TRADERS ROYAL BANK, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, HON. BALTAZAR M. DIZON, Presiding Judge, Regional

On March 30,1982, the Philippine Blooming Mills, Inc. (PBM) and Alfredo Ching jointly submitted to the
Securities and Exchange Commission a petition for suspension of payments (SEC No. 2250) where Alfredo
Ching was joined as co-petitioner because under the law, he was allegedly entitled, as surety, to avail of the
defenses of PBM and he was expected to raise most of the stockholders' equity of Pl00 million being required
under the plan for the rehabilitation of PBM. Traders Royal Bank was included among PBM's creditors named in
Schedule A accompanying PBM's petition for suspension of payments.

On May 13, 1983, the petitioner bank filed Civil Case No. 1028-P in the Regional Trial Court, Branch CXIII in
Pasay City, against PBM and Alfredo Ching, to collect P22,227,794.05 exclusive of interests, penalties and
other bank charges representing PBM's outstanding obligation to the bank. Alfredo Ching, a stockholder of
PBM, was impleaded as co-defendant for having signed as a surety for PBM's obligations to the extent of ten
million pesos (Pl0,000,000) under a Deed of Suretyship dated July 21, 1977.

In its en banc decision in SEC-EB No. 018 (Chung Ka Bio, et al. vs. Hon. Antonio R. Manabat, et al.), the SEC
declared that it had assumed jurisdiction over petitioner Alfredo Ching pursuant to Section 6, Rule 3 of the new
Rules of Procedure of the SEC providing that "parties in interest without whom no final determination can be
had of an action shall be joined either as complainant, petitioner or respondent" to prevent multiplicity of suits.

On July 9, 1982, the SEC issued an Order placing PBM's business, including its assets and liabilities, under
rehabilitation receivership, and ordered that "all actions for claims listed in Schedule A of the petition pending
before any court or tribunal are hereby suspended in whatever stage the same may be, until further orders
from the Commission" (p. 22, Rollo). As directed by the SEC, said order was published once a week for three
consecutive weeks in the Bulletin Today, Philippine Daily Express and Times Journal at the expense of PBM and
Alfredo Ching.

PBM and Ching jointly filed a motion to dismiss Civil Case No. 1028-P in the RTC, Pasay City, invoking the
pendency in the SEC of PBM's application for suspension of payments (which Ching co-signed) and over which
the SEC had already assumed jurisdiction.
Before the motion to dismiss could be resolved, the court dropped PBM from the complaint, on motion of the
plaintiff bank, for the reason that the SEC had already placed PBM under rehabilitation receivership.

On August 15, 1983, the trial court denied Ching's motion to dismiss the complaint against himself. The court
pointed out that "P.D. 1758 is only concerned with the activities of corporations, partnerships and associations.
Never was it intended to regulate and/or control activities of individuals" (p.11, Rollo). Ching's motion for
reconsideration of that order was denied on May 24,1984. Respondent Judge argued that under P ' D. 902-A, as
amended, the SEC may not validly acquire jurisdiction over an individual, like Ching.

Ching filed a petition for certiorari and prohibition in the Court of Appeals (CA-G.R. SP No. 03593) to annul the
orders of respondent Judge and to prohibit him from further proceeding in the civil case.
ISSUE: whether the court a quo could acquire jurisdiction over Ching in his personal and individual capacity as
a surety of PBM in the collection suit filed by the bank, despite the fact that PBM's obligation to the bank had
been placed under receivership by the SEC.

RULING: The petition for review is meritorious.

Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC could not assume
jurisdiction over his person and properties. The Securities and Exchange Commission was empowered, as
rehabilitation receiver, to take custody and control of the assets and properties of PBM only, for the SEC has
jurisdiction over corporations only not over private individuals, except stockholders in an intra-corporate
dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal party in SEC Case No. 2250, Ching's
properties were not included in the rehabilitation receivership that the SEC constituted to take custody of
PBM's assets. Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for
PBM. An anomalous situation would arise if individual sureties for debtor corporations may escape liability by
simply co- filing with the corporation a petition for suspension of payments in the SEC whose jurisdiction is
limited only to corporations and their corporate assets.

The term "parties-in-interest" in Section 6, Rule 3 of the SEC's New Rules of Procedure contemplates only
private individuals sued or suing as stockholders, directors, or officers of a corporation.

1
Ching can be sued separately to enforce his liability as surety for PBM, as expressly provided by Article 1216 of
the New Civil Code:

ART. 1216. The creditor may proceed against any of the solidary debtors or all of them simultaneously. The
demand made against one of them shall not be an obstacle to those which may subsequently be directed
against the others, as long as the debt has not been fully collected.

It is elementary that a corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one's property the property also of
the corporation, for they are separate entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482).

Ching's act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest in the SEC jurisdiction over
his person or property, for jurisdiction does not depend on the consent or acts of the parties but upon express
provision of law (Tolentino vs. Social Security System, 138 SCRA 428; Lee vs. Municipal Trial Court of Legaspi
City, Br. I, 145 SCRA 408).

WHEREFORE, the petition for review is granted. The decision of the Court of Appeals in CA-G.R. SP No. 03593 is
set aside. Respondent Judge of the Regional Trial Court in Pasay City is ordered to reinstate Civil Case No.
1028-P and to proceed therein against the private respondent Alfredo Ching. Costs against the private
respondent.
SO ORDERED.

COMMERCIAL CREDIT CORPORATION CAGAYAN DE ORO, petitioner,

vs.
THE COURT OF APPEALS and THE CAGAYAN DE ORO COLISEUM, INC., respondents.

Sometime in 1978 private respondent Cagayan De Oro Coliseum, Inc. executed a promissory note in the
amount of P329,852.54 in favor of petitioner Commercial Credit Corporation of Cagayan de Oro, payable in 36
monthly installments. The note is secured by a real estate mortgage duly executed by private respondent in
favor of petitioner. As said respondent defaulted in the payment of the monthly installments due, petitioner
proceeded with the extrajudicial foreclosure of the real estate mortgage in September, 1979.

Five minority stockholders of private respondent then instituted Special Civil Action No. 68111 in the then
Court of First Instance (CFI) of Misamis Oriental questioning the power of the private respondent to execute the
real estate mortgage without the consent of its stockholders. In due course a compromise agreement was
entered into by the parties on the basis of which a compromise judgment was rendered by the trial court on
March 11, 1980.

However as private respondent failed to comply with the terms of the judgment for failure to pay several
installments in the amount of P70,152.65 which matured on July 13, 1982, petitioner filed an ex-parte motion
for the issuance of a writ of execution on March 4, 1983. The Court granted the said motion in an order dated
March 10, 1983. A notice of auction sale was issued on March 11, 1983. Private respondent filed a motion for
reconsideration of said order alleging that it had paid its obligation. The execution of the writ was suspended
pending consideration of said motion. An opposition thereto was filed by petitioner to which a reply was filed
by the private respondent and, in turn, the comment of the petitioner was also submitted. On November 26,
1986, the trial court denied said motion for reconsideration and, accordingly, a writ of execution was issued on
December 4, 1986. The Deputy Provincial Sheriff set the auction sale for January 23, 1987. However, said
auction sale did not take place as scheduled due to some internal problems in the office of sheriff.

Private respondent then filed a special civil action in the Court of Appeals to annul said compromise-judgment,
alleging that the trial court acted in serious violation of law and/or in grave abuse of discretion. In due course,
a decision was rendered by said appellate court on February 13, 1987, the dispositive part of which reads as
follows:

WHEREFORE, the present petition is DENIED due course and is hereby DISMISSED. Effective
March 16, 1983, the overdue and unpaid installments shall earn one half per cent (1/2%) per
month penalty charge until fully paid, plus two per cent (2%) of the outstanding balance as
additional attorney's fees. (Page 33, Rollo)

MR denied.

2
On the other hand, private respondent also filed a motion for reconsideration and comment on the petitioner's
motion for reconsideration. On May 19, 1987, respondent Court issued a resolution, the dispositive part of
which reads as follows:

Acting on the said first part of the petitioner's motion for reconsideration as well as the private
respondent's comment thereon, the aforestated grounds for said motion having been already
taken up by this Court in reaching the said February 13, 1987 decision, and finding no reason
to disturb the same, the said motion as to its said first part, is DENIED for lack of merit.

As to the said second part of petitioner's motion for reconsideration, for clarity, the dispositive portion of the
February 13, 1987 decision is re-worded to read as follows:

WHEREFORE, the present petition is GRANTED in the sense that effective March 16, 1983, the
overdue and unpaid installments shall earn one half per cent (1/2%) per month penalty charge
until fully paid, plus two per cent (2%) of the outstanding balance as additional attorney's fees.

And in view of such disposition.

1) THE JUDGMENT DATED MARCH 11, 1980 AND THE ORDER DATED NOVEMBER 26, 1986 OF
RESPONDENT DENT COURT ARE HEREBY DECLARED MODIFIED CONFORMABLY WITH THE
FEBRUARY 13, 1987 DECISION OF THIS COURT; and

2) THE WRIT OF EXECUTION ISSUED BY RESPONDENT DENT CLERK OF COURT, AND THE
SHERIFF'S NOTICE OF SALE, THE PUBLIC AUCTION SALE AND THE CERTIFICATE OF SALE ARE
DECLARED NULL AND VOID IN SO FAR AS THEY ARE NOT IN ACCORDANCE WITH AND IN
EXCESS OF THE NOW MODIFIED JUDGMENT AND MODIFIED ORDER OF THE RESPONDENT
COURT DATED MARCH 11, 1980 AND NOVEMBER 26, 1986, RESPECTIVELY

ISSUES:

a) THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION

AMOUNTING TO LACK OR IN EXCESS OF JURISDICTION WHEN IT MODIFIED THE TRIAL COURT'S
COMPROMISE JUDGMENT AFTER IT DENIED DUE COURSE AND DISMISSED THE PETITION FOR
ANNULMENT OF RESPONDENT COLISEUM.

b) THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR IN

APPLYING ARTICLE 1229 OF THE CIVIL CODE IN THE CASE AT BAR.

c) THE HONORABLE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT
MODIFIED THE EFFECT'S OF THE 3% PENALTY INTEREST AND ATTORNEY'S FEES, AFTER IT
UPHELD THE LEGALITY OF THE COMPROMISE JUDGMENT OF THE TRIAL COURT." (Page 14,
Rollo)

Ruling: The petition is impressed with merit.

It is axiomatic that a compromise judgment is final and immediately executory. Once a judgment becomes final
and executory, the prevailing party can have it executed as a matter of right and the execution becomes a
ministerial duty on the part of the court . 2 A judicial compromise has the force and effect of res judicata. 3

Such a final and executory judgment cannot be modified or amended. If an amendment is to be made, it may
consist only of supplying an omission, striking out a superfluity or interpreting an ambiguous phrase therein in
relation to the body of the decision which gives it life . 4 A compromise judgment should not be disturbed
except for vices in consent or forgery. 5

In the present case, the compromise agreement was voluntarily entered into by the parties assisted by their
respective counsel and was duly approved by the trial court. Indeed, it was confirmed by the respondent
appellate court to be lawful. There was, therefore, no cogent basis for the respondent appellate court to modify
said compromise agreement by reducing the penalty and attorney's fees provided for therein.

3
In spite of the protestation of private respondent that the penalty and interests provided in the compromise
agreement was violative of the Usury Law, the respondent appellate court, applying the provisions of Central
Bank Circular No. 721, found no violation thereof as in fact the imposition of the penalty is sanctioned by
Article 1226 of the Civil Code. The respondent court cited the De Venecia vs. Del Rosario 6 where this Court
held that in the absence of a stipulation to the contrary, recovery of both the penalty and the interest until full
payment of the debt is allowed under existing laws.

The modification of said compromise judgment by the respondent appellate court is predicated on the
provision of Article 1229 of the Civil Code which provides as follows:

ART. 1229. The Judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.

The foregoing provision of the law applies only to obligations or contract, subject of a litigation, the condition
being that the same has been partly or irregularly complied with by the debtor. The provision also applies even
if there has been no performance, as long as the penalty is iniquituous or unconscionable. It cannot apply to a
final and executory judgment.

When the parties entered into the said compromise agreement and submitted the same for the approval of the
trial court, its terms and conditions must be the primordial consideration why the parties voluntarily entered
into the same. The trial court approved it because it is lawful, and is not against public policy or morals. Even
the respondent Court of Appeals upheld the validity of the said compromise agreement. Hence, the respondent
court has no authority to reduce the penalty and attorney's fees therein stipulated which is the law between
the parties and is res judicata.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals dated February 13,
1987 and its resolutions dated March 23, 1987 and May 19, 1987 are hereby SET ASIDE and another judgment
is hereby rendered affirming in toto the compromise judgment of the trial court dated March 11, 1980, with
costs against private respondent. This decision is immediately executory.

SO ORDERED.

ASIATRUST DEVELOPMENT BANK, Petitioner,

vs.
CONCEPTS TRADING CORPORATION, Respondent.

FACTS: In March 1996, respondent Concepts Trading Corporation obtained from petitioner Asiatrust
Development Corporation a credit accommodation in the amount of P2,000,000 covered by a loan
agreement3 and secured by real and chattel mortgages.4 The amount was drawn from an Industrial Guarantee
Loan Fund (IGLF) account opened by the petitioner in favor of the respondent. On March 4, 1986, the
respondent executed Promissory Note (PN) No. 3574 5 in favor of the petitioner. Under the promissory note, the
principal amount of P2,000,000 would be charged an interest of 23% per annum, inclusive of 1% service fee.
Attached to and made part of the promissory note was the schedule of amortization agreed upon by the
parties.6 As set forth in the schedule, the payment of the loan was to be amortized quarterly over a period of
ten years with a two-year grace period on the principal payment. The first payment fell due on May 15, 1986
and the subsequent installments were to be paid every three months thereafter.

In the event that the respondent defaulted in the payment of any installment or interest thereof, paragraph 4
of the promissory note provided that:

... the entire amount outstanding under this Note shall immediately, without need for any notice,
demand, presentment, protest, or of any other act or deed, the right to all of which is hereby
waived by the undersigned: (i) become due, payable and defaulted; (ii) be subject to a penalty
equivalent to thirty-six percent (36%) per annum thereof; (iii) together with said penalty,
commence to earn interest as [sic] the rate of twenty-three percent (23%) per annum counted
from the date of default until full payment thereof.

4
The respondent failed to pay the amortizations due on August 15 and November 15, 1987, prompting the
petitioner to enforce the aforementioned acceleration clause. On January 25, 1988, the petitioner sent a
letter7 to the respondent demanding payment of its outstanding loan obligation, amounting to P3,203,049
under PN No. 3574 and PN No. 4132.8

In its Letter to the petitioner dated February 3, 1988, the respondent expressed its willingness to settle its
obligation and, due to its tight financial situation, negotiated for a modified payment scheme. 9 Thereafter, on
March 30, 1988, the parties entered into a Memorandum of Agreement (MOA), the pertinent provisions of
which read:

WHEREAS, CONCEPTS hereby acknowledges and affirms that it has applied and was granted by the Bank a
credit accommodation consisting of an Industrial Guarantee Loan Fund ("IGLF") Account in the amount of P2.0
Million dated 4 March 1986 (hereinafter, the "LOAN OBLIGATION") which, to date, is already overdue and
demandable in its entirety including all interests, penalties, service and other miscellaneous charges.

...

1. CONCEPTS hereby promises and undertakes to pay the BANK the LOAN OBLIGATION in the following manner,
to wit:

a) On 5 May 1988, the amount of P159,259.14, to be covered by a post-dated check for the
same amount to be issued by CONCEPTS; and

b) On 5 June 1988 and every 5th of every succeeding month, P150,000.00 until the LOAN
OBLIGATION shall have been fully paid. CONCEPTS hereby undertakes to cover the above-
mentioned payments by post-dated checks, by first delivering to the BANK five (5) checks
covering the first five (5) month period, without prejudice to the BANKs right to demand the
delivery of another set of five (5) checks covering the subsequent five (5) month period, 15
days prior to the due date of the last check in the BANKs possession, and so on and so forth,
until the LOAN OBLIGATION shall have been fully paid.

It is likewise understood that upon payment of ten (10) monthly amortizations as above-indicated or upon
updating of payments of the LOAN OBLIGATION, CONCEPTS shall have the right to re-negotiate with the Bank
the reinstatement of the original terms of payment under Promissory Note No. 3574.

3. The BANK and CONCEPTS hereby further agree that all other provisions and stipulations in the existing
Promissory Notes and other documents evidencing the LOAN OBLIGATION shall remain in force and effect,
except those which are inconsistent with the above-mentioned Mode of Payment.

4. CONCEPTS hereby waives notice of dishonor and/or default of its LOAN OBLIGATION: provided, however, that
the BANK reserves the right to grant a grace period of (15) days for settlement of the obligation; provided,
further, that such grant of a grace period shall not constitute waiver of any right of the BANK. It shall also be
understood that CONCEPTS default in this mode of payment shall likewise automatically accelerate the entire
LOAN OBLIGATION.

5. It shall likewise be understood that this mode of payment arises out of the BANKs liberality and is without
prejudice and without waiver of the BANKs accrued rights under the existing chattel and real estate
mortgages as well as the Continuing Suretyship Agreement pertinent to the LOAN OBLIGATION, all of which
mortgages and Agreement are hereby expressly continued to be in force and effect. 10

In compliance with its undertaking under the MOA, the respondent delivered the first check dated May 5, 1988
in the amount of P159,259.14 and four other checks in the sum of P150,000 each or for the total amount
of P759,259.14. This was followed by another batch of five checks covering the months of October 1988 to
February 1989, also in the amount of P150,000 each or for a total amount of P750,000.

On March 30, 1989, the petitioner wrote to the respondent requesting for the delivery of the "last checks to
completely rehabilitate" its account in accordance with the MOA. When the respondent failed to make the said

5
payments, the petitioner on April 25, 1989 sent a final demand on the respondent to pay its entire obligation
under the IGLF in the amount of P2,361,970.10 within five days from receipt thereof.11

The respondent thereafter filed with the Regional Trial Court of Makati City, Branch 149, a petition for
declaratory relief. The respondent alleged that it is up to date in the payment of its loan obligation and,
according to its record, the remaining balance amounted to only P316,550.48. The respondent prayed for the
trial court to determine the rights and duties of the parties under the MOA to avoid the miscomputation of the
loan obligation and any breach thereof.

In its answer, the petitioner averred that as of February 15, 1988, the outstanding obligation of the respondent
amounted to P2,833,867.04. According to the petitioner, the monthly amortizations paid by the respondent
covered only the penalties accruing on the loan. Further, declaratory relief as a remedy sought by the
respondent was allegedly improper as it already committed a breach of its obligations. The respondent filed
the action a quo merely to defer or avoid payment of its legally contracted loan obligation with the petitioner.
By way of compulsory counterclaim, the petitioner prayed for damages and attorneys fees.

The respondent then filed an amended complaint alleging that as of August 1989, it had already paid the
petitioner the total amount of P2,259,259 and that there was an overpayment of P100,000. The respondent
prayed that the petitioner be ordered to refund the amount overpaid, as well as to release the mortgages and
to pay damages and attorneys fees.

RTC: After due trial, the trial court rendered judgment, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered:

a) ordering the subject complaint DISMISSED for lack of merit:

b) ordering the plaintiff to pay to the defendant the amount of P395,210.30 to earn interest at 22% per
annum from the date of this decision;

c) declaring the Real Estate Mortgage and the Chattel Mortgage as valid and subsisting which may be
foreclosed by the defendant in case of non-payment of the aforestated obligation after demand;

d) ordering the plaintiff to pay to the defendant the amount of P10,000.00 as attorneys fees and
litigation expenses.

So ordered.12

CA: On appeal by the petitioner, the Court of Appeals (CA) affirmed with modification the decision of the trial
court. The CA found that the respondents outstanding obligation to the petitioner amounted only
to P309,298.58. The CA likewise reduced the penalty accruing thereon from 36% to 3% per annum. The
dispositive portion of the assailed decision reads:

WHEREFORE, IN VIEW OF THE FOREGOING, the Decision of the lower court dated December 14, 1992 is
AFFIRMED with the modification that the outstanding balance of plaintiff-appellee as of September 5, 1989
is P309,298.58 subject to a penalty of 3% per annum, and together with said penalty, the whole amount is
subject to an interest of 23% per annum inclusive of service charges, until the entire amount has been fully
paid. No pronouncement as to costs.

SO ORDERED.13

ISSUES:

A.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN ACCORD WITH
LAW AND SUPREME COURT DECISIONS IN RULING THAT ASIATRUST WAIVED COLLECTION OF ACCRUED
PENALTIES AND CHARGES DUE FROM CONCEPTS UNDER PN 3574 BY EXECUTING THE MOA, BECAUSE

6
 THE MOA DID NOT EXPRESSLY PROVIDE FOR SUCH WAIVER, AND STIPULATED THAT, UNLESS
INCONSISTENT WITH THE MOA MODE OF PAYMENT, "ALL OTHER EXISTING PROVISIONS AND
STIPULATIONS IN THE EXISTING PROMISSORY NOTES X X X SHALL REMAIN IN FORCE AND EFFECT."

B.

THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE IN A MANNER NOT IN ACCORD WITH
20 OF RULE 132 OF THE RULES OF COURT IN FINDING WITNESS REBECCA DE LA CRUZ UNREBUTTED
IDENTIFICATION OF ASIATRUSTS EXHIBIT "7" AS A STATEMENT OF ACCOUNT, AND HER UNREBUTTED
IDENTIFICATION OF THE SIGNATURE OF THE EXHIBIT, AS INSUFFICIENT AUTHENTICATION OF THAT
EXHIBIT, AND IN RELYING ON TESTIMONY READ FROM A LEDGER NEITHER IDENTIFIED NOR OFFERED IN
EVIDENCE.14

The petition is bereft of merit.

It is a time-honored rule of evidence that when the terms of an agreement are reduced to writing, it is deemed
to contain all the terms agreed upon and no evidence of such terms can be admitted other than the contents
of the agreement itself.15 This rule allows exceptions, in that a party may present parole evidence to modify,
explain or add to the terms of the written agreement if he puts in issue in his pleadings:

a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

c) The validity of the written agreement; or

d) The existence of other terms agreed to by the parties or their successors-in-interest after the
execution of the written agreement.16

A careful perusal of the MOA reveals that it fixed the respondents loan obligation to the petitioner
at P2,000,000 which was already due and demandable in its entirety, including "all interests, penalties, service
and other miscellaneous charges." Further, Paragraph 1 thereof set forth the manner by which the loan
obligation was to be paid, to wit:

1. CONCEPTS hereby promises and undertakes to pay the BANK the LOAN OBLIGATION in the following manner,
to wit:

a) On 5 May 1988, the amount of P159,259.14, to be covered by a post-dated check for the same
amount to be issued by CONCEPTS; and

b) On 5 June 1988 and every 5th of every succeeding month, P150,000.00 until the LOAN OBLIGATION
shall have been fully paid. CONCEPTS hereby undertakes to cover the above-mentioned payments by
post-dated checks, by first delivering to the BANK five (5) checks covering the first five (5) month
period, without prejudice to the BANKs right to demand the delivery of another set of five (5) checks
covering the subsequent five (5) month period, 15 days prior to the due date of the last check in the
BANKs possession, and so on and so forth, until the LOAN OBLIGATION shall have been fully paid.

It is likewise understood that upon payment of ten (10) monthly amortizations as above-indicated or upon
updating of payments of the LOAN OBLIGATION, CONCEPTS shall have the right to re-negotiate with the Bank
the reinstatement of the original terms of payment under Promissory Note No. 3574. 17

However, the MOA failed to state the exact amounts of interests, service charges and penalties accruing on the
loan obligation. To determine the same, the CA relied on the testimony of the petitioners comptroller, Rebecca
de la Cruz, who testified thereon.

Based on the foregoing, the CA correctly fixed the respondents outstanding balance to the petitioner as of the
execution of the MOA at P2,223,000 consisting of the principal obligation of P2,000,000, penalties of P76,000,
service charges of P123,000 and interests of P24,000:

7
After a thorough review of the MOA, We are convinced that plaintiff-appellees obligation consists of its
original P2 million loan under PN No. 3574 including interests and service fees but excluding penalty and other
miscellaneous charges.

Thus, the MOA itself provides:

"1. CONCEPTS hereby promises and undertakes to pay the BANK the LOAN OBLIGATION in the following
manner, to wit:"

(p. 2, MOA; Exhs. "B" and "10," pp. 5 and 45, Folder of Exhibits)

In the MOAs first whereas clause, the term "loan obligation" was referred to as "the amount of P2 Million,
which to date, is already overdue and demandable in its entirety including all interests, penalties, service and
other miscellaneous charges." (p. 1, MOA; pp. 4 and 44, ibid.). The MOA, therefore, acknowledged that plaintiff-
appellee, having failed to pay several amortizations under the PN, was liable for the entire amount of P2
million plus interest in arrears, penalties and other charges in accordance with the acceleration clause of the
PN.

However, due to the banks liberality, it waived the demandability of the entire loan by entering into the MOA,
allowing plaintiff-appellee to continue paying its amortization, this time on a monthly basis. By such waiver,
plaintiff-appellee has effectively not been rendered in default thereby waiving likewise the penalty imposable
on the loan in the event of default.

Accordingly, under the MOA, plaintiff-appellee continues to be liable for its obligation under the note, i.e.,
principal amount of P2 million plus interests and service fees, as if it was not yet in default. The first
installment under the MOA in the amount of P159,259.14 including several of the monthly installments
of P150,000 were applicable to interest and service fees in arrears while the remaining monthly amortizations
covered the principal and interest falling due thereon.19

The petitioner nonetheless assails the above figures, insisting that the CA erred in holding that:

However, due to the banks liberality, it waived the demandability of the entire loan by entering into the MOA,
allowing plaintiff-appellee to continue paying its amortization, this time on a monthly basis. By such waiver,
plaintiff-appellee has effectively not been rendered in default thereby waiving likewise the penalty imposable
on the loan in event of default.20

The petitioner asserts that the respondent continued to be liable for penalty charges as provided under the
promissory note notwithstanding the execution of the MOA. This contention is untenable. Under the schedule
of amortization contained in the promissory note, the respondent obliged to pay the principal obligation in
quarterly amortizations over a period of ten years and that in case of default, the entire amount shall be due
and demandable in its entirety. On the other hand, under the MOA, a new mode of payment was agreed upon,
i.e., the payment by the respondent of the initial amount of P159,259.14 and subsequent payments
of P150,000 every month until full payment of the loan obligation. The MOA, in effect, rendered the loan no
longer due and demandable in its entirety at the time of its execution, precisely because it allowed the
respondent under the new schedule of payments to pay the same by monthly installments. It bears stressing
that the MOA provided that the mode of payment arose "out of the BANKs liberality." To allow the petitioner to
collect penalty charges as if the respondent were in default, notwithstanding the existence of a new payment
schedule, would be inconsistent with the aforesaid agreement.

It must be stressed, however, that the foregoing should not be construed as to mean that the respondent could
no longer be held in default and that the petitioner completely waived collection of penalty charges in case of
default. Non-payment by the respondent of any of the monthly installments as provided under the MOA would
render it in default and the petitioner could collect the penalty charges therefor. As will be shown later, the CA
did in fact determine the exact time when the respondent defaulted on its obligation under the MOA and
accordingly reckoned therefrom the penalty charges due the petitioner.

The records show that the respondent, in accordance with the MOA, made the initial payment of P159,259.16
on May 5, 1988. Thereafter, the respondent made payments in the amount of P150,000 every month up to
September 1989.

8
As noted by the CA, after the last payment of P150,000 on September 1989, the respondent still owed the
petitioner the sum of P309,298.58. The respondents non-payment of the amortizations due after the said date
rendered the balance due and demandable in its entirety, in accordance with the acceleration clause under the
MOA. Further, since the respondent defaulted in its monthly payments after September 1989, it was only then
that it could be rightfully imposed the penalty charges in accordance with the promissory note. Thus, contrary
to the petitioners contention, the CA did not rule that the MOA operated as a waiver by the petitioner of its
right to collect penalty charges.

The petitioner faults the CA for reducing the penalty charges from 36% to 3% per annum on its finding that
the former rate was too excessive, considering that the petitioner had already charged an interest rate of 23%
per annum and that the principal obligation had been partly complied with.

This Court does not agree with the petitioner. Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.

Indeed, this Court had equitably reduced the penalty in not a few cases.1wphi1 In the recent case of Ligutan
v. Court of Appeals,22 the Court affirmed the reduction of the penalty charges by the CA upon its finding that
the debtors therein had partially complied with their obligation. In Rizal Commercial Banking Corp. v. Court of
Appeals,23 the Court tempered the penalty charges after taking into account the debtors pitiful situation and
its offer to settle the entire obligation with the creditor bank. In Insular Bank of Asia and America v. Spouses
Salazar,24 the Court reduced the penalty charge on a loan of P42,050, considering that the debtor spouses paid
a total of P68,676.75 which the creditor bank applied to satisfy the penalty and interest charges.

Given the peculiar circumstances in this case, particularly that the principal obligation had been partially
complied with by the respondent, the Court sees no justifiable reason to modify the reduction by the CA of the
penalty charges made by the CA.

Anent the second issue, the petitioner insists that the CA should have relied on the petitioners statement of
account25 to determine the amount owed by the respondent. According to the said statement, the respondent
still owed the petitioner P5,665,906 as of June 29, 1990, since previous payments made were applied only to
the penalties and service charges. The Court does not agree. The MOA clearly provides that the loan obligation
of P2,000,000 shall be paid by the respondent by issuing the post-dated checks in the amount of P150,000
every month beginning June 5, 1998 until the same shall have been fully paid. Thus, the monthly payments
made by the respondent were for the satisfaction of the principal loan obligation, not merely as payments of
the penalties and service charges.

Further, as correctly pointed out by the CA, the petitioners statement of account could not be given any
probative value because it was belied for the most part by its key witness, comptroller Rebecca de la Cruz.
Even the trial court gave scant consideration to this statement of account, upon its finding that certain entries
therein were inconsistent with the terms of the promissory note. The Court thus finds no cogent reason to
deviate from the trial courts and the CAs assessment of the probative value of the same. After all, it is not
this Courts function under Rule 45 of the Rules of Court, as amended, to review, examine, and evaluate or
weigh the probative value of the evidence presented.26

WHEREFORE, the petition is hereby DENIED for lack of merit. The assailed Decision dated July 18, 1997 and
Resolution dated September 12, 1997 of the Court of Appeals in CA-G.R. CV No. 44211 are AFFIRMED in toto.

SO ORDERED.

NEWTON JISON and SALVACION I. JOSUE petitioners,

vs.
COURT OF APPEALS and ROBERT 0. PHILLIPS & SONS, INC., respondents.

9
The instant petition for review of the decision of the Court of Appeals poses the issue of the validity of the
rescission of a contract to sell a subdivision lot due to the failure of the lot buyer to pay monthly installments
on their due dates and the forfeiture of the amounts already paid.

FACTS: Petitioners, the spouses Newton and Salvacion Jison, entered into a Contract to Sell with private
respondent, Robert O. Phillips & Sons, Inc., whereby the latter agreed to sell to the former a lot at the Victoria
Valley Subdivision in Antipolo, Rizal for the agreed price of P55,000.00, with interest at 8,1965 per annum,
payable on an installment basis.

Pursuant to the contract, petitioners paid private respondents a down payment of P11,000.00 on October 20,
1961 and from October 27, 1961; to May 8, 1965 a monthly installment of P533.85.

Thereafter, due to the failure of petitioners to build a house as provided in the contract, the stipulated penalty
of P5.00 per square meter was imposed to the effect that the monthly amortization was increased to P707.24.

On January 1, 1966, February 1, 1966 and March 1, 1966, petitioners failed to pay the monthly installments
due on said dates although petitioners subsequently paid the amounts due and these were accepted by
private respondent.

Again on October 1, 1966, November 1, 1966, December 1, 1966 and January 1, 1967, petitioners failed to pay.
On January 11, 1967, private respondent sent a letter (Exh. "3") to petitioners calling their attention to the fact
that their account was four months overdue. This letter was followed up by another letter dated February 27,
1967 (Exh. "3") where private respondent reminded petitioner of the automatic rescission clause of the
contract. Petitioners eventually paid on March 1, 1967.

Petitioners again failed to pay the monthly installments due on February 1, 1967, March 1, 1967 and April 1,
1967. Thus, in a letter dated April 6, 1967 (Exh. "D"), private respondent returned petitioners' check and
informed them that the contract was cancelled when on April 1, 1987 petitioners failed to pay the monthly
installment due, thereby making their account delinquent for three months.

On April 19, 1967, petitioners tendered payment for all the installments already due but the tender was
refused. Thus, petitioners countered by filing a complaint for specific performance with the Court of First
Instance of Rizal on May 4, 1967 and consigning the monthly installments due with the court.

Following the hearing of the case, wherein the parties entered into a stipulation of facts, the trial court on
January 9, 1969 RTC: rendered judgment in favor of private respondent, dismissing the complaint and
declaring the contract cancelled and all payments already made by petitioner franchise. ordering petitioners to
pay P1,000.00 as and for attorney's fees; and declaring the consignation and tender of payment made by
petitioners as not amounting to payment of the corresponding monthly installments.

Not satisfied with the decision of the trial court, petitioners appealed to the Court of Appeals. Agreeing with the
findings and conclusions of the trial court, the Court of Appeals on November 4, 1976 affirmed the former's
decision. Hence this petition.

Issue: in this case is the legality of the rescission of the contract and the forfeiture of the payments already
made by petitioners.

To support the rescission and forfeiture private respondent falls back on paragraph 3 of the contract which
reads:

This contract shall be considered automatically rescinded and cancelled and of no further force
and effect, upon the failure of the Vendee to pay when due Three (3) or more consecutive
monthly installments mentioned in Paragraph 2 of this Contract, or to comply with any of the
terms and conditions hereof, in which case the Vendor shall have the right to resell the said
parcel of land to any Vendee and any amount derived from the sale on account hereof shall be
forfeited in favor of the Vendor as liquidated damages for the breach of the Contract by the
Vendee, the latter hereby renouncing and reconveying absolutely and forever in favor of the
Vendor all rights and claims to and for all the amount paid by the Vendee on account of the
Contract, as well as to and for all compensation of any kind, hereby also agreeing in this

10
 connection, to forthwith vacate the said property or properties peacefully without further
advise of any kind.

Since the contract was executed and cancelled prior to the effectivity of Republic Act No. 65856, (the Realty
Installment Buyers', Protection Act) and Presidential Decree No. 957 (the Subdivision and Condominium
Buyers' Protective Decree), it becomes necessary to resort to jurisprudence and the general provisions of law
to resolve the controversy.

The decision in the recent case of Palay, Inc. v. Clave [G.R. No. L-56076, September 21, 1983, 124 SCRA
7,1969, factions the resolution of the controversy. In deciding whether the rescission of the contract to sell a
subdivision lot after the lot buyer has failed to pay several installments was valid, the Court said:

Well settled is the rule, as held in previous k.- [Torralba v. De los Angeles, 96 SCRA 69, Luzon
Brokerage Co., Inc. v. Maritime Building Co., 43 SCRA 93 and 86 SCRA 305; Lopez v.
Commissioner of Customs, 37 SCRA 327; U.P. v. De los Angeles, 35 SCRA 102; Ponce Enrile v.
CA, 29 SCRA 504; Froilan v. Pan Oriental Shipping Co., 12 SCRA 276; Taylor v. Uy Tieng Piao; 43
Phil. 896, that judicial action for the rescission of a contract is not necessary where the
contract provides that it may be cancelled for violation of any of its terms and conditions.
However, even in the cited cases, there was at least a written notice sent to the degeneration,
informing him of the rescission. As stressed in University of the Philippines v. Walfrido de los
Angeles [35 SCRA 102] the act of a party in treating a contract as cancelled should be made
known to the other....

xxx xxx xxx

In other words, resolution of reciprocal contracts may be made extrajudicially unless

successfully impugned in Court. If the debtor impugns the declaration it shall be subject to
judicial determination.

In this case, private respondent has denied that rescission is justified and has resorted to
judicial action. It is now for the Court to determine whether resolution of the contract by
petitioner was warranted.

We hold that resolution by petitioners of the contract was ineffective and inoperative against
private respondent for lack of notice of resolution, as held in the U.P. v. Angeles case, supra.

xxx xxx xxx

The indispensability of notice of cancellation to the buyer was to be later underscored in

Republic Act No. 65856, entitled "An Act to Provide Protection to Buyers of Real Estate on
Installment Payments." which took effect on September 14-15). when it specifically provided:

Sec. 3 (b) ... the actual cataract, of the contract shall take place thirty days from receipt by the
buyer of the notice of cancellation or the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value to the buyer.

There is no denying that in the instant case the resolution or rescission of the Contract to Sell was valid.
Neither can it be said that the cancellation of the contract was ineffective for failure of private respondents to
give petitioners notice thereof as petitioners were informed cancelled private respondent that the contract was
cancelled in the letter dated April 6, 1967 (Exh. "D"). As R.A. No. 65856, was not yet effective, the notice of
cancellation need not be by notarial act, private respondent's letter being sufficient compliance with the legal
requirement.

The facts of 'fee instant case should be distinguished from those in the Palay Inc. case, as such distinction will
explain why the Court in said case invalidated the resolution of the contract. In said case, the subdivision
developer, without informing the buyer of the cancellation of the contract, resold the lot to another person.
The lot buyer in said case was only informed of the resolution of the contract some six years later after the
developer, rejected his request for authority to assign his rights under the contract. Such a situation does not
obtain illness: the instant case. In fact, petitioners were informed of the cancellation of their contract in April

11
1967, when private respondent wrote them the letter dated April 6, 1967 (Exh. "D"), and within a month they
were able to file a complaint against Private respondent.

While the resolution of the contract and the forfeiture of the amounts already paid are valid and binding upon
petitioners, the Court is convinced that the forfeiture of the amount of P5.00 although it includes the
accumulated fines for petitioners' failure to construct a house as required by the contract, is clearly iniquitous
considering that the contract price is only P6,173.15 The forfeiture of fifty percent (50%) of the amount already
paid, or P3,283.75 appears to be a fair settlement. In arriving at this amount the Court gives weight to the fact
that although petitioners have been delinquent in paying their amortizations several times to the prejudice of
private respondent, with the cancellation of the contract the possession of the lot review.... to private
respondent who is free to resell it to another party. Also, had R.A. No. 65856, been applicable to the instant
case, the same percentage of the amount already paid would have been forfeited [Torralba 3(b).]

The Court's decision to reduce the amount forfeited finds support in the Civil Code. As stated in paragraph 3 of
the contract, in case the contract is cancelled, the amounts already paid shall be forfeited in favor of the
vendor as liquidated damages. The Code provides that liquidated damages, whether intended as an indemnity
or a penalty, shall be equitably reduced if they are iniquitous or unconscionable [Art. 2227.]

Further, in obligations with a penal clause, the judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the debtor

This principle was reiterated in Makati Development Corp. v. Empire Insurance Co. [G.R. No. L-21780, June 30,
1967, 20 SCRA 557] where the Court affirmed the judgment of the Court of First Instance reducing the
subdivision lot buyer's liability from the stipulated P12,000.00 to Plaintiffs after finding that he had partially
performed his obligation to complete at least fifty percent (50%) of his house within two (2) years from March
31, 1961, fifty percent (50%) of the house having been completed by the end of April 1961.

WHEREFORE, the Decision of the Court of Appeals is hereby MODIFIED as to the amount forfeited which is
reduced to fifty percent (50%) of the amount already paid or P23,656.32 and AFFIRMED as to all other
respects.

Private respondent is ordered to refund to petitioners the excess of P23,656.32 within thirty (30) days from the
date of finality of this judgment.

SO ORDERED.

TOWNE & CITY DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS and GUILLERMO R. VOLUNTAD (substituted by TOMAS VOLUNTAD and
FLORDELIZA ESTEBAN Vda. De VOLUNTAD) respondents.

fatcs: Respondent Guillermo Voluntad (Guillermo) and petitioner Towne & City Development Corporation were
both engaged in the construction business. From 1984 to 1985, Guillermo and petitioner entered into a
contract for the (a) construction of several housing units belonging to or reserved for different individuals; (b)
repair of several existing housing units belonging to different individuals; and (c) repair of facilities, all located
at the Virginia Valley Subdivision, owned and developed by the petitioner. The total contract cost amounted to
One Million Forty One Thousand Three Hundred Fifty Nine (P1,041,359.00) Pesos.

The parties agreed that Guillermo should be paid in full by petitioner the agreed contract cost upon completion
of the project. In 1985, pending completion of the project, Guillermo was allowed by petitioner to occupy, free
of charge, one of its houses at the Virginia Valley Subdivision.

12
After completing the construction and repair works subject of the contract, Guillermo demanded payment for
his services.

When petitioner failed to satisfy his claim in full, Guillermo filed on April 30, 1990 a Complaint for collection
against petitioner before the Regional Trial Court of Manila (RTC). The case was docketed as Civil Case No.
90-52880 and raffled to Branch 25 of the RTC. Guillermo alleged that petitioner paid him only the amount
of P69,400.00, leaving a balance of P971,959.00 under the terms of their contract.2

In its Answer with Counter-claims (sic), petitioner averred that it had already paid Guillermo the amount
of P1,022,793.46 for his services and that there was even an overpayment of P58,189.46. Petitioner further
claimed that Guillermo is liable for unpaid rentals amounting to P66,000.00 as of June 1990 for his occupancy
of one of the houses in Virginia Valley Subdivision since 1985. 3

During the pre-trial of the case, the parties agreed to limit the issues to: (1) whether petitioner
had paid Guillermo in full in accordance with their contract; (2) if payment in full had been made
by petitioner, whether there was an overpayment on its part; and (3) whether either or both
parties are entitled to attorney's fees.4

While the case was pending before the trial court, Guillermo passed away. Upon motion of respondents Tomas
Voluntad and Flordeliza Vda. de Voluntad, the trial court issued an Order substituting them as plaintiffs in place
of the deceased Guillermo.5

Guillermo did not adduce evidence, whether testimonial or documentary, as evidence-in-chief in view of the
admissions made by petitioner in its Answer with Counter-claims6 that indeed it entered into a contract with
him and that it was obliged to pay him for his services. Petitioner, for its part, presented as its sole witness Ms.
Rhodora Aguila (Ms. Aguila), its Corporate Secretary, to prove that it paid Guillermo for his services under the
contract. She testified that she personally handed or delivered the cash or check payments to Guillermo,
adding that Guillermo acknowledged payments with his signatures on the vouchers. 7 In rebuttal, Guillermo
testified along with two employees of the Special Security System.

On December 29, 1994, the trial court rendered its Decision, the dispositive portion of which states:

"WHEREFORE, premises considered, judgment is hereby rendered, as follows:

1. Ordering defendant to pay plaintiff the total sum of P715,228.50 representing defendant's unpaid
balance owing in favor of plaintiff, with 3% interest from the time of filing of the complaint until the full
amount is satisfied;

2. Ordering plaintiff to vacate the house occupied by him belonging to defendant;

3. No pronouncement as to cost and attorney's fees.

SO ORDERED."8

Petitioner filed a Motion for Reconsideration on March 2, 1995, stressing that the lower court erred that it had
not paid Guillermo's claim in full.9 The trial court denied the motion for lack of merit in its Order dated April 24,
1995.10

Consequently, on May 3, 1995 petitioner filed its Notice of Partial Appeal to the Court of Appeals insofar as
the Decision ordered it to pay Guillermo the total sum of P715,228.50, which according to the lower court
represented its unpaid balance, with interest thereon.11

On August 12, 1998, the appellate court rendered a Decision affirming the judgment of the lower court. The
dispositive portion reads:

"ACCORDINGLY, finding no reversible error in the decision appealed from dated December 29, 1994,
the same is hereby AFFIRMED in all respects. Costs against defendant-appellant.

13
 SO ORDERED."12

Hence, this Petition.

Issue: of whether a voucher suffices as evidence of payment is a question of law.

In the case at bar, petitioner has relied on vouchers to prove its defense of payment. However, as correctly
pointed out by the trial court which the appellate court upheld, vouchers are not receipts.

It should be noted that a voucher is not necessarily an evidence of payment. It is merely a way or
method of recording or keeping track of payments made. A procedure adopted by companies for the
orderly and proper accounting of funds disbursed. Unless it is supported by an actual payment like the
issuance of a check which is subsequently encashed or negotiated, or an actual payment of cash duly
receipted for as is customary among businessmen, a voucher remains a piece of paper having no
evidentiary weight.25(Emphasis supplied).

A receipt is a written and signed acknowledgment that money has been or goods have been delivered, 26 while
a voucher is documentary record of a business transaction. 27

The references to alleged check payments in the vouchers presented by the petitioner do not vest them with
the character of receipts. Under Article 1249 of the Civil Code, 28 payment of debts in money has to be made in
legal tender and the delivery of mercantile documents, including checks, "shall produce the effect of payment
only when they have been cashed, or when through the fault of the creditor they have been impaired."

From the text of the Civil Code provision, it is clear that there are two exceptions to the rule that payment by
check does not extinguish the obligation. Neither exception is present in this case. Concerning the first,
petitioner failed to produce the originals of the checks after their supposed encashment and even the bank
statements although the supposed payments by check were effected only about 5 years before the filing of the
collection suit. Anent the second exception, the doctrine is that it does not apply to instruments executed by
the debtor himself and delivered to the creditor.29 Indubitably, that is not the situation in this case.

Petitioner also relied upon the testimony of its Corporate Secretary, Rhodora Aguila. Again, the issue about the
credibility of said witness involves a question of fact which is a definite incongruity in petitions for review, as in
the case before us. In any event, the Court of Appeals convincingly debunked the testimony. 30

All told, the Court finds no reason to disturb the findings of the Court of Appeals which affirmed in toto the trial
court's Decision. WHEREFORE, the Petition is DENIED. The assailed Decision of the Court of Appeals is
AFFIRMED. Costs against the petitioner.SO ORDERED.

NOEMI M. CORONEL, petitioner,

vs.
ENCARNACION C. CAPATI, respondent.

Facts: Petitioner contracted two loans from respondent on September 4, 1992 and October 25, 1992. The first
amounted to P121,000.00 payable on or before February 4, 1993 and the second amounted to P363,000.00
payable on or before March 25, 1993. In return, petitioner issued respondent two checks: Metrobank Check No.
1146784 dated September 4, 1992 for the first loan and Metrobank Check No. 114679 5 dated October 25, 1992
for the second loan. The two loans are embodied in two handwritten instruments. The first one reads:

P121,000. 00
/xx

Received the amount of one hundred twenty one thousand pesos only P121,000. 00/xx from Mrs.
Encarnacion C. Capati & payable in 5 months from Sept. 4, 1992 & said loan is secured by Metrobank
(Guagua Branch) and with check # 114678.

(signed)

14
 Noemi M. Coronel6

The second instrument, in like tenor, reads as follows:

Received the amount of three hundred sixty three thousand pesos only P363,000. 00/xx from Mrs.
Encarnacion C. Capati & payable from Oct. 25, 1992 (5 months) & said loan is secured with Metrobank
check # 114679 (Guagua Branch).

(signed)
Noemi M. Coronel7

Petitioner failed to pay her loans upon maturity despite repeated demands from respondent. The two checks
she issued were dishonored when presented for payment on February 16, 1993 and April 7, 1993. Hence, on
September 14, 1993, respondent filed a complaint for sum of money and damages with attachment against
petitioner before the Regional Trial Court of Guagua, Pampanga.

On April 30, 1997, the trial court ruled in favor of respondent, ordering petitioner to pay, as follows:

WHEREFORE, premises considered, judgment is rendered ordering defendant:

1. To pay plaintiff the amount of P484,000.00 as principal obligation plus 12% interest per annum
computed from the time of the filing of this case up to the time it is fully paid;

2. To pay plaintiff 10% of the principal obligation of P484,000.00 as attorneys fees;

3. To pay the costs of the suit.

SO ORDERED.

On appeal to the Court of Appeals, petitioner was unsuccessful as the appellate court affirmed the ruling of the
trial court.

Petitioners Motion for Reconsideration8 was denied.

Hence, this appeal.9

Petitioner denied contracting the two loans in the amounts of P121,000.00 and P363,000.00 from respondent.
She alleged that the Metrobank checks representing the foregoing amounts were two of several checks she
issued in favor of respondent for a loan amounting to P1.101 million which she has fully paid. She claimed that
despite full payment, respondent still deposited the two checks because of a dispute between them arising
from respondents demand for exorbitant and additional interest on the P1.101 million loan.

Petitioner alleged further that there were instances when respondent asked her to affix her signature on blank
sheets of paper thereby implying that the contents of Exhibits "A-1" and "B-1," containing the loan
agreements were written by respondent on sheets of paper signed in advance by petitioner.

In detail, petitioner contended that on May 20, 1992, respondent informed her that her loan obligation added
to P980,000.00 plus interest of P121,000.00, totaling P1,101,000.00, to which computation petitioner agreed.
At the same time, respondent also asked her to sign a document entitled "Pacto de Retro Sale"10 with the
assurance that it will serve only as "security." On June 18, 1992, petitioner paid respondent P66,000.00 in
cash.11 Before the end of the redemption period under the pacto de retro sale which was on August 20, 1992,

15
petitioner, expecting that she will be unable to pay the full amount on due date, issued respondent two
checks: Metrobank check no. 11466812 in the amount of P980,000.00 dated August 20, 1992 and Metrobank
check no. 11466913 in the amount of P121,000.00 dated September 4, 1992. Later, respondent returned these
two Metrobank checks numbered 114668 and 114669 to petitioner. Petitioner replaced these checks with
Metrobank check no. 11467514in the same amount of P980,000.00 and likewise dated August 20, 1992, and
Metrobank check no. 114678,15again in the same amount of P121,000.00 and likewise dated September 4,
1992.

On September 7, 1992, petitioner paid respondent another P40,000.00 in the form of Metrobank check no.
114700.16 And on November 13, 1992, petitioner paid respondent P1M, evidenced by a handwritten
receipt17signed by respondent. The receipt reads as follows:

Received from Miss Noemi M. Coronel the Bank of Philippine Island Cashiers Check No. 019877 dated
Nov. 13, 1992 for ONE MILLION (P1,000,000.00) pesos as partial payment of the loan from Mrs.
Encarnacion C. Capati, & the balance will be paid on or before Dec. 15, 1992.

(signed)

ENCARNACION CAPATI
LENDER-MORTGAGEE

November 13, 1992

Respondent returned to petitioner check no. 11467518 in the amount of P980,000.00 dated August 20, 1992,
upon payment of petitioner to respondent of the cashiers check worth P1M. Petitioner also issued another
postdated check Metrobank Check No. 11467919 in the amount of P363,000.00 dated October 25, 1992
allegedly for interest of her obligation.20

Based on petitioners own computation, her remaining balance amounted to only P50,000.00. Thus, on
December 1, 1992, petitioner issued respondent a Metrobank Check No. 147653 in the amount
of P50,000.00.21On January 4, 1993, she allegedly ordered Metrobank Guagua, through a letter, 22 to stop
payment of the checks she issued respondent for P121,000.00 and P363,000.00. According to petitioner, these
two checks were not returned by respondent because the latter claimed that she has not completed the
payment of interest yet.

Ruling: We find petitioners contentions unmeritorious.

The existence of petitioners obligation is supported by documentary evidence. Exhibits "A-1" and "B-1" are
written instruments containing the loan agreements. The signature of petitioner as debtor appears in both
instruments. Petitioner does not deny she owns these signatures. These exhibits are the best evidence of the
subject obligation. Petitioners contrary evidence has no leg to stand on. At first, she claims that her total loan
obligation amounted to P1.101 million, the amount of consideration stated in the document entitled "Pacto de
Retro Sale." At the end, however, she came up with a different computation of her obligation as totaling P1.156
million, without any document to support her allegation. The discrepancy between the two computations is not
explained. The age old rule of evidence is that oral testimony as to a certain fact, depending as it does on
human memory that is most often than not, momentary and fleeting, is not as reliable as written or
documentary evidence.23 We are, thus, more convinced that Exhibits "A-1" and "B-1" express the true
agreement of the parties, contrary to the oral testimony of petitioner that those amounts are part of a loan
amounting to P1.101 million which she has fully paid. The latter appears to be another loan, distinct from the
one involved in the case at bar.24 Incidentally, the pacto de retro sale referred to by petitioner, is the subject
matter of another litigation between the same parties pending with the same court. 25

Petitioner tries to escape responsibility by testifying that it has been respondents practice to ask her to sign
blank sheets of paper. She wants the court to believe that she did not know of the contents of Exhibits "A-1"
and "B-1," and that these documentary evidence could have been one of those blank sheets of paper that
respondent has asked her to sign. We find this tale unacceptable, absent any form of duress or intimidation
from respondent, which petitioner does not even allege. Time and again, we have held that one who is of age

16
and a businesswise is presumed to have acted with due care and to have signed the documents in question
with full knowledge of its contents and consequences. 26 Petitioner is not one ignorant, illiterate person who
could be easily duped into signing blank sheets of papers. She has borrowed large sums of money from
respondent. In fact, petitioners total loan obligation to respondent has reached over millions of pesos.
Petitioner has transacted business with respondent several times. Among others, they include transactions
involving a pacto de retro sale which is the subject of another pending case between the parties and loans
amounting to P2M and P1M, secured by deeds of real estate mortgage and chattel mortgage, respectively. As
the lower court correctly pointed out, petitioner apparently knows how to take care of her business dealings.
Thus, on October 21, 1992 and February 22, 1993, she caused the execution of two documents entitled
"Discharge of Real Estate Mortgage"27 and "Discharge of Chattel Mortgage,"28 respectively, when she paid
respondent the full consideration of the promissory notes of P2M and P1M, wherein the mortgages served as
security for the payment of said notes.29 Similarly, petitioner, upon payment of P1M to respondent on
November 13, 1992, retrieved the Metrobank Check No. 114675 30 dated August 20, 1992 which she issued as
security to respondent. Interestingly, in the case of the two checks subject matter of this litigation, petitioner
did not even demand their return from respondent, notwithstanding her claim that she has paid in full her loan
obligation. All she presented was a letter 31 ordering Metrobank Guagua to stop payment of the checks without
proof that it has been received by, nor actually sent to Metrobank Guagua.

IN VIEW THEREOF, petitioners appeal is DENIED. The Court of Appeals May 31, 2001 Decision in CA-G.R. CV
No. 58060 and April 8, 2003 Resolution, affirming the April 30, 1997 Decision of the Regional Trial Court of
Guagua, Pampanga in Civil Case No. G-2549, are AFFIRMED.SO ORDERED.

PEOPLE'S INDUSTRIAL AND COMMERCIAL CORPORATION, petitioner,

vs.
COURT OF APPEALS and MAR-ICK INVESTMENT CORPORATION, respondents.

This petition for review on certiorari of the Decision 1 of the Court of Appeals arose from the complaint
for accion publiciana de posesion over several subdivision lots that was premised on the automatic
cancellation of the contracts to sell those lots.

Private respondent Mar-ick Investment Corporation is the exclusive and registered owner of Mar-ick Subdivision
in Barrio Buli, Cainta, Rizal. On May 29, 1961, private respondent entered into six (6) agreements with
petitioner People's Industrial and Commercial Corporation whereby it agreed to sell to petitioner six (6)
subdivision lots. 2Except for Lot No. 8 that has an area of 253 square meters, all the lots measure 240 square
meters each. Five of the agreements, involving Lots Nos. 3, 4, 5, 6 and 7, similarly stipulate that the petitioner
agreed to pay private respondent for each lot, the amount of P7,333.20 with a down payment of P480.00. The
balance of P6,853.20 shall be payable in 120 equal monthly installments of P57.11 every 30th of the month,
for a period of ten years. With respect to Lot No. 8, the parties agreed to the purchase price of P7,730.00 with
a down payment of P506.00 and equal monthly installments of P60.20.

All the agreements have the following provisions:

9. Should the PURCHASER fail to make the payment of any of the monthly installments as agreed
herein, within One Hundred Twenty (120) days from its due date, this contract shall, by the mere fact
of nonpayment, expire by itself and become null and void without necessity of notice to the
PURCHASER or of any judicial declaration to the effect, and any and all sums of money paid under this
contract shall be considered and become rentals on the property, and in this event, the PURCHASER
should he/she be in possession of the property shall become a mere intruder or unlawful detainer of
the same and may be ejected therefrom by the means provided by law for trespassers or unlawful
detainers. Immediately after the expiration of the 120 days provided for in this clause, the OWNER
shall be at liberty to dispose of and sell said parcel of land to any other person in the same manner as
if this contract had never been executed or entered into.

The breach by the PURCHASER of any of the conditions considered herein shall have the same effect as
non-payment of the installments of the purchase price.

In any of the above cases the PURCHASER authorizes the OWNER or her representatives to enter into
the property to take possession of the same and take whatever action is necessary or advisable to
protect its rights and interests in the property, and nothing that may be done or made by the
PURCHASER shall be considered as revoking this authority or a denial thereof. 3

17
After the lapse of ten years, however, petitioner still had not fully paid for the six lots; it had paid
only the down payment and eight (8) installments, even after private respondent had given
petitioner a grace period of four months to pay the arrears. 4 As of May 1, 1980, the total amount due to
private respondent under the contract was P214,418.00. 5

In his letter of March 30, 1980 to Mr. Tomas Siatianum (Siatianun) who signed the agreements for petitioner,
private respondent's counsel protested petitioner's encroachment upon a portion of its subdivision particularly
Lots Nos. 2, 3, 4, 5, 6, 7 and 8. A portion of the letter reads:

Examinations conducted on the records of said lots revealed that you once contracted to purchase said
lots but your contracts were cancelled for non-payment of the stipulated installments.

Desirous of maintaining good and neighborly relations with you, we caused to send you this formal
demand for you to remove your said wall within fifteen (15) days from your receipt hereof, otherwise,
much to our regret, we shall be constrained to seek redress before the Courts and at the same time
charge you with reasonable rentals for the use of said lots at the rate of One (P1.00) Peso per square
meter per month until you shall have finally removed said wall. 6

Private respondent reiterated its protest against the encroachment in a letter dated February 16, 1981. 7 It
added that petitioner had failed to abide by its promise to remove the encroachment, or to purchase the lots
involved "at the current price or pay the rentals on the basis of the total area occupied, all within a short
period of time." It also demanded the removal of the illegal constructions on the property that had prejudiced
the subdivision and its neighbors.

After a series of negotiations between the parties, they agreed to enter into a new contract to sell 8 involving
seven (7) lots, namely, Lots Nos. 2, 3, 4, 5, 6, 7 and 8, with a total area of 1,693 square meters. The contract
stipulates that the previous contracts involving the same lots (actually minus Lot No. 2) "have been cancelled
due to the failure of the PURCHASER to pay the stipulated installments." It states further that the new contract
was entered into "to avoid litigation, considering that the PURCHASER has already made use of the premises
since 1981 to the present without paying the stipulated installments." The parties agreed that the contract
price would be P423,250.00 with a down payment of P42,325.00 payable upon the signing of the contract and
the balance of P380,925.00 payable in forty-eight (48) equal monthly amortization payments of P7,935.94.

The new contract bears the date of October 11, 1983 but neither of the parties signed it. Thereafter, Tomas
Siatianum issued the following checks in the total amount of P37,642.72 to private respondent: (a) dated
March 4, 1984 for P10,000.00; (b) dated March 31, 1984 for P10,000.00; (c) dated April 30, 1984 for
P10,000.00; (d) dated May 31, 1984 for P7,079.00, and (e) dated May 31, 1984 for P563.72. 9

Private respondent received but did not encash those checks. Instead, on July 12, 1984 it filed in the Regional
Trial Court of Antipolo, Rizal, a complaint for accion publiciana de posesion against petitioner and Tomas
Siatianum, as president and majority stockholder of petitioner. 10 It prayed that petitioner be ordered to remove
the wall on the premises and to surrender possession of Lots Nos. 2 to 8 of Block 11 of the Mar-ick Subdivision,
and that petitioner and Tomas Siatianum be ordered to pay: (a) P259,074.00 as reasonable rentals for the use
of the lots from 1961, "plus P1,680.00 per month from July 1, 1984 up to and until the premises shall have
been vacated and the wall demolished"; (b) P10,000.00 as attorney's fees; (c) moral and exemplary damages,
and (d) costs of suit. In the alternative, the complaint prayed that should the agreements be deemed not
automatically cancelled, the same agreements should be declared null and void.

In due course, the lower court 11 rendered a decision finding that the original agreements of the parties
were validly cancelled in accordance with provision No. 9 of each agreement. The parties did not enter into a
new contract in accordance with Art. 1403 (2) of the Civil Code as the parties did not sign the draft contract.
Receipt by private respondent of the five checks could not amount to perfection of the contract because
private respondent never encashed and benefited from those checks. Furthermore, there was no meeting of
the minds between the parties because Art. 475 of the Civil Code should be read with the Statute of Frauds
that requires the embodiment of the contract in a note or memorandum.

The lower court opined that the checks represented the deposit under the new contract because petitioner
failed to prove that those were monthly installments that private respondent refused to accept. What
petitioner proved instead was the fact that it was not able to pay the rest of the installments because of a
strike, fire and storm that affected its operations. Be that as it may, what was clearly proven was that both

18
parties negotiated a new contract after the termination of the first. Thus, the fact that the parties tried to
negotiate a new contract indicated that they considered the first contract as "already cancelled."

With respect to petitioner's allegation on a "free right-of-way" constituted on Lot No. 2, the lower court found
that the agreement thereon was oral and not in writing. As such, it was not in accordance with Art. 749 of the
Civil Code requiring that, to be valid, a donation must be in a public document. Consequently, because of the
principle against unjust enrichment, petitioner must pay rentals for the occupancy of the property. The lower
court disposed of the case as follows:

IN VIEW OF ALL THE FOREGOING, defendant corporation is hereby directed to return subject Lots Nos.
2, 3, 4, 5, 6, 7 and 8 to plaintiff corporation, and to pay to the latter the following amounts:

1. reasonable rental of P1.00 per square meter per month from May 29,
1961, for Lots Nos. 3, 4, 5, 6, 7 and 8, and from July 12, 1984, for Lot
No. 2, up to the date they will vacate said lots. The amount of
P4,735.12 (Exhibit "R") already paid by defendant corporation to
plaintiff corporation for the six (6) lots under the original contracts shall
be deducted from the said rental;

2. attorney's fees in the amount of P10,000.00; and

3. costs of the suit.

SO ORDERED.

Court of Appeals affirmed in toto the lower court's decision.

(1) whether or not the lower court had jurisdiction over the subject matter of the case
in view of the provisions of Republic Act No. 6552 and Presidential Decree No. 1344;

(2) whether or not there was a perfected and enforceable contract of sale (sic) on
October 11, 1983 which modified the earlier contracts to sell which had not been
validly rescinded;

(3) whether or not there was a valid grant of right of way involving Lot No. 2 in favor of
petitioner; and

(4) whether or not there was a justification for the grant of rentals and the award of
attorney's fees in favor of private respondent. 12

These decrees, however, were not yet in existence when private respondent invoked provision No. 9 of the
agreements or contracts to sell and cancelled these in October 1971. 18 Article 4 of the Civil Code provides that
laws shall have no retroactive effect unless the contrary is provided. Thus, it is necessary that an express
provision for its retroactive application must be made in the law. 19 There being no such provision in both P.D.
Nos. 957 and 1344, these decrees cannot be applied to a situation that occurred years before their
promulgation. Moreover, granting that said decrees indeed provide for a retroactive application, still, these
may not be applied in this case.

The contracts to sell of 1961 were cancelled in virtue of provision No. 9 thereof to which the parties voluntarily
bound themselves. In Manila Bay Club Corp. v. Court of Appeals, 20 this Court interpreted as requiring
mandatory compliance by the parties, a provision in a lease contract that failure or neglect to perform or
comply with any of the covenants, conditions, agreements or restrictions stipulated shall result in the
automatic termination and cancellation of the lease. The Court added:

. . . . Certainly, there is nothing wrong if the parties to the lease contract agreed on certain mandatory
provisions concerning their respective rights and obligations, such as the procurement of insurance
and the rescission clause. For it is well to recall that contracts are respected as the law between the
contracting parties, and they may establish such stipulations, clauses, terms and conditions as they

19
 may want to include. As long as such agreements are not contrary to law, morals, good customs,
public policy or public order they shall have the force of law between them.

Consequently, when petitioner failed to abide by its obligation to pay the installments in accordance with the
contracts to sell, provision No. 9 automatically took effect. That private respondent failed to observe Section 4
of Republic Act No. 6552, the "Realty Installment Buyer Protection Act," is of no moment. That section provides
that "(I)f the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel
the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act. Private respondent's cancellation of the agreements without a duly
notarized demand for rescission did not mean that it violated said provision of law. Republic Act No. 6552 was
approved on August 26, 1972, long after provision No. 9 of the contracts to sell had become automatically
operational. As with P.D. Nos. 957 and 1344, Republic Act No. 6552 does not expressly provide for its
retroactive application and, therefore, it could not have encompassed the cancellation of the contracts to sell
in this case.

At this juncture, it is apropos to stress that the 1961 agreements are contracts to sell and not contracts of sale.
The distinction between these contracts is graphically depicted in Adelfa Properties, Inc. v. Court of
Appeals, 21 as follows:

. . . . The distinction between the two is important for in a contract of sale, the title passes to the
vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership
is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the
vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded;
whereas, in a contract to sell, title is retained by the vendor until the full payment of the price, such
payment being a positive suspensive condition and failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is
considered absolute in nature where there is neither a stipulation in the deed that title to the property
sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to
unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

That the agreements of 1961 are contracts to sell is clear from the following provisions thereof:

3. Title to said parcel of land shall remain in the name of the OWNER until complete
payment by the PURCHASER of all obligations herein stipulated, at which time the OWNER
agrees to execute a final deed of sale in favor of the PURCHASER and cause the issuance of
a certificate of title in the name of the latter, free from liens and encumbrances except
those provided in the Land Registration Act, those imposed by the authorities, and those
contained in Clauses Nos. Five (5) and Six (6) of this agreement.

xxx xxx xxx

4. The PURCHASER shall be deemed for all legal purposes to take possession of the parcel of land upon
payment of the down or first payment; provided, however, that his/her possession under this section
shall be only that of a tenant or lessee and subject to ejectment proceedings during all the period of
this agreement.

5. The parcel of land subject of this agreement shall be used by the PURCHASER exclusively for legal
purposes, and he shall not be entitled to take or remove soil, stones, or gravel from it or any other lots
belonging to the OWNER.

Hence, being contracts to sell, Article 1592 of the Civil Code which requires rescission either by
judicial action or notarial act is not applicable. 22

Neither may petitioner claim ignorance of the cancellation of the contracts. Aside from his letters
of March 30, 1980 and February 16, 1981, private respondent's counsel, Atty. Manuel Villamayor,
had sent petitioner other formal protests and demands. 23 These letters adequately satisfied the notice
requirement stipulated in provision No. 9 of the contracts to sell. If petitioner had not agreed to the automatic
and extrajudicial cancellation of the contracts, it could have gone to court to impugn the same but it did not.
Instead, it sought to enter into a new contract to sell, thereby confirming its veracity and validity of the
extrajudicial rescission. 24 Had not private respondent filed the accion publiciana de posesion, petitioner would

20
have remained silent about the whole situation. It is now estopped from questioning the validity of the
cancellation of the contracts. An unopposed rescission of a contract has legal effects. 25

Moreover, private respondent's act of cancelling the contracts to sell was not done arbitrarily. The
record shows that private respondent dealt with petitioner with admirable patience, probably in
view of the strike, the fire in 1968 that burned petitioner's factory, and the typhoon in 1970. 28 If exercised its
contractual authority to cancel the agreements only after petitioner had reneged in its obligation after paying
only eight (8) installments. When the contracts matured, it still gave petitioner a grace period of four (4)
months within which to comply with its obligations. It considered the contracts cancelled only as of October
1971 or several years after petitioner's last installment payment 29 and definitely more than ten years after the
agreements were entered into.

Because the contracts to sell had long been cancelled when private respondent filed the accion publiciana de
posesion on July 12, 1984, it was the proper Regional Trial Court that had jurisdiction over the case. By then,
there was no more installment buyer and seller relationship to speak of. It had been recuded to a mere case of
an owner claiming possession of its property that had long been illegally withheld from it by another.

Petitioner alleges that there was a "new perfected and enforceable contract of sale" between the
parties in October 1983 for two reasons. First, it paid private respondent the down payment or "deposit of
Contract" 30through the five checks. Second, the receipt signed by private respondent's representative satisfies
the requirement of a "note or memorandum" under Article 1403 (2) of the Civil Code because it states the
object of the contract (six lots of Mar-Ick Subdivision measuring 1,453 square meters), the price (P250.00 per
square meter with a down payment of 10% or P37,542.72), and the receipt itself opens with a statement
referring to the "purchase" of the six lots of Mar-Ick Subdivision. 31

The contract of October 1983 which private respondent offered in evidence as Exhibit S, is entitled "CONTRACT
TO SELL." While the title of a contract is not controlling, its stipulations confirm the nature of that contract.
Thus, it provides:

5. Title to said parcels of land shall remain in the name of the OWNER until complete payment by the
PURCHASER of all obligations herein stipulated, at which time, the OWNER agrees to execute a final
deed of sale in favor of the PURCHASER and cause the issuance of certificates of title in the name of
the latter, free from all liens and encumbrances except those provided in the Land Registration Act,
those imposed by the authorities, and those contained in the stipulations that follow.

Under the law, there is a binding contract between the parties whose minds have met on a certain matter
notwithstanding that they did not affix their signatures to its written form.

In the case at bar, it was private respondent's company lawyer and sole witness, Atty. Manuel
Villamayor, who volunteered that after the cancellation of the 1961 agreements, the parties
should negotiate and enter into "a new agreement based on the current price" or at P400.00 per
square meter. However, there was a hitch in the negotiations because after he had drafted the
contract and sent it to petitioner, the latter "deposited a check for downpayment" but its
representative refused to sign the prepared contract. 32 Private respondent even offered the
contract to sell as its Exhibit S. 33 In the absence of proof to the contrary, this draft contract may
be deemed to embody the agreement of the parties. Moreover, when Tomas Siatianun, petitioner's
president, testified, private respondent cross-examined him as regards the October 1983
contract. 34 Private respondent did not and has not denied the existence of that contract.

Under these facts, therefore, the parties may ideally be considered as having perfected the contract of October
1983. Again in Adelfa Properties, Inc. v. Court of Appeals, the Court said that

. . . a contract, like a contract to sell, involves a meeting of the minds between two persons whereby
one binds himself, with respect to the other, to give something or to render some service. Contracts, in
general, are perfected by mere consent, which is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. 35

Moreover, private respondent's offer to sell and petitioner's acceptance thereof are manifest in the
documentary evidence presented by the parties. Thus, private respondent presented the five (5)

21
checks 36 that, through Atty. Villamayor, it admitted as the down payment under the October 1983 contract.
Private respondent's intentional non-encashment of the check cannot serve to belie the fact of its tender as
down payment. For its part, petitioner presented Exhibit 10, a receipt dated February 28, 1984, showing that
private respondent's authorized representative received the total amount of P37,642.72 represented by said
five checks as "deposit of Contract (sic)." As this Court also held in the Adelfa Properties case, acceptance may
be evidenced by some acts or conduct communicated to the offeror, either in a formal or an informal manner,
that clearly manifest the intention or determination to accept the offer to buy or
sell. 37

Justice and equity, however, will not be served by a positive ruling on the perfection and performance of the
contract to sell. There are facts on record proving that, after all, the parties had not arrived at a definite
agreement. By Atty. Villamayor's admission, the checks were not encashed because Tomas Siatianun did not
sign the draft contract that he had prepared. 38 On his part, Tomas Siatianun explained that he did not sign the
contract because it covered seven (7) lots while their agreement was only for six (6) lots. According to him,
private respondent had conceded that Lot No. 2 was meant for petitioner's right of way 39 and, therefore, it
could not have been part of the properties it wanted to buy. It is on record, moreover, that the only agreement
that the parties arrived at in a conference at the Silahis Hotel was the price indicated in the draft contract. 40

The number of lots to be sold is a material component of the contract to sell. Without an
agreement on the matter, the parties may not in any way be considered as having arrived at a
contract under the law. The parties' failure to agree on a fundamental provision of the contract
was aggravated by petitioner's failure to deposit the installments agreed upon. Neither did it
attempt to make a consignation of the installments. This Court's disquisition on the matter in
the Adelfa Properties case is relevant. Thus:

As earlier noted, petitioner did not lift a finger towards the performance of the contract other than the tender
of down payment. There is no record that it even bothered to tender payment of the installments or to amend
the contract to reflect the true intention of the parties as regards the number of lots to be sold. Indeed, by
petitioner's inaction, private respondent may not be judicially enjoined to validate a contract that the former
appeared to have taken for granted. As in the earlier agreements, petitioner ignored opportunities to
resuscitate a contract to sell that was rendered moribund and inoperative by its inaction.

What needs stressing is that the installments paid by the petitioner on the land should be deemed rentals in
accordance with provision No. 9, as well as by law. Article 1486 of the Civil Code provides that a stipulation
that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the
same may not be unconscionable under the circumstances. 44 The down payment and the eight (8)
installments paid by petitioner on the six lots under the 1961 agreements amounted to P5,672.00. The lots,
including Lot No. 2, adjoins petitioner's Vetsin and oil factories constructed on a 20,000-square-meter land that
petitioner likewise bought from private respondent. Obviously, petitioner made use of the lots not only
during the construction of the factories but also during its operations as an oil factory. Petitioner
enclosed the area with a fence and made constructions thereon. It is, therefore, not
unconscionable to allow respondent rentals on the lots as correctly decreed by the lower court.

WHEREFORE, the instant petition for review on certiorari is hereby denied and the questioned Decision of the
Court of Appeals is AFFIRMED. This Decision is immediately executory. Costs against petitioner.

ETERNAL GARDENS MEMORIAL PARK CORPORATION, petitioner,

vs.
COURT OF APPEALS and NORTH PHILIPPINE UNION MISSION OF THE SEVENTH DAY
ADVENTIST,respondents.

Facts: Petitioner EGMPC and private respondent NPUM entered into a Land Development Agreement dated
October 6, 1976. Under the agreement, EGMPC was to develop a parcel of land owned by NPUM into a
memorial park subdivided into lots. The parties further agreed

(d) THAT the FIRST PARTY (NPUM) shall receive forty (40%) percent of the gross collection less
Perpetual Care Fees (which in no case shall exceed 10% of the price per lot unless otherwise agreed
upon by both parties in writing) or Net Gross Collection (NGC) from this project. This shall be remitted

22
 monthly by the SECOND PARTY in the following manner: (i) Forty (40%) percent of the NGC, plus (ii) if it
becomes necessary for the FIRST PARTY to vacate the property earlier than two years from the date of
this agreement, at the option of the FIRST PARTY, an additional amount equivalent to twenty (20%)
percent of the NGC as cash advance for the first four (4) years with interest at twelve (12%)
percent per annum which cash advance shall be deductible out of the proceeds from the FIRST PARTY's
40% from the 5th year onward. The SECOND PARTY further agrees that if the FIRST PARTY shall desire
to have its projected receivables collected at the 5th year, the SECOND PARTY shall assist in having the
same discounted in advance.

The P1.5 million initial payment mentioned in the Deed of Absolute Sale, covering the first phase of the
project, shall be deducted out of the proceeds from the FIRST PARTY's 40% at the end of the 5th year.
Subsequent payments made by the SECOND PARTY on account of the stated purchase price in said
Deed of Absolute Sale shall be charged against what is due to the FIRST PARTY under this LAND
DEVELOPMENT AGREEMENT. 3

In compliance with the Supreme Court resolution, the Court of Appeals proceeded with the disposition of the
case, docketed therein as CA G.R. SP No. 04869, and required the parties to appear at a scheduled hearing on
June 16, 1994, "with counsel and accountants, as well as books of accounts and related records,' to determine
the remaining accrued rights and liabilities of said
parties." 12

Citing the following provision of the land development agreement:

(e) THAT the SECOND PARTY shall keep proper books and accounting records of all transactions
affecting the sale of said memorial lots, which records shall be open for inspection by the FIRST PARTY
at any time during usual office hours. The SECOND PARTY shall also render to the FIRST PARTY a
monthly accounting report of all sales and cash collections effected the preceding month. It is also
understood that all financial statements shall be subject to annual audit by a reputable external
accounting firm which should be acceptable to the FIRST PARTY. 13

the appellate court required EGMPC to produce at the scheduled hearings the following documents:

(a) statements of monthly gross income from the year 1981, supported by copies of the
contracts/agreements of the sale of lots to buyers/customers; and

(b) summary statements, by month, of the forty per cent (40%) share in the "net gross" income under
the land development agreement between the parties. 14

The accounting of the parties' respective obligations was referred to the Court's Accountant, Mrs. Carmencita
Angelo, with the concurrence of the parties, to whom the documents were to be submitted. 15

NPUM prepared and submitted a Summary of Sales and Total Amounts Due based on the following documents
it likewise submitted to the court. 16

DOCUMENTS

It appears that EGMPC did not submit any document whatsoever to aid the appellate court in its mandated
task. Thus, in a Resolution dated January 19, 1995, the appellate court declared.

. . . (1) that Eternal Gardens Memorial Park Corporation has waived its right to present the records and
documents necessarily for accounting, which records they were specifically required to preserve under
the parties' Land Development Agreement, and (2) that it will now proceed "to the mutual accounting
required to determine the remaining accrued rights and liabilities of the said parties . . ." ordered by
the Supreme Court in its Resolution of December 1, 1993 (p. 7, rec.), and that the Court will proceed to
do what it is required to do on the basis of the documents submitted by the North Philippine Union
Mission of the Seventh Day Adventists only. 17

23
Ms. Angelo submitted her Report dated January 31, 1995, to which the appellate court required the parties to
comment on. 18

EGMPC took exception to the appellate court's having considered it to have waived its right to present
documents. 19 Considering EGMPC's arguments, the court set a hearing date where NPUM would present its
documents "according to the Rules [of Court], and giving the private respondent [EGMPC] the opportunity to
object thereto." 20

Subsequently, NPUM asked for and the appellate court issued a subpoena duces tecum and subpoena ad
testificandum to EGMPC's President, Mr. Gabriel O. Vida requiring him to produce the following documents.

DOCUMENTS

NPUM also filed a Request for Admission of the documents it had earlier submitted to the Court annexed to the
Summary of Sales and Total Amounts Due, addressed to Mr. Vida. 22 EGMPC, however, filed a Denial to the
Request for Admission, alleging that it was without knowledge or information of the documents, except for the
Land Development Agreement of October 6, 1976. 23

NPUM then reiterated its request for and was granted by the appellate court, a subpoena duces tecum and
subpoena ad testificandum, this time addressed to the Chief of the Records Division of EGMPC. 24 NPUM further
filed a Motion for Production, Inspection and Photocopying of Documents and Books of Accounts of EGMPC, in
particular:

DOCUMENTS

Later, NPUM filed a second Request for Admissions addressed to Mr. Vida. He was asked to make the following
admissions:

DOCUMENTS

Meanwhile, EGMPC failed to present the documents required by the subpoena. It further filed a Denial and/or
Objection to the Requests for Admission on the ground that it could not make comparison of the documents
with the originals thereof. 27

On November 10, 1995, Ms. Angelo submitted her Report. 28

In a Resolution dated January 15, 1996, the Court of Appeals approved the report of Ms. Angelo, finding this "to
be a just and fair account of what Eternal Gardens and Memorial Park owes to the petitioner North Philippine
Union Mission of the Seventh-Day Adventists, and accordingly orders the former to pay and turn over to the
latter the amounts of P167,065,195.00 as principal and P167,235,451.00 in interest . . ." 29

EGMPC filed a Motion for Reconsideration, which was denied for lack of merit by the appellate court in a
Resolution dated April 12, 1996. 30

On April 29, 1996, EGMPC filed a Motion for Extension of Time to File Petition for Certiorari and Prohibition with
this Court, docketed as G.R. No. 124554, seeking the review of the appellate court's Resolutions dated January
15, 1996 and April 12, 1996. 31 The Court granted this motion for extension, 32 and on May 27, 1996, EGMPC
filed the instant petition. 33

It appears, however, that in a Report dated May 31, 1996 in CA-G.R. SP No. 04869, the Court of Appeals
informed the parties that its January 15, 1996 Resolution had attained finality considering the following:

The respondent Eternal Gardens Memorial Park received copy of the [January 15, 1996] resolution on
January 22, 1996 and, after twelve (12) days from its receipt or on February 2, 1996, filed a motion for
reconsideration thereof. This Court denied Eternal Garden's motion for reconsideration in a resolution
promulgated April 12, 1996, a copy of which it received on April 18, 1996. After eleven (11) days from
receipt of the resolution denying its motion for reconsideration, or on April 12, 1996 (sic), it filed a
motion for extension to file a petition for review with the Supreme Court.

24
 It is quite clear that after the denial of its motion for reconsideration, Eternal Gardens had only three
(3) days left of the reglementary period to file a petition for review, or only up to April 12, 1996, but
Eternal Gardens allowed that period to lapse, and then filed its motion to extend to file its petition on
April 29, 1996 which is eight (8) days beyond the period of finality of the resolution sought to be
reviewed by the Supreme Court. Consequently, the resolution of January 15, 1996 had attained finality
before Eternal Gardens filed its motion to extend before this Honorable Court. 34

Entry of judgment was made on June 6, 1996. 35

Following the above incidents, on June 20, 1996, EGMPC filed in G.R. No. 73794 an "Opposition and/or
Comment to the Report of the Court of Appeals dated 31 May 1996" with the prayer:

. . . to disregard and nullify the Report of the Court of Appeals dated May 31, 1996 and at the same
time allow or tolerate the First Division of the Honorable Supreme Court to resolved (sic) the petitioner
Eternal Gardens Petition for Certiorari against the Court of Appeals and NPUM with G.R. No. 124554. 36

In retort to EGMPC's opposition, also in G.R. No. 73794, NPUM filed on June 11, 1996 an Omnibus Motion (a) to
dismiss the petition in G.R. No. 124554, or (b) to consolidate the two petitions, and (c) for the issuance of a
writ of execution. NPUM contended that as a consequence of the appellate court's resolutions in CA G.R. SP No.
04869 having attained finality, a writ of execution may be issued under G.R. No. 73794, and EGMPC could no
longer file a separate petition such as that docketed as G.R. No. 124554. 37

In its Comment filed on July 17, 1996, in G.R. No. 124554, NPUM prayed for the denial of the petition for "being
frivolous and dilatory", citing EGMPC's violation of Circular No. 04-94 on forum shopping, in reference to its
(EGMPC's) pleadings filed in G.R. No. 73794. NPUM pointed out that the reliefs sought by EGMPC in G.R. No.
124554 were "identical" to those in its Opposition And/Or Comment to the Report of the Court of Appeals dated
31 May 1996 filed in G.R. No. 73794. 38

On December 26, 1996, the Regional Trial Court of Kalookan City, Branch 120, issued an Order in the case of
origin, Civil Case No. 9556, granting NPUM's motion for execution of judgment. 39 A writ of execution was
subsequently issued by that trial court on January 7, 1997. 40

Because of the trial court's issuance of the writ of execution, on January 10, 1997, EGMPC filed in G.R. No.
124554 an Urgent Motion for Restraining Order And/Or Injunction and Motion for Contempt of Court. EGMPC
prayed that "pending resolution of the petition to promptly issue a restraining order and/or injunction against
Judge Jaime Discaya of the RTC Br. 120 of Kalookan City in Civil Case No. 9556 . . ." 41

EGMPC also filed in G.R. No. 73794 on January 17, 1997 an Urgent Motion for Restraining Order And/Or
Injunctive Relief with the same prayer as in its Urgent Motion filed in G.R. No. 124554. 42

In G.R. No. 124554, the Court granted EGMPC's motion and issued a temporary restraining order against the
trial court's order dated December 16, 1996 and writ of execution dated January 7, 1997. 43

In a Resolution dated January 27, 1997 issued in G.R. No. 73794, the Court denied for lack of merit EGMPC's
Urgent Motion. 44

The threshold question here is whether Eternal Gardens timely filed its petition for review from the Court of
Appeals' January 15, 1996 and April 12, 1996 Resolutions.

RULING: We restate the material dates thus:

We now consider the merits of the case.

The gist of EGMPCs' contention is that it owes the amount of only P35,000,000.00 less advances and not
P167,065,195.00 as principal and P167,235,451.00 in interest as computed by Court Accountant Carmencita C.
Angelo. 54

25
EGMPC first contends that the appellate court, in appointing an accountant to make the computations,
delegated judicial function, such as to determine the admissibility of evidence. 55

EGMPC also contends that it was deprived of due process because it "was not given reasonable opportunity to
know and meet the claim of [NPUM] as its counsel was not able to cross-examine the American Accountant of
[NPUM]. 58

The contention is without merit.

Contrary to EGMPC's claim, it was given every opportunity to present its case. At the outset, the parties were
asked by the appellate court to submit documents for accounting. NPUM made full utilization of the modes of
discovery, asking the appellate court to subpoena documents and testimonies, and requesting admissions
from EGMPC regarding documents it (EGMPC) had in its possession, documents which emanated from the
corporation itself, and either sent to NPUM as communiques, such as the Letter of Mr. Vida dated April 4, 1980
to Pastor Bienvenido Capule of NPUM stating inter alia that for 1978, EGMPC sold 2,805 memorial lots and that
during the first quarter of 1980 the corporation sold 2,418 lots, totalling 10,730, 59 or documents available to
the general public, as in the Price Lists, or filed with government offices, specifically the Securities and
Exchange Commission and the Bureau of Internal Revenue.

EGMPC cannot claim that it was denied the forum to confer with NPUM and NPUM's accountant. The appellate
court had arranged conferences for the parties and their accountants to allow them to discuss with each other
and with Ms. Angelo. Even Ms. Angelo, in her Letter dated November 10, 1995 covering her second and final
report spoke of such a conference, to wit:

In compliance with your instructions in the last conference-meeting with the party-litigants in Case CA-
G.R. No. SP No. 04869 held last August 30, 1995, the undersigned together with the representatives of
the North Philippine Union Mission (NPUM) and the Eternal Gardens Memorial, Inc. had a discussion on
the computations made by each of the party of the amount due to the North Philippine Union Mission
which were submitted to the Court. 60

It was not even imperative that EGMPC cross-examine the accountant who prepared EGMPC's computation,
and there was no denial of due process without such cross-examination. This computation was merely to aid
Ms. Angelo, who was to make her own independent computation from the documents submitted to her.

EGMPC also asserts that "substantially if not all records, documents and papers submitted by the private
respondent NPUM to the Court's Accountant which eventually became the basis of the report and Resolution of
January 15, 1996 of the public respondent Court, were not genuine and not properly identified by the persons
who were supposed to have executed the same including the alleged financial statement of Eternal Gardens
allegedly issued by the Securities and Exchange Commission (SEC)." 61

From the transcript of stenographic notes of the proceedings in the appellate court, we find that
EGMPC acquiesced to the use of the documents submitted by NPUM, including the financial
statements, even actively participating in the discussion of the contents of such documents. EGMPC's main
objection was only on how the entries in these documents were to be interpreted, for example, on how
payments towards the perpetual care fund would be credited. 62 EGMPC did not object even when counsel for
NPUM read into the records the contents of the documents. 63

TOPIC: EGMPC lastly contends that it is not liable for interest. It claims that it was justified in
withholding payment as there was still the unresolved issue of ownership over the property subject of the Land
Development Agreement of October 6, 1976. 66

The argument is without merit EGMPC under the agreement had the obligation to remit monthly to NPUM forty
percent (40%) of its net gross collection from the development of a memorial park on property owned by
NPUM. The same agreement provided for the designation of a depository/trustee bank to act as the
depository/trustee for all funds collected by EGMPC. 67 There was no obstacle, legal or otherwise, to the
compliance by EGMPC of this provision in the contract, even on the affectation that it did not know to whom
payment was to be made.

26
Even disregarding the agreement, EGMPC cannot "suspend" payment on the pretext that it did not know who
among the subject property's claimants was the rightful owner. It had a remedy under the New Civil Code of
the Philippines to give in consignation the amounts due, as these fell due. 68 Consignation produces the
effect of payment. 69

The rationale for consignation is to avoid the performance of an obligation becoming more
onerous to the debtor by reason of causes not imputable to him. 70 For its failure to consign the
amounts due, Eternal Gardens' obligation to NPUM necessarily became more onerous as it became
liable for interest on the amounts it failed to remit.

Notably, EGMPC filed an interpleader action, "the essence of which, aside from the disavowal of interest in the
property in litigation on the part of the petitioner, is the deposit of the property or funds in controversy with
the court." Yet from the outset, EGMPC had assailed any court ruling ordering the deposit with a reputable
bank of the amounts due from it under the Land Development Agreement. In G.R. No. 73794, 71 the Court
made the following discourse on the disavowal of EGMPC of its obligations, thus:

In the case at bar, a careful analysis of the records will show that petitioner admitted among others in
its complaint in Interpleader that it is still obligated to pay certain amount to private respondent; that
it claims no interest in such amounts due and is willing to pay whoever is declared entitled to said
amounts. Such admissions in the complaint were reaffirmed in open court before the Court of Appeals
as stated in the latter court's resolution dated September 5, 1985 in C.A. G.R. No. 04869 which states:

The private respondent (MEMORIAL) then reaffirms before the Court its original position
that it is a disinterested party with respect to the property now the subject of the
interpleader case.

In the light of the willingness, expressly made before the court, affirming the complaint
filed below, that the private respondent (MEMORIAL) will pay whatever is due on the
Land Development Agreement to the rightful owner/owners, there is no reason why the
amount due on subject agreement has not been placed in the custody of the Court.

Under the circumstances, there appears to be no plausible reason for petitioner's objections to the
deposit of the amounts in litigation after having asked for the assistance of the lower court by filing a
complaint for interpleader where the deposit of aforesaid amounts is not only required by the nature of
the action but is a contractual obligation of the petitioner under the Land Development Program.

We thus find that the Court of Appeals correctly held Eternal Gardens liable for interest at the rate of twelve
percent (12%). The withholding of the amounts due under the agreement was tantamount to a forbearance of
money. 73

CONSIDERING THE FOREGOING, the Court Resolved to DENY the petition. The Resolutions dated January 15,
1996 and April 12, 1996 are AFFIRMED. The temporary restraining order issued by this Court on January 15,
1997 is LIFTED. SO ORDERED.

BANK OF THE PHILIPPINE ISLANDS (formerly FAR EAST BANK AND TRUST COMPANY), Petitioner,
vs.
COURT OF APPEALS and JIMMY T. GO, Respondents.

FACTS: Petitioner, Far East Bank and Trust Company, granted a total of eight (8) loans to Noahs Arc Merchandising (Noahs
Ark, for brevity). Per Certificate of Registration issued by the Department of Trade and Industry (Rollo, p. 40), Noahs Ark is a
single proprietorship owned by Mr. Albert T. Looyuko. The said loans were evidenced by identical Promissory Notes all signed
by Albert T. Looyuko, private respondent Jimmy T. Go and one Wilson Go. Likewise, all loans were secured by real estate
mortgage constituted over a parcel of land covered by Transfer Certificate of Title [No.] 160277 registered in the names of Mr.
Looyuko and herein private respondent. Petitioner, claiming that Noahs Ark defaulted in its obligations, extrajudicially
foreclosed the mortgage. The auction sale was set on 14 April 1998 but on 8 April 1998 private respondent filed a complaint for
damages with prayer [for] issuance of TRO and/or writ of preliminary injunction seeking [to] enjoin the auction sale. [I]n the
Order dated 14 April 1998 a temporary restraining order was issued and in the same order the application for Preliminary
Injunction was set for hearing [i]n the afternoon of the same day (Rollo, p. 142).2

27
In an order3 dated April 15, 1998, Judge Victorio extended the TRO for another 15 days, for a total of 20 days. The Court of
Appeals decision continues thus:

After hearing, the 7 May 1998 Order granted the application for preliminary injunction which shall take effect upon posting of a
bond in the amount of Two Hundred Thousand Pesos (P200,000.00). The dispositive portion read:

"WHEREFORE, it appearing that the acts complained of would be in violation of plaintiffs right and would work injustice to the
plaintiff and so as not to render ineffectual whatever judgment may be issued in this case, the application [for] preliminary
injunction is hereby granted and the defendants and all persons acting in their behalf are hereby ordered to cease, desist, and
refrain from proceeding with the scheduled foreclosure and public auction sale of the mortgaged property covered by TCT No.
160277 until further orders from this Court.

This Order shall be effective upon petitioners filing of a bond in the amount of Two Hundred Thousand Pesos (P200,000.00)
to answer for any and all damages that defendants may suffer by reason of the issuance of the writ of preliminary injunction.

As prayed for, defendants are hereby directed to file their answer on or before May 14, 1998. Copy furnished plaintiff.

After petitioners motion for reconsideration was denied in an order dated July 30, 1998, petitioner filed a petition for certiorari
with the Court of Appeals, praying that the orders dated May 7, 1998 and July 30, 1998, granting the writ of preliminary
injunction and denying the motion for reconsideration, respectively, be annulled and set aside and the writ of preliminary
injunction be dissolved. Furthermore, petitioner asked to be allowed to proceed with the auction sale of the property.

The Court of Appeals promulgated its decision dated August 26, 1999 which partially denied the petition for certiorari, stating
as follows:

ISSUE: "Whether the trial court erred in the issuance of the Writ of Preliminary Injunction or not."

While petitioner corporation does not deny, in fact, it admits its indebtedness to respondent bank (Brief for Petitioner, pp. 7-11),
there were matters that needed the preservation of the status quo between the parties. The foreclosure sale was premature.

First was the question of whether or not petitioner corporation was already in default.

xxx

Petitioner corporation alleges that there had been no demand on the part of respondent bank previous to its filing a complaint
against petitioner and Rene Knecht personally for collection on petitioners indebtedness (Brief for Petitioner, p.13). For an
obligation to become due there must generally be a demand. Default generally begins from the moment the creditor demands
the performance of the obligation. Without such demand, judicial or extrajudicial, the effects of default will not arise. (Namarco
v. Federation of United Namarco Distributors, Inc. 49 SCRA 238 [1973]; Borje v. CFI of Misamis Occidental, 88 SCRA 576
[1979]. Whether petitioner corporation is already in default or not and whether demand had been properly made or not had to
be determined in the lower court. (167 SCRA 317-318).

We now come to the matter of sufficiency of the bond filed by private respondent. Petitioner claims that the P200,000.00 bond
is grossly insufficient. It argued, thus:

By enjoining petitioner from conducting the auction sale of the mortgaged property, petitioner has already suffered damages in
the amount of P715,077.78 representing filing and publication fees. Yet damages to be incurred by petitioner by reason of the
injunction are not limited to filing and publication fees, granting that the case will drag on for more tha[n] a year, which is
usually the case. The injunction would deprive petitioner FEBTC of its own income from the foreclosed property or from the
proceeds of the foreclosure sale. Obviously it is easily more than P200,000.00 (Rollo, p. 31).

On the first issue, this Court finds that private respondent was not entitled to the TRO and the writ of preliminary injunction.
Section 3 of Rule 58 of the Rules of Court provides the grounds for the issuance of a preliminary injunction, to wit:

A preliminary injunction may be granted when it is established:

28
 (a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the
commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either
for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would
probably work injustice to the applicant; or

(c) That a party, court, agency or person is doing, threatening, or is attempting to do, or is procuring or suffering to be
done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or
proceeding, and tending to render the judgment ineffectual.

As will be discussed below, private respondent is not entitled to the relief of injunction against the extrajudicial
foreclosure and auction sale. Neither are the extrajudicial foreclosure and auction sale violative of private
respondents rights.

Private respondent claimed that demand was not made upon him, in spite of the fact that he co-signed the promissory notes.
He also argues that only four of the eight promissory notes secured by the mortgage had become due. A reading of the
promissory notes discloses that as co-signor, private respondent waived demand. Furthermore, the promissory notes contain
an acceleration clause, to wit:

Upon the happening of any of the following events, FAR EAST BANK AND TRUST COMPANY or the holder, may at its
option, forthwith accelerate maturity and the unpaid balance of the principal, as well as interest and other charges which
have accrued, shall become due and payable without demand or notice[:](1) default in payment or performance of any
obligation of any of the undersigned to FAR EAST BANK AND TRUST COMPANY or its affiliated companies;

xxx

I/We hereby waive any diligence, presentment, demand, protest or notice of non-payment o[r] dishonor with respect to this
note or any extension thereof.7 (Emphasis added)

The Civil Code in Article 11698 provides that one incurs in delay or is in default from the time the obligor demands the
fulfillment of the obligation from the obligee. However, the law expressly provides that demand is not necessary under certain
circumstances, and one of these circumstances is when the parties expressly waive demand. Hence, since the co-signors
expressly waived demand in the promissory notes, demand was unnecessary for them to be in default.

Private respondent further argues that by withholding the lease payments Far East Bank and Trust Company (FEBTC)
owed Noahs Ark for the space FEBTC was leasing from Noahs Ark and applying said amounts to the outstanding
obligation of Noahs Ark, as expressed in a letter from FEBTC dated May 19, 1998,9 FEBTC has waived default,
novated the contract of loan as embodied in the promissory notes and is therefore estopped from foreclosing on the
mortgaged property.

This Court disagrees. FEBTCs act of withholding the lease payments and applying them to the outstanding
obligation of Noahs Ark is merely an acknowledgement of the legal compensation that occurred by operation of law
between the parties. The Court has expounded on compensation and more specifically on legal compensation as
follows:

x x x compensation is a mode of extinguishing to the concurrent amount the obligations of persons who in their own right and
as principals are reciprocally debtors and creditors of each other. Legal compensation takes place by operation of law when all
the requisites are present, as opposed to conventional compensation which takes place when the parties agree to
compensate their mutual obligations even in the absence of some requisites.10

The Civil Code enumerates the requisites of legal compensation, thus:

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;

29
 (2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and communicated
in due time to the debtor.

It is clear from the facts that FEBTC and Noahs Ark are both principal obligors and creditors of each other. Their debts to each
other both consist in a sum of money. As discussed above, the eight promissory notes of Noahs Ark are all due; and the lease
payments owed by FEBTC become due each month. Noahs Arks debt is liquidated and demandable; and FEBTCs lease
payments are liquidated and are demandable every month as they fall due. Lastly, there is no retention or controversy
commenced by third persons over either of the debts.

Novation did not occur as private respondent argued. The Court has declared that a contract cannot be novated in the
absence of a new contract executed between the parties.11 The legal compensation, which was acknowledged by FEBTC in its
May 19, 1998 letter, occurred by operation of law, as discussed above. As a consequence, it cannot be considered a new
contract between the parties. Hence, the loan agreement, as embodied in the promissory notes and the real estate mortgage,
subsists.

Since the compensation between the parties occurred by operation of law, FEBTC did not waive Noahs Arks default.

As a result of the absence of novation or waiver of default, FEBTC is therefore not estopped from proceeding with the
foreclosure.

WHEREFORE, the petition is GRANTED and the decision12 and resolution13 of the Court of Appeals dated August 26, 1999
and April 3, 2000, respectively, are PARTIALLY REVERSED and SET ASIDE, retaining only the portion which increases the
amount of the injunctive bond to Five Million Pesos (P5,000,000). The writ of preliminary injunction issued by Judge Urbano C.
Victorio, Sr., in an order14 dated May 7, 1998 in Civil Case No. 98-88266, is hereby DISSOLVED. No costs.

SO ORDERED.

30