EN BANC

[G.R. No. 109125. December 2, 1994.]

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs. THE

HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.

DECISION

VITUG, J :p

Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04
December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and
effect the orders of execution of the trial court, dated 30 August 1991 and 27 September
1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
"On July 29, 1987 a Second Amended Complaint for Specific Performance was
filed by Ann Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu
Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case
No. 87-41058, alleging, among others, that plaintiffs are tenants or
lessees of residential and commercial spaces owned by defendants described as Nos.
630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since
1935 and have been religiously paying the rental and complying with all the
conditions of the lease contract; that on several occasions before October 9, 1986,
defendants informed plaintiffs that they are offering to sell the premises and are giving
them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng
offered a price of P6-million while plaintiffs made a counter offer of P5-million; that
plaintiffs thereafter asked the defendants to put their offer in writing to which request
defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October
24, 1986 asking that they specify the terms and conditions of the offer to sell; that when
plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with
the same request; that since defendants failed to specify the terms and conditions of the
offer to sell and because of information received that defendants were about to sell the
property, plaintiffs were compelled to file the complaint to compel defendants to sell the
property to them.
"Defendants filed their answer denying the material allegations of the complaint
and interposing a special defense of lack of cause of action.
"After the issues were joined, defendants filed a motion for summary judgment
which was granted by the lower court. The trial court found that defendants' offer to sell
was never accepted by the plaintiffs for the reason that the parties did not agree upon
the terms and conditions of the proposed sale, hence, there was no contract of sale at
all. Nonetheless, the lowercourt ruled that should the defendants subsequently offer
their property for sale at a price of P11-million or below, plaintiffs will have the
right of first refusal. Thus the dispositive portion ofthe decision states:
"'WHEREFORE, judgment is hereby rendered in favor of the defendants
and against the plaintiffs summarily dismissing the complaint subject to the
aforementioned condition that if the defendants subsequently decide to offer their
property for sale for a purchase price of Eleven Million Pesos or lower, then the
plaintiffs has the option to purchase the property or of first refusal, otherwise,
defendants need not offer the property to the plaintiffs if the purchase price is
higher than Eleven Million Pesos.
"'SO ORDERED.'
"Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No.
21123. In a decision promulgated on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando
A. Santiago), this Court affirmed with modification the lower court's judgment, holding:
"'In resume, there was no meeting of the minds between the parties
concerning the sale of the property. Absent such requirement, the claim for
specific performance will not lie. Appellants' demand for actual, moral and
exemplary damages will likewise fail as there exists no justifiable ground for its
award. Summary judgment for defendants was properly granted. Courts may
render summary judgment when there is no genuine issue as to any material fact
and the moving party is entitled to a judgment as a matter of law
(Garcia vs.Court of Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.
'WHEREFORE, finding the appeal unmeritorious, the judgment appealed
from is hereby AFFIRMED, but subject to the following modification: The court a
quo in the aforestated decision gave the plaintiffs-appellants the right of first
refusal only if the property is sold for a purchase price of Eleven Million pesos or
lower; however, considering the mercurial and uncertain forces in our market
economy today. We find no reason not to grant the same right of first refusal to
herein appellants in the event that the subject property is sold for a price in
excess of Eleven Million pesos. No pronouncement as to costs.
'SO ORDERED.'
"The decision of this Court was brought to the Supreme Court by petition for
review on certiorari. The Supreme Court denied the appeal on May 6, 1991 'for
insufficiency in form and substances' (Annex H, Petition).
"On November 15, 1990, while CA-G.R. CV No. 21123 was pending
consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex
D, Petition) transferring the property in question to herein petitioner Buen Realty and
Development Corporation, subject to the following terms and conditions:
"'1. That for and in consideration of the sum of FIFTEEN MILLION
PESOS (P15,000,000.00), receipt of which in full is hereby acknowledged, the
VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE,
his heirs, executors, administrators or assigns, the above-described property
with all the improvements found therein including all the rights and interest in the
said property free from all liens and encumbrances of whatever nature, except
the pending ejectment proceeding;
 '2. That the VENDEE shall pay the Documentary Stamp Tax, registration
fees for the transfer of title in his favor and other expenses incidental to the
sale of above-described property including capital gains tax and accrued real
estate taxes.'
"As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu
Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the
name of petitioner on December 3, 1990.
"On July 1, 1991, petitioner as the new owner of the subject property wrote a
letter to the lessees demanding that the latter vacate the premises.
"On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner
brought the property subject to the notice of lis pendens regarding Civil Case No. 87-
41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
"The lessees filed a Motion for Execution dated August 27, 1991 of the Decision
in Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No.
21123.
"On August 30, 1991, respondent Judge issued an order (Annex A, Petition)
quoted as follows:
"'Presented before the Court is a Motion for Execution filed by plaintiff
represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and
Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno
respectively were duly notified in today's consideration of the motion as
evidenced by the rubber stamp and signatures upon the copy of the Motion for
Execution.
'The gist of the motion is that the Decision of the Court dated September
21, 1990 as modified by the Court of Appeals in its decision in CA G.R. CV-
21123, and elevated to the Supreme Court upon the petition for review and that
the same was denied by the highest tribunal in its resolution dated May 6, 1991
in G.R. No. L-97276, had now become final and executory. As a consequence,
there was an Entry of Judgment by the Supreme Court as of June 6, 1991,
stating that the aforesaid modified decision had already become final and
executory.
'It is the observation of the Court that this property in dispute was the
subject of the Notice of Lis Pendens and that the modified
decision of this Court promulgated by the Courtof Appeals which had become
final to the effect that should the defendants decide to offer the property for sale
for a price of P11 Million or lower, and considering the mercurial and uncertain
forces in our market economy today, the same right of first refusal to herein
plaintiffs/appellants in the event that the subject property is sold for a price in
excess of Eleven Million pesos or more.
'WHEREFORE, defendants are hereby ordered to execute the necessary
Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion,
Keh Tiong and Arthur Go for the consideration of P15 Million pesos in
recognition of plaintiffs' right of first refusal and that a new Transfer
Certificate of Title be issued in favor of the buyer.
 'All previous transactions involving the same property notwithstanding the
issuance of another title to Buen Realty Corporation, is hereby set aside as
having been executed in bad faith.
'SO ORDERED.'
"On September 22, 1991 respondent Judge issue another order, the dispositive
portion of which reads:
"'WHEREFORE, let there be Writ of Execution issue in the above-entitled
case directing the Deputy Sheriff Ramon Enriquez of this Court to implement
said Writ of Execution ordering the defendants among others to comply with the
aforesaid Order of this Court within a period of one (1) week from receipt of this
Order and for defendants to execute the necessary Deed of Sale of the property
in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go
for the consideration of P15,000,000.00 and ordering the
Registerof Deeds of the City of Manila, to cancel and set aside the title already
issued in favor of Buen Realty Corporation which was previously executed
between the latter and defendants and to register the new title in favor of the
aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
'SO ORDERED.'
"On the same day, September 27, 1991 the corresponding writ of execution
(Annex C, Petition) was issued". 1
On 04 December 1991, the appellate court, on appeal to it by private respondent,
set aside and declared without force and effect the above questioned orders of the court a
quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be
held bound by the writ of execution by virtue of the notice of lis pendens, carried over on
TCT No. 195816 issued in the name of Buen Realty, at the time of the latter's
purchase of the property on 15 November 1991 from the Cu Unjiengs. prcd

We affirm the decision of the appellate court.

A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to sell. For
ready reference, we might point out some fundamental precepts that may find some
relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil
Code). The obligation is constituted upon the concurrence of the essential elements
thereof, viz: (a) Thevinculum juris or juridical tie which is the efficient cause established by
the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-
delicts); (b) the object which is the prestation or conduct; required to be observed (to give,
to do or not to do); and (c) the subject-persons who, viewed from the demandability of the
obligation, are the active (obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a
meeting of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service (Art. 1305, Civil Code). A contract
undergoes various stages that include its negotiation or preparation, its perfection and,
finally, its consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is concluded
(perfected). Theperfection of the contract takes place upon the concurrence of the
essential elements thereof. A contract which is consensual as to perfection is so
established upon a mere meeting ofminds, i.e., the concurrence of offer and acceptance,
on the object and on the cause thereof. A contract which requires, in addition to the above,
the delivery of the object of the agreement, as in a pledge or commodatum, is commonly
referred to as a real contract. In a solemn contract, compliance with certain formalities
prescribed by law, such as in a donationof real property, is essential in order to make
the act valid, the prescribed form being thereby an essential element thereof. The
stage of consummation begins when the parties perform their respective undertakings
under the contract culminating in the extinguishment thereof. cdrep

Until the contract is perfected, it cannot, as an independent source of obligation,

serve as a binding juridical relation. In sales, particularly, to which the topic for discussion
about the case at bench belongs, the contract is perfected when a person, called the
seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing
or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil
Code provides:
"Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
"A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where
invariably the ownership of the thing sold is retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the purchase price), the breach of the
condition will prevent the obligation to convey title from acquiring an obligatory
force. 2 In Dignos vs. Courtof Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is
devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated,
e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon
actual or constructive delivery (e.g., by the execution of a public document) of the property
sold. Where the condition is imposed upon the perfection of the contract itself, the
failure of the condition would prevent such perfection.3 If the condition is imposed on the
obligation of a party which is not fulfilled, the other party may either waive the condition or
refuse to proceed with the sale (Art. 1545, Civil Code). 4
An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and compliance
therewith may accordingly be exacted. 5
An accepted unilateral promise which specifies the thing to be sold and the price to
be paid, when coupled with a valuable consideration distinct and separate from the price,
is what may properly be termed a perfected contract of option. This contract is legally
binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil
Code, viz:
"ART. 1479. . . . .
"An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price. (1451a) 6
Observe, however, that the option is not the contract of sale itself.7 The optionee has the
right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is
accepted before a breach of the option, a bilateral promise to sell and to buy ensues and
both parties are then reciprocally bound to comply with their respective undertakings. 8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer. Public advertisements or solicitations and the like
are ordinarily construed as mere invitations to make offers or only as proposals. These
relations, until a contract is perfected, are not considered binding commitments. Thus, at
any time prior to the perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing and not necessarily when the
offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given
to the offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the
offeror is still free and has the right to withdrawal the offer before its acceptance, or, if an
acceptance has been made, before the offeror's coming to know of such fact, by
communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins,
Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral
promise to sell under Art. 1479, modifying the previous decision in South Western
Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural
Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA
368). The right to withdraw, however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which
ordains that "every person must, in the exercise of his rights and in the performance of his
duties, act with justice, give everyone his due, and observe honesty and good faith." LLjur

(2) If the period has a separate consideration, a contract of "option" is

deemed perfected, and it would be a breach of that contract to withdraw the offer during
the agreed period. The option, however, is an independent contract by itself, and it is to be
distinguished from the projected main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-offeror withdraws the offer before its
acceptance (exercise of the option) by the optionee-offeree, the latter may not sue
for specific performance on the proposed contract ("object" of the option) since it has failed
to reach its own stage of perfection. The optioner-offeror, however, renders himself liable
for damages for breach of the option. In these cases, care should be taken of the real
nature of the consideration given, for if, in fact, it has been intended to be part of the
consideration for the main contract with a right of withdrawal on the part of the optionee,
the main contract could be deemed perfected; a similar instance would be an "earnest
money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale under
Article 1458 ofthe Civil Code. Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the
same Code. An option or an offer would require, among other things, 10 a clear certainty
on both the object and the cause or consideration of the envisioned contract. In a
right of first refusal, while the object might be made determinate, the exercise of the right,
however, would be dependent not only on the grantor's eventual intention to enter into a
binding juridical relation with another but also on terms, including the price, that obviously
are yet to be later firmed up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations governed not by contracts (since the
essential elements to establish the vinculum juris would still be indefinite and inconclusive)
but by, among other laws of general application, the pertinent scattered provisions of the
Civil Code on human conduct. LexLib

Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a
writ of execution under a judgment that merely recognizes its existence, nor would it
sanction an action for specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts. 11 It is not to say, however, that the
right of first refusal would be inconsequential for, such as already intimated above, an
unjustified disregard thereof, given, for instance, the circumstances expressed in Article
19 12 of the Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners. The consequence of such a
declaration entails no more than what has heretofore been said. In fine, if, as it is here so
conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the
right of first refusal, the remedy is not a writ of execution on the judgment, since there is
none to execute, but an action for damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development Corporation,
the alleged purchaser of the property, has acted in good faith or bad faith and whether or
not it should, in any case, be considered bound to respect the registration of the lis
pendens in Civil Case No. 87-41058 are matters that must be independently addressed in
appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-
41058, cannot be held subject to the writ of execution issued by respondent Judge, let
alone ousted from the ownership and possession of the property, without first being duly
afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in
holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-
41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has
observed: Cdpr

"Finally, the questioned writ of execution is in variance with the decision of the
trial court as modified by this Court. As already stated, there was nothing in said
decision 13 that decreed the execution of a deed of sale between the Cu Unjiengs and
respondent lessees, or the fixing of the price of the sale, or the cancellation of title in
the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng
Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA,
122 SCRA 885)."
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not
have decreed at the time the execution of any deed of sale between the Cu Unjiengs and
petitioners.
 WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a quo.
Costs against petitioners.
SO ORDERED.
||| (Asuncion v. Court of Appeals, G.R. No. 109125, [December 2, 1994], 308 PHIL 624-638)
 FIRST DIVISION

[G.R. No. 135394. April 29, 2003.]

JOSE V. DELA RAMA, petitioner, vs. HON. FRANCISCO G. MENDIOLA,

Judge, RTC Pasay City, THE COURT OF APPEALS and TITAN
CONSTRUCTION CORP., respondents.

Jose V. Dela Rama and Ceferino Padua Law Office for petitioner.
M.A. Aguinaldo & Associates and Angelito B. Bulao for respondents.

SYNOPSIS

Petitioner sold to the government on expropriation a parcel of land for use in the
construction of the EDSA Extension Project. The sale was subject to the reconveyance to
petitioner of any unused portion of the property after the project is completed. A few months
thereafter, petitioner entered into a "Contract to Sell," whereby he undertook to sell to
respondent Titan Construction Corporation a parcel of land adjacent to the one expropriated.
Petitioner failed to comply with his obligations under the "Contract to Sell"; thus respondent
filed a complaint for rescission/annulment of contract with the Regional Trial Court of Pasay
City. The parties entered into a compromise agreement, and pursuant to the compromise
judgment, petitioner executed a deed of absolute sale of the subject property in favor of
respondent. Meanwhile, petitioner sought the reconveyance of the unused portion of the
property from the government. The Office of the President executed the corresponding Deed
of Reconveyance in favor of petitioner over 303 square meters of unused land. Respondent
filed with the Regional Trial Court of Pasay City a Petition for Declaratory Relief,
Prohibition, Mandamus and Preliminary Injunction with Prayer for Restraining Order. The trial
court dismissed the case. Thus, respondent instituted a petition for certiorari before the Court
which, however, was referred to the Court of Appeals. Respondent then filed an action for
specific performance based on the compromise judgment with the Regional Trial Court of
Pasay City. Petitioner also filed with the Court of Appeals, in CA-G.R. SP No. 44094, a Motion
for Direct Contempt and to Dismiss based on Forum Shopping. He also filed a similar motion
with the Regional Trial Court of Pasay City in Civil Case No. 97-0734. Respondent, however,
filed a motion to withdraw the petition in CA-G.R. SP No. 44094, which the Court of Appeals
granted. Thus, the case was dismissed with finality. Meanwhile, the Regional Trial Court of
Pasay City denied the motion to dismiss and for direct contempt based on forum shopping filed
by petitioner. Petitioner filed a motion for reconsideration, which was denied. Hence, the
present petition.
The Supreme Court granted the petition. The Court ruled that the elements of res
judicata are present in the case at bar. According to the Court, while the first case was a special
civil action for declaratory relief and the second case was a civil action for specific performance,
the difference in form and nature of the two actions is immaterial because the philosophy behind
the rule on res judicata prohibits the parties from litigating the same issue more than once. The
issue involved in the declaratory relief case was whether respondent has rights over the
property which was reconveyed to petitioner considering that he waived all his rights by
executing the Agreement to Sell and Buy. In the specific performance case, the issue involved
was the same, that is, whether respondent was entitled to the property reconveyed when the
petitioner failed to comply with the terms of their agreement embodied in the same Agreement
to Sell and Buy. Respondent's alleged right in both cases depends on one and the same
instrument, the Agreement. The Court further ruled that assuming that res judicata finds no
application in the case, the action for specific performance must nonetheless be dismissed
because the Agreement to Sell and Buy, being one of the prestations of the compromise
agreement which was judicially confirmed, and had long become final and executory, can no
longer be enforced in a separate action. DAaIHT

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; EFFECT OF JUDGMENTS AND FINAL

ORDERS; RES JUDICATA; ELEMENTS; PRESENT IN CASE AT BAR. — There is res
judicata where the following four essential conditions concur, viz: (1) there must be a final
judgment or order; (2) the court rendering it must have jurisdiction over the subject matter and
the parties; (3) it must be a judgment or order on the merits; and (4) there must be, between
the two cases, identity of parties, subject matter and causes of action. Reviewing the records
of the case, there is no question that all the first three elements of res judicata are present. The
declaratory relief case, which was elevated by way of a petition for certiorari to the Court of
Appeals, has been dismissed with finality. The decision was rendered by a court of competent
jurisdiction and the case was resolved on its merits. As regards the fourth condition, it is clear
that there is identity of parties in the two cases. The declaratory relief case was filed by
respondent Titan against Executive Secretary Ruben D. Torres, DPWH Secretary Gregorio R.
Vigilar, the Register of Deed of Pasay City, petitioner Jose V. Dela Rama and Esperanza
Belmonte (deceased). On the other hand, the specific performance case was filed by
respondent Titan against petitioner Dela Rama and the heirs of Esperanza Belmonte. Although
the public respondents in the declaratory relief case were not impleaded in the specific
performance case, only a substantial identity is necessary to warrant the application of res
judicata. The addition or elimination of some parties does not alter the situation.
2. ID.; ID.; ID.; ID.; THE SUBJECT MATTER AND CAUSES OF ACTION OF THE TWO
CASES ARE IDENTICAL. — The subject matters and causes of action of the two cases are
likewise identical. A subject matter is the item with respect to which the controversy has arisen,
or concerning which the wrong has been done, and it is ordinarily the right, the thing, or the
contract under dispute. In the case at bar, both the first and second actions involve the same
real property. A cause of action, broadly defined, is an act or omission of one party in violation
of the legal right of the other. Its elements are the following: (1) the legal right of plaintiff; (2) the
correlative obligation of the defendant, and (3) the act or omission of the defendant in violation
of said legal right. Causes of action are identical when there is an identity in the facts essential
to the maintenance of the two actions, or where the same evidence will sustain both actions. If
the same facts or evidence can sustain either, the two actions are considered the same, so that
the judgment in one is a bar to the other. It is true that the first case was a special civil action
for declaratory relief while the second case was a civil action for specific performance. However,
the difference in form and nature of the two actions is immaterial. The philosophy behind the
rule on res judicata prohibits the parties from litigating the same issue more than once. The
issue involved in the declaratory relief case was whether respondent has rights over the
property which was reconveyed to petitioner considering that he waived all his rights by
executing the Agreement to Sell and Buy. In the specific performance case, the issue involved
was the same, that is, whether respondent was entitled to the property reconveyed when the
petitioner failed to comply with the terms of their agreement embodied in the same Agreement
to Sell and Buy. Respondent's alleged right in both cases depends on one and the same
instrument, the Agreement to Sell and Buy. Clearly, respondent's ultimate objective in instituting
the two actions was to have the property reconveyed in its favor. IHCESD

3. ID.; ID.; ID.; ID.; ASSUMING RES JUDICATA FINDS NO APPLICATION IN THE
INSTANT CASE, THE ACTION FOR SPECIFIC PERFORMANCE MUST NONETHELESS BE
DISMISSED; THE AGREEMENT TO SELL AND BUY, BEING ONE OF THE PRESTATIONS
OF THE COMPROMISE AGREEMENT WHICH WAS JUDICIALLY CONFIRMED AND HAD
LONG BECOME FINAL AND EXECUTORY, CANNOT BE ENFORCED IN A SEPARATE
ACTION. — When material facts or questions in issue in a former action were conclusively
settled by a judgment rendered therein, such facts or questions constitute res judicata and may
not be again litigated in a subsequent action between the same parties or their privies
regardless of the form of the latter. This is the essence of res judicata or bar by prior judgment.
The parties are bound not only as regards every matter offered and received to sustain or defeat
their claims or demand but as to any other admissible matter which might have been offered
for that purpose and of all other matters that could have been adjudged in that case.
Assuming res judicata finds no application in the instant case, the action for specific
performance must nonetheless be dismissed. The Agreement to Sell and Buy, being one of the
prestations of the compromise agreement which was judicially confirmed and had long become
final and executory, cannot be enforced in a separate action. The principle of res
judicata requires that stability be accorded to judgments. Controversies once decided on the
merits shall remain in repose for there should be an end to litigation which, without the doctrine,
would be endless. Given the circumstances in this case, we find that the trial court committed
grave abuse of discretion when it denied the motion to dismiss filed by petitioners.

DECISION

YNARES-SANTIAGO, J : p

This is a petition for certiorari under Rule 65 of the Revised Rules of Court assailing the
orders 1 of the Regional Trial Court of Pasay City, Branch 115, in Civil Case No. 97-0734 which
denied petitioner's Motion to Dismiss and Motion For Direct Contempt based on Forum
Shopping, as well as his Motion for Reconsideration.
On December 1, 1978, petitioner sold to the government on expropriation a parcel of land
consisting of 1,225 square meters, which was part of Lot 831-A, covered by Transfer Certificate
of Title No. 22066, for use in the construction of the EDSA Extension Project. The sale was
subject to the reconveyance to petitioner of any unused portion of the property after the project
is completed. 2
On June 17, 1988, petitioner entered into a "Contract to Sell," whereby he undertook to
sell to respondent Titan Construction Corporation a parcel of land adjacent to the one
expropriated. 3 Subsequently, petitioner failed to comply with his obligations under the
"Contract to Sell"; thus respondent filed a complaint for rescission/annulment of contract with
the Regional Trial Court of Pasay City, Branch 116, which was docketed as Civil Case No.
6020. The parties entered into a compromise agreement and, on May 19, 1989, the trial court
rendered judgment approving the parties' compromise agreement. The pertinent portion of the
judgment reads:
1. That the parties shall execute a deed of absolute sale over the subject property,
including the improvements thereon in the total amount of TWO MILLION FIVE
HUNDRED THOUSAND PESOS (P2,500,000.00);
2. That relative to the parcel of land sold to the government, a separate agreement is
likewise to be executed by the parties;
3. That Atty. and Mrs. Dela Rama will be given a period of 60 days from the signing of
this document to fully vacate the premises sold;
4. That failure on their part to vacate within the said period, an ex-parte ejectment writ
of execution shall issue;
5. That the written agreement relative to the lease of houses in said premises shall be
respected. 4
Pursuant to the compromise judgment, petitioner executed a deed of absolute sale of the
subject property in favor of respondent. Likewise, he executed an Agreement to Sell and Buy,
stating among others:
1. That in the event the Republic of the Philippines will return to the vendors (Jose
Dela Rama and Esperanza Belmonte) the area sold which is 1,224 sq. ms. or
any portion therein, the Vendee (Titan Construction Corporation) is given the
exclusive option to buy any area returned at P2,000.00 per square meter.
2. That in consideration of said exclusive option granted to the said Vendee by the
Vendors, the Vendee upon registration of this instrument at the back of T.C.T.
No. 22066 shall pay P200,000.00 to the Vendors. 5
After the execution of the Agreement to Sell and Buy, respondent paid petitioner the
amount of P200,000.00, for which the latter issued a receipt which contained the inscription:
"amount is not refundable & not deductible from the agreed price." 6
Meanwhile, petitioner sought the reconveyance of the unused portion of the property
from the government. On December 4, 1996, the Office of the President executed the
corresponding Deed of Reconveyance in favor of petitioner over 303 square meters of unused
land. 7
On January 3, 1997, respondent filed with the Regional Trial Court of Pasay City, Branch
110, a Petition for Declaratory Relief, Prohibition, Mandamus and Preliminary Injunction with
Prayer for Restraining Order, 8 which was docketed as Civil Case No. 97-1275. It prayed that
the Deed of Reconveyance be declared void on the grounds that the same violated its right of
preemption under Article 1622 of the Civil Code; and that no public bidding was conducted,
resulting in a denial of respondent's right to bid considering that petitioners had waived any and
all rights over the land by virtue of their Deed of Agreement to Sell and Buy. Respondent also
prayed that the Office of the President be ordered to give due course to its application to
purchase the subject land. The trial court dismissed the case for lack of merit on March 5,
1997. 9 Thus, respondent instituted a petition for certiorari before this Court on March 24, 1997
which, however, was referred to the Court of Appeals, where it was docketed as CA-G.R. SP
No. 44094. 10
On June 4, 1997, respondent filed an action for specific performance based on the
compromise judgment with the Regional Trial Court of Pasay City, which was docketed as Civil
Case No. 97-0734. 11 Petitioner thus filed with the Court of Appeals, in CA-G.R. SP No. 44094,
a Motion for Direct Contempt and to Dismiss based on Forum Shopping. 12 He also filed a
similar motion with the Regional Trial Court of Pasay City in Civil Case No. 97-0734. 13
On July 18, 1997, respondent filed a motion to withdraw the petition in CA-G.R. SP No.
44094, 14 which the Court of Appeals, in its Resolution dated December 10, 1997, granted.
Thus, the case was dismissed with finality. 15
Meanwhile, the Regional Trial Court of Pasay City denied the motion to dismiss and for
direct contempt based on forum shopping filed by petitioner. It held that the alleged violation
ofSupreme Court Circular No. 04-94 was cured when CA-G.R. SP No. 44094 was dismissed
by the Court of Appeals. Moreover, petitioner failed to show that the two cases have the same
causes of action. 16 Petitioner filed a motion for reconsideration, which was denied. 17
Hence the instant petition based on the sole assigned error:
THE RESPONDENT COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN
NOT RESOLVING PETITIONER'S MOTION TO DISMISS AND FOR DIRECT
CONTEMPT BASED ON FORUM SHOPPING AND, BY REASON OF THAT SERIOUS
ABUSE OF DISCRETION, IT SANCTIONED THE CONTINUANCE OF SAID ACTION
BEFORE THE RESPONDENT RTC WHICH ITSELF GRAVELY AND SERIOUSLY
ABUSED ITS DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN REFUSING TO DISMISS THE CASE BASED ON AUTER ACTION
PENDANT AND RES JUDICATA, AND TO PUNISH FOR DIRECT CONTEMPT THE
PRIVATE RESPONDENT AND ITS LAWYERS BASED ON FORUM SHOPPING. 18
The decisive issue posed by petitioner is whether or not the specific performance case
(Civil Case No. 97-0734) is barred by the petition for declaratory relief case (Civil Case No. 96-
1725 and CA-G.R. SP No. 44094) on the ground of res judicata.
There is res judicata where the following four essential conditions concur, viz: (1) there
must be a final judgment or order; (2) the court rendering it must have jurisdiction over the
subject matter and the parties; (3) it must be a judgment or order on the merits; and (4) there
must be, between the two cases, identity of parties, subject matter and causes of action. 19
Reviewing the records of the case, there is no question that all the first three elements
of res judicata are present. The declaratory relief case, which was elevated by way of a petition
for certiorari to the Court of Appeals, has been dismissed with finality. The decision was
rendered by a court of competent jurisdiction and the case was resolved on its merits.
As regards the fourth condition, it is clear that there is identity of parties in the two cases.
The declaratory relief case was filed by respondent Titan against Executive Secretary Ruben
D. Torres, DPWH Secretary Gregorio R. Vigilar, the Register of Deed of Pasay City, petitioner
Jose V. Dela Rama and Esperanza Belmonte (deceased). On the other hand, the specific
performance case was filed by respondent Titan against petitioner Dela Rama and the heirs of
Esperanza Belmonte. Although the public respondents in the declaratory relief case were not
impleaded in the specific performance case, only a substantial identity is necessary to warrant
the application of res judicata. 20 The addition or elimination of some parties does not alter the
situation. 21
The subject matters and causes of action of the two cases are likewise identical. A
subject matter is the item with respect to which the controversy has arisen, or concerning which
the wrong has been done, and it is ordinarily the right, the thing, or the contract under dispute.
In the case at bar, both the first and second actions involve the same real property. A cause of
action, broadly defined, is an act or omission of one party in violation of the legal right of the
other. 22 Its elements are the following: (1) the legal right of plaintiff; (2) the correlative obligation
of the defendant, and (3) the act or omission of the defendant in violation of said legal
right. 23 Causes of action are identical when there is an identity in the facts essential to the
maintenance of the two actions, or where the same evidence will sustain both actions. If the
same facts or evidence can sustain either, the two actions are considered the same, so that
the judgment in one is a bar to the other. 24
It is true that the first case was a special civil action for declaratory relief while the second
case was a civil action for specific performance. However, the difference in form and nature of
the two actions is immaterial. The philosophy behind the rule on res judicata prohibits the
parties from litigating the same issue more than once. 25 The issue involved in the declaratory
relief case was whether respondent has rights over the property which was reconveyed to
petitioner considering that he waived all his rights by executing the Agreement to Sell and Buy.
In the specific performance case, the issue involved was the same, that is, whether respondent
was entitled to the property reconveyed when the petitioner failed to comply with the terms of
their agreement embodied in the same Agreement to Sell and Buy. Respondent's alleged right
in both cases depends on one and the same instrument, the Agreement to Sell and Buy.
Clearly, respondent's ultimate objective in instituting the two actions was to have the property
reconveyed in its favor.
When material facts or questions in issue in a former action were conclusively settled by
a judgment rendered therein, such facts or questions constitute res judicata and may not be
again litigated in a subsequent action between the same parties or their privies regardless of
the form of the latter. This is the essence of res judicata or bar by prior judgment. The parties
are bound not only as regards every matter offered and received to sustain or defeat their
claims or demand but as to any other admissible matter which might have been offered for that
purpose and of all other matters that could have been adjudged in that case. 26
Assuming res judicata finds no application in the instant case, the action for specific
performance must nonetheless be dismissed. The Agreement to Sell and Buy, being one of the
prestations of the compromise agreement which was judicially confirmed and had long become
final and executory, cannot be enforced in a separate action. In the case of Jose Dela Rama v.
Hon. Aurora P. Navarrete-Recina, 27 where petitioner assailed the validity of the Deed of
Absolute Sale executed pursuant to the compromise agreement, we held that:
Moreover, the Deed of Absolute Sale being impugned by the petitioners is but
an offshoot of the compromise agreement entered into, with judicial confirmation, by the
parties themselves. Thus, as observed by the respondent court, any further prestations
left undone, with regard to the provisions of the compromise judgment, should be the
subject of proceedings on execution, and not a separate action.
In the earlier case of Arkoncel v. Lagamon, 28 we held:
 The rule is that a judgment rendered in accordance with a compromise
agreement is immediately executory unless a motion is filed to set aside the agreement
on the ground of fraud, mistake or duress in which case an appeal may be taken against
the order denying the motion. It then becomes ministerial for the lower court to order
the execution of its final executory judgment.
Even more than a contract which may be enforced by ordinary action for specific
performance, the compromise agreement is part and parcel of the judgment, and may
therefore be enforced as such by a writ of execution.
Finally, when the terms of an amicable settlement are violated, as in the case at
bar, the remedy of the aggrieved party is to move for its execution.
The principle of res judicata requires that stability be accorded to judgments.
Controversies once decided on the merits shall remain in repose for there should be an end to
litigation which, without the doctrine, would be endless. 29 Given the circumstances in this case,
we find that the trial court committed grave abuse of discretion when it denied the motion to
dismiss filed by petitioners.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The Order of the
Regional Trial Court of Pasay City, Branch 115 in Civil Case No. 97-0734, denying petitioner's
"Motion to Dismiss Complaint and For Direct Contempt Based on Forum Shopping," as well as
the Order denying petitioner's "Motion for Reconsideration," are REVERSED and SET ASIDE.
The Regional Trial Court of Pasay City, Branch 115, is ordered to DISMISS Civil Case No. 97-
0734 on the ground of res judicata. Costs against private respondents. IDESTH

SO ORDERED.
||| (Dela Rama v. Mendiola, G.R. No. 135394, [April 29, 2003], 449 PHIL 754-766)
 FIRST DIVISION

[G.R. No. 128349. September 25, 1998.]

BACHRACH CORPORATION, petitioner, vs. THE

HONORABLE COURT OF APPEALS and PHILIPPINE PORTS
AUTHORITY, respondents.

SYLLABUS

1. REMEDIAL LAW; JUDGMENT; RES JUDICATA; ELEMENTS THEREOF CITED. —

There are four (4) essential conditions which must concur in order that res judicata may
effectively apply, viz.: (1) The judgment sought to bar the new action must be final; (2) the
decision must have been rendered by a court having jurisdiction over the subject matter and
the parties; (3) the disposition of the case must be a judgment or order on the merits; and (4)
there must be between the first and second action identity of parties, identity of subject matter,
and identity ofcauses of action.
2. ID., CIVIL PROCEDURE; ACTIONS; CAUSE OF ACTION DISTINGUISHED FROM
SUBJECT MATTER; CASE AT BAR. — A cause of action, broadly defined, is an act or
omission of one party in violation of the legal right of the other. The subject matter, on the other
hand, is the item with respect to which the controversy has arisen, or concerning which the
wrong has been done, and it is ordinarily the right, the thing, or the contract under dispute. In a
breach of contract, the contract violated is the subject matter while the breach thereof by the
obligor is the cause of action. It would appear quite plain then that the RTC did act aptly in
taking cognizance of the specific performance case. In Civil Case No. 138838 of the MeTC, the
unlawful detainer case, the subject matter is the contract of lease between the parties while the
breach thereof, arising from petitioner's non-payment of rentals, constitutes the suit's
cause of action. In Civil Case No. 73399 of the RTC, the specific performance case, the subject
matter is the compromise agreement allegedly perfected between the same parties while the
cause of action emanates from the averred refusal of PPA to comply therewith. The ultimate
test in ascertaining the identity of causes of action is said to be to look into whether or not the
same evidence fully supports and establishes both the present cause of action and the former
cause of action, In the affirmative, the former judgment would be a bar; if otherwise, then that
prior judgment would not serve as such a bar to the second. The evidence needed to establish
the cause of action in the unlawful detainer case would be the lease contract and the
violation of that lease byBachrach. In the specific performance case, what would be
consequential is evidence of the alleged compromise agreement and its breach by PPA.
3. ID.; ID.; FINAL JUDGMENT; EXECUTION OF; A MINISTERIAL
DUTY OF THE COURT WHICH CANNOT BE INTERFERED BY INJUNCTION; EXCEPTION,
CITED CASE AT BAR. — The rule indeed is, and has almost invariably been, that after a
judgment has gained finality, it becomes the ministerial duty of the court to order its execution.
No court, perforce, should interfere by injunction or otherwise to restrain such execution. The
rule, however, concededly admits of exception; hence, when facts and circumstances later
transpire that would render execution inequitable or unjust, the interested party may ask a
competent court to stay its execution or prevent its enforcement. So, also, a change in the
situation of the parties can warrant an injunctive relief. Evidently, in issuing its orders of 13 July
1995 and 29 August 1995 assailed by PPA in the latter's petition for certiorari and prohibition
before the Court of Appeals, the trialcourt in the case at bar would want to preserve status
quo pending its disposition of the specific performance case and to prevent the case from being
mooted by an early implementationof the ejectment writ. In holding differently and ascribing to
the trial court grave abuse of discretion amounting to lack or excess of jurisdiction, the
appellate court, in our considered view, has committed reversible error. DSHTaC

DECISION

VITUG, J :p

Bachrach Corporation ("Bachrach"), in its petition for review on certiorari, questions the
decision of the Court of Appeals in CA-G.R. SP No. 38763, promulgated on 12 November
1996, the dispositive part of which reading —
"WHEREFORE, the petition is granted. The assailed RTC orders are hereby
NULLIFIED and SET ASIDE and public respondent is ordered to dismiss the subject
action before him under Civil Case No. 95-73399. No pronouncement as to costs." 1
on several counts; viz:
"I. THE COURT OF APPEALS GRAVELY ERRED IN NOT DISMISSING CA-G.R. SP
NO. 38673 DESPITE THE FACT THAT A SIMILAR PETITION EARLIER FILED
BY PPA WAS DISMISSED FOR BEING INSUFFICIENT NOT ONLY IN FORM
BUT ALSO IN SUBSTANCE WHICH DISMISSAL CONSTITUTES RES
JUDICATA INSOFAR AS THE ISSUES RAISED THEREIN ARE
CONCERNED. scaphoid

"II. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE DECISION
IN THE UNLAWFUL DETAINER CASE CONSTITUTES RES
JUDICATA WHICH BARS THE SPECIFIC PERFORMANCE CASE.
"III. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE
FILING OF THE SPECIFIC PERFORMANCE CASE VIOLATES THE RULE
AGAINST FORUM SHOPPING.
"IV. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE
WRIT OF PRELIMINARY INJUNCTION ISSUED BY THE
TRIAL COURT CONSTITUTES INTERFERENCE WITH ITS JUDGMENT IN
THE UNLAWFUL DETAINER CASE. LLjur

"V. THE COURT OF APPEALS GRAVELY ERRED IN ORDERING THE

DISMISSAL OF CIVIL CASE NO. 95-73399 THEREBY RULING ON THE
MERITS OF THE CASE WHEN IN FACT, THE ONLY ISSUES FOR ITS
RESOLUTION WERE THE PROPRIETY OF THE WRIT OF PRELIMINARY
INJUNCTION ISSUED BY THE TRIAL COURT AND THE DENIAL OF PPA'S
MOTION FOR PRELIMINARY HEARING ON AFFIRMATIVE DEFENSES." 2
It would appear that petitioner corporation entered into two lease contracts with the
Philippine government covering two specified areas, Block 180 and Block 185, located at the
Manila Port Area, then under the control and management of the Director of Lands, for a
term of ninety-nine years each, the first lease to expire on 19 June 2017 and the other on 14
February 2018. During her tenure, President Corazon Aquino issued Executive Order No.
321 transferring the management and administration of the entire Port Area to herein
respondent Philippine Ports Authority ("PPA"). Shortly after its take-over, PPA issued a
Memorandum increasing the rental rates of Bachrach by 1,500%. Bachrach refused to pay the
substantial increased rates demanded by PPA. prLL

On 23 March 1992, PPA initiated unlawful detainer proceedings, docketed Civil Case No.
138838 of the Metropolitan Trial Court ("MeTC") of Manila, against Bachrach for non-
paymentof rent. On 27 April 1993, MeTC rendered a decision ordering the
eviction of Bachrach from the leased premises. Bachrach appealed to the Regional
Trial Court ("RTC") of Manila which, on 21 September 1993, affirmed the decision of the
lower court in toto. 3
Bachrach elevated the case to the Court of Appeals by way of a petition for review. On
29 July 1994, the appellate court affirmed the decision of the RTC. A motion for reconsideration
was filed by Bachrach; however, the resolution of the motion was put on hold pending
submission of a compromise agreement. 4 When the parties failed to submit the promised
compromise agreement, the Court of Appeals, on 15 May 1995, denied Bachrach's motion for
reconsideration. The decision of the appellate court in the ejectment suit became final and
executory on 20 May 1995. 5
Meanwhile on 28 March 1995, while the motion for reconsideration was yet pending with
the appellate court, Bachrach filed a complaint against PPA with the Manila RTC, docketed
Civil Case No. 95-73399 (hereinafter referred to also as the specific performance case), for
refusing to honor a compromise agreement said to have been perfected between Bachrach and
PPA during their 04 February 1994 conference that superseded the ejectment case. In its
complaint, Bachrach prayed for specific performance. LLjur

On 08 June 1995, PPA filed a motion for a writ of execution/garnishment in the ejectment
case. The next day, 09 June 1995, Bachrach filed an application in the specific performance
case for the issuance a temporary restraining order and/or a writ of preliminary injunction to
enjoin the MeTC from issuing the writ of execution/garnishment. PPA countered by filing a
motion for preliminary hearing on its affirmative defenses along the same grounds mentioned
in its motion to dismiss the specific performance case, to wit: (a) the pendency of another action
between the same parties for the same cause; (b) the violation of the anti-forum-shopping rule;
(c) the complaint's lack of cause of action; and (d) the unenforceable character of the
compromise agreement invoked by Bachrach. On 13 July 1995, the trial court issued an
omnibus order, granting the application of Bachrach for a writ of preliminary injunction, in this
tenor —
"PREMISES CONSIDERED, this Court is of the opinion and so holds (1) that
plaintiff (Bachrach) is entitled to the injunctive relief prayed for and upon the posting of a
bond in the amountof P300,000.00, let a writ of preliminary injunction be issued
enjoining the defendant (PPA), the Presiding Judge of the Metropolitan
Trial Court of Manila, Branch 2 from issuing a writ ofexecution/garnishment in Civil
Case No. 238838-CV entitled 'Philippine Ports Authority vs. Bachrach Corporation'; (2)
lifting/setting aside the order dated June 5, 1995 and (3) denying defendant's motion for
a preliminary hearing on affirmative defenses." 6
 PPA moved for reconsideration of the above order but the trial court denied the plea in its
order of 29 August 1995. prcd

On 25 September 1995, PPA filed a petition for certiorari and prohibition, with application
for the issuance of a temporary restraining order and/or writ of preliminary injunction,
docketed CA-G.R. SP No. 38508, before the Court of Appeals. The petition was dismissed by
resolution dated 28 September 1995, of the appellate court for being insufficient in form and
substance, i.e., the failure of PPA to properly attach a certified true copy each of the assailed
order of 13 July 1995 and 29 August 1995 of the trial court. PPA received on 05 October
1995 7 a copy of the resolution, dated 28 September 1995, of the appellate court. Undaunted,
PPA filed 2 new petition on 11 October 1995, now evidently in proper form, asseverating that
since it had received a copy of the assailed resolution of the trial court only on 07 September
1995, the refiling of the petition with the Court of Appeals within a period of less than two
months from the date of such receipt was well within the reasonable time requirement under
the Rules for a special civil action for certiorari. 8 In the meantime, the resolution, dated 28
September 1995,of the Court of Appeals which dismissed CA-G.R No. 38508 became final on
21 October 1955. 9
In its newly filed petition, docketed CA-G.R. SP No. 38673, PPA invoked the following
grounds for its allowance: prLL

"I. That respondent Judge acted without, or in excess of jurisdiction, or with grave
abuse of discretion when it issued a writ of preliminary injunction against the final and
executory resolution of the Honorable Court. of Appeals (Annex 'I') inspite of the well-
established rule that courts are not allowed to interfere with each other's judgment or
decrees by injunction, and worse, in this case, against the execution of the
judgment of a superior or collegiate court which had already become final and
executory.
"II. That respondent Judge acted without, or in excess of jurisdiction, or with
grave abuse of discretion when it also denied petitioner's motion for a preliminary
hearing on its affirmative defenses or in failing to have the case below outrightly
dismissed on the grounds stated in its affirmative defenses, when respondent Judge
pronounced there is no identity as to the causes of action between the case decided by
the Court of Appeals (CA-G.R. SP No. 32630) and the case below (Civil Case No. 95-
73399) when clearly the causes of action in both cases revolve on the same
issue of possession of the subject leased premises. cdrep

"III. That respondent Judge acted without, or in excess of jurisdiction, or with

grave abuse of discretion in refusing to take cognizance (of), abide (by) and
acknowledge the final judgment of the Court of Appeals which, on said ground alone, is
enough justification for the dismissal of the case grounded on res judicata. Moreover
private respondent is guilty of forum-shopping and the penalty therefor is the
dismissal of its case " 10
On 12 November 1996, the Court of Appeals rendered the assailed decision nullifying and
setting aside the orders of the RTC and ordering the latter to dismiss the specific
performance case.
The Court finds merit in the instant appeal interposed by petitioner. LLjur

Verily, the decisive issue raised by the parties before the Court in the instant petition is
whether or not the specific performance case (Civil Case No. 73399) should be held barred by
the unlawful detainer case on the ground of res judicata. There are four (4) essential conditions
which must concur in order that res judicata may effectively apply, viz: (1) The judgment sought
to bar the new action must be final; (2) the decision must have been rendered by a court having
jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a
judgment or order on the merits; and (4) there must be between the first and second action
identity of parties, identity of subject matter, and identity of causes of action." 11 There is no
question about the fact that all the first three elements of res judicata are here extant; it is the
final condition requiring an identity of parties, of subject matter and of causes of action,
particularly the last two, i.e, subject matter and cause of action, that presents a problem.
A cause of action, broadly defined, is an act or omission of one party in violation of the
legal right of the other. 12 The subject matter, on the other hand, is the item with respect to
which the controversy has arisen, or concerning which the wrong has been done, and it is
ordinarily the right, the thing, or the contract under dispute. 13 In a breach of contract, the
contract violated is the subject matter while the breach thereof by the obligor is the
cause of action. It would appear quite plain then that the RTC did act aptly in taking
cognizance of the specific performance case. In Civil Case No. 138838 of the MeTC,
the unlawful detainer case, the subject matter is the contract of lease between the parties while
the breach thereof, arising from petitioner's non-payment of rentals, constitutes the suit's
cause of action. In Civil Case No. 73399 of the RTC, the specific performance case, the subject
matter is the compromise agreement allegedly perfected between the same parties while the
cause of action emanates from the averred refusal of PPA to comply therewith. The ultimate
test in ascertaining the identity of causesof action is said to be to look into whether or not the
same evidence fully supports and establishes both the present cause of action and the former
cause of action. In the affirmative, the former judgment would be a bar; if otherwise, then that
prior judgment would not serve as such a bar to the second 14 The evidence needed to establish
the cause of action in the unlawful detainer case would be the lease contract and the
violation of that lease by Bachrach. In the specific performance case, what would be
consequential is evidence of the alleged compromise agreement and its breach by PPA. prcd

The next thing to ask, of course, would be the question of whether or not the issuance
by the trial court of the writ of preliminary injunction was an improper interference with the
judgment in the unlawful detainer suit. It could be argued that, instead of filing a separate action
for specific performance. Bachrach should just have presented the alleged compromise
agreement in the unlawful detainer case. Unfortunately, the refusal of PPA to honor the
agreement after its alleged perfection effectively prevented Bachrach from seeking the coercive
power of the court to enforce the compromise in the unlawful detainer case. The situation
virtually left Bachrach with but the remedy of independently initiating the specific performance
case in a court of competent jurisdiction. In its challenged decision, the Court of Appeals, on its
part, has said that respondent PPA's prayer for the issuance of a writ of execution and
garnishment is but the necessary and legal consequence of its affirmance of the lower court's
decision in the unlawful detainer case which has by then become final and executory. 15 The
rule indeed is, and has almost invariably been, that after a judgment has gained finality, it
becomes the ministerial duty of the court to order its execution. 16 No court, perforce, should
interfere by injunction or otherwise to restrain such execution. The rule, however, concededly
admits of exceptions; hence, when facts and circumstances later transpire that would render
execution inequitable or unjust, the interested party may ask a competent court to stay its
execution or prevent its enforcement. 17 So, also, a change in the situation of the parties can
warrant an injunctive relief. 18 Evidently, in issuing its orders of 13 July 1995 and 29 August
1995 assailed by PPA in the latter's petition for certiorari and prohibition before
the Court ofAppeals, the trial court in the case at bar would want to preserve status
quo pending its disposition of the specific performance case and to prevent the case from being
mooted by an early implementation of the ejectment writ. In holding differently and ascribing to
the trial court grave abuse of discretion amounting to lack or excess of jurisdiction, the
appellate court, in our. considered view, has committed reversible error.cdasia

Having reached the above conclusions, other incidental issues raised by petitioner no
longer need to be passed upon.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals is
reversed and set aside; Civil Case No. 73399 along with the assailed orders of the Regional
Trial Court, aforedated, are hereby reinstated. No costs.
SO ORDERED.
(Bachrach Corp. v. Court of Appeals, G.R. No. 128349, [September 25, 1998], 357 PHIL
|||

483-493)
 EN BANC

[G.R. No. 4089. January 12, 1909.]

ARTURO PELAYO, plaintiff-appellant, vs. MARCELO LAURON, ET

AL., defendants-appellees.

J. H. Junquera, for appellant.

Filemon Sotto, for appellees.

SYLLABUS

1. RECIPROCAL OBLIGATION OF HUSBAND AND WIFE; SUPPORT. — Among

the reciprocal obligations existing between a husband and wife is that of support, which
obligation is established by law.
2. ID.; SUPPORT OF STRANGERS. — The law does not compel any person to
support a stranger unless such person bound himself to do so by an express contract.
3. ID.; SUPPORT OF WIFE. — Where a husband whom the law compels to support
his wife in living, the father and mother-in-law of the latter are under no liability to provide for
her.

DECISION

TORRES, J : p

On the 23d of November, 1906, Arturo Pelayo, a physician-residing in Cebu, filed a

complaint against Marcelo Lauron and Juana Abella setting forth that on or about the 13th
of October of said year, at night, the plaintiff was called to the house of the defendants,
situated in San Nicolas, and that upon arrival he was requested by them to render medical
assistance to their daughter-in-law who was about to give birth to a child; that therefore,
and after consultation with the attending physician, Dr. Escano, it was found necessary, on
account of the difficult birth, to remove the fetus by means of forceps which operation was
performed by the plaintiff, who also had to remove the after birth, in which service he was
occupied until the following morning, and that afterwards, on the same day, he visited the
patient several times; that the just and equitable value of the services rendered by him was
P500, which the defendants refuse to pay without alleging any good reason there for; that
for said reason he prayed that judgment be entered in his favor as against the defendants,
or any of them, for the sum of P500 and costs, together with any other relief that might be
deemed proper.
In answer to the complaint counsel for the defendants denied all of the allegations
therein contained and alleged as a special defense, that their daughter-in-law had died in
consequence of the said childbirth, and that when she was alive she lived with her
husband independently and in a separate house without any relation whatever with them,
and that, if on the day when she gave birth she was in the house of the defendants, her
stay there was accidental and due to fortuitous circumstances; therefore, he prayed that
the defendants be absolved of the complaint with costs against the plaintiff.
The plaintiff demurred to the above answer, and the court below sustained the
demurrer, directing the defendants, on the 23d of January, 1907, to amend their answer. In
compliance with this order the defendants presented, on the same date, their amended
answer, denying each and every one of the allegations contained in the complaint, and
requesting that the same be dismissed with costs.
As a result of the evidence adduced by both parties, judgment was entered by the
court below on the 5th of April, 1907, whereby the defendants were absolved from the
former complaint, on account of the lack of sufficient evidence to establish a right of action
against the defendants, with costs against the plaintiff, who excepted to the said judgment
and in addition moved for a new trial on the ground that the judgment was contrary to law;
the motion was overruled and the plaintiff excepted and in due course presented the
corresponding bill of exceptions. The motion of the defendants requesting that the
declaration contained in the judgment that the defendants had demanded he professional
services of the plaintiff he eliminated therefrom, for the reason that, according to the
evidence, no such request had been made, was also denied, and to the decision the
defendants excepted.
Assuming that it is a real fact acknowledged by the defendants, that the plaintiff, by
virtue of having been sent for by the former, attended as physician and rendered
professional services to a daughter-in-law of the said defendants during a difficult and
laborious childbirth, in order to decide the claim of the said physician regarding the
recovery of his fees, it becomes necessary to decide who is bound to pay the bill, whether
the father and mother-in-law of the patient, or the husband of the latter.
According to article 1089 of the Civil Code, obligations are created by law, by
contracts, by quasi-contracts, and by illicit acts and omissions or by those in which any
kind of fault or negligence occurs.
Obligations arising from law are not presumed. Those expressly determined in the
code or in special laws, etc., are the only demandable ones. Obligations arising from
contracts have legal force between the contracting parties and must be fulfilled in
accordance with their stipulations. (Arts. 1090 and 1091.)
The rendering of medical assistance in case of illness is comprised among the
mutual obligations to which spouses are bound by way of mutual support. (Arts. 142 and
143.).
If every obligation consists in giving, doing, or not doing something (art. 1088), and
spouses are mutually bound to support each other, there can be no question but that,
when either of them by reason of illness should be in need of medical assistance, the other
is under the unavoidable obligation to furnish the necessary services of a physician in
order that health may be restored, and he or she may be freed from the sickness by which
life is jeopardized; the party bound to furnish such support is therefore liable for all
expenses, including the fees of the medical expert for his professional services. This
 liability originates from the above-cited mutual obligation which the law has expressly
established between the married couple.
In the face of the above legal precepts it is unquestionable that the person bound to
pay the fees due to the plaintiff for the professional services that he rendered to the
daughter-in-law of the defendants during her childbirth is the husband of the patient and
not her father and mother- in-law, the defendants herein. The fact that it was not the
husband who called the plaintiff and requested his assistance for his wife is no bar to the
fulfillment of the said obligation, as the defendants, in view of the imminent danger to
which the life of the patient was at that moment exposed, considered that medical
assistance was urgently needed, and the obligation of the husband to furnish his wife with
the indispensable services of a physician at such critical moments is specially established
by the law, as has been seen, and compliance therewith is unavoidable; therefore, the
plaintiff, who believes that he is entitled to recover his fees, must direct his action against
the husband who is under obligation to furnish medical assistance to his lawful wife in such
an emergency.
From the foregoing it, may readily be understood that it was improper to have
brought an action against the defendants simply because they were the parties who called
the plaintiff and requested him to assist the patient during her difficult confinement, and
also, possibly, because they were her father and mother-in-law and the sickness occurred
in their house. The defendants were not, nor are they now, under any obligation by virtue
of any legal provision, to pay the fees claimed, nor in consequence of any contract entered
into between them and the plaintiff from which such obligation might have arisen.
In applying the provisions of the Civil Code in an action for support, the supreme
court of Spain, while recognizing the validity and efficiency of a contract to furnish support
wherein a person bound himself to support another who was not his relative, established
the rule that the law does impose the obligation to pay for the support of a stranger, but as
the liability arose out of a contract, the stipulations of the agreement must be upheld.
(Decision of May 11 1897.)
Within the meaning of the law, the father and mother law are strangers with respect
to the obligation that devolves upon the husband to provide support, among which is the
furnishing of medical assistance to his wife at the time of her confinement; and, on the
other hand, it does not appear that a contract existed between the defendants and the
plaintiff physician, for which reason it is obvious that the former can not be compelled to
pay fees which they are under no liability to pay because it does not appear that they
consented to bind themselves.
The foregoing suffices to demonstrate that the first and second errors assigned to
the judgment below are unfounded, because, if the plaintiff has no right of action against
the defendants, it is needless to declare whether or not the use of forceps is a surgical
operation.
Therefore, in view of the considerations hereinbefore set forth, it is our opinion that
the judgment appealed from should be affirmed with the costs against the appellant. So
ordered.
||| (Pelayo v. Lauron, G.R. No. 4089, [January 12, 1909], 12 PHIL 453-457)
 EN BANC

[G.R. No. L-7089. August 31, 1954.]

DOMINGO DE LA CRUZ, plaintiff-

appellant, vs. NORTHERN THEATRICAL ENTERPRISES INC., ET
AL, defendants-appellees.

Conrado Rubio, for appellant.

Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero, for appellees.

SYLLABUS

1. EMPLOYER AND EMPLOYEE; DAMAGES CAUSED TO EMPLOYEE BY A

STRANGER CAN NOT BE RECOVERED FROM EMPLOYER GIVING LEGAL
ASSISTANCE TO EMPLOYEE IS NOT A LEGAL BUT A MORAL OBLIGATION. — A claim
of an employee against his employer for damages caused to the former by a stranger or
outsider while said employee was in the performance of his duties, presents a novel question
which under present legislation can not be decided in favor of the employee. While it is to
the interest of the employer to give legal help to, and defend, its employees charged
criminally in court, in order to show that he was not guilty of any crime either deliberately or
through negligence, because should the employee be finally held criminally liable and he is
found to be insolvent, the employer would be subsidiarily liable, such legal assistance might
be regarded as a moral obligation but it does not at present count with the sanction of man-
made laws. If the employer is not legally obliged to give legal assistance to its employee and
provide him with a lawyer, naturally said employee may not a recover from his employer the
amount he may have paid a lawyer hired by him.
2. ID.; ID.; PARTIES WHO MAY BE HELD RESPONSIBLE FOR DAMAGES. — If
despite the absence of any criminal responsibility on the part of the employee he was
accused of homicide, the responsibility for the improper accusation may be laid at the door
of the heirs of the deceased at whose instance the action was filed by the State through the
Fiscal. This responsibility can not be transferred to his employer, who in no way intervened,
much less initiated the criminal proceedings and whose only connection or relation to the
whole affair was that it employed plaintiff to perform a specific duty or task, which was
performed lawfully and without negligence.

DECISION

MONTEMAYOR, J : p

The facts in this Case based on an agreed statement of facts are simple. In the year
1941 the Northern Theatrical Enterprises Inc., a domestic corporation operated a movie
house in Laoag, Ilocos Norte, and among the persons employed by it was the plaintiff
DOMINGO DE LA CRUZ, hired as a special guard whose duties were to guard the main
entrance of the cine, to maintain peace and order and to report the commission of
disorders within the premises. As such guard he carried a revolver. In the afternoon of July
4, 1941, one Benjamin Martin wanted to crash the gate or entrance of the movie house.
Infuriated by the refusal of plaintiff De la Cruz to let him in without first providing himself
with a ticket, Martin attacked him with a bolo. De la Cruz defended himself as best he
could until he was cornered, at which moment to save himself he shot the gate crasher,
resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of
the Court of First Instance of Ilocos Norte. After a re-investigation conducted by the
Provincial Fiscal the latter filed a motion to dismiss the complaint, which was granted by
the court in January 1943. On July 8, 1947, De la Cruz was again accused of the same
crime of homicide, in Criminal Case No. 431 of the same Court. After trial, he was finally
acquitted of the charge on January 31, 1948. In both criminal cases De la Cruz employed
a lawyer to defend him. He demanded from his former employer reimbursement of his
expenses but was refused, after which he filed the present action against the movie
corporation and the three members of its board of directors, to recover not only the
amounts he had paid his lawyers but also moral damages said to have been suffered, due
to his worry, his neglect of his interests and his family as well in the supervision of the
cultivation of his land, a total of P15,000. On the basis of the complaint and the answer
filed by defendants wherein they asked for the dismissal of the complaint, as well as the
agreed statement of facts, the Court of First Instance of Ilocos Norte after rejecting the
theory of the plaintiff that he was an agent of the defendants and that as such agent he
was entitled to reimbursement of the expenses incurred by him in connection with the
agency (Arts. 1709-1729 of the old Civil Code), found that plaintiff had no cause of action
and dismissed the complaint without costs. De la Cruz appealed directly to this Tribunal for
the reason that only questions of law are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation and
the plaintiff was not that of principal and agent because the principle of representation was
in no way involved. Plaintiff was not employed to represent the defendant corporation in its
dealings with third parties. He was a mere employee hired to perform a certain specific
duty or task, that of acting as special guard and staying at the main entrance of the movie
house to stop gate crashers and to maintain peace and order within the premises. The
question posed by this appeal is whether an employee or servant who in line of duty and
while in the performance of the task assigned to him, performs an act which eventually
results in his incurring in expenses, caused not directly by his master or employer or his
fellow servants or by reason of his performance of his duty, but rather by a third party or
stranger not in the employ of his employer, may recover said damages against his
employer.
The learned trial court in the last paragraph of its decision dismissing the complaint
said that "after studying many laws or provisions of law to find out what law is applicable to
the facts submitted and admitted by the parties, has found none and it has no other
alternative than to dismiss the complaint." The trial court is right. We confess that we are
not aware of any law or judicial authority that is directly applicable to the present case, and
realizing the importance and far-reaching effect of a ruling on the subject-matter we have
searched, though vainly, for judicial authorities and enlightenment. All the laws and
principles of law we have found, as regards master and servants, or employer and
employee, refer to cases of physical injuries, light or serious, resulting in loss of a member
of the body or of any one of the senses, or permanent physical disability or even death,
suffered in line of duty and in the course of the performance of the duties assigned to the
servant or employee, and these cases are mainly governed by the Employer's Liability Act
and the Workmen's Compensation Act. But a case involving damages caused to an
employee by a stranger or outsider while said employee was in the performance of his
duties, presents a novel question which under present legislation we are neither able nor
prepared to decide in favor of the employee.
In a case like the present or a similar case of say a driver employed by a
transportation company, who while in the course of employment runs over and inflicts
physical injuries on or causes the death of a pedestrian; and such driver is later charged
criminally in court, one can imagine that it would be to the interest of the employer to give
legal help to and defend its employee in order to show that the latter was not guilty of any
crime either deliberately or through negligence, because should the employee be finally
held criminally liable and he is found to be insolvent, the employer would be subsidiarily
liable. That is why, we repeat, it is to the interest of the employer to render legal assistance
to its employee. But we are not prepared to say and to hold that the giving of said legal
assistance to its employees is a legal obligation. While it might yet and possibly be
regarded as a moral obligation, it does not at present count with the sanction of man-made
laws.
If the employer is not legally obliged to give, legal assistance to its employee and
provide him with a lawyer, naturally said employee may not recover the amount he may
have paid a lawyer hired by him.
Viewed from another angle it may be said that the damage suffered by the plaintiff
by reason of the expenses incurred by him in remunerating his lawyer, is not caused by his
act of shooting to death the gate crasher but rather by the filing of the charge of homicide
which made it necessary for him to defend himself with the aid of counsel. Had no criminal
charge been filed against him, there would have been no expenses incurred or damage
suffered. So the damage suffered by plaintiff was caused rather by the improper filing of
the criminal charge, possibly at the instance of the heirs of the deceased gate crasher and
by the State through the Fiscal. We say improper filing, judging by the results of the court
proceedings, namely, acquittal. In other words, the plaintiff was innocent and blameless. If
despite his innocence and despite the absence of any criminal responsibility on his part he
was accused of homicide, then the responsibility for the improper accusation may be laid
at the door of the heirs of the deceased and the State, and so theoretically, they are the
parties that may be held responsible civilly for damages and if this is so, we fail to see how
this responsibility can be transferred to the employer who in no way intervened, much less
initiated the criminal proceedings and whose only connection or relation to the whole
affairs was that he employed plaintiff to perform a specific duty or task, which task or duty
was performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the
payment of the lawyer's fee did not flow directly from the performance of his duties but
only indirectly because there was an efficient, intervening cause, namely, the filing of the
criminal charges. In other words, the shooting to death of the deceased by the plaintiff was
not the proximate cause of the damages suffered but may be regarded as only a remote
 cause, because from the shooting to the damages suffered there was not that natural and
continuous sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.
Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepción, and Reyes,
J.B.L., JJ., concur.
(De la Cruz v. Northern Theatrical Enterprises, Inc., G.R. No. L-7089, [August 31, 1954], 95
|||

PHIL 739-744)
 THIRD DIVISION

[G.R. No. 173320. April 11, 2012.]

EDUARDO B. MANZANO, petitioner, vs. ANTONIO B. LAZARO, respondent.

DECISION

PERALTA, J : p

Before us is a Petition for Review on Certiorari of the Decision 1 and Resolution 2 of the
Court of Appeals in CA-G.R. CV No. 82753, dated February 28, 2006 and June 21, 2006,
respectively, affirming the Decision 3 of the Regional Trial Court (RTC), Branch 97, Quezon
City, in Civil Case No. Q-98-35924. EHTSCD

On February 16, 1998, petitioner Eduardo B. Manzano and respondent Antonio B. Lazaro
entered into a Professional Services Contract 4 pertaining to the former's candidacy for the
Vice-Mayoralty post in Makati City. Petitioner as the first party and respondent as the second
party agreed that the contract shall take effect on February 16, 1998 until May 15, 1998. The
contract provided among others:
II. Roles and Responsibilities of Contracting Parties
Responsibilities of the Second Party:
1. He shall head the organizational machinery of the First Party.
2. He shall be responsible in hiring and firing the required personnel to man the different
positions of the organization.
3. He shall authorize the expenditures of the campaign.
4. He shall assist in the mobilization of resources for the campaign.
5. He shall set-up administrative mechanisms to safeguard the efficient and effective
use of resources.
6. He shall take full responsibility for all the furniture and fixtures to be assigned to the
designated headquarters.
7. He shall develop programs and projects in aid of ensuring the winnability of the
candidate.
Responsibilities of the First Party.
1. He shall ensure the provision of financial resources and other logistical requirements
for the conduct of operations.
2. He shall compensate the second party as stipulated in the Section III for
Remuneration and Manner of Payment.
III. Remuneration and Manner of Payment:
 A. The monthly rate due for the Second Party is SEVENTY THOUSAND
PESOS (P70,000.00). This will be given in two equal tranches, on the 15th and
30th of each month, from February 16, 1998 up to May 15, 1998, or a total of
three (3) months.
B. A bonus pay amounting to TWO HUNDRED THOUSAND PESOS
(P200,000.00) shall be given to the second party in the event that the First Party
win the Vice-Mayoralty post.5 HSaCcE

Subsequently, petitioner won as Vice-Mayor of Makati. Respondent, thereafter, learned

in a transmittal letter 6 dated June 16, 1998 representing the last payroll of certain individuals,
which included him, that he would be paid the amount of P15,000.00 only and the balance of
P20,000.00 shall be forwarded only upon his final inventory of materials used during the
campaign. Hence, respondent, in his letter 7 dated July 3, 1998 to petitioner, wrote that he had
already turned over the equipment used for the campaign. Respondent then demanded the
payment of P20,000.00 as balance of his compensation and the P200,000.00 bonus pay
agreed upon.
Petitioner acknowledged respondent's demand letter and the delivery of the campaign
equipment and furniture in his letter 8 dated July 17, 1998, but wrote that he needed to receive
the liquidation of the expenses incurred during the campaign, which task was requested shortly
after the May 11, 1998 elections.
In his letter 9 dated July 30, 1998, respondent wrote that the preparation of the audited
financial report of the campaign was not part of his responsibilities as he was not in charge of
the management of campaign funds; that such function was assigned to Robert Gomez and
Soliman Cruz (Cruz) who acted as petitioner's Director for Finance with petitioner's brother,
Angie Manzano (Angie), as the auditor. He reiterated the payment of P220,000.00 due him.
On even date, Cruz wrote petitioner a letter 10 dated July 30, 1998, stating that he did not
volunteer respondent to prepare the liquidation of expenses, as respondent had nothing to do
with the campaign accounting records; and that petitioner's request for liquidation of campaign
expenses was another switch in petitioner's condition prior to settling his obligation with
respondent.
As respondent's demand for petitioner to pay him remained unheeded, he filed with the
RTC an action for collection of sum of money against petitioner.
In his defense, petitioner argued that he hired respondent's services because of the
latter's representation of being a seasoned and an experienced campaign manager. However,
during the campaign period, he discovered that respondent had no expertise or capacity for
political organization and was often absent during campaign sorties and public meetings; that
he failed to provide petitioner with poll watchers to safeguard his chances of winning against
electoral fraud. Petitioner deemed it best to merely exclude him from the strategic planning
sessions rather than confront him as he had already the knowledge of the campaign activities
and supporters. Petitioner opined that he won the elections due to his popularity and the support
of his family and friends; and that respondent was not entitled to a bonus pay, since respondent
failed to show any significant contribution or role in his electoral victory.
On June 7, 2004, the RTC rendered its Decision, the dispositive portion of which
reads: SCHIcT
 WHEREFORE, premises considered, Decision is hereby rendered directing the
defendant Eduardo B. Manzano to pay to the plaintiff the following:
1. Two Hundred Twenty Thousand Pesos (PHP220,000.00) representing the
plaintiff's professional service fee covering the May 1-15, 1998 period and
bonus for the defendant's electoral victory as stipulated in the Professional
Service Contract, plus legal interests from 03 July 1998 until fully paid;
and
2. Thirty Thousand Pesos (PHP30,000.00) as Attorney's Fees. 11

In so ruling, the RTC said that to allege that petitioner's consent was vitiated would not
justify the refusal to pay the agreed remuneration in the absence of a court ruling annulling the
subject contract; and that unless said contract was annulled, the terms therein remained
enforceable. As to the alleged failure to comply with the responsibilities set forth in the contract,
the RTC said that the power to rescind obligation is implied in reciprocal ones, but in the
absence of a stipulation to the contrary, the power must be invoked judicially and cannot be
exercised solely on a party's own judgment that the other has committed a breach of obligation.
It also found petitioner's allegation of breach of contract inconsistent with the statement in the
last payroll where petitioner acknowledged the balance due respondent, since if petitioner
believed that respondent failed to perform his responsibilities, he should not have stated in the
last payroll that the balance due respondent would be given upon submission of the inventory
of the campaign materials. The RTC concluded that petitioner's contention was merely used as
an excuse to evade payment after respondent had complied with the conditions requiring the
latter to submit such inventory. The RTC awarded attorney's fees, because of petitioner's
refusal to pay respondent's claim which compelled him to litigate.
Dissatisfied, petitioner filed his appeal with the CA. Respondent filed his Comment and
petitioner his Reply thereto. Thereafter, the case was submitted for decision.
On February 28, 2006, the CA rendered its assailed Decision, which dismissed the
appeal and affirmed the RTC decision.
Petitioner's motion for reconsideration was denied in a Resolution dated June 21, 2006.
Hence, the instant petition which raises the following errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN LIMITING THE DISCUSSION
OF ITS QUESTIONED DECISION ONLY TO THE SUBJECT OF THE
PROFESSIONAL SERVICES CONTRACT BETWEEN PETITIONER AND
RESPONDENT BEING VOIDABLE AND ITS ALLEGED RATIFICATION BY
PETITIONER. THE RULING OF THE COURT OF APPEALS, DOES NOT, IN ANY
WAY, TOUCH UPON THE ISSUE OF RESPONDENT'S MATERIAL BREACH OF THE
CONTRACT, AND WHETHER HE IS ENTITLED TO THE BONUS OF P200,000.00 AS
A RESULT OF SUCH BREACH.
II
THE COURT OF APPEALS GRAVELY ERRED IN FAILING TO HOLD THAT
RESPONDENT COMMITTED SERIOUS BREACH BY FAILING TO PERFORM HIS
DUTIES UNDER HIS PROFESSIONAL SERVICES CONTRACT WITH PETITIONER
AS HEAD OF THE LATTER'S CAMPAIGN AND ORGANIZATIONAL MACHINERY.
 III
THE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT
RESPONDENT COMMITTED A BREACH OF HIS PROFESSIONAL SERVICES
CONTRACT WITH PETITIONER BY MISREPRESENTING THAT HE WAS AN
EXPERT IN ESTABLISHING A POLITICAL CAMPAIGN MACHINERY. EaDATc

IV
THE COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT
RESPONDENT SHOULD NOT BE PAID THE BALANCE OF HIS REMUNERATION
ON THE BASIS OF EQUITY AND SUBSTANTIAL JUSTICE, AND BECAUSE HE WILL
BE UNJUSTLY ENRICHED AS A RESULT OF SUCH PAYMENT. 12
Petitioner contends that the CA decision was limited to the issue that the contract was
merely voidable and its alleged ratification by petitioner but did not take into account
respondent's breach of his obligations which goes into the heart of the issue of respondent's
entitlement to the bonus; and that awarding him of bonus despite such breach would result to
unjust enrichment. He argues that respondent was always absent or unavailable during the
campaign sorties and public meetings which resulted in petitioner's having to continue his
campaign with little or no assistance from respondent; that he failed to provide the required
personnel to man the different positions of the organization since the personnel provided by
respondent were also working for another candidate in Mandaluyong City; that there was no
assistance extended in the mobilization of resources for his campaign because of the less
visibility of the personnel hired to serve as his advance party to the territories covered by
petitioner's campaign which constrained petitioner to proceed to the areas on his own; and that
during the canvassing of votes, respondent only made a brief appearance and was thereafter
gone with his whereabouts unknown; and that he also failed to provide petitioner with poll
watchers in the precinct level to ensure that all votes cast for him were all accounted for.
Petitioner also argues that respondent misrepresented himself to be an expert in carrying
out a political campaign, thus, his consent into entering the contract with respondent was
vitiated by fraud and mistake as to the latter's qualifications and credentials.
We find no merit in the petition.
The above-stated arguments by petitioner raise factual matters. As a rule, only questions
of law may be appealed to the Court by a petition for review. The Court is not a trier of facts, its
jurisdiction being limited to errors of law. Moreover, factual findings of the trial court, particularly
when affirmed by the Court of Appeals, are generally binding on this Court. 13 In weighing the
evidence of the parties, the RTC, as affirmed by the CA, found respondent's evidence to be
sufficient in proving his case. We found no reason to disturb such finding as it was borne by the
evidence on record.
Under the Professional Services Contract executed between petitioner and respondent
on February 16, 1998, particularly under the subheading of remuneration and manner of
payment, it was provided that:
A. The monthly rate due for the Second Party is SEVENTY THOUSAND PESOS
(P70,000.00). This will be given in two equal tranches, on the 15th and 30th of each
month, from February 16, 1998 up to May 15, 1998, or a total of three (3) months. DHEACI
 B. A bonus pay amounting to TWO HUNDRED THOUSAND PESOS
(P200,000.00) shall be given to the second party in the event that the First Party wins
the Vice-Mayoralty post.
It is basic that a contract is the law between the parties. Obligations arising from contracts
have the force of law between the contracting parties and should be complied with in good
faith. 14 Unless the stipulations in a contract are contrary to law, morals, good customs, public
order or public policy, the same are binding as between the parties. 15
In this case, the three-month period stated in the contract had already elapsed and
petitioner won as Vice-Mayor of Makati in the 1998 elections, thus, respondent is entitled not
only to the full payment of his compensation but also to a bonus pay. However, respondent's
compensation for the period from May 1 to 15, 1998 was not yet paid in full as there was still a
balance of P20,000.00 as well as his bonus pay. Petitioner refuses to pay the said amounts on
the allegation that respondent failed to fulfill his obligations under the contract.
We are not persuaded.
Petitioner's claim of breach of obligation consisted only of his uncorroborated and self-
serving statement which was contradicted by the evidence on record.
In the June 1998 remittance of the last payroll, it was stated that respondent would be
paid the amount of P15,000.00 and the balance of P20,000.00 shall be forwarded upon his final
inventory of equipment used during the campaign. Clearly, the payment of the balance of
P20,000.00 was conditioned upon respondent's final inventory of the equipment used in the
campaign. On July 3, 1998, respondent wrote petitioner a letter informing the latter that he had
already turned over the equipment by delivering the same to petitioner's doorstep on July 2,
1998; and that his final act of turning over his obligation merited petitioner's reciprocal action.
Consequently, respondent demanded the payment of P20,000.00 as well as the P200,000.00
bonus pay as petitioner won the Vice-Mayoralty race.
Petitioner admitted having received the equipment in his letter reply dated July 17, 1998
to respondent as he wrote:
. . . I appreciate your delivering the inventory at my doorstep even though it was
never requested. With regards to my reciprocal action, I have yet to receive the
liquidation of the expenses incurred during the campaign. Mrs. Rufino informed me
about two weeks back that when we requested said liquidation from Mr. S. Cruz he
volunteered that you would be the individual who will be preparing the report. We have
yet to receive the breakdown from either you or Mr. Cruz considering it was requested
shortly after the May 11, 1998 elections. I, more than anyone else, would like to end this
chapter of my life. I hope to hear from either of you soonest. 16cDCHaS

In respondent's letter reply dated July 30, 1998, he clearly indicated that the preparation
of the audited financial report was not part of his responsibilities as he was not in charge of the
management of campaign funds; that such function was assigned to Cruz who would write a
separate letter to support his statement.
In his letter to petitioner, Cruz clarified that there was never a request for liquidation of
expenses, as what Ms. Rufino requested from him was the preparation of the summary of
transportation and other expenses which would form part of the petitioner's campaign expenses
to be filed with the Comelec; that he did not volunteer respondent to prepare anything as he
had nothing to do with the campaign's accounting records; that he only instructed his secretary
to assemble the needed information and asked her to seek respondent's help for expediency.
He also wrote that to ask respondent with the liquidation of campaign expenses was another
switch in petitioner's condition prior to settling his obligation with respondent.
As shown by the foregoing exchange of correspondences, the first condition imposed
before the payment of P20,000.00 balance was the inventory of campaign equipment. After
respondent complied with such condition which petitioner even acknowledged, respondent
asked for the payment of the balance as well as his bonus. However, a subsequent condition
was imposed on respondent before payment would be given, i.e., submission of report on the
liquidation of expenses incurred during the campaign, which respondent and Cruz wrote that
respondent had nothing to do with, to which petitioner failed to show evidence to the contrary.
Surprisingly, respondent's alleged breach of obligation was never brought up by
petitioner during the time that the former was asking for the payment of the amounts owing to
him which betrays the falsity of petitioner's allegation. Noteworthy to mention is the fact that
petitioner had even paid respondent his salary for the three-month period with only a balance
of P20,000.00, conditioned upon respondent's delivery of the inventory of campaign equipment.
Such payment established that indeed respondent had performed his responsibilities under the
contract. We, therefore, agree with the RTC's conclusion that petitioner's claim of breach of
contract was merely used as an excuse to evade payment of the amounts due respondent.
Petitioner's contention that respondent's misrepresentation that he had the expertise in
establishing a political machinery for his campaign, was not at all true thus his consent was
vitiated, is not meritorious. Again, petitioner's allegation was not supported by the evidence on
record. We find apropos what the CA said on this issue, to wit:
It bears emphasis that vitiated consent does not make a contract unenforceable
but merely voidable. Such contract is binding on all the contracting parties until annulled
and set aside by a court of law. If indeed appellant's consent was vitiated, his remedy
would have been to annul the contract, considering that voidable contracts produce
legal effects until they are annulled. This is the clear import of Article 1390 (2) of the Civil
Code, which provides:
Art. 1390. — The following contracts are voidable or annullable, even
though there may have been no damage to the contracting parties. aIAEcD

1. Those where one of the parties is incapable of giving consent to a

contract.
2. Those where the consent is vitiated by mistake, violence, intimidation,
undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action
in court. They are susceptible of ratification.
Pursuant to the above-quoted provision, the alleged fraud committed by appellee
upon appellant made the contract for professional services a voidable contract. Being a
voidable contract, it is susceptible of either ratification or annulment. If the contract is
ratified, the action to annul it is extinguished and the contract is cleansed from all its
defects. But if the contract is annulled, the contracting parties are restored to their
respective situations before the contract and mutual restitution follows as a
consequence.
 As stated earlier, an annullable contract may be rendered perfectly valid by
ratification, which can be express or implied. Implied ratification may take the form of
accepting and retaining the benefits of a contract. This is what happened in this case.
No action was taken by appellant to annul the professional service contract. Appellant
also did not confront appellee regarding the latter's poor campaign services. This
silence, taken together with appellant's demand for appellee to make an inventory of
equipment and a liquidation of the funds used during the campaign, constitutes in itself
an effective ratification of the original agreement in accordance with Article 1393 of
the Civil Code, which reads:
xxx xxx xxx
If appellant was, indeed, tricked into contracting with appellee and was
unsatisfied with the latter's services, he should have taken steps in order for the latter
not to expect any bonus. After all, the bonus was dependent solely on the condition of
appellant's victory in the elections. Or he could have immediately instituted an action for
annulment of their contract. But none of these happened. As the records show,
appellant even went further by giving appellant other election related tasks. This bolsters
the view that, indeed there was ratification. One cannot continue on demanding a certain
task to be performed but at the same time contend that the contract cannot be enforced
because of poor performance and misrepresentation. Notably, it was only when
appellee already demanded the payment of the stipulated amount that appellant raised
the defense of vitiated consent. Clearly, appellant was agreeable to the contract except
that appellee's expertise fell short of appellant's expectations. 17
We also affirm the award of attorney's fees, as respondent was compelled to litigate and
incur expenses to protect his interest because of petitioner's unjust refusal to satisfy
respondent's claim. 18 TIESCA

The RTC, as affirmed by the CA, ordered petitioner to pay respondent the amount of
P220,000.00 plus legal interest, however, the legal rate of interest was not specified. As to
computation of legal interest, Eastern Shipping Lines, Inc. v. Court of Appeals 19 laid down the
following guidelines, thus:
xxx xxx xxx
II.With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:
1. . . .
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court
is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
 3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit. 20
In this case, petitioner's obligation does not constitute a loan or forbearance of money,
but a contract for professional service of respondent as petitioner's campaign manager. Hence,
the amount of P220,000.00 owing to respondent shall earn an interest of 6% per annum to be
computed from the time the extrajudicial demand for payment was made on July 3, 1998 until
the finality of this decision. As ruled in Eastern Shipping, after a judgment has become final and
executory, the rate of legal interest, whether the obligation was in the form of a loan or
forbearance of money or otherwise, shall be 12% per annum from such finality until its
satisfaction. Thus, from the date the liability for the principal obligation has become final and
executory, an annual interest of 12% shall be imposed until its final satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of credit. 21
WHEREFORE, in view of all the foregoing, the instant petition is DENIED. The Decision
dated February 28, 2006 and the Resolution dated June 21, 2006 of the Court of Appeals in
CA-G.R. CV No. 82753, which affirmed the RTC decision ordering petitioner to pay respondent
the amount of P220,000.00, plus P30,000.00 as attorney's fees, are AFFIRMED with
theMODIFICATION that the award of P220,000.00 shall earn interest at the rate of 6% per
annum from July 3, 1998 until the finality of this decision. After this decision becomes final and
executory, petitioner is ORDERED to pay interest at 12% per annum on the principal obligation
until full payment. ECaTAI

SO ORDERED.
||| (Manzano v. Lazaro, G.R. No. 173320, [April 11, 2012], 685 PHIL 445-460)
 SECOND DIVISION

[G.R. No. 142830. March 24, 2006.]

WILLIAM GOLANGCO CONSTRUCTION CORPORATION, petitioner, vs.

PHILIPPINE COMMERCIAL INTERNATIONAL BANK * , respondent.

DECISION

CORONA, J : p

The facts of this case are straightforward. 1

William Golangco Construction Corporation (WGCC) and the Philippine Commercial
International Bank (PCIB) entered into a contract for the construction of the extension of PCIB
Tower II (denominated as PCIB Tower II, Extension Project [project]) 2 on October 20, 1989.
The project included, among others, the application of a granitite wash-out finish 3 on the
exterior walls of the building.
PCIB, with the concurrence of its consultant TCGI Engineers (TCGI), accepted the
turnover of the completed work by WGCC in a letter dated June 1, 1992. To answer for any
defect arising within a period of one year, WGCC submitted a guarantee bond dated July 1,
1992 issued by Malayan Insurance Company, Inc. in compliance with the construction
contract. 4
The controversy arose when portions of the granitite wash-out finish of the exterior of the
building began peeling off and falling from the walls in 1993. WGCC made minor repairs after
PCIB requested it to rectify the construction defects. In 1994, PCIB entered into another
contract with Brains and Brawn Construction and Development Corporation to re-do the entire
granitite wash-out finish after WGCC manifested that it was "not in a position to do the new
finishing work," though it was willing to share part of the cost. PCIB incurred expenses
amounting to P11,665,000 for the repair work.
PCIB filed a request for arbitration with the Construction Industry Arbitration Commission
(CIAC) for the reimbursement of its expenses for the repairs made by another contractor. It
complained of WGCC's alleged non-compliance with their contractual terms on materials and
workmanship. WGCC interposed a counterclaim for P5,777,157.84 for material cost
adjustment.
The CIAC declared WGCC liable for the construction defects in the project. 5 WGCC filed
a petition for review with the Court of Appeals (CA) which dismissed it for lack of merit. 6 Its
motion for reconsideration was similarly denied. 7
In this petition for review on certiorari, WGCC raises this main question of law: whether
or not petitioner WGCC is liable for defects in the granitite wash-out finish that occurred after
the lapse of the one-year defects liability period provided in Art. XI of the construction contract. 8
We rule in favor of WGCC. TADIHE
 The controversy pivots on a provision in the construction contract referred to as
the defects liability period:
ARTICLE XI — GUARANTEE
Unless otherwise specified for specific works, and without prejudice to the rights
and causes of action of the OWNER under Article 1723 of the Civil Code, the
CONTRACTOR hereby guarantees the work stipulated in this Contract, and shall
make good any defect in materials and workmanship which [becomes] evident
within one (1) year after the final acceptance of the work. The CONTRACTOR shall
leave the work in perfect order upon completion and present the final certificate to the
ENGINEER promptly.
If in the opinion of the OWNER and ENGINEER, the CONTRACTOR has failed
to act promptly in rectifying any defect in the work which appears within the period
mentioned above, the OWNER and the ENGINEER may, at their own discretion, using
the Guarantee Bond amount for corrections, have the work done by another contractor
at the expense of the CONTRACTOR or his bondsmen.
However, nothing in this section shall in any way affect or relieve the
CONTRACTOR'S responsibility to the OWNER. On the completion of the [w]orks, the
CONTRACTOR shall clear away and remove from the site all constructional plant,
surplus materials, rubbish and temporary works of every kind, and leave the whole of
the [s]ite and [w]orks clean and in a workmanlike condition to the satisfaction of the
ENGINEER and OWNER. 9 (emphasis ours)
Although both parties based their arguments on the same stipulations, they reached
conflicting conclusions. A careful reading of the stipulations, however, leads us to the
conclusion that WGCC's arguments are more tenable.
AUTONOMY OF CONTRACTS
The autonomous nature of contracts is enunciated in Article 1306 of the Civil Code.
Article 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy.
Obligations arising from contracts have the force of law between the parties and should
be complied with in good faith. 10 In characterizing the contract as having the force of law
between the parties, the law stresses the obligatory nature of a binding and valid agreement.
The provision in the construction contract providing for a defects liability period was not
shown as contrary to law, morals, good customs, public order or public policy. By the nature of
the obligation in such contract, the provision limiting liability for defects and fixing specific
guaranty periods was not only fair and equitable; it was also necessary. Without such limitation,
the contractor would be expected to make a perpetual guarantee on all materials and
workmanship.
The adoption of a one-year guarantee, as done by WGCC and PCIB, is established
usage in the Philippines for private and government construction contracts. 11 The contract did
not specify a different period for defects in the granitite wash-out finish; hence, any defect
therein should have been brought to WGCC's attention within the one-year defects liability
period in the contract. SaICcT
 We cannot countenance an interpretation that undermines a contractual stipulation freely
and validly agreed upon. The courts will not relieve a party from the effects of an unwise or
unfavorable contract freely entered into. 12
[T]he inclusion in a written contract for a piece of work [,] such as the one in
question, of a provision defining a warranty period against defects, is not uncommon.
This kind of a stipulation is of particular importance to the contractor, for as a general
rule, after the lapse of the period agreed upon therein, he may no longer be held
accountable for whatever defects, deficiencies or imperfections that may be discovered
in the work executed by him. 13
INTERPRETATION OF CONTRACTS
To challenge the guarantee period provided in Article XI of the contract, PCIB calls our
attention to Article 62.2 which provides:
62.2 Unfulfilled Obligations
Notwithstanding the issue of the Defects Liability Certificate[,] the Contractor
and the Owner shall remain liable for the fulfillment of any obligation[,] incurred
under the provisions of the Contract prior to the issue of the Defects Liability
Certificate[,] which remains unperformed at the time such Defects Liability
Certificate is issued[. And] for the purpose of determining the nature and extent of any
such obligation, the Contract shall be deemed to remain in force between the parties of
the Contract. (emphasis ours)
The defects in the granitite wash-out finish were not the "obligation" contemplated in
Article 62.2. It was not an obligation that remained unperformed or unfulfilled at the time the
defects liability certificate was issued. The alleged defects occurred more than a year from the
final acceptance by PCIB.
An examination of Article 1719 of the Civil Code is enlightening:
Art. 1719. Acceptance of the work by the employer relieves the contractor of
liability for any defect in the work, unless:
(1) The defect is hidden and the employer is not, by his special knowledge,
expected to recognize the same; or
(2) The employer expressly reserves his rights against the contractor by reason
of the defect.
The lower courts conjectured that the peeling off of the granitite wash-out finish was
probably due to "defective materials and workmanship." This they characterized as hidden
or latent defects. We, however, do not agree with the conclusion that the alleged defects
were hidden.
First, PCIB's team of experts 14 (who were specifically employed to detect such defects
early on) supervised WGCC's workmanship. Second, WGCC regularly submitted progress
reports and photographs. Third, WGCC worked under fair and transparent circumstances. PCIB
had access to the site and it exercised reasonable supervision over WGCC's work. Fourth,
PCIB issued several "punch lists" for WGCC's compliance before the issuance of PCIB's final
certificate of acceptance. Fifth, PCIB supplied the materials for the granitite wash-out finish.
And finally, PCIB's team of experts gave their concurrence to the turnover of the project.
 The purpose of the defects liability period was precisely to give PCIB additional, albeit
limited, opportunity to oblige WGCC to make good any defect, hidden or otherwise, discovered
within one year.
Contrary to the CA's conclusion, the first sentence of the third paragraph of Article XI on
guarantee previously quoted did not operate as a blanket exception to the one-year guarantee
period under the first paragraph. Neither did it modify, extend, nullify or supersede the
categorical terms of the defects liability period.
cEISAD

Under the circumstances, there were no hidden defects for which WGCC could be held
liable. Neither was there any other defect for which PCIB made any express reservation of its
rights against WGCC. Indeed, the contract should not be interpreted to favor the one who
caused the confusion, if any. The contract was prepared by TCGI for PCIB. 15
WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals
in CA-G.R. SP No. 41152 is ANNULLED and SET ASIDE.
SO ORDERED.
(William Golangco Construction Corp. v. Philippine Commercial International Bank, G.R. No.
|||

142830, [March 24, 2006], 520 PHIL 167-174)

 FIRST DIVISION

[G.R. No. 169578. November 30, 2006.]

TERESITA DIO, petitioner, vs. ST. FERDINAND MEMORIAL PARK, INC. and
MILDRED F. TANTOCO, respondents.

DECISION

CALLEJO, SR., J : p

Before us is a Petition for Review on Certiorari assailing the Decision 1 of the Court of
Appeals (CA) in CA-G.R. CV No. 52311 which affirmed the decision of the Regional Trial Court
(RTC), Branch 57 of Lucena City, in Civil Case No. 86-152. Likewise sought to be reversed and
set aside is the resolution of the appellate court denying reconsideration of the assailed
decision.
On December 11, 1973, Teresita Dio agreed to buy, on installment basis, a memorial lot
from the St. Ferdinand Memorial Park, Inc. (SFMPI) in Lucena City. The 36-square-meter
memorial lot is particularly described as Block 2, Section F, Lot 15. The purchase was
evidenced by a Pre-Need Purchase Agreement 2 dated December 11, 1973 and denominated
as Contract No. 384. She obliged herself to abide by all such rules and regulations governing
the SFMPI dated May 25, 1972.
SFMPI issued a Deed of Sale and Certificate of Perpetual Care 3 dated April 1, 1974
denominated as Contract No. 284. The ownership of Dio over the property was made subject
to the rules and regulations of SFMPI, as well as the government, including all amendments,
additions and modifications that may later be adopted. Rule 69 of the Rules reads:
Rule 69. Mausoleum building and memorials should be constructed by the Park
Personnel. Lot Owners cannot contract other contractors for the construction of
the said buildings and memorial, however, the lot owner is free to give their own
design for the mausoleum to be constructed, as long as it is in accordance with
the park standards. The construction shall be under the close supervision of the
Park Superintendent.
Meanwhile, the mortal remains of Dio's husband and father were interred in the lot at her
own expense, without the knowledge and intervention of SFMPI. She engaged the services of
a private contractor for the fabrication of niches and improvements on her lot. In August 1974,
the remains of Dio's daughter were likewise interred in the niche constructed on the lot, again
without the knowledge and intervention of SFMPI. TcICEA

In 1986, Dio decided to build a mausoleum on the lot. In September that year, she caused
the preparation of a design-plan for the construction of a mausoleum and the bidding out of the
project.
In the early part of October 1986, Dio informed SFMPI, through its president and
controlling stockholder, Mildred F. Tantoco, that she was planning to build a mausoleum on her
lot and sought the approval thereof. Dio even showed to Tantoco the plans and project
specifications accomplished by her private contractor at an estimated cost of P60,000.00. The
plans and specifications were approved, but Tantoco insisted that the mausoleum be built by it
or its agents at a minimum cost of P100,000.00 as provided in Rule 69 of the Rules and
Regulations the SFMPI issued on May 25, 1972. The total amount excluded certain specific
designs in the approved plan which if included would cost Dio much more. In a letter 4 dated
October 13, 1986, Dio, through counsel, demanded that she be allowed to construct the
mausoleum within 10 days, otherwise, she would be impelled to file the necessary action/s
against SFMPI and Tantoco.
On October 17, 1986, SFMPI wrote Dio informing her that under Rule 69 of SFMPI Rules
and Regulations, she was prohibited from engaging an outside contractor for the construction
of buildings, improvements and memorials. A lot owner was only allowed to submit a preferred
design as long as it is in accordance with park standards.
On December 23, 1986, Dio filed a Complaint for Injunction with Damages 5 against
SFMPI and Tantoco before the RTC of Lucena City. She averred that she was not aware of
Rule 69 of the SFMPI Rules and Regulations; the amount of P100,000.00 as construction cost
of the mausoleum was unconscionable and oppressive. She prayed that, after trial, judgment
be rendered in her favor, granting a final injunction perpetually restraining defendants from
enforcing the invalid Rule 69 of SFMPI's "Rules for Memorial Work in the Mausoleum of the
Park" or from refusing or preventing the construction of any improvement upon her property in
the park. 6 The court issued a cease and desist order against defendants.
In their answer with counterclaim, defendants averred that the construction of a
mausoleum on plaintiff's lot at a minimum cost of P100,000.00 was not oppressive and
unconscionable. They averred that the estimated amount was commensurate to the plan and
specified expensive materials to be used in the construction from which defendants did not
expect any unreasonable gain. They stressed that Rule 69 was made in good faith and was
adopted prior to plaintiff's purchase of the lot in question. They insisted that plaintiff was aware
of the existence of Rule 69 when the Pre-Need Purchase Agreement and Deed of Sale was
executed, that plaintiff made no protest thereto, and was therefore estopped from questioning
its application and enforcement.
Plaintiff testified that when she bought the memorial lot from defendant, she transferred
the remains of her father and husband on the said property. In August 1974, her daughter
Serconsicion died and was likewise buried in the memorial lot. 7 She narrated that she wanted
a mausoleum to be constructed over the niches of her loved ones to protect the remains of her
dead relatives. She requested Engr. Alex Tan to prepare a plan for a mausoleum. The blueprint
for the mausoleum was estimated at P60,000.00. Thereafter, plaintiff informed defendant
Tantoco of her intention to build a mausoleum on her lot. Tantoco retorted that plaintiff could
not hire an outside contractor to build a mausoleum. 8 Plaintiff was initially surprised by
Tantoco's statement because she knew that their contract did not provide for such stipulation.
Tantoco then offered to construct the mausoleum but at the lowest cost of P100,000.00,
excluding the stainless name and the Coloroof. 9 She also testified that when she bought the
lot on December 11, 1973, the agreement was that she would cause the construction of the
niche and all improvements necessary for the tombs. When asked by the court if the witness
had read the rules and regulations stated in the Pre-Need Purchase Agreement and the Deed
of Sale and Certificate of Perpetual Care, she answered in the negative. 10
 Plaintiff presented National Bureau of Investigation (NBI) Document Examiner
Bienvenido Albacea to prove that the rules and regulations of SFMPI were not yet in existence
on May 25, 1972. The witness declared that, as a document examiner since 1976, he examines
documents being questioned to determine their authenticity and source. Papers are likewise
examined to check if there is any forgery, and photographed to compare the original from the
photocopy. He declared that he conducted a laboratory examination and analysis of the original
of the rules and regulations of defendant and subjected the same under stereoscopic
microscope. He used measuring test plates to calibrate the size of the typewriter, the horizontal
and vertical pitch and slots of the typewriter used in the document. He concluded that the date
"May 25, 1972" was an intercalation on page one of defendant's rules and regulations and were
not typed in one and the same occasion as the other provisions on the document. 11
On cross-examination, Albacea admitted that it was possible that the date "May 25, 1972"
was typed on the same day when the other entries in the rules and regulations were typed. He
also admitted that the date could have been typed after the whole page one was removed from
the typewriter. 12 He produced test plates, a photograph enlargement, and the laboratory
analysis result of the original specimens, as well as the carbon duplicate of SFMPI Rules and
Regulations. HCacDE

On August 3, 1995, the trial court rendered judgment in favor of defendants. 13 The
dispositive portion of the decision reads:
WHEREFORE, premises considered, this Court hereby renders Judgment
against the plaintiff and in favor of the defendants. Consequently, [the] instant Complaint
is hereby DISMISSED.
No pronouncement on award of damages could be made as the same has not
been sufficiently proven.
SO ORDERED. 14
The trial court rejected the claim of plaintiff that defendants failed to inform her of the
rules and regulations of SFMPI. The court declared that she even informed them of her intention
to construct a mausoleum. According to the court a quo, this was proof that plaintiff was fully
aware of the rules and regulations of the memorial park; otherwise, she would not have sought
the permission of defendants of her intention to build a mausoleum. Plaintiff was obliged to
abide by the terms and conditions of the Pre-Need Purchase Agreement and the Deed of Sale
and the rules and regulations issued by defendant SFMPI.
On appeal, the CA affirmed the decision of the trial court. 15 The appellate court
ratiocinated that when the parties executed the Pre-Need Purchase Agreement, Dio agreed to
be bound not only by the existing rules and regulations for the use and governance of the
cemetery, but also future ones.
Aggrieved, Dio, now petitioner, filed the present petition for review on certiorari, alleging
that:
I. THE APPELLATE COURT ERRED IN RULING THAT THE DATE "MAY 25, 1972"
COULD NOT HAVE BEEN A BELATED ATTEMPT TO SHOW THAT RULE 69
WAS ADOPTED PRIOR TO PETITIONER'S PURCHASE OF THE MEMORIAL
LOT BECAUSE IT WAS POSSIBLE THAT SAID DATE COULD HAVE BEEN
TYPED RIGHT AFTER THE DOCUMENT CONTAINING RULE 69 WAS
PREPARED.
 II. THE APPELLATE COURT ERRED IN RULING THAT PETITIONER WAS BOUND
NOT ONLY BY RULES EXISTING AT THE TIME OF THE PURCHASE OF THE
MEMORIAL LOT BUT ALSO BY THOSE THAT MAY BE ADOPTED BY
RESPONDENTS AFTER THE PURCHASE.

III. THE APPELLATE COURT ERRED IN RULING THAT PETITIONER WAS BOUND
BY THE RULES BECAUSE SHE VOLUNTARILY ENTERED INTO THE SALE
AND PURCHASE OF THE MEMORIAL LOT.
IV. THE APPELLATE COURT ERRED IN SUSTAINING THE VALIDITY OF RULE 69
DESPITE THE FACT THAT IT WAS VOID FOR BEING CONTRARY TO LAW,
MORALS, PUBLIC ORDER, AND PUBLIC POLICY.
V. THE APPELLATE COURT ERRED IN NOT ORDERING RESPONDENTS TO PAY
PETITIONER DAMAGES AS PRAYED FOR IN HER COMPLAINT AND
PROVED DURING THE TRIAL. 16
The issues are whether or not petitioner had knowledge of Rule 69 of SFMPI Rules and
Regulations for memorial works in the mausoleum areas of the park when the Pre-Need
Purchase Agreement and the Deed of Sale was executed; and whether the said rule is valid
and binding upon petitioner. TSIDEa

Petitioner argues that respondents failed to prove that respondent SFMPI approved the
rules and regulations on May 25, 1972, before she purchased the lot. Petitioner avers that as
testified to by NBI Document Examiner Albacea, the rules and regulations were not drafted on
May 25, 1972. In any event, she never consented to comply with the memorial park rules and
regulations, and all amendments, additions, and modifications thereto. Petitioner further avers
that the questioned Rule 69 is unreasonable and oppressive, therefore, void for being contrary
to law, morals, public order, and public policy. Petitioner additionally denies being in estoppel
as she never made any admission or representation in the contracts she signed, which,
according to petitioner, were both contracts of adhesion.
Respondents, on the other hand, contend that petitioner's plea for injunction had become
moot and academic because petitioner had already caused the completion of said mausoleum
as early as July 8, 1997, in patent violation of the trial and appellate courts' orders to cease and
desist construction. Moreover, petitioner presented NBI Document Examiner Albacea as a
witness, and is thus barred from assailing the probative weight thereof. Respondents maintain
that the Pre-Need Purchase Agreement as well as the Deed of Sale and Certificate of Perpetual
Care are not contracts of adhesion, and petitioner could have easily refused to enter into said
contracts if she truly had concerns regarding any of the stipulations therein. Rule 69 of the
SFMPI Rules and Regulations does not permanently deprive the owners of their right to use
their own property; hence, the rule is not oppressive or unconscionable.
The petition is denied for lack of merit.
Time and again the Court has emphasized that findings of facts of lower courts,
particularly when affirmed by the appellate court, are deemed final and conclusive. The
Supreme Court cannot go over such findings on appeal, especially when they are borne out by
the records or are based on substantial evidence. It is not the function of this Court to analyze
or weigh the evidence all over again, unless there is a showing that the findings of the lower
court are entirely devoid of support or are glaringly erroneous as to constitute palpable error or
grave abuse of discretion. 17
The reason for the rule is that the trial court is in a better position to examine the
demeanor of the witnesses while testifying. Our jurisdiction is in principle limited to reviewing
errors of law that might have been committed by the CA. A fortiori, as in this case, where the
factual findings of the trial court are affirmed in toto by the CA, there is great reason for not
disturbing such findings and for regarding them as not reviewable by this Court. 18 There are
also settled exceptions to this rule: (1) when the factual findings of the CA and the trial court
are contradictory; (2) when the conclusion is a finding grounded entirely on speculation,
surmises, or conjectures; (3) when the inference made by the CA from its findings of fact is
manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in the
appreciation of facts; (5) when the appellate court, in making its findings, went beyond the
issues of the case and such findings are contrary to the admissions of both appellant and
appellee; (6) when the judgment of the CA is premised on a misapprehension of facts; (7) when
the CA failed to notice certain relevant facts which, if properly considered, would justify a
different conclusion; (8) when the findings of fact are themselves conflicting; (9) when the
findings of fact are conclusions without citation of the specific evidence on which they are
based; and (10) when the findings of fact of the CA are premised on the absence of evidence
but such findings are contradicted by the evidence on record. 19 In the case at bar, none of
these exceptions is present which would warrant a review of the factual findings of the courts
below. TCacIA

Under the Pre-Need Purchase Agreement executed by petitioner and respondents, the
parties covenanted that upon the completion of all payments by the purchaser, the seller would
convey to the purchaser a certificate of ownership to the aforesaid interment property for the
interment of human remains only. The certificate of SFMPI now existing or which may hereafter
be adopted for the government of said cemetery and said certificate shall be in the form used
by the seller, a copy of which petitioner acknowledged she had examined and approved.
Petitioner agreed to abide by all such rules and regulations governing SFMPI, 20 among them
Rule 69 which prevents lot owners from "contract[ing] other contractors for the construction of
the said buildings and memorial" but gives the owners free rein "to give their own design for the
mausoleum to be constructed, as long as it is in accordance with the park standards."
Under the Deed of Sale and Certificate of Perpetual Care, petitioner agreed to be
bound not only by the existing rules but also by future rules and regulations that may be
adopted by respondent SFMPI. It is also stated in the said rules and regulations kept in the
office of respondent which could be inspected by petitioner at any time:
2. The PURCHASER, his heirs, successors and assigns, shall have, hold and
use the property subject to the rules and regulations of SELLER for the government of
the cemetery now in force and those which may hereafter be adopted. A copy of said
rules and regulations and all amendments, additions and modifications thereto is kept
in the office of the SELLER and is subject to inspection by the PURCHASER at all times
during normal office hours. Said rules and regulations and all amendments, additions,
and modifications thereto are hereby incorporated herein and made integral parts
hereof by reference as if set forth herein in full. 21
Thus, when petitioner executed the Pre-Need Purchase Agreement and conformed to
the Deed of Sale, it was with full knowledge of the terms and conditions thereof, including the
rules and regulations issued by respondent SFMPI. Hence, petitioner is precluded from
asserting that she had no knowledge of said rules and regulations, and that she never
consented to comply with them. More importantly, petitioner cannot feign ignorance of said
rules. In law, whatever fairly puts a person on inquiry is sufficient notice, where the means of
knowledge are at hand, which if pursued by the proper inquiry, the full truth might have been
ascertained. 22 In this case, the appellate court declared:
x x x [k]knowledge will be imputed and may be implied from circumstances where
the circumstances known to one concerning a matter in which he is interested are
sufficient to require him, as an honest and prudent person, to investigate concerning
the rights of others in the same matter, and diligent investigation will lead to discovery
of any right conflicting with his own. 23
For its part, the trial court made the following findings:
Plaintiff's allegation that she was not aware of the said Rules and Regulations
lacks credence. Admittedly, in her Complaint and during the trial, plaintiff testified that
she informed the defendants of her intention to construct a mausoleum. Even counsel
for the plaintiff, who is the son of the plaintiff, informed the Court during the trial in this
case that her mother, the plaintiff herein, informed the defendants of her plan to
construct and erect a mausoleum. This act of the plaintiff clearly shows that she was
fully aware of the said rules and regulationsotherwise she should not consult, inform
and seek permission from the defendants of her intention to build a mausoleum if she
is not barred by the rules and regulations to do the same. When she signed the contract
between [sic] the defendants, she is [sic] estopped to question and attack the legality of
said contract later on. (Emphasis supplied) 24
Petitioner is obliged to abide by the terms and conditions of the Pre-Need Purchase
Agreement and the Deed of Sale, as well as said rules and regulations which formed integral
parts of said deeds.
Basic is the principle that contracts, once perfected, bind both contracting parties. 25 The
parties may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided these are not contrary to law, morals, good customs, public order, or
public policy. It follows that obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. 26
We quote with approval the ruling of the trial court:
The appellant's ownership of the memorial lot was subject to the rules and
regulations legally and validly restricting her enjoyment and use of the property. Art.
428, Civil Code, states that the owner has the right to enjoy and dispose of a thing
without other limitations than those established by law. It is recognized that the
limitations include those that are imposed by the will of the transmitting owner, that is,
the transmitting owner transfers his property by whatever title and imposes on the
acquirer whatever limitations he wishes as long as the limitations are not contrary to the
nature of ownership and not prohibited by law (e.g., servitudes, encumbrances,
prohibition against alienation).

Otherwise stated, the appellant should adhere to and comply with the terms and
conditions of the pre-need purchase agreement and the deed of sale and certificate of
perpetual care. Her perceived disadvantage does not amount to her deprivation of
property or other rights without due process of law considering that she had voluntarily
entered into the purchase and considering also that she remains free to exercise her
 right as property owner, under which she can build a mausoleum provided she does so
in accordance with the memorial park's standards and rules common to all owners of
lots. 27
Petitioner is an experienced businesswoman. She doubtlessly dealt with numerous
documents, and is therefore presumed to know the import thereof. It cannot be further
emphasized that it behooves every contracting party to learn and know the contents of an
instrument before signing and agreeing to it. 28
We are not persuaded by petitioner's claim that Rule 69 of respondent's rules and
regulations is unreasonable and oppressive because the provision unduly restricts her right of
ownership over the property. Rule 69 of the said rules and regulations is neither excessive nor
despotic. The rule itself specifies that the "lot owner is free to give their own design for the
mausoleum to be constructed, as long as it is in accordance with the park standards." Clearly,
the rule allows the construction of a mausoleum but with certain restrictions. Moreover, as the
proprietor of the entire memorial park, the formulation of a reasonable set of rules and
regulations is within the power of the management of respondent SFMPI. It is noteworthy that
the same rule permits petitioner, or any other buyer of memorial lot, to use the property for the
purpose for which it was contemplated. DaIACS

A contract of adhesion, wherein one party imposes a readymade form of contract on the
other, is not strictly against the law. 29 A contract of adhesion is as binding as ordinary contracts,
the reason being that the party who adheres to the contract is free to reject it
entirely. 30 Contrary to petitioner's contention, not every contract of adhesion is an invalid
agreement. As we had the occasion to state in Development Bank of the Philippines v. Perez: 31
x x x In discussing the consequences of a contract of adhesion, we held in Rizal
Commercial Banking Corporation v. Court of Appeals:
It bears stressing that a contract of adhesion is just as binding as ordinary
contracts. 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, Nevertheless,
contracts of adhesion are not invalid per se; they are not entirely prohibited. The
one who adheres to the contract is in reality free to reject it entirely; if he adheres,
he gives his consent. 32
The validity or enforceability of the impugned contracts will have to be determined by the
peculiar circumstances obtaining in each case and the situation of the parties concerned.
Indeed, Article 24 of the New Civil Code provides that "[in] all contractual, property or other
relations, when one of the parties is at a disadvantage on account of his moral dependence,
ignorance, indigence, mental weakness, tender age, or other handicap, the courts must be
vigilant for his protection." 33 In this case, however, there is no reason for the Court to apply the
rule on stringent treatment towards contracts of adhesion. To reiterate, not only is petitioner
educated, she is likewise a well-known and experienced businesswoman; thus, she cannot
claim to be the weaker or disadvantaged party in the subject contracts so as to call for a strict
interpretation against respondents. Moreover, she executed the Pre-Need Purchase
Agreement and Deed of Sale without any complaint or protest. She assailed Rule 69 of the
Rules and Regulations of respondent SFMPI only when respondents rejected her request to
cause the construction of the mausoleum.
 WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals in
CA-G.R. CV No. 52311 dated May 10, 2005, and the Resolution dated September 6, 2005, are
AFFIRMED. Costs against petitioner.
SO ORDERED.
(Dio v. St. Ferdinand Memorial Park, Inc., G.R. No. 169578, [November 30, 2006], 538 PHIL
|||

944-960)
 FIRST DIVISION

[G.R. No. 156437. March 1, 2004.]

NATIONAL HOUSING AUTHORITY, petitioner, vs. GRACE BAPTIST

CHURCH and the COURT OF APPEALS, respondents.

DECISION

YNARES-SANTIAGO, J : p

This is a petition for review under Rule 45 of the Rules of Court, seeking to reverse the
Decision of the Court of Appeals dated February 26, 2001, 1 and its Resolution dated November
8, 2002, 2 which modified the decision of the Regional Trial Court of Quezon City, Branch 90,
dated February 25, 1997. 3
On June 13, 1986, respondent Grace Baptist Church (hereinafter, the Church) wrote a
letter to petitioner National Housing Authority (NHA), manifesting its interest in acquiring Lots 4
and 17 of the General Mariano Alvarez Resettlement Project in Cavite. 4 In its letter-reply dated
July 9, 1986, petitioner informed respondent:
In reference to your request letter dated 13 June 1986, regarding your application
for Lots 4 and 17, Block C-3-CL, we are glad to inform you that your request was granted
and you may now visit our Project Office at General Mariano Alvarez for processing of
your application to purchase said lots.
We hereby advise you also that prior to approval of such application and in
accordance with our existing policies and guidelines, your other accounts with us shall
be maintained in good standing. 5
Respondent entered into possession of the lots and introduced improvements thereon. 6
On February 22, 1991, the NHA's Board of Directors passed Resolution No. 2126,
approving the sale of the subject lots to respondent Church at the price of P700.00 per square
meter, or a total price of P430,500.00. 7 The Church was duly informed of this Resolution
through a letter sent by the NHA. 8
On April 8, 1991, the Church tendered to the NHA a manager’s check in the amount of
P55,350.00, purportedly in full payment of the subject properties. 9 The Church insisted that
this was the price quoted to them by the NHA Field Office, as shown by an unsigned piece of
paper with a handwritten computation scribbled thereon. 10 Petitioner NHA returned the check,
stating that the amount was insufficient considering that the price of the properties have
changed. The Church made several demands on the NHA to accept their tender of payment,
but the latter refused. Thus, the Church instituted a complaint for specific performance and
damages against the NHA with the Regional Trial Court of Quezon City, 11 where it was
docketed as Civil Case No. Q-91-9148.
On February 25, 1997, the trial court rendered its decision, the dispositive portion of
which reads:
 WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Ordering the defendant to reimburse to the plaintiff the amount of P4,290.00
representing the overpayment made for Lots 1, 2, 3, 18, 19 and 20;
2. Declaring that there was no perfected contract of sale with respect to Lots 4
and 17 and ordering the plaintiff to return possession of the property to the defendant
and to pay the latter reasonable rental for the use of the property at P200.00 per month
computed from the time it took possession thereof until finally vacated. Costs against
defendant.
SO ORDERED. 12
On appeal, the Court of Appeals, affirmed the trial court’s finding that there was indeed
no contract of sale between the parties. However, petitioner was ordered to execute the sale of
the lots to Grace Baptist Church at the price of P700.00 per square meter, with 6% interest per
annum from March 1991. The dispositive portion of the Court of Appeals’ decision, dated
February 26, 2001, reads:
WHEREFORE, the appealed Decision is hereby AFFIRMED with the
MODIFICATION that defendant-appellee NHA is hereby ordered to sell to plaintiff-
appellant Grace Baptist Church Lots 4 and 17 at the price of P700.00 per square meter,
or a total cost P430,000.00 with 6% interest per annum from March, 1991 until full
payment in cash.
SO ORDERED. 13
The appellate court ruled that the NHA's Resolution No. 2126, which earlier approved
the sale of the subject lots to Grace Baptist Church at the price of P700.00 per square meter,
has not been revoked at any time and was therefore still in effect. As a result, the NHA was
estopped from fixing a different price for the subject properties. Considering further that the
Church had been occupying the subject lots and even introduced improvements thereon, the
Court of Appeals ruled that, in the interest of equity, it should be allowed to purchase the subject
properties. 14
Petitioner NHA filed a Motion for Reconsideration which was denied in a Resolution dated
November 8, 2002. Hence, the instant petition for review on the sole issue of: Can the NHA be
compelled to sell the subject lots to Grace Baptist Church in the absence of any perfected
contract of sale between the parties?
Petitioner submits that the Court cannot compel it to sell the subject property to Grace
Baptist Church without violating its freedom to contract. 15 Moreover, it contends that equity
should be applied only in the absence of any law governing the relationship between the parties,
and that the law on sales and the law on contracts in general apply to the present case. 16
We find merit in petitioner’s submission.
Petitioner NHA is not estopped from selling the subject lots at a price equal to their fair
market value, even if it failed to expressly revoke Resolution No. 2126. It is, after all, hornbook
law that the principle of estoppel does not operate against the Government for the act of its
agents, 17 or, as in this case, their inaction.HTcDEa

On the application of equity, it appears that the crux of the controversy involves the
characterization of equity in the context of contract law. Preliminarily, we reiterate that this
Court, while aware of its equity jurisdiction, is first and foremost, a court of law. While equity
might tilt on the side of one party, the same cannot be enforced so as to overrule positive
provisions of law in favor of the other. 18 Thus, before we can pass upon the propriety of an
application of equitable principles in the case at bar, we must first determine whether or not
positive provisions of law govern.
It is a fundamental rule that contracts, once perfected, bind both contracting parties, and
obligations arising therefrom have the force of law between the parties and should be complied
with in good faith. 19 However, it must be understood that contracts are not the only source of
law that govern the rights and obligations between the parties. More specifically, no contractual
stipulation may contradict law, morals, good customs, public order or public policy. 20 Verily, the
mere inexistence of a contract, which would ordinarily serve as the law between the parties,
does not automatically authorize disposing of a controversy based on equitable principles
alone. Notwithstanding the absence of a perfected contract between the parties, their
relationship may be governed by other existing laws which provide for their reciprocal rights
and obligations.
It must be remembered that contracts in which the Government is a party are subject to
the same rules of contract law which govern the validity and sufficiency of contract between
individuals. All the essential elements and characteristics of a contract in general must be
present in order to create a binding and enforceable Government contract. 21
It appearing that there is no dispute that this case involves an unperfected contract, the
Civil Law principles governing contracts should apply. In Vda. de Urbano v. Government
Service Insurance System, 22 it was ruled that a qualified acceptance constitutes a counter-
offer as expressly stated by Article 1319 of the Civil Code. In said case, petitioners offered to
redeem mortgaged property and requested for an extension of the period of redemption.
However, the offer was not accepted by the GSIS. Instead, it made a counter-offer, which
petitioners did not accept. Petitioners again offer to pay the redemption price on staggered
basis. In deciding said case, it was held that when there is absolutely no acceptance of an offer
or if the offer is expressly rejected, there is no meeting of the minds. Since petitioners’ offer was
denied twice by GSIS, it was held that there was clearly no meeting of the minds and, thus, no
perfected contract. All that is established was a counter-offer. 23
In the case at bar, the offer of the NHA to sell the subject property, as embodied in
Resolution No. 2126, was similarly not accepted by the respondent. 24 Thus, the alleged
contract involved in this case should be more accurately denominated as inexistent. There
being no concurrence of the offer and acceptance, it did not pass the stage of generation to the
point of perfection. 25 As such, it is without force and effect from the very beginning or from its
incipiency, as if it had never been entered into, and hence, cannot be validated either by lapse
of time or ratification. 26 Equity can not give validity to a void contract, 27 and this rule should
apply with equal force to inexistent contracts.
We note from the records, however, that the Church, despite knowledge that its intended
contract of sale with the NHA had not been perfected, proceeded to introduce improvements
on the disputed land. On the other hand, the NHA knowingly granted the Church temporary use
of the subject properties and did not prevent the Church from making improvements thereon.
Thus, the Church and the NHA, who both acted in bad faith, shall be treated as if they
were both in good faith. 28 In this connection, Article 448 of the Civil Code provides:
The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after
 payment of the indemnity provided for in articles 546 and 548, or to oblige the one who
built or planted to pay the price of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land and if its value is
considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the building or
trees after proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.

Pursuant to our ruling in Depra v. Dumlao, 29 there is a need to remand this case to the
trial court, which shall conduct the appropriate proceedings to assess the respective values of
the improvements and of the land, as well as the amounts of reasonable rentals and indemnity,
fix the terms of the lease if the parties so agree, and to determine other matters necessary for
the proper application of Article 448, in relation to Articles 546 and 548, of the Civil Code.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The Court of Appeals'
Decision dated February 26, 2001 and Resolution dated November 8, 2002 are REVERSED
and SET ASIDE. The Decision of the Regional Trial Court of Quezon City-Branch 90, dated
February 25, 1997, is REINSTATED. This case is REMANDED to the Regional Trial Court of
Quezon City, Branch 90, for further proceedings consistent with Articles 448 and 546 of the
Civil Code.
No costs.
SO ORDERED.
(National Housing Authority v. Grace Baptist Church, G.R. No. 156437, [March 1, 2004], 468
|||

PHIL 266-276)
 SECOND DIVISION

[G.R. No. 104404. May 6, 1993.]

SPOUSES TIU PECK and LEE YOK YAN, petitioners, vs. THE
HONORABLE COURT OF APPEALS (Seventeenth Division) and SPOUSES
CONCHITA M. RUBIATO and TAN KING,respondents.

J.P. Villanueva & Associates for petitioners.

Estanislao L. Cesa, Jr. for private respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT, LAW BETWEEN THE

PARTIES; CASE AT BAR. — There is no question that petitioners and the private respondents
voluntarily entered into the agreement to apportion or divide their businesses, whether as
partners or co-owners. That agreement is the law between them. Contracts shall be obligatory
in whatever form they may have been entered into, provided all the essential requisites for their
validity are present. The fact that after signing the agreement both parties immediately took
possessionof their respective shares is the most compelling evidence that there was indeed a
binding partition of the properties. Contracts, once perfected, have the force of law between the
parties who are bound to comply therewith in good faith, and neither one may, without the
consent of the other, renege therefrom.
2. ID.; ID.; CONTRACTS; MAY NOT BE OVERTURNED BY INCONCLUSIVE PROOF. —
Contracts solemnly and deliberately entered into may not be overturned by inconclusive proof
or by reason of mistake of one of the parties to which the other in no way has contributed.
3. ID.; ID.; ID.; TITLE THEREOF DOES NOT NECESSARILY DETERMINE ITS NATURE. —
The title of the contract does not necessarily determine its true nature.

DECISION

PADILLA, J : p

This is a petition for review on certiorari of the decision 1 of the Seventeenth

Division of respondent Court of Appeals in CA-G.R. CV No. 24912, dated 11 October 1991,
modifying the trialcourt's judgment.
The antecedent facts of the case are as follows:
In his lifetime, Joaquin Tiu Singco; father of petitioner Tiu Peck, owned and operated the
Argentina Trading, a business engaged in the buying and selling of lumber, hardware and
general merchandise in San Marcelino, Zambales. Helping him run the business were private
respondents: Tan King who helped manage the store and receiving P200.00 a month, while his
wife Conchita M. Rubiato did the marketing and cooking for which work she received a
salary of around P180.00 to P240.00 a month. The business license was, however, in the
name of Conchita M. Rubiato. LLphil

After the death of Joaquin Tiu Singco in 1974, Tiu Peck took over and continued the business
left by his father. Tan King and Conchita M. Rubiato continued to help him in the
management ofthe said business, eventually becoming partners thereof.
Sometime in 1983, petitioners and private respondents decided to end their business
partnership. Accordingly, they sought the help of five (5) respected members of the Filipino
Chinese Chamber of Commerce and Industry of Olongapo City (of which petitioners and
private respondents are members) to act as middlemen. Together with the five (5)
middlemen, Tiu Peck and Tan King discussed the manner of their separation and the
liquidation of the partnership properties. As a result of the discussion, an "Agreement on the
Apportionment of Partnership Business" was drawn up. Tiu Peck, also known as Lim Yan
Chiao, and Tan King, also known as Tiu To Suan, both signed the Agreement to which the five
(5) middlemen also affixed their signatures as witnesses.
The abovesaid Agreement reads as follows:
"AGREEMENT ON THE APPORTION OF
PARTNERSHIP BUSINESSES
The undersigned LIM YAN CHIAO and TIU TO SUAN hereby agreed to terminate their
partnership in business and apportion(ment) of their lumber and hardware store and
piggery farm under following conditions:
First: The joint business shall be divided and apportioned on a lottery basis.
Second: The collection of accounts receivable to the partnerships (sic) shall be divided
into four phases, such accounts shall be collected by the person who gets the lot, and
the collected funds shall be divided equally by the partners after deducting commissions
as follows:
First phase — 20% commission
Second phase — 30% commission
Third phase — 40% commission
Fourth phase — 50% commission
Third: The partnership shall appropriate an amount of funds for the
separation of employees of the partnership, which shall be sole responsibility of the lot
winners concerned henceforth.
Fourth: The partnership shall likewise appropriate an amount of funds to the lot winners
concerned for the payment of unpaid taxes and fees. cdphil

Fifth: The joint business are estimated of its assets as follows:.

(a) Lumber & Hardware — One Million and Six Hundred Thousand Pesos
(P1,600,000.00) including building and lot, and all the merchandise.
(b) Piggery — One Million Pesos (P1,000.000.00) including the building
and lot and all the goods including the feeds.
 Sixth: The person who win(s) the lot for the lumber and hardware shall give Three
Hundred Thousand Pesos (P300,000.00) to the person who got (sic) the lot for the
piggery.
Seventh: This agreement shall take effect upon the lottery.
Done on the 31st day of August on the year of our Lord Nineteen Hundred and Eighty-
Three.
(Sgd.) LIM YAN CHIAO (Sgd.) TIU TO SAUNA
Lim Yan Chiao got the lot of the Lumber
Tiu To Suan got the lot of the piggery.
Witnesses:
(Sgd.) CHUA PUN SU (Sgd.) CO CHU TONG
(Sgd.) Ting Kok Bin (Sgd.) CHENG SUY LEY
(Sgd.) Ting Kim Yek" 2
Immediately thereafter, Tiu Peck took possession of the lumber and hardware business
including the lot and building as well as the merchandise therein. On the other hand, Tan King
and Conchita M. Rubiato took possession of the piggery business, the lot and all the
improvements thereon as well as the hogs.
After three (3) years, or specifically on 21 April 1986, private respondents wrote petitioners
demanding partition of the same properties subject of the Agreement of 31 August 1983.
Eventually, private respondents filed an action against petitioners for partition of the
parcel of land covered by TCT No. T-24999 where the lumber and hardware business was
conducted and the parcel of land covered by Tax Declaration No. 10985 where the piggery
business was located.
After trial, the Regional Trial Court of the Third Judicial Region, Branch 72, Olongapo City,
rendered judgment, declaring, among other things, that the parcels of land covered by Transfer
Certificate of Title No. T-24999 and Tax Declaration No. 10985 are owned in common by the
plaintiffs (private respondents) and the defendants (petitioners) in pro-indiviso equal shares;
that the plaintiffs (private respondents) are the owners of the building covered by Tax
Declaration No. 59345 built on the parcel of land covered by TCT No. T-24999; and ordering
plaintiffs and defendants to partition the said parcels of land among themselves. prLL

Petitioners (as defendants) appealed the above decision to respondent Court of Appeals. On
11 October 1991, respondent Court promulgated the challenged decision modifying the
trialcourt's judgment as follows:
"WHEREFORE, the judgment appealed from is modified, to read as follows:
1. The parcel of land covered by Transfer Certificate of Title No. T-24999 (Exhibit A),
the building erected thereon covered by Tax Declaration No. 59345 (Exhibit B), and the
parcel of land covered by Tax Declaration No. 10985 (Exhibit I) are declared owned in
common by the plaintiffs spouses Conchita M. Rubiato and Tan King and the appellants
spouses Tiu Peck and Lee Yok Yan, pro-indiviso in equal shares, which properties are
hereby ordered partitioned in accordance with the provisions of Rule 69 of the Revised
Rules of Court, the trial Court to follow the procedure provided therein;
2. The defendants are ordered to return to the plaintiffs the personal belongings kept in
the building covered by Tax Declaration No. 59345 (Exhibit B); and
 3. The defendants' counterclaim against the plaintiffs is dismissed.
No pronouncement as to costs in this instance.
SO ORDERED." 3
Undaunted, petitioners are now before us seeking a review of respondent court's decision and
assigning the following errors to said court:
"A. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
DISREGARDING THE RESULT OF THE PARTITION AGREEMENT ENTITLED
'AGREEMENT ON THE APPORTION (SIC) OFPARTNERSHIP BUSINESSES' BY
DECLARING THE PROPERTIES SUBJECT THEREIN AGAIN AS OWNED IN
COMMON BY THE PETITIONERS AND RESPONDENT PRO INDIVISO AND
ORDERING A NEW PARTITION UNDER RULE 69 THUS SUPERSEDING AND
VIOLATING THE BINDING AGREEMENT THAT WERE (SIC) ALREADY EXECUTED
AND CONSUMMATED BY AND BETWEEN THE CO-OWNERS, WHICH TOOK
EFFECT THREE YEARS AGO, BEFORE THE RESPONDENT FILED THE PETITION
FOR PARTITION.
B. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN
DISREGARDING THE PRINCIPLE THAT THE CONTRACT ONCE PERFECTED HAS
THE FORCE OF LAW BETWEEN THE PARTIES WITH WHICH THEY ARE BOUND
TO COMPLY IN GOOD FAITH AND NEITHER ONE OF THE PARTIES WITHOUT THE
CONSENT OF THE OTHER RENEGE ON (SIC) THEREFROM.
C. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN COMPLETELY
IGNORING THE PRINCIPLE OF EQUITY APPLICABLE IN THE CASE AT BAR IN
ORDER TO PROTECT THE VESTED RIGHTS THAT ACCRUED TO THE
PETITIONERS WHEN THE PARTIES HAD ACTUALLY IMPLEMENTED AND
EXECUTED THE PARTITION AGREEMENT, AND WHO HAD EXERCISE(D)
OWNERSHIP OR ACTS OF STRICT DOMINION OVER THE PROPERTIES
ALLOTED TO EACH BY VIRTUE OF THE AGREEMENT.
D. THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN COMPLETELY
IGNORING THE PRINCIPLE OF ESTOPPEL APPLICABLE AGAINST THE
RESPONDENT THAT HAS BARRED THEM FROM QUESTIONING THE BINDING
FORCE AND EFFECT OF THE AGREEMENT." 4
The foregoing recital of errors may be reduced to two (2) principal issues.
The first issue concerns the alleged business partnership between Tiu Peck on the one hand
and the spouses Tan King and Conchita M. Rubiato on the other. LLjur

We agree with the resolution of the respondent court on this issue.

"To begin with, it cannot be said that there was a business partnership between the
appellants on the one hand and the appellees on the other, absent the required public
instrument constituting the partnership, immovable properties having been contributed
by the parties (Article 1771, Civil Code) and recording thereof in the Securities and
Exchange Commission (Article 1772, Civil Code).

Nonetheless, the parties may be deemed as co-owners of the real properties and the
businesses they are engaged in mentioned in the agreement aforequoted (Exhibits 62
and 63). (Underscoring supplied).
 But the parties be (they) partners or co-owners as the case may be, the parcel of land
mentioned in the agreement (Exhibits 62 and 63) where the lumber and hardware
business wag conducted, covered by TCT No. 24999 (Exhibit A), and the building
erected thereon covered by Tax Declaration No. 59345 (Exhibit B); and the
parcel of land where their piggery business was located, covered by Tax Declaration
No. 10985 (Exhibit I), 'including the building and lot and all the goods including the feeds'
therein belong to appellants on the one hand and appellees on the other." 5
Following the abovequoted ratiocination of respondent court, we expected it to then rule on the
validity and binding effect of the partition of the subject properties between the two (2)
contending parties as co-owners. Unfortunately, it diverted from the trend of its position when
it disregarded the real intention of the parties which was to divide the businesses and properties
owned by them in common. Respondent court itself perceived this intention when it stated:
". . . Such is the import of their agreement where appellant Tiu Peck and appellee Tan
King 'agreed to terminate their partnership in business and apportion' their lumber and
hardware business valued P1,600,000, 'including (the) building and lot, and all the
merchandise' and piggery valued P1,000,000, `including the building and lot and all the
goods including the feeds' (Exhibits 62 and 63)." 6 (Emphasis supplied).
It should be noted that private respondent Conchita M. Rubiato initiated the move to terminate
the so-called partnership when she informed Tiu Peck that since their children were already
grown-up, it was a propitious time for them to separate their businesses. To this
proposal, Tiu Peck agreed. With the help of five (5) respected middlemen, they drew up on 31
August 1983 the Agreement on the Apportionment of Partnership Businesses which they all
signed. There can be no doubt, therefore, that the two (2) parties wanted to go their separate
ways in their business and to get their respective shares of the properties which they owned in
common when they drew up and executed the 31 August 1983 agreement.
This brings us to the second issue: whether or not the agreement of 31 August 1983 is valid
and binding between the petitioners and private respondents.
There is no question that petitioners and the private respondents voluntarily entered into the
agreement to apportion or divide their businesses, whether as partners or co-owners. That
agreement is the law between them. Contracts shall be obligatory in whatever form they may
have been entered into, provided all the essential requisites for their validity are present. 7 The
fact that after signing the agreement both parties immediately took possession of their
respective shares is the most compelling evidence that there was indeed a binding
partition of the properties. Contracts, once perfected, have the force of law between the parties
who are bound to comply therewith in good faith, and neither one may, without the
consent of the other, renege therefrom. 8
And, as held by respondent court, even though petitioner Lee Yok Yan and respondent
Conchita M. Rubiato were not actual signatories to the agreement, nonetheless, such
agreement is persuasive for or against them. Indeed, private respondents have no justification
to refuse delivery of TCT No. T-24999 to petitioners after they agreed to the partition and
consequently took possession of the piggery business and operated it for three (3) years before
changing their minds and seeking a new partition. It has not been explained by them — as
perhaps explanation is not possible — why it took them three (3) years before they decided for
another partition of the same properties subject of their agreement on 31 August 1983. LLjur
 ". . . Contracts solemnly and deliberately entered into may not be overturned by
inconclusive proof or by reason of mistake of one of the parties to which the other in no
way has contributed."9
The respondent court, in our view, erred in ordering another partition after ruling that there is
no partnership but a co-ownership of the real properties and businesses between the
petitioners and private respondents.
Moreover, the title of the contract does not necessarily determine its true nature.
"The acts of the contracting parties, subsequent to, and in connection with, the
performance of the contract must be considered in the interpretation of the contract . . .
To determine the nature of a contract, courts do not have or are not bound to rely upon
the name or title given it by the contracting parties . . . but the way the contracting parties
do or perform their respective obligations, stipulated or agreed upon may be shown and
inquired into, and should such performance conflict with the name or title given the
contract by the parties, the former must prevail over the latter." 10
WHEREFORE, in view of the foregoing, the decision appealed from ordering the partition of the
properties in question is hereby SET ASIDE. Accordingly:
1. the partition of the properties subject of the Agreement On the Apportionment of Partnership
Businesses, dated 31 August 1983, is hereby declared valid and binding between petitioners
and the private respondents;
2. Transfer Certificate of Title No. T-24999 (Exhibit A) covering the lot of the lumber and
hardware business as well as Tax Declaration No. 59345 covering the building thereon are
hereby ordered consolidated in the name of petitioners;
3. the Register of Deeds of Zambales is hereby ordered to issue a new Transfer
Certificate of Title in the names of petitioners Tiu Peck and Lee Yok Yan in lieu of TCT No. T-
24999, Book No. T-230, page 199; and
4. the lot covered by Tax Declaration No. 10985 and all improvements therein devoted to the
piggery business are declared properties of the private respondents; and
5. the petitioners are ordered to return to private respondents the personal belongings kept in
the building covered by Tax Declaration No. 59345 (Exhibit B).
Cost against private respondents. LLphil

SO ORDERED.
||| (Spouses Tiu Peck and Lee Yok Yan v. Court of Appeals, G.R. No. 104404, [May 6, 1993])
 FIRST DIVISION

[G.R. No. 146021. March 10, 2006.]

BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. ELIZABETH G.

SARMIENTO, respondent.

DECISION

AUSTRIA-MARTINEZ, J : p

Before the Court is a petition for review on certiorari filed by Bank of the Philippine Islands
(petitioner) seeking to annul the Decision dated September 15, 2000 1 and the Resolution dated
November 13, 2000 2 of the Court of Appeals (CA) in CA G.R. CV No. 50135 affirming in
toto the decision of the Regional Trial Court of Quezon City dismissing the complaint for sum
of money filed by petitioner against Elizabeth Sarmiento (respondent).
The factual backdrop as found by the CA is as follows:
Appellee Sarmiento was the assistant manager of appellant bank's España
Branch. Sometime in 1987, the España Branch was investigated for several alleged
anomalous transactions involving time deposits (Exhibit A). Among the suspects in the
alleged scam was appellee Sarmiento. From October 10, 1987 to June 30, 1988,
appellee Sarmiento did not regularly report for work but went to her office in the bank
only once in a while. She however received her full salary for the said period totaling
P116,003.52. Subsequently, she received a demand from the appellant bank to return
said amount because it was mistakenly paid to her. She refused to do so and so
appellant bank instituted an action for collection in the court below.
Appellant bank asserted that since appellee Sarmiento did not actually work
during the period adverted to, she was not therefore, entitled to receive any salary. The
payment to her of said salary was a mistake.
According to appellee Sarmiento however, when an internal audit was being
undertaken in connection with the investigation of the alleged bank scam, Vice
President Arturo Kimseng of the Audit Department of appellant bank verbally directed
her to stop working while the investigation was going on. This directive was obviously
for the purpose of preventing appellee Sarmiento from tampering with the records or
from influencing her subordinates to cover-up for her. It was because of said oral
instruction that appellee Sarmiento went to office sparingly. 3
On April 3, 1995, the Regional Trial Court of Quezon City, Branch 98, dismissed 4 the
complaint for failure of petitioner to establish its case by preponderance of evidence with costs
against it. The trial court found that the principle of solutio indebiti upon which petitioner based
its complaint for a sum of money is untenable. It ruled that since respondent was petitioner's
Assistant Manager at the España Branch, she was a managerial employee who was not under
obligation to punch in her card in the bundy clock; that she was allowed to visit the business
establishments of petitioner's several clients thus she could not be seen reporting for work
which was not a conclusive proof that she was not rendering service to her employer; that
respondent was lawfully entitled for payment of her salaries for the period from October 10,
1987 to June 30, 1988, amounting to P116,003.52; that petitioner's averment that during the
periods aforementioned respondent had already ceased reporting rest on a very shaky ground
since respondent claimed that she was instructed by petitioner's Assistant Vice-President of
the Auditing Department to refrain from reporting regularly inasmuch as there was an on-going
internal audit; that petitioner failed to present countervailing evidence on this point, hence such
claim remained unrebutted; and that petitioner did not even bother to adduce clear and
convincing evidence when the services of respondent was terminated. TCaEIc

Petitioner filed its appeal with the CA which in a Decision dated September 15, 2000
affirmed the Decision of the trial court and dismissed the appeal. Petitioner's motion for
reconsideration was likewise denied in a Resolution dated November 13, 2000.
In finding for the respondent, the CA made the following disquisition:
These are admitted or fully established facts which constitute the foundation of
this Court's verdict, to wit:
1. Appellee Sarmiento was an assistant manager of appellant bank's España
Branch and therefore was a managerial employee.
2. As a managerial employee, appellee Sarmiento was not required to report for
work in accordance with a definite time schedule.
3. For the period, October 10, 1987 to June 30, 1988, appellee Sarmiento went
to her office only once in a while but received her full salary for said period.
4. According to appellant bank, appellee Sarmiento's services in said bank were
terminated on August 26, 1988. Consequently, for the period, October 10, 1987 to June
30, 1988, appellee was still an employee of the bank.
5. During the period in question, appellee Sarmiento was not suspended from
office.
6. No criminal, civil or administrative action has been instituted by appellant bank
against appellee Sarmiento.
In this suit, the basis of appellant's bank's claim for reimbursement of the salary
paid to appellee Sarmiento for the period in question is the rule of "no work, no pay".
Since she did not work during the period in question, she was not entitled to any salary.
Appellee Sarmiento counters this position with the argument that the reason why she
did not report for work regularly was because she was verbally instructed by Vice-
President Arturo Kimseng not to report for work while the investigation in the bank was
going on. Consequently, it was not her desire, much less her fault, that she went to
office very rarely.
The only issue to resolve is whether or not appellee Sarmiento was indeed
verbally instructed by Vice President Arturo Kimseng not to report for work while the
investigation was still going on.
It is true that Vice President Arturo Kimseng denied having given said oral
instruction to appellee Sarmiento. That notwithstanding, this Court shares the view of
the lower court that indeed appellee Sarmiento was enjoined from reporting for work
during the period of investigation.
This is plausible because it jibes with the common practice in the business world.
When a managerial employee is under investigation, the employer has three options.
 First: to suspend the managerial employee during the period of investigation — but this
entails notice and hearing to comply with the demands of administrative due process.
Second: to allow the managerial employee to continue working during the period of
investigation so that the employer can derive benefit out of the salary being paid to the
former. Third: to let the managerial employee discontinue working during the period of
investigation but continue paying his salary. Usually, the employers choose the third
option because they consider the salary paid without work a reasonable price to pay for
ensuring the integrity of the records under the control and to avoid influence being
exerted upon subordinate employees who may be potential witnesses against the
former.
If there had been no such instruction to appellee Sarmiento, why did not the
branch manager or even higher corporate officials call her attention for not reporting to
office regularly? If her attention was called but she continued to be absent, why was
she not suspended? Why was her salary paid? These questions were not satisfactorily
answered by appellant bank.
Accordingly, this Court holds that the payment of the salary to appellee
Sarmiento during the period in question was correct and the latter's receipt was legal.
She has therefore, no obligation to return it. 5
Hence, the instant petition for review on the following grounds:
I. The Honorable Court of Appeals erred in holding based on a misapprehension
of facts that the "only issue to resolve is whether it is true or not that appellee Sarmiento
was indeed verbally instructed by Vice President Arturo Kimseng not to report for work
while the investigation was still going on."
II. In connection with the foregoing, the Honorable Court of Appeals also erred in
holding without any basis at all, that it "shares the view of the lower court that indeed
appellee Sarmiento was enjoined from reporting for work during the period of
investigation."
III. The Honorable Court of Appeals erred in holding based entirely on
speculations, surmises or conjectures that "the payment of the salary to appellee
Sarmiento during the period in question was correct and the latter's receipt (thereof)
was legal" and accordingly, "she has therefore no obligation to return it."
IV. The Honorable Court of Appeals erred in dismissing the appeal of BPI and
affirming the Decision under appeal. 6
Respondent filed her Comment. Subsequently, upon directive of the Court, the parties
submitted their respective memoranda.
Petitioner claims that: when the CA declared that the only issue to resolve is whether it
is true or not that appellee Sarmiento was indeed verbally instructed by Assistant Vice-
President Arturo Kimseng (AVP Kimseng) not to report for work while the investigation was still
going on, the CA impliedly acknowledged that it is convinced that respondent did not report for
work while the investigation was going on; petitioner fully agrees with the CA in making such
an assumption as it was based on the evidence on record; it was even respondent who admitted
in her Answer to the complaint as well as in her testimony in cross-examination that she stopped
reporting for work on September 12, 1987; the CA erred in its assumption that AVP Kimseng
had the power or authority to order or direct respondent not to report for work since no evidence
was presented by the defense to that effect; AVP Kimseng rebutted such claim when he testified
that he had no authority to do so; if it was really petitioner's intention not to allow respondent to
report for work and yet pay her salaries, there is no reason why it should now proceed to recover
from her; it is not uncommon for an employee who is under investigation to cease from reporting
for work on her own because she does not want to cooperate or to participate in the
investigation being conducted. DEHcTI

The Court dismisses the petition.

It is a settled rule that in the exercise of the Supreme Court's power of review, the Court
is not a trier of facts and does not normally undertake the re-examination of the evidence
presented by the contending parties during the trial of the case considering that the findings of
facts of the CA are conclusive and binding on the Court. 7 Jurisprudence has recognized
several exceptions in which factual issues may be resolved by this Court, such as: (1) when
the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings
of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the
issues of the case, or its findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by
the respondent; (10) when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; or (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion. 8 None of these exceptions find application in
the present case.
After a thorough review of the instant case, the Court finds that the petition raises no
substantial question of law. The questions raised as to whether or not respondent was verbally
instructed not to report for work by petitioner's AVP Kimseng while the investigation was going
on and whether he possesses such authority considering that on rebuttal, he denied having
given such instruction claiming that he had no authority to do so, are patently questions of fact
beyond the pale of Rule 45 of the Rules of Court which mandates that only questions of law be
raised in the petition.
The Court finds no cogent reason to deviate from the findings of the trial court and the
CA that respondent is entitled to the payment of her salary from October 10, 1987 to June 30,
1988. Petitioner's witness, Eduardo Cascarro, Head of the Branches Division Investigation Unit,
testified that respondent was terminated only on August 26, 1988, 9 thus, there is no question
that respondent was still an employee of petitioner during the period in question. There was no
showing that respondent was even suspended during the said period.
Although respondent testified that she stopped reporting for work on September 12,
1987, she also testified on cross-examination that she still went to her office from September
to December 1987 although admittedly she was not doing anything but she still received her
salary. The Court likewise agrees with the CA that respondent could not be faulted for not
reporting for work because she merely complied with the verbal instruction of AVP Kimseng not
to report for work when the latter was conducting the investigation of the branch for anomalies.
While AVP Kimseng denied that he made such instruction and declared that he had no authority
to give such instruction, the trial court gave more credence to the testimony of respondent that
indeed she was instructed not to report for work.
We find no cogent reason to disturb the findings of the trial court in light of the settled
rule that the evaluation of the testimonies of witnesses by the trial court is entitled to the highest
respect because such court has the direct opportunity to observe the witnesses' demeanor and
manner of testifying and thus, is in a better position to assess their credibility. 10
The CA finding was supported by the evidence on record. Petitioner contends that
respondent was not reporting for work from October 10, 1987 to June 30, 1988, however,
petitioner failed to show why its España Branch Manager allowed respondent to be absent or
not to do anything during that period if indeed there was no such instruction from AVP Kimseng
for her not to report for work. It bears stressing that as an Assistant Branch Manager,
respondent has some official duties to perform pertaining to the internal operation of petitioner's
branch and yet her Branch Manager allowed her to be absent for such a long period of time
without calling her attention on such absences. The only plausible explanation is that, as
declared by respondent, which remained unrebutted, she had relayed to her Branch Manager
the verbal instruction of AVP Kimseng for her not to report for work while the investigation was
on-going. If indeed there was no such instruction, the Branch Manager could have immediately
called respondent's attention regarding her absences and that she should have been required
to perform her official duties inside the branch office. And if she continued to be absent, she
could have been sanctioned or given the corresponding memorandum. Moreover, there is no
evidence to show that such absences, if unauthorized, were reported by the Branch Manager
to higher authorities of petitioner. On the contrary, without qualification or reservation,
respondent's salary and other benefits were given to her by petitioner during the said period. CHcESa

Petitioner insists that its payment of respondent's salary was by mistake since
respondent who chose not to report for work was not entitled to it under the principle of "no
work, no pay", thus she has the obligation to return the same. Petitioner based such contention
on the principle of solutio indebiti under Article 2154 11 of the Civil Code.
There is solutio indebiti where: (1) payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person who received the payment; and (2)
the payment is made through mistake, and not through liberality or some other cause. . . . The
quasi-contract of solutio indebiti is based on the ancient principle that no one shall enrich
himself unjustly at the expense of another. 12
Both elements are lacking in the present case. Mr. Cascarro, the Head of the Branches
Division Investigation Unit, had categorically stated that respondent was only terminated from
service on August 26, 1988. Respondent was not suspended from office. Consequently, during
the period in question, there still existed an employer-employee relationship between petitioner
and respondent which entitled respondent to the payment of her salary during the said period.
Thus, there can be no mistaken payment in this case. Moreover, it has been shown that the
payment of respondent's salary was with the knowledge and approval of respondent's
immediate superior officers. Hence, the principle of solutio indebiti finds no application in this
case.
WHEREFORE, the petition is DENIED and the Decision dated September 15, 2000 and
the Resolution dated November 13, 2000 of the Court of Appeals are AFFIRMED.
Costs against petitioner.
 SO ORDERED.
(Bank of the Philippine Islands v. Sarmiento, G.R. No. 146021, [March 10, 2006], 519 PHIL
|||

247-257)
 EN BANC

[G.R. No. 1299. November 16, 1903.]

VICENTE PEREZ, plaintiff-appellee, vs. EUGENIO POMAR, Agent of the

Compania-General de Tabacos, defendant-appellant.

Francisco Dominguez for appellant.

Ledesma, Sumulong & Quintos for appellee.

SYLLABUS

1. CONTRACTS; CONSENT. — Contracts resulting from an implied consent of the

parties are valid and enforceable.
2. ID.; ID.; HIRING. — Where one has rendered services to another, and these
services are accepted by the latter, in the absence of proof that the service was rendered
gratuitously, an obligation results to pay the reasonable worth of the services rendered
upon the implied contract of hiring.
3. ID.; ID.; ID. — Although no fixed amount may have been determined as the
consideration for the contract of hiring, the contract is nevertheless valid if the amount of
the implied compensation can be determined by custom or frequent use in the place where
the services were rendered.

DECISION

TORRES, J : p

In a decision dated February 9, 1903, the judge of the Sixth Judicial District,
deciding a case brought by the plaintiff against the defendant for the recovery of wages
due and unpaid, gave judgment against the latter for the sum of $600 and the costs of suit,
less the sum of $50, Mexican.

On August 27, 1902, Don Vicente Perez filed in the Court of First Instance of Laguna a
complaint, which was amended on the 17th of January of this year, asking that the court
determine the amount due the plaintiff, at the customary rate of compensation for interpreting
in these Islands, for services rendered the Tabacalera Company, and that, in view of the
circumstances of the case, judgment be rendered in his favor for such sum. The complaint
also asked that the defendant be condemned to the payment of damages in the sum of
$3,200, gold, together with the costs of suit. In this complaint it was alleged that Don Eugenio
Pomar, as general agent of the Compania General de Tabacos in the said province, verbally
requested the plaintiff on the 8th of December, 1901, to act as interpreter between himself
and the military authorities, that after the date mentioned the plaintiff continued to render such
services up to and including May 31, 1902; that he had accompanied the defendant, Pomar
during that time at conferences between the latter and the colonel commanding the local
garrison, and with various officers and doctors residing in the capital, and at conferences with
Captain Lemen in the town of Pilar, and with the major in command at the town of Pagsanjan,
concerning the shipment of goods from Manila, and with respect to goods shipped from the
towns of Santa Cruz, Pilar, and Pagsanjan to this city; that the plaintiff during this period of
time was at the disposal of the defendant, Pomar, and held himself in readiness to render
services whenever required; that on this account his private business, and especially a soap
factory established in the capital, was entirely abandoned; that to the end that such services
might be punctually rendered, the agent, Pomar, assured him that the Tabacalera Company
always generously repaid services rendered it, and that he therefore did not trouble himself
about his inability to devote the necessary amount of time to his business, the defendant
going so far as to make him flattering promises of employment with the company, which he
did not accept; that these statements were made in the absence of witnesses and that
therefore his only proof as to the same was Mr. Pomar's word as a gentleman; that the
employees of the company did not understand English, and by reason of the plaintiff's
mediation between the agent and the military authorities large profits were obtained, as would
appear from the account and letterpress books of the agency corresponding to those dates. In
the amended complaint it was added that the defendant, on behalf of the company, offered to
remunerate the plaintiff for the services rendered in the most advantageous manner in which
such services are compensated, in view of the circumstances under which they were
requested; and that the plaintiff, by rendering the company such services, was obliged to
abandon his own business, the manufacture of soap, and thereby suffered damages in the
sum of $3,200, United States currency.
The defendant, on the 25th of September, 1902, filed an answer asking for the dismissal of
the complaint, with costs to the plaintiff. In his answer the defendant denied the allegation in
the first paragraph of the complaint, stating that it was wholly untrue that the company, and
the defendant as its agent, had solicited the services of the plaintiff as interpreter before the
military authorities for the period stated, or for any other period, or that the plaintiff had
accompanied Pomar at the conferences mentioned, concerning shipments from Manila and
exports from some of the towns of the province to this capital. He stated that he especially
denied paragraph 2 of the complaint, as it was absolutely untrue that the plaintiff had been at
the disposal of the defendant for the purpose of rendering such services; that he therefore
had not been obliged to abandon his occupation or his soap factory, and that the statement
that an offer of employment with the company had been made to him was false. The
defendant also denied that through the mediation of the plaintiff the company and himself had
obtained large profits. The statements in paragraphs 6, 7, 8, and 9 of the complaint were also
denied. The defendant stated that, on account of the friendly relations which sprang up
between the plaintiff and himself, the former borrowed from him from time to time money
amounting to $175 for the purposes of his business, and that he had also delivered to the
plaintiff 36 arrobas of oil worth $106, and three packages of resin for use in coloring his soap;
that the plaintiff accompanied the defendant to Pagsanjan, Pilar, and other towns when the
latter made business trips to them for the purpose of extending his business and mercantile
relations therein; that on these excursions, as well as on private and official visits which he
had to make, the plaintiff occasionally accompanied him through motives of friendship, and
especially because of the free transportation given him, and not on behalf of the company of
which he was never interpreter and for which he rendered no services; that the plaintiff in
these conferences acted as interpreter of his own free will, without being requested to do so
by the defendant and without any offer of payment or compensation; that therefore there
existed no legal relation whatever between the company and the plaintiff, and that the
defendant, when accepting the spontaneous voluntary, and officious services of the plaintiff,
did so in his private capacity and not as agent of the company, and that it was for this reason
that he refused to enter into negotiations with the plaintiff, he being in no way indebted to the
latter. The defendant concluded by saying that he answered in his individual capacity.
A complaint having been filed against the Compania General de Tabacos and Don Eugenio
Polmar, its agent in the Province of Laguna, the latter, having been duly summoned, replied
to the complaint, which was subsequently amended, and stated that he made such reply in
his individual capacity and not as agent of the company, with which the plaintiff had no legal
relations. The suit was instituted between the plaintiff and Pomar, who, as such, accepted the
issue and entered into the controversy without objection, opposed the claim of the plaintiff,
and concluded by asking that the complaint be dismissed, with the costs to the plaintiff. Under
these circumstances and construing the statutes liberally, we think it proper to decide the
case pending between both parties in accordance with law and the strict principles of justice.
From the oral testimony introduced at the trial, it appears that the plaintiff, Perez, did on
various occasions render Don Eugenio Pomar services as interpreter of English; and that he
obtained passes and accompanied the defendant upon his journeys to some of the towns in
the Province of Laguna. It does not appear from the evidence, however, that the plaintiff was
constantly at the disposal of the defendant during the period of six months or that he rendered
services as such interpreter continuously and daily during that period of time.
It does not appear that any written contract was entered into between the parties for the
employment of the plaintiff as interpreter, or that any other innominate contract was entered
into; but whether the plaintiff's services were solicited or whether they were offered to the
defendant for his assistance, inasmuch as these services were accepted and made use of by
the latter, we must consider that there was a tacit and mutual consent as to the rendition of
the services. This gives rise to the obligation upon the person benefited by the services to
make compensation therefor, since the bilateral obligation to render service as interpreter, on
the one hand, and on the other to pay for the services rendered, is thereby incurred. (Arts.
1088, 1089, and 1262 of the Civil Code). The supreme court of Spain in its decision of
February 12, 1889, holds, among other things, "that not only is there an express and tacit
consent which produces real contracts but there is also a presumptive consent which is the
basis of quasi contracts, this giving rise to the multiple juridical relations which result in
obligations for the delivery of a thing or the rendition of a service."
Notwithstanding the denial of the defendant, it is unquestionable that it was with his consent
that the plaintiff rendered him-services as interpreter, thus aiding him at a time when, owing to
the existence of an insurrection in the province, the most disturbed conditions prevailed. It
follows, hence, that there was consent on the part of both in the rendition of such services as
interpreter. Such service not being contrary to law or to good custom, it was a perfectly licit
object of contract, and such a contract must necessarily have existed between the parties, as
alleged by the plaintiff. (Art. 1271, Civil Code.)

The consideration for the contract is also evident, it being clear that a mutual benefit was
derived in consequence of the service rendered. It is to be supposed that the defendant
accepted these services and that the plaintiff in turn rendered them with the expectation that
the benefit would be reciprocal. This shows the concurrence of the three elements necessary
under article 1261 of the Civil Code to constitute a contract of lease of service, or other
innominate contract, from which an obligation has arisen and whose fulfillment is now
demanded.
Article 1254 of the Civil Code provides that a contract exists the moment that one or more
persons consent to be bound. With respect to another or others, to deliver some thing or to
render some service. Article 1255 provides that the contracting parties may establish such
covenants, terms, and conditions as they deem convenient, provided they are not contrary to
law, morals, or public policy. Whether the service was solicited or offered, the fact remains
that Perez rendered to Pomar services as interpreter. As it does not appear that he did this
gratuitously, the duty is imposed upon the defendant, he having accepted the benefit of the
service, to pay a just compensation therefor, by virtue of the innominate contract of facio ut
desimplicitly established.
The obligations arising from this contract are reciprocal, and, apart from the general
provisions with respect to contracts and obligations, the special provisions concerning
contracts for lease of services are applicable by analogy.
In this special contract, as determined by article 1544 of the Civil Code, one of the parties
undertakes to render the other a service for a price certain. The tacit agreement and consent
of both parties with respect to the service rendered by the plaintiff, and the reciprocal benefits
accruing to each, are the best evidence of the fact that there was an implied contract
sufficient to create a legal bond, from which arose enforceable rights and obligations of a
bilateral character.
In contracts the will of the contracting parties is law, this being a legal doctrine based upon
the provisions of articles 1254, 1258, 1262, 1278, 1281, 1282, and 1289 of the Civil Code. If it
is a fact sufficiently proven that the defendant, Pomar, on various occasions consented to
accept an interpreter's services, rendered in his behalf and not gratuitously, it is but just that
he should pay a reasonable remuneration therefor, because it is a well-known principle of law
that no one should be permitted to enrich himself to the damage of another.
With respect to the value of the services rendered on different occasions, the most important
of which was the first, as it does not appear that any salary was fixed upon by the parties at
the time the services were accepted, it devolves upon the court to determine, upon the
evidence presented, the value of such services, taking into consideration the few occasions
on which they were rendered. The fact that no fixed or determined consideration for the
rendition of the services was agreed upon does not necessarily involve a violation of the
provisions of article 1544 of the Civil Code, because at the time of the agreement this
consideration was capable of being made certain. The discretionary power of the court,
conferred upon it by the law, is also supported by the decisions of the supreme court of Spain,
among which may be cited that of October 18, 1899, which holds as follows: "That as stated
in the article of the Code cited, which follows the provisions of law 1 title 8, of the fifth partida,
the contract for lease of services is one in which one of the parties undertakes to make some
thing or to render some service to the other for a certain price, the existence of such a price
being understood, as this court has held not only when the price has been expressly agreed
upon but also when it may be determined by the custom and frequent use of the place in
which such services were rendered."
No exception was taken to the judgment below by the plaintiff on account of the rejection of
his claim for damages. The decision upon this point is, furthermore, correct.
Upon the supposition that the recovery of the plaintiff should not exceed 200 Mexican pesos,
owing to the inconsiderable number of times he acted as interpreter, it is evident that the
contract thus implicitly entered into was not required to be in writing and that therefore it does
not fall within article 1280 of the Civil Code; nor is it included within the provisions of section
335 of the Code of Civil Procedure, as this innominate contract is not covered by that section.
The contract of lease of services is not included in any of the cases expressly designated by
that section of the procedural law, as affirmed by the appellant. The interpretation of the other
articles of the Code alleged to have been infringed has also been stated fully in this opinion.
For the reasons stated, we are of the opinion that judgment should be rendered against Don
Eugenio Pomar for the payment to the plaintiff of the sum of 200 Mexican pesos, from which
will be deducted the sum of 50 pesos due the defendant by the plaintiff. No special
declaration is made as to the costs of this instance. The judgment below is accordingly
affirmed in so far as it agrees with this opinion, and reversed in so far as it may be in conflict
therewith. Judgment will be entered accordingly twenty days after this decision is filed.
Arellano, C .J ., Willard and Mapa, JJ ., concur.
||| (Perez v. Pomar, G.R. No. 1299, [November 16, 1903], 2 PHIL 682-689)
 FIRST DIVISION

[G.R. No. 134241. August 11, 2003.]

DAVID REYES (Substituted by Victoria R. Fabella), petitioner, vs.

JOSE LIM, CHUY CHENG KENG and HARRISON LUMBER,
INC.,respondents.

Romulo Mabanta Buenaventura Sayoc & Delos Angeles for petitioner.

Limqueco & Macaraeg Law Office for respondents.
Beltran & Reyes-Beltran for Chuy Cheng Keng and Harrison Lumber, Inc.

SYNOPSIS

Petitioner Reyes filed a complaint for annulment of contract and damages against
respondents alleging that petitioner as seller and respondent Lim as buyer entered into a
contract to sell a parcel of land. Lim paid ten million pesos as down payment upon the signing
of the contract. However, before the payment of the balance, Lim learned that Reyes had
already sold the property to another buyer. Lim sought the cancellation of the contract to sell
and requested in open court that Reyes be ordered to deposit the ten million down payment
with the trial court which was granted by the latter. Reyes filed a Motion to Set Aside the Order
but the same was denied. Reyes filed a Petition for Certiorari with the Court of Appeals (CA),
but it was dismissed. Hence, this petition for review.
In affirming the decision of the CA, the Supreme Court ruled that the trial court, in the
exercise of its equity jurisdiction, may validly order the deposit of the ten million down payment
in court. The purpose of the exercise of equity jurisdiction in this case is to prevent unjust
enrichment and to ensure restitution. The application of equity always involves the balancing of
the equities in a particular case, a matter addressed to the sound discretion of the court. Here,
the Court found the equities weigh heavily in favor of Lim, who paid the ten million down
payment in good faith, only to discover that Reyes had subsequently sold the subject property
to another buyer.
The Court further held that rescission creates the obligation to return the things that are
the subject of the contract. Thus, since Reyes is demanding to rescind the contract to sell, he
cannot refuse to deposit the ten million down payment in court. Such deposit will ensure
restitution of the ten million to its rightful owner. Lim, on the other hand, has nothing to refund,
as he has not received anything under the contract to sell. Moreover, in this case, it was just,
equitable and proper for the trial court to order the deposit of the ten million down payment to
prevent unjust enrichment by Reyes at the expense of Lim.

SYLLABUS

1. REMEDIAL LAW; COURTS; EQUITY JURISDICTION; AIMS TO DO COMPLETE

JUSTICE IN CASES WHERE A COURT OF LAW IS UNABLE TO ADAPT ITS JUDGMENTS
TO THE SPECIAL CIRCUMSTANCES OF A CASE BECAUSE OF THE INFLEXIBILITY OF
ITS STATUTORY OR LEGAL JURISDICTION; CASE AT BAR. — The instant case ... is
precisely one where there is a hiatus in the law and in the Rules of Court. If left alone,
the hiatus will result in unjust enrichment to Reyes at the expense of Lim. The hiatus may also
imperil restitution, which is a precondition to the rescission of the Contract to Sell
that Reyes himself seeks. This is not a case of. equity overruling a positive provision of law or
judicial rule for there is none that governs this particular case. This is a case of silence or
insufficiency of the law and the Rules of Court. In this case, Article 9 of the Civil Code expressly
mandates the courts to make a ruling despite the "silence, obscurity or insufficiency of the laws."
This calls for the application of equity, which "fills the open spaces in the law." Thus, the trial
court in the exercise of its equity jurisdiction may validly order the deposit of the P10 million
down payment in court. The purpose of the exercise of equity jurisdiction in this case is to
prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do complete
justice in cases where a court of law is unable to adapt its judgments to the special
circumstances of a case because of the inflexibility of its statutory or legal jurisdiction. Equity is
the principle by which substantial justice may be attained in cases where the prescribed or
customary forms of ordinary law are inadequate. ... The application of equity always involves a
balancing of the equities in a particular case, a matter addressed to the sound discretion of the
court. Here, we find the equities weigh heavily in favor of Lim, who paid the P10 million down
payment in good faith only to discover later that Reyes had subsequently sold the Property to
another buyer.
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RESCISSIBLE CONTRACTS;
RESCISSION CREATES THE OBLIGATION TO RETURN THE THINGS THAT ARE THE
OBJECT OF THE CONTRACT; CASE AT BAR. — Under Article 1385 of the Civil Code,
rescission creates the obligation to return the things that are the object of the contract.
Rescission is possible only when the person demanding rescission can return whatever he may
be obliged to restore. A court of equity will not rescind a contract unless there is restitution, that
is, the parties are restored to thestatus quo ante. Thus, since Reyes is demanding to rescind
the Contract to Sell, he cannot refuse to deposit the P10 million down payment in court. Such
deposit will ensure restitution of the P10 million to its rightful owner. Lim, on the other hand, has
nothing to refund, as he has not received anything under the Contract to Sell. ... [A] court may
not permit a seller to retain,pendente lite, money paid by a buyer if the seller himself seeks
rescission of the sale because he has subsequently sold the same property to another buyer.
By seeking rescission, a seller necessarily offers to return what he has received from the buyer.
Such a seller may not take back his offer if the court deems it equitable, to prevent unjust
enrichment and ensure restitution, to put the money in judicial deposit.
3. ID:; UNJUST ENRICHMENT; THE PRINCIPLE OF UNJUST ENRICHMENT MAY BE
INVOKED BY AN AGGRIEVED PARTY WHO HAS NO OTHER ACTION BASED ON
CONTRACT, QUASI-CONTRACT, CRIME, QUASI-DELICT OR ANY OTHER PROVISION OF
LAW. — The principle that no person may unjustly enrich himself at the expense of another is
embodied in Article 22 of the Civil Code. This principle applies not only to substantive rights but
also to procedural remedies. One condition for invoking this principle is that the aggrieved party
has no other action based on contract, quasi-contract, crime, quasi-delict or any other provision
of law. Courts can extend this condition to the hiatus in the Rules of Court where the aggrieved
party, during the pendency of the case, has no other recourse based on the provisional
remedies of the Rules of Court.
 4. ID.; ID.; WHEN PRESENT: CASE AT BAR. — There is unjust enrichment when a
person unjustly retains a benefit to the loss of another, or when a person retains money or
property of another against the fundamental principles of justice, equity and good conscience.
In this case, it was just, equitable and proper for the trial court to order the deposit of the P10
million down payment to prevent unjust enrichment by Reyes at the expense of Lim.

DECISION

CARPIO, J : p

The Case
This is a petition for review on certiorari of the Decision 1 dated 12 May 1998 of the Court
of Appeals in CA-G.R. SP No. 46224. The Court of Appeals dismissed the petition
for certiorariassailing the Orders dated 6 March 1997, 3 July 1997 and 3 October 1997 of the
Regional Trial Court of Parañaque, Branch 260 2 ("trial court") in Civil Case No. 95-032.
The Facts
On 23 March 1995, petitioner David Reyes ("Reyes") filed before the trial court a
complaint for annulment of contract and damages against respondents Jose Lim ("Lim"), Chuy
Cheng Keng ("Keng") and Harrison Lumber, Inc. ("Harrison Lumber").
The complaint 3 alleged that on 7 November 1994, Reyes as seller and Lim as buyer
entered into a contract to sell ("Contract to Sell") a parcel of land ("Property") located along F.B.
Harrison Street, Pasay City. Harrison Lumber occupied the Property as lessee with a monthly
rental of P35,000. The Contract to Sell provided for the following terms and conditions:
1. The total consideration for the purchase of the aforedescribed parcel of land
together with the perimeter walls found therein is TWENTY EIGHT MILLION
(P28,000,000.00) PESOS payable as follows:
(a) TEN MILLION (P10,000,000.00) PESOS upon signing of this Contract
to Sell;
(b) The balance of EIGHTEEN MILLION (P18,000,000.00) PESOS shall
be paid on or before March 8, 1995 at 9:30 A.M. at a bank to be designated by
the Buyer but upon the complete vacation of all the tenants or occupants of the
property and execution of the Deed of Absolute Sale. However, if the tenants or
occupants have vacated the premises earlier than March 8, 1995, the VENDOR
shall give the VENDEE at least one week advance notice for the payment of the
balance and execution of the Deed of Absolute Sale.
2. That in the event, the tenants or occupants of the premises subject of this sale
shall not vacate the premises on March 8, 1995 as stated above, the VENDEE shall
withhold the payment of the balance of P18,000,000.00 and the VENDOR agrees to
pay a penalty of Four percent (4%) per month to the herein VENDEE based on the
amount of the downpayment of TEN MILLION (P10,000,000.00) PESOS until the
complete vacation of the premises by the tenants therein. 4
The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property
before the end of January 1995. Reyes also informed Keng 5 and Harrison Lumber that if they
failed to vacate by 8 March 1995, he would hold them liable for the penalty of P400,000 a month
as provided in the Contract to Sell. The complaint further alleged that Lim connived with
Harrison Lumber not to vacate the Property until the P400,000 monthly penalty would have
accumulated and equaled the unpaid purchase price of P18,000,000.
On 3 May 1995, Keng and Harrison Lumber filed their Answer 6 denying they connived
with Lim to defraud Reyes. Keng and Harrison Lumber alleged that Reyes approved their
request for an extension of time to vacate the Property due to their difficulty in finding a new
location for their business. Harrison Lumber claimed that as of March 1995, it had already
started transferring some of its merchandise to its new business location in Malabon. 7
On 31 May 1995, Lim filed his Answer 8 stating that he was ready and willing to pay the
balance of the purchase price on or before 8 March 1995. Lim requested a meeting
with Reyesthrough the latter's daughter on the signing of the Deed of Absolute Sale and the
payment of the balance but Reyes kept postponing their meeting. On 9 March
1995, Reyes offered to return the P10 million down payment to Lim because Reyes was having
problems in removing the lessee from the Property. Lim rejected Reyes' offer and proceeded
to verify the status of Reyes' title to the Property. Lim learned that Reyes had already sold the
Property to Line One Foods Corporation ("Line One") on 1 March 1995 for P16,782,840. After
the registration of the Deed of Absolute Sale, the Register of Deeds issued to Line One TCT
No. 134767 covering the Property. Lim denied conniving with Keng and Harrison Lumber to
defraud Reyes. TAEcCS

On 2 November 1995, Reyes filed a Motion for Leave to File Amended Complaint due to
supervening facts. These included the filing by Lim of a complaint for estafa against Reyes as
well as an action for specific performance and nullification of sale and title plus damages before
another trial court. 9 The trial court granted the motion in an Order dated 23 November 1995.
In his Amended Answer dated 18 January 1996, 10 Lim prayed for the cancellation of the
Contract to Sell and for the issuance of a writ of preliminary attachment against Reyes. The trial
court denied the prayer for a writ of preliminary attachment in an Order dated 7 October 1996.
On 6 March 1997, Lim requested in open court that Reyes be ordered to deposit the P10
million down payment with the cashier of the Regional Trial Court of Parañaque. The trial court
granted this motion.
On 25 March 1997, Reyes filed a Motion to Set Aside the Order dated 6 March 1997 on
the ground the Order practically granted the reliefs Lim prayed for in his Amended
Answer. 11The trial court denied Reyes' motion in an Order 12 dated 3 July 1997. Citing Article
1385 of the Civil Code, the trial court ruled that an action for rescission could prosper only if the
party demanding rescission can return whatever he may be obliged to restore should the court
grant the rescission.
The trial court denied Reyes' Motion for Reconsideration in its Order 13 dated 3 October
1997. In the same order, the trial court directed Reyes to deposit the P10 million down payment
with the Clerk of Court on or before 30 October 1997.
On 8 December 1997, Reyes 14 filed a Petition for Certiorari 15 with the Court of
Appeals. Reyes prayed that the Orders of the trial court dated 6 March 1997, 3 July 1997 and
3 October 1997 be set aside for having been issued with grave abuse of discretion amounting
to lack of jurisdiction. On 12 May 1998, the Court of Appeals dismissed the petition for lack of
merit.
 Hence, this petition for review.
The Ruling of the Court of Appeals
The Court of Appeals ruled the trial court could validly issue the assailed orders in the
exercise of its equity jurisdiction. The court may grant equitable reliefs to breathe life and force
to substantive law such as Article 1385 16 of the Civil Code since the provisional remedies
under the Rules of Court do not apply to this case.
The Court of Appeals held the assailed orders merely directed Reyes to deposit the P10
million to the custody of the trial court to protect the interest of Lim who paid the amount
toReyes as down payment. This did not mean the money would be returned automatically
to Lim.
The Issues
Reyes raises the following issues:
1. Whether the Court of Appeals erred in holding the trial court could issue the
questioned Orders dated March 6, 1997, July 3, 1997 and October 3, 1997,
requiring petitioner David Reyes to deposit the amount of Ten Million
Pesos (P10,000,000.00) during the pendency of the action, when deposit
is not among the provisional remedies enumerated in Rule 57 to 61 of the
1997 Rules on Civil Procedure.
2. Whether the Court of Appeals erred in finding the trial court could issue the
questioned Orders on grounds of equity when there is an applicable law
on the matter, that is, Rules 57 to 61 of the 1997 Rules on Civil
Procedure. 17
The Court's Ruling
Reyes' contentions are without merit.
Reyes points out that deposit is not among the provisional remedies enumerated in the
1997 Rules of Civil Procedure. Reyes stresses the enumeration in the Rules is exclusive. Not
one of the provisional remedies in Rules 57 to 61 18 applies to this case. Reyes argues that a
court cannot apply equity and require deposit if the law already prescribes the specific
provisional remedies which do not include deposit. Reyes invokes the principle that equity is
"applied only in the absence of, and never against, statutory law or . . . judicial rules of
procedure." 19 Reyes adds the fact that the provisional remedies do not include deposit is a
matter of dura lex sed lex. 20
The instant case, however, is precisely one where there is a hiatus in the law and in the
Rules of Court. If left alone, the hiatus will result in unjust enrichment to Reyes at the expense
ofLim. The hiatus may also imperil restitution, which is a precondition to the rescission of the
Contract to Sell that Reyes himself seeks. This is not a case of equity overruling a positive
provision of law or judicial rule for there is none that governs this particular case. This is a case
of silence or insufficiency of the law and the Rules of Court. In this case, Article 9 of the Civil
Code expressly mandates the courts to make a ruling despite the "silence, obscurity or
insufficiency of the laws." 21 This calls for the application of equity, 22 which "fills the open
spaces in the law." 23
 Thus, the trial court in the exercise of its equity jurisdiction may validly order the deposit
of the P10 million down payment in court. The purpose of the exercise of equity jurisdiction in
this case is to prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to
do complete justice in cases where a court of law is unable to adapt its judgments to the special
circumstances of a case because of the inflexibility of its statutory or legal jurisdiction. 24 Equity
is the principle by which substantial justice may be attained in cases where the prescribed or
customary forms of ordinary law are inadequate. 25
Reyes is seeking rescission of the Contract to Sell. In his amended answer, Lim is also
seeking cancellation of the Contract to Sell. The trial court then ordered Reyes to deposit in
court the P10 million down payment that Lim made under the Contract to Sell. Reyes admits
receipt of the P10 million down payment but opposes the order to deposit the amount in
court. Reyescontends that prior to a judgment annulling the Contract to Sell, he has the "right
to use, possess and enjoy" 26 the P10 million as its "owner" 27 unless the court orders its
preliminary attachment. 28
To subscribe to Reyes' contention will unjustly enrich Reyes at the expense
of Lim. Reyes sold to Line One the Property even before the balance of P18 million under the
Contract to Sell with Lim became due on 8 March 1995. On 1 March 1995, Reyes signed a
Deed of Absolute Sale 29 in favor of Line One. On 3 March 1995, the Register of Deeds issued
TCT No. 134767 30in the name of Line One. 31 Reyes cannot claim ownership of the P10 million
down payment because Reyes had already sold to another buyer the Property for
which Lim made the down payment. In fact, in his Comment 32 dated 20 March
1996, Reyes reiterated his offer to return to Lim the P10 million down payment. TCHEDA

On balance, it is unreasonable and unjust for Reyes to object to the deposit of the P10
million down payment. The application of equity always involves a balancing of the equities in
a particular case, a matter addressed to the sound discretion of the court. Here, we find the
equities weigh heavily in favor of Lim, who paid the P10 million down payment in good faith
only to discover later that Reyes had subsequently sold the Property to another buyer.
In Eternal Gardens Memorial Parks Corp. v. IAC, 33 this Court held the plaintiff could
not continue to benefit from the property or funds in litigation during the pendency of the suit at
the expense of whomever the court might ultimately adjudge as the lawful owner. The Court
declared:
In the case at bar, a careful analysis of the records will show that petitioner
admitted among others in its complaint in Interpleader that it is still obligated to pay
certain amounts to private respondent; that it claims no interest in such amounts due
and is willing to pay whoever is declared entitled to said amounts. . . . .
Under the circumstances, there appears to be no plausible reason for petitioner's
objections to the deposit of the amounts in litigation after having asked for the
assistance of the lower court by filing a complaint for interpleader where the deposit of
aforesaid amounts is not only required by the nature of the action but is a contractual
obligation of the petitioner under the Land Development Program (Rollo, p. 252).
There is also no plausible or justifiable reason for Reyes to object to the deposit of the
P10 million down payment in court. The Contract to Sell can no longer be enforced
becauseReyes himself subsequently sold the Property to Line One. Both Reyes and Lim are
now seeking rescission of the Contract to Sell. Under Article 1385 of the Civil Code, rescission
creates the obligation to return the things that are the object of the contract. Rescission is
possible only when the person demanding rescission can return whatever he may be obliged
to restore. A court of equity will not rescind a contract unless there is restitution, that is, the
parties are restored to the status quo ante. 34
Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to
deposit the P10 million down payment in court. 35 Such deposit will ensure restitution of the P10
million to its rightful owner. Lim, on the other hand, has nothing to refund, as he has not received
anything under the Contract to Sell. 36
In Government of the Philippine Islands v. Wagner and Cleland Wagner, 37 the
Court ruled the refund of amounts received under a contract is a precondition to the rescission
of the contract. The Court declared:
The Government, having asked for rescission, must restore to the defendants
whatever it has received under the contract. It will only be just if, as a condition to
rescission, the Government be required to refund to the defendants an amount equal to
the purchase price, plus the sums expended by them in improving the land. (Civil Code,
Art. 1295.)
The principle that no person may unjustly enrich himself at the expense of another is
embodied in Article 22 38 of the Civil Code. This principle applies not only to substantive rights
but also to procedural remedies. One condition for invoking this principle is that the aggrieved
party has no other action based on contract, quasi-contract, crime, quasi-delict or any other
provision of law. 39 Courts can extend this condition to the hiatus in the Rules of Court where
the aggrieved party, during the pendency of the case, has no other recourse based on the
provisional remedies of the Rules of Court.
Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if
the seller himself seeks rescission of the sale because he has subsequently sold the same
property to another buyer. 40 By seeking rescission, a seller necessarily offers to return what
he has received from the buyer. Such a seller may not take back his offer if the court deems it
equitable, to prevent unjust enrichment and ensure restitution, to put the money in judicial
deposit.
There is unjust enrichment when a person unjustly retains a benefit to the loss of another,
or when a person retains money or property of another against the fundamental principles of
justice, equity and good conscience. 41 In this case, it was just, equitable and proper for the trial
court to order the deposit of the P10 million down payment to prevent unjust enrichment
by Reyes at the expense of Lim. 42
WHEREFORE, we AFFIRM the Decision of the Court of Appeals.
SO ORDERED.
||| (Reyes v. Lim, G.R. No. 134241, [August 11, 2003], 456 PHIL 1-14)
 THIRD DIVISION

[G.R. No. 109087. May 9, 2001.]

RODZSSEN SUPPLY CO. INC., petitioner, vs. FAR EAST BANK & TRUST
CO., respondent.

DECISION

PANGANIBAN, J : p

When both parties to a transaction are mutually negligent in the performance of their
obligations, the fault of one cancels the negligence of the other. Thus, their rights and
obligations may be determined equitably. No one shall enrich oneself at the expense of another.
The Case
Before us is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of Court,
assailing the January 21, 1993 Decision 2 of the Court of Appeals 3 (CA) in CA-GR CV No.
26045. The challenged Decision affirmed with modification the ruling of the Regional Trial Court
of Bacolod City in Civil Case No. 2296. The CA ruled as follows:
"WHEREFORE, the decision under appeal should be, as it is hereby affirmed in
all its aspects, except for the deletion of paragraph 2 of its dispositive portion, which
paragraph shall be replaced by a new paragraph which shall read as follows:
'2. ordering the defendant to pay the plaintiff the sum equivalent to 10%
of the total amount due and collectible, as attorney's fees; and'
"No pronouncement as to costs." 4
On the other hand, the trial court had rendered this judgment:
"1. Ordering the defendant to pay the plaintiff the sum of P76,000.00,
representing the principal amount being claimed in this action, plus interest thereon at
the rate of 12% per annum counted from October 1979 until fully paid;
"2. Ordering the defendant to pay the plaintiff the sum equivalent to 25% of the
total amount due and collectible; and
"3. Ordering the defendant to pay the costs of the suit." 5

The Facts
The factual and procedural antecedents of the case are summarized by the Court of
Appeals as follows:
"In the complaint from which the present proceedings originated, it is alleged that
on January 15, 1979, defendant Rodzssen Supply, Inc. opened with plaintiff Far East
Bank and Trust Co. a 30-day domestic letter of credit, LC No. 52/0428/79-D, in the
amount of P190,000.00 in favor of Ekman and Company, Inc. (Ekman) for the purchase
from the latter of five units of hydraulic loaders, to expire on February 15, 1979; that
subsequent amendments extended the validity of said LC up to October 16, 1979; that
 on March 16, 1979, three units of the hydraulic loaders were delivered to defendant for
which plaintiff on March 26, 1979, paid Ekman the sum of P114,000.00, which amount
defendant paid plaintiff before the expiry date of the LC; that the shipment of the
remaining two units of hydraulic loaders valued at P76,000.00 sent by Ekman was
'readily received by the defendant' before the expiry date [of] subject LC; that upon
Ekman's presentation of the documents for the P76,000.00 'representing final
negotiation' on the LC before the expiry date, and 'after a series of negotiations', plaintiff
paid to Ekman the amount of P76,000.00; and that upon plaintiff's demand on defendant
to pay for said amount (P76,000.00), defendant' refused to pay . . . without any valid
reason'. Plaintiff prays for judgment ordering defendant to pay the abovementioned
P76,000.00 plus due interest thereon, plus 25% of the amount of the award as attorney's
fees.
"In the Answer, defendant interposed, inter alia, by way of special and affirmative
defenses that plaintiff ha[d] no cause of action against defendant; that there was a
breach of contract by plaintiff who in bad faith paid Ekman, knowing that the two units
of hydraulic loaders had been delivered to defendant after the expiry date of subject LC;
and that in view of the breach of contract, defendant offered to return to plaintiff the two
units of hydraulic loaders, 'presently still with the defendant' but plaintiff refused to take
possession thereof.
"The trial court's ruling that plaintiff [was] entitled to recover from defendant the
amount of P76,000.00 was based on its following findings/conclusions: (1) under the
contract of sale of the five loaders between Ekman and defendant, upon Ekman's
delivery to, and acceptance by, defendant of the two remaining units of the five loaders,
defendant became liable to Ekman for the payment of said two units. However, as
defendant did not pay Ekman, the latter pressed plaintiff for the payment of said two
loaders in the amount of P76,000.00. In the honest belief that it was still under obligation
to Ekman for said amount, considering that Ekman had presented all the necessary
documents, plaintiff voluntarily paid the said amount to Ekman. Plaintiff's . . . voluntary
and lawful act of payment g[a]ve rise to a quasi-contract between plaintiff and
defendant; and if defendant should escape liability for said amount, the result would be
to allow defendant to enrich itself at plaintiff's expense . . . .
SEHTA.

". . . . While defendant, indeed offered to return the two loaders to plaintiff, . . .
this offer was made 3 years after defendant's receipt of the goods, when plaintiff pressed
for payment. By said voluntary acceptance of the two loaders, estoppel works against
defendant who should have refused delivery of, and/or immediately offered to return,
the goods.
"Accordingly, judgment was rendered in favor of the plaintiff and against the
defendant . . . ." 6
The CA Ruling
The CA rejected petitioner's imputation of bad faith and negligence to respondent bank
for paying for the two hydraulic loaders, which had been delivered after the expiration of the
subject letter of credit. The appellate court pointed out that petitioner received the equipment
after the letter of credit had expired. "To absolve defendant from liability for the price of the
same," the CA explained, "is to allow it to get away with its unjust enrichment at the expense of
the plaintiff."
Hence, this Petition. 7
Issues
 Petitioner presents the following issues for resolution:
"1. Whether or not it is proper for a banking institution to pay a letter of credit
which has long expired or been cancelled.
"2. Whether or not respondent courts were correct in their conclusion that there
was a consummated sale between petitioner and Ekman Co.
"3. Whether or not Respondent Court of Appeals was correct in evading the
issues raised in the appeal that under the trust receipt, petitioner was merely the
depositary of private respondent with respect to the goods covered by the trust
receipt." 8
The Court's Ruling
We affirm the Court of Appeals, but lower the interest rate to only 6 percent and delete
the award of attorney's fees.
First Issue:
Efficacy of Letter of Credit
Petitioner asserts that respondent bank was negligent in paying for the two hydraulic
loaders, when it no longer had any obligation to do so in view of the expiration and cancellation
of the Letter of Credit.
Petitioner Rodzssen Supply Inc. applied for and obtained an irrevocable 30-day domestic
Letter of Credit from Far East Bank and Trust Company Inc. on January 15, 1979, in favor of
Ekman and Company Inc., in order to finance the purchase of five units of hydraulic loaders in
the amount of P190,000. Originally set to expire on February 15, 1979, the subject Letter of
Credit was amended several times to extend its validity until October 16, 1979.
The Letter of Credit expressly restricted the negotiation to respondent bank and
specifically instructed Ekman and Company Inc. to tender the following documents: (1) delivery
receipt duly acknowledged by the buyer, (2) accepted draft, and (3) duly signed commercial
invoices. Likewise, the instrument contained a provision with regard to its expiration date. 9
For the first three hydraulic loaders that were delivered, the bank paid the amount
specified in the letter of credit. The present dispute pertains only to the last two hydraulic
loaders.
Clearly, the bank paid Ekman when the former was no longer bound to do so under the
subject Letter of Credit. The records show that respondent paid the latter P76,000 for the last
two hydraulic loaders on March 14, 1980, 10 five months after the expiration of the Letter of
Credit on October 16, 1979. 11 In fact, on December 27, 1979, the bank had informed Rodzssen
of the cancellation of the commercial paper and credited P22,800 to the account of the latter.
The amount represented the marginal deposit, which petitioner had been required to put up for
the unnegotiated portion of the Letter of Credit — P76,000 for the two hydraulic loaders. 12
The subject Letter of Credit had become invalid upon the lapse of the period fixed
therein. 13 Thus, respondent should not have paid Ekman; it was not obliged to do so. In the
same vein, of no moment was Ekman's presentation, within the prescribed period, of all the
documents necessary for collection, as the Letter of Credit had already expired and had in fact
been cancelled.
Second Issue:
 Was Petitioner Liable to Respondent?
Be that as it may, we agree with the CA that petitioner should pay respondent bank the
amount the latter expended for the equipment belatedly delivered by Ekman and
voluntarilyreceived and kept by petitioner.
Respondent bank's right to seek recovery from petitioner is anchored, not upon the
inefficacious Letter of Credit, but on Article 2142 of the Civil Code which reads as follows:
"Certain lawful, voluntary and unilateral acts give rise to the juridical relation of
quasi-contract to the end that no one shall be unjustly enriched or benefited at the
expense of another."
Indeed, equitable considerations behoove us to allow recovery by respondent. True, it
erred in paying Ekman, but petitioner itself was not without fault in the transaction. It must be
noted that the latter had voluntarily received and kept the loaders since October 1979.
Petitioner claims that it accepted the late delivery of the equipment, only because it was
bound to accept it under the company's trust receipt arrangement with respondent bank.
Granting that petitioner was bound under such arrangement to accept the late delivery
of the equipment, we note its unexplained inaction for almost four years with regard to the status
of the ownership or possession of the loaders. Bewildering was its lack of action to validate the
ownership and possession of the loaders, as well as its stolidity over the purported failed sales
transaction. Significant too is the fact that it formalized its offer to return the two pieces of
equipment only after respondent's demand for payment, which came more than three years
after it accepted delivery.
When both parties to a transaction are mutually negligent in the performance of their
obligations, the fault of one cancels the negligence of the other and, as in this case, their rights
and obligations may be determined equitably under the law proscribing unjust enrichment.
Payment of Interest
We, however, disagree with both the CA and the trial court's imposition of 12 percent
interest on the sum to be paid by petitioner. In Eastern Shipping Lines v. CA, 14 the Court laid
down the following guidelines in the imposition of interest:
"xxx xxx xxx
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
 paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a forbearance of credit."
Although the sum of money involved in this case was payable to a bank, the present
factual milieu clearly shows that it was not a loan or forbearance of money. Thus, pursuant to
established jurisprudence and Article 2009 of the Civil Code, petitioner is bound to pay interest
at 6 percent per annum, computed from April 7, 1983, the time respondent bank demanded
payment from petitioner. From the finality of the judgment until its satisfaction, the interest shall
be 12 percent per annum.
Attorney's Fees
Considering that negligence is imputable to both parties, both should bear their
respective costs of the suit. We also delete the award of attorney's fees in favor of respondent
bank. 15
WHEREFORE, the Petition is DENIED and the assailed Decision of the Court of Appeals
AFFIRMED with the following MODIFICATIONS:
1. Petitioner Rodzssen Supply Co., Inc. is ORDERED to reimburse Respondent
Far East Bank and Trust Co., Inc. P76,000 plus interest thereon at the rate of 6 percent
per annum computed from April 7, 1983. After this judgment becomes final, the interest
shall be 12 percent per annum. HDITCS

2. The award of attorney's fees in favor of respondent is DELETED.

3. No pronouncement as to costs.
SO ORDERED.
(Rodzssen Supply Co. Inc. v. Far East Bank & Trust Co., G.R. No. 109087, [May 9, 2001],
|||

409 PHIL 706-717)

 EN BANC

[G.R. No. 137842. August 23, 2001.]

PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. DANILO CATUBIG y

HORIO, accused-appellant.

The Solicitor General for plaintiff-appellee.

Public Attorney's Office for accused-appellant.

SYNOPSIS

Danilo Catubig was charged with the crime of rape before the Regional Trial Court,
Branch 78 of Malolos, Bulacan. Prosecution evidence showed that on November 27, 1997, at
around 4:00 o'clock in the afternoon, 12-year old Dannilyn Catubig and her four younger
siblings were watching television in the sala of their house. When Dannilyn's father,
Danilo Catubig, arrived, the latter told Dannilyn's sibling to go to her aunt's house which is just
located nearby. Thereafter, Danilo told Dannilyn to go inside the room and to lie down on the
bed. After Dannilyn had complied, Danilo removed Dannilyn's shorts and panty. Danilo, after
removing his brief and t-shirt, laid on top of Dannilyn and succeeded in inserting his penis to
her vagina. Dannilyn did not resist because she is afraid her father who beat and raped her in
the past. However, Dannilyn's aunt who got suspicious of what Danilo was doing to Dannilyn,
informed the latter's mother. Thus, when confronted by her mother, Dannilyn was forced to
reveal that she was indeed raped by her father. Contrarily, Danilo denied the accusation against
him. He claimed that the rape charge was brought about because of the ill will between him
and his wife and daughter Dannilyn, following a quarrel. Thus, the trial court convicted Danilo
of the crime charged and the penalty of death was imposed upon him. Hence, this automatic
review.
The Court ruled that Dannilyn had given her testimony in a plain, categorical,
spontaneous and frank manner, remaining consistent throughout, and there was hardly
anything on record that can cast doubt on her sincerity. The revelations of an innocent child
whose chastity had been abused, coupled with her willingness to face police investigation and
to undergo the trouble and humiliation of a public trial, should merit credence unless strong
justifications dictate otherwise. Indeed, it would take a most senseless kind of depravity for a
young daughter to just make up a story which could put her own father to an undeserved
indictment and even to possibly face death in the hands of the law. However, the information
failed to state the minority of the victim and her relationship with the offender, both special
qualifying circumstances under Republic Act No. 7659, and for want of such allegations, the
trial court erred in imposing the death penalty on the accused. Appellant could only thus be
convicted under Article 335 of the Revised Penal Code, as amended, of simple rape punishable
by reclusion perpetua. HCEcAa

SYLLABUS
 1. REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; REVELATIONS OF
INNOCENT, CHILD MERIT CREDENCE. — Dannilyn has given her testimony in a plain,
categorical, spontaneous and frank manner, remaining consistent throughout, and there is
hardly, anything on record that can cast doubt on her sincerity. The revelations of an innocent
child whose chastity has been abused, coupled with her willingness to face police investigation
and to undergo the trouble and humiliation of a public trial, should merit credence unless strong
justifications dictate otherwise. Indeed, it would take a most senseless kind of depravity for a
young daughter to just make up a story which could put her own father to an undeserved
indictment and to even possibly face death in the hands of the law.
2. CRIMINAL LAW; RAPE; INCESTUOUS RAPE; MORAL ASCENDANCY AND
INFLUENCE OF THE FATHER SUBSTITUTE THE REQUISITE FOR VIOLENCE AND
INTIMIDATION. — When rape is committed against one's own daughter, the moral ascendancy
and influence of the father, that necessarily flows from his parental authority, can sufficiently
cow the child to submission and can rightly be held to substitute for the requisite "violence or
intimidation" that, normally, would be characterized by physical acts and uttered threats made
on the victim.
3. REMEDIAL LAW; EVIDENCE; ALIBI AND DENIAL; CANNOT PREVAIL OVER
POSITIVE AND CATEGORICAL STATEMENTS OF PRIVATE COMPLAINANT. — The trite
defenses of alibi and denial proferred by appellant cannot prevail over the positive and
categorical statements of private complainant. Alibi is often viewed with suspicion and received
with caution not only because it is inherently weak and unreliable but also because it is easy to
fabricate. In order that this defense can prosper, it must be convincing to preclude any doubt
on the physical impossibility of the presence of the accused at the locus criminis at the time of
the incident. These conditions have not been met in the case at bar.
4. ID.; ID.; CREDIBILITY OF WITNESSES; MERE RESENTMENT OF A WIFE AND
DAUGHTER IS NOT SO COMPELLING TO MOTIVATE THEM TO WRONGLY LODGE A
COMPLAINT FOR A MORE SERIOUS CRIME THAN EXPECTED. — The contention of
appellant that his wife and daughter Dannilyn have accused him merely because of his violent
ways is much too flimsy to be believed. The mere resentment of a wife and daughter is not so
compelling as to have motivated them to wrongly lodge a complaint for a crime much more
serious than might, if at all, be expected.
5. ID.; ID.; ID.; ASSESSMENT MADE BY THE TRIAL COURT DESERVES GREAT
REGARD AND WEIGHT ON APPEAL. — It is likewise a settled doctrine that the assessment
made by the trial court on the credibility of witnesses deserves great regard and weight on
appeal. The rule is not without reason; the trial judge has a unique position of hearing first hand
the witnesses and observing their deportment, conduct and attitude during the course of the
testimony in open court. There is no valid reason to now ignore this long accepted jurisprudence
in this instance.
6. CRIMINAL LAW; RAPE; FOR IMPOSITION OF DEATH PENALTY, SPECIAL
QUALIFYING CIRCUMSTANCES MUST BE ALLEGED IN THE COMPLAINT OR
INFORMATION. — The concurrence of the minority of the victim and her relationship to the
offender are special qualifying circumstances that are needed to be alleged in the complaint or
information for the penalty of death to be decreed. The Constitution guarantees to be inviolable
the, right of an accused to be informed of the nature and cause of the accusation against him.
It is a requirement that renders it essential for every element of the offense with which he is
charged to be properly alleged in the complaint or information.
7. ID.; ID.; ID.; NOT COMPLIED WITH IN CASE AT BAR. — [T]he information failed to
state the minority of the victim and her relationship with the offender, both special qualifying
circumstances under Republic Act No. 7659, and for want of such allegations, the trial court
erred in imposing the death penalty on the accused. Appellant could only thus be convicted
under Article 335 of the Revised Penal Code, as amended, of simple rape punishable
by reclusion perpetua.
8. CRIMINAL LAW; RAPE; CIVIL LIABILITY; P50,000.00 AS MORAL DAMAGES,
P50,000.00 AS CIVIL INDEMNITY, COMPENSATORY DAMAGES AND P25,000.00 AS
EXEMPLARY DAMAGES. — Anent the award of damages, the trial court has correctly awarded
P50,000.00 moral damages, an award that rests on the jural foundation that the crime of rape
necessarily brings with it shame, mental anguish, besmirched reputation, moral shock and
social humiliation to the offended party. In addition, the offended party deserves to receive the
amount of P50,000.00 civil indemnity, the equivalent of compensatory damages, and exemplary
damages in the amount of P25,000.00.
9. CIVIL LAW; DAMAGES; EXEMPLARY DAMAGES; ATTENDANCE OF
AGGRAVATING CIRCUMSTANCES IN THE PERPETRATION OF CRIME JUSTIFY AN
AWARD THEREOF. — The attendance of aggravating circumstances in the perpetration of the
crime serves to increase the penalty (the criminal liability aspect), as well as to justify an award
of exemplary or corrective damages (the civil liability aspect), moored on the greater perversity
of the offender manifested in the commission of the felony such as may be shown by (1) the
motivating power itself, (2) the place of commission, (3) the means and ways employed, (4) the
time, or (5) the personal circumstances of the offender or the offended party or both. There are
various types of aggravating circumstances, among them, the ordinary and the qualifying.
Relationship is an alternative circumstance under Article 15 of the Revised Penal Code. . . . As
a rule, relationship is held to be aggravating in crimes against chastity, such as rape and acts
of lasciviousness, whether the offender is a higher or a lower degree relative of the offended
party.
10. ID.; ID.; ID.; ID.; "AGGRAVATING CIRCUMSTANCES," TO BE UNDERSTOOD IN
ITS BROAD OR GENERIC SENSE. — The term "aggravating circumstances" used by the Civil
Code, the law not having specified otherwise, is to be understood in its broad or generic sense.
The commission of an offense has a two-pronged effect, one on the public as it breaches the
social order and the other upon the private victim as it causes personal sufferings, each of
which is addressed by, respectively, the prescription of heavier punishment for the accused
and by an award of additional damages to the victim. The increase of the penalty or a shift to a
graver felony underscores the exacerbation of the offense by the attendance of aggravating
circumstances, whether ordinary or qualifying, in its commission. Unlike the criminal liability
which is basically a State concern, the award of damages, however, is likewise, if not primarily,
intended for the offended party who suffers thereby. It would make little sense for an award of
exemplary damages to be due the private offended party when the aggravating circumstance
is ordinary but to be withheld when it is qualifying. Withal, the ordinary or qualifying nature of
an aggravating circumstance is a distinction that should only be of consequence to the criminal,
rather than to the civil, liability of the offender. In fine, relative to the civil aspect of the case, an
aggravating circumstance, whether ordinary or qualifying, should entitle the offended party to
an award of exemplary damages within the unbridled meaning of Article 2230 of the Civil Code.
 11. ID.; ID.; ID.; PURPOSE. — Also known as "punitive" or "vindictive" damages,
exemplary or corrective damages are intended to serve as a deterrent to serious wrongdoings,
and as a vindication of undue sufferings and wanton invasion of the rights of an injured or a
punishment for those guilty of outrageous conduct.
12. ID.; ID.; ID.; DIFFERENTIATED FROM PUNITIVE OR VINDICTIVE DAMAGES. —
These terms are generally, but not always, used interchangeably. In common law, there is
preference in the use of exemplary damages when the award is to account for injury to feelings
and for the sense of indignity and humiliation suffered by a person as a result of an injury that
has been maliciously and wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly reprehensible conduct of the defendant —
associated with such circumstances as willfulness; wantonness; malice, gross negligence or
recklessness, oppression, insult or fraud or gross fraud — that intensifies the injury. The terms
punitive or vindictive damages are often used to refer to those species of damages that may
be awarded against a person to punish him for his outrageous conduct. In either case, these
damages are intended in good measure to deter the wrongdoer and other like him from similar
conduct in the future.
13. REMEDIAL LAW; REVISED RULES ON CRIMINAL PROCEDURE; REQUIRED
AGGRAVATING CIRCUMSTANCES TO BE STATED IN THE COMPLAINT OR
INFORMATION. — [T]he Revised Rules on Criminal Procedure, made effective on 01
December 2000, requires aggravating circumstances, whether ordinary or qualifying, to be
stated in the complaint or information. . . . A court would thus be precluded from considering in
its judgment the attendance of "qualifying or aggravating circumstances" if the complaint or
information is bereft of any allegation of the presence of such circumstances.
14. ID.; ID; CIVIL LIABILITY INCURRED BY ACCUSED PRIOR TO THE EFFECTIVITY
THEREOF REMAINS UNAFFECTED; CASE AT BAR. — The retroactive application of
procedural rules, nevertheless, cannot adversely affect the rights of the private offended party
that have become vested prior to the effectivity of said rules. Thus, in the case at bar, although
relationship has not been alleged in the information, the offense having been committed,
however, prior to the effectivity of the new rules, the civil liability already incurred by appellant
remains unaffected thereby.

DECISION

VITUG, J :p

In an information, dated 29 January 1998, the accused, Danilo Catubig y Horio, was
charged with the crime of rape before the Regional Trial Court, Branch 78, of Malolos,
Bulacan; viz:
"The undersigned Asst. Provincial Prosecutor on complaint of the offended party
Dannilyn Catubig y Lazaro accuses Danilo Catubig y Horio of the crime of rape,
penalized under the provisions of Art. 335 of the Revised Penal Code, committed as
follows:
"That on or about the 27th day of November, 1997, in the municipality of San
Jose del Monte, province of Bulacan, Philippines, and within the jurisdiction of this
 Honorable Court, the above-named accused, did then and there wilfully, unlawfully and
feloniously, by means of force, threats and intimidation and with lewd design have carnal
knowledge of the said offended party against her will." 1
When arraigned on 16 July 1998, accused Catubig, represented by counsel de oficio,
pleaded "not guilty" to the offense charged; forthwith, trial ensued.
The case for the prosecution was laid bare in Appellee's Brief submitted by the Office of
the Solicitor General.
"On November 27, 1997, at around 4:00 o'clock in the afternoon, private
complainant Dannilyn Catubig, who was born on August 9, 1985, and her four (4)
younger siblings were watching television in the sala of their house located at Sunlife
Subdivision, San Jose del Monte, Bulacan.
"After an hour, Dannilyn's father, herein appellant Danilo Catubig, arrived and
told Dannilyn's siblings to proceed, as in fact they did proceed, to her aunt's house which
is just located nearby. Thereafter, appellant told Dannilyn to go inside a room and to lie
down on the bed. After Dannilyn had complied, appellant removed Dannilyn's shorts
and panty, while appellant, after removing his brief and t-shirt, [laid] on top of Dannilyn.
Afraid of appellant who beat and raped her in the past, Dannilyn was not able to resist
appellant who succeeded in inserting his penis into Dannilyn's vagina.
"However, Dannilyn's aunt, who got suspicious of what appellant was doing to
Dannilyn, informed the latter's mother, Jocelyn Catubig, about the said suspicion. Thus,
when confronted by her mother, Dannilyn was forced to reveal that she was indeed
raped by appellant. The sexual assault was reported to the San Jose del Monte Police
Station where Dannilyn's sworn statement was subsequently taken on December 3,
1997.
"Upon the request of the police authorities, Dannilyn was examined on December
1, 1997 by Dr. Wilfredo E. Tiera, Medico-Legal Officer of the National Bureau of
Investigation, who found out that Dannilyn's healed laceration in the hymen was caused
by sexual intercourse." 2
The accused denied the accusation against him. He claimed that the rape charge was
brought about only because of the ill-will between him, on the one hand, and his wife and
daughter Dannilyn, on the other hand, following a quarrel. On 27 November 1997, he
asseverated, he had fought with his wife, hitting her and his daughter. His wife then threatened
him that it was the last time that she would allow him to harm her and that he would regret what
he did. True to her foreboding, the next day, he was arrested and a complaint for rape was filed
against him. ICHcTD

On 11 December 1998, the Regional Trial Court rendered a decision holding the accused
guilty of the crime of rape; it adjudged:
"WHEREFORE, in view of the foregoing, the Court hereby finds accused
DANILO CATUBIG Y HORIO GUILTY beyond reasonable doubt of the crime of Rape
defined and penalized under Article 335 of the Revised Penal Code, as amended
by Republic Act No. 7659, and hereby sentences him to suffer the penalty of DEATH,
and to pay private complainant Dannilyn Catubig the amount of Fifty Thousand Pesos
(P50,000.00) as moral damages." 3
With the imposition of the death penalty by the trial court, the records were elevated to
this Court for automatic review.
 In his brief, appellant submitted thusly:
"1. The lower court erred in finding the accused guilty of the crime of rape in
violation of Article 335 of the Revised Penal Code as amended by Republic Act 7659.
"2. The lower court erred in not taking into consideration the fact that the
information was defective for failure to state that the accused is the father of the victim
and that the victim was under 18 years [of] age at the time of the commission of the
alleged rape." 4
Private complainant Dannilyn Catubig narrated how she was repeatedly abused by her
own father; she testified:
"Q Now, after your sisters and brother [went] to the house of your aunt, what did your
father do?
"A He instructed me to go inside the room.
"Q How many rooms were there in your house? IDaCcS

"A Only one.

"Q Did you go to the room per instruction?
"A Yes, sir.
"Q And what happened inside the room?
"A My father entered the room.
"Q And when your father entered the room, what did he do next?
"A He removed my short [pants] and my panty.
"Q What was your position at that time when your father removed your short pants
and panty?
"A I was lying.
"Q When you entered the room, did you lie immediately?
"A No, I just sat.
"Q How come as you claimed a while ago, you were lying when your father removed
your short pants and panty?
"A Once I entered the room, I was sitting then he removed my short [pants] and panty.
"Q You said upon entering the room, you sat and while sitting, all of a sudden your
father removed your short pants and panty while already lying at that time, how
come you were lying when according to you, you were sitting inside the room?
"A I was sitting first and he instructed me to lie down.
"Q While you were sitting inside the room and you were instructed by your father to lie,
what comes to your mind?
"A That he will rape me.
"Q How did you come to know that?
"A He was raping me before, doing that before.
"Q In other words, that was not the first time your father raped you on that particular
date?
"A No, sir.
"Q When was the first time, if you remember? CTAIDE

"A When I was still in grade 1.

"Q How many times were you raped by your father?
"A I can no longer remember how many it was — several.
"Q When was the last time your father raped you?
"A November 27.
"Q Now, when your father removed your short pants and panty, what did he do next?
"A He removed his brief and shirt.
"Q After removing his brief and shirt, what did he do?
"A He [laid] on top me.
"Q When your father [laid] on top of you, what did he do?
"A He was inserting his penis to my vagina.
"Q At this juncture, may we make of record that witness starts to cry.
"Q How did you know your father inserted his penis to your vagina?
"A I can feel it and it is painful.
"Q That was the time when your father was already lying on top of you?
"A Yes, sir.
"Q And what was the movement of the body of your father while he was lying on top of
you?
"A Push and pull movement.
"Q For how long did your father stay on top of you doing that push and pull
movement?
"A That must be about 1 hour, but my aunt arrived.
"Q Aside from the pain, what else did you feel? AacSTE

"A Mahapdi at parang may pumipitik sa loob ng ari ko.

"Q Did you not try to resist?
"A No, because I am afraid of him.
"Q You are afraid of your father?
"A Yes, sir.
"Q Afraid of what?
"A Because he was beating us, hitting us.
"Q Why, what was the reason why your father was hitting you?
 "A To threaten us.
"Q For what purpose?
"A Whenever my mother sided with us, my father and mother engaged in a fight.
"Q In this case, you were raped and sexually abused by your father, what made you
afraid of him?CSIHDA

"A Because we were afraid of my father since childhood." 5

Dannilyn has given her testimony in a plain, categorical, spontaneous and frank manner,
remaining consistent throughout, and there is hardly anything on record that can cast doubt on
her sincerity. The revelations of an innocent child whose chastity has been abused, coupled
with her willingness to face police investigation and to undergo the trouble and humiliation of a
public trial, should merit credence unless strong justifications dictate otherwise. Indeed, it would
take a most senseless kind of depravity for a young daughter to just make up a story which
could put her own father to an undeserved indictment and to even possibly face death in the
hands of the law. 6
When rape is committed against one's own daughter, the moral ascendancy and
influence of the father, that necessarily flows from his parental authority, can sufficiently cow
the child to submission and can rightly be held to substitute for the requisite "violence or
intimidation" that, normally, would be characterized by physical acts and uttered threats made
on the victim.
The trite defenses of alibi and denial proferred by appellant cannot prevail over the
positive and categorical statements of private complainant. Alibi is often viewed with suspicion
and received with caution not only because it is inherently weak and unreliable but also because
it is easy to fabricate. In order that this defense can prosper, it must be convincing to preclude
any doubt on the physical impossibility of the presence of the accused at the locus criminis at
the time of the incident. These conditions have not been met in the case at bar.
The contention of appellant that his wife and daughter Dannilyn have accused him merely
because of his violent ways is much too flimsy to be believed. The mere resentment of a wife
and daughter is not so compelling as to have motivated them to wrongly lodge a complaint for
a crime much more serious than might, if at all, be expected.
It is likewise a settled doctrine that the assessment made by the trial court on the
credibility of witnesses deserves great regard and weight on appeal. The rule is not without
reason; the trial judge has a unique position of hearing first hand the witnesses and observing
their deportment, conduct and attitude during the course of the testimony in open court. There
is no valid reason to now ignore this long accepted jurisprudence in this instance.
This Court, however, finds the second assignment of error impressed with merit.
Article 335 of the Revised Penal Code, as amended by Section 11 of Republic Act No.
7659, at times also referred to as the Death Penalty Law, states in part:
"ARTICLE 335. When and how rape is committed. . . .
"xxx xxx xxx
"The death penalty shall also be imposed if the crime of rape is committed with
any of the following attendant circumstances:
 "1. When the victim is under eighteen (18) years of age and the offender is a
parent, ascendant, step-parent, guardian, relative by consanguinity or affinity within the
third civil degree, or the common-law spouse of the parent of the victim."
The concurrence of the minority of the victim and her relationship to the offender are
special qualifying circumstances that are needed to be alleged in the complaint or
information for the penalty of death to be decreed. 7 The Constitution guarantees to be
inviolable the right of an accused to be informed of the nature and cause of the accusation
against him. 8 It is a requirement that renders it essential for every element of the offense
with which he is charged to be properly alleged in the complaint or information.
Here, the information failed to state the minority of the victim and her relationship with
the offender, both special qualifying circumstances under Republic Act No. 7659, and for want
of such allegations, the trial court erred in imposing the death penalty on the
accused. 9 Appellant could only thus be convicted under Article 335 of the Revised Penal Code,
as amended, of simple rape punishable by reclusion perpetua.
Anent the award of damages, the trial court has correctly awarded P50,000.00 moral
damages, an award that rests on the jural foundation that the crime of rape necessarily brings
with it shame, mental anguish, besmirched reputation, moral shock and social humiliation to
the offended party. 10 In addition, the offended party deserves to receive the amount of
P50,000.00 civil indemnity, 11 the equivalent of compensatory damages, and exemplary
damages in the amount of P25,000.00.
An apparent discord in the award of exemplary damages in simple and qualified rape
cases perhaps deserves more than just a passing remark.
The Civil Code of the Philippines provides, in respect to exemplary or corrective
damages, thusly:
"ARTICLE 2229. Exemplary or corrective damages are imposed, by way of
example or correction for the public good, in addition to the moral, temperate, liquidated
or compensatory damages. DTAcIa

"ARTICLE 2230. In criminal offenses, exemplary damages as a part of the civil

liability may be imposed when the crime was committed with one or more aggravating
circumstances. Such damages are separate and distinct from fines and shall be paid to
the offended party.
"ARTICLE 2231. In quasi-delicts, exemplary damages may be granted if the
defendant acted with gross negligence.
"ARTICLE 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.
"ARTICLE 2233. Exemplary damages cannot be recovered as a matter of right;
the court will decide whether or not they should be adjudicated.
"ARTICLE 2234. While the amount of the exemplary damages need not be
proved, the plaintiff must show that he is entitled to moral, temperate or compensatory
damages before the court may consider the question of whether or not exemplary
damages should be awarded. In case liquidated damages have been agreed upon,
although no proof of loss is necessary in order that such liquidated damages may be
recovered, nevertheless, before the court may consider the question of granting
 exemplary in addition to the liquidated damages, the plaintiff must show that he would
be entitled to moral, temperate or compensatory damages were it not for the stipulation
for liquidated damages. DIEACH

"ARTICLE 2235. A stipulation whereby exemplary damages are renounced in

advance shall be null and void."
The attendance of aggravating circumstances in the perpetration of the crime serves to
increase the penalty (the criminal liability aspect), 12 as well as to justify an award of exemplary
or corrective damages (the civil liability aspect), 13 moored on the greater perversity of the
offender manifested in the commission of the felony such as may be shown by (1) the motivating
power itself, (2) the place of commission, (3) the means and ways employed, (4) the time, or
(5) the personal circumstances of the offender or the offended party or both. There are various
types of aggravating circumstances, among them, the ordinary and the qualifying. Relationship
is an alternative circumstance under Article 15 of the Revised Penal Code.
"ARTICLE 15. Their concept. — Alternative circumstances are those which must
be taken into consideration as aggravating or mitigating according to the nature and
effects of the crime and other conditions attending its commission. They are
relationship, intoxication, and degree of instruction and education of the offender.
"The alternative circumstance of relationship shall be taken into consideration
when the offended party is the spouse, ascendant, descendant, legitimate, natural, or
adopted brother or sister, or relative by affinity in the same degree of the offender."
As a rule, relationship is held to be aggravating in crimes against chastity, such as rape
and acts of lasciviousness, whether the offender is a higher or a lower degree relative of
the offended party. 14
Under Section 11 of Republic Act No. 7659, amending Article 335 of the Revised Penal
Code, the death penalty is to be imposed in rape cases "when the victim is under eighteen (18)
years of age and the offender is a parent, ascendant, step-parent, guardian, relative by
consanguinity or affinity within the third civil degree, or the common-law spouse of the parent
of the victim." The Court has since held that the circumstances enumerated by the amendatory
law are to be regarded as special qualifying (aggravating) circumstances. Somehow doubts
linger on whether relationship may then be considered to warrant an award for exemplary
damages where it is used to qualify rape as a heinous crime, thereby becoming an element
thereof, as would subject the offender to the penalty of death. Heretofore, the Court has not
categorically laid down a specific rule, preferring instead to treat the issue on a case to case
basis.
In People vs. Fundano, 15 People vs. Ramos, 16 People vs. Medina, 17 People vs. Dima
pilis, 18 People vs. Calayca, 19 People vs. Tabion, 20 People vs. Bayona, 21 People vs. Bayya,
22 andPeople vs. Nuñez, 23 along with still other cases, the Court has almost invariably
appreciated relationship as an ordinary aggravating circumstance in simple rape and thereby
imposed exemplary damages upon the offender whether or not the offense has been committed
prior to or after the effectivity of Republic Act No. 7659. Exceptionally, as
in People vs. Decena, 24People vs. Perez, 25 People vs. Perez, 26 and People vs. Ambray, 27 t
he Court has denied the award of exemplary damages following the effectivity of that law. In
qualified rape cases, such as
in People vs. Magdato, 28 People vs. Arizapa, 29 and People vs. Alicante, 30 the Court decreed
the payment of exemplary damages to the offended party but it did not so do as
in People vs.Alba, 31 People vs. Mengote, 32 and People vs. Maglente. 33
It may be time for the Court to abandon its pro hac vice stance and provide, for the
guidance of the bar and the bench, a kind of standard on the matter. caTESD

Also known as "punitive" or "vindictive" damages, exemplary or corrective damages are

intended to serve as a deterrent to serious wrongdoings and as a vindication of undue
sufferings and wanton invasion of the rights of an injured or a punishment for those guilty of
outrageous conduct. These terms are generally, but not always, used interchangeably. In
common law, there is preference in the use of exemplary damages when the award is to
account for injury to feelings and for the sense of indignity and humiliation suffered by a person
as a result of an injury that has been maliciously and wantonly inflicted, 34 the theory being that
there should be compensation for the hurt caused by the highly reprehensible conduct of the
defendant — associated with such circumstances as willfulness, wantonness, malice, gross
negligence or recklessness, oppression, insult or fraud or gross fraud 35 — that intensifies the
injury. The terms punitive or vindictive damages are often used to refer to those species of
damages that may be awarded against a person to punish him for his outrageous conduct. In
either case, these damages are intended in good measure to deter the wrongdoer and others
like him from similar conduct in the future. 36
The term "aggravating circumstances" used by the Civil Code, the law not having
specified otherwise, is to be understood in its broad or generic sense. The commission of an
offense has a two-pronged effect, one on the public as it breaches the social order and the
other upon the private victim as it causes personal sufferings, each of which is addressed by,
respectively, the prescription of heavier punishment for the accused and by an award of
additional damages to the victim. The increase of the penalty or a shift to a graver felony
underscores the exacerbation of the offense by the attendance of aggravating circumstances,
whether ordinary or qualifying, in its commission. Unlike the criminal which is basically a State
concern, the award of damages, however, is likewise, if not primarily, intended for the offended
party who suffers thereby. It would make little sense for an award of exemplary damages to be
due the private offended party when the aggravating circumstance is ordinary but to be withheld
when it is qualifying. Withal, the ordinary or qualifying nature of an aggravating circumstance is
a distinction that should only be of consequence to the criminal, rather than to the civil, liability
of the offender. In fine, relative to the civil aspect of the case, an aggravating circumstance,
whether ordinary or qualifying, should entitle the offended party to an award of exemplary
damages within the unbridled meaning of Article 2230 of the Civil Code. TaCDcE

Relevantly, the Revised Rules on Criminal Procedure, made effective on 01 December

2000, requires aggravating circumstances, whether ordinary or qualifying, to be stated in the
complaint or information. Sections 8 and 9 of Rule 110 of the Rules of Court now provide:
"SECTION 8. Designation of the offense. — The complaint or information shall
state the designation of the offense given by the statute, aver the acts or omissions
constituting the offense, and specify its qualifying and aggravating circumstances. If
there is no designation of the offense, reference shall be made to the section or
subsection of the statute punishing it.
"SECTION 9. Cause of the accusation. — The acts or omissions complained of
as constituting the offense and the qualifying and aggravating circumstances must be
stated in ordinary and concise language and not necessarily in the language used in
 the statute but in terms sufficient to enable a person of common understanding to know
what offense is being charged as well as its qualifying and aggravating circumstances
and for the court to pronounce judgment."
A court would thus be precluded from considering in its judgment the attendance of
"qualifying or aggravating circumstances" if the complaint or information is bereft of any
allegation on the presence of such circumstances.
The retroactive application of procedural rules, nevertheless, cannot adversely affect the
rights of the private offended party that have become vested prior to the effectivity of said rules.
Thus, in the case at bar, although relationship has not been alleged in the information, the
offense having been committed, however, prior to the effectivity of the new rules, the civil liability
already incurred by appellant remains unaffected thereby.
WHEREFORE, the decision of the court a quo is AFFIRMED with MODIFICATION in that
appellant Danilo Catubig y Horio is found guilty only of simple rape and not in its qualified form,
and he is hereby sentenced to suffer the penalty of reclusion perpetua and to pay complainant
Dannilyn Catubig P50,000.00 civil indemnity, P50,000.00 moral damages and P25,000.00
exemplary damages. Costs de oficio.
SO ORDERED.
||| (People v. Catubig y Horio, G.R. No. 137842, [August 23, 2001], 416 PHIL 102-121)
 EN BANC

[G.R. No. L-21438. September 28, 1966.]

AIR FRANCE, petitioner, vs. RAFAEL CARRASCOSO and THE

HONORABLE COURT OF APPEALS, respondents.

Lichauco, Picazo & Agcaoili for petitioner.

Bengzon, Villegas & Zarraga for respondent R. Carrascoso.

SYLLABUS

1. JUDGMENT; FINDINGS OF FACT; REQUIREMENT OF LAW. — Courts of justice

are not burdened with the obligation to specify in the sentence every bit and piece of
evidence presented by the parties upon the issues raised. The law solely insists that a
decision state the "essential ultimate facts" upon which the court's conclusion is drawn.
2. ID.; ID.; ID.; APPEAL AND ERROR; FAILURE TO MAKE FINDINGS ON
EVIDENCE AND CONTENTIONS OF ONE PARTY, EFFECT OF; DECISION NOT TO BE
CLOGGED WITH DETAILS. — The mere failure to make specific findings of fact on the
evidence presented for the defense or to specify in the decision the contentions of the
appellant and the reasons for refusing to believe them is not sufficient to hold the same
contrary to the requirement of the law and the Constitution. There is no law that so requires.
A decision is not to be clogged with details such that prolixity, if not confusion, may result.
3. ID.; ID.; ID.; FINDINGS OF FACT BY COURTS DEFINED. — Findings of fact may
be defined as the written statement of the ultimate facts as found by the court and essential
to support the decision and judgment rendered thereon; they consist of the court's
"conclusions with respect to the determinative facts on issue."
4. ID.; ID.; ID.; QUESTION OF LAW EXPLAINED. — A question of law is "one which
does not call for an examination of the probative value of the evidence presented by the
parties."
5. PLEADING AND PRACTICE; APPEAL; WHAT MAY BE RAISED ON APPEAL
FROM COURT OF APPEALS. — It is not appropriately the business of the Supreme Court
to alter the facts or to review the questions of fact because, by statute, only questions of law
may be raised in an appeal by certiorari from a judgment of the Court of Appeals, which
judgment is conclusive as to the facts.
6. ID.; ID.; EFFECT OF AFFIRMANCE BY COURT OF APPEALS OF TRIAL
COURT'S DECISION. — When the Court of Appeals affirms a judgment of the trial court,
and the findings of fact of said appellate court are not in any way at war with those of the
trial court, nor is said affirmance upon a ground or grounds different from those which were
made the basis of the trial court's conclusions, such judgment of affirmance is (1) a
determination by the Court of Appeals that the proceeding in the lower court was free from
prejudicial error; (7) that all questions raised by the assignments of error and all questions
that might have been so raised have been finally adjudicated as free from all error.
 7. ID.; COMPLAINT; SPECIFIC MENTION OF THE TERM "BAD FAITH" IN THE
COMPLAINT NOT REQUIRED. — Although there is no specific mention of the term bad
faith in the complaint, the inference of bad faith may be drawn from the facts and
circumstances set forth therein. 8. EVIDENCE; FINDING OF COURT OF APPEALS THAT
RESPONDENT WAS ENTITLED TO A FIRST CLASS SEAT. — The Court of Appeals
properly found that a first class-ticket holder is entitled to first class seat, given the fact that
seat availability in specific flights is therein confirmed; otherwise, an air passenger will be
placed in the hollow of the hands of an airline, because it will always be easy for an airline
to strike out the very stipulations in the ticket and say that there was verbal agreement to
the contrary. If only to achieve stability in the relations between passenger and air carrier,
adherence to the ticket so issued is desirable.
9. ID.; LACK OF SPECIFIC AVERMENT OF BAD FAITH CURED BY NOTICE TO
DEFENDANT OF WHAT PLAINTIFF INTENDS TO PROVE AND BY EVIDENCE
PRESENTED WITHOUT OBJECTION; AMENDMENT OF COMPLAINT TO CONFORM TO
EVIDENCE UNNECESSARY. — If there was lack of specific averment of bad faith in the
complaint, such deficiency was cured by notice, right at the start of the trial, by plaintiff's
counsel to defendant as to what plaintiff intended to prove: while in the plane in Bangkok,
plaintiff was ousted by defendant's manager who gave his seat to a white man; and by
evidence of bad faith in the fulfillment of the contract presented without objection on the part
of the defendant. An amendment of the complaint to conform to the evidence is not even
required.
10. ID.; ADMISSIBILITY OF TESTIMONY ON AN ENTRY IN A NOTEBOOK;
TESTIMONY NOT COVERED BY BEST EVIDENCE RULE. — The testimony of a witness
that the purser made an entry in his notebook reading "First Class passenger was forced to
go to the tourist class against his will and that the captain refused to intervene," is competent
and admissible because the subject of the inquiry is not the entry but the ouster incident. It
does not come within the prescription of the best evidence rule.
11. CONTRACT OF CARRIAGE; QUASI-DELICT; LIABILITY OF COMMON
CARRIERS; CASE AT BAR. — Neglect or malfeasance of the carrier's employees could
give ground for an action for damages. Damages here are proper because the stress of
respondent's action is placed upon his wrongful expulsion, which is a violation of a public
duty by petitioner-aircarrier — a case of quasi-delict.
12. ID.; ID.; ID.; AWARD OF MORAL DAMAGES FOR BREACH OF CONTRACT. —
Award of moral damages is proper, despite petitioner's argument that respondent's action
is planted upon breach of contract, where the stress of the action is put on wrongful
expulsion, the contract having been averred only to establish the relation between the
parties.
13. ID.; ID.; ID.; EMPLOYER IS RESPONSIBLE FOR TORTIOUS ACTS OF HIS
EMPLOYEE; CASE AT BAR. — The responsibility of an employer for the tortious act of his
employees is well settled in law. (Art. 2130, Civil Code). Petitioner-aircarrier must answer
for the willful, malevolent act of its manager.
14. ID.; ID.; ID.; LIABILITY FOR EXEMPLARY DAMAGES; POWER OF COURTS TO
GRANT; CASE AT BAR. — The Civil Code gives the court ample power to grant exemplary
damages, the only condition being that defendant should have "acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner." As the manner of ejectment of
 plaintiff from his first class seat fits into this legal precept, exemplary damages are well
awarded, in addition to moral damages.
15. ID.; ID.; LIABILITY FOR ATTORNEY'S FEES; COURT DISCRETION WELL
EXERCISED SHOULD NOT BE DISTURBED. — The grant of exemplary damages justifies
a similar judgment for attorney's fees. The court below felt that it is but just and equitable
that attorney's fees be given and the Supreme Court does not intend to break faith with the
tradition that discretion well-exercised — as it is here should not be disturbed.
16. ID.; RIGHTS OF PASSENGERS. — Passengers do not contract merely for
transportation. They have a right to be treated by the carrier's employees with kindness,
respect, courtesy and due consideration. They are entitled to be protected against personal
misconduct, injurious language, indignities and abuses from such employees. So, any rude
or discourteous conduct on the part of employees towards a passenger gives the latter an
action for damages against the carrier. (4 R. C. L-1174-1175).
17. ID.; BREACH OF CONTRACT MAY BE A TORT. — Although the relation of
passenger and carrier is contractual both in origin and nature, nevertheless, the act that
breaks the contract may also be a tort.
18. WORDS AND PHRASES; BAD FAITH DEFINED. — "Bad faith", as understood
in law, contemplates a state of mind affirmatively operating with furtive design or with some
motive of self-interest or ill will or for ulterior purpose

DECISION

SANCHEZ, J : p

The Court of First Instance of Manila 1 sentenced petitioner to pay respondent

Rafael Carrascoso P25,000.00 by way of moral damages; P10,000.00 as exemplary
damages; P393.20 representing the difference in fare between first class and tourist class
for the portion of the trip Bangkok-Rome, these various amounts with interest at the legal
rate, from the date of the filing of the complaint until paid; plus P3,000.00 for attorneys' fees;
and the costs of suit.
On appeal, 2 the Court of Appeals slightly reduced the amount of refund
on Carrascoso's plane ticket from P393.20 to P383.10, and voted to affirm the appealed
decision "in all other respects", with costs against petitioner.
The case is now before us for review on certiorari.
The facts declared by the Court of Appeals as "fully supported by the evidence of
record", are:
"Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that
left Manila for Lourdes on March 30, 1958.
On March 28, 1958, the defendant, Air France, through its authorized agent,
Philippine Air Lines, Inc., issued to plaintiff a 'first class' round trip airplane ticket from
Manila to Rome. From Manila to Bangkok, plaintiff traveled in 'first class', but at
Bangkok, the Manager of the defendant airline forced plaintiff to vacate the 'first class'
 seat that he was occupying because, in the words of the witness Ernesto G. Cuento,
there was a 'white man', who, the Manager alleged, had a 'better right to the seat. When
asked to vacate his 'first class' seat, the plaintiff, as was to be expected, refused, and
told defendant's Manager that his seat would be taken over his dead body; a commotion
ensued, and, according to said Ernesto G. Cuento, many of the Filipino passengers got
nervous in the tourist class; when they found out that Mr. Carrascoso was having a hot
discussion with the white man [manager], they came all across to Mr. Carrascoso and
pacified Mr. Carrascoso to give his seat to the 'white man' (Transcript, p. 12, Hearing of
May 26, 1959); and plaintiff reluctantly gave his 'first class' seat in the plane." 3
1. The thrust of the relief petitioner now seeks is that we review "all the findings" 4 of
respondent Court of Appeals. Petitioner charges that respondent court failed to make
complete findings of fact on all the issues properly laid before it. We are asked to consider
facts favorable to petitioner, and then, to overturn the appellate court's decision.
Coming into focus is the constitutional mandate that "No decision shall be rendered
by any court of record without expressing therein clearly and distinctly the facts and the law
on which it is based". 5 This is echoed in the statutory demand that a judgment determining
the merits of the case shall state "clearly and distinctly the facts and the law on which it is
based",6 and that "Every decision of the Court of Appeals shall contain complete findings of
fact on all issues properly raised before it." 7
A decision with absolutely nothing to support it is a nullity. It is open to direct
attack. 8 The law, however, solely insists that a decision state the "essential ultimate facts"
upon which the court's conclusion is drawn. 9 A court of justice is not hidebound to write in
its decision every bit and piece of evidence 10 presented by one party and the other upon
the issues raised. Neither is it to be burdened with the obligation "to specify in the sentence
the facts" which a party "considered as proved". 11 This is but a part of the mental process
from which the Court draws the essential ultimate facts. A decision is not to be so clogged
with details such that prolixity, if not confusion, may result. So long as the decision of the
Court of Appeals contains the necessary facts to warrant its conclusions, it is no error for
said court to withhold therefrom "any specific finding of facts with respect to the evidence for
the defense". Because, as this Court well observed, "There is no law that so
requires". 12 Indeed, "the mere failure to specify (in the decision) the contentions of the
appellant and the reasons for refusing to believe them is not sufficient to hold the same
contrary to the requirements of the provisions of law and the Constitution". It is in this setting
that in Manigque, it was held that the mere fact that the findings "were based entirely on the
evidence for the prosecution without taking into consideration or even mentioning the
appellant's side in the controversy as shown by his own testimony", would not vitiate the
judgment. 13 If the court did not recite in the decision the testimony of each witness for, or
each item of evidence presented by, the defeated party, it does not mean that the court has
overlooked such testimony or such item of evidence. 14 At any rate, the legal presumptions
are that official duty has been regularly performed, and that all the matters within an issue
in a case were laid before the court and passed upon by it. 15
Findings of fact, which the Court of Appeals is required to make, may be defined as
"the written statement of the ultimate facts as found by the court . . . and essential to support
the decision and judgment rendered thereon". 16 They consist of the court's
"conclusions with respect to the determinative facts in issue" 17 A question of law, upon the
other hand, has been declared as "one which does not call for an examination of the
probative value of the evidence presented by the parties." 18
 2. By statute, "only questions of law may be raised" in an appeal by certiorari from a
judgment of the Court of Appeals 19 That judgment is conclusive as to the facts. It is not
appropriately the business of this Court to alter the facts or to review the questions of fact. 20
With these guideposts, we now face the problem of whether the findings of fact of the
Court of Appeals support its judgment.
3. Was Carrascoso entitled to the first class seat he claims?
It is conceded in all quarters that on March 28, 1958 he paid to and received from
petitioner a first class ticket. But petitioner asserts that said ticket did not represent the true
and complete intent and agreement of the parties; that said respondent knew that he did not
have confirmed reservations for first class on any specific flight, although he had tourist class
protection; that, accordingly, the issuance of a first class ticket was no guarantee that he
would have a first class ride, but that such would depend upon the availability of first class
seats.
These are matters which petitioner has thoroughly presented and discussed in its brief
before the Court of Appeals under its third assignment of error, which reads: "The trial court
erred in finding that plaintiff had confirmed reservations for, and a right to, first class seats
on the 'definite' segments of his journey, particularly that from Saigon to Beirut." 21
And, the Court of Appeals disposed of this contention thus:
"Defendant seems to capitalize on the argument that the issuance of a first-class
ticket was no guarantee that the passenger to whom the same had been issued, would
be accommodated in the first-class compartment, for as in the case of plaintiff he had
yet to make arrangements upon arrival at every station for the necessary first class
reservation. We are not impressed by such a reasoning. We cannot understand how a
reputable firm like defendant airplane company could have the indiscretion to give out
ticket it never meant to honor at all. It received the corresponding amount in payment of
first-class tickets end yet it allowed the passenger to be at the mercy of its employees.
It is more in keeping with the ordinary course of business that the company should know
whether or not the tickets it issues are to be honored or not." 22
Not that the Court of Appeals is alone. The trial court similarly disposed of petitioner's
contention, thus:
"On the fact that plaintiff paid for, and was issued a 'First class ticket, there can
be no question. Apart from his testimony, see plaintiffs Exhibits 'A', 'A-1' 'B', 'B-1', 'B-2',
'C' and 'C-1', and defendant's own witness, Rafael Altonaga, confirmed plaintiff's
testimony and testified as follows:
Q. In these tickets there are marks 'O.K.' From what you know, what does
this O.K. mean?
A. That the space is confirmed.
Q. Confirmed for first class?
A. Yes, 'first class'. (Transcript, p. 169)
xxx xxx xxx
"Defendant tried to prove by the testimony of its witnesses Luis Zaldariaga and
Rafael Altonaga that although plaintiff paid for, and was issued a 'first class' airplane
ticket, the ticket was subject to confirmation in Hongkong. The court cannot give credit
 to the testimony of said witnesses. Oral evidence cannot prevail over written evidence,
and plaintiff's Exhibits 'A', 'A1', 'B', 'B-1', 'C' and 'C- 1' belie the testimony of said
witnesses, and clearly show that the plaintiff was issued, and paid for, a first class ticket
without any reservation whatever.
Furthermore, as hereinabove shown, defendant's own witness Rafael Altonaga
testified that the reservation for a 'first class' accommodation for the plaintiff was
confirmed. The court cannot believe that after such confirmation ,defendant had a verbal
understanding with plaintiff that the 'first class' ticket issued to him by defendant would
be subject to confirmation in Hongkong." 23
We have heretofore adverted to the fact that except for a slight difference of a few
pesos in the amount refunded on Carrascoso's ticket, the decision of the Court of First
Instance was affirmed by the Court of Appeals in all other respects. We hold the view that
such a judgment of affirmance has merged the judgment of the lower court. 24 Implicit in that
affirmance is a determination by the Court of Appeals that the proceeding in the Court of
First Instance was free from prejudicial error and that 'all questions raised by the
assignments of error and all questions that might have been so raised are to be regarded
as finally adjudicated against the appellant". So also, the judgment affirmed "must be
regarded as free from all error" 25We reached this policy construction because nothing in
the decision of the Court of Appeals on this point would suggest that its findings of fact are
in any way at war with those of the trial court. Nor was said affirmance by the Court of
Appeals upon a ground or grounds different from those which were made the basis of the
conclusions of the trial court. 26
If, as petitioner underscores, a first-class-ticket holder is not entitled to a first class
seat, notwithstanding the fact that seat availability in specific flights is therein confirmed,
then anair passenger is placed in the hollow of the hands of an airline. What security then
can a passenger have? It will always be an easy matter for an airline aided by its employees,
to strike out the very stipulations in the ticket, and say that there was a verbal agreement to
the contrary. What if the passenger had a schedule to fulfill? We have long learned that, as
a rule, a written document speaks a uniform language; that spoken word could be
notoriously unreliable. If only to achieve stability in the relations between passenger
and air carrier, adherence to the ticket so issued is desirable. Such is the case here. The
lower courts refused to believe the oral evidence intended to defeat the covenants in the
ticket.
The foregoing are the considerations which point to the conclusion that there are facts
upon which the Court of Appeals predicated the finding that respondent Carrascoso had a
first class ticket and was entitled to a first class seat at Bangkok, which is a stopover in the
Saigon to Beirut leg of the flight, 27 We perceive no "welter of distortions by the Court of
Appeals of petitioner's statement of its position", as charged by petitioner. 28 Nor do we
subscribe to petitioners accusation that respondent Carrascoso "surreptitiously took a first
class seat to provoke an issue". 29 And this because, as petitioner states, Carrascoso went
to see the Manager at his office in Bangkok "to confirm my seat and because from Saigon I
was told again to see the Manager. 30 Why, then, was he allowed to take a first class seat
in the plane at Bangkok, if he had no seat? Or, if another had a better right to the seat?
4. Petitioner assails respondent court's award of moral damages. Petitioner's
trenchant claim is that Carrascoso's action is planted upon breach of contract; that to
authorize an award for moral damages there must be an averment of fraud or bad
faith; 31 and that the decision of the Court of Appeals fails to make a finding of bad faith. The
pivotal allegations in the complaint bearing on this issue are:
"3. That . . . plaintiff entered into a contract of air carriage with the
Philippine Air Lines for a valuable consideration, the latter acting as general agents for
and in behalf of the defendant, under which aid contract, plaintiff was entitled to, as
defendant agreed to furnish plaintiff, First Class passage on defendant's plane during
the entire duration of plaintiff's tour of Europe with Hongkong as starting point up to and
until plaintiff's return trip to Manila, . . .
4. That during the first two legs of the trip from Hongkong to Saigon and from
Saigon to Bangkok, defendant furnished to the plaintiff First Class accommodation but
only after protestations, arguments and/or insistence were made by the plaintiff with
defendant's employees.
5. That finally, defendant failed to provide First Class passage, but instead
furnished plaintiff only Tourist Class accommodations from Bangkok to Teheran and/or
Casablanca, . . . the plaintiff has been compelled by defendant's employees to leave
the First Class accommodation berths at Bangkok after he was already seated.
6. That consequently, the plaintiff, desiring no repetition of the inconvenience and
embarrassments brought by defendant's breach of contract was forced to take a Pan
American World Airways plane on his return trip from Madrid to Manila. 32
xxx xxx xxx
2. That likewise, as a result of defendant's failure to furnish First Class
accommodations aforesaid, plaintiff suffered inconveniences, embarrassments, and
humiliations, thereby causing plaintiff mental anguish, serious anxiety, wounded
feelings, social humiliation, and the like injury, resulting in moral damages in the amount
of P30,000.00." 33
xxx xxx xxx
The foregoing, in our opinion, substantially aver: First, That there was a contract to
furnish plaintiff a first class passage covering, amongst others, the Bangkok-Teheran
leg; Second, That said contract was breached when petitioner failed to furnish first class
transportation at Bangkok; and Third, That there was bad faith when petitioner's employee
compelledCarrascoso to leave his first class accommodation berth "after he was already
seated" and to take a seat in the tourist class, by reason of which he suffered inconvenience,
embarrassments and humiliations, thereby causing him mental anguish, serious anxiety,
wounded feelings and social humiliation, resulting in moral damages. It is true that there is
no specific mention of the term bad faith in the complaint. But, the inference of bad faith is
there; it may be drawn from the facts and circumstances set forth therein. 34 The contract
was averred to establish the relation between the parties. But the stress of the action is put
on wrongful expulsion.
Quite apart from the foregoing is that (a) right at the start of the trial, respondent's
counsel placed petitioner on guard on what Carrascoso intended to prove: That while sitting
in the plane in Bangkok, Carrascoso was ousted by petitioner's manager who gave his seat
to a white man; 35 and (b) evidence of bad faith in the fulfillment of the contract was
presented without objection on the part of the petitioner. It is, therefore, unnecessary to
inquire as to whether or not there is sufficient averment in the complaint to justify an award
for moral damages. Deficiency in the complaint, if any, was cured by the evidence. An
amendment thereof to conform to the evidence is not even required. 36 On the question of
bad faith, the Court of Appeals declared:
"That the plaintiff was forced out of his seat in the first class compartment of the
plane belonging to the defendant Air France while at Bangkok, and was transferred to
the tourist class not only without his consent but against his will, has been sufficiently
established by plaintiff in his testimony before the court, corroborated by the
corresponding entry made by the purser of the plane in his notebook which notation
reads as follows:
'First-class passenger was forced to go to the tourist class against his
will and that the captain refused to intervene',
and by the testimony of an eye-witness Ernesto G. Cuento, who was a co-
passenger. The captain of the plane who was asked by the manager of defendant
company at Bangkok to intervene even refused to do so. It is noteworthy that no
one on behalf of defendant ever contradicted or denied this evidence for the
plaintiff. It could have been easy for defendant to present its manager at Bangkok
to testify at the trial of the case, or yet to secure his deposition; but defendant did
neither. 37
The Court of Appeals further stated —
"Neither is there evidence as to whether or ,not a prior reservation was made by
the white man. Hence, if the employees of the defendant at Bangkok sold a first-class
ticket to him when all the seats had already been taken, surely the plaintiff should not
have been picked out as the one to suffer the consequences and to be subjected to the
humiliation and indignity of being ejected from his seat in the presence of others. Instead
of explaining to the white man the improvidence committed by defendant's employees,
the manager adopted the more drastic step of ousting the plaintiff who was then safely
ensconced in his rightful seat. We are strengthened in our belief that this probably was
what happened there, by the testimony of defendant's witness Rafael Altonaga who,
when asked to explain the meaning of the letters 'O.K., appearing on the tickets of
plaintiff, said that 'the space is confirmed' for first class. Likewise, Zenaida Faustino,
another witness for defendant, who was the chief of the Reservation Office of defendant,
testified as follows:
'Q. How does the person in the ticket-issuing office know what reservation
the passenger has arranged with you?
A. They call us up by phone and ask for the confirmation.' (t.s.n., p. 247,
June 19, 1959)
In this connection, we quote with approval what the trial Judge has said on this point:
'Why did the, using the words of witness Ernesto G. Cuento, 'white man' have a
'better right' to the seat occupied by Mr. Carrascoso? The record is silent. The defendant
airline did not prove 'any better', nay, any right on the part of the 'white man' to the 'First
class' seat that the plaintiff was occupying and for which he paid and was issued a
corresponding 'first class' ticket.
'If there was a justified reason for the action of the defendant's Manager in
Bangkok, the defendant could have easily proven it by having taken the testimony of
the said Manager by deposition, but defendant did not do so; the presumption is that
evidence willfully suppressed would be adverse if produced [Sec. 69, par. (e) Rules of
Court]; and, under the circumstances, the Court is constrained to find, as it does find,
 that the Manager of the defendant airline in Bangkok not merely asked but threatened
the plaintiff to throw him out of the plane if he did not give up his 'first class' seat because
the said Manager wanted to accommodate using the words of the witness Ernesto G.
Cuento, the 'white man'." 38
It is really correct to say that the Court of Appeals in the quoted portion first transcribed
did not use the term "bad faith". But can it be doubted that the recital of facts therein points
to bad faith? The manager not only prevented Carrascoso from enjoying his right to a first
class seat; worse, he imposed his arbitrary will; he forcibly ejected him from his seat, made
him suffer the humiliation of having to go to the tourist class compartment — just to give way
to another passenger whose right thereto has not been established. Certainly, this is bad
faith. Unless, of course, bad faith has assumed a meaning different from what is understood
in law. For, "bad faith" contemplates a "state of mind affirmatively operating with furtive
design or with some motive of self-interest or ill will or for ulterior purposes." 39
And if the foregoing were not yet sufficient, there is the express finding of bad faith in
the judgment of the Court of First Instance, thus:
"The evidence shows that defendant violated its contract of transportation with
plaintiff in bad faith, with the aggravating circumstances that defendant's Manager in
Bangkok went to the extent of threatening the plaintiff in the presence of many
passengers to have him thrown out of the airplane to give the 'first class' seat that he
was occupying to, again using the words of witness Ernesto G. Cuento, a 'white man'
whom he (defendant's Manager) wished to accommodate, and the defendant has not
proven that this 'white man' had any 'better right' to occupy the 'first class' seat that the
plaintiff was occupying, duly paid for, and for which the corresponding 'first class' ticket
was issued by the defendant to him." 40
5. The responsibility of an employer for the tortuous act of its employees-need not be
essayed. It is well settled in law. 41 For the willful malevolent act of petitioner's manager,
petitioner's his employer, must answer. Article 21 of the Civil Code says:
"Art. 21. Any person who willfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the latter for
the damage."
In parallel circumstances, we applied the foregoing legal precept; and, we held that
upon the provisions of Article 2219 (10), Civil Code, moral damages are recoverable. 42
6. A contract to transport passengers is quite different in kind and degree from any
other contractual relation. 43 And this, because of the relation which an air-carrier sustains
with the public. Its business is mainly with the travelling public. It invites people to avail of
the comforts and advantages it offers. The contract of air carriage, therefore, generates a
relation attended with a public duty. Neglect or malfeasance of the carrier's employees,
naturally, could give ground for an action for damages.
Passengers do not contract merely for transportation. They have a light to be treated
by the carrier's employees with kindness, respect, courtesy and due consideration. They are
entitled to be protected against personal misconduct, injurious language, indignities and
abuses from such employees. So it is, that any rude or discourteous conduct on the part of
employees towards a passenger gives the latter an action for damages against the carrier. 44
Thus, "Where a steamship company 45 had accepted a passenger's check, it was a
breach of contract and a tort, giving a right of action for its agent in the presence of third
persons to falsely notify her that the check was worthless and demand payment under threat
of ejection, though the language used was not insulting and she was not ejected. 46 And
this, because, altho the relation of passenger and carrier is "contractual both in origin and
nature" nevertheless "the act that breaks the contract may be also a tort". 47 And in another
case, "Where a passenger on a railroad train, when the conductor came to collect his fare,
tendered him the cash fare to a point where the train was scheduled not to stop, and told
him that as soon as the train reached such point he would pay the cash fare from that point
to destination, there was nothing in the conduct of the passenger which justified the
conductor in using insulting language to him, as by calling him a lunatic," 48 and the Supreme
Court of South Carolina there held the carrier liable for the mental suffering of said
passenger.
Petitioner's contract with Carrascoso is one attended with public duty. The stress
of Carrascoso's action as we have said, is placed upon his wrongful expulsion. This is a
violation of public duty by the petitioner-air carrier — a case of quasi-delict. Damages are
proper.
7. Petitioner draws our attention to respondent Carrascoso's testimony, thus —
"Q. You mentioned about an attendant. Who is that attendant and purser?
A. When we left already — that was already in the trip — I could not help
it. So one of the flight attendants approached me and requested
from me my ticket and I said, What for? and she said, 'We will note
that you were transferred to the tourist class'. I said, 'Nothing of that
kind. That is tantamount to accepting my transfer.' And I also said,
You are not going to note anything there because I am protesting to
this transfer.
Q. Was she able to note it?
A. No, because I did not give my ticket.
Q. About that purser?
A. Well, the seats there are so close that you feel uncomfortable and you
don't have enough leg room, I stood up and I went to the pantry
that was next to me and the purser was there. He told me, 'I have
recorded the incident in my notebook.' He read it and translated it
to me — because it was recorded in French — 'First class
passenger was forced to go to the tourist class against his will, and
that the captain refused to intervene.'
MR. VALTE —
I move to strike out the last part of the testimony of the witness because
the best evidence would be the notes. Your Honor.
COURT —
I will allow that as part of his testimony." 49
Petitioner charges that the finding of the Court of Appeals that the purser made an
entry in his notebooks reading "First class passenger was forced to go to the tourist class
against his will, and that the captain refused to intervene" is predicated upon evidence
[Carrascoso's testimony above] which is incompetent. We do not think so. The subject of
 inquiry is not the entry, but the ouster incident. Testimony of the entry does not come within
the proscription of the best evidence rule. Such testimony is admissible. 49
Besides, from a reading of the transcript just quoted, when the dialogue happened,
the impact of the startling occurrence was still fresh and continued to be felt. The excitement
had not as yet died down. Statements then, in this environment, are admissible as part of
the res gestae. 50 For, they grow "out of the nervous excitement and mental and physical
condition of the declarant". 51 The utterance of the purser regarding his entry in the notebook
was spontaneous, and related to the circumstances of the ouster incident. Its trustworthiness
has been guaranteed. 52 It thus escapes the operation of the hearsay rule. It forms part of
the res gestae.
At all events, the entry was made outside the Philippines. And, by an employee of
petitioner. It would have been an easy matter for petitioner to have
contradicted Carrascoso'stestimony. If it were really true that no such entry was made, the
deposition of the purser could have cleared up the matter.
We, therefore, hold that the transcribed testimony of Carrascoso is admissible in
evidence.
8. Exemplary damages are well awarded. The Civil Code gives the Court ample power
to grant exemplary damages — in contracts and quasi-contracts. The only condition is that
defendant should have "acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner". 53 The manner of ejectment of respondent Carrascoso from his first class seat fits
into this legal precept. And this, in addition to moral damages. 54
9. The right to attorneys' fees is fully established. The grant of exemplary damages
justifies a similar judgment for attorneys' fees. The least that can be said is that the courts
below felt that it is but just and equitable that attorneys' fees be given. 55 We do not intend
to break faith with the tradition that discretion well exercised — as it was here —should not
be disturbed.
10. Questioned as excessive are the amounts decreed by both the trial court and the
Court of Appeals, thus: P25,000.00 as moral damages; P10,000.00, by way of exemplary
damages, and P3,000.00 as attorney's fees. The task of fixing these amounts is primarily
with the trial-court. 56 The Court of Appeals did not interfere with the same. The dictates of
good sense suggest that we give our imprimatur thereto. Because, the facts and
circumstances point to the reasonableness thereof. 57
On balance, we say that the judgment of the Court of Appeals does not suffer from
reversible error. We accordingly vote to affirm the same. Costs against petitioner. So
ordered.
||| (Air France v. Carrascoso, G.R. No. L-21438, [September 28, 1966], 124 PHIL 722-742)
 THIRD DIVISION

[G.R. No. 138814. April 16, 2009.]

MAKATI STOCK EXCHANGE, INC., MA. VIVIAN YUCHENGCO, ADOLFO M.

DUARTE, MYRON C. PAPA, NORBERTO C. NAZARENO, GEORGE UY-
TIOCO, ANTONIO A. LOPA, RAMON B. ARNAIZ, LUIS J.L. VIRATA, and
ANTONIO GARCIA, JR. petitioners, vs. MIGUEL V. CAMPOS, substituted by
JULIA ORTIGAS VDA. DE CAMPOS, 1 respondent.

DECISION

CHICO-NAZARIO, J : p

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the
Decision 2 dated 11 February 1997 and Resolution dated 18 May 1999 of the Court of
Appeals in CA-G.R. SP No. 38455. ADCIca

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent
Miguel V. Campos, who filed with the Securities, Investigation and Clearing Department
(SICD) of the Securities and Exchange Commission (SEC), a Petition against herein
petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE directors, Ma. Vivian
Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C. Nazareno, George Uy-Tioco,
Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata, and Antonio Garcia, Jr. Respondent, in
said Petition, sought: (1) the nullification of the Resolution dated 3 June 1993 of the MKSE
Board of Directors, which allegedly deprived him of his right to participate equally in the
allocation of Initial Public Offerings (IPO) of corporations registered with MKSE; (2) the
delivery of the IPO shares he was allegedly deprived of, for which he would pay IPO prices;
and (3) the payment of P2 million as moral damages, P1 million as exemplary damages,
and P500,000.00 as attorney's fees and litigation expenses.
On 14 February 1994, the SICD issued an Order granting respondent's prayer for the
issuance of a Temporary Restraining Order to enjoin petitioners from implementing or
enforcing the 3 June 1993 Resolution of the MKSE Board of Directors.
The SICD subsequently issued another Order on 10 March 1994 granting
respondent's application for a Writ of Preliminary Injunction, to continuously enjoin, during
the pendency of SEC Case No. 02-94-4678, the implementation or enforcement of the
MKSE Board Resolution in question. Petitioners assailed this SICD Order dated 10 March
1994 in a Petition forCertiorari filed with the SEC en banc, docketed as SEC-EB No. 393.
On 11 March 1994, petitioners filed a Motion to Dismiss respondent's Petition in SEC
Case No. 02-94-4678, based on the following grounds: (1) the Petition became moot due to
the cancellation of the license of MKSE; (2) the SICD had no jurisdiction over the Petition;
and (3) the Petition failed to state a cause of action.
 The SICD denied petitioner's Motion to Dismiss in an Order dated 4 May 1994.
Petitioners again challenged the 4 May 1994 Order of SICD before the SEC en banc through
another Petition for Certiorari, docketed as SEC-EB No. 403.
In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified the 10
March 1994 Order of SICD in SEC Case No. 02-94-4678 granting a Writ of Preliminary
Injunction in favor of respondent. Likewise, in an Order dated 14 August 1995 in SEC-EB
No. 403, the SEC en banc annulled the 4 May 1994 Order of SICD in SEC Case No. 02-94-
4678 denying petitioners' Motion to Dismiss, and accordingly ordered the dismissal of
respondent's Petition before the SICD. aDcEIH

Respondent filed a Petition for Certiorari with the Court of Appeals assailing the
Orders of the SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393
and SEC-EB No. 403, respectively. Respondent's Petition before the appellate court was
docketed as CA-G.R. SP No. 38455.
On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R. SP
No. 38455, granting respondent's Petition for Certiorari, thus:
WHEREFORE, the petition in so far as it prays for annulment of the Orders dated
May 31, 1995 and August 14, 1995 in SEC-EB Case Nos. 393 and 403 is GRANTED.
The said orders are hereby rendered null and void and set aside.
Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was
denied by the Court of Appeals in a Resolution dated 18 May 1999.
Hence, the present Petition for Review raising the following arguments:
I.
THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE
PETITION FILED BY RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE
A CAUSE OF ACTION.
II.
THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A
MERE ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF
THE MAKATI STOCK EXCHANGE, INC.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS
OF JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED TO
MAKE A DETERMINATION AS TO THE TRUTH OF RESPONDENT'S ALLEGATIONS
IN HIS PETITION AND USED AS BASIS THE EVIDENCE ADDUCED DURING THE
HEARING ON THE APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION
TO DETERMINE THE EXISTENCE OR VALIDITY OF A STATED CAUSE OF
ACTION. DaIACS

IV.
IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE
BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING
 PUBLIC. HENCE, RESPONDENT'S CLAIM FOR DAMAGES IS ILLUSORY AND HIS
PETITION A NUISANCE SUIT. 3
On 18 September 2001, counsel for respondent manifested to this Court that his client
died on 7 May 2001. In a Resolution dated 24 October 2001, the Court directed the
substitution of respondent by his surviving spouse, Julia Ortigas vda. de Campos.
Petitioners want this Court to affirm the dismissal by the SEC en banc of respondent's
Petition in SEC Case No. 02-94-4678 for failure to state a cause of action. On the other
hand, respondent insists on the sufficiency of his Petition and seeks the continuation of the
proceedings before the SICD.
A cause of action is the act or omission by which a party violates a right of another. 4 A
complaint states a cause of action where it contains three essential elements of a cause of
action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in violation of said legal right. If these
elements are absent, the complaint becomes vulnerable to dismissal on the ground of failure
to state a cause of action.
If a defendant moves to dismiss the complaint on the ground of lack of cause of action,
he is regarded as having hypothetically admitted all the averments thereof. The test of
sufficiency of the facts found in a complaint as constituting a cause of action is whether or
not admitting the facts alleged, the court can render a valid judgment upon the same in
accordance with the prayer thereof. The hypothetical admission extends to the relevant and
material facts well pleaded in the complaint and inferences fairly deducible therefrom.
Hence, if the allegations in the complaint furnish sufficient basis by which the complaint can
be maintained, the same should not be dismissed regardless of the defense that may be
assessed by the defendant. 5
Given the foregoing, the issue of whether respondent's Petition in SEC Case No. 02-
94-4678 sufficiently states a cause of action may be alternatively stated as whether,
hypothetically admitting to be true the allegations in respondent's Petition in SEC Case No.
02-94-4678, the SICD may render a valid judgment in accordance with the prayer of said
Petition.
A reading of the exact text of respondent's Petition in SEC Case No. 02-94-4678 is,
therefore, unavoidable. Pertinent portions of the said Petition reads: aEIADT

7. In recognition of petitioner's invaluable services, the general membership of

respondent corporation [MKSE] passed a resolution sometime in 1989 amending its
Articles of Incorporation, to include the following provision therein:
"ELEVENTH – WHEREAS, Mr. Miguel Campos is the only surviving
incorporator of the Makati Stock Exchange, Inc. who has maintained his
membership;
"WHEREAS, he has unselfishly served the Exchange in various
capacities, as governor from 1977 to the present and as President from 1972 to
1976 and again as President from 1988 to the present;
"WHEREAS, such dedicated service and leadership which has
contributed to the advancement and well being not only of the Exchange and its
members but also to the Securities industry, needs to be recognized and
appreciated;
 "WHEREAS, as such, the Board of Governors in its meeting held on
February 09, 1989 has correspondingly adopted a resolution recognizing his
valuable service to the Exchange, reward the same, and preserve for posterity
such recognition by proposing a resolution to the membership body which would
make him as Chairman Emeritus for life and install in theExchange premises a
commemorative bronze plaque in his honor;
"NOW, THEREFORE, for and in consideration of the above premises, the
position of the "Chairman Emeritus" to be occupied by Mr. Miguel Campos during
his lifetime and irregardless of his continued membership in the Exchange with
the Privilege to attend all membership meetings as well as the meetings of the
Board of Governors of the Exchange, is hereby created."
8. Hence, to this day, petitioner is not only an active member of the respondent
corporation, but its Chairman Emeritus as well.
9. Correspondingly, at all times material to this petition, as an active member and
Chairman Emeritus of respondent corporation, petitioner has always enjoyed the right
given to all the other members to participate equally in the Initial Public Offerings (IPOs
for brevity) of corporations.
10. IPOs are shares of corporations offered for sale to the public, prior to the
listing in the trading floor of the country's two stock exchanges. Normally, Twenty Five
Percent (25%) of these shares are divided equally between the two stock exchanges
which in turn divide these equally among their members, who pay therefor at the offering
price.TcIaHC

11. However, on June 3, 1993, during a meeting of the Board of Directors of

respondent-corporation, individual respondents passed a resolution to stop giving
petitioner the IPOs he is entitled to, based on the ground that these shares were
allegedly benefiting Gerardo O. Lanuza, Jr., who these individual respondents wanted
to get even with, for having filed cases before the Securities and Exchange * (SEC) for
their disqualification as member of the Board of Directors of respondent corporation.
12. Hence, from June 3, 1993 up to the present time, petitioner has been
deprived of his right to subscribe to the IPOs of corporations listing in the stock market
at their offering prices.
13. The collective act of the individual respondents in depriving petitioner of his
right to a share in the IPOs for the aforementioned reason, is unjust, dishonest and done
in bad faith, causing petitioner substantial financial damage. 6
There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in
favor of respondent, particularly, respondent's alleged right to subscribe to the IPOs of
corporations listed in the stock market at their offering prices; and stipulates the
correlative obligation of petitioners to respect respondent's right, specifically, by continuing
to allow respondent to subscribe to the IPOs of corporations listed in the stock market at
their offering prices.
However, the terms right and obligation in respondent's Petition are not magic words
that would automatically lead to the conclusion that such Petition sufficiently states a cause
of action. Right and obligation are legal terms with specific legal meaning. A right is a claim
or title to an interest in anything whatsoever that is enforceable by law. 7 An obligation is
defined in the Civil Code as a juridical necessity to give, to do or not to do. 8 For every right
enjoyed by any person, there is a corresponding obligation on the part of another person to
respect such right. Thus, Justice J.B.L. Reyes offers 9 the definition given by Arias Ramos
as a more complete definition:
An obligation is a juridical relation whereby a person (called the creditor) may
demand from another (called the debtor) the observance of a determinative conduct
(the giving, doing or not doing), and in case of breach, may demand satisfaction from
the assets of the latter.
The Civil Code enumerates the sources of obligations:
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. cTAaDC

Therefore, an obligation imposed on a person, and the corresponding right granted to

another, must be rooted in at least one of these five sources. The mere assertion of a right
and claim of an obligation in an initiatory pleading, whether a Complaint or Petition, without
identifying the basis or source thereof, is merely a conclusion of fact and law. A pleading
should state the ultimate facts essential to the rights of action or defense asserted, as
distinguished from mere conclusions of fact or conclusions of law. 10 Thus, a Complaint or
Petition filed by a person claiming a right to the Office of the President of this Republic, but
without stating the source of his purported right, cannot be said to have sufficiently stated a
cause of action. Also, a person claiming to be the owner of a parcel of land cannot merely
state that he has a right to the ownership thereof, but must likewise assert in the Complaint
either a mode of acquisition of ownership or at least a certificate of title in his name.
In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege
respondent's right to subscribe to the IPOs of corporations listed in the stock market at their
offering prices, and petitioners' obligation to continue respecting and observing such right,
the Petition utterly failed to lay down the source or basis of respondent's right and/or
petitioners' obligation.
Respondent merely quoted in his Petition the MKSE Board Resolution, passed
sometime in 1989, granting him the position of Chairman Emeritus of MKSE for life.
However, there is nothing in the said Petition from which the Court can deduce that
respondent, by virtue of his position as Chairman Emeritus of MKSE, was granted by law,
contract, or any other legal source, the right to subscribe to the IPOs of corporations listed
in the stock market at their offering prices.
A meticulous review of the Petition reveals that the allocation of IPO shares was
merely alleged to have been done in accord with a practice normally observed by the
members of the stock exchange, to wit:
IPOs are shares of corporations offered for sale to the public, prior to their listing
in the trading floor of the country's two stock exchanges. Normally, Twenty-Five
Percent (25%) of these shares are divided equally between the
two stock exchanges which in turn divide these equally among their members,
who pay therefor at the offering price. 11 (Emphasis supplied)
 A practice or custom is, as a general rule, not a source of a legally demandable or
enforceable right. 12 Indeed, in labor cases, benefits which were voluntarily given by the
employer, and which have ripened into company practice, are considered as rights that
cannot be diminished by the employer. 13 Nevertheless, even in such cases, the source of
the employees' right is not custom, but ultimately, the law, since Article 100 of the Labor
Code explicitly prohibits elimination or diminution of benefits. SEIcAD

There is no such law in this case that converts the practice of allocating IPO shares
to MKSE members, for subscription at their offering prices, into an enforceable or
demandable right. Thus, even if it is hypothetically admitted that normally, twenty five
percent (25%) of the IPOs are divided equally between the two stock exchanges — which,
in turn, divide their respective allocation equally among their members, including the
Chairman Emeritus, who pay for IPO shares at the offering price — the Court cannot grant
respondent's prayer for damages which allegedly resulted from the MKSE Board Resolution
dated 3 June 1993 deviating from said practice by no longer allocating any shares to
respondent.
Accordingly, the instant Petition should be granted. The Petition in SEC Case No. 02-
94-4678 should be dismissed for failure to state a cause of action. It does not matter that
the SEC en banc, in its Order dated 14 August 1995 in SEC-EB No. 403, overstepped its
bounds by not limiting itself to the issue of whether respondent's Petition before the SICD
sufficiently stated a cause of action. The SEC en banc may have been mistaken in
considering extraneous evidence in granting petitioners' Motion to Dismiss, but its
discussion thereof are merely superfluous and obiter dictum. In the main, the SEC en
banc did correctly dismiss the Petition in SEC Case No. 02-94-4678 for its failure to state
the basis for respondent's alleged right, to wit:
Private respondent Campos has failed to establish the basis or authority for his
alleged right to participate equally in the IPO allocations of the Exchange. He cited
paragraph 11 of the amended articles of incorporation of the Exchange in support of his
position but a careful reading of the said provision shows nothing therein that would
bear out his claim. The provision merely created the position of chairman emeritus of
the Exchange but it mentioned nothing about conferring upon the occupant thereof the
right to receive IPO allocations. 14
With the dismissal of respondent's Petition in SEC Case No. 02-94-4678, there is no
more need for this Court to resolve the propriety of the issuance by SCID of a writ of
preliminary injunction in said case.
WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated
11 February 1997 and its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455 are
REVERSED and SET ASIDE. The Orders dated 31 May 1995 and 14 August 1995 of the
Securities and Exchange Commission en banc in SEC-EB Case No. 393 and No. 403,
respectively, are hereby reinstated. No pronouncement as to costs.
SO ORDERED.
(Makati Stock Exchange, Inc. v. Campos, G.R. No. 138814, [April 16, 2009], 603 PHIL 121-
|||

134)
 SECOND DIVISION

[G.R. No. L-29139. November 15, 1974.]

CONSUELO P. PICZON, RUBEN O. PICZON and AIDA P.

ALCANTARA, plaintiffs-appellants, vs. ESTEBAN PICZON and SOSING-
LOBOS & CO., INC., defendants-appellees.

Vicente C. Santos for plaintiff-appellants.

Jacinto R. Bohol for defendant-appellee Sosing-Lobos & Co., Inc.
Vicente M. Macabidang for defendant-appellee Esteban Piczon.

DECISION

BARREDO, J : p

Appeal from the decision of the Court of First Instance of Samar in its Civil Case No.
5156, entitled Consuelo P. Piczon, et. al. vs. Esteban Piczon, et al., sentencing defendants-
appellees, Sosing Lobos and Co., Inc., as principal, and Esteban Piczon, as guarantor, to
pay plaintiffs-appellants "the sum of P12,500.00 with 12% interest from August 6, 1964 until
said principal amount of P12,500.00 shall have been duly paid, and the costs."
After issues were joined and at the end of the pre-trial held on August 22, 1967, the
trial court issued the following order:
"When this case was called for pre-trial, plaintiffs and defendants through their
lawyers, appeared and entered into the following agreement:
1. That defendants admit the due execution of Annexes 'A' and 'B' of the
complaint;
2. That consequently defendant Sosing-Lobos and Co., Inc. binds itself to the
plaintiffs for P12,600.00, the same to be paid on or before October 31, 1967 together
with the interest that this court may determine.
That the issues in this case are legal ones namely:
(a) Will the payment of twelve per cent interest of P12,500.00 commence to run
from August 6, 1964 when plaintiffs made the first demand or from August 29, 1956
when the obligation becomes due and demandable?
(b) Is defendant Esteban Piczon liable as a guarantor or a surety?
That the parties are hereby required to file their respective memorandum if they
so desire on or before September 15, 1967 to discuss the legal issues and therewith
the case will be considered submitted for decision.
WHEREFORE, the instant case is hereby considered submitted based on the
aforesaid facts agreed upon and upon submission of the parties of their respective
memorandum on or before September 15, 1967.
 SO ORDERED." 1 (Record on Appeal pp. 28-30.)
Annex "A", the actionable document of appellants reads thus:
"AGREEMENT OF LOAN
KNOW YE ALL MEN BY THESE PRESENTS:
That I, ESTEBAN PICZON, of legal age, married, Filipino, and resident of and
with postal address in the municipality of Catbalogan, Province of Samar, Philippines,
in my capacity as the President of the corporation known as the 'SOSING-LOBOS and
CO., INC.,' as controlling stockholder, and at the same time as guarantor for the
same, do by these presents contract a loan of Twelve Thousand Five Hundred Pesos
(P12,500.00), Philippine Currency, the receipt of which is hereby acknowledged, from
the 'Piczon and Co., Inc.' another corporation, the main offices of the two corporations
being in Catbalogan, Samar, for which I undertake, bind and agree to use the loan as
surety cash deposit for registration with the Securities and Exchange Commission of
the incorporation papers relative to the 'Sosing-Lobos and Co., Inc.,' and to return or
pay the same amount with Twelve Per Cent (12%) interest per annum, commencing
from the date of execution hereof, to the 'Piczon and Co., Inc., as soon as the said
incorporation papers are duly registered and the Certificate of Incorporation issued by
the aforesaid Commission.
IN WITNESS WHEREOF, I hereunto signed my name in Catbalogan, Samar,
Philippines, this 28th day of September, 1956.
(Sgd.) ESTEBAN PICZON"
(Record on Appeal, pp. 6-7.)
The trial court having rendered judgment in the tenor aforequoted, appellants assign
the following alleged errors:
"I
THE TRIAL COURT ERRED IN ORDERING THE PAYMENT OF 12%
INTEREST ON THE PRINCIPAL OF P12,500.00 FROM AUGUST 6, 1964, ONLY,
INSTEAD OF FROM SEPTEMBER 28, 1956, WHEN ANNEX 'A' WAS DULY
EXECUTED.
"II
THE TRIAL COURT ERRED IN CONSIDERING DEFENDANT
ESTEBAN PICZON AS GUARANTOR ONLY AND NOT AS SURETY.
"III
THE TRIAL COURT ERRED IN NOT ADJUDICATING DAMAGES IN FAVOR
OF THE PLAINTIFFS-APPELLANTS." (Appellants' Brief, pp. a to b.)
Appellants' first assignment of error is well taken. Instead of requiring appellees to pay
interest at 12% only from August 6, 1964, the trial court should have adhered to the terms
of the agreement which plainly provides that Esteban Piczon had obligated Sosing-Lobos
and Co., Inc. and himself to "return or pay (to Piczon and Co., Inc.) the same amount
(P12,500.00) with Twelve Per Cent (12%) interest per annum commencing from the date of
the execution hereof", Annex A, which was on September 28, 1956. Under Article 2209 of
the Civil Code "(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 stipulation 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." In the case at bar, the "interest agreed upon" by
the parties in Annex A was to commence from the execution of said document.
Appellees' contention that the reference in Article 2209 to delay incurred by the debtor
which can serve as the basis for liability for interest is to that defined in Article 1169 of the
Civil Code reading thus:
"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.
However, the demand by the creditor shall not be necessary in order that delay
may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
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."
is untenable. In Quiroz vs. Tan Guinlay, 5 Phil. 675, it was held that the article cited by
appellees (which was Article 1100 of the Old Civil Code read in relation to Art. 1101) is
applicable only when the obligation is to do something other than the payment of money.
And in Firestone Tire & Rubber Co. (P.I.) vs. Delgado, 104 Phil. 920, the Court squarely
ruled that if the contract stipulates from what time interest will be counted, said stipulated
time controls, and, therefore interest is payable from such time, and not from the date of
the filing of the complaint (at p. 925). Were that not the law, there would be no basis for the
provision of Article 2212 of the Civil Code providing that "(I)nterest due shall earn legal
interest from the time it is judicially demanded, although the obligation may be silent upon
this point." Incidentally, appellants would have been entitled to the benefit of this article,
had they not failed to plead the same in their complaint. Their prayer for it in their brief is
much too late. Appellees had no opportunity to meet the issue squarely at the pre-trial.
As regards the other two assignments of error, appellants' pose cannot be sustained.
Under the terms of the contract, Annex A, Esteban Piczon expressly bound himself only as
guarantor, and there are no circumstances in the record from which it can be deduced that
his liability could be that of a surety. A guaranty must be express, (Article 2055, Civil Code)
and it would be violative of the law to consider a party to be bound as a surety when the
very word used in the agreement is "guarantor."
Moreover, as well pointed out in appellees' brief, under the terms of the pre-trial order,
appellants accepted the express assumption of liability by Sosing-Lobos & Co., Inc. for the
payment of the obligation in question, thereby modifying their original posture that inasmuch
as that corporation did not exist yet at the time of the agreement, Piczon necessarily must
have bound himself as insurer.
As already explained earlier, appellants' prayer for payment of legal interest upon
interest due from the filing of the complaint can no longer be entertained, the same not
 having been made an issue in the pleadings in the court below. We do not believe that such
a substantial matter can be deemed included in a general prayer for "any other relief just
and equitable in the premises", especially when, as in this case, the pre-trial order does not
mention it in the enumeration of the issues to be resolved by the court.
PREMISES CONSIDERED, the judgment of the trial court is modified so as to make
appellees liable for the stipulated interest of 12% per annum from September 28, 1956,
instead of August 6, 1964. In all other respects, said judgment is affirmed. Costs against
appellees.
Fernando (Chairman), Antonio, Fernandez and Aquino, JJ., concur.
||| (Piczon v. Piczon, G.R. No. L-29139, [November 15, 1974], 158 PHIL 726-731)
 SECOND DIVISION

[G.R. No. 124242. January 21, 2005.]

SAN LORENZO DEVELOPMENT CORPORATION, petitioner, vs. COURT OF

APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA
ZAVALLA LU, respondents.

DECISION

TINGA, J :p

From a coaptation of the records of this case, it appears that respondents Miguel Lu and
Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta.
Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808
square meters or a total of 3.1616 hectares.
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to
respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00)
per square meter. Babasanta made a downpayment of fifty thousand pesos (P50,000.00) as
evidenced by a memorandum receipt issued by Pacita Lu of the same date. Several other
payments totaling two hundred thousand pesos (P200,000.00) were made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution
of a final deed of sale in his favor so that he could effect full payment of the purchase price. In
the same letter, Babasanta notified the spouses about having received information that the
spouses sold the same property to another without his knowledge and consent. He demanded
that the second sale be cancelled and that a final deed of sale be issued in his favor. cEAIHa

In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having

agreed to sell the property to him at fifteen pesos (P15.00) per square meter. She, however,
reminded Babasanta that when the balance of the purchase price became due, he requested
for a reduction of the price and when she refused, Babasanta backed out of the sale. Pacita
added that she returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through
Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court
(RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and
Damages 1against his co-respondents herein, the Spouses Lu. Babasanta alleged that the
lands covered by TCT No. T-39022 and T-39023 had been sold to him by the spouses at fifteen
pesos (P15.00) per square meter. Despite his repeated demands for the execution of a final
deed of sale in his favor, respondents allegedly refused.
In their Answer, 2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta
and when the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter
and Babasanta, without the knowledge and consent of Miguel Lu, had verbally agreed to
transform the transaction into a contract to sell the two parcels of land to Babasanta with the
fifty thousand pesos (P50,000.00) to be considered as the downpayment for the property and
the balance to be paid on or before 31 December 1987. Respondents Lu added that as of
November 1987, total payments made by Babasanta amounted to only two hundred thousand
pesos (P200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty
thousand pesos (P260,000.00) despite repeated demands. Babasanta had purportedly asked
Pacita for a reduction of the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per
square meter and when the Spouses Lu refused to grant Babasanta's request, the latter
rescinded the contract to sell and declared that the original loan transaction just be carried out
in that the spouses would be indebted to him in the amount of two hundred thousand pesos
(P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Manager's Check No.
05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of
Babasanta to show that she was able and willing to pay the balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January 1990 3 wherein he
prayed for the issuance of a writ of preliminary injunction with temporary restraining order and
the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He contended
that the issuance of a preliminary injunction was necessary to restrain the transfer or
conveyance by the Spouses Lu of the subject property to other persons.
The Spouses Lu filed their Opposition 4 to the amended complaint contending that it
raised new matters which seriously affect their substantive rights under the original complaint.
However, the trial court in its Order dated 17 January 1990 5 admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC)
filed a Motion for Intervention 6 before the trial court. SLDC alleged that it had legal interest in
the subject matter under litigation because on 3 May 1989, the two parcels of land involved,
namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with
Mortgage. 7 It alleged that it was a buyer in good faith and for value and therefore it had a better
right over the property in litigation.
In his Opposition to SLDC's motion for intervention, 8 respondent Babasanta demurred
and argued that the latter had no legal interest in the case because the two parcels of land
involved herein had already been conveyed to him by the Spouses Lu and hence, the vendors
were without legal capacity to transfer or dispose of the two parcels of land to the intervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene.
SLDC filed its Complaint-in-Intervention on 19 April 1990. 9 Respondent Babasanta's motion
for the issuance of a preliminary injunction was likewise granted by the trial court in
its Order dated 11 January 1991 10 conditioned upon his filing of a bond in the amount of fifty
thousand pesos (P50,000.00). cAECST

SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu

executed in its favor an Option to Buy the lots subject of the complaint. Accordingly, it paid an
option money in the amount of three hundred sixteen thousand one hundred sixty pesos
(P316,160.00) out of the total consideration for the purchase of the two lots of one million two
hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu
received a total amount of six hundred thirty-two thousand three hundred twenty pesos
(P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor.
SLDC added that the certificates of title over the property were delivered to it by the spouses
clean and free from any adverse claims and/or notice of lis pendens. SLDC further alleged that
it only learned of the filing of the complaint sometime in the early part of January 1990 which
prompted it to file the motion to intervene without delay. Claiming that it was a buyer in good
faith, SLDC argued that it had no obligation to look beyond the titles submitted to it by the
Spouses Lu particularly because Babasanta's claims were not annotated on the certificates of
title at the time the lands were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale
of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred
thousand pesos (P200,000.00) with legal interest plus the further sum of fifty thousand pesos
(P50,000.00) as and for attorney's fees. On the complaint-in-intervention, the trial court ordered
the Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis
pendens annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta
and SLDC did not register the respective sales in their favor, ownership of the property should
pertain to the buyer who first acquired possession of the property. The trial court equated the
execution of a public instrument in favor of SLDC as sufficient delivery of the property to the
latter. It concluded that symbolic possession could be considered to have been first transferred
to SLDC and consequently ownership of the property pertained to SLDC who purchased the
property in good faith.
Respondent Babasanta appealed the trial court's decision to the Court of Appeals
alleging in the main that the trial court erred in concluding that SLDC is a purchaser in good
faith and in upholding the validity of the sale made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals. They contended
that the trial court erred in failing to consider that the contract to sell between them and
Babasanta had been novated when the latter abandoned the verbal contract of sale and
declared that the original loan transaction just be carried out. The Spouses Lu argued that since
the properties involved were conjugal, the trial court should have declared the verbal contract
to sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and
consent of Miguel Lu. They further averred that the trial court erred in not dismissing the
complaint filed by Babasanta; in awarding damages in his favor and in refusing to grant the
reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered its Decision 11 which set aside the
judgment of the trial court. It declared that the sale between Babasanta and the Spouses Lu
was valid and subsisting and ordered the spouses to execute the necessary deed of
conveyance in favor of Babasanta, and the latter to pay the balance of the purchase price in
the amount of two hundred sixty thousand pesos (P260,000.00). The appellate court ruled that
the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the ground that
SLDC was a purchaser in bad faith. The Spouses Lu were further ordered to return all payments
made by SLDC with legal interest and to pay attorney's fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate
court. 12 However, in a Manifestation dated 20 December 1995, 13 the Spouses Lu informed the
appellate court that they are no longer contesting the decision dated 4 October 1995.

In its Resolution dated 11 March 1996, 14 the appellate court considered as withdrawn
the motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20
December 1995. The appellate court denied SLDC's motion for reconsideration on the ground
that no new or substantial arguments were raised therein which would warrant modification or
reversal of the court's decision dated 4 October 1995. DIcSHE

Hence, this petition.

SLDC assigns the following errors allegedly committed by the appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A
BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU
OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO WAS
PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE
ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT
BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY WHEN
SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO
ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON
THE TITLES.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT
RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT
SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED
PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS
FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT
REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING
THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD
FAITH. 15
SLDC contended that the appellate court erred in concluding that it had prior notice of
Babasanta's claim over the property merely on the basis of its having advanced the amount of
two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latter's representation that
she needed the money to pay her obligation to Babasanta. It argued that it had no reason to
suspect that Pacita was not telling the truth that the money would be used to pay her
indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred
thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the
balance of the purchase price still due from it and should not be construed as notice of the prior
sale of the land to Babasanta. It added that at no instance did Pacita Lu inform it that the lands
had been previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its favor it immediately
took possession of the property and asserted its rights as new owner as opposed to Babasanta
who has never exercised acts of ownership. Since the titles bore no adverse claim,
encumbrance, or lien at the time it was sold to it, SLDC argued that it had every reason to rely
on the correctness of the certificate of title and it was not obliged to go beyond the certificate to
determine the condition of the property. Invoking the presumption of good faith, it added that
the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter
failed to do so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June
1989 long after the sale of the property to it was consummated on 3 May 1989.
Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu
informed the Court that due to financial constraints they have no more interest to pursue their
rights in the instant case and submit themselves to the decision of the Court of Appeals. 16
 On the other hand, respondent Babasanta argued that SLDC could not have acquired
ownership of the property because it failed to comply with the requirement of registration of the
sale in good faith. He emphasized that at the time SLDC registered the sale in its favor on 30
June 1990, there was already a notice of lis pendens annotated on the titles of the property
made as early as 2 June 1989. Hence, petitioner's registration of the sale did not confer upon
it any right. Babasanta further asserted that petitioner's bad faith in the acquisition of the
property is evident from the fact that it failed to make necessary inquiry regarding the purpose
of the issuance of the two hundred thousand pesos (P200,000.00) manager's check in his
favor.HTCISE

The core issue presented for resolution in the instant petition is who between SLDC and
Babasanta has a better right over the two parcels of land subject of the instant case in view of
the successive transactions executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta presented a
document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos
(P50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta.
Cruz, Sta. Rosa, Laguna. 17 While the receipt signed by Pacita did not mention the price for
which the property was being sold, this deficiency was supplied by Pacita Lu's letter dated 29
May 1989 18 wherein she admitted that she agreed to sell the 3.6 hectares of land to Babasanta
for fifteen pesos (P15.00) per square meter.
An analysis of the facts obtaining in this case, as well as the evidence presented by the
parties, irresistibly leads to the conclusion that the agreement between Babasanta and the
Spouses Lu is a contract to sell and not a contract of sale.
Contracts, in general, are perfected by mere consent, 19 which is manifested by the
meeting of the offer and the acceptance upon the thing which are to constitute the contract. The
offer must be certain and the acceptance absolute. 20 Moreover, contracts shall be obligatory
in whatever form they may have been entered into, provided all the essential requisites for their
validity are present. 21
The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand
pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in
Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the
property until full payment of the price which is a distinguishing feature of a contract to sell, the
subsequent acts of the parties convince us that the Spouses Lu never intended to transfer
ownership to Babasanta except upon full payment of the purchase price.
Babasanta's letter dated 22 May 1989 was quite telling. He stated therein that despite
his repeated requests for the execution of the final deed of sale in his favor so that he could
effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself
recognized that ownership of the property would not be transferred to him until such time as he
shall have effected full payment of the price. Moreover, had the sellers intended to transfer title,
they could have easily executed the document of sale in its required form simultaneously with
their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by
Pacita Lu should legally be considered as a perfected contract to sell.
The distinction between a contract to sell and a contract of sale is quite germane. In a
contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until
the full payment of the price. 22 In a contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell,
title is retained by the vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. 23
The perfected contract to sell imposed upon Babasanta the obligation to pay the balance
of the purchase price. There being an obligation to pay the price, Babasanta should have made
the proper tender of payment and consignation of the price in court as required by law. Mere
sending of a letter by the vendee expressing the intention to pay without the accompanying
payment is not considered a valid tender of payment. 24 Consignation of the amounts due in
court is essential in order to extinguish Babasanta's obligation to pay the balance of the
purchase price. Glaringly absent from the records is any indication that Babasanta even
attempted to make the proper consignation of the amounts due, thus, the obligation on the part
of the sellers to convey title never acquired obligatory force.
On the assumption that the transaction between the parties is a contract of sale and not
a contract to sell, Babasanta's claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent 25 and from that
moment, the parties may reciprocally demand performance. 26 The essential elements of a
contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer ownership in
exchange for the price; (2) object certain which is the subject matter of the contract; (3) cause
of the obligation which is established. 27
The perfection of a contract of sale should not, however, be confused with its
consummation. In relation to the acquisition and transfer of ownership, it should be noted that
sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership
is created, transferred or destroyed, but title is only the legal basis by which to affect dominion
or ownership. 28 Under Article 712 of the Civil Code, "ownership and other real rights over
property are acquired and transmitted by law, by donation, by testate and intestate succession,
and in consequence of certain contracts, by tradition." Contracts only constitute titles or rights
to the transfer or acquisition of ownership, while delivery or tradition is the mode of
accomplishing the same. 29 Therefore, sale by itself does not transfer or affect ownership; the
most that sale does is to create the obligation to transfer ownership. It is tradition or delivery,
as a consequence of sale, that actually transfers ownership. aHSCcE

Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the ways specified in Article 1497 to 1501. 30The
word "delivered" should not be taken restrictively to mean transfer of actual physical possession
of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery;
and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and possession of the
vendee. 31 Legal or constructive delivery, on the other hand, may be had through any of the
following ways: the execution of a public instrument evidencing the sale; 32 symbolical tradition
such as the delivery of the keys of the place where the movable sold is being kept; 33 traditio
longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to
the possession of the buyer at the time of the sale; 34 traditio brevi manu if the buyer already
had possession of the object even before the sale; 35 and traditio constitutum possessorium,
where the seller remains in possession of the property in a different capacity. 36
Following the above disquisition, respondent Babasanta did not acquire ownership by
the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the
property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was
not embodied in a public instrument. Hence, no constructive delivery of the lands could have
been effected. For another, Babasanta had not taken possession of the property at any time
after the perfection of the sale in his favor or exercised acts of dominion over it despite his
assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to
Babasanta, whether actual or constructive, which is essential to transfer ownership of the
property. Thus, even on the assumption that the perfected contract between the parties was a
sale, ownership could not have passed to Babasanta in the absence of delivery, since in a
contract of sale ownership is transferred to the vendee only upon the delivery of the thing
sold. 37
However, it must be stressed that the juridical relationship between the parties in a
double sale is primarily governed by Article 1544 which lays down the rules of preference
between the two purchasers of the same property. It provides:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
The principle of primus tempore, potior jure (first in time, stronger in right) gains greater
significance in case of double sale of immovable property. When the thing sold twice is an
immovable, the one who acquires it and first records it in the Registry of Property, both made
in good faith, shall be deemed the owner. 38 Verily, the act of registration must be coupled with
good faith — that is, the registrant must have no knowledge of the defect or lack of title of his
vendor or must not have been aware of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in the title of his vendor. 39
Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired
knowledge of Babasanta's claim. Babasanta, however, strongly argues that the registration of
the sale by SLDC was not sufficient to confer upon the latter any title to the property since the
registration was attended by bad faith. Specifically, he points out that at the time SLDC
registered the sale on 30 June 1990, there was already a notice of lis pendens on the file with
the Register of Deeds, the same having been filed one year before on 2 June 1989. ACTIcS

Did the registration of the sale after the annotation of the notice of lis pendens obliterate
the effects of delivery and possession in good faith which admittedly had occurred prior to
SLDC's knowledge of the transaction in favor of Babasanta?
We do not hold so.
 It must be stressed that as early as 11 February 1989, the Spouses Lu executed
the Option to Buy in favor of SLDC upon receiving P316,160.00 as option money from SLDC.
After SLDC had paid more than one half of the agreed purchase price of P1,264,640.00, the
Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC.
At the time both deeds were executed, SLDC had no knowledge of the prior transaction of the
Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed up to
the moment of transfer and delivery of possession of the lands to SLDC, it had acted in good
faith and the subsequent annotation of lis pendens has no effect at all on the consummated
sale between SLDC and the Spouses Lu.
A purchaser in good faith is one who buys property of another without notice that some
other person has a right to, or interest in, such property and pays a full and fair price for the
same at the time of such purchase, or before he has notice of the claim or interest of some
other person in the property. 40 Following the foregoing definition, we rule that SLDC qualifies
as a buyer in good faith since there is no evidence extant in the records that it had knowledge
of the prior transaction in favor of Babasanta. At the time of the sale of the property to SLDC,
the vendors were still the registered owners of the property and were in fact in possession of
the lands. Time and again, this Court has ruled that a person dealing with the owner of
registered land is not bound to go beyond the certificate of title as he is charged with notice of
burdens on the property which are noted on the face of the register or on the certificate of
title. 41 In assailing knowledge of the transaction between him and the Spouses Lu, Babasanta
apparently relies on the principle of constructive notice incorporated in Section 52 of the
Property Registration Decree (P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration. — Every conveyance, mortgage,
lease, lien, attachment, order, judgment, instrument or entry affecting registered land
shall, if registered, filed, or entered in the office of the Register of Deeds for the province
or city where the land to which it relates lies, be constructive notice to all persons from
the time of such registering, filing, or entering.
However, the constructive notice operates as such — by the express wording of Section
52 — from the time of the registration of the notice of lis pendens which in this case was
effected only on 2 June 1989, at which time the sale in favor of SLDC had long been
consummated insofar as the obligation of the Spouses Lu to transfer ownership over the
property to SLDC is concerned.
More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta
the annotation of the notice of lis pendens cannot help Babasanta's position a bit and it is
irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of lis
pendens, as the Court held in Nataño v. Esteban, 42 serves as a warning to a prospective
purchaser or incumbrancer that the particular property is in litigation; and that he should keep
his hands off the same, unless he intends to gamble on the results of the litigation." Precisely,
in this case SLDC has intervened in the pending litigation to protect its rights. Obviously,
SLDC's faith in the merit of its cause has been vindicated with the Court's present decision
which is the ultimate denouement on the controversy.
The Court of Appeals has made capital 43 of SLDC's averment in its Complaint-in-
Intervention 44 that at the instance of Pacita Lu it issued a check for P200,000.00 payable to
Babasanta and the confirmatory testimony of Pacita Lu herself on cross-
examination. 45 However, there is nothing in the said pleading and the testimony which explicitly
relates the amount to the transaction between the Spouses Lu and Babasanta for what they
attest to is that the amount was supposed to pay off the advances made by Babasanta to Pacita
Lu. In any event, the incident took place after the Spouses Lu had already executed the Deed
of Absolute Sale with Mortgage in favor of SLDC and therefore, as previously explained, it has
no effect on the legal position of SLDC. EHSITc

Assuming ex gratia argumenti that SLDC's registration of the sale had been tainted by
the prior notice of lis pendens and assuming further for the same nonce that this is a case of
double sale, still Babasanta's claim could not prevail over that of SLDC's. In Abarquez v. Court
of Appeals, 46 this Court had the occasion to rule that if a vendee in a double sale registers the
sale after he has acquired knowledge of a previous sale, the registration constitutes a
registration in bad faith and does not confer upon him any right. If the registration is done in
bad faith, it is as if there is no registration at all, and the buyer who has taken possession first
of the property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and registered only after
the second vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the
Israels were first in possession. This Court awarded the property to the Israels because
registration of the property by Abarquez lacked the element of good faith. While the facts in the
instant case substantially differ from that in Abarquez, we would not hesitate to rule in favor of
SLDC on the basis of its prior possession of the property in good faith. Be it noted that delivery
of the property to SLDC was immediately effected after the execution of the deed in its favor,
at which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor
of Babasanta.

The law speaks not only of one criterion. The first criterion is priority of entry in the registry
of property; there being no priority of such entry, the second is priority of possession; and, in
the absence of the two priorities, the third priority is of the date of title, with good faith as the
common critical element. Since SLDC acquired possession of the property in good faith in
contrast to Babasanta, who neither registered nor possessed the property at any time, SLDC's
right is definitely superior to that of Babasanta's.
At any rate, the above discussion on the rules on double sale would be purely academic
for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu is
not a contract of sale but merely a contract to sell. In Dichoso v. Roxas, 47 we had the occasion
to rule that Article 1544 does not apply to a case where there was a sale to one party of the
land itself while the other contract was a mere promise to sell the land or at most an actual
assignment of the right to repurchase the same land. Accordingly, there was no double sale of
the same land in that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of
Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial
Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs.
SO ORDERED.
(San Lorenzo Development Corp. v. Court of Appeals, G.R. No. 124242, [January 21, 2005],
|||

490 PHIL 7-27)

 THIRD DIVISION

[G.R. No. 77365. April 7, 1992.]

RITA CALEON, petitioner, vs. AGUS DEVELOPMENT CORPORATION and

COURT OF APPEALS, respondents.

Luis A. Cuevas for petitioner.

Pablito M. Rojas for private respondent.

SYLLABUS

1. CIVIL LAW; LEASE; LEASE OF BUILDING INCLUDES LEASE OF LOT AND RENTALS
OF BUILDING INCLUDES THOSE OF LOT. — The issue has already been laid to rest in the
case of Duellome v. Gotico (7 SCRA 841 [1963]) where this Court ruled that the lease of a
building naturally includes the lease of the lot, and the rentals of the building includes those of
the lot. Thus: ". . . the lease of a building would naturally include the lease of the lot and that
the rentals of the building include the rentals of the lot. . . . "Furthermore, under our Civil
Code, the occupancy of a building or house not only suggests but implies the tenancy or
possession in fact of the land on which they are constructed. This is not a new
pronouncement. An extensive elaboration of this rule was discussed by this Court in the case
of Baquiran, et al. v. Baquiran et al., 53 O.G. p. 1130. '. . . the Court of Appeals should have
found the herein appellees lessees of the house, and for all legal purposes, of the lot on
which it was built as well'."
2. ID.; ID.; BATAS PAMBANSA BLG. 25; GROUNDS FOR JUDICIAL EJECTMENT. —
Section 5 of Batas Pambansa Blg. 25 enumerates the grounds for judicial ejectment, among
which is the subleasing of residential units without the written consent of the owner/lessor, to
wit: "SEC. 5. Grounds for judicial ejectment. Ejectment shall be allowed on the following
grounds: "a) Subleasing or assignment of lease of residential units in whole or in part, without
the written consent of the owner/lessor: Provided that in the case of subleases or
assignments executed prior to the approval of this Act, the sublessor/assignor shall have sixty
days from the effectivity of this Act within which to obtain the written approval of the
owner/lessor or terminate the sublease or assignment."
3. ID.; ID.; ID.; RESIDENTIAL UNIT, DEFINED. — Section 2(b) of Batas Pambansa Blg.
25 defines the term residential unit as follows: "SEC. 2. Definition of Terms — Unless
otherwise indicated wherever in this Act, the following shall have the following meaning: "b. A
residential unit — refers to an apartment, house and/or land on which another's dwelling is
located used for residential purposes and shall include not only buildings, parts or units
thereof used solely as dwelling places, except motels, motel rooms, hotels, hotel rooms,
boarding houses, dormitories, rooms and bedspaces for rent, but also those used for home
industries, retail stores, or other business purposes if the owner thereof and his family actually
live therein and use it principally for dwelling purposes: . . .."
4. CONSTITUTIONAL LAW; CONSTITUTIONALITY OF STATUTES PRESUMED;
REQUISITES FOR SUPREME COURT DECISION ON QUESTION OF
CONSTITUTIONALITY. — It is well settled that all presumptions are indulged in favor of
constitutionality; one who attacks a statute, alleging unconstitutionality must prove its
invalidity beyond a reasonable doubt (Victoriano v. Elizalde Rope Worker's Union, 59 SCRA
54 [1974]). In fact, this Court does not decide questions of a constitutional nature unless that
question is properly raised and presented in appropriate cases and is necessary to a
determination of the case, i.e., the issue of constitutionality must be the very lis
mota presented (Tropical Homes, Inc. v. National Housing Authority, 152 SCRA 540 [1987]).
5. ID.; POLICE POWER; GUARANTY OF NON-IMPAIRMENT OF OBLIGATIONS OF
CONTRACT LIMITED BY POLICE POWER. — It is now beyond question that the
constitutional guaranty of non-impairment of obligations of contract is limited by and subject to
the exercise of police power of the State in the interest of public health, safety, morals and
general welfare (Kabiling, et al. v. National Housing Authority, 156 SCRA 623 [1987]). In spite
of the constitutional prohibition, the State continues to possess authority to safeguard the vital
interests of its people. Legislation appropriate to safeguarding said interest may modify or
abrogate contracts already in effect (Victoriano v. Elizalde Rope Worker's Union, et
al., supra). In fact, every contract affecting public interest suffers a congenital infirmity in that it
contains an implied reservation of the police power as a postulate of the existing legal order.
This power can be activated at anytime to change the provisions of the contract, or even
abrogate it entirely, for the promotion or protection of the general welfare. Such an act will not
militate against the impairment clause, which is subject to and limited by the paramount police
power (Villanueva v. Castañeda, 154 SCRA 142 [1987]).
6. ID.; ID.; ID.; BATAS PAMBANSA BLG. 25 APPLICABLE TO LEASES ENTERED INTO
PRIOR TO ITS EFFECTIVITY. — Batas Pambansa Blg. 25, "An Act Regulating Rentals of
Dwelling Units or of Land On Which Another's Dwelling is Located and For Other Purposes"
shows that the subject matter of the law is the regulation of rentals and is intended only for
dwelling units with specified monthly rentals constructed before the law became effective
(Baens v. Court of Appeals, 125 SCRA 634 [1983]). Batas Pambansa Blg. 25 is derived
from P.D. No. 20 which has been declared by this Court as a police power legislation,
applicable to leases entered into prior to July 14, 1971 (effectivity date of RA 6539), so that
the applicability thereof to existing contracts cannot be denied (Gutierrez v. Cantada, 90
SCRA 1 [1979]).
7. ID.; SOCIAL JUSTICE; OBJECTIVE OF BATAS PAMBANSA BLG. 25 NOT SUBJECT TO
EXPLOITATION BY LESSEES. — The objective of Batas Pambansa Blg. 25 is to remedy the
plight of lessees, but such objective is not subject to exploitation by the lessees for whose
benefit the law was enacted. Thus, the prohibition provided for in the law against the sublease
of the premises without the consent of the owner. As enunciated by this Court, it must be
remembered that social justice cannot be invoked to trample on the rights of property owners,
who under our Constitution and laws are also entitled to protection. The social justice
consecrated in our Constitution was not intended to take away rights from a person and give
them to another who is not entitled thereto (Salonga v. Farrales, 105 SCRA 360 [1981]).

DECISION

BIDIN, J :p
This is a petition for review on certiorari seeking the reversal of the January 28, 1987 decision
of the Court of Appeals in CA-G.R. SP No. 10990 entitled "Rita Caleon v. Hon. Samilo
Barlongay, et al." dismissing the petition for review of the decision of the Regional Trial Court
of Manila, Branch 34, which affirmed the decision of the Metropolitan Trial Court of Manila,
Branch XII, ejecting the petitioner.prLL

The undisputed facts of the case are as follows:

Private respondent Agus Development Corporation is the owner of a parcel of land
denominated as Lot 39, Block 28, situated at 1611-1619 Lealtad, Sampaloc, Manila, which it
leased to petitioner Rita Caleon for a monthly rental of P180.00. Petitioner constructed on the
lot leased a 4-door apartment building.
Without the consent of the private respondent, the petitioner sub-leased two of the four doors
of the apartment to Rolando Guevarra and Felicisima Estrada for a monthly rental of P350.00
each. Upon learning of the sub-lease, private respondent through counsel demanded in
writing that the petitioner vacate the leased premises (Rollo, Annex "A", p. 20). prcd

For failure of petitioner to comply with the demand, private respondent filed a complaint for
ejectment (Civil Case No. 048908) with the Metropolitan Trial Court of Manila, Branch XII
against the petitioner citing as ground therefor the provisions of Batas Pambansa Blg. 25,
Section 5, which is the unauthorized sub-leasing of part of the leased premises to third
persons without securing the consent of the lessor within the required sixty (60)-day period
from the promulgation of the new law (B.P. 25). (Rollo, Petition, p. 8).
After trial, the court a quo rendered its decision ordering petitioner and all persons claiming
possession under her (a) to vacate the premises alluded to in the complaint; (b) to remove
whatever improvement she introduced on the property; (c) to pay private respondent the
amount of P2,000.00 as attorney's fees; and (d) to pay the costs (Rollo, Annex "A", p. 19).
Petitioner appealed the decision to the Regional Trial Court and on November 24, 1980,
presiding judge of the RTC, the Hon. Samilo Barlongay, affirmed in toto the decision of the
Metropolitan Trial Court (Rollo, Annex "A", p. 19).
The decision of the Regional Trial Court was appealed to the Court of Appeals for review. The
respondent Court of Appeals rendered its decision dated January 28, 1987, the dispositive
portion of which reads as follows:
"PREMISES CONSIDERED, the petition not being prima facie meritorious, the same
is outright dismissed."
"SO ORDERED." (Rollo, Annex "A", p. 21)
Hence, the petition for review on certiorari.
The principal issue in this case is whether or not the lease of an apartment includes a
sublease of the lot on which it is constructed, as would constitute a ground for ejectment
under Batas Pambansa Blg. 25.
Petitioner is of the view that Batas Pambansa Blg. 25 is not applicable because what she
leased was her own apartment house which does not include a sublease of the lot she leased
from private respondent on which the apartment is constructed.
Petitioner's contention is untenable.
The issue has already been laid to rest in the case of Duellome v. Gotico (7 SCRA 841
[1963]) where this Court ruled that the lease of a building naturally includes the lease of the
lot, and the rentals of the building includes those of the lot. Thus:
". . . the lease of a building would naturally include the lease of the lot and that the
rentals of the building include the rentals of the lot.
xxx xxx xxx

"Furthermore, under our Civil Code, the occupancy of a building or house not only
suggests but implies the tenancy or possession in fact of the land on which they are
constructed. This is not a new pronouncement. An extensive elaboration of this rule
was discussed by this Court in the case of Baquiran, et al. v. Baquiran et al., 53 O.G.
p. 1130.
'. . . the Court of Appeals should have found the herein appellees
lessees of the house, and for all legal purposes, of the lot on which it was built
as well'."
But petitioner insists that the ruling in the aforecited case is not applicable to the case at bar
because the former is a damage suit while the latter is an ejectment case.
Be that as it may, this Court has categorically answered in the affirmative, the principal
question, common to both cases and on which rests the resolution of the issues involved
therein. Under the above ruling it is beyond dispute that petitioner in leasing her apartment
has also subleased the lot on which it is constructed which lot belongs to private respondent.
Consequently, she has violated the provisions of Section 5, Batas Pambansa Blg. 25 which is
a ground for ejectment.
Section 5 of Batas Pambansa Blg. 25 enumerates the grounds for judicial ejectment, among
which is the subleasing of residential units without the written consent of the owner/lessor, to
wit:
"SEC. 5. Grounds for judicial ejectment. Ejectment shall be allowed on the following
grounds:
"a) Subleasing or assignment of lease of residential units in whole or in part, without
the written consent of the owner/lessor: Provided that in the case of subleases or
assignments executed prior to the approval of this Act, the sublessor/assignor shall
have sixty days from the effectivity of this Act within which to obtain the written
approval of the owner/lessor or terminate the sublease or assignment."
Section 2(b) of Batas Pambansa Blg. 25 defines the term residential unit as follows:
"SEC. 2. Definition of Terms — Unless otherwise indicated wherever in this Act, the
following shall have the following meaning:
xxx xxx xxx
"b. A residential unit — refers to an apartment, house and/or land on which another's
dwelling is located used for residential purposes and shall include not only buildings,
parts or units thereof used solely as dwelling places, except motels, motel rooms,
hotels, hotel rooms, boarding houses, dormitories, rooms and bedspaces for rent, but
also those used for home industries, retail stores, or other business purposes if the
 owner thereof and his family actually live therein and use it principally for dwelling
purposes: . . .."
Petitioner argued further that Batas Pambansa Blg. 25 cannot be applied in this case because
there is a perfected contract of lease without any express prohibition on subleasing which had
been in effect between petitioner and private respondent long before the enactment of Batas
Pambansa Blg. 25. Therefore, the application of said law to the case at bar is unconstitutional
as an impairment of the obligation of contracts. LLphil

It is well settled that all presumptions are indulged in favor of constitutionality; one who
attacks a statute, alleging unconstitutionality must prove its invalidity beyond a reasonable
doubt (Victoriano v. Elizalde Rope Worker's Union, 59 SCRA 54 [1974]). In fact, this Court
does not decide questions of a constitutional nature unless that question is properly raised
and presented in appropriate cases and is necessary to a determination of the case, i.e., the
issue of constitutionality must be the very lis mota presented (Tropical Homes, Inc. v. National
Housing Authority, 152 SCRA 540 [1987]).
In any event, it is now beyond question that the constitutional guaranty of non-impairment of
obligations of contract is limited by and subject to the exercise of police power of the State in
the interest of public health, safety, morals and general welfare (Kabiling, et al. v. National
Housing Authority, 156 SCRA 623 [1987]). In spite of the constitutional prohibition, the State
continues to possess authority to safeguard the vital interests of its people. Legislation
appropriate to safeguarding said interest may modify or abrogate contracts already in effect
(Victoriano v. Elizalde Rope Worker's Union, et al., supra). In fact, every contract affecting
public interest suffers a congenital infirmity in that it contains an implied reservation of the
police power as a postulate of the existing legal order. This power can be activated at anytime
to change the provisions of the contract, or even abrogate it entirely, for the promotion or
protection of the general welfare. Such an act will not militate against the impairment clause,
which is subject to and limited by the paramount police power (Villanueva v. Castaneda, 154
SCRA 142 [1987]).
Batas Pambansa Blg. 25, "An Act Regulating Rentals of Dwelling Units or of Land On Which
Another's Dwelling is Located and For Other Purposes" shows that the subject matter of the
law is the regulation of rentals and is intended only for dwelling units with specified monthly
rentals constructed before the law became effective (Baens v. Court of Appeals, 125 SCRA
634 [1983]).
Batas Pambansa Blg. 25 is derived from P.D. No. 20 which has been declared by this Court
as a police power legislation, applicable to leases entered into prior to July 14, 1971
(effectivity date of RA 6539), so that the applicability thereof to existing contracts cannot be
denied (Gutierrez v. Cantada, 90 SCRA 1 [1979]).
Finally, petitioner invokes, among others, the promotion of social justice policy of the New
Constitution. Like P.D. No. 20, the objective of Batas Pambansa Blg. 25 is to remedy the
plight of lessees, but such objective is not subject to exploitation by the lessees for whose
benefit the law was enacted. Thus, the prohibition provided for in the law against the sublease
of the premises without the consent of the owner. As enunciated by this Court, it must be
remembered that social justice cannot be invoked to trample on the rights of property owners,
who under our Constitution and laws are also entitled to protection. The social justice
consecrated in our Constitution was not intended to take away rights from a person and give
them to another who is not entitled thereto (Salonga v. Farrales, 105 SCRA 360 [1981]).
WHEREFORE, the Petition is Denied for lack of merit and the assailed decision of the Court
of Appeals is Affirmed.
SO ORDERED.

||| (Caleon v. Agus Development Corp., G.R. No. 77365, [April 7, 1992], 284 PHIL 28-35) EN
BANC

[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, plaintiff-appellant, vs. FRUCTUOSO

GONZALES, defendant-appellee.

Chaves, Elio, Chaves & Associates for plaintiff-appellant.

Sulpicio E. Platon for defendant-appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-

PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF COMPLAINT FOR NON-
PERFORMANCE, ACADEMIC.— Where the time for compliance had expired and there was
breach of contract by non-performance, it was academic for the plaintiff to have first
petitioned the court to fix a period for the performance of the contract before filing his
complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL
CODE OF THE PHILIPPINES.— Where the defendant virtually admitted non-performance
of the contract by returning the typewriter that he was obliged to repair in a non-working
condition, with essential parts missing, Article 1197 of the Civil Code of the Philippines
cannot be invoked. The fixing of a period would thus be a mere formality and would serve
no purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-
appellee contravened the tenor of his obligation because he not only did not repair the
typewriter but returned it "in shambles,'' he is liable for the cost of the labor or service
expended in the repair of the typewriter, which is in the amount of P58.75, because the
obligation or contract was to repair it. In addition, he is likewise liable under Art. 1170 of the
Code, for the cost of the missing parts, in the amount of P31.10, for in his obligation to repair
the typewriter he was bound, but failed or neglected, to return it in the same condition it was
when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY'S FEES NOT
RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT CASE.— Claims for damages
and attorney's fees must be pleaded, and the existence of the actual basis thereof must be
proved. As no findings of fact were made on the claims for damages and attorney's fees,
there is no factual basis upon which to make an award therefor.
 5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO
SUPREME COURT; ONLY QUESTIONS OF LAW REVIEWABLE.— Where the appellant
directly appeals from the decision of the trial court to the Supreme Court on questions of
law, he is bound by the judgment of the court a quo on its findings of fact.

DECISION

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

This is a direct appeal by the party who prevailed in a suit for breach of oral contract
and recovery of damages but was unsatisfied with the decision rendered by the Court of
First Instance of Manila, in its Civil Case No. 65138, because it awarded him only P31.10
out of his total claim of P690 00 for actual, temperate and moral damages and attorney's
fees.
The appealed judgment, which is brief, is hereunder quoted in full:
"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a
typewriter repairer, a portable typewriter for routine cleaning and servicing. The
defendant was not able to finish the job after some time despite repeated reminders
made by the plaintiff. The defendant merely gave assurances, but failed to comply with
the same. In October, 1963, the defendant asked from the plaintiff the sum of P6.00 for
the purchase of spare parts, which amount the plaintiff gave to the defendant. On
October 26, 1963, after getting exasperated with the delay of the repair of the typewriter,
the plaintiff went to the house of the defendant and asked for the return of the typewriter.
The defendant delivered the typewriter in a wrapped package. On reaching home, the
plaintiff examined the typewriter returned to him by the defendant and found out that the
same was in shambles, with the interior cover and some parts and screws missing. On
October 29, 1963. the plaintiff sent a letter to the defendant formally demanding the
return of the missing parts, the interior cover and the sum of P6.00 (Exhibit D). The
following day, the defendant returned to the plaintiff some of the missing parts, the
interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business
Machines, and the repair job cost him a total of P89.85, including labor and materials
(Exhibit C).
"On August 23, 1965, the plaintiff commenced this action before the City Court
of Manila, demanding from the defendant the payment of P90.00 as actual and
compensatory damages, P100.00 for temperate damages, P500.00 for moral damages,
and P500.00 as attorney's fees.
"In his answer as well as in his testimony given before this court, the defendant
made no denials of the facts narrated above, except the claim of the plaintiff that the
typewriter was delivered to the defendant through a certain Julio Bocalin, which the
defendant denied allegedly because the typewriter was delivered to him personally by
the plaintiff.
"The repair done on the typewriter by Freixas Business Machines with the total
cost of P89.85 should not, however, be fully chargeable against the defendant. The
repair invoice, Exhibit C, shows that the missing parts had a total value of only P31.10.
 "WHEREFORE, judgment is hereby rendered ordering the defendant to pay the
plaintiff the sum of P31.10, and the costs of suit.
"SO ORDERED."
The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves,
is that it awarded only the value of the missing parts of the typewriter, instead of the whole
cost of labor and materials that went into the repair of the machine, as provided for in Article
1167 of the Civil Code, reading as follows:
"ART. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore it may be decreed that what has been poorly done he undone."
On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is
that he is not liable at all, not even for the sum of P31.10, because his contract with plaintiff-
appellant did not contain a period, so that plaintiff-appellant should have first filed a petition
for the court to fix the period, under Article 1197 of the Civil Code, within which the defendant
appellee was to comply with the contract before said defendant-appellee could be held liable
for breach of contract.
Because the plaintiff appealed directly to the Supreme Court and the appellee did not
interpose any appeal, the facts, as found by the trial court, are now conclusive and non-
reviewable. 1
The appealed judgment states that the "plaintiff delivered to the defendant . . . a
portable typewriter for routine cleaning and servicing"; that the defendant was not able to
finish the job after some time despite repeated reminders made by the plaintiff"; that the
"defendant merely gave assurances, but failed to comply with the same"; and that "after
getting exasperated with the delay of the repair of the typewriter", the plaintiff went to the
house of the defendant and asked for its return, which was done. The inferences derivable
from these findings of fact are that the appellant and the appellee had a perfected contract
for cleaning and servicing a typewriter; that they intended that the defendant was to finish it
at some future time although such time was not specified; and that such time had passed
without the work having been accomplished, far the defendant returned the typewriter
cannibalized and unrepaired, which in itself is a breach of his obligation, without demanding
that he should be given more time to finish the job, or compensation for the work he had
already done. The time for compliance having evidently expired, and there being a breach
of contract by non-performance, it was academic for the plaintiff to have first petitioned the
court to fix a period for the performance of the contract before filing his complaint in this
case. Defendant cannot invoke Article 1197 of the Civil Code for he virtually admitted non-
performance by returning the typewriter that he was obliged to repair in a non-working
condition, with essential parts missing. The fixing of a period would thus be a mere formality
and would serve no purpose than to delay (cf. Tiglao. et al. V. Manila Railroad Co. 98 Phil.
181).
It is clear that the defendant-appellee contravened the tenor of his obligation because
he not only did not repair the typewriter but returned it "in shambles", according to the
appealed decision. For such contravention, as appellant contends, he is liable under Article
1167 of the Civil Code. jam quot, for the cost of executing the obligation in a proper manner.
The cost of the execution of the obligation in this case should be the cost of the labor or
 service expended in the repair of the typewriter, which is in the amount of P58.75. because
the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code,
for the cost of the missing parts, in the amount of P31.10, for in his obligation to repair the
typewriter he was bound, but failed or neglected, to return it in the same condition it was
when he received it.
Appellant's claims for moral and temperate damages and attorney's fees were,
however, correctly rejected by the trial court, for these were not alleged in his complaint
(Record on Appeal, pages 1-5). Claims for damages and attorney's fees must be pleaded,
and the existence of the actual basis thereof must be proved. 2 The appealed judgment thus
made no findings on these claims, nor on the fraud or malice charged to the appellee. As no
findings of fact were made on the claims for damages and attorney's fees, there is no factual
basis upon which to make an award therefor. Appellant is bound by such judgment of the
court, a quo, by reason of his having resorted directly to the Supreme Court on questions of
law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby
modified, by ordering the defendant-appellee to pay, as he is hereby ordered to pay, the
plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing of the
complaint. Costs in all instances against appellee Fructuoso Gonzales.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando,
Teehankee and Villamor, JJ., concur.
Barredo, J., did not take part.
||| (Chaves v. Gonzales, G.R. No. L-27454, [April 30, 1970], 143 PHIL 317-322)
 FIRST DIVISION

[G.R. No. 117190. January 2, 1997.]

JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner, vs. COURT
OF APPEALS and VICENTE HERCE JR., respondents.

Ricardo C. Valmonte for petitioner.

Restituto M. Mendoza for private respondent.

SYLLABUS

1. CIVIL LAW; CONTRACT; INTERPRETATION; INTENTION OF THE PARTIES

SHALL BE ACCORDED PRIMORDIAL CONSIDERATION. — It is a cardinal rule in the
interpretation of contracts that the intention of the parties shall be accorded primordial
consideration and, in case of doubt, their contemporaneous and subsequent acts shall be
principally considered. prLL

2. OBLIGATION; NATURE AND EFFECTS; EXEMPTION FROM LIABILITY BY

REASON OF FORTUITOUS EVENTS; REQUISITES. — This Court has consistently held that
in order for a party to claim exemption from liability by reason of fortuitous event under Art.
1174 of the Civil Code the event should be the sole and proximate cause of the loss or
destruction of the object of the contract. In Nakpil vs. Court of Appeals, Nos. L-47851 and L-
47896, 3 October 1986, 144 SCRA 596, four (4) requisites must concur: (a) the cause of the
breach of the obligation must be independent of the will of the debtor; (b) the event must be
either unforseeable or unavoidable; (c) the event must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any
participation in or aggravation of the injury to the creditor.
3. ID.; ID.; ID.; APPLICATION OF ART. 1167 OF THE CIVIL CODE; WHEN A PERSON
OBLIGED TO DO SOMETHING FAILS TO DO IT, THE SAME SHALL BE EXECUTED AT HIS
COST. — 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. (Art. 1169, last
par., New Civil Code) When the windmill failed to function properly it became incumbent upon
petitioner to institute the proper repairs in accordance with the guaranty stated in the contract.
Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should
bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit
on this point that if a person obliged to do something fails to do it, the same shall be executed
at his cost.llcd

DECISION

BELLOSILLO, J : p
 This case involves the proper interpretation of the contract entered into between the
parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name
and style J.M.T. Engineering and General Merchandising proposed to respondent Vicente
Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the
construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from
the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the
agreement respondent paid petitioner a down payment of P30,000.00 and an installment
payment of P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance,
petitioner filed a complaint to collect the amount. In his Answer before the trial court respondent
denied the claim saying that he had already paid this amount to the San Pedro General
Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was
to be connected. According to respondent, since the deep well formed part of the system the
payment he tendered to SPGMI should be credited to his account by petitioner. Moreover,
assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects
in the windmill system which caused the structure to collapse after a strong wind hit their place. 1
Petitioner denied that the construction of a deep well was included in the agreement to
build the windmill system, for the contract price of P60,000.00 was solely for the windmill
assembly and its installation, exclusive of other incidental materials needed for the project. He
also disowned any obligation to repair or reconstruct the system and insisted that he delivered
it in good and working condition to respondent who accepted the same without protest. Besides,
its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the deep well was not
part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner
to respondent. 2 It noted that "[i]f the intention of the parties is to include the construction of the
deep well in the project, the same should be stated in the proposals. In the absence of such an
agreement, it could be safely concluded that the construction of the deep well is not a part of
the project undertaken by the plaintiff." 3 With respect to the repair of the windmill, the trial court
found that "there is no clear and convincing proof that the windmill system fell down due to the
defect of the construction. " 4
The Court of Appeals reversed the trial court. It ruled that the construction of the deep
well was included in the agreement of the parties because the term "deep well" was mentioned
in both proposals. It also gave credence to the testimony of respondent's witness Guillermo Pili,
the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the
cost of constructing the deep well would be deducted from the contract price of P60,000.00.
Upon these premises the appellate court concluded that respondent's payment of P15,000.00
to SPGMI should be applied to his remaining balance with petitioner thus effectively
extinguishing his contractual obligation. However, it rejected petitioner's claim of force
majeure and ordered the latter to reconstruct the windmill in accordance with the stipulated
one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner
now seeks relief from this Court. He raises two issues: firstly, whether the agreement to
construct the windmill system included the installation of a deep well and, secondly, whether
petitioner is under obligation to reconstruct the windmill after it collapsed.
 We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the installation
of a deep well was not included in the proposals of petitioner to construct a windmill system for
respondent. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the
contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was
submitted three days later, i.e., on 22 May 1987 which contained more specifications but
proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by
respondent and the construction immediately followed. The pertinent portions of the first letter-
proposal (Exh. "1") are reproduced hereunder —
In connection with your Windmill System and Installation, we would like to quote
to you as follows:
One (1) Set — Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity,
14 feet in diameter, with 20 pieces blade, Tower 40 feet high, including mechanism
which is not advisable to operate during extra-intensity wind. Excluding cylinder pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system, Supply of Labor Materials and
Installation, operated water pump, we would like to quote to you as follows —
One (1) set — Windmill assembly for 2 inches or 3 inches deep-well pump, 6
Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with standard
appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal.
One (1) lot — Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross
Tee coupling.
One (1) lot— Float valve.
One (1) lot — Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even
remotely. Neither is there an itemization or description of the materials to be used in
constructing the deep well. There is absolutely no mention in the two (2) documents that a deep
well pump is a component of the proposed windmill system. The contract prices fixed in both
proposals cover only the features specifically described therein and no other. While the words
"deep well" and "deep well pump" are mentioned in both, these do not indicate that a deep well
is part of the windmill system. They merely describe the type of deep well pump for which the
proposed windmill would be suitable. As correctly pointed out by petitioner, the words "deep
well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea
that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3
inches. For if the real intent of petitioner was to include a deep well in the agreement to construct
a windmill, he would have used instead the conjunctions "and" or "with." Since the terms of the
instruments are clear and leave no doubt as to their meaning they should not be disturbed. aisadc

Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the
parties shall be accorded primordial consideration 5 and, in case of doubt, their
contemporaneous and subsequent acts shall be principally considered. 6 An examination of
such contemporaneous and subsequent acts of respondent as well as the attendant
circumstances does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract price of P60,000.00
covered the installation of a deep well pump. He contends that since petitioner did not have the
capacity to install the pump the latter agreed to have a third party do the work the cost of which
was to be deducted from the contract price. To prove his point, he presented Guillermo Pili of
SPGMI who declared that petitioner Tanguilig approached him with a letter from respondent
Herce Jr. asking him to build a deep well pump as "part of the price/contract which Engineer
(Herce) had with Mr. Tanguilig." 7
We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr.
wrote him a letter is unsubstantiated. The alleged letter was never presented in court by private
respondent for reasons known only to him. But granting that this written communication existed,
it could not have simply contained a request for Pili to install a deep well; it would have also
mentioned the party who would pay for the undertaking. It strains credulity that respondent
would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to Pili
that the deep well was part of the windmill construction and that its payment would come from
the contract price of P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the payment
for which would come supposedly from the windmill contract price on the mere representation
of petitioner, whom he had never met before, without a written commitment at least from the
former. For if indeed the deep well were part of the windmill project, the contract for its
installation would have been strictly a matter between petitioner and Pili himself with the former
assuming the obligation to pay the price. That it was respondent Herce Jr. himself who paid for
the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract
for the deep well was not part of the windmill project but a separate agreement between
respondent and Pili. Besides, if the price of P60,000.00 included the deep well, the obligation
of respondent was to pay the entire amount to petitioner without prejudice to any action that
Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he
tendered payment directly to Pili and not to petitioner, respondent explained, rather lamely, that
he did it "because he has (sic) the money, so (he) just paid the money in his possession. 8
Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While
the law is clear that "payment shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person authorized to receive it, " 9 it does
not appear from the record that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law "concerning payments made by a third
person." 10 The Civil Code provisions do not apply in the instant case because no creditor-
debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been established
regarding the construction of the deep well. Specifically, witness Pili did not testify that he
entered into a contract with petitioner for the construction of respondent's deep well. If SPGMI
was really commissioned by petitioner to construct the deep well, an agreement particularly to
this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively belie
respondent's assertions. These circumstances only show that the construction of the well by
SPGMI was for the sole account of respondent and that petitioner merely supervised the
installation of the well because the windmill was to be connected to it. There is no legal nor
factual basis by which this Court can impose upon petitioner an obligation he did not expressly
assume nor ratify.
The second issue is not a novel one. In a long line of cases 11 this Court has consistently
held that in order for a party to claim exemption from liability by reason of fortuitous event
under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss
or destruction of the object of the contract. In Nakpil vs. Court of Appeals, 12 four (4) requisites
must concur: (a) the cause of the breach of the obligation must be independent of the will of
the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be
such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and,
(d) the debtor must be free from any participation in or aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous
event. Interestingly, the evidence does not disclose that there was actually a typhoon on the
day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong
wind in this case cannot be fortuitous — unforeseeable nor unavoidable. On the contrary, a
strong wind should be present in places where windmills are constructed, otherwise the
windmills will not turn.
The appellate court correctly observed that "given the newly-constructed windmill
system, the same would not have collapsed had there been no inherent defect in it which could
only be attributable to the appellee." 13 It emphasized that respondent had in his favor the
presumption that "things have happened according to the ordinary course of nature and the
ordinary habits of life." 14 This presumption has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in default in the
payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is
untenable. 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. 15 When the
windmill failed to function properly it became incumbent upon petitioner to institute the proper
repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said
to have incurred in delay; instead, it is petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a
person obliged to do something fails to do it, the same shall be executed at his cost
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR.
is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest
at the legal rate from the date of the filing of the complaint. In return, petitioner is ordered to
"reconstruct subject defective windmill system, in accordance with the one-year
guaranty" 16 and to complete the same within three (3) months from the finality of this decision.
SO ORDERED.
||| (Tanguilig v. Court of Appeals, G.R. No. 117190, [January 2, 1997], 334 PHIL 68-76)
 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 : p

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure challenging the June 29, 2007 Decision 1 and November 19, 2007 Resolution 2 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 P248,000,000.00. As embodied in a
Contract Agreement, 3 the construction of the entire building would be done in two phases with
each phase valued at P124,000,000.00.
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 P7,031,460.74; 4 (2) Performance Bond No. PCIC-
45541 5 in the amount of P2,929,775.31 which was subsequently increased to P6,199,999.99
through Bond Endorsement No. E-2003/12527; 6 and (3) Performance Bond No. PCIC-46172
for P692,890.74. 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
P14,880,000.00 or 12% of the agreed price of P124,000,000.00 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 the
occurrence of default against DPCC. It formally requested PCIC to remit the proceeds of the
bonds. 9 DACTSa

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
P13,924,351.47 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 P4,232,264.12.
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. CTAIHc

3. Dynamic's percentage of accomplishment as of the date of the termination of

the Contract was 57.33% at P71,089,200.
4. The original Contract Price was P124,000,000. To this amount shall be added
the price of Variation Order No. 2 of P13,857,814.87 or an adjusted Contract Price of
P137,857,814.87. Deducting P110,000,792.87, the overpayment to Dynamic is
P27,779,022.00. 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 P7,031,460.74 under the Surety Bond and for
not more than P6,892,890.73 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 P1,732,264.14 for
materials and of P2,500,000.00 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 P7,031,460.74 from
the Surety Bond representing the unrecouped downpayment and P6,892,890.73 from its
Performance Bond for a total of P13,924,351.47. The CIAC likewise ordered CCP to pay DPCC
P1,732,264.12 corresponding to the construction materials left at the site and P2,500,000.00
for the cost of equipment, formworks and scaffoldings appropriated by CCP or a total of
P4,232,264.12. 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 P7,031,460.74 under the Surety Bond as un-recouped
down payment, and the amount of P6,892,890.73 under the Performance Bond or the
total amount of P13,924,351.47.
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 P1,732,264.12 for the latter's materials left at the Project Site and the
amount of P2,500,000.00 as the cost of its equipment, formworks and scaffoldings
which were appropriated by the former or the total amount of P4,232,264.12.
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 P9,692,087.37 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 withEastern Shipping Lines, Inc. vs.
Court of Appeals (1994) 234 SCRA 78. aSTAIH

The joint and several liability of Respondent Philippine Charter Insurance

Corporation with Respondent Dynamic Planners and Construction Corporation is
accordingly reduced to P9,692,087.37. 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; 20 CCP'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 P4,232,264.12 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 P13,924,351.47 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? DcaCSE

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 P692,890.74 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
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 P692,890.74 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. IETCAS
 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 P692,890.74). 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 himself 39 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: CITaSA

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-45541 45 and PCIC-
46172 each specified how claims should be made against it:
 Surety Bond PCIC-45542 46
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-45541 47 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. cACHSE

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.
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. 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:
. . . . 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: TIcAaH

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 it 58 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. 59Moreover, 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 DHITSc

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 P13,231,460.73 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.
SO ORDERED. THCSEA

(Philippine Charter Insurance Corp. v. Central Colleges of the Philippines, G.R. Nos.
|||

180631-33, [February 22, 2012], 682 PHIL 507-526)

 SECOND DIVISION

[G.R. No. 126490. March 31, 1998.]

ESTRELLA PALMARES, petitioner, vs. COURT OF APPEALS and M.B.

LENDING CORPORATION, respondents.

Roco, Bunag, Kapunan & Magallos for petitioner.

Angelo E. Grasparail for private respondent.

SYNOPSIS

Petitioner signed as co-maker in a loan. A promissory note was executed whereby she
acknowledged her joint and several (solidary) liability with the principal, that the creditor may
demand payment in case of default, and that she fully understood the contents thereof.
Petitioner, when informed that the debtors defaulted, requested that creditor try to collect from
her principal first and offered to settle the obligation in case the creditor fails to collect. She also
offered a parcel of land to settle the obligation which the creditor refused. Thereafter, a
complaint was filed against petitioner to the exclusion of the principal debtors. Again petitioner
offered to pay but the amount offered was way below the amount computed. The trial court
dismissed the complaint and ruled that the complaint against the petitioner amounted to a
discharge of a prior party, that the offer to pay made by petitioner who is secondarily liable to
the instrument discharged petitioner. The Court of Appeals, reversing the trial court, ruled that
petitioner is solidarily liable with the principal debtors and may be sued for the entire obligation.
Hence, this recourse. aTEScI

The Supreme Court held that it is a cardinal rule in interpretations of contracts that if the
terms of a contract are clear and leave no doubt upon the intention of the parties, the literal
meaning of its stipulation shall control. Hence, where petitioner expressly binds herself to be
jointly and severally or solidarily liable with the principal maker of the note, her liability is that of
a surety and is bound equally and absolutely with the principal.
Having entered into a contract with full knowledge of its terms and conditions, petitioner
is estopped to assert that she did so in ignorance of their legal effect.
The obligee is entitled to demand fulfillment of the obligation or performance stipulated,
hence, an offer to pay obligation in an amount less or different from that due does not discharge
liability.
SECIcT

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS OF ADHESION;

NOT PER SE INVALID. — Contracts of adhesion are not invalid per se and that on numerous
occasions the binding effects thereof have been upheld. The peculiar nature of such contracts
necessitate a close scrutiny of the factual milieu to which the provisions are intended to apply.
Hence, just as consistently and unhesitatingly, but without categorically invalidating such
contracts, the Court has construed obscurities and ambiguities in the restrictive provisions of
contracts of adhesion strictly albeit not unreasonably against the drafter thereof when justified
in light of the operative facts and surrounding circumstances. The factual scenario obtaining in
the case before us warrants a liberal application of the rule in favor of respondent corporation.
2. ID.; ID.; INTERPRETATION OF CONTRACTS; LITERAL MEANING OF ITS
PROVISION SHALL CONTROL IF THE TERMS THEREOF ARE CLEAR AND LEAVE NO
DOUBT UPON THE INTENTION OF THE PARTIES. — 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.aEAcHI

3. ID.; ID.; ID.; ID.; CASE AT BAR. — In the case at bar, petitioner expressly bound
herself to be jointly and severally or solidarily liable with the principal maker of the note. The
terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a
surety. Her pretension that the terms "jointly and severally or solidarily liable" contained in the
second paragraph of her contract are technical and legal terms which could not be easily
understood by an ordinary layman like her is diametrically opposed to her manifestation in the
contract that she "fully understood the contents" of the promissory note and that she is "fully
aware" of her solidary liability with the principal maker. Petitioner admits that she voluntary
affixed her signature thereto; ergo, she cannot now be heard to claim otherwise. Any reference
to the existence of fraud is unavailing. Fraud must be established by clear and convincing
evidence, mere preponderance of evidence not even being adequate. Petitioner's attempt to
prove fraud must, therefore, fail as it was evidenced only by her own uncorroborated and,
expectedly, self-serving allegations.
4. ID.; ID.; PARTY IS ESTOPPED TO ASSERT MISAPPREHENSION OF LEGAL
EFFECT OF UNDERTAKING WHERE SHE ENTERED INTO IT WITH FULL KNOWLEDGE
OF ITS TERMS AND CONDITIONS. — Having entered into the contracts with full knowledge
of its terms and conditions, petitioner is estopped to assert that she did so under a
misapprehension or in ignorance of their legal effect, or as to the legal effect of the undertaking.
The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of
one who signs it also applies to contracts of suretyship. And the mistake of a surety as to the
legal effect of her obligation is ordinarily no reason for relieving her of liability.
CScaDH

5. ID.; ID.; SURETY DIFFERENTIATED FROM GUARANTY. — A surety is an insurer of

the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an
undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay.
Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while
a guarantor agrees that the creditor, after proceeding against the principal, may proceed
against the guarantor if the principal is unable to pay. A surety binds himself to perform if the
principal does not, without regard to his ability to do so. A guarantor, on the other hand, does
not contract that the principal will pay, but simply that he is able to do so. In other words, a
surety undertakes directly for the payment and is so responsible at once if the principal debtor
makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot
be made out of the principal debtor.
6. ID.; ID.; INTENTION OF CONTRACTING PARTIES; JUDGED BY THEIR
CONTEMPORANEOUS AND SUBSEQUENT ACTS. — It is a well-entrenched rule that in order
to judge the intention of the contracting parties, their contemporaneous and subsequent acts
shall also be principally considered.
 7. ID.; ID.; SURETYSHIP; SURETY IS BOUND EQUALLY AND ABSOLUTELY WITH
THE PRINCIPAL. — A surety is bound equally and absolutely with the principal, and as such
is deemed an original promisor and debtor from the beginning. This is because in suretyship
there is but one contract, and the surety is bound by the same agreement which binds the
principal. In essence, the contract of a surety starts with the agreement, which is precisely the
situation obtaining in this case before the Court.
8. ID.; ID.; ID.; ID.; SURETY IS AN ORIGINAL DEBTOR AND HIS LIABILITY IS
IMMEDIATE AND DIRECT. — A surety is usually bound with his principal by the same
instrument, executed at the same time and upon the same consideration; he is an original
debtor, and his liability is immediate and direct. Thus, it has been held that where a written
agreement on the same sheet of paper with and immediately following the principal contract
between the buyer and seller is executed simultaneously therewith, providing that the signers
of the agreement agreed to the terms of the principal contract, the signers were "sureties" jointly
liable with the buyer. A surety usually enters into the same obligation as that of his principal,
and the signatures of both usually appear upon the same instrument, and the same
consideration usually supports the obligation for both the principal and the surety. ASDCaI

9. ID.; ID.; ID.; SURETY BOUND BY WAIVER EXECUTED BY PRINCIPAL. — There is

no merit in petitioner's contention that the complaint was prematurely filed because the principal
debtors cannot as yet be considered in default, there having been no judicial or extrajudicial
demand made by respondent corporation. Petitioner has agreed that respondent corporation
may demand payment of the loan from her in case the principal maker defaults, subject to the
same conditions expressed in the promissory note. Significantly, paragraph (G) of the note
states that "should I fail to pay in accordance with the above schedule of payment, I hereby
waive my right to notice and demand." Hence, demand by the creditor is no longer necessary
in order that delay may exist since the contract itself already expressly so declares. As a surety,
petitioner is equally bound by such waiver.
10. ID.; ID.; ID.; DEMAND ON SURETIES, NOT NECESSARY BEFORE BRINGING
SUIT AGAINST THEM; NOR ENTITLED TO BE GIVEN NOTICE OF PRINCIPAL'S DEFAULT.
— Even if it were otherwise, demand on the sureties is not necessary before bringing suit
against them, since the commencement of the suit is a sufficient demand. On this point, it may
be worth mentioning that a surety is not even entitled, as a matter of right, to be given notice of
the principal's default. Inasmuch as the creditor owes no duty of active diligence to take care of
the interest of the surety, his mere failure to voluntarily give information to the surety of the
default of the principal cannot have the effect of discharging the surety. The surety is bound to
take notice of the principal's default and to perform the obligation. He cannot complain that the
creditor has not notified him in the absence of a special agreement to that effect in the contract
of surety. In the absence of a statutory or contractual requirement, it is not necessary that
payment or performance of his obligation be first demanded of the principal, especially where
demand would have been useless; nor is it a requisite, before proceeding against the sureties,
that the principal be called on to account.
11. ID.; ID.; ID.; ID.; RATIONALE BEHIND. — The underlying principle therefor is that
suretyship is a direct contract to pay the debt of another. A surety is liable as much as his
principal is liable, and absolutely liable as soon as default is made, without any demand upon
the principal whatsoever or any notice of default. As an original promisor and debtor from the
beginning, he is held ordinarily to know every default of his principal.TIDcEH
 12. ID.; ID.; ID.; CREDITOR, NOT REQUIRED TO EXHAUST REMEDIES AGAINST
THE PRINCIPAL BEFORE HE CAN PROCEED AGAINST THE SURETY. — A creditor's right
to proceed against the surety exists independently of his right to proceed against the principal.
Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The rule, therefore, is that if the obligation is
joint and several, the creditor has the right to proceed even against the surety alone. Since,
generally, it is not necessary for a creditor to proceed against the principal in order to hold the
surety liable, where, by the terms of the contract, the obligation of the surety is the same as
that of the principal, then as soon as the principal in order to hold the surety liable, where, by
the terms of the contract, the obligation of the surety is the same as that of the principal, then
as soon as the principal is in default, the surety is likewise in default, and may be sued
immediately and before any proceedings are had against the principal. Perforce, in accordance
with the rule that, in the absence of statute or agreement otherwise, a surety is primarily liable,
and with the rule that his proper remedy is to pay the debt and pursue the principal for
reimbursement, the surety cannot at law, unless permitted by statute and in the absence of any
agreement limiting the application of the security, require the creditor or obligee, before
proceeding against the surety, to resort to and exhaust his remedies against the principal,
particularly where both principal and surety are equally bound.
13. ID.; ID.; ID.; ID.; REASON. — Where a creditor refrains from proceeding against the
principal, the surety is not exonerated. In other words, mere want of diligence or forbearance
does not affect the creditor's rights vis-a-vis the surety, unless the surety requires him by
appropriate notice to sue on the obligation. Such gratuitous indulgence of the principal does
not discharge the surety whether given at the principal's request or without it, and whether it is
yielded by the creditor through sympathy or from an inclination to favor the principal, or is only
the result of passiveness. The neglect of the creditor to sue the principal at the time the debt
falls due does not discharge the surety, even if such delay continues until the principal becomes
insolvent. And, in the absence of proof of resultant injury, a surety is not discharged by the
creditor's mere statement that the creditor will not look to the surety, or that he need not trouble
himself. The consequences of the delay, such as the subsequent insolvency of the principal, or
the fact that the remedies against the principal may be lost by lapse of time, are immaterial.
The raison d' etre for the rule is that there is nothing to prevent the creditor from proceeding
against the principal at any time. At any rate, if the surety is dissatisfied with the degree of
activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself and
become subrogated to all the right and remedies of the creditor.
14. ID.; ID.; ID.; EXTENSION DISCHARGING SURETY, CONSTRUED. — It may not be
amiss to add that leniency shown to a debtor in default, by delay permitted by the creditor
without change in the time when the debt might be demanded, does not constitute an extension
of the time of payment, which would release the surety. In order to constitute an extension
discharging the surety, it should appear that the extension was for a definite period, pursuant
to an enforceable agreement between the principal and the creditor, and that it was made
without the consent of the surety or with a reservation of rights with respect to him. The contract
must be one which precludes the creditor from, or at least hinders him in, enforcing the principal
contract within the period during which he could otherwise have enforced it, and which
precludes the surety from paying the debt.
15. ID.; ID.; ID.; ID.; CASE AT BAR. — None of these elements are present in the instant
case. Verily, the mere fact that respondent corporation gave the principal debtors an extended
period of time within which to comply with their obligation did not effectively absolve herein
petitioner from the consequences of her undertaking. Besides, the burden is on the surety,
herein petitioner, to show that she has been discharged by some act of the creditor, herein
respondent corporation, failing in which we cannot grant the relief prayed for. EHSITc

16. ID.; ID.; ID.; DELAY IN DISCHARGING SURETY; THERE MUST BE ACTUAL
OFFER OF PAYMENT. — Respondent corporation cannot be faulted for not immediately
demanding payment from petitioner. It was petitioner who initially requested that the creditor try
to collect from her principal first, and she offered to pay only in case the creditor fails to collect.
The delay, if any, was occasioned by the fact that respondent corporation merely acquiesced
to the request of petitioner. At any rate, there was here no actual offer of payment to speak of
but only a commitment to pay if the principal does not pay.
17. ID.; ID.; DEBTOR OF A THING CANNOT COMPEL THE CREDITOR TO RECEIVE
A DIFFERENT ONE; CASE AT BAR. — Petitioner made a second attempt to settle the
obligation by offering a parcel of land which she owned. Respondent corporation was acting
well within its rights when it refused to accept the offer. The debtor of a thing cannot compel
the creditor to receive a different one, although the latter may be of the same value, or more
valuable than that which is due. The obligee is entitled to demand fulfillment of the obligation
or performance as stipulated. A change of the object of the obligation would constitute novation
requiring the express consent of the parties.
18. ID.; ID.; A PERSON ENTERING INTO A CONTRACT HAS A RIGHT TO INSIST ON
ITS PERFORMANCE IN ALL PARTICULARS. — After the complaint was filed against her,
petitioner reiterated her offer to pay the outstanding balance of the obligation in the amount of
P30,000.00 but the same was likewise rejected. Again, respondent corporation cannot be
blamed for refusing the amount being offered because it fell way below the amount it had
computed, based on the stipulated interests and penalty charges, as owing and due from herein
petitioner. A debt shall be understood to have been paid unless the thing or service in which
the obligation consists has been completely delivered or rendered, as the case may be. In other
words, the prestation must be fulfilled completely. A person entering into a contract has a right
to insist on its performance in all particulars. Petitioner cannot compel respondent corporation
to accept the amount she is willing to pay because the moment the latter accept the
performance, knowing its incompleteness or irregularity, and without expressing any protest or
objection, then the obligation shall be deemed fully complied with. Precisely, this is what
respondent corporation wanted to avoid when it continually refused to settle with petitioner at
less than what was actually due under their contract. ATHCac

19. ID.; ID.; LOAN; PAYMENT OF INTEREST AS PENALTY; AMOUNT MAY BE

EQUITABLY REDUCED. — It must be remembered that from the principal loan of P30,000.00,
the amount of P16,300.00 had already been paid even before the filing of the present case.
Article 1229 of the Civil Code provides that the court shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with by the debtor. And, even if
there has been no performance, the penalty may also be reduced if it is iniquitous or leonine.
In a case previously decided by this Court which likewise involved private respondent M.B.
Lending Corporation, and which is substantially on all fours with the one at bar, we decided to
eliminate altogether the penalty interest for being excessive and unwarranted. Accordingly, the
penalty interest of 3% per month being imposed on petitioner should similarly be eliminated.
 20. ID.; ID.; PAYMENT OF ATTORNEY'S FEES; MAY BE REDUCED IF THE AMOUNT
APPEARS UNCONSCIONABLE OR UNREASONABLE; 25% OF THE TOTAL AMOUNT DUE,
UNCONSCIONABLE. — Finally, with respect to the award of attorney's fees, this Court has
previously ruled that even with an agreement thereon between the parties, the court may
nevertheless reduce such attorney's fees fixed in the contract when the amount thereof appears
to be unconscionable or unreasonable. To that end, it is not necessary to show, as in other
contracts, that it is contrary to morals or public policy. The grant of attorney's fees equivalent to
25% of the total amount due is, in our opinion, unreasonable and immoderate, considering the
minimal unpaid amount involved and the extent of the work involved in this simple action for
collection of a sum of money. We, therefore, hold that the amount of P10,000.00 as and for
attorney's fee would be sufficient in this case. CAHTIS

DECISION

REGALADO, J : p

Where a party signs a promissory note as a co-maker and binds herself to be jointly and
severally liable with the principal debtor in case the latter defaults in the payment of the loan, is
such undertaking of the former deemed to be that of a surety as an insurer of the debt, or of a
guarantor who warrants the solvency of the debtor? cdasia

Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending
Corporation extended a loan to the spouses Osmeña and Merlyn Azarraga, together with
petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12, 1990,
with compounded interest at the rate of 6% per annum to be computed every 30 days from the
date thereof. 1 On four occasions after the execution of the promissory note and even after the
loan matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00,
thereby leaving a balance of P13,700.00. No payments were made after the last payment on
September 26, 1991. 2
Consequently, on the basis of petitioner's solidary liability under the promissory note,
respondent corporation filed a complaint 3 against petitioner Palmares as the lone party-
defendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of the
latter.
In her Amended Answer with Counterclaim, 4 petitioner alleged that sometime in August
1990, immediately after the loan matured, she offered to settle the obligation with respondent
corporation but the latter informed her that they would try to collect from the spouses Azarraga
and that she need not worry about it; that there has already been a partial payment in the
amount of P17,010.00; that the interest of 6% per month compounded at the same rate per
month, as well as the penalty charges of 3% per month, are usurious and unconscionable; and
that while she agrees to be liable on the note but only upon default of the principal debtor,
respondent corporation acted in bad faith in suing her alone without including the Azarragas
when they were the only ones who benefited from the proceeds of the loan.
During the pre-trial conference, the parties submitted the following issues for the
resolution of the trial court: (1) what the rate of interest, penalty and damages should be; (2)
whether the liability of the defendant (herein petitioner) is primary or subsidiary; and (3) whether
the defendant Estrella Palmares is only a guarantor with a subsidiary liability and not a co-
maker with primary liability. 5
Thereafter, the parties agreed to submit the case for decision based on the pleadings
filed and the memoranda to be submitted by them. On November 26, 1992, the Regional Trial
Court of Iloilo City, Branch 23, rendered judgment dismissing the complaint without prejudice
to the filing of a separate action for a sum of money against the spouses Osmeña and Merlyn
Azarraga who are primarily liable on the instrument. 6 This was based on the findings of the
court a quo that the filing of the complaint against herein petitioner Estrella Palmares, to the
exclusion of the Azarraga spouses, amounted to a discharge of a prior party; that the offer
made by petitioner to pay the obligation is considered a valid tender of payment sufficient to
discharge a person's secondary liability on the instrument; that petitioner, as co-maker, is only
secondary liable on the instrument; and that the promissory note is a contract of adhesion.
Respondent Court of Appeals, however, reversed the decision of the trial court, and
rendered judgment declaring herein petitioner Palmares liable to pay respondent corporation:
1. The sum of P13,700.00 representing the outstanding balance still due and
owing with interest at six percent (6%) per month computed from the date
the loan was contracted until fully paid;
2. The sum equivalent to the stipulated penalty of three percent (3%) per month,
of the outstanding balance;
3. Attorney's fees at 25% of the total amount due per stipulations;
4. Plus costs of suit. 7
Contrary to the findings of the trial court, respondent appellate court declared that
petitioner Palmares is a surety since she bound herself to be jointly and severally or solidarity
liable with the principal debtors, the Azarraga spouses, when she signed as a co-maker. As
such, petitioner is primarily liable on the note and hence may be sued by the creditor corporation
for the entire obligation. It also adverted to the fact that petitioner admitted her liability in her
Answer although she claims that the Azarraga spouses should have been impleaded.
Respondent court ordered the imposition of the stipulated 6% interest and 3% penalty charges
on the ground that the Usury Law is no longer enforceable pursuant to Central Bank Circular
No. 905. Finally, it rationalized that even if the promissory note were to be considered as a
contract of adhesion, the same is not entirely prohibited because the one who adheres to the
contract is free to reject it entirely; if he adheres, he gives his consent.
Hence this petition for review on certiorari wherein it is asserted that:
A. The Court of Appeals erred in ruling that Palmares acted as surety and is
therefore solidarily liable to pay the promissory note.
1. The terms of the promissory note are vague. Its conflicting provisions do not
establish Palmares' solidary liability.
2. The promissory note contains provisions which establish the co-maker's
liability as that of a guarantor.
3. There is no sufficient basis for concluding that Palmares' liability is solidary.
4. The promissory note is a contract of adhesion and should be construed against
M.B. Lending Corporation.
 5. Palmares cannot be compelled to pay the loan at this point.
B. Assuming that Palmares' liability is solidary, the Court of Appeals erred in
strictly imposing the interests and penalty charges on the outstanding balance of the
promissory note.
The foregoing contentions of petitioner are denied and contradicted in their material
points by respondent corporation. They are further refuted by accepted doctrines in the
American jurisdiction after which we patterned our statutory law on suretyship and guaranty.
This case then affords us the opportunity to make an extended exposition on the ramifications
of these two specialized contracts, for such guidance as may be taken therefrom in similar local
controversies in the future.
The basis of petitioner Palmares' liability under the promissory note is expressed in this
wise:
ATTENTION TO CO-MAKERS: PLEASE READ WELL
I, Mrs. Estrella Palmares, as the Co-maker of the above-quoted loan, have fully
understood the contents of this Promissory Note for Short-Term Loan:
That as Co-maker, I am fully aware that I shall be jointly and severally or solidarily
liable with the above principal maker of this note;
That in fact, I hereby agree that M.B. LENDING CORPORATION may demand
payment of the above loan from me in case the principal maker, Mrs. Merlyn
Azarraga defaults in the payment of the note subject to the same conditions above-
contained. 8
Petitioner contends that the provisions of the second and third paragraph are conflicting
in that while the second paragraph seems to define her liability as that of a surety which is joint
and solidary with the principal maker, on the other hand, under the third paragraph her liability
is actually that of a mere guarantor because she bound herself to fulfill the obligation only in
case the principal debtor should fail to do so, which is the essence of a contract of guaranty.
More simply stated, although the second paragraph says that she is liable as a surety, the third
paragraph defines the nature of her liability as that of a guarantor. According to petitioner, these
are two conflicting provisions in the promissory note and the rule is that clauses in the contract
should be interpreted in relation to one another and not by parts. In other words, the second
paragraph should not be taken in isolation, but should be read in relation to the third paragraph.
In an attempt to reconcile the supposed conflict between the two provisions, petitioner
avers that she could be held liable only as a guarantor for several reasons. First, the words
"jointly and severally or solidarily liable" used in the second paragraph are technical and legal
terms which are not fully appreciated by an ordinary layman like herein petitioner, a 65-year old
housewife who is likely to enter into such transactions without fully realizing the nature and
extent of her liability. On the contrary, the wordings used in the third paragraph are easier to
comprehend. Second, the law looks upon the contract of suretyship with a jealous eye and the
rule is that the obligation of the surety cannot be extended by implication beyond specified
limits, taking into consideration the peculiar nature of a surety agreement which holds the surety
liable despite the absence of any direct consideration received from either the principal obligor
or the creditor. Third, the promissory note is a contract of adhesion since it was prepared by
respondent M.B. Lending Corporation. The note was brought to petitioner partially filled up, the
contents thereof were never explained to her, and her only participation was to sign thereon.
Thus, any apparent ambiguity in the contract should be strictly construed against private
respondent pursuant to Art. 1377 of the Civil Code. 9
Petitioner accordingly concludes that her liability should be deemed restricted by the
clause in the third paragraph of the promissory note to be that of a guarantor. cdasia

Moreover, petitioner submits that she cannot as yet be compelled to pay the loan
because the principal debtors cannot be considered in default in the absence of a judicial or
extrajudicial demand. It is true that the complaint alleges the fact of demand, but the purported
demand letters were never attached to the pleadings filed by private respondent before the trial
court. And, while petitioner may have admitted in her Amended Answer that she received a
demand letter from respondent corporation sometime in 1990, the same did not effectively put
her or the principal debtors in default for the simple reason that the latter subsequently made a
partial payment on the loan in September, 1991, a fact which was never controverted by herein
private respondent.
Finally, it is argued that the Court of Appeals gravely erred in awarding the amount of
P2,745,483.39 in favor of private respondent when, in truth and in fact, the outstanding balance
of the loan is only P13,700.00. Where the interest charged on the loan is exorbitant, iniquitous
or unconscionable, and the obligation has been partially complied with, the court may equitable
reduce the penalty 10 on grounds of substantial justice. More importantly, respondent
corporation never refuted petitioner's allegation that immediately after the loan matured, she
informed said respondent of her desire to settle the obligation. The court should, therefore,
mitigate the damages to be paid since petitioner has shown a sincere desire for a
compromise. 11
After a judicious evaluation of the arguments of the parties, we are constrained to dismiss
the petition for lack of merit, but to except therefrom the issue anent the propriety of the
monetary award adjudged to herein respondent corporation.
At the outset, let it here be stressed that even assuming arguendo that the promissory
note executed between the parties is a contract of adhesion, it has been the consistent holding
of the Court that contracts of adhesion are not invalid per se and that on numerous occasions
the binding effects thereof have been upheld. The peculiar nature of such contracts necessitate
a close scrutiny of the factual milieu to which the provisions are intended to apply. Hence, just
as consistently and unhesitatingly, but without categorically invalidating such contracts, the
Court has construed obscurities and ambiguities in the restrictive provisions of contracts of
adhesion strictly albeit not unreasonably against the drafter thereof when justified in light of the
operative facts and surrounding circumstances. 12 The factual scenario obtaining in the case
before us warrants a liberal application of the rule in favor of respondent corporation.
The Civil Code pertinently provides:
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.
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.
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. 13 In the case at bar, petitioner expressly bound herself to be jointly
and severally or solidarily liable with the principal maker of the note. The terms of the contract
are clear, explicit and unequivocal that petitioner's liability is that of a surety.
Her pretension that the terms "jointly and severally or solidarity liable" contained in the
second paragraph of her contract are technical and legal terms which could not be easily
understood by an ordinary layman like her is diametrically opposed to her manifestation in the
contract that she "fully understood the contents" of the promissory note and that she is "fully
aware" of her solidary liability with the principal maker. Petitioner admits that she voluntarily
affixed her signature thereto; ergo, she cannot now be heard to claim otherwise. Any reference
to the existence of fraud is unavailing. Fraud must be established by clear and convincing
evidence, mere preponderance of evidence not even being adequate. Petitioner's attempt to
prove fraud must, therefore, fail as it was evidenced only by her own uncorroborated and,
expectedly, self-serving allegations. 14
Having entered into the contract with full knowledge of its terms and conditions, petitioner
is estopped to assert that she did so under a misapprehension or in ignorance of their legal
effect, or as to the legal effect of the undertaking. 15 The rule that ignorance of the contents of
an instrument does not ordinarily affect the liability of one who signs it also applies to contracts
of suretyship. And the mistake of a surety as to the legal effect of her obligation is ordinarily no
reason for relieving her of liability. 16
Petitioner would like to make capital of the fact that although she obligated herself to be
jointly and severally liable with the principal maker, her liability is deemed restricted by the
provisions of the third paragraph of her contract wherein she agreed "that M.B. Lending
Corporation may demand payment of the above loan from me in case the principal maker, Mrs.
Merlyn Azarraga defaults in the payment of the note," which makes her contract one of guaranty
and not suretyship. The purported discordance is more apparent than real.
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of
the debtor. 17 A suretyship is an undertaking that the debt shall be paid; a guaranty, an
undertaking that the debtor shall pay. 18 Stated differently, a surety promises to pay the
principal's debt if the principal will not pay, while a guarantor agrees that the creditor, after
proceeding against the principal, may proceed against the guarantor if the principal is unable
to pay. 19 A surety binds himself to perform if the principal does not, without regard to his ability
to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply
that he is able to do so. 20 In other words, a surety undertakes directly for the payment and is
so responsible at once if the principal debtor makes default, while a guarantor contracts to pay
if, by the use of due diligence, the debt cannot be made out of the principal debtor. 21
Quintessentially, the undertaking to pay upon default of the principal debtor does not
automatically remove it from the ambit of a contract of suretyship. The second and third
paragraphs of the aforequoted portion of the promissory note do not contain any other condition
for the enforcement of respondent corporation's right against petitioner. It has not been shown,
either in the contract or the pleadings, that respondent corporation agreed to proceed against
herein petitioner only if and when the defaulting principal has become insolvent. A contract of
suretyship, to repeat, is that wherein one lends his credit by joining in the principal debtor's
obligation, so as to render himself directly and primarily responsible with him, and without
reference to the solvency of the principal. 22
In a desperate effort to exonerate herself from liability, petitioner erroneously invokes the
rule on strictissimi juris, which holds that when the meaning of a contract of indemnity or
guaranty has once been judicially determined under the rule of reasonable construction
applicable to all written contracts, then the liability of the surety, under his contract, as thus
interpreted and construed, is not to be extended beyond its strict meaning. 23 The rule,
however, will apply only after it has been definitely ascertained that the contract is one of
suretyship and not a contract of guaranty. It cannot be used as an aid in determining whether a
party's undertaking is that of a surety or a guarantor.
Prescinding from these jurisprudential authorities, there can be no doubt that the
stipulation contained in the third paragraph of the controverted suretyship contract merely
elucidated on and made more specific the obligation of petitioner as generally defined in the
second paragraph thereof. Resultantly, the theory advanced by petitioner, that she is merely a
guarantor because her liability attaches only upon default of the principal debtor, must
necessarily fail for being incongruent with the judicial pronouncements adverted to above.
It is a well-entrenched rule that in order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall also be principally considered. 24 Several
attendant factors in that genre lend support to our finding that petitioner is a surety. For one,
when petitioner was informed about the failure of the principal debtor to pay the loan, she
immediately offered to settle the account with respondent corporation. Obviously, in her mind,
she knew that she was directly and primarily liable upon default of her principal. For another,
and this is most revealing, petitioner presented the receipts of the payments already made,
from the time of initial payment up to the last, which were all issued in her name and of the
Azarraga spouses. 25 This can only be construed to mean that the payments made by the
principal debtors were considered by respondent corporation as creditable directly upon the
account and inuring to the benefit of petitioner. The concomitant and simultaneous compliance
of petitioner's obligation with that of her principals only goes to show that, from the very start,
petitioner considered herself equally bound by the contract of the principal makers. cdasia

In this regard, we need only to reiterate the rule that a surety is bound equally and
absolutely with the principal, 26 and as such is deemed an original promisor and debtor from
the beginning. 27 This is because in suretyship there is but one contract, and the surety is bound
by the same agreement which binds the principal. 28 In essence, the contract of a surety starts
with the agreement, 29 which is precisely the situation obtaining in this case before the Court.
It will further be observed that petitioner's undertaking as co-maker immediately follows
the terms and conditions stipulated between respondent corporation, as creditor, and the
principal obligors. A surety is usually bound with his principal by the same instrument, executed
at the same time and upon the same consideration; he is an original debtor, and his liability is
immediate and direct. 30 Thus, it has been held that where a written agreement on the same
sheet of paper with and immediately following the principal contract between the buyer and
seller is executed simultaneously therewith, providing that the signers of the agreement agreed
to the terms of the principal contract, the signers were "sureties" jointly liable with the buyer.31 A
surety usually enters into the same obligation as that of his principal, and the signatures of both
usually appear upon the same instrument, and the same consideration usually supports the
obligation for both the principal and the surety. 32
There is no merit in petitioner's contention that the complaint was prematurely filed
because the principal debtors cannot as yet be considered in default, there having been no
judicial or extrajudicial demand made by respondent corporation. Petitioner has agreed that
respondent corporation may demand payment of the loan from her in case the principal maker
defaults, subject to the same conditions expressed in the promissory note. Significantly,
paragraph (G) of the note states that "should I fail to pay in accordance with the above schedule
of payment, I hereby waive my right to notice and demand." Hence, demand by the creditor is
no longer necessary in order that delay may exist since the contract itself already expressly so
declares. 33 As a surety, petitioner is equally bound by such waiver.
Even if it were otherwise, demand on the sureties is not necessary before bringing suit
against them, since the commencement of the suit is a sufficient demand. 34 On this point, it
may be worth mentioning that a surety is not even entitled, as a matter of right, to be given
notice of the principal's default. Inasmuch as the creditor owes no duty of active diligence to
take care of the interest of the surety, his mere failure to voluntarily give information to the
surety of the default of the principal cannot have the effect of discharging the surety. The surety
is bound to take notice of the principal's default and to perform the obligation. He cannot
complain that the creditor has not notified him in the absence of a special agreement to that
effect in the contract of suretyship. 35
The alleged failure of respondent corporation to prove the fact of demand on the principal
debtors, by not attaching copies thereof to its pleadings, is likewise immaterial. In the absence
of a statutory or contractual requirement, it is not necessary that payment or performance of his
obligation be first demanded of the principal, especially where demand would have been
useless; nor is it a requisite, before proceeding against the sureties, that the principal be called
on to account. 36 The underlying principle therefor is that a suretyship is a direct contract to pay
the debt of another. A surety is liable as much as his principal is liable, and absolutely liable as
soon as default is made, without any demand upon the principal whatsoever or any notice of
default. 37 As an original promisor and debtor from the beginning, he is held ordinarily to know
every default of his principal. 38
Petitioner questions the propriety of the filing of a complaint solely against her to the
exclusion of the principal debtors who allegedly were the only ones who benefited from the
proceeds of the loan. What petitioner is trying to imply is that the creditor, herein respondent
corporation, should have proceeded first against the principal before suing on her obligation as
surety. We disagree.
A creditor's right to proceed against the surety exists independently of his right to proceed
against the principal. 39 Under Article 1216 of the Civil Code, the creditor may proceed against
any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is
that if the obligation is joint and several, the creditor has the right to proceed even against the
surety alone. 40 Since, generally, it is not necessary for a creditor to proceed against a principal
in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety
is the same as that of the principal, then as soon as the principal is in default, the surety is
likewise in default, and may be sued immediately and before any proceedings are had against
the principal. 41 Perforce, in accordance with the rule that, in the absence of statute or
agreement otherwise, a surety is primarily liable, and with the rule that his proper remedy is to
pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless
permitted by statute and in the absence of any agreement limiting the application of the security,
require the creditor or obligee, before proceeding against the surety, to resort to and exhaust
his remedies against the principal, particularly where both principal and surety are equally
bound. 42
 We agree with respondent corporation that its mere failure to immediately sue petitioner
on her obligation does not release her from liability. Where a creditor refrains from proceeding
against the principal, the surety is not exonerated. In other words, mere want of diligence or
forbearance does not affect the creditor's rights vis-a-vis the surety, unless the surety requires
him by appropriate notice to sue on the obligation. Such gratuitous indulgence of the principal
does not discharge the surety whether given at the principal's request or without it, and whether
it is yielded by the creditor through sympathy or from an inclination to favor the principal, or is
only the result of passiveness. The neglect of the creditor to sue the principal at the time the
debt falls due does not discharge the surety, even if such delay continues until the principal
becomes insolvent. 43 And, in the absence of proof of resultant injury, a surety is not discharged
by the creditor's mere statement that the creditor will not look to the surety, 44 or that he need
not trouble himself. 45 The consequences of the delay, such as the subsequent insolvency of
the principal, 46 or the fact that the remedies against the principal may be lost by lapse of time,
are immaterial. 47
The raison d'êtrefor the rule is that there is nothing to prevent the creditor from
proceeding against the principal at any time. 48 At any rate, if the surety is dissatisfied with the
degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt
himself and become subrogated to all the rights and remedies of the creditor. 49
It may not be amiss to add that leniency shown to a debtor in default, by delay permitted
by the creditor without change in the time when the debt might be demanded, does not
constitute an extension of the time of payment, which would release the surety. 50 In order to
constitute an extension discharging the surety, it should appear that the extension was for a
definite period , pursuant to an enforceable agreement between the principal and the creditor,
and that it was made without the consent of the surety or with a reservation of rights with respect
to him. The contract must be one which precludes the creditor from, or at least hinders him in,
enforcing the principal contract within the period during which he could otherwise have enforced
it, and which precludes the surety from paying the debt. 51
None of these elements are present in the instant case. Verily, the mere fact that
respondent corporation gave the principal debtors an extended period of time within which to
comply with their obligation did not effectively absolve herein petitioner from the consequences
of her undertaking. Besides, the burden is on the surety, herein petitioner, to show that she has
been discharged by some act of the creditor, 52 herein respondent corporation, failing in which
we cannot grant the relief prayed for. LLjur

As a final issue, petitioner claims that assuming that her liability is solidary, the interests
and penalty chargers on the outstanding balance of the loan cannot be imposed for being illegal
and unconscionable. Petitioner additionally theorizes that respondent corporation intentionally
delayed the collection of the loan in order that the interests and penalty charges would
accumulate. The statement, likewise traversed by said respondent, is misleading.
In an affidavit 53 executed by petitioner, which was attached to her petition, she stated,
among others, that:
8. During the latter part of 1990, I was surprised to learn that Merlyn Azarraga's
loan has been released and that she has not paid the same upon its maturity. I received
a telephone call from Mr. Augusto Banusing of MB Lending informing me of this fact
and of my liability arising from the promissory note which I signed.
 9. I requested Mr. Banusing to try to collect first from Merlyn and Osmeña
Azarraga. At the same time, I offered to pay MB Lending the outstanding balance of the
principal obligation should he fail to collect from Merlyn and Osmeña Azarraga. Mr.
Banusing advised me not to worry because he will try to collect first from Merlyn and
Osmeña Azarraga.
10. A year thereafter, I received a telephone call from the secretary of Mr.
Banusing who reminded that the loan of Merlyn and Osmeña Azarraga, together with
interest and penalties thereon, has not been paid. Since I had no available funds at that
time, I offered to pay MB Lending by delivering to them a parcel of land which I own.
Mr. Banusing's secretary, however, refused my offer for the reason that they are not
interested in real estate.
11. In March 1992, I received a copy of the summons and of the complaint filed
against me by MB Lending before the RTC-Iloilo. After learning that a complaint was
filed against me, I instructed Sheila Gatia to go to MB Lending and reiterate my first
offer to pay the outstanding balance of the principal obligation of Merlyn Azarraga in the
amount of P30,000.00.
12. Ms. Gatia talked to the secretary of Mr. Banusing who referred her to Atty.
Venus, counsel of MB Lending.
13. Atty. Venus informed Ms. Gatia that he will consult Mr. Banusing if my offer
to pay the outstanding balance of the principal obligation loan (sic) of Merlyn and
Osmeña Azarraga is acceptable. Later, Atty. Venus informed Ms. Gatia that my offer is
not acceptable to Mr. Banusing.
The purported offer to pay made by petitioner can not be deemed sufficient and
substantial in order to effectively discharge her from liability. There are a number of
circumstances which conjointly inveigh against her aforesaid theory.
1. Respondent corporation cannot be faulted for not immediately demanding payment
from petitioner. It was petitioner who initially requested that the creditor try to collect from her
principal first, and she offered to pay only in case the creditor fails to collect. The delay, if any,
was occasioned by the fact that respondent corporation merely acquiesced to the request of
petitioner. At any rate, there was here no actual offer of payment to speak of but only a
commitment to pay if the principal does not pay.
2. Petitioner made a second attempt to settle the obligation by offering a parcel of land
which she owned. Respondent corporation was acting well within its rights when it refused to
accept the offer. The debtor of a thing cannot compel the creditor to receive a different one,
although the latter may be of the same value, or more valuable than that which is due. 54 The
obligee is entitled to demand fulfillment of the obligation or performance as stipulated. A change
of the object of the obligation would constitute novation requiring the express consent of the
parties. 55
3. After the complaint was filed against her, petitioner reiterated her offer to pay the
outstanding balance of the obligation in the amount of P30,000.00 but the same was likewise
rejected. Again, respondent corporation cannot be blamed for refusing the amount being
offered because it fell way below the amount it had computed, based on the stipulated interests
and penalty charges, as owing and due from herein petitioner. A debt shall not be understood
to have been paid unless the thing or service in which the obligation consists has been
completely delivered or rendered, as the case may be. 56 In other words, the prestation must
be fulfilled completely. A person entering into a contract has a right to insist on its performance
in all particulars. 57
Petitioner cannot compel respondent corporation to accept the amount she is willing to
pay because the moment the latter accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, then the obligation shall be
deemed fully complied with. 58 Precisely, this is what respondent corporation wanted to avoid
when it continually refused to settle with petitioner at less than what was actually due under
their contract.
This notwithstanding, however, we find and so hold that the penalty charge of 3% per
month and attorney's fees equivalent to 25% of the total amount due are highly inequitable and
unreasonable.
It must be remembered that from the principal loan of P30,000.00, the amount of
P16,300.00 had already been paid even before the filing of the present case. Article 1229 of
the Civil Code provides that the court shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. And, even if there has
been no performance, the penalty may also be reduced if it is iniquitous or leonine.
In a case previously decided by this Court which likewise involved private respondent
M.B. Lending Corporation, and which is substantially on all fours with the one at bar, we decided
to eliminate altogether the penalty interest for being excessive and unwarranted under the
following rationalization:
Upon the matter of penalty interest, we agree with the Court of Appeals that the
economic impact of the penalty interest of three percent (3%) per month on total amount
due but unpaid should be equitably reduced. The purpose for which the penalty interest
is intended — that is, to punish the obligor — will have been sufficiently served by the
effects of compounded interest. Under the exceptional circumstances in the case at bar,
e.g., the original amount loaned was only P15,000.00; partial payment of P8,600.00 was
made on due date; and the heavy (albeit still lawful) regular compensatory interest, the
penalty interest stipulated in the parties' promissory note is iniquitous and
unconscionable and may be equitably reduced further by eliminating such penalty
interest altogether. 59
Accordingly, the penalty interest of 3% per month being imposed on petitioner should
similarly be eliminated.
Finally, with respect to the award of attorney's fees, this Court has previously ruled that
even with an agreement thereon between the parties, the court may nevertheless reduce such
attorney's fees fixed in the contract when the amount thereof appears to be unconscionable or
unreasonable. 60 To that end, it is not even necessary to show, as in other contracts, that it is
contrary to morals or public policy. 61 The grant of attorney's fees equivalent to 25% of the total
amount due is, in our opinion, unreasonable and immoderate, considering the minimal unpaid
amount involved and the extent of the work involved in this simple action for collection of a sum
of money. We, therefore, hold that the amount of P10,000.00 as and for attorney's fee would
be sufficient in this case. 62
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the
MODIFICATION that the penalty interest of 3% per month is hereby deleted and the award of
attorney's fees is reduced to P10,000.00.
 SO ORDERED. LLjur

||| (Palmares v. Court of Appeals, G.R. No. 126490, [March 31, 1998], 351 PHIL 664-691)
 THIRD DIVISION

[G.R. No. 100594. March 10, 1993.]

BINALBAGAN TECH. INC., and HERMILO J. NAVA, petitioners, vs. THE

COURT OF APPEALS, MAGDALENA L. PUENTEVELLA, ANGELINA P.
ECHAUS, ROMULO L. PUENTEVELLA, RENATO L. PUENTEVELLA, NOLI
L. PUENTEVELLA and NELIA LOURDES P. JACINTO, respondents.

Mateo Valenzuela for petitioners.

Hilado, Hagad & Hilado for private respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTY CANNOT DEMAND

PERFORMANCE OF AN OBLIGATION UNLESS HE IS IN A POSITION TO COMPLY WITH
HIS OWN OBLIGATIONS. — A party to a contract cannot demand performance of the other
party's obligations unless he is in a position to comply with his own obligations. Similarly, the
right to rescind a contract can be demanded only if a party thereto is ready, willing and able to
comply with his own obligations thereunder (Art. 1191, Civil Code; Seva vs. Berwin, 48 Phil.
581 [1926]; Paras, Civil Code of the Philippines, 12th ed. Vol. IV, p. 200). In a contract of sale,
the vendor is bound to transfer the ownership of and deliver, as well as warrant, the thing
which is the object of the sale (Art. 1495,Civil Code); he warrants that the buyer shall, from
the time ownership is passed, have and enjoy the legal and peaceful possession of the thing.
2. ID.; PRESCRIPTIVE PERIOD WITHIN WHICH TO INSTITUTE ACTION UPON A
WRITTEN CONTRACT; CASE AT BAR. — The prescriptive period within which to institute an
action upon a written contract is ten years (Art. 1144, Civil Code). The cause of action of
private respondent Echaus is based on the deed of sale executed on May 11, 1967, whereby
ownership of the subdivision lots was transferred to petitioner. She filed Civil Case No. 1354
for recovery of title and damages only on October 8, 1982. From May 11, 1967 to October 8,
1982, more than fifteen (15) years elapsed. Seemingly, the 10-year prescriptive period had
expired before she brought her action to recover title. However, the period 1974 to 1982
should be deducted in computing the prescriptive period for the reason that from 1974 to
1982, private respondent Echaus was not in a legal position to initiate action against petitioner
since as aforestated, through no fault of hers, her warranty against eviction was breached.
Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years
elapsed. Consequently, Civil Case No. 1354 was filed within the 10-year prescriptive period.

DECISION

MELO, J : p
 The petition for review on certiorari now before us seeks to reverse the decision of
the Court of Appeals promulgated on March 27, 1991 in CA-G.R. CV No. 24635 (de Pano,
Cacdac (P), and Vailoces, JJ .).
The facts of the case, as borne out by the record, are as follows:
On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity
as Judicial Administrator of the intestate estate of Luis B. Puentevella, executed a Contract
to Sell and a Deed of Sale of forty-two subdivision lots within the Phib-Khik Subdivision of
the Puentebella family, conveying and transferring said lots to petitioner Binalbagan Tech.,
Inc. (hereinafter referred to as Binalbagan). In turn Binalbagan, through its president,
petitioner Hermilio J. Nava (hereinafter referred to as Nava), executed an
Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in favor of the
estate of Puentebella.
Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner
took possession of the lots and the building and improvements thereon. Binalbagan
started operating a school on the property from 1967 when the titles and possession of the
lots were transferred to it.
It appears that there was a pending case, Civil Case No. 7435 of Regional Trial
Court stationed at Himamaylan, Negros Occidental. Relative to said case we shall quote
the findings of fact of the Court of Appeals in its decision dated October 30, 1978 in CA-
G.R. No. 4211-R:
To have a better perspective of the background facts leading to the filing of this
instant case on appeal, there is a need to make reference to the circumstances
surrounding the filing of Civil Case No. 7435, to wit:
The intestate estate of the late Luis B. Puentebella as registered owner of
several subdivision lots, specifically mentioned in paragraph 2 of plaintiffs' complaint,
thru Judicial Administratrix, Angelina L. Puentevella sold said aforementioned lots to
Raul Javellana with the condition that the vendee-promisee would not transfer his
rights to said lots without the express consent of Puentevella and that in case of the
cancellation of the contract by reason of the violation of any of the terms thereof, all
payments therefor made and all improvements introduced on the property shall pertain
to the promissor and shall be considered as rentals for the use and occupation
thereof.LLphil

Javellana having failed to pay the installments for a period of five years, Civil
Case No. 7435 was filed by defendant Puentevella against Raul Javellana and the
Southern Negros Colleges which was impleaded as a party defendant it being in
actual possession thereof, for the rescission of their contract to sell and the recovery
of possession of the lots and buildings with damages.
Accordingly, after trial, judgment was rendered in favor of Puentevella and
thereafter, defendants Deputy Sheriffs served a copy of the writ of execution on the
Acting Director of the Southern Negros College and delivered possession of the lots
and buildings to defendant Puentevella's representative, Mrs. Manuel Gentapanan,
and further levied execution on the books and school equipment, supplies, library,
apparatus, etc. to satisfy the monetary portion of the judgment under execution on
October 27, 1967. Said books, equipment, etc. as reflected in the Depositary Receipt,
(Exh. "B") dated October 28, 1965, were delivered by the Sheriffs to the Acting
Director of the Southern Negros College as depositary of the same.
 Came December 29, 1965 when the plaintiffs in the instant case on appeal filed
their Third-Party Claim based on an alleged Deed of Sale executed in their favor by
spouses Jose and Lolita Lopez, thus Puentevella was constrained to assert physical
possession of the premises to counteract the fictitious and unenforceable claim of
herein plaintiffs.
Upon the filing of the instant case for injunction and damages on January 3,
1966, an ex-parte writ of preliminary injunction was issued by the Honorable Presiding
Judge Carlos Abiera, which order, however, was elevated to the Honorable Court of
Appeals which issued a writ of preliminary injunction ordering Judge Carlos Abiera or
any other persons or persons in his behalf to refrain from further enforcing the
injunction issued by him in this case and from further issuing any other writs or
prohibitions which would in any manner affect the enforcement of the judgment
rendered in Civil Case 7435, pending the finality of the decision of the Honorable
Court of Appeals in the latter case. Thus, defendant Puentevella was restored to the
possession of the lots and buildings subject of this case. However, plaintiffs filed a
petition for review with the Supreme Court which issued a restraining order against the
sale of the properties claimed by the spouses-plaintiffs [in Abierra vs. Court of
Appeals, 45 SCRA 314].
When the Supreme Court dissolved the aforesaid injunction issued by the Court of
Appeals, possession of the building and other property was taken from petitioner
Binalbagan and given to the third-party claimants, the de la Cruz spouses. Petitioner
Binalbagan transferred its school to another location. In the meantime, an appeal was
interposed by the defendants in Civil Case No. 293 with the Court of Appeals where the
appeal was docketed as CA-G.R. No. 42211-R. On October 30, 1978, the Court of
Appeals rendered judgment, reversing the appealed decision in Civil Case No. 293. On
April 29, 1981, judgment was entered in CA-G.R. No. 42211, and the record of the case
was remanded to the court of origin on December 22, 1981. Consequently, in 1982 the
judgment in Civil Case No. 7435 was finally executed and enforced, and petitioner was
restored to the possession of the subdivision lots on May 31, 1982. It will be noted that
petitioner was not in possession of the lots from 1974 to May 31, 1982.
After petitioner Binalbagan was again placed in possession of the subdivision lots,
private respondent Angelina Echaus demanded payment from petitioner Binalbagan for
the subdivision lots, enclosing in the letter of demand a statement of account as of
September 1982 showing a total amount due of P367,509.93, representing the price of the
land and accrued interest as of that date.
As petitioner Binalbagan failed to effect payment, private respondent Angelina P.
Echaus filed on October 8, 1982 Civil Case No. 1354 of the Regional Trial Court of the
Sixth Judicial Region stationed in Himamaylan, Negros Occidental against petitioners for
recovery of title and damages. An amended complaint was filed by private respondent
Angelina P. Echaus by including her mother, brothers, and sisters as co-plaintiffs, which
was admitted by the trial court on March 18, 1983. cdphil

After trial, the trial court rendered a decision on August 30, 1989, the dispositive
portion of which reads as follows:
IN VIEW OF THE FOREGOING, and inasmuch as there is no fraud and since the
action on the written contract, Exh. "C", has long prescribed, judgment is hereby
rendered in favor of the defendants and against the plaintiffs dismissing the amended
complaint.
 The counterclaim is likewise dismissed for lack of sufficient proof. Each shall
bear their respective expenses of litigation (pp. 71-72, Rollo).
Private respondents appealed to the Court of Appeals which rendered a decision on
March 27, 1991, disposing:
WHEREFORE, premises considered, the appealed decision is REVERSED
and SET ASIDE and a new one is rendered ordering the appellee Binalbagan Tech.
Inc., through any of its officers, to execute a deed of conveyance or any other
instrument, transferring and returning unto the appellants the ownership and titles of
the subject 42 subdivision lots. Costs against appellees. (pp. 51-52, Rollo)

Thus, this petition for review on certiorari wherein petitioners assign the following
alleged errors of the Court of Appeals:
First Error
The Court of Appeals erred in holding that the cause of action of the respondents has
not prescribed.
Second Error
The Court of Appeals erred in holding that Civil Case No. 293 interrupts the
running of the period of the prescription.
Third Error
The Court of Appeals erred in citing the cases of David-Garlitos and Rivero vs.
Rivero to support its contention that the period of prescription was interrupted in the
case at bar.
Fourth Error
The finding of facts of the Honorable Court of Appeals in reversing the lower
court decision has no basis and is contradicted by the evidence on record of the case
at bar as well as the admission of parties." (p. 16, Rollo)
The main issue of this case is: Whether private respondents' cause of action in Civil
Case No. 1354 is barred by prescription.
On this point the Court of Appeals held:
As it is evident that there was an interruption during the period from 1974 up to
1982, the period of prescription, as correctly maintained by the appellants, was tolled
during such period, due to the injunctive writ in Civil Case No. 293 as discussed earlier
when the vendors could not maintain the vendee in possession, and consequently
was in no position to legally demand payment of the price. Accordingly, while it may
be conceded that appellants' cause of action to demand performance had accrued on
June 10, 1967 due to the appellee institution's default in the payment of the first
installment which became due on that date, the running of prescription was interrupted
in 1974 when, from the words of the lower court itself, "the Supreme Court reversed
the Court of Appeal's decision and dissolved the injunction which the latter court had
earlier issued in Civil Case No. 293, possession of the building and other properties
was taken from defendant Binalbagan Tech. Inc. and given to the de la Cruz spouses,
through Southern Negros College". And the period of prescription commenced to run
anew only on May 31, 1982 when the appellants were finally able to fully implement
the already executory judgment in Case No. 7435, and thus restore appellees in
possession of the 42 subdivision lots.Cdpr
 In other words, the period of prescription was interrupted, because from 1974
up to 1982, the appellants themselves could not have restored unto the appellees the
possession of the 42 subdivision lots precisely because of the preliminary injunction
mentioned elsewhere. Consequently, the appellants could not have prospered in any
suit to compel performance or payment from the appellees-buyers, because the
appellants themselves were in no position to perform their own corresponding
obligation to deliver to and maintain said buyers in possession of the lots subject
matter of the sale. (Article 1458, 1495, 1537, Civil Code). (pp 49-50, Rollo)
We agree with the Court of Appeals.
A party to a contract cannot demand performance of the other party's obligations
unless he is in a position to comply with his own obligations. Similarly, the right to rescind
a contract can be demanded only if a party thereto is ready, willing and able to comply with
his own obligations thereunder (Art. 1191, Civil Code; Seva vs. Berwin, 48 Phil. 581
[1926]; Paras, Civil Code of the Philippines, 12th ed. Vol. IV, p. 200). In a contract of sale,
the vendor is bound to transfer the ownership of and deliver, as well as warrant, the thing
which is the object of the sale (Art. 1495, Civil Code); he warrants that the buyer shall,
from the time ownership is passed, have and enjoy the legal and peaceful possession of
the thing —
ARTICLE 1547. In a contract of sale, unless a contrary intention appears, there
is:
(1) An implied warranty on the part of the seller that he has a right to sell the
thing at the time when the ownership is to pass, and that the buyer shall from that time
have and enjoy the legal and peaceful possession of the thing.
xxx xxx xxx
As afore-stated, petitioner was evicted from the subject subdivision lots in 1974 by
virtue of a court order in Civil Case No. 293 and reinstated to the possession thereof only
in 1982. During the period, therefore, from 1974 to 1982, seller private respondent
Angelina Echaus' warranty against eviction given to buyer petitioner was breached though,
admittedly, through no fault of her own. It follows that during that period, 1974 to 1982,
private respondent Echaus was not in a legal position to demand compliance of the
prestation of petitioner to pay the price of said subdivision lots. In short, her right to
demand payment was suspended during that period, 1974-1982.
The prescriptive period within which to institute an action upon a written contract is
ten years (Art. 1144, Civil Code). The cause of action of private respondent Echaus is
based on the deed of sale aforementioned. The deed of sale whereby private respondent
Echaus transferred ownership of the subdivision lots was executed on May 11, 1967. She
filed Civil Case No. 1354 for recovery of title and damages only on October 8, 1982. From
May 11, 1967 to October 8, 1982, more than fifteen (15) years elapsed. Seemingly, the 10-
year prescriptive period had expired before she brought her action to recover title.
However, the period 1974 to 1982 should be deducted in computing the prescriptive period
for the reason that, as above discussed, from 1974 to 1982, private respondent Echaus
was not in a legal position to initiate action against petitioner since as aforestated, through
no fault of hers, her warranty against eviction was breached. In the case of Daniel vs.
Garlitos, (95 Phil. 387 [1954]), it was held that a court order deferring action on the
execution of judgment suspended the running of the 5-year period for execution of a
judgment. Here the execution of the judgment in Civil Case No. 7435 was stopped by the
 writ of preliminary injunction issued in Civil Case No. 293. It was only when Civil Case No.
293 was dismissed that the writ of execution in Civil Case Na. 7435 could be implemented
and petitioner Binalbagan restored to the possession of the subject lots.LLjur

Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven
years elapsed. Consequently, Civil Case No. 1354 was filed within the 10-year prescriptive
period. Working against petitioner's position too is the principle against unjust enrichment
which would certainly be the result if petitioner is allowed to own the 42 lots without full
payment thereof.
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in
CA-G.R. CV No. 24635 is AFFIRMED.
SO ORDERED.
||| (Binalbagan Tech. Inc. v. Court of Appeals, G.R. No. 100594, [March 10, 1993])
 FIRST DIVISION

[G.R. No. 115129. February 12, 1997.]

IGNACIO BARZAGA, petitioner, vs. COURT OF APPEALS and ANGELITO

ALVIAR, respondents.

Franco L. Loyola for petitioners.

Monsod Valencia and Associates for private respondent.

SYLLABUS

1. CIVIL LAW; OBLIGATION AND CONTRACTS; EFFECT OF OBLIGATIONS; A

PARTY GUILTY OF NEGLIGENCE AND DELAY IN THE PERFORMANCE OF HIS
CONTRACTUAL OBLIGATION IS LIABLE FOR DAMAGES. — 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.
2. ID.; ID.; ID.; ID.; 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; CASE AT BAR. — Contrary to the
appellate court's factual determination, there was a specific time agreed upon for the delivery
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.
3. ID.; ID.; ID.; ID.; THE DELIBERATE SUPPRESSION OF MATERIAL INFORMATION
BY ITSELF MANIFESTS A CERTAIN DEGREE OF BAD FAITH. — 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, Dasmariñas,
Cavite. Significantly, 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 would 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.
4. ID.; ID.; ID.; ID.; CASE AT BAR; A CASE OF NON-PERFORMANCE OF A
RECIPROCAL OBLIGATION. — This case is clearly one of non-performance of a reciprocal
obligation. 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.
5. ID.; DAMAGES; AWARD OF MORAL DAMAGES; SUSTAINED. — We 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.
6. ID.; ID.; GROSS NEGLIGENCE IN THE FULFILLMENT OF ONE'S BUSINESS
OBLIGATIONS ENTITLES THE AGGRIEVED PARTY TO EXEMPLARY DAMAGES. — 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.
7. ID.; ID.; TEMPERATE DAMAGES; MAY NOT BE AWARDED IN CASES WHERE THE
AMOUNT OF PECUNIARY LOSSES, BY THEIR VERY NATURE, COULD BE ESTABLISHED
WITH CERTAINTY. — We delete 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.
8. ID.; ID.; ACTUAL OR COMPENSATORY DAMAGES; PARTY'S FAILURE TO PROVE
ACTUAL EXPENDITURE CONDUCES TO A FAILURE OF HIS CLAIM. — Petitioner's claim
falls unequivocally within the realm of actual or compensatory damages. However, his 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.
 DECISION

BELLOSILLO, J : p

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
Dasmariñas, 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 finished
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. cda

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 foreseeable according to the trial court, and as such should
have been reasonably guarded against. The nature of 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,
Dasmariñas, Cavite. 6 Significantly, 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.
||| (Barzaga v. Court of Appeals, G.R. No. 115129, [February 12, 1997], 335 PHIL 568-579)
 THIRD DIVISION

[G.R. No. 164186. October 4, 2010.]

FINANCIAL BUILDING CORPORATION, petitioner, vs. RUDLIN

INTERNATIONAL CORPORATION, BLOOMFIELD EDUCATIONAL
FOUNDATION, INC., RODOLFO J. LAGERA, MA. ERLINDA J. LAGERA
AND JOSAPHAT R. BRAVANTE, respondents.

[G.R. No. 164347. October 4, 2010.]

RUDLIN INTERNATIONAL CORPORATION, BLOOMFIELD EDUCATIONAL

FOUNDATION, INC., RODOLFO J. LAGERA, MA. ERLINDA J. LAGERA
AND JOSAPHAT R. BRAVANTE,petitioners, vs. FINANCIAL BUILDING
CORPORATION, respondent.

DECISION

VILLARAMA, JR., J : p

The present consolidated petitions for review under Rule 45 assail the
Decision 1 dated December 12, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 41224
which affirmed with modification the Decision 2 dated January 12, 1993 of the Regional Trial
Court (RTC) of Makati City, Branch 65 in Civil Case No. 16266.
The Facts
Sometime in October 1985, Rudlin International Corporation (Rudlin) invited
proposals from several contractors to undertake the construction of a three-storey school
building and other appurtenances thereto at Vista Grande, BF Resort Village, Las Piñas,
Metro Manila. The contract was eventually awarded to Financial Building Corporation (FBC),
with a bid of P6,933,268.00 as total project cost. On November 22, 1985, Rudlin represented
by its Chairman of the Board and President Rodolfo J. Lagera, and FBC represented by its
Vice-President and Treasurer Jaime B. Lo, executed a Construction Agreement 3 which,
among others, provided for the total consideration and liability for delay as follows:
SECTION FOUR
CONTRACT PRICE
The OWNER agrees to pay the CONTRACTOR, for the work stated in Section
Two hereof, the total price of SIX MILLION NINE HUNDRED THIRTY THREE
THOUSAND TWO HUNDRED SIXTY EIGHT PESOS (P6,933,268.00) in accordance
with Section five et seq. Payment of this amount is subject to additions or deductions in
accordance with the provisions of this Agreement and of the other documents to which
this Agreement is made subject to. 4 ACDIcS

xxx xxx xxx

 SECTION TWELVE
TIME OF ESSENCE; EXTENSION OF TIME
Time is of the essence in this Agreement and any delay not due to force
majeure will result in injury and damage to the OWNER in view of which it is hereby
stipulated that, in the completion of the work, the CONTRACTOR shall be liable to the
OWNER in the sum equivalent to 1/10 of 1% of the total contract price for every calendar
day of delay (Sundays and Legal Holidays included). Any sums accruing in favor of the
OWNER under this provision shall be deductible from the stipulated Contract Price or
any balance thereof due to the CONTRACTOR. 5
The contract also provided for completion date not later than April 30, 1986 unless an
extension of time has been "authorized and approved by the OWNER and the ARCHITECT
in writing." 6 It appears that the construction was not finished on said date as Rudlin wrote
FBC to complete the project not later than May 31, 1986, except for the administration wing
which Rudlin expected to be turned over to it "100% complete by June 10, 1986." 7
On June 5, 1986, Rudlin and FBC made amendments to their Construction
Agreement dated November 22, 1985 through a Letter-Agreement 8 signed by Rodolfo J.
Lagera and Jaime B. Lo, as follows:
1. Financial Building Corporation ("FBC") shall complete and deliver the Project
to Rudlin International, Inc. ("RII") on or before 10 June 1986.
2. Payment of the balance due on the contract price shall be made after the
parties have reconciled their accounts with regard to the upgrading and
downgrading of the work done on the Project, which reconciliation shall be settled
not later than 30 June 1986.
3. RII shall pay FBC the unpaid balance as determined under paragraph 2
hereof, under the following terms and conditions:
(a) RII shall pay FBC an additional payment of Two Hundred Fifty
Thousand Pesos (P250,000.00) upon signing hereof, receipt of which is hereby
acknowledged. This is in addition to the Two Hundred Fifty Thousand Pesos
(P250,000.00) paid on 29 May 1986.
(b) The rest of the unpaid balance shall be payable within a period of
ninety (90) days from the date the said balance is determined in accordance with
paragraph 2 hereof, adequately secured by post dated checks and the same to
earn interest at the prevailing bank rates. There shall be a moratorium of thirty
(30) days, the payments to be made in accordance with the following
schedule: AaSHED

On or before 15 July 1986 - 25%

On or before 31 July 1986 - 25%
On or before 15 August 1986 - 25%
On or before 31 August 1986 - 25%
—————
TOTAL PAYMENTS DUE - 100%

This Letter-Agreement amends the corresponding provisions of the Construction

Agreement dated 22 November 1985, except that Section 12 thereof is hereby
waived. 9 (Emphasis supplied.)
 On June 15, 1986, the subject school building, "Bloomfield Academy," was
inaugurated and utilized by Rudlin upon the start of the school year. From the exchange of
correspondence between FBC and Rudlin, it can be gleaned that no reconciliation of
accounts took place pursuant to the Letter-Agreement dated June 5, 1986. FBC demanded
payment of the balance of the adjusted contract price per its computation, but it was not
heeded by Rudlin.
On March 10, 1987, FBC filed in the RTC a suit for a sum of money with prayer for
preliminary attachment against Rudlin, Bloomfield Educational Foundation, Inc. (Bloomfield)
and their officers, directors or stockholders, namely: Rodolfo J. Lagera, Ma. Erlinda J.
Lagera and Josaphat R. Bravante. FBC alleged that the total and final contract price,
inclusive of additives and deductives which are covered by valid documents, is
P7,324,128.44; that Rudlin paid FBC only P4,874,920.14, thus leaving a balance of
P2,449,208.30; and that despite repeated demands by FBC, Rudlin refused to pay its
obligations. FBC further prayed for legal interest on the amount of P2,449,208.30 from the
time it became due and demandable, attorney's fees equivalent to 25% of the total amount
due, moral and exemplary damages and the cost of suit. 10
The trial court granted the prayer for preliminary attachment but before the sheriff
could implement the writ issued by the court, Rudlin filed the proper counter bond.
In their Answer with Counterclaim, 11 defendants denied the allegations of the
complaint. Rudlin averred that the Construction Agreement did not reflect the true contract
price agreed upon, which is P6,006,965.00. The amount of P6,933,268.00, which is FBC's
bid price, was indicated in the Construction Agreement solely for the purpose of obtaining a
higher amount of loan from the Bank of Philippine Islands (BPI). The execution of said
document was made with the understanding between FBC and Rudlin that the contract price
stated therein would be decreased to a mutually acceptable contract price. However, due to
inadvertence, the parties forgot to sign an agreement fixing the true contract price.
Rudlin also denied that the construction of the project was completed by FBC. The
original completion date, April 30, 1986, was later moved to June 10, 1986. But despite the
extension given by Rudlin, FBC still has not completed the project. Neither did FBC deliver
to Rudlin a complete release of all liens arising out of the Construction Agreement or receipts
in full in lieu thereof, as well as an affidavit that the releases and receipts include all the
labor, interests and equipment for which a claim or action can be filed, as required under
Section Eight of the Construction Agreement. In fact, for non-payment by FBC of one of its
sub-contractors, Rudlin was sued as a co-defendant with FBC in Civil Case No. 15734
pending before the RTC of Makati, Branch 138. ICHcaD

Rudlin likewise claimed that many portions of the work performed by FBC are
incomplete and/or faulty, defective and deficient (valued at P1,180,127.35), for which reason
Architect Eduardo R. Quezon has not certified on the full performance and completion of the
project. The work done by FBC was thus not accepted by Rudlin for valid reasons. Rudlin
had already paid FBC the total amount of P5,564,219.58. After considering the 10%
retention money and the value of additives and deductives, Rudlin had actually overpaid
FBC by P415,701.34. Clearly, Rudlin does not owe FBC the amount stated in its Complaint;
FBC likewise had sent a final demand letter dated March 2, 1987 to Rudlin which mentioned
only the amount of P115,000.00 as Rudlin's outstanding accountability.
 As to Bloomfield and the individual defendants, they contended that not being parties
to the Construction Agreement, FBC has no cause of action against them. Moreover, in their
dealings with FBC, they acted with justice, honesty and good faith.
Under its counterclaim, Rudlin invoked the provision in the Construction Agreement
granting the Owner the right to terminate the contract and take over the construction works
upon default of the Contractor who abandons or fails to complete the project, or fails to carry
out the work in accordance with the provisions of the Contract Documents, and to deduct
the costs from whatever payment is due or to become due to the Contractor. Rudlin asserted
that despite demands it made upon FBC, the latter still failed and refused to complete and
make good its obligations under the Construction Agreement and to correct faulty and
defective works.
In its Reply, 12 FBC asserted that the demand letter dated March 2, 1987 pertains to
another account of Rudlin. FBC asserted that its failure to deliver releases of some liens
was due to Rudlin's failure to pay the amount claimed in the complaint. At any rate, by the
very fact that Rudlin is actually making use of the school building constructed by FBC, it is
deemed to have accepted the work.
By agreement of the parties, the trial court appointed three Commissioners to resolve
factual issues pertaining to the construction of the subject building, specifically the following:
1) Adherence or non-adherence to the plan and specifications;
2) Additives, deductives, defects and faults in the construction; [and]
3) Completion or non-completion of the project. 13
The Commissioners conducted ocular inspection of the subject school building on
February 23, 1988, March 6, 1988, March 12, 1988, April 25, 1988, April 26, 1988 and May
12, 1988.14 On September 28, 1989, they submitted a detailed report on their findings and
conclusions, including the additives (modifications and additional works, the value of which
are to be reimbursed by the Owner) and deductives (deficiencies and cost of repairs done
by the Owner and other expenses which shall be deducted from the contract price due to
the Contractor).15 FBC submitted its comments on the said report denying any responsibility
for the alleged defects and deficiencies found by the commissioners and insisting that it had
fully performed all the works in accordance with the plans, specifications and modifications
as approved by Rudlin. DECSIT

During the trial, the following witnesses testified: Jaime Beltran Lo, Alexander E.
Reyes, Gregorio P. Pineda, Rodolfo J. Lagera, Teresita L. Ngan Tian, Carolina F. Bodoy,
and the court-appointed commissioners Engr. Alberto R. Payumo, Architect Agaton R.
Sabino and Edmundo B. Flores.
Ruling of the RTC
In its decision, 16 the trial court concluded that as shown by the Commissioners'
Report, the subject school building had several defects. It found untenable FBC's denial of
any responsibility for the defects caused by the inferior quality of waterproofing material
used by its subcontractor, INDESCO, citing Section Eleven of the Construction Agreement
whereby the Contractor assumes full responsibility for the acts, negligence or omissions of
all its employees, as well as for those of its subcontractor and the latter's employees.
Moreover, the modifications to the original plans and specifications, which gave rise to the
deductives and additives, were not shown to have been approved by Rudlin nor concurred
in by the project Architect, contrary to FBC's allegation.
The trial court thus decreed:
In view of the foregoing, the complaint against defendant Rudlin is dismissed.
Considering that defendant Bloomfield Educational Foundation was not a party to the
Construction Agreement, the complaint against the latter is dismissed. Plaintiff having
failed to prove that defendants Rodolfo Lagera, Ma. Erlinda Lagera and Josaphat
Bravante acted in their personal capacities, the complaint against them is likewise
dismissed.
There being bad faith on the part of defendant Rudlin in that it deliberately failed
to disclose the true contract price, defendants' counterclaim is dismissed.
No pronouncement as to costs.
SO ORDERED. 17
Both FBC and Rudlin filed notices of appeal.
Ruling of the CA
While the CA upheld the dismissal of the complaint as against the individual
defendants and Bloomfield, it found that FBC was able to substantiate its claim against
Rudlin for the unpaid balance of the contract price of P6,933,268.00 (not P6,006,965.00),
which after considering the additives and deductives, the direct payment made by Rudlin,
cost of chargeable materials and rebates, would still leave the amount of P1,508,464.84 due
to FBC based on the Summary of Contract Revisions and Unpaid Balances on which
Gregorio P. Pineda testified.18 EHTSCD

According to the CA, if not for the alleged construction defects and supposed additives
and deductives, Rudlin could have considered the building "complete", as in fact the school
building is already being used as such by Rudlin. In resolving the issues pertinent to said
construction defects, the CA declared that it cannot rely solely on the Commissioners' Report
considering that the commissioners who tried to explain their "conclusions" contained in the
said report testified that these were made "not exactly what they actually intended to report."
The CA then grouped the defects noted by the commissioners during the ocular inspection
as follows: (1) the defect in the waterproofing of the gutter and the water stains and
delamination of plywood and tiles reasonably presumed as caused by the water seepage;
(2) the hairline cracks on walls, beams and floors; (3) the cracks which extend to the outer
portion of the walls; (4) cracks on the floors; (5) the gap between the inner wall and the
beams at the conference room; (6) missing components such as tiles, door locksets and
cold water knob. Based on the testimonies of Commissioners Sabino and Payumo, the CA
observed that the causes of the foregoing defects were not fully established; that these may
be considered as either ordinary defects due to wear and tear or construction defects,
depending on the interpretation that a party would like to adopt; and the commissioners who
testified had admitted that they themselves were not certain of the "causes" and were merely
stating their respective opinions on the possible causes of the noted defects.
Analyzing the evidence on record, the CA concluded that FBC was not liable for the
defect in waterproofing and delay in the completion of the works for the following reasons:
(1) the changing of the brand of the waterproofing used in the gutter was fully discussed
during the regular meeting between the representatives of FBC and Architect Quezon; it
was in fact Josaphat Bravante who selected the subcontractor and the brand of the
waterproofing to be used; (2) there was no convincing proof that FBC failed to supervise the
performance of said subcontractor chosen by Rudlin; (3) Gregorio P. Pineda who was
present during the aforesaid meetings was competent to testify on the preparation of the
minutes of the meetings (Exhibits "EE" and "GG" to "WW"), pursuant to which the additives
and deductives were made, and that Rudlin's silence on this matter only supports such a
conclusion; (4) Rudlin's claim that it undertook repairs on the defects in the construction for
which the amount of P350,000.00 was supposedly spent, was not supported by any receipt
or concrete evidence other than the self-serving testimony of Rodolfo J. Lagera; (5) there
was no formal walk-through made and certification by the architect because Architect
Quezon ignored FBC's letter requesting the said final walk-through, the relationship between
the parties at that time having turned sour; and (6) Rudlin's reliance on Section Twelve of
the Construction Agreement is misplaced, the Letter-Agreement dated June 5, 1986 shows
that the parties agreed for a new date of completion of the school building and the schedule
of payment of the remaining construction price.
The CA thus ordered Rudlin to pay FBC the remaining balance of
P1,508,464.84. 19 ETIDaH

Rudlin filed a motion for reconsideration while FBC moved for partial reconsideration
of the CA decision. The CA denied both motions under its Resolution dated June 23, 2004. 20
The Cases
Petitioner FBC in G.R. No. 164186 seeks modification of the CA Decision insofar as
it failed to include legal interest on the amount which Rudlin was adjudged still liable to pay
FBC (P1,508,464.84) and attorney's fees and litigation expenses equivalent to 25% of the
total award. FBC likewise prays that the individual defendants and Bloomfield be declared
solidarily liable with Rudlin. 21
In G.R. No. 164347, petitioner Rudlin contends that the CA resolved the issues of the
case in a way that is not in accord with the law and applicable jurisprudence and contradicted
by the evidence on record. In particular, Rudlin assails the CA in perfunctorily denying its
Motion for Reconsideration dated January 7, 2004; in not finding that petitioners fully
substantiated their assertion that the Construction Agreement is not reflective of the true
intent of the parties; in not finding that Bloomfield Academy Building was not actually
completed as scheduled in violation of the Construction Agreement and causing Rudlin to
spend P350,000.00 for the same; in not declaring — as correctly found by the trial court —
that FBC is liable for the defects in the waterproofing since the change in waterproofing
specifications was not approved by Rudlin nor concurred in by the Project Engineer, and
that some modifications to the original plans and specifications which gave rise to the
additives and deductive were not approved by Rudlin nor concurred in by the Project
Engineer; and in not holding that Rudlin's claim for damages by reason of delay is with legal
and factual basis. 22
From the foregoing, the issues to be resolved are: (1) whether FBC is liable for the
defects in the construction of the subject school building and delay in the completion of the
works; (2) after considering the payments, deductives and additives and other charges
admitted, whether Rudlin is still liable for the balance of the contract price and the amount
thereof; and (3) whether Rudlin is entitled to its counterclaim.
Our Ruling
 The resolution of these cases calls for a reexamination of facts. While generally, the
Court is not a trier of facts, a recognized exception thereto is a situation where the findings
of fact of the CA and the trial court are conflicting. 23
Contrary to the findings of the appellate court, we hold that the facts on record clearly
established FBC's liability for the defects and deficiencies so numerous that it took several
days for the court-appointed commissioners to complete the ocular inspection. The CA tried
to minimize the impact of such findings by declaring that the Commissioners' Report cannot
be the sole basis for determining whether FBC faithfully complied with all its undertakings
and obligations under the Construction Agreement. However, the glaring fact remains that
there were construction defects which have been described in detail under each inspection
date. While it is true that the commissioners who testified gave different opinions as to
whether the noted defects and deficiencies were due to substandard materials and poor
workmanship or the same was just the result of ordinary wear and tear and even lack of
maintenance, the court can properly evaluate the common findings and conclusions
reflected in the Commissioners' Report based on the totality of evidence. TcCDIS

Perusing the records, we are unable to agree with the appellate court's view that the
testimonies given in court by the commissioners had left uncertain the determination of the
nature of the defects and deficiencies, i.e., whether these are construction defects or merely
due to improper maintenance.
First, it stands undisputed that the damage wrought by water seepage causing water
stains, leaking roofs, peeling off of paint, cracks on walls and delamination of plywood,
among others, was so pervasive on many portions of the building that even after the same
was inaugurated in time for the school opening on June 15, 1986, most of the classrooms
and administrative offices, as well as other common areas such as the lobby and comfort
rooms, could not be properly utilized as their defective condition posed danger to the
teachers and students. It must be noted that at the time of ocular inspection in 1988, it was
barely two years from the time the building was actually used and yet the overall structure
of the building was severely impaired by the defective waterproofing and other deficiencies.
Prior to the court-authorized inspection, those visible defects had been photographed under
the supervision of Rodolfo J. Lagera, which further confirmed the findings of the
commissioners. 24 The CA thus erred in giving weight to FBC's claim that the seepage of
water into the beams, walls and floor can be attributed to lack of proper maintenance, citing
the declarations of FBC's Alexander E. Reyes and Commissioner Payumo who allegedly
found "piles of dirt collected on the gutter and when the dirt was removed, the water flowed
down to the spout." Given the extent of the defects and deficiencies found in the school
building, this simplistic explanation from FBC is unacceptable.
Although Commissioner Sabino testified that it was possible that the water seepage
was caused by the clogging of the downspout due to lack of maintenance in clearing the
gutter of dirt, Commissioner Payumo, an engineer, testified that whether the building is
properly maintained on that aspect does not really matter because good waterproofing
should always hold and prevent seepage whenever there is accumulation of rainwater in the
gutter of the roof. Engr. Payumo stated that waterproofing should hold for a period of at least
five years:
ATTY. FERNANDEZ (continuing)
 Q In other words, Mr. Witness, from what you saw, the water proofing there was for poor
maintenance, the owner did not remove the dirt.
A No sir, because if the water proofing is good, it should not fade [sic, should read as
fail].
xxx xxx xxx
ATTY. AUTEA: (TO WITNESS)
Q Based on the standard of practice on the construction industry, how long
should a water proofing pool [sic, should read as hold ]? AScTaD

xxx xxx xxx

WITNESS
A The practice is about five (5) years.
COURT:
Before the water proofing fail?
A Yes, your Honor. 25 (Emphasis supplied.)
We thus cannot agree with the CA's stance that in view of the disagreement
expressed by the commissioners in their testimonies, it would be unjust to hold FBC
responsible for the substandard waterproofing. The following conclusions set forth in the
Commissioners' Report are categorical in declaring the omissions, deviations and
negligence of the Contractor (FBC) in the execution of the construction project, to wit:
1. The subject construction project, i.e., Bloomfield Academy located at Wilfredo
Tecson Avenue, Vista Grande, BF Resort Village, Las Piñas, Metro Manila, has
been completed with a lot of deficiencies and defects in the work.
2. There were additives and deductives done without proper and formal approval from
any of the parties.
3. There was no formal approved cost adjustments nor contract time for the
additive and deductive works.
4. There were portions of the subject construction project that [were] not in accordance
[with] the agreed plans and specifications.
5. There were no formal request nor approval for some deviations from the plans
and specifications from the owners nor from the Architect.
6. There were several portions of the subject construction project that we found
defective and below standards which were found during the ocular inspection
done by the Commissioners and [were] reflected in the stenographic report.
7. Some deficiencies and defects in the works and the punchlist of Architect
[were] not acted upon nor any repairs made to date as required under the
contract prior to acceptance.
8. Some items in the Architect's punchlist although repaired and acted on [were]
never formally turned over nor accepted.
9. There was no contract time adjustment on the lapsed contract time for the original
contract and for the additional works done. ITaCEc
 10. There was no formal turn-over made by the contractor nor acceptance on the
part of the owner of the project.
11. There are provisions in the contract that were violated or have not been followed by
the contractor in his performance of the project like the non-submittal of the
various bonds (Section 16, M and N) and other contract documents needed in
the execution of the contract as some of the findings of the commissioner in the
investigation. 26 (Emphasis supplied.)
The CA, however, declared that notwithstanding the damage caused by water
seepage, Rudlin cannot claim that the building was not completed and that the only reason
which could have justified Rudlin's refusal to pay the balance is the liability of FBC for
changing the specified waterproofing brand from John Mans Ville to Neo-pren Elastomeric.
The CA thus ruled:
. . . it appears beyond cavil that the changing of the brand of the waterproofing
used in the gutter was fully discussed during the regular meeting between the
representatives of plaintiff-appellant FBC and Architect Quezon. In fact, it was the
defendant-appellant Rudlin through defendant-appellant Josaphat Bravante who
selected the sub-contractor and the brand of waterproofing to be used in the gutter. As
the general contractor, plaintiff-appellant FBC was only duty bound to supervise the
performance of the sub-contractor and see to it that the proper procedure was properly
followed. In the absence of any convincing proof that plaintiff-appellant FBC failed to
supervise the performance of the sub-contractor, it is highly unjust on the part of plaintiff-
appellant FBC to be held liable and even be required to re-do the whole work using the
original specified brand at its own expense. A contrary ruling would lead to a scenario
where the owner of the subject building would start imposing the use of cheaper
materials to save money because after all when the substituted materials fail, the
contractor can nevertheless be held liable. 27 (Italics supplied.)
We do not agree. The purported minutes of meetings, wherein the modifications to
the original plans and specifications, particularly the change of waterproofing were allegedly
discussed and approved by Rudlin's representative in the person of Josaphat Bravante
(Exhibits "EE" and "GG" to "WW"), 28 were not given credence by the trial court as these
actually showed that not all such modifications have been approved. Moreover, the trial court
held that FBC failed to prove their due execution and authenticity. But the CA reversed the
trial court and held that witness Gregorio P. Pineda who was present in the said meetings
was competent to testify on the contents and due execution of the aforesaid Exhibits "EE"
and "GG" to "WW".
Even assuming arguendo that the change in waterproofing brand was indeed taken
up during a meeting in the presence of Rudlin's representative, we cannot agree with the
CA's position that the alleged verbal assent by Josaphat Bravante in the purported minutes
of meetings 29 was sufficient evidence of the Owner's approval of the modifications in the
original plans and specifications. Likewise, the letter dated July 7, 1986 30 of FBC's project
engineer Alexander E. Reyes informing Architect Quezon that the change in waterproofing
brand was approved by Bravante is at best, self-serving, and the same does not bind
Rudlin.ITSacC

Under Section Nine of the Construction Agreement, Architect Quezon, as

representative of the Owner, is the one vested with the general supervision and direction of
the work and who is authorized to "reject work which does not conform to the Contract
Documents" and to formally stop such work or a portion thereof when necessary. 31 More
explicitly, Section Ten of the same agreement provides that the Owner shall
give all instructions to the Contractor through the Architect.
FBC therefore cannot escape liability for the poor quality of waterproofing on the
ground that Rudlin's representative was present during the meeting when the change in
brand to be used was allegedly discussed with his concurrence. The requirements for a valid
change or modification in the original plans and specifications were clearly set out in Section
Fifteen of the Construction Agreement, which provides:
SECTION FIFTEEN
WORK CHANGES
The OWNER reserves the right to order work changes in the nature of additions,
deletions, or modifications, without invalidating this Agreement. All changes shall be
authorized by a written change order signed by the OWNER and by the
ARCHITECT.
Work shall be changed, and the completion time shall be modified only as set
out in the written change order. Any adjustment in the Contract Price resulting in a
credit or a charge to the OWNER shall be determined by written agreement of the
parties, before starting the work involved in the change. 32
As it is, the modification effected by FBC on waterproofing work was never approved
in writing by Architect Quezon and Rudlin. Contrary to the appellate court's declaration that
Rudlin by its silence impliedly approved the change in waterproofing brand, the letter dated
September 1, 1986 of Architect Quezon to Jimmy Lo deplored the unauthorized change in
the specified brand exacerbated by defective application, and required FBC to re-do such
work. Said letter reads:
DEAR JIMMY,
SOMETIME IN JUNE 1986, OUR GROUP DISCUSSED IN ADVANCE WITH MS.
LINDA LAGERA, THE POSSIBILITY OF LEAKS IN THE PROJECT, DUE TO CHANGE
IN OUR SPECIFICATIONS. WE ALSO ASKED ENGR. ALEX REYES TO WRITE US
OFFICIALLY REGARDING CHANGE ON WATERPROOFING SPECIFICATIONS
AND SUBSTITUTION OF ANOTHER BRAND WITHOUT OUR APPROVAL. THE
SPECIFIED BRAND IS BIRD & SONS OR JOHNS MANVILLE AGAINST NEOPRENE
AS SUBSTITUTE, A PRODUCT WHICH WE ARE NOT USE TO.
YOUR ENGINEER CLAIMS THAT THEY WERE ASKED TO MADE CHANGES BY MR.
PAT BRAVANTE AS PART OF THE DOWNGRADING OF THE PROJECT, BUT
SOMEHOW ERRORS WERE MADE IN THE EXECUTION OF THE WORK. THE
SITUATION IS NOW HOPELESSLY SNARLED. DUE TO MANY LEAKS IN THE
PROJECT, ESPECIALLY AT THE ADMINISTRATION AREA AND LEAVING US
WITHOUT ASSURANCE ON YOUR PART ON THE CORRECTIVE MEASURE OF
THIS PROBLEM.
THIS REQUIRE URGENT ACTION ON YOUR SIDE TO RE-DO ALL
WATERPROOFING WORKS, USING OUR SPECIFICATIONS WITHOUT ANY
EXPENSE TO THE OWNER AS PART OF THE GENERAL CONDITIONS OF THE
CONTRACT DOCUMENT. ANYTHING YOU CAN DO TO
EXPIDITE (sic) CORRECTION OF THE ERROR ON THE PROJECT WILL BE
GREATLY APPRECIATED. 33(Emphasis supplied.) AIDTSE
 At this point, it bears to stress that the June 5, 1986 Letter-Agreement signed by both
FBC and Rudlin, which extended the completion time to June 10, 1986 expressly
amended onlythe corresponding provisions of the Construction Agreement pertaining to
completion date and schedule of payment of the balance due to FBC, which was conditioned
on the reconciliation of the upgrading and downgrading of the work done by the contractor.
Said Letter-Agreement did not relieve FBC as contractor of responsibility for defects under
its warranties under the Construction Agreement, which include those works performed by
its subcontractor. The pertinent provisions of the Construction Agreement showed that FBC
was obligated to correct and/or re-execute defective work before and after final payment,
pursuant to its general warranties as contractor, thus:
SECTION FOURTEEN
CORRECTING WORK
1. BEFORE FINAL PAYMENT
The CONTRACTOR shall promptly remove from the premises all works and
materials condemned by the ARCHITECT as failing to conform with the Contract
Documents, whether incorporated in the work or not, and the CONTRACTOR shall
promptly replace and reexecute the work in accordance with the Contract
Documents and without expense to the OWNER.
If the CONTRACTOR does not remove such condemned work and materials
within a reasonable time fixed by the written notice, the OWNER may remove them and
may store the materials at the expense of the CONTRACTOR. If the CONTRACTOR
does not pay the expenses for such removal within ten (10) days, the OWNER may,
after written notice to the CONTRACTOR, sell such materials at auction or at a private
sale and shall account for the net proceeds thereof, after deducting all the costs and
expenses that should have been borne by the CONTRACTOR. This does not preclude
other actions or remedies which the OWNER may have against the CONTRACTOR.
2. AFTER FINAL PAYMENT
Neither the final certificate for payment nor any provision in the Contract
Documents shall relieve the CONTRACTOR of responsibility for faulty materials or
workmanship. It shall remedy any defects due thereto and pay for any damage to
other work resulting therefrom, which shall appear within the specified guaranty
period. All questions arising under this provision shall be subject to arbitration in case
of failure of the parties to arrive at an agreement. HDcaAI

xxx xxx xxx

SECTION SIXTEEN
GUARANTY-WARRANTY
The CONTRACTOR shall, in case of work performed by its subcontractors,
secure warranties from said subcontractors and deliver copies of the same to the
ARCHITECT or OWNER upon completion of the work.
The CONTRACTOR shall and does hereby warrant and guarantee the following:
(a) All works, for a period of one (1) year from the date of completion as
evidenced by the date of final acceptance in writing of the entire work by the
OWNER.
 (b) All work performed by it directly or performed by its sub-contractors,
shall be free from any defects of materials and workmanship.
(c) The CONTRACTOR further agrees that it will, at its own expense, repair
and/or replace all such defective materials or work, and all other work damaged
thereby which becomes defective during the term of this Guaranty-Warranty.
(Emphasis supplied.)
The above-stipulated period of warranty has not even commenced considering that
even if Bloomfield proceeded with the inauguration in time for the opening of classes, there
was no formal turn over of the building to Rudlin and no final acceptance in writing was made
by Rudlin. FBC faulted Architect Quezon whose alleged absence and refusal to meet with
their officers and to conduct the final walk-through, prevented it from having the building
formally turned over to the Owner. Such contention is unfounded because the evidence on
record reveals that it was FBC which defaulted on its obligations under the Construction
Agreement. FBC is bound by its undertaking under Section Fourteen (14) to replace and re-
execute defective waterproofing and correct the damage such had caused to the structure
and finishing of the building.
In a letter dated September 17, 1986 addressed to FBC's lawyer, Rudlin's lawyer
responded to FBC's demands for payment, as follows:
We write in behalf of our client, RUDLIN INTERNATIONAL, INC., in reply to your
letter dated 20 August 1986 and the letter of your client, Financial Building Corporation
(FBC) dated 12 August 1986, regarding your client's alleged remaining balance with our
client under the above-captioned Agreement. TaISDA

We would like to remind your client that our client has not yet accepted the
Project nor has Architect Eduardo R. Quezon certified that FBC has fully
performed and completed the Project. Neither has your client delivered to our client
a complete release of all liens arising out of the Agreement or receipts in full in lieu
thereof, and an affidavit that the releases and receipts include all the labor, interests
and equipment for which a claim or action can be filed, as required under Section Eight
of said Agreement. We would also like to call your attention to the letter of Architect
Quezon to our client dated 10 September 1986, a copy of which is attached as Annex
"A", enumerating therein what your client has to submit/furnish, and pay our client before
any final payment is made by our client to your client.
Further, we would like to inform you that the uncompleted and/on faulty work,
defects and deficiencies in the Project which were enumerated in the Punch List
dated 27 June 1986 and received by FBC on 30 June 1986, have not been
completed and/or corrected by FBC. Our client requested said Architect Quezon to
update the same. We are forwarding to you a copy of the updated Punch List dated 10
September 1986 which is attached hereto as Annex "B". Moreover, your client should
visit the Project to see, among other things, how the administrative offices, library,
chapel and classrooms get flooded when it rains. This situation poses a hazard to the
health and life of the students, teachers and staff of Bloomfield Academy.
Moreover, based on the Updated Tabulation Report of Architect Eduardo R.
Quezon in relation to his Additive and Deductive Evaluation Report, a copy of which is
attached as Annex "C", it appears that whatever minimum balance which FBC may
have against our client will not even be sufficient to complete the Project, to
undertake correction of its faulty and defective work, and to cover the 10% cash
 retention. It appears further that our client has overpaid your client by Four Hundred
Fifteen Thousand Seven Hundred One and 34/100 Pesos (P415,701.34).
We are, therefore, giving your client fifteen (15) days from your receipt of this
letter to complete and make good its undertakings/obligations under the Agreement.
Failure on the part of your client to do so will leave our client no other alternative but to
invoke the provisions of said Agreement declaring your client in default, and cause the
Project to be completed and the deficiencies corrected, deducting the costs from
whatever payment which may be due to your client, and collecting from your client the
difference.
Further, please advise your client that there will be legal constraints for our Atty.
Avelino J. Cruz, Jr. to mediate between your client and our client under the
circumstances. Please be assured, however, that like you, we are advising our client to
opt for a reasonable resolution of the problem. 34 DSacAE

In its letter-reply dated September 24, 1986 of FBC's counsel, FBC insisted that
Rudlin still owed it the sum of P2.4 million, more or less; that it cannot turn over the project
because Architect Quezon refused to meet with FBC's engineers to discuss the additives
and deductives work summary; that Architect Quezon's letter cannot be made the basis of
FBC's obligations under the Construction Agreement; and that the punch list dated June 27,
1986 is only a dilatory document as certain items being purely additional works should be
excluded. FBC protested the leaks and flooding mentioned by Rudlin's counsel, which FBC
said are minor items which can be easily corrected as in fact it was corrected by the
waterproofing subcontractor INDESCO which was referred by Rudlin. To solve the problem,
FBC proposed that the corrective works be done by Rudlin provided the price thereof be
approved by FBC and Rudlin will not spend more than P50,000.00 therefor. As to the 10%
retention fund, FBC advised that per understanding with Rudlin, this was waived in view of
the commitment of FBC to finish the project to the best of its funding ability. 35
FBC then suggested that Rudlin release the sum of P500,000.00 so that FBC can pay
its suppliers and to enable it to submit the required affidavit of complete payment of labor
and material men; that Rudlin's retained architect complete the reconciliation of the additive
and deductive works with FBC; and thereafter, to arrange payment backed up by sufficient
collaterals. 36
In its subsequent letter dated October 3, 1986, FBC again pressed for payment and
further distanced itself from INDESCO, claiming that negotiations for the waterproofing
works with INDESCO was handled by Rudlin's Mr. Bravante. FBC informed Rudlin that it
was advised by INDESCO that the waterproofing complaints have been attended to. 37 But
since the roof leaks and flooding of the corridor and classrooms persisted despite the repairs
supposedly done by the subcontractor, Rudlin formally notified its lawyer that it was invoking
the contractor's warranty under the Construction Agreement and sought assistance to have
the said defects and deficiencies corrected by the Contractor. 38 Consequently, Rudlin
through a letter dated October 14, 1986 signed by its Vice-President and Chief Operating
Officer, Teresita L. Ngan Tian, advised FBC that the latter's request for payment "has been
held in abeyance until the waterproofing job is completed to the satisfaction of the
Owners." 39
We find that in withholding payment of the balance of the contract price, Rudlin
properly exercised its rights under the Construction Agreement. The CA thus erred in
ordering Rudlin to pay FBC the balance of the contract price which was computed as
follows:SaHTCE

1. Contract Price P6,933,268.00

2. Additives P1,074,385.53
––––––––––––––
Total Additive Cost P8,007,653.53
––––––––––––––
3. Deductives P886,706.45
4. Direct Payment P4,874,920.14
5. Chargeable Materials P727,688.90
6. Rebates P9,793.22
––––––––––––––
Total Payments P6,499,188.71
––––––––––––––
TOTAL UNPAID BALANCE P1,508,464.84 40
============

The above computation was based solely on the Summary of Contract Revisions and
Unpaid Balances submitted by FBC's witness Gregorio P. Pineda. Rudlin submitted its own
computation based on what it claims as the true contract price of P6,006,965.00 and
asserting that the following should be deducted: P4,878,920.14 as payments to FBC which
the latter admitted; P727,688.90 direct payments to suppliers also admitted by FBC;
deductives of P1,180,127.35 representing the cost of modifications in the original plans and
specifications which were not approved by Rudlin and its architect; and P350,000.00 for the
repairs undertaken by Rudlin.
Considering that FBC had not completed the corrective/repair works in accordance
with the Contract Documents and as approved or certified in writing by the Architect as to
its completion, its demand for the payment of the final balance was premature. Under the
Letter-Agreement dated June 5, 1986, final payment was subject to reconciliation of their
accounts regarding the upgrading and downgrading done on the project. Obviously, this
cannot be complied with unless FBC as the defaulting party completes the repair/corrective
works for only then can the actual cost of additives and deductives be determined. 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. 41 When the
substandard waterproofing caused extensive damage to the school building, it was
incumbent upon FBC to institute at its own expense the proper repairs in accordance with
the guaranty-warranty stated in the Construction Agreement. Thus, Rudlin cannot be said
to have incurred delay in the reconciliation of accounts, as a precondition for final payment;
instead, it is FBC who was guilty of delay by its stubborn refusal to replace or re-execute the
defective waterproofing of the subject school building.
On the issue of the correct total contract price, we hold that Rudlin failed to
substantiate its claim that the contract price stated in the Construction Agreement
(P6,933,268.00) was not the true contract price because it had an understanding with FBC's
Jaime B. Lo that they would decrease said amount to a mutually acceptable amount. TEAaDC

Under the general rule in Section 9 of Rule 130 of the Rules of Court, when the terms
of an agreement were reduced in writing, as in this case, it is deemed to contain all the terms
agreed upon and no evidence of such terms can be admitted other than the contents thereof.
Rudlin argues that under Section 9, Rule 130, a party may present evidence to modify,
explain or add to the terms of the written agreement if it is put in issue in the pleading, "[t]he
failure of the written agreement to express the true intent and the agreement of the parties
thereto." Assuming as true Rudlin's claim that Exhibit "7" failed to accurately reflect an intent
of the parties to fix the total contract price at P6,006,965.00, Rudlin failed to avail of its right
to seek the reformation of the instrument to the end that such true intention may be
expressed.
Evidence of a prior or contemporaneous verbal agreement is generally not admissible
to vary, contradict or defeat the operation of a valid contract. 42 Section 9 of Rule 130 of
theRules of Court states:
SEC. 9. Evidence of written agreements. — When the terms of an agreement
have been reduced to writing, it is considered as containing all the terms agreed upon
and there can be, between the parties and their successors-in-interest, no evidence of
such terms other than the contents of the written agreement.
However, a party may present evidence to modify, explain or add to the terms of
the written agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement
of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors-in-
interest after the execution of the written agreement.
The term "agreement" includes wills.
Rudlin cannot invoke the exception under (a) or (b) of the above provision. Such
exception obtains only where "the written contract is so ambiguous or obscure in terms that
the contractual intention of the parties cannot be understood from a mere reading of the
instrument. In such a case, extrinsic evidence of the subject matter of the contract, of the
relations of the parties to each other, and of the facts and circumstances surrounding them
when they entered into the contract may be received to enable the court to make a proper
interpretation of the instrument." 43 HIaSDc

Under the fourth exception, however, Rudlin's evidence is admissible to show the
existence of such other terms agreed to by the parties after the execution of the contract.
But apart from the Bar Chart and Cash Flow Chart prepared by FBC, and the testimony of
Rodolfo J. Lagera, no competent evidence was adduced by Rudlin to prove that the amount
of P6,006,965.00 stated therein as contract price was the actual decreased amount that
FBC and Rudlin found mutually acceptable. As to the affidavits executed by Architect
Quezon and his associate Roberto R. Antonio, 44 the same do not serve as competent proof
of the purported actual contract price as they did not testify thereon. Significantly, the June
5, 1986 Letter-Agreement did not at all mention the total contract price. Likewise, there is
nothing in the various letters sent by Rudlin to FBC while construction was in progress and
even subsequent to the execution of the said Letter-Agreement indicating that Rudlin
corrected the contract price of P6,933,268.00 which FBC had repeatedly mentioned in its
letters and documents. 45
 As to Rudlin's counterclaim for reimbursement of its expenses in repairing the
defective waterproofing, not a single receipt was presented by Rudlin to prove that such
expense was actually incurred by it. Under the Civil Code, one is entitled to an adequate
compensation only for such pecuniary loss suffered by him as he has duly proved. The
award of actual damages must be based on the evidence presented, not on the personal
knowledge of the court; and certainly not on flimsy, remote, speculative and nonsubstantial
proof. 46
The testimony of Rodolfo J. Lagera on the total cost allegedly spent by Rudlin in
repairing the waterproofing works does not suffice. A court cannot rely on speculations,
conjectures or guesswork as to the fact of damage but must depend upon competent proof
that they have indeed been suffered by the injured party and on the basis of the best
evidence obtainable as to the actual amount thereof. It must point out specific facts that
could provide the gauge for measuring whatever compensatory or actual damages were
borne. 47
The counterclaim for attorney's fees must likewise be denied. We have stressed that
the award of attorney's fees is the exception rather than the rule, as they are not always
awarded every time a party prevails in a suit because of the policy that no premium should
be placed on the right to litigate. Attorney's fees as part of damages is awarded only in the
instances specified in Article 2208 of the Civil Code. 48
ART. 2208. In the absence of stipulation, attorney's fees and expenses of
litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiff's plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled
workers;
(8) In actions for indemnity under workmen's compensation and employer's
liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's
fees and expenses of litigation should be recovered. HCETDS

In all cases, the attorney's fees and expenses of litigation must be reasonable.
None of the foregoing situations obtains in the case at bar.
WHEREFORE, the petition in G.R. No. 164186 is DENIED while the petition in G.R. No.
164347 is PARTLY GRANTED. The Decision dated December 12, 2003 of the Court of
Appeals in CA-G.R. CV No. 41224 is REVERSED and SET ASIDE, and the Decision dated
January 12, 1993 of the Regional Trial Court of Makati City, Branch 65 in Civil Case No. 16266
is REINSTATED.
No costs.
SO ORDERED.
(Financial Building Corp. v. Rudlin International Corp., G.R. Nos. 164186 & 164347,
|||

[October 4, 2010], 646 PHIL 327-357)

 FIRST DIVISION

[G.R. No. 117190. January 2, 1997.]

JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner, vs. COURT
OF APPEALS and VICENTE HERCE JR., respondents.

Ricardo C. Valmonte for petitioner.

Restituto M. Mendoza for private respondent.

SYLLABUS

1. CIVIL LAW; CONTRACT; INTERPRETATION; INTENTION OF THE PARTIES

SHALL BE ACCORDED PRIMORDIAL CONSIDERATION. — It is a cardinal rule in the
interpretation of contracts that the intention of the parties shall be accorded primordial
consideration and, in case of doubt, their contemporaneous and subsequent acts shall be
principally considered. prLL

2. OBLIGATION; NATURE AND EFFECTS; EXEMPTION FROM LIABILITY BY

REASON OF FORTUITOUS EVENTS; REQUISITES. — This Court has consistently held that
in order for a party to claim exemption from liability by reason of fortuitous event under Art.
1174 of the Civil Code the event should be the sole and proximate cause of the loss or
destruction of the object of the contract. In Nakpil vs. Court of Appeals, Nos. L-47851 and L-
47896, 3 October 1986, 144 SCRA 596, four (4) requisites must concur: (a) the cause of the
breach of the obligation must be independent of the will of the debtor; (b) the event must be
either unforseeable or unavoidable; (c) the event must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner; and, (d) the debtor must be free from any
participation in or aggravation of the injury to the creditor.
3. ID.; ID.; ID.; APPLICATION OF ART. 1167 OF THE CIVIL CODE; WHEN A PERSON
OBLIGED TO DO SOMETHING FAILS TO DO IT, THE SAME SHALL BE EXECUTED AT HIS
COST. — 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. (Art. 1169, last
par., New Civil Code) When the windmill failed to function properly it became incumbent upon
petitioner to institute the proper repairs in accordance with the guaranty stated in the contract.
Thus, respondent cannot be said to have incurred in delay; instead, it is petitioner who should
bear the expenses for the reconstruction of the windmill. Article 1167 of the Civil Code is explicit
on this point that if a person obliged to do something fails to do it, the same shall be executed
at his cost.llcd

DECISION

BELLOSILLO, J : p
 This case involves the proper interpretation of the contract entered into between the
parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name
and style J.M.T. Engineering and General Merchandising proposed to respondent Vicente
Herce Jr. to construct a windmill system for him. After some negotiations they agreed on the
construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from
the date of completion and acceptance by respondent Herce Jr. of the project. Pursuant to the
agreement respondent paid petitioner a down payment of P30,000.00 and an installment
payment of P15,000.00, leaving a balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance,
petitioner filed a complaint to collect the amount. In his Answer before the trial court respondent
denied the claim saying that he had already paid this amount to the San Pedro General
Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was
to be connected. According to respondent, since the deep well formed part of the system the
payment he tendered to SPGMI should be credited to his account by petitioner. Moreover,
assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects
in the windmill system which caused the structure to collapse after a strong wind hit their place. 1
Petitioner denied that the construction of a deep well was included in the agreement to
build the windmill system, for the contract price of P60,000.00 was solely for the windmill
assembly and its installation, exclusive of other incidental materials needed for the project. He
also disowned any obligation to repair or reconstruct the system and insisted that he delivered
it in good and working condition to respondent who accepted the same without protest. Besides,
its collapse was attributable to a typhoon, a force majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the deep well was not
part of the windmill project as evidenced clearly by the letter proposals submitted by petitioner
to respondent. 2 It noted that "[i]f the intention of the parties is to include the construction of the
deep well in the project, the same should be stated in the proposals. In the absence of such an
agreement, it could be safely concluded that the construction of the deep well is not a part of
the project undertaken by the plaintiff." 3 With respect to the repair of the windmill, the trial court
found that "there is no clear and convincing proof that the windmill system fell down due to the
defect of the construction. " 4
The Court of Appeals reversed the trial court. It ruled that the construction of the deep
well was included in the agreement of the parties because the term "deep well" was mentioned
in both proposals. It also gave credence to the testimony of respondent's witness Guillermo Pili,
the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the
cost of constructing the deep well would be deducted from the contract price of P60,000.00.
Upon these premises the appellate court concluded that respondent's payment of P15,000.00
to SPGMI should be applied to his remaining balance with petitioner thus effectively
extinguishing his contractual obligation. However, it rejected petitioner's claim of force
majeure and ordered the latter to reconstruct the windmill in accordance with the stipulated
one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner
now seeks relief from this Court. He raises two issues: firstly, whether the agreement to
construct the windmill system included the installation of a deep well and, secondly, whether
petitioner is under obligation to reconstruct the windmill after it collapsed.
 We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the installation
of a deep well was not included in the proposals of petitioner to construct a windmill system for
respondent. There were in fact two (2) proposals: one dated 19 May 1987 which pegged the
contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was
submitted three days later, i.e., on 22 May 1987 which contained more specifications but
proposed a lower contract price of P60,000.00 (Exh. "A"). The latter proposal was accepted by
respondent and the construction immediately followed. The pertinent portions of the first letter-
proposal (Exh. "1") are reproduced hereunder —
In connection with your Windmill System and Installation, we would like to quote
to you as follows:
One (1) Set — Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity,
14 feet in diameter, with 20 pieces blade, Tower 40 feet high, including mechanism
which is not advisable to operate during extra-intensity wind. Excluding cylinder pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system, Supply of Labor Materials and
Installation, operated water pump, we would like to quote to you as follows —
One (1) set — Windmill assembly for 2 inches or 3 inches deep-well pump, 6
Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with standard
appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal.
One (1) lot — Angle bar, G. I. pipe, Reducer Coupling, Elbow Gate valve, cross
Tee coupling.
One (1) lot— Float valve.
One (1) lot — Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even
remotely. Neither is there an itemization or description of the materials to be used in
constructing the deep well. There is absolutely no mention in the two (2) documents that a deep
well pump is a component of the proposed windmill system. The contract prices fixed in both
proposals cover only the features specifically described therein and no other. While the words
"deep well" and "deep well pump" are mentioned in both, these do not indicate that a deep well
is part of the windmill system. They merely describe the type of deep well pump for which the
proposed windmill would be suitable. As correctly pointed out by petitioner, the words "deep
well" preceded by the prepositions "for" and "suitable for" were meant only to convey the idea
that the proposed windmill would be appropriate for a deep well pump with a diameter of 2 to 3
inches. For if the real intent of petitioner was to include a deep well in the agreement to construct
a windmill, he would have used instead the conjunctions "and" or "with." Since the terms of the
instruments are clear and leave no doubt as to their meaning they should not be disturbed. aisadc

Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the
parties shall be accorded primordial consideration 5 and, in case of doubt, their
contemporaneous and subsequent acts shall be principally considered. 6 An examination of
such contemporaneous and subsequent acts of respondent as well as the attendant
circumstances does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract price of P60,000.00
covered the installation of a deep well pump. He contends that since petitioner did not have the
capacity to install the pump the latter agreed to have a third party do the work the cost of which
was to be deducted from the contract price. To prove his point, he presented Guillermo Pili of
SPGMI who declared that petitioner Tanguilig approached him with a letter from respondent
Herce Jr. asking him to build a deep well pump as "part of the price/contract which Engineer
(Herce) had with Mr. Tanguilig." 7
We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr.
wrote him a letter is unsubstantiated. The alleged letter was never presented in court by private
respondent for reasons known only to him. But granting that this written communication existed,
it could not have simply contained a request for Pili to install a deep well; it would have also
mentioned the party who would pay for the undertaking. It strains credulity that respondent
would keep silent on this matter and leave it all to petitioner Tanguilig to verbally convey to Pili
that the deep well was part of the windmill construction and that its payment would come from
the contract price of P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the payment
for which would come supposedly from the windmill contract price on the mere representation
of petitioner, whom he had never met before, without a written commitment at least from the
former. For if indeed the deep well were part of the windmill project, the contract for its
installation would have been strictly a matter between petitioner and Pili himself with the former
assuming the obligation to pay the price. That it was respondent Herce Jr. himself who paid for
the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract
for the deep well was not part of the windmill project but a separate agreement between
respondent and Pili. Besides, if the price of P60,000.00 included the deep well, the obligation
of respondent was to pay the entire amount to petitioner without prejudice to any action that
Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he
tendered payment directly to Pili and not to petitioner, respondent explained, rather lamely, that
he did it "because he has (sic) the money, so (he) just paid the money in his possession. 8
Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While
the law is clear that "payment shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person authorized to receive it, " 9 it does
not appear from the record that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law "concerning payments made by a third
person." 10 The Civil Code provisions do not apply in the instant case because no creditor-
debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been established
regarding the construction of the deep well. Specifically, witness Pili did not testify that he
entered into a contract with petitioner for the construction of respondent's deep well. If SPGMI
was really commissioned by petitioner to construct the deep well, an agreement particularly to
this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively belie
respondent's assertions. These circumstances only show that the construction of the well by
SPGMI was for the sole account of respondent and that petitioner merely supervised the
installation of the well because the windmill was to be connected to it. There is no legal nor
factual basis by which this Court can impose upon petitioner an obligation he did not expressly
assume nor ratify.
The second issue is not a novel one. In a long line of cases 11 this Court has consistently
held that in order for a party to claim exemption from liability by reason of fortuitous event
under Art. 1174 of the Civil Code the event should be the sole and proximate cause of the loss
or destruction of the object of the contract. In Nakpil vs. Court of Appeals, 12 four (4) requisites
must concur: (a) the cause of the breach of the obligation must be independent of the will of
the debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event must be
such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and,
(d) the debtor must be free from any participation in or aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous
event. Interestingly, the evidence does not disclose that there was actually a typhoon on the
day the windmill collapsed. Petitioner merely stated that there was a "strong wind." But a strong
wind in this case cannot be fortuitous — unforeseeable nor unavoidable. On the contrary, a
strong wind should be present in places where windmills are constructed, otherwise the
windmills will not turn.
The appellate court correctly observed that "given the newly-constructed windmill
system, the same would not have collapsed had there been no inherent defect in it which could
only be attributable to the appellee." 13 It emphasized that respondent had in his favor the
presumption that "things have happened according to the ordinary course of nature and the
ordinary habits of life." 14 This presumption has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in default in the
payment of his outstanding balance of P15,000.00 and hence should bear his own loss, is
untenable. 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. 15 When the
windmill failed to function properly it became incumbent upon petitioner to institute the proper
repairs in accordance with the guaranty stated in the contract. Thus, respondent cannot be said
to have incurred in delay; instead, it is petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this point that if a
person obliged to do something fails to do it, the same shall be executed at his cost
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR.
is directed to pay petitioner JACINTO M. TANGUILIG the balance of P15,000.00 with interest
at the legal rate from the date of the filing of the complaint. In return, petitioner is ordered to
"reconstruct subject defective windmill system, in accordance with the one-year
guaranty" 16 and to complete the same within three (3) months from the finality of this decision.
SO ORDERED.
Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

||| (Tanguilig v. Court of Appeals, G.R. No. 117190, [January 2, 1997], 334 PHIL 68-76)
 SECOND DIVISION

[G.R. No. 108129. September 23, 1999.]

AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner, vs. COURT OF

APPEALS, PHILIPPINE PHOSPHATE FERTILIZER, CORP., respondents.

Gancayco Law Offices for petitioner.

Quiroz Dumas and Capistrano Law Offices for private respondent.

SYNOPSIS

On June 27, 1986, petitioner Aerospace Industries, Inc. purchased five hundred metric
tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation.
Petitioner agreed to secure the means of transport to pick-up the sulfuric acid from private
respondents' loadports in Basay, Negros Oriental and Sangi, Cebu. On October 3, 1986,
petitioner paid the purchased price of 500 MT of sulfuric acid. Then, it chartered M/T Sultan
Kayumanggi to carry the agreed volumes of freight from designated loading areas. But the
vessel was able to withdraw a partial amount of sulfuric acid from Basay and Sangi because it
tilted. And later, it sank with a total amount of 227.51 MT of sulfuric acid on board. Petitioner
sent a demand letter to private respondent for delivery of the 272.49 MT of sulfuric acid.
Petitioner then filed a complaint against private respondent for specific performance and/or
damages before the Regional Trial Court of Pasig. The private respondent filed an answer with
counterclaim and alleged that it was the petitioner which was remiss in the performance of its
obligation in arranging the shipping requirements of its purchases and, hence, should pay
damages. Petitioner prevailed in the trial court. However, on appeal, the Court of Appeals
reversed the decision of the trial court and instead found petitioner guilty of delay and therefore,
liable for damages.
Hence, this petition.
The Court agreed with the Court of Appeals that the private respondent had no obligation
to agree to the additional order and may not be faulted for its inability to meet the said additional
requirements of the petitioner. And the respondent's incapacity to agree to the delivery of
another 227.51 MT. was not a legal justification for the petitioner's refusal to lift the remaining
272.481. On the other hand, petitioner was found guilty of delay, after private respondent made
the necessary extrajudicial demand by requiring petitioner to lift the cargo at its designated
loadports. When petitioner failed to comply with its obligations under the contract, it became
liable for its shortcomings. Petitioner was indubitably liable for proven damages.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; TESTIMONY OF WITNESSES; PROFESSIONAL

REPORT SHOULD CARRY MORE WEIGHT THAN TESTIMONY OF EMPLOYEE OF PARTY.
— Since the third party surveyor was neither petitioner's nor private respondent's employee,
his professional report should carry more weight than that of Melecio Hernandez, an employee
of petitioner.TcSHaD

2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACT OF SALE; BUYER

MUST COMPLY WITH OBLIGATION TO UNDERTAKE SHIPPING REQUIREMENTS OF
CARGO; CASE AT BAR. — Petitioner, as the buyer, was obligated under the contract to
undertake the shipping requirements of the cargo from the private respondent's loadports to
the petitioner's designated warehouse. It was petitioner which chartered M/T Sultan
Kayumanggi. The vessel was petitioner's agent. When it failed to comply with the necessary
loading conditions of sulfuric acid, it was incumbent upon petitioner to immediately replace M/T
Sultan Kayumanggi with another sea worthy vessel.
3. REMEDIAL LAW; EVIDENCE; TESTIMONY OF WITNESSES; PARTY WHO
ASSERTS THAT CONTRACT OF SALE WAS CHANGED OR MODIFIED HAS BURDEN OF
PROVING THE SAME. — Additionally, petitioner claims that private respondent's employee,
Gil Belen, had recommended to petitioner to fully utilize the vessel, hence petitioner's request
for an additional order to complete the vessel's 500 MT capacity. This claim has no probative
pertinence nor solid basis. A party who asserts that a contract of sale has been changed or
modified has the burden of proving the change or modification by clear and convincing
evidence. Repeated requests and additional orders were contained in petitioner's letters to
private respondent. In contrast, Belen's alleged action was only verbal; it was not substantiated
at all during the trial. Note that, using the vessel to full capacity could redound to petitioner's
advantage, not the other party's. If additional orders were at the instance of private respondent,
the same must be properly proved together with its relevance to the question of delay. Settled
is the principle in law that proof of verbal agreements offered to vary the terms of written
agreements is inadmissible, under the parol evidence rule. Belen's purported recommendation
could not be taken at face value and, obviously, cannot excuse petitioner's default.
4. CIVIL LAW; OBLIGATIONS AND CONTRACTS OF SALE; WHEN BREACH
THEREOF WAS COMMITTED BY BUYER, SELLER HAS RIGHT OF ACTION FOR
DAMAGES. — Where there has been breach of contract by the buyer, the seller has a right of
action for damages. Following this rule, a cause of action of the seller for damages may arise
where the buyer refuses to remove the goods, such that buyer has to remove them. Article
1170 of Civil Code provides: "Those who in the performance of their obligations are guilty of
fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are
liable for damages."
5. ID.; ID.; ID.; NATURE AND EFFECTS OF OBLIGATIONS; WHEN DELAY OF
PERFORMANCE OF OBLIGATION BEGINS. — Delay begins from the time the obligee
judicially or extrajudicially demands from the obligor the performance of the obligation. Art. 1169
states: "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." In order
that the debtor may be in default, it is necessary that the following requisites be present: (1)
that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially.
6. ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — Records reveal that a tanker ship had to pick
up sulfuric acid in Basay, then proceed to get the remaining stocks in Sangi, Cebu. A period of
three days appears to us reasonable for a vessel to travel between Basay and Sangi. Logically,
the computation of damages arising from the shipping delay would then have to be from
December 15, 1986, given said reasonable period after the December 12th letter. More
important, private respondent was forced to vacate Basay wharf only on December 15th. Its
Basay expenses incurred before December 15, 1986, were necessary and regular business
expenses for which the petitioner should not be obliged to pay. AaIDHS

7. ID.; ID.; ID.; ID.; BUYER WHO INCURRED DELAY IN PERFORMANCE OF

OBLIGATION SHALL ASSUME RISK BEFORE DELIVERY OF GOODS; CASE AT BAR. —
The general rule that before delivery, the risk of loss is borne by the seller who is still the owner,
is not applicable in this case because petitioner had incurred delay in the performance of its
obligation. Article 1504 of the Civil Code clearly states: "Unless otherwise agreed, the goods
remain at the seller's risk until the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual
delivery has made or not except that: . . . (2) Where actual delivery had been delayed through
the fault of either the buyer or seller the goods are at the risk of the party at fault.
8. ID.; ID.; ID.; ID.; PARTY GUILTY OF DELAY IS LIABLE FOR PROVEN DAMAGES.
— As pointed out earlier, petitioner is guilty of delay, after private respondent made the
necessary extrajudicial demand by requiring petitioner to lift the cargo at its designated
loadports. When petitioner failed to comply with its obligations under the contract it became
liable for its shortcomings. Petitioner is indubitably liable for proven damages.
9. REMEDIAL LAW; CIVIL PROCEDURE; COUNTERCLAIM; ENCOURAGED BY LAW.
— It is worth noting that the adjustment and allowance of private respondent's counterclaim or
set-off in the present action, rather than by another independent action, is encouraged by the
law. Such practice serves to avoid circuitry of action, multiplicity of suits, inconvenience,
expense, and unwarranted consumption of the court's time. The trend of judicial decisions is
toward a liberal extension of the right to avail of counterclaims or set-offs. The rules on
counterclaims are designed to achieve the disposition of a whole controversy involving the
conflicting claims of interested parties at one time and in one action, provided all parties can be
brought before the court and the matter decided without prejudicing the right of any party. Set-
off in this case is proper and reasonable.

DECISION

QUISUMBING, J : p

This petition for review assails the Decision 1 dated August 19, 1992, of the Court of
Appeals, which set aside the judgment of the Regional Trial Court of Pasig, Branch 151. The
case stemmed from a complaint filed by the buyer (herein petitioner) against the seller (private
respondent) for alleged breach of contract. Although petitioner prevailed in the trial court, the
appellate court reversed and instead found petitioner guilty of delay and therefore liable for
damages, as follows: cdrep

"WHEREFORE, the Decision of the court a quo is SET ASIDE and a new one
rendered, dismissing the complaint with costs against the plaintiff (herein petitioner)
and, on the counterclaim, ordering the plaintiff Aerospace Chemical Industries, Inc. to
pay the defendant, Philippine Phosphate Fertilizer Corporation the sum of P324,516.63
representing the balance of the maintenance cost and tank rental charges incurred by
 the defendant for the failure of the plaintiff to haul the rest of the sulfuric acid on the
designated date.
Costs against plaintiff-appellee." 2
As gleaned from the records, the following are the antecedents:
On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five
hundred (500) metric tons of sulfuric acid from private respondent Philippine Phosphate
Fertilizer Corporation (Philphos). The contract 3 was in letter-form as follows:
27 June 1986
AEROSPACE INDUSTRIES INC.
203 E. Fernandez St.
San Juan, Metro Manila
Attention: Mr. Melecio Hernandez
Manager
Subject: Sulfuric Acid Shipment
Gentlemen:
This is to confirm our agreement to supply your Sulfuric Acid requirement under the
following terms and conditions: prcd

A. Commodity : Sulfuric Acid in Bulk

B. Concentration : 98-99% H2SO4
C. Quantity : 500MT - 100 MT Ex-Basay
400 MT Ex-Sangi
D. Price : US$ 50.00/MT - FOB Cotcot, Basay,
Negros Or.
US$ 54.00/MT - FOB Sangi, Cebu
E. Payment : Cash in Philippine currency payable
to Philippine Phosphate Fertilizer Corp.
(MAKATI) at PCIB selling rate at the
time of payment at least five (5) days
prior to shipment date.
F. Shipping Conditions
1. Laycan : July
2. Loadport : Cotcot, Basay, Negros Or. and
Atlas Pier, Sangi, Cebu
xxx xxx xxx
11. Other terms and Conditions: To be mutually agreed upon.
Very truly yours,
Philippine Phosphate Fertilizer Corp.
Signed: Herman J. Rustia
Sr. Manager, Materials & Logistics
CONFORME:
 AEROSPACE INDUSTRIES, INC.
Signed: Mr. Melecio Hernandez
Manager
Initially set beginning July 1986, the agreement provided that the buyer shall pay its
purchases in equivalent Philippine currency value, five days prior to the shipment date.
Petitioner as buyer committed to secure the means of transport to pick-up the purchases from
private respondent's loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric
acid should be taken from Basay, Negros Oriental storage tank, while the remaining four
hundred metric tons (400 MT) should be retrieved from Sangi, Cebu.
On August 6, 1986, private respondent sent an advisory letter 4 to petitioner to withdraw
the sulfuric acid purchased at Basay because private respondent had been incurring
incremental expense of two thousand (P2,000.00) pesos for each day of delay in shipment. cdll

On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty
(P553,280.00) pesos for 500 MT of sulfuric acid.
On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace
Bulk Head Services. The vessel was assigned to carry the agreed volumes of freight from
designated loading areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from
Basay because said vessel heavily tilted on its port side. Consequently, the master of the ship
stopped further loading. Thereafter, the vessel underwent repairs.
In a demand letter 5 dated December 12, 1986, private respondent asked petitioner to
retrieve the remaining sulfuric acid in Basay tanks so that said tanks could be emptied on or
before December 15, 1986. Private respondent said that it would charge petitioner the storage
and consequential costs for the Basay tanks, including all other incremental expenses due to
loading delay, if petitioner failed to comply.
On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew
only 157.51 MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two
survey reports conducted by the Societe Generale de Surveillance (SGS) Far East Limited,
dated December 17, 1986 and January 2, 1987, attested to these occurrences.
Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of
227.51 MT of sulfuric acid on board. cdrep

Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500
MT. 6 On January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner,
addressed letters to private respondent, concerning additional orders of sulfuric acid to replace
its sunken purchases, which letters are hereunder excerpted:
January 26, 1987
xxx xxx xxx
"We recently charter another vessel M/T DON VICTOR who will be authorized
by us to lift the balance approximately 272.49 MT.
We request your goodselves to grant us for another Purchase Order with quantity
of 227.51 MT and we are willing to pay the additional order at the prevailing market
price, provided the lifting of the total 500 MT be centered/confined to only one safe
berth which is Atlas Pier, Sangi, Cebu." 7
 March 20, 1987
"This refers to the remaining balance of the above product quantity which were
not loaded to the authorized cargo vessel, M/T Sultan Kayumanggi at your loadport —
Sangi, Toledo City.
Please be advised that we will be getting the above product quantity within the
month of April 1987 and we are arranging for a 500 MT Sulfuric Acid inclusive of which
the remaining balance: 272.49 MT an additional product quantity thereof of 227.51
MT." 8 cdasia

Petitioner's letter 9 dated May 15, 1987, reiterated the same request to private
respondent.
On January 25, 1988, petitioner's counsel, Atty. Pedro T. Santos, Jr., sent a demand
letter 10 to private respondent for the delivery of the 272.49 MT of sulfuric acid paid by his client,
or the return of the purchase price of three hundred seven thousand five hundred thirty
(P307,530.00) pesos. Private respondent in reply, 11 on March 8, 1988, instructed petitioner to
lift the remaining 30 MT of sulfuric acid from Basay, or pay maintenance and storage expenses
commencing August 1, 1986.
On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases
consisting of 272.49 MT and an additional of 227.51 MT of sulfuric acid. According to petitioner
it had paid the chartered vessel for the full capacity of 500 MT, stating that:
"With regard to our balance of sulfuric acid - product at your shore tank/plant for
272.49 metric ton that was left by M/T Sultana Kayumanggi due to her sinking, we
request for an additional quantity of 227.51 metric ton of sulfuric acid, 98%
concentration.
The additional quantity is requested in order to complete the shipment, as the
chartered vessel schedule to lift the high grade sulfuric acid product is contracted for
her full capacity/load which is 500 metric tons more or less.
We are willing to pay the additional quantity - 227.51 metric tons high grade
sulfuric acid in the prevailing price of the said product." 12
prLL

xxx xxx xxx

By telephone, petitioner requested private respondent's Shipping Manager, Gil Belen, to
get its additional order of 227.51 MT of sulfuric acid at Isabel, Leyte. 13 Belen relayed the
information to his associate, Herman Rustia, the Senior Manager for Imports and International
Sales of private respondent. In a letter dated July 22, 1988, Rustia replied:
"Subject: Sulfuric Acid Ex-Isabel
Gentlemen:
Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you that we cannot
accommodate your request to lift Sulfuric Acid ex-Isabel due to Pyrite limitation and
delayed arrival of imported Sulfuric Acid from Japan." 14
On July 25, 1988, petitioner's counsel wrote to private respondent another demand letter
for the delivery of the purchases remaining, or suffer tedious legal action his client would
commence.
 On May 4, 1989, petitioner filed a complaint for specific performance and/or damages
before the Regional Trial Court of Pasig, Branch 151. Private respondent filed its answer with
counterclaim, stating that it was the petitioner who was remiss in the performance of its
obligation in arranging the shipping requirements of its purchases and, as a consequence,
should pay damages as computed below: LibLex

Advanced Payment by Aerospace (Oct. 3, 1986) P553,280.00

Less Shipments
70.009 MT sulfuric acid P72,830.36
151.51 MT sulfuric acid 176,966.27 (249,796.63)
————— —————
Balance P303,483.37
Less Charges
Basay Maintenance Expense
from Aug. 15 to Dec. 15, 1986
(P2,000.00/day x 122 days) P244,000.00
Sangi - Tank Rental
from Aug. 15, 1986 to Aug. 15, 1987
(P32,000.00/mo. x 12 mos.) 384,000.00 (628,000.00)
————— —————
Receivable/Counterclaim (P324,516.63)
==========
Trial ensued and after due proceedings, judgment was rendered by the trial court in
petitioner's favor, disposing as follows:
"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, directing
the latter to pay the former the following sums: dctai

1. P306,060.77 - representing the value of the undelivered 272.49 metric tons of sulfuric
acid plaintiff paid to defendant;
2. P91,818.23 - representing unrealized profits, both items with 12% interest per
annum from May 4, 1989, when the complaint was filed until fully paid;
3. P30,000.00 - as exemplary damages; and
4. P30,000.00 - as attorney's fees and litigation expenses, both last items also with 12%
interest per annum from date hereof until fully paid.
Defendant's counterclaims are hereby dismissed for lack of merit.
Costs against defendant." 15
In finding for the petitioner, the trial court held that the petitioner was absolved in its
obligation to pick-up the remaining sulfuric acid because its failure was due to force majeure.
According to the trial court, it was private respondent who committed a breach of contract when
it failed to accommodate the additional order of the petitioner, to replace those that sank in the
sea, thus:
"To begin with, even if we assume that it is incumbent upon the plaintiff to 'lift' the
sulfuric acid it ordered from defendant, the fact that force majeure intervened when the
vessel which was previouly (sic) listing, but which the parties, including a representative
of the defendant, did not mind, sunk, has the effect of absolving plaintiff from 'lifting' the
 sulfuric acid at the designated load port. But even assuming the plaintiff cannot be held
entirely blameless, the allegation that plaintiff agreed to a payment of a 2,000-peso
incremental expenses per day to defendant for delayed 'lifting' has not been proven. . .
.
Also, if it were true that plaintiff is indebted to defendant, why did defendant
accept a second additional order after the transaction in litigation? Why also, did
defendant not send plaintiff statements of account until after 3 years? prcd

All these convince the Court that indeed, defendant must return what plaintiff has
paid it for the goods which the latter did not actually receive." 16
On appeal by private respondent, the Court of Appeals reversed the decision of the trial
court, as follows:
"Based on the facts of this case as hereinabove set forth, it is clear that the
plaintiff had the obligation to withdraw the full amount of 500 MT of sulfuric acid from
the defendant's loadport at Basay and Sangi on or before August 15, 1986. As early as
August 6, 1986 it had been accordingly warned by the defendant that any delay in the
hauling of the commodity would mean expenses on the part of the defendant amounting
to P2,000.00 a day. The plaintiff sent its vessel, the 'M/T Sultan Kayumanggi', only on
November 19, 1987. The vessel, however, was not capable of loading the entire 500
MT and in fact, with its load of only 227.519 MT, it sank.
Contrary to the position of the trial court, the sinking of the 'M/T Sultan
Kayumanggi' did not absolve the plaintiff from its obligation to lift the rest of the 272.481
MT of sulfuric acid at the agreed time. It was the plaintiff's duty to charter another vessel
for the purpose. It did contract for the services of a new vessel, the 'M/T Don Victor', but
did not want to lift the balance of 272.481 MT only but insisted that its additional order
of 227.51 MT be also given by the defendant to complete 500 MT, apparently so that
the vessel may be availed of in its full capacity. cdtai

xxx xxx xxx

We find no basis for the decision of the trial court to make the defendant liable to
the plaintiff not only for the cost of the sulfuric acid, which the plaintiff itself failed to haul,
but also for unrealized profits as well as exemplary damages and attorney's fees." 17
Respondent Court of Appeals found the petitioner guilty of delay and negligence in the
performance of its obligation. It dismissed the complaint of petitioner and ordered it to pay
damages representing the counterclaim of private respondent.
The motion for reconsideration filed by petitioner was denied by respondent court in its
Resolution dated December 21, 1992, for lack of merit.
Petitioner now comes before us, assigning the following errors:
I.
RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE
RESPONDENT TO HAVE COMMITTED A BREACH OF CONTRACT WHEN IT IS NOT
DISPUTED THAT PETITIONER PAID IN FULL THE VALUE OF 500 MT OF SULFURIC
ACID TO PRIVATE RESPONDENT BUT THE LATTER WAS ABLE TO DELIVER TO
PETITIONER ONLY 227.51 M.T. LLpr

II.
 RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING PETITIONER
LIABLE FOR DAMAGES TO PRIVATE RESPONDENT ON THE BASIS OF A XEROX
COPY OF AN ALLEGED AGREEMENT TO HOLD PETITIONER LIABLE FOR
DAMAGES FOR THE DELAY WHEN PRIVATE RESPONDENT FAILED TO
PRODUCE THE ORIGINAL IN CONTRAVENTION OF THE RULES ON EVIDENCE.
III.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO CONSIDER THE
UNDISPUTED FACTS THAT PETITIONER'S PAYMENT FOR THE GOODS WAS
RECEIVED BY PRIVATE RESPONDENT WITHOUT ANY QUALIFICATION AND
THAT PRIVATE RESPONDENT ENTERED INTO ANOTHER CONTRACT TO
SUPPLY PETITIONER 227.519 MT OF SULFURIC ACID IN ADDITION TO THE
UNDELIVERED BALANCE AS PROOF THAT ANY DELAY OF PETITIONER WAS
DEEMED WAIVED BY SAID ACTS OF RESPONDENT.
IV.
RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE LAW
THAT WHEN THE SALE INVOLVES FUNGIBLE GOODS AS IN THIS CASE THE
EXPENSES FOR STORAGE AND MAINTENANCE ARE FOR THE ACCOUNT OF
THE SELLER (ARTICLE 1504 CIVIL CODE).
V.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO RENDER JUDGMENT
FOR PETITIONER AFFIRMING THE DECISION OF THE TRIAL COURT. prLL

From the assigned errors, we synthesize the pertinent issues raised by the petitioner as
follows:
1. Did the respondent court err in holding that the petitioner committed breach of
contract, considering that:
a) the petitioner allegedly paid the full value of its purchases, yet received
only a portion of said purchases?
b) petitioner and private respondent allegedly had also agreed for the
purchase and supply of an additional 227.519 MT of sulfuric acid,
hence prior delay, if any, had been waived?
2. Did the respondent court err in awarding damages to private respondent?
3. Should expenses for the storage and preservation of the purchased fungible
goods, namely sulfuric acid, be on seller's account pursuant to Article 1504
of the Civil Code?
To resolve these issues, petitioner urges us to review factual findings of respondent court
and its conclusion that the petitioner was guilty of delay in the performance of its obligation.
According to petitioner, that conclusion is contrary to the factual evidence. It adds that
respondent court disregarded the rule that findings of the trial court are given weight, with the
highest degree of respect. Claiming that respondent court's findings conflict with those of the
trial court, petitioner prays that the trial court's findings be upheld over those of the appellate
court.cdphil
 Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the
withdrawal thereof, or on October 3, 1986, hence, it had complied with the primary condition
set in the sales contract. Petitioner claims its failure to pick-up the remaining purchases on time
was due to a storm, a force majeure, which sank the vessel. It thus claims exemption from
liability to pay damages. Petitioner also contends that it was actually the private respondent's
shipping officer, who advised petitioner to buy the additional 227.51 MT of sulfuric acid, so as
to fully utilize the capacity of the vessel it chartered. Petitioner insists that when its ship was
ready to pick-up the remaining balance of 272.49 MT of sulfuric acid, private respondent could
not comply with the contract commitment due to "pyrite limitation."
While we agree with petitioner that when the findings of the Court of Appeals are contrary
to those of the trial court, 18 this Court may review those findings, we find the appellate court's
conclusion that petitioner violated the subject contract amply supported by preponderant
evidence. Petitioner's claim was predicated merely on the allegations of its employee, Melecio
Hernandez, that the storm or force majeure caused the petitioner's delay and failure to lift the
cargo of sulfuric acid at the designated loadports. In contrast, the appellate court discounted
Hernandez' assertions. For on record, the storm was not the proximate cause of petitioner's
failure to transport its purchases on time. The survey report submitted by a third party surveyor,
SGS Far East Limited, revealed that the vessel, which was unstable, was incapable of carrying
the full load of sulfuric acid. Note that there was a premature termination of loading in Basay,
Negros Oriental. The vessel had to undergo several repairs before continuing its voyage to
pick-up the balance of cargo at Sangi, Cebu. Despite repairs, the vessel still failed to carry the
whole lot of 500 MT of sulfuric acid due to ship defects like listing to one side. Its unfortunate
sinking was not due to force majeure. It sunk because it was, based on SGS survey report,
unstable and unseaworthy.
Witness surveyor Eugenio Rabe's incident report, dated December 13, 1986 in Basay,
Negros Oriental, elucidated this point: LLphil

"Loading was started at 1500hrs. November 19. At 1600Hrs. November 20,

loading operation was temporarily stopped by the vessel's master due to ships stability
was heavily tilted to port side, ship's had tried to transfer the loaded acid to stbdside but
failed to do so, due to their auxiliary pump on board does not work out for acid.
xxx xxx xxx
Note. Attending surveyor arrived BMC Basay on November 22, due to delayed
advice of said vessel Declared quantity loaded onboard based on data's provided by
PHILPHOS representative.
On November 26, two representative of shipping company arrived Basay to
assist the situation, at 1300Hrs repairing and/or welding of tank number 5 started at
1000Hrs November 27, repairing and/or welding was suspended due to the explosion
of tank no. 5. Explosion ripped about two feet of the double bottom tank.
November 27 up to date no progress of said vessel" 19
While at Sangi, Cebu, the vessel's condition (listing) did not improve as the survey report
therein noted:
"Declared quantity loaded on board was based on shore tank withdrawal due to
ship's incomplete tank calibration table. Barge displacement cannot be applied due to
 ship was listing to Stboard side which has been loaded with rocks to control her
stability." 20prcd

These two vital pieces of information were totally ignored by trial court. The appellate
court correctly took these into account, significantly. As to the weather condition in Basay, the
appellate court accepted surveyor Rabe's testimony, thus:
"Q. Now, Mr. Witness, what was the weather condition then at Basay, Negros Oriental
during the loading operation of sulfuric acid on board the Sultana Kayumanggi?
A. Fair, sir." 21
Since the third party surveyor was neither petitioner's nor private respondent's employee,
his professional report should carry more weight than that of Melecio Hernandez, an employee
of petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the
shipping requirements of the cargo from the private respondent's loadports to the petitioner's
designated warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel
was petitioner's agent. When it failed to comply with the necessary loading conditions of sulfuric
acid, it was incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with
another seaworthy vessel. However, despite repeated demands, petitioner did not comply
seasonably.
Additionally, petitioner claims that private respondent's employee, Gil Belen, had
recommended to petitioner to fully utilize the vessel, hence petitioner's request for an additional
order to complete the vessel's 500 MT capacity. This claim has no probative pertinence nor
solid basis. A party who asserts that a contract of sale has been changed or modified has the
burden of proving the change or modification by clear and convincing evidence. 22 Repeated
requests and additional orders were contained in petitioner's letters to private respondent. In
contrast, Belen's alleged action was only verbal; it was not substantiated at all during the trial.
Note that, using the vessel to full capacity could redound to petitioner's advantage, not the other
party's. If additional orders were at the instance of private respondent, the same must be
properly proved together with its relevance to the question of delay. Settled is the principle in
law that proof of verbal agreements offered to vary the terms of written agreements is
inadmissible, under the parol evidence rule. 23 Belen's purported recommendation could not be
taken at face value and, obviously, cannot excuse petitioner's default. llcd

Respondent court found petitioner's default unjustified, and on this conclusion we agree:
"It is not true that the defendant was not in a position to deliver the 272.481 MT
which was the balance of the original 500 MT purchased by the plaintiff. The whole lot
of 500 MT was ready for lifting as early as August 15, 1986. What the defendant could
not sell to the plaintiff was the additional 227.51 MT which said plaintiff was ordering,
for the reason that the defendant was short of the supply needed. The defendant,
however, had no obligation to agree to this additional order and may not be faulted for
its inability to meet the said additional requirements of the plaintiff. And the defendant's
incapacity to agree to the delivery of another 227.51 MT is not a legal justification for
the plaintiff's refusal to lift the remaining 272.481.
It is clear from the plaintiff's letters to the defendant that it wanted to send the
'M/T Don Victor' only if the defendant would confirm that it was ready to deliver 500 MT.
Because the defendant could not sell another 227.51 MT to the plaintiff, the latter did
not send a new vessel to pick up the balance of the 500 MT originally contracted for by
the parties. This, inspite the representations made by the defendant for the hauling
 thereof as scheduled and its reminders that any expenses for the delay would be for the
account of the plaintiff." 24
We are therefore constrained to declare that the respondent court did not err when it
absolved private respondent from any breach of contract. prLL

Our next inquiry is whether damages have been properly awarded against petitioner for
its unjustified delay in the performance of its obligation under the contract. Where there has
been breach of contract by the buyer, the seller has a right of action for damages. Following
this rule, a cause of action of the seller for damages may arise where the buyer refuses to
remove the goods, such that buyer has to remove them. 25 Article 1170 of the Civil Code
provides:
"Those who in the performance of their obligations are guilty of fraud, negligence,
or delay and those who in any manner contravene the tenor thereof, are liable for
damages."
Delay begins from the time the obligee judicially or extrajudicially demands from the
obligor the performance of the obligation. 26 Art. 1169 states:
"ARTICLE 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."
In order that the debtor may be in default, it is necessary that the following requisites be
present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially. 27
In the present case, private respondent required petitioner to ship out or lift the sulfuric
acid as agreed, otherwise petitioner would be charged for the consequential damages owing to
any delay. As stated in private respondent's letter to petitioner, dated December 12, 1986: prcd

Subject : M/T "KAYUMANGGI"

Gentlemen :
This is to reiterate our telephone advice and our letter HJR-8612-031 dated 2
December 1986 regarding your sulfuric acid vessel, M/T "KAYUMANGGI".
As we have, in various instances, advised you, our Basay wharf will have to be
vacated 15th December 1986 as we are expecting the arrival of our chartered vessel
purportedly to haul our equipments and all other remaining assets in Basay. This
includes our sulfuric acid tanks. We regret, therefore, that if these tanks are not emptied
on or before the 15th of December, we either have to charge you for the tanks waiting
time at Basay and its consequential costs (i.e. chartering of another vessel for its second
pick-up at Basay, handling, etc.) as well as all other incremental costs on account of the
protracted loading delay." 28 (Emphasis supplied)
Indeed the above demand, which was unheeded, justifies the finding of delay. But when
did such delay begin? The above letter constitutes private respondent's extrajudicial demand
for the petitioner to fulfill its obligation, and its dateline is significant. Given its date, however,
we cannot sustain the finding of the respondent court that petitioner's delay started on August
6, 1986. The Court of Appeals had relied on private respondent's earlier letter to petitioner of
that date for computing the commencement of delay. But as averred by petitioner, said letter of
August 6th is not a categorical demand. What it showed was a mere statement of fact, that
"[F]for your information any delay in Sulfuric Acid withdrawal shall cost us incremental expenses
of P2,000.00 per day." Noteworthy, private respondent accepted the full payment by petitioner
for purchases on October 3, 1986, without qualification, long after the August 6th letter. In
contrast to the August 6th letter, that of December 12th was a categorical demand. LibLex

Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to
get the remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for
a vessel to travel between Basay and Sangi. Logically, the computation of damages arising
from the shipping delay would then have to be from December 15, 1986, given said reasonable
period after the December 12th letter. More important, private respondent was forced to vacate
Basay wharf only on December 15th. Its Basay expenses incurred before December 15, 1986,
were necessary and regular business expenses for which the petitioner should not be obliged
to pay.
Note that private respondent extended its lease agreement for Sangi, Cebu storage tank
until August 31, 1987, solely for petitioner's sulfuric acid. It stands to reason that petitioner
should reimburse private respondent's rental expenses of P32,000 monthly, commencing
December 15, 1986, up to August 31, 1987, the period of the extended lease. Note further that
there is nothing on record refuting the amount of expenses abovecited. Private respondent
presented in court two supporting documents: first, the lease agreement pertaining to the
equipment, and second a letter dated June 15, 1987, sent by Atlas Fertilizer Corporation to
private respondent representing the rental charges incurred. Private respondent is entitled to
recover the payment for these charges. It should be reimbursed the amount of two hundred
seventy two thousand (P272,000.00) 29 pesos, corresponding to the total amount of rentals
from December 15, 1986 to August 31, 1987 of the Sangi, Cebu storage tank.
Finally, we note also that petitioner tries to exempt itself from paying rental expenses and
other damages by arguing that expenses for the preservation of fungible goods must be
assumed by the seller. Rental expenses of storing sulfuric acid should be at private
respondent's account until ownership is transferred, according to petitioner. However, the
general rule that before delivery, the risk of loss is borne by the seller who is still the owner, is
not applicable in this case because petitioner had incurred delay in the performance of its
obligation. Article 1504 of the Civil Code clearly states:
"Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk whether actual delivery has
been made or not, except that: cdphil

xxx xxx xxx

(2) Where actual delivery has been delayed through the fault of either the buyer
or seller the goods are at the risk of the party at fault." (emphasis supplied)
On this score, we quote with approval the findings of the appellate court, thus:
". . . The defendant [herein private respondent] was not remiss in reminding the
plaintiff that it would have to bear the said expenses for failure to lift the commodity for
an unreasonable length of time.
But even assuming that the plaintiff did not consent to be so bound, the
provisions of Civil Code come in to make it liable for the damages sought by the
defendant.
 Article 1170 of the Civil Code provides:
'Those who in the performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner contravene the tenor
thereof, are liable for damages..'
Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the
performance of its obligation to lift the sulfuric acid on August 15, 1986 and had
contravened the tenor of its letter-contract with the defendant." 30 LLpr

As pointed out earlier, petitioner is guilty of delay, after private respondent made the
necessary extrajudicial demand by requiring petitioner to lift the cargo at its designated
loadports. When petitioner failed to comply with its obligations under the contract it became
liable for its shortcomings. Petitioner is indubitably liable for proven damages.
Considering, however, that petitioner made an advance payment for the unlifted sulfuric
acid in the amount of three hundred three thousand, four hundred eighty three pesos and thirty
seven centavos (P303,483.37), it is proper to set-off this amount against the rental expenses
initially paid by private respondent. It is worth noting that the adjustment and allowance of
private respondent's counterclaim or set-off in the present action, rather than by another
independent action, is encouraged by the law. Such practice serves to avoid circuitry of action,
multiplicity of suits, inconvenience, expense, and unwarranted consumption of the court's
time. 31 The trend of judicial decisions is toward a liberal extension of the right to avail of
counterclaims or set-offs. 32 The rules on counterclaims are designed to achieve the disposition
of a whole controversy involving the conflicting claims of interested parties at one time and in
one action, provided all parties can be brought before the court and the matter decided without
prejudicing the right of any party. 33 Set-off in this case is proper and reasonable. It involves
deducting P272,000.00 (rentals) from P303,483.37 (advance payment), which will leave the
amount of P31,483.37 refundable to petitioner.
WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of
Appeals in CA G.R. CV No. 33802 is AFFIRMED, with MODIFICATION that the amount of
damages awarded in favor of private respondent is REDUCED to Two hundred seventy two
thousand pesos (P272,000.00). It is also ORDERED that said amount of damages be OFFSET
against petitioner's advance payment of Three hundred three thousand four hundred eighty
three pesos and thirty-seven centavos (P303,483.37) representing the price of the 272.481 MT
of sulfuric acid not lifted. Lastly, it is ORDERED that the excess amount of thirty one thousand,
four hundred eighty three pesos and thirty seven centavos (P31,483.37) be RETURNED
soonest by private respondent to herein petitioner. LibLex

Costs against the petitioner.

SO ORDERED.
(Aerospace Chemical Industries, Inc. v. Court of Appeals, G.R. No. 108129, [September 23,
|||

1999], 373 PHIL 710-733)