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Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-4089

January 12, 1909

ARTURO PELAYO, plaintiff-appellant,


vs.
MARCELO LAURON, ET AL., defendants-appellees.
J.H. Junquera, for appellant.
Filemon Sotto, for appellee.
TORRES, J.:
On the 23rd of November, 1906, Arturo Pelayo, a physician residing in Cebu, filed a complaint against Marcelo Lauron
and Juana Abella setting forth that on or about the 13th of October of said year, at night, the plaintiff was called to the
house of the defendants, situated in San Nicolas, and that upon arrival he was requested by them to render medical
assistance to their daughter-in-law who was about to give birth to a child; that therefore, and after consultation with the
attending physician, Dr. Escao, it was found necessary, on account of the difficult birth, to remove the fetus by means of
forceps which operation was performed by the plaintiff, who also had to remove the afterbirth, in which services he was
occupied until the following morning, and that afterwards, on the same day, he visited the patient several times; that the
just and equitable value of the services rendered by him was P500, which the defendants refuse to pay without alleging
any good reason therefor; that for said reason he prayed that the judgment be entered in his favor as against the
defendants, or any of them, for the sum of P500 and costs, together with any other relief that might be deemed proper.
In answer to the complaint counsel for the defendants denied all of the allegation therein contained and alleged as a
special defense, that their daughter-in-law had died in consequence of the said childbirth, and that when she was alive she
lived with her husband independently and in a separate house without any relation whatever with them, and that, if on the
day when she gave birth she was in the house of the defendants, her stay their was accidental and due to fortuitous
circumstances; therefore, he prayed that the defendants be absolved of the complaint with costs against the plaintiff.
The plaintiff demurred to the above answer, and the court below sustained the demurrer, directing the defendants, on the
23rd of January, 1907, to amend their answer. In compliance with this order the defendants presented, on the same date,
their amended answer, denying each and every one of the allegations contained in the complaint, and requesting that the
same be dismissed with costs.
As a result of the evidence adduced by both parties, judgment was entered by the court below on the 5th of April, 1907,
whereby the defendants were absolved from the former complaint, on account of the lack of sufficient evidence to
establish a right of action against the defendants, with costs against the plaintiff, who excepted to the said judgment and in
addition moved for a new trial on the ground that the judgment was contrary to law; the motion was overruled and the
plaintiff excepted and in due course presented the corresponding bill of exceptions. The motion of the defendants
requesting that the declaration contained in the judgment that the defendants had demanded therefrom, for the reason that,
according to the evidence, no such request had been made, was also denied, and to the decision the defendants excepted.
Assuming that it is a real fact of knowledge by the defendants that the plaintiff, by virtue of having been sent for by the
former, attended a physician and rendered professional services to a daughter-in-law of the said defendants during a
difficult and laborious childbirth, in order to decide the claim of the said physician regarding the recovery of his fees, it
becomes necessary to decide who is bound to pay the bill, whether the father and mother-in-law of the patient, or the
husband of the latter.
According to article 1089 of the Civil Code, obligations are created by law, by contracts, by quasi-contracts, and by illicit
acts and omissions or by those in which any kind of fault or negligence occurs.
Obligations arising from law are not presumed. Those expressly determined in the code or in special laws, etc., are the
only demandable ones. Obligations arising from contracts have legal force between the contracting parties and must be
fulfilled in accordance with their stipulations. (Arts. 1090 and 1091.)

The rendering of medical assistance in case of illness is comprised among the mutual obligations to which the spouses are
bound by way of mutual support. (Arts. 142 and 143.)
If every obligation consists in giving, doing or not doing something (art. 1088), and spouses are mutually bound to
support each other, there can be no question but that, when either of them by reason of illness should be in need of
medical assistance, the other is under the unavoidable obligation to furnish the necessary services of a physician in order
that health may be restored, and he or she may be freed from the sickness by which life is jeopardized; the party bound to
furnish such support is therefore liable for all expenses, including the fees of the medical expert for his professional
services. This liability originates from the above-cited mutual obligation which the law has expressly established between
the married couple.
In the face of the above legal precepts it is unquestionable that the person bound to pay the fees due to the plaintiff for the
professional services that he rendered to the daughter-in-law of the defendants during her childbirth, is the husband of the
patient and not her father and mother- in-law, the defendants herein. The fact that it was not the husband who called the
plaintiff and requested his assistance for his wife is no bar to the fulfillment of the said obligation, as the defendants, in
view of the imminent danger, to which the life of the patient was at that moment exposed, considered that medical
assistance was urgently needed, and the obligation of the husband to furnish his wife in the indispensable services of a
physician at such critical moments is specially established by the law, as has been seen, and compliance therewith is
unavoidable; therefore, the plaintiff, who believes that he is entitled to recover his fees, must direct his action against the
husband who is under obligation to furnish medical assistance to his lawful wife in such an emergency.
From the foregoing it may readily be understood that it was improper to have brought an action against the defendants
simply because they were the parties who called the plaintiff and requested him to assist the patient during her difficult
confinement, and also, possibly, because they were her father and mother-in-law and the sickness occurred in their house.
The defendants were not, nor are they now, under any obligation by virtue of any legal provision, to pay the fees claimed,
nor in consequence of any contract entered into between them and the plaintiff from which such obligation might have
arisen.
In applying the provisions of the Civil Code in an action for support, the supreme court of Spain, while recognizing the
validity and efficiency of a contract to furnish support wherein a person bound himself to support another who was not his
relative, established the rule that the law does impose the obligation to pay for the support of a stranger, but as the liability
arose out of a contract, the stipulations of the agreement must be held. (Decision of May 11, 1897.)
Within the meaning of the law, the father and mother-in-law are strangers with respect to the obligation that devolves
upon the husband to provide support, among which is the furnishing of medical assistance to his wife at the time of her
confinement; and, on the other hand, it does not appear that a contract existed between the defendants and the plaintiff
physician, for which reason it is obvious that the former can not be compelled to pay fees which they are under no liability
to pay because it does not appear that they consented to bind themselves.
The foregoing suffices to demonstrate that the first and second errors assigned to the judgment below are unfounded,
because, if the plaintiff has no right of action against the defendants, it is needless to declare whether or not the use of
forceps is a surgical operation.
Therefore, in view of the consideration hereinbefore set forth, it is our opinion that the judgment appealed from should be
affirmed with the costs against the appellant. So ordered.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-13602

April 6, 1918

LEUNG BEN, plaintiff,


vs.
P. J. O'BRIEN, JAMES A OSTRAND and GEO. R. HARVEY, judges of First Instance of city of Manila,defendants.
Thos. D. Aitken and W. A. Armstrong for plaintiff.
Kincaid & Perkins for defendants.
STREET, J.:
This is an application for a writ of certiorari, the purpose of which is to quash an attachment issued from the Court of
First Instance of the City of Manila under circumstances hereinbelow stated.
Upon December 12, 1917, an action was instituted in the Court of First Instance of the city of Manila by P. J. O'Brien to
recover of Leung Ben the sum of P15,000 alleged to have been lost by the plaintiff to the defendant in a series of
gambling, banking and percentage games conducted ruing the two or three months prior to the institution of the suit. In his
verified complaint the plaintiff asked for an attachment, under section 424, and 412 (1) of the Code of Civil Procedure,
against the property of the defendant, on the ground that the latter was about to depart from the Philippine islands with
intent to defraud his creditors. This attachment was issued; and acting under the authority thereof, the sheriff attached the
sum of P15,000 which had been deposited by the defendant with the International Banking Corporation.
The defendant thereupon appeared by his attorney and moved the court to quash the attachment. Said motion having
dismissed in the Court of First Instance, the petitioner, Leung Ben, the defendant in that action, presented to this court,
upon January 8, 1918 his petition for the writ of certiorari directed against P. J. O'Brien and the judges of the Court of
First Instance of the city of Manila whose names are mentioned in the caption hereof. The prayer is that the Honorable
James A. Ostrand, as the judge having cognizance of the action in said court be required to certify the record to this court
for review and that the order of attachment which had been issued should be revoked and discharged. with costs. Upon the
filing of said petition in this court the usual order was entered requiring the defendants to show cause why the writ should
not issue. The response of the defendants, in the nature of a demurrer, was filed upon January 21, 1918; and the matter is
now heard upon the pleadings thus presented.
The provision of law under which this attachment was issued requires that there should be accuse of action arising upon
contract, express or implied. The contention of the petitioner is that the statutory action to recover money lost at gaming is
that the statutory action to recover money lost at gaming is no such an action as is contemplated in this provision, and he
therefore insists that the original complaint shows on its face that the remedy of attachment is not available in aid thereof;
that the Court of First Instance acted in excess of its jurisdiction in granting the writ of attachment; that the petitioner has
no plain, speedy, and adequate remedy by appeal or otherwise; and that consequently the writ of certiorari supplies the
appropriate remedy for his relief.
The case presents the two following questions of law, either of which, if decided unfavorably to the petitioner, will be fatal
to his application:
(1) Supposing that the Court of First Instance has granted an attachment for which there is no statutory authority, can this
court entertain the present petition and grant the desired relief?
(2) Is the statutory obligation to restore money won at gaming an obligation arising from "contract, express or implied?"

We are of the opinion that the answer to the first question should be in the affirmative. Under section 514 of the Code of
Civil Procedure the Supreme Court has original jurisdiction by the writ of certiorari over the proceedings of Courts of
First Instance, wherever said courts have exceeded their jurisdiction and there is no plaint, speedy, and adequate remedy.
In the same section, it is further declared that the proceedings in the Supreme Court in such cases hall be as prescribed for
Courts of First Instance in section 217-221, inclusive, of said Code. This Supreme Court, so far as applicable, the
provisions contained in those section to the same extent as if they had been reproduced verbatim immediately after section
514. Turning to section 217, we find that, in defining the conditions under which certiorari can be maintained in a Court
of First Instance substantially the same language is used as is the same remedy can be maintained in the Supreme Court of
First Instance, substantially the same language is used as is found in section 514 relative to the conditions under which the
same remedy can be maintained in the Supreme Court, namely, when the inferior tribunal has exceeded its jurisdiction and
there is no appeal, nor any plain, speedy and adequate remedy. In using these expressions the author of the Code of Civil
Procedure merely adopted the language which, in American jurisdictions at least, had long ago reached the stage of
stereotyped formula.
In section 220 of the same Code, we have a provision relative to the final proceedings in certiorari, and herein it is stated
that the court shall determine whether the inferior tribunal has regularly pursued its authority it shall give judgment either
affirming annulling, or modifying the proceedings below, as the law requires. The expression, has not regularly pursued
its authority as here used, is suggestive, and we think it should be construed in connection with the other expressions have
exceeded their jurisdiction, as used in section 514, and has exceeded their jurisdiction as used in section 217. Taking the
three together, it results in our opinion that any irregular exercise of juridical power by a Court of First Instance, in excess
of its lawful jurisdiction, is remediable by the writ ofcertiorari, provided there is no other plain, speedy, and adequate
remedy; and in order to make out a case for the granting of the writ it is not necessary that the court should have acted in
the matter without any jurisdiction whatever. Indeed the repeated use of expression excess of jurisdiction shows that the
lawmaker contemplated the situation where a court, having jurisdiction should irregularly transcend its authority as well
as the situation where the court is totally devoid of lawful power.
It may be observed in this connection that the word jurisdiction as used in attachment cases, has reference not only to the
authority of the court to entertain the principal action but also to its authority to issue the attachment, as dependent upon
the existence of the statutory ground. (6 C. J., 89.) This distinction between jurisdiction to issue the attachment as an
ancillary remedy incident to the principal litigation is of importance; as a court's jurisdiction over the main action may be
complete, and yet it may lack authority to grant an attachment as ancillary to such action. This distinction between
jurisdiction over the ancillary has been recognized by this court in connection with actions involving the appointment of a
receiver. Thus in Rocha & Co. vs. Crossfield and Figueras (6 Phil. Rep., 355), a receiver had been appointed without legal
justification. It was held that the order making the appointment was beyond the jurisdiction of the court; and though the
court admittedly had jurisdiction of the main cause, the order was vacated by this court upon application a writ
of certiorari. (See Blanco vs. Ambler, 3 Phil. Rep., 358, Blanco vs. Ambler and McMicking 3 Phil. Rep., 735, Yangco vs.
Rohde, 1 Phil. Rep., 404.)
By parity of reasoning it must follow that when a court issues a writ of attachment for which there is no statutory
authority, it is acting irregularly and in excess of its jurisdiction, in the sense necessary to justify the Supreme Court in
granting relief by the writ of certiorari. In applying this proposition it is of course necessary to take account of the
difference between a ground of attachment based on the nature of the action and a ground of attachment based on the acts
or the conditions of the defendant. Every complaint must show a cause of action some sort; and when the statue declares
that the attachment may issue in an action arising upon contract, the express or implied, it announces a criterion which
may be determined from an inspection of the language of the complaint. The determination of this question is purely a
matter of law. On the other hand, when the stature declares that an attachment may be issued when the defendant is about
to depart from the Islands, a criterion is announced which is wholly foreign to the cause of action; and the determination
of it may involve a disputed question of fact which must be decided by the court. In making this determination, the court
obviously acts within its powers; and it would be idle to suppose that the writ of certiorari would be available to reverse
the action of a Court of First Instance in determining the sufficiency of the proof on such a disputed point, and in granting
or refusing the attachment accordingly.
We should not be understood, in anything that has been said, as intending to infringe the doctrine enunciated by this court
in Herrera vs. Barretto and Joaquin (25 Phil. Rep., 245), when properly applied. It was there held that we would not, upon
application for a writ of certiorari, dissolve an interlocutory mandatory injunction that had been issued in a Court of First
Instance as an incident in an action of mandamus. The issuance of an interlocutory injunction depends upon conditions
essentially different from those involved in the issuance of an attachment. The injunction is designed primarily for the
prevention of irreparable injury and the use of the remedy is in a great measure dependent upon the exercise of discretion.
Generally, it may be said that the exercise of the injunctive powers is inherent in judicial authority; and ordinarily it would
be impossible to distinguish between the jurisdiction of the court in the main litigation and its jurisdiction to grant an
interlocutory injunction, for the latter is involved in the former. That the writ of certiorari can not be used to reverse an
order denying a motion for a preliminary injunction is of course not to cavil. (Somes vs. Crossfield and Molina, 8 Phil.
Rep., 284.)
But it will be said that the writ of certiorari is not available in this cae, because the petitioner is protected by the
attachment bond, and that he has a plain, speedy, and adequate remedy appeal. This suggestion seems to be sufficiently
answered in the case of Rocha & Co vs. Crossfield and Figueras (6 Phil. Rep., 355), already referred to, and the earlier

case there cited. The remedy by appeal is not sufficiently speedy to meet the exigencies of the case. An attachment is
extremely violent, and its abuse may often result in infliction of damage which could never be repaired by any pecuniary
award at the final hearing. To postpone the granting of the writ in such a case until the final hearing and to compel the
petitioner to bring the case here upon appeal merely in order to correct the action of the trial court in the matter of
allowing the attachment would seem both unjust and unnecessary.
Passing to the problem propounded in the second question it may be observed that, upon general principles,. recognize
both the civil and common law, money lost in gaming and voluntarily paid by the loser to the winner can not in the
absence of statue, be recovered in a civil action. But Act No. 1757 of the Philippine Commission, which defines and
penalizes several forms of gambling, contains numerous provisions recognizing the right to recover money lost in
gambling or in the playing of certain games (secs. 6, 7, 8, 9, 11). The original complaint in the action in the Court of First
Instance is not clear as to the particular section of Act No. 1757 under which the action is brought, but it is alleged that the
money was lost at gambling, banking, and percentage game in which the defendant was banker. It must therefore be
assumed that the action is based upon the right of recovery given in Section 7 of said Act, which declares that an action
may be brought against the banker by any person losing money at a banking or percentage game.
Is this a cause arising upon contract, express or implied, as this term is used in section 412 of the Code of Civil
Procedure? To begin the discussion, the English version of the Code of Civil Procedure is controlling (sec. 15, Admin.
Code, ed. of 1917). Furthermore it is universally admitted to be proper in the interpretation of any statute, to consider its
historical antecedents and its juris prudential sources. The Code of Civil Procedure, as is well known, is an American
contribution to Philippine legislation. It therefore speaks the language of the common-law and for the most part reflects its
ideas. When the draftsman of this Code used the expression contract, express or implied, he used a phrase that has been
long current among writers on American and English law; and it is therefore appropriate to resort to that system of law to
discover the appropriate to resort to that system of law to discover the meaning which the legislator intended to convey by
those meaning which the legislator intended to convey by those terms. We remark in passing that the expression contrato
tracito, used in the official translation of the Code of Civil Procedure as the Spanish equivalent of implied contract, does
not appear to render the full sense of the English expression.
The English contract law, so far as relates to simple contracts is planted upon two foundations, which are supplied by two
very different conceptions of legal liability. These two conceptions are revealed in the ideas respectively underlying (1)
the common- law debt and (2) the assumptual promise. In the early and formative stages of the common-law the only
simple contract of which the courts took account was the real contract or contract re, in which the contractual duty
imposed by law arises upon the delivery of a chattle, as in the mutuum, commodatum,depositum, and the like; and the
purely consensual agreements of the Roman Law found no congenial place in the early common law system.
In course of time the idea underlying the contract re was extended so as to include from one person to another under such
circumstances as to constitute a justa cuas debendi. The obligation thereby created was a debt. The constitutive element in
this litigation is found in the fact that the debtor has received something from the creditor, which he is bound by the
obligation of law to return or pay for. From an early day this element was denominated the quid pro quo, an ungainly
phrase coined by Mediaeval Latinity. The quid pro quo was primarily a materials or physical object, and its constituted the
recompense or equivalent acquired by the debtor. Upon the passage of thequid pro quo from one party to the other, the law
imposed that real contractual duty peculiar to the debt. No one conversant with the early history of English law would
ever conceive of the debt as an obligation created by promise. It is the legal duty to pay or deliver a sum certain of money
or an ascertainable quantity of ponderable or measurable chattles.
The ordinary debt, as already stated, originates in a contract in which a quid pro quo passes to the debtor at the time of the
creation of the debt, but the term is equally applicable to duties imposed by custom or statute, or by judgment of a court.
The existence of a debt supposes one person to have possession of thing (res) which he owes and hence ought to turn over
the owner. This obligation is the oldest conception of contract with which the common law is familiar; and
notwithstanding the centuries that have rolled over Westminster Hall that conception remains as one of the fundamental
bases of the common-law contract.
Near the end of the fifteenth century there was evolved in England a new conception of contractual liability, which
embodied the idea of obligation resulting from promise and which found expression in the common law assumpsit, or
parol promise supported by a consideration. The application of this novel conception had the effect of greatly extending
the filed of contractual liability and by this means rights of action came to be recognized which had been unknown before.
The action of assumpsit which was the instrument for giving effect to this obligation was found to be a useful remedy; and
presently this action came to be used for the enforcement of common-law debts. The result was to give to our contract law
the superficial appearance of being based more or less exclusively upon the notion of the obligation of promise.
An idea is widely entertained to the effect that all simple contracts recognized in the common-law system are referable to
a singly category. They all have their roots, so many of us imagine, in one general notion of obligation; and of course the
obligation of promise is supposed to supply this general notion, being considered a sort of menstruum in which all other
forms of contractual obligation have been dissolved. This a mistake. The idea of contractual duty embodied in the debt
which was the first conception of contract liability revealed in the common law, has remained, although it was detained to
be in a measure obscured by the more modern conception of obligation resulting from promise.

What has been said is intended to exhibit the fact that the duty to pay or deliver a sum certain of money or an
ascertainable quantity of ponderable or measurable chattles which is indicated by them debt has ever been
recognized, in the common-law system, as a true contract, regardless, of the source of the duty or the manner in which it is
create whether derived from custom, statue or some consensual transaction depending upon the voluntary acts of the
parties. the form of contract known as the debt is of the most ancient lineage; and when reference is had to historical
antecedents, the right of the debt to be classed as a contract cannot be questioned. Indeed when the new form of
engagement consisting of the parol promise supported by a consideration first appeared, it was looked upon as an upstart
and its right to be considered a true contract was questioned. It was long customary to refer to it exclusively as an
assumpsit, agreement, undertaking, or parol promise, in fact anything but a contract. Only in time did the new form of
engagement attain the dignity of being classed among true contract.
The term implied takers us into shadowy domain of those obligations the theoretical classification of which has engaged
the attention of scholars from the time of Gaius until our own day and has been a source of as much difficulty to the
civilian as to the common-law jurist. There we are concerned with those acts which make one person debtor to another
without there having intervened between them any true agreement tending to produce a legal bond (vinculum juris). Of
late years some American and English writers have adopted the term quasi-contract as descriptive of these obligations or
some of them; but the expression more commonly used is implied contract.
Upon examination of these obligations, from the view point of the common-law jurisprudence, it will be found that they
fall readily into two divisions according as they bear an analogy to the common-law debt or to the common law assumpsit.
To exhibit the scope of these different classes of obligations is here impracticable. It is only necessary in this connection
to observe that the most conspicuous division is that which comprises duties in the nature of debt. The characteristic
feature of these obligations is that upon certain states of fact the law imposes an obligation to pay a sum certain of money;
and it is characteristic of this obligation that the money in respect to which the duty is raised is conceived as being
equivalent of something taken or detained under circumstances giving rise to the duty to return or compensate therefore.
The proposition that no one shall be allowed to enrich himself unduly at the expense of another embodies the general
principle here lying at the basis of obligation. The right to recover money improperly paid (repeticion de lo indebido) is
also recognized as belong to this class of duties.
It will observed that according to the Civil Code obligations are supposed to be derived either from (1) the law, (2)
contracts and quasi-contracts, (3) illicit acts and omission, or (4) acts in which some sort ob lame or negligence is present.
This enumeration of sources of obligations and the obligation imposed by law are different types. The learned Italian
jurist, Jorge Giorgi, criticises this assumption and says that the classification embodied in the code is theoretically
erroneous. His conclusion is that one or the other of these categories should have been suppressed and merged in the other.
(Giorgi, Teoria de las Obligaciones, Spanish ed., vol. 5 arts. 5, 7, 9.) The validity of this criticism is, we thin, self-evident;
and it is of interest to note that the common law makes no distinction between the two sources of liability. The obligations
which in the Code are indicated as quasi-contracts, as well as those arising ex lege, are in the common la system, merged
into the category of obligations imposed by law, and all are denominated implied contracts.
Many refinements, more or less illusory, have been attempted by various writers in distinguishing different sorts of
implied contracts, as for example, the contract implied as of fact and the contract implied as of law. No explanation of
these distinctions will be here attempted. Suffice it to say that the term contract, express or implied, is used to by
common-law jurists to include all purely personal obligations other than those which have their source in delict, or tort. As
to these it may be said that, generally speaking, the law does not impose a contractual duty upon a wrongdoer to
compensate for injury done. It is true that in certain situations where a wrongdoer unjustly acquired something at the
expense of another, the law imposes on him a duty to surrender his unjust acquisitions, and the injured party may here
elect to sue upon this contractual duty instead of suing upon the tort; but even here the distinction between the two
liabilities, in contract and in tort, is never lost to sight; and it is always recognized that the liability arising out of the tort is
delictual and not of a contractual or quasi-contractual nature.
In the case now under consideration the duty of the defendant to refund the money which he won from the plaintiff at
gaming is a duty imposed by statute. It therefore arises ex lege. Furthermore, it is a duty to return a certain sum which had
passed from the plaintiff to the defendant. By all the criteria which the common law supplies, this a duty in the nature of
debt and is properly classified as an implied contract. It is well- settled by the English authorities that money lost in
gambling or by lottery, if recoverable at all, can be recovered by the loser in an action of indebitatus assumpsit for money
had and received. (Clarke vs. Johnson. Lofft, 759; Mason vs. Waite, 17 Mass., 560; Burnham vs. Fisher, 25 Vt., 514.) This
means that in the common law the duty to return money won in this way is an implied contract, or quasi-contract.
It is no argument to say in reply to this that the obligation here recognized is called an implied contract merely because the
remedy commonly used in suing upon ordinary contract can be here used, or that the law adopted the fiction of promise in
order to bring the obligation within the scope of the action of assumpsit. Such statements fail to express the true import of
the phenomenon. Before the remedy was the idea; and the use of the remedy could not have been approved if it had not
been for historical antecedents which made the recognition of this remedy at one logical and proper. Furthermore, it
should not be forgotten that the question is not how this duty but what sort of obligation did the author of the Code of
Civil Procedure intend to describe when he sued the term implied contract in section 412.

In what has been said we have assumed that the obligation which is at the foundation of the original action in the court
below is not a quasi-contract, when judge by the principles of the civil law. A few observations will show that this
assumption is not by any means free from doubt. The obligation in question certainly does not fall under the definition of
either of the two-quasi- contracts which are made the subject of special treatment in the Civil Code, for its does not arise
from a licit act as contemplated in article 1895. The obligation is clearly a creation of the positive law a circumstance
which brings it within the purview of article 1090, in relation with article, 1089; and it is also derived from an illicit act,
namely, the playing of a prohibited game. It is thus seen that the provisions of the Civil Code which might be consulted
with a view to the correct theoretical classification of this obligation are unsatisfactory and confusing.
The two obligations treated in the chapter devoted to quasi-contracts in the Civil Code are (1) the obligation incident to
the officious management of the affairs of other person (gestion de negocios ajenos) and (2) the recovery of what has been
improperly paid (cabro de lo indebido). That the authors of the Civil Code selected these two obligations for special
treatment does not signify an intention to deny the possibility of the existence of other quasi-contractual obligations. As is
well said by the commentator Manresa.
The number of the quasi-contracts may be indefinite as may be the number of lawful facts, the generations of the
said obligations; but the Code, just as we shall see further on, in the impracticableness of enumerating or
including them all in a methodical and orderly classification, has concerned itself with two only namely, the
management of the affairs of other person and the recovery of things improperly paid without attempting by
this to exclude the others. (Manresa, 2d ed., vol. 12, p. 549.)
It would indeed have been surprising if the authors of the Code, in the light of the jurisprudence of more than a thousand
years, should have arbitrarily assumed to limit the quasi-contract to two obligations. The author from whom we have just
quoted further observes that the two obligations in question were selected for special treatment in the Code not only
because they were the most conspicuous of the quasi-contracts, but because they had not been the subject of consideration
in other parts of the Code. (Opus citat., 550.)
It is well recognized among civilian jurists that the quasi- contractual obligations cover a wide range. The Italian jurist,
Jorge Giorgi, to whom we have already referred, considers under this head, among other obligations, the following:
payments made upon a future consideration which is not realized or upon an existing consideration which fails; payments
wrongfully made upon a consideration which is contrary to law, or opposed to public policy; and payments made upon a
vicious consideration or obtained by illicit means (Giorgi, Teoria de las Obligaciones, vol. 5, art. 130.)
Im permitting the recovery of money lost at play, Act No. 1757 has introduced modifications in the application of articles
1798, 180`, and 1305 of the Civil Code. The first two of these articles relate to gambling contracts, while article 1305
treats of the nullity of contracts proceeding from a vicious or illicit consideration. Taking all these provisions together, it
must be apparent that the obligation to return money lost at play has a decided affinity to contractual obligations; and we
believe that it could, without violence to the doctrines of the civil law, be held that such obligations is an innominate
quasi-contract. It is, however, unnecessary to place the decision on this ground.
From what has been said it follows that in our opinion the cause of action stated in the complaints in the court below is
based on a contract, express or implied and is therefore of such nature that the court had authority to issue writ of
attachment. The application for the writ of certiorari must therefore be denied and the proceedings dismissed. So ordered.
Arellano, C.J., Torres, Johnson and Carson, JJ., concur.

Separate Opinions
MALCOLM, J., concurring:
As I finished reading the learned and interesting decision of the majority, the impression which remained was that the
court was enticed by the nice and unusual points presented to make a hard case out of an easy one and unfortunately t do
violence to the principles of certiorari. The simple questions are : Di the Court of First Instance of city of Manila exceed
its jurisdiction in granting an attachments against the property of the defendant, now plaintiff? Has this defendant, now
become the plaintiff, any other plain, speedy and adequate remedy? The answer are found in the decision of thinks court,
in Herrera vs. Barretto and Joaquin ([1913], 25 Phil., 245), from which I quote the following:
It has been repeatedly held by this court that a writ of certiorari will not be issued unless it clearly appears that
the court to which it is to be directed acted without or in excess of jurisdiction. It will not be issued to cure errors
in the proceedings or to correct erroneous conclusions of law or of fact. If the court has jurisdiction. It will not be
issued to cure errors in the proceedings to correct jurisdiction of the subject matter and f the person, decisions
upon all question pertaining to the cause are decisions within its jurisdiction and, however irregular or erroneous
they may be, cannot be corrected by certiorari. The Code of Civil Procedure giving Courts of First Instance
general jurisdiction in actions for mandamus, it goes without saying that the Court of First Instance had

jurisdiction in the present case to resolve every question arising in such an action and t decide every question
presented to it which pertained to the cause. It has already been held by this court, that while it is a power to be
exercised only in extreme case, a Court of First Instance has power to issue a mandatory injunction t stand until
the final determination of the action in which it is issued. While the issuance of the mandatory injunction in this
particular case may have been irregular and erroneous, a question concerning which we express no opinion,
nevertheless its issuance was within the jurisdiction of the court and its action is not reveiwable on certiorari. It is
not sufficient to say that it was issued wrongfully and without sufficient grounds and in the absence of the other
party. The question is, Did the court act with jurisdiction?
It has been urged that the court exceeded its jurisdiction in requiring the municipal president t issue the license,
for the reason that he was not the proper person to issue it and that, if he was the proper person, he had the right to
exercise a discretion as to whom the license should be issued. We do not believe that either of these questions
goes to the jurisdiction of the court to act. One of the fundamental question in amandamus against a public officer
is whether or not that officer has the right to exercise discretion in the performance of the act which the plaintiff
asks him to perform. It is one of the essential determinations of the cause. To claim that the resolution of that
question may deprive the court of jurisdiction is to assert a novel proposition. It is equivalent to the contention
that a court has jurisdiction if he decides right but no jurisdiction if he decides wrong. It may be stated generally
that it is never necessary to decide the fundamental questions of a cause to determine whether the court has
jurisdiction. The question of jurisdiction is preliminary and never touches the merits of the case. The
determination of the fundamental questions of a cause are merely the exercise of a jurisdiction already conceded.
In the case at bar no one denies the power, authority or jurisdiction of the Court of First Instance to take
cognizance of an action formandamus and to decide very question which arises in that cause and pertains thereto.
The contention that the decision of one of those question, if wrong, destroys jurisdiction involves an evident
contradiction.
Jurisdiction is the authority to hear and determine a cause the right to act in a case. Since it is the power to hear
and determine, it does not depend either upon the regularity of the exercise of that power or upon the rightfulness
of the decision made. Jurisdiction should therefore be distinguished from the exercise of jurisdiction. The
authority to decide a case at all, and not the decision rendered therein, is what makes up jurisdiction. Where there
is jurisdiction of the person and subject matter, as we have said before, the decision of all other questions arising
in the case an exercise of that jurisdiction.
Then follows an elaborate citation and discussion of American authorities, including a decision of the United States
Supreme Court and of the applicable Philippine cases. The decision continues"
The reasons givens in these cases last cited for the allowance of the writ of prohibition are applicable only to the
class of cases with which the decision deal and do not in any way militate against the general proposition herein
asserted. Those which relate to election contest are based upon the principle that those proceedings, are special in
their nature and must be strictly followed, a material departure from the statute resulting a loss, or in an excess of
jurisdiction. The cases relating to receivers are based, in a measure, upon the principle the appointment of a
receiver being governed by the statute; and in part upon the theory that the appointment of a receiver in an
improper case is in substance a bankruptcy proceeding, the taking of which is expressly prohibited by law. The
case relative to the allowance of alimony pendente lite when the answer denies the marriage is more difficult to
distinguish. The reasons in support of the doctrine laid down in that case are given the opinion in full and they
seem to place the particular case to which they refer in a class by itself.
It is not alight things that the lawmakers have abolished writs of error and with them certiorari and prohibition, in
so far as they were methods by which the mere errors of an inferior curt could be corrected. As instruments to that
end they no longer exist. Their place is no taken by the appeal. So long as the inferior court retains jurisdiction its
errors can be corrected only by that method. The office of the writ ofcertiorari has been reduced to the correction
of defects of jurisdiction solely and cannot legally be used for any other purpose. It is truly an extra ordinary
remedy and in this jurisdiction, its use is restricted to truly extraordinary cases cases in which the action of the
inferior court is wholly void, where any further steps in the case would result in a waste of time and money and
would produce no result whatever; where the parties, or their privies, would be utterly deceived; where a final
judgment or decree would be nought but a snare and a delusion, deciding nothing, protecting nobody, a juridical
pretension, a recorded falsehood, a standing menace. It is only to avoid such result as these that a writ
of certiorari is issuable; and even here an appeal will lie if the aggrieved party prefers to prosecute it.
A full and thorough examination of all the decided cases in this court touching the question of certiorari and
prohibition fully supports the proposition already stated that, where a Court of First Instance has jurisdiction of
the subject matter and of the person, its decision of any question pertaining to the cause, however, erroneous,
cannot be reviewed by certiorari, but must be corrected by appeal.
I see no reason to override the decision in Herrera vs. Barretto and Joaquin (supra). Accordingly, I can do no better than to
make the language of Justice Moreland my own. applying these principles, it is self-evident that this court should no
entertain the present petition and should not grant the desired relief.

FISHER, J., dissenting:


I am in full accord with the view that the remedy of certiorari may be invoked in such cases as this, but I am constrained
to dissent from the opinion of the majority as regards the meaning of the term implied contract.
Section 412 of the code of Civil Procedure in connection with section 424, authorizes the preliminary attachment of the
property of the defendant: "(1) In an action for the recovery of money or damages on a cause of action arising upon
contract, express or implied, when the defendant is about to depart from the Philippine Islands, with intent to defraud his
creditors; (2) . . .; (3) . . .; (4) . . .; (5) When the defendant has removed or disposed of his property, or is about to do so,
with intent to defraud his creditors."
It is evident that the terms of paragraph five of the article cited are much broader than those of the first paragraph. The
fifth paragraph is not limited to action arising from contract, but is by its terms applicable to actions brought for the
purpose of enforcing extra-contractual rights as well as contract rights. The limitation upon cases falling under paragraph
five is to be found, not in the character of the obligation for the enforcement for which the action is brought, but in the
terms of article 4265, which requires that the affidavit show that the amount due the plaintiff . . . is as much as the sum for
which the order is granted.
That is to say, when application is made for a preliminary attachment upon the ground that the plaintiff is about to dispose
of his property with intent to defraud his creditors thus bringing the case within the terms of paragraph five of the
section it is not necessary to show that the obligation in suit is contractual in its origin, but is sufficient to show that the
breach of the obligation, as shown by the facts stated in the complaint and affidavit, imposes upon the defendant the
obligation to pay a specific and definite sum. For example, if it is alleged in the complaint that the defendant by
negligence, has caused the destruction by fire of a building belonging to plaintiff, and that such building was worth a
certain sum of money, these facts would show a definite basis upon which to authorize the granting of the writ. But if it
were averred that the defendant has published a libel concerning the plaintiff, to the injury of his feeling and reputation,
there is no definite basis upon which to grant an attachment, because the amount of the damage suffered, being necessarily
uncertain and indeterminate, cannot be ascertained definitely until the trail has been completed.
But it appears that the legislature although it has seen fit to authorize a preliminary attachment in aid of action of all kinds
when the defendant is concealing his property with intent to defraud his creditors, has provided is about to depart from the
country with intent to defraud his creditos, the writ will issue only when the action in aid of which it is sought arises from
a contract express or implied. If an attachment were permitted upon facts bringing the application with the first paragraph
of the section in support of action of any kind, whether the obligation sued upon is contractual or not, then paragraph five
would by construction be made absolutely identical with paragraph one, and this would be in effect equivalent to the
complete eliminated of the last two lines of the first paragraph. It is a rule of statutory construction that effect should be
given to all parts of the statue, if possible. I can see no reason why the legislature should have limited cases falling within
the firs paragraph to action arising from contract and have refrained from imposing this limitation with respect to cases
falling within the terms of the fifth paragraph, but this should have no effect upon us in applying the law. Whether there be
a good reason for it or not the distinction exists.
Had the phrase express or implied not been used to qualify contract, there would be no doubt whatever with regard to the
meaning of the word. In the Spanish Civil law contract are always consensual, and it would be impossible to define as a
contract the judicial relation existing between a person who has lost money at gaming and the winner of such money,
simple because the law imposes upon the winner the obligation of making restitution. An obligation of this kind, far from
being consensual in its origin, arises against the will of the debtor. To call such a relation a contract is, from the
standpoint of the civil law, a contradiction in terms.
But is said that as the phase express or implied has been used to qualify the word contract and these words are found in
statue which speaks the language of the common law, this implies the introduction into our law of the concept of the
implied contract of the English common-law, a concept which embraces a certain class of obligation originating ex lege,
which have been arbitrarily classified as contracts, so that they might be enforced by one of the formal actions of the
common law which legal tradition and practice has reserved for the enforcement of contract. I cannot concur in this
reasoning. I believe that when a technical juridical term of substantive law is used in the adjective law of these islands, we
should seek its meaning in our own substantive law rather than in the law of America or of England. The code of Civil
Procedure was not enacted to establish rules of substantive law, but upon the assumption of the existence of these rules.
In the case of Cayce vs. Curtis (Dallam's Decisions Texas Reports, 403), it appears that the legislature, at a time when that
State still retained to a large extent the Spanish substantive civil law, enacted a statue in which the word bonds is used. In
litigation involving the construction of that statute, one of the parties contended that the work bond should be given the
technical meaning which it had in the English Common Law. The court rejected this contention saying
On the first point it is urged by counsel for the appellant that the word bond used in the statute being a common law term,
we must refer to the common law for its legal signification; and that by that law no instrument is a bond which is not

under seal. The truth of the proposition that sealing is an absolute requisite to the validity of a bond at common law is
readily admitted; but the applicability of that rule of the case under consideration is not perceived. This bond was taken at
a time when the common law afforded no rule of decision or practice in this country, and consequently that law cannot be
legitimately resorted to, even for the purpose for which it is invoked by the counsel for the appellant, unless it be shown
that the civil law had not term of similar import for we regard it as a correct rule of construction, that where technical
terms are used in a statute they are to be referred for their signification to terms f similar import in the system of laws
which prevails in the country where the statues is passed, and not to another system which is entirely foreign t the whole
system of municipal regulations by which that country is governed. (Martin's Reports, vol. 3, 185; 7 Martin [N. S.], 162.)"
Consequently, I believe that in the interpretation of phase "contract, express or implied," we should apply the rules of our
own substantive law. The phrase in itself offers no difficulty. The concept of the contract, under the Civil Code, as a legal
relation of exclusively consensual origin, offers no difficulty. Nor is any difficulty encountered in the gramatical sense of
the words express and "implied". Express according to the New International Dictionary is that which is directly and
distinctly stated; expressed, not merely implied or left to interference. Therefore, a contract entered into by means of
letters, in which the offer and the acceptance have been manifested by appropriate words, would be an "express contract."
The word "imply" according to the same dictionary, is to involve in substance or essence, or by fair inference, or by
construction of law, when not expressly stated in words or signs; to contain by implication to include virtually.
Therefore, if I enter a tailor shop and order a suit of clothes, although nothing is said regarding payment, it is an inference,
both logical and legal, from my act that is my intention to pay the reasonable value of the garments. The contract is
implied, therefore, is that in which the consent of the parties is implied.
Manresa, commenting upon article 1262 of the Civil Code, says:
The essence of consent is the agreement of the parties concerning that which is to constitute the contract . . . . The
forms of this agreement may vary according to whether it is expressed verbally or in writing, by words or by acts.
Leaving the other differences for consideration hereafter, we will only refer now to those which exist
between express consent and implied consent . . . . It is unquestionable that implied consentmanifested by act or
conduct, produces a contract. . . .
If it were necessary to have recourse to the English common law for the purpose of ascertaining the meaning of the phrase
under consideration, we could find many decisions which gave it the same meaning as that for which I contend.
An implied contract is where one party receives benefits from another party, under such circumstances that the
law presume a promise on the part of the party benefited to pay a reasonable price for the same. (Jones vs. Tucker
[Del.], 84 Atlantic, 1012.)
It is true that English courts have extended the concept of the term contract to include certain obligations arising ex
lege without consent, express or implied. True contracts created by implied consent are designated in the English common
law as contracts implied in the fact, while the so-called contracts in which the consent is a fiction of law are called
contracts implied by law. But is evident that the latter are not real contracts. They have been called contract arbitrarily by
the courts of England, and those of the Untied States in which the English common law is in force, in order that certain
actions arising ex lege may be enforced by the action of assumpsit. In the rigid formulism of the English common law the
substantive right had to be accommodated to the form of action. As is stated in the monograph on the action of assumpsit
in Ruling Case Law. (volume 2, 743)
In theory it wan action to recover for the nonperformance f simple contracts, and the formula and proceedings
were constructed and carried on accordingly. . . . From the reign of Elizabeth this action has been extended to
almost every case where an obligation arises from natural reason, . . . and it is now maintained in many cases
which its principles do not comprehend and where fictions and intendments are resorted to, to fit the actual cause
of action to the theory of the remedy. It is thus sanctioned where there has been no . . . real contract, but where
some duty is deemed sufficient to justify the court in imputing the promise to perform its, and hence in bending
the transaction to the form of action.
In the ancient English common law procedure the form of the action was regarded as being much more important than the
substantive right to be enforced. If no form of action was found in which the facts would fit, so much the worse for the
facts! to avoid the injustices to which this condition of affairs gave rise, the judges invented those fictions which permitted
them to preserve the appearance of conservatism and change the law without expressly admitting that they were doing so.
The indispensable averment, that they were doing so. The indispensable avernment without which the action of assumpsit
would not lie, was that the defendant promised to pay plaintiff the amount demanded. (Sector vs. Holmes, 17 Vs., 566.) In
true contracts, whether express or implied, this promise in fact exists. In obligations arising ex lege there is no such
promise, and therefore the action of assumpsit could not be maintained, and therefore the action of assumpsit could not be
maintained, although by reason of its relative simplicity it was one of the most favored forms of action. In order to permit
the litigant to make use of this form of action for the enforcement of ascertain classes of obligations arising ex lege, the
judges invented the fiction of the promise of the defendant to pay the amount of the obligation, and as this fictitious
promise give the appearance of consensuality to the legal relations of the parties, the name of implied contract is given to
that class of extra-contractual obligations enforcible by the action of assumpsit.

Now, it is not be supposed that it was the intention of the Legislature in making use in the first paragraph of article 412 of
the phrase contract, express or implied to corrupt the logical simplicity of our concept of obligations by importing into our
law the antiquated fictions of the mediaeval English common law. If one of the concepts of the term "implied contract" in
the English common law, namely, that in which consent is presume from the conduct of the debtor, harmonizes with the
concept of the contract in our law, why should we reject that meaning and hold that the Legislature intended to use this
phrase in the foreign and illogical sense of a contract arising without consent? This is a civil law country. why should we
be compelled to study the fictions of the ancient English common law, in order to be informed as to the meaning of the
word contract in the law of the Philippine Islands? Much more reasonable to my mind was the conclusion of the Texas
court, under similar circumstances, to the effect to be referred for their signification to terms of similar import in the
system of laws which prevails in the country where the statue is passed." (Cayce vs. Curtis, supra.)
My conclusion is that the phase contract, express or implied should be interpreted in the grammatical sense of the words
and limited to true contracts, consensual obligations arising from consent, whether expressed in words, writing or signs, or
presumed from conduct. As it is evident that the defendant in the present case never promised, him in the gambling game
in question, his obligation to restor the amounts won, imposed by the law, is no contractual, but purely extra-contractual
and therefore the action brought not being one arising upon contract express or implied, the plaintiff is not entitled to a
preliminary attachment upon the averment that the defendant is about to depart from the Philippine Islands with with
intent t defraud his creditors, no averment being made in the compliant or in the affidavit that the defendant has removed
or disposed of his property, or is about to depart with intent to defraud his creditors, so as to bring the case within the
terms of the fifth paragraph of section 412.
I am unable to agree with the contention of the application (Brief, p. 39) here that the phase in question should be
interpreted in such a way as to include all obligations, whether arising from consent or ex lege, because that is equivalent
to eliminating all distinction between the first and the fifth paragraphs by practically striking out the first two lines of
paragraph one. The Legislature has deliberately established this distinction, and while we may be unable to see any reason
why it should have been made, it is our duty to apply and interpret the law, and we are not authorized under the guise of
interpretation to virtually repeal part of the statute.
Nor can it be said that the relations between the parties litigant constitute a quasi-contract. In the first place, quasicontracts are "lawful and purely voluntary acts by which the authors thereof become obligated in favor of a third
person. . . ." The act which gave rise to the obligation ex lege relied upon by the plaintiff in the court below isillicit an
unlawful gambling game. In the second place, the first paragraph of section 412 of the Code of Civil Procedure does not
authorize an attachment in actions arising out of quasi contracts, but only in actions arising out of contract, express or
implied.
I am therefore of the opinion that the court below was without jurisdiction to issue that writ of attachment and that the writ
should be declared null and void.
Avancea, J., concurs.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. 13228

September 13, 1918

WILLIAM OLLENDORFF, plaintiff-appellee,


vs.
IRA ABRAHAMSON, defendant-appellant.
Lawrence & Ross for appellant.
Wolfson & Wolfson for appellee.
FISHER, J.:
This is an appeal by defendant from a judgment of the Court of First Instance of Manila by which he was enjoined for a
term of five years, from September 10, 1915, from engaging in the Philippine Islands in any business similar to or
competitive with that of plaintiff.

The record discloses that plaintiff is and for a long time past has been engaged in the city of Manila and elsewhere in the
Philippine Islands in the business of manufacturing ladies embroidered underwear for export. Plaintiff imports the
material from which this underwear is made and adopts decorative designs which are embroidered upon it by Filipino
needle workers from patterns selected and supplied by him. Most of the embroidery work is done in the homes of the
workers. The embroidered material is then returned to plaintiff's factory in Manila where it is made into finished garments
and prepared for export. The embroiderers employed by plaintiff are under contract to work for plaintiff exclusively. Some
fifteen thousand home workers and eight hundred factory workers are engaged in this work for plaintiff, and some two
and a half million pesos are invested in his business.
On September 10, 1915, plaintiff and defendant entered into a contract in the following terms:
Contract of agreement made and entered into this date by and between William Ollendorff, of Manila, Philippine
Islands, party of the first part, and Ira Abrahamson, of Manila, Philippine Islands, party of the second part:
The party of first part hereby agrees to employ the party of the second part, and the party of the second part
hereby obligates and binds himself to work for the party of the first part for a term of two years from date
commencing from the sixth of September, one thousand nine hundred and fifteen and ending on the fifth day of
September, one thousand nine hundred seventeen, at a salary of fifty peso (50) per week payable at the end of
each week.
The party of the second part hereby obligates and binds himself to devote his entire time, attention, energies and
industry to the promotion of the furtherance of the business and interest of the party of the first part and to
perform during the term of this contract such duties as may be assigned to him by the party of the first part, and
failure by the said party of the second part to comply with these conditions to the satisfaction of the party of the
first shall entitle the party of the first part to discharge and dismiss the said party of the second part from the
employ of the party of the first part.
It is mutually understood and agreed by the parties hereto that this contract, upon its termination, may be extended
for a like for a longer or a shorter period by the mutual consent of both contracting parties.
The said party of the second part hereby further binds and obligates himself, his heirs, successors and assigns, that
he will not enter into or engage himself directly or indirectly, nor permit any other person under his control to
enter in or engage in a similar or competitive business to that of the said party of the first part anywhere within the
Philippine Islands for a period of five years from this date.
Under the terms of this agreement defendant entered the employ of plaintiff and worked for him until April, 1916, when
defendant, on account of ill health, left plaintiff's employ and went to the United States. While in plaintiff's establishment,
and had full opportunity to acquaint himself with plaintiff's business method and business connection. The duties
performed by him were such as to make it necessary that he should have this knowledge of plaintiff's business. Defendant
had a general knowledge of the Philippine embroidery business before his employment by plaintiff, having been engaged
in similar work for several years.
Some months after his departure for the United States, defendant returned to Manila as the manager of the Philippine
Underwear Company, a corporation. This corporation does not maintain a factory in the Philippine Islands, but send
material and embroidery designs from New York to its local representative here who employs Filipino needle workers to
embroider the designs and make up the garments in their homes. The only difference between plaintiff's business and that
of the firm by which the defendant is employed, is the method of doing the finishing work -- the manufacture of the
embroidered material into finished garments. Defendant admits that both firms turn out the same class of goods and that
they are exported to the same market. It also clearly appears from the evidence that defendant has employed to work his
form some of the same workers employed by the plaintiff.
Shortly after defendant's return to Manila and the commencement by him of the discharge of the duties of his position as
local manager of the Philippine Embroidery Company, as local manager of the Philippine Embroidery Company, plaintiff
commenced this action, the principal purpose of which is to prevent by injunction, any further breach of that part of
defendant's contract of employment by plaintiff, by which he agreed that he would not "enter into or engage himself
directly or indirectly . . . in a similar or competitive business to that of (plaintiff) anywhere within the Philippine Islands
for a period of five years . . ." from the date of the agreement. The lower court granted a preliminary injunction, and upon
trial the injunction was made perpetual.

Defendant, as appellant, argues that plaintiff failed to substantiate the averments of his complaints to the effect that the
business in which the defendant is employed is competitive with that of plaintiff. The court below found from the
evidence that the business was "very similar." We have examined the evidence and rare of the opinion that the business in
which defendant is engaged is not only very similar to that of plaintiff, but that it is conducted in open competition with
that business within the meaning of the contract in question. Defendant himself expressly admitted, on cross-examination,
that the firm by which he is now employed puts out the same class of foods as that which plaintiff is engaged in
producing. When two concerns operate in the same field, produce the same class of goods and dispose them in the same
market, their businesses are of necessity competitive. Defendant having engaged in the Philippine Islands in a business
directly competitive with that of plaintiff, within five years from the date of his contract of employment by plaintiff, under
the terms of which he expressly agreed that he would refrain form doing that very thing, his conduct constitutes a breach
of that agreement.
Defendant argues that even assuming that there has been a breach of the agreement, the judgment of the court below is
nevertheless erroneous, contending that (1) the contract is void for lack of mutuality; (2) that the contract is void as
constituting an unreasonable restraint of trade; (3) that plaintiff has failed to show that he has suffered any estimable
pecuniary damage; and (4) that even assuming that such damage as to warrant the court in restraining by injunction its
continuance.
The contention that the contract is void for lack of mutuality is based upon that part of the agreement which authorizes
plaintiff to discharge the defendant before the expiration of the stipulated term, should defendant fail to comply with its
conditions to plaintiff's satisfaction. It is argued that by this contracts it was sought to impose upon defendant the absolute
obligation of rendering service, while reserving to plaintiff the right to rescind it at will. We are of the opinion that this
question is largely academic. It is admitted that defendant left plaintiff's employ at his own request before the expiration
of the stipulated terms of the contract. Had plaintiff sought to discharge defendant without just cause, before the expiration
of the term of the employment, it might have been a serious question whether he could lawfully do so, notwithstanding the
terms in which the contract was drawn. (Civil Code, art. 1256.) But even assuming this particular clause of the contract to
be invalid, this would not necessarily affect the rest of the agreement. The inclusion is an agreement of one or more pacts
which are invalid does not of necessity invalidate the whole contract.
We are of the opinion that the contract was not void as constituting an unreasonable restraint of trade. We have been cited
to no statutory expression of the legislative will to which such an agreement is directly obnoxious. The rule in this
jurisdiction is that the obligations created by contracts have the force of law between the contracting parties and must be
enforce in accordance with their tenor. (Civil Code, art 1091.) The only limitation upon the freedom of contractual
agreement is that the pacts established shall not be contrary to "law, morals or public order." (Civil Code, Art. 1255.) The
industry of counsel has failed to discover any direct expression of the legislative will which prohibits such a contract as
that before us. It certainly is not contrary to any recognized moral precept, and it therefore only remains to consider
whether it is contrary to "public order." This term, as correctly stated by Manresa (Commentaries, vol. 8, p. 606) "does not
mean, as here used, the actual keeping of the public peace, but signifies the public weal . . . that which is permanent, and
essential in institutions . . . ." It is the equivalent, as here used and as defined by Manresa, of the term "public policy" as
used in the law of the United States. Public policy has been defined as being that principle under which freedom of
contract or private dealing is restricted for the freedom of contract or private dealing is restricted for the good of the
community. (People's Bankvs. Dalton, 2 Okla., 476.) It is upon this theory that contracts between private individuals
which result in an unreasonable restraint of trade have frequently being recognized by article 1255 of our Civil Code, the
court of these Islands are vested with like authority.
In the nature of things, it is impossible to frame a general rule by which to determine in advance the precise point at which
the right of freedom of contract must yield to the superior interest of community in keeping trade and commerce free from
unreasonable restrictions. Originally the English courts adopted the view that any agreement which imposed restrictions
upon a man's right to exercise his trade or calling was void as against public policy. (Cyc. vol. 9, p. 525.) In the course of
time this opinion was abandoned and the American and English courts adopted the doctrine that where the restraint was
unlimited as to space but unlimited as to time were valid. In recent years there has been a tendency on the part of the
courts of England and America to discard these fixed rules and to decide each case according to its peculiar
circumstances, and make the validity of the restraint depend upon its reasonableness. If the restraint is no greater than is
reasonably necessary for the protection of the party in whose favor it is imposed it is upheld, but if it goes beyond this is
declared void. This is the principle followed in such cases by the Supreme Court of the United States. In the case of
Gibbs vs. Consolidated Gas Co. of Baltimore (130 U.S., 396) the court said:
The decision in Mitchel vs. Reynolds (1P. Wms. 181 [Smith's Leading Cases, Vol. 1, Pt. II, 508]), is the
foundation of rule in relation to the invalidity of contracts in restraint of trade; but as it was made under a

condition of things, and a state of society, different from those which now prevail, the rule laid down is not
regarded as inflexible, and has been considerably modified. Public welfare is first considered, and if it be not
involved, and the restraint upon one party is not greater than protection to the other party requires, the contract
may be sustained. The question 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. (Rousillon vs.Rousillon, L. R. 14 Ch.
Div., 351; Leather Cloth Co. vs. Lorsont, L. R. 9 Eq., 345.)
Following this opinion, we adopt the modern rule that the validity of restraints upon trade or employment is to be
determined by the intrinsinc reasonableness of restriction in each case, rather than by any fixed rule, and that such
restrictions may be upheld when not contrary to afford a fair and reasonable protection to the party in whose favor it is
imposed.
Examining the contract here in question from this stand point, it does not seem so with respect to an employee whose
duties are such as of necessity to give him an insight into the general scope and details of his employers business. A
business enterprise may and often does depend for its success upon the owner's relations with other dealers, his skill in
establishing favorable connections, his methods of buying and selling -- a multitude of details, none vital if considered
alone, but which in the aggregate constitute the sum total of the advantages which the result of the experience or
individual aptitude and ability of the man or men by whom the business has been built up. Failure or success may depend
upon the possession of these intangible but all important assets, and it is natural that their possessor should seek to keep
them from falling into the hands of his competitors. It is with this object in view that such restrictions as that now under
consideration are written into contracts of employment. Their purpose is the protection of the employer, and if they do not
go beyond what is reasonably necessary to effectuate this purpose they should be upheld. We are of the opinion, and so
hold, that in the light of the established facts the restraint imposed upon defendant by his contract is not unreasonable. As
was well said in the case of Underwood vs. Barker (68 Law J. Ch., 201). "If there is one thing more than another which is
essential to the trade and commerce of this country, it is the inviolability of contract deliberately entered into; and to allow
a person of mature age, and not imposed upon, to enter into a contract, to obtain the benefit of it, and then to repudiate it
and the obligation which he has undertaken, is prima facie, at all events, contrary to the interest of any and every country .
. . . The public policy which allows a person to obtain employment on certain terms understood by and agreed to by him,
and to repudiate his contract, conflicts with, and must, to avail the defendant, for some sufficient reason, prevail over, the
manifest public policy, which, as a rule holds him to his bond . . . .
Having held that the contract is valid, we pass to a consideration of defendant's objections to its enforcement by
injunction.
It is contended that plaintiff has not proved that he has suffered any estimable pecuniary damage by reason of defendant's
breach of the contract, and that for that reason his action must fail. It is further contended that in no event is it proper to
enforce such a contract as this by injunction, because it has not been alleged and proved that the continuance of the acts
complained of will cause plaintiff "irreparable damage." These objections can conveniently be considered together.
The obligation imposed upon defendant by the particular clause of his contract now under consideration is negative in
character. Unless defendant voluntarily complies with his undertaking there is no way by which the contract can be
enforced except by the injunctive power of judicial process. Such negative obligations have long been enforced by the
courts in this manner. As stated by High in his well-known work on Injunctions (vol. 2, pp. 877-878):
The remedy by injunction to prevent the violation of negative agreements, or contracts not to do a particular thing,
is closely akin to the remedy by way of specific performance of agreements of an affirmative nature. In both cases
the object sought is substantially one and the same, and by enjoining the violation of a negative agreement the
court of equity in effect decrees its specific performance. (Lumley vs. Wagner, 1 DeGex, M. & G., 604.)
Where by the terms of a contract imposing a positive obligation the obligor is entitled to a specific performance, it will not
avail the defendant to show that plaintiff will suffer no pecuniary damage if the contract is not performed. Upon like
reasons, when the undertaking is negative in character and defendant is violating the obligation imposed upon him the
court may interfere without requiring proof of actual damage. (High on Injunctions, par. 1135, citing Dickenson vs. Grand
Junction Canal Co., 15 Beav., 270.)
The admitted fact that plaintiff has failed to establish proof of pecuniary damage by reason of the breach of the contract by
defendant by the acts committed prior to the issuance of the preliminary injunction is, of course, a bar or nay money
judgment for damages for the breach of the contract, but will not justify us in permitting defendant to continue to break
his contract over plaintiff's objection. The injury is a continuous one. The fact that the court may not be able to give

damages for that part of the breach of the contract which had already taken place when its aid was invoked is no reason
why it should countenance a continuance of such disregard of plaintiff's rights.
With respect to the contention that an injunction may only be granted to prevent irreparable injury, the answer is that any
continuing breach of a valid negative covenant is irreparable by the ordinary process of courts of law. As stated by High,
(vol. 2, p. 906) injunctive relief is granted in cases like this "upon the ground that the parties cannot be placed in statu
quo, and that damages at law can afford no adequate compensation, the injury being a continuous one irreparable by the
ordinary process of courts of law."
In the case of Gilchrist vs. Cuddy (29 Phil. rep., 542), at page 552, this court said, citing with approval the case of
Wahle vs. Reinbach (76 Ill., 322):
By "irreparable injury" is not meant such injury as is beyond the possibility of repair, or beyond possible
compensation in damages, nor necessarily great injury or great damage, but that species of injury, whether great
or small, that ought not be submitted to on the one hand or inflicted on the other; and, because it is so large on the
one hand, or so small on the other, is of such constant and frequent recurrence that no fair or reasonable redress
can be had therefor in a court of law.
This definition was quoted with approval by the Supreme Court of the United States in the case of
Donovan vs.Pennsylvania Co., (199 U.S., 279), in which the injury complained of was continuous in its nature.
It is true, as held in the case of Liongson vs. Martinez (36 Phil. Rep., 948) that "an injunction should never issue when an
action for damages would adequately compensate the injuries caused" But it frequently happens that the acts of the
defendant, while constituting a very substantial invasion of plaintiff's rights are of such a character that the damages which
result therefrom "cannot be measured by any certain pecuniary standard." (Eau Claire Water Co. vs. City of Eau Claire,
127 Wis., 154.) The Civil Code (art. 1908) casts upon real estate owners liability in damages for the emission, upon their
premises, of excessive smoke, which may be noxious to person or property. The injury caused by such a nuisance might
bring about a depreciation in the value of adjoining properties, but there is no "certain pecuniary standard" by which such
damages can be measured, and in that sense the threatened injury is "irreparable" and may appropriately be restrained by
injunction.
. . . If the nuisance is a continuing one, invading substantial rights of the complainant in such a manner that he
would thereby lose such rights entirely but for the assistance of a court of equity he will entitled but for the
assistance of a court of equity he will be entitled to an injunction upon a proper showing, notwithstanding the fact
the he might recover some damages in an action at law. (Tise vs. Whitaker-Harvey Co., 144 N. C., 507.)
The injury done the business of a merchant by illegal or unfair competition is exceedingly difficult to measure. A
diminution of the volume of a business may be due to so many different causes that it is often impossible to demonstrate
that it has in fact been caused by the illegal competition of the defendant. This is frequently the case in suit for the
infringement of trademark rights, in which the courts may enjoin the continued use of the infringing mark, although
unable to assess damages for the past injury.
The judgment of the trial court is affirmed with costs. So ordered.
Arellano, C.J., Torres, Johnson, Street and Avancea, JJ., concur.
Malcolm, J., concurs in result.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 172852

January 30, 2013

CITY OF CEBU, Petitioner,


vs.
APOLONIO M. DEDAMO, JR., Respondent.

RESOLUTION
REYES, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the
Decision1 dated November 30, 2005 of the Court of Appeals (CA) ordering petitioner City of Cebu (petitioner) to pay
twelve percent (12%) legal interest per annum on the unpaid balance of the just compensation paid to respondent
Apolonio Dedamo, Jr. (respondent). Likewise assailed is the Resolution 2 dated May 9, 2006 denying reconsideration.
The ensuing facts are not disputed.3
The present controversy is an off-shoot of Civil Case No. CEB-14632 for eminent domain over two (2) parcels of land
owned by spouses Apolonio and Blasa Dedamo (Spouses Dedamo), filed by the petitioner before the Regional Trial Court
(RTC) of Cebu City, Branch 13, on September 17, 1993. The petitioner immediately took possession of the lots after
depositing P51,156.00 with the Philippine National Bank pursuant to Section 19 of Republic Act No. 7160. 4
During the pendency of the case, or on December 14, 1994, the petitioner and Spouses Dedamo entered into a
Compromise Agreement whereby the latter agreed to part with the ownership of the parcels of land in favor of the former
in consideration of ONE MILLION SEVEN HUNDRED EIGHTY-SIX THOUSAND FOUR HUNDRED PESOS
(P1,786,400.00) as provisional payment and just compensation in an amount to be determined by a panel of
commissioners.
Forthwith, the panel was constituted and a report was submitted to the RTC recommending the sum ofP20,826,339.50 as
just compensation. The report was adopted and approved by the RTC in its Order dated December 27, 1996. 5
The RTC Order was affirmed by the CA and then by the Court, in a Decision dated May 7, 2002, when the matter was
elevated for review in a petition docketed as G.R. No. 142971.
When the said decision became final and executory on September 20, 2002, the case was remanded for execution to the
RTC, before which, a motion for the issuance of a writ of execution was filed by Spouses Dedamo on April 4, 2003. On
May 16, 2003, the RTC granted the motion and ordered the issuance of the writ.
In the meantime, Spouses Dedamo passed away and they were substituted in the case by herein respondent.
On December 23, 2003, the petitioner paid the respondent the sum of P19,039,939.50 which is the difference between the
just compensation due and the provisional payment already made.
On March 24, 2004, the respondent filed a Manifestation and Motion before the RTC to order the petitioner to pay interest
on the just compensation computed from the time of actual taking of the lands.
On April 30, 2004, the RTC denied the motion and ruled that it can no longer amend a final and executory judgment that
did not specifically direct the payment of legal interest. Adamant, the respondent sought recourse before the CA asserting
that the petitioner is liable to pay: (a) 12% legal interest on the unpaid balance of the just compensation computed from
the time of actual taking of the property up to the date of payment of just compensation; and (b) 12% legal interest from
the time the decision awarding just compensation became final and executory on September 20, 2002 until its satisfaction
on December 23, 2003.
The Ruling of the CA
In its Decision dated November 30, 2005, the CA rejected the respondents first claim since the issue was belatedly raised
during the execution stage and after the judgment of just compensation attained finality.
Nonetheless, the CA found the respondents second contention meritorious. The CA awarded legal interest accruing from
the time the RTC Order dated December 27, 1996 awarding just compensation was affirmed with finality by the Supreme
Court up to the time of full payment thereof in line with the ruling in Eastern Shipping Lines, Inc. v. Court of
Appeals6 that when a court judgment awarding a sum of money becomes final and executory, it shall earn legal interest of
12% per annum reckoned from such finality until satisfaction.
Accordingly, the decretal portion of the decision reads:

WHEREFORE, in view of the foregoing, the instant petition is partially GRANTED in that the resolution dated April 30,
2004 is MODIFIED to GRANT payment of legal interest of 12% per annum reckoned from the date of finality of the
decision of the Supreme Court on May 2, 2002 up to the time full payment for the just compensation shall have been
made.
No pronouncement as to cost.
SO ORDERED.7
The CA effectively reiterated the above decision when it denied 8 the petitioners motion for reconsideration thereof. Both
parties elevated the CA judgment to the Court. The respondents petition was docketed as G.R. No. 172942 where he
sought, in the main, that the 12% interest rate be reckoned from the date of taking of the property and not from the date of
finality of the Decision dated May 7, 2002 in G.R. No. 142971. The Court denied his petition on August 22, 2006 for
failure to sufficiently show that the CA committed any reversible error in the questioned judgment. The respondents
motion for reconsideration of the said decision was denied with finality on November 27, 2006. 9
At bar is the recourse interposed by the petitioner wherein he seeks the setting aside of the same CA Decision dated
November 30, 2005.
On October 20, 2006, the respondent moved for the consolidation of the present petition with G.R. No. 172942. 10The
motion was denied in view of the prior denial of G.R. No. 172942 on August 22, 2006. 11
In the case at bar, the petitioner prays for the annulment of the award of 12% legal interest made by the CA in view of the
termination of the eminent domain case upon payment of the just compensation in satisfaction of the writ of execution.
The petitioner further asserts that the final judgment in Civil Case No. CEB-14632 which did not explicitly pronounce the
payment of interest can no longer be modified lest the basic principles of remedial law be defiled. 12
For his part, the respondent avers13 that Section 10, Rule 67 of the Rules of Court mandating the payment of legal interest
on just compensation forms part of every judgment rendered in eminent domain cases even if the same was not directly
ordered therein.
The respondent also claims that the award of just compensation must be reckoned from the date of taking of subject lots
and not from the date of finality of G.R. No. 142971 because just compensation, before it is paid, constitutes loan or
forbearance of money that entails the imposition of a 12% interest per annum.
Ruling of the Court
The petition is denied on the ground of res judicata in the mode of conclusiveness of judgment.
A perusal of the allegations in the present case evidently shows that the petitioner broaches the issues similarly raised and
already resolved in G.R. No. 172942.
Under the principle of conclusiveness of judgment, when a right or fact has been judicially tried and determined by a court
of competent jurisdiction, or when an opportunity for such trial has been given, the judgment of the court, as long as it
remains unreversed, should be conclusive upon the parties and those in privity with them. 14 Stated differently,
conclusiveness of judgment bars the re-litigation in a second case of a fact or question already settled in a previous
case.151wphi1
The adjudication in G.R. No. 172942 has become binding and conclusive on the petitioner who can no longer question the
respondents entitlement to the 12% legal interest awarded by the CA. The Courts determination in G.R. No. 172942 on
the reckoning point of the 12% legal interest is likewise binding on the petitioner who cannot re-litigate the said matter
anew through the present recourse.
Thus, the judgment in G.R. No. 172942 bars the present case as the relief sought in the latter is inextricably related to the
ruling in the former.
WHEREFORE, premises considered, the Petition is hereby DENIED.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 187930

February 23, 2015

NEW WORLD DEVELOPERS AND MANAGEMENT, INC., Petitioner,


vs.
AMA COMPUTER LEARNING CENTER, INC., Respondent.
x-----------------------x
G.R. No. 188250
AMA COMPUTER LEARNING CENTER, INC., Petitioner.
vs.
NEW WORLD DEVELOPERS AND MANAGEMENT, INC., Respondent,
DECISION
SERENO, CJ:
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court assailing the Court of
Appeals (CA) Decision1 dated 22 January 2009 and Resolution2 dated 18 May 2009 in CA-G.R. CV No. 89483.
The CA Decision ordered AMA Computer Learning Center, Inc. (AMA) to pay New World Developers and Management,
Inc. (New World) unpaid rentals for 2 months, as well asliquidated damages equivalent to 4 months rent. The CA
Resolution denied the separate motions for reconsideration filed by the parties.
FACTS
New World is the owner of a commercial building located at No. 1104-1118 Espaa corner Paredes Streets, Sampaloc,
Manila.3 In 1998, AMA agreed to lease the entire second floor of the building for its computer learning center, and the
parties entered into a Contract of Lease4 covering the eight-year period from 15 June 1998 to 14 March 2006.
The monthly rental for the first year was set at P181,500, with an annual escalation rate equivalent to 15% for the
succeeding years.5 It was also provided that AMA may preterminate the contract by sending notice in writing to New
World at least six months before the intended date. 6 In case of pretermination, AMA shall be liable for liquidated damages
in an amount equivalent to six months of the prevailing rent.
In compliance with the contract, AMA paid New World the amount of P450,000 as advance rental and anotherP450,000 as
security deposit.7
For the first three years, AMA paid the monthly rent as stipulated in the contract, with the required adjustment in
accordance with the escalation rate for the second and the third years. 8
In a letter dated 18 March 2002, AMA requested the deferment of the annual increase in the monthly rent by citing
financial constraints brought about by a decrease in its enrollment. New World agreed to reduce the escalation rate by
50% for the next six months. The following year, AMA again requested the adjustment of the monthly rent and New
World obliged by granting a 45% reduction of the monthly rent and a 5% reduction of the escalation rate for the remaining
term of the lease. For this purpose, the parties entered into an Addendum to the Contract of Lease. 9
On the evening of 6 July 2004, AMA removed all its office equipment and furniture from the leased premises. The
following day, New World received a letter from AMA dated 6 July 2004 10 stating that the former had decided to
preterminate the contract effective immediately on the ground of business losses due to a drastic decline in enrollment.
AMA also demanded the refund of its advance rental and security deposit.
New World replied in a letter dated 12 July 2004, 11 to which was attached a Statement of Account 12 indicating the
following amounts to be paid by AMA: 1) unpaid two months rent in the amount of P466,620; 2) 3% monthly interest for
the unpaid rent in the amount of P67,426.59; 3) liquidated damages equivalent to six months of the prevailing rent in the
amount of P1,399,860; and 4) damage to the leased premises amounting to P15,580. The deduction of the advance rental
and security deposit paid by AMA still left an unpaid balance in the amount ofP1,049,486.59.

Despite the meetings between the parties, they failed to arrive at a settlement regarding the payment of the foregoing
amounts.13
On 27 October 2004, New World filed a complaint for a sum of money and damages against AMA before the Regional
Trial Court of Marikina City, Branch 156 (RTC).14
RULING OF THE RTC
In a Decision15 dated 31 January 2007, the RTC ordered AMA to pay New World P466,620 as unpaid rentals plus 3%
monthly penalty interest until payment; P1,399,860 as liquidated damages equivalent to six months rent, with the advance
rental and security deposit paid by AMA to be deducted therefrom; P15,580 for the damage to the leased
premises; P100,000 as attorneys fees; and costs of the suit.
According to the RTC, AMA never denied that it had arrearages equivalent to two months rent. Other than its allegation
that it did not participate in the preparation of the Statement of Account, AMA did not proffer any evidence disputing the
unpaid rent. For its part, New World clearly explained the existence of the arrears.
While sympathizing with AMA in view of its business losses, the RTC ruled that AMA could not shirk from its contractual
obligations, which provided that it had to pay liquidated damages equivalent to six months rent in case of a
pretermination of the lease.
The RTC provided no bases for awarding P15,580 for the damage to the leased premises and P100,000 for attorneys fees,
while denying the prayer for exemplary and moral damages.
Upon the denial of its motion for reconsideration, AMA filed an appeal before the CA. 16
RULING OF THE CA
In the assailed Decision dated 22 January 2009, the CA ordered AMA to pay New World P466,620 for unpaid rentals
and P933,240 for liquidated damages equivalent to four months rent, with the advance rental and security deposit paid by
AMA to be deducted therefrom. 17
The appellate court ruled that the RTC erred in imposing a 3% monthly penalty interest on the unpaid rent, because there
was no stipulation either in the Contract of Lease or in the Addendum to the Contract of Lease concerning the imposition
of interest in the event of a delay in the payment of the rent. 18 Thus, the CA ruled that the rent in arrears should earn
interest at the rate of 6% per annum only, reckoned from the date of the extrajudicial demand on 12 July 2004 until the
finality of the Decision. Thereafter, interest at the rate of12% per annum shall be imposed until full payment.
The CA also ruled that the RTCs imposition of liquidated damages equivalent to six months rent was iniquitous. 19While
conceding that AMA was liable for liquidated damages for preterminating the lease, the CA also recognized that stipulated
penalties may be equitably reduced by the courts based on its sound discretion. Considering that the unexpired portion of
the term of lease was already less than two years, and that AMA had suffered business losses rendering it incapable of
paying for its expenses, the CA deemed that liquidated damages equivalent to four months rent was reasonable. 20
The appellate court deleted the award for the damage to the leased premises, because no proof other than the Statement of
Account was presented by New World. 21 Furthermore, noting that the latter was already entitled to liquidated damages,
and that the trial court did not give any justification for attorneys fees, the CA disallowed the award thereof. 22
Both parties filed their respective motions for reconsideration, which were denied in the assailed Resolution dated 10 May
2009.
Hence, the present petitions for review on certiorari. On 3 August 2009, the Court resolved to consolidate the petitions,
considering that they involve the same parties and assail the same CA Decision and Resolution. 23
PARTIES POSITIONS
According to New World, when parties freely stipulate on the manner by which one may preterminate the lease, that
stipulation has the force of law between them and should be complied with in good faith. 24 Since AMA preterminated the
lease, it became liable to liquidated damages equivalent to six months rent. Furthermore, its failure to give notice to New
World six months prior to the intended pretermination of the contract and its leaving the leased premises in the middle of
the night, with all its office equipment and furniture, smacked of gross bad faith that renders it undeserving of sympathy
from the courts.25 Thus, the CA erred in reducing the liquidated damages from an amount equivalent to six months rent to
only four months.

New World also challenges the CA Decision and Resolution for disallowing the imposition of the 3% monthly interest on
the unpaid rentals. It is argued that AMA never disputed the imposition of the 3% monthly interest; rather, it only
requested that the interest rate be reduced. 26
On the other hand, AMA assails the CA ruling for not recognizing the fact that compensation took place between the
unpaid rentals and the advance rental paid by AMA. 27 Considering that the obligation of AMA as to the arrears has been
extinguished by operation of law, there would be no occasion for the imposition of interest. 28
AMA also prays for the further reduction of the liquidated damages to an amount equivalent to one months rent up to one
and a half months, arguing that four months worth of rent is still iniquitous on account of the severe financial losses it
suffered.29
ISSUES
1. Whether AMA is liable to pay six months worth of rent as liquidated damages.
2. Whether AMA remained liable for the rental arrears.
OUR RULING
I.
AMA is liable for six months worth of rent as liquidated damages.
Item No. 14 of the Contract of Lease states:
That [AMA] may pre-terminate this Contract of Lease by notice in writing to [New World] at least six (6) months before
the intended date of pretermination, provided, however, that in such case, [AMA] shall be liable to [New World] for an
amount equivalent to six (6) months current rental as liquidated damages; 30
Quite notable is the fact that AMA never denied its liability for the payment of liquidated damages in view of its
pretermination of the lease contract with New World. What it claims, however, is that it is entitled to the reduction of the
amount due to the serious business losses it suffered as a result of a drastic decrease in its enrollment.
This Court is, first and foremost, one of law. While we are also a court of equity, we do not employ equitable principles
when well-established doctrines and positive provisions of the law clearly apply.31
The law does not relieve a party from the consequences of a contract it entered into with all the required
formalities.32 Courts have no power to ease the burden of obligations voluntarily assumed by parties, just because things
did not turn out as expected at the inception of the contract. 33 It must also be emphasized that AMA is an entity that has
had significant business experience, and is not a mere babe in the woods.
Articles 1159 and 1306 of the Civil Code state:
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.
xxxx
Art. 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.
The fundamental rule is that a contract is the law between the parties. Unless it has been shown that its provisions are
wholly or in part contrary to law, morals, good customs, public order, or public policy, the contract will be strictly
enforced by the courts.34
In rebuttal, AMA invokes Article 2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.
In Ligutan v. CA, we held that the resolution of the question of whether a penalty is reasonable, or iniquitous or
unconscionable would depend on factors including but not limited to the type, extent and purpose of the penalty; the
nature of the obligation; the mode of the breach and its consequences; the supervening realities; and the standing and
relationship of the parties.35 The appreciation of these factors is essentially addressed to the sound discretion of the court. 36

It is quite easy to understand the reason why a lessor would impose liquidated damages in the event of the pretermination
of a lease contract. Pretermination is effectively the breach of a contract, that was originally intended to cover an agreed
upon period of time. A definite period assures the lessor a steady income for the duration. A pretermination would
suddenly cut short what would otherwise have been a longer profitable relationship. Along the way, the lessor is bound to
incur losses until it is able to find a new lessee, and it is this loss of income that is sought to be compensated by the
payment of liquidated damages.
There might have been other ways to work around its difficult financial situation and lessen the impact of the
pretermination to both parties. However, AMA opted to do the following:
1. It preterminated the lease without notifying New World at least six months before the intended date.
2. It removed all its office equipment and left the premises in the middle of the night.
3. Only after it had cleared the premises did it send New World a notice of pretermination effective immediately.
4. It had the gall to demand a full refund of the advance rental and security deposit, albeit without prejudice to
their removal of the improvements introduced in the premises.
We cannot understand the inability of AMA to be forthright with New World, considering that the former had been
transparent about its business losses in its previous requests for the reduction of the monthly rental. The drastic decrease
in AMAs enrollment had been unfolding since 2002. Thus, it cannot be said that the business losses had taken it by
surprise. It is also highly unlikely that the decision to preterminate the lease contract was made at the last minute. The
cancellation of classes, the transfer of students, and administrative preparations for the closure of the computer learning
center and the removal of office equipment therefrom should take at least weeks, if not months, of logistic planning. Had
AMA come clean about the impending pretermination, measures beneficial to both parties could have been arrived at, and
the instant cases would not have reached this Court. Instead, AMA forced New World to share in the formers losses,
causing the latter to scramble for new lessees while the premises remained untenanted and unproductive.
In the sphere of personal and contractual relations governed by laws, rules and regulations created to promote justice and
fairness, equity is deserved, not demanded. The application of equity necessitates a balancing of the equities involved in a
case,37 for "[h]e who seeks equity must do equity, and he who comes into equity must come with clean hands." 38 Persons
in dire straits are never justified in trampling on other persons rights. Litigants shall be denied relief if their conduct has
been inequitable, unfair and dishonest as to the controversy in issue. 39 The actions of AMA smack of bad faith.
We cannot abide by the prayer for the further reduction of the liquidated damages. We find that, in view of the
surrounding circumstances, the CA even erred in reducing the liquidated damages to four months worth of rent. Under
the terms of the contract, and in light of the failure of AMA to show that it is deserving of this Courts indulgence, the
payment of liquidated damages in an amount equivalent to six months rent is proper.
Also proper is an award of exemplary damages. Article 2234 of the Civil Code provides:
Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must show that he is entitled to
moral, temperate or compensatory damages before the court may consider the question of whether or not exemplary
damages should be awarded. In case liquidated damages have been agreed upon, although no proof of loss is necessary in
order that such liquidated damages may be recovered, nevertheless, before the court may consider the question of granting
exemplary in addition to the liquidated damages, the plaintiff must show that he would be entitled to moral, temperate or
compensatory damages were it not for the stipulation for liquidated damages. (Emphasis supplied)
In this case, it is quite clear that New World sustained losses as a result of the unwarranted acts of AMA. Further, were it
not for the stipulation in the contract regarding the payment of liquidated damages, we would be awarding compensatory
damages to New World.
"Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially deleterious in
its consequence by creating negative incentives or deterrents against such behaviour." 40 As such, they may be awarded
even when not pleaded or prayed for.41 In order to prevent the commission of a similar act in the future, AMA shall pay
New World exemplary damages in the amount of P100,000.
II.
AMAs liability for the rental arrears has already been extinguished.
AMA assails the CA ruling mainly for the imposition of legal interest on the rent in arrears. AMA argues that the advance
rental has extinguished its obligation as to the arrears. Thus, it says, there is no more basis for the imposition of interest at
the rate of 6% per annum from the date of extrajudicial demand on 12 July 2004 until the finality of the Decision, plus
interest at the rate of 12% per annum from finality until full payment.

At this juncture, it is necessary to look into the contract to determine the purpose of the advance rental and security
deposit.
Item Nos. 2, 3 and 4 of the Contract of Lease provide:
xxxx
2. That [AMA] shall pay to [New World] in advance within the first 5 days of each calendar month a monthly
rental in accordance with the following schedule for the entire term of this Contract of Lease;
PERIOD

MONTHLY RENTAL RATES

Year 1 June 15, 1998 Mar 14, 1999

181,500.00

Year 2 Mar 15, 1999 Mar 14, 2000

P208,725.00

Year 3 Mar 15, 2000 Mar 14, 2001

P240,033.75

Year 4 Mar 15, 2001 Mar 14, 2002

P276,038.81

Year 5 Mar 15, 2002 Mar 14, 2003

P317,444.63

Year 6 Mar 15, 2003 Mar 14, 2004

P365,061.33

Year 7 Mar 15, 2004 Mar 14, 2005

P419,820.53

Year 8 Mar 15, 2005 Mar 14, 2006

P482,793.61
(P482,793.61
P445,293.61)

37,500

The monthly rentals referred to above were computed at an escalation rate of Fifteen Percent (15%) every year for
the entire duration of this lease contract.
3. Upon signing of this Contract, [AMA] shall pay advance rental in the amount of FOUR HUNDRED FIFTY
THOUSAND PESOS (P450,000.00); Said advance rental shall be applied as part of the rental for the last year of
the Contract with a remaining balance of Four Hundred Forty Five Thousand Two Hundred Ninety Three and
61/100 Pesos (P445,293.61) as monthly rental for the tenth [sic] and last year of the lease term;
4. Upon signing of the Contract, [AMA] shall pay [New World] a Security Deposit in the amount of FOUR
HUNDRED FIFTY THOUSAND PESOS (P450,000.00) which shall be applied for any unpaid rental balance and
damages on the leased premises, and the balance of which shall be refunded by [New World] to [AMA] within
sixty (60) days after the termination of the Contract, it being understood that such balance is being held by [New
World] in trust for [AMA].42
Based on Item No. 4, the security deposit was paid precisely to answer for unpaid rentals that may be incurred by AMA
while the contract was in force. The security deposit was held in trust by New World, and whatever may have been left of
it after the termination of the lease shall be refunded to AMA.
Based on Item No. 3 in relation to Item No. 2, the parties divided the advance rental of P450,000 by 12 months. They
came up with P37,500, which they intended to deduct from the monthly rental to be paid by AMA for the last year of the
lease term. Thus, unlike the security deposit, no part of the advance rental was ever meant to be refunded to AMA.
Instead, the parties intended to apply the advance rental, on a staggered basis, to a portion of the monthly rental in the last
year of the lease term.
Considering the pretermination of the lease contract in the present case, this intent of the parties as regards the advance
rental failed to take effect. The advance rental, however, retains its purpose of answering for the outstanding amounts that
AMA may owe New World.
We now delve into the actual application of the security deposit and the advance rental.
At the time of the pretermination of the contract of lease, the monthly rent stood at P233,310, inclusive of taxes;43hence,
the two-month rental arrears in the amount of P466,620.
Applying the security deposit of P450,000 to the arrears will leave a balance of P16,620 in New Worlds
favor.1wphi1Given that we have found AMA liable for liquidated damages equivalent to six months rent in the amount
ofP1,399,860 (monthly rent of P233,310 multiplied by 6 months), its total liability to New World is P1,416,480.

We then apply the advance rental of P450,000 to this amount to arrive at a total extinguishment of the liability for the
unpaid rentals and a partial extinguishment of the liability for liquidated damages. This shall leave AMA still liable to
New World in the amount of P966,480 (P1,416,480 total liability less P450,000 advance rental).
Not constituting a forbearance of money,44 this amount shall earn interest pursuant to Item II(2) 45 of our pronouncement in
Eastern Shipping Lines v. CA.46 This item remained unchanged by the modification made in Nacar v. Gallery
Frames.47 Interest at the rate of 6% per annum is hereby imposed on the amount of 966,480 from the time of extrajudicial
demand on 12 July 2004 until the finality of this Decision.
Thereafter this time pursuant to the modification in Nacar the amount due shall earn interest at the rate of 6% per
annum until satisfaction, this interim period being deemed to be by then equivalent to a forbearance of credit. 48
Considering the foregoing, there was no occasion for the unpaid two months rental to earn interest. Besides, we cannot
sanction the imposition of 3% monthly penalty interest thereon. We quote with approval the ruling of the CA on this issue:
If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the interest agreed upon and in the absence of
stipulation, the legal interest, which is six per cent per annum.
In the instant case, the Contract of Lease and the Addendum to the Contract of Lease do not specify any interest in the
event of delay of payment of rentals. Accordingly, there being no stipulation concerning interest, the trial court erred in
imposing 3% interest per month on the two-month unpaid rentals.
[New World] argues that the said3% interest per month on the unpaid rentals was agreed upon by the parties as allegedly
shown in Exhibits "A-4", "A-5", "A-6", "B-4", and "B-5".
We are not persuaded.
[New Worlds] letter dated 12 July 2004 to [AMA], Statement of Account dated 07 July 2004; and another Statement of
Account dated 27 October 2004 were all prepared by [New World], with no participation or any indication of agreement
on [AMAs] part. The alleged proposal of [AMA] as contained in the Schedule of Receivable/Payable is just a computer
print-out and does not contain any signature showing [AMAs] conformity to the same. 49
Having relied on the Contract of Lease for its demand for payment of liquidated damages, New World should have also
referred to the contract to determine the proper application of the advance rental and security deposit. Had it done so in
the first instance, it would have known that there is no occasion for the imposition of interest, 3% or otherwise, on the
unpaid rentals. WHEREFORE, the Court of Appeals Decision dated 22 January 2009 and Resolution dated 10 May 2009
in CA-G.R. CV No. 89483 is AFFIRMED with MODIFICATION.
AMA Computer Learning Center, Inc. is ordered to pay New World Developers and Management, Inc. the amount
of P966,480, with interest at the rate of 6% per annum from 12 July 2004 until full payment.
In addition, AMA shall pay New World exemplary damages in the amount of P100,000, which shall earn interest at the
rate of 6% per annum from the finality of this Decision until full payment.
SO ORDERED.
MARIA LOURDES P.A. SERENO
Chief Justice, Chairperson
WE CONCUR:

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 187240

October 15, 2014

CARLOS A. LORIA, Petitioner,


vs.
LUDOLFO P. MUOZ, JR. Respondent.

DECISION
LEONEN, J.:
No person should unjustly enrich himself or herself at the expense of another.
This is a petition for review on certiorari 1 to set aside the Court of Appeals' decision 2 and resolution3 in CA-G.R. CV No.
81882. The Court of Appeals ordered petitioner Carlos A. Loria to pay respondent Ludolfo P. Muoz, Jr.P2,000,000.00 in
actual damages with 12% interest per year from the filing of the complaint until full payment. 4
The facts of this case are as follows:
Ludolfo P. Muoz, Jr. (Muoz) filed a complaint for sum of money and damages with an application for issuance of a writ
of preliminary attachment against Carlos A. Loria (Loria) with the Regional Trial Court of Legazpi City. 5
In his complaint, Muoz alleged that he has been engaged in construction under the name, "Ludolfo P. Muoz, Jr.
Construction." In August 2000, Loria visited Muoz in his office in Doa Maria Subdivision in Daraga, Albay. He invited
Muoz to advance P2,000,000.00 for a subcontract of a P50,000,000.00 river-dredging project in Guinobatan.6
Loria represented that he would makearrangements such that Elizaldy Co, owner of Sunwest Construction and
Development Corporation, would turn out to be the lowest bidder for the project. Elizaldy Co would payP8,000,000.00 to
ensure the projects award to Sunwest. After the award to Sunwest, Sunwest would subcontract 20% or P10,000,000.00
worth of the project to Muoz.7
Since Muoz had known Loria for five years, Muoz accepted Lorias proposal. 8
On October 2, 2000, Muoz requested Allied Bank to release P3,000,000.00 from his joint account withhis business
partner, Christopher Co, to a certain Grace delos Santos (delos Santos). Loria then obtained the money from delos Santos. 9
Four days later, P1,800,000.00 of the P3,000,000.00 was returned to Muoz.10
On January 10, 2001, Loria collectedMuozs P800,000.00 balance. After deducting Lorias personal loans from Muoz,
Muoz issued a check to Loria for P481,800.00. Loria acknowledged receiving this amount from Muoz. 11
The project to dredge the Masarawag and San Francisco Rivers in Guinobatan was subjected to public bidding. The
project was awarded to the lowest bidder, Sunwest Construction and Development Corporation. 12
Sunwest allegedly finished dredging the Masarawag and San Francisco Rivers without subcontracting Muoz. 13With the
project allegedly finished, Muozdemanded Loria to return his P2,000,000.00. Loria, however, did not return the money.14
Muoz first charged Loria and Elizaldy Co with estafa. This criminal case was dismissed by the Municipal Trial Court of
Daraga, Albay for lack of probable cause.15
Muoz then filed the complaint for sum of money. The case was raffled to Branch 6 and presidedby Judge Vladimir B.
Brusola.16
Loria answered Muozs complaint. He admitted receiving P481,800.00 from Muoz but argued that the complaint did
not state a cause of action against him. According to Loria, he followed up the projects approval with the Central Office
of the Department of Public Works and Highways as the parties agreed upon. He was, therefore, entitled to his
representation expenses.17
Loria also argued that Muoz was guilty of forum shopping. Muoz first filed a criminal complaint for estafa against him
and Elizaldy Co, which complaint the Municipal Trial Court of Daraga, Albay dismissed. The subsequently filed
complaint for sum of money, allegedly a complaint to recover the civil aspect of the estafa case, must, therefore, be
dismissed as argued by Loria.18
During pre-trial, the parties agreed to litigate the sole issue of whether Loria is liable to Muoz forP2,000,000.00.19

According to the trial court, Muoz established with preponderant evidence that Loria received P2,000,000.00 from
Muoz for a subcontract of the river-dredging project. Since no part of the project was subcontracted to Muoz, Loria
must return the P2,000,000.00 he received, or he would be "unduly enriching himself at the expense of [Muoz]." 20
On the claim of forum shopping, the trial court ruled that Lorias obligation to return the 2,000,000.00 did not arise from
criminal liability. Muoz may, therefore, file a civil action to recover his P2,000,000.00.21
As to the prayer for issuance of a writ of preliminary attachment, the trial court denied the prayer for lack of sufficient
basis.22
Thus, in the decision23 dated January 30, 2004, the trial court ordered Loria to return the P2,000,000.00 toMuoz as actual
damages with 12% interest from the filing of the complaint until the amounts full payment. The trial court likewise
ordered Loria to pay Muoz P100,000.00 in attorneys fees, P25,000.00 in litigation expenses, andP25,000.00 in
exemplary damages with costs against Loria.24
Loria appealed to the Court of Appeals, arguing that Muoz failed to establish his receipt of the P2,000,000.00.
Specifically, Muoz failed to establish that he obtained P3,000,000.00from a certain Grace delos Santos. Loria also
appealed the award of attorneys fees, litigation expenses, and exemplary damages for having no basis in fact and in law. 25
The Court of Appeals sustained the trial courts factual findings. In ruling that Loria received the net amount
ofP2,000,000.00 from Muoz, the Court of Appeals referred to Muozs testimony that he ordered Allied Bank to
release P3,000,000.00 from his joint account with Christopher Co to a certain Grace delos Santos. 26 Loria then obtained
the money from delos Santos and confirmed with Muoz his receipt of the money. 27 This testimony, according to the
appellate court, was supported by Exhibit "C," a check voucher the trial court admitted inevidence. Loria signed this
check voucher and acknowledged receiving P1,200,000.00 on October 2, 2000 andP800,000.00 on January 10, 2001, ora
total of P2,000,000.00.28
Considering that Muoz did not benefit from paying Loria P2,000,000.00, the appellate court ruled that Loria must return
the money to Muoz under the principle of unjust enrichment. 29
The appellate court, however, ruled that Muoz failed to show his right to exemplary damages and attorneys fees. 30
Thus, in the decision31 dated October 23, 2008, the Court of Appeals affirmed the trial courts decision but deleted the
award of exemplary damages and attorneys fees. 32 The appellate court likewise denied Lorias motion for reconsideration
in the resolution33 dated March 12, 2009.
Loria filed a petition for review on certiorari 34 with this court, arguing that the principle of unjust enrichment does not
apply in this case. As the trial and appellate courts found, Muoz paid Loria P2,000,000.00 for a subcontract of a
government project. The parties agreement, therefore, was void for being contrary to law, specifically, the Anti-Graft and
Corrupt Practices Act, the Revised Penal Code, and Section 6 of Presidential Decree No. 1594. The agreement was
likewise contrary to the public policy of public or open competitive bidding of government contracts. 35
Since the parties agreement was void, Loria argues that the parties were in pari delicto, and Muoz should not be allowed
to recover the money he gave under the contract. 36
On the finding that he received a net amount of P2,000,000.00 from Muoz, Loria maintains that Muoz failed to prove
his receipt of P3,000,000.00 through a certain Grace delos Santos. 37
In the resolution38 dated June 3, 2009, thiscourt ordered Muoz to comment on Lorias petition.
In his comment,39 Muoz argues that Lorias petition raises questions of fact and law that the trial and appellate courts
have already passed upon and resolved in his favor. He prays that this court deny Lorias petition for raising questions of
fact.
Loria replied40 to the comment, arguing thathe raised only questions of law in his petition. 41 Even assuming that he raised
questions of fact, Loria argues that this does not warrant the automatic dismissal of his petition since the trial and
appellate courts allegedly erred inruling for Muoz. 42

On October 8, 2010, the parties filed their joint motion to render judgment based on the compromise agreement. 43 In their
compromise agreement,44 the parties declared that thiscase "was a product of a mere misunderstanding." 45 To amicably
settle their dispute, the parties agreed to waive all their claims, rights, and interests against each other. 46
This court denied the joint motion for lack of merit in the resolution 47 dated December 15, 2010.
The issues for our resolution are the following:
I. Whether Loria initially obtained P3,000,000.00 from a certain Grace delos Santos
II. Whether Loria is liable for P2,000,000.00 to Muoz
We rule for Muoz and deny Lorias petition for review on certiorari.
I
Whether Loria initially received 3,000,000.00 is a question of fact not proper in a petition for review on certiorari
We first address Lorias contention that Muoz failed to prove his initial receipt of P3,000,000.00. This is a question of
fact the trial and appellate courts have already resolved. In a Rule 45 petition, we do not address questions of fact,
questions which require us to ruleon "the truth or falsehood of alleged facts." 48 Under Section 1, Rule 45 of the Rules of
Court, we only entertain questions of law questions as to the applicable law given a set of facts 49 in a petition for
review on certiorari:
Section 1. Filing of petition with Supreme Court.
A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file withthe Supreme Court a
verified petition for review on certiorari. The petition shall raise only questions of lawwhich must be distinctly set forth.
(Emphasis supplied)50
We may review questions of fact in a Rule 45 petition:
. . . (1) when the findings are grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is
manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based
on misappreciation of facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the same are
contrary to the admissions of both appellant and appellee; (7) the findings are contrary to those of the trial court; (8) when
the findings are conclusions without citation of specific evidence on which they are based; (9) the facts set forth in the
petition as well as in petitioners main and reply briefs are not disputed by respondent; and (10) the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record. 51 [Emphases omitted]
Loria failed to convince us why we should make an exception in this case.
During trial, Muoz testified thathe ordered Allied Bank to release P3,000,000.00 from his joint account withChristopher
Co to a certain Grace delos Santos. 52 Loria then obtained the money from delos Santos and confirmed with Muoz his
receipt of the amount.53 P1,800,000.00 was subsequently returned to Muoz, leaving aP1,200,000.00 balance with Loria.
This testimony was supported by Exhibit "C," the check voucher where Loria acknowledged receiving P1,200,000.00
from Muoz.54
We agree that these pieces ofevidence duly prove Lorias initial receipt of P3,000,000.00. We will not disturb this finding.
II
Loria must return Munozs P2,000,000.00 under the principle of unjust enrichment
Under Article 22 of the Civil Codeof the Philippines, "every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall
return the same to him." There is unjust enrichment "when a person unjustly retains a benefit to the loss of another, or
when a person retains money orproperty of another against the fundamental principles of justice, equity and good
conscience."55

The principle of unjust enrichment has two conditions. First, a person must have been benefited without a real or valid
basis or justification. Second, the benefit was derived at another persons expense or damage. 56
In this case, Loria received P2,000,000.00 from Muoz for a subcontract of a government projectto dredge the Masarawag
and San Francisco Rivers in Guinobatan, Albay. However, contrary to the parties agreement, Muoz was not
subcontracted for the project. Nevertheless, Loria retained the P2,000,000.00.
Thus, Loria was unjustly enriched. He retained Muozs money without valid basis or justification. Under Article 22 of
the Civil Code of the Philippines, Loria must return the P2,000,000.00 to Muoz.
Contrary to Lorias claim, Section 6 of the Presidential Decree No. 1594 does not prevent Muoz from recovering his
money.
Under Section 6 of the Presidential Decree No. 1594, 57 a contractor shall not subcontract a part or interestin a government
infrastructure project without the approval of the relevant department secretary:
Section 6. Assignment and Contract.The contractor shall not assign, transfer, pledge, subcontract ormake any other
disposition of the contract or any part or interest therein except with the approval of the Minister of Public Works,
Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be.
Approval of the subcontract shall not relieve the main contractor from any liability or obligation under his contract with
the Government nor shall it create any contractual relation between the subcontractor and the Government.
A subcontract, therefore, is void only if not approved by the department secretary.
In this case, it is premature to rule on the legality of the parties agreement precisely becausethe subcontract did not push
through. No actual agreement was proven in evidence.The Secretary of Public Works and Highways could have approved
the subcontract, which is allowed under Section 6 of the Presidential Decree No. 1594.
At any rate, even assuming that there was a subcontracting arrangement between Sunwest Construction and Development
Corporation and Muoz, this court has allowed recovery under a void subcontract as an exception to the in pari delicto
doctrine.
In Gonzalo v. Tarnate, Jr.,58 the Department of Public Works and Highways (DPWH) awarded the contractto Dominador
Gonzalo to improve the Sadsadan-Maba-ay section of the Mountain Province Road. Gonzalo then subcontracted the
supply of materials and labor to John Tarnate, Jr. without the approval of the Secretary of Public Works and Highways.
The parties agreed to a total subcontract fee of 12% of the projects contract price. 59
Tarnate, Jr. also rented equipment to Gonzalo. In a deed of assignment, the parties agreed to a retention fee of 10% of
Gonzalos total collection from the Department of Public Works and Highways, or 233,526.13, as rent for the equipment.
They then submitted the deed of assignment to the Department for approval. 60
Subsequently, Tarnate, Jr. learned that Gonzalo filed with the Department of Public Works and Highways an affidavit to
unilaterally cancel the deed of assignment. Gonzalo also collected the retention fee from the Department. 61
Tarnate, Jr. demanded payment for the rent of the equipment, but Gonzalo ignored his demand. He thenfiled a complaint
for sum of money and damages with the Regional Trial Court of Mountain Province to collect on the 10% retention fee. 62
In his defense, Gonzalo argued thatthe subcontract was void for being contrary to law, specifically, Section 6 of the
Presidential Decree No. 1594. Since the deed of assignment "was a mere product of the subcontract," 63 the deed of
assignment was likewise void. With Tarnate, Jr. "fully aware of the illegality and ineffectuality of the deed of
assignment,"64 Gonzalo contended that Tarnate, Jr. could not collect on the retention fee under the principle of in pari
delicto.65
This court ruled that the subcontract was void for being contrary to law. Under Section 6 of the Presidential Decree No.
1594, a contractor shall not subcontract the implementation of a government infrastructure project without the approval of
the relevant department secretary.66 Since Gonzalo subcontracted the project to Tarnate, Jr. without the approvalof the
Secretary of Public Works and Highways, the subcontract was void, including the deed of assignment, which "sprung
from the subcontract."67

Generally, parties to an illegal contract may not recover what they gave under the contract. 68 Under the doctrine of in pari
delicto, "no action arises, in equity or at law, from anillegal contract[.] No suit can be maintained for its specific
performance, or to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages for its
violation[.]"69 Nevertheless, this court allowed Tarnate, Jr. to recover 10% of the retention fee. According to this court,"the
application of the doctrine of in pari delictois not always rigid." 70 An exception to the doctrine is "when its application
contravenes well-established public policy." 71 In Gonzalo, this court ruled that "the prevention of unjust enrichment is a
recognized public policy of the State."72 It is, therefore, an exception to the application of the in pari delicto doctrine. This
court explained:
. . . the application of the doctrine of in pari delicto is not always rigid. 1wphi1 An accepted exception arises when its
application contravenes wellestablished public policy. In this jurisdiction, public policy has been defined as "that principle
of the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or
against the public good."
Unjust enrichment exists, according to Hulst v. PR Builders, Inc., "when a person unjustly retains a benefit at the loss of
another, or when a person retains money or property of another against the fundamental principles of justice, equity and
good conscience." The prevention of unjust enrichment is a recognized public policy of the State, for Article 22 of the
Civil Code explicitly provides that "[e]veryperson who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the
same to him." It is well to note that Article 22 "is part of the chapter of the Civil Code on Human Relations, the provisions
of which were formulated as basic principles to be observed for the rightful relationship between human beings and for
the stability of the social order; designed to indicate certain norms that spring from the fountain of good conscience;guides
for human conduct that should run as golden threads through society to the end that law may approach its supreme ideal
which is the sway and dominance of justice."73 (Citations omitted)
Given that Tarnate, Jr. performed his obligations under the subcontract and the deed of assignment, this court ruled that he
was entitled to the agreed fee. According to this court, Gonzalo "would be unjustly enriched at the expense of Tarnate if
the latter was tobe barred from recovering because of the rigid application of the doctrine of in pari delicto." 74
In this case, both the trial and appellate courts found that Loria received P2,000,000.00 from Muoz for a subcontract of
the river-dredging project. Loria never denied that hefailed to fulfill his agreement with Muoz. Throughout the cases
proceedings, Loria failed to justify why he has the right to retain Muozs P2,000,000.00. As the Court of Appeals ruled,
"it was not shown that [Muoz] benefited from the delivery of the amount ofP2,000,000.00 to [Loria]."75
Loria, therefore, is retaining the P2,000,000.00 without just or legal ground. This cannot be done. Under Article 22 of the
Civil Code of the Philippines, he must return the P2,000,000.00 to Muoz.
This court notes the possible irregularities in these transactions. At the very least, there appears to have been an attempt to
circumvent our procurement laws. If petitioner indeed had the authority of Sunwest Construction and Development
Corporation, it is strange that Loria could have guaranteed a bidding result. If he did not have any true dealing with
Sunwest Construction, then his is an elaborate scheme to cause financiers to lose their hard-earned money for nothing.
WHEREFORE, the petition for review on certiorari is DENIED. The Court of Appeals' decision and resolution in CA-GR.
CV No. 81882 are AFFIRMED with MODIFICATION as to interest rate. Petitioner Carlos A. Loria shall pay respondent
Ludolfo P. Mufioi, Jr. P2,000,000.00 in actual damages, with interest of 12% interest per annum from the filing of the
complaint until June 30, 2013, and 6% interest per annum from July 1, 2013 until full payment. 76
Let a copy of this decision be SERVED on the Office of the Ombudsman and the Department of Justice for their
appropriate actions.
SO ORDERED.
MARVIC M.V.F. LEONEN
Associate Justice
WE CONCUR:
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION
G.R. No. 178031

August 28, 2013

VIRGINIA M. VENZON, Petitioner,


vs.
RURAL BANK OF BUENAVISTA (AGUSAN DEL NORTE), INC., represented by LOURDESITA E.
PARAJES,Respondent.
DECISION
DEL CASTILLO, J.:
Before us is a Petition for Review on Certiorari 1 questioning the December 14, 2006 Resolution 2 of the Court of Appeals
(CA) in CA-G.R. SP No. 01341-MIN which dismissed the Petition in said case, as well as its May 7, 2007
Resolution3 denying reconsideration thereof.
Factual Antecedents
On January 28, 2005, petitioner Virginia M. Venzon filed a Petition 4 to nullify foreclosure proceedings and Tax
Declaration Nos. 96-GR-06-003-7002-R and 96-GR-06-7003-R issued in the name of respondent Rural Bank of
Buenavista (Agusan del Norte), Inc. The case 5 was docketed as Civil Case No. 5535 and raffled to Branch 5 of the
Regional Trial Court (RTC) of Butuan City. Petitioner alleged that in 1983 she and her late spouse, George F. Venzon, Sr.,
obtained a P5,000.00 loan from respondent against a mortgage on their house and lot in Libertad, Butuan City, covered by
Tax Declaration Nos. 28289 and 42710 issued in their names, which were later on replaced with Tax Declaration Nos. 96
GR-06-003-2884-R and 96 GR-06-003-2885-R; that she was able to payP2,300.00, thus leaving an outstanding balance of
only P2,370.00; that sometime in March 1987, she offered to pay the said balance in full, but the latter refused to accept
payment, and instead shoved petitioner away from the bank premises; that in March 1987, respondent foreclosed on the
mortgage, and the property was sold at auction for P6,472.76 to respondent, being the highest bidder; that the foreclosure
proceedings are null and void for lack of notice and publication of the sale, lack of sheriffs final deed of sale and notice
of redemption period; and that she paid respondent P6,000.00 on October 9, 1995, as evidenced by respondents Official
Receipt No. 4108486issued on October 9, 1995.
In its Answer with Counterclaims, 7 respondent claimed that petitioner did not make any payment on the loan; that
petitioner never went to the bank in March 1987 to settle her obligations in full; that petitioner was not shoved and driven
away from its premises; that the foreclosure proceedings were regularly done and all requirements were complied with;
that a certificate of sale was issued by the sheriff and duly recorded in the Registry of Deeds; that petitioners claim that
she paid P6,000.00 on October 9, 1995 is utterly false; that petitioners cause of action has long prescribed as the case was
filed only in 2005 or 18 years after the foreclosure sale; and that petitioner is guilty of laches. Respondent interposed its
counterclaim for damages and attorneys fees as well.
In her Reply,8 petitioner insisted that the foreclosure proceedings were irregular and that prescription and laches do not
apply as the foreclosure proceedings are null and void to begin with.
Ruling of the Regional Trial Court
On July 13, 2006, the trial court issued a Resolution9 dismissing Civil Case No. 5535. It held that
The plaintiff, however, may have erroneously relied the [sic] mandatorily [sic] requirement of the aforestated provision of
law upon failure to consider that the other party is a Rural Bank. Under the R.A. No. 720 as amended, (Rural Bank Act)
property worth exceeding P100,000.00 [sic] is exempt from the requirement of publication. This may have been the
reason why the foreclosure prosper [sic] without the observance of the required publication. Moreover, neither in the said
applicable laws provide [sic] for the impairment of the extrajudicial foreclosure and the subsequent sale to the public. The
Court ruled in Bonnevie, et al. vs. CA, et al. that Act No. 3135 as amended does not require personal notice to the
mortgagor. In the same view, lack of final demand or notice of redemption are [sic] not considered indispensable
requirements and failure to observe the same does not render the extrajudicial foreclosure sale a nullity. 10
In other words, the trial court meant that under the Rural Banks Act, the foreclosure of mortgages covering loans granted
by rural banks and executions of judgments thereon involving real properties levied upon by a sheriff shall be exempt
from publication where the total amount of the loan, including interests due and unpaid, does not

exceed P10,000.00.11 Since petitioners outstanding obligation amounted to just over P6,000.00 publication was not
necessary.
Petitioner moved for reconsideration,12 but in the September 6, 2006 Resolution,13 the trial court denied the same.
Ruling of the Court of Appeals
Petitioner went up to the CA via an original Petition for Certiorari. 14 On December 14, 2006, the CA issued the first
assailed Resolution15 dismissing the Petition. It held that petitioners remedy should have been an appeal under Rule 41 of
the Rules of Court since the July 13, 2006 Resolution is a final order of dismissal. Petitioner received the Resolution
denying her Motion for Reconsideration on September 18, 2006; 16 but she filed the Petition for Certiorari on October 25,
2006 when she should have interposed an appeal on or before October 3, 2006. Having done so, her Petition may not even
be treated as an appeal for the same was belatedly filed.
The CA added that the Petition does not provide a sufficient factual background of the case as it merely alleges a
chronology of the legal remedies she took before the trial court which does not comply with the requirement under
Section 3 of Rule 46.17
Petitioner moved for reconsideration18 by submitting a rewritten Petition. However, in a Resolution dated May 7, 2007,
the CA denied the same, hence the present Petition.
Issues
Petitioner submits the following assignment of errors:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS REVERSIBLY ERRED IN DISMISSING THE
PETITION FOR CERTIORARI THEREBY PREVENTING THE COURT FROM FINDING OUT THAT ACTUALLY
NO EXTRAJUDICIAL FORECLOSURE WAS CONDUCTED BY THE OFFICE OF THE PROVINCIAL SHERIFF ON
PETITIONERS PROPERTY AT THE INSTANCE OF THE PRIVATE RESPONDENT.
II
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS REVERSIBLY ERRED IN NOT DISREGARDING
TECHNICALITIES IN ORDER TO ADMINISTER SUBSTANTIAL JUSTICE TO THE PETITIONER. 19
Petitioners Arguments
Petitioner claims that no extrajudicial foreclosure proceedings ever took place, citing a February 2, 2005 Certification
issued by the Office of the Clerk of Court of Butuan City stating that the record pertaining to the foreclosure proceedings
covering her property "could not be found in spite of diligent efforts to find the same." 20And because no foreclosure
proceedings took place, there could not have been notice and publication of the sale, and no sheriffs certificate of sale.
For this reason, she claims that the CA erred in dismissing her case.
Petitioner adds that, technicalities aside, a Petition for Certiorari is available to her in order to prevent the denial of her
substantial rights. She also argues that her payment to respondent of the amount of P6,000.00 in 1995 should be
considered as a valid redemption of her property.
Respondents Arguments
For its part, respondent merely validates the pronouncements of the CA by citing and echoing the same, and holding
petitioner to a strict observance of the rules for perfecting an appeal within the reglementary period, as it claims they are
necessary for the orderly administration of justice, 21 as well as that which requires that only questions of law may be
raised in a Petition for Review on Certiorari.
Our Ruling
The Court denies the Petition.

The Court finds no error in the CAs treatment of the Petition for Certiorari. The trial courts July 13, 2006 Resolution
dismissing the case was indeed to be treated as a final order, disposing of the issue of publication and notice of the
foreclosure sale which is the very core of petitioners cause of action in Civil Case No. 5535 and declaring the same to
be unnecessary pursuant to the Rural Banks Act, as petitioners outstanding obligation did not exceed P10,000.00, and
thus leaving petitioner without basis to maintain her case. This constitutes a dismissal with the character of finality. As
such, petitioner should have availed of the remedy under Rule 41, and not Rule 65.
The Court is not prepared to be lenient in petitioners case, either. Civil Case No. 5535 was instituted only in 2005, while
the questioned foreclosure proceedings took place way back in 1987. Petitioners long inaction and commission of a
procedural faux pas certainly cannot earn the sympathy of the Court.
Nor can the Court grant the Petition on the mere allegation that no foreclosure proceedings ever took place. The February
2, 2005 Certification issued by the Office of the Clerk of Court of Butuan City to the effect that the record of the
foreclosure proceedings could not be found is not sufficient ground to invalidate the proceedings taken. Petitioner herself
attached the Sheriffs Certificate of Sale22 as Annex "A" of her Petition in Civil Case No. 5535; this should belie the claim
that no record exists covering the foreclosure proceedings. Besides, if petitioner insists that no foreclosure proceedings
took place, then she should not have filed an action to annul the same since there was no foreclosure to begin with. She
should have filed a different action.
However, petitioner is entitled to a return of the P6,000.00 she paid to respondent in 1995. While this may not be validly
considered as a redemption of her property as the payment was made long after the redemption period expired, respondent
had no right to receive the amount. In its Answer with Counterclaims in Civil Case No. 5535, respondent simply alleged
therein that
10. Defendant DENIES the allegations under paragraph 10 of the petition for being utterly false, highly self-serving and
patently speculative, the truth being -- Assumption cannot be had that there was an alleged foreclosure of the then property of the petitioner for the truth of the
matter is that a foreclosure proceeding was duly conducted, which fact remains undisputable for so many years now.
Without necessarily admitting that payment of P6,000.00 was made, the same however could hardly and could never be
considered as redemption price for the following reasons -- The redemption period had long lapsed when the payment of P6,000.00 was allegedly made. Thus, there is no point
talking about redemption price when the redemption period had long been gone at the time the alleged payment was
made.
Even x x x granting, without conceding, that the amount of P6,000.00 was a redemption price, said amount, however,
could not constitute as a legal redemption price since the same was not enough to cover the entire redemption price as
mandated by the rules and laws.23 (Emphases supplied)
Interestingly, respondent did not deny being the issuer of Official Receipt No. 410848. Instead, it averred that petitioners
payment to it of P6,000.00 was false and self-serving, but in the same breath argued that, without necessarily admitting
that payment of P6,000.00 was made, the same cannot be considered as redemption price.
By making such an ambiguous allegation in its Answer with Counterclaims, respondent is deemed to have admitted
receiving the amount of P6,000.00 from petitioner as evidenced by Official Receipt No. 410848, which amount under the
circumstances it had no right to receive. "If an allegation is not specifically denied or the denial is a negative pregnant, the
allegation is deemed admitted."24 "Where a fact is alleged with some qualifying or modifying language, and the denial is
conjunctive, a negative pregnant exists, and only the qualification or modification is denied, while the fact itself is
admitted."25 "A denial in the form of a negative pregnant is an ambiguous pleading, since it cannot be ascertained whether
it is the fact or only the qualification that is intended to be denied." 26 "Profession of ignorance about a fact which is
patently and necessarily within the pleader's knowledge, or means of knowing as ineffectual, is no denial at all." 27 In fine,
respondent failed to refute petitioners claim of having paid the amount of P6,000.00.
Since respondent was not entitled to receive the said amount, as it is deemed fully paid from the foreclosure of petitioners
property since its bid price at the auction sale covered all that petitioner owed it by way of principal, interest, attorneys
fees and charges,28 it must return the same to petitioner. "If something is received when there is no right to demand it, and
it was unduly delivered through mistake, the obligation to return it arises." 29Moreover, pursuant to Circular No. 799, series

of 2013 of the Bangko Sentral ng Pilipinas which took effect July 1, 2013, the amount of P6,000.00 shall earn interest at
the rate of 6% per annum computed from the filing of the Petition in Civil Case No. 5535 up to its full satisfaction.
WHEREFORE, premises considered, the Petition is DENIED. The December 14, 2006 and May 7, 2007 Resolutions of
the Court of Appeals in CA-G.R. SP No. 01341-MIN are AFFIRMED.
However, respondent Rural Bank of Buenavista (Agusan del Norte), Inc. is ORDERED to return to petitioner Virginia M.
Venzon or her assigns the amount of P6,000.00, with interest at the rate of 6% per annum computed from the filing of the
Petition in Civil Case No. 5535 up to its full satisfaction.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
EN BANC

G.R. No. 102007 September 2, 1994


PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
ROGELIO BAYOTAS y CORDOVA, accused-appellant.
ROMERO, J.:
In Criminal Case No. C-3217 filed before Branch 16, RTC Roxas City, Rogelio Bayotas y Cordova was charged with
Rape and eventually convicted thereof on June 19, 1991 in a decision penned by Judge Manuel E. Autajay. Pending
appeal
of
his
conviction,
Bayotas
died
on
February
4,
1992
at
the National Bilibid Hospital due to cardio respiratory arrest secondary to hepatic encephalopathy secondary to hipato
carcinoma gastric malingering. Consequently, the Supreme Court in its Resolution of May 20, 1992 dismissed the
criminal aspect of the appeal. However, it required the Solicitor General to file its comment with regard to Bayotas' civil
liability arising from his commission of the offense charged.
In his comment, the Solicitor General expressed his view that the death of accused-appellant did not extinguish his civil
liability as a result of his commission of the offense charged. The Solicitor General, relying on the case of People
v. Sendaydiego 1 insists that the appeal should still be resolved for the purpose of reviewing his conviction by the lower
court on which the civil liability is based.
Counsel for the accused-appellant, on the other hand, opposed the view of the Solicitor General arguing that the death of
the accused while judgment of conviction is pending appeal extinguishes both his criminal and civil penalties. In support
of his position, said counsel invoked the ruling of the Court of Appeals in People v. Castillo and Ocfemia 2 which held
that the civil obligation in a criminal case takes root in the criminal liability and, therefore, civil liability is extinguished if
accused should die before final judgment is rendered.
We are thus confronted with a single issue: Does death of the accused pending appeal of his conviction extinguish his civil
liability?
In the aforementioned case of People v. Castillo, this issue was settled in the affirmative. This same issue posed therein
was phrased thus: Does the death of Alfredo Castillo affect both his criminal responsibility and his civil liability as a
consequence of the alleged crime?
It resolved this issue thru the following disquisition:

Article 89 of the Revised Penal Code is the controlling statute. It reads, in part:
Art. 89. How criminal liability is totally extinguished. Criminal liability is totally
extinguished:
1. By the death of the convict, as to the personal penalties; and as to the pecuniary
penalties liability therefor is extinguished only when the death of the offender occurs
before final judgment;
With reference to Castillo's criminal liability, there is no question. The law is plain. Statutory construction
is unnecessary. Said liability is extinguished.
The civil liability, however, poses a problem. Such liability is extinguished only when the death of the
offender occurs before final judgment. Saddled upon us is the task of ascertaining the legal import of the
term "final judgment." Is it final judgment as contradistinguished from an interlocutory order? Or, is it a
judgment which is final and executory?
We go to the genesis of the law. The legal precept contained in Article 89 of the Revised Penal Code
heretofore transcribed is lifted from Article 132 of the Spanish El Codigo Penal de 1870 which, in part,
recites:
La responsabilidad penal se extingue.
1. Por la muerte del reo en cuanto a las penas personales siempre, y respecto a las
pecuniarias, solo cuando a su fallecimiento no hubiere recaido sentencia firme.
xxx xxx xxx
The code of 1870 . . . it will be observed employs the term "sentencia firme." What is "sentencia firme"
under the old statute?
XXVIII Enciclopedia Juridica Espaola, p. 473, furnishes the ready answer: It says:
SENTENCIA FIRME. La sentencia que adquiere la fuerza de las definitivas por no
haberse utilizado por las partes litigantes recurso alguno contra ella dentro de los
terminos y plazos legales concedidos al efecto.
"Sentencia firme" really should be understood as one which is definite. Because, it is only when judgment
is such that, as Medina y Maranon puts it, the crime is confirmed "en condena determinada;" or, in the
words of Groizard, the guilt of the accused becomes "una verdad legal." Prior thereto, should the
accused die, according to Viada, "no hay legalmente, en tal caso, ni reo, ni delito, ni responsabilidad
criminal de ninguna clase." And, as Judge Kapunan well explained, when a defendant dies before
judgment becomes executory, "there cannot be any determination by final judgment whether or not the
felony upon which the civil action might arise exists," for the simple reason that "there is no party
defendant." (I Kapunan, Revised Penal Code, Annotated, p. 421. Senator Francisco holds the same view.
Francisco, Revised Penal Code, Book One, 2nd ed., pp. 859-860)
The legal import of the term "final judgment" is similarly reflected in the Revised Penal Code. Articles 72
and 78 of that legal body mention the term "final judgment" in the sense that it is already enforceable.
This also brings to mind Section 7, Rule 116 of the Rules of Court which states that a judgment in a
criminal case becomes final "after the lapse of the period for perfecting an appeal or when the sentence
has been partially or totally satisfied or served, or the defendant has expressly waived in writing his right
to appeal."
By fair intendment, the legal precepts and opinions here collected funnel down to one positive
conclusion: The term final judgment employed in the Revised Penal Code means judgment beyond recall.
Really, as long as a judgment has not become executory, it cannot be truthfully said that defendant is
definitely guilty of the felony charged against him.

Not that the meaning thus given to final judgment is without reason. For where, as in this case, the right to
institute a separate civil action is not reserved, the decision to be rendered must, of necessity, cover "both
the criminal and the civil aspects of the case." People vs. Yusico (November 9, 1942), 2 O.G., No. 100, p.
964. See also: People vs. Moll, 68 Phil., 626, 634; Francisco, Criminal Procedure, 1958 ed., Vol. I, pp.
234, 236. Correctly, Judge Kapunan observed that as "the civil action is based solely on the felony
committed and of which the offender might be found guilty, the death of the offender extinguishes the
civil liability." I Kapunan, Revised Penal Code, Annotated, supra.
Here is the situation obtaining in the present case: Castillo's criminal liability is out. His civil liability is
sought to be enforced by reason of that criminal liability. But then, if we dismiss, as we must, the criminal
action and let the civil aspect remain, we will be faced with the anomalous situation whereby we will be
called upon to clamp civil liability in a case where the source thereof criminal liability does not
exist. And, as was well stated in Bautista, et al. vs. Estrella, et al., CA-G.R.
No. 19226-R, September 1, 1958, "no party can be found and held criminally liable in a civil suit," which
solely would remain if we are to divorce it from the criminal proceeding."
This ruling of the Court of Appeals in the Castillo case 3 was adopted by the Supreme Court in the cases of People of the
Philippines v. Bonifacio Alison, et al., 4 People of the Philippines v. Jaime Jose, et al. 5 and People of the Philippines
v.Satorre 6 by dismissing the appeal in view of the death of the accused pending appeal of said cases.
As held by then Supreme Court Justice Fernando in the Alison case:
The death of accused-appellant Bonifacio Alison having been established, and considering that there is as
yet no final judgment in view of the pendency of the appeal, the criminal and civil liability of the said
accused-appellant Alison was extinguished by his death (Art. 89, Revised Penal Code; Reyes' Criminal
Law, 1971 Rev. Ed., p. 717, citing People v. Castillo and Ofemia C.A., 56 O.G. 4045); consequently, the
case against him should be dismissed.
On the other hand, this Court in the subsequent cases of Buenaventura Belamala v. Marcelino Polinar 7 andLamberto
Torrijos v. The Honorable Court of Appeals 8 ruled differently. In the former, the issue decided by this court was: Whether
the civil liability of one accused of physical injuries who died before final judgment is extinguished by his demise to the
extent of barring any claim therefore against his estate. It was the contention of the administrator-appellant therein that the
death of the accused prior to final judgment extinguished all criminal and civil liabilities resulting from the offense, in
view of Article 89, paragraph 1 of the Revised Penal Code. However, this court ruled therein:
We see no merit in the plea that the civil liability has been extinguished, in view of the provisions of the
Civil Code of the Philippines of 1950 (Rep. Act No. 386) that became operative eighteen years after the
revised Penal Code. As pointed out by the Court below, Article 33 of the Civil Code establishes a civil
action for damages on account of physical injuries, entirely separate and distinct from the criminal
action.
Art. 33. In cases of defamation, fraud, and physical injuries, a civil action for damages,
entirely separate and distinct from the criminal action, may be brought by the injured
party. Such civil action shall proceed independently of the criminal prosecution, and shall
require only a preponderance of evidence.
Assuming that for lack of express reservation, Belamala's civil action for damages was to be considered
instituted together with the criminal action still, since both proceedings were terminated without final
adjudication, the civil action of the offended party under Article 33 may yet be enforced separately.
In Torrijos, the Supreme Court held that:
xxx xxx xxx
It should be stressed that the extinction of civil liability follows the extinction of the criminal liability
under Article 89, only when the civil liability arises from the criminal act as its only basis. Stated
differently, where the civil liability does not exist independently of the criminal responsibility, the
extinction of the latter by death, ipso facto extinguishes the former, provided, of course, that death
supervenes before final judgment. The said principle does not apply in instant case wherein the civil

liability springs neither solely nor originally from the crime itself but from a civil contract of purchase
and sale. (Emphasis ours)
xxx xxx xxx
In the above case, the court was convinced that the civil liability of the accused who was charged with estafa
could likewise trace its genesis to Articles 19, 20 and 21 of the Civil Code since said accused had swindled the
first and second vendees of the property subject matter of the contract of sale. It therefore concluded:
"Consequently, while the death of the accused herein extinguished his criminal liability including fine, his civil
liability based on the laws of human relations remains."
Thus it allowed the appeal to proceed with respect to the civil liability of the accused, notwithstanding the extinction of
his criminal liability due to his death pending appeal of his conviction.
To further justify its decision to allow the civil liability to survive, the court relied on the following ratiocination: Since
Section 21, Rule 3 of the Rules of Court 9 requires the dismissal of all money claims against the defendant whose death
occurred prior to the final judgment of the Court of First Instance (CFI), then it can be inferred that actions for recovery of
money may continue to be heard on appeal, when the death of the defendant supervenes after the CFI had rendered its
judgment. In such case, explained this tribunal, "the name of the offended party shall be included in the title of the case as
plaintiff-appellee and the legal representative or the heirs of the deceased-accused should be substituted as defendantsappellants."
It is, thus, evident that as jurisprudence evolved from Castillo to Torrijos, the rule established was that the survival of the
civil liability depends on whether the same can be predicated on sources of obligations other than delict. Stated differently,
the claim for civil liability is also extinguished together with the criminal action if it were solely based thereon, i.e., civil
liability ex delicto.
However, the Supreme Court in People v. Sendaydiego, et al. 10 departed from this long-established principle of law. In
this case, accused Sendaydiego was charged with and convicted by the lower court of malversation thru falsification of
public documents. Sendaydiego's death supervened during the pendency of the appeal of his conviction.
This court in an unprecedented move resolved to dismiss Sendaydiego's appeal but only to the extent of his criminal
liability. His civil liability was allowed to survive although it was clear that such claim thereon was exclusively dependent
on the criminal action already extinguished. The legal import of such decision was for the court to continue exercising
appellate jurisdiction over the entire appeal, passing upon the correctness of Sendaydiego's conviction despite dismissal of
the criminal action, for the purpose of determining if he is civilly liable. In doing so, this Court issued a Resolution of July
8, 1977 stating thus:
The claim of complainant Province of Pangasinan for the civil liability survived Sendaydiego because his
death occurred after final judgment was rendered by the Court of First Instance of Pangasinan, which
convicted him of three complex crimes of malversation through falsification and ordered him to
indemnify the Province in the total sum of P61,048.23 (should be P57,048.23).
The civil action for the civil liability is deemed impliedly instituted with the criminal action in the
absence of express waiver or its reservation in a separate action (Sec. 1, Rule 111 of the Rules of Court).
The civil action for the civil liability is separate and distinct from the criminal action (People and Manuel
vs. Coloma, 105 Phil. 1287; Roa vs. De la Cruz, 107 Phil. 8).
When the action is for the recovery of money and the defendant dies before final judgment in the Court of
First Instance, it shall be dismissed to be prosecuted in the manner especially provided in Rule 87 of the
Rules of Court (Sec. 21, Rule 3 of the Rules of Court).
The implication is that, if the defendant dies after a money judgment had been rendered against him by
the Court of First Instance, the action survives him. It may be continued on appeal (Torrijos vs. Court of
Appeals, L-40336, October 24, 1975; 67 SCRA 394).
The accountable public officer may still be civilly liable for the funds improperly disbursed although he
has no criminal liability (U.S. vs. Elvina, 24 Phil. 230; Philippine National Bank vs. Tugab, 66 Phil. 583).

In view of the foregoing, notwithstanding the dismissal of the appeal of the deceased Sendaydiego insofar
as his criminal liability is concerned, the Court Resolved to continue exercising appellate jurisdiction over
his possible civil liability for the money claims of the Province of Pangasinan arising from the alleged
criminal acts complained of, as if no criminal case had been instituted against him, thus making
applicable, in determining his civil liability, Article 30 of the Civil Code . . . and, for that purpose, his
counsel is directed to inform this Court within ten (10) days of the names and addresses of the decedent's
heirs or whether or not his estate is under administration and has a duly appointed judicial administrator.
Said heirs or administrator will be substituted for the deceased insofar as the civil action for the civil
liability is concerned (Secs. 16 and 17, Rule 3, Rules of Court).
Succeeding cases 11 raising the identical issue have maintained adherence to our ruling in Sendaydiego; in other words,
they were a reaffirmance of our abandonment of the settled rule that a civil liability solely anchored on the criminal (civil
liability ex delicto) is extinguished upon dismissal of the entire appeal due to the demise of the accused.
But was it judicious to have abandoned this old ruling? A re-examination of our decision in Sendaydiego impels us to
revert to the old ruling.
To restate our resolution of July 8, 1977 in Sendaydiego: The resolution of the civil action impliedly instituted in the
criminal action can proceed irrespective of the latter's extinction due to death of the accused pending appeal of his
conviction, pursuant to Article 30 of the Civil Code and Section 21, Rule 3 of the Revised Rules of Court.
Article 30 of the Civil Code provides:
When a separate civil action is brought to demand civil liability arising from a criminal offense, and no
criminal proceedings are instituted during the pendency of the civil case, a preponderance of evidence
shall likewise be sufficient to prove the act complained of.
Clearly, the text of Article 30 could not possibly lend support to the ruling in Sendaydiego. Nowhere in its text is there a
grant of authority to continue exercising appellate jurisdiction over the accused's civil liability ex delictowhen his death
supervenes during appeal. What Article 30 recognizes is an alternative and separate civil action which may be brought to
demand civil liability arising from a criminal offense independently of any criminal action. In the event that no criminal
proceedings are instituted during the pendency of said civil case, the quantum of evidence needed to prove the criminal
act will have to be that which is compatible with civil liability and that is, preponderance of evidence and not proof of
guilt beyond reasonable doubt. Citing or invoking Article 30 to justify the survival of the civil action despite extinction of
the criminal would in effect merely beg the question of whether civil liability ex delicto survives upon extinction of the
criminal action due to death of the accused during appeal of his conviction. This is because whether asserted in
the criminal action or in a separate civil action, civil liability ex delicto is extinguished by the death of the accused while
his conviction is on appeal. Article 89 of the Revised Penal Code is clear on this matter:
Art. 89. How criminal liability is totally extinguished. Criminal liability is totally extinguished:
1. By the death of the convict, as to the personal penalties; and as to pecuniary penalties, liability therefor
is extinguished only when the death of the offender occurs before final judgment;
xxx xxx xxx
However, the ruling in Sendaydiego deviated from the expressed intent of Article 89. It allowed claims for civil
liability ex delicto to survive by ipso facto treating the civil action impliedly instituted with the criminal, as one filed
under Article 30, as though no criminal proceedings had been filed but merely a separate civil action. This had the effect
of converting such claims from one which is dependent on the outcome of the criminal action to an entirely new and
separate one, the prosecution of which does not even necessitate the filing of criminal proceedings. 12One would be hard
put to pinpoint the statutory authority for such a transformation. It is to be borne in mind that in recovering civil
liability ex delicto, the same has perforce to be determined in the criminal action, rooted as it is in the court's
pronouncement of the guilt or innocence of the accused. This is but to render fealty to the intendment of Article 100 of the
Revised Penal Code which provides that "every person criminally liable for a felony is also civilly liable." In such cases,
extinction of the criminal action due to death of the accused pending appeal inevitably signifies the concomitant extinction
of the civil liability. Mors Omnia Solvi. Death dissolves all things.
In sum, in pursuing recovery of civil liability arising from crime, the final determination of the criminal liability is a
condition precedent to the prosecution of the civil action, such that when the criminal action is extinguished by the demise

of accused-appellant pending appeal thereof, said civil action cannot survive. The claim for civil liability springs out of
and is dependent upon facts which, if true, would constitute a crime. Such civil liability is an inevitable consequence of
the criminal liability and is to be declared and enforced in the criminal proceeding. This is to be distinguished from that
which is contemplated under Article 30 of the Civil Code which refers to the institution of a separate civil action that does
not draw its life from a criminal proceeding. The Sendaydiego resolution of July 8, 1977, however, failed to take note of
this fundamental distinction when it allowed the survival of the civil action for the recovery of civil liability ex delicto by
treating the same as a separate civil action referred to under Article 30. Surely, it will take more than just a summary
judicial pronouncement to authorize the conversion of said civil action to an independent one such as that contemplated
under Article 30.
Ironically however, the main decision in Sendaydiego did not apply Article 30, the resolution of July 8, 1977
notwithstanding. Thus, it was held in the main decision:
Sendaydiego's appeal will be resolved only for the purpose of showing his criminal liability which is the
basis of the civil liability for which his estate would be liable. 13
In other words, the Court, in resolving the issue of his civil liability, concomitantly made a determination on whether
Sendaydiego, on the basis of evidenced adduced, was indeed guilty beyond reasonable doubt of committing the offense
charged. Thus, it upheld Sendaydiego's conviction and pronounced the same as thesource of his civil liability.
Consequently, although Article 30 was not applied in the final determination of Sendaydiego's civil liability, there was a
reopening of the criminal action already extinguished which served as basis for Sendaydiego's civil liability. We reiterate:
Upon death of the accused pending appeal of his conviction, the criminal action is extinguished inasmuch as there is no
longer a defendant to stand as the accused; the civil action instituted therein for recovery of civil liability ex delicto is ipso
facto extinguished, grounded as it is on the criminal.
Section 21, Rule 3 of the Rules of Court was also invoked to serve as another basis for the Sendaydiegoresolution of July
8, 1977. In citing Sec. 21, Rule 3 of the Rules of Court, the Court made the inference that civil actions of the type
involved in Sendaydiego consist of money claims, the recovery of which may be continued on appeal if defendant dies
pending appeal of his conviction by holding his estate liable therefor. Hence, the Court's conclusion:
"When the action is for the recovery of money" "and the defendant dies before final judgment in the court
of First Instance, it shall be dismissed to be prosecuted in the manner especially provided" in Rule 87 of
the Rules of Court (Sec. 21, Rule 3 of the Rules of Court).
The implication is that, if the defendant dies after a money judgment had been rendered against him by
the Court of First Instance, the action survives him. It may be continued on appeal.
Sadly, reliance on this provision of law is misplaced. From the standpoint of procedural law, this course taken
inSendaydiego cannot be sanctioned. As correctly observed by Justice Regalado:
xxx xxx xxx
I do not, however, agree with the justification advanced in both Torrijos and Sendaydiego which, relying
on the provisions of Section 21, Rule 3 of the Rules of Court, drew the strained implication therefrom that
where the civil liability instituted together with the criminal liabilities had already passed beyond the
judgment of the then Court of First Instance (now the Regional Trial Court), the Court of Appeals can
continue to exercise appellate jurisdiction thereover despite the extinguishment of the component criminal
liability of the deceased. This pronouncement, which has been followed in the Court's judgments
subsequent and consonant to Torrijos and Sendaydiego, should be set aside and abandoned as being
clearly erroneous and unjustifiable.
Said Section 21 of Rule 3 is a rule of civil procedure in ordinary civil actions. There is neither authority
nor justification for its application in criminal procedure to civil actions instituted together with and as
part of criminal actions. Nor is there any authority in law for the summary conversion from the latter
category of an ordinary civil action upon the death of the offender. . . .
Moreover, the civil action impliedly instituted in a criminal proceeding for recovery of civil liability ex delicto can hardly
be categorized as an ordinary money claim such as that referred to in Sec. 21, Rule 3 enforceable before the estate of the
deceased accused.

Ordinary money claims referred to in Section 21, Rule 3 must be viewed in light of the provisions of Section 5, Rule 86
involving claims against the estate, which in Sendaydiego was held liable for Sendaydiego's civil liability. "What are
contemplated in Section 21 of Rule 3, in relation to Section 5 of Rule 86, 14 are contractual money claims while the claims
involved in civil liability ex delicto may include even the restitution of personal or real property." 15 Section 5, Rule 86
provides an exclusive enumeration of what claims may be filed against the estate. These are: funeral expenses, expenses
for the last illness, judgments for money and claim arising from contracts, expressed or implied. It is clear that money
claims arising from delict do not form part of this exclusive enumeration. Hence, there could be no legal basis in (1)
treating a civil action ex delicto as an ordinary contractual money claim referred to in Section 21, Rule 3 of the Rules of
Court and (2) allowing it to survive by filing a claim therefor before the estate of the deceased accused. Rather, it should
be extinguished upon extinction of the criminal action engendered by the death of the accused pending finality of his
conviction.
Accordingly, we rule: if the private offended party, upon extinction of the civil liability ex delicto desires to recover
damages from the same act or omission complained of, he must subject to Section 1, Rule 111 16 (1985 Rules on Criminal
Procedure as amended) file a separate civil action, this time predicated not on the felony previously charged but on other
sources of obligation. The source of obligation upon which the separate civil action is premised determines against whom
the same shall be enforced.
If the same act or omission complained of also arises from quasi-delict or may, by provision of law, result in an injury to
person or property (real or personal), the separate civil action must be filed against the executor or administrator 17 of the
estate of the accused pursuant to Sec. 1, Rule 87 of the Rules of Court:
Sec. 1. Actions which may and which may not be brought against executor or administrator. No action
upon a claim for the recovery of money or debt or interest thereon shall be commenced against the
executor or administrator; but actions to recover real or personal property, or an interest therein, from the
estate, or to enforce a lien thereon, and actions to recover damages for an injury to person or property,
real or personal, may be commenced against him.
This is in consonance with our ruling in Belamala 18 where we held that, in recovering damages for injury to persons thru
an independent civil action based on Article 33 of the Civil Code, the same must be filed against the executor or
administrator of the estate of deceased accused and not against the estate under Sec. 5, Rule 86 because this rule explicitly
limits the claim to those for funeral expenses, expenses for the last sickness of the decedent, judgment for money and
claims arising from contract, express or implied. Contractual money claims, we stressed, refers only to purely personal
obligations other than those which have their source in delict or tort.
Conversely, if the same act or omission complained of also arises from contract, the separate civil action must be filed
against the estate of the accused, pursuant to Sec. 5, Rule 86 of the Rules of Court.
From this lengthy disquisition, we summarize our ruling herein:
1. Death of the accused pending appeal of his conviction extinguishes his criminal liability as well as the civil liability
based solely thereon. As opined by Justice Regalado, in this regard, "the death of the accused prior to final judgment
terminates his criminal liability and only the civil liability directly arising from and based solely on the offense
committed, i.e., civil liability ex delicto in senso strictiore."
2. Corollarily, the claim for civil liability survives notwithstanding the death of accused, if the same may also be
predicated on a source of obligation other than delict. 19 Article 1157 of the Civil Code enumerates these other sources of
obligation from which the civil liability may arise as a result of the same act or omission:
a) Law 20
b) Contracts
c) Quasi-contracts
d) . . .
e) Quasi-delicts

3. Where the civil liability survives, as explained in Number 2 above, an action for recovery therefor may be pursued but
only by way of filing a separate civil action and subject to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure as
amended. This separate civil action may be enforced either against the executor/administrator or the estate of the accused,
depending on the source of obligation upon which the same is based as explained above.
4. Finally, the private offended party need not fear a forfeiture of his right to file this separate civil action by prescription,
in cases where during the prosecution of the criminal action and prior to its extinction, the private-offended party
instituted together therewith the civil action. In such case, the statute of limitations on the civil liability is deemed
interrupted during the pendency of the criminal case, conformably with provisions of Article 1155 21 of the Civil Code,
that should thereby avoid any apprehension on a possible privation of right by prescription. 22
Applying this set of rules to the case at bench, we hold that the death of appellant Bayotas extinguished his criminal
liability and the civil liability based solely on the act complained of, i.e., rape. Consequently, the appeal is hereby
dismissed without qualification.
WHEREFORE, the appeal of the late Rogelio Bayotas is DISMISSED with costs de oficio.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 183204

January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,


vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.
DECISION
DEL CASTILLO, J.:
Bank deposits, which are in the nature of a simple loan or mutuum, 1 must be paid upon demand by the depositor.2
This Petition for Review on Certiorari 3 under Rule 45 of the Rules of Court assails the April 2, 2008 Decision 4 and the
May 30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized and existing under the
laws of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the owner of China Golden Bridge Travel
Services,7 a travel agency.8 Respondent Yo Yuk To is the mother of respondent Rosales. 9
In 2000, respondents opened a Joint Peso Account 10 with petitioners Pritil-Tondo Branch.11 As of August 4, 2004,
respondents Joint Peso Account showed a balance of P2,515,693.52.12
In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National applying for a retirees
visa from the Philippine Leisure and Retirement Authority (PLRA), to petitioners branch in Escolta to open a savings
account, as required by the PLRA.13 Since Liu Chiu Fang could speak only in Mandarin, respondent Rosales acted as an
interpreter for her.14
On March 3, 2003, respondents opened with petitioners Pritil-Tondo Branch a Joint Dollar Account 15 with an initial
deposit of US$14,000.00.16
On July 31, 2003, petitioner issued a "Hold Out" order against respondents accounts. 17

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre, filed before the
Office of the Prosecutor of Manila a criminal case for Estafa through False Pretences, Misrepresentation, Deceit, and Use
of Falsified Documents, docketed as I.S. No. 03I-25014, 18 against respondent Rosales.19Petitioner accused respondent
Rosales and an unidentified woman as the ones responsible for the unauthorized and fraudulent withdrawal of
US$75,000.00 from Liu Chiu Fangs dollar account with petitioners Escolta Branch. 20Petitioner alleged that on February
5, 2003, its branch in Escolta received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu
Fang;21 that in the afternoon of the same day, respondent Rosales went to petitioners Escolta Branch to inform its Branch
Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her dollar deposits in cash; 22 that
Gutierrez told respondent Rosales to come back the following day because the bank did not have enough dollars; 23 that on
February 6, 2003, respondent Rosales accompanied an unidentified impostor of Liu Chiu Fang to the bank; 24 that the
impostor was able to withdraw Liu Chiu Fangs dollar deposit in the amount of US$75,000.00; 25 that on March 3, 2003,
respondents opened a dollar account with petitioner; and that the bank later discovered that the serial numbers of the
dollar notes deposited by respondents in the amount of US$11,800.00 were the same as those withdrawn by the
impostor.26
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from the dollar account
of Liu Chiu Fang.27 Respondent Rosales claimed that she did not go to the bank on February 5, 2003. 28Neither did she
inform Gutierrez that Liu Chiu Fang was going to close her account. 29 Respondent Rosales further claimed that after Liu
Chiu Fang opened an account with petitioner, she lost track of her. 30 Respondent Rosales version of the events that
transpired thereafter is as follows:
On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at the bank to close her
account.31 At noon of the same day, respondent Rosales went to the bank to make a transaction. 32While she was
transacting with the teller, she caught a glimpse of a woman seated at the desk of the Branch Operating Officer, Melinda
Perez (Perez).33 After completing her transaction, respondent Rosales approached Perez who informed her that Liu Chiu
Fang had closed her account and had already left. 34 Perez then gave a copy of the Withdrawal Clearance issued by the
PLRA to respondent Rosales.35 On June 16, 2003, respondent Rosales received a call from Liu Chiu Fang inquiring about
the extension of her PLRA Visa and her dollar account. 36 It was only then that Liu Chiu Fang found out that her account
had been closed without her knowledge. 37 Respondent Rosales then went to the bank to inform Gutierrez and Perez of the
unauthorized withdrawal.38 On June 23, 2003, respondent Rosales and Liu Chiu Fang went to the PLRA Office, where
they were informed that the Withdrawal Clearance was issued on the basis of a Special Power of Attorney (SPA) executed
by Liu Chiu Fang in favor of a certain Richard So. 39 Liu Chiu Fang, however, denied executing the SPA. 40 The following
day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA Office to discuss the unauthorized
withdrawal.41 During the conference, the bank officers assured Liu Chiu Fang that the money would be returned to her.42
On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the criminal case for
lack of probable cause.43 Unfazed, petitioner moved for reconsideration.
On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a Complaint 44 for Breach of
Obligation and Contract with Damages, docketed as Civil Case No. 04110895 and raffled to Branch 21, against petitioner.
Respondents alleged that they attempted several times to withdraw their deposits but were unable to because petitioner
had placed their accounts under "Hold Out" status. 45 No explanation, however, was given by petitioner as to why it issued
the "Hold Out" order.46 Thus, they prayed that the "Hold Out" order be lifted and that they be allowed to withdraw their
deposits.47 They likewise prayed for actual, moral, and exemplary damages, as well as attorneys fees. 48
Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing the "Hold Out"
order.49 It averred that due to the fraudulent scheme of respondent Rosales, it was compelled to reimburse Liu Chiu Fang
the amount of US$75,000.0050 and to file a criminal complaint for Estafa against respondent Rosales. 51
While the case for breach of contract was being tried, the City Prosecutor of Manila issued a Resolution dated February
18, 2005, reversing the dismissal of the criminal complaint. 52 An Information, docketed as Criminal Case No. 05236103,53 was then filed charging respondent Rosales with Estafa before Branch 14 of the RTC of Manila. 54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision 55 finding petitioner liable for damages for breach of contract. 56 The
RTC ruled that it is the duty of petitioner to release the deposit to respondents as the act of withdrawal of a bank deposit is
an act of demand by the creditor.57 The RTC also said that the recourse of petitioner is against its negligent employees and
not against respondents.58 The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner] METROPOLITAN BANK &
TRUST COMPANY to allow [respondents] ANA GRACE ROSALES and YO YUK TO to withdraw their Savings and
Time Deposits with the agreed interest, actual damages of P50,000.00, moral damages of P50,000.00, exemplary damages
of P30,000.00 and 10% of the amount due [respondents] as and for attorneys fees plus the cost of suit.
The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.
SO ORDERED.59
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the CA.
On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages because "the basis for
[respondents] claim for such damages is the professional fee that they paid to their legal counsel for [respondent]
Rosales defense against the criminal complaint of [petitioner] for estafa before the Office of the City Prosecutor of
Manila and not this case."60 Thus, the CA disposed of the case in this wise:
WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch 21, Manila in Civil Case
No. 04-110895 is AFFIRMED with MODIFICATION that the award of actual damages to [respondents] Rosales and Yo
Yuk To is hereby DELETED.
SO ORDERED.61
Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008 Resolution. 62
Issues
Hence, this recourse by petitioner raising the following issues:
A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE APPLICATION AND
AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT PETITIONERS EMPLOYEES WERE NEGLIGENT IN
RELEASING LIU CHIU FANGS FUNDS.
C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY DAMAGES,
AND ATTORNEYS FEES.63
Petitioners Arguments
Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the Application and Agreement
for Deposit Account.64 It posits that the said clause applies to any and all kinds of obligation as it does not distinguish
between obligations arising ex contractu or ex delictu. 65 Petitioner also contends that the fraud committed by respondent
Rosales was clearly established by evidence; 66 thus, it was justified in issuing the "Hold-Out" order. 67 Petitioner likewise
denies that its employees were negligent in releasing the dollars. 68 It claims that it was the deception employed by
respondent Rosales that caused petitioners employees to release Liu Chiu Fangs funds to the impostor.69
Lastly, petitioner puts in issue the award of moral and exemplary damages and attorneys fees. It insists that respondents
failed to prove that it acted in bad faith or in a wanton, fraudulent, oppressive or malevolent manner. 70
Respondents Arguments
Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their deposits because they
have no monetary obligation to petitioner.71 They insist that petitioner miserably failed to prove its accusations against
respondent Rosales.72 In fact, no documentary evidence was presented to show that respondent Rosales participated in the
unauthorized withdrawal.73 They also question the fact that the list of the serial numbers of the dollar notes fraudulently
withdrawn on February 6, 2003, was not signed or acknowledged by the alleged impostor. 74 Respondents likewise
maintain that what was established during the trial was the negligence of petitioners employees as they allowed the
withdrawal of the funds without properly verifying the identity of the depositor. 75 Furthermore, respondents contend that

their deposits are in the nature of a loan; thus, petitioner had the obligation to return the deposits to them upon
demand.76 Failing to do so makes petitioner liable to pay respondents moral and exemplary damages, as well as attorneys
fees.77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with respondents, and (2) if
so, whether it is liable for damages. The issue of whether petitioners employees were negligent in allowing the
withdrawal of Liu Chiu Fangs dollar deposits has no bearing in the resolution of this case. Thus, we find no need to
discuss the same.
The "Hold Out" clause does not apply
to the instant case.
Petitioner claims that it did not breach its contract with respondents because it has a valid reason for issuing the "Hold
Out" order. Petitioner anchors its right to withhold respondents deposits on the Application and Agreement for Deposit
Account, which reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for any and all obligations with the Bank, all monies, properties or
securities of the Depositor now in or which may hereafter come into the possession or under the control of the Bank,
whether left with the Bank for safekeeping or otherwise, or coming into the hands of the Bank in any way, for so much
thereof as will be sufficient to pay any or all obligations incurred by Depositor under the Account or by reason of any
other transactions between the same parties now existing or hereafter contracted, to sell in any public or private sale any
of such properties or securities of Depositor, and to apply the proceeds to the payment of any Depositors obligations
heretofore mentioned.
xxxx
JOINT ACCOUNT
xxxx
The Bank may, at any time in its discretion and with or without notice to all of the Depositors, assert a lien on any balance
of the Account and apply all or any part thereof against any indebtedness, matured or unmatured, that may then be owing
to the Bank by any or all of the Depositors. It is understood that if said indebtedness is only owing from any of the
Depositors, then this provision constitutes the consent by all of the depositors to have the Account answer for the said
indebtedness to the extent of the equal share of the debtor in the amount credited to the Account. 78
Petitioners reliance on the "Hold Out" clause in the Application and Agreement for Deposit Account is misplaced.
The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the sources of obligation
enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case,
petitioner failed to show that respondents have an obligation to it under any law, contract, quasi-contract, delict, or quasidelict. And although a criminal case was filed by petitioner against respondent Rosales, this is not enough reason for
petitioner to issue a "Hold Out" order as the case is still pending and no final judgment of conviction has been rendered
against respondent Rosales. In fact, it is significant to note that at the time petitioner issued the "Hold Out" order, the
criminal complaint had not yet been filed. Thus, considering that respondent Rosales is not liable under any of the five
sources of obligation, there was no legal basis for petitioner to issue the "Hold Out" order. Accordingly, we agree with the
findings of the RTC and the CA that the "Hold Out" clause does not apply in the instant case.
In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably refused to release
respondents deposit despite demand. Having breached its contract with respondents, petitioner is liable for damages.
Respondents
are
entitled
exemplary damages and attorneys fees.1wphi1

to

moral

and

In cases of breach of contract, moral damages may be recovered only if the defendant acted fraudulently or in bad
faith,80 or is "guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations." 81
In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals that petitioner issued
the "Hold Out" order in bad faith. First of all, the order was issued without any legal basis. Second, petitioner did not
inform respondents of the reason for the "Hold Out." 82 Third, the order was issued prior to the filing of the criminal
complaint. Records show that the "Hold Out" order was issued on July 31, 2003, 83 while the criminal complaint was filed
only on September 3, 2003. 84 All these taken together lead us to conclude that petitioner acted in bad faith when it
breached its contract with respondents. As we see it then, respondents are entitled to moral damages.
As to the award of exemplary damages, Article 2229 85 of the Civil Code provides that exemplary damages may be
imposed "by way of example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages." They are awarded only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.86
In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner when
it refused to release the deposits of respondents without any legal basis. We need not belabor the fact that the banking
industry is impressed with public interest. 87 As such, "the highest degree of diligence is expected, and high standards of
integrity and performance are even required of it." 88 It must therefore "treat the accounts of its depositors with meticulous
care and always to have in mind the fiduciary nature of its relationship with them." 89 For failing to do this, an award of
exemplary damages is justified to set an example.
The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 2208 90 of the Civil Code.
In closing, it must be stressed that while we recognize that petitioner has the right to protect itself from fraud or suspicions
of fraud, the exercise of his right should be done within the bounds of the law and in accordance with due process, and not
in bad faith or in a wanton disregard of its contractual obligation to respondents.
WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May 30, 2008 Resolution of
the Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 182356

December 4, 2013

DRA, LEILA A DELA LLANO, Petitioner,


vs.
REBECCA BIONG, doing business under the name and style of Pongkay Trading, Respondent.
DECISION
BRION, J.:
Very case essentially turns on two basic questions: questions of fact and questions of law. Questions of fact are the parties
and their counsel to respond to, based on what supporting facts the legal questions require; the court can only draw
conclusion from the facts or evidence adduced. When the facts are lacking because of the deficiency of presented
evidence, then the court can only draw one conclusion: that the cause must fail for lack of evidentiary support.
The present case is one such case as Dra. Leila A dela Llanas(petitioner) petition for review on certorari 1challenging the
February 11, 2008 Decision2 and the March 31, 2008 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 89163.

The Factual Antecedents


On March 30, 2000, at around 11:00 p.m., Juan dela Llana was driving a 1997 Toyota Corolla car along North Avenue,
Quezon City.4
His sister, Dra. dela Llana, was seated at the front passenger seat while a certain Calimlim was at the backseat. 5
Juan stopped the car across the Veterans Memorial Hospital when the signal light turned red. A few seconds after the car
halted, a dump truck containing gravel and sand suddenly rammed the cars rear end, violently pushing the car forward.
Due to the impact, the cars rear end collapsed and its rear windshield was shattered. Glass splinters flew, puncturing Dra.
dela Llana. Apart from these minor wounds, Dra. dela Llana did not appear to have suffered from any other visible
physical injuries.6
The traffic investigation report dated March 30, 2000 identified the truck driver as Joel Primero. It stated that Joel was
recklessly imprudent in driving the truck.7
Joel later revealed that his employer was respondent Rebecca Biong, doing business under the name and style of
"Pongkay Trading" and was engaged in a gravel and sand business. 8
In the first week of May 2000, Dra. dela Llana began to feel mild to moderate pain on the left side of her neck and
shoulder. The pain became more intense as days passed by. Her injury became more severe. Her health deteriorated to the
extent that she could no longer move her left arm. On June 9, 2000, she consulted with Dr. Rosalinda Milla, a
rehabilitation medicine specialist, to examine her condition. Dr. Milla told her that she suffered from a whiplash injury, an
injury caused by the compression of the nerve running to her left arm and hand. Dr. Milla required her to undergo physical
therapy to alleviate her condition. Dra. dela Llanas condition did not improve despite three months of extensive physical
therapy.9
She then consulted other doctors, namely, Drs. Willie Lopez, Leonor Cabral-Lim and Eric Flores, in search for a cure. Dr.
Flores, a neuro-surgeon, finally suggested that she undergo a cervical spine surgery to release the compression of her
nerve. On October 19, 2000, Dr. Flores operated on her spine and neck, between the C5 and the C6 vertebrae. 10
The operation released the impingement of the nerve, but incapacitated Dra. dela Llana from the practice of her profession
since June 2000 despite the surgery.11
Dra. dela Llana, on October 16, 2000, demanded from Rebecca compensation for her injuries, but Rebecca refused to
pay.12
Thus, on May 8, 2001, Dra. dela Llana sued Rebecca for damages before the Regional Trial Court of Quezon City (RTC).
She alleged that she lost the mobility of her arm as a result of the vehicular accident and claimed P150,000.00 for her
medical expenses (as of the filing of the complaint) and an average monthly income ofP30,000.00 since June 2000. She
further prayed for actual, moral, and exemplary damages as well as attorneys fees. 13
In defense, Rebecca maintained that Dra. dela Llana had no cause of action against her as no reasonable relation existed
between the vehicular accident and Dra. dela Llanas injury. She pointed out that Dra. dela Llanas illness became
manifest one month and one week from the date of the vehicular accident. As a counterclaim, she demanded the payment
of attorneys fees and costs of the suit.14
At the trial, Dra. dela Llana presented herself as an ordinary witness 15 and Joel as a hostile witness.16
Dra. dela Llana reiterated that she lost the mobility of her arm because of the vehicular accident. To prove her claim, she
identified and authenticated a medical certificate dated November 20, 2000 issued by Dr. Milla. The medical certificate
stated that Dra. dela Llana suffered from a whiplash injury. It also chronicled her clinical history and physical
examinations.17
Meanwhile, Joel testified that his truck hit the car because the trucks brakes got stuck. 18
In defense, Rebecca testified that Dra. dela Llana was physically fit and strong when they met several days after the
vehicular accident. She also asserted that she observed the diligence of a good father of a family in the selection and
supervision of Joel. She pointed out that she required Joel to submit a certification of good moral character as well as

barangay, police, and NBI clearances prior to his employment. She also stressed that she only hired Primero after he
successfully passed the driving skills test conducted by Alberto Marcelo, a licensed driver-mechanic. 19
Alberto also took the witness stand. He testified that he checked the truck in the morning of March 30, 2000. He affirmed
that the truck was in good condition prior to the vehicular accident. He opined that the cause of the vehicular accident was
a damaged compressor. According to him, the absence of air inside the tank damaged the compressor.20
RTC Ruling
The RTC ruled in favor of Dra. dela Llana and held that the proximate cause of Dra. dela Llanas whiplash injury to be
Joels reckless driving.21
It found that a whiplash injury is an injury caused by the sudden jerking of the spine in the neck area. It pointed out that
the massive damage the car suffered only meant that the truck was over-speeding. It maintained that Joel should have
driven at a slower pace because road visibility diminishes at night. He should have blown his horn and warned the car that
his brake was stuck and could have prevented the collision by swerving the truck off the road. It also concluded that Joel
was probably sleeping when the collision occurred as Joel had been driving for fifteen hours on that fateful day. The RTC
further declared that Joels negligence gave rise to the presumption that Rebecca did not exercise the diligence of a good
father of a family in Joel's selection and supervision of Joel. Rebecca was vicariously liable because she was the employer
and she personally chose him to drive the truck. On the day of the collision, she ordered him to deliver gravel and sand to
Muoz Market, Quezon City. The Court concluded that the three elements necessary to establish Rebeccas liability were
present: (1) that the employee was chosen by the employer, personally or through another; (2) that the services were to be
rendered in accordance with orders which the employer had the authority to give at all times; and (3) that the illicit act of
the employee was on the occasion or by reason of the functions entrusted to him. The RTC thus awarded Dra. dela Llana
the amounts of P570,000.00 as actual damages, P250,000.00 as moral damages, and the cost of the suit.22
CA Ruling
In a decision dated February 11, 2008, the CA reversed the RTC ruling. It held that Dra. dela Llana failed to establish a
reasonable connection between the vehicular accident and her whiplash injury by preponderance of evidence. Citing
Nutrimix Feeds Corp. v. Court of Appeals,23 it declared that courts will not hesitate to rule in favor of the other party if
there is no evidence or the evidence is too slight to warrant an inference establishing the fact in issue. It noted that the
interval between the date of the collision and the date when Dra. dela Llana began to suffer the symptoms of her illness
was lengthy. It concluded that this interval raised doubts on whether Joels reckless driving and the resulting collision in
fact caused Dra. dela Llanas injury. It also declared that courts cannot take judicial notice that vehicular accidents cause
whiplash injuries. It observed that Dra. dela Llana did not immediately visit a hospital to check if she sustained internal
injuries after the accident. Moreover, her failure to present expert witnesses was fatal to her claim. It also gave no weight
to the medical certificate. The medical certificate did not explain how and why the vehicular accident caused the injury. 24
The Petition
Dra. dela Llana points out in her petition before this Court that Nutrimix is inapplicable in the present case. She stresses
that Nutrimix involved the application of Article 1561 and 1566 of the Civil Code, provisions governing hidden defects.
Furthermore, there was absolutely no evidence in Nutrimix that showed that poisonous animal feeds were sold to the
respondents in that case. As opposed to the respondents in Nutrimix, Dra. dela Llana asserts that she has established by
preponderance of evidence that Joels egligent act was the proximate cause of her whiplash injury. First, pictures of her
damaged car show that the collision was strong. She posits that it can be reasonably inferred from these pictures that the
massive impact resulted in her whiplash injury. Second, Dr. Milla categorically stated in the medical certificate that Dra.
dela Llana suffered from whiplash injury. Third, her testimony that the vehicular accident caused the injury is credible
because she was a surgeon.
Dra. dela Llana further asserts that the medical certificate has probative value. Citing several cases, she posits that an
uncorroborated medical certificate is credible if uncontroverted. 25
She points out that expert opinion is unnecessary if the opinion merely relates to matters of common knowledge. She
maintains that a judge is qualified as an expert to determine the causation between Joels reckless driving and her
whiplash injury. Trial judges are aware of the fact that whiplash injuries are common in vehicular collisions.
The Respondents Position

In her Comment,26 Rebecca points out that Dra. dela Llana raises a factual issue which is beyond the scope of a petition
for review on certiorari under Rule 45 of the Rules of Court. She maintains that the CAs findings of fact are final and
conclusive. Moreover, she stresses that Dra. dela Llanas arguments are not substantial to merit this Courts consideration.
The Issue
The sole issue for our consideration in this case is whether Joels reckless driving is the proximate cause of Dra. dela
Llanas whiplash injury.
Our Ruling We find the petition unmeritorious.
The Supreme Court may review questions of fact in a petition for review on certiorari when the findings of fact by the
lower courts are conflicting
The issue before us involves a question of fact and this Court is not a trier of facts. As a general rule, the CAs findings of
fact are final and conclusive and this Court will not review them on appeal. It is not the function of this Court to examine,
review or evaluate the evidence in a petition for review on certiorari under Rule 45 of the Rules of Court. We can only
review the presented evidence, by way of exception, when the conflict exists in findings of the RTC and the CA. 27
We see this exceptional situation here and thus accordingly examine the relevant evidence presented before the trial court.
Dra. dela Llana failed to establish her case by preponderance of evidence
Article 2176 of the Civil Code provides that "[w]hoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is a quasi-delict." Under this provision, the elements necessary to establish a quasi-delict case are:
(1) damages to the plaintiff;
(2) negligence, by act or omission, of the defendant or by some person for whose acts the defendant must respond, was
guilty; and
(3) the connection of cause and effect between such negligence and the damages. 28
These elements show that the source of obligation in a quasi-delict case is the breach or omission of mutual duties that
civilized society imposes upon its members, or which arise from non-contractual relations of certain members of society
to others.29
Based on these requisites, Dra. dela Llana must first establish by preponderance of evidence the three elements of quasidelict before we determine Rebeccas liability as Joels employer.
She should show the chain of causation between Joels reckless driving and her whiplash injury.
Only after she has laid this foundation can the presumption - that Rebecca did not exercise the diligence of a good father
of a family in the selection and supervision of Joel - arise. 30
Once negligence, the damages and the proximate causation are established, this Court can then proceed with the
application and the interpretation of the fifth paragraph of Article 2180 of the Civil Code. 31
Under Article 2176 of the Civil Code, in relation with the fifth paragraph of Article 2180, "an action predicated on an
employees act or omission may be instituted against the employer who is held liable for the negligent act or omission
committed by his employee."32
The rationale for these graduated levels of analyses is that it is essentially the wrongful or negligent act or omission itself
which creates the vinculum juris in extra-contractual obligations.33
In civil cases, a party who alleges a fact has the burden of proving it.
He who alleges has the burden of proving his allegation by preponderance of evidence or greater weight of credible
evidence.34

The reason for this rule is that bare allegations, unsubstantiated by evidence, are not equivalent to proof.
In short, mere allegations are not evidence. 35
In the present case, the burden of proving the proximate causation between Joels negligence and Dra. dela Llanas
whiplash injury rests on Dra. dela Llana. She must establish by preponderance of evidence that Joels negligence, in its
natural and continuous sequence, unbroken by any efficient intervening cause, produced her whiplash injury, and without
which her whiplash injury would not have occurred.36
Notably, Dra. dela Llana anchors her claim mainly on three pieces of evidence:
(1) the pictures of her damaged car,
(2) the medical certificate dated November 20, 2000, and
(3) her testimonial evidence. However, none of these pieces of evidence show the causal relation between the vehicular
accident and the whiplash injury. In other words,
Dra. dela Llana, during trial, did not adduce the factum probans or the evidentiary facts by which the factum probandum
or the ultimate fact can be established, as fully discussed below.37
A.
The
car
impact of the collision

pictures

of
only

the
demonstrate

damaged
the

Dra. dela Llana contends that the pictures of the damaged car show that the massive impact of the collision caused her
whiplash injury. We are not persuaded by this bare claim. Her insistence that these pictures show the causation grossly
belies common logic. These pictures indeed demonstrate the impact of the collision. However, it is a far-fetched
assumption that the whiplash injury can also be inferred from these pictures.
B.
The
medical
considered
not admitted in evidence

certificate
because

cannot
it

be
was

Furthermore, the medical certificate, marked as Exhibit "H" during trial, should not be considered in resolving this case
for the reason that it was not admitted in evidence by the RTC in an order dated September 23, 2004. 38
Thus, the CA erred in even considering this documentary evidence in its resolution of the case. It is a basic rule that
evidence which has not been admitted cannot be validly considered by the courts in arriving at their judgments.
However, even if we consider the medical certificate in the disposition of this case, the medical certificate has no
probative value for being hearsay. It is a basic rule that evidence, whether oral or documentary, is hearsay if its probative
value is not based on the personal knowledge of the witness but on the knowledge of another person who is not on the
witness stand.39
Hearsay evidence, whether objected to or not, cannot be given credence 40 except in very unusual circumstance that is not
found in the present case. Furthermore, admissibility of evidence should not be equated with weight of evidence. The
admissibility of evidence depends on its relevance and competence, while the weight of evidence pertains to evidence
already admitted and its tendency to convince and persuade. Thus, a particular item of evidence may be admissible, but its
evidentiary weight depends on judicial evaluation within the guidelines provided by the Rules of Court. 41
During trial, Dra. dela Llana testified:
"Q: Did your physician tell you, more or less, what was the reason why you were feeling that pain in your left arm?

A: Well, I got a certificate from her and in that certificate, she stated that my condition was due to a compression of the
nerve, which supplied my left arm and my left hand.
Court: By the way, what is the name of this physician, Dra.?
Witness: Her name is Dra. Rosalinda Milla. She is a Rehabilitation Medicine Specialist. Atty. Yusingco: You mentioned
that this Dra. Rosalinda Milla made or issued a medical certificate. What relation does this medical certificate, marked as
Exhibit H have to do with that certificate, you said was made by Dra. Milla?
Witness: This is the medical certificate that Dra. Milla made out for me.
Atty. Yusingco: Your Honor, this has been marked as Exhibit H.
Atty. Yusingco: What other medical services were done on you, Dra. dela Llana, as a result of that feeling, that pain that
you felt in your left arm?
Witness: Well, aside from the medications and physical therapy, a re-evaluation of my condition after three months
indicated that I needed surgery.
Atty. Yusingco: Did you undergo this surgery?
Witness: So, on October 19, I underwent surgery on my neck, on my spine.
Atty. Yusingco: And, what was the result of that surgical operation?
Witness: Well, the operation was to relieve the compression on my nerve, which did not resolve by the extensive and
prolonged physical therapy that I underwent for more than three months." 42(emphasis ours)
Evidently, it was Dr. Milla who had personal knowledge of the contents of the medical certificate. However, she was not
presented to testify in court and was not even able to identify and affirm the contents of the medical certificate.
Furthermore, Rebecca was deprived of the opportunity to cross-examine Dr. Milla on the accuracy and veracity of her
findings. We also point out in this respect that the medical certificate nonetheless did not explain the chain of causation in
fact between Joels reckless driving and Dra. dela Llanas whiplash injury. It did not categorically state that the whiplash
injury was a result of the vehicular accident. A perusal of the medical certificate shows that it only attested to her medical
condition, i.e., that she was suffering from whiplash injury. However, the medical certificate failed to substantially relate
the vehicular accident to Dra. dela Llanas whiplash injury. Rather, the medical certificate only chronicled
her medical history and physical examinations.
C.
Dra.
dela
Joels
negligence
whiplash injury has no probative value

Llanas

opinion
caused

that
her

Interestingly, the present case is peculiar in the sense that Dra. dela Llana, as the plaintiff in this quasi-delict case, was the
lone physician-witness during trial. Significantly, she merely testified as an ordinary witness before the trial court. Dra.
dela Llana essentially claimed in her testimony that Joels reckless driving caused her whiplash injury. Despite the fact
that Dra. dela Llana is a physician and even assuming that she is an expert in neurology, we cannot give weight to her
opinion that Joels reckless driving caused her whiplash injury without violating the rules on evidence. Under the Rules of
Court, there is a substantial difference between an ordinary witness and an expert witness. The opinion of an ordinary
witness may be received in evidence regarding:
(a) the identity of a person about whom he has adequate knowledge;
(b) a handwriting with which he has sufficient familiarity; and
(c) the mental sanity of a person with whom he is sufficiently acquainted. Furthermore, the witness may also testify on his
impressions of the emotion, behavior, condition or appearance of a person. 43

On the other hand, the opinion of an expert witness may be received in evidence on a matter requiring special knowledge,
skill, experience or training which he shown to possess. 44
However, courts do not immediately accord probative value to an admitted expert testimony, much less to an unobjected
ordinary testimony respecting special knowledge. The reason is that the probative value of an expert testimony does not
lie in a simple exposition of the expert's opinion. Rather, its weight lies in the assistance that the expert witness may afford
the courts by demonstrating the facts which serve as a basis for his opinion and the reasons on which the logic of his
conclusions is founded.45
In the present case, Dra. dela Llanas medical opinion cannot be given probative value for the reason that she was not
presented as an expert witness. As an ordinary witness, she was not competent to testify on the nature, and the cause and
effects of whiplash injury. Furthermore, we emphasize that Dra. dela Llana, during trial, nonetheless did not provide a
medical explanation on the nature as well as the cause and effects of whiplash injury in her testimony.
The
Supreme
judicial
accidents cause whiplash injuries.

Court
notice

cannot
that

take
vehicular

Indeed, a perusal of the pieces of evidence presented by the parties before the trial court shows that Dra. Dela Llana did
not present any testimonial or documentary evidence that directly shows the causal relation between the vehicular
accident and Dra. Dela Llanas injury. Her claim that Joels negligence causes her whiplash injury was not established
because of the deficiency of the presented evidence during trial. We point out in this respect that courts cannot take
judicial notice that vehicular ccidents cause whiplash injuries. This proportion is not public knowledge, or is capable of
unquestionable demonstration, or ought to be known to judges because of their judicial functions. 46 We have no expertise
in the field of medicine. Justices and judges are only tasked to apply and interpret the law on the basis of the parties
pieces of evidence and their corresponding legal arguments.
In sum, Dra. dela Llana miserably failed to establish her cause by preponderance of evidence. While we commiserate with
her, our solemn duty to independently and impartially assess the merits of the case binds us to rule against Dra. dela
Llanas favor. Her claim, unsupported by prepondernace of evidence, is merely a bare assertion and has no leg to stand on.
WHEREFORE, presmises considered, the assailed Decision dated February 11, 2008 and Resolution dated March 31,
2008 of the Court of Appeals are hereby AFFIRMED and the petition is hereby DENIED for lack of merit.
SO ORDERED.
ARTURO D. BRION
Associate Justice

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 111495 August 18, 2006
AGRIPINO VILLEGAS, ATANACIO VILLEGAS (deceased), substituted by his wife
SOLEDAD OCAMPO VILLEGAS, ROSA N. SANCHEZ, and CORAZON SANCHEZ, Petitioners,
vs.
THE COURT OF APPEALS, VICENTE M. REYES, JULITA R. MAYLAD, LORENZO M. REYES, LYDIA R.
FELICIANO represented by Attorney-in-Fact VICTORIA F. HARPST, RUPERTA A. REYES, ESTRELLITA
CRISOSTOMO, YOLANDA R. CHIU, VIRGILIO A. REYES, CARLITO A. REYES, PACITA R. BAUTISTA,
and SPOUSES LITA SY and SY BON SU, Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 122404 August 18, 2006

THE HEIRS OF ATANACIO VILLEGAS as represented by SOLEDAD DE OCAMPO, AGRIPINO VILLEGAS,


and OFELIA R. TUNGOL, Petitioners,
vs.
THE COURT OF APPEALS and SPOUSES LITA SY and SY BON SU, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court are the consolidated cases docketed as G.R. No. 111495 and G.R. No. 122404. The consolidated cases
involve a parcel of land ("property") located at Evangelista Street, Quiapo, Manila.
The first case, G.R. No. 111495, is a petition for review of the Decision 1 dated 6 January 1993 and Resolution dated 17
August 1993 of the Court of Appeals in CA-G.R. CV No. 25974. The Court of Appeals affirmed the Decision of the
Regional Trial Court of Manila, Branch 2 ("RTC Branch 2"), declaring valid the sale of 75% undivided interest in the
property to Spouses Lita Sy and Sy Bon Su ("Spouses Sy"). 2
The second case, G.R. No. 122404, is a petition for review of the Decision 3 dated 25 April 1995 and Resolution dated 27
October 1995 of the Court of Appeals in CA-G.R. CV No. 41931. The Court of Appeals affirmed the Decision of the
Regional Trial Court of Manila, Branch 45 ("RTC Branch 45"), ordering the heirs of Atanacio Villegas to accept from
Spouses Sy the redemption price for the 25% portion of the property.
The Facts
Vicente M. Reyes, Julita R. Maylad, Lorenzo M. Reyes, Lydia R. Feliciano, Ruperta A. Reyes, Estrellita Crisostomo,
Yolanda R. Chiu, Virgilio A. Reyes, Carlito A. Reyes and Pacita R. Bautista ("respondent-heirs"), together with Lorenza
R. Martinez, Ambrosio M. Reyes, Concepcion Reyes-Ancheta and the heirs of Mario M. Reyes ("other heirs"), were the
owners of the property located at Evangelista Street, Quiapo, Manila. They inherited the property from their father, Dr.
Lorenzo C. Reyes, who died on 29 December 1985. The property, which has an area of 406.5 square meters, was covered
by Transfer Certificate of Title No. 182782.
Agripino Villegas, Atanacio Villegas, Rosa N. Sanchez and Corazon Sanchez ("petitioner-lessees") were the lessees of the
property since 1959. Petitioner-lessees owned the building and improvements constructed on the property.
In a letter 4 dated 19 May 1988, the Administrative Committee of the heirs of Dr. Lorenzo C. Reyes ("Administrative
Committee"), composed of Dr. Vicente Reyes, Julita R. Maylad and Carlito A. Reyes, informed petitioner-lessees that the
heirs have decided to sell the property. The content of the letter reads:
This is to inform you that by virtue of the Partial Compromise Agreement of the Estate belonging to the late Lorenzo C.
Reyes, as approved by Judge Perlita Tria-Tirona, Regional Trial Judge, National Capital Judicial Regions, Quezon City
Branch No. 102, April 18, 1988, respectively, hereunder are the exclusive owners of the lot which you are presently
occupying under lease:
Heirs of the First Marriage Heirs of the Second Marriage
1. Vicente M. Reyes 1. Ruperta A. Reyes
2. Lorenza R. Martinez 2. Carlito A. Reyes
3. Ambrosio M. Reyes 3. Estrellita A. Reyes
4. Concepcion Reyes-Ancheta 4. Yolanda [R.] Chiu
5. Julita R. Maylad 5. Virgilio A. Reyes
6. Lorenzo M. Reyes, Jr. 6. Pacita R. Bautista
7. Lydia R. Feliciano

8. Heirs of Mario M. Reyes


xxxx
In this connection, we wish to inform you that we are selling the lot under lease with you. Accordingly, we are
giving you the opportunity to exercise your rights of pre-emption, made in writing within thirty (30) days upon
receipt of this letter. If however, we do not hear from you after the lapse of the said period, we shall take it to mean
that you are not interested to purchase the subject lot, which thereby give us the liberty to offer it to other
interested parties. 5 (Emphasis supplied)
Petitioner-lessees replied to the Administrative Committee on 14 June 1988, requesting for an extension of 30 days to
submit their bid for the property. 6
On 13 July 1988, petitioner-lessees submitted their bid for the property to the Administrative Committee under the
following terms and conditions:
1. Bid Price - - - - - - - - P4,000,000.00;
2. Upon the signing of the
Absolute Deed of Sale,
we will pay you 80% of the
Bid Price amounting to - - - - - - - - P3,200,000.00;
3. Upon delivery of the
Transfer Certificate of
Title to each of us, we
will pay you the 20%
balance amounting to - - - - - - - - - 800,000.00. 7
In a letter 8 dated July 1988, the Administrative Committee informed petitioner-lessees of their receipt of notice of
the P4,000,000 bid price. The Administrative Committee wrote that they requested petitioner-lessees to increase their bid
for the property but the latter failed to make another offer so the heirs have decided to sell to another buyer who offered a
higher price. Nevertheless, the Administrative Committee indicated in the letter that they would wait for a reply within 15
days and that should the period lapse without any reply from petitioner-lessees, it would mean that petitioner-lessees were
no longer interested in buying the property.
On 2 August 1988, petitioner-lessees sent a reply, 9 advising the Administrative Committee that they were willing to make
a nominal increase to their bid price of P4,000,000. Petitioner-lessees requested the Administrative Committee to state in
writing their asking price for the property.
On 3 August 1988, the Administrative Committee sent a letter to petitioner-lessees which reads:
Dear Sirs:
We are sorry for the oversight of the date of our last letter. Inasmuch as you received it on the 26th of July, let us then
consider it as the official date of the letter.
It is the customary agreement with the late Dr. Lorenzo C. Reyes that 15 years after the improvement was put up in the
property, the said improvement reverts to the owner of the lot. Since you have put up the existing improvement in 1971,
we feel that the said improvement was already owned by the late Lorenzo C. Reyes before his death.
As early as 1985 the said Dr. Reyes has been paying real property taxes on the improvement; which shows that he was
already the rightful owner of said improvement.

Since the structure is not of strong materials, with the length of time of 17 yrs., we feel that same is now fully depreciated.
We are also desirous of your buying the property. We have an offer of P5 Million which was submitted to us last
month. If you could offer the same amount we will be very happy to accomodate you.
We are sending you a xerox copy of TCT No. 49857, Tax Declaration of Real Property and the latest tax receipts.
May we receive you[r] offer on or before Aug. 11, 1988. Please be guided accordingly. 10 (Emphasis supplied)
In their letter-reply 11 dated 11 August 1988, petitioner-lessees insisted that they own the improvements on the property.
Petitioner-lessees wrote that they were willing to reimburse the realty tax paid on the improvements by the late Dr.
Lorenzo C. Reyes. Petitioner-lessees requested for a meeting with all the heirs to negotatiate the sale of the property, and
informed the Administrative Committee that their final bid price will be submitted during the meeting.
Petitioner-lessees sent their accountant, Benjamin C. Miranda ("Miranda"), to represent them in the conference to
negotiate the sale of the property. On the other hand, not all the heirs of Dr. Lorenzo C. Reyes attended the conference.
During the conference, the parties failed to agree on the price and terms for the sale of the property.
On 18 October 1988, petitioner-lessees, excluding Rosa N. Sanchez, wrote another letter to the Administrative Committee
which reads:
The Administrative Committee
Heirs of Dr. Lorenzo C. Reyes
#22 18th Street, New Manila
Quezon City
Dear Sirs:
We waited for 68 days for your answer to our letter dated August 11, 1988 which did not come.
Considering various economic reasons, you will be happy to hear from us (Lessees) that we have finally accepted your
asking price of P5,000,000.00 for your property located at Evangelista Street, district of Sta. Cruz, Manila covered by
T.C.T. No. 49857 issued to Dr. Lorenzo C. Reyes on September 3, 1936.
Please prepare all the necessary papers and documents to make the sale legal for all intent and purposes.
Any unpaid taxes such as income, estate, realty and science education fund and documentary stamps shall be for
the account of the Heirs including documentation expenses.
Terms of Payment: 95% upon signing of the documents; and 5% upon delivery of the Transfer Certificate of Title
in the name of its individual Lessees.
Expecting to hear your final confirmation soonest. 12 (Emphasis supplied)
On 3 November 1988, the Administrative Committee replied:
Mr. Atanacio M. Villegas
Mr. Agripino M. Villegas
Mrs. Corazon Sanchez
654 Evangelista, Quiapo, Manila
Dear Sirs:
This is with reference to your letter dated October 18, 1988.

Several times in the past two months, Mr. Carlito A. Reyes and our other brothers and sisters have informed you
that some of the co-owners of our property at the above-given address are no longer agreeable to selling the said
property; however, other co-owners, representing a 75% share thereof, were still interested in selling their shares.
It is, therefore, very clear from the foregoing that our offer to sell the entire property to you was no longer effective.
Moreover, our offer was for the price of P5,000,000.00 net to the co-owners. Your letter of October 18, 1988 imposes
the condition that unpaid taxes shall still be borne by us, which is unacceptable.
We therefore, leave it up to some of the co-owners to negotiate for the sale of their shares with you.

13

(Emphasis supplied)

Respondent-heirs, collectively owning 75% of the property, also sent a letter dated 3 November 1988 to petitioner-lessees:
Mr. Atanacio M. Villegas
Mr. Agripino M. Villegas
Mrs. Corazon Sanchez
654 Evangelista, Quiapo, Manila
Dear Sirs:
This is with reference to your letter dated October 18, 1988 to the Administrative Committee of the properties owned by
the heirs of Dr. Lorenzo C. Reyes.
You will recall that in the past two months, some of us saw you and/or your representative, Mr. Ben Miranda and
explained to you that some of the co-owners of the property at Evangelista Street, Sta. Cruz, Manila, covered by TCT No.
49857, were no longer interested in selling the said property. On the other hand, we the undersigned co-owners holding
a 75% share of the said property, were offering to sell our shares to you at the price of 75% of P5,000,000.00,
or P3,750,000,000.00. Moreover, the said price was to be net to us, that is, all applicable taxes - capital gains tax,
documentary stamp tax, municipal transfer tax and registration expenses - should be borne by you.
It was obvious that our said offer superseded that of our Administrative Committee, which cannot convey the property to
you without the unanimous consent of all the co-owners.
We are reiterating our offer to sell our 75% share to you. However, since there is a new offer to purchase the entire
property at P5,100,000.00, we are now offering our said 75% share for the price ofP3,825,000.00, net to us.
If we do not hear from you within one week from your receipt hereof, we shall feel free to offer our said share to
other buyers. 14 (Emphasis supplied)
On 28 November 1988, respondent-heirs sold their 75% undivided interest in the property for P3,825,000 to Lita
Sy. 15 Lita Sy also issued a check for P412,500 to Vicente M. Reyes as payment for taxes, agents commission and
miscellaneous expenses. 16 The corresponding title, Transfer Certificate of Title No. 183718 17 was issued on 28 December
1988. The Administrative Committee informed petitioner-lessees of the sale in a letter dated 7 December 1988. 18
On 1 February 1989, the other heirs sold the remaining 25% portion of the property to Atanacio M. Villegas and Agripino
M. Villegas ("Villegas brothers") for P1,250,000. 19
G.R. No. 111495
On 10 February 1989, petitioner-lessees filed an action against respondent-heirs and Spouses Sy for Annulment of Deed
of Sale/Title, Specific Performance, and Consignation of Rentals with Damages.
On 26 February 1990, the RTC Branch 2 rendered a decision, the dispositive portion of which reads:
WHEREFORE, for all of the foregoing, judgment is hereby rendered in favor of the defendants and against the plaintiffs:
1. Dismissing the complaint;

2. Declaring the deed of sale executed by defendants in favor of spouses Lita Sy and Sy Bon Su and Transfer Certificate
of Title No. 183718 issued as a consequence of the deed of sale, valid;
3. Ordering the plaintiffs to vacate the premises and surrender the possession thereof to the defendants;
4. Ordering the plaintiffs, jointly and severally, to pay the defendants the sum of P1,000.00 as expenses of
litigation; P2,000.00 as attorneys fees, and to pay the costs.
SO ORDERED. 20
On appeal, the Court of Appeals affirmed the decision of the RTC Branch 2.
Upon motion for reconsideration, the Court of Appeals affirmed its decision with modification. The dispositive portion
reads:
In view of the foregoing, this Courts decision dated January 6, 1993, is AFFIRMED with the modification that the record
of this case is ordered remanded to the court a quo for the parties to come into an agreement before the said court as to
what portion and physical part of the building shall be occupied by the appellants and the appellees, in proportion to their
respective shares in the property involved and for other arrangements regarding the matter.
SO ORDERED. 21
G.R. No. 122404
On 18 May 1990, Spouses Sy filed a complaint for Specific Performance against the heirs of Atanacio Villegas, as
represented by Soledad de Ocampo, 22 Agripino Villegas, and Ofelia R. Tungol. 23
On 10 May 1993, the RTC Branch 45 rendered a decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered ordering defendants heirs of Atanacio Villegas to:
a) accept the redemption price of P1,250,000.00, including interest thereon from February 1, 1989 until the plaintiffs
exercised their right of redemption;
b) to pay the sum of P10,000.00 as attorneys fees to the plaintiffs;
c) and to pay the costs of suit.
SO ORDERED. 24
On appeal, the Court of Appeals affirmed the decision of the RTC Branch 45.
In a resolution dated 9 June 1999, this Court consolidated the two cases docketed as G.R. Nos. 111495 and 122404.

25

The Issues
The issues in these consolidated cases can be summarized as follows:
1. Whether the contract of sale between respondent-heirs and Lita Sy violated the right of first refusal of petitionerlessees; and
2. Whether Lita Sy, as co-owner of the property, validly and seasonably exercised her right to redeem the 25% undivided
interest in the property, which undivided interest the other co-owners had sold to Atanacio M. Villegas and Agripino M.
Villegas.
The Ruling of the Court
Right of First Refusal

A right of first refusal is a contractual grant, not of the sale of a property, but of the first priority to buy the property in the
event the owner sells the same. 26 The exercise of the right of first refusal is dependent not only on the owners eventual
intention to sell the property but also on the final decision of the owner as regards the terms of the sale including the
price. 27
When a lease contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the leased property to
anyone at any price until after the lessor has made an offer to sell the property to the lessee and the lessee has failed to
accept it. Only after the lessee has failed to exercise his right of first priority could the lessor sell the property to other
buyers under the same terms and conditions offered to the lessee, 28 or under terms and conditions more favorable to the
lessor.
The records show that the heirs of Dr. Lorenzo C. Reyes did recognize the right of first refusal of petitioner-lessees over
the property. 29 This is clear from the letter dated 19 May 1988 informing petitioner-lessees that the property they were
leasing is for sale. There was an exchange of letters between the Administrative Committee and petitioner-lessees
evidencing the offer and counter-offer of both parties.
Petitioner-lessees insist that there was already a perfected contract of sale when they accepted the P5,000,000 offer for the
property in their letter dated 18 October 1988. Petitioner-lessees allege that the contract of sale between respondent-heirs
and Lita Sy should be annuled since it violated the right of first refusal of petitioner-lessees.
On the other hand, respondent-heirs maintain that the P5,000,000 offer in their letter dated 3 August 1988 already lapsed
because petitioner-lessees did not accept the offer within the period granted. Instead, petitioner-lessees opted for a
conference during which the parties failed to agree on the price. There was therefore no perfected contract of sale because
there was no meeting of minds between the parties.
We agree with respondent-heirs that there was no meeting of the minds between the parties.
Where a time is stated in an offer for its acceptance, the offer is terminated at the expiration of the time given for its
acceptance. The offer may also be terminated when the person to whom the offer is made either rejects the offer outright
or makes a counter-offer of his own. 30
The offer of P5,000,000 in the letter dated 3 August 1988 already lapsed when petitioner-lessees failed to accept it within
the period granted. The offer was superseded by the new offer of respondent-heirs during the conference. However, it
appears from the records that no settlement was reached between the parties during their conference. Engr. Ariel Reyes,
son of Vicente M. Reyes, who was present in the conference testified:
Q: I am showing to you here a letter dated August 11, 1988 marked as Exhibit 6, will you look at this document Mr.
Witness and tell us what relation has this letter to that which you mentioned?
A: Yes, sir, this is the letter that they were asking for a conference, sir.
Q: Now, in connection with that conference being requested by the plaintiff, did you have a conference with the plaintiffs,
Mr. Witness?
A: Yes, sir, and I was in that conference.
Q: All right, who were present in that conference, Mr. Witness?
A: Two of the administrative committee Mrs. Maylad, Mr. Carlito Reyes, myself, the brothers and sisters of Mr. Carlito
Reyes, sir. We had a meeting with a representative of theirs.
Q: All right, were the plaintiffs present during that conference?
A: No, they were not. The plaintiffs were not present at that time.
Q: And who was present during that meeting?
A: He introduced himself as Mr. Miranda, sir.
Q: And did you ask Mr. Miranda why the plaintiffs were not around in that conference?

A: I believe his answer was Mr. Villegas, the old Villegas was in the hospital at that time.
COURT:
Q: All right, what was the capacity of Mr. Miranda in that conference?
A: He said he represents the Villegases and including the Sanchezes. The other tenants of the property because there are
two tenants, Villegas and Sanchez, your honor.
COURT:
All right continue.
ATTY. DELA CRUZ:
Q: All right Mr. Witness, will you please tell this Honorable Court what transpired during your meeting with Mr.
Benjamin Miranda?
A: We discussed the price that we wanted because there was an offer much better than what they were offering and
it seems that we did not get nowhere with their discussions, sir.
Q: Why?
A: They cannot come up with the price that the others are offering, sir.
Q: Would you mention specifically the price Mr. Witness?
A: We wanted P5.1 Million for the property, all net of everything. Meaning, to all other expenses shall be borne by
the buyer like capital gains tax, documentary stamps, etcetera.
COURT:
Q: All right, what was the last offer before that conference?
A: I think it was P4 Million, your Honor.
ATTY. DELA CRUZ:
Q: Mr. Witness. . .
COURT:
Q: Is it not a fact that you made an earlier offer. . . Is it not a fact that you made an offer after the P4-Million in the
amount of P5-Million?
A: Yes, your Honor.
Q: So, before you made the offer of P5-Million 1 hundred thousand pesos, your offer was P5-Million?
A: I believe what was in the letter was better than P5-Million, your Honor.
Q: I am asking you if you agreed with the plaintiff that you made an offer to the plaintiffs in the amount of P5Million before you made an offer of P5.1 Million in that conference?
A: I think so. I cannot remember because it was a long time already.
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ATTY. DELA CRUZ:

Q: Will you just tell this Honorable Court Mr. Witness what happened to that conference which you said you had
with Mr. Miranda?
A: We did not agree on the price and terms of the property that they offered.
Q: Well, how much was the price which you talked about in that conference?
A: We informed the tenants that there was another offer given to us and we raised our price to P5.1-Million net. It
was offered by another buyer.
Q: Would you explain to this Honorable Court what you mean by P5.1-Million net?
A: It is net of the capital gains and other taxes, government taxes.
COURT:
Q: Why did you make another offer of P5.1-Million when your former offer of P5-Million was already accepted?
A: Can I explain to you, with due respect, your Honor. There was a letter given to them; that there should be an
acceptance on or before August 11, 1988. What they replied is not acceptance but a conference. So, since that was not
met, or since that was not accepted, meaning, we did not accept their offer, what we said on August 11 is that, they should
come up with the money or the payment of the property and we will prepare for the Deed of Sale and documents
pertaining to the sale.
xxxx
Q: All right Mr. Witness. After that conference, you had with Mr. Miranda, did you receive any communication from the
plaintiffs?
A: Yes, sir, that was the time we received that Exhibit H.
Q: All right, I am showing to you here a letter dated October 18, 1988 which was marked as Exhibit A, will you look at
this document and tell us what relation has this document to that which you said you received after the conference?
A: Yes, sir, this is the letter, sir, that they sent.
Q: Now, what did you do after receiving this letter coming from the plaintiffs?
A: There was a reply letter, sir.
Q: You replied to this letter?
A: Yes, sir, we replied to that letter.
Q: If that reply letter to this October 18, 1988 letter will be shown to you, would you be able to identify the same?
A: Yes, sir.
Q: I am showing to you here a letter dated November 3, 1988 previously marked as Exhibit 9, and Exhibit 10, will you
look at this letter Mr. Witness and tell us what relation has this letter to that which you mentioned?
A: Yes, sir, this is the letter informing them that some of the heirs have sold their 75% shares to another interested
party, 75% share of the property only, sir.
COURT:
Q: And one of the heirs composing the 75% share of the vendors included your father?
A: Yes, your Honor.

COURT:
Q: All right, let me see Exhibit 9. (Exhibits 9 and 10 was shown to the Court).
COURT:
Q: All right, before the sale of the 75% share, did you inform the plaintiffs that you are selling the 75% of the
whole property?
A: During the conference, your Honor, because during the conference. . . That's why we did not agree.
Q: Just answer the question.
A: Yes, your Honor, we did.
Q: Is it not a fact that you only informed the plaintiffs, thru your letter of November 3, 1988, Exhibit 9, that the vendors
sold 75%?
A: Are selling? Yes, sir.
Q: Meaning, that when you sent Exhibit 9, the property was not yet sold?
A: Yes, your Honor. 31 (Emphasis supplied)
Even petitioner-lessees witness Miranda, who was their accountant since 1959, testified that petitioner-lessees did not
indicate their offer for the property in their letter dated 11 August 1988 but instead requested for a conference with all the
heirs of Dr. Lorenzo C. Reyes. Miranda admitted that the main reason for their request for a conference was because they
knew that not all the heirs of Dr. Lorenzo C. Reyes were interested in selling the property. Miranda testified:
ATTY. DELA CRUZ:
Q: All right, in this letter Mr. Witness, there is in the dispositive portion of this letter the following statement and which I
quote for the records: "May we received [sic] your offer on or before August 11, 1988. Please be guided accordingly."
You read this portion?
A: Yes sir. (referring to August 3, 1988 letter)
xxxx
Q: And as reply to this communication Mr. Witness, you prepared another letter dated August 11, 1988 addressed to the
Administrative Committee and which was already marked as Exhibit G for the plaintiffs and Exhibit 6 for the defendants?
Could you look at this letter if you are familiar with this?
A: Yes, sir.
Q: And you will agree with me Mr. Witness that in your August 11, 1988 letter, you did not make any offer or a
counter offer or what not to the letter of the defendants-heirs on August 3, 1988?
A: You are referring to the amount?
Q: Yes, you did not mention any?
A: I did not mention the offer but I requested them to have a 100% attendance because I know that the property
being sold had a problem even among the family heirs, there is a problem that is why I wanted them to be present
so that if ever who will buy the property we will know where the lessees should be placed out of the four doors
because they are all selling three doors. Another thing, that is an inherited property. I requested them to show me a copy
of their estate tax because under the internal revenue code, you cannot have a clean title unless the corresponding estate
tax on the property is paid. That is why I made also that request, sir.
xxxx

Q: Now, in this August 11, 1988 letter, which is Exhibit G plaintiffs, you stated that you required complete
attendance of the heirs and you did not mention yet a price?
A: The bid price.
Q: What was your reason for doing that complete attendance?
A: Because I want to find out whether the four are not interested in selling, sir.
Q: When you said four, are they the one representing the ownership of the 25%?
A: Yes, sir. 32 (Emphasis supplied)
Petitioner-lessees admit that there was an ongoing negotiation for the sale of the property. 33 Precisely, theP5,000,000 price
for the property indicated by the Administrative Committee in the letter dated 3 August 1988 was superseded by the
subsequent offer of respondent-heirs during the conference. Thus, the letter dated 18 October 1988 of petitioner-lessees is
merely another counter-offer for the property in their continuing negotiation for the property. The latest offer of
respondent-heirs was contained in their letter dated 3 November 1988 wherein only the 75% undivided interest of the
property was for sale at P3,825,000. When petitioner-lessees opted not to respond to this offer, respondent-heirs had the
right to sell the property to other buyers.
Petitioner-lessees already exercised their right of first refusal when they refused to respond to the latest offer of
respondent-heirs, which amounted to a rejection of the offer. Upon petitioner-lessees failure to respond to this latest offer
of respondent-heirs, the latter could validly sell the property to other buyers under the same terms and conditions offered
to petitioner-lessees. 34 Thus, when respondent-heirs sold the property to Lita Sy, respondent-heirs did not violate the right
of first refusal of petitioner-lessees. Indeed, petitioner-lessees were given more than ample opportunity to purchase the
property.
Petitioner-lessees allege that the price offered to Lita Sy was lower than the price offered to them. The records of the case
reveal otherwise.
The last price which respondent-heirs offered to petitioner-lessees was
P3,825,000 for the 75% undivided interest in the property. The price of P3,825,000 was computed based on the price
of P5,100,000 for the entire property. Moreover, capital gains tax, documentary stamp tax, municipal transfer tax and
registration expenses should be paid by petitioner-lessees. However, petitioner-lessees were only willing to
pay P5,000,000 for the entire property. Petitioner-lessees also indicated in their letter dated 8 October 1988 that unpaid
taxes such as income, estate, realty & science education fund and documentary stamps should be borne by the heirs of Dr.
Lorenzo C. Reyes.
On the other hand, Lita Sy paid P3,825,000 for the 75% undivided interest in the property. This is exclusive of
theP412,500 which Lita Sy paid to Vicente M. Reyes for taxes, agents commission and miscellaneous expenses. Thus,
Lita Sy paid a total of P4,237,500. Clearly, this amount is not lower than the price offered to petitioner-lessees.
Legal Redemption
The Villegas brothers maintain that Lita Sy failed to exercise her right of redemption within the 30-day period prescribed
under Article 1623 of the Civil Code. According to the Villegas brothers, Lita Sy received on 17 February 1989 a copy of
the Deed of Sale evidencing the sale of the 25% portion of the property to the Villegas brothers. However, it was only in a
demand letter dated 29 March 1990 that Lita Sy invoked her right of redemption.
Articles 1620 and 1623 of the Civil Code provide:
Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners or of
any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a
reasonable one.
Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share
they may respectively have in the thing owned in common.

Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in
writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all
possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
The records reveal that on 17 February 1989, Lita Sy received the complaint for Annulment of Deed of Sale/Title,
Specific Performance, and Consignation of Rentals with Damages filed by petitioner-lessees. On the same date, Lita Sy
also received together with the complaint the Deed of Sale of the 25% portion of the property.
Lita Sy and the other defendants in that case filed their answer on 16 March 1989. 35 In their answer, Lita Sy invoked her
right to redeem the property:
xxxx
13. That the Deed of Sale (Annex "N") in favor of the plaintiffs was based on a Transfer Certificate of Title No. 183718
(Annex "M") where defendant Lita Sy is already a co-owner to the extent of 36/48 portion on the subject property, which
circumstance impliedly admits that defendants heirs have validly and legally disposed the 75% portion to defendant Lita
Sy and plaintiffs are therefore estopped to deny it;
14. That as a co-owner with the sellers of the 25% portion of the subject lot, defendant Lita Sy has the right to
redeem the shares disposed by the other co-owners in accordance with Art. 1620 of the New Civil Code and hereby
exercise the same;
15. That the Deed of Sale (Annex "N" Complaint) allegedly executed by the other heirs constituting twenty five (25%)
percent of the subject property cannot as yet vest full ownership over the same until the co-owner defendant Lita Sy shall
have failed or waived her rights to redeem the aforesaid 25% of the subject property in question;
xxxx
PRAYER
WHEREFORE, premises considered, it is respectfully prayed that after hearing a judgment be rendered dismissing the
instant complaint for lack of merit and order the plaintiffs jointly and severally:
xxxx
e) To sell or execute a Deed of Sale in favor of defendant Lita Sy covering the remaining 25% portion of the subject
property in full exercise of the right of redemption under the law.
xxxx
Lita Sy claims that the answer filed with the RTC Branch 2 is equivalent to a formal offer to redeem the 25% undivided
interest in the property sold to the Villegas brothers. Lita Sy also claims that since she offered to redeem the property on
16 March 1989, which is within 30 days from her receipt of the notice of the sale on 17 February 1989, she has complied
with the condition fixed by law and may bring an action to enforce the redemption.
We hold that there was no valid and effective offer to redeem the 25% undivided interest in the property. Although Lita Sy
invoked her right to redeem the property in the answer filed with the RTC Branch 2, she failed to consign in court the
redemption price. Well-settled is the rule that a formal offer to redeem must be accompanied by a valid tender of the
redemption price and that the filing of a judicial action, plus the consignation of the redemption price within the period of
redemption, is equivalent to a formal offer to redeem. 36
As held by this Court in Tolentino v. Court of Appeals:
[A] formal offer to redeem, accompanied by a bona fide tender of the redemption price, although proper, is not essential
where, as in the instant case, the right to redeem is exercised thru the filing of a judicial action, which as noted earlier was
made simultaneously with the deposit of the redemption price with the Sheriff, within the period of redemption. The
formal offer to redeem, accompanied by a bona fide tender of the redemption price within the period of redemption

prescribed by law, is only essential to preserve the right of redemption for future enforcement even beyond such period of
redemption. The filing of the action itself, within the period of redemption, is equivalent to a formal offer to redeem.
Should the court allow redemption, the redemptioners should then pay the amount already adverted to. 37
The importance of a valid tender or consignation of the redemption price was sufficiently explained by Justice J.B.L.
Reyes in Conejero v. Court of Appeals:
It is not difficult to discern why the redemption price should either be fully offered in legal tender or else validly
consigned in court. Only by such means can the buyer become certain that the offer to redeem is one made seriously and
in good faith. A buyer can not be expected to entertain an offer of redemption without attendant evidence that the
redemptioner can, and is willing to, accomplish the repurchase immediately. A different rule would leave the buyer open
to harrassment by speculators or crackpots, as well as to unnecessary prolongation of the redemption period, contrary to
the policy of the law. While consignation of the tendered price is not always necessary because legal redemption is not
made to discharge a pre-existing debt (Asturias Sugar Central versus Cane Molasses Co., 60 Phil 253), a valid tender is
indispensable, for the reasons already stated. Of course, consignation of the price would remove all controversy as to the
petitioner's ability to pay at the proper time. 38
In Conejero, the Court held that to effectively exercise the right of redemption, the offer to redeem the property within the
30-day period must be accompanied by a reasonable and valid tender of the entire repurchase price. The Court held:
[Conejero] failed to make a valid tender of the price of the sale paid by the Raffians within the period fixed by law.
Conejero merely offered a check for P10,000, which was not even legal tender and which the Raffians rejected, in lieu of
the price of P28,000 recited in the deed of sale. The factual finding of the Court of Appeals to this effect is final and
conclusive. Nor were the vendees obligated to accept Conejeros promise to pay the balance by means of a loan to be
obtained in futuro from a bank. Bona fide redemption necessarily imports a reasonable and valid tender of the entire
repurchase price, and this was not done. There is no cogent reason for requiring the vendee to accept payment by
installments from a redemptioner, as it would ultimately result in an indefinite extension of the 30-day redemption period,
when the purpose of the law in fixing a short and definite term is clearly to avoid prolonged and anti-economic
uncertainty as to ownership of the thing sold (cf Torrijos vs.Crisologo, et al., G.R. No. L-1773, Sept. 29, 1962). 39
In this case, Lita Sy failed to consign in court the redemption price when she invoked her right to redeem the 25% portion
of the property in the answer filed with the RTC Branch 2. The evidence does not show that Lita Sy ever tendered the
redemption price to the Villegas brothers. Even when Lita Sys lawyer sent a letter dated 29 March 1990 reiterating the
demand for the Villegas brothers to resell the 25% interest in the property, still no tender of the redemption price was
made. There is likewise no evidence that Lita Sy consigned the redemption price in court when she filed on 18 May 1990
a complaint for Specific Performance against the heirs of Atanacio Villegas, as represented by Soledad de Ocampo,
Agripino Villegas, and Ofelia R. Tungol.
Considering that there was no tender of the redemption price, nor was there consignation of the redemption price, we hold
that there was no valid exercise of the right of redemption.
WHEREFORE, we DENY the petition in G.R. No. 111495. We AFFIRM the Decision dated 6 January 1993 of the
Court of Appeals in CA-G.R. CV No. 25974, as modified by its Resolution dated 17 August 1993.
We GRANT the petition in G.R. No. 122404. We SET ASIDE the Decision and Resolution of the Court of Appeals in
CA-G.R. CV No. 41931, and RENDER a new one:
1. Upholding the right of Atanacio M. Villegas and Agripino M. Villegas over the 25% undivided interest in the property;
and
2. Denying the demand for legal redemption by Spouses Lita Sy and Sy Bon Su.
No pronouncement on costs.
SO ORDERED.