G.R. No.

109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.

WHEREFORE, judgment is hereby rendered in favor of the defendants and
against the plaintiffs summarily dismissing the complaint subject to the
aforementioned condition that if the defendants subsequently decide to offer
their property for sale for a purchase price of Eleven Million Pesos or lower,
then the plaintiffs has the option to purchase the property or of first refusal,
otherwise, defendants need not offer the property to the plaintiffs if the
purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A.
Santiago), this Court affirmed with modification the lower court's judgment, holding:

VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP
No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated 30
August 1991 and 27 September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu
Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan
before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-41058, alleging, among
others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by
defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied
said spaces since 1935 and have been religiously paying the rental and complying with all the
conditions of the lease contract; that on several occasions before October 9, 1986, defendants
informed plaintiffs that they are offering to sell the premises and are giving them priority to
acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million
while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants
to put their offer in writing to which request defendants acceded; that in reply to defendant's
letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and
conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another
letter dated January 28, 1987 with the same request; that since defendants failed to specify the
terms and conditions of the offer to sell and because of information received that defendants
were about to sell the property, plaintiffs were compelled to file the complaint to compel
defendants to sell the property to them.
Defendants filed their answer denying the material allegations of the complaint and interposing a
special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment which was
granted by the lower court. The trial court found that defendants' offer to sell was never accepted
by the plaintiffs for the reason that the parties did not agree upon the terms and conditions of the
proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled
that should the defendants subsequently offer their property for sale at a price of P11-million or
below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision
states:

In resume, there was no meeting of the minds between the parties
concerning the sale of the property. Absent such requirement, the claim for
specific performance will not lie. Appellants' demand for actual, moral and
exemplary damages will likewise fail as there exists no justifiable ground for
its award. Summary judgment for defendants was properly granted. Courts
may render summary judgment when there is no genuine issue as to any
material fact and the moving party is entitled to a judgment as a matter of
law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining,
the decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed
from is hereby AFFIRMED, but subject to the following modification: The
court a quo in the aforestated decision gave the plaintiffs-appellants the
right of first refusal only if the property is sold for a purchase price of Eleven
Million pesos or lower; however, considering the mercurial and uncertain
forces in our market economy today. We find no reason not to grant the
same right of first refusal to herein appellants in the event that the subject
property is sold for a price in excess of Eleven Million pesos. No
pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for review on certiorari.
The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and substances"
(Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court,
the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in
question to herein petitioner Buen Realty and Development Corporation, subject to the following
terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS
(P15,000,000.00), receipt of which in full is hereby acknowledged, the

VENDORS hereby sells, transfers and conveys for and in favor of the
VENDEE, his heirs, executors, administrators or assigns, the abovedescribed property with all the improvements found therein including all the
rights and interest in the said property free from all liens and encumbrances
of whatever nature, except the pending ejectment proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration
fees for the transfer of title in his favor and other expenses incidental to the
sale of above-described property including capital gains tax and accrued
real estate taxes.

P11 Million or lower, and considering the mercurial and uncertain forces in
our market economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold for a price
in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the necessary
Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million
pesos in recognition of plaintiffs' right of first refusal and that a new Transfer
Certificate of Title be issued in favor of the buyer.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses
was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on
December 3, 1990.

All previous transactions involving the same property notwithstanding the
issuance of another title to Buen Realty Corporation, is hereby set aside as
having been executed in bad faith.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees
demanding that the latter vacate the premises.

SO ORDERED.

On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the
property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on
TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No.
87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows:
Presented before the Court is a Motion for Execution filed by plaintiff
represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng
and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto
Magno respectively were duly notified in today's consideration of the motion
as evidenced by the rubber stamp and signatures upon the copy of the
Motion for Execution.
The gist of the motion is that the Decision of the Court dated September 21,
1990 as modified by the Court of Appeals in its decision in CA G.R. CV21123, and elevated to the Supreme Court upon the petition for review and
that the same was denied by the highest tribunal in its resolution dated May
6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there
was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating
that the aforesaid modified decision had already become final and
executory.
It is the observation of the Court that this property in dispute was the subject
of the Notice of Lis Pendens and that the modified decision of this Court
promulgated by the Court of Appeals which had become final to the effect
that should the defendants decide to offer the property for sale for a price of

On September 22, 1991 respondent Judge issued another order, the dispositive portion of which
reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled
case directing the Deputy Sheriff Ramon Enriquez of this Court to
implement said Writ of Execution ordering the defendants among others to
comply with the aforesaid Order of this Court within a period of one (1) week
from receipt of this Order and for defendants to execute the necessary
Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00
and ordering the Register of Deeds of the City of Manila, to cancel and set
aside the title already issued in favor of Buen Realty Corporation which was
previously executed between the latter and defendants and to register the
new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and
Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition)
was issued. 1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without
force and effect the above questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of
execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty,
at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such arrangements as the right of first
refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental precepts
that may find some relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted
upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient
cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);
(b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c)
the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive
(obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render some service (Art.
1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection and,
finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place
upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so
established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the
cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a
pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain
formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the
prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation.
In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected
when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing
or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a
valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract
of option. This contract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the
Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the price.
(1451a) 6
Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the obligation,
to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral
promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective
undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an
offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or
only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at
any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this
stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and
not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to
the offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to
withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of
such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs.
Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the
previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank
of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw,
however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under
Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith."

A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the
thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase
price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory
force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of
Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right
to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the
buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where
the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such
perfection. 3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either
waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed,
can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5

(2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of
that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself,
and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet
to be concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance(exercise of the option) by
the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option)
since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given,
for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on
the part of the optionee, the main contract could be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it
cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first
refusal, understood in its normal concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or an

has observed: Finally. Furthermore. including the price. among other things. later affirmed in CA-G. CA. CV-21123. we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders. in any case. The consequence of such a declaration entails no more than what has heretofore been said. the questioned writ of execution is in variance with the decision of the trial court as modified by this Court. among other laws of general application. 87-41058. dated 30 August 1991 and 27 September 1991. let alone ousted from the ownership and possession of the property. The final judgment in Civil Case No. We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution varies the terms of the judgment in Civil Case No. cannot be held subject to the writ of execution issued by respondent Judge. the circumstances expressed in Article 19 12 of the Civil Code. has merely accorded a "right of first refusal" in favor of petitioners. or the cancellation of title in the name of petitioner (Limpin vs. CA. an unjustified disregard thereof. the pertinent scattered provisions of the Civil Code on human conduct. such as already intimated above. In a right of first refusal. since there is none to execute. 87-41058. can warrant a recovery for damages. 11 It is not to say. . however. would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms. 147 SCRA 516. 143 SCRA 311. be considered bound to respect the registration of the lis pendens in Civil Case No. of the court a quo. if. WHEREFORE. nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. The Court of Appeals. Pamantasan ng Lungsod ng Maynila vs. petitioners are aggrieved by the failure of private respondents to honor the right of first refusal. Pastor vs. has acted in good faith or bad faith and whether or not it should. Costs against petitioners. It is likewise quite obvious to us that the decision in Civil Case No.offer would require. however. Buen Realty. or the fixing of the price of the sale. Even on the premise that such right of first refusal has been decreed under a final judgment. it must be stressed. 87-41058 are matters that must be independently addressed in appropriate proceedings. but an action for damages in a proper forum for the purpose. 137 SCRA 730. that obviously are yet to be later firmed up. the remedy is not a writ of execution on the judgment. for instance. De Guzman vs. IAC. 122 SCRA 885). As already stated. while the object might be made determinate. 10 a clear certainty on both the object and the cause or consideration of the envisioned contract. like here. 87-41058. IAC. not having been impleaded in Civil Case No. In fine. the alleged purchaser of the property. Prior thereto.R. its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence. whether private respondent Buen Realty Development Corporation. there was nothing in said decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs and respondent lessees. in this regard. that the right of first refusal would be inconsequential for. the exercise of the right. 87-41058 could not have decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners. without first being duly afforded its day in court. it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by. given. as it is here so conveyed to us. SO ORDERED.

VIVIAN YUCHENGCO.L. the SEC en banc nullified the 10 March 1994 Order of SICD in SEC Case No. docketed as SEC-EB No. 1995 and August 14. The SICD subsequently issued another Order on 10 March 1994 granting respondent’s application for a Writ of Preliminary Injunction. 02-94-4678. Petitioners again challenged the 4 May 1994 Order of SICD before the SEC en banc through another Petition for Certiorari. (2) the delivery of the IPO shares he was allegedly deprived of. On 11 February 1997.R. GEORGE UY-TIOCO. the petition in so far as it prays for annulment of the Orders dated May 31. in said Petition. ANTONIO A. (2) the SICD had no jurisdiction over the Petition. a Respondent filed a Petition for Certiorari with the Court of Appeals assailing the Orders of the SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. who filed with the Securities. JR. DECISION CHICO-NAZARIO. thus: WHEREFORE. Ma. substituted by JULIA ORTIGAS VDA. docketed as SEC-EB No. to continuously enjoin. SP No. Antonio A. in an Order dated 14 August 1995 in SEC-EB No. 02-94-4678 denying petitioners’ Motion to Dismiss. DUARTE. Jr. 2009 MAKATI STOCK EXCHANGE. INC. 393 and SEC-EB No. Adolfo M. MIGUEL V. 393 and 403 is GRANTED.000. Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was denied by the Court of Appeals in a Resolution dated 18 May 1999. the Court of Appeals promulgated its Decision in CA-G. and (3) the Petition failed to state a cause of action.R. SP No.. Respondent’s Petition before the appellate court was docketed as CA-G. and (3) the payment of P2 million as moral damages. NORBERTO C.00 as attorney’s fees and litigation expenses. NAZARENO. G. sought: (1) the nullification of the Resolution dated 3 June 1993 of the MKSE Board of Directors. LUIS J. Petitioners. Myron C. which allegedly deprived him of his right to participate equally in the allocation of Initial Public Offerings (IPO) of corporations registered with MKSE. 02-94-4678 granting a Writ of Preliminary Injunction in favor of respondent.R. the SEC en banc annulled the 4 May 1994 Order of SICD in SEC Case No. P1 million as exemplary damages. Petitioners assailed this SICD Order dated 10 March 1994 in a Petition for Certiorari filed with the SEC en banc. Ramon B. Inc. (MKSE) and MKSE directors. On 11 March 1994. Luis J. George Uy-Tioco. 403. 138814 In an Order dated 31 May 1995 in SEC-EB No. RAMON B. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V. ADOLFO M. and accordingly ordered the dismissal of respondent’s Petition before the SICD. the implementation or enforcement of the MKSE Board Resolution in question. J. Lopa. DE CAMPOS. 38455. and ANTONIO GARCIA. PAPA. 38455. the SICD issued an Order granting respondent’s prayer for the issuance of a Temporary Restraining Order to enjoin petitioners from implementing or enforcing the 3 June 1993 Resolution of the MKSE Board of Directors.Petition against herein petitioners Makati Stock Exchange. Duarte. Vivian Yuchengco. MA. based on the following grounds: (1) the Petition became moot due to the cancellation of the license of MKSE. Arnaiz. 403. Norberto C. Campos. The said orders are hereby rendered null and void and set aside. The SICD denied petitioner’s Motion to Dismiss in an Order dated 4 May 1994. MYRON C. ARNAIZ. 1995 in SEC-EB Case Nos. petitioners filed a Motion to Dismiss respondent’s Petition in SEC Case No. during the pendency of SEC Case No. VIRATA. for which he would pay IPO prices. Respondent.L. 38455. the present Petition for Review raising the following arguments: I. and P500. 02-94-4678. 1 Respondent. 403. . vs. respectively. granting respondent’s Petition for Certiorari. On 14 February 1994. No. Papa. CAMPOS. 393. and Antonio Garcia. Nazareno. LOPA. 393. Hence.R. April 16. Investigation and Clearing Department (SICD) of the Securities and Exchange Commission (SEC).: This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the Decision 2 dated 11 February 1997 and Resolution dated 18 May 1999 of the Court of Appeals in CA-G. Likewise. SP No. Virata. The facts of the case are as follows: SEC Case No.

0294-4678 for failure to state a cause of action. Correspondingly. In recognition of petitioner’s invaluable services. A reading of the exact text of respondent’s Petition in SEC Case No. The hypothetical admission extends to the relevant and material facts well pleaded in the complaint and inferences fairly deducible therefrom. 02-94-4678 is. Julia Ortigas vda. RESPONDENT’S CLAIM FOR DAMAGES IS ILLUSORY AND HIS PETITION A NUISANCE SUIT.THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE PETITION FILED BY RESPONDENT BECAUSE ON ITS FACE. "WHEREAS. petitioner has always enjoyed the right given to all the other members to participate equally in the Initial Public Offerings (IPOs for brevity) of corporations. Hence. IPOs are shares of corporations offered for sale to the public. A complaint states a cause of action where it contains three essential elements of a cause of action. 4 A cause of action is the act or omission by which a party violates a right of another. petitioner is not only an active member of the respondent corporation. Pertinent portions of the said Petition reads: 7. INC. If these elements are absent. and (3) the act or omission of the defendant in violation of said legal right. unavoidable." 8.5 "WHEREAS. Inc. Petitioners want this Court to affirm the dismissal by the SEC en banc of respondent’s Petition in SEC Case No. the court can render a valid judgment upon the same in accordance with the prayer thereof. namely: (1) the legal right of the plaintiff. IT FAILED TO STATE A CAUSE OF ACTION. Miguel Campos during his lifetime and irregardless of his continued membership in the Exchange with the Privilege to attend all membership meetings as well as the meetings of the Board of Governors of the Exchange. Given the foregoing. IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING PUBLIC. 02-94-4678 sufficiently states a cause of action may be alternatively stated as whether. counsel for respondent manifested to this Court that his client died on 7 May 2001. In a Resolution dated 24 October 2001. to this day. the issue of whether respondent’s Petition in SEC Case No. THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED TO MAKE A DETERMINATION AS TO THE TRUTH OF RESPONDENT’S ALLEGATIONS IN HIS PETITION AND USED AS BASIS THE EVIDENCE ADDUCED DURING THE HEARING ON THE APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION TO DETERMINE THE EXISTENCE OR VALIDITY OF A STATED CAUSE OF ACTION. "WHEREAS. who pay therefor at the offering price. the Court directed the substitution of respondent by his surviving spouse. as an active member and Chairman Emeritus of respondent corporation. is hereby created. as governor from 1977 to the present and as President from 1972 to 1976 and again as President from 1988 to the present. (2) the correlative obligation of the defendant. Mr. "NOW. 1989 has correspondingly adopted a resolution recognizing his valuable service to the Exchange. he has unselfishly served the Exchange in various capacities. II. but its Chairman Emeritus as well. Normally.3 On 18 September 2001. at all times material to this petition. Hence. the complaint becomes vulnerable to dismissal on the ground of failure to state a cause of action. he is regarded as having hypothetically admitted all the averments thereof. if the allegations in the complaint furnish sufficient basis by which the complaint can be maintained. THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A MERE ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF THE MAKATI STOCK EXCHANGE. such dedicated service and leadership which has contributed to the advancement and well being not only of the Exchange and its members but also to the Securities industry. reward the same. the same should not be dismissed regardless of the defense that may be assessed by the defendant. the general membership of respondent corporation [MKSE] passed a resolution sometime in 1989 amending its Articles of Incorporation. as such. THEREFORE. Miguel Campos is the only surviving incorporator of the Makati Stock Exchange. . IV. On the other hand. hypothetically admitting to be true the allegations in respondent’s Petition in SEC Case No. If a defendant moves to dismiss the complaint on the ground of lack of cause of action. 9. the SICD may render a valid judgment in accordance with the prayer of said Petition. the position of the "Chairman Emeritus" to be occupied by Mr. to include the following provision therein: III. HENCE. Twenty Five Percent (25%) of these shares are divided equally between the two stock exchanges which in turn divide these equally among their members. needs to be recognized and appreciated. 02-94-4678. "ELEVENTH – WHEREAS. who has maintained his membership. and preserve for posterity such recognition by proposing a resolution to the membership body which would make him as Chairman Emeritus for life and install in the Exchange premises a commemorative bronze plaque in his honor. for and in consideration of the above premises. therefore. de Campos. The test of sufficiency of the facts found in a complaint as constituting a cause of action is whether or not admitting the facts alleged. the Board of Governors in its meeting held on February 09. 10. prior to the listing in the trading floor of the country’s two stock exchanges. respondent insists on the sufficiency of his Petition and seeks the continuation of the proceedings before the SICD.

7An obligation is defined in the Civil Code as a juridical necessity to give. 1993 up to the present time. Hence. but without stating the source of his purported right. the right to subscribe to the IPOs of corporations listed in the stock market at their offering prices. 1157. a person claiming to be the owner of a parcel of land cannot merely state that he has a right to the ownership thereof. the source of the employees’ right is not custom. as distinguished from mere conclusions of fact or conclusions of law. even if it is hypothetically admitted that normally. who these individual respondents wanted to get even with. to wit: IPOs are shares of corporations offered for sale to the public. and in case of breach. A pleading should state the ultimate facts essential to the rights of action or defense asserted. twenty five percent (25%) of the IPOs are divided equally between the two stock exchanges -which. However. 403. contract. a Complaint or Petition filed by a person claiming a right Accordingly. an obligation imposed on a person. (2) Contracts. to do or not to do. in turn. 02-94-4678 should be dismissed for failure to state a cause of action. Normally. In the main. cannot be said to have sufficiently stated a cause of action. petitioner has been deprived of his right to subscribe to the IPOs of corporations listing in the stock market at their offering prices. whether a Complaint or Petition. (4) Acts or omissions punished by law.8 For every right enjoyed by any person. and the corresponding right granted to another. may demand satisfaction from the assets of the latter. the law. are considered as rights that cannot be diminished by the employer. but must likewise assert in the Complaint either a mode of acquisition of ownership or at least a certificate of title in his name. Therefore.the Court cannot grant respondent’s prayer for damages which allegedly resulted from the MKSE Board Resolution dated 3 June 1993 deviating from said practice by no longer allocating any shares to respondent. individual respondents passed a resolution to stop giving petitioner the IPOs he is entitled to. However. A right is a claim or title to an interest in anything whatsoever that is enforceable by law. although the Petition in SEC Case No. benefits which were voluntarily given by the employer. Reyes offers9 the definition given by Arias Ramos as a more complete definition: An obligation is a juridical relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a determinative conduct (the giving. was granted by law. granting him the position of Chairman Emeritus of MKSE for life. on June 3. based on the ground that these shares were allegedly benefiting Gerardo O. who pay for IPO shares at the offering price -. the Petition utterly failed to lay down the source or basis of respondent’s right and/or petitioners’ obligation. as a general rule. but its discussion thereof are merely superfluous and obiter dictum. divide their respective allocation equally among their members. Twenty-Five Percent (25%) of these shares are divided equally between the two stock exchanges which in turn divide these equally among their members. specifically. since Article 100 of the Labor Code explicitly prohibits elimination or diminution of benefits. 02-94-4678 does allege respondent’s right to subscribe to the IPOs of corporations listed in the stock market at their offering prices. to the Office of the President of this Republic. in labor cases. into an enforceable or demandable right. 6 There is no question that the Petition in SEC Case No. Respondent merely quoted in his Petition the MKSE Board Resolution. for subscription at their offering prices. There is no such law in this case that converts the practice of allocating IPO shares to MKSE members. He cited paragraph 11 of the amended articles of incorporation of the Exchange .11 (Emphasis supplied) A practice or custom is. there is a corresponding obligation on the part of another person to respect such right. prior to their listing in the trading floor of the country’s two stock exchanges. passed sometime in 1989. 02-94-4678 asserts a right in favor of respondent. The Petition in SEC Case No. The SEC en banc may have been mistaken in considering extraneous evidence in granting petitioners’ Motion to Dismiss. even in such cases. particularly. Obligations arise from: (1) Law. 02-94-4678 for its failure to state the basis for respondent’s alleged right. Thus.10 Thus. must be rooted in at least one of these five sources. In the case at bar.. respondent’s alleged right to subscribe to the IPOs of corporations listed in the stock market at their offering prices. The collective act of the individual respondents in depriving petitioner of his right to a share in the IPOs for the aforementioned reason. the SEC en banc did correctly dismiss the Petition in SEC Case No.B. Also. Justice J.L. to wit: Private respondent Campos has failed to establish the basis or authority for his alleged right to participate equally in the IPO allocations of the Exchange. 12. including the Chairman Emeritus. by continuing to allow respondent to subscribe to the IPOs of corporations listed in the stock market at their offering prices. who pay therefor at the offering price. and (5) Quasi-delicts.11. Lanuza. is merely a conclusion of fact and law. 1993. but ultimately. in its Order dated 14 August 1995 in SEC-EB No. A meticulous review of the Petition reveals that the allocation of IPO shares was merely alleged to have been done in accord with a practice normally observed by the members of the stock exchange. by virtue of his position as Chairman Emeritus of MKSE.12 Indeed. It does not matter that the SEC en banc. However. there is nothing in the said Petition from which the Court can deduce that respondent. from June 3. and stipulates the correlative obligation of petitioners to respect respondent’s right. The Civil Code enumerates the sources of obligations: Art. Jr.13 Nevertheless. dishonest and done in bad faith. Right and obligation are legal terms with specific legal meaning. causing petitioner substantial financial damage. and which have ripened into company practice. is unjust. the terms right and obligation in respondent’s Petition are not magic words that would automatically lead to the conclusion that such Petition sufficiently states a cause of action. and petitioners’ obligation to continue respecting and observing such right. Thus.1avvphi1 (3) Quasi-contracts. The mere assertion of a right and claim of an obligation in an initiatory pleading. the instant Petition should be granted. without identifying the basis or source thereof. during a meeting of the Board of Directors of respondent-corporation. 13. doing or not doing). or any other legal source. not a source of a legally demandable or enforceable right. for having filed cases before the Securities and Exchange (SEC) for their disqualification as member of the Board of Directors of respondent corporation. overstepped its bounds by not limiting itself to the issue of whether respondent’s Petition before the SICD sufficiently stated a cause of action.

The Decision of the Court of Appeals dated 11 February 1997 and its Resolution dated 18 May 1999 in CA-G. U-LAND AIRLINES. 38455 are REVERSED and SET ASIDE.11 On May 16.. CV No. The Regional Trial Court rendered judgment in favor of U-Land Airlines.8 Wellex alleges that it owns all shares of stock of Air Philippines Corporation (APC). Co. J. 393 and No. The provision merely created the position of chairman emeritus of the Exchange but it mentioned nothing about conferring upon the occupant thereof the right to receive IPO allocations. SP No. vs. LEONEN.6 Wellex is a corporation established under Philippine law and it maintains airline operations in the Philippines. INC."10 It is engaged in the business of air transportation in Taiwan and in other Asian countries. 1998. Petitioner. there is no more need for this Court to resolve the propriety of the issuance by SCID of a writ of preliminary injunction in said case. among others. (U-Land) "is a corporation duly organized and existing under the laws of Taiwan. The Wellex Group. Respondent. 7 It owns shares of stock in several corporations including Air Philippines International Corporation (APIC).. CO. registered to do business . the parties recognize the opportunity to develop a long-term profitable relationship by combining such of . pursuing a long-term involvement in the growing Philippine airline industry.in support of his position but a careful reading of the said provision shows nothing therein that would bear out his claim. and Express Savings Bank (ESB).13 Terms of the First Memorandum of Agreement The preambular clauses of the First Memorandum of Agreement state: WHEREAS.R. DECISION SO ORDERED. 2015 THE WELLEX GROUP. G. Philippine Estates Corporation (PEC). (Wellex) prays that the Decision2 dated July 30. . 403. No. 2004 of the Court of Appeals in CA-GR. 02-94-4678. . on the other hand. WHEREAS.3 The Court of Appeals affirmed the Decision4 of the Regional Trial Court.R. in the Philippines. Wellex and U-Land entered into a Memorandum of Agreement12 (First Memorandum of Agreement) to expand their respective airline operations in Asia. LTD. Ltd. and in like manner also desires to expand its operation in the Asian regional markets. 99-1407. 74850 be reversed and set aside. (ULand) and ordered the rescission of the Memorandum of Agreement5 between Wellex and U-Land. 167519 WHEREFORE. U-LAND is engaged in the business of airline transportation in Taiwan. January 14. are hereby reinstated. the Petition is GRANTED. a certified copy of which is attached hereto as Annex "A" and is hereby made an integral part hereof. a Memorandum of Agreement on ______.9 U-Land Airlines Co. Ltd. Air Philippines Corporation. among others. The Orders dated 31 May 1995 and 14 August 1995 of the Securities and Exchange Commission en banc in SEC-EB Case No. WELLEX. Inc. Branch 62 of Makati City in Civil Case No. WHEREAS.. No pronouncement as to costs. Philippines and/or in other countries in the Asian region. which sets forth. has current airline operation in the Philippines through its majority-owned subsidiary Air Philippines International Corporation and the latter’s subsidiary. respectively.: This is a Petition1 for Review on Certiorari under Rule 45 of the Rules of Court.14 With the dismissal of respondent’s Petition in SEC Case No. the basis for WELLEX’s present ownership of shares in Air Philippines International Corporation. and desires to expand its operation and increase its market share by..

Subject to applicable Philippine law and regulations. they likewise agreed that the final price of the shares of stock would be reflected in the actual share purchase agreement. The parties may agree on such other terms and conditions governing the acquisition of the Subject Shares to be provided in a separate instrument. remit the sum of US$3. shares of stock of PHILIPPINE ESTATES CORPORATION ("PEC") equivalent to at least 35% of the outstanding capital stock of PEC.U-LAND shall be entitled to a proportionate representation in the Board of Directors of APIC and PEC in accordance with Philippine law. and] (d) U-LAND shall be given the option to acquire from WELLEX shares of stock of EXPRESS SAVINGS BANK ("ESB") up to 40% of the outstanding capital stock of ESB ."23 The parties intended that U-Land would gain primary control and responsibility for the international operations of APC. All profits derived from the projects covered by the JDA shall be shared equally between ULAND and PEC.000 shares of PEC as security for said amount in accordance with Section 9 below. Operation and management of APIC/PEC/APC U-Land was "entitled to a proportionate representation in the Board of Directors of APIC and PEC in accordance with Philippine law.16 I.000. [. operational control of APIC and Air Philippines Corporation ("APC") shall be lodged jointly to WELLEX and U-LAND on the basis of mutual agreement and consultations. stated in Section 1 of the First Memorandum of Agreement: (a) U-LAND shall acquire from WELLEX.21 II. [. Joint Development Agreement with PEC. In exchange for the US$3 million. . under terms to be mutually agreed.30) per share and that for the PEC Shares at SIXTY FIVE CENTAVOS (P0. Entering into and funding a joint development agreement Wellex and U-Land also agreed to enter into a joint development agreement simultaneous with the execution of the share purchase agreement. not later than May 22. This sum was to serve as initial funding for the development projects that Wellex and U-Land were to undertake pursuant to the joint development agreement.26 III. U-LAND and PEC shall execute a joint development agreement ("JDA") to pursue property development projects in the Philippines. shares of stock of AIR PHILIPPINES INTERNATIONAL CORPORATION ("APIC") equivalent to at least 35% of the outstanding capital stock of APIC. . .000 PEC shares to U-Land. . . . U-LAND and WELLEX shall execute a Share Purchase Agreement ("SHPA") covering the acquisition by U-LAND of the APIC Shares and PEC Shares (collectively. U-LAND may second technical and other consultants into APIC and/or APC with the view to increasing service. not less than 490. the "Subject Shares"). Without prejudice to any subsequent agreement between the parties. Operation/Management of APIC/APC. U-LAND shall arrange for the lease by APC of at least three (3) aircrafts owned by ULAND under such terms as the parties shall mutually agree upon.000. identifying and implementing profit-service opportunities.20 Thus.19 Both parties agreed that the purchase price of APIC shares and PEC shares would be paid upon the execution of the share purchase agreement and Wellex’s delivery of the stock certificates covering the shares of stock."22 Operational control of APIC and APC would be exercised jointly by Wellex and U-Land "on the basis of mutual agreement and consultations. (ii) the Philippine Securities & Exchange Commission (SEC) shall have approved the issuance of the Subject Shares.000. .Within forty (40) days from date hereof (unless extended by mutual agreement). 1998.000 shares .] (c) U-LAND shall enter into a joint development agreement with PEC .14 In the First Memorandum of Agreement. The transfer of the Subject Shares shall be effected to U-LAND provided that: (i) the purchase price reflected in the SHPA has been fully paid.24 Wellex manifested that APC is a subsidiary of APIC in the second preambular clause of the First Memorandum of Agreement. Further.0 million as initial funding for the aforesaid development projects against delivery by WELLEX of 57.25 Section 3 of the First Memorandum of Agreement reads: 3.] (b) U-LAND shall acquire from WELLEX.29 Section 4 of the First Memorandum of Agreement reads: 4. productivity and efficiency. Acquisition of APIC and PEC shares The First Memorandum of Agreement stated that within 40 days from its execution date. Wellex would deliver stock certificates covering 57. U-Land would purchase from Wellex its APIC shares and PEC shares. the purchase price for the APIC Shares to be reflected in the SHPA shall be THIRTY CENTAVOS (P0. However. – Simultaneous with the execution of the SHPA. the terms of the First Memorandum of Agreement would . the transfer was conditioned on the approval of the Securities and Exchange Commission of the issuance of the shares of stock and the approval by the Taiwanese government of U-Land’s acquisition of these shares of stock. 15This long-term business relationship would be implemented through the following transactions. Acquisition of APIC and PEC Shares. U-LAND shall.000. Section 2 of the First Memorandum of Agreement reads: 2.27 U-Land agreed to remit the sum ofUS$3 million not later than May 22. In addition. Wellex and U-Land agreed to develop a long-term business relationship through the creation of joint interest in airline operations and property development projects in the Philippines. The JDA shall cover specific housing and other real estate development projects as the parties shall agree.050.28 The execution of a joint development agreement was also conditioned on the execution of a share purchase agreement. The transfer of APIC shares and PEC shares to U-Land was conditioned on the full remittance of the final purchase price as reflected in the share purchase agreement. but in any case. [.65 per share of PEC.their respective resources in an expanded airline operation as well as in property development and in other allied business activities in the Philippines.17 In this share purchase agreement. but in any case. It is the intent of the parties that U-LAND shall have primary control and responsibility for APC’s international operations. The purchase price for the Subject Shares as reflected in the SHPA shall be paid in full upon execution of the SHPA against delivery of the Subject Shares. . The joint development agreement shall cover housing and other real estate development projects. . and (iii) any required approval by the Taiwanese government of the acquisition by ULAND of the Subject Shares shall likewise have been obtained. For this purpose.30 In case of conflict between the provisions of the First Memorandum of Agreement and the provisions of the share purchase agreement or its implementing agreements. 1998. developing technical capability and resources. not less than 1. WELLEX shall cause the resignation of its nominated Directors in APIC and PEC to accommodate U-LAND’s pro rata number of Directors.30 per share of APIC and 0.000 shares . . Further.18 Wellex and U-Land agreed to an initial purchase price of P0.65) per share. Wellex and U-Land would execute a share purchase agreement covering U-Land’s acquisition of the shares of stock of both APIC (APIC shares) and PEC (PEC shares). and desire to set forth herein the basic premises and their understanding with respect to their joint cooperation and undertakings. and installing adequate safety systems and procedures.

33 In case no agreements were executed. IN WITNESS WHEREOF.and – AIR PHILIPPINES CORPORATION. a corporation duly organized and existing under the laws of the Philippines. Gatchalian (Mr.5 billion.prevail. [Wellex] was still in the process of acquiring and consolidating its title to shares of stock of APIC. APIC desires to obtain full ownership and control of APC. It is a document denoted as a "Memorandum of Agreement" entered into by Wellex. Unless the parties agree otherwise. WHEREAS."39 It "included the terms of a share swap whereby [Wellex] agreed to transfer to APIC its shareholdings and advances to APC in exchange for the issuance by APIC of shares of stock to [Wellex]. or has otherwise acquired _____ (illegible in rollo) rights to the entire issued and outstanding capital stock (the "APC SHARES") of AIR PHILIPPINES CORPORATION ("APC") and has made stockholder advances to APC for the _____ (illegible in rollo) of aircraft. _____ (illegible in rollo) issuance of TWGI of shares of stock of APIC in exchange for said APC SHARES and the _____ (illegible in rollo) ADVANCES.000. made and executed this ___th day of ______ at Makati City. as well as from the increase in the authorized capital _____ (illegible in rollo) of APIC from P2. and the condition subsequent that the _____ (illegible in rollo) for increase in the authorized capital stock of the APIC from P2. Paiso.0 billion to P3. 32 Finally.000 PEC shares that would be delivered to it. the effectivity of this Agreement and transfers _____ (illegible in rollo) APC ADVANCES in exchange for the APIC INVESTMENTS. Validity. the parties agree as follows: 1. this Memorandum of Agreement shall cease to be effective and the parties released from their respective undertakings herein.0 billion to P3.797. including all of APC’s assets. .34 Section 9 of the First Memorandum of Agreement reads: 9.38 (Emphasis supplied) This Second Memorandum of Agreement was allegedly incorporated into the First Memorandum of Agreement as a "disclosure to [U-Land] [that] . franchise. APIC.35 The First Memorandum of Agreement was signed by Wellex Chairman and President William T. . the parties would be released from their respective undertakings. goodwill and operations. 4.42 It was not dated. .5 _____ (illegible in rollo) shall have been approved by the Securities and Exchange Commission. with _____ (illegible in rollo) of acquiring all the assets. APIC President Salud. TWGI is the registered and beneficial owner. the provisions of this Agreement shall prevail.31 Thus.43 It was not notarized either. then the First Memorandum of Agreement would cease to be effective. and for this purpose has offered to acquire the _____ (illegible in rollo) 302SHARES of TWGI in APC. Ayala Avenue. likewise a corporation duly organized and existing under the laws of the Philippines. Makati City (hereinafter referred to as "TWGI"). and APC. franchise. shall be subject to _____ (illegible in rollo) due diligence as the parties shall see fit. unless the parties specifically stated otherwise or the context of any agreement between the parties would reveal a different intent. Makati City (hereinafter referred to as "APIC"). 2. franchise.0 million provided under Section 4 within three (3) days therefrom.). Petro Chemical _____ (illegible in rollo) of Asia Pacific.364) shares of its capital stock of a _____ (illegible in rollo) value of P1. INC. except that WELLEX shall refund the US$3. the parties have caused these presents to be signed on the date _____ (illegible in rollo) first above written."40 The Second Memorandum of Agreement was signed by Mr. TWGI likewise agrees to transfer the APC SHARES to APIC in exchange solely _____ (illegible in rollo) the issuance by APIC of One Billion Seven Hundred Ninety-Seven Million Eight Hundred Fifty Seven Thousand Three Hundred Sixty Four (1. and the transfer of the _____ (illegible in rollo) SHARES in exchange for the issuance of new APIC SHARES. Makati City (hereinafter referred to as "APC"). otherwise U-LAND shall have the right to recover on the 57. It is the basic understanding of the parties hereto that the transfer of the APC _____ (illegible in rollo) as well as the APC ADVANCES to APIC shall be intended to enable APIC to obtain _____ (illegible in rollo) and control of APC.44 . – It is agreed that in case of conflict between the provisions of this Agreement and those of the SHPA and the implementing agreements of the SHPA. including all of _____ (illegible in rollo) assets. Annex "A" or the Second Memorandum of Agreement Attached and made an integral part of the First Memorandum of Agreement was Annex "A. Wellex and U-Land agreed that if they were unable to agree on the terms of the share purchase agreement and the joint development agreement within 40 days from signing. 8741 Paseo de Roxas.857. Ayala Avenue. Wang) on May 16. in Section 6 of the First Memorandum of Agreement: 6. INC. Gatchalian) and U-Land Chairman Ker Gee Wang (Mr. corporation duly organized and existing under the laws of the Philippines.. goodwill and operations of APC. and no other witnesses signed the document. THEREFORE. If Wellex was unable to refund the US$3 million to U-Land. AIR PHILIPPINES INTERNATIONAL CORPORATION (formerly FORUM PACIFIC. and no place was indicated as the place of signing. goodwill and _____ (illegible in rollo). Republic Resources & Development Corporation and Philippine _____ (illegible in rollo) Corporation (the "APIC INVESTMENTS"). Primacy of Agreement. W I T N E S S E T H: That - 3.00 per share (the "APIC SHARES"). with offices at 22F Citibank Tower. taken from the currently authorized but _____ (illegible in rollo) shares of the capital stock of APIC.000 PEC shares delivered to U-LAND under Section 4.41 and APC President Augustus C." as stated in the second preambular clause. Gatchalian. by and between: THE WELLEX GROUP. . including the APC ADVANCES due to TWGI from APC.37 The Second Memorandum of Agreement states: This Memorandum of Agreement. and TWGI has _____ (illegible in rollo) to the same in consideration of the conveyance by APIC to TWGI of certain investments. with offices at 8F Rufino Towers. or the context clearly reveal a contrary intent.In the event the parties are unable to agree on the terms of the SHPA and/or the JDA within forty (40) days from date hereof (or such period as the parties shall mutually agree). unless the parties specifically state otherwise. except that Wellex would be required to refund within three (3) days the US$3 million given as initial funding by U-Land for the development projects. TWGI agrees to transfer the APC ADVANCES in APIC in exchange for the _____ (illegible in rollo) by APIC to TWGI of investment shares of APIC in Express Bank. with offices at Multinational Building. U-Land would have the right to recover on the 57. NOW. 1998. equipment and for working capital used in the latter’s operations (the "_____ (illegible in rollo) ADVANCES"). as more particularly described hereunder.36 WHEREAS.000.

"[s]ave for a few items.00 490.83 Wellex alleged that to bring the share purchase agreement to fruition.000 PEC shares and 72. through counsel.53 On October 1. 79 U-Land stated that it was induced by Wellex to enter into and execute the First Memorandum of Agreement.]"66 Wellex believed that the parties had already "gone beyond the ‘intent’ stage of the [First Memorandum of Agreement] and [had already] effected partial implementation of an over-all agreement.49 According to Wellex.00 490.1998 as initial funding for the development projects.000.972.00 490.82 Wellex maintained that under the First Memorandum of Agreement.945. after the receipt of US$7. 63 Wellex further asserted that it conducted extended discussions with U-Land in the hope of arriving at the final terms of the agreement despite the failure of the remittance of the US$3 million on May 22."70 Thus. 1999. 1998.00 490. the 40-day period lapsed.80 In its Answer with Compulsory Counterclaim. . and October 1. 1998.50 This meant that U-Land could recover the amount it paid to Wellex by selling these shares of stock and land titles or using them to generate income. Wellex and U-Land still failed to enter into the share purchase agreement and the joint development agreement.00.52 In addition.68 "[Wellex] on the other hand. it would have to acquire the corresponding shares in APIC.50 Total US$7. 10 months57 after the last formal communication between the two parties.000. T-216771. 1998 990. U-Land offered to return all the stock certificates covering APIC shares and PEC shares as well as the titles to real property given by Wellex as security for the amount remitted by U-Land.000. 78 U-Land alleged that. 1998.000. and T-216775 covering properties owned by Westland Pacific Properties Corporation in Bulacan. If the sale of the shares of stock failed to push through. 1998. 1999 to the Complaint. 1998.00.000.00.00 August 3.000."75 U-Land alleged that it repeatedly requested that the parties enter into the share purchase agreement. 1998.00 September 25."69 Wellex alleged that the agreements were not finalized because U-Land was "forced to suspend operations because of financial problems spawned by the regional economic turmoil.]’"71 On July 30. Inc.00 while refusing to enter into the share purchase agreement. Share Purchase Agreement. T-1114398. T-105910.499. Wellex delivered to U-Land Transfer Certificates of Title (TCT) Nos. 1999. 77 However.64 That remittance pursuant to the joint development agreement "would have demonstrated [U-Land’s] good faith in finalizing the agreements. the parties agreed to enter into a security arrangement. Wellex maintained that "the inability of the parties to execute the [share purchase agreement] and the [joint development agreement] principally arose from problems at [U-Land’s] side. T-216769. .00 July 2.50 99.The 40-day period lapsed on June 25.58 This letter was sent 14 months after the signing of the First Memorandum of Agreement. 1998 990. Despite these transactions.000 APIC shares.73 From U-Land’s point of view.499.499.000. demanded the return of the US$7. Wellex still refused to return the amount of US$7.000. and not due to [Wellex’s] ‘unjustified refusal to enter into [the] [share purchase agreement][. and TCT Nos.00 July 30. Thus.000.499.61 Wellex sent U-Land a letter62 dated August 2.945. 1998 399."65 Wellex averred that.81 Wellex countered that U-Land had no cause of action."85 This was the reason for Wellex’s attachment of the .945. the parties agreed to enter into a share purchase agreement and a joint development agreement. 1998 990.000. Counsel for Wellex stated that the two parties carried out several negotiations that included finalizing the terms of the share purchase agreement and the terms of the joint development agreement.47 The dates of remittances were the following: In the letter56 dated July 22. its primary reason for purchasing APIC shares from Wellex was APIC’s majority ownership of shares of stock in APC (APC shares). 1998 990.601. which refuted U-Land’s claims. the partial payments or remittances U-Land made were to be secured by these shares of stock and parcels of land. T-120250. U-Land filed a Complaint72 praying for rescission of the First Memorandum of Agreement and damages against Wellex and for the issuance of a Writ of Preliminary Attachment.54 U-Land received a letter from Wellex.770. as well as release the amount of US$7.000.51 These were delivered to U-Land on July 1.945. T-107306.945.45 Wellex and U-Land were not able to enter into any share purchase agreement although drafts were exchanged between the two. T-228231.499.0048 Wellex acknowledged the receipt of these remittances in a confirmation letter addressed to U-Land dated September 30. Despite the absence of a share purchase agreement. U-Land remitted to Wellex a total of US$7. 46These were made in varying amounts and through the issuance of post-dated checks."59 As far as U-Land was concerned.945. Wellex delivered to U-Land stock certificates representing 60. U-Land. ULand agreed to remit the sum of US$3 million by May 22.60 As such. Wellex asserted that under the joint development agreement.00 20. U-Land discovered that "APIC did not own a single share of stock in APC. the First Memorandum of Agreement was no longer in effect. and no share purchase agreement was finalized. 1998. 1999. September 1. T228227. indicating a list of stock certificates that the latter was giving to the former by way of "security. T-115667. pursuant to Section 9. Date Amount (in US$) June 30.76 U-Land attached the demand letter dated July 22.00 70.00 August 1. 84 It claimed that U-Land was fully aware that the former "still ha[d] to consolidate its title over these shares. had [already] delivered to[U-Land] certificates of stock of APEC [sic] and PEC as well as various land titles to cover actual remittances. [Wellex and U-Land] virtually agreed on the terms of both [the share purchase agreement and the joint development agreement. 1998 990.74 After verification with the Securities and Exchange Commission."67 U-Land even delivered a total of 12 post-dated checks to Wellex as payment for the APIC shares and PEC shares. as of the date of filing of the Complaint. T-211250.00."55 Counsel for U-Land claimed that "[Wellex] ha[d] unjustifiably refused to enter into the. 972.499. and T-120772 covering properties owned by Rexlon Realty Group.

"112 In its counterclaim against U-Land.89 Wellex averred that it presented draft versions of the share purchase agreement. under its second preambular clause. However.110 Mr. These remittances were confirmed by Wellex through a confirmation letter.94 Half of that amount.00. Wellex learned from other sources that U-Land "encountered difficulties starting October of 1998. Gatchalian. Tseng). Wellex drafted a new version of the share purchase agreement.00. U-Land averred that it was its own counsel who drafted versions of the share purchase agreement and the joint development agreement. Mr.202. the remittances were supposed to begin upon the execution of the share purchase agreement. David Tseng (Mr. Ting admitted that U-Land made the remittances to Wellex in the amount of US$7.]"111 However. which Wellex rejected. and Davao. The total payments should have amounted to US$41 million."116 Ms. Wang made this request.113 Wellex claims that. Ting testified that Mr. U-Land denied that it was Wellex that presented versions of the agreement. U-Land stated that the issuance of this amount on May 22. Tseng. the share purchase agreement was not executed because during the period of negotiation. as its sole witness. that defendant also induced plaintiff to buy shares of APIC in Philippine Estates Corporation (PEC).100 With regard to the drafting of the share purchase agreement. causing embarrassment to Wellex. that the negotiations between plaintiff and defendant culminated into the parties executing a MOA (Exhs. However. Ting testified that U-Land was supposed to make an initial payment of US$19 million under the First Memorandum of Agreement.00 because of its intent to become involved in the aviation business in the Philippines. U-Land averred that it relied on Wellex’s representation that it was a majority owner of APIC shares and that APIC owned a majority of APC shares.87 In addition.945. had the development projects pushed through. the parties would have shared equally in the profits of these projects.000.Second Memorandum of Agreement to the First Memorandum of Agreement. U-Land alleged that subsequent meetings were held where Mr.99 According to Ms. 119 In the Decision dated April 10. to the Second Memorandum of Agreement entered into by Wellex. APIC. which Wellex refused to sign. the Regional Trial Court of Makati City held that rescission of the First Memorandum of Agreement was proper: The first issue must be resolved in the negative. after the 40-day period lapsed. Ting).106 During the first quarter of 1998.]"107 This time. Wang requested sometime in June of 1998 for an extension for the execution of the share purchase agreement and the remittance of the US$3 million. Instead. U-Land failed to remit the US$3 million by May 22. Plaintiff’s evidence establishes the facts that it is engaged in the airline business in Taiwan. no share purchase agreement was entered into by the parties.948. prayed for the rescission of the First Memorandum of Agreement and the payment of P1. 1998 that would serve as initial funding for the development projects. As proof that Mr. Wang sent several post-dated checks to cover the payment of the APIC shares and PEC shares and the initial funding of US$3 million for the joint development agreement. It started initial construction on the basis of its agreement with U-Land to pursue real estate development projects. and was invited by the latter to invest in an airline business in the Philippines. Gatchalian. U-Land remitted to Wellex a total of US$7. U-Land Chairman Mr. that plaintiff became interested in the invitation of defendant. attorney’s fees. Vice President of Wellex. the parties would enter into a share purchase agreement "within forty (40) days from its execution which [would] put into effect the sale of the shares [of stock] of APIC and PEC[.00.404.474.499. P1. Wellex attached the Second Memorandum of Agreement as evidence to refute U-Land’s claim of misrepresentation.88 Wellex claimed that the remittance of the US$3 million on May 22. but U-Land did not reply. 103 The case proceeded to trial. 1998 was supposed to be simultaneously made with Wellex’s delivery of the stock certificates for 57. Wellex wrote to U-Land requesting another meeting to discuss the demands. through Mr. She admitted her knowledge of the First Memorandum of Agreement as she was involved in its drafting. Tseng testified that under this memorandum of agreement. Ting testified that Wellex tried to contact U-Land to have a meeting to thresh out the problems of the First Memorandum of Agreement. also .202. Ting.93 These projects would have yielded an income of P2.]"105 U-Land did not accept the offer at that time. through its Chairman William Gatchalian. exemplary damages. which was duly recognized by U-Land.102 Moreover. 109 Wellex further alleged that U-Land breached the First Memorandum of Agreement since the payment for the shares was to begin during the 40-day period. .98 U-Land denied that there was an extension of the 40-day period within which to enter into the share purchase agreement and the joint development agreement.90 Thus. She testified that under the First Memorandum of Agreement.945. 104Mr.101 U-Land specifically denied that it had any knowledge prior to or during the execution of the First Memorandum of Agreement that Wellex still had to "consolidate its title over" its shares in APIC.114 In its Reply. She testified that the First Memorandum of Agreement made reference. Thus. Ms. This allegedly shocked U-Land since under the First Memorandum of Agreement. which began on May 16. Gatchalian "went to Taiwan and invited [U-Land] to invest in Air Philippines[. U-Land only paid US$7."108 Wellex.00. 1998 was a mandatory obligation on the part of U-Land. She testified that Mr. Wellex alleged that it had already set in motion building and development of real estate projects on four (4) major sites in Cavite.86 shares of APIC and ownership by APIC of a majority of the shares of [APC. the parties agreed to enter into the First Memorandum of Agreement after their second meeting. Rather. In response. Wang presented a draft of the share purchase agreement. It further raised that there was no provision in the First Memorandum of Agreement that required it to remit payments for Wellex’s shares of stock in APIC and PEC within the 40-day period.118 Finally. Air Philippines Corporation (APC). and costs of suit. which were never finalized.96 It prayed for the payment of moral damages. thus. that during the negotiations between plaintiff and defendant. William Gatchalian who was in Taiwan invited [U-Land] to join in the operation of his airline company[. U-Land already filed the Complaint for rescission and caused the attachment against the properties of Wellex.95 Wellex.945. with the execution of a share purchase agreement.115 However. U-Land’s purchase of APIC shares and PEC shares from Wellex would take place within 40 days.91 According to Mr. offered to sell to U-Land PEC shares as well. . Tseng testified that "[s]ometime in 1997. 1999. U-Land denied any knowledge of the initial steps that Wellex undertook to pursue the development projects and denied any awareness of a study conducted by Wellex regarding the potential profit of these projects. would have redounded to Wellex. Ms.117 As for the remittance of the US$3 million. Tseng further testified that it was only after the lapse of the 40-day period that U-Land discovered that Wellex needed money for the transfer of APC shares to APIC.499. its President and Chief Executive Officer. Wellex only received communication from U-Land regarding their subsequent negotiations through the latter’s demand letter dated July 22. the "[s]hare [p]urchase [a]greement was not executed within the forty-day period despite the draft .000. Despite the remittance of this amount. 1998.] a domestic carrier in the Philippines. defendant induced plaintiff to buy shares in Air Philippines International Corporation (APIC) since it owns majority of the shares of APC. APIC was supposed to own a majority of APC shares. given [by U-Land to Wellex].97 Wellex presented its sole witness. Iloilo. it believed that there was an implied extension of the 40-day period within which to enter into the share purchase agreement and the joint development agreement since U-Land began remitting sums of money in partial payment for the purchase of the shares of stock. It also denied requesting for an extension of the 40-day period.474. U-Land presented Mr. "C" to "C-3". Ms. 2001.92 Mr. representing Wellex.000 PEC shares.000. "claimed ownership of a majority of the Ms. Preponderance of evidence leans in favor of plaintiff that it is entitled to the issuance of the writ of preliminary attachment.000 in damages for loss of profit.499. and APC. These stock certificates were not delivered on that date. Mr. Elvira Ting (Ms. was approached by defendant. as per the study Wellex conducted.

by obtaining a General Information Sheet therefrom (Exh." A APC to APIC.499.00 to defendant.] is that correct? A Yes. that plaintiff verified with the Securities and Exchange Commission (SEC). can you please tell the Court if you know who owns shares of Air Philippines Corporation at this time? A Air Philippines Corporation right now is own [sic] by Wellex Group and certain individual. A Around twenty. that under the MOA. did you ever know if plaintiff asked for evidence from your company that AIR PHILIPPINES INTERNATIONAL CORPORATION has already acquired shares of AIR PHILIPPINES CORPORATION? A There were queries on the matter. on the other hand. pp. Q Could [sic] you know if Air Philippines Int’l. x x x" (Second Whereas of Exh. . . Q How much shares of Air Philippines Corporation is owned by Wellex Group? In the second "Whereas" clause of the MOA (Exh. pp. .] am I correct? A Yes. 945. that plaintiff knew at the time of the signing of the MOA that APIC does not own a majority of the shares of APC because another Memorandum of Agreement was attached to the MOA (Exh "1") pertaining to the purchase of APC shares by APIC is unavailing. as follows: "Q During the negotiation. "1"). Ms. "D") in order that APC shares could be transferred to APIC. Her participation in the agreement between the parties [was] merely limited to the preparation of the documents to be signed. WELLEX. Ms. 16) That defendant represented to plaintiff that it needed the remittances of plaintiff. Q Can you tell us if you know who are the other owners of the shares of Air Philippines? A There are several individual owners. The second MOA purportedly attached as Annex "A" of this MOA merely enlightens the parties on the manner by which APIC acquired the shares of APC. and that during the forty-day period stipulated in the MOA and even after the lapse of the said period. I cannot recall the names. Ting testified. p. the parties were supposed to enter into a Share Purchase Agreement (SPA) within forty (40) days from May 16. defendant has not entered into the SPA.00 to partially defray the cost of transferring APC shares to APIC even as of the year 2000. "C") On the other hand. Elvira Ting. was that your company said that it needed funds to effect these transfers. defendant’s misrepresentation that APIC owns APC is made clear.499. June 6. sir.945. Defendant’s fraud in the performance of its obligation under the MOA is further revealed when Ms. . Sir. well at that time it’s still in the process. The second "Whereas" clause of the MOA leaves no room for interpretation. . Q And what was your answer to those queries. that remittances were made in the total amount of more than seven million dollars. the date the MOA in order to effect the transfer of APIC and PEC shares of defendant to plaintiff." (lbid. is that correct? A Yes. Madam Witness. Q And you are just making your statement that U-Land knew about the intended transfer of shares from APC to APIC because of this WHEREAS CLAUSE and the Annex to this Memorandum of Agreement? Q Even up to the time that plaintiff U-Land stopped the remittances sometime in September 1998 you have not effected the transfer of shares of AIR PHILIPPINES CORPORATION to AIR PHILIPPINES INTERNATIONCAL [sic] CORPORATION[. and in like manner also desires to expand its operation in the Asian regional markets. which plaintiff did as admitted by defendant per its Confirmation Letter (Exh. Ting testified on cross-examination that notwithstanding the remittances made by plaintiff in the total amountn [sic] of US$7. defendant represented that it has a current airline operation through its majority-owned subsidiary APIC. that plaintiff learned from defendant that APIC does not actually own a single share in APC. Incorporated by plaintiff for the period from June 1998 to September 1998[. no sir. has current airline operation in the Philippines through its majority-owned subsidiary Air Philippines International Corporation (Exh. is it not correct for me to say that one of the reasons why U-Land Incorporated was convinced to remit the amounts of money totalling seven million dollars plus. as follows: "Q Ms. Corporation is one of the owners? (lbid. you did not know anything about that?" A I was not involved in the negotiation. "C"). that plaintiff remitted a total of US$7. Madam Witness? A We informed them that the decision was still in the process.at this moment around twenty five percent (25%). As can be also gathered from her testimony. (TSN. that in the second "Whereas" clause of the MOA. "C") and the latter’s subsidiary. 8-10) Q In fact.Exh. . The testimony of defendant’s sole witness Elvira Ting. even if no SPA was executed yet between the parties. as follows: A As of this moment. that APIC does not in fact own APC. that defendant induced plaintiff to still remit its investment to defendant. Besides.. 2000. 25-29) . to effect the transfer of APC shares to APIC is admitted by its same witness also in this wise: "Q You said that remittances were made to the Wellex Group. nor has defendant caused the transfer of APC shares to APIC. sir. "C-Attachment").. Ting does not have personal knowledge that plaintiff was not informed that APIC did not own shares of APC during the negotiations as she was not present during the negotiations between plaintiff and defendant’s William Gatchalian. defendant’s evidence failed to disprove plaintiff’s evidence. 1998. Air Philippines Corporation. it was part of the contract. Q During all these times." "WHEREAS. the second MOA was not a certified copy and did not contain a marking that it is an Annex "A" when it was supposed to be an Annex "A" and a certified copy per the MOA between plaintiff and defendant. Ting.

respondent U-Land was not entitled to rescission. 125 Petitioner Wellex raises that the Court of Appeals erred in saying that the rescission of the First Memorandum of Agreement was proper because petitioner Wellex itself asked for this in its Answer before the trial court. The law says: "Rescission creates the obligation to return the things which were the object of the contract.5 million. cannot ask for rescission of the MOA and yet refuse to return what has been paid to it.000. and the price with its interest. its primary reason for entering into the First Memorandum of Agreement was to acquire . or within the extensions thereof. Ting admitted that the Second Memorandum of Agreement "was not consummated at any time. Intermediate Appellate Court. it prays for the return of what has been given or paid under the MOA. . . respondent U-Land was not entitled to rescission because the latter itself violated the First Memorandum of Agreement. Spouses Paredes. while the appellant has not. Contrary to the finding of the lower courts. stating that Ms.143 It reiterates that. It is noted that appellee has partly complied with its own obligation. . Further..499. Section 9 of the MOA itself provides that in the event of the non-execution of an SPA within the 40 day period.120 (Emphasis supplied) On appeal. as the law creates said obligation to return the things which were the object of the contract. fails to fully pay the price as required by the contract.00 to defendant in order that defendant will make good its representation that APC is a subsidiary of APIC. provided that he will become the owner at the time of delivery so that he can transfer ownership to the buyer.945.499. petitioner Wellex argues that respondent U-Land could have recovered through the securities given to the latter. petitioner Wellex was obliged to be the owner of the shares only when the time came to deliver these to respondent U-Land and not during the perfection of the contract itself. and therefore is entitled to rescission.]"127 as held in Padilla v. Court of Appeals129 and Spouses Agustin v. is available only in the absence of any other legal remedy [under Article 1384 of the Civil Code].124 The full remittance of the purchase price of the shares of stock was a suspensive condition for the execution of the share purchase agreement and delivery of the shares of stock. Notwithstanding the said remittances.133 Finally. as an airline company. Petitioner Wellex states that respondent U-Land was actually bound to pay US$17. respondent U-Land was liable to petitioner Wellex for the total amount of US$20. such as [one] whose suspensive condition has not yet happened[.134 Petitioner Wellex invokes Suria v. This Court agrees with plaintiff that defendant’s misrepresentations regarding APIC’s not owning shares in APC vitiates its consent to the MOA. the Court of Appeals affirmed the ruling of the Regional Trial Court. Petitioner Wellex argues that the use of the term "upon" in Section 2 of the First Memorandum of Agreement clearly provides that the full payment of the purchase price must be given "simultaneously" or "concurrent" with the execution of the share purchase agreement.In the event that the parties are unable to agree on the terms of the SHPA and/or JDA within forty (40) days from the date hereof (or such period as the parties shall mutually agree). petitioner Wellex maintains that respondent U-Land’s remittance of US$7. petitioner Wellex asserts that its obligation to deliver the totality of the shares of stock would become demandable only upon remittance of the full purchase price of US$17. Court of Appeals. and the same could be carried out only when he who demands rescission can return whatever he may be obliged to restore.5 million for all of APIC shares and PEC shares under the First Memorandum of Agreement and the US$3 million to pursue the development projects under the joint development agreement. . ."136 Respondent’s Arguments Respondent U-Land argues that it was the execution of the share purchase agreement that would result in its purchase of the APIC shares and PEC shares. in the same vein. plaintiff should return to defendant the titles and certificates of stock given to it by defendant. this Petition was filed. In sum. consequently. therefore. 2004 Decision. . if the buyer.499.0 million under Section 4 within three (3) days therefrom. defendant could not even satisfactorily substantiate its claim that at least it had the intention to cause the transfer of APC shares to APIC. as alleged by petitioner Wellex. otherwise U-LAND shall have the right to recover the 57. It is.141 Respondent U-Land further argues before this court that petitioner Wellex failed to present evidence as to how the money was spent. The nature of this reciprocal obligation requires both parties’ simultaneous fulfillment of the totality of their reciprocal obligations and not only partial performance on the part of the allegedly injured party. On the other hand."142 Respondent U-Land raises that petitioner Wellex was guilty of fraud by making it appear that APC was a subsidiary of APIC.000 PEC shares delivered to ULAND under Section 4. the parties were not able to agree on the terms of the SPA within and even after the lapse of the stipulated 40 day period. APIC does not own a single share of APC. this Memorandum of Agreement shall cease to be effective and the parties released from their respective undertakings herein.122 (Citations omitted) Hence. 132 Thus. the right of the injured party to ask for rescission because the guilty party cannot ask for rescission. the Court of Appeals held that the Regional Trial Court did not err in granting the rescission: Records show that in the answer filed by defendant-appellant.945. the latter itself asked for the rescission of the MOA. together with their fruits. 126 It asserts that "there can be no rescission of a non-existent obligation. petitioner Wellex raises that a seller may sell a thing not yet belonging to him at the time of the transaction.128 Citing Villaflor v. . further establishes plaintiff’s right to have the MOA rescinded. in effect. defendant’s return of the remittances [of] plaintiff in the total amount of US$7.00 to facilitate APIC’s purchase of APC shares. Under the circumstances. but] a subsidiary one which.140 Thus. . appellant’s claim that the lower court erred in ruling for the rescission of the MOA is absurd and ridiculous because rescission thereof is prayed for by the former.945.135 which held that an "action for rescission is not a principal action that is retaliatory in character [under Article 1191 of the Civil Code." Clearly. because the rescission referred to here is predicated on the breach of faith by the appellant which breach is violative of the reciprocity between the parties. it is clear that defendant fraudulently violated the provisions of the MOA. This Court agrees with the lower court that appellee is the injured party in this case. Neither the Court of Appeals nor the Regional Trial Court made any mention of the legal effect of respondent ULand’s failure to pay the full purchase price. has no obligation to deliver the thing sold. therefore. it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Defendant’s continued misrepresentation that it will cause the transfer of APC shares in APIC inducing plaintiff to remit money despite the lapse of the stipulated forty day period. The said remittances are admitted by defendant.121 In its July 30.As the evidence adduced by the parties stand.130 it argues that "the vendor.945.138 Respondent U-Land asserts that the First Memorandum of Agreement provides that the exact number of APIC shares and PEC shares to be purchased under the share purchase agreement and the final price of these shares were not yet determined by the parties. the payments made by plaintiff shall be returned to it. . As to the finding of misrepresentations. .499. Thus. .00 constituted mere partial performance of a reciprocal obligation.499. correctly ruled that: ".123 On the share purchase agreement. The lower court . except that WELLEX shall refund the US$3. ." Appellant. Petitioner’s Arguments Petitioner Wellex argues that contrary to the finding of the Court of Appeals.137 It was not the full remittance of the purchase price of the shares of stock as indicated in the First Memorandum of Agreement. it was petitioner Wellex’s refusal to enter into the share purchase agreement that led to respondent U-Land demanding rescission of the First Memorandum of Agreement and the return of the US$7."131 In this case. [D]efendant obviously did not enter into the stipulated SPA because it did not have the shares of APC transferred to APIC despite its representations.139 Respondent U-Land reiterates that it was petitioner Wellex that requested for the remittances amounting to US$7. .5 million. to wit: "9 Validity. .945 is only proper. There being no SPA entered into by and between the plaintiff and defendant. . plaintiff has established the fact that it had made remittances in the total amount of US$7.00.

particularly Article 1370.management of APC. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties. as objectively manifested by them.000. the court will interpret the contract as a matter of law. not less than 490. (c) U-LAND shall enter into a joint development agreement with PEC to jointly pursue property development projects in the Philippines. the rescission that is relevant to the present case is that of Article 1191. a Memorandum of Agreement on ______.148 The "rescission" referred to in Article 1191 referred to "resolution" of a contract due to a breach of a mutual obligation. as the injured party. which assumes that the intent of the parties to an instrument is "embodied in the writing itself." This provision is akin to the "plain meaning rule" applied by Pennsylvania courts. A court's purpose in examining a contract is to interpret the intent of the contracting parties. it was petitioner Wellex’s misrepresentation that APIC was a majority shareholder of APC that compelled it to enter into the agreement. among others. Acquisition of APIC and PEC Shares. I The requirement of a share purchase agreement The Civil Code provisions on the interpretation of contracts are controlling to this case. and in like manner also desires to expand its operation in the Asian regional markets. but in any case. the basis for WELLEX’s present ownership of shares in Air Philippines International Corporation. . Air Philippines Corporation. to resolve the ambiguity in the light of the intrinsic evidence. has current airline operation in the Philippines through its majority-owned subsidiary Air Philippines International Corporation and the latter’s subsidiary. the literal meaning of its stipulations shall control. which sets forth.Within forty (40) days from date hereof (unless extended by mutual agreement). which reads: ART. It is. was entitled to rescission due to the fatal misrepresentations committed by petitioner Wellex. 1383. (b) U-LAND shall acquire from WELLEX. the provision on its face will be read as it is written and treated as the binding law of the parties to the contract. shares of stock of PHILIPPINE ESTATES CORPORATION ("PEC") equivalent to at least 35% of the outstanding capital stock of PEC. and 1384 of the Civil Code. Where the written terms of the contract are not ambiguous and can only be read one way. not less than 1. 1370. and when the words are clear and unambiguous the intent is to be discovered only from the express language of the agreement.154 (Emphasis supplied) Section 1 of the First Memorandum of Agreement reads: I. which involves breach in a reciprocal obligation. but in any case. on the other hand.000. the purchase price for the APIC Shares to be reflected in the SHPA shall be THIRTY CENTAVOS (P0. and not rescission as a result of fraud or lesion. U-LAND and WELLEX shall execute a Share Purchase Agreement ("SHPA") covering the acquisition by U-LAND of the APIC Shares and PEC Shares (collectively. The purchase price for the Subject Shares as reflected in the SHPA shall be paid in full upon execution of the SHPA against delivery of the Subject Shares. a certified copy of which is attached hereto as Annex "A" and is hereby made an integral part hereof. respondent U-Land. resolution. a principle which allows courts in some cases to search beneath the semantic surface for clues to meaning. the latter shall prevail over the former. another airline company. Basic Agreement.050.149 Thus.155 The First Memorandum of Agreement contained the following stipulations regarding the share purchase agreement: 2. the literal meaning of its stipulations shall control. this court must first determine whether a provision or stipulation contained in a contract is ambiguous. as found in Articles 1381. In Norton Resources and Development Corporation v. The Petition must be denied. As held in Norton. The process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous.30) per share and that for the PEC Shares at SIXTY FIVE CENTAVOS (P0. shares of stock of AIR PHILIPPINES INTERNATIONAL CORPORATION ("APIC") equivalent to at least 35% of the outstanding capital stock of APIC. while Article 1384 spoke of "rescission" because of lesion and damage. Absent any ambiguity. The parties may agree on such other terms and conditions governing the acquisition of the Subject Shares to be provided in a separate instrument."146 Rather. .150 The Issue The question presented in this case is whether the Court of Appeals erred in affirming the Decision of the Regional Trial Court that granted the rescission of the First Memorandum of Agreement prayed for by U-Land. WELLEX. The parties have differing interpretations of the terms of the First Memorandum of Agreement. 145 Respondent U-Land further asserts that the "shareholdings in APIC and APC were never in question."153 The second preambular clause of the First Memorandum of Agreement reads: WHEREAS. Without prejudice to any subsequent agreement between the parties.147 As for Suria. Petitioner Wellex even admits that "the facts of the case are fairly undisputed [and that] [i]t is only the parties’ respective [understanding] of these facts that are not in harmony." It also resembles the "four corners" rule.152 (Emphasis supplied) (d) U-LAND shall be given the option to acquire from WELLEX shares of stock of EXPRESS SAVINGS BANK ("ESB") up to 40% of the outstanding capital stock of ESB (the "ESB Shares") under terms to be mutually agreed. If the contract is determined to be ambiguous.The parties agree to develop a long-term business relationship initially through the creation of joint interest in airline operations as well as in property development projects in the Philippines to be implemented as follows: (a) U-LAND shall acquire from WELLEX.000 shares (the "APIC Shares"). . then the interpretation of the contract is left to the court. the "Subject Shares"). respondent U-land avers that this case was inapplicable because the pertinent provision in Suria was not Article 1191 but rescission under Article 1383 of the Civil Code.65) per share.000 shares (the "PEC Shares").144 Under Article 1191 of the Civil Code. All Asia Bank Corporation:151 The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties. A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. If the words appear to be contrary to the evident intention of the parties. in fact.

When the 40-day period provided for in Section 9 lapsed. the purchase price for the APIC Shares to be reflected in the [share purchase agreement] shall be. The execution of the share purchase agreement will require the existence of a final agreement. respondent ULand was under no obligation to begin payment or remittance of the purchase price of the shares of stock. It would be absurd for petitioner Wellex to expect payment when respondent U-Land did not yet agree to the final amount to be paid for the totality of an indeterminate number of shares of stock." Thus."161 This phrase clearly shows that the final price of the shares of stock was to be reflected in the share purchase agreement. Petitioner Wellex’s claim is not in any of the stipulations of the contract. P0. In its Answer with counterclaim before the trial court.050.000. Validity.. Thus.158 Section 2 of the First Memorandum of Agreement clearly provides that the execution of a share purchase agreement containing mutually agreeable terms and conditions must first be accomplished by the parties before respondent ULand purchases any of the shares owned by petitioner Wellex.In the event the parties are unable to agree on the terms of the SHPA and/or the JDA within forty (40) days from date hereof (or such period as the parties shall mutually agree). P0.0 million provided under Section 4 within three (3) days therefrom. However. This argument has no merit. Joint Development Agreement with PEC. All profits derived from the projects covered by the JDA shall be shared equally between ULAND and PEC. and (iii) any required approval by the Taiwanese government of the acquisition by ULAND of the Subject Shares shall likewise have been obtained.050. The transfer of the shares of stock requires full payment of the final purchase price. but in any case. petitioner Wellex’s argument cannot be sustained since the parties to the First Memorandum of Agreement were clearly unable to agree on all the terms concerning the share purchase agreement. "U-LAND shall acquire from WELLEX. not less than 1.000. the efficacy of the First Memorandum of Agreement ceased. it shall be understood as bearing that import which is most adequate to render it effectual. petitioner Wellex argued that the payment of the shares of stock was to begin within the 40-day period.000 shares of PEC as security for said amount in accordance with Section 9 below. not less than 490. the parties agreed to enter into a joint business venture. remit the sum of US$3. the parties included the following stipulation in case of a failure to agree on the terms of the share purchase agreement or the joint development agreement: 9. not less than 490. The parties were "released from their respective undertakings. through entering into two (2) agreements: a share purchase agreement and a joint development agreement. A perusal of the stipulation on its face allows for no other interpretation. Therefore. In Section 1. an agreement to enter into a share purchase agreement.157 (Emphasis provided) Finally. 1998. U-LAND shall. but in any case. the parties were no longer obliged to negotiate with each other in order to enter into a share purchase agreement. Section 9 provides for another period within which the parties could still be required to negotiate.. not later than May 22. that final purchase price must be reflected in the share purchase agreement. .000 shares (the ‘APIC Shares’). The clause "or such period as the parties shall mutually agree" means that the parties should agree on a period within . the date when the 40-day period lapsed. due to the failure of the parties to execute a share purchase agreement.. The share purchase agreement should have been executed by the parties within 40 days from May 16. In addition. Had it been otherwise.The transfer of the Subject Shares shall be effected to U-LAND provided that: (i) the purchase price reflected in the SHPA has been fully paid. the date of the signing of the First Memorandum of Agreement. thus. Article 1373 of the Civil Code provides: As for the joint development agreement.000. "[w]ithout prejudice to any subsequent agreement between the parties. the specific number or percentage of shares and its price should already have been provided clearly and unambiguously. Section 1 provides that respondent U-Land shall purchase from petitioner Wellex "shares of stock of PHILIPPINE ESTATES CORPORATION (‘PEC’) equivalent to at least 35% of the outstanding capital stock of PEC. shares of stock of AIR PHILIPPINES INTERNATIONAL CORPORATION (‘APIC’) equivalent to at least 35% of the outstanding capital stock of APIC. the parties had yet to agree on the final number of APIC shares and PEC shares that respondent U-Land would acquire from petitioner Wellex. not less than 1. It is necessary for the parties to first agree on the final purchase price and the number of shares of stock to be purchased before respondent U-Land is obligated to pay or remit the entirety of the purchase price. this Memorandum of Agreement shall cease to be effective and the parties released from their respective undertakings herein. The JDA shall cover specific housing and other real estate development projects as the parties shall agree. Section 1 provides that in the share purchase agreement. ART. Section 9 of the First Memorandum of Agreement explicitly provides that: In the event the parties are unable to agree on the terms of the SHPA and/or the JDA within forty (40)days from date hereof (or such period as the parties shall mutually agree). . The need to execute a share purchase agreement before payment of the purchase price of the shares is further shown by the clause.000.000 shares" and "at least 35% of the outstanding capital stock of PEC. the understanding of the parties captured in the First Memorandum of Agreement was to continue their negotiation to determine the price and number of the shares to be purchased.000.000 shares(the ‘PEC Shares’). There being no share purchase agreement executed. Thus. this Memorandum of Agreement shall cease to be effective and the parties released from their respective undertakings herein .164 The First Memorandum of Agreement was. from June 25. However.0 million as initial funding for the aforesaid development projects against delivery by WELLEX of 57.5 million is likewise bereft of basis since there was no final purchase price of the shares of stock that was agreed upon. Its subsequent claim that respondent U-Land was actually required to remit a total of US$20. However. 1998. If some stipulation of any contract should admit of several meanings. they agreed to a 40-day period of negotiation.000.156 (Emphasis supplied) Petitioner Wellex argues that the use of "upon" in Section 2162 of the First Memorandum of Agreement means that respondent U-Land must pay the purchase price of the shares of stock in its entirety when they are transferred. except that WELLEX shall refund the US$3.000 PEC shares delivered to U-LAND under Section 4." The transfer of the shares of stock is different from the execution of the share purchase agreement. (ii) the Philippine Securities & Exchange Commission (SEC) shall have approved the issuance of the Subject Shares. otherwise U-LAND shall have the right to recover on the 57..65 per share. – Simultaneous with the execution of the SHPA. The third paragraph of Section 2163 provides that the "transfer of the Subject Shares" shall take place upon the fulfillment of certain conditions. The need for a share purchase agreement to be entered into before payment of the full purchase price can further be discerned from the other stipulations of the First Memorandum of Agreement."159 As for the PEC shares. 1373. U-LAND and PEC shall execute a joint development agreement ("JDA") to pursue property development projects in the Philippines. such as full payment of the purchase price "as reflected in the [share purchase agreement].30 per share and that for the PEC Shares at." 160 The use of the terms "at least 35% of the outstanding capital stock of APIC. but in any case. 1998.000 shares" means that the parties had yet to agree on the number of shares of stock to be purchased. the First Memorandum of Agreement contained the following stipulation: 4. . but in any case.

So it is deeply rooted in the Roman Law jurisprudence. In Gayos v.168 this court discussed the concept of novation: Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or when there is subrogation of the creditor.171 (Citations omitted) There was no incompatibility between the original terms of the First Memorandum of Agreement and the remittances made by respondent U-Land for the shares of stock. Petititoner did not raise this argument of novation before this court. Given these circumstances.166 this court held that "it is a cherished rule of procedure that a court should always strive to settle the entire controversy in a single proceeding leaving no root or branch to bear the seeds of future litigation[.. Novation may also be express or implied. 2) The parties concerned must agree to a new contract. It is clear that there was no subsequent agreement inconsistent with the provisions of the First Memorandum of Agreement. (Emphasis from the original omitted) Because novation requires that it be clear and unequivocal. and all that is prescribed by law would be an incompatibility between the two contracts. (1) Changing their object or principal conditions. the parties were no longer under any obligation to negotiate and enter into a share purchase agreement. they are incompatible and the latter obligation novates the first." . The test of incompatibility is whether or not the two obligations can stand together. cause or principal conditions thereof. debitum pro debito— basically extinguishing the old obligation for the new one. . would be an irreconcilable incompatibility between the old and the new obligations. the parties were still allowed to negotiate. there was no express novation. . the touchstone for contrariety. independent of the First Memorandum of Agreement. At bottom. II There was no express or implied novation of the First Memorandum of Agreement The subsequent acts of the parties after the 40-day period were. . It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. each one having its independent existence. The test of incompatibility is whether the two obligations can stand together. Corollarily. After the 40-day period. the change would be merely modificatory in nature and insufficient to extinguish the original obligation. novatiois literally construed as to make new. it is imperative that it be so declared in unequivocal terms.169 (Emphasis from the original omitted. There was also no implied novation of the original obligation. If they cannot. changes that breed incompatibility must be essential in nature and not merely accidental. There being no other period specified. thus: In the civil law setting. Section 9 clearly freed them from this undertaking. In its Appellant’s Brief before the Court of Appeals. . it is never presumed.]"167 Articles 1291 and 1292 of the Civil Code provides how obligations may be modified: Article 1291. provided that they could mutually agree on a new period of negotiation. however. the parties did not enter into any subsequent written agreement that was couched in unequivocal terms. citations omitted) Applying Arco. Lim. In Arco Pulp and Paper Co. each one with its own independent existence. Gayos. v... The parties sought to participate in the air travel industry. the parties were never able to arrive at a specific period within which they would bind themselves to enter into an agreement. it is clear that there was no novation of the original obligation. therefore. or that the old and the new obligations be on every point incompatible with each other. These remittances were actually made with the view that both parties would subsequently enter into a share purchase agreement. for novation to be a jural reality. It is implied when the new obligation is incompatible with the old one on every point. the following requisites must concur: 1) There must be a previous valid obligation. Article 1292. which has always been highly regulated and subject to the strictest commercial scrutiny. The transaction of the First Memorandum of Agreement involved large amounts of money from both parties. In order that an obligation may be extinguished by another which substitute the same. such as its object. as well.. In Quinto v. It occurs only when the new contract declares so "in unequivocal terms" or that "the old and the new obligations be on every point incompatible with each other.. People:170 (3) Subrogating a third person in the rights of the creditor. The incompatibility must take place in any of the essential elements of the obligation. Any subsequent agreement would be expected to be clearly agreed upon with their counsels’ assistance and in writing. [N]o specific form is required for an implied novation. 3) The old contract must be extinguished. its animus must be ever present..which to continue negotiations for the execution of an agreement. Both parties admitted that their counsels participated in the crafting and execution of the First Memorandum of Agreement as well as in the efforts to enter into the share purchase agreement. Obligations may be modified by: 4) There must be a valid new contract. . Based on the records and the findings of the lower courts. (2) Substituting the person of the debtor. petitioner Wellex mentioned that there was an "implied partial objective or real novation"165 of the First Memorandum of Agreement. For novation to take place. the principle — novatio non praesumitur— that novation is never presumed. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation. This means that after the 40-day period. otherwise.

or that the will to novate appears by express agreement of the parties or in acts of similar import. Communication between the parties ceased. Applying Article 1185. even after he has chosen fulfillment. or(b) if it has become evident that the event cannot occur. They made subsequent transactions with the intention to enter into the share purchase agreement. However. only the execution of a final share purchase agreement within either of the periods contemplated by this stipulation will justify the parties’ retention of what they received or would receive from each other. both parties would be freed from their respective undertakings. the obligation to free each other from their respective undertakings remained. The court shall decree the rescission claimed. they still failed to enter into a share purchase agreement."174 (Emphasis supplied) There being no novation of the First Memorandum of Agreement. v. no implied novation took place. once again. if the latter suffer the lesion stated in the preceding number. It is the non-occurrence or non-execution of the share purchase agreement that would give rise to the obligation to both parties to free each other from their respective undertakings. the parties were then obligated to return to each other all that they had received in order to be freed from their respective undertakings. and rescission under Article 1381 of the Civil Code. (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. "Novation by presumption has never been favored. III Article 1191 of the Civil Code provides: Applying Article 1185 of the Civil Code. and not rescission under Article 1381 The arguments of the parties generally rest on the propriety of the rescission of the First Memorandum of Agreement. Inc. the parties are obligated to return to each other all they have received Article 1185 of the Civil Code provides that: ART. . Contracts validly agreed upon may be rescinded in the cases established by law. The injured party may choose between the fulfillment and the rescission of the obligation. Despite that. To be sustained. If no time has been fixed. This requires a clarification of rescission under Article 1191. Neither can novation be presumed in this case. This is the second circumstance provided for in Article 1185. ART. and no further transactions took place. The following contracts are rescissible: (1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof.Thus. bearing in mind the nature of the obligation. if the latter should become impossible. This is understood to be without prejudice to the rights of third persons who have acquired the thing. This includes returning to each other all that they received in pursuit of entering into the share purchase agreement. As explained in Duñgo v. provide an enumeration of rescissible contracts: ART. Petitioner Wellex and respondent U-Land bound themselves to negotiate with each other within a 40-day period to enter into a share purchase agreement. on the other hand. Petitioner Wellex is likewise entitled to the return of the certificates of shares of stock and titles of land it delivered to respondent U-Land. Lopena: As such. respondent U-Land is entitled to the return of the amount it remitted to petitioner Wellex. At the lapse of the 40-day period. 1185. In previous cases.172 this court has consistently ruled that presumed novation or implied novation is not deemed favorable. If no share purchase agreement was entered into. 1191. 1381. with the payment of damages in either case. Articles 1380 and 1381. (3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them. the condition shall be deemed fulfilled at such time as may have probably been contemplated. the parties failed to enter into a share purchase agreement. in the same way that respondent U-Land is obligated to return the certificates of shares of stock and the land titles to petitioner Wellex. The power to rescind obligations is implied in reciprocal ones. in case one of the obligors should not comply with what is incumbent upon him. Pursuant to Section 9. This lapse is the first circumstance provided for in Article 1185 that gives rise to the obligation. the parties continued their negotiations after the lapse of the 40-day period. Article 1185 provides that if an obligation is conditioned on the nonoccurrence of a particular event at a determinate time. in accordance with articles 1385 and 1388 and the Mortgage Law. This is simply an enforcement of Section 9 of the First Memorandum of Agreement. The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed. the parties would not enter into the share purchase agreement. petitioner Wellex is obligated to return the remittances made by respondent U-Land. (5) All other contracts specially declared by law to be subject to rescission. He may also seek rescission. that obligation arises (a) at the lapse of the indicated time. In United Pulp and Paper Co. Acropolis Central Guaranty Corporation:173 It became evident that. ART. or if it has become evident that the event cannot occur. (2) Those agreed upon in representation of absentees.. 1380. it need be established that the old and new contracts are incompatible in all points. IV Respondent U-Land is praying for rescission or resolution under Article 1191. unless there be just cause authorizing the fixing of a period. Thus.

to do or not to do (Art. This Court has consistently ruled that this provision applies to rescission under Article 1191: [S]ince Article 1385 of the Civil Code expressly and clearly states that "rescission creates the obligation to return the things which were the object of the contract. indemnity for damages may be demanded from the person causing the loss. Court of Appeals. consequently. however. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. They are mutually obligated. Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. This pertains to rescission or resolution under Article 1191. thus: ART. The wronged party is entitled to rescission or resolution under Article 1191. it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. and in which each party is a debtor and a creditor of the other. It is a principal action precisely because it is a violation of the original reciprocal prestation. together with their fruits.. and the price with its interest. together with their fruits.178 (Citation omitted) Rescission itself. but abrogates the contract from its inception and restores the parties to their original positions as if no contract has been made. a person may be the debtor of another by reason of an agency. 1385. but the obligations are not reciprocal. and the price with its interest. and necessarily the two obligations are created at the same time. while rescission under Article 1383 is a subsidiary action limited to cases of rescissionfor lesion under Article 1381 of the New Civil Code. In this case. to wit: xxxx Mutual restitution is required in cases involving rescission under Article 1191. is thus required. is defined by Article 1385: ART. quasi-contracts. Although both presuppose contracts validly entered into and subsisting and both require mutual restitution when proper. and it is the conduct required by the parties to do or not to do. viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of obligations (law. Consequently. For Article 1191 to be applicable. as contemplated in Articles 1380. mutual restitution. This distinction is best illustrated by an established authority in civil law." the original term which was used in the old Civil Code. Fajardo175 categorically stated that Article 1385 is applicable to Article 1191: At this juncture. which gave rise to the existence of the contract. which entails the return of the benefits that each party may have received as a result of the contract.181 this court defined rescission: Rescission. 1385. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one fourth of the value of the things which are the object thereof. (b) the object which is the prestation or conduct. Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383. Civil Code). mandates that the parties must return to each other everything that they may have received as a result of the contract. It implies a contract. In this case. The action for rescission is subsidiary.Article 1383 expressly provides for the subsidiary nature of rescission: ART. This article applies only to reciprocal obligations. as defined by Article 1385. required to be observed (to give. Rescission creates the obligation to return the things which were the object of the contract. even if this should be valid. the late Arturo Tolentino: Ang Yu Asuncion v. and the price with its interest. A prestation is the object of an obligation. The obligation is constituted upon the concurrence of the essential elements thereof. and even the payment of damages. Article 1385 of the Civil Code provides. to do or not to do). which expressly enumerates the following rescissible contracts: 1. 1383. . on the other hand. by restoration of things to their condition at the moment prior to the celebration of the contract. To be sure. of the New Civil Code. viewed from the demandability of the obligation.180 The cause is the vinculum juris or juridical tie that essentially binds the parties to the obligation. While Article 1191 uses the term "rescission. it can be carried out only when he who demands rescission can return whatever he may be obligated to restore. et seq." Resolution is a principal action which is based on breach of a party. from which the article was based. produces a lesion or a pecuniary damage to someone. however. are the active (obligee) and the passive (obligor) subjects. It has no application to every case where two persons are mutually debtor and creditor of each other. delicts and quasi-delicts). which even if initially valid. Court of Appeals179 provides a clear necessity of the cause in perfecting the existence of an obligation: An obligation is a juridical necessity to give. but the prestations of these obligations are not necessarily reciprocal. Article 1381 and Article 1383. In Ong v. it is noteworthy to point out that rescission does not merely terminate the contract and release the parties from further obligations to each other. x x x176(Emphasis from the original. Thus. The failure of one of the parties to comply with its reciprocal prestation allows the wronged party to seek the remedy of Article 1191. citations omitted) Rescission.177 Parties may be mutually obligated to each other. and his creditor by reason of a loan. it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. to secure the reparation of damages caused to them by a contract. indemnity for damages may be demanded from the person causing the loss. There must be reciprocity between them. such that one obligation is correlative to the other. Reciprocal obligations are those which arise from the same cause. together with their fruits. Reciprocity arises from identity of cause. Rescission creates the obligation to return the things which were the object of the contract.182(Citations omitted) Ong elaborated on the confusion between "rescission" or resolution under Article 1191 and rescission under Article 1381: On the other hand. as well as the provisions governing all forms of rescissible contracts." the Court finds no justification to sustain petitioners’ position that said Article 1385 does not apply to rescission under Article 1191. The reciprocal prestations must necessarily emanate from the same cause that gave rise to the existence of the contract. This linkage between the parties is a binding relation that is the result of their bilateral actions. contracts. such that the obligation of one is dependent upon the obligation of the other. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. Gotesco Properties v. it has been settled that the effects of rescission as provided for in Article 1385 of the Code are equally applicable to cases under Article 1191. This means bringing the parties back to their original status prior to the inception of the contract. and (c) the subject-persons who. pertain to rescission where creditors or even third persons not privy to the contract can file an action due to lesion or damage as a result of the contract. there must be reciprocal prestations as distinguished from mutual obligations between or among the parties. or to give. is a remedy granted by law to the contracting parties and even to third persons. was "resolution. 1156. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. Both relations must arise from the same cause. they are not entirely identical. consequently.

1458. In Land Bank of the Philippines v. in case of a substantial breach. As expressed in the old Latin aphorism: "Non servanti fidem. because it is the raison detre as well as the measure of the right to rescind. The actions of the parties involving the terms of the First Memorandum of Agreement do not fall under any of the enumerated contracts that may be subject of rescission. but this non-payment cannot serve as proof of a simulated contract. 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 buyer. In Villaflor: Petitioner insists that nonpayment of the consideration in the contracts proves their simulation. The payments on an installment basis secured by the execution of a mortgage took the place of a cash payment. absentees. All that is required is that the contract should be among those enumerated in Article 1381 for the contract to be considered rescissible. Intermediate Appellate Court is not applicable. The obligations of the parties gave rise to reciprocal prestations. who in turn. in turn.188 The case did not rule that the vendor has no obligation to deliver the thing sold if the buyer fails to fully pay the price required by the contract. In other words. in the rescission by reason of lesion or economic prejudice.187 (Emphasis supplied) In Suria. 1384. Court of Appealsis not applicable either. Article 1383 mandating that rescission be deemed a subsidiary action cannot be applicable to rescission or resolution under Article 1191. the action cannot be maintained or continued. this court specifically stated that the parties entered into a contract of sale. Reyes. We disagree. In that case. Reyes’ concurring opinion in the landmark case of Universal Food Corporation v. Foreclosure here is not only a remedy accorded by law but. Generally. that violates the reciprocity between the parties. As a matter of fact. respondent U-Land is pursuing rescission or resolution under Article 1191.190 this court discussed the nature of an obiter dictum: An obiter dictum has been defined as an opinion expressed by a court upon some question of law that is not necessary in the determination of the case before the court. as expressly provided in Articles 1383 and 1384. Villaflor v." Hence. It is an agreement to negotiate with the view of entering into a share purchase agreement. this court clearly applied rescission under Article 1384 and not rescission or resolution under Article 1191. different from that envisioned in the cited opinion of Justice J. By the contract of sale. 4. where the defendant makes good the damages caused. if the latter suffer the lesion stated in the preceding number. which arose from the same cause: the desire of both parties to enter into a share purchase agreement that would allow both parties to expand their respective airline operations in the Philippines and other neighboring countries. but merely an event which prevents the vendor’s obligation to convey title from acquiring binding force. rescission under Article 1381 must be a subsidiary action because of Article 1383. we note that they have fully complied with their part of the reciprocal obligation. in a contract of sale. Civil Code). However. it being unjust that a party be held bound to fulfill his promises when the other violates his.2. The petitioners’ breach of obligations is not with respect to the perfected contract of sale but in the obligations created by the mortgage contract. Contrary to petitioner Wellex’s argument. On the contrary. to rescind the contract under Article 1191 of the Civil Code. In consideration of the petitioners’ promise to pay on installment basis the sum they owe the respondents. Justice J. fulfilled his end of the bargain when he executed the deed of mortgage. therefore. It is not a subsidiary action. respondent U-Land correctly sought the principal relief of rescission or resolution under Article 1191.185 Rescission or resolution under Article 1191. Court of Appeals 184 gave a definitive explanation on the principal character of resolution under Article 1191 and the subsidiary nature of actions under Article 1381: The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant.L. This case does not involve prejudicial transactions affecting guardians. V The jurisprudence relied upon by petitioner Wellex is not applicable The cases that petitioner Wellex cited to advance its arguments against respondent U-Land’s right to rescission are not in point. All other contracts specially declared by law to be subject to rescission. by a judge. 189(Citations omitted) This court’s statement in Villaflor regarding rescission under Article 1191 was a mere obiter dictum. Civil Code). Suria v. (Art. as earlier stated. is obligated to pay a price certain in money or its equivalent (Art.L. This rescission is a principal action retaliatory in character. Article 1381(3) pertains in particular to a series of fraudulent actions on the part of the debtor who is in the process of transferring or alienating property that can be used to satisfy the obligation of the debtor to the creditor. Further. Unlike Article 1191. Hence. Nonpayment. at most. It is a remark made. There is no allegation of fraud for purposes of evading obligations to other creditors. the First Memorandum of Agreement is not a contract to sell shares of stock. non est fides servanda. is a specific provision found in the contract between the parties. The remedy of rescission is not a principal action retaliatory in character but becomes a subsidiary one which by law is available only in the absence of any other legal remedy. failure to pay is not even a breach. [and] 5. they have already parted with the title as evidenced by the transfer certificate of title in the petitioners’ name as of June 27.B. In addition. the relationship between the parties is no longer one of buyer and seller because the contract of sale has been perfected and consummated. is a principal action that is immediately available to the party at the time that the reciprocal prestation was breached. But the operation of these two articles is limited to the cases of rescission for lesión enumerated in Article 1381 of the Civil Code of the Philippines. the reparation of damages for the breach is purely secondary. this court held that non-payment of consideration of contracts only gave rise to the right to sue for collection. and does not apply to cases under Article 1191. therefore. In Villaflor. 3. which is a principal action. there is no need for reciprocal prestations to exist between or among the parties. payment of the price is a resolutory condition and the remedy of the seller is to exact fulfillment or. or opinion expressed. and their reciprocal obligations had already been fulfilled: 186 There is no dispute that the parties entered into a contract of sale as distinguished from a contract to sell. Thus. this is not rescission under Article 1381 of the Civil Code. and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. the latter have accepted the mortgage as security for the obligation. the cause of action is subordinated to the existence of that prejudice. Suntay. The situation in this case is. It is already one of a mortgagor and a mortgagee. or fraud of creditors. in . Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them. gives him only the right to sue for collection. From the respondents’ own arguments. 183 (Citations omitted) When a party seeks the relief of rescission as provided in Article 1381.B. the vendor obligates himself to transfer the ownership of and to deliver a determinate thing to the buyer. Those agreed upon in representation of absentees. 1975.

The existence of fraud must be established if the rescission prayed for is the rescission under Article 1381. unless made by an expert and the other party has relied on the former’s special knowledge.. This is followed by the articles which provide legal examples and illustrations of fraud. without them. it should be serious and should not have been employed by both contracting parties.945. he would not have agreed to. Upon the execution of the share purchase. Art. . the Court of Appeals did not err in affirming the rescission granted by the trial court."196 In that brief. However. 1341. VI Petitioner Wellex was not guilty of fraud but of violating Article 1159 of the Civil Code In the issuance of the Writ of Preliminary Attachment. Development Bank of the Philippines. To support its allegation of fraud. (n) Art. and is made without argument. It is less than proof beyond reasonable doubt (for criminal cases) but greater than preponderance of evidence (for civil cases). A mere expression of an opinion does not signify fraud. The usual exaggerations in trade. when fraud is alleged in an ordinary civil case involving contractual relations.00 was remitted for the purchase of APIC and PEC shares. Gatchalian approached respondent U-Land on two (2) separate meetings to propose entering into an agreement for joint airline operations in the Philippines. Civil cases only require a preponderance of evidence to meet the required burden of proof. Spouses Paredes and Spouses Agustin v. considering that the suspensive condition that will give rise to the obligation has not yet happened.his decision upon a cause by the way. It lacks the force of an adjudication. Thus.. respondent U-Land was unable to clearly convince this court of the existence of fraud. Entering into the share purchase agreement or the joint development agreement remained a stipulation that the parties themselves agreed to pursue in the First Memorandum of Agreement. the execution of the share purchase agreement was necessary to put into effect respondent U-Land’s purchase of the shares of stock. petitioner Wellex admitted that "[t]he amount of US$7. the other is induced to enter into a contract which.195 Determining the existence of fraud is not necessary in an action for rescission or resolution under Article 1191. that is. A suspensive condition is one whose non-fulfillment prevents the existence of the obligation. x x x fraud when. The quantum of evidence is such that fraud must be clearly and convincingly shown. incidentally or collaterally. Both parties admitted the participation of their respective counsels in the drafting of the First . Misrepresentation by a third person does not vitiate consent.192 Payment of the purchase price. The imputation of fraud in a civil case requires the presentation of clear and convincing evidence. In its Appellant’s Brief before the Court of Appeals.191 (Citations omitted) Petitioner Wellex’s reliance on Padilla v. This standard of proof is derived from American common law. this court held that non-remittance of the full price allowed the seller to withhold the transfer of the thing to be sold. through insidious words or machinations of one of the contracting parties. there must be clear and convincing evidence of fraud. being a mere expression of an opinion with no binding force for purposes of res judicata. To settle this question with finality. the parties entered into the First Memorandum of Agreement.193 this court enumerated the relevant provisions of the Civil Code on fraud: As held in Tankeh. or analogy or argument. The burden of evidence rests on the part of the plaintiff or the party alleging fraud. Mere allegations will not suffice to sustain the existence of fraud. This is based on an allegation that the contract involved is a contract to sell. or introduced by way of illustration. Thus. The parties are obligated to return to each other all that they may have received as a result of the breach by petitioner Wellex of the reciprocal obligation. Fraud is defined in Article 1338 of the Civil Code as: Respondent U-Land had every reasonable opportunity to ascertain whether APC was indeed a subsidiary of APIC. and both parties admitted that the share purchase agreement underwent several draft creations. the failure of the buyer to pay renders the contract without effect. it argued that the parties were already in the process of partially executing the First Memorandum of Agreement. Based on the First Memorandum of Agreement.499. There was no suspensive condition of full payment of the purchase price needed to execute either the share purchase agreement or the joint development agreement. 1343. and not directly upon the question before him. (n) Art. (n) Art. Enforcement of Section 9 of the First Memorandum of Agreement has the same effect as rescission or resolution under Article 1191 of the Civil Code. constitutes a suspensive condition in a contract to sell. This is the stipulation indicated in this memorandum of agreement. This is a multimillion dollar transaction. or upon a point not necessarily involved in the determination of the cause. Misrepresentation made in good faith is not fraudulent but may constitute error. are not in themselves fraudulent. Mr. the First Memorandum of Agreement is not a contract to sell. Based on the established facts.. unless such misrepresentation has created substantial mistake and the same is mutual. In this case. Respondent U-Land primarily anchors its allegation of fraud against petitioner Wellex on the existence of the second preambular clause of the First Memorandum of Agreement. The degree of believability is higher than that of an ordinary civil case. the lower court found that petitioner Wellex committed fraud by inducing respondent U-Land to purchase APIC shares and PEC shares and by leading the latter to believe that APC was a subsidiary of APIC. the obligation of petitioner Wellex to transfer the shares of stock and of respondent U-Land to pay the price of these shares would have arisen. However. 1340. this court held that there can be no rescission for an obligation that is nonexistent. (1270)194 Tankeh further discussed the degree of evidence needed to prove the existence of fraud: [T]he standard of proof required is clear and convincing evidence. this court will examine the established facts and determine whether petitioner Wellex indeed defrauded respondent U-Land. In these cases. the existence of fraud is a question that the parties have raised before this court. an entirely different standard of proof needs to be satisfied. (n) The distinction between fraud as a ground for rendering a contract voidable or as basis for an award of damages is provided in Article 1344: In order that fraud may make a contract voidable. or full consideration of the point. In a contract to sell. It does not embody the resolution or determination of the court. Incidental fraud only obliges the person employing it to pay damages. testified that Mr. Court of Appeals is also misplaced. Therefore. therefore. 1342. when the other party had an opportunity to know the facts. respondent U-Land’s witness before the trial court. Tseng. In Tankeh v.

and it encompasses. it was not contesting the existence of the Second Memorandum of Agreement. There being no share purchase agreement. VII Respondent U-Land was not bound to pay the US$3 million under the joint development agreement The alleged failure of respondent U-Land to pay the amount of US$3 million to petitioner Wellex does not justify the actions of the latter in refusing to return the US$7.00. Respondent U-Land was not defrauded by petitioner Wellex to agree to the First Memorandum of Agreement. This will be based on the say-so of each party and is a fragile setting for good business transactions. the absence of malice and the absence of design to defraud or to seek an unconscionable advantage. they would have been obligated to return these to each other. It had the option to opt out of negotiations after the lapse of the 40-day period. there is no need to exhaust the securities given to respondent U-Land. Unilaterally compelling respondent U-Land to remit money to finalize the transactions indicated in the Second Memorandum of Agreement cannot constitute good faith. It will contribute to the unpredictability of the market as it would provide courts with extraordinary expectations to determine the business actor's intentions. However. Still. 1998. The essence of good faith lies in an honest belief in the validity of one’s right. Indeed.Memorandum of Agreement.000 PEC shares for the purpose of the joint development agreement. Informal acts are prone to ambiguous legal interpretation. an honest belief. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Section 9 of the First Memorandum of Agreement provides that should the parties fail to execute the agreement. Respondent U-Land was not obligated to exhaust the "securities" given by petitioner Wellex Contrary to petitioner Wellex’s assertion. it proceeded to make the remittances to petitioner Wellex and proceed with negotiations. and freedom from knowledge of circumstances which ought to put the holder upon inquiry.499. respondent U-Land is obligated to return the certificates of shares of stock and the land titles to petitioner Wellex. Rescission or resolution under Article 1191 is predicated on the failure of one of the parties in a reciprocal obligation to fulfill the prestation as required by that obligation. Article 1374 of the Civil Code provides that: ART. petitioner Wellex’s failure to inform respondent U-Land that APC was not a subsidiary of APIC when the First Memorandum of Agreement was being executed did not constitute fraud. Article 1159 reads: ART. the obligation to deliver the US$3 million and the delivery of the PEC shares for that purpose were no longer incumbent upon the parties. Respondent U-Land itself admitted that it was not contesting petitioner Wellex’s ownership of the APIC shares or APC shares. The principal obligation is not a loan or an obligation subject to the conditions of sureties or guarantors under the Civil Code.202 It received the certificates of shares of stock and the land titles with an understanding that the parties would subsequently enter a share purchase agreement. 1374. Upon becoming aware of petitioner Wellex’s representations concerning APIC’s ownership or control of APC as a subsidiary. respondent U-Land continued to make remittances totalling the amount sought to be rescinded.945. Section 4 and Section 9 of the First Memorandum of Agreement must be interpreted together. VIII In Ochoa v. the absence of fraud does not mean that petitioner Wellex is free of culpability. they have reduced their agreement in writing. The parties are bound by the 40-day period provided for in the First Memorandum of Agreement. respondent U-Land was no longer obliged to provide the money for the real estate development projects. This case is not an action for fraud based on Article 1381 of the Civil Code. petitioner Wellex violated Article 1159 of the Civil Code. 1159."201 Thus. Had respondent U-Land paid the US$3 million and petitioner Wellex delivered the 57. which stated that the execution of the two agreements is "[s]imultaneous. there is no obligation on the part of respondent U-Land to exhaust the "securities" given by petitioner Wellex. There being no joint development agreement. Apeta.000. Adherence by the parties to Section 9 of the First Memorandum of Agreement has the same effect as the rescission or resolution prayed for and granted by the trial court. the words and machinations must have been so insidious or deceptive that the party induced to enter into the contract would not have agreed to be bound by its terms if that party had an opportunity to be aware of the truth.199 this court defined good faith: Good faith is an intangible and abstract quality with no technical meaning or statutory definition. Neither petitioner Wellex nor respondent U-Land stated that there was already a transfer of ownership of the shares of stock or the land titles. hence. it agreed to be bound by the First Memorandum of Agreement by making the remittances from June 30 to September 25. Respondent U-Land had every opportunity to ascertain the ownership of the shares of stock.1âwphi1 This is provided for in Section 4 of the First Memorandum of Agreement. They have the resources to engage legal representation. It implies honesty of intention. By failing to inform respondent U-Land that APC was not yet a subsidiary of APIC at the time of the execution of the First Memorandum of Agreement. The execution of the joint development agreement was contingent on the execution of the share purchase agreement. among other things. ignorance of a superior claim and absence of intention to overreach another. The payment of the US$3 million was for pursuing the real estate development projects under the joint development agreement. Respondent U-Land itself maintained that the delivery of the shares of stock and the land titles were not in the nature of a pledge or mortgage. Since the parties were unable to agree on a final share purchase agreement and there was no exchange of money or shares of stock due to the continuing negotiations. It is not based on vitiation of consent through fraudulent misrepresentations. No such meeting of the minds to create a guarantee or surety or any other form of security exists. and there is no need for a legal condition where respondent U-Land should pursue other remedies.197 Respondent U-Land was already aware that APC was not a subsidiary of APIC after the 40-day period. . Thus. attributing to the doubtful ones that sense which may result from all of them taken jointly.1awp+ +i1To constitute fraud under Article 1338. However. The various stipulations of a contract shall be interpreted together. This case is not an action to declare the First Memorandum of Agreement null and void due to fraud at the inception of the contract or dolo causante. the failure of the share purchase agreement’s execution would necessarily mean the failure of the joint development agreement’s execution. The absence of fraud in a transaction does not mean that rescission under Article 1191 is not proper. they would be released from their mutual obligations.200 (Citations omitted) It was incumbent upon petitioner Wellex to negotiate the terms of the pending share purchase agreement in good faith.198 Thus. The parties appear to be responsible businessmen who know that their expectations and obligations should be clearly articulated between them. This duty included providing a full disclosure of the nature of the ownership of APIC in APC.

937. This court cannot interfere in the bargains. petitioner. 81460. GUTIERREZ. good or bad. affirming in toto the decision of the Court of First Instance of Manila in Civil Case No. Inc.: This is a petition to review by certiorari the decision of the -court of Appeals in CA-G. 1988 SO ORDERED. We cannot do so. 1969.. The total shipment was insured by Pioneer. No. respondents. charged with the obligation of handling. INC. Razon. On November 14. not to guarantee good business judgments. J.75. E.937. until fully paid. Durian & Academia Law Office for petitioner. November 13. E. Japan. Inc. the sum of P21. p. Razon. and/or E.R. to recover from either or both defendants. 13) Civil Case No. Inocencio R. shipped aboard the SS "Don Jacinto II" of the defendant Northern Lines. Inc. 56751-R. Serranilla for private respondent. only 83 cases had been delivered to the consignee. CV No. the petition is DENIED.Petitioner Wellex now wants this court to define obligations that do not appear in these instruments. Razon certified that out of 86 cases of radio parts loaded on board the SS 'DON JACINTO II" under Bill of Lading No. 74850 are AFFIRMED. 99-1407 and the Decision of the Court of Appeals in CA-G. vs. to pay plaintiff the sum of P10. Inc. The complaint is dismissed as against defendant Northern Lines. Razon. G. On December 12. entitled "Pioneer Insurance and Surety Corporation v. for delivery to the consignee MGM Importers Corporation at Manila. 1970. judgment is hereby rendered ordering defendant E. 81460 was filed by respondent Pioneer Insurance as insurer-subrogee.75 representing the invoice value. No. Inc. custody and delivery of all cargo discharged at the government piers of Manila.28 with legal interest from date of filing of the complaint. RAZON.. (Rollo. The Decision of the Regional Trial Court in Civil Case No. WHEREFORE.R. entered into by the parties. KM-18. Our duty is to affirm legal expectations. MGM Importers with losses and damages valued at P 21. Cruz. Costs against petitioner The Wellex Group..R. Northern Lines. The dispositive portion of the decision reads: WHEREFORE.899.. The shipment was delivered to its consignee. the shipment was discharged from the carrying vessel into the custody of E. and costs. L-50242 May 2l. THE COURT OF APPEALS and PIONEER INSURANCE & SURETY CORPORATION. 1969. Inc. jointly and severally. one of the arrastre operators in the Port of Manila. . JR. Inc. freight costs and other importation expenses of three (3) cases of radio and phonograph parts short-delivered from a total of eighty-six (86) cases of said articles from Kobe.

Razon. In its Answer. consignee consignor. Packing List. Indeed. injury or damage to the said cargo before or while the goods are being received or remain on the piers or wharves. 253). Such manifestation satisfies the condition of declaration of the actual invoices of the value of the goods before arrival of the goods. Inc.Formal claims were thus filed by MGM Importers with Northern Lines and E. that the contractor shall be solely responsible as an independent CONTRACTOR. Razon. injury or damage is caused by force majeure. upon arrival of the shipment . It argues that "Under the provisions of the Tariff and Customs Code. and other designated places and at its own expense perform all work undertaken by it hereunder diligently and in a skillful workman like and efficient manner. wharf or other designated place under the supervision of the Bureau. Razon to indemnify plaintiff Pioneer the sum of P 10. Razon. On December 18. Petitioner reads the same to mean notification before arrival of the vessel. 'I' (Northern Lines) and under the cargo receipts stated herein which are likewise attached herewith and marked as Exh. For the purpose. On July 24. (b) E. filed its appeal with the Court of Appeals which rendered its decision on January 4. P2.. that is.000 per case lost or destroyed as provided in Paragraph or Clause XX of the Revised Management Contract it had entered into with the Bureau of Customs which reads: The CONTRACTOR shall at its own expense handle all merchandise upon or over said piers.75 covering the full value of the lost cargo. 107 Phil. 1979.000 per package. Thereafter. under which the defendants Northern Lines and E. Inc. that (a) the entire shipment of 86 radio parts were unloaded from the vessel "DON JACINTO II" unto the custody of E. to overcome the limitation of liability of the arrastre operator. as well as all damages that may be suffered on account of loss. (Rollo. after filing their respective memoranda. and that the complaint has no cause of action.000 limitation of liability of the arrastre operator. cannot in justice insist on a limitation of its liability. Razon as shown by the summary of deliveries (Statement of deliveries) a copy of which being herewith attached and Exh.937. admitted. Razon. the invoice. However. packing list and other shipping documents were presented to the Bureau of Customs as well as to petitioner E. On the other hand. E. 8 Folder of Exhibits) shows . Bill of Lading and other documents must be submitted for processing and computation of customs duties. Hence. but said CONTRACTOR shall not be respoxisible for the condition of any package received nor for the weight. manifested or communicated in writing together with the certified packing list to the contractor before the arrival of the goods. that it exercised extraordinary diligence. Inc. under the contract. as arrastre operator. Razon for the proper assessment of the arrastre charges and other fees.000. P. among others. There is nothing on record to sufficiently sustain such allegation. 1974. Razon. Inc.75. The petitioner's own certification of delivery refutes its claim. Inc. Razon certified that out of 86 cases only 83 cases had been delivered to the consignee.. The respondent maintains otherwise. 81460. Razon. the parties entered into a stipulation of fact.000 per package . except only in case the value of the importation is specified. as well as the Pioneer Insurance Company. alone. Inc. Prince Lines. Plaintiff and defendant E. and (d) Plaintiff Pioneer indemnified the consignee in the sum of P 21. or other causes beyond the CONTRACTOR's control. v. We rule in favor of the respondents. the Court of First Instance of Manila rendered its decision ordering defendant E." satisfying the condition of exception to the P2. damage or destruction of any merchandise while in custody or under the control of the CONTRACTOR upon any pier.1969. nor for any loss. filed a formal claim for the missing cases.<äre||anº•1àw> Having been duly informed of the actual invoice value of the merchandise under its custody and having received payment of arrastre charges based thereon. or other interested party or parties for the loss. Exhibit "E" (p. It is unrebutted that MGM Importers. Razon admitted that it received from the vessel the complete shipment as follows: III. as well as for the assessment of arrastre charges and other fees (Plaintiff 's Memorandum)." E. the Court of Appeals denied the petitioner's motion for reconsideration. E. The sole issue raised by the petitioner is the general limitation of its liability to P 2. or non-delivery of cargoes to the extent of the actual invoice value of each package which in no case shall be more than Two Thousand Pesos (P 2. as determined by the value of the property committed to its care that it may define its responsibility for loss or damage to such cargo and to ascertain compensation commensurate to such risk assumed (Northern Motors. Thus. it should not exceed P 2. or if the loss. 1972. defendant Northern Lines. Inc. filed a Motion to Dismiss on the ground that under the Stipulation of Facts. not having been notified prior to the docking of the SS "Don Jacinto II. whether it be done long before the landing of the shipment at port. Civil Case No. 26) It is the petitioner's contention that the unequivocal text of the aforequoted provision of the Revised Management Contract denotes a clear rule in the limited liability of E. Northern Lines alleged that the shipment had been completely unloaded and received by E. Inc. p. On March 9. declared the same for tax purposes. Inc. or immediately before turn-over thereof to the arrastre operator's custody. Inc. to less than the value of each undelivered case or package consigned to MGM Importers. damage. Razon as shown by the Statement of Deliveries and the cargo receipts. 1978. arrastre charges. that is. leaving the controversy against E. thus reducing its liability. Record on Appeal of E. What is essential is knowledge beforehand of the extent of the risk to be undertaken by the arrastre operator. it alleged that in the remote possibility it is held liable. the consignee.00) for each package unless the value of the importation is otherwise specified or communicated in writing together with the invoice value and supported by a certified packing list to the CONTRACTOR by the interested party or parties before the arrival of the goods. 25) After hearing.. affirming in toto the trial court's decision. and hereby agrees to accept liability and to promptly pay to the steamship company. Razon denies its liability to MGM Importers or to its subrogee Pioneer Insurance. wharves. Razon denied ability on the grounds that (a) the whole cargo was not received from the carrying vessel and (b) the shipment was delivered to the consignee in the same quantity and condition that E. The lower courts judgment finding the petitioner liable for the full declared value of the three (3) undelivered cases in question must be upheld. '2' to Exhibit `2-V' (Northern Lines" (Rollo.28 with legal interest and dismissing the case against defendant Northern Lines.). Razon. MGM Importers. Razon admit that the entire shipment of 86 cases radio parts were unloaded from the vessel 'Don Jacinto II or unto the custody of E. The latter indemnified the assured in the sum of P 21. this petition. for purposes of clearing cargo from the Bureau of Customs. The petitioner further contends that only two (2) cases of radio parts were missing. the provision in the management contract regarding the declaration of the actual invoice value "before the arrival of the goods" must be understood to mean a declaration before the arrival of the goods in the custody of the arrastre operator. the Invoice. Razon. received the same from the vessel.899. E. its liability must be limited to the amount fixed under the provisions of the Revised Management Contract. (e) on November 25. the third case having been delivered with some shortages. Razon.937. CA. page 26. Inc. or capacity to prevent or remedy. E.

170202 July 14. the petition is hereby DISMISSED.. speaker parts and phonograph parts. that it may obtain compensation commensurable to the risk it assumes. unless the law or stipulation of the parties requires another standard of care. No.that out of the manifested quantity of Eighty-Six (86) cases of radio parts. Co. Reacting thereto.R. Manila Railroad. SO ORDERED. the obligation of the petitioner to exercise care and diligence can be no less. spurns the public service nature of its business. Finally. the respondent court held: . Razon as of said date. What difference.: This Petition for Review1 seeks to reverse the Decision2 and Resolution3 of the Court of Appeals in CA-G.28 with legal interest from the date of filing of the complaint. for as long as the charges are duly paid? Why should appellant require consignors/consignees to undergo extra time and expenses to advise/warn him beforehand to handle his cargo 'with care' because it is worth more than P2. Respondent is doing business under the name and style. vis-a-vis Article 1972 of the Civil Code on obligations of the depository provides: Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family. The judgment appealed from ordering the petitioner to pay the respondent Pioneer Insurance and Surety Corporation "the sum of P10. 19 SCRA 5). J. pp. et al. one hundred pesos and one containing goods worth one thousand pesos. under appellant's interpretation.. 1970. only (83) cases were delivered by E. not for the purpose of determining the degree of care or diligence it must exercise as a depository or warehouseman (Lua Kian v. doing business under the name & style "AJ & T Trading.. No further deliveries were made to the consignee MGM Importers.. . we reiterate the Court of Appeals pronouncements regarding the petitioner's obligation as arrastre operator. The petitioner avers that: . Petitioner.R. The reason for the requirement of advance notice in writing before the arrival of the goods is to put the defendant-appellant arrastre operator on the alert about the arrival of the goods so that they could exert extraordinary care and supervision in seeing that the goods should be taken care of and ultimately delivered to the consignee . The stipulation requiring a consignee to inform the contractor or arrastre operator and give the advance notice of the actual invoice value of the goods to be put in its custody is for the purpose of determining its liability. in accordance with its records. 2008 OPTIMUM MOTOR CENTER CORPORATION. the subject of this complaint.. NWM 418. G. The decision affirmed with modification the judgment4 of the Regional Trial Court (RTC) of Manila. in care and consideration.. "AJ & T Trading" which is engaged in transportation of cargoes. (Rollo.000. vs. Branch 19 in Civil Case No.6 AJ & T Trading is the registered owner7 of an Isuzu cargo truck with Plate No. Appellant." Respondent. ANNIE TAN. 94-71847. say.. Article 1163. CV No. Inc. . November 13. in view of the foregoing. DECISION TINGA. The case originated from a Complaint5 for recovery of possession filed by Annie Tan (respondent) against Optimum Motor Center Corporation (Optimum) and Cesar Peña (Peña) with the RTC of Manila. should there be between a package containing goods worth.. until fully paid and costs" is hereby AFFIRMED. 63985.899. With its further responsibility as a public service operator. in other words. the Contractor would only exercise care and caution in the handling of goods announced to it beforehand to be of sizeable value. 29-30) Rightly so. Optimum is a . WHEREFORE.00? Would failure to so notify the Contractor give the latter the liscence to treat the cargo with less than the attention ordinarily expected of it?.

8 Respondent’s version of the facts is as follows.00. The truck was surrounded with piles of lumber. the Court of Appeals promulgated its Decision affirming with modification the ruling of the RTC. Maximo Merigildo19 and Bel Eduardo Nitafan. Peña introduced himself as the owner and manager of Optimum. the trial court rendered a decision in favor of respondent. Appellant Optimum is ordered to return the cargo truck or to reimburse its value in the amount of P600. the payment of the value thereof. It claimed that the repairs were completed only on 8 May 1994 due to delay in Optimum filed a Notice of Appeal.22 Optimum posted a counterbond to lift said order. she found her truck abandoned and unrepaired at Optimum’s compound.18 At the trial of the case.000. because the batteries and ignition key were missing.34 On 5 August 1999. . Compound in Valenzuela.17 She prayed for the recovery of possession of the truck or. to wit: Optimum also explained that by virtue of a writ of execution28 issued against it by the Metropolitan Trial Court of Quezon City. the trial court issued an order denying the motion for reconsideration on the ground that it has already lost jurisdiction over the case. an estimate11 detailing the description and price rates for the repair was sent to respondent. respondent went to Optimum but was told to come back in March as the repair was not yet finished. two witnesses. judgment is hereby rendered ordering defendants Optimum Motor Center Corporation and/or any person acting for and in its behalf. It was then agreed that the work would take thirty (30) days to complete and would thus be finished on 15 February 1994. It observed: x x x Plaintiff claimed that even after the thirty (30) day period for the completion of the repair on the truck. The counterclaim of defendants is hereby DISMISSED for lack of merit.20 testified on the dilapidated condition of the truck when they saw it on separate occasions. respondent filed her Notice of Appeal36 on 25 August 1999. oil stick gauge and right side mirror were missing. until fully satisfied. respondent tried to claim her truck from Optimum14 to no avail. This was supported by the testimonies of the Court’s personnel. tools and all the vehicles in its possession and custody.000. the bonding company of Optimum. The interior portion appeared to be newly-painted but the outer portion looked rusty. It claimed that it tried to get in touch with respondent to ask her to claim the truck but she was not available. moral damages and costs of suit. 35 Thus. respondent’s delivery of the parts. She also sought the award of attorney’s fees. pursuant to Article 1170 of the Civil Code. the trial court accepted the version of respondent that the repairs on her truck had not been accomplished. On 28 June 2005. the same remained unrepaired. moral damages of P50. Valenzuela City. the trial court held Optimum liable for damages for its failure to execute its part of the contract on time. subject matter of this complaint and if this is not feasible.30 Of the two opposing contentions. Metro Manila. Bagbaguin. They are independent witnesses whose testimonies deserve full faith and credit being neutral parties to the case. 2. 1994) the complaint was filed.000.000.9 Leopoldo Daza. Even defendant Cesar Peña admitted that the repair was not completed after thirty (30) days from receipt of the Cargo Truck. including respondent’s truck. should have been adjudged liable for damages payable by the latter. On 14 January 1994. Temperate or moderate damages in the amount of Thirty Thousand Pesos (P30. to jointly and severally pay the sum of P600.00 as the unpaid cost of repairs and P25. Quezon City.00 plus 25% of the amount awarded from defendants as and for attorney’s fees. the parties agreed that respondent would supply the necessari materials such as windshield glasses for the front and back of the truck. The electrical wirings were not in order.000. one spare tire. until the cost of repairs is paid. On 4 March 1994. 1994 the Writ of Execution in the Ejectment case against defendants and implemented the same on May 14. to surrender in good running condition the Isuzu Cargo Truck.24 It presented as its witnesses the employees who had undertaken the tinsmithing25 painting26 and electrical works27 on the truck. 1994. the appealed Decision is hereby AFFIRMED with the following MODIFICATIONS: Optimum claimed its right to retain possession of the truck. repainting and upholstery replacement. thus: WHEREFORE.domestic corporation which owned and operated an auto repair shop located at 120 Del Monte Avenue. Process Server. The testimonies of these witnesses were not rebutted by the defendants. On 20 January 1994. On 16 May 1994. Missing were the two (2) batteries.32 Optimum controverted the allegations of respondent. Eduardo Bel Nitafan.23 On 31 May 1999. He could not categorically tell if the truck was in good running condition. the trial court issued an order directing the seizure of the vehicle upon respondent’s filing of a bond in the amount of P1.31 Furthermore. Branch 31. She also noticed that the 100-meter skyline rope.000.00 and litigation expenses of P30. premises considered.C.21 Respondent posted the required bond. SO ORDERED. she brought the subject truck to Optimum for body repair and painting. By way of counterclaim.12 On 15 February 1994. she again went to Optimum’s repair shop and was surprised to see that the trade name "AJ & T Trading" painted in the middle and side doors of the truck had been scraped off. skyline rope and the light on top of the cowl.15 On 22 April 1994. On 20 October 1994.16 Later.000.29 1. received the truck and prepared a checklist10 of the items found therein. In its own account of the facts. who served on April 25. rubber strip and quartered glass panel. To bring down the repair costs. declared in open court that the Isuzu Cargo Truck was now parked at the I. she learned that Optimum had transferred to a new location but her still unrepaired truck was found in Valenzuela City. she discovered that Optimum had already vacated its shop in Del Monte and that her truck was nowhere to be found. it denied guaranteeing that the repair work would be completed within 30 days from 15 January 1994. in the alternative. This prompted respondent to file the instant complaint with the trial court on 5 October 1994. front side glass.200. Quezon City.370. it was forced to vacate its repair shop and to transfer all its equipment. it asked for the payment of P79. namely: Maximo Merigildo of the RTC. by virtue of Article 1731 of the Civil Code.00 as attorney’s fees.00 with legal interest from the date (October 5. to the IIC Compound in Sitio Malinis. about eight (8) feet in height. He observed that the three (3) tires were not installed and there were no left side mirror and door.I.33 whereas respondent moved for reconsideration on the ground that the trial court failed to award actual damages and that Oriental Assurance Corporation. a security guard assigned to Optimum.00 plus legal interest from the time of the commencement of the action until fully satisfied.13 On several occasions. WHEREFORE. Respondent verbally contracted with Peña for the repair of the damaged portions of the truck.00) is awarded.

The Court of Appeals adhered to the trial court’s findings that the repairs on the truck had not been completed and that Optimum is liable for damages.1awphilHowever. whether there would be the return of such truck OR there would be mere reimbursement of its value pegged at Six Hundred Thousand Pesos (P600.145. ARTICLE 1731. with the same amount being the basis of the computation of legal interest. the right to retain the truck in accordance with Article 1731 did not arise. negligence or delay and those who in any manner contravene the tenor thereof are liable for damages. it prays for the In this case. The award of moral damages is deleted. The value of the truck should be based on the fair market value that the property would command at the time it was entrusted to Optimum. even if We admit appellant Optimum’s defense that the repair was delayed by the late delivery on May 7. Necessarily then. appellant Optimum was already liable to appellee/appellant Tan for damages from the time the latter demanded delivery of the cargo truck and the latter could not as yet deliver the same despite the lapse of the agreed period. In refusing to abide by the appellate court’s ruling.38 Optimum’s invocation of the mechanic’s lien is apparently based on the repairs it executed on the truck. These witnesses categorically declared in favor of appellee/appellant Tan that the cargo truck was not yet repaired as of April 25.000. Hence.43 the Court had the occasion to rule that a person who has made repairs upon an automobile at the request of the owner is entitled to retain it until he has been paid the price of the work executed. it has the right under Article 1731 of the Civil Code40 to enforce the mechanic’s lien. 44 As a result of the failure to accomplish the repairs on the truck. would change the outcome of the case. Respondent counters that Optimum cannot avail of the mechanic’s lien because it was found by the lower courts that the repairs on the truck had not been accomplished. Instead. respondent reiterated that her claim for compensatory damages is supported by statement of accounts showing the earnings of the truck before it was brought to Optimum for repair. For her part. however.00 with interest. i. SO ORDERED. Such recoverable value is fair and reasonable considering that the value of a motor vehicle depreciates. the contractor "creates" his or her own lien by performing the work or furnishing the materials. Rather.000. She likewise expressed disinterest in the return of the truck as it was no longer in good condition. the fact remains that even after the said delivery on May 7. as well as for the award of temperate damages in the sum of P30. she sought merely the reimbursement of its value at P600. in giving credence to the claim of appellee/appellant Tan that the repair of the cargo truck was not in accordance with her agreement with appellant Optimum. plus the legal interest of six percent (6%) thereof from the filing of the complaint for recovery. Optimum is obliged to take care of the truck with the proper diligence of a good father to a family while the same is in its possession. 1994 and May 14. the lower courts had already come up with a categorical finding based on testimonies of independent witnesses that the repairs had not been accomplished in accordance with the agreement of the parties. However. Mendoza. if considered. Optimum’s continuous possession or detention of the truck turned to be that of a deforciant and so respondent has every right to recover possession of it. It likewise ordered the return of the truck to respondent. respectively. for basic is the tenet that the trial court's findings of facts as affirmed by the Court of Appeals are binding on this Court. being neutral parties. 42 In Bachrach Motor Co.00). it can be readily inferred that the truck has become wholly useless. Hence. found the testimonies of a court personnel and a process server to be deserving of full faith and credit. v. 45 Both parties moved for reconsideration. The appellate court however made the following clarifications: Nonetheless. no such repair was yet done. Optimum is bound to pay the value of the truck.000. its liability accrues by virtue of Article 1170 of the Civil Code that states: Those who in the performance of their obligation are guilty of fraud.00).00 in exchange for the return of the subject truck.39 The mechanic’s lien is akin to a contractor’s or warehouseman’s lien in that by way of pledge.47 Unfazed by the unfavorable judgment. The trial court rightly concluded that appellant Optimum was already remiss in the performance of its part of the contract for repair from the time of such demand. 1994 of the quarter glass panel and the rubber strips. Optimum now comes to this Court via a petition for review. It maintains that the lien applies and can be availed of whether or not the repair work was completely executed. Since restitution is no longer feasible. and payment of the cost of repairs amounting to P69.. misconstrued or misinterpreted facts and circumstances of substance which. Both motions were denied in a Resolution dated 17 October 2005. this Court wishes to clarify that the order for the return of the cargo truck must be qualified by the phrase "if feasible" AND that the payment of legal interest applies in both circumstances. respondent did not appeal the appellate court’s denial of compensatory damages. 1994. The creation of a mechanic's lien does not depend upon the owner's nonpayment. .3. Thus.46 Records show that the subject truck had already deteriorated while in the possession of Optimum. It noted: The concept of a mechanic’s lien is articulated in Article 1731 of the Civil Code. 1994. unless the lower courts overlooked. He who has executed work upon a movable has a right to retain it by way of pledge until he is paid. Optimum reiterates its claim for mechanic’s lien to justify its retention of the truck. appellant Optimum may be compelled to deliver the cargo truck to appellee/appellant Tan despite that the agreed repair was not totally made or to reimburse the value thereof in the claimed amount of Six Hundred Thousand Pesos (P600.e. We have to sustain these factual findings. Accordingly. It advances the view that by virtue of the repairs it has actually performed on respondent’s truck. The trial court found the defense of late delivery to be even toppled by a rebuttal witness for appellee/appellant Tan who testified that the said glass need not even be repaired or that it was not necessary for the complete repair of the cargo truck since they were not damaged at the time he had inspected the cargo truck prior to its delivery for repair to appellant Optimum.000. From another perspective. Thus.41 4. the right of retention is conditioned upon the execution of work upon the movable. which provides: The trial court. Twenty percent (20%) of the total award is hereby given to appellee/appellant Tan for both attorney’s fees and litigation expenses. Taking into consideration the last known condition of the truck in tandem with the fact that the court proceedings have spanned almost a decade. This value may be recovered without prejudice to such other damages a claimant is entitled to under applicable laws. the repairman has the right to retain possession of the movable until he is paid.00 and attorney’s fees.37 Respondent prevails. the issue has obtained finality and this Court need not pass upon the same.

WHEREFORE. Under Article 2224 of the Civil Code. from the nature of the case. temperate damages have been properly imposed by the appellate court. SO ORDERED.Nevertheless. The Decision of the Court of Appeals dated 28 June 2005 is AFFIRMED. the petition is DENIED. temperate damages may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot. be proved with certainty. .

As a result. No. the amount of P40. Simke.55 as full reimbursement of his actual medical and hospital expenses. he and his group proceeded to the viewing deck or terrace of the airport. private respondent slipped over an elevation about four (4) inches high at the far end of the terrace. The Court of Appeals gravely erred in not holding that the present the CAA is really a suit against the Republic of the Philippines which cannot be sued without its consent. the CAA was sued only in a substituted capacity. manage. there is no specific provision in Republic Act No. the cause of action is based on a quasidelict. Teodoro. Such arguments are untenable. Sr. in the Teodoro case. 93-94 1. 94-97].Private respondent then filed an action for damages based on quasi-delict with the Court of First Instance of Rizal. Ramos v. Guytingco. The Solicitor General for petitioner. and that the inference that the hump or elevation the surface of the floor area of the terrace of the fold) MIA building is dangerous just because said respondent tripped over it is manifestly mistaken — circumstances that justify a review by this Honorable Court of the said finding of fact of respondent appellate court (Garcia v. then filled with other people.000. the cause of action was contractual in nature while here. 1. Petitioner now comes before this Court raising the following assignment of errors: Ledesma. p. COURT OF APPEALS and ERNEST E. 203 (1952)]. The next day. moral and exemplary damages. The latter affirmed the trial court's decision.000. judgment is hereby rendered ordering defendant to pay plaintiff the amount of P15. 24]. [Rollo.) Assailed in this petition for review on certiorari is the decision of the Court of Appeals affirming the trial court decision which reads as follows: WHEREFORE. Veleasco & Associates for respondent Ernest E. SIMKE. J. While walking on the terrace. First. the further amount of P20. . This Court has already held otherwise in the case of National Airports Corporation v. the Teodoro case.R. L-51806 November 8. private respondent with several other persons went to the Manila International Airport to meet his future son-in-law. Invoking the rule that the State cannot be sued without its consent. CIVIL AERONAUTICS ADMINISTRATION.00 as attorney's fees and the costs [Rollo. 33 SCRA 622. Judgment was rendered in private respondent's favor prompting petitioner to appeal to the Court of Appeals. private respondent was operated on for about three hours. 776. in the Teodoro case. the amount of P30. which would justify the conclusion that petitioner was organized for business and not for governmental purposes.00 as consequential damages. pp. [91 Phil. Petitioner contends that the said ruling does not apply in this case because: First. In order to get a better view of the incoming passengers. 1968. 32 (24). consequential. control.200. December 14. far from stressing the point that the CAA was only substituted for the National Airports Corporation.. p. 776]. with interest at the legal rate from the commencement of the suit. The Court of Appeals gravely erred in ordering petitioner to pay actual.00 as exemplary damages. 3. Court of Appeals. the amount of P20. CA. 1988 Said claim for damages included. 63 SCRA 331. The facts of the case are as follows: I Private respondent is a naturalized Filipino citizen and at the time of the incident was the Honorary Consul Geileral of Israel in the Philippines. aside from the medical and hospital bills.A.000. in fact treated the CAA as the real party in interest when it stated that: . In the afternoon of December 13. maintain and develop the Manila International Airport . vs.00 as moral damages. G. consequential damages for the expenses of two lawyers who had to go abroad in private respondent's stead to finalize certain business transactions and for the publication of notices announcing the postponement of private respondent's daughter's wedding which had to be cancelled because of his accident [Record on Appeal. pp. 5]. it cannot be made a party-defendant in this case. 1968. which was not given in this case. respondents. petitioner.589. Petitioner then filed with the same court a Motion for.: 2. Reconsideration but this was denied. Branch VII against petitioner Civil Aeronautics Administration or CAA as the entity empowered "to administer. The Court of Appeals gravely erred in finding that the injuries of respondent Ernest E. the law governing the CAA. CORTES.. operate." [Sec. the National Airports Corporation being the original party. Second. R. Simke were due to petitioner's negligence — although there was no substantial evidence to support such finding. as well as attorney's fees to respondent Simke — although there was no substantial and competent proof to support said awards I Rollo. private respondent fell on his back and broke his thigh bone. petitioner contends that being an agency of the government. Third.

whether corporate or non-corporate. like the National Airports Corporation. To all legal intents and practical purposes. it can be seen that the CAA is tasked with private or non-governmental functions which operate to remove it from the purview of the rule on State immunity from suit.<äre||anº•1àw> Said Act provides: Sec. improve. more than the construction of public roads. oil and lubricants. Immunity functions suits is determined by the character of the objects for which the entity was organized. v.] xxx xxx xxx True. No. August 7. Emphasis supplied. December 19. For the correct rule as set forth in the Tedoro case states: Third. may. which led the Court to consider the CAA in the category of a private entity were retained substantially in Republic Act 776. Order 365. Sec. There can be no negligence on its part. 313) [National Airport Corporation v. Philippine National Railways [G. particularly Secs. maintain and develop the Manila International Airport and all government-owned aerodromes except those controlled or operated by the Armed Forces of the Philippines including such powers and duties as: (a) to plan. xxx xxx xxx From the foregoing. The better practice there should have been to make the Civil Aeronautics Administration the third party defendant instead of the National Airports Corporation. tools. 208.] (25) To determine. but to engage in matters partaking more of the nature of ordinary business rather than functions of a governmental or political character. the following powers and duties: xxx xxx xxx This doctrine has been reaffirmed in the recent case of Malong v. 32 (24) and (25). p.. other royalties. parking space fees. supra. 1 1 0 SCRA 4561 finds relevance and applicability to the present case. this Court's pronouncement that where such power to sue and be sued has been granted without any qualification. the power to sue and be sued. not to maintain a necessary function of government. (59 C. 1952. II Petitioner tries to escape liability on the ground that there was no basis for a finding of negligence. fees or rentals for the use of any of the property under its management and control.R. . fix.J. and various suits against certain corporations created by the state for public purposes. Teodoro. impose. firm. royalties on sales or deliveries. or public or private corporation or entity. collect and receive landing fees. even if revenues be not its prime objective but rather the promotion of travel and the convenience of the travelling public. 55273-83.. The Court in the Teodoro case ruled that Sections 3 and 4 of Executive Order 365 confer upon the CAA. direct or indirect.. It is engaged in an enterprise which. 1985. The rule is thus stated in Corpus Juris: xxx xxx xxx The Civil Aeronautics Administration comes under the category of a private entity. 32. accessories and supplies.. where it was held that the Philippine National Railways. Court of First Instance of Bulacan. the Teodoro case did not make any qualification or limitation as to whether or not the CAA's power to sue and be sued applies only to contractual obligations. v. [National Airports Corp. equip. 206-207. but to run what is essentially a business. p. the state divests itself so far of its sovereign character.1981.R. xxx xxx xxx Not all government entities. subsequently enacted on June 20. 207. pp. 3 and 4 of Exec. Powers and Duties of the Administrator. Republic Act No. far from being the exclusive prerogative of state. as the CAA was created to undertake the management of airport operations which primarily involve proprietary functions. make and execute contracts of any kind with any person.] Suits against State agencies with relation to matters in which they have assumed to act in private or non-governmental capacity.xxx xxx xxx (24) To administer. xxx xxx xxx Second. G. be undertaken by private concerns. it being engaged in functions pertaining to a private entity. because the elevation in question "had a legitimate purpose for being on the terrace . although the state may own stock or property of such a corporation for by engaging in business operations through a corporation. it cannot avail of the immunity from suit accorded to government agencies performing strictly governmental functions. manage. the Administrator shall have among others. control. albeit only by implication. 776 (Civil Aeronautics Act of the Philippines). the law prevailing in 1952 when the Teodoro case was promulgated was Exec. supra. acting by the law of its creation upon its own rights and in its own name. expand. L-49930. . [National Airports Corp.. and by implication consents to suits against the corporation. although owned and operated by the government. Accordingly. design. (b) to enter into. operate. . The latter is true. without any qualification. Order 365 (Reorganizing the Civil Aeronautics Administration and Abolishing the National Airports Corporation). are not regarded as suits against the state. Nos. Subject to the general — control and supervision of the Department Head. repair or alter aerodromes or such structures. are immune from suits. the National Airports Corporation is dead and the Civil Aeronautics Administration is its heir or legal representative. construct. supra. spare parts. Order 365. did not alter the character of the CAA's objectives under Exec. was not immune from suit as it does not exercise sovereign but purely proprietary and business functions. Although not a body corporate it was created. it has already been settled in the Teodoro case that the CAA as an agency is not immune from suit. to any aircraft for its use of aviation gasoline. Teodoro. improvement or air navigation facilities. Teodoro. it can include a claim based on tort or quasi-delict [Rayo v. The pertinent provisions cited in the Teodoro case. it alleged. Accordingly. 138 SCRA 631.

pot holes cause by missing tiles remained unrepaired and unattented. the CAA cannot disclaim its liability for the negligent construction of the elevation since under Republic Act No. typical of many government buildings and offices. the CAA is duty-bound to exercise due diligence in overseeing the construction and maintenance of the viewing deck or terrace of the airport. was made precisely in accordance with the plans and specifications of the building for proper drainage of the open terrace [See Record on Appeal. 809 (1918): xxx xxx xxx This Court during its ocular inspection also observed the dangerous and defective condition of the open terrace which has remained unrepaired through the years. Even if the private respondent had been looking where he was going. unmeritorious. Contributory negligence under Article 2179 of the Civil Code contemplates a negligent act or omission on the part of the plaintiff. 35. pp. This Court also observed the other hazard. 13 and 57. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet paterfamilias of the Roman law. foresee harm as a result of the course actually pursued' If so. the trial court conducted an ocular inspection of the premises. U. The several elevations shown in the exhibits presented were verified by this Court during the ocular inspection it undertook. thus reducing the damages that plaintiff may recover. To determine whether or not the construction of the elevation was done in a negligent manner. B) as one passes the entrance door leading to the terrace [Record on Appeal.] The Court of Appeals further noted that: The inclination itself is an architectural anomaly for as stated by the said witness. 37 Phil. for pedestrian purposes. Smith. 391. is always necessary before negligence can be held to exist. It was there for no other purpose but to drain water on the floor area of the terrace" [Rollo.) [rollo. pp. contributed to his own damage. p. the edge of the elevated pavement slanted outward as one walks to one interior of the terrace. Emphasis supplied. Emphasis supplied. guilty of contributory negligence. shows a section of the floorings oil which plaintiff had tripped. Id. supra.] These factual findings are binding and conclusive upon this Court. a sketch. Obviously.S. Reasonable foresight of harm. The question as to what would constitute the conduct of a prudent man in a given situation must of course be always determined in the light of human experience and in view of the facts involved in the particular case. the obligation of the CAA in maintaining the viewing deck. repairing or altering aerodromes or such structures. Rollo. in the case under consideration. considering the attendant factual circumstances. could not have reasonably foreseen the harm that would befall him. and the proximate cause of plaintiffs injury. it is a step then it will not serve its purpose. Hence.. Exhibit O.. expanding." Here. plaintiff had stepped on the inclination because had his foot landed on the lower pavement he would not have lost his balance.. the step in question could not easily be noticed because of its construction. 776. It must be borne in mind that pursuant to Article 1173 of the Civil Code. who was the plaintiff in the case before the lower court. it is neither a ramp because a ramp is an inclined surface in such a way that it will prevent people or pedestrians from sliding. As these people come to the viewing deck to watch the planes and passengers. Abstract speculations cannot be here of much value but this much can be profitably said: Reasonable men-overn their conduct by the circumstances which are before them or known to them. Could a prudent man. 776]. p.. considering the following test formulated in the early case of Picart v. p. which although not the proximate cause of his injury. Aside from the litter allowed to accumulate in the terrace. 29. A) where plaintiff slipped. followed by the ignoring of the suggestion born of this prevision. the proximate cause of the plaintiffs own injury being the defendant's lack of due care. improvements or air navigation facilities [Section 32. one being elevated by four and one-fourth inches than the other. equipping. its failure to have it repaired or altered in order to eliminate the existing hazard constitutes such negligence as to warrant a finding of liability based on quasi-delict upon CAA. then he is guilty of negligence. R. and are not supposed to be omniscient of the future.. 56 and 59. unlike a step commonly seen around. A or 6-A where plaintiff slipped to be a step. The Court finds the contention that private respondent was. at the very least. The existence of the negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless. The test by which to determine the existence of negligence in a particular case may be stated as follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent man would have used in the same situation? If not.. Smith. a facility open to the public. 813. no contributory negligence can be imputed to the private respondent. Hence they can be expected to take care only when there is something before them to suggest or warn of danger. They are not.and was never intended to trip down people and injure them. it was the duty of the actor to take precautions to guard against that harm. their tendency would be to look to where the planes and the incoming passengers are and not to look down on the floor or pavement of the viewing deck. The CAA should have thus made sure that no dangerous obstructions or elevations exist on the floor of the deck to prevent any undue harm to the public. This sketch reveals two pavements adjoining each other. improving. constructing. and as shown by the photograph Exhibit A. is obliged to pay for the damage done. [Picart v.. 99]. As the CAA knew of the existence of the dangerous elevation which it claims though. it was charged with the duty of planning.. In the discharge of this obligation. requires that CAA insure the safety of the viewers using it. The length of the inclination between the edges of the two pavements is three inches. The legal foundation of CAA's liability for quasi-delict can be found in Article 2176 of the Civil Code which provides that "(w)hoever by act or omission causes damage to another. designing.. of the time and of the place.] The private respondent. blameworthy. P.. The same sketch shows that both pavements including the inclined portion are tiled in red cement. "(t)he fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the person. the slanting or sliding step (Exh. It has observed the lack of maintenance and upkeep of the MIA terrace. supra. there being fault or negligence. But if. In the instant case. p. From the architectural standpoint the higher. the lines of the tilings . This Court after its ocular inspection found the elevation shown in Exhs. pavement is a step. a dangerous sliding step. Among these elevations is the one (Exh. However. (tsn. xxx xxx xxx . or negligent in the man of ordinary intelligence and prudence and determines liability by that.A. As the trial court found: In connection with the incident testified to.

by way of example or correction for the public good. With respect to the P30. the Civil Code explicitly. Court of First Instance. Rollo. conclusive before this Court [Sese v. Such compensation is referred to as actual on compensatory damages [New Civil Code]. who are charged an admission fee. which caused the death of several residents of the area and the destruction of properties. . as a deterrent and by way of example or correction for the public good. Record oil Appeal. 51172-R is AFFIRMED.R. 108 SCRA 4161 which.00 by the trial court as exemplary damages appropriately underscores the point that as an entity changed with providing service to the public. SO ORDERED.000. pp. WHEREFORE. Gross negligence which. precipitate and simultaneous opening of the Angat Dam. p. the liabilities of the CAA have now been transferred to the MIAA. moral or exemplary. the law mandates that the same be proven. "H" which was his bill for professional services [Rollo.000. No. pp. Except as provided by law or by stipulation. With respect to actual or compensatory damages. At any rate. Inc. 2199. whether actual. the Petition for review on certiorari is DENIED and the decision of the Court of Appeals in CA-G. in addition to the moral.at any rate. Nos.152 SCRA 585]. like all other entities serving the public. 2208 (1) of the Civil Code. 1981.55 representing medical and hospitalization bills. 56 Phil. This Court finds the same to have been duly proven through the testimony of Dr. 66186. the physician who attended to private respondent (Rollo. 57]. v. the MIAA has assumed all the debts. 778 as amended by executive Orders Nos. However. which. p. G. and. under Art. With respect to the award of exemplary damages. 1987. supra. entitled to expect a facility that is properly and safely maintained — justifies the award of exemplary damages against the CAA. as in this case. includes liability on a claim for quasi-dilict. 23. p. the award of attorney's fees is also upheld considering that under Art.589. as had been held time and again. the Court has the discretion to grant the same when it is just and equitable. finding no reversible error. petitioner appeals to this Court the award of damages to private respondent.00 awarded as moral damages. has the obligation to provide the public with reasonably safe service.00 alleged to have been spent for other expenses such as the transportation of the two lawyers who had to represent private respondent abroad and the publication of the postponement notices of the wedding.R. Private respondent had adequately shown the existence of such losses and the amount thereof in the testimonies before the trial court [CA decision. 2208 (11).200. liquidated or compensatory Art. the findings of the Court of Appeals with respect to this are findings of facts [One Heart Sporting Club. 25] and are. 2. one are entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. the liability of the National Power Corporation to answer for damages resulting from its act of sudden. The liability of CAA to answer for damages. therefore. The award of P40. 81. the same may be awarded whenever exemplary damages are awarded. 542 (1932)] can be attributed to the CAA for its failure to remedy the dangerous condition of the questioned elevation or to even post a warning sign directing the attention of the viewers to the change in the elevation of the floorings notwithstanding its knowledge of the hazard posed by such elevation [Rollo. There was no warning sign to direct one's attention to the change in the elevation of the floorings. 909 (1983) and 298 (1987) and under Section 24 of the said Exec. 2829. 2231. Compania General de Tabacos. are. In quasi-delicts. 2217 and 2219 (2). states: Art. Finally. 31]. No. Private respondent claims P15. the CAA. 28-29. 6639] pursuant to Executive Order No. was upheld since the o. the Court holds that the same had also been duly proven. In the aforestated case. is equivalent to the term "notorious negligence" and consists in the failure to exercise even slight care [Caunan v. The wanton disregard by the CAA of the safety of the people using the viewing deck. [Rollo. 26) and who Identified Exh. 903 (1983). 5379053972. Exemplary or corrective damages.] III Finally. Intermediate Appellate Court. cannot be seriously doubted in view of one conferment of the power to sue and be sued upon it.are continuous. liabilities and obligations of the now defunct Civil Aeronautics Administration (CAA). Ambrosio Tangco. as held in the case of Rayo v. p. It would therefore be difficult for a pedestrian to see the inclination especially where there are plenty of persons in the terrace as was the situation when plaintiff fell down. Order 778. Oct.R. according to the Court. New Civil Code]. including the petitioner who paid the entrance fees to get inside the vantage place [CA decision. Court of Appeals. July 31. G. p. are imposed. the Court holds private respondent entitled thereto because of the physical suffering and physical injuries caused by the negligence of the CAA [Arts.rant of the power to sue and be sued upon it necessarily implies that it can be held answerable for its tortious acts or any wrongful act for that matter. Art. since the Manila International Airport Authority (MIAA) has taken over the management and operations of the Manila International Airport [renamed Ninoy Aquino International Airport under Republic Act No. as a general rule. p. 2229. Concerning the P20. exemplary damages may be granted if the defendant acted with gross negligence.