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Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION
TSPIC CORPORATION, G.R. No. 163419
Petitioner,
Present:
QUISUMBING, J., Chairperson,
- versus - CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
TSPIC EMPLOYEES UNION (FFW),
representing MARIA FE FLORES,
FE CAPISTRANO, AMY DURIAS,[1]
CLAIRE EVELYN VELEZ, JANICE
OLAGUIR, JERICO ALIPIT, GLEN
BATULA, SER JOHN HERNANDEZ,
RACHEL NOVILLAS, NIMFA ANILAO,
ROSE SUBARDIAGA, VALERIE
CARBON, OLIVIA EDROSO, MARICRIS
DONAIRE, ANALYN AZARCON,
ROSALIE RAMIREZ, JULIETA ROSETE,
JANICE NEBRE, NIA ANDRADE,
CATHERINE YABA, DIOMEDISA
ERNI,[2] MARIO SALMORIN, LOIDA
COMULLO,[3] MARIE ANN DELOS
SANTOS,[4] JUANITA YANA, and Promulgated:
SUZETTE DULAY,
Respondents. February 13, 2008
x-----------------------------------------------------------------------------------------x
DECISION
VELASCO, JR., J.:

The path towards industrial peace is a two-way street. Fundamental fairness and
protection to labor should always govern dealings between labor and management.
Seemingly conflicting provisions should be harmonized to arrive at an
interpretation that is within the parameters of the law, compassionate to labor, yet,
fair to management.
In this Petition for Review on Certiorari under Rule 45, petitioner TSPIC
Corporation (TSPIC) seeks to annul and set aside the October 22, 2003
Decision[5] and April 23, 2004 Resolution[6] of the Court of Appeals (CA) in CAG.R. SP No. 68616, which affirmed the September 13, 2001 Decision [7] of
Accredited Voluntary Arbitrator Josephus B. Jimenez in National Conciliation and
Mediation Board Case No. JBJ-AVA-2001-07-57.
TSPIC is engaged in the business of designing, manufacturing, and marketing
integrated circuits to serve the communication, automotive, data processing, and
aerospace industries. Respondent TSPIC Employees Union (FFW) (Union), on the
other hand, is the registered bargaining agent of the rank-and-file employees of
TSPIC. The respondents, Maria Fe Flores, Fe Capistrano, Amy Durias, Claire
Evelyn Velez, Janice Olaguir, Jerico Alipit, Glen Batula, Ser John Hernandez,
Rachel Novillas, Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso,
Maricris Donaire, Analyn Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre,
Nia Andrade, Catherine Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo,
Marie Ann Delos Santos, Juanita Yana, and Suzette Dulay, are all members of the
Union.
In 1999, TSPIC and the Union entered into a Collective Bargaining Agreement
(CBA)[8] for the years 2000 to 2004. The CBA included a provision on yearly
salary increases starting January 2000 until January 2002. Section 1, Article X of
the CBA provides, as follows:
Section 1. Salary/ Wage Increases.Employees covered by this Agreement shall be
granted salary/wage increases as follows:
a) Effective January 1, 2000, all employees on regular status and within
the bargaining unit on or before said date shall be granted a salary
increase equivalent to ten percent (10%) of their basic monthly salary
as of December 31, 1999.
b) Effective January 1, 2001, all employees on regular status and within
the bargaining unit on or before said date shall be granted a salary
increase equivalent to twelve (12%) of their basic monthly salary as
of December 31, 2000.

c) Effective January 1, 2002, all employees on regular status and within


the bargaining unit on or before said date shall be granted a salary
increase equivalent to eleven percent (11%) of their basic monthly
salary as of December 31, 2001.
The wage salary increase of the first year of this Agreement shall be over and
above the wage/salary increase, including the wage distortion adjustment, granted
by the COMPANY onNovember 1, 1999 as per Wage Order No. NCR-07.
The wage/salary increases for the years 2001 and 2002 shall be deemed inclusive
of the mandated minimum wage increases under future Wage Orders, that may be
issued after Wage Order No. NCR-07, and shall be considered as correction of
any wage distortion that may have been brought about by the said future Wage
Orders. Thus the wage/salary increases in 2001 and 2002 shall be deemed as
compliance to future wage orders after Wage Order No. NCR-07.

Consequently, on January 1, 2000, all the regular rank-and-file employees of


TSPIC received a 10% increase in their salary. Accordingly, the following nine (9)
respondents (first group) who were already regular employees received the said
increase in their salary: Maria Fe Flores, Fe Capistrano, Amy Durias, Claire Evelyn
Velez, Janice Olaguir, Jerico Alipit, Glen Batula, Ser John Hernandez, and Rachel
Novillas.[9]
The CBA also provided that employees who acquire regular employment
status within the year but after the effectivity of a particular salary increase shall
receive a proportionate part of the increase upon attainment of their regular status.
Sec. 2 of the CBA provides:
SECTION 2. Regularization Increase.A covered daily paid employee who
acquires regular status within the year subsequent to the effectivity of a particular
salary/wage increase mentioned in Section 1 above shall be granted a salary/wage
increase in proportionate basis as follows:
Regularization Period Equivalent Increase
- 1st Quarter 100%
- 2nd Quarter 75%
- 3rd Quarter 50%
- 4th Quarter 25%
Thus, a daily paid employee who becomes a regular employee covered by this
Agreement only on May 1, 2000, i.e., during the second quarter and subsequent to
the January 1, 2000 wage increase under this Agreement, will be entitled to a
wage increase equivalent to seventy-five percent (75%) of ten percent (10%) of
his basic pay. In the same manner, an employee who acquires regular status

on December 1, 2000 will be entitled to a salary increase equivalent to twentyfive percent (25%) of ten percent (10%) of his last basic pay.
On the other hand, any monthly-paid employee who acquires regular status within
the term of the Agreement shall be granted regularization increase equivalent to
10% of his regular basic salary.

Then on October 6, 2000, the Regional Tripartite Wage and Productivity


Board, National Capital Region, issued Wage Order No. NCR-08[10] (WO No. 8)
which raised the daily minimum wage from PhP 223.50 to PhP 250
effective November 1, 2000. Conformably, the wages of 17 probationary
employees, namely: Nimfa Anilao, Rose Subardiaga, Valerie Carbon, Olivia
Edroso, Maricris
Donaire, Analyn
Azarcon,
Rosalie
Ramirez, Julieta
Rosete, Janice Nebre, Nia Andrade, Catherine Yaba, Diomedisa Erni,Mario
Salmorin, Loida Comullo, Marie Ann Delos Santos, Juanita Yana, and Suzette
Dulay (second group), were increased to PhP 250.00 effective November 1, 2000.
On various dates during the last quarter of 2000, the above named 17
employees attained regular employment[11] and received 25% of 10% of their
salaries as granted under the provision on regularization increase under Article X,
Sec. 2 of the CBA.
In January 2001, TSPIC implemented the new wage rates as mandated by
the CBA. As a result, the nine employees (first group), who were senior to the
above-listed recently regularized employees, received less wages.
On January 19, 2001, a few weeks after the salary increase for the year 2001
became effective, TSPICs Human Resources Department notified 24 employees,
[12]
namely: Maria Fe Flores, Janice Olaguir, Rachel Novillas, Fe Capistrano, Jerico
Alipit, Amy Durias, Glen Batula, Claire Evelyn Velez, Ser John Hernandez, Nimfa
Anilao, Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn
Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine
Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, and Marie Ann Delos
Santos, that due to an error in the automated payroll system, they were overpaid
and the overpayment would be deducted from their salaries in a staggered basis,
starting February 2001. TSPIC explained that the correction of the erroneous
computation was based on the crediting provision of Sec. 1, Art. X of the CBA.
The Union, on the other hand, asserted that there was no error and the
deduction of the alleged overpayment from employees constituted diminution of

pay. The issue was brought to the grievance machinery, but TSPIC and
the Union failed to reach an agreement.
Consequently, TSPIC and the Union agreed to undergo voluntary arbitration
on the solitary issue of whether or not the acts of the management in making
deductions from the salaries of the affected employees constituted diminution of
pay.
On September 13, 2001, Arbitrator Jimenez rendered a Decision, holding that the
unilateral deduction made by TSPIC violated Art. 100[13] of the Labor Code.
The fallo reads:
WHEREFORE, in the light of the law on the matter and on the facts
adduced in evidence, judgment is hereby rendered in favor of the Union and the
named individual employees and against the company, thereby ordering the
[TSPIC] to pay as follows:
1) to the sixteen (16) newly regularized employees named above, the amount
of P12,642.24 a month or a total of P113,780.16 for nine (9) months or
P7,111.26 for each of them as well as an additional P12,642.24 (for all), or
P790.14 (for each), for every month after 30 September 2001, until full
payment, with legal interests for every month of delay;
2) to the nine (9) who were hired earlier than the sixteen (16); also named
above, their respective amount of entitlements, according to the Unions
correct computation, ranging from P110.22 per month (or P991.98 for nine
months) to P450.58 a month (or P4,055.22 for nine months), as well as
corresponding monthly entitlements after 30 September 2001, plus legal
interests until full payment,
3) to Suzette Dulay, the amount of P608.14 a month (or P5,473.26), as well
as corresponding monthly entitlements after 30 September 2001, plus legal
interest until full payment,
4) Attorneys fees equal to 10% of all the above monetary awards.
The claim for exemplary damages is denied for want of factual basis.
The parties are hereby directed to comply with their joint voluntary
commitment to abide by this Award and thus, submit to this Office jointly, a
written proof of voluntary compliance with this DECISION within ten (10) days
after the finality hereof.
SO ORDERED.[14]

TSPIC filed a Motion for Reconsideration which was denied in a Resolution


dated November 21, 2001.
Aggrieved, TSPIC filed before the CA a petition for review under Rule 43
docketed as CA-G.R. SP No. 68616. The appellate court, through its October 22,
2003 Decision, dismissed the petition and affirmed in toto the decision of the
voluntary arbitrator. The CA declared TSPICs computation allowing PhP 287 as
daily wages to the newly regularized employees to be correct, noting that the
computation conformed to WO No. 8 and the provisions of the CBA. According to
the CA, TSPIC failed to convince the appellate court that the deduction was a
result of a system error in the automated payroll system. The CA explained that
when WO No. 8 took effect on November 1, 2000, the concerned employees were
still probationary employees who were receiving the minimum wage of PhP
223.50. The CA said that effective November 1, 2000, said employees should have
received the minimum wage of PhP 250. The CA held that when respondents
became regular employees on November 29, 2000, they should be allowed the
salary increase granted them under the CBA at the rate of 25% of 10% of their
basic salary for the year 2000; thereafter, the 12% increase for the year 2001 and
the 10% increase for the year 2002 should also be made applicable to them.[15]
TSPIC filed a Motion for Reconsideration which was denied by the CA in its April
23, 2004 Resolution.
TSPIC filed the instant petition which raises this sole issue for our resolution: Does
the TSPICs decision to deduct the alleged overpayment from the salaries of the
affected members of the Union constitute diminution of benefits in violation of the
Labor Code?
TSPIC maintains that the formula proposed by the Union, adopted by the arbitrator
and affirmed by the CA, was flawed, inasmuch as it completely disregarded the
crediting provision contained in the last paragraph of Sec. 1, Art. X of the CBA.
We find TSPICs contention meritorious.
A Collective Bargaining Agreement is the law between the parties

It is familiar and fundamental doctrine in labor law that the CBA is the law
between the parties and they are obliged to comply with its provisions.[16] We said
so inHonda Phils., Inc. v. Samahan ng Malayang Manggagawa sa Honda:
A collective bargaining agreement or CBA refers to the negotiated contract
between a legitimate labor organization and the employer concerning wages,
hours of work and all other terms and conditions of employment in a bargaining
unit. As in all contracts, the parties in a CBA may establish such stipulations,
clauses, terms and conditions as they may deem convenient provided these are not
contrary to law, morals, good customs, public order or public policy. Thus, where
the CBA is clear and unambiguous, it becomes the law between the parties and
compliance therewith is mandated by the express policy of the law. [17]

Moreover, if the terms of a contract, as in a CBA, are clear and leave no


doubt upon the intention of the contracting parties, the literal meaning of their
stipulations shall control.[18] However, sometimes, as in this case, though the
provisions of the CBA seem clear and unambiguous, the parties sometimes arrive
at conflicting interpretations. Here, TSPIC wants to credit the increase granted by
WO No. 8 to the increase granted under the CBA. According to TSPIC, it is
specifically provided in the CBA that the salary/wage increase for the year 2001
shall be deemed inclusive of the mandated minimum wage increases under future
wage orders that may be issued after Wage Order No. 7. The Union, on the other
hand, insists that the crediting provision of the CBA finds no application in the
present case, since at the time WO No. 8 was issued, the probationary employees
(second group) were not yet covered by the CBA, particularly by its crediting
provision.
As a general rule, in the interpretation of a contract, the intention of the
parties is to be pursued.[19] Littera necat spiritus vivificat. An instrument must be
interpreted according to the intention of the parties. It is the duty of the courts to
place a practical and realistic construction upon it, giving due consideration to the
context in which it is negotiated and the purpose which it is intended to serve.
[20]
Absurd and illogical interpretations should also be avoided. Considering that the
parties have unequivocally agreed to substitute the benefits granted under the CBA
with those granted under wage orders, the agreement must prevail and be given full
effect.
Paragraph (b) of Sec. 1 of Art. X of the CBA provides for the general agreement
that, effective January 1, 2001, all employees on regular status and within the
bargaining unit on or before said date shall be granted a salary increase equivalent
to twelve (12%) of their basic monthly salary as of December 31, 2000. The 12%

salary increase is granted to all employees who (1) are regular employees and (2)
are within the bargaining unit.
Second paragraph of (c) provides that the salary increase for the year 2000 shall
not include the increase in salary granted under WO No. 7 and the correction of the
wage distortion for November 1999.
The last paragraph, on the other hand, states the specific condition that the
wage/salary increases for the years 2001 and 2002 shall be deemed inclusive of the
mandated minimum wage increases under future wage orders, that may be issued
after WO No. 7, and shall be considered as correction of the wage distortions that
may be brought about by the said future wage orders. Thus, the wage/salary
increases in 2001 and 2002 shall be deemed as compliance to future wage orders
after WO No. 7.
Paragraph (b) is a general provision which allows a salary increase to all
those who are qualified. It, however, clashes with the last paragraph which
specifically states that the salary increases for the years 2001 and 2002 shall be
deemed inclusive of wage increases subsequent to those granted under WO No. 7.
It is a familiar rule in interpretation of contracts that conflicting provisions should
be harmonized to give effect to all.[21] Likewise, when general and specific
provisions are inconsistent, the specific provision shall be paramount to and govern
the general provision.[22] Thus, it may be reasonably concluded that TSPIC granted
the salary increases under the condition that any wage order that may be
subsequently issued shall be credited against the previously granted increase. The
intention of the parties is clear: As long as an employee is qualified to receive the
12% increase in salary, the employee shall be granted the increase; and as long as
an employee is granted the 12% increase, the amount shall be credited against any
wage order issued after WO No. 7.
Respondents should not be allowed to receive benefits from the CBA while
avoiding the counterpart crediting provision. They have received their
regularization increases under Art. X, Sec. 2 of the CBA and the yearly increase for
the year 2001. They should not then be allowed to avoid the crediting provision
which is an accompanying condition.
Respondents attained regular employment status before January 1, 2001.
WO No. 8, increasing the minimum wage, was issued after WO No. 7. Thus,
respondents rightfully received the 12% salary increase for the year 2001 granted

in the CBA; and consequently, TSPIC rightfully credited that 12% increase against
the increase granted by WO No. 8.
Proper formula for computing the salaries for the year 2001
Thus, the proper computation of the salaries of individual respondents is as
follows:
(1) With regard to the first group of respondents who attained regular
employment status before the effectivity of WO No. 8, the computation is as
follows:
For respondents Jerico Alipit and Glen Batula:[23]
Wage rate before WO No. 8... PhP 234.67
Increase due to WO No. 8
setting the minimum wage at PhP 250. 15.33
Total Salary upon effectivity of WO No. 8. PhP 250.00
Increase for 2001 (12% of 2000 salary)........... PhP 30.00
Less the wage increase under WO No. 8. 15.33
Total difference between the wage increase
for 2001 and the increase granted under WO No. 8.. PhP 14.67
Wage rate by December 2000..... PhP 250.00
Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8.. 14.67
Total (Wage rate range beginning January 1, 2001) PhP 264.67
For respondents Ser John Hernandez and Rachel Novillas:[24]
Wage rate range before WO No. 8.PhP 234.68
Increase due to WO No. 8
setting the minimum wage at PhP 250.. 15.32
Total Salary upon effectivity of WO No. 8... PhP 250.00
Increase for 2001 (12% of 2000 salary) PhP 30.00
Less the wage increase under WO No. 8.. 15.32
Total difference between the wage increase
for 2001 and the increase granted under WO No. 8. PhP 14.68

Wage rate by December 2000......... PhP 250.00


Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8.. 14.68
Total (Wage rate range beginning January 1, 2001) .. PhP 264.68
For respondents Amy Durias, Claire Evelyn Velez, and Janice Olaguir:[25]
Wage rate range before WO No. 8.. PhP 240.26
Increase due to WO No. 8
setting the minimum wage at PhP 250 9.74
Total Salary upon effectivity of WO No. 8. PhP 250.00
Increase for 2001 (12% of 2000 salary). PhP 30.00
Less the wage increase under WO No. 8 9.74
Total difference between the wage increase for 2001
and the increase granted under WO No. 8.. PhP 20.26
Wage rate by December 2000. PhP 250.00
Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8.. 20.26
Total (Wage rate range beginning January 1, 2001).. PhP 270.26
For respondents Ma. Fe Flores and Fe Capistrano:[26]
Wage rate range before WO No. 8 PhP 245.85
Increase due to WO No. 8
setting the minimum wage at PhP 250.. 4.15
Total Salary upon effectivity of WO No. 8... PhP 250.00
Increase for 2001 (12% of 2000 salary). PhP 30.00
Less the wage increase under WO No. 8........... 4.15
Total difference between the wage increase for 2001
and the increase granted under WO No. 8. PhP 25.85
Wage rate by December 2000. PhP 250.00
Plus total difference between the wage increase for 2001
and the increase granted under WO No. 8.. 25.85
Total (Wage rate range beginning January 1, 2001).. PhP 275.85

(2) With regard to the second group of employees, who attained regular
employment status after the implementation of WO No. 8, namely: Nimfa Anilao,
Rose Subardiaga, Valerie Carbon, Olivia Edroso, Maricris Donaire, Analyn
Azarcon, Rosalie Ramirez, Julieta Rosete, Janice Nebre, Nia Andrade, Catherine
Yaba, Diomedisa Erni, Mario Salmorin, Loida Comullo, Marie Ann Delos Santos,
Juanita Yana, and Suzette Dulay, the proper computation of the salaries for the year
2001, in accordance with the CBA, is as follows:
Compute the increase in salary after the implementation of WO No. 8 by
subtracting the minimum wage before WO No. 8 from the minimum wage per the
wage order to arrive at the wage increase, thus:
Minimum Wage per Wage Order.. PhP 250.00
Wage rate before Wage Order.. 223.50
Wage Increase. PhP 26.50
Upon attainment of regular employment status, the employees salaries were
increased by 25% of 10% of their basic salaries, as provided for in Sec. 2, Art. X of
the CBA, thus resulting in a further increase of PhP 6.25, for a total of PhP 256.25,
computed as follows:
Wage rate after WO No. 8. PhP 250.00
Regularization increase (25 % of 10% of basic salary). 6.25
Total (Salary for the end of year 2000).. PhP 256.25
To compute for the increase in wage rates for the year 2001, get the increase
of 12% of the employees salaries as of December 31, 2000; then subtract from that
amount, the amount increased in salaries as granted under WO No. 8 in accordance
with the crediting provision of the CBA, to arrive at the increase in salaries for the
year 2001 of the recently regularized employees. Add the result to their salaries as
of December 31, 2000 to get the proper salary beginning January 1, 2001, thus:
Increase for 2001 (12% of 2000 salary)... PhP 30.75
Less the wage increase under WO No. 8. 26.50
Difference between the wage increase
for 2001 and the increase granted under WO No. 8.... PhP 4.25
Wage rate after regularization increase... PhP 256.25

Plus total difference between the wage increase and


the increase granted under WO No. 8. 4.25
Total (Wage rate beginning January 1, 2001). PhP 260.50
With these computations, the crediting provision of the CBA is put in effect, and
the wage distortion between the first and second group of employees is cured. The
first group of employees who attained regular employment status before the
implementation of WO No. 8 is entitled to receive, starting January 1, 2001, a daily
wage rate within the range of PhP 264.67 to PhP 275.85, depending on their wage
rate before the implementation of WO No. 8. The second group that attained
regular employment status after the implementation of WO No. 8 is entitled to
receive a daily wage rate of PhP 260.50 starting January 1, 2001.
Diminution of benefits
TSPIC also maintains that charging the overpayments made to the 16
respondents through staggered deductions from their salaries does not constitute
diminution of benefits.
We agree with TSPIC.
Diminution of benefits is the unilateral withdrawal by the employer of
benefits already enjoyed by the employees. There is diminution of benefits when it
is shown that: (1) the grant or benefit is founded on a policy or has ripened into a
practice over a long period; (2) the practice is consistent and deliberate; (3) the
practice is not due to error in the construction or application of a doubtful or
difficult question of law; and (4) the diminution or discontinuance is done
unilaterally by the employer.[27]
As correctly pointed out by TSPIC, the overpayment of its employees was a result
of an error. This error was immediately rectified by TSPIC upon its discovery. We
have ruled before that an erroneously granted benefit may be withdrawn without
violating the prohibition against non-diminution of benefits. We ruled in GlobeMackay Cable and Radio Corp. v. NLRC:
Absent clear administrative guidelines, Petitioner Corporation cannot be faulted
for erroneous application of the law. Payment may be said to have been made by
reason of a mistake in the construction or application of a doubtful or difficult
question of law. (Article 2155, in relation to Article 2154 of the Civil Code).
Since it is a past error that is being corrected, no vested right may be said to have

arisen nor any diminution of benefit under Article 100 of the Labor Code may be
said to have resulted by virtue of the correction.[28]

Here, no vested right accrued to individual respondents when TSPIC


corrected its error by crediting the salary increase for the year 2001 against the
salary increase granted under WO No. 8, all in accordance with the CBA.
Hence, any amount given to the employees in excess of what they were
entitled to, as computed above, may be legally deducted by TSPIC from the
employees salaries. It was also compassionate and fair that TSPIC deducted the
overpayment in installments over a period of 12 months starting from the date of
the initial deduction to lessen the burden on the overpaid employees. TSPIC, in
turn, must refund to individual respondents any amount deducted from their
salaries which was in excess of what TSPIC is legally allowed to deduct from the
salaries based on the computations discussed in this Decision.
As a last word, it should be reiterated that though it is the states
responsibility to afford protection to labor, this policy should not be used as an
instrument to oppress management and capital.[29] In resolving disputes between
labor and capital, fairness and justice should always prevail. We ruled
in Norkis Union v. Norkis Trading that in the resolution of labor cases, we have
always been guided by the State policy enshrined in the Constitution: social justice
and protection of the working class. Social justice does not, however, mandate
that every dispute should be automatically decided in favor of labor. In any case,
justice is to be granted to the deserving and dispensed in the light of the established
facts and the applicable law and doctrine.[30]
WHEREFORE, premises considered, the September 13, 2001 Decision of the
Labor Arbitrator in National Conciliation and Mediation Board Case No. JBJAVA-2001-07-57 and the October 22, 2003 CA Decision in CA-G.R. SP No. 68616
are hereby AFFIRMED with MODIFICATION. TSPIC is hereby ORDERED to
pay respondents their salary increases in accordance with this Decision, as follows:
Name of Employee
Nimfa Anilao
Rose Subardiaga

Daily Wage
Rate
260.5
260.5

No. of
Working
Days in a
Month
26
26

No. of
Months in
a Year

Total Salary
for 2001

12
12

81,276.00
81,276.00

Valerie Carbon
Olivia Edroso
Maricris Donaire
Analyn Azarcon
Rosalie Ramirez
Julieta Rosete
Janice Nebre
Nia Andrade
Catherine Yaba
Diomedisa Erni
Mario Salmorin
Loida Camullo
Marie Ann Delos Santos
Juanita Yana
Suzette Dulay
Jerico Alipit
Glen Batula
Ser John Hernandez
Rachel Novillas
Amy Durias
Claire Evelyn Velez
Janice Olaguir
Maria Fe Flores
Fe Capistrano

260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
260.5
264.67
264.67
264.68
264.68
270.26
270.26
270.26
275.85
275.85

26
26
26
26
26
26
26
26
26
26
26
26
26
26
26
26
26
26
26
26
26
26
26
26

12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12
12

81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
81,276.00
82,577.04
82,577.04
82,580.16
82,580.16
84,321.12
84,321.12
84,321.12
86,065.20
86,065.20

The award for attorneys fees of ten percent (10%) of the total award
is MAINTAINED.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

ANTONIO T. CARPIO CONCHITA CARPIO MORALES


Associate Justice Associate Justice

DANTE O. TINGA
Associate Justice

AT T E S TAT I O N
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

C E R T I F I C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]

Also appears as Amie Durias in some parts of the records.


Also appears as Deomedisa Erne in some parts of the records.
[3]
Also appears as Loida Camullo in some parts of the records.
[4]
Also appears as Mary Ann delos Santos in some parts of the records.
[5]
Rollo, pp. 31-39-A. Penned by Associate Justice Conrado M. Vasquez, Jr., and concurred in by Associate
Justices Bienvenido L. Reyes and Arsenio J. Magpale.
[6]
Id. at 41-42.
[7]
Id. at 118-132.
[8]
Id. at 188-212.
[9]
Id. at 122.
[10]
Providing an Increase in the Daily Minimum Wage in the National Capital Region, and Its Implementing
Rules: Rules Implementing Wage Order No. NCR-08, approved on October 25, 2000.
[11]
Rollo, p. 32.
[12]
Id. at 43.
[13]
Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be
construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of
promulgation of this Code.
[14]
Rollo, pp. 131-132.
[15]
Id. at 37-38.
[16]
Centro Escolar University Faculty and Allied Workers Union-Independent v. Court of Appeals, G.R. No.
165486, May 31, 2006, 490 SCRA 61, 72.
[17]
G.R. No. 145561, June 15, 2005, 460 SCRA 187, 190-191.
[18]
CIVIL CODE, Art. 1370.
[19]
See RULES OF COURT, Rule 130, Sec. 11.
[20]
Marcopper Mining Corporation v. NLRC, G.R. No. 103525, March 29, 1996, 255 SCRA 322, 333;
citing Davao Integrated Port Stevedoring Services v. Abarquez, G.R. No. 102132, March 19, 1993, 220 SCRA 197.
[21]
CIVIL CODE, Art. 1374; RULES OF COURT, Rule 130, Sec. 11.
[22]
See RULES OF COURT, Rule 130, Sec. 12.
[23]
Rollo, p. 537. It appears from the records that they attained regular employment status on July 31,
2000 with a basic wage rate of PhP 234.67.
[24]
Id. It appears from the records that they attained regular employment status on August 21, 2000 with a
basic wage rate of PhP 234.68.
[25]
Id. It appears from the records that respondents Amy Durias and Claire Evelyn Velez attained regular
employment status on April 11, 2000, while Janice Olaguir on April 18, 2000, all with a basic wage rate of PhP
240.26.
[26]
Id. It appears from the records that respondent Maria Fe Flores attained regular employment status on
February 22, 2000, while Fe Capistrano on March 22, 2000, both with a basic wage rate of PhP 245.85.
[27]
C.A. Azucena, THE LABOR CODE WITH COMMENTS AND CASES 222 (2004).
[28]
No. L-74156, June 29, 1988, 163 SCRA 71, 78.
[29]
Agabon v. NLRC, G.R. No. 158693, November 17, 2004, 442 SCRA 573, 614.
[30]
G.R. No. 157098, June 30, 2005, 462 SCRA 485, 497.
[2]

THIRD DIVISION

[G.R. No. 156109. November 18, 2004]

KHRISTINE REA M. REGINO, Assisted and Represented by ARMANDO


REGINO, petitioner, vs. PANGASINAN COLLEGES OF SCIENCE
AND TECHNOLOGY, RACHELLE A. GAMUROT and ELISSA
BALADAD, respondents.
DECISION
PANGANIBAN, J.:

Upon enrolment, students and their school enter upon a reciprocal contract. The
students agree to abide by the standards of academic performance and codes of
conduct, issued usually in the form of manuals that are distributed to the enrollees at the
start of the school term. Further, the school informs them of the itemized fees they are
expected to pay. Consequently, it cannot, after the enrolment of a student, vary the
terms of the contract. It cannot require fees other than those it specified upon
enrolment.
The Case
Before the Court is a Petition for Review under Rule 45, [1] seeking to nullify the July
12, 2002[2] and the November 22, 2002 [3] Orders of the Regional Trial Court (RTC) of
Urdaneta City, Pangasinan (Branch 48) in Civil Case No. U-7541. The decretal portion
of the first assailed Order reads:

WHEREFORE, the Court GRANTS the instant motion to


dismiss for lack of cause of action.[4]
The second challenged Order denied petitioners Motion for Reconsideration.
The Facts
Petitioner Khristine Rea M. Regino was a first year computer science student at
Respondent Pangasinan Colleges of Science and Technology (PCST). Reared in a poor
family, Regino went to college mainly through the financial support of her relatives.
During the second semester of school year 2001-2002, she enrolled in logic and
statistics subjects under Respondents Rachelle A. Gamurot and Elissa Baladad,
respectively, as teachers.
In February 2002, PCST held a fund raising campaign dubbed the Rave Party and
Dance Revolution, the proceeds of which were to go to the construction of the schools

tennis and volleyball courts. Each student was required to pay for two tickets at the
price of P100 each. The project was allegedly implemented by recompensing students
who purchased tickets with additional points in their test scores; those who refused to
pay were denied the opportunity to take the final examinations.
Financially strapped and prohibited by her religion from attending dance parties and
celebrations, Regino refused to pay for the tickets. On March 14 and March 15, 2002,
the scheduled dates of the final examinations in logic and statistics, her teachers -Respondents Rachelle A. Gamurot and Elissa Baladad -- allegedly disallowed her from
taking the tests. According to petitioner, Gamurot made her sit out her logic class while
her classmates were taking their examinations. The next day, Baladad, after announcing
to the entire class that she was not permitting petitioner and another student to take
their statistics examinations for failing to pay for their tickets, allegedly ejected them
from the classroom. Petitioners pleas ostensibly went unheeded by Gamurot and
Baladad, who unrelentingly defended their positions as compliance with PCSTs policy.
On April 25, 2002, petitioner filed, as a pauper litigant, a Complaint [5] for damages
against PCST, Gamurot and Baladad. In her Complaint, she prayed for P500,000 as
nominal damages; P500,000 as moral damages; at least P1,000,000 as exemplary
damages; P250,000 as actual damages; plus the costs of litigation and attorneys fees.
On May 30, 2002, respondents filed a Motion to Dismiss [6] on the ground of
petitioners failure to exhaust administrative remedies. According to respondents, the
question raised involved the determination of the wisdom of an administrative policy of
the PCST; hence, the case should have been initiated before the proper administrative
body, the Commission of Higher Education (CHED).
In her Comment to respondents Motion, petitioner argued that prior exhaustion of
administrative remedies was unnecessary, because her action was not administrative in
nature, but one purely for damages arising from respondents breach of the laws on
human relations. As such, jurisdiction lay with the courts.
On July 12, 2002, the RTC dismissed the Complaint for lack of cause of action.
Ruling of the Regional Trial Court
In granting respondents Motion to Dismiss, the trial court noted that the instant
controversy involved a higher institution of learning, two of its faculty members and one
of its students. It added that Section 54 of the Education Act of 1982 vested in the
Commission on Higher Education (CHED) the supervision and regulation of tertiary
schools. Thus, it ruled that the CHED, not the courts, had jurisdiction over the
controversy.[7]
In its dispositive portion, the assailed Order dismissed the Complaint for lack of
cause of action without, however, explaining this ground.
Aggrieved, petitioner filed the present Petition on pure questions of law.[8]

Issues
In her Memorandum, petitioner raises the following issues for our consideration:

Whether or not the principle of exhaustion of administrative remedies applies in a


civil action exclusively for damages based on violation of the human relation
provisions of the Civil Code, filed by a student against her former school.
Whether or not there is a need for prior declaration of invalidity of a certain school
administrative policy by the Commission on Higher Education (CHED) before a
former student can successfully maintain an action exclusively for damages in regular
courts.
Whether or not the Commission on Higher Education (CHED) has exclusive original
jurisdiction over actions for damages based upon violation of the Civil Code
provisions on human relations filed by a student against the school. [9]
All of the foregoing point to one issue -- whether the doctrine of exhaustion of
administrative remedies is applicable. The Court, however, sees a second issue which,
though not expressly raised by petitioner, was impliedly contained in her Petition:
whether the Complaint stated sufficient cause(s) of action.
The Courts Ruling
The Petition is meritorious.
First Issue:
Exhaustion of Administrative Remedies
Respondents anchored their Motion to Dismiss on petitioners alleged failure to
exhaust administrative remedies before resorting to the RTC. According to them, the
determination of the controversy hinge on the validity, the wisdom and the propriety of
PCSTs academic policy. Thus, the Complaint should have been lodged in the CHED,
the administrative body tasked under Republic Act No. 7722 to implement the state
policy to protect, foster and promote the right of all citizens to affordable quality
education at all levels and to take appropriate steps to ensure that education is
accessible to all.[10]
Petitioner counters that the doctrine finds no relevance to the present case since
she is praying for damages, a remedy beyond the domain of the CHED and well within
the jurisdiction of the courts.[11]

Petitioner is correct. First, the doctrine of exhaustion of administrative remedies has


no bearing on the present case. In Factoran Jr. v. CA,[12] the Court had occasion to
elucidate on the rationale behind this doctrine:

The doctrine of exhaustion of administrative remedies is basic.


Courts, for reasons of law, comity, and convenience, should not entertain
suits unless the available administrative remedies have first been
resorted to and the proper authorities have been given the appropriate
opportunity to act and correct their alleged errors, if any, committed in
the administrative forum. x x x.[13]
Petitioner is not asking for the reversal of the policies of PCST. Neither is she
demanding it to allow her to take her final examinations; she was already enrolled in
another educational institution. A reversal of the acts complained of would not
adequately redress her grievances; under the circumstances, the consequences of
respondents acts could no longer be undone or rectified.
Second, exhaustion of administrative remedies is applicable when there is
competence on the part of the administrative body to act upon the matter complained of.
[14]
Administrative agencies are not courts; they are neither part of the judicial system,
nor are they deemed judicial tribunals. [15] Specifically, the CHED does not have the
power to award damages.[16]Hence, petitioner could not have commenced her case
before the Commission.
Third, the exhaustion doctrine admits of exceptions, one of which arises when the
issue is purely legal and well within the jurisdiction of the trial court. [17] Petitioners action
for damages inevitably calls for the application and the interpretation of the Civil Code, a
function that falls within the jurisdiction of the courts. [18]
Second Issue:
Cause of Action
Sufficient Causes of Action Stated
in the Allegations in the Complaint
As a rule, every complaint must sufficiently allege a cause of action; failure to do so
warrants its dismissal.[19] A complaint is said to assert a sufficient cause of action if,
admitting what appears solely on its face to be correct, the plaintiff would be entitled to
the relief prayed for. Assuming the facts that are alleged to be true, the court should be
able to render a valid judgment in accordance with the prayer in the complaint. [20]
A motion to dismiss based on lack of cause of action hypothetically admits the truth
of the alleged facts. In their Motion to Dismiss, respondents did not dispute any of
petitioners allegations, and they admitted that x x x the crux of plaintiffs cause of action
is the determination of whether or not the assessment of P100 per ticket is excessive or

oppressive.[21] They thereby premised their prayer for dismissal on the Complaints
alleged failure to state a cause of action. Thus, a reexamination of the Complaint is in
order.
The Complaint contains the following factual allegations:
10. In the second week of February 2002, defendant Rachelle A. Gamurot, in
connivance with PCST, forced plaintiff and her classmates to buy or take two
tickets each, x x x;
11. Plaintiff and many of her classmates objected to the forced distribution and selling
of tickets to them but the said defendant warned them that if they refused [to]
take or pay the price of the two tickets they would not be allowed at all to
take the final examinations;
12. As if to add insult to injury, defendant Rachelle A. Gamurot bribed students with
additional fifty points or so in their test score in her subject just to unjustly
influence and compel them into taking the tickets;
13. Despite the students refusal, they were forced to take the tickets because [of]
defendant Rachelle A. Gamurots coercion and act of intimidation, but still
many of them including the plaintiff did not attend the dance party imposed
upon them by defendants PCST and Rachelle A. Gamurot;
14. Plaintiff was not able to pay the price of her own two tickets because aside form the
fact that she could not afford to pay them it is also against her religious
practice as a member of a certain religious congregation to be attending
dance parties and celebrations;
15. On March 14, 2002, before defendant Rachelle A. Gamurot gave her class its final
examination in the subject Logic she warned that students who had not paid
the tickets would not be allowed to participate in the examination, for which
threat and intimidation many students were eventually forced to make
payments:
16. Because plaintiff could not afford to pay, defendant Rachelle A. Gamurot inhumanly
made plaintiff sit out the class but the defendant did not allow her to take her
final examination in Logic;
17. On March 15, 2002 just before the giving of the final examination in the subject
Statistics, defendant Elissa Baladad, in connivance with defendants Rachelle
A. Gamurot and PCST, announced in the classroom that she was not
allowing plaintiff and another student to take the examination for their failure
and refusal to pay the price of the tickets, and thenceforth she ejected
plaintiff and the other student from the classroom;
18. Plaintiff pleaded for a chance to take the examination but all defendants could say
was that the prohibition to give the examinations to non-paying students was
an administrative decision;
19. Plaintiff has already paid her tuition fees and other obligations in the school;
20. That the above-cited incident was not a first since PCST also did another forced
distribution of tickets to its students in the first semester of school year 20012002; x x x [22]

The foregoing allegations show two causes of action; first, breach of contract;
and second, liability for tort.
Reciprocity of the
School-Student Contract
In Alcuaz v. PSBA,[23] the Court characterized the relationship between the school
and the student as a contract, in which a student, once admitted by the school is
considered enrolled for one semester.[24] Two years later, in Non v. Dames II,[25] the
Court modified the termination of contract theory in Alcuaz by holding that the
contractual relationship between the school and the student is not only semestral in
duration, but for the entire period the latter are expected to complete it.[26] Except for
the variance in the period during which the contractual relationship is considered to
subsist, both Alcuaz and Non were unanimous in characterizing the school-student
relationship as contractual in nature.
The school-student relationship is also reciprocal. Thus, it has consequences
appurtenant to and inherent in all contracts of such kind -- it gives rise to bilateral or
reciprocal rights and obligations. The school undertakes to provide students with
education sufficient to enable them to pursue higher education or a profession. On the
other hand, the students agree to abide by the academic requirements of the school
and to observe its rules and regulations. [27]
The terms of the school-student contract are defined at the moment of its inception
-- upon enrolment of the student. Standards of academic performance and the code of
behavior and discipline are usually set forth in manuals distributed to new students at
the start of every school year. Further, schools inform prospective enrollees the amount
of fees and the terms of payment.
In practice, students are normally required to make a down payment upon
enrollment, with the balance to be paid before every preliminary, midterm and final
examination. Their failure to pay their financial obligation is regarded as a valid ground
for the school to deny them the opportunity to take these examinations.
The foregoing practice does not merely ensure compliance with financial
obligations; it also underlines the importance of major examinations. Failure to take a
major examination is usually fatal to the students promotion to the next grade or to
graduation. Examination results form a significant basis for their final grades. These
tests are usually a primary and an indispensable requisite to their elevation to the next
educational level and, ultimately, to their completion of a course.
Education is not a measurable commodity. It is not possible to determine who is
better educated than another. Nevertheless, a students grades are an accepted
approximation of what would otherwise be an intangible product of countless hours of
study. The importance of grades cannot be discounted in a setting where education is
generally the gate pass to employment opportunities and better life; such grades are

often the means by which a prospective employer measures whether a job applicant
has acquired the necessary tools or skills for a particular profession or trade.
Thus, students expect that upon their payment of tuition fees, satisfaction of the set
academic standards, completion of academic requirements and observance of school
rules and regulations, the school would reward them by recognizing their completion of
the course enrolled in.
The obligation on the part of the school has been established in Magtibay v. Garcia,
Licup v. University of San Carlos[29] and Ateneo de Manila University v. Garcia,[30] in
which the Court held that, barring any violation of the rules on the part of the students,
an institution of higher learning has a contractual obligation to afford its students
a fair opportunity to complete the course they seek to pursue.
[28]

We recognize the need of a school to fund its facilities and to meet astronomical
operating costs; this is a reality in running it. Crystal v. Cebu International
School[31] upheld the imposition by respondent school of a land purchase deposit in the
amount of P50,000 per student to be used for the purchase of a piece of land and for
the construction of new buildings and other facilities x x x which the school would
transfer [to] and occupy after the expiration of its lease contract over its present site.
The amount was refundable after the student graduated or left the school. After
noting that the imposition of the fee was made only after prior consultation and approval
by the parents of the students, the Court held that the school committed no actionable
wrong in refusing to admit the children of the petitioners therein for their failure to pay
the land purchase deposit and the 2.5 percent monthly surcharge thereon.
In the present case, PCST imposed the assailed revenue-raising measure
belatedly, in the middle of the semester. It exacted the dance party fee as a condition for
the students taking the final examinations, and ultimately for its recognition of their
ability to finish a course. The fee, however, was not part of the school-student contract
entered into at the start of the school year. Hence, it could not be unilaterally imposed to
the prejudice of the enrollees.
Such contract is by no means an ordinary one. In Non, we stressed that the schoolstudent contract is imbued with public interest, considering the high priority given by the
Constitution to education and the grant to the State of supervisory and regulatory
powers over all educational institutions.[32] Sections 5 (1) and (3) of Article XIV of the
1987 Constitution provide:

The State shall protect and promote the right of all citizens to
quality education at all levels and shall take appropriate steps to make
such declaration accessible to all.
Every student has a right to select a profession or course of
study, subject to fair, reasonable and equitable admission and academic
requirements.
The same state policy resonates in Section 9(2) of BP 232, otherwise known as the
Education Act of 1982:

Section 9. Rights of Students in School. In addition to other


rights, and subject to the limitations prescribed by law and regulations,
students and pupils in all schools shall enjoy the following rights:
xxxxxxxxx
(2) The right to freely choose their field of study
subject to existing curricula and to continue their
course therein up to graduation, except in cases of
academic deficiency, or violation of disciplinary
regulations.
Liability for Tort
In her Complaint, petitioner also charged that private respondents inhumanly punish
students x x x by reason only of their poverty, religious practice or lowly station in life,
which inculcated upon [petitioner] the feelings of guilt, disgrace and unworthiness; [33] as
a result of such punishment, she was allegedly unable to finish any of her subjects for
the second semester of that school year and had to lag behind in her studies by a full
year. The acts of respondents supposedly caused her extreme humiliation, mental
agony and demoralization of unimaginable proportions in violation of Articles 19, 21 and
26 of the Civil Code. These provisions of the law state thus:

Article 19. Every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good faith.
Article 21. Any person who wilfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy shall compensate the latter for the
damage.
Article 26. Every person shall respect the dignity, personality, privacy and peace of
mind of his neighbors and other persons. The following and similar acts, though they
may not constitute a criminal offense, shall produce a cause of action for damages,
prevention and other relief:
(1)
(2)
(3)
(4)

Prying into the privacy of anothers residence;


Meddling with or disturbing the private life or family relations of another;
Intriguing to cause another to be alienated from his friends;
Vexing or humiliating another on account of his beliefs, lowly station in life,
place of birth, physical defect, or other personal condition.

Generally, liability for tort arises only between parties not otherwise bound by a
contract. An academic institution, however, may be held liable for tort even if it has an

existing contract with its students, since the act that violated the contract may also be a
tort. We ruled thus in PSBA vs. CA,[34] from which we quote:

x x x A perusal of Article 2176 [of the Civil Code] shows that obligations
arising from quasi-delicts or tort, also known as extra-contractual obligations,
arise only between parties not otherwise bound by contract, whether express or
implied. However, this impression has not prevented this Court from
determining the existence of a tort even when there obtains a contract. In Air
France v. Carrascoso(124 Phil. 722), the private respondent was awarded
damages for his unwarranted expulsion from a first-class seat aboard the
petitioner airline. It is noted, however, that the Court referred to the petitionerairlines liability as one arising from tort, not one arising form a contract of
carriage. In effect, Air France is authority for the view that liability from tort
may exist even if there is a contract, for the act that breaks the contract may be
also a tort. x x x This view was not all that revolutionary, for even as early as
1918, this Court was already of a similar mind. In Cangco v. Manila
Railroad(38 Phil. 780), Mr. Justice Fisher elucidated thus: x x x. When such a
contractual relation exists the obligor may break the contract under such
conditions that the same act which constitutes a breach of the contract would
have constituted the source of an extra-contractual obligation had no contract
existed between the parties.
Immediately what comes to mind is the chapter of the Civil Code on Human
Relations, particularly Article 21 x x x. [35]
Academic Freedom
In their Memorandum, respondents harp on their right to academic freedom. We are
not impressed. According to present jurisprudence, academic freedom encompasses
the independence of an academic institution to determine for itself (1) who may teach,
(2) what may be taught, (3) how it shall teach, and (4) who may be admitted to study.
[36]
In Garcia v. the Faculty Admission Committee, Loyola School of Theology,[37] the
Court upheld the respondent therein when it denied a female students admission to
theological studies in a seminary for prospective priests. The Court defined the freedom
of an academic institution thus: to decide for itself aims and objectives and how best to
attain them x x x free from outside coercion or interference save possibly when
overriding public welfare calls for some restraint. [38]
In Tangonan v. Pao,[39] the Court upheld, in the name of academic freedom, the right
of the school to refuse readmission of a nursing student who had been enrolled on
probation, and who had failed her nursing subjects. These instances notwithstanding,
the Court has emphasized that once a school has, in the name of academic freedom,
set its standards, these should be meticulously observed and should not be used to
discriminate against certain students. [40] After accepting them upon enrollment, the

school cannot renege on its contractual obligation on grounds other than those made
known to, and accepted by, students at the start of the school year.
In sum, the Court holds that the Complaint alleges sufficient causes of action
against respondents, and that it should not have been summarily dismissed. Needless
to say, the Court is not holding respondents liable for the acts complained of. That will
have to be ruled upon in due course by the court a quo.
WHEREFORE, the Petition is hereby GRANTED, and the assailed Orders
REVERSED. The trial court is DIRECTED to reinstate the Complaint and, with all
deliberate speed, to continue the proceedings in Civil Case No. U-7541. No costs.
SO ORDERED.
Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur.
Corona, J., on leave.

[1]

Rollo, pp. 3-7.

[2]

Id., pp. 18-19. Penned by Presiding Judge Alicia B. Gonzalez-Decano.

[3]

Id., p. 20.

[4]

Assailed July 12, 2002 Order, p. 2; rollo, p. 19.

[5]

Rollo, pp. 21-25.

[6]

Rollo, pp. 27-29.

[7]

Assailed Order dated July 12, 2002, pp. 1-2; rollo, pp. 18-19. Citations omitted.

[8]

This case was deemed submitted for decision on December 23, 2003, upon receipt by this Court of
petitioners Memorandum, signed by Atty. Winifred L. Cruz. Respondents Memorandum, signed
by Atty. Joselino A. Viray, was received by the Court on December 22, 2003.

[9]

Petitioners Memorandum, p. 3; rollo, p. 90. Original in upper case.

[10]

Respondents Memorandum (citing Section 2 of RA 7722), p. 8; rollo, p. 78.

[11]

Petitioner expounds her position in her Memorandum in this wise:


Petitioner is not seeking any administrative action or relief such as make-up test or any
disciplinary action against the school, its officials or members of the faculty involved. Neither is
she challenging the validity of the school policy or decision to prohibit examinations to non-paying
students. She does not even take issue with the validity of the fund-raising campaign or the
forced selling of tickets. She is not invoking her right to a quality and affordable education. In
sum, petitioner raises no administrative issue and seeks no action or relief which is administrative
in character. She is invoking judicial intervention as her cause of action is based on violation of
the Human Relations provision of the Civil Code, specifically Articles 19, 20, 21 and 26 for the
loss or injury she suffered on account of the inhuman manner she was x x x treated when she
was denied the examinations.
xxxxxxxxx
x x x. The [school] policy may be legal but it does not necessarily follow that the manner it
is implemented is legal the manner it is implemented may be contrary to law, morals or public
policy resulting in injury to a person. To say, therefore, that the validity of the school policy in

question must have to be tested before an administrative body before an action for damages can
be had, would be tantamount to saying that once it is upheld, the aggrieved party can no longer
maintain an action for damages, for the wrongful, injurious manner by which the policy was
implemented. x x x.
We respectfully submit that x x x [a] civil action for damages that seeks no administrative
relief nor puts in issue the wisdom of a school administrative policy, but solely based on the
wrongful and injurious manner of implementation thereof, is not one among those specified as
falling within the exclusive jurisdiction of the CHED. x x x. (Petitioners Memorandum, pp. 47; rollo, pp. 92-94.)
[12]

378 Phil. 282, December 13, 1999.

[13]

Id., p. 292, per De Leon Jr., J.

[14]

Miriam College Foundation v. CA, 348 SCRA 265, December 15, 2000.

[15]

United Residents of Dominican Hill, Inc. v. Commission on the Settlement of Land Problems , 353
SCRA 782, March 7, 2001.

[16]

Section 8 of RA 7722 -- entitled An Act Creating the Commission on Higher Education, Appropriating
Funds Therefor and for Other Purposes -- enumerates the powers and functions of the
Commission as follows:
a) formulate and recommend development plans, policies, priorities, and programs on higher
education and research;
b) formulate and recommend development plans, policies priorities and grant on research;
c) recommend to the executive and legislative branches, priorities and grants on higher education
and research;
d) set minimum standards for programs and institutions of higher learning recommended by
panels of experts in the field and subject to public hearing -- and enforce the same;
e) monitor and evaluate the performance of programs and institutions of higher learning for
appropriate incentives, as well as the imposition of sanctions such as, but not limited to,
diminution or withdrawal of subsidy, recommendation on the downgrading or withdrawal of
accreditation, program termination or school closure;
f) identify, support and develop potential centers of excellence in program areas needed for the
development of world-class scholarship, nation-building and national development;
g) recommend to the Department of Budget and Management the budgets of public institutions of
higher learning as well as general guidelines for the use of their income;
h) rationalize programs and institutions of higher learning and set standards, policies and
guidelines for the creation of new ones as well as the conversion or elevation of schools to
institutions of higher learning, subject to budgetary limitations and the number of institutions of
higher learning in the province or region where creation, conversion or elevation is sought to be
made;
i) develop criteria for allocating additional resources such as research and program development
grants, scholarships, and other similar programs: Provided, That these shall not detract form the
fiscal autonomy already enjoyed by colleges and universities;
j) direct or redirect purposive research by institutions of higher learning to meet the needs of agroindustrialization and development;
k) devise and implement resource development schemes;
l) administer the Higher Education Development Fund, as described in Section 10 hereunder,
which will promote the purposes of higher education;

m) review the charters of institutions of higher learning and state universities and colleges
including the chairmanship and membership of their governing bodies and recommend
appropriate measures as basis for necessary action;
n) promulgate such rules and regulations and exercise such other powers and functions as may
be necessary to carry out effectively the purpose and objectives of this Act; and
o) perform such other functions as may be necessary for its effective operations and for the
continued enhancement, growth or development of higher education.
[17]

One Heart Sporting Club, Inc. v. CA, 195 Phil. 253, October 23, 1981; Miriam College Foundation v.
CA, 348 SCRA 265, December 15, 2000.

[18]

Ateneo de Manila University v. CA, 229 Phil. 128, October 16, 1986.

[19]

See 1 of Rule 16 of the 1997 Rules of Civil Procedure.

[20]

Paminsan v. Costales, 28 Phil 487, November 25, 1914.

[21]

Motion to Dismiss, p. 2; rollo, p. 28.

[22]

Complaint, pp. 2-3; rollo, pp. 22-23.

[23]

161 SCRA 7, May 2, 1988.

[24]

Id., p. 17, per Paras, J.

[25]

185 SCRA 523, May 20, 1990.

[26]

Debunking the pronouncement in Alcuaz that the contract between the school and the student was
only on a per semester basis, Non held thus:
The termination of contract theory does not even find support in the Manual. Paragraph
137 merely clarifies that a college student enrolls for the entire semester. It serves to protect
schools wherein tuition fees are collected and paid on an installment basis, i.e., collection and
payment of the downpayment upon enrollment and the balance before the examinations. x x x
Clearly, in no way may Paragraph 137 be construed to mean that the student shall be enrolled for
only one semester, and that after that semester is over, his re-enrollment is dependent solely on
the sound discretion of the school. On the contrary, the Manual recognizes the right of the
student to be enrolled in his course for the entire period he is expected to complete
it. (Non v. Dames II, supra, pp. 537-538, per Cortes, J. Emphasis supplied.)

[27]

Philippine School of Business Administration v. CA, 205 SCRA 729, February 4, 1992; University of
San Agustin v. CA, 230 SCRA 761, March 7, 1994.

[28]

205 Phil. 307, January 28, 1983.

[29]

178 SCRA 637, October 19, 1989.

[30]

Supra.

[31]

356 SCRA 296, April 4, 2001.

[32]

Non v. Dames II, supra, p. 537, per Cortes, J.

[33]

Complaint, p. 3; rollo, p. 23.

[34]

Supra.

[35]

Id., pp. 733-735, per Padilla, J.

[36]

Miriam College Foundation v. CA, supra.

[37]

68 SCRA 277, November 28, 1975.

[38]

Id., p. 284, per Fernando, J. (later CJ.)

[39]

137 SCRA 245, June 27, 1985.

[40]

Villar v. Technological Institute of the Philippines, 220 Phil. 379, April 17, 1985.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 84698 February 4, 1992


PHILIPPINE SCHOOL OF BUSINESS ADMINISTRATION, JUAN D. LIM, BENJAMIN P. PAULINO, ANTONIO
M. MAGTALAS, COL. PEDRO SACRO and LT. M. SORIANO, petitioners,
vs.
COURT OF APPEALS, HON. REGINA ORDOEZ-BENITEZ, in her capacity as Presiding Judge of Branch
47, Regional Trial Court, Manila, SEGUNDA R. BAUTISTA and ARSENIA D. BAUTISTA, respondents.
Balgos and Perez for petitioners.
Collantes, Ramirez & Associates for private respondents.

PADILLA, J.:
A stabbing incident on 30 August 1985 which caused the death of Carlitos Bautista while on the second-floor
premises of the Philippine School of Business Administration (PSBA) prompted the parents of the deceased to
file suit in the Regional Trial Court of Manila (Branch 47) presided over by Judge (now Court of Appeals justice)
Regina Ordoez-Benitez, for damages against the said PSBA and its corporate officers. At the time of his
death, Carlitos was enrolled in the third year commerce course at the PSBA. It was established that his
assailants were not members of the school's academic community but were elements from outside the school.
Specifically, the suit impleaded the PSBA and the following school authorities: Juan D. Lim (President),
Benjamin P. Paulino (Vice-President), Antonio M. Magtalas (Treasurer/Cashier), Col. Pedro Sacro (Chief of
Security) and a Lt. M. Soriano (Assistant Chief of Security). Substantially, the plaintiffs (now private
respondents) sought to adjudge them liable for the victim's untimely demise due to their alleged negligence,
recklessness and lack of security precautions, means and methods before, during and after the attack on the
victim. During the proceedings a quo, Lt. M. Soriano terminated his relationship with the other petitioners by
resigning from his position in the school.
Defendants a quo (now petitioners) sought to have the suit dismissed, alleging that since they are presumably
sued under Article 2180 of the Civil Code, the complaint states no cause of action against them, as
jurisprudence on the subject is to the effect that academic institutions, such as the PSBA, are beyond the ambit
of the rule in the afore-stated article.

The respondent trial court, however, overruled petitioners' contention and thru an order dated 8 December
1987, denied their motion to dismiss. A subsequent motion for reconsideration was similarly dealt with by an
order dated 25 January 1988. Petitioners then assailed the trial court's disposition before the respondent
appellate court which, in a decision * promulgated on 10 June 1988, affirmed the trial court's orders. On 22
August 1988, the respondent appellate court resolved to deny the petitioners' motion for reconsideration.
Hence, this petition.
At the outset, it is to be observed that the respondent appellate court primarily anchored its decision on the law
ofquasi-delicts, as enunciated in Articles 2176 and 2180 of the Civil Code. 1 Pertinent portions of the appellate

court's now assailed ruling state:


Article 2180 (formerly Article 1903) of the Civil Code is an adoption from the old Spanish Civil
Code. The comments of Manresa and learned authorities on its meaning should give way to
present day changes. The law is not fixed and flexible (sic); it must be dynamic. In fact, the
greatest value and significance of law as a rule of conduct in (sic) its flexibility to adopt to
changing social conditions and its capacity to meet the new challenges of progress.
Construed in the light of modern day educational system, Article 2180 cannot be construed in
its narrow concept as held in the old case of Exconde vs. Capuno 2 and Mercado vs. Court

of Appeals; 3hence, the ruling in the Palisoc 4 case that it should apply to all kinds of
educational institutions, academic or vocational.
At any rate, the law holds the teachers and heads of the school staff liable unless they relieve
themselves of such liability pursuant to the last paragraph of Article 2180 by "proving that they
observed all the diligence to prevent damage." This can only be done at a trial on the merits of
the case. 5
While we agree with the respondent appellate court that the motion to dismiss the complaint was correctly
denied and the complaint should be tried on the merits, we do not however agree with the premises of the
appellate court's ruling.
Article 2180, in conjunction with Article 2176 of the Civil Code, establishes the rule of in loco parentis. This
Court discussed this doctrine in the afore-cited cases of Exconde, Mendoza, Palisoc and, more recently,
in Amadora vs.Court of Appeals. 6 In all such cases, it had been stressed that the law (Article 2180) plainly

provides that the damage should have been caused or inflicted by pupils or students of he educational
institution sought to be held liable for the acts of its pupils or students while in its custody. However, this
material situation does not exist in the present case for, as earlier indicated, the assailants of
Carlitos were not students of the PSBA, for whose acts the school could be made liable.
However, does the appellate court's failure to consider such material facts mean the exculpation of the
petitioners from liability? It does not necessarily follow.
When an academic institution accepts students for enrollment, there is established a contract between them,
resulting in bilateral obligations which both parties are bound to comply with. 7 For its part, the school

undertakes to provide the student with an education that would presumably suffice to equip him with the
necessary tools and skills to pursue higher education or a profession. On the other hand, the student
covenants to abide by the school's academic requirements and observe its rules and regulations.

Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an
atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no
student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other
sciences when bullets are flying or grenades exploding in the air or where there looms around the school
premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken
to maintain peace and order within the campus premises and to prevent the breakdown thereof.
Because the circumstances of the present case evince a contractual relation between the PSBA and Carlitos
Bautista, the rules on quasi-delict do not really govern. 8 A perusal of Article 2176 shows that obligations arising from quasidelicts or tort, also known as extra-contractual obligations, arise only between parties not otherwise bound by contract, whether express or
implied. However, this impression has not prevented this Court from determining the existence of a tort even when there obtains a contract.
In Air France vs. Carrascoso (124 Phil. 722), the private respondent was awarded damages for his unwarranted expulsion from a first-class
seat aboard the petitioner airline. It is noted, however, that the Court referred to the petitioner-airline's liability as one arising from tort, not
one arising from a contract of carriage. In effect, Air France is authority for the view that liability from tort may exist even if there is a contract,
for the act that breaks the contract may be also a tort. (Austro-America S.S. Co. vs. Thomas, 248 Fed. 231).

This view was not all that revolutionary, for even as early as 1918, this Court was already of a similar mind.
InCangco vs. Manila Railroad (38 Phil. 780), Mr. Justice Fisher elucidated thus:
The field of non-contractual obligation is much broader than that of contractual obligation,
comprising, as it does, the whole extent of juridical human relations. These two fields,
figuratively speaking, concentric; that is to say, the mere fact that a person is bound to another
by contract does not relieve him from extra-contractual liability to such person. When such a
contractual relation exists the obligor may break the contract under such conditions that the
same act which constitutes a breach of the contract would have constituted the source of an
extra-contractual obligation had no contract existed between the parties.
Immediately what comes to mind is the chapter of the Civil Code on Human Relations, particularly Article 21,
which provides:
Any person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good custom or public policy shall compensate the latter for the damage. (emphasis supplied).
Air France penalized the racist policy of the airline which emboldened the petitioner's employee to forcibly oust
the private respondent to cater to the comfort of a white man who allegedly "had a better right to the seat."
InAustro-American, supra, the public embarrassment caused to the passenger was the justification for the
Circuit Court of Appeals, (Second Circuit), to award damages to the latter. From the foregoing, it can be
concluded that should the act which breaches a contract be done in bad faith and be violative of Article 21, then
there is a cause to view the act as constituting a quasi-delict.
In the circumstances obtaining in the case at bar, however, there is, as yet, no finding that the contract between
the school and Bautista had been breached thru the former's negligence in providing proper security measures.
This would be for the trial court to determine. And, even if there be a finding of negligence, the same could give
rise generally to a breach of contractual obligation only. Using the test of Cangco, supra, the negligence of the
school would not be relevant absent a contract. In fact, that negligence becomes material only because of the
contractual relation between PSBA and Bautista. In other words, a contractual relation is a condition sine qua
nonto the school's liability. The negligence of the school cannot exist independently of the contract, unless the
negligence occurs under the circumstances set out in Article 21 of the Civil Code.
This Court is not unmindful of the attendant difficulties posed by the obligation of schools, above-mentioned, for
conceptually a school, like a common carrier, cannot be an insurer of its students against all risks. This is
specially true in the populous student communities of the so-called "university belt" in Manila where there have

been reported several incidents ranging from gang wars to other forms of hooliganism. It would not be
equitable to expect of schools to anticipate all types of violent trespass upon their premises, for notwithstanding
the security measures installed, the same may still fail against an individual or group determined to carry out a
nefarious deed inside school premises and environs. Should this be the case, the school may still avoid liability
by proving that the breach of its contractual obligation to the students was not due to its negligence, here
statutorily defined to be the omission of that degree of diligence which is required by the nature of the obligation
and corresponding to the circumstances of persons, time and place. 9
As the proceedings a quo have yet to commence on the substance of the private respondents' complaint, the
record is bereft of all the material facts. Obviously, at this stage, only the trial court can make such a
determination from the evidence still to unfold.
WHEREFORE, the foregoing premises considered, the petition is DENIED. The court of origin (RTC, Manila,
Br. 47) is hereby ordered to continue proceedings consistent with this ruling of the Court. Costs against the
petitioners.
SO ORDERED.
Melencio-Herrera, Paras, Regalado and Nocon, JJ., concur.

Footnotes
* Penned by Justice Jose C. Campos, Jr. and concurred in by Justices Ricardo J. Francisco
and Alfredo L. Benipayo.
1 Article 2176 provides:
Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter.
Article 2180 provides:
The obligation imposed by article 2176 is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
xxx xxx xxx
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages
caused by their pupils and students or apprentices, so long as they remain in their custody.
The responsibility treated of in this article shall cease when the person herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage."
2 101 Phil. 843

3 108 Phil. 414


4 G.R. No. L-29025, 4 October 1971, 41 SCRA 548.
5 Rollo, p. 75.
6 G.R. No. L-47745, 15 April 1988, 160 SCRA 315.
7 In Non vs. Dames II, G.R. No. 89317, 20 May 1990, 185 SCRA 535, it was held that the
contract between school and student is one "imbued with public interest" but a contract
nonetheless.
8 Article 2176, Civil Code is re-quoted for stress:
Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter. (emphasis supplied)
9 Article 1173, Civil Code provides:
The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows bad faith, the provisions of
articles 1171 and 2201, paragraph 2, shall apply.

[G.R. No. 134284. December 1, 2000]

AYALA CORPORATION, petitioner, vs. ROSA-DIANA REALTY AND


DEVELOPMENT CORPORATION, respondent.
DECISION
DE LEON, JR., J.:

Before us is a petition for review on certiorari seeking the reversal of a decision


rendered by the Court of Appeals in C.A. G.R. C.V. No. 4598 entitled, Ayala Corporation
vs. Rosa-Diana Realty and Development Corporation, dismissing Ayala Corporations
petition for lack of merit.
The facts of the case are not in dispute:

Petitioner Ayala Corporation (hereinafter referred to as Ayala) was the registered


owner of a parcel of land located in Alfaro Street, Salcedo Village, Makati City with an
area of 840 square meters, more or less and covered by Transfer Certificate of Title
(TCT) No. 233435 of the Register of Deeds of Rizal.
On April 20, 1976, Ayala sold the lot to Manuel Sy married to Vilma Po and Sy Ka
Kieng married to Rosa Chan. The Deed of Sale executed between Ayala and the buyers
contained Special Conditions of Sale and Deed Restrictions. Among the Special
Conditions of Sale were:
a) the vendees shall build on the lot and submit the building plans to the vendor before
September 30, 1976 for the latters approval
b) the construction of the building shall start on or before March 30, 1977 and
completed before 1979. Before such completion, neither the deed of sale shall be
registered nor the title released even if the purchase price shall have been fully paid
c) there shall be no resale of the property

The Deed Restrictions, on the other hand, contained the stipulation that the gross
floor area of the building to be constructed shall not be more than five (5) times the lot
area and the total height shall not exceed forty two (42) meters. The restrictions were to
expire in the year 2025.
Manuel Sy and Sy Ka Kieng failed to construct the building in violation of the
Special Conditions of Sale. Notwithstanding the violation, Manuel Sy and Sy Ka Kieng,
in April 1989, were able to sell the lot to respondent Rosa-Diana Realty and
Development Corporation (hereinafter referred to as Rosa-Diana) with Ayalas
approval. As a consideration for Ayala to release the Certificate of Title of the subject
property, Rosa-Diana, on July 27, 1989 executed an Undertaking promising to abide by
said special conditions of sale executed between Ayala and the original vendees. Upon
the submission of the Undertaking, together with the building plans for a condominium
project, known as The Peak, Ayala released title to the lot, thereby enabling Rosa-Diana
to register the deed of sale in its favor and obtain Certificate of Title No. 165720 in its
name. The title carried as encumbrances the special conditions of sale and the deed
restrictions. Rosa-Dianas building plans as approved by Ayala were subject to strict
compliance of cautionary notices appearing on the building plans and to the restrictions
encumbering the Lot regarding the use and occupancy of the same.
Thereafter, Rosa-Diana submitted to the building official of Makati another set of
building plans for The Peak which were substantially different from those that it earlier
submitted to Ayala for approval. While the building plans which Rosa-Diana submitted to

Ayala for approval envisioned a 24-meter high, seven (7) storey condominium project
with a gross floor area of 3,968.56 square meters, the building plans which Rosa-Diana
submitted to the building official of Makati, contemplated a 91.65 meter high, 38 storey
condominium building with a gross floor area of 23,305.09 square meters. Needless to
say, while the first set of building plans complied with the deed restrictions, the latter set
exceeded the same.
[1]

During the construction of Rosa-Dianas condominium project, Ayala filed an action


with the Regional Trial Court (RTC) of Makati, Branch 139 for specific performance, with
application for a writ of preliminary injunction/temporary restraining order against RosaDiana Realty seeking to compel the latter to comply with the contractual obligations
under the deed of restrictions annotated on its title as well as with the building plans it
submitted to the latter. In the alternative, Ayala prayed for rescission of the sale of the
subject lot to Rosa- Diana Realty.
The lower court denied Ayalas prayer for injunctive relief, thus enabling Rosa-Diana
to complete the construction of the building. Undeterred, Ayala tried to cause the
annotation of a notice of lis pendens on Rosa-Dianas title. The Register of Deeds of
Makati, however, refused registration of the notice of lis pendens on the ground that the
case pending before the trial court, being an action for specific performance and/or
rescission, is an action in personam which does not involve the title, use or possession
of the property. The Land Registration Authority (LRA) reversed the ruling of the
Register of Deeds saying that an action for specific performance or rescission may be
classified as a proceeding of any kind in court directly affecting title to the land or the
use or occupation thereof for which a notice of lis pendens may be held proper. The
decision of the LRA, however, was overturned by the Court of Appeals in C.A. G.R. S.P.
No. 29157. In G.R. No. 112774, We affirmed the ruling of the CA on February 16, 1994
saying
[2]

[3]

We agree with respondent court that the notice of lis pendens is not proper in
this instance. The case before the trial court is a personal action since the
cause of action thereof arises primarily from the alleged violation of the Deed
of Restrictions.
In the meantime, Ayala completed its presentation of evidence before the trial
court. Rosa-Diana filed a Demurrer to Evidence averring that Ayala failed to establish its
right to the relief sought inasmuch as (a) Ayala admittedly does not enforce the deed
restrictions uniformly and strictly (b) Ayala has lost its right/power to enforce the
restrictions due to its own acts and omissions; and (c) the deed restrictions are no
longer valid and effective against lot buyers in Ayalas controlled subdivision.

The trial court sustained Rosa-Dianas Demurrer to Evidence saying that Ayala was
guilty of abandonment and/or estoppel due to its failure to enforce the terms of deed of
restrictions and special conditions of sale against Manuel Sy and Sy Ka Kieng. The trial
court noted that notwithstanding the violation of the special conditions of sale, Manuel
Sy and Sy Ka Kieng were able to transfer the title to Rosa-Diana with the approval of
Ayala. The trial court added that Ayalas failure to enforce the restrictions with respect to
Trafalgar, Shellhouse, Eurovilla, LPL Plaza, Parc Regent, LPL Mansion and Leronville
which are located within Salcedo Village, shows that Ayala discriminated against those
which it wants to have the obligation enforced. The trial court then concluded that for
Ayala to discriminately choose which obligor would be made to follow certain conditions
and which should not, did not seem fair and legal.
The Court of Appeals affirmed the ruling of the trial court saying that the appeal is
sealed by the doctrine of the law of the case in C.A. G.R. S.P. No. 29157 where it was
stated that

]x x x Ayala is barred from enforcing the Deed of Restrictions in question


pursuant to the doctrine of waiver and estoppel. Under the terms of the deed
of sale, the vendee Sy Ka Kieng assumed faithful compliance with the special
conditions of sale and with the Salcedo Village Deed of Restrictions. One of
the conditions was that a building would be constructed within one year.
However, Sy Ka Kieng failed to construct the building as required under the
Deed of Sale. Ayala did nothing to enforce the terms of the contract. In fact, it
even agreed to the sale of the lot by Sy Ka Kieng in favor of petitioner Realty
in 1989 or thirteen (13) years later. We, therefore, see no justifiable reason for
Ayala to attempt to enforce the terms of the conditions of sale against the
petitioner.
xxx
The Court of Appeals also cited C.A. G.R. C.V. No. 46488 entitled, Ayala
Corporation vs. Ray Burton Development Corporation which relied on C.A. G.R.
S.P. No. 29157 in ruling that Ayala is barred from enforcing the deed restrictions in
dispute. Upon a motion for reconsideration filed by herein petitioner, the Court of
Appeals clarified that the citation of the decision in Ayala Corporation vs. Ray Burton
Development Corporation, C.A. G.R. C.V. No. 46488, February 27, 1996, was made not
because said decision is res judicata to the case at bar but rather because it is
precedential under the doctrine of stare decisis.
Upon denial of said motion for reconsideration, Ayala filed the present appeal.

Ayala contends that the pronouncement of the Court of Appeals in C.A. G.R. S.P.
No. 29157 that it is estopped from enforcing the deed restrictions is merely obiter
dicta inasmuch as the only issue raised in the aforesaid case was the propriety of a lis
pendens annotation on Rosa-Dianas certificate of title.
Ayala avers that Rosa-Diana presented no evidence whatsoever
supposed waiver or estoppel in C.A. G.R. S.P. No. 29157. Ayala likewise
that at the time C.A. G.R. S.P. No. 29157 was on appeal, the issues of the
continued viability of the deed of restrictions and their enforceability by
joined and then being tried before the trial court.

on Ayalas
pointed out
validity and
Ayala were

Petitioners assignment of errors in the present appeal may essentially be


summarized as follows:
I. The Court of Appeals acted in a manner not in accord with law and the applicable
decisions of the Supreme Court in holding that the doctrine of the law of the case,
or stare decisis, operated to dismiss Ayalas appeal.
II. The Court of Appeals erred as a matter of law and departed from the accepted and
usual course of judicial proceedings when it failed to expressly pass upon the
specific errors assigned in Ayalas appeal.

A discussion on the distinctions between law of the case, stare decisis and obiter
dicta is in order.
The doctrine of the law of the case has certain affinities with, but is clearly
distinguishable from, the doctrines of res judicata and stare decisis, principally on the
ground that the rule of the law of the case operates only in the particular case and only
as a rule of policy and not as one of law. At variance with the doctrine of stare decisis,
the ruling adhered to in the particular case under the doctrine of the law of the
case need not be followed as a precedent in subsequent litigation between other
parties, neither by the appellate court which made the decision followed on a
subsequent appeal in the same case, nor by any other court. The ruling covered by the
doctrine of the law of the case is adhered to in the single case where it arises, but is not
carried into other cases as a precedent. On the other hand, under the doctrine of stare
decisis, once a point of law has been established by the court, that point of law will,
generally, be followed by the same court and by all courts of lower rank in subsequent
cases where the same legal issue is raised. Stare decisis proceeds from the first
principle of justice that, absent powerful countervailing considerations, like cases ought
to be decided alike.
[4]

[5]

[6]

[7]

The Court of Appeals, in ruling against petitioner Ayala Corporation stated that the
appeal is sealed by the doctrine of the law of the case, referring to G.R. No. 112774
entitled Ayala Corporation, petitioner vs. Court of Appeals, et al., respondents. The
Court of Appeals likewise made reference to C.A. G.R. C.V. No. 46488 entitled, Ayala
Corporation vs. Ray Burton Development Corporation, Inc. in ruling against petitioner
saying that it is jurisprudential under the doctrine of stare decisis.
It must be pointed out that the only issue that was raised before the Court of
Appeals in C.A. G.R. S.P. No. 29157 was whether or not the annotation of lis pendens is
proper. The Court of Appeals, in its decision, in fact stated the principal issue to be
resolved is: whether or not an action for specific performance, or in the alternative,
rescission of deed of sale to enforce the deed of restrictions governing the use of
property, is a real or personal action, or one that affects title thereto and its use or
occupation thereof."
[8]

In the aforesaid decision, the Court of Appeals even justified the cancellation of the
notice of lis pendens on the ground that Ayala had ample protection should it succeed
in proving its allegations regarding the violation of the deed of restrictions, without
unduly curtailing the right of the petitioner to fully enjoy its property in the meantime that
there is as yet no decision by the trial court.
[9]

From the foregoing, it is clear that the Court of Appeals was aware that the issue as
to whether petitioner is estopped from enforcing the deed of restrictions has yet to be
resolved by the trial court. Though it did make a pronouncement that the petitioner is
estopped from enforcing the deed of restrictions, it also mentioned at the same time that
this particular issue has yet to be resolved by the trial court. Notably, upon appeal to this
Court, We have affirmed the ruling of the Court of Appeals only as regards the particular
issue of the propriety of the cancellation of the notice of lis pendens.
We see no reason then, how the law of the case or stare decisis can be held to be
applicable in the case at bench. If at all, the pronouncement made by the Court of
Appeals that petitioner Ayala is barred from enforcing the deed of restrictions can only
be considered as obiter dicta. As earlier mentioned, the only issue before the Court of
Appeals at the time was the propriety of the annotation of the lis pendens. The
additional pronouncement of the Court of Appeals that Ayala is estopped from enforcing
the deed of restrictions even as it recognized that this said issue is being tried before
the trial court was not necessary to dispose of the issue as to the propriety of the
annotation of the lis pendens. A dictum is an opinion of a judge which does not embody
the resolution or determination of the court, and made without argument, or full
consideration of the point, not the proffered deliberate opinion of the judge himself. It is
not necessarily limited to issues essential to the decision but may also include
[10]

expressions of opinion which are not necessary to support the decision reached by the
court. Mere dicta are not binding under the doctrine of stare decisis.
[11]

While the Court of Appeals did not err in ruling that the present petition is not barred
by C.A. G.R. C.V. No. 46488 entitled Ayala Corporation vs. Ray Burton Development
Inc. under the doctrine of res judicata, neither, however, can the latter case be cited as
precedential under the doctrine of stare decisis. It must be pointed out that at the time
the assailed decision was rendered, C.A. G.R. C.V. No. 46488 was on appeal with this
Court. Significantly, in the decision We have rendered in Ayala Corporation vs. Ray
Burton Development Corporation which became final and executory on July 5, 1999
we have clearly stated that An examination of the decision in the said Rosa-Diana case
reveals that the sole issue raised before the appellate court was the propriety of the lis
pendens annotation. However, the appellate court went beyond the sole issue and
made factual findings bereft of any basis in the record to inappropriately rule that AYALA
is in estoppel and has waived its right to enforce the subject restrictions. Such ruling
was immaterial to the resolution of the issue of the propriety of the annotation of the lis
pendens. The finding of estoppel was thus improper and made in excess of jurisdiction.
[12]

Coming now to the merits of the case, petitioner avers that the Court of Appeals
departed from the usual course of judicial proceedings when it failed to expressly pass
upon
the
specific
errors
assigned
in
its
appeal. Petitioner
reiterates its contention that the trial courts findings that Ayala has waived its right to
enforce the deed of restrictions is not supported by law and evidence.
We find merit in the petition.
It is basic that findings of fact of the trial court and the Court of Appeals are
conclusive upon the Supreme Court when supported by substantial evidence. We are
constrained, however, to review the trial courts findings of fact, which the Court of
Appeals chose not to pass upon, inasmuch as there is ample evidence on record to
show that certain facts were overlooked which would affect the disposition of the case.
[13]

In its assailed decision of February 4, 1994, the trial court, ruled in favor of
respondent Rosa-Diana Realty on the ground that Ayala had not acted fairly when it did
not institute an action against the original vendees despite the latters violation of the
Special Conditions of Sale but chose instead to file an action against herein respondent
Rosa-Diana. The trial court added that although the 38 storey building of Rosa-Diana is
beyond the total height restriction, it was not violative of the National Building
Code. According to the trial court the construction of the 38 storey building known as
The Peak has not been shown to have been prohibited by law and neither is it against
public policy.

It bears emphasis that as complainant, Ayala had the prerogative to initiate an


action against violators of the deed restrictions. That Rosa-Diana had acted in bad faith
is manifested by the fact that it submitted two sets of building plans, one which was in
conformity with the deed restrictions submitted to Ayala and MACEA, and the other,
which exceeded the height requirement in the deed restrictions to the Makati building
official for the purpose of procuring a building permit from the latter. Moreover, the
violation of the deed restrictions committed by respondent can hardly be denominated
as a minor violation. It should be pointed out that the original building plan which was
submitted to and approved by petitioner Ayala Corporation, envisioned a twenty four
(24) meter high, seven (7) storey condominium whereas the respondents building plan
which was submitted to and approved by the building official of Makati is that of a thirty
eight (38) storey, 91.65 meters high, building. At present, the Peak building of
respondent which actually stands at 133.65 meters with a total gross floor area of
23,305.09 square meters, seriously violates the dimensions indicated in the building
plans submitted by Rosa-Diana to petitioner Ayala for approval inasmuch as the Peak
building exceeds the approved height limit by about 109 meters and the allowable gross
floor area under the applicable deed restrictions by about 19,105 square
meters. Clearly, there was a gross violation of the deed restrictions and evident bad
faith by the respondent.
It may not be amiss to mention that the deed restrictions were revised in a general
membership meeting of the association of lot owners in Makati Central Business District
the Makati Commercial Estate Association, Inc. (MACEA) whereby direct height
restrictions were abolished in lieu of floor area limits. Respondent, however, did not vote
for the approval of this revision during the General Membership meeting which was held
on July 11, 1990 at the Manila Polo Club Pavilion, Makati, Metro Manila and again on
July 12, 1990 at the Hotel Mandarin Oriental, Makati, Metro Manila. Hence, respondent
continues to be bound by the original deed restrictions applicable to Lot 7, Block 1 and
annotated on its title to said lot. In any event, assuming arguendo that respondent voted
for the approval of direct height restrictions in lieu of floor area limits, the total floor area
of its Peak building would still be violative of the floor area limits to the extent of about
9,865 square meters of allowable floor area under the MACEA revised restrictions.
Respondent Rosa-Diana avers that there is nothing illegal or unlawful in the building
plans which it used in the construction of the Peak condominium inasmuch as it bears
theimprimatur of the building official of Makati, who is tasked to determine whether
building and construction plans are in accordance with the law, notably, the National
Building Code.
Respondent Rosa-Diana, however, misses the point inasmuch as it has freely
consented to be bound by the deed restrictions when it entered into a contract of sale

with spouses Manuel Sy and Sy Ka Kieng. While respondent claims that it was under
the impression that the deed restrictions were no longer being enforced by Ayala, the
Undertaking it executed belies this same claim. In said Undertaking, respondent
agreed to construct and complete the construction of the house on said lot as required
under the special condition of sale. Respondent likewise bound itself to abide and
comply with x x x the condition of the rescission of the sale by Ayala Land, Inc. on the
grounds therein stated x x x.
[14]

Contractual obligations between parties have the force of law between them and
absent any allegation that the same are contrary to law, morals, good customs, public
order or public policy, they must be complied with in good faith. Hence, Article 1159 of
the New Civil Code provides

Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
Respondent Rosa-Diana insists that the trial court had already ruled that the
Undertaking executed by its Chairman and President cannot validly bind Rosa-Diana
and hence, it should not be held bound by the deed restrictions.
We agree with petitioner Ayalas observation that respondent Rosa-Dianas special
and affirmative defenses before the trial court never mentioned any allegation that its
president and chairman were not authorized to execute the Undertaking. It was
inappropriate therefore for the trial court to rule that in the absence of any authority or
confirmation from the Board of Directors of respondent Rosa-Diana, its Chairman and
the President cannot validly enter into an undertaking relative to the construction of the
building on the lot within one year from July 27, 1989 and in accordance with the deed
restrictions. Curiously, while the trial court stated that it cannot be presumed that the
Chairman and the President can validly bind respondent Rosa-Diana to enter into the
aforesaid Undertaking in the absence of any authority or confirmation from the Board of
Directors, the trial court held that the ordinary presumption of regularity of business
transactions is applicable as regards the Deed of Sale which was executed by Manuel
Sy and Sy Ka Kieng and respondent Rosa-Diana. In the light of the fact that respondent
Rosa-Diana never alleged in its Answer that its president and chairman were not
authorized to execute the Undertaking, the aforesaid ruling of the trial court is without
factual and legal basis and surprising to say the least.
The fact alone that respondent Rosa-Diana conveniently prepared two sets of
building plans - with one set which fully conformed to the Deed Restrictions and another
in gross violation of the same - should have cautioned the trial court to conclude that
respondent Rosa-Diana was under the erroneous impression that the Deed Restrictions

were no longer enforceable and that it never intended to be bound by the Undertaking
signed by its President and Chairman. We reiterate that contractual obligations have the
force of law between parties and unless the same are contrary to public policy morals
and good customs, they must be complied by the parties in good faith.
Petitioner, in its Petition, prays that judgment be rendered:
a) ordering Rosa-Diana Realty and Development Corporation to comply with its
contractual obligations in the construction of the Peak by removing, or closing down
and prohibiting Rosa-Diana from using, selling, leasing or otherwise disposing of,
the portions of areas thereof constructed beyond or in excess of the approved
height, as shown by the building plans submitted to, and approved by, Ayala,
including any other portion of the building constructed not in accordance with the
said building plans, during the effectivity of the Deed Restrictions;
b) Alternatively, in the event specific performance has become impossible:
(1)Ordering the cancellation and rescission of the April 20, 1976 Deed of Sale
by Ayala in favor of the original vendees thereof as well as the subsequent
Deed of Sale executed by such original vendees in favor of Rosa-Diana,
and ordering Rosa-Diana to return to Ayala Lot 7, Block 1 of Salcedo
Village;
(2)ordering the cancellation of Transfer Certificate of Title No. 165720 (in the
name of Rosa-Diana) and directing the office of the Register of Deeds of
Makati to issue a new title over the lot in the name of Ayala; and
(3)ordering Rosa-Diana to pay Ayala attorneys fees in the amount of
P500,000.00, exemplary damages in the amount of P5,000,000.00 and the
costs of suit.

It must be noted that during the trial respondent Rosa-Diana was able to complete
the construction of The Peak as a building with a height of thirty eight (38) floors or
133.65 meters and with a total gross floor area of 23,305.09 square meters. Having
been completed for a number of years already, it would be reasonable to assume that it
is now fully tenanted.Consequently, the remedy of specific performance by respondent
is no longer feasible. However, neither can we grant petitioners prayer for the
cancellation and rescission of the April 20, 1976 Deed of Sale by petitioner Ayala in
favor of the original vendees thereof as well as the subsequent Deed of Sale executed
by the original vendees in favor of respondent Rosa-Diana inasmuch as the original
vendees were not even made parties in the case at bar. Moreover, petitioner Ayala,
having agreed to the resale of the property by the original vendees, spouses Manuel Sy
and Sy Ka Kieng, to respondent Rosa-Diana despite the failure of Manuel Sy and Sy Ka

Kieng to comply with their obligation to construct a building within one year from April
20, 1976, has effectively waived its right to rescind the sale of the subject lot to the
original vendees.
Faced with the same question as to the proper remedy available to petitioner in the
case of Ayala Corporation vs. Ray Burton Development Inc., a case which is on all fours
with the case at bench, we ruled therein that the party guilty of violating the deed
restrictions may only be held alternatively liable for substitute performance of its
obligation, that is, for the payment of damages. In the aforesaid case it was observed
that the Consolidated and Revised Deed Restrictions (CRDR) imposed development
charges on constructions which exceed the estimated Gross Limits permitted under the
original Deed Restrictions but which are within the limits of the CRDRs.
The pertinent portion of the Deed of Restrictions reads:

3. DEVELOPMENT CHARGE
For any building construction within the Gross Floor Area limits defined under
Paragraphs C-2.1 to C-2.4 above, but which will result in a Gross Floor Area
exceeding certain standards defined in Paragraphs C-3.1-C below,
the OWNER shall pay MACEA, prior to the construction of any new building, a
DEVELOPMENT CHARGE as a contribution to a trust fund to be
administered by MACEA. This trust fund shall be used to improve facilities
and utilities in Makati Central District.
3.1. The amount of the development charge that shall be due from the
OWNER shall be computed as follows:
DEVELOPMENT CHARGE = A x (B-C-D)
where:
A is equal to the Area Assessment which shall be set at Five Hundred Pesos
(P500.00) until December 31,1990. Each January 1st thereafter, such amount
shall increase by ten percent (10%) over the Area Assessment charged in the
immediately preceding year; provided that beginning 1995 and at the end of
every successive five-year period thereafter, the increase in the Area
Assessment shall be reviewed and adjusted by the VENDOR to correspond to
the accumulated increase in the construction cost index during the

immediately preceding five years as based on the weighted average of


wholesale price and wage indices of the National Census and Statistics Office
and the Bureau of Labor Statistics.
B - is equal to the Gross Floor Area of the completed or expanded building in
square meters.
C - is equal to the estimated Gross Floor Area permitted under the original
deed restrictions, derived by multiplying the lot area by the effective original
FAR shown below for each location.
We then ruled in the aforesaid case that the development charges are a fair
measure of compensatory damages which therein respondent Ray Burton Development
Inc. is liable to Ayala Corporation. The dispositive portion of the decision in the said
case which is squarely applicable to the case at bar, reads as follows:

WHEREFORE, premises considered, the assailed Decision of the Court of


Appeals dated February 27, 1996, in CA-G.R. C.V. No. 46488, and its
Resolution dated October 7, 1996 are hereby REVERSED and SET ASIDE,
and in lieu thereof, judgment is hereby rendered finding that:
(1) The Deed Restrictions are valid and petitioner AYALA is not
estopped from enforcing them against lot owners who have not
yet adopted the Consolidated and Revised Deed Restrictions.
(2) Having admitted that the Consolidated and Revised Deed
Restrictions are the applicable Deed Restrictions to Ray Burton
Development Corporation, RBDC should be, and is bound by the
same.
(3) Considering that Ray Burton Development Corporations Trafalgar
plaza exceeds the floor area limits of the Deed Restrictions,
RBDC is hereby ordered to pay development charges as
computed under the provisions of the consolidated and Revised
Deed Restrictions currently in force.

(4) Ray Burton Development corporation is further ordered to pay


AYALA exemplary damages in the amount of P2,500,000.00
attorneys fees in the amount of P250,000.00.
SO ORDERED.
There is no reason why the same rule should not be followed in the case at bar, the
remedies of specific performance and/or rescission prayed for by petitioner no longer
being feasible.In accordance with the peculiar circumstances of the case at bar, the
development charges would certainly be a fair measure of compensatory damages to
petitioner Ayala.
Exemplary damages in the sum of P2,500,000.00 as prayed for by petitioner are
also in order inasmuch as respondent Rosa-Diana was in evident bad faith when it
submitted a set of building plans in conformity with the deed restrictions to petitioner
Ayala for the sole purpose of obtaining title to the property, but only to prepare and later
on submit another set of building plans which are in gross violation of the Deed
Restrictions. Petitioner Ayala is likewise entitled to an award of attorneys fees in the
sum of P250,000.00.
WHEREFORE, the assailed Decision of the Court of Appeals dated December 4,
1997 and its Resolution dated June 19, 1998 , C.A. G.R. C.V. No. 4598, are
REVERSED and SET ASIDE. In lieu thereof, judgment is rendered
a) ordering respondent Rosa-Diana Realty and Development Corporation to pay
development charges as computed under the provisions of the consolidated and
Revised Deed Restrictions currently in force; and
b) ordering respondent Rosa-Diana Realty and Development Corporation to pay
petitioner Ayala Corporation exemplary damages in the sum of P2,500,000.00,
attorneys fees in the sum of P250,000.00 and the costs of the suit.

SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 112182 December 12, 1994


BRICKTOWN DEVELOPMENT CORP. (its new corporate name MULTINATIONAL REALTY
DEVELOPMENT CORPORATION) and MARIANO Z. VERALDE, petitioners,
vs.
AMOR TIERRA DEVELOPMENT CORPORATION and the HON. COURT OF APPEALS, respondents.
Tabaquero, Dela Torre, Simando & Associates for petitioners.
Robles, Ricafrente & Aguirre Law Firm for private respondent.

VITUG, J.:
A contract, once perfected, has the force of law between the parties with which they are bound to comply in
good faith and from which neither one may renege without the consent of the other. The autonomy of contracts
allows the parties to establish such stipulations, clauses, terms and conditions as they may deem appropriate
provided only that they are not contrary to law, morals, good customs, public order or public policy. The
standard norm in the performance of their respective covenants in the contract, as well as in the exercise of
their rights thereunder, is expressed in the cardinal principle that the parties in that juridical relation must act
with justice, honesty and good faith.
These basic tenets, once again, take the lead in the instant controversy.
Private respondent reminds us that the factual findings of the trial court, sustained by the Court of Appeals,
should be considered binding on this Court in this petition. We concede to this reminder since, indeed, there
appears to be no valid justification in the case at bench for us to take an exception from the rule. We shall,
therefore, momentarily paraphrase these findings.
On 31 March 1981, Bricktown Development Corporation (herein petitioner corporation), represented by its
President and co-petitioner Mariano Z. Velarde, executed two Contracts to Sell (Exhs. "A" and "B") in favor of
Amor Tierra Development Corporation (herein private respondent), represented in these acts by its VicePresident, Moises G. Petilla, covering a total of 96 residential lots, situated at the Multinational Village
Subdivision, La Huerta, Paraaque, Metro Manila, with an aggregate area of 82,888 square meters. The total
price of P21,639,875.00 was stipulated to be paid by private respondent in such amounts and maturity dates,
as follows: P2,200,000.00 on 31 March 1981; P3,209,968.75 on 30 June 1981; P4,729,906.25 on 31
December 1981; and the balance of P11,500,000.00 to be paid by means of an assumption by private
respondent of petitioner corporation's mortgage liability to the Philippine Savings Bank or, alternatively, to be
made payable in cash. On even date, 31 March 1981, the parties executed a Supplemental Agreement (Exh.
"C"), providing that private respondent would additionally pay to petitioner corporation the amounts of
P55,364.68, or 21% interest on the balance of downpayment for the period from 31 March to 30 June 1981,
and of P390,369.37 representing interest paid by petitioner corporation to the Philippine Savings Bank in
updating the bank loan for the period from 01 February to 31 March 1981.

Private respondent was only able to pay petitioner corporation the sum of P1,334,443.21 (Exhs. "A" to "K"). In
the meanwhile, however, the parties continued to negotiate for a possible modification of their agreement,
although nothing conclusive would appear to have ultimately been arrived at.
Finally, on 12 October 1981, petitioner corporation, through its legal counsel, sent private respondent a "Notice
of Cancellation of Contract" (Exh. "D") on account of the latter's continued failure to pay the installment due 30
June 1981 and the interest on the unpaid balance of the stipulated initial payment. Petitioner corporation
advised private respondent, however, that it (private respondent) still had the right to pay its arrearages within
30 days from receipt of the notice "otherwise the actual cancellation of the contract (would) take place."
Several months later, or on 26 September 1983, private respondent, through counsel, demanded (Exh. "E") the
refund of private respondent's various payments to petitioner corporation, allegedly "amounting to
P2,455,497.71," with interest within fifteen days from receipt of said letter, or, in lieu of a cash payment, to
assign to private respondent an equivalent number of unencumbered lots at the same price fixed in the
contracts. The demand, not having been heeded, private respondent commenced, on 18 November 1983, its
action with the court a quo. 1
Following the reception of evidence, the trial court rendered its decision, the dispositive portion of which read:
In view of all the foregoing, judgment is hereby rendered as follows:
1. Declaring the Contracts to Sell and the Supplemental Agreement (Exhibits "A", "B" and "C")
rescinded;
2. Ordering the [petitioner] corporation, Bricktown Development Corporation, also known as
Multinational Realty Development Corporation, to return to the [private respondent] the
amount of One Million Three Hundred Thirty Four Thousand Four Hundred Forty-Three Pesos
and Twenty-One Centavos (P1,334,443.21) with interest at the rate of Twelve (12%)
percent per annum, starting November 18, 1983, the date when the complaint was filed, until
the amount is fully paid;
3. Ordering the [petitioner] corporation to pay the [private respondent] the amount of Twentyfive Thousand (P25,000.00) Pesos, representing attorney's fees;
4. Dismissing [petitioner's] counterclaim for lack of merit; and
5. With costs against the [petitioner] corporation.
SO ORDERED. 2
On appeal, the appellate court affirmed in toto the trial court's findings and judgment.
In their instant petition, petitioners contend that the Court of Appeals has erred in ruling that
(1) By petitioners' acts, conduct and representation, they themselves delayed or prevented the
performance of the contracts to sell and the supplemental agreement and were thus estopped
from cancelling the same.
(2) Petitioners were no justified in resolving the contracts to sell and the supplemental
agreement.

(3) The cancellation of the contract required a positive act on the part of petitioners giving
private respondent the sixty (60) day grace period provided in the contracts to sell; and
(4) In not holding that the forfeiture of the P1,378,197.48 was warranted under the liquidated
damages provisions of the contracts to sell and the supplemental agreement and was not
iniquitous nor unconscionable.
The core issues would really come down to (a) whether or not the contracts to sell were validly rescinded or
cancelled by petitioner corporation and, in the affirmative, (b) whether or not the amounts already remitted by
private respondent under said contracts were rightly forfeited by petitioner corporation.
Admittedly, the terms of payment agreed upon by the parties were not met by private respondent. Of a total
selling price of P21,639,875.00, private respondent was only able to remit the sum of P1,334,443.21 which was
even short of the stipulated initial payment of P2,200,000.00. No additional payments, it would seem, were
made. A notice of cancellation was ultimately made months after the lapse of the contracted grace period.
Paragraph 15 of the Contracts to Sell provided thusly:
15. Should the PURCHASER fail to pay when due any of the installments mentioned in
stipulation No. 1 above, the OWNER shall grant the purchaser a sixty (60)-day grace period
within which to pay the amount/s due, and should the PURCHASER still fail to pay the due
amount/s within the 60-day grace period, the PURCHASER shall have the right to ex-parte
cancel or rescind this contract, provided, however, that the actual cancellation or rescission
shall take effect only after the lapse of thirty (30) days from the date of receipt by the
PURCHASER of the notice of cancellation of this contract or the demand for its rescission by
a notarial act, and thereafter, the OWNER shall have the right to resell the lot/s subject hereof
to another buyer and all payments made, together with all improvements introduced on the
aforementioned lot/s shall be forfeited in favor of the OWNER as liquidated damages, and in
this connection, the PURCHASER obligates itself to peacefully vacate the aforesaid lot/s
without necessity of notice or demand by the OWNER. 3
A grace period is a right, not an obligation, of the debtor. When unconditionally conferred, such as in this case,
the grace period is effective without further need of demand either calling for the payment of the obligation or
for honoring the right. The grace period must not be likened to an obligation, the non-payment of which, under
Article 1169 of the Civil Code, would generally still require judicial or extrajudicial demand before "default" can
be said to arise. 4
Verily, in the case at bench, the sixty-day grace period under the terms of the contracts to sell became ipso
factooperative from the moment the due payments were not met at their stated maturities. On this score, the
provisions of Article 1169 of the Civil Code would find no relevance whatsoever.
The cancellation of the contracts to sell by petitioner corporation accords with the contractual covenants of the
parties, and such cancellation must be respected. It may be noteworthy to add that in a contract to sell, the
non-payment of the purchase price (which is normally the condition for the final sale) can prevent the obligation
to convey title from acquiring any obligatory force (Roque vs. Lapuz, 96 SCRA 741; Agustin vs. Court of
Appeals, 186 SCRA 375).
The forfeiture of the payments thus far remitted under the cancelled contracts in question, given the factual
findings of both the trial court and the appellate court, must be viewed differently. While clearly insufficient to
justify a foreclosure of the right of petitioner corporation to rescind or cancel its contracts with private

respondent, the series of events and circumstances described by said courts to have prevailed in the interim
between the parties, however, warrant some favorable consideration by this Court.
Petitioners do not deny the fact that there has indeed been a constant dialogue between the parties during the
period of their juridical relation. Concededly, the negotiations that they have pursued strictly did not result in the
novation, either extinctive or modificatory, of the contracts to sell; nevertheless, this Court is unable to
completely disregard the following findings of both the trial court and the appellate court. Said the trial court:
It has been duly established through the testimony of plaintiff's witnesses Marcosa Sanchez
and Vicente Casas that there were negotiations to enter into another agreement between the
parties, after March 31, 1981. The first negotiation took place before June 30, 1981, when
Moises Petilla and Renato Dragon, Vice-President and president, respectively, of the plaintiff
corporation, together with Marcosa Sanchez, went to the office of the defendant corporation
and made some proposals to the latter, thru its president, the defendant Mariano Velarde.
They told the defendant Velarde of the plaintiff's request for the division of the lots to be
purchased into smaller lots and the building of town houses or smaller houses therein as
these kinds of houses can be sold easily than big ones. Velarde replied that subdivision
owners would not consent to the building of small houses. He, however, made two counterproposals, to wit: that the defendant corporation would assign to the plaintiff a number of lots
corresponding to the amounts the latter had already paid, or that the defendant corporation
may sell the corporation itself, together with the Multinational Village Subdivision, and its other
properties, to the plaintiff and the latter's sister companies engaged in the real estate
business. The negotiations between the parties went on for sometime but nothing definite was
accomplished. 5
For its part, the Court of Appeals observed:
We agree with the court a quo that there is, therefore, reasonable ground to believe that
because of the negotiations between the parties, coupled with the fact that the plaintiff never
took actual possession of the properties and the defendants did not also dispose of the same
during the pendency of said negotiations, the plaintiff was led to believe that the parties may
ultimately enter into another agreement in place of the "contracts to sell." There was,
evidently, no malice or bad faith on the part of the plaintiff in suspending payments. On the
contrary, the defendants not only contributed, but had consented to the delay or suspension of
payments. They did not give the plaintiff a categorical answer that their counter-proposals will
not materialize. 6
In fine, while we must conclude that petitioner corporation still acted within its legal right to declare the
contracts to sell rescinded or cancelled, considering, nevertheless, the peculiar circumstances found to be
extant by the trial court, confirmed by the Court of Appeals, it would be unconscionable, in our view, to likewise
sanction the forfeiture by petitioner corporation of payments made to it by private respondent. Indeed, in the
opening statement of this ponencia, we have intimated that the relationship between parties in any contract
must always be characterized and punctuated by good faith and fair dealing. Judging from what the courts
below have said, petitioners did fall well behind that standard. We do not find it equitable, however, to adjudge
any interest payment by petitioners on the amount to be thus refunded, computed from judicial demand, for,
indeed, private respondent should not be allowed to totally free itself from its own breach.
WHEREFORE, the appealed decision is AFFIRMED insofar as it declares valid the cancellation of the contracts
in question but MODIFIED by ordering the refund by petitioner corporation of P1,334,443.21 with 12%
interest per annum to commence only, however, from the date of finality of this decision until such refund is
effected. No costs.

SO ORDERED.
Bidin, Romero and Melo, JJ., concur.
Feliciano, J., is on leave.

SECOND DIVISION
G.R. No. 192105, December 09, 2013
ANTONIO LOCSIN II, Petitioners, v. MEKENI FOOD CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
In the absence of specific terms and conditions governing a car plan agreement between the employer and employee, the
former may not retain the installment payments made by the latter on the car plan and treat them as rents for the use of
the service vehicle, in the event that the employee ceases his employment and is unable to complete the installment
payments on the vehicle. The underlying reason is that the service vehicle was precisely used in the formers business; any
personal benefit obtained by the employee from its use is merely incidental.
This Petition for Review on Certiorari1 assails the January 27, 2010 Decision2 of the Court of Appeals (CA) in CA-G.R. SP
No. 109550, as well as its April 23, 2010 Resolution3 denying petitioners Motion for Partial Reconsideration.4
ChanRoblesVirtualawlibrary

Factual Antecedents
In February 2004, respondent Mekeni Food Corporation (Mekeni) a Philippine company engaged in food manufacturing
and meat processing offered petitioner Antonio Locsin II the position of Regional Sales Manager to oversee Mekenis
National Capital Region Supermarket/Food Service and South Luzon operations. In addition to a compensation and benefit
package, Mekeni offered petitioner a car plan, under which one-half of the cost of the vehicle is to be paid by the company
and the other half to be deducted from petitioners salary. Mekenis offer was contained in an Offer Sheet 5 which was
presented to petitioner.
Petitioner began his stint as Mekeni Regional Sales Manager on March 17, 2004. To be able to effectively cover his
appointed sales territory, Mekeni furnished petitioner with a used Honda Civic car valued at P280,000.00, which used to be
the service vehicle of petitioners immediate supervisor. Petitioner paid for his 50% share through salary deductions of
P5,000.00 each month.
Subsequently, Locsin resigned effective February 25, 2006. By then, a total of P112,500.00 had been deducted from his
monthly salary and applied as part of the employees share in the car plan. Mekeni supposedly put in an equivalent amount
as its share under the car plan. In his resignation letter, petitioner made an offer to purchase his service vehicle by paying
the outstanding balance thereon. The parties negotiated, but could not agree on the terms of the proposed purchase.
Petitioner thus returned the vehicle to Mekeni on May 2, 2006.
Petitioner made personal and written follow-ups regarding his unpaid salaries, commissions, benefits, and offer to purchase
his service vehicle. Mekeni replied that the company car plan benefit applied only to employees who have been with the
company for five years; for this reason, the balance that petitioner should pay on his service vehicle stood at P116,380.00
if he opts to purchase the same.
On May 3, 2007, petitioner filed against Mekeni and/or its President, Prudencio S. Garcia, a Complaint 6 for the recovery of
monetary claims consisting of unpaid salaries, commissions, sick/vacation leave benefits, and recovery of monthly salary
deductions which were earmarked for his cost-sharing in the car plan. The case was docketed in the National Labor
Relations Commission (NLRC), National Capital Region (NCR), Quezon City as NLRC NCR CASE NO. 00-05-04139-07.

On October 30, 2007, Labor Arbiter Cresencio G. Ramos rendered a Decision, 7 decreeing as follows:
WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered directing respondents to turn-over to
complainant x x x the subject vehicle upon the said complainants payment to them of the sum of P100,435.84.
SO ORDERED.8
Ruling of the National Labor Relations Commission
On appeal,9 the Labor Arbiters Decision was reversed in a February 27, 2009 Decision10 of the NLRC, thus:
WHEREFORE, premises considered, the appeal is hereby Granted. The assailed Decision dated October 30, 2007 is hereby
REVERSED and SET ASIDE and a new one entered ordering respondent-appellee Mekeni Food Corporation to pay
complainant-appellee the following:
1. Unpaid Salary in the amount of P12,511.45;
2. Unpaid sick leave/vacation leave pay in the amount of P14,789.15;
3. Unpaid commission in the amount of P9,780.00; and
4. Reimbursement of complainants payment under the car plan agreement in the amount of P112,500.00; and
5. The equivalent share of the company as part of the complainants benefit under the car plan 50/50 sharing amounting to
P112,500.00.
Respondent-Appellee Mekeni Food Corporation is hereby authorized to deduct the sum of P4,736.50 representing
complainant-appellants cash advance from his total monetary award.
All other claims are dismissed for lack of merit.
SO ORDERED.11
The NLRC held that petitioners amortization payments on his service vehicle amounting to P112,500.00 should be
reimbursed; if not, unjust enrichment would result, as the vehicle remained in the possession and ownership of Mekeni. In
addition, the employers share in the monthly car plan payments should likewise be awarded to petitioner because it forms
part of the latters benefits under the car plan. It held further that Mekenis claim that the company car plan benefit applied
only to employees who have been with the company for five years has not been substantiated by its evidence, in which
case the car plan agreement should be construed in petitioners favor.
Mekeni moved to reconsider, but in an April 30, 2009 Resolution,12 the NLRC sustained its original findings.
Ruling of the Court of Appeals
Mekeni filed a Petition for Certiorari13 with the CA assailing the NLRCs February 27, 2009 Decision, saying that the NLRC
committed grave abuse of discretion in holding it liable to petitioner as it had no jurisdiction to resolve petitioners claims,
which are civil in nature.
On January 27, 2010, the CA issued the assailed Decision, decreeing as follows:
WHEREFORE, the petition for certiorari is GRANTED. The Decision of the National Labor Relations Commission dated 27
February 2009, in NLRC NCR Case No. 00-05-04139-07, and its Resolution dated 30 April 2009 denying reconsideration
thereof, are MODIFIEDin that the reimbursement of Locsins payment under the car plan in the amount of P112,500.00,
and the payment to him of Mekenis 50% share in the amount of P112,500.00 are DELETED. The rest of the decision
is AFFIRMED.
SO ORDERED.14
In arriving at the above conclusion, the CA held that the NLRC possessed jurisdiction over petitioners claims, including the
amounts he paid under the car plan, since his Complaint against Mekeni is one for the payment of salaries and employee
benefits. With regard to the car plan arrangement, the CA applied the ruling in Elisco Tool Manufacturing Corporation v.
Court of Appeals,15 where it was held that
First. Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in question under a car plan for
executives of the Elizalde group of companies. Under a typical car plan, the company advances the purchase price of a car
to be paid back by the employee through monthly deductions from his salary. The company retains ownership of the motor
vehicle until it shall have been fully paid for. However, retention of registration of the car in the companys name is only a
form of a lien on the vehicle in the event that the employee would abscond before he has fully paid for it. There are also
stipulations in car plan agreements to the effect that should the employment of the employee concerned be terminated
before all installments are fully paid, the vehicle will be taken by the employer and all installments paid shall be considered
rentals per agreement.16
In the absence of evidence as to the stipulations of the car plan arrangement between Mekeni and petitioner, the CA
treated petitioners monthly contributions in the total amount of P112,500.00 as rentals for the use of his service vehicle
for the duration of his employment with Mekeni. The appellate court applied Articles 1484-1486 of the Civil Code, 17 and
added that the installments paid by petitioner should not be returned to him inasmuch as the amounts are not
unconscionable. It made the following pronouncement:

Having used the car in question for the duration of his employment, it is but fair that all of Locsins payments be
considered as rentals therefor which may be forfeited by Mekeni. Therefore, Mekeni has no obligation to return these
payments to Locsin. Conversely, Mekeni has no right to demand the payment of the balance of the purchase price from
Locsin since the latter has already surrendered possession of the vehicle. 18
Moreover, the CA held that petitioner cannot recover Mekenis corresponding share in the purchase price of the service
vehicle, as this would constitute unjust enrichment on the part of petitioner at Mekenis expense.
The CA affirmed the NLRC judgment in all other respects. Petitioner filed his Motion for Partial Reconsideration, 19 but the
CA denied the same in its April 23, 2010 Resolution.
Thus, petitioner filed the instant Petition; Mekeni, on the other hand, took no further action.
Issue
Petitioner raises the following solitary issue:
WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS ERRED IN NOT CONSIDERING THE CAR PLAN
PRIVILEGE AS PART OF THE COMPENSATION PACKAGE OFFERED TO PETITIONER AT THE INCEPTION OF HIS
EMPLOYMENT AND INSTEAD LIKENED IT TO A CAR LOAN ON INSTALLMENT, IN SPITE OF THE ABSENCE OF
EVIDENCE ON RECORD.20
Petitioners Arguments
In his Petition and Reply,21 petitioner mainly argues that the CA erred in treating his monthly contributions to the car plan,
totaling P112,500.00, as rentals for the use of his service vehicle during his employment; the car plan which he availed of
was a benefit and it formed part of the package of economic benefits granted to him when he was hired as Regional Sales
Manager. Petitioner submits that this is shown by the Offer Sheet which was shown to him and which became the basis for
his decision to accept the offer and work for Mekeni.
Petitioner adds that the absence of documentary or other evidence showing the terms and conditions of the Mekeni
company car plan cannot justify a reliance on Mekenis self-serving claims that the full terms thereof applied only to
employees who have been with the company for at least five years; in the absence of evidence, doubts should be resolved
in his favor pursuant to the policy of the law that affords protection to labor, as well as the principle that all doubts should
be construed to its benefit.
Finally, petitioner submits that the ruling in the Elisco Tool case cannot apply to his case because the car plan subject of
the said case involved a car loan, which his car plan benefit was not; it was part of his compensation package, and the
vehicle was an important component of his work which required constant and uninterrupted mobility. Petitioner claims that
the car plan was in fact more beneficial to Mekeni than to him; besides, he did not choose to avail of it, as it was simply
imposed upon him. He concludes that it is only just that his payments should be refunded and returned to him.
Petitioner thus prays for the reversal of the assailed CA Decision and Resolution, and that the Court reinstate the NLRCs
February 27, 2009 Decision.
Respondents Arguments
In its Comment,22 Mekeni argues that the Petition does not raise questions of law, but merely of fact, which thus requires
the Court to review anew issues already passed upon by the CA an unauthorized exercise given that the Supreme Court
is not a trier of facts, nor is it its function to analyze or weigh the evidence of the parties all over again. 23 It adds that the
issue regarding the car plan and the conclusions of the CA drawn from the evidence on record are questions of fact.
Mekeni asserts further that the service vehicle was merely a loan which had to be paid through the monthly salary
deductions. If it is not allowed to recover on the loan, this would constitute unjust enrichment on the part of petitioner.
Our Ruling
The Petition is partially granted.
To begin with, the Court notes that Mekeni did not file a similar petition questioning the CA Decision; thus, it is deemed to
have accepted what was decreed. The only issue that must be resolved in this Petition, then, is whether petitioner is
entitled to a refund of all the amounts applied to the cost of the service vehicle under the car plan.
When the conclusions of the CA are grounded entirely on speculation, surmises and conjectures, or when the inferences
made by it are manifestly mistaken or absurd, its findings are subject to review by this Court. 24
From the evidence on record, it is seen that the Mekeni car plan offered to petitioner was subject to no other term or
condition than that Mekeni shall cover one-half of its value, and petitioner shall in turn pay the other half through
deductions from his monthly salary. Mekeni has not shown, by documentary evidence or otherwise, that there are other
terms and conditions governing its car plan agreement with petitioner. There is no evidence to suggest that if petitioner
failed to completely cover one-half of the cost of the vehicle, then all the deductions from his salary going to the cost of
the vehicle will be treated as rentals for his use thereof while working with Mekeni, and shall not be refunded. Indeed,

there is no such stipulation or arrangement between them. Thus, the CAs reliance on Elisco Tool is without basis, and its
conclusions arrived at in the questioned decision are manifestly mistaken. To repeat what was said in Elisco Tool
First. Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in question under a car plan for
executives of the Elizalde group of companies. Under a typical car plan, the company advances the purchase price of a car
to be paid back by the employee through monthly deductions from his salary. The company retains ownership of the motor
vehicle until it shall have been fully paid for. However, retention of registration of the car in the companys name is only a
form of a lien on the vehicle in the event that the employee would abscond before he has fully paid for it. There are also
stipulations in car plan agreements to the effect that should the employment of the employee concerned be
terminated before all installments are fully paid, the vehicle will be taken by the employer and all installments
paid shall be considered rentals per agreement.25 (Emphasis supplied)
It was made clear in the above pronouncement that installments made on the car plan may be treated as rentals only
when there is an express stipulation in the car plan agreement to such effect. It was therefore patent error for the
appellate court to assume that, even in the absence of express stipulation, petitioners payments on the car plan may be
considered as rentals which need not be returned.
Indeed, the Court cannot allow that payments made on the car plan should be forfeited by Mekeni and treated simply as
rentals for petitioners use of the company service vehicle. Nor may they be retained by it as purported loan payments, as
it would have this Court believe. In the first place, there is precisely no stipulation to such effect in their agreement.
Secondly, it may not be said that the car plan arrangement between the parties was a benefit that the petitioner enjoyed;
on the contrary, it was an absolute necessity in Mekenis business operations, which benefited it to the fullest extent:
without the service vehicle, petitioner would have been unable to rapidly cover the vast sales territory assigned to him, and
sales or marketing of Mekenis products could not have been booked or made fast enough to move Mekenis inventory. Poor
sales, inability to market Mekenis products, a high rate of product spoilage resulting from stagnant inventory, and poor
monitoring of the sales territory are the necessary consequences of lack of mobility. Without a service vehicle, petitioner
would have been placed at the mercy of inefficient and unreliable public transportation; his official schedule would have
been dependent on the arrival and departure times of buses or jeeps, not to mention the availability of seats in them.
Clearly, without a service vehicle, Mekenis business could only prosper at a snails pace, if not completely paralyzed. Its
cost of doing business would be higher as well. The Court expressed just such a view in the past. Thus
In the case at bar, the disallowance of the subject car plan benefits would hamper the officials in the
performance of their functions to promote and develop tradewhich requires mobility in the performance of
official business. Indeed, the car plan benefits are supportive of the implementation of the objectives and
mission of the agency relative to the nature of its operation and responsive to the exigencies of the
service.26 (Emphasis supplied)
Any benefit or privilege enjoyed by petitioner from using the service vehicle was merely incidental and insignificant,
because for the most part the vehicle was under Mekenis control and supervision. Free and complete disposal is given to
the petitioner only after the vehicles cost is covered or paid in full. Until then, the vehicle remains at the beck and call of
Mekeni. Given the vast territory petitioner had to cover to be able to perform his work effectively and generate business for
his employer, the service vehicle was an absolute necessity, or else Mekenis business would suffer adversely. Thus, it is
clear that while petitioner was paying for half of the vehicles value, Mekeni was reaping the full benefits from the use
thereof.
In light of the foregoing, it is unfair to deny petitioner a refund of all his contributions to the car plan. Under Article 22 of
the Civil Code, [e]very person who through an act of performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal ground, shall return the same to him. Article
214227 of the same Code likewise clarifies that there are certain lawful, voluntary and unilateral acts which give rise to the
juridical relation of quasi-contract, to the end that no one shall be unjustly enriched or benefited at the expense of another.
In the absence of specific terms and conditions governing the car plan arrangement between the petitioner and Mekeni, a
quasi-contractual relation was created between them. Consequently, Mekeni may not enrich itself by charging petitioner for
the use of its vehicle which is otherwise absolutely necessary to the full and effective promotion of its business. It may not,
under the claim that petitioners payments constitute rents for the use of the company vehicle, refuse to refund what
petitioner had paid, for the reasons that the car plan did not carry such a condition; the subject vehicle is an old car that is
substantially, if not fully, depreciated; the car plan arrangement benefited Mekeni for the most part; and any personal
benefit obtained by petitioner from using the vehicle was merely incidental.
Conversely, petitioner cannot recover the monetary value of Mekenis counterpart contribution to the cost of the vehicle;
that is not property or money that belongs to him, nor was it intended to be given to him in lieu of the car plan. In other
words, Mekenis share of the vehicles cost was not part of petitioners compensation package. To start with, the vehicle is
an asset that belonged to Mekeni. Just as Mekeni is unjustly enriched by failing to refund petitioners payments, so should
petitioner not be awarded the value of Mekenis counterpart contribution to the car plan, as this would unjustly enrich him
at Mekenis expense.
There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity and good conscience. The principle of
unjust enrichment requires two conditions: (1) that a person is benefited without a valid basis or justification, and (2) that
such benefit is derived at the expense of another.
The main objective of the principle against unjust enrichment is to prevent one from enriching himself at the expense of
another without just cause or consideration. x x x28
WHEREFORE, the Petition is GRANTED IN PART. The assailed January 27, 2010 Decision and April 23, 2010 Resolution
of the Court of Appeals in CA-G.R. SP No. 109550 are MODIFIED, in that respondent Mekeni Food Corporation is hereby
ordered to REFUND petitioner Antonio Locsin IIs payments under the car plan agreement in the total amount of
P112,500.00.

Thus, except for the counterpart or equivalent share of Mekeni Food Corporation in the car plan agreement amounting to
P112,500.00, which is DELETED, the February 27, 2009 Decision of the National Labor Relations Commission is affirmed in
all respects.
chanRoblesvirtualLa wlibrary

SO ORDERED.
Carpio (Chairperson), Brion, Perlas-Bernabe, and Leonen,*JJ., concur.

SECOND DIVISION

ARTURO SARTE FLORES, G.R. No. 183984


Petitioner,
Present:

CARPIO, J., Chairperson,


- versus - NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

SPOUSES ENRICO L. LINDO, JR. Promulgated:


and EDNA C. LINDO,
Respondents. April 13, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review 1 assailing the 30 May 2008 Decision2 and the
4 August 2008 Resolution3 of the Court of Appeals in CA-G.R. SP No. 94003.

The Antecedent Facts

The facts, as gleaned from the Court of Appeals Decision, are as follows:

On 31 October 1995, Edna Lindo (Edna) obtained a loan from Arturo Flores
(petitioner) amounting to P400,000 payable on 1 December 1995 with 3%
compounded monthly interest and 3% surcharge in case of late payment. To secure the
loan, Edna executed a Deed of Real Estate Mortgage 4 (the Deed) covering a property
in the name of Edna and her husbandEnrico (Enrico) Lindo, Jr. (collectively,
respondents). Edna also signed a Promissory Note 5 and the Deed for herself and
for Enrico as his attorney-in-fact.

Edna issued three checks as partial payments for the loan. All checks were dishonored
for insufficiency of funds, prompting petitioner to file a Complaint for Foreclosure of
Mortgage with Damages against respondents. The case was raffled to the Regional
Trial Court of Manila, Branch 33 (RTC, Branch 33) and docketed as Civil Case No.
00-97942.

In its 30 September 2003 Decision,6 the RTC, Branch 33 ruled that petitioner was not
entitled to judicial foreclosure of the mortgage. The RTC, Branch 33 found that the
Deed was executed by Edna without the consent and authority of Enrico. The RTC,
Branch 33 noted that the Deed was executed on 31 October 1995 while the Special
Power of Attorney (SPA) executed by Enrico was only dated 4 November 1995.

The RTC, Branch 33 further ruled that petitioner was not precluded from recovering
the loan from Edna as he could file a personal action against her. However, the RTC,
Branch 33 ruled that it had no jurisdiction over the personal action which should be
filed in the place where the plaintiff or the defendant resides in accordance with
Section 2, Rule 4 of the Revised Rules on Civil Procedure.

Petitioner filed a motion for reconsideration. In its Order 7 dated 8 January 2004, the
RTC, Branch 33 denied the motion for lack of merit.

On 8 September 2004, petitioner filed a Complaint for Sum of Money with Damages
against respondents. It was raffled to Branch 42 (RTC, Branch 42) of the Regional
Trial Court of Manila, and docketed as Civil Case No. 04-110858.

Respondents filed their Answer with Affirmative Defenses and Counterclaims where
they admitted the loan but stated that it only amounted to P340,000. Respondents
further alleged that Enrico was not a party to the loan because it was contracted by
Edna without Enricos signature. Respondents prayed for the dismissal of the case on
the grounds of improper venue, res judicata and forum-shopping, invoking the

Decision of the RTC, Branch 33. On 7 March 2005, respondents also filed a Motion to
Dismiss on the grounds of res judicata and lack of cause of action.

The Decision of the Trial Court

On 22 July 2005, the RTC, Branch 42 issued an Order 8 denying the motion to dismiss.
The RTC, Branch 42 ruled that res judicata will not apply to rights, claims or demands
which, although growing out of the same subject matter, constitute separate or distinct
causes of action and were not put in issue in the former action. Respondents filed a
motion for reconsideration. In its Order9 dated 8 February 2006, the RTC, Branch 42
denied respondents motion. The RTC, Branch 42 ruled that the RTC, Branch 33
expressly stated that its decision did not mean that petitioner could no longer recover
the loan petitioner extended to Edna.

Respondents filed a Petition for Certiorari and Mandamus with Prayer for a Writ of
Preliminary Injunction and/or Temporary Restraining Order before the Court of
Appeals.

The Decision of the Court of Appeals

In its 30 May 2008 Decision, the Court of Appeals set aside the 22 July 2005 and 8
February 2006 Orders of the RTC, Branch 42 for having been issued with grave abuse
of discretion.

The Court of Appeals ruled that while the general rule is that a motion to dismiss is
interlocutory and not appealable, the rule admits of exceptions. The Court of Appeals
ruled that the RTC, Branch 42 acted with grave abuse of discretion in denying
respondents motion to dismiss.

The Court of Appeals ruled that under Section 3, Rule 2 of the 1997 Rules of Civil
Procedure, a party may not institute more than one suit for a single cause of action. If
two or more suits are instituted on the basis of the same cause of action, the filing of
one on a judgment upon the merits in any one is available ground for the dismissal of
the others. The Court of Appeals ruled that on a nonpayment of a note secured by a
mortgage, the creditor has a single cause of action against the debtor, that is recovery
of the credit with execution of the suit. Thus, the creditor may institute two alternative
remedies: either a personal action for the collection of debt or a real action to
foreclose the mortgage, but not both. The Court of Appeals ruled that petitioner had
only one cause of action against Edna for her failure to pay her obligation and he
could not split the single cause of action by filing separately a foreclosure proceeding
and a collection case. By filing a petition for foreclosure of the real estate mortgage,
the Court of Appeals held that petitioner had already waived his personal action to
recover the amount covered by the promissory note.

Petitioner filed a motion for reconsideration. In its 4 August 2008 Resolution, the
Court of Appeals denied the motion.

Hence, the petition before this Court.

The Issue

The sole issue in this case is whether the Court of Appeals committed a reversible
error in dismissing the complaint for collection of sum of money on the ground of
multiplicity of suits.

The Ruling of this Court

The petition has merit.

The rule is that a mortgage-creditor has a single cause of action against a mortgagordebtor, that is, to recover the debt.10 The mortgage-creditor has the option of either
filing a personal action for collection of sum of money or instituting a real action to
foreclose on the mortgage security.11 An election of the first bars recourse to the
second, otherwise there would be multiplicity of suits in which the debtor would be
tossed from one venue to another depending on the location of the mortgaged
properties and the residence of the parties. 12

The two remedies are alternative and each remedy is complete by itself. 13 If the
mortgagee opts to foreclose the real estate mortgage, he waives the action for the
collection of the debt, and vice versa.14 The Court explained:
x x x in the absence of express statutory provisions, a mortgage creditor may
institute against the mortgage debtor either a personal action for debt or a real
action to foreclose the mortgage. In other words, he may pursue either of the
two remedies, but not both. By such election, his cause of action can by no
means be impaired, for each of the two remedies is complete in itself. Thus, an
election to bring a personal action will leave open to him all the properties of
the debtor for attachment and execution, even including the mortgaged property
itself. And, if he waives such personal action and pursues his remedy against
the mortgaged property, an unsatisfied judgment thereon would still give him
the right to sue for deficiency judgment, in which case, all the properties of the
defendant, other than the mortgaged property, are again open to him for the
satisfaction of the deficiency. In either case, his remedy is complete, his cause
of action undiminished, and any advantages attendant to the pursuit of one or
the other remedy are purely accidental and are all under his right of election.
On the other hand, a rule that would authorize the plaintiff to bring a personal
action against the debtor and simultaneously or successively another action
against the mortgaged property, would result not only in multiplicity of suits so
offensive to justice (Soriano v. Enriques, 24 Phil. 584) and obnoxious to law
and equity (Osorio v. San Agustin, 25 Phil. 404), but also in subjecting the
defendant to the vexation of being sued in the place of his residence or of the
residence of the plaintiff, and then again in the place where the property lies. 15

The Court has ruled that if a creditor is allowed to file his separate complaints
simultaneously or successively, one to recover his credit and another to foreclose his

mortgage, he will, in effect, be authorized plural redress for a single breach of contract
at so much costs to the court and with so much vexation and oppressiveness to the
debtor.16
In this case, however, there are circumstances that the Court takes into consideration.

Petitioner filed an action for foreclosure of mortgage. The RTC, Branch 33 ruled that
petitioner was not entitled to judicial foreclosure because the Deed of Real Estate
Mortgage was executed without Enricos consent. The RTC, Branch 33 stated:

All these circumstances certainly conspired against the plaintiff who has the
burden of proving his cause of action. On the other hand, said circumstances
tend to support the claim of defendant EdnaLindo that her husband did not
consent to the mortgage of their conjugal property and that the loan application
was her personal decision.

Accordingly, since the Deed of Real Estate Mortgage was executed by


defendant Edna Lindo lacks the consent or authority of her
husband Enrico Lindo, the Deed of Real Estate Mortgage is void pursuant to
Article 96 of the Family Code.

This does not mean, however, that the plaintiff cannot recover
the P400,000 loan plus interest which he extended to defendant Edna Lindo. He
can institute a personal action against the defendant for the amount due which
should be filed in the place where the plaintiff resides, or where the defendant
or any of the principal defendants resides at the election of the plaintiff in
accordance with Section 2, Rule 4 of the Revised Rules on Civil Procedure.
This Court has no jurisdiction to try such personal action. 17

Edna did not deny before the RTC, Branch 33 that she obtained the loan. She claimed,
however, that her husband did not give his consent and that he was not aware of the
transaction.18Hence, the RTC, Branch 33 held that petitioner could still recover the
amount due from Edna through a personal action over which it had no jurisdiction.

Edna also filed an action for declaratory relief before the RTC, Branch 93 of San
Pedro Laguna (RTC, Branch 93), which ruled:

At issue in this case is the validity of the promissory note and the Real Estate
Mortgage executed by Edna Lindo without the consent of her husband.

The real estate mortgage executed by petition Edna Lindo over their conjugal
property is undoubtedly an act of strict dominion and must be consented to by
her husband to be effective. In the instant case, the real estate mortgage, absent
the authority or consent of the husband, is necessarily void. Indeed, the real
estate mortgage is this case was executed on October 31, 1995 and the
subsequent special power of attorney dated November 4, 1995 cannot be made
to retroact to October 31, 1995 to validate the mortgage previously made by
petitioner.

The liability of Edna Lindo on the principal contract of the loan however
subsists notwithstanding the illegality of the mortgage. Indeed, where a
mortgage is not valid, the principal obligation which it guarantees is not
thereby rendered null and void. That obligation matures and becomes
demandable in accordance with the stipulation pertaining to it. Under the
foregoing circumstances, what is lost is merely the right to foreclose the
mortgage as a special remedy for satisfying or settling the indebtedness which
is the principal obligation. In case of nullity, the mortgage deed remains as
evidence or proof of a personal obligation of the debtor and the amount due to
the creditor may be enforced in an ordinary action.

In view of the foregoing, judgment is hereby rendered declaring the deed of


real estate mortgage as void in the absence of the authority or consent of
petitioners spouse therein. The liability of petitioner on the principal contract of
loan however subsists notwithstanding the illegality of the real estate
mortgage.19

The RTC, Branch 93 also ruled that Ednas liability is not affected by the illegality of
the real estate mortgage.

Both the RTC, Branch 33 and the RTC, Branch 93 misapplied the rules.

Article 124 of the Family Code provides:

Art. 124. The administration and enjoyment of the conjugal partnership


property shall belong to both spouses jointly. In case of disagreement, the
husbands decision shall prevail, subject to recourse to the court by the wife for
proper remedy, which must be availed of within five years from the date of
contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate


in the administration of the conjugal properties, the other spouse may assume
sole powers of administration. These powers do not include disposition or
encumbrance without authority of the court or the written consent of the other
spouse. In the absence of such authority or consent the disposition or
encumbrance shall be void. However, the transaction shall be construed as a
continuing offer on the part of the consenting spouse and the third person,
and may be perfected as a binding contract upon the acceptance by the
other spouse or authorization by the court before the offer is withdrawn by
either or both offerors. (Emphasis supplied)

Article 124 of the Family Code of which applies to conjugal partnership property, is a
reproduction of Article 96 of the Family Code which applies to community property.

Both Article 96 and Article 127 of the Family Code provide that the powers do not
include disposition or encumbrance without the written consent of the other spouse.
Any disposition or encumbrance without the written consent shall be void. However,
both provisions also state that the transaction shall be construed as a continuing offer
on the part of the consenting spouse and the third person, and may be perfected as a
binding contract upon the acceptance by the other spouse x x x before the offer is
withdrawn by either or both offerors.

In this case, the Promissory Note and the Deed of Real Estate Mortgage were
executed on 31 October 1995. The Special Power of Attorney was executed on 4
November 1995. The execution of the SPA is the acceptance by the other spouse
that perfected the continuing offer as a binding contract between the parties,
making the Deed of Real Estate Mortgage a valid contract.

However, as the Court of Appeals noted, petitioner allowed the decisions of the RTC,
Branch 33 and the RTC, Branch 93 to become final and executory without asking the
courts for an alternative relief. The Court of Appeals stated that petitioner merely
relied on the declarations of these courts that he could file a separate personal action
and thus failed to observe the rules and settled jurisprudence on multiplicity of suits,
closing petitioners avenue for recovery of the loan.

Nevertheless, petitioner still has a remedy under the law.

In Chieng v. Santos,20 this Court ruled that a mortgage-creditor may institute against
the mortgage-debtor either a personal action for debt or a real action to foreclose the
mortgage. The Court ruled that the remedies are alternative and not cumulative and
held that the filing of a criminal action for violation of Batas Pambansa Blg. 22 was

in effect a collection suit or a suit for the recovery of the mortgage-debt. 21 In that case,
however, this Court pro hac vice, ruled that respondents could still be held liable for
the balance of the loan, applying the principle that no person may unjustly enrich
himself at the expense of another.22

The principle of unjust enrichment is provided under Article 22 of the Civil Code
which provides:

Art. 22. Every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to him.

There is unjust enrichment when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience. 23 The principle of
unjust enrichment requires two conditions: (1) that a person is benefited without a
valid basis or justification, and (2) that such benefit is derived at the expense of
another.24

The main objective of the principle against unjust enrichment is to prevent one from
enriching himself at the expense of another without just cause or consideration. 25 The
principle is applicable in this case considering that Edna admitted obtaining a loan
from petitioners, and the same has not been fully paid without just cause. The Deed
was declared void erroneously at the instance of Edna, first when she raised it as a
defense before the RTC, Branch 33 and second, when she filed an action for
declaratory relief before the RTC, Branch 93. Petitioner could not be expected to ask
the RTC, Branch 33 for an alternative remedy, as what the Court of Appeals ruled that
he should have done, because the RTC, Branch 33 already stated that it had no
jurisdiction over any personal action that petitioner might have against Edna.

Considering the circumstances of this case, the principle against unjust enrichment,
being a substantive law, should prevail over the procedural rule on multiplicity of

suits. The Court of Appeals, in the assailed decision, found that Edna admitted the
loan, except that she claimed it only amounted to P340,000. Edna should not be
allowed to unjustly enrich herself because of the erroneous decisions of the two trial
courts when she questioned the validity of the Deed. Moreover, Edna still has an
opportunity to submit her defenses before the RTC, Branch 42 on her claim as to the
amount of her indebtedness.

WHEREFORE, the 30 May 2008 Decision and the 4 August 2008 Resolution of the
Court of Appeals in CA-G.R. SP No. 94003 are SET ASIDE. The Regional Trial
Court of Manila, Branch 42 is directed to proceed with the trial of Civil Case No. 04110858.
SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

ANTONIO EDUARDO B. NACHURA


Associate Justice

DIOSDADO M. PERALTA ROBERTO A. ABAD


Associate Justice Associate Justice

JOSE C. MENDOZA
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

RENATO C. CORONA
Chief Justice

1 Under Rule 45 of the 1997 Rules of Civil Procedure.


2 Rollo, pp. 7-16. Penned by Associate Justice Noel G. Tijam with Associate Justices Martin S. Villarama, Jr. (now
Supreme Court Justice) and Andres B. Reyes, Jr., concurring.

3 Id. at 18-20.
4 Id. at 53-60.
5 Id. at 52.
6 Id. at 84-88. Penned by Judge Reynaldo G. Ros.
7 Id. at 89-90.
8 Id. at 48-50. Penned by Judge Guillermo G. Purganan.
9 Id. at 51. Penned by Judge Vedasto R. Marco.
10 Tanchan v. Allied Banking Corporation, G.R. No. 164510, 25 November 2008, 571 SCRA 512.
11 Id.
12 Id.
13 BPI Family Savings Bank, Inc. v. Vda. De Coscolluela, G.R. No. 167724, 27 June 2006, 493 SCRA 472.
14 Id.
15 Id. at 493 citing Bachrach Motor Co., Inc. v. Esteban Icaragal and Oriental Commercial Co., Inc., 68 Phil. 287
(1939).
16 Id.
17 Rollo, pp. 87-88.
18 Id. at 86.
19 Id. at 81-82.
20 G.R. No. 169647, 31 August 2007, 531 SCRA 730.
21 Id.
22 Id.
23 Republic v. Court of Appeals, G.R. No. 160379, 14 August 2009, 596 SCRA 57 citing Benguet Corporation v.
Department of Environment and Natural Resources-Mines Adjudication Board, G.R. No. 163101, 13 February 2008,
545 SCRA 196 and Cool Car Philippines, Inc. v. Ushio Realty and Development Corporation, G.R. No. 138088,
23 Janaury 2006, 479 SCRA 404.
24 Republic v. Court of Appeals, supra.
25 P.C. Javier & Sons, Inc. v. Court of Appeals, 500 Phil. 419 (2005).

FIRST DIVISION
TITAN-IKEDA CONSTRUCTION G.R. No. 158768
& DEVELOPMENT
CORPORATION,
Petitioner, Present:
PUNO, C.J., Chairperson,
SANDOVAL-GUTIERREZ,
-v e r s u s- CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.
PRIMETOWN PROPERTY
GROUP, INC.,
Respondent. Promulgated:
February 12, 2008
x--------------------------------------------------x
DECISION
CORONA, J.:

This petition for review on certiorari [1] seeks to set aside the decision of the Court
of Appeals (CA) in CA-G.R. CV No. 61353 [2] and its resolution[3] denying
reconsideration.
In 1992, respondent Primetown Property Group, Inc. awarded the contract for the
structural works[4] of its 32-storey Makati Prime Tower (MPT) to petitioner Titan-

Ikeda Construction and Development Corporation.[5] The parties formalized their


agreement in a construction contract[6] dated February 4, 1993.[7]
Upon the completion of MPT's structural works, respondent awarded
the P130,000,000 contract for the tower's architectural works[8] (project) to
petitioner. Thus, on January 31, 1994, the parties executed a supplemental
agreement.[9] The salient portions thereof were:
1.

2.

the [project] shall cover the scope of work of the detailed construction bid
plans and specifications and bid documents dated 28 September 1993,
attached and forming an integral part hereof as Annex A.
the contract price for the said works shall be P130 million.

3.

the payment terms shall be full swapping or full payment in


condominium units. The condominium units earmarked for the [petitioner]
are shown in the attached Annex B.

4.

the [respondent] shall transfer and surrender to [petitioner] the


condominium units abovestated in accordance with the following
schedule:

5.

(a)

80% of units upon posting and acceptance by [respondent] of the


performance bond [and]

(b)

20% or remaining balance upon completion of the project as


provided in the construction contract and simultaneous with the
posting by [petitioner] of the reglementary guarantee bond.

the contract period shall be fifteen (15) months reckoned from the release
of the condominium certificates of title (CCTs) covering eighty percent
(80%) of the units transferable to [petitioner] as aforesaid[.]

Significantly, the supplemental agreement adopted those provisions of the


construction contract which it did not specifically discuss or provide for. [10] Among
those carried over was the designation of GEMM Construction Corporation
(GEMM) as the project's construction manager.[11]
Petitioner started working on the project in February 1994.

On June 30, 1994, respondent executed a deed of sale [12] (covering 114
condominium units and 20 parking slots of the MPT collectively valued by the
parties atP112,416,716.88)[13] in favor of petitioner pursuant to the full-swapping
payment provision of the supplemental agreement.
Shortly thereafter, petitioner sold some of its units to third persons.[14]
In September 1995, respondent engaged the services of Integratech, Inc. (ITI), an
engineering consultancy firm, to evaluate the progress of the project. [15] In its
September 7, 1995 report,[16] ITI informed respondent that petitioner, at that point,
had only accomplished 31.89% of the project (or was 11 months and six days
behind schedule).[17]
Meanwhile, petitioner and respondent were discussing the possibility of the latters
take over of the projects supervision. Despite ongoing negotiations, respondent did
not obtain petitioners consent in hiring ITI as the projects construction manager.
Neither did it inform petitioner of ITIs September 7, 1995 report.
On October 12, 1995, petitioner sought to confirm respondent's plan to take over
the project.[18] Its letter stated:
The mutual agreement arrived at sometime in the last week of August 1995 for
[respondent] to take over the construction supervision of the balance of the
[project] from [petitioner's] [e]ngineering staff and complete [the] same by
December 31, 1995 as promised by [petitioner's] engineer.
The [petitioner's] accomplished works as of this date of [t]ake over is of
acceptable quality in materials and workmanship.
This mutual agreement on the take over should not be misconstrued in any
other way except that the take over is part of the long range plan
of [respondent] that [petitioner], in the spirit of cooperation, agreed to hand over
the construction supervision to [respondent] as requested. (emphasis supplied)[19]

Engineers Antonio Co, general construction manager of respondent, and Luzon Y.


Tablante, project manager of petitioner, signed the letter.

INTEGRATECHS (ITIS) REPORT

In its September 7, 1995 report, ITI estimated that petitioner should have
accomplished 48.71% of the project as of the October 12, 1995 takeover date.
[20]

Petitioner repudiated this figure[21] but qualifiedly admitted that it did not finish

the project.[22] Records showed that respondent did not merely take over the
supervision of the project but took full control thereof.[23]
Petitioner consequently conducted an inventory.[24] On the basis thereof, petitioner
demanded

from

respondent

the

payment

of

its

balance

amounting

to P1,779,744.85.[25]
On February 19, 1996, petitioner sent a second letter to respondent
demanding P2,023,876.25. This new figure included the cost of materials
(P244,331.40) petitioner advanced from December 5, 1995 to January 26, 1996.[26]
On November 22, 1996, petitioner demanded from respondent the delivery of
MPT's management certificate[27] and the keys to the condominium units and the
payment of its (respondent's) balance.[28]
Because respondent ignored petitioner's demand, petitioner, on December 9, 1996,
filed a complaint for specific performance[29] in the Housing and Land Use
Regulatory Board (HLURB).
While the complaint for specific performance was pending in the HLURB,
respondent sent a demand letter to petitioner asking it to reimburse the actual costs
incurred in finishing the project (or P69,785,923.47).[30] In view of the pendency of
the HLURB case, petitioner did not heed respondent's demands.

On April 29, 1997, the HLURB rendered a decision in favor of petitioner.[31] It


ruled that the instrument executed on June 30, 1994 was a deed of absolute sale
because the conveyance of the condominium units and parking slots was not
subject to any condition.[32] Thus, it ordered respondent to issue MPTs management
certificate and to deliver the keys to the condominium units to petitioner.
[33]

Respondent did not appeal this decision. Consequently, a writ of execution was

issued upon its finality.[34]


Undaunted by the finality of the HLURB decision, respondent filed a
complaint for collection of sum of money [35] against petitioner in the Regional Trial
Court (RTC) of Makati City, Branch 58 on July 2, 1997. It prayed for the
reimbursement of the value of the projects unfinished portion amounting
to P66,677,000.[36]
During trial, the RTC found that because respondent modified the MPT's
architectural design, petitioner had to adjust the scope of work. [37] Moreover,
respondent belatedly informed petitioner of those modifications. It also failed to
deliver the concrete mix and rebars according to schedule. For this reason,
petitioner was not responsible for the project's delay.[38] The trial court thus allowed
petitioner to set-off respondent's other outstanding liabilities with respondents
excess

payment

in

the

project.[39] It

concluded

that

respondent

owed

petitioner P2,023,876.25.[40] In addition, because respondent refused to deliver the


keys to the condominium units and the management certificate to petitioner, the
RTC found that petitioner lost rental income amounting to US$1,665,260. [41] The
dispositive portion of the RTC decision stated:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered
dismissing [respondent's] [c]omplaint for lack of merit. On the other hand, finding
preponderance of evidence to sustain [petitioner's] counterclaim, judgment is
hereby rendered in favor of [petitioner] ordering [respondent] to pay the former:

1.

The unpaid balance of the consideration for [petitioner's] services in [the


project] in the amount of P2,023,867.25 with legal interest from the date
of demand until fully paid;

2.

Compensatory damages in the amount of US$1,665,260 or its peso


equivalent at the current foreign exchange rate representing lost rental
income due only as of July 1997 and the accrued lost earnings from then
on until the date of actual payment, with legal interest from the date of
demand until fully paid; and

3.

Attorney's fees in the amount of P100,000 as acceptance fee, P1,000


appearance fee per hearing and 25% of the total amount awarded to
[petitioner].

With costs against the [respondent].


SO ORDERED.[42]

Respondent appealed the RTC decision to the CA.[43] The appellate court found that
respondent fully performed its obligation when it executed the June 30, 1994 deed
of absolute sale in favor of petitioner.[44] Moreover, ITI's report clearly established
that petitioner had completed only 48.71% of the project as of October 12, 1995,
the takeover date. Not only did it incur delay in the performance of its obligation
but petitioner also failed to finish the project. The CA ruled that respondent was
entitled to recover the value of the unfinished portion of the project under the
principle of unjust enrichment.[45] Thus:
WHEREFORE, the appealed decision is REVERSED and a new one entered
dismissing [petitioner's] counterclaims of P2,023,867.25 representing unpaid
balance for [its] services in [the project]; US$1,665,260 as accrued lost earnings,
and attorney's fees. [Petitioner] is hereby ordered to return to [respondent] the
amount of P66,677,000 representing the value of unfinished [portion of the
project], plus legal interest thereon until fully paid. Upon payment by [petitioner]
of the aforementioned amount, [respondent] is hereby ordered to deliver the keys
and [m]anagement [c]ertificate of the [Makati Prime Tower] paid to [petitioner]
as consideration for the [project].[46]

Petitioner moved for reconsideration but it was denied. Hence, this petition.
Petitioner contends that the CA erred in giving weight to ITI's report because the
project evaluation was commissioned only by respondent, [47] in disregard of

industry practice. Project evaluations are agreed upon by the parties and conducted
by a disinterested third party.[48]
We grant the petition.

REVIEW OF CONFLICTING
FACTUAL FINDINGS

As a general rule, only questions of law may be raised in a petition for review on
certiorari. Factual issues are entertained only in exceptional cases such as where
the findings of fact of the CA and the trial court are conflicting.[49]
Here, a glaring contradiction exists between the factual findings of the RTC and
the CA. The trial court found that respondent contributed to the project's delay
because it belatedly communicated the modifications and failed to deliver the
necessary materials on time. The CA, however, found that petitioner incurred delay
in the performance of its obligation. It relied on ITI's report which stated that
petitioner had accomplished only 48.71% of the project as of October 12, 1995.

JANUARY 31, 1994


SUPPLEMENTAL AGREEMENT
WAS EXTINGUISHED

A contract is a meeting of the minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.
[50]

This case involved two contracts entered into by the parties with regard to the

project.

The parties first entered into a contract for a piece of work [51] when they executed
the supplemental agreement. Petitioner as contractor bound itself to execute the
project for respondent, the owner/developer, in consideration of a price certain
(P130,000,000). The supplemental agreement was reciprocal in nature because the
obligation of respondent to pay the entire contract price depended on the obligation
of petitioner to complete the project (and vice versa).
Thereafter, the parties entered into a second contract. They agreed to extinguish the
supplemental agreement as evidenced by the October 12, 1995 letter-agreement
which was duly acknowledged by their respective representatives.[52]
While the October 12, 1995 letter-agreement stated that respondent was to take
over merely the supervision of the project, it actually took over the whole project
itself. In fact, respondent subsequently hired two contractors in petitioner's stead.
[53]

Moreover, petitioner's project engineer at site only monitored the progress of

architectural works undertaken in its condominium units. [54] Petitioner never


objected to this arrangement; hence, it voluntarily surrendered its participation in
the project. Moreover, it judicially admitted in its answer that respondent took over
the entire project, not merely its supervision, pursuant to its (respondents) longrange plans.[55]
Because the parties agreed to extinguish the supplemental agreement, they were no
longer required to fully perform their respective obligations. Petitioner was
relieved of its obligation to complete the project while respondent was freed of its
obligation to pay the entire contract price. However, respondent, by executing the
June 30, 1994 deed of absolute sale, was deemed to have paid P112,416,716.88.
Nevertheless, because petitioner applied part of what it received to respondents
outstanding liabilities,[56] it admitted overpayment.

Because petitioner acknowledged that it had been overpaid, it was obliged to return
the excess to respondent. Embodying the principle of solutio indebiti, Article 2154
of the Civil Code provides:
Article 2154. 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.

For the extra-contractual obligation of solutio indebiti to arise, the following


requisites must be proven:
1. the absence of a right to collect the excess sums and
2. the payment was made by mistake.[57]

With regard to the first requisite, because the supplemental agreement had been
extinguished by the mutual agreement of the parties, petitioner became entitled
only to the cost of services it actually rendered (i.e., that fraction of the project cost
in proportion to the percentage of its actual accomplishment in the project). It was
not entitled to the excess (or extent of overpayment).
On the second requisite, Article 2163 of the Civil Code provides:
Article 2163. It is presumed that there was a mistake in the payment if
something which had never been due or had already been paid was delivered;
but, he from whom the return is claimed may prove that the delivery was made
out of liberality or for any other just cause. (emphasis supplied)

In this instance, respondent paid part of the contract price under the
assumption that petitioner would complete the project within the stipulated period.
However, after the supplemental agreement was extinguished, petitioner ceased
working on the project. Therefore, the compensation petitioner received in excess
of the cost of its actual accomplishment as of October 12, 1995 was never due. The
condominium units and parking slots corresponding to the said excess were
mistakenly delivered by respondent and were therefore not due to petitioner.

Stated simply, respondent erroneously delivered excess units to petitioner and the
latter, pursuant to Article 2154, was obliged to the return them to respondent.
[58]

Article 2160 of the Civil Code provides:


Article 2160. He who in good faith accepts an undue payment of a thing
certain and determinate shall only be responsible for the impairment or loss of
the same or its accessories and accessions insofar as he has thereby been
benefited. If he has alienated it, he shall return the price or assign the action to
collect the sum.

One who receives payment by mistake in good faith is, as a general rule,
only liable to return the thing delivered.[59] If he benefited therefrom, he is also
liable for the impairment or loss of the thing delivered and its accessories and
accessions.[60] If he sold the thing delivered, he should either deliver the proceeds
of the sale or assign the action to collect to the other party.[61]
The situation is, however, complicated by the following facts:
a) the basis of the valuation (P112,416,716.99) of the condominium units
and parking slots covered by the June 30, 1994 deed of sale is unknown;
b) the percentage of petitioner's actual accomplishment in the project has
not been determined and
c) the records of this case do not show the actual number of condominium
units and parking slots sold by petitioners.
Because this Court is not a trier of facts, the determination of these matters
should be remanded to the RTC for reception of further evidence.
The RTC must first determine the percentage of the project petitioner actually
completed and its proportionate cost.[62] This will be the amount due to petitioner.
Thereafter, based on the stipulated valuation in the June 30, 1994 deed of sale, the
RTC shall determine how many condominium units and parking slots correspond

to the amount due to petitioner. It will only be the management certificate and the
keys to these units that petitioner will be entitled to. The remaining units, having
been mistakenly delivered by respondent, will therefore be the subject of solutio
indebiti.
What exactly must petitioner give back to respondent? Under Article 2160 in
relation to Article 2154, it should return to respondent the condominium units and
parking slots in excess of the value of its actual accomplishment (i.e., the amount
due to it) as of October 12, 1995. If these properties include units and/or slots
already sold to third persons, petitioner shall deliver the proceeds of the
sale thereof or assign the actions for collection to respondent as required by Article
2160.
DELAY IN THE COMPLETION OF
THE PROJECT

Mora or delay is the failure to perform the obligation in due time because
of dolo (malice) or culpa (negligence).[63] A debtor is deemed to have violated his
obligation to the creditor from the time the latter makes a demand. Once the
creditor makes a demand, the debtor incurs mora or delay.[64]
The construction contract[65] provided a procedure for protesting delay:
Article XIV
DELAYS AND ABANDONMENT
15.1. If at any time during the effectivity of this contract,
[PETITIONER] shall incur unreasonable delay or slippages of more than
fifteen
percent (15%) of
the
scheduled
work
program,
[RESPONDENT] should notify [PETITIONER] in writing to accelerate the
work and reduce, if not erase, slippage. If after the lapse of sixty (60) days
from receipt of such notice, [PETITIONER] fails to rectify the delay or slippage,
[RESPONDENT] shall have the right to terminate this contract except in cases
where the same was caused by force majeure. FORCE MAJEURE as
contemplated herein, and in determination of delay includes, but is not limited
to, typhoon, flood, earthquake, coup d'etat, rebellion, sedition, transport strike,
stoppage of work, mass public action that prevents workers from reporting for

work, and such other causes beyond [PETITIONER'S] control. [66] (emphasis
supplied)
xxx xxx xxx

Respondent never sent petitioner a written demand asking it to accelerate work on


the project and reduce, if not eliminate, slippage. If delay had truly been the reason
why respondent took over the project, it would have sent a written demand as
required by the construction contract. Moreover, according to the October 12, 1995
letter-agreement, respondent took over the project for the sole reason that such
move was part of its (respondent's) long-term plan.
Respondent, on the other hand, relied on ITI's September 7, 1995 report. The
construction contract named GEMM, not ITI, as construction manager.[67] Because
petitioner did not consent to the change of the designated construction manager,
ITI's September 7, 1995 report could not bind it.
In view of the foregoing, we hold that petitioner did not incur delay in the
performance of its obligation.
RECOVERY OF ADDITIONAL COSTS
RESULTING FROM CHANGES

The supplemental agreement was a contract for a stipulated price.[68] In such


contracts, the recovery of additional costs (incurred due to changes in plans or
specifications) is governed by Article 1724 of the Civil Code.
Article 1724. The contractor who undertakes to build a structure or any other
work for a stipulated price, in conformity with plans and specifications agreed
upon with the landowner, can neither withdraw from the contract nor demand an
increase in the price on account of higher cost of labor or materials, save when
there has been a change in plans and specifications, provided:
1. such change has been authorized by the proprietor in writing; and
2. the additional price to be paid to the contractor has been determined in
writing by both parties.

In Powton Conglomerate, Inc. v. Agcolicol,[69] we reiterated that a claim for the


cost of additional work arising from changes in the scope of work can only be
allowed upon the:
1. written authority from the developer/owner ordering/allowing the changes in
work; and
2. written agreement of parties with regard to the increase in cost (or price) due
to the change in work or design modification. [70]

Furthermore:
Compliance with the two requisites of Article 1724, a specific provision
governing additional works, is a condition precedent of the recovery. The
absence of one or the other bars the recovery of additional costs. Neither the
authority for the changes made nor the additional price to be paid therefor may
be proved by any other evidence for purposes of recovery.[71](emphasis supplied)

Petitioner submitted neither one. In addition, petitioners project coordinator


Estellita Garcia testified that respondent never approved any change order.[72] Thus,
under Article 1724 and pursuant to our ruling in Powton Conglomerate,
Inc., petitioner cannot recover the cost it incurred in effecting the design
modifications. A contractor who fails to secure the owner or developer's written
authority to changes in the work or written assent to the additional cost to be
incurred cannot invoke the principle of unjust enrichment.[73]
RECOVERY OF COMPENSATORY
DAMAGES

Indemnification for damages comprehends not only the loss suffered (actual
damages or damnum emergens) but also the claimant's lost profits (compensatory
damages or lucrum cessans). For compensatory damages to be awarded, it is
necessary to prove the actual amount of the alleged loss by preponderance of
evidence.[74]

The RTC awarded compensatory damages based on the rental pool rates submitted
by petitioner[75] and on the premise that all those units would have been leased had
respondent only finished the project by December 31, 1995.[76] However, other than
bare assertions, petitioner submitted no proof that the rental pool was in fact able to
lease out the units. We thus hold that the losses sustained by petitioner were merely
speculative and there was no basis for the award.
REMAND OF OTHER CLAIMS

Since respondent did not repudiate petitioner's other claims stated in the
inventory[77] in the RTC and CA, it is estopped from questioning the validity
thereof.[78] However, because some of petitioner's claims have been disallowed, we
remand the records of this case to the RTC for the computation of respondent's
liability.[79]
WHEREFORE, the petition is hereby GRANTED.
The March 15, 2002 decision and May 29, 2003 resolution of the Court of Appeals
in CA-G.R. CV No. 61353 and the August 5, 1998 decision of the Regional Trial
Court, Branch 58, Makati City in Civil Case No. 97-1501 are hereby SET ASIDE.
New judgment is entered:
1. ordering petitioner Titan-Ikeda Construction and Development Corporation
to return to respondent Primetown Property Group, Inc. the condominium
units and parking slots corresponding to the payment made in excess of the
proportionate (project) cost of its actual accomplishment as of October 12,
1995, subject to its (petitioners) allowable claims as stated in the inventory
and

2. dismissing

petitioner

Titan-Ikeda

Construction

and

Development

Corporations claims for the cost of additional work (or change order) and
damages.
The records of this case are remanded to the Regional Trial Court of Makati City,
Branch 58 for:
1.

the reception of additional evidence to determine


(a) the percentage of the architectural work actually completed by
petitioner

Titan-Ikeda

Construction

and

Development

Corporation as of October 12, 1995 on the Makati Prime Tower


and
(b) the number of condominium units and parking slots sold by
petitioner

Titan-Ikeda

Construction

and

Development

Corporation to third persons;


2.

the computation of petitioner Titan-Ikeda Construction and


Development Corporation's actual liability to respondent Primetown
Property Group, Inc. or vice-versa, and the determination of
imposable interests and/or penalties, if any.

SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA


Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO


Associate Justice

C E R T I FI C AT I O N
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

[1]

Under Rule 45 of the Rules of Court.


Penned by Associate Justice Godardo A. Jacinto (retired) and concurred in by Associate Justices Eloy R. Bello, Jr.
(retired) and Josefina Guevara-Salonga of the Fifth Division of the Court of Appeals. Dated March 15,
2002. Rollo, pp. 10-18, 34-42, 81-89.
[3]
Dated May 29, 2003. Id., pp. 20-23, 91-94.
[4]
Refers to the foundation of the building, particularly the concrete and steel works up to the topping of the last
floor without any finishing.
[5]
Rollo, pp. 55, 200, 255.
[6]
Exhibit A, records, pp. 474-488.
[7]
Id., p. 1.
[8]
Refers to all the finishing works including putting up partitions, doors, windows and interior and exterior finishes.
[9]
Exhibit B, records, pp. 490-492.
[10]
Exhibit B-2, id., p. 492. Paragraph 10 of the supplemental agreement provided:
[2]

10. All other terms and conditions appearing in the construction contract, not otherwise in conflict with the above
terms, shall remain in full force and binding upon the Parties insofar as they may be applicable with the
[project] contemplated therein.
[11]
Exhibit A-1, id., p. 234. Art. I, par. 1.4. (Definition of Terms) of the construction contract provided:
1.4. CONSTRUCTION MANAGER GEMM Construction and Management
and its duly authorized representatives
See Exhibit A-10, id., p. 484. Art. XIX of the construction contract provided:

ARTICLE XIX
CONSTRUCTION MANAGER'S STATUS
19.1. The construction managers shall have general management, inspection, monitoring and administration
of the [project]. They shall have the authority to stop the [project] whenever such stoppage may be
necessary to ensure the proper execution of this contract. The construction managers, in consultation with
[RESPONDENT] and ARCHITECT, shall decide on matters pertaining to architectural and engineering
designs, workmanship, materials and construction.
19.2. The construction managers shall interpret the terms and conditions of this contract and shall mediate between
and recommend decide on all claims of [RESPONDENT] or [PETITIONER] and shall resolve such other
matters relating to the execution and progress of the works.
[12]
Exhibit 8, id., pp. 506-509 and rollo, p. 23.
[13]
See Deed of Absolute Sale. Exhibit E, records, pp. 380-383. This value exceeded 80% of the contract price. (The
amount paid was equivalent to 86% of the contract price.)
[14]
Exhibits 13-P, 13-Q, 13-R, 13-S, and 13-T, records, pp. 537-541.
[15]
Rollo, p. 201.
[16]
Exhibit F, records, pp. 383-409.
[17]
Id., p. 384.
[18]
Id.
[19]
Exhibit C, id., p. 499.
Contra, Exhibit A-9, id., pp. 483-484. The construction contract provided:
ARTICLE XVII
RESCISSION OF CONTRACT
17. It is understood that in case of failure on the part of [PETITIONER] to complete
the [project] herein stipulated and agreed on, or if the [project] to be done under this contract is
abandoned by [PETITIONER] or the latter fails to insure its completion within the required time, including
any extension thereof, and in any of these cases, [RESPONDENT] shall have the right to rescind this
contract by giving notice in writing to that effect to [PETITIONER] and its bondsmen.
[RESPONDENT] shall then take over the [project] and proceed to complete the same on its own account.
17.1. It is further agreed and understood that in case of rescission, [RESPONDENT] shall ascertain and fix the value
of the [project] completed by [PETITIONER] such usable materials on the [project] taken.
17.2. In the event that the total expenditures of [RESPONDENT] supplying the scope of [PETITIONER'S] work to
complete the project, including all charges against the project prior to rescission of the contract, and not in
excess of the contract price, then the difference between the said total expenditures of [ RESPONDENT]
and the contract price may be applied to settle claims, if any, with the conformity of [ PETITIONER] filed
by workmen employed on the project and by suppliers furnishing materials therefor. The balance, if any
should be paid, to the [PETITIONER] but no amount in excess of the combined value of the unpaid
completed work and retained percentage at the time of the rescission of this contract shall be paid. No claim
for prospective profits on the work done after rescission of this contract shall be considered or allowed.
17.3. [PETITIONER] and its sureties shall likewise be liable to [RESPONDENT] for any loss caused to
[RESPONDENT] in excess of the contract price. (emphasis supplied)
Rescission under article XVII of the construction contract never took place. Respondent notified neither petitioner
nor its bondsmen that it was invoking its right to rescind under the contract. On the contrary, it was
petitioner who drafted the October 12, 1995 letter-agreement. (The said letter was printed on petitioners
letterhead.) Thus, the succeeding paragraphs quoted above are inapplicable in this case.
[20]
Exhibit F-1, id., p. 386.
[21]
TSN, December 19, 1997, pp. 67-68.
[22]
Id., pp. 94-95 and records, pp. 95-96.
[23]
Id. Petitioner did not protest the new arrangement. In fact, it detailed a project engineer at site who monitored
only the progress of works in its condominium units.
[24]
Exhibits 5-E and 5-F, id., pp. 502-503.

Petitioner's letter dated October 17, 1995 provided a detailed account of the respondent's liabilities. That letter was
duly acknowledged by respondent.
Change Orders
a) CO #1 P 7,496,125.80
b) CO #2 160,975.87
c) CO #3 167,191.15
d) CO #4 311,799.71
e) Penthouse rework (structural) 1,228,781.08
f) Equipment support for MOS precast items 605,788.38
Architectural Works
g) Structural additive CO #1 41,400.00
h) Structural additive CO #2 276,177.00
i)
VAT for structural (42,077,577 x 0.07) 2,945,430.39
j)
VAT for architectural (May 31) 1,849,640.00
k) [Respondent's] share in modular cabinets 2,694,400.00
l)
Letter dated October 2, 1995 under A Nos. 1, 8, 12, 16 37,688.00
m) Letter dated October 2,1 995 under B Nos. 4, 11, 12, 17, 18
19, 22 & 23 and VAT for modular cabinets 726,878.05
n) Letter dated September 28, 1995 under B - #28 10,349.78
o) Letter dated October 12, 1995-- A, B, C, D 7,668,131.76
SUB-TOTAL P26,220,756.97
Others
a) Labor adjustment for architectural
290,000 x 27 7,830,000.00
VAT
a) VAT for e and f (above) - 1,834,569.46 x 0.07 128,419.86
b) VAT for o (above) - 7,688.131.75 x 0.07 536,769.22
c) VAT for nos. 4, 11, 22 & 23 (under B letter
Oct. 2, 1995) - 145,223.52 x 0.04 5,808.94
d) VAT for architectural as of June to December 31, 1995
Accomplished as of Dec. 31, 1995 100.00%
Less: accomplishment as of May 1, 1995 35.57
Accomplishment as of June to Dec. 1995 64.43%
VAT = 130,000,000 x 0.6643 x 0.04 3,350,360.00
e) VAT for 1 above I 1,507.52
f) VAT for A above: labor adjustment for architectural 313,200.00
g) Misc. additive (refer to attached)
A. 2, 5, 7, 9, 10, 11, 13, 14, 16, 17, & B-25 648,211.78
SUB-TOTAL P12,814,277.32
Total change orders and other claims P39,035,033.29
ADD: Balances from other projects:
Balance from Citadel project P 196,379.44
Sunnette Tower expenses advanced by [petitioner] 418,413.61
Balance due to [petitioner] from Citadel units sold by [respondent] 240,785.82
CWT and document stamp [taxes] advanced by [petitioner] 680,850.17
Balance due from 100% swapping MPT architectural contract 894,902.15
Balance from [petitioner] supplied concrete mix for [MPT] project 20,164.50
Balances from other projects 2,451,495.69
LESS: Advances and payable to petitioner 18,065,212.90

AMOUNT DUE FROM RESPONDENT P23,421,316.08


[25]
Demand letter dated October 26, 1997. Exhibits 6 and 7, records, pp. 500-504. The breakdown of the accounts is
as follows:
The remaining balance as of October 12, 1995
(refer to the attached) is P 5,499,233.82
Plus: Amount still payable to [petitioner] to
SUBCONS (labor and materials) 16,244,635.38
Amount still needed as of October 20, 1995 P21,743,869.20
Less: Letter [dated] October 17, 1995 [amount due to
petitioner] (supra note 24) 23,422,316.08
AMOUNT PAYABLE TO [PETITIONER] BY [RESPONDENT] P 1,677,446.85
Plus: Material deliveries from October 20 to 25, 1995 102,298.00
R E V I S E D A M O U N T P 1,779,744.85
[26]
Exhibit 7, id., p. 505.
Balance as of October 26, 1995 P1,779,744.85
Add: Cost of materials delivered from December 6, 1995
to January 25, 1996 244,131.40
AMOUNT PAYABLE TO [PETITIONER] BY [RESPONDENT] P2,023,867.25
Records show that at the time petitioner was working on the (MPT) project, it was also working on respondent's
Sunnette Tower and Citadel projects. It is unclear in relation to which project this cost was incurred.
[27]
A management certificate attests to the fact that the condominium corporation is at least 60% Filipino (or that
foreigners own not more than 40% of that corporation). It is a condition precedent to the issuance of
condominium certificates of title.
[28]
Rollo, pp. 62-63.
[29]
Docketed as HLRB Case No. 9657. Petitioner prayed for the issuance of the management certificate and
condominium certificates of title and the delivery of keys to its respective buyers. Records, pp. 48-53.
[30]
Exhibit G, id., pp. 410-412.
[31]
Penned by housing and land use arbiter Emmanuel T. Pontejos. Rollo, pp. 113-119.
[32]
Id., pp. 116-117.
[33]
Id.
[34]
Records, pp. 518-519. It is not clear whether the said writ was implemented.
[35]
Docketed as Civil Case No. 97-1501. Id., pp. 1-6 and rollo, p. 12.
[36]
ITI assessed the unfinished portion of the project at using the formula:
Contract price x (100% - projected % of work to be accomplished in MPT project)
P130,000,000 x (100% - 48.71%)
[37]
Refer to paragraph 1 of the supplemental agreement.
[38]
Rollo, p. 97.
[39]
See notes 24, 25 and 26. Respondent's liabilities did not only pertain to the MPT project (both structural and
architectural works) but included those incurred in the Sunnette Tower and Citadel projects.
[40]
Rollo, p. 98.
[41]
Id., pp. 109-110. In a rental pool agreement, the owners of several condominium units agree to lease their
respective units at stipulated rates and divide the rent (or their earnings) proportionately according to the
area of their respective units.
MPT rental pool's daily rates
Rate No. of Units
Studio type US$ 75
1-bedroom unit 115
2-bedroom unit 135
3-bedroom unit 180

Total Number of units 114 units


Lost rental income as of July 1997 US$1,665,260
[42]
Penned by Judge Escolatico U. Cruz, Jr. of RTC Branch 58, Makati City. Dated August 5, 1998. Id., pp. 95-112.
[43]
CA rollo, pp. 50-87. Under Rule 41 of the Rules of Court.
[44]
Rollo, p. 15.
[45]
Id.
See CIVIL CODE, Art. 22. The article provides:
Article 22. Every person who through an act or performance by another, or by any other means, acquires or comes
into possession of something at the expense of the latter without just or legal ground, shall return the same
to him.
See also 1 Jose B.L. Reyes and Ricardo C. Puno, AN OUTLINE OF PHILIPPINE CIVIL LAW, 1957 ed., 42-43.
The following are the essential requisites of the action (action in rem verso):
1.
2.
3.
4.
5.

enrichment by direct acquisition of plus value;


impoverishment of another;
correlation between enrichment and impoverishment (i.e., a relation of cause and effect);
absence of justifiable cause for either enrichment or impoverishment; and
lack of other remedy.

The principle of unjust enrichment is inapplicable in this instance since petitioner received the condominium units
and parkings slots as advance payment for services it should have rendered pursuant to the supplemental
agreement. There was therefore a justifiable cause for the delivery of excess properties.
[46]
Id., p. 17.
[47]
Id., pp. 67-70.
[48]
Id.
[49]
Austria v. Gonzales, Jr., 465 Phil. 355, 364 (2004).
[50]
CIVIL CODE, Art. 1305.
[51]
See CIVIL CODE, Art. 1713. The article provides:
Art. 1713. By the contract for a piece of work the contractor binds himself to execute a piece of work for the
employer, in consideration of a certain price or compensation. The contractor may either employ only his
labor or skill or also furnish the material.
[52]
Evidence G, records, p. 499.
[53]
TSN, December 19, 1997, pp. 94-97.
[54]
Id.
[55]
Records, pp. 95-96.
[56]
See notes 24, 25 and 26.
[57]
Velez v. Balzarza, 73 Phil. 630 (1942). See also City of Cebu v. Judge Piccio, 110 Phil. 558 (1960). See also
Andres v. Manufacturer's Hanover Trust, G.R. No. 82670, 15 September 1989, 177 SCRA 618.
[58]
To compute the value of the unfinished portion of the project, the formula below should be used:
Total project cost x (100% - % of project actually accomplished)
Refer to Article 2154.
[60]
Refer to Article 2160.
[61]
Id. See also Melencio S. Sta. Maria, Jr., OBLIGATIONS AND CONTRACTS: TEXT AND CASES, 1st ed., p.
509.
[62]
In order to determine the proportionate cost of the petitioner's actual accomplishment in the project, the formula
below must be used:
[59]

Total project cost x % of the project petitioner actually


P130,000,000 accomplished
(refer to paragraph 2 of the construction contract) (to be determined by the RTC)
[63]
4 Jose B.L. Reyes and Ricardo C. Puno, AN OUTLINE OF PHILIPPINE CIVIL LAW, 1957 ed., 28. See
Philippine Export and Foreign Loan Guarantee Corporation v. V.P. Eusebio Construction, Inc., 478 Phil.
269, 290 (2004).

See CIVIL CODE, Art. 1169. The article provides:


Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, demand by the creditor shall not be necessary in order that delay may exist:
1)
2)

When the obligation or the law expressly declares; or


When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to rendered was a controlling motive for the
establishment of the obligation; or
3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
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.
[64]
Solid Homes v. Tan, G.R. Nos. 145156-57, 29 July 2005, 465 SCRA 137, 147-148.
[65]
Supra note 10. The supplementary agreement clearly stated the construction contract, save those matters
explicitly discussed in the former, governed the project.
[66]
Exhibit A-7, records, p. 481.
[67]
Supra note 11.
[68]
Refer to paragraph 2 of the January 31, 1994 supplemental agreement.
[69]
448 Phil. 643 (2003).
[70]
Id., pp. 652-653 citing Weldon Construction Corporation v. Court of Appeals, G.R. No. L-35721, 12 October
1987, 154 SCRA 618, 632-634.
[71]
Id., p. 633.
See also San Diego v. Sayson, 112 Phil. 1073 (1961). We explained the rationale of Article 1724.
That the requirement for a written authorization is not merely to prohibit admission of oral testimony against the
objection of the adverse party can be inferred from the fact that the provision is not included among those
specified in the Statute of Frauds, Article 1403 of the Civil Code. As it does not appear to have been
intended as an extension of the Statute of Frauds, it must have been adopted as a substantive provision or a
condition precedent to recovery.
[72]
TSN, December 18, 1997, pp. 127-128. The records contain neither a document allowing a change order or an
agreement as to increase in cost.
[73]
Powton Conglomerate, Inc. v. Agcolicol, supra note 69 at 655-656.
[74]
Integrated Packing Corporation v. Court of Appeals, 388 Phil. 835, 846 (2000). See also Smith Kline Beckman
Corporation v. Court of Appeals, 456 Phil. 213, 225-226 (2003).
[75]
Supra note 41.
[76]
Rollo, p. 111.
[77]
Supra note 24.
[78]
Reyes and Puno, supra note 63 at 274. This case involves estoppel by judgment. Estoppel by judgment bars the
parties from raising any question that should have been put in issue and decided in previous proceedings.
[79]
See Metro Manila Transit Corporation v. D.M. Consortium, Inc., G.R. No. 147594, 7 March 2007, 517 SCRA
632, 642.

FIRST DIVISION

[G.R. No. 146807. May 9, 2002]

PADCOM CONDOMINIUM CORPORATION, petitioner, vs.


CENTER ASSOCIATION, INC., respondent.

ORTIGAS

DECISION
DAVIDE, JR., C.J.:

Challenged in this case is the 30 June 2000 decision[1] of the Court of Appeals in CA-G.R.
CV No. 60099, reversing and setting aside the 1 September 1997 decision [2] of the Regional Trial
Court of Pasig City, Branch 264, in Civil Case No. 63801.[3]
Petitioner Padcom Condominium Corporation (hereafter PADCOM) owns and manages the
Padilla Office Condominium Building (PADCOM Building) located at Emerald Avenue, Ortigas
Center, Pasig City. The land on which the building stands was originally acquired from the
Ortigas & Company, Limited Partnership (OCLP), by Tierra Development Corporation (TDC)
under a Deed of Sale dated 4 September 1974. Among the terms and conditions in the deed of
sale was the requirement that the transferee and its successor-in-interest must become members
of an association for realty owners and long-term lessees in the area later known as the Ortigas
Center. Subsequently, the said lot, together with improvements thereon, was conveyed by TDC in
favor of PADCOM in a Deed of Transfer dated 25 February 1975.[4]
In 1982, respondent Ortigas Center Association, Inc. (hereafter the Association) was
organized to advance the interests and promote the general welfare of the real estate owners and
long-term lessees of lots in the Ortigas Center. It sought the collection of membership dues in the
amount of two thousand seven hundred twenty-four pesos and forty centavos (P2,724.40) per
month from PADCOM. The corporate books showed that PADCOM owed the
Association P639,961.47, representing membership dues, interests and penalty charges from
April 1983 to June 1993.[5] The letters exchanged between the parties through the years showed
repeated demands for payment, requests for extensions of payment, and even a settlement
scheme proposed by PADCOM in September 1990.
In view of PADCOMs failure and refusal to pay its arrears in monthly dues, including
interests and penalties thereon, the Association filed a complaint for collection of sum of money
before the trial court below, which was docketed as Civil Case No. 63801. The Association
averred that purchasers of lands within the Ortigas Center complex from OCLP are obligated
under their contracts of sale to become members of the Association. This obligation was
allegedly passed on to PADCOM when it bought the lot from TDC, its predecessor-in-interest.[6]
In its answer, PADCOM contended that it is a non-stock, non-profit association, and for it to
become a special member of the Association, it should first apply for and be accepted for
membership by the latters Board of Directors. No automatic membership was apparently
contemplated in the Associations By-laws. PADCOM added that it could not be compelled to
become a member without violating its right to freedom of association. And since it was not a
member of the Association, it was not liable for membership dues, interests and penalties.[7]
During the trial, the Association presented its accountant as lone witness to prove that
PADCOM was, indeed, one of its members and, as such, did not pay its membership dues.

PADCOM, on the other hand, did not present its evidence; instead it filed a motion to
dismiss by way of demurrer to evidence. It alleged that the facts established by the Association
showed no right to the relief prayed for. It claimed that the provisions of the Associations Bylaws and the Deed of Transfer did not contemplate automatic membership. Rather, the owner or
long-term lessee becomes a member of the Association only after applying with and being
accepted by its Board of Directors. Assuming further that PADCOM was a member of the
Association, the latter failed to show that the collection of monthly dues was a valid corporate
act duly authorized by a proper resolution of the Associations Board of Directors.[8]
After due consideration of the issues raised in the motion to dismiss, the trial court rendered
a decision dismissing the complaint.[9]
The Association appealed the case to the Court of Appeals, which docketed the appeal as
CA-G.R. CV No. 60099. In its decision[10] of 30 June 2000, the Court of Appeals reversed and set
aside the trial courts dismissal of Civil Case No. 63801, and decreed as follows:

WHEREFORE, the appealed decision dated September 1, 1997


is REVERSED and SET ASIDE and, in lieu thereof, a new one is entered ordering
the appellee (PADCOM) to pay the appellant (the Association) the following:
1) P639,961.47 as and for membership dues in arrears inclusive of earned interests
and penalties; and
2) P25,000.00 as and for attorneys fees.
Costs against the appellees.
SO ORDERED.
The Court of Appeals justified its ruling by declaring that PADCOM automatically became a
member of the Association when the land was sold to TDC. The intent to pass the obligation to
prospective transferees was evident from the annotation of the same clause at the back of the
Transfer Certificate of Title covering the lot. Despite disavowal of membership, PADCOMs
membership in the Association was evident from these facts: (1) PADCOM was included in the
Associations list of bona fide members as of 30 March 1995; (2) Narciso Padilla, PADCOMs
President, was one of the Associations incorporators; and (3) having received the demands for
payment, PADCOM not only acknowledged them, but asked for and was granted repeated
extensions, and even proposed a scheme for the settlement of its obligation. The Court of
Appeals also ruled that PADCOM cannot evade payment of its obligation to the Association
without violating equitable principles underlying quasi-contracts. Being covered by the
Associations avowed purpose to promote the interests and welfare of its members, PADCOM
cannot be allowed to expediently deny and avoid the obligation arising from such membership.
Dissatisfied with the adverse judgment of the Court of Appeals, PADCOM filed the petition
for review in this case. It raises the sole issue of whether it can be compelled to join the
association pursuant to the provision on automatic membership appearing as a condition in the

Deed of Sale of 04 September 1974 and the annotation thereof on Transfer Certificate of Title
No. 457308.
PADCOM contends that it cannot be compelled to be a member of the Association solely by
virtue of the automatic membership clause that appears on the title of the property and the Deed
of Transfer.In 1975, when it bought the land, the Association was still inexistent. Therefore, the
provision on automatic membership was anticipatory in nature, subject to the actual formation of
the Association and the subsequent formulation of its implementing rules.
PADCOM likewise maintains that the Associations By-laws requires an application for
membership. Since it never sought membership, the Court of Appeals erred in concluding that it
was a member of the Association by implication. Aside from the lack of evidence proving such
membership, the Association has no basis to collect monthly dues since there is no board
resolution defining and prescribing how much should be paid.
For its part, the Association claims that the Deed of Sale between OCLP and TDC clearly
stipulates automatic membership for the owners of lots in the Ortigas Center, including their
successors-in-interest. The filing of applications and acceptance thereof by the Board of
Directors of the Association are, therefore, mere formalities that can be dispensed with or
waived. The provisions of the Associations By-laws cannot in any manner alter or modify the
automatic membership clause imposed on a property owner by virtue of an annotation of
encumbrance on his title.
The Association likewise asserts that membership therein requires the payment of certain
amounts for its operations and activities, as may be authorized by its Board of Directors. The
membership dues are for the common expenses of the homeowners for necessary services.
After a careful examination of the records of this case, the Court sees no reason to disturb
the assailed decision. The petition should be denied.
Section 44 of Presidential Decree No. 1529[11] mandates that:

SEC. 44. Statutory liens affecting title. Every registered owner receiving a certificate
of title in pursuance of a decree of registration, and every subsequent purchaser of
registered land taking a certificate of title for value and in good faith, shall hold the
same free from all encumbrances except those noted on said certificate and any of the
following encumbrances which may be subsisting, namely: xxx
Under the Torrens system of registration, claims and liens of whatever character, except
those mentioned by law, existing against the land binds the holder of the title and the whole
world.[12]
It is undisputed that when the land in question was bought by PADCOMs predecessor-ininterest, TDC, from OCLP, the sale bound TDC to comply with paragraph (G) of the covenants,
conditions and restrictions of the Deed of Sale, which reads as follows:[13]

G. AUTOMATIC MEMBERSHIP WITH THE ASSOCIATION:

The owner of this lot, its successor-in-interest hereby binds himself to become a
member of the ASSOCIATION which will be formed by and among purchasers, fully
paid up Lot BUYERS, Building Owners and the COMPANY in respect to
COMPANY OWNED LOTS.
The OWNER of this lot shall abide by such rules and regulations that shall be laid
down by the ASSOCIATION in the interest of security, maintenance, beautification
and general welfare of the OFFICE BUILDING zone. The ASSOCIATION when
organized shall also, among others, provide for and collect assessments which shall
constitute a lien on the property, junior only to liens of the Government for taxes.
Evidently, it was agreed by the parties that dues shall be collected from an automatic
member and such fees or assessments shall be a lien on the property.
This stipulation was likewise annotated at the back of Transfer Certificate of Title No.
457308 issued to TDC.[14] And when the latter sold the lot to PADCOM on 25 February 1975, the
Deed of Transfer expressly stated:[15]

NOW, THEREFORE, for and in consideration of the foregoing premises, the


DEVELOPER, by these presents, cedes, transfers and conveys unto the
CORPORATION the above-described parcel of land evidenced by Transfer Certificate
of Title No. 457308, as well as the Common and Limited Common Areas of the
Condominium project mentioned and described in the Master Deed with Declaration
of Restrictions (Annex A hereof), free from all liens and encumbrances, except those
already annotated at the back of said Transfer Certificate of Title No. 457308, xxx
This is so because any lien annotated on previous certificates of title should be incorporated in or
carried over to the new transfer certificates of title. Such lien is inseparable from the property as
it is a right in rem, a burden on the property whoever its owner may be. It subsists
notwithstanding a change in ownership; in short, the personality of the owner is disregarded.
[16]
As emphasized earlier, the provision on automatic membership was annotated in the
Certificate of Title and made a condition in the Deed of Transfer in favor of
PADCOM. Consequently, it is bound by and must comply with the covenant.
Moreover, Article 1311 of the Civil Code provides that contracts take effect between the
parties, their assigns and heirs. Since PADCOM is the successor-in-interest of TDC, it follows
that the stipulation on automatic membership with the Association is also binding on the former.
We are not persuaded by PADCOMs contention that the By-laws of the Association requires
application for membership and acceptance thereof by the Board of Directors. Section 2 of the
By-laws[17]reads:

Section 2. Regular Members. Upon acceptance by the Board of Directors of Ortigas


Center Association, Inc., all real estate owners, or long-term lessees of lots within the
boundaries of the Association as defined in the Articles of Incorporation become

regular members, provided, however that the long-term lessees of a lot or lots in said
area shall be considered as the regular members in lieu of the owners of the same.
Likewise, regular membership in the Association automatically ceases upon the
cessation of a member to be an owner or long-term lessee of real estate in the area.
A lessee shall be considered a long-term lessee if his lease is in writing and for a
period of two (2) years or more. Membership of a long-term lessee in the Association
shall be co-terminus with his legal possession (or his lease) of the lot/s in the
area. Upon the lessees cessation of membership in the Association, the owner shall
automatically succeed the lessee as member thereat.
As lot owner, PADCOM is a regular member of the Association. No application for
membership is necessary. If at all, acceptance by the Board of Directors is a ministerial function
considering that PADCOM is deemed to be a regular member upon the acquisition of the lot
pursuant to the automatic membership clause annotated in the Certificate of Title of the property
and the Deed of Transfer.
Neither are we convinced by PADCOMs contention that the automatic membership clause is
a violation of its freedom of association. PADCOM was never forced to join the association. It
could have avoided such membership by not buying the land from TDC. Nobody forced it to buy
the land when it bought the building with the annotation of the condition or lien on the
Certificate of Title thereof and accepted the Deed. PADCOM voluntarily agreed to be bound by
and respect the condition, and thus to join the Association.
In addition, under the principle of estoppel, PADCOM is barred from disclaiming
membership in the Association. In estoppel, a person, who by his act or conduct has induced
another to act in a particular manner, is barred from adopting an inconsistent position, attitude or
course of conduct that thereby causes loss or injury to another.[18]
We agree with the Court of Appeals conclusion from the facts or circumstances it
enumerated in its decision and enumerated above that PADCOM is, indeed, a regular member of
the Association. These facts and circumstances are sufficient grounds to apply the doctrine of
estoppel against PADCOM.
Having ruled that PADCOM is a member of the Association, it is obligated to pay its dues
incidental thereto. Article 1159 of the Civil Code mandates:

Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
Assuming in gratis argumenti that PADCOM is not a member of the Association, it cannot
evade payment without violating the equitable principles underlying quasi-contracts. Article
2142 of the Civil Code provides:

Art. 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical
relation of quasi-contract to the end that no one shall be unjustly enriched or benefited
at the expense of another.

Generally, it may be said that a quasi-contract is based on the presumed will or intent of the
obligor dictated by equity and by the principles of absolute justice. Examples of these principles
are: (1) it is presumed that a person agrees to that which will benefit him; (2) nobody wants to
enrich himself unjustly at the expense of another; or (3) one must do unto others what he would
want others to do unto him under the same circumstances.[19]
As resident and lot owner in the Ortigas area, PADCOM was definitely benefited by the
Associations acts and activities to promote the interests and welfare of those who acquire
property therein or benefit from the acts or activities of the Association.
Finally, PADCOMs argument that the collection of monthly dues has no basis since there
was no board resolution defining how much fees are to be imposed deserves scant
consideration. Suffice it is to say that PADCOM never protested upon receipt of the earlier
demands for payment of membership dues. In fact, by proposing a scheme to pay its obligation,
PADCOM cannot belatedly question the Associations authority to assess and collect the fees in
accordance with the total land area owned or occupied by the members, which finds support in a
resolution dated 6 November 1982 of the Associations incorporating directors [20] and Section 2 of
its By-laws.[21]
WHEREFORE, the petition is hereby DENIED for lack of merit.
Costs against petitioner.
SO ORDERED.
Puno, Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concur.

[1]

Rollo, 29. Per Martin, Jr., F., J., ponente, with Valdez, Jr., S. and Fernando, S., JJ., concurring.

[2]

Id., 95-106, Per Judge Leoncio M. Janolo, Jr.

[3]

Entitled Ortigas Center Association, Inc. v. Padcom Condominium Corporation.

[4]

Rollo, 115-118.

[5]

Annex G; Rollo, 74.

[6]

Rollo, 50-54.

[7]

Rollo, 55-59.

[8]

Id., 80-93.

[9]

Id., 106.

[10]

Supra note 1.

[11]

Amending and Codifying the Laws Relative to Registration of Property and for Other Purposes.

[12]

See Narciso Pea, Narciso Pea, Jr., and Nestor N. Pea, Registration of Land Titles and Deeds, 1988 ed., 162.

[13]

Rollo, 111.

[14]

CA Decision, 4; Rollo, 32.

[15]

Rollo, 117.

[16]

See Ligon v. Court of Appeals, 244 SCRA 693 [1995].

[17]

Rollo, 62-63.

[18]

Cruz v. Court of Appeals, 293 SCRA 239, 255-256 [1998].

[19]

Tolentino, Civil Code of the Philippines, Vol. V, 1992 ed., 575 citing 5 Gutierrez 596.

[20]

Rollo, 125.

[21]

Id., 66-67.