1
FIRST DIVISION On August 3, 1966, Felix Francisco executed the following
G.R. No. L-69996 December 5, 1994
DR. FERNANDO PERIQUET, JR., petitioner,
vs.
HONORABLE FOURTH CIVIL CASES DIVISION OF
THE INTERMEDIATE APPELLATE COURT and the
HEIRS OF THE LATE FELIX R.
FRANCISCO, respondents.
Ledesma, Guytingco, Velasco & Associates and Conrado
Ayuyao for petitioner.
Albino B. Achas for private respondents.
Manuel Y. Macias intervenor.
KAPUNAN, J.:
Spouses Fernando Periquet and Petra Francisco were left
childless after the death of their only child, Elvira,1 so they
took in a son out of wedlock2 of Marta Francisco-Reyes,
sister of Petra. Though he was not legally adopted, the boy
was given the name Fernando Periquet, Jr. and was reared
to manhood by the spouses Periquet. He is the petitioner in
the instant case.
On March 20, 1966, Fernando Periquet died. He left a will
dated March 28, 1940 wherein he named his wife Petra as
his universal heir. Accordingly, Petra instituted Special
Proceedings No. Q-10004 entitled "In the matter of the
Petition to Approve the Will of Fernando Periquet" for
probate of his will.
On July 28, 1966, only four (4) months and eighteen (18)
days later, Petra died. Thereafter, Special Proceedings No.
Q-11074 entitled "In the Matter of the Intestate Estate of
Deceased Petra Francisco Vda. de Periquet" was instituted
by her nephew, Florentino Zaragoza.
Petra Francisco Vda. de Periquet was survived by the
following heirs, namely: Felix Francisco, her brother; Marta To Carmen Periquet — 10,000.00
Francisco-Reyes, her sister; Josefa and Felix Francisco,
children of her deceased brother, Mariano Francisco; and
Florentino Zaragoza, Zacarias Zaragoza, Alberta (Betty)
Zaragoza-Morgan and Gloria Zaragoza-Nuñez, children of
her deceased sister, Josefa Francisco de Zaragoza.
In the meantime, a few days before her death, Petra asked
her lawyer to prepare her last will and testament. However,
she died before she could sign it. In the said will, Petra left give full effect to the above-mentioned last wishes of the
her estate to petitioner, Fernando Periquet, Jr. and provided deceased Petra Francisco Vda. de Periquet with regards to
for certain legacies, to wit: P10,000.00 for Felix Francisco,
P10,000.00 for Dolores Periquet, P10,000.00 for Carmen
Periquet, P10,000.00 for Belen Periquet de Jesus, and
P5,000.00 each for Lydia Periquet and Jose Periquet, Jr.
and give full effect to the last wishes of the deceased Petra
document, viz:
ASSIGNMENT OF HEREDITARY RIGHTS
KNOW ALL MEN BY THESE PRESENTS.
This Instrument made and entered into by and between —
FELIX R. FRANCISCO, Filipino, of legal age, married and
residing at Lagao, Gen. Santos, Cotabato, Philippines,
hereafter referred to as the ASSIGNOR, — and —
FERNANDO PERIQUET, JR., Filipino, of legal age, single,
and residing at 24 Ilang-ilang, Quezon City, hereinafter
referred to as the ASSIGNEE.
WITNESSETH
WHEREAS, the ASSIGNOR is a brother and one of the
intestate heirs of the late Petra Francisco Vda. de Periquet
who died last July 28, 1966 while a resident of 24 Ilang-
ilang, Quezon City;
WHEREAS, the ASSIGNOR knows for a fact that said
deceased caused the preparation of a will which she was not
able to sign in view of her sudden and untimely death;
WHEREAS, the ASSIGNOR knows for a fact that the said
deceased under the Last Will and Testament which she has
caused to be prepared but which she was not able to sign,
has given, devised and bequeathed to Dr. Fernando
Periquet, Jr. her entire estate with the exception of the sum
of FIFTY THOUSAND PESOS (P50,000.00) which she has
bequeathed as follows:
To Felix Francisco — P10,000.00
To Dolores Periquet — 10,000.00
To Belen Periquet de Jesus — 10,000.00
To Lydia Periquet — 5,000.00
To Jose Periquet, Jr. — 5,000.00
—————
Total —P50,000.00
========
WHEREAS, the ASSIGNOR desires to honor, respect and
the disposition of her estate;
NOW, THEREFORE, for and in consideration of the
aforementioned desire of the ASSIGNOR to honor, respect
Francisco Vda. de Periquet as shown in her unsigned last
will and testament, the ASSIGNOR has assigned,
transferred and conveyed and by these presents do hereby
assign, transfer and convey unto the ASSIGNEE all his
rights, titles and interests in and to the intestate estate of
the late Petra Francisco Vda. de Periquet.
This Deed of Assignment shall retroact as of the date of the
death of Petra Francisco Vda. de Periquet.
The ASSIGNEE hereby accepts the above assignment made
by the ASSIGNOR.
To give full effect to the above assignment, the ASSIGNOR
does hereby nominate, constitute, and appoint the
ASSIGNEE as his true and lawful attorney-in-fact, for him
and in his name, place and stead, to do and perform the
following acts and things, namely: to represent him in any
judicial or extrajudicial settlement of the estate of the
deceased Petra Francisco Vda. de Periquet; to sign, execute
and deliver any and all contracts and documents in
connection therewith; to sign and execute any project of
partition or extrajudicial partition; to demand, receive, take
possession and dispose, under such terms and conditions as
he may deem best, of any and all properties and sums of
money which are or may be due him from said estate; to
endorse notes, checks or drafts payable to him from the said
estate; and to do and perform all and every acts and things
which may be requisite, necessary or proper to carry out all
the above purposes.
IN WITNESS WHEREOF, the parties have signed these
presents in Makati, Rizal, Philippines, this 3rd day of
August, 1966.
(Sgd.) (Sgd.)
FELIX R. FRANCISCO FERNANDO PERIQUET, JR.
Assignor Assignee.
SIGNED IN THE PRESENCE OF
(Witness) (Witness) 3
“On the same date, Marta Francisco-Reyes executed a Deed
of Assignment of Hereditary Rights in favor of Fernando
Periquet, Jr.4 A joint affidavit was likewise executed by them
(Marta and Felix) appointing herein petitioner as

administrator of the testate estate of Fernando Periquet5 in
lieu of Petra Francisco Vda. de Periquet.”
On August 11, 1966, Zacarias Zaragoza and Gloria Zaragoza-
Nuñez executed similar deeds assigning their hereditary
rights to petitioner.6 On January 26, 1967, Josefa Francisco
and Felix Francisco did the same.7 Florentino Zaragoza and
Alberta "Betty" Zaragoza-Morgan, however, refused to
execute deeds of assignment in favor of petitioner.
On December 13, 1969, petitioner entered into a
compromise agreement with the Zaragozas and the
intervenors, the Periquets, in special Proceedings Nos. Q-
10004 and Q-11074. The compromise agreement reads in
full:
COMPROMISE AGREEMENT
COME NOW the parties in the above-entitled cases, assisted
by their respective counsels and to this Honorable Court,
respectfully submit the following Compromise Agreement:
1. That all parties herein hereby acknowledge the validity of
the Last Will and Testament of Fernando Periquet dated
March 28, 1940 which was admitted to probate by this
Honorable Court on May 28, 1966, and that the sole and
only testate heir of the late Fernando Periquet at the time of
his death on March 20, 1966 was his wife Petra Francisco
Vda. de Periquet who died intestate on July 28, 1966;
2. That in consideration of the total sum of P67,500.00 to be
paid as hereinafter specified the INTERVENORS herein
agree to withdraw their Motion for Intervention and hereby
waive any and all claims, rights, interest, participation,
actions, causes of actions in or against the estates of
Fernando Periquet and Petra Francisco Vda. de Periquet,
their heirs, successors in interest, administrators and
assigns;
3. That in consideration of the total amount of P67,500.00
to be paid as hereinafter specified, Florentino Zaragoza,
Alberta (Betty) Zaragoza Morgan, Zacarias Zaragoza and
Gloria Nuñez, (hereinafter referred to as the ZARAGOZAS)
hereby assign, transfer and waive in favor of Dr. Fernando
Periquet, Jr. all their rights, title, interest, share and
participation in and to the intestate estate of Petra Francisco
Vda. de Periquet;
4. That the ZARAGOZAS hereby acknowledge the validity of
the assignments of hereditary rights in the estate of Petra
Francisco Vda. de Periquet executed by Marta Francisco
Reyes, Felix R. Francisco, Joseph Francisco, Felix Francisco,
Zacarias Zaragoza and Gloria Nuñez (all intestate heirs of
Petra Francisco Vda. de Periquet) in favor of Dr. Fernando
Periquet, Jr.;
5. That the payment of P67,500.00 to the ZARAGOZAS
includes the payment to Zacarias Zaragoza and Gloria
Nuñez of the balance due to them under the Deeds of
Assignment they have executed in favor of Dr. Fernando
Periquet, Jr. dated August 11, 1966 which documents are
identified as Doc. No. 299, Page No. 88, Book No. VIII,
Series of 1966, and Doc. No. 300, page No. 88, Book No.
VIII, Series of 1966, respectively of Notary Public Cirilo
Ganzon in and for the City of Iloilo, which amount of
P67,500.00 shall be distributed among them as they may
agree among themselves;
6. That with the assignments executed by the heirs of Petra
Francisco Vda. de Periquet in favor of Dr. Fernando
Periquet, Jr. and the payment to the INTERVENORS and
the ZARAGOZAS, all the parties herein recognize Dr.
Fernando Periquet, Jr. (nephew of the deceased spouses
Fernando and Petra) as the sole and only heir of the estates
left by Fernando Periquet and Petra Francisco Vda. de
Periquet;
7. That the parties herein agree to the appointment of Dr.
Fernando Periquet, Jr. as the regular administrator of both
the estates of Fernando Periquet and Petra Francisco Vda.
de Periquet until the proceedings to settle said estates are
finally terminated;
8. That in the event any claim of any kind or whatever
nature other than those presently appearing in the records
of these cases are presented against the said estates and/or
Dr. Fernando Periquet, Jr. in his capacity as administrator
or heir thereof, the parties herein agree to contribute to the
payment of said claim or claims if and when proved, in the
following proportion:
One-Fourth (1/4) By the intervenors (jointly and severally),
with the exception of intervenor Aurelio Periquet, Sr.
One-Fourth (1/4) By the ZARAGOZAS (jointly and
severally).
One-Half (1/2) by Dr. Fernando Periquet, Jr.
2
9. That as a security against such claims, the parties herein
agree to post surety bonds from a reputable bonding
company acceptable to all parties herein, in favor of the
estate of Fernando Periquet and Petra Francisco Vda. de
Periquet in the following amounts:
FIFTEEN THOUSAND PESOS (P15,000.00) for the
ZARAGOZAS.
FIFTEEN THOUSAND PESOS (P15,000.00) for the
INTERVENORS, with the exception of intervenor Aurelio
Periquet, Sr.
THIRTY THOUSAND PESOS (P30,000.00) (in the form of
real property) for Dr. Fernando Periquet, Jr.
which bonds shall be valid and effective for a period of one
year from date of approval of this Compromise Agreement;
10. That the final amount of P30,000.00 shall be paid to the
Law Office of LEDESMA, GUYTINGCO & ASSOCIATES in
full settlement of their services rendered in the settlement of
these two estates, of which P25,000.00 shall be paid by the
estates upon the approval of this Compromise Agreement
and the balance upon the termination of these two cases;
11. That the payment of the sum of P67,500.00 to the
INTERVENORS and the same amount to the ZARAGOZAS
shall be withdrawn from the funds of the estate of Fernando
Periquet deposited with the various banks and paid to said
parties or their designated representative upon the approval
by this Honorable Court of this Compromise Agreement.
The INTERVENORS hereby individually authorize and
empower Miss Dolores Periquet to receive and receipt for
any and all sums due them under the Compromise
Agreement. The ZARAGOZAS likewise hereby individually
authorize and empower Mr. Florentino Zaragoza to receive
and receipt for any and all sums due them under this
Compromise Agreement;
12. That all claims which have not been paid in full per
Motion of Special Administrator through his counsel dated
May 20, 1969 shall be paid immediately upon approval of
this Compromise Agreement;
13. That all residue of the two estates, real and personal,
shall be adjudicated, assigned and transferred to the name
of Dr. Fernando Periquet, Jr. upon the approval of this
Compromise Agreement;

14. That in lieu of a surety bond in the amount of
P30,000.00 Dr. Fernando Periquet, Jr. shall be restricted
from assigning, transferring or conveying Lot 1, Block 33
comprising of 441 sq. m. and covered by T.C.T. No. 25144,
Q.C., which is one of the real properties adjudicated to him
under this Compromise Agreement, for a period of twelve
months as his portion of the security for any unpaid claim
that may appear within the said twelve months' period; the
said surety undertaking shall be duly annotated in said title;
15. That in the event any of the heirs who have assigned
their hereditary rights to Dr. Fernando Periquet, Jr.
successfully repudiates or impugns the validity of the
assignment they have executed in favor of the latter, the
INTERVENORS and the ZARAGOZAS agree to a
proportionate reduction of the amounts due them under
this Compromise Agreement or to a proportionate return of
the amount received by them.
16. That Intervenor Aurelio Periquet hereby waives, assigns
and transfers all and whatever rights, interests and
participation which he may have in the estate of Fernando
Periquet and Petra Francisco Vda. de Periquet in favor of
Dolores Periquet, or which reason, he shall not be liable for
any claim of any kind or whatever nature, the same being
transferred likewise to his assignee, Dolores Periquet, who
hereby assumes the said obligation, if any.
WHEREFORE, it is respectfully prayed that the above
Compromise Agreement be approved and the corresponding
order/s implementing the same to be issued.
Manila for Quezon City, Philippines, December 13, 1969.8
Signatories to the compromise agreement were the
petitioner, the Zaragozas (Florentino, Zacarias, Alberta and
Gloria), the Periquets (Aurelio, Alfonso, Consuelo,
Natividad, Marcelina, Francisco, Dolores, Belen and
Milagros) and their respective counsels.
On December 20, 1969, the same agreement was approved
by the trial court. Another order of even date was issued
ordering the adjudication and transfer of the residue of the
estate to herein petitioner.
On May 16, 1970, Felix R. Francisco, brother of Petra
Francisco Vda. de Periquet, filed the instant action to annul
the Assignment of Hereditary Rights he executed in favor of
Fernando Periquet, Jr. and to recover his one-fourth (1/4)
share in the estate of the late Petra Francisco Vda. de
Periquet. The action for annulment was based on "gross
misrepresentation and fraud," "grave abuse of confidence,"
"mistake and undue influence," and "lack of cause and/or
consideration" in the execution of the challenged deed of
assignment.
On May 8, 1976 the trial court rendered judgment, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring valid and binding the assignment of hereditary
rights executed by plaintiff in favor of defendant, Exhibit B,
but ordering and sentencing defendant to pay plaintiff the
amount of P10,000.00 which defendant had promised to
give plaintiff in consideration of said assignment;
2. Dismissing the third-party complaint and the different
cross-claims.
3. There is no pronouncement as to costs.
SO ORDERED. 9
On appeal to the then Intermediate Appellate Court, the
said judgment was "modified" to read:
WHEREFORE, judgment is hereby rendered (a) modifying
the decision of the Court a quo in the sense that the
"Assignment of Hereditary Rights" is hereby annulled or
rescinded and appellant completely relieved from the legal
effects thereof, (b) declaring and holding appellant FELIX
R. FRANCISCO the owner of one-fourth (1/4) of all the
estate of Petra Francisco Vda. de Periquet, made up of the
residue of the combined estates of the deceased spouses
Fernando Periquet and Petra Francisco Vda. de Periquet,
which residue must be deemed to include the amounts paid
to various others heirs and claimants and to appellee Dr.
Fernando Periquet's counsel as well as the remainder of the
estate adjudicated to appellee Dr. Fernando Periquet
himself in special Proceedings Nos. Q-10004 and
Q-11074 of the Court of First Instance of Rizal, Branch IV
sitting in Quezon City, (c) ordering defendant-appellee to
pay unto the plaintiff-appellant the sum of P20,000.00 as
moral damages, (d) ordering defendant-appellee to pay the
sum of P5,000.00 as exemplary damages and P10,000.00
as attorney's fees.
Costs against defendant-appellee.
SO ORDERED. 10
3
A motion for reconsideration of the above-quoted decision
was filed by petitioner Periquet but the same was denied for
lack of merit on February 1, 1985, 11 hence, the instant
petition for review.
Petitioner Fernando Periquet, Jr. assails the respondent
court's decision on the following grounds, to wit:
FIRST ASSIGNMENT OF ERROR
THE RESPONDENT COURT ERRED IN DISREGARDING
AND IGNORING THE TRIAL COURT'S STRONG AND
SUBSTANTIAL FINDINGS OF FACT THAT NO FRAUD,
DECEPTION, GROSS MISREPRESENTATION OF UNDUE
INFLUENCE ATTENDED THE EXECUTION AND
SIGNING OF THE DEED OF ASSIGNMENT OF
HEREDITARY RIGHTS (EXHIBIT B).
SECOND ASSIGNMENT OF ERROR
THE RESPONDENT COURT ERRED IN CONCLUDING
THAT THERE WAS ALLEGEDLY NO CAUSE OR
CONSIDERATION FOR THE EXECUTION OF THE DEED
OF ASSIGNMENT OF HEREDITARY RIGHTS (EXHIBIT
B).
THIRD ASSIGNMENT OF ERROR
THE RESPONDENT COURT ERRED IN DISTURBING
AND SETTING ASIDE THE ORDERS, DECREES AND
PROCEEDINGS TAKEN IN SPECIAL PROCEEDING NOS.
Q-10004 AND Q-11074 OF THE THEN COURT OF FIRST
INSTANCE OF QUEZON CITY.
FOURTH ASSIGNMENT OF ERROR
THE RESPONDENT COURT ERRED IN ANNULLING OR
RESCINDING THE DEED OF ASSIGNMENT OF
HEREDITARY RIGHTS AND RELIEVING FELIX R.
FRANCISCO COMPLETELY FROM THE LEGAL EFFECTS
THEREOF.
FIFTH ASSIGNMENT OF ERROR
THE TRIAL COURT ERRED IN AWARDING MORAL AND
EXEMPLARY DAMAGES AND ATTORNEY'S FEES TO
FELIX R. FRANCISCO.12
Meanwhile, on December 28, 1980, private respondent
Felix R. Francisco passed away, hence, in a resolution dated
September 23, 1985, the court allowed his heirs to be
substituted in his stead. In the same resolution, we likewise
recognized Manuel Macias, the first counsel of Felix
Francisco, as an intervenor in the instant petition.

Petitioner Fernando Periquet, Jr. contends that the
execution of the assignment of hereditary rights in his favor
by Felix R. Francisco was not tainted with fraud, deception,
gross misrepresentation, or undue influence because the
latter read the instrument, understood its import and later
signed the same freely and voluntarily. There was likewise
true and valid consideration in the execution of the
instrument.
On his part, Felix R. Francisco alleges that petitioner
committed a number of unmistakable acts of fraud. He
claims that he was rushed into signing the instrument he
never read nor was explained to him. He further contends
that petitioner abused the confidence he reposed on him
when the latter failed to make good his promise to give him
P10,000.00 as consideration for the execution of the deed of
assignment.
We sustain the petitioner.
The kind of fraud that will vitiate a contract refers to those
insidious words or machinations resorted to by one of the
contracting parties to induce the other to enter into a
contract which without them he would not have agreed
to. 13 It must have a determining influence on the consent of
the victim.14 The will of the victim, in effect, is maliciously
vitiated by means of a false appearance of reality. 15
In the case at bench, no such fraud was employed by herein
petitioner. Resultantly, the assignment of hereditary rights
executed by Felix Francisco in favor of herein petitioner is
valid and effective.
Felix Francisco could not be considered to have been
deceived into signing the subject deed of assignment for the
following reasons, viz:
First, the assignment was executed and signed freely and
voluntarily by Felix Francisco in order to honor, respect and
give full effect to the last wishes of his deceased sister, Petra.
The same was read by him and was further explained by
Atty. Diosdado Guytingco.16 Furthermore, witnesses for
petitioner, Antonio Eugenio and Elias Fermin, who also
served as witnesses in the execution and signing of the deed
of assignment testified to the foregoing.17They declared that
Felix Francisco was neither forced nor intimidated to sign
the assignment of hereditary rights. He did so out of his own
free will and volition.
Second, there was valid cause or consideration in the
execution of the assignment of hereditary rights. Contrary to
the trial court's finding that the amount of P10,000.00 as
promised by Dr. Fernando Periquet, Jr. to Felix Francisco is
the cause or considereation of the assignment, we find and
so rule that it was the generosity or liberality of Felix
Francisco that impelled him to execute the questioned
instrument. Pure beneficence, not monetary consideration,
was the moving force because Felix wanted to respect the
wishes of a deceased sibling. Consequently, the award of
P10,000.00 to private respondent Felix Francisco as
consideration of the assignment of hereditary rights is
eliminated, the deed thus executed being merely gratuitous
in nature.
Third, the allegation of fraud is an afterthought on the part
of the assignor, Felix Francisco who filed the instant case to
annul the deed of assignment on the ground of fraud only in
1970, almost four (4) years after he executed the
instrument. He initiated the proceedings immediately upon
learning from his niece, Gloria Zaragoza that a compromise
agreement was reached by the parties in Special
Proceedings Nos. Q-10004 and Q-11074 and that they were
to receive certain amounts from the settlement.18 In fact,
Felix even admitted in his testimony that he was waiting for
the outcome of the cases before filing his own independent
action.19
Clearly, Felix slept on his rights and allowed laches to set in.
This is fatal to his case. Laches is failure or neglect, for an
unreasonable length of time to do that which by exercising
due diligence could or should have been done, earlier; it is
negligence or omission to assert a right within a reasonable
time warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert
it.20 He could have intervened in Special Proceedings Nos.
Q-10004 and Q-11074. He did not do so. He cannot feign
ignorance of the existence of the said cases as he was
actually waiting for their final disposition before asserting
his own rights. Neither did he raise fraud nor cry out for the
improper execution of the deed of assignment prior to the
instant action. He never confronted petitioner about his
alleged share in the estate of the deceased in the period
between 196621 and 1970,22 thus, raising the
incontrovertible conclusion that fraud never attended the
execution of the deed of assignment. He decided to holler
foul and raise the defense of fraud only upon learning that a
compromise agreement was entered into by the petitioner,
the
Francisco-Zaragozas, and the Periquets.
4
Moreover, fraud is a question of fact and the circumstances
constituting the same must be alleged and proved in the
court below.23 The allegations of fraud, deception, gross
misrepresentation, or undue influence were not proved in
court, hence, the same must fail. Fraud and other vices of
consent must be established by full, clear, and convincing
evidence.24 Therefore, the finding of the trial court as to its
existence or non-existence is final and cannot be reviewed
save only when the finding is clearly shown to be erroneous.
We perceive no error in the trial court's finding that the
deed of assignment is not tainted with fraud. We reproduce
said finding with approval:
“(P)laintiff's evidence which consist solely of his oral
testimony and the documentary evidence marked as
exhibits, fail miserably to establish the gross
misrepresentation, deception, fraud, grave abuse of
confidence, mistake and undue influence allegedly
employed on him to secure hi consent to and signature on
the assignment of hereditary rights.
In the first place, plaintiff had in his deposition indeed
given inconsistent statements which cast serious doubts on
his credibility. On direct examination, plaintiff declared that
he signed the deed of assignment of hereditary rights in the
house of the deceased (referring to the deceased Petra
Francisco Vda. de Periquet) at Ilang-Ilang (Deposition,
Exhibit A,
pp. 13-14). Later plaintiff declared that he signed the
document at New Manila, Quezon City (Id., p. 19). He
declared that the assignment of hereditary rights was signed
at midnight (Id., p. 13). Later on
cross-examination, plaintiff declared that it was daytime
when he signed (Id., p. 10). Also on direct examination,
plaintiff declared that he did not read the assignment of
hereditary rights before or at the time he signed (Id., p. 13).
But on cross-examination he declared that he read a portion
of the same (Id., pp. 68-69).
There is ample evidence that plaintiff signed the deed of
assignment of hereditary rights freely and voluntarily and
was fully aware of the contents, import and meaning of the
document. Thus, to the question, "what did Dr. Fernando
Periquet, Jr., tell you, if any, before signing this
document?," plaintiff's answer was, "He promised me to get
the whole amount of P10,000.00 without any consent of his
mother, personally, secret between us." (Deposition, Exh. A,
p. 18).”
The third "Whereas" clause of the deed of assignment of
hereditary rights states:

WHEREAS, the ASSIGNOR knows for a fact that the said
deceased under the last Will and Testament which she has
caused to be prepared but which she was not able to sign,
has given, devised and bequeathed to Dr. Fernando
Periquet, Jr. her entire estate with the exception of the sum
of FIFTY THOUSAND PESOS (P50,000.00) which she has
bequeathed as follows:
To Felix Francisco — P10,000.00
To Dolores Periquet — 10,000.00
To Carmen Periquet — 10,000.00
To Belen Periquet de Jesus — 10,000.00
To Lydia Periquet — 5,000.00
To Jose Periquet, Jr. — 5,000.00
—————
P50,000.00
=========
and the fact is undisputed that defendant Fernando
Periquet, Jr., was since he was just a few days old adopted
(though not judicially) by the deceased spouses Fernando
Periquet and Petra Francisco, and lived with, served and
cared for the said spouses for forty-six (46) years up to the
time of their demise. Just prior to her death, Petra Francisco
Vda. de Periquet caused the preparation of a will leaving her
entire estate, with the exception of certain legacies, to
defendant, but death supervened and the will was left
unsigned.
It must also be noted, and this is also important, that on the
same occasion that plaintiff signed the deed of assignment
of hereditary rights, Exhibit B, Marta Francisco Reyes also
signed a similar assignment of hereditary rights, Exhibit 2-
Periquet.
The reason why plaintiff later changed his mind is also
disclosed in his testimony on cross-examination. The reason
is, "Because when I was sent a telegram by my niece Gloria
Zaragoza wherein it is sated that I have a share in the
amount of P100,000.00, the telegram is in the possession of
the defendant, he did not return it to me anymore after I
have shown it to him." (Deposition, Exh. A, p. 42). To a
further question on cross-examination, "My question is this
Mr. Francisco, if the doctor complied with his promise here
and gave you the P10,000.00 you will not complain
anymore, is it not?," plaintiff's answer was, "No, I will
complain too." To the follow-up question, "Why?," the
answer was, "To complete the P100,000.00." The
succeeding question was, "Who told you that you deserve
P100,000.00?," the answer was, "My niece who received
P100,000.00 too, Gloria Zaragoza" (Deposition, Exh. A, p.
81).
Assuming that plaintiff did not know or was not aware of
the contents and import of the assignment of hereditary
rights, Exhibit B, when he signed the same on the night of
August 3, 1966, it is impossible he did not come to know at
least the import or the consequences of the same a few days
after. The evidence is unrebutted that plaintiff was
defendant's go between or intermediary in securing from
Zacarias Zaragoza and Gloria Zaragoza-Nuñez the latter's
consent and signatures to the assignment of hereditary
rights, Exhibits M and I. On this point defendant testified,
"I was with Felix Francisco. He was the one who was very
instrumental in helping me out on looking where these
cousins of mine live and at the same time convince them to
sign the assignment of hereditary rights in my favor for he
has signed a similar document" (t.s.n. — Rivera, Oct. 23,
1973, pp. 31-32). Plaintiff in fact was with defendant in
Iloilo when defendant secured the signatures of Zacarias
Zaragoza and Gloria Zaragoza Nuñez to the assignments
of hereditary rights, Exhibits H and I, on August 11, 1966 —
eight (8) days after plaintiff signed the assignment of
hereditary rights, Exh. B. Plaintiff was also with defendant
when the latter approached Florentino Zaragoza but
Florentino refused to sign
(t.s.n. — Rivera, Oct. 23, 1973, pp. 30-31; 33). The point is, if
plaintiff was in truth deceived by defendant, if it were that
he had given his consent to and signature on the
assignment of hereditary rights, Exhibit B, because of
"gross misrepresentation and deception and fraud," "grave
abuse of confidence," "mistake and undue influence"
employed on him by defendant, he would not have waited
until May 16, 1970 — almost four (4) years after he signed
Exhibit B, to file this case. At the expense of being
repetitious, it is impossible, after helping defendant get the
signatures of Zacarias Zaragoza (the last of whom refused)
to similar assignment of hereditary rights that plaintiff did
not become aware at least from that time of the import and
consequence of the assignment of hereditary rights he
signed. After the widow Petra Francisco Vda. de Periquet
died without having signed the will which she had asked
defendant's lawyer to prepare, the deeds of assignment of
hereditary rights which plaintiff, among others were asked
to sign, was the last resorted (sic) to keep the estate of the
deceased spouses in the hands of the defendant. Plaintiff
obviously knew of the purpose of the several assignment of
hereditary rights and was in fact instrumental in securing
the consent and signatures of at least two of the heirs —
Zacarias and Gloria — and failed in one — Florentino.
5
Equally as weighty, the testimonies of the witnesses to the
assignment of hereditary rights, Exhibit "E," — Antonio
Eugenio and Elias Fermin — are positive and convincing
that plaintiff signed Exhibit B freely and voluntarily after
reading the same and after being asked by defendant's
counsel, Atty. Guytingco, whether he understands the
contents of the same.25 (Emphasis ours).
Finally, we agree with the petitioner that respondent court
erred in disturbing the proceedings conducted in Special
Proceedings Nos. Q-10004 and Q-11074, and the decrees
and orders issued pursuant thereto. It cannot be denied that
a compromise agreement was entered into by the parties in
that case in order to end the suit already filed in court. The
same was approved by the trial court in the order dated
December 20, 1969.26 Well-settled is the rule that a
compromise agreement, once approved by the court, cannot
and should not be disturbed except for vices of consent or
forgery, it being the obvious purpose of such compromise
agreement to settle, once and for all, the claims of the
parties, and bar all future disputes and controversies
thereon.27 A compromise agreement cannot bind persons
who are not parties thereto.28 Neither would a person not
party to a compromise agreement be entitled to enforce the
same.29 Similarly, a person who is not a party to an
agreement, as in this case, cannot seek the amendment or
modification of the same. Neither can a court of law rule
that the compromise agreement be amended and modified
pursuant only to the wishes of a person not party to the said
agreement.
All told, the assignment of hereditary rights executed by the
late Felix R. Francisco in favor of petitioner Dr. Fernando
Periquet, Jr. is hereby declared valid and effective.
ACCORDINGLY, the petition is hereby GRANTED and the
decision of respondent court is hereby REVERSED and SET
ASIDE. The decision of the trial court is AFFIRMED subject
to the elimination of the award of P10,000.00 to Felix R.
Francisco. Costs against private respondents.
SO ORDERED.
THIRD DIVISION
G.R. No. 96505 July 1, 1993
LEGASPI OIL CO., INC., petitioner,
vs.
THE COURT OF APPEALS and BERNARD
OSERAOS, respondent.
Duran, Lanuzo & Associates for petitioner.
Leovigildo Mijares III for private respondent.
MELO, J.:

The petition for review on certiorari before us seeks to set
aside the decision dated March 23, 1990 of the Court of
Appeals in CA-G.R. CV No. 05828, penned by the
Honorable Justice Abelardo Dayrit with whom Justices
Javellana and Kalalo concurred, which dismissed
petitioner's complaint for damages (p. 48, Rollo).
Petitioner does not dispute the facts of the case, as found by
respondent Court of Appeals. The findings of the
respondent Court are thus adopted, to wit:
From the evidence presented by the plaintiff-appellee [now
petitioner Legaspi Oil Company, Inc.], it appears that
defendant-appellant [now private respondent Bernard
Oseraos] acting through his authorized agents, had several
transactions with appellee Legaspi Oil Co. for the sale of
copra to the latter. The price at which appellant sells the
copra varies from time to time, depending on the prevailing
market price when the contract is entered into. One of his
authorized agents, Jose Llover, had previous transactions
with appellee for the sale and delivery of copra. The records
show that he concluded a sale for 70 tons of copra at P95.00
per 100 kilos on May 27, 1975 (Exhibit G-5) and another
sale for 30 tons of P102.00 per 100 kilos on September 23,
1975 (Exhibit G-3). Subsequently, on November 6, 1975,
another designated agent signed a contract in behalf of
appellant for the sale of 100 tons of copra at P79.00 per 100
kilos with the delivery terms of 25 days effective December
15, 1975 (Exhibit G-2). At this point, it must be noted that
the price of copra had been fluctuating (going up and
down), indicating its unsteady position in the market.
On February 16, 1976, appellant's agent Jose Llover signed
contract No. 3804 for the sale of 100 tons of copra at
P82.00 per 100 kilos with delivery terms of 20 days effective
March 8, 1976 (Exhibit G, for the plaintiff). As compared to
appellant's transaction on November 6, 1975, the current
price agreed upon is slightly higher than the last contract. In
all these contracts though, the selling price had always been
stated as "total price" rather than per 100 kilos. However,
the parties had understood the same to be per 100 kilos in
their previous transactions.
After the period to deliver had lapsed, appellant sold only
46,334 kilos of copra thus leaving a balance of 53,666 kilos
as per running account card (Exhibit "F"). Accordingly,
demands were made upon appellant to deliver the balance
with a final warning embodied in a letter dated October 6,
1976, that failure to deliver will mean cancellation of the
contract, the balance to be purchased at open market and
the price differential to be charged against appellant. On
October 22, 1976, since there was still no compliance,
appellee exercised its option under the contract and
purchased the undelivered balance from the open market at
the prevailing price of P168.00 per 100 kilos, or a price
differential of P86.00 per 100 kilos, a net loss of P46,152.76
chargeable against appellant. (pp. 43-44, Rollo)
On November 3, 1976, petitioner filed a complaint against
private respondent for breach of a contract and for
damages.
After trial, the then Court of First Instance (now Regional
Trial Court) of Albay in Civil Case No. 5529 rendered a
decision holding herein private respondent (then
defendant) Oseraos liable for damages in the amount of
P48,152.76, attorney's fees (P2,000), and litigation costs.
Oseraos appealed to respondent Court which thereafter
rendered a reversal decision on March 23, 1990, ordering
the dismissal of the complaint.
Hence, the instant petition for review on certiorari.
The sole issued posed by the petition is whether or not
private respondent Oseraos is liable for damages arising
from fraud or bad faith in deliberately breaching the
contract of sale entered into by the parties.
After a review of the case, we believe and thus hold, that
private respondent is guilty of fraud in the performance of
his obligation under the sales contract whereunder he
bound himself to deliver to petitioner 100 metric tons of
copra within twenty (20) days from March 8, 1976. However
within the delivery period, Oseraos delivered only 46,334
kilograms of copra to petitioner, leaving an undelivered
balance of 53,666 kilograms. Petitioner made repeated
demands upon private respondent to comply with his
contractual undertaking to deliver the balance of 53,666
kilograms but private respondent elected to ignore the
same. In a letter dated October 6, 1976, petitioner made a
final demand with a warning that, should private
respondent fail to complete delivery of the balance of 53,666
kilograms of copra, petitioner would purchase the balance at
the open market and charge the price differential to private
respondent. Still private respondent failed to fulfill his
contractual obligation to deliver the remaining 53,666
kilograms of copra. On October 22, 1976, since there was
still no compliance by private respondent, petitioner
exercised its right under the contract and purchased 53,666
kilograms of copra, the undelivered balance, at the open
6
market at the then prevailing price of P168.00 per 100
kilograms, a price differential of P86.00 per 100 kilograms
or a total price differential of P46,152.76.
Under the foregoing undisputed circumstances, the
actuality of private respondent's fraud cannot be gainsaid.
In general, fraud may be defined as the voluntary execution
of a wrongful act, or a wilfull omission, knowing and
intending the effects which naturally and necessarily arise
from such act or omission; the fraud referred to in Article
1170 of the Civil Code of the Philippines is the deliberate and
intentional evasion of the normal fulfillment of obligation; it
is distinguished from negligence by the presence of
deliberate intent, which is lacking in the latter
(Tolentino's Civil Code of the Philippines, Vol. IV, p. 110).
The conduct of private respondent clearly manifests his
deliberate fraudulent intent to evade his contractual
obligation for the price of copra had in the meantime more
than doubled from P82.00 to P168 per 100 kilograms.
Under Article 1170 of the Civil Code of the Philippines, those
who in the performance of their obligation are guilty of
fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
Pursuant to said article, private respondent is liable for
damages.
The next point of inquiry, therefore, is the amount of
damages which private respondent is liable to pay
petitioner. As aforementioned, on account of private
respondent's deliberate breach of his contractual obligation,
petitioner was compelled to buy the balance of 53,666 kilos
of copra in the open market at the then prevailing price of
P168 per 100 kilograms thereby paying P46,152.76 more
than he would have paid had private respondent completed
delivery of the copra as agreed upon. Thus, private
respondent is liable to pay respondent the amount of
P46,152.76 as damages. In case of fraud, bad faith, malice,
or wanton attitude, the guilty party is liable for all damages
which may be reasonably attributed to the non performance
of the obligation (Magat vs. Medialdea, 121 SCRA 418
[1983]). Article 1101 of the old Civil Code, later to be
reproduced as Article 1170 of our present Civil Code, was the
basis of our decision in an old case, Acme Films, Inc. vs.
Theaters Supply Corporation, (63 Phil, 657 [1936]), wherein
we held:
It is not denied that the plaintiff company failed to supply
the defendant with the cinematographic films which were
the subject matter of the contracts entered into on March
20, 1934 (Exhibits 1 and 2), and two films under the
contract of March 24, 1934 (Exhibit 3), one of said films

being a serial entitled "Whispering Shadow". Guillermo
Garcia Bosque testified that because the plaintiff company
had failed to supply said films, the defendants had to resort
to the Universal Pictures Corporation and ask for films to
replace those which said plaintiff had failed to supply under
the contract, having had to pay therefor five per cent more
than for those films contracted with said plaintiff Acme
Films, Inc., and that the total cost thereof, including the
printing of programs, posters paraded through the streets
with bands of music to announce the showing of the films
which the plaintiff company failed to supply, amount to
from P400 to P550. The plaintiff company did not submit
evidence to rebut the testimony of said witness and the fact
that the estimate of the expenses is approximate does not
make said estimate inadmissible. It was incumbent upon the
plaintiff company to submit evidence in rebuttal, or at least
ascertain the amount of the different items in cross-
examination. There being no evidence to the contrary, it is
logical to admit that the defendant company spent at least
the sum of P400.
Inasmuch as the plaintiff company had failed to comply
with a part of its booking contract, and as the defendant
company had suffered damages as a result thereof, the
former is liable to indemnify the damages caused to the
latter, in accordance with the provisions of Article 1101 of
the Civil Code. (at page 663.)
WHEREFORE, the instant petition is hereby GRANTED.
The decision of the respondent Court of Appeals in CA-G.R.
CV No. 05828 is ANNULLED and SET ASIDE and the
decision of the trial court in Civil Case No. 5529
REINSTATED, with costs against private respondent.
SO ORDERED.
THIRD DIVISION
G.R. Nos. 180631-33 February 22, 2012
PHILIPPINE CHARTER INSURANCE
CORPORATION, Petitioner,
vs.
CENTRAL COLLEGES OF THE PHILIPPINES and
DYNAMIC PLANNERS AND CONSTRUCTION
CORPORATION, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure challenging the June 29,
2007 Decision1 and November 19, 2007 Resolution2 of the
Court of Appeals (CA) in the consolidated cases CA-G.R. SP
Nos. 90361, 90383 and 90384.
THE FACTS
On May 16, 2000, Central Colleges of the
Philippines (CCP), an educational institution, contracted the
services of Dynamic Planners and Construction Corporation
(DPCC) to be its general contractor for the construction of
its five (5)-storey school building at No. 39 Aurora
Boulevard, Quezon City, with a total contract price of
₱248,000,000.00. As embodied in a Contract
Agreement,3 the construction of the entire building would be
done in two phases with each phase valued at
₱124,000,000.00.
To guarantee the fulfillment of the obligation, DPCC posted
three (3) bonds, all issued by the Philippine Charter
Insurance Corporation (PCIC), namely: (1) Surety Bond No.
PCIC-45542, dated June 25, 2003, amounting to
₱7,031,460.74;4 (2) Performance Bond No. PCIC-455415 in
the amount of ₱2,929,775.31 which was subsequently
increased to ₱6,199,999.99 through Bond Endorsement No.
E-2003/12527;6 and (3) Performance Bond No. PCIC-46172
for ₱692,890.74.7 All the bonds were callable on demand
and set to expire on October 30, 2003.
The Phase 1 of the project was completed without issue.
Thereafter, CCP paid DPCC ₱14,880,000.00 or 12% of the
agreed price of ₱124,000,000.00 with a check dated March
14, 2002 as downpayment for the Phase 2 of the project.
The Phase 2 of the project, however, encountered numerous
delays. When CCP audited DPCC on July 25, 2003, only
47% of the work to be done was actually finished.
Thus, in a letter dated October 29, 2003 addressed to DPCC
and PCIC, CCP informed them of the breach in the contract
and its plan to claim on the construction bonds. Pertinent
portions of the letter are herein quoted:
You are both hereby NOTIFIED that the Bonds referred to
above for the faithful performance of a Contract, dated 16
May 2000 for the construction of CCP EXTENSION BLDG.
(Phase 2) at 39 Aurora Blvd., Quezon City, Metro Manila
and the Variation Order No. 2 has been breached by the
CONTRACTOR for which reason, the CENTRAL
COLLEGES OF THE PHILIPPINES, as owner, hereby gives
NOTICE that it will file an action on the said performance
and surety bonds.8
On November 6, 2003, CCP notified DPCC and PCIC that
only 51% of the project was completed, which was way
behind the construction schedule, prompting it to declare
7
the occurrence of default against DPCC. It formally
requested PCIC to remit the proceeds of the bonds.9
On November 14, 2003, DPCC wrote PCIC confirming the
finding that Phase 2 was only 51% finished and, at the same
time, requesting for the extension of its performance and
surety bonds because the supposed revision of the plans
would require more days.10
In a letter dated November 21, 2003, CCP notified PCIC that
because of DPCC’s inability to complete the project on time,
it decided to terminate its contract with the latter and to
continue the construction on its own. The full text of the
letter is herein reproduced:
We acknowledge the receipt of your letter dated November
14, 2003 and we are in the process of compiling the
documents you requested. The said documents will be
submitted as soon as possible.
Furthermore, we would like to reiterate that your principal,
the Dynamic Planners & Construction Corporation has
breached the Contract of Agreement dated May 16, 2000 by
having completed only an estimated 51% of the construction
of the 5-storey CCP Extension Building, Phase 2 and has
therefore failed to perform the work within the agreed
schedule.
In view thereof, as stated in our earlier letter of 6 November
2003, we were compelled to declare the occurrence of a
default on the part of your principal, and have terminated
their contract. Please remit to us the proceeds of the
captioned Bonds within the earliest possible time.
The Central Colleges of the Philippines will complete the
construction of the 5-storey CCP Extension Building, Phase
2 on its own.11
Meanwhile, on December 5, 2003, PCIC informed DPCC
that it had approved its request for extension of the bonds.12
Eventually, negotiations to continue on with the
construction between CCP and DPCC reached a dead end.
CCP hired another contractor to work on the school site.
On August 13, 2004, CCP sent a letter to PCIC of its final
demand for the payment of ₱13,924,351.47 as indicated in
the bonds.13

On August 20, 2004, PCIC denied CCP’s claims against the
three bonds.14
Thus, on October 28, 2004, CCP filed a complaint with
request for arbitration before the Construction Industry
Arbitration Commission (CIAC) against DPCC and
PCIC.15 In its complaint, CCP prayed that CIAC hold DPCC
and PCIC, jointly and severally liable, against the following
bonds:
1. Under Surety Bond No. 45542, the amount of
Php7,031,460.74 plus legal interest from the date of
demand until full payment thereof;
2. Under Performance Bond Nos. PCIC-45541 [Bond
Endorsement Nos. E-2003/12527] and PCIC-46172, the
amount of Php6,892,890.73 plus legal interest from the
date of demand until full payment thereof; and
3. Php100,000.00 as and for attorney’s fees.16
In their Answer,17 DPCC and PCIC denied any liability and
proffered that CCP unlawfully withheld the materials,
equipment, formworks and scaffoldings left at the premises
amounting to ₱4,232,264.12.
On June 3, 2005, the CIAC rendered a decision in favor of
CCP. It gave the following reasons:
1. Claimant was legally justified in terminating the Contract;
2. On the issue of whether claimant faithfully complied with
its contractual obligation in respect of (a) the release of the
downpayment, (b) the delivery of the drawings for
construction, and (c) the payment of progress billings, there
is no record that Dynamic protested the delay in the delivery
of the site, the delay in the submission of technical plans
and demanded as a result thereof the corresponding
adjustment of the Contract Period or the Contract Price. The
issue of delay in the reduction of the down payment is moot
since Dynamic acquiesced in the reduction of the down
payment from 15% to 12% and the issue of payment of the
12th progress billing arose as a consequence of a legitimate
issue as to the percentage of completion of the work by
Dynamic as of August 2003.
3. Dynamic’s percentage of accomplishment as of the date of
the termination of the Contract was 57.33% at ₱71,089,200.
4. The original Contract Price was ₱124,000,000. To this
amount shall be added the price of Variation Order No. 2 of
₱13,857,814.87 or an adjusted Contract Price of
₱137,857,814.87. Deducting ₱110,000,792.87, the
overpayment to Dynamic is ₱27,779,022.00. However,
Claimant is entitled to an award not exceeding the amount
of its claims in its Complaint and in the Terms of Reference.
5. Dynamic failed to produce evidence to show that it was
not paid the balance of the Contract Price for Phase 1 of the
Project.
6. Surety is liable to Claimant under the Performance and
Surety Bonds it issued in favor of Claimant. The liability of
Surety is to indemnify Claimant for the un-recouped down
payment [which] shall not exceed ₱7,031,460.74 under the
Surety Bond and for not more than ₱6,892,890.73 under
the Performance Bonds.
7. If Surety is obliged to pay these amounts to Claimant, it is
entitled, on its cross-claim, to indemnity from Dynamic.
8. Claimant’s claims under the Surety and Performance
Bonds are not time-barred.
9. Surety is not barred by estoppel from denying liability
under the Surety and Performance Bonds.
10. Claimant’s request to Dynamic to extend the term of
these bonds, Dynamic’s request to Surety to extend their
terms and Surety’s grant of the extension requested have no
adverse legal effect upon the rights and obligations of the
parties.
11. The contractual time-bar embodied in the bonds is valid
and binding.
12. Dynamic is entitled to its claims for the payment of
₱1,732,264.14 for materials and of ₱2,500,000.00 for the
equipment, formworks and scaffolding left at the site.
13. The claims for payment of moral, exemplary and
temperate damages and for attorney’s fees are denied.
14. The parties shall bear their own cost of arbitration.18
Thus, CIAC disposed of the case finding DPCC liable to pay
CCP ₱7,031,460.74 from the Surety Bond representing the
8
unrecouped downpayment and ₱6,892,890.73 from its
Performance Bond for a total of ₱13,924,351.47. The CIAC
likewise ordered CCP to pay DPCC ₱1,732,264.12
corresponding to the construction materials left at the site
and ₱2,500,000.00 for the cost of equipment, formworks
and scaffoldings appropriated by CCP or a total of
₱4,232,264.12. The fallo reads:
WHEREFORE, award is hereby made against Respondent
Dynamic Planners and Construction Corporation and
Respondent Philippine Charter Insurance Corporation,
ordering them, jointly and severally, to pay Claimant,
Central Colleges of the Philippines the amount of
₱7,031,460.74 under the Surety Bond as un-recouped down
payment, and the amount of ₱6,892,890.73 under the
Performance Bond or the total amount of ₱13,924,351.47.
Award is likewise made against Claimant, Central Colleges
of the Philippines, ordering the latter to pay Respondent
Dynamic Planners and Construction Corporation, the
amount of ₱1,732,264.12 for the latter’s materials left at the
Project Site and the amount of ₱2,500,000.00 as the cost of
its equipment, formworks and scaffoldings which were
appropriated by the former or the total amount of
₱4,232,264.12.
Offsetting the amount due claimant Central Colleges of the
Philippines from Respondent Dynamic Planners and
Construction Corporation and that due the latter from the
former, there is a net amount of ₱9,692,087.37 which
Respondent Dynamic Planners and Construction
Corporation is hereby ordered to pay Claimant Central
Colleges of the Philippines with interest at the rate of 6% per
annum from the date of this Final Award and 12% per
annum from the time this Final Award becomes final and
executory and until it is fully paid in accordance with
Eastern Shipping Lines, Inc. vs. Court of Appeals (1994) 234
SCRA 78.
The joint and several liability of Respondent Philippine
Charter Insurance Corporation with Respondent Dynamic
Planners and Construction Corporation is accordingly
reduced to ₱9,692,087.37. In the event of payment by
Respondent Philippine Charter Insurance Corporation, the
latter is entitled to indemnity from its co-Respondent
Dynamic Planners and Construction Corporation up to the
full amount of such payment. In the event of delay in
making payment to indemnify Respondent Philippine
Charter Insurance Corporation, Respondent Dynamic
Planners Charter Insurance Corporation shall pay interest

at the rate of 21% per annum in accordance with the
Indemnity Agreement between them.
All other claims, counterclaims and cross-claims not
otherwise determined in this Final Award are deemed
denied for lack of merit.
SO ORDERED.19
All the parties appealed the CIAC decision to the CA. PCIC’s
appeal was docketed as CA-G.R. SP No. 90361;20CCP’s
appeal was docketed as CA-G.R. SP No. 90383;21 and
DPCC’s appeal was docketed as CA-G.R. SP No.
90384.22 Eventually, the cases were consolidated.23
On June 29, 2007, the CA modified CIAC’s earlier
decision.24 The CA found that DPCC was already in delay for
managing to complete only 51% of the construction work
necessary to finish the Phase 2 of the project. It held that
due to DPCC’s inexcusable delay, CCP was legally within its
rights to terminate the contract with it. It likewise did not
give weight to PCIC’s defense that Bond No. 46172 was
already released because the said issue was never raised
before the CIAC and was raised for the first time on
appeal.25 The CA, however, deleted the award of cost of the
materials, equipment, formworks and scaffoldings allegedly
left by DPCC at the work site for its failure to prove the
actual costs of said materials.26 It added, "In any event, the
cost of such materials, equipment, formworks and
scaffoldings cannot be deducted from Philippine Charter’s
liability on the bond, as the credit does not belong to the
latter but to Dynamic."27 Accordingly, the decretal portion of
the CA decision reads:
WHEREFORE, the Final Award, dated 03 June 2005, of the
Construction Industry Arbitration Commission (CIAC) in
CIAC Case No. 36-2004 is AFFIRMED with
MODIFICATION, in that the award to Dynamic Planners
and Construction Corporation of its counterclaim for
materials, equipment, formworks and scaffoldings left at the
work site in the total amount of ₱4,232,264.12 is DELETED.
Philippine Charter Insurance Corporation and Dynamic
Planners and Construction Corporation are ORDERED
jointly and severally to pay Central Colleges of the
Philippines the total amount of ₱13,924,351.47 under Surety
Bond No. PCIC-45542, Performance Bond No. PCIC-45541
(as modified by Bond Endorsement No. E-2003/12527), and
Performance Bond No. PCIC-46172. Said amount shall bear
interest at the rate of 6% per annum from the date of
demand made on 29 October 2003. However, for any
amount not yet paid after the date of the finality of this
decision, the rate of interest on the payable amount shall be
increased to 12% per annum from the date when this
decision becomes final and executory until it is fully paid.
SO ORDERED.28
PCIC moved for the reconsideration of the said decision, but
the CA disposed of it with a denial in its November 19, 2007
Resolution.
Hence, this petition.29
In its Memorandum,30 PCIC submits the following issues for
resolution:
1st Issue: Whether or not the CA grossly erred in sustaining
the CIAC award finding petitioner liable to respondent CCP
under the performance bonds and the surety bond?
2nd Issue: Whether or not the CA grossly erred in upholding
the CIAC award pronouncing respondent CCP as rightfully
and justifiably entitled to terminate the contract agreement?
3rd Issue: Whether or not the CA grossly erred in deleting
the counterclaim of respondent DPCC covering the costs of
materials, equipment, formworks and scaffoldings left at
site and in denying petitioner to benefit from the
counterclaim?31
PCIC argues that the CA erred in sustaining the award of
₱692,890.74 representing Performance Bond PCIC-46172
because the obligation guaranteed by said performance
bond was already completed, therefore, no liability should
attach against the said bond.32
In this regard, the petitioner has a point.
Although this particular issue was not expressly raised in
the parties’ Terms of Reference,33 nevertheless, the issue on
Performance Bond PCIC- 46172 was extensively discussed
during the arbitral tribunal’s hearing of February 21, 2005.
To accurately reflect what transpired on said hearing,
relevant portions of the transcript of stenographic notes are
herein quoted:
ATTY. G. Q. ENRIQUEZ:34
I am calling your attention to Bond PCIC-45542.
MR. CRISPINO P. REYES:35
9
You are calling my attention where?
ATTY. G. Q. ENRIQUEZ:
In the terms of Reference, can we please get the copy of that
so that we can be reminded?
ATTY. B.G. FAJARDO:
There are only two, Counsel-the Performance and the
Surety Bond.
ATTY. G. Q. ENRIQUEZ:
Performance Bond in the amount of-
MR. CRISPINO P. REYES:
We’re interested in 45542 and we’re interested in
45541. What we’re no longer interested in, we have
to be candid to this Honorable Tribunal, we are no
longer interested, [we] no longer want to collect on
Performance Bond 46172.
ATTY. A.V. CAMARA:36
At this point in time, we would like to be of record that
although that Bond 46172 covering the amount of
₱692,890.74 per their declaration had already been satisfied
that is why only two bonds now are being…
ATTY. J.N. RABOCA:
May I make a qualification with that, your Honor? It’s not
that it was satisfied. It’s that the Claimant is not claiming
anymore because all the works under this bond were already
accomplished.
ATTY. G. Q. ENRIQUEZ:
Yes, because you have already a Certificate of Acceptance.
ATTY. J.N. RABOCA:
Correct.
ATTY. G. Q. ENRIQUEZ:
So, we’re just narrowing down into two bonds.
ATTY. A.V. CAMARA:
The two bonds.
ATTY. G. Q. ENRIQUEZ:
Okay.
ATTY. A.V. CAMARA:
Then therefore the liability on 46172 should be
released. They are only covered by the pleadings
especially the Complaint.
MR. CRISPINO P. REYES:
We do not dispute this.37 [Emphases supplied]
It is clear from the testimony of Crispino P. Reyes, CCP’s
President, that the school no longer wants to collect on
Performance Bond PCIC 46172 (with a value of
₱692,890.74). This statement before the arbitral tribunal is
a judicial admission effectively settling the issue with
respect to PCIC 46172. Section 4, Rule 129 of the Rules of
Court provides:
Sec. 4. Judicial admissions. – An admission, verbal or
written, made by a party in the course of the proceedings in

the same case, does not require proof. The admission may
be contradicted only by showing that it was made through
palpable mistake or that no such admission was made.
A party may make judicial admissions in (a) the pleadings;
(b) during the trial, either by verbal or written
manifestations or stipulations; or (c) in other stages of the
judicial proceeding.38 It is an established principle that
judicial admissions cannot be contradicted by the admitter
who is the party himself39 and binds the person who makes
the same, and absent any showing that this was made thru
palpable mistake, no amount of rationalization can offset
it.40
Since CCP, through its President, judicially admitted that it
is no longer interested in pursuing PCIC-46172, the scope of
its claim will just be confined to Surety Bond No. PCIC-
45542 and Performance Bond No. PCIC-45541.
PCIC claims that DPCC was already in default as early as
September 4, 2003,41 hence, the ten-day reglementary
period to file a claim on the bonds should have been
reckoned from such date and filed on September 14, 2003.
PCIC claims that CCP notified them only on October 29,
2003 which is already beyond the limitation that any claim
on the bonds should be presented in writing within ten (10)
days from the expiration of the bond or from the occurrence
of the default or failure of the principal, whichever is
earliest.42
The Court finds itself unable to agree. Article 1169 of the
New Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur
in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.
The civil law concept of delay or default commences from
the time the obligor demands, judicially or extrajudicially,
the fulfillment of the obligation from the obligee. In legal
parlance, demand is the assertion of a legal or procedural
right.43 Hence, DPCC incurred delay from the time CCP
called its attention that it had breached the contract and
extrajudicially demanded the fulfillment of its commitment
against the bonds.
It is the obligor’s culpable delay, not merely the time
element, which gives the obligee the right to seek the
performance of the obligation. As such, CCP’s cause of
action accrued from the time that DPCC became in culpable
delay as contemplated in the surety and performance bonds.
In fact, Surety Bond PCIC-45542,44 Performance Bond
PCIC-4554145 and PCIC-46172 each specified how claims
should be made against it:
Surety Bond PCIC-4554246
The liability of PHILIPPINE CHARTER INSURANCE
CORPORATION, under this bond will expire on October 30,
2003; Furthermore, it is hereby agreed and understood that
PHILIPPINE CHARTER INSURANCE CORPORATION will
not be liable for any claim not presented to it in writing
within FIFTEEN (15) DAYS from the expiration of this
bond, and that the Obligee hereby waives its right to claim
or file any court action against the surety after the
termination of FIFTEEN (15) DAYS from the time its cause
of action accrues.
Performance Bond PCIC-4554147 and PCIC-46172:48
The liability of PHILIPPINE CHARTER INSURANCE
CORPORATION, under this bond will expire on October 30,
2003; Furthermore, it is hereby agreed and understood that
PHILIPPINE CHARTER INSURANCE CORPORATION will
not be liable for any claim not presented to it in writing
within TEN (10) DAYS from the expiration of this bond or
from the occurrence of the default or failure of the Principal,
whichever is the earliest, and the Obligee hereby waives its
right to file any claims against the Surety after termination
of the period of ten (10) DAYS above mentioned after which
time this bond shall definitely terminate and be deemed
absolutely cancelled.
Thus, DPCC became in default on October 29, 2003 when
CCP informed it in writing of the breach of the contract
agreement and demanded the fulfillment of its obligation
against the bonds. Consequently, the November 6, 2003
letter that CCP sent to PCIC properly complied with the
notice of claim requirement set forth in the said bonds.
Upon notice of default of obligor DPCC, PCIC’s liability, as
surety, was already attached. A surety under Article 2047 of
the New Civil Code solidarily binds itself with the principal
debtor to assure the fulfillment of the obligation:
Art. 2047. By guaranty a person, called the guarantor, binds
himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.
10
If a person binds himself solidarily with the principal
debtor, the provisions of Section 4, Chapter 3, Title I of this
Book shall be observed. In such case the contract is
called a suretyship. [Emphasis supplied]
The case of Asset Builders Corporation v. Stronghold
Insurance Company, Inc.49 explains how a surety
agreement works:
As provided in Article 2047, the surety undertakes to be
bound solidarily with the principal obligor. That
undertaking makes a surety agreement an ancillary contract
as it presupposes the existence of a principal
contract.1âwphi1 Although the contract of a surety is in
essence secondary only to a valid principal obligation, the
surety becomes liable for the debt or duty of another
although it possesses no direct or personal interest over the
obligations nor does it receive any benefit therefrom.50 Let it
be stressed that notwithstanding the fact that the surety
contract is secondary to the principal obligation, the surety
assumes liability as a regular party to the undertaking.51
Stronghold Insurance Company, Inc. v. Republic-Asahi
Glass Corporation,52 reiterating the ruling in Garcia v. Court
of Appeals,53 expounds on the nature of the surety’s liability:
x x x. The surety’s obligation is not an original and direct
one for the performance of his own act, but merely
accessory or collateral to the obligation contracted by the
principal. Nevertheless, although the contract of a surety is
in essence secondary only to a valid principal obligation, his
liability to the creditor or promisee of the principal is said to
be direct, primary and absolute; in other words, he is
directly and equally bound with the principal.
Suretyship, in essence, contains two types of relationship –
the principal relationship between the obligee and the
obligor, and the accessory surety relationship between the
principal and the surety. In this arrangement, the obligee
accepts the surety’s solidary undertaking to pay if the
obligor does not pay. Such acceptance, however, does
not change in any material way the obligee’s
relationship with the principal obligor. Neither
does it make the surety an active party to the
principal obligee-obligor relationship. Thus, the
acceptance does not give the surety the right to
intervene in the principal contract. The surety’s
role arises only upon the obligor’s default, at which
time, it can be directly held liable by the obligee for
payment as a solidary obligor.54[Emphases supplied]

Having acted as a surety, PCIC is duty bound to perform
what it has guaranteed on its surety and performance
bonds, all of which are callable on demand, occasioned by
its principal’s default.
PCIC also proffers that CCP did not file any claim against
the bonds after its extension.55
The Court is not persuaded. CCP need not file another claim
as to the supposed extended bonds because the October 29,
2003 letter was sufficient notice to PCIC and DPCC of the
latter’s default and its intention to proceed against the
surety and performance bonds. Moreover, the extension of
the bonds was only approved and relayed by PCIC to DPCC
on December 5, 2003 or after the October 29, 2003 Notice
of Default.
As to whether CCP was legally warranted in terminating the
contract with DPCC for its failure to comply with its
obligation, the Court affirms the CA’s disquisition. The
option to terminate the contract is clearly apparent in the
parties’ agreement. Specifically, Article 16 of the Contract
Agreement provides:
ARTICLE 16
Termination
16.1 The OWNER shall have the right to terminate this
CONTRACT after giving fifteen (15) days notice in writing
for any of the following causes:
16.1.1. Substantial failure on the part of the CONTRACTOR
in fulfilling its obligation;
16.1.2. Assignment or sub-contracting of any of the works
herein by the CONTRACTOR without approval by the
OWNER;
16.1.3 The CONTRACTOR is willfully violating any of the
material conditions, stipulations and covenants of this
CONTRACT and/or the attachments hereto. In the event of
termination of this CONTRACT pursuant to the above, any
amount owing to the CONTRACTOR at the time of such
termination for services already rendered and/or materials
delivered and taken over by the OWNER shall be withheld
by the OWNER pending the determination of value of
damages sustained by the OWNER by reason of such
termination and payment of such damages by the
CONTRACTOR.”
The Court also finds nothing improper in the deletion by the
CA of the award of actual damages in favor of DPCC. Actual
or compensatory damages means the adequate
compensation for pecuniary loss suffered and for profits the
obligee failed to obtain. To be entitled to actual or
compensatory damages, it is basic that there must be
pleading and proof of actual damages suffered.56 Equally
vital to the fact that the amount of loss must be capable of
proof, such loss must also be actually proven with a
reasonable degree of certainty, premised upon competent
proof or the best evidence obtainable.57 The burden of proof
of the damage suffered is, consequently, imposed on the
party claiming it58 who, in turn, should present the best
evidence available in support of his claim. It could include
sales and delivery receipts, cash and check vouchers and
other pieces of documentary evidence of the same nature
pertaining to the items he is seeking to recover. In the
absence of corroborative evidence, it has been held that self-
serving statements of account are not sufficient basis for an
award of actual damages.59 Moreover, a claim for actual
damages cannot be predicated on flimsy, remote,
speculative, and insubstantial proof.60 Thus, courts are
required to state the factual bases of the award.61
In this case, DPCC was not able to establish that it is entitled
to the actual damages that it prayed for in its counterclaim.
As the CA put it, "while Dynamic (DPCC) presented receipts
issued by its suppliers of materials, equipment, formworks
and scaffoldings, it failed to prove that the items in the
receipts correspond to the items allegedly left at the work
site."62 Besides, the Court cannot grant a relief in its favor
because DPCC did not appeal the decision of the CA.
WHEREFORE, the petition is PARTLY GRANTED. The
June 29, 2007 Decision of the Court of Appeals in CA-G.R.
SP Nos. 90361, 90383 and 90384 is MODIFIED to read as
follows:
Philippine Charter Insurance Corporation and Dynamic
Planners and Construction Corporation are ordered to,
jointly and severally, pay Central Colleges of the Philippines
the total amount of ₱13,231,460.73 under Surety Bond No.
PCIC-45542 and Performance Bond No. PCIC-45541 (as
modified by Bond Endorsement No. E-2003/12527). Said
amount shall bear interest at the rate of 6% per annum from
the date of demand made on October 29, 2003. For any
amount not yet paid after the date of the finality of this
decision, however, the rate of interest on the payable
amount shall be increased to 12% per annum from the date
when this decision becomes final and executory until it is
fully paid.
11
SO ORDERED.
TITAN IKEDA V PRIMETOWN
SECOND DIVISION
G.R. No. 129598 August 15, 2001
PNB MADECOR, petitioner,
vs.
GERARDO C. UY, respondent.
QUISUMBING,J.:
This is a petition for review on certiorari filed by petitioner
PNB Management and Development Corporation (PNB
MADECOR) seeking to annul the decision of the Court of
Appeals dated February 19, 1997, and its resolution dated
June 19, 1997 in CA-G.R. CV No. 49693, affirming the order
of the Regional Trial Court of Manila, Branch 38, dated
August 21, 1995 in Civil Case No. 95-72685. In said order,
the RTC directed the garnishment of the credits and
receivables of Pantranco North Express, Inc. (PNEI), also
known as Philippine National Express, Inc., in the
possession of PNB MADECOR, and if these were insufficient
to cover the debt of PNB MADECOR to PNEI, to levy upon
the assets of PNB MADECOR.
The facts of this case, culled from the decision of the CA,1 are
as follows:
Guillermo Uy, doing business under the name G.U.
Enterprises, assigned to respondent Gerardo Uy his
receivables due from Pantranco North Express Inc. (PNEI)
amounting to P4,660,558.00. The deed of assignment
included sales invoices containing stipulations regarding
payment of interest and attorney's fees.
On January 23, 1995, Gerardo Uy filed with the RTC a
collection suit with an application for the issuance of a writ
of preliminary attachment against PNEI. He sought to
collect from PNEI the amount of P8,397,440.00. He alleged
that PNEI was guilty of fraud in contracting the obligation
sued upon, hence his prayer for a writ of preliminary
attachment.
A writ of preliminary attachment was issued on January 26,
1995, commanding the sheriff "to attach the properties of
the defendant, real or personal, and/or (of) any person
representing the defendant"2 in such amount as to cover
Gerardo Uy's demand.
On January 27, 1995, the sheriff issued a notice of
garnishment addressed to the Philippine National Bank

(PNB) attaching the "goods, effects, credits, monies and all
other personal properties"3 of PNEI in the possession of the
bank, and requesting a reply within five days. PNB
MADECOR received a similar notice.
On March 1995, the RTC, through the application of
Gerardo Uy, issued a subpoena duces tecum for the
production of certain documents in the possession of PNB
and PNB MADECOR: (1) from PNB, books of account of
PNEI regarding trust account nos. T-8461-I, 8461-II, and T-
8565; and (2) from PNB MADECOR, contracts showing
PNEI's receivables from the National Real Estate
Development Corporation (NAREDECO), now PNB
MADECOR, from 1981 up to the period when the
documents were requested.
At the hearing in connection with the subpoena, PNB moved
to be allowed to submit a position paper on its behalf and/or
on behalf of PNB MADECOR. In its position paper dated
April 3, 1995, PNB MADECOR alleged that it was the owner
of the parcel of land located in Quezon City that was leased
to PNEI for use as bus terminal. Moreover, PNB MADECOR
claimed:
"2. PNEI has not been paying its rentals from October 1990
to March 24, 1994 — when it (PNEI) vacated the property.
As of the latter date, PNB MADECOR's receivables against
PNEI amounted to P8,784,227.48, representing
accumulated rentals, inclusive of interest;
3. On the other hand, PNB MADECOR has payables to PNEI
in the amount of P7,884,000.00 as evidenced by a
promissory note executed on October 31, 1982 by then
NAREDECO in favor of PNEI;
4. Considering that PNB MADECOR is a creditor of PNEI
with respect to the P8,784,227.48 and at the same time its
debtor with respect to the P7,884,000.00, PNB MADECOR
and PNEI are therefore creditors and debtors of each other;
and
5. By force of the law on compensation, both obligations of
PNB MADECOR and PNEI are already considered
extinguished to the concurrent amount or up to
P7,884,000.00 so that PNEI is still obligated to pay PNB
MADECOR the amount of P900,227.48. x x x ."4
On the other hand, Gerardo Uy filed an omnibus motion
controverting PNB MADECOR's claim of compensation.
Even if compensation were possible, according to him, PNEI
would still have sufficient funds in the hands of PNB
MADECOR to fully satisfy his claim. He explained' that:
"The allegation of PNB MADECOR that it owes PNEI only . .
. (P7,884,000.00) is not accurate. Apparently, PNB
MADECOR only considered the principal amount. In the
first place, to be precise, the principal debt amounts to
exactly . . . (P7,884,921.10) as clearly indicated in the
Promissory Note dated 31 October 1982 . . . In accordance
with the stipulations contained in the promissory note,
notice of demand was sent by PNEI to PNB MADECOR
(then NAREDECO) through a letter dated 28 September
1984 and received by the latter on 1 October 1984 . . . The
second paragraph of the subject promissory note states that
'[F]ailure to pay the above amount by NAREDECO after due
notice has been made by PNEI would entitle PNEI to collect
an 18% [interest] per annum from date of notice of
demand'. Hence, interest should be computed and start to
run from November 1984 until the present in order to come
up with the outstanding debt of PNB MADECOR to PNEI.
And to be more precise, the outstanding debt of PNB
MADECOR to PNEI as of April 1995 amounts to . . .
(P75,813,508.26). Hence, even if the alleged debt of PNEI to
PNB MADECOR amounting to . . . (P8,784,227.48) shall be
compensated and deducted from PNB MADECOR's debt to
PNEI, there shall still be a remainder of . . .
(P67,029,380.78), largely sufficient enough to cover
complainant's claim."5
Also in his omnibus motion, he prayed for an order
directing that levy be made upon all goods, credits, deposits,
and other personal properties of PNEI under the control of
PNB MADECOR, to the extent of his demand.
PNB MADECOR opposed his omnibus motion, particularly
the claim that its obligation to PNEI earned an interest of 18
percent annually. It argued that PNEI's letter dated
September 28, 1984 was not a demand letter but merely a
request for the implementation of the arrangement for set-
off of receivables between PNEI and PNB, as provided in
adacion en pago executed on July 28, 1983.6 Gerardo Uy
again controverted PNB MADECOR's arguments.
Meanwhile, in the main case, the RTC rendered judgment
on July 26, 1995 against PNEI. The corresponding writ of
execution was issued on August 18, 1995.
As regards the issue between PNEI and PNB MADECOR,
the RTC issued the assailed order on August 21, 1995, the
decretal portion of which provided:
12
"WHEREFORE, the Sheriff of this Court is hereby directed
to garnish/levy or cause to be garnished/levied the amount
stated in the writ of attachment issued by this Court from
the credits and receivables/collectibles of PNEI from PNB
MADECOR (NAREDECO) and to levy and/or cause to levy
upon the assets of the debtor PNB MADECOR should its
personal assets be insufficient to cover its debt with PNEI.
Furthermore, Mr. Roger L. Venarosa, Vice-President, Trust
Department, Philippine National Bank, and other concerned
officials of said bank, is/are hereby directed to submit the
books of accounts of Pantranco North Express,
Inc./Philippine National Express, Inc. under Trust Account
Nos. T-8461-I, T-8461-II, T-8565 with its position paper
within five (5) days from notice hereof.
SO ORDERED."
Petitioner appealed said order to the CA which, however,
affirmed the RTC in a decision dated February 19, 1997.
Petitioner's motion for reconsideration was denied in a
resolution dated June 19, 1997.
According to the CA, there could not be any compensation
between PNEI's receivables from PNB MADECOR and the
latter's obligation to the former because PNB MADECOR's
supposed debt to PNEI is the subject of attachment
proceedings initiated by a third party, herein respondent
Gerardo Uy. This is a controversy that would prevent legal
compensation from taking place, per the requirements set
forth in Article 1279 of the Civil Code. Moreover, the CA
stressed that it was not clear whether, at the time
compensation was supposed to have taken place, the rentals
being claimed by petitioner were indeed still unpaid. The CA
pointed out that petitioner did not present evidence in this
regard, apart from a statement of account.
The CA also questioned petitioner's inaction in claiming the
unpaid rentals from PNEI, when the latter started
defaulting in its payment as early as 1994. This, according to
the CA, indicates that the debt was either already settled or
not yet demandable and liquidated.
The CA rejected petitioner's contention that Rule 39,
Section 43 of the Revised Rules of Court applies to the
present case. Said rule sets forth the procedure to follow
when a person alleged to have property or to be indebted to
a judgment obligor claims an interest in the property or
denies the debt. In such a situation, under said Rule the
judgment obligee is required to institute a separate action

against such person. The CA held that there was no need for
a separate action here since petitioner had already become a
forced intervenor in the case by virtue of the notice of
garnishment served upon it.
Hence, this petition. Petitioner now assigns the following
alleged errors for our consideration:
I THE [COURT OF APPEALS] COMMITTED A CLEAR
ERROR IN THE INTERPRETATION OF THE APPLICABLE
LAW HEREIN WHEN IT RULED THAT THE REQUISITES
FOR LEGAL COMPENSATION AS SET FORTH UNDER
ARTICLES 1278 AND 1279 OF THE CIVIL CODE DO NOT
CONCUR IN THE CASE AT BAR.
II THE [COURT OF APPEALS] COMMITTED A CLEAR
ERROR IN INTERPRETING THE PROVISIONS OF
SECTION 45, RULE 39 OF THE RULES OF COURT, NOW
SECTION 43, RULE 39 OF THE REVISED RULES OF
COURT, AS AMENDED ON 1 JULY 1997, BY RULING
THAT PETITIONER PNB-MADECOR, UPON BEING
CITED FOR AND SERVED WITH A NOTICE OF
GARNISHMENT BECAME A FORCED INTERVENOR,
HENCE, DENYING THE RIGHT OF HEREIN
PETITIONER TO VENTILATE ITS POSITION IN A FULL-
BLOWN TRIAL AS PROVIDED FOR UNDER SEC. 10,
RULE 57, WHICH REMAINS THE SAME RULE UNDER
THE REVISED RULES OF COURT AS AMENDED ON 1
JULY 1997.
III THE [COURT OF APPEALS] COMMITTED AN ERROR
IN FINDING THAT A DEMAND WAS MADE BY
PANTRANCO NORTH EXPRESS, INC. TO PNB MADECOR
FOR THE PAYMENT OF THE PROMISSORY NOTE
DATED 31 OCTOBER 1982.7
After considering these assigned errors carefully insofar as
they raise issues of law, we find that the petition lacks merit.
We shall now discuss the reasons for our conclusion.
Petitioner admits its indebtedness to PNEI, in the principal
sum of P7,884,921.10, per a promissory note dated October
31, 1982 executed by its precursor NAREDECO in favor of
PNEI. It also admits that the principal amount should earn
an interest of 18 percent per annum under the promissory
note, in case NAREDECO fails to pay the principal amount
after notice. Petitioner adds that the receivables of PNEI
were thereafter conveyed to PNB in payment of PNEI's loan
obligation to the latter, in accordance with a dacion en pago
agreement executed between PNEI and PNB.
Petitioner, however, maintains that there is nothing now
that could be subject of attachment or execution in favor of
respondent since compensation had already taken place as
between its debt to PNEI and the latter's obligation to it,
consistent with Articles 1278, 1279, and 1290 of the Civil
Code. Petitioner assails the CA's ratiocination that
compensation could not have taken place because the
receivables in question were the subject of attachment
proceedings commenced by a third party (respondent). This
reasoning is contrary to law, according to petitioner.
Petitioner insists that even the Asset Privatization Trust
(APT), which now has control over PNEI, recognized the
set-off between the subject receivables as indicated in its
reply to petitioner's demand for payment of PNEI's unpaid
rentals.8 The APT stated in its letter:
"xxx xxx xxx While we have long considered the
amount of SEVEN MILLION EIGHT HUNDRED EIGHTY
FIVE THOUSAND PESOS (P7,885,000.00) which PNEI
had earlier transmitted to you as its share in an aborted
project as partial payment for PNEI's unpaid rentals in favor
of PNB-Madecor, being a creditor like your goodself of
PNEI, we are unable to be of assistance to you regarding
your claim for the balance thereof. We trust that you will
understand our common predicament.
xxx xxx xxx"
Petitioner argues that PNEI's letter dated September 28,
1984 did not contain a demand for payment but only notice
of the implementation of thedacion en pago agreement
between PNB and PNEI.
Petitioner contends that the CA's statement that PNEI's
obligation to petitioner had either been settled or was not
yet demandable is highly speculative and conjectural. On
the contrary, petitioner asserts that its failure to institute a
judicial action against PNEI proved that the receivables of
petitioner and PNEI had already been subject to legal
compensation.
Petitioner submits that Rule 39, Section 43 of the Revised
Rules of Court applies to the present case. It asserts that it
stands to lose more than P7 million if not given the
opportunity to present its side in a formal proceeding such
as that provided under the cited rule. According to
petitioner, it was not an original party to this case but only
became involved when it was issued a subpoenaduces
tecum by the trial court.
13
For his part, respondent claims that the requisites for legal
compensation are not present in this case, contrary to
petitioner's assertion. He argues that the better rule should
be that compensation cannot take place where one of the
obligations sought to be compensated is the subject of a suit
between a third party and a party interested in the
compensation, as in this case.
Moreover, respondent points out that, while the alleged
demand letter sent by PNEI to petitioner was dated
September 28, 1984, the unpaid rentals due petitioner from
PNEI accrued during the period October 1990 to March
1994, or before petitioner's obligation to PNEI became due.
This being so, respondent argues that there can be no
compensation since there was as yet no compensable debt in
1984 when PNEI demanded payment from petitioner.
Even granting that there had been compensation, according
to respondent, PNEI would still have sufficient funds with
petitioner since the PNB MADECOR's obligation to PNEI
earned interest.
Respondent echoes the observation of the CA that petitioner
failed to file a suit against PNEI at the time when it should
have. This failure gave rise to the presumption that PNEI's
obligation might have already been settled, waived, or
otherwise extinguished, according to him. He contends that
petitioner's explanation that it did not sue PNEI because
there had been legal compensation is only an afterthought
and contrary to logic and reason.
On petitioner's claim that it had been denied due process,
respondent avers that he did not have to file a separate
action against petitioner since this would only result in
multiplicity of suits. Furthermore, he points out that the
order of attachment is an interlocutory order that may not
be the subject of appeal.
Finally, respondent calls the attention of this Court to the
sale by PNB of its shares in PNB MADECOR to the "Dy
Group", which in turn assigned its majority interest to the
"Atlanta Group". Respondent claims that the Dy Group set
aside some P30 million for expenses to be incurred in
litigating PNB MADECOR's pending cases, and asks that his
"claim over this amount, arising from the instant case,"9 be
given preference in case the PNEI properties already
garnished prove insufficient to satisfy his claim.
The first and third errors assigned by petitioner are
obviously interrelated and must be resolved together.

Worth stressing, compensation is a mode of extinguishing to
the concurrent amount the obligations of persons who in
their own right and as principals arereciprocally debtors
and creditors of each other.10 Legal compensation takes
place by operation of law when all the requisites are
present,11 as opposed to conventional compensation which
takes place when the parties agree to compensate their
mutual obligations even in the absence of some requisites.12
Legal compensation requires the concurrence of the
following conditions:
(1) that each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the other;
(2) that both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) that the two debts be due;
(4) that they be liquidated and demandable;
(5) that over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.13
Petitioner insists that legal compensation had taken place
such that no amount of money belonging to PNEI remains
in its hands, and, consequently, there is nothing that could
be garnished by respondent.
We find, however, that legal compensation could not have
occurred because of the absence of one requisite in this case:
that both debts must be due and demandable.
The CA observed:
"Under the terms of the promissory note, failure on the part
of NAREDECO (PNB MADECOR) to pay their value of the
instrument 'after due notice has been made by PNEI would
entitle PNEI to collect an 18% [interest] per annum from
date of notice of demand'."14
Petitioner makes a similar assertion in its petition, that
"x x x It has been stipulated that the promissory note shall
earn an interest of 18% per annum in case NAREDECO,
after notice, fails to pay the amount stated therein."15
Petitioner's obligation to PNEI appears to be payable on
demand, following the above observation made by the CA
and the assertion made by petitioner. Petitioner is obligated
to pay the amount stated in the promissory note upon
receipt of a notice to pay from PNEI. If petitioner fails to pay
after such notice, the obligation will earn an interest of 18
percent per annum.
Respondent alleges that PNEI had already demanded
payment. The alleged demand letter reads in part:
"We wish to inform you that as of August 31, 1984 your
outstanding accounts amounted to P10,376,078.67,
inclusive of interest.
In accordance with our previous arrangement, we have
conveyed in favor of the Philippine National Bank
P7,884,921.10 of said receivables from you. With this
conveyance, the unpaid balance of your account will be
P2,491,157.57.16
To forestall further accrual of interest, we request that you
take up with PNB the implementation of said arrangement.
x x x."17
We agree with petitioner that this letter was not one
demanding payment, but one that merely informed
petitioner of (1) the conveyance of a certain portion of its
obligation to PNEI per adacion en pago arrangement
between PNEI and PNB, and (2) the unpaid balance of its
obligation after deducting the amount conveyed to PNB.
The import of this letter is not that PNEI was demanding
payment, but that PNEI was advising petitioner to settle the
matter of implementing the earlier arrangement with PNB.
Apart from the aforecited letter, no other demand letter
appears on record, nor has any of the parties adverted to
another demand letter.
Since petitioner's obligation to PNEI is payable on demand,
and there being no demand made, it follows that the
obligation is not yet due. Therefore, this obligation may not
be subject to compensation for lack of a requisite under the
law. Without compensation having taken place, petitioner
remains obligated to PNEI to the extent stated in the
promissory note. This obligation may undoubtedly be
garnished in favor of respondent to satisfy PNEI's judgment
debt.18
14
As to respondent's claim that legal compensation could not
have taken place due to the existence of a controversy
involving one of the mutual obligations, we find this matter
no longer controlling. Said controversy was not seasonably
communicated to petitioner as required under Article 1279
of the Civil Code.
The controversy,i.e., the action instituted by respondent
against PNEI, must have been communicated to PNB
MADECOR in due time to prevent compensation from
taking place. By "in due time" should be meant the period
before legal compensation was supposed to take place,
considering that legal compensation operates so long as the
requisites concur, even without any conscious intent on the
part of the parties.19 A controversy that is communicated to
the parties after that time may no longer undo the
compensation that had taken place by force of law, lest the
law concerning legal compensation be for naught.
Petitioner had notice of the present controversy when it
received the subpoenaduces tecum issued by the trial court.
The exact date when petitioner received the subpoena is not
on record, but petitioner was allowed to submit a position
paper regarding said subpoena per order of the trial court
dated March 27, 1995.20 We assume that petitioner had
notice of the pending litigation at least no later than this
date. Now, was this date before that period when legal
compensation would have occurred, assuming all other
requisites to be present?
Clearly, it is not. PNB MADECOR's obligation to PNEI was
contracted in 1982 and the alleged demand letter was sent
by PNEI to petitioner on September 1984. On the other
hand, PNEI's obligation to petitioner, the payment of
monthly rentals, accrued during the period October 1990 to
March 1994 and a demand to pay was sent in 1993.
Assuming the other requisites to be present, legal
compensation of the mutual obligations would have taken
place on March 1994 at the latest. Obviously, this was before
petitioner received notice of the pendency of this litigation
in 1995. The controversy communicated to petitioner in
1995 could not have affected the legal compensation that
would have taken place in 1994.
As regards respondent's averment that there was as yet no
compensable debt when PNEI sent petitioner a demand
letter on September 1984, since PNEI was not yet indebted
to petitioner at that time, the law does not require that the
parties' obligations be incurred at the same time. What the
law requires only is that the obligations be due and
demandable at the same time.

Coming now to the second assigned error, which we
reserved as the last for our discussion, petitioner contends
that it did not become a forced intervenor in the present
case even after being served with a notice of garnishment.
Petitioner argues that the correct procedure would have
been for respondent to file a separate action against PNB
MADECOR, per Section 43 of Rule 39 of the Rules of
Court.21 Petitioner insists it was denied its right to ventilate
its claims in a separate, full-blown trial when the courtsa
quo ruled that the abovementioned rule was inapplicable to
the present case.
On this score, we had occasion to rule as early as 1921
inTayabas Land Co. v. Sharruf ,22 as follows:
". . . garnishment . . . consists in the citation of some
stranger to the litigation, who is debtor to one of the parties
to the action. By this means such debtor stranger becomes a
forced intervenor; and the court, having acquired
jurisdiction over his person by means of the citation,
requires him to pay his debt, not to his former creditor, but
to the new creditor, who is creditor in the main litigation. It
is merely a case of involuntary novation by the substitution
of one creditor for another. Upon principle the remedy is a
species of attachment or execution for reaching any
property pertaining to a judgment debtor which may be
found owing to such debtor by a third person."
Again, inPerla Compania de Seguros, Inc. v. Ramolete,23 we
declared:
"Through service of the writ of garnishment, the garnishee
becomes a "virtual party" to, or a "forced intervenor" in, the
case and the trial court thereby acquires jurisdiction to bind
him to compliance with all orders and processes of the trial
court with a view to the complete satisfaction of the
judgment of the court."
Petitioner here became a forced intervenor by virtue of the
notice of garnishment served upon him. It could have
presented evidence on its behalf. The CA, in fact, noted that
petitioner presented a statement of account purportedly
showing that PNEI had not yet settled its obligation to
petitioner.24 That petitioner failed to present any more proof
of its claim, as observed by the CA, is no longer the fault of
the courts.
There is no need for the institution of a separate action
under Rule 39, Section 43, contrary to petitioner's claim.
This provision contemplates a situation where the person
allegedly holding property of (or indebted to) the judgment
debtor claims an adverse interest in the property (or denies
the debt). In this case, petitioner expressly admits its
obligation to PNEI.25
WHEREFORE, the petition is DENIED. The assailed
decision and resolution of the Court of Appeals are
AFFIRMED. Costs against petitioner.
SO ORDERED.
FIRST DIVISION
G.R. No. 115129 February 12, 1997
IGNACIO BARZAGA, petitioner,
vs.
COURT OF APPEALS and ANGELITO
ALVIAR, respondents.
BELLOSILLO, J.:
The Fates ordained that Christmas 1990 be bleak for
Ignacio Barzaga and his family. On the nineteenth of
December Ignacio's wife succumbed to a debilitating
ailment after prolonged pain and suffering. Forewarned by
her attending physicians of her impending death, she
expressed her wish to be laid to rest before Christmas day to
spare her family from keeping lonely vigil over her remains
while the whole of Christendom celebrate the Nativity of
their Redeemer.
Drained to the bone from the tragedy that befell his family
yet preoccupied with overseeing the wake for his departed
wife, Ignacio Barzaga set out to arrange for her interment on
the twenty-fourth of December in obedience semper
fidelis to her dying wish. But her final entreaty,
unfortunately, could not be carried out. Dire events
conspired to block his plans that forthwith gave him and his
family their gloomiest Christmas ever.
This is Barzaga's story. On 21 December 1990, at about
three o'clock in the afternoon, he went to the hardware store
of respondent Angelito Alviar to inquire about the
availability of certain materials to be used in the
construction of a niche for his wife. He also asked if the
materials could be delivered at once. Marina Boncales,
Alviar's storekeeper, replied that she had yet to verify if the
store had pending deliveries that afternoon because if there
were then all subsequent purchases would have to be
delivered the following day. With that reply petitioner left.
At seven o'clock the following morning, 22 December,
Barzaga returned to Alviar's hardware store to follow up his
purchase of construction materials. He told the store
employees that the materials he was buying would have to
be delivered at the Memorial Cemetery in Dasmarinas,
15
Cavite, by eight o'clock that morning since his hired workers
were already at the burial site and time was of the essence.
Marina Boncales agreed to deliver the items at the
designated time, date and place. With this assurance,
Barzaga purchased the materials and paid in full the amount
of P2,110.00. Thereafter he joined his workers at the
cemetery, which was only a kilometer away, to await the
delivery.
The construction materials did not arrive at eight o'clock as
promised. At nine o'clock, the delivery was still nowhere in
sight. Barzaga returned to the hardware store to inquire
about the delay. Boncales assured him that although the
delivery truck was not yet around it had already left the
garage and that as soon as it arrived the materials would be
brought over to the cemetery in no time at all. That left
petitioner no choice but to rejoin his workers at the
memorial park and wait for the materials.
By ten o'clock, there was still no delivery. This prompted
petitioner to return to the store to inquire about the
materials. But he received the same answer from
respondent's employees who even cajoled him to go back to
the burial place as they would just follow with his
construction materials.
After hours of waiting — which seemed interminable to him
— Barzaga became extremely upset. He decided to dismiss
his laborers for the day. He proceeded to the police station,
which was just nearby, and lodged a complaint against
Alviar. He had his complaint entered in the police blotter.
When he returned again to the store he saw the delivery
truck already there but the materials he purchased were not
yet ready for loading. Distressed that Alviar's employees
were not the least concerned, despite his impassioned pleas,
Barzaga decided to cancel his transaction with the store and
look for construction materials elsewhere.
In the afternoon of that day, petitioner was able to buy from
another store. But since darkness was already setting in and
his workers had left, he made up his mind to start his
project the following morning, 23 December. But he knew
that the niche would not be finish in time for the scheduled
burial the following day. His laborers had to take a break on
Christmas Day and they could only resume in the morning
of the twenty-sixth. The niche was completed in the
afternoon and Barzaga's wife was finally laid to rest.
However, it was two-and-a-half (2-1/2) days behind
schedule.

On 21 January 1991, tormented perhaps by his inability to
fulfill his wife's dying wish, Barzaga wrote private
respondent Alviar demanding recompense for the damage
he suffered. Alviar did not respond. Consequently,
petitioner sued him before the Regional Trial Court.1
Resisting petitioner's claim, private respondent contended
that legal delay could not be validly ascribed to him because
no specific time of delivery was agreed upon between them.
He pointed out that the invoices evidencing the sale did not
contain any stipulation as to the exact time of delivery and
that assuming that the materials were not delivered within
the period desired by petitioner, the delivery truck suffered
a flat tire on the way to the store to pick up the materials.
Besides, his men were ready to make the delivery by ten-
thirty in the morning of 22 December but petitioner refused
to accept them. According to Alviar, it was this obstinate
refusal of petitioner to accept delivery that caused the delay
in the construction of the niche and the consequent failure
of the family to inter their loved one on the twenty-fourth of
December, and that, if at all, it was petitioner and no other
who brought about all his personal woes.
Upholding the proposition that respondent incurred in
delay in the delivery of the construction materials resulting
in undue prejudice to petitioner, the trial court ordered
respondent Alviar to pay petitioner (a) P2,110.00 as refund
for the purchase price of the materials with interest per
annum computed at the legal rate from the date of the filing
of the complaint, (b) P5,000.00 as temperate damages, (c)
P20,000.00 as moral damages, (d) P5,000.00 as litigation
expenses, and (e) P5,000.00 as attorney's fees.
On appeal, respondent Court of Appeals reversed the lower
court and ruled that there was no contractual commitment
as to the exact time of delivery since this was not indicated
in the invoice receipts covering the sale.2
The arrangement to deliver the materials merely implied
that delivery should be made within a reasonable time but
that the conclusion that since petitioner's workers were
already at the graveyard the delivery had to be made at that
precise moment, is non-sequitur. The Court of Appeals also
held that assuming that there was delay, petitioner still had
sufficient time to construct the tomb and hold his wife's
burial as she wished.
We sustain the trial court. An assiduous scrutiny of the
record convinces us that respondent Angelito Alviar was
negligent and incurred in delay in the performance of his
contractual obligation. This sufficiently entitles petitioner
Ignacio Barzaga to be indemnified for the damage he
suffered as a consequence of delay or a contractual breach.
The law expressly provides that those who in the
performance of their obligation are guilty of fraud,
negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.3
Contrary to the appellate court's factual determination,
there was a specific time agreed upon for the delivery of the
materials to the cemetery. Petitioner went to private
respondent's store on 21 December precisely to inquire if
the materials he intended to purchase could be delivered
immediately. But he was told by the storekeeper that if there
were still deliveries to be made that afternoon his order
would be delivered the following day. With this in mind
Barzaga decided to buy the construction materials the
following morning after he was assured of immediate
delivery according to his time frame. The argument that the
invoices never indicated a specific delivery time must fall in
the face of the positive verbal commitment of respondent's
storekeeper. Consequently it was no longer necessary to
indicate in the invoices the exact time the purchased items
were to be brought to the cemetery. In fact, storekeeper
Boncales admitted that it was her custom not to indicate the
time of delivery whenever she prepared invoices.4
Private respondent invokes fortuitous event as his handy
excuse for that "bit of delay" in the delivery of petitioner's
purchases. He maintains that Barzaga should have allowed
his delivery men a little more time to bring the construction
materials over to the cemetery since a few hours more
would not really matter and considering that his truck had a
flat tire. Besides, according to him, Barzaga still had
sufficient time to build the tomb for his wife.
This is a gratuitous assertion that borders on callousness.
Private respondent had no right to manipulate petitioner's
timetable and substitute it with his own. Petitioner had a
deadline to meet. A few hours of delay was no piddling
matter to him who in his bereavement had yet to attend to
other pressing family concerns. Despite this, respondent's
employees still made light of his earnest importunings for
an immediate delivery. As petitioner bitterly declared in
court " . . . they (respondent's employees) were making a
fool out of me."5
We also find unacceptable respondent's justification that his
truck had a flat tire, for this event, if indeed it happened,
was forseeable according to the trial court, and as such
should have been reasonably guarded against. The nature of
16
private respondent's business requires that he should be
ready at all times to meet contingencies of this kind. One
piece of testimony by respondent's witness Marina Boncales
has caught our attention - that the delivery truck arrived a
little late than usual because it came from a delivery of
materials in Langcaan, Dasmarinas, Cavite.6Significantly,
this information was withheld by Boncales from petitioner
when the latter was negotiating with her for the purchase of
construction materials. Consequently, it is not unreasonable
to suppose that had she told petitioner of this fact and that
the delivery of the materials would consequently be delayed,
petitioner would not have bought the materials from
respondent's hardware store but elsewhere which could
meet his time requirement. The deliberate suppression of
this information by itself manifests a certain degree of bad
faith on the part of respondent's storekeeper.
The appellate court appears to have belittled petitioner's
submission that under the prevailing circumstances time
was of the essence in the delivery of the materials to the
grave site. However, we find petitioner's assertion to be
anchored on solid ground. The niche had to be constructed
at the very least on the twenty-second of December
considering that it would take about two (2) days to finish
the job if the interment was to take place on the twenty-
fourth of the month. Respondent's delay in the delivery of
the construction materials wasted so much time that
construction of the tomb could start only on the twenty-
third. It could not be ready for the scheduled burial of
petitioner's wife. This undoubtedly prolonged the wake, in
addition to the fact that work at the cemetery had to be put
off on Christmas day.
This case is clearly one of non-performance of a reciprocal
obligation.7 In their contract of purchase and sale, petitioner
had already complied fully with what was required of him as
purchaser, i.e., the payment of the purchase price of
P2,110.00. It was incumbent upon respondent to
immediately fulfill his obligation to deliver the goods
otherwise delay would attach.
We therefore sustain the award of moral damages. It cannot
be denied that petitioner and his family suffered wounded
feelings, mental anguish and serious anxiety while keeping
watch on Christmas day over the remains of their loved one
who could not be laid to rest on the date she herself had
chosen. There is no gainsaying the inexpressible pain and
sorrow Ignacio Barzaga and his family bore at that moment
caused no less by the ineptitude, cavalier behavior and bad
faith of respondent and his employees in the performance of
an obligation voluntarily entered into.

We also affirm the grant of exemplary damages. The
lackadaisical and feckless attitude of the employees of
respondent over which he exercised supervisory authority
indicates gross negligence in the fulfillment of his business
obligations. Respondent Alviar and his employees should
have exercised fairness and good judgment in dealing with
petitioner who was then grieving over the loss of his wife.
Instead of commiserating with him, respondent and his
employees contributed to petitioner's anguish by causing
him to bear the agony resulting from his inability to fulfill
his wife's dying wish.
We delete however the award of temperate damages. Under
Art. 2224 of the Civil Code, temperate damages are more
than nominal but less than compensatory, and may be
recovered when the court finds that some pecuniary loss has
been suffered but the amount cannot, from the nature of the
case, be proved with certainty. In this case, the trial court
found that plaintiff suffered damages in the form of wages
for the hired workers for 22 December 1990 and expenses
incurred during the extra two (2) days of the wake. The
record however does not show that petitioner presented
proof of the actual amount of expenses he incurred which
seems to be the reason the trial court awarded to him
temperate damages instead. This is an erroneous
application of the concept of temperate damages. While
petitioner may have indeed suffered pecuniary losses, these
by their very nature could be established with certainty by
means of payment receipts. As such, the claim falls
unequivocally within the realm of actual or compensatory
damages. Petitioner's failure to prove actual expenditure
consequently conduces to a failure of his claim. For in
determining actual damages, the court cannot rely on mere
assertions, speculations, conjectures or guesswork but must
depend on competent proof and on the best evidence
obtainable regarding the actual amount of loss.8
We affirm the award of attorney's fees and litigation
expenses. Award of damages, attorney's fees and litigation
costs is left to the sound discretion of the court, and if such
discretion be well exercised, as in this case, it will not be
disturbed on appeal.9
WHEREFORE, the decision of the Court of Appeals is
REVERSED and SET ASIDE except insofar as it GRANTED
on a motion for reconsideration the refund by private
respondent of the amount of P2,110.00 paid by petitioner
for the construction materials. Consequently, except for the
award of P5,000.00 as temperate damages which we delete,
the decision of the Regional Trial Court granting petitioner
(a) P2,110.00 as refund for the value of materials with
interest computed at the legal rate per annum from the date
of the filing of the case; (b) P20,000.00 as moral damages;
(c) P10,000.00 as exemplary damages; (d) P5,000.00 as
litigation expenses; and (4) P5,000.00 as attorney's fees, is
AFFIRMED. No costs.
SO ORDERED.
TANGUILING V CA
THIRD DIVISION
G.R. No. 96053 March 3, 1993
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA
GALICIA, EVELYN GALICIA, JUAN GALICIA, JR.
and RODRIGO GALICIA, petitioners,
vs.
COURT OF APPEALS and ALBRIGIDO
LEYVA, respondents.
Facundo T. Bautista for petitioners.
Jesus T. Garcia for private respondent.
MELO, J.:
The deed of conveyance executed on May 28, 1975 by Juan
Galicia, Sr., prior to his demise in 1979, and Celerina
Labuguin, in favor of Albrigido Leyva involving the
undivided one-half portion of a piece of land situated at
Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00
under the following terms:
1. The sum of PESOS: THREE THOUSAND (P3,000.00) is
HEREBY acknowledged to have been paid upon the
execution of this agreement;
2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall
be paid within ten (10) days from and after the execution of
this agreement;
3. The sum of PESOS: TEN THOUSAND (P10,000.00)
represents the VENDORS' indebtedness with the Philippine
Veterans Bank which is hereby assumed by the VENDEE;
and
4. The balance of PESOS: TWENTY SEVEN THOUSAND
(P27,000.00.) shall be paid within one (1) year from and
after the execution of this instrument. (p. 53, Rollo)
is the subject matter of the present litigation between the
heirs of Juan Galicia, Sr. who assert breach of the conditions
as against private respondent's claim anchored on full
payment and compliance with the stipulations thereof.
The court of origin which tried the suit for specific
performance filed by private respondent on account of the
herein petitioners' reluctance to abide by the covenant,
17
ruled in favor of the vendee (p. 64, Rollo) while respondent
court practically agreed with the trial court except as to the
amount to be paid to petitioners and the refund to private
respondent are concerned (p. 46, Rollo).
There is no dispute that the sum of P3,000.00 listed as first
installment was received by Juan Galicia, Sr. According to
petitioners, of the P10,000.00 to be paid within ten days
from execution of the instrument, only P9,707.00 was
tendered to, and received by, them on numerous occasions
from May 29, 1975, up to November 3, 1979. Concerning
private respondent's assumption of the vendors' obligation
to the Philippine Veterans Bank, the vendee paid only the
sum of P6,926.41 while the difference the indebtedness
came from Celerina Labuguin (p. 73, Rollo). Moreover,
petitioners asserted that not a single centavo of the
P27,000.00 representing the remaining balance was paid to
them. Because of the apprehension that the heirs of Juan
Galicia, Sr. are disavowing the contract inked by their
predecessor, private respondent filed the complaint for
specific performance.
In addressing the issue of whether the conditions of the
instrument were performed by herein private respondent as
vendee, the Honorable Godofredo Rilloraza, Presiding
Judge of Branch 31 of the Regional Trial Court, Third
Judicial Region stationed at Guimba, Nueva Ecija, decided
to uphold private respondent's theory on the basis of
constructive fulfillment under Article 1186 and estoppel
through acceptance of piecemeal payments in line with
Article 1235 of the Civil Code.
Anent the P10,000.00 specified as second installment, the
lower court counted against the vendors the candid
statement of Josefina Tayag who sat on the witness stand
and made the admission that the check issued as payment
thereof was nonetheless paid on a staggered basis when the
check was dishonored (TSN, September 1, 1983, pp. 3-4; p.
3, Decision; p. 66, Rollo). Regarding the third condition, the
trial court noted that plaintiff below paid more than
P6,000.00 to the Philippine Veterans Bank but Celerina
Labuguin, the sister and co-vendor of Juan Galicia, Sr. paid
P3,778.77 which circumstance was construed to be a ploy
under Article 1186 of the Civil Code that "prematurely
prevented plaintiff from paying the installment fully" and
"for the purpose of withdrawing the title to the lot". The
acceptance by petitioners of the various payments even
beyond the periods agreed upon, was perceived by the lower
court as tantamount to faithful performance of the
obligation pursuant to Article 1235 of the Civil Code.
Furthermore, the trial court noted that private respondent

consigned P18,520.00, an amount sufficient to offset the
remaining balance, leaving the sum of P1,315.00 to be
credited to private respondent.
On September 12, 1984, judgment was rendered:
1. Ordering the defendants — heirs of Juan Galicia, to
execute the Deed of Sale of their undivided ONE HALF (1/2)
portion of Lot No. 1130, Guimba Cadastre, covered by TCT
No. NT-120563, in favor of plaintiff Albrigido Leyva, with an
equal frontage facing the national road upon finality of
judgment; that, in their default, the Clerk of Court II, is
hereby ordered to execute the deed of conveyance in line
with the provisions of Section 10, Rule 39 of the Rules of
Court;
2. Ordering the defendants, heirs of Juan Galicia, jointly
and severally to pay attorney's fees of P6,000.00 and the
further sum of P3,000.00 for actual and compensatory
damages;
3. Ordering Celerina Labuguin and the other defendants
herein to surrender to the Court the owner's duplicate of
TCT No. NT-120563, province of Nueva Ecija, for the use of
plaintiff in registering the portion, subject matter of the
instant suit;
4. Ordering the withdrawal of the amount of P18,520.00
now consigned with the Court, and the amount of
P17,204.75 be delivered to the heirs of Juan Galicia as
payment of the balance of the sale of the lot in question, the
defendants herein after deducting the amount of attorney's
fees and damages awarded to the plaintiff hereof and the
delivery to the plaintiff of the further sum of P1,315.25
excess or over payment and, defendants to pay the cost of
the suit. (p. 69, Rollo)
and following the appeal interposed with respondent court,
Justice Dayrit with whom Justices Purisima and Aldecoa,
Jr. concurred, modified the fourth paragraph of the decretal
portion to read:
4. Ordering the withdrawal of the amount of P18,500.00
now consigned with the Court, and that the amount of
P16,870.52 be delivered to the heirs of Juan Galicia, Sr. as
payment to the unpaid balance of the sale, including the
reimbursement of the amount paid to Philippine Veterans
Bank, minus the amount of attorney's fees and damages
awarded in favor of plaintiff. The excess of P1,649.48 will be
returned to plaintiff. The costs against defendants. (p.
51, Rollo)
As to how the foregoing directive was arrived at, the
appellate court declared:
With respect to the fourth condition stipulated in the
contract, the period indicated therein is deemed modified by
the parties when the heirs of Juan Galicia, Sr. accepted
payments without objection up to November 3, 1979. On the
basis of receipts presented by appellee commencing from
August 8, 1975 up to November 3, 1979, a total amount of
P13,908.25 has been paid, thereby leaving a balance of
P13,091.75. Said unpaid balance plus the amount
reimbursable to appellant in the amount of P3,778.77 will
leave an unpaid total of P16,870.52. Since appellee
consigned in court the sum of P18,500.00, he is entitled to
get the excess of P1,629.48. Thus, when the heirs of Juan
Galicia, Sr. (obligees) accepted the performance, knowing its
incompleteness or irregularity and without expressing any
protest or objection, the obligation is deemed fully complied
with (Article 1235, Civil Code). (p. 50, Rollo)
Petitioners are of the impression that the decision appealed
from, which agreed with the conclusions of the trial court, is
vulnerable to attack via the recourse before Us on the
principal supposition that the full consideration of the
agreement to sell was not paid by private respondent and,
therefore, the contract must be rescinded.
The suggestion of petitioners that the covenant must be
cancelled in the light of private respondent's so-called
breach seems to overlook petitioners' demeanor who,
instead of immediately filing the case precisely to rescind
the instrument because of non-compliance, allowed private
respondent to effect numerous payments posterior to the
grace periods provided in the contract. This apathy of
petitioners who even permitted private respondent to take
the initiative in filing the suit for specific performance
against them, is akin to waiver or abandonment of the right
to rescind normally conferred by Article 1191 of the Civil
Code. As aptly observed by Justice Gutierrez, Jr. in Angeles
vs. Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code of
the Philippines Annotated, Twelfth Ed. [1989], p. 203:
. . . We agree with the plaintiffs-appellees that when the
defendants-appellants, instead of availing of their alleged
right to rescind, have accepted and received delayed
payments of installments, though the plaintiffs-appellees
have been in arrears beyond the grace period mentioned in
18
paragraph 6 of the contract, the defendants-appellants have
waived, and are now estopped from exercising their alleged
right of rescission . . .
In Development Bank of the Philippines vs. Sarandi (5 CAR
(25) 811; 817-818; cited in 4 Padilla, Civil Code Annotated,
Seventh Ed. [1987], pp. 212-213) a similar opinion was
expressed to the effect that:
In a perfected contract of sale of land under an agreed
schedule of payments, while the parties may mutually oblige
each other to compel the specific performance of the
monthly amortization plan, and upon failure of the buyer to
make the payment, the seller has the right to ask for a
rescission of the contract under Art. 1191 of the Civil Code,
this shall be deemed waived by acceptance of posterior
payments.”
Both the trial and appellate courts were, therefore, correct
in sustaining the claim of private respondent anchored on
estoppel or waiver by acceptance of delayed payments under
Article 1235 of the Civil Code in that:
When the obligee accepts the performance, knowing its
incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied
with.”
considering that the heirs of Juan Galicia, Sr.
accommodated private respondent by accepting the latter's
delayed payments not only beyond the grace periods but
also during the pendency of the case for specific
performance (p. 27, Memorandum for petitioners; p.
166, Rollo). Indeed, the right to rescind is not absolute and
will not be granted where there has been substantial
compliance by partial payments (4 Caguioa, Comments and
Cases on Civil Law, First Ed. [1968] p. 132). By and large,
petitioners' actuation is susceptible of but one construction
— that they are now estopped from reneging from their
commitment on account of acceptance of benefits arising
from overdue accounts of private respondent.
Now, as to the issue of whether payments had in fact been
made, there is no doubt that the second installment was
actually paid to the heirs of Juan Galicia, Sr. due to Josefina
Tayag's admission in judicio that the sum of P10,000.00
was fully liquidated. It is thus erroneous for petitioners to
suppose that "the evidence in the records do not support
this conclusion" (p. 18, Memorandum for Petitioners; p.
157, Rollo). A contrario, when the court of origin, as well as

the appellate court, emphasized the frank representation
along this line of Josefina Tayag before the trial court (TSN,
September l, 1983, pp. 3-4; p. 5, Decision in CA-G.R. CV No.
13339, p. 50, Rollo; p. 3, Decision in Civil Case No. 681-G, p.
66, Rollo), petitioners chose to remain completely mute
even at this stage despite the opportunity accorded to them,
for clarification. Consequently, the prejudicial aftermath of
Josefina Tayag's spontaneous reaction may no longer be
obliterated on the basis of estoppel (Article 1431, Civil
Code; Section 4, Rule 129; Section 2(a), Rule 131, Revised
Rules on Evidence).
Insofar as the third item of the contract is concerned, it may
be recalled that respondent court applied Article 1186 of the
Civil Code on constructive fulfillment which petitioners
claim should not have been appreciated because they are the
obligees while the proviso in point speaks of the obligor.
But, petitioners must concede that in a reciprocal obligation
like a contract of purchase, (Ang vs. Court of Appeals, 170
SCRA 286 [1989]; 4 Paras, supra, at p. 201), both parties
are mutually obligors and also obligees (4 Padilla, supra, at
p. 197), and any of the contracting parties may, upon non-
fulfillment by the other privy of his part of the prestation,
rescind the contract or seek fulfillment (Article 1191, Civil
Code). In short, it is puerile for petitioners to say that they
are the only obligees under the contract since they are also
bound as obligors to respect the stipulation in permitting
private respondent to assume the loan with the Philippine
Veterans Bank which petitioners impeded when they paid
the balance of said loan. As vendors, they are supposed to
execute the final deed of sale upon full payment of the
balance as determined hereafter.
Lastly, petitioners argue that there was no valid tender of
payment nor consignation of the sum of P18,520.00 which
they acknowledge to have been deposited in court on
January 22, 1981 five years after the amount of P27,000.00
had to be paid (p. 23, Memorandum for Petitioners; p.
162, Rollo). Again this suggestion ignores the fact that
consignation alone produced the effect of payment in the
case at bar because it was established below that two or
more heirs of Juan Galicia, Sr. claimed the same right to
collect (Article 1256, (4), Civil Code; pp. 4-5, Decision in
Civil Case No. 681-G; pp. 67-68, Rollo). Moreover,
petitioners did not bother to refute the evidence on hand
that, aside from the P18,520.00 (not P18,500.00 as
computed by respondent court) which was consigned,
private respondent also paid the sum of P13,908.25
(Exhibits "F" to "CC"; p. 50, Rollo). These two figures
representing private respondent's payment of the fourth
condition amount to P32,428.25, less the P3,778.77 paid by
petitioners to the bank, will lead us to the sum of
P28,649.48 or a refund of P1,649.48 to private respondent
as overpayment of the P27,000.00 balance.
WHEREFORE, the petition is hereby DISMISSED and the
decision appealed from is hereby AFFIRMED with the slight
modification of Paragraph 4 of the dispositive thereof which
is thus amended to read:
4. ordering the withdrawal of the sum of P18,520.00
consigned with the Regional Trial Court, and that the
amount of P16,870.52 be delivered by private respondent
with legal rate of interest until fully paid to the heirs of Juan
Galicia, Sr. as balance of the sale including reimbursement
of the sum paid to the Philippine Veterans Bank, minus the
attorney's fees and damages awarded in favor of private
respondent. The excess of P1,649.48 shall be returned to
private respondent also with legal interest until fully paid by
petitioners. With costs against petitioners.”
SO ORDERED.
PERIQUET V CA
THIRD DIVISION
G.R. No. 174986 July 7, 2009
ARMAND O. RAQUEL-SANTOS and ANNALISSA
MALLARI, Petitioners,
vs.
COURT OF APPEALS and FINVEST SECURITIES
CO., INC., Respondents.
G.R. No. 175071
PHILIPPINE STOCK EXCHANGE, INC., Petitioner,
vs.
FINVEST SECURITIES CO., INC., Respondent.
G.R. No. 181415
FINVEST SECURITIES CO., INC., Petitioner,
vs.
TRANS-PHIL MARINE ENT., INC. and ROLAND H.
GARCIA, Respondents.
DECISION
NACHURA, J.:
Three petitions, arising from related events, were
consolidated by this Court: G.R. Nos. 174986 and 175071 are
petitions for review assailing the Court of Appeals (CA)
Decision1 in CA-G.R. CV No. 85176 dated August 9, 2006,
and Resolution dated October 11, 2006; and G.R. No. 181415
is a petition for review assailing the CA Decision2 in CA-G.R.
CV No. 85430 dated September 3, 2007, and Resolution
dated January 24, 2008. These cases cropped up from the
failure of Finvest Securities Co., Inc. (Finvest) to meet its
obligations to its clients and the Philippine Stock Exchange
(PSE), allegedly caused by mishandling of Finvest’s funds
and property by its officers.
19
G.R. Nos. 174986 and 175071
Finvest is a stock brokerage corporation duly organized
under Philippine laws and is a member of the PSE with one
membership seat pledged to the latter. Armand O. Raquel-
Santos (Raquel-Santos) was Finvest’s President and
nominee to the PSE from February 20, 1990 to July 16,
1998.3 Annalissa Mallari (Mallari) was Finvest’s
Administrative Officer until December 31, 1998.4
In the course of its trading operations, Finvest incurred
liabilities to PSE representing fines and penalties for non-
payment of its clearing house obligations. PSE also received
reports that Finvest was not meeting its obligations to its
clients.5 Consequently, PSE indefinitely suspended Finvest
from trading. The Securities and Exchange Commission
(SEC) also suspended its license as broker.6
On June 17, 1998, PSE demanded from Finvest the payment
of its obligations to the PSE in the amount of ₱4,267,339.99
and to its (Finvest’s) clients within 15 days.7 PSE also
ordered Finvest to replace its nominee, Raquel-Santos.8
Upon failure of Finvest to settle its obligations, PSE sought
authority from the SEC to take over the operations of
Finvest in accordance with PSE’s undertaking pursuant to
Section 22(a)(5)9 of the Revised Securities Act. On July 22,
1998, SEC acted favorably on PSE’s request and authorized
it to take over the operations of Finvest in order to continue
preserving the latter’s assets. Finvest was duly informed of
the SEC’s decision and was advised to refrain from making
any payment, delivery of securities, or selling or otherwise
encumbering any of its assets without PSE’s approval.10
As of August 11, 1998, Finvest’s total obligation to PSE,
representing penalties, charges and fines for violations of
pertinent rules, was pegged at ₱5,990,839.99.11 Finvest
promised to settle all obligations to its clients and to PSE
subject to verification of the amount due, but Finvest
requested a deadline of July 31, 1999.12 PSE granted
Finvest’s request, with the warning that, should Finvest fail
to meet the deadline, PSE might exercise its right to sell
Finvest’s membership seat and use the proceeds thereof to
settle its obligations to the PSE, its member-brokers and its
clients.13 On the same day, Finvest requested an
appointment with PSE’s concerned officer to reconcile,
confirm and update the amount of the penalties, charges
and fines due PSE. Finvest also advised PSE that it would be
represented by Mr. Ernesto Lee, its consultant, during the
said meeting.14 After consultation with Mr. Lee, PSE revised

its computation of the penalties, charges and fines and
reduced the amount due to ₱3,540,421.17.15
In a Letter dated September 8, 1998, Finvest appealed to
PSE for the approval of the following: (1) that it be given a
period of up to March 30, 1999 to settle claims of clients,
subject to proper documents and verification of balance;
and (2) that it be allowed to settle its liabilities to PSE at an
amount lower than ₱4,212,921.13 (representing penalties,
charges and fines at ₱3,540,421.17 plus sanctions for
violation of rules at ₱675,500.00), considering that it had
never unduly exposed PSE to any legal and financial risks in
connection with its clearing accounts.16
In reply, PSE required Finvest to acknowledge within 30
days, in whole or in part, clients’ claims that had been filed
with the PSE and to settle all duly acknowledged claims by
December 31, 1998. PSE resolved to consider the request for
a reduction of its liabilities to PSE only after it had settled
all duly acknowledged claims of its clients.17
On February 3, 1999, PSE inquired from Finvest if it had
already settled all duly acknowledged claims of its clients
and its liabilities to PSE.18 PSE also demanded that Finvest
settle its liabilities to it not later than March 31, 1999.
Finvest responded by proposing that the amount of assessed
penalties, charges and fines be reduced to 10%, that is,
₱354,042.17; and that full payment of the clients’ claims be
deferred to June 30, 1999.19 Previously, Finvest had also
requested a written clearance from PSE for renewal of the
registration of its brokers and dealers with the SEC.20
In its Letter of February 23, 1999, PSE informed Finvest
that it would only issue a written clearance after Finvest had
settled its obligations to PSE and paid all acknowledged
liabilities to various clients.21 In response, Finvest repeated
its appeal to be allowed to fully operate again and to pay a
reduced amount on the ground that it had no adequate
funds because it had been the victim of fraud committed by
its employees.22
On April 21, 1999, PSE again sent a demand letter to
Finvest, reminding the latter of the March 31, 1999
deadline.23
On April 26, 1999, Finvest requested a hearing to determine
the amount of its liability and to exhaust the possibility of
arriving at a reasonable solution, and reiterated its appeal
for the resumption of its operations.24 PSE brushed aside
Finvest’s request, urging it instead to settle all of its
obligations by May 31, 1999; otherwise, PSE would be
forced to recommend to the SEC the liquidation of its assets
and sell its seat at public auction,25 pursuant to its Pledge
Agreement with Finvest. Finvest protested the imposition of
the deadline for being arbitrary on the ground that the
claims against it had not yet been established.26
At this juncture, Finvest filed a Complaint with the SEC for
accounting and damages with prayer for a temporary
restraining order and/or preliminary injunction and
mandamus against Raquel-Santos, Mallari and PSE. The
complaint alleged that Raquel-Santos and Mallari took
undue advantage of their positions by diverting to their
personal use and benefit the unaccounted stock certificates
and sales proceeds referred to in Annex "X" of the
complaint, which was a list of the claims of Finvest’s clients
as of December 31, 1998. Finvest prayed that Raquel-Santos
and Mallari be ordered to account for the missing stock
certificates and sales proceeds and to pay the profits that
would have accrued to Finvest. As against PSE, the
complaint alleged that PSE violated Finvest’s right to due
process by illegally and arbitrarily suspending Finvest’s
operations, thus compounding its inability to meet the
demands of its clients; and by unilaterally and arbitrarily
imposing upon Finvest fines and penalties, without a
hearing. The complaint prayed that an injunction be issued
to prevent PSE from initiating the liquidation of Finvest and
selling Finvest’s seat at public auction.
Alleging that Raquel-Santos and Mallari failed to file their
Answer within the reglementary period, Finvest moved for a
partial judgment against them.27 On February 4, 2000, SEC,
through a Hearing Panel, rendered a Partial
Judgment28 against Raquel-Santos and Mallari, ordering
them to account for the missing stock certificates and pay
the damages that Finvest may sustain.
Raquel-Santos and Mallari filed separate motions to set
aside the partial judgment, alleging non-receipt of
summons. In an Order dated April 10, 2000, SEC denied
due course to the two motions.29 Thereafter, the SEC
Hearing Panel issued a writ of execution.30
Consequently, notices of garnishment and sale were issued
against Raquel-Santos’ Manila Golf Shares and Sta. Elena
Golf Shares.31 Raquel-Santos moved for the cancellation of
the notice of sale, arguing that there was no basis for the
sale of his shares as there was no money judgment involved,
only an accounting of the allegedly missing stock
certificates. According to him, only after it is established
that there were missing certificates should he be held
20
accountable. In the same motion, Raquel-Santos also
endeavored to make an accounting of the stock certificates
through the following documents: (a) a 35-page Stock
Ledger of an inventory of securities/stock certificates as of
July 31, 1998; (b) a 24-page inventory as of July 31, 1998 of
stocks in the vault of Finvest; and (c) a 5-page inventory of
the securities on deposit with the Philippine Central
Depository, Inc.32
On June 29, 2000, the parties entered into an
Agreement,33 approved by the SEC en banc in its Order34 of
July 11, 2000, to remand the case to the Securities
Investigation and Clearing Division for service of
summonses to Raquel-Santos and Mallari. In turn, Raquel-
Santos and Mallari agreed not to dispose of or transfer the
garnished properties in the meantime, but the writs of
garnishment would remain in force during the pendency of
the case.
Meanwhile, on June 5, 2000, the SEC Hearing Panel
granted Finvest’s motion for the issuance of a preliminary
injunction to enjoin PSE from initiating the liquidation of
Finvest and from selling its membership seat. The SEC
Hearing Panel ratiocinated that PSE’s plan to sell Finvest’s
membership seat at public auction, despite the fact that its
claims against Finvest were yet to be determined in these
proceedings, was reason enough for the issuance of a
preliminary injunction.35 Upon posting of the required
bond, the SEC Hearing Panel issued a writ of preliminary
injunction on June 21, 2000.36
With the enactment of the Securities Regulation Code, the
case was transferred to the Regional Trial Court (RTC),
Makati City, and docketed as Civil Case No. 00-1589.
On October 2, 2001, the RTC issued an Order lifting the
garnishment of Raquel-Santos’ Manila Golf Club share on
the ground that there must be a proper accounting to
determine the amount for which Raquel-Santos and Mallari
were to be held jointly and severally liable to Finvest before
a writ
of garnishment may be validly issued.37 As a result, Finvest
filed a motion for reconsideration and a motion to respect
the SEC en banc Order dated July 11, 2000. The motions
were denied by the RTC in its May 30, 2002
Order.38 Through a petition for certiorari, the October 2,
2001 Order of the RTC was subsequently modified by the
CA on December 9, 2002. The CA held that the sale of
Raquel-Santos’ share in Manila Golf Club was valid, subject

to the outcome of the main case (Civil Case No. 00-1589).
The parties were further enjoined to comply with their
obligations under the July 11, 2000 Order of the SEC en
banc.39
In the meantime, PSE filed a Motion to Dissolve the Writ of
Preliminary Injunction and/or Motion for
Reconsideration40 on the ground that it had the legal
obligation to make the appropriate recommendations to the
SEC on whether or not it would be to the best interest of all
concerned for Finvest to be liquidated at the soonest
possible time.
On April 28, 2003, the RTC issued a judgment in Civil Case
No. 00-1589 in favor of Finvest:
WHEREFORE, judgment is rendered directing that the writ
of preliminary injunction issued on June 21, 2000 be
declared permanent. Respondents Raquel-Santos and
Mallari are ordered to render an accounting of the stock
certificates listed in Annex A of the Complaint.
SO ORDERED.41
The trial court noted that Finvest had not been remiss in
addressing its dispute with the PSE. When PSE manifested
its intent to liquidate Finvest and sell its seat at public
auction, the amount of Finvest’s liability was still unsettled,
which thus makes it doubtful whether Section 22(a)(5)
would apply. On the issue between Finvest and its officers
(Raquel-Santos and Mallari), the trial court held that
Finvest could rightfully demand an accounting from them
and hold them liable for unaccounted securities since
Raquel-Santos exercised control and supervision over the
trading operations of Finvest and he and Mallari had
custody of all securities traded.
On September 12, 2003, Finvest sought a partial
reconsideration of the RTC Judgment praying that: (a)
Finvest’s indefinite suspension by PSE be lifted; (b) Raquel-
Santos and Mallari be ordered to render an accounting of
the stock certificates within 60 days from receipt of the
judgment, and upon failure to do so, to jointly and severally
pay Finvest ₱18,184,855.89, the value of the stocks as of
December 31, 1998; and (c) Raquel-Santos be ordered to
liquidate his cash advances amounting to ₱3,143,823.63
within 60 days from receipt of the judgment or, in case of
failure to do so, to consider the same as unliquidated cash
advances.42
On the prayer to lift the indefinite suspension of Finvest by
PSE, the trial court found that there was, in fact, a need to
allow Finvest’s operation to continue to enable it to
negotiate the terms and modes of payments with its
claimants, settle its obligations and fully ascertain its
financial condition. On the prayer to set a period within
which to render the accounting, the trial court held that
there was no need to set a period as Section 4, Rule 39 of the
Rules on Civil Procedure already directs when such kind of
judgment is enforceable. Accordingly, the RTC modified its
earlier decision in its Order dated February 1, 2005, thus:
WHEREFORE, plaintiff’s Motion for Partial
Reconsideration is partially granted as follows –
a) The indefinite suspension of operation of plaintiff Finvest
Corporation by the defendant Philippine Stock Exchange is
lifted; and
b) The "Annex A" in the dispositive portion of the Judgment
dated April 28, 2003 is modified to read as "Annex X."
All other reliefs are denied.43
PSE appealed to the CA. Finvest likewise filed a partial
appeal. Raquel-Santos and Mallari also filed an appeal with
the CA but the same was deemed abandoned when they
failed to file their appellants’ brief.44 The appeals of Finvest
and PSE were docketed as CA-G.R. CV No. 85176.
On August 9, 2006, the CA rendered a Decision granting
Finvest’s petition, thus:
WHEREFORE, plaintiff-appellant Finvest’s partial appeal of
the April 28, 2003 Judgment of the Regional Trial Court of
Makati City, Branch 138 is hereby GRANTED to the effect
that defendants-appellants Armand O. Raquel-Santos and
Annalissa Mallari are hereby given a period of sixty (60)
days from the finality of this decision to render an
accounting and in the event that they will fail to do so, they
are hereby ordered to jointly and severally pay Finvest the
amount of eighteen million one hundred eighty-four
thousand eight hundred fifty-five pesos and eighty-nine
centavos (₱18,184,855.89), and for defendant-appellant
Raquel-Santos to pay three million one hundred forty-three
thousand eight hundred twenty-three pesos and sixty-three
centavos (₱3,143,823.63). As for the appeal of defendant-
appellant Philippine Stock Exchange, the same is hereby
DENIED for lack of merit.
21
SO ORDERED.45
For expediency and in the interest of speedy disposition of
justice, the CA set a 60-day period within which Raquel-
Santos and Mallari would render an accounting. The
appellate court agreed that Raquel-Santos and Mallari were
guilty of gross negligence or bad faith for the wrongful
disposition of the proceeds of the sale of the shares of stock
that were in their custody. According to the CA, this
circumstance justified the order for them to pay
₱18,184,855.89, representing the various claims of clients,
and for Raquel-Santos to pay ₱3,143,823.63, representing
unliquidated cash advances, in the event they failed to
render the necessary accounting within the given period.
Significantly, the CA also noted that Raquel-Santos and
Mallari did not even dispute the affidavit of Mr. Ernesto Lee
regarding the schedule of claims.
The CA opined that paragraph 5(a) of the Pledge
Agreement, giving PSE the right to sell Finvest’s seat in case
of default, pertained to default in the payment of obligations
already determined and established. The validity of the fines
and penalties imposed by the PSE was yet to be
substantiated. PSE could not insist on selling Finvest’s seat
unless its claims had been resolved with finality. It was,
thus, proper to enjoin PSE from exercising whatever rights
it had under the Pledge Agreement.
In their motion for reconsideration,46 Raquel-Santos and
Mallari protested the CA’s order to hold them jointly and
severally liable for the claims of Finvest’s clients on the
ground that this relief was not even prayed for in Finvest’s
complaint. They insisted that the proper procedure to
render an accounting was to specify the beginning balance,
tack the values therefor, render an accounting, and adjudge
them liable for the deficiency, if any. They averred that the
beginning balance must be set out by the parties or, in case
of dispute, by the courts. PSE likewise filed a motion for
reconsideration47 reiterating its arguments.
On October 11, 2006, the CA denied the respective motions
for reconsideration of the PSE and Raquel-Santos and
Mallari.48 The CA dismissed PSE’s motion for
reconsideration for being a mere rehash of its arguments. As
for the issues raised by Raquel-Santos and Mallari, the CA
pronounced that its order to hold Raquel-Santos and
Mallari liable for the claims in case they failed to account for
them was well within the reliefs prayed for by Finvest in its
Complaint. The CA added that Raquel-Santos and Mallari
could follow the proposed accounting procedure when they
rendered an accounting pursuant to the court’s order.

Raquel-Santos and Mallari and the PSE filed separate
petitions for review on certiorari with this Court, docketed
as G.R. Nos. 174986 and 175071, respectively, assailing the
August 9, 2006 CA Decision and October 11, 2006
Resolution. This Court directed the consolidation of the two
petitions.
G.R. No. 181415
The Court likewise directed the consolidation of G.R. No.
181415, which stems from a case between Finvest and two of
its clients, Trans-Phil Marine Enterprises, Inc. (TMEI) and
Roland Garcia. The facts of the case are as follows:
TMEI and Roland Garcia filed a complaint against Finvest
with the SEC praying for the delivery of stock certificates
and payment of dividends on the stocks they purchased. The
Complaint alleged that, from February 4, 1997 to July 31,
1997, TMEI and Roland Garcia purchased shares of stock of
Piltel Corporation through Finvest. In particular, TMEI
purchased 63,720 shares for ₱1,122,863.13 while Garcia
purchased 40,000 shares for ₱500,071.25. Finvest failed to
deliver to them the stock certificates despite several
demands. TMEI and Roland Garcia also claimed that they
were entitled to the dividends declared by Piltel from the
time they purchased the shares of stock.
In its Answer, Finvest asserted that it could not have
complied with complainants’ demand for the delivery of the
stock certificates because it was under indefinite suspension
since October 1997 and it had no means to verify or validate
their claims.
During the pre-trial stage, TMEI amended its complaint by
modifying its prayer for a refund of the value of the
undelivered shares of stock, instead of the delivery of the
stock certificates plus payment of dividends.49 In the
hearing conducted by the trial court for the purpose of
determining the propriety of admitting the amended
complaint, Finvest manifested that it had no objection to the
admission of the amended complaint, and that it would no
longer file an amended answer. Both parties manifested that
they were no longer presenting any additional evidence;
hence, the case was submitted for decision.50
On April 29, 2003, the RTC rendered a Decision in Civil
Case No. 00-1579, the dispositive portion of which reads:
WHEREFORE, judgment is rendered ordering the
respondent to return to complainant Trans-[Phil] Marine
Enterprises[,] Inc.[,] the value of the undelivered shares of
stock of Piltel equivalent to ₱1,122,863.13 and to
complainant Roland H. Garcia the value of the undelivered
shares of stock of Piltel equivalent to ₱500,071.25, both with
interest thereon at the legal rate from the date of the filing
of the Complaint.
SO ORDERED.51
On June 6, 2005, the RTC modified its earlier decision. The
amount of ₱1,122,863.13 in the dispositive portion was
reduced to ₱1,078,313.13 based on evidence showing that
2,025 Piltel shares, equivalent to ₱44,550.00, had been
delivered to TMEI, which fact was not denied by the latter.52
Finvest appealed to the CA. On September 3, 2007, the CA
rendered a Decision53 affirming the RTC Decision. Applying
Article 1191 of the Civil Code, the CA declared that since
Finvest failed to comply with its obligation to deliver to
TMEI and Garcia the shares of stock, Finvest was bound to
return the amounts paid by them.
On January 24, 2008, the CA denied Finvest’s motion for
reconsideration;54 hence, the petition for review on
certiorari, docketed as G.R. No. 181415.
The Petition in G.R. No. 174986
Petitioners Raquel-Santos and Mallari raise the following
issues:
A. THE HONORABLE COURT OF APPEALS ERRED IN
NOT FIXING A BEGINNING BALANCE FOR THE
ACCOUNTING ORDERED.
B. THE HONORABLE COURT OF APPEALS HAD NO
JURISDICTION TO ORDAIN THE PAYMENT OF THE
SUPPOSED UNLIQUIDATED ADVANCES OF
PETITIONER RAQUEL-SANTOS.55
While conceding that they have to render an accounting of
the claims stated in Annex "X," petitioners bewail the lack of
statement of the beginning balance therefor. They aver that
a sweeping order for them to answer all these claims does
not meet the standards of fair play. They insist that, as
pointed out in their motion for reconsideration filed with
the CA, the proper procedure is to specify the beginning
balance first.56 Petitioners, therefore, pray that judgment be
22
rendered fixing the beginning balance for the accounting
ordered.
Petitioners further aver that the CA exceeded its jurisdiction
when it ordered them to pay unliquidated cash advances.
Petitioners point out that said unliquidated cash advances
were not alleged, and payment thereof was not prayed for,
in the complaint.57 The alleged cash advances were only
mentioned in the Supplemental Affidavit submitted by Mr.
Ernesto Lee to the trial court.58 They, therefore, pray that
the order for Raquel-Santos to liquidate or pay his cash
advances be deleted.
The Petition in G.R. No. 175071
PSE assigns the following errors:
I.
THE HONORABLE COURT OF APPEALS FAILED TO
CONSIDER THE EVIDENCE CLEARLY SHOWING THAT
THE AMOUNT OF LIABILITY OF RESPONDENT HAD
ALREADY BEEN DETERMINED, SUBSTANTIATED AND
ESTABLISHED NOT ONLY BY PETITIONER BUT ALSO
WITH THE FULL KNOWLEDGE AND PARTICIPATION
OF RESPONDENT.
II.
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN ENJOINING PETITIONER PSE FROM
ENFORCING AND EXERCISING ITS RIGHT UNDER THE
PLEDGE AGREEMENT.
III.
APPEAL BY CERTIORARI UNDER RULE 45 IS PROPER
CONSIDERING THAT THE HONORABLE COURT OF
APPEALS MISAPPREHENDED THE FACTS OF THE
CASE.59
PSE contends that appeal by certiorari is proper considering
that the CA misapprehended the facts of the case. For one,
the CA failed to consider the fact that PSE’s claim against
Finvest had been duly ascertained, computed and
substantiated. PSE points out that it has made several
demands on Finvest for the payment of its obligations and
the amount due has been computed after consultation with
Finvest’s representative, Mr. Ernesto Lee. In fact, in his
Letter dated September 8, 1998, Finvest’s Chairman, Mr.
Abelardo Licaros, already acknowledged the amount of
Finvest’s liabilities and obligations to PSE in the amount of
₱4,212,921.13. Finvest even proposed that its outstanding
obligations to PSE be reduced to 10% of the total amount
due and the deadline for its payment be extended.
Considering, therefore, that Finvest already acknowledged
and ascertained its obligations with PSE and yet it defaulted

in the payment thereof, PSE had the right to sell at public
auction Finvest’s pledged seat pursuant to the Pledge
Agreement and in accordance with Article 2112 of the Civil
Code.
The Petition in G.R. No. 181415
In this petition, Finvest raises the following grounds:
I.
WITH ALL DUE RESPECT, THE HONORABLE COURT OF
APPEALS GRAVELY ERRED IN AFFIRMING THE
DECISION OF THE TRIAL COURT WHICH ORDERED
THE RETURN OF THE VALUE OF THE UNDELIVERED
SHARES OF STOCK AT THE TIME OF THE PURCHASE,
WHICH AWARD OF DAMAGES HAVE NOT BEEN
ESTABLISHED BY EVIDENCE.
II.
WITH ALL DUE RESPECT, THE HONORABLE COURT OF
APPEALS GRAVELY ERRED IN RENDERING THE
DECISION WHICH TENDS TO BE IN CONFLICT WITH
ANOTHER DECISION OF THE HONORABLE COURT OF
APPEALS (SPECIAL FOURTEENTH DIVISION) IN CA-
G.R. CV NO. 85176 (NOW PENDING BEFORE THE
HONORABLE SUPREME COURT AS G.R. NO. 174986)
INSOFAR AS THE AWARD OF DAMAGES TO
RESPONDENTS IS CONCERNED, WHICH CONFLICTING
FINDING WAS THE SAME SITUATION HEREIN
PETITIONER SOUGHT TO AVOID WHEN IT MOVED FOR
THE CONSOLIDATION OF BOTH CASES BEFORE THE
TRIAL COURT.60
Finvest insists that the trial court and the CA had no basis in
awarding in favor of respondents damages equivalent to the
value of the undelivered shares of stock purchased by TMEI
and Garcia. Finvest posits that there was no evidence to
show that respondents were entitled thereto.
Finvest further contends that the order for them to pay the
said shares of stock is in conflict with the CA Decision in
CA-G.R. CV No. 85176, ordering Finvest’s officers to render
an accounting or to pay the value of stock certificates that
included those covering the shares of stock purchased by
TMEI and Garcia. According to Finvest, the two judgments
caused an apparent confusion as to who would ultimately be
held liable for the subject shares.1avvphi1
Respondents counter that they have sufficiently proven the
value of the shares of stock through the buy confirmation
slips, vouchers and official receipts, which they presented in
evidence. They submit that liability for these undelivered
shares of stock of its officers is a corporate liability that
Finvest may not pass on to its erring officers.
The Court’s Ruling
G.R. No. 174986
The petition of Raquel-Santos and Mallari has no merit.
The CA properly shunned petitioners’ prayer to further
modify the assailed judgment to include a beginning balance
for the accounting ordered. It is well to note that petitioners’
appeal from the decision of the lower court was deemed
abandoned when they failed to file their appellants’ brief.
Not having filed an appeal, petitioners could not have
obtained any affirmative relief from the appellate court
other than what they obtained, if any, from the lower court.
After all, a party who does not
appeal http://elibrary.judiciary.gov.ph/documents-
dtsearch/SUPREME_COURT/Decisions/2007.zip%3E378,
df%7C2007/JUN2007/170948.htm - _ftnfrom a judgment
can no longer seek modification or reversal of the same. He
may oppose the appeal of the other party only on grounds
consistent with the judgment.61 The appealed decision
becomes final as to the party who does not appeal.
Moreover, we find no reason, at this point, to amend or
modify the judgment of the CA just to include a statement of
the beginning balance for the accounting ordered. This
pertains to the manner in which petitioners would comply
with the order to render an accounting upon its execution,
which matter should not concern this Court at the moment.
In any case, the Court is not in a position to grant the relief
prayed for since the proper beginning balance, if indeed
necessary, is not determinable from the records. In fact,
petitioners, being in possession of the records relative to the
missing stock certificates, have the means to determine the
beginning balance. In their motion for reconsideration of
the CA Decision, petitioners themselves acknowledge that
the parties must set the beginning balance and only in case
of dispute will the courts be called upon to intervene.62
Although petitioners may no longer seek affirmative relief
from the trial court’s decision, they may, however, oppose
any modification of, or advance such arguments as may be
necessary to uphold or maintain, the said decision.
Considering that the order directing the payment of
unliquidated cash advances is a modification of the trial
23
court’s decision, petitioners have every right to oppose the
same.
To recall, respondent Finvest’s cause of action against
petitioners was for accounting and damages, arising from
the allegedly missing stock certificates. In relation to such
cause of action, Finvest alleged in the Complaint that
petitioners had sole authority and custody of the stock
certificates and that they took undue advantage of their
positions in diverting to their personal benefit the proceeds
from the sale of the shares of stock. Finvest, therefore,
prayed that Raquel-Santos and Mallari be held "jointly and
severally liable to account for and/or to pay for all missing
stock certificates and payables listed in Annex X [of the
Complaint] and for any other subsequent claims and the
corresponding profits that could have accrued to the
corporation"; and "damages that the corporation may
sustain by reason of and/or in relation to such missing or
unaccounted stock certificates, payables, and any other
subsequent claims."
In refuting petitioners’ stance that the CA erred in granting
a relief not prayed for in the Complaint, respondent argues
that the order for Raquel-Santos to liquidate or pay his cash
advances was well within its prayer for the payment of
damages that Finvest will sustain in relation to the missing
stock certificates.
It is true that lack of prayer for a specific relief will not deter
the court from granting that specific relief. Even without the
prayer for a particular remedy, proper relief may be granted
by the court if the facts alleged in the complaint and the
evidence adduced so warrant. The prayer in the complaint
for other reliefs equitable and just in the premises justifies
the grant of a relief not otherwise specifically prayed for.63
Admittedly, even if an issue has not been raised in the
complaint but evidence has been presented thereon, the
trial court may grant relief on the basis of such evidence. A
court may rule and render judgment on the basis of the
evidence before it, even though the relevant pleading has
not been previously amended, provided that no surprise or
prejudice to the adverse party is thereby caused.64 So long as
the basic requirements of fair play have
been met, as where litigants were given full opportunity to
support their respective contentions and to object to or
refute each other’s evidence, the court may validly treat the
pleadings as if they have been amended to conform to the

evidence and proceed to adjudicate on the basis of all the
evidence before it.65
Notably, the Complaint did not allege that petitioner
Raquel-Santos obtained from Finvest cash advances that he
failed to liquidate. The alleged cash advances were disclosed
to the court in the Supplemental Affidavit66 that Mr. Ernesto
Lee submitted to the court. Attached to the Supplemental
Affidavit were copies of disbursement vouchers and checks
representing the cash advances made by petitioner Raquel-
Santos.
We note that petitioner Raquel-Santos did not protest the
order for him to pay the cash advances in his Motion for
Reconsideration of the CA Decision. He raises the issue for
the first time in this petition, which should not be allowed. A
question that was never raised in courts below cannot be
allowed to be raised for the first time on appeal without
offending basic rules of fair play, justice and due
process.67 In any case, petitioner Raquel-Santos had every
opportunity to refute the Supplemental Affidavit, together
with the vouchers and checks, but he did not submit any
counter evidence. Petitioner is clearly estopped from
questioning the order for him to pay the cash advances.
G.R. No. 175071
PSE’s petition is without merit.
Article 1159 of the Civil Code provides that contracts have
the force of law between the contracting parties and should
be complied with in good faith. Being the primary law
between the parties, the contract governs the adjudication of
their rights and obligations. A court has no alternative but
to enforce the contractual stipulations in the manner they
have been agreed upon and written.68
The Pledge Agreement between PSE and Finvest was
entered into pursuant to PSE’s by-laws which requires a
member to pledge its membership seat to secure the
payment of all debts or obligations due PSE and its other
members arising out of, or in connection with, the present
or future contracts of such member with PSE and its
members. In case of default in the payment of obligations,
the Pledge Agreement explicitly grants PSE the right to sell
Finvest’s pledged seat, viz.:
5. Default. In the event of a default by the PLEDGOR in
respect to the Obligations or upon the failure of the
PLEDGOR to comply with any of the provisions of this
Agreement, the PLEDGEE may
(a) cause the public sale at any time as the PLEDGEE may
elect at its place of business or elsewhere and the PLEDGEE
may, in all allowable cases, acquire or purchase the Pledged
Seat and hold the same thereafter in its own right free from
any claim of the PLEDGOR;
(b) apply, at its option, the proceeds of any said sale, as well
as all sums received or collected by the PLEDGEE from or
on account of such Pledged Seat to (i) the payment of
expenses incurred or paid by the PLEDGEE in connection
with any sale, transfer or delivery of the Pledged Seat, and
(ii) payment of the Obligations and all unpaid interests,
penalties, damages, expenses, and charges accruing on the
Obligations or pursuant to the By-laws and this Agreement.
The balance shall be returned to the PLEDGOR.69
Article 2112 of the Civil Code also gives the pledgee the same
right to sell the thing pledged in case the pledgor’s
obligation is not satisfied in due time.
Under the law on contracts, mora solvendi or debtor’s
default is defined as a delay in the fulfillment of an
obligation, by reason of a cause imputable to the debtor.
There are three requisites necessary for a finding of default.
First, the obligation is demandable and liquidated; second,
the debtor delays performance; and third, the creditor
judicially or extrajudicially requires the debtor’s
performance.70
In the present petition, PSE insists that Finvest’s liability for
fines, penalties and charges has been established,
determined and substantiated, hence, liquidated.
We note however that both trial court and CA have ruled
otherwise. Factual findings of the trial court, particularly
when affirmed by the CA, are generally binding on the
Court.71 This is because the trial court’s findings of fact are
deemed conclusive and we are not duty-bound to analyze
and weigh all over again the evidence already considered in
the proceedings below.72 The Court is not a trier of facts and
does not normally undertake a re-examination of the
evidence presented by the contending parties during the
trial of the case.73 The Court’s jurisdiction over a petition for
review on certiorari is limited to reviewing only errors of
law, not of fact, unless the factual findings complained of
are devoid of support from the evidence on record or the
assailed judgment is based on a misapprehension of facts.74
24
The findings of fact of both the trial court and the CA are
fully supported by the records. They plainly show that the
parties were negotiating to determine the exact amount of
Finvest’s obligations to PSE, during which period PSE
repeatedly moved the deadlines it imposed for Finvest to
pay the fines, penalties and charges, apparently to allow for
more time to thresh out the details of the computation of
said penalties. In the
middle of those talks, PSE unceremoniously took steps to
sell the pledged seat at public auction, without allowing the
negotiations to come to a conclusion. This sudden decision
of PSE deprived Finvest a sporting chance to settle its
accountabilities before forfeiting its seat in the stock
exchange. Without that seat, Finvest will lose its standing to
trade and do business in the stock exchange.
A debt is liquidated when the amount is known or is
determinable by inspection of the terms and conditions of
relevant documents.75 Under the attendant circumstances, it
cannot be said that Finvest’s debt is liquidated. At the time
PSE left the negotiating table, the exact amount of Finvest’s
fines, penalties and charges was still in dispute and as yet
undetermined. Consequently, Finvest cannot be deemed to
have incurred in delay in the payment of its obligations to
PSE. It cannot be made to pay an obligation the amount of
which was not fully explained to it. The public sale of the
pledged seat would, thus, be premature.
G.R. No. 181415
Finvest’s petition is denied.
The CA was correct in applying Article 1191 of the Civil
Code, which indicates the remedies of the injured party in
case there is a breach of contract:
ART. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
Initially, respondents sought the fulfillment of Finvest’s
obligation to deliver the stock certificates, instead of a

rescission. They changed their minds later and amended the
prayer in their complaint and opted for a refund of the
purchase price plus damages. The trial court allowed the
amendment, there being no objection from Finvest.
The right of a party to rescission under Article 1191 of the
Civil Code is predicated on a breach of faith by the other
party who violates the reciprocity between them.76 In a
contract of sale, the seller obligates itself to transfer the
ownership of and deliver a determinate thing, and the buyer
to pay therefor a price certain in money or its equivalent. In
some contracts of sale, such as the sale of real property,
prior physical delivery of the thing sold or its representation
is not legally required, as the execution of the Deed of Sale
effectively transfers ownership of the property to the buyer
through constructive delivery. Hence, delivery of the
certificate of title covering the real property is not necessary
to transfer ownership.
In the sale of shares of stock, physical delivery of a stock
certificate is one of the essential requisites for the transfer of
ownership of the stocks purchased. Section 63 of the
Corporation Code provides thus:
SEC. 63. Certificate of stock and transfer of shares. — The
capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or vice-
president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall
be issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the
owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however, shall
be valid, except as between the parties, until the transfer is
recorded in the books of the corporation so as to show the
names of the parties to the transaction, the date of the
transfer, the number of the certificate or certificates and the
number of shares transferred.
No shares of stock against which the corporation holds any
unpaid claim shall be transferable in the books of the
corporation.77
For a valid transfer of stocks, the requirements are as
follows: (a) there must be delivery of the stock certificate;
(b) the certificate must be endorsed by the owner or his
attorney-in-fact or other persons legally authorized to make
the transfer; and (c) to be valid against third parties, the
transfer must be recorded in the books of the corporation.78
Clearly, Finvest’s failure to deliver the stock certificates
representing the shares of stock purchased by TMEI and
Garcia amounted to a substantial breach of their contract
which gave rise to a right to rescind the sale.
Rescission creates the obligation to return the object of the
contract. This is evident from Article 1385 of the Civil Code
which provides:
ART. 1385. Rescission creates the obligation to return the
things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission
can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which
are the object of the contract are legally in the possession of
third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from
the person causing the loss.
To rescind is to declare a contract void at its inception and
to put an end to it as though it never was. Rescission does
not merely terminate the contract and release the parties
from further obligations to each other, but abrogates it from
the beginning and restores the parties to their relative
positions as if no contract has been made.79
Mutual restitution entails the return of the benefits that
each party may have received as a result of the contract. In
this case, it is the purchase price that Finvest must return.
The amount paid was sufficiently proven by the buy
confirmation receipts, vouchers, and official/provisional
receipts that respondents presented in evidence. In
addition, the law awards damages to the injured party,
which could be in the form of interest on the price paid,80 as
the trial court did in this case.
Lastly, we address respondents’ concern over Finvest’s
attempt to pass its liability for the undelivered stock
certificates to its officers. We find that, contrary to Finvest’s
stance, the CA Decision in CA-G.R. CV No. 85176, which is
the subject of the two other petitions for review before this
Court, is not in conflict with our present resolution. While
the decision in the other case adjudges Finvest’s officers
liable to Finvest for the missing stock certificates, the
assailed decision in this petition makes Finvest directly
responsible to its clients for undelivered stock certificates.
Moreover, even if Finvest’s officers are blameworthy, we
25
cannot hold them solidarily liable, as they were not
impleaded as parties to this case. Consolidation of cases
does not make the parties to one case parties to the other.
WHEREFORE, the petitions in G.R. No. 174986 and G.R.
No. 175071 are DENIED. The CA Decision in CA-G.R. CV
No. 85176 dated August 9, 2006 and Resolution dated
October 11, 2006 are AFFIRMED.
The petition in G.R. No. 181415 is likewise DENIED. The CA
Decision in CA-G.R. CV No. 85430 dated September 3, 2007
and Resolution dated January 24, 2008 are AFFIRMED.
SO ORDERED.
FIRST DIVISION
G.R. No. 133107 March 25, 1999
RIZAL COMMERCIAL BANKING
CORPORATION, petitioner,
vs.
COURT OF APPEALS and FELIPE
LUSTRE, respondents.
KAPUNAN, J.:
A simple telephone call and an ounce of good faith on the
part of petitioner could have prevented the present
controversy.
On March 10, 1993, private respondent Atty. Felipe Lustre
purchased a Toyota Corolla from Toyota Shaw, Inc. for
which he made a down payment of P164,620.00, the
balance of the purchase price to be paid in 24 equal monthly
installments. Private respondent thus issued 24 postdated
checks for the amount of P14,976.00 each. The first was
dated April 10, 1991; subsequent checks were dated every
10th day of each succeeding month.
To secure the balance, private respondent executed a
promissory note 1 and a contract of chattel mortgage 2 over
the vehicle in favor of Toyota Shaw, Inc. The contract of
chattel mortgage, in paragraph 11 thereof, provided for an
acceleration clause stating that should the mortgagor
default in the payment of any installment, the whole amount
remaining unpaid shall become due. In addition, the
mortgagor shall be liable for 25% of the principal due as
liquidated damages.
On March 14, 1991, Toyota Shaw, Inc. assigned all its rights
and interests in the chattel mortgage to petitioner Rizal
Commercial Banking Corporation (RCBC).

All the checks dated April 10, 1991 to January 10, 1993 were
thereafter encashed and debited by RCBC from private
respondent's account, except for RCBC Check No. 279805
representing the payment for August 10, 1991, which was
unsigned. Previously, the amount represented by RCBC
Check No. 279805 was debited from private respondent's
account but was later recalled and re-credited, to him.
Because of the recall, the last two checks, dated February 10,
1993 and March 10, 1993, were no longer presented for
payment. This was purportedly in conformity with
petitioner bank's procedure that once a client's account was
forwarded to its account representative, all remaining
checks outstanding as of the date the account was forwarded
were no longer presented for patent.
On the theory that respondent defaulted in his payments,
the check representing the payment for August 10, 1991
being unsigned, petitioner, in a letter dated January 21,
1993, demanded from private respondent the payment of
the balance of the debt, including liquidated damages. The
latter refused, prompting petitioner to file an action for
replevin and damages before the Pasay City Regional Trial
Court (RTC). Private respondent, in his Answer, interposed
a counterclaim for damages.
After trial, the. RTC 3 rendered a decision disposing of the
case as follows:
WHEREFORE, in view of the foregoing, judgment is hereby,
rendered as follows:
I. The complaint; for lack of cause of action, is hereby
DISMISSED and plaintiff RCBC is hereby ordered,
A. To accept the payment equivalent to the three checks
amounting to a total of P44,938.00, without interest.
B. To release/cancel the mortgage on the car . . . upon
payment of the amount of P44,938.00, without interest.
C. To pay the cost of suit.
II. On The Counterclaim.
A. Plaintiff RCBC to pay Atty. Lustre the amount of
P200,000.00 as moral damages.
B. RCBC to pay P100,000.00 as exemplary damages.
C. RCBC to pay Atty. Obispo P50,000.00 as Attorney's fees.
Atty. Lustre is not entitled to any fee for lawyering for
himself.
All awards for damages are subject to payment of fees to be
assessed by the Clerk of Court, RTC, Pasay City.
SO ORDERED.
On appeal by petitioner, the Court of Appeals affirmed the
decision of the RTC, thus:
We . . . concur with the trial court's ruling that the Chattel
Mortgage contract being a contract of adhesion — that is,
one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely
affixes his signature or his "adhesion" thereto . . . — is to be
strictly construed against appellant bank which prepared
the form Contract . . . Hence . . . paragraph 11 of the Chattel
Mortgage contract [containing the acceleration clause]
should be construed to cover only deliberate and advertent
failure on the part of the mortgagor to pay an amortization
as it became due in line with the consistent holding of the
Supreme Court construing obscurities and ambiguities in
the restrictive sense against the drafter thereof . . . in the
light of Article 1377 of the Civil Code.
In the case at bench, plaintiff-appellant's imputation of
default to defendant-appellee rested solely on the fact that
the 5th check issued by appellee . . . was recalled for lack of
signature. However, the check was recalled only after the
amount covered thereby had been deducted from
defendant-appellee's account, as shown by the testimony of
plaintiff's own witness Francisco Bulatao who was in charge
of the preparation of the list and trial balances of bank
customers . . . . The "default" was therefore not a case of
failure to pay, the check being sufficiently funded, and
which amount was in fact already debited [sic] from
appellee's account by the appellant bank which
subsequently re-credited the amount to defendant-appelle's
account for lack of signature. All these actions RCBC did on
its own without notifying defendant until sixteen (16)
months later when it wrote its demand letter dated January
21, 1993.
Clearly, appellant bank was remiss in the performance, of its
functions for it could have easily called the defendant's
attention to the lack of signature on the check and sent the
check to or summoned, the latter to affix his signature. It is
also to be noted that the demand letter contains no
26
explanation as to how defendant-appellee incurred
arrearages in the amount of P66,255.70, which is why
defendant-appellee made a protest notation thereon.
Notably, all the other checks issued by the appellee dated
subsequent to August 10, 1991 and dated earlier than the
demand letter, were duly encashed. This fact should have
already prompted the appellant bank to review its action
relative to the unsigned check. . . . 4
We take exception to the application by both the trial and
appellate courts of Article 1377 of the Civil Code, which
states:
“The interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity.”
It bears stressing that a contract of adhesion is just as
binding as ordinary contracts. 5 It is true that we have, on
occasion, struck down such contracts as void when the
weaker party is imposed upon in dealing with the dominant
bargaining party and is reduced to the alternative of taking
it or leaving it, completely deprived of the opportunity to
bargain on equal footing. 6 Nevertheless, contracts of
adhesion are not invalid per se; 7 they are not entirely
prohibited. 8 The one who adheres to the contract is in
reality free to reject it entirely; if he adheres, he gives his
consent. 9
While ambiguities in a contract of adhesion are to be
construed against the party that prepared the same, 10 this
rule applies only if the stipulations in such contract are
obscure or ambiguous. If the terms thereof are clear and
leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control. 11 In the
latter case, there would be no need for construction. 12
Here, the terms of paragraph 11 of the Chattel Mortgage
Contract 13 are clear. Said paragraph states:
11. In case the MORTGAGOR fails to pay any of the
installments, or to pay the interest that may be due as
provided in the said promissory note, the whole amount
remaining unpaid therein shall immediately become due
and payable and the mortgage on the property (ies) herein-
above described may be foreclosed by the MORTGAGEE, or
the MORTGAGEE may take any other legal action to enforce
collection of the obligation hereby secured, and in either
case the MORTGAGOR further agrees to pay the
MORTGAGEE an additional sum of 25% of the principal

due and unpaid, as liquidated damages, which said sum
shall become part thereof. The MORTGAGOR hereby waives
reimbursement of the amount heretofore paid by him/it to
the MORTGAGEE.
The above terms leave no room for construction. All that is
required is the application thereof.
Petitioner claims that private respondent's check
representing the fifth installment was "not
encashed," 14 such that the installment for August 1991 was
not paid. By virtue of paragraph 11 above, petitioner submits
that it "was justified in treating the entire balance of the
obligation as due and
demandable." 15 Despite demand by petitioner, however,
private respondent refused to pay the balance of the debt.
Petitioner, in sum imputes delay on the part of private
respondent.
We do not subscribe to petitioner's theory.
Art. 170 of the Civil Code states that those who in the
performance of their obligations are guilty of delay are liable
for damages. The delay in the performance of the obligation,
however, must be either malicious or negligent.16 Thus,
assuming that private respondent was guilty of delay in the
payment of the value of unsigned check, private respondent
cannot be held liable for damages. There is no imputation,
much less evidence, that private respondent acted with
malice or negligence in failing to sign the check. Indeed, we
agree with the Court of Appeals finding that such omission
was mere "in advertence" on the part of private respondent.
Toyota salesperson Jorge Geronimo testified that he even
verified whether private respondent had signed all the
checks and in fact returned three or four unsigned checks to
him for signing:
Atty. Obispo:
After these receipts were issued, what else did you do about
the transaction?
A: During our transaction with Atty. Lustre, I found out
when he issued to me the 24 checks, I found out 3 to 4
checks are unsigned and I asked him to signed these checks.
Atty. Obispo:
What did you do?
A: I asked him to sign the checks. After signing the checks, I
reviewed again all the documents, after I reviewed all the
documents and found out that all are completed and the
down payments was completed, we realed to him the car. 17
"Even when the checks were delivered to petitioner, it did
not object to the unsigned check. In view of the lack of
malice or negligence on the part of private respondent,
petitioner's blind and mechanical invocation of paragraph 11
of the contract of chattel mortgage was unwarranted.”
Petitioner's conduct, in the light of the circumstances of this
case, can only be described as mercenary. Petitioner had
already debited the value of the unsigned check from private
respondent's account only to re-credit it much later to him.
Thereafter, petitioner encashed checks subsequently dated,
then abruptly refused to encash the last two. More than a
year after the date of the unsigned check, petitioner,
claiming delay and invoking paragraph 11, demanded from
private respondent payment of the value of said check and
that of the last two checks, including liquidated damages. As
pointed out by the trial court, this whole controversy could
have been avoided if only petitioner bothered to call up
private respondent and ask him to sign the check. Good
faith not only in compliance with its contractual
obligations, 18 but also in observance of the standard in
human relations, for every person "to act with justice, give
everyone his due, and observe honesty and good
faith." 19 behooved the bank to do so.
Failing thus, petitioner is liable for damages caused to
private respondent. 20 These include moral damages for the
mental anguish, serious anxiety, besmirched reputation,
wounded feelings and social humiliation suffered by the
latter. 21 The trial court found that private respondent was:
[a] client who has shared transactions for over twenty years
with a bank . . ..The shabby treatment given the defendant is
unpardonable since he was put to shame and
embarrassment after the case was filed in Court. He is a
lawyer in his own right, married to another member of the
bar. He sired children who are all professionals in their
chosen field. He is known to the community of golfers with
whom he gravitates. Surely the filing of the case made
defendant feel so bad and bothered.
To deter others from emulating petitioner's callous example,
we affirm the award of exemplary damages. 22 As exemplary
damages are warranted, so are attorney's fees. 23
27
We, however, find excessive the amount of damages
awarded by the trial court in favor of private respondent
with respect to his counterclaims and, accordingly, reduce
the same as follows:
(a) Moral damages — from P200,000.00 to P100,000.00
(b) Exemplary damages — from P100,000.00 to
P75,000.00
(c) Attorney's fees — from P50,000.00 to P 30,000.00
WHEREFORE, subject to these modifications, the decision
of the Court of Appeals is AFFIRMED.
SO ORDERED.
THIRD DIVISION
G.R. No. 90676 June 19, 1991
STATE INVESTMENT HOUSE, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, HON.
JUDGE PERLITA J. TRIA TIRONA, Presiding Judge
of the Regional Trial Court of Quezon City, Branch
CII and SPS. RAFAEL and REFUGIO
AQUINO, respondents.
Padilla Law Office for petitioner.
Rodolfo T. Galing and Chaves, Hechanova & Lim Law
Offices for private respondents.
FELICIANO, J.:
On 5 April 1982, respondent spouses Rafael and Refugio
Aquino pledged certain shares of stock to petitioner State
Investment House, Inc. ("State") in order to secure a loan of
P120,000.00 designated as Account No. IF-82-0631-AA.
Prior to the execution of the pledge, respondent-spouses, as
an accommodation to and together with the spouses Jose
and Marcelina Aquino, signed an agreement (Account No.
IF-82-1379-AA) with petitioner State for the latter's
purchase of receivables amounting to P375,000.00. When
Account No. IF-82-0631-AA fell due, respondent spouses
paid the same partly with their own funds and partly from
the proceeds of another loan which they obtained also from
petitioner State designated as Account No. IF-82-0904-AA.
This new loan was secured by the same pledge agreement
executed in relation to Account No. IF-820631-AA. When
the new loan matured, State demanded payment.
Respondents expressed willingness to pay, requesting that
upon payment, the shares of stock pledged be released.
Petitioner State denied the request on the ground that the
loan which it had extended to the spouses Jose and
Marcelina Aquino (Account No. IF-82-1379- AA) had
remained unpaid.
On 29 June 1984, Atty. Rolando Salonga sent to respondent
spouses a Notice of Notarial Sale stating that upon request
of State and by virtue of the pledge agreement, he would sell
at public auction the shares of stock pledged to State. This

prompted respondents to file a case before the Regional
Trial Court of Quezon City alleging that the intended
foreclosure sale was illegal because from the time the
obligation under Account No. IF-82-0904-AA became due,
they had been able and willing to pay the same, but
petitioner had insisted that respondents pay even the loan
account of Jose and Marcelina Aquino which had not been
secured by the pledge. It was further alleged that their
failure to pay their loan (Account No. IF-82-0904-AA) was
excused because the petitioner State itself had prevented the
satisfaction of the obligation.
The trial court, in a decision dated 14 December 1984
rendered by Judge Willelmo Fortun, initially dismissed the
complaint. Respondent spouses filed a motion for
reconsideration praying for a new decision ordering
petitioner State to release the shares upon payment of
respondents' loan "without interest," as the latter had not
been in delay in the performance of their obligation. State
countered that the pledge executed by respondent spouses
also covered the loan extended to Jose and Marcelina
Aquino, which too should be paid before the shares may be
released.
Acting on the motion for reconsideration, Judge Fortun set
aside his original decision and rendered a new judgment
dated 29 January 1985, ordering State to immediately
release the pledge and to deliver to respondents the share of
stock "upon payment of the loan under Code No. 82-0904-
AA."
On appeal, the Court of Appeals affirmed in toto the new
decision of the trial court, holding that the loan extended to
Jose and Marcelina Aquino, having been executed prior to
the pledge was not covered by the pledge which secured only
loans executed subsequently. Thus, upon payment of the
loan under Code No. IF-0904-AA, the shares of stock should
be released. The decisions of the Court of Appeals and of
Judge Fortun became final and executory.
Upon remand of the records of the case to the trial court for
execution, there developed disagreement over the amount
which respondent spouses Rafael and Refugio Aquino
should pay to secure the release of the shares of stock —
petitioner State contending that respondents should also
pay interest and respondents arguing they should not.
Respondent spouses then filed a motion with the trial court
to clarify the Fortun decision praying that an order issue
clarifying the phrase "upon payment of plaintiffs' loan" to
mean upon payment of plaintiff' loan in the principal
amount of P110,000.00 alone, "without interest, penalties
and other charges."
On 17 February 1989, the trial court, speaking this time
through Judge Perlita Tria Tirona, rendered a decision
purporting to clarify the decision of Judge Fortun and ruling
that petitioner State shall release respondents' shares of
stock upon payment by respondents of the principal of the
loan as set forth in PN No. 82-0904-AA in the amount of
P110,000.00, without interest, penalties and other charges.
Petitioner State appealed Judge Tirona's decision to the
Court of Appeals; the appeal was dismissed. The Court of
Appeals agreed with Judge Tirona that no interest need be
paid and added that the clarificatory (Tirona) decision of the
trial court merely restated what had been provided for in the
earlier (Fortun) decision; that the Tirona decision did not go
beyond what had been adjudged in the earlier decision. The
motion for reconsideration filed by petitioner was
accordingly denied.
Hence, this Petition for Review contending that no manifest
ambiguity existed in the decision penned by Judge Fortun;
that the trial court through Judge Tirona, erred in clarifying
the decision of Judge Fortun; and that the amendment
sought to be introduced in the Fortun decision by
respondents may not be made as the same was substantial
in nature and the Fortun decision had become final.
We begin by noting that the trial court has asserted
authority to issue the clarificatory order in respect of the
decision of Judge Fortun, even though that judgment had
become final and executory. In Reinsurance Company of
the Orient, Inc. v. Court of Appeals,1 this Court had
occasion to deal with the applicable doctrine to some extent:
- - - [E]ven a judgment which has become final and
executory may be clarified under certain circumstances. The
dispositive portion of the judgment may, for instance,
contain an error clearly clerical in nature (perhaps best
illustrated by an error in arithmetical computation) or an
ambiguity arising from inadvertent omission, which error
may be rectified or ambiguity clarified and the omission
supplied by reference primarily to the body of the decision
itself Supplementary reference to the pleadings previously
filed in the case may also be resorted to by way of
corroboration of the existence of the error or of the
ambiguity in the dispositive part of the judgment. In Locsin,
et al. v. Parades, et al., this Court allowed a judgment which
had become final and executory to be clarified by supplying
28
a word which had been inadvertently omitted and which,
when supplied, in effect changed the literal import of the
original phraseology:
. . . it clearly appears from the allegations of the complaint,
the promissory note reproduced therein and made a part
thereof, the prayer and the conclusions of fact and of law
contained in the decision of the respondent judge, that the
obligation contracted by the petitioners is joint and several
and that the parties as well as the trial judge so understood
it. Under the juridical rule that the judgment should be in
accordance with the allegations, the evidence and the
conclusions of fact and law, the dispositive part of the
judgment under consideration should have ordered that
the debt be paid 'severally' and in omitting the word or
adverb 'severally' inadvertently, said judgment became
ambiguous. This ambiguity may be clarified at any time
after the decision is rendered and even after it had become
final (34 Corpus Juris, 235, 326). This respondent judge did
not, therefore, exceed his jurisdiction in clarifying the
dispositive part of the judgment by supplying the omission.
(Emphasis supplied)
In Filipino Legion Corporation vs. Court of Appeals, et al.,
the applicable principle was set out in the following terms:
[W]here there is ambiguity caused by an omission or
mistake in the dispositive portion of a decision, the court
may clarify such ambiguity by an amendment even after
the judgment had become final, and for this purpose it may
resort to the pleadings filed by the parties, the court's
findings of facts and conclusions of law as expressed in the
body of the decision. (Emphasis supplied)
In Republic Surety and Insurance Company, Inc. v.
Intermediate Appellate Court, the Court, in applying the
above doctrine, said:
. . . We clarify, in other words, what we did affirm. That is
involved here is not what is ordinarily regarded as a clerical
error in the dispositive part of the decision of the Court of
First Instance, . . . At the same time, what is involved here is
not a correction of an erroneous judgment or dispositive
portion of a judgment. What we believe is involved here is in
the nature of an inadvertent omission on the part of the
Court of First Instance (which should have been noticed by
private respondents' counsel who had prepared the
complaint), of what might be described as a logical follow-
through of something set forth both in the body of the
decision and in the dispositive portion thereof; the

inevitable follow-through, or translation into, operational or
behavioral terms, of the annulment of the Deed of Sale with
Assumption of Mortgage, from which petitioners' title or
claim of title embodied in TCT 133153 flows. (Emphasis
supplied)2 (Underscoring in the original; citations omitted)
The question we must resolve is thus whether or not there is
an ambiguity or clerical error or inadvertent omission in the
dispositive portion of the decision of Judge Fortun which
may be legitimately clarified by referring to the body of the
decision and perhaps even the pleadings filed before him.
The decision of Judge Fortun disposing of the motion for
reconsideration filed by respondent spouses Rafael and
Refugio Aquino consisted basically of quoting practically the
whole motion for reconsideration. In its dispositive portion,
Judge Fortun's decision stated:
WHEREFORE, plaintiffs "Motion for Reconsideration"
dated January 3, 1985, is granted and the decision of this
Court dated December 14, 1984 is hereby revoked and set
aside and another judgment is hereby rendered in favor of
plaintiffs as follows:
(1) Ordering defendants to immediately release the pledge
on, and to deliver to plaintiffs, the shares of stocks
enumerated and described in paragraph 4 of plaintiffs'
complaint dated July 17, 1984, upon payment of plaintiffs
loan under Code No. 82-0904-AA to defendants;
(2) Ordering defendant State Investment House, Inc. to pay
to plaintiffs P10,000.00 as moral damages, P5,000.00 as
exemplary damages, P6,000.00 as attorney's fees, plus
costs;
(3) Dismissing defendants' counterclaim, for lack of merit
and making the preliminary injunction permanent.
SO ORDERED.3
Judge Fortun evidently meant to act favorably on the
motion for reconsideration of the respondent Aquino
spouses and in effect accepted respondent spouses'
argument that they had not incurred mora considering that
their failure to pay PN No. IF82-0904-AA on time had been
due to petitioner State's unjustified refusal to release the
shares pledged to it. It is not, however, clear to what precise
extent Judge Fortun meant to grant the motion for
reconsideration. The promissory note in Account No. IF-82-
0904-AA had three (3) components: (a) principal of the
loan in the amount of P110,000.00; (b) regular interest in
the amount of seventeen percent (17%) per annum; and (c)
additional or penalty interest in case of non-payment at
maturity, at the rate of two percent (2%) per month or
twenty-four percent (24%) per annum. In the dispositive
part of his resolution, Judge Fortun did not specify which of
these components of the loan he was ordering respondent
spouses to pay and which component or components he was
in effect deleting. We cannot assume that Judge Fortun
meant to grant the relief prayed for by respondent spouses
in all its parts. For one thing, respondent spouses in their
motion for reconsideration asked for "at least P50,000.00"
for moral damages and "at least P50,000.00" for exemplary
damages, as well as P20,000.00 by way of attorney's fees
and litigation expenses. Judge Fortun granted respondent
spouses only P10,000.00 as moral damages and P5,000.00
as exemplary damages, plus P6,000.00 as attorney's fees
and costs. For another, respondent spouses asked Judge
Fortun to order the release of the shares pledged "upon
payment of [respondent spouses'] loan under Code No. 82-
0904-AA without interest, as plaintiffs were not in delay in
accordance with Article 69 of the New Civil Code –– "
(Emphasis supplied). In other words, respondent spouses
did not themselves become very clear what they were asking
Judge Fortun to grant them; they did not apparently
distinguish between regular interest or "monetary interest"
in the amount of seventeen percent (17%) per annum and
penalty charges or "compensatory interest" in the amount of
two percent (2%) per month or twenty-four percent
(24%) per annum.
It thus appears that the Fortun decision was ambiguous in
the sense that it was cryptic. We believe that in these
circumstances, we must assume that Judge Fortun meant to
decide in accordance with law, that we cannot fairly
assume that Judge Fortun was grossly ignorant of the law,
or that he intended to grant the respondent spouses relief to
which they were not entitled under law. Thus, the ultimate
question which arises is: if respondent Aquino spouses
were not in delay, what should they have been held liable
for in accordance with law?
We believe and so hold that since respondent Aquino
spouses were held not to have been in delay, they were
properly liable only for: (a) the principal of the loan or
P110,000.00; and (b) regular or monetary interest in the
amount of seventeen percent (17%) per annum. They
were not liable for penalty or compensatory interest, fixed
by the promissory note in Account No. IF-82-0904-AA at
two percent (2%) per month or twenty-four (24%) per
annum. It must be stressed in this connection that under
Article 2209 of the Civil Code which provides that
29
. . . [i]f the obligation consists in the payment of a sum of
money, and the debtor incurs in delay. the indemnity for
damages, there being no stimulation to the contrary. shall
be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per
cent per annum.
the appropriate measure for damages in case of delay in
discharging an obligation consisting of the payment of a
sum or money, is the payment of penalty interest at the rate
agreed upon; and in the absence of a stipulation of a
particular rate of penalty interest, then the payment of
additional interest at a rate equal to the regular monetary
interest; and if no regular interest had been agreed upon,
then payment of legal interest or six percent (6%) per
annum.4
The fact that the respondent Aquino spouses were not in
default did not mean that they, as a matter of law, were
relieved from the payment not only of penalty or
compensatory interest at the rate of twenty-four percent
(24%) per annum but also of regular or monetary interest of
seventeen percent (17%) per annum. The regular or
monetary interest continued to accrue under the terms of
the relevant promissory note until actual payment is
effected. The payment of regular interest constitutes the
price or cost of the use of money and thus, until the
principal sum due is returned to the creditor, regular
interest continues to accrue since the debtor continues to
use such principal amount. The relevant rule is set out in
Article 1256 of the Civil Code which provides as follows:
Art. 1256. If the creditor to whom tender of payment has
been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of
the thing or sum due.
Consignation alone shall produce the same effect in the
following cases:
(1) When the creditor is absent or unknown, or does not
appear at the place of payment;
(2) When he is incapacitated to receive the payment at the
time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to
collect;
(5) When the title of the obligation has been lost. (Emphasis
supplied)
Where the creditor unjustly refuses to accept payment, the
debtor desirous of being released from his obligation must
comply with two (2) conditions: (a) tender of payment; and

(b) consignation of the sum due. Tender of payment must be
accompanied or followed by consignation in order that the
effects of payment may be produced. Thus, in Llamas v.
Abaya,5 the Supreme Court stressed that a written tender of
payment alone, without consignation in court of the sum
due, does not suspend the accruing of regular or monetary
interest.
In the instant case, respondent spouses Aquino, while they
are properly regarded as having made a written tender of
payment to petitioner State, failed to consign in court the
amount due at the time of the maturity of Account No. IF-
820904-AA. It follows that their obligation to pay principal-
cum-regular or monetary interest under the terms and
conditions of Account No. IF-82-0904-AA
was not extinguished by such tender of payment alone.
For the respondent spouses to continue in possession of the
principal of the loan amounting to P110,000.00 and to
continue to use the same after maturity of the loan without
payment of regular or monetary interest, would constitute
unjust enrichment on the part of the respondent spouses at
the expense of petitioner State even though the spouses had
not been guilty of mora. It is precisely this unjust
enrichment which Article 1256 of the Civil Code prevents by
requiring, in addition to tender of payment, the
consignation of the amount due in court which amount
would thereafter be deposited by the Clerk of Court in a
bank and earn interest to which the creditor would be
entitled.
WHEREFORE, the Petition for Review is hereby GRANTED
DUE COURSE. The Decision of the Court of Appeals dated
30 August 1989 in C.A.-G.R. No. 17954 and the Decision of
the Regional Trial Court dated 17 February 1989 in Civil
Case No. Q-42188 are hereby REVERSED and SET ASIDE.
The dispositive portion of the decision of Judge Fortun is
hereby clarified so as to read as follows:
(1) Ordering defendants to immediately release the pledge
and to deliver to the plaintiff spouses Rafael and Refugio
Aquino the shares of stock enumerated and described in
paragraph 4 of said spouses' complaint dated 17 July 1984,
upon full payment of the amount of P110,000.00 plus
seventeen percent (17%) per annum regular interest
computed from the time of maturity of the plaintiffs' loan
(Account No. IF-82-0904-AA) and until full payment of
such principal and interest to defendants;
(2) Ordering defendant State Investment House, Inc. to pay
to the plaintiff spouses Rafael and Refugio Aquino
P10,000.00 as moral damages, P5,000.00 as exemplary
damages, P6,000.00 as attorney's fees, plus costs; and
(3) Dismissing defendants' counterclaim for lack of merit
and making the preliminary injunction permanent."
No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
G.R. No. 133632 February 15, 2002
BPI INVESTMENT CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and ALS
MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.
DECISION
QUISUMBING, J.:
This petition for certiorari assails the decision dated
February 28, 1997, of the Court of Appeals and its resolution
dated April 21, 1998, in CA-G.R. CV No. 38887. The
appellate court affirmed the judgment of the Regional Trial
Court of Pasig City, Branch 151, in (a) Civil Case No. 11831,
for foreclosure of mortgage by petitioner BPI Investment
Corporation (BPIIC for brevity) against private respondents
ALS Management and Development Corporation and
Antonio K. Litonjua,1 consolidated with (b) Civil Case No.
52093, for damages with prayer for the issuance of a writ of
preliminary injunction by the private respondents against
said petitioner.
The trial court had held that private respondents were not in
default in the payment of their monthly amortization,
hence, the extrajudicial foreclosure conducted by BPIIC was
premature and made in bad faith. It awarded private
respondents the amount of ₱300,000 for moral damages,
₱50,000 for exemplary damages, and ₱50,000 for attorney’s
fees and expenses for litigation. It likewise dismissed the
foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per
annum from Ayala Investment and Development
Corporation (AIDC), the predecessor of petitioner BPIIC,
for the construction of a house on his lot in New Alabang
Village, Muntinlupa. Said house and lot were mortgaged to
AIDC to secure the loan. Sometime in 1980, Roa sold the
house and lot to private respondents ALS and Antonio
Litonjua for ₱850,000. They paid ₱350,000 in cash and
assumed the ₱500,000 balance of Roa’s indebtedness with
30
AIDC. The latter, however, was not willing to extend the old
interest rate to private respondents and proposed to grant
them a new loan of ₱500,000 to be applied to Roa’s debt
and secured by the same property, at an interest rate of 20%
per annum and service fee of 1% per annum on the
outstanding principal balance payable within ten years in
equal monthly amortization of ₱9,996.58 and penalty
interest at the rate of 21% per annum per day from the date
the amortization became due and payable.
Consequently, in March 1981, private respondents executed
a mortgage deed containing the above stipulations with the
provision that payment of the monthly amortization shall
commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roa’s
arrearages by paying BPIIC the sum of ₱190,601.35. This
reduced Roa’s principal balance to ₱457,204.90 which, in
turn, was liquidated when BPIIC applied thereto the
proceeds of private respondents’ loan of ₱500,000.
On September 13, 1982, BPIIC released to private
respondents ₱7,146.87, purporting to be what was left of
their loan after full payment of Roa’s loan.
In June 1984, BPIIC instituted foreclosure proceedings
against private respondents on the ground that they failed
to pay the mortgage indebtedness which from May 1, 1981 to
June 30, 1984, amounted to Four Hundred Seventy Five
Thousand Five Hundred Eighty Five and 31/100 Pesos
(₱475,585.31). A notice of sheriff’s sale was published on
August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No.
52093 against BPIIC. They alleged, among others, that they
were not in arrears in their payment, but in fact made an
overpayment as of June 30, 1984. They maintained that
they should not be made to pay amortization before the
actual release of the ₱500,000 loan in August and
September 1982. Further, out of the ₱500,000 loan, only
the total amount of ₱464,351.77 was released to private
respondents. Hence, applying the effects of legal
compensation, the balance of ₱35,648.23 should be applied
to the initial monthly amortization for the loan.
On August 31, 1988, the trial court rendered its judgment in
Civil Case Nos. 11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS
Management and Development Corporation and Antonio K.

Litonjua and against BPI Investment Corporation, holding
that the amount of loan granted by BPI to ALS and Litonjua
was only in the principal sum of P464,351.77, with interest
at 20% plus service charge of 1% per annum, payable on
equal monthly and successive amortizations at P9,283.83
for ten (10) years or one hundred twenty (120) months. The
amortization schedule attached as Annex "A" to the "Deed of
Mortgage" is correspondingly reformed as aforestated.
The Court further finds that ALS and Litonjua suffered
compensable damages when BPI caused their publication in
a newspaper of general circulation as defaulting debtors,
and therefore orders BPI to pay ALS and Litonjua the
following sums:
a) P300,000.00 for and as moral damages;
b) P50,000.00 as and for exemplary damages;
c) P50,000.00 as and for attorney’s fees and expenses of
litigation.
The foreclosure suit (Civil Case No. 11831) is hereby
DISMISSED for being premature.
Costs against BPI.
SO ORDERED.2
Both parties appealed to the Court of Appeals. However,
private respondents’ appeal was dismissed for non-payment
of docket fees.
On February 28, 1997, the Court of Appeals promulgated its
decision, the dispositive portion reads:
WHEREFORE, finding no error in the appealed decision
the same is hereby AFFIRMED in toto.
SO ORDERED.3
In its decision, the Court of Appeals reasoned that a simple
loan is perfected only upon the delivery of the object of the
contract. The contract of loan between BPIIC and ALS &
Litonjua was perfected only on September 13, 1982, the date
when BPIIC released the purported balance of the ₱500,000
loan after deducting therefrom the value of Roa’s
indebtedness. Thus, payment of the monthly amortization
should commence only a month after the said date, as can
be inferred from the stipulations in the contract. This,
despite the express agreement of the parties that payment
shall commence on May 1, 1981. From October 1982 to June
1984, the total amortization due was only ₱194,960.43.
Evidence showed that private respondents had an
overpayment, because as of June 1984, they already paid a
total amount of ₱201,791.96. Therefore, there was no basis
for BPIIC to extrajudicially foreclose the mortgage and
cause the publication in newspapers concerning private
respondents’ delinquency in the payment of their loan. This
fact constituted sufficient ground for moral damages in
favor of private respondents.
The motion for reconsideration filed by petitioner BPIIC
was likewise denied, hence this petition, where BPIIC
submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A
CONSENSUAL CONTRACT IN THE LIGHT OF THE RULE
LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125
SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE
FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES IN THE FACE OF IRREGULAR
PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE
LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT
OF APPEALS, 120 SCRA 707.
On the first issue, petitioner contends that the Court of
Appeals erred in ruling that because a simple loan is
perfected upon the delivery of the object of the contract, the
loan contract in this case was perfected only on September
13, 1982. Petitioner claims that a contract of loan is a
consensual contract, and a loan contract is perfected at the
time the contract of mortgage is executed conformably with
our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122.
In the present case, the loan contract was perfected on
March 31, 1981, the date when the mortgage deed was
executed, hence, the amortization and interests on the loan
should be computed from said date.
Petitioner also argues that while the documents showed that
the loan was released only on August 1982, the loan was
actually released on March 31, 1981, when BPIIC issued a
cancellation of mortgage of Frank Roa’s loan. This finds
support in the registration on March 31, 1981 of the Deed of
Absolute Sale executed by Roa in favor of ALS, transferring
the title of the property to ALS, and ALS executing the
Mortgage Deed in favor of BPIIC. Moreover, petitioner
claims, the delay in the release of the loan should be
attributed to private respondents. As BPIIC only agreed to
extend a ₱500,000 loan, private respondents were required
31
to reduce Frank Roa’s loan below said amount. According to
petitioner, private respondents were only able to do so in
August 1982.
In their comment, private respondents assert that based on
Article 1934 of the Civil Code,4 a simple loan is perfected
upon the delivery of the object of the contract, hence a real
contract. In this case, even though the loan contract was
signed on March 31, 1981, it was perfected only on
September 13, 1982, when the full loan was released to
private respondents. They submit that petitioner
misread Bonnevie. To give meaning to Article 1934,
according to private respondents, Bonnevie must be
construed to mean that the contract to extend the loan was
perfected on March 31, 1981 but the contract of loan itself
was only perfected upon the delivery of the full loan to
private respondents on September 13, 1982.
Private respondents further maintain that even
granting, arguendo, that the loan contract was perfected on
March 31, 1981, and their payment did not start a month
thereafter, still no default took place. According to private
respondents, a perfected loan agreement imposes reciprocal
obligations, where the obligation or promise of each party is
the consideration of the other party. In this case, the
consideration for BPIIC in entering into the loan contract is
the promise of private respondents to pay the monthly
amortization. For the latter, it is the promise of BPIIC to
deliver the money. In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon
him. Therefore, private respondents conclude, they did not
incur in delay when they did not commence paying the
monthly amortization on May 1, 1981, as it was only on
September 13, 1982 when petitioner fully complied with its
obligation under the loan contract.
We agree with private respondents. A loan contract is not a
consensual contract but a real contract. It is perfected only
upon the delivery of the object of the contract.5 Petitioner
misapplied Bonnevie. The contract in Bonnevie declared by
this Court as a perfected consensual contract falls under the
first clause of Article 1934, Civil Code. It is an accepted
promise to deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank
of the Philippines, 44 SCRA 445, petitioner applied for a
loan of ₱500,000 with respondent bank. The latter
approved the application through a board resolution.
Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to

petitioner, the loan was not released. Later, petitioner
instituted an action for damages. We recognized in this case,
a perfected consensual contract which under normal
circumstances could have made the bank liable for not
releasing the loan. However, since the fault was attributable
to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give
rise to an action for damages. However, said contract does
not constitute the real contract of loan which requires the
delivery of the object of the contract for its perfection and
which gives rise to obligations only on the part of the
borrower.6
In the present case, the loan contract between BPI, on the
one hand, and ALS and Litonjua, on the other, was
perfected only on September 13, 1982, the date of the
second release of the loan. Following the intentions of the
parties on the commencement of the monthly amortization,
as found by the Court of Appeals, private respondents’
obligation to pay commenced only on October 13, 1982, a
month after the perfection of the contract.7
We also agree with private respondents that a contract of
loan involves a reciprocal obligation, wherein the obligation
or promise of each party is the consideration for that of the
other.8 As averred by private respondents, the promise of
BPIIC to extend and deliver the loan is upon the
consideration that ALS and Litonjua shall pay the monthly
amortization commencing on May 1, 1981, one month after
the supposed release of the loan. It is a basic principle in
reciprocal obligations that neither party incurs in delay, if
the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him.9 Only
when a party has performed his part of the contract can he
demand that the other party also fulfills his own obligation
and if the latter fails, default sets in. Consequently,
petitioner could only demand for the payment of the
monthly amortization after September 13, 1982 for it was
only then when it complied with its obligation under the
loan contract. Therefore, in computing the amount due as of
the date when BPIIC extrajudicially caused the foreclosure
of the mortgage, the starting date is October 13, 1982 and
not May 1, 1981.
Other points raised by petitioner in connection with the first
issue, such as the date of actual release of the loan and
whether private respondents were the cause of the delay in
the release of the loan, are factual. Since petitioner has not
shown that the instant case is one of the exceptions to the
basic rule that only questions of law can be raised in a
petition for review under Rule 45 of the Rules of
Court,10 factual matters need not tarry us now. On these
points we are bound by the findings of the appellate and
trial courts.
On the second issue, petitioner claims that it should not be
held liable for moral and exemplary damages for it did not
act maliciously when it initiated the foreclosure
proceedings. It merely exercised its right under the
mortgage contract because private respondents were
irregular in their monthly amortization.1âwphi1 It invoked
our ruling in Social Security System vs. Court of Appeals,
120 SCRA 707, where we said:
Nor can the SSS be held liable for moral and temperate
damages. As concluded by the Court of Appeals "the
negligence of the appellant is not so gross as to warrant
moral and temperate damages," except that, said Court
reduced those damages by only P5,000.00 instead of
eliminating them. Neither can we agree with the findings of
both the Trial Court and respondent Court that the SSS had
acted maliciously or in bad faith. The SSS was of the belief
that it was acting in the legitimate exercise of its right under
the mortgage contract in the face of irregular payments
made by private respondents and placed reliance on the
automatic acceleration clause in the contract. The filing
alone of the foreclosure application should not be a ground
for an award of moral damages in the same way that a
clearly unfounded civil action is not among the grounds for
moral damages.
Private respondents counter that BPIIC was guilty of bad
faith and should be liable for said damages because it
insisted on the payment of amortization on the loan even
before it was released. Further, it did not make the
corresponding deduction in the monthly amortization to
conform to the actual amount of loan released, and it
immediately initiated foreclosure proceedings when private
respondents failed to make timely payment.
But as admitted by private respondents themselves, they
were irregular in their payment of monthly amortization.
Conformably with our ruling in SSS, we can not properly
declare BPIIC in bad faith. Consequently, we should rule out
the award of moral and exemplary damages.11
However, in our view, BPIIC was negligent in relying merely
on the entries found in the deed of mortgage, without
checking and correspondingly adjusting its records on the
amount actually released to private respondents and the
32
date when it was released. Such negligence resulted in
damage to private respondents, for which an award of
nominal damages should be given in recognition of their
rights which were violated by BPIIC.12 For this purpose, the
amount of ₱25,000 is sufficient.
Lastly, as in SSS where we awarded attorney’s fees because
private respondents were compelled to litigate, we sustain
the award of ₱50,000 in favor of private respondents as
attorney’s fees.
WHEREFORE, the decision dated February 28, 1997, of
the Court of Appeals and its resolution dated April 21, 1998,
are AFFIRMED WITH MODIFICATION as to the award of
damages. The award of moral and exemplary damages in
favor of private respondents is DELETED, but the award to
them of attorney’s fees in the amount of ₱50,000 is
UPHELD. Additionally, petitioner is ORDERED to pay
private respondents ₱25,000 as nominal damages. Costs
against petitioner.
SO ORDERED.
FIRST DIVISION
G.R. No. 129018 November 15, 2001
CARMELITA LEAÑO, assisted by her husband
GREGORIO CUACHON, petitioner,
vs.
COURT OF APPEALS and HERMOGENES
FERNANDO, respondents.
PARDO, J.:
The Case
The case is a petition for review on certiorari of the
decision1 of the Court of Appeals affirming that of the
Regional Trial Court, Malolos, Branch 72 ordering petitioner
Leaño to pay respondent Hermogenes Fernando the sum of
P183,687.70 corresponding to her outstanding obligations
under the contract to sell, with interest and surcharges due
thereon, attorney's fees and costs.
The Facts
On November 13, 1985, Hermogenes Fernando, as vendor
and Carmelita Leaño, as vendee executed a contract to sell
involving a piece of land, Lot No. 876-B, with an area of 431
square meters, located at Sto. Cristo, Baliuag, Bulacan.3
In the contract, Carmelita Leaño bound herself to pay
Hermogenes Fernando the sum of one hundred seven
thousand and seven hundred and fifty pesos (P107,750.00)
as the total purchase price of the lot. The manner of paying
the total purchase price was as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED
SEVENTY FIVE (P10,775.00) PESOS, shall be paid at the

signing of this contract as DOWN PAYMENT, the balance of
NINETY SIX THOUSAND NINE HUNDRED SEVENTY
FIVE PESOS (P96,975.00) shall be paid within a period of
TEN (10) years at a monthly amortization of P1,747.30 to
begin from December 7, 1985 with interest at eighteen per
cent (18%) per annum based on balances."4
The contract also provided for a grace period of one month
within which to make payments, together with the one
corresponding to the month of grace. Should the month of
grace expire without the installments for both months
having been satisfied, an interest of 18% per annum will be
charged on the unpaid installments.5
Should a period of ninety (90) days elapse from the
expiration of the grace period without the overdue and
unpaid installments having been paid with the
corresponding interests up to that date, respondent
Fernando, as vendor, was authorized to declare the contract
cancelled and to dispose of the parcel of land, as if the
contract had not been entered into. The payments made,
together with all the improvements made on the premises,
shall be considered as rents paid for the use and occupation
of the premises and as liquidated damages.6
After the execution of the contract, Carmelita Leaño made
several payments in lump sum.7 Thereafter, she constructed
a house on the lot valued at P800,000.00.8 The last
payment that she made was on April 1, 1989.
On September 16, 1991, the trial court rendered a decision
in an ejectment case9 earlier filed by respondent Fernando
ordering petitioner Leaño to vacate the premises and to pay
P250.00 per month by way of compensation for the use and
occupation of the property from May 27, 1991 until she
vacated the premises, attorney's fees and costs of the
suit.10 On August 24, 1993, the trial court issued a writ of
execution which was duly served on petitioner Leaño.
On September 27, 1993, petitioner Leaño filed with the
Regional Trial Court of Malolos, Bulacan a complaint for
specific performance with preliminary
injunction.11 Petitioner Leaño assailed the validity of the
judgment of the municipal trial court12 for being violative of
her right to due process and for being contrary to the
avowed intentions of Republic Act No. 6552 regarding
protection to buyers of lots on installments. Petitioner
Leaño deposited P18,000.00 with the clerk of court,
Regional Trial Court, Bulacan, to cover the balance of the
total cost of Lot 876-B.13
On November 4, 1993, after petitioner Leaño posted a cash
bond of P50,000.00,14 the trial court issued a writ of
preliminary injunction15 to stay the enforcement of the
decision of the municipal trial court.16
On February 6, 1995, the trial court rendered a decision, the
dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered as follows:
"1. The preliminary injunction issued by this court per its
order dated November 4, 1993 is hereby made permanent;
"2. Ordering the plaintiff to pay to the defendant the sum of
P103,090.70 corresponding to her outstanding obligations
under the contract to sell (Exhibit "A" – Exhibit "B")
consisting of the principal of said obligation together with
the interest and surcharges due thereon as of February 28,
1994, plus interest thereon at the rate of 18% per annum in
accordance with the provision of said contract to be
computed from March 1, 1994, until the same becomes fully
paid;
"3. Ordering the defendant to pay to plaintiff the amount of
P10,000 as and by way of attorney's fees;
"4. Ordering the defendant to pay to plaintiff the costs of the
suit in Civil Case No. 1680 aforementioned.
"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.
"(sgd.) DANILO A. MANALASTAS
Judge"17
On February 21, 1995, respondent Fernando filed a motion
for reconsideration18 and the supplement19 thereto. The trial
court increased the amount of P103,090.70 to P183,687.00
and ordered petitioner Leaño ordered to pay attorney's
fees.20
According to the trial court, the transaction between the
parties was an absolute sale, making petitioner Leaño the
owner of the lot upon actual and constructive delivery
thereof. Respondent Fernando, the seller, was divested of
ownership and cannot recover the same unless the contract
33
is rescinded pursuant to Article 1592 of the Civil Code which
requires a judicial or notarial demand. Since there had been
no rescission, petitioner Leaño, as the owner in possession
of the property, cannot be evicted.
On the issue of delay, the trial court held:
"While the said contract provides that the whole purchase
price is payable within a ten-year period, yet the same
contract clearly specifies that the purchase price shall be
payable in monthly installments for which the
corresponding penalty shall be imposed in case of default.
The plaintiff certainly cannot ignore the binding effect of
such stipulation by merely asserting that the ten-year period
for payment of the whole purchase price has not yet lapsed.
In other words, the plaintiff has clearly defaulted in the
payment of the amortizations due under the contract as
recited in the statement of account (Exhibit "2") and she
should be liable for the payment of interest and penalties in
accordance with the stipulations in the contract pertaining
thereto."21
The trial court disregarded petitioner Leaños claim that she
made a downpayment of P10,000.00, at the time of the
execution of the contract.
The trial court relied on the statement of account22 and the
summary23 prepared by respondent Fernando to determine
petitioner Leaño's liability for the payment of interests and
penalties.
The trial court held that the consignation made by petitioner
Leaño in the amount of P18,000.00 did not produce any
legal effect as the same was not done in accordance with
Articles 1176, 1177 and 1178 of the Civil Code.
In time, petitioner Leaño appealed the decision to the Court
of Appeals.24 On January 22, 1997, Court of Appeals
promulgated a decision affirming that of the Regional Trial
Court in toto.25 On February 11, 1997, petitioner Leaño filed
a motion for reconsideration.26 On April 18, 1997, the Court
of Appeals denied the motion.27
Hence, this petition.28
The Issues
The issues to be resolved in this petition for review are (1)
whether the transaction between the parties in an absolute

sale or a conditional sale; (2) whether there was a proper
cancellation of the contract to sell; and (3) whether
petitioner was in delay in the payment of the monthly
amortizations.
The Court's Ruling
Contrary to the findings of the trial court, the transaction
between the parties was a conditional sale not an absolute
sale. The intention of the parties was to reserve the
ownership of the land in the seller until the buyer has paid
the total purchase price.
Consider the following:
First, the contract to sell makes the sale, cession and
conveyance "subject to conditions" set forth in the contract
to sell.29
Second, what was transferred was the possession of the
property, not ownership. The possession is even limited by
the following: (1) that the vendee may continue therewith
"as long as the VENDEE complies with all the terms and
conditions mentioned, and (2) that the buyer may not sell,
cede, assign, transfer or mortgage or in any way encumber
any right, interest or equity that she may have or acquire in
and to the said parcel of land nor to lease or to sublease it or
give possession to another person without the written
consent of the seller.30
Finally, the ownership of the lot was not transferred to
Carmelita Leaño. As the land is covered by a torrens title,
the act of registration of the deed of sale was the operative
act that could transfer ownership over the lot.31 There is not
even a deed that could be registered since the contract
provides that the seller will execute such a deed "upon
complete payment by the VENDEE of the total purchase
price of the property" with the stipulated interest.32
In a contract to sell real property on installments, the full
payment of the purchase price is a positive suspensive
condition, the failure of which is not considered a breach,
casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring any
obligatory force.33 The transfer of ownership and title would
occur after full payment of the price.34
In the case at bar, petitioner Leaño's non-payment of the
installments after April 1, 1989, prevented the obligation of
respondent Fernando to convey the property from arising.
In fact, it brought into effect the provision of the contract on
cancellation.
Contrary to the findings of the trial court, Article 1592 of the
Civil Code is inapplicable to the case at bar.35 However, any
attempt to cancel the contract to sell would have to comply
with the provisions of Republic Act No. 6552, the "Realty
Installment Buyer Protection Act."
R.A. No. 6552 recognizes in conditional sales of all kinds of
real estate (industrial, commercial, residential) the right of
the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that
prevents the obligation of the vendor to convey title from
acquiring binding force.36 The law also provides for the
rights of the buyer in case of cancellation. Thus, Sec. 3 (b) of
the law provides that:
"If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments on the
property equivalent to fifty percent of the total payments
made and, after five years of installments, an additional five
percent every year but not to exceed ninety percent of the
total payment made: Provided, That the actual cancellation
of the contract shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer."
[Emphasis supplied]
The decision in the ejectment case37 operated as the notice
of cancellation required by Sec. 3(b). As petitioner Leaño
was not given then cash surrender value of the payments
that she made, there was still no actual cancellation of the
contract. Consequently, petitioner Leaño may still reinstate
the contract by updating the account during the grace
period and before actual cancellation.38
Should petitioner Leaño wish to reinstate the contract, she
would have to update her accounts with respondent
Fernando in accordance with the statement of
account39 which amount was P183,687.00.40
On the issue of whether petitioner Leaño was in delay in
paying the amortizations, we rule that while the contract
provided that the total purchase price was payable within a
ten-year period, the same contract specified that the
purchase price shall be paid in monthly installments for
which the corresponding penalty shall be imposed in case of
34
default. Petitioner Leaño cannot ignore the provision on the
payment of monthly installments by claiming that the ten-
year period within which to pay has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal
obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of
the parties fulfills his obligation, delay by the other begins.
In the case at bar, respondent Fernando performed his part
of the obligation by allowing petitioner Leaño to continue in
possession and use of the property. Clearly, when petitioner
Leaño did not pay the monthly amortizations in accordance
with the terms of the contract, she was in delay and liable
for damages.41 However, we agree with the trial court that
the default committed by petitioner Leaño in respect of the
obligation could be compensated by the interest and
surcharges imposed upon her under the contract in
question.42
It is a cardinal rule in the interpretation of contracts that if
the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning
of its stipulation shall control.43 Thus, as there is no
ambiguity in the language of the contract, there is no room
for construction, only compliance.
The Fallo
IN VIEW WHEREOF, we DENY the petition
and AFFIRM the decision of the Court of Appeals44 in toto.
No costs.
SO ORDERED
SECOND DIVISION
G.R. No. 127695 December 3, 2001
HEIRS OF LUIS BACUS, namely: CLARA RESMA
BACUS, ROQUE R. BACUS, SR., SATURNINO R.
BACUS, PRISCILA VDA. DE CABANERO,
CARMELITA B. SUQUIB, BERNARDITA B.
CARDENAS, RAUL R. BACUS, MEDARDO R.
BACUS, ANSELMA B. ALBAN, RICARDO R. BACUS,
FELICISIMA B. JUDICO, and DOMINICIANA B.
TANGAL, petitioners,
vs.
HON. COURT OF APPEALS and SPOUSES
FAUSTINO DURAY and VICTORIANA
DURAY, respondents.
QUISUMBING, J.:
This petition assails the decision dated November 29, 1996,
of the Court of Appeals in CA-G.R. CV No. 37566, affirming
the decision dated August 3, 1991, of the Regional Trial
Court of Cebu City, Branch 6, in Civil Case No. CEB-8935.

The facts, as culled from the records, are as follows:
On June 1, 1984, Luis Bacus leased to private respondent
Faustino Duray a parcel of agricultural land in Bulacao,
Talisay, Cebu. Designated as Lot No. 3661-A-3-B-2, it had
an area of 3,002 square meters, covered by Transfer
Certificate of Title No. 48866. The lease was for six years,
ending May 31, 1990. The contract contained an option to
buy clause. Under said option, the lessee had the exclusive
and irrevocable right to buy 2,000 square meters of the
property within five years from a year after the effectivity of
the contract, at P200 per square meter. That rate shall be
proportionately adjusted depending on the peso rate against
the US dollar, which at the time of the execution of the
contract was fourteen pesos.1
Close to the expiration of the contract, Luis Bacus died on
October 10, 1989. Thereafter, on March 15, 1990, the Duray
spouses informed Roque Bacus, one of the heirs of Luis
Bacus, that they were willing and ready to purchase the
property under the option to buy clause. They requested
Roque Bacus to prepare the necessary documents, such as a
Special Power of Attorney authorizing him to enter into a
contract of sale,2 on behalf of his sisters who were then
abroad.
On March 30, 1990, due to the refusal of petitioners to sell
the property, Faustino Duray's adverse claim was annotated
by the Register of Deeds of Cebu, at the back of TCT No.
63269, covering the segregated 2,000 square meter portion
of Lot No. 3661-A-3-B-2-A.3
Subsequently, on April 5, 1990, Duray filed a complaint for
specific performance against the heirs of Luis Bacus with
the Lupon Tagapamayapa of Barangay Bulacao, asking
that he be allowed to purchase the lot specifically referred to
in the lease contract with option to buy. At the hearing,
Duray presented a certification4 from the manager of
Standard Chartered Bank, Cebu City, addressed to Luis
Bacus, stating that at the request of Mr. Lawrence Glauber,
a bank client, arrangements were being made to allow
Faustino Duray to borrow funds of approximately P700,000
to enable him to meet his obligations under the contract
with Luis Bacus.5
Having failed to reach an agreement before the Lupon, on
April 27, 1990, private respondents filed a complaint for
specific performance with damages against petitioners
before the Regional Trial Court, praying that the latter, (a)
execute a deed of sale over the subject property in favor of
private respondents; (b) receive the payment of the
purchase price; and (c) pay the damages.
On the other hand, petitioners alleged that before Luis
Bacus' death, private respondents conveyed to them the
former's lack of interest to exercise their option because of
insufficiency of funds, but they were surprised to learn of
private respondents' demand. In turn, they requested
private respondents to pay the purchase price in full but the
latter refused. They further alleged that private respondents
did not deposit the money as required by the Lupon and
instead presented a bank certification which cannot be
deemed legal tender.
On October 30, 1990, private respondents manifested in
court that they caused the issuance of a cashier's check in
the amount of P650,0006 payable to petitioners at anytime
upon demand.
On August 3, 1991, the Regional Trial Court ruled in favor of
private respondents, the dispositive portion of which reads:
Premises considered, the court finds for the plaintiffs and
orders the defendants to specifically perform their
obligation in the option to buy and to execute a document of
sale over the property covered by Transfer Certificate of
Title # T-63269 upon payment by the plaintiffs to them in
the amount of Six Hundred Seventy-Five Thousand Six
Hundred Seventy-Five (P675,675.00) Pesos within a period
of thirty (30) days from the date this decision becomes final.
SO ORDERED.7
Unsatisfied, petitioners appealed to the respondent Court of
Appeals which denied the appeal on November 29, 1996, on
the ground that the private respondents exercised their
option to buy the leased property before the expiration of
the contract of lease. It held:
. . . After a careful review of the entire records of this case,
we are convinced that the plaintiffs-appellees validly and
effectively exercised their option to buy the subject property.
As opined by the lower court, "the readiness and
preparedness of the plaintiff on his part, is manifested by
his cautionary letters, the prepared bank certification long
before the date of May 31, 1990, the final day of the option,
and his filing of this suit before said date. If the plaintiff-
appellee Francisco Duray had no intention to purchase the
property, he would not have bothered to write those letters
to the defendant-appellants (which were all received by
35
them) and neither would he be interested in having his
adverse claim annotated at the back of the T.C.T. of the
subject property, two (2) months before the expiration of
the lease. Moreover, he even went to the extent of seeking
the help of the Lupon Tagapamayapa to compel the
defendants-appellants to recognize his right to purchase the
property and for them to perform their corresponding
obligation.8 xxx xxx xxx
We therefore find no merit in this appeal.
WHEREFORE, the decision appealed from is hereby
AFFIRMED.9
Hence, this petition where petitioners aver that the Court of
Appeals gravely erred and abused its discretion in:
I. . . . UPHOLDING THE TRIAL COURT'S RULING IN THE
SPECIFIC PERFORMANCE CASE BY ORDERING
PETITIONERS (DEFENDANTS THEREIN) TO EXECUTE
A DOCUMENT OF SALE OVER THE PROPERTY IN
QUESTION (WITH TCT NO. T-63269) TO THEM IN THE
AMOUNT OF P675,675.00 WITHIN THIRTY (30) DAYS
FROM THE DATE THE DECISION BECOMES FINAL;
II. . . . DISREGARDING LEGAL PRINCIPLES, SPECIFIC
PROVISIONS OF LAW AND JURISPRUDENCE IN
UPHOLDING THE DECISION OF THE TRIAL COURT TO
THE EFFECT THAT PRIVATE RESPONDENTS HAD
EXERCISED THEIR RIGHT OF OPTION TO BUY ON
TIME; THUS THE PRESENTATION OF THE
CERTIFICATION OF THE BANK MANAGER OF A BANK
DEPOSIT IN THE NAME OF ANOTHER PERSON FOR
LOAN TO RESPONDENTS WAS EQUIVALENT TO A
VALID TENDER OF PAYMENT AND A SUFFICIENT
COMPLAINCE (SIC) OF A CONDITION FOR THE
EXERCISE OF THE OPTION TO BUY; AND
III. . . . UPHOLDING THE TRIAL COURT'S RULING THAT
THE PRESENTATION OF A CASHER'S (SIC) CHECK BY
THE RESPONDENTS IN THE AMOUNT OF P625,000.00
EVEN AFTER THE TERMINATION OF THE TRIAL ON
THE MERITS WITH BOTH PARTIES ALREADY HAVING
RESTED THEIR CASE, WAS STILL VALID COMPLIANCE
OF THE CONDITION FOR THE PRIVATE
RESPONDENTS' (PLAINTIFFS THEREIN) EXERCISE OF
RIGHT OF OPTION TO BUY AND HAD A FORCE OF
VALID AND FULL TENDER OF PAYMENT WITHIN THE
AGREED PERIOD.10

Petitioners insist that they cannot be compelled to sell the
disputed property by virtue of the nonfulfillment of the
obligation under the option contract of the private
respondents.
Private respondents first aver that petitioners are unclear if
Rule 65 or Rule 45 of the Rules of Court govern their
petition, and that petitioners only raised questions of facts
which this Court cannot properly entertain in a petition for
review. They claim that even assuming that the instant
petition is one under Rule 45, the same must be denied for
the Court of Appeals has correctly determined that they had
validly exercised their option to buy the leased property
before the contract expired.
In response, petitioners state that private respondents erred
in initially classifying the instant petition as one under Rule
65 of the Rules of Court. They argue that the petition is one
under Rule 45 where errors of the Court of Appeals, whether
evidentiary or legal in nature, may be reviewed.
We agree with private respondents that in a petition for
review under Rule 45, only questions of law may be
raised.11 However, a close reading of petitioners' arguments
reveal the following legal issues which may properly be
entertained in the instant petition:
a) When private respondents opted to buy the property
covered by the lease contract with option to buy, were they
already required to deliver the money or consign it in court
before petitioner executes a deed of transfer?
b) Did private respondents incur in delay when they did not
deliver the purchase price or consign it in court on or before
the expiration of the contract?
On the first issue, petitioners contend that private
respondents failed to comply with their obligation because
there was neither actual delivery to them nor consignation
in court or with the Municipal, City or Provincial Treasurer
of the purchase price before the contract expired. Private
respondents' bank certificate stating that arrangements
were being made by the bank to release P700,000 as a loan
to private respondents cannot be considered as legal tender
that may substitute for delivery of payment to petitioners
nor was it a consignation.
Obligations under an option to buy are reciprocal
obligations.12 The performance of one obligation is
conditioned on the simultaneous fulfillment of the other
obligation.13 In other words, in an option to buy, the
payment of the purchase price by the creditor is contingent
upon the execution and delivery of a deed of sale by the
debtor. In this case, when private respondents opted to buy
the property, their obligation was to advise petitioners of
their decision and their readiness to pay the price. They
were not yet obliged to make actual payment. Only upon
petitioners' actual execution and delivery of the deed of sale
were they required to pay. As earlier stated, the latter was
contingent upon the former. In Nietes vs. Court of Appeals,
46 SCRA 654 (1972), we held that notice of the creditor's
decision to exercise his option to buy need not be coupled
with actual payment of the price, so long as this is delivered
to the owner of the property upon performance of his part of
the agreement. Consequently, since the obligation was not
yet due, consignation in court of the purchase price was not
yet required.
Consignation is the act of depositing the thing due with the
court or judicial authorities whenever the creditor cannot
accept or refuses to accept payment and it generally requires
a prior tender of payment. In instances, where no debt is
due and owing, consignation is not proper.14 Therefore,
petitioners' contention that private respondents failed to
comply with their obligation under the option to buy
because they failed to actually deliver the purchase price or
consign it in court before the contract expired and before
they execute a deed, has no leg to stand on.
Corollary, private respondents did not incur in delay when
they did not yet deliver payment nor make a consignation
before the expiration of the contract. In reciprocal
obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner
with what is incumbent upon him. Only from the moment
one of the parties fulfills his obligation, does delay by the
other begin.15
In this case, private respondents, as early as March 15, 1990,
communicated to petitioners their intention to buy the
property and they were at that time undertaking to meet
their obligation before the expiration of the contract on May
31, 1990. However, petitioners refused to execute the deed
of sale and it was their demand to private respondents to
first deliver the money before they would execute the same
which prompted private respondents to institute a case for
specific performance in the Lupong Tagapamayapa and
then in the RTC. On October 30, 1990, after the case had
been submitted for decision but before the trial court
rendered its decision, private respondents issued a cashier's
check in petitioners' favor purportedly to bolster their claim
36
that they were ready to pay the purchase price. The trial
court considered this in private respondents' favor and we
believe that it rightly did so, because at the time the check
was issued, petitioners had not yet executed a deed of sale
nor expressed readiness to do so. Accordingly, as there was
no compliance yet with what was incumbent upon
petitioners under the option to buy, private respondents had
not incurred in delay when the cashier's check was issued
even after the contract expired.
WHEREFORE, the instant petition is DENIED. The
decision dated November 29, 1996 of the Court of Appeals is
hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
SECOND DIVISION
G.R. No. 115117 June 8, 2000
INTEGRATED PACKAGING CORP., petitioner,
vs.
COURT OF APPEALS and FIL-ANCHOR PAPER
CO., INC., respondents.
QUISUMBING, J.:
This is a petition to review the decision of the Court of
Appeals rendered on April 20, 1994 reversing the judgment
of the Regional Trial Court of Caloocan City in an action for
recovery of sum of money filed by private respondent
against petitioner. In said decision, the appellate court
decreed:
WHEREFORE, in view of all the foregoing, the appealed
judgment is hereby REVERSED and SET ASIDE. Appellee
[petitioner herein] is hereby ordered to pay appellant
[private respondent herein] the sum of P763,101.70, with
legal interest thereon, from the date of the filing of the
Complaint, until fully paid.
SO ORDERED.1
The RTC judgment reversed by the Court of Appeals had
disposed of the complain as follows:
WHEREFORE, judgment is hereby rendered:
Ordering plaintiff [herein private respondent] to pay
defendant [herein petitioner] the sum of P27,222.60 as
compensatory and actual damages after deducting
P763,101.70 (value of materials received by defendant) from
P790,324.30 representing compensatory damages as
defendant's unrealized profits;

Ordering plaintiff to pay defendant the sum of P100,000.00
as moral damages;
Ordering plaintiff to pay the sum of P30,000.00 for
attorney's fees; and to pay the costs of suit.
SO ORDERED.2
The facts, as culled from the records, are as follows:
Petitioner and private respondent executed on May 5, 1978,
an order agreement whereby private respondent bound
itself to deliver to petitioner 3,450 reams of printing paper,
coated, 2 sides basis, 80 lbs., 38" x 23", short grain, worth
P1,040,060.00 under the following schedule: May and June
1978 — 450 reams at P290.00/ream; August and September
1978 — 700 reams at P290/ream; January 1979 — 575
reams at P307.20/ream; March 1979 — 575 reams at
P307.20/ream; July 1979 — 575 reams at 307.20/ream; and
October 1979 — 575 reams at P307.20/ream. In accordance
with the standard operating practice of the parties, the
materials were to be paid within a minimum of thirty days
and maximum of ninety days from delivery.
Later, on June 7, 1978, petitioner entered into a contract
with Philippine Appliance Corporation (Philacor) to print
three volumes of "Philacor Cultural Books" for delivery on
the following dates: Book VI, on or before November 1978;
Book VII, on or before November 1979 and; Book VIII, on or
before November 1980, with a minimum of 300,000 copies
at a price of P10.00 per copy or a total cost of
P3,000,000.00.
As of July 30, 1979, private respondent had delivered to
petitioner 1,097 reams of printing paper out of the total
3,450 reams stated in the agreement. Petitioner alleged it
wrote private respondent to immediately deliver the balance
because further delay would greatly prejudice petitioner.
From June 5, 1980 and until July 23, 1981, private
respondent delivered again to petitioner various quantities
of printing paper amounting to P766,101.70. However,
petitioner encountered difficulties paying private
respondent said amount. Accordingly, private respondent
made a formal demand upon petitioner to settle the
outstanding account. On July 23 and 31, 1981 and August
27, 1981, petitioner made partial payments totalling
P97,200.00 which was applied to its back accounts covered
by delivery invoices dated September 29-30, 1980 and
October 1-2, 1980.3
Meanwhile, petitioner entered into an additional printing
contract with Philacor. Unfortunately, petitioner failed to
fully comply with its contract with Philacor for the printing
of books VIII, IX, X and XI. Thus, Philacor demanded
compensation from petitioner for the delay and damage it
suffered on account of petitioner's failure.
On August 14, 1981, private respondent filed with the
Regional Trial Court of Caloocan City a collection suit
against petitioner for the sum of P766,101.70, representing
the unpaid purchase price of printing paper bought by
petitioner on credit.
In its answer, petitioner denied the material allegations of
the complaint. By way of counterclaim, petitioner alleged
that private respondent was able to deliver only 1,097 reams
of printing paper which was short of 2,875 reams, in total
disregard of their agreement; that private respondent failed
to deliver the balance of the printing paper despite demand
therefor, hence, petitioner suffered actual damages and
failed to realize expected profits; and that petitioner's
complaint was prematurely filed.
After filing its reply and answer to the counterclaim, private
respondent moved for admission of its supplemental
complaint, which was granted. In said supplemental
complaint, private respondent alleged that subsequent to
the enumerated purchase invoices in the original complaint,
petitioner made additional purchases of printing paper on
credit amounting to P94,200.00. Private respondent also
averred that petitioner failed and refused to pay its
outstanding obligation although it made partial payments in
the amount of P97,200.00 which was applied to back
accounts, thus, reducing petitioner's indebtedness to
P763,101.70.
On July 5, 1990, the trial court rendered judgment declaring
that petitioner should pay private respondent the sum of
P763,101.70 representing the value of printing paper
delivered by private respondent from June 5, 1980 to July
23, 1981. However, the lower court also found petitioner's
counterclaim meritorious. It ruled that were it not for the
failure or delay of private respondent to deliver printing
paper, petitioner could have sold books to Philacor and
realized profit of P790,324.30 from the sale. It further ruled
that petitioner suffered a dislocation of business on account
of loss of contracts and goodwill as a result of private
respondent's violation of its obligation, for which the award
of moral damages was justified.
37
On appeal, the respondent Court of Appeals reversed and
set aside the judgment of the trial court. The appellate court
ordered petitioner to pay private respondent the sum of
P763,101.70 representing the amount of unpaid printing
paper delivered by private respondent to petitioner, with
legal interest thereon from the date of the filing of the
complaint until fully paid.4 However, the appellate court
deleted the award of P790,324.30 as compensatory damages
as well as the award of moral damages and attorney's fees,
for lack of factual and legal basis.
Expectedly, petitioner filed this instant petition contending
that the appellate court's judgment is based on erroneous
conclusions of facts and law. In this recourse, petitioner
assigns the following errors:
[I] THE COURT OF APPEALS ERRED IN CONCLUDING
THAT PRIVATE RESPONDENT DID NOT VIOLATE THE
ORDER AGREEMENT.
[II] THE COURT OF APPEALS ERRED IN CONCLUDING
THAT RESPONDENT IS NOT LIABLE FOR PETITIONER'S
BREACH OF CONTRACT WITH PHILACOR.
[III] THE COURT OF APPEALS ERRED IN CONCLUDING
THAT PETITIONER IS NOT ENTITLED TO DAMAGES
AGAINST PRIVATE RESPONDENT. 5
In our view, the crucial issues for resolution in this case are
as follows:
(1) Whether or not private respondent violated the
order agreement, and;
(2) Whether or not private respondent is liable for
petitioner's breach of contract with Philacor.
Petitioner's contention lacks factual and legal basis, hence,
bereft of merit.
Petitioner contends, firstly, that private respondent violated
the order agreement when the latter failed to deliver the
balance of the printing paper on the dates agreed upon.
The transaction between the parties is a contract of sale
whereby private respondent (seller) obligates itself to
deliver printing paper to petitioner (buyer) which, in turn,
binds itself to pay therefor a sum of money or its equivalent
(price).6 Both parties concede that the order agreement

gives rise to a reciprocal obligations7 such that the obligation
of one is dependent upon the obligation of the other.
Reciprocal obligations are to be performed simultaneously,
so that the performance of one is conditioned upon the
simultaneous fulfillment of the other.8 Thus, private
respondent undertakes to deliver printing paper of various
quantities subject to petitioner's corresponding obligation to
pay, on a maximum 90-day credit, for these materials. Note
that in the contract, petitioner is not even required to make
any deposit, down payment or advance payment, hence, the
undertaking of private respondent to deliver the materials is
conditional upon payment by petitioner within the
prescribed period. Clearly, petitioner did not fulfill its side
of the contract as its last payment in August 1981 could
cover only materials covered by delivery invoices dated
September and October 1980.
There is no dispute that the agreement provides for the
delivery of printing paper on different dates and a separate
price has been agreed upon for each delivery. It is also
admitted that it is the standard practice of the parties that
the materials be paid within a minimum period of thirty
(30) days and a maximum of ninety (90) days from each
delivery.9 Accordingly, the private respondent's suspension
of its deliveries to petitioner whenever the latter failed to
pay on time, as in this case, is legally justified under the
second paragraph of Article 1583 of the Civil Code which
provides that:
When there is a contract of sale of goods to be delivered by
stated installments, which are to be separately paid for, and
the seller makes defective deliveries in respect of one or
more installments, or the buyer neglects or refuses without
just cause to take delivery of or pay for one or more
installments, it depends in each case on the terms of the
contract and the circumstances of the case, whether the
breach of contract is so material as to justify the injured
party in refusing to proceed further and suing for damages
for breach of the entire contract, or whether the breach is
severable, giving rise to a claim for compensation but not to
a right to treat the whole contract as broken. (Emphasis
supplied)
In this case, as found a quo petitioner's evidence failed to
establish that it had paid for the printing paper covered by
the delivery invoices on time. Consequently, private
respondent has the right to cease making further delivery,
hence the private respondent did not violate the order
agreement. On the contrary, it was petitioner which
breached the agreement as it failed to pay on time the
materials delivered by private respondent. Respondent
appellate court correctly ruled that private respondent did
not violate the order agreement.
On the second assigned error, petitioner contends that
private respondent should be held liable for petitioner's
breach of contract with Philacor. This claim is manifestly
devoid of merit.
As correctly held by the appellate court, private respondent
cannot be held liable under the contracts entered into by
petitioner with Philacor. Private respondent is not a party to
said agreements. It is also not a contract pour autrui.
Aforesaid contracts could not affect third persons like
private respondent because of the basic civil law principle of
relativity of contracts which provides that contracts can only
bind the parties who entered into it, and it cannot favor or
prejudice a third person, 10 even if he is aware of such
contract and has acted with knowledge thereof. 11
Indeed, the order agreement entered into by petitioner and
private respondent has not been shown as having a direct
bearing on the contracts of petitioner with Philacor. As
pointed out by private respondent and not refuted by
petitioner, the paper specified in the order agreement
between petitioner and private respondent are markedly
different from the paper involved in the contracts of
petitioner with Philacor. 12 Furthermore, the demand made
by Philacor upon petitioner for the latter to comply with its
printing contract is dated February 15, 1984, which is clearly
made long after private respondent had filed its complaint
on August 14, 1981. This demand relates to contracts with
Philacor dated April 12, 1983 and May 13, 1983, which were
entered into by petitioner after private respondent filed the
instant case.lawphi1
To recapitulate, private respondent did not violate the order
agreement it had with petitioner. Likewise, private
respondent could not be held liable for petitioner's breach of
contract with Philacor. It follows that there is no basis to
hold private respondent liable for damages. Accordingly, the
appellate court did not err in deleting the damages awarded
by the trial court to petitioner.
The rule on compensatory damages is well established.
True, indemnification for damages comprehends not only
the loss suffered, that is to say actual damages (damnum
emergens), but also profits which the obligee failed to
obtain, referred to as compensatory damages (lucrum
cessans). However, to justify a grant of actual or
compensatory damages, it is necessary to prove with a
38
reasonable degree of certainty, premised upon competent
proof and on the best evidence obtainable by the injured
party, the actual amount of loss. 13 In the case at bar, the
trial court erroneously concluded that petitioner could have
sold books to Philacor at the quoted selling price of
P1,850,750.55 and by deducting the production cost of
P1,060,426.20, petitioner could have earned profit of
P790,324.30. Admittedly, the evidence relied upon by the
trial court in arriving at the amount are mere estimates
prepared by petitioner. 14 Said evidence is highly speculative
and manifestly hypothetical. It could not provide sufficient
legal and factual basis for the award of P790,324.30 as
compensatory damages representing petitioner's self-
serving claim of unrealized profit.
Further, the deletion of the award of moral damages is
proper, since private respondent could not be held liable for
breach of contract. Moral damages may be awarded when in
a breach of contract the defendant acted in bad faith, or was
guilty of gross negligence amounting to bad faith, or in
wanton disregard of his contractual obligation. 15Finally,
since the award of moral damages is eliminated, so must the
award for attorney's fees be also deleted. 16
WHEREFORE, the instant petition is DENIED. The
decision of the Court of Appeals is AFFIRMED. Costs
against petitioner.
SO ORDERED.
THIRD DIVISION
G.R. No. 137552 June 16, 2000
ROBERTO Z. LAFORTEZA, GONZALO Z.
LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS
Z. LAFORTEZA, and LEA Z.
LAFORTEZA, petitioners,
vs.
ALONZO MACHUCA, respondent.
GONZAGA-REYES, J.:
This Petition for Review on Certiorari seeks the reversal of
the Decision of the Court of Appeals 1 in CA G.R. CV No.
147457 entitled "ALONZO MACHUCA versus ROBERTO Z.
LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA-
LAFORTEZA, MICHAEL Z. LAFORTEZA, and DENNIS Z.
LAFORTEZA".
The following facts as found by the Court of Appeals are
undisputed:
The property involved consists of a house and lot located at
No. 7757 Sherwood Street, Marcelo Green Village,
Parañaque, Metro Manila, covered by Transfer Certificate of
Title (TCT) No. (220656) 8941 of the Registered of Deeds of

Parañaque (Exhibit "D", Plaintiff, record, pp. 331-332). The
subject property is registered in the name of the late
Francisco Q. Laforteza, although it is conjugal in nature
(Exhibit "8", Defendants, record pp. 331-386).
On August 2, 1988, defendant Lea Zulueta-Laforteza
executed a Special Power of Attorney in favor of defendants
Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr.,
appointing both as her Attorney-in-fact authorizing them
jointly to sell the subject property and sign any document
for the settlement of the estate of the late Francisco Q.
Laforteza (Exh. "A", Plaintiff, record, pp. 323-325).
Likewise on the same day, defendant Michael Z. Laforteza
executed a Special Power of Attorney in favor of defendants
Roberto Z. Laforteza and Gonzalo Laforteza, Jr., likewise,
granting the same authority (Exh. "B", record, pp. 326-328)
Both agency instruments contained a provision that in any
document or paper to exercise authority granted, the
signature of both attorneys- in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza
executed a Special Power of Attorney in favor of defendant
Roberto Z. Laforteza for the purpose of selling the subject
property (Exh. "C", Plaintiff, record, pp. 329-330). A year
later, on October 30, 1989, Dennis Z. Laforteza executed
another Special Power of Attorney in favor of defendants
Roberto Z. Laforteza and Gonzalo Laforteza, Jr. naming
both attorneys-in-fact for the purpose of selling the subject
property and signing any document for the settlement of the
estate of the late Francisco Q. Laforteza. The subsequent
agency instrument (Exh, "2", record, pp. 371-373) contained
similar provisions that both attorneys-in-fact should sign
any document or paper executed in the exercise of their
authority.
In the exercise of the above authority, on January 20, 1989,
the heirs of the late Francisco Q. Laforteza represented by
Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered
into a Memorandum of Agreement (Contract to Sell) with
the plaintiff 2 over the subject property for the sum of SIX
HUNDRED THIRTY THOUSAND PESOS (P630,000.00)
payable as follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of
the defendants if the sale is not effected due to the fault of
the plaintiff;
(b) P600,000.00 upon issuance of the new certificate of title
in the name of the late Francisco Q. Laforteza and upon
execution of an extra-judicial settlement of the decedent's
estate with sale in favor of the plaintiff (Par. 2, Exh. "E",
record, pp. 335-336).
Significantly, the fourth paragraph of the Memorandum of
Agreement (Contract to Sell) dated January 20, 1989 (Exh.
"E", supra.) contained a provision as follows:
. . . . Upon issuance by the proper Court of the new title, the
BUYER-LESSEE shall be notified in writing and said
BUYER-LESSEE shall have thirty (30) days to produce the
balance of P600,000.00 which shall be paid to the SELLER-
LESSORS upon the execution of the Extrajudicial
Settlement with sale.
On January 20, 1989, plaintiff paid the earnest money of
THIRTY THOUSAND PESOS (P30,000.00), plus rentals for
the subject property (Exh. "F", Plaintiff, record, p. 339).
On September 18, 1998 defendant heirs, through their
3,
counsel wrote a letter (Exh. 1, Defendants, record, p. 370) to
the plaintiff furnishing the latter a copy of the reconstituted
title to the subject property, advising him that he had thirty
(3) days to produce the balance of SIX HUNDRED PESOS
(sic) (P600,000.00) under the Memorandum of Agreement
which plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a
letter requesting for an extension of the THIRTY (30) DAYS
deadline up to November 15, 1989 within which to produce
the balance of SIX HUNDRED THOUSAND PESOS
(P600,000.00) (Exh. "G", Plaintiff, record, pp. 341-342).
Defendant Roberto Z. Laforteza, assisted by his counsel
Atty. Romeo L. Gutierrez, signed his conformity to the
plaintiff's letter request (Exh. "G-1 and "G-2", Plaintiff,
record, p. 342). The extension, however, does not appear to
have been approved by Gonzalo Z. Laforteza, the second
attorney-in-fact as his conformity does not appear to have
been secured.
On November 15, 1989, plaintiff informed the defendant
heirs, through defendant Roberto Z. Laforteza, that he
already had the balance of SIX HUNDRED THOUSAND
PESOS (P600,000.00) covered by United Coconut Planters
Bank Manager's Check No. 000814 dated November 15,
1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp.
343-344; "M", records p. 350; and "N", record, p. 351).
However, the defendants, refused to accept the balance
(TSN, August 24, 1992, p. 14; Exhs. "M-1", Plaintiff, record,
p. 350; and "N-1", Plaintiff, record, p. 351). Defendant
39
Roberto Z. Laforteza had told him that the subject property
was no longer for sale (TSN, October 20, 1992, p. 19; Exh.
"J", record, p. 347).
On November 20, 1998 4 , defendants informed plaintiff that
they were canceling the Memorandum of Agreement
(Contract to Sell) in view of the plaintiff's failure to comply
with his contractual obligations (Exh. "3").
Thereafter, plaintiff reiterated his request to tender
payment of the balance of SIX HUNDRED THOUSAND
PESOS (P600,000.00). Defendants, however, insisted on
the rescission of the Memorandum of Agreement.
Thereafter, plaintiff filed the instant action for specific
performance. The lower court rendered judgment on July 6,
1994 in favor of the plaintiff, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff Alonzo Machuca and against the defendant heirs of
the late Francisco Q. Laforteza, ordering the said
defendants.
(a) To accept the balance of P600,000.00 as full payment of
the consideration for the purchase of the house and lot
located at No. 7757 Sherwood Street, Marcelo Green Village,
Parañaque, Metro Manila, covered by Transfer Certificate of
Title No. (220656) 8941 of the Registry of Deeds of Rizal
Parañaque, Branch;
(b) To execute a registrable deed of absolute sale over the
subject property in favor of the plaintiff;
(c) Jointly and severally to pay the plaintiff the sum of
P20,000.00 as attorney's fees plus cost of suit.
SO ORDERED. (Rollo, pp. 74-75). 5
Petitioners appealed to the Court of Appeals, which affirmed
with modification the decision of the lower court; the
dispositive portion of the Decision reads:
WHEREFORE, the questioned decision of the lower court is
hereby AFFIRMED with the MODIFICATION that
defendant heirs Lea Zulueta-Laforteza, Michael Z.
Laforteza, Dennis Z. Laforteza and Roberto Z. Laforteza
including Gonzalo Z. Laforteza, Jr. are hereby ordered to
pay jointly and severally the sum of FIFTY THOUSAND
PESOS (P50,000.00) as moral damages.

SO ORDERED. 6
Motion for Reconsideration was denied but the Decision
was modified so as to absolve Gonzalo Z. Laforteza, Jr. from
liability for the payment of moral damages. 7 Hence this
petition wherein the petitioners raise the following issues:
I. WHETHER THE TRIAL AND APPELLATE COURTS
CORRECTLY CONSTRUED THE MEMORANDUM OF
AGREEMENT AS IMPOSING RECIPROCAL
OBLIGATIONS.
II. WHETHER THE COURTS A QUO CORRECTLY RULED
THAT RESCISSION WILL NOT LIE IN THE INSTANT
CASE.
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL
FROM RAISING THE ALLEGED DEFECT IN THE
SPECIAL POWER OF ATTORNEY DATED 30 OCTOBER
1989 EXECUTED BY DENNIS LAFORTEZA.
IV. SUPPOSING EX GRATIA ARGUMENTI THE
MEMORANDUM OF AGREEMENT IMPOSES
RECIPROCAL OBLIGATIONS, WHETHER THE
PETITIONERS MAY BE COMPELLED TO SELL THE
SUBJECT PROPERTY WHEN THE RESPONDENT FAILED
TO MAKE A JUDICIAL CONSIGNATION OF THE
PURCHASE PRICE?
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO
TO AS MAKE THEM LIABLE FOR MORAL DAMAGES? 8
The petitioners contend that the Memorandum of
Agreement is merely a lease agreement with "option to
purchase". As it was merely an option, it only gave the
respondent a right to purchase the subject property within a
limited period without imposing upon them any obligation
to purchase it. Since the respondent's tender of payment
was made after the lapse of the option agreement, his tender
did not give rise to the perfection of a contract of sale.
It is further maintained by the petitioners that the Court of
Appeals erred in ruling that rescission of the contract was
already out of the question. Rescission implies that a
contract of sale was perfected unlike the Memorandum of
Agreement in question which as previously stated is
allegedly only an option contract.
Petitioner adds that at most, the Memorandum of
Agreement (Contract to Sell) is a mere contract to sell, as
indicated in its title. The obligation of the petitioners to sell
the property to the respondent was conditioned upon the
issuance of a new certificate of title and the execution of the
extrajudicial partition with sale and payment of the
P600,000.00. This is why possession of the subject property
was not delivered to the respondent as the owner of the
property but only as the lessee thereof. And the failure of the
respondent to pay the purchase price in full prevented the
petitioners' obligation to convey title from acquiring
obligatory force.
Petitioners also allege that assuming for the sake of
argument that a contract of sale was indeed perfected, the
Court of Appeals still erred in holding that respondent's
failure to pay the purchase price of P600,000.00 was only a
"slight or casual breach".
The petitioners also claim that the Court of Appeals erred in
ruling that they were not ready to comply with their
obligation to execute the extrajudicial settlement. The
Power of Attorney to execute a Deed of Sale made by Dennis
Z. Laforteza was sufficient and necessarily included the
power to execute an extrajudicial settlement. At any rate,
the respondent is estopped from claiming that the
petitioners were not ready to comply with their obligation
for he acknowledged the petitioners' ability to do so when he
requested for an extension of time within which to pay the
purchase price. Had he truly believed that the petitioners
were not ready, he would not have needed to ask for said
extension.
Finally, the petitioners allege that the respondent's
uncorroborated testimony that third persons offered a
higher price for the property is hearsay and should not be
given any evidentiary weight. Thus, the order of the lower
court awarding moral damages was without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows that the
transaction between the petitioners and the respondent was
one of sale and lease. The terms of the agreement read:
1. For and in consideration of the sum of PESOS: SIX
HUNDRED THIRTY THOUSAND (P630,000.00) payable
in a manner herein below indicated, SELLER-LESSOR
hereby agree to sell unto BUYER-LESSEE the property
described in the first WHEREAS of this Agreement within
40
six (6) months from the execution date hereof, or upon
issuance by the Court of a new owner's certificate of title and
the execution of extrajudicial partition with sale of the estate
of Francisco Laforteza, whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED
THIRTY THOUSAND (P630,000.00) shall be paid in the
following manner:
P30,000.00 — as earnest money and as consideration for
this Agreement, which amount shall be forfeited in favor of
SELLER-LESSORS if the sale is not effected because of the
fault or option of BUYER-LESSEE;
P600,000.00 — upon the issuance of the new certificate of
title in the name of the late Francisco Laforteza and upon
the execution of an Extrajudicial Settlement of his estate
with sale in favor of BUYER-LESSEE free from lien or any
encumbrances.
3. Parties reasonably estimate that the issuance of a new
title in place of the lost one, as well as the execution of
extrajudicial settlement of estate with sale to herein
BUYER-LESSEE will be completed within six (6) months
from the execution of this Agreement. It is therefore agreed
that during the six months period, BUYER-LESSEE will be
leasing the subject property for six months period at the
monthly rate of PESOS: THREE THOUSAND FIVE
HUNDRED (P3,500.00). Provided however, that if the
issuance of new title and the execution of Extrajudicial
Partition is completed prior to the expiration of the six
months period, BUYER-LESSEE shall only be liable for
rentals for the corresponding period commencing from his
occupancy of the premises to the execution and completion
of the Extrajudicial Settlement of the estate, provided
further that if after the expiration of six (6) months, the lost
title is not yet replaced and the extra judicial partition is not
executed, BUYER-LESSEE shall no longer be required to
pay rentals and shall continue to occupy, and use the
premises until subject condition is complied by SELLER-
LESSOR;
4. It is hereby agreed that within reasonable time from the
execution of this Agreement and the payment by BUYER-
LESSEE of the amount of P30,000.00 as herein above
provided, SELLER-LESSORS shall immediately file the
corresponding petition for the issuance of a new title in lieu
of the lost one in the proper Courts. Upon issuance by the
proper Courts of the new title, the BUYER-LESSEE shall
have thirty (30) days to produce the balance of

P600,000.00 which shall be paid to the SELLER-LESSORS
upon the execution of the Extrajudicial Settlement with
sale. 9
A contract of sale is a consensual contract and is perfected
at the moment there is a meeting of the minds upon the
thing which is the object of the contract and upon the
price. 10 From that moment the parties may reciprocally
demand performance subject to the provisions of the law
governing the form of contracts. 11 The elements of a valid
contract of sale under Article 1458 of the Civil Code are (1)
consent or meeting of the minds; (2) determinate subject
matter and (3) price certain money or its equivalent. 12
In the case at bench, there was a perfected agreement
between the petitioners and the respondent whereby the
petitioners obligated themselves to transfer the ownership
of and deliver the house and lot located at 7757 Sherwood
St., Marcelo Green Village, Parañaque and the respondent
to pay the price amounting to six hundred thousand pesos
(P600,000.00). All the elements of a contract of sale were
thus present. However, the balance of the purchase price
was to be paid only upon the issuance of the new certificate
of title in lieu of the one in the name of the late Francisco
Laforteza and upon the execution of an extrajudicial
settlement of his estate. Prior to the issuance of the
"reconstituted" title, the respondent was already placed in
possession of the house and lot as lessee thereof for six
months at a monthly rate of three thousand five hundred
pesos (P3,500.00). It was stipulated that should the
issuance of the new title and the execution of the
extrajudicial settlement be completed prior to expiration of
the six-month period, the respondent would be liable only
for the rentals pertaining to the period commencing from
the date of the execution of the agreement up to the
execution of the extrajudicial settlement. It was also
expressly stipulated that if after the expiration of the six
month period, the lost title was not yet replaced and the
extrajudicial partition was not yet executed, the respondent
would no longer be required to pay rentals and would
continue to occupy and use the premises until the subject
condition was complied with the petitioners.
The six-month period during which the respondent would
be in possession of the property as lessee, was clearly not a
period within which to exercise an option. An option is a
contract granting a privilege to buy or sell within an agreed
time and at a determined price. An option contract is a
separate and distinct contract from that which the parties
may enter into upon the consummation of the option. 13 An
option must be supported by consideration.14 An option
contract is governed by the second paragraph of Article 1479
of the Civil Code 15 , which reads:
Art. 1479. . . . An accepted unilateral promise to buy or to
sell a determinate thing for a price certain is binding upon
the promissor if the promise is supported by a consideration
distinct from the price.
In the present case, the six-month period merely delayed
the demandability of the contract of sale and did not
determine its perfection for after the expiration of the six-
month period, there was an absolute obligation on the part
of the petitioners and the respondent to comply with the
terms of the sale. The parties made a "reasonable estimate"
that the reconstitution the lost title of the house and lot
would take approximately six months and thus presumed
that after six months, both parties would be able to comply
with what was reciprocally incumbent upon them. The fact
that after the expiration of the six-month period, the
respondent would retain possession of the house and lot
without need of paying rentals for the use therefor, clearly
indicated that the parties contemplated that ownership over
the property would already be transferred by that time.”
The issuance of the new certificate of title in the name of the
late Francisco Laforteza and the execution of an
extrajudicial settlement of his estate was not a condition
which determined the perfection of the contract of sale.
Petitioners' contention that since the condition was not met,
they no longer had an obligation to proceed with the sale of
the house and lot is unconvincing. The petitioners fail to
distinguish between a condition imposed upon the
perfection of the contract and a condition imposed on the
performance of an obligation. Failure to comply with the
first condition results in the failure of a contract, while the
failure to comply with the second condition only gives the
other party the option either to refuse to proceed with the
sale or to waive the condition. Thus, Art. 1545 of the Civil
Code states:
Art. 1545. Where the obligation of either party to a contract
of sale is subject to any condition which is not performed,
such party may refuse to proceed with the contract or he
may waive performance of the condition. If the other party
has promised that the condition should happen or be
performed, such first mentioned party may also treat the
nonperformance of the condition as a breach of warranty.
Where the ownership in the things has not passed, the buyer
may treat the fulfillment by the seller of his obligation to
41
deliver the same as described and as warranted expressly or
by implication in the contract of sale as a condition of the
obligation of the buyer to perform his promise to accept and
pay for the thing.” 16
In the case at bar, there was already a perfected contract.
The condition was imposed only on the performance of the
obligations contained therein. Considering however that the
title was eventually "reconstituted" and that the petitioners
admit their ability to execute the extrajudicial settlement of
their father's estate, the respondent had a right to demand
fulfillment of the petitioners' obligation to deliver and
transfer ownership of the house and lot.
What further militates against petitioners' argument that
they did not enter into a contract or sale is the fact that the
respondent paid thirty thousand pesos (P30,000.00) as
earnest money. Earnest money is something of value to
show that the buyer was really in earnest, and given to the
seller to bind the bargain.17 Whenever earnest money is
given in a contract of sale, it is considered as part of the
purchase price and proof of the perfection of the contract. 18
We do not subscribe to the petitioners' view that the
Memorandum Agreement was a contract to sell. There is
nothing contained in the Memorandum Agreement from
which it can reasonably be deduced that the parties
intended to enter into a contract to sell, i.e. one whereby the
prospective seller would explicitly reserve the transfer of
title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership
of the property subject of the contract to sell until the full
payment of the price, such payment being a positive
suspensive condition, the failure of which is not considered
a breach, casual or serious, but simply an event which
prevented the obligation from acquiring any obligatory
force. 19 There is clearly no express reservation of title made
by the petitioners over the property, or any provision which
would impose non-payment of the price as a condition for
the contract's entering into force. Although the
memorandum agreement was also denominated as a
"Contract to Sell", we hold that the parties contemplated a
contract of sale. A deed of sale is absolute in nature although
denominated a conditional sale in the absence of a
stipulation reserving title in the petitioners until full
payment of the purchase price. 20 In such cases, ownership
of the thing sold passes to the vendee upon actual or
constructive delivery thereof. 21 The mere fact that the
obligation of the respondent to pay the balance of the
purchase price was made subject to the condition that the
petitioners first deliver the reconstituted title of the house

and lot does not make the contract a contract to sell for such
condition is not inconsistent with a contract of sale. 22
The next issue to be addressed is whether the failure of the
respondent to pay the balance of the purchase price within
the period allowed is fatal to his right to enforce the
agreement.
We rule in the negative.
Admittedly, the failure of the respondent to pay the balance
of the purchase price was a breach of the contract and was a
ground for rescission thereof. The extension of thirty (30)
days allegedly granted to the respondent by Roberto Z.
Laforteza (assisted by his counsel Attorney Romeo
Gutierrez) was correctly found by the Court of Appeals to be
ineffective inasmuch as the signature of Gonzalo Z.
Laforteza did not appear thereon as required by the Special
Powers of Attorney. 23 However, the evidence reveals that
after the expiration of the six-month period provided for in
the contract, the petitioners were not ready to comply with
what was incumbent upon them, i.e. the delivery of the
reconstituted title of the house and lot. It was only on
September 18, 1989 or nearly eight months after the
execution of the Memorandum of Agreement when the
petitioners informed the respondent that they already had a
copy of the reconstituted title and demanded the payment of
the balance of the purchase price. The respondent could not
therefore be considered in delay for in reciprocal
obligations, neither party incurs in delay if the other party
does not comply or is not ready to comply in a proper
manner with what was incumbent upon him. 24
Even assuming for the sake of argument that the petitioners
were ready to comply with their obligation, we find that
rescission of the contract will still not prosper. The
rescission of a sale of an immovable property is specifically
governed by Article 1592 of the New Civil Code, which
reads:
“In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract
has been made upon him either judicially or by a notarial
act. After the demand, the court may not grant him a new
term. 25
42
It is not disputed that the petitioners did not make a judicial award of moral damages is in accordance with Article
or notarial demand for rescission.1avvphi1 The November 1191 31 of the Civil Code pursuant to Article 2220 which
20, 1989 letter of the petitioners informing the respondent provides that moral damages may be awarded in case of
of the automatic rescission of the agreement did not amount breach of contract where the defendant acted in bad faith.
to a demand for rescission, as it was not notarized. 26 It was The amount awarded depends on the discretion of the court
also made five days after the respondent's attempt to make based on the circumstances of each
the payment of the purchase price. This offer to pay prior to case. 32 Under the circumstances, the award given by the
the demand for rescission is sufficient to defeat the Court of Appeals amounting to P50,000.00 appears to us to
petitioners' right under article 1592 of the Civil be fair and reasonable.”
Code. 27 Besides, the Memorandum Agreement between the
parties did not contain a clause expressly authorizing the ACCORDINGLY, the decision of the Court of Appeals in CA
automatic cancellation of the contract without court G.R. CV No. 47457 is AFFIRMED and the instant petition is
intervention in the event that the terms thereof were hereby DENIED.
violated. A seller cannot unilaterally and extrajudicially
rescind a contract or sale where there is no express
stipulation authorizing him to extrajudicially No pronouncement as to costs.
rescind. 28 Neither was there a judicial demand for the
rescission thereof. Thus, when the respondent filed his SO ORDERED.
complaint for specific performance, the agreement was still
in force inasmuch as the contract was not yet rescinded. At
any rate, considering that the six-month period was merely
an approximation of the time if would take to reconstitute
the lost title and was not a condition imposed on the
perfection of the contract and considering further that the
delay in payment was only thirty days which was caused by
the respondents justified but mistaken belief that an
extension to pay was granted to him, we agree with the
Court of Appeals that the delay of one month in payment
was a mere casual breach that would not entitle the
respondents to rescind the contract. Rescission of a contract
will not be permitted for a slight or casual breach, but only
such substantial and fundamental breach as would defeat
the very object of the parties in making the agreemant. 29
Petitioners' insistence that the respondent should have
consignated the amount is not determinative of whether
respondent's action for specific performance will lie.
Petitioners themselves point out that the effect of
cansignation is to extinguish the obligation. It releases the
debtor from responsibility therefor. 30 The failure of the
respondent to consignate the P600,000.00 is not
tantamount to a breach of the contract for by the fact of
tendering payment, he was willing and able to comply with
his obligation.
“The Court of Appeals correctly found the petitioners guilty
of bad faith and awarded moral damages to the respondent.
As found by the said Court, the petitioners refused to
comply with, their obligation for the reason that they were
offered a higher price therefor and the respondent was even
offered P100,000.00 by the petitioners' lawyer, Attorney
Gutierrez, to relinquish his rights over the property. The