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CIV 2

CASES FROM 1-25

R No. 47362. December 19, 1940.]

JUAN F. VILLAROEL, appellant-appellant, against BERNARDINO ESTRADA, appealed-appealed.

D. Felipe Agoncillo in representation of the appellant-appellant.

D. Crispin Oben in representation of the appealed-appellant.

SYLLABUS

1. CONTRACTS; NEW PROMISE TO PAY A PRESCRIBED DEBT; MORAL OBLIGATION AS CONSIDERATION OF A CONTRACT. -
The present action is not based on the original obligation of the defendant's mother, which he has already preset, but on
the one contracted by the defendant on August 9, 1930 (Exhibit B) upon assuming the fulfillment of that obligation,
already prescribed . Being the defendant the only inheritance of the original debtor, with the right to succeed her in her
inheritance, that debt contracted by her mother legally, although she lost her effectiveness by prescription, is now,
however, for him a moral obligation, which is sufficient consideration to create and make efieaz and exigible its obligation
voluntarily contracted on August 9, 1930 in Exhibit B.

2. ID .; ID; ID. - The rule that a new promise to pay a prescribed debt must be made by the same obligated person or by
another legally authorized by it, is not applicable to the present case in which compliance with the obligation of the
originally obligated is not required, but of the one that later voluntarily wanted to assume this obligation.

DECISION

AVANCEÑA, Pres p: chanrob1es virtual 1aw library

On May 9, 1912, Alejandra F. Callao, mother of the defendant Juan F. Villarroel, obtained a P1,000 loan from Mariano
Estrada and Severina, which was payable after seven years ( Exhibit A). Alejandra passed away, leaving the defendant
as the sole heir. The spouses Mariano Estrada and Severina also died, leaving the plaintiff Bernardino Estrada as the
sole heir. On August 9, 1930, the defendant signed a document (Exhibit B) declaring the applicant P1,000 in duty, with
an interest of 12 percent per year. This action is about the collection of this amount.

The Court of First Instance of Laguna, in which this action was filed, ordered the defendant to pay the plaintiff the
amount claimed of P1,000 with its legal interest of 12 percent a year from August 9, 1930 to its full payment. Appeal of
this sentence.

It will be noted that the parties in the present case are, respectively, the sole heirs of the original creditors and the
debtor. This action is exercised by virtue of the obligation that the defendant, as the only son of the original debtor,
contracted in favor of the claimant, sole heir of the original creditors. It is admitted that the amount of P1,000 to which
this obligation is contracted is the same debt of the defendant's mother to the parents of the plaintiff.
Although the action to recover the original debt has already prescribed when the claim was filed in this case, the
question that arises in this appeal is mainly the question of whether, notwithstanding such a prescription, the action
filed is proceeding. However, the present action is not based on the original obligation contracted by the defendant's
estate, which has already been prescribed, but on the one contracted by the defendant on August 9, 1930 (Exhibit B)
upon assuming compliance with that obligation. already prescribed. Being the defendant the only heir of the original
debtor, with the right to succeed her in her inheritance, that debt contracted by her mother legally, although she lost
her effectiveness by prescription, is now, however, for him a moral obligation,

The rule that a new promise to pay a prescribed debt must be made by the same obligated person or by another
legally authorized by it, is not applicable to the present case in which compliance with the obligation of the originally
obligated is not required, but who later voluntarily wanted to assume this obligation.

The sentence appealed is confirmed, with the costs to the appellant. This is how it is ordered.

Imperial, Diaz, Laurel and Horrilleno, MM., Are satisfied.

PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,


vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY, ET AL., defendants-appellees.

Celso A. Fernandez for appellants.


Juan C. Jimenez, for appellees.

PARAS, C. J.:

On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a complaint praying for a 20%
Christmas bonus for the years 1954 and 1955. The court a quo on appellees' motion to dismiss, issued the following
order:

Considering the motion to dismiss filed on 15 August, 1956, set for this morning; considering that at the hearing
thereof, only respondents appeared thru counsel and there was no appearance for the plaintiffs although the
court waited for sometime for them; considering, however, that petitioners have submitted an opposition which
the court will consider together with the arguments presented by respondents and the Exhibits marked and
presented, namely, Exhibits 1 to 5, at the hearing of the motion to dismiss; considering that the action in brief is
one to compel respondents to declare a Christmas bonus for petitioners workers in the National Development
Company; considering that the Court does not see how petitioners may have a cause of action to secure such
bonus because:

(a) A bonus is an act of liberality and the court takes it that it is not within its judicial powers to command
respondents to be liberal;

(b) Petitioners admit that respondents are not under legal duty to give such bonus but that they had only ask that
such bonus be given to them because it is a moral obligation of respondents to give that but as this Court
understands, it has no power to compel a party to comply with a moral obligation (Art. 142, New Civil Code.).
IN VIEW WHEREOF, dismissed. No pronouncement as to costs.

A motion for reconsideration of the afore-quoted order was denied. Hence this appeal.

Appellants contend that there exists a cause of action in their complaint because their claim rests on moral grounds or
what in brief is defined by law as a natural obligation.

Since appellants admit that appellees are not under legal obligation to give such claimed bonus; that the grant arises only
from a moral obligation or the natural obligation that they discussed in their brief, this Court feels it urgent to reproduce
at this point, the definition and meaning of natural obligation.

Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil obligations are a right of action to
compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not
grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the
retention of what has been delivered or rendered by reason thereof".

It is thus readily seen that an element of natural obligation before it can be cognizable by the court is voluntary
fulfillment by the obligor. Certainly retention can be ordered but only after there has been voluntary performance. But
here there has been no voluntary performance. In fact, the court cannot order the performance.

At this point, we would like to reiterate what we said in the case of Philippine Education Co. vs. CIR and the Union of
Philippine Education Co., Employees (NUL) (92 Phil., 381; 48 Off. Gaz., 5278) —

xxx xxx xxx

From the legal point of view a bonus is not a demandable and enforceable obligation. It is so when it is made a
part of the wage or salary compensation.

And while it is true that the subsequent case of H. E. Heacock vs. National Labor Union, et al., 95 Phil., 553; 50 Off. Gaz.,
4253, we stated that:

Even if a bonus is not demandable for not forming part of the wage, salary or compensation of an employee, the
same may nevertheless, be granted on equitable consideration as when it was given in the past, though withheld
in succeeding two years from low salaried employees due to salary increases.

still the facts in said Heacock case are not the same as in the instant one, and hence the ruling applied in said case cannot
be considered in the present action.

Premises considered, the order appealed from is hereby affirmed, without pronouncement as to costs.

Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia Barrera and Gutierrez David, JJ.,concur.
DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,
vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of First Instance of Iloilo and SPOUSES
PATRICIO CONFESOR and JOVITA VILLAFUERTE, respondents.

GANCAYCO, J.:

The issue posed in this petition for review on certiorari is the validity of a promissory note which was executed in
consideration of a previous promissory note the enforcement of which had been barred by prescription.

On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan from the Agricultural
and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the sum of P2,000.00, Philippine Currency, as
evidenced by a promissory note of said date whereby they bound themselves jointly and severally to pay the account in
ten (10) equal yearly amortizations. As the obligation remained outstanding and unpaid even after the lapse of the
aforesaid ten-year period, Confesor, who was by then a member of the Congress of the Philippines, executed a second
promissory note on April 11, 1961 expressly acknowledging said loan and promising to pay the same on or before June
15, 1961. The new promissory note reads as follows —

I hereby promise to pay the amount covered by my promissory note on or before June 15, 1961. Upon
my failure to do so, I hereby agree to the foreclosure of my mortgage. It is understood that if I can secure
a certificate of indebtedness from the government of my back pay I will be allowed to pay the amount
out of it.

Said spouses not having paid the obligation on the specified date, the DBP filed a complaint dated September 11, 1970 in
the City Court of Iloilo City against the spouses for the payment of the loan.

After trial on the merits a decision was rendered by the inferior court on December 27, 1976, the dispositive part of
which reads as follows:

WHEREFORE, premises considered, this Court renders judgment, ordering the defendants Patricio
Confesor and Jovita Villafuerte Confesor to pay the plaintiff Development Bank of the Philippines, jointly
and severally, (a) the sum of P5,760.96 plus additional daily interest of P l.04 from September 17, 1970,
the date Complaint was filed, until said amount is paid; (b) the sum of P576.00 equivalent to ten (10%) of
the total claim by way of attorney's fees and incidental expenses plus interest at the legal rate as of
September 17,1970, until fully paid; and (c) the costs of the suit.

Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo wherein in due course a decision was
rendered on April 28, 1978 reversing the appealed decision and dismissing the complaint and counter-claim with costs
against the plaintiff.

A motion for reconsideration of said decision filed by plaintiff was denied in an order of August 10, 1978. Hence this
petition wherein petitioner alleges that the decision of respondent judge is contrary to law and runs counter to decisions
of this Court when respondent judge (a) refused to recognize the law that the right to prescription may be renounced or
waived; and (b) that in signing the second promissory note respondent Patricio Confesor can bind the conjugal
partnership; or otherwise said respondent became liable in his personal capacity. The petition is impressed with merit.
The right to prescription may be waived or renounced. Article 1112 of Civil Code provides:

Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but
not the right to prescribe in the future.

Prescription is deemed to have been tacitly renounced when the renunciation results from acts which
imply the abandonment of the right acquired.

There is no doubt that prescription has set in as to the first promissory note of February 10, 1940. However, when
respondent Confesor executed the second promissory note on April 11, 1961 whereby he promised to pay the amount
covered by the previous promissory note on or before June 15, 1961, and upon failure to do so, agreed to the foreclosure
of the mortgage, said respondent thereby effectively and expressly renounced and waived his right to the prescription of
the action covering the first promissory note.

This Court had ruled in a similar case that –

... when a debt is already barred by prescription, it cannot be enforced by the creditor. But a new
contract recognizing and assuming the prescribed debt would be valid and enforceable ... . 1

Thus, it has been held —

Where, therefore, a party acknowledges the correctness of a debt and promises to pay it after the same
has prescribed and with full knowledge of the prescription he thereby waives the benefit of
prescription. 2

This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay the debt. The
consideration of the new promissory note is the pre-existing obligation under the first promissory note. The statutory
limitation bars the remedy but does not discharge the debt.

A new express promise to pay a debt barred ... will take the case from the operation of the statute of
limitations as this proceeds upon the ground that as a statutory limitation merely bars the remedy and
does not discharge the debt, there is something more than a mere moral obligation to support a promise,
to wit a – pre-existing debt which is a sufficient consideration for the new the new promise; upon this
sufficient consideration constitutes, in fact, a new cause of action. 3

... It is this new promise, either made in express terms or deduced from an acknowledgement as a legal
implication, which is to be regarded as reanimating the old promise, or as imparting vitality to the
remedy (which by lapse of time had become extinct) and thus enabling the creditor to recover upon his
original contract. 4

However, the court a quo held that in signing the promissory note alone, respondent Confesor cannot thereby bind his
wife, respondent Jovita Villafuerte, citing Article 166 of the New Civil Code which provides:

Art. 166. Unless the wife has been declared a non compos mentis or a spend thrift, or is under civil
interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property
of the conjugal partnership without, the wife's consent. If she ay compel her to refuses unreasonably to
give her consent, the court m grant the same.

We disagree. Under Article 165 of the Civil Code, the husband is the administrator of the conjugal partnership. As such
administrator, all debts and obligations contracted by the husband for the benefit of the conjugal partnership, are
chargeable to the conjugal partnership. 5 No doubt, in this case, respondent Confesor signed the second promissory note
for the benefit of the conjugal partnership. Hence the conjugal partnership is liable for this obligation.

WHEREFORE, the decision subject of the petition is reversed and set aside and another decision is hereby rendered
reinstating the decision of the City Court of Iloilo City of December 27, 1976, without pronouncement as to costs in this
instance. This decision is immediately executory and no motion for extension of time to file motion for reconsideration
shall be granted.

SO ORDERED.

SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS, plaintiff-appellee,


vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.

First Assistant Corporate Counsel Federico C. Alikpala and Assistant Attorney Augusto Kalaw for appellant.
Ramirez and Ortigas for appellee.

LABRADOR, J.:

This is an action to recover the possession of a piece of real property (land and warehouses) situated in Pandacan Manila,
and the rentals for its occupation and use. The land belongs to the plaintiff, in whose name the title was registered before
the war. On January 4, 1943, during the Japanese military occupation, the land was acquired by a Japanese corporation
by the name of Taiwan Tekkosho for the sum of P140,00, and thereupon title thereto issued in its name (transfer
certificate of title No. 64330, Register of Deeds, Manila). After liberation, more specifically on April 4, 1946, the Alien
Property Custodian of the United States of America took possession, control, and custody thereof under section 12 of the
Trading with the Enemy Act, 40 Stat., 411, for the reason that it belonged to an enemy national. During the year 1946 the
property was occupied by the Copra Export Management Company under a custodianship agreement with United States
Alien Property Custodian (Exhibit G), and when it vacated the property it was occupied by the defendant herein. The
Philippine Government made representations with the Office Alien Property Custodian for the use of property by the
Government (see Exhibits 2, 2-A, 2-B, and 1). On March 31, 1947, the defendant was authorized to repair the warehouse
on the land, and actually spent thereon the repairs the sum of P26,898.27. In 1948, defendant leased one-third of the
warehouse to one Dioscoro Sarile at a monthly rental of P500, which was later raised to P1,000 a month. Sarile did not
pay the rents, so action was brought against him. It is not shown, however, if the judgment was ever executed.

Plaintiff made claim to the property before the Alien Property Custodian of the United States, but as this was denied, it
brought an action in court (Court of First Instance of Manila, civil case No. 5007, entitled "La Sagrada Orden Predicadores
de la Provinicia del Santisimo Rosario de Filipinas," vs. Philippine Alien Property Administrator, defendant, Republic of the
Philippines, intervenor) to annul the sale of property of Taiwan Tekkosho, and recover its possession. The Republic of the
Philippines was allowed to intervene in the action. The case did not come for trial because the parties presented a joint
petition in which it is claimed by plaintiff that the sale in favor of the Taiwan Tekkosho was null and void because it was
executed under threats, duress, and intimidation, and it was agreed that the title issued in the name of the Taiwan
Tekkosho be cancelled and the original title of plaintiff re-issued; that the claims, rights, title, and interest of the Alien
Property Custodian be cancelled and held for naught; that the occupant National Coconut Corporation has until February
28, 1949, to recover its equipment from the property and vacate the premises; that plaintiff, upon entry of judgment, pay
to the Philippine Alien Property Administration the sum of P140,000; and that the Philippine Alien Property
Administration be free from responsibility or liability for any act of the National Coconut Corporation, etc. Pursuant to the
agreement the court rendered judgment releasing the defendant and the intervenor from liability, but reversing to the
plaintiff the right to recover from the National Coconut Corporation reasonable rentals for the use and occupation of the
premises. (Exhibit A-1.)

The present action is to recover the reasonable rentals from August, 1946, the date when the defendant began to occupy
the premises, to the date it vacated it. The defendant does not contest its liability for the rentals at the rate of P3,000 per
month from February 28, 1949 (the date specified in the judgment in civil case No. 5007), but resists the claim therefor
prior to this date. It interposes the defense that it occupied the property in good faith, under no obligation whatsoever to
pay rentals for the use and occupation of the warehouse. Judgment was rendered for the plaintiff to recover from the
defendant the sum of P3,000 a month, as reasonable rentals, from August, 1946, to the date the defendant vacates the
premises. The judgment declares that plaintiff has always been the owner, as the sale of Japanese purchaser was void ab
initio; that the Alien Property Administration never acquired any right to the property, but that it held the same in trust
until the determination as to whether or not the owner is an enemy citizen. The trial court further declares that
defendant can not claim any better rights than its predecessor, the Alien Property Administration, and that as defendant
has used the property and had subleased portion thereof, it must pay reasonable rentals for its occupation.

Against this judgment this appeal has been interposed, the following assignment of error having been made on
defendant-appellant's behalf:

The trial court erred in holding the defendant liable for rentals or compensation for the use and occupation of the
property from the middle of August, 1946, to December 14, 1948.

1. Want to "ownership rights" of the Philippine Alien Property Administration did not render illegal or invalidate
its grant to the defendant of the free use of property.

2. the decision of the Court of First Instance of Manila declaring the sale by the plaintiff to the Japanese
purchaser null and void ab initio and that the plaintiff was and has remained as the legal owner of the property,
without legal interruption, is not conclusive.

3. Reservation to the plaintiff of the right to recover from the defendant corporation not binding on the later;

4. Use of the property for commercial purposes in itself alone does not justify payment of rentals.

5. Defendant's possession was in good faith.

6. Defendant's possession in the nature of usufruct.

In reply, plaintiff-appellee's counsel contends that the Philippine Allien Property Administration (PAPA) was a mere
administrator of the owner (who ultimately was decided to be plaintiff), and that as defendant has used it for commercial
purposes and has leased portion of it, it should be responsible therefore to the owner, who had been deprived of the
possession for so many years. (Appellee's brief, pp. 20, 23.)

We can not understand how the trial court, from the mere fact that plaintiff-appellee was the owner of the property and
the defendant-appellant the occupant, which used for its own benefit but by the express permission of the Alien Property
Custodian of the United States, so easily jumped to the conclusion that the occupant is liable for the value of such use
and occupation. If defendant-appellant is liable at all, its obligations, must arise from any of the four sources of
obligations, namley, law, contract or quasi-contract, crime, or negligence. (Article 1089, Spanish Civil Code.) Defendant-
appellant is not guilty of any offense at all, because it entered the premises and occupied it with the permission of the
entity which had the legal control and administration thereof, the Allien Property Administration. Neither was there any
negligence on its part. There was also no privity (of contract or obligation) between the Alien Property Custodian and the
Taiwan Tekkosho, which had secured the possession of the property from the plaintiff-appellee by the use of duress, such
that the Alien Property Custodian or its permittee (defendant-appellant) may be held responsible for the supposed
illegality of the occupation of the property by the said Taiwan Tekkosho. The Allien Property Administration had the
control and administration of the property not as successor to the interests of the enemy holder of the title, the Taiwan
Tekkosho, but by express provision of law (Trading with the Enemy Act of the United States, 40 Stat., 411; 50 U.S.C.A.,
189). Neither is it a trustee of the former owner, the plaintiff-appellee herein, but a trustee of then Government of the
United States (32 Op. Atty. Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion of, and against the claim or title
of, the enemy owner. (Youghioheny & Ohio Coal Co. vs. Lasevich [1920], 179 N.W., 355; 171 Wis., 347; U.S.C.A., 282-283.)
From August, 1946, when defendant-appellant took possession, to the late of judgment on February 28, 1948, Allien
Property Administration had the absolute control of the property as trustee of the Government of the United States, with
power to dispose of it by sale or otherwise, as though it were the absolute owner. (U.S vs. Chemical Foundation [C.C.A.
Del. 1925], 5 F. [2d], 191; 50 U.S.C.A., 283.) Therefore, even if defendant-appellant were liable to the Allien Property
Administration for rentals, these would not accrue to the benefit of the plaintiff-appellee, the owner, but to the United
States Government.

But there is another ground why the claim or rentals can not be made against defendant-appellant. There was no
agreement between the Alien Property Custodian and the defendant-appellant for the latter to pay rentals on the
property. The existence of an implied agreement to that effect is contrary to the circumstances. The copra Export
Management Company, which preceded the defendant-appellant, in the possession and use of the property, does not
appear to have paid rentals therefor, as it occupied it by what the parties denominated a "custodianship agreement," and
there is no provision therein for the payment of rentals or of any compensation for its custody and or occupation and the
use. The Trading with the Enemy Act, as originally enacted, was purely a measure of conversation, hence, it is very
unlikely that rentals were demanded for the use of the property. When the National coconut Corporation succeeded the
Copra Export Management Company in the possession and use of the property, it must have been also free from
payment of rentals, especially as it was Government corporation, and steps where then being taken by the Philippine
Government to secure the property for the National Coconut Corporation. So that the circumstances do not justify the
finding that there was an implied agreement that the defendant-appellant was to pay for the use and occupation of the
premises at all.

The above considerations show that plaintiff-appellee's claim for rentals before it obtained the judgment annulling the
sale of the Taiwan Tekkosho may not be predicated on any negligence or offense of the defendant-appellant, or any
contract, express or implied, because the Allien Property Administration was neither a trustee of plaintiff-appellee, nor a
privy to the obligations of the Taiwan Tekkosho, its title being based by legal provision of the seizure of enemy property.
We have also tried in vain to find a law or provision thereof, or any principle in quasi contracts or equity, upon which the
claim can be supported. On the contrary, as defendant-appellant entered into possession without any expectation of
liability for such use and occupation, it is only fair and just that it may not be held liable therefor. And as to the rents it
collected from its lessee, the same should accrue to it as a possessor in good faith, as this Court has already expressly
held. (Resolution, National Coconut Corporation vs. Geronimo, 83 Phil. 467.)

Lastly, the reservation of this action may not be considered as vesting a new right; if no right to claim for rentals existed
at the time of the reservation, no rights can arise or accrue from such reservation alone.

Wherefore, the part of the judgment appealed from, which sentences defendant-appellant to pay rentals from August,
1946, to February 28, 1949, is hereby reversed. In all other respects the judgment is affirmed. Costs of this appeal shall be
against the plaintiff-appellee.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Montemayor

HE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,


vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.

DECISION

DEL CASTILLO, J.:

Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid upon demand by the depositor.2

This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the April 2, 2008 Decision4 and the May
30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. 89086.

Factual Antecedents

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized and existing under
the laws of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the owner of China Golden Bridge Travel
Services,7 a travel agency.8 Respondent Yo Yuk To is the mother of respondent Rosales.9

In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.11 As of August 4, 2004,
respondents’ Joint Peso Account showed a balance of ₱2,515,693.52.12

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National applying for a retiree’s visa
from the Philippine Leisure and Retirement Authority (PLRA), to petitioner’s branch in Escolta to open a savings account,
as required by the PLRA.13 Since Liu Chiu Fang could speak only in Mandarin, respondent Rosales acted as an interpreter
for her.14

On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar Account15 with an initial
deposit of US$14,000.00.16
On July 31, 2003, petitioner issued a "Hold Out" order against respondents’ accounts.17

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre, filed before the
Office of the Prosecutor of Manila a criminal case for Estafa through False Pretences, Misrepresentation, Deceit, and Use
of Falsified Documents, docketed as I.S. No. 03I-25014,18 against respondent Rosales.19 Petitioner accused respondent
Rosales and an unidentified woman as the ones responsible for the unauthorized and fraudulent withdrawal of
US$75,000.00 from Liu Chiu Fang’s dollar account with petitioner’s Escolta Branch.20Petitioner alleged that on February 5,
2003, its branch in Escolta received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu Fang;21 that
in the afternoon of the same day, respondent Rosales went to petitioner’s Escolta Branch to inform its Branch Head, Celia
A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her dollar deposits in cash;22 that Gutierrez told
respondent Rosales to come back the following day because the bank did not have enough dollars;23 that on February 6,
2003, respondent Rosales accompanied an unidentified impostor of Liu Chiu Fang to the bank;24 that the impostor was
able to withdraw Liu Chiu Fang’s dollar deposit in the amount of US$75,000.00;25 that on March 3, 2003, respondents
opened a dollar account with petitioner; and that the bank later discovered that the serial numbers of the dollar notes
deposited by respondents in the amount of US$11,800.00 were the same as those withdrawn by the impostor.26

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from the dollar account
of Liu Chiu Fang.27 Respondent Rosales claimed that she did not go to the bank on February 5, 2003.28Neither did she
inform Gutierrez that Liu Chiu Fang was going to close her account.29 Respondent Rosales further claimed that after Liu
Chiu Fang opened an account with petitioner, she lost track of her.30 Respondent Rosales’ version of the events that
transpired thereafter is as follows:

On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at the bank to close her
account.31 At noon of the same day, respondent Rosales went to the bank to make a transaction.32 While she was
transacting with the teller, she caught a glimpse of a woman seated at the desk of the Branch Operating Officer, Melinda
Perez (Perez).33 After completing her transaction, respondent Rosales approached Perez who informed her that Liu Chiu
Fang had closed her account and had already left.34 Perez then gave a copy of the Withdrawal Clearance issued by the
PLRA to respondent Rosales.35 On June 16, 2003, respondent Rosales received a call from Liu Chiu Fang inquiring about
the extension of her PLRA Visa and her dollar account.36 It was only then that Liu Chiu Fang found out that her account
had been closed without her knowledge.37 Respondent Rosales then went to the bank to inform Gutierrez and Perez of
the unauthorized withdrawal.38 On June 23, 2003, respondent Rosales and Liu Chiu Fang went to the PLRA Office, where
they were informed that the Withdrawal Clearance was issued on the basis of a Special Power of Attorney (SPA) executed
by Liu Chiu Fang in favor of a certain Richard So.39 Liu Chiu Fang, however, denied executing the SPA.40 The following day,
respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA Office to discuss the unauthorized
withdrawal.41 During the conference, the bank officers assured Liu Chiu Fang that the money would be returned to her.42

On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the criminal case for
lack of probable cause.43 Unfazed, petitioner moved for reconsideration.

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a Complaint44 for Breach of
Obligation and Contract with Damages, docketed as Civil Case No. 04110895 and raffled to Branch 21, against petitioner.
Respondents alleged that they attempted several times to withdraw their deposits but were unable to because petitioner
had placed their accounts under "Hold Out" status.45 No explanation, however, was given by petitioner as to why it issued
the "Hold Out" order.46 Thus, they prayed that the "Hold Out" order be lifted and that they be allowed to withdraw their
deposits.47 They likewise prayed for actual, moral, and exemplary damages, as well as attorney’s fees.48
Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing the "Hold Out"
order.49 It averred that due to the fraudulent scheme of respondent Rosales, it was compelled to reimburse Liu Chiu Fang
the amount of US$75,000.0050 and to file a criminal complaint for Estafa against respondent Rosales.51

While the case for breach of contract was being tried, the City Prosecutor of Manila issued a Resolution dated February
18, 2005, reversing the dismissal of the criminal complaint.52 An Information, docketed as Criminal Case No. 05-
236103,53 was then filed charging respondent Rosales with Estafa before Branch 14 of the RTC of Manila.54

Ruling of the Regional Trial Court

On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for damages for breach of contract.56The RTC
ruled that it is the duty of petitioner to release the deposit to respondents as the act of withdrawal of a bank deposit is an
act of demand by the creditor.57 The RTC also said that the recourse of petitioner is against its negligent employees and
not against respondents.58 The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner] METROPOLITAN BANK & TRUST
COMPANY to allow [respondents] ANA GRACE ROSALES and YO YUK TO to withdraw their Savings and Time Deposits with
the agreed interest, actual damages of ₱50,000.00, moral damages of ₱50,000.00, exemplary damages of ₱30,000.00 and
10% of the amount due [respondents] as and for attorney’s fees plus the cost of suit.

The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.

SO ORDERED.59

Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.

On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages because "the basis for
[respondents’] claim for such damages is the professional fee that they paid to their legal counsel for [respondent]
Rosales’ defense against the criminal complaint of [petitioner] for estafa before the Office of the City Prosecutor of
Manila and not this case."60 Thus, the CA disposed of the case in this wise:

WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch 21, Manila in Civil Case No.
04-110895 is AFFIRMED with MODIFICATION that the award of actual damages to [respondents] Rosales and Yo Yuk To is
hereby DELETED.

SO ORDERED.61

Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008 Resolution.62

Issues

Hence, this recourse by petitioner raising the following issues:

A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE APPLICATION AND AGREEMENT FOR
DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S EMPLOYEES WERE NEGLIGENT IN RELEASING LIU CHIU
FANG’S FUNDS.

C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY DAMAGES, AND ATTORNEY’S
FEES.63

Petitioner’s Arguments

Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the Application and Agreement
for Deposit Account.64 It posits that the said clause applies to any and all kinds of obligation as it does not distinguish
between obligations arising ex contractu or ex delictu.65 Petitioner also contends that the fraud committed by respondent
Rosales was clearly established by evidence;66 thus, it was justified in issuing the "Hold-Out" order.67 Petitioner likewise
denies that its employees were negligent in releasing the dollars.68 It claims that it was the deception employed by
respondent Rosales that caused petitioner’s employees to release Liu Chiu Fang’s funds to the impostor.69

Lastly, petitioner puts in issue the award of moral and exemplary damages and attorney’s fees. It insists that respondents
failed to prove that it acted in bad faith or in a wanton, fraudulent, oppressive or malevolent manner.70

Respondents’ Arguments

Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their deposits because they
have no monetary obligation to petitioner.71 They insist that petitioner miserably failed to prove its accusations against
respondent Rosales.72 In fact, no documentary evidence was presented to show that respondent Rosales participated in
the unauthorized withdrawal.73 They also question the fact that the list of the serial numbers of the dollar notes
fraudulently withdrawn on February 6, 2003, was not signed or acknowledged by the alleged impostor.74Respondents
likewise maintain that what was established during the trial was the negligence of petitioner’s employees as they allowed
the withdrawal of the funds without properly verifying the identity of the depositor.75Furthermore, respondents contend
that their deposits are in the nature of a loan; thus, petitioner had the obligation to return the deposits to them upon
demand.76 Failing to do so makes petitioner liable to pay respondents moral and exemplary damages, as well as
attorney’s fees.77

Our Ruling

The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with respondents, and (2) if
so, whether it is liable for damages. The issue of whether petitioner’s employees were negligent in allowing the
withdrawal of Liu Chiu Fang’s dollar deposits has no bearing in the resolution of this case. Thus, we find no need to
discuss the same.

The "Hold Out" clause does not apply

to the instant case.

Petitioner claims that it did not breach its contract with respondents because it has a valid reason for issuing the "Hold
Out" order. Petitioner anchors its right to withhold respondents’ deposits on the Application and Agreement for Deposit
Account, which reads:
Authority to Withhold, Sell and/or Set Off:

The Bank is hereby authorized to withhold as security for any and all obligations with the Bank, all monies, properties or
securities of the Depositor now in or which may hereafter come into the possession or under the control of the Bank,
whether left with the Bank for safekeeping or otherwise, or coming into the hands of the Bank in any way, for so much
thereof as will be sufficient to pay any or all obligations incurred by Depositor under the Account or by reason of any
other transactions between the same parties now existing or hereafter contracted, to sell in any public or private sale any
of such properties or securities of Depositor, and to apply the proceeds to the payment of any Depositor’s obligations
heretofore mentioned.

xxxx

JOINT ACCOUNT

xxxx

The Bank may, at any time in its discretion and with or without notice to all of the Depositors, assert a lien on any balance
of the Account and apply all or any part thereof against any indebtedness, matured or unmatured, that may then be
owing to the Bank by any or all of the Depositors. It is understood that if said indebtedness is only owing from any of the
Depositors, then this provision constitutes the consent by all of the depositors to have the Account answer for the said
indebtedness to the extent of the equal share of the debtor in the amount credited to the Account.78

Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for Deposit Account is misplaced.

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the sources of obligation
enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case,
petitioner failed to show that respondents have an obligation to it under any law, contract, quasi-contract, delict, or
quasi-delict. And although a criminal case was filed by petitioner against respondent Rosales, this is not enough reason
for petitioner to issue a "Hold Out" order as the case is still pending and no final judgment of conviction has been
rendered against respondent Rosales. In fact, it is significant to note that at the time petitioner issued the "Hold Out"
order, the criminal complaint had not yet been filed. Thus, considering that respondent Rosales is not liable under any of
the five sources of obligation, there was no legal basis for petitioner to issue the "Hold Out" order. Accordingly, we agree
with the findings of the RTC and the CA that the "Hold Out" clause does not apply in the instant case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably refused to release
respondents’ deposit despite demand. Having breached its contract with respondents, petitioner is liable for damages.

Respondents are entitled to moral and


exemplary damages and attorney’s fees.1âwphi1

In cases of breach of contract, moral damages may be recovered only if the defendant acted fraudulently or in bad
faith,80 or is "guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations."81

In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals that petitioner issued
the "Hold Out" order in bad faith. First of all, the order was issued without any legal basis. Second, petitioner did not
inform respondents of the reason for the "Hold Out."82 Third, the order was issued prior to the filing of the criminal
complaint. Records show that the "Hold Out" order was issued on July 31, 2003,83 while the criminal complaint was filed
only on September 3, 2003.84 All these taken together lead us to conclude that petitioner acted in bad faith when it
breached its contract with respondents. As we see it then, respondents are entitled to moral damages.

As to the award of exemplary damages, Article 222985 of the Civil Code provides that exemplary damages may be
imposed "by way of example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages." They are awarded only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner
when it refused to release the deposits of respondents without any legal basis. We need not belabor the fact that the
banking industry is impressed with public interest.87 As such, "the highest degree of diligence is expected, and high
standards of integrity and performance are even required of it."88 It must therefore "treat the accounts of its depositors
with meticulous care and always to have in mind the fiduciary nature of its relationship with them."89 For failing to do
this, an award of exemplary damages is justified to set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 220890 of the Civil Code.

In closing, it must be stressed that while we recognize that petitioner has the right to protect itself from fraud or
suspicions of fraud, the exercise of his right should be done within the bounds of the law and in accordance with due
process, and not in bad faith or in a wanton disregard of its contractual obligation to respondents.

WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May 30, 2008 Resolution of the
Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO ORDERED.

MARIANO C. DEL CASTILLO


Associate Justice

WE CONCUR:

JOSEPH SALUDAGA, petitioner,


vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of FEU, respondents.

DECISION

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 29, 2007 Decision2 of the Court
of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the November 10, 2004 Decision3 of the Regional Trial
Court of Manila, Branch 2, in Civil Case No. 98-89483 and dismissing the complaint filed by petitioner; as well as its
August 23, 2007 Resolution4 denying the Motion for Reconsideration.5

The antecedent facts are as follows:


Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was shot
by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996. Petitioner
was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he sustained.6Meanwhile,
Rosete was brought to the police station where he explained that the shooting was accidental. He was eventually
released considering that no formal complaint was filed against him.

Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached their
obligation to provide students with a safe and secure environment and an atmosphere conducive to learning.
Respondents, in turn, filed a Third-Party Complaint7 against Galaxy Development and Management Corporation (Galaxy),
the agency contracted by respondent FEU to provide security services within its premises and Mariano D. Imperial
(Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of petitioner, if any; and to
pay attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party Complaint against
AFP General Insurance.8

On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive portion of which reads:

WHEREFORE, from the foregoing, judgment is hereby rendered ordering:

1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and severally Joseph
Saludaga the amount of P35,298.25 for actual damages with 12% interest per annum from the filing of
the complaint until fully paid; moral damages of P300,000.00, exemplary damages of P500,000.00,
attorney's fees of P100,000.00 and cost of the suit;

2. Galaxy Management and Development Corp. and its president, Col. Mariano Imperial to indemnify
jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity as President of FEU)
for the above-mentioned amounts;

3. And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to costs.

SO ORDERED.9

Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal portion of which
provides, viz:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is hereby REVERSED and
SET ASIDE. The complaint filed by Joseph Saludaga against appellant Far Eastern University and its President in
Civil Case No. 98-89483 is DISMISSED.

SO ORDERED.10

Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based on the following
grounds:

THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND JURISPRUDENCE IN RULING
THAT:

5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;


5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM A GUNSHOT WOUND
SUFFERED BY THE PETITIONER FROM THE HANDS OF NO LESS THAN THEIR OWN SECURITY GUARD IN VIOLATION
OF THEIR BUILT-IN CONTRACTUAL OBLIGATION TO PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO
PROVIDE HIM WITH A SAFE AND SECURE EDUCATIONAL ENVIRONMENT;

5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE WAS WALKING ON HIS WAY TO
THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE BY VIRTUE OF THE CONTRACT FOR SECURITY
SERVICES BETWEEN GALAXY AND FEU NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A PARTY TO
IT, IS NOT BOUND BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS; and

5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY WHICH WOULD PROVIDE
SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT FEU.11

Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe learning
environment. The pertinent portions of petitioner's Complaint read:

6.0. At the time of plaintiff's confinement, the defendants or any of their representative did not bother to visit
and inquire about his condition. This abject indifference on the part of the defendants continued even after
plaintiff was discharged from the hospital when not even a word of consolation was heard from them. Plaintiff
waited for more than one (1) year for the defendants to perform their moral obligation but the wait was fruitless.
This indifference and total lack of concern of defendants served to exacerbate plaintiff's miserable condition.

xxxx

11.0. Defendants are responsible for ensuring the safety of its students while the latter are within the University
premises. And that should anything untoward happens to any of its students while they are within the
University's premises shall be the responsibility of the defendants. In this case, defendants, despite being legally
and morally bound, miserably failed to protect plaintiff from injury and thereafter, to mitigate and compensate
plaintiff for said injury;

12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between them. Under this
contract, defendants are supposed to ensure that adequate steps are taken to provide an atmosphere conducive
to study and ensure the safety of the plaintiff while inside defendant FEU's premises. In the instant case, the
latter breached this contract when defendant allowed harm to befall upon the plaintiff when he was shot at by,
of all people, their security guard who was tasked to maintain peace inside the campus.12

In Philippine School of Business Administration v. Court of Appeals,13 we held that:

When an academic institution accepts students for enrollment, there is established a contract between them,
resulting in bilateral obligations which both parties are bound to comply with. For its part, the school undertakes
to provide the student with an education that would presumably suffice to equip him with the necessary tools
and skills to pursue higher education or a profession. On the other hand, the student covenants to abide by the
school's academic requirements and observe its rules and regulations.

Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with an
atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge. Certainly, no
student can absorb the intricacies of physics or higher mathematics or explore the realm of the arts and other
sciences when bullets are flying or grenades exploding in the air or where there looms around the school
premises a constant threat to life and limb. Necessarily, the school must ensure that adequate steps are taken to
maintain peace and order within the campus premises and to prevent the breakdown thereof.14

It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such, there was created a
contractual obligation between the two parties. On petitioner's part, he was obliged to comply with the rules and
regulations of the school. On the other hand, respondent FEU, as a learning institution is mandated to impart knowledge
and equip its students with the necessary skills to pursue higher education or a profession. At the same time, it is obliged
to ensure and take adequate steps to maintain peace and order within the campus.

It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief.15 In the instant case, we find that, when petitioner was shot inside the
campus by no less the security guard who was hired to maintain peace and secure the premises, there is a prima facie
showing that respondents failed to comply with its obligation to provide a safe and secure environment to its students.

In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event because they
could not have reasonably foreseen nor avoided the accident caused by Rosete as he was not their employee; 16and that
they complied with their obligation to ensure a safe learning environment for their students by having exercised due
diligence in selecting the security services of Galaxy.

After a thorough review of the records, we find that respondents failed to discharge the burden of proving that they
exercised due diligence in providing a safe learning environment for their students. They failed to prove that they
ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement.
Indeed, certain documents about Galaxy were presented during trial; however, no evidence as to the qualifications of
Rosete as a security guard for the university was offered.

Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards assigned to
them actually possess the qualifications required in the Security Service Agreement. It was not proven that they
examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with
Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating the qualifications
of the guards is negligence on the part of respondents. A learning institution should not be allowed to completely
relinquish or abdicate security matters in its premises to the security agency it hired. To do so would result to contracting
away its inherent obligation to ensure a safe learning environment for its students.

Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered, respondents
must show that no negligence or misconduct was committed that may have occasioned the loss. An act of God cannot be
invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss.
One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless,
showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one
from liability. When the effect is found to be partly the result of a person's participation - whether by active intervention,
neglect or failure to act - the whole occurrence is humanized and removed from the rules applicable to acts of God.17

Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are liable for
damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment, respondent FEU
is liable to petitioner for damages. It is essential in the award of damages that the claimant must have satisfactorily
proven during the trial the existence of the factual basis of the damages and its causal connection to defendant's acts.18
In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and other medical
expenses.19 While the trial court correctly imposed interest on said amount, however, the case at bar involves an
obligation arising from a contract and not a loan or forbearance of money. As such, the proper rate of legal interest is six
percent (6%) per annum of the amount demanded. Such interest shall continue to run from the filing of the complaint
until the finality of this Decision.20 After this Decision becomes final and executory, the applicable rate shall be twelve
percent (12%) per annum until its satisfaction.

The other expenses being claimed by petitioner, such as transportation expenses and those incurred in hiring a personal
assistant while recuperating were however not duly supported by receipts.21 In the absence thereof, no actual damages
may be awarded. Nonetheless, temperate damages under Art. 2224 of the Civil Code may be recovered where it has
been shown that the claimant suffered some pecuniary loss but the amount thereof cannot be proved with certainty.
Hence, the amount of P20,000.00 as temperate damages is awarded to petitioner.

As regards the award of moral damages, there is no hard and fast rule in the determination of what would be a fair
amount of moral damages since each case must be governed by its own peculiar circumstances.22 The testimony of
petitioner about his physical suffering, mental anguish, fright, serious anxiety, and moral shock resulting from the
shooting incident23 justify the award of moral damages. However, moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The
award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to obtain
means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed at the
restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the suffering
inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise balanced restrained
and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption on the part of the trial
court.24 We deem it just and reasonable under the circumstances to award petitioner moral damages in the amount of
P100,000.00.

Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of damages is reasonable in view of
Article 2208 of the Civil Code.25 However, the award of exemplary damages is deleted considering the absence of proof
that respondents acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. In Powton Conglomerate, Inc.
v. Agcolicol,26 we held that:

[A] corporation is invested by law with a personality separate and distinct from those of the persons composing
it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf of the
corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a corporate
director, trustee or officer along (although not necessarily) with the corporation may so validly attach, as a rule,
only when - (1) he assents to a patently unlawful act of the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of interest resulting in damages to the corporation,
its stockholders or other persons; (2) he consents to the issuance of watered down stocks or who, having
knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto; (3) he
agrees to hold himself personally and solidarily liable with the corporation; or (4) he is made by a specific
provision of law personally answerable for his corporate action.27

None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus should not be held
solidarily liable with respondent FEU.
Incidentally, although the main cause of action in the instant case is the breach of the school-student contract, petitioner,
in the alternative, also holds respondents vicariously liable under Article 2180 of the Civil Code, which provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but
also for those of persons for whom one is responsible.

xxxx

Employers shall be liable for the damages caused by their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not engaged in any business or industry.

xxxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damage.

We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under Art. 2180
of the Civil Code because respondents are not the employers of Rosete. The latter was employed by Galaxy. The
instructions issued by respondents' Security Consultant to Galaxy and its security guards are ordinarily no more than
requests commonly envisaged in the contract for services entered into by a principal and a security agency. They cannot
be construed as the element of control as to treat respondents as the employers of Rosete.28

As held in Mercury Drug Corporation v. Libunao:29

In Soliman, Jr. v. Tuazon,30 we held that where the security agency recruits, hires and assigns the works of its
watchmen or security guards to a client, the employer of such guards or watchmen is such agency, and not the
client, since the latter has no hand in selecting the security guards. Thus, the duty to observe the diligence of a
good father of a family cannot be demanded from the said client:

… [I]t is settled in our jurisdiction that where the security agency, as here, recruits, hires and assigns the
work of its watchmen or security guards, the agency is the employer of such guards or watchmen.
Liability for illegal or harmful acts committed by the security guards attaches to the employer agency, and
not to the clients or customers of such agency. As a general rule, a client or customer of a security agency
has no hand in selecting who among the pool of security guards or watchmen employed by the agency
shall be assigned to it; the duty to observe the diligence of a good father of a family in the selection of
the guards cannot, in the ordinary course of events, be demanded from the client whose premises or
property are protected by the security guards.

xxxx

The fact that a client company may give instructions or directions to the security guards assigned to it, does not,
by itself, render the client responsible as an employer of the security guards concerned and liable for their
wrongful acts or omissions.31

We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber Company of the Philippines
v. Tempengko,32 we held that:
The third-party complaint is, therefore, a procedural device whereby a 'third party' who is neither a party nor
privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the
defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for contribution,
indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-party complaint is actually
independent of and separate and distinct from the plaintiff's complaint. Were it not for this provision of the Rules
of Court, it would have to be filed independently and separately from the original complaint by the defendant
against the third-party. But the Rules permit defendant to bring in a third-party defendant or so to speak, to
litigate his separate cause of action in respect of plaintiff's claim against a third-party in the original and principal
case with the object of avoiding circuitry of action and unnecessary proliferation of law suits and of disposing
expeditiously in one litigation the entire subject matter arising from one particular set of facts.33

Respondents and Galaxy were able to litigate their respective claims and defenses in the course of the trial of petitioner's
complaint. Evidence duly supports the findings of the trial court that Galaxy is negligent not only in the selection of its
employees but also in their supervision. Indeed, no administrative sanction was imposed against Rosete despite the
shooting incident; moreover, he was even allowed to go on leave of absence which led eventually to his
disappearance.34 Galaxy also failed to monitor petitioner's condition or extend the necessary assistance, other than the
P5,000.00 initially given to petitioner. Galaxy and Imperial failed to make good their pledge to reimburse petitioner's
medical expenses.

For these acts of negligence and for having supplied respondent FEU with an unqualified security guard, which resulted to
the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such damages
equivalent to the above-mentioned amounts awarded to petitioner.

Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in directing
the affairs of the security agency. It was Imperial who assured petitioner that his medical expenses will be shouldered by
Galaxy but said representations were not fulfilled because they presumed that petitioner and his family were no longer
interested in filing a formal complaint against them.35

WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in CA-G.R. CV No. 87050
nullifying the Decision of the trial court and dismissing the complaint as well as the August 23, 2007 Resolution denying
the Motion for Reconsideration are REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Manila, Branch
2, in Civil Case No. 98-89483 finding respondent FEU liable for damages for breach of its obligation to provide students
with a safe and secure learning atmosphere, is AFFIRMED with the following MODIFICATIONS:

a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the amount of P35,298.25,
plus 6% interest per annum from the filing of the complaint until the finality of this Decision. After this decision becomes
final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction;

b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of P20,000.00; moral damages in
the amount of P100,000.00; and attorney's fees and litigation expenses in the amount of P50,000.00;

c. the award of exemplary damages is DELETED.

The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of respondents are
likewise DISMISSED.
Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D. Imperial are ORDEREDto
jointly and severally pay respondent FEU damages equivalent to the above-mentioned amounts awarded to petitioner.

PEOPLE'S CAR INC., plaintiff-appellant,


vs.
COMMANDO SECURITY SERVICE AGENCY, defendant-appellee.

TEEHANKEE, J.:

In this appeal from the adverse judgment of the Davao court of first instance limiting plaintiff-appellant's recovery under
its complaint to the sum of P1,000.00 instead of the actual damages of P8,489.10 claimed and suffered by it as a direct
result of the wrongful acts of defendant security agency's guard assigned at plaintiff's premises in pursuance of their
"Guard Service Contract", the Court finds merit in the appeal and accordingly reverses the trial court's judgment.

The appeal was certified to this Court by a special division of the Court of Appeals on a four-to-one vote as per its
resolution of April 14, 1973 that "Since the case was submitted to the court a quo for decision on the strength of the
stipulation of facts, only questions of law can be involved in the present appeal."

The Court has accepted such certification and docketed this appeal on the strength of its own finding from the records
that plaintiff's notice of appeal was expressly to this Court (not to the appellate court)" on pure questions of law"1 and its
record on appeal accordingly prayed that" the corresponding records be certified and forwarded to the Honorable
Supreme Court."2 The trial court so approved the same3 on July 3, 1971 instead of having required the filing of a petition
for review of the judgment sought to be appealed from directly with this Court, in accordance with the provisions of
Republic Act 5440. By some unexplained and hitherto undiscovered error of the clerk of court, furthermore, the record
on appeal was erroneously forwarded to the appellate court rather than to this Court.

The parties submitted the case for judgment on a stipulation of facts. There is thus no dispute as to the factual bases of
plaintiff's complaint for recovery of actual damages against defendant, to wit, that under the subsisting "Guard Service
Contract" between the parties, defendant-appellee as a duly licensed security service agency undertook in consideration
of the payments made by plaintiff to safeguard and protect the business premises of (plaintiff) from theft, pilferage,
robbery, vandalism and all other unlawful acts of any person or person prejudicial to the interest of (plaintiff)."4

On April 5, 1970 at around 1:00 A.M., however, defendant's security guard on duty at plaintiff's premises, "without any
authority, consent, approval, knowledge or orders of the plaintiff and/or defendant brought out of the compound of the
plaintiff a car belonging to its customer, and drove said car for a place or places unknown, abandoning his post as such
security guard on duty inside the plaintiff's compound, and while so driving said car in one of the City streets lost control
of said car, causing the same to fall into a ditch along J.P. Laurel St., Davao City by reason of which the plaintiff's
complaint for qualified theft against said driver, was blottered in the office of the Davao City Police Department."5

As a result of these wrongful acts of defendant's security guard, the car of plaintiff's customer, Joseph Luy, which had
been left with plaintiff for servicing and maintenance, "suffered extensive damage in the total amount of
P7,079."6 besides the car rental value "chargeable to defendant" in the sum of P1,410.00 for a car that plaintiff had to
rent and make available to its said customer to enable him to pursue his business and occupation for the period of forty-
seven (47) days (from April 25 to June 10, 1970) that it took plaintiff to repair the damaged car,7 or total actual damages
incurred by plaintiff in the sum of P8,489.10.

Plaintiff claimed that defendant was liable for the entire amount under paragraph 5 of their contract whereunder
defendant assumed "sole responsibility for the acts done during their watch hours" by its guards, whereas defendant
contended, without questioning the amount of the actual damages incurred by plaintiff, that its liability "shall not exceed
one thousand (P1,000.00) pesos per guard post" under paragraph 4 of their contract.

The parties thus likewise stipulated on this sole issue submitted by them for adjudication, as follows:

Interpretation of the contract, as to the extent of the liability of the defendant to the plaintiff by reason
of the acts of the employees of the defendant is the only issue to be resolved.

The defendant relies on Par. 4 of the contract to support its contention while the plaintiff relies on Par. 5
of the same contract in support of its claims against the defendant. For ready reference they are quoted
hereunder:

'Par. 4. — Party of the Second Part (defendant) through the negligence of its guards, after
an investigation has been conducted by the Party of the First Part (plaintiff) wherein the
Party of the Second Part has been duly represented shall assume full responsibilities for
any loss or damages that may occur to any property of the Party of the First Part for
which it is accountable, during the watch hours of the Party of the Second Part, provided
the same is reported to the Party of the Second Part within twenty-four (24) hours of the
occurrence, except where such loss or damage is due to force majeure, provided
however that after the proper investigation to be made thereof that the guard on post is
found negligent and that the amount of the loss shall not exceed ONE THOUSAND
(P1,000.00) PESOS per guard post.'

'Par. 5 — The party of the Second Part assumes the responsibility for the proper
performance by the guards employed, of their duties and (shall) be solely responsible for
the acts done during their watch hours, the Party of the First Part being specifically
released from any and all liabilities to the former's employee or to the third parties
arising from the acts or omissions done by the guard during their tour of
duty.' ...8

The trial court, misreading the above-quoted contractual provisions, held that "the liability of the defendant in favor of
the plaintiff falls under paragraph 4 of the Guard Service Contract" and rendered judgment "finding the defendant liable
to the plaintiff in the amount of P1,000.00 with costs."

Hence, this appeal, which, as already indicated, is meritorious and must be granted.

Paragraph 4 of the contract, which limits defendant's liability for the amount of loss or damage to any property of
plaintiff to "P1,000.00 per guard post," is by its own terms applicable only for loss or damage 'through the negligenceof
its guards ... during the watch hours" provided that the same is duly reported by plaintiff within 24 hours of the
occurrence and the guard's negligence is verified after proper investigation with the attendance of both contracting
parties. Said paragraph is manifestly inapplicable to the stipulated facts of record, which involve neither property of
plaintiff that has been lost or damaged at its premises nor mere negligence of defendant's security guard on duty.
Here, instead of defendant, through its assigned security guards, complying with its contractual undertaking 'to safeguard
and protect the business premises of (plaintiff) from theft, robbery, vandalism and all other unlawful acts of any person
or persons," defendant's own guard on duty unlawfully and wrongfully drove out of plaintiffs premises a customer's car,
lost control of it on the highway causing it to fall into a ditch, thereby directly causing plaintiff to incur actual damages in
the total amount of P8,489.10.

Defendant is therefore undoubtedly liable to indemnify plaintiff for the entire damages thus incurred, since under
paragraph 5 of their contract it "assumed the responsibility for the proper performance by the guards employed of their
duties and (contracted to) be solely responsible for the acts done during their watch hours" and "specifically released
(plaintiff) from any and all liabilities ... to the third parties arising from the acts or omissions done by the guards during
their tour of duty." As plaintiff had duly discharged its liability to the third party, its customer, Joseph Luy, for the
undisputed damages of P8,489.10 caused said customer, due to the wanton and unlawful act of defendant's guard,
defendant in turn was clearly liable under the terms of paragraph 5 of their contract to indemnify plaintiff in the same
amount.

The trial court's approach that "had plaintiff understood the liability of the defendant to fall under paragraph 5, it should
have told Joseph Luy, owner of the car, that under the Guard Service Contract, it was not liable for the damage but the
defendant and had Luy insisted on the liability of the plaintiff, the latter should have challenged him to bring the matter
to court. If Luy accepted the challenge and instituted an action against the plaintiff, it should have filed a third-party
complaint against the Commando Security Service Agency. But if Luy instituted the action against the plaintiff and the
defendant, the plaintiff should have filed a crossclaim against the latter,"9 was unduly technical and unrealistic and
untenable.

Plaintiff was in law liable to its customer for the damages caused the customer's car, which had been entrusted into its
custody. Plaintiff therefore was in law justified in making good such damages and relying in turn on defendant to honor
its contract and indemnify it for such undisputed damages, which had been caused directly by the unlawful and wrongful
acts of defendant's security guard in breach of their contract. As ordained in Article 1159, Civil Code, "obligations arising
from contracts have the force of law between the contracting parties and should be complied with in good faith."

Plaintiff in law could not tell its customer, as per the trial court's view, that "under the Guard Service Contract it was not
liable for the damage but the defendant" — since the customer could not hold defendant to account for the damages as
he had no privity of contract with defendant. Such an approach of telling the adverse party to go to court,
notwithstanding his plainly valid claim, aside from its ethical deficiency among others, could hardly create any goodwill
for plaintiff's business, in the same way that defendant's baseless attempt to evade fully discharging its contractual
liability to plaintiff cannot be expected to have brought it more business. Worse, the administration of justice is
prejudiced, since the court dockets are unduly burdened with unnecessary litigation.

ACCORDINGLY, the judgment appealed from is hereby reversed and judgment is hereby rendered sentencing defendant-
appellee to pay plaintiff-appellant the sum of P8,489.10 as and by way of reimbursement of the stipulated actual
damages and expenses, as well as the costs of suit in both instances. It is so ordered.

Makalintal, Zaldivar, Castro, Fernando, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.
FAUSTINO CRUZ, plaintiff-appellant,
vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC., defendants-appellees.

BARREDO, J.:

Appeal from the order dated August 13, 1964 of the Court of First Instance of Quezon City in Civil Case No. Q-
7751, Faustino Cruz vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc., dismissing the complaint of appellant Cruz for
the recovery of improvements he has made on appellees' land and to compel appellees to convey to him 3,000 square
meters of land on three grounds: (1) failure of the complaint to state a cause of action; (2) the cause of action of plaintiff
is unenforceable under the Statute of Frauds; and (3) the action of the plaintiff has already prescribed.

Actually, a perusal of plaintiff-appellant's complaint below shows that he alleged two separate causes of action, namely:
(1) that upon request of the Deudors (the family of Telesforo Deudor who laid claim on the land in question on the
strength of an "informacion posesoria" ) plaintiff made permanent improvements valued at P30,400.00 on said land
having an area of more or less 20 quinones and for which he also incurred expenses in the amount of P7,781.74, and
since defendants-appellees are being benefited by said improvements, he is entitled to reimbursement from them of said
amounts and (2) that in 1952, defendants availed of plaintiff's services as an intermediary with the Deudors to work for
the amicable settlement of Civil Case No. Q-135, then pending also in the Court of First Instance of Quezon City, and
involving 50 quinones of land, of Which the 20 quinones aforementioned form part, and notwithstanding his having
performed his services, as in fact, a compromise agreement entered into on March 16, 1963 between the Deudors and
the defendants was approved by the court, the latter have refused to convey to him the 3,000 square meters of land
occupied by him, (a part of the 20 quinones above) which said defendants had promised to do "within ten years from and
after date of signing of the compromise agreement", as consideration for his services.

Within the Period allowed by the rules, the defendants filed separate motions to dismiss alleging three Identical grounds:
(1) As regards that improvements made by plaintiff, that the complaint states no cause of action, the agreement
regarding the same having been made by plaintiff with the Deudors and not with the defendants, hence the theory of
plaintiff based on Article 2142 of the Code on unjust enrichment is untenable; and (2) anent the alleged agreement about
plaintiffs services as intermediary in consideration of which, defendants promised to convey to him 3,000 square meters
of land, that the same is unenforceable under the Statute of Frauds, there being nothing in writing about it, and, in any
event, (3) that the action of plaintiff to compel such conveyance has already prescribed.

Plaintiff opposed the motion, insisting that Article 2142 of the applicable to his case; that the Statute of Frauds cannot be
invoked by defendants, not only because Article 1403 of the Civil Code refers only to "sale of real property or of an
interest therein" and not to promises to convey real property like the one supposedly promised by defendants to him,
but also because, he, the plaintiff has already performed his part of the agreement, hence the agreement has already
been partly executed and not merely executory within the contemplation of the Statute; and that his action has not
prescribed for the reason that defendants had ten years to comply and only after the said ten years did his cause of
action accrue, that is, ten years after March 16, 1963, the date of the approval of the compromise agreement, and his
complaint was filed on January 24, 1964.

Ruling on the motion to dismiss, the trial court issued the herein impugned order of August 13, 1964:
In the motion, dated January 31, 1964, defendant Gregorio Araneta, Inc. prayed that the complaint
against it be dismissed on the ground that (1) the claim on which the action is founded is unenforceable
under the provision of the Statute of Frauds; and (2) the plaintiff's action, if any has already prescribed. In
the other motion of February 11, 1964, defendant J. M. Tuason & Co., Inc. sought the dismissal of the
plaintiffs complaint on the ground that it states no cause of action and on the Identical grounds stated in
the motion to dismiss of defendant Gregorio Araneta, Inc. The said motions are duly opposed by the
plaintiff.

From the allegations of the complaint, it appears that, by virtue of an agreement arrived at in 1948 by the
plaintiff and the Deudors, the former assisted the latter in clearing, improving, subdividing and selling the
large tract of land consisting of 50 quinones covered by the informacion posesoria in the name of the late
Telesforo Deudor and incurred expenses, which are valued approximately at P38,400.00 and P7,781.74,
respectively; and, for the reasons that said improvements are being used and enjoyed by the defendants,
the plaintiff is seeking the reimbursement for the services and expenses stated above from the
defendants.

Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the plaintiffs claim for the reimbursement of
the amounts of P38,400.00 and P7,781.74 is concerned, it is not a privy to the plaintiff's agreement to
assist the Deudors n improving the 50 quinones. On the other hand, the plaintiff countered that, by
holding and utilizing the improvements introduced by him, the defendants are unjustly enriching and
benefiting at the expense of the plaintiff; and that said improvements constitute a lien or charge of the
property itself

On the issue that the complaint insofar as it claims the reimbursement for the services rendered and
expenses incurred by the plaintiff, states no cause of action, the Court is of the opinion that the same is
well-founded. It is found that the defendants are not parties to the supposed express contract entered
into by and between the plaintiff and the Deudors for the clearing and improvement of the 50 quinones.
Furthermore in order that the alleged improvement may be considered a lien or charge on the property,
the same should have been made in good faith and under the mistake as to the title. The Court can take
judicial notice of the fact that the tract of land supposedly improved by the plaintiff had been registered
way back in 1914 in the name of the predecessors-in-interest of defendant J. M. Tuason & Co., Inc. This
fact is confirmed in the decision rendered by the Supreme Court on July 31, 1956 in Case G. R. No. L-5079
entitled J.M. Tuason & Co. Inc. vs. Geronimo Santiago, et al., Such being the case, the plaintiff cannot
claim good faith and mistake as to the title of the land.

On the issue of statute of fraud, the Court believes that same is applicable to the instant case. The
allegation in par. 12 of the complaint states that the defendants promised and agreed to cede, transfer
and convey unto the plaintiff the 3,000 square meters of land in consideration of certain services to be
rendered then. it is clear that the alleged agreement involves an interest in real property. Under the
provisions of See. 2(e) of Article 1403 of the Civil Code, such agreement is not enforceable as it is not in
writing and subscribed by the party charged.

On the issue of statute of limitations, the Court holds that the plaintiff's action has prescribed. It is
alleged in par. 11 of the complaint that, sometime in 1952, the defendants approached the plaintiff to
prevail upon the Deudors to enter to a compromise agreement in Civil Case No. Q-135 and allied cases.
Furthermore, par. 13 and 14 of the complaint alleged that the plaintiff acted as emissary of both parties
in conveying their respective proposals and couter-proposals until the final settlement was effected on
March 16, 1953 and approved by Court on April 11, 1953. In the present action, which was instituted on
January 24, 1964, the plaintiff is seeking to enforce the supposed agreement entered into between him
and the defendants in 1952, which was already prescribed.

WHEREFORE, the plaintiffs complaint is hereby ordered DISMISSED without pronouncement as to costs.

SO ORDERED. (Pp. 65-69, Rec. on Appeal,)

On August 22, 1964, plaintiff's counsel filed a motion for reconsideration dated August 20, 1964 as follows:

Plaintiff through undersigned counsel and to this Honorable Court, respectfully moves to reconsider its
Order bearing date of 13 August 1964, on the following grounds:

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST DEFENDANTS IN SO FAR AS
PLAINTIFF'S CLAIM PAYMENT OF SERVICES AND REIMBURSEMENT OF HIS EXPENSES, IS CONCERNED;

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS., THE SAME HAS NOT PRESCRIBED AND
THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO;

ARGUMENT

Plaintiff's complaint contains two (2) causes of action — the first being an action for sum of money in the
amount of P7,781.74 representing actual expenses and P38,400.00 as reasonable compensation for
services in improving the 50 quinones now in the possession of defendants. The second cause of action
deals with the 3,000 sq. ms. which defendants have agreed to transfer into Plaintiff for services rendered
in effecting the compromise between the Deudors and defendants;

Under its order of August 3, 1964, this Honorable Court dismissed the claim for sum of money on the
ground that the complaint does not state a cause of action against defendants. We respectfully submit:

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST DEFENDANTS IN SO FAR AS
PLAINTIFF'S CLAIM FOR PAYMENT OF SERVICES AND REIMBURSEMENT OF HIS EXPENSES IS CONCERNED.

Said this Honorable Court (at p. 2, Order):

ORDER

xxx xxx xxx

On the issue that the complaint, in so far as it claims the reimbursement for the services rendered and
expenses incurred by the plaintiff, states no cause of action, the Court is of the opinion that the same is
well-founded. It is found that the defendants are not parties to the supposed express contract entered
into by and between the plaintiff and the Deudors for the clearing and improvement of the 50 quinones.
Furthermore, in order that the alleged improvement may he considered a lien or charge on the property,
the same should have been made in good faith and under the mistake as to title. The Court can take
judicial notice of the fact that the tract of land supposedly improved by the plaintiff had been registered
way back in 1914 in the name of the predecessors-in-interest of defendant J. M. Tuason & Co., Inc. This
fact is confirmed in the decision rendered by the Supreme Court on July 31, 1956 in case G. R. No. L-5079
entitled 'J M. Tuason & Co., Inc. vs, Geronimo Santiago, et al.' Such being the case, the plaintiff cannot
claim good faith and mistake as to the title of the land.

The position of this Honorable Court (supra) is that the complaint does not state a cause of action in so
far as the claim for services and expenses is concerned because the contract for the improvement of the
properties was solely between the Deudors and plaintiff, and defendants are not privies to it. Now,
plaintiff's theory is that defendants are nonetheless liable since they are utilizing and enjoying the
benefit's of said improvements. Thus under paragraph 16 of "he complaint, it is alleged:

(16) That the services and personal expenses of plaintiff mentioned in paragraph 7 hereof
were rendered and in fact paid by him to improve, as they in fact resulted in considerable
improvement of the 50 quinones, and defendants being now in possession of and utilizing
said improvements should reimburse and pay plaintiff for such services and expenses.

Plaintiff's cause of action is premised inter alia, on the theory of unjust enrichment under Article 2142 of
the civil Code:

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

In like vein, Article 19 of the same Code enjoins that:

ART. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give every-one his due and observe honesty and good faith.

We respectfully draw the attention of this Honorable Court to the fact that ARTICLE 2142 (SUPRA) DEALS
WITH QUASI-CONTRACTS or situations WHERE THERE IS NO CONTRACT BETWEEN THE PARTIES TO THE
ACTION. Further, as we can readily see from the title thereof (Title XVII), that the Same bears the
designation 'EXTRA CONTRACTUAL OBLIGATIONS' or obligations which do not arise from contracts. While
it is true that there was no agreement between plaintiff and defendants herein for the improvement of
the 50 quinones since the latter are presently enjoying and utilizing the benefits brought about through
plaintiff's labor and expenses, defendants should pay and reimburse him therefor under the principle
that 'no one may enrich himself at the expense of another.' In this posture, the complaint states a cause
of action against the defendants.

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS. THE SAME HAS NOT PRESCRIBED AND
THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO.

The Statute of Frauds is CLEARLY inapplicable to this case:

At page 2 of this Honorable Court's order dated 13 August 1964, the Court ruled as follows:

ORDER

xxx xxx xxx


On the issue of statute of fraud, the Court believes that same is applicable to the instant
Case, The allegation in par. 12 of the complaint states that the defendants promised and
agree to cede, transfer and convey unto the plaintiff, 3,000 square meters of land in
consideration of certain services to be rendered then. It is clear that the alleged
agreement involves an interest in real property. Under the provisions of Sec. 2(e) of
Article 1403 of the Civil Code, such agreement is not enforceable as it is not in writing
and subscribed by the party charged.

To bring this issue in sharper focus, shall reproduce not only paragraph 12 of the complaint but also the
other pertinent paragraphs therein contained. Paragraph 12 states thus:

COMPLAINT

xxx xxx xxx

12). That plaintiff conferred with the aforesaid representatives of defendants several times and on these
occasions, the latter promised and agreed to cede, transfer and convey unto plaintiff the 3,000 sq. ms.
(now known as Lots 16-B, 17 and 18) which plaintiff was then occupying and continues to occupy as of
this writing, for and in consideration of the following conditions:

(a) That plaintiff succeed in convincing the DEUDORS to enter into a compromise
agreement and that such agreement be actually entered into by and between the
DEUDORS and defendant companies;

(b) That as of date of signing the compromise agreement, plaintiff shall be the owner of
the 3,000 sq. ms. but the documents evidencing his title over this property shall be
executed and delivered by defendants to plaintiff within ten (10) years from and after
date of signing of the compromise agreement;

(c) That plaintiff shall, without any monetary expense of his part, assist in clearing the 20
quinones of its occupants;

13). That in order to effect a compromise between the parties. plaintiff not only as well acted as emissary
of both parties in conveying their respective proposals and counter- proposals until succeeded in
convinzing the DEUDORS to settle with defendants amicably. Thus, on March 16, 1953, a Compromise
Agreement was entered into by and between the DEUDORS and the defendant companies; and on April
11, 1953, this agreement was approved by this Honorable Court;

14). That in order to comply with his other obligations under his agreement with defendant companies,
plaintiff had to confer with the occupants of the property, exposing himself to physical harm, convincing
said occupants to leave the premises and to refrain from resorting to physical violence in resisting
defendants' demands to vacate;

That plaintiff further assisted defendants' employees in the actual demolition and
transferof all the houses within the perimeter of the 20 quinones until the end of 1955,
when said area was totally cleared and the houses transferred to another area
designated by the defendants as 'Capt. Cruz Block' in Masambong, Quezon City. (Pars. 12,
13 and 14, Complaint; Emphasis supplied)

From the foregoing, it is clear then the agreement between the parties mentioned in paragraph 12
(supra) of the complaint has already been fully EXECUTED ON ONE PART, namely by the plaintiff.
Regarding the applicability of the statute of frauds (Art. 1403, Civil Code), it has been uniformly held that
the statute of frauds IS APPLICABLE ONLY TO EXECUTORY CONTRACTS BUT NOT WHERE THE CONTRACT
HAS BEEN PARTLY EXECUTED:

SAME ACTION TO ENFORCE. — The statute of frauds has been uniformly interpreted to be
applicable to executory and not to completed or contracts. Performance of the contracts
takes it out of the operation of the statute. ...

The statute of the frauds is not applicable to contracts which are either totally or partially
performed, on the theory that there is a wide field for the commission of frauds in
executory contracts which can only be prevented by requiring them to be in writing, a
facts which is reduced to a minimum in executed contracts because the intention of the
parties becomes apparent buy their execution and execution, in mots cases, concluded
the right the parties. ... The partial performance may be proved by either documentary or
oral evidence. (At pp. 564-565, Tolentino's Civil Code of the Philippines, Vol. IV, 1962 Ed.;
Emphasis supplied).

Authorities in support of the foregoing rule are legion. Thus Mr. Justice Moran in his 'Comments on the
Rules of Court', Vol. III, 1974 Ed., at p. 167, states:

2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY CONTRACTS:


CONTRACTS WHICH ARE EITHER TOTALLY OR PARTIALLY PERFORMED ARE WITHOUT THE
STATUE. The statute of frauds is applicable only to executory contracts. It is neither
applicable to executed contracts nor to contracts partially performed. The reason is
simple. In executory contracts there is a wide field for fraud because unless they be in
writing there is no palpable evidence of the intention of the contracting parties. The
statute has been enacted to prevent fraud. On the other hand the commission of fraud in
executed contracts is reduced to minimum in executed contracts because (1) the
intention of the parties is made apparent by the execution and (2) execution concludes,
in most cases, the rights of the parties. (Emphasis supplied)

Under paragraphs 13 and 14 of the complaint (supra) one can readily see that the plaintiff has fulfilled
ALL his obligation under the agreement between him defendants concerning the 3,000 sq. ms. over
which the latter had agreed to execute the proper documents of transfer. This fact is further projected in
paragraph 15 of the complaint where plaintiff states;

15). That in or about the middle of 1963, after all the conditions stated in paragraph 12
hereof had been fulfilled and fully complied with, plaintiff demanded of said defendants
that they execute the Deed of Conveyance in his favor and deliver the title certificate in
his name, over the 3,000 sq. ms. but defendants failed and refused and continue to fail
and refuse to heed his demands. (par. 15, complaint; Emphasis supplied).
In view of the foregoing, we respectfully submit that this Honorable court erred in holding that the
statute of frauds is applicable to plaintiff's claim over the 3,000 sq. ms. There having been full
performance of the contract on plaintiff's part, the same takes this case out of the context of said statute.

Plaintiff's Cause of Action had NOT Prescribed:

With all due respect to this Honorable court, we also submit that the Court committed error in holding
that this action has prescribed:

ORDER

xxx xxx xxx

On the issue of the statute of limitations, the Court holds that the plaintiff's action has
prescribed. It is alleged in par. III of the complaint that, sometime in 1952, the
defendants approached the plaintiff to prevail upon the Deudors to enter into a
compromise agreement in Civil Case No. Q-135 and allied cases. Furthermore, pars. 13
and 14 of the complaint alleged that plaintiff acted as emissary of both parties in
conveying their respective proposals and counter-proposals until the final settlement was
affected on March 16, 1953 and approved by the Court on April 11, 1953. In the present
actin, which was instituted on January 24, 1964, the plaintiff is seeking to enforce the
supposed agreement entered into between him and the defendants in 1952, which has
already proscribed. (at p. 3, Order).

The present action has not prescribed, especially when we consider carefully the terms of the agreement
between plaintiff and the defendants. First, we must draw the attention of this Honorable Court to the
fact that this is an action to compel defendants to execute a Deed of Conveyance over the 3,000 sq. ms.
subject of their agreement. In paragraph 12 of the complaint, the terms and conditions of the contract
between the parties are spelled out. Paragraph 12 (b) of the complaint states:

(b) That as of date of signing the compromise agreement, plaintiff shall be the owner of
the 3,000 sq. ms. but the documents evidencing his title over this property shall be
executed and delivered by defendants to plaintiff within ten (10) years from and after
date of signing of the compromise agreement. (Emphasis supplied).

The compromise agreement between defendants and the Deudors which was conclude through the
efforts of plaintiff, was signed on 16 March 1953. Therefore, the defendants had ten (10) years signed on
16 March 1953. Therefore, the defendants had ten (10) years from said date within which to execute the
deed of conveyance in favor of plaintiff over the 3,000 sq. ms. As long as the 10 years period has not
expired, plaintiff had no right to compel defendants to execute the document and the latter were under
no obligation to do so. Now, this 10-year period elapsed on March 16, 1963. THEN and ONLY THEN does
plaintiff's cause of action plaintiff on March 17, 1963. Thus, under paragraph 15, of the complaint (supra)
plaintiff made demands upon defendants for the execution of the deed 'in or about the middle of 1963.

Since the contract now sought to be enforced was not reduced to writing, plaintiff's cause of action
expires on March 16, 1969 or six years from March 16, 1963 WHEN THE CAUSE OF ACTION ACCRUED (Art.
1145, Civil Code).
In this posture, we gain respectfully submit that this Honorable Court erred in holding that plaintiff's
action has prescribed.

PRAYER

WHEREFORE, it is respectfully prayed that " Honorable Court reconsider its Order dated August 13, 1964;
and issue another order denying the motions to dismiss of defendants G. Araneta, Inc. and J. M. Tuason
Co. Inc. for lack of merit. (Pp. 70-85, Record on Appeal.)

Defendants filed an opposition on the main ground that "the arguments adduced by the plaintiff are merely reiterations
of his arguments contained in his Rejoinder to Reply and Opposition, which have not only been refuted in herein
defendant's Motion to Dismiss and Reply but already passed upon by this Honorable Court."

On September 7, 1964, the trial court denied the motion for reconsiderations thus:

After considering the plaintiff's Motion for Reconsideration of August 20, 1964 and it appearing that the
grounds relied upon in said motion are mere repetition of those already resolved and discussed by this
Court in the order of August 13, 1964, the instant motion is hereby denied and the findings and
conclusions arrived at by the Court in its order of August 13, 1964 are hereby reiterated and affirmed.

SO ORDERED. (Page 90, Rec. on Appeal.)

Under date of September 24, 1964, plaintiff filed his record on appeal.

In his brief, appellant poses and discusses the following assignments of error:

I. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT ON THE GROUND THAT APPELLANT'S
CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY UNENFORCEABLE UNDER THE STATUTE OF FRAUDS;

II. THAT THE COURT A QUO FURTHER COMMITTED ERROR IN DISMISSING APPELLANT'S COMPLAINT ON
THE GROUND THAT HIS CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY BARRED BY THE STATUTE OF
LIMITATIONS; and

III. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT FOR FAILURE TO STATE A CAUSE OF
ACTION IN SO FAR AS APPELLANT'S CLAIM FOR REIMBURSEMENT OF EXPENSES AND FOR SERVICES
RENDERED IN THE IMPROVEMENT OF THE FIFTY (50) QUINONES IS CONCERNED.

We agree with appellant that the Statute of Frauds was erroneously applied by the trial court. It is elementary that the
Statute refers to specific kinds of transactions and that it cannot apply to any that is not enumerated therein. And the
only agreements or contracts covered thereby are the following:

(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;

(2) Those do not comply with the Statute of Frauds as set forth in this number, In the following cases an
agreement hereafter made shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the writing, or a secondary evidence of its
contents:

(a) An agreement that by its terms is not to be performed within a year from the making
thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to


marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less
than five hundred pesos, unless the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them of such things in action, or pay at the time
some part of the purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum:

(e) An agreement for the leasing for a longer period than one year, or for the sale of real
property or of an interest therein:

(f) a representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract. (Art. 1403, civil Code.)

In the instant case, what appellant is trying to enforce is the delivery to him of 3,000 square meters of land which he
claims defendants promised to do in consideration of his services as mediator or intermediary in effecting a compromise
of the civil action, Civil Case No. 135, between the defendants and the Deudors. In no sense may such alleged contract be
considered as being a "sale of real property or of any interest therein." Indeed, not all dealings involving interest in real
property come under the Statute.

Moreover, appellant's complaint clearly alleges that he has already fulfilled his part of the bargains to induce the Deudors
to amicably settle their differences with defendants as, in fact, on March 16, 1963, through his efforts, a compromise
agreement between these parties was approved by the court. In other words, the agreement in question has already
been partially consummated, and is no longer merely executory. And it is likewise a fundamental principle governing the
application of the Statute that the contract in dispute should be purely executory on the part of both parties thereto.

We cannot, however, escape taking judicial notice, in relation to the compromise agreement relied upon by appellant,
that in several cases We have decided, We have declared the same rescinded and of no effect. In J. M. Tuason & Co., Inc.
vs. Bienvenido Sanvictores, 4 SCRA 123, the Court held:

It is also worthy of note that the compromise between Deudors and Tuason, upon which Sanvictores
predicates his right to buy the lot he occupies, has been validly rescinded and set aside, as recognized by
this Court in its decision in G.R. No. L-13768, Deudor vs. Tuason, promulgated on May 30, 1961.
We repeated this observation in J.M. Tuason & Co., Inc. vs. Teodosio Macalindong, 6 SCRA 938. Thus, viewed from what
would be the ultimate conclusion of appellant's case, We entertain grave doubts as to whether or not he can successfully
maintain his alleged cause of action against defendants, considering that the compromise agreement that he invokes did
not actually materialize and defendants have not benefited therefrom, not to mention the undisputed fact that, as
pointed out by appellees, appellant's other attempt to secure the same 3,000 square meters via the judicial enforcement
of the compromise agreement in which they were supposed to be reserved for him has already been repudiated by the
courts. (pp. 5-7. Brief of Appellee Gregorio Araneta, Inc.)

As regards appellant's third assignment of error, We hold that the allegations in his complaint do not sufficiently
Appellants' reliance. on Article 2142 of Civil Code is misplaced. Said article provides:

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

From the very language of this provision, it is obvious that a presumed qauasi-contract cannot emerge as against one
party when the subject mater thereof is already covered by an existing contract with another party. Predicated on the
principle that no one should be allowed to unjustly enrich himself at the expense of another, Article 2124 creates the
legal fiction of a quasi-contract precisely because of the absence of any actual agreement between the parties concerned.
Corollarily, if the one who claims having enriched somebody has done so pursuant to a contract with a third party, his
cause of action should be against the latter, who in turn may, if there is any ground therefor, seek relief against the party
benefited. It is essential that the act by which the defendant is benefited must have been voluntary and unilateral on the
part of the plaintiff. As one distinguished civilian puts it, "The act is voluntary. because the actor in quasi-contracts is not
bound by any pre-existing obligation to act. It is unilateral, because it arises from the sole will of the actor who is not
previously bound by any reciprocal or bilateral agreement. The reason why the law creates a juridical relations and
imposes certain obligation is to prevent a situation where a person is able to benefit or take advantage of such lawful,
voluntary and unilateral acts at the expense of said actor." (Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the
case at bar, since appellant has a clearer and more direct recourse against the Deudors with whom he had entered into
an agreement regarding the improvements and expenditures made by him on the land of appellees. it Cannot be said, in
the sense contemplated in Article 2142, that appellees have been enriched at the expense of appellant.

In the ultimate. therefore, Our holding above that appellant's first two assignments of error are well taken cannot save
the day for him. Aside from his having no cause of action against appellees, there is one plain error of omission. We have
found in the order of the trial court which is as good a ground as any other for Us to terminate this case favorably to
appellees. In said order Which We have quoted in full earlier in this opinion, the trial court ruled that "the grounds relied
upon in said motion are mere repetitions of those already resolved and discussed by this Court in the order of August 13,
1964", an observation which We fully share. Virtually, therefore. appellant's motion for reconsideration was ruled to be
pro-forma. Indeed, a cursory reading of the record on appeal reveals that appellant's motion for reconsideration above-
quoted contained exactly the same arguments and manner of discussion as his February 6, 1964 "Opposition to Motion
to Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-25, Rec. on Appeal) as well as his February 17, 1964 "Opposition
to Motion to Dismiss of Defendant J. M. Tuason & Co." (pp. 33-45, Rec. on Appeal and his February 29, 1964 "Rejoinder to
Reply Oil Defendant J. M. Tuason & Co." (pp. 52-64, Rec. on Appeal) We cannot see anything in said motion for
reconsideration that is substantially different from the above oppositions and rejoinder he had previously submitted and
which the trial court had already considered when it rendered its main order of dismissal. Consequently, appellant's
motion for reconsideration did not suspend his period for appeal. (Estrada vs. Sto. Domingo, 28 SCRA 890, 905-6.) And as
this point was covered by appellees' "Opposition to Motion for Reconsideration" (pp. 8689), hence, within the frame of
the issues below, it is within the ambit of Our authority as the Supreme Court to consider the same here even if it is not
discussed in the briefs of the parties. (Insular Life Assurance Co., Ltd. Employees Association-NATU vs. Insular Life
Assurance Co., Ltd. [Resolution en banc of March 10, 1977 in G. R. No. L-25291).
Now, the impugned main order was issued on August 13, 1964, while the appeal was made on September 24, 1964 or 42
days later. Clearly, this is beyond the 30-day reglementary period for appeal. Hence, the subject order of dismissal was
already final and executory when appellant filed his appeal.

WHEREFORE, the appeal of Faustino Cruz in this case is dismissed. No costs.

Fernando (Chairman), Antonio, Aquino and Martin, .JJ., concur.

Concepcion, Jr., JJ., took no part.

UTIERREZ HERMANOS, plaintiff-appellee,


vs.
ENGRACIO ORENSE, defendant-appellant.

William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal for appellant.


Rafael de la Sierra for appellee.

TORRES, J.:

Appeal through bill of exceptions filed by counsel for the appellant from the judgment on April 14, 1913, by the
Honorable P. M. Moir, judge, wherein he sentenced the defendant to make immediate delivery of the property in
question, through a public instrument, by transferring and conveying to the plaintiff all his rights in the property
described in the complaint and to pay it the sum of P780, as damages, and the costs of the suit.

On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, in the Court of First Instance
of Albay against Engacio Orense, in which he set forth that on and before February 14, 1907, the defendant Orense had
been the owner of a parcel of land, with the buildings and improvements thereon, situated in the pueblo of Guinobatan,
Albay, the location, area and boundaries of which were specified in the complaint; that the said property has up to date
been recorded in the new property registry in the name of the said Orense, according to certificate No. 5, with the
boundaries therein given; that, on February 14, 1907, Jose Duran, a nephew of the defendant, with the latter's
knowledge and consent, executed before a notary a public instrument whereby he sold and conveyed to the plaintiff
company, for P1,500, the aforementioned property, the vendor Duran reserving to himself the right to repurchase it for
the same price within a period of four years from the date of the said instrument; that the plaintiff company had not
entered into possession of the purchased property, owing to its continued occupancy by the defendant and his nephew,
Jose Duran, by virtue of a contract of lease executed by the plaintiff to Duran, which contract was in force up to February
14, 1911; that the said instrument of sale of the property, executed by Jose Duran, was publicly and freely confirmed and
ratified by the defendant Orense; that, in order to perfect the title to the said property, but that the defendant Orense
refused to do so, without any justifiable cause or reason, wherefore he should be compelled to execute the said deed by
an express order of the court, for Jose Duran is notoriously insolvent and cannot reimburse the plaintiff company for the
price of the sale which he received, nor pay any sum whatever for the losses and damages occasioned by the said sale,
aside from the fact that the plaintiff had suffered damage by losing the present value of the property, which was worth
P3,000; that, unless such deed of final conveyance were executed in behalf of the plaintiff company, it would be injured
by the fraud perpetrated by the vendor, Duran, in connivance with the defendant; that the latter had been occupying the
said property since February 14, 1911, and refused to pay the rental thereof, notwithstanding the demand made upon
him for its payment at the rate of P30 per month, the just and reasonable value for the occupancy of the said property,
the possession of which the defendant likewise refused to deliver to the plaintiff company, in spite of the continuous
demands made upon him, the defendant, with bad faith and to the prejudice of the firm of Gutierrez Hermanos, claiming
to have rights of ownership and possession in the said property. Therefore it was prayed that judgment be rendered by
holding that the land and improvements in question belong legitimately and exclusively to the plaintiff, and ordering the
defendant to execute in the plaintiff's behalf the said instrument of transfer and conveyance of the property and of all
the right, interest, title and share which the defendant has therein; that the defendant be sentenced to pay P30 per
month for damages and rental of the property from February 14, 1911, and that, in case these remedies were not
granted to the plaintiff, the defendant be sentenced to pay to it the sum of P3,000 as damages, together with interest
thereon since the date of the institution of this suit, and to pay the costs and other legal expenses.

The demurrer filed to the amended complaint was overruled, with exception on the part of the defendant, whose
counsel made a general denial of the allegations contained in the complaint, excepting those that were admitted, and
specifically denied paragraph 4 thereof to the effect that on February 14, 1907, Jose Duran executed the deed of sale of
the property in favor of the plaintiff with the defendant's knowledge and consent.1awphil.net

As the first special defense, counsel for the defendant alleged that the facts set forth in the complaint with respect to the
execution of the deed did not constitute a cause of action, nor did those alleged in the other form of action for the
collection of P3,000, the value of the realty.

As the second special defense, he alleged that the defendant was the lawful owner of the property claimed in the
complaint, as his ownership was recorded in the property registry, and that, since his title had been registered under the
proceedings in rem prescribed by Act No. 496, it was conclusive against the plaintiff and the pretended rights alleged to
have been acquired by Jose Duran prior to such registration could not now prevail; that the defendant had not executed
any written power of attorney nor given any verbal authority to Jose Duran in order that the latter might, in his name and
representation, sell the said property to the plaintiff company; that the defendant's knowledge of the said sale was
acquired long after the execution of the contract of sale between Duran and Gutierrez Hermanos, and that prior thereto
the defendant did not intentionally and deliberately perform any act such as might have induced the plaintiff to believe
that Duran was empowered and authorized by the defendant and which would warrant him in acting to his own
detriment, under the influence of that belief. Counsel therefore prayed that the defendant be absolved from the
complaint and that the plaintiff be sentenced to pay the costs and to hold his peace forever.

After the hearing of the case and an examination of the evidence introduced by both parties, the court rendered the
judgment aforementioned, to which counsel for the defendant excepted and moved for a new trial. This motion was
denied, an exception was taken by the defendant and, upon presentation of the proper bill of exceptions, the same was
approved, certified and forwarded to the clerk of his court.

This suit involves the validity and efficacy of the sale under right of redemption of a parcel of land and a masonry house
with the nipa roof erected thereon, effected by Jose Duran, a nephew of the owner of the property, Engracio Orense, for
the sum of P1,500 by means of a notarial instrument executed and ratified on February 14, 1907.

After the lapse of the four years stipulated for the redemption, the defendant refused to deliver the property to the
purchaser, the firm of Gutierrez Hermanos, and to pay the rental thereof at the rate of P30 per month for its use and
occupation since February 14, 1911, when the period for its repurchase terminated. His refusal was based on the
allegations that he had been and was then the owner of the said property, which was registered in his name in the
property registry; that he had not executed any written power of attorney to Jose Duran, nor had he given the latter any
verbal authorization to sell the said property to the plaintiff firm in his name; and that, prior to the execution of the deed
of sale, the defendant performed no act such as might have induced the plaintiff to believe that Jose Duran was
empowered and authorized by the defendant to effect the said sale.

The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said province, with estafa, for having
represented himself in the said deed of sale to be the absolute owner of the aforesaid land and improvements, whereas
in reality they did not belong to him, but to the defendant Orense. However, at the trial of the case Engracio Orense,
called as a witness, being interrogated by the fiscal as to whether he and consented to Duran's selling the said property
under right of redemption to the firm of Gutierrez Hermanos, replied that he had. In view of this statement by the
defendant, the court acquitted Jose Duran of the charge of estafa.

As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio Orense, the owner of the
property, to the effect that he had consented to his nephew Duran's selling the property under right of repurchase to
Gutierrez Hermanos, counsel for this firm filed a complainant praying, among other remedies, that the defendant Orense
be compelled to execute a deed for the transfer and conveyance to the plaintiff company of all the right, title and interest
with Orense had in the property sold, and to pay to the same the rental of the property due from February 14, 1911.itc-
alf

Notwithstanding the allegations of the defendant, the record in this case shows that he did give his consent in order that
his nephew, Jose Duran, might sell the property in question to Gutierrez Hermanos, and that he did thereafter confirm
and ratify the sale by means of a public instrument executed before a notary.

It having been proven at the trial that he gave his consent to the said sale, it follows that the defendant conferred verbal,
or at least implied, power of agency upon his nephew Duran, who accepted it in the same way by selling the said
property. The principal must therefore fulfill all the obligations contracted by the agent, who acted within the scope of his
authority. (Civil Code, arts. 1709, 1710 and 1727.)

Even should it be held that the said consent was granted subsequently to the sale, it is unquestionable that the
defendant, the owner of the property, approved the action of his nephew, who in this case acted as the manager of his
uncle's business, and Orense'r ratification produced the effect of an express authorization to make the said sale. (Civil
Code, arts. 1888 and 1892.)

Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being authorized by him or
without his legal representation according to law.

A contract executed in the name of another by one who has neither his authorization nor legal representation
shall be void, unless it should be ratified by the person in whose name it was executed before being revoked by
the other contracting party.

The sworn statement made by the defendant, Orense, while testifying as a witness at the trial of Duran for estafa,
virtually confirms and ratifies the sale of his property effected by his nephew, Duran, and, pursuant to article 1313 of the
Civil Code, remedies all defects which the contract may have contained from the moment of its execution.

The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the beginning, but
afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by the confirmation solemnly
made by the said owner upon his stating under oath to the judge that he himself consented to his nephew Jose Duran's
making the said sale. Moreover, pursuant to article 1309 of the Code, the right of action for nullification that could have
been brought became legally extinguished from the moment the contract was validly confirmed and ratified, and, in the
present case, it is unquestionable that the defendant did confirm the said contract of sale and consent to its execution.

On the testimony given by Engacio Orense at the trial of Duran for estafa, the latter was acquitted, and it would not be
just that the said testimony, expressive of his consent to the sale of his property, which determined the acquittal of his
nephew, Jose Duran, who then acted as his business manager, and which testimony wiped out the deception that in the
beginning appeared to have been practiced by the said Duran, should not now serve in passing upon the conduct of
Engracio Orense in relation to the firm of Gutierrez Hermanos in order to prove his consent to the sale of his property,
for, had it not been for the consent admitted by the defendant Orense, the plaintiff would have been the victim of estafa.

If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling the
property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for him afterward to deny that admission,
to the prejudice of the purchaser, who gave P1,500 for the said property.

The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is alleged to be
invalid, null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure, because the
authority which Orense may have given to Duran to make the said contract of sale is not shown to have been in writing
and signed by Orense, but the record discloses satisfactory and conclusive proof that the defendant Orense gave his
consent to the contract of sale executed in a public instrument by his nephew Jose Duran. Such consent was proven in a
criminal action by the sworn testimony of the principal and presented in this civil suit by other sworn testimony of the
same principal and by other evidence to which the defendant made no objection. Therefore the principal is bound to
abide by the consequences of his agency as though it had actually been given in writing (Conlu vs. Araneta and Guanko,
15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.)

The repeated and successive statements made by the defendant Orense in two actions, wherein he affirmed that he had
given his consent to the sale of his property, meet the requirements of the law and legally excuse the lack of written
authority, and, as they are a full ratification of the acts executed by his nephew Jose Duran, they produce the effects of
an express power of agency.

The judgment appealed from in harmony with the law and the merits of the case, and the errors assigned thereto have
been duly refuted by the foregoing considerations, so it should be affirmed.

The judgment appealed from is hereby affirmed, with the costs against the appellant.

Arellano, C.J., Johnson,

USTICO ADILLE, petitioner,


vs.
THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO, DOMINGO ASEJO, JOSEFA ASEJO and
SANTIAGO ASEJO, respondents.

SARMIENTO, J.:
In issue herein are property and property rights, a familiar subject of controversy and a wellspring of enormous conflict
that has led not only to protracted legal entanglements but to even more bitter consequences, like strained relationships
and even the forfeiture of lives. It is a question that likewise reflects a tragic commentary on prevailing social and cultural
values and institutions, where, as one observer notes, wealth and its accumulation are the basis of self-fulfillment and
where property is held as sacred as life itself. "It is in the defense of his property," says this modern thinker, that one "will
mobilize his deepest protective devices, and anybody that threatens his possessions will arouse his most passionate
enmity." 1

The task of this Court, however, is not to judge the wisdom of values; the burden of reconstructing the social order is
shouldered by the political leadership-and the people themselves.

The parties have come to this Court for relief and accordingly, our responsibility is to give them that relief pursuant to the
decree of law.

The antecedent facts are quoted from the decision 2 appealed from:

xxx xxx xxx

... [T]he land in question Lot 14694 of Cadastral Survey of Albay located in Legaspi City with an area of
some 11,325 sq. m. originally belonged to one Felisa Alzul as her own private property; she married twice
in her lifetime; the first, with one Bernabe Adille, with whom she had as an only child, herein defendant
Rustico Adille; in her second marriage with one Procopio Asejo, her children were herein plaintiffs, —
now, sometime in 1939, said Felisa sold the property in pacto de retro to certain 3rd persons, period of
repurchase being 3 years, but she died in 1942 without being able to redeem and after her death, but
during the period of redemption, herein defendant repurchased, by himself alone, and after that, he
executed a deed of extra-judicial partition representing himself to be the only heir and child of his
mother Felisa with the consequence that he was able to secure title in his name alone also, so that OCT.
No. 21137 in the name of his mother was transferred to his name, that was in 1955; that was why after
some efforts of compromise had failed, his half-brothers and sisters, herein plaintiffs, filed present case
for partition with accounting on the position that he was only a trustee on an implied trust when he
redeemed,-and this is the evidence, but as it also turned out that one of plaintiffs, Emeteria Asejo was
occupying a portion, defendant counterclaimed for her to vacate that, —

Well then, after hearing the evidence, trial Judge sustained defendant in his position that he was and
became absolute owner, he was not a trustee, and therefore, dismissed case and also condemned
plaintiff occupant, Emeteria to vacate; it is because of this that plaintiffs have come here and contend
that trial court erred in:

I. ... declaring the defendant absolute owner of the property;

II. ... not ordering the partition of the property; and

III. ... ordering one of the plaintiffs who is in possession of the portion of the property to vacate the land,
p. 1 Appellant's brief.

which can be reduced to simple question of whether or not on the basis of evidence and law, judgment appealed from
should be maintained. 3
xxx xxx xxx

The respondent Court of appeals reversed the trial Court, 4 and ruled for the plaintiffs-appellants, the private respondents
herein. The petitioner now appeals, by way of certiorari, from the Court's decision.

We required the private respondents to file a comment and thereafter, having given due course to the petition, directed
the parties to file their briefs. Only the petitioner, however, filed a brief, and the private respondents having failed to file
one, we declared the case submitted for decision.

The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over the property held in common?

Essentially, it is the petitioner's contention that the property subject of dispute devolved upon him upon the failure of his
co-heirs to join him in its redemption within the period required by law. He relies on the provisions of Article 1515 of the
old Civil Article 1613 of the present Code, giving the vendee a retro the right to demand redemption of the entire
property.

There is no merit in this petition.

The right of repurchase may be exercised by a co-owner with aspect to his share alone. 5 While the records show that the
petitioner redeemed the property in its entirety, shouldering the expenses therefor, that did not make him the owner of
all of it. In other words, it did not put to end the existing state of co-ownership.

Necessary expenses may be incurred by one co-owner, subject to his right to collect reimbursement from the remaining
co-owners. 6 There is no doubt that redemption of property entails a necessary expense. Under the Civil Code:

ART. 488. Each co-owner shall have a right to compel the other co-owners to contribute to the expenses
of preservation of the thing or right owned in common and to the taxes. Any one of the latter may
exempt himself from this obligation by renouncing so much of his undivided interest as may be
equivalent to his share of the expenses and taxes. No such waiver shall be made if it is prejudicial to the
co-ownership.

The result is that the property remains to be in a condition of co-ownership. While a vendee a retro, under Article 1613 of
the Code, "may not be compelled to consent to a partial redemption," the redemption by one co-heir or co-owner of the
property in its totality does not vest in him ownership over it. Failure on the part of all the co-owners to redeem it
entitles the vendee a retro to retain the property and consolidate title thereto in his name. 7 But the provision does not
give to the redeeming co-owner the right to the entire property. It does not provide for a mode of terminating a co-
ownership.

Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name terminate the
existing co-ownership. While his half-brothers and sisters are, as we said, liable to him for reimbursement as and for their
shares in redemption expenses, he cannot claim exclusive right to the property owned in common. Registration of
property is not a means of acquiring ownership. It operates as a mere notice of existing title, that is, if there is one.

The petitioner must then be said to be a trustee of the property on behalf of the private respondents. The Civil Code
states:
ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes.

We agree with the respondent Court of Appeals that fraud attended the registration of the property. The petitioner's
pretension that he was the sole heir to the land in the affidavit of extrajudicial settlement he executed preliminary to the
registration thereof betrays a clear effort on his part to defraud his brothers and sisters and to exercise sole dominion
over the property. The aforequoted provision therefore applies.

It is the view of the respondent Court that the petitioner, in taking over the property, did so either on behalf of his co-
heirs, in which event, he had constituted himself a negotiorum gestor under Article 2144 of the Civil Code, or for his
exclusive benefit, in which case, he is guilty of fraud, and must act as trustee, the private respondents being the
beneficiaries, under the Article 1456. The evidence, of course, points to the second alternative the petitioner having
asserted claims of exclusive ownership over the property and having acted in fraud of his co-heirs. He cannot therefore
be said to have assume the mere management of the property abandoned by his co-heirs, the situation Article 2144 of
the Code contemplates. In any case, as the respondent Court itself affirms, the result would be the same whether it is
one or the other. The petitioner would remain liable to the Private respondents, his co-heirs.

This Court is not unaware of the well-established principle that prescription bars any demand on property (owned in
common) held by another (co-owner) following the required number of years. In that event, the party in possession
acquires title to the property and the state of co-ownership is ended . 8 In the case at bar, the property was registered in
1955 by the petitioner, solely in his name, while the claim of the private respondents was presented in 1974. Has
prescription then, set in?

We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must have been preceded by
repudiation (of the co-ownership). The act of repudiation, in turn is subject to certain conditions: (1) a co-owner
repudiates the co-ownership; (2) such an act of repudiation is clearly made known to the other co-owners; (3) the
evidence thereon is clear and conclusive, and (4) he has been in possession through open, continuous, exclusive, and
notorious possession of the property for the period required by law. 9

The instant case shows that the petitioner had not complied with these requisites. We are not convinced that he had
repudiated the co-ownership; on the contrary, he had deliberately kept the private respondents in the dark by feigning
sole heirship over the estate under dispute. He cannot therefore be said to have "made known" his efforts to deny the
co-ownership. Moreover, one of the private respondents, Emeteria Asejo, is occupying a portion of the land up to the
present, yet, the petitioner has not taken pains to eject her therefrom. As a matter of fact, he sought to recover
possession of that portion Emeteria is occupying only as a counterclaim, and only after the private respondents had first
sought judicial relief.

It is true that registration under the Torrens system is constructive notice of title, 10 but it has likewise been our holding
that the Torrens title does not furnish a shield for fraud. 11 It is therefore no argument to say that the act of registration is
equivalent to notice of repudiation, assuming there was one, notwithstanding the long-standing rule that registration
operates as a universal notice of title.

For the same reason, we cannot dismiss the private respondents' claims commenced in 1974 over the estate registered in
1955. While actions to enforce a constructive trust prescribes in ten years, 12 reckoned from the date of the registration
of the property, 13 we, as we said, are not prepared to count the period from such a date in this case. We note the
petitioner's sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent
misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother
Feliza with the consequence that he was able to secure title in his name also." 14 Accordingly, we hold that the right of the
private respondents commenced from the time they actually discovered the petitioner's act of defraudation. 15 According
to the respondent Court of Appeals, they "came to know [of it] apparently only during the progress of the
litigation." 16 Hence, prescription is not a bar.

Moreover, and as a rule, prescription is an affirmative defense that must be pleaded either in a motion to dismiss or in
the answer otherwise it is deemed waived, 17 and here, the petitioner never raised that defense. 18 There are recognized
exceptions to this rule, but the petitioner has not shown why they apply.

WHEREFORE, there being no reversible error committed by the respondent Court of Appeals, the petition is DENIED. The
Decision sought to be reviewed is hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED,

DOMETILA M. ANDRES, doing business under the name and style "IRENE'S WEARING APPAREL," petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS, respondents.

Roque A. Tamayo for petitioner.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

CORTES, J.:

Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which, applying the doctrine
of solutio indebiti, reversed the decision of the Regional Trial Court, Branch CV, Quezon City by deciding in favor of private
respondent.

Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of ladies garments,
children's wear, men's apparel and linens for local and foreign buyers. Among its foreign buyers was Facets Funwear, Inc.
(hereinafter referred to as FACETS) of the United States.

In the course of the business transaction between the two, FACETS from time to time remitted certain amounts of money
to petitioner in payment for the items it had purchased. Sometime in August 1980, FACETS instructed the First National
State Bank of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to as FNSB) to transfer $10,000.00 to
petitioner via Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter referred to as PNB).

Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust Corporation to effect
the above- mentioned transfer through its facilities and to charge the amount to the account of FNSB with private
respondent. Although private respondent was able to send a telex to PNB to pay petitioner $10,000.00 through the
Pilipinas Bank, where petitioner had an account, the payment was not effected immediately because the payee
designated in the telex was only "Wearing Apparel." Upon query by PNB, private respondent sent PNB another telex
dated August 27, 1980 stating that the payment was to be made to "Irene's Wearing Apparel." On August 28, 1980,
petitioner received the remittance of $10,000.00 through Demand Draft No. 225654 of the PNB.

Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to petitioner, FACETS
informed FNSB about the situation. On September 8, 1980, unaware that petitioner had already received the remittance,
FACETS informed private respondent about the delay and at the same time amended its instruction by asking it to effect
the payment through the Philippine Commercial and Industrial Bank (hereinafter referred to as PCIB) instead of PNB.

Accordingly, private respondent, which was also unaware that petitioner had already received the remittance of
$10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on September 11, 1980, petitioner
received a second $10,000.00 remittance.

Private respondent debited the account of FNSB for the second $10,000.00 remittance effected through PCIB. However,
when FNSB discovered that private respondent had made a duplication of the remittance, it asked for a recredit of its
account in the amount of $10,000.00. Private respondent complied with the request.

Private respondent asked petitioner for the return of the second remittance of $10,000.00 but the latter refused to pay.
On May 12, 1982 a complaint was filed with the Regional Trial Court, Branch CV, Quezon City which was decided in favor
of petitioner as defendant. The trial court ruled that Art. 2154 of the New Civil Code is not applicable to the case because
the second remittance was made not by mistake but by negligence and petitioner was not unjustly enriched by virtue
thereof [Record, p. 234]. On appeal, the Court of Appeals held that Art. 2154 is applicable and reversed the RTC decision.
The dispositive portion of the Court of Appeals' decision reads as follows:

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and another one entered in favor
of plaintiff-appellant and against defendant-appellee Domelita (sic) M. Andres, doing business under the
name and style "Irene's Wearing Apparel" to reimburse and/or return to plaintiff-appellant the amount
of $10,000.00, its equivalent in Philippine currency, with interests at the legal rate from the filing of the
complaint on May 12, 1982 until the whole amount is fully paid, plus twenty percent (20%) of the amount
due as attomey's fees; and to pay the costs.

With costs against defendant-appellee.

SO ORDERED. [Rollo, pp. 29-30.]

Thereafter, this petition was filed. The sole issue in this case is whether or not the private respondent has the right to
recover the second $10,000.00 remittance it had delivered to petitioner. The resolution of this issue would hinge on the
applicability of Art. 2154 of the New Civil Code which provides that:

Art. 2154. If something received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.

This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:

Art. 1895. If a thing is received when there was no right to claim it and which, through an error, has been
unduly delivered, an obligation to restore it arises.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo explained the nature of this
article thus:

Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable. This legal
provision, which determines the quasi-contract of solution indebiti, is one of the concrete manifestations
of the ancient principle that no one shall enrich himself unjustly at the expense of another. In the Roman
Law Digest the maxim was formulated thus: "Jure naturae acquum est, neminem cum alterius detrimento
et injuria fieri locupletiorem." And the Partidas declared: "Ninguno non deue enriquecerse tortizeramente
con dano de otro." Such axiom has grown through the centuries in legislation, in the science of law and in
court decisions. The lawmaker has found it one of the helpful guides in framing statutes and codes. Thus,
it is unfolded in many articles scattered in the Spanish Civil Code. (See for example, articles, 360, 361,
464, 647, 648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-honored
aphorism has also been adopted by jurists in their study of the conflict of rights. It has been accepted by
the courts, which have not hesitated to apply it when the exigencies of right and equity demanded its
assertion. It is a part of that affluent reservoir of justice upon which judicial discretion draws whenever
the statutory laws are inadequate because they do not speak or do so with a confused voice. [at p. 632.]

For this article to apply the following requisites must concur: "(1) that he who paid was not under obligation to do so;
and, (2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. Piccio, 110 Phil. 558, 563
(1960)].

It is undisputed that private respondent delivered the second $10,000.00 remittance. However, petitioner contends that
the doctrine of solutio indebiti, does not apply because its requisites are absent.

First, it is argued that petitioner had the right to demand and therefore to retain the second $10,000.00 remittance. It is
alleged that even after the two $10,000.00 remittances are credited to petitioner's receivables from FACETS, the latter
allegedly still had a balance of $49,324.00. Hence, it is argued that the last $10,000.00 remittance being in payment of a
pre-existing debt, petitioner was not thereby unjustly enriched.

The contention is without merit.

The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS. It was the latter
and not private respondent which was indebted to petitioner. On the other hand, the contract for the transmittal of
dollars from the United States to petitioner was entered into by private respondent with FNSB. Petitioner, although
named as the payee was not privy to the contract of remittance of dollars. Neither was private respondent a party to the
contract of sale between petitioner and FACETS. There being no contractual relation between them, petitioner has no
right to apply the second $10,000.00 remittance delivered by mistake by private respondent to the outstanding account
of FACETS.

Petitioner next contends that the payment by respondent bank of the second $10,000.00 remittance was not made by
mistake but was the result of negligence of its employees. In connection with this the Court of Appeals made the
following finding of facts:

The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the written interrogatories
sent to the First National State Bank of New Jersey through the Consulate General of the Philippines in
New York, Adelaide C. Schachel, the investigation and reconciliation clerk in the said bank testified that a
request to remit a payment for Facet Funwear Inc. was made in August, 1980. The total amount which
the First National State Bank of New Jersey actually requested the plaintiff-appellant Manufacturers
Hanover & Trust Corporation to remit to Irene's Wearing Apparel was US $10,000.00. Only one
remittance was requested by First National State Bank of New Jersey as per instruction of Facets Funwear
(Exhibit "J", pp. 4-5).

That there was a mistake in the second remittance of US $10,000.00 is borne out by the fact that both
remittances have the same reference invoice number which is 263 80. (Exhibits "A-1- Deposition of Mr.
Stanley Panasow" and "A-2-Deposition of Mr. Stanley Panasow").

Plaintiff-appellant made the second remittance on the wrong assumption that defendant-appellee did
not receive the first remittance of US $10,000.00. [Rollo, pp. 26-27.]

It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts which petitioner would
have this Court review. The Court holds that the finding by the Court of Appeals that the second $10,000.00 remittance
was made by mistake, being based on substantial evidence, is final and conclusive. The rule regarding questions of fact
being raised with this Court in a petition for certiorari under Rule 45 of the Revised Rules of Court has been stated in
Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under
Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme Court in cases brought to it from
the Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of fact
being conclusive" [Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a
long line of decisions]. This Court has emphatically declared that "it is not the function of the Supreme
Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of
law that might have been committed by the lower court" [Tiongco v. De la Merced, G.R. No. L-24426, July
25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865;
Baniqued v. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring, therefore, a
showing that the findings complained of are totally devoid of support in the record, or that they are so
glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court is
not expected or required to examine or contrast the oral and documentary evidence submitted by the
parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 9731. [at pp. 144-
145.]

Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the wrongful act of a
third person, the loss must be borne by the one whose negligence was the proximate cause of the loss.

The rule is that principles of equity cannot be applied if there is a provision of law specifically applicable to a case [Phil.
Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA 433; Zabat, Jr. v. Court of Appeals, G.R. No.
L36958, July 10, 1986, 142 SCRA 587; Rural Bank of Paranaque, Inc. v. Remolado, G.R. No. 62051, March 18, 1985, 135
SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the Court in the case of De Garcia v. Court of Appeals, G.R. No. L-
20264, January 30, 1971, 37 SCRA 129, citing Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965, 13 SCRA 486, held:

... The common law principle that where one of two innocent persons must suffer by a fraud perpetrated
by another, the law imposes the loss upon the party who, by his misplaced confidence, has enabled the
fraud to be committed, cannot be applied in a case which is covered by an express provision of the new
Civil Code, specifically Article 559. Between a common law principle and a statutory provision, the latter
must prevail in this jurisdiction. [at p. 135.]
Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti, applies in the case at bar,
the Court must reject the common law principle invoked by petitioner.

Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact that from the time the
second $10,000.00 remittance was made, five hundred and ten days had elapsed before private respondent demanded
the return thereof. Needless to say, private respondent instituted the complaint for recovery of the second $10,000.00
remittance well within the six years prescriptive period for actions based upon a quasi-contract [Art. 1145 of the New
Civil Code].

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.

GONZALO PUYAT & SONS, INC., plaintiff-appelle,


vs.
CITY OF MANILA AND MARCELO SARMIENTO, as City Treasurer of Manila, defendants-appellants

Feria, Manglapus & Associates for plainttiff-appelle.Asst. City Fiscal Manuel T. Reyes for defendants-appellants.

PAREDES, J.:

This is an appeal from the judgment of the CFI of Manila, the dispostive portion of which reads:

"xxx Of the payments made by the plaintiff, only that made on October 25, 1950 in the amount of P1,250.00 has
prescribed Payments made in 1951 and thereafter are still recoverable since the extra-judicial demand made on
October 30, 1956 was well within the six-year prescriptive period of the New CivilCode.

In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiff, ordering the
defendants to refund the amount of P29,824.00, without interest. No costs.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this
Honorable Court, without prejudice to the parties adducing other evidence to prove their case not covered by
this stipulation of facts. 1äwphï1.ñët

Defendants' counterclaim is hereby dismissed for not having been substantiated."

On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action for refund of Retail DealerlsTaxes paid by it,
corresponding to the first Quarter of 1950 up to the third Quarter of 1956, amounting to P33,785.00, against the City of
Manila and its City Treasurer.The case was submitted on the following stipulation of facts, to wit--

"1. That the plaintiff is a corporation duly organized and existing according to the laws of the Philippines, with
offices at Manila; while defendant City Manila is a Municipal Corporation duly organized in accordance with the
laws of the Philippines, and defendant Marcelino Sarmiento is the dulyqualified incumbent City Treasurer of
Manila;

"2. That plaintiff is engaged in the business of manufacturing and selling all kinds of furniture at its factory at 190
Rodriguez-Arias, San Miguel, Manila, and has a display room located at 604-606 Rizal Avenue, Manila, wherein it
displays the various kind of furniture manufactured by it and sells some goods imported by it, such as billiard
balls, bowling balls and other accessories;

"3. That acting pursuant to the provisions of Sec. 1. group II, of Ordinance No. 3364, defendant City Treasurer of
Manilaassessed from plaintiff retail dealer's tax corresponding to the quarters hereunder stated on the sales of
furniture manufactured and sold by it at its factory site, all of which assessments plaintiff paid without protest in
the erroneous belief that it was liable therefor, on the dates and in the amount enumerated herein below:

Amount
Period Date Paid O.R. No. Assessed
and Paid.

First Quarter 1950 Jan. 25, 1950 436271X P1,255.00

Second Quarter 1950 Apr. 25, 1950 215895X 1,250.00

Third Quarter 1950 Jul. 25, 1950 243321X 1,250.00

Fourth Quarter 1950 Oct. 25, 1950 271165X 1,250.00

(Follows the assessment for different quarters in 1951, 1952,


1953, 1954 and 1955, fixing the same amount quarterly.) x x x..

First Quarter 1956 Jan. 25, 1956 823047X 1,250.00

Second Quarter 1956 Apr. 25, 1956 855949X 1,250.00

Third Quarter 1956 Jul. 25, 1956 880789X 1,250.00

TOTAL ............. P33,785.00


===========

"4. That plaintiff, being a manufacturer of various kinds of furniture, is exempt from the payment of taxes
imposed under the provisions of Sec. 1, Group II, of Ordinance No. 3364,which took effect on September 24,
1956, on the sale of the various kinds of furniture manufactured by it pursuant to the provisions of Sec. 18(n) of
Republic Act No. 409 (Revised Charter of Manila), as restated in Section 1 of Ordinance No.3816.

"5. That, however, plaintiff, is liable for the payment of taxes prescribed in Section 1, Group II or Ordinance No.
3364mas amended by Sec. 1, Group II of Ordinance No. 3816, which took effect on September 24, 1956, on the
sales of imported billiard balls, bowling balls and other accessories at its displayroom. The taxes paid by the
plaintiff on the sales of said article are as follows:

xxx xxx xxx


"6. That on October 30, 1956, the plaintiff filed with defendant City Treasurer of Manila, a formal request for
refund of the retail dealer's taxes unduly paid by it as aforestated in paragraph 3, hereof.

"7. That on July 24, 1958, the defendant City Treasurer of Maniladefinitely denied said request for refund.

"8. Hence on August 21, 1958, plaintiff filed the present complaint.

"9. Based on the above stipulation of facts, the legal issues to be resolved by this Honorable Court are: (1) the
period of prescription applicable in matters of refund of municipal taxes errenously paid by a taxpayer and (2)
refund of taxes not paid under protest. x x x."

Said judgment was directly appealed to this Court on two dominant issues to wit: (1) Whether or not the amounts paid by
plaintiff-appelle, as retail dealer's taxes under Ordinance 1925, as amended by Ordinance No. 3364of the City of Manila,
without protest, are refundable;(2) Assuming arguendo, that plaintiff-appellee is entitled to the refund of the retail taxes
in question, whether or not the claim for refund filed in October 1956, in so far as said claim refers to taxes paid from
1950 to 1952 has already prescribed. .

Under the first issue, defendants-appellants contend tht the taxes in question were voluntarily paid by appellee company
and since, in this jurisdiction, in order that a legal basis arise for claim of refund of taxes erroneously assessed, payment
thereof must be made under protest, and this being a condition sine qua non, and no protest having been made, --
verbally or in writing, therebyindicating that the payment was voluntary, the action must fail. Cited in support of the
above contention, are the cases of Zaragoza vs. Alfonso, 46 Phil. 160-161, and Gavino v. Municipality of Calapan, 71 Phil.
438..

In refutation of the above stand of appellants, appellee avers tht the payments could not have been voluntary.At most,
they were paid "mistakenly and in good faith"and "without protest in the erroneous belief that it was liable thereof."
Voluntariness is incompatible with protest and mistake. It submits that this is a simple case of "solutio indebiti"..

Appellants do not dispute the fact that appellee-companyis exempted from the payment of the tax in question.This is
manifest from the reply of appellant City Treasurer stating that sales of manufactured products at the factory site are not
taxable either under the Wholesalers Ordinance or under the Retailers' Ordinance. With this admission, it would seem
clear that the taxes collected from appellee were paid, thru an error or mistake, which places said act of payment within
the pale of the new Civil Code provision on solutio indebiti. The appellant City of Manila, at the very start,
notwithstanding the Ordinance imposing the Retailer's Tax, had no right to demand payment thereof..

"If something is received when there is no right to demand it, and it was unduly delivered through mistake, the
obligationto retun it arises" (Art. 2154, NCC)..

Appelle categorically stated that the payment was not voluntarily made, (a fact found also by the lower court),but on the
erronoues belief, that they were due. Under this circumstance, the amount paid, even without protest is recoverable. "If
the payer was in doubt whether the debt was due, he may recover if he proves that it was not due" (Art. 2156, NCC).
Appellee had duly proved that taxes were not lawfully due. There is, therefore, no doubt that the provisions of solutio
indebtiti, the new Civil Code, apply to the admitted facts of the case..

With all, appellant quoted Manresa as saying: "x x x De la misma opinion son el Sr. Sanchez Roman y el Sr. Galcon, et cual
afirma que si la paga se hizo por error de derecho, ni existe el cuasi-contrato ni esta obligado a la restitucion el que cobro,
aunque no se debiera lo que se pago" (Manresa, Tomo 12, paginas 611-612). This opinion, however, has already lost its
persuasiveness, in view of the provisions of the Civil Code, recognizing "error de derecho" as a basis for the quasi-
contract, of solutio indebiti. .

"Payment by reason of a mistake in the contruction or application of a doubtful or difficult question of law may come
within the scope of the preceding article" (Art. 21555)..

There is no gainsaying the fact that the payments made by appellee was due to a mistake in the construction of a
doubtful question of law. The reason underlying similar provisions, as applied to illegal taxation, in the United States, is
expressed in the case of Newport v. Ringo, 37 Ky. 635, 636; 10 S.W. 2, in the following manner:.

"It is too well settled in this state to need the citation of authority that if money be paid through a clear mistake of law or
fact, essentially affecting the rights of the parties, and which in law or conscience was not payable, and should not be
retained by the party receiving it, it may be recovered. Both law and sound morality so dictate. Especially should this be
the rule as to illegal taxation. The taxpayer has no voice in the impositionof the burden. He has the right to presume that
the taxing power has been lawfully exercised. He should not be required to know more than those in authority over him,
nor should he suffer loss by complying with what he bona fide believe to be his duty as a good citizen. Upon the contrary,
he should be promoted to its ready performance by refunding to him any legal exaction paid by him in ignorance of its
illegality; and, certainly, in such a case, if be subject to a penalty for nonpayment, his compliance under belief of its
legality, and without awaitinga resort to judicial proceedings should not be regrded in law as so far voluntary as to affect
his right of recovery.".

"Every person who through an act or performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal grounds, shall return the same to him"(Art. 22, Civil Code). It
would seems unedifying for the government, (here the City of Manila), that knowing it has no right at all to collect or to
receive money for alleged taxes paid by mistake, it would be reluctant to return the same. No one should enrich itself
unjustly at the expense of another (Art. 2125, Civil Code)..

Admittedly, plaintiff-appellee paid the tax without protest.Equally admitted is the fact that section 76 of the Charter of
Manila provides that "No court shall entertain any suit assailing the validity of tax assessed under this article until the
taxpayer shall have paid, under protest the taxes assessed against him, xx". It should be noted, however, that the article
referred to in said section is Article XXI, entitled Department of Assessment and the sections thereunder manifestly show
that said article and its sections relate to asseessment, collection and recovery of real estate taxes only. Said section 76,
therefor, is not applicable to the case at bar, which relates to the recover of retail dealer taxes..

In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a question similar to the case at bar, it was held that
the requiredment of protest refers only to the payment of taxes which are directly imposed by the charter itself, that is,
real estate taxes, which view was sustained by judicial and administrative precedents, one of which is the case of Medina,
et al., v. City of Baguio, G.R. No. L-4269, Aug. 29, 1952. In other words, protest is not necessary for the recovery of retail
dealer's taxes, like the present, because they are not directly imposed by the charter. In the Medina case, the Charter of
Baguio (Chap. 61, Revised Adm. Code), provides that "no court shall entertain any suit assailing the validity of a tax
assessed unde this charter until the tax-payer shall have paid, under protest, the taxes assessed against him
(sec.25474[b], Rev. Adm. Code), a proviso similar to section 76 of the Manila Charter. The refund of specific taxes paid
under a void ordinance was ordered, although it did not appear that payment thereof was made under protest..

In a recent case, We said: "The appellants argue that the sum the refund of which is sought by the appellee, was not paid
under protest and hence is not refundable. Again, the trial court correctly held that being unauthorized, it is not a tax
assessed under the Charter of the Appellant City of Davao and for that reason, no protest is necessary for a claim or
demand for its refund" (Citing the Medina case, supra; East Asiatic Co., Ltd. v. City of Davao, G.R. No. L-16253, Aug. 21,
1962). Lastly, being a case of solutio indebiti, protest is not required as a condition sine qua non for its application..

The next issue in discussion is that of prescription. Appellants maintain that article 1146 (NCC), which provides for a
period of four (4) years (upon injury to the rights of the plaintiff), apply to the case. On the other hand, appellee contends
that provisions of Act 190 (Code of Civ. Procedure) should apply, insofar as payments made before the effectivity of the
New Civil Code on August 30, 1950, the period of which is ten (10) years, (Sec. 40,Act No. 190; Osorio v. Tan Jongko, 51
O.G. 6211) and article 1145 (NCC), for payments made after said effectivity, providing for a period of six (6) years (upon
quasi-contracts like solutio indebiti). Even if the provisionsof Act No. 190 should apply to those payments made before
the effectivity of the new Civil Code, because "prescription already runnig before the effectivity of this Code shall be
governed by laws previously in force x x x" (art. 1116, NCC), for payments made after said effectivity,providing for a
period of six (6) years (upon quasi-contracts like solutio indebiti). Even if the provisions of Act No. 190should apply to
those payments made before the effectivity of the new Civil Code, because "prescription already running before the
effectivity of of this Code shall be govern by laws previously in force xxx " (Art. 1116, NCC), Still payments made before
August 30, 1950 are no longer recoverable in view of the second paragraph of said article (1116), which provides:"but if
since the time this Code took effect the entire period herein required for prescription should elapse the present Code
shall be applicable even though by the former laws a longer period might be required". Anent the payments made after
August 30, 1950, it is abvious that the action has prescribed with respect to those made before October 30, 1950 only,
considering the fact that the prescription of action is interrupted xxx when is a writteen extra-judicial demand x x x" (Art.
1155, NCC), and the written demand in the case at bar was made on October 30, 1956 (Stipulation of Facts).MODIFIED in
the sense that only payments made on or after October 30, 1950 should be refunded, the decision appealed from is
affirmed, in all other respects. No costs. .

Bengzon, C.J., Bautista Angelo, Labrador,

CBK POWER COMPANY LIMITED, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

SERENO, CJ:

This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by CBK Power Company
Limited (petitioner). The Petition assails the Decision2 dated 27 June 2011 and Resolution3 dated 16 September 2011 of
the Court of Tax Appeals En Banc (CTA En Banc in C.T.A. EB Nos. 658 and 659. The assailed Decision and Resolution
reversed and set aside the Decision4 dated 3 March 2010 and Resolution5 dated 6 July 2010 rendered by the CTA Special
Second Division in C.T.A. Case No. 7621, which partly granted the claim of petitioner for the issuance of a tax credit
certificate representing the latter's alleged unutilized input taxes on local purchases of goods and services attributable to
effectively zero-rated sales to National Power Corporation (NPC) for the second and third quarters of 2005.

The Facts
Petitioner is engaged, among others, in the operation, maintenance, and management of the Kalayaan II pumped-storage
hydroelectric power plant, the new Caliraya Spillway, Caliraya, Botocan; and the Kalayaan I hydroelectric power plants
and their related facilities located in the Province of Laguna.6

On 29 December 2004, petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal Revenue (BIR) in
accordance with Section 108(B)(3) of the National Internal Revenue Code (NIRC) of 1997, as amended. The application
was duly approved by the BIR. Thus, petitioner ’s sale of electr icity to the NPC from 1 January 2005 to 31 October 2005
was declared to be entitled to the benefit of effectively zero-rated value added tax (VAT).7

Petitioner filed its administrative claims for the issuance of tax credit certificates for its alleged unutilized input taxes on
its purchase of capital goods and alleged unutilized input taxes on its local purchases and/or importation of goods and
services, other than capital goods, pursuant to Sections 112(A) and (B) of the NIRC of 1997, as amended, with BIR
Revenue District Office (RDO) No. 55 of Laguna, as follows:8

Period Covered Date Of Filing

1st quarter of 2005 30-Jun-05

2nd quarter of 2005 15-Sep-05

3rd quarter of 2005 28-Oct-05

Alleging inaction of the Commissioner of Internal Revenue (CIR), petitioner filed a Petition for Review with the CTA on 18
April 2007.

THE CTA SPECIAL SECOND DIVISION RULING

After trial on the merits, the CTA Special Second Division rendered a Decision on 3 March 2010. Applying Commissioner
of Internal Revenue v. Mirant Pagbilao Corporation (Mirant),9 the court

a quo ruled that petitioner had until the following dates within which to file both administrative and judicial claims:

Taxable Quarter Last Day to


File Claim for
2005 Close of the quarter Refund

1st quarter 31-Mar-05 31-Mar-07

2nd quarter 30-Jun-05 30-Jun-07

3rd quarter 30-Sep-05 30-Sep-07

Accordingly, petitioner timely filed its administrative claims for the three quarters of 2005. However, considering that the
judicial claim was filed on 18 April 2007, the CTA Division denied the claim for the first quarter of 2005 for having been
filed out of time.

After an evaluation of petitioner’s claim for the second and third quarters of 2005, the court a quo partly granted the
claim and ordered the issuance of a tax credit certificate in favor of petitioner in the reduced amount of ₱27,170,123.36.
The parties filed their respective Motions for Partial Reconsideration, which were both denied by the CTA Division.

THE CTA EN BANC RULING

On appeal, relying on Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi),10 the CTA En Banc
ruled that petitioner’s judicial claim for the first, second, and third quarters of 2005 were belatedly filed.

The CTA Special Second Division Decision and Resolution were reversed and set aside, and the Petition for Review filed in
CTA Case No. 7621 was dismissed. Petitioner’s Motion for Reconsideration was likewise denied for lack of merit.

Hence, this Petition.ISSUE

Petitioner’s assigned errors boil down to the principal issue of the applicable prescriptive period on its claim for refund of
unutilized input VAT for the first to third quarters of 2005.11

THE COURT’S RULING

The pertinent provision of the NIRC at the time when petitioner filed its claim for refund provides:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made,
apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such
sales, except transitional input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1),(2) and (B) and Section 108
(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where
the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or
properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the application filed in accordance with
Subsections (A) and (B) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to
act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.

Petitioner’s sales to NPC are effectively zero-rated


As aptly ruled by the CTA Special Second Division, petitioner’s sales to NPC are effectively subject to zero percent (0%)
VAT. The NPC is an entity with a special charter, which categorically exempts it from the payment of any tax, whether
direct or indirect, including VAT. Thus, services rendered to NPC by a VAT-registered entity are effectively zero-rated. In
fact, the BIR itself approved the application for zero-rating on 29 December 2004, filed by petitioner for its sales to NPC
covering January to October 2005.12 As a consequence, petitioner claims for the refund of the alleged excess input tax
attributable to its effectively zero-rated sales to NPC.

In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue,13 this Court
ruled:

Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the input taxes that his
suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input taxes that he has
to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess payment shall be carried
over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated
transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the
taxpayer.

The crux of the controversy arose from the proper application of the prescriptive periods set forth in Section 112 of the
NIRC of 1997, as amended, and the interpretation of the applicable jurisprudence.

Although the ponente in this case expressed a different view on the mandatory application of the 120+30 day period as
prescribed in Section 112, with the finality of the Court’s pronouncement on the consolidated tax cases Commissioner of
Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v. Commissioner of Internal Revenue,
and Philex Mining Corporation v. Commissioner of Internal Revenue14 (hereby collectively referred as San Roque), we are
constrained to apply the dispositions therein to the facts herein which are similar.

Administrative Claim

Section 112(A) provides that after the close of the taxable quarter when the sales were made, there is a two-year
prescriptive period within which a VAT-registered person whose sales are zero-rated or effectively zero-rated may apply
for the issuance of a tax credit certificate or refund of creditable input tax.

Our VAT Law provides for a mechanism that would allow VAT-registered persons to recover the excess input taxes over
the output taxes they had paid in relation to their sales. For the refund or credit of excess or unutilized input tax, Section
112 is the governing law. Given the distinctive nature of creditable input tax, the law under Section 112 (A) provides for a
different reckoning point for the two-year prescriptive period, specifically for the refund or credit of that tax only.

We agree with petitioner that Mirant was not yet in existence when their administrative claim was filed in 2005; thus, it
should not retroactively be applied to the instant case.

However, the fact remains that Section 112 is the controlling provision for the refund or credit of input tax during the
time that petitioner filed its claim with which they ought to comply. It must be emphasized that the Court merely clarified
in Mirant that Sections 204 and 229, which prescribed a different starting point for the two-year prescriptive limit for
filing a claim for a refund or credit of excess input tax, were not applicable. Input tax is neither an erroneously paid nor an
illegally collected internal revenue tax.15
Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively zero-rated, a claim for
the refund or credit of creditable input tax that is due or paid, and that is attributable to zero-rated or effectively zero-
rated sales, must be filed within two years after the close of the taxable quarter when such sales were made. The
reckoning frame would always be the end of the quarter when the pertinent sale or transactions were made, regardless
of when the input VAT was paid.16

Pursuant to Section 112(A), petitioner’s administrative claims were filed well within the two-year period from the close of
the taxable quarter when the effectively zero-rated sales were made, to wit:

Period Covered Close of the Last day to File Administrative Date of Filing
Taxable Claim
Quarter

1st quarter 2005 31-Mar-05 31-Mar-07 30-Jun-05

2nd quarter 2005 30-Jun-05 30-Jun-07 15-Sep-05

3rd quarter 2005 30-Sep-05 30-Sep-07 28-Oct-05

Judicial Claim

Section 112(D) further provides that the CIR has to decide on an administrative claim within one hundred twenty (120)
days from the date of submission of complete documents in support thereof.

Bearing in mind that the burden to prove entitlement to a tax refund is on the taxpayer, it is presumed that in order to
discharge its burden, petitioner had attached complete supporting documents necessary to prove its entitlement to a
refund in its application, absent any evidence to the contrary.

Thereafter, the taxpayer affected by the CIR’s decision or inaction may appeal to the CTA within 30 days from the receipt
of the decision or from the expiration of the 120-day period within which the claim has not been acted upon.

Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period, compliance with
both periods is jurisdictional. The period of 120 days is a prerequisite for the commencement of the 30-day period to
appeal to the CTA.

Prescinding from San Roque in the consolidated case Mindanao II Geothermal Partnership v. Commissioner of Internal
Revenue and Mindanao I Geothermal Partnership v. Commissioner of Internal Revenue,17 this Court has ruled thus:

Notwithstanding a strict construction of any claim for tax exemption or refund, the Court in San Roque recognized that
BIR Ruling No. DA-489-03 constitutes equitable estoppel in favor of taxpayers. BIR Ruling No. DA-489-03 expressly states
that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the
CTA by way of Petition for Review." This Court discussed BIR Ruling No. DA-489-03 and its effect on taxpayers, thus:

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas
doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit they
received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi
prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule
issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply prospectively. x
x x.

xxxx

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a
specific ruling applicable only to a particular taxpayer. BIR Ruling No. DA-489-03 is a general interpretative rule because it
was a response to a query made, not by a particular taxpayer, but by a government agency asked with processing tax
refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of
Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus,
while this government agency mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources
Development, Inc., the agency was in fact asking the Commissioner what to do in cases like the tax claim of Lazi Bay
Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule.1âwphi1 Thus, all taxpayers can rely on BIR Ruling No.
DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010,
where this Court held that the 120+30 day periods are mandatory and jurisdictional. (Emphasis supplied)

In applying the foregoing to the instant case, we consider the following pertinent dates:

1âwphi1
Period Covered Administrative Expiration of 120- Last day to file Judicial Claim
Claim Filed days Judicial Claim Filed

1st quarter 2005 30-Jun-05 28-Oct-05 27-Nov-05 18-Apr-07

2nd quarter 2005 15-Sep-05 13-Jan-06 13-Feb-06

3rd quarter 2005 28-Oct-05 26-Feb-06 28-Mar-06

It must be emphasized that this is not a case of premature filing of a judicial claim. Although petitioner did not file its
judicial claim with the CTA prior to the expiration of the 120-day waiting period, it failed to observe the 30-day
prescriptive period to appeal to the CTA counted from the lapse of the 120-day period.

Petitioner is similarly situated as Philex in the same case, San Roque,18 in which this Court ruled:

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not file any
petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days after the
expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the 120-day period, in fact 426
days after the lapse of the 120-day period. In any event, whether governed by jurisprudence before, during, or after the
Atlas case, Philex’s judicial claim will have to be rejected because of late filing. Whether the two-year prescriptive period
is counted from the date of payment of the output VAT following the Atlas doctrine, or from the close of the taxable
quarter when the sales attributable to the input VAT were made following the Mirant and Aichi doctrines, Philex’s judicial
claim was indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on Philex’s
claim during the 120-day period is, by express provision of law, "deemed a denial" of Philex’s claim. Philex had 30 days
from the expiration of the 120-day period to file its judicial claim with the CTA. Philex’s failure to do so rendered the
"deemed a denial" decision of the Commissioner final and inappealable. The right to appeal to the CTA from a decision or
"deemed a denial" decision of the Commissioner is merely a statutory privilege, not a constitutional right. The exercise of
such statutory privilege requires strict compliance with the conditions attached by the statute for its exercise. Philex
failed to comply with the statutory conditions and must thus bear the consequences. (Emphases in the original)

Likewise, while petitioner filed its administrative and judicial claims during the period of applicability of BIR Ruling No.
DA-489-03, it cannot claim the benefit of the exception period as it did not file its judicial claim prematurely, but did so
long after the lapse of the 30-day period following the expiration of the 120-day period. Again, BIR Ruling No. DA-489-03
allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day period for the Commissioner to
act on an administrative claim,19 but not its late filing.

As this Court enunciated in San Roque , petitioner cannot rely on Atlas either, since the latter case was promulgated only
on 8 June 2007. Moreover, the doctrine in Atlas which reckons the two-year period from the date of filing of the return
and payment of the tax, does not interpret − expressly or impliedly − the 120+30 day periods.20 Simply stated, Atlas
referred only to the reckoning of the prescriptive period for filing an administrative claim.

For failure of petitioner to comply with the 120+30 day mandatory and jurisdictional period, petitioner lost its right to
claim a refund or credit of its alleged excess input VAT.

With regard to petitioner’s argument that Aichi should not be applied retroactively, we reiterate that even without that
ruling, the law is explicit on the mandatory and jurisdictional nature of the 120+30 day period.

Also devoid of merit is the applicability of the principle of solutio indebiti to the present case. According to this principle,
if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation
to return it arises. In that situation, a creditor-debtor relationship is created under a quasi-contract, whereby the payor
becomes the creditor who then has the right to demand the return of payment made by mistake, and the person who has
no right to receive the payment becomes obligated to return it.21 The quasi-contract of solutio indebiti is based on the
ancient principle that no one shall enrich oneself unjustly at the expense of another.22

There is solutio indebiti when:

(1) Payment is made when there exists no binding relation between the payor, who has no duty to pay, and the
person who received the payment; and

(2) Payment is made through mistake, and not through liberality or some other cause.23

Though the principle of solutio indebiti may be applicable to some instances of claims for a refund, the elements thereof
are wanting in this case.

First, there exists a binding relation between petitioner and the CIR, the former being a taxpayer obligated to pay VAT.

Second, the payment of input tax was not made through mistake, since petitioner was legally obligated to pay for that
liability. The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the VAT
system. At the time of payment of the input VAT, the amount paid was correct and proper.24
Finally, equity, which has been aptly described as "a justice outside legality," is applied only in the absence of, and never
against, statutory law or judicial rules of procedure.25 Section 112 is a positive rule that should preempt and prevail over
all abstract arguments based only on equity. Well-settled is the rule that tax refunds or credits, just like tax exemptions,
are strictly construed against the taxpayer.26 The burden is on the taxpayer to show strict compliance with the conditions
for the grant of the tax refund or credit.27

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

JOSE CANGCO, plaintiff-appellant,


vs.
MANILA RAILROAD CO., defendant-appellee.

Ramon Sotelo for appellant.


Kincaid & Hartigan for appellee.

FISHER, J.:

At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in the employment of
Manila Railroad Company in the capacity of clerk, with a monthly wage of P25. He lived in the pueblo of San Mateo, in the
province of Rizal, which is located upon the line of the defendant railroad company; and in coming daily by train to the
company's office in the city of Manila where he worked, he used a pass, supplied by the company, which entitled him to
ride upon the company's trains free of charge. Upon the occasion in question, January 20, 1915, the plaintiff arose from
his seat in the second class-car where he was riding and, making, his exit through the door, took his position upon the
steps of the coach, seizing the upright guardrail with his right hand for support.

On the side of the train where passengers alight at the San Mateo station there is a cement platform which begins to rise
with a moderate gradient some distance away from the company's office and extends along in front of said office for a
distance sufficient to cover the length of several coaches. As the train slowed down another passenger, named Emilio
Zuñiga, also an employee of the railroad company, got off the same car, alighting safely at the point where the platform
begins to rise from the level of the ground. When the train had proceeded a little farther the plaintiff Jose Cangco
stepped off also, but one or both of his feet came in contact with a sack of watermelons with the result that his feet
slipped from under him and he fell violently on the platform. His body at once rolled from the platform and was drawn
under the moving car, where his right arm was badly crushed and lacerated. It appears that after the plaintiff alighted
from the train the car moved forward possibly six meters before it came to a full stop.

The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was lighted dimly by a single
light located some distance away, objects on the platform where the accident occurred were difficult to discern especially
to a person emerging from a lighted car.
The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is found in the fact that
it was the customary season for harvesting these melons and a large lot had been brought to the station for the shipment
to the market. They were contained in numerous sacks which has been piled on the platform in a row one upon another.
The testimony shows that this row of sacks was so placed of melons and the edge of platform; and it is clear that the fall
of the plaintiff was due to the fact that his foot alighted upon one of these melons at the moment he stepped upon the
platform. His statement that he failed to see these objects in the darkness is readily to be credited.

The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the injuries which he had
received were very serious. He was therefore brought at once to a certain hospital in the city of Manila where an
examination was made and his arm was amputated. The result of this operation was unsatisfactory, and the plaintiff was
then carried to another hospital where a second operation was performed and the member was again amputated higher
up near the shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the form of medical and
surgical fees and for other expenses in connection with the process of his curation.

Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of Manila to recover
damages of the defendant company, founding his action upon the negligence of the servants and employees of the
defendant in placing the sacks of melons upon the platform and leaving them so placed as to be a menace to the security
of passenger alighting from the company's trains. At the hearing in the Court of First Instance, his Honor, the trial judge,
found the facts substantially as above stated, and drew therefrom his conclusion to the effect that, although negligence
was attributable to the defendant by reason of the fact that the sacks of melons were so placed as to obstruct passengers
passing to and from the cars, nevertheless, the plaintiff himself had failed to use due caution in alighting from the coach
and was therefore precluded form recovering. Judgment was accordingly entered in favor of the defendant company, and
the plaintiff appealed.

It can not be doubted that the employees of the railroad company were guilty of negligence in piling these sacks on the
platform in the manner above stated; that their presence caused the plaintiff to fall as he alighted from the train; and
that they therefore constituted an effective legal cause of the injuries sustained by the plaintiff. It necessarily follows that
the defendant company is liable for the damage thereby occasioned unless recovery is barred by the plaintiff's own
contributory negligence. In resolving this problem it is necessary that each of these conceptions of liability, to-wit, the
primary responsibility of the defendant company and the contributory negligence of the plaintiff should be separately
examined.

It is important to note that the foundation of the legal liability of the defendant is the contract of carriage, and that the
obligation to respond for the damage which plaintiff has suffered arises, if at all, from the breach of that contract by
reason of the failure of defendant to exercise due care in its performance. That is to say, its liability is direct and
immediate, differing essentially, in legal viewpoint from that presumptive responsibility for the negligence of its servants,
imposed by article 1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in their selection
and supervision. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu, but only to extra-
contractual obligations — or to use the technical form of expression, that article relates only to culpa aquiliana and not
to culpa contractual.

Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly points out this
distinction, which was also recognized by this Court in its decision in the case of Rakes vs. Atlantic, Gulf and Pacific Co. (7
Phil. rep., 359). In commenting upon article 1093 Manresa clearly points out the difference between "culpa, substantive
and independent, which of itself constitutes the source of an obligation between persons not formerly connected by any
legal tie" and culpa considered as an accident in the performance of an obligation already existing . . . ."
In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition that article 1903 of
the Civil Code is not applicable to acts of negligence which constitute the breach of a contract.

Upon this point the Court said:

The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are understood to be those not
growing out of pre-existing duties of the parties to one another. But where relations already formed give rise to
duties, whether springing from contract or quasi-contract, then breaches of those duties are subject to article
1101, 1103, and 1104 of the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)

This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in certain cases imposed upon
employers with respect to damages occasioned by the negligence of their employees to persons to whom they are not
bound by contract, is not based, as in the English Common Law, upon the principle of respondeat superior — if it were,
the master would be liable in every case and unconditionally — but upon the principle announced in article 1902 of the
Civil Code, which imposes upon all persons who by their fault or negligence, do injury to another, the obligation of
making good the damage caused. One who places a powerful automobile in the hands of a servant whom he knows to be
ignorant of the method of managing such a vehicle, is himself guilty of an act of negligence which makes him liable for all
the consequences of his imprudence. The obligation to make good the damage arises at the very instant that the
unskillful servant, while acting within the scope of his employment causes the injury. The liability of the master is
personal and direct. But, if the master has not been guilty of any negligence whatever in the selection and direction of
the servant, he is not liable for the acts of the latter, whatever done within the scope of his employment or not, if the
damage done by the servant does not amount to a breach of the contract between the master and the person injured.

It is not accurate to say that proof of diligence and care in the selection and control of the servant relieves the master
from liability for the latter's acts — on the contrary, that proof shows that the responsibility has never existed. As
Manresa says (vol. 8, p. 68) the liability arising from extra-contractual culpa is always based upon a voluntary act or
omission which, without willful intent, but by mere negligence or inattention, has caused damage to another. A master
who exercises all possible care in the selection of his servant, taking into consideration the qualifications they should
possess for the discharge of the duties which it is his purpose to confide to them, and directs them with equal diligence,
thereby performs his duty to third persons to whom he is bound by no contractual ties, and he incurs no liability
whatever if, by reason of the negligence of his servants, even within the scope of their employment, such third person
suffer damage. True it is that under article 1903 of the Civil Code the law creates a presumption that he has been
negligent in the selection or direction of his servant, but the presumption is rebuttable and yield to proof of due care and
diligence in this respect.

The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rico Code, has held that these
articles are applicable to cases of extra-contractual culpa exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)

This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil.
rep., 624), which was an action brought upon the theory of the extra-contractual liability of the defendant to respond for
the damage caused by the carelessness of his employee while acting within the scope of his employment. The Court,
after citing the last paragraph of article 1903 of the Civil Code, said:

From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant or
employee there instantly arises a presumption of law that there was negligence on the part of the master or
employer either in selection of the servant or employee, or in supervision over him after the selection, or both;
and (2) that that presumption is juris tantum and not juris et de jure, and consequently, may be rebutted. It
follows necessarily that if the employer shows to the satisfaction of the court that in selection and supervision he
has exercised the care and diligence of a good father of a family, the presumption is overcome and he is relieved
from liability.

This theory bases the responsibility of the master ultimately on his own negligence and not on that of his servant.
This is the notable peculiarity of the Spanish law of negligence. It is, of course, in striking contrast to the American
doctrine that, in relations with strangers, the negligence of the servant in conclusively the negligence of the
master.

The opinion there expressed by this Court, to the effect that in case of extra-contractual culpa based upon negligence, it
is necessary that there shall have been some fault attributable to the defendant personally, and that the last paragraph of
article 1903 merely establishes a rebuttable presumption, is in complete accord with the authoritative opinion of
Manresa, who says (vol. 12, p. 611) that the liability created by article 1903 is imposed by reason of the breach of the
duties inherent in the special relations of authority or superiority existing between the person called upon to repair the
damage and the one who, by his act or omission, was the cause of it.

On the other hand, the liability of masters and employers for the negligent acts or omissions of their servants or agents,
when such acts or omissions cause damages which amount to the breach of a contact, is not based upon a mere
presumption of the master's negligence in their selection or control, and proof of exercise of the utmost diligence and
care in this regard does not relieve the master of his liability for the breach of his contract.

Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual obligation has its source in
the breach or omission of those mutual duties which civilized society imposes upon it members, or which arise from
these relations, other than contractual, of certain members of society to others, generally embraced in the concept
of status. The legal rights of each member of society constitute the measure of the corresponding legal duties, mainly
negative in character, which the existence of those rights imposes upon all other members of society. The breach of these
general duties whether due to willful intent or to mere inattention, if productive of injury, give rise to an obligation to
indemnify the injured party. The fundamental distinction between obligations of this character and those which arise
from contract, rests upon the fact that in cases of non-contractual obligation it is the wrongful or negligent act or
omission itself which creates the vinculum juris, whereas in contractual relations the vinculum exists independently of the
breach of the voluntary duty assumed by the parties when entering into the contractual relation.

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for the
legislature to elect — and our Legislature has so elected — whom such an obligation is imposed is morally culpable, or, on
the contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral culpability, so as to
include responsibility for the negligence of those person who acts or mission are imputable, by a legal fiction, to others
who are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code
has elected to limit extra-contractual liability — with certain well-defined exceptions — to cases in which moral
culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to
exercise due care in the selection and control of one's agents or servants, or in the control of persons who, by reason of
their status, occupy a position of dependency with respect to the person made liable for their conduct.

The position of a natural or juridical person who has undertaken by contract to render service to another, is wholly
different from that to which article 1903 relates. When the sources of the obligation upon which plaintiff's cause of
action depends is a negligent act or omission, the burden of proof rests upon plaintiff to prove the negligence — if he
does not his action fails. But when the facts averred show a contractual undertaking by defendant for the benefit of
plaintiff, and it is alleged that plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff to
specify in his pleadings whether the breach of the contract is due to willful fault or to negligence on the part of the
defendant, or of his servants or agents. Proof of the contract and of its nonperformance is sufficient prima facie to
warrant a recovery.

As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor should assume the burden
of proof of its existence, as the only fact upon which his action is based; while on the contrary, in a case of
negligence which presupposes the existence of a contractual obligation, if the creditor shows that it exists and
that it has been broken, it is not necessary for him to prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).

As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach was due to the
negligent conduct of defendant or of his servants, even though such be in fact the actual cause of the breach, it is obvious
that proof on the part of defendant that the negligence or omission of his servants or agents caused the breach of the
contract would not constitute a defense to the action. If the negligence of servants or agents could be invoked as a
means of discharging the liability arising from contract, the anomalous result would be that person acting through the
medium of agents or servants in the performance of their contracts, would be in a better position than those acting in
person. If one delivers a valuable watch to watchmaker who contract to repair it, and the bailee, by a personal negligent
act causes its destruction, he is unquestionably liable. Would it be logical to free him from his liability for the breach of his
contract, which involves the duty to exercise due care in the preservation of the watch, if he shows that it was his servant
whose negligence caused the injury? If such a theory could be accepted, juridical persons would enjoy practically
complete immunity from damages arising from the breach of their contracts if caused by negligent acts as such juridical
persons can of necessity only act through agents or servants, and it would no doubt be true in most instances that
reasonable care had been taken in selection and direction of such servants. If one delivers securities to a banking
corporation as collateral, and they are lost by reason of the negligence of some clerk employed by the bank, would it be
just and reasonable to permit the bank to relieve itself of liability for the breach of its contract to return the collateral
upon the payment of the debt by proving that due care had been exercised in the selection and direction of the clerk?

This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a mere incident to the
performance of a contract has frequently been recognized by the supreme court of Spain. (Sentencias of June 27, 1894;
November 20, 1896; and December 13, 1896.) In the decisions of November 20, 1896, it appeared that plaintiff's action
arose ex contractu, but that defendant sought to avail himself of the provisions of article 1902 of the Civil Code as a
defense. The Spanish Supreme Court rejected defendant's contention, saying:

These are not cases of injury caused, without any pre-existing obligation, by fault or negligence, such as those to
which article 1902 of the Civil Code relates, but of damages caused by the defendant's failure to carry out the
undertakings imposed by the contracts . . . .

A brief review of the earlier decision of this court involving the liability of employers for damage done by the negligent
acts of their servants will show that in no case has the court ever decided that the negligence of the defendant's servants
has been held to constitute a defense to an action for damages for breach of contract.

In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was not liable for the
damages caused by the negligence of his driver. In that case the court commented on the fact that no evidence had been
adduced in the trial court that the defendant had been negligent in the employment of the driver, or that he had any
knowledge of his lack of skill or carefulness.

In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the plaintiff sued the defendant
for damages caused by the loss of a barge belonging to plaintiff which was allowed to get adrift by the negligence of
defendant's servants in the course of the performance of a contract of towage. The court held, citing Manresa (vol. 8, pp.
29, 69) that if the "obligation of the defendant grew out of a contract made between it and the plaintiff . . . we do not
think that the provisions of articles 1902 and 1903 are applicable to the case."

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover damages for the
personal injuries caused by the negligence of defendant's chauffeur while driving defendant's automobile in which
defendant was riding at the time. The court found that the damages were caused by the negligence of the driver of the
automobile, but held that the master was not liable, although he was present at the time, saying:

. . . unless the negligent acts of the driver are continued for a length of time as to give the owner a reasonable
opportunity to observe them and to direct the driver to desist therefrom. . . . The act complained of must be
continued in the presence of the owner for such length of time that the owner by his acquiescence, makes the
driver's acts his own.

In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that the
court rested its conclusion as to the liability of the defendant upon article 1903, although the facts disclosed that the
injury complaint of by plaintiff constituted a breach of the duty to him arising out of the contract of transportation. The
express ground of the decision in this case was that article 1903, in dealing with the liability of a master for the negligent
acts of his servants "makes the distinction between private individuals and public enterprise;" that as to the latter the law
creates a rebuttable presumption of negligence in the selection or direction of servants; and that in the particular case
the presumption of negligence had not been overcome.

It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as though founded in tort
rather than as based upon the breach of the contract of carriage, and an examination of the pleadings and of the briefs
shows that the questions of law were in fact discussed upon this theory. Viewed from the standpoint of the defendant
the practical result must have been the same in any event. The proof disclosed beyond doubt that the defendant's
servant was grossly negligent and that his negligence was the proximate cause of plaintiff's injury. It also affirmatively
appeared that defendant had been guilty of negligence in its failure to exercise proper discretion in the direction of the
servant. Defendant was, therefore, liable for the injury suffered by plaintiff, whether the breach of the duty were to be
regarded as constituting culpa aquiliana or culpa contractual. As Manresa points out (vol. 8, pp. 29 and 69) whether
negligence occurs an incident in the course of the performance of a contractual undertaking or its itself the source of an
extra-contractual undertaking obligation, its essential characteristics are identical. There is always an act or omission
productive of damage due to carelessness or inattention on the part of the defendant. Consequently, when the court
holds that a defendant is liable in damages for having failed to exercise due care, either directly, or in failing to exercise
proper care in the selection and direction of his servants, the practical result is identical in either case. Therefore, it
follows that it is not to be inferred, because the court held in the Yamada case that defendant was liable for the damages
negligently caused by its servants to a person to whom it was bound by contract, and made reference to the fact that the
defendant was negligent in the selection and control of its servants, that in such a case the court would have held that it
would have been a good defense to the action, if presented squarely upon the theory of the breach of the contract, for
defendant to have proved that it did in fact exercise care in the selection and control of the servant.

The true explanation of such cases is to be found by directing the attention to the relative spheres of contractual and
extra-contractual obligations. The field of non- contractual obligation is much more broader than that of contractual
obligations, comprising, as it does, the whole extent of juridical human relations. These two fields, figuratively speaking,
concentric; that is to say, the mere fact that a person is bound to another by contract does not relieve him from extra-
contractual liability to such person. When such a contractual relation exists the obligor may break the contract under
such conditions that the same act which constitutes the source of an extra-contractual obligation had no contract existed
between the parties.
The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in safety and to
provide safe means of entering and leaving its trains (civil code, article 1258). That duty, being contractual, was direct and
immediate, and its non-performance could not be excused by proof that the fault was morally imputable to defendant's
servants.

The railroad company's defense involves the assumption that even granting that the negligent conduct of its servants in
placing an obstruction upon the platform was a breach of its contractual obligation to maintain safe means of
approaching and leaving its trains, the direct and proximate cause of the injury suffered by plaintiff was his own
contributory negligence in failing to wait until the train had come to a complete stop before alighting. Under the doctrine
of comparative negligence announced in the Rakes case (supra), if the accident was caused by plaintiff's own negligence,
no liability is imposed upon defendant's negligence and plaintiff's negligence merely contributed to his injury, the
damages should be apportioned. It is, therefore, important to ascertain if defendant was in fact guilty of negligence.

It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the particular injury
suffered by him could not have occurred. Defendant contends, and cites many authorities in support of the contention,
that it is negligence per se for a passenger to alight from a moving train. We are not disposed to subscribe to this doctrine
in its absolute form. We are of the opinion that this proposition is too badly stated and is at variance with the experience
of every-day life. In this particular instance, that the train was barely moving when plaintiff alighted is shown conclusively
by the fact that it came to stop within six meters from the place where he stepped from it. Thousands of person alight
from trains under these conditions every day of the year, and sustain no injury where the company has kept its platform
free from dangerous obstructions. There is no reason to believe that plaintiff would have suffered any injury whatever in
alighting as he did had it not been for defendant's negligent failure to perform its duty to provide a safe alighting place.

We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's work on
Negligence (vol. 3, sec. 3010) as follows:

The test by which to determine whether the passenger has been guilty of negligence in attempting to alight from
a moving railway train, is that of ordinary or reasonable care. It is to be considered whether an ordinarily prudent
person, of the age, sex and condition of the passenger, would have acted as the passenger acted under the
circumstances disclosed by the evidence. This care has been defined to be, not the care which may or should be
used by the prudent man generally, but the care which a man of ordinary prudence would use under similar
circumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol. 3, sec. 3010.)

Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil. rep., 809), we may say that
the test is this; Was there anything in the circumstances surrounding the plaintiff at the time he alighted from the train
which would have admonished a person of average prudence that to get off the train under the conditions then existing
was dangerous? If so, the plaintiff should have desisted from alighting; and his failure so to desist was contributory
negligence.1awph!l.net

As the case now before us presents itself, the only fact from which a conclusion can be drawn to the effect that plaintiff
was guilty of contributory negligence is that he stepped off the car without being able to discern clearly the condition of
the platform and while the train was yet slowly moving. In considering the situation thus presented, it should not be
overlooked that the plaintiff was, as we find, ignorant of the fact that the obstruction which was caused by the sacks of
melons piled on the platform existed; and as the defendant was bound by reason of its duty as a public carrier to afford
to its passengers facilities for safe egress from its trains, the plaintiff had a right to assume, in the absence of some
circumstance to warn him to the contrary, that the platform was clear. The place, as we have already stated, was dark, or
dimly lighted, and this also is proof of a failure upon the part of the defendant in the performance of a duty owing by it to
the plaintiff; for if it were by any possibility concede that it had right to pile these sacks in the path of alighting
passengers, the placing of them adequately so that their presence would be revealed.

As pertinent to the question of contributory negligence on the part of the plaintiff in this case the following
circumstances are to be noted: The company's platform was constructed upon a level higher than that of the roadbed
and the surrounding ground. The distance from the steps of the car to the spot where the alighting passenger would
place his feet on the platform was thus reduced, thereby decreasing the risk incident to stepping off. The nature of the
platform, constructed as it was of cement material, also assured to the passenger a stable and even surface on which to
alight. Furthermore, the plaintiff was possessed of the vigor and agility of young manhood, and it was by no means so
risky for him to get off while the train was yet moving as the same act would have been in an aged or feeble person. In
determining the question of contributory negligence in performing such act — that is to say, whether the passenger
acted prudently or recklessly — the age, sex, and physical condition of the passenger are circumstances necessarily
affecting the safety of the passenger, and should be considered. Women, it has been observed, as a general rule are less
capable than men of alighting with safety under such conditions, as the nature of their wearing apparel obstructs the free
movement of the limbs. Again, it may be noted that the place was perfectly familiar to the plaintiff as it was his daily
custom to get on and of the train at this station. There could, therefore, be no uncertainty in his mind with regard either
to the length of the step which he was required to take or the character of the platform where he was alighting. Our
conclusion is that the conduct of the plaintiff in undertaking to alight while the train was yet slightly under way was not
characterized by imprudence and that therefore he was not guilty of contributory negligence.

The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a copyist clerk, and that
the injuries he has suffered have permanently disabled him from continuing that employment. Defendant has not shown
that any other gainful occupation is open to plaintiff. His expectancy of life, according to the standard mortality tables, is
approximately thirty-three years. We are of the opinion that a fair compensation for the damage suffered by him for his
permanent disability is the sum of P2,500, and that he is also entitled to recover of defendant the additional sum of
P790.25 for medical attention, hospital services, and other incidental expenditures connected with the treatment of his
injuries.

The decision of lower court is reversed, and judgment is hereby rendered plaintiff for the sum of P3,290.25, and for the
costs of both instances. So ordered.

Arellano, C.J., Torres, Street and Avanceña, JJ., concur.

NARCISO GUTIERREZ, plaintiff-appellee,


vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO VELASCO, and SATURNINO
CORTEZ, defendants-appellants.

L.D. Lockwood for appellants Velasco and Cortez.


San Agustin and Roxas for other appellants.
Ramon Diokno for appellee.

MALCOLM, J.:
This is an action brought by the plaintiff in the Court of First Instance of Manila against the five defendants, to recover
damages in the amount of P10,000, for physical injuries suffered as a result of an automobile accident. On judgment
being rendered as prayed for by the plaintiff, both sets of defendants appealed.

On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass each
other on the Talon bridge on the Manila South Road in the municipality of Las Piñas, Province of Rizal. The truck was
driven by the chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. The automobile was being operated by
Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel
Gutierrez. At the time of the collision, the father was not in the car, but the mother, together will several other members
of the Gutierrez family, seven in all, were accommodated therein. A passenger in the autobus, by the name of Narciso
Gutierrez, was en route from San Pablo, Laguna, to Manila. The collision between the bus and the automobile resulted in
Narciso Gutierrez suffering a fracture right leg which required medical attendance for a considerable period of time, and
which even at the date of the trial appears not to have healed properly.

It is conceded that the collision was caused by negligence pure and simple. The difference between the parties is that,
while the plaintiff blames both sets of defendants, the owner of the passenger truck blames the automobile, and the
owner of the automobile, in turn, blames the truck. We have given close attention to these highly debatable points, and
having done so, a majority of the court are of the opinion that the findings of the trial judge on all controversial questions
of fact find sufficient support in the record, and so should be maintained. With this general statement set down, we turn
to consider the respective legal obligations of the defendants.

In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be explained that the
youth Bonifacio was in incompetent chauffeur, that he was driving at an excessive rate of speed, and that, on
approaching the bridge and the truck, he lost his head and so contributed by his negligence to the accident. The guaranty
given by the father at the time the son was granted a license to operate motor vehicles made the father responsible for
the acts of his son. Based on these facts, pursuant to the provisions of article 1903 of the Civil Code, the father alone and
not the minor or the mother, would be liable for the damages caused by the minor.

We are dealing with the civil law liability of parties for obligations which arise from fault or negligence. At the same time,
we believe that, as has been done in other cases, we can take cognizance of the common law rule on the same subject. In
the United States, it is uniformly held that the head of a house, the owner of an automobile, who maintains it for the
general use of his family is liable for its negligent operation by one of his children, whom he designates or permits to run
it, where the car is occupied and being used at the time of the injury for the pleasure of other members of the owner's
family than the child driving it. The theory of the law is that the running of the machine by a child to carry other members
of the family is within the scope of the owner's business, so that he is liable for the negligence of the child because of the
relationship of master and servant. (Huddy On Automobiles, 6th ed., sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The
liability of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo Velasco rests on a different basis,
namely, that of contract which, we think, has been sufficiently demonstrated by the allegations of the complaint, not
controverted, and the evidence. The reason for this conclusion reaches to the findings of the trial court concerning the
position of the truck on the bridge, the speed in operating the machine, and the lack of care employed by the chauffeur.
While these facts are not as clearly evidenced as are those which convict the other defendant, we nevertheless hesitate
to disregard the points emphasized by the trial judge. In its broader aspects, the case is one of two drivers approaching a
narrow bridge from opposite directions, with neither being willing to slow up and give the right of way to the other, with
the inevitable result of a collision and an accident.

The defendants Velasco and Cortez further contend that there existed contributory negligence on the part of the plaintiff,
consisting principally of his keeping his foot outside the truck, which occasioned his injury. In this connection, it is
sufficient to state that, aside from the fact that the defense of contributory negligence was not pleaded, the evidence
bearing out this theory of the case is contradictory in the extreme and leads us far afield into speculative matters.

The last subject for consideration relates to the amount of the award. The appellee suggests that the amount could justly
be raised to P16,517, but naturally is not serious in asking for this sum, since no appeal was taken by him from the
judgment. The other parties unite in challenging the award of P10,000, as excessive. All facts considered, including actual
expenditures and damages for the injury to the leg of the plaintiff, which may cause him permanent lameness, in
connection with other adjudications of this court, lead us to conclude that a total sum for the plaintiff of P5,000 would be
fair and reasonable. The difficulty in approximating the damages by monetary compensation is well elucidated by the
divergence of opinion among the members of the court, three of whom have inclined to the view that P3,000 would be
amply sufficient, while a fourth member has argued that P7,500 would be none too much.

In consonance with the foregoing rulings, the judgment appealed from will be modified, and the plaintiff will have
judgment in his favor against the defendants Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and
severally, for the sum of P5,000, and the costs of both instances.

Avanceña, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and Imperial, JJ., concur.

HONGKONG AND SHANGHAI BANKING CORP., LTD. STAFF RETIREMENT PLAN, Retirement Trust Fund, Inc.) Petitioner,
vs.
SPOUSES BIENVENIDO AND EDITHA BROQUEZA, Respondents.

DECISION

CARPIO, J.:

G.R. No. 178610 is a petition for review1 assailing the Decision2 promulgated on 30 March 2006 by the Court of Appeals
(CA) in CA-G.R. SP No. 62685. The appellate court granted the petition filed by Fe Gerong (Gerong) and Spouses
Bienvenido and Editha Broqueza (spouses Broqueza) and dismissed the consolidated complaints filed by Hongkong and
Shanghai Banking Corporation, Ltd. - Staff Retirement Plan (HSBCL-SRP) for recovery of sum of money. The appellate
court reversed and set aside the Decision3 of Branch 139 of the Regional Trial Court of Makati City (RTC) in Civil Case No.
00-787 dated 11 December 2000, as well as its Order4 dated 5 September 2000. The RTC’s decision affirmed the
Decision5 dated 28 December 1999 of Branch 61 of the Metropolitan Trial Court (MeTC) of Makati City in Civil Case No.
52400 for Recovery of a Sum of Money.

The Facts

The appellate court narrated the facts as follows:

Petitioners Gerong and [Editha] Broqueza (defendants below) are employees of Hongkong and Shanghai Banking
Corporation (HSBC). They are also members of respondent Hongkong Shanghai Banking Corporation, Ltd. Staff
Retirement Plan (HSBCL-SRP, plaintiff below). The HSBCL-SRP is a retirement plan established by HSBC through its Board
of Trustees for the benefit of the employees.
On October 1, 1990, petitioner [Editha] Broqueza obtained a car loan in the amount of Php175,000.00. On December 12,
1991, she again applied and was granted an appliance loan in the amount of Php24,000.00. On the other hand, petitioner
Gerong applied and was granted an emergency loan in the amount of Php35,780.00 on June 2, 1993. These loans are paid
through automatic salary deduction.

Meanwhile [in 1993], a labor dispute arose between HSBC and its employees. Majority of HSBC’s employees were
terminated, among whom are petitioners Editha Broqueza and Fe Gerong. The employees then filed an illegal dismissal
case before the National Labor Relations Commission (NLRC) against HSBC. The legality or illegality of such termination is
now pending before this appellate Court in CA G.R. CV No. 56797, entitled Hongkong Shanghai Banking Corp. Employees
Union, et al. vs. National Labor Relations Commission, et al.

Because of their dismissal, petitioners were not able to pay the monthly amortizations of their respective loans. Thus,
respondent HSBCL-SRP considered the accounts of petitioners delinquent. Demands to pay the respective obligations
were made upon petitioners, but they failed to pay.6

HSBCL-SRP, acting through its Board of Trustees and represented by Alejandro L. Custodio, filed Civil Case No. 52400
against the spouses Broqueza on 31 July 1996. On 19 September 1996, HSBCL-SRP filed Civil Case No. 52911 against
Gerong. Both suits were civil actions for recovery and collection of sums of money.

The Metropolitan Trial Court’s Ruling

On 28 December 1999, the MeTC promulgated its Decision7 in favor of HSBCL-SRP. The MeTC ruled that the nature of
HSBCL-SRP’s demands for payment is civil and has no connection to the ongoing labor dispute. Gerong and Editha
Broqueza’s termination from employment resulted in the loss of continued benefits under their retirement plans. Thus,
the loans secured by their future retirement benefits to which they are no longer entitled are reduced to unsecured and
pure civil obligations. As unsecured and pure obligations, the loans are immediately demandable.

The dispositive portion of the MeTC’s decision reads:

WHEREFORE, premises considered and in view of the foregoing, the Court finds that the plaintiff was able to prove by a
preponderance of evidence the existence and immediate demandability of the defendants’ loan obligations as judgment
is hereby rendered in favor of the plaintiff and against the defendants in both cases, ordering the latter:

1. In Civil Case No. 52400, to pay the amount of Php116,740.00 at six percent interest per annum from the time
of demand and in Civil Case No. 52911, to pay the amount of Php25,344.12 at six percent per annum from the
time of the filing of these cases, until the amount is fully paid;

2. To pay the amount of Php20,000.00 each as reasonable attorney’s fees;

3. Cost of suit.

SO ORDERED.8

Gerong and the spouses Broqueza filed a joint appeal of the MeTC’s decision before the RTC. Gerong’s case was docketed
Civil Case No. 00-786, while the spouses Broqueza’s case was docketed as Civil Case No. 00-787.

The Regional Trial Court’s Ruling


The RTC initially denied the joint appeal because of the belated filing of Gerong and the spouses Broqueza’s
memorandum. The RTC later reconsidered the order of denial and resolved the issues in the interest of justice.

On 11 December 2000, the RTC affirmed the MeTC’s decision in toto.9

The RTC ruled that Gerong and Editha Broqueza’s termination from employment disqualified them from availing of
benefits under their retirement plans. As a consequence, there is no longer any security for the loans. HSBCL-SRP has a
legal right to demand immediate settlement of the unpaid balance because of Gerong and Editha Broqueza’s continued
default in payment and their failure to provide new security for their loans. Moreover, the absence of a period within
which to pay the loan allows HSBCL-SRP to demand immediate payment. The loan obligations are considered pure
obligations, the fulfillment of which are demandable at once.

Gerong and the spouses Broqueza then filed a Petition for Review under Rule 42 before the CA.

The Ruling of the Court of Appeals

On 30 March 2006, the CA rendered its Decision10 which reversed the 11 December 2000 Decision of the RTC. The CA
ruled that the HSBCL-SRP’s complaints for recovery of sum of money against Gerong and the spouses Broqueza are
premature as the loan obligations have not yet matured. Thus, no cause of action accrued in favor of HSBCL-SRP. The
dispositive portion of the appellate court’s Decision reads as follows:

WHEREFORE, the assailed Decision of the RTC is REVERSED and SET ASIDE. A new one is hereby rendered DISMISSING the
consolidated complaints for recovery of sum of money.

SO ORDERED.11

HSBCL-SRP filed a motion for reconsideration which the CA denied for lack of merit in its Resolution12 promulgated on 19
June 2007.

On 6 August 2007, HSBCL-SRP filed a manifestation withdrawing the petition against Gerong because she already settled
her obligations. In a Resolution13 of this Court dated 10 September 2007, this Court treated the manifestation as a motion
to withdraw the petition against Gerong, granted the motion, and considered the case against Gerong closed and
terminated.

Issues

HSBCL-SRP enumerated the following grounds to support its Petition:

I. The Court of Appeals has decided a question of substance in a way not in accord with law and applicable
decisions of this Honorable Court; and

II. The Court of Appeals has departed from the accepted and usual course of judicial proceedings in reversing the
decision of the Regional Trial Court and the Metropolitan Trial Court.14

The Court’s Ruling

The petition is meritorious. We agree with the rulings of the MeTC and the RTC.
The Promissory Notes uniformly provide:

PROMISSORY NOTE

P_____ Makati, M.M. ____ 19__

FOR VALUE RECEIVED, I/WE _____ jointly and severally promise to pay to THE HSBC RETIREMENT PLAN (hereinafter
called the "PLAN") at its office in the Municipality of Makati, Metro Manila, on or before until fully paid the sum of
PESOS ___ (P___) Philippine Currency without discount, with interest from date hereof at the rate of Six per cent (6%) per
annum, payable monthly.

I/WE agree that the PLAN may, upon written notice, increase the interest rate stipulated in this note at any time
depending on prevailing conditions.

I/WE hereby expressly consent to any extensions or renewals hereof for a portion or whole of the principal without
notice to the other(s), and in such a case our liability shall remain joint and several.1avvphi1

In case collection is made by or through an attorney, I/WE jointly and severally agree to pay ten percent (10%) of the
amount due on this note (but in no case less than P200.00) as and for attorney’s fees in addition to expenses and costs of
suit.

In case of judicial execution, I/WE hereby jointly and severally waive our rights under the provisions of Rule 39, Section 12
of the Rules of Court.15

In ruling for HSBCL-SRP, we apply the first paragraph of Article 1179 of the Civil Code:

Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once.

x x x. (Emphasis supplied.)

We affirm the findings of the MeTC and the RTC that there is no date of payment indicated in the Promissory Notes. The
RTC is correct in ruling that since the Promissory Notes do not contain a period, HSBCL-SRP has the right to demand
immediate payment. Article 1179 of the Civil Code applies. The spouses Broqueza’s obligation to pay HSBCL-SRP is a pure
obligation. The fact that HSBCL-SRP was content with the prior monthly check-off from Editha Broqueza’s salary is of no
moment. Once Editha Broqueza defaulted in her monthly payment, HSBCL-SRP made a demand to enforce a pure
obligation.

In their Answer, the spouses Broqueza admitted that prior to Editha Broqueza’s dismissal from HSBC in December 1993,
she "religiously paid the loan amortizations, which HSBC collected through payroll check-off."16 A definite amount is paid
to HSBCL-SRP on a specific date. Editha Broqueza authorized HSBCL-SRP to make deductions from her payroll until her
loans are fully paid. Editha Broqueza, however, defaulted in her monthly loan payment due to her dismissal. Despite the
spouses Broqueza’s protestations, the payroll deduction is merely a convenient mode of payment and not the sole source
of payment for the loans. HSBCL-SRP never agreed that the loans will be paid only through salary deductions. Neither did
HSBCL-SRP agree that if Editha Broqueza ceases to be an employee of HSBC, her obligation to pay the loans will be
suspended. HSBCL-SRP can immediately demand payment of the loans at anytime because the obligation to pay has no
period. Moreover, the spouses Broqueza have already incurred in default in paying the monthly installments.
Finally, the enforcement of a loan agreement involves "debtor-creditor relations founded on contract and does not in any
way concern employee relations. As such it should be enforced through a separate civil action in the regular courts and
not before the Labor Arbiter."17

WHEREFORE, we GRANT the petition. The Decision of the Court of Appeals in CA-G.R. SP No. 62685 promulgated on 30
March 2006 is REVERSED and SET ASIDE. The decision of Branch 139 of the Regional Trial Court of Makati City in Civil
Case No. 00-787, as well as the decision of Branch 61 of the Metropolitan Trial Court of Makati City in Civil Case No.
52400 against the spouses Bienvenido and Editha Broqueza, are AFFIRMED. Costs against respondents.

SO ORDERED.

IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA, Deceased, GEORGE PAY, petitioner-appellant,
vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee.

Florentino B. del Rosario for petitioner-appellant.

Manuel V. San Jose for oppositor-appellee.

FERNANDO, J.:p

There is no difficulty attending the disposition of this appeal by petitioner on questions of law. While several points were
raised, the decisive issue is whether a creditor is barred by prescription in his attempt to collect on a promissory note
executed more than fifteen years earlier with the debtor sued promising to pay either upon receipt by him of his share
from a certain estate or upon demand, the basis for the action being the latter alternative. The lower court held that the
ten-year period of limitation of actions did apply, the note being immediately due and demandable, the creditor
admitting expressly that he was relying on the wording "upon demand." On the above facts as found, and with the law
being as it is, it cannot be said that its decision is infected with error. We affirm.

From the appealed decision, the following appears: "The parties in this case agreed to submit the matter for resolution
on the basis of their pleadings and annexes and their respective memoranda submitted. Petitioner George Pay is a
creditor of the Late Justo Palanca who died in Manila on July 3, 1963. The claim of the petitioner is based on a promissory
note dated January 30, 1952, whereby the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay
George Pay the amount of P26,900.00, with interest thereon at the rate of 12% per annum. George Pay is now before this
Court, asking that Segundina Chua vda. de Palanca, surviving spouse of the late Justo Palanca, he appointed as
administratrix of a certain piece of property which is a residential dwelling located at 2656 Taft Avenue, Manila, covered
by Tax Declaration No. 3114 in the name of Justo Palanca, assessed at P41,800.00. The idea is that once said property is
brought under administration, George Pay, as creditor, can file his claim against the administratrix."1 It then stated that
the petition could not prosper as there was a refusal on the part of Segundina Chua Vda. de Palanca to be appointed as
administratrix; that the property sought to be administered no longer belonged to the debtor, the late Justo Palanca; and
that the rights of petitioner-creditor had already prescribed. The promissory note, dated January 30, 1962, is worded
thus: " `For value received from time to time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at
his office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with
interest thereon at the rate of 12% per annum upon receipt by either of the undersigned of cash payment from the
Estate of the late Don Carlos Palanca or upon demand'. . . . As stated, this promissory note is signed by Rosa Gonzales
Vda. de Carlos Palanca and Justo Palanca."2 Then came this paragraph: "The Court has inquired whether any cash
payment has been received by either of the signers of this promissory note from the Estate of the late Carlos Palanca.
Petitioner informed that he does not insist on this provision but that petitioner is only claiming on his right under the
promissory note ."3 After which, came the ruling that the wording of the promissory note being "upon demand," the
obligation was immediately due. Since it was dated January 30, 1952, it was clear that more "than ten (10) years has
already transpired from that time until to date. The action, therefore, of the creditor has definitely prescribed."4 The
result, as above noted, was the dismissal of the petition.

In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did assail the correctness of the rulings
of the lower court as to the effect of the refusal of the surviving spouse of the late Justo Palanca to be appointed as
administratrix, as to the property sought to be administered no longer belonging to the debtor, the late Justo Palanca,
and as to the rights of petitioner-creditor having already prescribed. As noted at the outset, only the question of
prescription need detain us in the disposition of this appeal. Likewise, as intimated, the decision must be affirmed,
considering the clear tenor of the promissory note.

From the manner in which the promissory note was executed, it would appear that petitioner was hopeful that the
satisfaction of his credit could he realized either through the debtor sued receiving cash payment from the estate of the
late Carlos Palanca presumptively as one of the heirs, or, as expressed therein, "upon demand." There is nothing in the
record that would indicate whether or not the first alternative was fulfilled. What is undeniable is that on August 26,
1967, more than fifteen years after the execution of the promissory note on January 30, 1952, this petition was filed. The
defense interposed was prescription. Its merit is rather obvious. Article 1179 of the Civil Code provides: "Every obligation
whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is
demandable at once." This used to be Article 1113 of the Spanish Civil Code of 1889. As far back as Floriano v. Delgado,5 a
1908 decision, it has been applied according to its express language. The well-known Spanish commentator, Manresa, on
this point, states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o sea la perfeccion de este, se fija, para
determinar el concepto de la obligacion pura, en el distinctive de esta, y que es consecuencia de aquel: la exigibilidad
immediata."6

The obligation being due and demandable, it would appear that the filing of the suit after fifteen years was much too
late. For again, according to the Civil Code, which is based on Section 43 of Act No. 190, the prescriptive period for a
written contract is that of ten years.7 This is another instance where this Court has consistently adhered to the express
language of the applicable norm.8 There is no necessity therefore of passing upon the other legal questions as to whether
or not it did suffice for the petition to fail just because the surviving spouse refuses to be made administratrix, or just
because the estate was left with no other property. The decision of the lower court cannot be overturned.

WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs against George Pay.

Zaldivar (Chairman), Barredo, Ant


SMITH, BELL & CO., LTD., plaintiff-appellant,
vs.
VICENTE SOTELO MATTI, defendant-appellant.

Ross and Lawrence and Ewald E. Selph for plaintiff-appellant.


Ramon Sotelo for defendant-appellant.

ROMUALDEZ, J.:

In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into contracts whereby the
former obligated itself to sell, and the latter to purchase from it, two steel tanks, for the total price of twenty-one
thousand pesos (P21,000), the same to be shipped from New York and delivered at Manila "within three or four months;"
two expellers at the price of twenty five thousand pesos (P25,000) each, which were to be shipped from San Francisco in
the month of September, 1918, or as soon as possible; and two electric motors at the price of two thousand pesos
(P2,000) each, as to the delivery of which stipulation was made, couched in these words: "Approximate delivery within
ninety days. — This is not guaranteed."

The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918; and the motors on the
27th of February, 1919.

The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo refused to
receive them and to pay the prices stipulated.

The plaintiff brought suit against the defendant, based on four separate causes of action, alleging, among other facts,
that it immediately notified the defendant of the arrival of the goods, and asked instructions from him as to the delivery
thereof, and that the defendant refused to receive any of them and to pay their price. The plaintiff, further, alleged that
the expellers and the motors were in good condition. (Amended complaint, pages 16-30, Bill of Exceptions.)

In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-Products Co., Inc., denied
the plaintiff's allegations as to the shipment of these goods and their arrival at Manila, the notification to the defendant,
Mr. Sotelo, the latter's refusal to receive them and pay their price, and the good condition of the expellers and the
motors, alleging as special defense that Mr. Sotelo had made the contracts in question as manager of the intervenor, the
Manila Oil Refining and By-Products Co., Inc which fact was known to the plaintiff, and that "it was only in May, 1919,
that it notified the intervenor that said tanks had arrived, the motors and the expellers having arrived incomplete and
long after the date stipulated." As a counterclaim or set-off, they also allege that, as a consequence of the plaintiff's delay
in making delivery of the goods, which the intervenor intended to use in the manufacture of cocoanut oil, the intervenor
suffered damages in the sums of one hundred sixteen thousand seven hundred eighty-three pesos and ninety-one
centavos (P116,783.91) for the nondelivery of the tanks, and twenty-one thousand two hundred and fifty pesos (P21,250)
on account of the expellers and the motors not having arrived in due time.

The case having been tried, the court below absolved the defendants from the complaint insofar as the tanks and the
electric motors were concerned, but rendered judgment against them, ordering them to "receive the aforesaid expellers
and pay the plaintiff the sum of fifty thousand pesos (P50,00), the price of the said goods, with legal interest thereon
from July 26, 1919, and costs."

Both parties appeal from this judgment, each assigning several errors in the findings of the lower court.
The principal point at issue in this case is whether or not, under the contracts entered into and the circumstances
established in the record, the plaintiff has fulfilled, in due time, its obligation to bring the goods in question to Manila. If it
has, then it is entitled to the relief prayed for; otherwise, it must be held guilty of delay and liable for the consequences
thereof.

To solve this question, it is necessary to determine what period was fixed for the delivery of the goods.

As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar, and in both of them we find this
clause:

To be delivered within 3 or 4 months — The promise or indication of shipment carries with it absolutely no
obligation on our part — Government regulations, railroad embargoes, lack of vessel space, the exigencies of the
requirement of the United States Government, or a number of causes may act to entirely vitiate the indication of
shipment as stated. In other words, the order is accepted on the basis of shipment at Mill's convenience, time of
shipment being merely an indication of what we hope to accomplish.

In the contract Exhibit C (page 63 of the record), with reference to the expellers, the following stipulation appears:

The following articles, hereinbelow more particularly described, to be shipped at San Francisco within the month
of September /18, or as soon as possible. — Two Anderson oil expellers . . . .

And in the contract relative to the motors (Exhibit D, page 64, rec.) the following appears:

Approximate delivery within ninety days. — This is not guaranteed. — This sale is subject to our being able to
obtain Priority Certificate, subject to the United States Government requirements and also subject to
confirmation of manufactures.

In all these contracts, there is a final clause as follows:

The sellers are not responsible for delays caused by fires, riots on land or on the sea, strikes or other causes
known as "Force Majeure" entirely beyond the control of the sellers or their representatives.

Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the goods. As to the tanks,
the agreement was that the delivery was to be made "within 3 or 4 months," but that period was subject to the
contingencies referred to in a subsequent clause. With regard to the expellers, the contract says "within the month of
September, 1918," but to this is added "or as soon as possible." And with reference to the motors, the contract contains
this expression, "Approximate delivery within ninety days," but right after this, it is noted that "this is not guaranteed."

The oral evidence falls short of fixing such period.

From the record it appears that these contracts were executed at the time of the world war when there existed rigid
restrictions on the export from the United States of articles like the machinery in question, and maritime, as well as
railroad, transportation was difficult, which fact was known to the parties; hence clauses were inserted in the contracts,
regarding "Government regulations, railroad embargoes, lack of vessel space, the exigencies of the requirements of the
United States Government," in connection with the tanks and "Priority Certificate, subject to the United State
Government requirements," with respect to the motors. At the time of the execution of the contracts, the parties were
not unmindful of the contingency of the United States Government not allowing the export of the goods, nor of the fact
that the other foreseen circumstances therein stated might prevent it.

Considering these contracts in the light of the civil law, we cannot but conclude that the term which the parties
attempted to fix is so uncertain that one cannot tell just whether, as a matter of fact, those articles could be brought to
Manila or not. If that is the case, as we think it is, the obligations must be regarded as conditional.

Obligations for the performance of which a day certain has been fixed shall be demandable only when the day
arrives.

A day certain is understood to be one which must necessarily arrive, even though its date be unknown.

If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is conditional and shall be
governed by the rules of the next preceding section. (referring to pure and conditional obligations). (Art. 1125, Civ.
Code.)

And as the export of the machinery in question was, as stated in the contract, contingent upon the sellers obtaining
certificate of priority and permission of the United States Government, subject to the rules and regulations, as well as to
railroad embargoes, then the delivery was subject to a condition the fulfillment of which depended not only upon the
effort of the herein plaintiff, but upon the will of third persons who could in no way be compelled to fulfill the condition.
In cases like this, which are not expressly provided for, but impliedly covered, by the Civil Code, the obligor will be
deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power, even if the
condition has not been fulfilled in reality.

In such cases, the decisions prior to the Civil Code have held that the obligee having done all that was in his
power, was entitled to enforce performance of the obligation. This performance, which is fictitious — not real —
is not expressly authorized by the Code, which limits itself only to declare valid those conditions and the
obligation thereby affected; but it is neither disallowed, and the Code being thus silent, the old view can be
maintained as a doctrine. (Manresa's commentaries on the Civil Code [1907], vol. 8, page 132.)

The decisions referred to by Mr. Manresa are those rendered by the supreme court of Spain on November 19, 1896, and
February 23, 1871.

In the former it is held:

First. That when the fulfillment of the conditions does not depend on the will of the obligor, but on that of a third
person who can in no way be compelled to carry it out, and it is found by the lower court that the obligor has
done all in his power to comply with the obligation, the judgment of the said court, ordering the other party to
comply with his part of the contract, is not contrary to the law of contracts, or to Law 1, Tit. I, Book 10, of the
"Novísima Recopilación," or Law 12, Tit. 11, of Partida 5, when in the said finding of the lower court, no law or
precedent is alleged to have been violated. (Jurisprudencia Civil published by the directors of the Revista General
de Legislacion y Jurisprudencia [1866], vol. 14, page 656.)

In the second decision, the following doctrine is laid down:

Second. That when the fulfillment of the condition does not depend on the will of the obligor, but on that of a
third person, who can in no way be compelled to carry it out, the obligor's part of the contract is complied withalf
Belisario not having exercised his right of repurchase reserved in the sale of Basilio Borja mentioned in paragraph
(13) hereof, the affidavit of Basilio Borja for the consolidacion de dominio was presented for record in the registry
of deeds and recorded in the registry on the same date.

(32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three minor children, Vitaliana,
Eugenio, and Aureno Belisario as his only heirs.

(33) That in the execution and sales thereunder, in which C. H. McClure appears as the judgment creditor, he was
represented by the opponent Peter W. Addison, who prepared and had charge of publication of the notices of
the various sales and that in none of the sales was the notice published more than twice in a newspaper.

The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may, we
think, be disposed of in comparatively few words. As will be seen from the foregoing statement of facts, he rest
his title (1) on the sales under the executions issued in cases Nos. 435, 450, 454, and 499 of the court of the
justice of the peace of Dagupan with the priority of inscription of the last two sales in the registry of deeds, and
(2) on a purchase from the Director of Lands after the land in question had been forfeited to the Government for
non-payment of taxes under Act No. 1791.

The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the
notice of sale. Section 454 of the Code of civil Procedure reads in part as follows:

SEC. 454. Before the sale of property on execution, notice thereof must be given, as follows:

1. In case of perishable property, by posing written notice of the time and place of the sale in three public places
of the municipality or city where the sale is to take place, for such time as may be reasonable, considering the
character and condition of the property;

2. * * * * * * *

3. In cases of real property, by posting a similar notice particularly describing the property, for twenty days in
three public places of the municipality or city where the property is situated, and also where the property is to be
sold, and publishing a copy thereof once a week, for the same period, in some newspaper published or having
general circulation in the province, if there be one. If there are newspaper published in the province in both the
Spanish and English languages, then a like publication for a like period shall be made in one newspaper published
in the Spanish language, and in one published in the English language: Provided, however, That such publication
in a newspaper will not be required when the assessed valuation of the property does not exceed four hundred
pesos;

4. * * * * * * *

Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October 14, 1916; the notice first
published gave the date of the sale as October 15th, but upon discovering that October 15th was a Sunday, the date was
changed to October 14th. The correct notice was published twice in a local newspaper, the first publication was made on
October 7th and the second and last on October 14th, the date of the sale itself. The newspaper is a weekly periodical
published every Saturday afternoon.
In case No. 454 there were only two publications of the notice in a newspaper, the first publication being made only
fourteen days before the date of the sale. In case No. 499, there were also only two publications, the first of which was
made thirteen days before the sale. In the last case the sale was advertised for the hours of from 8:30 in the morning
until 4:30 in the afternoon, in violation of section 457 of the Code of Civil Procedure. In cases Nos. 435 and 450 the hours
advertised were from 9:00 in the morning until 4.30 in the afternoon. In all of the cases the notices of the sale were
prepared by the judgment creditor or his agent, who also took charged of the publication of such notices.

In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court held that if a sheriff sells without
the notice prescribe by the Code of Civil Procedure induced thereto by the judgment creditor and the purchaser at the
sale is the judgment creditor, the sale is absolutely void and not title passes. This must now be regarded as the settled
doctrine in this jurisdiction whatever the rule may be elsewhere.

It appears affirmatively from the evidence in the present case that there is a newspaper published in the province where
the sale in question took place and that the assessed valuation of the property disposed of at each sale exceeded P400.
Comparing the requirements of section 454, supra, with what was actually done, it is self-evident that notices of the sales
mentioned were not given as prescribed by the statute and taking into consideration that in connection with these sales
the appellant Addison was either the judgment creditor or else occupied a position analogous to that of a judgment
creditor, the sales must be held invalid.

The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The provisions of Act No. 1791
pertinent to the purchase or repurchase of land confiscated for non-payment of taxes are found in section 19 of the Act
and read:

. . . In case such redemption be not made within the time above specified the Government of the Philippine
Islands shall have an absolute, indefeasible title to said real property. Upon the expiration of the said ninety days,
if redemption be not made, the provincial treasurer shall immediately notify the Director of Lands of the
forfeiture and furnish him with a description of the property, and said Director of Lands shall have full control and
custody thereof to lease or sell the same or any portion thereof in the same manner as other public lands are
leased or sold: Provided, That the original owner, or his legal representative, shall have the right to repurchase
the entire amount of his said real property, at any time before a sale or contract of sale has been made by the
director of Lands to a third party, by paying therefore the whole sum due thereon at the time of ejectment
together with a penalty of ten per centum . . . .

The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do so as the
successor in interest of the original owner under the execution sale above discussed. As we have seen, he acquired no
rights under these sales, was therefore not the successor of the original owner and could only have obtained a valid
conveyance of such titles as the Government might have by following the procedure prescribed by the Public Land Act for
the sale of public lands. he is entitled to reimbursement for the money paid for the redemption of the land, with interest,
but has acquired no title through the redemption.

The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to Borja is extensively
argued in the briefs, but from our point of view is of no importance; void sheriff's or execution sales cannot be validated
through inscription in the Mortgage Law registry.

The opposition of Adelina Ferrer must also be overruled. She maintained that the land in question was community
property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of Paula Ira inealed from is modified, and
the defendant Mr. Vicente Sotelo Matti, sentenced to accept and receive from the plaintiff the tanks, the expellers and
the motors in question, and to pay the plaintiff the sum of ninety-six thousand pesos (P96,000), with legal interest
thereon from July 17, 1919, the date of the filing of the complaint, until fully paid, and the costs of both instances. So
ordered.

Araullo, C.J., Johnson, Street, M

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF
COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where the time for compliance had expired and there was breach
of contract by non-performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the
performance of the contract before filing his complaint.

2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE PHILIPPINES.— Where the
defendant virtually admitted non-performance of the contract by returning the typewriter that he was obliged to repair
in a non-working condition, with essential parts missing, Article 1197 of the Civil Code of the Philippines cannot be
invoked. The fixing of a period would thus be a mere formality and would serve no purpose than to delay.

3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter but returned it "in shambles,’’ he is liable for the cost of the
labor or service expended in the repair of the typewriter, which is in the amount of P58.75, because the obligation or
contract was to repair it. In addition, he is likewise liable under Art. 1170 of the Code, for the cost of the missing parts, in
the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in
the same condition it was when he received it.

4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT
CASE.— Claims for damages and attorney’s fees must be pleaded, and the existence of the actual basis thereof must be
proved. As no findings of fact were made on the claims for damages and attorney’s fees, there is no factual basis upon
which to make an award therefor.

5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT; ONLY QUESTIONS OF LAW
REVIEWABLE.— Where the appellant directly appeals from the decision of the trial court to the Supreme Court on
questions of law, he is bound by the judgment of the court a quo on its findings of fact.

DECISION
REYES, J.B.L., J.:

This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery of damages but was
unsatisfied with the decision rendered by the Court of First Instance of Manila, in its Civil Case No. 65138, because it
awarded him only P31.10 out of his total claim of P690 00 for actual, temperate and moral damages and attorney’s fees.

The appealed judgment, which is brief, is hereunder quoted in full:jgc:chanrobles.com.ph

"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a portable
typewriter for routine cleaning and servicing. The defendant was not able to finish the job after some time despite
repeated reminders made by the plaintiff. The defendant merely gave assurances, but failed to comply with the same. In
October, 1963, the defendant asked from the plaintiff the sum of P6.00 for the purchase of spare parts, which amount
the plaintiff gave to the defendant. On October 26, 1963, after getting exasperated with the delay of the repair of the
typewriter, the plaintiff went to the house of the defendant and asked for the return of the typewriter. The defendant
delivered the typewriter in a wrapped package. On reaching home, the plaintiff examined the typewriter returned to him
by the defendant and found out that the same was in shambles, with the interior cover and some parts and screws
missing. On October 29, 1963. the plaintiff sent a letter to the defendant formally demanding the return of the missing
parts, the interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff some
of the missing parts, the interior cover and the P6.00.

"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job cost him a
total of P89.85, including labor and materials (Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding from the defendant
the payment of P90.00 as actual and compensatory damages, P100.00 for temperate damages, P500.00 for moral
damages, and P500.00 as attorney’s fees.

"In his answer as well as in his testimony given before this court, the defendant made no denials of the facts narrated
above, except the claim of the plaintiff that the typewriter was delivered to the defendant through a certain Julio Bocalin,
which the defendant denied allegedly because the typewriter was delivered to him personally by the plaintiff.

"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should not, however, be
fully chargeable against the defendant. The repair invoice, Exhibit C, shows that the missing parts had a total value of only
P31.10.

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P31.10, and the costs
of suit.

"SO ORDERED."cralaw virtua1aw library

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it awarded only the value of
the missing parts of the typewriter, instead of the whole cost of labor and materials that went into the repair of the
machine, as provided for in Article 1167 of the Civil Code, reading as follows:jgc:chanrobles.com.ph

"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it may be
decreed that what has been poorly done he undone."cralaw virtua1aw library

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable at all, not even for
the sum of P31.10, because his contract with plaintiff-appellant did not contain a period, so that plaintiff-appellant should
have first filed a petition for the court to fix the period, under Article 1197 of the Civil Code, within which the defendant
appellee was to comply with the contract before said defendant-appellee could be held liable for breach of contract.

Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any appeal, the facts, as
found by the trial court, are now conclusive and non-reviewable. 1

The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter for routine cleaning
and servicing" ; that the defendant was not able to finish the job after some time despite repeated reminders made by
the plaintiff" ; that the "defendant merely gave assurances, but failed to comply with the same" ; and that "after getting
exasperated with the delay of the repair of the typewriter", the plaintiff went to the house of the defendant and asked
for its return, which was done. The inferences derivable from these findings of fact are that the appellant and the
appellee had a perfected contract for cleaning and servicing a typewriter; that they intended that the defendant was to
finish it at some future time although such time was not specified; and that such time had passed without the work
having been accomplished, far the defendant returned the typewriter cannibalized and unrepaired, which in itself is a
breach of his obligation, without demanding that he should be given more time to finish the job, or compensation for the
work he had already done. The time for compliance having evidently expired, and there being a breach of contract by
non-performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the performance of
the contract before filing his complaint in this case. Defendant cannot invoke Article 1197 of the Civil Code for he virtually
admitted non-performance by returning the typewriter that he was obliged to repair in a non-working condition, with
essential parts missing. The fixing of a period would thus be a mere formality and would serve no purpose than to delay
(cf. Tiglao. Et. Al. V. Manila Railroad Co. 98 Phil. 18l).

It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not repair the
typewriter but returned it "in shambles", according to the appealed decision. For such contravention, as appellant
contends, he is liable under Article 1167 of the Civil Code. jam quot, for the cost of executing the obligation in a proper
manner. The cost of the execution of the obligation in this case should be the cost of the labor or service expended in the
repair of the typewriter, which is in the amount of P58.75. because the obligation or contract was to repair it.

In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the missing parts, in
the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in
the same condition it was when he received it.

Appellant’s claims for moral and temperate damages and attorney’s fees were, however, correctly rejected by the trial
court, for these were not alleged in his complaint (Record on Appeal, pages 1-5). Claims for damages and attorney’s fees
must be pleaded, and the existence of the actual basis thereof must be proved. 2 The appealed judgment thus made no
findings on these claims, nor on the fraud or malice charged to the appellee. As no findings of fact were made on the
claims for damages and attorney’s fees, there is no factual basis upon which to make an award therefor. Appellant is
bound by such judgment of the court, a quo, by reason of his having resorted directly to the Supreme Court on questions
of law.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the defendant-appellee
to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at the legal rate from the
filing of the complaint. Costs in all instances against appellee Fructuoso Gonzales.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Villamor, JJ., concur.

VICENTE SINGSON ENCARNACION, plaintiff-appellee,


vs.
JACINTA BALDOMAR, ET AL., defendants-appellants.

Bausa and Ampil for appellants.


Tolentino and Aguas for appellee.

HILADO, J.:

Vicente Singson Encarnacion, owner of the house numbered 589 Legarda Street, Manila, some six years ago leased said
house to Jacinto Baldomar and her son, Lefrado Fernando, upon a month-to-month basis for the monthly rental of P35.
After Manila was liberated in the last war, specifically on March 16, 1945, and on April 7, of the same year, plaintiff
Singson Encarnacion notified defendants, the said mother and son, to vacate the house above-mentioned on or before
April 15, 1945, because plaintiff needed it for his offices as a result of the destruction of the building where said plaintiff
had said offices before. Despite this demand, defendants insisted on continuing their occupancy. When the original
action was lodged with the Municipal Court of Manila on April 20, 1945, defendants were in arrears in the payment of the
rental corresponding to said month, the agrees rental being payable within the first five days of each month. That rental
was paid prior to the hearing of the case in the municipal court, as a consequence of which said court entered judgment
for restitution and payment of rentals at the rate of P35 a month from May 1, 1945, until defendants completely vacate
the premises. Although plaintiff included in said original complaint a claim for P500 damages per month, that claim was
waived by him before the hearing in the municipal court, on account of which nothing was said regarding said damages in
the municipal court's decision.

When the case reached the Court of First Instance of Manila upon appeal, defendants filed therein a motion to dismiss
(which was similar to a motion to dismiss filed by them in the municipal court) based upon the ground that the municipal
court had no jurisdiction over the subject matter due to the aforesaid claim for damages and that, therefore, the Court of
First Instance had no appellate jurisdiction over the subject matter of the action. That motion to dismiss was denied by
His Honor, Judge Mamerto Roxas, by order dated July 21, 1945, on the ground that in the municipal court plaintiff had
waived said claim for damages and that, therefore, the same waiver was understood also to have been made in the Court
of First Instance.lawphil.net

In the Court of First Instance the graveman of the defense interposed by defendants, as it was expressed defendant
Lefrado Fernando during the trial, was that the contract which they had celebrated with plaintiff since the beginning
authorized them to continue occupying the house indefinetly and while they should faithfully fulfill their obligations as
respects the payment of the rentals, and that this agreement had been ratified when another ejectment case between
the parties filed during the Japanese regime concerning the same house was allegedly compounded in the municipal
court. The Court of First Instance gave more credit to plaintiff's witness, Vicente Singson Encarnacion, jr., who testified
that the lease had always and since the beginning been upon a month-to-month basis. The court added in its decision
that this defense which was put up by defendant's answer, for which reason the Court considered it as indicative of an
eleventh-hour theory. We think that the Court of First Instance was right in so declaring. Furthermore, carried to its
logical conclusion, the defense thus set up by defendant Lefrado Fernando would leave to the sole and exclusive will of
one of the contracting parties (defendants in this case) the validity and fulfillment of the contract of lease, within the
meaning of article 1256 of the Civil Code, since the continuance and fulfillment of the contract would then depend solely
and exclusively upon their free and uncontrolled choice between continuing paying the rentals or not, completely
depriving the owner of all say in the matter. If this defense were to be allowed, so long as defendants elected to continue
the lease by continuing the payment of the rentals, the owner would never be able to discontinue it; conversely, although
the owner should desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer to
terminate the contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by the
aforesaid article of the Civil Code. (8 Manresa, 3d ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil., 100.)

During the pendency of the appeal in the Court of First Instance and before the judgment appealed from was rendered
on October 31, 1945, the rentals in areas were those pertaining to the month of August, 1945, to the date of said
judgment at the rate of P35 a month. During the pendency of the appeal in that court, certain deposits were made by
defendants on account of rentals with the clerk of said court, and in said judgment it is disposed that the amounts thus
deposited should be delivered to plaintiff.

Upon the whole, we are clearly of opinion that the judgment appealed from should be, as it is hereby, affirmed, with the
costs of the three instances to appellants. So ordered.

Paras, Pablo, Perfecto and Padilla, JJ., concur.

DARIO AND GAUDENCIO ELEIZEGUI, plaintiffs-appellees,


vs.
THE MANILA LAWN TENNIS CLUB, defendant-appellant.

Pillsburry and Sutro for appellant.


Manuel Torres Vergara for appellee.

ARELLANO, C. J.:

This suit concerns the lease of a piece of land for a fixed consideration and to endure at the will of the lessee. By the
contract of lease the lessee is expressly authorized to make improvements upon the land, by erecting buildings of both
permanent and temporary character, by making fills, laying pipes, and making such other improvements as might be
considered desirable for the comfort and amusement of the members.

With respect to the term of the lease the present question has arisen. In its decision three theories have been presented:
One which makes the duration depend upon the will of the lessor, who, upon one month's notice given to the lessee,
may terminate the lease so stipulated; another which, on the contrary, makes it dependent upon the will of the lessee, as
stipulated; and the third, in accordance with which the right is reversed to the courts to fix the duration of the term.

The first theory is that which has prevailed in the judgment below, as appears from the language in which the basis of the
decision is expressed: "The court is of the opinion that the contract of lease was terminated by the notice given by the
plaintiff on August 28 of last year . . . ." And such is the theory maintained by the plaintiffs, which expressly rests upon
article 1581 of the Civil Code, the law which was in force at the time the contract was entered into (January 25, 1890).
The judge, in giving to this notice the effect of terminating the lease, undoubtedly considers that it is governed by the
article relied upon by the plaintiffs, which is of the following tenor: "When the term has not been fixed for the lease, it is
understood to be for years when an annual rental has been fixed, for months when the rent is monthly. . . ." The second
clause of the contract provides as follows: "The rent of the said land is fixed at 25 pesos per month." (P. 11, Bill of
Exceptions.)

In accordance with such a theory, the plaintiffs might have terminated the lease the month following the making of the
contract — at any time after the first month, which, strictly speaking, would be the only month with respect to which
they were expressly bound, they not being bound for each successive month except by a tacit renewal (art. 1566) — an
effect which they might prevent by giving the required notice.

Although the relief asked for in the complaint, drawn in accordance with the new form of procedure established by the
prevailing Code, is the restitution of the land to the plaintiffs (a formula common to various actions), nevertheless the
action which is maintained can be no other than that of desahucio, in accordance with the substantive law governing the
contract. The lessor — says article 1569 of the Civil Code — may judicially dispossess the lessee upon the expiration of
the conventional term or of the legal term; the conventional term — that is, the one agreed upon by the parties; the legal
term, in defect of the conventional, fixed for leases by articles 1577 and 1581. We have already seen what this legal term
is with respect to urban properties, in accordance with article 1581.

Hence, it follows that the judge has only to determine whether there is or is not conventional term. If there be a
conventional term, he can not apply the legal term fixed in subsidium to cover a case in which the parties have made no
agreement whatsoever with respect to the duration of the lease. In this case the law interprets the presumptive intention
of the parties, they having said nothing in the contract with respect to its duration. "Obligations arising from
contracts have the force of law between the contracting parties and must be complied with according to the tenor of the
contracts." (Art. 1091 of the Civil Code.)

The obligations which, with the force of law, the lessors assumed by the contract entered into, so far as pertaining to the
issues, are the following: "First. . . . They lease the above-described land to Mr. Williamson, who takes it on lease, . . . for
all the time the members of the said club may desire to use it . . . Third. . . . the owners of the land undertake to maintain
the club as tenant as long as the latter shall see fit, without altering in the slightest degree the conditions of this contract,
even though the estate be sold."

It is necessary, therefore, to answer the first question: Was there, or was there not, a conventional term, a duration,
agreed upon in the contract in question? If there was an agreed duration, a conventional term, then the legal term — the
term fixed in article 1581 — has no application; the contract is the supreme law of the contracting parties. Over and
above the general law is the special law, expressly imposed upon themselves by the contracting parties. Without these
clauses 1 and 3, the contract would contain no stipulation with respect to the duration of the lease, and then article 1581,
in connection with article 1569, would necessarily be applicable. In view of these clauses, however, it can not be said that
there is no stipulation with respect to the duration of the lease, or that, notwithstanding these clauses, article 1581, in
connection with article 1569, can be applied. If this were so, it would be necessary to hold that the lessors spoke in vain
— that their words are to be disregarded — a claim which can not be advanced by the plaintiffs nor upheld by any court
without citing the law which detracts all legal force from such words or despoils them of their literal sense.

It having been demonstrated that the legal term can not be applied, there being a conventional term, this destroys the
assumption that the contract of lease was wholly terminated by the notice given by the plaintiffs, this notice being
necessary only when it becomes necessary to have recourse to the legal term. Nor had the plaintiffs, under the contract,
any right to give such notice. It is evident that they had no intention of stipulating that they reserved the right to give
such notice. Clause 3 begins as follows: "Mr. Williamson, or whoever may succeed him as secretary of said club, may
terminate this lease whenever desired without other formality than that of giving a month's notice. The owners of the
land undertake to maintain the club as tenant as long as the latter shall see fit." The right of the one and the obligation of
the others being thus placed in antithesis, there is something more, much more, than the inclusio unius, exclusio alterius.
It is evident that the lessors did not intend to reserve to themselves the right to rescind that which they expressly
conferred upon the lessee by establishing it exclusively in favor of the latter.

It would be the greatest absurdity to conclude that in a contract by which the lessor has left the termination of the lease
to the will of the lessee, such a lease can or should be terminated at the will of the lessor.

It would appear to follow, from the foregoing, that, if such is the force of the agreement, there can be no other mode of
terminating the lease than by the will of the lessee, as stipulated in this case. Such is the conclusion maintained by the
defendant in the demonstration of the first error of law in the judgment, as alleged by him. He goes so far, under this
theory, as to maintain the possibility of a perpetual lease, either as such lease, if the name can be applied, or else as an
innominate contract, or under any other denomination, in accordance with the agreement of the parties, which is, in fine,
the law of the contract, superior to all other law, provided that there be no agreement against any prohibitive statute,
morals, or public policy.

It is unnecessary here to enter into a discussion of a perpetual lease in accordance with the law and doctrine prior to the
Civil Code now in force, and which has been operative since 1889. Hence the judgment of the supreme court of Spain of
January 2, 1891, with respect to a lease made in 1887, cited by the defendant, and a decision stated by him to have been
rendered by the Audiencia of Pamplona in 1885 (it appears to be rather a decision by the head office of land registration
of July 1, 1885), and any other decision which might be cited based upon the constitutions of Cataluna, according to
which a lease of more than ten years is understood to create a life tenancy, or even a perpetual tenancy, are entirely out
of point in this case, in which the subject-matter is a lease entered into under the provisions of the present Civil Code, in
accordance with the principles of which alone can this doctrine be examined.

It is not to be understood that we admit that the lease entered into was stipulated as a life tenancy, and still less as a
perpetual lease. The terms of the contract express nothing to this effect. They do, whatever, imply this idea. If the lease
could last during such time as the lessee might see fit, because it has been so stipulated by the lessor, it would last, first,
as long as the will of the lessee — that is, all his life; second, during all the time that he may have succession, inasmuch as
he who contracts does so for himself and his heirs. (Art. 1257 of the Civil Code.) The lease in question does not fall within
any of the cases in which the rights and obligations arising from a contract can not be transmitted to heirs, either by its
nature, by agreement, or by provision of law. Furthermore, the lessee is an English association.

Usufruct is a right of superior degree to that which arises from a lease. It is a real right and includes all the jus
utendi and jus fruendi. Nevertheless, the utmost period for which a usufruct can endure, if constituted in favor a natural
person, is the lifetime of the usufructuary (art. 513, sec. 1); and if in favor of juridical person, it can not be created for
more than thirty years. (Art. 515.) If the lease might be perpetual, in what would it be distinguished from an
emphyteusis? Why should the lessee have a greater right than the usufructuary, as great as that of an emphyteuta, with
respect to the duration of the enjoyment of the property of another? Why did they not contract for a usufruct or an
emphyteusis? It was repeatedly stated in the document that it was a lease, and nothing but a lease, which was agreed
upon: "Being in the full enjoyment of the necessary legal capacity to enter into this contract of lease . . . they have agreed
upon the lease of said estate . . . They lease to Mr. Williamson, who receives it as such. . . . The rental is fixed at 25 pesos
a month. . . . The owners bind themselves to maintain the club as tenant. . . . Upon the foregoing conditions they make
the present contract of lease. . . ." (Pp. 9, 11, and 12, bill of exceptions.) If it is a lease, then it must be for a determinate
period. (Art. 1543.) By its very nature it must be temporary, just as by reason of its nature an emphyteusis must be
perpetual, or for an unlimited period. (Art. 1608.)

On the other hand, it can not be concluded that the termination of the contract is to be left completely at the will of the
lessee, because it has been stipulated that its duration is to be left to his will.

The Civil Code has made provision for such a case in all kinds of obligations. In speaking in general of obligations with a
term it has supplied the deficiency of the former law with respect to the "duration of the term when it has been left to
the will of the debtor," and provides that in this case the term shall be fixed by the courts. (Art. 1128, sec. 2.) In every
contract, as laid down by the authorities, there is always a creditor who is entitled to demand the performance, and a
debtor upon whom rests the obligation to perform the undertaking. In bilateral contracts the contracting parties are
mutually creditors and debtors. Thus, in this contract of lease, the lessee is the creditor with respect to the rights
enumerated in article 1554, and is the debtor with respect to the obligations imposed by articles 1555 and 1561. The
term within which performance of the latter obligation is due is what has been left to the will of the debtor. This term it is
which must be fixed by the courts.

The only action which can be maintained under the terms of the contract is that by which it is sought to obtain from the
judge the determination of this period, and not the unlawful detainer action which has been brought — an action which
presupposes the expiration of the term and makes it the duty of the judge to simply decree an eviction. To maintain the
latter action it is sufficient to show the expiration of the term of the contract, whether conventional or legal; in order to
decree the relief to be granted in the former action it is necessary for the judge to look into the character and conditions
of the mutual undertakings with a view to supplying the lacking element of a time at which the lease is to expire. In the
case of a loan of money or a commodatum of furniture, the payment or return to be made when the borrower "can
conveniently do so" does not mean that he is to be allowed to enjoy the money or to make use of the thing indefinitely or
perpetually. The courts will fix in each case, according to the circumstances, the time for the payment or return. This is
the theory also maintained by the defendant in his demonstration of the fifth assignment of error. "Under article 1128 of
the Civil Code," thus his proposition concludes, "contracts whose term is left to the will of one of the contracting parties
must be fixed by the courts, . . . the conditions as to the term of this lease has a direct legislative sanction," and he cites
articles 1128. "In place of the ruthless method of annihilating a solemn obligation, which the plaintiffs in this case have
sought to pursue, the Code has provided a legitimate and easily available remedy. . . . The Code has provided for the
proper disposition of those covenants, and a case can hardly arise more clearly demonstrating the usefulness of that
provision than the case at bar." (Pp. 52 and 53 of appellant's brief.)

The plaintiffs, with respect to this conclusion on the part of their opponents, only say that article 1128 "expressly refers
to obligations in contracts in general, and that it is well known that a lease is included among special contracts." But they
do not observe that if contracts, simply because special rules are provided for them, could be excepted from the
provisions of the articles of the Code relative to obligations and contracts in general, such general provisions would be
wholly without application. The system of the Code is that of establishing general rules applicable to all obligations and
contracts, and then special provisions peculiar to each species of contract. In no part of Title VI of Book IV, which treats of
the contract of lease, are there any special rules concerning pure of conditional obligations which may be stipulated in a
lease, because, with respect to these matters, the provisions of section 1, chapter 3, Title I, on the subject of obligations
are wholly sufficient. With equal reason should we refer to section 2, which deals with obligations with a term, in the
same chapter and title, if a question concerning the term arises out of a contract of lease, as in the present case, and
within this section we find article 1128, which decides the question.

The judgment was entered below upon the theory of the expiration of a legal term which does not exist, as the case
requires that a term be fixed by the courts under the provisions of article 1128 with respect to obligations which, as is the
present, are terminable at the will of the obligee. It follows, therefore, that the judgment below is erroneous.
The judgment is reversed and the case will be remanded to the court below with directions to enter a judgment of
dismissal of the action in favor of the defendant, the Manila Lawn Tennis Club, without special allowance as to the
recovery of costs. So ordered.

Mapa and Ladd, JJ., concu

PHILIPPINE BANKING CORPORATION, representing the estate of JUSTINA SANTOS Y CANON FAUSTINO,
deceased, plaintiff-appellant,
vs.
LUI SHE in her own behalf and as administratrix of the intestate estate of Wong Heng, deceased, defendant-appellant.

Nicanor S. Sison for plaintiff-appellant.


Ozaeta, Gibbs & Ozaeta for defendant-appellant.

CASTRO, J.:

Justina Santos y Canon Faustino and her sister Lorenzo were the owners in common of a piece of land in Manila. This
parcel, with an area of 2,582.30 square meters, is located on Rizal Avenue and opens into Florentino Torres street at the
back and Katubusan street on one side. In it are two residential houses with entrance on Florentino Torres street and the
Hen Wah Restaurant with entrance on Rizal Avenue. The sisters lived in one of the houses, while Wong Heng, a Chinese,
lived with his family in the restaurant. Wong had been a long-time lessee of a portion of the property, paying a monthly
rental of P2,620.

On September 22, 1957 Justina Santos became the owner of the entire property as her sister died with no other heir.
Then already well advanced in years, being at the time 90 years old, blind, crippled and an invalid, she was left with no
other relative to live with. Her only companions in the house were her 17 dogs and 8 maids. Her otherwise dreary
existence was brightened now and then by the visits of Wong's four children who had become the joy of her life. Wong
himself was the trusted man to whom she delivered various amounts for safekeeping, including rentals from her property
at the corner of Ongpin and Salazar streets and the rentals which Wong himself paid as lessee of a part of the Rizal
Avenue property. Wong also took care of the payment; in her behalf, of taxes, lawyers' fees, funeral expenses, masses,
salaries of maids and security guard, and her household expenses.

"In grateful acknowledgment of the personal services of the lessee to her," Justina Santos executed on November 15,
1957 a contract of lease (Plff Exh. 3) in favor of Wong, covering the portion then already leased to him and another
portion fronting Florentino Torres street. The lease was for 50 years, although the lessee was given the right to withdraw
at any time from the agreement; the monthly rental was P3,120. The contract covered an area of 1,124 square meters.
Ten days later (November 25), the contract was amended (Plff Exh. 4) so as to make it cover the entire property, including
the portion on which the house of Justina Santos stood, at an additional monthly rental of P360. For his part Wong
undertook to pay, out of the rental due from him, an amount not exceeding P1,000 a month for the food of her dogs and
the salaries of her maids.

On December 21 she executed another contract (Plff Exh. 7) giving Wong the option to buy the leased premises for
P120,000, payable within ten years at a monthly installment of P1,000. The option, written in Tagalog, imposed on him
the obligation to pay for the food of the dogs and the salaries of the maids in her household, the charge not to exceed
P1,800 a month. The option was conditioned on his obtaining Philippine citizenship, a petition for which was then
pending in the Court of First Instance of Rizal. It appears, however, that this application for naturalization was withdrawn
when it was discovered that he was not a resident of Rizal. On October 28, 1958 she filed a petition to adopt him and his
children on the erroneous belief that adoption would confer on them Philippine citizenship. The error was discovered and
the proceedings were abandoned.

On November 18, 1958 she executed two other contracts, one (Plff Exh. 5) extending the term of the lease to 99 years,
and another (Plff Exh. 6) fixing the term of the option of 50 years. Both contracts are written in Tagalog.

In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 & 279), she bade her legatees to respect the contracts
she had entered into with Wong, but in a codicil (Plff Exh. 17) of a later date (November 4, 1959) she appears to have a
change of heart. Claiming that the various contracts were made by her because of machinations and inducements
practiced by him, she now directed her executor to secure the annulment of the contracts.

On November 18 the present action was filed in the Court of First Instance of Manila. The complaint alleged that the
contracts were obtained by Wong "through fraud, misrepresentation, inequitable conduct, undue influence and abuse of
confidence and trust of and (by) taking advantage of the helplessness of the plaintiff and were made to circumvent the
constitutional provision prohibiting aliens from acquiring lands in the Philippines and also of the Philippine Naturalization
Laws." The court was asked to direct the Register of Deeds of Manila to cancel the registration of the contracts and to
order Wong to pay Justina Santos the additional rent of P3,120 a month from November 15, 1957 on the allegation that
the reasonable rental of the leased premises was P6,240 a month.

In his answer, Wong admitted that he enjoyed her trust and confidence as proof of which he volunteered the information
that, in addition to the sum of P3,000 which he said she had delivered to him for safekeeping, another sum of P22,000
had been deposited in a joint account which he had with one of her maids. But he denied having taken advantage of her
trust in order to secure the execution of the contracts in question. As counterclaim he sought the recovery of P9,210.49
which he said she owed him for advances.

Wong's admission of the receipt of P22,000 and P3,000 was the cue for the filing of an amended complaint. Thus on June
9, 1960, aside from the nullity of the contracts, the collection of various amounts allegedly delivered on different
occasions was sought. These amounts and the dates of their delivery are P33,724.27 (Nov. 4, 1957); P7,344.42 (Dec. 1,
1957); P10,000 (Dec. 6, 1957); P22,000 and P3,000 (as admitted in his answer). An accounting of the rentals from the
Ongpin and Rizal Avenue properties was also demanded.

In the meantime as a result of a petition for guardianship filed in the Juvenile and Domestic Relations Court, the Security
Bank & Trust Co. was appointed guardian of the properties of Justina Santos, while Ephraim G. Gochangco was appointed
guardian of her person.

In his answer, Wong insisted that the various contracts were freely and voluntarily entered into by the parties. He
likewise disclaimed knowledge of the sum of P33,724.27, admitted receipt of P7,344.42 and P10,000, but contended that
these amounts had been spent in accordance with the instructions of Justina Santos; he expressed readiness to comply
with any order that the court might make with respect to the sums of P22,000 in the bank and P3,000 in his possession.

The case was heard, after which the lower court rendered judgment as follows:

[A]ll the documents mentioned in the first cause of action, with the exception of the first which is the lease
contract of 15 November 1957, are declared null and void; Wong Heng is condemned to pay unto plaintiff thru
guardian of her property the sum of P55,554.25 with legal interest from the date of the filing of the amended
complaint; he is also ordered to pay the sum of P3,120.00 for every month of his occupation as lessee under the
document of lease herein sustained, from 15 November 1959, and the moneys he has consigned since then shall
be imputed to that; costs against Wong Heng.

From this judgment both parties appealed directly to this Court. After the case was submitted for decision, both parties
died, Wong Heng on October 21, 1962 and Justina Santos on December 28, 1964. Wong was substituted by his wife, Lui
She, the other defendant in this case, while Justina Santos was substituted by the Philippine Banking Corporation.

Justina Santos maintained — now reiterated by the Philippine Banking Corporation — that the lease contract (Plff Exh. 3)
should have been annulled along with the four other contracts (Plff Exhs. 4-7) because it lacks mutuality; because it
included a portion which, at the time, was in custodia legis; because the contract was obtained in violation of the
fiduciary relations of the parties; because her consent was obtained through undue influence, fraud and
misrepresentation; and because the lease contract, like the rest of the contracts, is absolutely simulated.

Paragraph 5 of the lease contract states that "The lessee may at any time withdraw from this agreement." It is claimed
that this stipulation offends article 1308 of the Civil Code which provides that "the contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them."

We have had occasion to delineate the scope and application of article 1308 in the early case of Taylor v. Uy Tieng
Piao.1 We said in that case:

Article 1256 [now art. 1308] of the Civil Code in our opinion creates no impediment to the insertion in a contract
for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties.
Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of the contract
dependent upon the will of the party to whom is conceded the privilege of cancellation; for where the
contracting parties have agreed that such option shall exist, the exercise of the option is as much in the
fulfillment of the contract as any other act which may have been the subject of agreement. Indeed, the
cancellation of a contract in accordance with conditions agreed upon beforehand is fulfillment.2

And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision in a lease contract that the lessee, at any time before he
erected any building on the land, might rescind the lease, can hardly be regarded as a violation of article 1256 [now art.
1308] of the Civil Code."

The case of Singson Encarnacion v. Baldomar 4 cannot be cited in support of the claim of want of mutuality, because of a
difference in factual setting. In that case, the lessees argued that they could occupy the premises as long as they paid the
rent. This is of course untenable, for as this Court said, "If this defense were to be allowed, so long as defendants elected
to continue the lease by continuing the payment of the rentals, the owner would never be able to discontinue it;
conversely, although the owner should desire the lease to continue the lessees could effectively thwart his purpose if
they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals." Here, in
contrast, the right of the lessee to continue the lease or to terminate it is so circumscribed by the term of the contract
that it cannot be said that the continuance of the lease depends upon his will. At any rate, even if no term had been fixed
in the agreement, this case would at most justify the fixing of a period5 but not the annulment of the contract.

Nor is there merit in the claim that as the portion of the property formerly owned by the sister of Justina Santos was still
in the process of settlement in the probate court at the time it was leased, the lease is invalid as to such portion. Justina
Santos became the owner of the entire property upon the death of her sister Lorenzo on September 22, 1957 by force of
article 777 of the Civil Code. Hence, when she leased the property on November 15, she did so already as owner thereof.
As this Court explained in upholding the sale made by an heir of a property under judicial administration:

That the land could not ordinarily be levied upon while in custodia legis does not mean that one of the heirs may
not sell the right, interest or participation which he has or might have in the lands under administration. The
ordinary execution of property in custodia legis is prohibited in order to avoid interference with the possession by
the court. But the sale made by an heir of his share in an inheritance, subject to the result of the pending
administration, in no wise stands in the way of such administration.6

It is next contended that the lease contract was obtained by Wong in violation of his fiduciary relationship with Justina
Santos, contrary to article 1646, in relation to article 1941 of the Civil Code, which disqualifies "agents (from leasing) the
property whose administration or sale may have been entrusted to them." But Wong was never an agent of Justina
Santos. The relationship of the parties, although admittedly close and confidential, did not amount to an agency so as to
bring the case within the prohibition of the law.

Just the same, it is argued that Wong so completely dominated her life and affairs that the contracts express not her will
but only his. Counsel for Justina Santos cites the testimony of Atty. Tomas S. Yumol who said that he prepared the lease
contract on the basis of data given to him by Wong and that she told him that "whatever Mr. Wong wants must be
followed."7

The testimony of Atty. Yumol cannot be read out of context in order to warrant a finding that Wong practically dictated
the terms of the contract. What this witness said was:

Q Did you explain carefully to your client, Doña Justina, the contents of this document before she signed it?

A I explained to her each and every one of these conditions and I also told her these conditions were quite
onerous for her, I don't really know if I have expressed my opinion, but I told her that we would rather not
execute any contract anymore, but to hold it as it was before, on a verbal month to month contract of lease.

Q But, she did not follow your advice, and she went with the contract just the same?

A She agreed first . . .

Q Agreed what?

A Agreed with my objectives that it is really onerous and that I was really right, but after that, I was called again
by her and she told me to follow the wishes of Mr. Wong Heng.

xxx xxx xxx


Q So, as far as consent is concerned, you were satisfied that this document was perfectly proper?

xxx xxx xxx

A Your Honor, if I have to express my personal opinion, I would say she is not, because, as I said before, she told
me — "Whatever Mr. Wong wants must be followed."8

Wong might indeed have supplied the data which Atty. Yumol embodied in the lease contract, but to say this is not to
detract from the binding force of the contract. For the contract was fully explained to Justina Santos by her own lawyer.
One incident, related by the same witness, makes clear that she voluntarily consented to the lease contract. This witness
said that the original term fixed for the lease was 99 years but that as he doubted the validity of a lease to an alien for
that length of time, he tried to persuade her to enter instead into a lease on a month-to-month basis. She was, however,
firm and unyielding. Instead of heeding the advice of the lawyer, she ordered him, "Just follow Mr. Wong
Heng."9 Recounting the incident, Atty. Yumol declared on cross examination:

Considering her age, ninety (90) years old at the time and her condition, she is a wealthy woman, it is just natural
when she said "This is what I want and this will be done." In particular reference to this contract of lease, when I
said "This is not proper," she said — "You just go ahead, you prepare that, I am the owner, and if there is any
illegality, I am the only one that can question the illegality."10

Atty. Yumol further testified that she signed the lease contract in the presence of her close friend, Hermenegilda Lao, and
her maid, Natividad Luna, who was constantly by her side.11 Any of them could have testified on the undue influence that
Wong supposedly wielded over Justina Santos, but neither of them was presented as a witness. The truth is that even
after giving his client time to think the matter over, the lawyer could not make her change her mind. This persuaded the
lower court to uphold the validity of the lease contract against the claim that it was procured through undue influence.

Indeed, the charge of undue influence in this case rests on a mere inference12 drawn from the fact that Justina Santos
could not read (as she was blind) and did not understand the English language in which the contract is written, but that
inference has been overcome by her own evidence.

Nor is there merit in the claim that her consent to the lease contract, as well as to the rest of the contracts in question,
was given out of a mistaken sense of gratitude to Wong who, she was made to believe, had saved her and her sister from
a fire that destroyed their house during the liberation of Manila. For while a witness claimed that the sisters were saved
by other persons (the brothers Edilberto and Mariano Sta. Ana)13 it was Justina Santos herself who, according to her own
witness, Benjamin C. Alonzo, said "very emphatically" that she and her sister would have perished in the fire had it not
been for Wong.14 Hence the recital in the deed of conditional option (Plff Exh. 7) that "[I]tong si Wong Heng ang siyang
nagligtas sa aming dalawang magkapatid sa halos ay tiyak na kamatayan", and the equally emphatic avowal of gratitude
in the lease contract (Plff Exh. 3).

As it was with the lease contract (Plff Exh. 3), so it was with the rest of the contracts (Plff Exhs. 4-7) — the consent of
Justina Santos was given freely and voluntarily. As Atty. Alonzo, testifying for her, said:

[I]n nearly all documents, it was either Mr. Wong Heng or Judge Torres and/or both. When we had conferences,
they used to tell me what the documents should contain. But, as I said, I would always ask the old woman about
them and invariably the old woman used to tell me: "That's okay. It's all right."15
But the lower court set aside all the contracts, with the exception of the lease contract of November 15, 1957, on the
ground that they are contrary to the expressed wish of Justina Santos and that their considerations are fictitious. Wong
stated in his deposition that he did not pay P360 a month for the additional premises leased to him, because she did not
want him to, but the trial court did not believe him. Neither did it believe his statement that he paid P1,000 as
consideration for each of the contracts (namely, the option to buy the leased premises, the extension of the lease to 99
years, and the fixing of the term of the option at 50 years), but that the amount was returned to him by her for
safekeeping. Instead, the court relied on the testimony of Atty. Alonzo in reaching the conclusion that the contracts are
void for want of consideration.

Atty. Alonzo declared that he saw no money paid at the time of the execution of the documents, but his negative
testimony does not rule out the possibility that the considerations were paid at some other time as the contracts in fact
recite. What is more, the consideration need not pass from one party to the other at the time a contract is executed
because the promise of one is the consideration for the other.16

With respect to the lower court's finding that in all probability Justina Santos could not have intended to part with her
property while she was alive nor even to lease it in its entirety as her house was built on it, suffice it to quote the
testimony of her own witness and lawyer who prepared the contracts (Plff Exhs. 4-7) in question, Atty. Alonzo:

The ambition of the old woman, before her death, according to her revelation to me, was to see to it that these
properties be enjoyed, even to own them, by Wong Heng because Doña Justina told me that she did not have any
relatives, near or far, and she considered Wong Heng as a son and his children her grandchildren; especially her
consolation in life was when she would hear the children reciting prayers in Tagalog.17

She was very emphatic in the care of the seventeen (17) dogs and of the maids who helped her much, and she
told me to see to it that no one could disturb Wong Heng from those properties. That is why we thought of the
ninety-nine (99) years lease; we thought of adoption, believing that thru adoption Wong Heng might acquire
Filipino citizenship; being the adopted child of a Filipino citizen.18

This is not to say, however, that the contracts (Plff Exhs. 3-7) are valid. For the testimony just quoted, while dispelling
doubt as to the intention of Justina Santos, at the same time gives the clue to what we view as a scheme to circumvent
the Constitutional prohibition against the transfer of lands to aliens. "The illicit purpose then becomes the
illegal causa"19 rendering the contracts void.

Taken singly, the contracts show nothing that is necessarily illegal, but considered collectively, they reveal an insidious
pattern to subvert by indirection what the Constitution directly prohibits. To be sure, a lease to an alien for a reasonable
period is valid. So is an option giving an alien the right to buy real property on condition that he is granted Philippine
citizenship. As this Court said in Krivenko v. Register of Deeds:20

[A]liens are not completely excluded by the Constitution from the use of lands for residential purposes. Since
their residence in the Philippines is temporary, they may be granted temporary rights such as a lease contract
which is not forbidden by the Constitution. Should they desire to remain here forever and share our fortunes and
misfortunes, Filipino citizenship is not impossible to acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by virtue of which the Filipino owner
cannot sell or otherwise dispose of his property,21 this to last for 50 years, then it becomes clear that the arrangement is
a virtual transfer of ownership whereby the owner divests himself in stages not only of the right to enjoy the land ( jus
possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to dispose of it ( jus disponendi) — rights the sum
total of which make up ownership. It is just as if today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is made up are consolidated in an alien. And yet
this is just exactly what the parties in this case did within the space of one year, with the result that Justina Santos'
ownership of her property was reduced to a hollow concept. If this can be done, then the Constitutional ban against alien
landholding in the Philippines, as announced in Krivenko v. Register of Deeds,22 is indeed in grave peril.

It does not follow from what has been said, however, that because the parties are in pari delicto they will be left where
they are, without relief. For one thing, the original parties who were guilty of a violation of the fundamental charter have
died and have since been substituted by their administrators to whom it would be unjust to impute their guilt.23 For
another thing, and this is not only cogent but also important, article 1416 of the Civil Code provides, as an exception to
the rule on pari delicto, that "When the agreement is not illegal per se but is merely prohibited, and the prohibition by
law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid
or delivered." The Constitutional provision that "Save in cases of hereditary succession, no private agricultural land shall
be transferred or assigned except to individuals, corporations, or associations qualified to acquire or hold lands of the
public domain in the Philippines"24 is an expression of public policy to conserve lands for the Filipinos. As this Court said
in Krivenko:

It is well to note at this juncture that in the present case we have no choice. We are construing the Constitution
as it is and not as we may desire it to be. Perhaps the effect of our construction is to preclude aliens admitted
freely into the Philippines from owning sites where they may build their homes. But if this is the solemn mandate
of the Constitution, we will not attempt to compromise it even in the name of amity or equity . . . .

For all the foregoing, we hold that under the Constitution aliens may not acquire private or public agricultural
lands, including residential lands, and, accordingly, judgment is affirmed, without costs.25

That policy would be defeated and its continued violation sanctioned if, instead of setting the contracts aside and
ordering the restoration of the land to the estate of the deceased Justina Santos, this Court should apply the general rule
of pari delicto. To the extent that our ruling in this case conflicts with that laid down in Rellosa v. Gaw Chee Hun 26 and
subsequent similar cases, the latter must be considered as pro tanto qualified.

The claim for increased rentals and attorney's fees, made in behalf of Justina Santos, must be denied for lack of merit.

And what of the various amounts which Wong received in trust from her? It appears that he kept two classes of accounts,
one pertaining to amount which she entrusted to him from time to time, and another pertaining to rentals from the
Ongpin property and from the Rizal Avenue property, which he himself was leasing.

With respect to the first account, the evidence shows that he received P33,724.27 on November 8, 1957 (Plff Exh. 16);
P7,354.42 on December 1, 1957 (Plff Exh. 13); P10,000 on December 6, 1957 (Plff Exh. 14) ; and P18,928.50 on August 26,
1959 (Def. Exh. 246), or a total of P70,007.19. He claims, however, that he settled his accounts and that the last amount
of P18,928.50 was in fact payment to him of what in the liquidation was found to be due to him.

He made disbursements from this account to discharge Justina Santos' obligations for taxes, attorneys' fees, funeral
services and security guard services, but the checks (Def Exhs. 247-278) drawn by him for this purpose amount to only
P38,442.84.27 Besides, if he had really settled his accounts with her on August 26, 1959, we cannot understand why he
still had P22,000 in the bank and P3,000 in his possession, or a total of P25,000. In his answer, he offered to pay this
amount if the court so directed him. On these two grounds, therefore, his claim of liquidation and settlement of accounts
must be rejected.
After subtracting P38,442.84 (expenditures) from P70,007.19 (receipts), there is a difference of P31,564 which, added to
the amount of P25,000, leaves a balance of P56,564.3528 in favor of Justina Santos.

As to the second account, the evidence shows that the monthly income from the Ongpin property until its sale in Rizal
Avenue July, 1959 was P1,000, and that from the Rizal Avenue property, of which Wong was the lessee, was P3,120.
Against this account the household expenses and disbursements for the care of the 17 dogs and the salaries of the 8
maids of Justina Santos were charged. This account is contained in a notebook (Def. Exh. 6) which shows a balance of
P9,210.49 in favor of Wong. But it is claimed that the rental from both the Ongpin and Rizal Avenue properties was more
than enough to pay for her monthly expenses and that, as a matter of fact, there should be a balance in her favor. The
lower court did not allow either party to recover against the other. Said the court:

[T]he documents bear the earmarks of genuineness; the trouble is that they were made only by Francisco Wong
and Antonia Matias, nick-named Toning, — which was the way she signed the loose sheets, and there is no clear
proof that Doña Justina had authorized these two to act for her in such liquidation; on the contrary if the result of
that was a deficit as alleged and sought to be there shown, of P9,210.49, that was not what Doña Justina
apparently understood for as the Court understands her statement to the Honorable Judge of the Juvenile Court .
. . the reason why she preferred to stay in her home was because there she did not incur in any debts . . . this
being the case, . . . the Court will not adjudicate in favor of Wong Heng on his counterclaim; on the other hand,
while it is claimed that the expenses were much less than the rentals and there in fact should be a superavit, . . .
this Court must concede that daily expenses are not easy to compute, for this reason, the Court faced with the
choice of the two alternatives will choose the middle course which after all is permitted by the rules of proof, Sec.
69, Rule 123 for in the ordinary course of things, a person will live within his income so that the conclusion of the
Court will be that there is neither deficit nor superavit and will let the matter rest here.

Both parties on appeal reiterate their respective claims but we agree with the lower court that both claims should be
denied. Aside from the reasons given by the court, we think that the claim of Justina Santos totalling P37,235, as rentals
due to her after deducting various expenses, should be rejected as the evidence is none too clear about the amounts
spent by Wong for food29 masses30 and salaries of her maids.31 His claim for P9,210.49 must likewise be rejected as his
averment of liquidation is belied by his own admission that even as late as 1960 he still had P22,000 in the bank and
P3,000 in his possession.

ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are annulled and set aside; the land subject-matter of the
contracts is ordered returned to the estate of Justina Santos as represented by the Philippine Banking Corporation; Wong
Heng (as substituted by the defendant-appellant Lui She) is ordered to pay the Philippine Banking Corporation the sum of
P56,564.35, with legal interest from the date of the filing of the amended complaint; and the amounts consigned in court
by Wong Heng shall be applied to the payment of rental from November 15, 1959 until the premises shall have been
vacated by his heirs. Costs against the defendant-appellant.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Angeles, JJ., concur.

LOURDES VALERIO LIM, petitioner,


vs.
PEOPLE OF THE PHILIPPINES, respondent.
RELOVA, J.:

Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an imprisonment of
four (4) months and one (1) day as minimum to two (2) years and four (4) months as maximum, to indemnify the
offended party in the amount of P559.50, with subsidize imprisonment in case of insolvency, and to pay the costs." (p. 14,
Rollo)

From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of the lower court but
modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of one (1) month and one (1) day
of arresto mayor as minimum to one (1) year and one (1) day of prision correccional as maximum, to indemnify the
complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo)

The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or a contract of sale of
the subject tobacco between petitioner and the complainant, Maria de Guzman Vda. de Ayroso, thereby precluding
criminal liability of petitioner for the crime charged.

The findings of facts of the appellate court are as follows:

... The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of Maria
Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell
her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which
she could sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug.
Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads:

To Whom It May Concern:

This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of
Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo.
The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50)
will be given to her as soon as it was sold.

This was signed by the appellant and witnessed by the complainant's sister, Salud Bantug, and the latter's
maid, Genoveva Ruiz. The appellant at that time was bringing a jeep, and the tobacco was loaded in the
jeep and brought by the appellant. Of the total value of P799.50, the appellant had paid to Ayroso only
P240.00, and this was paid on three different times. Demands for the payment of the balance of the
value of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud
Bantug. Salud Bantug further testified that she had gone to the house of the appellant several times, but
the appellant often eluded her; and that the "camarin" the appellant was empty. Although the appellant
denied that demands for payment were made upon her, it is a fact that on October 19, 1966, she wrote a
letter to Salud Bantug which reads as follows:

Dear Salud,

Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil
kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo.
Gosto ko Salud ay makapagbigay man lang ako ng marami para hindi masiadong
kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta
lang kami ni Mina sa Maynila ngayon. Salud kung talagang kailangan mo ay bukas ay
dadalhan kita ng pera.

Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki
ko ng puesto. Huwag kang mabahala at tiyak na babayaran kita.

Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).

L
u
d
y

Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh. 4, and
another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as evidenced by the receipt
Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount was paid, the complainant filed a
complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo)

In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to wit:

1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing
document (Exhibit "A") "fixed a period" and "the obligation was therefore, immediately demandable as
soon as the tobacco was sold" (Decision, p. 6) as against the theory of the petitioner that the obligation
does not fix a period, but from its nature and the circumstances it can be inferred that a period was
intended in which case the only action that can be maintained is a petition to ask the court to fix the
duration thereof;

2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of the New
Civil Code does not apply" as against the alternative theory of the petitioner that the fore. going receipt
(Exhibit "A") gives rise to an obligation wherein the duration of the period depends upon the will of the
debtor in which case the only action that can be maintained is a petition to ask the court to fix the
duration of the period; and

3. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt is
a contract of agency to sell as against the theory of the petitioner that it is a contract of sale. (pp. 3-4,
Rollo)

It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over to the
complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco
was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the duration of the
obligation if it does not fix a period, does not apply.

Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be paid the
commission if the goods were sold, the Court of Appeals correctly resolved the matter as follows:

... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling
Ayroso's tobacco, the appellant herself admitted that there was an agreement that upon the sale of the
tobacco she would be given something. The appellant is a businesswoman, and it is unbelievable that she
would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had
brought if she did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to
Maria Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not have been the
appellant who would have gone to the house of Ayroso, but it would have been Ayroso who would have
gone to the house of the appellant and deliver the tobacco to the appellant. (p. 19, Rollo)

The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as
soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A')
constituted her as an agent with the obligation to return the tobacco if the same was not sold.

ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs.

SO ORDERED.

GREGORIO ARANETA, INC., petitioner,


vs.
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., respondent.

Araneta and Araneta for petitioner.


Rosauro Alvarez and Ernani Cruz Paño for respondent.

REYES, J.B.L., J.:

Petition for certiorari to review a judgment of the Court of Appeals, in its CA-G.R. No. 28249-R, affirming with
modification, an amendatory decision of the Court of First Instance of Manila, in its Civil Case No. 36303, entitled
"Philippine Sugar Estates Development Co., Ltd., plaintiff, versus J. M. Tuason & Co., Inc. and Gregorio Araneta, Inc.,
defendants."

As found by the Court of Appeals, the facts of this case are:

J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, otherwise known as the Sta. Mesa Heights
Subdivision, and covered by a Torrens title in its name. On July 28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.)
sold a portion thereof with an area of 43,034.4 square meters, more or less, for the sum of P430,514.00, to Philippine
Sugar Estates Development Co., Ltd. The parties stipulated, among in the contract of purchase and sale with mortgage,
that the buyer will —

Build on the said parcel land the Sto. Domingo Church and Convent

while the seller for its part will —

Construct streets on the NE and NW and SW sides of the land herein sold so that the latter will be a block
surrounded by streets on all four sides; and the street on the NE side shall be named "Sto. Domingo Avenue;"
The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto. Domingo Church and
Convent, but the seller, Gregorio Araneta, Inc., which began constructing the streets, is unable to finish the construction
of the street in the Northeast side named (Sto. Domingo Avenue) because a certain third-party, by the name of Manuel
Abundo, who has been physically occupying a middle part thereof, refused to vacate the same; hence, on May 7, 1958,
Philippine Sugar Estates Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc., and instance, seeking to
compel the latter to comply with their obligation, as stipulated in the above-mentioned deed of sale, and/or to pay
damages in the event they failed or refused to perform said obligation.

Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, the latter particularly setting
up the principal defense that the action was premature since its obligation to construct the streets in question was
without a definite period which needs to he fixed first by the court in a proper suit for that purpose before a complaint
for specific performance will prosper.

The issues having been joined, the lower court proceeded with the trial, and upon its termination, it dismissed plaintiff's
complaint (in a decision dated May 31, 1960), upholding the defenses interposed by defendant Gregorio Araneta,
Inc.1äwphï1.ñët

Plaintiff moved to reconsider and modify the above decision, praying that the court fix a period within which defendants
will comply with their obligation to construct the streets in question.

Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that plaintiff's complaint did not expressly or
impliedly allege and pray for the fixing of a period to comply with its obligation and that the evidence presented at the
trial was insufficient to warrant the fixing of such a period.

On July 16, 1960, the lower court, after finding that "the proven facts precisely warrants the fixing of such a period,"
issued an order granting plaintiff's motion for reconsideration and amending the dispositive portion of the decision of
May 31, 1960, to read as follows:

WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta, Inc., a period of two (2) years
from notice hereof, within which to comply with its obligation under the contract, Annex "A".

Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above quoted order, which motion, plaintiff
opposed.

On August 16, 1960, the lower court denied defendant Gregorio Araneta, Inc's. motion; and the latter perfected its
appeal Court of Appeals.

In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly that the relief granted, i.e., fixing of
a period, under the amendatory decision of July 16, 1960, was not justified by the pleadings and not supported by the
facts submitted at the trial of the case in the court below and that the relief granted in effect allowed a change of theory
after the submission of the case for decision.

Ruling on the above contention, the appellate court declared that the fixing of a period was within the pleadings and that
there was no true change of theory after the submission of the case for decision since defendant-appellant Gregorio
Araneta, Inc. itself squarely placed said issue by alleging in paragraph 7 of the affirmative defenses contained in its
answer which reads —
7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has a reasonable time within which
to comply with its obligations to construct and complete the streets on the NE, NW and SW sides of the lot in
question; that under the circumstances, said reasonable time has not elapsed;

Disposing of the other issues raised by appellant which were ruled as not meritorious and which are not decisive in the
resolution of the legal issues posed in the instant appeal before us, said appellate court rendered its decision dated
December 27, 1963, the dispositive part of which reads —

IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant is given two (2) years from
the date of finality of this decision to comply with the obligation to construct streets on the NE, NW and SW sides
of the land sold to plaintiff so that the same would be a block surrounded by streets on all four sides.

Unsuccessful in having the above decision reconsidered, defendant-appellant Gregorio Araneta, Inc. resorted to a
petition for review by certiorari to this Court. We gave it due course.

We agree with the petitioner that the decision of the Court of Appeals, affirming that of the Court of First Instance is
legally untenable. The fixing of a period by the courts under Article 1197 of the Civil Code of the Philippines is sought to
be justified on the basis that petitioner (defendant below) placed the absence of a period in issue by pleading in its
answer that the contract with respondent Philippine Sugar Estates Development Co., Ltd. gave petitioner Gregorio
Araneta, Inc. "reasonable time within which to comply with its obligation to construct and complete the streets." Neither
of the courts below seems to have noticed that, on the hypothesis stated, what the answer put in issue was not whether
the court should fix the time of performance, but whether or not the parties agreed that the petitioner should have
reasonable time to perform its part of the bargain. If the contract so provided, then there was a period fixed, a
"reasonable time;" and all that the court should have done was to determine if that reasonable time had already elapsed
when suit was filed if it had passed, then the court should declare that petitioner had breached the contract, as averred
in the complaint, and fix the resulting damages. On the other hand, if the reasonable time had not yet elapsed, the court
perforce was bound to dismiss the action for being premature. But in no case can it be logically held that under the plea
above quoted, the intervention of the court to fix the period for performance was warranted, for Article 1197 is precisely
predicated on the absence of any period fixed by the parties.

Even on the assumption that the court should have found that no reasonable time or no period at all had been fixed (and
the trial court's amended decision nowhere declared any such fact) still, the complaint not having sought that the Court
should set a period, the court could not proceed to do so unless the complaint in as first amended; for the original
decision is clear that the complaint proceeded on the theory that the period for performance had already elapsed, that
the contract had been breached and defendant was already answerable in damages.

Granting, however, that it lay within the Court's power to fix the period of performance, still the amended decision is
defective in that no basis is stated to support the conclusion that the period should be set at two years after finality of
the judgment. The list paragraph of Article 1197 is clear that the period can not be set arbitrarily. The law expressly
prescribes that —

the Court shall determine such period as may under the circumstances been probably contemplated by the
parties.

All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this respect is that "the proven facts precisely
warrant the fixing of such a period," a statement manifestly insufficient to explain how the two period given to petitioner
herein was arrived at.
It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court must first determine that
"the obligation does not fix a period" (or that the period is made to depend upon the will of the debtor)," but from the
nature and the circumstances it can be inferred that a period was intended" (Art. 1197, pars. 1 and 2). This preliminary
point settled, the Court must then proceed to the second step, and decide what period was "probably contemplated by
the parties" (Do., par. 3). So that, ultimately, the Court can not fix a period merely because in its opinion it is or should be
reasonable, but must set the time that the parties are shown to have intended. As the record stands, the trial Court
appears to have pulled the two-year period set in its decision out of thin air, since no circumstances are mentioned to
support it. Plainly, this is not warranted by the Civil Code.

In this connection, it is to be borne in mind that the contract shows that the parties were fully aware that the land
described therein was occupied by squatters, because the fact is expressly mentioned therein (Rec. on Appeal,
Petitioner's Appendix B, pp. 12-13). As the parties must have known that they could not take the law into their own
hands, but must resort to legal processes in evicting the squatters, they must have realized that the duration of the suits
to be brought would not be under their control nor could the same be determined in advance. The conclusion is thus
forced that the parties must have intended to defer the performance of the obligations under the contract until the
squatters were duly evicted, as contended by the petitioner Gregorio Araneta, Inc.

The Court of Appeals objected to this conclusion that it would render the date of performance indefinite. Yet, the
circumstances admit no other reasonable view; and this very indefiniteness is what explains why the agreement did not
specify any exact periods or dates of performance.

It follows that there is no justification in law for the setting the date of performance at any other time than that of the
eviction of the squatters occupying the land in question; and in not so holding, both the trial Court and the Court of
Appeals committed reversible error. It is not denied that the case against one of the squatters, Abundo, was still pending
in the Court of Appeals when its decision in this case was rendered.

In view of the foregoing, the decision appealed from is reversed, and the time for the performance of the obligations of
petitioner Gregorio Araneta, Inc. is hereby fixed at the date that all the squatters on affected areas are finally evicted
therefrom.

PACIFICA MILLARE, petitioner,


vs.
HON. HAROLD M. HERNANDO, In his capacity as Presiding Judge, Court of Instance of Abra, Second Judicial District,
Branch I, ANTONIO CO and ELSA CO, respondents.

FELICIANO, J.:

On 17 June 1975, a five-year Contract of Lease 1 was executed between petitioner Pacifica Millare as lessor and private
respondent Elsa Co, married to Antonio Co, as lessee. Under the written agreement, which was scheduled to expire on 31
May 1980, the lessor-petitioner agreed to rent out to thelessee at a monthly rate of P350.00 the "People's Restaurant", a
commercial establishment located at the corner of McKinley and Pratt Streets in Bangued, Abra.
The present dispute arose from events which transpired during the months of May and July in 1980. According to the Co
spouses, sometime during the last week of May 1980, the lessor informed them that they could continue leasing the
People's Restaurant so long as they were amenable to paying creased rentals of P1,200.00 a month. In response, a
counteroffer of P700.00 a month was made by the Co spouses. At this point, the lessor allegedly stated that the amount
of monthly rentals could be resolved at a later time since "the matter is simple among us", which alleged remark was
supposedly taken by the spouses Co to mean that the Contract of Lease had been renewed, prompting them to continue
occupying the subject premises and to forego their search for a substitute place to rent. 2 In contrast, the lessor flatly
denied ever having considered, much less offered, a renewal of the Contract of Lease.

The variance in versions notwithstanding, the record shows that on 22 July 1980, Mrs. Millare wrote the Co spouses
requesting them to vacate the leased premises as she had no intention of renewing the Contract of Lease which had, in
the meantime, already expirecl. 3 In reply, the Co spouses reiterated their unwillingness to pay the Pl,200.00 monthly
rentals supposedly sought bv Mrs. Millare which they considered "highly excessive, oppressive and contrary to existing
laws". They also signified their intention to deposit the amount of rentals in court, in view of Mrs. Millare's refusal to
accept their counter-offer.4 Another letter of demand from Mrs. Millare was received on 28 July 1980 by the Co spouses,
who responded by depositing the rentals for June and July (at 700.00 a month) in court.

On 30 August 1980, a Saturday, the Co spouses jumped the gun, as it were, and filed a Complaint 5 (docketed as Civil Case
No. 1434) with the then Court of First Instance of Abra against Mrs. Millare and seeking judgment (a) ordering the
renewal of the Contract of Lease at a rental rate of P700.00 a nionth and for a period of ten years, (b) ordering the
defendant to collect the sum of P1,400.00 deposited by plaintiffs with the court, and (c) ordering the defendant to pay
damages in the amount of P50,000.00. The following Monday, on 1 September 1980, Mrs. Millare filed an ejectment case
against the Co spouses in the Municipal Court of Bangued, Abra, docketed as Civil Case No. 661. The spouses Co,
defendants therein, sut)sequently set up lis pendens as a Civil Case No. 661. The spouses Co, defendants therein,
subsequently set up lis pendens as a defense against the complaint for ejectment.

Mrs. Millare, defendant in Civil Case No. 1434, countered with an Omnibus Motion to Dismiss6 rounded on (a) lack of
cause of action due to plaintiffs' failure to establish a valid renewal of the Contract of Lease, and (b) lack of jurisdiction by
the trial court over the complaint for failure of plaintiffs to secure a certification from the Lupong Tagapayapa of the
barangay wherein both disputants reside attesting that no amicable settlement between them had been reached despite
efforts to arrive at one, as required by Section 6 of Presidential Decree No. 1508. The Co spouses opposed the motion to
dismiss. 7

In an Order dated 15 October 1980, respondent judge denied the motion to dismiss and ordered the renewal of the
Contract of Lease. Furthermore plaintiffs were allowed to deposit all accruing monthly rentals in court, while defendant
Millare was directed to submit her answer to the complaint. 8 A motion for reconsideration 9 was subsequently filed
which, however, was likewise denied. 10 Hence, on 13 November 1980, Mrs. Millare filed the instant Petition for
Certiorari, Prohibition and Mandamus, seeking injunctive relief from the abovementioned orders. This Court issued a
temporary restraining order on 21 November 1980 enjoining respondent, judge from conducting further proceedings in
Civil Case No. 1434. 11 Apparently, before the temporary restraining order could be served on the respondent judge, he
rendered a "Judgment by Default" dated 26 November 1980 ordering the renewal of the lease contract for a term of 5
years counted from the expiration date of the original lease contract, and fixing monthly rentals thereunder at P700.00 a
month, payable in arrears. On18 March 1981, this Court gave due course to the Petition for Certiorari, Prohibition and
Mandamus. 12

Two issues are presented for resolution: (1) whether or not the trial court acquired jurisdiction over Civil Case No. 1434;
and (2) whether or not private respondents have a valid cause of action against petitioner.
Turning to the first issue, petitioner's attack on the jurisdiction of the trial court must fail, though for reasons different
from those cited by the respondent judge. 13 We would note firstly that the conciliation procedure required under P.D.
1508 is not a jurisdictional requirement in the sense that failure to have prior recourse to such procedure would not
deprive a court of its jurisdiction either over the subject matter or over the person of the defendant.14 Secondly, the
acord shows that two complaints were submitted to the barangay authorities for conciliation — one by petitioner for
ejectment and the other by private respondents for renewal of the Contract of Lease. It appears further that both
complaints were, in fact, heard by the Lupong Tagapayapa in the afternoon of 30 August 1980. After attempts at
conciliation had proven fruitless, Certifications to File Action authorizing the parties to pursue their respective claims in
court were then issued at 5:20 p.m. of that same aftemoon, as attested to by the Barangay Captain in a Certification
presented in evidence by petitioner herself. 15

Petitioner would, nonetheless, assail the proceedings in the trial court on a technicaety, i.e., private respondents
allegedly filed their complaint at 4:00 p.m. of 30 August 1980, or one hour and twenty minutes before the issuance of the
requisite certification by the Lupng Tagapayapa. The defect in procedure admittedly initially present at that particular
moment when private respondents first filed the complaint in the trial court, was cured by the subsequent issuance of
the Certifications to File Action by the barangay Lupong Tagapayapa Such certifications in any event constituted
substantial comphance with the requirement of P.D. 1508.

We turn to the second issue, that is, whether or not the complaint in Civil Case No. 1434 filed by the respondent Co
spouses claiming renewal of the contract of lease stated a valid cause of action. Paragraph 13 of the Contract of Lease
reads as follows:

13. This contract of lease is subject to the laws and regulations ofthe goverrunent; and that this contract of lease
may be renewed after a period of five (5) years under the terms and conditions as will be mutually agreed upon
by the parties at the time of renewal; ... (Emphasis supplied.)

The respondent judge, in his Answer and Comment to the Petition, urges that under paragraph 13 quoted above.

there was already a consummated and finished mutual agreement of the parties to renew the contract of lease
after five years; what is only left unsettled between the parties to the contract of lease is the amount of the
monthly rental; the lessor insists Pl,200 a month, while the lessee is begging P700 a month which doubled the
P350 monthly rental under the original contract .... In short, the lease contract has never expired because
paragraph 13 thereof had expressly mandated that it is renewable. ...16

In the "Judgment by Default" he rendered, the respondent Judge elaborated his views — obviously highly emotional in
character — in the following extraordinary tatements:

However, it is now the negative posture of the defendant-lessor to block, reject and refuse to renew said lease
contract. It is the defendant-lessor's assertion and position that she can at the mere click of her fingers, just
throw-out the plaintiffs-lessees from the leased premises and any time after the original term of the lease
contract had already expired; This negative position of the defendantlessor, to the mind of this Court does not
conform to the principles and correct application of the philosophy underlying the law of lease; for indeed, the
law of lease is impressed with public interest, social justice and equity; reason for which, this Court cannot
sanction lot owner's business and commercial speculations by allowing them with "unbridled discretion" to raise
rentals even to the extent of "extraordinary gargantuan proportions, and calculated to unreasonably and unjustly
eject the helpless lessee because he cannot afford said inflated monthly rental and thereby said lessee is placed
without any alternative, except to surrender and vacate the premises mediately,-" Many business establishments
would be closed and the public would directly suffer the direct consequences; Nonetheless, this is not the correct
concept or perspective the law of lease, that is, to place the lessee always at the mercy of the lessor's "Merchant
of Venice" and to agit the latter's personal whims and caprices; the defendant-lessor's hostile attitude by
imposing upon the lessee herein an "unreasonable and extraordinary gargantuan monthly rental of P1,200.00",
to the mind of this Court, is "fly-by night unjust enrichment" at the expense of said lessees; but, no Man should
unjustly enrich himself at the expense of another; under these facts and circumstances surrounding this case, the
action therefore to renew the lease contract! is "tenable" because it falls squarely within the coverage and
command of Articles 1197 and 1670 of the New Civil Code, to wit:

xxx xxx xxx

The term "to be renewed" as expressly stipulated by the herein parties in the original contract of lease means
that the lease may be renewed for another term of five (5) years; its equivalent to a promise made by the lessor
to the lessee, and as a unilateral stipulation, obliges the lessor to fulfill her promise; of course the lessor is free to
comply and honor her commitment or back-out from her promise to renew the lease contract; but, once
expressly stipulated, the lessor shall not be allowed to evade or violate the obligation to renew the lease
because, certainly, the lessor may be held hable for damages caused to the lessee as a consequence of the
unjustifiable termination of the lease or renewal of the same; In other words, the lessor is guilty of breach of
contract: Since the original lease was fixed for five (5) years, it follows, therefore, that the lease contract is
renewable for another five (5) years and the lessee is not required before hand to give express notice of this fact
to the lessor because it was expressly stipulated in the original lease contract to be renewed; Wherefore, the
bare refusal of the lessor to renew the lease contract unless the monthly rental is P1,200.00 is contrary to law,
morals, good customs, public policy, justice and equity because no one should unjustly enrich herself at the
expense of another. Article 1197 and 1670 of the New Civil Code must therefore govern the case at bar and
whereby this Court is authorized to fix the period thereof by ordering the renewal of the lease contract to
another fixed term of five (5) years.17

Clearly, the respondent judge's grasp of both the law and the Enghsh language is tenuous at best. We are otherwise
unable to comprehend how he arrived at the reading set forth above. Paragraph 13 of the Contract of Lease can only
mean that the lessor and lessee may agree to renew the contract upon their reaching agreement on the terms and
conditions to be embodied in such renewal contract. Failure to reach agreement on the terms and conditions of the
renewal contract will of course prevent the contract from being renewed at all. In the instant case, the lessor and the
lessee conspicuously failed to reach agreement both on the amount of the rental to be payable during the renewal term,
and on the term of the renewed contract.

The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the "Judgment by Default" by which he
ordered the renewal of the lease for another term of five years and fixed monthly rentals thereunder at P700.00 a
month. Article 1197 of the Civil Code provides as follows:

If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period
was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may, under the circumstances, have been probably
contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (Emphasis
supplied.)
The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did in fact fix an original period of
five years, which had expired. It is also clear from paragraph 13 of the Contract of Lease that the parties reserved to
themselves the faculty of agreeing upon the period of the renewal contract. The second paragraph of Article 1197 is
equally clearly inapplicable since the duration of the renewal period was not left to the wiu of the lessee alone, but rather
to the will of both the lessor and the lessee. Most importantly, Article 1197 applies only where a contract of lease clearly
exists. Here, the contract was not renewed at all, there was in fact no contract at all the period of which could have been
fixed.

Article 1670 of the Civil Code reads thus:

If at the end of the contract the lessee should continue enjoying the thing left for 15 days with the acquiescence
of the lessor and unless a notice to the contrary by either party has previously been given. It is understood that
there is an implied new lease, not for the period of the original contract but for the time established in Articles
1682 and 1687. The ther terms of the original contract shall be revived. (Emphasis suplied.)

The respondents themselves, public and private, do not pretend that the continued occupancy of the leased premises
after 31 May 1980, the date of expiration of the contract, was with the acquiescence of the lessor. Even if it be assumed
that tacite reconduccion had occurred, the implied new lease could not possibly have a period of five years, but rather
would have been a month-to-month lease since the rentals (under the original contract) were payable on a monthly
basis. At the latest, an implied new lease (had one arisen) would have expired as of the end of July 1980 in view of the
written demands served by the petitioner upon the private respondents to vacate the previously leased premises.

It follows that the respondent judge's decision requiring renewal of the lease has no basis in law or in fact. Save in the
limited and exceptional situations envisaged inArticles ll97 and 1670 of the Civil Code, which do not obtain here, courts
have no authority to prescribe the terms and conditions of a contract for the parties. As pointed out by Mr. Justice J.B.L.
Reyes in Republic vs. Philippine Long Distance Telephone,Co.,[[18

[P]arties cannot be coerced to enter into a contract where no agreement is had between them as to the principal
terms and conditions of the contract. Freedom to stipulate such terms and conditions is of the essence of our
contractual system, and by express provision of the statute, a contract may be annulled if tainted by violence,
intimidation or undue influence (Article 1306, 1336, 1337, Civil Code of the Philippines).

Contractual terms and conditions created by a court for two parties are a contradiction in terms. If they are imposed by a
judge who draws upon his own private notions of what morals, good customs, justice, equity and public policy" demand,
the resulting "agreement" cannot, by definition, be consensual or contractual in nature. It would also follow that such
coerced terms and conditions cannot be the law as between the parties themselves. Contracts spring from the volition of
the parties. That volition cannot be supplied by a judge and a judge who pretends to do so, acts tyrannically, arbitrarily
and in excess of his jurisdiction. 19

WHEREFORE, the Petition for Certiorari, Prohibition and mandamus is granted. The Orders of the respondent judge in
Civil Case No. 1434 dated 26 September 1980 (denying petitioner's motion to dismiss) and 4 November 1980 (denying
petitioner's motion for reconsideration), and the "Judgment by Default" rendered by the respondent judge dated 26
November 1980, are hereby annulled and set aside and Civil Case No. 1434 is hereby dismissed. The temporary
restraining order dated 21 November 1980 issued by this ourt, is hereby made permanent. No pronouncement as to
costs.

SO ORDERED.
Yap (Chairman), Narvasa