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FIRST DIVISION

[G.R. No. 29155. November 5, 1928.]


JOSEFINA RUBIO DE LARENA, plaintiffappellant, vs. HERMENEGILDO VILLANUEVA, defendant-appellee.
Abad Santos, Camus & Delgado and Jose Montao for appellant.
Del Rosario & Del Rosario for appellee.
SYLLABUS
1. CONTRACT OF LEASE; ACTION FOR RECOVERY OF RENT; INSTALLMENTS OF RENT.
When a contract of lease provides for the payment of the rent in separate installments, each
installment may be considered an independent cause of action, but in an action upon such a lease
for the recovery of rent, the installments due at the time the action was brought must be included
in the complaint, and failure to do so constitutes a bar to a subsequent action for such overdue
rent.
2. SPLITTING OF CAUSE OF ACTION. The principle is well established that a party will not
be permitted to split a cause of action and make it the basis of several suits, but that rule applies
only to cases where the cause is in existence at the time the action is brought.
3. RESOLUTION OF CONTRACT OF LEASE; RESCISSION; DISTINCTION UNIMPORTANT IN THIS
CASE. In an action brought under article 1124 of the Civil Code for terminating a lease, the
subject matter may, properly speaking, be designated as a resolution of the contract and not a
rescission, but that is a distinction without a difference, and in either case a judicial declaration is
necessary for the cancellation of the contract in the absence of a special agreement.
DECISION
OSTRAND, J p:
The case at bar is a sequel to case G. R. No. 21706, Josefina Rubio
de Larena vs. Hermenegildo Villanueva, decided on March 26, 1924. 1 In that case we affirmed a
decision of the Court of First Instance ordering the rescission of a lease of the Tacgajan Sugar
Plantation and the payment by the defendant-lessee of the unpaid balance of the rent for the
agricultural year 1920-1922 in the sum of P5,949.28 with interest from August 26, 1922, and for
P8,000 in rent for the agricultural year 1921-1923. The decision also provided that the possession
of the leased land be delivered to the plaintiff.
Shortly after the record was returned to the court below, a writ of execution was issued, but
before levy was made the parties came to an agreement, under which the money judgment was to
be satisfied by the payment of P10,500 in cash and the transfer to the plaintiff of a dwelling house
situated in the municipality of Bais. The agreement was carried out in accordance with its terms,
and on September 30, 1924, the following document was executed by the plaintiff:
"Habiendo llegado a un convenio entre la que subscribe, ejecutante, en la
causa civil No. 67 decidida por la Corte Suprema, y el ejecutado, Don
Hermenegildo Villanueva, por la presente declaro haber recibido del Sherif Provincial
de Negros Oriental, y a mi entera satisfaccion la suma de diez mil quinientos pesos
(P10,500), mas una casa residencial con su solar, situada en la plaza del Municipio de
Bais, Provincial de Negros Oriental, cuyas descripciones aparecen en un documento
aparte, por el importe de la ejecucion expedida por el Juzgado de Negros Oriental el
14 de mayo de 1924, en virtud de una decision de la Corte Suprema. Con este queda
definitivamente cumplimentada esta ejecucion.
"Y para que asi conste, firmo la presente en el Municipio de Bais, Provincia de
Negros Oriental, I. F., ante el Sheriff Provincial de esta Provincia de Negros Oriental y
el Notario Pblico Don Francisco Romero, que ratifica este compromiso.
"(Fda.) JOSEFINA RUBIO, Vda. DE LARENA
"Firmado en presencia de:
"(Fdos.) BRAULIO RUBIO
"FRANCISCO PIERO"
(ACKNOWLEDGMENT)
In the meantime, the defendant had harvested the sugarcane crop produced in the
agricultural year 1922-1924, and after having satisfied the aforesaid money judgment, he also
continued in possession of the plantation long enough to appropriate to himself the following
ratoon cane crop.
The present action was brought on April 13, 1925, but the last amended complaint, setting
forth three causes of action, was not filed until June 17, 1927. As her first cause of action the
plaintiff, after a preliminary statement of the origin of the controversy, alleges that while case G.
R. No. 21706 was on appeal to the Supreme Court, the defendant knew positively that the
aforesaid lease was declared rescinded by the Court of First Instance on September 8, 1923, and
that he, the defendant, also knew that he thereafter was not entitled to the possession of the
aforesaid hacienda; that he, nevertheless, in bad faith continued in such possession during the
agricultural year 1922-1924 and appropriated to himself the cane harvest for that year, which

after deducting the share of the sugar central, produced 1,679.02 piculs for his own benefit, which
sugar was sold by him for the sum of P13 a picul; that the plaintiff has demanded payment to her
of the total value of said 1,679.02 piculs, amounting to P21,827.26, but that the defendant refuses
to pay. The plaintiff, therefore, asks judgment for the sum of P21,827.26 upon the first cause of
action.
For a second cause of action the plaintiff alleges that under the contract of lease of the
Tacgajan Hacienda, one of the obligations assumed by the defendant was that he would use the
care of a good father of the family in conserving the tools, agricultural implements, draft animals,
and other effects enumerated in an inventory made at the time the defendant entered in
possession under the lease; that he was further obligated to return said property to the plaintiff,
but that he returned only a part thereof and failed to return 4 carabaos, 4 vacunos, 1 corn mill, 4
wagons, 106 steel rails, 14 plows, 1 table, 1 scale, and 1 telephone, the total value of the property
enumerated being P3,596 for which amount, plus P500 in damages, the plaintiff asks judgment
under her second cause of action.
As a third cause of action the plaintiff alleges that the harvest of sugar cane illegally made
by the defendant in 1924 left ratoon sugar cane in the fields of the hacienda, which sugar cane
was the property of the plaintiff, and that during the year 1925, the defendant illegally harvested
said ratoon cane together with some recently planted cane, which harvest after deducting the
share of the sugar central, produced 1,613.25 piculs of sugar, which the defendant sold for his
own benefit at the price of P13 per picul, the total amount received by him being P20,962.25 for
which the plaintiff demands judgment.
In his answer to the first and third causes of action, the defendant alleges that according to
the pleadings in case G. R. No. 21706, the two causes of action were included in that case and,
therefore, must be considered res adjudicata. In regard to the second cause of action the
defendant pleads the general issue and sets up as a special defense that assuming that the
property referred to in said cause of action was missing, its loss was due to its total extinction by
ordinary use, for which the defendant could not be held responsible. For all three causes of action,
the defendant sets up as a special defense the document executed by the plaintiff on September
30, 1924, acknowledging the satisfaction of the judgment in case G. R. No. 21706.
Upon trial the Court of First Instance sustained the defendant's special defense and
absolved him from the complaint with the costs against the plaintiff, whereupon the latter
appealed to this court.
We do not think that the court below erred in absolving the defendant from liability upon
the second cause of action. It is not without significance that in her original complaint the plaintiff
claimed only 5 plows, 6 carts, 3 carabaos and 4 vacunos, the total value of which was alleged to
be P1,360; in the first amended complaint filed over two years later, the same claim was made,
but in the last amended complaint a number of other articles were included, thus increasing the
claim to P3,596. The court below found that the weight of the evidence showed that the missing
draft animals died from rinderpest and that the other personal property was turned over to the
provincial sheriff for delivery to the plaintiff before the writ of execution was returned to the court.
If so, the action would lie against the sheriff rather than against the defendant.
As to the first cause of action the defendant argues that it was included in the prayer of an
amended complaint filed in case G. R. No. 21706 and that, although no express determination
thereof was made in the decision of the case, it must, nevertheless, be regarded as res adjudicata.
That such is not the case is very clear. The Code of Civil Procedure says:
"That only is deemed to have been adjudged in a former judgment which
appears upon its face to have been so adjudged, or which was actually and
necessarily included therein or necessary thereto." (Sec. 307, Code of Civ. Proc.)
But the defendant maintains that the plaintiff having had an opportunity to ventilate the
matter in the former case, she cannot now enforce the same cause of action in the present case.
Properly speaking, this argument does not involve the doctrine of res adjudicata but rests on the
well-known and, in American law, firmly established principle that a party will not be permitted to
split up a single cause of action and make it the basis for several suits. But that is not this case.
The rule is well established that when a lease provides for the payment of the rent in separate
installments, each installment is an independent cause of action, though it has been held, and is
good law, that in an action upon such a lease for the recovery of rent, the installments due at the
time the action is brought must be included in the complaint and that failure to do so will
constitute a bar to a subsequent action for the payment of that rent. The aforesaid action, G. R.
No. 21706, was brought on August 23, 1922, the plaintiff demanding payment of the then due rent
in addition to the rescission of the lease. On July 27, 1923, the plaintiff filed a motion for an
amendment to paragraph 6 of the complaint adding to that paragraph the following sentence:
"Que tambien ha vencido ya el tercer ao del arrendamiento de la finca en
cuestion y que tampoco ha pagado el demandado el canon correspondiente a dicho
ao."

The plaintiff also amended the prayer of the complaint by asking judgment for rent for
years subsequent to 1922. The motion was granted, and the case came up for trial on July 30,
1923, and on September 8, 1923, the trial court rendered its decision giving judgment for rent up
to and including the rent for the agricultural year ending in 1923. The lease did not provide for
payment of rent in advance or at any definite time, and it appears plainly from the record that the
rent for an agricultural year was not considered due until the end of the corresponding year. It
follows that the rent for the agricultural year 1922-1924 had not become due at the time of the
trial of the case and that consequently the trial court could not render judgment therefor. The
action referred to is, therefore, no bar to the first cause of action in the present litigation.
The defendant places much weight upon the document of September 30, 1924,
hereinbefore quoted. The document speaks for itself, and it will be readily seen that it is merely a
receipt for the satisfaction of the money judgment in the case G. R. No. 21706 and has nothing to
do with the present case.
The only question remaining in regard to the first cause of action relates to the amount of
the damages. The plaintiff contends that the defendant was a possessor in bad faith, and
therefore, must pay the value of the fruits of the land in accordance with article 455 of the Civil
Code. Under the circumstances of the case, we cannot so hold. The defendant held possession
under the contract of lease until said contract was rescinded. The contract contained no special
provision for the procedure in effecting the rescission, and it follows that it could only be
accomplished by a final judgment of the court. The judgment in case G. R. No. 21706 did not
become final until March 27, 1924, when our decision on appeal was rendered. As that must have
been close to the end of the harvest and milling of the sugar crop for the period to which the first
cause of action refers, we do not think that the defendant should be required to pay more than the
amount of the stipulated rent for that period, i.e., the sum of P8,000 with interest. (Lerma vs. De la
Cruz, 7 Phil., 581.)
The action for terminating the lease was brought under article 1124 of the Civil Code, and it
may, perhaps, be said that property speaking, the subject matter of the action was a resolution of
the contract and not a rescission. That may be true, but it is a distinction without a difference; in
either case a judicial declaration would be necessary for the cancellation of the contract in the
absence of a special agreement.
Very little need be said in regard to the third cause of action. It relates to a period
subsequent to the complete termination of the lease by final judicial order. The defendant had
then no right whatever to the possession of the land or to the fruits thereof, and in removing the
fruits, he acted in bad faith. This being the case, he must pay for the fruits received by him, less
the necessary expenses of production. (Arts. 455 and 453 of the Civil Code.) As his bad faith
commenced long before the fruits in question were produced, he is not entitled to any part of the
net proceeds of the crop. The evidence shows that the net ratoon crop for the year 1924-1925 was
1,613.25 piculs of sugar, and according to the defendant's own statement, the market value of the
sugar was in the neighborhood of P11 per picul and the cost of production about P4.50. The net
result is that under the third cause of action, the defendant must pay to the plaintiff the sum of
P10,486.13 with interest.
For the reasons stated, the judgment of the court below is affirmed in regard to the second
cause of action. It is reversed as to the first and third causes of action, and it is hereby ordered
that the plaintiff have and recover from the defendant the sum of P18,486.13 with interest at the
rate of 6 per cent per annum from April 13, 1925, the date of the filing of the complaint. No costs
will be allowed. So ordered.
Avancea, C. J., Johnson, Street, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.
Separate Opinions
ORDER AMENDING DECISION
December 10, 1928
OSTRAND, J.:
In a motion filed by the defendant on November 14, 1928, our attention is called to a
mathematical error in that we, in discussing the plaintiff's third cause of action, failed to take into
consideration the fact that one-half of the gross ratoon crop produced on the land in question in
the agricultural year 1924-1925 was ceded to the sugar central as compensation for the milling of
the cane and that the defendant paid the expenses of the production of the total or gross crop.
Page 8 of the aforesaid decision is therefore amended so as to read as follows:
"Very little need be said in regard to the third cause of action. It relates to a
period subsequent to the complete termination of the lease by final judicial order. The
defendant had then no right whatever to the possession of the land or to the fruits
thereof, and in removing the fruits, he acted in bad faith. This being the case, he must
pay for the fruits received by him, less the necessary expenses of production. (Arts.
455 and 453 of the Civil Code.) As his bad faith commenced long before the fruits in
question were produced, he is not entitled to any part of the next proceeds of the
crop. The evidence shows that the gross ratoon crop for the year 1924-1925 was

3,226.50 piculs of sugar, and according to the defendant's own statement, the market
value of the sugar was in the neighborhood of P11 per picul and the cost of production
about P4.50. The defendant received only one- half of the gross crop, the other half
going to the sugar central as compensation for the milling of the cane, but the
defendant paid the cost of production both of his share of the sugar and that of the
sugar central. The net result is that under the third cause of action, the defendant
must pay to the plaintiff the sum of P3,226.50 with interest.
"For the reasons stated, the judgment of the court below is affirmed is regard
to the second cause of action. It is reversed as to the first and third causes of action,
and it is hereby ordered that the plaintiff have and recover from the defendant of sum
of P11,226.50 with interest at the rate of 6 per cent per annum from April 13, 1925,
the date of the filing of the complaint. No costs will be allowed." So ordered.
Avancea, C. J., Johnson, Street, Malcolm, Villamor, Romualdez and Villa-Real, JJ., concur.
||| (Larena v. Villanueva, G.R. No. 29155, [November 5, 1928])

SECOND DIVISION
[G.R. No. 32958. November 8, 1930.]
BLOSSOM & COMPANY, INC., plaintiffappellant, vs. MANILA GAS CORPORATION, defendant-appellee.
Harvey & O'Brien for appellant.
Ross, Lawrence & Selph and John B. Miller for appellee.
SYLLABUS
1. WHEN FORMER JUDGMENT IS A BAR. In its compliant of March 3, 1927, plaintiff seeks
to recover damages accrued since November 23, 1923, for a willful breach of a contract for the
sale and delivery of water gas and coal gas tar at stipulated prices, and for answer defendant
alleges that in the former action in the Court of First Instance of the City of Manila, in which
plaintiff here was the plaintiff, and the defendant here was the defendant, and founded upon the
same cause of action alleged in the complaint that plaintiff recovered judgment against the
defendant on the merits, decreeing a breach of the same contract and awarding damages in favor
of the plaintiff in the sum of P26,119.08 with legal interest from November 23, 1923, which
judgment became and is now final. Held, That the judgment which the plaintiff obtained in the
former action founded upon a breach of the same contract is a bar to this action.
2. ONLY ONE CAUSE OF ACTION WHEN CONTRACT IS ENTIRE. As a general rule, a
contract to do several things at several times is divisible, and a judgment for a single breach of a
continuing contract is not a bar to a suit for a subsequent breach. But where the contract is entire,
and the breach total, there can be only one action in which plaintiff must recover all damages.
3. WHEN CONTRACT IS INDIVISIBLE. When the defendant terminated a continuing
contract by absolute refusal in bad faith to perform, a claim for damages for a breach is an
indivisible demand, and where, as in this case, a former final judgment was rendered, it is a bar to
any damages which plaintiff may thereafter sustain.
4. WHAT PLAINTIFF SHOULD PROVE. In an indivisible contract plaintiff should prove in the
first action not only such damages as it has then actually sustained, but also such prospective
damages as it may be legally entitled to recover by reason of the breach.
STATEMENT
In its complaint filed March 3, 1927, the plaintiff alleges that on September 10, 1918, it
entered into a contract with the defendant in which the plaintiff promised and undertook to
purchase and receive from the defendant, and the defendant agreed to sell and deliver to the
plaintiff, for a period of four years, three tons of water gas tar per month from September to
January 1, 1919, and twenty tons per month after January 1, 1919, for the remaining period of the
contract; one-half ton of coal gas tar a month from September to January 1, 1919, and six tons per
month after January 1, 1919, for the remainder of the contract, delivery to be made at the plant of
the defendant in the City of Manila, without containers, and at the price of P65 per ton for each
kind of gas tar, it being agreed that this price should prevail only so long as the raw materials
coal and crude oil used by the defendant in the manufacture of gas should cost the defendant

the same price as that prevailing at the time of the contract, and that in the event of an increase
or decrease in the cost of raw materials, there would be a corresponding increase or decrease in
the price of the tar. That on January 31, 1919, this contract was amended so that it should
continue to remain in force for a period of ten years from January 1, 1919, and it was agreed that
the plaintiff should not be obliged to take the quantities of the tars required during the year 1919,
but that it might purchase tars in such quantities as it could use to advantage at the stipulated
price. That after the year 1919, the plaintiff would take at least the quantities specified in the
contract of September 10, 1918, to be taken from and after January 1, 1919, and that at its option
it would have the right to take any quantity of water gas tar in excess of the minimum quantity
specified in that contract, and up to the total amount of output of that tar of defendant's plant,
and also to take any quantity of coal gas tar in excess of the minimum quantity specified in that
contract and up to 50 per cent of defendant's entire output of coal gas tar, and that by giving the
defendant ninety days' notice, it would have the right at its option to take the entire output of
defendant's coal gas tar, except such as it might need for its own use in and about its plant. That
in consideration of this modification of the contract of September 10, 1918, plaintiff agreed to
purchase from the defendant a certain piece of land lying adjacent to its plant at the price of P5
per square meter, and proof of which is evidenced by Exhibit C. That pursuant to Exhibit C,
defendant sold and conveyed the land to the plaintiff which in turn executed a mortgage thereon
to the defendant for P17,140.20, to secure the payment of the balance of the purchase price.
It is then alleged:
"VIII. That about the last part of July, 1920, the defendant herein,
the Manila Gas Corporation, willfully and deliberately breached its said contract, Exhibit C, with the
plaintiff by ceasing to deliver any coal and water gas tar to it thereunder solely because of the
increased price of its tar products and its desire to secure better prices therefor than plaintiff was
obligated to pay to it, notwithstanding the frequent and urgent demands made by the plaintiff
upon it to comply with its aforesaid contract by continuing to deliver the coal and water gas tar to
the plaintiff thereunder, but the said contract, and finally on November 23, 1923, the plaintiff was
forced to commence action against the defendant herein in the Court of First Instance of Manila,
being case No. 25352, of that court, entitled 'Blossom & Co., plaintiff, vs. Manila Gas Corporation,
defendant,' to recover the damages which it had up to that time suffered by reason of such
flagrant violation of said contract on the part of the defendant herein, and to obtain the specific
performance of the said contract, and after due trial of that action, judgment was entered therein
in favor of the plaintiff herein and against the said defendant, the Manila GasCorporation, for the
sum of P26,119.08, as the damages suffered by this plaintiff by the defendant's breach of said
contract from July, 1920, up to and including September, 1923, with legal interest thereon from
November 23, 1923, and for the costs but the court refused to order the said defendant to resume
the delivery of the coal and water gas tar to the plaintiff under said contract, but left the plaintiff
with its remedy for damages against said defendant for the subsequent breaches of said contract,
which said decision, as shown by the copy attached hereto as Exhibit G, and made a part hereof,
was affirmed by our Supreme Court on March 3, 1926;
"IX. That after the defendant had willfully and deliberately violated its said contract, as
herein-before alleged, and the plaintiff had suffered great damage by reason thereof, the plaintiff
claimed the right to off-set its damages against the balance due from it to said defendant on
account of the purchase of said land from the defendant, and immediately thereupon and
notwithstanding said defendant was justly indebted to the plaintiff at that time, as shown by the
judgment of the court, Exhibit G, in more than four times the amount due to it from the plaintiff,
the said defendant caused to be presented against the plaintiff a foreclosure action, known as
the Manila Gas Corporation versus Blossom & Company, No. 24267, of the Court of First Instance
of Manila, and obtained judgment therein ordering that Blossom & Company pay the last
installment and interest due on said land or else the land and improvements placed thereon by
the plaintiff would be sold, as provided by law in such cases of satisfy the same, and the said
defendant proceeded with the sale of said property under said judgment and did everything in its
power to sell the same for the sole purpose of crushing and destroying the plaintiff's business and
thus rendering it impossible for the plaintiff herein to continue with its said contract in the event
that said defendant might in the future consider it more profitable to resume performance of the
same, but fortunately the plaintiff was able to redeem its property, as well as to comply with its
contract, and continued demanding that the defendant performed its said contract and deliver to
it the coal and water gas tar required thereby."
That the defendant made no deliveries under its contract, Exhibit C, from July, 1920, to
March 26, 1926, or until after the Supreme Court affirmed the judgment of the lower court for
damages in the sum of P26,119.08. 1
It is then alleged that:
". . . On March 26, 1926, the said defendant offered to resume delivery to the
plaintiff from that date of the minimum monthly quantities of tars stated in its
contract, and the plaintiff believing that the said defendant was at least going to try

to act in good faith in the further performance of its said contract, commenced to
accept deliveries of said tars from it, and at once ascertained that the said defendant
was deliberately charging it prices much higher than the contract price, and while the
plaintiff accepted deliveries of the minimum quantities of tars stated in said contract
up to and including January, 1927, (although it had demanded deliveries of larger
quantities thereunder, as hereinafter alleged) and paid the increased prices
demanded by the defendant, in the belief that it was its duty to minimize the
damages as much as possible which the defendant would be required to pay to it by
reason of its violation of said contract, it has in all cases done so under protest and
with the express reservation of the right to demand from the said defendant an
adjustment of the prices charged in violation of its contract, and the right to the
payment of the losses which it had and would suffer by reason of its refusal to make
additional deliveries under said contract, and it also has continuously demanded that
the said defendant furnish to it statements supported by its invoices, showing the cost
prices of its raw materials coal and crude oil upon which the contract price of the
tars in question is fixed, which is the only way the plaintiff has to calculate the true
price of said tars, but said defendant has and still refuses to furnish such information,
and will continue to refuse to do so, unless ordered to furnish such information to the
plaintiff by the court, and the plaintiff believes from the information which it now has
and so alleges that the said defendant has overcharged it on the deliveries of said
tars mentioned in the sum of at least P10,000, all in violation of the rights of the
plaintiff under its said contract with the defendant."
That on January 31, 1926, and pursuant to Exhibit C, plaintiff notified the defendant in
writing that commencing with the month of August, 1926, it desired to take delivery of 50 per cent
of defendant's coal tar production for that month, and that on November 1, 1926, it desired to take
the entire output of defendant's coal gas tar, but that the defendant refused and still refuses to
make such deliveries, unless plaintiff would take all of its water gastar production with the desired
quantity of coal gas tar, which refusal was a plain violation of the contract. That on January 29,
1927, and in accord with Exhibit C, plaintiff notified the defendant in writing that within ninety
days after the initial delivery to it of its total coal gas tar production, or in February, 1927, it would
require 50 per cent of its total water gas tar production, and that in April, 1927, it would require
the total output of the defendant of both coal and water gas tars, and that it refused to make
either of such deliveries.
It is then alleged:
"XIV. That as shown by the foregoing allegations of this complaint, it is apparent that
notwithstanding the plaintiff in this case has at all times faithfully performed all the terms and
conditions of said contract, Exhibit C, on its part to be performed, and has at all times and is now
ready, able and willing to accept and pay for the deliveries of said coal and water gas tar required
by said contract and the notices given pursuant thereto, the said defendant,
the Manila Gas Corporation, does not intent to comply with its said contract, Exhibit C, and deliver
to the plaintiff at the times and under the terms and conditions stated therein the quantities of
coal and water gas tars required by said contract, and the several notices given pursuant thereto,
and that it is useless for the plaintiff to insist further upon its performance of the said contract, and
for that reason the only feasible course for the plaintiff to pursue is to ask the court for the
rescission of said contract and for the full damages which the plaintiff has suffered from
September, 1923, and will suffer for the remainder of said contract by reason of the defendant's
failure and refusal to perform the same, and the plaintiff has no notified the said defendant."
That since September, 1923, by reason of the bad faith of the defendant, the plaintiff has
been damages in the sum of P300,000, for which it prays a corresponding judgment, and that the
contract, Exhibit C, be rescinded and declared void and without force and effect.
After the filing and overruling of its demurrer, the defendant filed an answer in the nature
of a general and specific denial, and on April 10, 1928, and upon stipulation of the parties, the
court appointed W. W. Larkin referee, "to take the evidence and, upon completion of the trial, to
report his findings of law and fact to the court."
July 18, 1928, the defendant filed an amended answer in which it alleged as an affirmative
defense, first, that the complaint does not state facts sufficient to constitute a cause of action for
the reason that a prior adjudication has been had of all the issues involved in this action, and,
second, "that on or about the 16th day of June, 1925, in an action brought in the Court of First
Instance of the City of Manila, Philippine Islands, before the Honorable Geo. R. Harvey, Judge,
by Blossom & Company, plaintiff, vs. Manila Gas Corporation, defendant, being civil case No.
25352, of said court, for the same cause of action as that set forth in the complaint herein, said
plaintiff recovered judgment upon the merits thereof, against said defendant, decreeing a breach
of the contract sued upon herein, and awarding damages therefor in the sum of P26, 119.08 with
legal interest from November 23, 1923, and costs of suit, which judgment was upon appeal

affirmed by the Supreme Court of the Philippine Islands, in case G.R. No. 24777 of said court, on
the 3d day of March, 1926, and reported in volume 48 Philippine Reports at page 848," and it
prays that plaintiff's complaint be dismissed, with costs.
After the evidence was taken, the referee made an exhaustive report of sixty-six pages in
which he found that the plaintiff was entitled to P56,901.53 damages, with legal interest from the
date of filing of the complaint, to which both parties filed numerous exceptions.
In its decision the court says:
"Incidental references have been made to the referee's report. It was
admirably prepared. Leaving aside the question of damages and the facts upon which
the referee assessed them, the facts are not in dispute at least not in serious
dispute. They appear in the documentary evidence and this decision is based upon
documents introduced into evidence by plaintiff. If I could have agreed with the
referee in respect to the question of law, I should have approved his report in toto. If
defendant is liable for the damages accruing from November 23, 1923, the date the
first complaint was filed, to April 1st, 1926, the date of resumption of relations; and if
defendant, after such resumption of relations, again violated the contract, the
damages assessed by the referee, are, to my way of thinking, as fair as could be
estimated. He went to tremendous pains in figuring out the details upon which he
based his decision. Unfortunately, I cannot agree with his legal conclusions and the
report is set aside except wherein specifically approved.
"It is unnecessary to resolve specifically the many exceptions made by both
parties to the referee's report. It would take much time to do so. Much time has
already been spent in preparing this decision. Since both parties have informed me
that in case of adverse judgment, an appeal would be taken, I desire to conclude the
case so that delay will be avoided.
"Let judgment be entered awarding damages to plaintiff in the sum of
P2,219.60, with costs."
From which plaintiff only appealed and assigns twenty-four different errors, of which the
following are material to this opinion:
"I. The trial court erred in holding that this suit is so far as the damages from November,
1923, to March 31, 1926, are concerned, is res adjudicata.
"II. The trial court erred in holding that the defendant repudiated the contract in question
as a whole, and that the plaintiff when it brought its first suit to collect damages had already
elected and consented to the dissolution of the contract, and its choice once made, being final, it
was estopped to claim that the contract was alive when that suit was brought.
xxx xxx xxx
"VII. The trial court erred in refusing to sustain plaintiff's third exception to the legal
interpretation placed on the contract in this case by the referee with reference to quantity of tars
and his conclusion with respect to the terms thereof that:
"'1. Plaintiff must take and defendant must deliver either the minimum or maximum
quantity of water gas tar and not any quantity from the minimum to the maximum and/or
"'2. Plaintiff must take either the minimum and any quantity up to fifty per cent of entire
output of coal gas tar.
"'3. With ninety days' notice by plaintiff to defendant the former must take and the latter
must deliver total output of both tars, except such as might be needed by defendant for use in and
about its plant and not any quantity from the minimum up to total output of both tars.' (See page
47, Referee's report.)
"And in holding that the option contained in said contract, taking into
consideration the purpose of both parties in entering into the contract, was as claimed
by defendant: all the water gas tar and 50 per cent of the coal gas tar upon
immediate notice, and all tars upon ninety days' notice.
"VIII. The trial court erred in refusing to sustain plaintiff's fourth exception to the finding
and conclusion of the referee that from the correspondence between the parties, it was apparent
that plaintiff did not make a right use of its option, and that the letter of June 25, 1926, and the
subsequent demands, with exception of the letter of July 31, 1926, were not made in pursuance to
the terms of the contract, and that defendant had no liability in refusing to comply therewith, and
in allowing plaintiff damages only for the failure of the defendant to deliver quantities shown in
Exhibits Ref. 21 and 22. (See pages 51, 52, Referee's report.)
"IX. The trial court erred in finding and holding that the demands of plaintiff for additional
tars under its contract with the defendant were extravagant and not made in good faith, and that
when it wrote to defendant that it desired maximum quantities of coal gas tars and only minimum
of water gas tars, but with the reservation of going back to minimum quantities of both at any
time it chose, it announced its intention of breaching the contract, the defendant was under no
obligation to deliver maximum quantities of either tars, and since this was the efficient cause of

the failure of defendant to deliver or plaintiff to accept tars, the blame is attributable to plaintiff,
and it cannot recover for a rescission.
xxx xxx xxx
"XXIII. The trial court erred in refusing to sustain plaintiff's seventeenth exception to the
finding and conclusion of the referee that the plaintiff is entitled to recover from the defendant
only the following sums:
Water gas tar (Exhibit Ref. 21) P 38,134.60
Coal gas tar (Exhibit Ref. 22) 16,547.33
Overcharges on deliveries (Exhibit Ref. 23) 2,219.60
__________
or a total of 56,901.53
with interest, and in not awarding to the plaintiff as damages in this case the
sum of P319,253.40, with legal interest thereon from the date of filing the complaint
in this case, in the manner and form computed by it, and in awarding damages to the
plaintiff for the sum of only P2,219.60, with costs."
xxx xxx xxx
DECISION
JOHNS, J p:
In this action plaintiff seeks to recover damages from the defendant which it claims to have
sustained after September, 1923, arising from, and growing out of, its original contract of
September 10, 1918, as modified on January 1, 1919, to continue for a period of ten years from
that date.
In paragraph VIII of its complaint, plaintiff alleges that about the last part of July, 1920, the
defendant "willfully and deliberately breached its said contract," and that it "flatly refused to make
any deliveries under said contract, and finally on November 23, 1923," it was force to commence
action in the Court of First Instance against the defendant, known as case No. 25352, to recover
the damages which it had then sustained by reason of such flagrant violation of said contract on
the part of the defendant, in which judgment was rendered in favor of the plaintiff and against the
defendant for P26,119.08, as damages "suffered by his plaintiff by the defendant's breach of said
contract from July, 1920, up to and including September, 1923, with legal interest thereon from
November 23, 1923, and for the costs," in which the court refused to order the defendant to
resume the delivery of the coal and water gastar to the plaintiff, in accord with said contract, but
left it with its remedy for damages against the defendant for any subsequent breaches of the
contract. A copy of that judgment, which was later affirmed by this court, at attached to, marked
Exhibit G, and made a part of, the complaint in this action.
In their respective briefs, opposing counsel have much to say about the purpose and intent
of that judgment, and it is vigorously asserted that it was never intended that it should be or
become a bar to another action by the plaintiff to recover any damages it may have sustained
after September, 1923, during the remainder of the ten-year period of that contract. Be that as it
may, it must be conceded that the question as to what would be the legal force and effect of that
judgment in that case was never presented to, or decided by, the lower court or this court. In the
very nature of things, neither court in that case would have the power to pass upon or decide the
legal force and effect of its own judgment, for the simple reason that it would be premature and
outside of the issues of any pleading, and could not be raised or presented until after the
judgment became final, and then only by an appropriate plea, as in this case.
Plaintiff specifically alleges that the the defendant willfully and deliberately breached the
contract, and "flatly refused to make any deliveries under said contract," by reason of which it was
forced to and commenced its former action in which it was awarded P26,119.08 damages against
the defendant by reason of its breach of the contract from July, 1920, to September, 1923.
In the final analysis, plaintiff in this action seeks to recover damages growing out of, and
arising from, other and different breaches of that same contract after November, 1923, for the
remainder of the ten-year period, and the question is thus squarely presented as to whether the
rendition of the former judgment is a bar to the right of the plaintiff to recover damages from the
after September, 1923, arising from, and growing out of, breaches of the original contract of
September 10, 1918, as modified on January 1, 1919. That is to say, whether the plaintiff, in a
former action, having recovered judgment for the damages which it sustained by reason of a
breach of its contract by the defendant up to September, 1923, can now in this action recover
damages it may have sustained in this action recover damages it may have sustained after
September, 1923, arising from, and growing out of, a breach of the same contract, upon and for
which it recovered its judgment in the former action.
In the former action in which the judgment was rendered, it is alleged in the complaint:
"'7. That about the last part of July or the first part of August, 1920,
the Manila Gas Corporation, the defendant herein, without any cause ceased
delivering coal and water gas tar to the plaintiff herein; and that from that time up to

the present date, the plaintiff corporation, Blossom & Company, has frequently and
urgently demanded of the defendant, the Manila Gas Corporation, that it comply with
its aforesaid contract Exhibit A by continuing to deliver coal and water gas tar to this
plaintiff - but that the said defendant has refused, and still refused, to deliver to the
plaintiff any coal and water gas tar whatsoever under the said contract Exhibit A,
since the said month of July, 1920.
xxx xxx xxx
"'9. That owing to the bad faith of the said Manila Gas Corporation, defendant
herein, in not living up to its said contract Exhibit A, made with this plaintiff, and
refusing now to carry out the terms of the same, by delivering to this plaintiff the coal
and water gas tar mentioned in the said Exhibit A, has caused to this plaintiff great
and irreparable damages amounting to the sum total of one hundred twenty-four
thousand eight hundred forty-eight pesos and seventy centavos (P124,848.70); and
that the said defendant corporation has refused, and still refuses, to pay to this
plaintiff the whole or any part of the aforesaid sum.
"'10. That the said contract Exhibit A, was to be in force until January 1, 1929,
that it to say, for ten (10) years counted from January 1, 1919; and that, unless the
defendant again commence to furnish and supply this plaintiff with coal and
water gas tar, as provided for in the said contract Exhibit A, the damages already
suffered by this plaintiff will continually increase and become larger and larger in the
course of years preceding the termination of the said contract on January 1, 1929.'"
In that action plaintiff prays for judgment against the defendant:
"'(a) That upon trial of this cause judgment be rendered in favor of the plaintiff
and against the defendant for the sum of P124,848.70, with legal interests thereon
from November 23, 1923;
"'(b) That the court specifically order the defendant to resume the delivery of
the coal and water gas tar to the plaintiff under the terms of the said contract Exhibit
A of this complaint.'"
In the final analysis, plaintiff must stand or fall on its own pleadings, and tested by that
rule, it must be admitted that the plaintiff's original cause of action, in which it recovered
judgment for damages, was founded on the ten-year contract, and that the damages which it then
recovered were recovered for a breach of that contract.
Both actions are founded on one and the same contract. By the terms of the original
contract of September 10, 1918, the defendant was to sell and the plaintiff was to purchase three
tons of water gas tar per month from September to January 1, 1919, and twenty tons of
water gas tar per after from January 1, 1919, one-half ton of coal gas tar per month from
September to January 1, 1919, and six tons of coal gas tar per month after January 1, 1919. That
from and after January 1, 1919, plaintiff would take at least the quantities specified in the contract
of September 10, 1918, and that at its option, it would have the right to take the total output of
water gas tar of defendant's plant and 50 per cent of the gross output of its coal gas tar, and upon
giving ninety days' notice, it would have the right to the entire output of coal gas tar, except such
as the defendant might need for its own use. That is to say, the contract provided for the delivery
to the plaintiff from month to month of the specified amounts of the different tars as ordered and
requested by the plaintiff. In other words, under plaintiff's own theory, the defendant was to make
deliveries from month to month of the tars during the period of ten years, and it is alleged in both
complaints that the defendant broke its contract, and in bad faith refused to make any more
deliveries.
In 34 Corpus Juris, p. 839, it is said:
"As a general rule a contract to do several things at several times is divisible in
its nature, so as to authorize successive actions; and a judgment recovered for a
single breach of a continuing contract or covenant is no bar to a suit for a subsequent
breach thereof. But where the covenant or contract is entire, and the breach total,
there can be only action, and the plaintiff must therein recover all his damages."
In the case of Roehm vs. Horst, 178 U.S., 1; 44 Law. ed., 953, that court said:
"An unqualified and positive refusal to perform a contract, though the
performance thereof is not yet due, may, if the renunciation goes to the whole
contract, be treated as a complete breach which will entitled the injured party to bring
his action at once."
15 Ruling Case Law, 966, 967, sec. 441, says:
"Similarly if there is a breach by the vendor of a contract for the sale of goods
to be delivered and paid for in installments, and the vendee maintains an action
therefor and recovers damages, he cannot maintain a subsequent action to recover
for the failure to deliver later installments."
In Pakas vs. Hollingshead, 184 N. Y., 211; 77 N. E., 40; 3 L. R. A. (N.S.), 1042, the syllabus
says:

"Upon refusal, by the seller, after partial performance, longer to comply with
his contract to sell and deliver a quantity of articles in installments, the buyer cannot
keep the contract in force and maintain actions for breaches as they occur, but must
recover all his damages in one suit."
And on page 1044 of its opinion, the court says:
"The learned counsel for the plaintiff contends that the former judgment did
not constitute a bar to the present action, but that the plaintiff had the right to elect
to waive or disregard the breach, keep the contract in force, and maintain successive
actions for damages from time to time as the installments of goods were to be
delivered, however numerous these actions for damages from time to time as the
installments of goods were to be delivered, however numerous these actions might
be. It is said that this contention is supported in reason and justice, and has the
sanction of authority at least in other jurisdictions. We do not think that the contention
can be maintained. There is not, as it seems to us, any judicial authority in this state
that gives it any substantial support. On the contrary, we think that the cases, so far
as we have been able to examine them, are all the other way, and are to the effect
that, inasmuch as there was a total breach of the contract by the defendant's refusal
to deliver, the plaintiff cannot split up his demand and maintain successive actions,
but must either recover all his damages in the first suit or wait until the contract
matured or the time for the delivery of all the goods had arrived. In other words, there
can be but one action for damages for a total breach of an entire contract to deliver
goods, and the fact that they were to be delivered in installment from time to time
does not change the general rule."
The case of L. Bucki & Son Lumber Co. vs. Atlantic Lumber Co. (109 Federal, 411), of the
United States Circuit Court of Appeals for the Fifth Circuit, is very similar.
The syllabus says:
"1. CONTRACTS CONSTRUCTION ENTIRE CONTRACT. A contract was
made for the sale of a large quantity of logs to be delivered in monthly installments
during a period of eight years, payments to be made also in installments at times
having relations to the deliveries. It contained stipulations as to such payments, and
guaranties as to the average size of the logs to be delivered in each
installment. Held, that it was an entire contract, and not a number of separate and
independent agreements for the sale of the quantity to be delivered and paid for each
month, although there might be breaches of the minor stipulations and warranties
with reference thereto which would warrant suits without a termination of the
contract.
"2. JUDGMENTS MATTERS CONCLUDED ACTION FOR BREACH OF
INDIVISIBLE CONTRACT. The seller declared the contract terminated for alleged
breaches by the purchaser, and brought suit for general and special damages, the
latter covering payments due for installment of logs delivered. By way of set-off and
recoupment against this demand, the purchaser pleaded breaches of the warranty as
to the size of the logs delivered during the months for which payment has not been
made. Held, that the judgment is such action was conclusive as to all claims or
demands of either party against the other growing out of the entire contract, and was
a bar to a subsequent suit brought by the purchaser to recover for other breaches of
the same warranty in relation to deliveries made in previous months."
On page 415 of the opinion, the court says:
"When the contract was ended, the claims of each party for alleged breaches
and damages therefor constituted an indivisible demand; and when the same, or any
part of the same, was pleaded, litigation had, and final judgment rendered, such suit
and judgment constitute a bar to subsequent demands which were or might have
been litigated. (Baird vs. U.S., 96 U.S., 430; 24 L. ed., 703.)"
In Watts vs. Weston (238 Federal, 149), Circuit Court of Appeals, Second Circuit, the
syllabus says:
"1. JUDGMENT 593 JUDGMENT AS BAR MATTERS CONCLUDED. Where
a continuing contract was terminated by the absolute refusal of the party whose
action was necessary to further perform, a claim for damages on account of the
breach constituted an indivisible demand, and when the same of any part of the same
was pleaded, litigated, and final judgment rendered, such suit and judgment
constitute a bar to subsequent demands which were or might have been litigated
therein."
And on page 150 of the opinion, the court says:
"It is enough to show the lack of merit in the present contention to point out as
an inexorable rule of law that, when Knevals' contract was discharged by his total

repudiation thereof, Watts' claims for breaches and damages therefor 'constituted an
indivisible demand, and when the same, or any part of the same, was pleaded,
litigation had and final judgment rendered, such suit and judgment constitute a bar to
subsequent demands which were or might have been litigated.' (Bucki, etc., Co. vs.
Atlantic, etc., Co., 109 Fed. at page 415; 48 C. C. A., 459; Cf. Landon vs. Bulkley, 95
Fed., 344; 37 C. C. A., 96.)
"The rule is usually applied in cases of alleged or supposed successive
breaches, and consequently severable demands for damages; but if the contract has
been discharged by breach, if suit for damages is all that is left, the rule is applicable,
and every demand arising from that contract and possessed by any given plaintiff
must be presented (at least as against any given defendant) in one action; what the
plaintiff does not advance he foregoes by conclusive presumption."
In Abbott vs. 76 Land and Water Co. (118 Pac., 425; 161 Cal., 42), at page 428, the court
said:

"In Fish vs. Folley, 6 Hill (N.Y.), 54, it was held, in accord with the rule we have
discussed, that, where the defendant had covenanted that plaintiff should have a
continual supply of water for his mill from a dam, and subsequently totally failed to
perform for nine years, and plaintiff brought an action for the breach and recovered
damages sustained by him to that time, the judgment was a bar to a second action
arising from subsequent failure to perform, on the theory that, although the covenant
was a continuing one in one sense, it was an entire contract, and a total breach put an
end to it, and gave plaintiff the right to sue for an equivalent in damages.
"In such a case it is no warrant for a second action that the party may not be
able to actually prove in the first action all the items of the demand, or that all the
damage may not then have been actually suffered. He is bound to prove in the first
action not only such damage as has been actually suffered, but also such prospective
damage by reason of the breach as he may be legally entitled to, for the judgment he
recovers in such action will be a conclusive adjudication as to the total damage on
account of the breach."
It will thus be seen that, where there is a complete and total breach of a continuous
contract for a term of years, the recovery of a judgment for damages by reason of the breach is a
bar to another action on the same contract for and on account of the continuous breach.
In the final analysis, there is no real dispute about any material fact, and the important and
decisive question is the legal construction of the pleadings in the former case and in this case, and
of the contract between the plaintiff and the defendant of January 1, 1920.
The complaint in the former case specifically alleges that the defendant "has refused, and
still refuses, to deliver to the plaintiff any coal and watergas tar whatsoever under the said
contract Exhibit A, since the said month of July, 1920." "That owing to the bad faith of the
said Manila Gas Corporation, defendant herein, in not living up to its said contract Exhibit A, made
with this plaintiff, and refusing now to carry out the terms of the same." That is a specific
allegation not only of a breach of the contract since the month of July, 1920, but of the bad faith of
the defendant in its continuous refusal to make deliveries of any coal and water gas tar. That
amended complaint was filed on July 11, 1924, or four years after the alleged bad faith in breaking
the contract.
Having recovered damages against it, covering a period of four years, upon the theory that
the defendant broke the contract, and in bad faith refused to make deliveries of either of the tars,
how can the plaintiff now claim and assert that the contract is still in force and effect? In the
instant case the plaintiff alleges and relies upon the ten-year contract of January 1, 1920, which in
bad faith was broken by the defendant. If the contract was then broken, how can it be enforced in
this action?
It is admitted that the defendant never made any deliveries of any tar from July, 1920, to
April, 1926. Also that it made nine deliveries to plaintiff of the minimum quantities of coal and
water gas tar from April 7, 1926, to January 5, 1927.
Plaintiff contends that such deliveries were made under and in continuation of the old
contract.
March 26, 1926, after the decision of this court affirming the judgment in the original
action, plaintiff wrote the defendant;
". . . It is our desire to take deliveries of at least the minimum quantities set
forth therein and shall appreciate to have you advise us how soon you will be in a
position to make deliveries; . . .
". . . In view of the fact that you have only effected settlement up to November
23, 1923, please inform us what adjustment you are willing to make for the period of
time that has since elapsed without your complying with the contract."
In response to which on March 31, 1926, the defendant wrote this letter to the plaintiff:

"In reply to your letter of March 26th, 1926, in regard to tar, we beg to advise
you that we are prepared to furnish the minimum quantities of coal and water gas tars
as per your letter, viz: twenty tons of water gas tar and six tons of coal gas tar. The
price figured on present costs of raw materials is P39.01 (Thirty-nine and 01/100
Pesos) per ton of water gas and P33.59 (Thirty-three and 59/100 Pesos) per ton of coal
tar.
"We shall expect you to take delivery and pay for the above amount of tars at
our factory on or before April 7th prox.
"Thereafter we shall be ready to furnish equal amounts on the first of each
month. Kindly make your arrangements accordingly."
On January 29, 1927, the plaintiff wrote the defendant that:
"On July 31st last, we made demand upon you, under the terms of our tar
contract, for 50 per cent of your total coal tar production for that month and also
served notice on you that beginning 90 days from August 1st we would require your
total output of coal tar monthly; this in addition to the 20 tons of water gas tar
provided for in the contract to be taken monthly.
xxx xxx xxx
"We are here again calling on you for your total output of coal tar immediately
and the regular minimum monthly quantity of water gas tar. In this connection we
desire to advise you that within 90 days of your initial delivery to us to your total coal
tar output we will require 50 per cent of your total water gas tar output, and, further,
that two months thereafter we will require your total output of both tars."
February 2, 1927, the defendant wrote the plaintiff:
"Replying to your letter of Jan. 29, we would say that we have already returned
to you the check enclosed therewith. As we have repeatedly informed you we
disagree with you as to the construction of your contract and insist that you take the
whole output of both tars if you wish to secure the whole of the coal tar.
"With regard to your threat of further suits we presume that you will act as
advised. If you make it necessary we shall do the same."
From an analysis of these letters if clearly appears that the plaintiff then sought to rely
upon and enforce the contract of January 1, 1920, and that defendant denied plaintiff's
construction of the contract, and insisted "that you take the whole output of both tars if you wish
to secure the whole of the coal tar."
February 28, 1927, the plaintiff wrote the defendant:
"In view of your numerous violations of and repeated refusal and failure to
comply with the terms and provisions of our contract dated January 30-31, 1919, for
the delivery to us of water and coal gas tars, etc., we will commence action," which it
did.
The record tends to show that the tars which the defendant delivered after April 7, 1926,
were not delivered under the old contract of January 1, 1920, and that at all times since July, 1920,
the defendant has consistently refused to make any deliveries of any tars under that contract.
The referee found as a fact that plaintiff was entitled to P2,219.60 for and on account of
overcharges which the defendant made for the deliveries of fifty-four tons of coal gar tar, and one
hundred eighty tons of water gas tar after April, 1926, and upon that point the lower court says:
"The fourth charge that plaintiff makes is meritorious. The price was to be fixed
on the basis of raw materials. The charge for deliveries during 1926 were too high. In
this I agree with entirely with the referee and adopt his findings of fact and
calculations. (See Referee's report, p. 83). The referee awarded for overcharge during
the period aforesaid, the sum of P2,219.60. The defendant was trying to discourage
plaintiff from buying tars and made the price of raw material appear as high as
possible."
That finding is sustained upon the theory that the defendant broke its contract which it
made with the plaintiff for the sale and delivery of the tars on and after April, 1926.
After careful study of the many important questions presented on this appeal in the
exhaustive brief of the appellant, we are clearly of the opinion that, as found by the lower court,
the plea of res judicata must be sustained. The judgment of the lower court is affirmed.
It is so ordered, with costs against the appellant.
Johnson, Street, Malcolm, Villamor, Ostrand, Romualdez and Villa-Real, JJ., concur.
||| (Blossom & Co., Inc. v. Manila Gas Corp., G.R. No. 32958, [November 8, 1930], 55 PHIL 226-248)
FIRST DIVISION
[G.R. No. 161135. April 8, 2005.]
SWAGMAN HOTELS AND TRAVEL, INC., petitioner, vs.
HON. COURT OF APPEALS, and NEAL B. CHRISTIAN, respondents.

DECISION
DAVIDE, JR., C.J p:
May a complaint that lacks a cause of action at the time it was filed be cured by the accrual of a
cause of action during the pendency of the case? This is the basic issue raised in this petition for
the Court's consideration.
Sometime in 1996 and 1997, petitioner Swagman Hotels and Travel, Inc., through Atty. Leonor L.
Infante and Rodney David Hegerty, its president and vice-president, respectively, obtained from
private respondent Neal B. Christian loans evidenced by three promissory notes dated 7 August 1996,
14 March 1997, and 14 July 1997. Each of the promissory notes is in the amount of US$50,000
payable after three years from its date with an interest of 15% per annum payable every three
months. 1 In a letter dated 16 December 1998, Christian informed the petitioner corporation that he
was terminating the loans and demanded from the latter payment in the total amount of US$150,000
plus unpaid interests in the total amount of US$13,500. 2
On 2 February 1999, private respondent Christian filed with the Regional Trial Court of Baguio City,
Branch 59, a complaint for a sum of money and damages against the petitioner corporation, Hegerty,
and Atty. Infante. The complaint alleged as follows: On 7 August 1996, 14 March 1997, and 14 July
1997, the petitioner, as well as its president and vice-president obtained loans from him in the total
amount of US$150,000 payable after three years, with an interestof 15% per annum payable quarterly
or every three months. For a while, they paid an interest of 15% per annum every three months in
accordance with the three promissory notes. However, starting January 1998 until December 1998,
they paid him only an interest of 6% per annum, instead of 15% per annum, in violation of the
terms of the three promissory notes. Thus, Christian prayed that the trial court order them to pay him
jointly and solidarily the amount ofUS$150,000 representing the total amount of the loans; US$13,500
representing unpaid interests from January 1998 until December 1998; P100,000 for moral damages;
P50,000 for attorney's fees; and the cost of the suit. 3
The petitioner corporation, together with its president and vice-president, filed an Answer raising as
defenses lack of cause of action and novation of the principal obligations. According to them, Christian
had no cause of action because the three promissory notes were not yet due and demandable. In
December 1997, since the petitioner corporation was experiencing huge losses due to the Asian
financial crisis, Christian agreed (a) to waive the interest of15% per annum, and (b) accept
payments of the principal loans in installment basis, the amount and period of which would depend on
the state of businessof the petitioner corporation. Thus, the petitioner paid Christian capital
repayment in the amount of US$750 per month from January 1998 until the time the complaint was
filed in February 1999. The petitioner and its co-defendants then prayed that the complaint be
dismissed and that Christian be ordered to pay P1 million as moral damages; P500,000 as exemplary
damages; and P100,000 as attorney's fees. 4
In due course and after hearing, the trial court rendered a decision 5 on 5 May 2000 declaring the first
two promissory notes dated 7 August 1996 and 14 March 1997 as already due and demandable and
that the interest on the loans had been reduced by the parties from 15% to 6% per annum. It then
ordered the petitioner corporation to pay Christian the amount of $100,000 representing the principal
obligation covered by the promissory notes dated 7 August 1996 and 14 March 1997, "plus
interest of 6% per month thereon until fully paid, with all interest payments already paid by the
defendant to the plaintiff to be deducted therefrom."
The trial court ratiocinated in this wise:
(1) There was no novation of defendant's obligation to the plaintiff. Under Article
1292 of the Civil Code, there is an implied novation only if the old and the new
obligation be on every point incompatible with one another.
The test of incompatibility between the two obligations or contracts, according to an
imminent author, is whether they can stand together, each one having an
independent existence. If they cannot, they are incompatible, and the subsequent
obligation novates the first (Tolentino, Civil Code of the Philippines, Vol. IV, 1991 ed.,
p. 384). Otherwise, the old obligation will continue to subsist subject to the
modifications agreed upon by the parties. Thus, it has been written that accidental
modifications in an existing obligation do not extinguish it by novation. Mere
modifications of the debt agreed upon between the parties do not constitute novation.
When the changes refer to secondary agreement and not to the object or principal
conditions of the contract, there is no novation; such changes will produce
modifications of incidental facts, but will not extinguish the original obligation. Thus,
the acceptance of partial payments or a partial remission does not involve novation
(id., p. 387). Neither does the reduction of the amount of an obligation amount to a
novation because it only means a partial remission or condonation of the same debt.
In the instant case, the Court is of the view that the parties merely intended to
change the rate of interest from 15% per annum to 6% per annum when the
defendant started paying $750 per month which payments were all accepted by the
plaintiff from January 1998 onward. The payment of the principal obligation, however,

remains unaffected which means that the defendant should still pay the plaintiff
$50,000 on August 9, 1999, March 14, 2000 and July 14, 2000.
(2) When the instant case was filed on February 2, 1999, none of the promissory notes
was due and demandable. As of this date however, the first and the second
promissory notes have already matured. Hence, payment is already due.
Under Section 5 of Rule 10 of the 1997 Rules of Civil Procedure, a complaint which
states no cause of action may be cured by evidence presented without objection.
Thus, even if the plaintiff had no cause of action at the time he filed the instant
complaint, as defendants' obligation are not yet due and demandable then, he may
nevertheless recover on the first two promissory notes in view of the
introduction of evidence showing that the obligations covered by the two promissory
notes are now due and demandable. DAaEIc
(3) Individual defendants Rodney Hegerty and Atty. Leonor L. Infante can not be held
personally liable for the obligations contracted by the defendant corporation it being
clear that they merely acted in representation of the defendant corporation in their
capacity as General Manager and President, respectively, when they signed the
promissory notes as evidenced by Board Resolution No. 1(94) passed by the
Board of Directors of the defendant corporation (Exhibit "4"). 6
In its decision 7 of 5 September 2003, the Court of Appeals denied petitioner's appeal and affirmed in
toto the decision of the trial court, holding as follows:
In the case at bench, there is no incompatibility because the changes referred to by
appellant Swagman consist only in the manner of payment. . . .
Appellant Swagman's interpretation that the three (3) promissory notes have been
novated by reason of appellee Christian's acceptance of the monthly
payments of US$750.00 as capital repayments continuously even after the
filing of the instant case is a little bit strained considering the stiff requirementsof the
law on novation that the intention to novate must appear by express
agreement of the parties, or by their acts that are too clear and unequivocal to be
mistaken. Under the circumstances, the more reasonable
interpretation of the act of the appellee Christian in receiving the monthly
payments ofUS$750.00 is that appellee Christian merely allowed
appellant Swagman to pay whatever amount the latter is capable of. This
interpretation is supported by the letter of demand dated December 16, 1998 wherein
appellee Christian demanded from appellant Swagman to return the principal loan in
the amountof US$150,000 plus unpaid interest in the amount of US$13,500.00
xxx xxx xxx
Appellant Swagman, likewise, contends that, at the time of the filing of the complaint,
appellee Christian ha[d] no cause of action because none of the promissory notes was
due and demandable.
Again, We are not persuaded.
xxx xxx xxx
In the case at bench, while it is true that appellant Swagman raised in its Answer the
issue of prematurity in the filing of the complaint, appellant Swagmannonetheless
failed to object to appellee Christian's presentation of evidence to the effect that the
promissory notes have become due and demandable.
The afore-quoted rule allows a complaint which states no cause of action to be cured
either by evidence presented without objection or, in the event of an objection
sustained by the court, by an amendment of the complaint with
leave of court (Herrera, Remedial Law, Vol. VII, 1997 ed., p. 108). 8
Its motion for reconsideration having been denied by the Court of Appeals in its Resolution of 4
December 2003, 9 the petitioner came to this Court raising the following issues:
I. WHERE THE DECISION OF THE TRIAL COURT DROPPING TWO DEFENDANTS HAS
BECOME FINAL AND EXECUTORY, MAY THE RESPONDENT COURT OFAPPEALS STILL
STUBBORNLY CONSIDER THEM AS APPELLANTS WHEN THEY DID NOT APPEAL?
II. WHERE THERE IS NO CAUSE OF ACTION, IS THE DECISION OF THE
LOWER COURT VALID?
III. MAY THE RESPONDENT COURT OF APPEALS VALIDLY AFFIRM A DECISION OF THE
LOWER COURT WHICH IS INVALID DUE TO LACK OF CAUSE OFACTION?
IV. WHERE THERE IS A VALID NOVATION, MAY THE ORIGINAL TERMS OF CONTRACT
WHICH HAS BEEN NOVATED STILL PREVAIL? 10
The petitioner harps on the absence of a cause of action at the time the private respondent's
complaint was filed with the trial court. In connection with this, the petitioner raises the
issue of novation by arguing that its obligations under the three promissory notes were novated by
the renegotiation that happened in December 1997 wherein the private respondent agreed to waive

the interest in each of the three promissory notes and to accept US$750 per month as installment
payment for the principal loans in the total amount of US$150,000. Lastly, the petitioner questions
the act of the Court of Appeals in considering Hegerty and Infante as appellants when they no longer
appealed because the trial court had already absolved them of the liability of the petitioner
corporation.
On the other hand, the private respondent asserts that this petition is "a mere ploy to continue
delaying the payment of a just obligation." Anent the fact that Hegerty and Atty. Infante were
considered by the Court of Appeals as appellants, the private respondent finds it immaterial because
they are not affected by the assailed decision anyway.
Cause of action, as defined in Section 2, Rule 2 of the 1997 Rules of Civil Procedure, is the act or
omission by which a party violates the right of another. Its essential elements are as follows:
1. A right in favor of the plaintiff by whatever means and under whatever law it arises
or is created;
2. An obligation on the part of the named defendant to respect or not to violate such
right; and
3. Act or omission on the part of such defendant in violation of the right of the plaintiff
or constituting a breach of the obligation of the defendant to the plaintiff for
which the latter may maintain an action for recovery of damages or other
appropriate relief. 11
It is, thus, only upon the occurrence of the last element that a cause of action arises, giving the
plaintiff the right to maintain an action in court for recovery ofdamages or other appropriate relief.
It is undisputed that the three promissory notes were for the amount of P50,000 each and uniformly
provided for (1) a term of three years; (2) an interest of15% per annum, payable quarterly; and (3) the
repayment of the principal loans after three years from their respective dates. However, both
the Court ofAppeals and the trial court found that a renegotiation of the three promissory notes
indeed happened in December 1997 between the private respondent and the petitioner resulting in
the reduction not waiver of the interest from 15% to 6% per annum, which from then on was
payable monthly, instead ofquarterly. The term of the principal loans remained unchanged in that they
were still due three years from the respective dates of the promissory notes. Thus, at the time the
complaint was filed with the trial court on 2 February 1999, none of the three promissory notes was
due yet; although, two of the promissory notes with the due dates of 7 August 1999 and 14 March
2000 matured during the pendency of the case with the trial court. Both courts also found that the
petitioner had been religiously paying the private respondent US$750 per month from January 1998
and even during the pendency of the case before the trial court and that the private respondent had
accepted all these monthly payments. TSEAaD
With these findings of facts, it has become glaringly obvious that when the complaint for a
sum of money and damages was filed with the trial court on 2 February 1999, no cause of action has
as yet existed because the petitioner had not committed any act in violation of the terms of the three
promissory notes as modified by the renegotiation in December 1997. Without a cause of action, the
private respondent had no right to maintain an action in court, and the trial court should have
therefore dismissed his complaint.
Despite its finding that the petitioner corporation did not violate the modified terms of the three
promissory notes and that the payment of the principal loans were not yet due when the complaint
was filed, the trial court did not dismiss the complaint, citing Section 5, Rule 10 of the 1997
Rules of Civil Procedure, which reads:
Section 5. Amendment to conform to or authorize presentation of evidence. When
issues not raised by the pleadings are tried with the express or implied consent of the
parties, they shall be treated in all respects as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure to amend does not affect the
result of the trial of these issues. If evidence is objected to at the trial on the ground
that it is not within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality if the presentation of the
merits of the action and the ends of substantial justice will be subserved thereby.
The court may grant a continuance to enable the amendment to be made.
According to the trial court, and sustained by the Court of Appeals, this Section allows a complaint
that does not state a cause of action to be cured by evidence presented without objection during the
trial. Thus, it ruled that even if the private respondent had no cause of action when he filed the
complaint for a sum of money and damages because none of the three promissory notes was due yet,
he could nevertheless recover on the first two promissory notes dated 7 August 1996 and 14 March
1997, which became due during the pendency of the case in view of the
introduction of evidence of their maturity during the trial.
Such interpretation of Section 5, Rule 10 of the 1997 Rules of Civil Procedure is erroneous.

Amendments of pleadings are allowed under Rule 10 of the 1997 Rules of Civil Procedure in order that
the actual merits of a case may be determined in the most expeditious and inexpensive manner
without regard to technicalities, and that all other matters included in the case may be determined in
a single proceeding, thereby avoiding multiplicity of suits. 12 Section 5 thereof applies to situations
wherein evidence not within the issues raised in the pleadings is presented by the parties during the
trial, and to conform to such evidence the pleadings are subsequently amended on motion of a party.
Thus, a complaint which fails to state a cause of action may be cured by evidence presented during
the trial.
However, the curing effect under Section 5 is applicable only if a cause of action in fact exists at the
time the complaint is filed, but the complaint is defective for failure to allege the essential facts. For
example, if a complaint failed to allege the fulfillment of a condition precedent upon which the
cause of action depends, evidence showing that such condition had already been fulfilled when the
complaint was filed may be presented during the trial, and the complaint may accordingly be
amended thereafter. 13 Thus, in Roces v. Jalandoni, 14 this Court upheld the trial court in taking
cognizance of an otherwise defective complaint which was later cured by the testimony of the plaintiff
during the trial. In that case, there was in fact a cause of action and the only problem was the
insufficiency of the allegations in the complaint. This ruling was reiterated
in Pascua v. Court of Appeals. 15
It thus follows that a complaint whose cause of action has not yet accrued cannot be cured or
remedied by an amended or supplemental pleading alleging the existence or accrual of a
cause of action while the case is pending. 16 Such an action is prematurely brought and is, therefore,
a groundless suit, which should be dismissed by the court upon proper motion seasonably filed by the
defendant. The underlying reason for this rule is that a person should not be summoned before the
public tribunals to answer for complaints which are immature. As this Court eloquently said in Surigao
Mine Exploration Co., Inc. v. Harris: 17
It is a rule of law to which there is, perhaps, no exception, either at law or in equity,
that to recover at all there must be some cause of action at the
commencement of the suit. As observed by counsel for appellees, there are
reasons of public policy why there should be no needless haste in bringing up
litigation, and why people who are in no default and against whom there is yet no
cause of action should not be summoned before the public tribunals to answer
complaints which are groundless. We say groundless because if the action is
immature, it should not be entertained, and an action prematurely brought is a
groundless suit.
It is true that an amended complaint and the answer thereto take the place of the
originals which are thereby regarded as abandoned (Reynes vs. Compaia General de
Tabacos [1912], 21 Phil. 416; Ruyman and Farris vs. Director of Lands [1916], 34 Phil.,
428) and that "the complaint and answer having been superseded by the amended
complaint and answer thereto, and the answer to the original complaint not having
been presented in evidence as an exhibit, the trial court was not authorized to take it
into account." (Bastida vs. Menzi & Co. [1933], 58 Phil., 188.) But in none of these
cases or in any other case have we held that if a right of action did not exist when the
original complaint was filed, one could be created by filing an amended complaint. In
some jurisdictions in the United States what was termed an "imperfect
cause of action" could be perfected by suitable amendment (Brown vs. Galena Mining
& Smelting Co., 32 Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App., 221) and this is
virtually permitted in Banzon and Rosauro vs. Sellner ([1933], 58 Phil., 453); Asiatic
Petroleum [sic] Co. vs. Veloso ([1935], 62 Phil., 683); and recently in Ramos vs.
Gibbon (38 Off. Gaz., 241). That, however, which is no cause ofaction
whatsoever cannot by amendment or supplemental pleading be converted
into a cause of action: Nihil de re accrescit ei qui nihil in re quando jus accresceret
habet.
We are therefore of the opinion, and so hold, that unless the plaintiff has a valid
and subsisting cause of action at the time his action is commenced, the
defect cannot be cured or remedied by the acquisition or accrual of one
while the action is pending, and a supplemental complaint or an amendment
setting up such after-accrued cause of action is not permissible. (Emphasis
ours).
Hence, contrary to the holding of the trial court and the Court of Appeals, the
defect of lack of cause of action at the commencement of this suit cannot be cured by the accrual of a
cause of action during the pendency of this case arising from the alleged maturity of two of the
promissory notes on 7 August 1999 and 14 March 2000.
Anent the issue of novation, this Court observes that the petitioner corporation argues the
existence of novation based on its own version of what transpired during the renegotiation of the

three promissory notes in December 1997. By using its own version of facts, the petitioner is, in a
way, questioning the findings of facts of the trial court and the Court of Appeals.
As a rule, the findings of fact of the trial court and the Court of Appeals are final and conclusive and
cannot be reviewed on appeal to the Supreme Court 18 as long as they are borne out by the record or
are based on substantial evidence. 19 The Supreme Court is not a trier of facts, its jurisdiction being
limited to reviewing only errors of law that may have been committed by the lower courts. Among the
exceptions is when the finding of fact of the trial court or theCourt of Appeals is not supported by the
evidence on record or is based on a misapprehension of facts. Such exception obtains in the present
case. 20
This Court finds to be contrary to the evidence on record the finding of both the trial court and
the Court of Appeals that the renegotiation in December 1997 resulted in the reduction of the interest
from 15% to 6% per annum and that the monthly payments of US$750 made by the petitioner were
for the reduced interests.
It is worthy to note that the cash voucher dated January 1998 21 states that the payment of US$750
represents "INVESTMENT PAYMENT." All the succeeding cash vouchers describe the payments from
February 1998 to September 1999 as "CAPITAL REPAYMENT." 22 All these cash vouchers served as
receipts evidencing private respondent's acknowledgment of the payments made by the petitioner:
two of which were signed by the private respondent himself and all the others were signed by his
representatives. The private respondent even identified and confirmed the existence of these receipts
during the hearing. 23Significantly, cognizant of these receipts, the private respondent applied these
payments to the three consolidated principal loans in the summary ofpayments he submitted to
the court. 24
Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal shall not
be deemed to have been made until the interest has been covered. In this case, the private
respondent would not have signed the receipts describing the payments made by the petitioner as
"capital repayment" if the obligation to pay the interest was still subsisting. The receipts, as well as
private respondent's summary of payments, lend credence to petitioner's claim that the payments
were for the principal loans and that the interests on the three consolidated loans were waived by the
private respondent during the undisputed renegotiation of the loans on account of the business
reverses suffered by the petitioner at the time.
There was therefore a novation of the terms of the three promissory notes in that the interest was
waived and the principal was payable in monthly installments of US$750. Alterations of the terms and
conditions of the obligation would generally result only in modificatory novation unless such terms
and conditions are considered to be the essence of the obligation itself. 25 The resulting novation in
this case was, therefore, of the modificatory type, not the extinctive type, since the obligation to pay a
sum of money remains in force.
Thus, since the petitioner did not renege on its obligation to pay the monthly installments
conformably with their new agreement and even continued paying during the pendency of the case,
the private respondent had no cause of action to file the complaint. It is only upon petitioner's default
in the payment of the monthly amortizations that a cause of action would arise and give the private
respondent a right to maintain an action against the petitioner.
Lastly, the petitioner contends that the Court of Appeals obstinately included its President Infante and
Vice-President Hegerty as appellants even if they did not appeal the trial court's decision since they
were found to be not personally liable for the obligation of the petitioner. Indeed,
the Court of Appeals erred in referring to them as defendants-appellants; nevertheless, that error is no
cause for alarm because its ruling was clear that the petitioner corporation was the one solely liable
for its obligation. In fact, the Court of Appeals affirmed in toto the decision of the trial court, which
means that it also upheld the latter's ruling that Hegerty and Infante were not personally liable for the
pecuniary obligations of the petitioner to the private respondent.
In sum, based on our disquisition on the lack of cause of action when the complaint for sum of money
and damages was filed by the private respondent, the petition in the case at bar is impressed with
merit.
WHEREFORE, the petition is hereby GRANTED. The Decision of 5 September
2003 of the Court of Appeals in CA-G.R. CV No. 68109, which affirmed the Decision of 5 May
2000 of the Regional Trial Court of Baguio, Branch 59, granting in part private respondent's complaint
for sum of money and damages, and its Resolution of 4 December 2003, which denied petitioner's
motion for reconsideration are hereby REVERSED and SET ASIDE. The complaint docketed as Civil
Case No. 4282-R is hereby DISMISSED for lack of cause of action. TcSAaH
No costs.
SO ORDERED.
||| (Swagman Hotels & Travel Inc. v. Court of Appeals, G.R. No. 161135, [April 8, 2005], 495 PHIL 161176)

SECOND DIVISION
[G.R. No. 182435. August 13, 2012.]
LILIA B. ADA, LUZ B. ADANZA, FLORA C. BAYLON, REMO BAYLON,
JOSE BAYLON, ERIC BAYLON, FLORENTINO BAYLON, and MA.
RUBYBAYLON, petitioners, vs. FLORANTE BAYLON, respondent.
DECISION
REYES, J p:
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision 1 dated October 26, 2007 rendered by the Court of Appeals (CA) in
CA-G.R. CV No. 01746. The assailed decision partially reversed and set aside the Decision 2 dated
October 20, 2005 issued by the Regional Trial Court (RTC), Tanjay City, Negros Oriental, Branch 43 in
Civil Case No. 11657.
The Antecedent Facts
This
case
involves
the
estate
of
spouses
Florentino Baylon and
Maximina
Elnas Baylon (Spouses Baylon) who died on November 7, 1961 and May 5, 1974, respectively. 3 At the
time of their death, Spouses Baylon were survived by their legitimate children, namely,
Rita Baylon (Rita), Victoria Baylon (Victoria), Dolores Baylon (Dolores), Panfila Gomez (Panfila),
Ramon Baylon (Ramon) and herein petitioner Lilia B. Ada (Lilia). IaEACT
Dolores died intestate and without issue on August 4, 1976. Victoria died on November 11, 1981 and
was survived by her daughter, herein petitioner Luz B. Adanza. Ramon died intestate on July 8, 1989
and was survived by herein respondent Florante Baylon (Florante), his child from his first marriage, as
well as by petitioner Flora Baylon, his second wife, and their legitimate children, namely, Ramon, Jr.
and herein petitioners Remo, Jose, Eric, Florentino and Ma. Ruby, all surnamed Baylon.
On July 3, 1996, the petitioners filed with the RTC a Complaint 4 for partition, accounting and
damages against Florante, Rita and Panfila. They alleged therein that Spouses Baylon, during their
lifetime, owned 43 parcels of land 5 all situated in Negros Oriental. After the death of Spouses Baylon,
they claimed that Rita took possession of the said parcels of land and appropriated for herself the
income from the same. Using the income produced by the said parcels of land, Rita allegedly
purchased two parcels of land, Lot No. 4709 6 and half of Lot No. 4706, 7 situated in Canda-uay,
Dumaguete City. The petitioners averred that Rita refused to effect a partition of the said parcels of
land.
In their Answer, 8 Florante, Rita and Panfila asserted that they and the petitioners co-owned 22 9 out
of the 43 parcels of land mentioned in the latter's complaint, whereas Rita actually owned 10 parcels
of land 10 out of the 43 parcels which the petitioners sought to partition, while the remaining 11
parcels of land are separately owned by Petra Cafino Adanza, 11 Florante, 12 Meliton
Adalia, 13 Consorcia Adanza, 14 Lilia 15 and Santiago Mendez. 16 Further, they claimed that Lot No.
4709 and half of Lot No. 4706 were acquired by Rita using her own money. They denied that Rita
appropriated solely for herself the income of the estate of Spouses Baylon, and expressed no
objection to the partition of the estate of Spouses Baylon, but only with respect to the co-owned
parcels of land.
During the pendency of the case, Rita, through a Deed of Donation dated July 6, 1997, conveyed Lot
No. 4709 and half of Lot No. 4706 to Florante. On July 16, 2000, Rita died intestate and without any
issue. Thereafter, learning of the said donation inter vivos in favor of Florante, the petitioners filed a
Supplemental Pleading 17 dated February 6, 2002, praying that the said donation in favor of the
respondent be rescinded in accordance with Article 1381 (4) of the Civil Code.They further alleged
that Rita was already sick and very weak when the said Deed of Donation was supposedly executed
and, thus, could not have validly given her consent thereto.
Florante and Panfila opposed the rescission of the said donation, asserting that Article 1381 (4) of
the Civil Code applies only when there is already a prior judicial decree on who between the
contending parties actually owned the properties under litigation. 18
The RTC Decision
On October 20, 2005, the RTC rendered a Decision, 19 the decretal portion of which reads:
Wherefore judgment is hereby rendered:

(1) declaring the existence of co-ownership over parcels nos. 1, 2, 3, 5, 7, 10,


13, 14, 16, 17, 18, 26, 29, 30, 33, 34, 35, 36, 40 and 41 described in
the complaint;
(2) directing that the above mentioned parcels of land be partitioned among
the heirs of Florentino Baylon and Maximina Baylon;
(3) declaring a co-ownership on the properties of Rita Baylon namely parcels
no[s]. 6, 11, 12, 20, 24, 27, 31, 32, 39 and 42 and directing that it shall
be partitioned among her heirs who are the plaintiffs and defendant in
this case;
(4) declaring the donation inter vivos rescinded without prejudice to
the share of Florante Baylon to the estate of Rita Baylon and
directing that parcels nos. 1 and 2 paragraph V of the
complaint be included in the division of the property as of
Rita Baylon among her heirs, the parties in this case;
(5) excluding from the co-ownership parcels nos. 20, 21, 22, 9, 43, 4, 8, 19 and
37.
Considering that the parties failed to settle this case amicably and could not agree on
the partition, the parties are directed to nominate a representative to act as
commissioner to make the partition. He shall immediately take [his] oath of office
upon [his] appointment. The commissioner shall make a report of all the proceedings
as to the partition within fifteen (15) days from the completion of this partition. The
parties are given ten (10) days within which to object to the report after which the
Court shall act on the commissioner report. SaHIEA
SO ORDERED. 20 (Emphasis ours)
The RTC held that the death of Rita during the pendency of the case, having died intestate and
without any issue, had rendered the issue of ownership insofar as parcels of land which she claims as
her own moot since the parties below are the heirs to her estate. Thus, the RTC regarded Rita as the
owner of the said 10 parcels of land and, accordingly, directed that the same be partitioned among
her heirs. Nevertheless, the RTC rescinded the donation inter vivosof Lot No. 4709 and half of Lot No.
4706 in favor of Florante. In rescinding the said donation inter vivos, the RTC explained that:
However[,] with respect to lot [nos.] 4709 and 4706 which [Rita] had conveyed to
Florante Baylon by way of donation inter vivos, the plaintiffs in their supplemental
pleadings (sic) assailed the same to be rescissible on the ground that it was entered
into by the defendant Rita Baylon without the knowledge and approval of the litigants
[or] of competent judicial authority. The subject parcels of lands are involved in the
case for which plaintiffs have ask[ed] the Court to partition the same among the heirs
of Florentino Baylon and Maximina Elnas.
Clearly, the donation inter vivos in favor of Florante Baylon was executed to prejudice
the plaintiffs['] right to succeed to the estate of Rita Baylon in case of death
considering that as testified by Florante Baylon, Rita Baylon was very weak and he
tried to give her vitamins . . . . The donation inter vivos executed by Rita Baylon in
favor of Florante Baylon is rescissible for the reason that it refers to the parcels of
land in litigation . . . without the knowledge and approval of the plaintiffs or of this
Court. However[,] the rescission shall not affect the share of Florante Baylon to the
estate of Rita Baylon. 21
Florante sought reconsideration of the Decision dated October 20, 2005 of the RTC insofar as it
rescinded the donation of Lot No. 4709 and half of Lot No. 4706 in his favor. 22 He asserted that, at
the time of Rita's death on July 16, 2000, Lot No. 4709 and half of Lot No. 4706 were no longer part of
her estate as the same had already been conveyed to him through a donation inter vivos three years
earlier. Thus, Florante maintained that Lot No. 4709 and half of Lot No. 4706 should not be included in
the properties that should be partitioned among the heirs of Rita.
On July 28, 2006, the RTC issued an Order 23 which denied the motion for reconsideration filed by
Florante.
The CA Decision
On appeal, the CA rendered a Decision 24 dated October 26, 2007, the dispositive portion of which
reads:
WHEREFORE, the Decision dated October 20, 2005 and Order dated July 28, 2006
are REVERSED and SET ASIDE insofar as they decreed the rescission of the Deed of
Donation dated July 6, 1997 and the inclusion of lot no. 4709 and half of lot no. 4706
in the estate of Rita Baylon. The case is REMANDED to the trial court for the
determination of ownership of lot no. 4709 and half of lot no. 4706.
SO ORDERED. 25
The CA held that before the petitioners may file an action for rescission, they must first obtain a
favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually belonged to the estate of
Spouses Baylon and not to Rita. Until then, the CA asserted, an action for rescission is premature.

Further, the CA ruled that the petitioners' action for rescission cannot be joined with their action for
partition, accounting and damages through a mere supplemental pleading. Thus:
If [Lot No. 4709 and half of Lot No. 4706] belonged to the Spouses' estate, then
Rita Baylon's donation thereof in favor of Florante Baylon, in excess of her undivided
share therein as co-heir, is void. Surely, she could not have validly disposed of
something she did not own. In such a case, an action for rescission of the donation
may, therefore, prosper.
If the lots, however, are found to have belonged exclusively to Rita Baylon, during her
lifetime, her donation thereof in favor of Florante Baylon is valid. For then, she merely
exercised her ownership right to dispose of what legally belonged to her. Upon her
death, the lots no longer form part of her estate as their ownership now pertains to
Florante Baylon. On this score, an action for rescission against such donation will not
prosper. . . . .
Verily, before plaintiffs-appellees may file an action for rescission, they must first
obtain a favorable judicial ruling that lot no. 4709 and half of lot no. 4706 actually
belonged to the estate of Spouses Florentino and Maximina Baylon, and not to
Rita Baylon during her lifetime. Until then, an action for rescission is premature. For
this matter, the applicability of Article 1381, paragraph 4, of the New Civil Code must
likewise await the trial court's resolution of the issue of ownership.
Be that as it may, an action for rescission should be filed by the parties concerned
independent of the proceedings below. The first cannot simply be lumped up with the
second through a mere supplemental pleading. 26 (Citation omitted)
The petitioners sought reconsideration 27 of the Decision dated October 26, 2007 but it was denied
by the CA in its Resolution 28 dated March 6, 2008.
Hence, this petition.
Issue
The lone issue to be resolved by this Court is whether the CA erred in ruling that the donation inter
vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may only be rescinded if there is
already a judicial determination that the same actually belonged to the estate of Spouses Baylon.
The Court's Ruling
The petition is partly meritorious.
Procedural Matters
Before resolving the lone substantive issue in the instant case, this Court deems it proper to address
certain procedural matters that need to be threshed out which, by laxity or otherwise, were not raised
by the parties herein.
Misjoinder of Causes of Action
The complaint filed by the petitioners with the RTC involves two separate, distinct and independent
actions partition and rescission. First, the petitioners raised the refusal of their co-heirs, Florante,
Rita and Panfila, to partition the properties which they inherited from Spouses Baylon. Second, in their
supplemental pleading, the petitioners assailed the donation inter vivos of Lot No. 4709 and half of Lot
No. 4706 made by Rita in favor of Florante pendente lite.
The actions of partition and
rescission cannot be joined in a
single action.
By a joinder of actions, or more properly, a joinder of causes of action is meant the uniting of two or
more demands or rights of action in one action, the statement of more than one cause of action in a
declaration. It is the union of two or more civil causes of action, each of which could be made the
basis of a separate suit, in the same complaint, declaration or petition. A plaintiff may under certain
circumstances join several distinct demands, controversies or rights of action in one declaration,
complaint or petition. 29
The objectives of the rule or provision are to avoid a multiplicity of suits where the same parties and
subject matter are to be dealt with by effecting in one action a complete determination of all matters
in controversy and litigation between the parties involving one subject matter, and to expedite the
disposition of litigation at minimum cost. The provision should be construed so as to avoid such
multiplicity, where possible, without prejudice to the rights of the litigants. 30
Nevertheless, while parties to an action may assert in one pleading, in the alternative or otherwise, as
many causes of action as they may have against an opposing party, such joinder of causes of action is
subject to the condition, inter alia, that the joinder shall not include special civil actions governed by
special rules. 31
Here, there was a misjoinder of causes of action. The action for partition filed by the petitioners could
not be joined with the action for the rescission of the said donation inter vivos in favor of Florante.
Lest it be overlooked, an action for partition is a special civil action governed by Rule 69 of the Rules
of Courtwhile an action for rescission is an ordinary civil action governed by the ordinary rules of civil
procedure. The variance in the procedure in the special civil action of partition and in the ordinary civil
action of rescission precludes their joinder in one complaint or their being tried in a single proceeding

to avoid confusion in determining what rules shall govern the conduct of the proceedings as well as in
the determination of the presence of requisite elements of each particular cause of action. 32
A misjoined cause of action, if not
severed upon motion of a party or
by the court sua sponte, may be
adjudicated by the court together
with the other causes of action.
Nevertheless, misjoinder of causes of action is not a ground for dismissal. Indeed, the courts have the
power, acting upon the motion of a party to the case orsua sponte, to order the severance of the
misjoined cause of action to be proceeded with separately. 33 However, if there is no objection to the
improper joinder or the court did not motu proprio direct a severance, then there exists no bar in the
simultaneous adjudication of all the erroneously joined causes of action. On this score, our disquisition
in Republic of the Philippines v. Herbieto 34 is instructive, viz.:
This Court, however, disagrees with petitioner Republic in this regard. This procedural
lapse committed by the respondents should not affect the jurisdiction of the MTC to
proceed with and hear their application for registration of the Subject Lots. CcAHEI
xxx xxx xxx
Considering every application for land registration filed in strict accordance with the
Property Registration Decree as a single cause of action, then the defect in the joint
application for registration filed by the respondents with the MTC constitutes a
misjoinder of causes of action and parties. Instead of a single or joint application for
registration, respondents Jeremias and David, more appropriately, should have filed
separate applications for registration of Lots No. 8422 and 8423, respectively.
Misjoinder of causes of action and parties do not involve a question of jurisdiction of
the court to hear and proceed with the case. They are not even accepted grounds for
dismissal thereof. Instead, under the Rules of Court, the misjoinder of causes of action
and parties involve an implied admission of the court's jurisdiction. It acknowledges
the power of the court, acting upon the motion of a party to the case or on its own
initiative, to order the severance of the misjoined cause of action, to be proceeded
with separately (in case of misjoinder of causes of action); and/or the dropping of a
party and the severance of any claim against said misjoined party, also to be
proceeded with separately (in case of misjoinder of parties). 35 (Citations
omitted) CcAHEI
It should be emphasized that the foregoing rule only applies if the court trying the case has
jurisdiction over all of the causes of action therein notwithstanding the misjoinder of the same. If the
court trying the case has no jurisdiction over a misjoined cause of action, then such misjoined cause
of action has to be severed from the other causes of action, and if not so severed, any adjudication
rendered by the court with respect to the same would be a nullity.
Here, Florante posed no objection, and neither did the RTC direct the severance of the petitioners'
action for rescission from their action for partition. While this may be a patent omission on the part of
the RTC, this does not constitute a ground to assail the validity and correctness of its decision. The
RTC validly adjudicated the issues raised in the actions for partition and rescission filed by the
petitioners.
Asserting a New Cause of Action in a Supplemental Pleading
In its Decision dated October 26, 2007, the CA pointed out that the said action for rescission should
have been filed by the petitioners independently of the proceedings in the action for partition. It
opined that the action for rescission could not be lumped up with the action for partition through a
mere supplemental pleading.
We do not agree.
A supplemental pleading may raise
a new cause of action as long as it
has some relation to the original
cause of action set forth in the
original complaint.
Section 6, Rule 10 of the Rules of Court reads:
Sec. 6. Supplemental Pleadings. Upon motion of a party the court may, upon
reasonable notice and upon such terms as are just, permit him to serve a
supplemental pleading setting forth transactions, occurrences or events which have
happened since the date of the pleading sought to be supplemented. The adverse
party may plead thereto within ten (10) days from notice of the order admitting the
supplemental pleading.
In Young v. Spouses Sy, 36 this Court had the opportunity to elucidate on the purpose of a
supplemental pleading. Thus:
As its very name denotes, a supplemental pleading only serves to bolster or add
something to the primary pleading. A supplement exists side by side with the original.

It does not replace that which it supplements. Moreover, a supplemental pleading


assumes that the original pleading is to stand and that the issues joined with the
original pleading remained an issue to be tried in the action. It is but a continuation of
the complaint. Its usual office is to set up new facts which justify, enlarge or
change the kind of relief with respect to the same subject matter as the
controversy referred to in the original complaint.
The purpose of the supplemental pleading is to bring into the records new
facts which will enlarge or change the kind of relief to which the plaintiff is
entitled; hence, any supplemental facts which further develop the original
right of action, or extend to vary the relief, are available by way of
supplemental complaint even though they themselves constitute a right of
action. 37 (Citations omitted and emphasis ours)
Thus, a supplemental pleading may properly allege transactions, occurrences or events which had
transpired after the filing of the pleading sought to be supplemented, even if the said supplemental
facts constitute another cause of action.
Admittedly, in Leobrera v. Court of Appeals, 38 we held that a supplemental pleading must be based
on matters arising subsequent to the original pleading related to the claim or defense presented
therein, and founded on the same cause of action. We further stressed therein that a supplemental
pleading may not be used to try a new cause of action.
However, in Planters Development Bank v. LZK Holdings and Development Corp., 39 we clarified that,
while a matter stated in a supplemental complaint should have some relation to the cause of action
set forth in the original pleading, the fact that the supplemental pleading technically states a new
cause of action should not be a bar to its allowance but only a matter that may be considered by the
court in the exercise of its discretion. In such cases, we stressed that a broad definition of "cause of
action" should be applied.
Here, the issue as to the validity of the donation inter vivos of Lot No. 4709 and half of Lot No. 4706
made by Rita in favor of Florante is a new cause of action that occurred after the filing of the original
complaint. However, the petitioners' prayer for the rescission of the said donation inter vivos in their
supplemental pleading is germane to, and is in fact, intertwined with the cause of action in the
partition case. Lot No. 4709 and half of Lot No. 4706 are included among the properties that were
sought to be partitioned.
The petitioners' supplemental pleading merely amplified the original cause of action, on account of
the gratuitous conveyance of Lot No. 4709 and half of Lot No. 4706 after the filing of the original
complaint and prayed for additional reliefs, i.e., rescission. Indeed, the petitioners claim that the said
lots form part of the estate of Spouses Baylon, but cannot be partitioned unless the gratuitous
conveyance of the same is rescinded. Thus, the principal issue raised by the petitioners in their
original complaint remained the same.
Main Issue: Propriety of Rescission
After having threshed out the procedural matters, we now proceed to adjudicate the substantial issue
presented by the instant petition.
The petitioners assert that the CA erred in remanding the case to the RTC for the determination of
ownership of Lot No. 4709 and half of Lot No. 4706. They maintain that the RTC aptly rescinded the
said donation inter vivos of Lot No. 4709 and half of Lot No. 4706 pursuant to Article 1381 (4) of
the Civil Code.
In his Comment, 40 Florante asserts that before the petitioners may file an action for rescission, they
must first obtain a favorable judicial ruling that Lot No. 4709 and half of Lot No. 4706 actually
belonged to the estate of Spouses Baylon. Until then, Florante avers that an action for rescission
would be premature.
The petitioners' contentions are well-taken.
The resolution of the instant dispute is fundamentally contingent upon a determination of whether the
donation inter vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante may be rescinded
pursuant to Article 1381 (4) of the Civil Code on the ground that the same was made during the
pendency of the action for partition with the RTC.
Rescission is a remedy to address
the damage or injury caused to the
contracting parties or third
persons.
Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure
the reparation of damages caused to them by a contract, even if it should be valid, by means of the
restoration of things to their condition at the moment prior to the celebration of said contract. 41 It is
a remedy to make ineffective a contract, validly entered into and therefore obligatory under normal
conditions, by reason of external causes resulting in a pecuniary prejudice to one of the contracting
parties or their creditors. 42

Contracts which are rescissible are valid contracts having all the essential requisites of a contract, but
by reason of injury or damage caused to either of the parties therein or to third persons are
considered defective and, thus, may be rescinded.
The kinds of rescissible contracts, according to the reason for their susceptibility to rescission, are the
following: first, those which are rescissible because of lesion or prejudice; 43 second, those which are
rescissible on account of fraud or bad faith; 44 and third, those which, by special provisions of
law, 45 are susceptible to rescission. 46
Contracts which refer to things
subject of litigation is rescissible
pursuant to Article 1381 (4) of the
Civil Code.
Contracts which are rescissible due to fraud or bad faith include those which involve things under
litigation, if they have been entered into by the defendant without the knowledge and approval of the
litigants or of competent judicial authority. Thus, Article 1381 (4) of the Civil Code provides:
Art. 1381. The following contracts are rescissible:
xxx xxx xxx
(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent
judicial authority[.]
The rescission of a contract under Article 1381 (4) of the Civil Code only requires the concurrence of
the following: first, the defendant, during the pendency of the case, enters into a contract which
refers to the thing subject of litigation; and second, the said contract was entered into without the
knowledge and approval of the litigants or of a competent judicial authority. As long as the foregoing
requisites concur, it becomes the duty of the court to order the rescission of the said contract.
The reason for this is simple. Article 1381 (4) seeks to remedy the presence of bad faith among the
parties to a case and/or any fraudulent act which they may commit with respect to the thing subject
of litigation.
When a thing is the subject of a judicial controversy, it should ultimately be bound by whatever
disposition the court shall render. The parties to the case are therefore expected, in deference to the
court's exercise of jurisdiction over the case, to refrain from doing acts which would dissipate or
debase the thing subject of the litigation or otherwise render the impending decision therein
ineffectual.
There is, then, a restriction on the disposition by the parties of the thing that is the subject of the
litigation. Article 1381 (4) of the Civil Code requires that any contract entered into by a defendant in a
case which refers to things under litigation should be with the knowledge and approval of the litigants
or of a competent judicial authority.
Further, any disposition of the thing subject of litigation or any act which tends to render inutile the
court's impending disposition in such case, sans the knowledge and approval of the litigants or of the
court, is unmistakably and irrefutably indicative of bad faith. Such acts undermine the authority of the
court to lay down the respective rights of the parties in a case relative to the thing subject of litigation
and bind them to such determination.
It should be stressed, though, that the defendant in such a case is not absolutely proscribed from
entering into a contract which refer to things under litigation. If, for instance, a defendant enters into
a contract which conveys the thing under litigation during the pendency of the case, the conveyance
would be valid, there being no definite disposition yet coming from the court with respect to the thing
subject of litigation. After all, notwithstanding that the subject thereof is a thing under litigation, such
conveyance is but merely an exercise of ownership. SATDHE
This is true even if the defendant effected the conveyance without the knowledge and approval of the
litigants or of a competent judicial authority. The absence of such knowledge or approval would not
precipitate the invalidity of an otherwise valid contract. Nevertheless, such contract, though
considered valid, may be rescinded at the instance of the other litigants pursuant to Article 1381 (4)
of the Civil Code.
Here, contrary to the CA's disposition, the RTC aptly ordered the rescission of the donation inter
vivos of Lot No. 4709 and half of Lot No. 4706 in favor of Florante. The petitioners had sufficiently
established the presence of the requisites for the rescission of a contract pursuant to Article 1381 (4)
of the Civil Code.It is undisputed that, at the time they were gratuitously conveyed by Rita, Lot No.
4709 and half of Lot No. 4706 are among the properties that were the subject of the partition case
then pending with the RTC. It is also undisputed that Rita, then one of the defendants in the partition
case with the RTC, did not inform nor sought the approval from the petitioners or of the RTC with
regard to the donation inter vivos of the said parcels of land to Florante.
Although the gratuitous conveyance of the said parcels of land in favor of Florante was valid, the
donation inter vivos of the same being merely an exercise of ownership, Rita's failure to inform and
seek the approval of the petitioners or the RTC regarding the conveyance gave the petitioners the
right to have the said donation rescinded pursuant to Article 1381 (4) of the Civil Code.

Rescission under Article 1381 (4) of


the Civil Code is not preconditioned
upon the judicial determination as
to the ownership of the thing
subject of litigation.
In this regard, we also find the assertion that rescission may only be had after the RTC had finally
determined that the parcels of land belonged to the estate of Spouses Baylon intrinsically amiss. The
petitioners' right to institute the action for rescission pursuant to Article 1381 (4) of the Civil Code is
not preconditioned upon the RTC's determination as to the ownership of the said parcels of land.
It bears stressing that the right to ask for the rescission of a contract under Article 1381 (4) of the Civil
Code is not contingent upon the final determination of the ownership of the thing subject of litigation.
The primordial purpose of Article 1381 (4) of the Civil Code is to secure the possible effectivity of the
impending judgment by a court with respect to the thing subject of litigation. It seeks to protect the
binding effect of a court's impending adjudication vis--vis the thing subject of litigation regardless of
which among the contending claims therein would subsequently be upheld. Accordingly, a definitive
judicial determination with respect to the thing subject of litigation is not a condition sine qua
non before the rescissory action contemplated under Article 1381 (4) of the Civil Code may be
instituted.
Moreover, conceding that the right to bring the rescissory action pursuant to Article 1381 (4) of
the Civil Code is preconditioned upon a judicial determination with regard to the thing subject
litigation, this would only bring about the very predicament that the said provision of law seeks to
obviate. Assumingarguendo that a rescissory action under Article 1381 (4) of the Civil Code could only
be instituted after the dispute with respect to the thing subject of litigation is judicially determined,
there is the possibility that the same may had already been conveyed to third persons acting in good
faith, rendering any judicial determination with regard to the thing subject of litigation illusory. Surely,
this paradoxical eventuality is not what the law had envisioned.
Even if the donation inter vivos is
validly rescinded, a determination
as to the ownership of the subject
parcels of land is still necessary.
Having established that the RTC had aptly ordered the rescission of the said donation inter vivos in
favor of Florante, the issue that has to be resolved by this Court is whether there is still a need to
determine the ownership of Lot No. 4709 and half of Lot No. 4706.
In opting not to make a determination as to the ownership of Lot No. 4709 and half of Lot No. 4706,
the RTC reasoned that the parties in the proceedings before it constitute not only the surviving heirs
of Spouses Baylon but the surviving heirs of Rita as well. As intimated earlier, Rita died intestate
during the pendency of the proceedings with the RTC without any issue, leaving the parties in the
proceedings before the RTC as her surviving heirs. Thus, the RTC insinuated, a definitive determination
as to the ownership of the said parcels of land is unnecessary since, in any case, the said parcels of
land would ultimately be adjudicated to the parties in the proceedings before it.
We do not agree.
Admittedly, whoever may be adjudicated as the owner of Lot No. 4709 and half of Lot No. 4706, be it
Rita or Spouses Baylon, the same would ultimately be transmitted to the parties in the proceedings
before the RTC as they are the only surviving heirs of both Spouses Baylon and Rita. However, the RTC
failed to realize that a definitive adjudication as to the ownership of Lot No. 4709 and half of Lot No.
4706 is essential in this case as it affects the authority of the RTC to direct the partition of the said
parcels of land. Simply put, the RTC cannot properly direct the partition of Lot No. 4709 and half of Lot
No. 4706 until and unless it determines that the said parcels of land indeed form part of the estate of
Spouses Baylon.
It should be stressed that the partition proceedings before the RTC only covers the properties coowned by the parties therein in their respective capacity as the surviving heirs of Spouses Baylon.
Hence, the authority of the RTC to issue an order of partition in the proceedings before it only affects
those properties which actually belonged to the estate of Spouses Baylon.
In this regard, if Lot No. 4709 and half of Lot No. 4706, as unwaveringly claimed by Florante, are
indeed exclusively owned by Rita, then the said parcels of land may not be partitioned simultaneously
with the other properties subject of the partition case before the RTC. In such case, although the
parties in the case before the RTC are still co-owners of the said parcels of land, the RTC would not
have the authority to direct the partition of the said parcels of land as the proceedings before it is only
concerned with the estate of Spouses Baylon.
WHEREFORE, in consideration of the foregoing disquisitions, the petition is PARTIALLY GRANTED.
The Decision dated October 26, 2007 issued by the Court of Appeals in CA-G.R. CV No. 01746
is MODIFIED in that the Decision dated October 20, 2005 issued by the Regional Trial Court, Tanjay
City, Negros Oriental, Branch 43 in Civil Case No. 11657, insofar as it decreed the rescission of the
Deed of Donation dated July 6, 1997 is hereby REINSTATED. The case isREMANDED to the trial court

for the determination of the ownership of Lot No. 4709 and half of Lot No. 4706 in accordance with
this Decision.
SO ORDERED.
Carpio, Brion, Villarama, Jr. * and Perez, JJ., concur.
||| (Ada v. Baylon, G.R. No. 182435, [August 13, 2012], 692 PHIL 432-454)
FIRST DIVISION
[G.R. No. 201892. July 22, 2015.]
NORLINDA S. MARILAG, petitioner, vs. MARCELINO B. MARTINEZ, respondent.
DECISION
PERLAS-BERNABE, J p:
Assailed in this petition for review on certiorari 1 are the Decision 2 dated November 4,
2011 and the Resolution 3 dated May 14, 2012 of the Court of Appeals (CA) in CA-G.R. CV No.
81258 which recalled and set aside the Orders dated November 3, 2003 4 and January 14,
2004 5 of the Regional Trial Court (RTC) of Las Pias City, Branch 202 (court a quo) in Civil Case
No. 98-0156, and reinstated the Decision 6 dated August 28, 2003 directing petitioner Norlinda
S. Marilag (petitioner) to return to respondent Marcelino B. Martinez (respondent) the latter's
excess payment, plus interest, and to pay attorney's fees and the costs of suit.
The Facts
On July 30, 1992, Rafael Martinez (Rafael), respondent's father, obtained from petitioner a
loan in the amount of P160,000.00, with a stipulated monthly interest of five percent (5%),
payable within a period of six (6) months. The loan was secured by a real estate mortgage over a
parcel of land covered by Transfer Certificate of Title (TCT) No. T-208400. Rafael failed to settle his
obligation upon maturity and despite repeated demands, prompting petitioner to file a Complaint
for Judicial Foreclosure of Real Estate Mortgage before the RTC of Imus, Cavite, Branch 90 7 (RTCImus) on November 10, 1995, 8 docketed as Civil Case No. 1208-95 (judicial foreclosure case).
Rafael failed to file his answer and, upon petitioner's motion, was declared in default. After
an ex parte presentation of petitioner's evidence, the RTC-Imus issued a Decision 9 dated January
30, 1998, (January 30, 1998 Decision) in the foreclosure case, declaring the stipulated 5% monthly
interest to be usurious and reducing the same to 12% per annum (p.a.). Accordingly, it ordered
Rafael to pay petitioner the amount of P229,200.00, consisting of the principal of P160,000.00 and
accrued interest of P59,200.00 from July 30, 1992 to September 30, 1995. 10 Records do not show
that this Decision had already attained finality.
Meanwhile, prior to Rafael's notice of the above decision, respondent agreed to pay
Rafael's obligation to petitioner which was pegged at P689,000.00. After making a total payment
of P400,000.00, 11 he executed a promissory note 12 dated February 20, 1998 (subject PN),
binding himself to pay on or before March 31, 1998 the amount of P289,000.00, "representing the
balance of the agreed financial obligation of [his] father to [petitioner]." 13After learning of the
January 30, 1998 Decision, respondent refused to pay the amount covered by the subject PN
despite demands, prompting petitioner to file a complaint 14 for sum of money and damages
before the court a quo on July 2, 1998, docketed as Civil Case No. 98-0156 (collection
case). CTIEac
Respondent filed his answer, 15 contending that petitioner has no cause of action against
him. He averred that he has fully settled Rafael's obligation and that he committed a mistake in
paying more than the amount due under the loan, i.e., the amount of P229,200.00 as adjudged by
the RTC-Imus in the judicial foreclosure case which, thus, warranted the return of the excess
payment. He therefore prayed for the dismissal of the complaint, and interposed a compulsory
counterclaim for the release of the mortgage, the return of the excess payment, and the payment
of moral and exemplary damages, attorney's fees and litigation expenses. 16
The Court A Quo's Ruling
In a Decision 17 dated August 28, 2003 (August 28, 2003 Decision), the court a quo denied
recovery on the subject PN. It found that the consideration for its execution was Rafael's
indebtedness to petitioner, the extinguishment of which necessarily results in the consequent
extinguishment of the cause therefor. Considering that the RTC-Imus had adjudged Rafael liable to
petitioner only for the amount of P229,200.00, for which a total of P400,000.00 had already been
paid, the court a quo found no valid or compelling reason to allow petitioner to recover further on
the subject PN. There being an excess payment of P171,000.00, it declared that a quasi-contract
(in the concept of solutio indebiti) exists between the parties and, accordingly, directed petitioner
to return the said amount to respondent, plus 6% interest p.a. 18 reckoned from the date of
judicial demand 19 on August 6, 1998 until fully paid, and to pay attorney's fees and the costs of
suit. 20
In an Order 21 dated November 3, 2003 (November 3, 2003 Order), however, the court a
quo granted petitioner's motion for reconsideration, and recalled and set aside its August 28, 2003
Decision. It declared that the causes of action in the collection and foreclosure cases are distinct,
and respondent's failure to comply with his obligation under the subject PN justifies petitioner to

seek judicial relief. It further opined that the stipulated 5% monthly interest is no longer usurious
and is binding on respondent considering the suspension of the Usury Law pursuant to Central
Bank Circular 905, series of 1982. Accordingly, it directed respondent to pay the amount of
P289,000.00 due under the subject PN, plus interest at the legal rate reckoned from the last extrajudicial demand on May 15, 1998, until fully paid, as well as attorney's fees and the costs of
suit. 22
Aggrieved, respondent filed a motion for reconsideration 23 which was denied in an
Order 24 dated January 14, 2004, prompting him to elevate the matter to the CA. 25
The CA Ruling
In a Decision 26 dated November 4, 2011, the CA recalled and set aside the court a
quo's November 3, 2003 and January 14, 2004 Orders, and reinstated the August 28, 2003
Decision. It held that the doctrine of res judicata finds application in the instant
case, 27 considering that both the judicial foreclosure and collection cases were filed as a
consequence of the non-payment of Rafael's loan, which was the principal obligation secured by
the real estate mortgage and the primary consideration for the execution of the subject PN.
Since res judicata only requires substantial, not actual, identity of causes of action and/or identity
of issue, 28 it ruled that the judgment in the judicial foreclosure case relating to Rafael's obligation
to petitioner is final and conclusive on the collection case.
Petitioner's motion for reconsideration was denied in a Resolution 29 dated May 14, 2012;
hence, this petition.
The Issue Before the Court
The essential issue for the Court's resolution is whether or not the CA committed reversible
error in upholding the dismissal of the collection case.
The Court's Ruling
The petition lacks merit.
A case is barred by prior judgment or res judicata when the following elements concur: (a)
the judgment sought to bar the new action must be final; (b) the decision must have been
rendered by a court having jurisdiction over the subject matter and the parties; (c) the disposition
of the case must be a judgment on the merits; and (d) there must be as between the first and
second action, identity of parties, subject matter, and causes of action. 30
After a punctilious review of the records, the Court finds the principle of res judicata to be
inapplicable to the present case. This is because the records are bereft of any indication that the
August 28, 2003 Decision in the judicial foreclosure case had already attained finality, evidenced,
for instance, by a copy of the entry of judgment in the said case. Accordingly, with the very first
element of res judicata missing, said principle cannot be made to obtain.
This notwithstanding, the Court holds that petitioner's prosecution of the collection case
was barred, instead, by the principle of litis pendentia in view of the substantial identity of parties
and singularity of the causes of action in the foreclosure and collection cases, such that the prior
foreclosure case barred petitioner's recourse to the subsequent collection case. SaCIDT
To lay down the basics, litis pendentia, as a ground for the dismissal of a civil
action, refers to that situation wherein another action is pending between the same
parties for the same cause of action, such that the second action becomes unnecessary
and vexatious. For the bar oflitis pendentia to be invoked, the following requisites must concur:
(a) identity of parties, or at least such parties as represent the same interests in both actions; (b)
identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c)
the identity of the two preceding particulars is such that any judgment rendered in the pending
case, regardless of which party is successful would amount to res judicata in the other. 31 The
underlying principle of litis pendentia is the theory that a party is not allowed to vex another more
than once regarding the same subject matter and for the same cause of action. This theory is
founded on the public policy that the same subject matter should not be the subject of controversy
in courts more than once, in order that possible conflicting judgments may be avoided for the sake
of the stability of the rights and status of persons, and also to avoid the costs and expenses
incident to numerous suits. 32 Consequently, a party will not be permitted to split up a single
cause of action and make it a basis for several suits as the whole cause must be determined in
one action. 33 To be sure, splitting a cause of action is a mode of forum shopping by
filing multiple cases based on the same cause of action, but with different prayers,
where the ground of dismissal is litis pendentia (or res judicata, as the case may
be). 34
In this relation, it must be noted that the question of whether a cause of action is single
and entire or separate is not always easy to determine and the same must often be resolved, not
by the general rules, but by reference to the facts and circumstances of the particular case. The
true rule, therefore, is whether the entire amount arises from one and the same act or
contract which must, thus, be sued for in one action, or the several parts arise from
distinct and different acts or contracts, for which a party may maintain separate
suits. 35

In loan contracts secured by a real estate mortgage, the rule is that the creditor-mortgagee
has a single cause of action against the debtor-mortgagor, i.e., to recover the debt, through
the filing of a personal action for collection of sum of money or the institution of a real
action to foreclose on the mortgage security. The two remedies are alternative, 36 not
cumulative or successive, 37 and each remedy is complete by itself. Thus, if the creditormortgagee opts to foreclose the real estate mortgage, he waives the action for the collection of
the unpaid debt, 38 except only for the recovery of whatever deficiency may remain in the
outstanding obligation of the debtor-mortgagor after deducting the bid price in the public
auction sale of the mortgaged properties. 39 Accordingly, a deficiency judgment shall only
issue after it is established that the mortgaged property was sold at public auction for an amount
less than the outstanding obligation.
In the present case, records show that petitioner, as creditor-mortgagee, instituted an
action for judicial foreclosure pursuant to the provisions of Rule 68 of the Rules of Court in order to
recover on Rafael's debt. In light of the foregoing discussion, the availment of such remedy thus
bars recourse to the subsequent filing of a personal action for collection of the same debt, in this
case, under the principle of litis pendentia, considering that the foreclosure case only remains
pending as it was not shown to have attained finality.
While the ensuing collection case was anchored on the promissory note executed by
respondent who was not the original debtor, the same does not constitute a separate and distinct
contract of loan which would have given rise to a separate cause of action upon breach. Notably,
records are bereft of any indication that respondent's agreement to pay Rafael's loan obligation
and the execution of the subject PN extinguished by novation 40 the contract of loan between
Rafael and petitioner, in the absence of express agreement or any act of equal import. Well-settled
is the rule that novation is never presumed, but must be clearly and unequivocally shown. Thus, in
order for a new agreement to supersede the old one, the parties to a contract must expressly
agree that they are abrogating their old contract in favor of a new one, 41 which was not shown
here.
On the contrary, it is significant to point out that: (a) the consideration for the subject PN
was the same consideration that supported the original loan obligation of Rafael; (b) respondent
merely assumed to pay Rafael's remaining unpaid balance in the latter's behalf, i.e., as Rafael's
agent or representative; 42 and (c) the subject PN was executed after respondent had assumed to
pay Rafael's obligation and made several payments thereon. Case law states that the fact that the
creditor accepts payments from a third person, who has assumed the obligation, will result merely
in the addition of debtors, not novation, and the creditor may enforce the obligation against both
debtors. 43 For ready reference, the subject PN reads in full:
February 20, 1998
PROMISSORY NOTE
P289,000.00
=========
I, MARCELINO B. MARTINEZ, son of Mr. RAFAEL MARTINEZ, of legal age,
Filipino, married and a resident of No. 091 Anabu I-A, Imus, Cavite, by these
presents do hereby specifically and categorically PROMISE, UNDERTAKE and bind
myself in behalf of my father, to pay to Miss NORLINDA S. MARILAG, MortgageeCreditor of my said father, the sum of TWO HUNDRED EIGHTY NINE THOUSAND
PESOS (P289,000.00), Philippine Currency, on or before MARCH 31,
1998, representing the balance of the agreed financial obligation of my
said father to her. (Emphases supplied)
Executed at Pamplona I, Las Pias City, Metro Manila, this 20th day of
February, 1998.
Sgd.
MARCELINO B. MARTINEZ
Promissor 44
Petitioner's contention that the judicial foreclosure and collection cases enforce
independent rights 45 must, therefore, fail because the Deed of Real Estate Mortgage 46 and the
subject PN both refer to one and the same obligation, i.e., Rafael's loan obligation. As such, there
exists only one cause of action for a single breach of that obligation. Petitioner cannot split her
cause of action on Rafael's unpaid loan obligation by filing a petition for the judicial foreclosure of
the real estate mortgage covering the said loan, and, thereafter, a personal action for the
collection of the unpaid balance of said obligation not comprising a deficiency arising from
foreclosure, without violating the proscription against splitting a single cause of action, where the
ground for dismissal is either res judicata or litis pendentia, as in this case. cHECAS
As elucidated by this Court in the landmark case of Bachrach Motor Co., Inc. v.
Icarangal. 47
For non-payment of a note secured by mortgage, the creditor has a
single cause of action against the debtor. This single cause of action consists

in the recovery of the credit with execution of the security. In other words, the
creditor in his action may make two demands, the payment of the debt and the
foreclosure of his mortgage. But both demands arise from the same cause, the nonpayment of the debt, and, for that reason, they constitute a single cause of
action. Though the debt and the mortgage constitute separate agreements,
the latter is subsidiary to the former, and both refer to one and the same
obligation. Consequently, there exists only one cause of action for a single
breach of that obligation. Plaintiff, then, by applying the rule above
stated, cannot split up his single cause of action by filing a complaint for
payment of the debt, and thereafter another complaint for foreclosure of
the mortgage. If he does so, the filing of the first complaint will bar the subsequent
complaint. By allowing the creditor to file two separate complaints simultaneously or
successively, one to recover his credit and another to foreclose his mortgage, we
will, in effect, be authorizing him plural redress for a single breach of contract at so
much cost to the courts and with so much vexation and oppression to the debtor.
(Emphases and underscoring supplied)
Further on the point, the fact that no foreclosure sale appears to have been conducted is of
no moment because the remedy of foreclosure of mortgage is deemed chosen upon the filing of
the complaint therefor. 48 In Suico Rattan & Buri Interiors, Inc. v. CA, 49 it was explained:
. . . . In sustaining the rule that prohibits mortgage creditors from pursuing
both the remedies of a personal action for debt or a real action to foreclose the
mortgage, the Court held in the case of Bachrach Motor Co., Inc. v. Esteban
Icarangal, et al. that a rule which 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 and obnoxious to law and equity, 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. Hence, a remedy is
deemed chosen upon the filing of the suit for collection or upon the filing
of the complaint in an action for foreclosure of mortgage, pursuant to the
provisions of Rule 68 of the Rules of Court. As to extrajudicial foreclosure, such
remedy is deemed elected by the mortgage creditor upon filing of the petition not
with any court of justice but with the office of the sheriff of the province where the
sale is to be made, in accordance with the provisions of Act No. 3135, as amended
by Act No. 4118. (Emphases supplied)
As petitioner had already instituted judicial foreclosure proceedings over the
mortgaged property, she is now barred from availing herself of an ordinary action for
collection, regardless of whether or not the decision in the foreclosure case had attained finality.
In fine, the dismissal of the collection case is in order. Considering, however, that respondent's
claim for return of excess payment partakes of the nature of a compulsory counterclaim and, thus,
survives the dismissal of petitioner's collection suit, the same should be resolved based on its own
merits and evidentiary support.50
Records show that other than the matter of interest, the principal loan obligation and the
payments made were not disputed by the parties. Nonetheless, the Court finds the stipulated 5%
monthly interest to be excessive and unconscionable. In a plethora of cases, the Court has
affirmed thatstipulated interest rates of three percent (3%)per month and higher are
excessive, iniquitous, unconscionable, and exorbitant, 51 hence, illegal52 and void for
being contrary to morals. 53 In Agner v. BPI Family Savings Bank, Inc., 54 the Court had the
occasion to rule:
Settled is the principle which this Court has affirmed in a number of cases
that stipulated interest rates of three percent (3%) per month and higher are
excessive, iniquitous, unconscionable, and exorbitant. While Central Bank Circular
No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on
interest rates for both secured and unsecured loans, regardless of maturity, nothing
in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers
or lead to a hemorrhaging of their assets. Since the stipulation on the interest
rate is void for being contrary to morals, if not against the law, it is as if
there was no express contract on said interest rate; thus, the interest rate
may be reduced as reason and equity demand. (Emphases supplied) AHDacC
As such, the stipulated 5% monthly interest should be equitably reduced to 1% per month
or 12% p.a. reckoned from the execution of the real estate mortgage on July 30, 1992. In order to
determine whether there was any overpayment as claimed by respondent, we first compute the
interest until January 30, 1998 55 when he made a payment in the amount of P300,000.00 on

Rafael's loan obligation. Accordingly, the amount due on the loan as of the latter date is hereby
computed as follows:
Principal
P160,000.00
Interest from 07/30/1992 to
Add:
01/30/1998
(P160,000.00 x 12% x 5.5 yrs.)
105,600.00
__________
Amount due on the loan
P265,600.00
Less: Payment made on 01/30/98
(300,000.00)
__________
(P34,400.00) 5
Overpayment as of 01/30/98
6
Thus, as of January 30, 1998, only the amount of P265,600.00 was due under the loan
contract, and the receipt of an amount more than that renders petitioner liable for the return of
the excess. Respondent, however, made further payment in the amount of P100,000.00 57 on the
belief that the subject loan obligation had not yet been satisfied. Such payments were, therefore,
clearly made by mistake, giving rise to the quasi-contractual obligation ofsolutio indebiti under
Article 2154 58 in relation to Article 2163 59 of the Civil Code.Not being a loan or forbearance of
money, an interest of 6% p.a. should be imposed on the amount to be refunded and on the
damages and attorney's fees awarded, if any, computed from the time of demand 60 until its
satisfaction. 61 Consequently, petitioner must return to respondent the excess payments in the
total amount of P134,400.00, with legal interest at the rate of 6% p.a. from the filing of the Answer
on August 6, 1998 62 interposing a counterclaim for such overpayment, until fully settled.
However, inasmuch as the court a quo failed to state in the body of its decision the factual
or legal basis for the award of attorney's fees to the respondent, as required under Article
2208 63 of the New Civil Code, the Court resolves to delete the same. The rule is well-settled that
the trial court must clearly state the reasons for awarding attorney's fees in the body of its
decision, not merely in its dispositive portion, as the appellate courts are precluded from
supplementing the bases for such award. 64
Finally, in the absence of showing that the court a quo's award of the costs of suit in favor
of respondent was patently capricious, 65 the Court finds no reason to disturb the same.
WHEREFORE, the petition is DENIED. The Decision dated November 4, 2011 and the
Resolution dated May 14, 2012 of the Court of Appeals in CA-G.R. CV No. 81258 reinstating the
court a quo's Decision dated August 28, 2003 in Civil Case No. 98-0156 are
hereby AFFIRMED with the MODIFICATIONS: (a) directing petitioner Norlinda S. Marilag to return
to respondent Marcelino B. Martinez the latter's excess payments in the total amount of
P134,400.00, plus legal interest at the rate of 6% p.a. from the filing of the Answer on August 6,
1998 until full satisfaction; and (b) deleting the award of attorney's fees.
SO ORDERED.
||| (Marilag v. Martinez, G.R. No. 201892, [July 22, 2015])