amounts covered by the loans released from time to time,
CARMELA CUIZON* Y MONTALBAN, petitioner, vs. COURT
OF APPEALS AND SPOUSES GERARDO AND
MARIA PARAY, respondents.
DECISION
TORRES, JR., J.:
In contractual relations, the law allows the parties much
leeway and considers their agreement to be the law between
them. This is because “courts cannot follow one every step of
his life and extricate him from bad bargains x x x relieve him
from one-sided contracts, or annul the effects of foolish acts.[1]
This is an aspect to be resolved in this case.
Petitioner seeks to review and set aside the Decision[2] of
the respondent Court of Appeals dated September 27, 1991
(CA-GR. NO. 17228) which reversed and annulled the
January 20, 1988 decision of the Regional Trial Court of Cebu
City (Civil Case No. CEB-3835), and the Resolution
promulgated on September 27, 1991 which denied her Motion
for Reconsideration.
The following antecedent facts, as found by the trial court
are culled from the testimony of, and the documents presented
by petitioner:
"Plaintiff is a businesswoman engaged in general
merchandising under the trademark Tropic Philippines Food.
In 1983, she was introduced to defendants spouses Gerardo
and Maria Paray, who are in the real estate business, by a
certain Romy Verano, a mutual friend. When the friendship
between the two parties developed, Maria Paray proposed to
Carmela Kuizon that the spouses Paray would execute
Special Power of Attorney in favor of plaintiff for five parcels of
land with an aggregate area of 3,803 square meters, owned
by defendants, which the plaintiff is to mortgage in her name
using those same parcels of land as collaterals. The
defendants at that time were in dire need of money to pay off
their bank obligations. Plaintiff acceded to the plans after
much persuasion on the agreement that Carmela Kuizon pay
for the amortization of the loans and that for whatever
turned over to the defendants by plaintiff, the defendants will
immediately convey to the plaintiff, each lot within the amount
received by them computed at a mutually agreed price of
P170.00 per square meter. As an inducement to the proposal
and in partial compliance with their agreement, defendants
executed in favor of plaintiff a Deed of Sale of Real Property
over Lot No. 800-A-1-B under TD No. 34504 (Exhibit M-Deed
of Sale dated June 6, 1983-for P25,000.00 over TCT No.
84791, Lot No. 800-A-1-B, 314 sq. m.). Defendants also
executed Special Power of Attorney, notarized June 30, 1983
over TCT Nos. 84793, 84792 and 84794 covering Lots Nos.
800-A-3, 800-A-2 and 800-A-4 (Exhibit C), and registered with
the Register of Deeds). After said SPA (Exhibit C) was
executed, plaintiff secured loan from the Rural Bank of
Compostela for P50,000 with maturity dated on April 22, 1984
covering Lot No. 800-A-4 as collateral (Exhibit D and D-1
Discount and Disclosure Statement of Loan Transaction
issued to Carmela Montalban by the Rural Bank of
Compostela (Cebu) for P50,000.00 with net proceeds of
P43,459.50; and Real Estate Mortgage executed by Carmela
and Antonio Montalban in favor of Rural Bank of Compostela
(Ceb) [sic]. Subsequently, plaintiff secured an IBRD loan from
the same Rural Bank of Compostela for P183,910.00 maturing
on October 19, 1983 with Lots No. [sic] 800-A-3, 800-A-2 and
800-A-4, part of the proceeds of which she used to pay the
previous loan of P50,000.00 with the same bank (Exhibits F, F-
1 and F-2 - Discount and Disclosure Statement on Loan
Transaction issued to plaintiff by Rural Bank of Compostela for
IBRD loan of P188,910.00 dated November 25, 1983 with net
proceeds of P183,242.70; Promissory Note for P188,910.00
executed by plaintiff; and Real Estate Mortgage executed by
Carmela and Antonio Montalban over Lots Nos. [sic] 800-A-4,
800-A-2 and 800-A-3). Later, defendants executed another
Special Power of Attorney notarized August 19, 1983 for Tax
Declaration No. 01-03242 under TCT No. 74735 covering Lot
No. 720-A (Exhibit B) and registered with the Register of
Deeds (Exhibit B-3), with said SPA (Exhibit B) plaintiff was
able to secure a loan from Isla Bank in the amount of
P60,000.00 to mature on February 27, 1984 (Exhibit E-
Certified true copy of Discount Statement by Isla Bank for loan
of P60,000.00 by plaintiff of net proceeds of P52,256.64; and
Exhibit E-1-certified true copy of the Real Estate Mortgage
executed by plaintiff in favor of Isla Bank over Lot No. 720-A to
guarantee loan of P60,000.00). Defendants again issued
another Special Power of Attorney (Exhibit A) notarized on
May 23, 1984 over Lot No. 800-A-1 covered by TD No. 01-
34503 in favor of plaintiff and duly notarized by the Register of
Deeds (Exhibit A-3). Plaintiff, with said SPA, secured a loan
from J. Finance in the amount of P44,941.75 with maturity
date on November 30, 1985 (Exhibit A-2-letter and transmittal
dated May 30, 1984 from J. Finance Corporation for loan of
P44,941.75 with net proceeds of P35,000.00; and Exhibit N-1
Deed of Real Estate Mortgage executed by Carmela and
Antonio Montalban in favor of J. Finance over Lot No. 800-A-I-
4). For Lot No. 800-A-1B which was earlier conveyed by
defendants to plaintiff in a Deed of Sale (Exhibit M),
defendants pressured plaintiff to secure a housing loan with
DBP in the amount of P201,000.00 (Exhibits G and G-1-
certified true copy of Promissory Note for P103,200.00 and
P97,800.00, respectively, dated February 8, 1984) using the
same lots as collateral, with defendants promising to convey to
plaintiff the adjacent Lot No. 800-A-1-A to serve as lawn for
the house erected: pictures of the house were presented as
Exhibits L, L-1, L-2, L-3.
For the several loans entered into by plaintiff a total amount of
P492,002.04 was actually received by plaintiff as against the
total loan of P544,851.75 summarized as follows:
a) P50,000.00 - loan from R. B. of
Compostela, net of P43,859.50
b) P60,000.00 - from Isla Bank, net proceeds
of P52,326.24
c) P188,910.00 - IBRD loan, net proceeds of
P183,242.70
d) P201,000.00 - DBP loan, net proceeds of
P177,573.60
e) P44,941.75 - from J. Finance, net
proceeds of P35,000.00
P544,851.75 - P492,902.04
(total loan) (total net)
From the net proceeds of P492,002.04, plaintiff remitted to
defendants P198,000.00 which was duly receipted XXX."
XXX. "The receipted amount of P198,000.00 is broken down
as follows:
a. Exhibit I - handwritten receipt issued
by Maria Paray for P20,000.00 dated May 25, 1983. This was
considered the down payment for the consideration of
P25,000.00 for Lot No. 800-A-1-B conveyed by defendants to
plaintiff under Deed of Sale (Exhibit M).
b. Exhibit J - handwritten receipt issued
by Maria Paray for P78,000.00 dated November 28, 1983.
The balance of P5,000.00 for Lot No. 800-A-1-B was paid from
this payment of P78,000. 00 (Exhibit J).
C. Exhibit K - handwritten receipt of Maria
Paray for P100,000.00 dated February 14, 1984.
xxx xxx xxx
After plaintiff remitted the P20,000.00 (Exhibit I of defendant),
Mrs. Paray borrowed plaintiff's title to a lot in Ozamis City,
under TCT No. 8648 (Exhibit N dated May 28, 1983), and in
turn Mrs. Paray handed to plaintiff the Deed of Sale for Lot No.
800-A-1-B, together with two documents, a Deed of
Agreement (Annex A of Answer) and a Supplemental
Agreement (Annex B of Answer) for plaintiff to sign. The
Supplemental Agreement in effect prohibited plaintiff from
selling the land unless with consent of defendant spouses.
Plaintiff initially refused to sign the Deed of Agreement as the
purchase price indicated P25,170.00 with a down payment of
P20,000.00 but the balance reflected was P33,380.00 instead
of only P5,000.00, but upon defendants plea, she affixed her
signature and issued a post-dated check for P33,380.00 to
accommodate defendants with the understanding that those
will be deducted from the loan releases and her assurance
that these documents won't be notarized. xxx."[3]
Petitioner admitted that out of the P492,002.04 net
proceeds of the loans, P194,002.04 were used in the building
of her house on Lot No. 800-A-1-B,[4] the land which was then
subject to the DBP housing loan, and P100,000.00 were
allegedly given to the bank fixers as grease money for the
release of the loans.[5] From 1983 to 1984, she also paid
P2,342.63 of realty taxes[6] on the collaterals and complied
with her obligation of paying loan amortization in the amount of
P109,916.28.[7] When she demanded that a deed of sale be
executed over Lot No. 800-A-1-A,[8] the lot which was adjacent
to Lot No. 800-A-1-B, private respondents refused to convey
said lot claiming that an accounting or liquidation of the loans
and the lands she used as collaterals must first be made.[9]
On May 5, 1985, petitioner filed a complaint[10] for specific
performance with damages against private respondents. She
alleged, inter alia, that in compliance with their agreement,
she turned over to private respondents P198,000.00 of loan
proceeds,[11] deducting the purchase price of P25,120.00 for
Lot No. 800-A-1-B from P198,000.00, private respondents
were still obligated to convey to petitioner a total of no less
than 1,017 square meters of land [12] representing the amount
of P172,880.00 (P198,000.00 minus P25,120.00) computed at
a mutually agreed price of P170.00 per square meter. She
asked specifically for the conveyance of the 250 square meter
Lot No. 800-A-1-A to provide a spacious lawn to the house
built on Lot No. 800-A-1-B[13]and to pay back the amount of
P130,380.00 (P172,880.00 minus the price of P42,500.00 for
Lot No. 800-A-1-A), or in the alternative to pay back the
amount of P172,880.00 plus interest.[14]
In their Answer,[15] private respondents claim that
petitioner undertook to buy their six parcels of land with a total
area of 4,117 square meters for P699,890.00 at a price of
P170.00 per square meter.[16] In violation of their agreement
that the purchase price would be paid out of the loans secured
from various financial institutions, petitioner remitted to private
respondents the amount of P198,000.00 only out of the total
loan of P544,851.75.[17] As to Lot No. 800-A-1-B, they denied
that its purchase price was P25,120.00 as claimed by
petitioner. They insisted that with the down payment of
P20,000.00, petitioner still had a balance of P33,380.00. So
petitioner had to issue a postdated check of P33,380.00 and
execute a Deed of Agreement offering her real property (TCT
No. 8648) as a security for the balance of P33,380.00.[18] They
also alleged that petitioner incurred loans and advances from
them in the amount of P76,200.00 which were used by
petitioner in the construction of her house on Lot No. 800-A-1-
B.[19]
On December 4, 1985, a third party complaint [20] was filed
by private respondents against Antonio Montalban (Montalban,
for brevity). It appears that the real estate mortgage contracts
entered into by petitioner with the banks showed that
Montalban signed with petitioner as mortgagors and appeared
on these documents as the husband of petitioner. Private
respondents alleged that since their properties had been
encumbered pursuant to the obligations entered into by
Montalban and petitioner,[21] Montalban should be held
solidarily liable with petitioner for their claims adverted to in the
complaint.[22]
Montalban denied any marital relationship with petitioner
contending in his Answer to Third Party Complaint [23] that it
was private respondents who insisted the he should appear as
husband of petitioner to facilitate the release of the loans
sought by private respondents. He acceded only by way of an
accommodation to the request of the private respondents
because they (private respondents) could not be granted the
subject loans in their names as they had outstanding
obligations with other financial institutions.[24]
After trial on the merits, the trial court rendered a
decision[25] in favor of petitioner. The dispositive portion of
which reads:
“WHEREFORE, this Court finds in favor of plaintiff and against
defendants. Defendants are hereby ordered to:
1. Immediately return to plaintiff Owner’s duplicate copy of
TCT No. T-8648 covering the latter’s Ozamis lot free from all
liens and encumbraces;
2. Convey to plaintiff Lot Nos. 800-A-1-A under Tax
Declaration No. 03242, 800-A-4 under Tax Declaration No.
0133513, 800-A-3 under Tax Declaration No. 33515, Lot 800-
A-2 under Tax Declaration No. 33516. If said loands [sic] have
been transferred to third parties, defendants shall pay plaintiff
the price of said lot or lots which have been transferred to third
parties, which is hereby fixed at P170.00 per square meter
with interest at the legal rate from date of transfer to third
parties;
3. Reimburse plaintiff with the taxes paid on the lands which is
P2,343.63 with interest at the legal rate;
4. Pay plaintiff moral damages of P100,000.00; exemplary
damages of P50,000.00; attorney’s fees of P25,000.00;
litigation expenses of P10,000.00 plus costs.
Third Party Complaint is hereby dismissed with costs against
defendants-third party plaintiffs.
SO ORDERED.”
Dissatisfied with the decision of the trial court, private
respondents filed an appeal with the Court of Appeals. After
due consideration of the parties’ respective Briefs,[26]
respondent court promulgated the questioned decision[27] on
June 25, 1991, the dispositive portion of which reads:
“WHEREFORE, the decision dated January 20, 1988 is
hereby annulled and set aside and another one is rendered,
as follows:
1. Sustaining the validity and effectiveness of the sale of Lot
800-A-1-B in favor of appellee;
2. Ordering appellants to return to appellee the owner's
duplicate of TCT T-8648;
3. Ordering appellants to execute a Deed Of Absolute Sale in
favor of appellee over Lot 800-A-1-A at P300.00/sq. m., within
thirty (30) days from the finality of this decision;
4. Ordering appellee to cause the discharge and free lots 800-
A-2, 800-A-3 and 800-A-4 from mortgages, liens and
encumbrances within thirty (30) days from the finality of this
decision;
5. If appellee fails to discharge said lots from the mortgages,
liens and encumbrances, then appellee is ordered to pay their
value at P300/sq. m. within thirty (30) days from the finality of
this decision; and,
6. Without pronouncement as to costs.
SO ORDERED."
The Motion for Reconsideration[28] filed by petitioner was
denied by the respondent court for lack of merit, by virtue of a
Resolution[29] dated September 27, 1991. Petitioner, impugns
said decision and resolution of the Court of Appeals and, filed
this petition for certiorari[30] on October 19, 1991. The
comment[31] thereto was filed by private respondents on
December 19, 1991. Petitioner filed a reply[32] dated November
28, 1991. By the Resolution[33] of this Court dated January 15,
1992, the parties were required to submit their respective
memoranda. A manifestation[34] was submitted by petitioner
stating that she is adopting the petition dated October 17,
1991 and her reply as her memorandum, which manifestation
was noted by Resolution[35]of October 28, 1992. Private
respondents filed their memorandum[36] on February 24, 1992
while petitioner submitted her memorandum on February 15,
1993.[37]
In her Memorandum, petitioner submitted the following
arguments:
1. The respondent court illegally made a contract
between the parties in rendering the questioned
decision which is diametrically opposed to the
evidence presented by the parties in the court a
quo.
2. The issues raised in the instant petition are purely
legal and, therefore, cognizable by this Honorable
Court.
The petition is meritorious.
While it has always been the policy of this Court to review
only errors of law from decisions elevated to it from the Court
of Appeals in a petition for certiorari under Rule 45 of the
Revised Rules of Court, this rule is not absolute. Thus, in
Floro vs. Llenado,[38] we stated:
"In a petition to review the decision of the Court of Appeals
under the Rule 45 of the Rules of Court, the jurisdiction of the
Court is ordinarily confined to reviewing errors of law
committed by the Court of Appeals, its findings of fact being
conclusive on the Court. There are however exceptional
circumstances that would compel the Court to review the
findings of fact of the Court of Appeals, summarized in
Remalante vs. Tibe and subsequent cases as follows: 1)when
the inference made is manifestly mistaken, absurd or
impossible; 2) when there is grave abuse of discretion; 3)
when the finding is grounded entirely on speculations,
surmises or conjectures; 4) when the judgment of the Court of
Appeals are based on misapprehension of facts; 5) when the
findings of facts are conflicting; 6) When the Court of Appeals
in making its findings went beyond the issues of the case and
the same is contrary to the admissions of both appellant and
appellee; 7) when the findings of the Court of Appeals are
contrary to those of the trial court; 8) when the findings of facts
are conclusions without citations of specific evidence on which
they are based; 9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties
and which if properly considered would justify a different
conclusion; and 10) when the findings of fact by the Court of
Appeals are premised on the absence of evidence and are
contradicted by the evidence on record."
It appears that the instant case is within the purview of the
seventh exception. The respondent court's findings and
conclusions are clearly contrary to those of the trial court.
The first issue to be resolved is the determination of the
real agreement of the parties. Petitioner claims that their
verbal agreement was for her to secure loans from financial
institutions using private respondents' real properties as
collaterals. Though petitioner would pay the loan amortization,
the proceeds of the loan would be shared by them and
whatever amount actually received by private respondents
would then be treated as purchase price of the lot covered by
the loan releases at an agreed price of P170.00 per square
meter,[39] hence, the number of lots that would be conveyed
depends on the amount of loan proceeds actually received by
private respondents. Denying these assertions, private
respondents alleged that petitioner orally agreed to buy the six
subject lots for P699,890.00 at a rate of P170.00 per square
meter,[40] the purchase price of which would be paid by the
loan proceeds that would be secured by petitioner using the
same lots as securities. They alleged that the transfer of the
lots would be made only upon completion of payment.[41]
Upon a painstaking review of the records, this Court is
persuaded to affirm petitioner's claim.
In arriving at a sensible meaning of the agreement of the
parties, the first thrust of the Court is to discover and ascertain
the intention of the contracting parties. And in order to judge
the intention of the contracting parties, their contemporaneous
and subsequent acts shall be principally considered.[42]
Private respondents admitted to have conveyed to
petitioner Lot No. 800-A-1-B as an initial step to consummate
the agreement[43] although petitioner gave a partial amount
only of the total purchase price of P699,890.00. Where the
parties to a contract have given a practical construction by
their conduct, as by acts in partial performance, such
construction may be considered by the court in determining its
meaning and ascertaining the mutual intention of the parties at
the time of the contracting. [44] If it were true as private
respondents claim that their agreement was for the transfer of
the subject lots only upon payment of the full consideration of
P699,890.00, why then did private respondents execute a
deed of sale over Lot No. 800-A-1-B although they knew too
well that a partial amount only of the purchase price was paid.
No credible explanation was given by private respondents.
The act of executing the Deed of Sale of Real Property
(Exhibit M) by the private respondents obviously destroys their
claim that their agreement was for the conveyance of the
parcels of land only upon full payment of the purchase price.
This circumstance is decisive and we are convinced that their
intention was that every lot covered by the loan proceeds
given from time to time by petitioner to private respondents,
are to be transferred to the petitioner.
Respecting Lot No. 800-A-1-B, petitioner claims that the
consideration for the same is only P25,120.00 as reflected in
the Deed of Sale of Real Property while private respondents
aver that it should be P53,380.00 as can be gleaned from the
Deed of Agreement. The relevant portions of the Deed of Sale
of Real Property,[45] Deed of Agreement[46] and Supplemental
Agreement to the Deed of Agreement Dated June 6, 1983, [47]
which are the three contracts involved in the sale of the
subject lot, are reproduced as follows for clarity:
DEED OF SALE OF REAL PROPERTY
"xxx xxx xxx.
That we, GERARDO PARAY and MARIA S. PARAY, x x x in
consideration of the sum of TWENTY FIVE THOUSAND ONE
HUNDRED TWENTY (P25,120.00) PESOS Philippine
Currency, to us in hand paid by CARMELA R. KUIZON, x x x
do hereby SELL, CEDE, TRANSFER, AND CONVEY unto
CARMELA R. KUIZON x x x that certain portion of land x x x
particularly described as follows:
TRANSFER CERTIFICATE OF TITLE
NO. 84791
TAX DECLARATION NO. 01-33512
Property Index No. 152-1-14-0004
xxx xxx xxx
TECHNICAL DESCRIPTION
Lot 800-A-1-B, Psd-07-01-008471
A parcel of land (Lot 800-A-1-B of the subdivision plan Psd-07-
008401 xxx) xxx; containing an area of THREE HUNDRED
FOURTEEN (314) SQUARE METERS xxx."
xxx xxx xxx."
DEED OF AGREEMENT
"xxx xxx xxx.
That we, GERARDO PARAY and MARIA S. PARAY, x x x; and
CARMELA R. KUIZON, x x x, due to the Deed of Sale of Lot
800-A-1-B, Psd-07-008401, x x x, executed by GERARDO
PARAY and MARIA S. PARAY in favor of CARMELA R.
KUIZON, do hereby agree x x x:
1. xxx.
2. That the consideration of the Deed of Sale is TWENTY
FIVE THOUSAND ONE HUNDRED TWENTY (P25,120.00)
Philippine Currency, the down payment in the amount of
TWENTY THOUSAND (P20,000.00) PESOS, Philippine
Currency; and the remaining balance is THIRTY THREE
THOUSAND THREE HUNDRED EIGHTY (P33,380.00)
Pesos, Philippine Currency;
3. That as security and collateral of the said deed of sale, the
vendee, CARMELA R. KUIZON offered as her collateral to the
balance of THIRTY THREE THOUSAND THREE HUNDRED
PESOS Lot No. 5284 x x x, covered by TRANSFER
CERTIFICATE OF TITLE NO. T-8648; in an area of THIRTY
THOUSAND NINE HUNDRED ELEVEN x x x.
xxx xxx xxx."
SUPPLEMENTAL AGREEMENT TO THE DEED OF
AGREEMENT DATED JUNE 6, 1983
"xxx xxx xxx.
That I, CARMELA R. KUIZON, x x x do hereby agree, consent,
accede to the spouses, GERARDO PARAY and MARIA S.
PARAY x x x, THAT:
I cannot dispose by sale Lot 800-A-1-B containing an area of
THREE HUNDRED FOURTEEN SQUARE METERS (314)
more or less;
That if ever I wanted to dispose by SALE, I would secure the
consent and approval of the spouses, GERARDO PARAY and
MARIA S. PARAY.
xxx xxx xxx."
The Deed of Sale is duly notarized while the Deed of
Agreement and the Supplemental Agreement are not
notarized. All the three documents are dated June 6, 1983.
Sustaining private respondents’ view, the respondent court
found that since the agreed price is P170.00 per square meter,
the cost of the lot which has an area of 314 square meters
would be P53,380.00.[48] With the down payment of
P20,000.00, there would be an outstanding balance of
P33,380.00.[49] This is the reason according to respondent
court why the parties had to execute the Deed of Agreement to
reflect the balance of P33,380.00 and why petitioner had to
issue the UCPB check No. CBU-293316 for the same amount,
payable to the order of Maria Paray, which however was not
encashed due to unavailability of funds.[50]
It is well settled that in construing a written agreement, the
reason behind and the circumstances surrounding its
execution are of paramount importance to place the interpreter
in the situation occupied by the parties concerned at the time
the writing was executed.[51] Admittedly, the intention of the
contracting parties should always prevail because their will
has the force of the law between them.[52] The respondent
court apparently failed to consider certain relevant facts and
circumstances surrounding the execution of the documents
involved which, if appreciated, would clearly determine the
intention of the parties and would result to a different
conclusion. First, the sale of Lot No. 800-A-1-B was an
incentive given to petitioner who acquiesced to the proposal of
private respondents of securing loans for them by using their
lands as collaterals. As compared to the other five lots which
had a price of P170.00 per square meter, Lot No. 800-A-1-B
had a lower cost of P25,120.00 precisely to serve as an
inducement of private respondents for petitioner to agree to
their transaction. As testified to by petitioner:
"Atty. Fernandez:
Did you agree to the proposal which you narrated?
Kuizon:
 Well, at first I was hesitant firstly because I have
no experience in borrowing money especially as much
as P50,000.00, secondly, although I was looking for a
bigger space I did not have the need for five parcels of
land, however Mrs. Paray kept coming back to me to
get the money from the bank to induce me to agree to
that proposal, Mrs. Paray assured she and her
husband would immediately execute a Deed of
Absolute Sale, upon downpayment of P20,000.00 on
Lot-800-A-1-B under Tax Declaration No. 34504
consisting of 314 square meters and that they would
sell it to me at the price of only P25,000.00 as a further
incentive to my applying for the loan and paying it
myself.
xxx xxx xxx.
Atty. Fernandez:
xxx xxx xxx.
What prompted you to agree on the defendants'
proposal?
Kuizon:
She told me that she will sell their lot for
P25,000.00 and will accept a down payment of
P20,000.00.
Atty. Fernandez:
What lot are you referring to?
Kuizon:
Lot 800-A-1-B."[53]
Second, petitioner and private respondents in executing
the Deed of Agreement did not intend to be bound by the
provisions thereof. The alleged balance of P33,380.00 was
indicated in the Deed of Agreement because private
respondents wanted petitioner to issue a postdated check for
the same amount to pay the former’s certain obligations.
Thus, the UCPB check which was issued afterwards, was not
intended for the payment of the alleged balance of P33,380.00
as appearing in the Deed of Agreement but was made by
petitioner to enhance the standing of private respondents to
their creditors. Petitioner’s testimony in this regard is
enlightening. Thus,
Atty. Fernandez:
"So after this receipt was signed or was made out
by Mrs. Paray to you, what happened if any?
Kuizon:
On June 6, 1983 defendants returned to me with
the Deed of Sale.
Atty. Fernandez:
Are you referring to this Exhibit M?
Kuizon:
Yes Sir. Together with the Deed of Sale, they
handed the deed of agreement which is Annex A to
their Answer and supplemental agreement which is
Annex B to their Answer.
Atty. Fernandez:
When they returned to you with these documents
what happened if any?
Kuizon:
They told me that they will give me this Deed of
Sale but I have to sign these two documents. I told
them that I could Sign the Supplemental Agreement
because it prohibits me from selling the land unless the
balance of P5,000.00 is being paid off. I told them I
could sign this because I have no intention of selling
this lot. But I told them I could not sign the Deed of
Agreement because it did not tell the truth that the
purchase price of Lot 800-A-1-B was only P25,000.00.
Atty. Fernandez:
When you told Mrs. Paray that you will not sign
Annex A of their Answer what happened next, what did
you do?
Kuizon:
 When I told her I could not sign Annex A she said
that the P33,380.00 was just indicated there because
she wanted me to issue a postdated check, such
amount to pay off certain obligation of the same
amount, anyway she said that this will be charged
against any loan releases, so because I trusted them I
must issue a postdated check Annex C to the Answer, x
x x.
Atty. Fernandez:
So when Mrs. Paray explained to you that
P33,380.00 only represented certain obligation, what
did you do if any?
Kuizon:
She told me that the P33,380.00 was just indicated
there because she wanted to pay certain obligations in
such amount that she wanted me to issue a postdated
check from the P33,380.00 which is just to support the
check.”[54]
Third, private respondents did not deny any of these
statements of petitioner. They gave no sensible explanation
regarding the discrepancy in the consideration between the
Deed of Sale and Deed of Agreement and no reason
whatsoever was given as to why the Deed of Agreement,
unlike the Deed of Sale, was not notarized, although both had
the same date. Their allegation that upon request of petitioner
the amount of P25,120.00 was placed in the Deed of Sale as
the consideration of the sale so that petitioner would pay
lesser taxes deserves scant consideration because as pointed
out correctly by the trial court the liability to pay capital gains
tax falls not on the buyer but on the seller, the private
respondents in this case.
Considering these circumstances, we find that the Deed
of Sale is the embodiment of the parties' true agreement. The
consideration in the sale of Lot 800-A-1-B is P25,120.00 only
which as appearing on record was fully paid by petitioner.
The Deed of Agreement was executed merely to suit private
respondents' nefarious motive of boosting their credit image
with an understanding that it was not to become binding and
operative between themselves. At most it was a simulated
agreement[55] which is not really designed nor intended by the
parties to produce legal effects. As a fictitious and simulated
agreement it lacks valid consent so essential to a valid and
enforceable contract.
In compliance with their agreement, petitioner remitted to
private respondents the sum of P198,000.00 which represent
the loan proceeds secured by her. Deducting the sum of
P25,120.00 which was the price of Lot No. 800-A-1-B from the
abovestated amount, there is still a remaining balance of
P172,880.00 in the hands of private respondents. With this
available amount she specifically asked in her Complaint for
the conveyance of Lot No. 800-A-1-A to provide a lawn space
to Lot No. 800-A-1-B which was just adjacent to it. Private
respondents were also willing to sell Lot No. 800-A-1-A as can
be deduced from the allegations in their Answer. These
circumstances were amply taken into account by respondent
court which properly considered and appreciated the foregoing
manifestations of the parties when it ruled for the execution of
a deed of sale over Lot No. 800-A-1-A. The respondent court
stated:
"It is observed in appellee's first cause of action, in connection
with her general quest that appellants be directed to execute
deeds of absolute sale, that she specifically mentioned lot
800-A-1-A containing an area of 250 sq. m., alleging in
paragraph 1.13 of her complaint, that when she offered lot
800-A-1-B to the prospective buyers, they signified their
intention to buy that lot "x x x only if adjacent Lot No. 800-A-1-
A was included in the sale to provide a loan thereto". In
connection with such specific quest, there is in appellant's
answer, specifically paragraph 3-(j), that "when plaintiff
negotiated to discontinue the agreement and offered to
proceed only with the sale of lots nos. 800-A-1-B and 800-A-1-
A with 314 and 250 square meters in area respectively,
defendants demanded that they would return the excess
minus the cost of the two lots x x x provided that all other
properties be cleared of all the encumbrances, liabilities and
mortgages since they were not benefited by the same. x x x."
"In the light of the above manifest submissions of the
contending parties, in their respective prayer, most specially
the underlined portion in appellants’ answer, it is appropriate,
fair and just to require appellants to execute a deed of sale in
favor of appellee over Lot 800-A-1-A, containing an area of
250 sq. m., x x x."
While we agree with the foregoing observations of
respondent court, we do not find it proper to use the fair
market value of P300.00 per square meter as the price of Lot
800-A-1-A or for a total cost of P75,000.00. This is not in
accord with the contract between the parties. It is not the
province of the court to alter a contract by construction or to
make a new contract for the parties; its duty is confined to the
interpretation of the one which they have made for themselves
without regard to its wisdom or folly as the court cannot supply
material stipulations or read into the contract words which it
does not contain.[56]
Their agreement is that every parcel of land covered by
the loan releases would be conveyed at an agreed price of
P170.00 per square meter. As testified to by private
respondent Maria Paray, to wit:
Q "What transpired when Carmela Kuizon was
introduced to you?
A Carmela Kuizon told me that she is going to buy
my land.
Q Was there in effect an agreement to buy the
land?
A There was.
Q For what price was the land to be purchased?
A At P170.00 per square meter."[57]
This price of P170.00 per square meter was confirmed by
petitioner. She declared:
Atty. Fernandez:
"My question your honor is at what point did you
agree to fix the price of P170.00?
xxx xxx xxx.
Kuizon:
Well, before the SPAs were executed the price we
agreed was P130.00 but after the execution of the
SPAs they increased the price from P130 to P170.00
per square meter."[58]
It is undisputed that the selling price of the real property
involved as agreed upon by the parties is P170.00 per square
meter. That which is agreed to in a contract is the law
between the parties. Thus, obligations arising from contracts
have the force of law between the contracting parties and
should be complied with in good faith.[59] This, not withstanding
the findings of the respondent court to the effect that-
xxx it is appropriate, fair and just to require appellants to
execute a deed of sale in favor of appellee over lot 800-A-1-A,
containing an area of 250 sq. m. at P300.00/sq. m. which is
the present “fair market value” of the property x x x (Decision,
p. 28).
We cannot make a new contract for the parties in the case at
bar. Neither can “present market value” result to a novation,
which cannot be presumed; neither can we disturb the
consensuality of a contract of sale where the rights and
obligations of the parties are determined at the time it was
entered into, but above all, courts are not to play as decision -
makers as to the terms of a business contract when it is not
asked to play that role. The sanctity of contracts must be
respected and delicately preserved.
Consequently, from the amount of P198,000.00, the sums
of P25,120.00 which is the consideration of the sale of Lot No.
800-A-1-B and, P42,500.00 which is the purchase price of Lot
No. 800-A-1-A shall be deducted thereby leaving a balance of
P130,380.00. In the Answer of private respondents, they
demanded for the payment of P76,200.07 which represents
the advances or loans extended to petitioner in finishing the
construction of her house on Lot No. 800-A-1-B. On this, we
agree with the findings of the respondent court upholding the
validity of the loans in the amount of P67,326.07,[60] which shall
be deducted from the balance of P130,380.00. We find the
evidence for private respondents as adequate to establish
their cause of action against the petitioner. As it is, the mere
denial of petitioner cannot outweigh the strength of the
documentary evidence presented by and the positive
testimony of private respondents. As a jurist once said, "I
would sooner trust the smallest slip of paper for truth than the
strongest and most retentive memory ever bestowed on moral
man."[61] In De Gala vs. De Gala,[62] this court stated, thus:
"x x x. It is a general rule of evidence, that all other things
being equal, affirmative testimony is stronger than negative; in
other words, that the testimony of a credible witness, that he
saw or heard a particular thing at a particular time and place is
more reliable than that of an equally reliable witness who, with
the same opportunities, testifies that he did not hear or see the
same thing at the same time and place."
Petitioner would like us to believe that the P100,000.00
allegedly given as grease money to bank fixers would be
credited against the account of private respondents.[63]
Petitioner claims that this amount was given to bank personnel
to facilitate the approval of the loans. Admittedly, the sum of
P100,000.00 as alleged by petitioner was part of the total net
proceeds of the loan in the amount of P492,002.04. The
respondent court seasonably denied this claim of petitioner.
Bare allegations which are not supported by any evidence,
documentary or otherwise, sufficient to support her claim fall
short to satisfy the degree of proof needed. We likewise agree
with the findings of the respondent court which reads in part,
viz.:
"Appellee moreover claimed to have given P100,000.00 to
appellants, which was handed every now and then in the
amount of P20,000.00 or P30,000.00, and admittedly that the
same was not receipted for. She has not explain why she did
not demand a receipt, when, on the contrary, she demanded
receipts for the P20,000.00, the P78,000.00, and the
P100,000.00 when she delivered them on May 25, 1983;
November 28, 1983; and February 14, 1984 (exhibits I, J and
K). As appellee so expressed, that amount were given as
"grease money" to facilitate the approval and release of the
loans themselves. For this reason, that sum cannot be
credited against the account of appellants, and unfair, unjust
and uncalled for to consider the same as representative/part of
the purchase price of appellants’ properties. x x x."[64]
Petitioner also claims that she was forced by private
respondents to construct the house on Lot No. 800-A-1-B,
hence, the amount of P194,002.04 which were used in the
building of the house should likewise be credited against the
account of private respondents and be considered as part of
the purchase price of the real properties involved. Simply
stated, this allegation does not deserve any credence. We
take note of the fact that petitioner was already the owner of
Lot No. 800-A-1-B as early as June, 1983 when the Deed of
Sale over said lot was executed and delivered to her by
private respondents. By law, all works, sowing and planting
are presumed made by the owner and at his expense, unless
the contrary is proved.[65] No convincing and sufficient
evidence whatsoever was presented by petitioner to rebut the
presumption. On the contrary she admitted that she spent an
additional amount of P100,000.00[66] in building the house.
She also incurred loans from private respondents and used
them in the construction of the house. These circumstances
clearly show that she of her own volition decided to build the
house on Lot No. 800-A-1-B.
We are not, however, inclined to toe the line of the trial
court’s finding that private respondents are liable for fraud.
Fraud is the deliberate or intentional evasion of the normal
fulfillment of an obligation.[67] The mere failure of private
respondents to execute a deed of sale because they
demanded first an accounting of the lots used as collaterals by
petitioner and the amount of loans secured[68] could not be
considered as fraud. Fraud is never presumed. It must be
alleged and proven[69] Fraus est odiosa et non praesumenda.
Fraud is negated when private respondents have partially
performed their obligation when they executed a deed of sale
over Lot No. 800-A-1-B. Likewise, as appearing on record,
private respondents intimated their willingness to execute a
deed of sale over Lot No. 800-A-1-A. The testimony of private
respondent Maria Paray confirms this, thus:
“REDIRECT EXAMINATION
BY ATTY. VALENTINO LEGASPI
Now, you stated in your cross examination that
you refused to transfer a part of the lands even though
you have received already P198,000.00, my question
is, what was the offer of Carmela Kuizon with respect
to the land which were not covered by the payment
which is the subject of the mortgage?
 Mrs. Maria Paray: aspects of the instant case as far as the law and the
circumstances would allow and permit.
What Carmela Kuizon suggested to me is that I
would execute in her favor a Deed of Absolute Sale for IN VIEW OF THE FOREGOING PREMISES, the
the area of 250 sq. m. but what I can say is that the title appealed decision is hereby AFFIRMED with modifications:
covering this lot has been mortgage by her to J
1. Ordering private respondents to execute A Deed
Finance so I think it would not be wise for me as yet to
execute that Deed of Sale in her favor. of Absolute Sale over Lot No. 800-A-1-A at a price
of P170.00 per square meter within thirty (30) days
Atty. Valentino Legaspi: from finality of the decision;
In this connection did Carmela Kuizon agree to 2. Ordering private respondents to reimburse
release other titles not covered by the payment? petitioner the amount of P63,053.93 with legal
interest within 30 days from finality of the decision.
xxx xxx xxx.
Without pronouncement as to costs.
Mrs. Maria Paray:
SO ORDERED.
What Carmela Kuizon told me is that, if I will
execute a Deed of Sale in her favor for the area of 250
square meters she would pay off her other obligations,
get the title and return the titles to me.
Atty. Valentino Legaspi:
And what was your answer?
Mrs. Maria Paray:
I went to see her lawyer Atty. Fernandez and I told
Atty. Fernandez to please call his client Carmela
Kuizon to pay off to clear the titles so that the titles will
be returned to me and that I will be ready to execute a
Deed of Sale of the 250 sq. m.”[70]
Lest we unnecessarily traverse the fact-finding role of the
trial court, we echo once more what has been said in Vales vs.
Villa (35 Phil. 76) thus:
“Men may do foolish things, make ridiculous contracts, use
miserable judgment, and lose money by them - indeed, all
they have in the world; but not for that alone can the law
intervene and restore. There must be, in addition, a violation
of law, the commission of what the law knows as an actionable
wrong, before the courts are authorize to lay hold of the
situation and remedy it.”
We have, as a final note, considered the remediable

G.R. No. L-55998 January 17, 1985
RAMON MAGSAYSAY AWARD FOUNDATION, Petitioner,
vs. THE COURT OF APPEALS and SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA, Respondents.chanrobles
virtual law library
TEEHANKEE, J.:
The case was argued and heard on the merits and submitted
for resolution as per the Court's Resolution of November 24,
1982 issued after the
hearing.chanroblesvirtualawlibrarychanrobles virtual law
library
Private respondent law firm of Salcedo, Del Rosario, Bito,
Misa and Lozada (now Bito, Misa and Lozada) was the lessee
of the whole 9th floor of petitioner's building with an area of
839.9 sq. m. on Roxas Blvd., Manila under a written five-year
lease contract commencing March 11, 1968 and expiring on
March 10, 1973 with express provisos against any extension
or renewal by implication of the lease and for the review of the
rental rate at the end of the second year of the lease and
every two years thereafter, as follows:
This Contract shall not be deemed extended or renewed by
implication beyond the aforesaid period (5 years) for any
cause or reason whatsoever, but only by negotiations on or
before ninety (90) days prior to the expiration of this
Contract.chanroblesvirtualawlibrarychanrobles virtual law
library
3. The rent herein provided shall be subject to review at the
end of the second year from the effective date of this Contract,
and every two (2) years thereafter. Adjustment shag be
effected in the rental rate commensurate with increase(s) in
operating expenses, including costs of labor, utilities, essential
materials and insurance.chanroblesvirtualawlibrary chanrobles
virtual law library
The rental rate may also be adjusted as necessary to take
account of any change in the official dollar/peso exchange of
the Central Ban k of the Philippines from the rate which was in
effect on date of this
Contract.chanroblesvirtualawlibrarychanrobles virtual law
library
The adjusted rent, shag apply only to the two-year period
following each review.
The stipulated rental rate included costs of electricity, water,
maintenance contracts (elevator, security and janitors),
building insurance, personnel (maintenance, building
administration, cleaning supplies, etc.), all of which were borne
and paid by petitioner-
lessor.chanroblesvirtualawlibrarychanrobles virtual law library
The original stipulated rental was P11,744.60 per month
computed on the basis of P14.00 per square meter. On
January 14, 1972, before the end of the fourth year of the
lease, petitioner notified respondent that in accordance with
the abovecited rental adjustment clause, it was increasing the
monthly rental rate from P14.00 to P16.00 per square meter or
a total monthly rental of P13,422.20. Meantime, there were
negotiations for the renewal of the five-year lease contract.
Petitioner sent on May 16, 1973 the draft of a renewal lease
contract covering a period of two years from March 11, 1973
and providing for a rental rate of P17.00 per square meter or a
total of P14,261.30 per month. The parties negotiated and
practically agreed with regard to the rate per square meter but
disagreed on the question of back rentals due from
respondent on the basis of the adjusted rate of P16.00 per
square meter corresponding to the last nine months of 1972.
What transpired thereafter is substantially set forth in the
appellate court's decision, as follows:
On June 8, 1973, the private respondent returned the said
draft to the petitioner requesting that it be finalized but with the
last sentence of paragraph 2 thereof to read as follows: "The
period from March 11, 1973 to June 10, 1973 shall be at the
rate of P16.00 per sq. m or P13,422.40 per month" (Exh. K).
On June 13, 1973, the petitioner sent back the final draft to the
private respondent with the correction suggested by the latter,
but with an added footnote reading: "Following the same rate
of P16.00 per square meter or P13,422.20 per month which
took effect March 11, 1972." (Exhs. L and L-
1).chanroblesvirtualawlibrarychanrobles virtual law library
On June 16, 1973, the private respondent returned to the
petitioner said new lease contract already signed by private
respondent, after its deletion of the footnote (Exh. M-1). The
agreed monthly rental appearing on the said contract of lease
was P14,261.30 at the rate of P17.00 per square meter
effective June 11, 1973. However, the monthly rental for the
period of three months from March 11, 1973 to June 10, 1973
was P13,422.20, based on the P16.00 per square meter (Exh.
M).chanroblesvirtualawlibrarychanrobles virtual law library
The private respondent began paying the new monthly rental
based on P17.00 per square meter starting June 11, 1973
(Exhs. 16 to 16-A). It also gave the additional sum for the
three months' deposit based on the new monthly rent (Exhs.
17,17-A and 17-B).chanroblesvirtualawlibrarychanrobles
virtual law library
On September 18, 1973, the petitioner wrote a letter to the
private respondent inquiring as to what decision it has arrived
at, after the arrival of Atty. Bito, regarding the settlement of
its arrearages, with the information that its occupancy of the
premises on a month-to-month lease was against the policy of
the petitioner's Board of Trustees (Exh.
X).chanroblesvirtualawlibrarychanrobles virtual law library
On September 19, 1973, the private respondent replied with a
disclaimer of the alleged unpaid back rentals, and a request
for a copy of the lease contract as renewed duly signed by the
Chairman of the petitioner's Board of Trustees (Annex
N).chanroblesvirtualawlibrarychanrobles virtual law library
On September 29, 1973, the petitioner replied by letter to the
effect that, as it appeared that there was no meeting of the
minds on the matter, it has no recourse but to refer the same
to its counsel (Exh. O-1).chanroblesvirtualawlibrarychanrobles
virtual law library
On April 6, 1974, the petitioner wrote a letter advising the
private respondent that it found it necessary to increase the
rate of P25.00 per square meter, effective April 1, 1974, in
view of increased expenses of operation (Exh. P). However,
the private respondent continued its payment of the monthly
rental at the rate of P17.00 per square
meter.chanroblesvirtualawlibrarychanrobles virtual law library
On October 21, 1974, the petitioner's counsel wrote a letter to
the private respondent stating that, if it was agreeable to pay
the rental arrearages at the rate of P16.00 per square meter
from March 11, 1972 to December 31, 1972, and to pay the
rentals at P25.00 per square meter a month from April 1,
1974, less its remittances of P17.00 per square meter a
month, the petitioner was willing to sign a new lease contract
for a period of two years, effective April 1, 1974, subject to the
new provisions which have been forwarded to the private
respondent earlier (Exhs. R and R-
1).chanroblesvirtualawlibrarychanrobles virtual law library
On January 3, 1975, the petitioner again notified the private
respondent that it was increasing the rental rate to P30.00 per
square meter effective January 1, 1975 (Exh.
S).chanroblesvirtualawlibrarychanrobles virtual law library
On January 20, 1975, the petitioner's counsel sent a letter to
the private respondent demanding that it vacate the premises
not later than January 31, 1975, and that it pay the rental in
arrears amounting to P110,212.21 (Exh.
T).chanroblesvirtualawlibrarychanrobles virtual law library
On January 23, 1975, the private respondent wrote back
stating that the petitioner has not given any factual or legal
basis for its claim for back rents and that the private
respondent had earlier given its position on the matter (Exh.
11).chanroblesvirtualawlibrarychanrobles virtual law library
On June 27, 1975, the petitioner filed a complaint for
ejectment against the private respondent before the City Court
of Manila (Civil Case No. 001074 CV), whose decision
thereon, as earlier stated, was modified on appeal by the
Court of First Instance of Manila (Civil Case No. 12076). The
judgment of said court is now the subject of this petition for
review.chanroblesvirtualawlibrarychanrobles virtual law library
In resolving the issues raised by both parties, the
Court a quo made the following factual findings and
conclusions: (1) that a renewal of the contract of lease was
perfected by the parties covering a period of two years, from
March 11, 1973 to March 10, 1975, with the rate of rental fixed
at P17.00 per square meter effective June 11, 1973; (2) that
after the expiration of the said two-year period, there was an
implied new lease under the provisions of Art. 1670 of the Civil
Code; (3) that private respondent, as lessee, having occupied
the premises for over one year, the court, under Art. 1687 of
the Civil Code may fix a longer term for the lease, which it did
by giving the private respondent a period of one year from the
finality of the judgment before vacating and delivering
possession thereof to the petitioner, as lessor; and (4) that the
private respondent is not liable to pay the petitioner deficiency
rentals in the amount of P16,276.11 corresponding to March
11, 1972 to December 3, 1972. (Record, pp. 26-27)
On appeal by petitioner, respondent appellate court affirmed
the court a quo's judgment dismissing petitioner's complaint
praying for reasonable compensation for the use of the leased
premises beyond the contracted period and set aside only the
fourth ruling of said court disallowing petitioner's claim of
deficiency rentals for 1972 and instead ordered respondent "to
pay said petitioner as deficiency rentals for the months of April
May, June, July, August, September, October, November and
December 1972, the sum of P16,236.00, with interest at the
legal rate from the firing of the complaint."chanrobles virtual
law library
1. The first issue is whether under the above-recited facts,
there had been a meeting of the minds between the parties on
the two-year renewal of their lease contract at the rate of
P17.00 per square meter for the period from March 11, 1973
thru March 10, 1975. On this point, the appellate court ruled
against petitioner, holding as follows:
... It is noted that, even before the expiration on March 10,
1973, of the original 5-year term of the lease (Exh. A), the
parties had been exchanging communications regarding its
renewal These exchanges reached the point of agreement on
the conditions therefor, to wit:chanrobles virtual law library
1. The period of this Contract shall be for two (2) year(s)
beginning March 11, 1973 and terminating March 10, 1975,
unless sooner terminated as elsewhere provided
herein.chanroblesvirtualawlibrarychanrobles virtual law library
This Contract shall not be deemed extended or renewed by
implication beyond the aforesaid period for any cause or
reason whatsoever, but only by negotiations on or before
ninety (90) days prior to the expiration of this
Contractchanrobles virtual law library
2. LESSEE shall pay LESSOR for the use and occupancy of
the premises hereby a monthly rent of Pesos Fourteen
Thousand Two Hundred Sixty-One & 30/100 (P14,261.30),
Philippine Currency, during the term of this Contract effective
June 11, 1973. This monthly rent is based on Pesos
Seventeen (P17.00) per square meter. The period from March
11, 1973 to June 10, 1973 shall be at the rate of P16.00 per
square meter or P13,422.40 per month. (Exhibit
M).chanroblesvirtualawlibrarychanrobles virtual law library
The unilateral deletion of the footnote made by the private
respondent (Exh. L-1) from the final draft of the new lease
contract cannot detract from the meeting of the minds reached
by the parties insofar as its consideration and terms are
concerned. We concur in the observation of the court a
quo, that the parties' dispute over the increase of rental rate
from P14.00 to P16.00 per square meter had no relevance to
the perfection of the agreement to renew the lease. In fact,
during the negotiations, although petitioner adverted to the
arrearages in rental still due from the private respondent, it
appears that said claim had been treated as a distinct or
separate matter such that its resolution was not considered a
condition precedent to the renewal under
negotiation.chanroblesvirtualawlibrarychanrobles virtual law
library
That the parties had reached an agreement on the renewal of
the lease contract finds support in the fact that it was even
implemented by the parties. Thus, with RMC Bill No. 2367
(Exh. 16-A), the petitioner started billing the private
respondent at the rate of P17.00 per square meter starting
June 11, 1973, and this was paid by the petitioner (Exh. 16).
And, under RMC Bill No. 2370 (Exh. 17), the petitioner billed
the private respondent the additional sum of P7,550. 1 0 for
the three months' deposit due to increase in rental rate
effective June 11, 1973, which amount was paid by the
petitioner (Exit 17-A). (Record, pp. 28-28-A; emphasis copied)
The Court finds this ruling that the parties had in fact agreed
on the two-year renewal of the lease thru their exchanges of
letters and implementing acts as above recited -
notwithstanding that the draft renewal contract had not been
signed by petitioner - to be in accordance with the facts and
the law. The only point of disagreement was with reference to
the deficiency rental arrearages based on the previous
adjusted rate of P16.00 per square meter but we find no
reason to disturb the appellate court's observation that "during
the negotiations, although petitioner adverted to the
arrearages in rental still due from the private respondent, it
appears that said claim had been treated as a distinct or
separate matter such that its resolution was not considered a
condition precedent to the renewal under negotiation." As
already indicated hereinabove, the appellate court did in its
decision overrule the court a quo and ordered the payment of
the deficiency rentals claimed by petitioner for 1972 in the total
sum of P16,236.00.chanroblesvirtualawlibrarychanrobles
virtual law library
2. But the appellate court erred in upholding the trial court's
judgment that after the expiration of the two-year period of the
renewed lease on March 10, 1975, there was an implied new
lease under the provisions of Art. 1670 of the Civil Code at the
same no longer adequate rental rate of P17.00 per square
meter. The appellate court equally erred in not awarding the
petitioner the reasonable compensation for respondent's
detention of the leased premises after March 10, 1975, in
accordance with the adjusted increased rentals charged by
petitioner against all other tenants of its Ramon Magsaysay
Award Foundation Building and duly accepted and paid by
said tenants which amounted to P25.00 per square meter from
April 1, 1974, P30.00 from January 1, 1975, P35.00 from July
1, 1975, P40.00 from July 1, 1976 and P42.50 from January 1,
1979. These adjusted rates were duly specified by petitioner in
supplemental complaints and pleadings praying for their
payment in the detainer case. As stated in respondent's own
memorandum of facts, "the last rental rate petitioner
demanded from respondent to pay was P30.00/sq. m.
effective January 1, 1975 and, since then, no demand for
rental increases were made. However, in its Supplemental
Complaint filed in the City Court dated December 17, 1975,
petitioner prayed that respondent be ordered to pay
P35.00/sq. m. from July 1975, and in its Second Supplemental
Complaint dated August 21, 1976, P40.00/sq. m. from July
1976. (Record, p. 255)chanrobles virtual law library
After respondent during the pendency of the detainer case in
the appellate court vacated the detained premises on June 15,
1980, petitioner duly filed a manifestation and motion dated
September 11, 1980 with the said court advising it of the
return Of the possession of the premises which thereby
rendered moot the issue of any authority on the part of the
court a quo to recognize any implied lease or to fix a period of
the lease for one year more (after its expiration on March 10,
1975) and pursued its claim to the reasonable compensation
for use and occupation of the premises wrongfully detained by
respondent as per adjusted billings sent by petitioner to all its
building's occupants as of the date of the effectivity of the
adjusted rentals, and submitted that as of June 16, 1980,
respondent's liability to petitioner was in the total sum of
P2,142,620.55 broken down as follows:
March 11, 1972 - December 31,    
1972
April 1, 1974 - December 31, 1974 P25.00) (per P39,182.32
January 1, 1975 - March 10, 1975 30.00) sq. m.) 165,172.70
March 11, 1975 - June 30, 1975 30.00)  
July 1, 1975 - June 30, 1976 35.00) - 1,911,918.41
July 1. 1976 - December 31, 1978 40.00)  
January 1, 1979 - June 15, 1980 42.50)  
Pest Control & Maintenance sup-    
plies, extra power & lighting   26,347.12
Total............................   P2,142,620.55
chanrobles virtual law library
3. The appellate court in its original appealed judgment of
October 20, 1980 made no ruling whatsoever on this issue of
petitioner being entitled to reasonable compensation for the
occupancy and detention of the premises. Pressed by
petitioner in a motion for reconsideration, the appellate court in
its resolution of December 29, 1980 ruled, as follows:
The issue of increases in rentals, which the petitioner claim as
reasonable compensation for the use and occupation of the
premises in question, is anchored to its letter of April 6, 1972
(Exh. P), notifying the private respondent of the increase in
rental rate to P25.00 per sq scare meter effective April 1,
1974; its letter of January 3, 1975 (Exh. S) informing the
private respondent that the rental rate was to be increased to
P30.00 per square meter effective January 1, 1975; and its
counsel's letter of January 20, 1975 (Exh. T) demanding that
the private respondent vacate the premises not later than
January 31, 1975. Actually, said issue was resolved by the
Court a quo in this wise: ". . . . all these did not have any leg-al
effect upon the defendant's right of occupation as lessee,
because insofar as these referred to increase in rental the
renewed contract had not yet expired, hence rental as fixed
therein could not yet be altered unilaterally, and as far as the
notice to vacate was concerned, it has reference to the
expiration of the original contract on March 10, 1973, and not
to the yet to come expiry of the renewed contract" (pages 14-
15 of Decision; Annex H, Petition). The petitioner did not
specifically assign said pronouncement as one of the errors
committed by the Court a quo. A manifestation and motion
was filed (Rollo, p. 213) to bring out this
matter.chanroblesvirtualawlibrarychanrobles virtual law library
The petitioner's contention is untenable. In the first place, from
the time the renewed lease contract became effective to the
day it voluntarily left the leased property, the private
respondent had been paying the petitioner the monthly rental
of P17.00 per square meter. In the second place, the power of
the petitioner under paragraph 2 of the original contract of
lease (Exh. A) to review the rental therein provided at the end
of the second year and of every two years thereafter, cannot
be done by the lessor unilaterally. As pointed out in our
decision (page 10), there must be good reason therefor and
that the increase should be accepted by the private
respondent.
This was error. While we have upheld the appellate court's
judgment insofar as it held that there had been in effect a
renewed two-year lease contract between the parties at the
agreed rate of P17.00 per square meter up to March 10, 1975,
this stipulated rate of P17.00 per square meter could not
possibly remain the same for the period of over five years
thereafter that respondent continued wrongfully detaining the
premises, since such stipulated rental rate included the costs
of electricity, water, maintenance contracts for elevator
service, security and janitors, etc., which as will be presently
shown had risen by hundreds of per cent during the same
period. If the rental rate were not adjusted, petitioner would
have actually paid in effect for respondent's consumption of
electricity, water and other facilities at ever-increasing rates
without reimbursement, unjustly resulting in granting said
respondent practically free occupancy of the entire 9th floor
detained by it for the detainer period of over 5 years - in
violation of the fundamental principle that no one shall unjustly
enrich himself at the expense of
another.chanroblesvirtualawlibrarychanrobles virtual law
library
4. As already indicated above, upon the expiration of the
renewed two-year lease contract on March 10, 1975, petitioner
billed respondent the same adjusted and increased rental rate
per square meter that all the other building tenants were
paying, to wit, at the rate of P30.00 per square meter for the
period from March 11, 1975 to June 30, 1975; at the rate of
P35.00 per square meter for the period from July 1, 1975 to
June 30, 1976; at the rate of P40.00 per square meter for the
period from July 1, 1976 to December 31, 1978; and at the
rate of P42.50 per square meter for the period from January 1,
1979 until June 15, 1980 when respondent finally vacated the
premises during the pendency of the case in the appellate
court. That these were the prevailing rentals charged by
petitioner to all its other building tenants has not been disputed
or rebutted by respondent. Similarly, petitioner's corroborative
statement per Annex A of its motion for reconsideration that
"The six (6) sections comprising the entire 9th floor occupied
by Salcedo, et al. were immediately rented out after this tenant
vacated the premises last June 16, 1980. One middle, one
back and two Bay sections were rented out in July, 1980; one
middle section in December, 1980; and the last back section
last March, 1981, all at the prevailing rental rates of P50,00
per sq. m. for middle and back sections and P51.00 for Bay
sections. The last back section was rented out at P55.00,
which was the new rental rate as of March, 1981," has neither
been disputed nor
rebutted.chanroblesvirtualawlibrarychanrobles virtual law
library
The figures submitted by petitioner in their tabulation of cost
increases (Record, p. 206), show that the utilities and
operating costs for the maintenance of the building, all borne
by petitioner as the lessor, had progressively spiralled every
half year during the period from June, 1973 through June,
1980, as follows:
For electricity, P207,817.92 as of December, 1973, an
increase of 13.36% from the previous base cost as of June,
1973 of P183,322.50, with periodic increases to P639,176.85
as of December, 1979 (or a 248.66% increase) and to
P797,775.00 as of June, 1980 (or an increase of
335.17%);chanrobles virtual law library
For water, P4,704.92 as of December, 1973 or an increase of
52.95% from the previous base cost as of June, 1973 of
P3,076.00, with periodic increases to P22,098.50 as of
December, 1979 (or a 618.42% increase) to P25,347.90 as of
June, 1980 (or an increase of 724.05%);chanrobles virtual law
library
For maintenance contracts for elevator service, security
and janitors, P93,398.00 as of December, 1973, an increase
of 2% as of December, 1973 from the previous base cost as of
June, 1973 of P91,416.13 to P218,866.78 as of December,
1979 (or an increase of 139.42%) to P242,427.72 as of June,
1980 (or an increase of 165.19%); andchanrobles virtual law
library
For personnel (maintenance and building administration),
P101,293.90 as of December, 1973 or an increase of 53.26%
from the previous base cost of P66,090.61 as of June, 1973 to
P204,581.84 as of December, 1979 (or an increase of
209.55%) to P211,814.96 as of June, 1980 (or an increase of
220.49%).
5. The appellate court, therefore, misappreciated the facts of
record when it affirmed the court a quo's erroneous finding that
respondent's renewed two-year lease upon its expiration on
March 10, 1975 was deemed impliedly renewed and the rental
pegged at the unconscionable rate of P17.00 per square
meter for the period of over five years that respondent
continued wrongfully detaining the premises. There could be
no such implied renewal or right to ask the courts to fix a
longer term (Articles 1670 and 1687, Civil Code) in the face of
the express stipulation in the basic and fixed five-year contract
that the lease shall not be deemed extended or renewed by
implication beyond the stipulated contractual period for any
cause or reason whatsoever but only by negotiations on or
before 90 days prior to the expiration date and that the rental
provided was subject to review at the end of the second year
and every two years thereafter, commensurate with increases
in operating expenses including the cost of labor, utilities,
essential materials and insurance. Even in the exchange of
letters between the parties which led to the ruling that the
contract had been renewed for a stipulated two-year period
ending on March 10, 1975 as upheld herein, such express
stipulation against any extension or renewal by implication of
the lease had been expressly agreed between the parties. In
such cases, the Court has held that upon expiration of the
original lease in favor of a lessee, "the mere fact that (the
lessee) was willing to pay what he claimed to be a reasonable
rent which was less than that demanded by the lessor-did not
operate in any sense to extend said contract (Teresa Realty,
Inc. vs. Sison, 4 SCRA 958). To hold that there had been such
an implied renewal of the lease simply because respondent
continued wrongfully detaining the premises after the
expiration of the fixed period of the lease on March 10, 1975
and resisted the detainer and ejectment action filed on June
27, 1975 by petitioner against it in the City Court of Manila
would lead to the absurd consequence that all that an
overstaying tenant or occupant would have to do to defeat the
right of the lessor to charge the prevailing rentals specially in
cases like that at bar where the rental rate includes the cost of
electricity, water, maintenance service, elevator, security,
janitors, personnel, cleaning supplies, etc., would be to resist
and delay the ejectment action, continue wrongfully detaining
the premises and depositing the old unconscionable rates and
thereafter voluntarily vacate the premises without having to
pay deficiency rentals and reasonable compensation for the
detained premises at the established prevailing rates. As
already stated, petitioner lessor would thereby in effect have
actually paid for respondent's consumption of electricity, water
and other facilities without reimbursement, resulting in
respondent's unlawfully benefiting to the extent of almost free
occupancy of the entire 9th floor of petitioner's building for the
detainer period of more than five years, while all the other
building tenants of petitioner had accepted and paid the
adjusted increased rentals during the period in question and
paid lessor the reasonable compensation that it was entitled
for the occupancy of its building. It was clear error for the
appellate court to declare the case as having become moot
and academic simply because respondent during the course
of the appeal vacated the premises in June, 1980 (which was
rendered moot only insofar as the ejectment of respondent
from the premises and their return to petitioner were thereby
effected) without resolving the remaining principal issue of the
payment of just and reasonable compensation in accordance
with the prevailing rates duly claimed and wing to
petitioner.chanroblesvirtualawlibrarychanrobles virtual law
library
6. The appellate court's ruling that the stipulated and legal
right on the part of petitioner-lessor to adjust or connect a
rental rate commensurate with increases in operating costs
including electricity and other utilities could not be unilaterally
exercised without acceptance by the respondent was,
therefore, in error. As the Court held in Vda. de Roxas vs.
Court of Appeals, 63 SCRA 302, 311, which is applicable
here, mutatis, mutandis, "it is the owner's prerogative to fix the
rental for which he wishes to lease his property and the
occupant or lessee has the option of accepting the rent as
fixed or negotiating with the owner and in the event of failure
to come to an agreement to leave the property so as not to be
liable for the rental fixed and demanded by the owner. Only
where the rental demanded is clearly exorbitant or
unreasonable would the courts intervene as a matter of
fairness and equity. The burden of proof to show that the
rental demanded is exorbitant and unreasonable rested upon
respondent, and since respondent presented no evidence in
substantiation of his claim other than the original cost to
petitioner of the property, he has manifestly failed to discharge
his burden." chanrobles virtual law library
7. Consequently, respondent's rental liability to petitioner may
be summarized, as follows:
(a) Deficiency rentals for the months of April thru Dec., 1972 at
the adjusted rate of P16.00 per square meter, or a total
deficiency of P16,236.00, as per the portion of the appellate
court's judgment herein
affirmed.chanroblesvirtualawlibrarychanrobles virtual law
library
(b) Monthly rentals for the period from January 1, 1973 to June
10, 1973, at the same adjusted rate of P16.00 per square
meter (see Exh. M, supra, page 5 hereof);chanrobles virtual
law library
(c) Monthly rentals from June 11, 1973 to the expiration on
March 10, 1975 of the two year renewed lease contract at the
rate of P17.00 per square meter (see Exh.
M, supra); andchanrobles virtual law library
(d) Monthly rentals or reasonable compensation for the prayed for by petitioner. Without
occupancy of the detained premises for the period from March costs.chanroblesvirtualawlibrarychanrobles virtual law library
11, 1975 thru June 16, 1980 when respondent finally vacated
the premises, as follows:chanrobles virtual law library IT IS SO ORDERED.

March 11, 1975 - June 30, 1975 at the rate of P30.00 per sq.
m.chanroblesvirtualawlibrary chanrobles virtual law library

July 1, 1975 - June 30, 1976 at the rate of P35.00 per sq.
m.chanroblesvirtualawlibrary chanrobles virtual law library

July 1, 1976 - December 31, 1978 at the rate of P40.00 per sq.
m.chanroblesvirtualawlibrary chanrobles virtual law library

January 1, 1979 - June 15, 1980 at the rate of P42.50 per sq.
m.

(Supra, page 7 hereof)

It is understood that any deposits on account of rentals made

by respondent with the Court of First Instance of Manila during
the pendency of the case and which were ordered to be paid
to petitioner per the Court's resolution of February 14, 1983
shall be credited in favor of
respondent.chanroblesvirtualawlibrarychanrobles virtual law
library

ACCORDINGLY, judgment is hereby rendered setting aside

the appealed judgment which dismissed petitioner's complaint
praying for reasonable compensation for the use of the leased
premises (except as to the last portion thereof ordering
respondent to pay petitioner the sum of P16,236.00 as
deficiency rentals for 1972 with interest at the legal rate from
the filing of the complaint which is herein affirmed) and instead
sentencing respondent to pay petitioner as such compensation
for the use of the premises the amounts at the specified
monthly rental rates per square meter corresponding to the
specific periods stated in the preceding paragraph 7 from
March 11, 1975 thru June 15, 1980, with interest of twelve
(12%) per annum thereon computed from June 16, 1980 as

G.R. No. 161004             April 14, 2008
TECNOGAS* PHILIPPINES MANUFACTURING
CORPORATION, petitioner,
vs.
PHILIPPINE NATIONAL BANK, respondent.
DECISION
QUISUMBING, J.:
For review under Rule 45 are the Decision 1 and the
Resolution2 dated July 24, 2003 and November 5, 2003,
respectively, of the Court of Appeals in CA-G.R. SP No. 73822.
The Court of Appeals reversed the Orders dated October 8,
20013 and September 11, 20024 of the Regional Trial Court (RTC)
of Parañaque City, Branch 274, granting petitioner’s application
for a writ of preliminary injunction in Civil Case No. 01-0330.
The antecedent facts are as follows:
On December 3, 1991, petitioner Tecnogas Philippines
Manufacturing Corporation (Tecnogas) obtained from respondent
Philippine National Bank (PNB) an Omnibus Line of P35 million
and a 5-year Term Loan of P14 million. To secure the loan,
Tecnogas executed a Real Estate Mortgage 5 (REM) over its
parcel of land in Parañaque City, covered by Transfer Certificate
of Title (TCT) No. 1225336 and registered in the Registry of
Deeds of Parañaque City.
The REM authorized PNB to extrajudicially foreclose the
mortgage as the duly constituted attorney-in-fact of Tecnogas 7 in
case Tecnogas defaults on its obligations. It also provided that
the mortgage will stand as a security for any and all other
obligations of Tecnogas to PNB, for whatever kind or nature, and
regardless of whether the obligations had been contracted
before, during or after the constitution of the mortgage. 8
On several occasions, Tecnogas’ loan had been increased,
renewed and restructured upon its requests whenever it could not
pay its obligations on their due dates. Finally, when the loan
matured, PNB sent collection letters 9 to Tecnogas, but the latter
only proposed to pay its obligations by way of dacion en
pago conveying TCT No. 122533. 10 As of April 15, 2001,
petitioner’s loan obligation was P205,025,743.59, inclusive of
interest and penalties.11
On August 16, 2001, PNB filed a petition for extrajudicial
foreclosure of the REM in the RTC of Parañaque City. The
auction sale was set on September 20, 2001.
A day before the auction sale, Tecnogas filed with the Parañaque
City RTC a complaint12 for annulment of extrajudicial foreclosure
sale, with application for the issuance of a temporary restraining
order (TRO) and writ of preliminary injunction docketed as Civil
Case No. 01-0330. On the same date, the RTC issued a TRO
valid for 72 hours.13 On September 21, 2001, the RTC granted
extension of the TRO for 17 days.14
On October 8, 2001, the RTC granted Tecnogas’ application and
issued a writ of preliminary injunction enjoining the extrajudicial
foreclosure sale of the mortgaged property. 15 PNB sought
reconsideration with a motion to dissolve the writ. But its motions
were denied by the court in its Order16 dated September 11, 2002.
On November 29, 2002, PNB filed a petition for certiorari with the
Court of Appeals, seeking the annulment of the October 8, 2001
and September 11, 2002 Orders of the RTC.
On July 24, 2003, the Court of Appeals issued the assailed
decision and ruled that the trial court committed grave abuse of
discretion in enjoining the extrajudicial foreclosure sale. It held
that Tecnogas’ proposal to pay through dacion en pago did not
constitute payment as it was not accepted by PNB. Thus,
injunction was not proper as the extrajudicial foreclosure of the
REM was a necessary consequence of Tecnogas’ default in its
loan obligations. Tecnogas sought reconsideration, but it was
denied. Hence, this petition.
Meanwhile, the auction sale was set on August 17 and 24, 2004.
Tecnogas filed an Urgent Motion for the Issuance of a
TRO/Injunction. The August 17, 2004 auction sale was
postponed to permit Tecnogas to settle its obligations, but it failed
to do so. Thus, the auction sale proceeded on August 24, 2004.
In its memorandum, Tecnogas raises the following issues:
I.
WHETHER OR NOT THE TWO (2) RTC JUDGES A
QUO COMMITTED GRAVE ABUSE OF DISCRETION
WHICH IS CORRECTIBLE BY CERTIORARI UNDER
RULE 65[.]
II.
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED GRAVE ABUSE OF DISCRETION IN PRE-
EMPTING THE MERITS OF THE MAIN CASE[.]
III.
WHETHER OR NOT THERE WERE ERRORS OF
JUDGEMENT COMMITTED BY THE TWO (2) RTC
JUDGES A QUO.
IV.
WHETHER OR NOT THE INSTANT PETITION HAS
BEEN RENDERED MOOT AND ACADEMIC BY THE
FORECLOSURE SALE[.]17
Simply, the issues are: (1) Did the Court of Appeals err in ruling
that Tecnogas was not entitled to an injunctive relief? (2) Did the
foreclosure sale render the petition moot?
Tecnogas admits its liability and that its proposal to pay by way
of dacion en pago was not accepted by PNB. But Tecnogas
avers that its proposal constitutes a valid tender of payment. It
further avers that the Court of Appeals, in issuing the assailed
decision, preempted the merits of the main case in Civil Case No.
01-0330. It finally avers that the foreclosure sale did not render
the petition moot.18
PNB counters that the proposal to pay by way of dacion en
pago did not extinguish Tecnogas’ obligation; thus, the
extrajudicial foreclosure sale was proper. It also contends that the
Court of Appeals did not preempt the resolution of the main case
in Civil Case No. 01-0330, as its findings were necessary to
resolve the issue on injunction. It finally contends that the
foreclosure of the REM rendered the petition moot. 19
Considering the submissions and contentions of the parties, we
are in agreement that the petition lacks merit.
A writ of preliminary injunction may be issued only upon clear
showing by the applicant of the existence of the following: (1) a
right in esse or a clear and unmistakable right to be protected; (2)
a violation of that right; and (3) an urgent and paramount
necessity for the writ to prevent serious damage. In the absence
of a clear legal right, the issuance of the injunctive writ constitutes
grave abuse of discretion.20
Dacion en pago is a special mode of payment whereby the debtor
offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding obligation. The undertaking is really
one of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged
against the debtor’s debt. As such, the essential elements of a
contract of sale, namely, consent, object certain, and cause or
consideration must be present. It is only when the thing offered
as an equivalent is accepted by the creditor that novation takes
place, thereby, totally extinguishing the debt.21
On the first issue, the Court of Appeals did not err in ruling that
Tecnogas has no clear legal right to an injunctive relief because
its proposal to pay by way of dacion en pago did not extinguish
its obligation. Undeniably, Tecnogas’ proposal to pay by way
of dacion en pago was not accepted by PNB. Thus, the
unaccepted proposal neither novates the parties’ mortgage
contract nor suspends its execution as there was no meeting of
the minds between the parties on whether the loan will be
extinguished by way of dacion en pago. Necessarily, upon
Tecnogas’ default in its obligations, the foreclosure of the REM
becomes a matter of right on the part of PNB, for such is the
purpose of requiring security for the loans.
By disallowing Tecnogas’ prayer for injunctive relief, the Court of
Appeals did not preempt the resolution of the main case in Civil
Case No. 01-0330 for annulment of extrajudicial foreclosure sale.
In said case, the trial court still needs to resolve the issues of
whether Tecnogas observed the procedures prescribed by Act
No. 3135,22 as amended, on extrajudicial foreclosure of REM, and
whether it suffered damage as a result of PNB’s acts. These
issues are still unresolved questions which have to be passed
upon by the trial court after hearing the evidence of both parties
so that an adjudication of the rights of the parties can be had. 23

On the second issue, the holding of the extrajudicial foreclosure

sale did not render this case moot. A case becomes moot only
when there is no more actual controversy between the parties, or
when no useful purpose can be served in passing upon the
merits.24 In this case, the decision of the Court of Appeals
annulling the grant of preliminary injunction in favor of Tecnogas
has not yet become final on August 24, 2004. The preliminary
injunction, therefore, issued by the trial court remains valid until
the decision of the Court of Appeals annulling the same attains
finality, and violation thereof constitutes indirect contempt which,
however, requires either a formal charge or a verified petition. 25

WHEREFORE, the instant petition is DENIED for lack of merit.

The assailed Decision and Resolution dated July 24, 2003 and
November 5, 2003, respectively, of the Court of Appeals in CA-
G.R. SP No. 73822 are hereby AFFIRMED. Costs against
petitioner.

SO ORDERED.

G.R. No. 148541             November 11, 2004
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
BONITA O. PEREZ and ALFREDO PEREZ, respondents.
CALLEJO, SR., J.:
This is a petition for review on certiorari seeking to reverse and
set aside the Decision of the Court of Appeals (CA) dated
1 
February 28, 2001, and to reinstate the Decision of the Regional
Trial Court (RTC), Makati City, Branch 145, in Civil Case No.
12057, as modified by trial court’s Order dated June 11, 1993.
The Antecedents
On April 28, 1978, petitioner Development Bank of the Philippines
(DBP) sent a letter to respondent Bonita Perez, informing the
latter of the approval of an industrial loan amounting to
P214,000.00 for the acquisition of machinery and equipment and
for working capital, and an additional industrial loan amounting to
P21,000.00 to cover unforeseen price escalation. 2
On May 18, 1978, the respondents were made to sign four
promissory notes covering the total amount of the loan,
P235,000.00. Three promissory notes for P24,000.00,
P48,000.00, and P142,000.00, respectively, were executed,
totaling P214,000.00. These promissory notes were all due on
August 31, 1988. A fourth promissory note due on September 19,
3 
1988 was, likewise, executed to cover the additional loan of
P21,000.00. The promissory notes were to be paid in equal
4 
quarterly amortizations and were secured by a mortgage contract
covering real and personal properties.5
On September 6, 1978, the petitioner sent a letter to the 6 
respondents informing them of the terms for the payment of the
P214,000.00 industrial loan. On November 8, 1978, the petitioner
sent another letter to the respondents informing them about the
7 
terms and conditions of their additional P21,000.00 industrial
loan.
Due to the respondents' failure to comply with their amortization
payments, the petitioner decided to foreclose the mortgages that
secured the obligation. However, in a Letter dated October 7,
8 
1981, Mrs. Perez requested for a restructuring of their account
due to difficulties they were encountering in collecting
receivables.
On April 1, 1982, the petitioner informed the respondents that it
had approved the restructuring of their accounts. The loan was
9 
restructured, and on May 6, 1982, the respondents signed
another promissory note in the amount of P231,000.00 at
eighteen percent (18%) interest per annum, payable quarterly at
P12,553.27, over a period of ten years. The promissory note
stated in part:
PROMISSORY NOTE
P231,000.00 Makati, Metro Manila, May 6, 1982
On or before May 7, 1992, for value received, I/we, jointly
and severally, promise to pay the DEVELOPMENT BANK
OF THE PHILIPPINES, or order at its office at Makati,
Metro Manila, Philippines, the sum of TWO HUNDRED
THIRTY-ONE THOUSAND PESOS (P231,000.00),
Philippine Currency, with interest at the rate of
EIGHTEEN per centum (18%) per annum. Before the
date of maturity, we hereby bind ourselves to make partial
payments, the first payment to be made on August 7,
1982 and the subsequent payments on the 7th day of
every three (3) months thereafter, and each of all such
payments shall be TWELVE THOUSAND FIVE
HUNDRED FIFTY-THREE and 27/100 PESOS
(P12,553.27) which shall cover amortizations on the
principal and interest at the above-mentioned rate.
This loan shall be subject to penalty charges and
additional interest as follows:
On loan with amortizations or portions thereof in arrears
irrespective of age.
Additional interest at the basic loan interest rate per
annum computed on total amortizations past due
irrespective of age.
PLUS
Penalty charge of 8% per annum computed on total
amortizations in arrears irrespective of age.
The DBP further reserves the right to increase, with
notice to the mortgagor, the rate of interest on the loan as
well as all other fees and charges on loans and advances
pursuant to such policy as it may adopt from time to time
during the period of the loan; Provided that the rate of
interest on the loan shall be reduced in the event that the
applicable maximum rate of interest is reduced by law or
by the Monetary Board; Provided, further, that the
adjustment in the rate of interest shall take effect on or
after the effectivity of the increase or decrease in the
maximum rate of interest.
In case of non-payment of the amount of this note or any
portion of it on demand, when due, or any other amount
or amounts due on account of this note, the entire
obligation shall become due and demandable, and if, for
the enforcement of the payment thereof, the
DEVELOPMENT BANK OF THE PHILIPPINES, is
constrained to entrust the case to its attorneys, I/we,
jointly and severally, bind myself/ourselves to pay for
attorney's fees, as provided for in the mortgage contract,
in addition to the legal fees and other incidental
expenses. In the event of foreclosure of the mortgage
securing this note, I/we further bind myself/ourselves,
jointly and severally, to pay the deficiency , if any.
SIGNED IN THE PRESENCE OF:
illegible SGD. SGD.
illegible BONITA ANG ORDIALES ALFREDO PEREZ
(Bonita O. Perez)
This Promissory Note supersedes the Promissory Note
dated May 18, 1978 and stands secured by a mortgage
contract executed by the above parties on the same date,
subject to the following terms and conditions.10
As stated in the promissory note, the first amortization was due
on August 7, 1982, and the succeeding amortizations, every
quarter thereafter. However, the respondents made their first
payment amounting to P15,000.00 only on April 20, 1983 or after
11 
the lapse of three quarters. Their second payment, which should
12 
have been paid on November 7, 1982, was made on December
2, 1983 and only in the amount of P5,000.00. The third payment
was then made at the time when the ninth quarterly amortization
should have been paid. After this, the respondents completely
stopped paying. The total payments they made after the
13 
restructure of the loan amounted to P35,000.00 only. 14
This failure to meet the quarterly amortization of the loan
prompted the petitioner to institute foreclosure proceedings on
the mortgages. The sale of the properties covered by the
mortgage contract was scheduled on October 30, 1985. 15
On October 24, 1985, the respondents filed a Complaint for the 16 
nullification of the new promissory note with damages and
preliminary prohibitory injunction. The complaint alleged that the
petitioner restructured the respondents’ obligation in bad faith by
requiring them to sign another promissory note for P231,000.00
without considering the total payments made on the loan
amounting to P224,383.43. The respondents claimed that the
petitioner failed to explain to them how it had arrived at the
amount of the restructured loan. The respondents also alleged
that the petitioner failed to furnish them with a disclosure
statement as required by Rep. Act No. 3765, also known as the
Truth in Lending Act, prior to the consummation of the
transaction. They averred that the interest imposed on the said
transaction was usurious. They, likewise, alleged that the new
promissory note constituted a novation of the previous
obligations.
In its answer, the petitioner denied the allegations and averred
that the claim for violation of the disclosure requirement under
Rep. Act No. 3765 was not within the jurisdiction of the RTC and
was barred by prescription. By way of compulsory counterclaim,
the petitioner prayed that the respondents be ordered to pay their
obligation, plus exemplary damages and costs. During trial, the
17 
petitioner presented a Statement of Account dated September
14, 1990, showing that the total amount of the obligation as of
September 15, 1990 was P1,384,465.71. 18
On October 25, 1985, the trial court ordered the petitioner to
desist from holding the public auction of the respondents’
properties. The trial court issued an Order on April 25, 1986 to
maintain the status quo.
In its Decision dated May 10, 1993, the court a quo upheld the
validity of the new promissory note and ordered the respondents
to pay their obligation. The dispositive portion reads:
WHEREFORE, judgment is rendered dismissing the
complaint for failure of plaintiffs to prove their causes of
action by clear preponderance of evidence, with costs
against them.
The order issued on April 25, 1986, ordering the
defendant Bank to maintain the status quo and
suspending the auction sale, is hereby set aside.
Defendant Bank's counterclaim is hereby granted, and
plaintiffs are hereby ordered to pay the former the sum of
One Million Three Hundred Eighty-four Thousand Four
Hundred Sixty-five Pesos and Seventy-one Centavos
(P1,384,465.71), representing the latter's obligation as of
September 15, 1990, with interest thereon at the legal
rate of twelve (12%) percent per annum pursuant to Sec.
2 of CB Circular No. 905; (Sagrador vs. Valderrama,
supra), from September 15, 1990 up to full payment of
said sum. The other counterclaim for exemplary damages
is hereby dismissed.
SO ORDERED. 19
Upon the petitioner’s motion for reconsideration, the trial court
issued an order amending the dispositive portion of its decision
20  ballooned to P1,384,465.71 as of September 15, 1990.
by changing the rate of interest to eighteen percent (18%) per
annum.
Dissatisfied, the respondents appealed to the CA. On February
28, 2001, the CA rendered a decision, the dispositive portion of
which reads:
WHEREFORE, premises considered, the Decision dated
May 10, 1993, docketed as Civil Case No. 12057 by the
Regional Trial Court of Makati, Branch 145, is hereby
MODIFIED in the sense that the amount of
P1,384,465.71 as of September 1990 is SET ASIDE and
the formula mandated by Central Bank Circular No. 158
should be applied by the trial court in computing the total
obligation and liability of appellants. All the other parts of
the assailed decision are AFFIRMED in toto.
SO ORDERED. 21
The CA found that the respondents did not voluntarily sign the
restructured promissory note as they were only forced to sign it
for fear of having their mortgaged property foreclosed by the
bank. It ruled that the restructured promissory note which was
prepared by the petitioner alone was a contract of adhesion
which violates the rule on mutuality of contracts.
Nonetheless, the CA held that the trial court should have used
the formula prescribed by paragraph 3, Sec. 2(i), Central Bank
22 
(CB) Circular No. 158, Rules and Regulations Implementing Rep.
Act No. 3765, in computing the total obligation of the respondents
considering that Sec. 3(a) thereof provides that it applies to any
loans, mortgages, deeds of trust, advances and discounts. The 23 
CA also held that since the loan is secured by a mortgage
contract, the eighteen percent (18%) interest rate was excessive
and usurious under CB Circular No. 817. According to the
appellate court, CB Circular No. 905, series of 1982, simply
suspended the effectivity of the Usury Law; it did not authorize
either party to unilaterally raise the interest without the other
party's consent. Finally, the CA concluded that there was neither
24 
basis nor explanation as to how the measly amount of
P214,000.00 in 1972, restructured to P231,000.00 in 1982,
25
Both parties moved to reconsider the said decision. The CA
denied the said motions in a Resolution dated May 31, 2001.
The Present Petition
The petitioner raises the following grounds in the instant petition:
1. Whether or not the Honorable Court of Appeals had
decided this instant case in a way not in accord with the
spirit and intent of Republic Act No. 3765, otherwise
known as the Truth in Lending Act, when it declared that
"the trial court should have applied the formula provided
by Central Bank Circular No. 158, series of 1963, as
provided above to arrive at the total obligations of
appellants less the amounts paid by appellants as
evidenced by the vouchers and receipts attached to the
records;"
2. Whether or not the conclusion of the Honorable Court
of Appeals stating that the private respondents did not
voluntarily sign the restructured promissory note is
entirely grounded on speculations and/or surmises or
conjectures;
3. Whether or not the Honorable Court of Appeals failed
to notice certain relevant facts which if it had been
considered would change its finding that the restructured
promissory note was prepared by the appellee Bank
alone;
4. Whether or not the Honorable Court of Appeals failed
to notice certain relevant facts which if it had been
considered would change its finding that the amount of
P1,384,465.71 as of September 15, 1990 has neither
basis at all nor any explanation how this amount came to
existence;
5. Whether or not the conclusion of the Honorable Court
of Appeals stating that petitioner DBP failed to follow
Central Bank Circular No. 158 is grounded entirely on
speculation and surmises or conjecture. And whether or
not this finding is contradicted by another finding of the
same court; and
6. Whether or not this Honorable Court of Appeals
committed grave abuse of discretion when it ruled that
pursuant to Central Bank Circular No. 817 the 18%
interest per annum agreed upon by the parties in the
restructured promissory note is usurious, and that the
same should be reduced to 12% being the legal rate of
interest.
26
In a nutshell, the issues in this case are as follows: (1) whether
the new promissory note is voidable for not having been
voluntarily signed by the respondents and for being a contract of
adhesion; (2) whether the interest rate agreed upon by the parties
in the new promissory note is usurious; (3) whether Central Bank
Circular No. 158 should be applied in computing the total
obligations of the respondents; and (4) the amount of the total
obligation of the respondents.
The petition is partly meritorious.
Anent the first issue, the petitioner points out that the
respondents admitted to having signed the new promissory note.
It avers that there was no evidence on record showing that the
signing of the new promissory note was attended by mistake,
violence, intimidation, undue influence, or fraud. The petitioner
posits that the respondents’ claim of having been forced to sign
the restructured note for fear of having their mortgaged property
foreclosed cannot serve as legal basis to conclude that the
respondents did not voluntarily sign the new promissory
note. The petitioner maintains that a perusal of the evidence
27 
would reveal that the new promissory note was the result of the
mutual agreement of the parties and, as such, is not a contract of
adhesion. 28
On the other hand, the respondents argue that this is a question
of fact which is not subject to review by this Court. According to
the respondents, the fact that the restructured loan proved
disadvantageous to them belies the petitioner’s claim that they
voluntarily signed the new promissory note.
We agree with the petitioner.
In petitions for review on certiorari as a mode of appeal under
Rule 45 of the Rules of Court, the petitioner can raise only
questions of law – the Supreme Court is not the proper venue to
consider a factual issue as it is not a trier of facts. A departure
29 
from the general rule may be warranted where the findings of fact
of the Court of Appeals are contrary to the findings and
conclusions of the trial court, or when the same is unsupported by
the evidence on record. 30
In the instant case, there was no evidence showing that the
respondents signed the new promissory note through mistake,
violence, intimidation, undue influence, or fraud. The respondents
merely alleged that they were forced to restructure their loan for
fear of having their mortgaged properties foreclosed. However, it
is axiomatic that this would not amount to vitiated consent. The
last paragraph of Article 1335 of the New Civil Code specifically
states that a threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate consent.
Foreclosure of mortgaged properties in case of default in
payment of a debtor is a legal remedy afforded by law to a
creditor. Hence, a threat to foreclose the mortgage would not, per
se, vitiate consent.
The CA noted that the petitioner prepared the new promissory
note on its own and that the only participation of the respondents
was to sign the same. The CA concluded, therefore, that the new
promissory note was a contract of adhesion.
A contract of adhesion is so-called because its terms are
prepared by only one party while the other party merely affixes
his signature signifying his adhesion thereto. While we accede to
31 
the appellate court’s conclusion that the new promissory note
was in the nature of a contract of adhesion, we cannot fathom
how this can further the respondents’ case. In discussing the
consequences of a contract of adhesion, we held in Rizal
Commercial Banking Corporation v. Court of Appeals: 32
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. 33
On the second issue, the CA held that under CB Circular No.
817, if the loan is secured by a registered real estate, the interest
of eighteen percent (18%) is usurious. The petitioner, however,
argues that usury has become legally inexistent with the
promulgation of CB Circular No. 905. It contends that the interest
34 
rate should be eighteen percent (18%), the interest rate they
agreed upon. For their part, the respondents argue that the
35 
Central Bank engaged in self-legislation in enacting CB Circular
No. 905.
We agree with the ruling of the CA. It is elementary that the laws
in force at the time the contract was made generally govern the
effectivity of its provision. We note that the new promissory note
36 
was executed on May 6, 1982, prior to the effectivity of CB
Circular No. 905 on January 1, 1983. At that time, The Usury
Law, Act No. 2655, as amended by Presidential Decree No. 116,
was still in force and effect.
Under the Usury Law, no person shall receive a rate of interest,
including commissions, premiums, fines and penalties, higher
than twelve percent (12%) per annum or the maximum rate
prescribed by the Monetary Board for a loan secured by a
mortgage upon real estate the title to which is duly registered. 37
In this case, by specific provision in the new promissory note, the
restructured loan continued to be secured by the same mortgage
contract executed on May 18, 1978 which covered real and
personal properties of the respondents. We, therefore, find the
eighteen percent (18%) interest rate plus the additional interest
and penalty charges of eighteen percent (18%) and eight percent
(8%), respectively, to be highly usurious.
In usurious loans, the entire obligation does not become void
because of an agreement for usurious interest; the unpaid
principal debt still stands and remains valid, but the stipulation as
to the usurious interest is void. Consequently, the debt is to be
considered without stipulation as to the interest. In the absence
38 
of an express stipulation as to the rate of interest, the legal rate at
twelve percent (12%) per annum shall be imposed. 39
Neither is the contention of the respondents that the Central Bank
engaged in self-legislation correct. As we held in First Metro
Investment Corporation v. Este Del Sol Mountain Reserve, Inc.:  40
… Central Bank Circular No. 905 did not repeal nor in any
way amend the Usury Law but simply suspended the
latter's effectivity. The illegality of usury is wholly the
creature of legislation. A Central Bank Circular cannot
repeal a law. Only a law can repeal another law. Thus,
retroactive application of a Central Bank Circular cannot,
and should not, be presumed. 41
On the third issue, the petitioner argues that CB Circular No. 158
does not prescribe a formula in computing a debtor's monetary
obligation, but merely provides for the formula in computing the
simple annual rate. It contends that the amount of the debtor's
obligation must be computed in accordance with the interest rate,
charges, and manner of computation agreed upon by the
parties.42
Moreover, considering our previous conclusion that the interest
rates prescribed under the new promissory note are usurious, the
statement of account presented by the petitioner is no longer
pertinent. It must be stressed that such statement of account was
arrived at based on the usurious interest rates. Hence, the total
amount of the obligation must necessarily be recomputed.
IN LIGHT OF ALL THE FOREGOING, the assailed Decision
dated February 28, 2001 of the Court of Appeals and Order dated
June 11, 1993 of the Regional Trial Court, Makati City, Branch
145, are AFFIRMED WITH MODIFICATION. The case is hereby
REMANDED to the trial court for determination of the total
amount of the respondents' obligation according to the reduced
interest rate of twelve percent (12%) per annum.
SO ORDERED.

We agree. The total obligation of the respondents must be

computed according to the terms and conditions agreed upon.
The formula provided under paragraph 3, Sec. 2(i), CB Circular
No. 158 cannot be used in computing the total obligation of the
respondents because it merely applies to the computation of the
simple annual rate. Simple annual rate is the uniform percentage
which represents the ratio, on an annual basis, between the
finance charges and the amount to be financed. It is one of the
43 

items required to be disclosed under the Truth in Lending Act

pursuant to the State’s policy to protect its citizens from lack of
awareness of the true cost of credit. 44

Finally, we find that the records are insufficient to enable us to

determine the total amount of the respondents’ obligation. It is not
even clear how much the respondents have already paid on the
restructured loans and when such payments were made. The
receipts presented in evidence by the respondents only showed
that they paid P15,000.00 on April 20, 1983 and P5,000.00 on
December 2, 1983. On the other hand, Mr. Roberto Balarao, who
45 

is assigned to the Traffic and Processing Department of the

petitioner, testified that a third payment was made, but failed to
state the amount. Another witness, Carmen Chamen, an account
46 

officer of the petitioner, testified that after the restructuring of the

account, the total payment made was P35,000.00. 47