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G.R. No.

82670 September 15, 1989

DOMETILA M. ANDRES, doing business under the name and style "IRENE'S WEARING APPAREL," petitioner,
Roque A. Tamayo for petitioner.
Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

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

complaint on May 12, 1982 until the whole amount is fully paid, plus twenty percent (20%) of the amount
due as attomey's fees; and to pay the costs.
With costs against defendant-appellee.
SO ORDERED. [Rollo, pp. 29-30.]
Thereafter, this petition was filed. The sole issue in this case is whether or not the private respondent has the right to
recover the second $10,000.00 remittance it had delivered to petitioner. The resolution of this issue would hinge on the
applicability of Art. 2154 of the New Civil Code which provides that:
Art. 2154. If something received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.
This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:
Art. 1895. If a thing is received when there was no right to claim it and which, through an error, has been
unduly delivered, an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo explained the nature of this
article thus:
Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable. This legal
provision, which determines the quasi-contract of solution indebiti, is one of the concrete manifestations of
the ancient principle that no one shall enrich himself unjustly at the expense of another. In the Roman
Law Digest the maxim was formulated thus: "Jure naturae acquum est, neminem cum alterius detrimento
et injuria fieri locupletiorem." And the Partidas declared: "Ninguno non deue enriquecerse tortizeramente
con dano de otro." Such axiom has grown through the centuries in legislation, in the science of law and in
court decisions. The lawmaker has found it one of the helpful guides in framing statutes and codes. Thus,
it is unfolded in many articles scattered in the Spanish Civil Code. (See for example, articles, 360, 361,
464, 647, 648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-honored
aphorism has also been adopted by jurists in their study of the conflict of rights. It has been accepted by
the courts, which have not hesitated to apply it when the exigencies of right and equity demanded its
assertion. It is a part of that affluent reservoir of justice upon which judicial discretion draws whenever the
statutory laws are inadequate because they do not speak or do so with a confused voice. [at p. 632.]
For this article to apply the following requisites must concur: "(1) that he who paid was not under obligation to do so; and,
(2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].
It is undisputed that private respondent delivered the second $10,000.00 remittance. However, petitioner contends that
the doctrine of solutio indebiti, does not apply because its requisites are absent.
First, it is argued that petitioner had the right to demand and therefore to retain the second $10,000.00 remittance. It is
alleged that even after the two $10,000.00 remittances are credited to petitioner's receivables from FACETS, the latter
allegedly still had a balance of $49,324.00. Hence, it is argued that the last $10,000.00 remittance being in payment of a
pre-existing debt, petitioner was not thereby unjustly enriched.
The contention is without merit.
The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS. It was the latter
and not private respondent which was indebted to petitioner. On the other hand, the contract for the transmittal of dollars
from the United States to petitioner was entered into by private respondent with FNSB. Petitioner, although named as the
payee was not privy to the contract of remittance of dollars. Neither was private respondent a party to the contract of sale
between petitioner and FACETS. There being no contractual relation between them, petitioner has no right to apply the
second $10,000.00 remittance delivered by mistake by private respondent to the outstanding account of FACETS.
Petitioner next contends that the payment by respondent bank of the second $10,000.00 remittance was not made by
mistake but was the result of negligence of its employees. In connection with this the Court of Appeals made the following
finding of facts:

The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the written interrogatories
sent to the First National State Bank of New Jersey through the Consulate General of the Philippines in
New York, Adelaide C. Schachel, the investigation and reconciliation clerk in the said bank testified that a
request to remit a payment for Facet Funwear Inc. was made in August, 1980. The total amount which the
First National State Bank of New Jersey actually requested the plaintiff-appellant Manufacturers Hanover
& Trust Corporation to remit to Irene's Wearing Apparel was US $10,000.00. Only one remittance was
requested by First National State Bank of New Jersey as per instruction of Facets Funwear (Exhibit "J",
pp. 4-5).
That there was a mistake in the second remittance of US $10,000.00 is borne out by the fact that both
remittances have the same reference invoice number which is 263 80. (Exhibits "A-1- Deposition of Mr.
Stanley Panasow" and "A-2-Deposition of Mr. Stanley Panasow").
Plaintiff-appellant made the second remittance on the wrong assumption that defendant-appellee did not
receive the first remittance of US $10,000.00. [Rollo, pp. 26-27.]
It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts which petitioner would have
this Court review. The Court holds that the finding by the Court of Appeals that the second $10,000.00 remittance was
made by mistake, being based on substantial evidence, is final and conclusive. The rule regarding questions of fact being
raised with this Court in a petition for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante
v. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule
45 of the Revised Rules of Court. "The jurisdiction of the Supreme Court in cases brought to it from the
Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of fact
being conclusive" [Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating
a long line of decisions]. This Court has emphatically declared that "it is not the function of the Supreme
Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of
law that might have been committed by the lower court" [Tiongco v. De la Merced, G.R. No. L-24426, July
25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865;
Baniqued v. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring, therefore,
a showing that the findings complained of are totally devoid of support in the record, or that they are so
glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court is
not expected or required to examine or contrast the oral and documentary evidence submitted by the
parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 9731. [at pp. 144145.]
Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the wrongful act of a third
person, the loss must be borne by the one whose negligence was the proximate cause of the loss.
The rule is that principles of equity cannot be applied if there is a provision of law specifically applicable to a case [Phil.
Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA 433; Zabat, Jr. v. Court of Appeals, G.R.
No. L36958, July 10, 1986, 142 SCRA 587; Rural Bank of Paranaque, Inc. v. Remolado, G.R. No. 62051, March 18, 1985,
135 SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the Court in the case of De Garcia v. Court of Appeals, G.R.
No. L-20264, January 30, 1971, 37 SCRA 129, citing Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965, 13 SCRA
486, held:
... The common law principle that where one of two innocent persons must suffer by a fraud perpetrated
by another, the law imposes the loss upon the party who, by his misplaced confidence, has enabled the
fraud to be committed, cannot be applied in a case which is covered by an express provision of the new
Civil Code, specifically Article 559. Between a common law principle and a statutory provision, the latter
must prevail in this jurisdiction. [at p. 135.]
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti, applies in the case at bar,
the Court must reject the common law principle invoked by petitioner.
Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact that from the time the
second $10,000.00 remittance was made, five hundred and ten days had elapsed before private respondent demanded
the return thereof. Needless to say, private respondent instituted the complaint for recovery of the second $10,000.00

remittance well within the six years prescriptive period for actions based upon a quasi-contract [Art. 1145 of the New Civil
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby AFFIRMED.
PUYAT & SONS INC vs CITY OF MANILA G.R. No. L-17447 April 30, 1963


Plaintiff Gonzalo Puyat & Sons Inc is engaged in the business of manufacturing and selling all kinds of furniture.

Acting pursuant to an ordinance, the defendant City Treasurer of Manila assessed from plaintiff retail dealers tax the
sales of furniture manufactured and sold by it and its factory site.

All assessments were paid by plaintiff without protest in the erroneous belief that it was liable thereof not knowing that
pursuant to an ordinance, it is exempt from the payment of taxes being a manufacturer of various kinds of furniture.

After learning about the ordinance, plaintiff filed with defendant City Treasurer of Manila a formal request for refund of the
retail dealers taxes unduly paid.

The City Treasurer, however, denied the said request for refund.

ISSUE: Whether or not the defendant is obliged to refund the amount which the plaintiff paid

HELD: Yes. The plaintiff was actually exempted from paying the tax assessed, hence, it was clearly an error or mistake
which makes it fall under Art 2154 of solution indebiti. Art 2154 provides that 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.

Alongside with this, Art 2156 is also applicable which states that if the payer was in doubt whether the debt was due, he
may recover if he proves that it was not due. Plaintiff had duly proved that taxes were not lawfully due. Therefore, there is
no doubt that the provisions of solution indebiti apply in this case.
G.R. No. 124378. MARCH 8, 2005

Facts:On 15 November 1973, the Office of the President of the Philippines issued Memorandum Order No. 398 instructing
the NPC to build the Agus Regulation Dam at the mouth of Agus River in Lanao del Sur, at a normal maximum water level
of Lake Lanao at 702 meters elevation. Pursuant thereto, petitioner built and operated the said dam in 1978. Private
respondents Hadji Abdul Carim Abdullah, Caris Abdullah, Hadji Ali Langco and Diamael Pangcatan own fishponds along
the Lake Lanao shore. In October and November of 1986, all the improvements were washed away when the water level
of the lake escalated and the subject lakeshore area was flooded. Private respondents blamed the inundation on the Agus
Regulation Dam built and operated by the NPC in 1978. They theorized that NPC failed to increase the outflow of water
even as the water level of the lake rose due to the heavy rains.

Issue:Whether or not the Court of Appeals erred in affirming the trial courts verdict that petitioner was legally answerable
for the damages endured by the private respondents.

Ruling:Memorandum Order No. 398 clothes the NPC with the power to build the Agus Regulation Dam and to operate it
for the purpose of generating energy. Twin to such power are the duties: (1) to maintain the normal maximum lake
elevation at 702 meters, and (2) to build benchmarks to warn the inhabitants in the area that cultivation of land below said
elevation is forbidden.
With respect to its job to maintain the normal maximum level of the lake at 702 meters, the Court of Appeals, echoing the
trial court, observed with alacrity that when the water level rises due to the rainy season, the NPC ought to release more
water to the Agus River to avoid flooding and prevent the water from going over the maximum level. And yet, petitioner
failed to do so, resulting in the inundation of the nearby estates. Consequently, even assuming that the fishponds were
erected below the 702-meter level, NPC must, nonetheless, bear the brunt for such damages inasmuch as it has the duty
to erect and maintain the benchmarks precisely to warn the owners of the neighboring properties not to build fishponds
below these marks. Without such points of reference, the inhabitants in said areas are clueless whether or not their
improvements are within the prohibited area. Conversely, without such benchmarks, NPC has no way of telling if the
fishponds, subject matter of the present controversy, are indeed below the prescribed maximum level of elevation. Due to
NPCs negligence in the performance of its duties, it shall be held liable for the resulting damages suffered by private
Nicolas Sanchez and SeverinaRigos executed an instrument entitled "Option to Purchase," whereby Mrs. Rigos agreed,
promised and committed to sell to Sanchez a parcel of land within two (2) years from said date with the understanding
that said option shall be deemed terminated and elapsed if Sanchez shall fail to exercise his right to buy the property
within the stipulated period. Inasmuch as several tenders of payment made by Sanchez within said period, were rejected
by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and
commenced against the latter the present action, for specific performance and damages.
Rigos contended that the contract between them was only aunilateral promise to sell, and the same being unsupported
by any valuable consideration, by force of the New Civil Code, is null and void.
Sanchez alleged in his compliant that, by virtue of the option under consideration, "defendant agreed and committed to
sell" and "the plaintiff agreed and committed to buy" the land described in the option.
The lower court rendered judgment in favor of Sanchez and ordered Rigos to accept the sum Sanchez judicially
consigned, and to execute in his favor the requisite deed of conveyance.

Whether there was a contract to buy and sell between the parties or only a unilateral promise to sell.
The Supreme Court affirmed the lower courts decision.
The instrument executed in 1961 is not a "contract to buy and sell," but merely granted SANCHEZ an option to buy, as
indicated by its own title "Option to Purchase." The option did not impose upon Sanchez the obligation to purchase
Rigos' property. Rigos "agreed, promised and committed" herself to sell the land to Sanchez, but there is nothing in the
contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct
from the price" stipulated for the sale of the land.
Article 1479 refers to "an accepted unilateral promise to buy or to sell." Since there may be no valid contract without a
cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. while Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co

IMC and LSPI separately obtained from Insurance Company of North America fire insurance policies for their
book debt endorsements related to their ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines which are unpaid 45 days after the time of the loss

February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano Cagayan, Inc.,
containing the ready-made clothing materials sold and delivered by IMC and LSPI was consumed by fire.

February 4, 1992: Insurance Company of North America filed a complaint for damages against Gaisano Cagayan,
Inc. alleges that IMC and LSPI filed their claims under their respective fire insurance policies which it paid thus it was
subrogated to their rights
Gaisano Cagayan, Inc: not be held liable because it was destroyed due to fortuities event or force


RTC: IMC and LSPI retained ownership of the delivered goods until fully paid, it must bear the loss (res perit

CA: Reversed - sales invoices is an exception under Article 1504 (1) of the Civil Code to res perit domino

ISSUE: W/N Insurance Company of North America can claim against Gaisano Cagayan for the debt that was isnured
HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED

insurance policy is clear that the subject of the insurance is the book debts and NOT goods sold and delivered to
the customers and dealers of the insured

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract
and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the time of such delivery;

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of
the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title,
but whether insured has substantial economic interest in the property

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly
damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may
consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled
with an existing interest in that out of which the expectancy arises.

Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its
it is sufficient that the insured is so situated with reference to the property that he would be liable to loss

should it be injured or destroyed by the peril against which it is insured

an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or

possession of, the subject

matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such

an interest

insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire - obligation is pecuniary in nature
obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true

when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in
case of fortuitous event

Article 1263 of the Civil Code in an obligation to deliver a generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation (Genus nunquan perit)

The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and
IMC as the insured, but also the amount paid to settle the insurance claim

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract.

As to LSPI, no subrogation receipt was offered in evidence.

Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount of



GR L-15645 January 31, 1964
On May 19, 1952, plaintiff-appellee Mrs. Paz
Arrieta participated in a public bidding called by NARIC
for the supply of 20,000 metric tons of Burmese rice. As

her bid of $203, 000 per metric ton was the lowest, she
was awarded he contract for the same. On July 1, 1952,
Arrieta and NARIC entered into Contract of Sale of Rice
under the term of which the former obligated herself to
deliver to the latter 20, 000 metric tons of Burmese rice at
$203, 000 per metric ton. In turn, NARIC committed itself
to pay for the imported rice by means of an irrevocable,
confirmed and assignable letter of credit in US currency in
favor of Arrieta and/or supplier in Burma, immediately.
However, it was only on July 30, 1952 that NARIC
took the first step to open a letter of credit by forwarding to
the PNB its application for Commercial Letter of Credit.
On the same day, Arrieta, thru counsel, advised NARIC of
the extreme necessity for the opening of the letter of credit
since she had by then made a tender to her supplier in
Rangoon, Burma equivalent to 5% of the F.O.B. price of
20, 000 tons at $180.70 and in compliance with the
regulations in Rangoon, this 5% will be confiscated if the
required letter of credit is not received by them before
August 4, 1952.
On August 4, PNB informed NARIC that its
application for a letter of credit has been approved by the
Board of Directors with the condition that 50% marginal
cash deposit be paid and that drafts a5e to be paid upon
presentment. It turned out that NARIC was not in financial
position to meet the condition. As a result of the delay, the
allocation of Arrietas supplier in Rangoon was cancelled
and the 5% deposit amounting to 524 kyats or
approximately P200, 000 was forfeited.
Was NARIC liable for damages?
Yes. One who assumes a contractual obligation
and fails to perform the same on account of his inability to
meet certain bank which inability he knew and was aware
of when he entered into contract, should be held liable in
damages for breach of contract.
Under Article 1170 of the Civil Code, not only
debtors guilty of fraud, negligence or default but also
debtor of every, in general, who fails in the performance of
his obligations is bound to indemnify for the losses and
damages caused thereby.
Telefast v. Castro Digest G.R. No. 73867
Telefast v. Castro
G.R. No. 73867 February 29, 1988
1. The petitioner is a company engaged in transmitting telegrams. The plaintiffs are the children and spouse of
Consolacion Castro who died in the Philippines. One of the plaintiffs, Sofia sent a telegram thru Telefast to her
father and other siblings in the USA to inform about the death of their mother. Unfortunately, the deceased had
already been interred but not one from the relatives abroad was able to pay their last respects. Sofia found out

upon her return in the US that the telegram was never received. Hence the suit for damages on the ground of
breach of contract. The defendant-petitioner argues that it should only pay the actual amount paid to it.
2. The lower court ruled in favor of the plaintiffs and awarded compensatory, moral, exemplary, damages to each of
the plaintiffs with 6% interest p.a. plus attorneys fees. The Court of Appeals affirmed this ruling but modified and
eliminated the compensatory damages to Sofia and exemplary damages to each plaintiff, it also reduced the
moral damages for each. The petitioner appealed contending that, it can only be held liable for P 31.92, the fee or
charges paid by Sofia C. Crouch for the telegram that was never sent to the addressee, and that the moral
damages should be removed since defendant's negligent act was not motivated by "fraud, malice or recklessness.
Issue: Whether or not the award of the moral, compensatory and exemplary damages is proper.
RULING: Yes, there was a contract between the petitioner and private respondent Sofia C. Crouch whereby, for a fee,
petitioner undertook to send said private respondent's message overseas by telegram. Petitioner failed to do this despite
performance by said private respondent of her obligation by paying the required charges. Petitioner was therefore guilty of
contravening its and is thus liable for damages. This liability is not limited to actual or quantified damages. To sustain
petitioner's contrary position in this regard would result in an inequitous situation where petitioner will only be held liable
for the actual cost of a telegram fixed thirty (30) years ago.
Art. 1170 of the Civil Code provides that "those who in the performance of their obligations are guilty of fraud, negligence
or delay, and those who in any manner contravene the tenor thereof, are liable for damages." Art. 2176 also provides that
"whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
Award of Moral, compensatory and exemplary damages is proper.
The petitioner's act or omission, which amounted to gross negligence, was precisely the cause of the suffering private
respondents had to undergo. Art. 2217 of the Civil Code states: "Moral damages include physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral damages may be recovered if they are the proximate results of
the defendant's wrongful act or omission."
Then, the award of P16,000.00 as compensatory damages to Sofia C. Crouch representing the expenses she incurred
when she came to the Philippines from the United States to testify before the trial court. Had petitioner not been remiss in
performing its obligation, there would have been no need for this suit or for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified for each of the private respondents, as a warning
to all telegram companies to observe due diligence in transmitting the messages of their customers.

Santos Ventura Hocorma Foundation, Inc. vs Ernesto Santos & Riverland, Inc.
Chester Cabalza recommends his visitors to please read the original & full text of the case cited. Xie xie!

Santos Ventura Hocorma Foundation, Inc. vs Ernesto Santos & Riverland, Inc.
G.R. No. 1530004
November 5, 2004


Subject of the present petition for review on certiorari is the Decision, dated January 30, 2002, as well as the April 12,
2002, Resolution of the Court of Appeals, The appellate court reversed the Decision, dated October 4, 1996, of the
Regional Trial Court of Makati City, and likewise denied petitioner's Motion for Reconsideration.

On October 26, 1990, the parties executed a Compromise Agreement which amicably ended all their pending litigations.
The pertinent portions of the Agreement, include the following: (1) Defendant Foundation shall pay Plaintiff Santos P14.5
Million on (a) P1.5 Million immediately upon the execution of this agreement and (b) The balance of P13 Million shall be
paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a period of not more than two
years from the execution of this agreement; (2) Immediately upon the execution of this agreement (and [the] receipt of the
P1.5 Million), plaintiff Santos shall cause the dismissal with prejudice of Civil Cases; (3) Failure of compliance of any of
the foregoing terms and conditions by either or both parties to this agreement shall ipso facto and ipso jure automatically
entitle the aggrieved party to a writ of execution for the enforcement of this agreement.

In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil cases.
He also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner SVHFI, paid
P1.5 million to respondent Santos, leaving a balance of P13 million.

On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of P13
million. There was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial Court of
Makati City, for the issuance of a writ of execution of its compromise judgment dated September 30, 1991. The RTC
granted the writ.

Petitioner, however, filed numerous motions to block the enforcement of the said writ. The challenge of the execution of
the aforesaid compromise judgment even reached the Supreme Court. All these efforts, however, were futile.

On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In the said auction,
Riverland, Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale covering the real properties
subject of the auction sale. Subsequently, another auction sale was held on February 8, 1995, for the sale of real
properties of petitioner in Bacolod City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale issued for
both properties provided for the right of redemption within one year from the date of registration of the said properties.

On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging that there was
delay on the part of petitioner in paying the balance of P13 million.


a)W/N the CA committed reversible error when it awarded legal interest in favor of the respondents notwithstanding the
fact that neither in the compromise agreement nor in the compromise of judgment by the judge provides for payment of
interest to the respondent?

b)W/N the CA erred in awarding legal interest to the respondents although the obligation of the petitioner to the
respondent is to pay a sum of money that had been converted into an obligation to pay in kind?

c)W/N respondents are barred from demanding payment of interest by reason of the waiver provision in the compromise
agreement, which became the law among the parties.


On October 4, 1996, the trial court rendered a Decision dismissing the respondents' complaint and ordering them to pay
attorney's fees and exemplary damages to petitioner. Respondents then appealed to the Court of Appeals.

The only issue to be resolved is whether the respondents are entitled to legal interest.

The appellate court reversed the ruling of the trial court: WHEREFORE, finding merit in the appeal, the appealed Decision
is hereby REVERSED and judgment is hereby rendered ordering appellee SVHFI to pay appellants Santos and Riverland,
Inc.: (1) legal interest on the principal amount of P13 million at the rate of 12% per annum from the date of demand on
October 28, 1992 up to the date of actual payment of the whole obligation; and (2) P20,000 as attorney's fees and costs of


Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of obligations. It is the
non-fulfillment of the obligation with respect to time. In the case at bar, the obligation was already due and demandable
after the lapse of the two-year period from the execution of the contract. The two-year period ended on October 26, 1992.
When the respondents gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due and
demandable. Furthermore, the obligation is liquidated because the debtor knows precisely how much he is to pay and
when he is to pay it.

The petition lacks merit

In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990. It was judicially
approved on September 30, 1991. Applying existing jurisprudence, the compromise agreement as a consensual contract
became binding between the parties upon its execution and not upon its court approval. From the time a compromise is
validly entered into, it becomes the source of the rights and obligations of the parties thereto. The purpose of the
compromise is precisely to replace and terminate controverted claims.

As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and unambiguous. It
provides that the balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the
Foundation, within a period of not more than two (2) years from the execution of this agreement.

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of the Court of Appeals and
its April 12, 2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner. SO ORDERED

G.R. No. 95469 July 25, 1991

AGAPITO MANUEL, petitioner,
JESUS, respondents.
Miguel Y. Badando for petitioner.
R.C. Lizardo Law Office for private respondents.

This case had its inception in a complaint for ejectment filed by herein private respondents against herein petitioner before
the Metropolitan Trial Court of Manila, docketed as Civil Case No. 122136-CV, for non-payment of rentals on an apartment
unit owned by private respondents and rented by petitioner.
The antecedent facts which led to the filing of said case are best quoted from the succinct presentation thereof in the
challenged decision of respondent court:
It appears that the private respondents are the owners of an apartment unit which was rented by the
petitioner on a month to month basis for a monthly rental of P466.00 payable in advance; that the
petitioner failed to pay the corresponding rentals for the month of May 1987 up to the filing of the
complaint on August 31, 1987; that on July 9, 1987, private respondents, through their counsel, sent a
demand letter to the petitioner (Exhibit "R") requiring him to pay his rentals in arrears and to vacate the
leased premises within five (5) days from receipt thereof, otherwise private respondents will be
constrained to file the appropriate legal action against him; that the demand letter of private respondents'
counsel was received by the petitioner on July 14, 1987; that in response thereto, the petitioner
addressed a letter dated July 15, 1987 to private respondent Carmen de Jesus, furnishing a copy thereof
to her counsel, stating that the amount of rentals, which the private respondents allegedly refused to
receive, had been deposited at United Coconut Planters Bank, Taft Avenue Branch, with Account No.
8893 in the name of the petitioner's son, Mario Manuel, and could be withdrawn upon notice of payment;
that in order to collect the said rentals allegedly deposited with the bank, the private respondents' counsel
sent a letter dated August 14, 1987 to the petitioner, requesting the payment of the unpaid rentals to his
(private respondents' counsel) office; that the said letter was received by the petitioner on August 18,
1987, and, instead of complying with private respondents' counsel's request, the petitioner addressed a
letter dated August 24, 1987 to the private respondents' counsel requesting that the rentals in arrears be
paid to the private respondents at petitioner's house. The private respondents did not heed the petitioner's
request. 1
On April 6, 1989, after the parties had submitted their respective affidavits and position papers, the said metropolitan trial
court rendered judgment in favor of private respondents, as plaintiffs therein, the dispositive part whereof declares:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs, ordering defendant and/or any other
person claiming rights under him to vacate and surrender possession of the premises described as door
No. 2444; defendant Agapito Manuel to pay the plaintiffs the amount of P466.00 a month from May 1987
and up to the date defendant and/or any other person claiming rights under him actually vacates the
premises, to pay the plaintiffs the amount of P500.00 as attorney's fees, plus cost of the Suit. 2
On appeal in Civil Case No. 89-48914, the Regional Trial Court of Manila, Branch 35, affirmed the aforesaid judgment in
toto in its decision dated September 20, 1989. 3
Not satisfied therewith, petitioner appealed to respondent Court of Appeals which, in its decision 4 dated January 29, 1990
in CA-G.R. SP No. 18961, denied due course to the petition for review and dismissed the same for lack of
merit. 5Petitioner's motion for motion for reconsideration was likewise denied by said respondent court in its resolution of
March 5, 1990. 6

Before us, petitioner raises two grounds, the first supposedly in the nature of a supervenience, for the allowance of his
petition, viz.:
1. A new situation developed and/or came about which makes ejectment unjust and impossible, that is,
the NHA finally awarded the lot over which the subject structure stands to the petitioner and other tenants
and disqualified the private respondent. It said ruling or awards, the private respondent are only given the
option to either sell the structure to the petitioner and the other awardees or to dismantle the same.
2. Moreover, under the circumstances prevailing in this instant case, the private respondent were really
in mora accipiendi that even if no deposit or consignation had been made, said mora cannot be cured.
Petitioner had in fact continuously made available and deposited his rentals had been made moot and
academic by virtue of the NHA award in favor of the petitioner and the governmental expression of public
policy to protect the actual occupants, specifically the petitioner. 7
We find the petition bereft of merit.
The putative award on April 6, 1990 by the National Housing Authority (NHA) to the petitioner of the lot where the rented
apartment stands, 8 while this ejectment case was pending in the Court of Appeals, is of no moment. The juridical relation
between petitioner and private respondent as lessee and lessors is well established and the non-payment of rentals by
petitioner for at least three (3) months is substantial by the evidence on record.
The award of the lot to petitioner by NHA does not automatically vest in him ownership over the leased structure thereon.
Petitioner cannot invoke the provisions of the Civil Code on accession there being an existing lessor and lessee relation
between him and private respondents. 9 A tenant cannot, in an action involving the possession of the leased premises,
controvert the title of his landlord or assert any rights adverse to that title or set up any inconsistent right to change the
relation existing between himself and his landlord, without first delivering up to the landlord the premises acquired by
virtue of the agreement between themselves. The rule estopping a tenant while he retains possession applies whether the
tenant is defendant or plaintiff and applies even though the landlord had no title at the time the relationship was created. 10
Proceedings in forcible entry and detainer are wholly summary in nature. The fact of lease and the expiration of its terms
are the only elements of this kind of action. 11 The question of ownership is unessential and should be raised by the
defendant in an appropriate action. 12 Any controversy over ownership right could and should be settled after the party
who had the prior, peaceful and actual possession is returned to the property. 13
In the present case and assuming the new factual milieu posited by petitioner, he should file a separate action wherein his
alleged rights as owner of the land vis-a-vis the rights of private respondents as builders or owners of the structure
standing thereon can be properly ventilated. There can be no such adjudication here for when the relationship of lessor
and lessee is established in an unlawful detainer case, any attempt of the defendant to inject the question of ownership
into the case is inutile except in so far as it might throw light on the right of possession. 14
In an appeal from an inferior court in an ejectment case the issue of ownership should not be delved into, for an ejectment
action lies even against the owner of the property. 15 The fact of possession in itself has a positive value and is endowed
with a distinct standing of its own in the law of property. True, by this principle of respect for the possessory status, a
wrongful possessor may at times be upheld by the courts, but this is only temporary and for one sole and special purpose,
namely, the maintenance of public order. The protection is only temporary because it is intended that as soon as the
lawless act of dispossession has been suppressed, the question of ownership or of possession de jure is to be settled in
the proper court and in a proper action. The larger and permanent interests of property require that such rare and
exceptional instance of preference in the courts of the actual but wrongful possessor be permitted. 16
The contention of petitioner that private respondents are in mora accipiendi cannot be upheld either. The failure of the
owners to collect or their refusal to accept the rentals are not valid defenses. Consignation, under such circumstances, is
necessary, 17 and by this we mean one that is effected in full compliance with the specific requirements of the law therefor.
Section 5(b) of Batas Pambansa Blg. 25, as amended, provides that in case of refusal by the lessor to accept payment of
the rental agreed upon, the lessee shall either deposit, by way of consignation, the amount in court or in a bank in the
name of and with notice to the lessor. The failure of herein petitioner to comply with said requirement makes the
consignation defective and gives rise to a cause of action for ejectment. 18 Compliance with the requisites of a valid
consignation is mandatory. It must be complied with frilly and strictly in accordance with the law. Substantial compliance is
not enough. 19

From the earlier discussion, petitioner evidently did not comply with the requirements for consignation prescribed by the
governing law. Consequently, as expounded by the Court of Appeals
The failure of the petitioner to fully and strictly comply with the requirements of consignation as
aforementioned, renders nil his contention that the private respondents have no cause of action against
him, As there was no valid consignation, payment of the more than three months rental arrearages was
not effected. Under Section 5(b) of B.P. Blg. 25, as amended, arrears in payment of rent for three (3)
months at any one time, is a ground for judicial ejectment. For such non-payment of the petitioner to the
private respondents of the monthly rentals from May, 1987 until the case was filed on August 31, 1987, or
for more than three (3) months, there therefore existed a cause of action in favor of the private
respondent lessors against the petitioner lessee. 20
ACCORDINGLY, the petition is DENIED and the assailed judgment of respondent Court of Appeals is AFFIRMED.
G.R. No. 126083

July 12, 2006

ANTONIO R. CORTES (in his capacity as Administrator of the estate of Claro S. Cortes), petitioner,
The instant petition for review seeks the reversal of the June 13, 1996 Decision 1 of the Court of Appeals in CA-G.R. CV
No. 47856, setting aside the June 24, 1993 Decision 2 of the Regional Trial Court of Makati, Branch 138, which rescinded
the contract of sale entered into by petitioner Antonio Cortes (Cortes) and private respondent Villa Esperanza
Development Corporation (Corporation).
The antecedents show that for the purchase price of P3,700,000.00, the Corporation as buyer, and Cortes as seller,
entered into a contract of sale over the lots covered by Transfer Certificate of Title (TCT) No. 31113-A, TCT No. 31913-A
and TCT No. 32013-A, located at Baclaran, Paraaque, Metro Manila. On various dates in 1983, the Corporation
advanced to Cortes the total sum of P1,213,000.00. Sometime in September 1983, the parties executed a deed of
absolute sale containing the following terms:3
1. Upon execution of this instrument, the Vendee shall pay unto the Vendor sum of TWO MILLION AND TWO
HUNDRED THOUSAND (P2,200,000.00) PESOS, Philippine Currency, less all advances paid by the Vendee to
the Vendor in connection with the sale;
2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND [P1,500,000.00] PESOS, Phil. Currency
shall be payable within ONE (1) YEAR from date of execution of this instrument, payment of which shall be
secured by an irrevocable standby letter of credit to be issued by any reputable local banking institution
acceptable to the Vendor.
4. All expense for the registration of this document with the Register of Deeds concerned, including the transfer
tax, shall be divided equally between the Vendor and the Vendee. Payment of the capital gains shall be
exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez to be deducted upon signing of
Said Deed was retained by Cortes for notarization.
On January 14, 1985, the Corporation filed the instant case 5 for specific performance seeking to compel Cortes to deliver
the TCTs and the original copy of the Deed of Absolute Sale. According to the Corporation, despite its readiness and
ability to pay the purchase price, Cortes refused delivery of the sought documents. It thus prayed for the award of
damages, attorney's fees and litigation expenses arising from Cortes' refusal to deliver the same documents.

In his Answer with counterclaim,6 Cortes claimed that the owner's duplicate copy of the three TCTs were surrendered to
the Corporation and it is the latter which refused to pay in full the agreed down payment. He added that portion of the
subject property is occupied by his lessee who agreed to vacate the premises upon payment of disturbance fee. However,
due to the Corporation's failure to pay in full the sum of P2,200,000.00, he in turn failed to fully pay the disturbance fee of
the lessee who now refused to pay monthly rentals. He thus prayed that the Corporation be ordered to pay the
outstanding balance plus interest and in the alternative, to cancel the sale and forfeit the P1,213,000.00 partial down
payment, with damages in either case.
On June 24, 1993, the trial court rendered a decision rescinding the sale and directed Cortes to return to the Corporation
the amount of P1,213,000.00, plus interest. It ruled that pursuant to the contract of the parties, the Corporation should
have fully paid the amount of P2,200,000.00 upon the execution of the contract. It stressed that such is the law between
the parties because the Corporation failed to present evidence that there was another agreement that modified the terms
of payment as stated in the contract. And, having failed to pay in full the amount of P2,200,000.00 despite Cortes' delivery
of the Deed of Absolute Sale and the TCTs, rescission of the contract is proper.
In its motion for reconsideration, the Corporation contended that the trial court failed to consider their agreement that it
would pay the balance of the down payment when Cortes delivers the TCTs. The motion was, however, denied by the trial
court holding that the rescission should stand because the Corporation did not act on the offer of Cortes' counsel to
deliver the TCTs upon payment of the balance of the down payment. Thus:
The Court finds no merit in the [Corporation's] Motion for Reconsideration. As stated in the decision sought to be
reconsidered, [Cortes'] counsel at the pre-trial of this case, proposed that if [the Corporation] completes the down
payment agreed upon and make arrangement for the payment of the balances of the purchase price, [Cortes]
would sign the Deed of Sale and turn over the certificate of title to the [Corporation]. [The Corporation] did nothing
to comply with its undertaking under the agreement between the parties.
WHEREFORE, in view of the foregoing considerations, the Motion for Reconsideration is hereby DENIED.
On appeal, the Court of Appeals reversed the decision of the trial court and directed Cortes to execute a Deed of Absolute
Sale conveying the properties and to deliver the same to the Corporation together with the TCTs, simultaneous with the
Corporation's payment of the balance of the purchase price of P2,487,000.00. It found that the parties agreed that the
Corporation will fully pay the balance of the down payment upon Cortes' delivery of the three TCTs to the Corporation. The
records show that no such delivery was made, hence, the Corporation was not remiss in the performance of its obligation
and therefore justified in not paying the balance. The decretal portion thereof, provides:
WHEREFORE, premises considered, [the Corporation's] appeal is GRANTED. The decision appealed from is
hereby REVERSED and SET ASIDE and a new judgment rendered ordering [Cortes] to execute a deed of
absolute sale conveying to [the Corporation] the parcels of land subject of and described in the deed of absolute
sale, Exhibit D. Simultaneously with the execution of the deed of absolute sale and the delivery of the
corresponding owner's duplicate copies of TCT Nos. 31113-A, 31931-A and 32013-A of the Registry of Deeds for
the Province of Rizal, Metro Manila, District IV, [the Corporation] shall pay [Cortes] the balance of the purchase
price of P2,487,000.00. As agreed upon in paragraph 4 of the Deed of Absolute Sale, Exhibit D, under terms and
conditions, "All expenses for the registration of this document (the deed of sale) with the Register of Deeds
concerned, including the transfer tax, shall be divided equally between [Cortes and the Corporation]. Payment of
the capital gains shall be exclusively for the account of the Vendor; 5% commission of Marcosa Sanchez to be
deducted upon signing of sale." There is no pronouncement as to costs.
Cortes filed the instant petition praying that the decision of the trial court rescinding the sale be reinstated.
There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the parties. Reciprocal
obligations are those which arise from the same cause, and which each party is a debtor and a creditor of the other, such
that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that
the performance of one is conditioned upon the simultaneous fulfillment of the other.9
Article 1191 of the Civil Code, states:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
As to when said failure or delay in performance arise, Article 1169 of the same Code provides that
ART. 1169
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation,
delay by the other begins. (Emphasis supplied)
The issue therefore is whether there is delay in the performance of the parties' obligation that would justify the rescission
of the contract of sale. To resolve this issue, we must first determine the true agreement of the parties.
The settled rule is that the decisive factor in evaluating an agreement is the intention of the parties, as shown not
necessarily by the terminology used in the contract but by their conduct, words, actions and deeds prior to, during and
immediately after executing the agreement. As such, therefore, documentary and parol evidence may be submitted and
admitted to prove such intention.10
In the case at bar, the stipulation in the Deed of Absolute Sale was that the Corporation shall pay in full the P2,200,000.00
down payment upon execution of the contract. However, as correctly noted by the Court of Appeals, the transcript of
stenographic notes reveal Cortes' admission that he agreed that the Corporation's full payment of the sum of
P2,200,000.00 would depend upon his delivery of the TCTs of the three lots. In fact, his main defense in the Answer is
that, he performed what is incumbent upon him by delivering to the Corporation the TCTs and the carbon duplicate of the
Deed of Absolute Sale, but the latter refused to pay in full the down payment. 11 Pertinent portion of the transcript, reads:
[Q] Now, why did you deliver these three titles to the plaintiff despite the fact that it has not been paid in full the
agreed down payment?
A Well, the broker told me that the down payment will be given if I surrender the titles.
Q Do you mean to say that the plaintiff agreed to pay in full the down payment of P2,200,000.00 provided you
surrender or entrust to the plaintiff the titles?
A Yes, sir.12
What further confirmed the agreement to deliver the TCTs is the testimony of Cortes that the title of the lots will be
transferred in the name of the Corporation upon full payment of the P2,200,000.00 down payment. Thus
Q Of course, you have it transferred in the name of the plaintiff, the title?
A Upon full payment.
Q When you said upon full payment, are you referring to the agreed down payment of P2,200,000.00?
A Yes, sir.13

By agreeing to transfer title upon full payment of P2,200,000.00, Cortes' impliedly agreed to deliver the TCTs to the
Corporation in order to effect said transfer. Hence, the phrase "execution of this instrument" 14 as appearing in the Deed of
Absolute Sale, and which event would give rise to the Corporation's obligation to pay in full the amount of P2,200,000.00,
can not be construed as referring solely to the signing of the deed. The meaning of "execution" in the instant case is not
limited to the signing of a contract but includes as well the performance or implementation or accomplishment of the
parties' agreement.15 With the transfer of titles as the corresponding reciprocal obligation of payment, Cortes' obligation is
not only to affix his signature in the Deed, but to set into motion the process that would facilitate the transfer of title of the
lots, i.e., to have the Deed notarized and to surrender the original copy thereof to the Corporation together with the TCTs.
Having established the true agreement of the parties, the Court must now determine whether Cortes delivered the TCTs
and the original Deed to the Corporation. The Court of Appeals found that Cortes never surrendered said documents to
the Corporation. Cortes testified that he delivered the same to Manny Sanchez, the son of the broker, and that Manny told
him that her mother, Marcosa Sanchez, delivered the same to the Corporation.
Q Do you have any proof to show that you have indeed surrendered these titles to the plaintiff?
A Yes, sir.
Q I am showing to you a receipt dated October 29, 1983, what relation has this receipt with that receipt that you
have mentioned?
A That is the receipt of the real estate broker when she received the titles.
Q On top of the printed name is Manny Sanchez, there is a signature, do you know who is that Manny Sanchez?
A That is the son of the broker.
Q May we know the full name of the real estate broker?
A Marcosa Sanchez
Q Do you know if the broker or Marcosa Sanchez indeed delivered the titles to the plaintiff?
A That is what [s]he told me. She gave them to the plaintiff.
x x x x.16
Q Are you really sure that the title is in the hands of the plaintiff?
Q It is in the hands of the broker but there is no showing that it is in the hands of the plaintiff?
A Yes, sir.
Q How do you know that it was delivered to the plaintiff by the son of the broker?
A The broker told me that she delivered the title to the plaintiff.

Q Did she not show you any receipt that she delivered to [Mr.] Dragon 17 the title without any receipt?
A I have not seen any receipt.
Q So, therefore, you are not sure whether the title has been delivered to the plaintiff or not. It is only upon the
allegation of the broker?
A Yes, sir.18
However, Marcosa Sanchez's unrebutted testimony is that, she did not receive the TCTs. She also denied knowledge of
delivery thereof to her son, Manny, thus:
Q The defendant, Antonio Cortes testified during the hearing on March 11, 1986 that he allegedly gave you the
title to the property in question, is it true?
A I did not receive the title.
Q He likewise said that the title was delivered to your son, do you know about that?
A I do not know anything about that.19
What further strengthened the findings of the Court of Appeals that Cortes did not surrender the subject documents was
the offer of Cortes' counsel at the pre-trial to deliver the TCTs and the Deed of Absolute Sale if the Corporation will pay the
balance of the down payment. Indeed, if the said documents were already in the hands of the Corporation, there was no
need for Cortes' counsel to make such offer.
Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same together with the TCTs,
the trial court erred in concluding that he performed his part in the contract of sale and that it is the Corporation alone that
was remiss in the performance of its obligation. Actually, both parties were in delay. Considering that their obligation was
reciprocal, performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation therefore gave
rise to a compensation morae or default on the part of both parties because neither has completed their part in their
reciprocal obligation.20 Cortes is yet to deliver the original copy of the notarized Deed and the TCTs, while the Corporation
is yet to pay in full the agreed down payment of P2,200,000.00. This mutual delay of the parties cancels out the effects of
default,21 such that it is as if no one is guilty of delay.22
We find no merit in Cortes' contention that the failure of the Corporation to act on the proposed settlement at the pre-trial
must be construed against the latter. Cortes argued that with his counsel's offer to surrender the original Deed and the
TCTs, the Corporation should have consigned the balance of the down payment. This argument would have been correct
if Cortes actually surrendered the Deed and the TCTs to the Corporation. With such delivery, the Corporation would have
been placed in default if it chose not to pay in full the required down payment. Under Article 1169 of the Civil Code, from
the moment one of the parties fulfills his obligation, delay by the other begins. Since Cortes did not perform his part, the
provision of the contract requiring the Corporation to pay in full the down payment never acquired obligatory force.
Moreover, the Corporation could not be faulted for not automatically heeding to the offer of Cortes. For one, its complaint
has a prayer for damages which it may not want to waive by agreeing to the offer of Cortes' counsel. For another, the
previous representation of Cortes that the TCTs were already delivered to the Corporation when no such delivery was in
fact made, is enough reason for the Corporation to be more cautious in dealing with him.
The Court of Appeals therefore correctly ordered the parties to perform their respective obligation in the contract of
sale, i.e., for Cortes to, among others, deliver the necessary documents to the Corporation and for the latter to pay in full,
not only the down payment, but the entire purchase price. And since the Corporation did not question the Court of
Appeal's decision and even prayed for its affirmance, its payment should rightfully consist not only of the amount of
P987,000.00, representing the balance of the P2,200,000.00 down payment, but the total amount of P2,487,000.00, the
remaining balance in the P3,700,000.00 purchase price.
WHEREFORE, the petition is DENIED and the June 13, 1996 Decision of the Court of Appeals in CA-G.R. CV No. 47856,


G.R. No. 149338



- versus -




July 28, 2008



Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure seeking the
reversal of the November 29, 2000 Decision[1] and August 2, 2001 Resolution[2] of the Court of Appeals (CA) in CA-G.R.
CV No. 54226.

The facts, as found by the CA, are as follows:

On December 29, 1981, the Plaintiffs (herein respondents) and defendant (herein petitioner)
Unlad Resources, through its Chairman[,] Helena Z. Benitez[,] entered into a Memorandum of Agreement
wherein it is provided that [respondents], as controlling stockholders of the Rural Bank [of Noveleta] shall
allow Unlad Resources to invest four million eight hundred thousand pesos (P4,800,000.00) in the Rural
Bank in the form of additional equity. On the other hand, [petitioner] Unlad Resources bound itself to
invest the said amount of 4.8 million pesos in the Rural Bank; upon signing, it was, likewise, agreed that
[petitioner] Unlad Resources shall subscribe to a minimum of four hundred eighty thousand pesos
(P480,000.00) (sic) common or preferred non-voting shares of stock with a total par value of four million
eight hundred thousand pesos (P4,800,000.00) and pay up immediately one million two hundred
thousand pesos (P1,200,000.00) for said subscription; that the [respondents], upon the signing of the said
agreement shall transfer control and management over the Rural Bank to Unlad Resources. According to
the [respondents], immediately after the signing of the agreement, they complied with their obligation and
transferred control of the Rural Bank to Unlad Resources and its nominees and the Bank was renamed
the Unlad Rural Bank of Noveleta, Inc. However, [respondents] claim that despite repeated demands,
Unlad Resources has failed and refused to comply with their obligation under the said Memorandum of
Agreement when it did not invest four million eight hundred thousand pesos (P4,800,000.00) in the Rural
Bank in the form of additional equity and, likewise, it failed to immediately infuse one million two hundred
thousand pesos (P1,200,000.00) as paid in capital upon signing of the Memorandum of Agreement.

On August 10, 1984, the Board of Directors of [petitioner] Unlad Resources passed Resolution
No. 84-041 authorizing the President and the General Manager to lease a mango plantation situated in
Naic, Cavite. Pursuant to this Resolution, the Bank as [lessee] entered into a Contract of Lease with the
[petitioner] Helena Z. Benitez as [lessor]. The management of the mango plantation was undertaken by
Unlad Commodities, Inc., a subsidiary of Unlad Resources[,] under a Management Contract Agreement.
The Management Contract provides that Unlad Commodities, Inc. would receive eighty percent (80%) of
the net profits generated by the operation of the mango plantation while the Banks share is twenty
percent (20%). It was further agreed that at the end of the lease period, the Rural Bank shall turn over to
the lessor all permanent improvements introduced by it on the plantation.


On May 20, 1987, [petitioner] Unlad Rural Bank wrote [respondents] regarding [the] Central
Banks approval to retire its [Development Bank of the Philippines] preferred shares in the amount
of P219,000.00 and giving notice for subscription to proportionate shares. The [respondents] objected on
the grounds that there is already a sinking fund for the retirement of the said DBP-held preferred shares
provided for annually and that it could deprive the Rural Bank of a cheap source of fund. (sic)

[Respondents] alleged compliance with all of their obligations under the Memorandum of
Agreement in that they have transferred control and management over the Rural bank to the [petitioners]
and are ready, willing and able to allow [petitioners] to subscribe to a minimum of four hundred eighty
thousand (P480,000.00) (sic) common or preferred non-voting shares of stocks with a total par value of
four million eight hundred thousand pesos (P4,800,000.00) in the Rural Bank. However, [petitioners] have
failed and refused to subscribe to the said shares of stock and to pay the initial amount of one million two
hundred thousand pesos (P1,200,000.00) for said subscription.[3]

On July 3, 1987, herein respondents filed before the Regional Trial Court (RTC) of Makati City, Branch 61 a
Complaint[4]for rescission of the agreement and the return of control and management of the Rural Bank from petitioners
to respondents, plus damages. After trial, the RTC rendered a Decision,[5] the dispositive portion of which provides:

WHEREFORE, Premises Considered, judgment is hereby rendered, as follows:

rescinded and:

The Memorandum of Agreement dated 29 December 1991 (sic) is hereby declared

Defendant Unlad Resources Development Corporation is hereby ordered to
immediately return control and management over the Rural Bank of Noveleta, Inc. to
Plaintiffs; and

Unlad Rural Bank of Noveleta, Inc. is hereby ordered to return to Defendants
the sum of One Million Three Thousand Seventy Pesos (P1,003,070.00)

The Director for Rural Banks of the Bangko Sentral ng Pilipinas is hereby appointed
as Receiver of the Rural Bank;

Unlad Rural Bank of Noveleta, Inc. is hereby enjoined from placing the retired DBPheld preferred shares available for subscription and the same is hereby ordered to be placed under a
sinking fund;

Defendant Unlad Resources Development Corporation is hereby ordered to pay
plaintiffs the following:

actual compensatory damages amounting to Four Million Six Hundred One
Thousand Seven Hundred Sixty- Five and 38/100 Pesos (P4,601,765.38);

moral damages in the amount of Five Hundred Thousand Pesos

exemplary and corrective damages in the amount of One Hundred
Thousand Pesos (P100,000.00); and


attorneys fees in the sum of (P100,000.00), plus cost of suit.


Herein petitioners appealed the ruling to the CA. Respondents filed a Motion to Dismiss and, subsequently, a
Supplemental Motion to Dismiss, which were both denied. Later, however, the CA, in a Decision dated November 29,
2000, dismissed the appeal for lack of merit and affirmed the RTC Decision in all respects. Petitioners motion for
reconsideration was denied in CA Resolution dated August 2, 2001.

Petitioners are now before this Court alleging that the CA committed a grave and serious reversible error in
issuing the assailed Decision. Petitioners question the jurisdiction of the trial court, something they have done from the
beginning of the controversy, contending that the issues that respondents raised before the trial court are intra-corporate
in nature and are, therefore, beyond the jurisdiction of the trial court. They point out that respondents complaint charged
them with mismanagement and alleged dissipation of the assets of the Rural Bank. Since the complaint challenges
corporate actions and decisions of the Board of Directors and prays for the recovery of the control and management of the
Rural Bank, these matters fall outside the jurisdiction of the trial court. Thus, they posit that the judgment of the trial court,
as affirmed by the CA, is null and void and may be impugned at any time.

Petitioners further argue that the action instituted by respondents had already prescribed, because Article 1389 of
the Civil Code provides that an action for rescission must be commenced within four years. They claim that the trial court
and the CA mistakenly applied Article 1144 of the Civil Code which treats of prescription of actions in general. They submit
that Article 1389, which deals specifically with actions for rescission, is the applicable law.

Moreover, petitioners assert that they have fully complied with their undertaking under the subject Memorandum
of Agreement, but that the undertaking has become a legal and factual impossibility because the authorized capital stock
of the Rural Bank was increased from P1.7 million to only P5 million, and could not accommodate the subscription by
petitioners of P4.8 million worth of shares. Such deficiency, petitioners contend, is with the knowledge and approval of
respondent Renato P. Dragon and his nominees to the Board of Directors.

Petitioners, without conceding the propriety of the judgment of rescission, also argue that the subject
Memorandum of Agreement could not just be ordered rescinded without the corresponding order for the restitution of the

parties total contributions and/or investments in the Rural Bank. Finally, they assail the award for moral and exemplary
damages, as well as the award for attorneys fees, as bereft of factual and legal bases given that, in the body of the
Decision, it was merely stated that respondents suffered moral damages without any discussion or explanation of, nor any
justification for such award. Likewise, the matter of attorneys fees was not at all discussed in the body of the
Decision. Petitioners claim that pursuant to the prevailing rule, attorneys fees cannot be recovered in the absence of

On the other hand, respondents declare that immediately after the signing of the Memorandum of Agreement,
they complied with their obligation and transferred control of the Rural Bank to petitioner Unlad Resources and its
nominees, but that, despite repeated demands, petitioners have failed and refused to comply with their concomitant
obligations under the Agreement.

Respondents narrate that shortly after taking over the Rural Bank, petitioners Conrado L. Benitez II and Jorge C.
Cerbo, as President and General Manager, respectively, entered into a Contract of Lease over the Naic, Cavite mango
plantation, and that, as a consequence of this venture, the bank incurred expenses amounting to P475,371.57, equivalent
to 25.76% of its capital and surplus.The respondents further assert that the Central Bank found this undertaking not
inherently connected with bona fide rural banking operations, nor does it fall within the allied undertakings permitted under
Section 26 of Central Bank Circular No. 741 and Section 3379 of the Manual of Regulations of the Central Bank. Thus,
respondents contend that this circumstance, coupled with the fact that petitioners Helena Z. Benitez and Conrado L.
Benitez II were also stockholders and members of the Board of Directors of Unlad Resources, Unlad Rural Bank, and
Unlad Commodities at that time, is adequate proof that the Rural Banks management had every intention of diverting,
dissipating, and/or wasting the banks assets for petitioners own gain.

They likewise allege that because of the failure of petitioners to comply with their obligations under the
Memorandum of Agreement, respondents, with the exception of Tarcisius Rodriguez, lodged a complaint with the
Securities and Exchange Commission (SEC), seeking rescission of the Agreement, damages, and the appointment of a
management committee, but the SEC dismissed the complaint for lack of jurisdiction.

Furthermore, when the Rural Bank informed respondents of the Central Banks approval of its plan to retire its
DBP-held preferred shares, giving notices for subscription to proportionate shares, respondents objected on the ground
that there was already a sinking fund for the retirement of said shares provided for annually, and that the retirement would
deprive the petitioner Rural Bank of a cheap source of fund. It was at that point, respondents claim, that they instituted the
aforementioned Complaint against petitioners before the RTC of Makati.

The respondents also seek the outright dismissal of this Petition for lack of verification as to petitioners Helena Z.
Benitez and Conrado L. Benitez II; lack of proper verification as to petitioners Unlad Resources Development Corporation,
Unlad Rural Bank of Noveleta, Inc., and Unlad Commodities, Inc.; lack of proper verified statement of material dates; and
lack of proper sworn certification of non-forum shopping.

They support the proposition that Tijam v. Sibonghanoy[7] applies, and that petitioners are indeed estopped from
questioning the jurisdiction of the trial court. They also share the lower courts view that it is Article 1144 of the Civil Code,
and not Article 1389, that is applicable to this case. Finally, respondents allege that the failure of petitioner Unlad
Resources to comply with its undertaking under the Agreement, as uniformly found by the trial court and the CA, may no
longer be assailed in the instant Petition, and that the award of moral and exemplary damages and attorneys fees is

The Petition is bereft of merit. We uphold the Decision of the CA affirming that of the RTC.

First, the subject of jurisdiction. The main issue in this case is the rescission of the Memorandum of
Agreement. This is to be distinguished from respondents allegation of the alleged mismanagement and dissipation of
corporate assets by the petitioners which is based on the prayer for receivership over the bank. The two issues, albeit
related, are obviously separate, as they pertain to different acts of the parties involved. The issue of receivership does not
arise from the parties obligations under the Memorandum of Agreement, but rather from specific acts attributed to
petitioners as members of the Board of Directors of the Bank. Clearly, the rescission of the Memorandum of Agreement is
a cause of action within the jurisdiction of the trial courts, notwithstanding the fact that the parties involved are all directors
of the same corporation.

Still, the petitioners insist that the trial court had no jurisdiction over the complaint because the issues involved are
intra-corporate in nature.

This argument miserably fails to persuade. The law in force at the time of the filing of the case was Presidential
Decree (P.D.) 902-A, Section 5(b) of which vested the Securities and Exchange Commission with original and exclusive
jurisdiction to hear and decide cases involving controversies arising out of intra-corporate relations. [8] Interpreting this
statutorily conferred jurisdiction on the SEC, this Court had occasion to state:

Nowhere in said decree do we find even so much as an [intimation] that absolute jurisdiction and control
is vested in the Securities and Exchange Commission in all matters affecting corporations. To uphold the

respondents arguments would remove without legal imprimatur from the regular courts all conflicts over
matters involving or affecting corporations, regardless of the nature of the transactions which give rise to
such disputes. The courts would then be divested of jurisdiction not by reason of the nature of the dispute
submitted to them for adjudication, but solely for the reason that the dispute involves a corporation. This
cannot be done.[9]

It is well to remember that the respondents had actually filed with the SEC a case against the petitioners which,
however, was dismissed for lack of jurisdiction due to the pendency of the case before the RTC. [10] The SECs Order
dismissing the respondents complaint is instructive:

From the foregoing allegations, it is apparent that the present action involves two separate
causes of action which are interrelated, and the resolution of which hinges on the very document sought
to be rescinded. The assertion that the defendants failed to comply with their contractual undertaking and
the claim for rescission of the contract by the plaintiffs has, in effect, put in issue the very status of the
herein defendants as stockholders of the Rural Bank. The issue as to whether or not the defendants are
stockholders of the Rural Bank is a pivotal issue to be determined on the basis of the Memorandum of
Agreement. It is a prejudicial question and a logical antecedent to confer jurisdiction to this Commission.

It is to be noted, however, that determination of the contractual undertaking of the parties under a
contract lies with the Regional Trial Courts and not with this Commission. x x x[11]

Be that as it may, this point has been rendered moot by Republic Act (R.A.) No. 8799, also known as
the Securities Regulation Code. This law, which took effect in 2000, has transferred jurisdiction over such disputes to the
RTC. Specifically, R.A. 8799 provides:

Sec. 5. Powers and Functions of the Commission


5.2. The Commissions jurisdiction over all cases enumerated under Section 5 of Presidential Decree No.
902-A is hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court:
Provided, That the Supreme Court in the exercise of its authority may designate the Regional Trial Court
branches that shall exercise jurisdiction over these cases. The Commission shall retain jurisdiction over
pending cases involving intra-corporate disputes submitted for final resolution which should be resolved
within one (1) year from the enactment of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

Section 5 of P.D. No. 902-A reads, thus:

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to hear
and decide cases involving:

Devices and schemes employed by or any acts of the board of directors, business
associates, its officers or partnership, amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the stockholder, partners, members of associations or
organizations registered with the Commission;

Controversies arising out of intra-corporate or partnership relations, between and
among stockholders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members or associates, respectively; and
between such corporation, partnership or association and the state insofar as it concerns their individual
franchise or right to exist as such entity;

Controversies in the election or appointment of directors, trustees, officers or
managers of such corporations, partnerships or associations.

Consequently, whether the cause of action stems from a contractual dispute or one that involves intra-corporate
matters, the RTC already has jurisdiction over this case. In this light, the question of whether the doctrine of estoppel by
laches applies, as enunciated by this Court in Tijam v. Sibonghanoy, no longer finds relevance.

Second, the issue of prescription. Petitioners further contend that the action for rescission has prescribed under
Article 1398 of the Civil Code, which provides:

Article 1389. The action to claim rescission must be commenced within four years x x x.

This is an erroneous proposition. Article 1389 specifically refers to rescissible contracts as, clearly, this provision
is under the chapter entitled Rescissible Contracts.

In a previous case,[12] this Court has held that Article 1389:

applies to rescissible contracts, as enumerated and defined in Articles 1380 and 1381. We must stress
however, that the rescission in Article 1381 is not akin to the term rescission in Article 1191 and Article
1592. In Articles 1191 and 1592, the rescission is a principal action which seeks the resolution or
cancellation of the contract while in Article 1381, the action is a subsidiary one limited to cases
of rescission for lesion as enumerated in said article.

The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article
1144, which provides that the action upon a written contract should be brought within ten years from the
time the right of action accrues.

Article 1381 sets out what are rescissible contracts, to wit:

Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission.

The Memorandum of Agreement subject of this controversy does not fall under the above
enumeration. Accordingly, the prescriptive period that should apply to this case is that provided for in Article 1144, to wit:

Article 1144. The following actions must be brought within ten years from the time the right of action

(1) Upon a written contract;


Based on the records of this case, the action was commenced on July 3, 1987, while the Memorandum of
Agreement was entered into on December 29, 1981. Article 1144 specifically provides that the 10-year period is counted
from the time the right of action accrues. The right of action accrues from the moment the breach of right or duty occurs.

Thus, the original Complaint was filed well within the prescriptive period.

We now proceed to determine if the trial court, as affirmed by the CA, correctly ruled for the rescission of the
subject Agreement.

Petitioners contend that they have fully complied with their obligation under the Memorandum of Agreement. They
allege that due to respondents failure to increase the capital stock of the corporation to an amount that will accommodate
their undertaking, it had become impossible for them to perform their end of the Agreement.

Again, petitioners contention is untenable. There is no question that petitioners herein failed to fulfill their
obligation under the Memorandum of Agreement. Even they admit the same, albeit laying the blame on respondents.

It is true that respondents increased the Rural Banks authorized capital stock to only P5 million, which was not
enough to accommodate the P4.8 million worth of stocks that petitioners were to subscribe to and pay for. However,
respondents failure to fulfill their undertaking in the agreement would have given rise to the scenario contemplated by
Article 1191 of the Civil Code, which reads:

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

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

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

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

Thus, petitioners should have exacted fulfillment from the respondents or asked for the rescission of the contract
instead of simply not performing their part of the Agreement. But in the course of things, it was the respondents who
availed of the remedy under Article 1191, opting for the rescission of the Agreement in order to regain control of the Rural

Having determined that the rescission of the subject Memorandum of Agreement was in order, the trial court
ordered petitioner Unlad Resources to return to respondents the management and control of the Rural Bank and for the
latter to return the sum of P1,003,070.00 to petitioners.

Mutual restitution is required in cases involving rescission under Article 1191. This means bringing the parties
back to their original status prior to the inception of the contract. [14] Article 1385 of the Civil Code provides, thus:

ART. 1385. Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it can be carried out only
when he who demands rescission can return whatever he may be obligated to restore.

Neither shall rescission take place when the things which are the object of the contract are legally
in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

This Court has consistently ruled that this provision applies to rescission under Article 1191:

[S]ince Article 1385 of the Civil Code expressly and clearly states that rescission creates the obligation to
return the things which were the object of the contract, together with their fruits, and the price with its
interest, the Court finds no justification to sustain petitioners position that said Article 1385 does not apply
to rescission under Article 1191.[15]

Rescission has the effect of unmaking a contract, or its undoing from the beginning, and not merely its
termination.[16]Hence, rescission creates the obligation to return the object of the contract. It can be carried out only when
the one who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract
void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties
from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative
positions as if no contract has been made.[17]

Accordingly, when a decree for rescission is handed down, it is the duty of the court to require both parties to
surrender that which they have respectively received and to place each other as far as practicable in his original
situation. The rescission has the effect of abrogating the contract in all parts. [18]

Clearly, the petitioners failed to fulfill their end of the agreement, and thus, there was just cause for
rescission. With the contract thus rescinded, the parties must be restored to the status quo ante, that is, before they
entered into the Memorandum of Agreement.

Finally, we must resolve the question of the propriety of the award for damages and attorneys fees.

The trial courts Decision mentioned that the evidence is clear and convincing that Plaintiffs (herein respondents)
suffered actual compensatory damages amounting to Four Million Six Hundred One Thousand Seven Hundred Sixty-Five
and 38/100 Pesos (P4,601,765.38) moral damages and attorneys fees.

Though not discussed in the body of the Decision, the records show that the amount of P4,601,765.38 pertains to actual
losses incurred by respondents as a result of petitioners non-compliance with their undertaking under the Memorandum of
Agreement. On this point, respondent Dragon presented testimonial and documentary evidence to prove the actual
amount of damages, thus:

Atty. Cruz

Q: Was there any consequence to you Mr. Dragon due to any breach of the agreement marked as Exhibit

A: Yes sir I could have earned thru the shares of stock that I have, or we have or we had by this time
amounting to several millions pesos (sic). They have only put in the whole amount that we have
agreed upon (sic).

Q: In this connection did you cause computation of these losses that you incured (sic)?

A: Yes sir.


Q: Will you please kindly go through this computation and explain the same to the Honorable Court?

A: Number 1 is an Organ (sic) income from the sale of 60% (sic) at only Three Hundred Ninety Nine
Thousand Two hundred for Nineteen Thousand Nine Hundred Sixty shares which should have
been sold if it were sold to others for P50.00 each for a total of Nine Hundred Ninety Eight
Thousand but sold to them for Three Hundred Ninety nine (sic) Thousand two (sic) Hundred only
and of which only Three Hundred Twenty Four Thousand Six Hundred was paid to me. Therefore,
there was a difference of Six Hundred Seven Three (sic) Thousand Four Hundred (P673,400.00).
On the basis of the commulative (sic) lost income every year from March 1982 from the amount
of Seven Six Hundred (sic) Seventy Three Thousand four (sic) Hundred (P673,400.) (sic) there
would be a discommulative (sic) lost (sic) of One Million Ninety Three Thousand Nine Hundred
Fifty Two Pesos and forty two (sic) centavos (P1,093,952.42). Please note that the interest
imputed is only at 12% per annum but it should had (sic) been much higher. In 1984 to 1986 (sic)
alone rates went as higher (sic) as 40% per annum from the so called (sic) Jobo Bills and yet we
only computed the imputed income or lost income at 12% per annum and then there is a 40%
participation on the unrealized earnings due to their failure to put in an stabilized (sic) earnings.
You will note that if they put in 4.8 million Pesos and it would be earning money, 40% of that will
go to us because 40% of the bank would be ours and 60% would be there (sic). But because they
did put in the 4.8 million our 40% did not earn up to that extent and computed again on the basis
of 12% the amount (sic) on the commulative (sic) basis up to September 1990 is 2 million three
hundred fifty two thousand sixty five pesos and four centavos (sic). (P2,352,065.04). You will note
again that the average return of investment of any Cavite based (sic) Rural Bank has been no
less than 20% or about 30% per annum. And we computed only the earnings at 12%.


There were loans granted fraudulently to members of the board and some borrowers which were
not all charged interest for several years and on this basis we computed a 40% shares (sic) on
the foregone income interest income (sic) on all these fraudulently granted loans, without interest
being collected and none a project (sic) among a plantation project (sic), which was funded by the
bank but nothing was given back to the bank for several hundred thousand of pesos (sic). And we
arrived an (sic) estimate of the foregone interest income a total of One Million Two Hundred Five
Thousand Eight Hundred Sixty None Pesos and eighty one (sic) centavos and 40 percent share
of this (sic) would be Four Hundred Eighty Two Thousand Three Hundred Forty Seven Pesos and

Ninety Two Centavos. All in all our estimate of the damages we have suffered is Four Million Six
Hundred one (sic) Thousand Seven Hundred Sixty Five Pesos and thirty eight (sic) centavos

More importantly, petitioners never raised in issue before the CA this award of actual compensatory damages. They did
not raise the matter of damages in their Appellants Brief, while in their Motion for Reconsideration, they questioned only
the award of moral and exemplary damages, not the award of actual damages. Even in the present Petition for Review,
what petitioners raised was the propriety of the award of moral and exemplary damages and attorneys fees.

On the grant of moral and exemplary damages and attorneys fees, we note that the trial courts Decision did not
discuss the basis for the award. No mention of these damages awarded or their factual basis is made in the body of the
Decision, only in the dispositive portion. Be that as it may, we have examined the records of the case and found that the
award must be sustained.

It should be remembered that there are two separate causes of action in this case: one for rescission of the
Memorandum of Agreement and the other for receivership based on alleged mismanagement of the company by the
plaintiffs. While the award of actual compensatory damages was based on the breach of duty under the Memorandum of
Agreement, the award of moral damages appears to be based on petitioners mismanagement of the company when they
became members of the Board of Directors of the Rural Bank.

Thus, the trial court said:

Under the Rural Banks management, a systematic diversion of the banks assets was conceived
whereby: (a) The Rural Banks funds would be funneled in the development and improvements of the
Benitez Mango Plantation in the guise of an investment in said plantation; (b) Of the net profits earned
from the plantations operations, the Rural Banks share therein, although it shoulders all of the financial
risks, would be a measly twenty percent (20%) thereof while UCI, without investing a single centavo,
would earn eighty percent (80%) of the said profits. Thus, the bulk of the profits of the mango plantation
was also sought to be diverted to an entity wherein Helena Z. Benitez and Conrado L. Benitez II are not
only principal stockholders but also the Chairman of the Board of Directors and President, respectively.
Moreover, Defendant Helena Z. Benitez would be entitled to receive, under the lease contract, rentals in
the total amount of Three Hundred Thousand Pesos (P300,000.00) or ten percent (10%) of gross profits,
whichever is higher. (c) Finally, at the end of the lease period, the Rural Bank was obliged to turn over to
the lessor (Helena Z. Benitez) all permanent improvements introduced by it on the plantation at no cost to
Ms. Benitez.

Further, in its report dated March 13, 1985, the [Central Bank] after conducting its general
examination upon the Rural Bank ordered the latter to explain satisfactorily why the bank engage (sic) in
an undertaking not inherently connected with [bona fide] rural banking operations nor within the allowed
allied undertakings, contrary to the provisions of Section 3379 of the CB Manual of Regulations and
Section 26 of CB Circular No. 741, otherwise known as the Circular on Rural Banks[.]

The aforestated CB report states that total exposure to this project now amounts to P475,371.57
or 25.76% of its capital and surplus[.] Notwithstanding a finding by the CB of the undertakings illegality,
the defendants nevertheless persisted in pursuing the Mango Plantation Project and never acceded to the
call of [the] CB for it to desist from further implementing the said project. It was only after another letter
from the CB was received when defendant finally shelved the mango plantation project.

The result of the aforestated report, as well as the actuations of the Defendants in not yielding to
the order of the CB, adequately establishes not only a violation of CB Rules (specifically Section 26,
Circular 741 and Section 3379 of the CB Manual of Regulations, but also, that it has caused undue
damage both to the Rural bank as well as its stockholders.

The initial CB report should have sufficiently apprised Defendants of the illegality of the
undertaking. Defendants, therefore have the duty to terminate the Mango Plantation Project. They,
however, [chose] to continue it, apparently to further their [own] interest in the scheme for their own
personal benefit and gain, an act which is clearly contrary to the fiduciary nature of their relationship with
the corporation in which they are officers. Such persistence proves evident bad faith, or a breach of a
known duty through some motive or ill-will, which resulted in the further dissipation and wastage of the
Rural Banks assets, unjustly depriving Plaintiffs of their fair share in the assets of the bank.

All the foregoing satisfactorily affirms the allegations of Plaintiffs to the effect that these contracts
were but part of a device employed by Defendants to siphon [off] the Rural bank for their personal gain. [20]

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of precise pecuniary computation,
moral damages may be recovered if they are the proximate result of the defendants wrongful act or omission. [21] Article
2220 of the Civil Code further provides that moral damages may be recovered in case of a breach of contract where the
defendant acted in bad faith.[22]

To award moral damages, a court must be satisfied with proof of the following requisites: (1) an injury whether
physical, mental, or psychological clearly sustained by the claimant; (2) a culpable act or omission factually established;
(3) a wrongful act or omission of the defendant as the proximate cause of the injury sustained by the claimant; and (4) the
award of damages predicated on any of the cases stated in Article 2219. [23]

Accordingly, based upon the findings of the trial court, it is clear that respondents are entitled to moral damages.
The acts attributed to the petitioners as directors of the Rural Bank manifestly prejudiced the respondents causing
detriment to their standing as directors and stockholders of the Rural Bank.
Exemplary damages cannot be recovered as a matter of right. [24] While these need not be proved, respondents must show
that they are entitled to moral, temperate or compensatory damages before the court may consider the question of
awarding exemplary damages.[25] We find that respondents are indeed entitled to moral damages; thus, the award for
exemplary damages is in order.

Anent the award for attorneys fees, Article 2208 of the Civil Code states:

In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs,
cannot be recovered, except:


When exemplary damages are awarded.

Hence, the award of exemplary damages is in itself sufficient justification for the award of attorneys fees. [26]

WHEREFORE, the foregoing premises considered, the petition is hereby DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 54226 are AFFIRMED.SO ORDERED.