repurchase is unusually inadequate;

2)

When the vendor remains in possession as lessor or otherwise;

3)
When upon or after the expiration of the right to repurchase, another instrument extending the period of
redemption or granting a new period is executed;

6)
In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation."
"Art. 1604.

The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale."

From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must
first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale
and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code,
a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the
conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor
an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an
equitable mortgage.[11]
Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage
in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation. That the case clearly falls under this
category can be inferred from the circumstances surrounding the transaction as herein set forth:
Petitioner had no knowledge that the contract [12] she signed is a deed of sale. The contents of the same were
not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her
conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her
condition constrained her to merely rely on Parangan's assurance that the contract only evidences her
indebtedness to the latter. When one of the contracting 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.[13] Settled is the rule that where a party to a
contract is illiterate or cannot read or cannot understand the language in which the contract is written, the
burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to
the former in a language understood by him. [14] To our mind, this burden has not been satisfactorily
discharged.
We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to
petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great
respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses
while testifying.[15] The lower court may not have categorically declared Cabial's testimony as doubtful but this
fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive
testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of
the transcript of stenographic notes would bear out that the court a quo is correct in its assessment. The CA
committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of
Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge
Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were
presented before Judge Lebaquin, who in turn made an accounting to determine the price of the land [16], the
latter categorically denied the allegation.[17] This contradiction casts doubt on the credibility of Cabial as it is
ostensible that her version of the story is concocted.
On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained
to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the
transaction. He has no motive to prevaricate or concoct a story as he witnessed the execution of the
document at the behest of Parangan himself who, at the outset, informed him that he will witness a document
consolidating petitioner's debts. He thus testified:
"Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog?
A: Yes, sir.
Q: Who invited you to go there?
A: Parangan.
Q: You mean Nicolas Parangan?

4)

When the vendor binds himself to pay the taxes on the thing sold;

A: Yes, sir.

5)

When the purchaser retains for himself a part of the purchase price;

Q: What did Nicolas tell you why he invited you to go there?

A: He told me that I will witness on the indebtedness of Adoracion to Parangan.


xxx

xxx

Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property [27] in case the
same is sold to satisfy the unpaid debts.

xxx

Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her?

WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the
following MODIFICATIONS:

A: No, sir.

1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;

Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing?

2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE


SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00
WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION;

A: No, sir.
xxx

xxx

xxx

Q: What did you have in mind when you were signing this document, Exh. "4"?
A: To show that Adoracion Lustan has debts with Nicolas Parangan." [18]
Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed
of sale was read and explained by him to petitioner. When asked if witness has any knowledge whether
petitioner knows how to read or write, he answered in the negative. [19] This latter admission impresses upon us
that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his
assistance would not have been necessary.
The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The
contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of
Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the
agreement it was one executed to secure some loans.
Anent the issue of whether the outstanding mortgages on the subject property can be enforced against
petitioner, we rule in the affirmative.
Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own
property.[20] So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan
would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting
that petitioner may not be assuming personal liability for the debt, her property shall nevertheless secure and
respond for the performance of the principal obligation. [21] It is admitted that petitioner is the owner of the
parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by
petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of
authority. She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a
valid revocation duly furnished to the mortgagee, the same continues to have force and effect as against third
persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides:
"Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its
revocation shall not prejudice the latter if they were not given notice thereof."
The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to
represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal
with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three loans
were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are
concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within
the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority
according to the understanding between the principal and the agent. [22] The Special Power of Attorney
particularly provides that the same is good not only for the principal loan but also for subsequent commercial,
industrial, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of
attorney is revoked in a public instrument and a copy of which is furnished to PNB. [23] Even when the agent
has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act
as though he had full powers (Article 1911, Civil Code). [24] The mortgage directly and immediately subjects the
property upon which it is imposed. [25] The property of third persons which has been expressly mortgaged to
guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment
thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for which
it is liable.[26] However, petitioner has an unquestionable right to demand proportional indemnification from

3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY
THEREFORE BE SUBJECTED TO EXECUTION SALE.
4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00
BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT.
SO ORDERED.
G.R. No. 132415

January 30, 2002

MIGUEL KATIPUNAN, INOCENCIO VALDEZ, EDGARDO BALGUMA and LEOPOLDO BALGUMA,


JR.,petitioners,
vs.
BRAULIO KATIPUNAN, JR., respondent.
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari 1 assailing the Decision2 of the Court of Appeals dated July 31,
1997 in CA-GR CV No. 45928, "Braulio Katipunan, Jr. vs. Miguel Katipunan, Inocencio Valdez, Atty. Leopoldo
Balguma, Sr., Edgardo Balguma and Leopoldo Balguma, Jr." which set aside the Decision of the Regional
Trial Court (RTC) of Manila, Branch 28, in Civil Case No. 87-39891 for annulment of a Deed of Absolute Sale.
The antecedents are:
Respondent Braulio Katipunan, Jr. is the owner of a 203 square meter lot and a five-door apartment
constructed thereon located at 385-F Matienza St., San Miguel, Manila. The lot is registered in his name under
TCT No. 1091933 of the Registry of Deeds of Manila. The apartment units are occupied by lessees.
On December 29, 1985, respondent, assisted by his brother, petitioner Miguel Katipunan, entered into a Deed
of Absolute Sale4with brothers Edgardo Balguma and Leopoldo Balguma, Jr. (co-petitioners), represented by
their father Atty. Leopoldo Balguma, Sr., involving the subject property for a consideration of P187,000.00.
Consequently, respondents title to the property was cancelled and in lieu thereof, TCT No. 168394 5 was
registered and issued in the names of the Balguma brothers. In January, 1986, Atty. Balguma, then still alive,
started collecting rentals from the lessees of the apartments.
On March 10, 1987, respondent filed with the RTC of Manila, Branch 21, 6 a complaint for annulment of the
Deed of Absolute Sale, docketed as Civil Case No. 87-39891. 7 He averred that his brother Miguel, Atty.
Balguma and Inocencio Valdez (defendants therein, now petitioners) convinced him to work abroad. They
even brought him to the NBI and other government offices for the purpose of securing clearances and other
documents which later turned out to be falsified. Through insidious words and machinations, they made him
sign a document purportedly a contract of employment, which document turned out to be a Deed of Absolute
Sale. By virtue of the said sale, brothers Edgardo and Leopoldo, Jr. (co-defendants), were able to register the
title to the property in their names. Respondent further alleged that he did not receive the consideration stated
in the contract. He was shocked when his sister Agueda Katipunan-Savellano told him that the Balguma
brothers sent a letter to the lessees of the apartment informing them that they are the new owners. Finally, he

claimed that the defendants, now petitioners, with evident bad faith, conspired with one another in taking
advantage of his ignorance, he being only a third grader.
In their answer, petitioners denied the allegations in the complaint, alleging that respondent was aware of the
contents of the Deed of Absolute Sale and that he received the consideration involved; that he also knew that
the Balguma brothers have been collecting the rentals since December, 1985 but that he has not objected or
confronted them; and that he filed the complaint because his sister, Agueda Savellano, urged him to do so. 8
Twice respondent moved to dismiss his complaint (which were granted) on the grounds that he was actually
instigated by his sister to file the same; and that the parties have reached an amicable settlement after Atty.
Balguma, Sr. paid him P2,500.00 as full satisfaction of his claim. In granting his motions for reconsideration,
the trial court was convinced that respondent did not sign the motions to dismiss voluntarily because of his
poor comprehension, as shown by the medical report of Dr. Annette Revilla, a Resident Psychiatrist at the
Philippine General Hospital. Besides, the trial court noted that respondent was not assisted by counsel in
signing the said motions, thus it is possible that he did not understand the consequences of his action. 9

rule is to accord much weight to the impressions of the trial judge, who had the opportunity to
observe the witnesses directly and to test their credibility by their demeanor on the stand (People
vs. Errojo, 229 SCRA 49). Such impression however, is not per se the basis of a conclusion, for it
needs conformity with the findings of facts relevant to the case.
We find it indispensable to give credit to the findings of Dr. Ana Marie Revilla, whose testimony
remains unshaken and unimpeached. The tests she made are revealing and unrebutted and has a
bearing on facts of the case.
It is a proven fact that Braulio reached only Grade III due to his very low IQ; that he is illiterate; and
that he can not read and is slow in comprehension. His mental age is only that of a six-year old
child. On the other hand, the documents presented by the appellees in their favor, i.e., the deeds
of mortgage and of sale, are all in English. There is no showing that the contracts were read and/or
explained to Braulio nor translated in a language he understood.
Article 1332 of the Civil Code provides:

Eventually the trial court set the case for pre-trial. The court likewise granted respondents motion to appoint
Agueda Savellano as his guardian ad litem.10
After hearing, the trial court dismissed the complaint, holding that respondent failed to prove his causes of
action since he admitted that: (1) he obtained loans from the Balgumas; (2) he signed the Deed of Absolute
Sale; and (3) he acknowledged selling the property and that he stopped collecting the rentals.
Upon appeal by respondent, the Court of Appeals, on July 31, 1997, rendered the assailed Decision, the
dispositive portion of which reads:
"WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE, and a new
one entered annulling the Deed of Sale. Consequently, TCT No. 168394 is hereby declared null
and void and of no force and effect. The Register of Deeds of Manila is directed to cancel the
same and restore TCT No. 109193 in the name of Braulio Katipunan.
"SO ORDERED."
In reversing the RTC Decision, the Court of Appeals ruled:
"Upon close scrutiny of all the evidence on record, plaintiff-appellants contention finds support in
the certification dated August 4, 1987 issued by Dr. Ana Marie Revilla, a psychiatrist at the UPPGH, who was presented as an expert witness. Her findings explained the reason why plaintiffappellant showed a lot of inconsistencies when he was put on the stand. It supports the fact that
plaintiff-appellant is slow in comprehension and has a very low IQ. Based on such findings, the trial
court was faulted for its wrong assessment of appellants mental condition. It arbitrarily disregarded
the testimony of a skilled witness and made an unsupported finding contrary to her expert opinion.
Admittedly, expert witnesses when presented to the court must be construed to have been
presented not to sway the court in favor of any of the parties, but to assist the court in the
determination of the issue before it(Espiritu vs. Court of Appeals, 242 SCRA 362). Expert opinions
are not ordinarily conclusive. They are generally regarded as purely advisory in character; the
court may place whatever weight they choose upon such testimony and may reject it if they find it
inconsistent with the facts in the case or otherwise unreasonable (Basic Evidence by Ricardo J.
Francisco, pp. 202).
The trial court whose decision is now under review refused to admit the experts testimony and
prefer to base its decision on its findings that contrary to the allegation of the appellant, he is
nonetheless capable of responding to the questions expounded to him while on the stand. In short,
the court was swayed by its own observation of appellants demeanor on the stand. Of course, the

Art. 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.
Furthermore, if Braulio has a mental state of a six year old child, he can not be considered as fully
capacitated. He falls under the category of incompetent as defined in Section 2, Rule 92 of the
Rules of Court, which reads:
Sec. 2. Meaning of Word Incompetent - Under this rule, the word incompetent
includes persons suffering the penalty of civil interdiction or who are hospitalized
lepers, prodigals, deaf and dumb who are unable to read and write, those who are of
unsound mind, even though they have lucid intervals, and persons not being of
unsound mind, but by reason of age, disease, weak mind, and other similar causes,
can not, without outside aid, take care of themselves and manage their property,
becoming thereby an easy prey for deceit and exploitation.
We also note the admission of defendant-appellee Miguel Katipunan, that he and Braulio received
the considerations of the sale, although he did not explain what portion went to each other of them.
Anyway, there is no reason why Miguel should receive part of the consideration, since he is not a
co-owner of the property. Everything should have gone to Braulio. Yet, Miguel did not refute that he
was giving him only small amounts (coins).
As to the allegation of the scheme utilized in defrauding Braulio, neither Miguel nor Atty. Balguma
refuted the statement of Braulio that he was being enticed to go abroad - which was the alleged
reason for the purported sale. Nothing was explained about the alleged trip to NBI, the fake
passport, etc., nor of Miguels own plans to go abroad. It is then most probable that it was Miguel
who wanted to go abroad and needed the money for it.
In view of the foregoing, it is apparent that the contract entered into by Braulio and Atty. Balguma is
voidable, pursuant to the provisions of Article 1390 of the Civil Code, to wit:
Art. 1390. The following contracts are voidable or annullable, even though there may
have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court, they
are susceptible of ratification."11

Where did you sign that document?

I signed that document in the house of Sencio.

Where is this house of Sencio?

It is just behind our house at San Miguel.

Nobody informed you what document you were signing?

Nobody informed me what document I was signing.

Who asked you to sign that document?

My brother Miguel and Sencio asked me to sign that document.

You never bothered to ask your brother Miguel why you were signing that document?

According to them, if I will not sign, something will happen.

Who particularly told you that if you will not sign that document something will happen?

Atty. Balguma. (witness pointing to Atty. Balguma)

Petitioners filed a motion for reconsideration but was denied. Hence, this petition.
Petitioners, in seeking the reversal of the Court of Appeals Decision, rely heavily on the rule that findings of
fact by the trial courts are entitled to full faith and credence by the Appellate Court. Petitioners contend that the
Court of Appeals erred when it overturned the factual findings of the trial court which are amply supported by
the evidence on record.
The petition is devoid of merit.
While it may be true that findings of a trial court, given its peculiar vantage point to assess the credibility of
witnesses, are entitled to full faith and credit and may not be disturbed on appeal, this rule is not infallible, for it
admits of certain exceptions. One of these exceptions is when there is a showing that the trial court had
overlooked, misunderstood or misapplied some fact or circumstance of weight and substance, which, if
considered, could materially affect the result of the case.12Also, when the factual findings of the trial court
contradict those of the appellate court, this Court is constrained to make a factual review of the records and
make its own assessment of the case. 13The instant case falls within the said exception.
A contract of sale is born from the moment there is a meeting of minds upon the thing which is the object of
the contract and upon the price.14This meeting of the minds speaks of the intent of the parties in entering into
the contract respecting the subject matter and the consideration thereof. 15Thus, the elements of a contract of
sale are consent, object, and price in money or its equivalent. 16Under Article 1330 of the Civil Code, consent
may be vitiated by any of the following: (a) mistake, (2) violence, (3) intimidation, (4) undue influence, and (5)
fraud.17The presence of any of these vices renders the contract voidable.
Here, as borne by the facts on hand, respondent signed the deed without the remotest idea of what it was,
thus:
"ATTY. SARMIENTO:

Q You want to tell the court that Atty. Balguma at that time you signed that document was
present?
A

Yes, sir, he was there.

Q After Miguel received that money which amount you do not remember how much, do you
remember having signed a document purported to be sale of property that which you owned?

What if any did Atty. Balguma do when you were asked to sign that document?

He was asking me also to sign.

Yes, I signed something because they forced me to sign.

COURT (To the witness)

COURT (To the witness)

Do you know how to affix your signature?

Were you threatened with a gun or any instrument?

Yes, Your Honor.

No, Your Honor.

How were you threatened?

I was shoved aside by Sencio and Miguel and I was surprised why they made me sign.

Q You sign your name here. (witness is given a piece of paper by the court wherein he was
made to sign his name)
ATTY. SARMIENTO:

Did you fall down when you were shoved?

Q You said that you remember you have signed a document. Did you come to know what
kind of document was that which you signed at that time?

I was made to move to the side.

And because of that you signed that document that you were being forced to sign?

I do not know.

Yes, sir.

What kind of paper did you sign?

Q You want to tell this court that it was only when your brother Miguel gave (you) money
that he told you that "we have now the money from Atty. Balguma"?

A coupon bond paper.

Was there something written?

There was something written on it, but I do not know.

Q Did you receive any amount from Miguel every time he was given by Atty. Balguma?
You received also money from Miguel every time he was given by Atty. Balguma?

Was it typewritten?

A There was something typewritten when it was shown to me but I do not know what it
was."18(Underscoring supplied)
The circumstances surrounding the execution of the contract manifest a vitiated consent on the part of
respondent. Undue influence was exerted upon him by his brother Miguel and Inocencio Valdez (petitioners)
and Atty. Balguma. It was his brother Miguel who negotiated with Atty. Balguma. However, they did not explain
to him the nature and contents of the document. Worse, they deprived him of a reasonable freedom of choice.
It bears stressing that he reached only grade three. Thus, it was impossible for him to understand the contents
of the contract written in English and embellished in legal jargon. Even the trial court, in reinstating the case
which it earlier dismissed, took cognizance of the medical finding of Dr. Revilla (presented by respondents
counsel as expert witness) who testified during the hearing of respondents motion for reconsideration of the
first order dismissing the complaint. According to her, based on the tests she conducted, she found that
respondent has a very low IQ and a mind of a six-year old child. 19 In fact, the trial court had to clarify certain
matters because Braulio was either confused, forgetful or could not comprehend. 20 Thus, his lack of education,
coupled with his mental affliction, placed him not only at a hopelessly disadvantageous position vis-vis petitioners to enter into a contract, but virtually rendered him incapable of giving rational consent. To be
sure, his ignorance and weakness made him most vulnerable to the deceitful cajoling and intimidation of
petitioners. The trial court obviously erred when it disregarded Dr. Revillas testimony without any reason at all.
It must be emphasized that petitioners did not rebut her testimony.
Even the consideration, if any, was not shown to be actually paid to respondent. Extant from the records is the
fact that Miguel profited from the entire transaction and gave only small amounts of money to respondent,
thus:
"Q Do you know how much money was given to Miguel and from whom did that money come
from?
A

I do not know how much, but the money came from Atty. Balguma.

Q You do not know how much amount was given by Atty. Balguma and for what
consideration was the money given you are not aware of that?
A

I am not aware because I was not there, I do not know anything.

Q You want to tell the court that despite that it is you being the owner of this property it
was Miguel who negotiated the asking of money from Atty. Balguma?
A

Yes, it is like that.

Were you consulted by your brother Miguel when he asked money from Atty. Balguma?

No, sir, in the beginning he kept it a secret then later on he told us.

A No, sir, I did not even know where that money came from. He was about to leave for
abroad when he told me that he received money from Atty. Balguma.

Yes, he would give me small denominations, "barya".

Q When you said "barya", would you be able to tell the court how much this barya you are
referring to is?
A

May be twenty pesos, may be ten pesos, but they are all loose change.

Q Tell us how many times did Miguel receive money from Atty. Balguma as much as you can
recall?
A I do not know because every time my brother Miguel and Atty. Balguma would transact
business, I was not present.
x

Q Before or after the signing of this piece of paper were you given any big amount of
money by your brother Miguel or Atty. Balguma or Sencio?
A After signing that document, Atty. Balguma gave me several loose change "barya", no
paper bills. A just handful of coins." 21 (Underscoring supplied)
We are convinced that respondent was telling the truth that he did not receive the purchase price. His
testimony on this point was not controverted by Miguel. Moreover, Atty. Balguma admitted that it was
Miguel who received the money from him.22 What Miguel gave respondent was merely loose change or
"barya-barya," grossly disproportionate to the value of his property. We agree with the conclusion of the Court
of Appeals that "it is then most probable that it was Miguel who wanted to go abroad and needed the money
for it."
In the case of Archipelago Management and Marketing Corp. vs. Court of Appeals, 23penned by Justice
Artemio V. Panganiban, this Court sustained the decision of the Court of Appeals annulling the deed of sale
subject thereof. In that case, Rosalina (the owner) was convinced by her second husband to sign several
documents, purportedly an application for the reconstitution of her burned certificate of title. However, said
documents turned out to be a Deed of Absolute Sale where it was stipulated that she sold her property for P
1,200,000.00, a consideration which she did not receive. The Court ruled that Rosalina, who was quite old at
that time she signed the deed, was tricked by her own husband, who employed fraud and deceit, into believing
that what she was signing was her application for reconstitution of title.
A contract where one of the parties is incapable of giving consent or where consent is vitiated by mistake,
fraud, or intimidation is not void ab initio but only voidable and is binding upon the parties unless annulled by
proper Court action. The effect of annulment is to restore the parties to the status quo ante insofar as legally
and equitably possible-- this much is dictated by Article 1398 of the Civil Code. As an exception however to the
principle of mutual restitution, Article 1399 provides that when the defect of the contract consists in the
incapacity of one of the parties, the incapacitated person is not obliged to make any restitution, except when

he has been benefited by the things or price received by him. Thus, since the Deed of Absolute Sale between
respondent and the Balguma brothers is voidable and hereby annulled, then the restitution of the property and
its fruits to respondent is just and proper. Petitioners should turn over to respondent all the amounts they
received starting January, 1986 up to the time the property shall have been returned to the latter. During the
pre-trial and as shown by the Pre-Trial Order, the contending parties stipulated that the Balguma brothers
received from the lessees monthly rentals in the following amounts:
PERIOD

AMOUNT OF RENTALS

January, 1986 to
December, 1987

P 481.00 per month

January, 1988 to
December, 1988

P2,100.00 per month

January, 1989 to
present

P3,025.00 per month

Article 24 of the Civil Code enjoins courts to be vigilant for the protection of a party to a contract who is placed
at a disadvantage on account of his ignorance, mental weakness or other handicap, like respondent herein.
We give substance to this mandate.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated July 3, 1997 in
CA-GR CV No. 45928 is AFFIRMED with MODIFICATION in the sense that petitioners Edgardo Balguma and
Leopoldo Balguma, Jr., are ordered to turn over to respondent Braulio Katipunan, Jr. the rentals they received
for the five-door apartment corresponding to the period from January, 1986 up to the time the property shall
have been returned to him, with interest at the legal rate. Costs against petitioners.
SO ORDERED.
[G.R. No. 125485. September 13, 2004]
RESTITUTA LEONARDO, assisted by JOSE T. RAMOS, petitioners, vs.COURT OF APPEALS, and
TEODORO SEBASTIAN, VICENTE SEBASTIAN, CORAZON SEBASTIAN, assisted by
ANDRES MARCELO; PEDAD SEBASTIAN, HEIRS OF EDUVIGIS SEBASTIAN, namely:
EDUARDO S. TENORLAS, ABELARDO J. TENORLAS, ADELA S. and SOLEDAD S.
TENORLAS, represented by EDUARDO S. TENORLAS, and HEIRS OF DOMINADOR,
namely: NAPOLEON SEBASTIAN, RUPERTO SEBASTIAN, ADORACION SEBASTIAN,
PRISCILLA SEBASTIAN, LITA SEBASTIAN, TITA SEBASTIAN and GLORIA SEBASTIAN,
represented by NAPOLEON SEBASTIAN; EVELYN SEBASTIAN; AURORA SEBASTIAN; and
JULIETA SEBASTIAN,respondents.

Petitioner Restituta Leonardo is the only legitimate child of the late spouses Tomasina Paul and Balbino
Leonardo. Private respondents Teodoro, Victor, Corazon, Piedad, as well as the late Eduvigis and Dominador,
all surnamed Sebastian, are the illegitimate children of Tomasina with Jose Sebastian after she separated
from Balbino Leonardo.
In an action to declare the nullity of the extrajudicial settlement of the estate of Tomasina Paul and Jose
Sebastian before Branch 57, RTC of San Carlos City, Pangasinan, petitioner alleged that, on June 24, 1988,
at around 5:00 p.m., private respondent Corazon Sebastian and her niece Julieta Sebastian, and a certain
Bitang, came to petitioners house to persuade her to sign a deed of extrajudicial partition of the estate of
Tomasina Paul and Jose Sebastian. Before signing the document, petitioner allegedly insisted that they wait
for her husband Jose Ramos so he could translate the document which was written in English. Petitioner,
however, proceeded to sign the document even without her husband and without reading the document, on
the assurance of private respondent Corazon Sebastian that petitioners share as a legitimate daughter of
Tomasina Paul was provided for in the extrajudicial partition. Petitioner then asked private respondent Corazon
and her companions to wait for her husband so he could read the document. When petitioners husband
arrived, however, private respondent Corazon and her companions had left without leaving a copy of the
document. It was only when petitioner hired a lawyer that they were able to secure a copy and read the
contents thereof.
Petitioner refuted[3] private respondents claim that they were the legitimate children and sole heirs of
Jose Sebastian and Tomasina Paul. Despite the (de facto) separation of petitioners father Balbino Leonardo
and Tomasina Paul, the latter remained the lawful wife of Balbino. Petitioner maintained that no joint
settlement of the estate of Jose Sebastian and Tomasina Paul could be effected since what existed between
them was co-ownership, not conjugal partnership. They were never married to each other. The extrajudicial
partition was therefore unlawful and illegal.
Petitioner also claimed that her consent was vitiated because she was deceived into signing the
extrajudicial settlement. She further denied having appeared before Judge Juan Austria of the Municipal Trial
Court (MTC) of Urbiztondo, Pangasinan on July 27, 1988 to acknowledge the execution of the extrajudicial
partition.
Private respondents, in their answer with counterclaim, [4] raised the defense of lack of cause of action.
They insisted that the document in question was valid and binding between the parties. According to them, on
July 27, 1988, they personally appeared before Judge Austria of the MTC of Urbiztondo, who read and
explained the contents of the document which all of them, including petitioner, voluntarily signed.
Private respondents contended that their declaration that they were legitimate children of Jose
Sebastian and Tomasina Paul did not affect the validity of the extrajudicial partition. Petitioners act of signing
the document estopped her to deny or question its validity. They moreover averred that the action filed by
petitioner was incompatible with her complaint. Considering that petitioner claimed vitiation of consent, the
proper action was annulment and not declaration of nullity of the instrument.
On July 27, 1989, petitioner filed an amended complaint [5] to include parties to the extrajudicial partition
who were not named as defendants in the original complaint.

DECISION

During the August 23, 1990 pre-trial conference, [6] no amicable settlement was reached and the parties
agreed that the only issue to be resolved was whether petitioners consent to the extrajudicial partition was
voluntarily given.

This is a petition for review under Rule 45 of the Rules of Court seeking to reverse and set aside the
decision[1] of the Court of Appeals which in turn affirmed the judgment [2] of Branch 57, Regional Trial Court
(RTC) of San Carlos City, dismissing for lack of cause of action the complaint filed by petitioner against private
respondents for declaration of nullity of the extrajudicial settlement of the estate of Jose Sebastian and
Tomasina Paul.

In a decision dated February 22, 1993, the RTC of San Carlos City, Pangasinan rendered a
decision[7] dismissing the complaint as well as the counterclaim. The court a quo ruled that the element of
duress or fraud that vitiates consent was not established and that the proper action was the reformation of the
instrument, not the declaration of nullity of the extrajudicial settlement of estate. By way of obiter dictum, the
trial court stated that, being a legitimate child, petitioner was entitled to one-half (or 19,282.5 sq.m.) of
Tomasina Pauls estate as her legitime. The 7,671.75 square meters allotted to her in the assailed extrajudicial
partition was therefore less than her correct share as provided by law.

CORONA, J.:

[8]

On appeal, the Court of Appeals affirmed the judgment of the trial court in its May 23, 1996 decision.
Hence, this petition for review on certiorari under Rule 45.

The sole issue in this case is whether the consent given by petitioner to the extrajudicial settlement of
estate was given voluntarily.
We hold that it was not.
The essence of consent is the agreement of the parties on the terms of the contract, the acceptance by
one of the offer made by the other. It is the concurrence of the minds of the parties on the object and the
cause which constitutes the contract. [9] The area of agreement must extend to all points that the parties deem
material or there is no consent at all.[10]
To be valid, consent must meet the following requisites: (a) it should be intelligent, or with an exact
notion of the matter to which it refers; (b) it should be free and (c) it should be spontaneous. Intelligence in
consent is vitiated by error; freedom by violence, intimidation or undue influence; and spontaneity by fraud. [11]

Although under Art. 1332 there exists a presumption of mistake or error accorded by the law to those
who have not had the benefit of a good education, one who alleges any defect or the lack of a valid consent to
a contract must establish the same by full, clear and convincing evidence, not merely by preponderance of
evidence.[20] Hence, even as the burden of proof shifts to the defendants to rebut the presumption of
mistake, the plaintiff who alleges such mistake (or fraud) must show that his personal circumstances warrant
the application of Art. 1332.
In this case, the presumption of mistake or error on the part of petitioner was not sufficiently rebutted by
private respondents. Private respondents failed to offer any evidence to prove that the extrajudicial settlement
of estate was explained in a language known to the petitioner, i.e.the Pangasinan dialect. Clearly, petitioner,
who only finished Grade 3, was not in a position to give her free, voluntary and spontaneous consent without
having the document, which was in English, explained to her in the Pangasinan dialect. She stated in open
court that she did not understand English. Her testimony, translated into English, was as follows:
Q: While you were there is your house at barangay Angatel, Urbiztondo, Pangasinan, what
happened?
A:

In determining the effect of an alleged error, the courts must consider both the objective and subjective
aspects of the case which is the intellectual capacity of the person who committed the mistake. [12]
Mistake, on the other hand, in order to invalidate consent should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one or both parties to
enter into the contract.[13]
According to the late civil law authority, Arturo M. Tolentino, the (old) rule that a party is presumed to
know the import of a document to which he affixes his signature and is bound thereby, has been altered by Art.
1332 of the Civil Code. The provision states that [w]hen 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.
Article 1332 was a provision taken from american law, necessitated by the fact that there continues to
be a fair number of people in this country without the benefit of a good education or documents have been
written in English or Spanish.[14] The provision was intended to protect a party to a contract disadvantaged by
illiteracy, ignorance, mental weakness or some other handicap. It contemplates a situation wherein a contract
is entered into but the consent of one of the contracting parties is vitiated by mistake or fraud committed by the
other.[15]
Thus, in case one of the parties to a contract is unable to read and fraud is alleged, the person
enforcing the contract must show that the terms thereof have been fully explained to the former. [16] Where a
party is unable to read, and he expressly pleads in his reply that he signed the voucher in question without
knowing (its) contents which have not been explained to him, this plea is tantamount to one of mistake or
fraud in the execution of the voucher or receipt in question and the burden is shifted to the other party to show
that the former fully understood the contents of the document; and if he fails to prove this, the presumption of
mistake (if not fraud) stands unrebutted and controlling. [17]

On June 24, 1988, I was in our house because I got sick, sir.

Q: What happened?
A:

When the time was about 5:00 oclock, I was awaken by my daughter-in-law, Rita Ramos,
and told me that my half sister Corazon would like to tell us something, sir.

Q: What did you do?


A:

I let them come in, sir.

Q: Did they come in?


A:

Yes, sir.

Q: Who was the companion of your half sister Corazon Sebastian when she arrived in your
house?
A:

Julita Sebastian and her daughter Bitang, sir.

Q: And who is this Julita Sebastian to you?


A:

She is my niece, sir.

Q: And then when they got inside the house, what happened?
Contracts where consent is given by mistake or because of violence, intimidation, undue influence or
fraud are voidable.[18] These circumstances are defects of the will, the existence of which impairs the freedom,
intelligence, spontaneity and voluntariness of the party in giving consent to the agreement. In determining
whether consent is vitiated by any of the circumstances mentioned in Art. 1330 of the Civil Code, courts are
given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what
they believe actually occurred, considering the age, physical infirmity, intelligence, relationship and the
conduct of the parties at the time of making the contract and subsequent thereto, irrespective of whether the
contract is in a public or private writing.[19]

A:

I asked them their purpose, sir.

Q: Did they tell you their purpose?


A:

I asked their purpose in coming to our house and they told me, I came here because I have
a partition executed so that the share of each one of us will be given, she said sir.

Q: Did you see that document?

A:

Yes, sir.

Q: Reflected upon all the pages of this Exhibit 1 are numerous signatures, two of whom
belongs (sic) to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas.

ATTY. L. TULAGAN
ATTY. D. TULAGAN
Q: Did you read the document?
(continuing)
A:

No, sir because I was waiting for my husband to have that document read or translated to
me because I could not understand, sir.

The Philippines on July, 1989, will you please educate us now Judge Austria on this
document?

Q: What could you not understand?


ATTY. O. DE GUZMAN
A:

I can not understand English, sir.


That will be improper, your Honor.

Q: But anyway, can you read?


COURT
A:

Yes, sir in Pangasinan.


What is the question, you repeat the question.

Q: Now, that document which according to you was brought by your half sister Corazon
Sebastian, what happened to that document?
A:

Corazon Sebastian request(ed) me to sign, sir.

Q: Did you sign immediately?


A:

Yes, sir, because according to her, all my shares were embodied in that document as a
legal daughter.[21]

Petitioners wish to wait for her husband, Jose T. Ramos, to explain to her the contents of the document
in the Pangasinan dialect was a reasonable and prudent act that showed her uncertainty over what was
written. Due to her limited educational attainment, she could not understand the document in English. She
wanted to seek assistance from her husband who was then out of the house. However, due to the
misrepresentation, deception and undue pressure of her half-sister Corazon Sebastian, petitioner signed the
document. Corazon assured petitioner that she would receive her legitimate share in the estate of their late
mother.
Later on, when petitioners husband examined the extrajudicial partition agreement, he found out that
petitioner was deprived of her full legitime. Under the law, petitioners share should have been one-half of her
mothers estate, comprising a total area of 19,282.50 square meters. Under the defective extrajudicial
settlement of estate, however, petitioner was to receive only 7,671.75 square meters. This was a substantial
mistake clearly prejudicial to the substantive interests of petitioner in her mothers estate. There is no doubt
that, given her lack of education, petitioner is protected by Art. 1332 of the Civil Code. There is reason to
believe that, had the provisions of the extrajudicial agreement been explained to her in the Pangasinan dialect,
she would not have consented to the significant and unreasonable diminution of her rights.
MTC Judge Austria, the officer who notarized the extrajudicial settlement, stated that he explained the
contents to all the parties concerned. Granting arguendo, however, that Judge Austria did indeed explain the
provisions of the agreement to them, the records do not reflect that he explained it to petitioner in a language
or dialect known to her. Judge Austria never stated in his testimony before the court a quo what language or
dialect he used in explaining the contents of the document to the parties. [22] Significantly, he was not even
certain if the parties to the agreement were present during the notarization of the document:
ATTY. TULAGAN

INTERPRETER:
Reflected upon all the pages of this Exhibit 1 are numerous signatures, two of whom
belongs (sic) to Piedad Paul Sebastian and Eduardo Sebastian Tenorlas, in your just
concluded testimony, you said that everyone of them appeared with you, we have here a
documented evidence coming from the Department of Justice, Bureau of Immigration and
Deportation, Manila, certifying that Piedad Paul Sebastian and Eduardo Sebastian
Tenorlas did not arrive in the Philippines or departed from the Philippines on July, 1998,
will you please educate us now Judge Austria on this document?
ATTY. O. DE GUZMAN:
Your Honor please, before the witness answer, may we examine the certification first and
may we state for the record that the month of July, 1998 does not specify any date.
ATTY. L. TULAGAN:
July.
ATTY. O. DE GUZMAN:
But not a particular date, for the record.
ATTY. L. TULAGAN:
For the whole month of July, no departure and no arrival. This is a certificate from the
Bureau of Immigration, Manila. I do not know about this, as a matter of fact, I do not
even know this person personally
WITNESS:
Somebody that kind of name appeared before me.

ATTY. L. TULAGAN:
Q: Since you do not know everybody from Urbiztondo, Pangasinan it is possible that another
person appeared and signed for that name?
A:

Yes, possible.[23]

Therefore, the presumption of mistake under Article 1332 is controlling, having remained unrebutted by
private respondents. The evidence proving that the document was not fully explained to petitioner in a
language known to her, given her low educational attainment, remained uncontradicted by private
respondents. We find that, in the light of the circumstances presented by the testimonies of the witnesses for
both parties, the consent of petitioner was invalidated by a substantial mistake or error, rendering the
agreement voidable. The extrajudicial partition between private respondents and petitioner should therefore be
annulled and set aside on the ground of mistake.

On the other hand, an action for declaration of nullity of contract presupposes a voidcontract or one
where all of the requisites prescribed by law for contracts are present but the cause, object or purpose is
contrary to law, morals, good customs, public order or public policy, prohibited by law or declared by law to be
void.[31] Such contract as a rule produces no legal and binding effect even if it is not set aside by direct legal
action. Neither may it be ratified. An action for the declaration of nullity of contract is imprescriptible. [32]
The petitioners pleading was for the declaration of nullity of the extrajudicial settlement of estate.
However, this did not necessarily mean the automatic dismissal of the case on the ground of lack of cause of
action.
Granting that the action filed by petitioner was incompatible with her allegations, it is not the caption of
the pleading but the allegations that determine the nature of the action. [33] The court should grant the relief
warranted by the allegations and the proof even if no such relief is prayed for. [34] In this case, the allegations in
the pleading and the evidence adduced point to no other remedy but to annul the extrajudicial settlement of
estate because of vitiated consent.

In Rural Bank of Caloocan, Inc. v. Court of Appeals,[24] we ruled that a contract may be annulled on the
ground of vitiated consent, even if the act complained of is committed by a third party without the connivance
or complicity of one of the contracting parties. We found that a substantial mistake arose from the employment
of fraud or misrepresentation. The plaintiff in that case was a 70-year-old unschooled and unlettered woman
who signed an unauthorized loan obtained by a third party on her behalf. The Court annulled the contract due
to a substantial mistake which invalidated her consent.

WHEREFORE, the decision of the Court of Appeals dated 23 May 1996 is hereby REVERSED. The
extrajudicial settlement of the estate of Tomasina Paul and Jose Sebastian is hereby ANNULLED and SET
ASIDE. No cost.

By the same reasoning, if it is one of the contracting parties who commits the fraud or
misrepresentation, such contract may all the more be annulled due to substantial mistake.

G.R. No. L-5496

In Remalante v. Tibe,[25] this Court ruled that misrepresentation to an illiterate woman who did not know
how to read and write, nor understand English, is fraudulent. Thus, the deed of sale was considered vitiated
with substantial error and fraud. This Court further held:[26]
Since it has been established by uncontradicted evidence that the plaintiff is practically unschooled and illiterate, not
knowing how to read, write and understand the English language in which Exhibit 22 was drafted, it would have been
incumbent upon the defendant to show that the terms there of have been fully explained to the plaintiff. The evidence is
entirely lacking at this point, and the lack of it is fatal to the cause of the defendant for his failure to discharge the burden
of proof.
Generally, the remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only
questions of law and not issues of fact. [27] This rule, however, is inapplicable in cases such as the one at bar
where the factual findings complained of are absolutely devoid of support in the records or the assailed
judgment of the appellate court is based on a misapprehension of facts. [28] Thus, this case is an exception to
the general rule on the conclusiveness of facts, the evidence pointing to no other conclusion but the existence
of vitiated consent, given the diminished intellectual capacity of the petitioner and the misrepresentation of
private respondent Corazon Sebastian on the contents of the extrajudicial partition.
Private respondents also maintain that petitioner has no cause of action since the remedy that should
be pursued is an action for annulment and not for declaration of nullity. Private respondents therefore pray for
the dismissal of this petition on the ground of lack of cause of action.
Before ruling on this procedural matter, a distinction between an action for annulment and one for
declaration of nullity of an agreement is called for.
An action for annulment of contract is one filed where consent is vitiated by lack of legal capacity of one
of the contracting parties, or by mistake, violence, intimidation, undue influence or fraud. [29] By its very nature,
annulment contemplates a contract which is voidable, that is, valid until annulled. Such contract is binding on
all the contracting parties until annulled and set aside by a court of law. It may be ratified. An action for
annulment of contract has a four-year prescriptive period.[30]

SO ORDERED.
February 19, 1910

MERCEDES MARTINEZ Y FERNANDEZ, ET AL., plaintiffs-appellants,


vs.
THE HONGKONG & SHANGHAI BANKING CORPORATION, ET AL., defendants-appellants.
Bruce & Lawrence, for appellants.
Haussermann & Cohn and Rosado, Sanz & Opisso, for appellees.
MORELAND, J.:
This is an action to set aside a contract on the ground that plaintiff's consent thereto was given under duress
and undue influence. Alejandro S. Macleod is joined as plaintiff only for the reason that he is the husband of
Mercedes Martinez and he takes no part in the action personally.
In the statement of facts and some of the legal propositions involved, we have made free use of the forms
contained in the briefs of both parties.
Alejandro S. Macleod was for many years the managing partner of the house of Aldecoa & Co. in the city of
Manila. He withdrew from the management on the 31st day of December, 1906, when Aldecoa & Co. went into
liquidation. At the time that Aldecoa & Co. ceased active business the Hongkong & Shanghai banking
Corporation was a creditor of that firm to the extent of several hundred thousand pesos and claimed to have a
creditor's lien in the nature of a pledge over certain properties of the debtor. In April, 1907, the bank began a
civil action against Alejandro S. Macleod, his wife, Mercedes Martinez, Aldecoa & Co., and the firm known as
Viuda e Hijos de Escao. In the bank's complaint it was alleged that a certain undertaking in favor of Aldecoa
& Co. had been hypothecated to the bank to secure the indebtedness of Aldecoa & Co., but that this obligation
had been wrongfully transferred by Alejandro S. Macleod into an obligation in favor in his wife, Mercedes
Martinez, to the prejudice of the bank. In May, 1907, Aldecoa & Co. began a civil action against Alejandro S.
Macleod and others for the recovery of certain shares of stock of the par value of P161.000 and for damages
in the sum of P150,000, basing its right to recover upon alleged criminal misconduct of Mr. Macleod in his
management of the firm's affairs.

When the two causes of action above referred to were discovered and the suits there mentioned commenced,
Alejandro S. Macleod and Mercedes Martinez, his wife, engaged the services of Messrs. Del-Pan, Ortigas and
Fisher, attorneys at law, to represent and defend them in the matter. Soon thereafter these attorneys made
overtures to the liquidation of Aldecoa & Co, for the settlement of the latter's claims. While these negotiations
were pending Aldecoa & Co. claimed that they had made discoveries of many frauds which Macleod had
perpetrated against the company during the period of his management, whereby the company had been
defrauded of many thousands of pesos.
On the 13th day of July, 1907, it becoming apparent that criminal proceedings would be instituted against him,
Macleod went from Manila to the Portuguese colony of Macao, a territory not covered, it appears, by
extradition treaty between the United States and the Portuguese Government. Four days thereafter, on the
17th day of July, Aldecoa & Co. filed a complaint against Mr. Macleod, charging him with the falsification of a
commercial document, and a warrant for his arrest was issued by the Court of First Instance of Manila, and the
executive department of the Philippine Government issued a formal request to the Portuguese authorities for
the extradition of the accused. This request was denied. In the meantime the attorneys for the respective
parties were engaged in negotiations for the settlement and compromise of the difference then pending and a
clearance of Mr. Macleod from all claims and demands of his creditors. Aldecoa & Co. and the bank, as a
consideration for such settlement, insisted upon the conveyance not only of all the property of Alejandro S.
Macleod but also of at least a portion of the property claimed by his wife, the plaintiff herein. The settlement
offered at that time was the same which was subsequently accepted and consummated on the 14th of August
as shown by Exhibit A. There appears to have been little resistance to this demand on the part of the
representatives of Mr. Macleod, but his wife, the plaintiff herein, stoutly objected to the conveyance required of
her, maintaining that the property which she was asked to transfer was her separate and exlusive property and
not liable for the debts of her husband. Her position was fully stated by her to her attorney, Mr. Fisher, and to
her attorney-in-fact, Mr. William Macleod. An interview between her attorney and the attorney for Aldecoa &
Co. followed this declaration on her part. Thereafter and on the night of August 4 another interview was had
between the plaintiff and her counsel, Mr. Fisher, and others, at which a long list of claims against Mr.
Macleod, prepared by Aldecoa & Co., was exhibited to the plaintiff and its contends explained to her by Mr.
Fisher and her attorney-in-fact. Some of these claims involved criminal as well as civil liability. Mr. Fisher at
that time favored a settlement in accordance with the terms proposed by Aldecoa & Co. The plaintiff, however,
refused to accept such settlement.
This being the state of affairs, one of the attorneys for the bank, on the 7th of August, 1907, was called upon
by counsel for both Aldecoa & Co. and the plaintiff in this action, who requested him to act as intermediary
between the parties and to suggest means by which a settlement could be obtained. At that interview it was
agreed that a full explanation of the condition of affairs should be made to Mr. Kingcome, a son-in-law of the
plaintiff and a businessman. This explanation was made by Mr. Stephen, manager of the Hongkong &
Shanghai Banking Corporation, one of the friends of Mr. Kingcome, at an interview arranged between them
pursuant to the arrangements made by the attorneys for the parties. Whether or not Mr. Kingcome
communicated the substance of that interview with Mr. Stephen to his mother-in-law, the plaintiff, before she
signed the document in question is in dispute in this case. There is some doubt from the record as to the exact
language used in this conversation between Kingcome and Stephen, but it appears that some reference was
made tothe interest which the British colony in Manila, of which Messrs. Stephen, Kingcome, and Macleod
were prominent members, would have in avoiding the scandal and disgrace to the latter which might be
expected to ensue unless the differences between the parties to this action were amicably arranged. It seems
at that interview that Mr. Stephen suggested to Mr. Kingcome that he advise his mother-in-law to act
reasonably in negotiating the proposed settlement. It appears that Mr. Kingcome got the impression from that
interview that Mr. Stephen thought unless the settlement were consummated additional and mortifying
misfortunes wound fall upon Mr. Macleod's family.
About the time that the inmterview between Kingcome and Stephen was celebrated Mr. Fisher was enlisting
the services of Mr. William Macleod, a nephew and close friend of plaintiff and her husband, and plaintiff's
attorney-in-fact, for a mission to plaintiff of a similar character to that of Mr. Kingcome. Mr. William Macleod, as
well as Mr. Kingcome, seems to have been persuaded by what he was told that the consequences of plaintiff's
continued refusal to make the settlement would be disastrous to Alejandro S. Macleod and his family and
would be an exhibition of very bad judgment in every way.
On August 9, 1907, the prosecuting attorney filed a second complaint against Alejandro S. Macleod and his
associate, Osorio, charging them with embezzlement and causing warrants of extradition to issue. The
complaint was made at the instance of the prosecuting attorney because he had heard that Macleod and

Osorio were about to leave for Europe and he wanted to intercept them in territory from which they could be
extradited.
On the 11th of August a long conference was held between plaintiff, her attorney, Mr. Kingcome, her son-inlaw, and William Macleod, her attorney-in-fact, at which she was informed in substance that if she assented to
the requirements of Aldecoa & Co. and the bank the civil suits against herself and her husband would be
dismissed and the criminal charges against him withdrawn, while if she refused her husband must either
spend the rest of his life in Macao or be criminally prosecuted on the charged already filed and tobe filed. At
that interview plaintiff refused to accede to the terms of settlement and that interview was terminated by a
statement on the part of Mr. Fisher, which was "Gentlemen, it is evident that there can be no compromise or
settlement, and the only thing left us to do is to defend Mr. Macleod in the best possible manner."
On the 12th of August, at an interview had between theplaintiff and her attorney-in-fact, Mr. William Macleod,
the plaintiff acceded to the terms proposed by the defendants and authorized Mr. William Macleod to execute
the contractof settlement on her behalf. The document of settlement was prepared and after certain
corrections upon the part of the plaintiff's attorneys, making the same entirely satisfactory to them, it was
signed by the plaintiff's attorney-in-fact on her behalf on the 14th of August. It was thereafter and on the same
day ratified by the plaintiff, who executed the same in person.
After Adecoa & Co. and the bank had taken possession of the property of plaintiff and her husband, conveyed
to them by Exhibit A, the civil suits were dismissed, the criminal charges withdrawn, and Mr. Macleod returned
from macao to Manila. The plaintiff had a surveyor divide the property in Malate, of which she had conveyed a
half interest, into two equal parts. She negotiated for apartition of the land on the basis of this survey. She
joined in the motion for the dismissal of the civil action to which she had been a party and in the motion in the
Court of Land Registration for the recording in the name of thegrantees of a half interest in the Malate land. All
of these acts were in pursuance of Exhibit A.
On December 3, 1907, the plaintiff filed her complaint in the present action, and, after the joining of issue and
thehearing of evidence, judgment was rendered in favor of defendants on the 29th day of May, 1909. From
this judgment, after the usual motion for a new trial, its denial and exception to such denial, plaintiff appealed
to this court.
The Civil Code in relation to the subject-matter in hand contains the following provisions:
ART. 1265. Consent given under error, violence, intimidation, or deceit shall be null.
ART. 1267. There is violence when, inorder to obtain the consent, irresistible force is used.
There is intimidation when one of the contracting parties gives his consent on account of a
reasonable and well-grounded fear of suffering an imminent and serious injury to his person or
property, or to the person or property of his spouse, descendants, or ascendants.
In determining whether or not there is intimidation the age, sex, and status of the person
intimidated must be considered.
Fear of displeasing the persons to whom obedience and respect are due shall not annul the
contract.
ART. 1268. Violence or intimidation shall annul the obligation, even though such violence or
intimidation shall have been used by a third person who did not take part in the contract.
In order that this contract be annuled it must be shown that the plaintiff never gave her consent to the
execution thereof. If a competent person has once assented to a contract freely and fairly, he is bound.
Contracts which are declared void and of no force upon the ground that they were obtained by fraud, duress,
or undue influence are so declared for the reason that the complaining party never really gave his consent

thereto. The consent in such case is not in the eye of the law a consent at all. The person has not acted. He
has done nothing he was in vinculis.
It is necessary to distinguish between real duress and the motive which is present when one gives his consent
reluctantly. A contract is valid even though one of the parties entered into it against his wishes and desires or
even against his better judgment. Contracts are also valid even though they are entered into by one of the
parties without hope of advantage or profit. A contract whereby reparation is made by one party for injuries
which he has willfully inflicted upon another is one which from its inherent nature is entered into reluctantly and
against the strong desires of the party making the reparation. He is confronted with a situation in which he
finds the necessityeither of making reparation or of taking the consequences, civil or criminal, of his unlawfull
acts. Hemakes the contract of reparation with extreme reluctance and only by thecompelling force of the
punishment threatened. Nevertheless such contract is binding and enforceable. Such a contract differs entirely
in its incidents from a contractentered into by a party for the purpose of gain. The latter contract is made with
pleasure and its terms complied with gladly. The former is a contract the execution of which the party is very
apt to repent and the terms of which he is very likely to evade if he can. It is not conclusive against them that
Aldecoa & Co. demanded that the plaintiff do something upon pain of punishing her husband for his crimes. It
is not conclusive that the plaintiff disliked exceedingly to do what they demanded. Neither is it conclusive that
the plaintiff now regrets having performed at their demand instead of compelling a resort to judicial
proceedings. It is not for these reasons that this contract may be declared null and void. If such a contract
were illegal whereby pending litigation is settled by agreement of the parties rather than by decision of the
court. If such a contract were null and void, then would be null and void every contract whereby a wrongdoer
and he who assisted him made reparation for that which he had mis appropriated or misapplied. In legal effect
there is no difference between a contract wherein one of the contracting parties exchanges one condition for
another because he looks for greater gain or profit by reason of such change and an agreement wherein one
of the contracting parties agrees to accept the lesser of two disadvantages. In either case he makes a choice
free and untrammeled and must accordingly abide by it. These are evidence of duress, facts from which
duress may be inferred, but they are not duress of themselves. In the absence of other proof and
circumstances, they might very well be held to establish duress. But there is other proof and we do not believe
that under all the facts of this case as disclosed by the record we can say that the court below erred when he
refused to findthat the plaintiff entered into the contract in question by reason of duress and undue influence.
We find lacking in this case amny of the essential elements usually found in cases of duress. The most that
the facts disclose is that the plaintiff was loath to relinquish certain rights which she claimed to have in certain
property to the end that she might be relieved from litigation then pending against her and that her husband
might escape prosecution for crimes alleged to have been committed; and that she persisted for a
considerable time in her refusal to relinquish such claimed rights. The fact that she did relinquish them upon
such consideration and under such condition does not of itself constitute duress or intimidation, nor does it
destroy the obligatory effect and force of her consent. In order to do so something more is needed. Such
influence must havebeen exercised over her that she was deprived of her free will and choice. She must have
acted from fear and not from judgment.
Not every contract made by a wife to relieve her husband from the consequences of his crimes is viodable.
Subject to certain restrictions a wife may legally dispose of herproperty as she pleases; she may squander it;
she may give it away; she may pledge or transfer it to keep her husband out of state prison. The question in
each case is exactly the same as in all such relations, was she acting according to the dictates of her own
judgment, whether good or bad, or from fear, force, or undue influence? If there are time and opportunity for
judgment to take the place of fear, and if apart from the threat there are reasons disclosed which might lead
one in the exercise of good judgment to perform the acts complained of, then the evidence as to duress and
undue influence must be very clear in order that such acts may be recalled.
The appellant cites many cases in support of her contention that the contract of the 14th of August should be
abrogated.
We have carefully examined not only all of the cases cited by the appellant but also substancially all of the
cases within our reach relating to the questions before vs. Among them are the following: Adams vs. Irving
National Bank (116 N.Y., 606); Allen vs Laflore County (76 Miss., 671); Bently vs. Ronson (11 Mich., 691;
Burton vs McMillan (8 L. R. A., N.S., 991); Bell vs. Campbell (123 Mo., 1); Galusha vs Sherman (47 L. R. A.,
417); MaMahon vs. Smith (47 Conn., 221, 36 Am Rep., 67); Gorringe vs Reed (23 Utah, 120, 90 Am St. Rep.,
692); Bank vs Bryan (62 Ia., 42); Rau vs. Zedlitz (132 Mass., 164); Lomerson vs. Johnston (47 N. J. Eq., 312);
McGroryvs. Reilly (14 Phila., 111); Foley vs. Greene (14 R.I., 618); Coffman vs. Lookout Bank (5 Lea., 232);
Haynes vs.Rudd (102 N. Y., 372); Cribbs vs. Sowle (87 Mich., 340); Osborne vs. Robins (36 N.Y., 365);

Rall vs. Raguet (4 Ohio, 400); Bank vs. Kirk (90 Pa. St., 49); Eadie vs. Slimmon (26 N.Y., 9);
Harris vs. Carmody (131 Mass., 51; Taylor vs. Jacques (106 Mass., 291); Bryant vs. Peck & W. Co. (154
Mass., 460); Hesinger vs. Dyer (147 Mo., 219); Mack vs. Praug (104 Wis., 1); Benedict vs. Broome (106
Mich., 378); Williams vs Bayley (1 Eng. & Ir. App. Cas., 200); Central Bank vs. Copeland (18 Md., 305 , 81 Am.
Dec., 597); Bradley vs. Irish (42 Ill. app., 85); Snyder vs. Willey (33 Mich., 483).
All of the above cases, except Harris vs. Carmody, Hesinger vs. Dyer, and Williams vs. Bayley, are
distinguishable from the case at bar in the following particulars:
1. In those cases there was no time within which to deliberate the matter as it should have been
deliberated.
2. There was no time or opportunity to take the advice of friends or of disinterested persons.
3. There was no time or opportunity to take advice of counsel.
4. The treats made to secure the performance of the acts complained of were made directly to the
complaining party by the person directly interested or by somene in his behalf who was working in
his interest and who had no interest whatever in the welfare of the complaining party.
5. There was no consideration for the performance of the act complained of except immunity from
the prosecution threatened.
6. The property transferred or incumbered by the act complained of was the separate property of
the person performing the act in which the person for whome the act was performed claimed no
interest whatever.
7. There was no dispute as to the title of the property transferred or incumbered, no claim made to
it by anybody, no suits pending to recover it or any portion of it, and no pretension that it could be
taken for the debts of the husband or of any other person.
In the cases of Harris vs. Carmody, Hesinger vs. Dyer, and Williams vs. Bayley, above excepted, the
complainant had the benefit of legal advice and the advice of some friend but in none of those were there
present any of the other circumstances just enumerated.
In the case of Hesinger and another vs. Dyer (147 Mo., 219), it appeared that the plaintiffs were the tenants of
the defendant on defendant's farm. During the last year that they had occupied this farm they raised some 500
bushels of corn upon which the defendant claimed to have a lien under the statue. The plaintiff Hesinger sold
the corn and applied the proceeds to his own use. Dyer threatened to institute criminal proceedings against
Hesinger for embezzling the corn if he and his wife did not execute to him their note for its value, secured by a
deed of trust upon the land of Mrs. Hesinger. They testified that because of this threat and in fear of said
prosecution they executed the note and deed of trust as required. Shortly before the papers were executed the
defendant's home, taking with him a notary public to take the acknowledgement of the deed of trust in the
event that he succeeded in getting the plaintiffs to execute it. This was one of the occasions upon which the
defendant threatened to prosecute Hesinger if he and his wife did not execute the deed of trust as required.
Mrs. Hesinger had all the time refused and still refused to execute the deed; but upon the afternoon of that day
plaintiffs went to Sedalia to consult with their son and with their attorney and thereafter went to J.M. Bailer's
office and there executed the papers in question. The court held that the note and deed of trust were voidable
as having been executed under duress.
It is at once apparent, however, that the facts differ materially from those in the case at bar. In that case the
plaintiffs contended against the personal presence of the defendant and all of the influence which that
presence implies. In that case there was absolutely no consideration moving to Mrs. Hesinger inducing the
execution of the papers in question except the release of her husband from prosecution. There was lacking in

that case everything, every consideration which would appeal to the judgment or reason of the complaining
party.

A mere reading of the facts in that case discloses that it can not be used as an authority in the case at bar. It is
widely different in its facts.

The same may be said of the other two cases, Harris vs. Carmody and Williams vs. Bayley.

A careful analysis of this case discloses the following pecularities:

The plaintiff cites also the case of Jalbuena vs. Ledesma et al. (8 Phil. Rep., 601). In that case it appeared, as
stated by the court, that

In the first place, the undisputed evidence demostrates that the first offers of compromise were made by the
plaintiff herself through her representatives. It appears that from first to last the effort and anxiety to
compromise the claims of the defendants were on the part of the plaintiff through her representatives. The
position of Aldecoa & Co. throughout the negotiations, as it appears from the testimony in the case, was that a
settlement of their claims against the plaintiffs would not result in any peculiar or especial benefit to them
inasmuch as by the actions already commenced against the plaintiff and her husband the defendants would
be able, so they contended, to secure exactly the same property that they would obtain by the settlement
proposed. The soundness of this contention was admitted by the attorneys for the plaintiff. It was the desire on
the part of at least one of the persons especially interested in Aldecoa & Co. that Alejandro S. Macleod should
suffer criminally for the acts which he had committed against that company and such person did not hesitate to
say so repeatedly. There seems to have been throughout the negotations a fear of the part of the attornets for
the plaintiff that, partly, at least, by reason of this especial desire of said person, the negotiations would be
broken off by Aldecoa & Co. before a settlement could be consummated. The defendants never urged the
ultimatum laid down by the defendants. They simply stated to the attorneys for the plaintiffs that they must
claims, and it appeared from the position assumed that it was immaterial to them whether they obtained those
properties through the courts or by means of a settlement. They left Macleod and his wife to choose foir
themselves, upon their own judgment and upon the advice of their attorneys and relatives, the course to be by
them pursued. That the defendants were not especially urging the settlement in question is demonstrated by
the fact that Mr. Fisher, the attorney for the plaintiffs, was doubtful about securing the participation of Aldecoa
& Co. in the agreement up to the very moment of its execution, and it appears from the evidence of Mr. Cohn
that Mr. Fisher, laboring under such apprehension, actually withheld important information from Aldecoa & Co.
for fear such information would deter them at the last moment from giving their assent to the arrangement.

Ildefonso Doronila, having been the tutor of the Ledesma minor children, was cited in August,
1900, before the provost court of Iloilo on the petition of the defendant Lopez, to show cause why
he should not surrender the papers, securities, and money in his charge, and he was in the course
of the proceeding ordered to render his accounts as tutor, and it is to be inferred from the
testimony of the defendant Ledesma that the accounts were in fact rendered. On December 3 he
came to an agreement with the defendant Lopez, as representative of the children, whereby his
accounts were allowed and accepted and the value of the missing papers, claimed to have been
lost in the bombardment of Iloilo, was fixed at P12,000, and a certain obligation of the estate to
Juan Casells to the amount of P4,000 was assumed by him. Subsequently this agreement was
ratified by the family council, which imposed, however, an additional condition that security should
be given by Doronila for the payment of P16,000 in case the missing papers should not be
produced within six months and the novation of the debt of Juan Casells accepted by the debtor.
Thereafter he was brought before the provost judge in the pending proceeding and was ordered to
give additional security, and failing to do so was committed to jail, where he had already been once
confined on the institution of the proceeding. As all of his property was already bound to the estate
for the performance of his duty as guardian, it became expedient to find a surety for him, and the
plaintiff (wife of Doronila), who had accompanied him to the court, was thereupon induced to join
with him in this undertaking. As to the preceedings in court, the testimony of the plaintiff, reduced
to narrative form, is as follows:
"I remeber having been in the office of the provost judge of Iloilo in December, 1900. I
went there to visit my husband, who was in jail. While there I was summoned before
the provost judge by a soldier, and I went up before the provost and requested him to
set my husband free, he not being guilty of anything. I asked him, crying, to put my
husmand at liberty, but the provost did not listen to me; on the contrary, he asked me to
file security for what was lost in my house during the bombardment, and he told me
that he was going to put my husband in jail if I did not obligate my property as security.
Fearing that he was going to be put in jail again, I was compelled to sign, it being a
time when we and others were under fear and I was afraid that he would be punished
and that they would deport him. In the fear that I was then under I did not know any
other remedy but to sign. He told me that my husband would be sent again to jail if I did
not sign."
This communication was carried on through the medium of an interpreter, one Pedro Regalado,
who testified:
"The provost judge told Sra. Vicenta . . . in these terms: "You sign a document
guaranteeing with your property the obligation contracted by Sr. Doronila, your
husband." She answered to these words that her husband was not guilty of the loss of
the documents, as when the bombardment came the documents were in a trunk and
were lost during the bombardment. When she said that she could not respond, then the
provost said: "You sign this document; you either sign this document or I will send you
husband back to jail." More or less I remember that he said: "Interpreter, tell her to
either sign this document or I will have her husband sent again to jail."
In this case the wife sued to set aside the obligation upon the ground that it was obtained from her by duress
and undue influence. She justly succeded.

In the secon place, there were at no time during the course of these negotiations for settlement any direct
personal relations or communications between the parties to this action. During the whole course of the
negotiations no person communicated with the plaintiffs on behalf of the defendants alone. The offers,
proposition, or treats, if any, made by the defendants were filtered to her through the personality, mind, and
judgment of her own attorneys or relatives, all of them being persons who had her welfare and the welfare of
her family deeply at heart and who were acting for her and her husband and not for the defendants. That
personal presence of threatening party and the influence springing therefrom, factors so potent in duress and
undue influence, were wholly lacking.
On the trial an attempt was made to show that the defendants had attempted to influence the plaintiff,
Mercedes Martinez, by acting upon her through her son-in-law, Mr. Kingcome. As stated above, Mr. Stephen
was asked by the attorneys for the plaintiff, as well as the attorneys for the defendants, to see Mr. Kingcome
and ask him to explain to his mother-in-law the facts and circumstances which were the cause of the attempts
at settlement for the purpose of inducing her to act reasonably in the premises. There was some dispute as to
whether or not Mr. Kingcome actually communicated the substance of the interview to his mother-in-law prior
to her signing the contract in question. Mr. Kingcome in his testimony states that according to his best
recollection he communicated the substance of that interview to his mother-in-law on the 11th day of August.
In considering this matter it must be remembered that the interview between Mr. Stephen and Mr. Kingcome
was not brought about by Aldecoa & Co. or its representative. It was brought about by Mr. Cohn acting as
mediary between Mr. Fisher and Mr. Rosado, the one the attorney for the plaintiffs and the other the attorney
for the defendant company, upon the request and with the express approval of both of them. The interview
which followed between Mr. Stephen and Mr. Kingcome was the direct act of plaintiff in exactly the same
manner and in exactly the same degree as it was the act of Aldecoa & Co.
In the third place, the plaintiff by means of the negotiations and settlement in question was engaged partly at
least in the settlement of her own suits and controversies. The plaintiff, Mercedes Martinez, together with
Aldecoa & Co. and Viuda e Hijos de F. Escao were sued in April, 1907, by the Hongkong & Shanghai
Banking Corporation in relation to P45,000 worth of notes claimed to have been fraudulently taken from the
assets of Aldecoa & Co. and transferred into the name and possessio of the plaintiff, Mercedes Martinez. This
was one of the actions settled and terminated by the contract in question. In this property the plaintiff released
her rights under the settlement. The only other property to which she released her rights was a half interest in

property in Malate. As to the legality of her claim that this property was her own individual property there was a
serious question, so serious in fact that she was formally and reapetedly advised by her attorneys that such
claim was in their judgment unfounded. These are the only interest which the plaintiff, Mercedes Martinez,
released or gave over in the settlement complainted of. Both of the claims were substantially in litigation and
the legality of both was seriously questioned and strongly doubted by her own attorneys. While it is not
necessary to decide and we do not decide whether her claim to either of those properties was valid or invalid,
still the fact that the validity of her claims thereto was denied by her own attorneys strongly tends to impeach
the claim that she released those properties by reason of duress and undue influence, rather that as a result of
her own deliberate judgment.
In the fourt place, it must be remembered that the plaintiff, Mercedes Martinez, never at any time stood alone
in the negotiations. There was never a moment when she did not have interposed between her and the
defendants the counsel of skilled attorneys and of interested relatives. Whatever came to her from the
defendants, their demands or their threats, if any, reached her through the medium of her friends and advisers.
She had the assistance of legal learning and business intelligence and experience. She had the careful and
thoughtful advice of her family. She was as far as possible relieved from all fear, stress, or influence except
such as were inherent in the circumstances themselves. It appears undisputed that she and her relatives and
lawyers considered throughout the negotiations and down to and including the time of the execution of the
agreement of settlement that her best interest would be subserved by acceding to the terms laid down by the
defendants. From the evidence in the case it is difficult to arrive at a conclusion other that that the acts which
she performed in making the settlement in question were acts which contributed to her welfare and the welfare
of her whole family. While this fact may not be conclusive in the present case, it nevertheless is of very
importance and significance in determining the question whether duress and undue influence were exercised
or weighing the reasons pro and con.
In the fifth place, we must bot overlook the fact that the plaintiff took advantage of said contract after its
execution and required the complete fulfilling of every one of its provisions favorable to herself. She negotiated
with Aldecoa & Co. for a partition of the Malate property and to that end caused a survey and a division thereof
to be made. She demanded of Aldecoa & Co. payment of the P2,000 provided for by the contract, which said
sum she received. She caused one-half of said Malate property to be assessed against said company. She
caused a change to be made in the proceedings to register the title to said Malate lands, previously begun by
her, so as to register her title to only one-half thereof. She caused to be dismissed the action pending against
her on account of the Escao notes, which dismissal occured after this present action was commenced.
These acts are mentioned not to show a ratification of the contract in the sence that those acts estopped her
from thereafter questioning the same, but rather as confirmatory of the theory that in the execution of the
contract complained of she acted accroding to the dictates of good business judgment rather that from duress
and undue influence.
As we have already stated, not every contract executed by a wife, even though made solely to save her
husband from the consequences of his crimes, is voidable. Solicitation, importunity, argument, and persuasion
are not undue influence and a contract is not to be set aside merely because one party used these means to
obtain the consent of the other. Influence obtained by persuation or argument or by appeals to the affection is
not prohibited either in law or morals and is not obnoxious even in courts of equity. Such may be termed "due
influence." The line between due and undue influence, when drawn, must be with full recognition of the liberty
due every true owner to obey the voice of justice, the dictates of friendship, of gratitude and of benevolence,
as well as the claims of kindred, and, when not hindered by personal incapacity or particular regulation, to
dispose of his own property according to his own free choice. (9 Cyc. 455, and cases there cited.)
On the other hand contracts entered into by a wife whereby she conveys property unquestionably hers, the
sole and only consideration for which contract is the obtaining for her husband immunity from criminal
prosecution, are always justly the objects of suspicion, and it is a wise jurisprudence which holds that, where
she defends upon the ground that she was duressed, the party enforcing such contract must expect the very
closest scrunity of the transaction with the presumptions all against him. Where, however, as in this case,
there is a real question as to the validity of claims laid by the wife to the property transferred, some of which
claimed rights are involved in actual litigation in which she is a party, while the remainder are alleged by
opposing claimants to be subject to seizure and sale under judgements against the husband; and competent
and honorable counsel, after careful and extended consideration of the facts and the law, advise her that the
rights so claimed by her in the property transferred are fictitious, unreal, and defeasible, having no foundation

in law, and she, after abundant opportunity for deliberate consideration, release such claimed rights and
thereby not only secures immunity for her husband, but also quiets litigation against herself, a very different
question is presented. It is undisputed that the attorneys for the plaintiff in this case advised her that, from the
facts which they had before them, facts of which she was fully informed, her husband had been guilty of
embezzlement and misappropriation in the management of the business of Aldecoa & Co. and that, in their
judgment, if prosecuted therefor, he would be convicted. They further advised her that the P45,000 worth of
notes claimed by her and to recover which was part of the purpose of the action against her and her husband
by the Hongkong & Shanghai Banking Corporation were a part of the property of which her husband had
criminally deprived the said company. They advised her that she would not be able to hold such notes as her
own. They further advised her that from the facts before them Aldecoa & Co. would have no difficulty in getting
a judgment for a very large amount against her husband, and, in that event, the interest which she claimed in
the Malate property would be liable in their judgment ganancial. They informed her that all that Aldecoa & Co.
required of here was the transfer of her claims rights in said property. They further advised her that if she did
not so transfer such property, Aldecoa & Co. would nevertheless obtain it by means of the actions already
commenced and to be commenced; that if she did transfer it she would lose no more than she would lose by
means of said action and she would gain in addition the immunity of her husband from criminal prosecution. In
other words, under the advice of her counsel, the situation was so presented to her that it was evidenct that in
signing the agreement of the 14th of August she had all to gain and nothing to lose, whereas, in refusing to
sign said agreement, she had all to lose and nothing to gain. In the one case she would lose her property and
save her husband. In the other, she would lose her property and her husband too. The argument thus
presented to her by her attorneys addressed itself to judgment and not to fear. It appealed to reason and not to
passion. It asked her to be moved by common sense and not by love of family. It spoke to her own interest as
much as to those of her husband. The argument went to her financial interest as well as to those of the
defendants. It spoke to her business judgment as well as to her wifely affections. From the opinions of her
attorneys, as they were presented to her upon facts assumed by all to be true, we do not well see how she
could reasonably have reached a conclusion other than that which she did reach. It is of no consequence here
whether or not her lawyers, as matter of law, she would have been deprived of her alleged interests in the
properties mentioned in the manner described and advised by her attorneys. The important thing is that she
believed and accepted their judicial and acted upon it. The question is not did he make a mistake, but did she
consent; not was she wrongly advised, but was she coerced; not was she wise, but was she duressed.
From the whole case we are of the opinion that the finding of the court below that the plaintiff executed the
contract in suit of her own free will and choice and not from duress is fully sustained by the evidence.
The judgment of the court below, is therefore, affirmed with costs against the appellant. So ordered.
G.R. No. 90423 September 6, 1991
FRANCIS LEE, petitioner,
vs.
COURT OF APPEALS, PEOPLE OF THE PHILIPPINES AND PELAGIA PANLINO DE CHIN, respondents.
Arturo S. Santos for petitioner.

MEDIALDEA, J.:p
This is a petition for review on certiorari to set aside the decision of the Court of Appeals dated June 29, 1989
which reversed the decision of the Regional Trial Court (RTC), National Capital Judicial Region, Branch 129 at
Caloocan City, Metro Manila, and reinstated as well as affirmed in toto the decision of the Metropolitan Trial
Court (MTC), Branch 2, same city. The RTC decision found the petitioner guilty of the crime of light coercion,
the dispositive portion of which reads:
IN VIEW OF ALL THE FOREGOING, the judgment appealed from is hereby modified. The accused Francis
Lee is hereby found guilty beyond reasonable doubt of the crime of light coercion, as penalized under
paragraph 2 of Article 287 of the Revised Penal Code and he is hereby sentenced to suffer a penalty of
TWENTY (20) DAYS of ARRESTO MENOR and to pay one-third (1/3) of the costs. (p. 40, Rollo)
On the other hand, the MTC decision convicted the petitioner of the offense of grave coercion, the pertinent
portion of the same is hereby quoted as follows:

WHEREFORE, premises considered, the Court finds the accused Francis Lee, guilty beyond reasonable
doubt of the offense of Grave Coercion, as charged, defined and penalized under Art. 286 of the Revised
Penal Code, and is hereby sentenced to suffer an imprisonment of THREE (3) MONTHS, of arresto mayor,
medium, and to pay a fine of P250.00, with cost.

To determine the degree of the intimidation, the age, sex and condition of the person shall be borne in mind.

The accused is further ordered to indemnify the offended party, Pelagia Paulino de Chin, by way of civil liability
the sum of P5,000.00 as moral damages and the sum of P2,000.00 as exemplary damages.

As a general rule, the findings of facts of the Court of Appeals command utmost respect. However, such
findings are disregarded if there appears in the record some fact or circumstance of weight and influence
which has been overlooked or the significance of which has been misinterpreted that, if considered, would
affect the result of the case (see San Sebastian College v. Court of Appeals, et al., G.R. No. 84401, May 15,
1991).

... (p. 33, Rollo)

A threat to enforce once's claim through competent authority, if the claim is just or legal, does not vitiate
consent.

The facts as stated by the respondent Court of Appeals are undisputed, thus:
At about 10:00 o'clock in the morning of June 20, 1984, the complainant Maria Pelagia Paulino de Chin, 23
years old, was fetched from her house at 112 BLISS Site, 8th Avenue, Caloocan City by Atanacio Lumba, a
bank employee, upon the instruction of the petitioner Branch Manager Francis Lee of Pacific Banking
Corporation (hereinafter referred to as bank). Upon arriving at the office of Pacific Banking Corporation located
at Caloocan City, petitioner Francis Lee did not attend to her immediately. After an hour later, the petitioner
confronted the complainant about a forged Midland National Bank Cashier Check No. 3526794, which the
latter allegedly deposited in the account of Honorio Carpio. During the said confrontation, the petitioner
Francis Lee was shouting at her with piercing looks and threatened to file charges against her unless and until
she returned all the money equivalent of the subject cashier check. Accordingly, the complainant was caused
to sign a prepared withdrawal slip, and later, an affidavit prepared by the bank's lawyer, where she was made
to admit that she had swindled the bank and had return the money equivalent of the spurious check. During
her stay at the said bank, the complainant, who was five (5) months in the family way, was watched by the
bank's employees and security guards. It was about six o'clock in the afternoon of the same day when the
complainant was able to leave the bank premises.
Upon the other hand, the petitioner, 37 years old, presented his version, basically a denial of the charges, to
wit: he was the Branch Bank Manager of Pacific Banking Corporation. After having been informed that Midland
National Bank Cashier Check No. 3526794 was dishonored for being spurious, he examined the relevant bank
records and discovered that complainant Maria Pelagia Paulino de Chin was instrumental in inducing their
bank to accept the subject dollar check and was also the one who withdrew the proceeds thereof, by utilizing a
withdrawal slip purportedly signed by Honorio Carpio. Petitioner, thru Atanacio Lumba, invited the complainant
to his office. Responding to his invitation, the complainant arrived at the bank before noon of June 20, 1984,
but was not attended to immediately as the petitioner had to attend to other bank clients. The complainant was
merely informed about the subject fake dollar check that was deposited with said bank upon her assurance
that it was genuine. The complainant was not compelled into signing the withdrawal slip, but she acted freely
and voluntarily in executing her affidavit and in returning the money equivalent of the subject check. There was
nothing unusual during her lengthy stay in the bank. (pp. 44-45, Rollo)
The sole issue posed in this petition is whether or not the acts of petitioner in simply "shouting at the
complainant with piercing looks" and "threats to file charges against her" are sufficient to convict him of the
crime of grave coercion (p. 6, Rollo).
Article 286 of the Revised Penal Code provides:
ART. 286. Grave coercions. The penalty of arresto mayor and a fine not exceeding 500 pesos shall be
imposed upon any person who, without authority of law, shall, by means of violence, prevent another from
doing something not prohibited by law, or compel him to do something against his will, whether it be right or
wrong.
If the coercion be committed for the purpose of compelling another to perform any religious act or to prevent
him from so doing, the penalty next higher in degree shall be imposed.
Considering that the present case does not involve violence but intimidation, the provisions of Article 1335 of
the New Civil Code on intimidation are relevant. It states:
Art. 1335. ...
There is intimidation when one of the contracting parties is compelled by a reasonable and well-grounded fear
of an imminent and grave evil upon his person or property, or upon the person or property of his spouse,
descendants or ascendants, to give his consent.

While the appellate court emphasized the pregnancy and feminine gender of the complainant, it overlooked
other significant personal circumstances which are material in determining the presence of coercion in this
case.
The records show that complainant is a highly educated person who is familiar with banking procedures. She
is a graduate of Business Administration major in Banking and Finance from NCBA. She also finished one
semester of MA in graduate school. In 1983, complainant worked with the Insular Bank of Asia and America as
a bank teller (TSN, November 20, 1984, pp. 5-7; Records, pp. 96-98).
Likewise, it appears that complainant actively participated in the deposit and withdrawal of the proceeds of the
controversial check. We find that she told Honorio Carpio (Carpio, for short), a relative and payee of the check;
to open a savings account with the Pacific Banking Corporation (Bank, for short) and accompanied him; that
subsequently, she presented a Midland National Bank Cashier's check payable to Carpio in the sum of
$5,200.00 to Mr. Lamberto R. Cruz (Cruz, for short), PRO Manager, Foreign Department; that she claimed that
she was requested by her uncle to deposit the check for collection; that she was a bank depositor and she
"knew somebody downstairs"; that she assured Cruz that the check would be honored between banks (TSN,
April 15, 1985, pp. 89-92; Records, 180-183); that on June 11, 1984, the bank, after the usual clearing period,
sent out a notice to Carpio that the proceeds of the check were already credited to his account but the same
was returned to the bank because the address was false or not true; that the total amount of the check in
pesos was P92,557.44; that the total deposit of Carpio was P92,607.44, his initial deposit of P50.00 being
added to the amount of the check; that on the same day, complainant personally inquired from the bank
whether the proceeds of the check have already been credited to Carpio's account (TSN, June 11, 1985, p.
163, records, p. 163); that upon an affirmative answer, the bank records show that on that day, the
complainant withdrew the sum of P12,607.00 thru a withdrawal slip purportedly signed by Carpio; that in the
interim, Carpio allegedly left abroad (Annex C, p. 17, Records); that on June 13, 1984, she withdrew the sum
of P80,000.44 from Carpio's account by means of a withdrawal slip allegedly signed by Carpio and then, she
closed his account; that out of the said amount, she redeposited the sum of P50,000.00 to her own savings
account and received in cash the remaining balance of P30,000.44; and on June 15 and 18, 1984,
complainant withdrew the amounts of P2,000.00 and P18,000.00, respectively from her savings account (Exh.
"3", Records, p. 15, in relation to TSN, October 8, 1985, pp. 194-195, Records, pp. 286-287).
In the light of the foregoing circumstances, petitioner's demand that the private respondent return the
proceeds of the check accompanied by a threat to file criminal charges was not improper. There is nothing
unlawful on the threat to sue. In the case of Berg v. National City Bank of New York (102 Phil. 309, 316), We
ruled that:
... It is a practice followed not only by banks but even by individuals to demand payment of their accounts with
the threat that upon failure to do so an action would be instituted in court. Such a threat is proper within the
realm of the law as a means to enforce collection. Such a threat cannot constitute duress even if the claim
proves to be unfounded so long as the creditor believes that it was his right to do so.
The Solicitor General argues that the complainant was intimidated and compelled into disclosing her time
deposit, signing the typewritten withdrawal slip and the affidavit by the petitioner's threat to detain her at the
bank.
At this point, there is a need to make a distinction between a case where a person gives his consent
reluctantly and against his good sense and judgment and where he gives no consent at all, as where he acts
against his will under a pressure he cannot resist. Thus, in Vales v. Villa (35 Phil. 769, 789), We ruled:
... It is clear that one acts as voluntarily and independently in the eye of the law when he acts reluctantly and
with hesitation as when he acts spontaneously and joyously. Legally speaking he acts as voluntarily and freely
when he acts wholly against his better sense and judgment as when he acts in conformity with them. Between

the two acts there is no difference in law. But when his sense, judgment, and his will rebel and he refuses
absolutely to act as requested, but is nevertheless overcome by force or intimidation to such an extent that he
becomes a mere automaton and acts mechanically only, a new element enters, namely, a disappearance of
the personality of the actor. He ceases to exist as an independent entity with faculties and judgment, and in his
place is substituted another the one exercising the force or making use of the intimidation. While his hand
signs, the will which moves it is another's. While a contract is made, it has, in reality and in law, only one party
to it; and, there being only one party, the one using the force or the intimidation, it is unenforceable for lack of
a second party.
From these considerations it is clear that every case of alleged intimidation must be examined to determine
within which class it falls. If it is within the first class it is not duress in law, if it falls in the second, it is.
The circumstances of this case reveal that the complainant, despite her protestations, indeed voluntarily, albeit
reluctantly, consented to do all the aforesaid acts.
Bearing in mind her involvement in the deposit and encashment of the check, the complainant admitted to
being nervous upon being informed that the check was spurious (TSN, November 20, 1984, p. 15; Record, p.
106)
We find that complainant's lengthy stay at the bank was not due to the petitioner's threat. It was rather due to
her desire to prove her innocence. Her testimony on this point is a revelation:
Atty. Dizon: (counsel for petitioner)
You are always talking of signing the withdrawal slip by force, is it not that earlier you admitted that no actual
force was employed upon you in connection with the signing of this document and the force that you are
claiming was the alleged shouting against you coupled with the statement that you could not leave?
A Yes, sir.
Q When Mr. Lee was requiring you to sign the withdrawal slip did it not occur to you to leave the bank?
Atty. Pangilinan:
The question has already been answered she said she cannot leave because she is being threatened.
Atty. Dizon:
That was during the time when she first met Mr. Lee.
Court:
Witness may answer.
A When I was about to sign the withdrawal slip I inquired from him If I signed it I can leave already but he
insisted that I should not leave, Sir.
Q When he told you that did it not occur to you to stand up and go out of the bank?
A No, Sir.
Q Why?
A He was insisting that I return the amount I have withdrawn especially on June 18 when I withdrew
P18,000.00, Sir.
COURT:
The question is why did you not leave and disregarded him?
A Because I cannot just leave him that way, Your Honor.
Atty. Dizon:

Why? What was the reason that you cannot leave him?
A Because he is insisting that the responsibility of one person be my responsibility and at that time I was
feeling nervous and he did not tell me to stand up and leave, Sir. (ibid, pp. 18-20, Records, pp. 109-111)
In her insistence to clear up her name, it is not farfetched for Us to think that the complainant voluntarily but
grudgingly returned the money to show good faith. Thus, it was she who informed the petitioner about the
existence of the RCBC Time Deposit Certificate (Exh. "A", pp. 4-5, Records). The allegation that she did so
because of petitioner's threats came from the complainant herself. She has not been able to present any other
witness to buttress her claim.
Further, We find that contrary to complainant's allegations in her affidavit (ibid, p. 5) it was not the petitioner
who suggested the encashment of the RCBC Time Deposit Certificate but her sister; and that again, it was not
the petitioner who agreed to the sister's suggestion but Cruz, the PRO Manager, Foreign Department of the
bank (TSN, January 8, 1985, pp. 40-41, Records, pp. 131-132).
Moreover, while complainant claimed that her freedom of movement was restrained, she, however, was able
to move about freely unguarded from the office of the petitioner situated at the ground floor to the office of
Cruz at the mezzanine floor where her sister found her (ibid, pp. 39- 40, Records, pp. 130-131). Undoubtedly,
during that time, there were many bank clients who transacted business with the bank (TSN, November 20,
1984, p. 21; Records, p. 112). The bank security guards then were at their posts. Complainant herself
admitted that they manifested no overt acts to prevent her from leaving despite the alleged loud threats of the
petitioner (ibid, pp. 20- 21, Records, pp. 111-112) which could be heard considering that the door to petitioner's
office was kept open (TSN, October 8, 1985, p. 184, Records, p. 276). Given such atmosphere, the
complainant still did not leave the bank.
The respondent court cited the prepared typewritten withdrawal slip and the non-presentation of the
complainant's passbook as indicators of her involuntary acts.
We disagree. The petitioner testified that the general rule was that the bank requires the presentation of the
passbook whenever withdrawals are made. However, there was an exception to this rule, i.e. when the
depositor is a regular customer in depositing or withdrawing money in the bank (TSN, October 8, 1985, pp.
189-190, Records, pp. 281-282). The prosecution failed to submit evidence to rebut his contentions. Besides,
the trial court's conclusion that the withdrawal slip was typewritten was without basis considering that the
complainant merely averred that the withdrawal slip was already prepared when she signed it (Exh. "A",
Records, p. 4).
We also take exception to the following ruling of the appellate court:
It must be noted that the position of a bank manager is one of prestige and dignity and when the said bank
was cheated or swindled it certainly reflects on the capability and efficiency of the manager and one can just
imagine the kind of mental attitude and feeling of anger the latter would have towards the alleged swindler.
Shouting, raising of voice and dagger looks are common characteristics of an angry man and that was what
accused Lee exhibited to a fragile weaker sex and pregnant offended party. It would be natural to get angry
with someone who had victimized you. Naturalness, however is not always righteous. It is like taking the law
into your hands and that was what the accused Lee did. (CA Decision, pp. 11-12, Rollo, pp. 52-53)
This pronouncement creates an impression that the petitioner had made a personal case out of the situation.
However, the evidence does not support this view. We find that at the time the check was deposited and
encashed, the petitioner was then on leave (TSN, June 11, 1985, p. 156; Records, p. 248). Under this
circumstance, it is not fair to consider the bank's mistake in accepting and paying the check as the petitioner's
mistake which could militate against his efficiency. The petitioner attributed the mistake in the payment of the
forged check to the usual risks in banking business. He stated:
Atty. Pangilinan, Private prosecutor (authorized by the Fiscal to prosecute the case in the latter's stead)
Q So you no longer consider him (Carpio) as entitled in (sic) the proceeds of the chek (sic) and therefore at
that point of (sic) time you will now concede that the payment made by you to him was a big mistake?
A When we were asking for the respondent and we were locating Honorio Carpio and we cannot locate him, I
consider that a mistake, Sir.
Q It was a big mistake as a matter of fact?

A When it comes to the falling of the business considering the big amount I would say big mistake but only a
mistake, it was a usual risk in banking business, Sir.
Q But of course Mr. Lee, being a mistake that mistake will harm and tense your personality as a Bank
Manager?
A It is up to our Manager to decide but when it comes to other transactions I am handling Three Million plus
and considering that check I don't think with all modesty it will affect me, Sir.
Q But you are called upon to try to recover any money which was in your judgment was unlawfully taken from
you by anybody
A When it comes to procedure I don't think it was unlawfully taken, as a matter of fact it was our bank who
credited this account, Sir.
Q So it is your bounded (sic) duty to recover money which was paid to someonelse (sic) which payment is not
due to him, am I correct?

Complainant was willing to return the sum of P48,000.00 she took since it was only up to this amount where
her involvement lies. However, as soon as she realized that she would have the enormous task of reimbursing
the bank the balance of the proceeds of the forged check allegedly taken by Carpio, she refused to cooperate
any further. Notwithstanding the alleged threats of petitioner, she did not budge. Thus, We find it as a logical
consequence that she merely asked for the receipt of the P18,000.00 she deposited rather than the
cancellation of her earlier withdrawal. On this point, complainant claimed that after her refusal to sign the
document, she no longer insisted on the return of the money because she felt that it was the only way she
could leave the bank premises (TSN, November 20, 1984, p. 31, Records, p. 120). This pretense, however,
was belied by her subsequent actuations. We find that she and her sister left the bank unescorted to eat their
snack; that they were required by the petitioner to come back; and that they decided not to eat but instead
went home (TSN, November 20, 1984, pp. 31-32, Records, pp. 122-123 and January 8, 1965, pp. 49-50,
Records, pp. 140-141). With such behavior, We are at a loss to understand how coercion could attach in this
case. Obviously, the complainant has not been cowed into submission.
Against this backdrop, We hold that coercion did not exist in this case. Consequently, the petitioner should be
acquitted.

A It is the duty of our lawyer to recover it, Sir.

ACCORDINGLY, the decision appealed from is hereby REVERSED and a new one hereby entered
ACQUITTING the accused of the crime of grave coercion.

Q Is it not a fact that your lawyer is only your agent?

SO ORDERED.

Atty. Dizon:

G.R. No. L-9421

I think we are going too far, it has nothing to do with the particular incident subject matter of the criminal
offense.
Court:
I see the point of the defense but the witness is very intelligent, I can see the point of counsel, because in
order not to effect his integrity he resorted to this, for example in case of a bank employee who stole P500.00
and the other one is P200.00, it could have the same mistake which is supposed to be admonished by
removal. You answer.
A Yes that is the same case whether it is small or big but when it comes to the Manager the Head Office is
very understanding when it comes to bogus checks and of course my work is a supervisory. Sir. (ibid, pp. 170171; Records, pp. 263-264)
The most telling proof of the absence of intimidation was the fact that the complainant refused to sign the
promissory note in spite of the alleged threats of the petitioner (TSN, January 8, 1985, p. 48; Records, p. 139).
American authorities have declared that "(t)he force which is claimed to have compelled criminal conduct
against the will of the actor must be immediate and continuous and threaten grave danger to his person during
all of the time the act is being committed. That is, it must be a dangerous force threatened 'in praesenti.' It
must be a force threatening great bodily harm that remains constant in controlling the will of the unwilling
participant while the act is being performed and from which he cannot then withdraw in safety." (State v. Hood,
165 NE 2d, 28, 31-32, Emphasis ours).
The complainant proferred excuses for her action. For one, she claimed that her sister's presence helped her
recover her composure (TSN, November 20, 1984, p. 29, Records, p. 120).
We are not persuaded. If indeed she had recovered her composure because of her sister's presence, she
could have just left the premises in a huff without encashing the RCBC Time Deposit Certificate or if they
(complainant and sister) were already at the RCBC, they could have desisted from encashing the check and
then could have left for home notwithstanding the alleged presence of Mr. Lumba who was no longer in his
own bank but among the RCBC clients or she could have refused to sign the affidavit which was handed to
her first before the promissory note. Yet, she did neither of these logical possibilities.
Secondly, she averred that she refused to sign the promissory note because she was able to read its contents
unlike the affidavit and she realized that she would have a great responsibility to return the amount taken by
Carpio (ibid, pp. 27-28, Records, pp. 118-119).
Such an excuse is flimsy and weak. It is strange that complainant's sister, who was with her, failed to
corroborate her statement that she was denied the opportunity to read the affidavit. Her bare assertion simply
confirms the voluntariness of her actions. All her disputed acts were geared towards proving her good faith.

July 24, 1915

L.L. HILL, plaintiff-appellant,


vs.
MAXIMINA CH. VELOSO, ET AL., defendants-appellees.
Martin M. Levering for appellant.
P.E. del Rosario for appellee.
ARELLANO, C.J.:
On December 30, 1910, Maximina Ch. Veloso, the wife of Manuel M. Tio Cuana, and Domingo Franco, the
first named with the consent of her husband, executed and signed a document of the following tenor:
For value of the goods we have received in La Cooperativa Filipina we promise to pay jointly and severally to
Michael & Co., S. en C., or its order, in the municipality of Cebu, the sum of six thousand three hundred and
nineteen pesos and thirty-three centavos (6,319.33), in the manner hereinafter set forth, with interest on such
part of said principal as may remain unpaid at the end of each month at the rate of one and a half per cent per
month until the principal shall have been completely paid. The said sum of six thousand three hundred and
nineteen pesos and thirty-three centavos (P6,319.33) shall be paid at the rate of five hundred pesos (P500)
monthly on or before the 15th day of each month, and the interest shall also be paid monthly. In case said
monthly payments are not made in the manner that we have promised hereinabove, then all the unpaid
principal shall become immediately demandable, at the option of the owner of this promissory note. In case
suit be brought for the collection of the amount of this promissory note or any part thereof, we bind ourselves
jointly and severally to pay an additional and reasonable sum as fees of the plaintiff's attorney in said suit.
(Sgd.) MAXIMINA CH. VELOSO.
DOMINGO FRANCO.
I consent to my wife, Maximina Ch. Veloso, signing the foregoing document.
(SGD.) MANUEL M. TIO CUANA.
Cebu, P.I., December 30, 1910.

This promissory note was indorsed to L.L. Hill on January 12, 1911. The following indorsement appears on the
back:
JANUARY 12, 1911.
Pay to the order of L.L. Hill.
E. MICHAEL, S. en C .
By E. MICHAEL, Gerente.
Two thousand pesos have been paid on this note that is, four installments of P500 each on February 10,
March 16, April 16, and May 22, 1911, respectively.
On July 5, 1911, L.L. Hill brought the present suit to recover the following sums: P4,319.33, with interest
thereon at the rate of 1 per cent per month from July 1, 1911, until said sum should be entirely paid;
P473.18 as interest on the principal of said note from December 30 to June 30, 1911; P1,000 as fees for
plaintiff's attorney in this suit and for the costs of the proceedings against the defendants, Maximina Ch.
Veloso and Manuel Martinez Tio Cuana.
Defendants, in answer to the complaint, alleged as a special defense that "about the middle of December,
1910, the deceased Domingo Franco, who was their son-in-law, had stated to them that attorney Martin M.
Levering, in his capacity as guardian of the minor children of Potenciano Chiong Velos, had suggested to the
said Franco the necessity of the defendants' executing in Levering's behalf a document in which it should be
set forth that the defendants would pay to Levering, in his capacity of guardian of said minors, the sum of
P8,000 which defendants had borrowed from Damasa Ricablanca, the former guardian of these minors, in
view of the fact that the court had removed this latter from office and appointed said attorney in her stead; that,
by reason of this statement by Levering to Franco, and having, as they did have, confidence in said decedent,
Domingo Franco, on account of his being a member of their family, defendants were willing to execute in
behalf of the said attorney, Levering, a document that should be set forth the sum owed by them to the wards
represented by Levering; that, consequently, said Domingo Franco had defendants said paper would be filled
out inside his office by recording on the sheet the obligation contracted by them in behalf of said wards; that
defendants did in fact sign the said paper for the purpose indicated, and, up to the death of said Domingo
Franco, which occurred in May of the present year (1911) confided in his good faith and in the belief that the
paper which they had signed had been duly filled out with the obligation contracted by them in behalf of said
wards and had been delivered to attorney Martin M. Levering as guardian of said minors, but that after the
said Franco died they learned that at no time had he ever delivered to said attorney any document whatever
signed by defendants; that they believed that the paper which said deceased had them sign for the alleged
purpose aforementioned was filled out with a totally different obligation from that which they had been made to
believe would be set forth therein. Defendants therefore alleged that, as they had had no transaction whatever
with Michael & Co., S. en C., nor with the plaintiff, and as they had not received any kind of goods whatever
from said firm, and it appearing that they, together with the deceased Domingo Franco, seemingly signed the
promissory note, plaintiff's Exhibit A, all these reasons induced them to believe, and they so alleged, that the
said deceased, without their consent, utilized the aforementioned paper for the execution of said promissory
note. Defendants further alleged that at no time did they intended to execute any promissory note in behalf of
Michael & Co., S. en C.; that it was false that Michael & Co. delivered goods to them in La Cooperativa
Filipina; and that, of their own free will, they did not execute any document whatever in behalf of the creditor
mentioned in said promissory note."
Evidence was adduced by the parties, after which the Court of First Instance of Cebu, who tried the case,
rendered judgment absolving defendants from the complaint, with their costs.
Plaintiff appealed, and his appeal having been heard and the evidence reviewed, it appears:
That the trial court sustained defendants' special defense in all its parts, making it the principal ground for his
judgment, to wit, that defendants' signatures on the promissory note were obtained by means of the fraud
alleged in their answer to the complaint and that defendants at the trial explicitly acknowledged their
signatures. The defendant Maximina Ch. Veloso testified that her son-in-law, Domingo Franco, had her sign

the document in blank; that when she did so contained no writing; and that if he made her sign it, and if she
did sign it, it was because Franco had told her that Levering compelled her to execute a document in his
behalf "for the minor children of Damasa Ricablanca," her sister-in-law and widow of Potenciano Ch. Veloso,
who had deposited with her P8,000 belonging to her minor children to whom witness acknowledged herself to
be indebted in the said sum of P8,000.
Assuming this to be true, by the recognition of the signature of this promissory note, the document became
completely effective, unless there be proof of some exception permitted by law. Were there such an exception,
the maker was the person obliged to proved it and, in the present case, that person is the defendant; and the
latter has presented absolutely no proof of the mistake by reason of which she says she signed the promissory
note, nor of the fraud or deceit she charges to her son-in-law, Domingo Franco, now deceased. Far from it,
something else was shown to have been proven by her own testimony and acts. On her being crossquestioned as to whether it was true that, as she says, she signed the promissory note in blank thinking that
she was signing an obligation in behalf of Levering as guardian of the estate belonging to the minor children of
her deceased brother, she replied that it was, that she had been told by the said Domingo Franco that it was
such an obligation, and so she was willing to sign it, because "it was really a debt."
From this testimony of Maximina Ch. Veloso and from her written answer, it appears that in December, 1910,
she signed in blank the promissory note now in question; that she signed it in the belief that the obligation
which it would contain would be that of acknowledging her debt of P8,000 in favor of the minor children of
Damasa Ricablanca and of paying it to Levering, who at that time was the guardian of then said minors; that
for this reason, in her written answer of August 4, 1911, she set up that special defense of error and deceit,
when she saw that the obligation contained in the document signed in blank was a promissory note made out
to Michael & Co. for P6,319 and some centavos.
It appears that Levering, as guardian of the minor children of Damasa Ricablanca, commenced proceedings
on November 1, 1911, to recover the P8,000 owed by the defendant Maximina Ch. Veloso, and that the latter,
on January 15, 1912, answered the complaint stating that her debt was owing to Damasa Ricablanca herself
in her own right, but not her capacity of guardian of her minor children. (Record, pp. 34 and 36.)
If she said this in 1912, it cannot be maintained that in 1910, on being required to recognize and pay the debt
of P8,000, she consented to sign a document in blank recognizing the debt and binding herself to pay it to
Levering as the then guardian of the minor children of Damasa Ricablanca. What would have been natural
and logical is that then, as in 1912, she would have refused to execute said obligation in writing in favor of
Levering, as she did reject it on January 18, 1912, since she did not consider herself to be in debt to the
minors, but to their mother.
This being shown by the record, the allegation of that other fact, entirely contradicted at trial by the same
person, cannot be considered as proof of the error and deceit alleged in this action.
It is likewise proven in this case that during the trial, after the defendant Veloso had acknowledged the debt
owing the minors represented by Levering, she was cross-questioned as to why she had denied it in 1912
when she was sued for its payment; she replied that possibly demand had been made upon her for payment,
but that she did not remember, and on being cross-questioned as to whether she remembered that judgment
had been rendered against her, she replied that she did and that she had been informed of it by her own
attorney.
This is the only thing in the record which may be opposed to the truth and presumption of truly offered by the
contents of a document freely and willingly signed.
This is not proof, much less preponderant proof, that can outweigh the contents of the promissory note that is
the basis of the complaint; on the contrary, it is conclusive proof of the falsity of the other cause of debt alleged
in the special defense.
But even granted that no such proofs existed in the case; even granted that it was proven at trial that Domingo
Franco acted in the manner stated in the answer and in the defendant Maximina Ch. Veloso's testimony, yet
even so, the deceit and error alleged could not annul the consent of the contracting parties to the promissory

note, nor exempt this defendant from the obligation incurred. The deceit, in order that it may annul the
consent, must be that which the law defines as a cause. "There is deceit when by words or insidious
machinations on the part ofone of the contracting parties, the other is induced to execute a contract which
without them he would not have made." (Civ. Code, art. 1269.)
Domingo Franco is not one of the contracting parties who may have deceitfully induced the other contracting
party, Michael & Co., to execute the contract. The one and the other contracting parties, to whom the law
refers, are the active and the passive subjects of the obligation, the party of the first part and the part of the
second part who execute the contract. The active subject and party of the first part of the promissory note in
question is Michael & Co., and the passive subject and the party of the second part are Maximina Ch. Veloso
and Domingo Franco; two, or be they more, who are one single subject, one single party. Domingo Franco is
not onecontracting party with regard to Maximina Ch. Veloso as the other contracting party. They both are but
one single contracting party in contractual relation with, or as against, Michael & Co. Domingo Franco, like any
other person who might have been able to to induce Maximina Ch. Veloso to act in the manner she is said to
have done, under the influence of deceit, would be, for this purpose, but a third person. There would then not
be deceit on the part of the one of the contracting parties exercised upon the other contracting party, but deceit
practiced by a third person.
"In accordance with the text of the Code, which coincides with that of other foreign codes, deceit by a third
person does not in general annul consent, and in support of this opinion it is alleged that, in such a case, the
two contracting parties act in good faith, (on the hypothesis set forth, Michael & Co., and Maximina Ch.
Veloso); that there is no reason for making one of the parties suffer for the consequences of the act of a third
person in whom the other contracting party may have reposed an imprudent confidence. Notwithstanding
these reasons, the deceit caused by a third person may produce effects and, in some cases, bring about the
nullification of the contract. This will happen when the third person causes the deceit in connivance with, or at
least with the knowledge, without protest, of the favored contracting party: the most probable suppositions, in
which the latter cannot be considered exempt from the responsibility. Moreover, and even without the
attendance of that circumstance, the deceit caused by a third person might lead the contracting party upon
whom it was practiced into error, and as such, though it be not deceit, may vitiate consent. In any case, this
deceit may give rise to more or less extensive and serious responsibility on the part of the third person, and
a corresponding right of action for the contracting party prejudiced" (in the present hypothesis, Maximina Ch.
Veloso against Domingo Franco). (8 Manresa, 659, 2d Ed.)
With respect to the true cause of the debt or cause of the contract, it is not necessary to set forth any
consideration whatever, because, as the deceit and error alleged cannot be estimated, it is of no importance
whether the La Cooperativa Filipina, whose goods were the cause of the debt, exclusively belonged to one or
the other of the debtors, the obligation of debt and payment being joint. But if any consideration with respect to
this error alleged on appeal were necessary, it would be that the evidence against the finding contained in the
judgment appealed from is very conclusive. Isabelo Alburo, a witness for the defense and manager of La
Cooperativa Filipina, testified that the goods furnished by Michael were received in the store La Cooperativa
Filipina; that he signed the bills for collection; that the bill-heads bore the printed legend "La Cooperativa
Filipina de Maximina Ch. Veloso;" and that all the forms, books and accounts were printed in the same
manner. The municipal treasurer exhibited the registry books and testified that the license for that
establishment was issued in the name of Maximina Ch. Veloso, and the appellee herself testified that she was
aware that it was conducted in her name.
The third assignment of error should be considered like the foregoing two. The statement is in all respects
inadmissible that the promissory note in question is absolutely null and void, not merely annulable, and that is
such cases the Supreme Court has decided that no rights can be acquired by a person who obtains a
promissory note by indorsement, in support of which averment the decisions in the cases of Palma vs.
Caizares (1 Phil. Rep., 602) and Lichauco vs. Martinez (6 Phil. Rep., 594) are cited.
In neither of these decisions is such a doctrine set up The syllabus in the first case says: "A promissory note
which represents a gambling debt and is therefore unenforceable in the hands of the payee, obtains no
greater validity in the hands of an assignee in the absence of showing that the debtor has consented to and
approved of the assignment."
And that of the second case:" Money lost at a prohibited game cannot be recovered, though the loser deliver
to the winner his note for the amount lost.

An assignee of such note who took it after it became due has no more rights than assignor.
Both of these decisions deal with a promissory note for a sum of money lost at a prohibited game; and, in the
case at bar, we have not to do with a promissory note of this nature. "The promissory note in question says
the trial court was indorsed to L.L. Hill on January 12, 1911. The note had then already become due,
although the date specified in the note for the payment of the first amount of P500 of the principal had not yet
arrived." (Bill of ex., p. 13.).
If the date for the payment of the first amount of P500 had not yet arrived, it follows that the note had not yet
fallen due, because it could have no other due date than that of the first installment, and this fact was finally
recognized by the court in another order wherein he says: "It appears that the court erred in that part of his
order where he held that the promissory note in question fell due on the date of its conveyance by
indorsement to L.L. Hill." (Bill of ex., p. 16.)
So that, neither by reason of the indorsement, nor by reason of its object, is the promissory note null, or
annulable, and the aforecited decisions are absolutely inapplicable to the case at bar.
The absolution of the defendants from the complaint being unsupported by any grounds of fact or law, it
devolves upon this court to set forth the conclusions of fact and law on which this decision rests.
The defendants' signatures on the promissory note herein concerned were identified at the trial.
These signatures were written and the obligation was contracted, without error or deceit.
There is no evidence whatever that Michael & Co. threatened to bring suit against Domingo Franco unless
Maximina Ch. Veloso signed with Domingo Franco a promissory note for the said sum.
The facts constituting the consideration for the contract contained in the promissory note are fully proven
(though proof was not necessary, as a presumption of law, not destroyed by any evidence whatever to the
contrary, lies in its favor), because it has been fully proven that the goods, the consideration for the debt, were
received in the La Cooperativa Filipina. It was likely fully proven that the La Cooperativa Filipina belonged to
the defendant, with or without Domingo Franco having a share therein, and that the goods came from Michael
& Co.
There is nothing to support the finding that the sale of the goods by Michael & Co. was a sale to Domingo
Franco only. There is no proof whatever that Levering, as the guardian of the minor children of Potenciano
Veloso, had required Maximina Veloso in December, 1910, to sign a document recognizing her debt to said
minors, nor that Domingo Franco acted, for this purpose, as the defendants' attorney and adviser. With regard
to the defendants' debt of P8,000 to the minor children of Potenciano Veloso and Damasa Ricablanca, the
instrument attesting this debt, executed by the defendants in favor of Damasa Ricablanca was who then the
guardian of said minors, had already existed since June 30, 1907, and appears on page 34 of the record.
The facts alleged in the special defense can not in any wise be held to be proven, as above demonstrated in
our examination of the parol evidence adduced in this case, and, besides, because of this other consideration:
If, as stated in the special defense, "Domingo Franco, who was a son-in-law of the defendants, had told them
that attorney Martin M. Levering, in his capacity as guardian of the minor children of Potenciano Ch. Veloso,
had suggested to Franco the necessity of the defendants' executing an instrument setting out that they would
pay to the said Attorney Martin M. Levering, in his capacity of guardian of said minors, the sum of P8,000
which defendants had borrowed from Damasa Ricablanca, the former guardian of said minors;" and if, as held
by the trial court in his judgment, Domingo Franco had then acted as defendants' attorney and adviser, there is
nothing in the record to show why Domingo Franco had to sign such an instrument attesting a debt to the
minors, as the principal obligor, when the creditor required no one but the defendants to sign such a
document; nor was it shown why, on such a supposition, Manuel Martinez did not have to sign the instrument
except merely to authorize his wife, by his permission as her husband, to sign it, when in the special defense it
is admitted that the document in question contains an acknowledgment of the debt of P8,000 "which the
defendants had borrowed from Damasa Ricablanca."

The alleged error Cannot be sustained. There is no other signed document than the promissory note
presented with the intention, on its being signed, of securing the payment of the goods sold to the La
Cooperativa Filipina.
That is what the document says, and its contents must be accepted, pursuant to section 297 of Act No. 190
(Code of Civil Procedure).
The remainder of the principal owing, P4,319.33, must be paid. Payment must also be made of the
covenanted interest at the rate of 1 per cent per month from July 1, 1911, until the whole of the said sum be
completely paid; and, finally the P1,000 stipulated in the contract as fees for the plaintiff's attorney in this case
must be paid.
With respect to the P473.18, interest on the principal of said promissory note from December 30, 1910, to
June 30, 1911, this amount cannot be recovered, because, in conformity with article 1110 of the Civil Code, a
receipt from the creditor for the principal, that contains no stipulation regarding interest, extinguishes the
obligation of the debtor with regard thereot; and the receipts issued by the International Bank show that no
reservation whatever was made with respect to the interest on the P2,000 paid on account.
The judgment appealed from is reversed. Twenty days after notification of this decision, let judgment be
entered against the defendant Maximina Ch. Veloso ordering the payment of P4,319, with the stipulated
interest thereon at the rate of 1 per cent per month from July 1, 1911, and of P1,000 as attorney's fees, with
costs of first instance, without special finding as to the costs of this second instance, it is so ordered.

Petitioner claimed that, during the tour, she was very uneasy and disappointed when it turned out that,
contrary to what was stated in the brochure, there was no European tour manager for their group of tourists,
the hotels in which she and the group were bullited were not first-class, the UGC Leather Factory which was
specifically added as a highlight of the tour was not visited, and the Filipino lady tour guide by private
respondent was a first timer, that is, she was performing her duties and responsibilities as such for the first
time. 2
In said action before the Regional Trial Court of Quezon City, petitioner likewise moved for the issuance of a
writ of preliminary attachment against private respondent on the ground that it committed fraud in contracting
an obligation, as contemplated in Section 1(d), Rule 57 of the Rules of Court, to which no opposition by the
latter appears on the record. This was granted by the court a quo 3 but the preliminary attachment was
subsequently lifted upon the filing by private respondent of a counterbond amounting to P990,000.00. 4
During the pendency of said civil case for damages, petitioner also filed other complaints before the
Department of Tourism in DOT Case No. 90-121 and the Securities and Exchange Commission in PED Case
No. 90-3738, 5wherein, according to petitioner, herein private respondent was meted out a fine of P10,000.00
by the Commission and P5,000.00 by the Department, 6 which facts are not disputed by private respondent in
its comment on the present petition.
On July 9, 1991, the court a quo rendered its decision 7 ordering private respondent to pay petitioner
P500.000.00 as moral damages, P200,000.00 as nominal damages, P300,000.00 as exemplary damages,
P50,000.00 as and for attorney's fees, and the costs of the suit. 8 On appeal, respondent court 9 deleted the
award for moral and exemplary damages, and reduced the awards for nominal damages and attorney's fees
to P30,000.00 and P10,000.00, respectively. 10
Hence, the instant petition from which, after sifting through the blades of contentions alternately thrust and
parried in the exchanges of the parties, the pivotal issue that emerges is whether or not private respondent
acted in bad faith or with gross negligence in discharging its obligations under the contract.

G.R. No. 108253 February 23, 1994


LYDIA L. GERALDEZ, petitioner,
vs.
HON. COURT OF APPEALS and KENSTAR TRAVEL CORPORATION, respondents.
Natividad T. Perez for petitioner.
Bito, Lozada, Ortega & Castillo for private respondent.

REGALADO, J.:
Our tourism industry is not only big business; it is a revenue support of the nation's economy. It has become a
matter of public interest as to call for its promotion and regulation on a cabinet level. We have special laws and
policies for visiting tourists, but such protective concern has not been equally extended to Filipino tourists
going abroad. Thus, with the limited judicial relief available within the ambit of present laws, our tourists often
prefer who fail to deliver on their undertakings. This case illustrates the recourse of one such tourist who
refused to forget.
An action for damages by reason of contractual breach was filed by petitioner Lydia L. Geraldez against
private respondent Kenstar Travel Corporation, docketed as Civil Case No. Q-90-4649 of the Regional Trial
Court of Quezon City, Branch 80. 1 After the parties failed to arrive at an amicable settlement, trial on the
merits ensued.
Culling from the records thereof, we find that sometime in October, 1989, Petitioner came to know about
private respondent from numerous advertisements in newspapers of general circulation regarding tours in
Europe. She then contacted private respondent by phone and the latter sent its representative, Alberto Vito
Cruz, who gave her the brochure for the tour and later discussed its highlights. The European tours offered
were classified into four, and petitioner chose the classification denominated as "VOLARE 3" covering a 22day tour of Europe for $2,990.00. She paid the total equivalent amount of P190,000.00 charged by private
respondent for her and her sister, Dolores.

Both the respondent court and the court a quo agree that private respondent failed to comply faithfully with its
commitments under the Volare 3 tour program, more particularly in not providing the members of the tour
group with a European tour manger whose duty, inter alia, was to explain the points of interest of and
familiarize the tour group with the places they would visit in Europe, and in assigning instead a first timer
Filipino tour guide, in the person of Rowena Zapanta, 11 to perform that role which definitely requires
experience and knowledge of such places. It is likewise undisputed that while the group was able to pay a visit
to the site of the UGC Leather Factory, they were brought there at a very late hour such that the factory was
already closed and they were unable to make purchases at supposedly discounted prices. 12 As to the firstclass hotels, however, while the court a quo found that the hotels were not fist-class, respondent court
believed otherwise, or that, at least, there was substantial compliance with such a representation.
While clearly there was therefore a violation of the rights of petitioner under the aforementioned
circumstances, respondent court, contrary to the findings of the trial court, ruled that no malice or bad faith
could be imputed to private respondent, hence there is no justification for the award of moral and exemplary
damages. Furthermore, it held that while petitioner is entitled to nominal damages, the amount awarded by the
trial court was unconscionable since petitioner did not suffer actual or substantial damage from the breach of
contract, 13 hence its reduction of such award as hereinbefore stated.
After thorough and painstaking scrutiny of the case records of both the trial and appellate courts, we are
satisfactorily convinced, and so hold, that private respondent did commit fraudulent misrepresentations
amounting to bad faith, to the prejudice of petitioner and the members of the tour group.
By providing the Volare 3 tourist group, of which petitioner was a member, with an inexperienced and a first
timer tour escort, private respondent manifested its indifference to the convenience, satisfaction and peace of
mind of its clients during the trip, despite its express commitment to provide such facilities under the Volare 3
Tour Program which had the grandiose slogan "Let your heart sing. 14
Evidently, an inexperienced tour escort, who admittedly had not even theretofore been to Europe, 15 cannot
effectively acquaint the tourists with the interesting areas in the cities and places included in the program, or to
promptly render necessary assistance, especially where the latter are complete strangers thereto, like
witnesses Luz Sui Haw and her husband who went to Europe for their honeymoon. 16
We agree with petitioner that the selection of Zapanta as the group's tour guide was deliberate and conscious
choice on the part of private respondent in order to afford her an on-the-job training and equip her with the

proper opportunities so as to later qualify her as an "experienced" tour guide and eventually be an asset of
respondent corporation. 17 Unfortunately, this resulted in a virtual project experimentation with petitioner and
the members of the tour as the unwitting participants.
We are, therefore, one with respondent court in faulting private respondent's choice of Zapanta as a qualified
tour guide for the Volare 3 tour package. It brooks no argument that to be true to its undertakings, private
respondent should have selected an experienced European tour guide, or it could have allowed Zapanta to go
merely as an understudy under the guidance, control and supervision of an experienced and competent
European or Filipino tour guide, 18 who could give her the desired training.
Moreover, a tour guide is supposed to attend to the routinary needs of the tourists, not only when the latter ask
for assistance but at the moment such need becomes apparent. In other words, the tour guide, especially by
reason of her experience in previous tours, must be able to anticipate the possible needs and problems of the
tourists instead of waiting for them to bring it to her attention. While this is stating the obvious, it is her duty to
see to it that basic personal necessities such as soap, towels and other daily amenities are provided by the
hotels. It is also expected of her to see to it that the tourists are provided with sanitary surroundings and to
actively arrange for medical attention in case of accidents, as what befell petitioner's sister and wherein the
siblings had to practically fend for themselves since, after merely calling for an ambulance, Zapanta left with
the other tour participants. 19
Zapanta fell far short of the performance expected by the tour group, her testimony in open court being
revelatory of her inexperience even on the basic function of a tour guide, to wit:
Q Now, are you aware that there were times that the tourists under the "Volare 3" were not provided with soap
and towels?
A They did not tell me that but I was able to ask them later on but then nobody is complaining.

20

....

The inability of the group to visit the leather factory is likewise reflective of the neglect and ineptness of
Zapanta in attentively following the itinerary of the day. This incompetence must necessarily be traced to the
lack of due diligence on the part of private respondent in the selection of its employees. It is true that among
the thirty-two destinations, which included twenty-three cities and special visits to nine tourist spots, this was
the only place that was not visited. 21 It must be noted, however, that the visit to the UGC Leather Factory was
one of the highlights 22 of the Volare 3 program which even had to be specifically inserted in the itinerary,
hence it was incumbent upon the organizers of the tour to take special efforts to ensure the same. Besides,
petitioner did expect much from the visit to that factory since it was represented by private respondent that
quality leather goods could be bought there at lower prices. 23
Private respondent represents Zapanta's act of making daily overseas calls to Manila as an exercise of
prudence and diligence on the latter's part as a tour guide. 24 It further claims that these calls were needed so
that it could monitor the progress of the tour and respond to any problem immediately. 25 We are not
persuaded. The truth of the matter is that Zapanta, as an inexperienced trainee-on-the-job, was required to
make these calls to private respondent for the latter to gauge her ability in coping with her first assignment and
to provide instructions to her. 26
Clearly, therefore, private respondent's choice of Zapanta as the tour guide is a manifest disregard of its
specific assurances to the tour group, resulting in agitation and anxiety on their part, and which deliberate
omission is contrary to the elementary rules of good faith and fair play. It is extremely doubtful if any group of
Filipino tourists would knowingly agree to be used in effect as guinea pigs in an employees' training program
of a travel agency, to be conducted in unfamiliar European countries with their diverse cultures, lifestyles and
languages.
On the matter of the European tour manager, private respondent's advertisement in its tour contract declares
and represents as follows:
FILIPINO TOUR ESCORT!
He will accompany you throughout Europe. He speaks your language, shares your culture and feels your
excitement.
He won't be alone because you will also be accompanied by a . . .
EUROPEAN TOUR MANAGER!

You get the best of both worlds. Having done so may tours in the past with people like you, he knows your
sentiments, too. So knowledgeable about Europe, there is hardly a question he can't answer. 27
Private respondent contends that the term "European Tour Manager" does not refer to an individual but to an
organization, allegedly the Kuoni Travel of Switzerland which supposedly prepared the itinerary for its "Volare
Europe Tour," negotiated with all the hotels in Europe, selected tourist spots and historical places to visit, and
appointed experienced local tour guides for the tour group. 28
We regret this unseemly quibbling which perforce cannot be allowed to pass judicial muster.
A cursory reading of said advertisement will readily reveal the express representation that the contemplated
European tour manager is a natural person, and not a juridical one as private respondent asserts. A corporate
entity could not possibly accompany the members of the tour group to places in Europe; neither can it answer
questions from the tourists during the tour. Of course, it is absurd that if a tourist would want to know how he
could possibly go to the nearest store or supermarket, he would still have to call Kuoni Travel of Switzerland.
Furthermore, both lower courts observed, and we uphold their observations, that indeed private respondent
had the obligation to provide the tour group not only with a European tour manger, but also with local
European tour guides. The latter, parenthetically, were likewise never made available. 29 Zapanta claims that
she was accompanied by a European local tour guide in most of the major cities in Europe. We entertain
serious doubts on, and accordingly reject, this pretension for she could not even remember the name of said
European tour guide. 30 If such a guide really existed, it is incredible why she could not even identify the former
when she testified a year later, despite the length of their sojourn and the duration of their association.
As to why the word "he" was used in the aforequoted advertisement, private respondent maintains that the
pronoun "he" also includes the word "it," as where it is used as a "nominative case form in general statements
(as in statutes) to include females, fictitious persons (as corporations)." 31 We are constrained to reject this
submission as patently strained and untenable. As already demonstrated, it is incredible that the word "he"
was used by private respondent to denote an artificial or corporate being. From its advertisement, it is beyond
cavil that the import of the word "he" is a natural and not a juridical person. There is no need for further
interpretation when the wordings are clear. The meaning that will determine the legal effect of a contract is that
which is arrived at by objective standards; one is bound, not by what he subjectively intends, but by what he
leads others reasonably to think he intends. 32
In an obvious but hopeless attempt to arrive at a possible justification, private respondent further contends that
it explained the concept of a European tour manager to its clients at the pre-departure briefing, which
petitioner did not attend. 33 Significantly, however, private respondent failed to present even one member of the
tour group to substantiate its claim. It is a basic rule of evidence that a party must prove his own affirmative
allegations. 34 Besides, if it was really its intention to provide a juridical European tour manager, it could not
have kept on promising its tourists during the tour that a European tour manager would come, 35 supposedly to
join and assist them.
Veering to another line of defense, private respondent seeks sanctuary in the delimitation of its responsibility
as printed on the face of its brochure on the Volare 3 program, to wit:
RESPONSIBILITIES: KENSTAR TRAVEL CORPORATION, YOUR TRAVEL AGENT, THEIR EMPLOYEES OR
SUB-AGENTS SHALL BE RESPONSIBLE ONLY FOR BOOKING AND MAKING ARRANGEMENTS AS
YOUR AGENTS. Kenstar Travel Corporation, your travel Agent, their employees or sub-agents assume no
responsibility or liability arising out of or in connection with the services or lack of services, of any train, vessel,
other conveyance or station whatsoever in the performance of their duty to the passengers or guests, neither
will they be responsible for any act, error or omission, or of any damages, injury, loss, accident, delay or
irregularity which may be occasioned by reason (of) or any defect in . . . lodging place or any
facilities . . . . (Emphasis by private respondent.) 36
While, generally, the terms of a contract result from the mutual formulation thereof by the parties thereto, it is
of common knowledge that there are certain contracts almost all the provisions of which have been drafted by
only one party, usually a corporation. Such contracts are called contracts of adhesion, because the only
participation of the party is the affixing of his signature or his "adhesion" thereto. 37 In situations like these,
when a party imposes upon another a ready-made form of contract, 38 and the other is reduced to the
alternative of taking it or leaving it, giving no room for negotiation and depriving the latter of the opportunity to
bargain on equal footing, a contract of adhesion results. While it is true that an adhesion contract is not
necessarily void, it must nevertheless be construed strictly against the one who drafted the same. 39 This is

especially true where the stipulations are printed in fine letters and are hardly legible as is the case of the tour
contract 40 involved in the present controversy.

Luz Sui Haw, who availed of the Volare 3 tour package with her husband for their honeymoon, shared the
sentiments of petitioner and testified as follows:

Yet, even assuming arguendo that the contractual limitation aforequoted is enforceable, private respondent
still cannot be exculpated for the reason that responsibility arising from fraudulent acts, as in the instant case,
cannot be stipulated against by reason of public policy. Consequently, for the foregoing reasons, private
respondent cannot rely on its defense of "substantial compliance" with the contract.

Q . . . Will you kindly tell us why the hotels where you stayed are not considered first class hotels?

Private respondent submits likewise that the tour was satisfactory, considering that only petitioner, out of
eighteen participants in the Volare 3 Tour Program, actually complained. 41 We cannot accept this argument.
Section 28, Rule 130 of the Rules of Court declares that the rights of a party cannot be prejudiced by an act,
declaration, or omission of another, a statutory adaptation of the first branch of the hornbook rule of res inter
alios acta 42 which we do not have to belabor here.
Besides, it is a commonly known fact that there are tourists who, although the tour was far from what the tour
operator undertook under the contract, choose to remain silent and forego recourse to a suit just to avoid the
expenses, hassle and rancor of litigation, and not because the tour was in accord with was promised. One
does not relish adding to the bitter memory of a misadventure the unpleasantness of another extended
confrontation. Furthermore, contrary to private respondent's assertion, not only petitioner but two other
members of the tour group, Luz Sui Haw and Ercilla Ampil, confirmed petitioner's complaints when they
testified as witnesses for her as plaintiff in the court below. 43
Private respondent likewise committed a grave misrepresentation when it assured in its Volare 3 tour package
that the hotels it had chosen would provide the tourists complete amenities and were conveniently located
along the way for the daily itineraries. 44 It turned out that some of the hotels were not sufficiently equipped
with even the basic facilities and were at a distance from the cities covered by the projected tour. Petitioner
testified on her disgust with the conditions and locations of the hotels, thus:
Q And that these bathrooms ha(ve) bath tub(s) and hot and cold shower(s)?

A Because the hotels where we went, sir, (are) far from the City and the materials used are not first class and
at times there were no towels and soap. And the two (2) hotels in Nevers and Florence the conditions (are)
very worse (sic). 48
Q Considering that you are honeymooners together with your husband, what (were) your feelings when you
found out that the condition were not fulfilled by the defendant?
A I would like to be very honest. I got sick when I reached Florence and half of my body got itch (sic). I think
for a honeymooner I would like to emphasize that we should enjoy that day of our life and it seems my feet
kept on itching because of the condition of the hotel. And I was so dissatisfied because the European Tour
Manager was not around there (were) beautiful promises. They kept on telling us that a European Tour
Manager will come over; until our Paris tour was ended there was no European tour manager. 49
xxx xxx xxx
Q You will file an action against the defendant because there was a disruption of your happiness, in your
honeymoon, is that correct?
A That is one of my causes of (sic) coming up here. Secondly, i was very dissatisfied (with) the condition.
Thirdly, that Volare 89 it says it will let your heart sing. That is not true. There was no European tour (manager)
and the highlights of the tour (were) very poor. The hotels were worse (sic) hotels. 50
Q All the conditions of the hotels as you . . .

Q Did they also provide soap and towels?

A Not all but as stated in the brochure that it is first class hotel. The first class hotels state that all things are
beautiful and it is neat and clean with complete amenities and I encountered the Luxembourg hotel which is
quite very dilapidated because of the flooring when you step on the side "kumikiring" and the cabinets (are)
antiques and as honeymooners we don't want to be disturbed or seen. 51

A Not all, sir, some (had) no toilet paper. 45

xxx xxx xxx

Q Which one?

Q None of these are first class hotels?

A The 2 stars, the 3 stars and some 4 stars (sic) hotels.

A Yes, sir.

Q What I am saying . . .

Q So, for example Ramada Hotel Venezia which according to Miss Geraldez is first class hotel is not first class
hotel?

A You are asking a question? I am answering you. 2 stars, 3 stars and some 4 stars (sic) hotels, no soap, toilet
paper and (the) bowl
stinks. . . .

A Yes, sir.

A Not all, sir.

xxx xxx xxx

Q You share the opinion of Miss Geraldez?


A Yes, sir.

Q And that except for the fact that some of these four star hotels were outside the city they provided you with
the comfort?

Q The same is true with Grand Hotel Palatino which is not a first class hotel?

A Not all, sir.

A Yes, sir.

Q Can you mention some which did not provide you that comfort?

Q And Hotel Delta Florence is not first class hotel?

A For example, if Ramada Hotel Venezia is in Quezon City, our hotel is in Meycauayan. And if Florence or
Ferenze is in manila, our hotel is in Muntinlupa. 46

A That is how I got my itch, sir. Seven (7) days of itch.

xxx xxx xxx


A One more hotel, sir, in Barcelona, Hotel Saint Jacques is also outside the city. Suppose Barcelona is in
Quezon City, our hotel is in Marilao. We looked for this hotel inside the city of Barcelona for three (3) hours.
We wasted our time looking for almost all the hotels and places where to eat. That is the kind of tour that you
have. 47

Q How about Hotel Saint-Jacquez, Paris?


A It is far from the city. It is not first class hotel.
Q So with Hotel Le Prieure Du Coeur de Jesus neither a first class hotel?
A Yes, sir.

Q Hotel De Nevers is not a first class hotel?


A Yes, sir.
Q Hotel Roc Blanc Andorra is not a first class hotel?
A Yes, sir.
Q Saint Just Hotel, Barcelona is not a first class hotel?
A Yes, sir.
Q Hotel Pullman Nice neither is not a first class hotel?
A Yes, sir.
Q Hotel Prinz Eugen and Austrotel are not first class hotels?
A Yes, sir. 52
Private respondent cannot escape responsibility by seeking refuge under the listing of first-class hotels in
publications like the "Official Hotel and Resort Guide" and Worldwide Hotel Guide." 53 Kuoni Travel, its tour
operator,54 which prepared the hotel listings, is a European-based travel agency 55 and, as such, could have
easily verified the matter of first-class accommodations. Nor can it logically claim that the first-class hotels in
Europe may not necessarily be the first-class hotels here in the Philippines. 56 It is reasonable for petitioner to
assume that the promised first-class hotels are equivalent to what are considered first-class hotels in Manila.
Even assuming arguendo that there is indeed a difference in classifications, it cannot be gainsaid that a firstclass hotel could at the very least provide basic necessities and sanitary accommodations. We are accordingly
not at all impressed by private respondent's attempts to trivialize the complaints thereon by petitioner and her
companions.
In a last ditch effort to justify its choice of the hotels, private respondent contends that it merely provided such
"first class" hotels which are commensurate to the tourists budget, or which were, under the given
circumstances, the "best for their money." It postulated that it could not have offered better hostelry when the
consideration paid for hotel accommodations by the tour participants was only so much, 57 and the tour price of
$2,990.00 covers a European tour for 22 days inclusive of lower room rates and meals. 58 this is implausible,
self-serving and borders on sophistry.
The fact that the tourists were to pay a supposedly lower amount, such that private respondent allegedly
retained hardly enough as reasonable profit, 59 does not justify a substandard form of service in return. It was
private respondent, in the first place, which fixed the charges for the package tour and determined the services
that could be availed of corresponding to such price. Hence, it cannot now be heard to complain that it only
made a putative marginal profit out of the transaction. if it could not provide the tour participants with first-class
lodgings on the basis of the amount that they paid, it could and should have instead increased the price to
enable it to arrange for the promised first-class accommodations.
On the foregoing considerations, respondent court erred in deleting the award for moral and exemplary
damages. Moral damages may be awarded in breaches of contract where the obligor acted fraudulently or in
bad faith. 60From the facts earlier narrated, private respondent can be faulted with fraud in the inducement,
which is employed by a party to a contract in securing the consent of the other.
This fraud or dolo which is present or employed at the time of birth or perfection of a contract may either
be dolocausante or dolo incidente. The first, or causal fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party and without which the other party would not
have entered into the contract. Dolo incidente, or incidental fraud which is referred to in Article 1344, are those
which are not serious in character and without which the other party would still have entered into the
contract. 61Dolo causante determines or is the essential cause of the consent, while dolo incidente refers only
to some particular or accident of the
obligations. 62 The effects of dolo causante are the nullity of the contract and the indemnification of
damages, 63 and dolo incidente also obliges the person employing it to pay damages. 64
In either case, whether private respondent has committed dolo causante or dolo incidente by making
misrepresentations in its contracts with petitioner and other members of the tour group, which deceptions

became patent in the light of after-events when, contrary to its representations, it employed an inexperienced
tour guide, housed the tourist group in substandard hotels, and reneged on its promise of a European tour
manager and the visit to the leather factory, it is indubitably liable for damages to petitioner.
In the belief that an experienced tour escort and a European tour manager would accompany them, with the
concomitant reassuring and comforting thought of having security and assistance readily at hand, petitioner
was induced to join the Volare 3 tourists, instead of travelling alone 65 She likewise suffered serious anxiety
and distress when the group was unable to visit the leather factory and when she did not receive first-class
accommodations in their lodgings which were misrepresented as first-class hotels. These, to our mind, justify
the award for moral damages, which are in the category of an award designed to compensate the claimant for
that injury which she had suffered, and not as a penalty on the wrongdoer, 66 we believe that an award of
P100,000.00 is sufficient and reasonable.
When moral damages are awarded, especially for fraudulent conduct, exemplary damages may also be
decreed. Exemplary damages are imposed by way of example or correction for the public good, in addition to
moral, temperate, liquidated or compensatory damages. According to the code Commission, exemplary
damages are required by public policy, for wanton acts must be suppressed. 67 An award, therefore, of
P50,000.00 is called for to deter travel agencies from resorting to advertisements and enticements with the
intention of realizing considerable profit at the expense of the public, without ensuring compliance with their
express commitments. While, under the present state of the law, extraordinary diligence is not required in
travel or tour contracts, such as that in the case at bar, the travel agency acting as tour operator must
nevertheless be held to strict accounting for contracted services, considering the public interest in tourism,
whether in the local or in the international scene. Consequently, we have to likewise reject the theory of private
respondent that the promise it made in the tour brochure may be regarded only as "commendatory trade
talk." 68
With regard to the honorarium for counsel as an item of damages, since we are awarding moral and
exemplary damages, 69 and considering the legal importance of the instant litigation and the efforts of counsel
evident from the records of three levels of the judicial hierarchy, we favorably consider the amount of
P20,000.00 therefor.
WHEREFORE, premises considered, the decision of respondent Court of Appeals is hereby SET ASIDE, and
another one rendered, ordering private respondent Kenstar Travel Corporation to pay petitioner Lydia L.
Geraldez the sums of P100,000.00 by way of moral damages, P50,000.00 as exemplary damages, and
P20,000.00 as and for attorney's fees, with costs against private respondent. The award for nominal damages
is hereby deleted.
G.R. No. 90270 July 24, 1992
ARMANDO V. SIERRA, petitioner,
vs.
HON. COURT OF APPEALS, EPIFANIA EBARLE, SOL AND ELE EBARLE, respondents.

CRUZ, J.:
A promissory note is supposed to be a genuine document acknowledging a loan duly received and promising
to pay the same on the date indicated in accordance with the conditions therein set forth. There is no record
is there cannot be of the number of times such a promise has been fulfilled and the debt discharged. But
our casebooks are replete with reports of litigations where the promissory note has been rejected and even
indignantly denounced. The usual objection is that it is spurious or fabricated, or vitiated by fraud or duress or
undue influence, or not reflective of the true intention of the parties.
The present petition is a case in point.
On November 2, 1984, the petitioner filed a complaint against the private respondents in the Regional Trial
Court of Dumaguete City. He sought recovery of a sum of money be allegedly lent them under the following
promissory note which he annexed to his complaint:

PROMISSORY NOTE
For value received, WE, EPIFANIA EBARLE, SOL EBARLE, & ELE EBARLE, hereby
promise to pay Mr. Armando V. Sierra, his heirs and assigns, the sum of EIGHTY FIVE
THOUSAND PESOS ONLY (P85,000.00) Philippine Currency, on or before October 8,
1984 at his residence in Dumaguete City.
In case of default, I will shoulder all expenses incurred in the collection and attorney's
fees of P1,000.00 plus an interest of 12% per annum.

Required to submit a comment, the private respondents contended that the assignment of errors raised only
questions of fact, the determination of which by the lower courts was as a rule final and conclusive upon this
Court. In reply, the petitioner submitted that the erroneous findings of fact made by the respondent court
removed the case from the general rule and justified a review of the challenged decision.
The Court has gone over the records of this case and finds that there was indeed a misapprehension of facts
by the trial and appellate courts. The testimonies of the private respondents on the circumstances surrounding
the execution of the promissory note are, in our view, not believable.
The Rules of Court provide that "when the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement other than the contents of the writing." 3 It is
true that parol evidence may be admitted to challenge the contents of such agreement "where a mistake or
imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the validity
of the agreement is put in issue by the pleadings." 4 However, such evidence must be clear and convincing
and of such sufficient credibility as to overturn the written agreement.

September 8, 1984
Dumaguete City
WITNESSES:
1. (Illegible) 2. _______________

SUBSCRIBED AND SWORN TO BEFORE ME this 8th day of September 1984 at the
City of Dumaguete.
In their separate answers, the private respondents denied under oath "the genuineness, due execution,
legality and validity" of the promissory note. They alleged that the note was executed "under duress, fear and
undue influence." As affirmative defenses, they claimed that they had been tacked into signing the note for
P85,000.00 (and another note for P54,550.00, but not the subject of this suit) and that the amount owing to the
petitioner was only P20,000.00. This represented the loan he had extended to Epifania Ebarle, mother of the
other private respondents, Sol Ebarle and Ele Ebarle. They also counterclaimed for damages.
At the trial, the petitioner testified that he had lent the private respondents the sum of P85,000.00 which they
said they needed "to pay some cattle for fattening to be inspected by the inspector of the Land Bank that day"
in connection with their application for a loan of P400,000.00 from the said bank to finance their logging and
cattle business. The application was apparently not approved. When the note fell due, he made demands for
their payment, which were ignored. He thereupon filed is complaint.
For their part, the private respondents declared that on September 8, 1984, they were asked by the petitioner
to sign two promissory notes, one for P85,000.00 and another for P54,550.00, in consideration of Epifania
Ebarle's outstanding debt of P20,000.00 to him. They said they initially objected because of the amounts
indicated in the said notes. They eventually agreed, however, on the petitioner's assurance that the documents
were a mere formality that he had to show his business partner, who was demanding immediate payment of
the said loan. The petitioner also said that if a complaint was filed against them for recovery under the notes,
what they should do was not answer so that they would be declared in default. A new agreement would then
be concluded for the correct amount of Epifania Ebarle's loan and with easier terms of payment.
On July 21, 1988, the trial court rendered a decision holding that the promissory note for P85,000.00 was
invalid and that the private respondents were liable to the petitioner only for the loan of P20,000.00. 1 On
appeal, this decision was affirmed by the respondents court. 2 The petitioner then came to this Court to seek
reversal of the courts below on factual and legal grounds.
The petitioner argues that the Court of Appeals committed reversible error in the interpretation of the
promissory note in light of the established facts. It also erred in not according the said note the presumption of
validity as a duly executed public document.

The private respondents are not unlettered peasants with a modicum of intelligence and unfamiliar with
business and legal matters. They are educated persons with not a little experience in business affairs and
possibly even legal transactions. They own and operate an hacienda consisting of 33 hectares. Epifania
Ebarle was a professor in English for 25 years at the Silliman University. Sol Ebarle holds a degree in
commerce, Ele Ebarle in agriculture. There is no question that these three professionals fully understood the
import and consequences of what they were doing when they signed the two promissory notes on September
8, 1984.
The notes were written in plain English and consisted of only two short paragraphs. There was no fine print to
conceal hidden meanings. Each was a simple promise to pay to the petitioner, for value received, the amounts
indicated therein not later than October 8, 1984, at his residence and to assume all litigation expenses, with
12% interest, in case of default.
The private respondents say they had misgivings about signing the notes but they signed them just the same
upon the petitioner's prodding. That is strange, considering their insistence that all Epifania Ebarle owed the
petitioner was the amount of P20,000.00, which she claimed to have received earlier. If that was all she really
obtained, it is difficult to understand why all three of them signed the promissory notes for a total indebtedness
of P139,550.00 or almost seven times the mother's alleged loan. Their natural reaction when asked to sign the
notes would have been an irate refusal. What they should have done was demand the correction of the notes
to reflect the true amount of the debt in only one note and to sign it only after such correction. Instead,
each of them, one after the other, willingly signed the two notes, the first in the morning and the second in the
afternoon of the same day, without any reservation whatsoever.
The private respondents say that the petitioner was in a hurry to conclude the transactions, but the fact is that
they themselves were not. There was apparently no cogent reason for the immediate signing of the notes as
far as they themselves were concerned. After all, Epifania Ebarle had already received the alleged original and
only loan of P20,000.00, or so they say, which they were simply being made to affirm. Moreover, as they also
insist, they had not received, nor did they expect to receive, the amounts indicated in the two notes.
In this connection, we cannot agree that they could not have received the amounts stated in the notes
because it was not likely that the petitioner would keep such large amounts of cash in his house. That is a
mere conjecture. The petitioner operates his own vineyard as well as his father's hacienda, besides dealing in
the sale of cars and real estate. His transactions require ready cash now and then, which is why he keeps
substantial sums of money available in his house.
In any case, as he says correctly, it is his prerogative to keep money in his house in whatever amount he
pleases, especially since he feels quite secure there with his guards and dogs. What is important is that the
notes the private respondents signed expressly and categorically acknowledged that they received the specific
amounts indicated therein. Whether the money came from the bank or from the petitioner's house did not
affect the validity of their acknowledged indebtedness.

Epifania Ebarle testified that she was also worried about the petitioner's assurance that if they allowed
themselves to be declared in default when sued, a new agreement with easier terms and for the correct
amount of P20,000.00 would be concluded between them. Asked if she understood what default meant, she
said she did. Nevertheless, despite her uneasiness, she signed the two promissory notes one after the other,
and so did her children even if they also felt a similar anxiety. It was only afterwards, she said, that she "went
to a lawyer."
Remarkably, all three of the private respondents signed the two notes notwithstanding their claimed individual
reluctance. One of them at least could have voiced his or her apprehensions and made efforts to be dissuade
the others from signing, but no one did. Everyone signed. And not only that. Having signed one note in the
morning,all of them again signed the second promissory note in the afternoon, again with no one expressing
his or her misgivings. It is as if they were all mesmerized by the petitioner into signing the promissory notes
although, as they now say in hindsight, they were all doing so against their better judgment.

A notarial document, guaranteed by public attestation in accordance with the law, must
be sustained in full force and effect so long as he who impugns it does not present
strong, complete, and conclusive proof of its falsity or nullity on accounts of some flaw
or defect provided against by law. 8
A mere denial of the receipt of the loan, which is stated in a clear and unequivocal
manner in a public instrument, is not sufficient. To overthrow the recitals of a mortgage
deed, clear, convincing and more than merely preponderant evidence is necessary. A
contrary rule would throw wide open doors to fraud. 9
The mere assertion of the private respondents that the notes were not notarized in their presence does not
meet this standard of proof. In any event, a promissory note does not have to be notarized to be binding. The
private respondents have admitted signing the two notes and they have not succeeded in proving that they did
so "under duress, fear and undue influence."

The facts belie this supposition.


Sol Ebarle admitted on the stand that no harassment or threat in any form was employed by the petitioner
upon any of them. 5
Neither were they subjected to any undue influence, which is described in the Civil Code thus:
Art. 1337. There is undue influence when a person takes improper advantage of his
power over the will of another, depriving the latter of a reasonable freedom of choice.
The following circumstances shall be considered: the confidential, family, spiritual and
other relations between the parties, or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was ignorant or in financial
distress.
This definition is amplified by Tolentino, who says that "undue influence is any means employed upon a party
which, under the circumstances, he could not well resist, and which controlled his volition and induced him to
give his consent to the contract, which otherwise he would not have entered into. It must, in some measure,
destroy the free agency of a party and interfere with the exercise of that independent discretion which is
necessary for determining the advantage or disadvantage of a proposed contract. In every such case, there is
a moral coercion. The moral coercion may be effected through threats, expressed or implied, or through
harassing tactics." 6
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which without them, he
would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and
should not have been employed by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full, clear, and
convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The fraud is
serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity. The circumstances of each case should be
considered, taking into account the personal conditions of the victim." 7
The non-presentation at the trial of the notary public who attested the promissory notes did not have the effect
of invalidating them. It is well settled that the evidentiary nature of public documents must be sustained in the
absence of strong, complete, and conclusive proof of its nullity.

The private respondents' argument that the two promissory notes are spurious because they were signed
separately on the same day is in fact an argument against them. As they acutely observe, if indeed the
purpose of the notes was simply to acknowledge and renew the P20,000.00 loan, then it could have been
accomplished in only one promissory note specifying this amount. True enough. But the point is that the
purpose was not to acknowledge the supposed loan. It was to acknowledge the two separate loans. The fact
that two promissory notes were signed indicates that two different loans were actually extended, not
simultaneously but successively, one in the morning and the other in the afternoon of September 8,