G.R. No.

48541 August 21, 1989

BERNABE CASTILLO (In his own behalf, and in behalf of SERAPION CASTILLO, who has since then become
deceased, and EULOGIO CASTILLO, his minor child) and GENEROSA GALANG CASTILLO, petitioners-appellants,
vs.
THE HONORABLE COURT OF APPEALS, JUANITO ROSARIO and CRESENCIA ROSARIO, respondents-appellees.

FERNAN, C.J.:

In this petition for review on certiorari, petitioners seek the reversal of the February 13, 1978 decision of the Court of
Appeals in CA-G.R. No. 52567-R, entitled "Bernabe Castillo, et al. v. Juanita Rosario, et al," affirming the dismissal by the
Court of First Instance of Manila of the complaint for damages filed by petitioners against private respondents. Said
dismissal was decreed on the basis of the evidence before the trial court as well as the decision of the Court of Appeals in
CA-G.R. No. 07684-CR, entitled "People v. Juanito Rosario."

Petitioners and private respondents figured in a vehicular accident on May 2, 1965 at Bagac, Villasis, Pangasinan, which
caused injuries to their persons and damage to their respective vehicles.

The parties have conflicting versions as to what actually transpired on that fateful day; each party pointing to the
negligence of the other as the proximate cause of the accident. Thus, as expected in cases like this, the main issue is: Who
was at fault? According to the petitioners, the accident happened as follows: 1

On May 2, 1985, at about 2:00 o'clock in the afternoon, petitioner Bernabe Castillo was driving his jeep with Plate No. J-
4649 '64 Manila on the right lane of the McArthur Highway with Generosa Castillo, his wife, father Serapion Castillo,
seated in front and Eulogio Castillo, then a minor child, as passengers, bound and northward for Binmaley, Pangasinan
at the rate of 25 kilometers per hour. Just past San Nicolas bridge, Villasis, he noticed, from a distance of 120 meters
more or less, a speeding oncoming car with Plate No. L-27045 '64 Cavite, along the same lane (facing north) he was
driving, overtaking a cargo truck ahead of it. He switched on his headlights to signal the car to return to its own right lane
as the way was not clear for it to overtake the truck.

The car turned out to be driven by the private respondent, Juanito Rosario, with his wife, Cresencia Rosario. The signal
was disregarded, as the car proceeded on its direction southward on the right lane (facing north).lâwphî1.ñèt In order to
evade the impending collision, petitioner Bernabe Castillo swerved his jeep to the right towards the shoulder and applied
on the brakes, and leaving his feet on it, even, immediately after the impact. The car rested on the shoulder of the right
lane. The jeep's rear left wheel was on the road, leaving short tiremarks behind it; while the car left long tire-marks,
specially its left rear wheel. The jeep suffered a shattered windshield, pushed-in radiator. The left mid-portion of its
bumper badly dented. The car had a flat tire on its right front wheel; its right fender badly dented as the headlamp on top
of it. The bumber stooped downward, because it went thru under the bumper of the jeep.

The driver of the jeep, including his passengers suffered physical injuries. Bernabe Castillo, with the patella of his right
knee, fractured, suffered serious physical injuries, in other parts of his body. Serapion Castillo whose head crushed
through the windshield, was nearly beheaded, while the other two passengers suffered multiple slight and less serious
injuries.

Private respondents, on the other hand, have their own version of the accident and thus asseverate as follows: 2

Sometime in the early afternoon of May 2, 1965, the private respondents, together with their small daughter, were on their
way from San Carlos City (Pangasinan) to Olongapo City where they resided at the time and where Juanito Rosario, a
member of the US Navy, had been temporarily stationed. They rode in the family car. (TSN, C. Rosario, p. 35; J. Rosario,
pp. 2, 12 Annex "D", "Request for Admission")

At or about 2:30 p.m. of the same date, as Juanito Rosario who was driving the car, and his two passengers, were along
MacArthur Highway in Barrio Bacag, Villasis, Pangasinan, going towards the south, they saw ahead of them a big heavily
loaded cargo truck. (TSN, B. Castillo, p. 532, Annex "B", "Request for Admission") The truck was moving very slowly
because of its heavy load so that Juanito Rosario decided to overtake it. But before doing so, he first saw to it that the
road was clear and as additional precautionary measure, he blew his horn several times at the time he was overtaking the
truck. (TSN, Juanito Rosario, pp. 4, 11; C. Rosario, pp. 31-41, Annex "B", "Request for Admission")

Then as the car was about to overtake the slow moving cargo truck, the car's front left tire suddenly burst due to pressure
causing the car to swerve to the left and naturally making steering and control difficult. Because of the tendency of the car
to veer towards the left due to the blown out tire, the driver steered the car towards the direction where he could find a
1
safe place to park and fix the tire. He finally brought the car to a halt at the left shoulder of the road (facing south). (TSN,
C. Rosario, p. 31; J. Rosario, pp. 4, 17, Annex "D", "Request for Admission")

But barely had the said defendant parked his car on the left shoulder of the road and just as he was about to get off to fix
the flat tire, the car was suddenly bumped by the jeep driven by Bernabe Castillo which came from the opposite direction.
(TSN, C. Rosario, p. 32; J. Rosario, p. 6, "Request for Admission") Both vehicles were damaged, the car suffering the
heavier damage. (Please see Annex "C", "Request for Admission") Passengers of the jeep sustained injuries while those of
the car were badly shaken.

On June 30, 1965, a civil case for the recovery of damages for the injuries sustained by petitioners and for the damage to
their vehicle as a result of the collision, was instituted by the petitioners in the Court of First Instance of Manila. While
this case was pending, the Provincial Fiscal of Pangasinan filed an information dated September 29, 1965 against Juanito
Rosario, private respondent herein, for double physical injuries; double less serious physical injuries; and damage to
property thru reckless imprudence, in the Court of First Instance of Urdaneta. Respondent Juanito Rosario was
prosecuted and convicted by the trial court in the criminal case. He appealed to the Court of Appeals, which rendered a
decision 3 acquitting him from the crime charged on the ground that his guilt has not been proved beyond reasonable
doubt.

In the meantime, private respondents thru counsel, filed a "Request for Admission" 4 on April 3, 1972 in the civil case,
requesting petitioners to admit the truthfulness of the facts set forth therein as well as the correctness and genuineness of
the documents attached thereto. On May 5,1972, petitioners filled a "Manifestation", 5 admitting the allegations in the
"Request for Admission" with some qualifications. Later, both parties submitted their respective memoranda.

On the basis of the testimonies and evidence submitted by the petitioners, as well as the records of the criminal case
attached in the "Request for Admission" of the private respondents, the Court of First Instance of Manila rendered a
decision 6 on December 28, 1972, dismissing the complaint of the petitioners against private respondents as well as the
counterclaim of private respondents against the petitioners. On January 24, 1973, petitioners appealed to the Court of
Appeals. On February 13, 1978, the Court of Appeals affirmed the decision 7of the Court of First Instance of Manila.

Hence, the present petition for review on certiorari. 8The petitioners-appellants raise in issue before Us the following
questions, to wit:

1) Is the decision of the Court of Appeals, where its dispositive part, or "fallo", states that the guilt of the (appellant)
accused was not proved beyond reasonable doubt final and conclusive, on an action for damages based on quasi-delict?;

2) Are the testimonies given in a criminal case, without strict compliance with Section 41 Rule 130 and without
opportunity to cross examine the witnesses who made these testimonies, admissible evidence in a subsequent case and
can be the basis of a valid decision?;

3) Is an action for damages based on quasi-delict barred by a decision of the appellate court acquitting the accused, the
body of which lays the blame on the plaintiff but in its dispositive part, declares the guilt of the accused not proved
beyond reasonable doubt ? 9

The main thrust of this petition for review which stems from a cause of action based on quasi-delict or culpa
aquiliana (being a recovery for damages arising from the vehicular accident), is that petitioners were deprived of due
process because their civil action was decided on the basis of private respondent Juanita Rosario's acquittal in the
criminal case for reckless imprudence.

There is no dispute that the subject action for damages, being civil in nature, is separate and distinct from the criminal
aspect, necessitating only a preponderance of evidence. According to a number of cases, 10 a quasi-delict or culpa
aquiliana is a separate legal institution under the Civil Code, with a substantively all its own, and individuality that is
entirely apart and independent from a delict or crime. A distinction exists between the civil liability arising from a crime
and the responsibility for quasi-delicts or culpa extra-contractual. The same negligence causing damages may produce
civil liability arising from a crime under the Penal Code, or create an action for quasidelictos or culpa extra-contractual
under the Civil Code. Therefore, the acquittal or conviction in the criminal case is entirely irrelevant in the civil case. 11

In the case of Azucena v. Potenciano, L-14028, June 30, 1962, 5 SCRA 468, 470-471, this Court held:

... in the criminal case for reckless imprudence resulting in serious physical injuries ..., the judgment of acquittal does not
operate to extinguish the civil liability of the defendant based on the same incident. The civil action is entirely independent
of the criminal case according to Articles 33 and 2177 of the Civil Code. There can be no logical conclusion than this, for
2
to subordinate the civil action contemplated in the said articles to the result of the criminal prosecution — whether it be
conviction or acquittal — would render meaningless the independent character of the civil action and the clear injunction
in Article 31, that his action may proceed independently of the criminal proceedings and regardless of the result of the
latter.

But this rule is not without exception. Thus, Section 2 (c) of Rule 111 of the Rules of Court provides:

Extinction of the penal action does not carry with it extinction of the civil, unless the extinction proceeds
from a declaration from a final judgment that the fact from which the civil action might arise did not exist.

In a previous case, CA-G.R. No. 07684-CR, People v. Rosario, the Court of Appeals after a painstaking analysis of. (a) the
testimonial evidence; (b) the relative positions of the two vehicles as depicted in the sketches; (c) the distance of each of
the two vehicles from the cemented edge of the road; (d) the point of impact; (e) the visible tire marks, and (f) the extent of
the damage caused upon each of the two vehicles, ruled that it was the driver of the jeep and not the accused driver of the
car who was negligent and accordingly acquitted the latter. 12

Negligence, being the source and foundation of actions of quasi-delict, is the basis for the recovery of damages. In the case
at bar, the Court of Appeals found that no negligence was committed by Juanito Rosario to warrant an award of damages
to the petitioners.

Respondent Appellate Court states:

In acquitting defendant-appellee Juanito Rosario in CA-G.R. No. 07684-CR on October 28, 1968, this Court held that the
collision was not due to the negligence of Juanito Rosario but it was Castillo's own act of driving the jeep to the shoulder
[of the road] where the car was that was actually the proximate cause of the collision.' (Ibid., p. 183) With this finding, this
Court actually exonerated appellee Juanito Rosario from civil liability. Since plaintiffs-appellants' civil action is predicated
upon Juanito Rosario's alleged negligence which does not exist, it follows that his acquittal in the criminal action, which is
already final, carried with it the extinction of civil responsibility arising therefrom. (Corpus vs. Paje, 28 SCRA 1062, 1064,
1067; Faraon vs. Priela, 24 SCRA 582, 583; De Soriano vs. Albornoz, 98 Phil. 785, 787788; Tan vs. Standard Vacuum Oil
Co., 91 Phil. 672, 675). 13

It was the Court of Appeals findings that the collision was not due to the negligence of Juanita Rosario but rather it was
Castillo's own act of driving the jeep to the shoulder of the road where the car was, which was actually the proximate
cause of the collision. With this findings, the Court of Appeals exonerated Juanito Rosario from civil liability on the
ground that the alleged negligence did not exist.

As earlier stated, the questioned decision of the Court of Appeals was an affirmation of the decision of the Court of First
Instance of Manila. During the trial of the case before the Court of First Instance, the private respondents were not
present, in view of the fact that they were out of the country at that time. Their counsel introduced as part of their
evidence, the records in the criminal case, in accordance with Section 41, Rule 130 of the Rules of Court. 14 These records
were attached to their "Request for Admission" and were substantially admitted by petitioners. The said records were
mostly composed of transcripts of the hearing in the criminal case. Petitioners raised, as one of their objections, the
propriety and correctness of admitting and adopting these transcripts as part of the record in the civil case. According to
them, this is a violation of Section 41, Rule 130 of the Rules of Court, on the ground that petitioners were not given the
opportunity to cross-examine. We have to disagree. A careful reading of the transcripts would reveal that then counsel for
petitioners, Atty. Nicodemo Ferrer, actively participated during the proceedings of the criminal case. He raised various
objections, 15 in the course of the trial. Petitioners, therefore, thru counsel had the opportunity to cross-examine the
witnesses.

Thus, the admission of the said testimonies cannot be set aside.

Finally, in a long line of decisions, this Court has held time and again that the findings of facts by the Court of Appeals
are conclusive and not reviewable by the Supreme Court. 16

In Macadangdang v. Court of Appeals, 100 SCRA 73 and Tolentino v. De Jesus, 56 SCRA 167, it was held that:

Findings of fact of the Court of Appeals are conclusive on the parties and on the Supreme Court, unless (1) the conclusion
is a finding grounded entirely on speculations, surmises and conjectures; (2) the inference made is manifestly mistaken;
(3) there is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the Court of Appeals went
beyond the issues of the case and its findings are contrary to the admission of both appellant and appellee; (6) the
findings of facts of the Court of Appeals are contrary to those of the trial court; (7) said findings of facts are conclusions
3
without citation of specific evidence on which they are based; (8) the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; and (9) when the finding of facts of the Court of
Appeals is premised on the absence of evidence and is contradicted by evidence on record.

Finding that the questioned decision does not fall under any of the exceptions cited above, we find no cogent reason to
disturb the findings and conclusions of the Court of Appeals.

WHEREFORE, in view of the foregoing, the petition is hereby denied. No pronouncement as to costs.

SO ORDERED.

G.R. No. 72964 January 7, 1988

FILOMENO URBANO, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT AND PEOPLE OF THE PHILIPPINES, respondents.

GUTIERREZ, JR., J.:

This is a petition to review the decision of the then Intermediate Appellate Court which affirmed the decision of the then
Circuit Criminal Court of Dagupan City finding petitioner Filomeno Urban guilty beyond reasonable doubt of the crime of
homicide.

The records disclose the following facts of the case.

At about 8:00 o'clock in the morning of October 23, 1980, petitioner Filomeno Urbano went to his ricefield at Barangay
Anonang, San Fabian, Pangasinan located at about 100 meters from the tobacco seedbed of Marcelo Javier. He found the
place where he stored his palay flooded with water coming from the irrigation canal nearby which had overflowed. Urbano
went to the elevated portion of the canal to see what happened and there he saw Marcelo Javier and Emilio Erfe cutting
grass. He asked them who was responsible for the opening of the irrigation canal and Javier admitted that he was the one.
Urbano then got angry and demanded that Javier pay for his soaked palay. A quarrel between them ensued. Urbano
unsheathed his bolo (about 2 feet long, including the handle, by 2 inches wide) and hacked Javier hitting him on the right
palm of his hand, which was used in parrying the bolo hack. Javier who was then unarmed ran away from Urbano but
was overtaken by Urbano who hacked him again hitting Javier on the left leg with the back portion of said bolo, causing a
swelling on said leg. When Urbano tried to hack and inflict further injury, his daughter embraced and prevented him from
hacking Javier.

Immediately thereafter, Antonio Erfe, Emilio Erfe, and Felipe Erfe brought Javier to his house about 50 meters away from
where the incident happened. Emilio then went to the house of Barangay Captain Menardo Soliven but not finding him
there, Emilio looked for barrio councilman Felipe Solis instead. Upon the advice of Solis, the Erfes together with Javier
went to the police station of San Fabian to report the incident. As suggested by Corporal Torio, Javier was brought to a
physician. The group went to Dr. Guillermo Padilla, rural health physician of San Fabian, who did not attend to Javier but
instead suggested that they go to Dr. Mario Meneses because Padilla had no available medicine.

After Javier was treated by Dr. Meneses, he and his companions returned to Dr. Guillermo Padilla who conducted a
medico-legal examination. Dr. Padilla issued a medico-legal certificate (Exhibit "C" dated September 28, 1981) which
reads:

TO WHOM IT MAY CONCERN:

This is to certify that I have examined the wound of Marcelo Javier, 20 years of age, married, residing at
Barangay Anonang, San Fabian, Pangasinan on October 23, 1980 and found the following:

1 -Incised wound 2 inches in length at the upper portion of the lesser palmar prominence, right.

As to my observation the incapacitation is from (7-9) days period. This wound was presented to me only
for medico-legal examination, as it was already treated by the other doctor. (p. 88, Original Records)

4
Upon the intercession of Councilman Solis, Urbano and Javier agreed to settle their differences. Urbano promised to pay
P700.00 for the medical expenses of Javier. Hence, on October 27, 1980, the two accompanied by Solis appeared before
the San Fabian Police to formalize their amicable settlement. Patrolman Torio recorded the event in the police blotter
(Exhibit A), to wit:

xxx xxx xxx

Entry Nr 599/27 Oct '80/103OH/ Re entry Nr 592 on page 257 both parties appeared before this Station accompanied by
brgy. councilman Felipe Solis and settled their case amicably, for they are neighbors and close relatives to each other.
Marcelo Javier accepted and granted forgiveness to Filomeno Urbano who shoulder (sic) all the expenses in his medical
treatment, and promising to him and to this Office that this will never be repeated anymore and not to harbour any
grudge against each other. (p. 87, Original Records.)

Urbano advanced P400.00 to Javier at the police station. On November 3, 1980, the additional P300.00 was given to
Javier at Urbano's house in the presence of barangay captain Soliven.

At about 1:30 a.m. on November 14, 1980, Javier was rushed to the Nazareth General Hospital in a very serious
condition. When admitted to the hospital, Javier had lockjaw and was having convulsions. Dr. Edmundo Exconde who
personally attended to Javier found that the latter's serious condition was caused by tetanus toxin. He noticed the
presence of a healing wound in Javier's palm which could have been infected by tetanus.

On November 15, 1980 at exactly 4:18 p.m., Javier died in the hospital. The medical findings of Dr. Exconde are as
follows:

Date Diagnosis

11-14-80 ADMITTED due to trismus

adm. at DX TETANUS

1:30 AM Still having frequent muscle spasm. With diffi-

#35, 421 culty opening his mouth. Restless at times. Febrile

11-15-80 Referred. Novaldin 1 amp. inj. IM. Sudden cessation of respiration and HR after muscular spasm.

02 inhalation administered. Ambo bag resuscittion and cardiac massage done but to no avail.

Pronounced dead by Dra. Cabugao at 4:18 P.M.

PMC done and cadaver brought home by relatives. (p. 100, Original Records)

In an information dated April 10, 1981, Filomeno Urbano was charged with the crime of homicide before the then Circuit
Criminal Court of Dagupan City, Third Judicial District.

Upon arraignment, Urbano pleaded "not guilty." After trial, the trial court found Urbano guilty as charged. He was
sentenced to suffer an indeterminate prison term of from TWELVE (12) YEARS of prision mayor, as minimum to
SEVENTEEN (17) years, FOUR (4) MONTHS and ONE (1) DAY of reclusion temporal, as maximum, together with the
accessories of the law, to indemnify the heirs of the victim, Marcelo Javier, in the amount of P12,000.00 without
subsidiary imprisonment in case of insolvency, and to pay the costs. He was ordered confined at the New Bilibid Prison, in
Muntinlupa, Rizal upon finality of the decision, in view of the nature of his penalty.

The then Intermediate Appellate Court affirmed the conviction of Urbano on appeal but raised the award of indemnity to
the heirs of the deceased to P30,000.00 with costs against the appellant.

The appellant filed a motion for reconsideration and/or new trial. The motion for new trial was based on an affidavit of
Barangay Captain Menardo Soliven (Annex "A") which states:

5
 That in 1980, I was the barrio captain of Barrio Anonang, San Fabian, Pangasinan, and up to the present
having been re-elected to such position in the last barangay elections on May 17, 1982;

That sometime in the first week of November, 1980, there was a typhoon that swept Pangasinan and
other places of Central Luzon including San Fabian, a town of said province;

That during the typhoon, the sluice or control gates of the Bued irrigation dam which irrigates the
ricefields of San Fabian were closed and/or controlled so much so that water and its flow to the canals
and ditches were regulated and reduced;

That due to the locking of the sluice or control gates of the dam leading to the canals and ditches which
will bring water to the ricefields, the water in said canals and ditches became shallow which was suitable
for catching mudfishes;

That after the storm, I conducted a personal survey in the area affected, with my secretary Perfecto
Jaravata;

That on November 5, 1980, while I was conducting survey, I saw the late Marcelo Javier catching fish in
the shallow irrigation canals with some companions;

That few days there after,or on November l5, l980, I came to know that said Marcelo Javier died of
tetanus. (p. 33, Rollo)

The motion was denied. Hence, this petition.

In a resolution dated July 16, 1986, we gave due course to the petition.

The case involves the application of Article 4 of the Revised Penal Code which provides that "Criminal liability shall be
incurred: (1) By any person committing a felony (delito) although the wrongful act done be different from that which he
intended ..." Pursuant to this provision "an accused is criminally responsible for acts committed by him in violation of law
and for all the natural and logical consequences resulting therefrom." (People v. Cardenas, 56 SCRA 631).

The record is clear that Marcelo Javier was hacked by the petitioner who used a bolo as a result of which Javier suffered a
2-inch incised wound on his right palm; that on November 14, 1981 which was the 22nd day after the incident, Javier
was rushed to the hospital in a very serious condition and that on the following day, November 15, 1981, he died from
tetanus.

Under these circumstances, the lower courts ruled that Javier's death was the natural and logical consequence of
Urbano's unlawful act. Hence, he was declared responsible for Javier's death. Thus, the appellate court said:

The claim of appellant that there was an efficient cause which supervened from the time the deceased was wounded to the
time of his death, which covers a period of 23 days does not deserve serious consideration. True, that the deceased did not
die right away from his wound, but the cause of his death was due to said wound which was inflicted by the appellant.
Said wound which was in the process of healing got infected with tetanus which ultimately caused his death.

Dr. Edmundo Exconde of the Nazareth General Hospital testified that the victim suffered lockjaw because of the infection
of the wound with tetanus. And there is no other way by which he could be infected with tetanus except through the
wound in his palm (tsn., p. 78, Oct. 5, 1981). Consequently, the proximate cause of the victim's death was the wound
which got infected with tetanus. And the settled rule in this jurisdiction is that an accused is liable for all the
consequences of his unlawful act. (Article 4, par. 1, R.P.C. People v. Red, CA 43 O.G. 5072; People v. Cornel 78 Phil. 418).

Appellant's allegation that the proximate cause of the victim's death was due to his own negligence in going back to work
without his wound being properly healed, and lately, that he went to catch fish in dirty irrigation canals in the first week
of November, 1980, is an afterthought, and a desperate attempt by appellant to wiggle out of the predicament he found
himself in. If the wound had not yet healed, it is impossible to conceive that the deceased would be reckless enough to
work with a disabled hand. (pp. 20-21, Rollo)

The petitioner reiterates his position that the proximate cause of the death of Marcelo Javier was due to his own
negligence, that Dr. Mario Meneses found no tetanus in the injury, and that Javier got infected with tetanus when after

6
two weeks he returned to his farm and tended his tobacco plants with his bare hands exposing the wound to harmful
elements like tetanus germs.

The evidence on record does not clearly show that the wound inflicted by Urbano was infected with tetanus at the time of
the infliction of the wound. The evidence merely confirms that the wound, which was already healing at the time Javier
suffered the symptoms of the fatal ailment, somehow got infected with tetanus However, as to when the wound was
infected is not clear from the record.

In Vda. de Bataclan, et al. v. Medina (102 Phil. 1181), we adopted the following definition of proximate cause:

xxx xxx xxx

... A satisfactory definition of proximate cause is found in Volume 38, pages 695-696 of American Jurisprudence, cited by
plaintiffs-appellants in their brief. It is as follows:

... "that cause, which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have occurred."And more comprehensively, "the proximate legal cause is
that acting first and producing the injury, either immediately or by setting other events in motion, all constituting a
natural and continuous chain of events, each having a close causal connection with its immediate predecessor, the final
event in the chain immediately effecting the injury as a natural and probable result of the cause which first acted, under
such circumstances that the person responsible for the first event should, as an ordinarily prudent and intelligent person,
have reasonable ground to expect at the moment of his act or default that an injury to some person might probably result
therefrom." (at pp. 185-186)

The issue, therefore, hinges on whether or not there was an efficient intervening cause from the time Javier was wounded
until his death which would exculpate Urbano from any liability for Javier's death.

We look into the nature of tetanus-

The incubation period of tetanus, i.e., the time between injury and the appearance of unmistakable symptoms, ranges from 2
to 56 days. However, over 80 percent of patients become symptomatic within 14 days. A short incubation period indicates
severe disease, and when symptoms occur within 2 or 3 days of injury the mortality rate approaches 100 percent.

Non-specific premonitory symptoms such as restlessness, irritability, and headache are encountered occasionally, but the
commonest presenting complaints are pain and stiffness in the jaw, abdomen, or back and difficulty swallowing. As the
progresses, stiffness gives way to rigidity, and patients often complain of difficulty opening their mouths. In fact, trismus
in the commonest manifestation of tetanus and is responsible for the familiar descriptive name of lockjaw. As more
muscles are involved, rigidity becomes generalized, and sustained contractions called risus sardonicus. The intensity and
sequence of muscle involvement is quite variable. In a small proportion of patients, only local signs and symptoms develop
in the region of the injury. In the vast majority, however, most muscles are involved to some degree, and the signs and
symptoms encountered depend upon the major muscle groups affected.

Reflex spasm usually occur within 24 to 72 hours of the first symptom, an interval referred to as the onset time. As in the
case of the incubation period, a short onset time is associated with a poor prognosis. Spasms are caused by sudden
intensification of afferent stimuli arising in the periphery, which increases rigidity and causes simultaneous and excessive
contraction of muscles and their antagonists. Spasms may be both painful and dangerous. As the disease progresses,
minimal or inapparent stimuli produce more intense and longer lasting spasms with increasing frequency. Respiration
may be impaired by laryngospasm or tonic contraction of respiratory muscles which prevent adequate ventilation. Hypoxia
may then lead to irreversible central nervous system damage and death.

Mild tetanus is characterized by an incubation period of at least 14 days and an onset time of more than 6 days. Trismus is
usually present, but dysphagia is absent and generalized spasms are brief and mild. Moderately severe tetanus has a
somewhat shorter incubation period and onset time; trismus is marked, dysphagia and generalized rigidity are present,
but ventilation remains adequate even during spasms. The criteria for severe tetanus include a short incubation time, and
an onset time of 72 hrs., or less, severe trismus, dysphagia and rigidity and frequent prolonged, generalized convulsive
spasms. (Harrison's Principle of Internal Medicine, 1983 Edition, pp. 1004-1005; Emphasis supplied)

Therefore, medically speaking, the reaction to tetanus found inside a man's body depends on the incubation period of the
disease.

7
In the case at bar, Javier suffered a 2-inch incised wound on his right palm when he parried the bolo which Urbano used
in hacking him. This incident took place on October 23, 1980. After 22 days, or on November 14, 1980, he suffered the
symptoms of tetanus, like lockjaw and muscle spasms. The following day, November 15, 1980, he died.

If, therefore, the wound of Javier inflicted by the appellant was already infected by tetanus germs at the time, it is more
medically probable that Javier should have been infected with only a mild cause of tetanus because the symptoms of
tetanus appeared on the 22nd day after the hacking incident or more than 14 days after the infliction of the wound.
Therefore, the onset time should have been more than six days. Javier, however, died on the second day from the onset
time. The more credible conclusion is that at the time Javier's wound was inflicted by the appellant, the severe form of
tetanus that killed him was not yet present. Consequently, Javier's wound could have been infected with tetanus after the
hacking incident. Considering the circumstance surrounding Javier's death, his wound could have been infected by
tetanus 2 or 3 or a few but not 20 to 22 days before he died.

The rule is that the death of the victim must be the direct, natural, and logical consequence of the wounds inflicted upon
him by the accused. (People v. Cardenas, supra) And since we are dealing with a criminal conviction, the proof that the
accused caused the victim's death must convince a rational mind beyond reasonable doubt. The medical findings,
however, lead us to a distinct possibility that the infection of the wound by tetanus was an efficient intervening cause later
or between the time Javier was wounded to the time of his death. The infection was, therefore, distinct and foreign to the
crime. (People v. Rellin, 77 Phil. 1038).

Doubts are present. There is a likelihood that the wound was but the remote cause and its subsequent infection, for
failure to take necessary precautions, with tetanus may have been the proximate cause of Javier's death with which the
petitioner had nothing to do. As we ruled in Manila Electric Co. v. Remoquillo, et al. (99 Phil. 118).

"A prior and remote cause cannot be made the be of an action if such remote cause did nothing more than furnish the
condition or give rise to the occasion by which the injury was made possible, if there intervened between such prior or
remote cause and the injury a distinct, successive, unrelated, and efficient cause of the injury, even though such injury
would not have happened but for such condition or occasion. If no danger existed in the condition except because of the
independent cause, such condition was not the proximate cause. And if an independent negligent act or defective
condition sets into operation the instances which result in injury because of the prior defective condition, such
subsequent act or condition is the proximate cause." (45 C.J. pp. 931-932). (at p. 125)

It strains the judicial mind to allow a clear aggressor to go scot free of criminal liability. At the very least, the records show
he is guilty of inflicting slight physical injuries. However, the petitioner's criminal liability in this respect was wiped out by
the victim's own act. After the hacking incident, Urbano and Javier used the facilities of barangay mediators to effect a
compromise agreement where Javier forgave Urbano while Urbano defrayed the medical expenses of Javier. This
settlement of minor offenses is allowed under the express provisions of Presidential Decree G.R. No. 1508, Section 2(3).
(See also People v. Caruncho, 127 SCRA 16).

We must stress, however, that our discussion of proximate cause and remote cause is limited to the criminal aspects of
this rather unusual case. It does not necessarily follow that the petitioner is also free of civil liability. The well-settled
doctrine is that a person, while not criminally liable, may still be civilly liable. Thus, in the recent case of People v. Rogelio
Ligon y Tria, et al. (G.R. No. 74041, July 29, 1987), we said:

xxx xxx xxx

... While the guilt of the accused in a criminal prosecution must be established beyond reasonable doubt, only a
preponderance of evidence is required in a civil action for damages. (Article 29, Civil Code). The judgment of acquittal
extinguishes the civil liability of the accused only when it includes a declaration that the facts from which the civil liability
might arise did not exist. (Padilla v. Court of Appeals, 129 SCRA 559).

The reason for the provisions of article 29 of the Civil Code, which provides that the acquittal of the accused on the
ground that his guilt has not been proved beyond reasonable doubt does not necessarily exempt him from civil liability for
the same act or omission, has been explained by the Code Commission as follows:

The old rule that the acquittal of the accused in a criminal case also releases him from civil liability is one of the most
serious flaws in the Philippine legal system. It has given use to numberless instances of miscarriage of justice, where the
acquittal was due to a reasonable doubt in the mind of the court as to the guilt of the accused. The reasoning followed is
that inasmuch as the civil responsibility is derived from the criminal offense, when the latter is not proved, civil liability
cannot be demanded.

8
This is one of those causes where confused thinking leads to unfortunate and deplorable consequences. Such reasoning
fails to draw a clear line of demarcation between criminal liability and civil responsibility, and to determine the logical
result of the distinction. The two liabilities are separate and distinct from each other. One affects the social order and the
other, private rights. One is for the punishment or correction of the offender while the other is for reparation of damages
suffered by the aggrieved party. The two responsibilities are so different from each other that article 1813 of the present
(Spanish) Civil Code reads thus: "There may be a compromise upon the civil action arising from a crime; but the public
action for the imposition of the legal penalty shall not thereby be extinguished." It is just and proper that, for the purposes
of the imprisonment of or fine upon the accused, the offense should be proved beyond reasonable doubt. But for the
purpose of indemnity the complaining party, why should the offense also be proved beyond reasonable doubt? Is not the
invasion or violation of every private right to be proved only by a preponderance of evidence? Is the right of the aggrieved
person any less private because the wrongful act is also punishable by the criminal law?

"For these reasons, the Commission recommends the adoption of the reform under discussion. It will correct a serious
defect in our law. It will close up an inexhaustible source of injustice-a cause for disillusionment on the part of the
innumerable persons injured or wronged."

The respondent court increased the P12,000.00 indemnification imposed by the trial court to P30,000.00. However, since
the indemnification was based solely on the finding of guilt beyond reasonable doubt in the homicide case, the civil
liability of the petitioner was not thoroughly examined. This aspect of the case calls for fuller development if the heirs of
the victim are so minded.

WHEREFORE, the instant petition is hereby GRANTED. The questioned decision of the then Intermediate Appellate Court,
now Court of Appeals, is REVERSED and SET ASIDE. The petitioner is ACQUITTED of the crime of homicide. Costs de
oficio.

SO ORDERED.

G.R. Nos. 113472-73 December 20, 1994

ONG CHING PO, YU SIOK LIAN DAVID ONG and JIMMY ONG, petitioners,
vs.
COURT OF APPEALS and SOLEDAD PARIAN, respondents.

QUIASON, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court of the Decision of the Court of
Appeals dated July 15, 1993, which dismissed the petition for certiorari in CA-G.R. CV Nos. 28391-92.

On July 23, 1947, Ong Joi Jong sold a parcel of land located at Fundidor Street, San Nicolas to private respondent
Soledad Parian, the wife of Ong Yee. The latter, the brother of petitioner Ong Ching Po, died in January 1983; while
petitioner Ong Ching Po died in October 1986. The said sale was evidenced by a notarized Deed of Sale written in English.
Subsequently, the document was registered with the Register of Deeds of Manila, which issued Transfer Certificate of Title
No. 9260 dated September 2, 1947 in the name of private respondent.

According to private respondent, she entrusted the administration of the lot and building to petitioner Ong Ching Po when
she and her husband settled in Iloilo. When her husband died, she demanded that the lot be vacated because she was
going to sell it. Unfortunately, petitioners refused to vacate the said premises.

On March 19, 1984, private respondent filed a case for unlawful detainer against petitioner Ong Ching Po before the
Metropolitan Trial Court of Manila, Branch 26. The inferior court dismissed her case. The dismissal was affirmed by the
Regional Trial Court, Branch 10, Manila. The decision of the Regional Trial Court was, in turn, affirmed by the Court of
Appeals, which dismissed the petition. The decision of the Court of Appeals became final and executory.

Petitioners, on the other hand, claimed that on July 23, 1946, petitioner Ong Ching Po bought the said parcel of land from
Ong Joi Jong. The sale was evidenced by a photo copy of a Deed of Sale written in Chinese with the letter head "Sincere
Trading Co." (Exh. "B"). An English translation of said document (Exh. "C") read as follows:

Deed of Sale

9
I, Ong Joi Jong, a party to this Deed of Sale hereby sell in absolutely (sic) manner a lot located on No. 4 Fundidor Street,
San Nicolas an (sic) area consisting 213 square meters including a one-story house erected thereon unto Mr. Ong Ching
Po for the sum of P6,000.00 the receipt of which is hereby acknowledged by me and consequently I have executed and
signed the government registered title (sic) the said lot inclusive of the house erected thereon, now belong (sic) to Mr. Ong
Ching Po unequivocally. And the purpose of this document is to precisely serve as proof of the sale.

Addendum: I have acceded to the request of Mr. Ong Ching Po into signing another document in favor of Soledad Parian
(She is the Filipino wife of Ong Yee, brother of Ong Ching Po) for the purpose of facilitating the issuance of the new title by
the City Register of Deeds and for the reason that he is not yet a Filipino. I certify to the truthfulness of this fact.

Lot Seller: Ong Joi Jong

(Exhibits for the plaintiff, p. 4)

On December 6, 1983, petitioner Ong Ching Po executed a Deed of Absolute Sale conveying to his children, petitioners
Jimmy and David Ong, the same property sold by Ong Joi Jong to private respondent in 1947. On December 12 1985,
petitioners Ong Ching Po, Jimmy Ong and David Ong filed an action for reconveyance and damages against private
respondent in the Regional Trial Court, Branch 53, Manila, docketed as Case No. 85-33962.

On July 26, 1986, private respondent filed an action for quieting of title against petitioners Ong Ching Po and his wife,
petitioner Yu Siok Lian, in the Regional Trial Court, Branch 58, Manila, docketed as Civil Case No.
86-36818. Upon her motion, the case was consolidated with Civil Case No.
85-33962. On May 30 1990, the trial court rendered a decision in favor of private respondent. On appeal by petitioners to
the Court of Appeals, the said court affirmed the decision of the Regional Trial Court.

Hence, this petition.

II

According to petitioners, the Court of Appeals erred:

(1) When it gave full faith and credit to the Deed of Sale (Exh. "A") in favor of private respondent, instead
of the Deed of Sale (Exh. "B" and its translation, Exh. "C") in favor of petitioner Ong Ching Po.

(2) When it concluded that the acts of petitioners were not acts of ownership; and

(3) When it ruled that no express nor implied trust existed between petitioners and private respondent
(Rollo, pp. 17-18).

As stated by petitioners themselves, what is in dispute ". . . is not so much as to which between Exhibit "A" and "Exhibit
"B" is more weighty, but whether this document is what it purports to be (i.e., a deed of conveyance in favor of Soledad
Parian [private respondent] or it was only resorted to or executed as a subterfuge because the real buyer (Ong Ching Po)
was an alien and it was agreed upon between Ong Ching Po and his brother (Ong Yee, Soledad Parian's husband) that the
land be registered in the name of Soledad Parian in order to avoid legal complications and to facilitate registration and
transfer and that the said title would be transferred by Soledad to Ong Ching Po or his successors-in-interest and that she
would be holding the title in trust for him" (Rollo, pp. 19-20).

We cannot go along with the claim that petitioner Ong Ching Po merely used private respondent as a dummy to have the
title over the parcel of land registered in her name because being an alien he was disqualified to own real property in the
Philippines. To sustain such an outrageous contention would be giving a high premium to a violation of our
nationalization laws.

Assuming that Exhibit "B" is in existence and that it was duly executed, still petitioners cannot claim ownership of the
disputed lot by virtue thereof.

Section 5, Article XIII of the 1935 Constitution provides, as follows:

10
 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.

Section 14, Article XIV of the 1973 Constitution provides, as follows:

Save in cases of hereditary succession, no private land shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold lands in the public domain.

Section 7, Article XII of the 1987 Constitution provides:

Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold lands in the public domain.

The capacity to acquire private land is made dependent upon the capacity to acquire or hold lands of the public domain.
Private land may be transferred or conveyed only to individuals or entities "qualified to acquire lands of the public
domain" (II Bernas, The Constitution of the Philippines 439-440 [1988 ed.]).

The 1935 Constitution reserved the right to participate in the "disposition, exploitation, development and utilization" of all
"lands of the public domain and other natural resources of the Philippines" for Filipino citizens or corporations at least
sixty percent of the capital of which was owned by Filipinos. Aliens, whether individuals or corporations, have been
disqualified from acquiring public lands; hence, they have also been disqualified from acquiring private lands.

Petitioner Ong Ching Po was a Chinese citizen; therefore, he was disqualified from acquiring and owning real property.
Assuming that the genuineness and due execution of Exhibit "B" has been established, the same is null and void, it being
contrary to law.

On the other end of the legal spectrum, the deed of sale executed by Ong Joi Jong in favor of private respondent (Exh. "A")
is a notarized document.

To remove the mantle of validity bestowed by law on said document, petitioners claim that private respondent admitted
that she did not pay anything as consideration for the purported sale in her favor. In the same breath, petitioners said
that private respondent implied in her deposition that it was her husband who paid for the property. It appears, therefore,
that the sale was financed out of conjugal funds and that it was her husband who handled the transaction for the
purchase of the property. Such transaction is a common practice in Filipino-family affairs.

It is not correct to say that private respondent never took possession of the property. Under the law, possession is
transferred to the vendee by virtue of the notarized deed of conveyance. Under Article 1498 of the Civil Code of the
Philippines, "when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery
of the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred." If what
petitioners meant was that private respondent never lived in the building constructed on said land, it was because her
family had settled in Iloilo.

There is no document showing the establishment of an express trust by petitioner Ong Ching Po as trustor and private
respondent as trustee. Not even Exhibit "B" can be considered as such a document because private respondent, the
registered owner of the property subject of said "deed of sale," was not a party thereto. The oral testimony to prove the
existence of the express trust will not suffice. Under Article 1443 of the Civil Code of the Philippines, "No express trust
concerning an immovable or any interest therein may be proved by parole evidence."

Undaunted, petitioners argue that if they cannot prove an express trust in writing, they can prove an implied trust orally.
While an implied trust may be proved orally (Civil Code of the Philippines, Art. 1457), the evidence must be trustworthy
and received by the courts with extreme caution, because such kind of evidence may be easily fabricated (Salao v. Salao,
70 SCRA 65 [1976]). It cannot be made to rest on vague and uncertain evidence or on loose, equivocal or indefinite
declarations (Cf. De Leon v. Molo-Peckson, et al., 116 Phil. 1267 [1962]). Petitioners do not claim that Ong Yee was not in
a financial position to acquire the land and to introduce the improvements thereon. On the other hand, Yu Siok Lian, the
wife of petitioner Ong Ching Po, admitted in her testimony in court that Ong Yee was a stockholder of Lam Sing
Corporation and was engaged in business.

The Court of Appeals did not give any credence to Exhibit "B" and its translation, Exhibit "C", because these documents
had not been properly authenticated.

11
Under Section 4, Rule 130 of the Revised Rules of Court:

Secondary Evidence when Original is lost or destroyed. When the original writing has been lost or
destroyed, or cannot be produced in court, upon proof of its execution and lost or destruction, or
unavailability, its contents may be proved by a copy, or by a recital of its contents in some authentic
document, or by the recollection of the witnesses.

Secondary evidence is admissible when the original documents were actually lost or destroyed. But prior to the
introduction of such secondary evidence, the proponent must establish the former existence of the document. The correct
order of proof is as follows: existence; execution; loss; contents. This order may be changed if necessary in the discretion
of the court (De Vera v. Aguilar, 218 SCRA 602 [1993]).

Petitioners failed to adduce evidence as to the genuineness and due execution of the deed of sale, Exhibit "B".

The due execution of the document may be established by the person or persons who executed it; by the person before
whom its execution was acknowledged; or by any person who was present and saw it executed or who after its execution,
saw it and recognized the signatures; or by a person to whom the parties to the instrument had previously confessed the
execution thereof (De Vera v. Aguilar, supra).

Petitioner Yu Siok Lian testified that she was present when said document was executed, but the trial court rejected her
claim and held:

If it is true that she was present, why did she not sign said document, even merely as a witness? Her oral
testimony is easy to concoct or fabricate. Furthermore, she was married only on September 6, 1946 to the
plaintiff, Ong Ching Po, in Baguio City where she apparently resided, or after the deed of sale was
executed. The Court does not believe that she was present during the execution and signing of the deed of
sale involved therein, notwithstanding her pretensions to the contrary (Decision p. 6, Records p. 414).

As to the contention of petitioners that all the tax receipts, tax declaration, rental receipts, deed of sale (Exh. "B") and
transfer certificate of title were in their possession, private respondent explained that she and her husband entrusted said
lot and building to petitioners when they moved to Iloilo.

As observed by the Court of Appeals:

We find, however, that these acts, even if true, are not necessarily reflective of dominion, as even a mere
administrator or manager may lawfully perform them pursuant to his appointment or employment (Rollo,
p. 10).

It is markworthy that all the tax receipts were in the name of private respondent and her husband. The rental receipts
were also in the name of her husband.

WHEREFORE, the petition is DISMISSED.

SO ORDERED

G.R. No. L-33084 November 14, 1988

ROSE PACKING COMPANY, INC., petitioner,

vs.
THE COURT OF APPEALS, HON. PEDRO C. NAVARRO, Judge of the Court of First Instance of Rizal (Br. III),
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK & PROVINCIAL SHERIFF OF RIZAL, respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision 1 of the Court of Appeals in CA-G.R. No. 43198-R promulgated on
December 16,1970 (Rollo, pp. 237-249), the dispositive portion of which reads as follows:

WHEREFORE, in view of the foregoing, this Court hereby renders judgment:

12
1. Denying the petition to set aside and annul the questioned orders dated January 31, 1969 and May 7,1969 rendered by
respondent Judge, the same having been issued in consonance with the exercise of the Court's discretion.

2. Declaring valid the foreclosure sale of May 9, 1969 but finding the consolidation of ownership over the properties sold
at such sale to have been prematurely executed thereby rendering it void ab initio.

3. In accordance with this Court's resolution dated May 8, 1970, petitioner is hereby granted sixty (60) days from receipt
of a copy of this decision within which to redeem the properties sold at the foreclosure sale of May 9, 1969.

4. Dismissing the charge of contempt against PCIB and its Executive Vice-President and General Manager, Eugenio R.
Unson,. for lack of merit.

and its Resolution 2 dated January 12, 1971 (Rollo, p. 280), denying petitioner's motion for reconsideration, as wen as its
Resolution 3 dated January 22, 1971 (Rollo, p. 281) denying petitioner's supplement to motion for reconsideration.

The facts of the case as presented by petitioner and as embodied in the decision of the Court of Appeals are as follows:

On December 12, 1962 respondent bank (PCIB) approved a letter- request by petitioner for the reactivation of its overdraft
line of P50,000.00, discounting line of P100,000.00 and a letter of credit-trust receipt line of P550,000.00 as wen as an
application for a loan of P300,000.00, on fully secured real estate and chattel mortgage and on the further condition that
respondent PCIB appoint as it did appoint its executive
vice-president Roberto S. Benedicto as its representative in petitioner's board of directors.

On November 3, 1965 the National Investment & Development Corporation (NIDC), the wholly owned investment
subsidiary of the Philippine National Bank, approved a P2.6 million loan application of petitioner with certain conditions.
Pursuant thereto, the NIDC released to petitioner on November 7, 1965 the amount of P100,000.00. Subsequently,
petitioner purchased five (5) parcels of land in Pasig, Rizal making a down payment thereon.

On January 5,1966, the NIDC released another P100,000.00 to petitioner and on January 12, 1966, the aforesaid releases
totalling P200,000.00 were applied to the payment of preferred stock which NIDC subscribed in petitioner corporation to
partially implement its P1,000,000.00 investment scheme as per agreement. Thereafter, the NIDC refused to make further
releases on the approved loan of petitioner.

On August 3, 1966 and October 5, 1966, respondent PCIB approved additional accomodations to petitioner consisting of a
P710,000.00 loan for the payment of the balance of the purchase price of those lots in Pasig required to be bought,
P500,000.00 loan for operating capital, P200,000.00 loan to be paid directly to petitioner's creditors, while consolidating
all previous accommodations at P1,597,000.00—all of which were still secured by chattel and real estate mortgages.
However, PCIB released only P300,000.00 of the P710,000.00 approved loan for the payment of the Pasig lands and some
P300,000.00 for operating capital.

On June 29,1967, the Development Bank of the Philippines approved an application by petitioner for a loan of
P1,840,000.00 and a guarantee for $652,682.00 for the purchase of can making equipment. Immediately upon receipt of
notice of the approval of the Development Bank of the loan, petitioner advised respondent PCIB of the availability of
P800,000.00 to partially pay off its account and requested the release of the titles to the Pasig lots for delivery to the
Development Bank of the Philippines. Respondent PCIB verbally advised petitioner of its refusal, stating that all
obligations should be liquidated before the release of the titles to the Pasig properties. Following the PCIB's rejection of
petitioner's counter-proposal, petitioner purchased a parcel of land at Valenzuela, Bulacan with the P800,000.00 DBP
loan, with the latter's consent.

On January 5, 1968 respondent PCIB filed a complaint against petitioner and Rene Knecht, its president for the collection
of petitioner's indebtedness to respondent bank, which complaint was docketed as Civil Case No. 71697 of the Court of
First Instance of Manila.

On January 22, 1968, PCIB gave petitioner notice that it would cause the real estate mortgage to be foreclosed at an
auction sale, which it scheduled for February 27,1968. Thus, respondent Sheriff served notice of sheriffs sale (of the real
properties mortgaged to respondent PCIB) on July 18,1968 at 10:00 a.m., more particularly, T.C.T. No. 73620 (barrio Sto.
Domingo, municipality of Cainta); T.C.T. No. 177019 (barrio of San Joaquin, Pasig, Rizal); and T.C.T. No. 175595 (barrio
San Joaquin, Pasig, Rizal). Subsequently, on July 15, 1968, petitioner filed a complaint docketed as Civil Case No. 11015
in the Court of First Instance of Rizal to enjoin respondents PCIB and the sheriff from proceeding with the foreclosure
sale, to ask the lower court to fix a new period for the payment of the obligations of petitioner to PCIB and for other related

13
matters. Petitioner likewise prayed, pending final judgment, for the issuance ex-parte of a writ of preliminary injunction
enjoining herein respondents from proceeding with the foreclosure sale scheduled to be held on July 18, 1968.

On January 31, 1969, the lower court issued ail order denying the application for preliminary injunction and dissolving
its restraining order which had been issued on July 17, 1968. Petitioner promptly filed a motion for reconsideration which
was denied by the lower court on May 7, 1969.

On May 8, 1969 petitioner filed with respondent Court of Appeals a petition for certiorari with application for a restraining
order and preliminary injunction against the foreclosure sale (Rollo, p. 54).<äre||anº•1àw> On May 13, 1969 respondent
Court resolved to issue a writ of preliminary injunction upon filing by petitioner of a bond in the amount of P60,000.00.
However, petitioner moved for amendment of the Order issuing the preliminary injunction, on the ground that the
aforementioned resolution of respondent Court came too late to stop the foreclosure sale which was held on May 9, 1969,
praying instead that the preliminary injunction should now enjoin respondents, particularly respondent Provincial Sheriff,
from proceeding to give effect to the foreclosure sale of May 9, 1969; that said sheriff should refrain from issuing a deed of
certificate of sale pursuant thereto and from registering the certificate of deed of sale in the Registry of Deeds; and to toll
or stop the running of the period of redemption. Respondent Court resolved to deny said motion in its Resolution dated
May 28, 1969 (Rollo, pp. 237-242).

On May 8, 1970, on urgent motion of petitioner, respondent Court granted petitioner a period of sixty (60) days from
receipt of the decision to be rendered in
CA-G.R. No. 43198 within which to redeem its properties sold, should the said decision be one declaring the execution
sale in dispute to be valid (Rollo, p. 231).

Meantime, on May 12, 1970, an affidavit of consolidation of ownership executed by Eugenio R. Unson for and in behalf of
respondent PCIB concerning the properties involved in the instant petition for certiorari, was registered with the Register
of Deeds of Pasig, Rizal at 8:00 a.m.. Consequently, the old transfer certificates of title covering the aforementioned
properties were cancelled and new ones issued in the name of respondent PCIB, the buyer at the foreclosure sale. In view
thereof, petitioner filed a motion charging respondent PCIB and its Executive Vice-President and Assistant General
Manager Eugenio R. Unson with contempt of court. Petitioner prayed that (a) the Deed of Sale dated May 12, 1970 and the
consolidation of ownership of the same date be declared null and void; (b) that the new transfer certificates of title TCT
Nos. 286174, 286175, and 286176—be cancelled and the old ones, TCT Nos. 177019,175595, and 73620 be restored or
revived by the Register of Deeds of Rizal; and (c) that the respondent PCIB be ordered to surrender and deposit the TCT
Nos. 177019, 175595, and 73620 with respondent Court for safekeeping (Rollo. p. 243).

On December 16, 1970 respondent Court promulgated the questioned decision (Rollo, pp. 237-249). On January 12, 1971
it resolved (Rollo, p. 280) to deny petitioner's motion for reconsideration dated January 5, 1971 (Rollo, p. 250) and on
January 22, 1971 it again resolved (Rollo, p. 281) to deny petitioner's supplement to motion for reconsideration dated
January 18, 1971 (Rollo, p. 260).

The instant Petition for Review on certiorari (Rollo, p. 12) was filed with the Court on February 16, 1971. On February 23,
1971, the Court resolved to give due course to the petition and ordered the issuance of preliminary injunction enjoining
respondents from enforcing or implementing the appealed decision of respondent Court of Appeals, upon petitioner's
posting a bond of P50,000.00 (Rollo, p. 584). The writ of preliminary injunction was issued on April 28, 1971 (Rollo, p.
619).

The Brief for Petitioner was filed on June 18, 1971 (Rollo, p. 631). The Brief for the Respondents was filed on September
20, 1971 (Rollo, p. 655). The Reply Brief was filed on December 6, 1971 (Rollo, p. 678).

On April 2, 1971 respondent PCIB filed a motion for leave to lease real estate properties in custodia legis, more specifically
the 31, 447 sq.m. lot located at Sto. Domingo, Cainta, Rizal covered by TCT No. 286176 (Rollo, p. 697). Petitioner filed its
opposition to the motion on May 27, 1971 (Rollo, p. 712). The reply to the opposition was filed on December 6,1971 (Rollo,
p. 730); the rejoinder to respondent PCIB's reply to opposition, on November 19, 1971 (Rollo, p. 736). Meantime the case
was transferred to the Second Division, by a Resolution of the First Division dated January 17, 1983
(Rollo, p. 752).

The issues raised in this case are the following:

1. WHETHER OR NOT RESPONDENT COURT ERRED IN FINDING THAT THE LOWER COURT DID NOT COMMIT AN
ABUSE OF DISCRETION IN DENYING PETITIONER'S APPLICATION FOR A PRELIMINARY INJUNCTION AND
DISSOLVING THE RESTRAINING ORDER PREVIOUSLY ISSUED. (Brief for Petitioner, pp. 21-47);

14
2. WHETHER OR NOT RESPONDENT COURT ERRED IN DECLARING VALID THE FORECLOSURE SALE ON MAY 9,1969
OF THE MORTGAGED PROPERTIES EN MASSE WHEN THEY REFER TO SEVERAL REAL ESTATE MORTGAGES
EXECUTED ON DIFFERENT DATES. (Brief for Petitioner, pp. 47-50).

The main issue is whether or not private respondents have the right to the extrajudicial foreclosure sale of petitioner's
mortgaged properties before trial on the merits. The answer is in the negative.

Petitioner filed Civil Case No. 11015 in the Court of First Instance of Rizal, Branch II, to obtain judgment (1) enjoining
defendants (respondents herein) from proceeding with the foreclosure sale of the subject real estate mortgages, (2) fixing a
new period for the payment of the obligations of plaintiff to defendant PCIB sufficiently long to enable it to recover from
the effects of defendant PCIB's inequitable acts, (3) ordering defendant PCIB to immediately give up management of
plaintiffs canning industry and to pay plaintiff such damages as it may prove in the concept of actual, compensatory and
exemplary or corrective damages, aside from attorney's fees and expenses of litigation, plus costs (Rollo, p. 98). It is to be
noted that petitioner filed the above case mainly to forestall the foreclosure sale of the mortgaged properties before final
judgment. The issuance of a writ of preliminary injuction could have preserved the status quo of the parties in relation to
the subject matter litigated by them during the pendency of the action (Lasala v. Fernandez, 5 SCRA 79 [1962]; De Lara v.
Cloribel, 14 SCRA 269 [1965]; Locsin v. Climaco, 26 SCRA 816 [1969].

When the lower court denied the issuance of the writ prayed for and dissolved the restraining order it had previously
issued, in its order dated January 31, 1969 (Rollo, p. 138) it practically adjudicated the case before trial on the merits.

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

First was the question of whether or not petitioner corporation was already in default. In its letter dated August 12,1966
to petitioner corporation, among the conditions that respondent bank set for the consolidation of the outstanding
obligations of petitioner was the liquidation of the said obligations together with the latter's other obligations in the
financing scheme already approved by the NIDC and PDCP. To quote:

a) These facilities shall be temporary and shall be fully liquidated, together with other obligations from a
refinancing scheme already approved by the NIDC and PDCP totalling Pl million in equity and P2.6 million
in long term financing. In this connection, the firm shall present to this Bank a certified copy of the terms
and conditions of the approval by the NIDC and PDCP. (Brief for the Respondent, p. 41).

In other words, the loans of petitioner corporation from respondent bank were supposed to become due only at the time
that it receives from the NIDC and PDCP the proceeds of the approved financing scheme. As it is, the conditions did not
happen. NIDC refused to make further releases after it had made two releases totalling P200,000.00 which were all
applied to the payment of the preferred stock NIDC subscribed in petitioner corporation to partially implement its
P1,000,000.00 investment scheme (Brief for Petitioner, p. 9). The efficacy or obligatory force of a conditional obligation is
subordinated to the happening of a future and uncertain event so that if the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never existed (Gaite v. Fonacier, 2 SCRA 831
[1961]).<äre||anº•1àw>

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

Granting that the findings of the lower court after trial on the merits answer both questions in the affirmative, another
question that had to be determined was the question of cause or consideration.

The loan agreements between petitioner and respondent Bank are reciprocal obligations (the obligation or promise of each
party is the consideration for that of the other Penacio v. Ruaya, 110 SCRA 46 [1981], cited. in Central Bank of the
Philippines v. Court of Appeals, 139 SCRA 46 [1985] ). A contract of loan is not a unilateral contract as respondent Bank
thinks it is (Brief for the Respondent, p. 19). The promise of petitioner to pay is the consideration for the obligation of
respondent bank to furnish the loan (Ibid.).

15
Respondent bank had complete control of the financial affairs and the management of petitioner corporation. It appointed
its executive vice-president Roberto S. Benedicto as its representative in petitioner's board of directors, giving him the
position of
vice-president in petitioner corporation (Brief for Petitioner, p. 7). Upon the resignation of Roberto S. Benedicto as vice-
president and member of the board of directors of petitioner corporation on December 29, 1965 (Brief for Petitioner, p. 8),
respondent bank designated Rafael Ledesma as its representative in petitioner corporation's board of directors, due
representation in the board of petitioner being a condition for the loan granted to the petitioner (Rollo, p. 166). In fact,
Rafael Ledesma was designated Chairman of the Board of Directors (Rollo, p. 169). Respondent bank required petitioner to
appoint Sycip, Gorrez, Velayo & Co. as full-time comptroller-treasurer of the corporation at a monthly salary of P1,500.00
(Brief for Petitioner, p. 9; Brief for the Respondent, p. 41). On January 2, 1967, it also required petitioner to replace its
then manager, the Management & Investment Development Associates (MIDA) and to appoint instead Edmundo Ledesma
at a monthly salary of P3,000.00 and transportation allowance of P1,000.00 plus an assistant manager, Venancio
Concepcion at a salary of P1,000.00 a month. During the next 18 months' management by defendant's designated
manager, no meeting of the board of directors of petitioner was called- Edmundo Ledesma exercised full control and
management (Brief for Petitioner, pp. 10-11; Rollo, p. 167). Respondent Bank has not given up management of petitioner's
food canning industry and continues to hold it. Even Atty. Juan de Ocampo has been retained by petitioner as corporate
counsel, at the insistence of respondent bank (Brief for Petitioner, p. 14). This has not been denied by respondent bank.

Respondent bank's designation of its own choice of people holding key positions in petitioner corporation tied the hands of
petitioner's board of directors to make decisions for the interest of petitioner corporation, in fact, undermined the latter's
financial stability. During the 18 months of Edmundo Ledesma's management, petitioner's factory produced some
P200,000.00 worth of canned goods which according to petitioner is only equivalent to its normal production in three
weeks (Brief for Petitioner, pp.10-11). Respondent bank justifies the underproduction by averring that petitioner at that
time did not have sufficient capital to operate the factory, and that said factory was only operating for the purpose of
avoiding spoilage and deterioration of the raw materials then in store at the petitioner's factory (Rollo. p. 168) and yet
respondent bank insists, that it had released the entire amount of P500,000.00 loan to petitioner (Rollo, p. 167)
earmarked for operating capital purposes (Brief for the Respondent, p. 43) and admits having granted a P40,000.00 loan
at a higher interest of 14% per annum to petitioner at the request of the same Edmundo Ledesma (Rollo, p. 167). After the
Development Bank of the Philippines had approved on June 29, 1967 a loan of P1,840,000.00 applied for by petitioner in
1961, respondent bank informed of the availability of P800,000.00 to pay off partially petitioner's account with it and
requested to release the titles of the Pasig parcels for delivery to the Development Bank of the Philippines, and the amount
actually released by the Development Bank, Rafael Ledesma, in his capacity as Chairman of petitioner's board of directors
wrote a letter to the Development Bank of the Philippines stating that Rene Knecht, petitioner's president, had no
authority to borrow for petitioner, being a mere figurehead president, although Rene Knecht, controlled 87% of the
stockholding of petitioner and the by-laws authorized the president to borrow for the company (Brief for Petitioner, pp. 11-
13).<äre||anº•1àw> That Rafael Ledesma wrote a letter to the Development Bank of the Philippines is admitted by
respondent bank (Rollo, p. 169). The Development Bank of the Philippines refused to make further releases on the
approved loan or to issue the dollar guaranty for the importation of can making machinery. It was Atty. Juan de Ocampo,
the corporate counsel retained by petitioner at the insistence of respondent bank that instituted the collection suit and
extra-judicial foreclosure for respondent bank against petitioner (Brief for Petitioner, pp. 13-14; Rollo, p. 79).

It is apparent that it is respondent bank practically managing petitioner corporation through its representatives occupying
key positions therein. Not even the president of petitioner corporation could escape control by respondent bank through
the Comptroller Treasurer assigned "to countersign all checks and other disbursements and decide on all financial
matters regarding the operations and who shall see to it that operations are carried out" (Brief for the Respondent, p. 41).
There is basis for petitioner's complaint of interference by respondent bank with petitioner's financing (Brief for Petitioner,
pp. 3132) and such interference is only a consequence of respondent bank's management of petitioner corporation
through the officers occupying key positions therein. Thus, if ever petitioner corporation was in financial straits instead of
being rehabilitated this can be attributed to the mismanagement of respondent corporation through its representatives in
petitioner corporation.

In a similar case, Filipinas Marble Corporation v. Intermediate Appellate Court (142 SCRA 180 [1986]) where the lending
institution took over the management of the borrowing corporation and led that corporation to bankcruptcy through
mismanagement or misappropriation of the funds, defeating the very purpose of the loan which is to develop the projects
of the corporation, the Court ruled that it is as if the loan was never delivered to it and thus, there was failure on the part
of the respondent DBP to deliver the consideration for which the mortgage and the assignment of deed were executed.

It cannot be determined at this point how much of the total loan, most especially the P500,000.00 loan for operating
capital and the P40,000.00 loan of the manager, Edmundo Ledesma, had been mismanaged or misspent by respondent
bank through its representatives. This matter should rightfully be litigated below in the main action (Filipinas Marble
Corportion v. Intermediate Appellate Court. (supra).

16
Furthermore, respondent bank was in default in fulfilling its reciprocal obligation under their loan agreement. By its own
admission it failed to release the P710,000.00 loan (Rollo, p. 167) it approved on October 13, 1966 (Brief for Respondent,
p. 44) in which case, petitioner corporation, under Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case (Central Bank of the Philippines v. Court of Appeals, 139 SCRA 46
[1985]).

As a consequence, the real estate mortgage of petitioner corporation cannot be entirely foreclosed to satisfy its total debt
to respondent bank. (Central Bank of the Philippines v. Court of Appeals, supra.)

The issue of whether the foreclosure sale of the mortgaged properties en masse was valid or not must be answered in the
negative. The rule of indivisibility of a real estate mortgage refers to the provisions of Article 2089 of the Civil Code, which
provides:

Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors
in interest of the debtor or of the creditor.

Therefore the debtor's heir who has paid a part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as the debt is not completely satisfied.

Neither can the creditor's heir who received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of the other heirs who have not been paid.

From these provisions is excepted the case in which, there being several things given in mortgage or
pledge, each one of them guarantees only a determinate portion of the credit.

The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion
of the debt for which each thing is specially answerable is satisfied.

Respondent bank cites the above-quoted article in its argument that the mortgage contract is indivisible and that the loan
it secures cannot be divided among the different lots (Brief for Respondent, p. 27). Respondent Court upheld the validity of
the sale en masse (Rollo, p. 246).

The rule, however, is not applicable to the instant case as it presupposes several heirs of the debtor or creditor which does
not obtain in this case (Central Bank of the Philippines v. Court of Appeals, supra.) Furthermore, granting that there was
consolidation of the entire loan of petitioner corporations approved by respondent bank, the rule of indivisibility of
mortgage cannot apply where there was failure of consideration on the part of respondent bank for the mismanagement of
the affairs of petitioner corporation and where said bank is in default in complying with its obligation to release to
petitioner corporation the amount of P710,000.00. In fact the real estate mortgage itself becomes unenforceable (Central
Bank of the Philippines v. Court of Appeals, supra). Finally, it is noted that as already stated hereinabove, the exact
amount of petitioner's total debt was still unknown.

PREMISES CONSIDERED, (1) the decision of the Court of Appeals is REVERSED insofar as it sustained: (a) the lower
court's denial of petitioner's application for preliminary injunction and (b) the validity of the foreclosure sale; (2) the lower
court is ordered to proceed with the trial on the merits of the main case together with a determination of exactly how
much are petitioner's liabilities in favor of respondent bank PCIB so that proper measures may be taken for their eventual
liquidation; (3) the preliminary injunction issued by this Court on April 28, 1971 remains in force until the merits of the
main case are resolved; and (4) the motion of respondent bank dated April 1, 1981 for leave to lease the real properties
in custodia legis is DENIED.

SO ORDERED.

G.R. No. L-55347 October 4, 1985

PHILIPPINE NATIONAL RAILWAYS, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and ROSARIO TUPANG, respondents.

ESCOLIN, J.:

17
Invoking the principle of state immunity from suit, the Philippine National Railways, PNR for short, instituted this petition
for review on certiorari to set aside the decision of the respondent Appellate Court which held petitioner PNR liable for
damages for the death of Winifredo Tupang, a paying passenger who fell off a train operated by the petitioner.

The pertinent facts are summarized by the respondent court as follows:

The facts show that on September 10, 1972, at about 9:00 o'clock in the evening, Winifredo Tupang,
husband of plaintiff Rosario Tupang, boarded 'Train No. 516 of appellant at Libmanan, Camarines Sur, as
a paying passenger bound for Manila. Due to some mechanical defect, the train stopped at Sipocot,
Camarines Sur, for repairs, taking some two hours before the train could resume its trip to Manila.
Unfortunately, upon passing Iyam Bridge at Lucena, Quezon, Winifredo Tupang fell off the train resulting
in his death.The train did not stop despite the alarm raised by the other passengers that somebody fell
from the train. Instead, the train conductor Perfecto Abrazado, called the station agent at Candelaria,
Quezon, and requested for verification of the information. Police authorities of Lucena City were
dispatched to the Iyam Bridge where they found the lifeless body of Winifredo Tupang.

As shown by the autopsy report, Winifredo Tupang died of cardio-respiratory failure due to massive
cerebral hemorrhage due to traumatic injury [Exhibits B and C, Folder of Exhibits],Tupang was later
buried in the public cemetery of Lucena City by the local police authorities. [Rollo, pp. 91-92]

Upon complaint filed by the deceased's widow, Rosario Tupang, the then Court of First Instance of Rizal, after trial, held
the petitioner PNR liable for damages for breach of contract of carriage and ordered "to pay the plaintiff the sum of
P12,000,00 for the death of Winifredo Tupang, plus P20,000.00 for loss of his earning capacity and the further sum of
P10,000.00 as moral damages, and P2,000.00 as attorney's fees, and costs. 1

On appeal, the Appellate Court sustained the holding of the trial court that the PNR did not exercise the utmost diligence
required by law of a common carrier. It further increased the amount adjudicated by the trial court by ordering PNR to
pay the plaintiff an additional sum of P5,000.00 as exemplary damages.

Moving for reconsideration of the above decision, the PNR raised for the first time, as a defense, the doctrine of state
immunity from suit. It alleged that it is a mere agency of the Philippine government without distinct or separate
personality of its own, and that its funds are governmental in character and, therefore, not subject to garnishment or
execution. The motion was denied; the respondent court ruled that the ground advanced could not be raised for the first
time on appeal.

Hence, this petition for review.

The petition is devoid of merit. The PNR was created under Rep. Act 4156, as amended. Section 4 of the said Act provides:

The Philippine national Railways shall have the following powers:

a. To do all such other things and to transact all such business directly or indirectly necessary, incidental
or conducive to the attainment of the purpose of the corporation; and

b. Generally, to exercise all powers of a corporation under the Corporation Law.

Under the foregoing section, the PNR has all the powers, the characteristics and attributes of a corporation under the
Corporation Law. There can be no question then that the PNR may sue and be sued and may be subjected to court
processes just like any other corporation. 2

The petitioner's contention that the funds of the PNR are not subject to garnishment or execution hardly raises a question
of first impression. In Philippine National Railways v. Union de Maquinistas, et al., 3 then Justice Fernando, later Chief
Justice, said. "The main issue posed in this certiorari proceeding, whether or not the funds of the Philippine National
Railways, could be garnished or levied upon on execution was resolved in two recent decisions, the Philippine National
Bank v. Court of Industrial Relations [81 SCRA 314] and Philippine National Bank v. Hon. Judge Pabalan [83 SCRA 595].
This Court in both cases answered the question in the affirmative. There was no legal bar to garnishment or execution.
The argument based on non-suability of a state allegedly because the funds are governmental in character was
unavailing.So it must be again."

18
In support of the above conclusion, Justice Fernando cited the Court's holding in Philippine National Bank v. Court of
Industrial Relations, to wit: "The premise that the funds could be spoken of as public in character may be accepted in the
sense that the People's Homesite and Housing Corporation was a government-owned entity. It does not follow though that
they were exempt from garnishment. National Shipyard and Steel Corporation v. Court of Industrial Relations is squarely in
point. As was explicitly stated in the opinion of then Justice, later Chief Justice, Concepcion: "The allegation to the effect
that the funds of the NASSCO are public funds of the government, and that, as such, the same may not be garnished,
attached or levied upon, is untenable for, as a government- owned and controlled corporation, the NASSCO has a
personality of its own, distinct and separate from that of the Government. It has-pursuant to Section 2 of Executive Order
No. 356, dated October 23, 1950 * * *, pursuant to which the NASSCO has been established- 'all the powers of a
corporation under the Corporation Law * * *. 4

As far back as 1941, this Court in the case of Manila Hotel Employees Association v. Manila Hotel Co., 5laid down the rule
that "when the government enters into commercial business, it abandons its sovereign capacity and is to be treated like
any other corporation. [Bank of the U.S. v. Planters' Bank, 9 Waitch 904, 6 L. ed. 244]. By engaging in a particular
business through the instrumentality of a corporation the government divests itself pro hac vice of its sovereign character,
so as to render the corporation subject to the rules of law governing private corporations. 6 Of Similar import is the
pronouncement in Prisco v. CIR,' that "when the government engages in business, it abdicates part of its sovereign
prerogatives and descends to the level of a citizen, ... . " In fine, the petitioner PNR cannot legally set up the doctrine of
non-suability as a bar to the plaintiff's suit for damages.

The appellate court found, the petitioner does not deny, that the train boarded by the deceased Winifredo Tupang was so
over-crowded that he and many other passengers had no choice but to sit on the open platforms between the coaches of
the train. It is likewise undisputed that the train did not even slow down when it approached the Iyam Bridge which was
under repair at the time, Neither did the train stop, despite the alarm raised by other passengers that a person had fallen
off the train at lyam Bridge. 7

The petitioner has the obligation to transport its passengers to their destinations and to observe extraordinary diligence in
doing so. Death or any injury suffered by any of its passengers gives rise to the presumption that it was negligent in the
performance of its obligation under the contract of carriage. Thus, as correctly ruled by the respondent court, the
petitioner failed to overthrow such presumption of negligence with clear and convincing evidence.

But while petitioner failed to exercise extraordinary diligence as required by law, 8 it appears that the deceased was
chargeable with contributory negligence. Since he opted to sit on the open platform between the coaches of the train, he
should have held tightly and tenaciously on the upright metal bar found at the side of said platform to avoid falling off
from the speeding train. Such contributory negligence, while not exempting the PNR from liability, nevertheless justified
the deletion of the amount adjudicated as moral damages. By the same token, the award of exemplary damages must be
set aside. Exemplary damages may be allowed only in cases where the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner. 9 There being no evidence of fraud, malice or bad faith on the part of petitioner, the
grant of exemplary damages should be discarded.

WHEREFORE, the decision of the respondent appellate court is hereby modified by eliminating therefrom the amounts of
P10,000.00 and P5,000.00 adjudicated as moral and exemplary damages, respectively. No costs.

SO ORDERED.

G.R. No. L-47851 October 3, 1986

JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,

vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE BAR
ASSOCIATION, respondents.

G.R. No. L-47863 October 3, 1986

THE UNITED CONSTRUCTION CO., INC., petitioner,

vs.
COURT OF APPEALS, ET AL., respondents.

G.R. No. L-47896 October 3, 1986

19
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents.

PARAS, J.:

These are petitions for review on certiorari of the November 28, 1977 decision of the Court of Appeals in CA-G.R. No.
51771-R modifying the decision of the Court of First Instance of Manila, Branch V, in Civil Case No. 74958 dated
September 21, 1971 as modified by the Order of the lower court dated December 8, 1971. The Court of Appeals in
modifying the decision of the lower court included an award of an additional amount of P200,000.00 to the Philippine Bar
Association to be paid jointly and severally by the defendant United Construction Co. and by the third-party defendants
Juan F. Nakpil and Sons and Juan F. Nakpil.

The dispositive portion of the modified decision of the lower court reads:

WHEREFORE, judgment is hereby rendered:

(a) Ordering defendant United Construction Co., Inc. and third-party defendants (except Roman Ozaeta)
to pay the plaintiff, jointly and severally, the sum of P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the complaint until full payment;

(b) Dismissing the complaint with respect to defendant Juan J. Carlos;

(c) Dismissing the third-party complaint;

(d) Dismissing the defendant's and third-party defendants' counterclaims for lack of merit;

(e) Ordering defendant United Construction Co., Inc. and third-party defendants (except Roman Ozaeta) to
pay the costs in equal shares.

SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).

The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, the judgment appealed from is modified to include an award of P200,000.00 in favor of plaintiff-appellant
Philippine Bar Association, with interest at the legal rate from November 29, 1968 until full payment to be paid jointly and
severally by defendant United Construction Co., Inc. and third party defendants (except Roman Ozaeta). In all other
respects, the judgment dated September 21, 1971 as modified in the December 8, 1971 Order of the lower court is hereby
affirmed with COSTS to be paid by the defendant and third party defendant (except Roman Ozaeta) in equal shares.

SO ORDERED.

Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction Co., Inc. and Juan J. Carlos in L-47863 seek the
reversal of the decision of the Court of Appeals, among other things, for exoneration from liability while petitioner
Philippine Bar Association in L-47896 seeks the modification of aforesaid decision to obtain an award of P1,830,000.00 for
the loss of the PBA building plus four (4) times such amount as damages resulting in increased cost of the building,
P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees.

These petitions arising from the same case filed in the Court of First Instance of Manila were consolidated by this Court in
the resolution of May 10, 1978 requiring the respective respondents to comment. (Rollo, L-47851, p. 172).

The facts as found by the lower court (Decision, C.C. No. 74958; Record on Appeal, pp. 269-348; pp. 520-521; Rollo, L-
47851, p. 169) and affirmed by the Court of Appeals are as follows:

The plaintiff, Philippine Bar Association, a civic-non-profit association, incorporated under the Corporation Law, decided
to construct an office building on its 840 square meters lot located at the comer of Aduana and Arzobispo Streets,
Intramuros, Manila. The construction was undertaken by the United Construction, Inc. on an "administration" basis, on
the suggestion of Juan J. Carlos, the president and general manager of said corporation. The proposal was approved by
plaintiff's board of directors and signed by its president Roman Ozaeta, a third-party defendant in this case. The plans

20
and specifications for the building were prepared by the other third-party defendants Juan F. Nakpil & Sons. The building
was completed in June, 1966.

In the early morning of August 2, 1968 an unusually strong earthquake hit Manila and its environs and the building in
question sustained major damage. The front columns of the building buckled, causing the building to tilt forward
dangerously. The tenants vacated the building in view of its precarious condition. As a temporary remedial measure, the
building was shored up by United Construction, Inc. at the cost of P13,661.28.

On November 29, 1968, the plaintiff commenced this action for the recovery of damages arising from the partial collapse
of the building against United Construction, Inc. and its President and General Manager Juan J. Carlos as defendants.
Plaintiff alleges that the collapse of the building was accused by defects in the construction, the failure of the contractors
to follow plans and specifications and violations by the defendants of the terms of the contract.

Defendants in turn filed a third-party complaint against the architects who prepared the plans and specifications, alleging
in essence that the collapse of the building was due to the defects in the said plans and specifications. Roman Ozaeta, the
then president of the plaintiff Bar Association was included as a third-party defendant for damages for having included
Juan J. Carlos, President of the United Construction Co., Inc. as party defendant.

On March 3, 1969, the plaintiff and third-party defendants Juan F. Nakpil & Sons and Juan F. Nakpil presented a written
stipulation which reads:

1. That in relation to defendants' answer with counterclaims and third- party complaints and the third-party defendants
Nakpil & Sons' answer thereto, the plaintiff need not amend its complaint by including the said Juan F. Nakpil & Sons
and Juan F. Nakpil personally as parties defendant.

2. That in the event (unexpected by the undersigned) that the Court should find after the trial that the above-named
defendants Juan J. Carlos and United Construction Co., Inc. are free from any blame and liability for the collapse of the
PBA Building, and should further find that the collapse of said building was due to defects and/or inadequacy of the
plans, designs, and specifications p by the third-party defendants, or in the event that the Court may find Juan F. Nakpil
and Sons and/or Juan F. Nakpil contributorily negligent or in any way jointly and solidarily liable with the defendants,
judgment may be rendered in whole or in part. as the case may be, against Juan F. Nakpil & Sons and/or Juan F. Nakpil
in favor of the plaintiff to all intents and purposes as if plaintiff's complaint has been duly amended by including the said
Juan F. Nakpil & Sons and Juan F. Nakpil as parties defendant and by alleging causes of action against them including,
among others, the defects or inadequacy of the plans, designs, and specifications prepared by them and/or failure in the
performance of their contract with plaintiff.

3. Both parties hereby jointly petition this Honorable Court to approve this stipulation. (Record on Appeal, pp. 274-275;
Rollo, L-47851,p.169).

Upon the issues being joined, a pre-trial was conducted on March 7, 1969, during which among others, the parties agreed
to refer the technical issues involved in the case to a Commissioner. Mr. Andres O. Hizon, who was ultimately appointed
by the trial court, assumed his office as Commissioner, charged with the duty to try the following issues:

1. Whether the damage sustained by the PBA building during the August 2, 1968 earthquake had been
caused, directly or indirectly, by:

(a) The inadequacies or defects in the plans and specifications prepared by third-party defendants;

(b) The deviations, if any, made by the defendants from said plans and specifications and how said
deviations contributed to the damage sustained;

(c) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the
construction of the building;

(d) The alleged failure to exercise the requisite degree of supervision expected of the architect, the
contractor and/or the owner of the building;

(e) An act of God or a fortuitous event; and

(f) Any other cause not herein above specified.

21
 2. If the cause of the damage suffered by the building arose from a combination of the above-enumerated
factors, the degree or proportion in which each individual factor contributed to the damage sustained;

3. Whether the building is now a total loss and should be completely demolished or whether it may still be
repaired and restored to a tenantable condition. In the latter case, the determination of the cost of such
restoration or repair, and the value of any remaining construction, such as the foundation, which may
still be utilized or availed of (Record on Appeal, pp. 275-276; Rollo, L-47851, p. 169).

Thus, the issues of this case were divided into technical issues and non-technical issues. As aforestated the technical
issues were referred to the Commissioner. The non-technical issues were tried by the Court.

Meanwhile, plaintiff moved twice for the demolition of the building on the ground that it may topple down in case of a
strong earthquake. The motions were opposed by the defendants and the matter was referred to the Commissioner.
Finally, on April 30, 1979 the building was authorized to be demolished at the expense of the plaintiff, but not another
earthquake of high intensity on April 7, 1970 followed by other strong earthquakes on April 9, and 12, 1970, caused
further damage to the property. The actual demolition was undertaken by the buyer of the damaged building. (Record on
Appeal, pp. 278-280; Ibid.)

After the protracted hearings, the Commissioner eventually submitted his report on September 25, 1970 with the findings
that while the damage sustained by the PBA building was caused directly by the August 2, 1968 earthquake whose
magnitude was estimated at 7.3 they were also caused by the defects in the plans and specifications prepared by the
third-party defendants' architects, deviations from said plans and specifications by the defendant contractors and failure
of the latter to observe the requisite workmanship in the construction of the building and of the contractors, architects
and even the owners to exercise the requisite degree of supervision in the construction of subject building.

All the parties registered their objections to aforesaid findings which in turn were answered by the Commissioner.

The trial court agreed with the findings of the Commissioner except as to the holding that the owner is charged with full
nine supervision of the construction. The Court sees no legal or contractual basis for such conclusion. (Record on Appeal,
pp. 309-328; Ibid).

Thus, on September 21, 1971, the lower court rendered the assailed decision which was modified by the Intermediate
Appellate Court on November 28, 1977.

All the parties herein appealed from the decision of the Intermediate Appellate Court. Hence, these petitions.

On May 11, 1978, the United Architects of the Philippines, the Association of Civil Engineers, and the Philippine Institute
of Architects filed with the Court a motion to intervene as amicus curiae. They proposed to present a position paper on the
liability of architects when a building collapses and to submit likewise a critical analysis with computations on the
divergent views on the design and plans as submitted by the experts procured by the parties. The motion having been
granted, the amicus curiae were granted a period of 60 days within which to submit their position.

After the parties had all filed their comments, We gave due course to the petitions in Our Resolution of July 21, 1978.

The position papers of the amicus curiae (submitted on November 24, 1978) were duly noted.

The amicus curiae gave the opinion that the plans and specifications of the Nakpils were not defective. But the
Commissioner, when asked by Us to comment, reiterated his conclusion that the defects in the plans and specifications
indeed existed.

Using the same authorities availed of by the amicus curiae such as the Manila Code (Ord. No. 4131) and the 1966 Asep
Code, the Commissioner added that even if it can be proved that the defects in the construction alone (and not in the plans
and design) caused the damage to the building, still the deficiency in the original design and jack of specific provisions
against torsion in the original plans and the overload on the ground floor columns (found by an the experts including the
original designer) certainly contributed to the damage which occurred. (Ibid, p. 174).

In their respective briefs petitioners, among others, raised the following assignments of errors: Philippine Bar Association
claimed that the measure of damages should not be limited to P1,100,000.00 as estimated cost of repairs or to the period
of six (6) months for loss of rentals while United Construction Co., Inc. and the Nakpils claimed that it was an act of God
that caused the failure of the building which should exempt them from responsibility and not the defective construction,

22
poor workmanship, deviations from plans and specifications and other imperfections in the case of United Construction
Co., Inc. or the deficiencies in the design, plans and specifications prepared by petitioners in the case of the Nakpils. Both
UCCI and the Nakpils object to the payment of the additional amount of P200,000.00 imposed by the Court of Appeals.
UCCI also claimed that it should be reimbursed the expenses of shoring the building in the amount of P13,661.28 while
the Nakpils opposed the payment of damages jointly and solidarity with UCCI.

The pivotal issue in this case is whether or not an act of God-an unusually strong earthquake-which caused the failure of
the building, exempts from liability, parties who are otherwise liable because of their negligence.

The applicable law governing the rights and liabilities of the parties herein is Article 1723 of the New Civil Code, which
provides:

Art. 1723. The engineer or architect who drew up the plans and specifications for a building is liable for
damages if within fifteen years from the completion of the structure the same should collapse by reason of
a defect in those plans and specifications, or due to the defects in the ground. The contractor is likewise
responsible for the damage if the edifice fags within the same period on account of defects in the
construction or the use of materials of inferior quality furnished by him, or due to any violation of the
terms of the contract. If the engineer or architect supervises the construction, he shall be solidarily liable
with the contractor.

Acceptance of the building, after completion, does not imply waiver of any of the causes of action by
reason of any defect mentioned in the preceding paragraph.

The action must be brought within ten years following the collapse of the building.

On the other hand, the general rule is that no person shall be responsible for events which could not be foreseen or which
though foreseen, were inevitable (Article 1174, New Civil Code).

An act of God has been defined as an accident, due directly and exclusively to natural causes without human
intervention, which by no amount of foresight, pains or care, reasonably to have been expected, could have been
prevented. (1 Corpus Juris 1174).

There is no dispute that the earthquake of August 2, 1968 is a fortuitous event or an act of God.

To exempt the obligor from liability under Article 1174 of the Civil Code, for a breach of an obligation due to an "act of
God," the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA
423; Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v.
Smith, 45 Phil. 657).

Thus, if upon the happening of a fortuitous event or an act of God, there concurs a corresponding fraud, negligence, delay
or violation or contravention in any manner of the tenor of the obligation as provided for in Article 1170 of the Civil Code,
which results in loss or damage, the obligor cannot escape liability.

The principle embodied in the act of God doctrine strictly requires that the act must be one occasioned exclusively by the
violence of nature and all human agencies are to be excluded from creating or entering into the cause of the mischief.
When the effect, the cause of which is to be considered, is found to be in part the result of the participation of man,
whether it be from active intervention or neglect, or failure to act, the whole occurrence is thereby humanized, as it were,
and removed from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).

Thus it has been held that when the negligence of a person concurs with an act of God in producing a loss, such person is
not exempt from liability by showing that the immediate cause of the damage was the act of God. To be exempt from
liability for loss because of an act of God, he must be free from any previous negligence or misconduct by which that loss
or damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).

The negligence of the defendant and the third-party defendants petitioners was established beyond dispute both in the
lower court and in the Intermediate Appellate Court. Defendant United Construction Co., Inc. was found to have made

23
substantial deviations from the plans and specifications. and to have failed to observe the requisite workmanship in the
construction as well as to exercise the requisite degree of supervision; while the third-party defendants were found to have
inadequacies or defects in the plans and specifications prepared by them. As correctly assessed by both courts, the
defects in the construction and in the plans and specifications were the proximate causes that rendered the PBA building
unable to withstand the earthquake of August 2, 1968. For this reason the defendant and third-party defendants cannot
claim exemption from liability. (Decision, Court of Appeals, pp. 30-31).

It is well settled that the findings of facts of the Court of Appeals are conclusive on the parties and on this court (cases
cited in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17, 1985, 134 SCRA 105, 121), unless (1)
the conclusion is a finding grounded entirely on speculation, surmise and conjectures; (2) the inference made is
manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on misapprehension of facts; (5) the
findings of fact are conflicting , (6) the Court of Appeals went beyond the issues of the case and its findings are contrary to
the admissions of both appellant and appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA 289, 291-
292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the findings of facts of the Court of Appeals are contrary to
those of the trial court; (8) said findings of facts are conclusions without citation of specific evidence on which they are
based; (9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals, July 30, 1979, 92 SCRA 322,
366); (10) the finding of fact of the Court of Appeals is premised on the supposed absence of evidence and is contradicted
by evidence on record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v.
Sandiganbayan, July 10, 1986).

It is evident that the case at bar does not fall under any of the exceptions above-mentioned. On the contrary, the records
show that the lower court spared no effort in arriving at the correct appreciation of facts by the referral of technical issues
to a Commissioner chosen by the parties whose findings and conclusions remained convincingly unrebutted by the
intervenors/amicus curiae who were allowed to intervene in the Supreme Court.

In any event, the relevant and logical observations of the trial court as affirmed by the Court of Appeals that "while it is
not possible to state with certainty that the building would not have collapsed were those defects not present, the fact
remains that several buildings in the same area withstood the earthquake to which the building of the plaintiff was
similarly subjected," cannot be ignored.

The next issue to be resolved is the amount of damages to be awarded to the PBA for the partial collapse (and eventual
complete collapse) of its building.

The Court of Appeals affirmed the finding of the trial court based on the report of the Commissioner that the total amount
required to repair the PBA building and to restore it to tenantable condition was P900,000.00 inasmuch as it was not
initially a total loss. However, while the trial court awarded the PBA said amount as damages, plus unrealized rental
income for one-half year, the Court of Appeals modified the amount by awarding in favor of PBA an additional sum of
P200,000.00 representing the damage suffered by the PBA building as a result of another earthquake that occurred on
April 7, 1970 (L-47896, Vol. I, p. 92).

The PBA in its brief insists that the proper award should be P1,830,000.00 representing the total value of the building (L-
47896, PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS and UNITED question the additional award of
P200,000.00 in favor of the PBA (L- 47851, NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The
PBA further urges that the unrealized rental income awarded to it should not be limited to a period of one-half year but
should be computed on a continuing basis at the rate of P178,671.76 a year until the judgment for the principal amount
shall have been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p. 19).

The collapse of the PBA building as a result of the August 2, 1968 earthquake was only partial and it is undisputed that
the building could then still be repaired and restored to its tenantable condition. The PBA, however, in view of its lack of
needed funding, was unable, thru no fault of its own, to have the building repaired. UNITED, on the other hand, spent
P13,661.28 to shore up the building after the August 2, 1968 earthquake (L-47896, CA Decision, p. 46). Because of the
earthquake on April 7, 1970, the trial court after the needed consultations, authorized the total demolition of the building
(L-47896, Vol. 1, pp. 53-54).

There should be no question that the NAKPILS and UNITED are liable for the damage resulting from the partial and
eventual collapse of the PBA building as a result of the earthquakes.

We quote with approval the following from the erudite decision penned by Justice Hugo E. Gutierrez (now an Associate
Justice of the Supreme Court) while still an Associate Justice of the Court of Appeals:

24
There is no question that an earthquake and other forces of nature such as cyclones, drought, floods, lightning, and perils
of the sea are acts of God. It does not necessarily follow, however, that specific losses and suffering resulting from the
occurrence of these natural force are also acts of God. We are not convinced on the basis of the evidence on record that
from the thousands of structures in Manila, God singled out the blameless PBA building in Intramuros and around six or
seven other buildings in various parts of the city for collapse or severe damage and that God alone was responsible for the
damages and losses thus suffered.

The record is replete with evidence of defects and deficiencies in the designs and plans, defective construction, poor
workmanship, deviation from plans and specifications and other imperfections. These deficiencies are attributable to
negligent men and not to a perfect God.

The act-of-God arguments of the defendants- appellants and third party defendants-appellants presented in their briefs
are premised on legal generalizations or speculations and on theological fatalism both of which ignore the plain facts. The
lengthy discussion of United on ordinary earthquakes and unusually strong earthquakes and on ordinary fortuitous
events and extraordinary fortuitous events leads to its argument that the August 2, 1968 earthquake was of such an
overwhelming and destructive character that by its own force and independent of the particular negligence alleged, the
injury would have been produced. If we follow this line of speculative reasoning, we will be forced to conclude that under
such a situation scores of buildings in the vicinity and in other parts of Manila would have toppled down. Following the
same line of reasoning, Nakpil and Sons alleges that the designs were adequate in accordance with pre-August 2, 1968
knowledge and appear inadequate only in the light of engineering information acquired after the earthquake. If this were
so, hundreds of ancient buildings which survived the earthquake better than the two-year old PBA building must have
been designed and constructed by architects and contractors whose knowledge and foresight were unexplainably
auspicious and prophetic. Fortunately, the facts on record allow a more down to earth explanation of the collapse. The
failure of the PBA building, as a unique and distinct construction with no reference or comparison to other buildings, to
weather the severe earthquake forces was traced to design deficiencies and defective construction, factors which are
neither mysterious nor esoteric. The theological allusion of appellant United that God acts in mysterious ways His
wonders to perform impresses us to be inappropriate. The evidence reveals defects and deficiencies in design and
construction. There is no mystery about these acts of negligence. The collapse of the PBA building was no wonder
performed by God. It was a result of the imperfections in the work of the architects and the people in the construction
company. More relevant to our mind is the lesson from the parable of the wise man in the Sermon on the Mount "which
built his house upon a rock; and the rain descended and the floods came and the winds blew and beat upon that house;
and it fen not; for it was founded upon a rock" and of the "foolish upon the sand. And the rain descended and man which
built his house the floods came, and the winds blew, and beat upon that house; and it fell and great was the fall of it. (St.
Matthew 7: 24-27)." The requirement that a building should withstand rains, floods, winds, earthquakes, and natural
forces is precisely the reason why we have professional experts like architects, and engineers. Designs and constructions
vary under varying circumstances and conditions but the requirement to design and build well does not change.

The findings of the lower Court on the cause of the collapse are more rational and accurate. Instead of laying the blame
solely on the motions and forces generated by the earthquake, it also examined the ability of the PBA building, as
designed and constructed, to withstand and successfully weather those forces.

The evidence sufficiently supports a conclusion that the negligence and fault of both United and Nakpil and Sons, not a
mysterious act of an inscrutable God, were responsible for the damages. The Report of the Commissioner, Plaintiff's
Objections to the Report, Third Party Defendants' Objections to the Report, Defendants' Objections to the Report,
Commissioner's Answer to the various Objections, Plaintiffs' Reply to the Commissioner's Answer, Defendants' Reply to
the Commissioner's Answer, Counter-Reply to Defendants' Reply, and Third-Party Defendants' Reply to the
Commissioner's Report not to mention the exhibits and the testimonies show that the main arguments raised on appeal
were already raised during the trial and fully considered by the lower Court. A reiteration of these same arguments on
appeal fails to convince us that we should reverse or disturb the lower Court's factual findings and its conclusions drawn
from the facts, among them:

The Commissioner also found merit in the allegations of the defendants as to the physical evidence before and after the
earthquake showing the inadequacy of design, to wit:

Physical evidence before the earthquake providing (sic) inadequacy of design;

1. inadequate design was the cause of the failure of the building.

2. Sun-baffles on the two sides and in front of the building;

a. Increase the inertia forces that move the building laterally toward the Manila Fire Department.

25
 b. Create another stiffness imbalance.

3. The embedded 4" diameter cast iron down spout on all exterior columns reduces the cross-sectional
area of each of the columns and the strength thereof.

4. Two front corners, A7 and D7 columns were very much less reinforced.

Physical Evidence After the Earthquake, Proving Inadequacy of design;

1. Column A7 suffered the severest fracture and maximum sagging. Also D7.

2. There are more damages in the front part of the building than towards the rear, not only in columns
but also in slabs.

3. Building leaned and sagged more on the front part of the building.

4. Floors showed maximum sagging on the sides and toward the front corner parts of the building.

5. There was a lateral displacement of the building of about 8", Maximum sagging occurs at the column
A7 where the floor is lower by 80 cm. than the highest slab level.

6. Slab at the corner column D7 sagged by 38 cm.

The Commissioner concluded that there were deficiencies or defects in the design, plans and specifications of the PBA
building which involved appreciable risks with respect to the accidental forces which may result from earthquake shocks.
He conceded, however, that the fact that those deficiencies or defects may have arisen from an obsolete or not too
conservative code or even a code that does not require a design for earthquake forces mitigates in a large measure the
responsibility or liability of the architect and engineer designer.

The Third-party defendants, who are the most concerned with this portion of the Commissioner's report, voiced opposition
to the same on the grounds that (a) the finding is based on a basic erroneous conception as to the design concept of the
building, to wit, that the design is essentially that of a heavy rectangular box on stilts with shear wan at one end; (b) the
finding that there were defects and a deficiency in the design of the building would at best be based on an approximation
and, therefore, rightly belonged to the realm of speculation, rather than of certainty and could very possibly be outright
error; (c) the Commissioner has failed to back up or support his finding with extensive, complex and highly specialized
computations and analyzes which he himself emphasizes are necessary in the determination of such a highly technical
question; and (d) the Commissioner has analyzed the design of the PBA building not in the light of existing and available
earthquake engineering knowledge at the time of the preparation of the design, but in the light of recent and current
standards.

The Commissioner answered the said objections alleging that third-party defendants' objections were based on estimates
or exhibits not presented during the hearing that the resort to engineering references posterior to the date of the
preparation of the plans was induced by the third-party defendants themselves who submitted computations of the third-
party defendants are erroneous.

The issue presently considered is admittedly a technical one of the highest degree. It involves questions not within the
ordinary competence of the bench and the bar to resolve by themselves. Counsel for the third-party defendants has aptly
remarked that "engineering, although dealing in mathematics, is not an exact science and that the present knowledge as
to the nature of earthquakes and the behaviour of forces generated by them still leaves much to be desired; so much so
"that the experts of the different parties, who are all engineers, cannot agree on what equation to use, as to what
earthquake co-efficients are, on the codes to be used and even as to the type of structure that the PBA building (is) was (p.
29, Memo, of third- party defendants before the Commissioner).

The difficulty expected by the Court if tills technical matter were to be tried and inquired into by the Court itself, coupled
with the intrinsic nature of the questions involved therein, constituted the reason for the reference of the said issues to a
Commissioner whose qualifications and experience have eminently qualified him for the task, and whose competence had
not been questioned by the parties until he submitted his report. Within the pardonable limit of the Court's ability to
comprehend the meaning of the Commissioner's report on this issue, and the objections voiced to the same, the Court
sees no compelling reasons to disturb the findings of the Commissioner that there were defects and deficiencies in the

26
design, plans and specifications prepared by third-party defendants, and that said defects and deficiencies involved
appreciable risks with respect to the accidental forces which may result from earthquake shocks.

(2) (a) The deviations, if any, made by the defendants from the plans and specifications, and how said
deviations contributed to the damage sustained by the building.

(b) The alleged failure of defendants to observe the requisite quality of materials and workmanship in the
construction of the building.

These two issues, being interrelated with each other, will be discussed together.

The findings of the Commissioner on these issues were as follows:

We now turn to the construction of the PBA Building and the alleged deficiencies or defects in the
construction and violations or deviations from the plans and specifications. All these may be summarized
as follows:

a. Summary of alleged defects as reported by Engineer Mario M. Bundalian.

(1) Wrongful and defective placing of reinforcing bars.

(2) Absence of effective and desirable integration of the 3 bars in the cluster.

(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification requires no larger than 1 inch.

(4) Reinforcement assembly is not concentric with the column, eccentricity being 3" off when on one face
the main bars are only 1 1/2' from the surface.

(5) Prevalence of honeycombs,

(6) Contraband construction joints,

(7) Absence, or omission, or over spacing of spiral hoops,

(8) Deliberate severance of spirals into semi-circles in noted on Col. A-5, ground floor,

(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4, ground floor,

(10) Undergraduate concrete is evident,

(11) Big cavity in core of Column 2A-4, second floor,

(12) Columns buckled at different planes. Columns buckled worst where there are no spirals or where
spirals are cut. Columns suffered worst displacement where the eccentricity of the columnar
reinforcement assembly is more acute.

b. Summary of alleged defects as reported by Engr. Antonio Avecilla.

Columns are first (or ground) floor, unless otherwise stated.

(1) Column D4 — Spacing of spiral is changed from 2" to 5" on centers,

(2) Column D5 — No spiral up to a height of 22" from the ground floor,

(3) Column D6 — Spacing of spiral over 4 l/2,

(4) Column D7 — Lack of lateral ties,

27
 (5) Column C7 — Absence of spiral to a height of 20" from the ground level, Spirals are at 2" from the
exterior column face and 6" from the inner column face,

(6) Column B6 — Lack of spiral on 2 feet below the floor beams,

(7) Column B5 — Lack of spirals at a distance of 26' below the beam,

(8) Column B7 — Spirals not tied to vertical reinforcing bars, Spirals are uneven 2" to 4",

(9) Column A3 — Lack of lateral ties,

(10) Column A4 — Spirals cut off and welded to two separate clustered vertical bars,

(11) Column A4 — (second floor Column is completely hollow to a height of 30"

(12) Column A5 — Spirals were cut from the floor level to the bottom of the spandrel beam to a height of 6
feet,

(13) Column A6 — No spirals up to a height of 30' above the ground floor level,

(14) Column A7— Lack of lateralties or spirals,

c. Summary of alleged defects as reported by the experts of the Third-Party defendants.

Ground floor columns.

(1) Column A4 — Spirals are cut,

(2) Column A5 — Spirals are cut,

(3) Column A6 — At lower 18" spirals are absent,

(4) Column A7 — Ties are too far apart,

(5) Column B5 — At upper fourth of column spirals are either absent or improperly spliced,

(6) Column B6 — At upper 2 feet spirals are absent,

(7) Column B7 — At upper fourth of column spirals missing or improperly spliced.

(8) Column C7— Spirals are absent at lowest 18"

(9) Column D5 — At lowest 2 feet spirals are absent,

(10) Column D6 — Spirals are too far apart and apparently improperly spliced,

(11) Column D7 — Lateral ties are too far apart, spaced 16" on centers.

There is merit in many of these allegations. The explanations given by the engineering experts for the defendants are
either contrary to general principles of engineering design for reinforced concrete or not applicable to the requirements for
ductility and strength of reinforced concrete in earthquake-resistant design and construction.

We shall first classify and consider defects which may have appreciable bearing or relation to' the earthquake-resistant
property of the building.

28
As heretofore mentioned, details which insure ductility at or near the connections between columns and girders are
desirable in earthquake resistant design and construction. The omission of spirals and ties or hoops at the bottom and/or
tops of columns contributed greatly to the loss of earthquake-resistant strength. The plans and specifications required
that these spirals and ties be carried from the floor level to the bottom reinforcement of the deeper beam (p. 1,
Specifications, p. 970, Reference 11). There were several clear evidences where this was not done especially in some of the
ground floor columns which failed.

There were also unmistakable evidences that the spacings of the spirals and ties in the columns were in many cases
greater than those called for in the plans and specifications resulting again in loss of earthquake-resistant strength. The
assertion of the engineering experts for the defendants that the improper spacings and the cutting of the spirals did not
result in loss of strength in the column cannot be maintained and is certainly contrary to the general principles of column
design and construction. And even granting that there be no loss in strength at the yield point (an assumption which is
very doubtful) the cutting or improper spacings of spirals will certainly result in the loss of the plastic range or ductility in
the column and it is precisely this plastic range or ductility which is desirable and needed for earthquake-resistant
strength.

There is no excuse for the cavity or hollow portion in the column A4, second floor, and although this column did not fail,
this is certainly an evidence on the part of the contractor of poor construction.

The effect of eccentricities in the columns which were measured at about 2 1/2 inches maximum may be approximated in
relation to column loads and column and beam moments. The main effect of eccentricity is to change the beam or girder
span. The effect on the measured eccentricity of 2 inches, therefore, is to increase or diminish the column load by a
maximum of about 1% and to increase or diminish the column or beam movements by about a maximum of 2%. While
these can certainly be absorbed within the factor of safety, they nevertheless diminish said factor of safety.

The cutting of the spirals in column A5, ground floor is the subject of great contention between the parties and deserves
special consideration.

The proper placing of the main reinforcements and spirals in column A5, ground floor, is the responsibility of the general
contractor which is the UCCI. The burden of proof, therefore, that this cutting was done by others is upon the defendants.
Other than a strong allegation and assertion that it is the plumber or his men who may have done the cutting (and this
was flatly denied by the plumber) no conclusive proof was presented. The engineering experts for the defendants asserted
that they could have no motivation for cutting the bar because they can simply replace the spirals by wrapping around a
new set of spirals. This is not quite correct. There is evidence to show that the pouring of concrete for columns was
sometimes done through the beam and girder reinforcements which were already in place as in the case of column A4
second floor. If the reinforcement for the girder and column is to subsequently wrap around the spirals, this would not do
for the elasticity of steel would prevent the making of tight column spirals and loose or improper spirals would result. The
proper way is to produce correct spirals down from the top of the main column bars, a procedure which can not be done if
either the beam or girder reinforcement is already in place. The engineering experts for the defendants strongly assert and
apparently believe that the cutting of the spirals did not materially diminish the strength of the column. This belief
together with the difficulty of slipping the spirals on the top of the column once the beam reinforcement is in place may be
a sufficient motivation for the cutting of the spirals themselves. The defendants, therefore, should be held responsible for
the consequences arising from the loss of strength or ductility in column A5 which may have contributed to the damages
sustained by the building.

The lack of proper length of splicing of spirals was also proven in the visible spirals of the columns where spalling of the
concrete cover had taken place. This lack of proper splicing contributed in a small measure to the loss of strength.

The effects of all the other proven and visible defects although nor can certainly be accumulated so that they can
contribute to an appreciable loss in earthquake-resistant strength. The engineering experts for the defendants submitted
an estimate on some of these defects in the amount of a few percent. If accumulated, therefore, including the effect of
eccentricity in the column the loss in strength due to these minor defects may run to as much as ten percent.

To recapitulate: the omission or lack of spirals and ties at the bottom and/or at the top of some of the ground floor
columns contributed greatly to the collapse of the PBA building since it is at these points where the greater part of the
failure occurred. The liability for the cutting of the spirals in column A5, ground floor, in the considered opinion of the
Commissioner rests on the shoulders of the defendants and the loss of strength in this column contributed to the damage
which occurred.

It is reasonable to conclude, therefore, that the proven defects, deficiencies and violations of the plans and specifications
of the PBA building contributed to the damages which resulted during the earthquake of August 2, 1968 and the vice of
these defects and deficiencies is that they not only increase but also aggravate the weakness mentioned in the design of
29
the structure. In other words, these defects and deficiencies not only tend to add but also to multiply the effects of the
shortcomings in the design of the building. We may say, therefore, that the defects and deficiencies in the construction
contributed greatly to the damage which occurred.

Since the execution and supervision of the construction work in the hands of the contractor is direct and
positive, the presence of existence of all the major defects and deficiencies noted and proven manifests an
element of negligence which may amount to imprudence in the construction work. (pp. 42-49,
Commissioners Report).

As the parties most directly concerned with this portion of the Commissioner's report, the defendants voiced their
objections to the same on the grounds that the Commissioner should have specified the defects found by him to be
"meritorious"; that the Commissioner failed to indicate the number of cases where the spirals and ties were not carried
from the floor level to the bottom reinforcement of the deeper beam, or where the spacing of the spirals and ties in the
columns were greater than that called for in the specifications; that the hollow in column A4, second floor, the
eccentricities in the columns, the lack of proper length of splicing of spirals, and the cut in the spirals in column A5,
ground floor, did not aggravate or contribute to the damage suffered by the building; that the defects in the construction
were within the tolerable margin of safety; and that the cutting of the spirals in column A5, ground floor, was done by the
plumber or his men, and not by the defendants.

Answering the said objections, the Commissioner stated that, since many of the defects were minor only the totality of the
defects was considered. As regards the objection as to failure to state the number of cases where the spirals and ties were
not carried from the floor level to the bottom reinforcement, the Commissioner specified groundfloor columns B-6 and C-5
the first one without spirals for 03 inches at the top, and in the latter, there were no spirals for 10 inches at the bottom.
The Commissioner likewise specified the first storey columns where the spacings were greater than that called for in the
specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7. The objection to the failure of the Commissioner to
specify the number of columns where there was lack of proper length of splicing of spirals, the Commissioner mentioned
groundfloor columns B-6 and B-5 where all the splices were less than 1-1/2 turns and were not welded, resulting in some
loss of strength which could be critical near the ends of the columns. He answered the supposition of the defendants that
the spirals and the ties must have been looted, by calling attention to the fact that the missing spirals and ties were only
in two out of the 25 columns, which rendered said supposition to be improbable.

The Commissioner conceded that the hollow in column A-4, second floor, did not aggravate or contribute to the damage,
but averred that it is "evidence of poor construction." On the claim that the eccentricity could be absorbed within the
factor of safety, the Commissioner answered that, while the same may be true, it also contributed to or aggravated the
damage suffered by the building.

The objection regarding the cutting of the spirals in Column A-5, groundfloor, was answered by the Commissioner by
reiterating the observation in his report that irrespective of who did the cutting of the spirals, the defendants should be
held liable for the same as the general contractor of the building. The Commissioner further stated that the loss of
strength of the cut spirals and inelastic deflections of the supposed lattice work defeated the purpose of the spiral
containment in the column and resulted in the loss of strength, as evidenced by the actual failure of this column.

Again, the Court concurs in the findings of the Commissioner on these issues and fails to find any sufficient cause to
disregard or modify the same. As found by the Commissioner, the "deviations made by the defendants from the plans and
specifications caused indirectly the damage sustained and that those deviations not only added but also aggravated the
damage caused by the defects in the plans and specifications prepared by third-party defendants. (Rollo, Vol. I, pp. 128-
142)

The afore-mentioned facts clearly indicate the wanton negligence of both the defendant and the third-party defendants in
effecting the plans, designs, specifications, and construction of the PBA building and We hold such negligence as
equivalent to bad faith in the performance of their respective tasks.

Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380) which may be in point in this
case reads:

One who negligently creates a dangerous condition cannot escape liability for the natural and probable consequences
thereof, although the act of a third person, or an act of God for which he is not responsible, intervenes to precipitate the
loss.

30
As already discussed, the destruction was not purely an act of God. Truth to tell hundreds of ancient buildings in the
vicinity were hardly affected by the earthquake. Only one thing spells out the fatal difference; gross negligence and evident
bad faith, without which the damage would not have occurred.

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental
circumstances of this case, We deem it reasonable to render a decision imposing, as We do hereby impose, upon the
defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p.
10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with
the exception of attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an
additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon
the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be
imposed upon afore-mentioned amounts from finality until paid. Solidary costs against the defendant and third-party
defendants (except Roman Ozaeta).

SO ORDERED.

G.R. No. 131622 November 27, 1998

LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,

vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR. doing lending
business under the trade name and style "GONZALES CREDIT ENTERPRISES", respondents.

PARDO, J.:

The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of Court, seeking
to set aside the decision of the Court of Appeals,1 and its resolution denying reconsideration, 2 the dispositive
portion of which decision reads as follows:

WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby-ordered to pay the
plaintiff: the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July
23, 1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 23,
1986, until the entire amount is fully paid.

The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the
defendants.

SO ORDERED. 3

The Court required the respondents to comment on the petition,4 which was filed on April 3, 1998,5 and the
petitioners to reply thereto, which was filed on May 29, 1998.6 We now resolve to give due course to the petition
and decide the case.

The facts of the case, as found by the Court of Appeals in its decision, which are considered binding and conclusive
on the parties herein, as the appeal is limited to questions of law, are as follows:

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from
Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the name
"Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months. Veronica gave only the amount
of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one month at 6% per month.
Servando and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the amount of P90,000.00,
payable in two months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing
on Janaury 19, 1986. They received only P84,000.00, out of the proceeds of the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amout of P300,000.00,
maturing in one month, secured by a real estate mortgage over a property belonging to Leticia Makalintal
Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to execute the mortgage.

31
Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after a month,
or on July 11, 1986. However, only the sum of P275.000.00, was given to them out of the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous
unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing
their indebtedness to a total of P500,000.00, payable on August 23, 1986. They executed a promissory note, reading
as follows:

Baliwag, Bulacan July 23, 1986

Maturity Date Augsut 23, 1986

P500,000.00

FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES doing
business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G.
Gonzales, Jr., of Baliwag, Bulacan, the sum of PESOS . . . FIVE HUNDRED THOUSAND . . . (P500,000.00) Philippine
Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2% service charge per annum from date
hereof until fully paid according to the amortization schedule contained herein. (Emphasis supplied)

Payment will be made in full at the maturity date.

Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together with all
interest accrued shall immediately be due and payable and I/WE hereby agree to pay an additional amount
equivalent to one per cent (1%) per month of the amount due and demandable as penalty charges in the form of
liquidated damages until fully paid; and the further sum of TWENTY FIVE PER CENT (25%) thereof in full, without
deductions as Attorney's Fee whether actually incurred or not, of the total amount due and demandable, exclusive
of costs and judicial or extra judicial expenses. (Emphasis supplied).

I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of
the Philippines, the holder shall have the option to apply and collect the increased interest charges without notice
although the original interest have already been collected wholly or partially unless the contrary is required by law.

It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation under
this agreement is based on the present value of the peso, and if there be any change in the value thereof, due to
extraordinary inflation or deflation, or any other cause or reason, then the peso-obligation herein contracted shall
be adjusted in accordance with the value of the peso then prevailing at the time of the complete fulfillment of the
obligation.

Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note or
extension of payments, reserving rights against each and all indorsers and all parties to this note.

IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under
the provisions of Section 12, Rule 39, of the Revised Rules of Court.

On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties,
evidenced by the above-quoted promissory note.

On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional
Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan
including interests and other charges.

In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did
not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed from the
plaintiffs the sum of P500,000.00, and actually received the amount and benefited therefrom; that the loan was
secured by a real estate mortgage executed in favor of the plaintiffs, and that he (Servando Franco) signed the
promissory note only as a witness.

In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel alleged that the loan was the
transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real estate
situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with additional service charge
of 2% per annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of 25% of the amount

32
due is unconscionable, illegal and excessive, and that substantial payments made were applied to interest, penalties
and other charges.

After due trial, the lower court declared that the due execution and genuineness of the four promissory notes had
been duly proved, and ruled that although the Usury Law had been repealed, the interest charged by the plaintiffs
on the loans was unconscionable and "revolting to the conscience". Hence, the trial court applied "the provision of
the New [Civil] Code" that the "legal rate of interest for loan or forbearance of money, goods or credit is 12% per
annum."7

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads as
follows:

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

1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the
amount of P47,000.00 plus 12% interest per annum from November 7, 1985 and 1% per month as penalty, until
the entire amount is paid in full.

2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount
of P84,000.00 with 12% interest per annum and 1% per cent per month as penalty from November 19, 1985 until
the whole amount is fully paid;

3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus 12%
interest per annum and 1% per month as penalty from July 11, 1986, until the whole amount is fully paid;

4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as attorney's fees;

5. All counterclaims are hereby dismissed.

With costs against the defendants.8

In due time, both plaintiffs and defendants appealed to the Court of Appeals.

In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid loans of
the defendants, is the law that governs the parties. They further argued that Circular No. 416 of the Central Bank
prescribing the rate of interest for loans or forbearance of money, goods or credit at 12% per annum, applies only
in the absence of a stipulation on interest rate, but not when the parties agreed thereon.

The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having become
'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 905, the lender and borrower
could agree on any interest that may be charged on the loan".9 The Court of Appeals further held that "the
imposition of 'an additional amount equivalent to 1% per month of the amount due and demandable as penalty
charges in the form of liquidated damages until fully paid' was allowed by
law". 10

Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision reversing that of the Regional Trial
Court, disposing as follows:

WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the
plaintiffs the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July
23, 1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 24,
1986, until the entire amount is fully paid.

The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the
defendants.

SO ORDERED. 11

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By resolution dated
November 25, 1997, the Court of Appeals denied the motion. 12

Hence, defendants interposed the present recourse via petition for review on certiorari. 13

We find the petition meritorious.

33
Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question presented is
whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of P500,000.00, that
plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still effective, or has it been
repealed by Central Bank Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No.
116, as amended by P.D. No. 1684?

We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive,
iniquitous, unconscionable and exorbitant. 13 However, we can not consider the rate "usurious" because this Court
has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly
removed the interest ceilings prescribed by the Usury Law 14 and that the Usury Law is now "legally inexistent". 15

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 16 the Court held that CB
Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity."
Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law can repeal another law." 17 In
the recent case of Florendo vs. Court of Appeals 18, the Court reiterated the ruling that "by virtue of CB Circular
905, the Usury Law has been rendered ineffective". "Usury has been legally non-existent in our jurisdiction. Interest
can now be charged as lender and borrower may agree upon." 19

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the
promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against
the law. 20The stipulation is void. 21 The courts shall reduce equitably liquidated damages, whether intended as
an indemnity or a penalty if they are iniquitous or unconscionable. 22

Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial
court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as
liquidated damages may be more reasonable.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on
March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and
AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos,
Bulacan, in Civil Case No. 134-M-90, involving the same parties.

No pronouncement as to costs in this instance.

SO ORDERED.

G.R. No. 125944 June 29, 2001

SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners,

vs.
JOSE AVELINO SALAZAR, respondents.

SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of the decision of the
Court of Appeals in CA-G.R. CV No. 37899, affirming the decision of the Regional Trial Court, Branch 16, Malolos,
Bulacan, in Civil Case No. 375-M-91, "Spouses Danilo and Ursula Solangon vs. Jose Avelino Salazar" for annulment of
mortgage. The dispositive portion of the RTC decision reads:

"WHEREFORE, judgment is hereby rendered against the plaintiffs in favor of the defendant Salazar, as follows:

1. Ordering the dismissal of the complaint;

2. Ordering the dissolution of the preliminary injunction issued on July 8, 1991;

3. Ordering the plaintiffs to pay the defendant the amount of P10,000.00 by way of attorney’s fees; and

4. To pay the costs.

SO ORDERED."1

34
The facts as summarized by the Court of Appeals in its decision being challenged are:

"On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage in which they mortgaged a
parcel of land situated in Sta. Maria, Bulacan, in favor of the defendant-appellee, to secure payment of a loan of
P60,000.00 payable within a period of four (4) months, with interest thereon at the rate of 6% per month (Exh.
"B").

On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the
same parcel of land to the defendant-appellee, to secure payment of a loan of P136,512.00, payable within a
period of one (1) year, with interest thereon at the legal rate (Exh. "1").

On December 29, 1990, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged
the same parcel of land in favor of defendant-appellee, to secure payment of a loan in the amount of P230,000.00
payable within a period of four (4) months, with interest thereon at the legal rate (Exh. "2", Exh. "C").

This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the mortgaged property. They
alleged that they obtained only one loan form the defendant-appellee, and that was for the amount of P60,000.00,
the payment of which was secured by the first of the above-mentioned mortgages. The subsequent mortgages were
merely continuations of the first one, which is null and void because it provided for unconscionable rate of
interest. Moreover, the defendant-appellee assured them that he will not foreclose the mortgage as long as they
pay the stipulated interest upon maturity or within a reasonable time thereafter. They have already paid the
defendant-appellee P78,000.00 and tendered P47,000.00 more, but the latter has initiated foreclosure
proceedings for their alleged failure to pay the loan P230,000.00 plus interest.1âwphi1.nêt

On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-described mortgages were
executed to secure three separate loans of P60,000.00 P136,512.00 and P230,000.00, and that the first two loans
were paid, but the last one was not. He denied having represented that he will not foreclose the mortgage as long
as the plaintiffs-appellants pay interest."

In their petition, spouses Danilo and Ursula Solangon ascribe to the Court of Appeals the following errors:

1. The Court of Appeals erred in holding that three (3) mortgage contracts were executed by the parties instead of
one (1);

2. The Court of Appeals erred in ruling that a loan obligation secured by a real estate mortgage with an interest of
72% per cent per annum or 6% per month is not unconscionable;

4. The Court of Appeals erred in holding that the loan of P136,512.00 HAS NOT BEEN PAID when the mortgagee
himself states in his ANSWER that the same was already paid; and

5. The Court of Appeals erred in not resolving the SPECIFIC ISSUES raised by the appellants.

In his comment, respondent Jose Avelino Salazar avers that the petition should not be given due course as it raises
questions of facts which are not allowed in a petition for review on certiorari.

We find no merit in the instant petition.

The core of the present controversy is the validity of the third contract of mortgage which was foreclosed.

Petitioners contend that they obtained from respondent Avelino Salazar only one (1) loan in the amount of P60,000.00
secured by the first mortgage of August 1986. According to them, they signed the third mortgage contract in view of
respondent’s assurance that the same will not be foreclosed. The trial court, which is in the best position to evaluate the
evidence presented before it, did not give credence to petitioners’ corroborated testimony and ruled:

"The testimony is improbable. The real estate mortgage was signed not only by Ursula Solangon but also by her
husband including the Promissory Note appended to it. Signing a document without knowing its contents is
contrary to common experience. The uncorroborated testimony of Ursula Solangon cannot be given weight."2

35
Petitioners likewise insist that, contrary to the finding of the Court of appeals, they had paid the amount of P136,512.00,
or the second loan. In fact, such payment was confirmed by respondent Salazar in his answer to their complaint.

It is readily apparent that petitioners are raising issues of fact in this petition. In a petition for review under Rule 45 of the
1997 Rules of Civil Procedure, as amended, only questions of law may be raised and they must be distinctly set forth. The
settled rule is that findings of fact of the lower courts (including the Court of Appeals) are final and conclusive and will not
be reviewed on appeal except: (1) when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6)
when the Court of Appeals, in making its findings, went beyond the issues of the case and such findings are contrary to
the admission of both appellant and appellee; (6) when the findings of the Court of Appeals are contrary to those of the
trial court; and (7) when the findings of fact are conclusions without citation of specific evidence on which they are based. 3

None of these instances are extant in the present case.

Parenthetically, petitioners are questioning the rate of interest involved here. They maintain that the Court of
Appeals erred in decreeing that the stipulated interest rate of 72% per annum or 6% per month is not unconscionable.

The Court of Appeals, in sustaining the stipulated interest rate, ratiocinated that since the Usury Law had been repealed
by Central Bank Circular No. 905 there is no more maximum rate of interest and the rate will just depend on the mutual
agreement of the parties. Obviously, this was in consonance with our ruling in Liam Law v. Olympic Sawmill Co.4

The factual circumstances of the present case require the application of a different jurisprudential instruction. While the
Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of
their assets.5 In Medel v. Court of Appeals,6 this court had the occasion to rule on this question - whether or not the
stipulated rate of interest at 5.5% per month on a loan amounting to P500,000.00 is usurious. While decreeing that the
aforementioned interest was not usurious, this Court held that the same must be equitably reduced for
being iniquitous, unconscionable and exorbitant, thus:

"We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan
is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate ‘usurious’
because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22,
1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now
‘legally inexistent.’

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB
Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter’s effectivity.
Indeed, we have held that ‘a Central Bank Circular can not repeal a law. Only a law can repeal another law. In the
recent case of Florendo v. Court of Appeals, the Court reiterated the ruling that ‘by virtue of CB Circular 905, the
Usury Law has been rendered ineffective.’ ‘Usury Law has been legally non-existent in our jurisdiction. Interest
can now be charged as lender and borrower may agree upon.’

Nevertheless, we find the interest at 5.5 % per month, or 66% per annum, stipulated upon by the parties
in the promissory note iniquitous or unconscionable, and hence, contrary to morals (‘contra bonos
mores’), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated
damages, whether intended as an indemnity or a penalty if they are iniquitous or
unconscionable." (Emphasis supplied)

In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulated interest rate
of 6% per month or 72% per annum which is definitely outrageous and inordinate. Surely, it is more consonant with
justice that the said interest rate be reduced equitably. An interest of 12% per annum is deemed fair and reasonable.

WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to the MODIFICATION that the
interest rate of 72% per annum is ordered reduced to 12 % per annum.

SO ORDERED.

G.R. No. L-44428 September 30, 1977

36
AVELINO BALURAN, petitioner,
vs.
HON. RICARDO Y. NAVARRO, Presiding Judge, Court of First Instance of Ilocos Norte, Branch I and ANTONIO
OBEDENCIO, respondents.

MUÑOZ PALMA, J.:

Spouses Domingo Paraiso and Fidela Q. Paraiso were the owners of a residential lot of around 480 square meters located
in Sarrat, Ilocos Norte. On or about February 2, 1964, the Paraisos executed an agreement entitled "BARTER" whereby as
party of the first part they agreed to "barter and exchange" with spouses Avelino and Benilda Baluran their residential lot
with the latter's unirrigated riceland situated in Sarrat, Ilocos Norte, of approximately 223 square meters without any
permanent improvements, under the following conditions:

1. That both the Party of the First Part and the Party of the Second Part shall enjoy the material possession of their
respective properties; the Party of the First Part shall reap the fruits of the unirrigated riceland and the Party of the
Second Part shall have a right to build his own house in the residential lot.

2. Nevertheless, in the event any of the children of Natividad P. Obencio, daughter of the First Part, shall choose to reside
in this municipality and build his own house in the residential lot, the Party of the Second Part shall be obliged to return
the lot such children with damages to be incurred.

3. That neither the Party of the First Part nor the Party of the Second Part shall encumber, alienate or dispose of in any
manner their respective properties as bartered without the consent of the other.

4. That inasmuch as the bartered properties are not yet accordance with Act No. 496 or under the Spanish Mortgage Law,
they finally agreed and covenant that this deed be registered in the Office of the Register of Deeds of Ilocos Norte pursuant
to the provisions of Act No. 3344 as amended. (p. 28, rollo)

On May 6, 1975 Antonio Obendencio filed with the Court of First Instance of Ilocos Norte the present complaint to recover
the above-mentioned residential lot from Avelino Baluran claiming that he is the rightful owner of said residential lot
having acquired the same from his mother, Natividad Paraiso Obedencio, and that he needed the property for Purposes Of
constructing his house thereon inasmuch as he had taken residence in his native town, Sarrat. Obedencio accordingly
prayed that he be declared owner of the residential lot and that defendant Baluran be ordered to vacate the same
forfeiting his (Obedencio) favor the improvements defendant Baluran had built in bad faith.1

Answering the complaint, Avelino Baluran alleged inter alia (1) that the "barter agreement" transferred to him the
ownership of the residential lot in exchange for the unirrigated riceland conveyed to plaintiff's Predecessor-in-interest,
Natividad Obedencio, who in fact is still in On thereof, and (2) that the plaintiff's cause of action if any had prescribed. 2

At the pre-trial, the parties agreed to submit the case for decision on the basis of their stipulation of facts. It was likewise
admitted that the aforementioned residential lot was donated on October 4, 1974 by Natividad Obedencio to her son
Antonio Obedencio, and that since the execution of the agreement of February 2, 1964 Avelino Baluran was in possession
of the residential lot, paid the taxes of the property, and constructed a house thereon with an value of P250.00. 3 On
November 8, 1975, the trial Judge Ricardo Y. Navarro rendered a decision the dispositive portion of which reads as
follows:

Consequently, the plaintiff is hereby declared owner of the question, the defendant is hereby ordered to
vacate the same with costs against defendant.

Avelino Baluran to whom We shall refer as petitioner, now seeks a review of that decision under the following assignment
of errors:

I — The lower Court erred in holding that the barter agreement did not transfer ownership of the lot in
suit to the petitioner.

II — The lower Court erred in not holding that the right to re-barter or re- exchange of respondent Antonio
Obedencio had been barred by the statute of limitation. (p. 14, Ibid.)

The resolution of this appeal revolves on the nature of the undertaking contract of February 2, 1964 which is entitled
"Barter Agreement."

37
It is a settled rule that to determine the nature of a contract courts are not bound by the name or title given to it by the
contracting parties. 4 This Court has held that contracts are not what the parties may see fit to call them but what they
really are as determined by the principles of law. 5 Thus, in the instant case, the use of the, term "barter" in describing the
agreement of February 2, 1964, is not controlling. The stipulations in said document are clear enough to indicate that
there was no intention at all on the part of the signatories thereto to convey the ownership of their respective properties;
all that was intended, and it was so provided in the agreement, was to transfer the material possession thereof. (condition
No. 1, see page I of this Decision) In fact, under condition No. 3 of the agreement, the parties retained the right to alienate
their respective properties which right is an element of ownership.

With the material ion being the only one transferred, all that the parties acquired was the right of usufruct which in
essence is the right to enjoy the Property of another. 6 Under the document in question, spouses Paraiso would harvest
the crop of the unirrigated riceland while the other party, Avelino Baluran, could build a house on the residential lot,
subject, however, to the condition, that when any of the children of Natividad Paraiso Obedencio, daughter of spouses
Paraiso, shall choose to reside in the municipality and build his house on the residential lot, Avelino Baluran shall be
obliged to return the lot to said children "With damages to be incurred." (Condition No. 2 of the Agreement) Thus, the
mutual agreement — each party enjoying "material possession" of the other's property — was subject to a resolutory
condition the happening of which would terminate the right of possession and use.

A resolutory condition is one which extinguishes rights and obligations already existing. 7 The right of "material
possession" granted in the agreement of February 2, 1964, ends if and when any of the children of Natividad Paraiso,
Obedencio (daughter of spouses Paraiso, Party of the First Part) would reside in the municipality and build his house on
the property. Inasmuch as the condition opposed is not dependent solely on the will of one of the parties to the contract —
the spouses Paraiso — but is Part dependent on the will of third persons — Natividad Obedencio and any of her children
— the same is valid. 8

When there is nothing contrary to law, morals, and good customs Or Public Policy in the stipulations of a contract, the
agreement constitutes the law between the parties and the latter are bound by the terms thereof. 9

Art. 1306 of the Civil Code states:

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, Morals, good customs, public order, or
public policy.

Contracts which are the private laws of the contracting parties, should be fulfilled according to the literal
sense of their stipulations, if their terms are clear and leave no room for doubt as to the intention of the
contracting parties, for contracts are obligatory, no matter what their form may be, whenever the essential
requisites for their validity are present. (Philippine American General Insurance Co., Inc. vs. Mutuc, 61
SCRA 22)

The trial court therefore correctly adjudged that Antonio Obedencio is entitled to recover the possession of the residential
lot Pursuant to the agreement of February 2, 1964.

Petitioner submits under the second assigned error that the causa, of action if any of respondent Obedencio had
Prescribed after the lapse of four years from the date of execution of the document of February 2, 1964. It is argued that
the remedy of plaintiff, now respondent, Was to ask for re-barter or re-exchange of the properties subject of the agreement
which could be exercised only within four years from the date of the contract under Art. 1606 of the Civil Code.

The submission of petitioner is untenable. Art. 1606 of the Civil Code refers to conventional redemption which petitioner
would want to apply to the present situation. However, as We stated above, the agreement of the parties of February 2,
1964, is not one of barter, exchange or even sale with right to repurchase, but is one of or akin the other is the use or
material ion or enjoyment of each other's real property.

Usufruct may be constituted by the parties for any period of time and under such conditions as they may deem
convenient and beneficial subject to the provisions of the Civil Code, Book II, Title VI on Usufruct. The manner of
terminating or extinguishing the right of usufruct is primarily determined by the stipulations of the parties which in this
case now before Us is the happening of the event agreed upon. Necessarily, the plaintiff or respondent Obedencio could
not demand for the recovery of possession of the residential lot in question, not until he acquired that right from his
mother, Natividad Obedencio, and which he did acquire when his mother donated to him the residential lot on October 4,
1974. Even if We were to go along with petitioner in his argument that the fulfillment of the condition cannot be left to an
indefinite, uncertain period, nonetheless, in the case at bar, the respondent, in whose favor the resolutory condition was

38
constituted, took immediate steps to terminate the right of petitioner herein to the use of the lot. Obedencio's present
complaint was filed in May of 1975, barely several months after the property was donated to him.

One last point raised by petitioner is his alleged right to recover damages under the agreement of February 2, 1964. In the
absence of evidence, considering that the parties agreed to submit the case for decision on a stipulation of facts, We have
no basis for awarding damages to petitioner.

However, We apply Art. 579 of the Civil Code and hold that petitioner will not forfeit the improvement he built on the lot
but may remove the same without causing damage to the property.

Art. 579. The usufructuary may make on the property held in usufruct such useful improvements or
expenses for mere pleasure as he may deem proper, provided he does not alter its form or substance; but
he shall have no right to be indemnified therefor. He may, however. He may, however, removed such
improvements, should it be possible to do so without damage to the property. (Emphasis supplied)

Finally, We cannot close this case without touching on the unirrigated riceland which admittedly is in the possession of
Natividad Obedencio.

In view of our ruling that the "barter agreement" of February 2, 1964, did not transfer the ownership of the respective
properties mentioned therein, it follows that petitioner Baluran remains the owner of the unirrigated riceland and is now
entitled to its Possession. With the happening of the resolutory condition provided for in the agreement, the right of
usufruct of the parties is extinguished and each is entitled to a return of his property. it is true that Natividad Obedencio
who is now in possession of the property and who has been made a party to this case cannot be ordered in this
proceeding to surrender the riceland. But inasmuch as reciprocal rights and obligations have arisen between the parties
to the so-called "barter agreement", We hold that the parties and for their successors-in-interest are duty bound to effect a
simultaneous transfer of the respective properties if substance at justice is to be effected.

WHEREFORE, Judgment is hereby rendered: 1) declaring the petitioner Avelino Baluran and respondent Antonio
Obedencio the respective owners the unirrigated riceland and residential lot mentioned in the "Barter Agreement" of
February 2, 1964; 2) ordering Avelino Baluran to vacate the residential lot and removed improvements built by
thereon, provided, however that he shall not be compelled to do so unless the unirrigated riceland shall five been restored
to his possession either on volition of the party concerned or through judicial proceedings which he may institute for the
purpose.

Without pronouncement as to costs. So Ordered.

G.R. No. 141851 January 16, 2002

DIRECT FUNDERS HOLDINGS CORPORATION, petitioner,

vs.
JUDGE CELSO D. LAVIÑA, PRESIDING JUDGE OF RTC-Pasig City, Branch 71 and KAMBIAK Y. CHAN,
JR., respondents.

PARDO, J.:

The petition at bar1 seeks to review the decision2 of the Court of Appeals3 dismissing the petition assailing the ruling of the
trial court issuing a writ of preliminary injunction that restrained a writ of possession issued by a coordinate court. 4

The Facts

The facts, as found by the Court of Appeals, are as follows:

"It is alleged by the petitioner that the respondent Judge issued the writ of preliminary injunction, despite clear
and express prayer in the Amended Complaint (Rollo, p. 23) that private respondent Kambiak Y. Chan, Jr. sought
the issuance of a writ of preliminary mandatory injunction. This is again despite the fact this error was brought to
respondent Judge's attention denied the Motion for Reconsideration on May 29, 1998 justifying the issuance
thereof due to petitioner's alleged misappreciation of facts and reliefs sought for.

39
 "Culled from the records of the case, the action a quo is for annulment of documents, reconveyance, recovery of
possession, damages with application for the issuance of a writ of preliminary mandatory injunction and
temporary restraining order.1âwphi1.nêt

"During the hearing for the issuance of temporary restraining order, it was made clear to the respondent Judge
that the property in question was occupied by the petitioner by virtue of a writ of possession issued by the
Regional Trial Court of Pasig, Branch 157 in LRC Case No. R-5475 in a petition for the issuance of writ of
possession thereof way back on October 23, 1997 (Rollo, p. 22). Despite the lawful order of a coordinate and co-
equal court, the respondent Judge, presiding Regional Trial Court of Pasig, Branch 71, issued the questioned
orders to restore possession to private respondent Chan, alleging an obviously grave abuse of discretion,
tantamount to lack of jurisdiction (Rollo, p. 38).

"On the same date on December 8, 1997, the temporary restraining order (TRO) was issued, the Court Sheriff IV
Cresencio Rabello, Jr. implemented the TRO and submitted the Return on December 9, 1997 (Rollo, p. 39).

"Then, on January 21, 1998, the respondent Judge issued the questioned order granting the issuance of a writ of
preliminary injunction (Rollo, p. 14) who subsequently denied the petitioner's motion to dismiss and supplemental
motion to dismiss and the very urgent motion for reconsideration on February 16, 1998.

"On May 29, 1998, the motion for inhibition and the motion to dissolve the writ of preliminary injunction were
also denied (Rollo, p. 18)."15

On August 5, 1998, petitioner filed with the Court of Appeals a petition for certiorari and prohibition assailing the trial
court's issuance of a writ of preliminary injunction.6

On September 28, 1999, the Court of Appeals promulgated a decision dismissing the petition ruling that the trial court
jurisdiction to issue the injunction that did not interfere with the writ of possession of a coordinate court. 7

On October 19, 1999, petitioner filed with the Court of Appeals a motion for reconsideration of the decision.8

On February 2, 2000, the Court of Appeals denied petitioner's motion stating that the arguments advanced were "mere
reiteration and restatements of those contained in their pleadings x x x."9

Hence, this appeal.10

The Issue

The issue raised is whether the Court of Appeals erred in affirming the trial court's ruling issuing a writ of injunction
restraining a writ of possession in another case to place respondent back in possession of the subject property.

In other words, the issue is who between petitioner and respondent Kambiak Y. Chan, Jr. has a better right to the
possession of the subject property?

The Court's Ruling

We resolve the issue in favor of petitioner.

The conditional sale agreement was the only document that the respondent presented during the summary hearing of the
application for a temporary restraining order before the Regional Trial Court, Branch 71, Pasig City.11

We find that the conditional sale agreement is officious and ineffectual. First, it was not consummated. Second, it was not
registered and duly annotated on the Transfer Certificate of Title (No. 12357) covering the subject property. Third, it was
executed about eight (8) years after the execution of the real estate mortgage over the subject property.1âwphi1.nêt

To emphasize, the mortgagee (United Savings Bank) did not give its consent to the change of debtor. It is a fundamental
axiom in the law on contracts that a person not a party to an agreement cannot be affected thereby. Worse, not only was
the conditional sale agreement executed without the consent of the mortgagee-creditor, United Savings Bank, the same
was also a material breach of the stipulations of the real estate mortgage over the subject property. The real estate
mortgage, in part, provides:

40
 "(j) The MORTGAGOR shall neither lease the mortgaged property/ies, nor sell or dispose of the same in any
manner, without the written consent of the MORTGAGEE. However, if notwithstanding this stipulation and
during the existence of this mortgage, the property/ies herein mortgaged, or any portion thereof, is/are leased or
sold, x x x. It shall also be incumbent upon the MORTGAGOR to make it a condition of the sale or alienation that
the vendee, or any other party in whose favor the alienation is made, shall recognize as first lien the existing
mortgage or encumbrance in favor of the MORTGAGEE, as well as any new modified mortgage covering the same
properties to be executed by said MORTGAGOR in favor of the MORTGAGEE, and shall thereafter agree, promise
and bind himself to recognize and respect any extension of the terms of the original mortgage granted by the
MORTGAGEE in favor of the MORTGAGOR and such extended mortgage shall be considered as prior to such
encumbrance as the original mortgage. It is also further understood that should the MORTGAGOR sell, transfer
or in any manner alienate or encumber the mortgaged property/ies in violation of this agreement, he/she shall be
liable for damages to the MORTGAGEE."12

The conditions of the conditional sale agreement were not fulfilled, hence, respondent's claim to the subject property was
as heretofore stated ineffectual. Article 1181 of the Civil Code reads:

"Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishments or loss of those
already acquired, shall depend upon the happening of the event which constitutes the condition."

On the other hand, petitioner's right to the subject property is based on the following:

1. The real estate mortgage constituted by the Sps. Espino duly registered and annotated on TCT No. 12357 covering the
subject property.

2. The Deed of Assignment dated 15 January 1997 executed by UCPB Savings Bank (formerly United Savings Bank)
whereby it conveyed its rights as mortgagee in favor of the petitioner.

3. The Deed of Assignment of Right of Redemption dated 15 January 1997, executed by the Sps. Espino wherein they
assigned their right of redemption over the subject property to UCPB Savings Bank and the latter's successors-in-interest.

4. The Certificate of Sale dated 29 May 1997 executed by the sheriff, the affidavit of consolidation of ownership dated July
1997 (denominated as Doc. No. 490; Page No. 99. Book No. CLVII, Series of 1997 in the Notarial Books of Erlinda B.
Espejo, Notary Public for Quezon City) and TCT No. 8559-R subsequently issued to Petitioner.

5. The Order dated 23 October 1997 of Branch 157, RTC, Pasig City (LRC No. R-5475) and the Turn-over/Delivery of
Possession of the sheriff in the said LRC case.

In Soriano v. Bautista,13 the Deed of Real Estate Mortgage dated May 30, 1956 executed by the mortgagors contained a
stipulation giving the mortgagee the option to purchase the land subject of the mortgage on any date within the 2-year
period of the mortgage. The mortgagee subsequently decided to buy the land pursuant to this stipulation. We ruled:

"Appellants contend that, being mortgagors, they cannot be deprived of the right to redeem the mortgaged property,
because such right is inherent in and inseparable from this kind of contract. The premise of the contention is not entirely
accurate. While the transaction is undoubtedly a mortgage and contains the customary stipulation concerning
redemption, it carries the added special provision aforequoted, which renders the mortgagors' right to redeem defeasible at
the election of the mortgages. There is nothing illegal or immoral in this. It is simply an option to buy, sanctioned by
Article 1479 of the Civil Code, which states: "A promise to buy and sell a determinate thing for a price certain is binding
upon the promisor if the promise is supported by a consideration distinct from the price."14

In view of all of the foregoing, it is inexorable to conclude that petitioner, not the respondent, has a better right to the
possession of subject property.

The Judgment

WHEREFORE, the Court hereby REVERSES the decision of the Court of Appeals15 and the order denying reconsideration.

In lieu thereof, the Court renders judgment dismissing the case below, Civil Case No. 66554 of the Regional Trial Court,
Branch 71, Pasig City, including the counterclaims.

No costs.
41
SO ORDERED.

G.R. No. L-28967 July 22, 1975

AMELIA G. TIBLE, petitioner-administratrix,

vs.
JOSE C. AQUINO, respondent-claimant .

ESGUERRA, J.:

Petition for review on certiorari of the decision of the Court of Appeals in its C.A.-G. R. No. 32383-R, entitled "Amelia G.
Tible, petitioner-appellee vs. Jose C. Aquino, claimant-appellant", reversing the order of the Court of First Instance of
Camarines Sur in Sp. Proc. No. 731 (In the Matter of Intestate Estate of Emilio M. Tible, Amelia G. Tible, petitioner), which
dismissed the claim of Jose C. Aquino in the amount of P30,000.00 against the estate of the deceased, Emilio M. Tible,
and instead, ordered said claimant to pay said estate the sum of P50,500.00 as his indebtedness to the deceased Emilio
M. Tible. The decision of the appellate court sought to be reviewed reads as follows:

WHEREFORE, the judgment appealed from is hereby reversed. Let another be entered, ordering the
administratrix-appellee to pay claimant-appellant Jose C. Aquino the sum of P25,500.00 with legal
interest from the date of filing of the complaint. The counter-claim set forth herein is hereby dismissed for
lack of merit. With costs against the administratrix-appellee.

Petitioner was appointed administratrix of the Intestate Estate of the late Congressman Emilio M. Tible who died on
August 14, 1957, by the Court of First Instance of Naga City in Special Proceedings No. 731. Notice to creditors as
required by the Rules of Court having been published on March 8, 15, 22, 1958, private respondent-claimant Jose C.
Aquino filed with the probate court a claim against the estate for P30,000.00 on February 6, 1959, or almost eleven
months after the date of the first publication of the notice to creditors. A motion to dismiss was filed by the petitioner-
administratrix on the ground that the claim was filed beyond the reglementary period, but the trial court gave due course
to the claim. An answer with counterclaim for P54,500.00 was filed by petitioner-administratrix on May 8, 1959, followed
by an amended answer with counterclaim filed on October 12, 1959. After trial the lower court rendered judgment in favor
of the petitioner-administratrix as above mentioned.

The lower court, in dismissing Aquino's claim of P30,000.00 against the estate and ordering him to pay the estate the sum
of P50,500.00 rationalized as follows:

The evidence of the claimant shows that in 1954, he met Atty. Emilio Tible in the office of the Bureau of Forestry in Manila
he being a timber licensee and thereafter Atty. Tible borrowed money from him in the total amount of P50,000.00.
Thereafter, Congressman Tible bought from him a portion of his forest concession for the amount of P107,000.00 so that,
Atty. Tible has still a balance of P30,000.00 of his indebtedness to him as shown by the promissory notes, Exhs. A, A-1,
A-2 and A-3; that according to the claimant, he transferred to Atty. Tible a portion of his forest concession in the
Municipality of Esperanza, Agusan, under the authority of the Director of Forestry; that while Atty. Tible was still living,
he used to remind him about his indebtedness to him of P30,000.00 but the latter told him that he had no money yet.
According to the claimant, Jose C. Aquino, their agreement of the cession of the 2,000 hectares of forest land to
Congressman Tible for the amount of P107,000.00, was not made in writing.

The evidence of the administratrix, on the other hand, shows that the real agreement that took place between the
claimant and Atty. Tible was for the cession of 2,000 hectares of timberland to Tible for the amount of P50,000.00 which
was already paid by the latter as shown in the promissory note dated March 8, 1655, marked Exhibit "11"; that on April 9,
1955, the claimant was able to convince Atty. Tible to increase the amount of P50,000.00 to P80,000.00 alleging that Atty.
Emilio Tible would profit much from the 2,000 hectares and so, promissory notes marked Exhs. A, A-1 to A-3, were
executed by Atty. Emilio Tible on condition that the payment of which should depend upon the operation of the said 2,000
hectares to him; that after March 8, 1955, the claimant borrowed several amounts of money from Atty. Tible as shown in
the receipts and checks marked Exhibit 3, 4, 4-B, 4-b, 4-C, 4-D, 4-E, 4-F, 4-G, 5, 6, 7, 8, 9, 10 and 11 in the total
amount of P50,000.00 to be paid by the claimant to the said Atty. Tible but in the even that said claimant could not pay
said amount, Atty. Tible would be made a partner of the claimant in the operation of the timberland which was left to him
after the cession of the 2,000 hectares. This fact was established by the testimony of witness for the administratrix, Dr.
Marcial Tena, who was a partner of Atty. Emilio Tible, in their logging business; that besides the amount mentioned
above, Atty. Emilio Tible continued advancing money to the Aquinos' until the amount borrowed by the latter reached the
total sum of P54,500.00 as shown by the receipts marked Exhibits "3",
"4-F", "5", "6," "7", "8", "9", and "10". This amount was not yet paid by the claimant, Jose C. Aquino, up to the present.

42
The Court after a careful study of the evidence presented both by the claimant and the administratrix, arrived at the
conclusion that the amount of P30,000.00 claimed by the claimant, Jose C. Aquino, was not yet due and demandable at
the time of the presentation of the claim on the ground that Atty. Tible was not able to operate the 2,000 hectares ceded to
him by the claimant and that, the amount of P54,000.00 borrowed by the claimant from Atty. Tible has not been paid
until at present, neither was Atty. Tible made a partner by the claimant in the operation of the remaining forest
concession belonging to the said claimant. It was also found by the Court that the agreement entered into by and between
Atty. Tible and the claimant on the cession of this 2,000 hectares of timberland was against the law because a big amount
of money was paid by Atty. Tible as consideration for the cession of the 2,000 hectares of timberland which is speculative,
considering that claimant, Jose C. Aquino, had no improvement made in the ceded forest concession.

From the appealed order of the trial court it can be gleaned that although both petitioner and the private respondent agree
that there was a sale of the portion of Aquino's forest concession in Esperanza, Agusan, to Emilio Tible in 1955, two
conflicting versions of the agreement are put forward by each party as regards the consideration and the conditions
agreed upon.

Private respondent Aquino's evidence seeks to prove that Congressman Tible borrowed from him P50,000.00; thereafter
bought from him a portion of his forest concession for an agreed amount of P107,000.00; that Atty. Tible owed him a
balance of P30,000.00 as shown by promissory notes (Exhs. A, A-1, A-2, and A-3); that said forest concession was
transferred to Atty. Tible by authority of the Director of Forestry after the oral agreement of sale; and the balance of
P30,000.00 was never paid until the death of Atty. Tible.

Petitioner's version of the transaction was that the real agreement was for the cession of 2,000 hectares of timberland to
Atty. Tible for the amount of P50,000.00 which was paid by Atty. Tible as shown by the promissory note dated March 8,
1955 (]Exhibit "11"); that on April 9, 1955, Aquino was able to convince Atty. Tible to increase the sale price from
P50,000.00 to P80,000.00, as the latter expected to profit much from the 2,000 hectares of timberland; that promissory
notes (Exhs. "A", "A-1," to "A-3") were executed by Atty. Tible on condition that the payment of those promissory notes
would depend upon the operation of said 2,000 hectares; that after March 8, 1955, Aquino borrowed several amounts of
money from Atty. Tible (receipts and checks, Exhs. 3, 4, 4-B, 4-b, 4-C, 4-D, 4-E, 4-F, 4-G, 5, 6, 7, 8, 9, 10 and 11) in the
total amount of P50,000.00 to be paid by Aquino to Atty. Tible but in the event Aquino could not pay, Atty. Tible would be
made a partner of Aquino in the operation of the remainder of the timberland area still owned by Aquino; that Atty. Tible
continued lending money to Aquino until the amount of the latter's indebtedness reached P54,500.00 (Exhibits 3, 4-F, 5,
6, 7, 8, 9, 10); and that Atty. Aquino failed to pay that amount.

The two conflicting versions can be simplified thus — private respondent Aquino claims that Tible borrowed from him
P50,000.00 and then bought from him 2,000 hectares of his timberland in Agusan for P107,000.00; that Tible still owed
him a balance of P30,000.00 representing the unpaid balance of the consideration of the sale of the timberland at the time
of Tible's death. On the other hand, petitioner claims that the consideration for the sale of the timberland of Aquino to
Tible was only P50,000.00 which was already paid; that on April 9, 1955, Aquino and Tible agreed on an increase of the
sale price of the timberland from P50,000.00 to P80,000.00, so Tible executed promissory notes in favor of Aquino for the
balance of P30,000.00 subject to the condition that payment of those promissory notes would depend upon the operation
by Tible of the timberland; that after the foregoing transaction, Aquino borrowed several amounts from Tible (total
P50,000.00) but payment of said loans was subject to the condition that if Aquino cannot pay the loans to Tible, the latter
would be made a partner by Aquino in the operation of the remaining 2,000 hectares of timberland controlled by Aquino.
It is very clear that Aquino's version speaks of two transactions — loan of P50,000.00 to Tible and sale of 2,000 hectares
of timberland to Tible for P107,000.00. Petitioner's version speaks of three transactions sale of 2,000 hectares of Aquino's
timberland to Tible for P50,000.00; novation of the contract of sale by increasing the consideration from P50,000.00 to
P80,000.00, payment of the balance of P30,000.00 subject to the condition that payment would depend upon Tible's
operation of the timberland; and the supposed loans (total P50,000.00) given by Tible to Aquino, which if not paid by
Aquino would render it obligatory upon the latter to make Tible a partner in the operation of his remaining timberland.

The trial court in its evaluation of the evidence believed in petitioner's version of the transaction; hence the order of
October 31, 1961, which dismissed the claim of private respondent Aquino and ordered him to pay to the estate of Tible
the amount of P50,500.00 as his indebtedness to the deceased. It is this order of October 31, 1961, of the trial court that
was reversed by the respondent appellate court.

The respondent appellate court believed in claimant Aquino's version of the transaction in a well-discussed dissertation,
thus —

There is no dispute as to the sale of portion of Aquino's forest concession to Emilio Tible during the latter's lifetime.
However, there apparently exist two different versions as adduced by claimant and the administratrix relating to the
actual and real agreement as to the consideration of the sale and the conditions agreed upon. We have taken the pains of
reviewing carefully the records of this case in order to arrive as to the real agreement of the parties when they entered into

43
such contract of sale covering portion of Aquino's forest concession consisting of about 2,000 hectares and we are more to
believe that the version as advanced by claimant Aquino relating to their real agreement about said sale is more plausible as
it dovetailed with the material circumstances and facts of the case. To begin with, if the consideration of said transfer was
only P50,000.00 as insisted by the administratrix which was already paid as evidenced by receipt duly signed by the
claimant (Exh. 11), it would have been stated therein at least as full payment of the purchase price not as "payment of the
debt", considering that as insisted by the appellee the agreed price for such purchase of Aquino's forest concession was
only P50,000.00, which was already paid. The phrase "payment of debt" simply shows that the one tendering payment
(Tible) had an outstanding obligation to settle and this tallies with Aquino's assertion that prior to the negotiation of said
sale Tible had obtained various amounts from Aquino, which amounted all to P50,000.00 and which after consolidation
was paid by Tible as evidenced by a receipt duly signed by Aquino (Exh. 11). True, that the claimant-appellant at the
outset when asked to identify the questioned receipt of P50,000.00 (Exh. 11), admitted that said sum "covers the amount I
have taken from him which is part of the P77,000.00". Such admission, however, should be interpreted in the light of
extant circumstances. In making such sweeping admission, Aquino, however, made a qualification that said amount was
reached after consolidation and an accounting made of all the amounts received by him (t.s.n. pp. 38-39, hearing of July
3, 1955).1äwphï1.ñët And the consolidation referred to herein had reference to the various amounts secured by Aquino
from Tible as advances and as loan which were duly covered by receipts amounting also to P50,000.00 (Exhs. 3, 5, 6, 7
and 4-C) under the agreement that should the former fail to pay the same the latter would be a partner in the logging
operation of the Aquinos (t.s.n., p. 7, January 11, 1960). Thus, Aquino on rebuttal clarified his admission on this point —

Q The same witness Mr. Tena also declared that he was present on an occasion wherein you received from Mr. Tible the
sum of P50,000.00 as part payment of the portion of the area you ceded to Mr. Tible?

A I have never received the sum of P50,000.00 from the late Tible but instead that amount is a payment of what he owned
me.

Mr. Tena also declared that P50,000.00 which you received from Mr. Tible as part payment of a portion of your area was
made to appear as an indebtedness which is shown in this document, which is Exhibit "A", is that correct?

A It is true that I have received the amount from him as advances of the amount he is supposed to pay me. Those are the
advances he gave me and later on we made a liquidation of these advances and for the balance, because he has no money
at that time, he gave me that promissory note.

Q You are referring to the 4 Promissory notes executed by Mr. Tible on April 9, 1955?

A Yes, sir. (pp. 6-8, t.s.n., Jan. 11, 1960, Aquino on Rebuttal, Emphasis ours.)

Further, the foregoing asseverations of claimant-appellant coincide with the material facts of the case clearly indicating
that the amount of P50,000.00 embodied in Exhibit 11, involved another transaction which separate and distinct from the
consideration of the purchase price of the portion of Aquino's forest concession. It is of significant importance to note that
Exhibit 11, which appellee maintains as full payment of the purchase of the 2,000 hectares of Aquino's timber land
concession ceded to the deceased was executed on March 8, 1955, that is ahead by almost one month of the four
promissory notes in question upon which claimant's cause of action is predicated (Exhs. A, A-1 to A-3), which were
executed by Tible on April 9, 1955. Such being the case, therefore, and if it were really true that Tible had already paid the
purchase price as allegedly evidenced by Exhibit 11, we cannot conceive of any idea that would be within the realm of
probabilities as to why Tible had to execute the 4 promissory notes in question representing the balance of the purchase
price of said forest concession. It is advanced, however, as an excuse by the appellee that the agreed consideration thereof
in the amount of P50,000.00 was increased to P80,000.00, for which reason Tible had to execute said promissory notes,
whereby he then acknowledged to have an outstanding balance of P30,000.00 payable under the terms and conditions
embodied therein. Be that as it may, this would not create a situation contrary to what is reflected in the questioned
promissory notes (Exhs. A, A-1 to A-3). For it is undisputed that as of March 14, 1955 to April 5, 1955, Aquino evidently
appeared to be indebted to Tible in the sum total of P54,000. (Exhs. 3, 5, 6, 7, 4-C to 4-F), which various amounts were
obtained by the former from the latter as loan with an agreement that upon failure of Aquino to settle said amount, Tible
would then be a partner in the operation of Aquino's forest concession. And there is no evidence that Tible ever became a
partner in the operation of Aquino's forest concession when claimant failed to liquidate all the amounts he secured from
Tible. Therefore, it would appear that there would be no necessity for Tible to execute the promissory notes on April 9,
1955, assuming arguendo that the purchase price as originally agreed upon was increased, for Aquino was then still
indebted to Tible. Stated in short, as of March 14, 1955 to April 5, 1955, Tible appeared to be the creditor of Aquino.
However, on April 9, 1955, when Tible executed the promissory notes, the situation was reversed, as Aquino by this time
was the creditor of Tible. The reason for such shifting is clearly illustrated by Aquino when he testified —

Q Mr. Tena also declared that you received from Mr. Tible P54,500.00 which was conditioned that if you could not pay the
same you will make Mr. Tible a partner in your logging business at Esperanza, Agusan, is that correct?
44
A I do not exactly remember the amount but that was our first agreement that we will be partners in the logging but later
on he changed his mind because as a Congressman he cannot come to Butuan City. So, instead he asked me to cede part
of my area, at least 2,000 hectares which was already finalized later on. (p. 7, t.s.n., January 11, 1960.)

The four promissory notes in question executed on April 9, 1955, consisting of P12,500.00 which is payable within 240
days (Exh. A); the sum of P12,500.00 which is payable within 120 days (Exh. A-1); the sum of P2,500.00 which is payable
within 240 days (Exh. A-2); and the sum of P2,500.00 which is payable within 120 days (Exh. A-3), were found by the trial
court to be not yet due and demandable at the time of the presentation of the claim, which finding is now being capitalized
by the appellee as Tible was not able to operate the 2,000 hectares ceded to him by the claimant. The conclusion reached
by the trial court is obviously based on the subsequent receipt for P500.00 issued by Aquino in favor of Tible which
provides as follows —

P500.00

RECEIPT

RECEIVED from Congressman Emilio M. Tible an additional sum of Five Hundred (P500.00,) Pesos, to be credited against
the various amounts payable by him to the undersigned.

The following are also agreed:

(1) The various amounts totalling P4,000.00 taken by my brother, Rafael Aquino, will not be paid back to Emilio M. Tible
as promised in the receipts signed by my brother but will be credited against the various amounts payable in the future
by him to the undersigned.

(2) It is also understood that these various amounts appearing in the receipts signed by Emilio M. Tible payable to the
undersigned will not become due and payable until after the lapse of the respective periods therein specified, same to be
counted from the date the said Emilio M. Tible commences his operation within the public forest he acquired from the
undersigned. This present receipt, therefore, changes the dates of payment of the said various amounts just above
specified.

Manila, Philippines, June 15, 1955.

(Sgd.) JOSE AQUINO.

It is therefore, the theory of appellee that novation took place concerning the four promissory notes in question. Contrary
to appellee's view on this point, it is to be noted in these promissory notes executed by Tible that said amounts would be
payable within the period therein stated, provided "that in case of force majeure or any other cause beyond my control
that may hinder sale of logs, the payment of the amount ... in cash or in logs, will be deferred until normal times are
restored". The period therein stated was reproduced in a subsequent receipt (Exh. 1) which appellee maintains novated
the promissory notes stating that "these various amounts appearing in the receipts signed by Emilio M. Tible payable to
the undersigned will not become due and payable until after the lapse of the respective periods therein specified" which
obviously had reference to the period stated in the promissory notes in question. Such being the case, this can not be
treated as a novation at all. Conversely, the subsequent receipt is but a mere reiteration of acknowledgment of a debt by
Tible, although there was a qualified statement therein that "same to be counted from the date the said Emilio M. Tible
commences his operation within the public forest he acquired from the undersigned", and that said receipt (Exh. 1)
"changes the dates of payment of the said various amounts just above specified". Nonetheless, said qualification is but a
provision for a method and more time to pay and does not extinguish the obligation (Nat. Rice & Corn Corp. vs.
Gatbonton, CA-G.R. No. 27488-R, July 20, 1962). Thus, it has been held that —

An obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified by changing only the
term of payment and adding other obligations not incompatible with the old one (Ynchausti vs. Yulo, 34 Phil., 978; Pablo
vs. Sapungan, 71 Phil., 145., 145).

We rule, therefore, that the subsequent agreement between Aquino and Tible as to another mode of payment by giving the
latter more time to pay does not necessarily constitute novation as contemplated in Article 1291 of the New Civil Code
based on the well settled principle on novation that a "mere extension of payment and the addition of another obligation
not incompatible with the old one is not a novation thereof. Novation is never presumed; there must be a declaration to
the effect in unequivocal terms or that the old and the new obligations must be incompatible" (Santos vs. Acuna, G.R. No,
L-8831, October 31, 1956). In short, the facts of the case should plainly disclose that there was an unqualified intent to
discard the original substantial agreement, and not merely a change as to the mode of payment of an existing obligation
for novation is never presumed. The fact that Tible was not able to operate is beside the point, considering that the said

45
2,000 hectares of Aquino's timber concession was already ceded and transferred in the name of Emilio M. Tible of which
he was already granted by the Department of Agriculture and Natural Resources "Ordinary Timber License" (Exh. 22) and
later on in the name of the "Heirs of Emilio M. Tible" (Exh. 20).1äwphï1.ñët This consummates the transaction relating to
the sale of 2,000 hectares of Aquino's timber concession in favor of Tible and negates any idea that said sale of 2,000
hectares was speculative. Besides, the condition that payment of amounts embodied in the promissory notes shall be
dependent upon Tible's operation of the forest concession he acquired from Aquino is undoubtedly a void conditional
obligation, since its fulfillment is made to depend upon the exclusive will of the debtor (Tible) (Art. 115, Civil
Code).1äwphï1.ñët

It appearing that subsequent to the execution of the promissory notes, claimant Jose Aquino received the amount of
P500.00 and he acknowledged the amounts of P4,000.00 which was secured by his brother (Exh. 4-D to Exh. 4-F), to be
credited against the various sums payable by Tible in his favor, said amount in sum total of P4,500.00 should accordingly
be deducted from the whole amount of P30,000.00 as reflected in the four promissory notes subject matter of claimant's
cause of action, thereby leaving only the amount of P25,500.00 which claimant could lawfully recover from the estate of
Emilio M. Tible.

We find it difficult to dispute private respondent's argument that the real solution of this case hinges on findings based on
an evaluation of evidence as to the true nature of the transaction that transpired between Tible and Aquino. The crucial
issue of whether or not Tible borrowed from Aquino P50,000.00 before the former bought from Aquino 2,000 hectares of
timberland for P107,000.00 was resolved by the respondent Appellate Court in favor of respondent Aquino in its
aforequoted discussion on the basis of the evidence presented by both the petitioner and private respondent. Petitioner's
version of the supposed transactions that took place between Tible and Aquino was demolished by the findings of
respondent Appellate Court. Even if We were to disregard the cardinal rule that only issues of law decided by the
respondent Appellate Court may be reviewed by Us, and its findings of facts may likewise be subjected to a minute
inquiry, still We see no reasonable grounds for altering or modifying the Appellate Court's well founded conclusions.

Here, evidence of a nature that approaches the approximation of moral certainty, and not merely preponderance of
evidence, indicates the real transaction that took place between Aquino and Tible was that Tible borrowed P50,000.00
from Aquino before Tible bought 2,000 hectares of timberland from Aquino for an agreed consideration of P107,000.00.
Respondent Appellate Court's ruling relative to the four promissory notes (Exhs. "A", "A-1", "A-2", "A-3") as executed by
Tible in favor of Aquino to pay the balance of the agreed consideration of the sale, that "the subsequent agreement
between Aquino and Tible as to another mode of payment by giving the latter more time to pay does not necessarily
constitute novation as contemplated in Article 1291 of the New Civil Code on the well settled principle on novation that a
"mere extension of payment and the addition of another obligation not incompatible with the old one is not a novation
thereof", is well-buttressed by the evidence and We find no compelling reason to overturn the same. Neither do We see any
reason to disagree with respondent Appellate Court's ruling that "the condition that payment of amounts embodied in the
promissory notes shall be dependent upon Tible's operation of the forest concession he acquired from Aquino is
undoubtedly a void conditional obligation since its fulfillment is made to depend upon the exclusive will of the debtor,
Tible (Art. 1115, Civil Code)". The payment of the remaining balance of the purchase price of the 2,000 hectares of
timberland cannot be made to depend on the exclusive will of the debtor, Tible, whether or not he will operate the timber
concession.

As to the petitioner's contention raised for the first time before Us that the sale of the timberland for P107,000.00 by
Aquino to Tible is null and void for being contrary to law and public policy, suffice it to say that this new contention was
not raised by petitioner in the respondent Appellate Court where she only asked that the order of the trial court
recognizing the validity of the sale in accordance with petitioner's version and giving her a favorable judgment should be
affirmed. When the respondent Appellate Court reversed the order of the trial court and rendered judgment in favor of
private respondent Aquino by accepting his version of the transaction, petitioner now claims that the sale is void. In short,
she wants to win the case at any cost even by a complete change of theory on the real issues involved.

Petitioner's argument that the trial court erred in giving due course to Aquino's claim for P30,000.00 since it was filed
about eleven months after the date of the first publication of the notice to creditors hardly deserves consideration at this
time. When the trial court accepted the claim, what the petitioner did, instead of questioning the trial court's jurisdiction
on the matter, was to file a counterclaim against claimant Aquino, wherein she was sustained by the trial court, and she
urged the respondent Appellate Court to affirm it when claimant Aquino appealed the trial court's order. It is now late in
the day to question the timeless of the filing of the claim.

WHEREFORE, the decision of respondent Court of Appeals is affirmed, with costs against petitioner.

SO ORDERED.

G.R. No. 132403 September 28, 2007

46
HI-CEMENT CORPORATION, Petitioner,
vs.
INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL BANK and now,
EQUITABLE-PCI BANK) Respondent.

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

G.R. No. 132419

E.T. HENRY & CO. and SPOUSES ENRIQUE TAN and LILIA TAN, Petitioners,
vs.
INSULAR BANK OF ASIA AND AMERICA (later PHILIPPINE COMMERCIAL INTERNATIONAL BANK and now,
EQUITABLE-PCI BANK), Respondent.

DECISION

CORONA, J.:

At bar are consolidated petitions assailing the decision of the Court of Appeals (CA) dated January 21, 1998 in CA-G.R.
CV No. 31600 entitled Insular Bank of Asia and America [now Philippine Commercial International Bank/(PCIB)] v. E.T.
Henry & Co., et al.1

The antecedent facts follow.

Petitioners Enrique Tan and Lilia Tan (spouses Tan) were the controlling stockholders of E.T. Henry & Co., Inc. (E.T.
Henry), a company engaged in the business of processing and distributing bunker fuel.2 Among E.T. Henry's customers
were petitioner Hi-Cement Corporation (Hi-Cement),3 Riverside Mills Corporation (Riverside) and Kanebo Cosmetics
Philippines, Inc. (Kanebo). For their purchases, these corporations issued postdated checks to E.T. Henry.

Sometime in 1979, respondent Insular Bank of Asia and America (later PCIB and now Equitable PCI-Bank) granted E.T.
Henry a credit facility known as "Purchase of Short Term Receivables." Through this arrangement, E.T. Henry was able to
encash, with pre-deducted interest, the postdated checks of its clients. In other words, E.T. Henry and respondent were
into "re-discounting" of checks.

For every transaction, respondent required E.T. Henry to execute a promissory note and a deed of assignment bearing the
conformity of the client to the re-discounting.4

From 1979 to 1981, E.T. Henry was able to re-discount its clients' checks (with deeds of assignment) with respondent.
However, in February 1981, 20 checks5 of Hi-Cement (which were crossed and which bore the restriction "deposit to
payee’s account only") were dishonored. So were the checks of Riverside and Kanebo.6

Respondent filed a complaint for sum of money7 in the then Court of First Instance of Rizal8 against E.T. Henry, the
spouses Tan, Hi-Cement (including its general manager9 and its treasurer 10 as signatories of the postdated crossed
checks), Riverside and Kanebo.11

In its complaint, respondent claimed that, due to the dishonor of the checks, it suffered actual damages equivalent to
their value, exclusive of accrued and accruing interests, charges and penalties such as attorney’s fees and expenses of
litigation, as follows:

1. Riverside Mills Corporation ₱ 115,312.50

2. Kanebo Cosmetics Philippines, Inc. 5,811,750.00

3. Hi-Cement Corporation 10,000,000.00

Respondent also sought to collect from E.T. Henry and the spouses Tan other loan obligations (amounting to
₱1,661,266.51 and ₱4,900,805, respectively) as deficiencies resulting from the foreclosure of the real estate mortgage on
E.T. Henry's property in Sucat, Parañaque.12

47
Hi-Cement filed its answer alleging, among others, that: (1) its general manager and treasurer were not authorized to
issue the postdated crossed checks in E.T. Henry's favor; (2) the deed of assignment purportedly executed by Hi-Cement
assigning them to respondent only bore the conformity of its treasurer and (3) respondent was not a holder in due course
as it should not have discounted them for being "crossed checks."13

In their answer (with counterclaim against respondent and cross-claims against Hi-Cement, Riverside and Kanebo),14 E.T.
Henry and the spouses Tan claimed that: (1) the drawers of the postdated checks failed to honor them due to the adverse
economic conditions prevailing at the time respondent presented them for payment; (2) the extra-judicial sale of the
mortgaged Sucat property was void due to gross inadequacy of the bid price15and (3) their loans were subjected to a
usurious interest rate of 21% p.a.

For their part, Riverside and Kanebo sought the dismissal of the case against them, arguing that they were not privy to
the re-discounting arrangement between respondent and E.T. Henry.

On June 30, 1989, the trial court rendered a decision which read:

WHEREFORE, in view of the foregoing, and as a consequence of the preponderance of evidence, this Court hereby renders
judgment in favor of [respondent] and against [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], to wit:

1. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo], jointly and severally, to pay
[respondent] damages represented by the face value of the postdated checks as follows:

(a) Riverside Mills Corporation ₱ 115,312.50

(b) Kanebo Cosmetics Philippines, Inc. 5,811,750.00

(c) Hi-Cement Corporation 10,000,000.00

plus interests, services, charges and penalties until fully paid;

2. Ordering [E.T. Henry] and/or [spouses Tan] to pay to [respondent] the sum of ₱4,900,805.00 plus accrued
interests, charges, penalties until fully paid;

3. Ordering [E.T. Henry and spouses Tan] to pay [respondent] the sum of ₱1,661,266.51 plus interests, charges,
and penalties until fully paid;

4. Ordering [E.T. Henry, spouses Tan, Hi-Cement, Riverside and Kanebo] to pay [respondent] [a]ttorney’s fees and
expenses of litigation in the amount of ₱200,000.00 and pay the cost of this suit.16

SO ORDERED.17

Only petitioners appealed the decision to the CA which affirmed it in toto. Hence, these petitions.

In G.R. No. 132403, petitioner Hi-Cement disclaims liability for the postdated crossed checks because (1) it did not
authorize their issuance; (2) respondent was not a holder in due course and (3) there was no basis for the lower court’s
holding that it was solidarily liable for the face value of Riverside’s and Kanebo’s checks. 18

In G.R. No. 132419, on the other hand, E.T. Henry and the spouses Tan essentially contend that the lower courts erred
in: (1) applying the doctrine of piercing the veil of the corporate entity to make the spouses Tan solidarily liable with E.T.
Henry; (2) not ruling on their cross-claims and counterclaims, and (3) not declaring the foreclosure of E.T. Henry's Sucat
property as void.19

(A) G.R. 132403

As a rule, an appeal by certiorari under Rule 45 of the Rules of Court is limited to review of errors of law. 20 The factual
findings of the trial court, specially when affirmed by the appellate court, are generally binding on us unless there was a
misapprehension of facts or when the inference drawn from the facts was manifestly mistaken.21This case falls within the
exception.

48
Authority of Hi-Cement’s General Manager and Treasurer to Issue the Postdated Crossed Checks

Both the trial court and the CA concluded that Hi-Cement authorized its general manager and treasurer to issue the
subject postdated crossed checks. They both held that Hi-Cement was already estopped from denying such authority
since it never objected to the signatories' issuance of all previous checks to E.T. Henry which the latter, in turn, was able
to re-discount with respondent.

We agree with the lower courts that both the general manager and treasurer of Hi-Cement were authorized to issue the
subjects checks. However, notwithstanding such fact, respondent could not be considered a holder in due course.

Respondent Bank Not a Holder In Due Course

The Negotiable Instruments Law (NIL), specifically Section 191,22 provides:

"Holder" means the payee or indorsee of a bill or a note, or the person who is in possession of it, or the bearer thereof.

On the other hand, Section 5223 states:

A holder in due course is a holder who has taken the instrument under the following conditions: (a) it is complete and
regular on its face; (b) he became the holder of it before it was overdue, and without notice that it has previously been
dishonored, if such was the fact; (c) he took it in good faith and for value and (d) at the time it was negotiated to him, he
had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

Absent any of the elements set forth in Section 52, the holder is not a holder in due course. In the case at bar, the last two
requirements were not met.

In Bataan Cigar and Cigarette Factory, Inc. (BCCF) v. CA,24 we held that the holder of crossed checks was not a holder in
due course. There, the drawer (BCCF) issued postdated crossed checks in favor of one of its suppliers (George King) who
promised to deliver bales of tobacco leaf but failed. George King, however, sold the checks on discount to State Investment
House, Inc. (SIHI) and upon the latter’s presentment to the drawee bank, BCCF ordered a "stop payment." Thereafter, SIHI
filed a collection case against it. In ruling that SIHI was not a holder in due course, we explained:

In order to preserve the credit worthiness of checks, jurisprudence has pronounced that crossing of a check should have
the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the check may be
negotiated only once – to one who has an account with a bank [and]; (c) the act of crossing the checks serves
as warning to the holder that the check has been issued for a definite purpose so that he must inquire if he has received
the check pursuant to that purpose, otherwise, he is not a holder in due course.

Likewise, in Atrium Management Corporation v. CA,25 where E.T. Henry, Hi-Cement and its treasurer26 again engaged in a
legal scuffle over four postdated crossed checks, we held that Atrium (with which the checks were re-discounted) was not
a holder in due course. In that case, E.T. Henry was the payee of four Hi-Cement postdated checks which it endorsed to
Atrium. When the latter presented the crossed checks to the drawee bank, Hi-Cement stopped payment.27 We held that
Atrium was not a holder in due course:

In the instant case, the checks were crossed and specifically indorsed for deposit to payee’s account only. From the
beginning, Atrium was aware of the fact that the checks were all for deposit only to payee’s account, meaning E.T. Henry.
Clearly, then, Atrium could not be considered a holder in due course.

In the case at bar, respondent's claim that it acted in good faith when it accepted and discounted Hi-Cement’s postdated
crossed checks from E.T. Henry (as payee therein) fails to convince us. Good faith becomes inconsequential amidst proof
of respondent's grossly negligent conduct in dealing with the subject checks.

Respondent was all too aware that subject checks were crossed and bore restrictions that they were for deposit to payee's
account only; hence, they could not be further negotiated to it. The records likewise reveal that respondent completely
disregarded a telling sign of irregularity in the re-discounting of the checks when the general manager did not acquiesce to
it as only the treasurer's signature appeared on the deed of assignment. As a banking institution, it behooved respondent
to act with extraordinary diligence in every transaction.28 Its business is impressed with public interest, thus, it was not
expected to be careless and negligent, specially so where the checks it dealt with were crossed. In Bataan Cigar and
Cigarette Factory, Inc.,29 we ruled:

49
It is then settled that crossing of checks should put the holder on inquiry and upon him devolves the duty to
ascertain the indorser’s title to the check or the nature of his possession. Failing in this respect, the holder is
declared guilty of gross negligence amounting to legal absence of good faith…and as such[,] the consensus of
authority is to the effect that the holder of the check is not a holder in due course. (emphasis supplied)

The next query is whether Hi-Cement can still be made liable for the checks. We answer in the negative.

In State Investment House, Inc. (SIHI) v. Intermediate Appellate Court, 30 SIHI re-discounted crossed checks and was
declared not a holder in due course. As a result, when it presented the checks for deposit, we deemed that its presentment
to the drawee bank was not proper, hence, the liability did not attach to the drawer of the checks. We ruled that:

The three subject checks in the case at bar had been crossed…which could only mean that the drawer had intended the
same for deposit only by the rightful person, i.e., the payee named therein. Apparently, it was not the payee who
presented the same for payment and therefore, there was no proper presentment, and the liability did not attach to the
drawer. Thus, in the absence of due presentment, the drawer did not become liable. 31

Our resolution in the foregoing case was reiterated in Atrium Management Corporation v. CA,32 where we affirmed the CA
ruling that the drawer of the postdated crossed checks was not liable to the holder who was deemed not a holder in due
course.

We note, however, that in the two aforementioned cases, we made it clear that the NIL does not absolutely bar a holder
who is not a holder in due course from recovering on the checks. In both, we ruled that it may recover from the party who
indorsed/encashed the checks "if the latter has no valid excuse for refusing payment." Here, there was no doubt that it
was E.T. Henry that re-discounted Hi-Cement's checks and received their value from respondent. Since E.T. Henry had no
justification to refuse payment, it should pay respondent.

Solidary Liability of Hi-Cement for The Face Value of Riverside's and Kanebo's Checks

Hi-Cement could not also be made solidarily liable with Riverside and Kanebo for the face value of their checks. Hi-
Cement had nothing to do with the checks of these two corporations. However, although the language of the trial court
decision's dispositive portion seemed confusing, a reading of the decision in its entirety reveals that the fallo was for each
corporation to be liable solidarily with E.T. Henry and/or the spouses Tan for the respective values of their checks.

Furthermore, solidary liability cannot be presumed but must be established by law or contract. Neither is present here.
Articles 1207 and 1208 of the Civil Code provide:

Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to render, entire compliance with the
presentation. There is solidary liability only when the obligation expressly so states, or when the obligation
requires solidarity. (emphasis supplied)

Art. 1208. If from the law, or the nature of the wording of the obligations to which the preceding article refers to the
contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are
creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules governing the
multiplicity of suits.

At any rate, the issue has become moot in view of our ruling that Hi-Cement is not liable for the checks.

(B) G.R. No. 132419

Doctrine of Piercing the

Veil of Corporate Entity

In their petition, E.T. Henry and the spouses Tan argue that the lower courts erred in applying the "piercing the veil of
corporate entity" doctrine to their case. They claim that both the trial and appellate courts failed to cite the reasons why
the doctrine was relevant to them.

We agree with petitioners E.T. Henry and the spouses Tan in this respect.

50
If any general rule can be laid down, it is that the corporation will be looked upon as a legal entity until sufficient reasons
to the contrary appear. 33 It is only when the fiction or notion of legal entity is used to defeat public convenience, justify
wrong, perpetuate fraud or defend crime that the law will shred the corporate legal veil and regard it as a mere association
of persons.34 This is referred to as the doctrine of piercing the veil of corporate entity.

After a careful study of the records, we hold that E.T. Henry's corporate veil should not have been pierced at all.

First, the trial court failed to provide a clear ground why the doctrine was used. It merely stated that it agreed with
respondent’s arguments but did not explain why the doctrine was relevant to petitioner E.T. Henry's and the spouses
Tan’s case. On the other hand, the CA held:

…It appears that spouses Tan are controlling stockholders of E.T. Henry & Co., Inc. as well as its authorized signatories.
The business of the corporation was conducted solely for the benefit of the spouses Tan who colluded with [Hi-Cement] in
defrauding [respondent]. As the lower court cited…[I]t is a settled law in this and other jurisdictions that when the
corporation is a mere alter ego of a person, same being true when the corporation is controlled, and its affairs are so
conducted to make it merely an instrumentality, agency or conduit of another.35

Similarly, the CA left a gaping hole by failing to provide the basis for its ruling that E.T. Henry and the spouses Tan
defrauded respondent. It did not also state what act constituted the fraud. Fraud is an allegation of fact that demands
clear and convincing evidence.36 It is never presumed.37

Second, the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself sufficient ground for disregarding the separate corporate personality.38 For this ground to stand
in this case, there must be proof that the spouses Tan: (1) had control or complete domination of E.T. Henry’s finances
and that the latter had no separate existence with respect to the act complained of; (2) used such control to commit fraud
or wrong and (3) the control was the proximate cause of the loss or injury complained of by respondent.39 The records of
this case do not show that these elements were present.

Inadequacy of the Bid Price to Annul Foreclosure Proceeding

With respect to the allegation that foreclosure was void due to the inadequacy of the bid price, we agree with the CA that
the "mere inadequacy of the price obtained at the [s]heriff’s sale, unless shocking to the conscience, (was) not sufficient to
set aside the sale if there (was) no showing that, in the event of a regular sale, a better price (could) be
obtained."401âwphi1

Furthermore, in the absence of any irregularity in the foreclosure proceeding or proof that it was carried out without strict
observance of the procedure, we will continue to assume its regularity and strike down any attempt to vitiate it. In this
case, E.T. Henry and the spouses Tan made no mention of any anomaly to support the nullification of the foreclosure sale
but merely alleged a disparity in the bid price and the property’s fair market value.

Counterclaims and Cross-claims

Lastly, E.T. Henry and the spouses Tan call this Court's attention to the alleged failure of the lower court to pass upon
their counterclaim against respondent or cross-claims against Hi-Cement, Riverside and Kanebo. They ask us now to hold
these parties liable on the basis of said claims. We decline to do so.

First, E.T. Henry and the spouses Tan failed to implead Hi-Cement, Riverside and Kanebo as parties in the case at bar.
Under Rule 3 of the Rules of Court, every action, including a counterclaim (or a cross-claim), must be prosecuted or
defended in the name of the real party in interest.41 The term "defendant" may refer to the original defending party, the
defendant in a counterclaim, the cross-defendant or the third (fourth, etc.) party defendant.42 Hence, for this technical
lapse, we are constrained not to pass on E.T. Henry's and the spouses Tan's cross-claims.

Second, E.T. Henry and the spouses Tan filed the counterclaim against respondent on the basis of an alleged void
foreclosure proceeding on E.T. Henry's Sucat property due to an inadequate bid price. It is no longer necessary to delve
into this matter in view of our finding that the mere inadequacy of the bid price on the property did not automatically
render the foreclosure sale irregular or void.

Incidentally, the petition in G.R. No. 132419 posed no contest on the lower courts’ ruling on E.T. Henry’s and the spouses
Tan’s solidary liability with Riverside and Kanebo vis-a-vis their checks.43 To be consistent, however, with our dictum on

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the separate personality of E.T. Henry and the spouses Tan, the solidarity liability arising from the checks of Riverside
and Kanebo shall only be enforced against E.T. Henry.

WHEREFORE, the assailed decision of the Court of Appeals in CA-G.R. CV No. 31600 is
hereby AFFIRMED with MODIFICATION. Accordingly, petitioner Hi-Cement Corporation is discharged from any liability.
Only petitioner E.T. Henry & Co. is ORDERED to pay respondent Insular Bank of Asia and America (later Philippine
Commercial International Bank and now Equitable PCI-Bank) the following:

1. ₱10,000,000 representing the value of Hi-Cement's checks it received from respondent plus accrued interests,
charges and penalties until fully paid, and

2. the loans for ₱1,661,266.51 and ₱4,900,805 plus accrued interests, charges and penalties until fully paid.

Let the records of this case be remanded to the trial court for the proper computation of E.T. Henry's, Riverside's and
Kanebo's liabilities for the checks, attorney's fees and costs of litigation.

Costs against petitioners E.T. Henry and the spouses Enrique and Lilia Tan.

SO ORDERED.

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